MDR McDermott International Inc

McDermott International, Inc. (NYSE: MDR) (“McDermott” or the “Company”) today reported net income of $98.7 million, or $0.42 per diluted share, for the 2009 fourth quarter, compared to $43.0 million, or $0.19 per diluted share, in the corresponding period of 2008. Weighted average common shares outstanding on a fully diluted basis were approximately 234.5 million and 230.6 million in the quarters ended December 31, 2009 and December 31, 2008, respectively.

McDermott’s revenues in the fourth quarter of 2009 were $1,459.1 million, compared to $1,664.5 million in the corresponding period in 2008. The year-over-year decrease was due to a 28 percent decline, or $170.3 million, in the Power Generation Systems segment and a 9 percent decline, or $77.8 million, in the Offshore Oil & Gas Construction segment. Partially offsetting these declines, revenues increased approximately 20 percent, or $41.5 million, in the Government Operations segment.

The Company’s operating income was $122.8 million in the 2009 fourth quarter, compared to $89.7 million in the 2008 fourth quarter. Segment income increased $82.7 million in the Offshore Oil & Gas Construction segment compared to the 2008 fourth quarter, which more than offset the year-over-year decline in the Power Generation Systems’ segment income and the $25.0 million increase in pension expense, which was predominantly non-cash.

“We are pleased with our results for the final quarter of 2009. These results highlight the resiliency of our businesses in what still remains a challenging economic environment. Despite about $150 million of our Offshore Oil & Gas Construction segment’s revenues coming from zero margin projects, this segment delivered strong segment income, exceeding our expectations,” said John A. Fees, Chief Executive Officer of McDermott. “While we incurred about $7 million of expenses unique to the transaction during the 2009 fourth quarter, we are making substantial progress on the previously announced spin-off of The Babcock & Wilcox Company and we anticipate filing a first draft of the Form 10 registration statement later this month.”

At December 31, 2009, the Company’s consolidated backlog was $8.1 billion, compared to $9.8 billion and $8.5 billion at December 31, 2008 and September 30, 2009, respectively.

For the year-ended December 31, 2009, McDermott reported consolidated revenues of $6.2 billion, generating operating income of $546.5 million and net income of $387.1 million, or $1.66 per diluted share.

RESULTS OF OPERATIONS

2009 Fourth Quarter Compared to 2008 Fourth Quarter

Offshore Oil & Gas Construction Segment

Revenues in the Offshore Oil & Gas Construction segment were $770.6 million in the 2009 fourth quarter, compared to $848.3 million for the same period a year ago. Increased revenues in the Middle East were more than offset by reduced levels in other regions. Approximately 20 percent of this segment’s 2009 fourth quarter revenues were derived from contracts in or near loss positions.

Segment income for the 2009 fourth quarter was $97.6 million, compared to $14.9 million in the 2008 fourth quarter. Major areas contributing to fourth quarter 2009 segment income include the Middle East and Asia Pacific regions.

At December 31, 2009, segment backlog was $3.4 billion, compared to backlog of $4.5 billion and $3.9 billion at December 31, 2008 and September 30, 2009, respectively.

Power Generation Systems Segment

Revenues in the Power Generation Systems segment for the fourth quarter of 2009 were $435.2 million, compared to $605.5 million in the fourth 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 fourth quarter was $21.7 million, compared to $48.7 million in the 2008 fourth quarter. Major activities contributing to fourth 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. Included in the 2009 fourth quarter’s segment income were approximately $6.5 million in one-time severance costs and about $8.9 million in increased research & development expenses, primarily associated with B&W’s mPowerTM modular nuclear reactor initiative.

At December 31, 2009, segment backlog was $2.0 billion, compared to backlog of $2.5 billion and $2.1 billion at December 31, 2008 and September 30, 2009, respectively.

Government Operations Segment

Revenues in the Government Operations segment were $253.8 million in the 2009 fourth quarter, compared to $212.2 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 on December 31, 2008.

Segment income for the 2009 fourth quarter was $31.5 million, compared to $35.2 million in the 2008 fourth quarter. Major items contributing to fourth 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. During the 2009 fourth quarter, approximately $14.3 million in expenses were recognized primarily related to the ongoing temporary suspension of certain operations and the implementation of various enhanced safety controls and processes at Nuclear Fuel Services’ Erwin, Tennessee manufacturing facility. The Company currently expects that the production line will resume operations by the end of March 2010.

At December 31, 2009, segment backlog was $2.8 billion, compared to backlog of $2.9 billion and $2.5 billion at December 31, 2008 and September 30, 2009, respectively.

Corporate & Other Income and Expense

Unallocated corporate expenses were $28.0 million in the 2009 fourth quarter, compared to $9.2 million in the 2008 fourth quarter. The year-over-year increase was largely due to approximately $6.6 million of costs in connection with the proposed spin-off of The Babcock & Wilcox Company and $4.2 million related to increased pension expense, as well as increased compensation and information technology expenses.

The Company’s other expense for the fourth quarter of 2009 was $9.0 million, compared to $7.1 million in the fourth quarter of 2008. The increased expense was due to higher net interest expense, partially offset by lower foreign currency exchange losses.

Research & Development Expense

Research & Development expense, net, was $20.3 million in the 2009 fourth quarter, compared to $11.4 million in the 2008 fourth quarter. Charged to cost of operations and predominantly in McDermott’s Power Generation Systems segment, this expense includes costs related to The Babcock & Wilcox Company’s modular and scalable nuclear reactor initiative, known as mPowerTM, and the continued development of carbon capture and sequestration technologies. For the year ending December 31, 2009, net R&D expenses were $54.2 million compared to $40 million in 2008.

Upcoming Investor Events

Members of McDermott’s management team will participate in Davenport & Co.’s Industrials Conference on March 4, 2010 in New York City and will be in Boston the following week on March 11, 2010 for UBS’ Engineering & Construction Conference. 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, and the anticipated filing of the Form 10 registration statement. 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 Fourth Quarter 2009 Earnings Release

Date: Tuesday, March 2, 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 two weeks in the investor relations section of www.mcdermott.com

McDERMOTT INTERNATIONAL, INC.CONSOLIDATED STATEMENTS OF INCOME

    Three Months Ended

December 31,

Twelve Months EndedDecember 31,

2009   2008 2009   2008 (Unaudited) (In thousands, except shares and per share amounts) Revenues   $1,459,137   $1,664,500   $6,193,077   $6,572,423 Costs and Expenses: Cost of operations 1,183,710 1,452,646 5,070,436 5,519,827 (Gains) losses on asset disposals and impairments – net 1,655 (880) 1,322 (12,202) Selling, general and administrative expenses   171,206   138,749   626,360   543,047 Total Costs and Expenses   1,356,571   1,590,515   5,698,118   6,050,672   Equity in Income of Investees   20,190   15,688   51,537   48,131   Operating Income   122,756   89,673   546,496   569,882   Other Income (Expense): Interest income 910 4,812 7,281 34,353 Interest expense (2,690) (1,631) (38) (7,380) Other expense – net   (7,187)   (10,302)   (31,285)   (9,454) Total Other Income (Expense)   (8,967)   (7,121)   (24,042)   17,519   Income before Provision for Income Taxes 113,789 82,552 522,454 587,401   Provision for Income Taxes   19,530   39,559   131,846   157,812   Net Income   94,259   42,993   $390,608   $429,589   Less: Net Income attributable to Noncontrolling Interest 4,443 9 (3,552) (287)   Net Income Attributable to McDermott International, Inc.   $98,702   $43,002   $387,056   $429,302   Earnings per Common Share: Basic: Net Income Attributable to McDermott International, Inc. $0.43 $0.19 $1.69 $1.89 Diluted: Net Income Attributable to McDermott International, Inc.   $0.42   $0.19   $1.66   $1.86   Shares used in the computation of earnings per share: Basic 230,306,488 227,739,578 229,471,020 226,918,776 Diluted   234,500,686   230,589,855   233,626,876   230,393,782  

McDERMOTT INTERNATIONAL, INC.SELECTED SEGMENT INFORMATION

    Three Months Ended Twelve Months Ended December 31, December 31, 2009   2008 2009   2008 (Unaudited); (In thousands) REVENUES Offshore Oil and Gas Construction $ 770,564 $ 848,320 $ 3,338,488 $ 3,181,238 Government Operations 253,769 212,227 1,032,023 851,019 Power Generation Systems 435,238 605,530 1,825,040 2,550,854 Adjustments and Eliminations   (434)   (1,577)   (2,474)   (10,688) TOTAL   $ 1,459,137   $ 1,664,500   $ 6,193,077   $6,572,423   SEGMENT INCOME Offshore Oil and Gas Construction $ 97,600 $ 14,932 $ 316,965 $ 146,180 Government Operations 31,519 35,228 154,542 150,232 Power Generation Systems   21,669   48,670   157,896   315,362     $ 150,788   $ 98,830   $ 629,403   $ 611,774 Corporate   (28,032)   (9,157)   (82,907)   (41,892) OPERATING INCOME   $ 122,756   $ 89,673   $ 546,496   $ 569,882   EQUITY IN INCOME (LOSS) OF INVESTEES (1) Offshore Oil and Gas Construction $ (760) $ (990) $ (3,557) $ (3,661) Government Operations 14,616 13,868 41,051 41,381 Power Generation Systems   6,334   2,810   14,043   10,411 TOTAL   $ 20,190   $ 15,688   $ 51,537   $ 48,131

PENSION EXPENSE (1)

Offshore Oil and Gas Construction $ 2,188 $ 1,668 $ 8,749 $ 6,663 Government Operations 12,553 2,798 50,217 10,713 Power Generation Systems 16,180 5,719 63,597 23,411 Corporate   4,871   632   19,062   2,764 TOTAL   $ 35,792   $ 10,817   $ 141,625   $ 43,551   DEPRECIATION & AMORTIZATION (1) Offshore Oil and Gas Construction $ 20,025 $ 19,379 $ 84,706 $ 80,148 Government Operations 13,171 5,634 51,588 22,445 Power Generation Systems 4,461 5,513 17,859 22,080 Corporate   891   548   3,266   1,460 TOTAL   $ 38,548   $ 31,074   $ 157,419   $126,133   RESEARCH & DEVELOPMENT, NET (1)   $ 20,295   $ 11,406   $54,229   $ 40,077

CAPITAL EXPENDITURES

Offshore Oil and Gas Construction $ 46,451 $ 44,208 $ 170,004 $ 193,736 Government Operations 19,355 7,864 45,062 16,348 Power Generation Systems 6,946 13,191 32,147 33,896 Corporate   769   1,044   16,515   11,711 TOTAL   $ 73,521   $ 66,307   $ 263,728   $ 255,691   BACKLOG Offshore Oil and Gas Construction $ 3,370,785 $ 4,456,951 $ 3,370,785 $4,456,951 Government Operations 2,766,445 2,882,895 2,766,445 2,882,895 Power Generation Systems   1,973,615   2,476,435   1,973,615   2,476,435 TOTAL   $ 8,110,845   $ 9,816,281   $ 8,110,845   $9,816,281   (1) Included in Segment Income Above  

McDERMOTT INTERNATIONAL, INC.CONDENSED CONSOLIDATED BALANCE SHEETS

 

ASSETS

  December 31, 2009   2008 (In thousands) Current Assets: Cash and cash equivalents $899,270 $586,649 Restricted cash and cash equivalents 69,920 50,536 Investments 12 131,515 Accounts receivable – trade, net 642,995 712,055 Accounts and notes receivable – unconsolidated affiliates 5,806 1,504 Accounts receivable – other 68,035 139,062 Contracts in progress 400,831 311,713 Inventories 101,494 128,383 Deferred income taxes 100,828 97,069 Other current assets   68,730   58,499   Total Current Assets   2,357,921   2,216,985   Property, Plant and Equipment 2,608,740 2,234,050 Less accumulated depreciation   1,271,135   1,155,191   Net Property, Plant and Equipment   1,337,605   1,078,859   Investments   228,706   319,170   Goodwill   306,497   298,265   Deferred Income Taxes   275,567   335,877   Investments in Unconsolidated Affiliates   86,932   70,304   Other Assets   255,882   282,233   TOTAL   $4,849,110   $4,601,693  

McDERMOTT INTERNATIONAL, INC.CONDENSED CONSOLIDATED BALANCE SHEETS

 

LIABILITIES AND STOCKHOLDERS' EQUITY

  December 31, 2009   2008 (In thousands) Current Liabilities: Notes payable and current maturities of long-term debt $ 16,270 $ 9,021 Accounts payable 471,858 551,435 Accrued employee benefits 217,178 159,541 Accrued pension liability – current portion 173,271 45,980 Accrued liabilities – other 155,773 217,486 Accrued contract cost 103,041 97,041 Advance billings on contracts 689,334 951,895 Accrued warranty expense 118,278 120,237 Income taxes payable   64,029   55,709   Total Current Liabilities   2,009,032   2,208,345   Long-Term Debt   56,714   6,109   Accumulated Postretirement Benefit Obligation   105,605   107,567   Self-Insurance   87,222   88,312   Pension Liability   610,166   682,624   Other Liabilities   147,271   192,223   Commitments and Contingencies   Stockholders’ Equity: Common stock, par value $1.00 per share, authorized 400,000,000 shares; issued 236,919,404 and 234,174,088 shares at December 31, 2009 and December 31, 2008, respectively 236,919 234,174 Capital in excess of par value 1,300,998 1,252,848 Retained earnings 951,647 564,591 Treasury stock at cost, 6,168,705 and 5,840,314 shares at December 31, 2009 and December 31, 2008, respectively (69,370) (63,026) Accumulated other comprehensive loss   (612,997)   (672,415) Stockholders’ Equity – McDermott International, Inc. 1,807,197 1,316,172 Noncontrolling interest   25,903   341 Total Stockholders’ Equity   1,833,100   1,316,513   TOTAL   $ 4,849,110   $ 4,601,693  

McDERMOTT INTERNATIONAL, INC.CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

  Year Ended December 31, 2009   2008 (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $390,608 $429,589 Non-cash items included in net income: Depreciation and amortization 157,419 126,133 (Income) loss of investees, net of dividends (893) 1,545 (Gains) losses on asset disposals and impairments – net 1,322 (12,202) Provision for deferred taxes 43,904 35,063 Amortization of pension and postretirement costs 92,190 38,131 Excess tax benefits from FAS 123(R) stock-based compensation 2,324 (60,901) Other 40,014 38,372 Changes in assets and liabilities, net of effects from acquisitions: Accounts receivable 97,472 71,142 Income taxes receivable 53,025 (11,476) Accounts payable (98,656) 86,069 Net contracts in progress and advance billings (358,989) (630,481) Income taxes 16,896 13,046 Accrued and other current liabilities (70,346) 18,142 Pension liability and accrued postretirement and employee benefits 42,023 (205,345) Other   9,761   14,206 NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES   418,074   (48,967) CASH FLOWS FROM INVESTING ACTIVITIES: (Increase) decrease in restricted cash and cash equivalents (19,384) 14,250 Purchases of property, plant and equipment (263,728) (255,691) Acquisition of businesses, net of cash acquired (36,790) (191,940) Net (increase) decrease in available-for-sale securities 222,367 2,009 Proceeds from asset disposals 3,006 13,996 Investments in unconsolidated affiliates (16,184) (4,000) Other   (134)   1,004 NET CASH USED IN INVESTING ACTIVITIES   (110,847)   (420,372) CASH FLOWS FROM FINANCING ACTIVITIES: Payment of long-term debt (6,010) (4,768) Payment of debt issuance costs (105) (1,756) Increase in short-term borrowing 1,606 1,460 Issuance of common stock 1,042 9,624 Excess tax benefits from FAS 123(R) stock-based compensation (2,324) 60,901 Other   (145)   (2) NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES   (5,936)   65,459 EFFECTS OF EXCHANGE RATE CHANGES ON CASH   11,330   (10,865) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS   312,621   (414,745) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD   586,649   1,001,394 CASH AND CASH EQUIVALENTS AT END OF PERIOD   $899,270   $586,649   SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid (received) during the period for: Interest (net of amount capitalized) $4,535 $11,978 Income taxes (net of refunds)   $31,879   $68,637