-----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, fht1mMWn88H0q/WyUxNpJGo6WY8mEmz1SJGi4yYbWXFfqkUUilRgK1i1InpA4OPM BXwPn6OHsF/UKZO1ZnnNPg== 0000950134-95-000067.txt : 19950608 0000950134-95-000067.hdr.sgml : 19950608 ACCESSION NUMBER: 0000950134-95-000067 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19941231 FILED AS OF DATE: 19950127 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MCDERMOTT INTERNATIONAL INC CENTRAL INDEX KEY: 0000708819 STANDARD INDUSTRIAL CLASSIFICATION: FABRICATED PLATE WORK (BOILER SHOPS) [3443] IRS NUMBER: 720593134 STATE OF INCORPORATION: R1 FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08430 FILM NUMBER: 95503361 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 PERIOD ENDED 12-31-94 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 December 31, 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 January 20, 1995 was 53,858,796. 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 - December 31, 1994 and March 31, 1994 4 Consolidated Statement of Income (Loss) and Deficit - Three Months Ended and Nine Months Ended December 31, 1994 and December 31, 1993 6 Consolidated Statement of Cash Flows - Nine Months Ended December 31, 1994 and December 31, 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 DECEMBER 31, 1994 ASSETS
12/31/94 3/31/94 -------- ------- (Unaudited) (In thousands) Current Assets: Cash and cash equivalents $ 99,873 $ 133,809 Short-term investments 128,833 990 Accounts receivable - trade 357,273 370,333 Accounts receivable - other 103,987 113,782 Insurance recoverable - current 112,341 110,200 Contracts in progress 316,360 237,722 Inventories 75,632 66,469 Deferred income taxes 86,928 100,167 Other current assets 35,977 40,474 - --------------------------------------------------------------------------------------------------------------- Total Current Assets 1,317,204 1,173,946 - --------------------------------------------------------------------------------------------------------------- Property, Plant and Equipment, at Cost 2,175,564 2,150,728 Less accumulated depreciation 1,411,660 1,374,219 - --------------------------------------------------------------------------------------------------------------- Net Property, Plant and Equipment 763,904 776,509 - --------------------------------------------------------------------------------------------------------------- Investments: Government obligations 391,841 395,556 Other investments 181,081 319,575 - --------------------------------------------------------------------------------------------------------------- Total Investments 572,922 715,131 - --------------------------------------------------------------------------------------------------------------- Insurance Recoverable 777,327 876,846 - --------------------------------------------------------------------------------------------------------------- Prepaid Pension Costs 265,522 246,854 - --------------------------------------------------------------------------------------------------------------- Excess of Cost Over Fair Value of Net Assets of Purchased Businesses Less Accumulated Amortization of $90,397,000 at December 31, 1994 and $84,170,000 at March 31, 1994 152,499 158,726 - --------------------------------------------------------------------------------------------------------------- Other Assets 242,667 275,557 - --------------------------------------------------------------------------------------------------------------- TOTAL $ 4,092,045 $ 4,223,569 ===============================================================================================================
See accompanying notes to consolidated financial statements. 4 5 LIABILITIES AND STOCKHOLDERS' EQUITY
12/31/94 3/31/94 -------- ------- (Unaudited) (In thousands) Current Liabilities: Notes payable and current maturities of long-term debt $ 405,935 $ 62,544 Accounts payable 217,202 245,819 Environmental and products liabilities - current 129,320 122,361 Accrued employee benefits 111,011 113,415 Accrued liabilities - other 255,023 300,505 Advance billings on contracts 122,993 181,572 U.S. and foreign income taxes 47,998 79,938 - --------------------------------------------------------------------------------------------------------------- Total Current Liabilities 1,289,482 1,106,154 - --------------------------------------------------------------------------------------------------------------- Long-Term Debt 487,405 667,066 - --------------------------------------------------------------------------------------------------------------- Accumulated Postretirement Benefit Obligation 390,458 380,309 - --------------------------------------------------------------------------------------------------------------- Environmental and Products Liabilities 907,884 1,013,251 - --------------------------------------------------------------------------------------------------------------- Other Liabilities 298,084 302,143 - --------------------------------------------------------------------------------------------------------------- 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 91,162 108,583 Other minority interest 14,193 15,716 - --------------------------------------------------------------------------------------------------------------- Total Minority Interest 193,444 212,388 - --------------------------------------------------------------------------------------------------------------- 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 53,758,796 at December 31, 1994 and 53,444,467 at March 31, 1994 53,759 53,444 Capital in excess of par value 741,208 730,987 Deficit (214,733) (196,216) Minimum pension liability (931) (931) Net unrealized loss on investments (18,342) - Cumulative foreign exchange translation adjustments (38,548) (47,901) - --------------------------------------------------------------------------------------------------------------- Total Stockholders' Equity 525,288 542,258 - --------------------------------------------------------------------------------------------------------------- TOTAL $ 4,092,045 $ 4,223,569 ===============================================================================================================
5 6 McDERMOTT INTERNATIONAL, INC. CONSOLIDATED STATEMENT OF INCOME (LOSS) AND DEFICIT DECEMBER 31, 1994
THREE NINE MONTHS ENDED MONTHS ENDED 12/31/94 12/31/93 12/31/94 12/31/93 -------- -------- -------- -------- (Unaudited) (In thousands) Revenues $ 715,525 $ 798,886 $ 2,199,398 $ 2,279,763 - --------------------------------------------------------------------------------------------------------------- Costs and Expenses: Cost of operations 585,506 697,226 1,858,549 1,966,780 Depreciation and amortization 23,275 20,230 85,258 76,860 Selling, general and administrative expenses 66,877 63,058 201,072 190,142 - --------------------------------------------------------------------------------------------------------------- 675,658 780,514 2,144,879 2,233,782 - --------------------------------------------------------------------------------------------------------------- 39,867 18,372 54,519 45,981 Equity in Income of Investees 13,701 14,845 34,649 108,210 - --------------------------------------------------------------------------------------------------------------- Operating Income 53,568 33,217 89,168 154,191 - --------------------------------------------------------------------------------------------------------------- Other Income (Expense): Interest income 13,657 9,995 39,799 29,073 Interest expense (16,619) (16,803) (43,559) (53,493) Minority interest (4,530) (4,956) (9,538) (13,381) Other-net (5,446) 1,118 (25,382) (1,797) - --------------------------------------------------------------------------------------------------------------- (12,938) (10,646) (38,680) (39,598) - --------------------------------------------------------------------------------------------------------------- Income before Provision for Income Taxes and Cumulative Effect of Accounting Changes 40,630 22,571 50,488 114,593 Provision for Income Taxes 10,816 7,194 20,818 36,419 - --------------------------------------------------------------------------------------------------------------- Income before Cumulative Effect of Accounting Changes 29,814 15,377 29,670 78,174 Cumulative Effect of Accounting Changes - - (1,765) (100,750) - --------------------------------------------------------------------------------------------------------------- Net Income (Loss) 29,814 15,377 27,905 (22,576) - --------------------------------------------------------------------------------------------------------------- Deficit - Beginning of Period (229,047) (192,595) (196,216) (126,264) Deduct Cash Dividends Common stock 13,434 13,295 40,223 39,722 Preferred stock, Series C 2,066 2,067 6,199 4,018 - --------------------------------------------------------------------------------------------------------------- Deficit - End of Period $ (214,733) $ (192,580) $ (214,733) $ (192,580) ===============================================================================================================
6 7 CONTINUED
THREE NINE MONTHS ENDED MONTHS ENDED 12/31/94 12/31/93 12/31/94 12/31/93 -------- -------- -------- -------- (Unaudited) (In thousands, except shares and per share amounts) NET INCOME (LOSS) APPLICABLE TO COMMON STOCK (AFTER PREFERRED STOCK DIVIDENDS): $ 27,748 $ 13,310 $ 21,706 $ (26,594) - --------------------------------------------------------------------------------------------------------------- EARNINGS (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE (PRIMARY AND FULLY DILUTED): Income before cumulative effect of accounting changes $ 0.51 $ 0.25 $ 0.43 $ 1.39 Accounting changes - - (0.03) (1.89) - --------------------------------------------------------------------------------------------------------------- Net income (loss) $ 0.51 $ 0.25 $ 0.40 $ (0.50) =============================================================================================================== Weighted average number of common and common equivalent shares 53,974,434 53,566,764 53,722,217 53,454,702 CASH DIVIDENDS: Per common share $ 0.25 $ 0.25 $ 0.75 $ 0.75 Per preferred share $ 0.72 $ 0.72 $ 2.16 $ 1.40 ===============================================================================================================
See accompanying notes to consolidated financial statements. 7 8 McDERMOTT INTERNATIONAL, INC. CONSOLIDATED STATEMENT OF CASH FLOWS DECEMBER 31, 1994 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
NINE MONTHS ENDED 12/31/94 12/31/93 -------- -------- (Unaudited) (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net Income (Loss) $ 27,905 $ (22,576) - --------------------------------------------------------------------------------------------------------------- Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 85,258 76,860 Equity in income of investees, less dividends 26,444 (44,834) Provision for (benefit from) deferred taxes 42,200 (27,931) Cumulative effect of accounting changes 1,765 100,750 Other 7,317 1,922 Changes in assets and liabilities, net of effects from acquisition: Accounts receivable 18,567 100,552 Net contracts in progress and advance billings (140,861) 58,198 Accounts payable (28,063) (75,661) Accrued liabilities (45,286) (87,920) Income taxes (24,077) 31,523 Other, net (18,157) 1,591 Proceeds from insurance for products liabilities claims 80,550 76,638 Payments of products liabilities claims (94,213) (85,478) - --------------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (60,651) 103,634 - --------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of Delta Catalytic Corporation - (28,249) Purchases of property, plant and equipment (68,317) (52,370) Purchases of short and long-term investments (356,399) (742,711) Sales of short and long-term investments 351,133 695,997 Other 402 5,910 - --------------------------------------------------------------------------------------------------------------- NET CASH USED IN INVESTING ACTIVITIES (73,181) (121,423) - ---------------------------------------------------------------------------------------------------------------
8 9 CONTINUED INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
NINE MONTHS ENDED 12/31/94 12/31/93 -------- -------- (Unaudited) (In thousands) CASH FLOWS FROM FINANCING ACTIVITIES: Payment of long-term debt $ (18,256) $ (215,838) Issuance of long-term debt - 92,475 Increase in short-term borrowing 181,522 27,910 Issuance of common stock 384 16,227 Issuance of preferred stock - 140,322 Dividends paid (46,341) (41,412) Repurchase of subsidiary's preferred stock (17,185) (3,586) Other (915) (952) - --------------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY FINANCING ACTIVITIES 99,209 15,146 - --------------------------------------------------------------------------------------------------------------- EFFECTS OF EXCHANGE RATE CHANGES ON CASH 687 (1,016) - --------------------------------------------------------------------------------------------------------------- NET DECREASE IN CASH AND CASH EQUIVALENTS (33,936) (3,659) - --------------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 133,809 139,522 - --------------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 99,873 $ 135,863 =============================================================================================================== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest (net of amount capitalized) $ 58,422 $ 57,886 Income taxes $ 37,298 $ 13,660 ===============================================================================================================
See accompanying notes to consolidated financial statements. 9 10 McDERMOTT INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED DECEMBER 31, 1994 AND 1993 AND AT DECEMBER 31 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 December 31, 1994. 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 reduction in accrued interest expense ($5,000,000 and $16,300,000, or $0.09 and $0.30 per share, respectively) due to the settlement of outstanding tax issues included in the three and nine months ended December 31, 1994; favorable worker's compensation cost adjustments ($14,886,000, or $0.28 per share) in the three and nine months ended December 31, 1994 and ($8,582,000, net of tax of $3,419,000, or $0.16 per share) in the three and nine months ended December 31, 1993; 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 nine months ended December 31, 1994; a favorable warranty 10 11 reserve adjustment ($6,710,000, net of tax of $4,290,000 or $0.13 per share) included in the nine months ended December 31, 1993; and the cumulative effect of the accounting changes included in the nine months ended December 31, 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 $10,560,000 and $90,190,000, or $0.20 and $1.69 per share, respectively, for the nine months ended December 31, 1993 and a decrease in Net Income of $3,047,000, or $0.06 per share, for the quarter ended December 31, 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 December 31, 1994, the estimated amount of future costs allocable to insolvent insurers and the policy year 1979 was $138,219,000. 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 nine months ended December 31, 1993, have been restated to conform to the December 31, 1994 presentation. Of the total estimated liability at December 31, 1994, approximately $115,000,000 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 reduce net income 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 nine months ended December 31, 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. In accordance with 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 December 31, 1994 and March 31, 1994 are summarized below:
December 31, March 31, 1994 1994 --------------- -------------- (In thousands) Raw Materials and Supplies $ 44,532 $ 40,281 Work in Progress 21,944 17,566 Finished Goods 9,156 8,622 - --------------------------------------------------------------------------------------------------------------- $ 75,632 $ 66,469 ===============================================================================================================
NOTE 4 - SUMMARIZED INCOME STATEMENT INFORMATION OF AFFILIATES The combined financial results of McDermott International's equity investments in the 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 NINE MONTHS ENDED MONTHS ENDED 12/31/94 12/31/93 12/31/94 12/31/93 -------- -------- -------- -------- (In thousands) Revenues $ 136,026 $ 130,026 $ 560,171 $ 713,668 - ------------------------------------------------------------------------------------------------------------------------ Operating Income $ 17,400 $ 22,946 $ 37,169 $ 186,797 - ------------------------------------------------------------------------------------------------------------------------ Income before Income Taxes $ 22,103 $ 25,264 $ 50,459 $ 197,915 Provision for (Benefit from) Income Taxes 5,070 1,324 4,178 4,118 - ------------------------------------------------------------------------------------------------------------------------ Net Income $ 17,033 $ 23,940 $ 46,281 $ 193,797 ======================================================================================================================== Equity in Net Income $ 8,438 $ 11,925 $ 22,993 $ 96,833 ========================================================================================================================
NOTE 5 - SEGMENT REPORTING INFORMATION
THREE NINE MONTHS ENDED MONTHS ENDED 12/31/94 12/31/93 12/31/94 12/31/93 -------- -------- -------- -------- (In thousands) REVENUES: Power Generation Systems and Equipment $ 419,946 $ 423,081 $ 1,203,724 $ 1,159,359 Marine Construction Services 300,971 378,548 1,002,674 1,125,056 Intersegment Transfer Eliminations (5,392) (2,743) (7,000) (4,652) - ------------------------------------------------------------------------------------------------------------------------ Total Revenues $ 715,525 $ 798,886 $ 2,199,398 $ 2,279,763 ======================================================================================================================== OPERATING INCOME: Segment Operating Income: Power Generation Systems and Equipment $ 31,185 $ 9,715 $ 44,913 $ 28,850 Marine Construction Services 23,152 20,881 49,750 57,823 - ------------------------------------------------------------------------------------------------------------------------ Total Segment Operating Income 54,337 30,596 94,663 86,673 - ------------------------------------------------------------------------------------------------------------------------ Equity in Income of Investees: Power Generation Systems and Equipment 3,283 3,041 7,258 10,190 Marine Construction Services 10,418 11,804 27,391 98,020 - ------------------------------------------------------------------------------------------------------------------------ Total Equity in Income of Investees 13,701 14,845 34,649 108,210 - ------------------------------------------------------------------------------------------------------------------------ General Corporate Expenses (14,470) (12,224) (40,144) (40,692) - ------------------------------------------------------------------------------------------------------------------------ Total Operating Income $ 53,568 $ 33,217 $ 89,168 $ 154,191 ========================================================================================================================
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., ("JRM") that would combine the worldwide marine construction businesses of McDermott International with those of Offshore Pipelines, Inc. ("OPI"). Under the terms of the agreement, International would contribute substantially all of its marine construction services' assets and businesses, including those of the Delaware Company into JRM. The consummation of the transaction is subject to various conditions, the most significant of which is the approval of OPI common stockholders at a special meeting of such stockholders on January 30, 1995. 15 16 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS - THREE MONTHS ENDED DECEMBER 31, 1994 VS. THREE MONTHS ENDED DECEMBER 31, 1993 Power Generation Systems and Equipment's revenues decreased $3,135,000 to $419,946,000. This was primarily due to lower revenues from replacement parts, defense and space-related products (including nuclear fuel assemblies and reactor components for the U. S. Government) and extended scope of supply and fabrication of industrial boilers. These decreases were partially offset by higher revenues from replacement nuclear steam generators and fabrication and erection of fossil fuel steam and environmental control systems. Power Generation Systems and Equipment's segment operating income increased $21,470,000 to $31,185,000. The increase was primarily due to higher margins on repair and alteration of existing fossil fuel steam systems, higher volume on replacement nuclear steam generators, lower administrative expenses, and favorable workers' compensation cost adjustments. These increases were partially offset by lower volume on replacement parts. Power Generation Systems and Equipment's equity in income of investees increased $242,000 to $3,283,000 primarily due to improved results in domestic joint ventures partially offset by lower results in a foreign joint venture. Backlog for this segment at December 31, 1994 was $2,148,925,000 compared to $2,547,666,000 at December 31, 1993. At December 31, 1994, this segment's backlog with the U.S. Government was $686,862,000 (of which $20,619,000 had not been funded). U. S. Government budget reductions have negatively affected this segment's government operations, and backlog at December 31, 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 has also negatively affected demand for other industrial related product lines and these markets are expected to remain very competitive. 16 17 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 $77,577,000 to $300,971,000, primarily due to lower volume in foreign marine and domestic fabrication and marine operations. In addition, revenues from Delta Catalytic Corporation's ("DCC") operations were lower in the current period. These decreases were partially offset by higher volume of procured materials and foreign fabrication and engineering operations. Marine Construction Services' segment operating income increased $2,271,000 to $23,152,000 primarily due to higher volume in foreign fabrication operations and higher margins in foreign marine operations. These increases were partially offset by higher operating expenses and lower operating results from DCC's operations. Marine Construction Services' equity in income of investees decreased $1,386,000 to $10,418,000 primarily due to lower operating results of the McDermott-ETPM West, Inc. joint venture partially offset by the improved operating results of a Mexican joint venture. The equity in income of investees will be significantly lower during fiscal years 1995 and 1996 than in fiscal years 1993 and 1994. Backlog for this segment at December 31, 1994 was $1,266,447,000, including $98,846,000 for Northern Ocean Services ("NOS"). Excluding NOS, backlog of $1,167,601,000 at December 31, 1994 was down from backlog of $1,375,245,000 at December 31, 1993. Not included in backlog at December 31, 1994 and 1993 was 17 18 backlog relating to contracts to be performed by unconsolidated joint ventures of approximately $650,000,000 and $800,000,000, respectively. U. S. markets are expected to remain at a low level during the remainder of 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 an increasingly competitive environment and put pressure on profit margins. Interest income increased $3,662,000 to $13,657,000, primarily due to higher interest rates on investments in government obligations and other investments and settlement of claims for interest relating to foreign tax refunds and contract claims. Interest expense decreased $184,000 to $16,619,000 primarily due to a reduction in accrued interest on proposed tax deficiencies, which was mostly offset by changes in debt obligations and interest rates prevailing thereon. Other-net decreased $6,564,000 from income of $1,118,000 to expense of $5,446,000 primarily due to higher bank fees and higher discounts on the sale of certain accounts receivable and higher foreign currency transactions losses. The provision for income taxes increased $3,622,000 to $10,816,000, while income before provision for income taxes increased $18,059,000 to $40,630,000. The increase in the provision for income taxes is due primarily to an increase in income from operations and varying results in different tax jurisdictions with various means and rates of taxation. 18 19 RESULTS OF OPERATIONS - NINE MONTHS ENDED DECEMBER 31, 1994 VS. NINE MONTHS ENDED DECEMBER 31, 1993 Power Generation Systems and Equipment's revenues increased $44,365,000 to $1,203,724,000. 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 replacement nuclear steam generators. 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), replacement parts and plant enhancement projects. Power Generation Systems and Equipment's segment operating income increased $16,063,000 to $44,913,000. The increase was primarily due to higher volume and margins on repair and alteration of existing fossil fuel steam systems, higher volume on fabrication and erection of fossil fuel steam and environmental control systems, lower administrative expenses, and favorable workers' compensation cost adjustments. These increases were partially offset by 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). These increases were also offset by lower volume on replacement parts and a favorable warranty reserve adjustment recorded in the prior year. Power Generation Systems and Equipment's equity in income of investees decreased $2,932,000 to $7,258,000 primarily due to a provision for loss on discontinuing a domestic joint venture and lower operating results in a foreign joint venture. These results were partially offset by improved results in a domestic joint venture. Marine Construction Services' revenues decreased $122,382,000 to $1,002,674,000 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 NOS in February 1994 ($58,776,000) and DCC in June 1993 ($175,316,000 and $152,468,000 for the nine months ended December 31, 1994 and 1993, respectively), and higher volume of procured materials and foreign engineering operations. 19 20 Marine Construction Services' segment operating income decreased $8,073,000 to $49,750,000 primarily due to higher operating expenses and lower operating results from DCC's operations. These decreases were partially offset by the inclusion of the operating results of NOS, higher volume of procured materials and higher volume and margins in domestic marine operations. Marine Construction Services' equity in income of investees decreased $70,629,000 to $27,391,000 primarily due to lower operating results of the McDermott ETPM-West, Inc. and HeereMac joint ventures. The equity in income of investees will be significantly lower during fiscal years 1995 and 1996 than in fiscal years 1993 and 1994. Interest income increased $10,726,000 to $39,799,000 primarily due to recognition of interest on a receivable from an equity investee, settlement of claims for interest relating to foreign tax refunds and contract claims, and higher interest rates on investments in government obligations and other investments. Interest expense decreased $9,934,000 to $43,559,000 primarily due to a reduction in accrued interest on proposed tax deficiencies, which was mostly offset by changes in debt obligations and interest rates prevailing thereon. Minority interest expense decreased $3,843,000 to $9,538,000 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 $23,585,000 to $25,382,000 primarily due to a loss related to the reduction of estimated products liability asbestos claim recoveries from insurers, higher fees and higher discounts on the sale of accounts receivables and losses on the sale of investments in the current period. In addition, there were gains on the sale of investments in the prior period. The provision for income taxes decreased $15,601,000 to $20,818,000, while income before provision for income taxes and cumulative effect of accounting change decreased $64,105,000 to $50,488,000. The decrease in the provision for income taxes is due 20 21 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 income increased $50,481,000 from a loss of $22,576,000 to income of $27,905,000 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 nine months ended December 31, 1994, McDermott International's cash and cash equivalents decreased $33,936,000 to $99,873,000 and total debt increased $163,730,000 to $893,340,000. During this period, McDermott International used cash of $60,651,000 in operating activities; $46,341,000 for dividends on International's common and preferred stock; $17,185,000 for the repurchase of a subsidiary's preferred stock to satisfy future sinking fund requirements; $18,256,000 for repayment of long-term debt and $68,317,000 for additions to property, plant and equipment. On January 26, 1995, McDermott International elected to pay in advance a note payable of $16,250,000. 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 segments contracts, both foreign and domestic. 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 approximately $3,000 21 22 per claim) has continued to rise. Claims paid during the three and nine months ended December 31, 1994 were $32,656,000 and $94,213,000, respectively, including $2,765,000 and $7,672,000, respectively, applicable to insolvent insurers and $1,320,000 and $3,640,000, 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 December 31, 1994, Accounts receivable-other includes receivables of $31,431,000 that are due from 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 December 31, 1994, the estimated amount of future costs allocable to insolvent insurers and the policy year 1979 was $138,219,000. 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. McDermott International's expenditures for property, plant and equipment were $68,317,000 for the nine months ended December 31, 1994 compared with $52,370,000 for the prior year and were incurred primarily to maintain existing facilities and for the purchase of a barge for $15,010,000, which was formerly leased by a subsidiary of International. 22 23 At December 31 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 $200,000,000 and $170,000,000, respectively, 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 December 31 and March 31, 1994, International and the Delaware Company had available to them jointly various uncommitted short-term lines of credit totaling $282,465,000 and $246,412,000, respectively. Borrowings by McDermott International against these lines of credit at December 31 and March 31, 1994 were $171,751,000 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 December 31, 1994, The Babcock & Wilcox Company had borrowings against this line of credit of $40,000,000. 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 $14,184,000 which expires on May 31, 1997. At December 31, 1994, borrowings outstanding against this facility were $5,223,000. 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 at December 31, 1994 was $701,755,000 (amortized cost $720,972,000). The net unrealized loss on the current and long-term investment portfolio, net of income tax effect, was $18,342,000 at December 31, 1994. At December 31, 1994, approximately $152,837,000 fair value (amortized cost of $157,914,000) of these obligations were pledged to secure a letter of credit in connection with a long-term loan and certain reinsurance agreements. 23 24 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 December 31, 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 services' assets and businesses (including those currently held by the Delaware Company) to a newly-formed company, J. Ray McDermott S.A., ("JRM") in connection with the combination of McDermott International's marine construction businesses with those of Offshore Pipelines, Inc. When this transaction is complete, JRM 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 (subject to purchase price adjustments) of marketable securities . After the purchase, the securities will be held by the Delaware Company and will only be available to International subject to the covenant restrictions described above. The Delaware Company intends to use these securities to secure the refinancing of existing short-term notes payable to banks. In addition, if needed, International will provide JRM $50,000,000 in temporary financing for working capital requirements for a period of 90 days following the merger. After consummation of the transaction, International's principal sources of cash will include dividends, interest and principal payments on securities of JRM; 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. Other than the temporary financing discussed above, International expects that JRM will finance its operations on an independent basis. Working capital decreased by $40,070,000 to $27,722,000 at December 31, 1994 from March 31, 1994. During the remainder of fiscal year 1995, McDermott International expects to obtain funds to meet working capital and capital expenditure requirements from operating activities and 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. 24 25 McDermott International has provided a valuation allowance ($40,685,000 at December 31, 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 ($772,156,000 at December 31, 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. 25 26 EXHIBIT 11 MCDERMOTT INTERNATIONAL, INC. CALCULATION OF EARNINGS (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE (In thousands, except shares and per share amounts) PRIMARY AND FULLY DILUTED
THREE NINE MONTHS ENDED MONTHS ENDED 12/31/94 12/31/93 12/31/94 12/31/93 -------- -------- -------- -------- Income (Loss) before Cumulative Effect of Accounting Changes $ 29,814 $ 15,377 $ 29,670 $ 78,174 Less Dividend Requirements of Preferred Stock Series C 2,066 2,067 6,199 4,018 - ------------------------------------------------------------------------------------------------------------------------ Income (Loss) before Cumulative Effect of Accounting Changes Applicable to Common Stock 27,748 13,310 23,471 74,156 Cumulative Effect of Accounting Changes - - (1,765) (100,750) - ------------------------------------------------------------------------------------------------------------------------ Net Income (Loss) $ 27,748 $ 13,310 $ 21,706 $ (26,594) ======================================================================================================================== Weighted average number of common shares outstanding during the period 53,707,031 53,152,008 53,584,706 52,818,796 Common stock equivalents of stock options and stock appreciation rights based on "treasury stock" method 267,403 414,756 137,511 635,906 - ------------------------------------------------------------------------------------------------------------------------ Weighted average number of common and common equivalent shares outstanding during the period 53,974,434 53,566,764 53,722,217 53,454,702 ======================================================================================================================== Earnings (Loss) per common and common equivalent share: (1) Income (Loss) before Cumulative Effect of Accounting Changes $ 0.51 $ 0.25 $ 0.43 $ 1.39 Accounting Changes - - (0.03) (1.89) - ------------------------------------------------------------------------------------------------------------------------ Net Income (Loss) $ 0.51 $ 0.25 0.40 $ (0.50) ========================================================================================================================
(1) Earnings (Loss) per common and common equivalent share assuming full dilution are the same for the periods presented . 26 27 PART II MCDERMOTT INTERNATIONAL, INC. OTHER INFORMATION No information is applicable to Part II for the current quarter, except as noted below: Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) 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 December 31, 1994. Signatures 27 28 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. McDERMOTT INTERNATIONAL, INC. (REGISTRANT) Date: 01/27/95 By: /s/ Brock A. Hattox (SIGNATURE) Brock A. Hattox Senior Vice President and Chief Financial Officer 28 29 INDEX TO EXHIBITS
Exhibit Description 27 Financial Data Schedule
EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MCDERMOTT INTERNATIONALS DECEMBER 31, 1994 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS 1,000 9-MOS MAR-31-1995 DEC-31-1994 99,873 128,833 393,880 36,607 391,992 1,317,204 2,175,564 1,411,660 4,092,045 1,289,482 487,405 53,759 0 2,875 468,654 4,092,045 2,199,398 2,199,398 2,144,879 2,144,879 0 0 43,559 50,488 20,818 29,670 0 0 (1,765) 27,905 0.40 0.40
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