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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ 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, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _____________________ to ____________________
Commission File Number 1-8430
McDERMOTT INTERNATIONAL, INC.
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(Exact name of registrant as specified in its charter)
REPUBLIC OF PANAMA 72-0593134
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(State or other jurisdiction of (I.R.S. Employer
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) 587-5400
Securities Registered Pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of each Exchange
Title of each class on which registered
------------------- -------------------
<S> <C>
Common Stock, $1.00 par value New York Stock Exchange
Rights to Purchase Common Stock New York Stock Exchange
(Currently Traded with Common Stock)
</TABLE>
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 $1,144,922,838 as of April 23, 1996.
The number of shares outstanding of the Company's Common Stock at April 23,
1996 was 54,535,823.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A under the Securities Exchange Act of 1934
in connection with the Company's 1996 Annual Meeting of Stockholders are
incorporated by reference into Part III hereof.
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McDERMOTT INTERNATIONAL, INC.
INDEX - FORM 10-K
PART I
<TABLE>
<CAPTION>
PAGE
<S> <C>
Items 1. & 2. BUSINESS AND PROPERTIES
A. General 1
B. Power Generation Systems and Equipment
General 3
Foreign Operations 4
Raw Materials 4
Customers and Competition 4
Backlog 5
Factors Affecting Demand 6
C. Marine Construction Services
General 7
Foreign Operations 12
Raw Materials 12
Customers and Competition 12
Backlog 13
Factors Affecting Demand 13
D. Patents and Licenses 14
E. Research and Development Activities 14
F. Insurance 14
G. Employees 16
H. Environmental Regulations and Matters 16
Item 3. LEGAL PROCEEDINGS 19
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 19
</TABLE>
I
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INDEX - FORM 10-K
<TABLE>
<CAPTION>
PART II
PAGE
<S> <C>
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK
AND RELATED SECURITY HOLDER MATTERS 20
Item 6. SELECTED FINANCIAL DATA 21
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General 23
Fiscal Year 1996 vs Fiscal Year 1995 24
Fiscal Year 1995 vs Fiscal Year 1994 27
Effects of Inflation and Changing Prices 29
Liquidity and Capital Resources 29
New Accounting Standards 33
Item 8. CONSOLIDATED FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA
Company Report on Consolidated Financial Statements 34
Report of Independent Auditors 35
Consolidated Balance Sheet - March 31, 1996 and 1995 36
Consolidated Statement of Income (Loss) for the Three
Fiscal Years ended March 31, 1996 38
Consolidated Statement of Stockholders' Equity for the
Three Fiscal Years Ended March 31, 1996 40
Consolidated Statement of Cash Flows for the Three
Fiscal Years ended March 31, 1996 42
Notes to Consolidated Financial Statements 44
Item 9. DISAGREEMENTS WITH AUDITORS ON ACCOUNTING
AND FINANCIAL DISCLOSURE 82
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 83
Item 11. EXECUTIVE COMPENSATION 83
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT 83
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 83
</TABLE>
II
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INDEX - FORM 10-K
PART IV
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K 84
Signatures 88
</TABLE>
III
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P A R T I
Items 1. and 2. BUSINESS AND PROPERTIES
A. GENERAL
McDermott International, Inc. ("International") was incorporated under the laws
of the Republic of Panama in 1959. International is the parent company of the
McDermott group of companies, which includes J. Ray McDermott, S.A. ("JRM") and
McDermott Incorporated. International's Common Stock, JRM's Common Stock, and
McDermott Incorporated's Series A $2.20 Cumulative Convertible Preferred
Stock and Series B $2.60 Cumulative Preferred Stock are publicly traded.
Unless the context otherwise requires, hereinafter "International" will be used
to mean McDermott International, Inc., a Panama corporation; "JRM" will be used
to mean J. Ray McDermott, S.A., a Panama corporation, which is a majority owned
subsidiary of International, and its consolidated subsidiaries; the "Delaware
Company" will be used to mean McDermott Incorporated, a Delaware corporation
which is a subsidiary of International, and its consolidated subsidiaries; and
"McDermott International" will be used to mean the consolidated enterprise.
McDermott International operates in two business segments:
o Power Generation Systems and Equipment, whose principal businesses are the
supply of fossil-fuel and nuclear steam generating equipment to the
electric power generation industry, and nuclear reactor components to the
U. S. Navy; and
o Marine Construction Services, which supplies worldwide services for the
offshore oil and gas exploration and production and hydrocarbon processing
industries, and to other marine construction companies, primarily through
JRM. Principal activities include the design, engineering, fabrication and
installation of offshore drilling and production platforms and other
specialized structures, modular facilities, marine pipelines and subsea
production systems and onshore construction and maintenance services; and
the maintenance and construction of a variety of marine vessels.
The business of the Power Generation Systems and Equipment segment is conducted
primarily through a subsidiary of McDermott Incorporated, Babcock & Wilcox
Investment Company, the principal subsidiary of which is The Babcock & Wilcox
Company. Unless the context otherwise requires, hereinafter "B&W" will be used
to mean Babcock & Wilcox Investment Company and its consolidated subsidiaries,
including The Babcock & Wilcox Company.
McDermott International has a continuing program of reviewing joint venture,
acquisition and disposition opportunities.
1
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The following tables show revenues and operating income of McDermott
International for the three fiscal years ended March 31, 1996. See Note 16 to
the consolidated financial statements for additional information with respect
to McDermott International's business segments and operations in different
geographic areas.
REVENUES
(Dollars in Millions)
<TABLE>
<CAPTION>
FOR FISCAL YEARS ENDED MARCH 31,
1996 1995 1994
----------------------- ---------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Power Generation Systems
and Equipment $ 1,708.6 52% $ 1,663.2 54% $ 1,614.2 53%
Marine Construction Services 1,590.3 48% 1,390.9 46% 1,452.5 47%
Intersegment Transfer
Eliminations (19.8) - (10.4) - (6.8) -
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Total Revenues (1) $ 3,279.1 100% $ 3,043.7 100% $ 3,059.9 100%
===================================================================================================================
</TABLE>
OPERATING INCOME
(Dollars in Millions)
<TABLE>
<CAPTION>
FOR FISCAL YEARS ENDED MARCH 31,
1996 1995 1994
---------------------- ---------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Segment Operating Income:(2)
Power Generation Systems
and Equipment $ 20.6 35% $ 13.4 29% $ 41.8 55%
Marine Construction Services 38.4 65% 32.2 71% 34.2 45%
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Total Segment Operating Income (1) 59.0 100% 45.6 100% 76.0 100%
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Equity in Income of Investees:
Power Generation Systems
and Equipment 36.5 75% 8.4 25% 12.1 10%
Marine Construction Services 11.9 25% 25.5 75% 107.8 90%
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Total Equity in Income
of Investees 48.4 100% 33.9 100% 119.9 100%
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General Corporate Expenses(2) (33.1) - (38.8) - (36.1) -
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Total Operating Income $ 74.3 - $ 40.7 - $ 159.8 -
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</TABLE>
(1) See Note 2 to the consolidated financial statements regarding the
acquisitions during fiscal years 1996, 1995 and 1994.
(2) Fiscal years 1995 and 1994 have been restated to reflect the allocation
of certain expenses to the business segments which were previously
included in General Corporate Expenses.
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B. POWER GENERATION SYSTEMS AND EQUIPMENT
GENERAL
The Power Generation Systems and Equipment segment provides engineered products
and services for energy conversion worldwide. It supplies individually
engineered boilers, complete fossil fuel steam generating systems and related
equipment and facilities, and environmental control systems for electric power
generation and for industrial processes. These facilities use a wide variety
of fuels, including, but not limited to, coal, oil, bitumen, natural gas, solid
municipal waste, agricultural waste and biomass. This segment is also engaged
in the erection of electric power plants and industrial facilities and the
repair and alteration of such existing equipment. It provides replacement parts
and engineered plant enhancements for existing fossil fuel steam generating
systems and specially engineered accessories and components, such as air
heaters and cleaning systems for heat transfer surfaces. This segment also
supplies air-cooled and condensing heat exchangers for the process and power
industries.
This segment is actively involved in the market for providing power through
cogeneration, refuse-fueled power plants and other independent power producing
plants. It is participating in this market as a contractor for
engineer-procure-construct services, as an equipment supplier, as an
operations and maintenance contractor and through ownership interests.
The Power Generation Systems and Equipment segment provides nuclear fuel
assemblies and nuclear reactor components to the U. S. Navy for the Naval
Reactors Program. This activity has made significant contributions to the
operating income of McDermott International in all three fiscal years and is
expected to do so in the foreseeable future. B&W, in addition to its Naval
Reactors Program business, is a supplier of ordnance, missile and torpedo metal
parts and other equipment and services to the U. S. Government and is
proceeding with new, non-defense Government projects and exploring new programs
which require the technological capabilities it developed as a Government
contractor for the Naval Reactors Program.
B&W is a major supplier of nuclear steam generating equipment, including
critical heat exchangers and replacement recirculating steam generators, in the
Canadian, U. S. and international markets, from its Cambridge, Ontario and
other B&W locations. The Cambridge facility was awarded contracts during
fiscal years 1993 through 1995 valued at approximately $430,000,000 to supply
replacement recirculating steam generators to four domestic utilities and work
performed on these contracts has made significant contributions to the
operating income of this facility. While most of these contracts will be
completed during fiscal year 1997, this activity is expected to continue to
make significant contributions to operating income in the foreseeable future,
although at lower levels. B&W also supplies field repair and refurbishment
services to the Canadian, U. S. and international markets from this location.
The principal plants of this segment, which are owned by B&W, are located at
Indianapolis, Indiana; West Point, Mississippi; Barberton and Lancaster, Ohio;
Beasley and Paris, Texas; Lynchburg, Virginia; Cambridge, Ontario, and Calgary,
Alberta, Canada. This segment's unconsolidated affiliates (equity investees)
foreign plants are located in Beijing, China; Batam Island, Indonesia; Pune,
India; and Cairo, Egypt. All these plants are well maintained, have suitable
equipment and are of adequate size.
3
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FOREIGN OPERATIONS
The amounts of Power Generation Systems and Equipment's revenues, including
intersegment revenues, and segment operating income derived from operations
located outside of the United States, and the approximate percentages of those
revenues and segment operating income to McDermott International's total
revenues and total segment operating income, respectively, follow:
<TABLE>
<CAPTION>
REVENUES SEGMENT OPERATING INCOME
FISCAL YEAR AMOUNT PERCENT AMOUNT PERCENT
(Dollars in Thousands)
<S> <C> <C> <C> <C>
1996 $ 652,016 20% $ 32,766 56%
1995 521,657 17% 35,279 77%
1994 372,727 12% 29,091 38%
</TABLE>
Revenue and segment operating income presented above do not include the
operating results of this segment's equity investees. B&W primarily conducts
its foreign business from its Calgary, Alberta and Cambridge, Ontario (which
also serves the United States market) locations. Products for international
installation are engineered and built in B&W's United States and Canadian
facilities, as well as in the facilities of the segment's equity investees in
China, Indonesia, India and Egypt.
RAW MATERIALS
The principal raw materials used by this segment to construct power generation
systems and equipment consist of carbon and alloy steels in various forms, such
as plate, forgings, structurals, bars, sheet, strip, heavy wall pipe and tubes.
Significant amounts of components and accessories are also purchased for
assembly for supplied systems and equipment. These raw materials and
components generally are purchased as needed for individual contracts. Although
shortages of certain of these raw materials have existed from time to time, no
serious shortage exists at the present time.
This segment is not sole source dependent for any significant raw materials
except for uranium which is furnished and owned by the U.S. Government, and
used in the nuclear fuel assemblies supplied to the U.S. Navy for the Naval
Reactors Program.
CUSTOMERS AND COMPETITION
The principal customers of this segment are the electric power generation
industry (including government-owned utilities and independent power
producers), the U.S. Government (including its contractors), and the pulp and
paper and other process industries such as oil refineries and steel mills; and
other industries and institutions. The electric power generation
4
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industry accounted for approximately 22%, 30% and 26% of McDermott
International's total revenues for fiscal years 1996, 1995 and 1994,
respectively. For the fiscal years 1996, 1995 and 1994, the U.S. Government,
excluding government-owned utilities, accounted for approximately 12%, 12% and
13% of total revenues, including 10%, 10% and 9% related to nuclear fuel
assemblies and reactor components for the U.S. Navy.
Steam generating system equipment orders are customarily awarded after
competitive bids have been submitted as proposals based on the estimated cost
of each job. Within the United States, a number of domestic and foreign based
companies, specializing in steam generating systems, equipment and services,
compete with B&W in the fossil fuel steam generating system business. In
international markets, these companies plus additional foreign-based companies
compete with B&W. B&W also manufactures and sells components such as
replacement recirculating steam generators, which are incorporated into nuclear
steam generating systems designed by other firms. In the sale of these nuclear
steam generating systems, B&W competes with a small number of companies. A
number of companies are in competition with B&W in environmental control
equipment, related specialized industrial equipment and the independent power
producing business. Other suppliers of fossil fuel steam systems, as well as
many other businesses, compete for replacement parts, repair and alteration,
and other services required to backfit and maintain existing systems.
B&W is the sole supplier of nuclear fuel assemblies and reactor components to
the U.S. Navy for the Naval Reactors Program. In fiscal year 1996, B&W was
awarded approximately $375,000,000 in new orders for aircraft carrier
components and prototypical steam generation equipment for the newest submarine
design. B&W is the sole supplier to the U.S. Navy for all major nuclear steam
system equipment for the Naval Reactors Program. There are a small number of
suppliers of small nuclear components with B&W being the largest based on
revenues.
BACKLOG
Backlog as of March 31, 1996 and 1995 for the Power Generation Systems and
Equipment segment was $2,261,799,000 and $2,130,754,000, or approximately 67%
and 61%, respectively, of McDermott International's backlog. Of the March 31,
1996 backlog, it is expected that approximately $1,128,937,000 will be
recognized in revenues in fiscal year 1997, $541,081,000 in fiscal year 1998
and $591,781,000 thereafter, of which approximately 73% will be recognized in
fiscal years 1999 through 2001. At March 31, 1996, this segment's backlog with
the U.S. Government was $816,783,000 (of which $57,988,000 had not yet been
funded), or approximately 24% of McDermott International's total backlog.
Included in backlog at March 31, 1996 are contract awards of approximately
$200,000,000 to supply two 660 megawatt coal- fired boilers and complete wet
flue gas desulfurization systems to the Sumitomo Corporation of Tokyo for a
power plant in central Java, Indonesia; two contracts totaling approximately
$110,000,000 signed with the Egyptian Electricity Authority for the supply of
steam generating equipment for two new power stations; and awards of
$100,000,000 by Hyundai Heavy Industries Co., Ltd. to supply flue gas
desulfurization equipment for ten 500 megawatt coal-fired power station units
in Korea.
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If in management's judgment it becomes doubtful whether contracts will proceed,
the backlog is adjusted accordingly. If contracts are deferred or cancelled,
B&W is usually entitled to a financial settlement related to the individual
circumstances of the contract. Operations and maintenance contracts, which are
performed over an extended period, are included in backlog based upon an
estimate of the revenues from these contracts.
B&W attempts to cover increased costs of anticipated changes in labor, material
and service costs of long-term contracts either through an estimation of such
changes, which is reflected in the original price, or through price escalation
clauses. Most long-term contracts have provisions for progress payments.
FACTORS AFFECTING DEMAND
Electric utilities in Asia and the Middle East are active purchasers of large,
new baseload generating units, due to the rapid growth of their economies and
to the small existing stock of electrical generating capacity in most
developing countries. These newly emerging economies need power and steam
generating systems, equipment and services to build their industrial base.
Electrical consumption has grown moderately in the United States in recent
years. Competition within 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 the electric utilities' transmission and distribution
systems. The modest growth in demand and the changes associated with this
transition from a regulated to a competitive industry have caused electric
utilities to defer ordering of large, new baseload power plants in the United
States. When electric utilities are in need of peaking capacity, many are
purchasing combustion turbines with short lead-times or they are purchasing
electricity from other utilities and non-regulated sources, such as
cogenerators and independent power producers.
Substantially all the customers of B&W are affected by environmental
regulations of the countries in which their facilities are located. In the
United States, the Clean Air Act Amendments of 1990 required many customer
industries to implement systems to limit or remove emissions. These mandated
expenditures have caused some customers to defer repairs and refurbishments on
existing plants. The same requirements have caused other customers to purchase
environmental control equipment from B&W. Future changes in environmental
regulations will continue to affect demand for B&W products and services.
The systems, products and services of B&W are capital intensive. As such,
demand for the company's products is heavily affected by the variations in the
business cycles in the customer industries and in the overall economies of
their countries. Availability of funds for financing, investment and
maintenance at B&W's customers varies with the conditions of their domestic
businesses.
Even with the maturing of the U. S. Navy's shipbuilding program and U. S.
Government defense budget reductions, the demand for nuclear fuel assemblies
and reactor components for the U. S. Navy has continued to comprise a
substantial portion of this segment's backlog
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with the U. S. Government at March 31, 1996. The backlog of orders for U. S.
Navy nuclear fuel assemblies and nuclear reactor components is expected to
continue to be a significant part of backlog because B&W became the sole source
provider of these assemblies in fiscal year 1991, and supplies nuclear fuel
assemblies due to reload requirements.
B&W has applied its technological capabilities by supplying new products for
power generation applications. It has diversified into new markets and
activities not related to power generation that require complex engineering and
machining. Examples of these markets include environmental restoration
services, computer integrated manufacturing products and services and the
management of government owned facilities, primarily within the Department of
Energy's nuclear weapons complex. Currently, B&W operates the Specific
Manufacturing Capability facility at the Department of Energy's Idaho National
Engineering Laboratory and since July 1, 1995, has participated in the
management and operation of the Rocky Flats Environmental Technology Site near
Denver, Colorado with six other companies. In addition, B&W is part of a team
that operates and manages the Strategic Petroleum Reserve from New Orleans,
Louisiana.
C. MARINE CONSTRUCTION SERVICES
GENERAL
On January 31, 1995, McDermott International contributed substantially all of
its marine construction services business to JRM, a new company incorporated
under the laws of the Republic of Panama in 1994. Also, on January 31, 1995,
JRM acquired Offshore Pipelines, Inc. (the "Merger"). Prior to the Merger with
Offshore Pipelines, Inc. ("OPI"), JRM was a wholly owned subsidiary of
McDermott International; as a result of the Merger, JRM is a majority owned
subsidiary of McDermott International. The business activities of this segment
are conducted primarily through JRM.
The Marine Construction Services segment consists of the basic and detailed
design, engineering, fabrication and installation of offshore drilling and
production platforms and other specialized structures, modular facilities,
marine pipelines and subsea production systems. This segment also provides
comprehensive project management services, feasibility studies, engineering
services, subsea trenching services, diving services and removal, salvage and
refurbishment services for offshore fixed platforms. This segment operates
throughout the world in all major offshore oil and gas producing regions,
including the Gulf of Mexico, the North Sea, West Africa, South America, the
Middle East, India and the Far East. This segment's shipyard facilities supply
complete maintenance and construction facilities and is a builder of a variety
of marine vessels, including ferries, barges, tugboats, container ships, bulk
carriers and other specialized vessels.
This segment conducts operations both directly and through its participation in
joint ventures, some of which it manages and others of which are managed by
other marine construction contractors. Some of the joint ventures are
consolidated for financial reporting purposes while others (including the
HeereMac joint venture and McDermott-ETPM West, Inc. both of which are
described below) are accounted for using the equity method. JRM's joint
ventures are largely financed through their own resources, including, in some
cases, stand-alone
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borrowing arrangements. Historically, JRM has obtained funds from its joint
ventures primarily through chartering arrangements, whereby it charters vessels
to the joint ventures for use in their operations, as well as through
distributions from the joint ventures. While JRM and the other parties to the
joint venture arrangement generally must agree on the amount of cash flow to be
distributed, the joint ventures have historically distributed to their
respective owners cash in excess of estimated working capital requirements,
based on the owners' relative ownership percentages.
The HeereMac joint venture was formed with Heerema Offshore Construction Group,
Inc. ("Heerema") in January 1989 and utilizes the specialized, heavy-lift
marine construction vessels which were previously owned by the two parties.
Each party has a 50% interest in the joint venture, and Heerema has
responsibility for its day-to-day operations (although major decisions relating
to the joint venture operations require the approval of JRM). In March 1996,
JRM and Heerema, through their respective subsidiaries, sold to companies
included in the HeereMac joint venture the semi submersible derrick vessels
which they were formerly chartering to the joint venture (JRM's DB101 and DB102
and Heerema's Hermod and Balder).
JRM formed its initial joint venture with ETPM S.A., McDermott-ETPM, in April
1989 to provide general marine construction services to the petroleum industry
in West Africa, South America, the Middle East and India and offshore
pipelaying services in the North Sea. With the addition of two new joint
venture operating companies in March 1995, JRM and ETPM S. A. have expanded
their joint venture's operations to include the Far East region and to begin
jointly pursuing subsea contracting work on a worldwide basis. Most of the
operating companies in the McDermott-ETPM joint venture are majority-owned and
controlled by JRM. However, the operations of McDermott-ETPM West, Inc., which
conducts operations in the North Sea, South America and West Africa, are
managed and controlled by ETPM S.A. ETPM S.A. has dedicated all of its marine
construction assets to the joint ventures with JRM, including 3 combination
derrick- pipelaying vessels and fabrication yards in Sharjah, U.A.E. and
Tchengue, Gabon. JRM currently charters 4 combination derrick-pipelaying
vessels and 1 pipelaying vessel to the joint ventures and provides the use of
its facilities in Jebel Ali and Ras-al-Khaimah in the U.A.E., Batam Island,
Indonesia and Warri, Nigeria.
JRM participates in numerous other joint ventures (including 49%-owned joint
ventures in Mexico and Malaysia) involving operations in foreign countries that
require majority-ownership by local interests. Through a subsidiary, JRM
also participates in an equally owned joint venture with the Brown & Root
Energy Services unit of Halliburton Company ("Brown & Root"), which was formed
in February 1995 to combine the operations of JRM's Inverness and Brown &
Root's Nigg fabrication facilities in Scotland. In April 1996, JRM and
Teleglobe Inc., a Canadian telecommunication company ("Teleglobe"), formed a
joint venture, McDermott Submarine Cable Systems Limited, to install and
maintain submarine fiber optic cable. JRM and Teleglobe own 79.4% and 20.6%,
respectively, of the joint venture.
The Marine Construction Services segment owns or operates 6 fabrication
facilities throughout the world. This segment's principal domestic
fabrication yard and offshore base is located on 1,114 acres of land, under
lease, near Morgan City, Louisiana. This segment also owns or operates
fabrication facilities near Corpus Christi, Texas, near Inverness, Scotland, in
Indonesia on Batam Island, in Jebel Ali, U.A.E. and in Warri, Nigeria. This
segment also operates a shipyard on approximately 58 acres of leased land near
Morgan City and a second shipyard in Vera Cruz, Mexico.
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The fabrication facilities are equipped with a wide variety of heavy-duty
construction and fabrication equipment, including cranes, welding equipment,
machine tools and robotic and other automated equipment, most of which is
movable. JRM has the capability to fabricate a full range of offshore
structures, from conventional jacket-type fixed platform to deepwater platform
configurations employing compliant-tower, tension leg, floating production
platform and spar technology. JRM also fabricates platform deck structures and
modular components, including complete production processing systems,
hydrocarbon separation and treatment systems, pressure and flow control systems
and personnel quarters.
Expiration dates, including renewal options, of leases covering land for the
shipyard and fabrication yards, follow:
<TABLE>
<S> <C>
Ras-al-Khaimah, U.A.E. Year 1996
Morgan City, Louisiana Years 2000-2033
Jebel Ali, U.A.E. Year 2005
Batam Island, Indonesia Year 2008
Warri, Nigeria Year 2065
</TABLE>
McDermott International expects to renew the lease at Ras-al-Khaimah, U.A.E.,
which is negotiated on an annual basis.
JRM owns or, through its ownership interests in joint ventures, has interest in
the largest fleet of marine equipment used in major offshore construction. The
nucleus of a "construction spread" is a large derrick barge, pipelaying barge
or combination derrick-pipelaying barge capable of offshore operations for an
extended period of time in remote locations. JRM owns or, through ownership
interests in joint ventures has interest in 12 derrick vessels, 6 pipelaying
vessels, 11 combination derrick-pipelaying vessels and 3 pipe burying vessels.
The lifting capacities of the derrick and combination derrick-pipelaying
vessels range from 250 to 13,200 tons. These vessels range in length from 400
to 660 feet and are fully equipped with stiff leg or revolving cranes,
auxiliary cranes, welding equipment, pile-driving hammers, anchor winches and a
variety of additional gear. Some of these vessels hold various records for
heavy lifts and installations of deepwater pipelines in different regions of
the world. The largest vessels are the derrick barge DB 102, which is one of
the world's largest semi submersible derrick vessels in both size and lifting
capacity and provides quarters for approximately 750 workers, and the LB 200, a
semi submersible pipelaying vessel capable of laying 60-inch diameter pipe
(including concrete coating) and operating in water depths of up to 2,000 feet.
To support the operations of these major marine construction vessels, JRM and
its joint ventures also own or lease a substantial number of other vessels,
such as tugboats, utility boats, launch barges and cargo barges. In connection
with its construction and pipelaying activities, this segment conducts diving
operations which, because of the water depths involved, require sophisticated
equipment, including diving bells and an underwater habitat.
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<PAGE> 14
The following table describes the major marine construction vessels owned and
utilized in the conduct of McDermott International's marine construction
business and their location as of March 31, 1996.
<TABLE>
<CAPTION>
Maximum Maximum
Derrick Pipe
Vessel Vessel Type Lift Diameter
------ ----------- ----- --------
(tons) (inches)
<S> <C> <C> <C>
United States
DB 16 Derrick 860 -
DB 28 Derrick/Pipelay 860 40
DB 50 Derrick 4,000 -
BB 316 Pipe Bury - -
BB 356 Pipe Bury - -
LB 30 Pipelay - 60
LB 280 Pipelay - 48
SLC 5000 Shearleg 5,000 -
Ocean Builder (1) Derrick/Pipelay 2,000 48
Mexico and South America
DB 15 Derrick/Pipelay 860 40
DB II Derrick 600 -
Europe and West Africa
DLB 1 Derrick/Pipelay 250 24
LB Pipeliner 6 Pipelay - 16
MV Norlift Pipelay - 10
MV Northern Explorer Pipe Bury - -
LB 200 Semi Submersible Pipelay - 60
Middle East
DB 27 Derrick/Pipelay 2,400 60
Far East
DB 17 Derrick/Pipelay 860 60
DB 26 Derrick/Pipelay 900 60
DLB KP1 Derrick/Pipelay 800 60
</TABLE>
(1) JRM is chartering and operating the vessel and has an option to purchase
the vessel at the end of the five-year charter term.
10
<PAGE> 15
The following table describes the major marine construction vessels owned by
McDermott International's joint venture companies and utilized in the conduct
of their marine construction business and their location as of March 31, 1996.
<TABLE>
<CAPTION>
Maximum Maximum
Derrick Pipe
Vessel Vessel Type Lift Diameter
------ ----------- ---- --------
(tons) (inches)
<S> <C> <C> <C>
United States
Balder Semi Submersible Derrick 7,000 -
Europe and West Africa
DB 101 Semi Submersible Derrick 3,500 -
DB 102 Semi Submersible Derrick 13,200 -
Far East
Hermod Semi Submersible Derrick 9,000 -
Teknik Pada Derrick/Pipelay 1,100 60
Teknik Perdana Derrick/Pipelay 750 60
Other Foreign
Huasteco Derrick/Pipelay 2,000 48
Mixteco Derrick 800 -
Olmeca II Pipelay - 48
Sara Maria Derrick 550 -
</TABLE>
Over the past several years, McDermott International has entered into certain
strategic investments in oil and gas projects in the former Soviet Union. Its
intention with respect to these investments is to establish a presence in these
markets for its marine construction services and to sell its interest in these
projects as early as practicable in the development cycle.
Accordingly, in March 1996, McDermott International sold its interest in three
Caspian Sea oil fields to Itochu Corporation, a Japanese trading company.
McDermott International's interest in these fields was 2.45% prior to the sale.
In May 1994, McDermott International formed two joint ventures that are
currently providing marine construction services, and vessel and drilling rig
maintenance and repair services to the oil and gas industry in the Caspian Sea
region.
McDermott International is a member of a consortium that has an interest in the
development of two oil and gas fields lying offshore Sakhalin Island, Russian
Federation. The consortium has received the license to develop these fields
and has notified the Russians of its intent to declare its commencement date
for project development by June 22, 1996.
11
<PAGE> 16
FOREIGN OPERATIONS
The amount of Marine Construction Services' revenues, including intersegment
revenues, and segment operating income derived from operations located outside
of the United States, and the approximate percentages of those revenues and
segment operating income to McDermott International's total revenues and total
segment operating income, respectively, follow:
<TABLE>
<CAPTION>
REVENUES SEGMENT OPERATING INCOME
FISCAL YEAR AMOUNT PERCENT AMOUNT PERCENT
(Dollars in thousands)
<S> <C> <C> <C> <C>
1996 $ 1,138,632 35% $ 43,794 74%
1995 1,021,986 34% 58,634 129%
1994 1,076,610 35% 43,382 57%
</TABLE>
Revenues and segment operating income presented above do not include the
operating results of this segment's equity investees.
RAW MATERIALS
The raw materials used by this segment, such as carbon and alloy steel in
various forms, welding gases, concrete, fuel oil and gasoline, are available
from many sources and this segment is not dependent upon any single supplier or
source. Although shortages of certain of these raw materials and fuels have
existed from time to time, no serious shortage exists at the present time.
CUSTOMERS AND COMPETITION
This segment's principal customers are oil and gas companies (including foreign
government owned companies) and shipping companies, ship owners and barge
operators and owners primarily in the U.S. inland waterways. Customers
generally contract with this segment for the design, engineering, fabrication
and installation of offshore drilling and production platforms and other
specialized structures, modular facilities, marine pipelines and subsea
production systems and onshore construction and maintenance services.
Contracts are usually awarded on a competitive bid basis.
There are a number of companies which compete effectively with McDermott
International, the HeereMac joint venture, McDermott-ETPM and McDermott
International's various other joint ventures in each of the separate marine
construction phases in various parts of the world. In shipbuilding, McDermott
International competes with shipyards from around the world including
established Korean and Japanese firms and emerging firms in Eastern Europe and
China. Ship repair, performed primarily at our Vera Cruz facility, also has
many competitors throughout the Gulf of Mexico and around the world.
12
<PAGE> 17
BACKLOG
As of March 31, 1996 and 1995, the Marine Construction Services' backlog
amounted to $1,137,597,000 and $1,343,078,000, or approximately 33% and 39%,
respectively, of McDermott International's total backlog. Of the March 31,
1996 backlog, it is expected that approximately $920,950,000 will be recognized
in revenues in fiscal year 1997, $163,159,000 in fiscal year 1998 and
$53,488,000 thereafter.
This segment's backlog at March 31, 1996, includes a contract award of
$233,614,000 to JRM's McDermott-ETPM East, Inc. joint venture by the Ras
Laffan Liquified Natural Gas Company of Qatar for the installation of offshore
power and communication cables, fabrication and installation of living quarters
and wellhead platforms, and overall project management.
Not included in backlog is a letter of award for $180,000,000 received after
March 31, 1996 from Total Myanmar Exploration and Production for the
management, engineering, supply, construction, installation, hook-up and
commissioning of two wellhead platforms; and quarters, flare and production
platform facilities for the Yadana Development Project. This is the first
offshore development in Myanmar and is expected to be completed by May 1998.
Not included in Marine Construction Services' backlog at March 31, 1996 and
1995 was backlog relating to contracts to be performed by unconsolidated joint
ventures of approximately $1,407,000,000 and $1,014,000,000, respectively.
Included in backlog to be performed by its unconsolidated joint ventures is
$230,350,000 related to a contract awarded during fiscal year 1995 by Statoil
A/S to JRM's McDermott-ETPM West, Inc. joint venture to install up to three
large diameter gas pipelines in the North Sea. Installation of the pipelines
is scheduled to start during fiscal year 1997 and continue through fiscal year
2000.
Work is performed on a fixed price, cost plus or day rate basis or combination
thereof. This segment attempts to cover increased costs of anticipated changes
in labor, material and service costs of long-term contracts either through an
estimation of such changes, which is reflected in the original price, or
through price escalation clauses. Most long-term contracts have provisions
for progress payments.
FACTORS AFFECTING DEMAND
The activity of the Marine Construction Services' segment 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. Demand for new ship
construction and inland barges is impacted by charter rates that ship and barge
owners can earn and by the age and condition of the existing fleet.
Oil company capital exploration and production budgets in calendar year 1996
are higher than 1995 expenditures. While oil prices remain flat, natural gas
prices have increased significantly as compared to calendar year 1995.
Expenditures in both domestic and international areas are expected to
increase; domestic at a higher rate. Worldwide demand for offshore drilling
13
<PAGE> 18
rigs has increased and this, historically, has been a leading indicator for an
increase in the need for marine construction services. This segment's markets
are expected to begin to emerge from the competitive environment that has put
pressure on margins in prior periods.
D. PATENTS AND LICENSES
Many U. S. and foreign patents have been issued to McDermott International and
it has many pending patent applications. Patents and licenses have been
acquired and licenses have been granted to others when advantageous to
McDermott International. While McDermott International regards its patents and
licenses to be of value, no single patent or license or group of related
patents or licenses is believed to be material in relation to its business as a
whole.
E. RESEARCH AND DEVELOPMENT ACTIVITIES
McDermott International conducts its principal research and development
activities at its research centers in Alliance, Ohio and Lynchburg, Virginia;
and also conducts development activities at its various manufacturing plants
and engineering and design offices. During the fiscal years ended March 31,
1996, 1995 and 1994, approximately $68,106,000, $64,145,000 and $69,148,000,
respectively, was spent by McDermott International on research and development
activities, of which approximately $45,106,000, $44,240,000 and $48,112,000,
respectively, was paid for by customers of McDermott International. Research
and development activities were related to development and improvement of new
and existing products and equipment and conceptual and engineering evaluation
for translation into practical applications. McDermott International's new
multi-million dollar clean environment development facility in Alliance, Ohio
was completed during fiscal year 1995. The facility was constructed in
response to present and future emission pollution standards in the U.S. and
worldwide. Approximately 300 employees were engaged full time in research and
development activities at March 31, 1996.
F. INSURANCE
McDermott International maintains liability and property insurance that it
considers normal in the industry. However, certain risks are either not
insurable or insurance is available only at rates which McDermott International
considers uneconomical. Among such risks are war and confiscation of property
in certain areas of the world, pollution liability in excess of relatively low
limits and, in recent years, asbestos liability. Depending on competitive
conditions and other factors, McDermott International endeavors to obtain
contractual protection against uninsured risks from its customers. However,
there is no assurance that insurance or contractual indemnity protection, when
obtained, will be sufficient or effective under all circumstances or against
all hazards to which McDermott International may be subject.
McDermott International's insurance policies do not insure against liability
and property damage losses resulting from nuclear accidents at reactor
facilities of its utility customers. To protect against liability for damage
to customer's property, McDermott International has obtained waivers of
subrogation from the customer and its insurer and is generally named as an
additional insured under the utility customer's nuclear property policy. To
protect against
14
<PAGE> 19
liability from claims brought by third parties, McDermott International is
insured under the utility customer's nuclear liability policies and has the
benefit of the indemnity and limitation of any applicable liability provision
of the Price-Anderson Act, as amended (the "Act"). The Act limits the public
liability of manufacturers and operators of licensed nuclear facilities and
other parties who may be liable in respect of, and indemnifies them against,
all claims in excess of an amount which is determined by the sum of
commercially available liability insurance plus certain retrospective premium
assessments payable by operators of commercial nuclear reactors. For those
sites where McDermott International provides environmental remediation
services, it seeks the same protection from its customers as it does for its
other nuclear activities.
Although McDermott International does not own or operate any nuclear reactors,
it has coverage under commercially available nuclear liability and property
insurance for four of its five facilities which are licensed to maintain
special nuclear materials. The fifth facility operates primarily as a
conventional research center. However, this facility is licensed to possess
special nuclear material and has a small and limited amount of special nuclear
material on the premises. Two of the four owned facilities are located at
McDermott International's Lynchburg, Virginia site. These facilities are
insured under a nuclear liability policy which also insures the facility of B&W
Fuel Company ("BWFC") that was sold during fiscal year 1993. All three
facilities share the same nuclear liability insurance limit as the commercial
insurer would not allow BWFC to obtain a separate nuclear liability insurance
policy. Due to the type or quantity of nuclear material present, two of the
five facilities have the benefit of the indemnity and limitation of liability
provisions of the Act, pursuant to agreements entered into with the U. S.
Government. In addition, contracts to manufacture and supply nuclear fuel or
nuclear components to the U. S. Government generally contain contractual
indemnity clauses, which become effective at the time of shipment, whereby the
U. S. Government has assumed the risks of public liability claims.
McDermott International's offshore construction business is subject to the
usual risks of operations at sea, with additional exposure due to the
utilization of expensive construction equipment, sometimes under extreme
weather conditions, often in remote areas of the world. In addition, McDermott
International operates in many cases on or in proximity to existing offshore
facilities which are subject to damage by McDermott International and such
damage could result in the escape of oil and gas into the sea.
Prior to JRM's acquisition of OPI, one of OPI's vessels was severely damaged
during a typhoon while under going final work in connection with its
refurbishment. Estimates for the repair of the vessel, together with
out-of-pocket costs, total more than $45,000,000. At the time of the casualty
loss, insurance policies had been issued insuring the vessel for its full
value. Efforts to settle the claim with underwriters, however, have been
unsuccessful, and resort to the courts may be necessary to collect the amount
claimed. Management believes that the underwriters' refusal to satisfactorily
adjust the claim is without basis and is of the opinion that the outcome of any
necessary litigation will be favorable.
15
<PAGE> 20
The insurance coverage of McDermott International for products liability and
employers' liability claims is subject to varying insurance limits which are
dependent upon the year involved. The Babcock & Wilcox Company has an
agreement with a majority of its principal insurers concerning the method of
allocation of products liability asbestos claim payments to the years of
coverage. Pursuant to the agreement, The Babcock & Wilcox Company negotiates
and settles these claims and bills these amounts to the appropriate insurers.
For financial reporting purposes, a provision has been recognized to the extent
that recovery of these amounts from McDermott International's insurers has not
been determined to be probable. 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 (see Notes 1 and 10 to the consolidated financial statements), which
may vary significantly as claims are filed and settled. Accordingly, the
ultimate loss may differ materially from the amount provided in the
consolidated financial statements.
McDermott International has two wholly owned insurance subsidiaries. To date,
these subsidiaries have written policies concerning general and automobile
liability, builders' risk within certain limits, marine hull, and workers'
compensation for McDermott International, Inc. and its subsidiaries. No
significant amounts of insurance have been written for unrelated parties.
G. EMPLOYEES
At March 31, 1996, McDermott International employed, under its direct
supervision, approximately 25,400 persons compared with 25,200 at March 31,
1995. Approximately 6,400 employees were members of labor unions at March 31,
1996 as compared with approximately 4,600 at March 31, 1995. The majority of
B&W's manufacturing facilities operate under union contracts which customarily
are renewed every two to three years. During the next twelve months, four
contracts covering approximately 300 of B&W's hourly workers will expire. B&W
expects to renew these contracts successfully, without incident. McDermott
International considers its relationship with its employees to be satisfactory.
H. ENVIRONMENTAL REGULATIONS AND MATTERS
McDermott International is subject to the existing and evolving standards
relating to the environment. These laws include the Comprehensive
Environmental Response, Compensation, and Liability Act ("CERCLA") of 1980, as
amended, and similar laws which provide for responses to and liability for
releases of hazardous substances into the environment; and the Clean Air Act,
the Clean Water Act, the Resource Conservation and Recovery Act and other
federal laws, each as amended, and similar foreign, state or local counterparts
to these federal laws, which regulate air emissions, water discharges,
hazardous substances and wastes, and require public disclosure related to the
use of various hazardous substances. McDermott International's operations are
also governed by laws and regulations
16
<PAGE> 21
relating to workplace safety and worker health, primarily the Occupational
Safety and Health Act and regulations promulgated thereunder. McDermott
International believes that its facilities are in substantial compliance with
current regulatory standards.
McDermott International's compliance with U.S. federal, state and local
environmental control and protection regulations necessitated capital
expenditures of $1,576,000 in fiscal year 1996, and it expects to spend another
$3,948,000 on such capital expenditures over the next five years. McDermott
International cannot predict all of the environmental requirements or
circumstances which will exist in the future, but it anticipates that
environmental control and protection standards will become increasingly
stringent and costly. Complying with existing environmental regulations
resulted in a charge against income before taxes of approximately $8,607,000 in
fiscal year 1996.
McDermott International has been identified as a potentially responsible party
at various cleanup sites under the CERCLA, as amended. McDermott International
has not been determined to be a major contributor of wastes to these sites.
However, each potentially responsible party or contributor may face assertions
of joint and several liability. Generally, however, a final allocation of
costs is made based on relative contribution of wastes to each site. Based on
its relative contribution of waste to each site, McDermott International's
share of the ultimate liability for the various sites is not expected to have a
material effect on McDermott International's consolidated financial position,
results of operations or liquidity in any given year.
Remediation projects have been or may be undertaken at certain of McDermott
International's current and former plant sites, and, during fiscal year 1995,
B&W completed subject to Nuclear Regulatory Commission ("NRC") certification,
the decommissioning and decontamination of its former nuclear fuel processing
plant at Apollo, Pennsylvania. All fabrication and support buildings have been
removed, and all contaminated soil has been shipped to authorized disposal
facilities. B&W expects to obtain approval from the NRC to have the site
released for unrestricted use before the end of calendar year 1996.
During fiscal year 1995, a decision was made to close certain of B&W's nuclear
manufacturing facilities, and a provision of $41,724,000 for the
decontamination, decommissioning and the closing of these facilities was
recognized. Previously, decontamination and decommissioning costs were being
accrued over the facilities' remaining expected life. Decontamination is
proceeding as permitted by the existing NRC license, while funding support is
being sought. A decommissioning plan was submitted for review and approval as
required by the NRC during January 1996. B&W expects to reach an agreement
with the NRC in fiscal 1997 on the plan that provides for the completion of
facilities dismantlement and soil restoration by the end of fiscal year 2001.
B&W expects to request approval from the NRC to release the site for
unrestricted use at that time.
The Department of Environmental Resources of the Commonwealth of Pennsylvania
("PADER"), by letter dated March 19, 1994, advised B&W that it will seek
monetary sanctions, and remedial and monitoring relief, related to B&W's Parks
Facilities in Parks Township, Armstrong County, Pennsylvania. The relief
sought relates to potential groundwater contamination related to the previous
operations of the facilities. B&W is
17
<PAGE> 22
currently negotiating with PADER and expects to reach a settlement without
having to resort to litigation. Any sanctions ultimately assessed are not
expected to have a material effect on the consolidated financial statements of
McDermott International.
McDermott International performs significant amounts of work for the U. S.
Government under both prime contracts and subcontracts and operates certain
facilities that are licensed to possess and process special nuclear materials
and thus are subject to continuing reviews by governmental agencies, including
the Environmental Protection Agency and the Nuclear Regulatory Commission.
Decommissioning regulations promulgated by the U.S. Nuclear Regulatory
Commission require B&W to provide financial assurance that it will be able to
pay the expected cost of decommissioning its facilities at the end of their
service lives. B&W will continue to provide financial assurance of
$11,788,000 during fiscal year 1997 by issuing letters of credit for the
ultimate decommissioning of all its licensed facilities, except one. This
facility, which represents the largest portion of B&W's eventual
decommissioning costs, has provisions in its government contracts pursuant to
which all of its decommissioning costs and financial assurance obligations are
covered by the U. S. Government.
Compliance with existing government regulations controlling the discharge of
materials into the environment, or otherwise relating to the protection of the
environment (including decommissioning), does not have, nor is it expected to
have, a material effect upon the consolidated financial position of McDermott
International.
18
<PAGE> 23
Item 3. LEGAL PROCEEDINGS
Due to the nature of its business, McDermott International is, from time to
time, involved in litigation. It is management's opinion that none of this
litigation will have a material adverse effect on the consolidated financial
position of McDermott International.
For a discussion of McDermott International's potential liability for
non-employee products liability asbestos claims see Item 1F and Notes 1 and 10
to the consolidated financial statements.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of the fiscal year covered by
this report to a vote of security holders, through the solicitation of proxies
or otherwise.
19
<PAGE> 24
P A R T I I
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS
International's Common Stock is traded on the New York Stock Exchange. High
and low stock prices and dividends declared for the fiscal years ended March
31, 1996 and 1995 follow:
FISCAL YEAR 1995
<TABLE>
<CAPTION>
SALES PRICE CASH
----------- DIVIDENDS
QUARTER ENDED HIGH LOW DECLARED
- ------------- ---- --- --------
<S> <C> <C> <C>
June 30, 1994 $ 25 - 7/8 $ 19 - 3/8 $0.25
September 30, 1994 27 - 1/4 24 - 1/4 0.25
December 31, 1994 26 - 1/8 23 - 1/2 0.25
March 31, 1995 29 - 1/8 23 - 3/4 0.25
</TABLE>
FISCAL YEAR 1996
<TABLE>
<CAPTION>
SALES PRICE CASH
----------- DIVIDENDS
QUARTER ENDED HIGH LOW DECLARED
- ------------- ---- --- --------
<S> <C> <C> <C>
June 30, 1995 $ 28 $ 23 - 1/4 $0.25
September 30, 1995 25 - 3/8 19 - 5/8 0.25
December 31, 1995 22 - 1/8 15 - 3/8 0.25
March 31, 1996 21 - 3/4 17 - 7/8 0.25
</TABLE>
As of March 31, 1996, the approximate number of record holders of Common Stock
was 6,294.
20
<PAGE> 25
Item 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED MARCH 31,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(In thousands, except for per share amounts)
<S> <C> <C> <C> <C> <C>
Revenues $ 3,279,106 $ 3,043,680 $ 3,059,912 $ 3,172,555 $ 3,524,482
Income from
Continuing Operations
before Extraordinary
Items and Cumulative
Effect of Accounting
Changes $ 20,625 $ 10,876 $ 89,956 $ 67,323 $ 80,537
Net Income (Loss) $ 20,625 $ 9,111 $ (10,794) $ (188,732) $ 77,169
Primary and Fully
Diluted Earnings
(Loss) Per
Common Share:
Income from
Continuing Operations
before Extraordinary
Items and Cumulative
Effect of Accounting
Changes $ 0.23 $ 0.05 $ 1.57 $ 1.29 $ 1.75
Net Income (Loss) $ 0.23 $ 0.02 $ (0.32) $ (3.63) $ 1.67
Total Assets $ 4,387,251 $ 4,751,670 $ 4,223,569 $ 3,092,963 $ 3,126,195
Long-Term Debt $ 576,256 $ 579,101 $ 667,066 $ 583,211 $ 765,053
Subsidiary's
Redeemable
Preferred Stocks 173,301 179,251 196,672 204,482 204,482
------------ ------------ ------------ ------------ ------------
Total $ 749,557 $ 758,352 $ 863,738 $ 787,693 $ 969,535
Cash Dividends Per
Common Share $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
</TABLE>
21
<PAGE> 26
See Note 2 to the consolidated financial statements regarding acquisitions in
fiscal years 1996, 1995 and 1994. See Note 1 regarding the adoption of
Statement of Financial Accounting Standards ("SFAS") No. 112 in fiscal year
1995 and Emerging Issues Task Force Issue No. 93-5 in fiscal year 1994. Fiscal
year 1993 includes the cumulative effect of the adoption of SFAS No. 106 and
SFAS No. 109. See Note 10 regarding the uncertainty as to the ultimate loss
relating to products liability asbestos claims.
In fiscal year 1996, Net Income included a gain of $34,788,000 resulting from
the sale of McDermott International's interest in three Caspian Sea oil fields,
an after tax equity income gain of $20,047,000 resulting from the sale of two
power purchase contracts, and an after tax charge of $7,840,000 due to the
write-off of an insurance receivable due to an unfavorable arbitration ruling
related to the recovery of cost incurred for corrective action in certain
utility and industrial installations. In fiscal year 1995, Income before
Cumulative Effect of Accounting Change included after tax charges of
$30,218,000 for provisions for the decontamination, decommissioning and closing
of certain nuclear manufacturing facilities and the closing of a manufacturing
facility, and $8,832,000 for the reduction of estimated products liability
asbestos claims recoveries from insurers. Also, in fiscal year 1995, after tax
income included $16,631,000 for a reduction in accrued interest expense due to
the settlement of outstanding tax issues. In fiscal years 1993 and 1992,
Income from Continuing Operations before Extraordinary Items and Cumulative
Effect of Accounting Changes included after tax gains from the sale of
McDermott International's interest in its two commercial nuclear joint ventures
of $15,667,000 and $35,436,000, respectively.
22
<PAGE> 27
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 are affected by international
factors, such as changes in foreign currency exchange rates. McDermott
International's policy 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, its practice of entering into forward exchange contracts to hedge
foreign currency transactions reduces the impact of foreign exchange rate
movements on operating results.
In general, both of McDermott International's business segments are capital
intensive businesses that rely on large contracts for a substantial amount of
the revenues.
The performance of the Power Generation Systems and Equipment segment is
largely a function of capital spending in the electric power generation
industry and U. S. Government spending, especially for nuclear fuel assemblies
and reactor components for the U.S. Navy. This segment's recent business
activities have been characterized by significant demand for large, new
baseload generating units for electric utilities in Asia and the Middle East
and reactively weaker markets in the United States and Europe.
The performance of the Marine Construction Services segment is a function of
the level of oil and gas development activity in the world's major hydrocarbon
producing regions. As a result, this segment's revenues and profitability
reflect some variability associated with the timing of the completion of
significant development projects and the commencement of others as to which it
has contracts, as well as the worldwide volume of projects and their geographic
distribution. This segment's recent operating results have been adversely
impacted by a substantial decline in the number of projects generating demand
for marine construction services in the Southeast Asia market. McDermott
International believes this decline is only temporary and is largely due to
project timing. This decline has had an adverse effect on other markets as a
result of the migration of equipment and other resources previously allocated
to the Southeast Asia market to other markets and the resultant pressure on
pricing in those markets caused by the increased capacity. Based on its
ongoing dialogue with existing customers with respect to possible future
projects, McDermott International expects improvements in certain of its
significant markets, including Southeast Asia and the Gulf of Mexico.
McDermott International believes that some level of improvement in market
activity is reflected in an increase in the backlog relating to contracts to be
performed by its unconsolidated joint ventures from $1,014,000,000 at March 31,
1995 to $1,407,000,000 at March 31, 1996. Notwithstanding these signs of
improvement, McDermott International cannot at this time, predict the timing or
extent of any improvement in the industry or the future level of demand for the
services of this segment.
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<PAGE> 28
The foregoing statements regarding McDermott International's markets and the
other statements in this discussion are forward-looking statements. These
forward-looking statements are subject to numerous risks and uncertainties,
including, among others, the uncertainties relating to the development of
electric generating units and offshore development decisions to be made by oil
and gas exploration and development companies.
FISCAL YEAR 1996 VS FISCAL YEAR 1995
Power Generation Systems and Equipment's revenues increased $45,331,000 to
$1,708,566,000. This was primarily due to higher revenues from engineering,
procurement and construction of cogeneration plants, from defense and
space-related products (other than nuclear fuel assemblies and reactor
components), replacement nuclear steam generators for domestic customers
manufactured at B&W's Cambridge, Ontario location and fabrication of industrial
boilers. These increases were partially offset by lower revenues from repair
and alteration of existing fossil fuel steam systems, fabrication and erection
of fossil fuel steam and environmental control systems and nuclear fuel
assemblies and reactor components for the U. S. Government.
Power Generation Systems and Equipment's segment operating income increased
$7,139,000 to $20,579,000 due to provisions of $46,489,000 for the
decontamination, decommissioning and closing of certain nuclear manufacturing
facilities and the closing of a manufacturing facility in the prior year. In
addition, there were higher volume and margins from replacement nuclear steam
generators, improved margins from fabrication of fossil fuel steam and
environmental control systems (including a license buyout agreement of
$8,574,000) and higher volume from defense and space-related products (other
than nuclear fuel assemblies and reactor components). These increases were
offset by the write-off of an insurance claim of $12,600,000 due to an
unfavorable arbitration ruling related to the recovery of cost incurred for
corrective action in certain utility and industrial installations. There were
also lower margins from engineering, procurement and construction of
cogeneration plants. In addition, there were lower volume and margins from the
repair and alteration of existing fossil fuel steam systems and industrial
boilers, plant enhancement projects and from operations and maintenance
contracts.
Power Generation Systems and Equipment's equity in income of investees
increased $28,125,000 to $36,489,000. This represents the results of
approximately 16 active joint ventures, but is primarily due to a nonrecurring
equity income gain of $30,612,000 resulting from the sale of power purchase
contracts back to a local utility.
Backlog for this segment at March 31, 1996 was $2,261,799,000 compared to
$2,130,754,000 at March 31, 1995. At March 31, 1996, this segment's backlog
with the U.S. Government was $816,783,000 (of which $57,988,000 had not been
funded) and includes orders for nuclear fuel assemblies and reactor components
for the U.S. Navy. These orders are expected to continue to comprise a
substantial portion of backlog with the U.S. Government as B&W is the sole
source provider of these nuclear fuel assemblies, and supplies assemblies due
to reload requirements.
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This segment's foreign markets for industrial and utility boilers remain strong
as electric utilities in Asia and the Middle East are active purchasers of
large, new baseload generating units, due to the rapid growth of their
economies and to the small existing stock of electrical generating capacity in
most developing countries.
Domestic utility markets remain weak as competition within 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. The modest growth in demand and the changes associated
with this transition from a regulated to a competitive industry have caused
electric utilities to defer ordering of large, new baseload power plants in the
United States and when electric utilities are in need of peaking capacity, many
are purchasing combustion turbines with short lead-times or they are purchasing
electricity from other utilities and non-regulated sources, such as
cogenerators and independent power producers. In addition, the Clean Air Act
amendments of 1990 required many customer industries to implement systems to
limit or remove emissions. These mandated expenditures have caused some
customers to defer repairs and refurbishments on existing plants. However, the
U.S. market for replacement nuclear steam generators is expected to continue
to make significant contributions to operating income in the foreseeable
future, although at lower levels than in recent years.
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 (see Notes 1 and 10 to the consolidated financial
statements and the discussion of 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.
Marine Construction Services' revenues increased $199,399,000 to
$1,590,318,000, primarily due to higher purchased engineered equipment and
subcontract activities in the North Sea related to the B.P. Exploration
Foinaven Development program west of the Shetlands in the North Atlantic and
revenues resulting from the acquisition of OPI. There were higher revenues on
marine and engineering activities in North America, and the sale of an interest
in three Caspian Sea oil fields. These increases were partially offset by lower
revenues in the Far East and domestic shipyard operations.
Marine Construction Services' segment operating income increased $6,258,000 to
$38,447,000. Excluding the gain of $34,788,000 from the sale of an interest in
three Caspian Sea oilfields, segment operating income decreased $28,530,000 due
to higher amortization expense relating to goodwill and other intangibles
resulting from the acquisition of OPI on January 31, 1995. There were lower
margins due to the completion of higher profit margin contracts in the Far East
and the Middle East during fiscal 1995, lower volume in the Far East this year,
and lower operating income in North America on offshore activities because of
weather downtime and lower margins on certain contracts. This decrease was
partially offset by a favorable insurance adjustment of $12,000,000, higher
volume and margins in North America on fabrication activities, and higher
margins on shipyard operations. During fiscal year 1995, there were also
operating losses
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associated with the fabrication yard in Scotland and accelerated depreciation
of $4,314,000 on certain marine equipment in the Far East.
Marine Construction Services' equity in income of investees decreased
$13,539,000 to $11,949,000. This decrease was primarily due to lower results
from both the HeereMac and McDermott-ETPM West, Inc. joint ventures. The
revenues of these two joint ventures declined from $656,490,000 to
$542,772,000, primarily in the Gulf of Mexico, the Far East and the North Sea,
partially offset by increased volume in West Africa. The equity income from
these two joint ventures declined from $24,759,000 to $3,616,000 as a result of
reduced volume and margins in the North Sea. Together these two investees
accounted for 30% of equity in earnings of investees. While both joint
ventures performed at low levels during fiscal 1996, worldwide demand for
offshore drilling rigs has increased and has resulted in an increase in these
joint ventures' backlog. The decrease was partially offset by higher operating
activity from the Brown and Root McDermott Fabricators Limited joint venture
which was formed in the last quarter of the prior year.
Backlog for this segment at March 31, 1996 and 1995 was $1,137,597,000 and
$1,343,078,000, respectively. Not included in backlog at March 31, 1996 and
1995 was backlog relating to contracts to be performed by unconsolidated joint
ventures of approximately $1,407,000,000 and $1,014,000,000, 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. Demand for new ship construction and inland barges is impacted by
charter rates that ship and barge owners can earn and by the age and condition
of the existing fleet.
Oil company capital exploration and production budgets in calendar year 1996
are higher than 1995 expenditures. While oil prices remain flat, natural gas
prices have increased significantly as compared to calendar year 1995.
Expenditures in both domestic and international areas are expected to increase;
domestic at a higher rate. Worldwide demand for offshore drilling rigs has
increased and this, historically, has been a leading indicator for an increase
in the need for marine construction services. This segment's markets are
expected to begin to emerge from the competitive environment that has put
pressure on margins in prior periods.
Interest income decreased $15,502,000 to $37,238,000 primarily due to decreases
in investments in government obligations and other investments in the current
year and income recognized in the prior year on a receivable from an equity
investee and settlement of claims for interest relating to foreign tax refunds
and contract claims.
Interest expense increased $27,197,000 to $84,312,000, primarily due to a
reduction in accrued interest of $26,300,000 on proposed tax deficiencies that
was recorded in the prior year.
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Minority interest expense decreased $2,137,000 to $10,030,000 primarily due to
minority shareholder participation in the increased losses of the
McDermott-ETPM East joint venture in the current year which was partially
offset by participation in losses in the prior year of DCC.
Other-net increased $37,790,000 from expense of $33,291,000 to income of
$4,499,000. This increase was primarily due to a loss related to the reduction
of estimated products liability asbestos claim recoveries of $14,478,000 from
insurers and a provision for the settlement of a lawsuit, both in the prior
year, and gains in the current year of $9,115,000 on the disposal of assets.
The provision for income taxes increased $21,122,000 from a benefit of
$20,043,000 to a provision of $1,079,000, while income before income taxes and
cumulative effect of accounting change increased $30,871,000 from a loss of
$9,167,000 to income of $21,704,000. The increase in income taxes is primarily
due to an increase in income from operations partially offset by a reappraisal
of $5,600,000 of liabilities in certain foreign tax jurisdictions. 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 provision for income taxes was 5%
of pretax income in fiscal year 1996 compared to a benefit from income taxes of
219% of pretax loss in fiscal year 1995.
Net Income increased $11,514,000 to $20,625,000 reflecting the cumulative
effect of the adoption of SFAS No. 112, in addition to the other items
mentioned above.
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
$28,365,000 to $13,440,000 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
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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 each of which is relatively small.
The decrease was primarily due to a discontinued domestic venture which engaged
in simulation training and lower operating results from its Chinese venture
engaged in boiler manufacturing.
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 OPI ($44,439,000) on January 31, 1995 and
Northern Ocean Services ("NOS") ($59,644,000 for the full fiscal year) in
February 1994 and higher volume in foreign fabrication and procured materials.
Marine Construction Services' segment operating income increased slightly to
$32,189,000 from $34,174,000 (including $4,993,000 from OPI) 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 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.
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.
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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 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.
Net Income 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 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.
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 1996, McDermott International's cash and cash equivalents
increased $152,754,000 to $238,663,000 and total debt decreased $176,173,000 to
$810,514,000. This included McDermott International's repayment of its 10.25%
Notes of $150,000,000 on June 1, 1995. During this period, McDermott
International used cash of $174,331,000 for repayment of long-term debt;
$165,836,000 in operating activities; $85,838,000 for additions to property,
plant and equipment; $62,411,000 for dividends on International's common and
preferred stocks; $29,620,000 for the conversion of a barge to a floating
production unit; $23,364,000 for investments in equity investees; $23,260,000
for acquisitions; and $5,743,000 for the repurchase of a
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subsidiary's preferred stock to satisfy current and future sinking fund
requirements. Also during this period, McDermott International received cash
of $478,343,000 from the liquidation of its investment portfolio; $165,060,000
from the proceeds of asset sales; $30,000,000 as a deposit on the sale of
certain marine equipment and $46,497,000 from the return of capital from its
equity investees.
The decrease in accounts payable relates primarily to the Britoil contract for
the Atlantic Frontier Programme Development of Foinaven Phase One Facility
("Foinaven"). Increases in Net contracts in progress and advance billings were
primarily due to the timing of billings on the Foinaven contracts and Canadian
activities.
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 increased during the second
half of fiscal year 1995 and the first nine months of fiscal year 1996, but
have decreased during the March quarter. Management believes, based on
information currently available, that the recent increase represented 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 $5,500 per claim over the
last three years) has continued to rise. Claims paid in fiscal year 1996 were
$151,961,000, of which $135,778,000 has been recovered or is due from insurers.
At March 31, 1996, receivables of $63,223,000 were due from insurers for
reimbursement of settled claims including $21,050,000 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 reimburse B&W for all amounts billed to date
and 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.
McDermott International's expenditures for property, plant and equipment
decreased $5,341,000 to $85,838,000 in fiscal year 1996. While the majority of
these expenditures were incurred to maintain and replace existing facilities
and equipment, $8,669,000 was expended for the installation of a new pipe reel
system on a marine barge. In addition to expenditures for property, plant and
equipment, McDermott International expended $29,620,000 for the conversion of a
barge to a floating production unit which is now
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leased to a third party. The barge conversion is financed by $21,700,000 in
loan facilities, of which $21,139,000 was outstanding at March 31, 1996.
McDermott International has committed to make capital expenditures of
approximately $43,689,000 during fiscal 1997.
At March 31, 1996 and 1995, The Babcock & Wilcox Company had sold, with limited
recourse, an undivided interest in a designated pool of qualified accounts
receivable of approximately $107,000,000 and $175,000,000, respectively, under
an agreement with a U.S. bank. During fiscal year 1996 the maximum sales limit
available under the agreement was reduced from $225,000,000 to $140,000,000 and
the agreement was amended to provide for an annual renewal of the program.
At March 31, 1996 and 1995, International and its subsidiaries had available
to them various uncommitted short-term lines of credit from banks totaling
$439,610,000 and $373,867,000, respectively. Borrowings against these lines of
credit at March 31, 1996 and 1995 were $149,067,000 and $63,025,000,
respectively. In addition, The Babcock & Wilcox Company had available to it an
unsecured and committed revolving credit facility which was amended during
fiscal year 1996 to increase the commitment to $150,000,000 and to extend the
agreement to March 31, 1999. 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. There were borrowings of $50,000,000
against this facility at March 31, 1996 and none at March 31, 1995. JRM also
had available a $150,000,000 unsecured and committed revolving credit facility
on which no borrowings were outstanding at March 31, 1996. 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 March 31, 1996,
approximately $13,000,000 of JRM's net assets were not subject to this
restriction.
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. The fair value of short-term investments
and the long-term portfolio at March 31, 1996 was $244,103,000. At March 31,
1996, approximately $125,361,000 fair value of these obligations were pledged
to secure a letter of credit in connection with a long-term loan and certain
reinsurance agreements.
During March 1996, JRM sold the vessels DB101 and DB102 (previously leased to
the joint venture) to the HeereMac joint venture for $240,969,000, including
$30,000,000 as a deposit in advance of the sale of certain marine equipment.
Consideration received included cash of $135,969,000 and a promissory note of
$105,000,000 bearing interest at a rate of 7.75%. The cash portion of the
purchase price was funded in part through a $200,000,000 stand-alone credit
arrangement obtained by the HeereMac joint venture. Proceeds from the sale
were used to repay JRM's Floating Rate Note to McDermott International and to
repay other indebtedness of approximately $72,000,000. The remaining proceeds
were invested in cash equivalents. As a result of the sale, JRM recorded a
deferred gain of $103,239,000, which it is amortizing over 12 years.
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Also during March 1996, McDermott International sold its interest in three
Caspian Sea oil fields to Itochu Corporation, a Japanese trading company, and
recognized a gain of $34,788,000. The proceeds from the sale were used to
repay outstanding short-term indebtedness.
Working capital increased $372,776,000 to $331,986,000 at March 31, 1996 from a
deficit of $40,790,000 at March 31, 1995. This increase reflects the liquidation
of approximately $348,000,000 of the long-term investment portfolio to repay
short-term debt and the 10.25% Notes due June 1, 1995, and cash received from
the vessel sales described above. During 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.
McDermott International's financial strategy is to rebuild its investment
portfolio and maintain a level of cash and investments equal to or greater than
its total debt. It intends to achieve this balance from improved operating
performance and the disposition of unused, surplus and non-strategic assets
which have been identified and placed in a program for their disposal. JRM is
also considering the issuance of public debt, the proceeds of which, in part,
would be used to repay its intercompany note payable of $231,000,000 which was
issued to International in consideration for the contribution of International's
marine construction services businesses to JRM in the merger with OPI.
International intends to reduce any short-term borrowings outstanding, and to
invest any remaining funds from the settlement in its investment portfolio.
JRM's joint ventures are largely financed through their own resources,
including, in some cases, stand-alone borrowing arrangements. Historically,
JRM has obtained funds from its joint ventures through chartering arrangements,
whereby JRM charters vessels to the joint ventures for use in their operations,
as well as through distributions from the joint ventures. While JRM and the
other parties to the joint venture arrangements generally must agree on the
amount of cash flow to be distributed, the joint ventures have historically
distributed to their respective owners cash in excess of estimated working
capital requirements, based on the owners' relative ownership percentages.
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 1996 and 1995. During fiscal year
1996, 458,382 shares of Series B Preferred Stock were converted into 1,065,193
shares of common stock and the remaining 250 shares were redeemed for cash.
Prior to its redemption during fiscal 1996, JRM paid $511,000 on its Series B
Preferred Stock.
At March 31, 1996, the ratio of long-term debt to total stockholders' equity
was 0.84 as compared with 0.81 at March 31, 1995.
McDermott International has provided a valuation allowance ($30,889,000 at
March 31, 1996) 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 at March 31, 1996 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 the 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
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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.
New Accounting Standards
In March 1995, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," effective for fiscal years beginning after December
15, 1995. SFAS No. 121 requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. SFAS No. 121 also applies
to similar assets that are held for disposal, except for the assets of a
discontinued operation. 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.
In October 1995, the FASB issued 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 not yet
finalized its review of the provisions of this statement, and accordingly, has
not yet determined whether it will adopt SFAS No. 123 for expense recognition
purposes, or continue to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and make the pro forma information
disclosures required under the new method.
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Item 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
COMPANY REPORT ON CONSOLIDATED FINANCIAL STATEMENTS
International has prepared the consolidated financial statements and related
financial information included in this report. International has the primary
responsibility for the financial statements and other financial information and
for ascertaining that the data fairly reflects the financial position and
results of operations of McDermott International. The financial statements
were prepared in accordance with generally accepted accounting principles, and
necessarily reflect informed estimates and judgments by appropriate officers of
McDermott International with appropriate consideration given to materiality.
McDermott International believes that it maintains an internal control
structure designed to provide reasonable assurance that assets are safeguarded
against loss or unauthorized use and that the financial records are adequate
and can be relied upon to produce financial statements in accordance with
generally accepted accounting principles. The concept of reasonable assurance
is based on the recognition that the cost of an internal control structure must
not exceed the related benefits. Although internal control procedures are
designed to achieve these objectives, it must be recognized that errors or
irregularities may nevertheless occur. McDermott International seeks to assure
the objectivity and integrity of its accounts by its selection of qualified
personnel, by organizational arrangements that provide an appropriate division
of responsibility and by the establishment and communication of sound business
policies and procedures throughout the organization. McDermott International
believes that its internal control structure provides reasonable assurance that
errors or irregularities that could be material to the financial statements are
prevented or would be detected.
McDermott International's accompanying consolidated financial statements have
been audited by its independent auditors, who provide McDermott International
with expert advice on the application of U. S. generally accepted accounting
principles to McDermott International's business and also provide an objective
assessment of the degree to which McDermott International meets its
responsibility for the fairness of financial reporting. They regularly
evaluate the internal control structure and perform such tests and other
procedures as they deem necessary to reach and express an opinion on the
fairness of the financial statements. The report of the independent auditors
appears elsewhere herein.
The Board of Directors pursues its responsibility for McDermott International's
consolidated financial statements through its Audit Committee, which is
composed solely of directors who are not officers or employees of McDermott
International. The Audit Committee meets periodically with the independent
auditors and management to review matters relating to the quality of financial
reporting and internal control structure and the nature, extent and results of
the audit effort. In addition, the Audit Committee is responsible for
recommending the engagement of independent auditors for McDermott International
to the Board of Directors, who in turn submit the engagement to the
stockholders for their approval. The independent auditors have free access to
the Audit Committee.
May 15, 1996
34
<PAGE> 39
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
McDermott International, Inc.
We have audited the accompanying consolidated balance sheet of McDermott
International, Inc. as of March 31, 1996 and 1995, and the related consolidated
statements of income (loss), stockholders' equity and cash flows for each of
the three years in the period ended March 31, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of McDermott
International, Inc. at March 31, 1996 and 1995, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended March 31, 1996, in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the consolidated financial statements, the Company
changed its methods of accounting for postemployment benefits and investment
securities in 1995 and recoveries of products liability claims in 1994.
ERNST & YOUNG LLP
New Orleans, Louisiana
May 15, 1996
35
<PAGE> 40
McDERMOTT INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEET
MARCH 31, 1996 and 1995
ASSETS
<TABLE>
<CAPTION>
1996 1995
--------------- --------------
(In thousands)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 238,663 $ 85,909
Short-term investments 2,077 132,691
Accounts receivable - trade 457,049 475,861
Accounts and note receivable - unconsolidated affiliates 57,691 75,709
Accounts receivable - other 162,335 104,155
Insurance recoverable - current 116,280 111,188
Contracts in progress 457,265 279,016
Inventories 77,592 64,044
Deferred income taxes 93,104 76,863
Other current assets 62,482 45,131
- -------------------------------------------------------------------------------------------------------------
Total Current Assets 1,724,538 1,450,567
- -------------------------------------------------------------------------------------------------------------
Property, Plant and Equipment, at Cost:
Land 34,097 37,528
Buildings 240,393 257,228
Machinery and equipment 1,575,530 1,886,268
Property under construction 40,083 55,994
- -------------------------------------------------------------------------------------------------------------
1,890,103 2,237,018
Less accumulated depreciation 1,199,416 1,337,341
- -------------------------------------------------------------------------------------------------------------
Net Property, Plant and Equipment 690,687 899,677
- -------------------------------------------------------------------------------------------------------------
Investments:
Government obligations 132,674 383,023
Other investments 109,352 199,379
- -------------------------------------------------------------------------------------------------------------
Total Investments 242,026 582,402
- -------------------------------------------------------------------------------------------------------------
Insurance Recoverable 606,963 750,219
- -------------------------------------------------------------------------------------------------------------
Excess of Cost Over Fair Value of Net Assets of
Purchased Businesses Less Accumulated Amortization
of $126,882,000 at March 31, 1996
and $96,405,000 at March 31, 1995 460,058 381,491
- -------------------------------------------------------------------------------------------------------------
Prepaid Pension Costs 283,656 277,814
- -------------------------------------------------------------------------------------------------------------
Other Assets 379,323 409,500
- -------------------------------------------------------------------------------------------------------------
TOTAL $ 4,387,251 $ 4,751,670
=============================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
36
<PAGE> 41
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1996 1995
--------------- --------------
(In thousands)
<S> <C> <C>
Current Liabilities:
Notes payable and current
maturities of long-term debt $ 234,258 $ 407,586
Accounts payable 264,930 286,219
Environmental and products liabilities - current 161,062 133,280
Accrued employee benefits 98,159 104,883
Accrued liabilities - other 410,103 326,688
Advance billings on contracts 187,378 180,018
U.S. and foreign income taxes 36,662 52,683
- -------------------------------------------------------------------------------------------------------------
Total Current Liabilities 1,392,552 1,491,357
- -------------------------------------------------------------------------------------------------------------
Long-Term Debt 576,256 579,101
- -------------------------------------------------------------------------------------------------------------
Accumulated Postretirement Benefit Obligation 401,321 393,744
- -------------------------------------------------------------------------------------------------------------
Environmental and Products Liabilities 721,740 913,939
- -------------------------------------------------------------------------------------------------------------
Other Liabilities 268,975 310,989
- -------------------------------------------------------------------------------------------------------------
Contingencies
- -------------------------------------------------------------------------------------------------------------
Minority Interest:
Subsidiary's redeemable preferred stocks 173,301 179,251
Other minority interest 168,586 172,710
- -------------------------------------------------------------------------------------------------------------
Total Minority Interest 341,887 351,961
- -------------------------------------------------------------------------------------------------------------
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
54,435,823 at March 31, 1996 and
53,959,597 at March 31, 1995 54,436 53,960
Capital in excess of par value 949,022 936,134
Deficit (290,968) (249,061)
Minimum pension liability (1,428) (391)
Net unrealized loss on investments (1,875) (8,050)
Currency translation adjustments (27,542) (24,888)
- -------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 684,520 710,579
- -------------------------------------------------------------------------------------------------------------
TOTAL $ 4,387,251 $ 4,751,670
=============================================================================================================
</TABLE>
37
<PAGE> 42
McDERMOTT INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF INCOME (LOSS)
FOR THE THREE FISCAL YEARS ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
1996 1995 1994
---------------- ---------------- ----------------
(In thousands)
<S> <C> <C> <C>
Revenues $ 3,279,106 $ 3,043,680 $ 3,059,912
- ------------------------------------------------------------------------------------------------------------------
Costs and Expenses:
Cost of operations (excluding
depreciation and amortization) 2,838,588 2,645,232 2,657,712
Depreciation and amortization 139,875 115,558 99,393
Selling, general and
administrative expenses 274,772 276,076 262,873
- ------------------------------------------------------------------------------------------------------------------
3,253,235 3,036,866 3,019,978
- ------------------------------------------------------------------------------------------------------------------
Operating Income before Equity
in Income of Investees 25,871 6,814 39,934
Equity in Income of Investees 48,438 33,852 119,860
- ------------------------------------------------------------------------------------------------------------------
Operating Income 74,309 40,666 159,794
- ------------------------------------------------------------------------------------------------------------------
Other Income (Expense):
Interest income 37,238 52,740 38,751
Interest expense (84,312) (57,115) (63,975)
Minority interest (10,030) (12,167) (15,251)
Other-net 4,499 (33,291) (4,365)
- ------------------------------------------------------------------------------------------------------------------
(52,605) (49,833) (44,840)
- ------------------------------------------------------------------------------------------------------------------
Income (Loss) before Provision for (Benefit from)
Income Taxes and Cumulative Effect
of Accounting Changes 21,704 (9,167) 114,954
Provision for (Benefit from) Income Taxes 1,079 (20,043) 24,998
- ------------------------------------------------------------------------------------------------------------------
Income before Cumulative Effect of
Accounting Changes 20,625 10,876 89,956
Cumulative Effect of Accounting Changes - (1,765) (100,750)
- ------------------------------------------------------------------------------------------------------------------
Net Income (Loss) $ 20,625 $ 9,111 $ (10,794)
==================================================================================================================
Net Income (Loss) Applicable to
Common Stock (after Preferred
Stock Dividends) $ 12,359 $ 845 $ (16,878)
==================================================================================================================
</TABLE>
38
<PAGE> 43
CONTINUED
<TABLE>
<CAPTION>
1996 1995 1994
---------------- ---------------- --------------
<S> <C> <C> <C>
EARNINGS (LOSS) PER COMMON AND
COMMON EQUIVALENT SHARE:
Primary and Fully Diluted:
Income before cumulative
effect of accounting
changes $ 0.23 $ 0.05 $ 1.57
Accounting changes - (0.03) (1.89)
-------------------------------------------------------------------------------------------------
Net income (loss) $ 0.23 $ 0.02 $ (0.32)
=================================================================================================
CASH DIVIDENDS:
Per common share $ 1.00 $ 1.00 $ 1.00
Per preferred share $ 2.88 $ 2.88 $ 2.12
- ------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
39
<PAGE> 44
McDERMOTT INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE FISCAL YEARS ENDED MARCH 31, 1996
(In thousands, except for share amounts)
<TABLE>
<CAPTION>
Preferred Stock
Series C Common Stock
------------------------- -------------------------------
Shares Par Value Shares Par Value
--------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Balance March 31, 1993 - $ - 52,211,961 $ 52,212
- ----------------------------------------------------------------------------------------------------------------
Net loss - - - -
Minimum pension liability - - - -
Translation adjustments - - - -
Common stock dividends - - - -
Preferred stock dividends - - - -
Preferred shares issued 2,875,000 2,875 - -
Exercise of stock options - - 783,285 783
Restricted stock purchases - net - - 148,830 149
Contributions to thrift plan - - 300,391 300
Deferred career executive
stock plan expense - - - -
- ----------------------------------------------------------------------------------------------------------------
Balance March 31, 1994 2,875,000 2,875 53,444,467 53,444
- ----------------------------------------------------------------------------------------------------------------
Adoption of SFAS 115 - - - -
Net income - - - -
Minimum pension liability
Loss on investments - - - -
Translation adjustments - - - -
Common stock dividends - - - -
Preferred stock dividends - - - -
Acquisition of OPI by JRM - - - -
Exercise of JRM stock options - - - -
Exercise of stock options - - 147,217 148
Tax benefit on exercise of
stock options - - - -
Restricted stock purchases - net - - 55,030 55
Redemption of preferred shares - - - -
Contributions to thrift plan - - 312,883 313
Deferred career executive
stock plan expense - - - -
- ----------------------------------------------------------------------------------------------------------------
Balance March 31, 1995 2,875,000 2,875 53,959,597 53,960
- ----------------------------------------------------------------------------------------------------------------
Net income - - - -
Minimum pension liability - - - -
Gain on investments - - - -
Translation adjustments - - - -
Common stock dividends - - - -
Preferred stock dividends - - - -
JRM equity transactions - - - -
Exercise of stock options - - 76,005 76
Restricted stock purchases - net - - 99,270 99
Redemption of preferred shares - - - -
Contributions to thrift plan - - 300,951 301
Deferred career executive
stock plan expense - - - -
- ----------------------------------------------------------------------------------------------------------------
Balance March 31, 1996 2,875,000 $ 2,875 54,435,823 $ 54,436
================================================================================================================
</TABLE>
See accompanying notes to the consolidated financial statements.
40
<PAGE> 45
<TABLE>
<CAPTION>
Capital Retained Minimum Unrealized Currency Total
in Excess Earnings Pension Loss on Translation Stockholders'
of Par Value (Deficit) Liability Investments Adjustment Equity
------------ --------- --------- ----------- ---------- ------
<S> <C> <C> <C> <C> <C>
$ 568,329 $ (126,264) $ (74) $ - $ (33,785) $ 460,418
---------------------------------------------------------------------------------------------------------
- (10,794) - - - (10,794)
- - (857) - - (857)
- - - - (14,116) (14,116)
- (53,074) - - - (53,074)
- (6,084) - - - (6,084)
137,191 - - - - 140,066
15,509 - - - - 16,292
- - - - - 149
7,684 - - - - 7,984
2,274 - - - - 2,274
---------------------------------------------------------------------------------------------------------
730,987 (196,216) (931) - (47,901) 542,258
---------------------------------------------------------------------------------------------------------
- - - (4,095) - (4,095)
- 9,111 - - - 9,111
- - 540 - - 540
- - - (3,955) - (3,955)
- - - - 15,597 15,597
- (53,690) - - - (53,690)
- (8,266) - - - (8,266)
189,793 - - - 7,416 197,209
(151) - - - - (151)
2,991 - - - - 3,139
2,642 - - - - 2,642
- - - - - 55
239 - - - - 239
7,400 - - - - 7,713
2,233 - - - - 2,233
---------------------------------------------------------------------------------------------------------
936,134 (249,061) (391) (8,050) (24,888) 710,579
---------------------------------------------------------------------------------------------------------
- 20,625 - - - 20,625
- - (1,037) - - (1,037)
- - - 6,175 - 6,175
- - - - (2,654) (2,654)
- (54,266) - - - (54,266)
- (8,266) - - - (8,266)
2,382 - - - - 2,382
1,935 - - - - 2,011
(308) - - - - (209)
206 - - - - 206
6,046 - - - - 6,347
2,627 - - - - 2,627
---------------------------------------------------------------------------------------------------------
$ 949,022 $ (290,968) $ (1,428) $ (1,875) $ (27,542) $ 684,520
=========================================================================================================
</TABLE>
41
<PAGE> 46
McDERMOTT INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE FISCAL YEARS ENDED MARCH 31, 1996
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ 20,625 $ 9,111 $ (10,794)
- -----------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization 139,875 115,558 99,393
Equity in income of investees
less dividends (5,963) 42,629 (54,646)
Gain on sale and disposal of assets (9,115) (1,874) (4,369)
Provision for (benefit from) deferred taxes 9,121 (3,896) 3,875
Cumulative effect of accounting changes - 1,765 100,750
Other (8,786) 1,954 9,724
Changes in assets and liabilities, net of effects
from acquisitions:
Accounts receivable (16,613) 1,688 134,517
Accounts payable (43,187) (34,637) (34,944)
Inventories (11,638) 5,000 1,768
Net contracts in progress and advance
billings (164,805) (37,891) 54,768
Income taxes (32,957) (38,277) (37,118)
Accrued liabilities 28,774 (32,243) (92,349)
Other, net (26,687) (20,609) 60,813
Proceeds from insurance for products liabilities claims 107,481 105,314 103,994
Payments of products liabilities claims (151,961) (126,151) (112,271)
- -----------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (165,836) (12,559) 223,111
- -----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions (23,260) 10,828 (85,894)
Purchases of property, plant and
equipment (85,838) (91,179) (76,321)
Investment in asset held for lease (29,620) (6,711) -
Purchases of short-term investments,
government obligations and
other investments (413,912) (520,007) (794,234)
Sales and maturities of short-term investments,
government obligations and
other investments 892,255 512,786 746,514
Proceeds from sale and disposal of assets 165,060 22,430 6,539
Deposit in advance of sale of certain equipment 30,000 - -
Investments in equity investees (23,364) (26,156) (1,108)
Returns of capital from equity investees 46,497 - -
Other - - (4,287)
- -----------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 557,818 (98,009) (208,791)
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
42
<PAGE> 47
CONTINUED
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of long-term debt $ (174,331) $ (35,553) $ (222,646)
Issuance of long-term debt 34,506 3,482 92,841
Increase (decrease) in short-term
borrowing (31,488) 167,987 16,639
Issuance of common stock 1,802 3,194 16,441
Issuance of preferred stock - - 140,066
Dividends paid (62,411) (61,827) (56,773)
Repurchase of subsidiary's preferred stock (5,743) (17,185) (3,587)
Other (2,071) 1,747 (950)
- -------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (239,736) 61,845 (17,969)
- -------------------------------------------------------------------------------------------------------------
EFFECTS OF EXCHANGE RATE CHANGES
ON CASH 508 823 (2,064)
- -------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 152,754 (47,900) (5,713)
- -------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 85,909 133,809 139,522
- -------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END
OF YEAR $ 238,663 $ 85,909 $ 133,809
=============================================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amount capitalized) $ 88,640 $ 76,519 $ 72,159
Income taxes (net of refunds) $ 36,738 $ 10,664 $ 18,726
- -------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
43
<PAGE> 48
McDERMOTT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE FISCAL YEARS ENDED MARCH 31, 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements are presented in U.S. Dollars in
accordance with accounting principles generally accepted in the United States.
The consolidated financial statements include the accounts of McDermott
International, Inc. and all subsidiaries and controlled joint ventures.
Investments in joint venture and other entities which McDermott International,
Inc. does not control but has significant influence are accounted for on the
equity method. Differences between the cost of equity method investments and
the amount of underlying equity in net assets of the investees are amortized
systematically to income. All significant intercompany transactions and
accounts have been eliminated. Certain amounts previously reported have been
reclassified to conform with the presentation at March 31, 1996.
Unless the context otherwise requires, hereinafter "International" will be used
to mean McDermott International, Inc., a Panamanian corporation; "JRM" will be
used to mean J. Ray McDermott, S.A., a Panamanian corporation, which is a
majority owned subsidiary of International, and its consolidated subsidiaries;
and the "Delaware Company" will be used to mean McDermott Incorporated, a
Delaware corporation which is a subsidiary of International, and its
consolidated subsidiaries (including Babcock & Wilcox Investment Company and
its principal subsidiary, The Babcock & Wilcox Company); and "McDermott
International" will be used to mean the consolidated enterprise.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
Changes in Accounting Policies
Products Liability - As a result of the consensus reached on Emerging Issues
Task Force ("EITF") Issue No. 93-5, a company is no longer permitted to offset,
for recognition purposes, reasonable possible recoveries against probable
losses which until fiscal year 1994 had been McDermott International's practice
with respect to estimated future costs for non-employee products liability
asbestos claims. Effective April 1, 1993, McDermott International adopted this
provision of EITF Issue No. 93-5 as a change in accounting principle and
provided for estimated future costs to the extent that recovery from its
insurers was not determined to be probable. The cumulative effect of the
accounting change at April 1, 1993 was a charge of $100,750,000 (net of income
taxes of $54,250,000), or $1.89 per share. The adoption of this provision of
EITF Issue No. 93-5 resulted in an increase in pre-tax Income before Cumulative
Effect of Accounting Change of $19,947,000 ($12,168,000 net of tax, or $0.23
per share) in fiscal year 1994, as
44
<PAGE> 49
costs in fiscal year 1994 that would have been recognized under McDermott
International's prior practice were included in the cumulative effect of the
accounting change.
Postemployment Benefits - Effective April 1, 1994, McDermott International
adopted Statement of Financial Accounting Standards ("SFAS") No. 112,
"Employers' Accounting for Postemployment Benefits," in accounting for
disability benefits and other types of benefits paid to employees, their
beneficiaries and covered dependents after active employment, but before
retirement. The cumulative effect as of April 1, 1994 of this change in
accounting was to reduce net income by $1,765,000 (net of income taxes of
$287,000) or $0.03 per share. Other than the cumulative effect, the accounting
change had no material effect on the results of fiscal year 1995. Prior to
April 1, 1994, McDermott International recognized the cost of providing most of
these benefits on a cash basis.
Investments - Effective April 1, 1994, McDermott International adopted SFAS
No. 115, "Accounting for Certain Investments in Debt and Equity Securities" for
investments held as of or acquired after April 1, 1994. The adoption of SFAS
No. 115 resulted in a decrease in the opening balance of stockholders' equity
of $4,095,000 to reflect the net unrealized holding losses on McDermott
International's investment securities which were previously carried at
amortized cost.
At March 31, 1996 and 1995 McDermott International's investments, primarily
government obligations and other debt securities, are classified as
available-for-sale and are carried at fair value, with the unrealized gains and
losses, net of tax, reported in a separate component of shareholders' equity.
Management determines the appropriate classifications of debt securities at the
time of purchase and reevaluates such designation as of each balance sheet
date. Investment securities available for current operations are classified in
the balance sheet as current assets while securities held for long-term
investment purposes are classified as non-current assets. The amortized cost
of debt securities is adjusted for amortization of premiums and accretion of
discounts to maturity. Such amortization is included in interest income.
Realized gains and losses are included in other income. The cost of securities
sold is based on the specific identification method. Interest on securities is
included in interest income.
Income Taxes
Income taxes have been provided using the liability method in accordance with
SFAS No. 109, "Accounting for Income Taxes".
Foreign Currency Translation
Assets and liabilities of foreign operations, other than operations in highly
inflationary economies, are translated into U.S. Dollars at current exchange
rates and income statement items are translated at average exchange rates for
the year. Adjustments resulting from the translation of foreign currency
financial statements are recorded in a separate component of equity. Foreign
currency transaction adjustments are reported in income. Included in Other
Income (Expense) are transaction losses of $3,840,000, $1,057,000, and
$2,260,000 for fiscal years 1996, 1995 and 1994, respectively.
45
<PAGE> 50
Contracts and Revenue Recognition
Contract revenues and related costs are principally recognized on a percentage
of completion method for individual contracts or components thereof based upon
work performed or a cost to cost method, as applicable to the product or
activity involved. Revenues and related costs so recorded, plus accumulated
contract costs that exceed amounts invoiced to customers under the terms of the
contracts, are included in Contracts in Progress. Billings that exceed
accumulated contract costs and revenues and costs recognized under percentage
of completion are included in Advance Billings on Contracts. Most long-term
contracts have provisions for progress payments. There are no unbilled revenues
which will not be billed. Contract price and cost estimates are reviewed
periodically as the work progresses and adjustments proportionate to the
percentage of completion are reflected in income in the period when such
estimates are revised. Provisions are made currently for all known or
anticipated losses. Variations from estimated contract performance could
result in a material adjustment to operating results for any fiscal quarter or
year. Claims for extra work or changes in scope of work are included in
contract revenues when collection is probable. Included in Accounts Receivable
and Contracts in Progress are approximately $58,190,000 and $50,831,000
relating to commercial and U.S. Government contracts claims whose final
settlement is subject to future determination through negotiations or other
procedures which had not been completed at March 31, 1996 and 1995,
respectively.
<TABLE>
<CAPTION>
1996 1995
---- ----
(In thousands)
<S> <C> <C>
Included in Contracts in Progress are:
Costs incurred less costs of revenue recognized $ 77,483 $ 32,070
Revenues recognized less billings to customers 379,782 246,946
- ---------------------------------------------------------------------------------------------------------
Contracts in Progress $ 457,265 $ 279,016
=========================================================================================================
Included in Advance Billings on Contracts are:
Billings to customers less revenues recognized $ 207,036 $ 212,197
Costs incurred less costs of revenue recognized (19,658) (32,179)
- ---------------------------------------------------------------------------------------------------------
Advance Billings on Contracts $ 187,378 $ 180,018
=========================================================================================================
</TABLE>
McDermott International is usually entitled to financial settlements relative
to the individual circumstances of deferrals or cancellations of Power
Generation Systems and Equipment contracts. McDermott International does not
recognize such settlements or claims for additional compensation until final
settlement is reached.
46
<PAGE> 51
Included in accounts receivable - trade are amounts representing retainages on
contracts as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
(In thousands)
<S> <C> <C>
Retainages $ 67,886 $ 72,257
============================================================================================================
Retainages expected to be collected after one year $ 17,699 $ 41,355
============================================================================================================
</TABLE>
Of its long-term retainages at March 31, 1996, McDermott International
anticipates collection of $13,541,000 in fiscal year 1998 and $4,012,000 in
fiscal year 1999.
Inventories
Inventories are carried at the lower of cost or market. Cost is determined on
an average cost basis except for certain materials inventories, for which the
last-in first-out (LIFO) method is used. The cost of approximately 19% and 20%
of total inventories was determined using the LIFO method at March 31, 1996 and
1995, respectively. Consolidated inventories at March 31, 1996 and 1995 are
summarized below:
<TABLE>
<CAPTION>
1996 1995
---- ----
(In thousands)
<S> <C> <C>
Raw Materials and Supplies $ 47,457 $ 38,570
Work in Progress 17,305 15,341
Finished Goods 12,830 10,133
- -------------------------------------------------------------------------------------------------------------
$ 77,592 $ 64,044
=============================================================================================================
</TABLE>
Warranty Expense
Estimated warranty expense which may be required to satisfy contractual
requirements, primarily of the Power Generation Systems and Equipment segment,
is accrued relative to revenue recognition on the respective contracts. In
addition, specific provisions are made where the costs of warranty are expected
to significantly exceed such accruals.
Environmental Clean-up Costs
McDermott International accrues for future decommissioning and decontamination
of its nuclear facilities that will permit the release of these facilities to
unrestricted use at the end of each facility's life, which is a condition of
its licenses from the Nuclear Regulatory Commission. Such accruals are based
on the estimated cost of those activities over the economic useful life of each
facility, which is estimated at 40 years.
47
<PAGE> 52
Research and Development
The cost of research and development which is not performed on specific
contracts is charged to operations as incurred. Such expense was approximately
$23,000,000, $19,905,000 and $21,036,000 in fiscal years 1996, 1995 and 1994,
respectively. In addition, expenditures on research and development activities
of approximately $45,106,000, $44,240,000 and $48,112,000 in fiscal years 1996,
1995 and 1994, respectively, were paid for by customers of McDermott
International.
Depreciation, Maintenance and Repairs and Drydocking Expenses
Except for major marine vessels, property, plant and equipment is depreciated
on the straight-line method, using estimated economic useful lives of 8 to 40
years for buildings and 2 to 28 years for machinery and equipment.
Major marine vessels are depreciated on the units-of-production method based on
the utilization of each vessel. Depreciation expense calculated under the
units-of-production method may be less than, equal to, or greater than
depreciation expense calculated under the straight-line method in any period.
The annual depreciation based on utilization of each vessel will not be less
than the greater of 25% of annual straight-line depreciation, or 50% of
cumulative straight-line depreciation.
Maintenance, repairs and renewals which do not materially prolong the useful
life of an asset are expensed as incurred except for drydocking costs for the
marine fleet, which are estimated and accrued over the period of time between
drydockings, and such accruals are charged to operations currently.
Amortization of Excess of Cost Over Fair Value of Net Assets of Purchased
Businesses
Excess of the cost over fair value of net assets of purchased businesses
primarily pertains to the acquisition of The Babcock & Wilcox Company, which is
being amortized on a straight-line basis over 40 years, and the acquisition of
Offshore Pipelines, Inc. which is being amortized on a straight-line basis over
15 years. Management periodically reviews goodwill to assess recoverability,
and impairments would be recognized in operating results if a permanent
diminution in value were to occur.
Capitalization of Interest Cost
In fiscal years 1996, 1995 and 1994, total interest cost incurred was
$86,239,000, $59,715,000 and $65,296,000, respectively, of which $1,927,000,
$2,600,000 and $1,321,000, respectively, was capitalized.
Earnings Per Share
Primary earnings per share are based on the weighted average number of common
and dilutive common equivalent shares outstanding during the year. Fully
diluted earnings per share are the same as primary since the computations were
antidilutive.
48
<PAGE> 53
Cash Equivalents
Cash equivalents are highly liquid investments, with maturities of three months
or less when purchased, which are not held as part of the investment portfolio.
Derivative Financial Instruments
Derivatives, primarily forward exchange contracts, are utilized to minimize
exposure and reduce risk from foreign exchange fluctuations in the regular
course of business. Gains and losses related to qualifying hedges of firm
commitments are deferred and recognized in income or as adjustments of carrying
amounts when the hedged transactions occur. Gains and losses on forward
exchange contracts which hedge foreign currency assets or liabilities are
recognized in income as incurred. Such amounts effectively offset gains and
losses on the foreign currency assets or liabilities that are hedged.
Accounting for Long-Lived Assets
McDermott International is currently reviewing Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," effective for
fiscal years beginning after December 15, 1995. SFAS No. 121 established
financial accounting and reporting standards for long-lived assets and certain
identifiable intangibles. 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.
Stock-Based Compensation
McDermott International accounts for its stock compensation arrangements under
the provision of Accounting Principles Board ("APB") No. 25, "Accounting for
Stock Issued to Employees," but is reviewing the provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation," which is effective for fiscal years
beginning after December 15, 1995. SFAS No. 123 establishes financial
accounting and reporting standards for stock-based employee compensation plans.
McDermott International has not yet finalized its review of the provisions of
this statement, and accordingly, has not yet determined whether it will adopt
SFAS No. 123 for expense recognition purposes, or continue to follow APB
Opinion No. 25, and make the proforma information disclosures required under
the new standard.
49
<PAGE> 54
NOTE 2 - ACQUISITIONS
During the three years ended March 31, 1996, McDermott International made the
acquisitions described below which were accounted for by the purchase method.
Operating results have been included in the Consolidated Statement of Income
(Loss) from the acquisition dates.
During fiscal year 1996, McDermott International acquired the minority
ownership interest in McDermott Engineers & Constructors (Canada), Ltd.
("MECL"), formerly Delta Catalytic Corporation, a controlling interest in
Talleres Navales Del Golfo ("TNG"), a Mexican shipyard, and the assets of Joy
Environmental Technologies, which specialized in technologies used by electric
utilities and other industrial companies to comply with clean air regulations.
Proforma results of operations have not been presented because the effects of
these acquisitions were not significant.
On January 31, 1995, McDermott International contributed substantially all of
its marine construction services business to JRM and JRM acquired Offshore
Pipelines, Inc. ("OPI"), a full-range provider of offshore marine construction
and other related services on a worldwide basis to the oil and gas industry.
Pursuant to the Merger Agreement, JRM issued 13,867,946 shares of Common Stock,
897,818 options to acquire shares of Common Stock and 458,632 shares of Series
B $2.25 Cumulative Convertible Exchangeable Preferred Stock valued at
$347,599,000 in exchange for all of the outstanding common stock, stock options
and preferred stock of OPI. As a result of the acquisition of OPI, McDermott
International's ownership interest in the common stock of JRM was reduced to
approximately 64%. The purchase price ($369,868,000, including direct costs of
acquisition and non-compete agreements) was allocated to the underlying assets
and liabilities based upon preliminary fair values at the date of acquisition
which resulted in excess cost over fair value of net assets acquired of
$235,000,000. During fiscal year 1996, McDermott International completed
certain asset and liability valuations related primarily to joint ventures,
property, plant and equipment and preacquisition contingencies resulting in an
increase in excess of cost over fair value of net assets acquired of
$95,000,000. Additionally, during fiscal year 1996, management completed its
assessment of the amortization period for excess of cost over fair value of net
assets acquired and determined the amortization period should be 15 years.
Unaudited proforma results of operations for fiscal years 1995 and 1994
assuming the acquisition of OPI had occurred as of the beginning of fiscal year
1994 are: revenues of $3,359,054,000, loss before cumulative effect of
accounting changes of $9,547,000 ($0.33 loss per share) and net loss of
$11,312,000 ($0.36 per share) for fiscal year 1995; revenues of $3,399,186,000,
income before cumulative effect of accounting changes of $56,031,000 ($0.93 per
share) and net loss of $44,719,000 ($0.95 per share) for fiscal year 1994. The
proforma information is presented for informational purposes only and is not
necessarily indicative of the operating results that would have occurred had
the acquisition been completed as of April 1, 1993.
During fiscal year 1994, McDermott International acquired Northern Ocean
Services Limited ("NOS") for $57,645,000 and the Delaware Company acquired a
controlling interest in MECL for $28,249,000. Of the purchase prices,
$32,832,000 was assigned to excess of cost over fair value of net assets
acquired and is being amortized over a period of 10 years.
50
<PAGE> 55
Assuming the acquisitions of NOS and MECL had occurred at the beginning of
fiscal year 1994 the unaudited proforma results of operations for revenues,
income before cumulative effect of accounting changes and net loss are
$3,164,468,000, $94,704,000 ($1.66 per share) and $6,046,000 ($0.23 per share),
respectively. The proforma financial information is presented for
informational purposes only and is not necessarily indicative of the operating
results that would have occurred had the acquisitions been completed as of
April 1, 1993.
NOTE 3 - INVESTMENTS IN JOINT VENTURES AND OTHER ENTITIES
Investments in joint ventures and other entities, which are accounted for on
the equity method, were $129,658,000 and $163,029,000 at March 31, 1996 and
1995, respectively. Transactions with entities for which investments are
accounted for by the equity method included sales to ($180,198,000,
$152,517,000 and $89,123,000 in fiscal years 1996, 1995 and 1994, respectively,
including approximately $44,491,000, $54,657,000 and $49,121,000, respectively,
attributable to leasing activities) and purchases from ($39,915,000,
$12,582,000, and $137,942,000 in fiscal years 1996, 1995 and 1994,
respectively) these entities. Included in non-current Other Assets at March
31, 1996 and 1995 are $23,000,000 and $12,996,000, respectively of accounts and
note receivable from unconsolidated investees. Included in Accounts payable at
March 31, 1996 and 1995 are $14,260,000 and $7,168,000, respectively, of
payables to unconsolidated investees.
During fiscal year 1996, McDermott International sold to the HeereMac joint
venture the major marine vessels it had been leasing to the joint venture.
McDermott International received cash of $135,969,000, including a $30,000,000
deposit in advance of the sale of certain marine equipment, and a 7.75% note
receivable of $105,000,000, and recorded a deferred gain of $103,239,000, which
is being amortized over HeereMac's 12 year depreciable lives of the vessels.
The note receivable, net of the deferred gain, is included in investments in
joint ventures. In addition to the vessel sale in fiscal year 1996, JRM
received $37,097,000 as a return of capital from the HeereMac joint venture.
In fiscal year 1995, JRM contributed various marine construction barges with a
cost of $102,602,000 and accumulated depreciation of $76,763,000 and sold a
derrick barge to the HeereMac joint venture for $9,101,000. In fiscal year
1994, McDermott International recognized revenues of $131,000,000 on work
subcontracted to HeereMac.
At March 31, 1996 and 1995, property, plant and equipment included $141,293,000
and $402,479,000, and accumulated depreciation included $89,312,000 and
$230,674,000, respectively, of marine equipment that is leased to
unconsolidated investees. Dividends received from unconsolidated investees
were $42,475,000, $76,481,000 and $65,214,000 in fiscal years 1996, 1995 and
1994, respectively. Undistributed earnings in unconsolidated affiliates were
$50,997,000 and $44,503,000, respectively, at March 31, 1996 and 1995.
51
<PAGE> 56
Summarized combined balance sheet and income statement information based on the
most recent financial information for equity investments in joint ventures and
other entities are presented below:
<TABLE>
<CAPTION>
1996 1995
---- ----
(In thousands)
<S> <C> <C>
Current Assets $ 582,480 $ 602,761
Non-Current Assets 939,624 608,500
---------------------------------------------------------------------------------------------
Total Assets $ 1,522,104 $ 1,211,261
=============================================================================================
Current Liabilities $ 550,383 $ 510,098
Non-Current Liabilities 692,440 361,623
Owners' Equity 279,281 339,540
---------------------------------------------------------------------------------------------
Total Liabilities and
Owners' Equity $ 1,522,104 $ 1,211,261
=============================================================================================
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Revenues $ 1,236,695 $ 1,038,686 $ 1,160,363
Gross Profit $ 259,431 $ 239,424 $ 361,699
Income before Provision for
Income Taxes $ 106,974 $ 87,717 $ 232,366
Provision for Income Taxes 11,330 9,509 13,539
----------------------------------------------------------------------------------------------------
Net Income $ 95,644 $ 78,208 $ 218,827
====================================================================================================
</TABLE>
NOTE 4 - INCOME TAXES
Income taxes have been provided based upon the tax laws and rates in the
countries in which operations are conducted. All income has been earned
outside of Panama and McDermott International is not subject to income tax in
Panama on income earned outside of Panama. Therefore, there is no expected
relationship between the provision for, or benefit from, income taxes and
income, or loss, before income taxes. The major reason for the variations in
such relationships is that income is earned within and subject to the taxation
laws of various countries, each of which has a regime of taxation which varies
from that of any other country (not only with respect to nominal rate but also
with respect to the allowability of deductions, credits and other benefits) and
because the proportional extent to which income is earned in, and subject to
tax by, any particular country or countries varies from year to year.
International and certain of its subsidiaries keep books and file tax returns
on the completed contract method of accounting.
52
<PAGE> 57
Deferred income taxes reflect the net tax effects of temporary differences
between the financial and tax bases of assets and liabilities. Significant
components of deferred tax assets and liabilities as of March 31, 1996 and 1995
were as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
(In thousands)
<S> <C> <C>
Deferred tax assets:
Accrued warranty expense $ 13,725 $ 12,796
Accrued vacation pay 9,162 8,574
Accrued liabilities for self-insurance
(including postretirement health
care benefits) 176,369 170,326
Accrued liabilities for executive and
employee incentive compensation 16,541 17,773
Investments in joint ventures and affiliated
companies 8,014 12,496
Net operating loss carryforwards 21,635 17,323
Foreign tax credits - 15,662
Environmental and products liabilities 344,839 410,588
Other 40,153 44,687
---------------------------------------------------------------------------------------------------------
Total deferred tax assets 630,438 710,225
---------------------------------------------------------------------------------------------------------
Valuation allowance for deferred tax assets (30,889) (34,943)
---------------------------------------------------------------------------------------------------------
Deferred tax assets - Net 599,549 675,282
---------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Property, plant and equipment 57,725 54,194
Long-term contracts 10,029 15,842
Prepaid pension costs 99,997 96,680
Investments in joint ventures and affiliated
companies 11,261 27,346
Insurance recoverable 282,065 336,429
Other 10,588 7,819
---------------------------------------------------------------------------------------------------------
Total deferred tax liabilities 471,665 538,310
---------------------------------------------------------------------------------------------------------
Net deferred tax assets $ 127,884 $ 136,972
=========================================================================================================
</TABLE>
Income (loss) before provision for (benefit from) income taxes and cumulative
effect of accounting changes was as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
U.S. $ (34,649) $ (124,271) $ (53,574)
Other than U.S. 56,353 115,104 168,528
- -------------------------------------------------------------------------------------------------------------
$ 21,704 $ (9,167) $ 114,954
=============================================================================================================
</TABLE>
53
<PAGE> 58
The provision for (benefit from) income taxes consists of:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Current:
U. S. - Federal $ (17,323) $ (35,891) $ (15,029)
U.S. - State and local (3,810) (4,405) 1,804
Other than U.S. 13,091 24,149 34,348
- -------------------------------------------------------------------------------------------------------------
Total current (8,042) (16,147) 21,123
- -------------------------------------------------------------------------------------------------------------
Deferred:
U.S. - Federal 21,358 (826) (1,798)
U.S. - State and local (3,009) 2,778 (4,392)
Other than U.S. (9,228) (5,848) 10,065
- -------------------------------------------------------------------------------------------------------------
Total deferred 9,121 (3,896) 3,875
- -------------------------------------------------------------------------------------------------------------
Provision for (Benefit from)
Income Taxes $ 1,079 $ (20,043) $ 24,998
=============================================================================================================
</TABLE>
The current provision for other than U.S. income taxes in 1996, 1995 and 1994
includes a reduction of $3,763,000, $1,323,000 and $22,515,000, respectively,
for the benefit of net operating loss carryforwards.
During fiscal year 1995, settlements were reached with the Internal Revenue
Service ("IRS") concerning the Delaware Company's U.S. income tax liability for
the fiscal years ended March 31, 1983 through March 31, 1988 disposing of all
U.S. federal income tax issues for those years. These settlements resulted
in a reduction in accrued interest expense of $26,300,000 during fiscal year
1995. The IRS has issued notices for fiscal years March 31, 1989 and March 31,
1990 asserting deficiencies in the amount of taxes reported. The deficiencies
are based on issues substantially similar to those of earlier years. The
Delaware Company believes that any income taxes ultimately assessed will not
exceed amounts already provided.
Pursuant to a stock purchase and sale agreement (the "Intercompany Agreement"),
the Delaware Company has the right to sell to International and International
has the right to buy from the Delaware Company, 100,000 units, each unit
consisting of one share of International Common Stock and one share of
International Series A Participating Preferred Stock, at a price based
primarily upon the stockholders' equity of McDermott International at the close
of the fiscal year preceding the date at which the right to sell or buy, as the
case may be, is exercised, and, to a limited extent, upon the price-to-book
value of the Dow Jones Industrial Average. At April 1, 1996, the current unit
value was $2,529 and the aggregate current unit value for the Delaware
Company's 100,000 units was $252,886,000. The net proceeds to the Delaware
Company from the exercise of any rights under the Intercompany Agreement would
be subject to U. S. federal, state and other applicable taxes. No tax
provisions have been established, since there is no present intention by either
party to exercise such rights.
54
<PAGE> 59
NOTE 5 - LONG-TERM DEBT AND NOTES PAYABLE
<TABLE>
<CAPTION>
Long-term debt consists of: 1996 1995
---- ----
(In thousands)
<S> <C> <C>
Unsecured Debt:
Series A Medium Term Notes (maturities ranging
from 1 to 7 years; interest at various rates ranging
from 7.92% to 9.00%) $ 75,000 $ 75,000
Series B Medium Term Notes (maturities ranging
from 2 to 27 years; interest at various rates ranging
from 6.50% to 8.75%) 101,000 101,000
9.375% Notes due 2002 ($225,000,000 face value) 224,538 224,482
10.25% Notes due June 1, 1995 - 150,000
12.875% Guaranteed Senior Notes due 2002
($70,000,000 face value) 74,473 74,933
Other notes payable through 2009 (interest at
various rates ranging to 6.80%) 38,255 31,669
Secured Debt:
10.375% Note payable due 1998 55,300 73,800
Other notes payable through 2012 and
capitalized lease obligations 42,881 25,167
- --------------------------------------------------------------------------------------------------------------
611,447 756,051
Less: Amounts due within one year 35,191 176,950
- --------------------------------------------------------------------------------------------------------------
$ 576,256 $ 579,101
==============================================================================================================
</TABLE>
55
<PAGE> 60
Notes payable and current maturities of long-term debt consist of:
<TABLE>
<CAPTION>
1996 1995
---- ----
(In thousands)
<S> <C> <C>
Short-term lines of credit:
Unsecured $ 199,067 $ 70,445
Secured - 24,500
Repurchase agreements - 135,691
Current maturities of long-term debt 35,191 176,950
- -------------------------------------------------------------------------------------------------------------
Total $ 234,258 $ 407,586
- -------------------------------------------------------------------------------------------------------------
Weighted average interest rate
on short-term borrowings 6.35% 7.19%
=============================================================================================================
</TABLE>
The Indenture for the 9.375% Notes due 2002 and the Series A and B Medium Term
Notes contain certain covenants which restrict the amount of funded
indebtedness that the Delaware Company may incur, and place limitations on
certain restricted payments, certain transactions between affiliates, the
creation of certain liens and the amendment of the Intercompany Agreement.
In connection with the OPI acquisition, a subsidiary of JRM assumed OPI's
$70,000,000 12-7/8% Guaranteed Senior Notes ("12.875% Notes"). The 12.875%
Notes are subject to mandatory sinking fund requirements beginning on July 15,
2000 calculated to retire 50% of the original principal amount prior to
maturity in 2002. The 12.875% Notes are redeemable, for cash, at the option of
the issuer, at any time on or after July 15, 1997, in whole or in part, at a
price of 106.4% of the principal amount, and thereafter at prices declining
annually to 100% of the principal amount on or after July 15, 2000.
McDermott International's 10.375% Note payable due 1998 is secured by a letter
of credit issued by a U. S. bank. The letter of credit was secured by
$60,847,000 market value of McDermott International's long-term portfolio at
March 31, 1996. The outstanding principal is repayable in semi-annual payments
with the final installment due June 20, 1998. The letter of credit and
collateral amounts decline as the loan principal is repaid. At March 31, 1996
and 1995, McDermott International had an interest rate swap outstanding on the
current notional principal amount of this note which effectively changes the
fixed interest rate of 10.375% to a floating rate based on LIBOR (See Note 14).
Maturities of long-term debt during the five fiscal years subsequent to March
31, 1996 are as follows: 1997 - $35,191,000; 1998 - $82,892,000; 1999 -
$54,983,000; 2000 - $30,735,000; 2001 - $27,000.
The Delaware Company and JRM are restricted, as a result of covenants in
certain credit agreements, in their ability to transfer funds to International
and its subsidiaries through cash dividends or through unsecured loans or
investments. At March 31, 1996, substantially all of the net assets of the
Delaware Company and JRM were subject to such restrictions.
56
<PAGE> 61
At March 31, 1996 and 1995, International and its subsidiaries had available
to them various uncommitted short-term lines of credit from banks totaling
$439,610,000 and $373,867,000, respectively. Borrowings against these lines of
credit at March 31, 1996 and 1995 were $149,067,000 and $63,025,000,
respectively. In addition, The Babcock & Wilcox Company had available to it an
unsecured and committed revolving credit facility which was amended during
fiscal year 1996 to increase the commitment to $150,000,000 and to extend the
agreement to March 31, 1999. 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. There were borrowings of $50,000,000
against this facility at March 31, 1996 and none at March 31, 1995. JRM also
had available a $150,000,000 unsecured and committed revolving credit facility
on which no borrowings were outstanding at March 31, 1996. 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.
57
<PAGE> 62
NOTE 6 - PENSION PLANS AND POSTRETIREMENT BENEFITS
Pension Plans - McDermott International provides retirement benefits, primarily
through non-contributory pension plans, for substantially all of its regular
full-time employees, except certain non-resident alien employees of foreign
subsidiaries who are not citizens of a European Community country or who do not
earn income in the United States, Canada, or the United Kingdom. Salaried plan
benefits are based on final average compensation and years of service, while
hourly plan benefits are based on a flat benefit rate and years of service.
McDermott International's funding policy is to fund applicable pension plans to
meet the minimum funding requirements of the Employee Retirement Income
Security Act of 1974 (ERISA) and, generally, to fund other pension plans as
recommended by the respective plan actuary and in accordance with applicable
law. At January 1, 1995 and 1994, approximately one-half of total plan assets
were invested in listed stocks and bonds. The remaining assets were held in
foreign equity funds, U.S. Government securities and investments of a
short-term nature.
U.S. Pension Plans:
The net periodic pension benefit for fiscal years 1996, 1995 and 1994 included
the following components:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Service cost - benefits earned
during the period $ 21,599 $ 22,917 $ 21,035
Interest cost on projected
benefit obligation 69,911 62,690 62,827
Actual return on plan assets (218,895) 16,701 (166,978)
Net amortization and deferral 122,281 (114,343) 81,509
- -------------------------------------------------------------------------------------------------------------
Net periodic pension benefit $ (5,104) $ (12,035) $ (1,607)
=============================================================================================================
</TABLE>
Due to the sale of a domestic entity, loss before cumulative effect of
accounting change in fiscal year 1995, includes a net after-tax gain of
$732,000 resulting from the recognition of a curtailment of a related plan.
58
<PAGE> 63
The following table sets forth the U.S. plans' funded status and amounts
recognized in the consolidated financial statements:
<TABLE>
<CAPTION>
Plans for Which Plans for Which
Assets Exceed Accumulated
Accumulated Benefits
Benefits Exceed Assets
------------------------------------ -------------------------------
1996 1995 1996 1995
--------------- --------------- -------------- ------------
<S> <C> <C> <C>
Actuarial present value of (In thousands)
benefit obligations:
Vested benefit
obligation $ 763,561 $ 534,093 $ 62,752 $ 134,801
============================================================================================================
Accumulated benefit
obligation $ 824,121 $ 584,938 $ 72,980 $ 163,374
============================================================================================================
Projected benefit
obligation $ 930,558 $ 654,066 $ 94,733 $ 165,799
Plan assets at fair value 1,156,121 912,329 46,904 117,606
- ------------------------------------------------------------------------------------------------------------
Projected benefit obliga-
tion (in excess of) or
less than plan assets 225,563 258,263 (47,829) (48,193)
Unrecognized net (gain) loss 32,286 40,295 21,629 (5,497)
Unrecognized prior service cost 13,936 (25,796) (6,118) 19,695
Unrecognized transition asset (32,342) (38,669) (1,533) (1,892)
Adjustment required to
recognize minimum
liability - - (5,952) (10,322)
- ------------------------------------------------------------------------------------------------------------
Prepaid pension cost
(pension liability) $ 239,443 $ 234,093 $ (39,803) $ (46,209)
============================================================================================================
</TABLE>
The assumptions used in determining the funded status of the U. S. plans were:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Actuarial assumptions:
Discount rate 7.25% 8.25% 7.5%
- ----------------------------------------------------------------------------------------------------
Rate of increase in future
compensation levels 5.0% 5.0% 4.5%
- ----------------------------------------------------------------------------------------------------
Expected long-term rate of
return on assets 8.5% 8.5% 8.5%
- ----------------------------------------------------------------------------------------------------
</TABLE>
59
<PAGE> 64
The projected benefit obligation increase at March 31, 1996 was primarily due
to the change in the discount rate for the U.S. plans ($119,458,000) and
changes in actuarial assumptions relative to mortality and retirement.
In accordance with the provisions of SFAS No. 87, "Employers' Accounting for
Pensions," McDermott International recorded, during 1996 and 1995, an
additional minimum liability for certain of its U.S. plans of $5,952,000 and
$10,322,000, respectively. These liabilities resulted in recognition of
intangible assets of $4,114,000 and $9,910,000 and reductions in stockholders'
equity of $1,839,000 and $391,000, respectively, in fiscal years 1996 and 1995.
The three principal U.S. ERISA pension plans provide that, subject to certain
limitations, any excess assets in such plans would be used to increase pension
benefits if certain events occurred within a 60-month period following a change
in control of International.
Non-U.S. Pension Plans:
The net periodic pension benefit for fiscal years 1996, 1995 and 1994 included
the following components:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Service cost - benefits earned
during the period $ 4,602 $ 4,832 $ 3,816
Interest cost on projected
benefit obligation 11,446 11,103 10,027
Actual return on plan assets (35,281) (5,702) (32,477)
Net amortization and deferral 14,814 (16,174) 12,297
- --------------------------------------------------------------------------------------------------------------
Net periodic pension benefit $ (4,419) $ (5,941) $ (6,337)
==============================================================================================================
</TABLE>
Due to a plan settlement, net income includes a net gain of $1,104,000 for
fiscal year 1996. Due to a reduction in workforce at one foreign subsidiary,
income before cumulative effect of accounting change in fiscal year 1994
includes a net after-tax loss of $1,456,000 resulting from the recognition of a
curtailment of a related plan.
60
<PAGE> 65
The following table sets forth the non-U.S. plans' funded status (assets exceed
accumulated benefits) and amounts recognized in the consolidated financial
statements:
<TABLE>
<CAPTION>
1996 1995
---- ----
(In thousands)
<S> <C> <C>
Actuarial present value of
benefit obligations:
Vested benefit obligation $ 138,227 $ 117,738
=========================================================================================================
Accumulated benefit obligation $ 140,554 $ 119,973
=========================================================================================================
Projected benefit obligation $ 155,774 $ 136,155
Plan assets at fair value 226,338 205,840
- ---------------------------------------------------------------------------------------------------------
Plan assets in excess of projected
benefit obligation 70,564 69,685
Unrecognized net gain (10,843) (4,633)
Unrecognized prior service cost 5,154 4,375
Unrecognized transition asset (21,270) (26,449)
- ---------------------------------------------------------------------------------------------------------
Net prepaid pension cost $ 43,605 $ 42,978
=========================================================================================================
</TABLE>
The assumptions used in determining the funded status of the non-U.S. plans
were:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Actuarial assumptions:
Discount rate 7.25-8.25% 8.0-8.25% 7.5-8.0%
- -----------------------------------------------------------------------------------------------------------
Rate of increase in future
compensation levels 5.0% 5.0% 4.5-6.0%
- -----------------------------------------------------------------------------------------------------------
Expected long-term rate of
return on plan assets 8.5% 8.5-9.0% 8.0-9.0%
- -----------------------------------------------------------------------------------------------------------
</TABLE>
The changes in the discount rate for the non-U.S. plans increased the projected
benefit obligation at March 31, 1996 by $10,090,000.
61
<PAGE> 66
Multiemployer Plans - One of McDermott International's subsidiaries contributes
to various multiemployer plans. The plans generally provide defined benefits
to substantially all unionized workers in this subsidiary. Amounts charged to
pension cost and contributed to the plans were $4,441,000, $9,838,000 and
$8,367,000 in fiscal years 1996, 1995 and 1994, respectively.
Postretirement Health Care and Life Insurance Benefits - McDermott
International offers postretirement health care and life insurance benefits to
substantially all of its retired regular full-time employees, including those
associated with discontinued operations, except certain non-resident alien
retired employees who are not citizens of a European Community country or who,
while employed, did not earn income in the United States, Canada or the United
Kingdom. McDermott International shares the cost of providing these benefits
with all affected retirees, except for certain life insurance plans.
Postretirement health care and life insurance benefits are offered under
separate defined benefit postretirement plans to union and non-union employees.
The health care plans are contributory and contain cost-sharing provisions such
as deductibles and coinsurance; the life insurance plans are contributory and
non-contributory. McDermott International does not fund any of its plans.
The following table sets forth the amounts recognized in the consolidated
financial statements at March 31:
<TABLE>
<CAPTION>
1996 1995
---- ----
(In thousands)
<S> <C> <C>
Accumulated Postretirement Benefit Obligation:
Retirees $ 343,469 $ 318,276
Fully eligible active participants 17,284 16,226
Other active plan participants 79,183 65,199
- --------------------------------------------------------------------------------------------------------------
439,936 399,701
Unrecognized net gain (loss) (10,516) 22,142
- --------------------------------------------------------------------------------------------------------------
Accrued postretirement benefit cost $ 429,420 $ 421,843
==============================================================================================================
Weighted-average discount rate 7.25% 8.25%
==============================================================================================================
</TABLE>
The accumulated postretirement benefit obligation in the above table includes
$395,808,000 and $358,543,000 for McDermott International's health care plans
and $44,128,000 and $41,158,000 for McDermott International's life insurance
plans at March 31, 1996 and 1995, respectively. The changes in the accumulated
postretirement benefit obligation and the unrecognized net gain (loss) at March
31, 1996 were primarily attributable to the decrease in the discount rate.
62
<PAGE> 67
Net periodic postretirement benefit cost for fiscal years 1996, 1995 and 1994
included the following components:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Service cost $ 3,902 $ 4,686 $ 3,570
Interest cost 31,494 32,494 32,507
Net amortization and deferral (1,581) 3,004 19
- -------------------------------------------------------------------------------------------------------------
Net periodic postretirement benefit cost $ 33,815 $ 40,184 $ 36,096
=============================================================================================================
</TABLE>
For measurement purposes, a weighted-average annual assumed rate of increase in
the per capita cost of covered health care claims of 10-3/4% was assumed for
1996, 11-1/2% for 1995 and 12-1/2% in 1994. For 1997, a rate of 9-3/4% was
assumed. In all years, the rate was assumed to decrease gradually to 5% in
2005 and remain at that level thereafter. The health care cost trend rate
assumption has a significant effect on the amounts reported. For example,
increasing the assumed health care cost trend rates by one percentage point in
each year would increase the accumulated postretirement benefit obligation as
of March 31, 1996 by $27,440,000 and the aggregate of the service cost and
interest cost components of net periodic postretirement benefit cost for fiscal
year 1996 by $2,397,000.
NOTE 7 - SALE OF ACCOUNTS RECEIVABLE
The Babcock & Wilcox Company has an agreement with a U.S. bank, whereby it can
sell, with limited recourse, an undivided interest in a designated pool of
qualified accounts receivable. Under the terms of the agreement, new
receivables are added to the pool as collections reduce previously sold
accounts receivable. The maximum sales limit under the agreement was reduced
during fiscal year 1996 from $225,000,000 to $140,000,000. At March 31, 1996
and 1995, approximately $107,000,000 and $175,000,000, respectively, of
receivables had been sold for cash under this agreement. Receivables sold
under this agreement are presented as a reduction of accounts receivable on the
accompanying balance sheets. Included in Other-net income were expenses
recorded on the sale of receivables which represent bank fees and discounts of
$8,518,000, $9,709,000 and $8,699,000 for fiscal years 1996, 1995 and 1994,
respectively. Discounts are based on the bank's cost of issuing commercial
paper and bank fees are a fixed amount based on the maximum limit which may be
sold.
63
<PAGE> 68
NOTE 8 - SUBSIDIARIES' STOCKS
At March 31, 1996 and 1995, 13,000,000 shares of Delaware Company Preferred
Stock, with a par value of $1 per share, were authorized. Of the authorized
shares, 2,818,780 shares of Series A Preferred Stock, and 2,726,860 and
2,917,236 shares of Series B Preferred Stock, respectively, were outstanding
(in each case, exclusive of shares owned by the Delaware Company) at March 31,
1996 and 1995. The outstanding shares are entitled to $31.25 per share in
liquidation. Preferred dividends of $13,539,000, $14,142,000 and $15,719,000
are classified as minority interest in Other Income (Expense) in fiscal years
1996, 1995 and 1994, respectively. Both series of Preferred Stock are entitled
to general voting rights of one-half vote for each share. The Board of
Directors of the Delaware Company may authorize additional series of Preferred
Stock, and may set terms of each new series except that the Delaware Company
cannot create any series of stock senior to the existing Series A and Series B
Preferred Stock without the consent of the holders of at least 50% of the
shares of such Preferred Stock.
Each share of the outstanding Series A Preferred Stock is convertible into one
share of International's Common Stock plus $0.10 cash. Series A and Series B
Preferred Stock are redeemable at the option of the Delaware Company at $31.25
per share plus accrued dividends. On March 31, 1997 and each subsequent year
through March 31, 2008, the Delaware Company is obligated to redeem, at a
redemption price of $31.25 plus accrued dividends, 313,878 shares of Series A
Preferred Stock. On March 31 of fiscal years 1997 through 2006, and March 31
of fiscal years 2007 and 2008, the Delaware Company is obligated to redeem
252,702 and 189,526 shares, respectively, of Series B Preferred Stock. For the
five fiscal years subsequent to March 31, 1996, the obligation to redeem the
Series A and B Preferred Stock is $17,706,000 for each of the fiscal years 1997
through 2001. The Delaware Company may apply to the mandatory sinking fund
obligations any Series A or B Preferred Stock reacquired, redeemed or
surrendered for conversion which have not been previously credited against the
mandatory sinking fund obligations. The Delaware Company applied 313,878
shares of Series A Preferred Stock and 252,702 shares of Series B Preferred
Stock that it owned to satisfy the March 31, 1996 mandatory sinking fund
obligations. During fiscal years 1996 and 1995, 190,376 and 557,416 shares,
respectively, of Series B Preferred Stock were purchased on the open market.
At March 31, 1996, 49,637 shares of Series A Preferred Stock have been
converted to date and the Delaware Company owned 947,749 and 179,213 shares of
Series A and Series B Preferred Stock, respectively.
At March 31, 1996, JRM had outstanding 3,200,000 shares of Series A $2.25
Cumulative Convertible Preferred Stock ("Series A Preferred Stock" -
liquidation preference $160,000,000), all of which were owned by McDermott
International. Each share of Series A Preferred Stock is convertible into
1.794 shares of Common Stock at any time after a call by JRM for redemption of
any or all of the outstanding Series A Preferred Stock or at any time after
January 31, 2000. At March 31, 1996, 15,592,108 shares of Common Stock were
reserved for issuance in connection with the conversion of Series A Preferred
Stock, and the exercise of stock options, awards of restricted stock under
JRM's stock incentive plans and contributions to the Thrift Plan. At March 31,
1996, 1,092,094 options were outstanding at an average exercise price of $13.47
per share (557,440 options exercisable at an average price of $8.77 per share).
64
<PAGE> 69
NOTE 9 - CAPITAL STOCK
The Panamanian regulations relating to acquisitions of securities of companies,
such as International, registered with the National Securities Commission
require, among other matters, that detailed disclosure concerning the offeror,
which is subject to review by either the Panamanian National Securities
Commission or the Board of Directors of the subject company, be finalized prior
to the beneficial acquisition of more than 5 percent of the outstanding shares
of any class of stock. Transfers of securities in violation of these
regulations are invalid and cannot be registered for transfer.
At March 31, 1996 and 1995, 85,880,211 and 86,389,216 shares of Common Stock,
respectively, were reserved for issuance in connection with the conversion and
redemption of the Delaware Company's Series A Preferred Stock, the conversion
of International's Series C Preferred Stock, the exercise of International
Rights, the 1992 Officer Stock Program (and its predecessor programs), the 1992
Director Stock Program, the 1992 Senior Management Stock Program and
contributions to the Thrift Plan.
International Preferred Stock - At March 31, 1996 and 1995, 25,000,000 shares
of Preferred Stock were authorized. Of the authorized shares, 100,000 shares
of Series A Participating Preferred Stock (the "Participating Preferred Stock")
and 60,000 and 70,000 shares of Series B Non-Voting Preferred Stock (the
"Non-Voting Preferred Stock"), respectively, were issued and owned by the
Delaware Company at March 31, 1996 and 1995. The Non-Voting Preferred Stock is
currently callable by International at $275 per share and 10,000 shares are to
be redeemed each year by International at $250 per share. The annual per share
dividend rates for the Participating Preferred Stock and the Non-Voting
Preferred Stock are $10 (but no more than ten times the amount of the per share
dividend on International Common Stock) and $20, respectively, payable
quarterly, and dividends on such shares are cumulative to the extent not paid.
In addition, shares of Participating Preferred Stock are entitled to receive
additional dividends whenever dividends in excess of $3.00 per share on
International Common Stock are declared (or deemed to have been declared) in
any fiscal year. In 1987, the voting rights of the Participating Preferred
Stock were eliminated.
Of the authorized shares, International issued 2,875,000 shares of Series C
Cumulative Convertible Preferred Stock in July 1993. Net cash proceeds to
International were $140,066,000. The Series C shares have a par value of $1.00
per share, and a liquidation preference of $50.00 per share, plus an amount
equal to accrued and unpaid dividends. Dividends on Series C shares are
cumulative at the annual rate of 5.75% per share on the liquidation preference,
equal to $2.875 per annum. International may not redeem Series C shares prior
to July 1, 1997. On or after July 1, 1997, the Series C shares are redeemable,
in whole or in part, at the option of International, either in cash, shares of
International Common Stock, or a combination thereof. Holders of Series C
shares may convert them, in whole or in part, at any time, into International
Common Stock at a conversion price of $35.25 per share of Common Stock
(equivalent to a conversion rate of 1.4184 shares of Common Stock for each
share of Series C Preferred Stock), subject to adjustment.
65
<PAGE> 70
The issuance of additional International Preferred Stock in the future and the
specific terms thereof, such as the dividend rights, conversion rights, voting
rights, redemption prices and similar matters, may be authorized by the Board
of Directors of International without stockholder approval, except to the
extent such approval may be required by applicable rules of the New York Stock
Exchange or applicable law. If additional Preferred Stock is issued, such
additional shares will rank senior to International Common Stock as to
dividends and upon liquidation.
International Rights - On December 30, 1995, the then existing Stockholder
Rights Plan expired and was replaced by a new Stockholder Rights Plan. Under
the new Plan, on January 2, 1996, each holder of Common Stock received a
dividend distribution of one Right for each outstanding share of Common Stock.
The Rights currently trade with the Common Stock and at March 31, 1996 and
1995, International had outstanding Rights to purchase 54,535,823 and
54,059,597 shares (including Rights to purchase 100,000 shares held by the
Delaware Company at March 31, 1996 and 1995), respectively, of its Common Stock
at a price of $50 per share subject to anti-dilution adjustments. The Rights
will become exercisable and will detach from the Common Stock a specified
period of time after a person or a group either becomes the beneficial owner of
15 percent or more of the outstanding Common Stock, or commences or announces
an intention to commence a tender or exchange offer for 30 percent or more of
the outstanding Common Stock. If thereafter the acquiring person or group
engages in certain self-dealing transactions, holders of Rights may purchase at
the exercise price that number of shares of Common Stock having a market value
equal to twice the exercise price. In the event International merges with or
transfers 50 percent or more of its assets or earnings to any person after the
Rights become exercisable, holders of Rights may purchase at the exercise price
that number of shares of common stock of the acquiring entity having a market
value equal to twice the exercise price. The Rights are redeemable by
International and expire on January 2, 2006.
International's Stock Plans - The following table summarizes activity for
International's stock option plans:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Options outstanding, April 1, 3,934,196 3,333,613 3,506,710
- ---------------------------------------------------------------------------------------------------------
Granted 705,845 813,730 654,040
Exercised (76,004) (147,217) (783,285)
Cancelled/forfeited (115,287) (65,930) (43,852)
- ---------------------------------------------------------------------------------------------------------
Options outstanding, March 31, 4,448,750 3,934,196 3,333,613
=========================================================================================================
Options exercisable at March 31, 2,924,919 2,653,541 2,106,362
=========================================================================================================
</TABLE>
66
<PAGE> 71
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Average price:
Outstanding options $ 22.7185 $ 23.2349 $ 22.6017
Exercisable options $ 22.8843 $ 22.2608 $ 22.1261
=========================================================================================================
Shares available at March 31,
that may be granted for options 703,830 1,375,018 1,405,415
=========================================================================================================
Charges to income $ 3,614,290 $ 4,155,000 $ 3,576,000
=========================================================================================================
</TABLE>
A total of 314,292 shares of Common Stock (including 287,671 of approved shares
that were not awarded, and rights to shares that have not terminated or
expired, under predecessor plans) are available for grants of options under the
1992 Officer Stock Program. Options become exercisable at such time or times
as determined at the date of the grant, and expire ten years after the date of
grant. Pursuant to the program, eligible employees may be granted rights to
purchase shares of Common Stock at par value ($1.00 per share) subject to
restrictions on transfer which lapse at such times and circumstances as
specified when granted. Substantially all of the shares of Common Stock
available for award under the 1992 Officer Stock Program may be granted as
rights under the program. A total of 950,010 rights have been granted to
purchase shares at par value ($1.00 per share) under the 1992 Officer Stock
Program (and its predecessor plans) at March 31, 1996.
A total of 10,925 shares of Common Stock are available for grants of options,
and rights to purchase shares, to non- employee directors under the 1992
Director Stock Program. Options to purchase 900, 300 and 300 shares will be
granted on the first, second, and third years, respectively, of a Director's
term at not less than 100% of the fair market value on the date of grant.
Options become exercisable, in full, six months after the date of the grant,
and expire ten years and one day after the date of grant. Rights to purchase
450, 150 and 150 shares are granted on the first, second and third years,
respectively, of a Director's term at par value ($1.00 per share) subject to
restrictions on transfer, which lapse at the end of such term. A total of
13,175 rights have been granted to purchase shares at par value ($1.00 per
share) under the 1992 Director Stock Plan at March 31, 1996.
Under the 1992 Senior Management Stock Option plan, senior management employees
may be granted options to purchase shares of Common Stock. The total number of
shares available for grant is determined by the Board of Directors from time to
time. Options to purchase shares are granted at no less that 100% of the fair
market value on the date of grant, become exercisable at such time or times as
determined when granted, and expire ten years after the date of the grant.
67
<PAGE> 72
In the event of a change in control of McDermott International, all three
programs have provisions that may cause restrictions to lapse and accelerate
the exercisability of options outstanding.
Thrift Plan - On November 12, 1991 and June 5, 1995, a maximum of 5,000,000
each of the authorized and unissued shares of International's Common Stock and
JRM's Common Stock was reserved for possible issuance to be used as the
employer match for employee contributions to the Thrift Plan for Employees of
McDermott Incorporated and Participating Subsidiary and Affiliated Companies.
Such employer contributions equal 50% of the first 6% of compensation, as
defined in the Plan, contributed by participants, and fully vest and are
non-forfeitable after five years of service or upon retirement, death, lay-off
or approved disability. During fiscal years 1996, 1995 and 1994, 300,951,
312,883 and 300,391 of International's shares, respectively, were issued as
employer contributions pursuant to the Plan. During fiscal year 1996, 80,356 of
JRM's shares were issued as employer contributions pursuant to the Plan. At
March 31, 1996, 3,622,934 and 4,919,644 of International and JRM shares,
respectively, remained available for issuance.
NOTE 10 - CONTINGENCIES AND COMMITMENTS
Litigation - International and certain of its officers, directors and
subsidiaries are defendants in numerous legal proceedings. Management believes
that the outcome of these proceedings will not have a material adverse effect
upon the consolidated financial position of McDermott International.
Products Liability - At March 31, 1996 and 1995, the estimated liability for
pending and future non-employee products liability asbestos claims was
$843,986,000 (of which approximately $208,000,000 had been asserted) and
$995,948,000 and estimated insurance recoveries were $723,243,000 and
$861,407,000, respectively. Certain B&W insurers have refused to reimburse B&W
for amounts paid to settle claims under applicable policies. At March 31, 1996,
receivables outstanding from these insurers were $21,050,000. 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
reimburse B&W for all amounts billed to date and for all future payments up to
full policy limits. During fiscal year 1995, McDermott International received
notice that provisional liquidators had been appointed to a London-based
products liability asbestos insurer and, as a result, a loss of $14,478,000
related to the reduction of estimated insurance 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, 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.
68
<PAGE> 73
Environmental Matters - During fiscal year 1995, a decision was made to close
certain nuclear manufacturing facilities, and a provision of $41,724,000 for
the decontamination, decommissioning and closing of these facilities was
recognized. Previously, decontamination and decommissioning costs were being
accrued over the facilities' remaining expected life. Decontamination will
proceed as permitted by the existing NRC license, while funding support will be
sought and a decommissioning plan will be submitted for review and approval as
required by the NRC. B&W expects to have reached agreement with the NRC in
fiscal 1997 on the plan that will provide for the completion of facilities
dismantlement and soil restoration by the end of fiscal year 2001. B&W expects
to request approval from the NRC to release the site for unrestricted use at
that time.
At March 31, 1996 and 1995, McDermott International had total environmental
reserves of $38,816,000 and $51,271,000 (including the provision discussed
above) respectively, of which $11,062,000 and $8,780,000 were included in
current liabilities.
McDermott International has been identified as a potentially responsible party
at various cleanup sites under the Comprehensive Environmental Response,
Compensation and Liability Act, as amended. McDermott International has not
been determined to be a major contributor of wastes to these sites. However,
each potentially responsible party or contributor may face assertions of joint
and several liability. Generally, however, a final allocation of costs is made
based on its relative contribution of wastes to each site. Based on its
relative contribution of waste to each site, McDermott International's share of
the ultimate liability for the various sites is not expected to have a material
effect on its consolidated financial position.
The Department of Environmental Resources of the Commonwealth of Pennsylvania,
("PADER"), by letter dated March 19, 1994, advised B&W that it will seek
monetary sanctions, and remedial and monitoring relief, related to B&W's Parks
Facilities in Parks Township, Armstrong County, Pennsylvania. The relief
sought relates to potential groundwater contamination related to the previous
operations of the facilities. B&W is currently negotiating with PADER and
expects to reach a settlement without having to resort to litigation. Any
sanctions ultimately assessed are not expected to have a material effect on the
consolidated financial statements of McDermott International.
Operating Leases - Future minimum payments required under operating leases that
have initial or remaining noncancellable lease terms in excess of one year at
March 31, 1996 are as follows: 1997 -$16,134,000; 1998 - $14,314,000; 1999 -
$12,107,000; 2000 - $11,156,000; 2001 - $10,138,000; and thereafter -
$63,088,000. Total rental expense for fiscal years 1996, 1995 and 1994 was
$90,434,000, $109,655,000, and $120,515,000, respectively. These expense
figures include contingent rentals and are net of sublease income, both of
which are not material.
Other - McDermott International performs significant amounts of work for the
U.S. Government under both prime contracts and subcontracts and thus is subject
to continuing reviews by governmental agencies.
McDermott International maintains liability and property insurance that it
considers normal in the industry. However, certain risks are either not
insurable or insurance is available only at rates which McDermott International
considers uneconomical.
69
<PAGE> 74
Prior to JRM's acquisition of OPI, one of OPI's vessels was severely damaged
during a typhoon while under going final work in connection with its
refurbishment. Estimates for the repair of the vessel, together with
out-of-pocket costs, total more than $45,000,000. At the time of the casualty
loss, insurance policies had been issued insuring the vessel for its full
value. Efforts to settle the claim with underwriters, however, have been
unsuccessful, and resort to the courts may be necessary to collect the amount
claimed. Management believes that the underwriters' refusal to satisfactorily
adjust the claim is without basis and is of the opinion that the outcome of any
necessary litigation will be favorable.
Commitments for capital expenditures amounted to approximately $43,689,000 at
March 31, 1996, all of which relates to fiscal year 1997.
McDermott International is contingently liable under standby letters of credit
totaling $445,602,000 (including $52,472,000 issued on behalf of unconsolidated
foreign joint ventures) at March 31, 1996, issued in the normal course of
business. McDermott International has guaranteed $50,297,000 of loans to and
$18,981,000 of standby letters of credit issued by unconsolidated foreign joint
ventures of McDermott International at March 31, 1996. In addition, McDermott
International has guaranteed $13,333,000 of loans to a third party at March 31,
1996. At March 31, 1996, McDermott International had pledged approximately
$64,515,000 fair value of government obligations and corporate bonds to secure
payments under and in connection with certain reinsurance agreements.
NOTE 11 - RELATED PARTY TRANSACTIONS
In connection with the acquisition of OPI, two directors and two officers of
JRM entered into noncompetition agreements. As consideration, such directors
and officers received a total of approximately $10,131,000 (including 50,000
shares of JRM's common stock valued at $1,131,000) during fiscal year 1995. In
addition, one such director (who resigned in April 1996) received $1,500,000 in
fiscal year 1996 and will receive additional payments of $1,500,000 per year
over the next four years.
In fiscal year 1995, JRM entered into an office sublease with an affiliate of a
director (who resigned in April 1996) of JRM. Under the sublease, which
expires no later than March 1997, the affiliate is required to make monthly
rental payments of approximately $18,000. During fiscal year 1996, the
affiliate paid $185,000 under the sublease. Under another agreement, the
affiliate manages and operates JRM's offshore producing oil and gas property
for a monthly fee of $48,000 and reimbursement of certain costs. During fiscal
year 1996, JRM paid $576,000 to the affiliate and reimbursed the affiliate for
out-or-pocket expenses for the management and operation of its offshore
producing oil and gas property. Also, during fiscal year 1996, JRM fabricated
a caisson for the affiliate for $84,000. In addition, JRM sold an offshore
jacket and deck to the affiliate for $1,100,000 during fiscal year 1995 and
received approximately $2,000,000 from the affiliate during fiscal year 1996
pursuant to a contract to refurbish, transport and install the jacket and deck.
70
<PAGE> 75
JRM entered into agreements with an affiliate of another director of JRM
pursuant to which, JRM acquired interests in certain offshore oil and gas
property. During fiscal years 1996 and 1995, JRM paid $2,036,000 and
$3,000,000 to the affiliate under the agreements in connection with the
acquisition of its interests and the development of such property. During
fiscal year 1996, JRM sold its interest in the property to the affiliate in
exchange for an $8,000,000 convertible production payment relating to such
property. Pursuant to the terms of the agreements entered into in connection
with such sale, JRM received a right to a production payment that allows it to
share in up to $8,000,000 of the net proceeds on any production from the
property based upon a percentage of its original interest in such property. In
December 1995, this property was placed on production and to date JRM has
earned approximately $179,000 as a result of this production payment. In
addition, JRM owns 140,000 shares of this affiliate and 20,000 units in a
limited partnership which is also an affiliate of this director. JRM has a
$15,000,000 contract to fabricate and install a platform with the limited
partnership.
JRM has also entered into agreements with two affiliates of a director of JRM
pursuant to which, JRM will design, fabricate and install several offshore
pipelines and structures. The value of these agreements exceeds $80,000,000.
As of March 31, 1996, these affiliates have paid to JRM approximately
$59,000,000 for work completed under these agreements. The affiliates of the
director have been invoiced for an additional $3,300,000 that is expected to be
paid in the ordinary course of business.
JRM maintains employment agreements with certain officers and employees which
contain change in control provisions that would entitle each to receive two
times his three-year average annual salary plus continuation of certain
benefits if there is a change in control of JRM (as defined) and a termination
of his employment within two years after a change in control. These agreements
also provide medical and health insurance benefits for a two -year period
following the termination of employment.
NOTE 12 - FINANCIAL INSTRUMENTS WITH CONCENTRATIONS OF CREDIT RISK
McDermott International's Power Generation Systems and Equipment customers are
principally the electric power generation industry (including government-owned
utilities and independent power producers), the U.S. Government (including its
contractors), and the pulp and paper and other process industries, such as oil
refineries and steel mills. The principal customers of the Marine Construction
Services segment are the offshore oil, natural gas and hydrocarbon processing
industries and other marine construction companies. These concentrations of
customers may impact McDermott International's overall exposure to credit risk,
either positively or negatively, in that the customers may be similarly
affected by changes in economic or other conditions. However, McDermott
International's management believes that the portfolio of receivables is well
diversified and that such diversification minimizes any potential credit risk.
Receivables are generally not collateralized.
McDermott International believes that its provision for possible losses on
uncollectible accounts receivable is adequate for its credit loss exposure. At
March 31, 1996 and 1995, the allowance for possible losses deducted from
Accounts receivable-trade on the balance sheet was $14,028,000 and $8,526,000,
respectively.
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<PAGE> 76
NOTE 13 - INVESTMENTS
The following is a summary of available-for-sale securities at March 31, 1996:
<TABLE>
<CAPTION>
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gains Losses Value
---- ---------- ---------- ---------
(In thousands)
<S> <C> <C> <C> <C>
U.S. Treasury securities
and obligations of U.S.
government agencies $ 134,481 $ 148 $ 1,955 $ 132,674
Corporate notes and bonds 72,802 781 573 73,010
Other debt securities 49,500 263 31 49,732
- -------------------------------------------------------------------------------------------------------------
Total debt securities 256,783 1,192 2,559 255,416
- -------------------------------------------------------------------------------------------------------------
Equity securities 2,009 - 1,272 737
- -------------------------------------------------------------------------------------------------------------
Total $ 258,792 $ 1,192 $ 3,831 $ 256,153
=============================================================================================================
</TABLE>
The following is a summary of available-for-sale securities at March 31, 1995:
<TABLE>
<CAPTION>
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gains Losses Value
---- ---------- ---------- ---------
(In thousands)
<S> <C> <C> <C> <C>
U.S. Treasury securities
and obligations of U.S.
government agencies $ 388,150 $ 1,085 $ 6,212 $ 383,023
Corporate notes and bonds 280,474 432 3,305 277,601
Other debt securities 64,222 21 297 63,946
- -------------------------------------------------------------------------------------------------------------
Total debt securities 732,846 1,538 9,814 724,570
- -------------------------------------------------------------------------------------------------------------
Equity securities 2,009 - 577 1,432
- -------------------------------------------------------------------------------------------------------------
Total $ 734,855 $ 1,538 $ 10,391 $ 726,002
=============================================================================================================
</TABLE>
The amortized cost and estimated fair value amounts above include $12,050,000
and $10,909,000 in other debt securities which are reported as cash equivalents
in the balance sheet as of March 31, 1996 and 1995, respectively.
72
<PAGE> 77
Proceeds, gross realized gains and gross realized losses on sales of
available-for-sale securities were approximately $586,917,000, $1,562,000 and
$1,008,000, respectively, for fiscal year 1996 and $251,565,000, $88,000 and
$2,666,000, respectively, for fiscal year 1995. The amortized cost and
estimated fair value of available-for-sale debt and equity securities at March
31, 1996, by contractual maturity, are shown below:
<TABLE>
<CAPTION>
Estimated
Fair
Cost Value
---- ---------
(In thousands)
<S> <C> <C>
Due in one year or less $ 66,338 $ 66,434
Due after one through three years 173,711 172,716
Due after three years 16,734 16,266
- -----------------------------------------------------------------------------------------------------------
256,783 255,416
Equity securities 2,009 737
- -----------------------------------------------------------------------------------------------------------
Total $ 258,792 $ 256,153
===========================================================================================================
</TABLE>
NOTE 14 - DERIVATIVE FINANCIAL INSTRUMENTS
McDermott International operates internationally giving rise to exposure to
market risks from changes in foreign exchange rates. Derivative financial
instruments, primarily forward exchange contracts, are utilized to reduce those
risks. McDermott International does not hold or issue financial instruments
for trading purposes.
Forward exchange contracts are entered into primarily as hedges of certain firm
purchase and sale commitments denominated in foreign currencies. At March 31,
1996, McDermott International had forward exchange contracts to purchase
$179,365,000 in foreign currencies (primarily Canadian Dollars and Pound
Sterling), and to sell $133,626,000 in foreign currencies (primarily Canadian
Dollars, Dutch Guilders, Saudi Riyals and Pound Sterling), at varying
maturities from fiscal year 1997 through 2000. At March 31, 1995, McDermott
International had forward exchange contracts to purchase $251,562,000 in
foreign currencies (primarily Canadian Dollars, Japanese Yen, and Pound
Sterling), and to sell $199,735,000 in foreign currencies (primarily Canadian
Dollars, Dutch Guilders, Japanese Yen, Malaysian Ringgit, and Pound Sterling),
at varying maturities from fiscal year 1996 through 2000.
Deferred realized and unrealized gains and losses from hedging firm purchase
and sale commitments are included on a net basis in the balance sheet as a
component of either contracts in progress or advance billings on contracts or
as a component of either other current assets or accrued liabilities. They are
recognized in income as part of the purchase or sale transaction when it is
recognized, or as other gains or losses when a hedged transaction is no longer
expected to occur. At March 31, 1996 and 1995, McDermott International had
deferred gains of $4,306,000 and $2,231,000, respectively, and deferred losses
of $1,081,000 and $10,865,000, respectively, related to forward exchange
contracts which will principally be recognized in accordance with the
percentage of completion method of accounting.
73
<PAGE> 78
In management of its net interest costs (expense on debt and income on
investments), McDermott International entered into interest rate swap
agreements with certain banks which effectively change the fixed interest rates
on certain long- term notes payable. Net amounts to be paid or received as a
result of these agreements are accrued as adjustments to interest expense over
the terms of these contracts. Interest rate swaps resulted in an increase in
interest expense of $96,000 and $1,202,000 in fiscal years 1996 and 1995,
respectively, and a reduction of interest expense of $5,782,000 in fiscal year
1994.
McDermott International is exposed to credit-related losses in the event of
nonperformance by counterparties to derivative financial instruments, but it
does not anticipate nonperformance by any of these counterparties. The amount
of such exposure is generally the unrealized gains in such contracts.
NOTE 15 - FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by McDermott International in
estimating its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amount reported in the balance sheet
for cash and cash equivalents approximates its fair value.
Investment securities: The fair values of investments are estimated based on
quoted market prices. For investments for which there are no quoted market
prices, fair values are derived from available yield curves for investments of
similar quality and terms.
Note receivable with an unconsolidated affiliate: At March 31, 1996, it was
not practicable to estimate the fair value of McDermott International's 7.75%
Note Receivable with the HeereMac joint venture because of the lack of quoted
market prices and because the time of its settlement cannot yet be determined.
Long and short-term debt: The fair values of debt instruments are based on
quoted market prices or where quoted prices are not available, on the present
value of cash flows discounted at estimated borrowing rates for similar debt
instruments or on estimated prices based on current yields for debt issues of
similar quality and terms.
Redeemable preferred stocks: The fair values of the redeemable preferred
stocks of the Delaware Company are based on quoted market prices.
Foreign currency exchange contracts: The fair values of foreign currency
forward exchange contracts are estimated by obtaining quotes from brokers. At
March 31, 1996 and 1995, McDermott International had net forward exchange
contracts outstanding to purchase foreign currencies with notional values of
$45,739,000 and $51,827,000 and fair values of $51,146,000 and $41,237,000,
respectively.
Interest rate swap agreements: The fair values of interest rate swaps are the
amounts at which they could be settled and are estimated by obtaining quotes
from brokers. At March 31, 1996 and 1995, McDermott International had an
interest rate swap outstanding on
74
<PAGE> 79
current notional principal of $55,300,000 with a fair value of ($470,000) and
$73,800,000 with a fair value of ($2,541,000), respectively, which represents
the estimated amount, McDermott International would have to pay to terminate
the agreement.
The estimated fair values of McDermott International's financial instruments
are as follows:
<TABLE>
<CAPTION>
March 31, 1996 March 31, 1995
-------------- --------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ----- -------- -----
(In thousands)
<S> <C> <C> <C> <C>
Balance Sheet Instruments
Cash and cash equivalents $ 283,663 $ 283,663 $ 85,909 $ 85,909
Investment securities 244,103 244,103 715,093 715,093
Debt excluding capital leases 793,622 847,510 966,397 988,343
Subsidiary's redeemable
preferred stocks 173,301 166,362 179,251 174,108
</TABLE>
NOTE 16 - SEGMENT REPORTING
McDermott International operates in two industry segments - Power Generation
Systems and Equipment and Marine Construction Services.
Power Generation Systems and Equipments' principal businesses are the supply of
fossil-fuel and nuclear steam generating systems and equipment to the electric
power generation industry, and nuclear reactor components to the U. S. Navy.
Marine Construction Services supplies worldwide services for the offshore oil
and gas exploration and production and hydrocarbon processing industries, and
to other marine construction companies, primarily through JRM. Principal
activities include the design, engineering, fabrication and installation of
offshore drilling and production platforms and other specialized structures,
modular facilities, marine pipelines and subsea production systems and onshore
construction and maintenance services; and the maintenance and construction of
a variety of marine vessels.
Intersegment sales are accounted for at prices which are generally established
by reference to similar transactions with unaffiliated customers. Identifiable
assets by industry segment are those assets that are used in McDermott
International's operations in each segment. Corporate assets are principally
cash and cash equivalents, short-term investments, marketable securities and
prepaid pension costs.
In the fiscal years 1996, 1995 and 1994, the U.S. Government accounted for
approximately 12%, 12% and 13%, respectively, of McDermott International's
total
75
<PAGE> 80
revenues. These revenues are principally included in the Power Generation
Systems and Equipment segment.
At March 31, 1996 and 1995 receivables of $6,824,000 and $6,230,000,
respectively, were due from minority shareholders, primarily ETPM S.A.,
participating in McDermott International's majority-owned joint ventures. There
were no sales to ETPM S.A. in fiscal year 1996; sales to ETPM S.A. were
$1,801,000 and $3,358,000 in fiscal years 1995 and 1994, respectively. In
fiscal years 1996, 1995 and 1994 equipment charters and overhead expenses of
$4,118,000, $4,938,000 and $6,330,000, respectively, were charged by ETPM S.A.
to the McDermott-ETPM joint venture.
In fiscal year 1996, the write-off of an insurance claim due to an unfavorable
arbitration ruling resulted in a decrease in the Power Generation Systems and
Equipment segment operating income of $12,600,000. The gain resulting from the
sale of McDermott International's interest in three Caspian Sea oil field and
a favorable insurance adjustment resulted in an increase in the Marine
Construction Services segment operating income of $38,744,000 and $12,000,000,
respectively. The provisions for the closing of certain facilities in fiscal
year 1995 resulted in a decrease in the Power Generation Systems and Equipment
segment operating income of $46,489,000. The adoption of EITF Issue No. 93-5
in fiscal year 1994 resulted in an increase in the Power Generation Systems and
Equipment segment operating income of $19,947,000.
76
<PAGE> 81
Segment Information for the Three Fiscal Years Ended March 31, 1996.
1. Information about McDermott International's Operations in Different
Industry Segments.
<TABLE>
<CAPTION>
REVENUES (1) 1996 1995 1994
- --------- ---- ---- ----
<S> <C> <C> <C>
Power Generation Systems and Equipment $ 1,708,566 $ 1,663,235 $ 1,614,206
Marine Construction Services(2) 1,590,318 1,390,919 1,452,497
Intersegment Transfer Eliminations (19,778) (10,474) (6,791)
- -------------------------------------------------------------------------------------------------------------
Total Revenues $ 3,279,106 $ 3,043,680 $ 3,059,912
=============================================================================================================
OPERATING INCOME
Segment Operating Income: (3)
Power Generation Systems and Equipment $ 20,579 $ 13,440 $ 41,805
Marine Construction Services(2) 38,447 32,189 34,174
- -------------------------------------------------------------------------------------------------------------
Total Segment Operating Income 59,026 45,629 75,979
- -------------------------------------------------------------------------------------------------------------
Equity in Income of Investees:
Power Generation Systems and Equipment 36,489 8,364 12,032
Marine Construction Services 11,949 25,488 107,828
- -------------------------------------------------------------------------------------------------------------
Total Equity in Income of Investees 48,438 33,852 119,860
- -------------------------------------------------------------------------------------------------------------
General Corporate Expenses(3) (33,155) (38,815) (36,045)
- -------------------------------------------------------------------------------------------------------------
Total Operating Income $ 74,309 $ 40,666 $ 159,794
=============================================================================================================
(1) Segment revenues include intersegment transfers as follows:
Power Generation Systems
and Equipment $ 11,928 $ 9,669 $ 6,365
Marine Construction Services 7,850 805 426
--------------------------------------------------------------------------------------------------------
Total $ 19,778 $ 10,474 $ 6,791
========================================================================================================
</TABLE>
(2) See Note 2 regarding the acquisition of OPI during fiscal year 1995 and the
acquisitions of NOS and MECL during fiscal year 1994.
(3) Fiscal years 1995 and 1994 have been restated to reflect the allocation of
certain expenses to the business segments which were previously included in
General Corporate Expenses. This restatement reduced Segment Operating
Income and General Corporate Expenses by $19,800,000 and $18,356,000 in
fiscal years 1995 and 1994, respectively, from amounts previously reported.
77
<PAGE> 82
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
CAPITAL EXPENDITURES
Power Generation Systems and Equipment $ 27,322 $ 45,306 $ 47,898
Marine Construction Services(1) 98,102 224,251 123,055
Corporate 1,232 1,467 851
- -------------------------------------------------------------------------------------------------------------
Total Capital Expenditures $ 126,656 $ 271,024 $ 171,804
=============================================================================================================
DEPRECIATION AND AMORTIZATION
Power Generation Systems and Equipment $ 41,835 $ 34,828 $ 36,567
Marine Construction Services 93,224 76,563 59,454
Corporate 4,816 4,167 3,372
- -------------------------------------------------------------------------------------------------------------
Total Depreciation and Amortization $ 139,875 $ 115,558 $ 99,393
=============================================================================================================
IDENTIFIABLE ASSETS
Power Generation Systems and Equipment $ 2,105,880 $ 2,099,223 $ 2,188,202
Marine Construction Services 1,637,033 1,716,912 1,107,956
Corporate 644,338 935,535 927,411
- -------------------------------------------------------------------------------------------------------------
Total Identifiable Assets $ 4,387,251 $ 4,751,670 $ 4,223,569
=============================================================================================================
</TABLE>
(1) Includes property, plant and equipment of $11,198,000, $173,134,000 and
$79,233,000 of acquired companies in fiscal years 1996, 1995 and 1994,
respectively, expenditures on an asset held for lease of $29,620,000 and
$6,711,000 in fiscal years 1996 and 1995, respectively, and the purchase of
a fabrication yard financed by a note payable of $16,250,000 in fiscal year
1994.
78
<PAGE> 83
. Information about McDermott International's Operations in Different
Geographic Areas.
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
Revenues(1) - United States $ 1,488,458 $ 1,500,037 $ 1,614,533
- Canada 883,883 739,663 583,169
- Europe and
West Africa 517,190 348,486 153,709
- Far East 206,913 326,523 545,545
- Middle East 177,814 128,860 162,956
- Other Foreign 4,848 111 -
- ------------------------------------------------------------------------------------------------------------
Total $ 3,279,106 $ 3,043,680 $ 3,059,912
============================================================================================================
Segment Operating
Income (Loss) by
Geographic Area (2) - United States $ (17,534) $ (48,284) $ 3,506
- Canada 18,838 27,233 34,248
- Europe and
West Africa 24,962 24,980 3,013
- Far East (961) 35,911 35,065
- Middle East 33,609 9,904 3,062
- Other Foreign 112 (4,115) (2,915)
- ------------------------------------------------------------------------------------------------------------
Total $ 59,026 $ 45,629 $ 75,979
============================================================================================================
Identifiable
Assets - United States $ 2,324,949 $ 2,267,800 $ 2,288,950
- Canada 344,984 348,200 265,342
- Europe and
West Africa 570,367 736,442 455,511
- Far East 279,575 208,655 156,088
- Middle East 170,154 209,221 108,596
- Other Foreign 52,884 45,817 21,671
- Corporate 644,338 935,535 927,411
- ------------------------------------------------------------------------------------------------------------
Total $ 4,387,251 $ 4,751,670 $ 4,223,569
============================================================================================================
</TABLE>
(1) Net of inter-geographic area revenues in fiscal years 1996, 1995 and 1994
as follows: United States- $69,872,000, $69,432,000 and $38,666,000;
Canada - $22,389,000, $11,538,000 and $12,082,000; Europe and West Africa
- $6,036,000, $13,200,000 and $15,868,000; Far East - $486,000,
$18,414,000 and $474,000; Middle East - $15,152,000, $37,303,000 and
$2,686,000; and Other Foreign - $13,519,000, $26,259,000 and $25,770,000,
respectively.
(2) Fiscal years 1995 and 1994 have been restated to reflect the allocation
of certain expenses to the geographic areas which were previously
included in General Corporate Expenses.
79
<PAGE> 84
NOTE 17 - QUARTERLY FINANCIAL DATA (UNAUDITED)
The following tables set forth selected unaudited quarterly financial
information for the fiscal years ended March 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996
---------------------------------------------------------------
QUARTER ENDED
---------------------------------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MARCH 31,
1995 1995 1995 1996
------------ ------------ ------------ ------------
(In thousands, except for per share amounts)
<S> <C> <C> <C> <C>
Revenues $ 816,474 $ 806,756 $ 766,538 $ 889,338
Operating income (loss) 38,042 15,453 37,430 (16,616)
Net income (loss) 8,832 9,054 6,606 (3,867)
Primary and Fully Diluted
Earnings (Loss) per Share: 0.12 0.13 0.08 (0.11)
</TABLE>
Pre-tax results for the quarter ended June 30, 1995 include an equity income
gain of $30,612,000 resulting from the sale of two power purchase contracts.
Results for the quarter ended September 30, 1995 include a favorable insurance
adjustment of $12,000,000. Results for the quarter ended December 31, 1995
include favorable worker's compensation cost adjustments of $12,640,000.
Results for the quarter ended March 31, 1996 include a gain of $34,788,000
resulting from the sale of McDermott International's interest in three Caspian
Sea oil fields and the write-off of an insurance claim of $12,600,000 due to an
unfavorable arbitration ruling related to the recovery of cost incurred for
corrective action in certain utility and industrial installations.
80
<PAGE> 85
Continued
<TABLE>
<CAPTION>
1995
---------------------------------------------------------------
QUARTER ENDED
---------------------------------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MARCH 31,
1994 1994 1994 1995
------------ ------------ ------------ ------------
(In thousands, except for per share amounts)
<S> <C> <C> <C> <C>
Revenues $ 759,808 $ 724,065 $ 715,525 $ 844,282
Operating income 15,831 19,769 53,568 (48,502)
Income (Loss) before cumulative
effect of accounting
change 3,118 (3,262) 29,814 (18,794)
Net income (loss) 1,353 (3,262) 29,814 (18,794)
Primary and Fully Diluted
Earnings (Loss) per Share:
Income (Loss) before cumulative
effect of accounting
change 0.02 (0.10) 0.51 (0.39)
Net income (loss) (0.01) (0.10) 0.51 (0.39)
</TABLE>
Pre-tax results for the quarter ended June 30, 1994 include a reduction in
accrued interest expense of $5,700,000 due to settlement of an outstanding tax
issue with the IRS. Results for the quarter ended September 30, 1994 include a
loss related to the reduction of estimated products liability asbestos claim
recoveries from insurers of $14,478,000 and a reduction in accrued interest
expense of $5,600,000 due to the settlement of outstanding tax issues. Results
for the quarter ended December 31, 1994 include a reduction in accrued interest
expense of $5,000,000 due to the settlement of outstanding tax issues and
favorable worker's compensation cost adjustments of $14,886,000. Results for
the quarter ended March 31, 1995 include provisions of $46,489,000 for the
decontamination, decommissioning, and closing of a nuclear facility and for the
closing of a manufacturing facility, and a reduction in accrued interest
expense and taxes of $10,000,000 and $5,200,000, respectively, due to the
settlement of outstanding tax issues.
81
<PAGE> 86
Item 9. DISAGREEMENTS WITH AUDITORS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
82
<PAGE> 87
P A R T I I I
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
There are no family relationships between any of the executive officers,
directors or persons nominated to be such, and no executive officer was elected
to his position pursuant to any arrangements or understanding between himself
and any other person.
Information required by this item with respect to directors and executive
officers is incorporated by reference to the material appearing under the
headings "Election of Directors" in the Proxy Statement for International's
1996 Annual Meeting of Stockholders.
Item 11. EXECUTIVE COMPENSATION
Information required by this item is incorporated by reference to the material
appearing under the heading "Compensation of Executive Officers" in the Proxy
Statement for International's 1996 Annual Meeting of Stockholders.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this item is incorporated by reference to the material
appearing under the headings "Security Ownership of Directors and Executive
Officers" and "Security Ownership of Certain Beneficial Owners" in
International's Proxy Statement for the 1996 Annual Meeting of Stockholders.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
NONE
83
<PAGE> 88
P A R T I V
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Annual Report or
incorporated by reference:
1. CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Auditors
Consolidated Balance Sheet
March 31, 1996 and 1995
Consolidated Statement of Income (Loss)
For the Three Fiscal Years Ended March 31, 1996
Consolidated Statement of Stockholders' Equity
For the Three Fiscal Years Ended March 31, 1996
Consolidated Statement of Cash Flows
For the Three Fiscal Years Ended March 31, 1996
Notes to Consolidated Financial Statements
For the Three Fiscal Years Ended March 31, 1996
2. CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
All required schedules will be filed by amendment to this Form
10-K on Form 10-K/A.
3. EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
3.1 McDermott International, Inc.'s Articles of Incorporation, as amended.
3.2 McDermott International, Inc.'s amended and restated By-Laws.
4.1 Rights Agreement (incorporated by reference to Exhibit 1 to McDermott International
Inc.'s registration statement on Form 8-A, dated December 15, 1995).
</TABLE>
84
<PAGE> 89
<TABLE>
<S> <C>
10.1* McDermott International, Inc.'s Supplemental Executive Retirement Plan, as amended
(incorporated by reference to Exhibit 10 of McDermott International Inc.'s 10-K/A
for fiscal year end March 31, 1994 filed with the Commission on June 27, 1994).
10.2* McDermott International, Inc.'s 1983 Long-Term Performance Incentive Compensation
Program (incorporated by reference to Exhibit 10 to McDermott International, Inc.'s
annual report on Form 10-K, as amended, for the fiscal year ended March 31, 1983).
10.3 Intercompany Agreement (incorporated by reference to Exhibit 10 to McDermott
International, Inc.'s annual report on Form 10-K, as amended, for the fiscal year
ended March 31, 1983).
10.4* Trust for Supplemental Executive Retirement Plan (incorporated by reference to
Exhibit 10 to McDermott International, Inc.'s annual report on Form 10-K, as
amended, for the fiscal year ended March 31, 1990).
10.5* McDermott International, Inc.'s 1994 Variable Supplemental Compensation Plan
(incorporated by reference to Exhibit A to McDermott International, Inc.'s Proxy
Statement for its Annual Meeting of Stockholders held on August 9, 1994 as filed
with the Commission).
10.6* McDermott International, Inc.'s 1987 Long-Term Performance Incentive Compensation
Program (incorporated by reference to Exhibit 10 to McDermott International, Inc.'s
annual report of Form 10-K, as amended, for the fiscal year ended March 31, 1988).
10.7* Retirement Plan for Non-Management Directors of McDermott International, Inc.
(incorporated by reference to Exhibit 11 to McDermott International, Inc.'s current
report on Form 8-K filed with the Commission December 10, 1991).
10.8* McDermott International, Inc.'s 1992 Senior Management Stock Option Plan
(incorporated by reference to Exhibit 10 of McDermott International, Inc.'s 10-K/A
for fiscal year ended March 31, 1994 filed with the Commission on June 27, 1994).
10.9* McDermott International, Inc.'s 1992 Officer Stock Incentive Program (incorporated
by reference to Exhibit 10 to McDermott International, Inc.'s annual report on Form
10-K, as amended for the fiscal year ended March 31, 1992).
</TABLE>
85
<PAGE> 90
<TABLE>
<S> <C>
10.10* McDermott International, Inc.'s 1992 Director Stock Program (incorporated by
reference to Exhibit 10 to McDermott International, Inc.'s annual report on Form 10-
K, as amended, for the fiscal year ended March 31, 1992).
11 Statement Re Computation of Per Share Earnings (Loss)
21 Significant Subsidiaries of the Registrant
23 Consent of Independent Auditors
27 Financial Data Schedule
</TABLE>
* Management contract or compensatory plan or arrangement required to be
filed as an exhibit pursuant to the requirements of Item 14(c) of Form
10-K.
86
<PAGE> 91
FORM 8-K REPORTS
None
87
<PAGE> 92
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) 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.
s/ Robert E. Howson
----------------------------------
June 4, 1996 By: Robert E. Howson
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated and on the date indicated.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
s/ Robert E. Howson Chairman of the Board, Chief Executive
- ------------------------------- Officer and Director (Principal Executive
Robert E. Howson Officer)
s/ Brock A. Hattox Executive Vice President, Chief Financial
- ------------------------------- Officer and Director (Principal Financial
Brock A. Hattox Officer)
s/ Daniel R. Gaubert Vice President, Finance and Controller
- ------------------------------- (Principal Accounting Officer)
Daniel R. Gaubert
Director
- -------------------------------
Thomas D. Barrow
</TABLE>
88
<PAGE> 93
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
s/ Theodore H. Black Director
- -------------------------------
Theodore H. Black
s/ John F. Bookout Director
- -------------------------------
John F. Bookout
Director
- -------------------------------
Phillip J. Burguieres
s/ James L. Dutt Director
- -------------------------------
James L. Dutt
s/ James A. Hunt Director
- -------------------------------
James A. Hunt
s/ John W. Johnstone, Jr. Director
- -------------------------------
John W. Johnstone, Jr.
s/ J. Howard Macdonald Director
- -------------------------------
J. Howard Macdonald
s/ William McCollam, Jr. Director
- -------------------------------
William McCollam, Jr.
s/ John A. Morgan Director
- -------------------------------
John A. Morgan
s/ John N. Turner Director
- -------------------------------
John N. Turner
June 4, 1996
</TABLE>
89
<PAGE> 94
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Pages
------- ----------- ------------
<S> <C>
3.1 McDermott International, Inc.'s Articles of Incorporation, as amended.
3.2 McDermott International, Inc.'s amended and restated By-Laws.
4.1 Rights Agreement (incorporated by reference to Exhibit 1 to McDermott International
Inc.'s registration statement on Form 8-A, dated December 15, 1995).
10.1* McDermott International, Inc.'s Supplemental Executive Retirement Plan, as amended
(incorporated by reference to Exhibit 10 of McDermott International Inc.'s 10-K/A for
fiscal year end March 31, 1994 filed with the Commission on June 27, 1994).
10.2* McDermott International, Inc.'s 1983 Long-Term Performance Incentive Compensation
Program (incorporated by reference to Exhibit 10 to McDermott International, Inc.'s
annual report on Form 10-K, as amended, for the fiscal year ended March 31, 1983).
10.3 Intercompany Agreement (incorporated by reference to Exhibit 10 to McDermott
International, Inc.'s annual report on Form 10-K, as amended, for the fiscal year ended
March 31, 1983).
10.4* Trust for Supplemental Executive Retirement Plan (incorporated by reference to Exhibit
10 to McDermott International, Inc.'s annual report on Form 10-K, as amended, for the
fiscal year ended March 31, 1990).
10.5* McDermott International, Inc.'s 1994 Variable Supplemental Compensation Plan
(incorporated by reference to Exhibit A to McDermott International, Inc.'s Proxy
Statement for its Annual Meeting of Stockholders held on August 9, 1994 as filed with
the Commission).
</TABLE>
90
<PAGE> 95
<TABLE>
<S> <C>
10.6* McDermott International, Inc.'s 1987 Long-Term Performance Incentive Compensation
Program (incorporated by reference to Exhibit 10 to McDermott International, Inc.'s
annual report of Form 10-K, as amended, for the fiscal year ended March 31, 1988).
10.7* Retirement Plan for Non-Management Directors of McDermott International, Inc.
(incorporated by reference to Exhibit 11 to McDermott International, Inc.'s current
report on Form 8-K filed with the Commission December 10, 1991).
10.8* McDermott International, Inc.'s 1992 Senior Management Stock Option Plan (incorporated
by reference to Exhibit 10 of McDermott International, Inc.'s 10-K/A for fiscal year
ended March 31, 1994 filed with the Commission on June 27, 1994).
10.9* McDermott International, Inc.'s 1992 Officer Stock Incentive Program (incorporated by
reference to Exhibit 10 to McDermott International, Inc.'s annual report on Form 10-K,
as amended for the fiscal year ended March 31, 1992).
10.10* McDermott International, Inc.'s 1992 Director Stock Program (incorporated by reference
to Exhibit 10 to McDermott International, Inc.'s annual report on Form 10-K, as amended,
for the fiscal year ended March 31, 1992).
11 Statement Re Computation of Per Share Earnings (Loss)
21 Significant Subsidiaries of the Registrant
23 Consent of Independent Auditors
27 Financial Data Schedule
</TABLE>
- -------------------
* Management contract or compensatory plan or arrangement required to be
filed as an exhibit pursuant to the requirements of Item 14(c) of Form
10-K.
91
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF AMENDMENT
OF THE
ARTICLES OF INCORPORATION
OF
MCDERMOTT INTERNATIONAL, INC.
The undersigned, being the holder of all the outstanding
shares of stock of McDermott International, Inc. (the "Corporation"), entitled
to vote, does hereby certify as follows and enter into the following agreement:
1. That McDermott International, Inc. is a corporation
organized by Notarial Document No. 1869 of August 10, 1959, executed in the
presence of Notary Public No. 1, Notarial Circuit of Panama, Rep. of Panama.
2. That the Articles of Incorporation were duly recorded
in the Mercantile Register of the Republic of Panama at Volume 372, Folio 216,
Entry 81.615, on the 11th day of August, 1959.
3. The undersigned stockholder has agreed to amend and
does hereby amend the Articles of Incorporation by deleting Articles 1-12
thereof and substituting in lieu thereof the following Articles 1-10:
"1. The name of the Corporation is:
McDERMOTT INTERNATIONAL, INC.
2. The nature of the business which the Corporation may
initiate, transact, promote and carry on both within and outside the Republic
of Panama and in any part of the world without restriction or limitation is as
follows:
To engage in and carry on a general contracting,
building, construction and engineering business, and to
excavate, dredge, grade, pave and construct, build, erect,
repair, wreck, remodel, and equip in whole or in part,
drilling rigs, highways, roads, streets, sidewalks, platforms,
bridges, viaducts, approaches, pavements, dams, locks, sewers,
tunnels, subways, canals, levees, aqueducts, channels, and
other waterways, foundations, piers, caissons, vaults,
wharves, marine ways and docks, ditches, conduits, reservoirs,
railways, pipelines and other systems of transportation;
systems of water works; buildings of every description; public
and private works of all kinds; electric,
<PAGE> 2
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hydraulic, power and gas plants, telephone, telegraph, and
lighting systems, factories and all structures built in whole
or in part of wood, stone, brick, cement, iron, steel, or
combinations thereof, and incidentally thereto to buy, sell,
and otherwise deal in royalty interests in petroleum and other
mineral or sub-oil rights and/or other interest in lands
and/or the products thereof. To drill, exploit, mine and
otherwise explore land for petroleum, rock or carbon oil,
natural gas and other minerals and mineral products or
by-products.
To manufacture, purchase or otherwise acquire, own,
mortgage, pledge, sell, assign and transfer or otherwise
dispose of, to invest, trade, deal in and deal with goods,
wares and merchandise and personal property of every class and
description.
To acquire, and pay for in cash, stock or bonds of
the Corporation or otherwise, the good will, rights, assets
and property, and to undertake or assume the whole or any part
of the obligations or liabilities of any person, firm,
association or corporation.
To acquire, hold, use, sell, assign, lease, grant
licenses in respect of, mortgage or otherwise dispose of
letters patent of the Republic of Panama or any foreign
country, patent rights, licenses and privileges, inventions,
improvements and processes, copyrights, trade-marks and trade
names, relating to or useful in connection with any business
of the Corporation.
To guarantee, purchase, hold, sell, assign, transfer,
mortgage, pledge or otherwise dispose of shares of the capital
stock of, or any bonds, securities or evidences of
indebtedness created by any other corporation or corporations
organized under the laws of the Republic of Panama or any
other country, nation or government, and while the owner
thereof to exercise all the rights, powers and privileges of
ownership, including the right to vote thereon.
To enter into, make and perform contracts of every
kind and description with any person, firm, association,
corporation, municipality, county, state, body politic or
government or colony or dependency thereof.
To borrow or raise moneys for any of the purposes of
the Corporation and, from time to time, without limit as to
amount, to draw, make, accept, endorse, execute and issue
promissory notes, drafts, bills or exchange, warrants, bonds,
debentures and other negotiable or non-negotiable instruments
and evidences of
<PAGE> 3
- 3 -
indebtedness, and to secure the payment of any thereof and of
the interest thereon by mortgage upon or pledge, conveyance or
assignment in trust of the whole or any part of the property
of the Corporation, whether at the time owned or thereafter
acquired and to sell, pledge or otherwise dispose of such
bonds or other obligations of the Corporations for its
corporate purposes.
To buy, sell or otherwise deal in notes, open
accounts, and other similar evidences of debt, or to loan
money and take notes, open accounts, and other similar
evidences of debt as collateral security therefor.
To purchase, hold, sell and transfer the shares of
its own capital stock; provided it shall not use its funds or
property for the purchase of its own shares of capital stock
when such use would cause any impairment of its capital except
as otherwise permitted by law, and provided further that
shares of its own capital stock belonging to it shall not be
voted upon directly or indirectly.
To have one or more offices, to carry on all or any
of its operations and business and without restriction or
limit as to amount to purchase or otherwise acquire, hold,
own, mortgage, sell, convey, or otherwise dispose of real and
personal property of every class and description in the
Republic of Panama and in any and all foreign countries.
In general, to carry on any other business in
connection with the foregoing, and to have and exercise all
the powers conferred by the laws of Panama upon corporations
formed under the act hereinafter referred to, and to do any or
all of the things hereinbefore set forth to the same extent as
natural persons might or could do.
The objects and purposes specified in the foregoing clauses
shall, except where otherwise expressed, be in nowise limited or restricted by
reference to, or inference from, the terms of any other clause in these
Articles of Incorporation, but the objects and purposes specified in each of
the foregoing clauses of this Article 2 shall be regarded as independent
objects and purposes; the Corporation shall have all the powers authorized in
Article 19 of Law 32 of 1927 of the Republic of Panama as well as any other
powers which may be granted to the Corporation by any other Articles of the
aforesaid Law and any other Laws in force.
3. The total number of shares of all classes of stock
which the Corporation shall have authority to issue is One-hundred-seventy-five
million (175,000,000) shares of which One-hundred-fifty-million (150,000,000)
shares shall be Common Stock of the par value of ONE DOLLAR ($1.00 U.S. Cy.)
per share and Twenty-five-million (25,000,000) shares shall
<PAGE> 4
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be Preferred Stock of the par value of ONE DOLLAR ($1.00 U.S. Cy.) per share.
Part A. Provisions Relating to Preferred Stock.
(1) The Preferred Stock may be issued from time to time
in one or more series, each of such series to have such voting powers, full or
limited, or no voting powers, and such designations, preferences and relative,
participating, optional or other special rights, and qualifications,
limitations or restrictions thereof, as are stated and expressed herein and in
the resolution or resolutions providing for the issue of such series adopted by
the Board of Directors as hereinafter provided.
(2) Authority is hereby expressly granted to the Board of
Directors, subject to the provisions of this Part A, to authorize the issue of
one or more series of Preferred Stock and with respect to each series to fix by
resolution or resolutions providing for the issue of such series:
(a) The number of shares to constitute such series and
the distinctive designation thereof, provided that unless stated in
any resolution or resolutions relating to such series, such number of
shares may be increased or decreased by the Board of Directors in
connection with any classification or reclassification of unissued
shares of Preferred Stock;
(b) The annual dividend rate on the shares of such series
and the date or dates from which dividends shall accumulate as herein
provided;
(c) Whether the holders of such series are or are not
entitled to participate in earnings of the Corporation through
dividends in excess of (or in lieu of) dividends at an annual rate and
the terms of any such right to participate.
(d) Whether or not the shares of such series shall be
subject to redemption, the limitations and restrictions with respect
to such redemption, if any, and the times of redemption of the shares
of such series and the amounts (or method of calculating such amounts)
which the holders of such series shall be entitled to receive upon the
redemption thereof, which amounts (or method of calculating such
amounts) may vary at different redemption dates and may also, with
respect to shares redeemed through the operation of any retirement or
sinking fund be different from the amounts (or method of calculating
such amounts) with respect to shares otherwise redeemed;
(e) The amount (or method of calculating the amount)
which the holders of such series shall be entitled to receive upon the
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation;
(f) Whether or not the shares of such series shall be
subject to the operation of a retirement or sinking fund, and, if so,
the extent to and manner
<PAGE> 5
- 5 -
in which it shall be applied to the purchase or redemption of the
shares of such series for retirement or to other corporate purposes
and the terms and provisions relative to the operation thereof;
(g) Whether or not the shares of such series shall be
convertible into, or exchangeable for, shares of stock of any other
class or classes, or of any other series of the same class, and if so
convertible or exchangeable, the price or prices or the rate or rates
of conversion or exchange and the method, if any, of adjusting the
same, and the other terms and conditions of such conversion or
exchange;
(h) The voting rights, if any, of holders of shares of
such series in addition to the voting rights provided for in this Part
A and by applicable law;
(i) The limitations and restrictions, if any, in addition
to those provided in paragraph (11) (a) hereof, to be effective while
any shares of such series are outstanding upon the payment of
dividends or making of other distributions on, and upon the purchase,
redemption or other acquisition by the Corporation of the Common Stock
or any other class or classes of stock of the Corporation ranking
junior to the shares of such series;
(j) The conditions or restrictions, if any, upon the
creation of indebtedness of the Corporation or upon the issue of any
additional stock (including additional shares of such series or of any
other series or of any other class) ranking on a parity with or prior
to the shares of such series as to dividends or upon liquidation; and
(k) Any other preference and relative, participating,
option, or other special rights, and qualifications, limitations or
restrictions thereof, as shall not be inconsistent with this Part A.
(3) All shares of any one series of Preferred Stock shall
be identical with each other in all respects, except that shares of any one
series issued at different times may differ as to the dates from which
dividends thereon shall be cumulative if dividends on such series accumulate;
and all series shall rank equally and be identical in all respects, except as
permitted by the foregoing provisions of paragraph 2 of this Part A.
(4) Before any dividends or distribution in cash or other
property (other than dividends payable in stock ranking junior to the Preferred
Stock) on any class of stock of the Corporation ranking junior to the Preferred
Stock as to dividends or on liquidation shall be declared or paid or set apart
for payment, the holders of shares of Preferred Stock of each series shall be
entitled to receive cash dividends, when and as declared by the Board of
Directors at the annual rate fixed in the resolution or resolutions adopted by
the Board of Directors providing for the issue of such series, payable in each
year on such dates as may be fixed in such resolution or resolutions to holders
of record on the respective dates not exceeding sixty days preceding such
dividend payment dates as may be determined by the Board of Directors in
advance of the payment of each particular dividend. No dividend or
distribution in cash or other property or any other class or stock of the
Corporation shall be
<PAGE> 6
- 6 -
declared or paid or set apart for payment, unless there has simultaneously been
declared or paid or set apart for payment to the holders of shares of Preferred
Stock of each series entitled to participate in earnings of the Corporation
together with the holders of such other class of stock of the Corporation the
dividend to which the holders of the shares of such series of Preferred Stock
are entitled pursuant to their rights to so participate.
Dividends with respect to each series of the Preferred Stock
shall be cumulative from the date or dates fixed in the resolution or
resolutions adopted by the Board of Directors providing for the issue of such
series, which date or dates shall in no instance be more than ninety days
before or after the date of the issuance of the particular shares of such
series then to be issued.
No fixed dividend shall be declared on any series of the
Preferred Stock in respect of any dividend period unless there shall likewise
be or have been declared on all shares of Preferred Stock of each other series
at the time outstanding like dividends for all dividend periods coinciding with
or ending before such dividend period, ratably in proportion to the respective
annual dividend rates fixed therefor as hereinbefore provided. Accruals of
dividends shall not bear interest.
(5) In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation, before any payment
or distribution of the assets of the Corporation (whether capital or surplus)
shall be made to or set apart for the holders of any class of stock of the
Corporation ranking junior to the Preferred Stock upon liquidation, the holders
of the shares of each series of the Preferred Stock shall be entitled to
receive payment of the amount payable upon such liquidation, dissolution or
winding up as fixed in the resolution or resolutions adopted by the Board of
Directors providing for the issue of such series for the shares of the
respective series to the date of final distribution to such holders, but they
shall be entitled to no further payment. If, upon any liquidation, dissolution
or winding up of the Corporation, the assets of the Corporation, or proceeds
thereof, distributable among the holders of the Preferred Stock shall be
insufficient to pay in full the preferential amount aforesaid, then such
assets, or the proceeds thereof, shall be distributed among such holders
ratably in accordance with the respective amounts which would be payable on
such shares if all amounts payable thereon were paid in full. For the purpose
of this paragraph 5, the voluntary sale, lease, exchange or transfer (for cash,
shares of stock, securities, or other consideration) of all or substantially
all of the property or assets of the Corporation to, or a consolidation or
merger of the Corporation with, one or more corporations (whether or not the
Corporation is the corporation surviving such consolidation or merger) shall
not be deemed to be a liquidation, dissolution or winding up, voluntary or
involuntary.
(6) The Corporation, at the option of the Board of
Directors, may, at any time permitted by the resolution or resolutions adopted
by the Board of Directors providing for the issue of any series of the
Preferred Stock and at the redemption price or prices stated in said resolution
or resolutions, redeem the whole or any part of the shares of such series then
outstanding (the total sum, including accrued dividends, so payable on any such
redemption being herein referred to as the "redemption price"). Notice of
every such redemption shall be mailed to the holders of record of the shares of
Preferred Stock so to be redeemed at their respective addresses as their names
shall appear on the books of the Corporation. Such notice shall be mailed at
least 30 but no more than 90 days in advance of the date designated
<PAGE> 7
- 7 -
for such redemption to such holders. In case of the redemption of a part only
of any series of Preferred Stock then outstanding, the shares of such series so
to be redeemed shall be selected by lot or in such other manner as the Board of
Directors may determine to be equitable.
(7) If, on the redemption date specified in a notice
pursuant to paragraph (6), the funds necessary for such redemption shall have
been set aside by the Corporation, separate and apart from its other funds, in
trust for the pro rata benefit of the holders of the shares so called for
redemption, then, notwithstanding that any certificates for shares of Preferred
Stock so called for redemption shall not have been surrendered for
cancellation, the shares represented thereby shall no longer be deemed
outstanding, the right to receive dividends thereon shall cease to accrue from
and after the date of redemption so designated and all rights of the holder of
any share of Preferred Stock so called for redemption shall, forthwith after
such redemption date, cease and terminate, excepting only the right of the
holder thereof to receive the redemption price therefor but without interest.
Any moneys so set aside by the Corporation and unclaimed at the end of four
years from the date designated for such redemption shall revert to the general
funds of the Corporation, after which reversion the holders of any share so
called for redemption shall look only to the Corporation for payment of the
redemption price. Any interest accrued on funds so deposited shall be paid to
the Corporation from time to time.
(8) If, after giving of a notice pursuant to paragraph
(6) but before the redemption date specified therein, the Corporation shall
deposit with a bank or trust company in the Borough of Manhattan, the City of
New York, having a capital and surplus of at least $50,000,000, in trust to be
applied to the redemption of the shares of Preferred Stock so called for
redemption, the funds necessary for such redemption, then from and after the
date of such deposit all rights of the holders of the shares of Preferred Stock
so called for redemption shall cease and terminate, excepting only the right to
receive the redemption price therefor, but without interest, and the right to
exercise on or before the date designated for redemption privileges of
conversion or exchange, if any, not theretofore expired, and such shares shall
not be deemed to be outstanding. Any funds so deposited which shall not be
required for such redemption because of the exercise of any such right of
conversion or exchange subsequent to the date of such deposit shall be returned
to the Corporation. In case the holders of shares of Preferred Stock which
shall have been called for redemption shall not, within four years after the
date fixed for redemption, claim the amount deposited with respect to the
redemption thereof, any such bank or trust company shall, to the extent
permitted by applicable law, upon demand, pay over to the Corporation such
unclaimed amounts and thereupon such bank or trust company shall be relieved of
all responsibility in respect thereof to such holder and such holders shall
look only to the Corporation for the payment thereof. Any interest accrued on
funds so deposited shall be paid to the Corporation from time to time.
(9) Shares of Preferred Stock which have been issued and
reacquired in any manner by the Corporation (excluding, until the Corporation
elects to retire them, shares which are held as treasury shares but including
shares redeemed, shares purchased and retired, whether through the operation of
a retirement or sinking fund, or otherwise, and shares which, if convertible or
exchangeable, have been converted into or exchanged for shares of stock of any
other class or classes or series ) may, subject to any applicable provisions of
the laws of the Republic of Panama, have the status of authorized and unissued
shares of Preferred stock
<PAGE> 8
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and be reissued as a part of the series of which they were originally a part or
be reclassified and reissued as part of a new series of Preferred Stock created
by resolution or resolutions of the Board of Directors or as part of any other
series of Preferred Stock, all subject to the conditions or restrictions on
issuance set forth in any resolution or resolutions adopted by the Board of
Directors providing for the issue of any series of Preferred Stock.
(10) If at any time the Corporation shall have failed to
pay dividends in full on the Preferred Stock, thereafter and until dividends in
full, including all accrued and unpaid dividends on the Preferred Stock
outstanding, shall have been declared and set apart for payment or paid, (a)
the Corporation, without the affirmative vote or consent of the holders of at
least 66 2/3% in interest of the Preferred Stock at the time outstanding,
regardless of series, given in person or by proxy, either in writing or by
resolution adopted at an annual or special meeting called for the purpose, at
which the holders of the Preferred Stock, regardless of series, shall vote
separately as a class, shall not redeem less than all of the Preferred Stock at
such time outstanding, other than in accordance with paragraph (16) hereof; (b)
the Corporation shall not purchase any Preferred Stock except in accordance
with a purchase offer made in writing or by publication (as determined by the
Board of Directors) to all holders of Preferred Stock of all series upon such
terms as the Board of Directors, in their sole discretion after consideration
of the respective annual dividend rates and other relative rights and
preferences of the respective series, shall determine (which determination
shall be final and conclusive) will result in fair and equitable treatment
among the respective series; provided, that (i) unless prohibited by the
provisions applicable to any series, the Corporation, to meet the requirements
of any retirement or sinking fund provisions with respect to any series, may
use shares of such series acquired by it prior to such failure and then held by
it as treasury stock and (ii) nothing shall prevent the Corporation from
completing the purchase or redemption of shares of Preferred Stock for which a
purchase contract was entered into for any retirement or sinking fund purposes,
or the notice of redemption of which was initially published, prior to such
default, and (c) this paragraph (10) shall not apply to any obligation of the
Corporation to purchase any share or shares of Preferred Stock pursuant to the
exercise of rights which arise under an agreement if the holders of 66 2/3% in
interest of the Preferred Stock of the Corporation outstanding when such
agreement was executed were parties to such agreement.
(11) So long as any Preferred Stock is outstanding the
Corporation will not
(a) Declare, or pay, or set apart for payment any
dividends (other than dividends payable in stock ranking junior to the
Preferred Stock) or make any distribution on any other class of stock
of the Corporation ranking junior to the Preferred Stock either as to
dividends or upon liquidation and will not redeem, purchase or
otherwise acquire, any shares of any such junior class if at the time
of making such declaration, payment, distribution, redemption,
purchase or acquisition the Corporation shall be in default with
respect to any dividend payable on, or any obligation to retire shares
of, Preferred Stock, provided that, notwithstanding the foregoing, the
Corporation may at any time redeem, purchase or otherwise acquire
shares of stock of any such junior class in exchange for, or out of
the net cash proceeds from the sale of, other shares of stock of any
junior class;
<PAGE> 9
- 9 -
(b) Without the affirmative vote or consent of the
holders of at least 66 2/3% of all the Preferred Stock then
outstanding regardless of series, given in person or by proxy, either
in writing or by resolution adopted at an annual or special meeting
called for the purpose, at which the holders of the Preferred Stock,
regardless of series, shall vote separately as a class, amend, alter
or repeal any of the provisions of this Part A so as adversely to
affect the preferences, rights, or powers of the Preferred Stock;
provided that the creation of any class of stock ranking prior to the
Preferred Stock either as to dividends or upon liquidation or any
increase in the authorized number of shares of any such class of stock
shall not be deemed to adversely affect the preferences, rights or
powers of the Preferred Stock within the meaning of this subparagraph
(b);
(c) Without the affirmative vote or consent of the
holders of at least 50% of all the Preferred Stock then outstanding,
regardless of series, given in person or by proxy, either in writing
or by resolution adopted at an annual or special meeting called for
the purpose, at which the holders of the Preferred Stock, regardless
of series, shall vote separately as a class, create any class or
classes of stock ranking prior to the Preferred Stock either as to
dividends or upon liquidation, or increase the authorized number of
shares of any such class of stock; or
(d) Without the affirmative vote or consent of the
holders of at least 66 2/3% of any series of the Preferred Stock at
the time outstanding, given in person or by proxy, either in writing
or by resolution adopted at an annual or special meeting called for
the purpose, at which the holders of such series of the Preferred
Stock shall vote separately as a series, amend, alter or repeal any of
the provisions in the resolution or resolutions adopted by the Board
of Directors providing for the issue of such series so as adversely to
affect the preferences, rights or powers of the Preferred Stock of
such series;
and any vote or consent required by subparagraph (b) above may, to the extent
permitted by applicable law, be given and made effective by the filing of an
appropriate amendment of the Corporation's Articles of Incorporation without
obtaining the vote or consent of the holders of the Common Stock of the
Corporation, the right to give such vote or consent being expressly waived, to
the extent permitted by applicable law, by all holders of such Common Stock,
unless the action to be taken would substantially adversely affect the rights
or powers of the Common Stock; and further, any vote or consent required by
subparagraph (d) above may, to the extent permitted by applicable law, be given
and made effective by the filing of an appropriate amendment of the
Corporation's Articles of Incorporation without obtaining the vote or consent
of the holders of any other series of Preferred Stock or of the holders of the
Common Stock of the Corporation, the right to give such vote or consent being
expressly waived, to the extent permitted by applicable law, by all holders of
such other series of Preferred Stock and Common Stock, unless the action to be
taken would substantially adversely affect the rights or powers of such other
series of Preferred Stock or Common Stock, as the case may be.
<PAGE> 10
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(12) Whenever dividends payable on any series of
Preferred Stock remain unpaid in an aggregate amount equivalent to six full
quarterly dividends, the holders of the Preferred Stock shall have the
exclusive and special right, voting separately as a class and without regard to
series, to elect two directors of the Corporation. Such right shall be in
addition to any other rights which the holders of the Preferred Stock may have
to vote in the election of directors. Whenever such right of the holders of
the Preferred Stock shall have vested, such right may be exercised initially
either at a special meeting of such holders of the Preferred Stock called as
provided in paragraph (13) or at any annual meeting of stockholders, and
thereafter at annual meetings of stockholders. The right of the holders of the
Preferred Stock voting separately as a class to elect members of the Board of
Directors of the Corporation as aforesaid shall continue until such time as all
dividends accumulated on the Preferred Stock shall have been paid in full, at
which time the special right of the holders of the Preferred Stock so to vote
separately as a class for the election of directors shall terminate, subject to
revesting each and every time the conditions stated in the first sentence of
this paragraph (12) occur.
(13) Whenever special voting power has vested in the
holders of the Preferred Stock pursuant to paragraph (12), a proper officer of
the Corporation shall, upon the written request of the holders of record of at
least 10% of the Preferred Stock then outstanding, regardless of series,
addressed to the Secretary of the Corporation, call a special meeting of the
holders of the Preferred Stock and of any other class or classes of stock
having voting power, for the purpose of electing directors. Such meeting shall
be held at the earliest practicable date at such place as may be specified in
the notice of meeting. If such meeting shall not be called by the proper
officers of the Corporation within twenty days after personal service of said
written request upon the Secretary of the Corporation, or within twenty days
after depositing the same with the Postal Service of the United States of
America, by registered or certified mail addressed to the Secretary of the
Corporation at its principal office, then the holders of record of at least 10%
of the Preferred Stock then outstanding, regardless of series, may designate in
writing one of their number to call such meeting at the expense of the
Corporation, and such meeting may be called by such person so designated upon
the notice required for annual meetings of stockholders and shall be held at
the place for the holding of annual meetings of stockholders of the
Corporation. Any holder of Preferred Stock so designated shall have access to
the stock books of the Corporation for the purpose of causing meetings of
stockholders to be called pursuant to these provisions. Notwithstanding the
other provisions of this paragraph (13), no such special meeting shall be
called during the ninety days immediately preceding the date fixed for an
annual meeting of stockholders.
(14) At any meeting held for the purpose of electing
directors at which the holders of the Preferred Stock shall have the special
right, voting separately as a class, to elect directors as provided in
paragraph (12), the presence, in person or by proxy, of the holders of 33 1/2%
of the Preferred Stock then outstanding shall be required to constitute a
quorum of such class for the election of any director by the holders of the
Preferred Stock as a class. At any such meeting or adjournment thereof, (a)
the absence of a quorum of the Preferred Stock shall not prevent the election
of directors other than those to be elected by the Preferred Stock voting as a
class and the absence of a quorum for the election of such other directors
shall not prevent the election of the directors to be elected be the Preferred
Stock voting as a class, and (b) in the absence of either or both such quorums,
a majority of the holders present in person or by proxy of the stock or stocks
which lack a quorum shall
<PAGE> 11
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have power to adjourn the meeting for the election of directors which they are
entitled to elect from time to time without notice other than announcement at
the meeting until a quorum shall be present.
(15) Any director elected pursuant to paragraphs (12),
(13) and (14) shall continue in office until the next annual meeting or until
his successor shall have been so elected or until termination of the right of
the holders of the Preferred Stock to vote as a class for directors. Whenever
special voting power pursuant to paragraph (12) is vested in the holders of the
Preferred Stock, any vacancy in the Board of Directors shall be filled only by
vote of a majority (even if that be only a single director) of the remaining
directors theretofore elected by the holders of the class or classes of stock
which elected the director whose office shall have become vacant. To the
extent permitted by applicable law, immediately upon any termination of the
right of the holders of the Preferred Stock to vote as a class for directors as
provided in paragraph (12) the term of office of the directors then in office
so elected by the holders of the Preferred Stock shall terminate.
(16) If the amounts payable with respect to any
obligations to retire shares of the Preferred Stock are not paid in full to the
holders of the shares of all series with respect to which such obligations
exist, the number of shares of each series to be retired shall be in proportion
to the amount which would be payable to the holders of the shares of such
series on account of such obligations if all amounts payable in respect of all
such obligations were discharged in full.
(17) No holder of Preferred Stock as such shall have any
preemptive or preferential right to purchase or subscribe to stock,
obligations, warrants, rights to subscribe to stock or other securities of the
Corporation of any class, whether now or hereafter authorized or issued.
(18) Except as may be required under the applicable
statutes or may be set forth in the resolution or resolutions providing for the
issue of any series adopted by the Board of Directors as hereinabove provided
and except for the voting powers provided with respect to all shares of the
Preferred Stock set forth above, no holder of Preferred Stock as such shall
have any voting powers on any matters upon which stockholders of the
Corporation have the right to vote.
(19) For the purpose hereof and of any resolution of the
Board of Directors providing for the classification or reclassification of any
shares of Preferred Stock or for the purpose of any certificate filed with the
Republic of Panama (unless otherwise provided in any such resolution or
certificate):
(a) The term "outstanding", when used in reference to
shares of stock, shall mean issued shares, excluding shares held by
the Corporation and shares called for redemption funds for the
redemption of which shall have been deposited in trust;
(b) The amount of dividends "accrued" on any share of
Preferred Stock of any series as at any dividend date shall be deemed
to be the amount of any unpaid dividends accumulated thereon to and
including such dividend
<PAGE> 12
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date, whether or not earned or declared, and the amount of dividends
"accrued" on any share of Preferred Stock of any series as at any date
other than a dividend date shall be calculated thereon to and
including the last preceding dividend date, whether or not earned or
declared, plus an amount equivalent to the pro rata portion of the
periodic dividend with respect thereto at the annual dividend rate
fixed for the shares of such series for the period after such last
preceding dividend date to and including the date as of which the
calculation is made;
(c) Any class or classes of stock of the Corporation
shall be deemed to rank
(i) prior to the Preferred Stock either as to
dividends or upon liquidation, if the holders of such class or
classes shall be entitled to the receipt of dividends or of
amounts distributable upon liquidation, dissolution or winding
up, as the case may be, in preference or priority to the
holders of the Preferred Stock;
(ii) on a parity with the Preferred Stock either
as to dividends or upon liquidation, whether or not the
dividend rates, dividend payment dates, or redemption or
liquidation prices per share thereof be different from those
of the Preferred Stock, if the holders of such class or
classes of stock shall be entitled to the receipt of dividends
or of amounts distributable upon liquidation, dissolution or
winding up, as the case may be, in proportion to their
respective dividend rates or liquidation prices, without
preference or priority one over the other with respect to the
holders of the Preferred Stock;
(iii) junior to the Preferred Stock either as to
dividends or upon liquidation if the rights of the holders or
such class or classes shall be subject or subordinate to the
rights of the holders of the Preferred Stock in respect of the
receipt of dividends or of amounts distributable upon
liquidation, dissolution or winding up, as the case may be.
PART B. Provisions Relating to Common Stock
(1) At all times (subject to the special voting rights of
the Preferred Stock pursuant to paragraph (12) of Part A) each holder of Common
Stock of the Corporation shall be entitled to one vote for each share of such
stock outstanding in the name of such holder on the books of the Corporation on
the record date designated for the purpose of such vote.
(2) No holder of shares of Common Stock shall have, as
such holder, any preemptive right to purchase or subscribe to stock,
obligations, warrants, rights to subscribe to stock or other securities of the
Corporation of any class, whether now or hereafter authorized or issued.
<PAGE> 13
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The liability of the shareholders is limited to the amount
unpaid on the shares subscribed.
4. The Stock Register required by law shall be kept at
the places fixed by the Board of Directors.
5. The domicile of the Corporation shall be in Panama
City, Republic of Panama, but the Corporation may engage in business and
establish branches in any part of the world.
6. The duration of the Corporation shall be perpetual.
7. The number of directors constituting the entire Board
of shall be such as shall be fixed from time to time by vote of a majority of
the entire Board of Directors, provided, however, that the number of directors
shall not be reduced so as to shorten the term of any director at the time in
office, and provided further, that the number of directors constituting the
entire Board of Directors shall be fourteen until otherwise fixed by a majority
of the entire Board of Directors.
The Board of Directors shall be divided into three classes,
respectively designated "Class I," "Class II" and "Class III", as nearly equal
in number as the then total number of directors constituting the entire Board
of Directors permits with the term of office of one class expiring each year.
Whenever possible there shall be at least three (3) directors in each class.
If the number of directors is reduced to seven (7) or eight (8), Class III
shall be eliminated and the directors distributed between Classes I and II. If
the number of directors is reduced below six (6), Classes II and III shall be
eliminated. At the first special meeting of stockholders held after November
1, 1982 directors of the first class shall be elected to hold office for a term
expiring at the next succeeding annual meeting, directors of the second class
shall be elected to hold office for a term expiring at the second succeeding
annual meeting and directors of the third class shall be elected to hold office
for a term expiring at the third succeeding annual meeting. Subject to the
provisions of Part A of Article 3, any vacancy in the Board of Directors for
any reason, and any created directorships resulting from any increase in the
number of directors, may be filled only by the Board of Directors, acting by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director, and any directors so chosen shall hold office until
the next election of the class for which such directors shall have been chosen
and until their successors shall be elected and qualified. Subject to the
foregoing, at each annual meeting of stockholders the successors to the class
of directors whose terms shall then expire shall be elected to hold office for
terms expiring at the third succeeding annual meeting.
Meetings of directors may be held in the Republic of Panama or
in any other country, and any director may be represented and vote by proxy or
proxies at any and all meetings of directors.
A majority of the directors then in office, present in person
or by proxy, shall constitute a quorum for the transaction of business at any
meeting of the Board of Directors.
<PAGE> 14
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The business and affairs of the Corporation shall be managed
by its Board of Directors. In furtherance, and not in limitation of the powers
conferred by statute, the Board of Directors is expressly authorized:
To make, alter or repeal the by-laws of the Corporation.
To authorize and cause to be executed mortgages and liens upon
the real and personal property of the Corporation.
To set apart out of any of the funds of the Corporation
available for dividends a reserve or reserves for any proper purpose
or to abolish any such reserve in the manner in which it was created.
By resolution or resolutions, passed by a majority of the
whole board to designate one or more committees, each committee to
consist of two or more of the directors of the Corporation, which, to
the extent provided in said resolution or resolutions or in the
by-laws of the Corporation, shall have and may exercise the powers of
the Board of Directors in the management of the business and affairs
of the Corporation, and may have power to authorize the seal of the
Corporation to be affixed to any document which requires it. Such
committee or committees shall have such name or names as may be stated
in the by-laws of the Corporation or as may be determined from time to
time by resolution adopted by the Board of Directors.
The Corporation may in its by-laws confer powers upon the
Board of Directors in addition to the foregoing, and in addition to the powers
and authorities expressly conferred upon it by statute.
8. Meetings of stockholders may be held within or
without the Republic of Panama. The books of the Corporation may be kept
outside of the Republic of Panama at such place or places as may be from time
to time designated by the Board of Directors.
9. The Corporation reserves the right to amend, alter,
change or repeal any provision contained in these Articles of Incorporation, in
the manner now or hereafter prescribed by statute, and all rights conferred
upon stockholders herein are granted subject to this reservation.
Whenever by statute the vote or consent of the stockholders of
the Corporation shall be required to authorize or approve a sale, lease, or
exchange of all or substantially all the Corporation's property or assets or to
adopt or approve an agreement of merger or consolidation of the Corporation
with or into any other corporation or to merge any other corporation into the
Corporation, the vote of two-thirds of the outstanding stock of the Corporation
entitled to vote thereon shall be required for any such authorization, adoption
or approval.
The vote of two-thirds of the outstanding stock of the
Corporation entitled to vote thereon shall be required to amend, alter, change
or repel any of the provisions of Article 7 hereof or of the second paragraph
of this Article 9. The required vote for any other
<PAGE> 15
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amendment to these Articles of Incorporation shall be such as may now or
hereafter be prescribed by statute.
10. The Registered Agent of the Corporation in the City
of Panama, until the Board of Directors shall otherwise provide, shall be the
law firm of Durling & Durling, whose domicile is at Via Espana 120 in the City
of Panama."
IN WITNESS WHEREOF, the holder of all the outstanding shares
of stock of this Corporation, entitled to vote, has signed this agreement this
15th day of November, 1982.
McDERMOTT INCORPORATED
By /s/ John A. Lynott
----------------------------------
John A. Lynott
Executive Vice President
<PAGE> 16
R E S O L U T I O N S
RESOLVED, that the Board of Directors of McDermott
International, Inc. (the "Corporation"), pursuant to authority vested in it by
the provisions of the Articles of Incorporation, as amended, of the
Corporation, hereby authorizes the issue of a series of the Corporation's
Preferred Stock, $1.00 par value, twenty-five-million shares of which are
authorized to be issued under the Corporation's Articles of Incorporation, as
amended (such twenty-five- million shares being hereinafter called the
"Preferred Stock"), and hereby fixes the number, designation, preferences,
rights and limitations thereof, all of which are expressed in currency of the
United States of America and are in addition to those set forth in said
Articles of Incorporation, as amended, as follows:
1. Designation. 100,000 shares of the Preferred
Stock of the Corporation are hereby constituted as a series of the Preferred
Stock designated as "Series A $10.00 Participating Preferred Stock"
(hereinafter called "Series A Preferred Stock"). The Board of Directors is
authorized, by resolutions duly adopted, to decrease from time to time but not
increase the number of shares of Series A Preferred Stock. Shares of Series A
Preferred Stock shall rank prior to the Corporation's Common Stock (par value
$1 per share) ("Common Stock") with respect to the payment of dividends (except
as provided in Section 2(b) below) and upon liquidation.
2. Dividends, Acquisitions of Junior or Series A
Preferred Stock and Priority. (a) Preferential dividends on the Series A
Preferred Stock shall be at the rate of $10.00 per share per annum and such
cumulative cash dividends thereon shall be payable, when and as declared by the
Board of Directors, quarterly on the first day of January, April, July and
October in each year, commencing on the first of such dates occurring more than
45 days after the original issuance of the Series A Preferred Stock. The
initial quarterly preferential dividend payable with respect to each
outstanding share of Series A Preferred Stock after the date of original
issuance of such share shall be in an amount determined by multiplying $10.00
by a fraction, the numerator of which shall be the number of days between the
date of issuance and the dividend payment date for such initial quarterly
dividend (counting the date of issuance but not such dividend payment date) and
the denominator of which shall be 365.
(b) In addition to the preferential dividend thereon,
there shall be declared a dividend (a "participating Dividend") on the Series A
Preferred Stock whenever the declaration of a dividend on the Common Stock of
the Corporation or on stock of the Corporation of any other class ranking
junior to the Series A Preferred Stock (collectively "Junior Stock") would (or
a transaction deemed by this resolution to constitute the declaration of a
dividend on Junior Stock would) increase the amount constituting Excess
Dividends of the then current fiscal year determined pursuant to this
resolution immediately after such declaration of a dividend or such transaction
deemed to constitute the declaration of a dividend; and the Corporation shall
not declare a dividend on Junior Stock or consummate a transaction deemed to
constitute the declaration of a dividend on Junior Stock if the amount
constituting Excess Dividends immediately after such declaration or transaction
would be increased by reason of such declaration or transaction unless the
Corporation simultaneously declares the Participating Dividend on Series A
Preferred Stock required by this resolution by reason of such declaration or
transaction with respect to Junior Stock.
<PAGE> 17
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Dividends. For the purposes of this resolution: (x) no
dividend payable in shares of Junior Stock shall be treated as a dividend (y)
any dividend payable in United States dollars shall be taken into account at
the amount so payable and (z) any dividend payable in any other property
(except stock described in item (x) above) and any payment in any transaction
deemed to be a dividend shall be taken into account at the full fair value of
such property stated in United States dollars on the day such dividend is
declared or such payment is made.
Amounts deemed to be dividends. Any consideration given by
the Corporation or an Affiliate (or by each in part) to purchase, redeem or
retire any share of Junior Stock shall be deemed for the purposes of this
resolution to be a dividend declared on Junior Stock in the amount of the full
fair value of such consideration stated in United States dollars on the day
such consideration is given.
Excess Dividends. For the purposes of this resolution
the amount constituting Excess Dividends shall, at any time during any fiscal
year, be the excess of:
(i) the aggregate of all the dividends previously
declared on Junior Stock during that fiscal year plus the
aggregate of all amounts deemed, pursuant to this resolution,
to have been dividends previously declared on Junior Stock
during that fiscal year; over
(ii) the amount determined by multiplying the total number
of shares of Junior Stock outstanding immediately prior to any
declaration of a dividend on Junior Stock or to any purchase,
retirement or redemption deemed to be a dividend pursuant to
this resolution by three dollars ($3.00).
Series A Participation. The Series A Participation at any
time during any fiscal year shall, for purposes of this resolution, be
determined as follows:
(i) The Participation Base shall be the amount of the
Excess Dividends at that time divided by the number of shares
of Junior Stock then outstanding.
(ii) The Participation Portion shall be the sum of
(a) 10% of the Participation Base;
(b) 10% of that part of the Participation Base in
excess of one dollar ($1.00);
(c) 20% of that part of the Participation Base in
excess of two dollars ($2.00), and
(d) 40% of that part of the Participation Base in
excess of three dollars ($3.00).
<PAGE> 18
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(iii) The Series A Participation at any time shall be the
Participation Portion determined at that time multiplied by
the number of shares of Junior Stock then outstanding.
Participating Dividend. The amount to be declared as a
Participating Dividend at any time pursuant to this resolution shall be:
(i) an amount equal to the Series A Participation
determined at that time pursuant to this resolution multiplied
by a fraction the numerator of which is the number of shares
of Series A Preferred Stock then outstanding and the
denominator of which is one hundred thousand
reduced by
(ii) an amount equal to the sum of all the Participating
Dividends previously declared during that fiscal year on a
single share of Series A Preferred Stock outstanding
throughout that fiscal year multiplied by the number of shares
of Series A Preferred Stock then outstanding.
Increase or decrease of money amounts. Each of the Amounts
(one, two and three dollars) to be employed originally pursuant to this
resolution to determine the amount to be declared as a Participating Dividend
on Series A Preferred Stock at any time shall, from time to time, be increased
or decreased if, when and to the extent required by this paragraph.
(i) Each such Amount shall be increased (immediately
after any declaration of a dividend on Junior Stock or any
purchase, retirement or redemption deemed to be a dividend
pursuant to this resolution) to reflect any purchase,
redemption or retirement of any share of Junior Stock by the
Corporation or an Affiliate. Any such increase shall be
reflected by multiplying such Amount by a fraction the
numerator of which shall be the number of shares of Junior
Stock outstanding immediately before such purchase, redemption
or retirement and the denominator of which shall be the number
of shares of Junior Stock outstanding immediately thereafter.
(ii) Each such Amount shall be decreased (immediately
thereafter) to reflect the issuance or sale of any share of
Junior Stock by the Corporation or an Affiliate in a
transaction in which the Corporation or such Affiliate does
not (or the two together do not) receive, in exchange for such
share of Junior Stock, money or other property in an amount
equal to or greater than the full fair value of such share of
Junior Stock stated in United States dollars at the date such
share is issued or old, regardless whether such issue or sale
occurs through the distribution of Junior Stock
<PAGE> 19
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as a dividend on stock (or upon a stock split) without the
receipt of any consideration or occurs through the issue or
sale of Junior Stock for a consideration which is, in the
aggregate, of lesser value than the full fair value of the
Junior Stock issued or sold at the time of such issue or sale.
Any such decrease shall be reflected by multiplying such
Amount by a fraction the numerator of which is the number of
shares of Junior Stock outstanding immediately before such
issue or sale and the denominator of which is
(a) the number of shares of Junior Stock
outstanding immediately after such issue or sale,
less
(b) that number of shares of Common Stock of the
Corporation the aggregate value of which (at the date
of such issue or sale) is equal to the consideration
received upon such issue or sale.
For the purpose of determining any increase or decrease in an Amount pursuant
to this paragraph:
(iii) a share of Junior Stock held by an Affiliate shall
not be treated as a share of stock outstanding.
(iv) any consideration received by the Corporation or an
Affiliate upon the issue or sale of a share of Junior Stock to
the Corporation or an Affiliate shall not be treated as
consideration received upon the issue or sale of a share of
Junior Stock.
No increase or decrease of an Amount pursuant to this paragraph shall be made
if such increase or decrease would be less than 5% of that Amount as last
previously increased or decreased pursuant to this paragraph. The previous
sentence notwithstanding, any Amount (as last increased or decreased pursuant
to this paragraph) shall be increased or decreased as herein provided when the
net aggregate of all increases and decreases in such Amount which would have
been made but for the preceding sentence since the last increase or decrease of
such Amount pursuant to this paragraph equals 5% or more of such Amount as last
increased or decreased pursuant to this paragraph.
Affiliate. For the purposes of this resolution, any
corporation, partnership, trust, joint venture or other person shall be
considered an Affiliate if
(i) such person holds 25% or more in value of all the
stock of the Corporation;
(ii) the Corporation and any Affiliate or Affiliates hold,
between them and in the aggregate, 25% or more in value of all
the stock (or comparable interests in the assets or earnings)
of
<PAGE> 20
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such person, or
(iii) 25% or more in value of all the stock of the
Corporation and 25% or more in value of all the stock (or
comparable interests in the assets or earnings of such person)
are held (directly or indirectly) by the same person or are,
between them and in the aggregate, held (directly or
indirectly) held by the same group of persons acting in
concert with respect to such holdings.
(c) Except for Participating Dividends (to the extent
declared pursuant to Section 2(b) hereof), no dividend shall be declared or
paid on any shares of Series A Preferred Stock or any other series of the
Preferred Stock in respect of any dividend period unless there shall have been
declared or paid on all shares than outstanding of Series A Preferred Stock and
any other series of the Preferred Stock like dividends for all dividend periods
coinciding with or terminating within such dividend period, ratably in
proportion to the respective fixed dividend rates established for the Series A
Preferred Stock and such other series of the Preferred Stock.
(d) The Corporation shall not redeem or purchase or
otherwise acquire for value shares of Common Stock or any other class of stock
or series thereof ranking junior to the Series A Preferred Stock as to
preferential dividends or upon liquidation if at the time of making such
redemption, purchase or other acquisitions the Corporation shall be in default
with respect to any dividends payable on, or any obligation to redeem or
retire, shares of Series A Preferred Stock.
(e) Fixed cash dividends upon shares of Series A
Preferred Stock shall commence to accrue and be cumulative from the date of
issue thereof. Accumulated dividends on shares of Series A Preferred Stock
shall not bear interest.
(f) Shares of Series A Preferred Stock redeemed,
purchased or otherwise acquired for value by the Corporation (excluding, until
the Corporation elects to retire them, shares which are held as treasury
shares) shall, after such acquisition, have the status of authorized and
unissued shares of Preferred Stock and may be reissued by the Corporation at
any time as shares of any series of Preferred Stock other than as shares of
Series A Preferred Stock.
(g) Any other series of the Preferred Stock issued by the
Corporation shall rank at least pari passu both as to preferential dividends
(but not as to Participating Dividends, which shall rank junior to such
preferential dividends) and upon liquidation with the Series A Preferred Stock.
3. Redemption. The shares of Series A Preferred
Stock will not be subject to redemption.
4. Voting Rights. In addition to such voting rights as
may be required by law or granted in the Articles of Incorporation, the Series
A Preferred Stock shall be entitled to an aggregate number of votes as will
equal 10% of the total number of votes entitled to be cast on any matter before
the stockholders of the Corporation including such votes granted
<PAGE> 21
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the Series A Preferred Stock; and each holder of shares of Series A Preferred
Stock shall be entitled to its proportional share of such aggregate number of
votes.
5. Liquidation Rights. (a) Upon any liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
after payment or provision for payment of the debts and other liabilities of
the Corporation including amounts to be received in liquidation by the holders
of shares of any other series of Preferred Stock, the holders of shares of
Series A Preferred Stock shall share ratably in liquidation with the holders of
shares of Common Stock; provided that for the purposes of this Section 5(a)
only, each share of Series A Preferred Stock shall be deemed to equal 350
shares of Common Stock.
(b) Neither the merger nor consolidation of the
Corporation into or with any other corporation, nor the merger or consolidation
of any other corporation into or with the Corporation, nor a sale, transfer or
lease of all or any part of the assets of the Corporation, shall be deemed to
be a liquidation, dissolution or winding up of the Corporation with the meaning
of this Section 5.
(c) Written notice of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Corporation,
stating a payment date and the place where the distributable amounts shall be
payable, shall be given by mail, postage prepaid, not less than 30 days prior
to the payment date stated therein, to the holders of record of Series A
Preferred Stock at their respective addresses as the same shall appear on the
books of the Corporation.
(d) Subject to the provisions of Section 5(a) hereof, no
payment on account of such liquidation, dissolution or winding up of the
Corporation shall be made to the holders of any class or series of stock
ranking on a parity with the Series A Preferred Stock in respect of the
distribution of assets, unless there shall likewise be paid at the same time to
the holders of shares of Series A Preferred Stock like amounts, ratably, in
proportion to the full distributive amounts which they and the holders of such
other class or series of stock are entitled.
6. Definition. The term "accrued and unpaid
dividends" as of any date shall mean a sum equal to $10.00 per share per annum
from the date from which dividends on the Shares of Series A Preferred Stock
accrued to and including such date less the aggregate amount of all dividends
theretofore paid thereon.
<PAGE> 22
R E S O L U T I O N S
RESOLVED, that the Board of Directors of McDermott
International, Inc. (the "Corporation"), pursuant to authority vested in it by
the provisions of the Articles of Incorporation, as amended, of the
Corporation, hereby authorizes the issue of a series of the Corporation's
Preferred Stock, $1.00 par value, twenty-five-million shares of which are
authorized to be issued under the Corporation's Articles of Incorporation, as
amended (such twenty-five- million shares being hereinafter called the
"Preferred Stock"), and hereby fixes the number, designation, preferences,
rights and limitations thereof, all of which are expressed in currency of the
United States of America and are in addition to those set forth in said
Articles of Incorporation, as amended, as follows:
1. Designation. 100,000 shares of the Preferred
Stock of the Corporation as hereby constituted as a series of the Preferred
Stock designated as "Series B $20.00 Non-Voting Preferred Stock" (hereinafter
called "Series B Preferred Stock"). The Board of Directors is authorized, by
resolutions duly adopted, to decrease from time to time but not increase the
number of shares of Series B Preferred Stock. Shares of Series B Preferred
Stock shall rank prior to the Corporation's Common Stock (par value $1 per
share) ("Common Stock") with respect to the payment of dividends and upon
liquidation.
2. Dividends, Acquisitions of Junior or Series B
Preferred Stock and Priority. (a) Dividends on the Series B Preferred
Stock shall be at the rate of $20.00 per share per annum and such cumulative
cash dividends thereon shall be payable, when and as declared by the Board of
Directors, quarterly on the first day of January, April, July and October in
each year, commencing on the first of such dates occurring more than 45 day
after the original issuance of the Series B Preferred Stock. The initial
quarterly dividend payable with respect to each outstanding share of Series B
Preferred Stock after the date of original issuance of such share shall be an
amount determined by multiplying $20.00 by a fraction, the numerator of which
shall be the number of days between the date of issuance and the dividend
payment date for such initial quarterly dividend (counting the date of issuance
but not such dividend payment date) and the denominator of which shall be 365.
(b) No dividend shall be declared or paid on any shares
of Series B Preferred Stock or any other series of the Preferred Stock in
respect of any dividend period unless there shall have been declared or paid on
all shares then outstanding of Series B Preferred Stock and any other series of
the preferred Stock like dividends (other than any participating dividends to
which such series of Preferred Stock may be entitled) for all dividend periods
coinciding with or terminating within such dividend period, ratably in
proportion to the respective fixed dividend rates established for the Series B
Preferred Stock and such other series of the Preferred Stock.
(c) The Corporation shall not redeem or purchase or
otherwise acquire for value shares of Common Stock or any other class of stock
or series thereof ranking junior to the Series B Preferred Stock as to
dividends or upon liquidation if at the time of making such redemption,
purchase or other acquisition the Corporation shall be in default with respect
to any dividends payable on, or any obligation to redeem or retire, shares of
Series B Preferred Stock.
<PAGE> 23
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(d) Cash dividends upon shares of Series B Preferred
Stock shall commence to accrue and be cumulative from the date of issue
thereof. Accumulated dividends on shares of Series B Preferred Stock shall not
bear interest.
(e) Shares of Series B Preferred Stock redeemed,
purchased or otherwise acquired for value by the Corporation (excluding, until
the Corporation elects to retire them, shares which are held as treasury
shares) shall, after such acquisition, have the status of authorized and
unissued shares of Preferred Stock and may be reissued by the Corporation at
any time as shares of any series of Preferred Stock other than as shares of
Series B Preferred Stock.
(f) Any other series of the Preferred Stock issued by the
Corporation shall rank pari passu both as to dividends (other than any
participating dividends to which such series of Preferred Stock may be
entitled, which participating dividends shall rank junior to all preferential
dividends) and upon liquidation with the Series B Preferred Stock.
3. Redemption. (a) On or after November 30,
1989, the Corporation shall have the right, at its option and by resolution of
its Board of Directors, to redeem at any time all shares of Series B Preferred
Stock as a whole upon payment in cash, in respect of each share redeemed, at a
redemption price equal to $275.00, plus an amount equal to all accrued and
unpaid dividends thereon to the date of redemption.
(b) On November 30, 1992 and on November 30 of each year
thereafter to and including November 30, 2001, the Corporation will redeem
through a mandatory sinking fund, at a redemption price of $250.00 per share
plus a sum equal to all accrued and unpaid dividends to the date of redemption,
10,000 shares of Series B Preferred Stock, which number shall be adjusted to
give effect to any stock splits or stock dividends on such shares. The
Corporation may apply to such sinking fund obligation any shares of Series B
Preferred Stock owned by it which have not been previously credited against
such obligation. The Corporation's obligation to make redemptions through such
mandatory sinking fund shall be cumulative.
4. Voting Rights. The holders of Series B Preferred
Stock shall have no voting rights except as required by law or such additional
voting rights as are set forth in the Articles of Incorporation.
5. Liquidation Rights. (a) Upon any
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary, after payment or provision for payment of the debts and other
liabilities of the Corporation, the holders of shares of Series B Preferred
Stock shall be entitled to receive, out of the assets of the Corporation,
whether such assets are capital or surplus and whether or not any dividends as
such are declared, $250 per share plus an amount equal to all accrued and
unpaid dividends thereon to the date fixed for distribution, and no more,
before any distribution shall be made to the holders of the Common Stock or any
other class of stock or series thereof ranking junior to the Series B Preferred
Stock with respect to the distribution of assets.
(b) Nothing herein contained shall be deemed to prevent
redemption of shares of Series B Preferred Stock by the Corporation pursuant to
paragraph 3 of this
<PAGE> 24
- 3 -
resolution. Neither the merger nor consolidation of the Corporation into or
with any other corporation, nor the merger or consolidation of any other
corporation into or with the Corporation, nor a sale, transfer or lease of all
or any part of the assets of the Corporation, shall be deemed to be a
liquidation, dissolution or winding up of the Corporation within the meaning of
this paragraph 5 of this resolution.
(c) Written notice of any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation, stating a payment
date and the place where the amounts distributable thereupon shall be payable,
shall be given by depositing such notice with the Postal Service of the United
States of America postage prepaid, not less than 30 days prior to the payment
date stated therein, to the holders of record of Series B Preferred Stock at
their respective addresses as the same shall appear on the books of the
Corporation.
(d) No payment on account of such liquidation,
dissolution or winding up of the Corporation shall be made to the holders of
any class or series of stock ranking on a parity with the Series B Preferred
Stock unless there shall likewise be paid at the same time to the holders of
the Series B Preferred Stock like amounts, ratably, in proportion to the full
amounts to which they and the holders of such other class or series of stock
are entitled.
6. Definition. The term "accrued and unpaid
dividends" as of any date shall mean a sum equal to $20.00 per share per annum
from the date from which dividends on the Shares of Series B Preferred Stock
accrued to and including such date less the aggregate amount of all dividends
theretofore paid thereon.
<PAGE> 25
CERTIFICATE OF AMENDMENT
The undersigned, J. E. Cunningham, being Chairman of the Board and
Chief Executive Officer and F. C. Allen, Jr., being the Secretary,
respectively, of McDERMOTT INTERNATIONAL, INC., do hereby certify as follows:
1. The above named corporation was organized under the Laws of the
Republic of Panama by Notarial Document No. 1869 dated August 10,
1959, Notary Number One of the Circuit of Panama, Republic of Panama,
which document was recorded in the Public Registry Office, Mercantile
Section at Volume 372, Folio 216, Entry 81.615 on the 11th day of
August, 1959.
2. That the annual meeting of the Stockholders of the Company was held on
August 11, 1987, at 9:30 a.m. pursuant to notice duly given, at which
meeting Mr. J. E. Cunningham, Chairman of the Board and Chief
Executive Officer of the Company, acted as Chairman of the meeting and
Mr. F. C. Allen, Jr., Secretary of the Company, acted as Secretary
thereof. In this meeting there were present in person or by proxy the
holders of 28,883,749 shares, constituting approximately 77.6% of the
voting power of the outstanding capital stock of the Company entitled
to vote.
3. At such meeting the Articles of Incorporation was amended by adding a
new Article 11, as described in the Proxy Statement, to read as
follows:
" ARTICLE 11
A Director of the Corporation shall not be personally liable
to the Corporation or its shareholders for monetary damages for breach
of fiduciary duty as a Director, except for liability (i) for any
breach of the Director's duty of loyalty to the Corporation or its
shareholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii)
for unlawful payment of dividend or unlawful stock purchase or
redemption, or (iv) for any transaction from which the Director
derived any improper personal benefit. If any applicable law is
amended after approval by the shareholders of this article to
authorize corporate action further eliminating or limiting the
personal liability of Directors, then the liability of a Director of
the Corporation shall be eliminated or limited to the fullest extent
permitted by the laws of the Republic of Panama.
Any repeal or modification of the foregoing paragraph by the
shareholders of the Corporation shall not adversely affect any right
or protection
<PAGE> 26
- 2 -
of a Director of the Corporation existing at the time of such repeal
or modification."
4. And likewise, the following resolution was unanimously adopted at such
Annual Meeting of Stockholders:
RESOLVED, that the proper officers of the Company be empowered
to execute an amendment to the Articles of Incorporation to limit the
personal liability of the Directors, as described in the Proxy
Statement.
WHEREFORE, this Certificate is executed at New Orleans,
Louisiana, U.S.A. on this 11th day of September, 1987.
/s/ J. E. Cunningham /s/ F. C. Allen, Jr.
- --------------------------------- --------------------------------
J. E. Cunningham F. C. Allen, Jr.
Chairman of the Board Secretary
Chief Executive Officer
<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED
BY-LAWS
OF
McDERMOTT INTERNATIONAL, INC.
(as amended to December 5, 1995)
ARTICLE I
Meetings of Stockholders
Section 1. The annual and any special meetings of the stockholders
shall be held on the date and at the time and place designated in the notice of
such meetings or in a duly executed waiver of notice thereof.
Section 2. A special meeting of the stockholders may be held at any
time upon the call of the Chief Executive Officer or by order of the Board of
Directors.
Section 3. Whether or not a quorum is present at any stockholders'
meeting, the meeting may be adjourned from time to time by the vote of the
holders of a majority of the voting power of the shares of the outstanding
capital stock of the Company present in person or represented by proxy at the
meeting, as they shall determine.
Section 4. Holders of a majority of the voting power of the shares of
the outstanding capital stock of the Company entitled to vote, present in
person or represented by proxy, shall constitute a quorum for the transaction
of all business at any meeting of the stockholders.
<PAGE> 2
Section 5. In all matters arising at stockholders' meetings, a
majority of the voting power of the shares of the outstanding capital stock of
the Company present in person or represented by proxy at the meeting shall be
necessary and sufficient for the transaction of any business, except where some
larger percentage is affirmatively required by law or by the certificate of
incorporation.
Section 6. At any meeting of stockholders, the chairman of the
meeting may appoint two inspectors who shall subscribe an oath or affirmation
to execute faithfully the duties of inspectors with strict impartiality and
according to the best of their ability, to canvass the votes on any matter and
make and sign a certificate of the result thereof. No candidate for the office
of director shall be appointed as such inspector with respect to the election
of directors. Such inspectors shall be appointed upon the request of the
holders of ten percent (10%) or more of the voting power of the shares of the
outstanding capital stock of the Company present and entitled to vote on such
matter.
Section 7. All elections of directors shall be by ballot. The
chairman of the meeting may cause a vote by ballot to be taken upon any other
matter, and such vote by ballot shall be taken upon the request of the holders
of ten percent (10%) or more of the voting power of the shares of the
outstanding capital stock of the Company present and entitled to vote on such
matter.
Section 8. The meetings of the stockholders shall be presided over by
the Chief Executive Officer, or if he is absent
- 2 -
<PAGE> 3
or unable to preside, by the Chairman and if neither the Chief Executive
Officer nor the Chairman is present or able to preside, then by a Vice
Chairman; if more than one Vice Chairman is present and able to preside the
Vice Chairman who shall have held such office for the longest period of time
shall preside; if neither the Chief Executive Officer nor the Chairman nor a
Vice Chairman is present and able to preside, then the President shall preside;
if none of the above is present and able to preside, then a person shall be
elected at the meeting to preside over same. The Secretary of the Company, if
present, shall act as secretary of such meetings or, if he is not present, an
Assistant Secretary shall so act; if neither the Secretary nor an Assistant
Secretary is present, then a secretary shall be appointed by the person
presiding over the meeting.
The order of business shall be as follows:
(a) Calling of meeting to order
(b) Election of chairman and the appointment of a secretary, if
necessary
(c) Presentation of proof of the due calling of the meeting
(d) Presentation and examination of proxies
(e) Settlement of the minutes of the previous meeting
(f) Reports of officers and committees
(g) The election of directors, if an annual meeting, or a meeting
called for that purpose
(h) Unfinished business
(i) New business
- 3 -
<PAGE> 4
(j) Adjournment.
Section 9. At every meeting of the stockholders, all proxies shall be
received and taken in charge of and all ballots shall be received and canvassed
by the secretary of the meeting who shall decide all questions touching the
qualification of voters, the validity of the proxies, and the acceptance or
rejection of votes, unless inspectors shall have been appointed, in which event
such inspectors shall perform such duties and decide such questions with
respect to the matter for which they have been appointed.
ARTICLE II
Directors
Section 1. The business and affairs of the Company shall be managed
by its Board of Directors in accordance with the provisions of the Articles of
Incorporation. The number of Directors shall be as provided in the Articles of
Incorporation.
Section 2. Meetings of the Board of Directors may be called by the
Chairman or by the Chief Executive Officer or by a majority of the directors by
giving notice to each director.
Section 3. Meetings of the Board of Directors shall be presided over
by the Chairman, or if the Chairman so requests or is absent or unable to
preside, by the Chief Executive Officer; if neither the Chairman nor the Chief
Executive Officer is present and able to preside, then by a Vice Chairman; if
more than one Vice Chairman is present and able to preside, the Vice
- 4 -
<PAGE> 5
Chairman who shall have held such office for the longest period of time shall
preside; if neither the Chairman nor the Chief Executive Officer nor a Vice
Chairman is present and able to preside, then the President shall preside; if
none of the above is present and able to preside, then one of the Directors
shall be elected at the meeting to preside over same.
Section 4. Whether or not a quorum is present at any meeting of the
Board of Directors, a majority of the directors present may adjourn the meeting
from time to time as they may determine. Notice need not be given of any such
adjourned meeting if the time and place thereof are announced at the meeting at
which the adjournment is taken. Any business may be transacted at the
adjourned meeting which might have been transacted at the original meeting.
Section 5. Any committee of the Board of Directors shall have and may
exercise the powers of the Board of Directors in the management of the business
and affairs of the Company to the extent provided in the resolution by which
such committee is designated, except that no such committee shall have
authority to alter or amend the By-Laws, or to fill vacancies in either the
Board of Directors or its own membership. In the absence or disqualification
of any member of such a committee, the member or members thereof present at any
meeting and not disqualified from voting, whether or not he or they constitute
a quorum, may unanimously appoint another member of the Board of Directors to
act at the meeting in the place of any such absent or
- 5 -
<PAGE> 6
disqualified member. Each such committee shall meet at stated times or on
notice to all by any of its own number. It shall fix its own rules of
procedure. A majority shall constitute a quorum and the affirmative vote of a
majority of those present at a meeting at which a quorum is present shall be
the act of such committee. Each such committee shall keep minutes of its
proceedings.
Section 6. Directors shall receive as compensation for their services
an amount in addition to actual expenses incident to the attending of meetings
to be fixed by resolution of the Board of Directors. Nothing in this section
shall be construed to preclude a Director from serving the Company in any other
capacity and receiving compensation therefor.
Section 7. No person who has attained the age of seventy (70) years
shall be initially elected a Director of the Company, but any person, who has
been so elected prior to attaining such age, and who attains such age while
serving as a Director, shall continue to serve as a Director until the third
succeeding annual meeting of the stockholders following the annual meeting of
stockholders at which he was last elected a Director of the Company, as of
which annual meeting of stockholders such person shall retire from the Board of
Directors and shall not again be elected to or serve on the Board of Directors,
unless otherwise specifically authorized by a majority vote of the Board of
Directors. However, in no event shall a Director serve past his attaining age
76, except in the case to allow completion of a
- 6 -
<PAGE> 7
Director's current term in office which expires during the year which he
attains age 76.
Section 8. A director of this Corporation who is, under Section
411(a) of the Employee Retirement Income Security Act of 1974 of the United
States of America, under a disability to serve as a fiduciary of an employee
benefit plan, as that term is defined in Section 3(3) of said Act shall not
serve as a fiduciary of any such employee benefit plan with respect to which
the Company or any of its subsidiaries is an employer as defined in Section
3(5) of said Act; and, during the period of such disability, such director
shall be precluded from acting in any manner with respect to any such plan.
Any director who is disabled from serving as a fiduciary of an employee benefit
plan under Section 411(a) of said Act shall be requested to consent, in
writing, to the applicability of this By-Law to him.
ARTICLE III
Officers
Section 1. The officers of this Company shall be elected annually by
the Board of Directors at its first meeting following the annual meeting of
stockholders or from time to time and shall hold office until their successors
are elected and qualify, or until their earlier death, resignation or removal.
Such officers shall consist of a Chairman of the Board of Directors, a Chief
Executive Officer, one or more Vice Chairmen of the Board of Directors, a
President, one or more Vice Presidents, a Secretary,
- 7 -
<PAGE> 8
a Treasurer and one or more Controllers. In these By-Laws, the Chairman of the
Board of Directors is sometimes referred to as "Chairman", and the Vice
Chairman or Vice Chairmen of the Board of Directors are sometimes referred to
as "Vice Chairman" or "Vice Chairmen", respectively. The Board of Directors
may in addition elect at such meeting or from time to time one or more
Assistant Secretaries and one or more Assistant Treasurers and one or more
Assistant Controllers. Any number of offices may be held by the same person.
Section 2. The officers shall have such powers and duties as may be
provided in these By-Laws and as may be conferred upon or assigned to them by
the Board of Directors from time to time.
Section 3. The Chairman shall preside over meetings of the Board of
Directors, as stated elsewhere in these By-Laws.
Section 4. The Chief Executive Officer shall preside over meetings of
the shareholders, as stated elsewhere in these By-Laws; subject to the
direction of the Board of Directors, he shall have and exercise direct charge
of and general supervision over all business and affairs of the Company and
shall perform all duties incident to the office of the Chief Executive Officer
of a corporation, and such other duties as may be assigned to him by the Board
of Directors.
Section 5. Each Vice Chairman of the Board of Directors shall have
and exercise such powers and perform such duties as may be conferred upon or
assigned to him by the Board of Directors or by the Chief Executive Officer.
- 8 -
<PAGE> 9
Section 6. The President shall be the Chief Operating Officer of the
Company and shall have and exercise such powers and perform such duties as may
be conferred upon or assigned to him by the Board of Directors or by the Chief
Executive Officer.
Section 7. Each Vice President shall have and exercise such powers
and perform such duties as may be conferred upon or assigned to him by the
Board of Directors or by the Chief Executive Officer.
Section 8. Each Controller shall have and exercise such powers and
perform such duties as may be conferred upon or assigned to him by the Board of
Directors or by the Chief Executive Officer.
Section 9. The Secretary shall give proper notice of meetings of
stockholders and directors, shall be custodian of the book in which the minutes
of such meetings are kept, and shall perform such other duties as shall be
assigned to him by the Board of Directors or by the Chief Executive Officer.
Section 10. The Treasurer shall keep or cause to be kept accounts of
all monies of the company received or disbursed, shall deposit or cause to be
deposited all monies and other valuables in the name of and to the credit of
the Company in such banks and depositories as the Board of Directors shall
designate, and shall perform such other duties as shall be assigned to him by
the Board of Directors or by the Chief Executive Officer. All checks or other
instruments for the payment of money shall be signed in such a manner as the
Board of Directors may from time
- 9 -
<PAGE> 10
to time determine.
Section 11. Any officers of the Company may be removed, with or
without cause, by resolution adopted by the Board of Directors at a meeting
called for that purpose.
ARTICLE IV
Seal
The corporate seal of this Company shall be a circular seal with the
name of the Company around the border and the word "SEAL" in the center.
ARTICLE V
Any of these By-Laws may be amended, altered or repealed and
additional By-Laws may be adopted by the Board of Directors by the affirmative
vote of a majority of the whole Board cast at a meeting duly held, except that
the vote of two-thirds of the outstanding shares of the Company entitled to
vote shall be required to amend, alter or repeal Section 1 or Section 9 of
Article II or this Article V (as it applies to said Section 1 and 9 of Article
II) of these By-Laws.
ARTICLE VI
Indemnification
Section 1. Each person (and the heirs, executors and administrators
of such person) who is or was a director or officer of the Company shall in
accordance with Section 2 of this
- 10 -
<PAGE> 11
Article VI be indemnified by the Company against any and all liability and
reasonable expense that may be paid or incurred by him in connection with or
resulting from any actual or threatened claim, action, suit or proceeding
(whether brought by or in the right of the Company or otherwise), civil,
criminal, administrative or investigative, or in connection with an appeal
relating thereto, in which he may become involved, as a party or otherwise, by
reason of his being or having been a director or officer of the Company or, if
he shall be serving or shall have served in such capacity at the request of the
Company, a director, officer, employee or agent of another corporation or any
partnership, joint venture, trust or other entity whether or not he continues
to be such at the time such liability or expense shall have been paid or
incurred, provided such person acted, in good faith, in a manner he reasonably
believed to be in or not opposed to the best interest of the Company and in
addition, in criminal actions or proceedings, had no reasonable cause to
believe that his conduct was unlawful. As used in this ARTICLE VI, the terms,
"liability" and "expense" shall include, but shall not be limited to, counsel
fees and disbursements and amounts of judgments, fines or penalties against,
and amounts paid in settlement by, such director or officer. The termination
of any actual or threatened claim, action, suit or proceeding, civil, criminal,
administrative, or investigative, by judgment, settlement (whether with or
without court approval), conviction or upon a plea of guilty or nolo
contendere, or its equivalent,
- 11 -
<PAGE> 12
shall not create a presumption that such director or officer did not meet the
standards of conduct set forth in this Section 1.
Section 2. Every such director and officer shall be entitled to
indemnification under Section 1 of this ARTICLE VI with respect to any claim,
action, suit or proceeding of the character described in such Section 1 in
which he may become in any way involved as set forth in such Section 1, if (i)
he has been wholly successful on the merits or otherwise in respect thereof, or
(ii) the Board of Directors acting by a majority vote of a quorum consisting of
directors who are not parties to (or who have been wholly successful with
respect to) such claim, action, suit or proceeding, finds that such director or
officer has met the standards of conduct set forth in such Section 1 with
respect thereto, or (iii) a court determines that he has met such standards
with respect thereto, or (iv) independent legal counsel (who may be the regular
counsel of the Company) deliver to the Company their written advice that, in
their opinion, he has met such standards with respect thereto.
Section 3. Expenses incurred with respect to any claim, action, suit
or proceeding of the character described in Section 1 of this ARTICLE VI may be
advanced by the Company prior to the final disposition thereof upon receipt of
an undertaking by or on behalf of the recipient to repay such amount unless it
is ultimately determined that he is entitled to indemnification under this
ARTICLE VI.
- 12 -
<PAGE> 13
Section 4. The rights of indemnification under this ARTICLE VI shall
be in addition to any rights to which any such director or officer or any other
person may otherwise be entitled by contract or as a matter of law.
- 13 -
<PAGE> 1
EXHIBIT 11
McDERMOTT INTERNATIONAL, INC.
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS (LOSS)
FOR THE THREE FISCAL YEARS ENDED MARCH 31, 1996
(In thousands, except shares and per share amounts)
PRIMARY AND FULLY DILUTED
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Income before extraordinary
items and cumulative effect
of accounting changes $ 20,625 $ 10,876 $ 89,956
Less dividend requirements of preferred stock,
Series C (8,266) (8,266) (6,084)
- ---------------------------------------------------------------------------------------------------------------------
Income applicable to common stock 12,359 2,610 83,872
Cumulative effect of accounting changes - (1,765) (100,750)
- ---------------------------------------------------------------------------------------------------------------------
Net income (loss) for primary computation $ 12,359 $ 845 $ (16,878)
=====================================================================================================================
Weighted average number of common
shares outstanding during the year 54,223,051 53,645,256 52,945,193
Common stock equivalents of stock
options and stock appreciation
rights based on "treasury stock"
method 149,033 103,133 522,740
- ---------------------------------------------------------------------------------------------------------------------
Weighted average number of common and
common equivalent shares outstanding
during the year for primary computation 54,372,084 53,748,389 53,467,933
=====================================================================================================================
Earnings (loss) per common and
common equivalent share: (1)
Income before extraordinary
items and cumulative effect
of accounting changes $ 0.23 $ 0.05 $ 1.57
Accounting changes - (0.03) (1.89)
- ---------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 0.23 $ 0.02 $ (0.32)
=====================================================================================================================
</TABLE>
(1) Earnings (loss) per common and common equivalent share assuming full
dilution are the same for the fiscal years presented.
92
<PAGE> 1
EXHIBIT 21
McDERMOTT INTERNATIONAL, INC.
SIGNIFICANT SUBSIDIARIES OF THE REGISTRANT
FISCAL YEAR ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
ORGANIZED PERCENTAGE
UNDER THE OF OWNERSHIP
NAME OF COMPANY LAWS OF INTEREST
<S> <C> <C>
McDermott International Investments Co., Inc. Panama 100
McDermott International Project Management, Inc. Panama 100
McDermott Azerbaijan Marine Construction, Inc. Panama 100
Creole Insurance Company, Ltd. Bermuda 100
J. Ray McDermott, S.A. Panama 64
Hydro Marine Services, Inc. Panama 100
Malmac Sdn. Bhd. Malaysia 100
J. Ray McDermott Holdings, Inc. Delaware 100
J. Ray McDermott, Inc. Delaware 100
McDermott Incorporated Delaware 93
Delta Hudson Engineering Corporation Delaware 100
Hudson Engineering (Canada), Ltd. Canada 100
McDermott Engineeers & Constructors (Canada) Ltd. Canada 100
Babcock & Wilcox Investment Company Delaware 100
The Babcock & Wilcox Company Delaware 100
Americon Delaware 100
Babcock & Wilcox Equity Investments, Inc. Delaware 100
Babcock & Wilcox Jonesboro Power, Inc. Delaware 100
Babcock & Wilcox West Enfield Power, Inc. Delaware 100
Babcock & Wilcox Industries Ltd. Canada 100
</TABLE>
The subsidiaries omitted from the foregoing list do not, considered in the
aggregated, constitute a significant subsidiary.
93
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Forms S-8 No. 2-83692, No. 33-16680, No. 33-51892, No. 33-51894, No. 33-63832
and No. 33-55341) of McDermott International, Inc. and the Registration
Statement (Form S-3 No. 33-54940) of McDermott Incorporated and in the related
Prospectuses of our report dated May 15, 1996 with respect to the consolidated
financial statements of McDermott International, Inc. included in this Annual
Report (Form 10-K) for the year ended March 31, 1996.
ERNST & YOUNG LLP
New Orleans, Louisiana
June 3, 1996
94
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MCDERMOTT
INTERNATIONAL'S MARCH 31, 1996 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 238,663
<SECURITIES> 2,077
<RECEIVABLES> 555,912
<ALLOWANCES> 98,863
<INVENTORY> 534,857
<CURRENT-ASSETS> 1,724,538
<PP&E> 1,890,103
<DEPRECIATION> 1,199,416
<TOTAL-ASSETS> 4,387,251
<CURRENT-LIABILITIES> 1,392,552
<BONDS> 576,256
<COMMON> 0
2,875
54,436
<OTHER-SE> 627,209
<TOTAL-LIABILITY-AND-EQUITY> 4,387,251
<SALES> 3,279,106
<TOTAL-REVENUES> 3,279,106
<CGS> 3,253,235
<TOTAL-COSTS> 3,253,235
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 84,312
<INCOME-PRETAX> 21,704
<INCOME-TAX> 1,079
<INCOME-CONTINUING> 20,625
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0.23
<EPS-DILUTED> 0.23
</TABLE>
