<PAGE>
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, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission File No. 1-4095
MCDERMOTT INCORPORATED
- --------------------------------------------------------------------------------
(Exact Name of registrant as specified in its charter)
DELAWARE 74-1032246
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(State or other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
1450 Poydras Street, New Orleans, Louisiana 70112-6050
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (504) 587-4411
--------------
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 25, 1997 was 3,600.
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M c D E R M O T T I N C O R P O R A T E D
I N D E X - F O R M 10 - Q
--------------------------
PAGE
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PART I - FINANCIAL INFORMATION
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Item 1 - Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheet
June 30, 1997 and March 31, 1997 4
Condensed Consolidated Statement of Income (Loss)
Three Months Ended June 30, 1997 and 1996 6
Condensed Consolidated Statement of Cash Flows
Three Months Ended June 30, 1997 and 1996 7
Notes to Condensed Consolidated Financial Statements 9
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
PART II - OTHER INFORMATION
- ---------------------------
Item 6 - Exhibits and Reports on Form 8-K 19
SIGNATURES 20
Exhibit 27 - Financial Data Schedule 22
2
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PART I
McDERMOTT INCORPORATED
FINANCIAL INFORMATION
---------------------
Item 1. Condensed Consolidated Financial Statements
3
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McDERMOTT INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
6/30/97 3/31/97
------- -------
(Unaudited)
(In thousands)
Current Assets:
Cash and cash equivalents $ 38,007 $ 56,782
Accounts receivable-trade 299,036 286,011
Accounts receivable-other 120,588 139,949
Insurance recoverable-current 167,872 183,000
Contracts in progress 233,248 244,231
Inventories 61,111 59,894
Deferred income taxes 55,847 56,359
Other current assets 16,276 15,053
- --------------------------------------------------------------------------------
Total Current Assets 991,985 1,041,279
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Property, Plant and Equipment, at Cost: 531,463 533,942
Less accumulated depreciation 320,390 314,600
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Net Property, Plant and Equipment 211,073 219,342
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Insurance Recoverable 689,914 720,913
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Investment in McDermott International, Inc. 595,677 595,982
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Excess of Cost Over Fair Value of Net Assets
of Purchased Businesses Less Accumulated
Amortization of $106,555,000 at June 30, 1997
and $104,960,000 at March 31, 1997 113,005 119,077
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Prepaid Pension Costs 270,190 266,837
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Other Assets 164,913 173,740
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TOTAL $3,036,757 $3,137,170
================================================================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
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LIABILITIES AND STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
<S> <C> <C>
6/30/97 3/31/97
-------- -------
(Unaudited)
(In thousands)
Current Liabilities:
Notes payable and current maturities of long-term debt $ 161,060 $ 313,692
Note payable to International 115,000 -
Accounts payable 117,382 116,452
Accounts payable to affiliates 21,529 9,182
Environmental and products liabilities-current 198,407 210,352
Accrued employee benefits 72,415 79,573
Advance billings on contracts 119,210 109,736
Other current liabilities 135,147 131,008
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Total Current Liabilities 940,150 969,995
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Long-Term Debt 352,482 379,487
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Accumulated Postretirement Benefit Obligation 372,794 373,232
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Environmental and Products Liabilities 862,565 903,379
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Other Liabilities 94,274 95,500
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Contingencies
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Redeemable Preferred Stocks:
Series A $2.20 cumulative convertible, $1.00 par value;
at redemption value 88,084 88,087
Series B $2.60 cumulative, $1.00 par value;
at redemption value 78,377 82,896
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Total Redeemable Preferred Stocks 166,461 170,983
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Stockholder's Equity:
Common stock, par value $1.00 per share, 3,700 shares
authorized and issued, 3,600 shares outstanding 4 4
Capital in excess of par value 692,399 691,605
Deficit (421,159) (422,123)
Minimum pension liability (1,655) (1,655)
Currency translation adjustments (21,558) (23,237)
- -------------------------------------------------------------------------------------
Total Stockholder's Equity 248,031 244,594
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TOTAL $3,036,757 $3,137,170
=====================================================================================
</TABLE>
5
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McDERMOTT INCORPORATED
CONDENSED CONSOLIDATED STATEMENT OF INCOME (LOSS)
JUNE 30, 1997
THREE MONTHS ENDED
6/30/97 6/30/96
------- -------
(Unaudited)
(In thousands)
Revenues $453,180 $482,510
- ------------------------------------------------------------------------------
Costs and Expenses:
Cost of operations (excluding depreciation and
amortization) 391,259 448,299
Depreciation and amortization 10,404 11,653
Selling, general and administrative expenses 25,851 33,028
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427,514 492,980
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Gain on Asset Disposals and
Impairments-net 95 1,033
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Operating Income (Loss) before Equity in
Income of Investees 25,761 (9,437)
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Equity in Income of Investees 2,231 4,340
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Operating Income (Loss) 27,992 (5,097)
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Other Income (Expense):
Interest income 522 1,506
Interest expense (15,500) (13,116)
Other-net (1,038) (2,289)
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(16,016) (13,899)
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Income (Loss) before Provision for (Benefit from)
Income Taxes 11,976 (18,996)
Provision for (Benefit from) Income Taxes 7,818 (2,673)
- ------------------------------------------------------------------------------
Net Income (Loss) $ 4,158 $(16,323)
==============================================================================
See accompanying notes to condensed consolidated financial statements.
6
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McDERMOTT INCORPORATED
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
JUNE 30, 1997
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
THREE MONTHS ENDED
6/30/97 6/30/96
------- -------
(Unaudited)
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ 4,158 $ (16,323)
- --------------------------------------------------------------------------------
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization 10,404 11,653
Provision for (benefit from) deferred taxes 4,400 8,089
Equity in income of investees, less dividends (1,688) (3,111)
Other 521 (308)
Changes in assets and liabilities:
Accounts receivable 6,179 (4,370)
Net contracts in progress and advance billings 20,730 14,447
Accounts payable 13,391 (13,710)
Accrued and other current liabilities 4,741 (18,056)
Other, net 795 (12,676)
Proceeds from insurance for products liabilities claims 39,720 34,462
Payments of products liabilities claims (50,833) (37,368)
- --------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 52,518 (37,271)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (800) (5,372)
Other 1,763 2,198
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NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 963 (3,174)
- --------------------------------------------------------------------------------
7
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CONTINUED
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
6/30/97 6/30/96
------- -------
(Unaudited)
(In thousands)
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in short-term borrowing $(159,534) $106,292
Increase (decrease) in short-term borrowing
from International 115,000 (65,363)
Payment of long-term debt (20,006) (7)
Dividends paid (3,275) (3,323)
Redemption of preferred stock (4,314) -
Other (112) (107)
- -----------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES (72,241) 37,492
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EFFECTS OF EXCHANGE RATE CHANGES ON CASH (15) 44
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NET DECREASE IN CASH AND CASH EQUIVALENTS (18,775) (2,909)
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CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 56,782 22,886
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 38,007 $ 19,977
=============================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amount capitalized) $ 13,159 $ 10,756
Income taxes (refunds) - net $(18,357) $ 621
=============================================================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
8
<PAGE>
McDERMOTT INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
NOTE 1 - BASIS OF PRESENTATION
McDermott Incorporated is a majority owned subsidiary of McDermott
International, Inc. ("International").
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial statement information and with 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 (consisting
of normal recurring items) considered necessary for a fair presentation have
been included. Operating results for the three months ended June 30, 1997 are
not necessarily indicative of the results that may be expected for the year
ended March 31, 1998. For further information, refer to the consolidated
financial statements and footnotes thereto included in McDermott Incorporated's
Annual Report on Form 10-K for the year ended March 31, 1997.
NOTE 2 - PRODUCTS LIABILITY
At June 30, 1997, the estimated liability for pending and future non-employee
products liability asbestos claims was $1,031,949,000 (of which approximately
$283,000,000 had been asserted) and estimated insurance recoveries were
$857,786,000. Estimated liabilities for pending and future non-employee
products liability asbestos claims are derived from McDermott Incorporated'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, 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.
9
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NOTE 3 - INVENTORIES
Inventories at June 30, 1997 and March 31, 1997 are summarized below:
June 30, March 31,
1997 1997
----------- ---------
(Unaudited)
(In thousands)
Materials and Supplies $44,459 $44,395
Work in Progress 8,904 8,498
Finished Goods 7,748 7,001
- -------------------------------------------------
$61,111 $59,894
=================================================
NOTE 4 - INVESTIGATIONS
International and J. Ray McDermott, S.A. ("JRM") are conducting an internal
investigation, with the assistance of outside counsel, of allegations of
wrongdoing by a limited number of former employees of International and JRM and
by others. International and JRM notified the appropriate authorities in April
1997. In June 1997, International received a federal grand jury subpoena for
documents relating principally to an investigation of possible anti-competitive
activity in the heavy-lift barge service business of JRM. In July 1997,
International received an informal request from the Securities and Exchange
Commission for the voluntary production of documents. International and JRM are
cooperating with the authorities. The allegations which are the subject of the
internal investigation, if true, and the outcome of the grand jury proceedings,
could result in civil and/or criminal liability. At this time, International
and JRM do not have sufficient information to predict the ultimate outcome of
this matter. Subsequent to the formation of JRM and its acquisition of Offshore
Pipelines, Inc., McDermott Incorporated does not participate in the heavy lift
barge service business.
10
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
A significant portion of McDermott Incorporated's revenues and operating results
are derived from its foreign operations, which are primarily located in Canada.
As a result, McDermott Incorporated's operations and financial results are
affected by international factors, such as changes in foreign currency exchange
rates. McDermott Incorporated 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, McDermott Incorporated enters into forward exchange contracts to
hedge foreign currency transactions, which reduces the impact of foreign
exchange rate movements on operating results.
During the three months ended June 30, 1997 and 1996, McDermott Incorporated's
Canadian operations contributed $113,385,000 and $172,869,000 to total revenues
and $7,507,000 and ($4,027,000) to operating income (loss), respectively.
These results reflect activity on contracts performed at The Babcock & Wilcox
Company's ("B&W") Cambridge, Ontario location, principally for the supply of
replacement recirculating steam generators to domestic utilities and work for
government owned utilities located in the Middle and Far East, and contracts
performed by McDermott Engineers & Constructors (Canada) Ltd. ("MECL") which is
based in Calgary, Alberta, Canada.
Management's discussion of revenues and operating income is presented on a
business unit basis as follows: Power Generation Systems (includes the
operations of the Babcock & Wilcox Power Generation Group), Government
Operations (includes the operations of the Babcock & Wilcox Government Group)
and Other (includes McDermott Incorporated's Engineering and Construction
operations, other non-core businesses and certain adjustments which are not
allocated to the business units). The results of operations for the three
months ended June 30, 1996 have been restated to reflect the reclassification of
certain operations from B&W Operations to Power Generations Systems and
Government Operations and Marine Construction Services to Other to conform with
the presentation at June 30, 1997. Results
11
<PAGE>
for the quarter ended June 30, 1996 have been restated to include gains and
losses on asset disposals and impairments in Operating Income.
THREE MONTHS ENDED
6/30/97 6/30/96
------- -------
(Unaudited)
(In thousands)
REVENUES
Power Generation Systems $285,037 $256,166
Government Operations 83,522 88,907
Other 88,233 143,119
Eliminations (3,612) (5,682)
- ---------------------------------------------------------------------------
TOTAL REVENUES $453,180 $482,510
===========================================================================
OPERATING INCOME (LOSS)
Business Unit Income (Loss):
Power Generation Systems $ 19,563 $ (4,332)
Government Operations 9,935 5,322
Other 1,383 (4,792)
- ---------------------------------------------------------------------------
TOTAL 30,881 (3,802)
- ---------------------------------------------------------------------------
Gain (Loss) on Asset Disposals and Impairments-Net:
Power Generation Systems 35 260
Government Operations - 80
Other (248) 584
Corporate 308 109
- ---------------------------------------------------------------------------
TOTAL 95 1,033
- ---------------------------------------------------------------------------
Equity in Income of Investees:
Power Generation Systems 563 2,853
Government Operations 580 612
Other 1,088 875
- ---------------------------------------------------------------------------
TOTAL 2,231 4,340
- ---------------------------------------------------------------------------
Corporate G&A Expense (5,215) (6,668)
- ---------------------------------------------------------------------------
TOTAL OPERATING INCOME (LOSS) $27,992 $ (5,097)
===========================================================================
12
<PAGE>
RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 1997 VS. THREE MONTHS ENDED
JUNE 30, 1996
Power Generation Systems
- ------------------------
Revenues increased $28,871,000 to $285,037,000, primarily due to higher revenues
from fabrication and erection of fossil fuel steam and environmental control
systems, replacement nuclear steam generators and replacement parts. These
increases were partially offset by lower revenues from plant enhancement
projects and repair and alteration of existing fossil fuel steam systems.
Business unit income increased $23,895,000 from a loss of $4,332,000 to income
of $19,563,000, primarily due to higher volume and margins from fabrication and
erection of fossil fuel steam and environmental control systems and replacement
nuclear steam generators, higher margins from plant enhancement projects and
higher volume from replacement parts. In addition, there were lower operating,
selling, general and administrative expenses.
Equity in income of investees decreased $2,290,000 to $563,000. This represents
the results of approximately six active joint ventures. The decrease was
primarily due to a favorable termination settlement by a domestic joint venture
in the prior year and lower operating results from two domestic joint ventures.
Government Operations
- ---------------------
Revenues decreased $5,385,000 to $83,522,000, primarily due to lower revenues
from commercial nuclear environmental services and nuclear fuel assemblies and
reactor components for the U.S. Government. These decreases were partially
offset by higher revenues from operation and management of U.S. Government owned
facilities.
Business unit income increased $4,613,000 to $9,935,000, primarily due to higher
margins on nuclear fuel assemblies and reactor components for the U.S.
Government and other related operations and higher revenues from operation and
management contracts with U.S. Government facilities. These increases were
partially offset by lower volume and margins from commercial nuclear
environmental services.
13
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Other
- -----
Revenues decreased $54,886,000 to $88,233,000, primarily due to lower revenues
from engineering and construction activities in Canadian operations. In
addition, there were lower revenues as a result of the disposition of non-core
businesses (Shipyard Operations and ERI Operations) in the prior year. These
decreases were partially offset by higher revenues from air cooled heat
exchangers and domestic engineering activities.
Business unit income (loss) increased $6,175,000 from a loss of $4,792,000 to
income of $1,383,000, primarily due to cost overruns on cogeneration contracts
in the prior period. In addition, there was higher volume on air cooled heat
exchangers and domestic engineering activities and lower general and
administrative expenses. These increases were partially offset by lower results
due to the disposition of non-core businesses in the prior year.
Equity in income of investees increased $213,000 to $1,088,000, primarily due to
higher operating results from a domestic engineering joint venture.
Other Income Statement Items
- ----------------------------
Interest expense increased $2,384,000 to $15,500,000 primarily due to the
accounting for the transfers of accounts receivable as secured borrowings in
the current period.
Other-net expense decreased $1,251,000 to $1,038,000 primarily due to bank fees
and discounts on the sale of certain accounts receivable and higher bad debt
expense in the prior period. These decreases were partially offset by minority
interest income in the prior period compared with expense in the current period
due to minority shareholder participation in the improved results of MECL.
The provision for (benefit from) income taxes increased $10,491,000 to a
provision of $7,818,000 from a benefit of $2,673,000, while income (loss) before
the provision for (benefit from) income taxes increased $30,972,000 to income of
$11,976,000 from a loss of $18,996,000. The increase in the provision for
(benefit from) income taxes is primarily due to the increase in income.
14
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Backlog
- -------
6/30/97 3/31/97
------- ---------
(Unaudited)
(In thousands)
Power Generation Systems $1,439,509 $1,554,125
Government Operations 733,346 797,764
Other 276,610 364,722
Eliminations (192,722) (264,158)
- -----------------------------------------------------------------------
Total Backlog $2,256,743 $2,452,453
=======================================================================
In general, McDermott Incorporated is capital intensive and relies on large
contracts for a substantial amount of its revenues.
Power Generation Systems' backlog at June 30, 1997 was $1,439,509,000 compared
to $1,554,125,000 at March 31, 1997. 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 make significant contributions to
operating income into the foreseeable future. However, the domestic market for
industrial and utility boilers remains weak.
Government Operations' backlog at June 30, 1997 was $733,346,000 compared to
$797,764,000 at March 31, 1997. At June 30, 1997, this business unit's backlog
with the U.S. Government was $715,968,000 (of which $26,945,000 had not been
funded) and included orders for nuclear fuel assemblies and reactor components
for the U.S. Navy.
Other backlog at June 30, 1997 was $276,610,000 compared to $364,722,000 at
March 31, 1997, and backlog relating to contracts to be performed by its
unconsolidated joint ventures (not included above) was $80,000,000 at June 30,
1997 compared to $104,000,000 at March 31, 1997.
Liquidity and Capital Resources
- -------------------------------
During the three months ended June 30, 1997, McDermott Incorporated's cash and
cash equivalents decreased $18,775,000 to $38,007,000 and total debt decreased
$64,637,000 to $628,542,000 primarily due to a net decrease in short-term
borrowings of $44,534,000 and payment of long-term debt of $20,006,000. During
this period, McDermott Incorporated
15
<PAGE>
provided cash of $52,518,000 from operating activities, and used cash of
$4,314,000 for redemption of preferred stock, and $3,275,000 for cash dividends
on McDermott Incorporated's preferred stocks.
Pursuant to an agreement with a majority of its principal insurers, McDermott
Incorporated 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 average amount of these claims (historical average of
approximately $6,000 per claim over the last three years) has continued to rise.
Claims paid during the three months ended June 30, 1996 were $50,833,000, of
which $46,127,000 has been recovered or is due from insurers. At June 30, 1996,
receivables of $86,492,000 were due from insurers for reimbursement of settled
claims. Estimated liabilities for pending and future non-employee products
liability asbestos claims are derived from McDermott Incorporated's claims
history and constitute management's best estimate of such future costs.
Settlement of the liability is expected to occur over approximately the next 15
years. 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. The collection delays, and the amount of claims paid for which
insurance recovery is not probable, have not had a material adverse effect upon
McDermott Incorporated'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 decreased $4,572,000 to $800,000
for the three months ended June 30, 1997 as compared with the same period last
year. The majority of expenditures were incurred to maintain existing
facilities.
At June 30 and March 31, 1997, B&W had sold, with limited recourse, an undivided
interest in a designated pool of qualified accounts receivable of approximately
$77,569,000 and $93,769,000, respectively, under the terms of an agreement with
a U.S. Bank. The maximum sales limit available under the agreement, which
expires October 31, 1997, is
16
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$125,000,000. B&W expects to renew the agreement. Depending on the amount of
qualified accounts receivable available for the pool, the amount sold to the
bank can vary (but not to greater than the maximum sales limit available) from
time to time. McDermott Incorporated accounts for these sales as secured
borrowings.
McDermott Incorporated and a subsidiary of McDermott International, McDermott
International Investments Co., Inc., ("MIICO") are parties to an agreement
pursuant to which McDermott Incorporated may borrow up to $150,000,000 from
MIICO at interest rates computed at the applicable federal rate determined by
the IRS. At June 30, 1997, McDermott Incorporated had borrowed $115,000,000
against this agreement. There were no borrowings against this agreement at
March 31, 1997.
At June 30 and March 31, 1997, McDermott Incorporated had available to it
various uncommitted short-term lines of credit from banks totalling $101,494,000
and $134,695,000, respectively. Borrowings by McDermott Incorporated against
these lines of credit at June 30 and March 31, 1997 were $31,220,000 and
$24,555,000, respectively. In addition, at March 31, 1997, there were
borrowings of $150,000,000 under the $150,000,000 unsecured and committed
revolving credit facility of B&W (the "B&W Revolver"). During May and June
1997, B&W repaid all amounts outstanding under the B&W Revolver primarily with
the proceeds of a loan of $115,000,000 from MIICO to McDermott Incorporated
during May 1997. There were no borrowings against this facility at June 30,
1997. Effective June 30, 1997, the conditions to B&W's borrowings under the B&W
Revolver were amended to facilitate future borrowings under this facility.
McDermott Incorporated is restricted, as a result of covenants in certain
agreements, in its ability to transfer funds to International and its
subsidiaries through cash dividends or through unsecured loans or investments.
At June 30, 1997, substantially all of the net assets of McDermott Incorporated
were subject to such restrictions. The most restrictive of these covenants with
respect to the payment of dividends by McDermott Incorporated would prohibit the
payment of dividends other than current dividends on existing preferred stock.
Working capital decreased $19,449,000 to $51,835,000 at June 30, 1997. During
the remainder of fiscal year 1998, McDermott Incorporated expects to obtain
funds to meet
17
<PAGE>
capital expenditure, working capital and debt maturity requirements from
operating activities additional borrowings and capital contributions from
International (if required). Leasing agreements for equipment, which are short-
term in nature, are not expected to impact McDermott Incorporated's liquidity
nor capital resources.
McDermott Incorporated's quarterly dividends of $0.55 per share on the Series A
$2.20 Cumulative Convertible Preferred Stock and $0.65 per share on the Series B
$2.60 Cumulative Preferred Stock were the same in June 1997 and 1996.
McDermott Incorporated 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 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. An 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.
18
<PAGE>
PART II
McDERMOTT INCORPORATED
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) Reports on Form 8-K
There were no current reports on Form 8-K filed during the three months
ended June 30, 1997.
Signatures
19
<PAGE>
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 INCORPORATED
August 7, 1997 /s/ Daniel R. Gaubert
----------------------------------------------
By: Daniel R. Gaubert
Senior Vice President and Chief Financial
Officer
(Principal Financial and Accounting Officer
and Duly Authorized Representative)
20
<PAGE>
EXHIBIT INDEX
Exhibit Description
27 Financial Data Schedule
21
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MCDERMOTT
INCORPORATED'S JUNE 30, 1997 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> JUN-30-1997
<CASH> 38,007
<SECURITIES> 97
<RECEIVABLES> 341,502
<ALLOWANCES> 42,466
<INVENTORY> 294,359
<CURRENT-ASSETS> 991,985
<PP&E> 531,463
<DEPRECIATION> 320,390
<TOTAL-ASSETS> 3,036,757
<CURRENT-LIABILITIES> 940,150
<BONDS> 352,482
166,461
0
<COMMON> 4
<OTHER-SE> 248,027
<TOTAL-LIABILITY-AND-EQUITY> 3,036,757
<SALES> 453,180
<TOTAL-REVENUES> 453,180
<CGS> 427,514
<TOTAL-COSTS> 427,514
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,500
<INCOME-PRETAX> 11,976
<INCOME-TAX> 7,818
<INCOME-CONTINUING> 4,158
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,158
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
