MDR McDermott International Inc

McDermott International, Inc. (NYSE:MDR) (“McDermott” or the “Company”) today reported net income of $92.6 million, or $0.40 per diluted share, for the 2009 second quarter, compared to its record quarter of $177.5 million, or $0.77 per diluted share, in the corresponding period of 2008. Weighted average common shares outstanding on a fully diluted basis were approximately 233.1 million and 230.4 million in the quarters ended June 30, 2009 and June 30, 2008, respectively.

McDermott’s revenues in the second quarter of 2009 were $1,565.0 million, compared to $1,792.6 million in the corresponding period in 2008. The decrease in consolidated revenues was primarily due to a lower level of activity in the Power Generation Systems segment, partially offset by increased revenues in the Government Operations segment.

The Company’s operating income in the 2009 second quarter was $147.7 million, compared to $231.1 million in the 2008 second quarter. Notwithstanding a 35.2 percent year-over-year increase in Government Operations’ segment income, McDermott’s 2009 second quarter operating income declined compared to a year ago due to a predominantly non-cash increase of $21.9 million in consolidated pension plan expense and reduced levels of segment income from both Power Generation Systems and Offshore Oil & Gas Construction.

“McDermott delivered solid results in the 2009 second quarter and produced the highest level of quarterly income since the second quarter of 2008,” said John A. Fees, Chief Executive Officer of McDermott. “While the markets we serve lack conviction due to worldwide economic conditions, the Company’s bidding activity remains good, particularly in oil and gas, our liquidity improved sequentially to over $1 billion, and McDermott’s backlog remains strong.”

At June 30, 2009, McDermott’s consolidated backlog was $9.5 billion, compared to $9.8 billion and $10.0 billion at June 30, 2008 and March 31, 2009, respectively.

RESULTS OF OPERATIONS

2009 Second Quarter Compared to 2008 Second Quarter

Offshore Oil & Gas Construction Segment

Revenues in the Offshore Oil & Gas Construction segment were $832.7 million in the 2009 second quarter, compared to $872.3 million for the same period a year ago. Increased revenues in the Middle East region were more than offset by reduced levels in other regions. Approximately 40 percent of the total 2009 second quarter revenues were derived from the Middle East projects in Qatar.

Segment income for the 2009 second quarter was $67.8 million, compared to $98.0 million in the 2008 second quarter. Major areas contributing to second quarter 2009 segment income include the Middle East, Asia Pacific and Americas regions.

At June 30, 2009, segment backlog was $4.7 billion, compared to backlog of $5.3 billion and $5.0 billion at June 30, 2008 and March 31, 2009, respectively.

Power Generation Systems Segment

Revenues in the Power Generation Systems segment for the second quarter of 2009 were $471.6 million, compared to $698.1 million in the second quarter of 2008. The year-over-year decrease was predominantly due to reduced activity on customers’ major capital projects including new power plant construction and retrofits of existing power plants.

Segment income for the 2009 second quarter was $43.9 million, compared to $106.0 million in the 2008 second quarter. Major activities contributing to second quarter 2009 segment income include the supply and construction of new boilers and environmental equipment, commercial nuclear manufacturing, inspection and maintenance, retrofit projects of existing facilities, and related parts and services.

At June 30, 2009, segment backlog was $2.2 billion, compared to backlog of $3.0 billion and $2.2 billion at June 30, 2008 and March 31, 2009, respectively.

Government Operations Segment

Revenues in the Government Operations segment were $261.4 million in the 2009 second quarter, compared to $225.8 million for the same period a year ago. The increase in revenues, as compared to the same period a year ago, was primarily due to activities in the manufacture of nuclear components and nuclear fuels for certain U.S. Government programs, including the revenues from Nuclear Fuel Services which was acquired in December 2008.

Segment income for the 2009 second quarter was $57.5 million, compared to $42.5 million in the 2008 second quarter. Major items contributing to second quarter 2009 segment income include contracts for the downblending of high-enriched uranium, the manufacture of nuclear components and nuclear fuels for certain U.S. Government programs, the manufacture of nuclear components for a commercial uranium enrichment project, and the management and operations of various U.S. Government sites.

At June 30, 2009, segment backlog was $2.6 billion, compared to backlog of $1.5 billion and $2.7 billion at June 30, 2008 and March 31, 2009, respectively.

Corporate & Other Income and Expense

Unallocated corporate expenses were $21.4 million in the 2009 second quarter, compared to $15.4 million in the 2008 second quarter. The year-over-year increase is predominantly due to increased pension expense.

The Company’s other expense for the second quarter of 2009 was $5.2 million, compared to other income of $10.0 million in the second quarter of 2008. The $15.2 million decline was predominantly due to increased non-cash, foreign currency translation charges, as well as reduced net interest income.

Upcoming Investor Events

Members of the Company’s management will be in Chicago later this week to participate at the Jefferies & Co. Fifth Annual Industrial CEO Summit on Wednesday, August 12, 2009 and the UBS Engineering & Construction One-on-One Conference on Thursday, August 13, 2009. The presentation to be used during 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 August 12, 2009.

OTHER INFORMATION

About the Company

McDermott is an engineering and construction company, with specialty manufacturing and service capabilities, focused on energy infrastructure. McDermott’s customers are predominantly utilities and other power generators, major and national oil companies, and the United States Government. With its global operations, McDermott operates in over 20 countries with more than 25,000 employees.

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 the Company’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. 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, our inability to successfully execute on contracts in backlog and changes in the scope or timing of 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.

Conference Call to Discuss Second Quarter 2009 Earnings Release

Date: Tuesday, August 11, 2009, at 10:00 a.m. EDT (9:00 a.m. CDT)

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

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

McDERMOTT INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

    Three Months Ended   Six Months Ended June 30, June 30,

2009

 

2008

2009

 

2008

(Unaudited) (In thousands, except share and per share amounts)     Revenues   $ 1,564,999     $ 1,792,646     $ 3,058,262     $ 3,243,072     Costs and Expenses: Cost of operations 1,275,058 1,432,736 2,503,680 2,621,432 Gains on asset disposals – net (1,897 ) (17 ) (656 ) (11,460 ) Selling, general and administrative expenses     153,195       138,055       294,589       264,786   Total Costs and Expenses     1,426,356       1,570,774       2,797,613       2,874,758     Equity in Income of Investees     9,097       9,252       18,297       19,922     Operating Income     147,740       231,124       278,946       388,236     Other Income (Expense): Interest income (expense) - net 4,987 8,186 6,844 18,641 Other income (expense) – net     (10,201 )     1,843       (20,971 )     (2,097 ) Total Other Income     (5,214 )     10,029       (14,127 )     16,544     Income before Provision for Income Taxes 142,526 241,153 264,819 404,780   Provision for Income Taxes     44,645       63,602       88,523       103,982     Net Income     97,881       177,551       176,296       300,798     Less: Net Income Attributable to Noncontrolling Interest     (5,326 )     (12 )     (6,049 )     (69 )   Net Income Attributable to McDermott International, Inc.   $ 92,555     $ 177,539     $ 170,247     $ 300,729     Earnings per Share: Basic: Net Income Attributable to McDermott International, Inc. $ 0.40 $ 0.78 $ 0.74 $ 1.33 Diluted: Net Income Attributable to McDermott International, Inc.   $ 0.40     $ 0.77     $ 0.73     $ 1.31     Shares used in the computation of earnings per share : Basic 229,273,441 226,862,500 228,794,113 226,247,335 Diluted 233,105,949 230,408,760 232,846,098 230,260,810

McDERMOTT INTERNATIONAL, INC.

SELECTED SEGMENT INFORMATION

    Three Months Ended   Six Months Ended June 30, June 30,

2009

 

2008

2009

 

2008

(Unaudited); (In thousands) REVENUES Offshore Oil and Gas Construction $ 832,700 $ 872,268 $ 1,541,224 $ 1,518,217 Government Operations 261,397 225,764 518,502 416,358 Power Generation Systems 471,591 698,071 1,000,164 1,314,369 Adjustments and Eliminations     (689 )     (3,457 )     (1,628 )     (5,872 ) TOTAL   $ 1,564,999     $ 1,792,646     $ 3,058,262     $ 3,243,072     SEGMENT INCOME (LOSS) Offshore Oil and Gas Construction $ 67,802 $ 98,009 $ 112,840 $ 150,934 Government Operations 57,473 42,503 103,225 80,453 Power Generation Systems     43,865       105,985       102,024       182,243       $ 169,140     $ 246,497     $ 318,089     $ 413,630   Corporate     (21,400 )     (15,373 )     (39,143 )     (25,394 ) OPERATING INCOME (LOSS)   $ 147,740     $ 231,124     $ 278,946     $ 388,236     EQUITY IN INCOME (LOSS) OF INVESTEES (1) Offshore Oil and Gas Construction $ (1,056 ) $ (996 ) $ (2,201 ) $ (1,750 ) Government Operations 8,652 10,798 17,354 19,547 Power Generation Systems     1,501       (550 )     3,144       2,125   TOTAL   $ 9,097     $ 9,252     $ 18,297     $ 19,922  

PENSION EXPENSE (1)

Offshore Oil and Gas Construction $ 2,186 $ 1,665 $ 4,363 $ 3,330 Government Operations 12,159 4,061 24,317 8,122 Power Generation Systems 15,409 5,979 30,724 12,005 Corporate     4,572       732       9,170       1,465   TOTAL   $ 34,326     $ 12,437     $ 68,574     $ 24,922     DEPRECIATION & AMORTIZATION (1) Offshore Oil and Gas Construction $ 20,214 $ 21,041 $ 39,974 $ 41,004 Government Operations 10,307 5,660 21,550 11,226 Power Generation Systems 4,619 5,398 8,954 10,895 Corporate     751       307       1,435       592   TOTAL   $ 35,891     $ 32,406     $ 71,913     $ 63,717     RESEARCH & DEVELOPMENT, NET (1)   $ 10,902     $ 9,751     $ 21,142     $ 18,759  

CAPITAL EXPENDITURES

Offshore Oil and Gas Construction $ 47,774 $ 47,309 $ 89,133 $ 94,546 Government Operations 8,751 4,419 13,997 5,930 Power Generation Systems 7,838 5,513 20,171 12,717 Corporate     3,635       3,866       6,085       7,200   TOTAL   $ 67,998     $ 61,107     $ 129,386     $ 120,393     BACKLOG Offshore Oil and Gas Construction $ 4,688,467 $ 5,272,195 $ 4,688,467 $ 5,272,195 Government Operations 2,613,532 1,501,854 2,613,532 1,501,854 Power Generation Systems     2,221,966       2,998,212       2,221,966       2,998,212   TOTAL   $ 9,523,965     $ 9,772,261     $ 9,523,965     $ 9,772,261     (1) Included in Segment Income Above

McDERMOTT INTERNATIONAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

ASSETS

    June 30,   December 31,   2009   2008 (Unaudited) (In thousands)   ASSETS Current Assets: Cash and cash equivalents $ 671,299 $ 586,649 Restricted cash and cash equivalents 81,229 50,536 Investments 20,187 131,515 Accounts receivable – trade, net 731,419 712,055 Accounts and notes receivable – unconsolidated affiliates 1,268 1,504 Accounts receivable – other 87,929 139,062 Contracts in progress 381,196 311,713 Inventories 120,130 128,383 Deferred income taxes 103,568 97,069 Other current assets     67,228     58,499   Total Current Assets     2,265,453     2,216,985   Property, Plant and Equipment 2,362,922 2,234,050 Less accumulated depreciation     1,210,203     1,155,191   Net Property, Plant and Equipment     1,152,719     1,078,859   Investments     279,948     319,170   Goodwill     299,168     298,265   Deferred Income Taxes     264,018     335,877   Investments in Unconsolidated Affiliates     78,082     70,304   Other Assets     270,806     282,233   TOTAL   $ 4,610,194   $ 4,601,693

McDERMOTT INTERNATIONAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

LIABILITIES AND STOCKHOLDERS' EQUITY

    June 30,   December 31,   2009     2008   (Unaudited) (In thousands)   LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities: Notes payable and current maturities of long-term debt $ 3,780 $ 9,021 Accounts payable 487,396 551,435 Accrued employee benefits 236,075 205,521 Accrued liabilities – other 207,630 217,486 Accrued contract cost 128,807 97,041 Advance billings on contracts 816,948 951,895 Accrued warranty expense 128,195 120,237 Income taxes payable     50,608       55,709     Total Current Liabilities     2,059,439       2,208,345     Long-Term Debt     5,896       6,109     Accumulated Postretirement Benefit Obligation     105,464       107,567     Self-Insurance     93,988       88,312     Pension Liability     644,746       682,624     Other Liabilities     141,540       192,223     Commitments and Contingencies   Stockholders’ Equity:

Common stock, par value $1.00 per share, authorized 400,000,000 shares; issued 236,239,688 and 234,174,088 shares at June 30, 2009 and December 31, 2008, respectively

236,240 234,174 Capital in excess of par value 1,274,112 1,252,848 Retained earnings 734,838 564,591 Treasury stock at cost, 5,746,871 and 5,840,314 shares at June 30, 2009 and December 31, 2008, respectively (67,779 ) (63,026 ) Accumulated other comprehensive loss     (624,660 )     (672,415 ) Stockholders’ Equity – McDermott International, Inc. 1,552,751 1,316,172 Noncontrolling interest     6,370       341   Total Stockholders’ Equity     1,559,121       1,316,513     TOTAL   $ 4,610,194     $ 4,601,693  

McDERMOTT INTERNATIONAL, INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

    Six Months Ended June 30,   2009       2008   (Unaudited) (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net Income   $ 176,296     $ 300,798   Non-cash items included in net income: Depreciation and amortization 71,913 63,717 Income of investees, less dividends (4,012 ) (8,528 ) Gains on asset disposals – net (656 ) (11,460 ) Provision for deferred taxes 55,221 63,547 Amortization of pension and postretirement costs 44,094 20,266 Excess tax benefits from FAS 123(R) stock-based compensation (235 ) (3,388 ) Other, net 26,725 21,193 Changes in assets and liabilities, net of effects of acquisitions and divestitures: Accounts receivable (19,918 ) (35,782 ) Income tax receivable 56,177 (2,661 ) Net contracts in progress and advance billings on contracts (205,376 ) (360,000 ) Accounts payable (69,860 ) 26,321 Income taxes (10,093 ) 3,002 Accrued and other current liabilities 24,466 22,743 Pension liability, accumulated postretirement benefit obligation and accrued employee benefits (12,567 ) (129,834 ) Other, net     (29,155 )     (56,374 ) NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES     103,020       (86,440 ) CASH FLOWS FROM INVESTING ACTIVITIES: Increase in restricted cash and cash equivalents (30,693 ) (5,239 ) Purchases of property, plant and equipment (129,386 ) (120,393 ) Net (increase) decrease in available-for-sale securities 148,725 (124,729 ) Proceeds from asset disposals 2,311 12,013 Other, net     (2,117 )     (2,048 ) NET CASH USED IN INVESTING ACTIVITIES     (11,160 )     (240,396 ) CASH FLOWS FROM FINANCING ACTIVITIES: Payment of long-term debt (5,419 ) (4,525 ) Issuance of common stock 342 7,467 Payment of debt issuance costs (45 ) (1,564 ) Excess tax benefits from FAS 123(R) stock-based compensation 235 3,388 Other, net     (64 )     -   NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES     (4,951 )     4,766   EFFECTS OF EXCHANGE RATE CHANGES ON CASH     (2,259 )     (683 ) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 84,650 (322,753 ) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD     586,649       1,001,394   CASH AND CASH EQUIVALENTS AT END OF PERIOD   $ 671,299     $ 678,641     SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid (received) during the period for: Interest (net of amount capitalized) $ 2,548 $ 4,006 Income taxes (net of refunds)   $ (16,903 )   $ 43,981