<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 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 of Organization)
1450 Poydras Street, New Orleans, Louisiana 70112-6050
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (504) 587-5400
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 January 24, 1997 was 54,924,752.
1
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M c D E R M O T T I N T E R N A T I O N A L , I N C.
I N D E X - F O R M 1 0 - Q
-------------------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I - FINANCIAL INFORMATION
- ------------------------------
Item 1 - Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheet
December 31, 1996 and March 31, 1996 4
Condensed Consolidated Statement of Income (Loss)
Three and Nine Months Ended December 31, 1996 and 1995 6
Condensed Consolidated Statement of Cash Flows
Nine Months Ended December 31, 1996 and 1995 8
Notes to Condensed Consolidated Financial Statements 10
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 13
PART II - OTHER INFORMATION
- ---------------------------
Item 6 - Exhibits and Reports on Form 8-K 28
SIGNATURES 29
Exhibit 11 - Calculation of Earnings (Loss) Per
Common and Common Equivalent Share 41
Exhibit 27 - Financial Data Schedule 42
</TABLE>
2
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PART I
McDERMOTT INTERNATIONAL, INC.
FINANCIAL INFORMATION
---------------------
Item 1. Condensed Consolidated Financial Statements
3
<PAGE>
McDERMOTT INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996
ASSETS
<TABLE>
<CAPTION>
12/31/96 3/31/96
--------- --------
(Unaudited)
(In thousands)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 291,796 $238,663
Accounts receivable - trade 436,360 457,049
Accounts receivable - unconsolidated affiliates 42,116 57,691
Accounts receivable - other 196,890 162,335
Insurance recoverable - current 184,237 116,280
Contracts in progress 338,128 457,265
Inventories 73,232 77,592
Deferred income taxes 76,786 93,104
Other current assets 42,944 64,559
- --------------------------------------------------------------------------
Total Current Assets 1,682,489 1,724,538
- --------------------------------------------------------------------------
Property, Plant and Equipment, at Cost: 1,893,285 1,890,103
Less accumulated depreciation 1,218,951 1,199,416
- --------------------------------------------------------------------------
Net Property, Plant and Equipment 674,334 690,687
- --------------------------------------------------------------------------
Investments:
Government obligations 234,909 132,674
Other investments 142,621 109,352
- --------------------------------------------------------------------------
Total Investments 377,530 242,026
- --------------------------------------------------------------------------
Insurance Recoverable 414,287 606,963
- --------------------------------------------------------------------------
Excess of Cost Over Fair Value of Net Assets
of Purchased Businesses Less Accumulated
Amortization of $150,651,000 at December 31, 1996
and $126,882,000 at March 31, 1996 440,465 460,058
- --------------------------------------------------------------------------
Prepaid Pension Costs 297,608 283,656
- --------------------------------------------------------------------------
Other Assets 362,227 379,323
- --------------------------------------------------------------------------
TOTAL $4,248,940 $4,387,251
==========================================================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
12/31/96 3/31/96
--------- --------
(Unaudited)
(In thousands)
<S> <C> <C>
Current Liabilities:
Notes payable and current
maturities of long-term debt $ 307,944 $234,258
Accounts payable 224,374 264,930
Environmental and products liabilities - current 214,913 161,062
Accrued employee benefits 94,955 98,159
Advance billings on contracts 191,660 187,378
Other current liabilities 352,941 446,765
- --------------------------------------------------------------------------------
Total Current Liabilities 1,386,787 1,392,552
- --------------------------------------------------------------------------------
Long-Term Debt 680,809 576,256
- --------------------------------------------------------------------------------
Accumulated Postretirement Benefit Obligation 404,502 401,321
- --------------------------------------------------------------------------------
Environmental and Products Liabilities 524,840 721,740
- --------------------------------------------------------------------------------
Other Liabilities 259,084 268,975
- --------------------------------------------------------------------------------
Contingencies
- --------------------------------------------------------------------------------
Minority Interest:
Subsidiary's preferred stocks 172,183 173,301
Other minority interest 176,085 168,586
- --------------------------------------------------------------------------------
Total Minority Interest 348,268 341,887
- --------------------------------------------------------------------------------
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
54,824,752 at December 31, 1996 and
54,435,823 at March 31, 1996 54,825 54,436
Capital in excess of par value 959,908 949,022
Deficit (330,880) (290,968)
Minimum pension liability (1,428) (1,428)
Net unrealized loss on investments (764) (1,875)
Currency translation adjustments (39,886) (27,542)
- --------------------------------------------------------------------------------
Total Stockholders' Equity 644,650 684,520
- --------------------------------------------------------------------------------
TOTAL $4,248,940 $4,387,251
================================================================================
</TABLE>
5
<PAGE>
McDERMOTT INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME (LOSS)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
THREE NINE
MONTHS ENDED MONTHS ENDED
12/31/96 12/31/95 12/31/96 12/31/95
--------- --------- ---------- ----------
(Unaudited)
(In thousands)
<S> <C> <C> <C> <C>
Revenues $ 744,700 $ 766,538 $2,418,430 $2,389,768
- -------------------------------------------------------------------------------------------
Costs and Expenses:
Cost of operations (excluding
depreciation and amortization) 640,313 645,048 2,125,368 2,042,156
Depreciation and amortization 37,097 33,027 109,211 103,799
Selling, general and
administrative expenses 59,885 65,831 184,437 200,850
- -------------------------------------------------------------------------------------------
737,295 743,906 2,419,016 2,346,805
- -------------------------------------------------------------------------------------------
Gain (Loss) on Asset Disposals and
Impairments - net 30,853 (2,204) 31,428 5,133
- -------------------------------------------------------------------------------------------
Operating Income before Equity
in Income of Investees 38,258 20,428 30,842 48,096
Equity in Income of Investees 5,636 14,798 33,944 47,962
- -------------------------------------------------------------------------------------------
Operating Income 43,894 35,226 64,786 96,058
- -------------------------------------------------------------------------------------------
Other Income (Expense):
Interest income 14,142 8,155 33,993 27,845
Interest expense (24,514) (20,993) (68,000) (63,907)
Minority interest (11,671) (6,656) (26,511) (15,802)
Other-net 785 (1,629) 3,337 (3,402)
- -------------------------------------------------------------------------------------------
(21,258) (21,123) (57,181) (55,266)
- -------------------------------------------------------------------------------------------
Income before Provision for
Income Taxes 22,636 14,103 7,605 40,792
Provision for Income Taxes 6,017 7,497 11,240 16,300
- -------------------------------------------------------------------------------------------
Net Income (Loss) $ 16,619 $ 6,606 $ (3,635) $ 24,492
===========================================================================================
</TABLE>
6
<PAGE>
(CONTINUED)
<TABLE>
<CAPTION>
THREE NINE
MONTHS ENDED MONTHS ENDED
12/31/96 12/31/95 12/31/96 12/31/95
--------- --------- ---------- ----------
(Unaudited)
(In thousands, except shares
and per share amounts)
<S> <C> <C> <C> <C>
Net Income (Loss) Applicable to
Common Stock (after Preferred
Stock Dividends) $ 14,553 $ 4,540 $ (9,834) $ 18,293
===========================================================================================
Net Income (Loss) per Common and
Common Equivalent Share
(Primary and Fully Diluted) $ 0.27 $ 0.08 $ (0.18) $ 0.34
===========================================================================================
Weighted Average Number of Common
and Common Equivalent Shares
Outstanding 54,810,020 54,328,182 54,659,390 54,366,976
===========================================================================================
Cash Dividends:
Per common share $ 0.05 $ 0.25 $ 0.55 $ 0.75
Per preferred share $ 0.72 $ 0.72 $ 2.16 $ 2.16
===========================================================================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
7
<PAGE>
McDERMOTT INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
DECEMBER 31, 1996
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
12/31/96 12/31/95
-------- --------
(Unaudited)
(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (3,635) $ 24,492
- ------------------------------------------------------------------------------
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 109,211 103,799
Equity in income of investees,
less dividends (7,848) 6,053
Gain on asset disposals and impairments - net (31,428) (5,133)
Provision for deferred taxes 7,480 7,199
Other 171 4,732
Changes in assets and liabilities:
Accounts receivable 29,417 (100,704)
Net contracts in progress and advance billings 118,244 (138,845)
Accounts payable (44,606) (31,658)
Accrued and other current liabilities (56,533) (36,975)
Other, net 23,296 (43,728)
Proceeds from insurance for products liabilities claims 91,585 84,127
Payments of products liabilities claims (137,337) (114,396)
- ------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 98,017 (241,037)
- ------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions - (19,610)
Proceeds from asset disposals 55,583 41,495
Purchases of property, plant and equipment (77,895) (52,503)
Investment in asset held for lease - (26,518)
Purchases of investments (369,739) (308,121)
Sales and maturities of investments 237,630 667,792
Investments in equity investees (14,564) 6,148
- ------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (168,985) 308,683
- ------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
CONTINUED
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
12/31/96 12/31/95
-------- --------
(Unaudited)
(In thousands)
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of long-term debt $ (28,379) $(173,272)
Issuance of long-term debt 244,375 32,291
Increase (decrease) in short-term borrowing (46,503) 154,323
Dividends paid (47,140) (46,764)
Repurchase of subsidiary's preferred stock (1,069) (5,743)
Other (1,154) 1,228
- ------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 120,130 (37,937)
- ------------------------------------------------------------------------------
EFFECTS OF EXCHANGE RATE CHANGES ON CASH 3,971 (535)
- ------------------------------------------------------------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 53,133 29,174
- ------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 238,663 85,909
- ------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $291,796 $ 115,083
==============================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amount capitalized) $ 53,693 $ 64,840
Income taxes (net of refunds) $ 12,900 $ 34,422
==============================================================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
9
<PAGE>
McDERMOTT INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 1 - BASIS OF PRESENTATION
McDermott International, Inc. is the parent company of the McDermott group of
companies, which includes J. Ray McDermott, S.A. ("JRM") and McDermott
Incorporated. Unless the context otherwise requires, hereinafter,
"International" will be used to mean the consolidated enterprise.
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 (i) favorable workers' compensation cost adjustments
($15,009,000, net of tax of $6,432,000, or $0.27 per share) included in the
three and nine months ended December 31, 1996; (ii) an asset impairment loss
($4,742,000, net of tax of $2,553,000, or $0.09 per share) included in the nine
months ended December 31, 1996; (iii) favorable workers' compensation cost
adjustments ($8,869,000, net of tax of $3,771,000, or $0.16 per share) included
in the three and nine months ended December 31, 1995; (iv) a favorable insurance
adjustment ($12,000,000 or $0.22 per share) and (v) a gain resulting from the
sale of two power purchase contracts ($20,047,000, net of tax of $10,565,000, or
$0.37 per share) included in the nine months ended December 31, 1995. Certain
amounts previously reported have been reclassified to conform with the
presentation at December 31, 1996. Operating results for the three and nine
months ended December 31, 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 International's annual report on Form 10-K for the year
ended March 31, 1996.
10
<PAGE>
NOTE 2 - PRODUCTS LIABILITY
At December 31, 1996, the estimated liability for pending and future non-
employee products liability asbestos claims was $706,649,000 (of which
approximately $250,000,000 had been asserted) and estimated insurance
recoveries were $598,524,000. Estimated liabilities for pending and future non-
employee products liability asbestos claims are derived from 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.
NOTE 3 - INVENTORIES
Consolidated inventories at December 31, 1996 and March 31, 1996 are summarized
below:
<TABLE>
<CAPTION>
December 31, March 31,
1996 1996
------------ ---------
(Unaudited)
(In thousands)
<S> <C> <C>
Raw Materials and Supplies $50,812 $47,457
Work in Progress 15,492 17,305
Finished Goods 6,928 12,830
- --------------------------------------------------------
$73,232 $77,592
========================================================
</TABLE>
11
<PAGE>
NOTE 4 - SUMMARIZED INCOME STATEMENT INFORMATION OF SIGNIFICANT UNCONSOLIDATED
AFFILIATES
The combined financial results of two of JRM's joint ventures, HeereMac and
McDermott-ETPM West, Inc., which are 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 NINE
MONTHS ENDED MONTHS ENDED
12/31/96 12/31/95 12/31/96 12/31/95
--------- -------- --------- ----------
(Unaudited)
(In thousands)
<S> <C> <C> <C> <C>
Revenues $148,359 $117,465 $534,116 $435,488
- ------------------------------------------------------------------------------------
Operating Income $ 10,845 $ 2,084 $ 75,705 $ 6,422
- ------------------------------------------------------------------------------------
Income (Loss) before Income Taxes $ (6,687) $ 7,534 $ 39,568 $ 17,545
Provision for Income Taxes 2,047 888 6,460 1,206
- ------------------------------------------------------------------------------------
Net Income (Loss) $ (8,734) $ 6,646 $ 33,108 $ 16,339
====================================================================================
Equity in Net Income (Loss) $ (4,853) $ 3,833 $ 14,503 $ 8,706
====================================================================================
</TABLE>
NOTE 5 - SUBSEQUENT EVENT
On January 27, 1997, International announced that its McDermott Shipbuilding,
Inc. subsidiary had reached an agreement to sell its shipyard near Amelia,
Louisiana to Bollinger Shipyards, Inc. of Lockport, Louisiana. The sale will
include the assets of the shipyard including its current backlog of work. The
transaction is expected to be completed in the near future.
12
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
McDermott International, Inc. is the parent company of the McDermott group of
companies, which includes J. Ray McDermott, S.A. ("JRM") and McDermott
Incorporated. Unless the context otherwise requires, hereinafter,
"International" will be used to mean the consolidated enterprise. A significant
portion of International's revenues and operating results are derived from its
foreign operations. As a result, International's operations and financial
results are affected by international factors, such as changes in foreign
currency exchange rates. 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 International 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 reduce 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 Industrial Operations business unit (includes
engineering and construction operations, barge construction, ship repair and
other industrial operations). Other business unit revenues include combining
adjustments and eliminations resulting from inter-business unit contracts.
Other business unit income (loss) includes certain adjustments which are not
allocated to the business units, including retiree benefit and legal costs as
well as the impact of combining adjustments on margins of inter-business unit
contracts. Business unit revenue and income (loss) for the three and nine
months ended December 31, 1995 have been restated to reflect the
reclassification of certain operations to B&W Operations from the Industrial
Operations business unit; the allocation of certain expenses to the B&W
Operations and the Industrial Operations business units from Other; and the
allocation of certain expenses from Business Unit Income (Loss) to Corporate
General & Administrative Expense to conform with the presentation at December
31, 1996.
13
<PAGE>
<TABLE>
<CAPTION>
THREE NINE
MONTHS ENDED MONTHS ENDED
<S> <C> <C> <C> <C>
12/31/96 12/31/95 12/31/96 12/31/95
--------- --------- ---------- ----------
(Unaudited)
(In thousands)
REVENUES
J. Ray McDermott, S.A. $ 316,899 $ 272,236 $1,074,143 $ 939,996
B&W Operations 326,857 371,211 1,018,490 1,082,523
Industrial Operations 108,448 136,031 376,207 398,343
Other (including Transfer Eliminations) (7,504) (12,940) (50,410) (31,094)
- ----------------------------------------------------------------------------------------------
TOTAL REVENUES $ 744,700 $ 766,538 $2,418,430 $2,389,768
==============================================================================================
OPERATING INCOME
Business Unit Income (Loss):
J. Ray McDermott, S.A. $ 4,464 $ 8,036 $ 32,903 $ 45,686
B&W Operations 17,388 32,448 26,420 32,650
Industrial Operations (7,398) (7,410) (24,662) (19,707)
Other 5,910 (823) (815) 10,650
- ----------------------------------------------------------------------------------------------
TOTAL BUSINESS UNIT INCOME 20,364 32,251 33,846 69,279
- ----------------------------------------------------------------------------------------------
Gain (Loss) on Asset Disposals and
Impairments - net 30,853 (2,204) 31,428 5,133
- ----------------------------------------------------------------------------------------------
Equity in Income (Loss) of Investees:
J. Ray McDermott, S.A. 6,230 12,646 30,381 9,845
B&W Operations (1,358) 1,754 2,915 37,595
Industrial Operations 764 398 648 522
- ----------------------------------------------------------------------------------------------
TOTAL EQUITY IN INCOME
OF INVESTEES 5,636 14,798 33,944 47,962
- ----------------------------------------------------------------------------------------------
Corporate General & Administrative
Expense (12,959) (9,619) (34,432) (26,316)
- ----------------------------------------------------------------------------------------------
TOTAL OPERATING INCOME $ 43,894 $ 35,226 $ 64,786 $ 96,058
==============================================================================================
</TABLE>
14
<PAGE>
RESULTS OF OPERATIONS - THREE MONTHS ENDED DECEMBER 31, 1996 VS. THREE MONTHS
ENDED DECEMBER 31, 1995
JRM's revenues increased $44,663,000 to $316,899,000, primarily due to higher
volume in offshore and engineering activities in the North Sea and engineering
activities in North America. These increases were partially offset by lower
volume in offshore activities in North America and lower leasing activities due
to the sale of the DB101 and DB102 to the HeereMac joint venture.
B&W Operations' revenues decreased $44,354,000 to $326,857,000, reflecting
weaknesses in essentially all of the Power Generation Group's basic businesses.
These decreases were primarily due to lower revenues from the Power Generation
Group's replacement nuclear steam generators manufactured at B&W's Cambridge,
Ontario location, fabrication and erection of fossil fuel steam and
environmental control systems, replacement parts and Canadian nuclear services.
These decreases were partially offset by higher revenues from the Government
Group's commercial nuclear environmental services and defense and space-related
products (other than nuclear fuel assemblies and reactor components).
Industrial Operations' revenues decreased $27,583,000 to $108,448,000, primarily
due to lower revenues from engineering and construction activities in domestic
and Canadian operations. These decreases were partially offset by increased
barge construction activities in domestic shipyard operations and increased ship
repair activities in Mexican operations.
JRM's business unit income decreased $3,572,000 to $4,464,000, primarily due to
lower volume in offshore activities in North America, higher operating expenses
in the Middle East and the Far East, lower leasing activities due to the sale of
the DB101 and DB102 and the completion of profitable contracts in West Africa in
the prior year. These decreases were partially offset by higher volume in the
North Sea.
B&W Operations' business unit income decreased $15,060,000 to $17,388,000,
primarily due to the Power Generation Group's lower volume and margins on the
fabrication and
15
<PAGE>
erection of fossil fuel steam and environmental control systems and replacement
parts, lower volume from replacement nuclear steam generators and lower margins
on plant enhancement projects. In addition, the prior year included income from
a license buyout agreement. There were also lower margins from the Government
Group's nuclear fuel assemblies and reactor components for the U.S. Government,
partially offset by higher volume and margins from commercial nuclear
environmental services and from defense and space-related products (other than
nuclear fuel assemblies and reactor components). There were also lower sales
and marketing expenses.
Other business unit income increased $6,733,000 from a loss of $823,000 to
income of $5,910,000, primarily due to favorable insurance adjustments and lower
employee benefit expenses.
Gain (loss) on asset disposals and impairments - net increased $33,057,000 from
a loss of $2,204,000 to a gain of $30,853,000, primarily due to a gain on the
sale of the DB21 and participation in a gain from the sale of the DB100 by the
HeereMac joint venture.
JRM's equity in income of investees decreased $6,416,000 to $6,230,000,
primarily due to lower operating results from the McDermott-ETPM West, Inc.
joint venture and the shut-down of a Far East joint venture in the prior year.
These were partially offset by favorable operating results from the HeereMac
joint venture and a Mexican joint venture. Equity in income of investees also
includes income of $2,168,000 from the amortization of the deferred gain
resulting from the sale of the DB101 and DB102. The revenues of the HeereMac
and the McDermott-ETPM West, Inc. joint ventures increased from $117,465,000 to
$148,359,000, primarily due to increased volume in the Far East and West Africa.
Equity in income of investees from these two joint ventures decreased from
income of $3,833,000 to a loss of $4,853,000, primarily as a result of foreign
currency transaction losses and a reduction of an anticipated loss on a joint
venture contract in the prior year. In addition, the HeereMac joint venture
incurred higher interest expense as a result of debt it issued to finance the
purchase of major marine vessels it had been chartering, including the DB101 and
DB102.
16
<PAGE>
B&W Operations' equity in income (loss) of investees decreased $3,112,000 from
income of $1,754,000 to a loss of $1,358,000, primarily due to lower operating
results in a Canadian joint venture.
Interest income increased $5,987,000 to $14,142,000, primarily 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 and increases in interest on investments in
government obligations and other investments.
Interest expense increased $3,521,000 to $24,514,000, primarily due to changes
in debt obligations and interest rates prevailing thereon.
Minority interest expense increased $5,015,000 to $11,671,000, primarily due to
minority shareholder participation in the improved results of JRM.
Other-net increased $2,414,000 from expense of $1,629,000 to income of $785,000,
primarily due to foreign currency transaction gains compared to foreign currency
transaction losses in the prior year.
The provision for income taxes decreased $1,480,000 to $6,017,000, while income
before provision for income taxes increased $8,533,000 to $22,636,000.
International operates in many tax jurisdictions, and within these
jurisdictions, tax provisions vary because of nominal rates, allowability of
deductions, credits and other benefits, and basis of taxation (for example,
revenues versus income). These variances, along with variances in the mix of
income within jurisdictions, are often responsible for shifts in the effective
tax rate. As a result of these factors, the provision for income taxes was 27%
of pretax income for the three months ended December 31, 1996 compared to a
provision for income taxes of 53% of pretax income for the three months ended
December 31, 1995.
17
<PAGE>
RESULTS OF OPERATIONS - NINE MONTHS ENDED DECEMBER 31, 1996 VS. NINE MONTHS
ENDED DECEMBER 31, 1995
JRM's revenues increased $134,147,000 to $1,074,143,000, primarily due to higher
volume in North America, the Middle East and the Far East. These were partially
offset by lower volume in the North Sea and lower leasing activities due to the
sale of the DB101 and DB102 to the HeereMac joint venture.
B&W Operations' revenues decreased $64,033,000 to $1,018,490,000, reflecting
weaknesses in essentially all of the Power Generation Group's basic businesses.
These decreases were primarily due to lower revenues from the Power Generation
Group's fabrication and erection of fossil fuel steam and environmental control
systems, replacement nuclear steam generators manufactured at B&W's Cambridge,
Ontario location, Canadian nuclear services and replacement parts. These
decreases were partially offset by higher revenues from the repair and
alteration of existing fossil fuel steam systems and plant enhancement projects.
In addition, the Government Group had higher revenues in its commercial nuclear
environmental services.
Industrial Operations' revenues decreased $22,136,000 to $376,207,000, primarily
due to lower revenues from engineering and construction activities in domestic
and Canadian operations. These decreases were partially offset by increased
barge construction activities in domestic shipyard operations and increased ship
repair activities in Mexican operations.
JRM's business unit income decreased $12,783,000 to $32,903,000, primarily due
to lower volume in the North Sea, higher operating expenses in the Middle East
and the Far East, lower leasing activities due to the sale of the DB101 and
DB102 and the completion of profitable contracts in West Africa in the prior
year. These decreases were partially offset by higher volume in North America.
B&W Operations' business unit income decreased $6,230,000 to $26,420,000,
primarily due to the Power Generation Group's lower volume and margins on the
fabrication and erection of fossil fuel steam and environmental control systems,
lower margins on plant
18
<PAGE>
enhancement projects and lower volume on replacement nuclear steam generators.
In addition, the prior year included income from a license buyout agreement.
These decreases were partially offset by higher margins on industrial boilers
and higher volume and margins on the repair and alteration of existing fossil
fuel steam systems. In addition, there were higher margins from the Government
Group's nuclear fuel assemblies and reactor components for the U. S. Government,
and higher volume and margins on commercial nuclear environmental services and
lower sales and marketing expenses.
Industrial Operations' business unit loss increased $4,955,000 to $24,662,000,
primarily due to cost overruns on an engineering, procurement and construction
contract for a cogeneration plant and cost overruns on domestic barge
construction operations. The loss was partially offset by lower general and
administrative expenses.
Other business unit income (loss) decreased $11,465,000 from income of
$10,650,000 to a loss of $815,000, primarily due to a favorable insurance
adjustment of $12,000,000 in the prior year.
Gain (loss) on asset disposals and impairments - net increased $26,295,000 to
$31,428,000 primarily due to a gain on the sale of the DB21 and participation in
a gain from the sale of the DB100 by the HeereMac joint venture, partially
offset by an asset impairment loss on an office building.
JRM's equity in income of investees increased $20,536,000 to $30,381,000,
primarily due to the improved operating results from the HeereMac joint venture,
partially offset by lower results from the McDermott-ETPM West, Inc. joint
venture. In addition, there were favorable results in the Mexican joint
ventures. Equity in income of investees also includes income of $6,481,000 from
the amortization of the deferred gain resulting from the sale of the DB101 and
DB102. The revenues of the HeereMac and McDermott-ETPM West, Inc. joint
ventures increased from $435,488,000 to $534,116,000, primarily due to increased
volume in the North Sea and North America, partially offset by decreased volume
in the Far East and West Africa. Equity in income of investees from these two
joint ventures increased from $8,706,000 to $14,503,000, primarily as a result
of higher volume and margins, partially offset by foreign currency transaction
losses. In addition, the HeereMac
19
<PAGE>
joint venture incurred higher interest expense as a result of debt it issued to
finance the purchase of major marine vessels it had been chartering, including
the DB101 and DB102.
B&W Operations' equity in income of investees decreased $34,680,000 to
$2,915,000. This represents the results of approximately fifteen active joint
ventures. The decrease is primarily due to a nonrecurring gain of $30,612,000
resulting from the sale of power purchase contracts back to a local utility in
June 1995 and lower operating results in a Canadian joint venture.
Interest income increased $6,148,000 to $33,993,000, primarily 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.
Interest expense increased $4,093,000 to $68,000,000, primarily due to changes
in debt obligations and interest rates prevailing thereon.
Minority interest expense increased $10,709,000 to $26,511,000, primarily due to
minority shareholder participation in the improved results of JRM.
Other-net increased $6,739,000 from expense of $3,402,000 to income of
$3,337,000, primarily due to increases in certain reimbursed financing costs and
lower bank fees and discounts on the sales of certain accounts receivable. There
were also foreign currency transaction gains compared to foreign currency
transaction losses in the prior year.
The provision for income taxes decreased $5,060,000 to $11,240,000, while income
before provision for income taxes decreased $33,187,000 to $7,605,000. The
decrease in the provision for income taxes is primarily due to a decrease in
income. This was partially offset by a reduction in the provision in the prior
year resulting from the reappraisal of tax liabilities in certain foreign tax
jurisdictions. International operates in many tax jurisdictions, and within
these jurisdictions, tax provisions vary because of nominal rates, allowability
of deductions, credits and other benefits, and basis of taxation (for example,
revenues versus income). These variances, along with variances in the mix
20
<PAGE>
of income within jurisdictions, are often responsible for shifts in the
effective tax rate. As a result of these factors, the provision for income
taxes was 148% of pretax income for the nine months ended December 31, 1996
compared to a provision for income taxes of 40% of pretax income for the nine
months ended December 31, 1995.
<TABLE>
<CAPTION>
Backlog
- -------
12/31/96 3/31/96
--------- ----------
(Unaudited)
(In thousands)
<S> <C> <C>
Business Unit Backlog:
J. Ray McDermott, S.A. $1,583,249 $ 977,896
B&W Operations 2,248,642 2,164,507
Industrial Operations 326,224 317,401
Other (including Transfer Eliminations) (26,360) (60,408)
- ------------------------------------------------------------------
TOTAL BACKLOG $4,131,755 $3,399,396
==================================================================
</TABLE>
In general, International's business units are capital intensive and rely on
large contracts for a substantial amount of their revenues.
JRM's backlog at December 31, 1996 was $1,583,249,000, compared to $977,896,000
at March 31, 1996, and backlog relating to contracts to be performed by JRM's
unconsolidated joint ventures (not included above) was $1,386,000,000 at
December 31, 1996 compared to $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. JRM also believes that these
strong markets and increased backlog suggest improving financial results over
the longer term. However, in this historically seasonal business, JRM
frequently incurs operating losses during the fiscal quarter ending March 31.
B&W Operations' backlog at December 31, 1996 was $2,248,642,000, compared to
$2,164,507,000 at March 31, 1996. At December 31, 1996 this business unit's
backlog with the U.S. Government was $859,882,000 (of which $44,939,000 had not
been
21
<PAGE>
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, the domestic market for
industrial and utility boilers remains weak.
Industrial Operations' backlog at December 31, 1996 was $326,224,000, compared
to $317,401,000 at March 31, 1996, and included the backlog at its domestic
shipyard of $110,361,000 (see Note 5 to the condensed consolidated financial
statements regarding the sale of the shipyard). At December 31, 1996, this
business unit's backlog with the U.S. Government was $37,583,000 (of which
$1,901,000 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").
During the nine months ended December 31, 1996, International's cash and cash
equivalents increased $53,133,000 to $291,796,000 and total debt increased
$178,239,000 to $988,753,000 primarily due to increases in long-term borrowings
of $244,375,000 (which includes the issuance of $250,000,000 principal amount of
JRM's 9.375% Senior Subordinated Notes). During this period, International
provided cash of $98,017,000 from operating activities and received cash
proceeds of $55,583,000 from asset disposals. International also used cash of
$77,895,000 for additions to property, plant and equipment, $132,109,000 for net
purchases of investments, $47,140,000 for dividends on International's common
and preferred stock, and $74,882,000 for repayment of short-term borrowings and
long-term debt.
Decreases in net contracts in progress and advance billings are primarily due to
the timing of billings on the Foinaven contract.
22
<PAGE>
During the three months ended December 31, 1996, International sold its interest
in CCC Fabricaciones y Construcciones, S.A. de C.V., a Mexican joint venture,
the DB21 and other assets to Global Industries, Ltd. ("Global"). Global also
acquired an option to purchase the DB15. The sales price of the Global
transaction, including the option, was approximately $38,000,000.
Pursuant to an agreement with a majority of its principal insurers,
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
first nine months of fiscal year 1997, but not to the levels experienced from
October 1994 to September 1995. Management is currently investigating and
evaluating the basis for this increase in the number of claims. The average
amount of these claims (historical average of approximately $5,900 per claim
over the last three years) has continued to rise. Claims paid during the nine
months ended December 31, 1996 were $137,337,000, of which $123,869,000 has
been recovered or is due from insurers. At December 31, 1996, receivables of
$95,507,000 were due from insurers for reimbursement of settled claims. The
increase in amounts classified as current for products liability asbestos claims
and the insurance recoverable at December 31, 1996 reflects management's
intention to reduce the level of unpaid asserted claims over the next several
quarters. Estimated liabilities for pending and future non-employee products
liability asbestos claims are derived from International's claims history and
constitute management's best estimate of such future costs. Estimated insurance
recoveries are based upon an 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 for in the consolidated financial statements.
Settlement of the liability is expected to occur over approximately the next 25
years. The collection delays and the amount of claims paid for which insurance
recovery is not probable have not had a material adverse effect on
International's liquidity, and management believes,
23
<PAGE>
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 $25,392,000 to
$77,895,000 for the nine months ended December 31, 1996. In addition to
maintaining existing facilities and equipment, these expenditures included
$4,887,000 for the purchase of a cable lay vessel, and modifications thereto,
which operates in the North Sea; $3,625,000 for cable lay equipment, which
includes a deep bury plow used in the installation of fiber optic cable; and
$11,879,000 to upgrade a marine barge operating in the Gulf of Mexico.
At December 31, and March 31, 1996, B&W had sold, with limited recourse, an
undivided interest in a designated pool of qualified accounts receivable of
approximately $103,000,000 and $107,000,000, respectively, under the terms of an
agreement with a U.S. bank. The maximum sales limit available under the
agreement was reduced during December 1996 from $140,000,000 to $125,000,000.
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. The existing agreement will expire on March
31, 1997; however, B&W expects to negotiate an annual renewal of the agreement.
At December 31, and March 31, 1996, International had available to it various
uncommitted short-term lines of credit totalling $270,401,000 and $439,610,000,
respectively. Borrowings against these lines of credit at December 31 and March
31, 1996 were $62,383,000 and $149,067,000, respectively. The reduction in
borrowings against uncommitted short-term lines of credit is primarily due to
the collection of the Foinaven project receivables and repayment of the project
financing debt during the December 1996 quarter. In addition, B&W had available
to it a $150,000,000 unsecured and committed revolving credit facility.
Borrowings against this facility at December 31 and March 31, 1996 were
$100,000,000 and $50,000,000, respectively. 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. Although B&W did not meet one such
requirement
24
<PAGE>
at December 31, 1996, it has received a waiver of compliance through March 30,
1997, and anticipates negotiating a new committed bank facility with new
covenants applicable thereafter. JRM also had an unsecured and committed
revolving credit facility which contains a debt to capitalization covenant
limiting its incremental borrowing capacity ($122,000,000 at December 31, 1996).
There were no borrowings outstanding on this facility at December 31 or March
31, 1996. In addition, JRM is restricted, as a result of the consolidated
tangible net worth covenant in this agreement, in its ability to pay cash
dividends to its public shareholders or to transfer funds through cash dividends
(including annual preferred stock dividends of $7,200,000 on its Series A
Preferred Stock held by McDermott International, Inc.) or through unsecured
loans or investments to McDermott International, Inc. and its other
subsidiaries. At December 31, 1996, approximately $28,000,000 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 McDermott International, Inc.
and its other subsidiaries through cash dividends or through unsecured loans or
investments. At December 31, 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 McDermott International,
Inc.'s liquidity.
International maintains an investment portfolio of government obligations and
other investments. The fair value of short-term investments and the long-term
portfolio at December 31, 1996 was $379,976,000. At December 31, 1996,
approximately $116,297,000 fair value of these investments were pledged to
secure a letter of credit in connection with a long-term loan and certain
reinsurance agreements.
Working capital decreased $36,284,000 from $331,986,000 at March 31, 1996 to
$295,702,000 at December 31, 1996 due, in part, to the classification of JRM's
12.875% Guaranteed Senior Notes as a current liability as JRM plans on redeeming
such Notes in the second quarter of fiscal year 1998. During the September 1996
quarter, JRM issued $250,000,000 principal amount of 9.375% Senior Subordinated
Notes due 2006 and received net proceeds of $244,375,000 which were used
primarily to repay
25
<PAGE>
intercompany indebtedness (including interest) of approximately $239,000,000
owed to McDermott International, Inc. McDermott International, Inc. used
$50,000,000 of the proceeds to reduce short-term debt and invested the remainder
of the proceeds in its investment portfolio. Also during the September quarter,
JRM's 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.
During the remainder of fiscal year 1997, International expects to obtain funds
to meet working capital, capital expenditure 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 International's liquidity or capital
resources.
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 the 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.
On October 7, 1996, McDermott International, Inc. announced that its Board of
Directors had directed management to implement a series of steps to improve
International's financial and operating performance. Management was directed to
focus International on its core business lines and dispose of non-core
businesses and underperforming assets. Core business lines include the power
generation and government operations of B&W and the marine construction
operations of JRM. Management was also directed to realign the operations of
B&W's Power Generation Group consistent with the current demands of the
worldwide power generation market. This included the rationalization of
manufacturing overcapacity and continued reduction in personnel. Finally,
management was directed to
26
<PAGE>
continue efforts to reduce personnel and other costs at the operating and
corporate headquarters of both International and JRM. Although business and
asset disposals associated with this directive have not been completed, these
disposals may negatively impact near-term operating results, while having a
positive long-term impact on operations. It is anticipated that these disposals
will have a positive impact on liquidity, both upon disposition and long-term.
At the November 7, 1996 Board of Directors Meeting, McDermott International,
Inc.'s quarterly dividend on its common stock was reduced from $0.25 per share
to $0.05 per share.
New Accounting Standard
- -----------------------
In June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities," effective for
transactions occurring after December 31, 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. 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.
27
<PAGE>
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) Exhibits
3.2 - McDermott International, Inc.'s amended and restated By-Laws
(corrected)
11 - Calculation of Earnings (Loss) Per Common and Common
Equivalent Share
27 - Financial Data Schedule
(b) Reports on Form 8-K
There were no current reports on Form 8-K filed during the three
months ended December 31, 1996.
Signatures
28
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
McDERMOTT INTERNATIONAL, INC.
Date: February 7, 1997 By: /s/ Daniel R. Gaubert
----------------------------------
(SIGNATURE)
Daniel R. Gaubert
Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer
and Duly Authorized Representative)
29
<PAGE>
EXHIBIT INDEX
Exhibit Description
3.2 McDermott International, Inc.'s amended and restated By-Laws
(corrected)
11 Calculation of Earnings (Loss) per Common and Common Equivalent Share
27 Financial Data Schedule
30
<PAGE>
EXHIBIT 3.2
AMENDED AND RESTATED
BY-LAWS
OF
McDERMOTT INTERNATIONAL, INC.
(as amended through June 4, 1996)
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.
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.
<PAGE>
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 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
2
<PAGE>
(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
(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
3
<PAGE>
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 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 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.
4
<PAGE>
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 of 76, and
any such Director who attains age 76 during a term to which he was elected shall
immediately resign and retire from the Board of Directors.
No person shall be nominated for election or serve as a Director who has
served as a Director of the Company, together with its parent and subsidiary
companies, for a cumulative period of twenty (20) years and any such person
whose service as a Director totals twenty (20) years during a term to which he
is elected shall resign and retire from the Board of Directors as of the next
annual meeting of the stockholders.
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.
5
<PAGE>
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, 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
6
<PAGE>
Directors or by the Chief Executive Officer.
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 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.
7
<PAGE>
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 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
8
<PAGE>
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, 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
9
<PAGE>
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.
10
<PAGE>
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 NINE
MONTHS ENDED MONTHS ENDED
---------------------- ----------------------
12/31/96 12/31/95 12/31/96 12/31/95
--------- --------- --------- ---------
(Unaudited)
<S> <C> <C> <C> <C>
Net Income (Loss) $ 16,619 $ 6,606 $ (3,635) $ 24,492
Less dividend requirements of preferred
stock, Series C (2,066) (2,066) (6,199) (6,199)
- ----------------------------------------------------------------------------------------
Net income (loss) for primary computation $ 14,553 $ 4,540 $ (9,834) $ 18,293
========================================================================================
Weighted average number of common
shares outstanding during the period 54,770,679 54,289,682 54,659,390 54,168,265
Common stock equivalents of stock options
and stock appreciation rights based on
"treasury stock" method 39,341 38,500 - 198,711
- ----------------------------------------------------------------------------------------
Weighted average number of common
shares outstanding during the period 54,810,020 54,328,182 54,659,390 54,366,976
========================================================================================
Net Income (loss) per common and
common equivalent share: /(1)/ $ 0.27 $ 0.08 $ (0.18) $ 0.34
========================================================================================
</TABLE>
/(1)/ Net Income (Loss) per common and common equivalent share assuming full
dilution are the same for the periods presented.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MCDERMOTT
INTERNATIONAL'S DECEMBER 31, 1996 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> DEC-31-1996
<CASH> 291,796
<SECURITIES> 2,137
<RECEIVABLES> 524,470
<ALLOWANCES> 88,110
<INVENTORY> 411,360
<CURRENT-ASSETS> 1,682,489
<PP&E> 1,893,285
<DEPRECIATION> 1,218,951
<TOTAL-ASSETS> 4,248,940
<CURRENT-LIABILITIES> 1,386,787
<BONDS> 680,809
0
2,875
<COMMON> 54,825
<OTHER-SE> 586,950
<TOTAL-LIABILITY-AND-EQUITY> 4,248,940
<SALES> 2,418,430
<TOTAL-REVENUES> 2,418,430
<CGS> 2,419,016
<TOTAL-COSTS> 2,419,016
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 68,000
<INCOME-PRETAX> 7,605
<INCOME-TAX> 11,240
<INCOME-CONTINUING> (3,635)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,635)
<EPS-PRIMARY> (0.18)
<EPS-DILUTED> (0.18)
</TABLE>
