Earnings per Share Improve 35% Over 2008 Quarter and 25% Sequentially
– By Linton Levy –
McDermott International, Inc. has reported net income of $118.1 million, or $0.50 per diluted share, for the 2009 third quarter, compared to $85.6 million, or $0.37 per diluted share, in the corresponding period of 2008. Weighted average common shares outstanding on a fully diluted basis were approximately 234.3 million and 230.5 million in the quarters ended September 30, 2009 and September 30, 2008, respectively.
McDermott’s revenues in the third quarter of 2009 were $1,675.7 million, compared to $1,664.9 million in the corresponding period in 2008. The year-over-year increase was due to revenue growth of 26 percent, or $212.0 million, in the Offshore Oil & Gas Construction segment and approximately 17 percent, or $37.3 million, in the Government Operations segment, which was largely offset by the decrease in the Power Generation Systems segment.
The Company’s operating income improved 57 percent to $144.8 million in the 2009 third quarter, compared to $92.0 million in the 2008 third quarter, despite a combined $45.1 million increase in depreciation & amortization and pension expenses. Segment income increased $126.2 million in the Offshore Oil & Gas Construction segment compared to the 2008 third quarter, which more than offset the year-over-year declines in the Company’s other segments.
“I am exceptionally pleased with the strong results delivered by the Offshore Oil & Gas Construction segment this quarter, as it validates the management actions taken and demonstrates the benefit of a high level of activity in the business. We are delighted that the challenging Middle East pipelines are now complete,” said John A. Fees, Chief Executive Officer of McDermott. “The results from the Government Operations segment this quarter were off the mark, and not indicative of our expectations for solid future periods. As we expected, bookings were light, however the bidding activity remained at a high level while the Company’s liquidity and balance sheet continued to improve.”
At September 30, 2009, McDermott’s consolidated backlog was $8.5 billion, compared to $9.4 billion and $9.5 billion at September 30, 2008 and June 30, 2009, respectively.
RESULTS OF OPERATIONS
2009 Third Quarter Compared to 2008 Third Quarter
Offshore Oil & Gas Construction Segment
Revenues in the Offshore Oil & Gas Construction segment were $1,026.7 million in the 2009 third quarter, compared to $814.7 million for the same period a year ago. Increased revenues in the Middle East and Caspian regions more than offset reduced levels in other regions. Approximately 30 percent of the segment’s 2009 third quarter revenues were derived from contracts in or near loss positions.
Segment income for the 2009 third quarter was $106.5 million, compared to a segment loss of $19.7 million in the 2008 third quarter. Major areas contributing to third quarter 2009 segment income include the Asia Pacific, Middle East, Caspian and Americas regions.
At September 30, 2009, segment backlog was $3.9 billion, compared to backlog of $5.0 billion and $4.7 billion at September 30, 2008 and June 30, 2009, respectively.
Power Generation Systems Segment
Revenues in the Power Generation Systems segment for the third quarter of 2009 were $389.6 million, compared to $631.0 million in the third quarter of 2008. The year-over-year decrease was predominantly due to reduced activity on customers’ major capital projects, including new power plant construction and retrofits of existing power plants.
Segment income for the 2009 third quarter was $34.2 million, compared to $84.4 million in the 2008 third quarter. Major activities contributing to third quarter 2009 segment income include the supply and construction of new boilers and environmental equipment, retrofit projects of existing facilities, inspection and maintenance, and related aftermarket parts and services.
At September 30, 2009, segment backlog was $2.1 billion, compared to backlog of $2.8 billion and $2.2 billion at September 30, 2008 and June 30, 2009, respectively.
Government Operations Segment
Revenues in the Government Operations segment were $259.8 million in the 2009 third quarter, compared to $222.4 million for the same period a year ago. The increase in revenues, as compared to the same period a year ago, was primarily due to activities in the manufacture of nuclear components and nuclear fuels for certain U.S. Government programs, including the revenues from Nuclear Fuel Services, Inc., which was acquired in December 2008.
Segment income for the 2009 third quarter was $19.8 million, compared to $34.6 million in the 2008 third quarter. Major items contributing to third quarter 2009 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 September 30, 2009, segment backlog was $2.5 billion, compared to backlog of $1.6 billion and $2.6 billion at September 30, 2008 and June 30, 2009, respectively.
Corporate & Other Income and Expense
Unallocated corporate expenses were $15.7 million in the 2009 third quarter, compared to $7.3 million in the 2008 third quarter. The year-over-year increase was predominantly due to increased compensation, pension and information technology expenses.
The Company’s other expense for the third quarter of 2009 was $0.9 million, compared to other income of $8.1 million in the third quarter of 2008. The $9.0 million decline was predominantly due to increased non-cash, foreign currency translation charges as well as reduced net interest income.
Research & Development Expense
Research & Development expense, net, was $12.8 million in the 2009 third quarter, compared to $9.9 million in the 2008 third quarter. Charged to cost of operations and predominantly in McDermott’s Power Generation Systems segment, this expense includes costs related to the development of carbon capture and sequestration technologies and the Company’s modular and scalable nuclear reactor business known as mPower.
Upcoming Investor Events
Members of McDermott’s management team will participate in KeyBanc Capital Markets’ 2nd Annual Engineering & Construction Conference on November 19, 2009 in New York City. The presentation to be used during these meetings will be available for a limited time over the internet at www.mcdermott.com in the investor relations section on the morning of the conference.
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 25,000 employees.