-----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, ipR5ya2Vjy0RdzStk4WkCgIeMbOhZpAKMT0P2WPZXcK/ArzrYPEoMCa0M+394tS7 IPE0raPVvb62JSpp2u7EbQ== 0000950134-94-001332.txt : 19941117 0000950134-94-001332.hdr.sgml : 19941117 ACCESSION NUMBER: 0000950134-94-001332 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19940930 FILED AS OF DATE: 19941114 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MCDERMOTT INTERNATIONAL INC CENTRAL INDEX KEY: 0000708819 STANDARD INDUSTRIAL CLASSIFICATION: 3443 IRS NUMBER: 720593134 STATE OF INCORPORATION: R1 FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08430 FILM NUMBER: 94559184 BUSINESS ADDRESS: STREET 1: 1010 COMMON ST CITY: NEW ORLEANS STATE: LA ZIP: 70112 BUSINESS PHONE: 5045875400 MAIL ADDRESS: STREET 1: P O BOX 61961 CITY: NEW ORLEANS STATE: LA ZIP: 70161 10-Q 1 FORM 10-Q QE 09-30-94 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the period ended September 30, 1994 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT 1934 For the transition period from ______________to______________ Commission File No. 1-8430 McDERMOTT INTERNATIONAL, INC. - - - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) REPUBLIC OF PANAMA 72-0593134 - - - -------------------------------------------------------------------------------- (State of Incorporation) (I.R.S. Employer Identification No.) 1450 Poydras Street, New Orleans, Louisiana 70112-6050 Post Office Box 61961, New Orleans, Louisiana 70161-1961 - - - -------------------------------------------------------------------------------- (Address of Principal Executive Office) (Zip Code) Registrant's Telephone Number, Including Area Code (504) 587-5400 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / The number of shares of Common Stock, par value $1 per share, outstanding as of October 21, 1994 was 53,780,646. 2 M c D E R M O T T I N T E R N A T I O N A L , I N C. I N D E X - F O R M 1 0 - Q
PAGE ---- PART I - FINANCIAL INFORMATION - - - ------------------------------ Item 1 - Consolidated Financial Statements Consolidated Balance Sheet - September 30, 1994 and March 31, 1994 4 Consolidated Statement of Income (Loss) and Deficit - Three Months Ended and Six Months Ended September 30, 1994 and September 30, 1993 6 Consolidated Statement of Cash Flows - Six Months Ended September 30, 1994 and September 30, 1993 8 Notes to Consolidated Financial Statements 10 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 16 Exhibit 11 - Calculation of Earnings (Loss) Per Common and Common Equivalent Share 26 PART II - OTHER INFORMATION - - - --------------------------- Item 6 - Exhibits and Reports on Form 8-K 27 SIGNATURES 28
2 3 PART I McDERMOTT INTERNATIONAL, INC. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements 3 4 McDERMOTT INTERNATIONAL, INC. CONSOLIDATED BALANCE SHEET SEPTEMBER 30, 1994 ASSETS
9/30/94 3/31/94 ------- ------- (Unaudited) (In thousands) Current Assets: Cash and cash equivalents $ 92,129 $ 133,809 Short-term investments 129,532 990 Accounts receivable - trade 392,181 370,333 Accounts receivable - other 108,296 113,782 Insurance recoverable - current 113,194 110,200 Contracts in progress 257,778 237,722 Inventories 68,068 66,469 Deferred income taxes 102,154 100,167 Other current assets 69,519 40,474 - - - --------------------------------------------------------------------------------------------------------------- Total Current Assets 1,332,851 1,173,946 - - - --------------------------------------------------------------------------------------------------------------- Property, Plant and Equipment, at Cost: 2,176,499 2,150,728 Less accumulated depreciation 1,405,918 1,374,219 - - - --------------------------------------------------------------------------------------------------------------- Net Property, Plant and Equipment 770,581 776,509 - - - --------------------------------------------------------------------------------------------------------------- Investments: Government obligations 391,532 395,556 Other investments 180,818 319,575 - - - --------------------------------------------------------------------------------------------------------------- Total Investments 572,350 715,131 - - - --------------------------------------------------------------------------------------------------------------- Insurance Recoverable 805,048 876,846 - - - --------------------------------------------------------------------------------------------------------------- Prepaid Pension Costs 260,723 246,854 - - - --------------------------------------------------------------------------------------------------------------- Excess of Cost Over Fair Value of Net Assets of Purchased Businesses Less Accumulated Amortization of $88,316,000 at September 30, 1994 and $84,170,000 at March 31, 1994 154,580 158,726 - - - --------------------------------------------------------------------------------------------------------------- Other Assets 237,481 275,557 - - - --------------------------------------------------------------------------------------------------------------- TOTAL $ 4,133,614 $4,223,569 ===============================================================================================================
See accompanying notes to consolidated financial statements. 4 5 LIABILITIES AND STOCKHOLDERS' EQUITY
9/30/94 3/31/94 ------- ------- (Unaudited) (In thousands) Current Liabilities: Notes payable and current maturities of long-term debt $ 382,811 $ 62,544 Accounts payable 168,744 245,819 Environmental and products liabilities - current 128,693 122,361 Accrued employee benefits 112,370 113,415 Accrued liabilities - other 284,854 300,505 Advance billings on contracts 145,936 181,572 U.S. and foreign income taxes 45,130 79,938 - - - --------------------------------------------------------------------------------------------------------------- Total Current Liabilities 1,268,538 1,106,154 - - - --------------------------------------------------------------------------------------------------------------- Long-Term Debt 510,184 667,066 - - - --------------------------------------------------------------------------------------------------------------- Accumulated Postretirement Benefit Obligation 387,204 380,309 - - - --------------------------------------------------------------------------------------------------------------- Environmental and Products Liabilities 942,144 1,013,251 - - - --------------------------------------------------------------------------------------------------------------- Other Liabilities 307,369 302,143 - - - --------------------------------------------------------------------------------------------------------------- Contingencies - - - --------------------------------------------------------------------------------------------------------------- Minority Interest: Subsidiary's Redeemable Preferred Stocks: Series A $2.20 cumulative convertible, $1.00 par value; at redemption value 88,089 88,089 Series B $2.60 cumulative, $1.00 par value; at redemption value 91,630 108,583 Other minority interest 15,583 15,716 - - - --------------------------------------------------------------------------------------------------------------- Total Minority Interest 195,302 212,388 - - - --------------------------------------------------------------------------------------------------------------- Stockholders' Equity: Preferred stock, authorized 25,000,000 shares; outstanding 2,875,000 Series C $2.875 cumulative convertible, par value $1.00 per share, (liquidation preference $143,750,000) 2,875 2,875 Common stock, par value $1.00 per share, authorized 150,000,000 shares; outstanding 53,677,386 at September 30, 1994 and 53,444,467 at March 31, 1994 53,677 53,444 Capital in excess of par value 738,798 730,987 Deficit (229,047) (196,216) Minimum pension liability (931) (931) Net unrealized loss on investments (10,124) - Cumulative foreign exchange translation adjustments (32,375) (47,901) - - - --------------------------------------------------------------------------------------------------------------- Total Stockholders' Equity 522,873 542,258 - - - --------------------------------------------------------------------------------------------------------------- TOTAL $4,133,614 $4,223,569 ===============================================================================================================
5 6 McDERMOTT INTERNATIONAL, INC. CONSOLIDATED STATEMENT OF INCOME (LOSS) AND DEFICIT SEPTEMBER 30, 1994
THREE SIX MONTHS ENDED MONTHS ENDED 9/30/94 9/30/93 9/30/94 9/30/93 ------- ------- ------- ------- (Unaudited) (In thousands) Revenues $ 724,065 $ 777,459 $1,483,873 $1,480,877 - - - --------------------------------------------------------------------------------------------------------------- Costs and Expenses: Cost of operations 627,343 669,684 1,273,043 1,269,554 Depreciation and amortization 25,065 26,203 61,983 56,630 Selling, general and administrative expenses 66,534 66,386 134,195 127,084 - - - --------------------------------------------------------------------------------------------------------------- 718,942 762,273 1,469,221 1,453,268 - - - --------------------------------------------------------------------------------------------------------------- 5,123 15,186 14,652 27,609 Equity in Income of Investees 14,646 46,316 20,948 93,365 - - - --------------------------------------------------------------------------------------------------------------- Operating Income 19,769 61,502 35,600 120,974 - - - --------------------------------------------------------------------------------------------------------------- Other Income (Expense): Interest income 15,744 9,762 26,142 19,078 Interest expense (14,101) (16,747) (26,940) (36,690) Minority interest (1,151) (4,699) (5,008) (8,425) Other-net (15,917) 2,444 (19,936) (2,915) - - - --------------------------------------------------------------------------------------------------------------- (15,425) (9,240) (25,742) (28,952) - - - --------------------------------------------------------------------------------------------------------------- Income before Provision for Income Taxes and Cumulative Effect of Accounting Changes 4,344 52,262 9,858 92,022 Provision for Income Taxes 7,606 14,674 10,002 29,225 - - - --------------------------------------------------------------------------------------------------------------- Income (Loss) before Cumulative Effect of Accounting Changes (3,262) 37,588 (144) 62,797 Cumulative Effect of Accounting Changes - - (1,765) (100,750) - - - --------------------------------------------------------------------------------------------------------------- Net Income (Loss) (3,262) 37,588 (1,909) (37,953) - - - --------------------------------------------------------------------------------------------------------------- Deficit - Beginning of Period (210,307) (214,957) (196,216) (126,264) Deduct Cash Dividends Common stock 13,411 13,275 26,789 26,427 Preferred stock, Series C 2,067 1,951 4,133 1,951 - - - --------------------------------------------------------------------------------------------------------------- Deficit - End of Period $(229,047) $(192,595) $ (229,047) $ (192,595) ===============================================================================================================
6 7 CONTINUED
THREE SIX MONTHS ENDED MONTHS ENDED 9/30/94 9/30/93 9/30/94 9/30/93 ------- ------- ------- ------- (Unaudited) (In thousands, except shares and per share amounts) NET INCOME (LOSS) APPLICABLE TO COMMON STOCK (AFTER PREFERRED STOCK DIVIDENDS): $ (5,329) $ 35,637 $ (6,042) $ (39,904) - - - ------------------------------------------------------------------------------------------------------------------------- EARNINGS (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE (PRIMARY AND FULLY DILUTED): Income (loss) before cumulative effect of accounting changes $ (0.10) $ 0.66 $ (0.08) $ 1.14 Accounting changes - - (0.03) (1.89) --------------------------------------------------------------------------------------------------------------------- Net income (loss) $ (0.10) $ 0.66 $ (0.11) $ (0.75) ===================================================================================================================== Weighted average number of common and common equivalent shares 53,568,530 53,616,326 53,523,543 53,398,672 CASH DIVIDENDS: Per common share $ 0.25 $ 0.25 $ 0.50 $ 0.50 Per preferred share $ 0.72 $ 0.68 $ 1.44 $ 0.68 =======================================================================================================================
See accompanying notes to consolidated financial statements. 7 8 McDERMOTT INTERNATIONAL, INC. CONSOLIDATED STATEMENT OF CASH FLOWS SEPTEMBER 30, 1994 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
SIX MONTHS ENDED 9/30/94 9/30/93 ------- ------- (Unaudited) (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net Loss $ (1,909) $ (37,953) - - - ------------------------------------------------------------------------------------------------------------- Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 61,983 56,630 Equity in income of investees, less dividends 19,179 (39,382) Provision for deferred taxes 44,488 24,499 Cumulative effect of accounting changes 1,765 100,750 Other 3,156 (588) Changes in assets and liabilities, net of effects from acquisition: Accounts receivable (11,864) 158,966 Net contracts in progress and advance billings (55,184) (14,894) Accounts payable (79,192) (55,377) Accrued liabilities (17,252) (73,991) Income taxes (51,657) (23,348) Other, net (14,693) 5,831 Proceeds from insurance for products liabilities claims 53,823 49,663 Payments of products liabilities claims (61,557) (55,797) - - - ------------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (108,914) 95,009 - - - ------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of Delta Catalytic Corporation - (28,249) Purchases of property, plant and equipment (47,149) (33,214) Purchases of short and long-term investments (322,510) (562,833) Sales of short and long-term investments 325,190 514,238 Other (4,044) 4,617 - - - ------------------------------------------------------------------------------------------------------------- NET CASH USED IN INVESTING ACTIVITIES (48,513) (105,441) - - - -------------------------------------------------------------------------------------------------------------
8 9 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS CONTINUED
SIX MONTHS ENDED 9/30/94 9/30/93 ------- ------- (Unaudited) (In thousands) CASH FLOWS FROM FINANCING ACTIVITIES: Payment of long-term debt $ (9,587) $ (198,527) Issuance of long-term debt - 92,475 Increase (decrease) in short-term borrowing 172,217 (3,074) Issuance of common stock 130 17,585 Issuance of preferred stock - 140,156 Dividends paid (30,863) (26,186) Repurchase of subsidiary's preferred stock (16,753) (3,586) Other (668) (667) - - - -------------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY FINANCING ACTIVITIES 114,476 18,176 - - - -------------------------------------------------------------------------------------------------------------- EFFECTS OF EXCHANGE RATE CHANGES ON CASH 1,271 (1,407) - - - -------------------------------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (41,680) 6,337 - - - -------------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 133,809 139,522 - - - -------------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 92,129 $ 145,859 ============================================================================================================== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest (net of amount capitalized) $ 35,040 $ 38,267 Income taxes $ 26,719 $ 12,467 ==============================================================================================================
See accompanying notes to consolidated financial statements. 9 10 McDERMOTT INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1994 AND 1993 AND AT SEPTEMBER 30 AND MARCH 31, 1994 NOTE 1 - BASIS OF PRESENTATION The consolidated financial statements are presented in U.S. Dollars in accordance with accounting principles generally accepted in the United States. The consolidated financial statements include the accounts of McDermott International, Inc. and all subsidiaries and controlled joint ventures. Investments in joint venture and other entities in which McDermott International, Inc. has a 20% to 50% interest are accounted for on the equity method. Differences between the cost of equity method investments and the amount of underlying equity in net assets of the investees are amortized systematically to income. All significant intercompany transactions and accounts have been eliminated. Certain amounts previously reported have been reclassified or restated to conform with the presentation at September 30, 1994. Results for the three and six months ended September 30, 1993 have been restated to reflect the adoption of Emerging Issues Task Force ("EITF") Issue No. 93-5 (See Note 2). Unless the context otherwise requires, hereinafter "International" will be used to mean McDermott International, Inc., a Panamanian corporation; the "Delaware Company" will be used to mean McDermott Incorporated, a Delaware corporation which is a subsidiary of International, and its consolidated subsidiaries (including Babcock & Wilcox Investment Company and its principal subsidiary, The Babcock & Wilcox Company); and "McDermott International" will be used to mean the consolidated enterprise. In the opinion of management, all adjustments necessary for a fair statement of the results have been recorded. Such adjustments are of a normal, recurring nature except for a loss related to the reduction of estimated products liability asbestos claim recoveries from insurers ($14,478,000 or $0.27 per share) included in the three and six months ended September 30, 1994; a reduction in accrued interest expense ($5,600,000 and $11,300,000, or $0.10 and $0.21 per share, respectively) due to the settlement of outstanding tax issues included in the three and six months ended September 30, 1994; a favorable warranty reserve adjustment ($6,820,000, net of tax of $4,180,000 or $0.13 10 11 per share) included in the six months ended September 30, 1993; and the cumulative effect of the accounting changes included in the six months ended September 30, 1994 and 1993. The results for interim periods are not necessarily indicative of results to be expected for the year. NOTE 2 - CHANGES IN ACCOUNTING POLICIES Products Liability - McDermott International has an agreement with a majority of its principal insurers concerning the method of allocation of products liability asbestos claim payments to the years of coverage. However, amounts allocable to policy year 1979 are excluded from this agreement, and McDermott International's ability to recover these amounts, and amounts allocable to certain insolvent insurers, is only reasonably possible. Thus, a provision for these estimated future costs was recognized during the third quarter of fiscal year 1994, effective April 1, 1993, as a change in accounting principle, reflecting McDermott International's adoption of EITF Issue No. 93-5. EITF Issue No. 93-5 no longer permits companies to offset, for recognition purposes, reasonably possible recoveries against probable losses, which had been McDermott International's prior practice. The cumulative effect of the accounting change at April 1, 1993 was a charge of $100,750,000 (net of income taxes of $54,250,000). The adoption of this provision of EITF Issue No. 93-5 resulted in an increase in Income before Cumulative Effect of Accounting Change and a decrease in Net Income of $7,513,000 and $93,237,000, or $0.14 and $1.75 per share, respectively, for the six months ended September 30, 1993 and an increase in Net Income of $7,980,000, or $0.14 per share, for the quarter ended September 30, 1993. In addition, McDermott International has received notice that provisional liquidators have been appointed to a London-based products liability asbestos insurer and certain of its subsidiaries. As a result, a loss of $14,478,000 related to the reduction of estimated products liability asbestos claim recoveries was recognized in the September 30, 1994 quarter, and was included in Other-net expense. McDermott International's estimated future costs relating to policy year 1979 and insolvent insurers are derived from its loss history and constitute management's best estimate of such future costs. At September 30, 1994, the estimated amount of future costs allocable to insolvent insurers and the policy year 1979 was $142,304,000. Inherent in the estimate of such future costs are expected trends in claim severity and frequency and other factors, 11 12 including recoverability from insurers, which may vary significantly as claims are filed and settled. Accordingly, the ultimate loss may differ materially from the amount provided in the consolidated financial statements. During the first quarter of fiscal year 1995, McDermott International adopted the provisions of Financial Accounting Standards Board ("FASB") Interpretation No. 39, which requires McDermott International to present separately in the balance sheet its estimated liabilities for pending and future non-employee products liability asbestos claims and related estimated insurance recoveries. Accordingly, the accompanying consolidated balance sheet at March 31, 1994 and the consolidated statement of cash flows for the six months ended September 30, 1993, have been restated to conform to the September 30, 1994 presentation. Of the total estimated liability at September 30, 1994, less than $100,000,000 has been asserted. The adoption of FASB Interpretation No. 39 did not have any effect on earnings. Postemployment Benefits - Effective April 1, 1994, McDermott International adopted Statement of Financial Accounting Standards ("SFAS") No. 112, "Employers' Accounting for Postemployment Benefits," in accounting for disability benefits and other types of benefits paid to employees, their beneficiaries and covered dependents after active employment, but before retirement. The cumulative effect as of April 1, 1994 of this change in accounting was to increase net loss by $1,765,000 (net of income taxes of $287,000) or $0.03 per share. Other than the cumulative effect, the accounting change had no material effect on the results of the six months ended September 30, 1994. Prior to April 1, 1994, McDermott International recognized the cost of providing most of these benefits on a cash basis. Under this new principle of accounting, the cost of these benefits is accrued when it becomes probable that such benefits will be paid and when sufficient information exists to make reasonable estimates of the amounts to be paid. As required by the Statement, prior period financial statements have not been restated to reflect this change in accounting principle. 12 13 Investments - In May 1993, the FASB issued SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." McDermott International adopted the provisions of this new standard for investments held as of or acquired after April 1, 1994. Based on current portfolio management practices, McDermott International's investments are classified as available for sale and are reported at fair value, with unrealized gains and losses excluded from earnings and reported as a separate component of stockholders' equity. The opening balance of stockholders' equity was decreased by $4,095,000 to reflect the net unrealized holding losses on McDermott International's investment securities which were previously carried at amortized cost. In accordance with the Statement, prior period financial statements have not been restated to reflect this change in accounting principle. NOTE 3 - INVENTORIES Consolidated inventories at September 30, 1994 and March 31, 1994 are summarized below:
September 30, March 31, 1994 1994 ------------- --------- (In thousands) Raw Materials and Supplies $ 40,456 $ 40,281 Work in Progress 18,033 17,566 Finished Goods 9,579 8,622 - - - -------------------------------------------------------------------------------------------------------- $ 68,068 $ 66,469 ========================================================================================================
NOTE 4 - SUMMARIZED INCOME STATEMENT INFORMATION OF AFFILIATES The combined financial results of McDermott International's equity investments in Marine Construction Services' HeereMac and McDermott ETPM-West, Inc. joint ventures are summarized below. Each of these ventures was significant as defined by applicable SEC regulations in fiscal year 1994. The following summarizes the combined income statements: 13 14
THREE SIX MONTHS ENDED MONTHS ENDED 9/30/94 9/30/93 9/30/94 9/30/93 ------- ------- ------- ------- (In thousands) Revenues $ 186,860 $ 237,782 $ 424,145 $ 583,642 - - - ------------------------------------------------------------------------------------------------------------------------ Operating Income $ 18,913 $ 80,630 $ 19,769 $ 163,851 - - - ------------------------------------------------------------------------------------------------------------------------ Income before Income Taxes $ 22,768 $ 86,323 $ 28,356 $ 172,651 Provision for (Benefit from) Income Taxes (342) 1,670 (892) 2,794 - - - ------------------------------------------------------------------------------------------------------------------------ Net Income $ 23,110 $ 84,653 $ 29,248 $ 169,857 ======================================================================================================================== Equity in Net Income $ 11,504 $ 42,315 $ 14,555 $ 84,908 ========================================================================================================================
NOTE 5 - SEGMENT REPORTING INFORMATION
THREE SIX MONTHS ENDED MONTHS ENDED 9/30/94 9/30/93 9/30/94 9/30/93 ------- ------- ------- ------- (In thousands) REVENUES: Power Generation Systems and Equipment $ 379,315 $ 391,841 $ 783,778 $ 736,278 Marine Construction Services 344,988 387,211 701,703 746,508 Intersegment Transfer Eliminations (238) (1,593) (1,608) (1,909) - - - ----------------------------------------------------------------------------------------------------------------------- Total Revenues $ 724,065 $ 777,459 $ 1,483,873 $ 1,480,877 ======================================================================================================================= OPERATING INCOME: Segment Operating Income: Power Generation Systems and Equipment $ 1,311 $ 12,298 $ 13,728 $ 19,135 Marine Construction Services 17,158 16,615 26,598 36,942 - - - ----------------------------------------------------------------------------------------------------------------------- Total Segment Operating Income 18,469 28,913 40,326 56,077 - - - ----------------------------------------------------------------------------------------------------------------------- Equity in Income of Investees: Power Generation Systems and Equipment 1,132 3,632 3,975 7,149 Marine Construction Services 13,514 42,684 16,973 86,216 - - - ----------------------------------------------------------------------------------------------------------------------- Total Equity in Income of Investees 14,646 46,316 20,948 93,365 - - - ----------------------------------------------------------------------------------------------------------------------- General Corporate Expenses (13,346) (13,727) (25,674) (28,468) - - - ----------------------------------------------------------------------------------------------------------------------- Total Operating Income $ 19,769 $ 61,502 $ 35,600 $ 120,974 =======================================================================================================================
14 15 NOTE 6 - PROPOSED MERGER AGREEMENT On June 2, 1994, International announced a plan to form a new company, J. Ray McDermott, S. A., that would combine the worldwide marine construction businesses of McDermott International with those of Offshore Pipelines, Inc. ("OPI"). Under the terms of the proposed agreement, International would contribute substantially all of its marine construction assets and businesses, including those of the Delaware Company. International has completed due diligence and is currently holding discussions with regulatory agencies, and OPI has filed preliminary documents with the Securities and Exchange Commission in connection with this proposed transaction. The proposed transaction is subject to the approval of OPI shareholders and these regulatory agencies. 15 16 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 1994 VS. THREE MONTHS ENDED SEPTEMBER 30, 1993 Power Generation Systems and Equipment's revenues decreased $12,526,000 to $379,315,000. This was primarily due to lower revenues from defense and space-related products (other than nuclear fuel assemblies and reactor components), extended scope of supply and fabrication of industrial boilers, and plant enhancement projects. These decreases were partially offset by higher revenues from fabrication and erection of fossil fuel steam and environmental control systems. Power Generation Systems and Equipment's segment operating income decreased $10,987,000 to $1,311,000. The decrease was primarily due to lower volume and margins on extended scope of supply and fabrication of industrial boilers, and defense and space-related products (other than nuclear fuel assemblies and reactor components). There were also lower margins on replacement parts, nuclear fuel assemblies and reactor components for the U. S. Government and fabrication and erection of fossil fuel steam and environmental control systems. These decreases were partially offset by favorable margins on plant enhancement projects. Power Generation Systems and Equipment's equity in income of investees decreased $2,500,000 to $1,132,000 primarily due to a provision for loss on discontinuing a domestic joint venture. Backlog for this segment at September 30, 1994 was $2,060,170,000 compared to $2,790,052,000 at September 30, 1993. At September 30, 1994, this segment's backlog with the U.S. Government was $701,840,000 (of which $20,690,000 had not been funded). U. S. Government budget reductions have negatively affected this segment's government operations, and backlog at September 30, 1994 and 1993 reflects the impact of Congressional budget reductions on the advanced solid rocket motor and super conducting super collider projects. The current competitive economic environment 16 17 has also negatively affected demand for other industrial related product lines and these markets are expected to remain very competitive. The current competitive economic environment and uncertainties created by the passage of the Energy Policy Act of 1992 and the Clean Air Act Amendments of 1990 have caused U. S. utilities to defer repairs and refurbishments on existing plants. However, the Clean Air Act has created demand for environmental control equipment and related plant enhancements. Most electric utilities have already purchased equipment to comply with Phase I of the Clean Air Act, and they will purchase equipment to comply with Phase II deadlines in a gradual manner, spread out over the next several years as various deadlines approach. Electric utilities in Asia are active purchasers of large, new baseload generating units, due to the rapid growth of the Pacific Rim economies and to the small existing stock of electrical generating capacity in most developing countries. Marine Construction Services' revenues decreased $42,223,000 to $344,988,000, primarily due to lower volume in foreign marine and domestic fabrication operations. In addition, revenues from Delta Catalytic Corporation's ("DCC") operations were lower in the current period. These decreases were partially offset by the inclusion of revenues as a result of the acquisition of Northern Ocean Services Limited ("NOS") in February 1994 and higher volume in domestic marine operations. Marine Construction Services' segment operating income increased $543,000 to $17,158,000 primarily due to higher margins in foreign marine operations, higher volume and margins in domestic marine operations, and the inclusion of the operating results of NOS. These increases were partially offset by higher domestic operating expenses and lower margins in foreign engineering operations. Marine Construction Services' equity in income of investees decreased $29,170,000 to $13,514,000, primarily due to lower operating results of the HeereMac joint venture. In fiscal year 1995, the contribution from joint ventures will be significantly less compared to the prior two fiscal years due to lower volume and margins. 17 18 Backlog for this segment at September 30, 1994 was $1,047,370,000 (including $45,110,000 for NOS). Excluding NOS, backlog of $1,002,260,000 at September 30, 1994 was down from backlog of $1,216,180,000 at September 30, 1993. Not included in backlog at September 30, 1994 and 1993 was backlog relating to contracts to be performed by unconsolidated joint ventures of approximately $500,000,000 and $900,000,000, respectively. U. S. markets are expected to remain at a low level during fiscal year 1995 while international markets are expected to vary. In all areas, the overcapacity of marine equipment and constraints on customer capital spending programs will continue to result in a competitive environment and put pressure on profit margins. Interest income increased $5,982,000 to $15,744,000, primarily due to recognition of interest on a receivable from an equity investee, and settlement of a claim for interest on certain foreign tax refunds. Interest expense decreased $2,646,000 to $14,101,000 primarily due to a reduction in accrued interest on proposed tax deficiencies. Other-net decreased $18,361,000 from income of $2,444,000 to expense of $15,917,000 primarily due to a loss related to the reduction of estimated products liability asbestos claim recoveries from insurers and higher bank fees and discounts on the sale of certain accounts receivable in the current period, and gains on the sale of investments in the prior period, partially offset by settlement of a lawsuit in the prior period. Minority interest expense decreased $3,548,000 to $1,151,000 primarily due to minority shareholder participation in the losses of the McDermott-ETPM East joint venture and DCC in the current period, compared with minority interest expense applicable to DCC in the prior period. The provision for income taxes decreased $7,068,000 to $7,606,000, while income before provision for income taxes decreased $47,918,000 to $4,344,000. The decrease in the provision for income taxes is due primarily to a decrease in income from operations and varying results in different tax jurisdictions with various means and rates of taxation. 18 19 In addition, the provision for income taxes reflects a limitation on the recognition of income tax benefits on losses in the U. S. RESULTS OF OPERATIONS - SIX MONTHS ENDED SEPTEMBER 30, 1994 VS. SIX MONTHS ENDED SEPTEMBER 30, 1993 Power Generation Systems and Equipment's revenues increased $47,500,000 to $783,778,000. This was primarily due to higher revenues from fabrication and erection of fossil fuel steam and environmental control systems, repair and alteration of existing fossil fuel steam systems, and nuclear fuel assemblies and reactor components for the U.S. Government. These increases were partially offset by lower revenues from extended scope of supply and fabrication of industrial boilers, defense and space-related products (other than nuclear fuel assemblies and reactor components), plant enhancement projects and replacement parts. Power Generation Systems and Equipment's segment operating income decreased $5,407,000 to $13,728,000. The decrease was primarily due to lower volume and margins on extended scope of supply and fabrication of industrial boilers, and defense and space-related products (other than nuclear fuel assemblies and reactor components). There were also lower margins on replacement parts, repair and alteration of existing fossil steam systems as well as a favorable warranty reserve adjustment recorded in the prior year. These decreases were partially offset by higher volume on fabrication and erection of fossil fuel steam and environmental control systems and higher volume and margins on nuclear fuel assemblies and reactor components for the U. S. Government. Power Generation Systems and Equipment's equity in income of investees decreased $3,174,000 to $3,975,000 primarily due to a provision for loss on discontinuing a domestic joint venture and lower operating results in a foreign joint venture. Marine Construction Services' revenues decreased $44,805,000 to $701,703,000 primarily due to lower volume in foreign marine and domestic fabrication operations. These decreases were partially offset by the inclusion of revenues as a result of the acquisitions of DCC and NOS and higher volume in domestic marine operations. 19 20 Marine Construction Services' segment operating income decreased $10,344,000 to $26,598,000 primarily due to higher worldwide operating expenses, lower volume and margins in domestic fabrication operations, and lower margins in worldwide engineering operations. These decreases were partially offset by the inclusion of the operating results of NOS and higher volume and margins in domestic marine operations. Marine Construction Services' equity in income of investees decreased $69,243,000 to $16,973,000 primarily due to lower operating results of the HeereMac joint venture. In fiscal year 1995, the contribution from joint ventures will be significantly less compared to the prior two fiscal years due to lower volume and margins. General corporate expenses decreased $2,794,000 to $25,674,000 primarily due to timing of expenses, and non-recurring charges related to certain cost reduction initiatives in the prior period. Interest income increased $7,064,000 to $26,142,000 primarily due to recognition of interest on a receivable from an equity investee, and settlement of a claim for interest on certain foreign tax refunds. Interest expense decreased $9,750,000 to $26,940,000 primarily due to a reduction in accrued interest on proposed tax deficiencies. Minority interest expense decreased $3,417,000 to $5,008,000 primarily due to minority shareholder participation in increased losses of the McDermott-ETPM East joint venture, and in losses of DCC. Other-net expense increased $17,021,000 to $19,936,000 primarily due to a loss related to the reduction of estimated products liability asbestos claim recoveries from insurers and losses on the sale of investments in the current period and gains on the sale of investments in the prior period. These increases were partially offset by foreign currency transaction losses and the settlement of a lawsuit in the prior period. 20 21 The provision for income taxes decreased $19,223,000 to $10,002,000, while income before provision for income taxes and cumulative effect of accounting change decreased $82,164,000 to $9,858,000. The decrease in the provision for income taxes is due primarily to a decrease in income from operations and varying results in different tax jurisdictions with various means and rates of taxation. In addition, the provision for income taxes reflects a limitation on the recognition of income tax benefits on losses in the U.S. Net loss decreased $36,044,000 from a loss of $37,953,000 to a loss of $1,909,000 reflecting the cumulative effect of the adoption of SFAS No. 112, "Employers' Accounting for Postretirement Benefits" of $1,765,000 in the current year and the cumulative effect of accounting change for non-employee products liability asbestos claims of $100,750,000 in the prior year, in addition to the other items described above. Liquidity and Capital Resources During the six months ended September 30, 1994, McDermott International's cash and cash equivalents decreased $41,680,000 to $92,129,000 and total debt increased $163,385,000 to $892,995,000. During this period, McDermott International used cash of $108,914,000 in operating activities; $30,863,000 for dividends on International's common and preferred stock; $16,753,000 for the repurchase of a subsidiary's preferred stock to satisfy future sinking fund requirements; $9,587,000 for repayment of long-term debt and $47,149,000 for additions to property, plant and equipment. Increases in net contracts in progress and advance billings resulted primarily from the timing of billings and costs incurred on Power Generation Systems and Equipment segment contracts, both foreign and domestic. Decreases in accounts payable are primarily due to lower volume in both the Marine Construction Services and Power Generation segments, and also include the settlement of certain charter obligations to the HeereMac joint venture and subcontract costs on a foreign offshore contract. 21 22 Pursuant to an agreement with a majority of its principal insurers, McDermott International negotiates and settles products liability asbestos claims from non-employees and bills these amounts to the appropriate insurers. As a result of collection delays inherent in this process, reimbursement is usually delayed for three months or more. The number of claims, which management believes peaked in fiscal year 1990, has declined moderately. However, the average amount of these claims (historical average of less the $3,000 per claim) has continued to rise. Claims paid during the three and six months ended September 30, 1994 were $30,107,000 and $61,557,000, respectively, including $3,013,000 and $4,907,000, respectively, applicable to insolvent insurers and $1,235,000 and $2,320,000, respectively, relating to the policy year 1979. As a result of the adoption of FASB Interpretation No. 39 (See Note 2 to the consolidated financial statements), McDermott International has presented separately in the balance sheet its estimated liabilities for pending and future non-employee products liability asbestos claims and related estimated insurance recoveries. At September 30, 1994, Accounts receivable-other includes receivables of $29,586,000 that have been billed to insurers for reimbursement of settled claims. In addition, McDermott International has received notice that provisional liquidators have been appointed to a London-based products liability asbestos insurer and certain of its subsidiaries. As a result, a loss of $14,478,000 related to the reduction of estimated product liability asbestos claim recoveries was recognized in the September 30, 1994 quarter, and was included in Other-net expense. McDermott International's estimated future costs relating to policy year 1979 and insolvent insurers are derived from its loss history and constitute management's best estimate of such future costs. At September 30, 1994, the estimated amount of future costs allocable to insolvent insurers and the policy year 1979 was $142,304,000. Inherent in the estimate of such future costs are assumptions which may vary significantly as claims are filed and settled. Accordingly, the amount ultimately paid may differ materially from the amount provided in the consolidated financial statements. Settlement of the liability is expected to occur over the next 30 years. The collection delays, and the amount of claims paid that are related to insolvent insurance carriers and the policy year 1979 have not had a material adverse effect on McDermott International's liquidity, and management believes, based on information currently available, that they will not have a material adverse effect on liquidity in the future. 22 23 McDermott International's expenditures for property, plant and equipment were $47,149,000 for the six months ended September 30, 1994 compared with $33,214,000 for the prior year and were incurred primarily for the purchase of a barge, which was formerly leased by a subsidiary of International, for $15,010,000 and to maintain existing facilities. At September 30, and March 31, 1994, The Babcock & Wilcox Company had sold, with limited recourse, an undivided interest in a designated pool of qualified accounts receivable of approximately $170,000,000, under the terms of its agreement with a U.S. bank. The maximum sales limit available under the agreement, which expires on December 31, 1997, is $225,000,000. At September 30, and March 31, 1994, International and the Delaware Company have available to them jointly various uncommitted short-term lines of credit totaling $252,649,000 and $246,412,000, respectively. Borrowings by McDermott International against these lines of credit at September 30 and March 31, 1994 were $160,736,000 and $37,512,000, respectively. In addition, The Babcock & Wilcox Company had available to it a $128,000,000 unsecured and committed revolving credit facility. Loans outstanding under the revolving credit facility may not exceed the banks' commitments thereunder. In addition, it is a condition to borrowing under the revolving credit facility that the borrower's consolidated net tangible assets exceed a certain level. At September 30, 1994, The Babcock & Wilcox Company had borrowings against this line of credit of $45,000,000. There were no borrowings outstanding against this facility at March 31, 1994. DCC had available from a certain Canadian bank an unsecured and committed revolving credit facility of $14,925,000 which expires on May 31, 1997. At September 30, 1994, borrowings outstanding against this facility were $3,358,000. There were no borrowings outstanding against this facility at March 31, 1994. McDermott International maintains an investment portfolio of government obligations and other investments which is held primarily for long-term investment purposes and is classified as available for sale under SFAS No. 115 (See Note 2 to the consolidated financial statements). The fair value of short-term investments and the long-term portfolio 23 24 at September 30, 1994 was $701,882,000 (amortized cost $712,557,000). The net unrealized loss on the current and long-term investment portfolio, net of income tax effect, was $10,124,000 at September 30, 1994. At September 30, 1994, approximately $153,838,000 fair value (amortized cost of $162,245,374) of these obligations were pledged to secure a letter of credit in connection with a long-term loan and certain reinsurance agreements. The Delaware Company is restricted, as a result of covenants in certain credit agreements, in its ability to transfer funds to International and its subsidiaries through cash dividends or through unsecured loans or investments. At September 30, 1994, substantially all of the net assets of the Delaware Company were subject to such restrictions. It is not expected that these restrictions will have any significant effect on International's liquidity. As described in Note 6 to the consolidated financial statements, International plans to contribute substantially all of its marine construction assets and businesses (including those currently held by the Delaware Company) to a newly-formed company, J. Ray McDermott S.A., in connection with the combination of McDermott International's marine construction businesses with those of Offshore Pipelines, Inc. When this transaction is complete, J. Ray McDermott, S.A., will be a subsidiary of International. In order to consummate the transaction, International will, among other things, purchase marine construction assets from the Delaware Company for approximately $230,000,000. After the purchase, the proceeds will be held by the Delaware Company and will only be available to International subject to the covenant restrictions described above. After consummation of the transaction, International's principal sources of cash will include dividends and interest payments on securities of J. Ray McDermott, S.A., dividends from other subsidiaries of International (other than the Delaware Company), the remaining investment portfolio, and borrowings under the short-term lines of credit described above. International expects that J. Ray McDermott, S.A., will finance its operations on an independent basis. Working capital decreased by $3,479,000 to $64,313,000 at September 30, 1994 from March 31, 1994. During the remainder of fiscal year 1995, McDermott International 24 25 expects to obtain funds to meet working capital and capital expenditure requirements from additional borrowings, if needed. Leasing agreements for equipment, which are short-term in nature, are not expected to impact McDermott International's liquidity nor capital resources. McDermott International has provided a valuation allowance ($42,024,000 at September 30, 1994) for deferred tax assets which cannot be realized through carrybacks and future reversals of existing taxable temporary differences. Management believes that remaining deferred tax assets ($787,704,000 at September 30, 1994) are realizable through carrybacks and future reversals of existing taxable temporary differences, and, if necessary, the implementation of tax planning strategies involving sales and sale/leasebacks of appreciated assets. Major uncertainties that affect the ultimate realization of deferred tax assets include the risks of incurring operating losses in the future and the possibility of declines in value of appreciated assets involved in identified tax planning strategies. These factors have been considered in determining the valuation allowance. Management will continue to assess the adequacy of the valuation allowance on a quarterly basis. McDermott International adopted SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," effective April 1, 1992 for all domestic plans. McDermott International plans to adopt SFAS No. 106 for foreign plans during fiscal year 1996, and the adoption is not expected to have a material effect on the consolidated financial statements of McDermott International. The new standard does not have any impact on the cash requirements of any domestic or foreign postretirement health and welfare plan. 25 26 PART II MCDERMOTT INTERNATIONAL, INC. OTHER INFORMATION No information is applicable to Part II for the current quarter, except as noted below: Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibit 11 - Calculation of Earnings (Loss) Per Common and Common Equivalent Share - Page 26 (b) Reports on Form 8-K There were no current reports on Form 8-K filed during the three months ended September 30, 1994. Signatures 26 27 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. McDERMOTT INTERNATIONAL, INC. (REGISTRANT) Date: 11/14/94 By: /s/ BROCK A. HATTOX (SIGNATURE) Brock A. Hattox Senior Vice President and Chief Financial Officer 27 EX-11 2 CALCULATION OF EARNINGS 1 EXHIBIT 11 MCDERMOTT INTERNATIONAL, INC. CALCULATION OF EARNINGS (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE (In thousands, except shares and per share amounts) PRIMARY AND FULLY DILUTED
THREE SIX MONTHS ENDED MONTHS ENDED 9/30/94 9/30/93 9/30/94 9/30/93 ------- ------- ------- ------- Income (Loss) before Cumulative Effect of Accounting Changes $ (3,262) $ 37,588 $ (144) $ 62,797 Less Dividend Requirements of Preferred Stock Series C 2,067 1,951 4,133 1,951 - - - -------------------------------------------------------------------------------------------------------------------- Income (Loss) before Cumulative Effect of Accounting Changes Applicable to Common Stock (5,329) 35,637 (4,277) 60,846 Cumulative Effect of Accounting Changes - - (1,765) (100,750) - - - -------------------------------------------------------------------------------------------------------------------- Net Income (Loss) $ (5,329) $ 35,637 $ (6,042) $ (39,904) ==================================================================================================================== Weighted average number of common shares outstanding during the period 53,568,530 52,922,908 53,523,543 52,652,190 Common stock equivalents of stock options and stock appreciation rights based on "treasury stock" method - 693,418 - 746,482 - - - -------------------------------------------------------------------------------------------------------------------- Weighted average number of common and common equivalent shares outstanding during the period 53,568,530 53,616,326 53,523,543 53,398,672 ==================================================================================================================== Earnings (Loss) per common and common equivalent share: (1) Income (Loss) before Cumulative Effect of Accounting Changes $ (0.10) $ 0.66 $ (0.08) $ 1.14 Accounting Changes - - (0.03) (1.89) Net Income (Loss) $ (0.10) $ 0.66 $ (0.11) $ (0.75)
(1) Earnings (Loss) per common and common equivalent share assuming full dilution are the same for the periods presented. 28 EX-27 3 ARTICLE 5--FDS
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MCDERMOTT INTERNATIONALS SEPTEMBER 30, 1994 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS 1,000 6-MOS MAR-31-1995 SEP-30-1994 92,129 129,532 438,038 45,857 325,846 1,332,851 2,176,499 1,405,918 4,133,614 1,268,538 510,184 53,677 0 2,875 466,321 4,133,614 1,483,873 1,483,873 1,469,221 1,469,221 0 0 26,940 9,858 10,002 (144) 0 0 (1,765) (1,909) (0.11) (0.11)
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