McDermott's Revenues Up 26.4% in Q2 Results



McDermott International, Inc. has reported net income of $177.5 million, or $0.77 per diluted share, for the 2008 second quarter, compared to net income of $149.4 million, or $0.66 per diluted share, for the corresponding period in 2007. Weighted average common shares outstanding on a fully diluted basis were approximately 230.4 million and 227.9 million in the quarters ended June 30, 2008 and June 30, 2007, respectively. For 2007, 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 second quarter of 2008 were $1,792.6 million, an increase of 26.4 percent compared to $1,418.1 million in the corresponding period in 2007. The year-over-year improvement in Company revenues was primarily the result of a 50 percent increase from the Offshore Oil & Gas Construction segment.

Operating income was $231.1 million in the 2008 second quarter, an increase of 27.1 percent compared to $181.8 million in the 2007 second quarter. Each of McDermott's business segments reported increased operating income compared to the second quarter a year-ago, led by a $30.6 million increase in the Power Generation Systems' segment income. The year-over-year increase in the segment income is substantial, as the second quarter of 2007 included a previously disclosed $50 million one-time benefit resulting from contract terminations and a variety of settlements.

"In the 2008 second quarter, McDermott delivered record revenues, operating income and net income for a quarter, which demonstrated the strength of our diversified, energy-focused E&C business model," said Bruce W. Wilkinson, Chairman of the Board and Chief Executive Officer of McDermott. "The strong project execution in our Power Generation Systems segment, as well as its robust parts and service offerings, coupled with growth in the Government Operations segment led to the Company's overall strong performance."

At June 30, 2008, McDermott's consolidated backlog was $9.8 billion, compared to $8.9 billion and $10.2 billion at June 30, 2007 and March 31, 2008, respectively.

RESULTS OF OPERATIONS

2008 Second Quarter Compared to 2007 Second Quarter

Offshore Oil & Gas Construction Segment

Revenues in the Offshore Oil & Gas Construction segment were $872.3 million in the 2008 second quarter, compared to $580.0 million for the same period a year ago. The year-over-year increase in revenues resulted from increased activities in the Middle East and Asia Pacific regions, partially offset by reduced fabrication in the Caspian region.

Segment income for the 2008 second quarter was $98.0 million, compared to $91.1 million in the 2007 first quarter. Major areas contributing to second quarter 2008 segment income include activities in the Middle East, Caspian and Asia Pacific regions, including worldwide marine projects.

At June 30, 2008, segment backlog was $5.3 billion, compared to backlog of $4.6 billion and $5.3 billion at June 30, 2007 and March 31, 2008, respectively.

Power Generation Systems Segment

Revenues in the Power Generation Systems segment for the second quarter of 2008 were $698.1 million, compared to $673.6 million in the second quarter of 2007. The increase in revenues resulted primarily from a higher level of retrofit activity of existing facilities, replacement parts and service, and replacement nuclear steam generators.

Segment income for the 2008 second quarter was $106.0 million, compared to $75.4 million in the 2007 second quarter. Major activities contributing to second quarter 2008 segment income include the supply and construction of new boilers and environmental equipment, retrofit projects of existing facilities, replacement nuclear steam generators, and related parts and services. In the 2007 second quarter, approximately $50 million of segment income related to benefits from contract terminations and a variety of settlements.
At June 30, 2008, segment backlog was $3.0 billion, compared to backlog of $2.8 billion and $3.2 billion at June 30, 2007 and March 31, 2008, respectively.

Government Operations Segment

Revenues in the Government Operations segment were $225.8 million in the 2008 second quarter, compared to $167.7 million for the same period a year ago. The improvement was primarily due to higher volumes and procurement activity in the manufacture of nuclear components for certain U.S. Government programs, and higher volumes for a commercial uranium enrichment project which was awarded in June 2007.

Segment income for the 2008 second quarter was $42.5 million, compared to $29.7 million in the 2007 second quarter. Major items contributing to second quarter 2008 segment income include the manufacture of nuclear components for certain U.S. Government programs, the manufacture of nuclear components for a commercial uranium enrichment project, and the management and operations of various U.S. Government sites.

At June 30, 2008, segment backlog was $1.5 billion, compared to backlog of $1.5 billion and $1.7 billion at June 30, 2007 and March 31, 2008, respectively.

Corporate

Unallocated corporate expenses were $15.4 million in the 2008 second quarter, compared to $14.3 million in the 2007 second quarter. The year-over-year increase was primarily related to higher stock-based compensation expense and costs associated with information technology upgrades.

Other Income and Expense; Provision for Income Taxes

The Company's other income for the second quarter of 2008 was $10.0 million, compared to $9.5 million in the second quarter of 2007. McDermott's provision for income taxes in the 2008 second quarter was $63.6 million or 26.4 percent of pre-tax income, compared to $41.9 million or 21.9 percent of pre-tax income in the 2007 second quarter. The year-over-year increase in the provision for income taxes was due to a $49.9 million improvement in consolidated pretax income and a greater proportion of Company pretax income being generated within higher tax jurisdictions.
 


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