This is a summary of the fourth quarter earnings call as presented by McDermott International Inc (MDR) on March 3, 2009
Management
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President and Chief Executive Officer: John A. Fees
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Senior Vice President and Chief Financial Officer: Michael S. Taff
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Vice President of Investor Relations and Corporate Communications: Jay Roueche
Key Investors Issues:
- For the year consolidated revenues of $6.6 billion,
- Operating income of $569.9 million and net income of $429.3 million, or $1.86 per diluted share
- Shareholder’s equity increased approximately $150 million during 2008, to end the year at $1.3 billion
Fourth Quarter Highlights
McDermott reported net income of $43 million or 19 cents per diluted share in the fourth quarter of 2008 compared to last year''s quarter of $160 million or 70 cents per share.
- This performance was at the upper end of expectations with $57 million of after-tax net expenses as a major variance between the two periods.
- The company''s consolidated backlog remains at $9.8 billion, right at the year end level set last year and up sequentially on a quarterly basis.
- The firm''s liquidity end of the year was just under $1.1 billion in cash and investments which is net of the purchase of Nuclear Fuel Services.
- This cash payment of over $150 million was a primary reason the cash and investment portfolio decline sequentially.
McDermott has a couple of years left on most of its existing credit facilities with over $750 million available capacity.
- Currently these facilities are only used for letters of credit.Offshore oil and gas construction reported segment income of almost $15 million in the final quarter of 2008, this included about $70 million of increased cost adjustments.
- This was primarily in the Middle East region, including the pipeline contracts which should break even at the gross margin level going forward.
- These increased costs were partially offset by a $36 million benefit from the resolution and receipt of a prior claim netting to about a $35 million negative impact in this segment.
Government operations had segment income of $35.2 million.
- McDermott''s site management activities which are largely reflected as equity income had a very strong quarter as the firm trued up to the actual fees earned at the various sites.
- The manufacturing of nuclear components for commercial and governmental continued their historical strong performance.
- Power generation systems completed a record year of segment income finishing with an income of $48.7 million. The firm also had nearly $15 million of identified charges in the period, including the inventory write-down as a result of market adjustments.
Total revenues were almost $1.7 billion about 9% above a year ago.
- This increase came predominantly from the offshore oil and gas construction segment but was also aided by a 13% increase from government operations.
- McDermott''s consolidated operating income was almost $90 million compared to just under $187 million a year ago.
- The improvements in government operations and reductions in unallocated corporate expenses were more than offset by the segment income decline in power generation systems and offshore oil and gas segments, including the net expenses.
Primarily due to low interest rates earned on cash and investments, interest income declined about $12 million compared to a year ago
- Since the firm utilized very little credit, the income reduction far exceeded the benefit recognized from lower interest expense.
- With about $10 million of foreign currency translation losses other expense net line item increased over $5 million compared to the 2007 quarter.
- Adding it all up the firm''s pre-tax income declined by over $111 million compared to the 2007 fourth quarter.
By year end, McDermott''s pension plan assets had declined about 20% for 2008, a decent performance considering the markets.
- However, this represented a $372 million reduction in the market value of the firm''s pension assets and increased pension liability on the balance sheet to a net $721 million.
- McDermott has developed a strong investment strategy for its pensions and has taken steps over the past few years to mitigate this obligation in the future.
- The number of participants in the plans is regularly declining.
43% of McDermott''s underfunded amount relates to the government operations plan.
- The contributions made to this plan are essentially reimbursed by the customer albeit with timing differences.
- So generally there is very little risk associated with this portion of the plan.
- In total the firm will recognize an increase in GAAP pension expense in 2009, although most of the expense this year will be non cash.
