-----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, T5C54vanh290HUOpc/m4fJXA60nNJOHP4f8mQGSluiQlrwJnNxoUnROQC0hxRXEn kQAV8X500D1XkAPs31xJ2w== 0000950134-95-003069.txt : 19951121 0000950134-95-003069.hdr.sgml : 19951121 ACCESSION NUMBER: 0000950134-95-003069 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950331 FILED AS OF DATE: 19951117 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MCDERMOTT INTERNATIONAL INC CENTRAL INDEX KEY: 0000708819 STANDARD INDUSTRIAL CLASSIFICATION: FABRICATED PLATE WORK (BOILER SHOPS) [3443] IRS NUMBER: 720593134 STATE OF INCORPORATION: R1 FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-08430 FILM NUMBER: 95594726 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-K/A 1 AMENDMENT NO.3 TO FORM 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 F O R M 1 0 - K/A-3 /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the fiscal year ended March 31, 1995 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the transition period from _____________________ to ____________________ Commission File Number 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 incorporation or organization) Identification No.) 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 Securities Registered Pursuant to Section 12(b) of the Act: Name of each Exchange Title of each class on which registered ------------------- ------------------- Common Stock, $0.01 par value New York Stock Exchange Rights to Purchase Common Stock New York Stock Exchange (Currently Traded with Common Stock) Securities registered pursuant to Section 12(g) of the Act: None 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 and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES /X/ NO / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. /X/ The aggregate market value of voting stock held by non-affiliates of the registrant was $1,444,216,074 as of April 26, 1995. The number of shares outstanding of the Company's Common Stock at April 26, 1995 was 54,063,698. DOCUMENTS INCORPORATED BY REFERENCE The Proxy Statement for the 1995 Annual Meeting of Stockholders is incorporated by reference into Part III of this report. 2 McDERMOTT INTERNATIONAL, INC. INDEX
PAGE ---- SIGNATURE OF REGISTRANT ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 23 Exhibit Number Description - ------ ----------- 22 Significant Subsidiaries of the Registrant 89
3 SIGNATURE OF REGISTRANT Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this amendment to be signed on its behalf by the undersigned, thereunto duly authorized. McDERMOTT INTERNATIONAL, INC. ----------------------------- (REGISTRANT) By: /s/ Daniel R. Gaubert ------------------------- Daniel R. Gaubert Vice President, Finance and Controller November 15, 1995 4 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL A significant portion of McDermott International's revenues and operating results are derived from its foreign operations. As a result, McDermott International's operations and financial results could be significantly affected by international factors, such as changes in foreign currency exchange rates. McDermott International's policy is to minimize its exposure to changes in foreign currency exchange rates by attempting to match foreign currency contract receipts with like foreign currency disbursements during contract negotiations. To the extent that it 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 on a continuing basis for periods consistent with its committed exposures. This practice minimizes the impact of foreign exchange rate movements on McDermott International's operating results. FISCAL YEAR 1995 VS FISCAL YEAR 1994 Power Generation Systems and Equipment's revenues increased $49,029,000 to $1,663,235,000. This was primarily due to higher revenues from fabrication and erection of fossil fuel steam and environmental control systems, nuclear fuel assemblies and reactor components for the U. S. Government, replacement nuclear steam generators, repair and alteration of existing fossil fuel steam systems, and operations and maintenance contracts for small power plants. These increases were partially offset by lower revenues from defense and space-related products (other than nuclear fuel assemblies and reactor components), extended scope of supply and fabrication of industrial boilers, and replacement parts. Power Generation Systems and Equipment's segment operating income decreased $29,131,000 to $20,810,000 due to provisions for the decontamination, decommissioning and closing of certain nuclear manufacturing facilities and the closing of a manufacturing facility ($46,489,000) and a favorable warranty reserve recorded in the prior year ($11,000,000). Operating income increased due to lower operating expenses (including favorable workers compensation adjustments) and administrative expenses (including cost reduction initiatives); higher volume and margins on operations and maintenance contracts; and improved margins on plant enhancement projects. These increases were partially offset by lower volume and margins on extended scope of supply and fabrication of industrial boilers, lower volume on replacement parts, and lower margins on nuclear fuel assemblies and reactor components for the U. S. Government. Power Generation Systems and Equipment's equity in income of investees decreased $3,668,000 to $8,364,000. This represents the results of approximately fifteen active joint ventures, ranging from equity income of $3,700,000 to equity loss of $2,800,000. As such, these investees are individually relatively small. The decrease was primarily due to a discontinued domestic venture which engaged in simulation training and lower operating results from a Chinese venture engaged in boiler manufacturing. In aggregate, there are no expected near-term trends. 23 5 Backlog for this segment at March 31, 1995 was $2,058,215,000 compared to $2,398,285,000 at March 31, 1994. At March 31, 1995 this segment's backlog with the U.S. Government was $631,578,000 (of which $21,607,000 had not been funded). U.S Government budget reductions have negatively affected this segment's government operations, and backlog at March 31, 1995 and 1994 reflects the impact of Congressional budget reductions on the advanced solid rocket motor and super conducting super collider projects in prior years. The current competitive economic environment has also negatively affected demand for other industrial-related product lines and these markets are expected to remain very competitive. As discussed (see Item 1F - Insurance), provisions for estimated future costs for non-employee products liability asbestos claims have been recognized for financial reporting purposes during fiscal years 1995 and 1994 (see Notes 1 and 10 to the consolidated financial statements and the discussion of Other-net expense and Liquidity below). Inherent in the estimate of these 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. The current competitive economic environment for the electric power industry in the United States has intensified, as the Federal Energy Regulatory Commission has begun to implement the provisions of the Energy Policy Act of 1992, which deregulated the electric power generation industry by allowing independent power producers and other companies access to its transmission and distribution systems, and the Clean Air Act amendments of 1990 have caused U. S. utilities to defer ordering large new baseload power plants and to defer repairs and refurbishments on existing plants. Most electric utilities have already purchased equipment to comply with Phase I of the Clean Air Act, and many will defer purchases of new equipment to comply with Phase II deadlines until after the turn of the century. Electric utilities in Asia are active purchasers of large, new baseload generating units, due to the rapid growth of the Pacific Rim economies and to the small existing stock of electrical generating capacity in most developing countries. Marine Construction Services' revenues decreased $61,578,000 to $1,390,919,000, primarily due to lower volume in worldwide marine and domestic fabrication operations. These decreases were partially offset by the inclusion of revenues as a result of the acquisitions of Offshore Pipelines, Inc. ("OPI") ($44,439,000) on January 31, 1995 and Northern Ocean Services ("NOS") ($59,644,000 for the full fiscal year) in February 1994 (See Note 2 to the Consolidated Financial Statements), and higher volume in foreign fabrication and procured materials. Marine Construction Services' segment operating income increased slightly to $44,619,000 (including $4,993,000 from OPI) from $44,394,000 primarily due to improved margins in foreign marine operations, inclusion of the operating results of NOS for the full fiscal year; and higher volume of procured materials, domestic engineering operations, and foreign fabrication. These increases were mostly offset by higher operating expenses, lower operating results from DCC's operations, lower margins from shipyard operations, and start-up costs associated with new shipbuilding activities. Marine Construction Services' equity in income of investees decreased $82,340,000 to $25,488,000. Both the HeereMac and McDermott-ETPM West, Inc. joint ventures performed 24 6 at lower levels than in the previous year, as several large contracts were completed in fiscal 1994. The revenues of these two joint ventures declined from $895,666,000 to $656,490,000. Most of the HeereMac decline was in the North Sea. McDermott-ETPM West, Inc. also declined in the North Sea, but this was partially offset by increased volume in West Africa. The equity income from these two joint ventures declined from $106,783,000 to $24,759,000. HeereMac's equity income decreased as a result of the reduced volume and reduced margins. McDermott-ETPM West, Inc.'s equity income also decreased as a result of the reduced volume, but the decrease was not as severe. McDermott-ETPM West, Inc. also had a loss provision of approximately $7,500,000 on a major North Sea contract. Together these two significant investees accounted for 97% of equity in earnings of investees. No other venture contributed significantly to the decline. Both joint ventures are expected to remain at low levels in fiscal 1996 and 1997. Backlog for this segment at March 31, 1995 and 1994 was $1,510,117,000 (including $46,396,000 from the acquisition of OPI) and $1,054,142,000, respectively. Not included in backlog at March 31, 1995 and 1994 was backlog relating to contracts to be performed by unconsolidated joint ventures of approximately $1,014,000,000 and $840,000,000, respectively. The activity of the Marine Construction Services' segment (including its significant investees) depends mainly on the capital expenditures of oil and gas companies and foreign governments for developmental construction. These expenditures are influenced by the selling price of oil and gas along with the cost of production and delivery, the terms and conditions of offshore leases, the discovery rates of new reserves offshore, the ability of the oil and gas industry to raise capital, and local and international political and economic conditions. Oil company exploration and production budgets in calendar year 1995 are moderately higher than 1994 expenditures. Both domestic and international areas are expected to increase, although domestic will rise at a slower rate. World oil prices in calendar year 1994 were below those in 1993. This has had a negative impact on near term marine construction activities. World oil prices in calendar year 1995 are expected to be somewhat higher than those in 1994. The composite spot price for natural gas in the United States was substantially lower in calendar year 1994 than in 1993 and has continued to decline. This segment's markets are expected to be at relatively low levels, and during fiscal year 1996, the overcapacity of marine equipment will continue to result in a competitive environment and put pressure on profit margins, including those of the two significant investees. Interest income increased $13,989,000 to $52,740,000 primarily due to recognition of interest on a receivable from an equity investee, settlement of claims for interest relating to foreign tax refunds and contract claims, and higher interest rates on investments in government obligations and other investments. Interest expense decreased $6,860,000 to $57,115,000, primarily due to a reduction of accrued interest on proposed tax deficiencies, partially offset by changes in debt obligations and interest rates prevailing thereon. Minority interest expense decreased $3,084,000 to $12,167,000 primarily due to minority shareholder participation in increased losses of DCC and JRM's losses for the two months ended March 31, 1995. These decreases in expense were partially offset by an increase due 25 7 to minority shareholder participation in the improved results of the McDermott-ETPM East joint venture. Other-net expense increased $28,926,000 to $33,291,000 primarily due to a loss related to the reduction of estimated products liability asbestos claim recoveries from insurers, a provision for the settlement of a lawsuit and losses on the sales of investment securities in the current period. The provision for income taxes decreased $45,041,000 from a provision of $24,998,000 to a benefit of $20,043,000, while income before income taxes and cumulative effect of accounting changes decreased $124,121,000. The reduction in income taxes is primarily due to a decrease in income from operations along with a reduction in a provision for taxes due to a settlement of outstanding issues and higher non-taxable earnings. In addition, McDermott International operates in many different tax jurisdictions. Within these jurisdictions, tax provisions vary because of nominal rates, allowability of deductions, credits and other benefits, and even 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. As a result of these factors, the benefit from income taxes was 219% of pretax loss in fiscal year 1995 compared to a provision for income taxes of 22% of pretax income in fiscal year 1994. Net lncome increased $19,905,000 from a loss of $10,794,000 to income of $9,111,000 reflecting the cumulative effect of the adoption of SFAS No. 112, "Employers' Accounting for Postemployment Benefits" of $1,765,000 in the current year and the cumulative effect of accounting change for non-employee products liability asbestos claims of $100,750,000 in the prior year, in addition to other items described above. FISCAL YEAR 1994 VS FISCAL YEAR 1993 Power Generation Systems and Equipment's revenues increased $90,730,000 to $1,614,206,000. This was primarily due to higher revenues from fabrication and erection of fossil fuel steam and environmental control systems, replacement nuclear steam generators, repair and alteration of existing fossil fuel steam systems, and nuclear fuel assemblies and reactor components for the U. S. Government. These increases were partially offset by lower revenues from extended scope of supply and fabrication of industrial boilers, defense and space-related products other than nuclear fuel assemblies and reactor components, and air cooled heat exchangers. Power Generation Systems and Equipment's segment operating income decreased $6,526,000 to $49,941,000. This was primarily due to lower volume and margins on extended scope of supply and fabrication of industrial boilers as well as defense and space-related products other than nuclear fuel assemblies and reactor components. There were also lower margins on plant enhancements, replacement parts, and repair and alteration of existing fossil fuel steam systems, as well as higher royalty income recorded in the prior year. These decreases were partially offset by higher volume and margins on replacement nuclear steam generators, nuclear fuel assemblies and reactor components for the U. S. Government and higher volume on fabrication and erection of fossil fuel steam and environmental control 26 8 systems. There were also lower general and administrative expenses, and lower warranty expense primarily due to net favorable warranty reserve adjustments. Power Generation Systems and Equipment's equity in income of investees increased $3,341,000 to $12,032,000. This represents the results of approximately fifteen active joint ventures, individually relatively small. The increase was primarily due to increased volume and improved margins in domestic ventures which own and operate a congeneration plant and two small power plants. There was also increased volume in a Chinese venture engaged in boiler manufacturing, but this was partially offset by reduced volume in an Indonesian venture also engaged in boiler manufacturing. Marine Construction Services' revenues decreased $197,156,000 to $1,452,497,000, primarily due to lower volume in worldwide fabrication and engineering operations, foreign marine operations and procured materials. These decreases were partially offset by the acquisition of DCC. Marine Construction Services' segment operating income decreased $23,258,000 to $44,394,000, primarily due to lower volume in worldwide fabrication and engineering operations and lower volume in procured materials. These decreases were partially offset by the acquisition of DCC, higher margins in foreign marine operations, the accelerated depreciation and write-off of certain fabrication facilities and marine construction equipment in the prior year, and reduced operating costs. Marine Construction Services' equity in income of investees increased $22,461,000 to $107,828,000. Improved results of the HeereMac joint venture were partially offset by lower results of the McDermott-ETPM West, Inc. joint venture. HeereMac's equity income increased significantly based on improved margins resulting from decreased project and operating expenses. McDermott-ETPM West, Inc.'s equity income declined based primarily on reduced volume in the North Sea and West Africa. Together these two significant investees accounted for 99% of equity in earnings of investees. No other venture significantly contributed to the increase. Interest income decreased $1,640,000 to $38,751,000. This decrease was primarily due to lower interest rates on investments in government securities and other long-term investments. Interest expense decreased $26,365,000 to $63,975,000, primarily due to changes in debt obligations and interest rates prevailing thereon. The decrease reflects the redemption of high coupon debt during April and June 1993, and a reduction in accrued interest on proposed tax deficiencies. Minority interest expense decreased $2,952,000 to $15,251,000 primarily due to minority shareholder participation in the losses of the McDermott-ETPM East joint venture in the current year and income in the prior year, partially offset by participation in the results of DCC since its acquisition in June 1993. Other-net decreased $14,562,000 to a loss of $4,365,000 from income of $10,197,000. This decrease was primarily due to gains on the sale of interests in two commercial nuclear joint ventures, a foreign marine asset casualty gain and gains on the sale of nineteen tugboats, all in the prior period. 27 9 Provision for income taxes decreased $15,101,000 to $24,998,000, while income from continuing operations before provision for income taxes, extraordinary items, and cumulative effect of accounting changes increased $7,532,000 to $114,954,000. The decrease in the provision for income taxes is primarily due to a reduction in a provision for taxes of $10,000,000 due to a settlement of outstanding issues and higher non-taxable earnings. In addition, McDermott International operates in many different tax jurisdictions. Within these jurisdictions, tax provisions vary because of nominal rates, allowability of deductions, credits and other benefits, and even 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. During this period, these factors reduced the effective tax rate to 22% from 37%. Net loss decreased $177,938,000 to $10,794,000 reflecting the cumulative effect of the change in accounting for non-employee products liability asbestos claims of $100,750,000 in the current year and the cumulative effect of the adoption of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," of $249,351,000 in the prior year, in addition to other items described above. Effect of Inflation and Changing Prices McDermott International's financial statements are prepared in accordance with generally accepted accounting principles, using historical dollar accounting (historical cost). Statements based on historical cost, however, do not adequately reflect the cumulative effect of increasing costs and changes in the purchasing power of the dollar, especially during times of significant and continued inflation. The management of McDermott International is cognizant of the effects of inflation and, in order to minimize the negative impact of inflation on its operations, attempts to cover the increased cost of anticipated changes in labor, material and service costs, either through an estimation of such changes, which is reflected in an original price, or through price escalation clauses in its contracts. Liquidity and Capital Resources During fiscal year 1995, McDermott International's cash and cash equivalents decreased $47,900,000 to $85,909,000 and total debt increased $257,077,000 (including $120,200,000 assumed in the acquisition of OPI) to $986,687,000. During this period, McDermott International used cash of $97,890,000 for additions to property, plant and equipment; $61,827,000 for dividends on International's common and preferred stocks; $35,553,000 for repayment of long-term debt; $12,559,000 in operating activities; and $17,185,000 for the repurchase of a subsidiary's preferred stock to satisfy current and future sinking fund requirements. Decreases in accounts payable reflect settlement of charter obligations to the HeereMac joint venture and amounts owned to ETPM S.A. Higher payables due to increased volume at B&W's Canadian operations and activity on the Britoil contract for the Atlantic Frontier Programme Development of Foinaven Phase One Facility ("Foinaven") were offset by lower volume elsewhere. Increases in Net contracts in progress and advance billings were primarily 28 10 due to the timing of billings on the Canadian and Foinaven contracts. Lower income taxes reflects payments made in Canada and changes in the domestic tax provision due to higher losses in the U.S., and accrued liabilities includes a reduction of accrued interest expense of $26,300,000 resulting from the settlement of outstanding tax issues with the IRS. Pursuant to an agreement with the majority of its principal insurers, McDermott International negotiates and settles products liability asbestos claims from non-employees and bills these amounts to the appropriate insurers. As a result of collection delays inherent in the process, reimbursement is usually delayed for three months or more. The number of claims had declined moderately since fiscal year 1990, but have increased during the second half of fiscal year 1995. Management believes, based on information currently available, that the recent increase represents an acceleration in the timing of the receipt of these claims, but does not represent an increase in its total estimated liability. The average amount of these claims (historical average of approximately $4,800 per claim over the last three years) has continued to rise. Claims paid in fiscal year 1995 were $126,151,000, of which $111,163,000 has been recovered or is due from insurers. At March 31, 1995, Accounts receivable-other included receivables of $34,925,000 that are due from insurers for reimbursement of settled claims. During fiscal year 1995, McDermott International received notice that provisional liquidators have been appointed to a London-based products liability asbestos insurer and certain of its subsidiaries and as a result, a loss of $14,478,000 related to the reduction of estimated products liability asbestos claim recoveries was recognized. Estimated liabilities for pending and future non-employee products liability asbestos claims are derived from McDermott 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, the ultimate loss may differ materially from amounts provided 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 McDermott International's liquidity, and management believes, based on information currently available, that they will not have a material adverse effect on liquidity in the future. McDermott International's expenditures for property, plant and equipment increased $21,569,000 to $97,890,000 in fiscal year 1995. While the majority of these expenditures were incurred to maintain and replace existing facilities and equipment, $15,010,000 was expended for the purchase of a barge which was formerly leased by a subsidiary of International. McDermott International has committed to make capital expenditures of approximately $40,301,000 (including $9,457,000 for a new pipelay system on marine equipment and $14,286,000 for the conversion of a barge to a floating production unit) during fiscal 1996. The barge conversion is financed by a $16,700,000 note, payable in 30 monthly installments beginning with the completion of the conversion. Interest is at Libor plus 2%. There were no borrowings against this facility at March 31, 1995. At March 31, 1995 and 1994, The Babcock & Wilcox Company had sold, with limited recourse, an undivided interest in a designated pool of qualified accounts receivable of approximately $175,000,000 and $170,000,000, respectively, under an agreement with a U. S. bank. The maximum sales limit available under the agreement, which expires on December 31, 1997, is $225,000,000. (See Note 7 to the consolidated financial statements). 29 11 At March 31, 1995 and 1994, International and its subsidiaries, had available to them various uncommitted short-term lines of credit from banks totaling $373,867,000 and $246,412,000, respectively. Borrowings against these lines of credit at March 31, 1995 and 1994 were $63,025,000 and $37,512,000, respectively. In addition, The Babcock & Wilcox Company had available to it a $128,000,000 unsecured and committed revolving line of credit facility. Loans outstanding under the revolving credit facility may not exceed the banks' commitments thereunder. In addition, it is a condition to borrowing under the revolving credit facility that the borrower's consolidated net tangible assets exceed a certain level. There were no borrowings against this facility at March 31, 1995 and 1994. DCC had available from a certain Canadian bank an unsecured and committed revolving credit facility of $14,184,000 which expires on May 31, 1997. Borrowings outstanding against this facility at March 31, 1995 were $7,420,000. There were no borrowings outstanding against this facility at March 31, 1994. In addition, JRM had available two secured and committed revolving credit facilities totaling $53,500,000 of which $24,500,000 was outstanding at March 31, 1995. Loans outstanding under these facilities were repaid and the facility terminated on May 10, 1995. In consideration for the contribution of substantially all of McDermott International's marine construction services business, JRM issued 3,200,000 shares of Series A $2.25 Cumulative Convertible Preferred Stock, $231,000,000 9% Senior Subordinated Notes due 2001 and a $39,750,000 Floating Rate Note at 7.69% at the Merger Date (7.4375% at March 31, 1995) to International. The Floating Rate Note is due January 31, 1997 or earlier upon demand. JRM expects to pay this note during fiscal year 1996. In addition, a subsidiary of JRM assumed all of OPI's $70,000,000 12-7/8% Guaranteed Senior Notes due 2002. The Notes due 2002 are redeemable at the option of a subsidiary of JRM after June 1997. On June 7, 1995, JRM entered into an agreement with a group of banks to provide a $150,000,000 three year unsecured and committed line of credit to support the operating requirements of its domestic and international operations. JRM is restricted, as a result of covenants in these agreements, in its ability to transfer funds to International and its subsidiaries through cash dividends or through unsecured loans or investments. As approximately $40,000,000 of its net assets were not subject to these restrictions, they are not expected to impact JRM's ability to make preferred dividend payments. The Delaware Company is restricted, as a result of covenants in credit agreements, in its ability to transfer funds to International and its subsidiaries through cash dividends or through unsecured loans or investments. Substantially all of the net assets of the Delaware Company is subject to such restrictions. It is not expected that these restrictions will have any significant effect on International's liquidity. McDermott International maintains an investment portfolio of government obligations and other investments which is classified as available for sale under SFAS No. 115 (See Note 12 to the consolidated financial statements). The fair value of short-term investments and the long-term portfolio at March 31, 1995 was $715,093,000 (amortized cost $723,946,000). The net unrealized loss on the current and long-term investment portfolio, net of income tax effect, was $8,050,000 at March 31, 1995. At March 31, 1995, approximately $146,142,000 fair value (amortized cost of $148,422,000) of these obligations were pledged to secure a letter of credit in connection with a long-term loan and certain reinsurance agreements. In addition, McDermott International had obligations of $135,691,000 under short-term repurchase agreements which were secured by government obligations with a fair value of $134,673,000 at March 31, 1995. 30 12 Working capital decreased $106,442,000 to a deficit of $40,790,000 at March 31, 1995 from $65,652,000 at March 31, 1994. During 1996, McDermott International expects to obtain funds to meet capital expenditure, working capital and debt maturity requirements from operating activities, its short-term investment portfolio, and additional borrowings. On June 1, 1995, McDermott International repaid its 10.25% Notes of $150,000,000 from its short-term investment portfolio and additional borrowings from revolving lines of credit. Leasing agreements for equipment, which are short-term in nature, are not expected to impact McDermott International's liquidity or capital resources. International's quarterly dividends are $0.25 per share on its Common Stock and $0.71875 per share on its Series C Cumulative Convertible Preferred Stock. The Delaware Company's quarterly dividends are $0.55 per share on the Series A $2.20 Cumulative Convertible Preferred Stock and $0.65 per share on the Series B $2.60 Cumulative Preferred Stock. International's and the Delaware Company's quarterly dividends were at the same rates in 1995 and 1994. JRM's quarterly dividends on its Series A and Series B Preferred Stock are $0.5625 per share. At March 31, 1995, JRM paid dividends for a partial quarterly period of $900,000 on its Series A Preferred Stock and on April 17, 1995 paid $217,000 on its Series B Preferred Stock. At March 31, 1995 the ratio of long-term debt to total stockholders' equity was 0.81 as compared with 1.23 at March 31, 1994. McDermott International accounts for income taxes in accordance with Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes". This standard requires, among other things, recognition of future tax benefits, measured by enacted tax rates, attributable to deductible temporary differences between the financial statement and income tax basis of assets and liabilities and to tax net operating loss and foreign tax credit carryforwards to the extent that realization of such benefits is more likely than not. McDermott International has provided a valuation allowance ($34,943,000 at March 31, 1995) for deferred tax assets which can not be realized through carrybacks and future reversals of existing taxable temporary differences. Management believes that remaining deferred tax assets ($675,282,000 at March 31, 1995) 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 and sale/leasebacks of appreciated assets. A major uncertainty that affects the ultimate realization of deferred tax assets is the possibility of declines in 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. 31 13 INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION ----------- ----------- 22 Significant Subsidiaries of the Registrant
EX-22 2 SIGNIFICANT SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 22 McDERMOTT INTERNATIONAL, INC. SIGNIFICANT SUBSIDIARIES OF THE REGISTRANT FISCAL YEAR ENDED MARCH 31, 1995
PERCENTAGE ORGANIZED OF VOTING UNDER THE SHARES NAME OF COMPANY LAWS OF OWNED McDermott International Investments Co., Inc. Panama 100 Babcock & Wilcox Asia Limited Hong Kong 100 McDermott International Project Management, Inc. Panama 100 McDermott Azerbaijan Marine Construction, Inc. Panama 100 McDermott Amur, Inc. Panama 100 McDermott International Beijing, Inc. Panama 100 Creole Insurance Company, Ltd. Bermuda 100 Honore Insurance Company, Ltd. Bermuda 100 Hudson Engineering International, Inc. Panama 100 Delta Hudson International, Inc. Panama 75 J. Ray McDermott, S.A. Panama 64 Hydro Marine Services, Inc. Panama 100 Northern Marine Services, Inc. Panama 100 Eastern Marine Services, Inc. Panama 100 Varsy International N.V. Netherlands Antilles 100 McDermott International B.V. Netherlands 100 McDermott Holland B.V. Netherlands 100 McDermott-ETPM East, Inc. Panama 67 McDermott Holdings (U.K.) Limited United Kingdom 100 McDermott Engineering (Europe) Limited United Kingdom 100 Northern Ocean Services Limited United Kingdom 100 McDermott Marine Construction Limited United Kingdom 100 Mentor Engineering Consultants Limited United Kingdom 100 McDermott Far East, Inc. Panama 100 P.T. McDermott Indonesia Indonesia 100 P.T. Bataves Fabricators Indonesia 100 Malmac Sdn. Bhd. Malaysia 100 North Atlantic Vessel, Inc. Panama 100 J. Ray McDermott (Aust.) Holding Pty. Limited Australia 100 McDermott Industries (Aust.) Pty. Limited Australia 100 McDermott South East Asia Pte. Ltd. Singapore 100 McDermott Overseas, Inc. Panama 100 McDermott (Nigeria) Limited Nigeria 60 McDermott Offshore Services Company, Inc. Nigeria 100 J. Ray McDermott Holdings, Inc. Delaware 100 Offshore Production & Salvage, Inc. Delaware 100 OPI Vessels, Inc. Delaware 100 OPI International Vessels, Ltd. Cayman 100
89-1 2 EXHIBIT 22 (CONTINUED) J. Ray McDermott, Inc. Delaware 100 Offshore Pipelines International, Ltd. Cayman 100 P.T. Armandi Pranaupaya Indonesia 100 Offshore Pipelines Far East Limited Vanuatu 100 Offshore Pipelines International Gulf E.C. Bahrain 100 Offshore Pipelines Nigeria Limited Nigeria 100 McDermott Incorporated Delaware 93 Hudson Engineering Corporation Delaware 100 Hudson Engineering (Canada), Ltd. Canada 100 Delta Catalytic Corporation Canada 50 Delta Hudson International, Ltd. Delaware 75 McDermott Trade Corporation Delaware 100 McDermott International Aviation, Inc. Delaware 100 McDermott Shipbuilding, Inc. Delaware 100 McDermott Inland Services, Inc. Delaware 100 McDermott Project Management, Inc. Delaware 100 McDermott Marketing Services, Inc. Delaware 100 McDermott Energy Services, Inc. Delaware 100 Babcock & Wilcox Investment Company Delaware 100 Babcock & Wilcox Idaho, Inc. Delaware 100 Babcock & Wilcox - ST Company Delaware 100 Babcock & Wilcox Sunnyside, Inc. Delaware 100 The Babcock & Wilcox Company Delaware 100 Babcock & Wilcox Equity Investments, Inc. Delaware 100 Babcock & Wilcox West Enfield Power, Inc. Delaware 100 Babcock & Wilcox Jonesboro Power, Inc. Delaware 100 Babcock & Wilcox Ebensburg Power, Inc. Delaware 100 Hudson Products Corporation Texas 100 Babcock & Wilcox International Sales and Service Corporation Delaware 100 Diamond Power Specialty Limited United Kingdom 62 Babcock & Wilcox Industries, Ltd. Canada 100 Babcock & Wilcox International, Inc. Delaware 100 Americon, Inc. Delaware 100 Babcock & Wilcox Foreign Sales Corporation Barbados 100 Power Systems Operations, Inc. Delaware 100 Palm Beach Resource Recovery Corporation Florida 100 National Ecology Company Delaware 100 B&W Nuclear Environmental Services, Inc. Delaware 100
The subsidiaries omitted from the foregoing list do not, considered in the aggregated, constitute a significant subsidiary. 89-2 -----END PRIVACY-ENHANCED MESSAGE-----