MDR McDermott International Inc

McDermott International, Inc. (NYSE:MDR) (�McDermott� or the �Company�) today reported net income of $141.0 million, or $1.23 per diluted share, for the 2006 fourth quarter, compared to net income of $36.1 million, or $0.32 per diluted share, for the corresponding period in 2005. Weighted average common shares outstanding on a fully diluted basis were approximately 114.4 million and 112.3 million for the quarters ended December 31, 2006 and December 31, 2005, respectively. For 2005, the Company�s common shares outstanding and earnings per share are adjusted to reflect the 3-for-2 stock split effected in May 2006. McDermott�s revenues in the fourth quarter of 2006 were $1,308.0 million, compared to $395.9 million in the corresponding period in 2005. Operating income was $86.3 million in the 2006 fourth quarter, compared to $56.2 million in the 2005 fourth quarter. The increase in revenues and operating income is primarily attributable to the reconsolidation of The Babcock & Wilcox Company�s (�B&W�) financial results beginning in March 2006. In addition, operating income of the Offshore Oil & Gas Construction segment increased by over 30 percent compared to its fourth quarter of 2005. During the fourth quarter of 2006, McDermott recorded the recognition of a $94.1 million tax benefit partially offset by certain other items. To assist investors in their analysis of McDermott�s quarterly performance, the Company calculated non-GAAP earnings excluding these items. Accordingly, in the fourth quarter of 2006, the Company�s non-GAAP operating income was $113.3 million, non-GAAP net income was $83.8 million, and non-GAAP earnings per diluted share were $0.73. Please see Appendix A for the reconciliation of these non-GAAP amounts to McDermott�s GAAP results. �The fourth quarter completed a highly successful year for McDermott,� said Bruce W. Wilkinson, Chairman of the Board and Chief Executive Officer of McDermott. �For the 2006 year, the Company generated new records for backlog, revenue, and operating income, and despite the expected loss of a major project this week, the outlook for our markets continues to be strong in 2007.� At December 31, 2006, McDermott�s consolidated backlog was $7.6 billion, compared to $3.6 billion at December 31, 2005 which excluded B&W and $8.6 billion at September 30, 2006. Consolidated backlog at December 31, 2006 excludes the amounts associated with the TXU boiler and SCR contracts, which the Company believes will no longer be fully realized. RESULTS OF OPERATIONS 2006 Fourth Quarter Compared to 2005 Fourth Quarter Offshore Oil & Gas Construction Segment (�J. Ray�) Revenues in the Offshore Oil & Gas Construction segment were $475.9 million in the 2006 fourth quarter, compared to $250.3 million for the same period a year ago. The year-over-year increase in revenues resulted primarily from increased activity in the Middle East and Asia Pacific regions. Segment income for the 2006 fourth quarter was $48.7 million, compared to $37.0 million in the 2005 fourth quarter. Major items contributing to operating income in the 2006 fourth quarter were projects in the Middle East, Asia Pacific and Caspian regions. During the fourth quarter of 2006, J. Ray mobilized a construction vessel to the Eastern Hemisphere from the Gulf of Mexico market and recognized a transportation expense of approximately $7 million. At December 31, 2006, J. Ray�s backlog was $4.1 billion, compared to backlog of $1.8 billion and $4.0 billion at December 31, 2005 and September 30, 2006, respectively. Power Generation Systems Segment (�B&W�) Revenues in the Power Generation Systems segment for the fourth quarter 2006 were $676.8 million. During 2005, B&W was deconsolidated and therefore there were no revenues reported for this segment during the fourth quarter of 2005. Segment income for the 2006 fourth quarter was $24.8 million, compared to $4.8 million in the 2005 fourth quarter. The increase in segment income was due to the reconsolidation of B&W beginning in the first quarter 2006. During the 2006 fourth quarter, the Company recorded a total of $27 million in expense related to the final settlement in the Citgo litigation, an estimated warranty claim on a dated project and the current-year loss penalty premium for casualty insurers related to the Citgo litigation. Excluding these items, B&W�s non-GAAP operating income was $51.8 million. Please see Appendix A for the reconciliation of these non-GAAP amounts to McDermott�s GAAP results. At December 31, 2006, B&W�s backlog was $2.2 billion compared to $3.2 billion at September 30, 2006 and a deconsolidated backlog at December 31, 2005 of $2.1 billion. B&W�s backlog at December 31, 2006 excludes the amounts associated with the TXU boiler and SCR contracts, which the Company believes will no longer be fully realized. Government Operations Segment (�BWXT�) Revenues in the Government Operations segment were $158.3 million in the 2006 fourth quarter, compared to $145.6 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, higher volumes of fuel production for research test reactors and increased fuel development for the Department of Energy for use in commercial reactors. Segment income for the 2006 fourth quarter was $19.9 million, compared to $26.3 million in the 2005 fourth quarter. The decrease was due to lower margins in the manufacture of nuclear components for certain U.S. Government programs and increased selling, general and administrative expenses related to business development in the United Kingdom, pension plans and Department of Energy specialty fuel development. At December 31, 2006, BWXT�s backlog was $1.3 billion, compared to backlog of $1.8 billion and $1.4 billion at December 31, 2005 and September 30, 2006, respectively. Corporate Unallocated corporate expenses were $7.0 million in the 2006 fourth quarter, compared to $11.9 million in the 2005 fourth quarter. The decrease was primarily related to lower legal expenses as a result of the completion of the B&W Chapter 11 settlement. Other Income and Expense The Company�s other expense for the fourth quarter of 2006 was $4.2 million, compared to $1.3 million in the fourth quarter of 2005. The year-over-year variance is due to a $4.7 million loss on early retirement of debt and $5.3 million IRS interest expense adjustment, partially offset by a $5.7 million improvement in net interest income/expense resulting from the retirement of $250 million of the Company�s debt in June 2006 and increased cash balances. 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 20,000 employees. Forward-Looking Statements and Non-GAAP Disclosure 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, and the strength of the outlook for the markets in which we operate. 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 awards and contracts in backlog may not result in the expected revenues and risks that there are adverse changes in those markets. 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, 2006. In addition to disclosing results determined in accordance with GAAP, the Company also discloses non-GAAP operating results for the Company and B&W that exclude certain expenses related to litigation, related insurance and warranty expense and, for the Company, certain income related to a tax benefit. The Company is providing the non-GAAP measures to supplement the results provided in this press release in accordance with GAAP and it should not be considered superior to, or as a substitute for, the comparable GAAP measures. However, the Company believes the non-GAAP measures provide meaningful insight into the Company�s ongoing operational performance and enable investors to perform meaningful comparisons with current and historical operating results. The Company expects to use these non-GAAP measures internally to evaluate the Company�s and B&W�s operations for such purposes as budget planning and performance goals. The Company also considers these non-GAAP measures to be an important supplemental measure of its and B&W�s performance. Conference Call to Discuss 2006 Fourth Quarter Earnings Release Date: Friday, March 2, 2007, at 11:00 a.m. EST (10:00 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 McDERMOTT INTERNATIONAL, INC.CONDENSED CONSOLIDATED STATEMENTS OF INCOME � Three Months EndedDecember 31, Twelve Months EndedDecember 31, 2006� 2005� 2006� 2005� (Unaudited) (In thousands, except per share amounts) � Revenues $1,308,044� � $395,894� � $4,120,141� � $1,839,740� Costs and Expenses: Cost of operations 1,118,329� 289,634� 3,366,921� 1,443,817� Gain on settlements and curtailments of pension plans -� (1,390) -� (1,390) (Gain) Loss on asset disposals and impairments - net 93� (53) 15,042� (6,554) Selling, general and administrative expenses 115,598� � 65,828� � 388,524� � 220,380� � 1,234,020� � 354,019� � 3,770,487� � 1,656,253� � Equity in Income from Investees 12,231� � 14,301� � 37,428� � 40,523� � Operating Income 86,255� � 56,176� � 387,082� � 224,010� Other Income (Expense): Interest income 16,916� 7,251� 53,562� 21,046� Interest expense (7,945) (4,036) (30,348) (31,820) IRS interest expense adjustment (5,292) -� 5,719� -� Minority interest (504) (189) (1,023) (679) B&W Settlement adjustment -� -� -� (5,887) Loss on early retirement debt (4,692) -� (53,708) -� Other-net (2,638) � (4,334) � (12,727) � 30� � (4,155) � (1,308) � (38,525) � (17,310) Income from Continuing Operations before Provision for (benefit from) Income Taxes 82,100� 54,868� 348,557� 206,700� Provision for (benefit from) Income Taxes (58,907) � 17,998� � 19,152� � 8,827� Income from Continuing Operations 141,007� 36,870� 329,405� 197,873� Income (Loss) from Discontinued Operations -� � (748) � 12,894� � 104� � Net Income $141,007� � $36,122� � $342,299� � $197,977� Earnings (Loss) per share: Basic: Income from Continuing Operations $1.28� $0.35� $3.02� $1.93� Income (loss) from Discontinued Operations $0.00� $(0.01) $0.12� $0.00� Net Income $1.28� $0.34� $3.14� $1.93� Diluted: Income from Continuing Operations before $1.23� $0.33� $2.90� $1.81� Income (loss) from Discontinued Operations $0.00� $(0.01) $0.11� $0.00� Net Income $1.23� � $0.32� � $3.01� � $1.81� Weighted Average Shares Basic 110,015,576� 105,725,127� 108,876,227� 102,568,832� Diluted 114,355,625� � 112,293,439� � 113,859,392� � 109,168,765� McDERMOTT INTERNATIONAL, INC.SELECTED SEGMENT INFORMATION � Three Months EndedDecember 31, Twelve Months EndedDecember 31, 2006� 2005� 2006� 2005� (Unaudited) (In thousands) � REVENUES Offshore Oil and Gas Construction $475,856� $250,339� $1,610,307� $1,238,870� Government Operations 158,251� 145,556� 630,067� 601,042� Power Generation Systems 676,829� -� 1,888,636� -� Adjustments and Eliminations (2,892) � (1) � (8,869) � (172) TOTAL $1,308,044� � $395,894� � $4,120,141� � $1,839,740� � SEGMENT INCOME Offshore Oil and Gas Construction $48,654� $36,978� $190,885� $159,023� Government Operations 19,862� 26,335� 111,635� 99,371� Power Generation Systems 24,761� � 4,789� � 114,511� � 5,556� 93,277� 68,102� 417,031� 263,950� Unallocated Corporate (7,022) � (11,926) � (29,949) � (39,940) OPERATING INCOME $86,255� � $56,176� � $387,082� � $224,010� � EQUITY IN INCOME (LOSS) FROM INVESTEES (1) Offshore Oil and Gas Construction $(824) $614� $(2,882) $2,818� Government Operations 8,805� 8,674� 27,768� 31,258� Power Generation Systems 4,250� � 5,013� � 12,542� � 6,447� TOTAL $12,231� � $14,301� � $37,428� � $40,523� � DEPRECIATION & AMORTIZATION (1) Offshore Oil and Gas Construction $8,717� $8,418� $28,515� $28,727� Government Operations 4,740� 4,328� 14,833� 13,696� Power Generation Systems 4,896� -� 16,342� -� Corporate 584� � 403� � 1,310� � 1,843� TOTAL $18,937� � $13,149� � $61,000� � $44,266� � CAPITAL EXPENDITURES Offshore Oil and Gas Construction $26,166� $16,451� $96,029� $37,411� Government Operations 6,308� 14,837� 17,430� 26,892� Power Generation Systems 11,650� -� 29,635� -� Corporate 100� � 62� � 2,877� � 217� TOTAL $44,224� � $31,350� � $145,971� � $64,520� � BACKLOG Offshore Oil and Gas Construction $4,138,545� $1,781,917� $4,138,545� $1,781,917� Power Generation Systems 2,225,149� -� 2,225,149� -� Government Operations 1,269,328� � 1,772,258� � 1,269,328� � 1,772,258� TOTAL $7,633,022� � $3,554,175� � $7,633,022� � $3,554,175� � (1) Included in Segment Income above McDERMOTT INTERNATIONAL, INC.CONDENSED CONSOLIDATED BALANCE SHEETS � ASSETS December 31, 2006� 2005� (In thousands) Current Assets: Cash and cash equivalents $600,843� $19,263� Restricted cash and cash equivalents 106,674� 152,086� Investments 172,171� 384,202� Accounts receivable - trade, net 668,310� 232,236� Accounts receivable from The Babcock & Wilcox Company -� 3,778� Accounts and notes receivable - unconsolidated affiliates 29,825� 52,867� Accounts receivable - other 57,548� 32,982� Contracts in progress 230,146� 73,732� Inventories 77,769� 319� Deferred income taxes 180,234� 32,131� Assets held for sale -� 10,886� Other current assets 16,958� � 8,147� � Total Current Assets 2,140,478� � 1,002,629� � Restricted Cash and Cash Equivalents -� � 2,886� � Property, Plant and Equipment Land 14,883� 11,649� Buildings 217,832� 118,288� Machinery and equipment 1,197,053� 918,927� Property under construction 95,419� � 48,563� 1,525,187� 1,097,427� Less accumulated depreciation 1,011,693� � 779,694� � Net Property, Plant and Equipment 513,494� � 317,733� � Investments 121,914� � 116,304� � Goodwill 89,226� � 12,926� � Deferred Income Taxes 260,341� � 93,880� � Long-Term Income Tax Receivable 299,786� � 12,689� � Other Assets 168,948� � 109,239� � TOTAL $3,594,187� � $1,668,286� McDERMOTT INTERNATIONAL, INC.CONDENSED CONSOLIDATED BALANCE SHEETS � LIABILITIES AND STOCKHOLDERS' DEFICIT � December 31, 2006� 2005� (In thousands) Current Liabilities: Notes payable and current maturities of long-term debt $257,492� $4,250� Accounts payable 407,094� 110,970� Accounts payable to The Babcock & Wilcox Company -� 11,429� Accrued employee benefits 246,182� 81,196� Accrued liabilities - other 290,927� 132,932� Accrued contract cost 110,992� 56,566� Advance billings on contracts 1,116,118� 314,467� Liabilities held for sale -� 7,182� U.S. and foreign income taxes payable 50,776� � 49,696� � Total Current Liabilities 2,479,581� � 768,688� � Long-Term Debt 15,242� � 207,861� � Accumulated Postretirement Benefit Obligation 100,316� � 25,519� � Self-Insurance 84,704� � 60,989� � Pension Liability 372,504� � 311,319� � Accrued Cost of The Babcock & Wilcox Company Bankruptcy Settlement -� � 117,990� � Deferred Babcock & Wilcox Company Pension Plan Spin-Off -� � 150,136� � Other Liabilities 153,460� � 109,082� � Commitments and Contingencies � Stockholders' Equity (Deficit): Common stock, par value $1.00 per share, authorized 150,000,000 shares; issued 113,897,309 and 110,786,883 at December 31, 2006 and 2005, respectively � 113,897� 110,787� Capital in excess of par value 1,214,282� 1,146,194� Accumulated deficit (513,607) (862,931) Treasury stock at cost, 3,162,709 and 3,082,644 at December 31, 2006 and 2005, respectively (60,581) (56,496) Accumulated other comprehensive loss (365,611) � (420,852) � Total Stockholders' Equity (Deficit) 388,380� � (83,298) � TOTAL $3,594,187� � $1,668,286� McDERMOTT INTERNATIONAL, INC.CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS � Year Ended December 31, 2006� 2005� (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $342,299� $197,977� Depreciation and amortization 61,000� 44,266� (Income) loss of investees, less dividends 1,644� (4,714) (Gain) loss on asset disposals and impairments - net 15,042� (6,554) Gain on sale of businesses (13,786) -� Premium on early retirement of debt 37,438� -� Provision for (benefit from) deferred taxes 179,467� (47,557) Estimated loss on The Babcock & Wilcox bankruptcy settlement -� 5,887� Excess tax benefits from FAS 123(R) stock-based compensation (20,113) -� Other 24,996� 13,435� Changes in assets and liabilities, net of effects from acquisitions and divestitures: � Accounts receivable (49,858) 2,568� Income taxes receivable (284,494) -� Accounts payable 65,157� (46,664) Net contracts in progress and advance billings 330,996� 96,010� Income taxes 123,385� (14,570) Accrued and other current liabilities 95,862� (52,935) Pension liability and accrued postretirement and employee benefits (119,114) 46,803� Payment for B&W Settlement (605,000) -� Other, net 43,221� � 20,995� NET CASH PROVIDED BY OPERATING ACTIVITIES 228,142� � 254,947� CASH FLOWS FROM INVESTING ACTIVITIES: Decrease in restricted cash and cash equivalents 48,298� 22,981� Purchases of property, plant and equipment (132,704) (67,595) Purchases of available-for-sale securities (1,518,756) (11,487,782) Maturities of available-for-sale securities 1,502,136� 10,987,746� Sales of available-for-sale securities 228,702� 42,766� Proceeds from asset disposals 21,712� 17,223� Cash acquired from the reconsolidation of The Babcock & Wilcox Company 164,200� -� Other (3,193) � (6,095) NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 310,395� � (490,756) CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of long-term debt 250,000� -� Payment of long-term debt (238,615) (66,984) Payment of debt issuance costs (10,170) (949) Decrease in short-term borrowing -� -� Issuance of common stock 19,647� 60,951� Excess tax benefits from stock-based compensation 20,113� -� Other 2,718� � 2,779� NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 43,693� � (4,203) EFFECTS OF EXCHANGE RATE CHANGES ON CASH (650) � (44) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 581,580� � (240,056) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 19,263� � 259,319� CASH AND CASH EQUIVALENTS AT END OF PERIOD $600,843� � $19,263� SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest (net of amount capitalized) $28,588� $37,720� Income taxes (net of refunds) $63,357� � $44,961� 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 Twelve Months Ended December 31, December 31, 2006� 2005� 2006� 2005� (Unaudited; In thousands, except per share amounts) � Revenues $1,308,044� $817,788� $4,378,408� $3,347,820� � Operating Income (Loss) $86,255� $48,419� $388,760� $(191,462) � Net Income (Loss) $141,007� $26,212� $344,091� $(64,794) � Diluted Earnings Per Share $1.23� $0.23� $3.02� $(0.59) APPENDIX �A� � McDERMOTT INTERNATIONAL, INC. NON-GAAP�EARNINGS TABLE For the Three Months Ended December 31, 2006 (Unaudited; In thousands, except per share�amounts) � GAAP Adjustments Note � Non-GAAP � SEGMENT INCOME Offshore Oil and Gas Construction $48,654� � $48,654� Government Operations 19,862� 19,862� Power Generation Systems � 24,761� � 27,012� � (1) � 51,773� 93,277� 27,012� 120,289� Unallocated Corporate � (7,022) � � � � � (7,022) OPERATING INCOME � $86,255� � $27,012� � � � $113,267� � Other Income (Expense): Interest income 16,916� 16,916� Interest expense (7,945) (7,945) IRS interest expense adjustment (5,292) 5,292� -� Minority interest (504) (504) Loss on early retirement debt (4,692) 4,692� -� Other-net � (2,638) � � � � � (2,638) � � (4,155) � 9,984� � � � 5,829� Income before Provision for Income Taxes 82,100� 36,996� 119,096� Provision (Benefit) for Income Taxes � (58,907) � 94,211� � (2) � 35,304� � Net Income � $141,007� � $(57,215) � � � $83,792� Earnings (Loss) per share: Basic EPS $1.28� $(0.52) $0.76� Diluted EPS � $1.23� � $(0.50) � � � $0.73� Weighted Average Shares Basic 110,015,576� 110,015,576� Diluted � 114,355,625� � � � � � 114,355,625� (1) Add back litigation, related insurance, and dated warranty expense � (2) Add back $94.1 million tax benefit less lost foreign tax credit plus tax associated with other adjustment items