MDR McDermott International Inc

McDermott International, Inc. (NYSE:MDR) (�McDermott� or the �Company�) today reported net income of $158.1 million, or $1.38 per diluted share, for the 2007 first quarter, compared to net income of $55.3 million, or $0.49 per diluted share, for the corresponding period in 2006. Weighted average common shares outstanding on a fully diluted basis were approximately 114.2 million and 113.0 million for the quarters ended March 31, 2007 and March 31, 2006, respectively. For the 2006 quarter, McDermott�s common shares outstanding and earnings per share are adjusted to reflect the 3-for-2 stock split effected in May 2006. McDermott�s revenues in the first quarter of 2007 were $1,363.4 million, compared to $644.9 million in the corresponding period in 2006. The increase in revenues is primarily attributable to three months of The Babcock & Wilcox Company�s (�B&W�) revenues in 2007 first quarter, compared to only one month during the 2006 quarter, as B&W was reconsolidated with the Company in March last year. Additionally, revenues in the Offshore Oil & Gas Construction segment increased 86 percent compared to a year ago due to strong industry demand. Operating income was $192.5 million in the 2007 first quarter, compared to $67.7 million in the 2006 first quarter. The improvement in operating income is primarily attributable to a 446 percent increase in segment income in the Offshore Oil & Gas Construction segment. In addition, the Company�s other segments, Government Operations and Power Generation Systems, increased segment income by 31.8 percent and 57.8 percent, respectively, while unallocated corporate expenses declined. �At McDermott, we generally avoid over-emphasizing any given quarter as our results, and the industry in general, are inherently lumpy. However, the first quarter was truly outstanding for us and is a terrific start to 2007,� said Bruce W. Wilkinson, Chairman of the Board and Chief Executive Officer of McDermott. �During the quarter, the Company experienced near flawless execution of our backlog, we delivered profits ahead of forecast and successfully realized income opportunities while mitigating risks. The combination of these factors with our active workload allowed McDermott to deliver earnings that far surpassed our own expectations.� At March 31, 2007, McDermott�s consolidated backlog was $7.9 billion, compared to $5.9 billion at March 31, 2006 and $7.6 billion at December 31, 2006. RESULTS OF OPERATIONS 2007 First Quarter Compared to 2006 First Quarter Offshore Oil & Gas Construction Segment (�J. Ray�) Revenues in the Offshore Oil & Gas Construction segment were $550.3 million in the 2007 first quarter, compared to $295.4 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 Caspian regions. Segment income for the 2007 first quarter was $121.2 million, compared to $22.2 million in the 2006 first quarter. Each major region contributed to the improvement, led by the increased activities in the Middle East. In addition, project close-outs, change orders and settlements were particularly strong during the first quarter of 2007, with J. Ray realizing approximately $40 million in segment income from these items. In the 2006 first quarter, J. Ray�s segment income was reduced by a non-cash impairment of $16.4 million related to accumulated currency translation losses. At March 31, 2007, J. Ray�s backlog was $4.2 billion, compared to backlog of $2.4 billion and $4.1 billion at March 31, 2006 and December 31, 2006, respectively. Power Generation Systems Segment (�B&W�) Revenues in the Power Generation Systems segment for the first quarter 2007 were $655.4 million, compared to $189.0 million reported in the first quarter of 2006 which included only one month of B&W�s financial results. Between February 2000 and February 2006, B&W was deconsolidated from the Company�s reported financial statements. Segment income for the 2007 first quarter was $43.5 million, compared to $27.6 million in the 2006 first quarter. The improvement in segment income resulted primarily from improved margins in B&W�s service and parts business, and increased activity during the 2007 first quarter for new boilers and retrofit projects. At March 31, 2007, B&W�s backlog was $2.3 billion compared to backlog of $1.9 billion and $2.2 billion at March 31, 2006 and December 31, 2006, respectively. Backlog at March 31, 2007 excludes the amounts associated with three TXU boiler and SCR contracts that B&W continues to fulfill, but the respective amounts will be rebooked should a new buyer or buyers contract for one of more of these units. Government Operations Segment (�BWXT�) Revenues in the Government Operations segment were $161.4 million in the 2007 first quarter, compared to $161.0 million for the same period a year ago. Segment income for the 2007 first quarter was $34.8 million, compared to $26.4 million in the 2006 first quarter. The improvement was primarily due to increased activity and higher margins from the manufacture of nuclear components for certain U.S. Government programs, including the recognition of savings associated with the previously announced completion of a multi-award agreement with the Department of Energy. At March 31, 2007, BWXT�s backlog was $1.5 billion, compared to backlog of $1.6 billion and $1.3 billion at March 31, 2006 and December 31, 2006, respectively. Corporate Unallocated corporate expenses were $6.9 million in the 2007 first quarter, compared to $8.4 million in the 2006 first quarter. The decrease was primarily related to lower stock based compensation expenses. Other Income and Expense The Company�s other expense for the first quarter of 2007 was $1.1 million, compared to other income of $8.9 million in the first quarter of 2006. The year-over-year variance is primarily due to a $13.2 million benefit from tax-related interest adjustments that occurred in the first quarter a year ago, partially offset by a $5.5 million improvement in net interest income/expense compared to the 2006 first 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, and the strength of the outlook for the markets in which we operate. 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 awards and contracts in backlog may not result in the expected revenues and risks that there are adverse changes in those markets. 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 First Quarter Earnings Release Date: Tuesday, May 8, 2007, at 9:30 a.m. EST (8:30 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 March 31, 2007� 2006� (Unaudited) (In thousands, except per share amounts) � Revenues � $ 1,363,430� � $ 644,907� � Costs and Expenses: Cost of operations 1,082,066� 501,726� (Gains) Losses on asset disposals and impairments - net (1,635) 16,006� Selling, general and administrative expenses � 97,762� � 66,994� � � 1,178,193� � 584,726� � Equity in Income of Investees � 7,241� � 7,547� � Operating Income � 192,478� � 67,728� � Other Income (Expense): Interest income 12,318� 7,535� Interest expense (9,589) (10,303) IRS interest expense adjustment -� 13,210� Other expense - net � (3,870) � (1,561) � � (1,141) � 8,881� � Income from Continuing Operations before Provision for Income Taxes 191,337� 76,609� � Provision for Income Taxes � 33,276� � 20,394� � Income from Continuing Operations 158,061� 56,215� � Loss from Discontinued Operations � -� � (892) � Net Income � $ 158,061� � $ 55,323� � Earnings per Common Share: Basic: Income from Continuing Operations $ 1.43� $ 0.53� Loss from Discontinued Operations $ -� $ (0.01) Net Income $ 1.43� $ 0.52� Diluted: Income from Continuing Operations $ 1.38� $ 0.50� Loss from Discontinued Operations $ -� $ (0.01) Net Income � $ 1.38� � $ 0.49� McDERMOTT INTERNATIONAL, INC. SELECTED SEGMENT INFORMATION � Three Months Ended March 31, 2007� 2006� (Unaudited; In thousands) � REVENUES Offshore Oil and Gas Construction $ 550,269� $ 295,439� Government Operations 161,399� 160,999� Power Generation Systems 655,414� 189,023� Adjustments and Eliminations � (3,652) � (554) TOTAL � $ 1,363,430� � $ 644,907� � SEGMENT INCOME (LOSS) Offshore Oil and Gas Construction 121,203� 22,183� Government Operations 34,755� 26,365� Power Generation Systems � 43,464� � 27,552� 199,422� 76,100� Corporate � (6,944) � (8,372) TOTAL � $ 192,478� � $ 67,728� � EQUITY IN INCOME (LOSS) FROM INVESTEES(1) Offshore Oil and Gas Construction $ (813) $ (666) Government Operations 6,473� 6,453� Power Generation Systems � 1,581� � 1,760� TOTAL � $ 7,241� � $ 7,547� � DEPRECIATION & AMORTIZATION(1) Offshore Oil and Gas Construction $ 7,304� $ 6,392� Government Operations 3,700� 3,233� Power Generation Systems 5,213� 1,679� Corporate � 321� � 390� TOTAL � $ 16,538� � $ 11,694� � CAPITAL EXPENDITURES Offshore Oil and Gas Construction $ 34,424� $ 20,659� Government Operations 2,560� 4,130� Power Generation Systems 11,186� 1,855� Corporate � 31� � 2,393� TOTAL � $ 48,201� � $ 29,037� � BACKLOG Offshore Oil and Gas Construction $ 4,208,217� $ 2,383,833� Government Operations 1,456,593� 1,640,793� Power Generation Systems � 2,260,520� � 1,909,592� TOTAL � $ 7,925,330� � $ 5,934,218� � (1) Included in Segment Income (Loss) above. McDERMOTT INTERNATIONAL, INC. CONDENSED CONSOLIDATED BALANCE SHEETS � � ASSETS � March 31, December 31, 2007� 2006� (Unaudited) (In thousands) Current Assets: Cash and cash equivalents $ 685,054� $ 600,843� Restricted cash and cash equivalents 114,560� 106,674� Investments 120,575� 172,171� Accounts receivable - trade, net 812,037� 668,310� Accounts and notes receivable - unconsolidated affiliates 30,220� 29,825� Accounts and notes receivable - other 43,524� 48,041� Income taxes receivable 283,293� 9,507� Contracts in progress 257,291� 230,146� Inventories 85,548� 77,769� Deferred income taxes 161,846� 180,234� Other current assets � 37,784� � 29,954� � Total Current Assets � 2,631,732� � 2,153,474� � Property, Plant and Equipment 1,567,657� 1,525,187� Less accumulated depreciation � 1,027,708� � 1,011,693� � Net Property, Plant and Equipment � 539,949� � 513,494� � Investments � 119,258� � 121,914� � Goodwill � 89,201� � 89,226� � Deferred Income Taxes � 248,756� � 260,341� � Long-Term Income Tax Receivable � 26,153� � 299,786� � Other Assets � 209,758� � 195,527� � TOTAL � $ 3,864,807� � $ 3,633,762� � LIABILITIES AND STOCKHOLDERS' EQUITY � March 31, December 31, 2007� 2006� (Unaudited) (In thousands) Current Liabilities: Notes payable and current maturities of long-term debt $ 256,461� $ 257,492� Accounts payable 388,986� 407,094� Accrued employee benefits 199,193� 246,182� Accrued liabilities - other 279,936� 264,839� Accrued contract cost 106,211� 110,992� Advance billings on contracts 1,269,457� 1,116,118� U.S. and foreign income taxes payable � 53,669� � 66,888� � Total Current Liabilities � 2,553,913� � 2,469,605� � Long-Term Debt � 10,904� � 15,242� � Accumulated Postretirement Benefit Obligation � 98,730� � 100,316� � Self-Insurance � 83,378� � 84,704� � Pension Liability � 352,332� � 372,504� � Other Liabilities � 154,406� � 148,290� � Commitments and Contingencies � Stockholders' Equity: Common stock, par value $1.00 per share, authorized 150,000,000 shares; issued 114,235,860 at March 31, 2007 and 113,897,309 at December 31, 2006 � 114,236� 113,897� Capital in excess of par value 1,229,906� 1,214,282� Accumulated deficit (312,791) (458,886) Treasury stock at cost, 3,089,675 shares at March 31, 2007 and 3,012,709 at December 31, 2006 (64,616) (60,581) Accumulated other comprehensive loss � (355,591) � (365,611) � Total Stockholders' Equity � 611,144� � 443,101� � TOTAL � $ 3,864,807� � $ 3,633,762� McDERMOTT INTERNATIONAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS � Three Months Ended March 31, 2007� 2006� (Unaudited) (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net Income � $ 158,061� � $ 55,323� Depreciation and amortization 16,538� 11,694� Income of investees, less dividends (319) (1,399) (Gains) losses on asset disposals and impairments - net (1,635) 16,006� Provision for deferred taxes 28,880� 70,022� Excess tax benefits from FAS 123R stock-based compensation (6,784) (4,918) Other 6,164� 13,526� Changes in assets and liabilities, net of effects of acquisitions and divestitures: Accounts receivable (139,263) 142,031� Income tax receivable (153) (56,365) Net contracts in progress and advance billings on contracts 125,833� 7,005� Accounts payable (15,937) (46,901) Income taxes (26,807) 6,463� Accrued and other current liabilities 10,376� (5,238) Accrued employee benefits (49,267) (25,264) Pension liability (7,426) 6,787� Other, net � (23,677) � (47,935) NET CASH PROVIDED BY OPERATING ACTIVITIES � 74,584� � 140,837� CASH FLOWS FROM INVESTING ACTIVITIES: (Increase) decrease in restricted cash and cash equivalents (7,886) 13,672� Purchases of property, plant and equipment (45,504) (29,037) Purchases of available-for-sale securities (275,709) (5,131,607) Maturities of available-for-sale securities 238,916� 4,984,734� Sales of available-for-sale securities 92,657� 68,088� Proceeds from asset disposals 2,203� 874� Cash acquired from the reconsolidation of The Babcock & Wilcox Company -� 164,200� Other � 167� � (1,732) NET CASH PROVIDED BY INVESTING ACTIVITIES � 4,844� � 69,192� CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of long-term debt -� 592� Payment of long-term debt (5,375) (4,323) Issuance of common stock 2,471� 9,347� Payment of debt issuance costs -� (16) Excess tax benefits from FAS 123R stock-based compensation 6,784� 4,918� Other � -� � (7,519) NET CASH PROVIDED BY FINANCING ACTIVITIES � 3,880� � 2,999� EFFECTS OF EXCHANGE RATE CHANGES ON CASH � 903� � 140� NET INCREASE IN CASH AND CASH EQUIVALENTS � 84,211� � 213,168� CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD � 600,843� � 19,263� CASH AND CASH EQUIVALENTS AT END OF PERIOD � $ 685,054� � $ 232,431� � SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest (net of amount capitalized) $ 11,594� $ 5,225� Income taxes (net of refunds) � $ 21,487� � $ 6,937�