McDermott reports Third Quarter 2009 Results; Net Income of $118.1 million, $0.50 per fully diluted share
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Earnings per Share Improve 35% Over 2008 Quarter and 25% Sequentially
HOUSTON--(BUSINESS WIRE)-- 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 1,383,046 1,445,749 3,886,726 4,067,181
operations
Gains (losses)
on asset 323 138 (333 ) (11,322 )
disposals -
net
Selling,
general and 160,565 139,512 455,154 404,298
administrative
expenses
Total Costs 1,543,934 1,585,399 4,341,547 4,460,157
and Expenses
Equity in
Income of 13,050 12,521 31,347 32,443
Investees
Operating 144,794 91,973 423,740 480,209
Income (Loss)
Other Income
(Expense):
Interest 2,179 5,151 9,023 23,792
income - net
Other income
(expense) - (3,127 ) 2,945 (24,098 ) 848
net
Total Other
Income (948 ) 8,096 (15,075 ) 24,640
(Expense)
Income before
Provision for 143,846 100,069 408,665 504,849
Income Taxes
Provision for 23,793 14,271 112,316 118,253
Income Taxes
Net Income 120,053 85,798 296,349 386,596
Less: Net
Income
Attributable (1,946 ) (227 ) (7,995 ) (296 )
to
Noncontrolling
Interest
Net Income
Attributable
to McDermott $ 118,107 $ 85,571 $ 288,354 $ 386,300
International,
Inc.
Earnings per
Share:
Basic:
Net Income
Attributable
to McDermott $ 0.51 $ 0.38 $ 1.26 $ 1.70
International,
Inc.
Diluted:
Net Income
Attributable
to McDermott $ 0.50 $ 0.37 $ 1.24 $ 1.68
International,
Inc.
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 $ 1,026,700 $ 814,701 $ 2,567,924 $ 2,332,918
Gas Construction
Government 259,752 222,434 778,254 638,792
Operations
Power Generation 389,638 630,955 1,389,802 1,945,324
Systems
Adjustments and (412 ) (3,239 ) (2,040 ) (9,111 )
Eliminations
TOTAL $ 1,675,678 $ 1,664,851 $ 4,733,940 $ 4,907,923
SEGMENT INCOME
Offshore Oil and $ 106,525 $ (19,686 ) $ 219,365 $ 131,248
Gas Construction
Government 19,798 34,551 123,023 115,004
Operations
Power Generation 34,203 84,449 136,227 266,692
Systems
$ 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 $ (596 ) $ (921 ) $ (2,797 ) $ (2,671 )
Gas Construction
Government 9,081 7,966 26,435 27,513
Operations
Power Generation 4,565 5,476 7,709 7,601
Systems
TOTAL $ 13,050 $ 12,521 $ 31,347 $ 32,443
PENSION EXPENSE (1)
Offshore Oil and $ 2,198 $ 1,665 $ 6,561 $ 4,995
Gas Construction
Government 13,347 (207 ) 37,664 7,915
Operations
Power Generation 16,693 5,687 47,417 17,692
Systems
Corporate 5,021 667 14,191 2,132
TOTAL $ 37,259 $ 7,812 $ 105,833 $ 32,734
DEPRECIATION &
AMORTIZATION (1)
Offshore Oil and $ 24,707 $ 19,765 $ 64,681 $ 60,769
Gas Construction
Government 16,867 5,585 38,417 16,811
Operations
Power Generation 4,444 5,672 13,398 16,567
Systems
Corporate 940 320 2,375 912
TOTAL $ 46,958 $ 31,342 $ 118,871 $ 95,059
RESEARCH &
DEVELOPMENT, NET $ 12,792 $ 9,912 $ 33,934 $ 28,671
(1)
CAPITAL
EXPENDITURES
Offshore Oil and $ 34,420 $ 54,982 $ 123,553 $ 149,528
Gas Construction
Government 11,710 2,554 25,707 8,484
Operations
Power Generation 5,030 7,988 25,201 20,705
Systems
Corporate 9,661 3,467 15,746 10,667
TOTAL $ 60,821 $ 68,991 $ 190,207 $ 189,384
BACKLOG
Offshore Oil and $ 3,942,891 $ 4,955,818 $ 3,942,891 $ 4,955,818
Gas Construction
Government 2,539,252 1,641,969 2,539,252 1,641,969
Operations
Power Generation 2,061,837 2,834,049 2,061,837 2,834,049
Systems
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 4,461 1,504
affiliates
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 $ 5,288 $ 9,021
debt
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 236,495,637 236,496 234,174
and 234,174,088 shares at September 30, 2009 and
December 31, 2008, respectively
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, (67,773 ) (63,026 )
2008, respectively
Accumulated other comprehensive loss (590,565 ) (672,415 )
Stockholders' Equity - McDermott International, 1,718,867 1,316,172
Inc.
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 2,458 (6,404 )
compensation
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 (442,373 ) (516,623 )
contracts
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 13,961 (201,109 )
benefit obligation and accrued employee benefits
Other, net (36,056 ) (95,421 )
NET CASH PROVIDED BY (USED IN) OPERATING 197,408 (107,085 )
ACTIVITIES
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 208,435 (70,992 )
securities
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 (2,458 ) 6,404
compensation
Other, net (109 ) -
NET CASH (USED IN) PROVIDED BY FINANCING (5,956 ) 11,122
ACTIVITIES
EFFECTS OF EXCHANGE RATE CHANGES ON CASH 10,097 (3,239 )
NET INCREASE (DECREASE) IN CASH AND CASH 197,814 (387,046 )
EQUIVALENTS
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
Source: McDermott International, Inc.
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