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McDermott Reports Fourth Quarter and Full-Year 2015 Financial and Operational Results

Focus on Project Execution and Cost Management has Driven a Significant Increase in Operational Profit in 2015

Recent Awards Balancing Geographic Portfolio and Successful Entry into the India Subsea Market

Substantial Backlog Provides Strong Foundation for 2016

Company to Host Conference Call and Webcast Today at 4:00 pm CDT

HOUSTON, Feb. 22, 2016 (GLOBE NEWSWIRE) -- McDermott International, Inc. (NYSE:MDR) (“McDermott” or the “Company”) today announced financial and operational results for the fourth quarter and full-year ended December 31, 2015.

  ($ in millions, except per share amounts)
  Three Months Ended   Delta   Twelve Months Ended   Delta
  Dec. 31, 2015   Dec. 31, 2014   Qtr-on-Qtr   Dec. 31, 2015   Dec. 31, 2014   Year-on-Year
Revenues $ 667.4     $ 806.4     $ (139.0 )   $ 3,070.3     $ 2,300.9     $ 769.4  
Adjusted Operating Income1   48.2       29.0       19.2       174.7       23.7       151.0  
Adjusted Operating Margin1   7.2 %     3.6 %     3.6 %     5.7 %     1.0 %     4.7 %
Adjusted Net Income1   16.0       11.2       4.8       65.5       (60.8 )     126.3  
Adjusted Diluted EPS1   0.06       0.04       0.02       0.23       (0.26 )     0.49  
                       
Cash Provided by Operating Activities   60.6       119.3       (58.7 )     55.3       7.0       48.3  
                       
Operating Income   13.5       25.9       (12.4 )     91.2       8.6       82.6  
Operating Margin   2.0 %     3.2 %     (1.2 %)     3.0 %     0.4 %     2.6 %
Net Income / (Loss)   (18.7 )     8.2       (26.9 )     (18.0 )     (76.0 )     58.0  
Diluted EPS   (0.08 )     0.03       (0.11 )     (0.08 )     (0.32 )     0.24  
                       
1) Adjustments to the GAAP financial measures include restructuring charges in all quarters, charges associated with a legal settlement in the third quarter of 2015 and year-end mark-to-market pension adjustments in the fourth quarter of each year.
 

“We are very pleased with our fourth quarter and 2015 full year-results, as they reflect the impact of all the initiatives we have worked on to date, and clearly demonstrate the operational and financial turnaround that began in 2014. The Company has been significantly strengthened, not only in terms of backlog and operating income, but also in terms of its capabilities and its competencies in an extremely challenging market.  Of special note this quarter, all Areas were operationally profitable on an adjusted basis,” said David Dickson, President and Chief Executive Officer of McDermott.  “Our success in winning the ONGC Vashishta award in addition to a sizeable transportation and installation (“T&I”) contract offshore Trinidad demonstrates our continued focus on customer engagement and the realization of our strong brand reputation.  It also demonstrates our ability to balance the geographic portfolio while remaining a leader in the Middle East.  Additionally, our recently announced long-term, mutually exclusive consortium with Larsen & Toubro further strengthens our relationship, provides customers with our combined capabilities and provides a unique solution for the offshore and deepwater India market.  Our commitment to excellence in project execution was also evident during the quarter, as our marine campaign on INPEX Ichthys remained on schedule, and we successfully completed the offshore installation and hook up of the PB Litoral Jacket and Topsides ahead of schedule.  Subsequent to year end we announced the April naming ceremony of our new flagship derrick lay vessel, the DLV 2000, and its secured scope as part of our current work schedule in INPEX Ichthys as well as the new award of Greater Western Flank Phase 2, which builds on our leading position in Australia and provides the DLV 2000 with its first pipelay scope.  Despite the current macro outlook we hold greater than 80% of expected 2016 revenue in backlog, our bidding activity remains high and we continue to anticipate a good revenue opportunity pipeline.  In addition, as we move into 2016, we welcome Erich Kaeser to McDermott’s Board of Directors, whose experience and insights will complement the current Board. ”

Fourth Quarter 2015 Operating Results

The Company realized fourth quarter 2015 adjusted net income of $16.0 million, or $0.06 per adjusted fully diluted share, excluding restructuring charges of $8.7 million and the year-end non-cash mark-to-market pension charge of $26.0 million, compared to an adjusted net income of $11.2 million, or $0.04 per adjusted fully diluted share, excluding restructuring charges of $6.0 million and the year-end non-cash mark-to-market pension gain of $2.9 million in the prior-year fourth quarter.  Fourth quarter 2015 earnings per share attributable to McDermott stockholders on a consolidated basis prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) was a net loss of $18.7 million, or $0.08 per fully diluted share, compared to earnings of $8.2 million, or $0.03 per fully diluted share for the prior-year quarter.

The Company reported fourth quarter 2015 revenues of $667.4 million, a decrease of $139.0 million, compared to revenues of $806.4 million for the prior-year fourth quarter.  The INPEX Ichthys project drove the decrease in revenue as it had comparatively lower activity than the prior-year fourth quarter which included significant marine activities, including the installation of the riser support structure and the reeled pipe lay scope.  The key projects contributing to revenue for the fourth quarter of 2015 were INPEX Ichthys, Aramco Safaniya Phase 2, ADMA 4 Gas Injection, Brunei Shell pipeline replacement and PB Litoral.

The Company’s adjusted operating income for the fourth quarter 2015 was $48.2 million, or an adjusted operating margin of 7.2%, excluding the adjustments mentioned above. These results compare to the 2014 fourth quarter adjusted operating income of $29.0 million, or an adjusted operating margin of 3.6%, excluding the adjustments mentioned above.  Operating income for the fourth quarter 2015 was positively impacted by the successful negotiation and agreement of weather related recoveries in the Middle East, a change order on the INPEX Ichthys contract, cost reductions as a result of the McDermott Profitability Initiative (“MPI”), reversal of liquidated damage reserves related to a schedule extension on PB Litoral and better than expected utilization. These positive impacts were partially offset by idle costs associated with some of our marine vessels and fabrication facilities due to project sequencing and seasonality.

Cash provided by operating activities in the fourth quarter 2015 was $60.6 million, a decrease compared to the $119.3 million provided in the fourth quarter 2014.  The fourth quarter 2015 was negatively impacted by Pemex unilaterally extending payment terms to its suppliers, including McDermott.    

Full-Year 2015 Operating Results

For the full-year ended December 31, 2015, the Company realized adjusted net income of $65.5 million, or $0.23 per adjusted fully diluted share, excluding restructuring charges of $40.8 million, a legal settlement of $16.7 million and the year-end non-cash mark-to-market pension charge of $26.0 million, compared to an adjusted net loss of $60.8 million, or $0.26 per fully diluted share, excluding restructuring charges of $18.1 million and the year-end non-cash mark-to-market pension gain of $2.9 million in the prior-year.  Consolidated GAAP full-year 2015 results were a net loss of $18.0 million, or $0.08 per fully diluted share, compared to a net loss of $76.0 million, or $0.32 per fully diluted share in the prior-year.

The Company reported revenues of $3.1 billion for the year ended December 31, 2015, an increase of $0.8 billion, compared to $2.3 billion for the year ended December 31, 2014. The increase was primarily attributable to progress on INPEX Ichthys, Brunei Shell pipeline replacement and PB Litoral. 

The Company reported full-year adjusted operating income of $174.7 million, or an adjusted operating margin of 5.7%, excluding the adjustments mentioned above. These results compare to the full-year 2014 adjusted operating income of $23.7 million, or an adjusted operating margin of 1.0%, excluding the adjustments mentioned above and including $46.2 million of gains on asset sales.  Operating income for the full-year was positively impacted by significantly improved project execution, including on the INPEX Ichthys project, where activities remained on schedule, continued progress made on multiple Saudi Aramco projects and installation and hook up of the PB Litoral facilities ahead of schedule. 

Cash provided by operating activities in the full-year 2015 was $55.3 million, an increase compared to the $7.0 million provided in the full-year 2014. 

The calculations of total and per share adjusted net income and adjusted operating income are shown in the appendix titled “Reconciliation of GAAP to Non-GAAP Financial Measures.”

Area Operational Review

  ($ in millions, except per share amounts)
  Three Months Ended December 31, 2015
  AEA   MEA   ASA   MDR
New Orders $ 93     $ 36     $ 349     $   478  
Revenue   134       242       291         667  
Book-to-Bill   0.7x       0.1x       1.2x       0.7x  
Adjusted Operating Income   8       32       8         48  
Adjusted Operating Margin   5.9 %     13.2 %     2.7 %     7.2 %
Capex   7       11       19         37  
               
Operating Income   (20 )     33       3         14  
Operating Margin   (14.6 %)     13.8 %     1.1 %     2.0 %
                               

Americas, Europe and Africa (“AEA”) new orders increased from the sequential quarter, mainly due to two SURF awards, one in the U.S. Gulf of Mexico (“GoM”) and one offshore Trinidad.  The Area’s revenue was primarily driven by high activity on PB Litoral.  The installation of the PB Litoral facilities was completed offshore Mexico with the installation of the 7200-ton main deck marking the first use of the ‘floatover’ method for installation in Mexico by the Company, which was successfully completed without incident. The final hookup, commissioning and start-up is ongoing and is expected to be complete during the first quarter of 2016. Material deliveries for Ayatsil ‘C’ have started to arrive in the Altamira fabrication yard and assembly activities for the jacket have commenced. During the fourth quarter the Company’s spoolbase facility in Gulfport, Mississippi was handed over to operations for the LLOG Otis pipelines. On the Exxon Julia project, McDermott’s North Ocean 102 (“NO 102”) vessel successfully executed the umbilical and power cable installation phase and the Derrick Barge 50 (“DB50”) completed the second phase of structure installations. The final phase of the Exxon Julia project is well progressed and the DB50 is scheduled to return to the field early in the first quarter of 2016 for the final installation work. 

Middle East (“MEA”) new orders decreased from the sequential quarter, due to the Aramco Lump Sum mega award in the third quarter 2015.  The Saudi Aramco Karan 45 project has progressed ahead of schedule and the Abu Ali cables project completed ahead of schedule, earning both project teams special commendations from the customer.  The Manifa Field Development project offshore installation scope was also successfully completed in the period. Execution of the lump sum project awarded under the second, recently executed Saudi Aramco Long Term Agreement (LTA II) is now proceeding according to schedule. Fabrication of the 12 Jackets remained on track with timely completion and load-out of three jackets ready for installation in the first quarter of 2016. Following the successful loadout and trans-spooling of the longest (54 miles) 115kV submarine composite cable in the area for the Marjan Power Systems project, installation is expected to take place in the first quarter of 2016. Notable achievements in safety were the Jebel Ali yard reaching 30 million man hours lost time incident (“LTI”) free earlier in 2015, and HSES performance levels remaining high through the fourth quarter with zero LTIs to report, both onshore and offshore.

Asia (“ASA”) new orders increased from the sequential quarter, primarily due to the Company’s re-entry into the deepwater, subsea market in India with the ONGC Vashishta award to a consortium with Larsen & Toubro (“L&T”) which is expected to provide the best in-market execution solution. In addition, subsequent to year-end we entered into a long-term, mutually exclusive agreement with L&T which will provide a strategic relationship to address significant offshore and deepwater opportunities in offshore India.  On our existing project, INPEX Ichthys, we achieved all of the agreed-upon milestones during the quarter with the project remaining on schedule.  In addition, the Company has completed the majority of the INPEX Ichthys project fabrication in the Company’s Batam yard.  The project’s HSE performance continues to be strong, achieving over 700 thousand man-hours in the fourth quarter without an LTI. The Company has successfully completed all of the offshore works on the complex Brunei Shell pipeline replacement project. The Derrick Barge 30 (“DB30”) completed 7.8 miles of the operationally challenging Corrosion Resistant Alloy (“CRA”) pipelaying including all the pre-commissioning work. The Emerald Sea completed laying, termination and testing of all subsea umbilicals (total 8.0 miles) and subsea cable (total 6.8 miles). All the marine vessel spreads were demobilized in December 2015. The project required over 2.5 million man-hours and involved approximately 2,800 people working offshore for the 2015 campaign. In the Batam yard, the Company has commenced fabrication of the Yamal LNG onshore modules weighing 22,000 tons. 

The DLV 2000 is scheduled for delivery early April with a naming ceremony planned in mid-April at Keppel’s Singmarine Shipyard in Singapore.  The vessel has secured scope as part of the current McDermott work schedule for over eighty days on the 2016 marine campaign on the INPEX Ichthys project.  In addition, the Company was recently awarded the Woodside Greater Western Flank Phase 2 transportation and installation project, on which the DLV 2000 will perform its first pipelay work.

Cost Structure Progress

McDermott Profitability Initiative (“MPI”) was substantially completed during the fourth quarter 2015, with the move from Singapore to Kuala Lumpur and finalizing of sourcing initiatives due to be completed in the first half of 2016.  MPI achieved 2015 in-year cash savings of approximately $115 million, with future annual cash savings expected to be at least $150 million

In addition, the Company continued its efforts to proactively improve its cost structure by initiating the efficiency driven Additional Overhead Reduction (“AOR”) program during fourth quarter 2015.  AOR actions are expected to be substantially complete in the first quarter of 2016, and include personnel reductions affecting direct operating expense and SG&A.  Similar to MPI, the objective of AOR is to further address fixed costs while maintaining the capability and capacity potential of the Company.  The Company anticipates annualized cash savings of approximately $25 million, and restructuring costs of $5 million in 2016.

The Company’s restructuring costs for the fourth quarter 2015 were $8.7 million and are expected to be approximately $10 million for the full-year 2016 as a result of remaining MPI actions as well as the AOR program.  The Company has successfully amended its principal credit facility to allow for the add-back of post 2015 restructuring costs in the calculation of covenant EBITDA up to a maximum of $25 million.

Contract Backlog and Bid Pipeline Summary

($ in billions)
  Three Months Ended December 31, 2015
  AEA   MEA   ASA   MDR
Backlog $ 0.3     $ 2.6     $ 1.3     $ 4.2  
Bids & Change Orders Outstanding   1.0       2.3       1.1       4.4  
Targets   6.3       4.7       4.2       15.2  
Total Revenue Pipeline   7.6       9.6       6.6       23.8  
                               

As of December 31, 2015, the Company’s backlog was $4.2 billion, compared to $4.4 billion at September 30, 2015. Of the December 31, 2015 backlog, approximately 69% is related to offshore operations and approximately 31% is related to subsea operations. Order intake in the fourth quarter 2015 totaled $478 million, including the awards of the ONGC Vashishta and the offshore Trinidad installation project, resulting in a book-to-bill ratio of 0.7x.

At December 31, 2015, the Company had bids outstanding and target projects of approximately $19.6 billion in projects that it expects to be awarded in the market through March 31, 2017.  In total, the Company’s potential revenue pipeline, including backlog, was $23.8 billion as of December 31, 2015. 

2016 Outlook

($ in millions, except per share amounts, or as indicated)
  FY'16 Guidance
Revenues ~2.9B
Adjusted Operating Income ~115
Net Interest Expense1 ~64
Income Tax Expense ~55
Adjusted Net Income ~0
Adjusted Diluted EPS ~0.00
Adjusted EBITDA ~240
   
Restructuring Expense ~10
Cash Interest / DIC Amortization Interest ~60 / ~14
Covenant EBITDA - TTM2 ~285
Capex1 ~260
Ending Cash and Restricted Cash ~580
Ending Gross Debt ~840
Free Cash Flow   ~(160)
   
1) Net Interest Expense has been reduced by ~$10M for capitalized interest included in Capex.
2) Exceeds minimum covenant EBITDA required under the Credit Facility of $251 million before use of $28 million available add-back.
  ~ = approximately
 

Our full-year 2016 guidance is based on our current view of the business outlook; however, given the macro commodity environment we may see pressure from potential customer capital expenditure spending delays, stronger competitive pricing pressure given contraction in certain markets and lower utilization of our assets.  For now, McDermott will continue to concentrate on our highest value proposition opportunities, executing well our existing backlog, customer alignment, our asset utilization and cost/liquidity management.  The Company previously provided 2016 guidance in connection with our Investor Day held in November; however, the guidance given at that time was on a GAAP basis, and did not include savings and charges expected to be realized in connection with the Company’s AOR program.

The calculations of total and per share adjusted net income, adjusted operating income and free cash flow are shown in the appendix titled “Reconciliation of Forecast GAAP Financials to Non-GAAP Financial Measures.”

Other Financial Information

Weighted average common shares outstanding on a fully diluted basis were approximately 238.7 million and 284.1 million for the quarters ended December 31, 2015 and 2014, respectively and 238.2 million and 237.2 million for the years ended December 31, 2015 and 2014, respectively. Common shares for the settlement of the common stock purchase contracts related to the Tangible Equity Units (“TEUs”) representing 40.9 million additional shares, as well as other potentially dilutive shares, were not included in the calculation of diluted weighted average shares for the quarter and year ended December 31, 2015, as well as the year ended December 31, 2014, due to their anti-dilutive effect.   For the quarter ended December 31, 2014, the TEUs and other dilutive shares were included in the fully diluted share count due to the Company’s positive net income position.  For the quarter and year ended December 31, 2015 and the quarter ended December 31, 2014 the TEUs and other dilutive shares were included in the fully diluted share count for adjusted earnings per share measures.  For the year ended December 31, 2014, the TEUs and other dilutive shares were not included in the fully diluted share count due to their anti-dilutive effect.

Conference Call

McDermott has scheduled a conference call and webcast related to its fourth quarter and full-year 2015 results today at 4:00 p.m. U.S. Central Time.  Interested parties may listen over the Internet through a link posted in the Investor Relations section of the Company’s Web site. A replay of the webcast will be available for seven days after the call and may be accessed by dialing (855) 539-0893, Passcode #22579208. In addition, a presentation will be available on the Investor Relations section of the Company’s Web site that contains supplemental information on the Company’s financials, operations and business outlook.

About the Company

McDermott is a leading provider of integrated engineering, procurement, construction and installation (EPCI) and module fabrication services for upstream field developments worldwide.  The Company delivers fixed and floating production facilities, pipelines, installations and subsea systems from concept to commissioning for complex Offshore and Subsea oil and gas projects to help oil companies safely produce and transport hydrocarbons.  Our clients include national and major energy companies.  Operating in approximately 20 countries across the world, our locally focused and globally integrated resources include approximately 10,600 employees, a diversified fleet of specialty marine construction vessels, fabrication facilities and engineering offices. We are renowned for our extensive knowledge and experience, technological advancements, performance records, superior safety and commitment to deliver.  McDermott has served the energy industry since 1923 and is listed on the New York Stock Exchange.

To learn more, please visit our website at www.mcdermott.com

NON-GAAP Measures

This press release includes several “non-GAAP” financial measures as defined under Regulation G of the U.S. Securities Exchange Act of 1934, as amended. We report our financial results in accordance with U.S. generally accepted accounting principles, but believe that certain non-GAAP financial measures provide useful supplemental information to investors regarding the underlying business trends and performance of our ongoing operations and are useful for period-over-period comparisons of those operations. The non-GAAP measures we have presented in this press release include non-GAAP Adjusted Operating Income (Loss), non-GAAP Adjusted Operating Margin, the total and diluted per share amounts of non-GAAP Adjusted Net Income (Loss) attributable to the Company, EBITDA, Covenant EBITDA and Free Cash Flow. These non-GAAP financial measures should be considered as a supplement to, and not as a substitute for, or superior to, the financial measures prepared in accordance with GAAP.

Reconciliations of these non-GAAP financial measures to the most comparable GAAP measures are provided in the supplemental information set forth at the end of this press release.

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, contingencies and uncertainties that may impact McDermott's actual results of operations. These forward-looking statements include, but are not limited to, statements about backlog, bids outstanding, target projects and revenue pipeline, to the extent these may be viewed as indicators of future revenues or profitability, the expected value, scope, execution and timing of projects discussed, the expected timing of delivery of the DLV 2000, future annual cash savings to be realized from the McDermott Profitability Initiative, the expected savings and costs related to the Additional Overhead Reduction program, McDermott’s earnings and other guidance for the full year of 2016 and 2016 outlook.  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 risks, contingencies and uncertainties, including, among others: 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 terms, scope or timing of contracts, contract cancellations, change orders and other modifications and actions by our customers and business partners, changes in industry norms and adverse outcomes in legal or other dispute resolution proceedings. If one or more of these risks materialize, or if underlying assumptions prove incorrect, actual results may vary materially from those expected.  You should not place undue reliance on forward-looking statements. 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, 2015.  This press 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 OPERATIONS  
             
  Three Months Ended     Year Ended  
  December 31,     December 31,  
  2015     2014     2015     2014  
  (In thousands)  
Revenues $ 667,418     $ 806,400     $ 3,070,275     $ 2,300,889  
                               
Costs and Expenses:                              
Cost of operations   569,342       718,951       2,691,284       2,113,013  
Selling, general and administrative expenses   73,106       51,475       217,239       208,564  
Impairment loss (recovery)   -       1,662       6,808       (9,002 )
Loss (gains) on asset disposals   -       161       1,443       (46,201 )
Restructuring expenses   8,693       6,001       40,819       18,113  
Total costs and expenses   651,141       778,250       2,957,593       2,284,487  
                               
Loss from Investments in Unconsolidated Affiliates   (2,738 )     (2,201 )     (21,486 )     (7,848 )
                               
Operating Income (Loss)   13,539       25,949       91,196       8,554  
                               
Other Income (Expense):                              
Interest income (expense), net   (11,879 )     (10,346 )     (50,058 )     (60,877 )
Gain (loss) on foreign currency, net   434       7,091       (464 )     7,234  
Other income (expense), net   1,350       (128 )     2,450       (232 )
Total other expense   (10,095 )     (3,383 )     (48,072 )     (53,875 )
                               
Income (loss) before provision for income taxes and noncontrolling interests   3,444       22,566       43,124       (45,321 )
                               
Provision for income taxes   21,459       10,332       51,963       20,073  
                               
Net Loss   (18,015 )     12,234       (8,839 )     (65,394 )
                               
Less: net income attributable to noncontrolling interest   653       4,059       9,144       10,600  
                               
Net loss attributable to McDermott International, Inc. $ (18,668 )   $ 8,175     $ (17,983 )   $ (75,994 )


McDERMOTT INTERNATIONAL, INC.  
EARNINGS PER SHARE COMPUTATION  
                               
  Three Months Ended     Year Ended  
  December 31,     December 31,  
  2015     2014     2015     2014  
  (In thousands, except share and per share amounts)  
                               
Net income (loss) attributable to McDermott International, Inc. $ (18,668 )   $ 8,175     $ (17,983 )   $ (75,994 )
                               
Weighted average common shares (basic)   238,670,881       237,130,209       238,240,763       237,229,086  
Effect of dilutive securities:                              
Tangible equity units   -       40,896,300       -       -  
Stock options, restricted stock and restricted stock units   -       6,114,944       -       -  
Adjusted weighted average common shares and assumed exercises of stock options and vesting of stock awards (diluted)   238,670,881       284,141,453       238,240,763       237,229,086  
                               
Loss per share                              
Net loss attributable to McDermott International, Inc.                              
Basic: $ (0.08 )   $ 0.03     $ (0.08 )   $ (0.32 )
Diluted: $ (0.08 )   $ 0.03     $ (0.08 )   $ (0.32 )


SUPPLEMENTARY DATA  
                               
  Three Months Ended December 31,     Year  Ended December 31,  
  2015     2014     2015     2014  
  (In thousands)  
Depreciation & amortization expense $ 24,352     $ 24,530     $ 100,334     $ 93,185  
Drydock amortization   4,037       4,152       17,947       19,719  
Capital expenditures   36,733       104,661       102,851       321,187  
Backlog   4,231,447       3,600,999       4,231,447       3,600,999  


McDERMOTT INTERNATIONAL, INC.  
CONSOLIDATED BALANCE SHEETS  
                 
    December 31,
2015
    December 31,
2014
 
    (In thousands, except share and per share
amounts)
 
Assets                
Current Assets:                
Cash and cash equivalents   $ 664,844     $ 665,309  
Restricted cash and cash equivalents     116,801       187,585  
Accounts receivable – trade, net     208,474       143,370  
Accounts receivable  – other     66,689       79,915  
Contracts in progress     435,829       357,617  
Deferred income taxes     8,133       7,514  
Other current assets     34,641       46,071  
Total Current Assets     1,535,411       1,487,381  
Property, Plant and Equipment     2,467,352       2,487,815  
Less accumulated depreciation     (856,493 )     (830,467 )
Net Property, Plant and Equipment     1,610,859       1,657,348  
Accounts Receivable – Long-Term Retainages     155,061       137,468  
Investments in Unconsolidated Affiliates     26,551       38,186  
Deferred Income Taxes     10,689       17,313  
Other Assets     48,505       79,183  
Total Assets   $ 3,387,076     $ 3,416,879  
                 
Liabilities and Equity                
Current Liabilities:                
Notes payable and current maturities of long-term debt   $ 24,882     $ 23,678  
Accounts payable     279,821       219,384  
Accrued liabilities     330,943       369,749  
Advance billings on contracts     164,773       199,865  
Deferred income taxes     17,273       19,753  
Income taxes payable     23,787       25,165  
Total Current Liabilities     841,479       857,594  
Long-Term Debt     819,001       840,791  
Self-Insurance     18,653       17,026  
Pension Liability     24,066       18,403  
Non-current Income Taxes     52,559       49,229  
Other Liabilities     84,597       94,722  
Commitments and Contingencies                
Stockholders' Equity:                
Common stock, par value $1.00 per share, authorized 400,000,000 shares; issued  246,841,128 and 245,209,850 shares, respectively     246,841       245,210  
Capital in excess of par value (including prepaid common stock purchase contracts)   1,687,059       1,676,815  
Accumulated Deficit     (260,884 )     (239,572 )
Treasury stock, at cost: 7,824,204 and 7,400,027 shares, respectively     (92,262 )     (96,441 )
Accumulated other comprehensive loss     (93,955 )     (97,808 )
Stockholders' Equity - McDermott International, Inc.     1,486,799       1,488,204  
Noncontrolling interest     59,922       50,910  
Total Equity     1,546,721       1,539,114  
Total Liabilities and Equity   $ 3,387,076     $ 3,416,879  


McDERMOTT INTERNATIONAL, INC.  
CONSOLIDATED STATEMENTS OF CASH FLOWS  
                         
    Year Ended December 31,  
    2015     2014     2013  
    (In thousands)  
Cash flows from operating activities:                        
Net Loss   $ (8,839 )   $ (65,394 )   $ (489,910 )
Non-cash items included in net loss:                        
Depreciation and amortization     100,334       93,185       84,580  
Drydock amortization     17,947       19,719       18,467  
Loss (gain) on asset impairments     6,808       (9,002 )     84,482  
Stock-based compensation charges     16,593       18,565       21,100  
Loss from investments in unconsolidated affiliates     21,486       7,848       16,116  
Loss (gain) on foreign currency-net     6,238       (10,310 )     (13,247 )
Restructuring expense (gain)     7,473       (2,310 )     18,044  
Loss (gain) on asset disposals     1,443       (46,201 )     (15,200 )
Deferred income taxes     3,525       891       (5,359 )
Pension expense     19,821       (4,291 )     (3,865 )
Debt issuance cost amortization     12,767       22,915       3,715  
Other non-cash items     1,269       686       (2,164 )
Changes in assets and liabilities that provided (used) cash:                        
Accounts receivable     (82,697 )     166,385       30,156  
Contracts in progress net of advance billings on contracts     (113,338 )     (10,695 )     171,397  
Accounts payable     78,646       (154,439 )     (17,493 )
Accrued and other current liabilities     (33,969 )     (2,801 )     (22,155 )
Pension liability     (1,506 )     (1,861 )     (30,828 )
Income taxes     1,778       (4,668 )     (54,431 )
Other assets and liabilities     (507 )     (11,262 )     (50,016 )
Total cash provided by (used in) operating activities     55,272       6,960       (256,611 )
                         
Cash flows from investing activities:                        
Purchases of property, plant and equipment     (102,851 )     (321,187 )     (283,962 )
(Increase) decrease in restricted cash and cash equivalents     70,784       (163,933 )     (5,536 )
Purchases of available-for-sale securities     -       (3,695 )     (10,535 )
Sales and maturities of available-for-sale securities     3,176       12,978       43,959  
Investments in unconsolidated affiliates     (7,038 )     (2,420 )     (9,354 )
Proceeds from asset dispositions     10,724       71,961       37,386  
Other investing activities     417       (2,706 )     (3,113 )
Total cash used in investing activities     (24,788 )     (409,002 )     (231,155 )
                         
Cash flows from financing activities:                        
Proceeds from debt     -       1,328,875       296,000  
Repayment of debt     (26,938 )     (298,534 )     (310,146 )
Issuance of common stock     682       327       68  
Repurchase of common stock     (1,720 )     (1,707 )     (1,106 )
Payment of debt issuance costs     (170 )     (39,112 )     (4,905 )
Distributions to noncontrolling interests     -       (6,352 )     (13,743 )
Acquisition of noncontrolling interest     (24 )     (32,943 )     -  
Total cash provided by (used in) financing activities     (28,170 )     950,554       (33,832 )
                         
Effects of exchange rate changes on cash and cash equivalents     (2,779 )     (1,905 )     153  
Net increase (decrease) in cash and cash equivalents     (465 )     546,607       (521,445 )
Cash and cash equivalents at beginning of year     665,309       118,702       640,147  
Cash and cash equivalents at end of year   $ 664,844     $ 665,309     $ 118,702  
                         
Supplemental Cash Flow Information:                        
Cash paid during the period for:                        
Income taxes (net of refunds)   $ 40,560     $ 26,661      $ 105,444  
Cash paid for interest, net of amounts capitalized     40,690       28,390       -  
Supplemental Disclosure of Noncash Investing Activities:                        
Non-cash investment in unconsolidated affiliates     2,396       -       -  
Capital lease     -       3,407       -  
Supplemental Disclosure of Noncash Financing Activities:                        
Non-cash acquisition of noncontrolling interest     -       11,136       -  
                         

McDERMOTT INTERNATIONAL, INC
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES

McDermott reports our financial results in accordance with the U.S. generally accepted accounting principles (“GAAP”). This press release also includes several Non-GAAP1 financial measures as defined under the SEC’s Regulation G. The following table reconciles Non-GAAP financial measures to comparable GAAP financial measures:

  Three Months Ended
December 31,
    Year Ended December 31,  
  2015     2014     2015     2014  
(In thousands, except share and per share amounts)                              
                               
GAAP Net  Income (Loss) Attributable to the Company $ (18,668 )   $ 8,175     $ (17,983 )   $ (75,994 )
                               
Less: Adjustments                              
Restructuring charges2   8,693       6,001       40,819       18,113  
Non-cash actuarial loss (gain) on benefit plans3   26,013       (2,938 )     26,013       (2,938 )
Legal settlement4   -       -       16,682       -  
Total Non-GAAP Adjustments   34,706       3,063       83,514       15,175  
                               
Non-GAAP Adjusted Net Income (Loss) Attributable to  the Company $ 16,038     $ 11,238     $ 65,531     $ (60,819 )
                               
GAAP Operating Income $ 13,539     $ 25,949     $ 91,196     $ 8,554  
Non-GAAP Adjustments   34,706       3,063       83,514       15,175  
Non-GAAP Adjusted Operating Income $ 48,245     $ 29,012     $ 174,710     $ 23,729  
 Non-GAAP Adjusted Operating Income Margin   7.2 %     3.6 %     5.7 %     1.0 %
                               
GAAP Diluted EPS $ (0.08 )   $ 0.03     $ (0.08 )   $ (0.32 )
Non-GAAP Adjustments   0.14       0.01       0.31       0.06  
Non-GAAP Diluted EPS $ 0.06     $ 0.04     $ 0.23     $ (0.26 )
                               
Shares used in computation of loss per share:                              
Basic   238,670,881       237,130,209       238,240,763       237,229,086  
Diluted   282,701,538       284,141,453       281,531,013       237,229,086  


    Three Months Ended
    December 31, 2015
    AEA     MEA     ASA     Corporate
(In thousands)                      
                       
Revenues $   134,415     $   242,188     $   290,815     $     -   
                       
GAAP Operating Income (Loss)     (19,616 )       33,275         3,290         (3,410 )
                       
GAAP Operating Margin     (14.6 %)       13.8 %       1.1 %      
                       
Less: Adjustments                      
Total Non-GAAP Adjustments     27,597         (783 )       4,538         3,354  
     
Non-GAAP Operating Income (Loss)     7,981         32,492         7,828         (56 )
     
Non-GAAP Adjusted Operating Margin     5.9 %       13.2 %       2.7 %      
                                   

1Non-GAAP measures are comprised of the total and diluted per share amounts of adjusted net income (loss) attributable to the Company and adjusted operating income, in each case excluding the impact of certain identified items. We believe that adjusted net income (loss) and adjusted operating income are useful measure for investors to review because they provide a consistent measure of the underlying results of our ongoing business. Furthermore, our management uses adjusted net income (loss) and adjusted operating income as a measure of the performance of our operations. However, Non-GAAP measures should not considered as substitutes for operating income, net income or other data prepared  and reported in accordance with GAAP and should be viewed in addition to the Company’s reported results prepared in accordance  with GAAP.

2Restructuring charges are primarily associated with workforce reductions, facility closures, consultant fee, contract terminations and asset impairments.

3Non-cash actuarial loss (gain) on benefit plans represents mark-to-market adjustment recorded in the fourth quarter of each respective year.

4Costs related to a legal settlement of $16.7 million were recorded during the third quarter of 2015.

McDERMOTT INTERNATIONAL, INC
RECONCILIATION OF FORECAST GAAP FINANCIALS TO NON-GAAP FINANCIAL MEASURES

This press release includes several forward-looking Non-GAAP1 financial measures as defined under the SEC’s Regulation G. The forward looking financial measures are within reasonable measure.  The following table reconciles Non-GAAP financial measures to comparable GAAP financial measures:

       
    Year Ended
December 31,
2016
 
(In thousands, except per share amounts)        
         
GAAP Net  Income (Loss) Attributable to the Company   $   (10,000 )
         
Less: Adjustments        
Restructuring charges2       10,000  
Total Non-GAAP Adjustments       10,000  
         
Non-GAAP Adjusted Net Income (Loss) Attributable to  the Company   $   -  
         
GAAP Operating Income   $   105,000  
Non-GAAP Adjustments       10,000  
Non-GAAP Adjusted Operating Income   $   115,000  
         
GAAP Diluted EPS   $   (0.04 )
Non-GAAP Adjustments       0.04  
Non-GAAP Diluted EPS   $   0.00  
         
Cash flows from operating activities   $   100,000  
Capital expenditures       (260,000  
Free cash flow   $   (160,000
         
GAAP Net Income (Loss) Attributable to the Company   $   (10,000
Add:        
Total Adjustments       240,000  
EBITDA   $   230,000  
         
EBITDA   $   230,000  
Non-GAAP Adjustments       10,000  
EBITDA   $   240,000  
         


       
    Twelve Months Ended
December 31, 2016
(In thousands)      
       
GAAP Net  Income (Loss) Attributable to the Company   $   (10,000 )
       
Total Adjustments       295,000  
Calculated Covenant EBITDA attributable to McDermott International, Inc.   $   285,000  
       
Calculated Covenant EBITDA attributable to McDermott International, Inc./TTM   $   285,000  
       

1Non-GAAP measures are comprised of the total and diluted per share amounts of adjusted net income (loss) attributable to the Company and adjusted operating income, operating income, operating margin, EBITDA and Adjusted EBITDA, in each case excluding the impact of certain identified items. We believe that these measures are useful measures for investors to review because they provide a consistent measure of the underlying results of our ongoing business. Furthermore, our management uses these measures as measures of the performance of our operations. However, Non-GAAP measures should not considered as substitutes for operating income, net income or other data prepared  and reported in accordance with GAAP and should be viewed in addition to the Company’s reported results prepared in accordance  with GAAP.

CONTACT:
Investors & Financial Media
Kathy Murray
Vice President, Treasurer and Investor Relations
281.870.5147
kamurray@mcdermott.com

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McDermott, Inc.

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