Exhibit 99.1
McDermott Reports Second Quarter 2005 Results; Net Income of $80.9
million, $1.12 per diluted share, includes $50.4 million benefit from
increased net deferred tax assets and B&W settlement revaluation
expense of $7.4 million after tax
NEW ORLEANS--(BUSINESS WIRE)--Aug. 4, 2005--McDermott
International, Inc. (NYSE:MDR) ("McDermott" or the "Company") today
reported net income of $80.9 million, or $1.12 per diluted share, for
the 2005 second quarter, compared to net income of $11.8 million, or
$0.17 per diluted share, for the corresponding period in 2004.
Weighted average common shares outstanding on a fully diluted basis
were approximately 72.2 million and 67.5 million for June 30, 2005 and
June 30, 2004, respectively.
The second quarter 2005 results referenced above includes two
items which McDermott does not believe represents customary business
operations: a $50.4 million benefit from decreasing the valuation
allowance associated with McDermott's deferred tax assets and an
expense of $7.4 million after-tax from the revaluation of the
liability associated with The Babcock & Wilcox Company's ("B&W")
Chapter 11 settlement. Excluding these two items, McDermott's Non-GAAP
net income was $38.0 million, or $0.53 per fully diluted share. In
comparison, McDermott's second quarter 2004 Non-GAAP net income was
$15.8 million, or $0.23 per fully diluted share. Please see the table
titled "McDermott's Non-GAAP Earnings Reconciliation" below for the
reconciliation between McDermott's reported net income prepared in
accordance with GAAP and the Non-GAAP net income and net income per
share amounts stated above.
Revenues in the second quarter of 2005 were $515.1 million,
compared to $499.8 million in the corresponding period in 2004.
Operating income was $54.8 million in the 2005 second quarter,
compared to $35.7 million in the 2004 second quarter. The second
quarter 2005 operating income included approximately $0.2 million of
corporate qualified pension expense, compared to $15.8 million in the
second quarter 2004. The year-over-year reduction in corporate
qualified pension expense reflects the previously announced spin-off
of the B&W pension plan and related expense which was completed on
January 31, 2005. In addition, beginning January 1, 2005, McDermott
now allocates to its Government Operations segment the pension expense
related to that segment.
"McDermott produced strong results in the second quarter of 2005,"
said Bruce W. Wilkinson, Chairman of the Board and Chief Executive
Officer of McDermott. "Our businesses performed very well, and were
aided in particular by J. Ray's marine operations as well as some
timing benefits, including certain contract close-outs and
settlements. There continues to be strong bidding activity occurring
in most regions for J. Ray, and site management opportunities for
BWXT, and we remain confident that we will convert some of these bids
into backlog in the near future."
RESULTS OF OPERATIONS
2005 Second Quarter Compared to 2004 Second Quarter
Marine Construction Services Segment ("J. Ray")
Revenues in the Marine Construction Services segment were $355.2
million in the 2005 second quarter, compared to $359.3 million for the
same period a year ago. The slight year-over-year reduction in
revenues resulted primarily from the 2004 completion of several large
EPIC projects and decreased fabrication activity on projects in Morgan
City, Louisiana, partially offset by increased revenues from the
worldwide marine division and fabrication projects in the Middle East
region.
Segment income for the 2005 second quarter was $30.9 million,
compared to $22.1 million in the 2004 second quarter. Major items
contributing to operating income in the 2005 second quarter were
projects in the Middle East and Caspian regions, and international
marine projects. In addition, J. Ray recorded a net benefit of
approximately $9.2 million to operating income from other items
including certain contract close-outs and settlements. The 2004 second
quarter included a net benefit of $12.7 million, in aggregate, from
favorable contract cost adjustments and other items.
At June 30, 2005, J. Ray's backlog was $0.9 billion, compared to
backlog of $1.2 billion and $1.1 billion at December 31, 2004 and June
30, 2004, respectively.
Government Operations Segment ("BWXT")
Revenues in the Government Operations segment increased $19.4
million, to $159.9 million, in the 2005 second quarter, compared to
$140.5 million for the same period a year ago. The increase was
primarily due to higher volumes in the manufacture of nuclear
components for certain U.S. government programs, and increased
revenues from commercial nuclear environmental services and other
commercial work, including increased uranium downblending activity.
Segment income decreased $2.2 million, to $29.7 million, compared
to the 2004 second quarter, primarily due to the corporate allocation
to BWXT related to qualified pension expense of $5.3 million in the
second quarter 2005, which in 2004 and prior periods was recorded in
the corporate segment. The pension allocation was partially offset by
higher volume and margins from the manufacture of nuclear components
for certain U.S. government programs and increased commercial nuclear
activity.
At June 30, 2005, BWXT's backlog was $1.6 billion, compared to
backlog of $1.7 billion and $1.6 billion at December 31, 2004 and June
30, 2004, respectively.
Corporate
Unallocated corporate expenses were $6.1 million in the 2005
second quarter, a decrease of $13.9 million compared to the 2004
second quarter. The decrease was primarily due to a reduction in
qualified corporate pension expense during the second quarter of 2005
as a result of the BWXT pension allocation and the spin-off of B&W's
pension assets and liabilities into a new B&W-sponsored pension plan.
Other Income and Expense
The Company's other expense for the second quarter of 2005 was
$7.3 million, compared to $10.8 million in the second quarter of 2004,
which included net interest expense of $3.4 million and $7.3 million
in the respective quarters.
During the 2005 second quarter, revaluation of certain components
of the estimated settlement cost related to the B&W Chapter 11
proceedings generated an increase in the estimated cost of the
settlement to $146.7 million, resulting in the recognition of other
pretax expense of $6.4 million ($7.4 million after tax). The increase
in the second quarter 2005 estimated settlement cost is due primarily
to an increase in the closing price of McDermott's common stock from
$18.93 per share at March 31, 2005, to $21.00 per share at June 30,
2005. In the second quarter of 2004, the revaluation of the estimated
B&W settlement cost resulted in the recognition of other pretax
expense of $4.4 million ($4.0 million after tax). As discussed in the
Company's annual report on Form 10-K for the year ended December 31,
2004, 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.
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 $368.9 million in the
second quarter of 2005, an increase of $11.6 million compared to the
second quarter of 2004. Operating income for the second quarter of
2005 and 2004 was $10.8 million and $32.7 million, in the respective
periods. During the second quarter of 2005, B&W recorded approximately
$6.8 million of pension expense, which in prior years resided in the
corporate segment, and also recorded an expense for its asbestos
liability of $9.7 million, compared to a $3.0 million expense in the
second quarter of 2004. At June 30, 2005, B&W's backlog was $1.5
billion, compared to backlog of $1.5 billion and $1.1 billion at
December 31, 2004 and June 30, 2004, respectively.
LIQUIDITY
At June 30, 2005, McDermott's consolidated unrestricted cash
balance was approximately $261 million, with J. Ray representing
approximately $184 million of this total. In addition, McDermott's
consolidated restricted cash balance was approximately $164 million at
June 30, 2005, with J. Ray representing $133 million of the
consolidated amount. In accordance with the indenture relating to J.
Ray's senior secured notes issued in December 2003, commencing July
15, 2005, J. Ray announced an offer to purchase at par up to $36.5
million of its senior secured notes. The source of funds to purchase
any properly tendered notes will be the remaining restricted cash
available from certain asset sales, which previously was available for
use on capital expenditures. As of July 26, 2005, the Company's
unrestricted liquidity had improved approximately $40 million from the
June 30, 2005 amounts, as a result of increased liquidity at J. Ray.
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 statements
relating to the proposed settlement of the B&W Chapter 11 proceedings
and optimism regarding the Company's ability to convert bids into
backlog. 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, but not
limited to, risks that the B&W Chapter 11 settlement may not be
finalized on the terms we have described, credit risks and J. Ray's
ability to competitively bid on projects. 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 report for the year ended December 31, 2004 and its
2005 quarterly reports filed with the Securities and Exchange
Commission.
In addition to the Company's results prepared in accordance with
generally accepted accounting principals ("GAAP"), McDermott has
provided Non-GAAP financial measures that present net income and net
income per share for the three-months ended June 30, 2005 and June 30,
2004 on a basis that excludes certain income and expenses. Details of
these excluded items are presented in the table below titled "Non-GAAP
Earnings Reconciliation," which reconciles the GAAP results to
Non-GAAP financial measures described above.
Conference Call to Discuss 2005 Second Quarter Earnings Release
Date: Friday, August 5, 2005, at 10:00 a.m. EST (9:00 a.m.
CST)
Live Webcast: Investor Relations section of website 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
Three Months Ended Six Months Ended
June 30, June 30,
2005 2004 2005 2004
---- ---- ---- ----
(Unaudited)
(In thousands, except per share amounts)
Revenues $515,136 $499,817 $954,251 $999,151
- ----------------------------------------------------------------------
Costs and Expenses:
Cost of
operations 417,112 426,804 780,144 892,372
Selling, general
and
administrative
expenses 50,657 45,526 95,935 89,118
- ----------------------------------------------------------------------
467,769 472,330 876,079 981,490
- ----------------------------------------------------------------------
Equity in Income
of Investees 7,398 8,197 17,269 15,940
- ----------------------------------------------------------------------
Operating Income 54,765 35,684 95,441 33,601
- ----------------------------------------------------------------------
Other Income
(Expense):
Interest income 5,494 872 8,408 1,820
Interest expense (8,923) (8,213) (18,619) (16,684)
Increase in
estimated cost
of The Babcock
& Wilcox Company
bankruptcy
settlement (6,355) (4,383) (5,887) (1,972)
Other-net 2,528 912 5,298 2,115
- ----------------------------------------------------------------------
(7,256) (10,812) (10,800) (14,721)
- ----------------------------------------------------------------------
Income before
Provision for
(Benefit from)
Income Taxes 47,509 24,872 84,641 18,880
Provision for
(Benefit from)
Income Taxes (33,410) 13,087 (18,714) 17,962
- ----------------------------------------------------------------------
Net Income $80,919 $11,785 $103,355 $918
- ----------------------------------------------------------------------
Earnings per
Common Share:
Basic $1.20 $0.18 $1.54 $0.01
Diluted $1.12 $0.17 $1.45 $0.01
- ----------------------------------------------------------------------
Weighted Average
Shares
Basic 67,602,303 65,524,948 67,188,271 65,398,526
Diluted 72,157,715 67,480,107 71,485,971 67,525,697
- ----------------------------------------------------------------------
McDERMOTT INTERNATIONAL, INC.
NON-GAAP EARNINGS RECONCILIATION (1)
Three Months Ended Six Months Ended
June 30, June 30,
2005 2004 2005 2004
---- ---- ---- ----
(Unaudited)
(In thousands, except per share amounts)
Net Income $80,919 $11,785 $103,355 $918
- ----------------------------------------------------------------------
Adjustments:
Valuation
allowance
adjustment on
Deferred tax
asset (50,383) - (50,383) -
Pre-tax B&W
settlement
revaluation 6,355 4,383 5,887 1,972
Tax on B&W
settlement
revaluation 1,085 (376) 953 (653)
- ----------------------------------------------------------------------
NON-GAAP NET
INCOME $37,976 $15,792 $59,812 $2,237
- ----------------------------------------------------------------------
Weighted Average
Shares - Basic 67,602,303 65,524,948 67,188,271 65,398,526
Weighted Average
Shares - Diluted 72,157,715 67,480,107 71,485,971 67,525,697
- ----------------------------------------------------------------------
NON-GAAP Basic
Earnings per Share $0.56 $0.24 $0.89 $0.03
NON-GAAP Diluted
Earnings per Share $0.53 $0.23 $0.84 $0.03
- ----------------------------------------------------------------------
(1) Presented above is a reconciliation between GAAP net income and
certain non-GAAP financial measures. The non-GAAP measures are
based upon our unaudited consolidated statements of operations for
the periods shown, with certain adjustments. McDermott is
providing the non-GAAP information to supplement the results
provided in accordance with GAAP and it should not be considered
superior to, or as a substitute for, the comparable GAAP measures.
However, McDermott believes certain non-GAAP measures provide
meaningful insight into the Company's ongoing operational
performance and therefore uses the non-GAAP information internally
to evaluate McDermott's operations for purposes of budget planning
and performance goals. McDermott has chosen to provide this
supplemental non-GAAP information to investors to enable them to
perform additional comparisons of operating results and as a means
to emphasize the results of ongoing operations absent income and
expenses considered by management to be outside the Company's
customary business.
McDERMOTT INTERNATIONAL, INC.
SELECTED SEGMENT INFORMATION
Three Months Ended Six Months Ended
June 30, June 30,
2005 2004 2005 2004
---- ---- ---- ----
(Unaudited)
(In thousands)
REVENUES
Marine
Construction
Services $355,228 $359,334 $641,831 $725,142
Government
Operations 159,940 140,490 312,533 274,019
Power Generation
Systems - - - -
Adjustments and
Eliminations (32) (7) (113) (10)
--------------------------------------------------------------------
TOTAL $515,136 $499,817 $954,251 $999,151
--------------------------------------------------------------------
SEGMENT INCOME (LOSS)
Marine
Construction
Services $30,899 $22,112 $59,980 $18,511
Government
Operations 29,736 31,908 53,777 51,617
Power Generation
Systems 262 1,660 385 1,771
--------------------------------------------------------------------
60,897 55,680 114,142 71,899
Corporate (6,132) (19,996) (18,701) (38,298)
--------------------------------------------------------------------
TOTAL $54,765 $35,684 $95,441 $33,601
--------------------------------------------------------------------
EQUITY IN INCOME (LOSS) FROM INVESTEES (1)
Marine
Construction
Services $(175) $746 $(269) $1,909
Government
Operations 7,092 7,180 16,715 13,427
Power Generation
Systems 481 271 823 604
--------------------------------------------------------------------
TOTAL $7,398 $8,197 $17,269 $15,940
--------------------------------------------------------------------
DEPRECIATION & AMORTIZATION EXPENSE (1)
Marine
Construction
Services $7,019 $6,537 $13,734 $11,747
Government
Operations 3,109 2,945 6,257 6,036
Power Generation
Systems - - - -
Corporate 393 1,018 1,049 1,643
--------------------------------------------------------------------
TOTAL $10,521 $10,500 $21,040 $19,426
--------------------------------------------------------------------
CAPITAL EXPENDITURES
Marine
Construction
Services $2,520 $2,121 $14,850 $3,870
Government
Operations 2,424 2,333 7,777 4,239
Power Generation
Systems - - - -
Corporate 134 2 155 2
--------------------------------------------------------------------
TOTAL $5,078 $4,456 $22,782 $8,111
--------------------------------------------------------------------
BACKLOG
Marine
Construction
Services $934,415 $1,082,386 $934,415 $1,082,386
Government
Operations 1,613,593 1,592,926 1,613,593 1,592,926
--------------------------------------------------------------------
TOTAL $2,548,008 $2,675,312 $2,548,008 $2,675,312
--------------------------------------------------------------------
(1) Included in Segment Income (Loss) above.
McDERMOTT INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
June 30, Dec. 31,
2005 2004
---- ----
(Unaudited)
(In thousands)
Current Assets:
Cash and cash equivalents $261,378 $259,319
Restricted cash and cash equivalents 111,767 111,455
Investments 42,651 -
Accounts receivable - trade, net 234,281 226,731
Accounts receivable from The Babcock &
Wilcox Company 3,443 6,121
Accounts and notes receivable -
unconsolidated affiliates 57,643 29,330
Accounts receivable - other 31,746 71,522
Contracts in progress 68,119 72,355
Deferred income taxes 18,813 9,813
Other current assets 15,318 13,277
- ----------------------------------------------------------------------
Total Current Assets 845,159 799,923
- ----------------------------------------------------------------------
Restricted Cash and Cash Equivalents 51,747 66,498
- ----------------------------------------------------------------------
Property, Plant and Equipment 1,102,604 1,087,314
Less accumulated depreciation 796,262 780,225
- ----------------------------------------------------------------------
Net Property, Plant and Equipment 306,342 307,089
- ----------------------------------------------------------------------
Investments 60,069 41,884
- ----------------------------------------------------------------------
Goodwill 12,926 12,926
- ----------------------------------------------------------------------
Other Assets 212,327 158,612
- ----------------------------------------------------------------------
TOTAL $1,488,570 $1,386,932
- ----------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
June 30, Dec. 31,
2005 2004
---- ----
(Unaudited)
(In thousands)
Current Liabilities:
Notes payable and current maturities of
long-term debt $4,250 $12,009
Accounts payable 96,595 114,235
Accounts payable to The Babcock & Wilcox
Company 38,890 55,180
Accrued employee benefits 62,474 79,362
Accrued liabilities - other 160,809 163,649
Accrued contract cost 76,831 81,591
Advance billings on contracts 255,739 217,053
U.S. and foreign income taxes payable 26,151 18,612
- ----------------------------------------------------------------------
Total Current Liabilities 721,739 741,691
- ----------------------------------------------------------------------
Long-Term Debt 260,175 268,011
- ----------------------------------------------------------------------
Accumulated Postretirement Benefit Obligation 26,404 26,315
- ----------------------------------------------------------------------
Self-Insurance 61,532 61,715
- ----------------------------------------------------------------------
Pension Liability 214,493 328,852
- ----------------------------------------------------------------------
Accrued Cost of The Babcock & Wilcox Company
Bankruptcy Settlement 117,990 112,103
- ----------------------------------------------------------------------
Deferred Liability Associated with Babcock &
Wilcox Company Pension Plan Spin-Off
( See Note 8) 117,079 -
- ----------------------------------------------------------------------
Other Liabilities 109,112 109,688
- ----------------------------------------------------------------------
Commitments and Contingencies.
Stockholders' Deficit:
Common stock, par value $1.00 per share,
authorized 150,000,000 shares; issued
71,038,199 at June 30, 2005 and 69,560,726
at December 31, 2004 71,038 69,561
Capital in excess of par value 1,139,969 1,122,055
Accumulated deficit (957,553) (1,060,908)
Treasury stock at cost, 2,231,860 shares at
June 30, 2005 and 2,341,902 at December 31,
2004 (61,559) (64,625)
Accumulated other comprehensive loss (331,849) (327,526)
- ----------------------------------------------------------------------
Total Stockholders' Deficit (139,954) (261,443)
- ----------------------------------------------------------------------
TOTAL $1,488,570 $1,386,932
- ----------------------------------------------------------------------
McDERMOTT INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
June 30,
2005 2004
---- ----
(Unaudited)
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $103,355 $918
- ----------------------------------------------------------------------
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 21,040 19,426
Income or loss of investees, less dividends (6,261) (6,689)
Gain on asset disposals and impairments - net (2,540) (2,953)
Benefit from deferred taxes (50,065) (7,996)
Increase in estimated cost of The Babcock &
Wilcox Company bankruptcy settlement 5,887 1,972
Other 11,972 1,200
Changes in assets and liabilities, net of
effects of acquisitions and divestitures:
Accounts receivable 1,878 (4,633)
Net contracts in progress and advance
billings 42,822 (24,102)
Accounts payable (33,919) 12,130
Accrued and other current liabilities (6,787) (7,332)
Income taxes 7,539 13,748
Accrued employee benefits (16,852) (3,129)
Other, net (3,808) (6,197)
- ----------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES 74,261 (13,637)
- ----------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in restricted cash and cash equivalents 14,439 12,172
Purchases of property, plant and equipment (22,782) (8,111)
Purchases of available-for-sale securities (194,307) (34,965)
Sales of available-for-sale securities 2,450 5,140
Maturities of available-for-sale securities 131,545 30,025
Proceeds from asset disposals 8,690 6,601
Other (4,657) (1)
- ----------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES (64,622) 10,861
- ----------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of long-term debt (12,734) -
Decrease in short-term borrowing - (36,750)
Issuance of common stock 4,928 281
Debt issuance costs (940) -
Other 1,210 (857)
- ----------------------------------------------------------------------
NET CASH USED IN FINANCING ACTIVITIES (7,536) (37,326)
- ----------------------------------------------------------------------
EFFECTS OF EXCHANGE RATE CHANGES ON CASH (44) 6
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 2,059 (40,096)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 259,319 174,790
- ----------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $261,378 $134,694
- ----------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest (net of amount capitalized) $9,394 $16,939
Income taxes - net (1) $32,258 $24,428
- ----------------------------------------------------------------------
(1) Income tax payments are gross amounts and do not include
reimbursements received from The Babcock & Wilcox Company of $3.7
and $12.8 million, respectively, for the six months ended June 30,
2005 and 2004.
CONTACT: McDermott International, Inc., Houston
Investor Relations & Corporate Communications
Jay Roueche, 281-870-5462
jroueche@mcdermott.com