McDermott International, Inc. (NYSE:MDR) ("McDermott" or the
"Company") today reported net income of $58.5 million, or $0.80 per
diluted share, for the 2005 third quarter, compared to net income
of $18.3 million, or $0.27 per diluted share, for the corresponding
period in 2004. Weighted average common shares outstanding on a
fully diluted basis were approximately 73.3 million and 68.4
million for September 30, 2005 and September 30, 2004,
respectively. Revenues in the third quarter of 2005 were $503.5
million, compared to $450.2 million in the corresponding period in
2004, reflecting increases at both consolidated segments. Operating
income was $74.1 million in the 2005 third quarter, compared to
$39.8 million in the 2004 third quarter. Operating income for the
third quarter of 2005 included approximately $0.2 million of
corporate qualified pension expense, compared to $14.1 million of
corporate qualified pension expense in the third quarter of 2004.
The reduction in corporate qualified pension expense reflects the
previously announced spin-off of The Babcock & Wilcox Company
("B&W") pension plan and related expense, which was completed
on January 31, 2005. In addition, beginning January 1, 2005,
McDermott now allocates to its Government Operations segment the
pension expense related to that segment. "McDermott produced solid
results from its two consolidated businesses during the third
quarter of 2005, and we continue to expect that B&W will be
reconsolidated in our results during early 2006," said Bruce W.
Wilkinson, Chairman of the Board and Chief Executive Officer of
McDermott. "This was an active quarter for the Company, including
the activities associated with the currently proposed B&W
settlement and the signing of approximately $1.0 billion of new
awards at J. Ray." As a result of the August 29, 2005 announcement,
and the subsequent filing, of a currently proposed plan of
reorganization for B&W's Chapter 11 settlement, beginning in
the third quarter of 2005, McDermott has suspended recording the
quarterly non-cash adjustment associated with B&W's previously
negotiated settlement, as the previous plan is no longer considered
probable. In the third quarter of 2004, McDermott recorded an
after-tax revaluation expense of $1.1 million associated with the
revaluation expense of the previously negotiated settlement.
RESULTS OF OPERATIONS 2005 Third Quarter Compared to 2004 Third
Quarter Marine Construction Services Segment ("J. Ray") Revenues in
the Marine Construction Services segment were $360.6 million in the
2005 third quarter, compared to $325.6 million for the same period
a year ago. The year-over-year increase in revenues resulted
primarily from increased project activity in worldwide marine, the
Middle East and Caspian regions, partially offset by decreased
fabrication activity on projects in Morgan City, Louisiana. Segment
income for the 2005 third quarter was $63.7 million, compared to
$28.6 million in the 2004 third quarter. Major items contributing
to operating income in the 2005 third quarter were international
marine and fabrication projects. In addition, J. Ray recorded a net
benefit to operating income of approximately $36.4 million,
primarily related to contract change orders and close-outs of
substantially completed projects. The 2004 third quarter included a
net benefit of $20.7 million, in aggregate, from favorable contract
cost adjustments on certain loss projects, gains on asset sales and
other items. At September 30, 2005, J. Ray's backlog was $1.7
billion, compared to backlog of $1.2 billion and $1.4 billion at
December 31, 2004 and September 30, 2004, respectively. During the
third quarter of 2005, J. Ray signed contracts for new awards with
projected revenue totaling approximately $1.0 billion. Government
Operations Segment ("BWXT") Revenues in the Government Operations
segment increased $18.4 million, to $143.0 million, in the 2005
third quarter, compared to $124.6 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 and increased revenues from commercial nuclear
environmental services, as well as other commercial work, including
increased uranium downblending activity. Segment income decreased
$9.5 million, to $19.3 million, compared to the 2004 third quarter,
primarily due to the corporate allocation to BWXT of $5.3 million
related to qualified pension expense in the third quarter of 2005,
which in 2004 and prior periods was recorded in the corporate
segment. In addition, increased expenses related to facility
oversight and stock-based compensation were recorded in the 2005
third quarter, partially offset by higher volumes in the
manufacture of nuclear components and from commercial nuclear
environmental services. At September 30, 2005, BWXT's backlog was
$1.5 billion, compared to backlog of $1.7 billion and $1.5 billion
at December 31, 2004 and September 30, 2004, respectively.
Corporate Unallocated corporate expenses were $9.3 million in the
2005 third quarter, a decrease of $8.3 million compared to the 2004
third quarter. The decrease was primarily due to a reduction in
qualified corporate pension expense during the third quarter of
2005 as a result of the BWXT pension allocation and the spin-off of
B&W's pension assets and liabilities into a new
B&W-sponsored pension plan. Other Income and Expense The
Company's other expense for the third quarter of 2005 was $5.4
million, compared to $9.1 million in the third quarter of 2004,
which included net interest expense of $3.8 million and $7.6
million in the respective quarters. As mentioned above, during the
2005 third quarter, McDermott suspended the revaluation of certain
components related to the previous settlement cost of the B&W
Chapter 11 proceedings. McDermott expects that the currently
proposed settlement will be recorded in McDermott's financial
statements on the effective date of the currently proposed plan of
reorganization. See McDermott's Form 10-Q for the period ending
September 30, 2005 for additional information regarding the
accounting for the currently proposed B&W settlement. THE
BABCOCK & WILCOX COMPANY McDermott wrote off its remaining
investment in B&W of $224.7 million during the second quarter
of 2002 and has not consolidated B&W with the Company's
financial results since B&W's Chapter 11 bankruptcy filing in
February 2000. In accordance with the currently proposed settlement
related to B&W's Chapter 11 proceedings, the Company currently
expects that B&W will be reconsolidated in early 2006. During
the third quarter of 2005 on a deconsolidated basis, B&W's
revenues were $373.1 million, an increase of $94.1 million compared
to the third quarter of 2004. In the 2005 third quarter, B&W
recorded an estimated net expense of $468.4 million related to the
currently proposed Chapter 11 settlement announced on August 29,
2005. As a result of this expense, B&W's operating loss for the
third quarter of 2005, prepared in accordance with generally
accepted accounting principals ("GAAP"), was $441.6 million.
Excluding the net expense related to the Chapter 11 settlement from
B&W's GAAP operating income, B&W's non-GAAP operating
income for the third quarter of 2005 was $26.7 million(1). During
the third quarter of 2005, B&W recorded approximately $6.8
million of pension expense, which in prior years resided in the
corporate segment. In the third quarter of 2004, B&W's
operating income was $20.6 million. At September 30, 2005,
B&W's backlog was $1.6 billion, compared to backlog of $1.5
billion and $1.3 billion at December 31, 2004 and September 30,
2004, respectively. (1) Reconciliation of B&W non-GAAP
operating income: GAAP Operating Loss of $441.6 million, plus the
currently proposed B&W Chapter 11 settlement expense of $468.4
million, for a result of $26.7 million. OTHER INFORMATION About the
Company McDermott International, Inc. is a leading worldwide energy
services company. The Company's subsidiaries provide engineering,
fabrication, installation, procurement, research, manufacturing,
environmental systems, project management and facility management
services to a variety of customers in the energy and power
industries, including the U.S. Department of Energy. 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 relating to backlog,
the proposed settlement of the B&W Chapter 11 proceedings and
the accounting treatment expected to be applied to that settlement.
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 revenues in backlog may not be realized in
the amounts described as a result of changes in the contracts and
other various factors, and the B&W Chapter 11 settlement may
not be finalized on the terms we expect or within the time frame we
anticipate. 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 report
for the year ended December 31, 2004 and its 2005 quarterly reports
filed with the Securities and Exchange Commission. McDermott has
included in this press release B&W's operating income/(loss)
for the three-months ended September 30, 2005 on both a GAAP and a
non-GAAP basis. The non-GAAP measure excludes an expense related to
B&W's currently proposed Chapter 11 proceedings settlement
which management considers to be outside B&W's customary
business. McDermott believes this non-GAAP measure provides
meaningful insight into B&W's operational performance and will
use this measure to evaluate B&W's operations for budget
planning and performance goals. A reconciliation of the difference
between these measures is presented in the footnote within the
B&W section above. -0- *T Conference Call to Discuss 2005 Third
Quarter Earnings Release Date: Wednesday, November 9, 2005, at
10:00 a.m. EST (9:00 a.m. CST) Live Webcast: Investor Relations
section of Website 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, 2005 2004 2005 2004 ----------- ----------- -----------
----------- (Unaudited) (In thousands, except per share amounts)
Revenues $503,494 $450,187 $1,457,745 $1,449,338
---------------------------------------------------------------------
Costs and Expenses: Cost of operations 384,768 384,710 1,164,912
1,277,082 Selling, general and administrative expenses 57,563
49,659 156,038 141,730 Gains on asset disposals and impairments -
net (3,961) (15,844) (6,501) (18,797)
---------------------------------------------------------------------
438,370 418,525 1,314,449 1,400,015
---------------------------------------------------------------------
Equity in Income of Investees 8,953 8,113 26,222 24,053
---------------------------------------------------------------------
Operating Income 74,077 39,775 169,518 73,376
---------------------------------------------------------------------
Other Income (Expense): Interest income 5,402 1,522 13,810 3,342
Interest expense (9,165) (9,091) (27,784) (25,775) Increase in
estimated cost of The Babcock & Wilcox Company bankruptcy
settlement - (284) (5,887) (2,256) Other - net (1,651) (1,217)
3,647 898
---------------------------------------------------------------------
(5,414) (9,070) (16,214) (23,791)
---------------------------------------------------------------------
Income before Provision for (Benefit from) Income Taxes 68,663
30,705 153,304 49,585 Provision for (Benefit from) Income Taxes
10,163 12,450 (8,551) 30,412
---------------------------------------------------------------------
Net Income $58,500 $18,255 $161,855 $19,173
---------------------------------------------------------------------
Earnings per Common Share: Basic $0.85 $0.28 $2.39 $0.29 Diluted
$0.80 $0.27 $2.25 $0.28
---------------------------------------------------------------------
Weighted Average Shares: Basic 68,656,927 65,854,008 67,677,823
65,550,353 Diluted 73,282,470 68,437,520 72,084,803 67,829,638
---------------------------------------------------------------------
McDERMOTT INTERNATIONAL, INC. SELECTED SEGMENT INFORMATION Three
Months Ended Nine Months Ended September 30, September 30, 2005
2004 2005 2004 ----------- ----------- ----------- -----------
(Unaudited) (In thousands) REVENUES Marine Construction Services
$360,599 $325,604 $1,002,430 $1,050,746 Government Operations
142,953 124,586 455,486 398,605 Power Generation Systems 0 0 0 0
Adjustments and Eliminations (58) (3) (171) (13)
----------------------------------------------------------------
TOTAL $503,494 $450,187 $1,457,745 $1,449,338
----------------------------------------------------------------
SEGMENT INCOME (LOSS) Marine Construction Services $63,749 $28,618
$123,729 $47,129 Government Operations 19,259 28,723 73,036 80,340
Power Generation Systems 382 40 767 1,811
----------------------------------------------------------------
Corporate (9,313) (17,606) (28,014) (55,904)
----------------------------------------------------------------
TOTAL $74,077 $39,775 $169,518 $73,376
----------------------------------------------------------------
EQUITY IN INCOME FROM INVESTEES (1) Marine Construction Services
$2,473 $67 $2,204 $1,976 Government Operations 5,869 7,785 22,584
21,212 Power Generation Systems 611 261 1,434 865
----------------------------------------------------------------
TOTAL $8,953 $8,113 $26,222 $24,053
----------------------------------------------------------------
DEPRECIATION & AMORTIZATION EXPENSE (1) Marine Construction
Services $6,575 $5,353 $20,309 $17,100 Government Operations 3,111
3,086 9,368 9,122 Power Generation Systems 0 0 0 0 Corporate 391
1,156 1,440 2,799
----------------------------------------------------------------
TOTAL $10,077 $9,595 $31,117 $29,021
----------------------------------------------------------------
CAPITAL EXPENDITURES Marine Construction Services $6,110 $3,875
$20,960 $7,745 Government Operations 4,278 5,311 12,055 9,550 Power
Generation Systems 0 0 0 0 Corporate 0 281 155 283
----------------------------------------------------------------
TOTAL $10,388 $9,467 $33,170 $17,578
----------------------------------------------------------------
BACKLOG Marine Construction Services $1,697,028 $1,421,701
$1,697,028 $1,421,701 Government Operations 1,497,649 1,501,788
1,497,649 1,501,788
----------------------------------------------------------------
TOTAL $3,194,677 $2,923,489 $3,194,677 $2,923,489
----------------------------------------------------------------
(1) Included in Segment Income (Loss) above. McDERMOTT
INTERNATIONAL, INC. CONDENSED CONSOLIDATED BALANCE SHEETS ASSETS
September 30, December 31, 2005 2004 -------------------
------------------- (Unaudited) (In thousands) Current Assets: Cash
and cash equivalents $374,087 $259,319 Restricted cash and cash
equivalents 144,813 111,455 Investments 59,767 - Accounts
receivable - trade, net 246,129 226,731 Accounts receivable from
The Babcock & Wilcox Company 5,884 6,121 Accounts and notes
receivable - unconsolidated affiliates 55,559 29,330 Accounts
receivable - other 27,035 71,522 Contracts in progress 72,399
72,355 Deferred income taxes 18,510 9,813 Other current assets
10,600 13,277
---------------------------------------------------------------------
Total Current Assets 1,014,783 799,923
---------------------------------------------------------------------
Restricted Cash and Cash Equivalents - 66,498
---------------------------------------------------------------------
Property, Plant and Equipment 1,102,917 1,087,314 Less accumulated
depreciation 796,667 780,225
---------------------------------------------------------------------
Net Property, Plant and Equipment 306,250 307,089
---------------------------------------------------------------------
Investments 84,546 41,884
---------------------------------------------------------------------
Goodwill 12,926 12,926
---------------------------------------------------------------------
Other Assets 208,647 158,612
---------------------------------------------------------------------
TOTAL $1,627,152 $1,386,932
---------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' DEFICIT September 30, December 31,
2005 2004 ------ ------ (Unaudited) (In thousands) Current
Liabilities: Notes payable and current maturities of long-term debt
$4,250 $12,009 Accounts payable 102,525 114,235 Accounts payable to
The Babcock & Wilcox Company 48,593 55,180 Accrued employee
benefits 73,484 79,362 Accrued liabilities - other 159,693 163,649
Accrued contract cost 66,240 81,591 Advance billings on contracts
284,214 217,053 U.S. and foreign income taxes payable 32,182 18,612
----------------------------------------------------------------------
Total Current Liabilities 771,181 741,691
----------------------------------------------------------------------
Long-Term Debt 260,267 268,011
----------------------------------------------------------------------
Accumulated Postretirement Benefit Obligation 27,014 26,315
----------------------------------------------------------------------
Self-Insurance 62,044 61,715
----------------------------------------------------------------------
Pension Liability 208,482 328,852
----------------------------------------------------------------------
Accrued Cost of The Babcock & Wilcox Company Bankruptcy
Settlement 117,990 112,103
----------------------------------------------------------------------
Deferred Liability Associated with The Babcock & Wilcox Company
Pension Plan Spin-Off (See Note 8) 117,079 -
----------------------------------------------------------------------
Other Liabilities 116,559 109,688
----------------------------------------------------------------------
Commitments and Contingencies. Stockholders' Deficit: Common stock,
par value $1.00 per share, authorized 150,000,000 shares; issued
72,640,473 at September 30, 2005 and 69,560,726 at December 31,
2004 72,640 69,561 Capital in excess of par value 1,163,204
1,122,055 Accumulated deficit (899,053) (1,060,908) Treasury stock
at cost, 2,099,796 shares at September 30, 2005 and 2,341,902
shares at December 31, 2004 (57,866) (64,625) Accumulated other
comprehensive loss (332,389) (327,526)
----------------------------------------------------------------------
Total Stockholders' Deficit (53,464) (261,443)
----------------------------------------------------------------------
TOTAL $1,627,152 $1,386,932
----------------------------------------------------------------------
McDERMOTT INTERNATIONAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS Nine Months Ended September 30, 2005 2004 ------ ------
(Unaudited) (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $161,855 $19,173
----------------------------------------------------------------------
Adjustments to reconcile net income to net cash provided by (used
in) operating activities: Depreciation and amortization 31,117
29,021 Income of investees, less dividends (12,426) (7,702) Gain on
asset disposals and impairments - net (6,501) (18,797) Benefit from
deferred taxes (49,825) (12,702) Increase in estimated cost of The
Babcock & Wilcox Company bankruptcy settlement 5,887 2,256
Other 6,844 3,375 Changes in assets and liabilities, net of effects
of acquisitions and divestitures: Accounts receivable (7,926)
35,546 Net contracts in progress and advance billings 67,025
(1,903) Accounts payable (18,283) (29,053) Accrued and other
current liabilities (18,081) (23,105) Income taxes 13,570 31,281
Other, net 6,865 (28,055)
----------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 180,121 (665)
----------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES: Decrease in restricted cash
and cash equivalents 33,140 12,329 Purchases of property, plant and
equipment (33,170) (17,578) Purchases of available-for-sale
securities (314,114) (66,730) Sales of available-for-sale
securities 2,450 5,565 Maturities of available-for-sale securities
209,966 61,973 Proceeds from asset disposals 15,363 74,206 Other
(4,435) 1
----------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (90,800) 69,766
----------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES: Payment of long-term debt
(12,734) - Decrease in short-term borrowing - (36,750) Issuance of
common stock 33,792 484 Debt issuance costs (949) (3,400) Other
5,382 (953)
----------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 25,491 (40,619)
----------------------------------------------------------------------
EFFECTS OF EXCHANGE RATE CHANGES ON CASH (44) 6 NET INCREASE IN
CASH AND CASH EQUIVALENTS 114,768 28,488
----------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 259,319 174,790
CASH AND CASH EQUIVALENTS AT END OF PERIOD $374,087 $203,278
----------------------------------------------------------------------
*T
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