McDermott Reports Third Quarter 2010 Income from Continuing Operations of $60.8 Million, $0.26 Per Fully Diluted Share

Results Above Include $43.9 Million, or $0.19 Per Share, of Non-Cash Impairment and Related Charges

Excluding Impairment, Non-GAAP EPS from Continuing Operations of $0.44 Per Diluted Share

HOUSTON--(BUSINESS WIRE)-- McDermott International, Inc. (NYSE: MDR) (“McDermott” or the “Company”) today reported net income from continuing operations of $60.8 million, or $0.26 per diluted share, for the 2010 third quarter. Included in the 2010 third quarter continuing results is approximately $43.9 million of non-cash impairment and related expenses, or 19 cents per diluted share. The results of the 2010 third quarter compare to net income from continuing operations of $76.1 million, or $0.32 per diluted share, in the corresponding period of 2009. Both periods exclude the results of The Babcock & Wilcox Company (“B&W”), which was spun-off to McDermott shareholders on July 30, 2010, as well as the operations of McDermott’s charter fleet business, which were obtained in the 2007 Secunda asset acquisition and are classified as held for sale. Weighted average common shares outstanding on a fully diluted basis were approximately 236.3 million and 234.3 million in the quarters ended September 30, 2010 and September 30, 2009, respectively.

McDermott’s revenues for the 2010 third quarter were $732.1 million, compared to $1,012.5 million in the corresponding period of 2009. The year-over-year decrease in revenues was primarily due to a $259 million reduction in revenues in the Middle East segment, which reflects lower fabrication activity and construction vessel utilization.

The Company’s operating income was $84.3 million in the 2010 third quarter, compared to $97.6 million in the 2009 third quarter. The year-over-year decrease was primarily due to the $43.9 million of non-cash impairment and related charges associated with the write-down of certain multi-service vessels to market value, and the decision to terminate a contract relating to a previously proposed development of a new fabrication facility in Kazakhstan. These charges were largely offset by project improvements in the Middle East segment, including contract change orders and close-outs.

“McDermott’s operating performance in the third quarter of 2010 was outstanding, although somewhat muted by the non-cash impairment charges,” said Stephen M. Johnson, President and Chief Executive Officer of McDermott. “New awards during the three month period ended September 30, 2010 were light. However, we are pleased to report that in the month of October 2010, McDermott recognized bookings of approximately $1.2 billion. As such, we believe the market we serve continues to be robust and that the outlook for our business remains strong, particularly in the Middle East and Asia Pacific segments.”

The Company’s other expense for the third quarter of 2010 was $3.5 million, compared to $0.3 million in the third quarter of 2009. The $3.2 million increase in other expense was primarily due to a $1.3 million reduction in interest income/expense-net, as well as increased foreign currency translation expenses.

At September 30, 2010, the Company’s backlog was $3.6 billion, compared to $4.2 billion and $3.8 billion at June 30, 2010 and September 30, 2009, respectively. The third quarter 2010 backlog amount does not include $1.2 billion of new bookings received in October 2010 which will be incorporated in fourth quarter bookings and year-end backlog.

Balance Sheet Summary

As of September 30, 2010, McDermott reported total assets of $2.3 billion. Included in this amount was approximately $719.8 million of cash and investments. Net working capital, calculated as current assets less current liabilities, was $429.6 million. Additionally, total equity was approximately $1.5 billion, or 63% of total assets, with total debt of $54.0 million.

Discontinued Operations

In the third quarter of 2010, McDermott recorded a net loss from discontinued operations of $40.0 million, or $0.17 per diluted share, compared to net income from discontinued operations of $42.1 million, or $0.18 per diluted share, in the corresponding period of 2009. Included in discontinued operations for both periods are the results of B&W, which was spun-off to McDermott’s shareholders on July 30, 2010, the Secunda charter fleet business, which is held for sale, as well as transaction related costs associated with the spin-off of B&W and impairment charges associated with the charter fleet business.

Upcoming Investor Events

McDermott plans to attend two upcoming investor conferences next week. On November 16, 2010, McDermott will participate in the Barclays Capital Energy, Engineering and Construction One-Day Forum in Dallas. The following day, November 17, 2010, McDermott will participate in the 2010 KeyBanc Capital Markets Engineering, Construction and Utilities Conference in New York City.

The presentations to be used during both of these meetings will be available for a limited time over the Internet at www.mcdermott.com in the investor relations section on the morning of the respective events.

OTHER INFORMATION

About the Company

McDermott is a leading engineering, procurement, construction and installation (“EPCI”) company focused on executing complex offshore oil and gas projects worldwide. Providing fully integrated EPCI services for upstream field developments, the Company delivers fixed and floating production facilities, pipelines and subsea systems from concept to commissioning. McDermott’s customers include national and major energy companies. Operating in more than 20 countries across the Atlantic, Middle East and Asia Pacific, the Company’s integrated resources include more than 16,000 employees and a diversified fleet of marine vessels, fabrication facilities and engineering offices. McDermott has served the energy industry since 1923. To learn more, please visit McDermott’s website on the Internet at www.mcdermott.com.

Forward-Looking Statements

In accordance with the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, McDermott cautions that statements in this press release, which are forward-looking and provide other than historical information, involve risks and uncertainties that may impact McDermott’s actual results of operations. These forward-looking statements include statements about backlog, to the extent backlog may be viewed as an indicator of future revenues, and our belief that the market we serve continues to be robust and the outlook for our business remains strong. Although we believe that the expectations reflected in those forward-looking statements are reasonable, we can give no assurance that those expectations will prove to have been correct. Those statements are made by using various underlying assumptions and are subject to numerous uncertainties and risks, including adverse changes in the markets in which we operate or credit markets and our inability to successfully execute on contracts in backlog. If one or more of these risks materialize, or if underlying assumptions prove incorrect, actual results may vary materially from those expected. For a more complete discussion of these and other risk factors, please see McDermott’s annual and quarterly filings with the Securities and Exchange Commission, including its annual report on Form 10-K for the year ended December 31, 2009 and subsequent quarterly reports on Form 10-Q. This news release reflects management’s views as of the date hereof. Except to the extent required by applicable law, McDermott undertakes no obligation to update or revise any forward-looking statement.

In addition to the Company's results prepared in accordance with generally accepted accounting principles ("GAAP"), McDermott has provided Non-GAAP financial measures that present its Condensed Consolidated Statements of Income, including net income attributable to McDermott and net income per share, for the three-months ended September 30, 2010 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 Third Quarter 2010 Earnings Release

Date: Tuesday, November 9, 2010, at 10:00 a.m. ET (9:00 a.m. CT)

Live Webcast: Investor Relations section of Web site at www.mcdermott.com

Replay: Available for 2 weeks in the investor relations section of www.mcdermott.com


McDERMOTT INTERNATIONAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
		2010			2009			2010			2009
				(As adjusted)						(As adjusted)
	(Unaudited)
	(In thousands, except share and per share amounts)

Revenues	$	732,095		$	1,012,474		$	1,864,121		$	2,524,992

Costs and Expenses:
Cost of operations		565,996			855,235			1,421,041			2,167,526
Loss (gain) on asset disposals and impairments – net		24,336			(121	)		22,030			(1,179	)
Selling, general and administrative expenses		56,099			59,175			159,911			167,354
Total costs and expenses		646,431			914,289			1,602,982			2,333,701

Equity in Losses of Investees		(1,361	)		(596	)		(5,507	)		(2,797	)

Operating Income		84,303			97,589			255,632			188,494

Other income (expense):
Interest income (expense) – net		(78	)		1,230			(1,532	)		7,284
Other income (expense) – net		(3,460	)		(1,554	)		(4,188	)		(11,009	)
Total other income (expense)		(3,538	)		(324	)		(5,720	)		(3,725	)

Income from continuing operations before provision for income taxes and noncontrolling interest		80,765			97,265			249,912			184,769

Provision for Income Taxes		10,085			19,300			35,229			44,106

Income from continuing operations before noncontrolling interest		70,680			77,965			214,683			140,663
Income (loss) from discontinued operations, net of tax		(40,030	)		42,051			(34,308	)		155,555

Net Income		30,650			120,016			180,375			296,218

Less: Net Income Attributable to Noncontrolling Interests		(9,847	)		(1,909	)		(23,597	)		(7,864	)

Net Income Attributable to McDermott International, Inc.	$	20,803		$	118,107		$	156,778		$	288,354


McDERMOTT INTERNATIONAL, INC. EARNINGS PER SHARE COMPUTATION

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
		2010			2009		2010			2009
	(Unaudited)
	(In thousands, except share and per share amounts)

Income from continuing operations less noncontrolling interest	$	60,833		$	76,056	$	191,086		$	132,799
Income (loss) from discontinued operations, net of tax		(40,030	)		42,051		(34,308	)		155,555
Net Income	$	20,803		$	118,107	$	156,778		$	288,354

Weighted average common shares (basic)		232,670,579			229,989,368		231,780,675			229,192,531
Effect of dilutive securities:
Stock options, restricted stock and restricted stock units		3,600,832			4,325,251		3,368,656			4,143,074
Adjusted weighted average common shares and assumed exercises of stock options and vesting of stock awards		236,271,411			234,314,619		235,149,331			233,335,605
Basic earnings per share:

Income from continuing operations less noncontrolling interest		0.26			0.33		0.82			0.58
Income (loss) from discontinued operations, net of tax		(0.17	)		0.18		(0.15	)		0.68
Net Income		0.09			0.51		0.67			1.26

Diluted earnings per share:

Income from continuing operations less noncontrolling interest		0.26			0.32		0.81			0.57
Income (loss) from discontinued operations, net of tax		(0.17	)		0.18		(0.14	)		0.67
Net Income		0.09			0.50		0.67			1.24


SUPPLEMENTARY DATA ⁽¹⁾

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2010		2009		2010		2009
		(Unaudited) (In thousands)
Pension expense	$	2,980	$	4,126	$	16,282	$	12,377
Depreciation & amortization expense	$	21,824	$	25,647	$	64,373	$	67,056
Capital expenditures	$	44,401	$	39,364	$	129,435	$	125,319
Backlog ⁽²⁾	$	3,599,957	$	3,831,126	$	3,599,957	$	3,831,126

(1)		Above metrics represents McDermott’s continuing operations only and thus excludes B&W and the Secunda charter business.
(2)		Backlog figures for 2010 do not include approximately $1.2 billion of new bookings that occurred in October 2010.


MCDERMOTT INTERNATIONAL, INC. NON-GAAP EARNINGS RECONCILIATION

	Three Months Ended
	September 30, 2010
	GAAP Results			Less Non-GAAP	Notes	Non-GAAP Results
				Adjustments
	(Unaudited)
	(In thousands, except per share amounts)

Revenues	$	732,095				$	732,095
Costs and Expenses:
Cost of operations		565,996		19,527	[1]		546,469
Loss on asset disposals and impairments – net		24,336		24,336	[2]		-
Selling, general and administrative expenses		56,099					56,099
Total costs and expenses		646,431		43,863			602,568
Equity in Losses of Investees		(1,361	)				(1,361	)
Operating Income		84,303		43,863			128,166
Other income (expense):
Interest income (expense) – net		(78	)				(78	)
Other expense – net		(3,460	)				(3,460	)
Total other income (expense)		(3,538	)				(3,538	)
Income from continuing operations before provision for income Taxes and noncontrolling interest		80,765		43,863			124,628
Provision for Income Taxes		10,085					10,085
Income from continuing operations before noncontrolling interest		70,680		43,863			114,543
Income (loss) from discontinued operations, net of tax		(40,030	)	40,030	[3]		-
Net Income		30,650		83,893			114,543
Less: Net Income Attributable to Noncontrolling Interests		(9,847	)				(9,847	)

Net Income Attributable to McDermott International, Inc.	$	20,803		83,893		$	104,696

Earnings per Share:
Basic:
Income from continuing operations, less noncontrolling interest		0.26		0.19			0.45
Income (loss) from discontinued operations, net of tax		(0.17	)	0.17			-
Net Income		0.09		0.36			0.45

Diluted:
Income from continuing operations, less noncontrolling interest		0.26		0.19			0.44
Income (loss) from discontinued operations, net of tax		(0.17	)	0.17			-
Net Income		0.09		0.36			0.44

[1]		Represents impairment and related expenses associated with a contract termination for the development of a new fabrication facility in Kazakhstan.
[2]		Eliminates net loss on asset disposals and impairments-net, including a $24.4 million impairment on 2 multi-service vessels.
[3]		Excludes the results of McDermott’s discontinued operations, including B&W & the Secunda charter business.

Presented above is a reconciliation between GAAP net income and non-GAAP net income, on a total and per share basis, excluding impairment and related charges. The non-GAAP measures are based upon our unaudited condensed consolidated statements of income for the period shown, with certain adjustments shown above. McDermott is providing 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 these non-GAAP measures provide meaningful insight into its ongoing operational performance and, therefore, uses the non-GAAP information internally to evaluate McDermott's operations for purposes of review, 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 certain expenses considered by management to be outside of McDermott's ongoing business.


McDERMOTT INTERNATIONAL, INC. CONDENSED CONSOLIDATED BALANCE SHEETS

ASSETS

	September 30,			December 31,
		2010			2009
	(Unaudited)
	(In thousands)

Current Assets:
Cash and cash equivalents	$	424,799		$	969,190
Investments		216,451			12
Accounts receivable – net		279,166			716,836
Contracts in progress		116,181			400,831
Inventories		1,675			101,494
Deferred income taxes		12,121			100,828
Assets held for sale		18,525			-
Other current assets		40,794			68,730

Total Current Assets		1,109,712			2,357,921

Property, Plant and Equipment		1,660,293			2,608,740
Less: Accumulated depreciation		(789,633	)		(1,271,135	)

Net Property, Plant and Equipment		870,660			1,337,605

Assets held for sale		75,054			-

Investments		78,516			228,706

Goodwill		40,633			306,497

Deferred Income Taxes		-			275,567

Investments in Unconsolidated Affiliates		27,297			86,932

Other Assets		146,295			255,882

TOTAL	$	2,348,167		$	4,849,110


McDERMOTT INTERNATIONAL, INC. CONDENSED CONSOLIDATED BALANCE SHEETS

LIABILITIES AND EQUITY

	September 30,			December 31,
		2010			2009
	(Unaudited)
	(In thousands, except share amounts)

Current Liabilities:
Notes payable and current maturities of long-term debt	$	8,567		$	16,270
Accounts payable		201,388			471,858
Accrued employee benefits		69,663			217,178
Accrued pension liability – current portion		8,630			173,271
Accrued liabilities – other		97,600			155,773
Accrued contract cost		70,634			103,041
Advance billings on contracts		147,182			689,334
Accrued warranty		50			118,278
Liabilities associated with assets held for sale		19,415			-
Deferred tax liabilities		11,692			4,735
Income taxes payable		45,319			59,294

Total Current Liabilities		680,140			2,009,032

Long-Term Debt		45,466			56,714

Accumulated Postretirement Benefit Obligation		5,192			105,605

Self-Insurance		37,523			87,222

Pension Liability		31,527			610,166

Other Liabilities		75,277			147,271

Commitments and Contingencies

Stockholders’ Equity:
Common stock, par value $1.00 per share, authorized 400,000,000 shares; issued 240,420,420 and 236,919,404 shares at September 30, 2010 and December 31, 2009, respectively		240,420			236,919
Capital in excess of par value		1,349,839			1,300,998
Retained earnings		55,485			951,647
Treasury stock at cost, 6,898,139 and 6,168,705 shares at September 30, 2010 and December 31, 2009, respectively		(85,551	)		(69,370	)
Accumulated other comprehensive loss		(148,166	)		(612,997	)
Stockholders’ Equity – McDermott International, Inc.		1,412,027			1,807,197
Noncontrolling interest		61,015			25,903
Total Equity		1,473,042			1,833,100

TOTAL	$	2,348,167		$	4,849,110


McDERMOTT INTERNATIONAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	Nine Months Ended
	September 30,
		2010			2009
	(Unaudited) (In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income	$	180,375		$	296,218
Adjustments to reconcile earnings from continuing operations:
Non-cash items included in net income:
Depreciation and amortization		101,844			118,871
Income (loss) of investees, less dividends		5,507			(11,458	)
Loss (gain) on asset disposals and impairments – net		22,030			(333	)
Provision for deferred taxes		366,498			43,264
Amortization of pension and postretirement costs		57,991			68,877
Tax benefits (expense) from stock-based compensation		(2,192	)		2,458
Other, net		32,346			36,736
Changes in assets and liabilities, net of effects of acquisitions and divestitures:
Accounts receivable		86,951			62,932
Income tax receivable		17,492			57,169
Net contracts in progress and advance billings on contracts		(121,338	)		(442,373	)
Accounts payable		(99,095	)		(22,099	)
Income taxes		(130,168	)		10,571
Accrued and other current liabilities		4,628			(1,461	)
Pension liability, accumulated postretirement benefit obligation and accrued employee benefits		(187,189	)		13,961
Other, net		(241,548	)		(35,925	)
Net cash provided by operating activities		94,132			197,408
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in restricted cash and cash equivalents		(81,126	)		(13,514	)
Purchases of property, plant and equipment		(168,027	)		(190,207	)
Acquisition of businesses, net of cash acquired		(31,705	)		(8,497	)
Net (increase) decrease in available-for-sale securities		(156,771	)		208,435
Proceeds from asset disposals		4,837			2,724
Investments in unconsolidated affiliate		(14,200	)		-
Other, net		600			(2,676	)
Net cash used in investing activities		(446,392	)		(3,735	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of long-term debt		(7,737	)		(5,652	)
Increase in short-term borrowings		-			1,606
Issuance of common stock		691			713
Payment of debt issuance costs		(5,763	)		(56	)
Cash distributed to The Babcock & Wilcox Company		(250,388	)		-
Tax benefits (expense) from stock-based compensation		2,192			(2,458	)
Other, net		(14	)		(109	)
Net cash used in financing activities		(261,019	)		(5,956	)
Effects of exchange rate changes on cash		302			10,097
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(612,977	)		197,814
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		899,270			586,649
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	286,293		$	784,463

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amount capitalized)	$	3,578		$	1,855
Income taxes (net of refunds)	$	49,661		$	93
Non-cash dividend in connection with the B&W spin-off	$	1,052,940		$	-

Contacts

McDermott International, Inc.
Investors, Analysts and Financial Media:
Jay Roueche, 281-870-5462
Vice President
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or
Robby Bellamy, 281-870-5165
Director
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or
Trade and General Media:
Louise Denly, 281-870-5025
Director, Corporate Communications
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