-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, AJJKooouEL3STlWtDnPDOCPnZZkTkX/EfoS9UDmEbXGMRtOjj/qVeiw7OPD3gXys hHqSMuxm015swb89B7AHBw== 0000708819-94-000001.txt : 19940203 0000708819-94-000001.hdr.sgml : 19940203 ACCESSION NUMBER: 0000708819-94-000001 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940201 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MCDERMOTT INTERNATIONAL INC CENTRAL INDEX KEY: 0000708819 STANDARD INDUSTRIAL CLASSIFICATION: 3443 IRS NUMBER: 720593134 STATE OF INCORPORATION: R1 FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 34 SEC FILE NUMBER: 001-08430 FILM NUMBER: 94504147 BUSINESS ADDRESS: STREET 1: 1010 COMMON ST CITY: NEW ORLEANS STATE: LA ZIP: 70112 BUSINESS PHONE: 5045875400 MAIL ADDRESS: STREET 1: P O BOX 61961 CITY: NEW ORLEANS STATE: LA ZIP: 70161 10-Q 1 DECEMBER 1993 INTERNATIONAL 10Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the period ended December 31, 1993 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT 1934 For the transition period from ______________to______________ Commission File No. 1-8430 McDERMOTT INTERNATIONAL, INC. _____________________________________________________________________________ (Exact name of registrant as specified in its charter) REPUBLIC OF PANAMA 72-0593134 _____________________________________________________________________________ (State of Incorporation) (I.R.S. Employer Identification No.) 1450 Poydras Street, New Orleans, Louisiana 70112-6050 Post Office Box 61961, New Orleans, Louisiana 70161-1961 _____________________________________________________________________________ (Address of Principal Executive Office) (Zip Code) Registrant's Telephone Number, Including Area Code (504) 587-5400 ______________ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No The number of shares of Common Stock, par value $1 per share, outstanding as of January 20, 1994 was 53,311,335. PAGE 2 M c D E R M O T T I N T E R N A T I O N A L , I N C. I N D E X - F O R M 1 0 - Q _______________________________ PAGE ____ PART I - FINANCIAL INFORMATION ______________________________ Item 1 - Consolidated Financial Statements Consolidated Balance Sheet - December 31, 1993 and March 31, 1993 4 Consolidated Statement of Income (Loss) and Retained Earnings (Deficit) - Three Months Ended and Nine Months Ended December 31, 1993 and December 31, 1992 6 Consolidated Statement of Cash Flows - Nine Months Ended December 31, 1993 and December 31, 1992 8 Notes to Consolidated Financial Statements 10 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 18 Exhibit 11 - Calculation of Earnings (Loss) Per Common and Common Equivalent Share 28 PART II - OTHER INFORMATION ___________________________ Item 6 - Exhibits and Reports on Form 8-K 29 SIGNATURES 30 PAGE 3 PART I McDERMOTT INTERNATIONAL, INC. FINANCIAL INFORMATION _____________________ Item 1. Consolidated Financial Statements PAGE 4
McDERMOTT INTERNATIONAL, INC. CONSOLIDATED BALANCE SHEET DECEMBER 31, 1993 ASSETS 12/31/93 3/31/93 (Unaudited) (In thousands) Current Assets: Cash and cash equivalents $ 135,863 $ 139,522 Short-term investments, at amortized cost, which approximates market 839 179,444 Accounts receivable - trade 390,492 467,381 Accounts receivable - other 129,223 141,182 Contracts in progress 258,955 250,569 Inventories 71,639 65,376 Deferred income taxes 87,874 101,969 Other current assets 15,724 10,545 _________________________________________________________________________ Total Current Assets 1,090,609 1,355,988 _________________________________________________________________________ Property, Plant and Equipment, at Cost: 2,085,392 2,057,146 Less accumulated depreciation 1,373,361 1,334,853 _________________________________________________________________________ Net Property, Plant and Equipment 712,031 722,293 _________________________________________________________________________ Investments: Government obligations 385,125 362,042 Other investments 330,479 125,174 _________________________________________________________________________ Total Investments 715,604 487,216 _________________________________________________________________________ Excess of Cost Over Fair Value of Net Assets of Purchased Businesses Less Accumulated Amortization of $82,476,000 at December 31, 1993 and $77,828,000 at March 31, 1993 144,954 132,236 _________________________________________________________________________ Prepaid Pension Costs 238,563 231,778 _________________________________________________________________________ Other Assets 246,203 163,452 _________________________________________________________________________ TOTAL $3,147,964 $3,092,963 _________________________________________________________________________ _________________________________________________________________________
See accompanying notes to consolidated financial statements. PAGE 5
LIABILITIES AND STOCKHOLDERS' EQUITY 12/31/93 3/31/93 (Unaudited) (In thousands) Current Liabilities: Notes payable and current maturities of long-term debt $ 73,854 $ 210,188 Accounts payable 189,125 264,552 Accrued employee benefits 106,431 109,994 Accrued interest 51,027 55,471 Accrued liabilities - other 249,058 311,160 Advance billings on contracts 225,610 173,709 U.S. and foreign income taxes 107,000 114,850 _________________________________________________________________________ Total Current Liabilities 1,002,105 1,239,924 _________________________________________________________________________ Long-Term Debt 647,152 583,211 _________________________________________________________________________ Accumulated Postretirement Benefit Obligation 377,744 369,502 _________________________________________________________________________ Reserve for Environmental and Products Liabilities 139,822 11,867 _________________________________________________________________________ Other Liabilities 216,556 219,013 _________________________________________________________________________ Contingencies _________________________________________________________________________ Minority Interest: Subsidiary's Redeemable Preferred Stocks: Series A $2.20 cumulative convertible, $1.00 par value; at redemption value 88,089 88,089 Series B $2.60 cumulative, $1.00 par value; at redemption value 112,807 116,393 Other minority interest 16,770 4,546 _________________________________________________________________________ Total Minority Interest 217,666 209,028 _________________________________________________________________________ Stockholders' Equity: Preferred stock, Series C, par value $1.00 per share, 2,875,000 shares authorized and outstanding at December 31, 1993 (liquidation preference $143,750,000) 2,875 - Common stock, par value $1.00 per share, authorized 150,000,000 shares; outstanding 53,208,661 at December 31, 1993 and 52,211,961 at March 31, 1993 53,209 52,212 Capital in excess of par value 728,837 568,329 Deficit (192,580) (126,264) Minimum pension liability (74) (74) Cumulative foreign exchange translation adjustments (45,348) (33,785) _________________________________________________________________________ Total Stockholders' Equity 546,919 460,418 _________________________________________________________________________ TOTAL $ 3,147,964 $ 3,092,963 _________________________________________________________________________ _________________________________________________________________________
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McDERMOTT INTERNATIONAL, INC. CONSOLIDATED STATEMENT OF INCOME (LOSS) AND RETAINED EARNINGS (DEFICIT) DECEMBER 31, 1993 THREE NINE MONTHS ENDED MONTHS ENDED 12/31/93 12/31/92 12/31/93 12/31/92 (Unaudited) (In thousands) Revenues $ 798,886 $ 848,720 $ 2,279,763 $ 2,409,893 ________________________________________________________________________________ Costs and Expenses: Cost of Operations 697,226 719,502 1,966,780 2,094,121 Depreciation and amortization 20,230 36,510 76,860 93,996 Selling, general and administrative expenses 63,058 60,325 190,142 179,426 ________________________________________________________________________________ 780,514 816,337 2,233,782 2,367,543 18,372 32,383 45,981 42,350 ________________________________________________________________________________ Equity in Income of Investees 14,845 24,801 108,210 81,626 ________________________________________________________________________________ Operating Income 33,217 57,184 154,191 123,976 ________________________________________________________________________________ Other Income (Expense): Interest income 9,995 10,746 29,073 30,468 Interest expense (16,803) (24,084) (53,493) (68,596) Minority interest (4,956) (5,709) (13,381) (12,523) Other-net 1,118 (5,131) (1,797) (11,087) ________________________________________________________________________________ (10,646) (24,178) (39,598) (61,738) ________________________________________________________________________________ Income before Provision for Income Taxes, Extraordinary Item and Cumulative Effect of Accounting Changes 22,571 33,006 114,593 62,238 Provision for Income Taxes 7,194 13,580 36,419 21,519 ________________________________________________________________________________ Income before Extraordinary Item and Cumulative Effect of Accounting Changes 15,377 19,426 78,174 40,719 Extraordinary Item - (610) - (610) Cumulative Effect of Accounting Changes - - (100,750) (245,624) ____________________________________________________________________________________ Net Income (Loss) 15,377 18,816 (22,576) (205,515) ____________________________________________________________________________________ Retained Earnings (Deficit) - Beginning of Period (192,595) (135,888) (126,264) 114,204 Deduct Cash Dividends: Common stock 13,295 12,940 39,722 38,701 Preferred stock, Series C 2,067 - 4,018 - ____________________________________________________________________________________ Deficit - End of Period $ (192,580) $ (130,012) $ (192,580) $ (130,012) ____________________________________________________________________________________ ____________________________________________________________________________________
PAGE 7
CONTINUED THREE NINE MONTHS ENDED MONTHS ENDED 12/31/93 12/31/92 12/31/93 12/31/92 PRIMARY AND FULLY DILUTED: (Unaudited) Earnings (Loss) Per Common and Common Equivalent Share: Income before Extraordinary Item and Cumulative Effect of Accounting Changes $ 0.25 $ 0.37 $ 1.39 $ 0.79 Extraordinary item - (0.01) - (0.01) Accounting changes - - (1.89) (4.74) __________________________________________________________________________________ Net income (loss) $ 0.25 $ 0.36 $ (0.50) $ (3.96) __________________________________________________________________________________ __________________________________________________________________________________ Weighted Average Number of Shares 53,566,764 52,015,884 53,454,702 51,852,198 Cash Dividends Per Common Share $ 0.25 $ 0.25 $ 0.75 $ 0.75 - ------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. PAGE 8
McDERMOTT INTERNATIONAL, INC. CONSOLIDATED STATEMENT OF CASH FLOWS DECEMBER 31, 1993 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS NINE MONTHS ENDED 12/31/93 12/31/92 (Unaudited) (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net Loss $ (22,576) $ (205,515) ________________________________________________________________________ Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 76,860 93,996 Equity in income of investees, less dividends (44,834) (63,687) Gain on sale and disposal of assets (3,549) (5,311) Cumulative effect of accounting changes 100,750 245,624 Extraordinary item - 610 Provision for (Benefit from) deferred taxes (27,931) 9,677 Other 5,471 7,185 Changes in assets and liabilities, net of effects from acquisition: Accounts receivable 109,025 83,770 Accounts payable (75,661) (27,546) Inventories (3,405) 12,349 Net contracts in progress and advance billings 58,198 86,592 Income taxes 31,523 (51,243) Accrued interest (4,393) (60,576) Accrued liabilities (75,756) (9,334) Other, net (23,674) 25,249 ________________________________________________________________________ NET CASH PROVIDED BY OPERATING ACTIVITIES 100,048 141,840 ________________________________________________________________________ CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of Delta Catalytic Corporation (28,249) - Purchases of property, plant and equipment (52,370) (61,559) Purchases of short-term investments, government obligations and other investments (3,309,168) (1,275,625) Proceeds from sale and disposal of assets 6,553 19,775 Sales of short-term investments, government obligations and other investments 3,262,454 1,268,077 Other (643) 773 ________________________________________________________________________ NET CASH USED IN INVESTING ACTIVITIES (121,423) (48,559) ________________________________________________________________________
PAGE 9 CONTINUED
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS NINE MONTHS ENDED 12/31/93 12/31/92 (Unaudited) (In thousands) CASH FLOWS FROM FINANCING ACTIVITIES: Payment of long-term debt $ (215,838) $ (32,694) Issuance of long-term debt 92,475 75,000 Increase (decrease) in short-term borrowing 27,910 (10,556) Issuance of common stock 16,227 3,909 Issuance of preferred stock 140,322 - Dividends paid (41,412) (38,587) Other (952) (1,620) __________________________________________________________________________ NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 18,732 (4,548) __________________________________________________________________________ EFFECTS OF EXCHANGE RATE CHANGES ON CASH (1,016) (8,490) __________________________________________________________________________ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (3,659) 80,243 __________________________________________________________________________ CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 139,522 71,585 __________________________________________________________________________ CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 135,863 $ 151,828 __________________________________________________________________________ __________________________________________________________________________ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest (net of amount capitalized) $ 57,886 $ 129,172 Income taxes $ 13,660 $ 57,659 __________________________________________________________________________ __________________________________________________________________________
See accompanying notes to consolidated financial statements. PAGE 10 McDERMOTT INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED DECEMBER 31, 1993 AND 1992 AND AT DECEMBER 31 AND MARCH 31, 1993 NOTE 1 - BASIS OF PRESENTATION The consolidated financial statements are presented in U.S. Dollars in accordance with accounting principles generally accepted in the United States. The consolidated financial statements include the accounts of McDermott International, Inc. and all subsidiaries and controlled joint ventures. Investments in joint venture and other entities in which McDermott International, Inc. has a 20% to 50% interest are accounted for on the equity method. Differences between the cost of equity method investments and the amount of underlying equity in net assets of the investees are amortized systematically to income. All significant intercompany transactions and accounts have been eliminated. Certain amounts previously reported have been reclassified to conform with the presentation at December 31, 1993. Results for the three and nine months ended December 31, 1992 have been restated to reflect the adoption of Statement of Financial Accounting Standards ("SFAS") No. 106 (See Note 6). Unless the context otherwise requires, hereinafter "International" will be used to mean McDermott International, Inc., a Panamanian corporation; the "Delaware Company" will be used to mean McDermott Incorporated, a Delaware corporation which is a subsidiary of International, and its consolidated subsidiaries (including Babcock & Wilcox Investment Company and its principal subsidiary, The Babcock & Wilcox Company); and "McDermott International" will be used to mean the consolidated enterprise. In the opinion of management, all adjustments necessary for a fair statement of the results have been recorded. Such adjustments are of a normal, recurring nature except for a favorable warranty reserve adjustment ($6,710,000, net of tax of $4,290,000 or $0.13 per share), included in the nine months ended December 31, 1993; favorable worker's compensation cost adjustments ($8,582,000 and $10,539,000, net of tax of $3,419,000 and $6,803,000, or $0.16 and $0.20 per share, respectively), in the three and nine PAGE 11 months ended December 31, 1993 and 1992, respectively; the cumulative effect of the accounting changes included in the nine months ended December 31, 1993 and 1992 (See Notes 4 and 6); a foreign marine asset casualty gain ($6,782,000 or $0.13 per share), in the nine months ended December 31, 1992; and the accelerated depreciation and write-off of certain fabrication facilities and marine construction equipment ($8,076,000, net of tax of $3,632,000, or $0.16 per share), and the extraordinary item (See Note 7) included in the three and nine months ended December 31, 1992. The results for interim periods are not necessarily indicative of results to be expected for the year. NOTE 2 - INVENTORIES Consolidated inventories at December 31, 1993 and March 31, 1993 are summarized below:
December 31, March 31, 1993 1993 (In thousands) Raw Materials and Supplies $ 44,731 $ 36,320 Work in Progress 20,638 17,678 Finished Goods 6,270 11,378 ___________________________________________________________________ $ 71,639 $ 65,376 ___________________________________________________________________ ___________________________________________________________________
NOTE 3 - SEGMENT REPORTING INFORMATION
THREE NINE MONTHS ENDED MONTHS ENDED 12/31/93 12/31/92 12/31/93 12/31/92 (In thousands) REVENUES: Power Generation Systems and Equipment $ 423,081 $ 397,793 $1,159,359 $1,105,464 Marine Construction Services 378,548 450,980 1,125,056 1,304,721 Intersegment Transfer Eliminations (2,743) (53) (4,652) (292) _____________________________________________________________________________________ Total Revenues $ 798,886 $ 848,720 $2,279,763 $2,409,893 _____________________________________________________________________________________ _____________________________________________________________________________________
PAGE 12
NOTE 3 - SEGMENT REPORTING INFORMATION (CONTINUED) THREE NINE MONTHS ENDED MONTHS ENDED 12/31/93 12/31/92 12/31/93 12/31/92 (In thousands) OPERATING INCOME: Segment Operating Income: Power Generation Systems and Equipment $ 9,715 $ 8,866 $ 28,850 $ 21,145 Marine Construction Services 20,881 36,411 57,823 59,125 _____________________________________________________________________________________ Total Segment Operating Income 30,596 45,277 86,673 80,270 _____________________________________________________________________________________ Equity in Income of Investees: Power Generation Systems and Equipment 3,041 1,825 10,190 5,965 Marine Construction Services 11,804 22,976 98,020 75,661 _____________________________________________________________________________________ Total Equity in Income of Investees 14,845 24,801 108,210 81,626 _____________________________________________________________________________________ General Corporate Expenses (12,224) (12,894) (40,692) (37,920) _____________________________________________________________________________________ Total Operating Income $ 33,217 $ 57,184 $ 154,191 $ 123,976 _____________________________________________________________________________________ _____________________________________________________________________________________
NOTE 4 - CHANGE OF ACCOUNTING PRINCIPLE As a result of the issuance of Emerging Issues Task Force ("EITF") Issue No. 93-5, a company is no longer permitted to offset, for recognition purposes, reasonably possible recoveries against probable losses which had been McDermott International's practice with respect to estimated future costs for non-employee products liability asbestos claims. During the third quarter of fiscal 1994, and effective April 1, 1993, McDermott International adopted this provision of EITF No. 93-5 as a change in accounting principle and provided for estimated future costs to the extent that recovery from its insurers is not determined to be probable. As previously reported, McDermott International has an agreement with a majority of its principal insurers concerning the method of allocation of these claims to the years of coverage, which operates to reduce McDermott International's liability for such claims. However, claims allocated to policy year 1979 are excluded from this agreement, and McDermott International's ability to recover these claims, and claims against certain insolvent insurers, is only reasonably possible, thus a provision for these estimated future costs has been recognized. McDermott International's estimated future costs relating to policy year 1979 and certain insolvent insurers are derived from its loss history and constitute management's best estimate of such future costs. Inherent in the estimate of PAGE 13 such future costs are assumptions which may vary significantly as claims are settled. Accordingly, the ultimate loss may differ materially from the amount provided in consolidated financial statements. The cumulative effect of the change on years prior to April 1, 1993 was a charge of $100,750,000 (net of income taxes of $54,250,000), or $1.89 a share for the nine months ended December 31, 1993. Other than the cumulative effect of the accounting change, the adoption of this provision of EITF Issue No. 93-5 resulted in an increase in Income before Extraordinary Item and Cumulative Effect of Accounting Changes and a decrease in Net Loss of $3,047,000, or $0.06 a share, and $10,560,000, or $0.20 a share, for the three and nine months ended December 31, 1993, respectively, as costs that would have been recognized under McDermott International's prior practice are included in the cumulative effect of the accounting change. Pro forma amounts reflecting the effect of retroactive application of the accounting change to prior periods are not presented because the amounts are not determinable. The effect of the change on the first and second quarters of fiscal 1994 is as follows:
THREE THREE MONTHS ENDED MONTHS ENDED 6/30/93 9/30/93 Net income as previously reported $ 25,676 $ 29,608 Effect of change in method (467) 7,980 _______________________________________________________________________ Income before cumulative effect of a change in accounting principle 25,209 37,588 Cumulative effect on prior years (to March 31, 1993) of changing method (100,750) - _______________________________________________________________________ Net income (loss) as restated $ (75,541) $ 37,588 _______________________________________________________________________ _______________________________________________________________________ PRIMARY AND FULLY DILUTED: Earnings (Loss) Per Common and Common Equivalent Share as Restated: Income before cumulative effect of a change in accounting principle $ 0.47 $ 0.66 Net income (loss) $ (1.42) $ 0.66
PAGE 14 NOTE 5 - INCOME TAXES In the second quarter of fiscal 1994, McDermott International revised its estimated annual effective tax rate to reflect a change in the U. S. federal statutory rate from 34% to 35% and applied the newly enacted tax rate to deferred tax balances as of April 1, 1993. This change had no material effect on the results for the three and nine months ended December 31, 1993. Effective April 1, 1992, McDermott International adopted SFAS No. 109, "Accounting for Income Taxes". The cumulative effect of the accounting change on prior years at April 1, 1992 of $3,727,000, (or $0.07 a share) is included in the accompanying consolidated Statement of Income (Loss) and Retained Earnings (Deficit) for the nine months ended December 31, 1992. Other than the cumulative effect, the accounting change had no material effect on the results for the three and nine months ended December 31, 1992. NOTE 6 - POSTRETIREMENT HEALTH CARE BENEFITS During the fourth quarter of fiscal 1993, and effective April 1, 1992, McDermott International adopted SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions". In accordance with the Statement, McDermott International elected immediate recognition of its transition obligation and recorded $249,351,000 (net of income tax benefit of $136,228,000), or $4.81 per share for the nine months ended December 31, 1992, as the cumulative effect of an accounting change. In the three and nine months ended December 31, 1992, other than the cumulative effect of the accounting change, the adoption of SFAS No. 106 resulted in a decrease in Income before Extraordinary Item and Cumulative Effect of Accounting Changes and an increase in Net Loss of $1,350,000, or $0.03 per share, and $2,804,000, or $0.05 per share, respectively. NOTE 7 - EXTRAORDINARY ITEM During the three months ended December 31, 1992, the Delaware Company purchased $10,600,000 par value of its 12.25% Senior Subordinated Notes due June 1, 1998 for $11,366,000 in cash. This transaction resulted in an extraordinary loss of $610,000 (net of income tax benefit of $314,000), or $0.01 per share. PAGE 15 NOTE 8 - ACQUISITION OF DELTA CATALYTIC CORPORATION During June 1993, the Delaware Company acquired a controlling interest in Delta Catalytic Corporation ("DCC") of Calgary, Alberta, Canada for $28,249,000. This was the first step in a two-step transaction which will be completed during fiscal 1997, when the Delaware Company intends to acquire the balance of DCC. The purchase price for the second step in fiscal 1997 will be determined by DCC's future earnings. DCC provides engineering, procurement, construction, industrial maintenance, tool rental and specialty services to industries worldwide, including oil and gas; power generation; industrial, civil and marine construction; petrochemical; and pulp and paper. The purchase has been reflected in the consolidated balance sheet of McDermott International. Results of DCC's operations from the date of acquisition to November 30, 1993 have been included in McDermott International's consolidated results and are included in the Marine Construction Services' segment. Revenues, segment operating income and net loss were $78,455,000, $3,346,000 and $696,000, respectively, for the three months ended December 31, 1993, and $152,468,000, $5,743,000 and $899,000, respectively, for the nine months ended December 31, 1993. The following pro forma income statement information for McDermott International is presented as though the purchase of DCC had occurred on April 1, 1992:
NINE MONTHS ENDED 12/31/93 12/31/92 (Unaudited) (In thousands) Revenues $ 2,383,254 $ 2,822,955 Income before Extraordinary Item and Cumulative Effect of Accounting Changes $ 78,649 $ 42,038 Net Loss $ (22,101) $ (204,196) Earnings (Loss) Per Common and Common Equivalent Share: Income before extraordinary item and cumulative effect of accounting changes $ 1.40 $ 0.81 Net Loss $ (0.49) $ (3.94)
PAGE 16 The acquisition was accounted for under the purchase method and goodwill is being amortized over a period of 10 years. The purchase price has been allocated to the underlying assets and liabilities based on estimated fair values, which approximate book value, at the date of acquisition. Such estimates may be revised at a later date. A summary of the purchase price allocation is as follows:
(Unaudited) (In thousands) Net Working Capital $ 10,139 Excess of Cost Over Fair Value of Net Assets of Purchased Business 17,366 Net Property, Plant and Equipment 14,870 Other Non-Current Liabilities, Net (14,126) ____________________________________________________________________ Total $ 28,249 ____________________________________________________________________ ____________________________________________________________________
NOTE 9 - SUMMARIZED INCOME STATEMENT INFORMATION OF AFFILIATES The combined financial results of McDermott International's equity investments in two Marine Construction Services' segment joint ventures are summarized below. Each of these ventures is significant as defined by applicable SEC regulations. The following summarizes the combined income statements:
THREE NINE MONTHS ENDED MONTHS ENDED 12/31/93 12/31/92 12/31/93 12/31/92 (In thousands) Revenues $ 130,026 $ 240,041 $ 713,668 $ 873,431 __________________________________________________________________________ Operating Income $ 22,946 $ 31,593 $ 186,797 $ 133,467 __________________________________________________________________________ Income before Income Taxes $ 25,264 $ 46,085 $ 197,915 $ 151,768 Provision for Income Taxes 1,324 595 4,118 1,470 __________________________________________________________________________ Net Income $ 23,940 $ 45,490 $ 193,797 $ 150,298 __________________________________________________________________________ __________________________________________________________________________ Equity in Net Income $ 11,925 $ 22,622 $ 96,833 $ 74,984 __________________________________________________________________________ __________________________________________________________________________
PAGE 17 NOTE 10 - PREFERRED STOCK ISSUANCE In July 1993, International issued 2,875,000 shares of Series C Cumulative Convertible Preferred Stock. Net cash proceeds to International were $140,322,000. The Series C shares have a par value of $1.00 per share, and a liquidation preference of $50.00 per share, plus an amount equal to accrued and unpaid dividends. Dividends on Series C shares are cumulative at the annual rate of 5.75% per share on the liquidation preference, equal to $2.875 per annum. International may not redeem Series C shares prior to July 1, 1997. On or after July 1, 1997, the Series C shares are redeemable, in whole or in part, at the option of International, either in cash, shares of International common stock, or a combination thereof. Holders of Series C shares may convert them, in whole or in part, at any time, into International common stock shares at a conversion price of $35.25 per share of common stock (equivalent to a conversion rate of 1.4184 shares of common stock for each share of Series C Preferred Stock), subject to certain adjustments. PAGE 18 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS - THREE MONTHS ENDED DECEMBER 31, 1993 VS. THREE MONTHS ENDED DECEMBER 31, 1992 Power Generation Systems and Equipment's revenues increased $25,288,000 to $423,081,000. This was primarily due to higher revenues from fabrication and erection of fossil fuel steam and environmental control systems, replacement nuclear steam generators, nuclear fuel assemblies and reactor components for the U. S. Government, and the repair and alteration of existing fossil fuel steam systems. These increases were partially offset by lower revenues from extended scope of supply and fabrication of industrial boilers as well as defense and space-related products other than nuclear fuel assemblies and reactor components. Power Generation Systems and Equipment's segment operating income increased $849,000 to $9,715,000. The increase was primarily due to higher volume and margins on fabrication and erection of fossil fuel steam and environmental control systems, replacement nuclear steam generators, nuclear fuel assemblies and reactor components for the U. S. Government, and a favorable workers' compensation cost adjustment. These increases were partially offset by lower volume and margins from extended scope of supply and fabrication of industrial boilers as well as defense and space-related products other than nuclear fuel assemblies and reactor components. There were also lower margins on repair and alterations of existing fossil fuel steam systems, and higher royalty income recorded in the prior year. Power Generation Systems and Equipment's equity in income of investees increased $1,216,000 to $3,041,000 primarily due to improved results in a foreign joint venture. Backlog for this segment at December 31, 1993 was $2,547,666,000 compared to $2,792,110,000 at December 31, 1992. At December 31, 1993, this segment's backlog with the U.S. Government was $850,600,000 (of which $27,723,000 had not been funded). These amounts reflect McDermott International's estimate of the impact of Congressional budget reductions on the Advanced Solid Rocket Motor and Super Conducting Super Collider projects. Demand for supply of new PAGE 19 base load electric power plants is not expected to increase before the mid- 1990's in the U.S. The current economic environment and uncertainties created by passage of the Clean Air Act have caused utilities to defer repair and refurbishments on existing plants. However, the Clean Air Act has created significant demand for pollution control equipment and related plant enhancements. In order to comply with Phase I of the Clean Air Act, many utilities are purchasing wet scrubbers to reduce emissions of sulphur oxides and replacement burners to reduce emissions of nitrous oxides. Conversely, the current economic environment has negatively affected demand for other industrial related product lines and these markets are expected to remain very competitive. Also, additional U. S. Government budget reductions have negatively affected this segment's other government operations. Marine Construction Services' revenues decreased $72,432,000 to $378,548,000 primarily due to lower volume in worldwide fabrication operations, foreign marine operations, and procured materials. These were partially offset by the acquisition of Delta Catalytic Corporation ("DCC"), (See Note 8 to the consolidated financial statements). Marine Construction Services' segment operating income decreased $15,530,000 to $20,881,000 primarily due to lower volume in worldwide fabrication operations, foreign marine operations, and procured materials, as well as lower margins in domestic marine operations and a foreign fabrication operation. These were partially offset by improved margins on other foreign fabrication and marine operations, the accelerated depreciation and write-off of certain fabrication facilities and marine construction equipment in the prior year, reduced operating costs, and the acquisition of DCC. Marine Construction Services' equity in income of investees decreased $11,172,000 to $11,804,000, due to lower operating results in the segment's foreign joint ventures this year and foreign currency transaction gains in the prior year. Backlog for this segment at December 31, 1993 was $1,375,245,000 (including $156,725,000 from DCC). Excluding DCC, this amount has increased from the level of backlog at December 31, 1992, which was $985,270,000. Not included in backlog at December 31, 1993 and 1992 was backlog relating to contracts to be performed by unconsolidated joint ventures of approximately $800,000,000 and $1,000,000,000, respectively. This segment's markets in the Gulf of Mexico PAGE 20 and North Sea are expected to remain weak during the remainder of fiscal 1994. If oil prices remain under pressure for the next six to twelve months, this could have a further negative effect on this segment's fiscal 1995 operating income and equity in income of investees. In all areas, the overcapacity of marine equipment will continue to result in a competitive environment. Interest income decreased $751,000 to $9,995,000 primarily due to lower interest rates on, and, investments in, government obligations, partially offset by higher investments in, and rates on, other investments, including corporate bonds. Interest expense decreased $7,281,000 to $16,803,000 primarily due to changes in debt obligations and interest rates prevailing thereon. The decrease reflects the redemption of high coupon debt during April and June 1993. Other-net income increased $6,249,000 from expense of $5,131,000 to income of $1,118,000. This increase was primarily due to a loss on the sale of an office building in the prior period. Minority interest expense decreased $753,000 to $4,956,000 primarily due to minority shareholder participation in higher operating results of the McDermott-ETPM East joint venture last year, partially offset by participation in the results of DCC since its acquisition in June 1993. The provision for income taxes decreased $6,386,000 to $7,194,000, while income from operations before provision for income taxes decreased $10,435,000 to $22,571,000. The decrease in the provision for income taxes is due primarily to a decrease in income from operations. PAGE 21 RESULTS OF OPERATIONS - NINE MONTHS ENDED DECEMBER 31, 1993 VS. NINE MONTHS ENDED DECEMBER 31, 1992 Power Generation Systems and Equipment's revenues increased $53,895,000 to $1,159,359,000. This was primarily due to higher revenues from fabrication and erection of fossil fuel steam and environmental control systems, replacement nuclear steam generators, nuclear fuel assemblies and reactor components for the U. S. Government, and repair and alteration of existing fossil fuel steam systems. These increases were partially offset by lower revenues from extended scope of supply and fabrication of industrial boilers, defense and space-related products other than nuclear fuel assemblies and reactor components, and air cooled heat exchangers. Power Generation Systems and Equipment's segment operating income increased $7,705,000 to $28,850,000. The increase was primarily due to higher volume and margins on fabrication and erection of fossil fuel steam and environmental control systems, replacement nuclear steam generators, and higher volume on nuclear fuel assemblies and reactor components for the U.S. Government. There were also favorable warranty reserve and workers' compensation cost adjustments. These increases were partially offset by lower volume and margins on extended scope of supply and fabrication of industrial boilers as well as defense and space-related products other than nuclear fuel assemblies and reactor components. There were also lower margins on plant enhancements and repair and alteration of existing fossil fuel steam systems, as well as higher royalty income recorded in the prior year. Power Generation Systems and Equipment's equity in income of investees increased $4,225,000 to $10,190,000 primarily due to improved results in a foreign joint venture and in three domestic joint ventures which own and operate a cogeneration plant and two small power plants. Marine Construction Services' revenues decreased $179,665,000 to $1,125,056,000 primarily due to lower volume in foreign fabrication operations, procured materials, and worldwide engineering operations. These were partially offset by the acquisition of DCC and improved price levels in worldwide fabrication operations. PAGE 22 Marine Construction Services' segment operating income decreased $1,302,000 to $57,823,000 primarily due to lower volume in foreign fabrication operations, procured materials and worldwide engineering operations. This was partially offset by the acquisition of DCC, improved price levels in worldwide fabrication operations, the accelerated depreciation and write-off of certain fabrication facilities and marine construction equipment in the prior year, and reduced operating costs. Marine Construction Services' equity in income of investees increased $22,359,000 to $98,020,000 primarily due to higher activity and margins in one of the segment's foreign joint ventures. General corporate expenses increased $2,772,000 to $40,692,000 primarily due to non-recurring charges related to certain cost reduction initiatives. Interest income decreased $1,395,000 to $29,073,000 primarily due to lower interest rates on, and, investments in, government obligations, partially offset by higher investments in, and rates on, other investments, including corporate bonds. Interest expense decreased $15,103,000 to $53,493,000 primarily due to changes in debt obligations and interest rates prevailing thereon. The decrease reflects the redemption of high coupon debt during April and June 1993. Minority interest expense increased $858,000 to $13,381,000 primarily due to minority shareholder participation in the results of DCC since its acquisition in June 1993, which was partially offset by participation in lower operating results of the McDermott-ETPM East joint venture this year. Other-net expense decreased $9,290,000 to $1,797,000. This was primarily due to provisions for an uncollectible non-trade receivable and a settlement of a lawsuit, and a loss on the sale of a building, all in the prior period. The decrease was offset partially by a foreign marine asset casualty gain in the prior period. PAGE 23 The provision for income taxes increased $14,900,000 to $36,419,000, while income from operations before provision for income taxes increased $52,355,000 to $114,593,000. The increase in the provision for income taxes is due primarily to an increase in income from operations. Net loss decreased $182,939,000 to $22,576,000 reflecting the cumulative effect of the change in accounting for non-employee products liability asbestos claims of $100,750,000 in the current period and the cumulative effect of the adoption of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," of $249,351,000 in the prior period, in addition to the other items described above. Liquidity and Capital Resources During the nine months ended December 31, 1993, McDermott International's cash and cash equivalents decreased $3,659,000 to $135,863,000 and total debt decreased $72,393,000 to $721,006,000. During this period, McDermott International provided cash of $100,048,000 from operating activities; $92,475,000 from the issuance of long-term debt; $16,227,000 from the issuance of common stock (primarily from the exercise of employee stock options); and $140,322,000 from the issuance of Series C convertible preferred stock; and used cash of $39,461,000 for dividends on International's common stock; $1,951,000 for dividends on International's preferred stock; $28,249,000 for the acquisition of DCC (See Note 8 to the consolidated financial statements); and $215,838,000 for repayment of long-term debt. Lower accounts receivable are primarily due to lower Marine Construction Services' fabrication activities, the timing of foreign offshore contract billings and collections, and the acceleration of collections of retainage billings on the Naval Reactors program, partially offset by collection delays on a certain foreign Power Generation Systems and Equipment segment contract and an outstanding billing relating to termination of the Advance Solid Rocket Motor contract (both billings are also reflected in lower net contracts in progress and advance billings). The decrease in accounts payable is primarily due to lower volume in the Marine Construction Services' segment while lower accrued liabilities are primarily due to settlement of subcontract costs on a certain foreign offshore contract. PAGE 24 Pursuant to an agreement with the majority of its principal insurers, McDermott International negotiates and settles products liability asbestos claims from non-employees and bills these amounts to the appropriate insurers. McDermott International has outstanding receivables of $32,276,000 at December 31, 1993 from its insurers for reimbursement of these claims. As a result of collection delays inherent in the process, reimbursement is usually delayed for three months or more. The number of claims, which management believes peaked in fiscal year 1990, has declined moderately. However, the average amount of these claims has continued to rise. Claims paid in the nine months ended December 31, 1993 were $85,475,000, including $5,970,000 applicable to insolvent insurers and $2,533,000 relating to the policy year 1979 (see Note 4 to consolidated financial statements). Settlement of the estimated liability of $138,378,000 at December 31, 1993 for future costs relating to insolvent insurers and policy year 1979 is expected to occur over the next 30 years. McDermott International's estimated future costs relating to policy year 1979 and certain insolvent insurers are derived from its loss history and constitute management's best estimate of such future costs. Inherent in the estimate of such future costs are assumptions which may vary significantly as claims are settled. Accordingly, the amounts ultimately paid may differ materially from the amount provided in consolidated financial statements. The collection delays, the amount of claims paid that are related to insolvent insurance carriers and the policy year 1979 have not had a material adverse effect on McDermott International's liquidity, and management believes, based on information currently available, that they will not have a material adverse effect on liquidity in the future. McDermott International's expenditures for property, plant and equipment were $52,370,000 for the nine months ended December 31, 1993 compared with $61,559,000 for the prior year and were incurred principally to maintain existing facilities. During April and May 1993, the Delaware Company issued $87,000,000 of Series B Medium Term Notes at maturities and interest rates ranging from five to thirty years, and 6.50% to 8.75%, respectively. These notes have an average maturity of approximately twenty years and an average interest rate of approximately 7.95%. PAGE 25 Pursuant to its right of redemption, the Delaware Company redeemed its 9.625% Sinking Fund Debentures, 10% Subordinated Debentures, and 10.20% Sinking Fund Debentures on April 19, 1993. Additionally, on June 1, 1993 and pursuant to its redemption option, the Delaware Company redeemed its 12.25% Senior Subordinated Notes due in 1998. The total redemption price including accrued interest and redemption premium was $209,694,000. At December 31, and March 31, 1993, The Babcock & Wilcox Company had sold, with limited recourse, an undivided interest in a designated pool of qualified accounts receivable of approximately $170,000,000, under the terms of its agreement with a certain U.S. bank. The maximum sales limit available under the agreement, which expires on December 31, 1995, is $225,000,000. At December 31, and March 31, 1993, International and the Delaware Company have available to them jointly various unsecured and uncommitted short-term lines of credit totaling $125,000,000 and $64,000,000, respectively. In addition, the Delaware Company had available to it an unsecured and uncommitted short-term line of credit of $10,000,000. The Babcock & Wilcox Company also had available to it an unsecured and committed revolving line of credit facility which is restricted when The Babcock & Wilcox Company's net tangible assets do not reach a certain level. There were no borrowings outstanding against these facilities at December 31, 1993 and March 31, 1993. A Canadian subsidiary of The Babcock & Wilcox Company had available to it unsecured and uncommitted lines of credit totaling approximately $43,000,000, of which $26,015,000 was outstanding at December 31, 1993. These facilities are used to meet temporary working capital needs. Additionally, DCC had available to it from a certain Canadian bank a short-term line of credit of approximately $23,000,000, of which $18,559,000 was outstanding. DCC also had available from the same bank a revolving credit facility of approximately $15,000,000 which expires on May 31, 1997. No borrowings were outstanding against this facility at December 31, 1993. PAGE 26 McDermott International maintains an investment portfolio of government obligations and other investments which is held for long-term investment purposes. The amortized cost of the long-term portfolio at December 31, 1993 was $715,604,000 (market value $717,849,000). At December 31, 1993, approximately $168,735,000 amortized cost (market value of $169,197,000) of these obligations were pledged to secure a letter of credit in connection with a long-term loan and certain reinsurance agreements. The Delaware Company is restricted, as a result of covenants in certain credit agreements, in its ability to transfer funds to International and its subsidiaries through cash dividends or through unsecured loans or investments. At December 31, 1993, substantially all of the net assets of the Delaware Company were subject to such restrictions. It is not expected that these restrictions will have any significant effect on International's liquidity. During July 1993, International issued 2,875,000 shares of Series C Cumulative Convertible Preferred Stock, par value $1.00 per share, and a liquidation preference of $50.00 per share, plus an amount equal to accrued and unpaid dividends. Net proceeds received were $140,322,000, and were invested in the long-term portfolio. (See Note 10 to consolidated financial statements). Working capital decreased by $27,560,000 to $88,504,000 at December 31, 1993 from March 31, 1993. During the remainder of fiscal 1994, McDermott International expects to obtain funds to meet capital expenditure and working capital requirements from operating activities and borrowings from short-term lines of credit. Leasing agreements for equipment, which are short-term in nature, are not expected to impact McDermott International's liquidity nor capital resources. McDermott International has provided a valuation allowance ($35,724,000 at December 31, 1993) for deferred tax assets related primarily to net operating loss carryforwards which can not be realized through carrybacks and future reversals of existing taxable temporary differences. Management believes that remaining deferred tax assets ($337,595,000 at December 31, 1993) in all other tax jurisdictions are realizable through carrybacks and future reversals of PAGE 27 existing taxable temporary differences, future taxable income arising primarily as the result of improved pre-tax earnings and, if necessary, the implementation of tax planning strategies involving sales and sale/leasebacks of appreciated assets. Major uncertainties that affect the ultimate realization of deferred tax assets include the risks of incurring operating losses in the future and the possibility of declines in value of appreciated assets involved in identified tax planning strategies. These factors have been considered in determining the valuation allowance. Management will continue to assess the adequacy of the valuation allowance on a quarterly basis. McDermott International adopted SFAS No. 106 effective April 1, 1992 for all domestic plans. McDermott International plans to adopt SFAS No. 106 for foreign plans during 1996, and the adoption is not expected to have a material effect on the consolidated financial statements of McDermott International. The new standard does not have any impact on the cash requirements of any domestic or foreign postretirement health and welfare plan. In November 1992, the Financial Accounting Standards Board ("FASB") issued SFAS No. 112, "Employers' Accounting for Postemployment Benefits," effective for fiscal years beginning after December 15, 1993. SFAS No. 112 requires accrual accounting, under certain conditions, for the estimated cost of benefits provided by an employer to former or inactive employees after employment but before retirement. McDermott International has not yet finalized its review of the impact of this statement, but the new standard will have no impact on the cash requirements of any postemployment benefits, and is not expected to have a material effect on the consolidated financial statements of McDermott International. In May 1993, the FASB issued SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities," effective for fiscal years beginning after December 15, 1993. SFAS No. 115 addresses the accounting and reporting for investments in equity securities that have readily determinable fair values and for all investments in debt securities. McDermott International has not finalized its review of the new standard, but, based on its current portfolio management practices, would report its investments at fair value, with unrealized gains and losses excluded from earnings and reported as a separate component of stockholders' equity. The new standard is not expected to have a material effect on the consolidated financial statements of McDermott International. PAGE 28
EXHIBIT 11 MCDERMOTT INTERNATIONAL, INC. CALCULATION OF EARNINGS (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE (In thousands, except shares and per share amounts) PRIMARY AND FULLY DILUTED THREE NINE MONTHS ENDED MONTHS ENDED 12/31/93 12/31/92 12/31/93 12/31/92 Income before Extraordinary Item and Cumulative Effect of Accounting Changes $ 15,377 $ 19,426 $ 78,174 $ 40,719 Less Dividend Requirements of Preferred Stock Series C 2,067 - 4,018 - ____________________________________________________________________________________ Income before Extraordinary Item and Cumulative Effect of Accounting Changes Applicable to Common Stock 13,310 19,426 74,156 40,719 Extraordinary Item - (610) - (610) Cumulative Effect of Accounting Changes - - (100,750) (245,624) ____________________________________________________________________________________ Net Income (Loss) $ 13,310 $ 18,816 $(26,594) $ (205,515) _______________________________________________________________________________________ _______________________________________________________________________________________ Weighted average number of common shares outstanding during the period 53,152,008 51,703,189 52,818,796 51,562,227 Common stock equivalents of stock appreciation rights based on "treasury stock" method 414,756 312,695 635,906 289,971 _______________________________________________________________________________________ Weighted average number of common shares outstanding during the period 53,566,764 52,015,884 53,454,702 51,852,198 _______________________________________________________________________________________ _______________________________________________________________________________________ Earnings (Loss) per common and common equivalent share: (1) Income before Extraordinary Item and Cumulative Effect of Accounting Changes $ 0.25 $ 0.37 $ 1.39 $ 0.79 Extraordinary Items - (0.01) - (0.01) Accounting Changes - - (1.89) (4.74) ______________________________________________________________________________________ Net Income (Loss) $ 0.25 $ 0.36 $ (0.50) $ (3.96) ______________________________________________________________________________________ ______________________________________________________________________________________ (1) Earnings (Loss) per common and common equivalent share assuming full dilution are the same for the periods presented.
PAGE 29 PART II MCDERMOTT INTERNATIONAL, INC. OTHER INFORMATION _________________ No information is applicable to Part II for the current quarter, except as noted below: Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibit 11 - Calculation of Earnings (Loss) Per Common and Common Equivalent Share - Page 28 (b) Reports on Form 8-K There were no current reports on Form 8-K filed during the three months ended December 31, 1993. Signatures PAGE 30 SIGNATURES __________ Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. McDERMOTT INTERNATIONAL, INC. _____________________________ (REGISTRANT) Date: 01/26/94 By: s/ Brock A. Hattox ________ ________________________________ (SIGNATURE) Brock A. Hattox Senior Vice President and Chief Financial Officer PAGE 30 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. McDERMOTT INTERNATIONAL, INC. _____________________________ (REGISTRANT) Date: 01/26/94 By: _________________________________ (SIGNATURE) Brock A. Hattox Senior Vice President and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----