<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
F O R M 1 0 - K/A-3
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended March 31, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the transition period from _____________________ to ____________________
Commission File Number 1-8430
McDERMOTT INTERNATIONAL, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
REPUBLIC OF PANAMA 72-0593134
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1450 POYDRAS STREET
NEW ORLEANS, LOUISIANA 70112-6050
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including area code (504) 587-5400
Securities Registered Pursuant to Section 12(b) of the Act:
Name of each Exchange
Title of each class on which registered
------------------- -------------------
Common Stock, $0.01 par value New York Stock Exchange
Rights to Purchase Common Stock New York Stock Exchange
(Currently Traded with Common Stock)
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES /X/ NO / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.
/X/
The aggregate market value of voting stock held by non-affiliates of the
registrant was $1,444,216,074 as of April 26, 1995.
The number of shares outstanding of the Company's Common Stock at April 26,
1995 was 54,063,698.
DOCUMENTS INCORPORATED BY REFERENCE
The Proxy Statement for the 1995 Annual Meeting of Stockholders is incorporated
by reference into Part III of this report.
<PAGE> 2
McDERMOTT INTERNATIONAL, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
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SIGNATURE OF REGISTRANT
<S> <C> <C>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 23
Exhibit
Number Description
- ------ -----------
22 Significant Subsidiaries of the Registrant 89
</TABLE>
<PAGE> 3
SIGNATURE OF REGISTRANT
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
McDERMOTT INTERNATIONAL, INC.
-----------------------------
(REGISTRANT)
By: /s/ Daniel R. Gaubert
-------------------------
Daniel R. Gaubert
Vice President, Finance
and Controller
November 15, 1995
<PAGE> 4
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
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 could be significantly
affected by international factors, such as changes in foreign currency exchange
rates. McDermott International's policy is to minimize its exposure to changes
in foreign currency exchange rates by attempting to match foreign currency
contract receipts with like foreign currency disbursements during contract
negotiations. 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 on a continuing basis
for periods consistent with its committed exposures. This practice minimizes
the impact of foreign exchange rate movements on McDermott International's
operating results.
FISCAL YEAR 1995 VS FISCAL YEAR 1994
Power Generation Systems and Equipment's revenues increased $49,029,000 to
$1,663,235,000. This was primarily due to higher revenues from fabrication and
erection of fossil fuel steam and environmental control systems, nuclear fuel
assemblies and reactor components for the U. S. Government, replacement nuclear
steam generators, repair and alteration of existing fossil fuel steam systems,
and operations and maintenance contracts for small power plants. These
increases were partially offset by lower revenues from defense and
space-related products (other than nuclear fuel assemblies and reactor
components), extended scope of supply and fabrication of industrial boilers,
and replacement parts.
Power Generation Systems and Equipment's segment operating income decreased
$29,131,000 to $20,810,000 due to provisions for the decontamination,
decommissioning and closing of certain nuclear manufacturing facilities and the
closing of a manufacturing facility ($46,489,000) and a favorable warranty
reserve recorded in the prior year ($11,000,000). Operating income increased
due to lower operating expenses (including favorable workers compensation
adjustments) and administrative expenses (including cost reduction
initiatives); higher volume and margins on operations and maintenance
contracts; and improved margins on plant enhancement projects. These increases
were partially offset by lower volume and margins on extended scope of supply
and fabrication of industrial boilers, lower volume on replacement parts, and
lower margins on nuclear fuel assemblies and reactor components for the U. S.
Government.
Power Generation Systems and Equipment's equity in income of investees
decreased $3,668,000 to $8,364,000. This represents the results of
approximately fifteen active joint ventures, ranging from equity income of
$3,700,000 to equity loss of $2,800,000. As such, these investees are
individually relatively small. The decrease was primarily due to a
discontinued domestic venture which engaged in simulation training and lower
operating results from a Chinese venture engaged in boiler manufacturing. In
aggregate, there are no expected near-term trends.
23
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Backlog for this segment at March 31, 1995 was $2,058,215,000 compared to
$2,398,285,000 at March 31, 1994. At March 31, 1995 this segment's backlog
with the U.S. Government was $631,578,000 (of which $21,607,000 had not been
funded). U.S Government budget reductions have negatively affected this
segment's government operations, and backlog at March 31, 1995 and 1994
reflects the impact of Congressional budget reductions on the advanced solid
rocket motor and super conducting super collider projects in prior years. 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.
As discussed (see Item 1F - Insurance), provisions for estimated future costs
for non-employee products liability asbestos claims have been recognized for
financial reporting purposes during fiscal years 1995 and 1994 (see Notes 1 and
10 to the consolidated financial statements and the discussion of Other-net
expense and Liquidity below). Inherent in the estimate of these 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.
The current competitive economic environment for the electric power industry in
the United States has intensified, as the Federal Energy Regulatory Commission
has begun to implement the provisions of the Energy Policy Act of 1992, which
deregulated the electric power generation industry by allowing independent
power producers and other companies access to its transmission and distribution
systems, and the Clean Air Act amendments of 1990 have caused U. S. utilities
to defer ordering large new baseload power plants and to defer repairs and
refurbishments on existing plants. Most electric utilities have already
purchased equipment to comply with Phase I of the Clean Air Act, and many will
defer purchases of new equipment to comply with Phase II deadlines until after
the turn of the century. 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 $61,578,000 to $1,390,919,000,
primarily due to lower volume in worldwide marine and domestic fabrication
operations. These decreases were partially offset by the inclusion of revenues
as a result of the acquisitions of Offshore Pipelines, Inc. ("OPI")
($44,439,000) on January 31, 1995 and Northern Ocean Services ("NOS")
($59,644,000 for the full fiscal year) in February 1994 (See Note 2 to the
Consolidated Financial Statements), and higher volume in foreign fabrication
and procured materials.
Marine Construction Services' segment operating income increased slightly to
$44,619,000 (including $4,993,000 from OPI) from $44,394,000 primarily due to
improved margins in foreign marine operations, inclusion of the operating
results of NOS for the full fiscal year; and higher volume of procured
materials, domestic engineering operations, and foreign fabrication. These
increases were mostly offset by higher operating expenses, lower operating
results from DCC's operations, lower margins from shipyard operations, and
start-up costs associated with new shipbuilding activities.
Marine Construction Services' equity in income of investees decreased
$82,340,000 to $25,488,000. Both the HeereMac and McDermott-ETPM West, Inc.
joint ventures performed
24
<PAGE> 6
at lower levels than in the previous year, as several large contracts were
completed in fiscal 1994. The revenues of these two joint ventures declined
from $895,666,000 to $656,490,000. Most of the HeereMac decline was in the
North Sea. McDermott-ETPM West, Inc. also declined in the North Sea, but this
was partially offset by increased volume in West Africa. The equity income
from these two joint ventures declined from $106,783,000 to $24,759,000.
HeereMac's equity income decreased as a result of the reduced volume and
reduced margins. McDermott-ETPM West, Inc.'s equity income also decreased as a
result of the reduced volume, but the decrease was not as severe.
McDermott-ETPM West, Inc. also had a loss provision of approximately $7,500,000
on a major North Sea contract. Together these two significant investees
accounted for 97% of equity in earnings of investees. No other venture
contributed significantly to the decline. Both joint ventures are expected to
remain at low levels in fiscal 1996 and 1997.
Backlog for this segment at March 31, 1995 and 1994 was $1,510,117,000
(including $46,396,000 from the acquisition of OPI) and $1,054,142,000,
respectively. Not included in backlog at March 31, 1995 and 1994 was backlog
relating to contracts to be performed by unconsolidated joint ventures of
approximately $1,014,000,000 and $840,000,000, respectively.
The activity of the Marine Construction Services' segment (including its
significant investees) depends mainly on the capital expenditures of oil and
gas companies and foreign governments for developmental construction. These
expenditures are influenced by the selling price of oil and gas along with the
cost of production and delivery, the terms and conditions of offshore leases,
the discovery rates of new reserves offshore, the ability of the oil and gas
industry to raise capital, and local and international political and economic
conditions.
Oil company exploration and production budgets in calendar year 1995 are
moderately higher than 1994 expenditures. Both domestic and international
areas are expected to increase, although domestic will rise at a slower rate.
World oil prices in calendar year 1994 were below those in 1993. This has had a
negative impact on near term marine construction activities. World oil prices
in calendar year 1995 are expected to be somewhat higher than those in 1994.
The composite spot price for natural gas in the United States was substantially
lower in calendar year 1994 than in 1993 and has continued to decline. This
segment's markets are expected to be at relatively low levels, and during
fiscal year 1996, the overcapacity of marine equipment will continue to result
in a competitive environment and put pressure on profit margins, including
those of the two significant investees.
Interest income increased $13,989,000 to $52,740,000 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 $6,860,000 to $57,115,000, primarily due to a
reduction of accrued interest on proposed tax deficiencies, partially offset by
changes in debt obligations and interest rates prevailing thereon.
Minority interest expense decreased $3,084,000 to $12,167,000 primarily due to
minority shareholder participation in increased losses of DCC and JRM's losses
for the two months ended March 31, 1995. These decreases in expense were
partially offset by an increase due
25
<PAGE> 7
to minority shareholder participation in the improved results of the
McDermott-ETPM East joint venture.
Other-net expense increased $28,926,000 to $33,291,000 primarily due to a loss
related to the reduction of estimated products liability asbestos claim
recoveries from insurers, a provision for the settlement of a lawsuit and
losses on the sales of investment securities in the current period.
The provision for income taxes decreased $45,041,000 from a provision of
$24,998,000 to a benefit of $20,043,000, while income before income taxes and
cumulative effect of accounting changes decreased $124,121,000. The reduction
in income taxes is primarily due to a decrease in income from operations along
with a reduction in a provision for taxes due to a settlement of outstanding
issues and higher non-taxable 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 even 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 219% of pretax loss
in fiscal year 1995 compared to a provision for income taxes of 22% of pretax
income in fiscal year 1994.
Net lncome increased $19,905,000 from a loss of $10,794,000 to income of
$9,111,000 reflecting the cumulative effect of the adoption of SFAS No. 112,
"Employers' Accounting for Postemployment 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 other items described above.
FISCAL YEAR 1994 VS FISCAL YEAR 1993
Power Generation Systems and Equipment's revenues increased $90,730,000 to
$1,614,206,000. This was primarily due to higher revenues from fabrication and
erection of fossil fuel steam and environmental control systems, replacement
nuclear steam generators, repair and alteration of existing fossil fuel steam
systems, and nuclear fuel assemblies and reactor components for the U. S.
Government. These increases were partially offset by lower revenues from
extended scope of supply and fabrication of industrial boilers, defense and
space-related products other than nuclear fuel assemblies and reactor
components, and air cooled heat exchangers.
Power Generation Systems and Equipment's segment operating income decreased
$6,526,000 to $49,941,000. This was primarily due to lower volume and margins
on extended scope of supply and fabrication of industrial boilers as well as
defense and space-related products other than nuclear fuel assemblies and
reactor components. There were also lower margins on plant enhancements,
replacement parts, and repair and alteration of existing fossil fuel steam
systems, as well as higher royalty income recorded in the prior year. These
decreases were partially offset by higher volume and margins on replacement
nuclear steam generators, nuclear fuel assemblies and reactor components for
the U. S. Government and higher volume on fabrication and erection of fossil
fuel steam and environmental control
26
<PAGE> 8
systems. There were also lower general and administrative expenses, and lower
warranty expense primarily due to net favorable warranty reserve adjustments.
Power Generation Systems and Equipment's equity in income of investees
increased $3,341,000 to $12,032,000. This represents the results of
approximately fifteen active joint ventures, individually relatively small.
The increase was primarily due to increased volume and improved margins in
domestic ventures which own and operate a congeneration plant and two small
power plants. There was also increased volume in a Chinese venture engaged in
boiler manufacturing, but this was partially offset by reduced volume in an
Indonesian venture also engaged in boiler manufacturing.
Marine Construction Services' revenues decreased $197,156,000 to
$1,452,497,000, primarily due to lower volume in worldwide fabrication and
engineering operations, foreign marine operations and procured materials.
These decreases were partially offset by the acquisition of DCC.
Marine Construction Services' segment operating income decreased $23,258,000 to
$44,394,000, primarily due to lower volume in worldwide fabrication and
engineering operations and lower volume in procured materials. These decreases
were partially offset by the acquisition of DCC, higher margins in foreign
marine operations, the accelerated depreciation and write-off of certain
fabrication facilities and marine construction equipment in the prior year, and
reduced operating costs.
Marine Construction Services' equity in income of investees increased
$22,461,000 to $107,828,000. Improved results of the HeereMac joint venture
were partially offset by lower results of the McDermott-ETPM West, Inc. joint
venture. HeereMac's equity income increased significantly based on improved
margins resulting from decreased project and operating expenses.
McDermott-ETPM West, Inc.'s equity income declined based primarily on reduced
volume in the North Sea and West Africa. Together these two significant
investees accounted for 99% of equity in earnings of investees. No other
venture significantly contributed to the increase.
Interest income decreased $1,640,000 to $38,751,000. This decrease was
primarily due to lower interest rates on investments in government securities
and other long-term investments.
Interest expense decreased $26,365,000 to $63,975,000, primarily due to changes
in debt obligations and interest rates prevailing thereon. The decrease
reflects the redemption of high coupon debt during April and June 1993, and a
reduction in accrued interest on proposed tax deficiencies.
Minority interest expense decreased $2,952,000 to $15,251,000 primarily due to
minority shareholder participation in the losses of the McDermott-ETPM East
joint venture in the current year and income in the prior year, partially
offset by participation in the results of DCC since its acquisition in June
1993.
Other-net decreased $14,562,000 to a loss of $4,365,000 from income of
$10,197,000. This decrease was primarily due to gains on the sale of interests
in two commercial nuclear joint ventures, a foreign marine asset casualty gain
and gains on the sale of nineteen tugboats, all in the prior period.
27
<PAGE> 9
Provision for income taxes decreased $15,101,000 to $24,998,000, while income
from continuing operations before provision for income taxes, extraordinary
items, and cumulative effect of accounting changes increased $7,532,000 to
$114,954,000. The decrease in the provision for income taxes is primarily due
to a reduction in a provision for taxes of $10,000,000 due to a settlement of
outstanding issues and higher non-taxable 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 even 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. During this period, these factors reduced the effective tax rate to 22%
from 37%.
Net loss decreased $177,938,000 to $10,794,000 reflecting the cumulative effect
of the change in accounting for non-employee products liability asbestos
claims of $100,750,000 in the current year and the cumulative effect of the
adoption of SFAS No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions," of $249,351,000 in the prior year, in addition to other
items described above.
Effect of Inflation and Changing Prices
McDermott International's financial statements are prepared in accordance with
generally accepted accounting principles, using historical dollar accounting
(historical cost). Statements based on historical cost, however, do not
adequately reflect the cumulative effect of increasing costs and changes in the
purchasing power of the dollar, especially during times of significant and
continued inflation.
The management of McDermott International is cognizant of the effects of
inflation and, in order to minimize the negative impact of inflation on its
operations, attempts to cover the increased cost of anticipated changes in
labor, material and service costs, either through an estimation of such
changes, which is reflected in an original price, or through price escalation
clauses in its contracts.
Liquidity and Capital Resources
During fiscal year 1995, McDermott International's cash and cash equivalents
decreased $47,900,000 to $85,909,000 and total debt increased $257,077,000
(including $120,200,000 assumed in the acquisition of OPI) to $986,687,000.
During this period, McDermott International used cash of $97,890,000 for
additions to property, plant and equipment; $61,827,000 for dividends on
International's common and preferred stocks; $35,553,000 for repayment of
long-term debt; $12,559,000 in operating activities; and $17,185,000 for the
repurchase of a subsidiary's preferred stock to satisfy current and future
sinking fund requirements.
Decreases in accounts payable reflect settlement of charter obligations to the
HeereMac joint venture and amounts owned to ETPM S.A. Higher payables due to
increased volume at B&W's Canadian operations and activity on the Britoil
contract for the Atlantic Frontier Programme Development of Foinaven Phase One
Facility ("Foinaven") were offset by lower volume elsewhere. Increases in Net
contracts in progress and advance billings were primarily
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due to the timing of billings on the Canadian and Foinaven contracts. Lower
income taxes reflects payments made in Canada and changes in the domestic tax
provision due to higher losses in the U.S., and accrued liabilities includes a
reduction of accrued interest expense of $26,300,000 resulting from the
settlement of outstanding tax issues with the IRS.
Pursuant to an agreement with the 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 the process, reimbursement is usually delayed
for three months or more. The number of claims had declined moderately since
fiscal year 1990, but have increased during the second half of fiscal year
1995. Management believes, based on information currently available, that the
recent increase represents an acceleration in the timing of the receipt of
these claims, but does not represent an increase in its total estimated
liability. The average amount of these claims (historical average of
approximately $4,800 per claim over the last three years) has continued to
rise. Claims paid in fiscal year 1995 were $126,151,000, of which $111,163,000
has been recovered or is due from insurers. At March 31, 1995, Accounts
receivable-other included receivables of $34,925,000 that are due from insurers
for reimbursement of settled claims. During fiscal year 1995, McDermott
International received notice that provisional liquidators have been appointed
to a London-based products liability asbestos insurer and certain of its
subsidiaries and as a result, a loss of $14,478,000 related to the reduction of
estimated products liability asbestos claim recoveries was recognized.
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, 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.
McDermott International's expenditures for property, plant and equipment
increased $21,569,000 to $97,890,000 in fiscal year 1995. While the majority of
these expenditures were incurred to maintain and replace existing facilities
and equipment, $15,010,000 was expended for the purchase of a barge which was
formerly leased by a subsidiary of International. McDermott International has
committed to make capital expenditures of approximately $40,301,000 (including
$9,457,000 for a new pipelay system on marine equipment and $14,286,000 for the
conversion of a barge to a floating production unit) during fiscal 1996. The
barge conversion is financed by a $16,700,000 note, payable in 30 monthly
installments beginning with the completion of the conversion. Interest is at
Libor plus 2%. There were no borrowings against this facility at March 31,
1995.
At March 31, 1995 and 1994, The Babcock & Wilcox Company had sold, with limited
recourse, an undivided interest in a designated pool of qualified accounts
receivable of approximately $175,000,000 and $170,000,000, respectively, under
an agreement with a U. S. bank. The maximum sales limit available under the
agreement, which expires on December 31, 1997, is $225,000,000. (See Note 7 to
the consolidated financial statements).
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At March 31, 1995 and 1994, International and its subsidiaries, had available
to them various uncommitted short-term lines of credit from banks totaling
$373,867,000 and $246,412,000, respectively. Borrowings against these lines of
credit at March 31, 1995 and 1994 were $63,025,000 and $37,512,000,
respectively. In addition, The Babcock & Wilcox Company had available to it a
$128,000,000 unsecured and committed revolving line of 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. There were no borrowings against this facility at
March 31, 1995 and 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. Borrowings outstanding against this facility at March 31,
1995 were $7,420,000. There were no borrowings outstanding against this
facility at March 31, 1994. In addition, JRM had available two secured and
committed revolving credit facilities totaling $53,500,000 of which $24,500,000
was outstanding at March 31, 1995. Loans outstanding under these facilities
were repaid and the facility terminated on May 10, 1995.
In consideration for the contribution of substantially all of McDermott
International's marine construction services business, JRM issued 3,200,000
shares of Series A $2.25 Cumulative Convertible Preferred Stock, $231,000,000
9% Senior Subordinated Notes due 2001 and a $39,750,000 Floating Rate Note at
7.69% at the Merger Date (7.4375% at March 31, 1995) to International. The
Floating Rate Note is due January 31, 1997 or earlier upon demand. JRM expects
to pay this note during fiscal year 1996. In addition, a subsidiary of JRM
assumed all of OPI's $70,000,000 12-7/8% Guaranteed Senior Notes due 2002. The
Notes due 2002 are redeemable at the option of a subsidiary of JRM after June
1997. On June 7, 1995, JRM entered into an agreement with a group of banks to
provide a $150,000,000 three year unsecured and committed line of credit to
support the operating requirements of its domestic and international
operations. JRM is restricted, as a result of covenants in these agreements,
in its ability to transfer funds to International and its subsidiaries through
cash dividends or through unsecured loans or investments. As approximately
$40,000,000 of its net assets were not subject to these restrictions, they are
not expected to impact JRM's ability to make preferred dividend payments.
The Delaware Company is restricted, as a result of covenants in credit
agreements, in its ability to transfer funds to International and its
subsidiaries through cash dividends or through unsecured loans or investments.
Substantially all of the net assets of the Delaware Company is subject to such
restrictions. It is not expected that these restrictions will have any
significant effect on International's liquidity.
McDermott International maintains an investment portfolio of government
obligations and other investments which is classified as available for sale
under SFAS No. 115 (See Note 12 to the consolidated financial statements). The
fair value of short-term investments and the long-term portfolio at March 31,
1995 was $715,093,000 (amortized cost $723,946,000). The net unrealized loss
on the current and long-term investment portfolio, net of income tax effect,
was $8,050,000 at March 31, 1995. At March 31, 1995, approximately
$146,142,000 fair value (amortized cost of $148,422,000) of these obligations
were pledged to secure a letter of credit in connection with a long-term loan
and certain reinsurance agreements. In addition, McDermott International had
obligations of $135,691,000 under short-term repurchase agreements which were
secured by government obligations with a fair value of $134,673,000 at March
31, 1995.
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Working capital decreased $106,442,000 to a deficit of $40,790,000 at March 31,
1995 from $65,652,000 at March 31, 1994. During 1996, McDermott International
expects to obtain funds to meet capital expenditure, working capital and debt
maturity requirements from operating activities, its short-term investment
portfolio, and additional borrowings. On June 1, 1995, McDermott International
repaid its 10.25% Notes of $150,000,000 from its short-term investment
portfolio and additional borrowings from revolving 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.
International's quarterly dividends are $0.25 per share on its Common Stock and
$0.71875 per share on its Series C Cumulative Convertible Preferred Stock. The
Delaware Company's quarterly dividends are $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. International's and the Delaware Company's
quarterly dividends were at the same rates in 1995 and 1994. JRM's quarterly
dividends on its Series A and Series B Preferred Stock are $0.5625 per share.
At March 31, 1995, JRM paid dividends for a partial quarterly period of
$900,000 on its Series A Preferred Stock and on April 17, 1995 paid $217,000 on
its Series B Preferred Stock.
At March 31, 1995 the ratio of long-term debt to total stockholders' equity was
0.81 as compared with 1.23 at March 31, 1994.
McDermott International accounts for income taxes in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes". This standard requires, among other things, recognition of future tax
benefits, measured by enacted tax rates, attributable to deductible temporary
differences between the financial statement and income tax basis of assets and
liabilities and to tax net operating loss and foreign tax credit carryforwards
to the extent that realization of such benefits is more likely than not.
McDermott International has provided a valuation allowance ($34,943,000 at
March 31, 1995) for deferred tax assets which can not be realized through
carrybacks and future reversals of existing taxable temporary differences.
Management believes that remaining deferred tax assets ($675,282,000 at March
31, 1995) 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 and
sale/leasebacks 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.
31
<PAGE> 13
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
22 Significant Subsidiaries of the Registrant
</TABLE>
<PAGE> 1
EXHIBIT 22
McDERMOTT INTERNATIONAL, INC.
SIGNIFICANT SUBSIDIARIES OF THE REGISTRANT
FISCAL YEAR ENDED MARCH 31, 1995
<TABLE>
<CAPTION>
PERCENTAGE
ORGANIZED OF VOTING
UNDER THE SHARES
NAME OF COMPANY LAWS OF OWNED
<S> <C> <C>
McDermott International Investments Co., Inc. Panama 100
Babcock & Wilcox Asia Limited Hong Kong 100
McDermott International Project Management, Inc. Panama 100
McDermott Azerbaijan Marine Construction, Inc. Panama 100
McDermott Amur, Inc. Panama 100
McDermott International Beijing, Inc. Panama 100
Creole Insurance Company, Ltd. Bermuda 100
Honore Insurance Company, Ltd. Bermuda 100
Hudson Engineering International, Inc. Panama 100
Delta Hudson International, Inc. Panama 75
J. Ray McDermott, S.A. Panama 64
Hydro Marine Services, Inc. Panama 100
Northern Marine Services, Inc. Panama 100
Eastern Marine Services, Inc. Panama 100
Varsy International N.V. Netherlands Antilles 100
McDermott International B.V. Netherlands 100
McDermott Holland B.V. Netherlands 100
McDermott-ETPM East, Inc. Panama 67
McDermott Holdings (U.K.) Limited United Kingdom 100
McDermott Engineering (Europe) Limited United Kingdom 100
Northern Ocean Services Limited United Kingdom 100
McDermott Marine Construction Limited United Kingdom 100
Mentor Engineering Consultants Limited United Kingdom 100
McDermott Far East, Inc. Panama 100
P.T. McDermott Indonesia Indonesia 100
P.T. Bataves Fabricators Indonesia 100
Malmac Sdn. Bhd. Malaysia 100
North Atlantic Vessel, Inc. Panama 100
J. Ray McDermott (Aust.) Holding Pty. Limited Australia 100
McDermott Industries (Aust.) Pty. Limited Australia 100
McDermott South East Asia Pte. Ltd. Singapore 100
McDermott Overseas, Inc. Panama 100
McDermott (Nigeria) Limited Nigeria 60
McDermott Offshore Services Company, Inc. Nigeria 100
J. Ray McDermott Holdings, Inc. Delaware 100
Offshore Production & Salvage, Inc. Delaware 100
OPI Vessels, Inc. Delaware 100
OPI International Vessels, Ltd. Cayman 100
</TABLE>
89-1
<PAGE> 2
EXHIBIT 22 (CONTINUED)
<TABLE>
<S> <C> <C>
J. Ray McDermott, Inc. Delaware 100
Offshore Pipelines International, Ltd. Cayman 100
P.T. Armandi Pranaupaya Indonesia 100
Offshore Pipelines Far East Limited Vanuatu 100
Offshore Pipelines International Gulf E.C. Bahrain 100
Offshore Pipelines Nigeria Limited Nigeria 100
McDermott Incorporated Delaware 93
Hudson Engineering Corporation Delaware 100
Hudson Engineering (Canada), Ltd. Canada 100
Delta Catalytic Corporation Canada 50
Delta Hudson International, Ltd. Delaware 75
McDermott Trade Corporation Delaware 100
McDermott International Aviation, Inc. Delaware 100
McDermott Shipbuilding, Inc. Delaware 100
McDermott Inland Services, Inc. Delaware 100
McDermott Project Management, Inc. Delaware 100
McDermott Marketing Services, Inc. Delaware 100
McDermott Energy Services, Inc. Delaware 100
Babcock & Wilcox Investment Company Delaware 100
Babcock & Wilcox Idaho, Inc. Delaware 100
Babcock & Wilcox - ST Company Delaware 100
Babcock & Wilcox Sunnyside, Inc. Delaware 100
The Babcock & Wilcox Company Delaware 100
Babcock & Wilcox Equity Investments, Inc. Delaware 100
Babcock & Wilcox West Enfield Power, Inc. Delaware 100
Babcock & Wilcox Jonesboro Power, Inc. Delaware 100
Babcock & Wilcox Ebensburg Power, Inc. Delaware 100
Hudson Products Corporation Texas 100
Babcock & Wilcox International Sales and
Service Corporation Delaware 100
Diamond Power Specialty Limited United Kingdom 62
Babcock & Wilcox Industries, Ltd. Canada 100
Babcock & Wilcox International, Inc. Delaware 100
Americon, Inc. Delaware 100
Babcock & Wilcox Foreign Sales Corporation Barbados 100
Power Systems Operations, Inc. Delaware 100
Palm Beach Resource Recovery Corporation Florida 100
National Ecology Company Delaware 100
B&W Nuclear Environmental Services, Inc. Delaware 100
</TABLE>
The subsidiaries omitted from the foregoing list do not, considered in the
aggregated, constitute a significant subsidiary.
89-2
