-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MDa5DKx0uCgS6HnbDZaX7m5yL7WjVEpE9SJ/vFUZNUvsyXInStsob2pMoDVaqdvL g1f7XuGzr0ivzkI8peXDfg== 0000899243-97-000151.txt : 19970211 0000899243-97-000151.hdr.sgml : 19970211 ACCESSION NUMBER: 0000899243-97-000151 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970207 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MCDERMOTT INTERNATIONAL INC CENTRAL INDEX KEY: 0000708819 STANDARD INDUSTRIAL CLASSIFICATION: ENGINES & TURBINES [3510] IRS NUMBER: 720593134 STATE OF INCORPORATION: R1 FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-20599 FILM NUMBER: 97520692 BUSINESS ADDRESS: STREET 1: 1450 POYDRAS ST CITY: NEW ORLEANS STATE: LA ZIP: 70112 BUSINESS PHONE: 5045875400 MAIL ADDRESS: STREET 1: 1450 POYDRAS ST CITY: NEW ORLEANS STATE: LA ZIP: 70161 10-Q 1 FORM 10-Q 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 quarterly period ended December 31, 1996 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 or other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation of Organization) 1450 Poydras Street, New Orleans, Louisiana 70112-6050 - -------------------------------------------------------------------------------- (Address of Principal Executive Offices) (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 24, 1997 was 54,924,752. 1 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 - Condensed Consolidated Financial Statements Condensed Consolidated Balance Sheet December 31, 1996 and March 31, 1996 4 Condensed Consolidated Statement of Income (Loss) Three and Nine Months Ended December 31, 1996 and 1995 6 Condensed Consolidated Statement of Cash Flows Nine Months Ended December 31, 1996 and 1995 8 Notes to Condensed Consolidated Financial Statements 10 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 13 PART II - OTHER INFORMATION - --------------------------- Item 6 - Exhibits and Reports on Form 8-K 28 SIGNATURES 29 Exhibit 11 - Calculation of Earnings (Loss) Per Common and Common Equivalent Share 41 Exhibit 27 - Financial Data Schedule 42
2 PART I McDERMOTT INTERNATIONAL, INC. FINANCIAL INFORMATION --------------------- Item 1. Condensed Consolidated Financial Statements 3 McDERMOTT INTERNATIONAL, INC. CONDENSED CONSOLIDATED BALANCE SHEET DECEMBER 31, 1996 ASSETS
12/31/96 3/31/96 --------- -------- (Unaudited) (In thousands) Current Assets: Cash and cash equivalents $ 291,796 $238,663 Accounts receivable - trade 436,360 457,049 Accounts receivable - unconsolidated affiliates 42,116 57,691 Accounts receivable - other 196,890 162,335 Insurance recoverable - current 184,237 116,280 Contracts in progress 338,128 457,265 Inventories 73,232 77,592 Deferred income taxes 76,786 93,104 Other current assets 42,944 64,559 - -------------------------------------------------------------------------- Total Current Assets 1,682,489 1,724,538 - -------------------------------------------------------------------------- Property, Plant and Equipment, at Cost: 1,893,285 1,890,103 Less accumulated depreciation 1,218,951 1,199,416 - -------------------------------------------------------------------------- Net Property, Plant and Equipment 674,334 690,687 - -------------------------------------------------------------------------- Investments: Government obligations 234,909 132,674 Other investments 142,621 109,352 - -------------------------------------------------------------------------- Total Investments 377,530 242,026 - -------------------------------------------------------------------------- Insurance Recoverable 414,287 606,963 - -------------------------------------------------------------------------- Excess of Cost Over Fair Value of Net Assets of Purchased Businesses Less Accumulated Amortization of $150,651,000 at December 31, 1996 and $126,882,000 at March 31, 1996 440,465 460,058 - -------------------------------------------------------------------------- Prepaid Pension Costs 297,608 283,656 - -------------------------------------------------------------------------- Other Assets 362,227 379,323 - -------------------------------------------------------------------------- TOTAL $4,248,940 $4,387,251 ==========================================================================
See accompanying notes to condensed consolidated financial statements. 4 LIABILITIES AND STOCKHOLDERS' EQUITY
12/31/96 3/31/96 --------- -------- (Unaudited) (In thousands) Current Liabilities: Notes payable and current maturities of long-term debt $ 307,944 $234,258 Accounts payable 224,374 264,930 Environmental and products liabilities - current 214,913 161,062 Accrued employee benefits 94,955 98,159 Advance billings on contracts 191,660 187,378 Other current liabilities 352,941 446,765 - -------------------------------------------------------------------------------- Total Current Liabilities 1,386,787 1,392,552 - -------------------------------------------------------------------------------- Long-Term Debt 680,809 576,256 - -------------------------------------------------------------------------------- Accumulated Postretirement Benefit Obligation 404,502 401,321 - -------------------------------------------------------------------------------- Environmental and Products Liabilities 524,840 721,740 - -------------------------------------------------------------------------------- Other Liabilities 259,084 268,975 - -------------------------------------------------------------------------------- Contingencies - -------------------------------------------------------------------------------- Minority Interest: Subsidiary's preferred stocks 172,183 173,301 Other minority interest 176,085 168,586 - -------------------------------------------------------------------------------- Total Minority Interest 348,268 341,887 - -------------------------------------------------------------------------------- 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 54,824,752 at December 31, 1996 and 54,435,823 at March 31, 1996 54,825 54,436 Capital in excess of par value 959,908 949,022 Deficit (330,880) (290,968) Minimum pension liability (1,428) (1,428) Net unrealized loss on investments (764) (1,875) Currency translation adjustments (39,886) (27,542) - -------------------------------------------------------------------------------- Total Stockholders' Equity 644,650 684,520 - -------------------------------------------------------------------------------- TOTAL $4,248,940 $4,387,251 ================================================================================
5 McDERMOTT INTERNATIONAL, INC. CONDENSED CONSOLIDATED STATEMENT OF INCOME (LOSS) DECEMBER 31, 1996
THREE NINE MONTHS ENDED MONTHS ENDED 12/31/96 12/31/95 12/31/96 12/31/95 --------- --------- ---------- ---------- (Unaudited) (In thousands) Revenues $ 744,700 $ 766,538 $2,418,430 $2,389,768 - ------------------------------------------------------------------------------------------- Costs and Expenses: Cost of operations (excluding depreciation and amortization) 640,313 645,048 2,125,368 2,042,156 Depreciation and amortization 37,097 33,027 109,211 103,799 Selling, general and administrative expenses 59,885 65,831 184,437 200,850 - ------------------------------------------------------------------------------------------- 737,295 743,906 2,419,016 2,346,805 - ------------------------------------------------------------------------------------------- Gain (Loss) on Asset Disposals and Impairments - net 30,853 (2,204) 31,428 5,133 - ------------------------------------------------------------------------------------------- Operating Income before Equity in Income of Investees 38,258 20,428 30,842 48,096 Equity in Income of Investees 5,636 14,798 33,944 47,962 - ------------------------------------------------------------------------------------------- Operating Income 43,894 35,226 64,786 96,058 - ------------------------------------------------------------------------------------------- Other Income (Expense): Interest income 14,142 8,155 33,993 27,845 Interest expense (24,514) (20,993) (68,000) (63,907) Minority interest (11,671) (6,656) (26,511) (15,802) Other-net 785 (1,629) 3,337 (3,402) - ------------------------------------------------------------------------------------------- (21,258) (21,123) (57,181) (55,266) - ------------------------------------------------------------------------------------------- Income before Provision for Income Taxes 22,636 14,103 7,605 40,792 Provision for Income Taxes 6,017 7,497 11,240 16,300 - ------------------------------------------------------------------------------------------- Net Income (Loss) $ 16,619 $ 6,606 $ (3,635) $ 24,492 ===========================================================================================
6 (CONTINUED)
THREE NINE MONTHS ENDED MONTHS ENDED 12/31/96 12/31/95 12/31/96 12/31/95 --------- --------- ---------- ---------- (Unaudited) (In thousands, except shares and per share amounts) Net Income (Loss) Applicable to Common Stock (after Preferred Stock Dividends) $ 14,553 $ 4,540 $ (9,834) $ 18,293 =========================================================================================== Net Income (Loss) per Common and Common Equivalent Share (Primary and Fully Diluted) $ 0.27 $ 0.08 $ (0.18) $ 0.34 =========================================================================================== Weighted Average Number of Common and Common Equivalent Shares Outstanding 54,810,020 54,328,182 54,659,390 54,366,976 =========================================================================================== Cash Dividends: Per common share $ 0.05 $ 0.25 $ 0.55 $ 0.75 Per preferred share $ 0.72 $ 0.72 $ 2.16 $ 2.16 ===========================================================================================
See accompanying notes to condensed consolidated financial statements. 7 McDERMOTT INTERNATIONAL, INC. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS DECEMBER 31, 1996 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
NINE MONTHS ENDED 12/31/96 12/31/95 -------- -------- (Unaudited) (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net Income (Loss) $ (3,635) $ 24,492 - ------------------------------------------------------------------------------ Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 109,211 103,799 Equity in income of investees, less dividends (7,848) 6,053 Gain on asset disposals and impairments - net (31,428) (5,133) Provision for deferred taxes 7,480 7,199 Other 171 4,732 Changes in assets and liabilities: Accounts receivable 29,417 (100,704) Net contracts in progress and advance billings 118,244 (138,845) Accounts payable (44,606) (31,658) Accrued and other current liabilities (56,533) (36,975) Other, net 23,296 (43,728) Proceeds from insurance for products liabilities claims 91,585 84,127 Payments of products liabilities claims (137,337) (114,396) - ------------------------------------------------------------------------------ NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 98,017 (241,037) - ------------------------------------------------------------------------------ CASH FLOWS FROM INVESTING ACTIVITIES: Acquisitions - (19,610) Proceeds from asset disposals 55,583 41,495 Purchases of property, plant and equipment (77,895) (52,503) Investment in asset held for lease - (26,518) Purchases of investments (369,739) (308,121) Sales and maturities of investments 237,630 667,792 Investments in equity investees (14,564) 6,148 - ------------------------------------------------------------------------------ NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (168,985) 308,683 - ------------------------------------------------------------------------------
8 CONTINUED INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
NINE MONTHS ENDED 12/31/96 12/31/95 -------- -------- (Unaudited) (In thousands) CASH FLOWS FROM FINANCING ACTIVITIES: Payment of long-term debt $ (28,379) $(173,272) Issuance of long-term debt 244,375 32,291 Increase (decrease) in short-term borrowing (46,503) 154,323 Dividends paid (47,140) (46,764) Repurchase of subsidiary's preferred stock (1,069) (5,743) Other (1,154) 1,228 - ------------------------------------------------------------------------------ NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 120,130 (37,937) - ------------------------------------------------------------------------------ EFFECTS OF EXCHANGE RATE CHANGES ON CASH 3,971 (535) - ------------------------------------------------------------------------------ NET INCREASE IN CASH AND CASH EQUIVALENTS 53,133 29,174 - ------------------------------------------------------------------------------ CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 238,663 85,909 - ------------------------------------------------------------------------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD $291,796 $ 115,083 ============================================================================== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest (net of amount capitalized) $ 53,693 $ 64,840 Income taxes (net of refunds) $ 12,900 $ 34,422 ==============================================================================
See accompanying notes to condensed consolidated financial statements. 9 McDERMOTT INTERNATIONAL, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 NOTE 1 - BASIS OF PRESENTATION McDermott International, Inc. is the parent company of the McDermott group of companies, which includes J. Ray McDermott, S.A. ("JRM") and McDermott Incorporated. Unless the context otherwise requires, hereinafter, "International" will be used to mean the consolidated enterprise. The accompanying unaudited condensed consolidated financial statements are presented in U. S. Dollars, and have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Such adjustments are of a normal, recurring nature except for (i) favorable workers' compensation cost adjustments ($15,009,000, net of tax of $6,432,000, or $0.27 per share) included in the three and nine months ended December 31, 1996; (ii) an asset impairment loss ($4,742,000, net of tax of $2,553,000, or $0.09 per share) included in the nine months ended December 31, 1996; (iii) favorable workers' compensation cost adjustments ($8,869,000, net of tax of $3,771,000, or $0.16 per share) included in the three and nine months ended December 31, 1995; (iv) a favorable insurance adjustment ($12,000,000 or $0.22 per share) and (v) a gain resulting from the sale of two power purchase contracts ($20,047,000, net of tax of $10,565,000, or $0.37 per share) included in the nine months ended December 31, 1995. Certain amounts previously reported have been reclassified to conform with the presentation at December 31, 1996. Operating results for the three and nine months ended December 31, 1996 are not necessarily indicative of the results that may be expected for the year ending March 31, 1997. For further information, refer to the consolidated financial statements and footnotes thereto included in International's annual report on Form 10-K for the year ended March 31, 1996. 10 NOTE 2 - PRODUCTS LIABILITY At December 31, 1996, the estimated liability for pending and future non- employee products liability asbestos claims was $706,649,000 (of which approximately $250,000,000 had been asserted) and estimated insurance recoveries were $598,524,000. Estimated liabilities for pending and future non- employee products liability asbestos claims are derived from International's claims history and constitute management's best estimate of such future costs. Estimated insurance recoveries are based upon analysis of insurers providing coverage of the estimated liabilities. Inherent in the estimate of such liabilities and recoveries 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, changes in estimates could result in a material adjustment to operating results for any fiscal quarter or year and the ultimate loss may differ materially from amounts provided in the consolidated financial statements. NOTE 3 - INVENTORIES Consolidated inventories at December 31, 1996 and March 31, 1996 are summarized below:
December 31, March 31, 1996 1996 ------------ --------- (Unaudited) (In thousands) Raw Materials and Supplies $50,812 $47,457 Work in Progress 15,492 17,305 Finished Goods 6,928 12,830 - -------------------------------------------------------- $73,232 $77,592 ========================================================
11 NOTE 4 - SUMMARIZED INCOME STATEMENT INFORMATION OF SIGNIFICANT UNCONSOLIDATED AFFILIATES The combined financial results of two of JRM's joint ventures, HeereMac and McDermott-ETPM West, Inc., which are accounted for using the equity method, are summarized below. These ventures were significant (as defined by applicable Securities and Exchange Commission regulations) in fiscal year 1996.
THREE NINE MONTHS ENDED MONTHS ENDED 12/31/96 12/31/95 12/31/96 12/31/95 --------- -------- --------- ---------- (Unaudited) (In thousands) Revenues $148,359 $117,465 $534,116 $435,488 - ------------------------------------------------------------------------------------ Operating Income $ 10,845 $ 2,084 $ 75,705 $ 6,422 - ------------------------------------------------------------------------------------ Income (Loss) before Income Taxes $ (6,687) $ 7,534 $ 39,568 $ 17,545 Provision for Income Taxes 2,047 888 6,460 1,206 - ------------------------------------------------------------------------------------ Net Income (Loss) $ (8,734) $ 6,646 $ 33,108 $ 16,339 ==================================================================================== Equity in Net Income (Loss) $ (4,853) $ 3,833 $ 14,503 $ 8,706 ====================================================================================
NOTE 5 - SUBSEQUENT EVENT On January 27, 1997, International announced that its McDermott Shipbuilding, Inc. subsidiary had reached an agreement to sell its shipyard near Amelia, Louisiana to Bollinger Shipyards, Inc. of Lockport, Louisiana. The sale will include the assets of the shipyard including its current backlog of work. The transaction is expected to be completed in the near future. 12 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL McDermott International, Inc. is the parent company of the McDermott group of companies, which includes J. Ray McDermott, S.A. ("JRM") and McDermott Incorporated. Unless the context otherwise requires, hereinafter, "International" will be used to mean the consolidated enterprise. A significant portion of International's revenues and operating results are derived from its foreign operations. As a result, International's operations and financial results are affected by international factors, such as changes in foreign currency exchange rates. International attempts to minimize its exposure to changes in foreign currency exchange rates by attempting to match foreign currency contract receipts with like foreign currency disbursements. To the extent that International is unable to match the foreign currency receipts and disbursements related to its contracts, it enters into forward exchange contracts to hedge foreign currency transactions, which reduce the impact of foreign exchange rate movements on operating results. Management's discussion of revenues and operating income is presented on a business unit basis as follows: the JRM business unit (includes the results of operations of the marine construction services business); the B&W Operations business unit (includes the operations of the Babcock & Wilcox Power Generation and Government Groups); and the Industrial Operations business unit (includes engineering and construction operations, barge construction, ship repair and other industrial operations). Other business unit revenues include combining adjustments and eliminations resulting from inter-business unit contracts. Other business unit income (loss) includes certain adjustments which are not allocated to the business units, including retiree benefit and legal costs as well as the impact of combining adjustments on margins of inter-business unit contracts. Business unit revenue and income (loss) for the three and nine months ended December 31, 1995 have been restated to reflect the reclassification of certain operations to B&W Operations from the Industrial Operations business unit; the allocation of certain expenses to the B&W Operations and the Industrial Operations business units from Other; and the allocation of certain expenses from Business Unit Income (Loss) to Corporate General & Administrative Expense to conform with the presentation at December 31, 1996. 13
THREE NINE MONTHS ENDED MONTHS ENDED 12/31/96 12/31/95 12/31/96 12/31/95 --------- --------- ---------- ---------- (Unaudited) (In thousands) REVENUES J. Ray McDermott, S.A. $ 316,899 $ 272,236 $1,074,143 $ 939,996 B&W Operations 326,857 371,211 1,018,490 1,082,523 Industrial Operations 108,448 136,031 376,207 398,343 Other (including Transfer Eliminations) (7,504) (12,940) (50,410) (31,094) - ---------------------------------------------------------------------------------------------- TOTAL REVENUES $ 744,700 $ 766,538 $2,418,430 $2,389,768 ============================================================================================== OPERATING INCOME Business Unit Income (Loss): J. Ray McDermott, S.A. $ 4,464 $ 8,036 $ 32,903 $ 45,686 B&W Operations 17,388 32,448 26,420 32,650 Industrial Operations (7,398) (7,410) (24,662) (19,707) Other 5,910 (823) (815) 10,650 - ---------------------------------------------------------------------------------------------- TOTAL BUSINESS UNIT INCOME 20,364 32,251 33,846 69,279 - ---------------------------------------------------------------------------------------------- Gain (Loss) on Asset Disposals and Impairments - net 30,853 (2,204) 31,428 5,133 - ---------------------------------------------------------------------------------------------- Equity in Income (Loss) of Investees: J. Ray McDermott, S.A. 6,230 12,646 30,381 9,845 B&W Operations (1,358) 1,754 2,915 37,595 Industrial Operations 764 398 648 522 - ---------------------------------------------------------------------------------------------- TOTAL EQUITY IN INCOME OF INVESTEES 5,636 14,798 33,944 47,962 - ---------------------------------------------------------------------------------------------- Corporate General & Administrative Expense (12,959) (9,619) (34,432) (26,316) - ---------------------------------------------------------------------------------------------- TOTAL OPERATING INCOME $ 43,894 $ 35,226 $ 64,786 $ 96,058 ==============================================================================================
14 RESULTS OF OPERATIONS - THREE MONTHS ENDED DECEMBER 31, 1996 VS. THREE MONTHS ENDED DECEMBER 31, 1995 JRM's revenues increased $44,663,000 to $316,899,000, primarily due to higher volume in offshore and engineering activities in the North Sea and engineering activities in North America. These increases were partially offset by lower volume in offshore activities in North America and lower leasing activities due to the sale of the DB101 and DB102 to the HeereMac joint venture. B&W Operations' revenues decreased $44,354,000 to $326,857,000, reflecting weaknesses in essentially all of the Power Generation Group's basic businesses. These decreases were primarily due to lower revenues from the Power Generation Group's replacement nuclear steam generators manufactured at B&W's Cambridge, Ontario location, fabrication and erection of fossil fuel steam and environmental control systems, replacement parts and Canadian nuclear services. These decreases were partially offset by higher revenues from the Government Group's commercial nuclear environmental services and defense and space-related products (other than nuclear fuel assemblies and reactor components). Industrial Operations' revenues decreased $27,583,000 to $108,448,000, primarily due to lower revenues from engineering and construction activities in domestic and Canadian operations. These decreases were partially offset by increased barge construction activities in domestic shipyard operations and increased ship repair activities in Mexican operations. JRM's business unit income decreased $3,572,000 to $4,464,000, primarily due to lower volume in offshore activities in North America, higher operating expenses in the Middle East and the Far East, lower leasing activities due to the sale of the DB101 and DB102 and the completion of profitable contracts in West Africa in the prior year. These decreases were partially offset by higher volume in the North Sea. B&W Operations' business unit income decreased $15,060,000 to $17,388,000, primarily due to the Power Generation Group's lower volume and margins on the fabrication and 15 erection of fossil fuel steam and environmental control systems and replacement parts, lower volume from replacement nuclear steam generators and lower margins on plant enhancement projects. In addition, the prior year included income from a license buyout agreement. There were also lower margins from the Government Group's nuclear fuel assemblies and reactor components for the U.S. Government, partially offset by higher volume and margins from commercial nuclear environmental services and from defense and space-related products (other than nuclear fuel assemblies and reactor components). There were also lower sales and marketing expenses. Other business unit income increased $6,733,000 from a loss of $823,000 to income of $5,910,000, primarily due to favorable insurance adjustments and lower employee benefit expenses. Gain (loss) on asset disposals and impairments - net increased $33,057,000 from a loss of $2,204,000 to a gain of $30,853,000, primarily due to a gain on the sale of the DB21 and participation in a gain from the sale of the DB100 by the HeereMac joint venture. JRM's equity in income of investees decreased $6,416,000 to $6,230,000, primarily due to lower operating results from the McDermott-ETPM West, Inc. joint venture and the shut-down of a Far East joint venture in the prior year. These were partially offset by favorable operating results from the HeereMac joint venture and a Mexican joint venture. Equity in income of investees also includes income of $2,168,000 from the amortization of the deferred gain resulting from the sale of the DB101 and DB102. The revenues of the HeereMac and the McDermott-ETPM West, Inc. joint ventures increased from $117,465,000 to $148,359,000, primarily due to increased volume in the Far East and West Africa. Equity in income of investees from these two joint ventures decreased from income of $3,833,000 to a loss of $4,853,000, primarily as a result of foreign currency transaction losses and a reduction of an anticipated loss on a joint venture contract in the prior year. In addition, the HeereMac joint venture incurred higher interest expense as a result of debt it issued to finance the purchase of major marine vessels it had been chartering, including the DB101 and DB102. 16 B&W Operations' equity in income (loss) of investees decreased $3,112,000 from income of $1,754,000 to a loss of $1,358,000, primarily due to lower operating results in a Canadian joint venture. Interest income increased $5,987,000 to $14,142,000, primarily due to interest on the promissory note of $105,000,000 received as part of the consideration from the sale of the DB101 and DB102 and increases in interest on investments in government obligations and other investments. Interest expense increased $3,521,000 to $24,514,000, primarily due to changes in debt obligations and interest rates prevailing thereon. Minority interest expense increased $5,015,000 to $11,671,000, primarily due to minority shareholder participation in the improved results of JRM. Other-net increased $2,414,000 from expense of $1,629,000 to income of $785,000, primarily due to foreign currency transaction gains compared to foreign currency transaction losses in the prior year. The provision for income taxes decreased $1,480,000 to $6,017,000, while income before provision for income taxes increased $8,533,000 to $22,636,000. International operates in many tax jurisdictions, and within these jurisdictions, tax provisions vary because of nominal rates, allowability of deductions, credits and other benefits, and basis of taxation (for example, revenues versus income). These variances, along with variances in the mix of income within jurisdictions, are often responsible for shifts in the effective tax rate. As a result of these factors, the provision for income taxes was 27% of pretax income for the three months ended December 31, 1996 compared to a provision for income taxes of 53% of pretax income for the three months ended December 31, 1995. 17 RESULTS OF OPERATIONS - NINE MONTHS ENDED DECEMBER 31, 1996 VS. NINE MONTHS ENDED DECEMBER 31, 1995 JRM's revenues increased $134,147,000 to $1,074,143,000, primarily due to higher volume in North America, the Middle East and the Far East. These were partially offset by lower volume in the North Sea and lower leasing activities due to the sale of the DB101 and DB102 to the HeereMac joint venture. B&W Operations' revenues decreased $64,033,000 to $1,018,490,000, reflecting weaknesses in essentially all of the Power Generation Group's basic businesses. These decreases were primarily due to lower revenues from the Power Generation Group's fabrication and erection of fossil fuel steam and environmental control systems, replacement nuclear steam generators manufactured at B&W's Cambridge, Ontario location, Canadian nuclear services and replacement parts. These decreases were partially offset by higher revenues from the repair and alteration of existing fossil fuel steam systems and plant enhancement projects. In addition, the Government Group had higher revenues in its commercial nuclear environmental services. Industrial Operations' revenues decreased $22,136,000 to $376,207,000, primarily due to lower revenues from engineering and construction activities in domestic and Canadian operations. These decreases were partially offset by increased barge construction activities in domestic shipyard operations and increased ship repair activities in Mexican operations. JRM's business unit income decreased $12,783,000 to $32,903,000, primarily due to lower volume in the North Sea, higher operating expenses in the Middle East and the Far East, lower leasing activities due to the sale of the DB101 and DB102 and the completion of profitable contracts in West Africa in the prior year. These decreases were partially offset by higher volume in North America. B&W Operations' business unit income decreased $6,230,000 to $26,420,000, primarily due to the Power Generation Group's lower volume and margins on the fabrication and erection of fossil fuel steam and environmental control systems, lower margins on plant 18 enhancement projects and lower volume on replacement nuclear steam generators. In addition, the prior year included income from a license buyout agreement. These decreases were partially offset by higher margins on industrial boilers and higher volume and margins on the repair and alteration of existing fossil fuel steam systems. In addition, there were higher margins from the Government Group's nuclear fuel assemblies and reactor components for the U. S. Government, and higher volume and margins on commercial nuclear environmental services and lower sales and marketing expenses. Industrial Operations' business unit loss increased $4,955,000 to $24,662,000, primarily due to cost overruns on an engineering, procurement and construction contract for a cogeneration plant and cost overruns on domestic barge construction operations. The loss was partially offset by lower general and administrative expenses. Other business unit income (loss) decreased $11,465,000 from income of $10,650,000 to a loss of $815,000, primarily due to a favorable insurance adjustment of $12,000,000 in the prior year. Gain (loss) on asset disposals and impairments - net increased $26,295,000 to $31,428,000 primarily due to a gain on the sale of the DB21 and participation in a gain from the sale of the DB100 by the HeereMac joint venture, partially offset by an asset impairment loss on an office building. JRM's equity in income of investees increased $20,536,000 to $30,381,000, primarily due to the improved operating results from the HeereMac joint venture, partially offset by lower results from the McDermott-ETPM West, Inc. joint venture. In addition, there were favorable results in the Mexican joint ventures. Equity in income of investees also includes income of $6,481,000 from the amortization of the deferred gain resulting from the sale of the DB101 and DB102. The revenues of the HeereMac and McDermott-ETPM West, Inc. joint ventures increased from $435,488,000 to $534,116,000, primarily due to increased volume in the North Sea and North America, partially offset by decreased volume in the Far East and West Africa. Equity in income of investees from these two joint ventures increased from $8,706,000 to $14,503,000, primarily as a result of higher volume and margins, partially offset by foreign currency transaction losses. In addition, the HeereMac 19 joint venture incurred higher interest expense as a result of debt it issued to finance the purchase of major marine vessels it had been chartering, including the DB101 and DB102. B&W Operations' equity in income of investees decreased $34,680,000 to $2,915,000. This represents the results of approximately fifteen active joint ventures. The decrease is primarily due to a nonrecurring gain of $30,612,000 resulting from the sale of power purchase contracts back to a local utility in June 1995 and lower operating results in a Canadian joint venture. Interest income increased $6,148,000 to $33,993,000, primarily due to interest on the promissory note of $105,000,000 received as part of the consideration from the sale of the DB101 and DB102. Interest expense increased $4,093,000 to $68,000,000, primarily due to changes in debt obligations and interest rates prevailing thereon. Minority interest expense increased $10,709,000 to $26,511,000, primarily due to minority shareholder participation in the improved results of JRM. Other-net increased $6,739,000 from expense of $3,402,000 to income of $3,337,000, primarily due to increases in certain reimbursed financing costs and lower bank fees and discounts on the sales of certain accounts receivable. There were also foreign currency transaction gains compared to foreign currency transaction losses in the prior year. The provision for income taxes decreased $5,060,000 to $11,240,000, while income before provision for income taxes decreased $33,187,000 to $7,605,000. The decrease in the provision for income taxes is primarily due to a decrease in income. This was partially offset by a reduction in the provision in the prior year resulting from the reappraisal of tax liabilities in certain foreign tax jurisdictions. International operates in many tax jurisdictions, and within these jurisdictions, tax provisions vary because of nominal rates, allowability of deductions, credits and other benefits, and basis of taxation (for example, revenues versus income). These variances, along with variances in the mix 20 of income within jurisdictions, are often responsible for shifts in the effective tax rate. As a result of these factors, the provision for income taxes was 148% of pretax income for the nine months ended December 31, 1996 compared to a provision for income taxes of 40% of pretax income for the nine months ended December 31, 1995.
Backlog - ------- 12/31/96 3/31/96 --------- ---------- (Unaudited) (In thousands) Business Unit Backlog: J. Ray McDermott, S.A. $1,583,249 $ 977,896 B&W Operations 2,248,642 2,164,507 Industrial Operations 326,224 317,401 Other (including Transfer Eliminations) (26,360) (60,408) - ------------------------------------------------------------------ TOTAL BACKLOG $4,131,755 $3,399,396 ==================================================================
In general, International's business units are capital intensive and rely on large contracts for a substantial amount of their revenues. JRM's backlog at December 31, 1996 was $1,583,249,000, compared to $977,896,000 at March 31, 1996, and backlog relating to contracts to be performed by JRM's unconsolidated joint ventures (not included above) was $1,386,000,000 at December 31, 1996 compared to $1,374,000,000 at March 31, 1996. JRM believes its markets are beginning to emerge from the difficult competitive environment that has put pressure on margins in recent years. JRM also believes that these strong markets and increased backlog suggest improving financial results over the longer term. However, in this historically seasonal business, JRM frequently incurs operating losses during the fiscal quarter ending March 31. B&W Operations' backlog at December 31, 1996 was $2,248,642,000, compared to $2,164,507,000 at March 31, 1996. At December 31, 1996 this business unit's backlog with the U.S. Government was $859,882,000 (of which $44,939,000 had not been 21 funded) and included orders for nuclear fuel assemblies and reactor components for the U.S. Navy. This business unit's foreign markets for industrial and utility boilers remain strong and the U. S. market for replacement nuclear steam generators is expected to continue to make significant contributions to operating income in the foreseeable future. However, the domestic market for industrial and utility boilers remains weak. Industrial Operations' backlog at December 31, 1996 was $326,224,000, compared to $317,401,000 at March 31, 1996, and included the backlog at its domestic shipyard of $110,361,000 (see Note 5 to the condensed consolidated financial statements regarding the sale of the shipyard). At December 31, 1996, this business unit's backlog with the U.S. Government was $37,583,000 (of which $1,901,000 had not been funded). Liquidity and Capital Resources - ------------------------------- Unless the context otherwise requires, hereinafter, the "Delaware Company" will be used to mean McDermott Incorporated, a Delaware corporation which is a subsidiary of International, and the Delaware Company's consolidated subsidiaries, which include The Babcock & Wilcox Company ("B&W"). During the nine months ended December 31, 1996, International's cash and cash equivalents increased $53,133,000 to $291,796,000 and total debt increased $178,239,000 to $988,753,000 primarily due to increases in long-term borrowings of $244,375,000 (which includes the issuance of $250,000,000 principal amount of JRM's 9.375% Senior Subordinated Notes). During this period, International provided cash of $98,017,000 from operating activities and received cash proceeds of $55,583,000 from asset disposals. International also used cash of $77,895,000 for additions to property, plant and equipment, $132,109,000 for net purchases of investments, $47,140,000 for dividends on International's common and preferred stock, and $74,882,000 for repayment of short-term borrowings and long-term debt. Decreases in net contracts in progress and advance billings are primarily due to the timing of billings on the Foinaven contract. 22 During the three months ended December 31, 1996, International sold its interest in CCC Fabricaciones y Construcciones, S.A. de C.V., a Mexican joint venture, the DB21 and other assets to Global Industries, Ltd. ("Global"). Global also acquired an option to purchase the DB15. The sales price of the Global transaction, including the option, was approximately $38,000,000. Pursuant to an agreement with a majority of its principal insurers, 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. While the number of claims received had declined during the last six months of fiscal year 1996, they have increased during the first nine months of fiscal year 1997, but not to the levels experienced from October 1994 to September 1995. Management is currently investigating and evaluating the basis for this increase in the number of claims. The average amount of these claims (historical average of approximately $5,900 per claim over the last three years) has continued to rise. Claims paid during the nine months ended December 31, 1996 were $137,337,000, of which $123,869,000 has been recovered or is due from insurers. At December 31, 1996, receivables of $95,507,000 were due from insurers for reimbursement of settled claims. The increase in amounts classified as current for products liability asbestos claims and the insurance recoverable at December 31, 1996 reflects management's intention to reduce the level of unpaid asserted claims over the next several quarters. Estimated liabilities for pending and future non-employee products liability asbestos claims are derived from International's claims history and constitute management's best estimate of such future costs. Estimated insurance recoveries are based upon an analysis of insurers providing coverage of the estimated liabilities. Inherent in the estimate of such liabilities and recoveries 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 amounts provided for in the consolidated financial statements. Settlement of the liability is expected to occur over approximately the next 25 years. The collection delays and the amount of claims paid for which insurance recovery is not probable have not had a material adverse effect on International's liquidity, and management believes, 23 based on information currently available, that they will not have a material adverse effect on liquidity in the future. Expenditures for property, plant and equipment increased $25,392,000 to $77,895,000 for the nine months ended December 31, 1996. In addition to maintaining existing facilities and equipment, these expenditures included $4,887,000 for the purchase of a cable lay vessel, and modifications thereto, which operates in the North Sea; $3,625,000 for cable lay equipment, which includes a deep bury plow used in the installation of fiber optic cable; and $11,879,000 to upgrade a marine barge operating in the Gulf of Mexico. At December 31, and March 31, 1996, B&W had sold, with limited recourse, an undivided interest in a designated pool of qualified accounts receivable of approximately $103,000,000 and $107,000,000, respectively, under the terms of an agreement with a U.S. bank. The maximum sales limit available under the agreement was reduced during December 1996 from $140,000,000 to $125,000,000. Depending on the amount of qualified accounts receivable available for the pool, the amount sold to the bank can vary (but not greater than the maximum sales limit available) from time to time. The existing agreement will expire on March 31, 1997; however, B&W expects to negotiate an annual renewal of the agreement. At December 31, and March 31, 1996, International had available to it various uncommitted short-term lines of credit totalling $270,401,000 and $439,610,000, respectively. Borrowings against these lines of credit at December 31 and March 31, 1996 were $62,383,000 and $149,067,000, respectively. The reduction in borrowings against uncommitted short-term lines of credit is primarily due to the collection of the Foinaven project receivables and repayment of the project financing debt during the December 1996 quarter. In addition, B&W had available to it a $150,000,000 unsecured and committed revolving credit facility. Borrowings against this facility at December 31 and March 31, 1996 were $100,000,000 and $50,000,000, respectively. It is a condition to borrowing under this revolving credit facility that the borrower's tangible net worth, debt to capitalization, and interest coverage as defined in the agreement meet or exceed certain covenant requirements. Although B&W did not meet one such requirement 24 at December 31, 1996, it has received a waiver of compliance through March 30, 1997, and anticipates negotiating a new committed bank facility with new covenants applicable thereafter. JRM also had an unsecured and committed revolving credit facility which contains a debt to capitalization covenant limiting its incremental borrowing capacity ($122,000,000 at December 31, 1996). There were no borrowings outstanding on this facility at December 31 or March 31, 1996. In addition, JRM is restricted, as a result of the consolidated tangible net worth covenant in this agreement, in its ability to pay cash dividends to its public shareholders or to transfer funds through cash dividends (including annual preferred stock dividends of $7,200,000 on its Series A Preferred Stock held by McDermott International, Inc.) or through unsecured loans or investments to McDermott International, Inc. and its other subsidiaries. At December 31, 1996, approximately $28,000,000 of JRM's net assets were not subject to this restriction. The Delaware Company is restricted, as a result of covenants in certain credit agreements, in its ability to transfer funds to McDermott International, Inc. and its other subsidiaries through cash dividends or through unsecured loans or investments. At December 31, 1996, 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 McDermott International, Inc.'s liquidity. International maintains an investment portfolio of government obligations and other investments. The fair value of short-term investments and the long-term portfolio at December 31, 1996 was $379,976,000. At December 31, 1996, approximately $116,297,000 fair value of these investments were pledged to secure a letter of credit in connection with a long-term loan and certain reinsurance agreements. Working capital decreased $36,284,000 from $331,986,000 at March 31, 1996 to $295,702,000 at December 31, 1996 due, in part, to the classification of JRM's 12.875% Guaranteed Senior Notes as a current liability as JRM plans on redeeming such Notes in the second quarter of fiscal year 1998. During the September 1996 quarter, JRM issued $250,000,000 principal amount of 9.375% Senior Subordinated Notes due 2006 and received net proceeds of $244,375,000 which were used primarily to repay 25 intercompany indebtedness (including interest) of approximately $239,000,000 owed to McDermott International, Inc. McDermott International, Inc. used $50,000,000 of the proceeds to reduce short-term debt and invested the remainder of the proceeds in its investment portfolio. Also during the September quarter, JRM's sale of certain equipment to the HeereMac joint venture was completed. Prior to this sale, JRM had received $30,000,000 as a deposit in March 1996. During the remainder of fiscal year 1997, International expects to obtain funds to meet working capital, capital expenditure and debt maturity requirements from operating activities, sales of non-strategic assets and borrowings under its short-term lines of credit. Leasing agreements for equipment, which are short- term in nature, are not expected to impact International's liquidity or capital resources. International has provided a valuation allowance for deferred tax assets which cannot be realized through carrybacks and future reversals of existing taxable temporary differences. Management believes that remaining deferred tax assets in all other tax jurisdictions are realizable through carrybacks and future reversals of existing taxable temporary differences, and, if necessary, the implementation of tax planning strategies involving sales of appreciated assets. A major uncertainty that affects the ultimate realization of deferred tax assets is the possibility of declines in the value of appreciated assets involved in identified tax planning strategies. This factor has been considered in determining the valuation allowance. Management will continue to assess the adequacy of the valuation allowance on a quarterly basis. On October 7, 1996, McDermott International, Inc. announced that its Board of Directors had directed management to implement a series of steps to improve International's financial and operating performance. Management was directed to focus International on its core business lines and dispose of non-core businesses and underperforming assets. Core business lines include the power generation and government operations of B&W and the marine construction operations of JRM. Management was also directed to realign the operations of B&W's Power Generation Group consistent with the current demands of the worldwide power generation market. This included the rationalization of manufacturing overcapacity and continued reduction in personnel. Finally, management was directed to 26 continue efforts to reduce personnel and other costs at the operating and corporate headquarters of both International and JRM. Although business and asset disposals associated with this directive have not been completed, these disposals may negatively impact near-term operating results, while having a positive long-term impact on operations. It is anticipated that these disposals will have a positive impact on liquidity, both upon disposition and long-term. At the November 7, 1996 Board of Directors Meeting, McDermott International, Inc.'s quarterly dividend on its common stock was reduced from $0.25 per share to $0.05 per share. New Accounting Standard - ----------------------- In June 1996, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," effective for transactions occurring after December 31, 1996. SFAS No. 125 established accounting and reporting standards for transfers and servicing of financial assets and extinguishment of liabilities. This statement also provides consistent standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings. International has not yet finalized its review of the impact of this statement, but it is not expected to have a material impact on the consolidated financial statements. 27 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) Exhibits 3.2 - McDermott International, Inc.'s amended and restated By-Laws (corrected) 11 - Calculation of Earnings (Loss) Per Common and Common Equivalent Share 27 - Financial Data Schedule (b) Reports on Form 8-K There were no current reports on Form 8-K filed during the three months ended December 31, 1996. Signatures 28 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. Date: February 7, 1997 By: /s/ Daniel R. Gaubert ---------------------------------- (SIGNATURE) Daniel R. Gaubert Vice President and Chief Financial Officer (Principal Financial and Accounting Officer and Duly Authorized Representative) 29 EXHIBIT INDEX Exhibit Description 3.2 McDermott International, Inc.'s amended and restated By-Laws (corrected) 11 Calculation of Earnings (Loss) per Common and Common Equivalent Share 27 Financial Data Schedule 30 EX-3.2 2 AMENDED AND RESTATED BY-LAWS EXHIBIT 3.2 AMENDED AND RESTATED BY-LAWS OF McDERMOTT INTERNATIONAL, INC. (as amended through June 4, 1996) ARTICLE I Meetings of Stockholders Section 1. The annual and any special meetings of the stockholders shall be held on the date and at the time and place designated in the notice of such meetings or in a duly executed waiver of notice thereof. Section 2. A special meeting of the stockholders may be held at any time upon the call of the Chief Executive Officer or by order of the Board of Directors. Section 3. Whether or not a quorum is present at any stockholders' meeting, the meeting may be adjourned from time to time by the vote of the holders of a majority of the voting power of the shares of the outstanding capital stock of the Company present in person or represented by proxy at the meeting, as they shall determine. Section 4. Holders of a majority of the voting power of the shares of the outstanding capital stock of the Company entitled to vote, present in person or represented by proxy, shall constitute a quorum for the transaction of all business at any meeting of the stockholders. Section 5. In all matters arising at stockholders' meetings, a majority of the voting power of the shares of the outstanding capital stock of the Company present in person or represented by proxy at the meeting shall be necessary and sufficient for the transaction of any business, except where some larger percentage is affirmatively required by law or by the certificate of incorporation. Section 6. At any meeting of stockholders, the chairman of the meeting may appoint two inspectors who shall subscribe an oath or affirmation to execute faithfully the duties of inspectors with strict impartiality and according to the best of their ability, to canvass the votes on any matter and make and sign a certificate of the result thereof. No candidate for the office of director shall be appointed as such inspector with respect to the election of directors. Such inspectors shall be appointed upon the request of the holders of ten percent (10%) or more of the voting power of the shares of the outstanding capital stock of the Company present and entitled to vote on such matter. Section 7. All elections of directors shall be by ballot. The chairman of the meeting may cause a vote by ballot to be taken upon any other matter, and such vote by ballot shall be taken upon the request of the holders of ten percent (10%) or more of the voting power of the shares of the outstanding capital stock of the Company present and entitled to vote on such matter. Section 8. The meetings of the stockholders shall be presided over by the Chief Executive Officer, or if he is absent or unable to preside, by the Chairman and if neither the Chief Executive Officer nor the Chairman is present or able to preside, then by a Vice Chairman; if more than one Vice Chairman is present and able to preside the Vice Chairman who shall have held such office for the longest period of time shall preside; if neither the Chief Executive Officer nor the Chairman nor a Vice Chairman is present and able to preside, then the President shall preside; if none of the above is present and able to preside, then a person shall be elected at the meeting to preside over same. The Secretary of the Company, if present, shall act as secretary of such meetings or, if he is not present, an Assistant Secretary shall so act; if neither the Secretary nor an Assistant Secretary is present, then a secretary shall be appointed by the person presiding over the meeting. The order of business shall be as follows: (a) Calling of meeting to order (b) Election of chairman and the appointment of a secretary, if necessary 2 (c) Presentation of proof of the due calling of the meeting (d) Presentation and examination of proxies (e) Settlement of the minutes of the previous meeting (f) Reports of officers and committees (g) The election of directors, if an annual meeting, or a meeting called for that purpose (h) Unfinished business (i) New business (j) Adjournment. Section 9. At every meeting of the stockholders, all proxies shall be received and taken in charge of and all ballots shall be received and canvassed by the secretary of the meeting who shall decide all questions touching the qualification of voters, the validity of the proxies, and the acceptance or rejection of votes, unless inspectors shall have been appointed, in which event such inspectors shall perform such duties and decide such questions with respect to the matter for which they have been appointed. ARTICLE II Directors Section 1. The business and affairs of the Company shall be managed by its Board of Directors in accordance with the provisions of the Articles of Incorporation. The number of Directors shall be as provided in the Articles of Incorporation. Section 2. Meetings of the Board of Directors may be called by the Chairman or by the Chief Executive Officer or by a majority of the directors by giving notice to each director. Section 3. Meetings of the Board of Directors shall be presided over by the Chairman, or if the Chairman so requests or is absent or unable to preside, by the Chief Executive Officer; if neither the Chairman nor the Chief Executive Officer is present and able to preside, then by a Vice 3 Chairman; if more than one Vice Chairman is present and able to preside, the Vice Chairman who shall have held such office for the longest period of time shall preside; if neither the Chairman nor the Chief Executive Officer nor a Vice Chairman is present and able to preside, then the President shall preside; if none of the above is present and able to preside, then one of the Directors shall be elected at the meeting to preside over same. Section 4. Whether or not a quorum is present at any meeting of the Board of Directors, a majority of the directors present may adjourn the meeting from time to time as they may determine. Notice need not be given of any such adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. Any business may be transacted at the adjourned meeting which might have been transacted at the original meeting. Section 5. Any committee of the Board of Directors shall have and may exercise the powers of the Board of Directors in the management of the business and affairs of the Company to the extent provided in the resolution by which such committee is designated, except that no such committee shall have authority to alter or amend the By-Laws, or to fill vacancies in either the Board of Directors or its own membership. In the absence or disqualification of any member of such a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Each such committee shall meet at stated times or on notice to all by any of its own number. It shall fix its own rules of procedure. A majority shall constitute a quorum and the affirmative vote of a majority of those present at a meeting at which a quorum is present shall be the act of such committee. Each such committee shall keep minutes of its proceedings. Section 6. Directors shall receive as compensation for their services an amount in addition to actual expenses incident to the attending of meetings to be fixed by resolution of the Board of Directors. Nothing in this section shall be construed to preclude a Director from serving the Company in any other capacity and receiving compensation therefor. 4 Section 7. No person who has attained the age of seventy (70) years shall be initially elected a Director of the Company, but any person, who has been so elected prior to attaining such age, and who attains such age while serving as a Director, shall continue to serve as a Director until the third succeeding annual meeting of the stockholders following the annual meeting of stockholders at which he was last elected a Director of the Company, as of which annual meeting of stockholders such person shall retire from the Board of Directors and shall not again be elected to or serve on the Board of Directors, unless otherwise specifically authorized by a majority vote of the Board of Directors. However, in no event shall a Director serve past his attaining age of 76, and any such Director who attains age 76 during a term to which he was elected shall immediately resign and retire from the Board of Directors. No person shall be nominated for election or serve as a Director who has served as a Director of the Company, together with its parent and subsidiary companies, for a cumulative period of twenty (20) years and any such person whose service as a Director totals twenty (20) years during a term to which he is elected shall resign and retire from the Board of Directors as of the next annual meeting of the stockholders. Section 8. A Director of this Corporation who is, under Section 411(a) of the Employee Retirement Income Security Act of 1974 of the United States of America, under a disability to serve as a fiduciary of an employee benefit plan, as that term is defined in Section 3(3) of said Act shall not serve as a fiduciary of any such employee benefit plan with respect to which the Company or any of its subsidiaries is an employer as defined in Section 3(5) of said Act; and, during the period of such disability, such Director shall be precluded from acting in any manner with respect to any such plan. Any Director who is disabled from serving as a fiduciary of an employee benefit plan under Section 411(a) of said Act shall be requested to consent, in writing, to the applicability of this By-Law to him. 5 ARTICLE III Officers Section 1. The officers of this Company shall be elected annually by the Board of Directors at its first meeting following the annual meeting of stockholders or from time to time and shall hold office until their successors are elected and qualify, or until their earlier death, resignation or removal. Such officers shall consist of a Chairman of the Board of Directors, a Chief Executive Officer, one or more Vice Chairmen of the Board of Directors, a President, one or more Vice Presidents, a Secretary, a Treasurer and one or more Controllers. In these By-Laws, the Chairman of the Board of Directors is sometimes referred to as "Chairman", and the Vice Chairman or Vice Chairmen of the Board of Directors are sometimes referred to as "Vice Chairman" or "Vice Chairmen", respectively. The Board of Directors may in addition elect at such meeting or from time to time one or more Assistant Secretaries and one or more Assistant Treasurers and one or more Assistant Controllers. Any number of offices may be held by the same person. Section 2. The officers shall have such powers and duties as may be provided in these By-Laws and as may be conferred upon or assigned to them by the Board of Directors from time to time. Section 3. The Chairman shall preside over meetings of the Board of Directors, as stated elsewhere in these By-Laws. Section 4. The Chief Executive Officer shall preside over meetings of the shareholders, as stated elsewhere in these By-Laws; subject to the direction of the Board of Directors, he shall have and exercise direct charge of and general supervision over all business and affairs of the Company and shall perform all duties incident to the office of the Chief Executive Officer of a corporation, and such other duties as may be assigned to him by the Board of Directors. Section 5. Each Vice Chairman of the Board of Directors shall have and exercise such powers and perform such duties as may be conferred upon or assigned to him by the Board of 6 Directors or by the Chief Executive Officer. Section 6. The President shall be the Chief Operating Officer of the Company and shall have and exercise such powers and perform such duties as may be conferred upon or assigned to him by the Board of Directors or by the Chief Executive Officer. Section 7. Each Vice President shall have and exercise such powers and perform such duties as may be conferred upon or assigned to him by the Board of Directors or by the Chief Executive Officer. Section 8. Each Controller shall have and exercise such powers and perform such duties as may be conferred upon or assigned to him by the Board of Directors or by the Chief Executive Officer. Section 9. The Secretary shall give proper notice of meetings of stockholders and directors, shall be custodian of the book in which the minutes of such meetings are kept, and shall perform such other duties as shall be assigned to him by the Board of Directors or by the Chief Executive Officer. Section 10. The Treasurer shall keep or cause to be kept accounts of all monies of the company received or disbursed, shall deposit or cause to be deposited all monies and other valuables in the name of and to the credit of the Company in such banks and depositories as the Board of Directors shall designate, and shall perform such other duties as shall be assigned to him by the Board of Directors or by the Chief Executive Officer. All checks or other instruments for the payment of money shall be signed in such a manner as the Board of Directors may from time to time determine. Section 11. Any officers of the Company may be removed, with or without cause, by resolution adopted by the Board of Directors at a meeting called for that purpose. 7 ARTICLE IV Seal The corporate seal of this Company shall be a circular seal with the name of the Company around the border and the word "SEAL" in the center. ARTICLE V Any of these By-Laws may be amended, altered or repealed and additional By- Laws may be adopted by the Board of Directors by the affirmative vote of a majority of the whole Board cast at a meeting duly held, except that the vote of two-thirds of the outstanding shares of the Company entitled to vote shall be required to amend, alter or repeal Section 1 or Section 9 of Article II or this Article V (as it applies to said Section 1 and 9 of Article II) of these By- Laws. ARTICLE VI Indemnification Section 1. Each person (and the heirs, executors and administrators of such person) who is or was a director or officer of the Company shall in accordance with Section 2 of this Article VI be indemnified by the Company against any and all liability and reasonable expense that may be paid or incurred by him in connection with or resulting from any actual or threatened claim, action, suit or proceeding (whether brought by or in the right of the Company or otherwise), civil, criminal, administrative or investigative, or in connection with an appeal relating thereto, in which he may become involved, as a party or otherwise, by reason of his being or having been a director or officer of the Company or, if he shall be serving or shall have served in such capacity at the request of the Company, a director, officer, employee or agent of another corporation or any partnership, joint venture, trust or other entity whether or not he continues to be such at the time such liability or expense shall have been paid or incurred, provided such person acted, in good 8 faith, in a manner he reasonably believed to be in or not opposed to the best interest of the Company and in addition, in criminal actions or proceedings, had no reasonable cause to believe that his conduct was unlawful. As used in this ARTICLE VI, the terms, "liability" and "expense" shall include, but shall not be limited to, counsel fees and disbursements and amounts of judgments, fines or penalties against, and amounts paid in settlement by, such director or officer. The termination of any actual or threatened claim, action, suit or proceeding, civil, criminal, administrative, or investigative, by judgment, settlement (whether with or without court approval), conviction or upon a plea of guilty or nolo contendere, or its equivalent, shall not create a presumption that such director or officer did not meet the standards of conduct set forth in this Section 1. Section 2. Every such director and officer shall be entitled to indemnification under Section 1 of this ARTICLE VI with respect to any claim, action, suit or proceeding of the character described in such Section 1 in which he may become in any way involved as set forth in such Section 1, if (i) he has been wholly successful on the merits or otherwise in respect thereof, or (ii) the Board of Directors acting by a majority vote of a quorum consisting of directors who are not parties to (or who have been wholly successful with respect to) such claim, action, suit or proceeding, finds that such director or officer has met the standards of conduct set forth in such Section 1 with respect thereto, or (iii) a court determines that he has met such standards with respect thereto, or (iv) independent legal counsel (who may be the regular counsel of the Company) deliver to the Company their written advice that, in their opinion, he has met such standards with respect thereto. Section 3. Expenses incurred with respect to any claim, action, suit or proceeding of the character described in Section 1 of this ARTICLE VI may be advanced by the Company prior to the final disposition thereof upon receipt of an undertaking by or on behalf of the recipient to repay such amount unless it is ultimately determined that he is entitled to indemnification under this 9 Section 4. The rights of indemnification under this ARTICLE VI shall be in addition to any rights to which any such director or officer or any other person may otherwise be entitled by contract or as a matter of law. 10 EX-11 3 CALCULATION OF EARNINGS 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 ---------------------- ---------------------- 12/31/96 12/31/95 12/31/96 12/31/95 --------- --------- --------- --------- (Unaudited) Net Income (Loss) $ 16,619 $ 6,606 $ (3,635) $ 24,492 Less dividend requirements of preferred stock, Series C (2,066) (2,066) (6,199) (6,199) - ---------------------------------------------------------------------------------------- Net income (loss) for primary computation $ 14,553 $ 4,540 $ (9,834) $ 18,293 ======================================================================================== Weighted average number of common shares outstanding during the period 54,770,679 54,289,682 54,659,390 54,168,265 Common stock equivalents of stock options and stock appreciation rights based on "treasury stock" method 39,341 38,500 - 198,711 - ---------------------------------------------------------------------------------------- Weighted average number of common shares outstanding during the period 54,810,020 54,328,182 54,659,390 54,366,976 ======================================================================================== Net Income (loss) per common and common equivalent share: /(1)/ $ 0.27 $ 0.08 $ (0.18) $ 0.34 ========================================================================================
/(1)/ Net Income (Loss) per common and common equivalent share assuming full dilution are the same for the periods presented. EX-27 4 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MCDERMOTT INTERNATIONAL'S DECEMBER 31, 1996 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS 1,000 9-MOS MAR-31-1997 DEC-31-1996 291,796 2,137 524,470 88,110 411,360 1,682,489 1,893,285 1,218,951 4,248,940 1,386,787 680,809 0 2,875 54,825 586,950 4,248,940 2,418,430 2,418,430 2,419,016 2,419,016 0 0 68,000 7,605 11,240 (3,635) 0 0 0 (3,635) (0.18) (0.18)
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