-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, f1n/EL26SngD8JAEAYPsozCxgCNANW/9BMPh9BxzodyRJLdI1mctknoji2TAmTLg 0wSAjtXdd4YgjLwPgihMOQ== 0000950134-94-000730.txt : 19940702 0000950134-94-000730.hdr.sgml : 19940702 ACCESSION NUMBER: 0000950134-94-000730 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19940331 FILED AS OF DATE: 19940627 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MCDERMOTT INTERNATIONAL INC CENTRAL INDEX KEY: 0000708819 STANDARD INDUSTRIAL CLASSIFICATION: 3443 IRS NUMBER: 720593134 STATE OF INCORPORATION: R1 FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-08430 FILM NUMBER: 94535782 BUSINESS ADDRESS: STREET 1: 1010 COMMON ST CITY: NEW ORLEANS STATE: LA ZIP: 70112 BUSINESS PHONE: 5045875400 MAIL ADDRESS: STREET 1: P O BOX 61961 CITY: NEW ORLEANS STATE: LA ZIP: 70161 10-K/A 1 AMENDMENT NO. 1 TO FORM 10-K/A 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 F O R M 1 0 - K/A-1 /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, 1994 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, $1.00 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. / / The aggregate market value of voting stock held by non-affiliates of the registrant was $1,119,910,148 as of April 28, 1994. The number of shares outstanding of the Company's Common Stock at April 28, 1994 was 53,544,467. DOCUMENTS INCORPORATED BY REFERENCE The Proxy Statement for the 1994 Annual Meeting of Shareholders is incorporated by reference into Part III of this report. 2 McDERMOTT INTERNATIONAL, INC. INDEX TO FINANCIAL STATEMENT SCHEDULES AND EXHIBITS
Page Report of Independent Auditors 2 Financial Statement Schedules Covered by Report of Independent Auditors: I Investments 3 III Condensed Financial Information of Registrant 4 IX Short-Term Borrowings 10 X Supplementary Income Statement Information 11 Signature of Registrant 12 Exhibit 10 - Material Contracts (a) Supplemental Executive Retirement Plan, as amended (i) 1992 Senior Management Stock Option Plan Exhibit 24 - Consent of Independent Auditors Exhibit 28 - Additional Exhibits (1) Supplementary Financial Information on Panamanian Securities Regulations (2) McDermott - ETPM West, Inc. Combined Financial Statements for the Fiscal Year Ended March 31, 1994 (3) Heerema Offshore Construction Group, Inc. - McDermott International, Inc. Joint Venture Combined Financial Statements 1993
All schedules other than the above have been omitted because they are not required or the information is included in the Consolidated Financial Statements or Notes thereto. 1 3 REPORT OF INDEPENDENT AUDITORS The Board of Directors and Stockholders McDermott International, Inc. We have audited the consolidated financial statements of McDermott International, Inc. as of March 31, 1994 and 1993, and for each of the three years in the period ended March 31, 1994, and have issued our report thereon dated May 9, 1994 which contained an explanatory paragraph regarding estimated future costs for non-employee products liability asbestos claims described in Note 1 to the consolidated financial statements. Our audits also included the financial statement schedules listed in the Index of Financial Statement Schedules and Exhibits in this Form 10-K/A-1. These schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. The ultimate loss from non-employee products liability asbestos claims as explained in our report on the basic financial statements may differ materially from the amount provided in the financial statement schedules. ERNST & YOUNG New Orleans, Louisiana May 9, 1994 2 4 SCHEDULE I McDERMOTT INTERNATIONAL, INC. INVESTMENTS FOR THE FISCAL YEAR ENDED MARCH 31, 1994
PRINCIPAL MARKET CARRIED ISSUER AMOUNT COST VALUE AMOUNT Investments: Government obligations $ 397,300,000 $ 395,574,000 $ 393,331,000 $ 395,556,000 Other investments 339,016,000 319,460,000 317,705,000 319,575,000 - - - ----------------------------------------------------------------------------------------------------------------------- $ 736,316,000 $ 715,034,000 $ 711,036,000 $ 715,131,000 - - - ----------------------------------------------------------------------------------------------------------------------- - - - -----------------------------------------------------------------------------------------------------------------------
3 5 Schedule III McDERMOTT INTERNATIONAL, INC. (PARENT COMPANY ONLY) BALANCE SHEET MARCH 31, 1994 AND 1993
ASSETS - - - ------ 1994 1993 ---- ---- (In thousands) Current Assets: Cash and cash equivalents $ 2,413 $ 2,868 Accounts receivable - trade 13,819 40,283 Accounts receivable - other 31,526 25,786 Accounts receivable from subsidiaries 718,646 765,624 Contracts in progress 56,377 37,725 Other current assets 955 976 - - - --------------------------------------------------------------------------------------------------------------- Total Current Assets 823,736 873,262 - - - --------------------------------------------------------------------------------------------------------------- Investments in Subsidiaries and Other Investees, at Equity 851,469 761,416 - - - --------------------------------------------------------------------------------------------------------------- Property, Plant and Equipment, at Cost: Buildings 11,486 11,622 Machinery and equipment 73,345 73,625 Property under construction 567 201 - - - --------------------------------------------------------------------------------------------------------------- 85,398 85,448 Less accumulated depreciation 67,954 66,573 - - - --------------------------------------------------------------------------------------------------------------- Net Property, Plant and Equipment 17,444 18,875 - - - --------------------------------------------------------------------------------------------------------------- Notes Receivable from Subsidiaries and Other Investees 251,510 214,437 - - - --------------------------------------------------------------------------------------------------------------- Other Assets 8,307 8,019 - - - --------------------------------------------------------------------------------------------------------------- TOTAL $ 1,952,466 $ 1,876,009 - - - --------------------------------------------------------------------------------------------------------------- - - - ---------------------------------------------------------------------------------------------------------------
See accompanying notes to condensed financial information. 4 6 Schedule III McDERMOTT INTERNATIONAL, INC. (PARENT COMPANY ONLY) BALANCE SHEET MARCH 31, 1994 AND 1993
LIABILITIES AND STOCKHOLDERS' EQUITY - - - ------------------------------------ 1994 1993 ---- ---- (In thousands) Current Liabilities: Notes payable and current maturities of long-term debt $ 35,970 $ 15,774 Accounts payable 21,873 37,975 Accounts payable to subsidiaries 1,126,486 1,121,802 Accrued liabilities - other 73,277 70,978 Advance billings on contracts 32,037 28,356 Income taxes 29,832 30,292 - - - ------------------------------------------------------------------------------------------------------------- Total Current Liabilities 1,319,475 1,305,177 - - - ------------------------------------------------------------------------------------------------------------- Long-Term Debt 73,800 90,400 - - - ------------------------------------------------------------------------------------------------------------- Other Liabilities 16,933 20,014 - - - ------------------------------------------------------------------------------------------------------------- Contingencies - - - ------------------------------------------------------------------------------------------------------------- Stockholders' Equity: Preferred stock 2,875 -- Common stock 53,444 52,212 Capital in excess of par value 730,987 568,329 Deficit (196,216) (126,264) Minimum pension liability (931) (74) Cumulative foreign exchange translation adjustments (47,901) (33,785) - - - ------------------------------------------------------------------------------------------------------------- Total Stockholders' Equity 542,258 460,418 - - - ------------------------------------------------------------------------------------------------------------- TOTAL $ 1,952,466 $ 1,876,009 - - - ------------------------------------------------------------------------------------------------------------- - - - -------------------------------------------------------------------------------------------------------------
5 7 Schedule III McDERMOTT INTERNATIONAL, INC. (PARENT COMPANY ONLY) STATEMENT OF INCOME (LOSS) AND RETAINED EARNINGS (DEFICIT) FOR THE THREE FISCAL YEARS ENDED MARCH 31, 1994
1994 1993 1992 ---- ---- ---- (In thousands) Revenues $ 32,635 $ 201,339 $ 173,109 - - - ---------------------------------------------------------------------------------------------------------------------- Costs and Expenses: Cost of operations 29,571 188,879 170,893 Depreciation and amortization 5,422 3,319 4,480 Selling, general and administrative expenses 27,402 20,066 29,027 - - - ---------------------------------------------------------------------------------------------------------------------- 62,395 212,264 204,400 - - - ---------------------------------------------------------------------------------------------------------------------- (29,760) (10,925) (31,291) Equity in Income of Subsidiaries and Other Investees 107,942 62,141 83,681 - - - ---------------------------------------------------------------------------------------------------------------------- Operating Income 78,182 51,216 52,390 - - - ---------------------------------------------------------------------------------------------------------------------- Other Income (Expense): Interest income 19,003 21,693 23,598 Interest expense (10,473) (10,461) (8,572) Other - net (292) 17,004 12,525 - - - ---------------------------------------------------------------------------------------------------------------------- 8,238 28,236 27,551 - - - ---------------------------------------------------------------------------------------------------------------------- Income from Continuing Operations before Provision for Income Taxes, Extraordinary Items, and Cumulative Effect of Accounting Changes 86,420 79,452 79,941 - - - ---------------------------------------------------------------------------------------------------------------------- Provision for (Benefit from) Income Taxes (3,536) 12,129 (596) - - - ---------------------------------------------------------------------------------------------------------------------- Income from Continuing Operations before Extraordinary Items and Cumulative Effect of Accounting Changes 89,956 67,323 80,537 - - - ---------------------------------------------------------------------------------------------------------------------- Loss from Discontinued Operations -- -- (3,368) - - - ---------------------------------------------------------------------------------------------------------------------- Income before Extraordinary Items and Cumulative Effect of Accounting Changes 89,956 67,323 77,169 Extraordinary Items -- (10,431) -- Cumulative Effect of Accounting Changes (100,750) (245,624) -- - - - ---------------------------------------------------------------------------------------------------------------------- Net Income (Loss) (10,794) (188,732) 77,169 - - - ---------------------------------------------------------------------------------------------------------------------- Retained Earnings, Beginning of Year (126,264) 114,204 82,919 Deduct Cash Dividends: Common Stock 53,074 51,736 45,884 Preferred Stock 6,084 -- -- - - - ---------------------------------------------------------------------------------------------------------------------- Retained Earnings (Deficit), End of Year $ (196,216) $ (126,264) $ 114,204 - - - ---------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------
See accompanying notes to condensed financial information. 6 8 Schedule III McDERMOTT INTERNATIONAL, INC. (PARENT COMPANY ONLY) STATEMENT OF CASH FLOWS FOR THE THREE FISCAL YEARS ENDED MARCH 31, 1994 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
1994 1993 1992 ---- ---- ---- (In thousands) < CASH FLOWS FROM OPERATING ACTIVITIES: Net Income (Loss) $ (10,794) $ (188,732) $ 77,169 - - - ---------------------------------------------------------------------------------------------------------------------- Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 5,422 3,319 4,480 Equity in income of subsidiaries and other investees, less dividends (101,787) (36,438) (4,515) Provision for deferred taxes (2,997) 1,278 2,837 Cumulative effect of accounting changes 100,750 245,624 -- Extraordinary items -- 10,431 -- Other (346) 1,167 2,048 Changes in assets and liabilities: Net contracts in progress and advance billings (14,940) (11,981) (11,398) Accounts and notes receivable 88,034 (53,471) (167,691) Accounts payable (11,559) 85,088 85,263 Income taxes (757) 4,780 (21,638) Other, net 5,142 (1,196) (562) - - - ---------------------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 56,168 59,869 (34,007) - - - ---------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale and disposal of assets 368 11,102 2,727 Purchases of property, plant and equipment (2,120) (13,005) (2,045) Acquisition of minority interest -- -- (10,267) Investments in subsidiaries (100,069) -- -- Loan to subsidiary (58,040) -- -- Other -- 2,122 315 - - - ---------------------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (159,861) 219 (9,270) - - - ----------------------------------------------------------------------------------------------------------------------
7 9 CONTINUED INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
1994 1993 1992 ---- ---- ---- (In thousands) CASH FLOWS FROM FINANCING ACTIVITIES: Payment of long-term debt $ (15,000) $ (14,258) $ (13,616) Increase (decrease) in short-term borrowing 18,596 (284) (1,851) Issuance of common stock 16,441 8,034 102,963 Issuance of preferred stock 140,066 -- -- Dividends paid (56,773) (51,528) (44,075) - - - ---------------------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 103,330 (58,036) 43,421 - - - ---------------------------------------------------------------------------------------------------------------------- EFFECTS OF EXCHANGE RATE CHANGES ON CASH (92) -- 4 - - - ---------------------------------------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (455) 2,052 148 - - - ---------------------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 2,868 816 668 - - - ---------------------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 2,413 $ 2,868 $ 816 - - - ---------------------------------------------------------------------------------------------------------------------- - - - ---------------------------------------------------------------------------------------------------------------------- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest, including intercompany interest (net of amount capitalized) $ 10,989 $ 12,702 $ 14,230 Income taxes $ 371 $ 5,878 $ 8,533 - - - ----------------------------------------------------------------------------------------------------------------------
See accompanying notes to condensed financial information. 8 10 Schedule III McDERMOTT INTERNATIONAL, INC. (PARENT COMPANY ONLY) NOTES TO CONDENSED FINANCIAL INFORMATION FOR THE THREE FISCAL YEARS ENDED MARCH 31, 1994 - - - -------------------------------------------------------------------------------- - - - -------------------------------------------------------------------------------- NOTE 1 - BASIS OF PRESENTATION The accompanying financial statements have been prepared to present the unconsolidated financial position, results of operations and cash flows of McDermott International, Inc. (Parent Company Only). Investments in subsidiaries and other investees are stated at cost plus equity in undistributed earnings from date of acquisition. These Parent Company Only financial statements should be read in conjunction with McDermott International, Inc.'s consolidated financial statements. NOTE 2 - LONG-TERM DEBT Long-term debt consists of: 1994 1993 ---- ---- (In thousands) 10.375% Note payable due 1998 (Secured) $ 90,400 $ 105,400 Less: Amounts due within one year 16,600 15,000 --------- ---------- $ 73,800 $ 90,400 ========= ========== Maturities of long-term debt during the five fiscal years subsequent to March 31, 1994 are as follows: 1995 - $16,600,000; 1996 - $18,500,000; 1997 - $20,500,000; 1998 - $22,600,000; 1999 - $12,200,000. NOTE 3 - CONTINGENCIES McDermott International, Inc. is contingently liable under standby letters of credit totaling $7,200,000 at March 31, 1994 issued in the normal course of business. McDermott International, Inc. has guaranteed the indebtedness of certain of its subsidiaries and other investees. At March 31, 1994, these guarantees included $17,215,000 of loans to and $16,897,000 of standby letters of credit issued by certain subsidiaries and other investees. NOTE 4 - DIVIDENDS RECEIVED McDermott International, Inc. received dividends from its consolidated subsidiaries of $138,438,000 (including $132,283,000 of investments), $25,703,000 and $75,798,000 for the years ended March 31, 1994, March 31, 1993 and March 31, 1992, respectively. 9 11 SCHEDULE IX McDERMOTT INTERNATIONAL, INC. SHORT-TERM BORROWINGS FOR THE THREE FISCAL YEARS ENDED MARCH 31, 1994
MAXIMUM AVERAGE WEIGHTED WEIGHTED AMOUNT AMOUNT AVERAGE BALANCE AVERAGE OUTSTANDING OUTSTANDING INTEREST RATE AT END OF INTEREST DURING THE DURING THE DURING THE PERIOD RATE PERIOD (1) PERIOD (2) PERIOD (3) Notes payable to banks and other financial institutions: 1994: Banks $ 37,512,000 4.70% $ 64,853,000 $ 52,052,000 4.57% Other Financial Institutions $ -- -- $ -- $ 4,843,000 3.54% All Categories $ 37,512,000 4.70% $ 64,853,000 $ 56,895,000 4.48% - - - ------------------------------------------------------------------------------------------------------------------------ - - - ------------------------------------------------------------------------------------------------------------------------ 1993: Banks $ 775,000 9.00% $ 119,426,000 $ 40,006,000 5.55% Other Financial Institutions $ -- -- $ 189,568,000 $ 61,260,000 3.40% All Categories $ 775,000 9.00% $ 194,568,000 $ 101,266,000 4.25% - - - ------------------------------------------------------------------------------------------------------------------------ - - - ------------------------------------------------------------------------------------------------------------------------ 1992: Banks $ 10,556,000 11.64% $ 71,969,000 $ 46,659,000 9.14% Other Financial Institutions $ -- -- $ 293,422,000 $ 254,020,000 5.29% All Categories $ 10,556,000 11.64% $ 357,472,000 $ 300,679,000 5.88% - - - ------------------------------------------------------------------------------------------------------------------------ - - - ------------------------------------------------------------------------------------------------------------------------
(1) The maximum amount outstanding during the period represents the maximum amount at any month end. (2) The average amount outstanding during the period was computed by dividing the sum of the daily outstanding balances by the number of calendar days in the year. (3) The weighted average interest rates during the period were computed by dividing the actual interest incurred on the short- term borrowings by the average amount outstanding during the period. 10 12 SCHEDULE IX McDERMOTT INTERNATIONAL, INC. SUPPLEMENTARY INCOME STATEMENT INFORMATION FOR THE THREE FISCAL YEARS ENDED MARCH 31, 1994 (In thousands)
1994 1993 1992 ---- ---- ---- Maintenance and repairs $ 89,327 $ 115,477 $ 106,997 - - - ---------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------
11 13 SIGNATURE OF THE 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 INTERNATONAL, INC. (REGISTRANT) By:/s/ DANIEL R. GAUBERT Daniel R. Gaubert Vice President and Controller June 23, 1994 12 EX-10.(A) 2 AMENDED SUPPL. EXEC. RETIREMENT PLAN 1 EXHIBIT 10(a) McDERMOTT INTERNATIONAL, INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN Amended and Restated November 8, 1993 2 SECTION 1 DEFINITIONS: PARTICIPATION: OTHER EMPLOYERS 1.1 DEFINITIONS The following words and phrases shall have the meaning stated below unless a different meaning is plainly required by the context: (1) "Actuarial equivalent" or "equivalent actuarial value" means equality in value of the aggregate amounts expected to be received under similar or different forms of payment, based upon actuarial assumptions as provided in this Plan or as adopted from time to time by the Committee. (2) "Affiliate" or "Affiliated Company" means a company which is not a Subsidiary but in which 20% or more of the voting stock is owned, directly or indirectly, by the Company. (3) "Compensation" means the base salary earned by a Participant in respect of services with one or more Employers (regardless of when such salary is actually paid), and awards determined by the committee designated under the Company's Variable Supplemental Compensation Plan are allocable to such Participant (regardless of when such awards are actually paid), but shall exclude all the other bonuses, any severance pay, retirement or other income under this or any other pension, profit sharing, thrift saving or similar plans, stock awards of stock options, other allowances and other additional remuneration in any form. (4) "Committee" means a Committee consisting of the Chief Executive Officer, the Chief Financial Officer, the Chief Administrative Officer and the Corporate Secretary of the Company or such other committee appointed by the Board of 2 3 Directors of the Company, which Committee shall administer the Plan pursuant to the provisions of Section 4 hereof. Said Committee shall serve under the direction and at the pleasure of the Board of Directors of the Company and shall be designated the "SERP Committee." (5) "Company" means McDermott International, Inc., a Panama Corporation, and its successor or successors. (6) "Disability" means a mental or physical condition which, in the opinion of the Committee, is likely to be continuous and permanent such that the Participant is wholly prevented from engaging in any occupation for wage or profit. A Participant will not be considered disabled for purposes of the Plan, if in the opinion of the Committee, the disability is a result of: (a) excessive and habitual use by the participant of drugs or narcotics, except on the prescription of a duly licensed physician or surgeon; (b) injury or disease sustained by the participant while willfully and illegally participating in fights, riots, civil insurrections or while committing a felony; (c) injury or disease sustained by the participant while serving in any armed forces; (d) injury or disease sustained by the participant which was diagnosed or discovered subsequent to the date his employment was terminated; or (e) injury or disease sustained by the participant (other than a loaned employee) while working for anyone other than the Employer and arising out of such employment. 3 4 The Committee before approving the disability of a Participant hereunder shall require satisfactory proof, which may be evidence satisfactory to the Committee that the Participant is entitled to disability insurance benefits under the Social Security Act or may be in the form of a certificate from a duly licensed physician selected by the Committee, that the Participant has become disabled as provided herein. A Participant will not be considered disabled for purposes of the Plan until the date the Employer considers the Participant to have been dropped from its employment rolls. (7) "Employee" means any officer (other than a person acting only as a director) of an Employer. (8) "Employer" means, collectively or distributively as the context may indicate, the Company and any Subsidiary or Affiliated Company which has adopted this Plan in accordance with Section 1.3 hereof. (9) "Final Average Monthly Compensation" means the Participant's average monthly rate of compensation for a thirty-six month period which shall consist of the three years during which the Participant's Compensation was highest during the last ten years of the Participant's employment by an Employer prior to retirement. Such three years need not be consecutive. Each year shall consist of the twelve month period beginning on the month and day equivalent to the month and day of retirement and ending on the month and day equivalent to the day before the 4 5 month and day of retirement. The Participant's average monthly rate of Compensation will be determined by dividing the total Compensation attributable to such thirty-six month period, as determined in accordance with rules established by the Committee, by thirty-six. Compensation attributable to a particular year shall not include base salary earned (or Variable Supplemental Compensation awards determined to be paid) for periods prior to or following such year, regardless of whether payment of such amounts occurs during such year. (10) "Monthly Retirement Plan Offset" means: (a) If payment(s) under any other retirement or pension plan(s) or similar fund(s) or program(s) (including the Retirement and Restoration of Retirement Income Plans of McDermott Incorporated and The Babcock & Wilcox Company, and similar plans) maintained by the Employers, any Subsidiary or Affiliated Company or any other previous employer is made monthly for life only, or monthly under a joint and survivor form of payment or in monthly installments over a period equal to or greater than ten (10) years, to the Participant, or to his spouse or other joint pensioner or beneficiary, the "Monthly Retirement Plan Offset" shall be equal to such payments when and as they are made; or (b) If payment(s) under said other retirement or pension plan(s), or other similar fund(s) or program(s), is made in a lump sum or in any method of payment 5 6 other than monthly payment for life only, monthly joint and survivor payments or monthly installments over a period equal to or greater than ten (10) years, to the Participant or to his spouse or other joint pensioner or beneficiary, the "Monthly Retirement Plan Offset" shall be an actuarial equivalent amount, as determined by the Committee based upon the interest and mortality assumptions used under the plan(s) maintained by the Employers or any Subsidiary or as may be determined from time to time by the Committee under Section 1.1(1) hereof with respect to such plan(s) or fund(s) or program(s) maintained by any other previous employer. However, if any such Participant shall have contributed to the source of payment(s) or fund(s) out of which said retirement or pension payment(s) shall be paid or is payable, then the "Monthly Retirement Plan Offset" shall not include any portion of said amount attributable to the Participant's own contributions. The term "Monthly Retirement Plan Offset", with respect to the Profit Sharing and Stock Bonus Retirement Plan of McDermott Incorporated and Hudson Engineering Corporation's Profit Sharing Trust Plan (which plans were terminated on August 31, 1988) shall mean the Monthly Profit Sharing and Stock Bonus Retirement Plan Offset determined under Section 1.1(A)(29) of the Retirement Plan for Employees of McDermott Incorporated and Subsidiary and Affiliated Companies. If any Participant shall become entitled to or shall be paid any pension or retirement income payment(s) or payment(s) of similar kind, under any plan in respect of which the Employer, any Subsidiary or Affiliate or any previous employer shall have 6 7 directly or indirectly contributed by reason of any law of the United States or of any state thereof or of any foreign country, then the total amount paid or payable to him in respect of any such allowance or payments shall be considered a retirement or pension plan maintained by the Employer, any Subsidiary or Affiliate or any other previous employer for purposes of this Plan. United States Social Security payment(s), Workmen's Compensation and similar benefits, shall, however, not be included in "Monthly Retirement Plan Offset". 7 8 (11) "Number of Years of Credited Service" means: (a) For those Participants covered by Section 2.1(A), the total period of an Employee's Service computed in completed years until he attains age 60, or if earlier, his retirement under Section 2.2. hereof, provided that Service prior to an Employees attaining age 35 shall not be counted for purposes of the Plan. If an Employee has a period of Service upon his attaining age 60 of less than a completed year, there shall be added to his Number of Years of Credited Service a fraction, the numerator of which shall be the number of his months of Service for said period, computed in completed months and the denominator of which shall be 12. (b) For those Participants covered by Section 2.1(B), the total period of an Employee's Service computed in completed years until he attains age 65, or if earlier, his retirement under Section 2.2. hereof, provided that Service prior to an Employees attaining age 35 shall not be counted for purposes of the Plan. If an Employee has a period of Service upon his attaining age 65 of less than a completed year, there shall be added to his Number of Years of Credited Service a fraction, the numerator of which shall be the number of his months of Service for said period, computed in completed months and the denominator of which shall be 12. (c) For those Participants covered by Section 2.1(C), the total period of an 8 9 Employee's Service computed in completed years until he attains age 65, or if earlier, his retirement under Section 2.2. hereof, provided that Service prior to an Employees attaining age 45 shall not be counted for purposes of the Plan. If an Employee has a period of Service upon his attaining age 65 of less than a completed year, there shall be added to his Number of Years of Credited Service a fraction, the numerator of which shall be the number of his months of Service for said period, computed in completed months and the denominator of which shall be 12. (12) "Participant" means any Employee of an Employer who under Section 1.2 has been selected to participate in the Plan. (13) "Plan" means the McDermott International, Inc. Supplemental Executive Retirement Plan as set forth in this document and as it may hereafter be amended from time to time. (14) "Retirement Date" means: (a) For those Participants covered by Section 2.1(A), the first day of the month coincident with or next following the date a Participant attains age 60. (b) For those Participants covered by Section 2.1(B), the first day of the month coincident with or next following the date a Participant attains age 65. 9 10 (c) For those Participants covered by Section 2.1(C), the first day of the month coincident with or next following the date a Participant attains age 65. (15) "Subsidiary" means a company in which more than 50% of the voting stock is owned, directly or indirectly, by the Company. (16) "Service" means that period of employment with an Employer, or with any Subsidiary or Affiliate, including any predecessor, from the Employee's date of hire to the date of termination of his service. Transfer of employment among the Employers and other Subsidiaries or Affiliates shall not be deemed an interruption of employment for purposes of the Plan, and no period of Service rendered for a given Employer shall count as Service for more than one Employer. Employment with any person, firm or corporation to which the Employee was transferred and loaned for such employment by an Employer will be included in the Employee's Service in the same manner as if such employment had been with an Employer. Any Employee who is absent from active employment due to accident or illness and during such absence remains on the payroll shall be deemed to be in employment during such absence. Any voluntary termination and any other absence from active employment not deemed a leave of absence shall terminate an Employee's Service as of the date the Employer considers the Employee to have been dropped from its employment rolls. A period of authorized leave of absence granted by the Employer or absence for the purpose of military service pursuant to the requirement of law or by enlistment for not longer than the minimum period 10 11 required by law, shall be counted as service if the Employee resumes his employment with an Employer at the end of such leave of absence or within the period prescribed by law for the exercise of his reemployment rights. (17) The masculine pronoun whenever used includes the feminine pronoun, and nouns stated in the singular shall include the plural whenever appropriate. (18) "Effective Change in Control" means an event or series of events by which (A) any "person" or "group" (as such terms are used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended, (the "Exchange Act")) is or becomes (other than pursuant to a transaction or agreement previously approved by the Company's Board of Directors (the "Board") the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act, except that a person shall be deemed to be the "beneficial owner" of all shares that any such person has the right to acquire pursuant to any agreement or arrangement or upon exercise of conversion rights, warrants, options or otherwise, without regard to the sixty day period referred to in such Rule), directly or indirectly, of securities representing 50% or more of the combined voting power of the Company's then outstanding voting securities, excluding for these purposes the Company's Series A Participating Preferred Stock; or (B) during any period of two consecutive years (not including any period prior to the effective date of this provision of the Plan), individuals who at the beginning of such period constituted the Board and any new directors, whose election by the Board or nomination for election by the 11 12 Company's stockholders was approved by a vote of at least two-thirds (2/3) of the Company's directors then still in office who either were the Company's directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason (other than pursuant to a transaction which would have qualified as a transaction described in (A) above but for the prior approval of such transaction by the Board) to constitute a majority thereof. 1.2 PARTICIPATION Each Employee shall become a Participant as of the date the Committee selects the Employee for participation in the Plan. Any Employee who continues in the employment of the Employers beyond his Retirement Date shall no longer qualify as a Participant under this Plan and, except as otherwise provided in Section 2.4(D), he and his spouse shall not be entitled to any benefits whatsoever under this Plan. Also, if a Participant remains in the employment of the Employers but has a change in his employment status so that he no longer qualifies as an Employee as defined herein, such person shall no longer qualify as a Participant under this Plan and, except as otherwise provided in Section 2.4(D), he and his spouse shall not be entitled to any benefits whatsoever under this Plan unless he has a subsequent change in his employment status so that he qualifies as an Employee hereunder and the Committee selects him for participation in the Plan." 1.3 - OTHER EMPLOYERS Any Subsidiary or Affiliate may adopt this Plan by proper action of its board of directors, provided, however, that the administrative powers and control of the Company, as 12 13 provided in the Plan shall not be deemed diminished under the Plan by reason of the participation of any other Employers in the Plan. The administrative powers and control granted in Section 4 of the Plan to the Company with respect to the administration of the Plan by the Committee and other matters shall apply only with respect to the Company and not to any other Employer. Each Employer shall have the obligation to pay the retirement benefits under this Plan for its own Employees and no other Employer shall have such obligation, and any failure by a particular Employer to live up to its obligation under the Plan shall have no effect on any other Employer. 13 14 SECTION 2 AMOUNT AND PAYMENT OF RETIREMENT INCOME 2.1 - RETIREMENT - AMOUNT OF RETIREMENT INCOME (A) Except as to those Participants described in Section 2.1(B), each Participant who joined the Plan prior to April 1, 1989, other than a Participant to whom the provisions of Section 2.2 or 2.4 apply, who retires on his Retirement Date shall be entitled to receive a monthly retirement benefit equal to: (1) 2% of his Final Average Monthly Compensation multiplied by his Number of Years of Credited Service after attaining age 35; plus (2) 2% of his Final Average Monthly Compensation multiplied by his Number of Years of Credited Service after attaining age 55; less (3) the amount, if any, of the Participants's Monthly Retirement Plan Offset; provided, however, that in any event, the monthly retirement income payable to a Participant (prior to giving effect to the Participant's Monthly Retirement Plan Offset) shall not exceed 60% of his Final Average Monthly Compensation. (B) Each Participant who joined the Plan prior to April 1, 1989 and was actively employed by any Employer on March 31, 1989, that is offered in writing, in the sole discretion of the Committee or the Board of Directors, the opportunity to delay his Retirement Date under the Plan until the age of 65 and who then accepts and 14 15 consents to such offer in writing, shall be entitled to a monthly retirement benefit equal to: (1) 2% of his Final Average Monthly Compensation multiplied by his Number of Years of Credited Service after attaining age 35; plus (2) 2% of his Final Average Monthly Compensation multiplied by his Number of Years of Credited Service after attaining age 55; less (3) The amount, if any, of the Participant's Monthly Retirement Plan Offset; provided, however, that in any event, the monthly retirement income payable to a Participant (prior to giving effect to the Participant's Monthly Retirement Plan Offset) shall not exceed 65% of his Final Average Monthly Compensation. (C) Each Participant who joins the Plan on or after April 1, 1989, other than a Participant to whom the provisions of Section 2.2 or 2.4 apply, who retires on his Retirement Date shall be entitled to receive a monthly retirement benefit equal to: (1) 3% of his Final Average Monthly Compensation multiplied by his Number of Years of Credited Service after attaining age 45; less 15 16 (2) the amount, if any, of the participant's Monthly Retirement Plan Offset; provided, however, that in any event, the monthly retirement income payable to a Participant (prior to giving effect to the Participant's Monthly Retirement Plan Offset) shall not exceed 60% of his Final Average Monthly Compensation. 2.2 - EARLY RETIREMENT - AMOUNT OF RETIREMENT INCOME A Participant who retires prior to his Retirement Date with the consent of the Employer (which consent may be withheld in the Employer's sole discretion) shall be entitled to receive a monthly retirement income as determined in accordance with the applicable provision of Section 2.1 hereof based upon the Participant's Number of Years of Credited Service as determined on his early retirement date and Final Average Monthly Compensation as determined on his early retirement date, or as to a Participant covered by Section 2.1(B) on the date he attains age 60, whichever is greater. 2.3 - PAYMENT OF RETIREMENT INCOME The monthly retirement income under Section 2.1 and 2.2 hereof will be payable on the first day of each month. The first payment will be made on the Participant's Retirement Date, or upon his retirement under Section 2.2 hereof, whichever is earlier, and the last payment will be the payment due next preceding the retired Participant's death, provided, however, that following a retired Participant's death, one-half of the retired Participant's monthly retirement income shall be paid to his spouse if she shall have been married to the Participant on the date of his retirement under Section 2.1 or Section 2.2, whichever 16 17 is applicable, and shall have survived him, for her lifetime. 2.4 - BENEFITS OTHER THAN ON RETIREMENT (A) Benefit Payable in the Event of Death on or Prior to Retirement Date: If the service of a Participant is terminated by reason of his death on or prior to his Retirement Date, his surviving spouse shall be entitled to receive for her remaining lifetime a monthly income equal to the monthly retirement income to which the Participant would have been entitled under Section 2.1 if he had retired on his Retirement Date and if his Compensation for the one year period prior to his death had continued without change to his Retirement Date; provided, however, that on the deceased Participant's Retirement Date, the amount of monthly income payable to his surviving spouse shall be reduced to one-half of said monthly income. (B) Benefits Payable in the Event of Disability: In the event an Employee becomes disabled while a Participant in the Plan, he shall be entitled to receive a monthly retirement income equal to the amount of monthly retirement income to which he would have been entitled on his Retirement Date, computed as for retirement in accordance with Section 2.1 hereof, as if his employment had not been terminated but had continued uninterrupted from the date of disability to his Retirement Date and as if his Compensation for the one year period prior to his disability had continued without change to his Retirement Date. The monthly retirement income under this Section 2.4(B) will be payable commencing on the first day of each month coincident with or next following said Participant's disability as determined 17 18 under Section 1.1(5) hereof. The last payment will be as follows: (1) if the Participant recovers from his disability prior to his Retirement Date, the last payment shall be the payment due next preceding the date of such recovery; or (2) if the Participant attains his Retirement Date while still disabled, the last payment will be the payment next preceding the Participant's death, provided, however, that following a Participant's death, one-half of the Participant's monthly retirement income shall be paid to his spouse if she shall have been married to the Participant on his Retirement Date and shall have survived him, for her lifetime. (C) Benefit Payable in the Event of Death of Disabled Participant prior to Retirement Date: If a disabled Participant dies prior to his Retirement Date, his surviving spouse shall be entitled to receive for her remaining lifetime a monthly income equal to the monthly retirement income to which the Participant would have been entitled under Section 2.1 if he had retired on his Retirement Date and if his Compensation for the one year period prior to his disability had continued without change to his Retirement Date; provided, however, that on the deceased Participant's Retirement Date, the amount of monthly income payable to his surviving spouse shall be reduced to one-half of said monthly income. 18 19 (D) (1) Benefits on Termination of Service: In the event that a Participant who has attained age 60 on or before December 31, 1993 terminates employment on or after December 31, 1993 for reasons other than his death, disability, or retirement under Section 2.2 hereof, he shall be entitled to receive a monthly retirement income as determined in accordance with the applicable provision of Section 2.1 hereof, based upon the Participant's Number of Years of Credited Service and Final Average Monthly Compensation as determined on December 31, 1993. The monthly retirement payment under this paragraph will be payable commencing on the Participant's Retirement Date as determined under Section 1.1(14) hereof, and the last payment will be the payment due next preceding the terminated Participant's death, provided, however that following a terminated Participant's death, one-half of the retired Participant's monthly retirement income shall be paid to his spouse if she shall have been married to the Participant on the date his monthly retirement payments commenced, and shall have survived him, for her lifetime. If a Participant should die after termination of employment and before monthly retirement income payments commence, no benefits whatsoever shall be payable under this Plan. (2) Except as to those Participants described in paragraph (1) above, in the event that a Participant terminates employment for any reason other than his death, disability or retirement under Section 2.2 hereof, he, and his spouse, shall not be entitled to any benefits whatsoever under this Plan. 19 20 (3) Notwithstanding any other provision of this Plan to the contrary, in the event a Participant's employment is terminated for any reason whatsoever after the date of an Effective Change in Control but prior to his Retirement Date, such Participant (or his surviving spouse, if any) shall be entitled to receive the greater of (i) the benefits to which such Participant or surviving spouse may be entitled to under any other provisions of this Plan or (ii) the Deferred Vested Benefit provided below. The Deferred Vested Benefit with respect to such a Participant shall be non-forfeitable and shall be determined in accordance with Section 2.1 hereof based on such Participant's Number of Years of Credit Service and Final Average Monthly Compensation as determined as of the date of the Effective Change in Control. Such Deferred Vested Benefit shall be paid in accordance with the provisions of Section 2.3 hereof, commencing on such former Participant's Retirement Date and he shall be considered a Participant for purposes of determining such Retirement Date. In the event of the death of such former Participant prior to his Retirement Date, such date of death shall be deemed to be his Retirement Date for purposes of determining any spousal benefits under Section 2.3 hereof." 2.5 INCREASE IN BENEFITS In the event a Participant, or his surviving spouse, is receiving benefits under Sections 2.1, 2.2 or 2.4 (A) through (C) hereof and the Retirement Plan for Employees of McDermott Incorporated and Subsidiary and Affiliated Companies provides for an increase 20 21 in pension payments after retirement as a result of cost of living or similar adjustments, then the benefits payable under Sections 2.1, 2.2 or 2.4 (A) through (C) hereof shall be similarly increased based upon the same cost of living or similar adjustments as set forth in such retirement plan. 2.6 LUMP SUM ELECTION Notwithstanding anything to the contrary which may be contained in the Plan, a Participant retiring under Section 2.1 or 2.2 after attaining the age of 60 or terminating employment with a vested interest under Section 2.4(D)(1) shall have the right, with the consent of the Committee, to elect a lump sum distribution equal to the present value of the monthly income amounts that would otherwise be received under the Plan. If a Participant retires at age 65, such Participant must have requested, in writing, the consent of the Committee to make such election at least twelve (12) months but not more than eighteen (18) months prior to such Participant's 65th birthday. If a Participant should die after reaching age 60 and before retiring, the spouse shall also have the right, with the written consent of the Committee, to elect a lump sum distribution. The amount of the lump sum distribution to be paid to any Participant shall be calculated using the following criteria: (A) The form of benefit (e.g., joint and 50% survivor) shall be the same as that elected by the Participant under the ERISA qualified plan applicable to the Participant; 21 22 (B) The UP-84 Mortality Table; and (C) The Immediate Annuity Interest Rate published by the Pension Benefit Guaranty Corporation as in effect on the date of the Participant's retirement. Payment hereunder shall be made within thirty days of the date of the Participant's retirement; provided, however that if the payment of a lump sum distribution hereunder would cause the Applicable Employee Remuneration (as defined in Section 162(m)(4) of the Internal Revenue Code of 1986, as amended) to exceed the limitation of Section 162(m)(1) of the Code, then in its sole discretion the Committee may defer such payment. Deferred payment hereunder shall be made within thirty days of the first day of the fiscal year of the Employer next following the Participant's retirement date. A deferred lump sum distribution shall earn interest from the Participant's date of retirement until paid, compounded daily, at the minimum commercial lending rate charged from time to time by Morgan Guaranty Trust Company of New York for loans in New York City. If a Participant should die after retiring and prior to the payment of a deferred lump sum distribution, such distribution shall be payable to his spouse at the time it would have been paid to the Participant, if she shall have been married to him on his Retirement Date and shall have survived him. Any payment made under this Section 2.6 shall be in complete satisfaction of any amounts which may be due to any Participant or his surviving spouse or any other person claiming under either of them pursuant to any other provisions of the Plan." 22 23 SECTION 3 SPECIAL PROVISIONS REGARDING PAYMENT OF BENEFITS 3.1 BENEFITS APPLICABLE TO PARTICIPANT WHO HAS BEEN OR IS EMPLOYED BY TWO OR MORE EMPLOYERS In the event that a Participant or his surviving spouse is entitled to benefits under the Plan and such Participant has been or is employed by any two or more Employers, his retirement benefit shall be computed by applying the benefit formulas as if all the Employers were a single Employer, provided there is a proper allocation (taking into account the Credited Service and Compensation applicable to each Employer) of the costs of the resulting benefits among the Employers by which such Participant has been or is employed. 3.2 PARTICIPANTS TO FURNISH REQUIRED INFORMATION Each Participant will furnish to the Committee such information as the Committee considers necessary or desirable for purposes of administering the Plan, and the provisions of the Plan respecting any payments thereunder are conditional upon the Participant's furnishing promptly such true, full and complete information as the Committee may request. Each Participant will submit proof of his age to the Committee at such time as required by the Committee. The Committee will, if such proof of age is not submitted as required, use as conclusive evidence thereof, such information as is deemed by it to be reliable, regardless of the source of such information. Any adjustment required by reason of lack of proof or the misstatement of the age of persons entitled to benefits hereunder, by the 23 24 Participant or otherwise, will be in such manner as the Committee deems equitable. Any notice or information which, according to the terms of the Plan or the rules of the Committee, must be filed with the Committee, shall be deemed so filed at the time that it is actually received by the Committee. The Employers, the Committee, and any person or persons involved in the administration of the Plan shall be entitled to rely upon any certification, statement, or representation made or evidence furnished by a Participant with respect to his age or other facts required to be determined under any of the provisions of the Plan, and shall not be liable on account of the payment of any monies or the doing of any act or failure to act in reliance thereon. Any such certification, statement, representation, or evidence, upon being duly made or furnished, shall be conclusively binding upon the person furnishing same; but it shall not be binding upon the Employers, the Committee, or any other person or persons involved in the administration of the Plan, and nothing herein contained shall be construed to prevent any of such parties from contesting any such certification, statement, representation, or evidence or to relieve the Participant from the duty of submitting satisfactory proof of any such fact. 3.3 BENEFITS NOT ASSIGNABLE Except for any indebtedness of a Participant to an Employer, no benefits or rights shall exist under the Plan which are subject in any manner to voluntary or involuntary anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge and 24 25 any attempt so to anticipate, alienate, transfer, assign, pledge, encumber or charge the same shall be void; nor shall any such benefit or right be in any manner liable for or subject to the debts, contracts, liabilities, engagements, torts or other obligations of the person entitled to such benefit or right, except as specifically provided in the Plan; nor shall any benefit or right under the Plan constitute an asset of a Participant or of any person entitled to benefits under the Plan in case of the bankruptcy, receivership or divorce of said person; and any such benefit or right shall be payable only directly to the Participant or to his surviving spouse. If a Participant or any other person entitled to benefits under this Plan becomes bankrupt or makes an assignment for the benefit of creditors or in any way suffers a lien or judgment against his personal assets, or in any way attempts to anticipate, alienate, sell, assign, pledge, encumber or charge a benefit or right, except as specifically provided in the Plan, then such benefit or right in the discretion of the Committee may cease and terminate. 3.4 CONDITIONS OF EMPLOYMENT NOT AFFECTED BY PLAN The establishment and maintenance of the Plan will not be construed as conferring any legal rights upon any Participant to the continuation of his employment with an Employer, nor will the Plan interfere with the right of an Employer to discipline, lay off or discharge any Participant. The adoption and maintenance of the Plan shall not be deemed to constitute a contract between the Employer and any Employee or to be a consideration for, inducement to, or condition of employment of any person. 25 26 3.5 ABANDONMENT OF BENEFITS Each Participant and other person entitled to benefits hereunder shall file with the Committee from time to time, in writing, his post office address and each change of post office address, and any check representing payment hereunder and any communication addressed to a Participant, a retired Participant, or a surviving spouse at his or her last address filed with the Committee (or, if no such address has been filed, then at his last address as indicated on the records of the Employer) shall be binding on such person for all purposes of the Plan, and the Committee shall not be obliged to search for or ascertain the location of any such person. If the Committee, for any reason, is in doubt as to whether retirement income payments are being received by the person entitled thereto, it may, by registered mail addressed to the person concerned at his address last known to the Committee, notify such person that all unmailed and future retirement income payments shall be henceforth withheld until he provides the Committee with evidence of his continued life and his proper mailing address. Further, his right to any retirement income whatsoever including, without limitation, payments withheld as provided in the preceding sentence and payment checks returned or not cashed shall, at the option of the Committee, be cancelled forever if, at the expiration of three years from the date of such mailing, he shall not have provided the Committee with evidence of his continued life and his proper mailing address. 3.6 WRITTEN COMMUNICATIONS REQUIRED Any notice, request, instruction, or other communication to be given or made hereunder shall be in writing and either personally delivered to the addressee or deposited in the 26 27 United States mail fully postpaid and properly addressed to such addressee at the last address for notice shown on the Committee's records (or if no address has been filed with the Committee, then at the last address for such addresses as indicated on the records of the Employer). 3.7 DISHONESTY If dishonest conduct injurious to the Employer committed by a Participant is determined by the Committee during the lifetime of the Participant and within one year after his retirement, the Committee may terminate the Participant's interest and benefits under this Plan. The dishonest conduct injurious to an Employer committed by a Participant shall be determined and decided by the Committee only after a full investigation of such alleged dishonest conduct and an opportunity has been given the Participant or his representative to appear before the Committee to present his case. The decision made by the Committee in such cases shall be final and binding on all Participants and other persons affected by such decision. 27 28 SECTION 4 ADMINISTRATION 4.1 ADMINISTRATION BY COMMITTEE The Plan will be administered by the Committee which shall appoint one of its members as a Chairman and may appoint a secretary, who may, but need not, be a member of the Committee and the Committee may employ such agents, clerical and other services, legal counsel, accountants and actuaries as may be required for the purpose of administering the Plan. A majority of the members of the Committee shall constitute a quorum for the transaction of business and shall have full power to act hereunder. The Committee may act either at a meeting at which a quorum is present or by a writing subscribed by at least a majority of the members then serving. Any written memorandum signed by the secretary or any member of the Committee who has been authorized to act on behalf of the Committee shall have the same force and effect as a formal resolution adopted in an open meeting. Minutes of all meetings of the Committee and a record of any action taken by the Committee shall be kept in written form by the secretary appointed by the Committee. 4.2 RULES AND REGULATIONS OF COMMITTEE The Committee shall have the authority to make such rules and regulations and to take such action as may be necessary to carry out the provisions of the Plan and will, subject to the provisions of the Plan, decide any questions arising in the administration, interpretation and application of the Plan, which decisions shall be conclusive and binding on all parties. The Committee may delegate any part of its authority and duties as it deems expedient. 28 29 4.3 POWERS OF COMMITTEE In order to effectuate the purposes of the Plan, the Committee shall have the power to construe the Plan and to make equitable adjustments for any mistakes or errors made in the administration of the Plan, and all such actions or determinations made by the Committee in good faith shall not be subject to review by anyone. 4.4 LIABILITY OF COMMITTEE No member of the Committee shall be liable for any loss unless resulting from his own fraud, bad faith or intentional wrongdoing and no member shall be personally liable upon or with respect to any agreement, act, transaction or omission executed, committed or suffered to be committed by the Committee or by himself as a member of the Committee or by any other member, agent, representative or employee of the Committee. The Committee and any individual member of the Committee and any agent thereof shall be fully protected in relying upon the advice of consultant(s) or advisor(s) employed by the Company or the Committee, including but without any limitation, any attorney insofar as legal matters are concerned, any accountant insofar as accounting matters are concerned and any actuary insofar as actuarial matters are concerned. 4.5 INDEMNIFICATION The Company agrees to hold harmless and indemnify the members of the Committee and all directors, officers, and employees of the Company and of any Subsidiary or Affiliate which has adopted this Plan against any and all claims and causes of action whomsoever, and any losses therefrom, including without limitation costs of defense and attorneys' 29 30 fees, based upon or arising out of any act or omission relating to or in connection with this Plan, its interpretation or administration, other than losses resulting from the fraud, bad faith or intentional wrongdoing of the party asserting the right to indemnification. 4.6 APPLICABLE LAW The Plan will be construed and enforced according to the laws of the State of Louisiana, and all provisions of the Plan will be administered according to the laws of the said state. 30 31 SECTION 5 GENERAL PROVISIONS 5.1 AMENDMENT AND DISCONTINUANCE The Plan may be amended from time to time in any respect whatever, by resolution of the Board of Directors of the Company specifying such amendment and amendments may be made retroactively which, in the judgment of the Committee, is necessary or advisable provided that such retroactive amendment does not deprive a retired or disabled Participant, or his spouse, without his or her consent, of a right to receive benefits hereunder. The participation in the Plan of Employers other than the Company shall not limit the power of the Company under the foregoing provision, and amendments by the Company shall be binding upon all other Employers to the extent accepted by such Employers. Acceptance by each such Employer shall be presumed. However the discontinuance of the Plan shall not affect the rights of retired or disabled Participants (or their spouses) who are receiving benefits under this Plan on the date of such discontinuance. 5.2 SOURCE OF BENEFITS All benefits payable to Participants of the Company under this Plan shall be paid from the general assets of the Company and all benefits payable to Participants of any Subsidiary or Affiliate which has adopted this Plan shall be paid from the general assets of such Subsidiary or Affiliate. Benefits shall not be paid from any special or separate fund and no special or separate fund shall be established, or other segregation of assets made to make payment of benefits to eligible Participants or their surviving spouses hereunder. No 31 32 Participant or surviving spouse or any other person shall have, under any circumstances, any interest whatever in any particular property or assets of the Company or any Subsidiary or Affiliate by virtue of this Plan. 5.3 BINDING ON COMPANY, EMPLOYEES AND THEIR SUCCESSORS This Plan shall be binding upon and inure to the benefit of the Company and to the Subsidiaries and Affiliated Companies which have adopted this Plan, their successors and assigns and the Participant and his heirs, executors, administrators, tutors, and legal representatives. IN WITNESS WHEREOF, McDermott Incorporated has caused this instrument to be executed by its duly authorized officers on this 8th day of November, 1993. ATTEST: McDERMOTT INTERNATIONAL, INC. /s/ JAMIE H. MERINGER By: /s/ R. E. HOWSON Jamie H. Meringer R. E. Howson Assistant Secretary Chairman of the Board and Chief Executive Officer 32 EX-10.(I) 3 1992 SENIOR MANAGEMENT STOCK OPTION PLAN 1 EXHIBIT 10(i) MCDERMOTT INTERNATIONAL, INC. 1992 SENIOR MANAGEMENT STOCK OPTION PLAN ARTICLE I. ESTABLISHMENT, PURPOSE, AND DURATION 1.1 ESTABLISHMENT OF THE PLAN McDermott International, Inc., a Panamanian corporation (hereinafter referred to as "International"), hereby establishes an incentive compensation plan to be known as the "McDermott International, Inc. Senior Management Stock Option Plan" (hereinafter referred to as the "Plan"), as set forth in this document. The Plan permits the grant of Options (as hereinafter defined) to senior managers of the Company (as hereinafter defined). Upon approval by the Board of Directors (as hereinafter defined), the plan shall become effective as of February 12, 1992 (the "Effective Date"), and shall remain in effect as provided in Section 1.3 herein. 1.2 PURPOSE OF THE PLAN The purpose of the Plan is to promote the success, and enhance the value, of the Company by linking the personal interests of Participants (as hereinafter defined) to those of International's shareholders and by providing Participants with an incentive for outstanding performance. The Plan is further intended to provide flexibility to the Company in its ability to motivate, attract and retain the services of Participants. 1.3 DURATION OF THE PLAN The Plan shall commence on the Effective Date, as described in Section 1.1 herein, and shall remain in effect, subject to the right of the Board of Directors to terminate the Plan at any time pursuant to Article X herein, until all Shares (as hereinafter defined) subject to Awards (as hereinafter defined) granted under it shall have been purchased or acquired according to the Plan's provisions. However, in no event may an Award be granted under the Plan on or after February 12, 2002. ARTICLE II. DEFINITIONS 2.1 DEFINITIONS Whenever used in the Plan, the following terms shall have the meanings set forth below and, 2 when the meaning is intended, the initial letter of the word is capitalized: (a) "Award" means a grant under the Plan of Options. (b) "Beneficial Owner" shall have the meaning ascribed to such term in Section 13(d) of the Securities Exchange Act of 1934 and the rules thereunder, without regard, however, to the 60-day period referred to in such Section. (c) "Board" or "Board of Directors" means the Board of Directors of International. (d) "Change in Control" of International shall be deemed to have occurred if the conditions set forth in any one or more of the following paragraphs shall have been satisfied: (1) Any person, as described in Section 3(a)(9) of the Securities Exchange Act of 1934, (other than a person in control of International on the Effective Date, or other than a trustee or other fiduciary holding securities under an Employee benefit plan of International, or a corporation owned directly or indirectly by the stockholders of International in substantially the same proportions as their ownership of Shares of voting securities of International), is or becomes the Beneficial Owner, directly or indirectly, of voting securities of International representing 30 percent or more of the combined voting power of International's then outstanding securities, excluding for these purposes the Series A Participating Preferred Stock of International; or (2) During any period of two consecutive years (not including any period prior to the execution of the Plan), individuals who at the beginning of such period constitute the Board (and any new Director, whose election by the Board or nomination for election by International's stockholders was approved by a vote of at least two-thirds of the Directors then still in office who either were Directors at the beginning of the period or whose election or nomination for election was previously so approved), cease for any reason to constitute a majority thereof; or (3) The stockholders of International approve: (a) a plan of complete liquidation of International; or (b) an agreement for the sale or disposition of all or substantially all International's assets; or (c) a merger or consolidation of International with any other corporation, other than a merger or consolidation which would result in the voting securities of International outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity), at least 50.1 percent of the combined voting securities of International (or such surviving entity) outstanding immediately after such merger or consolidation. However, in no event shall a Change in Control be deemed to have occurred, with respect to a Participant, if that 3 Participant is part of a purchasing group which consummates the Change-in-Control transaction. A Participant shall be deemed "part of a purchasing group" for purposes of the preceding sentence if the Participant is an equity participant, has been identified as a potential equity participant or has agreed to become an equity participant in the purchasing company or group (except for: (i) passive ownership of less than 3 percent of the shares of voting securities of the purchasing company; or (ii) ownership of equity participation in the purchasing company or group which is otherwise not deemed to be significant, as determined prior to the Change in Control by a majority of the disinterested Directors). (e) "Code" means the Internal Revenue Code of 1986, as amended from time to time. (f) "Company" means McDermott International, Inc., a Panamanian corporation (or any successor thereto) and its subsidiaries and affiliates. (g) "Director" means any individual who is a member of the Board of Directors of International. (h) "Employee" means any part-time or full-time Employee of the Company. Directors who are not otherwise employed by International shall not be considered Employees under the Plan. (i) "Fair Market Value" shall mean the fair market value of a Share of common stock, as determined in accordance with procedures established by the Plan Administration Committee. (j) "Insider" shall mean an Employee of the Company included in the definition of Officer under Section 16 of the Securities Exchange Act of 1934 and the rules promulgated thereunder or other Employees designated as Officers by the Board. (k) "Officer" means an Employee of the Company included in the definition of Officer under Section 16 of the Securities Exchange Act of 1934 and the rules promulgated thereunder or other Employees designated as Officers by the Board. (l) "Option" means a nonqualified Option to purchase Shares, granted under Article VI herein. The Options granted are not intended to qualify as "incentive stock options" as defined in Section 422 of the Code. (m) "Option Price" means the price at which a Share may be purchased by a Participant pursuant to an Option, as determined by the Plan Administration Committee. (n) "Participant" means an Employee of the Company who has outstanding an Award granted under the Plan. (o) "Plan Administration Committee" means a Committee of Insiders designated by the Board to oversee the Plan (as specified in Article III). (p) "Qualified Domestic Relations Order" shall mean a valid and effective domestic relations order, as determined by the Plan Administration Committee. 4 (q) "Reorganization" means a merger, consolidation, sale of all or substantially all of the Company's assets; or other corporate Reorganization in which the Company is not the surviving corporation (other than any such transaction the effect of which is merely to change the jurisdiction of incorporation of the Company); or any merger in which the Company is the surviving corporation but the holders of its Shares receive cash or securities of another corporation or different securities of the surviving corporation; or a dissolution or liquidation of the Company. (r) "Shares" means the Shares of common stock, $1 par value, of International. 5 ARTICLE III. ADMINISTRATION 3.1 PLAN ADMINISTRATION The Plan shall be administered by the Plan Administration Committee of International, each member of which shall serve at the discretion of the Board of Directors. The Plan Administration Committee may delegate its authorities as identified hereunder, except that they may not be delegated to any member of management who participates in or is eligible to participate in this Plan. 3.2 AUTHORITY OF THE PLAN ADMINISTRATION COMMITTEE The Plan Administration Committee shall have full power, except as limited by law or by the articles of incorporation or bylaws of International, and subject to the provisions herein, to determine the terms and conditions of Awards in a manner consistent with the Plan; to construe and interpret the Plan and any agreement or instrument entered into under the Plan; to establish, amend, or waive rules and regulations for the Plan's administration; and (subject to the provisions of Article X herein) to amend the terms and conditions of any outstanding Award to the extent such terms and conditions are within the discretion of the Plan Administration Committee as provided in the Plan. Further, the Plan Administration Committee shall make all other determinations which may be necessary or advisable for the administration of the Plan. 3.3 DECISIONS BINDING All determinations and decisions made by the Plan Administration Committee pursuant to the provisions of the Plan and all related orders or resolutions of the Board of Directors shall be final, conclusive, and binding on all persons, including the Company, its stockholders, Employees, Participants, and their estates and beneficiaries. ARTICLE IV. SHARES SUBJECT TO THE PROGRAM 4.1 NUMBER OF SHARES Subject to adjustment as provided in Section 4.3 herein, the total number of Shares available for grant under the Plan shall be determined by the Board from time to time. These Shares may be either authorized but unissued Shares of common stock of International, or from Shares reacquired by International, including Shares purchased in the open market. 6 4.2 LAPSED AWARDS If any unexercised Option granted under this Plan is cancelled, terminates, expires, or lapses for any reason, any Shares subject to such Award again shall be available for the grant of an Award under the Plan. 4.3 ADJUSTMENTS IN AUTHORIZED SHARES In the event of any merger, reorganization, consolidation, recapitalization, separation, liquidation, stock dividend, Share combination, or other change in the corporate structure of the Company affecting the Shares, such adjustment shall be made in the number and class of Shares which may be delivered under the Plan, and in the number and class of and/or price of Shares subject to outstanding Awards, as may be determined to be appropriate and equitable by the Plan Administration Committee, in its sole discretion, to prevent dilution or enlargement of rights; and provided that the number of Shares subject to any Award shall always be a whole number. ARTICLE V. ELIGIBILITY AND PARTICIPATION 5.1 ELIGIBILITY Persons eligible to participate in this Plan include select senior management Employees as determined at the discretion of the Plan Administration Committee. Officers will not be granted Options under this Plan. Officer is defined in Section 2.1 herein and includes all individuals eligible to receive grants under International's 1992 Officer Stock Incentive Program. If, as a result of a change in employment, a Participant becomes an Officer, the Officer Participant will no longer be eligible to receive Awards under the Plan. 5.2 ACTUAL PARTICIPATION Subject to the provisions of the Plan, the Plan Administration Committee may, from time to time, at its sole discretion, select from senior management Employees of the Company those to whom Awards shall be granted and shall determine the amount of each Award. No Employee shall have any right to be granted an Award under the Plan. The receipt of an Award in any given year does not guarantee that any Award will be made in any succeeding year. 7 ARTICLE VI. STOCK OPTIONS 6.1 OPTION GRANTS Subject to the terms and provisions of the Plan, Options may be granted to eligible Employees at any time, and from time to time, as shall be determined by the Plan Administration Committee. The Plan Administration Committee shall have discretion in determining the number of Shares subject to Options granted to each Participant. 6.2 OPTION AGREEMENT Each Option grant shall be evidenced by an Option agreement that shall specify the Option Price, the duration of the Option, the number of Shares to which the Option pertains, the exercisability provisions of the Option, payment terms, and such other provisions as the Plan Administration Committee shall determine. 6.3 OPTION PRICE The Option Price for each grant of an Option shall be determined by the Plan Administration Committee; provided that, notwithstanding any other provision of the Plan, the Option Price shall not be less than the Fair Market Value of such Share on the date the Option is granted. 6.4 DURATION OF OPTIONS Each Option shall expire at such time as the Plan Administration Committee shall determine at the time of grant; provided, however, that no Option shall be exercisable later than ten years following the anniversary date of its grant. 6.5 EXERCISE OF OPTIONS Options granted under the Plan shall be exercisable at such times and be subject to such restrictions and conditions as the Plan Administration Committee shall in each instance approve, which need not be the same for each grant or for each Participant. Options shall be exercised by the delivery of a written notice of exercise to the Plan Administration Committee, setting forth the number of Shares with respect to which the Option is to be exercised. 8 6.6 PAYMENT The method of payment of the Option Price related to any Option exercised shall be determined at the discretion of the Plan Administration Committee. However, without limitation, payment in the form of previously acquired Shares will be permitted at the discretion of the Plan Administration Committee. 6.7 RESTRICTIONS ON SHARE TRANSFERABILITY The Plan Administration Committee shall impose such restrictions on any Shares acquired pursuant to the exercise of an Option under the Plan as it may deem advisable, including, without limitation, restrictions under applicable federal securities laws, under the requirements of any stock exchange or market upon which such Shares are then listed and/or traded, and under any blue sky or state securities laws applicable to such Shares. 6.8 TERMINATION OF EMPLOYMENT In the event the employment of a Participant is terminated, the exercisability and duration of outstanding Options granted to that Participant shall be determined at the discretion of the Plan Administration Committee and the procedures shall be specified in the Option agreement. 6.9 NONTRANSFERABILITY OF OPTIONS No Option granted under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution or pursuant to a Qualified Domestic Relations Order. ARTICLE VII. BENEFICIARY DESIGNATION 7.1 BENEFICIARY DESIGNATION Each Participant under the Plan may, from time to time, name any beneficiary or beneficiaries (who may be named contingently or successively) to whom any benefit under the Plan is to be paid in case of his death before he receives any or all of such benefit. Each such designation shall revoke all prior designations by the same Participant, shall be in a form prescribed by the Plan Administration Committee, and will be effective only when filed by the Participant in writing with the Plan Administration Committee during the Participant's lifetime. In the absence of any such designation, benefits remaining unpaid at the Participant's death shall be paid to the Participant's estate. In the event that any question arises as to any beneficiary designation, the Plan Administration Committee may, in its sole discretion, elect to pay any benefits remaining at the Participant's death to the Participant's estate. 9 ARTICLE VIII. RIGHTS OF PARTICIPANTS 8.1 EMPLOYMENT Nothing in the Plan shall interfere with or limit in any way the right of the Company to terminate any Participant's service to the Company at any time, nor confer upon any Participant any right to continue service as an Employee of the Company. 8.2 PARTICIPATION No Employee shall have the right to be selected to receive an Award under the Plan, or, having been so selected, to be selected to receive a future Award. ARTICLE IX. REORGANIZATION OR CHANGE IN CONTROL 9.1 REORGANIZATION If, in the event of a Reorganization, provision has not been made for substitution of new stock Options by the surviving corporation for and having a value equal to the Options held under the Plan at the date of such Reorganization, the owner of such Options shall receive within 30 days after such Reorganization in full satisfaction of such unexpired Options, cash representing the excess, if any, of the value of stock subject to such Option, valued with reference to the highest sale price at which the common stock of International is traded as reported for consolidated trading for issues listed on the New York Stock Exchange (or if not so listed, then as reported on any other national securities exchange) during the 30 days preceding the date on which the Reorganization is consummated, over the applicable Option purchase price for such stock, without regard to the exercise dates provided in such Options under Section 6.5 of the Plan. 9.2 CHANGE IN CONTROL In the event of a Change in Control, notwithstanding any other provision of the Plan to the contrary, all outstanding Options granted under the Plan shall immediately become exercisable. 10 ARTICLE X. AMENDMENT, MODIFICATION, AND TERMINATION 10.1 AMENDMENT, MODIFICATION, AND TERMINATION With the approval of the Board, at any time, and from time to time, the Plan Administration Committee may terminate, amend, or modify the Plan and any Award agreement outstanding hereunder. 10.2 AWARDS PREVIOUSLY GRANTED Notwithstanding Section 10.1, no termination, amendment, or modification of the Plan or of any Award agreement, shall in any manner adversely affect any Award previously granted under the Plan, without the written consent of the Participant holding such Award. ARTICLE XI. WITHHOLDING 11.1 TAX WITHHOLDING The Company shall have the power and the right to deduct or withhold, or require Participants to remit to the Company, amounts sufficient to satisfy federal, state, and local taxes (including the Participants' FICA obligations) required by law to be withheld with respect to any grant, exercise, or payment made under or as a result of the Plan. The Plan Administration Committee, in its sole discretion, shall promulgate rules governing methods by which such requirements are to be satisfied. ARTICLE XII. MISCELLANEOUS 12.1 GENDER AND NUMBER Except as otherwise indicated by the context, any masculine term used herein also shall include the feminine; the plural shall include the singular and the singular shall include the plural. 13.2 SEVERABILITY In the event any provision of the Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included. 11 13.3 REQUIREMENTS OF LAW The granting of Awards and the issuance of Shares under the Plan shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required. EX-24 4 CONSENT OF INDEPENDENT AUDITORS 1 EXHIBIT 24 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements (Forms S-8 No. 2-83692, No. 33-16680, No. 33-51892, No. 33-51894 and No. 33-63832) of McDermott International, Inc. and the Registration Statement (Form S-3 No. 33-54940) of McDermott Incorporated and in the related Prospectuses of our report dated May 9, 1994 with respect to the combined financial statements of McDermott-ETPM West, Inc. included in this Annual Report (Form 10-K/A-1) for the year ended March 31, 1994. ERNST & YOUNG New Orleans, Louisiana June 22, 1994 EX-28.(1) 5 SUPPL. FINAN. INFOR. ON PANAMANIUM SECURITIES REGS 1 Exhibit 28(1) McDERMOTT INTERNATIONAL, INC. ADDITIONAL EXHIBITS SUPPLEMENTARY FINANCIAL INFORMATION PREPARED IN ACCORDANCE WITH AND SOLELY FOR THE PURPOSE OF COMPLYING WITH CERTAIN PANAMANIAN SECURITIES REGULATIONS
F.Y.E. 3/31/94 ------- (Unaudited) (In thousands) ARTICLE 29 ---------- RULE #9 - INVESTMENTS IN SUBSIDIARIES AND OTHER - - - ----------------------------------------------- INVESTEES AT EQUITY ------------------- Head Office (Parent Company) $ 851,469 Subsidiaries and Affiliates -- Eliminations/Other (723,463) --------------- McDERMOTT INTERNATIONAL, INC. $ 128,006 =============== RULE #25C - PARENT COMPANY ACCOUNTS PAYABLE TO - - - ---------------------------------------------- SUBSIDIARIES ------------ Head Office (Parent Company) $ 1,126,486 Eliminations/Other (1,126,486) --------------- McDERMOTT INTERNATIONAL, INC. $ -0- =============== ARTICLE 30 ---------- (c) - OPERATING EXPENSES BY SEGMENT - - - ----------------------------------- Power Generation Systems and Equipment $ 1,564,265 Marine Construction Services 1,408,103 Eliminations (6,791) --------------- McDERMOTT INTERNATIONAL, INC. $ 2,965,577 =============== RULE #40 - OPERATING REVENUES - - - ----------------------------- Head Office (Parent Company) $ 32,635 Subsidiaries and Affiliates 3,018,784 Eliminations/Other 8,493 --------------- McDERMOTT INTERNATIONAL, INC. $ 3,059,912 =============== RULE #41 - OPERATING EXPENSES - - - ----------------------------- Head Office (Parent Company) $ 62,395 Subsidiaries and Affiliates 2,949,090 Eliminations/Other 8,493 --------------- McDERMOTT INTERNATIONAL, INC. $ 3,019,978 ===============
2
F.Y.E. 3/31/94 ------- (Unaudited) (In thousands) ARTICLE 30 - Continued ---------- RULE #43 - DIVIDENDS RECEIVED - - - ----------------------------- Head Office (Parent Company) from Subsidiaries and Affiliates $ 138,438 Subsidiaries and Affiliates from Other Corporations 65,214 Eliminations/Other (138,438) --------------- McDERMOTT INTERNATIONAL, INC. $ 65,214 =============== RULE #44 - INTEREST INCOME - - - -------------------------- Head Office (Parent Company): from Subsidiaries and Affiliates $ 18,701 from Other Corporations 302 Subsidiaries and Affiliates from Other Corporations 38,449 Eliminations (18,701) --------------- McDERMOTT INTERNATIONAL, INC. $ 38,751 =============== RULE #46 - OTHER MISCELLANEOUS REVENUES - - - --------------------------------------- Gain on Asset Disposals during 1994 - Net $ 4,369 Foreign Currency Transaction Losses - Net (2,260) Bank Fees and Discounts on Sale of Receivables (8,699) Other Items - Net 2,225 --------------- McDERMOTT INTERNATIONAL, INC. $ (4,365) =============== RULE #51 - INVESTMENTS IN UNCONSOLIDATED AFFILIATES AT EQUITY - - - ------------------------------------------------------------- (Unaudited) (In thousands) Balance at 3/31/93 $ 76,996 Additional Investments 1,108 Equity Income 119,860 Dividends Received (65,214) Other Changes (4,744) ------------- Balance at 3/31/94 $ 128,006 =============
EX-28.(2) 6 COMBINED FINANCIAL STATEMENTS FOR 3-31-94 1 EXHIBIT 28 (2) McDERMOTT-ETPM WEST, INC. COMBINED FINANCIAL STATEMENTS FOR THE FISCAL YEARS ENDED MARCH 31, 1994 AND 1993 2 McDERMOTT-ETPM WEST, INC. INDEX
PAGE REPORT OF INDEPENDENT AUDITORS 3 COMBINED BALANCE SHEET - MARCH 31, 1994 AND 1993 4 COMBINED STATEMENT OF INCOME FOR THE FISCAL YEARS ENDED MARCH 31, 1994 AND 1993 5 COMBINED STATEMENT OF CASH FLOWS FOR THE FISCAL YEARS ENDED MARCH 31, 1994 AND 1993 6 COMBINED STATEMENT OF COMMON STOCK AND OTHER EQUITY - MARCH 31, 1994 AND 1993 7 NOTES TO COMBINED FINANCIAL STATEMENTS 8
2 3 REPORT OF INDEPENDENT AUDITORS The Board of Directors McDermott International, Inc. We have audited the accompanying combined balance sheet of McDermott - ETPM West, Inc. as of March 31, 1994 and 1993, and the related combined statements of income, common stock and other equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the combined financial position of McDermott - ETPM West, Inc. at March 31, 1994 and 1993, and the combined results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. ERNST & YOUNG New Orleans, Louisiana May 9, 1994 3 4 McDERMOTT-ETPM WEST, INC. COMBINED BALANCE SHEET MARCH 31, 1994 and 1993
1994 1993 ---- ---- (In thousands) ASSETS Current Assets: Cash and cash equivalents $ 136,885 $ 101,325 Accounts receivable - trade 26,404 81,814 Accounts receivable - affiliates 4,685 845 Accounts receivable - other 3,355 5,134 Contracts in progress 981 16,214 Prepaid expenses 549 343 - - - ------------------------------------------------------------------------------------------------------- Total Current Assets 172,859 205,675 - - - ------------------------------------------------------------------------------------------------------- Machinery and Equipment, at Cost: 5,740 4,578 Less accumulated depreciation 1,964 773 - - - ------------------------------------------------------------------------------------------------------- Net Machinery and Equipment 3,776 3,805 - - - ------------------------------------------------------------------------------------------------------- Other Assets 109 146 - - - ------------------------------------------------------------------------------------------------------- TOTAL $ 176,744 $ 209,626 - - - ------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------- LIABILITIES AND EQUITY Current Liabilities: Accounts payable $ 59,674 $ 92,604 Accounts payable - affiliates 77 18,380 Advance billings on contracts 20,684 43,088 Accrued liabilities - other 36,178 19,310 Income taxes payable 4,047 2,264 - - - ------------------------------------------------------------------------------------------------------- Total Current Liabilities 120,660 175,646 - - - ------------------------------------------------------------------------------------------------------- Other Liabilities 8,362 9,563 - - - ------------------------------------------------------------------------------------------------------- Common Stock and Other Equity: Common stock (par value $1.00 per share, authorized 1,000,000 shares; outstanding 10,000 shares) 10 10 Retained earnings and other venture capital 65,641 37,647 Cumulative foreign exchange translation adjustments (17,929) (13,240) - - - ------------------------------------------------------------------------------------------------------- Total Common Stock and Other Equity 47,722 24,417 - - - ------------------------------------------------------------------------------------------------------- TOTAL $ 176,744 $ 209,626 - - - ------------------------------------------------------------------------------------------------------- - - - -------------------------------------------------------------------------------------------------------
See accompanying notes to combined financial statements. 4 5 McDERMOTT-ETPM WEST, INC. COMBINED STATEMENT OF INCOME FOR THE TWO FISCAL YEARS ENDED MARCH 31, 1994
1994 1993 ---- ---- (In thousands) Revenues $ 382,934 $ 532,477 - - - ---------------------------------------------------------------------------------------------------- Costs and Expenses: Cost of operations 298,967 432,163 Depreciation 1,191 567 Selling, general and administrative expenses 36,110 45,763 - - - ---------------------------------------------------------------------------------------------------- 336,268 478,493 - - - ---------------------------------------------------------------------------------------------------- Operating Income 46,666 53,984 - - - ---------------------------------------------------------------------------------------------------- Other Income: Interest income 8,609 7,907 Foreign currency transactions gains (net) 3,879 15,919 - - - ---------------------------------------------------------------------------------------------------- 12,488 23,826 - - - ---------------------------------------------------------------------------------------------------- Income before Provision for Income Taxes 59,154 77,810 Provision for Income Taxes 4,252 3,003 - - - ---------------------------------------------------------------------------------------------------- Net Income $ 54,902 $ 74,807 - - - ---------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------
See accompanying notes to combined financial statements. 5 6 McDERMOTT-ETPM WEST, INC. COMBINED STATEMENT OF CASH FLOWS FOR THE TWO FISCAL YEARS ENDED MARCH 31,1994 AND 1993 INCREASE IN CASH AND CASH EQUIVALENTS
1994 1993 ---- ---- (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 54,902 $ 74,807 - - - ---------------------------------------------------------------------------------------------------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 1,191 567 Changes in assets and liabilities: Net contracts in progress and advance billings (7,171) (18,546) Accounts receivable 53,349 42,942 Accounts payable (51,233) 3,154 Other, net 18,513 (3,855) - - - ---------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 69,551 99,069 - - - ---------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment (1,162) (1,566) - - - ---------------------------------------------------------------------------------------------------- NET CASH USED IN INVESTING ACTIVITIES (1,162) (1,566) - - - ---------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Dividends paid in advance of shareholder approval (26,908) -- - - - ---------------------------------------------------------------------------------------------------- NET CASH USED IN FINANCING ACTIVITIES (26,908) -- - - - ---------------------------------------------------------------------------------------------------- EFFECTS OF EXCHANGE RATE CHANGES ON CASH (5,921) (24,448) - - - ---------------------------------------------------------------------------------------------------- NET INCREASE IN CASH AND CASH EQUIVALENTS 35,560 73,055 - - - ---------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 101,325 28,270 - - - ---------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 136,885 $ 101,325 - - - ---------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------
See accompanying notes to combined financial statements. 6 7 McDERMOTT-ETPM WEST, INC. COMBINED STATEMENT OF COMMON STOCK AND OTHER EQUITY MARCH 31, 1994 (In thousands)
Retained Earnings Foreign Common and Other Currency Stock Venture Capital Translation Total ----- --------------- ----------- ----- Balance April 1, 1992 $ 10 $ (37,160) $ 2,312 $ (34,838) Net income -- 74,807 -- 74,807 Cumulative foreign exchange translation adjustments -- -- (15,552) (15,552) - - - ------------------------------------------------------------------------------------------------------------------ Balance March 31, 1993 10 37,647 (13,240) 24,417 - - - ------------------------------------------------------------------------------------------------------------------ Net income -- 54,902 -- 54,902 Dividends paid in advance of shareholder approval -- (26,908) -- (26,908) Cumulative foreign exchange translation adjustments -- -- (4,689) (4,689) - - - ------------------------------------------------------------------------------------------------------------------ Balance March 31, 1994 $ 10 $ 65,641 $ (17,929) $ 47,722 - - - ------------------------------------------------------------------------------------------------------------------ - - - ------------------------------------------------------------------------------------------------------------------
See accompanying notes to combined financial statements. 7 8 McDERMOTT-ETPM WEST, INC. NOTES TO COMBINED FINANCIAL STATEMENTS FOR THE FISCAL YEARS ENDED MARCH 31, 1994 AND 1993 NOTE 1 - GENERAL McDermott-ETPM West, Inc. is a joint venture between McDermott International, Inc. and ETPM, S.A. which provides general marine construction services to the petroleum industry in the North Sea, West Africa and South America. McDermott International and ETPM, S.A. own 49.9% and 50.1% of McDermott-ETPM West, Inc., respectively. McDermott-ETPM West, Inc., a Panamanian corporation, charters one semi-submersible lay barge and one combination derrick-pipelaying barge from McDermott International and two combination derrick-pipelaying barges from ETPM, S.A. McDermott International and ETPM, S.A. also provide fabrication facilities located in Warri, Nigeria and Tchenque, Gabon, respectively. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The combined financial statements are presented in U.S. dollars in accordance with accounting principles generally accepted in the United States. The combined financial statements combine financial information of McDermott-ETPM West, Inc. and its subsidiaries, and other entities of both McDermott International, Inc. and ETPM S.A., which perform contracts on behalf of McDermott-ETPM West, Inc. All significant intercompany transactions and accounts have been eliminated. Unless the context otherwise requires, hereinafter the "Joint Venture" will be used to mean the combined enterprise. Cash and Cash Equivalents Cash equivalents are highly liquid investments, with maturities of three months or less when purchased. The carrying amounts reported in the balance sheet for cash and cash equivalents approximate their fair value. Contracts and Revenue Recognition Contract revenues on long-term contracts are recognized on a percentage of completion method. Under this method revenues and costs are recognized based on the percentage that costs to date bear to total estimated costs. Revenues that exceed amounts invoiced to customers under the terms of the contracts are included in Contracts in Progress. Billings that exceed revenues recognized under percentage of completion are included in Advance Billings on Contracts. Most long-term contracts have provisions for progress payments. Contract price and cost estimates are reviewed periodically as the work progresses and adjustments proportionate to the percentage of completion are reflected in income in the period when such estimates are revised. There are no unbilled revenues which will not be billed. Provisions are made currently for all known or anticipated losses. Claims for extra work or changes in scope of work are included in contract revenues when collection is probable. Retainages on contracts are included in Accounts receivable - trade. There were no such amounts at March 31, 1994, while $1,899,000 (all of which was collected during fiscal year 1994) was included at March 31, 1993. 8 9 Depreciation, Maintenance and Repairs and Drydocking Expenses Machinery and equipment is depreciated on the straight-line method, using estimated useful lives of four to seven years. Maintenance, repairs and renewals which do not materially prolong the useful life of an asset are expensed as incurred ($13,896,000 and $12,317,000 during fiscal years 1994 and 1993, respectively), except for drydocking costs for the marine fleet and refurbishment costs for the main work barges, both of which are chartered from the stockholders. Drydocking costs are estimated and accrued over the period of time between drydockings, and are charged to operations currently. Refurbishment costs for the main work barges are estimated and accrued during working periods and charged to operations currently. Foreign Currency Translation Assets and liabilities are translated into U.S. Dollars at current exchange rates and income statement items are translated at average exchange rates for the year. Adjustments resulting from the translation of foreign currency financial statements are recorded in a separate component of equity. Forward Exchange Contracts The Joint Venture enters into forward exchange contracts primarily as hedges relating to identifiable currency positions. These financial instruments are designed to minimize exposure and reduce risk from exchange rate fluctuations in the regular course of business. Gains and losses on forward exchange contracts which hedge exposures on firm foreign currency commitments are deferred and recognized as adjustments of the bases of those assets. Gains and losses on forward exchange contracts which hedge foreign currency assets and liabilities are recognized in income as incurred. Such amounts effectively offset gains and losses on the foreign currency assets or liabilities that are hedged. At March 31, 1994 and 1993, respectively, the Joint Venture has forward exchange contracts to purchase $31,987,000 and $10,959,000 in other currencies (primarily Dutch Guilders) with French Francs, and to sell $106,463,000 and $155,942,000 in other currencies (primarily U.S. Dollars, British Pounds, Norwegian Kroner and Irish Pounds) for French Francs. The 1994 forward exchange contracts have various maturities, all of which occur during fiscal years 1995 and 1996. The fair values of forward exchange contracts are estimated by obtaining quotes from brokers. At March 31, 1994 and 1993, the net fair value of the contracts was approximately $74,507,000 and $144,223,000, respectively. NOTE 3 - INCOME TAXES All income has been earned outside of Panama and McDermott-ETPM West, Inc. along with the other entities included in the Joint Venture are not subject to income tax in Panama on income earned outside of Panama. Substantially all income taxes provided are based on the deemed profits of contracts performed in various taxing jurisdictions. 9 10 In the countries in which Joint Venture operations are conducted through an ad hoc joint venture between McDermott International, Inc. and ETPM S.A. or through a registered partnership between a McDermott and ETPM entity, the respective McDermott and ETPM entities are responsible for taxes based on their proportionate share of contract revenues and costs; therefore, no taxes are reflected in these statements. Therefore, there is no expected relationship between the provision for income taxes and income before provision for income taxes. NOTE 4 - CONTINGENCIES AND COMMITMENTS The Joint Venture is a defendant in numerous legal proceedings. Management believes that the outcome of these proceedings will not have a material adverse effect on the combined financial position of the Joint Venture. Commitments for capital expenditures amounted to approximately $2,604,000 at March 31, 1994, all of which relates to fiscal year 1995. The stockholders of the Joint Venture are contingently liable under standby letters of credit totalling approximately $53,557,000 at March 31, 1994, issued in the normal course of business. NOTE 5 - FINANCIAL INSTRUMENTS WITH CONCENTRATIONS OF CREDIT RISK The Joint Venture's customers are primarily in the petroleum industry in the North Sea and West Africa. This customer base is diversified between both public and private industry customers, in numerous European and West African countries. The management of the Joint Venture believes this diversification minimizes any potential credit risk. Receivables are generally not collateralized. NOTE 6 - RELATED PARTY TRANSACTIONS The Joint Venture has material transactions with McDermott International, Inc. and ETPM, S.A. occurring in the normal course of operations. Under the joint venture agreement, marine equipment and fabrication facilities are chartered into the Joint Venture from both stockholders. The charter expense for fiscal years 1994 and 1993 was $26,361,000 and $25,578,000, respectively. In addition, ETPM, S.A. provides general and administrative services to the Joint Venture. In fiscal years 1994 and 1993, the amounts of these services were approximately $35,854,000 and $44,162,000, respectively. 10 EX-28.(3) 7 COMBINED FINANCIAL STATEMENTS FOR 1993 1 EXHIBIT 28(3) COMBINED FINANCIAL STATEMENTS 1993 HEEREMA OFFSHORE CONSTRUCTION GROUP INC. MCDERMOTT INTERNATIONAL INC. JOINT VENTURE 2 CONTENTS AUDITORS' REPORT Page 2 COMBINED BALANCE SHEET Page 4 COMBINED STATEMENTS OF INCOME Page 6 COMBINED STATEMENTS OF PARTNERS' EQUITY Page 7 COMBINED STATEMENTS OF CASHFLOWS Page 8 NOTES TO THE COMBINED FINANCIAL STATEMENTS Page 10
1 3 AUDITOR'S REPORT To the Partners of the Heerema Offshore Construction Group Inc. and McDermott International Inc. Joint Venture Geneva We have audited the accompanying combined balance sheet of the Heerema Offshore Construction Group Inc. - McDermott International Inc. Joint Venture as of December 31, 1993 and 1992 and the related combined statements of operations partners' equity and cash flows for each of the three years in the period ended December 31, 1993. These financial statements are the responsibility of the Joint Venture's management. Our responsibility is to express an opinion on these combined financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion the combined financial statements, referred to above, present fairly, in all material respects, the financial position of the Heerema Offshore Construction Group Inc. - McDermott International Inc. Joint Venture at December 31, 1993 and 1992 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles in the United States of America. 2 4 AUDITOR'S REPORT (continued) As explained in Note 2.2 the Joint Venture changed its policy in 1991 with respect to charter rent as charged by the two Joint Venture Partners for the four semi submersible crane vessels. The full charter rent is now taken into consideration for the purpose of revenue recognition and the calculation of loss provision. In prior years certain elements of this charter rent were considered period cost. KPMG Klynveld The Hague, April 22, 1994 3 5 HEEREMA OFFSHORE CONSTRUCTION GROUP INC. MCDERMOTT INTERNATIONAL INC. JOINT VENTURE COMBINED BALANCE SHEET DECEMBER 31, 1993 AND 1992 ASSETS
1993 1992 -------------------- ------------------ (IN THOUSANDS) Current Assets: Cash and cash equivalents DFL 204,841 DFL 142,168 Accounts receivable 122,821 154,296 Contracts in progress 39,010 56,256 Inventories 5,095 6,437 Other current assets 13,225 18,738 ------------------- ----------------- TOTAL CURRENT ASSETS 384,992 377,895 ------------------- ----------------- Fixed Assets at Cost 278,787 270,733 Less Accumulated Depreciation (133,991) (86,224) ------------------- ----------------- NET FIXED ASSETS 144,796 184,509 ------------------- ----------------- TOTAL DFL 529,788 DFL 562,404 =================== =================
(The accompanying notes are an integral part of these financial statements) 4 6 HEEREMA OFFSHORE CONSTRUCTION GROUP INC. MCDERMOTT INTERNATIONAL INC. JOINT VENTURE COMBINED BALANCE SHEET DECEMBER 31, 1993 AND 1992 LIABILITIES & PARTNERS' EQUITY
1993 1992 ------------------- ----------------- (IN THOUSANDS) Current Liabilities: Notes payable and current maturities of long-term debt DFL 53,830 DFL 61,388 Accounts payable 72,315 71,776 Advance billings on contracts 72,986 58,232 Accrued survey costs 21,664 54,669 Accrued liabilities - other 39,727 37,461 ------------------- ----------------- TOTAL CURRENT LIABILITIES 260,522 283,526 ------------------- ----------------- Pension Liability 3,576 2,322 ------------------- ----------------- Long-Term Debt 61,860 99,446 ------------------- ----------------- Partners' Equity: Capital contributions 100,204 256,204 Accumulated profits (losses) 103,626 (79,094) ------------------- ----------------- TOTAL PARTNERS' EQUITY 203,830 177,110 ------------------- ----------------- TOTAL DFL 529,788 DFL 562,404 =================== =================
(The accompanying notes are an integral part of these financial statements) 5 7 HEEREMA OFFSHORE CONSTRUCTION GROUP INC. MCDERMOTT INTERNATIONAL INC. JOINT VENTURE COMBINED STATEMENT OF INCOME (LOSS) FOR THE THREE YEARS ENDED DECEMBER 31, 1993
1993 1992 1991 ---- ---- ---- (IN THOUSANDS) Revenues DFL 944,753 DFL 963,402 DFL 502,419 --------------- ------------- --------------- Costs and Expenses: Costs of operations 592,963 627,631 526,470 Depreciation 55,219 74,260 15,111 General and administrative expenses 56,427 41,372 36,444 --------------- ------------- --------------- 704,609 743,263 578,025 --------------- ------------- --------------- OPERATING INCOME (LOSS) 240,144 220,139 (75,606) --------------- ------------- --------------- Other Income (Expense): Interest income 7,955 4,028 1,607 Interest expense (7,188) (23,824) (7,802) Foreign currency transaction gains (losses) (4,411) (757) 138 --------------- ------------- --------------- (3,644) (20,553) (6,057) --------------- ------------- --------------- Income (Loss) before Income Taxes and Cumulative Effect of Accounting Change 236,500 199,586 (81,663) Income Taxes (3,780) -- -- --------------- ------------- --------------- Income (Loss) before Cumulative Effect of Accounting Change 232,720 199,586 (81,663) Cumulative Effect of Accounting Change -- -- (10,738) --------------- ------------- --------------- NET INCOME (LOSS) DFL 232,720 DFL 199,586 DFL (92,401) =============== ============= ===============
(The accompanying notes are an integral part of these financial statements) 6 8 HEEREMA OFFSHORE CONSTRUCTION GROUP INC. MCDERMOTT INTERNATIONAL INC. JOINT VENTURE COMBINED STATEMENT OF PARTNERS' EQUITY FOR THE THREE YEARS ENDED DECEMBER 31, 1993
CAPITAL ACCUMULATED CONTRIBUTIONS PROFITS/(LOSSES) TOTAL ------------- ---------------- ----- (IN THOUSANDS) HEEREMA OFFSHORE CONSTRUCTION GROUP INC. Balance January 1, 1991 DFL 25,102 DFL (93,140) DFL (68,038) Capital Contribution 1991 128,000 -- 128,000 Net Loss 1991 -- (46,200) (46,200) --------------- --------------- --------------- Balance December 31, 1991 153,102 (139,340) 13,762 Capital Repayment (25,000) -- (25,000) Net Profit 1992 -- 99,793 99,793 --------------- --------------- --------------- Balance December 31, 1992 128,102 (39,547) 88,555 Capital Repayment (78,000) -- (78,000) Distribution of Profits -- (25,000) (25,000) Net Profit 1993 -- 116,360 116,360 BALANCE --------------- --------------- --------------- DECEMBER 31, 1993 DFL 50,102 DFL 51,813 DFL 101,915 =============== =============== =============== MCDERMOTT INTERNATIONAL INC. Balance January 1, 1991 DFL 25,102 DFL (93,140) DFL (68,038) Capital Contribution 1991 128,000 -- 128,000 Net Loss 1991 -- (46,200) (46,200) --------------- --------------- --------------- Balance December 31, 1991 153,102 (139,340) 13,762 Capital Repayment (25,000) -- (25,000) Net Profit 1992 -- 99,793 99,793 --------------- --------------- --------------- Balance December 31, 1992 128,102 (39,547) 88,555 Capital Repayment (78,000) -- (78,000) Distribution of Profits -- (25,000) (25,000) Net Profit 1993 -- 116,360 116,360 --------------- --------------- --------------- BALANCE DECEMBER 31, 1993 DFL 50,102 DFL 51,813 DFL 101,915 =============== =============== ===============
(The accompanying notes are an integral part of these financial statements) 7 9 HEEREMA OFFSHORE CONSTRUCTION GROUP INC. MCDERMOTT INTERNATIONAL INC. JOINT VENTURE COMBINED STATEMENT OF CASH FLOWS FOR THE THREE YEARS ENDED DECEMBER 31, 1993 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
1993 1992 1991 ---- ---- ---- (IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES: Net Income (Loss) DFL 232,720 DFL 199,586 DFL (92,401) ------------- -------------- -------------- Adjustments to reconcile net income (loss) to net cash provided (used in) operating activities: Depreciation 55,219 74,260 15,111 Changes in assets and liabilities: Accounts receivable 31,475 (66,211) (71,243) Net contracts in progress and advance billings 12,103 62,994 (62,352) Accounts payable 539 7,636 (142,301) Other, net (2,733) 52,945 10,794 ------------- -------------- -------------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 329,323 331,210 (342,392) ------------- -------------- -------------- CASH FLOWS FROM INVESTING ACTIVITIES: Investment in fixed assets (15,506) (35,425) (212,492) ------------- -------------- -------------- TOTAL CASH USED IN INVESTING ACTIVITIES (15,506) (35,425) (212,492) ------------- -------------- --------------
8 10 CONTINUED INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
1993 1992 1991 ---- ---- ---- CASH FLOWS FROM FINANCING ACTIVITIES: Capital (repayments) contributions DFL (156,000) DFL (50,000) DFL 256,000 Distribution of profits (50,000) -- -- Repayment of long-term debt (63,419) (78,552) (4,315) Issuance of long term debt 27,732 49,261 166,176 Increase (decrease) in short-term borrowing (9,457) (79,684) 107,947 ------------- -------------- -------------- TOTAL CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (251,144) (158,975) 525,808 ------------- -------------- -------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 62,673 136,810 (29,076) ------------- -------------- -------------- CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 142,168 5,358 34,434 ------------- -------------- -------------- CASH AND CASH EQUIVALENTS AT END OF YEAR DFL 204,841 DFL 142,168 DFL 5,358 ============= ============== ============== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Interest Paid During the Year DFL 11,207 DFL 22,604 DFL 4,878 ============= ============== ==============
(The accompanying notes are an integral part of these financial statements) 9 11 COMBINED FINANCIAL STATEMENTS 1993 HEEREMA OFFSHORE CONSTRUCTION GROUP INC. MCDERMOTT INTERNATIONAL INC. NOTES TO COMBINED FINANCIAL STATEMENTS FOR THE THREE YEARS ENDED DECEMBER 31, 1993 1. GENERAL The Heerema Offshore Construction Group Inc. - McDermott International, Inc. Joint venture ("Joint Venture") is engaged in the world wide offshore heavy lift market. The Joint Venture is 50% owned by both Heerema Offshore Construction Group, Inc. and McDermott International, Inc. ("Partners"). 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 2.1 BASIS OF PRESENTATION The combined financial statements are presented in Dutch Guilders in accordance with accounting principles generally accepted in the United States of America. The combined financial statements include the accounts of HeereMac v.o.f., a Dutch partnership, Panama Offshore Chartering Company Inc. and its wholly owned subsidiaries, all incorporated in Panama, HeereMac Far East Pty. Ltd, a company incorporated in Singapore, and Heerema McDermott Pty. Ltd, a company incorporated in Australia. All significant intercompany transactions and accounts have been eliminated. Certain amounts previously reported have been reclassified to conform with the presentation at December 31, 1993. Unless the context otherwise requires, hereinafter the "Joint Venture" will be used to mean the combined enterprise. 2.2 CUMULATIVE EFFECT OF ACCOUNTING CHANGE Beginning in fiscal 1991, the Joint Venture changed its accounting policy with respect to charter rent as charged by the Joint Venture Partners for the four semi-submersible derrick barges. In prior years, certain elements of the charter rent were considered period costs, whereas beginning January 1, 1991, the full charter rent is used to determine percentage of completion and calculation of 10 12 COMBINED FINANCIAL STATEMENTS 1993 HEEREMA OFFSHORE CONSTRUCTION GROUP INC. MCDERMOTT INTERNATIONAL INC. loss provisions. Management believes that this change is preferable because it provides a better matching of contract costs with related revenues in reporting periodic income and more accurately reflects the concentrative effort of the Joint Venture. The cumulative effect of the accounting change as of January 1, 1991 was Dfl. 10.7 million. Other than the cumulative effect, the accounting change resulted in a reduction of profit of approximately Dfl. 25 million in 1991. 2.3 FOREIGN CURRENCY TRANSLATION Assets, liabilities, revenues and expenses that are denominated in currencies other than Dutch Guilders are measured and recorded in Dutch Guilders at exchange rates prevailing at the dates the transactions are recognized. At December 31, 1993, balances denominated in currencies other than Dutch Guilders are adjusted to reflect the current exchange rate. Resulting foreign currency transactions gains and losses are reported in income (loss) for the period. 2.4 CONTRACTS AND REVENUE RECOGNITION Revenues on contracts are recognized on a percentage of completion method. Under this method, revenues and costs are recognized based on the percentage that costs to date bear to total estimated costs. Revenues that exceed amounts invoiced to customers under the terms of the contracts are included in Contracts in Progress. Billings that exceed revenues recognized under percentage of completion are included in Advance Billings on Contracts. Most long-term contracts have provisions for progress payments. Contract price and cost estimates are reviewed periodically as the work progresses and adjustments proportionate to the percentage of completion are reflected in income in the period when such estimates are revised. Claims for extra work or changes in scope of work are included in contract revenues when collection is probable. Provisions are currently made for all known or anticipated losses. There are no unbilled revenues which will not be billed. 11 13 COMBINED FINANCIAL STATEMENTS 1993 HEEREMA OFFSHORE CONSTRUCTION GROUP INC. MCDERMOTT INTERNATIONAL INC. At December 31, 1993 and 1992, provisions for losses were Dfl. 44.3 million and Dfl. 24.4 million, respectively. 2.5 INVENTORIES Inventories are primarily composed of barge supplies and are stated at lower of average cost or market. 2.6 FIXED ASSETS Fixed assets are stated at cost. Modifications to leased equipment which enhance their usefulness and which remain the property of the Joint Venture are capitalized. Depreciation is calculated on a straight-line basis using estimated useful lives of 3 to 8 years. 2.7 SURVEY ACCRUAL Maintenance, repairs and renewals which do not materially prolong the useful life of an asset are expensed as incurred. Provisions for major repairs arising from periodic surveys are based on the proportional allocation of the estimated total costs of periodic surveys per vessel over the expected operating period between surveys. 2.8 CASH EQUIVALENTS Cash equivalents are highly liquid investments, with maturities of three months or less when purchased. 2.9 FINANCIAL INSTRUMENTS AND CREDIT RISK CONCENTRATION The Joint Venture enters into forward exchange contracts with international financial institutions primarily relating to identifiable foreign currency exposures with respect to offshore contracts. In the case that the Joint Venture enters into forward exchange contracts relating to identifiable foreign currency exposures with respect to offshore contracts, the foreign currency positions are valued at contract rate. The Joint Venture's risk in these transactions is the cost of replacing at current market rates, these contracts in the event of default by the financial institution. The Joint Venture believes that risk of such losses is remote. 12 14 COMBINED FINANCIAL STATEMENTS 1993 HEEREMA OFFSHORE CONSTRUCTION GROUP INC. MCDERMOTT INTERNATIONAL INC. 3. INCOME TAXES The Joint Venture operates through various entities in various countries under different tax jurisdictions. The Joint Venture applies the provision of SFAS109. Under Dutch fiscal legislation the Joint Venture's entity HeereMac v.o.f. as a "Vennootschap Onder Firma (V.O.F.) is not directly liable for taxes. Taxation of income arising from this entity both in the Netherlands and abroad is for the account of both Partners. Panama Offshore Chartering Company, Inc. and its wholly owned subsidiaries incurred no worldwide income tax in 1993, 1992 and 1991. Heerema-McDermott Australia Pty. Ltd. is directly liable for Australian income taxes. In 1992 and 1991, this company incurred no Australian income taxes. A provision for income taxes of Dfl. 4 million (Aus$. 3 million) was posted in 1993. HeereMac Far East Pty. Ltd. is directly liable for Singapore income taxes. In 1993 this company incurred no income taxes. 4. RELATED PARTY TRANSACTIONS The Joint Venture has material transactions with the Partners and their subsidiaries occurring in the normal course of operations. Transactions which are included in the Joint Venture's revenues include the sales of installation and engineering services (Dfl. 71.3 million, Dfl. 93 million and Dfl. 67.5 in fiscal years 1993, 1992 and 1991 respectively). Other transactions include the leasing of four semi-submersible heavy lift installation vessels (Dfl. 114.6 million, Dfl. 114.9 million, and Dfl. 114.6 million in fiscal years 1993, 1992 and 1991, respectively) and other equipment rentals (Dfl. 25.5 million, Dfl. 28.8 million and Dfl. 55.7 million in fiscal years 1993, 1992 and 1991, respectively), vessel crews and engineering personnel expenses (Dfl. 82.0 million, Dfl. 72.4 million, and Dfl. 65.6 million in fiscal years 1993, 1992 and 1991, respectively), vessel and equipment related operational expenses (Dfl. 23.5 million, Dfl. 20.9 million and Dfl. 34.3 million in fiscal years 1993, 1992, and 1991, respectively), and contracted general and administrative support expenses (Dfl. 7.2 million, Dfl. 8.1 million and Dfl. 9.4 million in fiscal years 1993, 1992 and 1991, respectively). 13 15 COMBINED FINANCIAL STATEMENTS 1993 HEEREMA OFFSHORE CONSTRUCTION GROUP INC. MCDERMOTT INTERNATIONAL INC. Included in other current assets are amounts of Dfl. 1.1 million and Dfl. 3.3 million at December 31, 1993 and 1992, respectively, which will be compensated by the Partners, primarily relating to Joint Venture survey costs on marine vessels. Included in accounts payable are Dfl. 30.8 million and Dfl. 22.2 million at December 31, 1993 and 1992, respectively, with related parties. There are no notes payable and current maturities of long term debt at December 31, 1993 (December 31, 1992: Dfl. 4.6 million). At December 31, 1993 there was no long term debt (net of current maturities) with related parties (December 31, 1992: Dfl. 27.7 million). Interest paid to related parties amounted to Dfl. 1.4 million in 1993 and Dfl. 9.7 million in 1992. In 1993, a repayment of capital was made by the Joint Venture amounting to Dfl. 103 million per partner. By virtue of a resolution by the Executive Committee on 25th June 1993, each of the Partners made a capital contribution to the amount of Dfl. 25 million (Dfl. 25 million repayment of capital per partner in 1992, and Dfl. 128 million contribution per partner in 1991). In 1993 distribution out of Accumulated Profits was made by the Joint Venture amounting to Dfl. 25 million per partner. On the increase of capitalization the Partners shall have the right, pro rata, based upon their then current respective interests in the Joint Venture, to participate in such increase in the capitalization. The profit, gains and losses of the Joint Venture shall be allocated among the Partners in accordance with the percentages of participation. 14 16 COMBINED FINANCIAL STATEMENTS 1993 HEEREMA OFFSHORE CONSTRUCTION GROUP INC. MCDERMOTT INTERNATIONAL INC. 5. LONG TERM DEBT AND SHORT TERM BORROWINGS Long term debt consists of:
1993 1992 Floating rate (Interest at AIBOR and .875%) 46,500 54,250 note due in installments by 1999 8.75% note due 1994 22,652 45,967 Subordinated floating rate (Interest at AIBOR and .875%) note due 1999 with a related party -- 32,354 Floating rate (Interest at AIBOR and 8.75%) note due in installments by 1999 27,732 -- Less: amounts due within one year 35,024 33,125 Total long-term debt 61,860 99,446
The Joint Venture's floating rate note due 1999 is secured by a first mortgage on certain marine equipment. The 8.75% note due 1995 is secured by a guarantee from Heerema Offshore Construction Group, Inc. The subordinated floating rate related party loan due 1999 was repaid during 1993 and replaced by a second floating rate loan with a third party due 1999 and secured by a second mortgage on certain marine equipment. Maturities of long-term debt during the five years subsequent to December 31, 1993 are as follows: 1994: Dfl. 35,024,000., 1995: Dfl. 12,372,000., 1996: Dfl. 12,372,000., 1997: Dfl. 12,372,000, 1998: Dfl. 12,372,000. At December 31, 1993, the Joint Venture had lines of credit and bank guarantees available amounting in total to Dfl 170 million (Dfl. 170 million in 1992) guaranteed by the partners. Amounts drawn on this facility bear interest at prevailing market rates. Borrowings against these facilities were Dfl. 18,806,000 at December 31, 1993 (Dfl. 28,263,000 in 1992). The Joint Venture has bank guarantees drawn on this facility of Dfl. 88 million at 15 17 COMBINED FINANCIAL STATEMENTS 1993 HEEREMA OFFSHORE CONSTRUCTION GROUP INC. MCDERMOTT INTERNATIONAL INC. December 31, 1993 (Dfl. 73 million in 1992) in relation to projects. (See note 7.) 6. PENSION LIABILITY The Joint Venture has defined benefits pension plans covering most of its full-time employees. The pension scheme is fully insured by a third party life insurance company in the Netherlands. Premiums charged by the insurance company and expensed by the Joint Venture are calculated by determining the actuarial present value of future benefits to be provided based upon current compensation levels. Further, at the time of granting compensation increases, the Joint Venture accrues as pension provision the increase in its actuarial present value of future benefits. Such amounts will be funded through enhanced future premiums. The discount rate used to calculate the actuarial present value of future benefits was 5% in 1993 and 7% in 1992. Pension cost paid by the Joint Venture amounted to Dfl. 3.3 million in 1993 and Dfl. 2.8 million in 1992. 7. CONTINGENCIES AND COMMITMENTS The Joint Venture has the usual liability of a contractor for completion of contracts and the warranty of its work. In relation to this liability bank guarantees and performance bonds are issued in the normal line of business. Bank guarantees outstanding at year end amounted to Dfl. 89.1 million (Dfl. 73 million in 1992). Due to the short term nature of the guarantees, the fair value is considered to be nil. Management is not aware of any material exposure related thereto which has not been provided for in the accompanying statements. Certain marine equipment (primarily anchor handling tugs and cargo barges) have been pledged as collateral to secure certain floating rate long-term debt (See note 5). Future minimum lease payments and leased property relate to the lease of derrick barges and the lease of office space and cars. The leases of derrick 16 18 COMBINED FINANCIAL STATEMENTS 1993 HEEREMA OFFSHORE CONSTRUCTION GROUP INC. MCDERMOTT INTERNATIONAL INC. barges are operating leases from related parties under the terms of a bare boat charter agreement which will expire at December 31, 2008. The leases of office space and cars are operating leases which will expire in 1998. The future minimum annual lease payments amount to Dfl. 116 million for each of the succeeding five fiscal years. 8. FIXED ASSETS
1993 1992 At cost: Anchor handling tugs 39,360 39,360 Cargo barges 59,861 59,616 Modifications of derrick barges 14,045 14,045 Offshore ancillary equipment 154,419 149,207 Onshore office equipment 11,102 8,505 -------- ------- 278,787 270,733 Less accumulated depreciation (133,991) (86,224) -------- ------- 144,796 184,509
Effective 1 January 1992, the Joint Venture changed its estimates of the remaining useful economic lives of certain offshore equipment. Depreciation lives of equipment acquired from the Partners in October 1991, that previously averaged 5 years, were decreased to an average of 3 years. These changes were made to better reflect the estimated periods during which such assets will remain in service. The change had the effect of increasing depreciation expense(s) by Dfl. 10 million in 1992. Pipelay equipment with a net book value of Dfl. 27 million was fully written off in 1992. Drilling equipment with a net book value of Dfl. 15 million was fully written off in 1993. These assets are not expected to be used again in the near future. 17 19 COMBINED FINANCIAL STATEMENTS 1993 HEEREMA OFFSHORE CONSTRUCTION GROUP INC. MCDERMOTT INTERNATIONAL INC. 9. ACCOUNTS RECEIVABLE Included in accounts receivable are Dfl. 83.2 million and Dfl. 83.2 million at December 31, 1993 and 1992, respectively, with related parties. Accounts receivable are stated at net realizable value after deduction of a provision for uncollectability of Dfl. 235,000 for accounts receivable - trade (1992: nil), and Dfl. 650,000 for accounts receivable from related parties (1992: nil). Included in accounts receivable are amounts representing retainages on contracts with third parties of Dfl.- 17,000 (1992: Dfl. 4.5 million) and with related parties of Dfl. 4.9 million (1992 :Dfl. 85,000). 10. FINANCIAL INSTRUMENTS AND CREDIT RISK CONCENTRATION At year end, the Company had forward exchange contracts to sell (1992: none) of: USD. 25 million at 1.926 (expire date 1st February 1994) USD. 10 million at 1.900 (expire date 25th October 1994) The fair values of forward exchange contracts are estimated by obtaining quotes from brokers. At December 31, 1993, the net fair value of the contracts was approximately Dfl. 68.2 million. Financial instruments which potentially subject the Joint Venture to concentrations of credit risk are primarily cash and cash equivalents and accounts receivable. The Joint Venture has not experienced any significant losses related to any of the short-term instruments it has used for excess cash balances, nor from receivables from individual customers or groups of customers. 11. FAIR VALUES OF FINANCIAL INSTRUMENTS The following methods and assumptions were used by the Joint Venture in estimating its fair value disclosures for financial instruments. 18 20 COMBINED FINANCIAL STATEMENTS 1993 HEEREMA OFFSHORE CONSTRUCTION GROUP INC. MCDERMOTT INTERNATIONAL INC. Cash and cash equivalents: The carrying amount reported in the balance sheet for cash and cash equivalents approximates its fair value. Long and short term debt: The carrying amount reported in the balance sheet of the 8.75% loan due 1995 approximates its fair value. For floating rate debt instruments the carrying value is considered to approximate the fair value. 19 21 (KPMG LOGO) KLYNVELD ACCOUNTANTS CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements (Forms S-8 No. 2-83692, No. 33-16680, No. 33-51892, No. 33-51894 and No. 33-63832) of McDermott International, Inc. and the Registration Statement (Form S-3 No. 33-54940) of McDermott Incorporated and in the related prospectuses of our report dated April 22, 1994 with respect to the combined financial statements of Heerema Offshore Construction Group Inc. - McDermott International, Inc. Joint Venture included in this Annual Report (Form 10-K/A No. 1) for the year ended March 31, 1994. The Hague June 20, 1994 /s/ KPMG KLYNVELD Ref.: P.A.G. Peters 22 (KPMG LOGO) KLYNVELD ACCOUNTANTS Office address Mail address Telephone 31 (70)338 2222 Churchillplein 6 P.O. Box 29761 Telex 33170 kpmgh nl 2517 JW The Hague 2502 LT The Hague Telefax 31 (70)350 3191 The Netherlands The Netherlands To the Partners of the Heerema Offshore Construction Group Inc. and McDermott International, Inc. Joint Venture 5, Rue Pedro Meylan 1208 GENEVA Switzerland The Hague, June 20, 1994 Dear Sirs, We hereby give our consent that the following auditors' report is included in the combined financial statements 1993 of the Heerema Offshore Construction Group Inc.- McDermott International Inc. Joint Venture, a copy of which we have attached initialled for identification purposes. "We have audited the accompanying combined balance sheet of the Heerema Offshore Construction Group Inc. - McDermott International Inc. Joint Venture as of December 31, 1993 and 1992, and the related combined statements of operations, partners' equity, and cash flows for each of three years in the period ended December 31, 1993. These financial statements are the responsibility of the Joint Venture's management. Our responsibility is to express an opinion on these combined financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit also includes assessing the accounting principles used and significant estimates made by the management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion the combined financial statements, referred to above, present fairly, in all material respects, the financial position of the Heerema Offshore Construction Group Inc.- McDermott International Inc. Joint Venture at December 31, 1993 and 1992, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles in the United States of America. 23 (KPMG LOGO) KLYNVELD ACCOUNTANTS As explained in Note 2.2 the Joint Venture changed its accounting policy in 1991 with respect to charter rent as charged by the two Joint Venture Partners for the four semi submersible crane vessels. The full charter rent is now taken into consideration for the purpose of revenue recognition and the calculation of loss provision. In prior years certain elements of this charter rent were considered period cost. KPMG Klynveld The Hague, April 22, 1994" It should be understood that these financial statements and our opinion thereon cannot be made public without our prior written consent. Should you have any questions or need for further information please do not hesitate to contact us. Yours sincerely, /s/ KPMG KLYNVELD Ref.: P.A.G. Peters -----END PRIVACY-ENHANCED MESSAGE-----