<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT 1934
For the transition period from ______________to______________
Commission File No. 1-8430
McDERMOTT INTERNATIONAL, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
REPUBLIC OF PANAMA 72-0593134
- --------------------------------------------------------------------------------
(State or other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
1450 Poydras Street, New Orleans, Louisiana 70112-6050
- --------------------------------------------------------------------------------
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, Including Area Code (504) 587-5400
--------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
The number of shares of Common Stock, par value $1 per share, outstanding as of
July 26, 1996 was 54,759,724.
<PAGE> 2
McDERMOTT INTERNATIONAL, INC.
INDEX - FORM 10-Q
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1 - Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheet
June 30, 1996 and March 31, 1996 4
Condensed Consolidated Statement of Income (Loss)
Three Months Ended June 30, 1996 and 1995 6
Condensed Consolidated Statement of Cash Flows
Three Months Ended June 30, 1996 and 1995 8
Notes to Condensed Consolidated Financial Statements 9
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 23
SIGNATURES 24
Exhibit 11 - Calculation of Earnings (Loss) Per
Common and Common Equivalent Share 25
</TABLE>
2
<PAGE> 3
PART I
McDERMOTT INTERNATIONAL, INC.
FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
3
<PAGE> 4
McDERMOTT INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1996
ASSETS
<TABLE>
<CAPTION>
6/30/96 3/31/96
------- -------
(Unaudited)
(In thousands)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 189,479 $ 238,663
Accounts receivable - trade 520,158 457,049
Accounts receivable - unconsolidated affiliates 50,772 57,691
Accounts receivable - other 182,055 162,335
Insurance recoverable - current 119,160 116,280
Contracts in progress 482,983 457,265
Inventories 71,440 77,592
Deferred income taxes 82,916 93,104
Other current assets 72,008 64,559
- --------------------------------------------------------------------------------------------------------------
Total Current Assets 1,770,971 1,724,538
- --------------------------------------------------------------------------------------------------------------
Property, Plant and Equipment, at Cost: 1,909,413 1,890,103
Less accumulated depreciation 1,209,920 1,199,416
- --------------------------------------------------------------------------------------------------------------
Net Property, Plant and Equipment 699,493 690,687
- --------------------------------------------------------------------------------------------------------------
Investments:
Government obligations 127,109 132,674
Other investments 110,838 109,352
- --------------------------------------------------------------------------------------------------------------
Total Investments 237,947 242,026
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Insurance Recoverable 570,104 606,963
- --------------------------------------------------------------------------------------------------------------
Excess of Cost Over Fair Value of Net Assets
of Purchased Businesses Less Accumulated
Amortization of $134,736,000 at June 30, 1996
and $126,882,000 at March 31, 1996 452,273 460,058
- --------------------------------------------------------------------------------------------------------------
Prepaid Pension Costs 288,283 283,656
- --------------------------------------------------------------------------------------------------------------
Other Assets 373,584 379,323
- --------------------------------------------------------------------------------------------------------------
TOTAL $ 4,392,655 $ 4,387,251
==============================================================================================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
6/30/96 3/31/96
------- -------
(Unaudited)
(In thousands)
<S> <C> <C>
Current Liabilities:
Notes payable and current
maturities of long-term debt $ 386,769 $ 234,258
Accounts payable 256,183 264,930
Environmental and products liabilities - current 161,170 161,062
Accrued employee benefits 90,462 98,159
Advance billings on contracts 220,014 187,378
Other current liabilities 368,460 446,765
- --------------------------------------------------------------------------------------------------------------
Total Current Liabilities 1,483,058 1,392,552
- --------------------------------------------------------------------------------------------------------------
Long-Term Debt 542,161 576,256
- --------------------------------------------------------------------------------------------------------------
Accumulated Postretirement Benefit Obligation 401,762 401,321
- --------------------------------------------------------------------------------------------------------------
Environmental and Products Liabilities 683,063 721,740
- --------------------------------------------------------------------------------------------------------------
Other Liabilities 274,432 268,975
- --------------------------------------------------------------------------------------------------------------
Contingencies
- --------------------------------------------------------------------------------------------------------------
Minority Interest:
Subsidiary's preferred stocks 173,301 173,301
Other minority interest 175,134 168,586
- --------------------------------------------------------------------------------------------------------------
Total Minority Interest 348,435 341,887
- --------------------------------------------------------------------------------------------------------------
Stockholders' Equity:
Preferred stock, authorized 25,000,000 shares;
outstanding 2,875,000 Series C $2.875 cumulative
convertible, par value $1.00 per share,
(liquidation preference $143,750,000) 2,875 2,875
Common stock, par value $1.00 per share,
authorized 150,000,000 shares; outstanding
54,659,860 at June 30, 1996 and
54,435,823 at March 31, 1996 54,660 54,436
Capital in excess of par value 950,991 949,022
Deficit (314,517) (290,968)
Minimum pension liability (1,428) (1,428)
Net unrealized loss on investments (3,337) (1,875)
Currency translation adjustments (29,500) (27,542)
- --------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 659,744 684,520
- --------------------------------------------------------------------------------------------------------------
TOTAL $ 4,392,655 $ 4,387,251
==============================================================================================================
</TABLE>
5
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McDERMOTT INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME (LOSS)
JUNE 30, 1996
<TABLE>
<CAPTION>
THREE MONTHS ENDED
6/30/96 6/30/95
-------- -------
(Unaudited)
(In thousands)
<S> <C> <C>
Revenues $ 872,809 $ 816,474
- --------------------------------------------------------------------------------------------------------------
Costs and Expenses:
Cost of operations (excluding depreciation
and amortization) 769,268 710,648
Depreciation and amortization 33,855 34,112
Selling, general and
administrative expenses 63,195 66,851
- --------------------------------------------------------------------------------------------------------------
866,318 811,611
- --------------------------------------------------------------------------------------------------------------
Operating Income before Equity in Income of Investees 6,491 4,863
Equity in Income of Investees 4,444 33,179
- --------------------------------------------------------------------------------------------------------------
Operating Income 10,935 38,042
- --------------------------------------------------------------------------------------------------------------
Other Income (Expense):
Interest income 10,329 11,259
Interest expense (19,728) (21,538)
Minority interest (9,457) (3,630)
Other-net (137) (2,424)
- --------------------------------------------------------------------------------------------------------------
(18,993) (16,333)
- --------------------------------------------------------------------------------------------------------------
Income (Loss) before Provision for Income Taxes (8,058) 21,709
Provision for (Benefit from) Income Taxes (234) 12,877
- --------------------------------------------------------------------------------------------------------------
Net Income (Loss) $ (7,824) $ 8,832
==============================================================================================================
Net Income (Loss) Applicable to Common Stock
(after Preferred Stock Dividends) $ (9,890) $ 6,766
==============================================================================================================
Earnings (Loss) per Common and Common Equivalent
Share (Primary and Fully Diluted) $ (0.18) $ 0.12
==============================================================================================================
Weighted Average Number of Common and
Common Equivalent Shares Outstanding 54,513,089 54,413,106
==============================================================================================================
Cash Dividends:
Per common share $ 0.25 $ 0.25
Per preferred share $ 0.71875 $ 0.71875
==============================================================================================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
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McDERMOTT INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
JUNE 30, 1996
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
6/30/96 6/30/95
------- -------
(Unaudited)
(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (7,824) $ 8,832
- -------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization 33,855 34,112
Equity in income of investees,
less dividends (2,898) 13,215
Provision for (benefit from) deferred taxes 8,326 (15,521)
Other (1,761) 1,210
Changes in assets and liabilities:
Accounts receivable (75,008) (49,070)
Net contracts in progress and advance billings 6,325 (69,383)
Accounts payable (9,588) 372
Accrued and other current liabilities (79,466) 2,289
Other, net 11,702 (18,527)
Proceeds from insurance for products liabilities claims 34,462 27,100
Payments of products liabilities claims (37,368) (36,604)
- -------------------------------------------------------------------------------------------------------------
NET CASH USED IN OPERATING ACTIVITIES (119,243) (101,975)
- -------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition - (6,527)
Purchases of property, plant and equipment (35,508) (25,278)
Purchases of investments (45,278) (274,667)
Sales and maturities of investments 48,069 527,829
Other (328) (3,342)
- -------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (33,045) 218,015
- -------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE> 8
CONTINUED
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
6/30/96 6/30/95
------- -------
(Unaudited)
(In thousands)
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in short-term borrowing $ 132,045 $ 81,108
Payment of long-term debt (12,735) (160,770)
Dividends paid (15,669) (15,285)
Other (552) 718
- -------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 103,089 (94,229)
- -------------------------------------------------------------------------------------------------------------
EFFECTS OF EXCHANGE RATE CHANGES ON CASH 15 (724)
- -------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (49,184) 21,087
- -------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 238,663 85,909
- -------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 189,479 $ 106,996
=============================================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amount capitalized) $ 16,832 $ 23,918
Income taxes (net of refunds) $ 3,003 $ 22,986
=============================================================================================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
8
<PAGE> 9
McDERMOTT INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
NOTE 1 - BASIS OF PRESENTATION
McDermott International, Inc. ("International") is the parent company of the
McDermott group of companies, which includes J. Ray McDermott, S.A. ("JRM") and
McDermott Incorporated.
The accompanying unaudited condensed consolidated financial statements are
presented in U. S. Dollars, and have been prepared in accordance with
accounting principles generally accepted in the United States for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included. Such adjustments are of
a normal, recurring nature, except for a gain resulting from the sale of two
power purchase contracts ($17,908,000, net of tax of $12,704,000, or $0.33 per
share) during the three months ended June 30, 1995. Operating results for the
three months ended June 30, 1996 are not necessarily indicative of the results
that may be expected for the year ending March 31, 1997. For further
information, refer to the consolidated financial statements and footnotes
thereto included in McDermott International, Inc.'s annual report on Form 10-K
for the fiscal year ended March 31, 1996.
NOTE 2 - PRODUCTS LIABILITY
At June 30, 1996, the estimated liability for pending and future non-employee
products liability asbestos claims was $806,618,000 (of which less than
$215,000,000 had been asserted) and estimated insurance recoveries were
$689,264,000. Estimated liabilities for pending and future non-employee
products liability asbestos claims are derived from McDermott International's
claims history and constitute management's best estimate of
9
<PAGE> 10
such future costs. Estimated insurance recoveries are based upon analysis of
insurers providing coverage of the estimated liabilities. Inherent in the
estimate of such liabilities and recoveries are expected trends in claim
severity and frequency and other factors, including recoverability from
insurers, which may vary significantly as claims are filed and settled.
Accordingly, changes in estimates could result in a material adjustment to
operating results for any fiscal quarter or year and the ultimate loss may
differ materially from amounts provided in the consolidated financial
statements.
NOTE 3 - INVENTORIES
Consolidated inventories at June 30, 1996 and March 31, 1996 are summarized
below:
<TABLE>
<CAPTION>
June 30, March 31,
1996 1996
---- ----
(Unaudited)
(In thousands)
<S> <C> <C>
Raw Materials and Supplies $ 44,736 $ 47,457
Work in Progress 12,138 17,305
Finished Goods 14,566 12,830
- ----------------------------------------------------------------------------------------------------------
$ 71,440 $ 77,592
==========================================================================================================
</TABLE>
10
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NOTE 4 - SUMMARIZED INCOME STATEMENT INFORMATION OF AFFILIATES
The combined financial results of two of JRM's joint ventures, HeereMac and
McDermott ETPM-West, Inc., accounted for using the equity method are summarized
below. These ventures were significant (as defined by applicable Securities
and Exchange Commission regulations) in fiscal year 1996.
<TABLE>
<CAPTION>
THREE THREE
MONTHS ENDED MONTHS ENDED
6/30/96 6/30/95
------- -------
(Unaudited)
(In thousands)
<S> <C> <C> <C> <C>
Revenues $ 171,353 $ 191,919
- --------------------------------------------------------------------------------------------------------
Operating Income $ 22,719 $ 5,612
- --------------------------------------------------------------------------------------------------------
Income before Income Taxes $ 713 $ 10,211
Provision for Income Taxes 1,974 1,673
- --------------------------------------------------------------------------------------------------------
Net Income (Loss) $ (1,261) $ 8,538
========================================================================================================
Equity in Net Income (Loss) $ (1,205) $ 3,982
========================================================================================================
</TABLE>
11
<PAGE> 12
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
McDermott International, Inc. ("International") is the parent company of the
McDermott group of companies, which includes J. Ray McDermott, S.A. ("JRM") and
McDermott Incorporated. A significant portion of McDermott International's
revenues and operating results are derived from its foreign operations. As a
result, McDermott International's operations and financial results are affected
by international factors, such as changes in foreign currency exchange rates.
McDermott International attempts to minimize its exposure to changes in foreign
currency exchange rates by attempting to match foreign currency contract
receipts with like foreign currency disbursements. To the extent that it is
unable to match the foreign currency receipts and disbursements related to its
contracts, it enters into forward exchange contracts to hedge foreign currency
transactions, which reduces the impact of foreign exchange rate movements on
operating results.
Management's discussion of revenues and operating income is presented on a
business unit basis as follows: the JRM business unit (includes the results of
operations of the marine construction services business); the B&W Operations
business unit (includes the operations of the Babcock & Wilcox Power Generation
and Government Groups); and the Engineering, Construction and Industrial
Operations business unit (includes the Engineering and Construction Group, and
Shipbuilding and Industrial Group). Other business unit revenues include
combining adjustments and eliminations resulting from inter-group contracts.
Other business unit income (loss) includes certain retiree benefit and legal
costs which are not allocated to the business units, as well as the impact of
combining adjustments on margins of inter-group contracts. Business unit
revenue and income (loss) for the three months ended June 30, 1995 have been
restated to reflect the reclassification of certain operations to B&W
Operations from the Engineering, Construction and Industrial Operations
business unit, and the allocation of certain expenses to the B&W Operations and
the Engineering, Construction and Industrial Operations business units from
Other to conform with the presentation at June 30, 1996.
12
<PAGE> 13
RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 1996 VS. THREE MONTHS ENDED
JUNE 30, 1995
<TABLE>
<CAPTION>
THREE MONTHS ENDED
6/30/96 6/30/95
------- -------
(Unaudited)
(In thousands)
<S> <C> <C>
REVENUES
J. Ray McDermott, S.A. $ 389,189 $ 311,803
B&W Operations 345,375 377,590
Engineering, Construction and
Industrial Operations 151,779 136,607
Other (including Transfer Eliminations) (13,534) (9,526)
- -------------------------------------------------------------------------------------------------------------
TOTAL REVENUES $ 872,809 $ 816,474
=============================================================================================================
OPERATING INCOME
Business Unit Income (Loss):
J. Ray McDermott, S.A. $ 20,304 $ 14,642
B&W Operations 1,610 3,020
Engineering, Construction and
Industrial Operations (5,766) (4,663)
Other (1,002) (803)
- -------------------------------------------------------------------------------------------------------------
TOTAL BUSINESS UNIT INCOME 15,146 12,196
- -------------------------------------------------------------------------------------------------------------
Equity in Income (Loss) of Investees:
J. Ray McDermott, S.A. 1,298 (898)
B&W Operations 3,128 34,083
Engineering, Construction and
Industrial Operations 18 (6)
- -------------------------------------------------------------------------------------------------------------
TOTAL EQUITY IN INCOME OF INVESTEES 4,444 33,179
- -------------------------------------------------------------------------------------------------------------
Corporate G&A Expense (8,655) (7,333)
- -------------------------------------------------------------------------------------------------------------
TOTAL OPERATING INCOME $ 10,935 $ 38,042
=============================================================================================================
</TABLE>
13
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JRM's revenues increased $77,386,000 to $389,189,000, primarily due to higher
volume on offshore and engineering activities in North America, the North Sea
and the Far East, and higher fabrication activity in North America. These
increases were partially offset by lower procurement revenues in the North Sea
as the B.P. Exploration Foinaven Development program ("Foinaven") west of the
Shetlands in the North Atlantic nears completion.
B&W Operations' revenues decreased $32,215,000 to $345,375,000, primarily due
to lower volume from fabrication and erection of fossil fuel steam and
environmental control systems, and from replacement nuclear steam generators
for domestic customers manufactured at B&W's Cambridge, Ontario location.
Engineering, Construction and Industrial Operations' revenues increased
$15,172,000 to $151,779,000, primarily due to higher volume from an
engineering, procurement and construction contract for a cogeneration plant
performed by McDermott Engineers & Constructors (Canada) Ltd., and activities
in this business unit's domestic and Mexican shipyard operations.
JRM's business unit income increased $5,662,000 to $20,304,000, primarily due
to higher volume and margins from offshore and engineering activities in the
North Sea and higher volume in fabrication and offshore activities in North
America. These increases were partially offset by the completion of former
Offshore Pipelines, Inc.'s contracts in West Africa last year and lower leasing
activity due to the sale of the DB101 and DB102 to the Heeremac joint venture
in March 1996.
B&W Operations' business unit income decreased $1,410,000 to $1,610,000,
primarily due to lower volume on replacement nuclear steam generators for
domestic customers and on fabrication and erection of fossil fuel steam and
environmental control systems, and lower margins on plant enhancement projects.
These decreases were partially offset by improved margins on the repair and
alteration of existing fossil fuel steam systems and lower sales and marketing
expenses.
14
<PAGE> 15
Engineering, Construction and Industrial Operations' business unit loss
increased $1,103,000 to a loss of $5,766,000, primarily due to contract cost
overruns on the engineering, procurement and construction contract for a
cogeneration plant. This was partially offset by higher volume and margins
from activities in this unit's domestic and Mexican shipyard operations.
JRM's equity in income of investees increased $2,196,000 to income of
$1,298,000 from a loss of $898,000, primarily due to improved results of a
Mexican joint venture. This increase was partially offset by lower results
from the HeereMac and McDermott-ETPM West, Inc. joint ventures. The revenues
of these two unconsolidated joint ventures declined from $191,919,000 to
$171,353,000, primarily in the Far East and West Africa, partially offset by
increased volume in the North Sea and North America. The equity income from
these two joint ventures declined from $3,982,000 to a loss of $1,205,000 as a
result of the lower volume and foreign currency transaction losses in the
current period. There was also higher interest expense on debt issued by the
HeereMac joint venture to finance the purchase of major marine vessels it had
been chartering, including JRM's DB101 and DB102. Equity income in the current
period also includes income of $2,145,000 from the amortization of the deferred
gain resulting from the sale of the DB101 and DB102 to the HeereMac joint
venture.
B&W Operations' equity in income of investees decreased $30,955,000 to
$3,128,000. This represents the results of approximately 15 active joint
ventures. The decrease is almost entirely due to a nonrecurring equity income
gain of $30,612,000 resulting from the sale of power purchase contracts back to
a local utility in June 1995.
Interest income decreased $930,000 to $10,329,000, primarily due to decreases
in investments in government obligations and other investments. This decrease
was partially offset by increases due to interest on the promissory note of
$105,000,000 received as part of the consideration from the sale of the DB101
and DB102 to the HeereMac joint venture.
Interest expense decreased $1,810,000 to $19,728,000, primarily due to changes
in debt obligations and interest rates prevailing thereon.
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<PAGE> 16
Minority interest expense increased $5,827,000 to $9,457,000, primarily due to
minority shareholder participation in the improved operating results of JRM and
the McDermott-ETPM East joint venture.
Other-net expense decreased $2,287,000 to $137,000, primarily due to lower bank
fees and discounts on the sale of certain accounts receivable.
The provision for income taxes decreased $13,111,000 from a provision of
$12,877,000 to a benefit of $234,000, while income before provision for income
taxes decreased $29,767,000 from income of $21,709,000 to a loss of $8,058,000.
The decrease in the provision for income taxes is due primarily to a decrease
in earnings. In addition, McDermott International operates in many different
tax jurisdictions. Within these jurisdictions, tax provisions vary because of
nominal rates, allowability of deductions, credits and other benefits, and tax
basis (for example, revenues versus income). These variances, along with
variances in the mix of income within jurisdictions, are responsible for shifts
in the effective tax rate. As a result of these factors, the benefit from
income taxes was 3% of the pretax loss for the three months ended June 30, 1996
compared to a provision for income taxes of 59% of pretax income for the three
months ended June 30, 1995.
Net income decreased $16,656,000 from income of $8,832,000 to a loss of
$7,824,000 reflecting the items mentioned above.
16
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<TABLE>
<CAPTION>
Backlog 6/30/96 3/31/96
- ------- ------- -------
(In thousands)
<S> <C> <C>
Business Unit Backlog:
J. Ray McDermott, S.A. $ 1,166,591 $ 977,896
B&W Operations 2,292,803 2,164,507
Engineering, Construction
and Industrial Operations 357,079 317,401
Other (including Transfer Eliminations) (49,619) (60,408)
- -------------------------------------------------------------------------------------------------------------
TOTAL BACKLOG $ 3,766,854 $ 3,399,396
=============================================================================================================
</TABLE>
In general, McDermott International's business units are capital intensive and
rely on large contracts for a substantial amount of their revenues.
JRM's consolidated backlog increased to $1,166,591,000 at June 30, 1996 from
$977,896,000 at March 31, 1996, and backlog relating to contracts to be
performed by JRM's unconsolidated joint ventures (not included above) increased
to $1,632,000,000 at June 30, 1996 from $1,374,000,000 at March 31, 1996. JRM
believes its markets are beginning to emerge from the difficult competitive
environment that has put pressure on margins in recent years.
B&W Operations' backlog at June 30, 1996 was $2,292,803,000 compared to
$2,164,507,000 at March 31, 1996. At June 30, 1996 this business unit's
backlog with the U. S. Government was $730,778,000 (of which $57,339,000 had
not been funded) and included orders for nuclear fuel assemblies and reactor
components for the U.S. Navy. This business unit's foreign markets for
industrial and utility boilers remain strong and the U. S. market for
replacement nuclear steam generators is expected to continue to make
significant contributions to operating income in the foreseeable future.
However, domestic utility markets remain weak.
Engineering, Construction and Industrial Operations' backlog at June 30, 1996
was $357,079,000, compared to $317,401,000 at March 31, 1996, and included a
four year backlog for the construction of hopper barges at its domestic
shipyard. At June 30, 1996
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<PAGE> 18
this business unit's backlog with the U.S. Government was $47,982,000 (of
which $3,143,000 had not been funded).
Liquidity and Capital Resources
Unless the context otherwise requires, hereinafter the "Delaware Company" will
be used to mean McDermott Incorporated, a Delaware corporation which is a
subsidiary of International, and the Delaware Company's consolidated
subsidiaries, which include The Babcock & Wilcox Company ("B&W"); and
"McDermott International" will be used to mean the consolidated enterprise.
During the three months ended June 30, 1996, McDermott International's cash and
cash equivalents decreased $49,184,000 to $189,479,000 and total debt increased
$118,416,000 to $928,930,000 due to the increase in short-term borrowings of
$132,055,000. During this period, McDermott International used cash of
$119,243,000 in operating activities; $35,508,000 for additions to property,
plant and equipment; $15,669,000 for dividends on International's common and
preferred stock; and $12,735,000 for repayment of long-term debt.
Higher accounts receivable are primarily due to the timing of the collection of
contract billings by North American operations and on the Foinaven contract.
Lower accrued liabilities include decreases in accrued Foinaven contract costs
while decreases in accounts payable on Canadian contracts were offset by
increases related to the Foinaven contract, which is nearing completion.
Pursuant to an agreement with a majority of its principal insurers, McDermott
International negotiates and settles products liability asbestos claims from
non-employees and bills these amounts to the appropriate insurers. As a
result of collection delays inherent in this process, reimbursement is usually
delayed for three months or more. While the number of claims received had
declined during the last six months of fiscal year 1996, they have increased
during the June 1996 quarter but not to the levels experienced from October
1994 to September 1995. Management is currently investigating and evaluating
the basis
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<PAGE> 19
for this increase in the number of claims. The average amount of these claims
(historical average of approximately $5,500 per claim over the last three
years) has continued to rise. Claims paid during the quarter ended June 30,
1996 were $37,368,000, of which $33,384,000 has been recovered or is due from
insurers. At June 30, 1996, receivables of $62,145,000 were due from insurers
for reimbursement of settled claims including $20,843,000 due from certain
insurers which have refused to reimburse B&W for amounts paid by B&W to settle
claims under applicable policies. B&W has filed a lawsuit against these
insurers seeking reimbursement of these claims and expects to prevail in this
litigation which may continue beyond fiscal year 1997 unless a settlement is
reached. B&W will require that any settlement include all amounts billed to
date and any future payments up to full policy limits. Estimated liabilities
for pending and future non-employee products liability asbestos claims are
derived from McDermott International's claims history and constitute
management's best estimate of such future costs. Estimated insurance recoveries
are based upon analysis of insurers providing coverage of the estimated
liabilities. Inherent in the estimate of such liabilities and recoveries are
expected trends in claim severity and frequency and other factors, including
recoverability from insurers, which may vary significantly as claims are filed
and settled. Accordingly, the ultimate loss may differ materially from amounts
provided in the consolidated financial statements. Settlement of the liability
is expected to occur over approximately the next 25 years. The collection
delays (including the lawsuit mentioned above) and the amount of claims paid
for which insurance recovery is not probable have not had a material adverse
effect on McDermott International's liquidity, and management believes, based
on information currently available, that they will not have a material adverse
effect on liquidity in the future.
Expenditures for property, plant and equipment increased $10,230,000 to
$35,508,000 for the three months ended June 30, 1996, as compared with the same
period last year. In addition to maintaining existing facilities and
equipment, these expenditures included approximately $4,000,000 for the
purchase of a cable lay vessel and $4,370,000 for the installation of a new
system to lay fiber optic cable on this vessel which operates in the North Sea
and $5,913,000 to upgrade a marine barge operating in the Gulf of Mexico.
McDermott International is committed to make additional expenditures of
approximately
19
<PAGE> 20
$10,000,000 on the cable lay vessel.
At June 30 and March 31, 1996, B&W had sold, with limited recourse, an
undivided interest in a designated pool of qualified accounts receivable of
approximately $130,000,000 and $107,000,000, respectively, under the terms of
an agreement with a U.S. bank. The maximum sales limit available under the
agreement, which is renewed annually, is $140,000,000. Depending on the amount
of qualified accounts receivable available for the pool, the amount sold to the
bank can vary (but not greater than the maximum sales limit available) from
time to time, and B&W expects to reduce the amount of receivables sold by
approximately $40,000,000 by August 15, 1996.
At June 30 and March 31, 1996, International and its subsidiaries, had
available to them various uncommitted short-term lines of credit from banks
totaling $442,656,000 and $439,610,000, respectively. Borrowings against these
lines of credit at June 30 and March 31, 1996 were $331,112,000 and
$149,067,000, respectively. In addition, B&W had available to it a
$150,000,000 unsecured and committed revolving line of credit facility. It is
a condition to borrowing under this revolving credit facility that the
borrower's tangible net worth, debt to capitalization, and interest coverage as
defined in the agreement meet or exceed certain covenant requirements. At June
30, 1996 there were no borrowings outstanding against this facility, while at
March 31, 1996 there were borrowings of $50,000,000 outstanding. JRM also has
an unsecured and committed revolving credit facility on which no borrowings
were outstanding at June 30 or March 31, 1996. The maximum amount available is
$150,000,000 but is subject to certain limits (approximately $120,000,000 was
available at June 30, 1996) as a result of an incremental borrowing capacity
covenant in this agreement. In addition, JRM is restricted, as a result of the
consolidated tangible net worth covenant in this agreement, in its ability to
transfer funds to International and its subsidiaries through cash dividends or
through unsecured loans or investments. At June 30, 1996, approximately
$15,000,000 of JRM's net assets were not subject to this restriction.
The Delaware Company is restricted, as a result of covenants in certain credit
agreements, in its ability to transfer funds to International and its
subsidiaries through cash dividends or through unsecured loans or investments.
At June 30, 1996, substantially all of the net assets of the Delaware Company
were subject to such restrictions. It is not expected that these restrictions
will have any significant effect on International's liquidity.
20
<PAGE> 21
McDermott International maintains an investment portfolio of government
obligations and other investments. The fair value of short-term investments
and the long-term portfolio at June 30, 1996 was $240,204,000. At June 30,
1996, approximately $126,335,000 fair value of these obligations were pledged
to secure a letter of credit in connection with a long-term loan and certain
reinsurance agreements.
Working capital decreased $44,073,000 from $331,986,000 at March 31, 1996 to
$287,913,000 at June 30, 1996. On July 25, 1996, JRM issued $250,000,000
principal amount of 9.375% Senior Subordinated Notes and received net proceeds
of $244,375,000 which were used primarily to repay intercompany indebtedness
(including interest) of approximately $239,000,000 owed to International. On
July 31, 1996, McDermott International used $50,000,000 of the proceeds to
reduce short-term debt and invested the remainder of the proceeds in its
investment portfolio. During the remainder of fiscal year 1997, McDermott
International expects to obtain funds to meet capital expenditure, working
capital and debt maturity requirements from operating activities, sales of
non-strategic assets and borrowings under its short-term lines of credit.
Leasing agreements for equipment, which are short-term in nature, are not
expected to impact McDermott International's liquidity or capital resources.
During July 1996, the sale of certain equipment to the HeereMac joint venture
was completed. Prior to this sale, JRM had received $30,000,000 as a deposit
in March 1996.
McDermott International has provided a valuation allowance for deferred tax
assets which cannot be realized through carrybacks and future reversals of
existing taxable temporary differences. Management believes that remaining
deferred tax assets in all other tax jurisdictions are realizable through
carrybacks and future reversals of existing taxable temporary differences, and,
if necessary, the implementation of tax planning strategies involving sales of
appreciated assets. A major uncertainty that affects the ultimate realization
of deferred tax assets is the possibility of declines in value of appreciated
assets involved in identified tax planning strategies. This factor has been
considered in determining the valuation allowance. Management will continue to
assess the adequacy of the valuation allowance on a quarterly basis.
21
<PAGE> 22
New Accounting Standards
In October 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation," effective for fiscal years beginning after December
15, 1995. SFAS No. 123 established financial accounting and reporting
standards for stock-based employee compensation plans. McDermott International
has finalized its review of the provisions of this statement and has decided to
account for stock option grants in accordance with Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," and make the pro
forma information disclosures required under the new standard.
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities," effective
for fiscal years beginning after December 1996. SFAS No. 125 established
accounting and reporting standards for transfers and servicing of financial
assets and extinguishment of liabilities. This statement also provides
consistent standards for distinguishing transfers of financial assets that are
sales from transfers that are secured borrowings. McDermott International has
not yet finalized its review of the impact of this statement, but it is not
expected to have a material impact on the consolidated financial statements.
22
<PAGE> 23
PART II
McDERMOTT INTERNATIONAL, INC.
OTHER INFORMATION
No information is applicable to Part II for the current quarter, except as
noted below:
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 11 - Calculation of Earnings (Loss) Per Common and
Common Equivalent Share
(b) Reports on Form 8-K
There were no current reports on Form 8-K filed during the
three months ended June 30, 1996.
23
<PAGE> 24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
McDERMOTT INTERNATIONAL, INC.
-----------------------------
(REGISTRANT)
By: /s/ Daniel R. Gaubert
--------------------------------------
(SIGNATURE)
Daniel R. Gaubert
Vice President, Finance
and Controller
August 6, 1996
24
<PAGE> 25
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Description
<S> <C>
11 Calculation of Earnings per Common and Common Equivalent Share
27 Financial Data Schedule
</TABLE>
25
<PAGE> 1
EXHIBIT 11
MCDERMOTT INTERNATIONAL, INC.
CALCULATION OF EARNINGS (LOSS)
PER COMMON AND COMMON EQUIVALENT SHARE
(In thousands, except shares and per share amounts)
PRIMARY AND FULLY DILUTED
<TABLE>
<CAPTION>
THREE MONTHS ENDED
6/30/96 6/30/95
------- -------
(Unaudited)
<S> <C> <C>
Net income (loss) $ (7,824) $ 8,832
Less dividend requirements of preferred stock, Series C (2,066) (2,066)
- -------------------------------------------------------------------------------------------------------------------
Net income (loss) for primary computation $ (9,890) $ 6,766
===================================================================================================================
Weighted average number of common
shares outstanding during the period 54,513,089 54,017,783
Common stock equivalents of stock options and stock
appreciation rights based on "treasury stock" method - 395,323
- -------------------------------------------------------------------------------------------------------------------
Weighted average number of common
shares outstanding during the period 54,513,089 54,413,106
===================================================================================================================
Earnings (loss) per common and
common equivalent share: (1)
Net income (loss) $ (0.18) $ 0.12
===================================================================================================================
</TABLE>
(1) Earnings (Loss) per common and common equivalent share assuming full
dilution are the same for the periods presented.
25
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MCDERMOTT
INTERNATIONALS JUNE 30, 1996 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> JUN-30-1996
<CASH> 189,479
<SECURITIES> 2,258
<RECEIVABLES> 607,206
<ALLOWANCES> 87,048
<INVENTORY> 554,423
<CURRENT-ASSETS> 1,770,971
<PP&E> 1,909,413
<DEPRECIATION> 1,209,920
<TOTAL-ASSETS> 4,392,655
<CURRENT-LIABILITIES> 1,483,058
<BONDS> 542,161
<COMMON> 54,660
0
2,875
<OTHER-SE> 602,209
<TOTAL-LIABILITY-AND-EQUITY> 4,392,655
<SALES> 872,809
<TOTAL-REVENUES> 872,809
<CGS> 866,318
<TOTAL-COSTS> 866,318
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,728
<INCOME-PRETAX> (8,058)
<INCOME-TAX> (234)
<INCOME-CONTINUING> (7,824)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,824)
<EPS-PRIMARY> (0.18)
<EPS-DILUTED> (0.18)
</TABLE>
