McDermott International, Inc. (NYSE: MDR) (“McDermott” or the
“Company”) today reported a net loss of $149.4 million, or $0.63
per fully diluted share, for the quarter ended June 30, 2013. These
results compared to income of $52.7 million, or $0.22 per fully
diluted share, in the corresponding period of 2012. Weighted
average common shares outstanding on a fully diluted basis were
approximately 236.2 million and 237.5 million in the quarters ended
June 30, 2013 and 2012, respectively.
McDermott’s revenues were $647.3 million for the 2013 second
quarter compared to $889.2 million in the corresponding period of
2012. The year-over-year decrease was attributable to the Middle
East and Asia Pacific segments, primarily due to the completion of
several significant projects that were active in the 2012 second
quarter. The decrease from these segments was partially offset by
higher revenues in the Atlantic segment due to higher fabrication
activity in Mexico. The Company’s operating loss in the 2013 second
quarter was $149.5 million compared to operating income of $79.4
million in the 2012 second quarter.
Project Challenges
Additional project-related charges on two projects discussed
last quarter resulted in operating losses in the Asia Pacific and
Middle East segments. In the Asia Pacific segment, the Company
increased its loss estimates by $62.0 million due to delays on a
deepwater pipelay project in Malaysia. Late deliveries from
suppliers and a prolonged reconfiguration of one of the Company’s
marine vessels pushed the project’s installation plan into the
monsoon season. As a result, the Company now plans to execute the
offshore work in two separate campaigns in 2013 and 2014, to
utilize additional third-party support vessels, and has accrued
liquidated damages. The Company expects to complete the project in
the second quarter 2014.
In addition, the Middle East segment’s results were impacted by
a $38.0 million charge to one project in Saudi Arabia. The charge
reflects an estimated increase in the Company’s vessel mobilization
costs to complete an extended offshore hookup campaign. Inclusive
of the second quarter charges, the project remains in an overall
profitable position and is expected to be completed by mid-2014.
Two of the other loss projects reported last quarter have now been
completed.
Management Actions
“As a management team, we are taking immediate and decisive
actions to correct the weakness we have experienced in our project
bidding and execution,” said Stephen M. Johnson, Chairman of the
Board, President and Chief Executive Officer of McDermott. “We are
driving a more disciplined culture within the Company, and we
expect our operating leadership change announced separately today
will add focus and urgency to our intentions. Although these
problematic projects are expected to require some time to fully
work through the system, the initiatives listed below reinforce our
commitment to delivering an adequate return on our investors’
capital.”
Atlantic Restructuring
With the goal of substantially consolidating the Atlantic
segment, the Company commenced the restructuring of its Atlantic
operations in the second quarter 2013. The restructuring includes
personnel reductions in Houston and New Orleans as well as a
relocation of Morgan City’s fabrication and marine activities to
Altamira, Mexico, following the completion of Morgan City’s
existing projects in backlog. Restructuring costs are expected to
range between $45 million to $60 million and include severance,
asset impairment and relocation expenses, and future Morgan City
lease costs. Approximately $15.5 million of these restructuring
costs were incurred during the 2013 second quarter, and the
majority is expected to be recognized over the next four
quarters.
Project Bidding and Execution
The Company is employing a multi-faceted approach to improve
overall bidding and execution. First, the Company has accelerated
its ongoing initiative to overhaul the leadership of its project
delivery teams by hiring experienced project leaders and
project-focused control and risk management personnel from outside
McDermott. Second, the Company has initiated project-level
incentive plans that more directly align individual compensation
with project performance. Third, the Company is reevaluating risk
identification and mitigation coverage to better acknowledge the
Company’s inherent risks when bidding.
Establish Subsea Division
In order to improve the Company’s project bidding and execution
capabilities in its newer subsea end-market, the Company has
established a separate subsea division, led by a seasoned industry
team recruited primarily from outside McDermott. The team is to
have oversight responsibility for the Company’s subsea assets and
existing subsea-related projects and to assist the Company in
identifying, mitigating and pricing project execution risks. While
this division is still maturing, the Company believes it to be a
source of future profitable growth and an area in which McDermott
can solidify a meaningful market presence.
Geographic Market Focus
McDermott is refocusing on geographic markets in which it has
the scale, expertise and relationships to secure a competitive
advantage. In the 2013 second quarter, the Company launched a
geographic market focus initiative intended to discontinue bidding
activities where it cannot forecast sufficiently attractive return
potential. Initially, the Company has decided to exit the Morgan
City facility and a joint venture, and it plans to continue its
review of target markets.
Contract Backlog Summary
At June 30, 2013, the Company’s backlog was approximately $5.1
billion, compared to $5.3 billion at March 31, 2013. Of the June
30, 2013 backlog, approximately $375.1 million was derived from
three projects that are currently in a loss position, of which 98
percent relate to the project in the Asia Pacific segment and a
five-year charter in Brazil. In addition, the backlog includes
approximately $211.9 million for one project under deferred profit
recognition.
Balance Sheet Summary
As of June 30, 2013, McDermott reported total assets of
approximately $3.2 billion. Included in this amount was $473.2
million of cash and cash equivalents, restricted cash and
investments. Net working capital, calculated as current assets less
current liabilities, was $349.8 million. In addition, total equity
was $1.8 billion, or approximately 55% of total assets, with total
debt of $95.6 million.
OTHER INFORMATION
Conference Call
McDermott has scheduled a conference call and webcast related to
its second quarter 2013 results on Tuesday, August 6, 2013, at 9:00
a.m. U.S. Central Daylight Time. Interested parties may listen over
the Internet and download supplemental slides through a link posted
in the Investor Relations section of the Company's website. The
replay will also be available on the Company's website following
the end of the live call.
About the Company
McDermott is a leading engineering, procurement, construction
and installation (“EPCI”) company focused on executing complex
offshore oil and gas projects worldwide. Providing fully integrated
EPCI services for upstream field developments, the Company delivers
fixed and floating production facilities, pipelines and subsea
systems from concept to commissioning. McDermott’s customers
include national, major integrated and other energy companies.
Operating in approximately 20 countries across the Atlantic, Middle
East and Asia Pacific, the Company’s integrated resources include
approximately 14,000 employees and a diversified fleet of marine
vessels, fabrication facilities and engineering offices. McDermott
has served the energy industry since 1923. To learn more, please
visit McDermott’s website on the Internet at www.mcdermott.com.
Forward-Looking
Statements
In accordance with the Safe Harbor provisions of the Private
Securities Litigation Reform Act of 1995, McDermott cautions that
statements in this press release, which are forward-looking and
provide other than historical information, involve risks and
uncertainties that may impact McDermott's actual results of
operations. These forward-looking statements include statements
about backlog, to the extent backlog may be viewed as an indicator
of future revenues, expectations on the timing of the execution and
completion of existing projects, expectations relating to project
profitability, expectations relating to operating leadership
changes, the expected costs associated with the Atlantic
restructuring, including the expected range of and timing for the
recognition of such costs, McDermott’s belief that the Subsea
Division will be a source of future profitable growth and an area
in which McDermott can solidify a meaningful market presence, and
McDermott’s renewed focus on certain markets. Although we believe
that the expectations reflected in those forward-looking statements
are reasonable, we can give no assurance that those expectations
will prove to have been correct. Those statements are made by using
various underlying assumptions and are subject to numerous
uncertainties and risks, including adverse changes in the markets
in which we operate or credit markets, our inability to
successfully execute on contracts in backlog, changes in project
design or schedules, the availability of qualified personnel,
changes in the scope or timing of contracts, and contract
cancellations, change orders and other modifications. If one or
more of these risks materialize, or if underlying assumptions prove
incorrect, actual results may vary materially from those expected.
For a more complete discussion of these and other risk factors,
please see McDermott's annual and quarterly filings with the
Securities and Exchange Commission, including its annual report on
Form 10-K for the year ended December 31, 2012 and subsequent
quarterly reports on Form 10-Q. This news release reflects
management's views as of the date hereof. Except to the extent
required by applicable law, McDermott undertakes no obligation to
update or revise any forward-looking statement.
McDERMOTT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF
INCOME
Three Months EndedJune 30, Six Months
EndedJune 30, 2013 2012 2013
2012 (In thousands, except share and per share
amounts) Revenues $ 647,250 $ 889,248 $
1,454,738 $ 1,616,926 Costs and Expenses: Cost of
operations 723,259 759,704 1,436,073 1,357,138 Selling, general and
administrative expenses 52,617 47,482 104,843 94,093 (Gain) loss on
asset disposals (13 ) 29 (14,729 ) (197 ) Restructuring expenses
15,462
-
15,462
-
Total costs and expenses 791,325
807,215 1,541,649 1,451,034
Equity in Loss of Unconsolidated Affiliates (5,461 )
(2,651 ) (9,592 ) (6,334 ) Operating Income (Loss)
(149,536 ) 79,382 (96,503 )
159,558 Other Income (Expense): Interest income, net 428
1,585 770 3,219 Gain on foreign currency, net 8,904 1,256 6,378
10,697 Other income (expense), net (31 ) 51
751 (530 ) Total other income (expense)
9,301 2,892 7,899 13,386
Income (loss) from continuing operations before provision
for income taxes and noncontrolling interests (140,235 )
82,274 (88,604 ) 172,944
Provision for Income Taxes 5,902 28,345
33,215 57,088 Income (loss) from
continuing operations before noncontrolling interests
(146,137 ) 53,929 (121,819 ) 115,856
Total income from discontinued operations, net of tax
-
-
-
3,497 Net Income (Loss) (146,137 )
53,929 (121,819 ) 119,353
Less: Net Income Attributable to
Noncontrolling Interests
3,286 1,190 7,051
3,856 Net Income (Loss) Attributable to McDermott
International, Inc. (149,423 ) 52,739
(128,870 ) 115,497
McDERMOTT INTERNATIONAL, INC.
EARNINGS PER SHARE COMPUTATION
Three Months EndedJune 30, Six Months
Ended
June 30,
2013 2012 2013 2012 (In thousands,
except share and per share amounts)
Income (loss) from continuing operations
less noncontrollinginterests
$ (149,423 ) $ 52,739 $ (128,870 ) $ 112,000 Total income from
discontinued operations, net of tax
-
-
-
3,497 Net income (loss)
attributable to McDermott International,
Inc.
$ (149,423 ) $ 52,739 $ (128,870 ) $ 115,497 Weighted
average common shares (basic) 236,199,438 235,681,213 236,070,311
235,444,733 Effect of dilutive securities: Stock options,
restricted stock and restricted stock units
-
1,779,552
-
1,951,964 Adjusted weighted average common shares and
assumed exercises of
stock options and vesting of stock awards
(diluted)
236,199,438 237,460,765 236,070,311
237,396,697
Basic earnings per
share: Income (loss) from continuing operations less
noncontrolling interests (0.63 ) 0.22 (0.55 ) 0.48 Income from
discontinued operations, net of tax
-
-
-
0.01 Net income (loss) attributable to McDermott International,
Inc. (0.63 ) 0.22 (0.55 ) 0.49
Diluted earnings per
share: Income (loss) from continuing operations less
noncontrolling interests (0.63 ) 0.22 (0.55 ) 0.47 Income from
discontinued operations, net of tax
-
-
-
0.01 Net income (loss) attributable to McDermott International,
Inc. (0.63 ) 0.22 (0.55 ) 0.49
SUPPLEMENTARY DATA
Three Months EndedJune 30,
Six Months Ended
June 30,
2013 2012 2013
2012 (In thousands) Depreciation & amortization
expense $ 19,096 $ 22,598 $ 39,318 $ 45,874 Drydock amortization $
4,381 $ 6,495 $ 9,931 $ 13,607 Capital expenditures $ 106,826 $
86,910 $ 144,475 $ 131,661 Backlog $ 5,090,868 $ 5,746,699 $
5,090,868 $ 5,746,699
McDERMOTT INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
June 30,2013
December 31,2012
(In thousands, except share and per
share amounts)
Assets Current Assets: Cash and cash equivalents $ 427,711 $
640,147 Restricted cash and cash equivalents 24,486 18,116
Accounts receivable--trade, net
318,725 428,800
Accounts receivable--other
65,627 75,461 Contracts in progress 623,930 560,154 Deferred income
taxes 7,722 9,765 Assets held for sale 1,396 2,679 Other current
assets 39,716 54,667 Total Current Assets 1,509,313
1,789,789 Property, Plant and Equipment 2,231,319 2,115,176
Less accumulated depreciation (845,362)
(833,385)
Net Property, Plant and Equipment 1,385,957 1,281,791
Investments 21,044 26,750 Goodwill 41,202 41,202 Investments in
Unconsolidated Affiliates 28,675 37,435 Assets Held for Sale 12,243
26,758 Other Assets 197,513 129,902 Total Assets $ 3,195,947
$ 3,333,627
Liabilities and Equity Current
Liabilities: Notes payable and current maturities of long-term debt
$ 42,531 $ 14,146 Accounts payable 434,783 400,007 Accrued
liabilities 328,168 369,418 Advance billings on contracts 301,426
241,696 Deferred income taxes 15,526 10,758 Income taxes payable
37,112 76,986 Total Current Liabilities 1,159,546 1,113,011
Long-Term Debt 53,104 88,562 Self-Insurance 25,413 22,641
Pension Liability 24,350 25,069 Other Liabilities 167,635 132,239
Commitments and Contingencies Stockholders’ Equity:
Common stock, par value $1.00 per share,
authorized 400,000,000 shares; issued 243,928,572 and
243,442,156 shares at June 30, 2013 and
December 31, 2012, respectively
243,929 243,442 Capital in excess of par value 1,400,386 1,391,271
Retained earnings 316,886 445,756
Treasury stock, at cost, 7,364,866 and
7,574,903 shares at June 30, 2013 and December 31, 2012,
respectively
(99,184)
(98,725)
Accumulated other comprehensive loss
(156,673)
(94,413)
Stockholders’ Equity--McDermott
International, Inc.
1,705,344 1,887,331 Noncontrolling Interests 60,555 64,774 Total
Equity 1,765,899 1,952,105 Total Liabilities and Equity $ 3,195,947
$ 3,333,627
McDERMOTT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH
FLOWS
Six Months EndedJune 30, 2013
2012 (In thousands) Cash Flows From Operating
Activities: Net income (loss) $ (121,819 ) $ 119,353 Less:
Income from discontinued operations, net of tax
-
3,497 Income (loss) from continuing
operations $ (121,819 ) $ 115,856 Non-cash items included in net
income: Depreciation and amortization 39,318 45,874 Drydock
amortization 9,931 13,607 Equity in (income) loss of unconsolidated
affiliates 9,592 6,334
Gain on asset disposals and
impairments--net
(14,729 ) (197 ) Restructuring charges 12,104
-
Provision (benefit) from deferred taxes (4,314 ) 1,194 Other
non-cash items 9,790 10,858 Changes in assets and liabilities, net
of effects from dispositions: Accounts receivable 117,307 36,237
Net contracts in progress and advance billings on contracts (4,051
) (150,712 ) Accounts payable 24,413 4,074 Accrued and other
current liabilities (23,299 ) 10,145 Pension liability and accrued
postretirement and employee benefits (25,973 ) 15,426 Derivative
instruments and hedging activities (71,013 ) (24,204 ) Other assets
and liabilities (53,739 ) 6,695
Net Cash Provided By (Used In) Operating
Activities--Continuing Operations
(96,482 ) 91,187
Cash Flows From
Investing Activities: Purchases of property, plant and
equipment (144,475 ) (131,661 ) Increase in restricted cash and
cash equivalents (6,370 ) (2,062 ) Purchases of available-for-sale
securities (8,637 ) (66,266 ) Sales and maturities of
available-for-sale securities 34,031 125,895 Proceeds from the sale
and disposal of assets 35,672 221 Other investing activities, net
(6,939 ) (2,292 )
Net Cash Used In Investing
Activities--Continuing Operations
(96,718 ) (76,165 )
Net Cash Provided By Investing
Activities--Discontinued Operations
-
60,671 Total Cash Used In Investing
Activities (96,718 ) (15,494 )
Cash Flows
From Financing Activities: Increase in debt
-
19,033 Payment of debt (7,073 ) (2,988 ) Noncontrolling interests
distributions and other (11,243 ) (15,726 ) Other financing
activities, net (1,038 ) (2,638 )
Net Cash Used In Financing
Activities--Continuing Operations
(19,354 ) (2,319 ) Effects of exchange rate
changes on cash and cash equivalents 118 (168
) Net increase (decrease) in cash and cash equivalents
(212,436 ) 73,206 Cash and cash equivalents at beginning of period
640,147 570,854
Cash and cash equivalents at end of
period--Continuing Operations
$ 427,711 $ 644,060
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