McDermott International, Inc. (NYSE: MDR) (“McDermott” or the “Company”) today reported net income of $118.1 million, or $0.50 per diluted share, for the 2009 third quarter, compared to $85.6 million, or $0.37 per diluted share, in the corresponding period of 2008. Weighted average common shares outstanding on a fully diluted basis were approximately 234.3 million and 230.5 million in the quarters ended September 30, 2009 and September 30, 2008, respectively.
McDermott’s revenues in the third quarter of 2009 were $1,675.7 million, compared to $1,664.9 million in the corresponding period in 2008. The year-over-year increase was due to revenue growth of 26 percent, or $212.0 million, in the Offshore Oil & Gas Construction segment and approximately 17 percent, or $37.3 million, in the Government Operations segment, which was largely offset by the decrease in the Power Generation Systems segment.
The Company’s operating income improved 57 percent to $144.8 million in the 2009 third quarter, compared to $92.0 million in the 2008 third quarter, despite a combined $45.1 million increase in depreciation & amortization and pension expenses. Segment income increased $126.2 million in the Offshore Oil & Gas Construction segment compared to the 2008 third quarter, which more than offset the year-over-year declines in the Company’s other segments.
“I am exceptionally pleased with the strong results delivered by the Offshore Oil & Gas Construction segment this quarter, as it validates the management actions taken and demonstrates the benefit of a high level of activity in the business. We are delighted that the challenging Middle East pipelines are now complete,” said John A. Fees, Chief Executive Officer of McDermott. “The results from the Government Operations segment this quarter were off the mark, and not indicative of our expectations for solid future periods. As we expected, bookings were light, however the bidding activity remained at a high level while the Company’s liquidity and balance sheet continued to improve.”
At September 30, 2009, McDermott’s consolidated backlog was $8.5 billion, compared to $9.4 billion and $9.5 billion at September 30, 2008 and June 30, 2009, respectively.
RESULTS OF OPERATIONS
2009 Third Quarter Compared to 2008 Third Quarter
Offshore Oil & Gas Construction Segment
Revenues in the Offshore Oil & Gas Construction segment were $1,026.7 million in the 2009 third quarter, compared to $814.7 million for the same period a year ago. Increased revenues in the Middle East and Caspian regions more than offset reduced levels in other regions. Approximately 30 percent of the segment’s 2009 third quarter revenues were derived from contracts in or near loss positions.
Segment income for the 2009 third quarter was $106.5 million, compared to a segment loss of $19.7 million in the 2008 third quarter. Major areas contributing to third quarter 2009 segment income include the Asia Pacific, Middle East, Caspian and Americas regions.
At September 30, 2009, segment backlog was $3.9 billion, compared to backlog of $5.0 billion and $4.7 billion at September 30, 2008 and June 30, 2009, respectively.
Power Generation Systems Segment
Revenues in the Power Generation Systems segment for the third quarter of 2009 were $389.6 million, compared to $631.0 million in the third 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 third quarter was $34.2 million, compared to $84.4 million in the 2008 third quarter. Major activities contributing to third quarter 2009 segment income include the supply and construction of new boilers and environmental equipment, retrofit projects of existing facilities, inspection and maintenance, and related aftermarket parts and services.
At September 30, 2009, segment backlog was $2.1 billion, compared to backlog of $2.8 billion and $2.2 billion at September 30, 2008 and June 30, 2009, respectively.
Government Operations Segment
Revenues in the Government Operations segment were $259.8 million in the 2009 third quarter, compared to $222.4 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, Inc., which was acquired in December 2008.
Segment income for the 2009 third quarter was $19.8 million, compared to $34.6 million in the 2008 third quarter. Major items contributing to third quarter 2009 segment income include the manufacture of nuclear components for certain U.S. Government programs and the management and operations of various U.S. Government sites.
At September 30, 2009, segment backlog was $2.5 billion, compared to backlog of $1.6 billion and $2.6 billion at September 30, 2008 and June 30, 2009, respectively.
Corporate & Other Income and Expense
Unallocated corporate expenses were $15.7 million in the 2009 third quarter, compared to $7.3 million in the 2008 third quarter. The year-over-year increase was predominantly due to increased compensation, pension and information technology expenses.
The Company’s other expense for the third quarter of 2009 was $0.9 million, compared to other income of $8.1 million in the third quarter of 2008. The $9.0 million decline was predominantly due to increased non-cash, foreign currency translation charges as well as reduced net interest income.
Research & Development Expense
Research & Development expense, net, was $12.8 million in the 2009 third quarter, compared to $9.9 million in the 2008 third quarter. Charged to cost of operations and predominantly in McDermott’s Power Generation Systems segment, this expense includes costs related to the development of carbon capture and sequestration technologies and the Company’s modular and scalable nuclear reactor business known as mPower.
Upcoming Investor Events
Members of McDermott’s management team will participate in KeyBanc Capital Markets’ 2nd Annual Engineering & Construction Conference on November 19, 2009 in New York City. 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 the conference.
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, as well as the statement regarding the third quarter 2009 results from the Government Operations segment not being indicative of our expectations for future periods. 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, changes in the scope or timing of contracts in backlog and changes in laws and regulations. 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 Third Quarter 2009 Earnings Release | ||
Date: | Tuesday, November 10, 2009, 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 two 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, | |||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||
| (Unaudited) | ||||||||||||||
| (In thousands, except share and per share amounts) | ||||||||||||||
| Revenues | $ | 1,675,678 | $ | 1,664,851 | $ | 4,733,940 | $ | 4,907,923 | ||||||
| Costs and Expenses: | ||||||||||||||
| Cost of operations | 1,383,046 | 1,445,749 | 3,886,726 | 4,067,181 | ||||||||||
| Gains (losses) on asset disposals – net | 323 | 138 | (333 | ) | (11,322 | ) | ||||||||
| Selling, general and administrative expenses | 160,565 | 139,512 | 455,154 | 404,298 | ||||||||||
| Total Costs and Expenses | 1,543,934 | 1,585,399 | 4,341,547 | 4,460,157 | ||||||||||
| Equity in Income of Investees | 13,050 | 12,521 | 31,347 | 32,443 | ||||||||||
| Operating Income (Loss) | 144,794 | 91,973 | 423,740 | 480,209 | ||||||||||
| Other Income (Expense): | ||||||||||||||
| Interest income – net | 2,179 | 5,151 | 9,023 | 23,792 | ||||||||||
| Other income (expense) – net | (3,127 | ) | 2,945 | (24,098 | ) | 848 | ||||||||
| Total Other Income (Expense) | (948 | ) | 8,096 | (15,075 | ) | 24,640 | ||||||||
| Income before Provision for Income Taxes | 143,846 | 100,069 | 408,665 | 504,849 | ||||||||||
| Provision for Income Taxes | 23,793 | 14,271 | 112,316 | 118,253 | ||||||||||
| Net Income | 120,053 | 85,798 | 296,349 | 386,596 | ||||||||||
| Less: Net Income Attributable to Noncontrolling Interest | (1,946 | ) | (227 | ) | (7,995 | ) | (296 | ) | ||||||
| Net Income Attributable to McDermott International, Inc. | $ | 118,107 | $ | 85,571 | $ | 288,354 | $ | 386,300 | ||||||
| Earnings per Share: | ||||||||||||||
| Basic: | ||||||||||||||
| Net Income Attributable to McDermott International, Inc. | $ | 0.51 | $ | 0.38 | $ | 1.26 | $ | 1.70 | ||||||
| Diluted: | ||||||||||||||
| Net Income Attributable to McDermott International, Inc. | $ | 0.50 | $ | 0.37 | $ | 1.24 | $ | 1.68 | ||||||
| Shares used in the computation of earnings per share: | ||||||||||||||
| Basic | 229,989,368 | 227,440,858 | 229,192,531 | 226,645,175 | ||||||||||
| Diluted | 234,314,619 | 230,463,651 | 233,335,605 | 230,328,423 | ||||||||||
McDERMOTT INTERNATIONAL, INC. SELECTED SEGMENT INFORMATION | |||||||||||||||||
| Three Months Ended | Nine Months Ended | ||||||||||||||||
| September 30, | September 30, | ||||||||||||||||
2009 | 2008 | 2009 | 2008 | ||||||||||||||
| (Unaudited); (In thousands) | |||||||||||||||||
| REVENUES | |||||||||||||||||
| Offshore Oil and Gas Construction | $ | 1,026,700 | $ | 814,701 | $ | 2,567,924 | $ | 2,332,918 | |||||||||
| Government Operations | 259,752 | 222,434 | 778,254 | 638,792 | |||||||||||||
| Power Generation Systems | 389,638 | 630,955 | 1,389,802 | 1,945,324 | |||||||||||||
| Adjustments and Eliminations | (412 | ) | (3,239 | ) | (2,040 | ) | (9,111 | ) | |||||||||
| TOTAL | $ | 1,675,678 | $ | 1,664,851 | $ | 4,733,940 | $ | 4,907,923 | |||||||||
| SEGMENT INCOME | |||||||||||||||||
| Offshore Oil and Gas Construction | $ | 106,525 | $ | (19,686 | ) | $ | 219,365 | $ | 131,248 | ||||||||
| Government Operations | 19,798 | 34,551 | 123,023 | 115,004 | |||||||||||||
| Power Generation Systems | 34,203 | 84,449 | 136,227 | 266,692 | |||||||||||||
| $ | 160,526 | $ | 99,314 | $ | 478,615 | $ | 512,944 | ||||||||||
| Corporate | (15,732 | ) | (7,341 | ) | (54,875 | ) | (32,735 | ) | |||||||||
| OPERATING INCOME | $ | 144,794 | $ | 91,973 | $ | 423,740 | $ | 480,209 | |||||||||
| EQUITY IN INCOME (LOSS) OF INVESTEES (1) | |||||||||||||||||
| Offshore Oil and Gas Construction | $ | (596 | ) | $ | (921 | ) | $ | (2,797 | ) | $ | (2,671 | ) | |||||
| Government Operations | 9,081 | 7,966 | 26,435 | 27,513 | |||||||||||||
| Power Generation Systems | 4,565 | 5,476 | 7,709 | 7,601 | |||||||||||||
| TOTAL | $ | 13,050 | $ | 12,521 | $ | 31,347 | $ | 32,443 | |||||||||
PENSION EXPENSE (1) | |||||||||||||||||
| Offshore Oil and Gas Construction | $ | 2,198 | $ | 1,665 | $ | 6,561 | $ | 4,995 | |||||||||
| Government Operations | 13,347 | (207 | ) | 37,664 | 7,915 | ||||||||||||
| Power Generation Systems | 16,693 | 5,687 | 47,417 | 17,692 | |||||||||||||
| Corporate | 5,021 | 667 | 14,191 | 2,132 | |||||||||||||
| TOTAL | $ | 37,259 | $ | 7,812 | $ | 105,833 | $ | 32,734 | |||||||||
| DEPRECIATION & AMORTIZATION (1) | |||||||||||||||||
| Offshore Oil and Gas Construction | $ | 24,707 | $ | 19,765 | $ | 64,681 | $ | 60,769 | |||||||||
| Government Operations | 16,867 | 5,585 | 38,417 | 16,811 | |||||||||||||
| Power Generation Systems | 4,444 | 5,672 | 13,398 | 16,567 | |||||||||||||
| Corporate | 940 | 320 | 2,375 | 912 | |||||||||||||
| TOTAL | $ | 46,958 | $ | 31,342 | $ | 118,871 | $ | 95,059 | |||||||||
| RESEARCH & DEVELOPMENT, NET (1) | $ | 12,792 | $ | 9,912 | $ | 33,934 | $ | 28,671 | |||||||||
CAPITAL EXPENDITURES | |||||||||||||||||
| Offshore Oil and Gas Construction | $ | 34,420 | $ | 54,982 | $ | 123,553 | $ | 149,528 | |||||||||
| Government Operations | 11,710 | 2,554 | 25,707 | 8,484 | |||||||||||||
| Power Generation Systems | 5,030 | 7,988 | 25,201 | 20,705 | |||||||||||||
| Corporate | 9,661 | 3,467 | 15,746 | 10,667 | |||||||||||||
| TOTAL | $ | 60,821 | $ | 68,991 | $ | 190,207 | $ | 189,384 | |||||||||
| BACKLOG | |||||||||||||||||
| Offshore Oil and Gas Construction | $ | 3,942,891 | $ | 4,955,818 | $ | 3,942,891 | $ | 4,955,818 | |||||||||
| Government Operations | 2,539,252 | 1,641,969 | 2,539,252 | 1,641,969 | |||||||||||||
| Power Generation Systems | 2,061,837 | 2,834,049 | 2,061,837 | 2,834,049 | |||||||||||||
| TOTAL | $ | 8,543,980 | $ | 9,431,836 | $ | 8,543,980 | $ | 9,431,836 | |||||||||
| (1) Included in Segment Income Above | |||||||||||||||||
McDERMOTT INTERNATIONAL, INC. CONDENSED CONSOLIDATED BALANCE SHEETS ASSETS | ||||||||
| September 30, | December 31, | |||||||
2009 | 2008 | |||||||
| (Unaudited) | ||||||||
| (In thousands) | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | 784,463 | $ | 586,649 | ||||
| Restricted cash and cash equivalents | 64,050 | 50,536 | ||||||
| Investments | 16 | 131,515 | ||||||
| Accounts receivable – trade, net | 650,350 | 712,055 | ||||||
| Accounts and notes receivable – unconsolidated affiliates | 4,461 | 1,504 | ||||||
| Accounts receivable – other | 86,241 | 139,062 | ||||||
| Contracts in progress | 503,420 | 311,713 | ||||||
| Inventories | 116,195 | 128,383 | ||||||
| Deferred income taxes | 90,824 | 97,069 | ||||||
| Other current assets | 62,932 | 58,499 | ||||||
| Total Current Assets | 2,362,952 | 2,216,985 | ||||||
| Property, Plant and Equipment | 2,440,113 | 2,234,050 | ||||||
| Less accumulated depreciation | 1,250,990 | 1,155,191 | ||||||
| Net Property, Plant and Equipment | 1,189,123 | 1,078,859 | ||||||
| Investments | 241,908 | 319,170 | ||||||
| Goodwill | 292,369 | 298,265 | ||||||
| Deferred Income Taxes | 278,563 | 335,877 | ||||||
| Investments in Unconsolidated Affiliates | 86,031 | 70,304 | ||||||
| Other Assets | 284,698 | 282,233 | ||||||
| TOTAL | $ | 4,735,644 | $ | 4,601,693 | ||||
McDERMOTT INTERNATIONAL, INC. CONDENSED CONSOLIDATED BALANCE SHEETS LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||
| September 30, | December 31, | ||||||||
| 2009 | 2008 | ||||||||
| (Unaudited) | |||||||||
| (In thousands) | |||||||||
| Current Liabilities: | |||||||||
| Notes payable and current maturities of long-term debt | $ | 5,288 | $ | 9,021 | |||||
| Accounts payable | 531,398 | 551,435 | |||||||
| Accrued employee benefits | 237,054 | 205,521 | |||||||
| Accrued liabilities – other | 194,667 | 217,486 | |||||||
| Accrued contract cost | 127,857 | 97,041 | |||||||
| Advance billings on contracts | 708,086 | 951,895 | |||||||
| Accrued warranty expense | 122,904 | 120,237 | |||||||
| Income taxes payable | 69,855 | 55,709 | |||||||
| Total Current Liabilities | 1,997,109 | 2,208,345 | |||||||
| Long-Term Debt | 5,828 | 6,109 | |||||||
| Accumulated Postretirement Benefit Obligation | 106,255 | 107,567 | |||||||
| Self-Insurance | 84,465 | 88,312 | |||||||
| Pension Liability | 674,047 | 682,624 | |||||||
| Other Liabilities | 142,842 | 192,223 | |||||||
| Commitments and Contingencies | |||||||||
| Stockholders’ Equity: | |||||||||
Common stock, par value $1.00 per share, authorized 400,000,000 shares; issued 236,495,637 and 234,174,088 shares at September 30, 2009 and December 31, 2008, respectively | 236,496 | 234,174 | |||||||
| Capital in excess of par value | 1,287,764 | 1,252,848 | |||||||
| Retained earnings | 852,945 | 564,591 | |||||||
Treasury stock at cost, 6,103,951 and 5,840,314 shares at September 30, 2009 and December 31, 2008, respectively | (67,773 | ) | (63,026 | ) | |||||
| Accumulated other comprehensive loss | (590,565 | ) | (672,415 | ) | |||||
| Stockholders’ Equity – McDermott International, Inc. | 1,718,867 | 1,316,172 | |||||||
| Noncontrolling interest | 6,231 | 341 | |||||||
| Total Stockholders’ Equity | 1,725,098 | 1,316,513 | |||||||
| TOTAL | $ | 4,735,644 | $ | 4,601,693 | |||||
McDERMOTT INTERNATIONAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||||
| Nine Months Ended | ||||||||||
| September 30, | ||||||||||
2009 | 2008 | |||||||||
| (Unaudited) | ||||||||||
| (In thousands) | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||
| Net Income | $ | 296,349 | $ | 386,596 | ||||||
| Non-cash items included in net income: | ||||||||||
| Depreciation and amortization | 118,871 | 95,059 | ||||||||
| Income of investees, less dividends | (11,458 | ) | (12,592 | ) | ||||||
| Gains on asset disposals – net | (333 | ) | (11,322 | ) | ||||||
| Provision for deferred taxes | 43,264 | 87,512 | ||||||||
| Amortization of pension and postretirement costs | 68,877 | 28,424 | ||||||||
| Excess tax benefits from FAS 123(R) stock-based compensation | 2,458 | (6,404 | ) | |||||||
| Other, net | 36,736 | 34,922 | ||||||||
| Changes in assets and liabilities, net of effects of acquisitions and divestitures: | ||||||||||
| Accounts receivable | 62,932 | 21,412 | ||||||||
| Income tax receivable | 57,169 | 10,666 | ||||||||
| Net contracts in progress and advance billings on contracts | (442,373 | ) | (516,623 | ) | ||||||
| Accounts payable | (22,099 | ) | 19,544 | |||||||
| Income taxes | 10,571 | (5,335 | ) | |||||||
| Accrued and other current liabilities | (1,461 | ) | 57,586 | |||||||
| Pension liability, accumulated postretirement benefit obligation and accrued employee benefits | 13,961 | (201,109 | ) | |||||||
| Other, net | (36,056 | ) | (95,421 | ) | ||||||
| NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES | 197,408 | (107,085 | ) | |||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||
| Increase in restricted cash and cash equivalents | (13,514 | ) | (3,731 | ) | ||||||
| Purchases of property, plant and equipment | (190,207 | ) | (189,384 | ) | ||||||
| Acquisition of businesses, net of cash acquired | (8,497 | ) | (33,731 | ) | ||||||
| Net decrease (increase) in available-for-sale securities | 208,435 | (70,992 | ) | |||||||
| Proceeds from asset disposals | 2,724 | 12,023 | ||||||||
| Other, net | (2,676 | ) | (2,029 | ) | ||||||
| NET CASH USED IN INVESTING ACTIVITIES | (3,735 | ) | (287,844 | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||
| Payment of long-term debt | (5,652 | ) | (4,660 | ) | ||||||
| Increase in short-term borrowing | 1,606 | 2,920 | ||||||||
| Issuance of common stock | 713 | 8,069 | ||||||||
| Payment of debt issuance costs | (56 | ) | (1,611 | ) | ||||||
| Excess tax benefits from FAS 123(R) stock-based compensation | (2,458 | ) | 6,404 | |||||||
| Other, net | (109 | ) | - | |||||||
| NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES | (5,956 | ) | 11,122 | |||||||
| EFFECTS OF EXCHANGE RATE CHANGES ON CASH | 10,097 | (3,239 | ) | |||||||
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 197,814 | (387,046 | ) | |||||||
| CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 586,649 | 1,001,394 | ||||||||
| CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 784,463 | $ | 614,348 | ||||||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | ||||||||||
| Cash paid during the period for: | ||||||||||
| Interest (net of amount capitalized) | $ | 1,855 | $ | 5,967 | ||||||
| Income taxes (net of refunds) | $ | 93 | $ | 49,193 | ||||||
Contacts:
Vice
President
Jay Roueche, (281) 870-5462
jroueche@mcdermott.com
or
Director
Robby
Bellamy, (281) 870-5165
rbellamy@mcdermott.com