EX-99.1 2 a5092436ex99_1.txt EXHIBIT 99.1 Exhibit 99.1 McDermott Reports Fourth Quarter 2005 Results; Net Income of $36.1 Million, $0.48 Per Diluted Share; Represents the Last Quarter without Babcock & Wilcox Consolidated in Financial Results HOUSTON--(BUSINESS WIRE)--March 1, 2006--McDermott International, Inc. (NYSE:MDR) ("McDermott" or the "Company") today reported net income of $36.1 million, or $0.48 per diluted share, for the 2005 fourth quarter, compared to reported net income of $42.5 million, or $0.61 per diluted share, for the corresponding period in 2004. Both periods exclude the results of operations of The Babcock & Wilcox Company ("B&W"), which was deconsolidated from McDermott's reported results from February 2000 through February 2006. Weighted average common shares outstanding on a fully diluted basis were approximately 74.9 million and 69.6 million for the quarters ended December 31, 2005 and December 31, 2004, respectively. McDermott's revenues in the fourth quarter of 2005 were $398.6 million, compared to $473.7 million in the corresponding period in 2004, reflecting decreases at both consolidated segments. Operating income was $55.5 million in the 2005 fourth quarter, compared to the 2004 fourth quarter operating income of $72.5 million, which included a net benefit of $54.7 million of specially identified items in last year's quarter. With the announcement of B&W's revised Chapter 11 settlement, which is now effective, McDermott suspended recording the quarterly non cash adjustment associated with B&W's previously negotiated settlement in the third quarter of 2005. In the fourth quarter of 2004, McDermott recorded an after-tax revaluation expense of $9.5 million associated with this adjustment. "The fourth quarter culminated a very successful 2005 for our Company," said Bruce W. Wilkinson, Chairman of the Board and Chief Executive Officer of McDermott. "McDermott reported full-year consolidated earnings per share of $2.72, increased backlog at all of our major subsidiaries and resolved B&W's Chapter 11 reorganization. Beginning in March, McDermott's financial statements will once again include B&W's results in our Power Generation Systems segment, and will reflect our strong position in the coal, nuclear and oil & gas markets." For the full year 2005, McDermott generated revenues of $1.86 billion and produced operating income of $225 million, compared to $1.92 billion and $145.9 million, respectively, for the full year 2004. Net income for the full year 2005 was $198.0 million, or $2.72 per diluted share, which included a $50.4 million tax valuation allowance benefit. For the full year 2004, McDermott's net income was $61.6 million, or $0.90 per diluted share. RESULTS OF OPERATIONS 2005 Fourth Quarter Compared to 2004 Fourth Quarter Marine Construction Services Segment ("J. Ray") Revenues in the Marine Construction Services segment were $253.0 million in the 2005 fourth quarter, compared to $317.2 million for the same period a year ago. The year-over-year decrease in revenues resulted primarily from lower fabrication activity in the Gulf of Mexico, Middle East and Caspian regions, as well as lower marine activity in the Gulf of Mexico, partially offset by increased revenues from international marine projects. Segment income for the 2005 fourth quarter was $36.3 million, compared to $36.7 million in the 2004 fourth quarter. Major items contributing to operating income in the 2005 fourth quarter were international marine projects, as well as Middle East and Caspian fabrication projects and associated change orders. Operating income in the 2004 fourth quarter included a net benefit of $23.8 million, in the aggregate, from favorable contract cost adjustments on certain loss projects, gains on asset sales and other items. At December 31, 2005, J. Ray's backlog was $1.8 billion, compared to backlog of $1.2 billion and $1.7 billion at December 31, 2004 and September 30, 2005, respectively. Government Operations Segment ("BWXT") Revenues in the Government Operations segment were $145.6 million in the 2005 fourth quarter, compared to $156.5 million for the same period a year ago. The decrease was primarily due to lower volumes in the manufacture of nuclear components for certain U.S. Government programs partially offset by increased revenues from engineering services for U.S. Department of Energy sites, as well as increased uranium downblending activity. Segment income for the 2005 fourth quarter was $26.3 million, compared to $29.5 million in the 2004 fourth quarter. The decrease was primarily due to the corporate allocation to BWXT of $2.9 million related to qualified pension expense in the fourth quarter of 2005, which in 2004 and prior periods was recorded in the corporate segment. At December 31, 2005, BWXT's backlog was $1.8 billion, compared to backlog of $1.7 billion and $1.5 billion at December 31, 2004 and September 30, 2005, respectively. Corporate Unallocated corporate expenses were $11.9 million in the 2005 fourth quarter, compared to corporate income in the 2004 fourth quarter of $6.2 million, which included a $27.7 million gain on a U.K. pension plan which more than offset other corporate expenses in last year's fourth quarter. Corporate qualified pension expense in the fourth quarter of 2005 improved by approximately $16.0 million compared to the fourth quarter of 2004, as a result of the previously announced spin-off of B&W's pension plan and the allocation to McDermott's Government Operations segment of the applicable pension expense related to that segment. Other Income and Expense The Company's other expense, net, for the fourth quarter of 2005 was $1.4 million, compared to $19.7 million in the fourth quarter of 2004. The expense reduction was primarily due to an $11.3 million improvement in net interest income/expense. In addition, as mentioned above, during the 2005 third quarter, McDermott suspended the revaluation of certain components related to the previously negotiated settlement of the B&W Chapter 11 proceedings. The recently completed settlement will be recorded in McDermott's financial statements during the first quarter of 2006. See McDermott's Form 10-K for the year ended December 31, 2005 for additional information regarding the accounting for the completed B&W settlement. THE BABCOCK & WILCOX COMPANY The Babcock & Wilcox Company is a leading provider of technology, service, parts and equipment for the worldwide power generation industry. With a business history exceeding 138 years, B&W's power systems and equipment are found at over 800 utilities spanning over 90 countries. On February 22, 2006, B&W effected its plan of reorganization and has now emerged from its asbestos-related Chapter 11 proceedings, which were initiated in February 2000. Beginning in March 2006, B&W's financial results will once again be consolidated with McDermott's reported financial statements, representing the vast majority of operations in the Company's Power Generation Systems segment. Although deconsolidated from McDermott's financial results, during the fourth quarter of 2005, B&W's revenues were $422.2 million, an increase of $66.7 million compared to the fourth quarter of 2004. In the 2005 fourth quarter, B&W recorded in its financial statements Chapter 11 restructuring charges of $7.3 million and legal settlement expenses of $7.5 million. In addition, B&W recorded domestic pension expense of $16.8 million during the fourth quarter of 2005. In prior years B&W's domestic pension expense was recorded in McDermott's corporate segment. Approximately $8.0 million of B&W's fourth quarter 2005 pension expense related to an actuarial adjustment. As a result of these expenses, B&W's operating loss for the fourth quarter of 2005, prepared in accordance with generally accepted accounting principles, was $7.8 million. In the fourth quarter of 2004, B&W's revenue was $355.5 million and operating income was $28.4 million, which included no domestic pension expense. At December 31, 2005, B&W's backlog was $2.1 billion, compared to backlog of $1.5 billion and $1.6 billion at December 31, 2004 and September 30, 2005, respectively. 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 our position in coal, nuclear and oil & gas markets, and statements about backlog, to the extent backlog may be viewed as an indicator of future revenues. 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 there are adverse changes in the industries in which we operate. 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 on Form 10-K for the year ended December 31, 2005 filed with the Securities and Exchange Commission. Conference Call to Discuss 2005 Fourth Quarter Earnings Release Date: Thursday, March 2, 2006, at 9:15 a.m. EST (8:15 a.m. CST) 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 Three Months Ended Twelve Months Ended December 31, December 31, 2005 2004 2005 2004 ----------- ----------- ----------- ----------- (Unaudited) (In thousands, except per share amounts) Revenues $398,566 $473,681 $1,856,311 $1,923,019 --------------------------------------------------------------------- Costs and Expenses: Cost of operations 292,459 396,840 1,457,371 1,673,922 Gain on settlements and curtailments of pension plans (1,390) (32,309) (1,390) (32,309) Gains on asset disposals and impairments - net (53) (13,366) (6,554) (32,163) Selling, general and administrative expenses 66,388 61,532 222,426 203,262 --------------------------------------------------------------------- 357,404 412,697 1,671,853 1,812,712 --------------------------------------------------------------------- Equity in Income from Investees 14,301 11,564 40,523 35,617 --------------------------------------------------------------------- Operating Income 55,463 72,548 224,981 145,924 --------------------------------------------------------------------- Other Income (Expense): Interest income 7,258 2,232 21,068 5,574 Interest expense (4,036) (10,291) (31,820) (36,066) Estimated loss on The Babcock & Wilcox Company bankruptcy settlement - (8,931) (5,887) (11,187) Other-net (4,603) (2,677) (956) (1,779) --------------------------------------------------------------------- (1,381) (19,667) (17,595) (43,458) --------------------------------------------------------------------- Income from Continuing Operations before Provision for Income Taxes 54,082 52,881 207,386 102,466 Provision for Income Taxes 17,960 10,415 9,409 40,827 --------------------------------------------------------------------- Net Income $36,122 $42,466 $197,977 $61,639 --------------------------------------------------------------------- Income per Common Share: Basic: Net Income $0.51 $0.64 $2.90 $0.94 Diluted: Net Income $0.48 $0.61 $2.72 $0.90 --------------------------------------------------------------------- Weighted Average Shares Basic 70,483,418 66,102,386 68,379,222 65,688,361 Diluted 74,862,292 69,583,607 72,779,176 68,268,131 --------------------------------------------------------------------- McDERMOTT INTERNATIONAL, INC. SELECTED SEGMENT INFORMATION Three Months Ended Twelve Months Ended December 31, December 31, 2005 2004 2005 2004 ----------- ----------- ----------- ----------- (Unaudited) (In thousands) REVENUES Marine Construction Services $253,011 $317,177 $1,255,441 $1,367,923 Government Operations 145,556 156,488 601,042 555,093 Power Generation Systems - - - - Adjustments and Eliminations (1) 16 (172) 3 --------------------------------------------------------------------- TOTAL $398,566 $473,681 $1,856,311 $1,923,019 --------------------------------------------------------------------- SEGMENT INCOME Marine Construction Services $36,265 $36,712 $159,994 $83,841 Government Operations 26,335 29,509 99,371 109,849 Power Generation Systems 4,789 80 5,556 1,891 --------------------------------------------------------------------- 67,389 66,301 264,921 195,581 Unallocated Corporate (11,926) 6,247 (39,940) (49,657) --------------------------------------------------------------------- OPERATING INCOME $55,463 $72,548 $224,981 $145,924 --------------------------------------------------------------------- EQUITY IN INCOME (LOSS) FROM INVESTEES (1) Marine Construction Services $614 $(90) $2,818 $1,886 Government Operations 8,674 11,352 31,258 32,564 Power Generation Systems 5,013 302 6,447 1,167 --------------------------------------------------------------------- TOTAL $14,301 $11,564 $40,523 $35,617 --------------------------------------------------------------------- DEPRECIATION & AMORTIZATION (1) Marine Construction Services $8,418 $6,936 $28,727 $24,036 Government Operations 4,328 3,445 13,696 12,567 Power Generation Systems - - - - Corporate 403 891 1,843 3,690 --------------------------------------------------------------------- TOTAL $13,149 $11,272 $44,266 $40,293 --------------------------------------------------------------------- CAPITAL EXPENDITURES Marine Construction Services $19,526 $4,900 $40,486 $12,645 Government Operations 14,837 12,661 26,892 22,211 Power Generation Systems - - - - Corporate 62 505 217 788 --------------------------------------------------------------------- TOTAL $34,425 $18,066 $67,595 $35,644 --------------------------------------------------------------------- BACKLOG Marine Construction Services $1,781,917 $1,252,055 $1,781,917 $1,252,055 Government Operations 1,772,258 1,700,243 1,772,258 1,700,243 --------------------------------------------------------------------- TOTAL $3,554,175 $2,952,298 $3,554,175 $2,952,298 --------------------------------------------------------------------- (1) Included in Segment Income above McDERMOTT INTERNATIONAL, INC. CONDENSED CONSOLIDATED BALANCE SHEETS ASSETS December 31, 2005 2004 -------- -------- (In thousands) Current Assets: Cash and cash equivalents $19,452 $259,319 Restricted cash and cash equivalents 152,086 111,455 Investments 384,209 - Accounts receivable - trade, net 232,366 226,731 Accounts receivable from The Babcock & Wilcox Company 3,778 6,121 Accounts and notes receivable - unconsolidated affiliates 52,867 29,330 Accounts receivable - other 33,424 71,522 Contracts in progress 73,799 72,355 Deferred income taxes 32,131 9,813 Other current assets 8,987 13,277 ---------------------------------------------------------------------- Total Current Assets 993,099 799,923 ---------------------------------------------------------------------- Restricted Cash and Cash Equivalents 2,886 66,498 ---------------------------------------------------------------------- Property, Plant and Equipment 1,127,614 1,087,314 Less accumulated depreciation 800,405 780,225 ---------------------------------------------------------------------- Net Property, Plant and Equipment 327,209 307,089 ---------------------------------------------------------------------- Total Investments 116,304 41,884 ---------------------------------------------------------------------- Goodwill 12,926 12,926 ---------------------------------------------------------------------- Deferred Income Taxes 93,880 31,844 ---------------------------------------------------------------------- Other Assets 121,982 126,768 ---------------------------------------------------------------------- TOTAL $1,668,286 $1,386,932 ---------------------------------------------------------------------- McDERMOTT INTERNATIONAL, INC. CONDENSED CONSOLIDATED BALANCE SHEETS LIABILITIES AND STOCKHOLDERS' DEFICIT December 31, 2005 2004 -------- -------- (In thousands) Current Liabilities: Notes payable and current maturities of long-term debt $4,250 $12,009 Accounts payable 111,304 114,235 Accounts payable to The Babcock & Wilcox Company 11,429 55,180 Accrued employee benefits 81,262 79,362 Accrued liabilities - other 134,334 163,649 Accrued contract cost 56,596 81,591 Advance billings on contracts 314,599 217,053 U.S. and foreign income taxes payable 49,519 18,612 ---------------------------------------------------------------------- Total Current Liabilities 763,293 741,691 ---------------------------------------------------------------------- Long-Term Debt 207,861 268,011 ---------------------------------------------------------------------- Accumulated Postretirement Benefit Obligation 25,519 26,315 ---------------------------------------------------------------------- Self-Insurance 60,989 61,715 ---------------------------------------------------------------------- Pension Liability 311,319 328,852 ---------------------------------------------------------------------- Accrued Cost of The Babcock & Wilcox Company Bankruptcy Settlement 117,990 112,103 ---------------------------------------------------------------------- Deferred Babcock & Wilcox Company Pension Plan Spin-Off 150,136 - ---------------------------------------------------------------------- Other Liabilities 114,477 109,688 ---------------------------------------------------------------------- Commitments and Contingencies Stockholders' Deficit: Common stock, par value $1.00 per share, authorized 150,000,000 shares; issued 73,857,922 and 69,560,726 shares at December 31, 2005 and 2004, respectively 73,858 69,561 Capital in excess of par value 1,183,123 1,122,055 Accumulated deficit (862,931) (1,060,908) Treasury stock at cost, 2,055,096 and 2,341,902 shares at December 31, 2005 and 2004, respectively (56,496) (64,625) Accumulated other comprehensive loss (420,852) (327,526) ---------------------------------------------------------------------- Total Stockholders' Deficit (83,298) (261,443) ---------------------------------------------------------------------- TOTAL $1,668,286 $1,386,932 ---------------------------------------------------------------------- McDERMOTT INTERNATIONAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, 2005 2004 -------- -------- (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $197,977 $61,639 Depreciation and amortization 44,266 40,293 (Income) or loss of investees, less dividends (4,714) 7,138 Gain on asset disposals and impairments - net (6,554) (32,163) Benefit from deferred taxes (47,557) (24,406) Estimated loss on The Babcock & Wilcox bankruptcy settlement 5,887 11,187 Cumulative effect of accounting change - - Other 13,435 11,495 Changes in assets and liabilities, net of effects from acquisitions and divestitures: Accounts receivable 2,568 (88,470) Accounts payable (46,664) (19,400) Net contracts in progress and advance billings 96,010 38,185 Income taxes (14,570) 35,729 Accrued liabilities (52,935) 17,343 Pension liability 45,649 17,460 Other, net 22,338 (10,724) ---------------------------------------------------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 255,136 65,306 ---------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Decrease in restricted cash and cash equivalents 22,981 2,527 Purchases of property, plant and equipment (67,595) (35,644) Purchases of available-for-sale securities (11,487,782) (139,219) Maturities of available-for-sale securities 10,987,746 134,628 Sales of available-for-sale securities 42,766 6,069 Proceeds from asset disposals 17,223 89,184 Other (6,095) (1) ---------------------------------------------------------------------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (490,756) 57,544 ---------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Payment of long-term debt (66,984) - Payment of debt issuance costs (949) (3,768) Increase (decrease) in short-term borrowing - (36,750) Issuance of common stock 60,951 2,800 Other 2,779 (629) ---------------------------------------------------------------------- NET CASH USED IN FINANCING ACTIVITIES (4,203) (38,347) ---------------------------------------------------------------------- EFFECTS OF EXCHANGE RATE CHANGES ON CASH (44) 26 ---------------------------------------------------------------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (239,867) 84,529 ---------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 259,319 174,790 ---------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $19,452 $259,319 ---------------------------------------------------------------------- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest (net of amount capitalized) $37,720 $36,317 Income taxes (net of refunds) $44,961 $70,699 ---------------------------------------------------------------------- THE BABCOCK & WILCOX COMPANY (DECONSOLIDATED, UNAUDITED SUMMARY OF FINANCIAL DATA) Three Months Ended Twelve Months Ended December 31, December 31, 2005 2004 2005 2004 -------- -------- -------- -------- (In thousands, except per share amounts) Revenues $422,169 $355,479 $1,508,964 $1,368,918 ---------------------------------------------------------------------- Operating Income (Loss) $(7,757) $28,426 $(415,472) $116,774 ---------------------------------------------------------------------- Income (Loss) before Income Taxes $(5,763) $18,563 $(412,144) $100,956 ---------------------------------------------------------------------- Net Income (Loss) $(9,910) $18,336 $(262,771) $99,117 ---------------------------------------------------------------------- Capital Expenditures $6,424 $8,154 $26,330 $18,560 ---------------------------------------------------------------------- Depreciation & Amortization (1) $4,464 $6,519 $17,822 $19,838 ---------------------------------------------------------------------- Items Included in B&W Operating Income (1) Adjustment to asbestos liability $- $3,994 $477,399 $3,635 Restructuring charges 7,301 1,147 13,390 7,688 Legal Settlements 7,500 (10,000) 7,500 (10,000) Pension expense from B&W-Sponsored Plan 16,765 - 34,964 - ---------------------------------------------------------------------- Total $31,566 $(4,859) $533,253 $1,323 ---------------------------------------------------------------------- (1) Included in Operating Income (Loss) above. Backlog $2,057,134 $1,489,629 ---------------------------------------------------------------------- CONTACT: McDermott International, Inc. Jay Roueche, 281-870-5462 jroueche@mcdermott.com