This summary is based on the second quarter fiscal 2006 earnings call conducted by McDermott International, Inc. (MDR: chart) on August 7, 2006.

Key Investors Issues

- For the quarter, EPS was 40 cents compared to 75 cents in the year ago period.
- The firm more than doubled its revenue to over $1 billion compared to prior year.
- The offshore oil and gas construction segment had income of $63.9 million, up over 110% from the previous year.

Second Quarter Fiscal 2006 Financial Highlights

McDermott reported its ninth consecutive quarter of positive net income, despite a large onetime debt refinancing charge.

In the second quarter, the firm reported net income of $45.4 million or 40 cents per share compared to net income of $80.9 million or 75 cents per share last year, which included a substantial non-recurring tax benefit. Both periods’ per share results reflects the 3-for-2 stock split that became effective on May 31, 2006.

In the second quarter, the firm recorded a $49 million charge associated with the early retirement of J. Ray''s debt, partially offset by gains on the sale of J. Ray''s ship repair facility in Veracruz, Mexico which was a non-core activity and accounted for in the firm’s discontinued operations. While on last year’s second quarter, the company recorded a $50.4 million non-cash benefit resulting from an adjustment to the company’s deferred tax assets.

The largest recurring year-over-year change is that in 2006 quarter, B&W is fully included in the company’s consolidated financials. As a reminder, B&W was reconsolidated on February 22nd of this year.

Revenues in the quarter were slightly over $1 billion, which is more than double of last year’s consolidated top line.

The increase was primarily attributable to the inclusion of B&W in the firm’s 2006 results. Also, the other two segments produced increased revenues as well.

In the second quarter of 2006, operating income was strong.

In total, McDermott reported approximately $111 million in operating income with all of its business units contributing solid results. In total, operating income was up $57 million from last year, with improvement in offshore oil and gas construction and the reconsolidation of B&W representing the increase.

The unallocated corporate expenses of $8.8 million in the 2006 second quarter were about $2.7 million higher than the 2005 second quarter.

The increase largely reflected the adoption of FAS 123R, and other stock based compensation expenses as a result of stock price appreciation during the second quarter.

- The firm’s other expense line item in the second quarter of 2006 was $50.7 million compared to an expense of approximately $7 million a year ago.
- While net interest income expense improved about $8.8 compared to a year ago it was more than offset by the $49 million after-tax expense recorded as a result of J. Ray’s early retirement of its 11% notes.
- In addition, the firm had about $3.9 million of currency translation expense and $2.6 million of IRS interest adjustment expense, which combined represented a $10 million net variance compared to a year ago.

During the quarter, J. Ray completed the tender offer for its 11% senior security notes, and simultaneously entered into a $500 million credit facility.

J. Ray spent $249 million to retire its notes, well at the same time McDermott was able to maintain a solid liquidity position and has become essentially debt free at this time.

At quarter end, the consolidated cash and investments included a restricted amounts totaled $910 million, an improvement of over $380 million compared to last year’s second quarter and only $44 million below the first quarter of 2006.

McDermott’s consolidated backlog at quarter end was over $7.8 billion, as growth in the firm’s core markets continue to demonstrate demand and promising opportunities forward.

This level of backlog is over 32% more than what the company had at March 2006. It’s more than triple the consolidated amount reported in June 2005. McDermott remains well diversified in its energy markets with strong positions in coal, nuclear and oil and gas.