-----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, lKWD8GV4XA7Pso2VRcB2k3ITOCR+vcsrHEqPI218NqFPMqiYlE2TvwCF7u6gEsyB dBwm7VEZFzH4QPpYOiSjkA== 0000708819-94-000005.txt : 19940808 0000708819-94-000005.hdr.sgml : 19940808 ACCESSION NUMBER: 0000708819-94-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19940630 FILED AS OF DATE: 19940805 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: 1934 Act SEC FILE NUMBER: 001-08430 FILM NUMBER: 94542110 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 MCDERMOTT INTERNATIONAL 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 June 30, 1994 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 July 22, 1994 was 53,638,762. 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 - June 30, 1994 and March 31, 1994 4 Consolidated Statement of Income (Loss) and Deficit - Three Months Ended June 30, 1994 and June 30, 1993 6 Consolidated Statement of Cash Flows - Three Months Ended June 30, 1994 and June 30, 1993 8 Notes to Consolidated Financial Statements 10 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 17 Exhibit 11 - Calculation of Earnings (Loss) Per Common and Common Equivalent Share 22 PART II - OTHER INFORMATION Item 6 - Exhibits and Reports on Form 8-K 23 SIGNATURES 24 PART I McDERMOTT INTERNATIONAL, INC. FINANCIAL INFORMATION --------------------- Item 1. Consolidated Financial Statements McDERMOTT INTERNATIONAL, INC. CONSOLIDATED BALANCE SHEET JUNE 30, 1994 ASSETS
6/30/94 3/31/94 ------- ------- (Unaudited) (In thousands) Current Assets: Cash and cash equivalents $ 54,334 $ 133,809 Short-term investments 149,076 990 Accounts receivable - trade 362,593 370,333 Accounts receivable - other 142,552 113,782 Insurance recoverable - current 114,647 110,200 Contracts in progress 252,914 237,722 Inventories 67,938 66,469 Deferred income taxes 99,018 100,167 Other current assets 58,953 40,474 - ------------------------------------------------------------------------ Total Current Assets 1,302,025 1,173,946 - ------------------------------------------------------------------------ Property, Plant and Equipment, at Cost: 2,153,120 2,150,728 Less accumulated depreciation 1,392,493 1,374,219 - ------------------------------------------------------------------------ Net Property, Plant and Equipment 760,627 776,509 - ----------------------------------------------------------------------- Investments: Government obligations 372,941 395,556 Other investments 182,524 319,575 - ----------------------------------------------------------------------- Total Investments 555,465 715,131 - ----------------------------------------------------------------------- Insurance Recoverable 843,930 876,846 - ----------------------------------------------------------------------- Prepaid Pension Costs 252,217 246,854 - ----------------------------------------------------------------------- Excess of Cost Over Fair Value of Net Assets of Purchased Businesses Less Accumulated Amortization of $86,236,000 at June 30, 1994 and $84,170,000 at March 31, 1994 156,660 158,726 - ----------------------------------------------------------------------- Other Assets 232,102 275,557 - ----------------------------------------------------------------------- TOTAL $4,103,026 $4,223,569 ========================================================================
See accompanying notes to consolidated financial statements. LIABILITIES AND STOCKHOLDERS' EQUITY
6/30/94 3/31/94 ------- ------- (Unaudited) (In thousands) Current Liabilities: Notes payable and current maturities of long-term debt $ 292,410 $ 62,544 Accounts payable 189,893 245,819 Environmental and products liabilities - current 127,227 122,361 Accrued employee benefits 108,832 113,415 Accrued liabilities - other 259,925 300,505 Advance billings on contracts 160,303 181,572 U.S. and foreign income taxes 63,862 79,938 - ---------------------------------------------------------------------------- Total Current Liabilities 1,202,452 1,106,154 - ---------------------------------------------------------------------------- Long-Term Debt 508,434 667,066 - ---------------------------------------------------------------------------- Accumulated Postretirement Benefit Obligation 384,028 380,309 - ---------------------------------------------------------------------------- Environmental and Products Liabilities 975,122 1,013,251 - ---------------------------------------------------------------------------- Other Liabilities 302,990 302,143 - ---------------------------------------------------------------------------- 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 91,630 108,583 Other minority interest 15,926 15,716 - ---------------------------------------------------------------------------- Total Minority Interest 195,645 212,388 - ---------------------------------------------------------------------------- Stockholders' Equity: Preferred stock, authorized 25,000,000 shares; outstanding 2,875,000 Series C $2.875 cumulative convertible, par value $1.00 per share, (liquidation preference $143,750,000) 2,875 2,875 Common stock, par value $1.00 per share, authorized 150,000,000 shares; outstanding 53,538,762 at June 30, 1994 and 53,444,467 at March 31, 1994 53,539 53,444 Capital in excess of par value 736,269 730,987 Deficit (210,307) (196,216) Minimum pension liability (931) (931) Net unrealized loss on investments (8,750) - Cumulative foreign exchange translation adjustments (38,340) (47,901) - --------------------------------------------------------------------------- Total Stockholders' Equity 534,355 542,258 - --------------------------------------------------------------------------- TOTAL $4,103,026 $4,223,569 ===========================================================================
McDERMOTT INTERNATIONAL, INC. CONSOLIDATED STATEMENT OF INCOME (LOSS) AND DEFICIT JUNE 30, 1994
THREE MONTHS ENDED 6/30/94 6/30/93 ------- ------- (Unaudited) (In thousands) Revenues $ 759,808 $703,418 - ------------------------------------------------------------------------ Costs and Expenses: Cost of operations 645,700 599,870 Depreciation and amortization 36,918 30,427 Selling, general and administrative expenses 67,661 60,698 - ------------------------------------------------------------------------ 750,279 690,995 - ------------------------------------------------------------------------ 9,529 12,423 Equity in Income of Investees 6,302 47,049 - ------------------------------------------------------------------------ Operating Income 15,831 59,472 - ------------------------------------------------------------------------ Other Income (Expense): Interest income 10,398 9,316 Interest expense (12,839) (19,943) Minority interest (3,857) (3,726) Other-net (4,019) (5,359) - ------------------------------------------------------------------------ (10,317) (19,712) - ------------------------------------------------------------------------ Income before Provision for Income Taxes and Cumulative Effect of Accounting Changes 5,514 39,760 Provision for Income Taxes 2,396 14,551 - ------------------------------------------------------------------------ Income before Cumulative Effect of Accounting Changes 3,118 25,209 Cumulative Effect of Accounting Changes (1,765) (100,750) - ------------------------------------------------------------------------ Net Income (Loss) 1,353 (75,541) - ------------------------------------------------------------------------ Deficit - Beginning of Period (196,216) (126,264) Deduct Cash Dividends Common stock 13,378 13,152 Preferred stock, Series C 2,066 - - ------------------------------------------------------------------------ Deficit - End of Period $(210,307) $(214,957) ========================================================================
Continued
THREE MONTHS ENDED 6/30/94 6/30/93 ------- ------- (Unaudited) (In thousands, except shares and per share amounts) NET LOSS APPLICABLE TO COMMON STOCK (AFTER PREFERRED STOCK DIVIDENDS): $ (713) $ (75,541) - -------------------------------------------------------------------------- EARNINGS (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE (PRIMARY AND FULLY DILUTED): Income before cumulative effect of accounting changes $ 0.02 $ 0.47 Accounting changes (0.03) (1.89) - -------------------------------------------------------------------------- Net income (loss) $ (0.01) $ (1.42) ========================================================================== Weighted average number of common and common equivalent shares 53,623,686 53,181,016 CASH DIVIDENDS: Per common share $ 0.25 $ 0.25 Per preferred share $ 0.72 $ - ==========================================================================
See accompanying notes to consolidated financial statements. McDERMOTT INTERNATIONAL, INC. CONSOLIDATED STATEMENT OF CASH FLOWS JUNE 30, 1994 INCREASE IN CASH AND CASH EQUIVALENTS THREE MONTHS ENDED 6/30/94 6/30/93 ------- ------- (Unaudited) (In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES: Net Income (Loss) $ 1,353 $(75,541) - -------------------------------------------------------------------------- Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 36,918 30,427 Equity in income of investees, less dividends 16,377 (15,452) Provision for deferred taxes 18,358 8,941 Cumulative effect of accounting changes 1,765 100,750 Other 2,397 7,023 Changes in assets and liabilities, net of effects from acquisition: Accounts receivable (3,980) 150,481 Net contracts in progress and advance billings (36,668) 11,825 Accounts payable (56,743) (21,238) Accrued liabilities (41,206) (62,617) Income taxes (30,530) 1,052 Other, net (9,035) (4,862) Proceeds from insurance for products liabilities claims 28,094 16,364 Payments of products liabilities claims (31,450) (30,332) - -------------------------------------------------------------------------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIE (104,350) 116,821 - -------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of Delta Catalytic Corporation - (28,249) Purchases of property, plant and equipment (15,583) (12,447) Purchases of short and long-term investments (213,483) (123,901) Sales of short and long-term investments 214,807 190,139 Other 705 248 - -------------------------------------------------------------------------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (13,554) 25,790 - --------------------------------------------------------------------------
CONTINUED INCREASE IN CASH AND CASH EQUIVALENTS
THREE MONTHS ENDED 6/30/94 6/30/93 ------- ------- (Unaudited) (In thousands) CASH FLOWS FROM FINANCING ACTIVITIES: Increase in short-term borrowing $ 79,028 $ 165 Payment of long-term debt (8,443) (196,765) Issuance of long-term debt - 87,000 Issuance of common stock 26 1,671 Dividends paid (15,419) (13,034) Repurchase of subsidiary's preferred stock (16,753) (259) Other (373) (330) - -------------------------------------------------------------------------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 38,066 (121,552) - -------------------------------------------------------------------------- EFFECTS OF EXCHANGE RATE CHANGES ON CASH 363 (716) - -------------------------------------------------------------------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (79,475) 20,343 - -------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 133,809 139,522 - -------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 54,334 $159,865 ========================================================================== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest (net of amount capitalized) $ 21,225 $ 27,521 Income taxes $ 14,893 $ 4,486 =========================================================================
See accompanying notes to consolidated financial statements. McDERMOTT INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED JUNE 30, 1994 AND 1993 AND AT JUNE 30 AND MARCH 31, 1994 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 or restated to conform with the presentation at June 30, 1994. Results for the quarter ended June 30, 1993 have been restated to reflect the adoption of Emerging Issues Task Force ("EITF") Issue No. 93-5 (See Note 2). 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 reduction in accrued interest expense ($3,705,000 net of tax of $1,995,000, or $0.07 per share) due to settlement of an outstanding tax issue with the IRS during the three months ended June 30, 1994; the cumulative effect of the accounting changes during the three months ended June 30, 1994 and 1993; and a favorable warranty reserve adjustment ($6,820,000, net of tax of $4,180,000 or $0.13 per share) during the three months ended June 30, 1993. The results for interim periods are not necessarily indicative of results to be expected for the year. NOTE 2 - CHANGES IN ACCOUNTING POLICIES Products Liability - McDermott International has an agreement with a majority of its principal insurers concerning the method of allocation of products liability asbestos claim payments to the years of coverage. However, amounts allocable to policy year 1979 are excluded from this agreement, and McDermott International's ability to recover these amounts, and amounts allocable to certain insolvent insurers, is only reasonably possible. Thus, a provision for these estimated future costs was recognized during the third quarter of fiscal year 1994, effective April 1, 1993, as a change in accounting principle, reflecting McDermott International's adoption of EITF No. 93-5. EITF No. 93-5 no longer permits companies to offset, for recognition purposes, reasonably possible recoveries against probable losses, which had been McDermott International's prior practice. The cumulative effect of the accounting change at April 1, 1993 was a charge of $100,750,000 (net of income taxes of $54,250,000) in the quarter ending June 30, 1993. The adoption of this provision of EITF Issue No. 93-5 resulted in a decrease in Income before Cumulative Effect of Accounting Change and Net Income of $467,000 and $101,217,000, or $0.01 and $1.89 per share, respectively, for the three months ending June 30, 1993. 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. At June 30, 1994, the estimated amount of future costs allocable to insolvent insurers and the policy year 1979 was $132,074,000. Inherent in the estimate of such future costs are expected trends in claim severity and frequency and other factors, including recoverability from insurers, which may vary significantly as claims are filed and settled. Accordingly, the ultimate loss may differ materially from the amount provided in the consolidated financial statements. During the first quarter of fiscal year 1995, McDermott International adopted the provisions of Financial Accounting Standards Board ("FASB") Interpretation No. 39 which requires McDermott International to present separately in the balance sheet its estimated liabilities for pending and future non-employee products liability asbestos claims and related estimated insurance recoveries. Accordingly, the accompanying consolidated balance sheet at March 31, 1994 and the consolidated statement of cash flows for the three months ended June 30, 1993, have been restated to conform to the June 30, 1994 presentation. Of the total estimated liability at June 30, 1994, less than $100,000,000 has been asserted. The adoption of FASB Interpretation No. 39 did not have any effect on earnings. Postemployment Benefits - Effective April 1, 1994, McDermott International adopted Statement of Financial Accounting Standards ("SFAS") No. 112, "Employers' Accounting for Postemployment Benefits," in accounting for disability benefits and other types of benefits paid to employees, their beneficiaries and covered dependents after active employment, but before retirement. The cumulative effect as of April 1, 1994 of this change in accounting was to decrease net income by $1,765,000 (net of income taxes of $287,000) or $0.03 per share. Other than the cumulative effect, the accounting change had no material effect on the results of the June 30, 1994 quarter. Prior to April 1, 1994, McDermott International recognized the cost of providing most of these benefits on a cash basis. Under the new principle of accounting, the cost of these benefits is accrued when it becomes probable that such benefits will be paid and when sufficient information exists to make reasonable estimates of the amounts to be paid. As required by the Statement, prior period financial statements have not been restated to reflect the change in accounting principle. Investments - In May 1993, the FASB issued SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." McDermott International adopted the provisions of the new standard for investments held as of or acquired after April 1, 1994. Based on current portfolio management practices, McDermott International's investments are classified as available for sale and are reported at fair value, with unrealized gains and losses excluded from earnings and reported as a separate component of stockholders' equity. The opening balance of stockholders' equity was decreased by $4,095,000 to reflect the net unrealized holding losses on McDermott International's investment securities which were previously carried at amortized cost. In accordance with the Statement, prior period financial statements have not been restated to reflect this change in accounting principle. NOTE 3 - INVENTORIES Consolidated inventories at June 30, 1994 and March 31, 1994 are summarized below:
June 30, March 31, 1994 1994 ------- -------- (In thousands) Raw Materials and Supplies $ 39,591 $ 40,281 Work in Progress 18,694 17,566 Finished Goods 9,653 8,622 - ------------------------------------------------------------------------- $ 67,938 $ 66,469 =========================================================================
NOTE 4 - SUMMARIZED INCOME STATEMENT INFORMATION OF AFFILIATES The combined financial results of McDermott International's equity investments in Marine Construction Services' HeereMac and McDermott ETPM-West, Inc. joint ventures are summarized below. Each of these ventures was significant as defined by applicable SEC regulations in fiscal year 1994. The following summarizes the combined income statements:
THREE THREE MONTHS ENDED MONTHS ENDED 6/30/94 6/30/93 ------- ------- (In thousands) Revenues $ 237,285 $ 345,860 - ------------------------------------------------------------------------ Operating Income $ 856 $ 83,221 - ------------------------------------------------------------------------ Income before Income Taxes $ 5,588 $ 86,328 Provision for (Benefit from) Income Taxes (550) 1,124 - ------------------------------------------------------------------------ Net Income $ 6,138 $ 85,204 ======================================================================== Equity in Net Income $ 3,051 $ 42,593 ========================================================================
NOTE 5 - SEGMENT REPORTING INFORMATION
THREE MONTHS ENDED 06/30/94 06/30/93 -------- -------- (In thousands) REVENUES: Power Generation Systems and Equipment $ 404,463 $ 344,437 Marine Construction Services 356,715 359,297 Intersegment Transfer Eliminations (1,370) (316) - -------------------------------------------------------------------------- Total Revenues $ 759,808 $ 703,418 ========================================================================== OPERATING INCOME: Segment Operating Income: Power Generation Systems and Equipment $ 12,417 $ 6,837 Marine Construction Services 9,440 20,327 - -------------------------------------------------------------------------- Total Segment Operating Income 21,857 27,164 - -------------------------------------------------------------------------- Equity in Income of Investees: Power Generation Systems and Equipment 2,843 3,517 Marine Construction Services 3,459 43,532 - -------------------------------------------------------------------------- Total Equity in Income of Investees 6,302 47,049 - -------------------------------------------------------------------------- General Corporate Expenses (12,328) (14,741) - -------------------------------------------------------------------------- Total Operating Income $ 15,831 $ 59,472 ==========================================================================
NOTE 6 - PROPOSED MERGER AGREEMENT On June 2, 1994, International announced a plan to form a new company, J. Ray McDermott, S. A., that would combine the worldwide marine construction businesses of McDermott International with those of Offshore Pipelines, Inc. ("OPI"). Under the terms of the proposed agreement, International would contribute substantially all of its marine construction assets and businesses. Terms of the transaction are still being negotiated, and are subject to the approval of the Boards of Directors of both companies, as well as the shareholders of OPI and of certain regulatory bodies. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 1994 VS. THREE MONTHS ENDED JUNE 30, 1993 Power Generation Systems and Equipment's revenues increased $60,026,000 to $404,463,000. This was primarily due to higher revenues from fabrication and erection of fossil fuel steam and environmental control systems, repair and alteration of existing fossil fuel steam systems, and nuclear fuel assemblies and reactor components for the U. S. Government. 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 replacement parts. Power Generation Systems and Equipment's segment operating income increased $5,580,000 to $12,417,000. The increase was primarily due to higher volume and margins on fabrication and erection of fossil fuel steam and environmental control systems and nuclear fuel assemblies and reactor components for the U. S. Government. These increases were partially offset by a favorable warranty reserve adjustment recorded in the prior year and lower volume and margins on extended scope of supply and fabrication of industrial boilers. Power Generation Systems and Equipment's equity in income of investees decreased $674,000 to $2,843,000 primarily due to lower operating results in a foreign joint venture. Backlog for this segment at June 30, 1994 was $2,202,350,000 compared to $3,057,831,000 at June 30, 1993. At June 30, 1994, this segment's backlog with the U.S. Government was $714,698,000 (of which $17,055,000 had not been funded). U. S. Government budget reductions have negatively affected this segment's government operations and backlog at June 30, 1994 reflects the impact of Congressional budget reductions on the advanced solid rocket motor and super conducting super collider projects. The current competitive economic environment has also negatively affected demand for other industrial related product lines and these markets are expected to remain very competitive. The current competitive economic environment and uncertainties created by the passage of the Energy Policy Act of 1992 and the Clean Air Act Amendments of 1990 have caused U. S. utilities to defer repairs and refurbishments on existing plants. However, the Clean Air Act has created demand for environmental control equipment and related plant enhancements. Most electric utilities have already purchased equipment to comply with Phase I of the Clean Air Act, and they will purchase equipment to comply with Phase II deadlines in a gradual manner, spread out over the next several years as various deadlines approach. Electric utilities in Asia are active purchasers of large, new baseload generating units, due to the rapid growth of the Pacific Rim economies and to the small existing stock of electrical generating capacity in most developing countries. Marine Construction Services' revenues decreased slightly by $2,582,000 to $356,715,000, as lower volume in foreign marine and domestic fabrication operations, and in procured materials was offset by the inclusion of revenues resulting from the acquisitions of Delta Catalytic Corporation ("DCC") during June 1993 and Northern Ocean Services Limited ("NOS") in February 1994. Marine Construction Services' segment operating income decreased $10,887,000 to $9,440,000 primarily due to lower volume and higher operating expenses, despite higher margins, in foreign marine operations. The decrease was also due to lower volume in domestic fabrication operations. Marine Construction Services' equity in income of investees decreased $40,073,000 to $3,459,000, primarily due to lower operating results of the HeereMac joint venture. In fiscal year 1995, the contribution from these joint ventures will be significantly less compared to the prior two fiscal years due to lower volume and margins. Backlog for this segment at June 30, 1994 was $929,034,000 (including $36,947,000 for NOS). Excluding NOS, backlog of $892,087,000 at June 30, 1994 was down from backlog of $1,256,298,000 at June 30, 1993. Not included in backlog at both June 30, 1994 and 1993, was backlog relating to contracts to be performed by unconsolidated foreign joint ventures of approximately $700,000,000. All of this segment's markets were down in the three months ended June 30, 1994. U. S. markets are expected to remain at a low level during fiscal year 1995 while international markets are expected to vary. In all areas, the overcapacity of marine equipment will continue to result in a competitive environment and put pressure on profit margins. General corporate expenses decreased $2,413,000 to $12,328,000, primarily due to timing of expenses, and non-recurring charges related to certain cost reduction initiatives in the June 1993 quarter. Interest income increased $1,082,000 to $10,398,000, primarily due to increased investments in government securities and other investments. Interest expense decreased $7,104,000 to $12,839,000, primarily due to a reduction in accrued interest on proposed tax deficiencies. Other-net expense decreased $1,340,000 to $4,019,000. This decrease was primarily due to lower bank fees and discounts on the sale of certain accounts receivable and lower foreign currency transaction losses, partially offset by losses on the sale of investments. The provision for income taxes decreased $12,155,000 to $2,396,000, while income from operations before provision for income taxes and cumulative effect of accounting change decreased $34,246,000 to $5,514,000. The decrease in the provision for income taxes is due primarily to a decrease in income from operations. Net income increased $76,894,000 to $1,353,000 from a loss of $75,541,000 reflecting the cumulative effect of the adoption of SFAS No. 112, "Employers' Accounting for Postretirement Benefits" of $1,765,000 in the current year and the cumulative effect of accounting change for non-employee products liability asbestos claims of $100,750,000 in the prior year, in addition to the other items described above. Liquidity and Capital Resources - ------------------------------- During the three months ended June 30, 1994, McDermott International's cash and cash equivalents decreased $79,475,000 to $54,334,000 and total debt increased $71,234,000 to $800,844,000, primarily from short-term borrowings of $79,028,000. During this period, McDermott International used cash of $104,350,000 in operating activities; $15,419,000 for dividends on International's common and preferred stock; $16,753,000 for the repurchase of a subsidiary's preferred stock to satisfy future sinking fund requirements; $8,443,000 for repayment of long-term debt; and $15,583,000 for additions to property, plant and equipment. Decreases in contracts in progress and advance billings, and accounts payable are primarily due to lower volume in the Power Generation System and Equipment segment. Pursuant to an agreement with a 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. As a result of collection delays inherent in this 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 (historical average of less than $3,000 per claim) has continued to rise. Claims paid during the quarter ended June 30, 1994 were $31,450,000, including $1,894,000 applicable to insolvent insurers and $1,085,000 relating to the policy year 1979. As a result of the adoption of FASB Interpretation No. 39 (See Note 2 to the consolidated financial statements), McDermott International has presented separately in the balance sheet its estimated liabilities for pending and future non-employee products liability asbestos claims and related estimated insurance recoveries. At June 30, 1994, Accounts receivable - other includes receivables of $29,455,000 that have been billed to insurers for reimbursement of settled claims. 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. At June 30, 1994, the estimated amount of future costs allocable to insolvent insurers and the policy year 1979 was $132,074,000. Inherent in the estimate of such future costs are assumptions which may vary significantly as claims are filed and settled. Accordingly, the amount ultimately paid may differ materially from the amount provided in the consolidated financial statements. Settlement of the liability is expected to occur over the next 30 years. The collection delays, and the amount of claims paid that are related to insolvent insurance carriers and the policy year 1979 have not had a material adverse effect upon 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 increased $3,136,000 to $15,583,000 for the three months ended June 30, 1994 compared with the same period last year, the majority of which were incurred to maintain existing facilities. During July 1994, a subsidiary of International purchased a barge which was formerly leased for approximately $15,000,000. At June 30 and March 31, 1994, 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 an 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 June 30 and March 31, 1994, McDermott International had available to it various uncommitted short-term lines of credit from banks totaling $250,219,000 and $246,412,000, respectively. Borrowings by McDermott International against these lines of credit at June 30 and March 31, 1994 were $113,336,000 and $37,512,000, respectively. In addition, The Babcock & Wilcox Company had available to it a $128,000,000 unsecured and committed revolving line of credit facility. Loans outstanding under the revolving credit facility may not exceed the banks' commitments thereunder. In addition, it is a condition to borrowing under the revolving credit facility that the borrower's consolidated net tangible assets exceed a certain level. There were no borrowings outstanding against this facility at June 30, and March 31, 1994. DCC had available from a certain Canadian bank an unsecured and committed revolving credit facility of $14,493,000 which expires on May 31, 1997. At June 30, 1994 borrowings outstanding against this facility were $3,261,000. There were no borrowings outstanding against this facility at March 31, 1994. McDermott International maintains an investment portfolio of government obligations and other investments which is held primarily for long-term investment purposes and is classified as available for sale under SFAS No. 115 (See Note 2 to the consolidated financial statements). The fair value of short-term investments and the long-term portfolio at June 30, 1994 was $704,541,000 (amortized cost $713,291,000). The net unrealized loss on the current and long-term investment portfolio was $8,750,000 at June 30, 1994. At June 30, 1994, approximately $166,771,000 fair value (amortized cost of $166,474,000) 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 June 30, 1994, 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. Working capital increased $31,781,000 to $99,573,000 at June 30, 1994 from March 31, 1994. During the remainder of fiscal year 1995, McDermott International expects to obtain funds to meet working capital, capital expenditure and debt maturity requirements from operating activities and additional borrowings. Leasing agreements for equipment, which are short- term in nature, are not expected to impact McDermott International's liquidity or capital resources. McDermott International has provided a valuation allowance ($28,724,000 at June 30, 1994) for deferred tax assets related primarily to net operating loss carryforwards which cannot be realized through carrybacks and future reversals of existing taxable temporary differences. Management believes that remaining deferred tax assets ($571,948,000 at June 30, 1994) are realizable through carrybacks and future reversals of existing taxable temporary differences, 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, "Employers' Accounting for Postretirement Benefits Other Than Pensions," effective April 1, 1992 for all domestic plans. McDermott International plans to adopt SFAS No. 106 for foreign plans during fiscal year 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. 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 MONTHS ENDED 6/30/94 6/30/93 ------- ------- Income before cumulative effect of accounting changes $ 3,118 $ 25,209 Less dividend requirements of preferred stock, Series C (2,066) - - ------------------------------------------------------------------------ Income before cumulative effect applicable to common stock 1,052 25,209 Cumulative effect of accounting changes (1,765) (100,750) - ------------------------------------------------------------------------ Net loss for primary computation $ (713) $(75,541) ======================================================================== Weighted average number of common shares outstanding during the period 53,478,556 52,381,471 Common stock equivalents of stock appreciation rights based on "treasury stock" method 145,130 799,545 - ------------------------------------------------------------------------ Weighted average number of common shares outstanding during the period 53,623,686 53,181,016 ======================================================================== Earnings (Loss) per common and common equivalent share: (1) Income before cumulative effect of accounting changes $ 0.02 $ 0.47 Accounting changes (0.03) (1.89) - ----------------------------------------------------------------------- Net income (loss) $ (0.01) $ (1.42) =======================================================================
(1) Earnings (Loss) per common and common equivalent share assuming full dilution are the same for the periods presented. 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 22 (b) Reports on Form 8-K Report on Form 8-K, Item 5 was filed on June 10, 1994. Signatures 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: 8/2/94 By: s/ Brock A. Hattox -------------------- (SIGNATURE) Brock A. Hattox Senior Vice President and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----