McDermott Reports Third Quarter 2007 Results

McDermott International, Inc. (NYSE:MDR) ("McDermott” or the "Company”) today reported net income of $140.4 million, or $0.61 per diluted share, for the 2007 third quarter, compared to net income of $102.7 million, or $0.45 per diluted share, for the corresponding period in 2006. Weighted average common shares outstanding on a fully diluted basis were approximately 228.9 million and 228.3 million in the quarters ended September 30, 2007 and September 30, 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 third quarter of 2007 were $1,324.0 million, compared to $1,118.3 million in the corresponding period in 2006. The 18.4 percent growth in Company revenues, compared to a year ago, was led by the Offshore Oil & Gas Construction segment which increased $142 million, or 32.3 percent. The revenues in the Power Generation Systems and Government Operations segments increased 6.2 percent and 20.3 percent, respectively. Operating income was $155.2 million in the 2007 third quarter, a 25.0 percent improvement compared to $124.1 million in the 2006 third quarter. The increase in operating income is attributable to continued exceptional performance within the Offshore Oil & Gas Construction segment combined with improved results from the Power Generation Systems segment. "Our employees’ continued commitment to outstanding project execution again produced superior results for our shareholders,” said Bruce W. Wilkinson, Chairman of the Board and Chief Executive Officer of McDermott. "With the continued strength of McDermott’s Offshore Oil & Gas Construction business, we believe the 2007 fourth quarter will complete a remarkably strong year at McDermott.” At September 30, 2007, McDermott’s consolidated backlog was $9.3 billion, compared to $8.6 billion at September 30, 2006 and $8.9 billion at June 30, 2007. RESULTS OF OPERATIONS 2007 Third Quarter Compared to 2006 Third Quarter Offshore Oil & Gas Construction Segment Revenues in the Offshore Oil & Gas Construction segment were $582.2 million in the 2007 third quarter, compared to $440.2 million for the same period a year ago. The year-over-year increase in revenues resulted from a higher workload in the Middle East and Americas regions, in addition to increased worldwide marine activities. Segment income for the 2007 third quarter was $88.1 million, compared to $58.3 million in the 2006 third quarter. Major areas contributing to third quarter 2007 segment income include activities in the Middle East and Asia Pacific regions and projects within worldwide marine operations, including related settlements, change orders and contract close outs. At September 30, 2007, segment backlog was $4.9 billion, compared to backlog of $4.0 billion and $4.6 billion at September 30, 2006 and June 30, 2007, respectively. Power Generation Systems Segment Revenues in the Power Generation Systems segment for the third quarter 2007 were $567.2 million, compared to $534.1 million reported in the third quarter of 2006. The year-over-year improvement resulted from increased boiler activity and replacement part orders. Segment income for the 2007 third quarter was $49.4 million, compared to $37.0 million in the 2006 third quarter. Major areas contributing to third quarter 2007 segment income include utility steam system fabrication, industrial boiler, parts and service activities, including related settlements, change orders and contract close outs. At September 30, 2007, segment backlog was $3.0 billion compared to backlog of $3.2 billion and $2.8 billion at September 30, 2006 and June 30, 2007, respectively. Government Operations Segment Revenues in the Government Operations segment were $177.2 million in the 2007 third quarter, compared to $147.3 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 the recent acquisition of Marine Mechanical Corporation in April 2007. Segment income for the 2007 third quarter was $25.2 million, compared to $34.6 million in the 2006 third quarter. Major items contributing to the third 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. In the third quarter of 2006, segment income benefited from the recognition of cost savings in backlog associated with the combination of two prior operating divisions into the Nuclear Operations Division. At September 30, 2007, segment backlog was $1.4 billion, compared to backlog of $1.4 billion and $1.5 billion at September 30, 2006 and June 30, 2007, respectively. Corporate Unallocated corporate expenses were $7.6 million in the 2007 third quarter, compared to $5.8 million in the 2006 third quarter. The increase was primarily related to higher stock based compensation expenses due to McDermott’s 30.1 percent stock price increase during the third quarter, as well as other increased general corporate expenses. Other Income and Expense The Company’s other income for the third quarter of 2007 was $13.6 million, compared to other income of $7.5 million in the third 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 and our optimism for the continued strength of our Offshore Oil & Gas Construction segment and completion of a strong 2007. 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, 2006. Conference Call to Discuss 2007 Third Quarter Earnings Release Date: Thursday, November 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 Nine Months Ended September 30, September 30,   2007     2006     2007     2006   (Unaudited) (In thousands, except per share amounts)     Revenues $ 1,324,018     $ 1,118,260     $ 4,105,594     $ 2,812,097     Costs and Expenses: Cost of operations 1,067,437 900,351 3,278,055 2,244,880 (Gains) losses on asset disposals and impairments – net (630 ) 28 (2,380 ) 14,949 Selling, general and administrative expenses   114,538       104,091       327,525       272,926   Total Costs and Expenses   1,181,345       1,004,470       3,603,200       2,532,755     Equity in Income of Investees   12,477       10,310       27,026       25,197     Operating Income   155,150       124,100       529,420       304,539     Other Income (Expense): Interest income 17,272 16,644 45,411 36,646 Interest expense (3,476 ) (4,992 ) (18,431 ) (22,403 ) IRS interest expense adjustment - 421 - 11,011 Loss on early retirement of debt - - - (49,016 ) Other expense – net   (205 )     (4,609 )     (5,050 )     (10,608 ) Total Other Income (Expense)   13,591       7,464       21,930       (34,370 )   Income from Continuing Operations before Provision for Income Taxes 168,741 131,564 551,350 270,169   Provision for Income Taxes   28,333       28,897       103,507       78,059     Income from Continuing Operations 140,408 102,667 447,843 192,110   Income from Discontinued Operations   -       -       -       12,894     Net Income $ 140,408     $ 102,667     $ 447,843     $ 205,004     Earnings per Common Share: Basic: Income from Continuing Operations $ 0.63 $ 0.47 $ 2.01 $ 0.88 Income from Discontinued Operations $ 0.00 $ 0.00 $ 0.00 $ 0.06 Net Income $ 0.63 $ 0.47 $ 2.01 $ 0.94 Diluted: Income from Continuing Operations $ 0.61 $ 0.45 $ 1.96 $ 0.84 Income from Discontinued Operations $ 0.00 $ 0.00 $ 0.00 $ 0.06 Net Income $ 0.61     $ 0.45     $ 1.96     $ 0.90   McDERMOTT INTERNATIONAL, INC. SELECTED SEGMENT INFORMATION       Three Months Ended Nine Months Ended September 30, September 30,   2007     2006     2007     2006   (Unaudited; In Thousands)   REVENUES Offshore Oil and Gas Construction $ 582,168 $ 440,164 $ 1,712,414 $ 1,134,451 Government Operations 177,215 147,337 506,340 471,816 Power Generation Systems 567,173 534,074 1,896,178 1,211,807 Adjustments and Eliminations   (2,538 )     (3,315 )     (9,338 )     (5,977 ) TOTAL $ 1,324,018     $ 1,118,260     $ 4,105,594     $ 2,812,097     SEGMENT INCOME Offshore Oil and Gas Construction $ 88,143 $ 58,262 $ 300,402 $ 145,943 Government Operations 25,207 34,648 89,635 91,773 Power Generation Systems   49,376       36,965       168,204       89,750   162,726 129,875 558,241 327,466 Corporate   (7,576 )     (5,775 )     (28,821 )     (22,927 ) TOTAL $ 155,150     $ 124,100     $ 529,420     $ 304,539     EQUITY IN INCOME (LOSS) OF INVESTEES (1) Offshore Oil and Gas Construction $ (1,082 ) $ (677 ) $ (2,938 ) $ (2,058 ) Government Operations 6,615 6,464 19,607 18,963 Power Generation Systems   6,944       4,523       10,357       8,292   TOTAL $ 12,477     $ 10,310     $ 27,026     $ 25,197     DEPRECIATION & AMORTIZATION (1) Offshore Oil and Gas Construction $ 21,997 $ 7,511 $ 37,056 $ 19,798 Government Operations 5,259 3,481 13,633 10,093 Power Generation Systems 5,071 4,908 15,564 11,446 Corporate   279       209       855       726   TOTAL $ 32,606     $ 16,109     $ 67,108     $ 42,063     CAPITAL EXPENDITURES Offshore Oil and Gas Construction $ 46,761 $ 23,613 $ 136,929 $ 69,863 Government Operations 2,859 3,697 7,732 11,122 Power Generation Systems 10,467 9,878 31,269 17,985 Corporate   5,697       173       5,873       2,777   TOTAL $ 65,784     $ 37,361     $ 181,803     $ 101,747     BACKLOG Offshore Oil and Gas Construction $ 4,905,011 $ 4,014,670 $ 4,905,011 $ 4,014,670 Government Operations 1,366,905 1,376,701 1,366,905 1,376,701 Power Generation Systems   3,048,323       3,202,147       3,048,323       3,202,147   TOTAL $ 9,320,239     $ 8,593,518     $ 9,320,239     $ 8,593,518   (1) Included in Segment Income (Loss) above. McDERMOTT INTERNATIONAL, INC. CONDENSED CONSOLIDATED BALANCE SHEETS   September 30, December 31, 2007 2006 (Unaudited) (In thousands)   ASSETS Current Assets: Cash and cash equivalents $ 735,599 $ 600,843 Restricted cash and cash equivalents 98,295 106,674 Investments 248,089 172,171 Accounts receivable – trade, net 761,341 668,310 Accounts and notes receivable – unconsolidated affiliates 33,227 29,825 Accounts receivable – other 95,769 48,041 Contracts in progress 217,641 230,146 Inventories 94,428 77,769 Deferred income taxes 120,575 180,234 Other current assets   87,100     39,461   Total Current Assets   2,492,064     2,153,474   Property, Plant and Equipment 1,966,456 1,525,187 Less accumulated depreciation   1,071,111     1,011,693   Net Property, Plant and Equipment   895,345     513,494   Investments   159,610     121,914   Goodwill   149,229     89,226   Deferred Income Taxes   226,497     260,341   Long-Term Income Tax Receivable   2,958     299,786   Other Assets   269,081     195,527   TOTAL $ 4,194,784   $ 3,633,762 McDERMOTT INTERNATIONAL, INC. CONDENSED CONSOLIDATED BALANCE SHEETS   LIABILITIES AND STOCKHOLDERS' EQUITY   September 30, December 31, 2007 2006 (Unaudited) (In thousands) Current Liabilities: Notes payable and current maturities of long-term debt $ 6,555 $ 257,492 Accounts payable 462,828 407,094 Accrued employee benefits 273,791 246,182 Accrued liabilities – other 220,241 185,762 Accrued contract cost 111,050 110,992 Advance billings on contracts 1,392,893 1,116,118 Accrued warranty expense 102,041 79,077 Income taxes payable   42,332       58,557     Total Current Liabilities   2,611,731       2,461,274     Long-Term Debt   10,653       15,242     Accumulated Postretirement Benefit Obligation   99,630       100,316     Self-Insurance   80,929       84,704     Pension Liability   248,590       372,504     Other Liabilities   155,700       156,621     Commitments and Contingencies   Stockholders' Equity: Common stock, par value $1.00 per share, authorized 400,000,000 shares; issued 231,159,285 at September 30, 2007 and 227,794,618 at December 31, 2006 231,159 227,795 Capital in excess of par value 1,161,571 1,100,384 Accumulated deficit (23,008 ) (458,886 ) Treasury stock at cost, 5,867,590 shares at September 30, 2007 and 6,025,418 shares at December 31, 2006 (63,962 ) (60,581 ) Accumulated other comprehensive loss   (318,209 )     (365,611 )   Total Stockholders’ Equity   987,551       443,101     TOTAL $ 4,194,784     $ 3,633,762   McDERMOTT INTERNATIONAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS     Nine Months Ended September 30, 2007 2006 (Unaudited) (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 447,843       $ 205,004   Depreciation and amortization 67,108 42,063 Income of investees, less dividends (10,196 ) (9,329 ) (Gains) losses on asset disposals and impairments – net (2,380 ) 14,949 Gain on sale of business - (13,786 ) Provision for deferred taxes 73,485 264,681 Excess tax benefits from FAS 123(R) stock-based compensation (27,234 ) (18,126 ) Other 27,916 20,625 Changes in assets and liabilities, net of effects of acquisitions and divestitures: Accounts receivable (129,353 ) 44,853 Income tax receivable 262,185 (236,291 ) Net contracts in progress and advance billings on contracts 287,980 179,440 Accounts payable 46,522 36,401 Income taxes (22,514 ) 10,817 Accrued and other current liabilities 47,003 17,888 Pension liability, accumulated postretirement benefit obligation and accrued employee benefits (78,728 ) (16,757 ) Other, net   (30,359 )       17,233   NET CASH PROVIDED BY OPERATING ACTIVITIES   959,278         559,665   CASH FLOWS FROM INVESTING ACTIVITIES: Decrease in restricted cash and cash equivalents 8,379 70,968 Purchases of property, plant and equipment (181,803 ) (101,747 ) Acquisition of businesses, net of cash acquired (334,457 ) - Net (increase) decrease in available-for-sale securities (106,151 ) 44,683 Proceeds from asset disposals 4,582 21,516 Cash acquired from the reconsolidation of The Babcock & Wilcox Company - 164,200 Other   (2,016 )       (2,612 ) NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES   (611,466 )       197,008   CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of long-term debt - 592 Payment of long-term debt (255,629 ) (237,066 ) Issuance of common stock 12,683 17,804 Payment of debt issuance costs (3,468 ) (8,654 ) Excess tax benefits from FAS 123(R) stock-based compensation 27,234 18,126 Other   4         1,624   NET CASH USED IN FINANCING ACTIVITIES   (219,176 )       (207,574 ) EFFECTS OF EXCHANGE RATE CHANGES ON CASH 6,120 1,957 NET INCREASE IN CASH AND CASH EQUIVALENTS 134,756 551,056 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD   600,843         19,263   CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 735,599       $ 570,319   SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest (net of amount capitalized) $ 23,896 $ 33,212 Income taxes (net of refunds) $ (223,285 )     $ 17,720