McDermott International 3Q 2010 Earnings Call Transcript
McDermott International (
)
3Q 2010 Earnings Call
November 9, 2010 10:00 a.m. ET
Executives
Jay Roueche – Treasurer and Vice President of Investor Relations
Steve Johnson – President and Chief Executive Officer
Perry Elders – Senior Vice President and Chief Financial Officer
Analysts
Martin Malloy – Johnson Rice
Jamie Cook – Credit Suisse
Graham Mattison – Lazard Capital Markets
Andy Kaplowitz – Barclays Capital
Steven Fisher – UBS
Roger Read – Natexis
Tahira Afzal – KeyBanc
Will Gabrielski – Gleacher & Company
Presentation
Operator
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McDermott International Q1 2010 Earnings Call Transcript
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McDermott International Q3 2009 Earnings Call Transcript
Ladies and gentlemen, thank you for standing by, and welcome to McDermott International’s third quarter 2010 earnings conference call. At this time, all participants are in listen-only mode. Following the company’s prepared remarks, we will be conducting a question-and-answer session and instructions will be given at that time.
I would now like to turn the call over to our host for today, Mr. Jay Roueche, McDermott’s Treasurer and Vice President of Investor Relations. Please go ahead, sir.
Jay Roueche
Thank you and good morning everyone. We appreciate you joining us today to discuss McDermott’s third quarter 2010 financial results, which we reported after the markets closed yesterday. Joining me on the call this morning are Steve Johnson, McDermott’s President and Chief Executive Officer; as well as Perry Elders, Senior Vice President and Chief Financial Officer.
Before I turn the call over, let me remind you that this event is being recorded and a replay will be available for a limited time on our website. In addition, some of our comments this morning will include forward-looking statements and estimates. These comments are subject to various risks and uncertainties and they reflect management’s view as of November 9, 2010.
Please refer to our filings with the Securities and Exchange Commission, which are available on our website, including our form 10-K for the year ended December 31, 2009 and our recently filed form 10-Q for a discussion of the factors that may cause actual results to differ from management’s projections, forecasts, estimates and expectations. And please note that, except to the extent required by applicable law, McDermott undertakes no obligation to update any of these forward-looking statements.
Finally, our discussion this morning will include reference to certain non-GAAP metrics. Please review our earnings release which we issued yesterday and is available on our website for the reconciliation of these non-GAAP metrics to the relevant financial measures calculated in accordance with Generally Accepted Accounting Principles.
With that, I will now turn the call over to Steve Johnson, McDermott’s President and CEO, for his opening remarks.
Steve Johnson
Thanks Jay and good morning everybody. We appreciate all of you for joining us today. I will let you know at the outset I am suffering from a bit of a cold, if I pause more than often, that would be the reason.
I am very pleased with the operational results that McDermott delivered in the third quarter of 2010, excluding the non-operational impairments and related costs we disclosed, this was the highest level of operating income for our offshore oil and gas construction business in recent memory, perhaps ever, at almost $128 million. These results were delivered through the significant effort of our employees worldwide and were achieved through ongoing project execution as well as certain project improvements, change orders and closeouts. Essentially, it was delivering on our business model. Later, Perry will go through the details of the numbers, but this was truly an outstanding quarter. However, even during a strong quarter, I must remind investors not to get overly excited in either direction about 90-day results, since there are often sizeable puts and takes in our business. It is just part of being a primarily fixed class contractor in the offshore EPCI business.
In addition to the strong operating results we did have some non-operational, non-cash charges during the quarter. I will spend a couple of minutes here to discuss these items and our thinking behind them. The first item was our decision to suspend our efforts to open a new fabrication facility in the country of Kazakhstan. While there is no doubt that the Kashagan field will ultimately provide for significant opportunities in that region of the world, the simple reality is that progress on this development continues to be delayed and typically each one of these occurrences of delay is measured in years of time. In short, we just do not have confidence in our ability to predict the timing of the opportunity in this region. As I have told the financial community in prior communications, this management team will treat capital as a precious commodity that you have entrusted us with and we will periodically evaluate all of our projects, both those proposed as well as those currently in progress, as was this program.
In my view, we simply could not justify the continued development and the potential for annual rental expense when the major programs we were building the fab yard for kept moving to the right with significant delays. As such, we decided that discontinuing our efforts at this time was the best course of action and thus, we realized the sunk costs as well as associated expenses this quarter. We viewed this action as a much better alternative than proceeding full-bore and spending tens of millions of dollars to create a new facility which would likely sit underutilized or worse, vacant, for a number of years. When it appears that the market can support another facility in Kazakhstan, we will again consider the merits of adding new capacity in that country.
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