-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Wz/v1hajlRuxAK2TaxSVXqs4Uutl/KuCMrRNddbDXX3Ruv2kk91jAfYdU9liyccq 5Rxg8skBS7DCNF8PqD0RXg== 0000950134-96-003903.txt : 19960808 0000950134-96-003903.hdr.sgml : 19960808 ACCESSION NUMBER: 0000950134-96-003903 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960807 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MCDERMOTT INTERNATIONAL INC CENTRAL INDEX KEY: 0000708819 STANDARD INDUSTRIAL CLASSIFICATION: ENGINES & TURBINES [3510] IRS NUMBER: 720593134 STATE OF INCORPORATION: R1 FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-20599 FILM NUMBER: 96605005 BUSINESS ADDRESS: STREET 1: 1450 POYDRAS ST CITY: NEW ORLEANS STATE: LA ZIP: 70112 BUSINESS PHONE: 5045875400 MAIL ADDRESS: STREET 1: 1450 POYDRAS ST CITY: NEW ORLEANS STATE: LA ZIP: 70161 10-Q 1 FORM 10-Q FOR QUARTER ENDED JUNE 30, 1996 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 June 30, 1996 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 or other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization) 1450 Poydras Street, New Orleans, Louisiana 70112-6050 - -------------------------------------------------------------------------------- (Address of Principal Executive 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 July 26, 1996 was 54,759,724. 2 McDERMOTT INTERNATIONAL, INC. INDEX - FORM 10-Q
PAGE ---- PART I - FINANCIAL INFORMATION Item 1 - Condensed Consolidated Financial Statements Condensed Consolidated Balance Sheet June 30, 1996 and March 31, 1996 4 Condensed Consolidated Statement of Income (Loss) Three Months Ended June 30, 1996 and 1995 6 Condensed Consolidated Statement of Cash Flows Three Months Ended June 30, 1996 and 1995 8 Notes to Condensed Consolidated Financial Statements 9 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 12 PART II - OTHER INFORMATION Item 6 - Exhibits and Reports on Form 8-K 23 SIGNATURES 24 Exhibit 11 - Calculation of Earnings (Loss) Per Common and Common Equivalent Share 25
2 3 PART I McDERMOTT INTERNATIONAL, INC. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements 3 4 McDERMOTT INTERNATIONAL, INC. CONDENSED CONSOLIDATED BALANCE SHEET JUNE 30, 1996 ASSETS
6/30/96 3/31/96 ------- ------- (Unaudited) (In thousands) Current Assets: Cash and cash equivalents $ 189,479 $ 238,663 Accounts receivable - trade 520,158 457,049 Accounts receivable - unconsolidated affiliates 50,772 57,691 Accounts receivable - other 182,055 162,335 Insurance recoverable - current 119,160 116,280 Contracts in progress 482,983 457,265 Inventories 71,440 77,592 Deferred income taxes 82,916 93,104 Other current assets 72,008 64,559 - -------------------------------------------------------------------------------------------------------------- Total Current Assets 1,770,971 1,724,538 - -------------------------------------------------------------------------------------------------------------- Property, Plant and Equipment, at Cost: 1,909,413 1,890,103 Less accumulated depreciation 1,209,920 1,199,416 - -------------------------------------------------------------------------------------------------------------- Net Property, Plant and Equipment 699,493 690,687 - -------------------------------------------------------------------------------------------------------------- Investments: Government obligations 127,109 132,674 Other investments 110,838 109,352 - -------------------------------------------------------------------------------------------------------------- Total Investments 237,947 242,026 - -------------------------------------------------------------------------------------------------------------- Insurance Recoverable 570,104 606,963 - -------------------------------------------------------------------------------------------------------------- Excess of Cost Over Fair Value of Net Assets of Purchased Businesses Less Accumulated Amortization of $134,736,000 at June 30, 1996 and $126,882,000 at March 31, 1996 452,273 460,058 - -------------------------------------------------------------------------------------------------------------- Prepaid Pension Costs 288,283 283,656 - -------------------------------------------------------------------------------------------------------------- Other Assets 373,584 379,323 - -------------------------------------------------------------------------------------------------------------- TOTAL $ 4,392,655 $ 4,387,251 ==============================================================================================================
See accompanying notes to condensed consolidated financial statements. 4 5 LIABILITIES AND STOCKHOLDERS' EQUITY
6/30/96 3/31/96 ------- ------- (Unaudited) (In thousands) Current Liabilities: Notes payable and current maturities of long-term debt $ 386,769 $ 234,258 Accounts payable 256,183 264,930 Environmental and products liabilities - current 161,170 161,062 Accrued employee benefits 90,462 98,159 Advance billings on contracts 220,014 187,378 Other current liabilities 368,460 446,765 - -------------------------------------------------------------------------------------------------------------- Total Current Liabilities 1,483,058 1,392,552 - -------------------------------------------------------------------------------------------------------------- Long-Term Debt 542,161 576,256 - -------------------------------------------------------------------------------------------------------------- Accumulated Postretirement Benefit Obligation 401,762 401,321 - -------------------------------------------------------------------------------------------------------------- Environmental and Products Liabilities 683,063 721,740 - -------------------------------------------------------------------------------------------------------------- Other Liabilities 274,432 268,975 - -------------------------------------------------------------------------------------------------------------- Contingencies - -------------------------------------------------------------------------------------------------------------- Minority Interest: Subsidiary's preferred stocks 173,301 173,301 Other minority interest 175,134 168,586 - -------------------------------------------------------------------------------------------------------------- Total Minority Interest 348,435 341,887 - -------------------------------------------------------------------------------------------------------------- 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 54,659,860 at June 30, 1996 and 54,435,823 at March 31, 1996 54,660 54,436 Capital in excess of par value 950,991 949,022 Deficit (314,517) (290,968) Minimum pension liability (1,428) (1,428) Net unrealized loss on investments (3,337) (1,875) Currency translation adjustments (29,500) (27,542) - -------------------------------------------------------------------------------------------------------------- Total Stockholders' Equity 659,744 684,520 - -------------------------------------------------------------------------------------------------------------- TOTAL $ 4,392,655 $ 4,387,251 ==============================================================================================================
5 6 McDERMOTT INTERNATIONAL, INC. CONDENSED CONSOLIDATED STATEMENT OF INCOME (LOSS) JUNE 30, 1996
THREE MONTHS ENDED 6/30/96 6/30/95 -------- ------- (Unaudited) (In thousands) Revenues $ 872,809 $ 816,474 - -------------------------------------------------------------------------------------------------------------- Costs and Expenses: Cost of operations (excluding depreciation and amortization) 769,268 710,648 Depreciation and amortization 33,855 34,112 Selling, general and administrative expenses 63,195 66,851 - -------------------------------------------------------------------------------------------------------------- 866,318 811,611 - -------------------------------------------------------------------------------------------------------------- Operating Income before Equity in Income of Investees 6,491 4,863 Equity in Income of Investees 4,444 33,179 - -------------------------------------------------------------------------------------------------------------- Operating Income 10,935 38,042 - -------------------------------------------------------------------------------------------------------------- Other Income (Expense): Interest income 10,329 11,259 Interest expense (19,728) (21,538) Minority interest (9,457) (3,630) Other-net (137) (2,424) - -------------------------------------------------------------------------------------------------------------- (18,993) (16,333) - -------------------------------------------------------------------------------------------------------------- Income (Loss) before Provision for Income Taxes (8,058) 21,709 Provision for (Benefit from) Income Taxes (234) 12,877 - -------------------------------------------------------------------------------------------------------------- Net Income (Loss) $ (7,824) $ 8,832 ============================================================================================================== Net Income (Loss) Applicable to Common Stock (after Preferred Stock Dividends) $ (9,890) $ 6,766 ============================================================================================================== Earnings (Loss) per Common and Common Equivalent Share (Primary and Fully Diluted) $ (0.18) $ 0.12 ============================================================================================================== Weighted Average Number of Common and Common Equivalent Shares Outstanding 54,513,089 54,413,106 ============================================================================================================== Cash Dividends: Per common share $ 0.25 $ 0.25 Per preferred share $ 0.71875 $ 0.71875 ==============================================================================================================
See accompanying notes to condensed consolidated financial statements. 6 7 McDERMOTT INTERNATIONAL, INC. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS JUNE 30, 1996 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
THREE MONTHS ENDED 6/30/96 6/30/95 ------- ------- (Unaudited) (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net Income (Loss) $ (7,824) $ 8,832 - ------------------------------------------------------------------------------------------------------------- Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization 33,855 34,112 Equity in income of investees, less dividends (2,898) 13,215 Provision for (benefit from) deferred taxes 8,326 (15,521) Other (1,761) 1,210 Changes in assets and liabilities: Accounts receivable (75,008) (49,070) Net contracts in progress and advance billings 6,325 (69,383) Accounts payable (9,588) 372 Accrued and other current liabilities (79,466) 2,289 Other, net 11,702 (18,527) Proceeds from insurance for products liabilities claims 34,462 27,100 Payments of products liabilities claims (37,368) (36,604) - ------------------------------------------------------------------------------------------------------------- NET CASH USED IN OPERATING ACTIVITIES (119,243) (101,975) - ------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition - (6,527) Purchases of property, plant and equipment (35,508) (25,278) Purchases of investments (45,278) (274,667) Sales and maturities of investments 48,069 527,829 Other (328) (3,342) - ------------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (33,045) 218,015 - -------------------------------------------------------------------------------------------------------------
7 8 CONTINUED INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
THREE MONTHS ENDED 6/30/96 6/30/95 ------- ------- (Unaudited) (In thousands) CASH FLOWS FROM FINANCING ACTIVITIES: Increase in short-term borrowing $ 132,045 $ 81,108 Payment of long-term debt (12,735) (160,770) Dividends paid (15,669) (15,285) Other (552) 718 - ------------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 103,089 (94,229) - ------------------------------------------------------------------------------------------------------------- EFFECTS OF EXCHANGE RATE CHANGES ON CASH 15 (724) - ------------------------------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (49,184) 21,087 - ------------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 238,663 85,909 - ------------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 189,479 $ 106,996 ============================================================================================================= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest (net of amount capitalized) $ 16,832 $ 23,918 Income taxes (net of refunds) $ 3,003 $ 22,986 =============================================================================================================
See accompanying notes to condensed consolidated financial statements. 8 9 McDERMOTT INTERNATIONAL, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1996 NOTE 1 - BASIS OF PRESENTATION McDermott International, Inc. ("International") is the parent company of the McDermott group of companies, which includes J. Ray McDermott, S.A. ("JRM") and McDermott Incorporated. The accompanying unaudited condensed consolidated financial statements are presented in U. S. Dollars, and have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Such adjustments are of a normal, recurring nature, except for a gain resulting from the sale of two power purchase contracts ($17,908,000, net of tax of $12,704,000, or $0.33 per share) during the three months ended June 30, 1995. Operating results for the three months ended June 30, 1996 are not necessarily indicative of the results that may be expected for the year ending March 31, 1997. For further information, refer to the consolidated financial statements and footnotes thereto included in McDermott International, Inc.'s annual report on Form 10-K for the fiscal year ended March 31, 1996. NOTE 2 - PRODUCTS LIABILITY At June 30, 1996, the estimated liability for pending and future non-employee products liability asbestos claims was $806,618,000 (of which less than $215,000,000 had been asserted) and estimated insurance recoveries were $689,264,000. Estimated liabilities for pending and future non-employee products liability asbestos claims are derived from McDermott International's claims history and constitute management's best estimate of 9 10 such future costs. Estimated insurance recoveries are based upon analysis of insurers providing coverage of the estimated liabilities. Inherent in the estimate of such liabilities and recoveries are expected trends in claim severity and frequency and other factors, including recoverability from insurers, which may vary significantly as claims are filed and settled. Accordingly, changes in estimates could result in a material adjustment to operating results for any fiscal quarter or year and the ultimate loss may differ materially from amounts provided in the consolidated financial statements. NOTE 3 - INVENTORIES Consolidated inventories at June 30, 1996 and March 31, 1996 are summarized below:
June 30, March 31, 1996 1996 ---- ---- (Unaudited) (In thousands) Raw Materials and Supplies $ 44,736 $ 47,457 Work in Progress 12,138 17,305 Finished Goods 14,566 12,830 - ---------------------------------------------------------------------------------------------------------- $ 71,440 $ 77,592 ==========================================================================================================
10 11 NOTE 4 - SUMMARIZED INCOME STATEMENT INFORMATION OF AFFILIATES The combined financial results of two of JRM's joint ventures, HeereMac and McDermott ETPM-West, Inc., accounted for using the equity method are summarized below. These ventures were significant (as defined by applicable Securities and Exchange Commission regulations) in fiscal year 1996.
THREE THREE MONTHS ENDED MONTHS ENDED 6/30/96 6/30/95 ------- ------- (Unaudited) (In thousands) Revenues $ 171,353 $ 191,919 - -------------------------------------------------------------------------------------------------------- Operating Income $ 22,719 $ 5,612 - -------------------------------------------------------------------------------------------------------- Income before Income Taxes $ 713 $ 10,211 Provision for Income Taxes 1,974 1,673 - -------------------------------------------------------------------------------------------------------- Net Income (Loss) $ (1,261) $ 8,538 ======================================================================================================== Equity in Net Income (Loss) $ (1,205) $ 3,982 ========================================================================================================
11 12 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL McDermott International, Inc. ("International") is the parent company of the McDermott group of companies, which includes J. Ray McDermott, S.A. ("JRM") and McDermott Incorporated. A significant portion of McDermott International's revenues and operating results are derived from its foreign operations. As a result, McDermott International's operations and financial results are affected by international factors, such as changes in foreign currency exchange rates. McDermott International attempts to minimize its exposure to changes in foreign currency exchange rates by attempting to match foreign currency contract receipts with like foreign currency disbursements. To the extent that it is unable to match the foreign currency receipts and disbursements related to its contracts, it enters into forward exchange contracts to hedge foreign currency transactions, which reduces the impact of foreign exchange rate movements on operating results. Management's discussion of revenues and operating income is presented on a business unit basis as follows: the JRM business unit (includes the results of operations of the marine construction services business); the B&W Operations business unit (includes the operations of the Babcock & Wilcox Power Generation and Government Groups); and the Engineering, Construction and Industrial Operations business unit (includes the Engineering and Construction Group, and Shipbuilding and Industrial Group). Other business unit revenues include combining adjustments and eliminations resulting from inter-group contracts. Other business unit income (loss) includes certain retiree benefit and legal costs which are not allocated to the business units, as well as the impact of combining adjustments on margins of inter-group contracts. Business unit revenue and income (loss) for the three months ended June 30, 1995 have been restated to reflect the reclassification of certain operations to B&W Operations from the Engineering, Construction and Industrial Operations business unit, and the allocation of certain expenses to the B&W Operations and the Engineering, Construction and Industrial Operations business units from Other to conform with the presentation at June 30, 1996. 12 13 RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 1996 VS. THREE MONTHS ENDED JUNE 30, 1995
THREE MONTHS ENDED 6/30/96 6/30/95 ------- ------- (Unaudited) (In thousands) REVENUES J. Ray McDermott, S.A. $ 389,189 $ 311,803 B&W Operations 345,375 377,590 Engineering, Construction and Industrial Operations 151,779 136,607 Other (including Transfer Eliminations) (13,534) (9,526) - ------------------------------------------------------------------------------------------------------------- TOTAL REVENUES $ 872,809 $ 816,474 ============================================================================================================= OPERATING INCOME Business Unit Income (Loss): J. Ray McDermott, S.A. $ 20,304 $ 14,642 B&W Operations 1,610 3,020 Engineering, Construction and Industrial Operations (5,766) (4,663) Other (1,002) (803) - ------------------------------------------------------------------------------------------------------------- TOTAL BUSINESS UNIT INCOME 15,146 12,196 - ------------------------------------------------------------------------------------------------------------- Equity in Income (Loss) of Investees: J. Ray McDermott, S.A. 1,298 (898) B&W Operations 3,128 34,083 Engineering, Construction and Industrial Operations 18 (6) - ------------------------------------------------------------------------------------------------------------- TOTAL EQUITY IN INCOME OF INVESTEES 4,444 33,179 - ------------------------------------------------------------------------------------------------------------- Corporate G&A Expense (8,655) (7,333) - ------------------------------------------------------------------------------------------------------------- TOTAL OPERATING INCOME $ 10,935 $ 38,042 =============================================================================================================
13 14 JRM's revenues increased $77,386,000 to $389,189,000, primarily due to higher volume on offshore and engineering activities in North America, the North Sea and the Far East, and higher fabrication activity in North America. These increases were partially offset by lower procurement revenues in the North Sea as the B.P. Exploration Foinaven Development program ("Foinaven") west of the Shetlands in the North Atlantic nears completion. B&W Operations' revenues decreased $32,215,000 to $345,375,000, primarily due to lower volume from fabrication and erection of fossil fuel steam and environmental control systems, and from replacement nuclear steam generators for domestic customers manufactured at B&W's Cambridge, Ontario location. Engineering, Construction and Industrial Operations' revenues increased $15,172,000 to $151,779,000, primarily due to higher volume from an engineering, procurement and construction contract for a cogeneration plant performed by McDermott Engineers & Constructors (Canada) Ltd., and activities in this business unit's domestic and Mexican shipyard operations. JRM's business unit income increased $5,662,000 to $20,304,000, primarily due to higher volume and margins from offshore and engineering activities in the North Sea and higher volume in fabrication and offshore activities in North America. These increases were partially offset by the completion of former Offshore Pipelines, Inc.'s contracts in West Africa last year and lower leasing activity due to the sale of the DB101 and DB102 to the Heeremac joint venture in March 1996. B&W Operations' business unit income decreased $1,410,000 to $1,610,000, primarily due to lower volume on replacement nuclear steam generators for domestic customers and on fabrication and erection of fossil fuel steam and environmental control systems, and lower margins on plant enhancement projects. These decreases were partially offset by improved margins on the repair and alteration of existing fossil fuel steam systems and lower sales and marketing expenses. 14 15 Engineering, Construction and Industrial Operations' business unit loss increased $1,103,000 to a loss of $5,766,000, primarily due to contract cost overruns on the engineering, procurement and construction contract for a cogeneration plant. This was partially offset by higher volume and margins from activities in this unit's domestic and Mexican shipyard operations. JRM's equity in income of investees increased $2,196,000 to income of $1,298,000 from a loss of $898,000, primarily due to improved results of a Mexican joint venture. This increase was partially offset by lower results from the HeereMac and McDermott-ETPM West, Inc. joint ventures. The revenues of these two unconsolidated joint ventures declined from $191,919,000 to $171,353,000, primarily in the Far East and West Africa, partially offset by increased volume in the North Sea and North America. The equity income from these two joint ventures declined from $3,982,000 to a loss of $1,205,000 as a result of the lower volume and foreign currency transaction losses in the current period. There was also higher interest expense on debt issued by the HeereMac joint venture to finance the purchase of major marine vessels it had been chartering, including JRM's DB101 and DB102. Equity income in the current period also includes income of $2,145,000 from the amortization of the deferred gain resulting from the sale of the DB101 and DB102 to the HeereMac joint venture. B&W Operations' equity in income of investees decreased $30,955,000 to $3,128,000. This represents the results of approximately 15 active joint ventures. The decrease is almost entirely due to a nonrecurring equity income gain of $30,612,000 resulting from the sale of power purchase contracts back to a local utility in June 1995. Interest income decreased $930,000 to $10,329,000, primarily due to decreases in investments in government obligations and other investments. This decrease was partially offset by increases due to interest on the promissory note of $105,000,000 received as part of the consideration from the sale of the DB101 and DB102 to the HeereMac joint venture. Interest expense decreased $1,810,000 to $19,728,000, primarily due to changes in debt obligations and interest rates prevailing thereon. 15 16 Minority interest expense increased $5,827,000 to $9,457,000, primarily due to minority shareholder participation in the improved operating results of JRM and the McDermott-ETPM East joint venture. Other-net expense decreased $2,287,000 to $137,000, primarily due to lower bank fees and discounts on the sale of certain accounts receivable. The provision for income taxes decreased $13,111,000 from a provision of $12,877,000 to a benefit of $234,000, while income before provision for income taxes decreased $29,767,000 from income of $21,709,000 to a loss of $8,058,000. The decrease in the provision for income taxes is due primarily to a decrease in earnings. In addition, McDermott International operates in many different tax jurisdictions. Within these jurisdictions, tax provisions vary because of nominal rates, allowability of deductions, credits and other benefits, and tax basis (for example, revenues versus income). These variances, along with variances in the mix of income within jurisdictions, are responsible for shifts in the effective tax rate. As a result of these factors, the benefit from income taxes was 3% of the pretax loss for the three months ended June 30, 1996 compared to a provision for income taxes of 59% of pretax income for the three months ended June 30, 1995. Net income decreased $16,656,000 from income of $8,832,000 to a loss of $7,824,000 reflecting the items mentioned above. 16 17
Backlog 6/30/96 3/31/96 - ------- ------- ------- (In thousands) Business Unit Backlog: J. Ray McDermott, S.A. $ 1,166,591 $ 977,896 B&W Operations 2,292,803 2,164,507 Engineering, Construction and Industrial Operations 357,079 317,401 Other (including Transfer Eliminations) (49,619) (60,408) - ------------------------------------------------------------------------------------------------------------- TOTAL BACKLOG $ 3,766,854 $ 3,399,396 =============================================================================================================
In general, McDermott International's business units are capital intensive and rely on large contracts for a substantial amount of their revenues. JRM's consolidated backlog increased to $1,166,591,000 at June 30, 1996 from $977,896,000 at March 31, 1996, and backlog relating to contracts to be performed by JRM's unconsolidated joint ventures (not included above) increased to $1,632,000,000 at June 30, 1996 from $1,374,000,000 at March 31, 1996. JRM believes its markets are beginning to emerge from the difficult competitive environment that has put pressure on margins in recent years. B&W Operations' backlog at June 30, 1996 was $2,292,803,000 compared to $2,164,507,000 at March 31, 1996. At June 30, 1996 this business unit's backlog with the U. S. Government was $730,778,000 (of which $57,339,000 had not been funded) and included orders for nuclear fuel assemblies and reactor components for the U.S. Navy. This business unit's foreign markets for industrial and utility boilers remain strong and the U. S. market for replacement nuclear steam generators is expected to continue to make significant contributions to operating income in the foreseeable future. However, domestic utility markets remain weak. Engineering, Construction and Industrial Operations' backlog at June 30, 1996 was $357,079,000, compared to $317,401,000 at March 31, 1996, and included a four year backlog for the construction of hopper barges at its domestic shipyard. At June 30, 1996 17 18 this business unit's backlog with the U.S. Government was $47,982,000 (of which $3,143,000 had not been funded). Liquidity and Capital Resources Unless the context otherwise requires, hereinafter the "Delaware Company" will be used to mean McDermott Incorporated, a Delaware corporation which is a subsidiary of International, and the Delaware Company's consolidated subsidiaries, which include The Babcock & Wilcox Company ("B&W"); and "McDermott International" will be used to mean the consolidated enterprise. During the three months ended June 30, 1996, McDermott International's cash and cash equivalents decreased $49,184,000 to $189,479,000 and total debt increased $118,416,000 to $928,930,000 due to the increase in short-term borrowings of $132,055,000. During this period, McDermott International used cash of $119,243,000 in operating activities; $35,508,000 for additions to property, plant and equipment; $15,669,000 for dividends on International's common and preferred stock; and $12,735,000 for repayment of long-term debt. Higher accounts receivable are primarily due to the timing of the collection of contract billings by North American operations and on the Foinaven contract. Lower accrued liabilities include decreases in accrued Foinaven contract costs while decreases in accounts payable on Canadian contracts were offset by increases related to the Foinaven contract, which is nearing completion. 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. While the number of claims received had declined during the last six months of fiscal year 1996, they have increased during the June 1996 quarter but not to the levels experienced from October 1994 to September 1995. Management is currently investigating and evaluating the basis 18 19 for this increase in the number of claims. The average amount of these claims (historical average of approximately $5,500 per claim over the last three years) has continued to rise. Claims paid during the quarter ended June 30, 1996 were $37,368,000, of which $33,384,000 has been recovered or is due from insurers. At June 30, 1996, receivables of $62,145,000 were due from insurers for reimbursement of settled claims including $20,843,000 due from certain insurers which have refused to reimburse B&W for amounts paid by B&W to settle claims under applicable policies. B&W has filed a lawsuit against these insurers seeking reimbursement of these claims and expects to prevail in this litigation which may continue beyond fiscal year 1997 unless a settlement is reached. B&W will require that any settlement include all amounts billed to date and any future payments up to full policy limits. Estimated liabilities for pending and future non-employee products liability asbestos claims are derived from McDermott International's claims history and constitute management's best estimate of such future costs. Estimated insurance recoveries are based upon analysis of insurers providing coverage of the estimated liabilities. Inherent in the estimate of such liabilities and recoveries are expected trends in claim severity and frequency and other factors, including recoverability from insurers, which may vary significantly as claims are filed and settled. Accordingly, the ultimate loss may differ materially from amounts provided in the consolidated financial statements. Settlement of the liability is expected to occur over approximately the next 25 years. The collection delays (including the lawsuit mentioned above) and the amount of claims paid for which insurance recovery is not probable have not had a material adverse effect on McDermott International's liquidity, and management believes, based on information currently available, that they will not have a material adverse effect on liquidity in the future. Expenditures for property, plant and equipment increased $10,230,000 to $35,508,000 for the three months ended June 30, 1996, as compared with the same period last year. In addition to maintaining existing facilities and equipment, these expenditures included approximately $4,000,000 for the purchase of a cable lay vessel and $4,370,000 for the installation of a new system to lay fiber optic cable on this vessel which operates in the North Sea and $5,913,000 to upgrade a marine barge operating in the Gulf of Mexico. McDermott International is committed to make additional expenditures of approximately 19 20 $10,000,000 on the cable lay vessel. At June 30 and March 31, 1996, B&W had sold, with limited recourse, an undivided interest in a designated pool of qualified accounts receivable of approximately $130,000,000 and $107,000,000, respectively, under the terms of an agreement with a U.S. bank. The maximum sales limit available under the agreement, which is renewed annually, is $140,000,000. Depending on the amount of qualified accounts receivable available for the pool, the amount sold to the bank can vary (but not greater than the maximum sales limit available) from time to time, and B&W expects to reduce the amount of receivables sold by approximately $40,000,000 by August 15, 1996. At June 30 and March 31, 1996, International and its subsidiaries, had available to them various uncommitted short-term lines of credit from banks totaling $442,656,000 and $439,610,000, respectively. Borrowings against these lines of credit at June 30 and March 31, 1996 were $331,112,000 and $149,067,000, respectively. In addition, B&W had available to it a $150,000,000 unsecured and committed revolving line of credit facility. It is a condition to borrowing under this revolving credit facility that the borrower's tangible net worth, debt to capitalization, and interest coverage as defined in the agreement meet or exceed certain covenant requirements. At June 30, 1996 there were no borrowings outstanding against this facility, while at March 31, 1996 there were borrowings of $50,000,000 outstanding. JRM also has an unsecured and committed revolving credit facility on which no borrowings were outstanding at June 30 or March 31, 1996. The maximum amount available is $150,000,000 but is subject to certain limits (approximately $120,000,000 was available at June 30, 1996) as a result of an incremental borrowing capacity covenant in this agreement. In addition, JRM is restricted, as a result of the consolidated tangible net worth covenant in this agreement, in its ability to transfer funds to International and its subsidiaries through cash dividends or through unsecured loans or investments. At June 30, 1996, approximately $15,000,000 of JRM's net assets were not subject to this restriction. 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 June 30, 1996, 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. 20 21 McDermott International maintains an investment portfolio of government obligations and other investments. The fair value of short-term investments and the long-term portfolio at June 30, 1996 was $240,204,000. At June 30, 1996, approximately $126,335,000 fair value of these obligations were pledged to secure a letter of credit in connection with a long-term loan and certain reinsurance agreements. Working capital decreased $44,073,000 from $331,986,000 at March 31, 1996 to $287,913,000 at June 30, 1996. On July 25, 1996, JRM issued $250,000,000 principal amount of 9.375% Senior Subordinated Notes and received net proceeds of $244,375,000 which were used primarily to repay intercompany indebtedness (including interest) of approximately $239,000,000 owed to International. On July 31, 1996, McDermott International used $50,000,000 of the proceeds to reduce short-term debt and invested the remainder of the proceeds in its investment portfolio. During the remainder of fiscal year 1997, McDermott International expects to obtain funds to meet capital expenditure, working capital and debt maturity requirements from operating activities, sales of non-strategic assets and borrowings under its short-term lines of credit. Leasing agreements for equipment, which are short-term in nature, are not expected to impact McDermott International's liquidity or capital resources. During July 1996, the sale of certain equipment to the HeereMac joint venture was completed. Prior to this sale, JRM had received $30,000,000 as a deposit in March 1996. McDermott International has provided a valuation allowance 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 in all other tax jurisdictions are realizable through carrybacks and future reversals of existing taxable temporary differences, and, if necessary, the implementation of tax planning strategies involving sales of appreciated assets. A major uncertainty that affects the ultimate realization of deferred tax assets is the possibility of declines in value of appreciated assets involved in identified tax planning strategies. This factor has been considered in determining the valuation allowance. Management will continue to assess the adequacy of the valuation allowance on a quarterly basis. 21 22 New Accounting Standards In October 1995, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation," effective for fiscal years beginning after December 15, 1995. SFAS No. 123 established financial accounting and reporting standards for stock-based employee compensation plans. McDermott International has finalized its review of the provisions of this statement and has decided to account for stock option grants in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and make the pro forma information disclosures required under the new standard. In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," effective for fiscal years beginning after December 1996. SFAS No. 125 established accounting and reporting standards for transfers and servicing of financial assets and extinguishment of liabilities. This statement also provides consistent standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings. McDermott International has not yet finalized its review of the impact of this statement, but it is not expected to have a material impact on the consolidated financial statements. 22 23 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 (b) Reports on Form 8-K There were no current reports on Form 8-K filed during the three months ended June 30, 1996. 23 24 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) By: /s/ Daniel R. Gaubert -------------------------------------- (SIGNATURE) Daniel R. Gaubert Vice President, Finance and Controller August 6, 1996 24 25 EXHIBIT INDEX
Exhibit Description 11 Calculation of Earnings per Common and Common Equivalent Share 27 Financial Data Schedule
25 EX-11 2 COMPUTATION OF EARNINGS PER SHARE 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 MONTHS ENDED 6/30/96 6/30/95 ------- ------- (Unaudited) Net income (loss) $ (7,824) $ 8,832 Less dividend requirements of preferred stock, Series C (2,066) (2,066) - ------------------------------------------------------------------------------------------------------------------- Net income (loss) for primary computation $ (9,890) $ 6,766 =================================================================================================================== Weighted average number of common shares outstanding during the period 54,513,089 54,017,783 Common stock equivalents of stock options and stock appreciation rights based on "treasury stock" method - 395,323 - ------------------------------------------------------------------------------------------------------------------- Weighted average number of common shares outstanding during the period 54,513,089 54,413,106 =================================================================================================================== Earnings (loss) per common and common equivalent share: (1) Net income (loss) $ (0.18) $ 0.12 ===================================================================================================================
(1) Earnings (Loss) per common and common equivalent share assuming full dilution are the same for the periods presented. 25 EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MCDERMOTT INTERNATIONALS JUNE 30, 1996 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS MAR-31-1997 JUN-30-1996 189,479 2,258 607,206 87,048 554,423 1,770,971 1,909,413 1,209,920 4,392,655 1,483,058 542,161 54,660 0 2,875 602,209 4,392,655 872,809 872,809 866,318 866,318 0 0 19,728 (8,058) (234) (7,824) 0 0 0 (7,824) (0.18) (0.18)
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