OilVoice - McDermott Reports Net Income of $98.7 Million in Fourth Quarter 2009

McDermott Reports Net Income of $98.7 Million in Fourth Quarter 2009

Monday, March 01, 2010

McDermott International, Inc. has reported net income of $98.7 million, or $0.42 per diluted share, for the 2009 fourth quarter, compared to $43.0 million, or $0.19 per diluted share, in the corresponding period of 2008. Weighted average common shares outstanding on a fully diluted basis were approximately 234.5 million and 230.6 million in the quarters ended December 31, 2009 and December 31, 2008, respectively.

McDermott's revenues in the fourth quarter of 2009 were $1,459.1 million, compared to $1,664.5 million in the corresponding period in 2008. The year-over-year decrease was due to a 28 percent decline, or $170.3 million, in the Power Generation Systems segment and a 9 percent decline, or $77.8 million, in the Offshore Oil & Gas Construction segment. Partially offsetting these declines, revenues increased approximately 20 percent, or $41.5 million, in the Government Operations segment.

The Company's operating income was $122.8 million in the 2009 fourth quarter, compared to $89.7 million in the 2008 fourth quarter. Segment income increased $82.7 million in the Offshore Oil & Gas Construction segment compared to the 2008 fourth quarter, which more than offset the year-over-year decline in the Power Generation Systems' segment income and the $25.0 million increase in pension expense, which was predominantly non-cash.

"We are pleased with our results for the final quarter of 2009. These results highlight the resiliency of our businesses in what still remains a challenging economic environment. Despite about $150 million of our Offshore Oil & Gas Construction segment's revenues coming from zero margin projects, this segment delivered strong segment income, exceeding our expectations," said John A. Fees, Chief Executive Officer of McDermott. "While we incurred about $7 million of expenses unique to the transaction during the 2009 fourth quarter, we are making substantial progress on the previously announced spin-off of The Babcock & Wilcox Company and we anticipate filing a first draft of the Form 10 registration statement later this month."

At December 31, 2009, the Company's consolidated backlog was $8.1 billion, compared to $9.8 billion and $8.5 billion at December 31, 2008 and September 30, 2009, respectively.

For the year-ended December 31, 2009, McDermott reported consolidated revenues of $6.2 billion, generating operating income of $546.5 million and net income of $387.1 million, or $1.66 per diluted share.

2009 Fourth Quarter Compared to 2008 Fourth Quarter

Offshore Oil & Gas Construction Segment
Revenues in the Offshore Oil & Gas Construction segment were $770.6 million in the 2009 fourth quarter, compared to $848.3 million for the same period a year ago. Increased revenues in the Middle East were more than offset by reduced levels in other regions. Approximately 20 percent of this segment's 2009 fourth quarter revenues were derived from contracts in or near loss positions.

Segment income for the 2009 fourth quarter was $97.6 million, compared to $14.9 million in the 2008 fourth quarter. Major areas contributing to fourth quarter 2009 segment income include the Middle East and Asia Pacific regions.

At December 31, 2009, segment backlog was $3.4 billion, compared to backlog of $4.5 billion and $3.9 billion at December 31, 2008 and September 30, 2009, respectively.

Power Generation Systems Segment
Revenues in the Power Generation Systems segment for the fourth quarter of 2009 were $435.2 million, compared to $605.5 million in the fourth 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 fourth quarter was $21.7 million, compared to $48.7 million in the 2008 fourth quarter. Major activities contributing to fourth 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. Included in the 2009 fourth quarter's segment income were approximately $6.5 million in one-time severance costs and about $8.9 million in increased research & development expenses, primarily associated with B&W's mPowerTM modular nuclear reactor initiative.

At December 31, 2009, segment backlog was $2.0 billion, compared to backlog of $2.5 billion and $2.1 billion at December 31, 2008 and September 30, 2009, respectively.

Government Operations Segment
Revenues in the Government Operations segment were $253.8 million in the 2009 fourth quarter, compared to $212.2 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 on December 31, 2008.

Segment income for the 2009 fourth quarter was $31.5 million, compared to $35.2 million in the 2008 fourth quarter. Major items contributing to fourth 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. During the 2009 fourth quarter, approximately $14.3 million in expenses were recognized primarily related to the ongoing temporary suspension of certain operations and the implementation of various enhanced safety controls and processes at Nuclear Fuel Services' Erwin, Tennessee manufacturing facility. The Company currently expects that the production line will resume operations by the end of March 2010.

At December 31, 2009, segment backlog was $2.8 billion, compared to backlog of $2.9 billion and $2.5 billion at December 31, 2008 and September 30, 2009, respectively.

Corporate & Other Income and Expense
Unallocated corporate expenses were $28.0 million in the 2009 fourth quarter, compared to $9.2 million in the 2008 fourth quarter. The year-over-year increase was largely due to approximately $6.6 million of costs in connection with the proposed spin-off of The Babcock & Wilcox Company and $4.2 million related to increased pension expense, as well as increased compensation and information technology expenses.

The Company's other expense for the fourth quarter of 2009 was $9.0 million, compared to $7.1 million in the fourth quarter of 2008. The increased expense was due to higher net interest expense, partially offset by lower foreign currency exchange losses.

Research & Development Expense
Research & Development expense, net, was $20.3 million in the 2009 fourth quarter, compared to $11.4 million in the 2008 fourth quarter. Charged to cost of operations and predominantly in McDermott's Power Generation Systems segment, this expense includes costs related to The Babcock & Wilcox Company's modular and scalable nuclear reactor initiative, known as mPowerTM, and the continued development of carbon capture and sequestration technologies. For the year ending December 31, 2009, net R&D expenses were $54.2 million compared to $40 million in 2008.