This summary is based on the third quarter fiscal 2006 earnings call conducted by McDermott International, Inc. (MDR: chart) on November 3, 2006.

Key Investors Issues

- EPS were 89 cents per share compared to 53 cents per share a year ago.
- Revenue rose to $1.12 billion from $498.2 million in the same period last year.
- Government operations income was $34.6 million, about $15 million higher than a year ago.

Third Quarter Highlights

Net income was $101.7 million compared to $58.5 million in last year’s third quarter.

Earnings per share were 89 cents compared to 53 cents per per-split adjusted share a year ago.

Revenues were over $1.1 billion, more than doubling last year’s consolidated top line.

The increase was primarily attributable to the inclusion of B&W in the 2006 results although, the other two segments reported increase revenues as well.

The company reported approximately $123 million in operating income, with all of the segments contributing solid results.

The $49 million year-over-year improvement was driven by the 80% increase in government operation segment combined with the reconsolidation of B&W’s results.

The industries the company serves continue to be strong is evidenced by the 10% sequential growth in the consolidated backlog this quarter.

McDermott’s backlog at quarter end is at about $8.6 billion, up $800 million from the second quarter and it’s close to triple the consolidated amount reported last year.

The unallocated corporate expenses of $5.8 million in the 2006 quarter were about $3.5 million lower than the 2005 third quarter.

The decrease was due to lower departmental expenses and a reduction in stock-based compensation cost compared to year ago.

- The other income line item was $7.5 million compared to an expense a year ago of approximately $5.5 million. The improvement was due to higher interest income and lower interest expense, which was partially offset by higher currency translation losses.
- Approximately $5.1 million of the reported interest income came from a one-time benefit relating to $3.3 million positive resolution of an open Canadian tax recurring which contributed to the 22% effective tax rate in the quarter.
- The FAIR Act will be signed into law by November 30th. As such the company expects that the $355 million payment right and the $250 million note associated with B&W asbestos settlement will vest on December 1st.

Financial Highlights of Segments

Offshore Oil and Gas Construction Segment (J. Ray)

Offshore oil and gas construction, which consist of J. Ray McDermott, had segment income of $57.3 million, a strong quarter but about 10% below last year’s level. A year ago the company reported that J. Ray benefited by about $36 million from project close outs, compared to a more normalized $13 million in the 2006 third quarter. The projects in the eastern hemisphere and for worldwide marine produced solid results in the quarter and backlog continues to grow.

Segment revenues were about $440 million, which was up 10% sequentially and 24% versus a year ago and segment income remained strong. J. Ray’s results this quarter were aided by projects in the Middle East, Asia-Pacific and Caspian as well as ongoing performance in worldwide marine projects.

J. Ray had bookings of $1.25 billion, bringing its ending backlog to over $4 billion. This new work not only helps in the near term, but also improves J. Ray’s visibility of work in the out years as well. Even though the offshore oil and gas construction segment has had significant bookings in 2006, J. Ray still had bids outstanding that exceeded $3 billion equilibrium, which is 50% better than compared to a year ago advanced sequentially as many of the bids were converted into orders.