McDermott (NYSE:MDR)
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McDermott International, Inc. (NYSE:MDR) (“McDermott”
or the “Company”)
today reported net income of $149.4 million, or $1.31 per diluted share,
for the 2007 second quarter, compared to net income of $47.0 million, or
$0.41 per diluted share, for the corresponding period in 2006. Weighted
average common shares outstanding on a fully diluted basis were
approximately 114.0 million in the quarters ended June 30, 2007 and June
30, 2006.
McDermott’s revenues in the second quarter of
2007 were $1,418.1 million, compared to $1,048.9 million in the
corresponding period in 2006. The growth in Company revenues compared to
a year ago was led by the Offshore Oil & Gas Construction and Power
Generation Systems segments, increasing 45 percent and 37 percent,
respectively.
Operating income was $181.8 million in the 2007 second quarter, compared
to $112.7 million in the 2006 second quarter. The improvement in
operating income is primarily attributable to a $50 million increase in
segment income in the Power Generation Systems segment. In addition, the
Company’s Offshore Oil & Gas Construction
increased segment income by 39 percent, partially offset by higher
unallocated corporate expenses.
“At the mid-point of 2007, McDermott’s
financial performance is on track to deliver another successful year for
our shareholders,” said Bruce W. Wilkinson,
Chairman of the Board and Chief Executive Officer of McDermott. “We
have generated strong results year-to-date from the work we signed in
the past. The Company’s backlog has grown
both sequentially and compared to a year ago, which supports our
continued optimism for the markets we serve.”
At June 30, 2007, McDermott’s consolidated
backlog was $8.9 billion, compared to $7.8 billion at June 30, 2006 and
$7.6 billion at December 31, 2006.
Earlier today, the Company's Board of Directors declared a two-for-one
split of McDermott's common stock. The stock split will be applicable to
shareholders of record at the close of business on August 20, 2007 and
will be effected in the form of a stock dividend to be issued on
September 10, 2007.
RESULTS OF OPERATIONS
2007 Second Quarter Compared to 2006 Second Quarter
Offshore Oil & Gas Construction
Segment (“J.
Ray”)
Revenues in the Offshore Oil & Gas Construction segment were $580.0
million in the 2007 second quarter, compared to $398.8 million for the
same period a year ago. The year-over-year increase in revenues resulted
primarily from increased activity in the Middle East, Asia Pacific and
Americas regions.
Segment income for the 2007 second quarter was $91.1 million, compared
to $65.5 million in the 2006 second quarter. Each major region
contributed to the improvement, led by the increased activities in the
Asia Pacific region. In addition, J. Ray experienced an improvement of
approximately $15 million compared to a year ago related to project
close-outs, change orders and settlements, which are normal, ongoing
components to J. Ray’s business but which can
vary widely quarter-to-quarter. As disclosed a year ago, J. Ray’s
second quarter 2006 segment income benefited by approximately $21
million related to the accumulated profit recognized from the Dolphin
project.
At June 30, 2007, J. Ray’s backlog was $4.6
billion, compared to backlog of $3.2 billion and $4.1 billion at June
30, 2006 and December 31, 2006, respectively.
On July 27, 2007, J. Ray completed its previously announced acquisition
of substantially all of the assets of Secunda International, Ltd.,
including 14 multi-functional vessels as well as its shore base
operations for approximately $260 million.
Power Generation Systems Segment (“B&W”)
Revenues in the Power Generation Systems segment for the second quarter
2007 were $673.6 million, compared to $488.7 million reported in the
second quarter of 2006. The year-over-year increase resulted from
increased activity on boiler, scrubber and service projects including
approximately $150 million in revenue recognized from the global
settlement with TXU.
Segment income for the 2007 second quarter was $75.4 million, compared
to $25.2 million in the 2006 second quarter. The improvement in segment
income resulted from approximately $50 million in benefits resulting
from contract terminations and a variety of settlements. In addition,
during the second quarter of 2007, B&W had increased boiler, scrubber
and service activity compared to the same period a year ago.
At June 30, 2007, B&W’s backlog was $2.8
billion compared to backlog of $3.1 billion and $2.2 billion at June 30,
2006 and December 31, 2006, respectively. Backlog at June 30, 2006
included $1.1 billion of TXU boiler/SCR projects which were removed from
backlog by December 31, 2006. B&W has continued work on three TXU boiler
and SCR contracts which are not currently in backlog, but the respective
amounts will be rebooked should a new buyer or buyers contract for one
or more of these units.
Government Operations Segment (“BWXT”)
Revenues in the Government Operations segment were $167.7 million in the
2007 second quarter, compared to $163.5 million for the same period a
year ago. The increase was primarily the result of the acquisition of
Marine Mechanical Corporation which was completed in April 2007.
Segment income for the 2007 second quarter was $29.7 million, compared
to $30.8 million in the 2006 second quarter. The decrease in segment
income was primarily related to a $1.1 million gain on an asset sale
which occurred in the 2006 second quarter.
At June 30, 2007, BWXT’s backlog was $1.5
billion, compared to backlog of $1.5 billion and $1.3 billion at June
30, 2006 and December 31, 2006, respectively.
Corporate
Unallocated corporate expenses were $14.3 million in the 2007 second
quarter, compared to $8.8 million in the 2006 second quarter. The
increase was primarily related to higher stock based compensation
expenses due to McDermott’s 70 percent stock
price increase during the second quarter, as well as other increased
general corporate expenses.
Other Income and Expense
The Company’s other income for the second
quarter of 2007 was $9.5 million, compared to other expense of $50.7
million in the second quarter of 2006. The year-over-year improvement is
primarily due to a $49 million loss on the early retirement of debt
which occurred during the second quarter of 2006 and a $5.1 million
improvement in net interest income/expense compared to the 2006 second
quarter due to improved cash and investment 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
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, our
position to deliver a successful year and our continued optimism for the
markets we serve. 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 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, 2006.
Conference Call to Discuss 2007 Second
Quarter Earnings Release
Date: Wednesday, August 8, 2007, at 9:00 a.m. ET (8:00 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 Ended
Six Months Ended
June 30,
June 30,
2007
2006
2007
2006
(Unaudited)
(In thousands, except per share amounts)
Revenues
$
1,418,146
$
1,048,930
$
2,781,576
$
1,693,837
Costs and Expenses:
Cost of operations
1,128,552
842,803
2,210,618
1,344,529
(Gains) losses on asset disposals and impairments - net
(115
)
(1,085
)
(1,750
)
14,921
Selling, general and administrative expenses
115,225
101,841
212,987
168,835
1,243,662
943,559
2,421,855
1,528,285
Equity in Income of Investees
7,308
7,340
14,549
14,887
Operating Income
181,792
112,711
374,270
180,439
Other Income (Expense):
Interest income
15,821
12,467
28,139
20,002
Interest expense
(5,366
)
(7,108
)
(14,955
)
(17,411
)
IRS interest expense adjustment
-
(2,620
)
-
10,590
Loss on early retirement of debt
-
(49,016
)
-
(49,016
)
Other expense - net
(975
)
(4,438
)
(4,845
)
(5,999
)
9,480
(50,715
)
8,339
(41,834
)
Income from Continuing Operations before
Provision for Income Taxes
191,272
61,996
382,609
138,605
Provision for Income Taxes
41,898
28,768
75,174
49,162
Income from Continuing Operations
149,374
33,228
307,435
89,443
Income from Discontinued Operations
-
13,786
-
12,894
Net Income
$
149,374
$
47,014
307,435
$
102,337
Earnings per Common Share:
Basic:
Income from Continuing Operations
$
1.34
$
0.30
$
2.77
$
0.83
Income from Discontinued Operations
$
0.00
$
0.13
$
0.00
$
0.12
Net Income
$
1.34
$
0.43
$
2.77
$
0.95
Diluted:
Income from Continuing Operations
$
1.31
$
0.29
$
2.69
$
0.79
Income from Discontinued Operations
$
0.00
$
0.12
$
0.00
$
0.11
Net Income
$
1.31
$
0.41
$
2.69
$
0.90
McDERMOTT INTERNATIONAL, INC.
SELECTED SEGMENT INFORMATION
Three Months Ended
Six Months Ended
June 30,
June 30,
2007
2006
2007
2006
(Unaudited; In Thousands)
REVENUES
Offshore Oil and Gas Construction
$
579,977
$
398,848
$
1,130,246
$
694,287
Government Operations
167,726
163,480
329,125
324,479
Power Generation Systems
673,591
488,710
1,329,005
677,733
Adjustments and Eliminations
(3,148
)
(2,108
)
(6,800
)
(2,662
)
TOTAL
$
1,418,146
$
1,048,930
$
2,781,576
$
1,693,837
SEGMENT INCOME
Offshore Oil and Gas Construction
$
91,056
$
65,498
$
212,259
$
87,681
Government Operations
29,673
30,760
64,428
57,125
Power Generation Systems
75,364
25,233
118,828
52,785
196,093
121,491
395,515
197,591
Corporate
(14,301
)
(8,780
)
(21,245
)
(17,152
)
TOTAL
$
181,792
$
112,711
$
374,270
$
180,439
EQUITY IN INCOME (LOSS) OF INVESTEES (1)
Offshore Oil and Gas Construction
$
(1,043
)
$
(715
)
$
(1,856
)
$
(1,381
)
Government Operations
6,519
6,046
12,992
12,499
Power Generation Systems
1,832
2,009
3,413
3,769
TOTAL
$
7,308
$
7,340
$
14,549
$
14,887
DEPRECIATION & AMORTIZATION (1)
Offshore Oil and Gas Construction
$
7,755
$
5,895
$
15,059
$
12,287
Government Operations
4,674
3,379
8,374
6,612
Power Generation Systems
5,280
4,859
10,493
6,538
Corporate
255
127
576
517
TOTAL
$
17,964
$
14,260
$
34,502
$
25,954
CAPITAL EXPENDITURES
Offshore Oil and Gas Construction
$
55,744
$
25,591
$
90,168
$
46,250
Government Operations
2,313
3,295
4,873
7,425
Power Generation Systems
9,616
6,252
20,802
8,107
Corporate
145
211
176
2,604
TOTAL
$
67,818
$
35,349
$
116,019
$
64,386
BACKLOG
Offshore Oil and Gas Construction
$
4,611,449
$
3,231,059
$
4,611,449
$
3,231,059
Government Operations
1,491,523
1,524,306
1,491,523
1,524,306
Power Generation Systems
2,780,337
3,056,313
2,780,337
3,056,313
TOTAL
$
8,883,309
$
7,811,678
$
8,883,309
$
7,811,678
(1) Included in Segment Income (Loss)
above.
McDERMOTT INTERNATIONAL, INC.CONDENSED CONSOLIDATED BALANCE
SHEETS
ASSETS
June 30,
December 31,
2007
2006
(Unaudited)
(In thousands)
Current Assets:
Cash and cash equivalents
$
1,063,681
$
600,843
Restricted cash and cash equivalents
86,832
106,674
Investments
148,500
172,171
Accounts receivable - trade, net
714,380
668,310
Accounts and notes receivable - unconsolidated affiliates
29,731
29,825
Accounts receivable - other
59,267
48,041
Contracts in progress
246,958
230,146
Inventories
89,744
77,769
Deferred income taxes
168,441
180,234
Other current assets
42,313
39,461
Total Current Assets
2,649,847
2,153,474
Property, Plant and Equipment
1,653,831
1,525,187
Less accumulated depreciation
1,041,617
1,011,693
Net Property, Plant and Equipment
612,214
513,494
Investments
145,100
121,914
Goodwill
127,298
89,226
Deferred Income Taxes
213,923
260,341
Long-Term Income Tax Receivable
33,828
299,786
Other Assets
244,213
195,527
TOTAL
$
4,026,423
$
3,633,762
McDERMOTT INTERNATIONAL, INC.CONDENSED CONSOLIDATED BALANCE
SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30,
December 31,
2007
2006
(Unaudited)
(In thousands)
Current Liabilities:
Notes payable and current maturities of long-term debt
$
6,461
$
257,492
Accounts payable
426,549
407,094
Accrued employee benefits
224,570
246,182
Accrued liabilities - other
289,563
264,839
Accrued contract cost
130,688
110,992
Advance billings on contracts
1,397,721
1,116,118
U.S. and foreign income taxes payable
44,315
58,557
Total Current Liabilities
2,519,867
2,461,274
Long-Term Debt
10,623
15,242
Accumulated Postretirement Benefit Obligation
100,581
100,316
Self-Insurance
84,077
84,704
Pension Liability
339,505
372,504
Other Liabilities
167,762
156,621
Commitments and Contingencies
Stockholders' Equity:
Common stock, par value $1.00 per share, authorized 150,000,000
shares; issued 115,167,278 at June 30, 2007 and 113,897,309 at
December 31, 2006
115,167
113,897
Capital in excess of par value
1,256,519
1,214,282
Accumulated deficit
(163,416
)
(458,886
)
Treasury stock at cost, 2,939,320 shares at June 30, 2007 and
3,012,709 shares at December 31, 2006
(64,000
)
(60,581
)
Accumulated other comprehensive loss
(340,262
)
(365,611
)
Total Stockholders' Equity
804,008
443,101
TOTAL
$
4,026,423
$
3,633,762
McDERMOTT INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months EndedJune 30,
2007
2006
(Unaudited)
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income
$
307,435
$
102,337
Depreciation and amortization
34,502
25,954
Income of investees, less dividends
(3,305
)
(3,149
)
(Gains) losses on asset disposals and impairments - net
(1,750
)
14,921
Gain on sale of business
-
(13,786
)
Provision for deferred taxes
53,746
90,678
Excess tax benefits from FAS 123(R) stock-based compensation
(20,319
)
(13,163
)
Other
11,261
18,421
Changes in assets and liabilities, net of effects of acquisitions
and divestitures:
Accounts receivable
(48,039
)
114,023
Income tax receivable
270,368
(92,437
)
Net contracts in progress and advance billings on contracts
269,807
114,723
Accounts payable
18,945
(19,979
)
Income taxes
(23,120
)
31,241
Accrued and other current liabilities
37,592
(9,219
)
Pension liability, accumulated postretirement benefit obligation and
accrued employee benefits
(45,167
)
(25,486
)
Other, net
(18,587
)
(3,820
)
NET CASH PROVIDED BY OPERATING ACTIVITIES
843,369
331,259
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in restricted cash and cash equivalents
19,842
69,981
Purchases of property, plant and equipment
(116,019
)
(64,386
)
Acquisition of Marine Mechanical Corporation, net of cash acquired
(70,950
)
-
Purchases of available-for-sale securities
(1,737,053
)
(917,884
)
Maturities of available-for-sale securities
1,529,861
859,706
Sales of available-for-sale securities
212,743
172,521
Proceeds from asset disposals
2,531
21,549
Cash acquired from the reconsolidation of The Babcock & Wilcox
Company
-
164,200
Other
(954
)
(2,549
)
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
(159,999
)
303,138
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt
-
592
Payment of long-term debt
(255,501
)
(236,941
)
Issuance of common stock
9,576
13,323
Payment of debt issuance costs
-
(8,606
)
Excess tax benefits from FAS 123(R) stock-based compensation
20,319
13,163
Other
4
(336
)
NET CASH USED IN FINANCING ACTIVITIES
(225,602
)
(218,805
)
EFFECTS OF EXCHANGE RATE CHANGES ON CASH
5,070
1,770
NET INCREASE IN CASH AND CASH EQUIVALENTS
462,838
417,362
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
600,843
19,263
CASH AND CASH EQUIVALENTS AT END OF PERIOD
$
1,063,681
$
436,625
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amount capitalized)
$
17,790
$
31,516
Income taxes (net of refunds)
$
(237,470
)
$
21,811