MDR McDermott International Inc

Substantial Growth in Backlog / First Full Quarter with B&W McDermott International, Inc. (NYSE:MDR) ("McDermott" or the "Company") today reported net income of $45.4 million, or $0.40 per diluted share, for the 2006 second quarter, compared to net income of $80.9 million, or $0.75 per diluted share, for the corresponding period in 2005. During the second quarter 2006, McDermott recorded a one-time expense of approximately $49 million ($0.43 per share), associated with the early retirement of debt, partially offset by income from discontinued operations of $13.8 million ($0.12 per share). In the second quarter of 2005, McDermott recorded a $50.4 million benefit ($0.47 per share) from an adjustment to the Company's net deferred tax assets. Weighted average common shares outstanding on a fully diluted basis were approximately 114.0 million and 108.2 million for the quarters ended June 30, 2006 and June 30, 2005, respectively, with both periods adjusted for the 3-for-2 stock split which was effected on May 31, 2006. McDermott's revenues in the second quarter of 2006 were $1,048.9 million, compared to $509.7 million in the corresponding period in 2005. The increase in revenues is primarily attributable to the reconsolidation of The Babcock & Wilcox Company's ("B&W") financial results beginning in March 2006. Between February 2000 and February 2006, B&W was deconsolidated from McDermott's financial statements as a result of B&W's asbestos-related reorganization which was completed this year. Operating income was $111.1 million in the 2006 second quarter, compared to the 2005 second quarter operating income of $54.1 million. The increase in operating income is primarily attributable to improvement in the Offshore Oil & Gas Construction segment, as well as the reconsolidation of B&W. "During the first half of 2006, McDermott has been successful by virtually any measure," said Bruce W. Wilkinson, Chairman of the Board and Chief Executive Officer of McDermott. "Earnings have been strong, backlog is at record levels, bids outstanding remain robust and our cash flow has enabled the Company to retire substantially all of its funded debt." At June 30, 2006, McDermott's consolidated backlog was $7.8 billion, compared to $2.5 billion and $3.6 billion, at June 30, 2005 and December 31, 2005, respectively. RESULTS OF OPERATIONS 2006 Second Quarter Compared to 2005 Second Quarter Offshore Oil & Gas Construction Segment ("J. Ray") Revenues in the Offshore Oil & Gas Construction segment were $398.8 million in the 2006 second quarter, compared to $349.7 million for the same period a year ago. The year-over-year increase in revenues resulted primarily from increased activity in the Middle East region and in worldwide marine projects. Segment income for the 2006 second quarter was $63.9 million, compared to $30.2 million in the 2005 second quarter. Major items contributing to operating income in the 2006 second quarter were projects in the Middle East and Caspian regions, as well as worldwide marine activity. Also during the second quarter 2006, J. Ray's Dolphin project, which previously was accounted for as a deferred profit recognition contract, exceeded 70 percent complete and J. Ray recognized approximately $21 million of gross profit which had been deferred since contract inception through March 31, 2006. At June 30, 2006, J. Ray's backlog was $3.2 billion, compared to backlog of $0.9 billion and $1.8 billion at June 30, 2005 and December 31, 2005, respectively. Power Generation Systems Segment ("B&W") Revenues in the Power Generation Systems segment for the second quarter 2006 were $488.7 million, primarily reflecting revenues from B&W. During 2005, B&W was deconsolidated and therefore there were no revenues reported for this segment during the second quarter of 2005. Segment income for the 2006 second quarter was $25.2 million, compared to $0.3 million in the 2005 second quarter. The increase in segment income was due to the reconsolidation of B&W beginning in the first quarter 2006. At June 30, 2006, B&W's backlog was $3.1 billion and was not consolidated during 2005. Government Operations Segment ("BWXT") Revenues in the Government Operations segment were $163.5 million in the 2006 second quarter, compared to $159.9 million for the same period a year ago. The increase was primarily due to higher volumes in the manufacture of nuclear components for certain U.S. Government programs and from the transition activities at the Los Alamos National Laboratory. Segment income for the 2006 second quarter was $30.8 million, compared to $29.7 million in the 2005 second quarter. The increase was primarily due to an increase in the manufacture of fuel for research test reactors and fuel development for commercial reactors. At June 30, 2006, BWXT's backlog was $1.5 billion, compared to backlog of $1.6 billion and $1.8 billion at June 30, 2005 and December 31, 2005, respectively. Corporate Unallocated corporate expenses were $8.8 million in the 2006 second quarter, compared to $6.1 million in the 2005 second quarter. The increase was primarily related to higher stock based compensation expenses resulting from the adoption of SFAS 123(R). Other Income and Expense The Company's other expense, net, for the second quarter of 2006 was $50.7 million, compared to $7.0 million in the second quarter of 2005. The expense increase was primarily due to the $49 million expense associated with the early retirement of J. Ray's $200 million 11 percent senior secured notes, partially offset by an $8.8 million improvement in net interest income/expense. OTHER INFORMATION About the Company McDermott International, Inc. is a leading worldwide energy services company. The Company's subsidiaries provide engineering, construction, installation, procurement, research, manufacturing, environmental systems, project management and facility management services to a variety of customers in the energy and power industries, including the U.S. Department of Energy. In accordance with the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, McDermott cautions that statements in this press release, which are forward-looking and provide other than historical information, involve risks and uncertainties that may impact the Company's actual results of operations. These forward-looking statements include statements about backlog, to the extent backlog may be viewed as an indicator of future revenues. Although we believe that the expectations reflected in those forward-looking statements are reasonable, we can give no assurance that those expectations will prove to have been correct. Those statements are made by using various underlying assumptions and are subject to numerous uncertainties and risks, including, but not limited to, risks that there are adverse changes in the industries in which we operate. If one or more of these risks materialize, or if underlying assumptions prove incorrect, actual results may vary materially from those expected. For a more complete discussion of these and other risk factors, please see McDermott's annual and quarterly filings with the Securities and Exchange Commission, including its report on Form 10-K for the year ended December 31, 2005. Conference Call to Discuss 2006 Second Quarter Earnings Release -0- *T Date: Monday, August 7, 2006, at 12:00 p.m. EST (11:00 a.m. CST) Live Webcast: Investor Relations section of Web site at www.mcdermott.com Replay: Available for two weeks in the investor relations section of www.mcdermott.com *T -0- *T McDERMOTT INTERNATIONAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME Three Months Ended Six Months Ended June 30, June 30, 2006 2005 2006 2005 ----------- ----------- ----------- ----------- (Unaudited) (In thousands, except per share amounts) Revenues $1,048,930 $509,650 $1,693,837 $945,609 ---------------------------------------------------------------------- Costs and Expenses: Cost of operations 844,373 412,837 1,347,299 774,261 (Gain) loss on asset disposals and impairments - net (1,085) (244) 14,921 (2,540) Selling, general and administrative expenses 101,841 50,400 168,835 97,489 ---------------------------------------------------------------------- 945,129 462,993 1,531,055 869,210 ---------------------------------------------------------------------- Equity in Income of Investees 7,340 7,398 14,887 17,269 ---------------------------------------------------------------------- Operating Income 111,141 54,055 177,669 93,668 ---------------------------------------------------------------------- Other Income (Expense): Interest income 12,467 5,490 20,002 8,399 Interest expense (7,108) (8,923) (17,411) (18,619) IRS interest expense adjustment (2,620) - 10,590 - Increase in estimated cost of the B&W bankruptcy settlement - (6,355) - (5,887) Loss on early retirement of debt (49,016) - (49,016) - Other income (expense) - net (4,438) 2,820 (5,999) 5,578 ---------------------------------------------------------------------- (50,715) (6,968) (41,834) (10,529) ---------------------------------------------------------------------- Income from Continuing Operations before Provision for (Benefit from) Income Taxes 60,426 47,087 135,835 83,139 Provision for (Benefit from) Income Taxes 28,768 (33,612) 49,162 (19,126) ---------------------------------------------------------------------- Income from Continuing Operations 31,658 80,699 86,673 102,265 Income from Discontinued Operations 13,786 220 12,894 1,090 ---------------------------------------------------------------------- Net Income 45,444 80,919 99,567 $103,355 ---------------------------------------------------------------------- Earnings per Common Share: Basic: Income from Continuing Operations $0.29 $0.80 $0.80 $1.02 Income from Discontinued Operations $0.13 $0.00 $0.12 $0.01 Net Income $0.42 $0.80 $0.92 $1.03 Diluted: Income from Continuing Operations $0.28 $0.75 $0.77 $0.95 Income from Discontinued Operations $0.12 $0.00 $0.11 $0.01 Net Income $0.40 $0.75 $0.88 $0.96 ---------------------------------------------------------------------- McDERMOTT INTERNATIONAL, INC. SELECTED SEGMENT INFORMATION Three Months Ended Six Months Ended June 30, June 30, 2006 2005 2006 2005 ----------- ----------- ----------- ----------- (Unaudited; In thousands) REVENUES Offshore Oil and Gas Construction $398,848 $349,742 $694,287 $633,189 Government Operations 163,480 159,940 324,479 312,533 Power Generation Systems 488,710 - 677,733 - Adjustments and Eliminations (2,108) (32) (2,662) (113) ---------------------------------------------------------------------- TOTAL $1,048,930 $509,650 $1,693,837 $945,609 ---------------------------------------------------------------------- SEGMENT INCOME Offshore Oil and Gas Construction $63,928 $30,189 $84,911 $58,207 Government Operations 30,760 29,736 57,125 53,777 Power Generation Systems 25,233 262 52,785 385 ---------------------------------------------------------------------- 119,921 60,187 194,821 112,369 Corporate (8,780) (6,132) (17,152) (18,701) ---------------------------------------------------------------------- TOTAL $111,141 $54,055 $177,669 $93,668 ---------------------------------------------------------------------- EQUITY IN INCOME (LOSS) OF INVESTEES (1) Offshore Oil and Gas Construction $(715) $(175) $(1,381) $(269) Government Operations 6,046 7,092 12,499 16,715 Power Generation Systems 2,009 481 3,769 823 ---------------------------------------------------------------------- TOTAL $7,340 $7,398 $14,887 $17,269 ---------------------------------------------------------------------- DEPRECIATION & AMORTIZATION (1) Offshore Oil and Gas Construction $5,895 $7,023 $12,287 $13,738 Government Operations 3,379 3,107 6,612 6,255 Power Generation Systems 4,859 - 6,538 - Corporate 127 391 517 1,047 ---------------------------------------------------------------------- TOTAL $14,260 $10,521 $25,954 $21,040 ---------------------------------------------------------------------- CAPITAL EXPENDITURES Offshore Oil and Gas Construction $25,591 $2,274 $46,250 $14,604 Government Operations 3,295 2,669 7,425 8,022 Power Generation Systems 6,252 - 8,107 - Corporate 211 135 2,604 156 ---------------------------------------------------------------------- TOTAL $35,349 $5,078 $64,386 $22,782 ---------------------------------------------------------------------- BACKLOG Offshore Oil and Gas Construction $3,231,059 $934,415 $3,231,059 $934,415 Government Operations 1,524,306 1,613,593 1,524,306 1,613,593 Power Generation Systems 3,056,313 - 3,056,313 - ---------------------------------------------------------------------- TOTAL $7,811,678 $2,548,008 $7,811,678 $2,548,008 ---------------------------------------------------------------------- (1) Included in Segment Income (Loss) above. McDERMOTT INTERNATIONAL, INC. CONDENSED CONSOLIDATED BALANCE SHEETS ASSETS June 30, December 31, 2006 2005 ------------ ------------ (Unaudited) (In thousands) Current Assets: Cash and cash equivalents $436,625 $19,263 Restricted cash and cash equivalents 84,991 152,086 Investments 238,270 384,202 Accounts receivable - trade, net 500,445 232,236 Accounts receivable from The Babcock & Wilcox Company - 3,778 Accounts and notes receivable - unconsolidated affiliates 36,306 52,867 Accounts receivable - other 55,975 32,982 Contracts in progress 180,325 73,732 Inventories 68,164 319 Deferred income taxes 78,055 32,131 Assets held for sale - 10,886 Other current assets 22,182 8,147 ---------------------------------------------------------------------- Total Current Assets 1,701,338 1,002,629 ---------------------------------------------------------------------- Restricted Cash and Cash Equivalents - 2,886 ---------------------------------------------------------------------- Property, Plant and Equipment 1,465,796 1,097,427 Less accumulated depreciation 997,921 779,694 ---------------------------------------------------------------------- Net Property, Plant and Equipment 467,875 317,733 ---------------------------------------------------------------------- Investments 152,121 116,304 ---------------------------------------------------------------------- Goodwill 88,791 12,926 ---------------------------------------------------------------------- Deferred Income Taxes 440,805 93,880 ---------------------------------------------------------------------- Other Assets 330,129 121,928 ---------------------------------------------------------------------- TOTAL $3,181,059 $1,668,286 ---------------------------------------------------------------------- McDERMOTT INTERNATIONAL, INC. CONDENSED CONSOLIDATED BALANCE SHEETS LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) June 30, December 31, 2006 2005 ---- ---- (Unaudited) (In thousands) Current Liabilities: Notes payable and current maturities of long-term debt $12,406 $4,250 Accounts payable 307,195 110,970 Accounts payable to The Babcock & Wilcox Company - 11,429 Accrued employee benefits 113,563 81,196 Accrued liabilities - other 224,187 132,932 Accrued contract cost 73,144 56,566 Advance billings on contracts 852,415 314,467 Liabilities held for sale - 7,182 U.S. and foreign income taxes payable 54,737 49,696 ---------------------------------------------------------------------- Total Current Liabilities 1,637,647 768,688 ---------------------------------------------------------------------- Long-Term Debt 15,339 207,861 ---------------------------------------------------------------------- Accumulated Postretirement Benefit Obligation 80,554 25,519 ---------------------------------------------------------------------- Self-Insurance 82,368 60,989 ---------------------------------------------------------------------- Pension Liability 505,148 311,319 ---------------------------------------------------------------------- Accrued Cost of The Babcock & Wilcox Company Bankruptcy Settlement 660,308 117,990 ---------------------------------------------------------------------- Deferred Babcock & Wilcox Company Pension Plan Spin-Off - 150,136 ---------------------------------------------------------------------- Other Liabilities 74,735 109,082 ---------------------------------------------------------------------- Commitments and Contingencies Stockholders' Equity (Deficit): Common stock, par value $1.00 per share, authorized 150,000,000 shares; issued 112,926,450 at June 30, 2006 and 110,786,883 at December 31, 2005 112,926 110,787 Capital in excess of par value 1,190,557 1,146,194 Accumulated deficit (756,339) (862,931) Treasury stock at cost, 3,056,301 shares at June 30, 2006 and 3,082,644 at December 31, 2005 (59,775) (56,496) Accumulated other comprehensive loss (362,409) (420,852) ---------------------------------------------------------------------- Total Stockholders' Equity (Deficit) 124,960 (83,298) ---------------------------------------------------------------------- TOTAL $3,181,059 $1,668,286 ---------------------------------------------------------------------- McDERMOTT INTERNATIONAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Six Months Ended June 30, 2006 2005 ---- ---- (Unaudited) (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $99,567 $103,355 ---------------------------------------------------------------------- Depreciation and amortization 25,954 21,040 Income of investees, less dividends (3,149) (6,261) (Gain) loss on asset disposals and impairments - net 14,921 (2,540) Gain on sale of business (13,786) - Provision for (benefit from) deferred taxes 90,678 (50,065) Estimated loss on The Babcock & Wilcox Company bankruptcy settlement - 5,887 Excess tax benefits from stock-based compensation (13,163) - Other 18,421 11,972 Changes in assets and liabilities, net of effects of acquisitions and divestitures: Accounts receivable 114,023 1,878 Income taxes receivable (92,437) - Net contracts in progress and advance billings 114,723 42,822 Accounts payable (19,979) (33,919) Income taxes 31,241 7,539 Accrued and other current liabilities (7,905) (6,787) Accrued employee benefits (24,576) (16,852) Other, net (3,274) (3,808) ---------------------------------------------------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 331,259 74,261 ---------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Decrease in restricted cash and cash equivalents 69,981 14,439 Purchases of property, plant and equipment (64,386) (22,782) Purchases of available-for-sale securities (917,884) (194,307) Sales of available-for-sale securities 172,521 2,450 Maturities of available-for-sale securities 859,706 131,545 Proceeds from asset disposals 21,549 8,690 Cash acquired from the reconsolidation of The Babcock & Wilcox Company 164,200 - Other (2,549) (4,657) ---------------------------------------------------------------------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 303,138 (64,622) ---------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of long-term debt 592 - Payment of long-term debt (236,941) (12,734) Issuance of common stock 13,323 4,928 Payment of debt issuance costs (8,606) (940) Excess tax benefits from stock options exercised 13,163 - Other (336) 1,210 ---------------------------------------------------------------------- NET CASH USED IN FINANCING ACTIVITIES (218,805) (7,536) ---------------------------------------------------------------------- EFFECTS OF EXCHANGE RATE CHANGES ON CASH 1,770 (44) NET INCREASE IN CASH AND CASH EQUIVALENTS 417,362 2,059 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 19,263 259,319 ---------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $436,625 $261,378 ---------------------------------------------------------------------- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest (net of amount capitalized) $31,516 $9,394 Income taxes - net $21,811 $32,258 ---------------------------------------------------------------------- McDERMOTT INTERNATIONAL, INC. SUPPLEMENTAL UNAUDITED PRO FORMA FINANCIAL INFORMATION Presentation of combined results of operations ASSUMING B&W had been reconsolidated with McDermott at the beginning of the respective periods presented Three Months Ended Six Months Ended June 30, June 30, 2006 2005 2006 2005 ---- ---- ---- ---- (Unaudited; In thousands, except per share amounts) Revenues $1,048,930 $878,274 $1,952,104 $1,658,803 Operating Income $111,141 $64,835 $179,347 $127,596 Net Income $45,444 $87,239 $101,359 $122,395 Diluted Earnings Per Share $0.40 $0.81 $0.89 $1.14 *T