McDermott (NYSE:MDR)
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McDermott International, Inc. (NYSE:MDR) (“McDermott”
or the “Company”)
today reported net income of $160.0 million, or $0.70 per diluted share,
for the 2007 fourth quarter, compared to net income of $125.5 million,
or $0.55 per diluted share, for the corresponding period in 2006. As
disclosed a year ago, fourth quarter 2006 net income benefited by
approximately $57.2 million, net from certain identified items. This net
benefit for the fourth quarter of 2006 was subsequently reduced by
approximately $16 million as a result of a required accounting
pronouncement adopted in 2007.
Weighted average common shares outstanding on a fully diluted basis were
approximately 229.8 million and 228.7 million in the quarters ended
December 31, 2007 and December 31, 2006, respectively. For 2006, the
Company’s common shares outstanding and
earnings per share are adjusted to reflect the 2-for-1 stock split
effected in September 2007.
McDermott’s revenues in the fourth quarter of
2007 were $1,526.0 million, an increase of 16.7 percent compared to
$1,308.0 million in the corresponding period in 2006. The $218 million
improvement in Company revenues, compared to a year ago, was a result of
the Offshore Oil & Gas Construction segment which increased revenues by
approximately $257 million, or 54.1 percent.
Operating income was $186.8 million in the 2007 fourth quarter, an
improvement of 115.2 percent, compared to $86.8 million in the 2006
fourth quarter. The $100 million increase in operating income is
attributable to heightened year-over-year increases in each of the
Company’s operating segments.
“McDermott completed a record-setting,
full-year 2007 with strong fourth quarter results,”
said Bruce W. Wilkinson, Chairman of the Board and Chief Executive
Officer of McDermott. “The Company reported
its highest quarterly level of net income of the year, and our recorded
bookings of over $2 billion resulted in the fourth consecutive quarter
of sequential backlog growth.”
At December 31, 2007, McDermott’s
consolidated backlog was $9.8 billion, compared to $7.6 billion and $9.3
billion at December 31, 2006 and September 30, 2007, respectively.
For the year-ended December 31, 2007, McDermott reported consolidated
revenues of $5.6 billion, producing operating income of $716.2 million
and net income of $607.8 million, or $2.66 per diluted share.
RESULTS OF OPERATIONS
2007 Fourth Quarter Compared to 2006 Fourth Quarter
Offshore Oil & Gas Construction Segment
Revenues in the Offshore Oil & Gas Construction segment were $733.3
million in the 2007 fourth quarter, compared to $475.9 million for the
same period a year ago. The year-over-year increase in revenues resulted
from a higher workload in worldwide marine activities, including
revenues from Secunda International Limited whose assets were acquired
in July 2007, and from increased activities within the Caspian, Middle
East and Americas regions.
Segment income for the 2007 fourth quarter was $100.0 million, compared
to $49.1 million in the 2006 fourth quarter. Major areas contributing to
fourth quarter 2007 segment income include activities in the Caspian,
Middle East and Asia Pacific regions.
At December 31, 2007, segment backlog was $4.8 billion, compared to
backlog of $4.1 billion and $4.9 billion at December 31, 2006 and
September 30, 2007, respectively.
Power Generation Systems Segment
Revenues in the Power Generation Systems segment for the fourth quarter
2007 were $608.0 million, compared to $676.8 million reported in the
fourth quarter of 2006. The year-over-year reduction in revenues
resulted from lower activities on new fossil utility steam systems and
retrofits of existing facilities compared to a year ago, partially
offset by higher levels of replacement parts and increased activity on
nuclear steam generators.
Segment income for the 2007 fourth quarter was $65.9 million, compared
to $24.9 million in the 2006 fourth quarter. Major areas contributing to
fourth quarter 2007 segment income include utility steam system
fabrication, replacement nuclear steam generators, industrial boilers
and parts and service activities. In the 2006 fourth quarter, the
Company recorded approximately $27 million in previously announced
settlement, insurance and warranty charges.
At December 31, 2007, segment backlog was $3.3 billion, compared to
backlog of $2.2 billion and $3.0 billion at December 31, 2006 and
September 30, 2007, respectively.
Government Operations Segment
Revenues in the Government Operations segment were $187.7 million in the
2007 fourth quarter, compared to $158.3 million for the same period a
year ago. The improvement was primarily due to higher volumes in the
manufacture of nuclear components for certain U.S. Government programs,
including revenues from Marine Mechanical Corporation which was acquired
in April 2007.
Segment income for the 2007 fourth quarter was $33.3 million, compared
to $19.9 million in the 2006 fourth quarter. Major items contributing to
the fourth quarter 2007 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 December 31, 2007, segment backlog was $1.8 billion, compared to
backlog of $1.3 billion and $1.4 billion at December 31, 2006 and
September 30, 2007, respectively.
Corporate
Unallocated corporate expenses were $12.4 million in the 2007 fourth
quarter, compared to $7.0 million in the 2006 fourth quarter. The
year-over-year increase was primarily related to increased general
corporate expenses, including higher stock-based compensation expenses
due to McDermott’s 9.2 percent stock price
increase during the fourth quarter of 2007.
Other Income and Expense
The Company’s other income for the fourth
quarter of 2007 was $7.3 million, compared to other expense of $4.2
million in the fourth quarter of 2006. The year-over-year improvement
was primarily related to lower interest expense and the loss on early
retirement of debt incurred during the fourth quarter of 2006.
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
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, adverse changes
in the markets in which we operate, our inability to successfully
execute on contracts in backlog or that awards and contracts in backlog
may not otherwise result in the expected revenues. 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, 2007.
Conference Call to Discuss 2007 Fourth
Quarter Earnings Release
Date: Thursday, February 28, 2008, at 10:00 a.m. EST (9:00 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.
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
December 31,
Twelve Months EndedDecember 31,
2007
2006
2007
2006
(Unaudited)
(In thousands, except shares and per share amounts)
Revenues
$
1,526,016
$
1,308,044
$5,631,610
$
4,120,141
Costs and Expenses:
Cost of operations
1,222,842
1,117,878
4,500,897
3,362,758
(Gains) losses on asset disposals and impairments –
net
(5,991
)
93
(8,371
)
15,042
Selling, general andadministrative expenses
137,086
115,598
464,611
388,524
1,353,937
1,233,569
4,957,137
3,766,324
Equity in Income of Investees
14,698
12,327
41,724
37,524
Operating Income
186,777
86,802
716,197
391,341
Other Income (Expense):
Interest income
16,569
16,916
61,980
53,562
Interest expense
(4,089
)
(7,945
)
(22,520
)
(30,348
)
IRS interest expense adjustment
-
(5,292
)
-
5,719
Loss on early retirement of debt
-
(4,692
)
-
(53,708
)
Other expense – net
(5,142
)
(3,142
)
(10,192
)
(13,750
)
7,338
(4,155
)
29,268
(38,525
)
Income from Continuing Operations before Provision for Income Taxes
194,115
82,647
745,465
352,816
Provision for (Benefit from) Income Taxes
34,130
(42,864
)
137,637
35,195
Income from Continuing Operations
159,985
125,511
607,828
317,621
Income from Discontinued Operations
-
-
-
12,894
Net Income
$
159,985
$
125,511
$607,828
$
330,515
Earnings per Common Share:
Basic:
Income from Continuing Operations
$
0.71
$
0.57
$2.72
$
1.46
Income from Discontinued Operations
$
0.00
$
0.00
$0.00
$
0.06
Net Income
$
0.71
$
0.57
$2.72
$
1.52
Diluted:
Income from Continuing Operations
$
0.70
$
0.55
$2.66
$
1.39
Income from Discontinued Operations
$
0.00
$
0.00
$0.00
$
0.06
Net Income
$
0.70
$
0.55
$2.66
$
1.45
Shares used in the computation of earnings per share:
Basic
225,213,119
220,031,152
223,511,880
217,752,454
Diluted
229,762,318
228,711,250
228,742,522
227,718,784
McDERMOTT INTERNATIONAL, INC.
SELECTED SEGMENT INFORMATION
Three Months Ended
Twelve Months Ended
December 31,
December 31,
2007
2006
2007
2006
(Unaudited)
(In thousands)
REVENUES
Offshore Oil and Gas Construction
$
733,261
$
475,856
$
2,445,675
$
1,610,307
Government Operations
187,684
158,251
694,024
630,067
Power Generation Systems
608,047
676,829
2,504,225
1,888,636
Adjustments and Eliminations
(2,976
)
(2,892
)
(12,314
)
(8,869
)
TOTAL
$
1,526,016
$
1,308,044
$
5,631,610
$
4,120,141
SEGMENT INCOME
Offshore Oil and Gas Construction
$
100,000
$
49,105
$
400,402
$
195,048
Government Operations
33,306
19,862
122,941
111,635
Power Generation Systems
65,864
24,857
234,068
114,607
199,170
93,824
757,411
421,290
Unallocated Corporate
(12,393
)
(7,022
)
(41,214
)
(29,949
)
OPERATING INCOME
$
186,777
$
86,802
$
716,197
$
391,341
EQUITY IN INCOME (LOSS) OF INVESTEES (1)
Offshore Oil and Gas Construction
$
(985
)
$
(824
)
$
(3,923
)
$
(2,882
)
Government Operations
11,681
8,805
31,288
27,768
Power Generation Systems
4,002
4,346
14,359
12,638
TOTAL
$
14,698
$
12,327
$
41,724
$
37,524
DEPRECIATION & AMORTIZATION (1)
Offshore Oil and Gas Construction
$
17,262
$
8,717
$
54,318
$
28,515
Government Operations
5,636
4,740
19,269
14,833
Power Generation Systems
5,702
4,896
21,266
16,342
Corporate
281
584
1,136
1,310
TOTAL
$
28,881
$
18,937
$
95,989
$
61,000
CAPITAL EXPENDITURES
Offshore Oil and Gas Construction
$
35,651
$
19,638
$
172,580
$
89,501
Government Operations
6,385
5,486
14,117
16,608
Power Generation Systems
8,949
5,733
40,218
23,718
Corporate
501
100
6,374
2,877
TOTAL
$
51,486
$
30,957
$
233,289
$
132,704
BACKLOG
Offshore Oil and Gas Construction
$
4,752,794
$
4,138,545
$
4,752,794
$
4,138,545
Government Operations
1,790,686
1,269,328
1,790,686
1,269,328
Power Generation Systems
3,276,129
2,225,149
3,276,129
2,225,149
TOTAL
$
9,819,609
$
7,633,022
$
9,819,609
$
7,633,022
(1) Included in Segment Income Above
McDERMOTT INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
December 31,
2007
2006
(In thousands)
ASSETS
Current Assets:
Cash and cash equivalents
$
1,001,394
$
600,843
Restricted cash and cash equivalents
64,786
106,674
Investments
300,092
172,171
Accounts receivable – trade, net
770,024
668,310
Accounts and notes receivable –
unconsolidated affiliates
2,303
29,825
Accounts receivable – other
71,162
48,041
Contracts in progress
194,292
230,146
Inventories
95,208
77,769
Deferred income taxes
160,783
180,234
Other current assets
97,456
39,461
Total Current Assets
2,757,500
2,153,474
Property, Plant and Equipment
2,004,138
1,525,187
Less accumulated depreciation
1,090,400
1,011,693
Net Property, Plant and Equipment
913,738
513,494
Investments
162,069
121,914
Goodwill
158,533
89,226
Deferred Income Taxes
134,292
260,341
Long-Term Income Tax Receivable
8,745
299,786
Investments in Unconsolidated Affiliates
62,241
52,801
Other Assets
214,368
142,726
TOTAL
$
4,411,486
$
3,633,762
McDERMOTT INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
December 31,
2007
2006
(In thousands)
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Notes payable and current maturities of long-term debt
$
6,599
$
257,492
Accounts payable
455,659
407,094
Accrued employee benefits
343,812
246,182
Accrued liabilities – other
175,557
185,762
Accrued contract cost
93,281
110,992
Advance billings on contracts
1,463,223
1,116,118
Accrued warranty expense
101,330
79,077
Income taxes payable
57,071
58,557
Total Current Liabilities
2,696,532
2,461,274
Long-Term Debt
10,609
15,242
Accumulated Postretirement Benefit Obligation
96,253
100,316
Self-Insurance
82,525
84,704
Pension Liability
188,748
372,504
Other Liabilities
169,814
156,621
Commitments and Contingencies
Stockholders’ Equity:
Common stock, par value $1.00 per share, authorized 400,000,000
shares; issued 231,722,659 and 227,794,618 at December 31, 2007 and
2006, respectively
231,723
227,795
Capital in excess of par value
1,145,829
1,100,384
Accumulated earnings (deficit)
135,289
(458,886
)
Treasury stock at cost, 5,852,248 and 6,025,418 at December 31, 2007
and 2006, respectively
(63,903
)
(60,581
)
Accumulated other comprehensive loss
(281,933
)
(365,611
)
Total Stockholders’ Equity
1,167,005
443,101
TOTAL
$
4,411,486
$
3,633,762
McDERMOTT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
2007
2006
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income
$
607,828
$
330,515
Non-cash items included in net income:
Depreciation and amortization
95,989
61,000
(Income) loss of investees, net of dividends
120
1,644
(Gains) losses on asset disposals and impairments –
net
(8,371
)
15,042
Gain on sale of business
-
(13,786
)
Premium on early retirement of debt
-
37,438
Provision for (benefit from) deferred taxes
89,624
179,467
Amortization of pension and postretirement costs
50,957
-
Loss on Babcock & Wilcox Power Generation Group, Inc. (“B&W
PGG”) bankruptcy settlement
-
-
Excess tax benefits from FAS 123(R) stock-based compensation
(877
)
(20,113
)
Other, net
21,726
14,660
Changes in assets and liabilities, net of effects from acquisition
and divestitures:
Accounts receivable
(82,105
)
(49,858
)
Income taxes receivable
255,165
(284,494
)
Accounts payable
40,384
65,157
Net contracts in progress and advance billings
382,184
330,996
Income taxes
(13,216
)
139,497
Accrued and other current liabilities
(14,305
)
81,060
Pension liability and accrued postretirement and employee benefits
(74,365
)
(119,114
)
Payment of the B&W PGG bankruptcy settlement
-
(605,000
)
Other, net
(33,790
)
64,031
NET CASH PROVIDED BY OPERATING ACTIVITIES
1,316,948
228,142
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in restricted cash and cash equivalents
41,888
48,298
Purchases of property, plant and equipment
(233,289
)
(132,704
)
Acquisition of businesses, net of cash acquired
(334,457
)
-
Net (increase) decrease in available-for-sale securities
(159,350
)
212,082
Proceeds from asset disposals
11,223
21,712
Cash acquired from the reconsolidation of B&W PGG
-
164,200
Other, net
(4,696
)
(3,193
)
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
(678,681
)
310,395
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt
-
250,000
Payment of long-term debt
(255,749
)
(238,615
)
Payment of debt issuance costs
(3,625
)
(10,170
)
Issuance of common stock
15,219
19,647
Excess tax benefits from FAS 123(R) stock-based compensation
877
20,113
Other, net
4
2,718
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
(243,274
)
43,693
EFFECTS OF EXCHANGE RATE CHANGES ON CASH
5,558
(650
)
NET INCREASE IN CASH AND CASH EQUIVALENTS
400,551
581,580
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
600,843
19,263
CASH AND CASH EQUIVALENTS AT END OF PERIOD
$
1,001,394
$
600,843
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amount capitalized)
$
28,066
$
28,588
Income taxes (net of refunds)
$
(208,194
)
$
63,357