Exhibit 99.1
McDermott Reports First Quarter 2004 Results;
Net Loss of $10.9 million, $0.17 per diluted share,
includes B&W settlement revaluation benefit of $2.7 million after tax
NEW ORLEANS--(BUSINESS WIRE)--May 10, 2004--McDermott
International Inc. (NYSE:MDR) ("McDermott" or the "Company") today
reported a net loss from operations of $10.9 million, or $0.17 per
diluted share, for the first quarter of 2004, compared to income from
continuing operations of $29.6 million, or $0.46 per diluted share,
for the corresponding period in 2003. Net income for the first quarter
of 2003 was $35.5 million, or $0.55 per diluted share, which included
income from discontinued operations of $2.2 million and the cumulative
effect of an accounting change of $3.7 million. Additionally, in 2003,
both income from continuing operations and net income included a
benefit of $23.6 million, after tax, in the quarterly adjustment
related to the estimated costs of The Babcock & Wilcox Company ("B&W")
Chapter 11 settlement compared to only $2.7 million in 2004. Weighted
average common shares outstanding on a fully diluted basis were
approximately 65.3 million and 65.1 million for March 31, 2004 and
March 31, 2003, respectively.
Revenues in the first quarter of 2004 were $499.3 million,
compared to $512.7 million in the corresponding period in 2003. The
change in revenues is due to reduced activity at J. Ray McDermott,
S.A. and its subsidiaries ("J. Ray"), partially offset by increased
revenues at BWX Technologies Inc. ("BWXT").
The first quarter 2004 operating loss was $2.1 million, which
included $15.3 million of corporate qualified pension expense,
compared to first quarter 2003 operating income and corporate
qualified pension expense of $13.9 million and $18.0 million,
respectively.
"Our results in the first quarter of 2004 significantly improved
sequentially from the fourth quarter 2003, but declined versus a year
ago, as the reduced activity level at J. Ray resulted in fixed
operating costs that weren't fully absorbed by our projects," said
Bruce W. Wilkinson, chairman of the board and chief executive officer
of McDermott. "We continue to be optimistic that the remaining
projects in loss positions at J. Ray will soon be behind us, and we
were pleased that there were no additional charges on these projects
during the first quarter. Further, we expect that new projects will be
added to J. Ray's backlog, and J. Ray will manage its costs to reflect
an expected decrease in revenues in 2004. In addition, due to the
various tax jurisdictions where we operate, approximately 45 percent
of our total net loss related to provision for income taxes."
The Company's other expense for the first quarter of 2004 was $3.9
million, compared to other income of $22.7 million in the first
quarter of 2003. The year-over-year decline is primarily due to a
$21.7 million reduction, pretax, in the quarterly adjustment related
to the estimated costs of the B&W Chapter 11 settlement. This
revaluation will continue to fluctuate on a quarterly basis and is
largely dependent on the quarterly price movement in McDermott's stock
price. Provision for income taxes was $4.9 million in the first
quarter 2004, compared to $7.0 million in the first quarter 2003.
RESULTS OF OPERATIONS
2004 First Quarter Compared to 2003 First Quarter
Marine Construction Services Segment ("J. Ray")
Revenues in the Marine Construction Services segment were $365.8
million in the 2004 first quarter, a decrease of $29.2 million from a
year ago. The year-over-year reduction resulted from decreased
activity on fabrication and marine installation projects in the Middle
East and Asia Pacific regions.
Segment loss for the 2004 first quarter was $3.6 million compared
to a segment income in the first quarter 2003 of $16.6 million. Major
projects contributing income to the 2004 first quarter were the
project in Azerbaijan for the AIOC, a pipelay project for Shell in the
Gulf of Mexico, and fabrication projects for BP in Morgan City, La.,
offset by lower overall activity at J. Ray available to cover fixed
operating costs. Selling, general and administrative expenses were
$23.4 million, compared to $18.3 million in the 2003 first quarter.
At March 31, 2004, J. Ray's backlog of $1.3 billion included $69
million related to uncompleted work on the Front Runner spar, $14
million on the Belanak project and $19 million related to the Carina
Aries project. J. Ray's backlog was $1.4 billion and $2.0 billion at
Dec. 31, 2003 and March 31, 2003, respectively.
Government Operations Segment ("BWXT")
Revenues in the Government Operations segment increased $15.8
million to $133.5 million in the 2004 first quarter, primarily due to
higher volumes from the manufacture of nuclear components for certain
U.S. government programs.
Segment income decreased $3.9 million to $19.7 million in the 2004
first quarter, primarily due to a $3.3 million benefit received during
the first quarter of 2003 related to a contract settlement and an
aggregate of $3.6 million in the first quarter of 2004 related to
increased bid and proposal costs, higher selling, general and
administrative costs and a reduction in equity income from investees.
"BWXT continues to produce strong operating and financial
results," added Wilkinson. "Although the operating income in the 2004
quarter was down slightly compared to a year ago, we continue to
expect BWXT to produce improved results year-over-year on a comparable
basis."
At March 31, 2004, BWXT's backlog was $1.7 billion, compared to
backlog of $1.8 billion and $1.6 billion at Dec. 31, 2003 and March
31, 2003, respectively.
Corporate
Unallocated corporate expenses were $18.3 million in the 2004
first quarter, a decrease of $8.1 million compared to the 2003 first
quarter, primarily due to a $2.7 million reduction in corporate
qualified pension plan expense, reduced costs at all corporate cost
centers and increased allocation of corporate costs to the operating
segments.
Other Income and Expense
Net interest expense was $7.5 million in the 2004 first quarter
compared to $2.7 million in the 2003 first quarter, due to the
issuance of J. Ray's 11 percent senior secured notes in December 2003.
During the 2004 first quarter, revaluation of certain components
of the estimated settlement cost related to the Chapter 11 proceedings
involving B&W resulted in a decrease in the estimated cost of the
settlement to $125.3 million, resulting in the recognition of other
income of $2.4 million ($2.7 million after tax). The decrease in the
first quarter 2004 estimated settlement cost is due primarily to a
decrease in the trading price of McDermott's common stock from $11.95
per share at Dec. 31, 2003 to $8.39 per share at March 31, 2004. As
discussed in the Company's annual report on Form 10-K for the year
ended Dec. 31, 2003, the Company is required to revalue certain
components of the estimated settlement cost quarterly and at the time
the securities are issued, assuming the settlement is finalized.
Provision for income taxes during the first quarter of 2004 was
$4.9 million, compared to $7.0 million during the first quarter of
2003. Despite the Company's consolidated pretax loss from operations,
the Company recognized a net provision for income taxes, reflecting
the tax obligations in many of the jurisdictions in which it operates,
combined with its inability to recognize tax benefits in several
jurisdictions where losses were incurred.
DISCONTINUED OPERATIONS
In August 2003, the Company completed the sale of Menck GmbH
("Menck"), formerly a component of the Marine Construction Services
segment. Accordingly, the Company has reported the results of
operations for Menck as discontinued operations. In the first quarter
2003, the Company recorded income of $2.2 million, after tax,
associated with the operations of Menck.
THE BABCOCK & WILCOX COMPANY
The Company wrote off its remaining investment in B&W of $224.7
million during the second quarter of 2002 and has not consolidated B&W
with McDermott's financial results since B&W's Chapter 11 bankruptcy
filing in February 2000. B&W's revenues were $377.1 million in the
first quarter of 2004, a decrease of $3.9 million compared to the
first quarter of 2003. B&W's net income for the 2004 first quarter was
$24.2 million, an increase of $10.8 million versus the corresponding
period in 2003.
LIQUIDITY
On a consolidated basis, the Company incurred negative cash flows
for the first quarter of 2004. J. Ray expects to incur negative cash
flow from operations during two of the remaining three quarters in
2004, due to the cash outflow on the three spar projects, the Carina
Aries project and the Belanak project, for which substantial income
statement expenses have already been recorded. The Company expects
negative cash flow on a consolidated basis for one of the remaining
three quarters in 2004, reflecting J. Ray's negative cash flow.
Completion of these projects has and will continue to put a strain
on J. Ray's current liquidity. J. Ray intends to fund its negative
cash flow in 2004 with cash on hand, including cash expected to be
made available when it obtains a new letter-of-credit facility, as
well as through sales of non-strategic assets.
In December 2003, J. Ray issued $200 million of 11 percent, senior
secured notes due 2013, however over half of the proceeds from these
notes are currently restricted, to collateralize letters of credit and
a temporary interest reserve. J. Ray is currently negotiating a
secured, $75 million letter-of-credit facility. This facility, if
fully utilized, would enable J. Ray to replace most of the
approximately $80 million of existing letters of credit which are
currently cash collateralized.
J. Ray's ability to obtain a new letter-of-credit facility will
depend on numerous factors, including market conditions, J. Ray's
performance and the negotiation of acceptable terms and conditions. In
addition, J. Ray's ability to use the proceeds from sales of assets to
fund its working capital requirements is limited under the terms of
the indenture governing its senior secured notes. If J. Ray is unable
to obtain a new letter of credit facility or a sufficient amount of
available proceeds from sales of non-strategic assets, J. Ray's
ability to pursue additional projects, which often require letters of
credit, and its liquidity, will be adversely impacted. These factors
continue to cause substantial doubt about J. Ray's ability to continue
as a going concern. As of May 6, 2004, J. Ray had approximately $68
million of unrestricted cash available.
POTENTIAL RECOVERIES
As indicated in its March 1, 2004 press release, the Company
believes that it has the opportunity to recover in future periods up
to $25 million of the losses it recorded during 2003. McDermott is
pleased to announce that since March 1, 2004, J. Ray has negotiated
approximately $17 million of its potential recoveries. Approximately
$5 million was included in its results for the first quarter 2004 and
the remaining $12 million will be recorded in the appropriate future
periods.
OTHER INFORMATION
About the Company
McDermott International Inc. is a leading worldwide energy
services company. The Company's subsidiaries provide engineering,
fabrication, installation, procurement, research, manufacturing,
environmental systems, project management and facility management
services to a variety of customers in the energy and power industries,
including the U.S. Department of Energy.
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 the Company's actual results of
operations. These forward-looking statements include our expectations
regarding completion of the three remaining contracts in loss
positions, statements relating to the proposed settlement of the B&W
Chapter 11 proceedings, statements regarding potential recoveries and
statements relating to our liquidity and J. Ray's financing plans.
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. 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 risk factors, please see McDermott's
annual report for the year ended Dec. 31, 2003 and its 2004 quarterly
report filed with the Securities and Exchange Commission.
Conference Call to Discuss 2004 First Quarter Earnings Release
- --------------------------------------------------------------
Date: Tuesday, May 11, 2004, at 10:00 a.m. EDT (9:00 a.m. CDT)
Live Webcast: Investor Relations section of Web site at
www.mcdermott.com
Replay: Available for two weeks in the investor relations
section of www.mcdermott.com
McDERMOTT INTERNATIONAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
Three Months Ended
March 31,
2004 2003
-------------- ---------------
(Unaudited)
(In thousands, except per
share amounts)
Revenues $499,334 $512,737
- ----------------------------------------------------------------------
Costs and Expenses:
Cost of operations 465,568 465,507
Selling, general and administrative
expenses 43,592 41,183
- ----------------------------------------------------------------------
509,160 506,690
- ----------------------------------------------------------------------
Equity in Income of Investees 7,743 7,888
- ----------------------------------------------------------------------
Operating Income (Loss) (2,083) 13,935
- ----------------------------------------------------------------------
Other Income (Expense):
Interest income 948 980
Interest expense (8,471) (3,659)
Reduction in estimated cost of The
Babcock & Wilcox Company bankruptcy
settlement 2,411 24,071
Other-net 1,203 1,335
- ----------------------------------------------------------------------
Total Other Income (Expense) (3,909) 22,727
- ----------------------------------------------------------------------
Income (Loss) from Continuing
Operations before Provision for Income
Taxes and Cumulative Effect of
Accounting Change (5,992) 36,662
Provision for Income Taxes 4,875 7,037
- ----------------------------------------------------------------------
Income (Loss) from Continuing
Operations before Cumulative Effect of
Accounting Change (10,867) 29,625
Income from Discontinued Operations - 2,211
- ----------------------------------------------------------------------
Income (Loss) before Cumulative Effect
of Accounting Change (10,867) 31,836
Cumulative Effect of Accounting Change - 3,710
- ----------------------------------------------------------------------
Net Income (Loss) $(10,867) $35,546
- ----------------------------------------------------------------------
Earnings (Loss) per Common Share:
Basic
Income (Loss) from Continuing
Operations before Cumulative
Effect of Accounting Change $(0.17) $0.47
Income from Discontinued
Operations $- $0.03
Cumulative Effect of Accounting
Change $- $0.06
Net Income (Loss) $(0.17) $0.56
Diluted
Income (Loss) from Continuing
Operations before Cumulative
Effect of Accounting Change $(0.17) $0.46
Income from Discontinued
Operations $- $0.03
Cumulative Effect of Accounting
Change $- $0.06
Net Income (Loss) $(0.17) $0.55
- ----------------------------------------------------------------------
McDERMOTT INTERNATIONAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
Three Months Ended
March 31,
2004 2003
-------------- ---------------
(Unaudited)
Weighted Average Shares
Basic 65,272,103 63,469,672
Diluted 65,272,103 65,056,267
- ----------------------------------------------------------------------
McDERMOTT INTERNATIONAL INC.
SELECTED SEGMENT INFORMATION
Three Months Ended
March 31,
2004 2003
-------------- --------------
(Unaudited; in thousands)
REVENUES
Marine Construction Services $365,808 $395,040
Government Operations 133,529 117,708
Adjustments and Eliminations (3) (11)
- ---------------------------------------------------------------------
TOTAL $499,334 $512,737
- ---------------------------------------------------------------------
SEGMENT INCOME (LOSS)
Marine Construction Services $(3,601) $16,640
Government Operations 19,709 23,625
Power Generation Systems 111 34
- ---------------------------------------------------------------------
16,219 40,299
Corporate (18,302) (26,364)
- ---------------------------------------------------------------------
TOTAL $(2,083) $13,935
- ---------------------------------------------------------------------
EQUITY IN INCOME FROM INVESTEES:
Marine Construction Services $1,163 $308
Government Operations 6,247 7,356
Power Generation Systems 333 224
- ---------------------------------------------------------------------
TOTAL $7,743 $7,888
- ---------------------------------------------------------------------
DEPRECIATION & AMORTIZATION
Marine Construction Services $5,210 $5,492
Government Operations 3,091 3,152
Power Generation Systems - 3
Corporate 625 741
- ---------------------------------------------------------------------
TOTAL $8,926 $9,388
- ---------------------------------------------------------------------
CAPITAL EXPENDITURES
Marine Construction Services $1,749 $7,747
Government Operations 1,906 2,142
Power Generation Systems - -
Corporate - 6
- ---------------------------------------------------------------------
TOTAL $3,655 $9,895
- ---------------------------------------------------------------------
BACKLOG
Marine Construction Services $1,266,637 $2,049,698
Government Operations 1,713,984 1,589,093
- ---------------------------------------------------------------------
TOTAL $2,980,621 $3,638,791
- ---------------------------------------------------------------------
McDERMOTT INTERNATIONAL INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, December 31,
2004 2003
(Unaudited)
(In thousands)
Current Assets:
Cash and cash equivalents $131,821 $174,790
Restricted cash and cash
equivalents 161,464 180,480
Accounts receivable - trade,
net 190,321 195,073
Accounts receivable from The
Babcock & Wilcox Company 12,013 6,192
Accounts and notes receivable -
unconsolidated affiliates 9,391 14,024
Accounts receivable - other 41,416 38,296
Contracts in progress 86,340 69,485
Deferred income taxes 3,961 4,168
Other current assets 18,114 16,019
- ----------------------------------------------------------------------
Total Current Assets 654,841 698,527
- ----------------------------------------------------------------------
Property, Plant and Equipment 1,233,524 1,244,222
Less accumulated depreciation 877,340 880,460
- ----------------------------------------------------------------------
Net Property, Plant and
Equipment 356,184 363,762
- ----------------------------------------------------------------------
Investments 42,817 42,800
- ----------------------------------------------------------------------
Goodwill 12,926 12,926
- ----------------------------------------------------------------------
Prepaid Pension Costs 18,703 18,722
- ----------------------------------------------------------------------
Other Assets 119,481 112,137
- ----------------------------------------------------------------------
TOTAL $1,204,952 $1,248,874
- ----------------------------------------------------------------------
McDERMOTT INTERNATIONAL INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' DEFICIT
March 31, Dec. 31,
2004 2003
---------- ----------
(Unaudited)
(In thousands)
Current Liabilities:
Notes payable and current maturities
of long-term debt $16,127 $37,217
Accounts payable 173,547 146,665
Accounts payable to The Babcock &
Wilcox Company 49,973 42,137
Accrued employee benefits 56,479 69,923
Accrued liabilities - other 157,791 166,129
Accrued contract cost 48,933 69,928
Advance billings on contracts 157,017 176,105
U.S. and foreign income taxes payable 12,660 14,727
- ----------------------------------------------------------------------
Total Current Liabilities 672,527 722,831
- ----------------------------------------------------------------------
Long-Term Debt 278,139 279,682
- ----------------------------------------------------------------------
Accumulated Postretirement Benefit
Obligation 26,728 26,861
- ----------------------------------------------------------------------
Self-Insurance 76,608 60,737
- ----------------------------------------------------------------------
Pension Liability 324,324 311,393
- ----------------------------------------------------------------------
Accrued Cost of The Babcock & Wilcox
Company Bankruptcy Settlement 98,505 100,916
- ----------------------------------------------------------------------
Other Liabilities 103,691 109,631
- ----------------------------------------------------------------------
Commitments and Contingencies.
Stockholders' Deficit:
Common stock, par value $1.00
per share, authorized
150,000,000 shares; issued
68,627,264 at March 31, 2004 and
68,129,390 at December 31, 2003 68,627 68,129
Capital in excess of par value 1,107,834 1,105,828
Accumulated deficit (1,133,414) (1,122,547)
Treasury stock at cost, 2,267,163
shares at March 31, 2004 and
2,061,407 at December 31, 2003 (64,582) (62,792)
Accumulated other comprehensive loss (354,035) (351,795)
- ----------------------------------------------------------------------
Total Stockholders' Deficit (375,570) (363,177)
- ----------------------------------------------------------------------
TOTAL $1,204,952 $1,248,874
- ----------------------------------------------------------------------
McDERMOTT INTERNATIONAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
March 31,
2004 2003
--------- ---------
(Unaudited)
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $(10,867) $35,546
- ----------------------------------------------------------------------
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization 8,926 9,388
Income or loss of investees, less dividends (3,873) (4,136)
Gain on asset disposals and impairments - net (641) (1,063)
Provision for (benefit from) deferred taxes (1,205) 1,327
Reduction in estimated cost of The Babcock &
Wilcox Company bankruptcy settlement (2,411) (24,071)
Cumulative effect of accounting change - (3,710)
Other (198) 1,410
Changes in assets and liabilities, net of
effects of acquisitions and divestitures:
Accounts receivable (1,887) (76,631)
Net contracts in progress and advance
billings (35,903) 19,729
Accounts payable 34,712 5,415
Accrued and other current liabilities (28,998) (41,099)
Other - net 4,938 19,506
- ----------------------------------------------------------------------
NET CASH USED IN OPERATING ACTIVITIES (37,407) (58,389)
- ----------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease (increase) in restricted cash and cash
equivalents 19,016 (10,992)
Purchases of property, plant and equipment (3,655) (9,895)
Purchases of available-for-sale securities (14,966) (184,283)
Sales of available-for-sale securities 3,730 116,597
Maturities of available-for-sale securities 11,315 179,108
Proceeds from asset disposals 1,923 1,063
Other (1) (368)
- ----------------------------------------------------------------------
NET CASH PROVIDED BY INVESTING ACTIVITIES 17,362 91,230
- ----------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of long-term debt - (9,500)
Decrease in short-term borrowing (22,600) (30,081)
Issuance of common stock 200 545
Other (534) 1,469
- ----------------------------------------------------------------------
NET CASH USED IN FINANCING ACTIVITIES (22,934) (37,567)
- ----------------------------------------------------------------------
EFFECTS OF EXCHANGE RATE CHANGES ON CASH 10 1
- ----------------------------------------------------------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (42,969) (4,725)
- ----------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 174,790 129,517
- ----------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $131,821 $124,792
- ----------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amount capitalized) $1,969 $2,533
Income taxes - net $12,851 $(9,493)
- ----------------------------------------------------------------------
CONTACT: McDermott International Inc., Houston
Jay Roueche, 281-870-5462
jroueche@mcdermott.com