-----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, LDU8f/Y0//+B4YfqNRa0BlVeAjsI8by+AKrmjvT7Wl35o/zlyOgO+itweLDR1OXg TwPq0o0inFgci0etvoLu1w== 0000899243-98-002069.txt : 19981113 0000899243-98-002069.hdr.sgml : 19981113 ACCESSION NUMBER: 0000899243-98-002069 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MCDERMOTT INTERNATIONAL INC CENTRAL INDEX KEY: 0000708819 STANDARD INDUSTRIAL CLASSIFICATION: SHIP & BOAT BUILDING & REPAIRING [3730] IRS NUMBER: 720593134 STATE OF INCORPORATION: R1 FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-08430 FILM NUMBER: 98744067 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 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the period ended September 30, 1998 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 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 or 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 outstanding of the Company's common stock at October 29, 1998 was 59,011,833. M c D E R M O 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 September 30, 1998 and March 31, 1998 4 Condensed Consolidated Statement of Income Three and Six Months Ended September 30, 1998 and 1997 6 Condensed Consolidated Statement of Comprehensive Income Three and Six Months Ended September 30, 1998 and 1997 7 Condensed Consolidated Statement of Cash Flows Six months Ended September 30, 1998 and 1997 8 Notes to Condensed Consolidated Financial Statements 10 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 20 PART II - OTHER INFORMATION Item 3 - Legal Proceedings 35 Item 4 - Submission of Matters to a Vote of Security Holders 37 Item 6 - Exhibits and Reports on Form 8-K 37 SIGNATURES 38 Exhibit 27 - Financial Data Schedule 40
2 PART I McDERMOTT INTERNATIONAL, INC. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements 3 McDERMOTT INTERNATIONAL, INC. CONDENSED CONSOLIDATED BALANCE SHEET SEPTEMBER 30, 1998 ASSETS
9/30/98 3/31/98 ------- ------- (Unaudited) (In thousands) Current Assets: Cash and cash equivalents $ 345,934 $ 277,876 Accounts receivable - trade 313,960 550,552 Accounts receivable - unconsolidated affiliates 164,328 52,351 Accounts receivable - other 105,948 139,864 Products liabilities recoverable - current 97,900 143,588 Contracts in progress 199,212 239,548 Inventories 57,544 63,342 Deferred income taxes 81,548 84,036 Other current assets 28,188 45,399 - ------------------------------------------------------ ---------- ---------- Total Current Assets 1,394,562 1,596,556 - ------------------------------------------------------ ---------- ---------- Property, Plant and Equipment, at Cost 1,509,352 1,715,352 Less accumulated depreciation 1,039,874 1,181,658 - ------------------------------------------------------ ---------- ---------- Net Property, Plant and Equipment 469,478 533,694 - ------------------------------------------------------ ---------- ---------- Investments in Debt Securities: Government obligations 536,670 519,443 Other investments 490,783 553,913 - ------------------------------------------------------ ---------- ---------- Total Investments in Debt Securities 1,027,453 1,073,356 - ------------------------------------------------------ ---------- ---------- Environmental and Products Liabilities Recoverable 540,156 604,870 - ------------------------------------------------------ ---------- ---------- Excess of Cost over Fair Value of Net Assets of Purchased Businesses Less Accumulated Amortization of $103,370,000 at September 30, 1998 and $107,814,000 at March 31, 1998 114,246 127,077 - ------------------------------------------------------ ---------- ---------- Prepaid Pension Costs 115,582 328,583 - ------------------------------------------------------ ---------- ---------- Other Assets 231,478 236,994 - ------------------------------------------------------ ---------- ---------- TOTAL $3,892,955 $4,501,130 ====================================================== ========== ==========
See accompanying notes to condensed consolidated financial statements. 4 LIABILITIES AND STOCKHOLDERS' EQUITY
9/30/98 3/31/98 ------- ------- (Unaudited) (In thousands) Current Liabilities: Notes payable and current maturities of long-term debt $ 59,596 $ 156,300 Accounts payable 255,170 301,988 Environmental and products liabilities - current 156,211 181,234 Accrued employee benefits 97,969 146,839 Accrued contract costs 87,459 89,321 Advance billings on contracts 243,305 268,764 Other current liabilities 320,671 316,680 - ---------------------------------------------------------- ---------- ---------- Total Current Liabilities 1,220,381 1,461,126 - ---------------------------------------------------------- ---------- ---------- Long-Term Debt 567,948 598,182 - ---------------------------------------------------------- ---------- ---------- Accumulated Postretirement Benefit Obligation 148,580 393,616 - ---------------------------------------------------------- ---------- ---------- Environmental and Products Liabilities 642,387 751,620 - ---------------------------------------------------------- ---------- ---------- Other Liabilities 286,552 271,489 - ---------------------------------------------------------- ---------- ---------- Commitments and Contingencies. Minority Interest: Subsidiary's preferred stocks - 155,358 Other minority interest 204,328 189,966 - ---------------------------------------------------------- ---------- ---------- Total Minority Interest 204,328 345,324 - ---------------------------------------------------------- ---------- ---------- Stockholders' Equity: Preferred stock authorized 25,000,000 shares; outstanding 2,875,000 at March 31, 1998 Series C $2.875 cumulative convertible, par value $1.00 per share - 2,875 Common stock, par value $1.00 per share, authorized 150,000,000 shares; issued 60,909,727 at September 30, 1998 and 56,607,861 at March 31, 1998 60,910 56,608 Capital in excess of par value 1,021,149 1,012,338 Accumulated deficit (174,715) (341,916) Treasury stock at cost, 2,000,614 shares at September 30, 1998 and 100,614 shares at March 31, 1998 (62,731) (3,575) Accumulated other comprehensive loss (21,834) (46,557) - ---------------------------------------------------------- ---------- ---------- Total Stockholders' Equity 822,779 679,773 ---------------------------------------------------------- ---------- ---------- TOTAL $3,892,955 $4,501,130 ========================================================== ========== ==========
5 McDERMOTT INTERNATIONAL, INC. CONDENSED CONSOLIDATED STATEMENT OF INCOME SEPTEMBER 30, 1998
THREE SIX MONTHS ENDED MONTHS ENDED 9/30/98 9/30/97 9/30/98 9/30/97 -------- -------- ---------- ---------- (Unaudited) (In thousands) Revenues $779,983 $920,051 $1,599,792 $1,848,138 - ---------------------------------------------- -------- -------- ---------- ---------- Costs and Expenses: Cost of operations (excluding depreciation and amortization) 630,176 771,859 1,309,853 1,558,711 Depreciation and amortization 21,738 39,378 48,297 77,701 Selling, general and administrative expenses 57,534 54,658 112,044 110,227 - ---------------------------------------------- -------- -------- ---------- ---------- 709,448 865,895 1,470,194 1,746,639 - ---------------------------------------------- -------- -------- ---------- ---------- Gain (Loss) on Asset Disposals and Impairments - Net (1,726) 28,215 40,721 125,596 - ---------------------------------------------- -------- -------- ---------- ---------- Operating Income before Income (Loss) from Investees 68,809 82,371 170,319 227,095 Income (Loss) from Investees (3,157) 6,406 13,746 6,476 - ---------------------------------------------- -------- -------- ---------- ---------- Operating Income 65,652 88,777 184,065 233,571 - ---------------------------------------------- -------- -------- ---------- ---------- Other Income (Expense): Interest income 25,711 12,382 58,436 24,878 Interest expense (15,619) (19,188) (32,236) (44,393) Minority interest (12,361) (9,701) (50,052) (16,394) Other-net (5,671) (149) 35,886 1,497 - ---------------------------------------------- -------- -------- ---------- ---------- (7,940) (16,656) 12,034 (34,412) - ---------------------------------------------- -------- -------- ---------- ---------- Income before Provision for Income Taxes 57,712 72,121 196,099 199,159 Provision for Income Taxes 6,097 33,960 22,923 51,138 - ---------------------------------------------- -------- -------- ---------- ---------- Net Income $ 51,615 $ 38,161 $ 173,176 $ 148,021 ============================================== ======== ======== ========== ========== Net Income Applicable to Common Stock (after Preferred Stock Dividends) $ 51,615 $ 36,094 $ 173,176 $ 143,888 ============================================== ======== ======== ========== ========== Earnings per Common Share Basic $0.88 $ 0.65 $2.92 $ 2.62 Diluted $0.85 $ 0.62 $2.76 $ 2.40 ============================================== ======== ======== ========== ========== Cash Dividends: Per Common Share $0.05 $ 0.05 $0.10 $ 0.10 Per Preferred Share $ - $ 0.72 $ - $ 1.44 ============================================== ======== ======== ========== ==========
See accompanying notes to condensed consolidated financial statements. 6 McDERMOTT INTERNATIONAL, INC. CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME SEPTEMBER 30, 1998
THREE SIX MONTHS ENDED MONTHS ENDED 9/30/98 9/30/97 9/30/98 9/30/97 -------- -------- -------- -------- (Unaudited) (In thousands) Net Income $ 51,615 $ 38,161 $173,176 $148,021 - --------------------------------------------- -------- -------- -------- -------- Other Comprehensive Income: Currency translation adjustments: Foreign currency translation adjustments 1,028 17,766 2,436 11,261 Sales of investments in foreign entities - - 15,596 - Unrealized gains on investments: Unrealized gains arising during the period, net of taxes 7,267 1,623 7,666 4,118 Reclassification adjustment for (gains) losses included in net income (870) 18 (975) 40 - --------------------------------------------- -------- -------- -------- -------- Other Comprehensive Income 7,425 19,407 24,723 15,419 - --------------------------------------------- -------- -------- -------- -------- Comprehensive Income $ 59,040 $ 57,568 $197,899 $163,440 ============================================= ======== ======== ======== ========
See accompanying notes to condensed consolidated financial statements. 7 McDERMOTT INTERNATIONAL, INC. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS SEPTEMBER 30, 1998 INCREASE IN CASH AND CASH EQUIVALENTS
SIX MONTHS ENDED 9/30/98 9/30/97 ------- ------- (Unaudited) (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 173,176 $ 148,021 - ---------------------------------------------------------- --------- --------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 48,297 77,701 Income from investees, less dividends (9,169) (914) Gain on asset disposals and impairments - net (40,721) (125,596) Provision for (benefit from) deferred taxes (5,829) 2,032 Other 2,281 12,458 Changes in assets and liabilities, net of effects from divestitures: Accounts receivable 69,297 (10,971) Net contracts in progress and advance billings 16,755 118,465 Accounts payable (46,487) 46,529 Accrued and other current liabilities 45,893 34,382 Other, net 13,285 18,070 Proceeds from insurance for products liabilities claims 106,099 68,944 Payments of products liabilities claims (130,466) (94,554) - ---------------------------------------------------------- --------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES 242,411 294,567 - ---------------------------------------------------------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment (30,100) (24,479) Purchases of investments (425,262) (383,284) Sales and maturities of investments 482,700 444,030 Proceeds from asset disposals 127,805 174,277 Other (2,042) (3,363) - ---------------------------------------------------------- --------- --------- NET CASH PROVIDED BY INVESTING ACTIVITIES 153,101 207,181 - ---------------------------------------------------------- --------- ---------
8 CONTINUED INCREASE IN CASH AND CASH EQUIVALENTS
SIX MONTHS ENDED 9/30/98 9/30/97 --------- --------- (Unaudited) (In thousands) CASH FLOWS FROM FINANCING ACTIVITIES: Payment of long-term debt $ (43,716) $(125,370) Decrease in short-term borrowings (10,139) (192,590) Issuance of common stock 3,380 15,932 Issuance of subsidiary's stock 1,281 4,929 Dividends paid (7,920) (9,637) Purchases of McDermott International, Inc. stock (59,156) - Acquisition of subsidiary's common stock (55,560) - Acquisition of subsidiary's preferred stock (154,631) (4,513) Other (651) (1,924) - ------------------------------------------------------------- --------- --------- NET CASH USED IN FINANCING ACTIVITIES (327,112) (313,173) - ------------------------------------------------------------- --------- --------- EFFECTS OF EXCHANGE RATE CHANGES ON CASH (342) (3,644) - ------------------------------------------------------------- --------- --------- NET INCREASE IN CASH AND CASH EQUIVALENTS 68,058 184,931 - ------------------------------------------------------------- --------- --------- CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 277,876 257,783 - ------------------------------------------------------------- --------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 345,934 $ 442,714 ============================================================= ========= ========= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest (net of amount capitalized) $ 33,385 $ 50,098 Income taxes (refunds)- net $ 12,115 $ (16,803) ============================================================= ========= ========= SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES Transfer of accounts receivables sold under a purchase and sale agreement from secured borrowings to sales treatment $ 56,929 $ - ============================================================= ========= =========
See accompanying notes to condensed consolidated financial statements. 9 McDERMOTT INTERNATIONAL, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1998 NOTE 1 - BASIS OF PRESENTATION McDermott International, Inc. ("MII") is the parent company of the McDermott group of companies, which includes J. Ray McDermott, S.A. ("JRM") and McDermott Incorporated ("MI"). Unless the context otherwise requires, hereinafter, "McDermott" 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 a gain on the dissolution of a joint venture of $37,390,000, a gain on the settlement and curtailment of postretirement benefit plans of $27,642,000, interest income of $18,630,000 on settlement of Internal Revenue Service exposure items and a gain of $12,000,000 from the sale of assets of a joint venture during the six months ended September 30, 1998; an $8,000,000 settlement of punitive damages in a civil suit associated with a Pennsylvania facility formerly operated by McDermott in the three and six months ended September 30, 1998; a gain of $33,072,000 from the sale of McDermott's interest in Universal Fabricators Incorporated during the three and six months ended September 30, 1997; and a gain of $96,059,000 from the sale of McDermott's interest in Sakhalin Energy Investment Company, Ltd. during the six months ended September 30, 1997. Operating results for the six months ended September 30, 1998 are not necessarily indicative of the results that may be expected for the year ending March 31, 1999. For further information, refer to the consolidated financial statements and footnotes thereto included in MII's annual report on Form 10-K for the fiscal year ended March 31, 1998. NOTE 2 - CHANGE IN ACCOUNTING POLICY Effective April 1, 1998, McDermott adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income," to report and display comprehensive income and its components. Under this new principle, the accumulated other comprehensive income or loss is displayed in the Condensed Consolidated Balance Sheet as a component of Stockholders' Equity. Accumulated balances for each classification in Accumulated other comprehensive loss are 10 disclosed in Note 5. Comprehensive Income is displayed in a separate Condensed Consolidated Statement of Comprehensive Income included in the financial statements. NOTE 3 - PRODUCTS LIABILITY At September 30, 1998, the estimated liability for pending and future non- employee products liability asbestos claims was $756,225,000 (of which approximately $271,000,000 had been asserted) and estimated insurance recoveries were $614,256,000. Settlement of this estimated liability is expected to occur over the next thirteen years. Estimated liabilities for pending and future non- employee products liability asbestos claims are derived from McDermott'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. Such trends include management's expectation that new claims will conclude within the next thirteen years, that there will be a significant decline within the next eighteen months, and that the average cost per claim will continue to increase only moderately. Should management's estimates be incorrect, McDermott's ultimate loss for such claims may exceed the amounts provided in the consolidated financial statements. NOTE 4 - INVENTORIES Inventories at September 30 and March 31, 1998 are summarized below: September 30, March 31, 1998 1998 ------------- --------- (Unaudited) (In thousands) Raw Materials and Supplies $43,408 $47,411 Work in Progress 6,248 6,720 Finished Goods 7,888 9,211 - ----------------------------- ------- ------- $57,544 $63,342 ============================= ======= ======= 11 NOTE 5 - ACCUMULATED OTHER COMPREHENSIVE LOSS The components of accumulated other comprehensive loss included in stockholders' equity at September 30 and March 31, 1998 are as follows: September 30, March 31, 1998 1998 ------------- --------- (Unaudited) (In thousands) Currency Translation Adjustments $(24,470) $(42,502) Net Unrealized Gain on Investments 7,366 675 Minimum Pension Liability (4,730) (4,730) - ---------------------------------- -------- -------- $(21,834) $(46,557) ================================== ======== ======== NOTE 6 - DISPOSITIONS On April 3, 1998, JRM and ETPM S.A. terminated their worldwide McDermott-ETPM joint venture. Pursuant to the termination, JRM received cash of approximately $105,000,000, ETPM S.A.'s derrick/lay barge 1601 and ETPM S.A.'s interest in McDermott-ETPM East, Inc. and McDermott-ETPM Far East, Inc. ETPM S.A. received JRM's lay barge 200 and JRM's interest in McDermott Subsea Constructors Limited ("MSCL") and McDermott-ETPM West, Inc. The Condensed Consolidated Statement of Income includes revenues of $10,486,000 and $37,356,000 and operating income of $9,634,000 and $11,360,000 for the three and six months, respectively, ended September 30, 1997 attributable to operations transferred to ETPM S.A. On May 7, 1998, a JRM subsidiary, McDermott Marine Construction Limited ("MMCL"), sold its European brownfield engineering operations and received net cash of approximately $2,210,000. Management also intends to exit MMCL's European greenfield engineering operations. In the three and six months ended September 30, 1998, these operations had revenues of $13,878,000 and $48,025,000, respectively, and operating losses of $94,000 and $2,176,000, respectively. In the three and six months ended September 30, 1997, these operations had revenues of $112,435,000 and $188,399,000, respectively, and operating income of $3,773,000 and $5,074,000, respectively. During the six months ended September 30, 1998, JRM's Malaysian joint venture sold two combination pipelay and derrick barges. The joint venture, in which JRM holds a 49% interest, received approximately $47,000,000 in cash for the barges. NOTE 7 - SETTLEMENT AND CURTAILMENT OF POSTRETIREMENT BENEFIT PLANS Effective April 1, 1998, McDermott terminated all postretirement health care benefits and substantially all postretirement life insurance benefits for salaried and non-union hourly employees. As a result of the termination, the total accumulated postretirement benefit obligation of McDermott 12 decreased $251,476,000. On the same date, the pension plans for the employees affected by the termination were amended to increase the benefits payable to the participants to offset the cost of postretirement health care and life insurance. As a result of the amendments to the plans, the total projected benefit obligation of McDermott increased $228,952,000. On August 1, 1998, the postretirement health care benefits for two union hourly employee plans were terminated and the pension plans for these employees were amended to increase the benefits payable to participants to offset the cost of postretirement health care and life insurance. As a result of this termination of postretirement benefits, the total accumulated postretirement benefit obligation of McDermott decreased $20,846,000, and as a result of this amendment to the pension plans, the projected benefit obligation of McDermott increased $15,728,000. The total decrease in the accumulated postretirement benefit obligation was measured against the total increase in the projected benefit obligation of the pension plans and the resulting gain of $27,642,000 was recognized in the six months ended September 30, 1998. NOTE 8 - CONVERSION AND REDEMPTION OF PREFERRED STOCK On April 6, 1998, MII called all of the outstanding shares of its Series C Cumulative Convertible Preferred Stock for redemption on April 21, 1998. At the close of business on the redemption date, all 2,875,000 preferred shares then outstanding were converted into 4,077,890 common shares. On July 17, 1998, MI redeemed all of its 2,152,766 outstanding shares of Series B $2.60 Cumulative Preferred Stock for $31.25, plus $0.1156 in accrued but unpaid dividends, per share. MII made a $68,000,000 capital contribution to MI to cover the cost of the redemption. On September 11, 1998, MI redeemed 2,795,428 of its outstanding shares of Series A $2.20 Cumulative Convertible Preferred Stock ("Series A Preferred Stock") for $31.25, plus $0.43 in accrued but unpaid dividends, per share. The remaining 23,251 outstanding shares of its Series A Preferred Stock were converted into MII common stock at a conversion ratio of one share of MII common stock, plus $0.10, for each preferred share. MII made a $90,000,000 capital contribution to MI to cover the cost of the redemption and conversion. NOTE 9 - INVESTIGATIONS AND LITIGATION In March 1997, MII and JRM, with the help of outside counsel, began an investigation into allegations of wrongdoing by a limited number of former employees of MII and JRM and others. The allegations concerned the heavy-lift business of JRM's HeereMac joint venture ("HeereMac") with Heerema Offshore Construction Group, Inc. ("Heerema"). Upon becoming aware of these allegations, MII and JRM notified authorities, including the Antitrust Division of the U.S. Department of Justice and the European Commission. As a result of MII's and JRM's prompt disclosure of the 13 allegations, both companies and the individuals who were officers, directors and employees of MII or JRM at the time of the disclosure were granted immunity from criminal prosecution by the Department of Justice for any anti-competitive acts involving worldwide heavy-lift activities. After receiving the allegations, JRM initiated action to terminate its interest in HeereMac, and, on December 19, 1997, JRM's co-venturer in the joint venture, Heerema, acquired JRM's interest in exchange for cash and title to several pieces of equipment. On December 21, 1997, HeereMac and one of its employees pled guilty to criminal charges by the Department of Justice that they and others had participated in a conspiracy to rig bids in connection with the heavy-lift business of HeereMac in the Gulf of Mexico, North Sea and Far East. HeereMac and the HeereMac employee were fined $49,000,000 and $100,000, respectively. As part of the plea, both HeereMac and certain employees of HeereMac agreed to cooperate fully with the Department of Justice investigation. Neither MII, JRM nor any of their officers, directors or employees was a party to those proceedings. MII and JRM have cooperated and are continuing to cooperate with the Department of Justice in its investigation. Near the end of calendar 1997, the Department of Justice requested additional information from the companies relating to possible anti-competitive activity in the marine construction business of McDermott-ETPM East, Inc., one of the operating companies within JRM's former McDermott-ETPM joint venture with ETPM S.A., a French company. In connection with the termination of the McDermott-ETPM joint venture on April 3, 1998, JRM assumed 100% ownership of McDermott-ETPM East, Inc., which has been renamed J. Ray McDermott Middle East, Inc. MII and JRM are also cooperating with the Securities and Exchange Commission ("SEC"), which also requested information and documents from the companies with respect to certain of the matters described above. MII and JRM are subject to a judicial order entered in 1976, with the consent of MI (which at that time was the parent of the McDermott group of companies), pursuant to an SEC complaint ("Consent Decree"). The Consent Decree prohibits the companies from making false entries in their books, maintaining secret or unrecorded funds or using corporate funds for unlawful purposes. Violations of the Consent Decree could result in substantial civil and/or criminal penalties to the companies. In June 1998, Phillips Petroleum Company (individually and on behalf of certain co-venturers) and certain related entities filed a complaint in the United States District Court for the Southern District of Texas against MII, JRM, MI, McDermott-ETPM, Inc., and certain JRM subsidiaries (collectively, "McDermott Defendants"), HeereMac, Heerema, certain Heerema affiliates, and others ("Phillips Lawsuit"). The complaint alleges that the defendants engaged in anti-competitive acts in violation 14 of Sections 1 and 2 of the Sherman Act and Sections 15.05 (a) and (b) of the Texas Business and Commerce Code, engaged in fraudulent activity and tortiously interfered with the plaintiffs' businesses in connection with certain offshore transportation and installation projects in the Gulf of Mexico, North Sea and Far East. In addition to seeking actual damages and attorneys' fees, the plaintiffs have requested punitive as well as treble damages. In October 1998, the McDermott Defendants filed a motion to dismiss those claims in the Phillips Lawsuit that relate to alleged injuries sustained solely in overseas markets due to the court's lack of subject matter jurisdiction. In June 1998, Shell Offshore, Inc. and certain related entities also filed a complaint in the United States District Court for the Southern District of Texas against MII, JRM, HeereMac, Heerema and others ("Shell Lawsuit") alleging that the defendants engaged in anti-competitive acts in violation of Sections 1 and 2 of the Sherman Act. In September and October 1998, Amoco Production Company and Amerada Hess Corporation intervened in the Shell Lawsuit as plaintiffs. In addition to seeking actual damages, among other things, the plaintiffs in the Shell Lawsuit request treble damages. It is not possible to predict the ultimate outcome of the Department of Justice investigation, the SEC inquiry, or the companies' internal investigation, the above-referenced lawsuits, or the actions that may be taken by others as a result of HeereMac's guilty plea or otherwise. However, these matters could result in civil and/or criminal liability and have a material adverse effect on McDermott's consolidated financial position and results of operations. The Babcock & Wilcox Company ("B&W") and Atlantic Richfield Company are defendants in lawsuits filed by Donald F. Hall, Mary Ann Hall and others in the United States District Court for the Western District of Pennsylvania involving over 120 separate cases relating to the operation of two former nuclear fuel processing facilities located in Pennsylvania ("Hall Litigation"), alleging, among other things, that they suffered personal injury and other damages as a result of radioactive emissions from these facilities. In September 1998, a jury found B&W and Atlantic Richfield liable to the plaintiffs in the first eight cases brought to trial awarding $36,700,000 in compensatory damages. This jury verdict is being contested. Management believes that this award and all other claims will be resolved within the limits and coverage of B&W's insurance policy covering these facilities; however, no assurance on insurance coverage or financial impact if limits of coverage are exceeded can be given. In connection with the foregoing, B&W settled all pending and future punitive damage claims represented by the plaintiffs' lawyers in the Hall Litigation for $8,000,000 and seeks reimbursement of this amount from other parties. 15 Additionally, McDermott is, from time to time, involved in routine litigation related to its business activity. It is management's opinion that none of this routine litigation will have a material adverse effect on McDermott's consolidated financial position or results of operations. NOTE 10 - SEGMENT REPORTING McDermott's reportable segments are Marine Construction Services, Power Generation Systems and Government Operations. These segments are managed separately and are unique in technology, services and customer class. Marine Construction Services, which includes the results of JRM, supplies worldwide services for the offshore oil and gas exploration and production and hydrocarbon processing industries. Principal activities include the design, engineering, fabrication and installation of offshore drilling and production platforms, specialized structures, modular facilities, marine pipelines and subsea production systems. JRM also provides subsea trenching services, diving services, procurement activities, and removal, salvage and refurbishment services for offshore fixed platforms. These activities are managed and results are evaluated primarily on a geographic area basis. Engineering operations, which includes project management services and engineering services, is primarily managed and evaluated on a worldwide basis. Power Generation Systems supplies engineered-to-order services, products and systems for energy conversion, and fabricates replacement nuclear steam generators and environmental control systems. In addition, this segment provides aftermarket services including replacement parts, engineered upgrades, construction, maintenance and field technical services to electric power plants and industrial facilities. This segment also provides power through cogeneration, refuse-fueled power plants and other independent power producing facilities. Government Operations supplies nuclear reactor components and nuclear fuel assemblies to the U.S. Government, manages and operates government owned facilities, supplies commercial nuclear environmental services and other government and commercial nuclear services. Other Operations is comprised of certain small businesses which primarily include the engineering and construction activities and plant outage maintenance of certain Canadian operations and manufacturing of auxiliary equipment such as air cooled heat exchangers and replacement parts. Other Operations also includes contract research activities. Intersegment sales are accounted for at prices that are generally established by reference to similar transactions with unaffiliated customers. Reportable segments are measured based on operating income exclusive of general corporate expenses and other unallocated items. Other reconciling 16 items before provision for income taxes are interest income, interest expense, minority interest and other-net. Assets of the Marine Construction Services segment decreased approximately $177,000,000, primarily as a result of the dispositions of MSCL and MMCL as described in Note 6. Segment Information for the Three and Six Months Ended September 30, 1998 and 1997:
THREE SIX MONTHS ENDED MONTHS ENDED 9/30/98 9/30/97 9/30/98 9/30/97 -------- -------- ---------- ---------- (Unaudited) (In thousands) REVENUES: Marine Construction Services $349,099 $506,046 $ 719,651 $ 984,269 Power Generation Systems 223,755 259,022 482,884 544,059 Government Operations 100,740 80,550 201,156 164,072 Other Operations 108,897 86,624 199,078 173,535 Adjustments and Eliminations (1) (2,508) (12,191) (2,977) (17,797) - ----------------------------------- -------- -------- ---------- ---------- Total Revenues $779,983 $920,051 $1,599,792 $1,848,138 ================================== ======== ======== ========== ==========
(1) Segment revenues are net of the following intersegment transfers and other adjustments:
Marine Construction Services Transfers $ 755 $ 7,987 $2,077 $12,002 Power Generation Systems Transfers (13) 796 424 1,893 Government Operations Transfers 73 1,760 131 3,388 Other Operations Transfers 92 1,435 103 4,121 Adjustments and Eliminations 1,601 213 242 (3,607) --------------------------------------- ------ ------- ------ ------- Total $2,508 $12,191 $2,977 $17,797 ======================================= ====== ======= ====== =======
17
THREE SIX MONTHS ENDED MONTHS ENDED 9/30/98 9/30/97 9/30/98 9/30/97 ------- ------- ------- ------- (Unaudited) (In thousands) OPERATING INCOME: Segment Operating Income: - ------------------------- Marine Construction Services $ 55,028 $ 41,038 $ 92,267 $ 68,637 Power Generation Systems 15,161 13,206 34,648 32,236 Government Operations 6,322 9,849 11,777 19,784 Other Operations 5,500 233 9,362 1,688 - ------------------------------ -------- -------- -------- -------- Total Segment Operating Income $ 82,011 $ 64,326 $148,054 $122,345 - ------------------------------ -------- -------- -------- -------- Gain (Loss) on Asset Disposals and Impairments - Net: - ------------------------------ Marine Construction Services $ (1,969) $ (570) $ 43,078 $ 24 Power Generation Systems 81 10 205 13 Government Operations 132 2 138 2 Other Operations 10 28,673 75 125,149 - ------------------------------ -------- -------- -------- -------- Total Gain (Loss) on Asset Disposals and Impairments - Net $ (1,746) $ 28,115 $ 43,496 $125,188 - ------------------------------ -------- -------- -------- -------- Income (Loss) from Investees: - ------------------------------ Marine Construction Services $ (3,782) $ 1,772 $ 9,733 $ (2,627) Power Generation Systems 732 2,202 3,709 3,976 Government Operations 561 519 1,207 1,099 Other Operations (668) 1,913 (903) 4,035 - ------------------------------ -------- -------- -------- -------- Total Income (Loss) from Investees $ (3,157) $ 6,406 $ 13,746 $ 6,483 - ------------------------------ -------- -------- -------- -------- SEGMENT INCOME: - --------------- Marine Construction Services $ 49,277 $ 42,240 $145,078 $ 66,034 Power Generation Systems 15,974 15,418 38,562 36,225 Government Operations 7,015 10,370 13,122 20,885 Other Operations 4,842 30,819 8,534 130,872 - ------------------------------ -------- -------- -------- -------- Total Segment Income 77,108 98,847 205,296 254,016 - ------------------------------ -------- -------- -------- -------- Other Unallocated Items (3,148) 1,247 (1,884) 182 General Corporate Expenses - Net (8,308) (11,317) (19,347) (20,627) - ------------------------------ -------- -------- -------- -------- Total Operating Income $ 65,652 $ 88,777 $184,065 $233,571 ============================== ======== ======== ======== ========
18 NOTE 11 - EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share:
THREE SIX MONTHS ENDED MONTHS ENDED 9/30/98 9/30/97 9/30/98 9/30/97 ------- ------- ------- ------- (Unaudited) (In thousands, except shares and per share amounts) Basic: Net income $ 51,615 $ 38,161 $ 173,176 $ 148,021 Dividends on preferred stock, Series C - (2,067) - (4,133) - ------------------------------------------- ----------- ----------- ----------- ----------- Net income for basic computation $ 51,615 $ 36,094 $ 173,176 $ 143,888 =========================================== =========== =========== =========== =========== Weighted average common shares 58,835,380 55,245,276 59,362,161 54,968,604 =========================================== =========== =========== =========== =========== Basic earnings per common share $ 0.88 $0.65 $2.92 $2.62 =========================================== =========== =========== =========== =========== Diluted: Net income $ 51,615 $ 38,161 $ 173,176 $ 148,021 Dividends on Subsidiary's Series A $2.20 Cumulative Convertible Preferred Stock 1,202 1,550 2,752 3,100 - ------------------------------------------- ----------- ----------- ----------- ----------- Net income for diluted computation $ 52,817 $ 39,711 $ 175,928 $ 151,121 =========================================== =========== =========== =========== =========== Weighted average common shares (basic) 58,835,380 55,245,276 59,362,161 54,968,604 Effect of dilutive securities: Stock options and restricted stock 932,500 1,562,930 1,497,887 1,154,164 Subsidiary's Series A $2.20 Cumulative Convertible Preferred Stock 2,205,923 2,818,679 2,512,301 2,818,696 Series C $2.875 Cumulative Convertible Preferred Stock - 4,078,014 380,914 4,078,014 - ------------------------------------------- ----------- ----------- ----------- ----------- Adjusted weighted average common shares and assumed conversions 61,973,803 63,704,899 63,753,263 63,019,478 =========================================== =========== =========== =========== =========== Diluted earnings per common share $ 0.85 $0.62 $2.76 $2.40 =========================================== =========== =========== =========== ===========
19 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL McDermott International, Inc. ("MII") is the parent company of the McDermott group of companies, which includes J. Ray McDermott, S.A. ("JRM") and McDermott Incorporated ("MI"). Unless the context otherwise requires, hereinafter, "McDermott" will be used to mean the consolidated enterprise. Revenues of the Marine Construction Services segment are largely a function of the level of oil and gas development activity in the world's major hydrocarbon producing regions. Consequently, revenues reflect the variability associated with the timing of significant development projects. During fiscal year 1998, U.S. and North Sea markets remained steady while Far East and Middle East markets started to weaken. Management expects low oil prices and economic and political instability in Indonesia and on the Indian subcontinent to have an adverse effect on exploration and production spending in the short to intermediate term. Revenues of the Power Generation Systems segment are largely a function of capital spending by the electric power generation industry. This segment has recently experienced weak and difficult markets in nearly all of its product lines. Domestic utility original equipment markets remain sluggish as growth in demand remains modest and the electric power industry transitions from a regulated to a competitive environment. However, demand for services and replacement nuclear steam generators to the domestic utility industry continues at significant levels. In addition, most foreign markets for industrial and utility boilers remain strong. However, the currency crisis, which began in Southeast Asia in the summer of 1997, has slowed the number of inquiries and orders from the level of the previous year. Management also expects this segment to be adversely affected by the economic and political instability in Indonesia and political turmoil on the Indian subcontinent in the short to intermediate term. Revenues of the Government Operations segment are largely a function of capital spending by the U.S. Government. Management does not expect this segment to experience any significant growth because of reductions in the defense budget over the past several years; however, management expects the segment to remain relatively constant since it is the sole-source provider of nuclear fuel assemblies and nuclear reactor components to the U.S. Government. 20 Revenues of Other Operations are affected by variations in the business cycles in the customers' industries and the overall economy. Other Operations is also affected by legislative issues such as environmental regulations and fluctuations in U.S. Government funding patterns. A significant portion of McDermott's revenues and operating results are derived from its foreign operations. As a result, McDermott's operations and financial results are affected by international factors, such as changes in foreign currency exchange rates. McDermott 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 McDermott is unable to match the foreign currency receipts and disbursements related to its contracts, it enters into foreign currency forward exchange contracts to reduce the impact of foreign exchange rate movements on operating results. Statements made herein which express a belief, expectation or intention, as well as those which are not historical fact, are forward looking. They involve a number of risks and uncertainties which may cause actual results to differ materially from such forward-looking statements. These risks and uncertainties include, but are not limited to: decisions about offshore developments to be made by oil and gas companies; the deregulation of the U.S. energy market; governmental regulation and the continued funding of McDermott's contracts with U.S. governmental agencies; estimates for pending and future non-employee asbestos claims; the highly competitive nature of McDermott's businesses; operating risks associated with the marine construction services business; economic and political instability in Indonesia and on the Indian subcontinent; the results of the ongoing investigation by MII and JRM and the U.S. Department of Justice into possible anti-competitive practices by MII and JRM; and the other lawsuits disclosed in Item 3 - Legal Proceedings. RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 1998 VS. THREE MONTHS ENDED SEPTEMBER 30, 1997 Marine Construction Services - ---------------------------- Revenues decreased $156,947,000 to $349,099,000, primarily due to lower volume in Europe as a result of JRM's withdrawal from the European engineering markets and from lower volume in all activities in North America and in worldwide engineering. Segment operating income increased $13,990,000 to $55,028,000, primarily due to higher margins in virtually all activities and a favorable settlement of contract claims in the Far East. This increase was partially offset by lower volume in worldwide engineering. In addition, there was lower volume in all activities in North America and higher net operating expenses. 21 Income (loss) from investees decreased $5,554,000 from income of $1,772,000 to a loss of $3,782,000, primarily due to lower operating results from Brown & Root McDermott Fabricators Limited as well as joint ventures in the Far East and Gulf of Mexico. These decreases were partially offset by losses recorded by McDermott-ETPM West, Inc. in the prior year. Power Generations Systems - ------------------------- Revenues decreased $35,267,000 to $223,755,000, primarily due to lower revenues from fabrication and erection of fossil fuel steam and environmental control systems. These decreases were partially offset by higher revenues from repair and alteration of existing fossil fuel steam systems and plant enhancement projects. Segment operating income increased $1,955,000 to $15,161,000, primarily due to higher volume and margins from repair and alteration of existing fossil fuel steam systems, higher margins from operation and maintenance contracts and higher volume from plant enhancement projects. These increases were partially offset by lower volume and margins from fabrication and erection of fossil fuel steam and environmental control systems. Income from investees decreased $1,470,000 to $732,000. This represents the results of seven joint ventures. The decrease is primarily due to the lower operating results from a domestic joint venture located in Pennsylvania. Government Operations - --------------------- Revenues increased $20,190,000 to $100,740,000, primarily due to higher revenues from management and operation contracts for U.S. Government owned facilities and from nuclear fuel assemblies and reactor components for the U.S. Government. These increases were partially offset by lower revenues from commercial operations. Segment operating income decreased $3,527,000 to $6,322,000, primarily due to an $8,000,000 settlement of punitive damages in a civil suit associated with a Pennsylvania facility formerly operated by McDermott. This decrease was partially offset by higher volume and margins from commercial nuclear environmental services. Other - ----- Revenues increased $22,273,000 to $108,897,000, primarily due to higher revenues from engineering and plant maintenance activities in Canadian operations. These increases were partially offset by lower revenues from domestic engineering and construction activities and the disposition of a non-core business. 22 Operating income increased $5,267,000 to $5,500,000, primarily due to higher volume from engineering activities in Canadian operations. There were also losses in a non-core business disposed of in the prior year. These increases were partially offset by higher general and administrative expenses. Gain on asset disposals and impairments-net decreased $28,663,000 to $10,000. The prior year gain was primarily due to the sale of McDermott's interest in Universal Fabricators Incorporated. Income (loss) from investees decreased $2,581,000 from income of $1,913,000 to a loss of $668,000, primarily due to lower operating results from a domestic joint venture located in Colorado and the shutdown of two foreign joint ventures located in the former Soviet Union. Other Unallocated Items - ----------------------- Other Unallocated Items decreased $4,395,000 from income of $1,247,000 to expense of $3,148,000, primarily due to higher employee benefit expenses, legal expenses related to claims and general and administrative expenses. Other Income Statement Items - ---------------------------- Interest income increased $13,329,000 to $25,711,000, primarily due to increases in investments in government obligations and other debt securities and interest income on the settlement of Internal Revenue Service exposure items. Interest expense decreased $3,569,000 to $15,619,000, primarily due to changes in debt obligations and interest rates prevailing thereon. Minority interest expense increased $2,660,000 to $12,361,000, primarily due to minority shareholder participation in the improved operating results of JRM, partially offset by minority shareholder participation resulting from increased losses of a JRM consolidated foreign joint venture. Other-net expense increased $5,522,000 to $5,671,000, primarily due to a net loss resulting from an adjustment to the gain on the settlement and curtailment of postretirement benefit plans recognized in the first quarter (see Note 7 to the condensed consolidated financial statements), partially offset by foreign currency transaction gains. The provision for income taxes decreased $27,863,000 to $6,097,000, while income before provision for income taxes decreased $14,409,000 to $57,712,000. The decrease in the provision for income taxes was primarily the result of a decrease in income and a favorable tax settlement of disputed items. McDermott operates in many different tax jurisdictions. Within these jurisdictions, 23 tax provisions vary because of nominal rates, allowability of deductions, credits and other benefits, and tax basis (for example, revenues versus income). These variances, along with variances in the mix of income within jurisdictions, are responsible for shifts in the effective tax rate. RESULTS OF OPERATIONS - SIX MONTHS ENDED SEPTEMBER 30, 1998 VS. SIX MONTHS ENDED SEPTEMBER 30, 1997 Marine Construction Services - ---------------------------- Revenues decreased $264,618,000 to $719,651,000, primarily due to lower volume in Europe as a result of JRM's withdrawal from the European engineering markets and from lower volume in all activities in the Middle East, North America and in worldwide engineering. These decreases were partially offset by higher volume in virtually all activities in the Far East. Segment operating income increased $23,630,000 to $92,267,000, primarily due to higher volume and margins in virtually all activities and a favorable settlement of contract claims in the Far East and higher margins in North America. These increases were partially offset by lower volume in the Middle East and in worldwide engineering and higher net operating expenses. Gain on asset disposals and impairments-net increased $43,054,000 to $43,078,000. This was primarily due to the gain recognized from the termination of the McDermott-ETPM joint venture and the sale of three Gulf of Mexico vessels. Income (loss) from investees increased $12,360,000 from a loss of $2,627,000 to income of $9,733,000, primarily due to the gain on the sale of assets in a Malaysian joint venture and losses recorded by McDermott-ETPM West, Inc. in the prior year. These increases were partially offset by lower operating results from Brown & Root McDermott Fabricators Limited. Power Generations Systems - ------------------------- Revenues decreased $61,175,000 to $482,884,000, primarily due to lower revenues from fabrication and erection of fossil fuel steam and environmental control systems and replacement nuclear steam generators. These decreases were partially offset by higher revenues from plant enhancement projects, repair and alteration of existing fossil fuel steam systems and boiler cleaning equipment. Segment operating income increased $2,412,000 to $34,648,000, primarily due to higher volume and margins from repair and alteration of existing fossil fuel steam systems, higher margins from operation and maintenance contracts and higher volume from plant enhancement projects and boiler cleaning equipment. These increases were partially offset by lower volume and margins from fabrication and erection of fossil fuel steam and environmental control systems. 24 Government Operations - --------------------- Revenues increased $37,084,000 to $201,156,000, primarily due to higher revenues from management and operation contracts for U.S. Government-owned facilities and nuclear fuel assemblies and reactor components for the U.S. Government. These increases were partially offset by lower revenues from commercial operations, other government related operations and commercial nuclear environmental services. Segment operating income decreased $8,007,000 to $11,777,000, primarily due to an $8,000,000 settlement of punitive damages in a civil suit associated with a Pennsylvania facility formerly operated by McDermott. Other - ----- Revenues increased $25,543,000 to $199,078,000, primarily due to higher revenues from engineering activities in Canadian operations and from air-cooled heat exchangers. These increases were partially offset by lower revenues from domestic engineering and construction activities, plant maintenance activities in Canadian operations and the disposition of a non-core business. Operating income increased $7,674,000 to $9,362,000, primarily due to higher volume from engineering activities in Canadian operations and air-cooled heat exchangers. There were also losses in a non-core business disposed of in the prior year. These increases were partially offset by higher general and administrative expenses. Gain on asset disposals and impairments-net decreased $125,074,000 to $75,000. The prior year gains were primarily due to the sale of McDermott's interest in Sakhalin Energy Investment Company Ltd. and Universal Fabricators Incorporated. Income (loss) from investees decreased $4,938,000 from income of $4,035,000 to a loss of $903,000, primarily due to lower operating results from a domestic joint venture located in Colorado and the shutdown of two foreign joint ventures located in the former Soviet Union. Other Unallocated Items - ----------------------- Other Unallocated Items decreased $2,066,000 from income of $182,000 to expense of $1,884,000, primarily due to higher employee benefit expenses, legal expenses related to claims and general and administrative expenses. 25 Other Income Statement Items - ---------------------------- Interest income increased $33,558,000 to $58,436,000, primarily due to increases in investments in government obligations and other debt securities and interest income on the settlement of Internal Revenue Service exposure items. Interest expense decreased $12,157,000 to $32,236,000, primarily due to changes in debt obligations and interest rates prevailing thereon. Minority interest expense increased $33,658,000 to $50,052,000, primarily due to minority shareholder participation in the improved operating results of JRM, partially offset by minority shareholder participation resulting from increased losses of a JRM consolidated foreign joint venture. Other-net increased $34,389,000 to $35,886,000, primarily due to a net gain on the settlement and curtailment of postretirement benefit plans. (See Note 7 to the condensed consolidated financial statements.) The provision for income taxes decreased $28,215,000 to $22,923,000, while income before provision for income taxes decreased $3,060,000 to $196,099,000. The decrease in the provision for income taxes was primarily the result of a benefit of $22,695,000 recorded as a result of the decrease in the valuation allowance for deferred tax assets, an increase in the proportion of income earned in non-taxable jurisdictions and a favorable tax settlement of disputed items. McDermott operates in many different tax jurisdictions. Within these jurisdictions, tax provisions vary because of nominal rates, allowability of deductions, credits and other benefits, and tax basis (for example, revenues versus income). These variances, along with variances in the mix of income within jurisdictions, are responsible for shifts in the effective tax rate. Backlog - ------- 9/30/98 3/31/98 ------- ------- (In thousands) Marine Construction Services $ 838,428 $1,267,148 Power Generation Systems 1,065,537 1,071,121 Government Operations 833,617 810,749 Other 301,895 262,455 Eliminations (2,148) (2,243) - ----------------------------- ---------- ---------- TOTAL BACKLOG $3,037,329 $3,409,230 =============================== ========== ========== In general, all of McDermott's business segments are capital intensive businesses that rely on large contracts for a substantial amount of their revenues. 26 Marine Construction Services' backlog declined in all operating areas as a result of lower oil prices. In addition, backlog in Europe and West Africa declined as a result of the withdrawal from the European engineering markets. Finally, backlog decreased as a result of sluggish economic environments in the Middle and Far East and the political instability in the Far East. Power Generation Systems' foreign markets have been adversely impacted by suspensions of power projects in Southeast Asia and Pakistan. Also, the U.S. market for industrial and utility boilers remains weak. However, the U.S. market for services and replacement nuclear steam generators are expected to remain strong and to make significant contributions to operating income into the foreseeable future. At September 30, 1998, Government Operations' backlog with the U.S. Government was $739,186,000 (of which $41,469,000 had not been funded). The backlog of this segment is not expected to experience any significant growth as a result of reductions in the defense budget over the past several years. However, management expects this segment's backlog to remain relatively constant since it is the sole-source provider of nuclear fuel assemblies and nuclear reactor components for the U.S. Government. Liquidity and Capital Resources - ------------------------------- During the six months ended September 30, 1998, McDermott's cash and cash equivalents increased $68,058,000 to $345,934,000 and total debt decreased $126,938,000 to $627,544,000, primarily due to attainment of sales treatment for $56,929,000 of secured borrowings (see below), repayment of $43,716,000 in long- term debt, the decrease in short-term borrowings of $10,139,000 and the settlement of a note payable of $14,565,000 pursuant to the termination of the ETPM joint venture. During this period, McDermott provided cash of $242,411,000 from operating activities and $57,438,000 from net sales of investments and received cash proceeds of $127,805,000 from asset disposals, including $95,546,000 from the termination of the ETPM joint venture. McDermott used cash of $114,716,000 for stock repurchases, $154,631,000 for the redemption of a subsidiary's preferred stocks, $30,100,000 for additions to property, plant and equipment; and $7,920,000 for dividends on MII's common and preferred stock. Pursuant to agreements with the majority of its principal insurers, McDermott negotiates and settles products liability asbestos claims from non-employees and bills these amounts to the appropriate insurers. Reimbursement of such claims is subject to varying insurance limits based upon the year involved. Moreover, as a result of collection delays inherent in this process and the effect of agreed payment schedules with specific insurers, reimbursement is usually delayed for three months or 27 more. The average amount of these claims (historical average of approximately $6,500 per claim over the last three years) has continued to rise. Claims paid during the six months ended September 30, 1998 were $130,466,000, of which $110,402,000 has been recovered or is due from insurers. At September 30, 1998, receivables of $105,983,000 were due from insurers for reimbursement of settled claims. Of the $105,983,000 due from insurers, $46,463,000 has been included in the pool of qualified receivables sold pursuant to a receivables purchase and sale agreement (see below). The collection delays, and the amount of claims paid for which insurance recovery is not probable, have not had a material adverse effect upon McDermott's liquidity. At September 30, 1998, the estimated liability for pending and future non- employee products liability asbestos claims was $756,225,000 (of which approximately $271,000,000 had been asserted) and estimated insurance recoveries were $614,256,000. Settlement of this estimated liability is expected to occur over the next thirteen years. Estimated liabilities for pending and future non- employee products liability asbestos claims are derived from McDermott'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. Such trends include management's expectation that new claims will conclude within the next thirteen years, that there will be a significant decline with the next eighteen months, and that the average cost per claim will continue to increase only moderately. Should management's estimates be incorrect, McDermott's ultimate loss for such claims may exceed the amounts provided in the consolidated financial statements. Expenditures for property, plant and equipment increased $5,621,000 to $30,100,000. The majority of these expenditures was to maintain, replace and upgrade existing facilities and equipment. At March 31, 1998, McDermott had $82,783,000 in secured borrowings pursuant to a receivables purchase and sale agreement between The Babcock & Wilcox Company ("B&W") and certain of its affiliates and subsidiaries and a U.S. Bank. Through July 31, 1998, $25,854,000 was repaid under the agreement. Effective July 31, 1998, the receivables purchase and sale agreement was amended and restated to provide for, among other things, the inclusion of certain insurance recoverables in the pool of qualified accounts receivable as well as the attainment of sales treatment as opposed to secured financing treatment for this arrangement under Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standards ("SFAS") No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." As 28 a result, $56,929,000 was removed from notes payable and current maturities of long-term debt on the balance sheet. The amended and restated agreement, with a maximum sales limit available of $100,000,000, expires on July 31, 1999. At September 30 and March 31, 1998, McDermott had available various uncommitted short-term lines of credit from banks totaling $108,185,000 and $127,061,000, respectively. Borrowings against these lines of credit at March 31, 1998 were $5,100,000. There were no borrowings against these lines at September 30, 1998. At March 31, 1998, B&W was a party to a revolving credit facility under which there were no borrowings. In July 1998, B&W terminated its existing credit facility and, jointly and severally with Babcock & Wilcox Investment Company ("BWICO") and BWX Technologies, Inc., entered into a new $200,000,000 three- year, unsecured credit agreement ("BWICO Credit Agreement") with a group of banks. Borrowings by the three companies against the BWICO Credit Agreement cannot exceed an aggregate amount of $50,000,000. The remaining $150,000,000 is reserved for the issuance of letters of credit. In connection with satisfying a condition to borrowing or issuing letters of credit under the BWICO Credit Agreement, MI made a $15,000,000 capital contribution to BWICO in August 1998. At September 30, 1998, there were no borrowings under the BWICO Credit Agreement. At March 31, 1998, JRM and certain of its subsidiaries were parties to a revolving credit facility under which there were no borrowings. In June 1998, JRM and such subsidiaries entered into a new $200,000,000 three-year, unsecured credit agreement ("JRM Credit Agreement") with a group of banks. Borrowings against the JRM Credit Agreement cannot exceed $50,000,000. The remaining $150,000,000 is reserved for the issuance of letters of credit. At September 30, 1998, there were no borrowings under the JRM Credit Agreement. Management does not anticipate JRM will need to borrow funds under the JRM Credit Agreement during fiscal year 1999. MI and JRM are restricted, as a result of covenants in certain credit agreements, in their ability to transfer funds to MII and certain of its subsidiaries through cash dividends or through unsecured loans or investments. At September 30, 1998, substantially all of the net assets of MI are subject to such restrictions. JRM is restricted, as a result of covenants in its indenture relating to its $250,000,000 9.375% Senior Subordinated Notes due July 2006, from paying cash dividends on, or repurchasing or redeeming, its capital stock (including the shares of its common stock and Series A $2.25 Cumulative Preferred Stock held by MII), or in transferring funds through unsecured loans to or investments in MII. At September 30, 1998, JRM could pay cash dividends on, or repurchase shares of, its capital stock (including shares held by MII) in the amount of $19,780,000, could pay up to an additional $9,600,000 of cash dividends on its Series A Preferred Stock held by MII and could make unsecured loans to or investments in MII of approximately $30,000,000. Additionally 29 under such indenture, JRM is required to offer to purchase its outstanding 9.375% Senior Subordinated Notes at 100% of their principal amount, plus accrued and unpaid interest, to the extent that it has proceeds from certain asset sales and dispositions equal to or exceeding $25,000,000 that it has not used to permanently reduce certain senior or other indebtedness or reinvested in its business within a specified time period, generally 18 months, following each such asset sale or disposition. Currently, JRM has approximately $231,000,000 in proceeds from such asset sales and dispositions, which, if not used for repayment of debt or reinvested as described above, would be subject to this obligation commencing June 1999. McDermott maintains an investment portfolio of government obligations and other investments. The fair value of short-term investments and the long-term portfolio at September 30, 1998 was $1,027,779,000. At September 30, 1998, approximately $64,110,000 fair value of these obligations was pledged in connection with certain reinsurance agreements. Working capital increased $38,751,000 from $135,430,000 at March 31, 1998 to $174,181,000 at September 30, 1998. During the remainder of fiscal year 1999, McDermott expects to obtain funds to meet capital expenditure, working capital and debt maturity requirements from operating activities, sales of non-strategic assets, cash and cash equivalents, investments in debt securities and short-term borrowings. Leasing agreements for equipment, which are short-term in nature, are not expected to impact McDermott's liquidity or capital resources. During fiscal year 1998, MII's Board of Directors approved the repurchase of up to two million shares of its common stock from time to time on the open market or through negotiated transactions, depending on the availability of cash and market conditions. During the six months ended September 30, 1998, MII repurchased 1,900,000 shares of its common stock at an average share price of $31.10, which completed its two million share repurchase program. JRM's Board of Directors has also approved the repurchase of up to three million shares of its common stock from time to time on the open market or through negotiated transactions, depending on the availability of cash and market conditions. Share repurchases by JRM are also dependent on its ability to satisfy its debt covenants. During the six months ended September 30, 1998, JRM purchased 1,737,700 shares of its common stock at an average share price of $31.94. At September 30, 1998, JRM had repurchased 2,100,000 of the three million shares of its common stock authorized to be repurchased. On July 17, 1998, MI redeemed all of its 2,152,766 outstanding shares of Series B $2.60 Cumulative Preferred Stock for $31.25, plus $0.1156 in accrued but unpaid dividends, per share. MII made a $68,000,000 capital contribution to MI to cover the cost of the redemption. 30 On September 11, 1998, MI redeemed 2,795,428 of its outstanding shares of Series A $2.20 Cumulative Convertible Preferred Stock ("Series A Preferred Stock") for $31.25, plus $0.43 in accrued but unpaid dividends, per share. The remaining 23,251 outstanding shares of its Series A Preferred Stock were converted into MII common stock at a conversion ratio of one share of MII common stock, plus $0.10, for each preferred share. MII made a $90,000,000 capital contribution to MI to cover the cost of the redemption and conversion. MII has provided a valuation allowance for deferred tax assets of $46,362,000 which cannot be realized through carrybacks and future reversals of existing taxable temporary differences. Management believes that remaining deferred tax assets 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. Uncertainties that affect the ultimate realization of deferred tax assets are the risk of incurring 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. Impact of the Year 2000 - ----------------------- The McDermott company-wide Year 2000 Project is proceeding on schedule. The project addresses information technology components (hardware and software) in internal business systems and infrastructure and the embedded systems in offices, plants and products delivered to customers. In addition, an analysis of critical suppliers is being performed to ensure the supply of materials and services that are strategic to business continuity. The Year 2000 Project began company-wide with a planning phase during the latter part of 1996 followed by a company-side assessment, which was completed in early 1997. Based upon the results of the assessment and the diverse nature of McDermott's product lines, strategies for business systems were developed that fit requirements of each of the McDermott business units. Some entities are replacing legacy systems with commercial enterprise systems, others are employing a combination of proprietary and third-party client/server systems, while a third strategy is based primarily upon remediation of legacy applications. Embedded systems and the critical supplier analysis are being addressed with a common methodology across McDermott. 31 A consistent work breakdown structure for the project is being employed throughout McDermott: . Business Applications and IT Infrastructure ("IT Systems") . Facilities (office buildings) . Embedded Systems (in plants and construction equipment) . Customer Products (embedded systems in customer products) . Critical Suppliers The general phases of the project common to all of the above functions are: (1) inventory items with potential Year 2000 impact, (2) establish priorities, (3) assess and create a solution strategy for those items determined to be material to McDermott, (4) implement solutions defined for those items assessed to have Year 2000 impact, and (5) test and validate solutions. At September 30, 1998, the inventory, prioritization and assessment of the IT Systems and Facilities were complete. The implementation is in progress with approximately 55% of the work completed. The inventory of internal Embedded Systems is near completion, and the inventory, prioritization and assessment of Customer Products are at varying stages throughout McDermott with most entities more than 50% complete. The Critical Suppliers analysis is in the early stages with most business units developing their list of suppliers that may have a material impact on continuing operations. The IT Systems, Facilities and Embedded Systems that support McDermott's engineering, manufacturing and construction operations are on schedule and are forecast to be completed by March 31, 1999. The IT Systems and Facilities that support the corporate office functions are scheduled to be Year 2000 compliant by June 30, 1999. The analysis and the compliance tasks for Customer Products and Critical Suppliers are on schedule and are forecasted to be completed by June 30, 1999. McDermott does not expect that the cost associated with the modifications to critical systems and other compliance activities will have a material impact on its consolidated financial condition, cash flows or results of operations. The cost of the Year 2000 Project is estimated at $37,000,000 and is being funded through operating cash flows. Of the total project cost, $8,000,000 is attributable to the purchase of hardware and software, which will be capitalized, and the remaining $29,000,000 will be expensed as incurred. Expenditures to date include $4,000,000 of capital and $10,000,000 of expense. McDermott's Year 2000 compliance is also dependent upon Year 2000 readiness of external agents and third-party suppliers on a timely basis. The failure of McDermott or its agents or suppliers to 32 achieve Year 2000 compliance could result in, among other things, plant production interruptions, delays in the delivery of products, delays in construction completions, delays in the receipt of supplies, invoice and collection errors, and inaccurate inventories. These consequences could have a material adverse impact on McDermott's results of operations, financial condition and cash flow if it is unable to conduct its businesses in the ordinary course. Contingency plans are being defined and, in some cases, already initiated where there is high risk associated with the implementation of the primary compliance strategy. Examples of contingency projects are: remediation of legacy systems concurrent with the implementation of third-party replacement software where there is little margin for delay in the vendor's delivery of the software; and outsourcing of certain functions where the remediation of a major legacy system has subsequently evolved to be a high-risk project. Contingency plans are being developed consistent with the priorities and requirements of each business unit and will be continually refined as additional information becomes available. Although McDermott is unable to determine at this time whether the consequences of Year 2000 failures will have a material impact on its results of operations, McDermott believes that its Year 2000 Project, including contingency plans, should significantly reduce the adverse effect that any such disruptions may have. Statements made herein which express a belief, expectation or intention, as well as those which are not historical fact, are forward looking. They involve a number of risks and uncertainties which may cause actual results to differ materially from such forward-looking statements. The dates on which McDermott believes the Year 2000 Project will be completed are based on management's best estimates, which were derived utilizing numerous assumptions of future events, including the continued availability of certain resources, third-party modification plans and other factors. However, there can be no guarantee that these estimates will be achieved or that there will not be a delay in, or increased costs associated with, the implementation of the Year 2000 Project. Specific factors that might cause differences between the estimates and actual results include, but are not limited to, the availability and cost of personnel trained in these areas, the ability to locate and correct all relevant computer code, timely responses to and corrections by third parties and suppliers, the ability to implement interfaces between the new systems and the systems not being replaced, and similar uncertainties. Due to the general uncertainty inherent in the Year 2000 problem, resulting in part from the uncertainty of the Year 2000 readiness of third parties and the interconnection of global businesses, McDermott cannot ensure its ability to timely and cost-effectively resolve problems associated with the Year 2000 issue that may affect its operations and business, or expose it to third-party liability. 33 New Accounting Standards - ------------------------ In April 1998, the American Institute of Certified Public Accountants issued Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-Up Activities," which is effective for fiscal years beginning after December 15, 1998. SOP 98-5 provides guidance on accounting for the costs of start-up activities and requires that entities expense start-up costs and organization costs as they are incurred. McDermott has not yet finalized its review of SOP 98-5, but it is not expected to have a material impact on its consolidated financial position or results of operations. In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which is effective for fiscal years beginning after June 15, 1999. SFAS No. 133 will require McDermott to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives will either be offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. McDermott has not yet determined what effect the adoption of SFAS No. 133 will have on its consolidated financial position or results of operations. 34 PART II McDERMOTT INTERNATIONAL, INC. OTHER INFORMATION Item 3. LEGAL PROCEEDINGS In March 1997, MII and JRM, with the help of outside counsel, began an investigation into allegations of wrongdoing by a limited number of former employees of MII and JRM and others. The allegations concerned the heavy-lift business of JRM's HeereMac joint venture ("HeereMac") with Heerema Offshore Construction Group, Inc. ("Heerema"). Upon becoming aware of these allegations, MII and JRM notified authorities, including the Antitrust Division of the U.S. Department of Justice and the European Commission. As a result of MII's and JRM's prompt disclosure of the allegations, both companies and the individuals who were officers, directors and employees of MII or JRM at the time of the disclosure were granted immunity from criminal prosecution by the Department of Justice for any anti-competitive acts involving worldwide heavy-lift activities. After receiving the allegations, JRM initiated action to terminate its interest in HeereMac, and, on December 19, 1997, JRM's co-venturer in the joint venture, Heerema, acquired JRM's interest in exchange for cash and title to several pieces of equipment. On December 21, 1997, HeereMac and one of its employees pled guilty to criminal charges by the Department of Justice that they and others had participated in a conspiracy to rig bids in connection with the heavy-lift business of HeereMac in the Gulf of Mexico, North Sea and Far East. HeereMac and the HeereMac employee were fined $49,000,000 and $100,000, respectively. As part of the plea, both HeereMac and certain employees of HeereMac agreed to cooperate fully with the Department of Justice investigation. Neither MII, JRM nor any of their officers, directors or employees was a party to those proceedings. MII and JRM have cooperated and are continuing to cooperate with the Department of Justice in its investigation. Near the end of calendar 1997, the Department of Justice requested additional information from the companies relating to possible anti-competitive activity in the marine construction business of McDermott-ETPM East, Inc., one of the operating companies within JRM's former McDermott-ETPM joint venture with ETPM S.A., a French company. In connection with the termination of the McDermott-ETPM joint venture on April 3, 1998, JRM assumed 100% ownership of McDermott-ETPM East, Inc., which has been renamed J. Ray McDermott Middle East, Inc. MII and JRM are also cooperating with the Securities and Exchange Commission ("SEC"), which also requested information and documents from the companies with respect to certain of the 35 matters described above. MII and JRM are subject to a judicial order entered in 1976, with the consent of MI (which at that time was the parent of the McDermott group of companies), pursuant to an SEC complaint ("Consent Decree"). The Consent Decree prohibits the companies from making false entries in their books, maintaining secret or unrecorded funds or using corporate funds for unlawful purposes. Violations of the Consent Decree could result in substantial civil and/or criminal penalties to the companies. In June 1998, Phillips Petroleum Company (individually and on behalf of certain co-venturers) and certain related entities filed a complaint in the United States District Court for the Southern District of Texas against MII, JRM, MI, McDermott-ETPM, Inc., and certain JRM subsidiaries (collectively, "McDermott Defendants"), HeereMac, Heerema, certain Heerema affiliates, and others ("Phillips Lawsuit"). The complaint alleges that the defendants engaged in anti-competitive acts in violation of Sections 1 and 2 of the Sherman Act and Sections 15.05 (a) and (b) of the Texas Business and Commerce Code, engaged in fraudulent activity and tortiously interfered with the plaintiffs' businesses in connection with certain offshore transportation and installation projects in the Gulf of Mexico, North Sea and Far East. In addition to seeking actual damages and attorneys' fees, the plaintiffs have requested punitive as well as treble damages. In October 1998, the McDermott Defendants filed a motion to dismiss those claims in the Phillips Lawsuit that relate to alleged injuries sustained solely in overseas markets due to the court's lack of subject matter jurisdiction. In June 1998, Shell Offshore, Inc. and certain related entities also filed a complaint in the United States District Court for the Southern District of Texas against MII, JRM, HeereMac, Heerema and others ("Shell Lawsuit") alleging that the defendants engaged in anti-competitive acts in violation of Sections 1 and 2 of the Sherman Act. In September and October 1998, Amoco Production Company and Amerada Hess Corporation intervened in the Shell Lawsuit as plaintiffs. In addition to seeking actual damages, among other things, the plaintiffs in the Shell Lawsuit request treble damages. It is not possible to predict the ultimate outcome of the Department of Justice investigation, the SEC inquiry, or the companies' internal investigation, the above-referenced lawsuits, or the actions that may be taken by others as a result of HeereMac's guilty plea or otherwise. However, these matters could result in civil and/or criminal liability and have a material adverse effect on McDermott's consolidated financial position and results of operations. B&W and Atlantic Richfield Company are defendants in lawsuits filed by Donald F. Hall, Mary Ann Hall and others in the United States District Court for the Western District of Pennsylvania involving over 120 separate cases relating to the operation of two former nuclear fuel processing facilities 36 located in Pennsylvania ("Hall Litigation"), alleging, among other things, that they suffered personal injury and other damages as a result of radioactive emissions from these facilities. In September 1998, a jury found B&W and Atlantic Richfield liable to the plaintiffs in the first eight cases brought to trial awarding $36,700,000 in compensatory damages. This jury verdict is being contested. Management believes that this award and all other claims will be resolved within the limits and coverage of B&W's insurance policy covering these facilities; however, no assurance on insurance coverage or financial impact if limits of coverage are exceeded can be given. In connection with the foregoing, B&W settled all pending and future punitive damage claims represented by the plaintiffs' lawyers in the Hall Litigation for $8,000,000 and seeks reimbursement of this amount from other parties. Additionally, McDermott is, from time to time, involved in routine litigation related to its business activity. It is management's opinion that none of this routine litigation will have a material adverse effect on McDermott's consolidated financial position or results of operations. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At MII's Annual Meeting of Stockholders held on August 11, 1998, its stockholders' elected the following individuals as Class I Directors for a three-year term: Nominee Votes For Votes Withheld ------- --------- -------------- Philip J. Burguieres 52,959,805 651,871 Bruce DeMars 52,954,953 656,723 John W. Johnstone, Jr. 51,321,379 2,290,297 Messrs. Theodore H. Black, Robert L. Howard, William McCollum, Jr., Roger E. Tetrault and John N. Turner also continued as MII directors immediately after the meeting. Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibit 27 - Financial Data Schedule (b) Reports on Form 8-K A current report on Form 8-K, Item 4, dated July 29, 1998 was filed on July 30, 1998. 37 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. ----------------------------- /s/ Daniel R. Gaubert ---------------------- By: Daniel R. Gaubert Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer and Duly Authorized Representative) November 10, 1998 38 EXHIBIT INDEX Exhibit Description - ------- ----------- 27 Financial Data Schedule 39 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MCDERMOTT INTERNATIONAL'S SEPTEMBER 30, 1998 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS. 1,000 6-MOS MAR-31-1999 SEP-30-1998 345,934 326 545,521 67,233 256,756 1,394,562 1,509,352 1,039,874 3,892,955 1,220,381 567,948 0 0 60,910 761,869 3,892,955 1,599,792 1,599,792 1,470,194 1,470,194 0 0 32,236 196,099 22,923 173,176 0 0 0 173,176 2.92 2.76
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