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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended March 31, 1994
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the transition period from _____________________ to ____________________
Commission File Number 1-8430
McDERMOTT INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
REPUBLIC OF PANAMA 72-0593134
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1450 POYDRAS STREET
NEW ORLEANS, LOUISIANA 70112-6050
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including area code (504) 587-5400
Securities Registered Pursuant to Section 12(b) of the Act:
Name of each Exchange
Title of each class on which registered
Common Stock, $1.00 par value New York Stock Exchange
Rights to Purchase Common Stock New York Stock Exchange
(Currently Traded with Common Stock)
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.
---
The aggregate market value of voting stock held by non-affiliates of the
registrant was $1,119,910,148 as of April 28, 1994.
The number of shares outstanding of the Company's Common Stock at April 28,
1994 was 53,544,467.
DOCUMENTS INCORPORATED BY REFERENCE
The Proxy Statement for the 1994 Annual Meeting of Shareholders is incorporated
by reference into Part III of this report.
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McDERMOTT INTERNATIONAL, INC.
INDEX - FORM 10-K
PART 1
PAGE
Items 1. & 2. BUSINESS AND PROPERTIES
A. General 1
B. Power Generation Systems and Equipment
General 3
Foreign Operations 4
Raw Materials 4
Customers and Competition 5
Backlog 5
Factors Affecting Demand 6
C. Marine Construction Services
General 7
Foreign Operations 10
Raw Materials 11
Customers and Competition 11
Backlog 11
Factors Affecting Demand 11
D. Patents and Licenses 12
E. Research and Development Activities 12
F. Insurance 12
G. Employees 14
H. Environmental Regulations and Matters 14
I. Divestitures and Discontinued Operations 15
Item 3. LEGAL PROCEEDINGS 17
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 18
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INDEX - FORM 10-K
PART II
PAGE
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK
AND RELATED SECURITY HOLDER MATTERS 19
Item 6. SELECTED FINANCIAL DATA 20
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS
Results of Operations
Fiscal Year 1994 vs Fiscal Year 1993 22
Fiscal Year 1993 vs Fiscal Year 1992 24
Effects of Inflation and Changing Prices 25
Liquidity and Capital Resources 26
Item 8. CONSOLIDATED FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA
Company Report on Consolidated Financial Statements 30
Report of Independent Auditors 31
Consolidated Balance Sheet - March 31, 1994 and 1993 32
Consolidated Statement of Income (Loss) and Retained
Earnings (Deficit) for the Three Fiscal Years ended
March 31, 1994 34
Consolidated Statement of Cash Flows for the Three
Fiscal Years ended March 31, 1994 36
Notes to Consolidated Financial Statements 38
Item 9. DISAGREEMENTS WITH AUDITORS ON ACCOUNTING
AND FINANCIAL DISCLOSURE 76
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 77
Item 11. EXECUTIVE COMPENSATION 77
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT 77
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 77
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INDEX - FORM 10-K
PART IV
PAGE
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K
Exhibit 11 - Statement Re Computation of
Per Share Earnings (Loss) 81
Exhibit 22 - Significant Subsidiaries of
the Registrant 82
Exhibit 24 - Consent of Independent Auditors 83
Signatures of the Registrant 84
Signatures of Directors 85
- III -
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PART I
Items 1. and 2. BUSINESS AND PROPERTIES
A. GENERAL
McDermott International, Inc. ("International") was incorporated under the laws
of the Republic of Panama in 1959. International is the parent company of the
McDermott group of companies, which includes McDermott Incorporated.
International's Common Stock and McDermott Incorporated's Series A $2.20
Cumulative Convertible Preferred Stock and Series B $2.60 Cumulative
Preferred Stock are publicly traded.
Unless the context otherwise requires, hereinafter "International" will be used
to mean McDermott International, Inc., a Panama corporation; the "Delaware
Company" will be used to mean McDermott Incorporated, a Delaware corporation
which is a subsidiary of International, and its consolidated subsidiaries; and
"McDermott International" will be used to mean the consolidated enterprise.
McDermott International operates in two business segments:
o Power Generation Systems and Equipment, whose principal businesses are the
supply of fossil-fuel and nuclear steam generating systems and equipment to
the electric power generation industry, and nuclear reactor components to
the U. S. Navy; and
o Marine Construction Services, which supplies worldwide services for the
offshore oil, natural gas and hydrocarbon processing industries, and to
other marine construction companies. Principal activities include the
design, engineering, fabrication and installation of marine pipelines and
offshore structures and subsea production systems for development drilling
and production, and onshore construction and maintenance services.
The business of the Power Generation Systems and Equipment segment is conducted
primarily through a subsidiary of McDermott Incorporated, Babcock & Wilcox
Investment Company, the principal subsidiary of which is The Babcock & Wilcox
Company. Unless the context otherwise requires, hereinafter "B&W" will be used
to mean Babcock & Wilcox Investment Company and its consolidated subsidiaries,
including The Babcock & Wilcox Company.
McDermott International has a continuing program of reviewing joint venture,
acquisition and disposition opportunities.
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The following tables show revenues and operating income from the continuing
operations of McDermott International for the three fiscal years ended March
31, 1994. See Note 14 to the consolidated financial statements for additional
information with respect to McDermott International's business segments and
operations in different geographic areas.
REVENUES
(Dollars in Millions)
FOR FISCAL YEARS ENDED MARCH 31,
1994 1993 1992
----------------------- ---------------------- ---------------------
Power Generation Systems
and Equipment (1) $ 1,614.2 53% $ 1,523.5 48% $ 1,593.5 45%
Marine Construction Services (2)(3) 1,452.5 47% 1,649.7 52% 1,936.6 55%
Intersegment Transfer
Eliminations (6.8) - (0.6) - (5.6) -
- - -------------------------------------------------------------------------------------------------------------------
Total Revenues $ 3,059.9 100% $ 3,172.6 100% $ 3,524.5 100%
===================================================================================================================
OPERATING INCOME
(Dollars in Millions)
FOR FISCAL YEARS ENDED MARCH 31,
1994 1993 1992
----------------------- ---------------------- ---------------------
Segment Operating Income:
Power Generation Systems
and Equipment(1) $ 49.9 53% $ 56.5 46% $ 109.8 66%
Marine Construction Services(2)(3) 44.4 47% 67.6 54% 55.9 34%
- - -------------------------------------------------------------------------------------------------------------------
Total Segment Operating Income 94.3 100% 124.1 100% 165.7 100%
- - -------------------------------------------------------------------------------------------------------------------
Equity in Income of Investees:
Power Generation Systems
and Equipment(1) 12.1 10% 8.7 9% 13.9 -
Marine Construction Services(2) 107.8 90% 85.4 91% (6.6) -
- - -------------------------------------------------------------------------------------------------------------------
Total Equity in Income
of Investees 119.9 100% 94.1 100% 7.3 -
- - -------------------------------------------------------------------------------------------------------------------
General Corporate Expenses (54.4) - (52.8) - (51.9) -
- - -------------------------------------------------------------------------------------------------------------------
Total Operating Income $ 159.8 - $ 165.4 - $ 121.1 -
===================================================================================================================
(1) See Note 3 to the consolidated financial statements regarding the
deconsolidation of B&W Fuel Company to a cost method Investment and
the change in B&W Nuclear Service Company from an equity method to a
cost method Investment during fiscal year 1992.
(2) See Note 3 to the consolidated financial statements regarding the
deconsolidation of the McDermott-ETPM West joint venture during fiscal
year 1992.
(3) See Note 2 to the consolidated financial statements regarding
the acquisition of Northern Ocean Services Limited and Delta Catalytic
Corporation during fiscal year 1994.
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B. POWER GENERATION SYSTEMS AND EQUIPMENT
GENERAL
The Power Generation Systems and Equipment segment provides engineered products
and services for energy conversion worldwide. The segment supplies
individually engineered complete fossil fuel steam generating systems for
electric power generation and for industrial processes. This segment also
provides replacement parts and engineered plant enhancements for existing
fossil fuel steam generating systems and specially engineered accessories and
components, such as air heaters and cleaning systems for heat transfer
surfaces. It also supplies process recovery boilers and environmental control
systems for the process and power industries, air- cooled heat exchangers and
condensing heat exchangers. This segment also provides non-boiler related
equipment and services usually in connection with the construction of turnkey
power generation projects. It is also engaged in the erection of electric
power plants and industrial facilities and the repair and alteration of such
existing equipment.
This segment is actively involved in the market for providing power through
cogeneration, refuse-fueled power units and other independent power producing
plants. It is participating in this market as an equipment supplier, as an
operations and maintenance contractor and through ownership interests.
The Power Generation Systems and Equipment segment also provides nuclear fuel
assemblies and nuclear reactor components to the U. S. Navy for the Naval
Reactors Program. Revenues from the U. S. Government related to this activity
were approximately 9%, 8% and 9% of McDermott International's total revenues
for fiscal years 1994, 1993 and 1992, respectively. This activity has made
significant contributions to the operating income of McDermott International in
all three fiscal years. B&W, in addition to its Naval Reactors Program
business, is a supplier of ordnance, missile and torpedo metal parts and other
equipment and services to the U. S. Government and is proceeding with new,
non-defense Government projects and exploring new programs which require the
technological capabilities it developed as a Government contractor for the
Naval Reactors Program. Recent U. S. Government budget reductions, including
the cancellation of the advanced solid rocket motor and super conducting super
collider projects, have negatively affected this segment's government
operations.
B&W is a major supplier of nuclear steam generating equipment, including
critical heat exchangers and replacement recirculating steam generators, in the
Canadian, U. S. and international markets from its Cambridge, Ontario
location. Although no new contracts for nuclear steam generating systems have
been awarded in the United States for a number of years, this facility was
awarded three contracts during fiscal year 1993 valued at approximately
$280,000,000 to supply replacement recirculating steam generators to three
domestic utilities. B&W also supplies field repair and refurbishment services
to the Canadian and international markets from this location.
The principal plants of this segment, which are owned by B&W, are located at
Little Rock, Arkansas; Indianapolis and Mount Vernon, Indiana; West Point,
Mississippi; Barberton and Lancaster, Ohio; Beasley and Paris, Texas;
Lynchburg, Virginia; and Cambridge, Ontario,
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Canada. Less than majority-owned (equity investees) foreign plants are located
in China, Indonesia and India. All these plants are well maintained, have
suitable equipment and are of adequate size.
FOREIGN OPERATIONS
The amounts of Power Generation Systems and Equipment's revenues, including
intersegment revenues, and segment operating income derived from operations
outside of the United States, and the approximate percentages of those revenues
and segment operating income to McDermott International's total revenues and
total segment operating income, respectively, follow:
REVENUES SEGMENT OPERATING INCOME
FISCAL YEAR AMOUNT PERCENT AMOUNT PERCENT
(Dollars in Thousands)
1994 $ 372,727 12% $ 30,362 32%
1993 246,181 8% 11,107 9%
1992 195,274 6% 6,146 4%
B&W primarily conducts its foreign business from its Cambridge, Ontario
location, which also serves the United States market. Products for
international installation are engineered and built in B&W's United States and
Canadian facilities, as well as in the facilities of less than majority-owned
joint venture companies (equity investees) in China, Indonesia and India.
RAW MATERIALS
The principal raw materials used by this segment to construct power generation
systems and equipment consist of carbon and alloy steels in various forms, such
as plate, forgings, structurals, bars, sheet, strip, heavy wall pipe and tubes.
Significant amounts of components and accessories are also purchased for
assembly for supplied systems and equipment. These raw materials and
components generally are purchased as needed for individual contracts.
Although shortages of certain of these raw materials have existed from time to
time, no serious shortage exists at the present time. In addition, this
segment is not sole source dependent for any significant raw materials except
for the uranium for the nuclear fuel assemblies supplied to the Naval Reactors
Program, which is furnished and owned by the U.S. Government.
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CUSTOMERS AND COMPETITION
The principal customers of this segment are the electric power generation
industry (including government-owned utilities and independent power
producers), the U. S. Government (including its contractors), and the pulp and
paper and other process industries such as oil refineries and steel mills. The
electric power generation industry accounted for approximately 26%, 18% and 14%
of McDermott International's total revenues for fiscal years 1994, 1993 and
1992, respectively. U. S. Government business with this segment, excluding
government-owned utilities, accounted for approximately 13%, 12% and 14% of
McDermott International's total revenues for such periods.
Steam generating system orders are customarily awarded after competitive bids
have been submitted as proposals based on the estimated cost of each job.
Within the United States, a number of domestic and foreign based companies,
specializing in steam generating equipment, compete with B&W in the fossil
fuel steam generating system business. In international markets, these
companies plus additional foreign-based companies compete with B&W. B&W also
manufactures and sells components such as replacement recirculating steam
generators, which are incorporated into nuclear steam generating systems
designed by other firms. In the sale of these nuclear steam generating
systems, B&W competes with a small number of companies. A number of companies
are in competition with B&W in environmental control equipment, related
specialized industrial equipment and the independent power producing business.
Other suppliers of fossil fuel steam systems, as well as many other businesses,
compete for replacement parts, repair and alteration, and other services
required to backfit and maintain existing systems.
In regard to the Naval Reactors Program, B&W is the sole supplier of nuclear
fuel assemblies and reactor components to the U. S. Navy. As a result, B&W
was awarded significant new orders for aircraft carrier components and will
retain its prototype design and manufacturing capability for a new generation
of reactors for the submarine program. B&W is the sole supplier to the U.S.
Navy for all major nuclear steam system equipment for the Naval Reactors
Program. There are a small number of suppliers of small nuclear components
with B&W being the largest based on revenues.
BACKLOG
Backlog as of March 31, 1994 and 1993 for the Power Generation Systems and
Equipment segment was $2,398,285,000 and $2,614,708,000, or approximately 69%
and 70%, respectively, of McDermott International's backlog. Of the March 31,
1994 backlog, it is expected that approximately $1,042,181,000 will be
recognized in revenues in fiscal year 1995, $565,773,000 in fiscal year 1996
and $790,331,000 thereafter, of which approximately 90% will be recognized in
fiscal years 1997 through 1999. At March 31, 1994, this segment's backlog with
the U. S. Government was $775,909,000 (of which $17,055,000 had not yet been
funded), or approximately 22% of McDermott International's total backlog. The
impact of Congressional budget reductions on the advanced solid rocket motor
and super conducting super collider projects are reflected in these amounts.
Backlog at March 31, 1994 and 1993 included $5,190,000 and $153,726,000,
respectively, relating to these projects.
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During fiscal year 1994, B&W was awarded a $400,000,000 contract from
Perusahaan Umum Listrik Negara ("PLN"), the state utility of Indonesia, for
work on the expansion of the Suralaya power station in West Java. The project
is for three 600 megawatt coal-fired boilers for phase three of PLN's Suralaya
development program to expand Indonesia's electrical system. Also during
fiscal year 1994, B&W was awarded a $123,000,000 contract from Taiwan Power
Company to supply a wet flue gas desulphurization system to the utility's
Taichung Station, units 5-8. The steam generators and selective catalytic
reduction systems for these four 550 megawatt units were awarded to B&W in
fiscal year 1992 under a separate contract. In addition, B&W was awarded an
$80,000,000 contract by the Egyptian Electric Authority to supply two 600
megawatt gas and oil fired boilers, plus all accessories, at El-Kureimat, the
utility's new power station.
If in management's judgment it becomes doubtful whether contracts will proceed,
the backlog is adjusted accordingly. If contracts are deferred or cancelled,
B&W is usually entitled to a financial settlement related to the individual
circumstances of the contract. Operations and maintenance contracts, which are
performed over an extended period, are included in backlog based upon an
estimate of the revenues from these contracts.
B&W attempts to cover increased costs of anticipated changes in labor, material
and service costs of long-term contracts either through an estimation of such
changes, which is reflected in the original price, or through price escalation
clauses. Most long- term contracts have provisions for progress payments.
FACTORS AFFECTING DEMAND
Electrical consumption has grown moderately in the United States in recent
years. Electric utilities have deferred ordering large, new baseload units
because of continuing uncertainties over fuel prices, rate regulation and
environmental rules. When electric utilities are in need of peaking capacity,
many are purchasing combustion turbines with short lead-times or they are
purchasing electricity from other utilities and non-regulated sources, such as
cogenerators and independent power producers.
The current competitive economic environment and uncertainties created by the
passage of the Energy Policy Act of 1992, which deregulated the electric power
generation industry by allowing independent power producers and other companies
access to its transmission and distribution systems, and the Clean Air Act
Amendments of 1990 have caused U.S. utilities to defer repairs and
refurbishments on existing plants. However, the Clean Air Act has created
demand for pollution control equipment and related plant enhancements. Most
electric utilities have already purchased equipment to comply with Phase I of
the Clean Air Act, and they will purchase equipment to comply with Phase II
deadlines in a gradual manner, spread out over the next several years as
various deadlines approach.
Steam generation equipment is purchased most frequently by firms in the
energy-intensive industries, including pulp and paper, oil refining, chemicals,
primary metals, and food processing. Sales into the U. S. by foreign companies
competing in these industries have limited any expansion in steam generating
capacity by the pulp and paper, chemicals and primary metal industries. The
modest outlook for population growth has limited the needs of the food
processing industry for additional steam generation capacity. In addition,
environmental regulations have required the oil refining, pulp and paper,
chemicals, and utility industries to invest in pollution control equipment,
which has limited the investment available
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for additional steam generation capacity. These factors and the current
economic environment has affected demand for industrial- related product lines
and these markets are expected to remain very competitive.
Electric utilities in Asia are active purchasers of large, new baseload
generating units, due to the rapid growth of the Pacific Rim economies and to
the small existing stock of electrical generating capacity in most developing
countries.
With the maturing of the U. S. Navy's shipbuilding program and U. S. Government
defense budget reductions, the demand for nuclear fuel assemblies and reactor
components for the U. S. Navy has been declining since the mid-1980's.
However, B&W became the sole source provider of these assemblies in fiscal year
1991, and supplies nuclear fuel assemblies due to reload requirements. The
backlog of orders for U. S. Navy nuclear fuel assemblies and nuclear reactor
components comprised a substantial portion of this segment's backlog with the
U. S. Government at March 31, 1994 and this activity is expected to continue to
be a significant, but declining, part of such backlog. Also, U. S. Government
budget reductions, including the cancellation of the advanced solid rocket
motor and super conducting super collider projects, have negatively affected
this segment's other government operations.
B&W has applied its technological capabilities by supplying new products for
power generation applications. It has diversified into new markets and
activities not related to power generation that require complex engineering and
machining. Examples of these markets include environmental restoration
services, computer integrated manufacturing products and services, and the
management of government owned facilities. Currently, a majority-owned
subsidiary of B&W manages and operates a government owned facility at the
Department of Energy's Idaho National Engineering Laboratory.
C. MARINE CONSTRUCTION SERVICES
GENERAL
The Marine Construction Services segment consists of the design, construction
and installation of specialized offshore fixed platforms and marine pipelines
used for development drilling, production and transportation of oil and gas.
Marine Construction Services also includes engineering and construction
services for oil production in shoreline and marshland areas (principally in
Louisiana and Texas); the engineering and construction of processing plants for
the oil, gas and hydrocarbon processing and mineral industries; and vessel
chartering operations, principally to McDermott International's joint ventures.
This segment's shipyard facility supplies complete maintenance and construction
facilities and is a builder of a variety of marine vessels, including ferries,
barges, tugboats, container ships, bulk carriers, and other specialized
vessels.
Fixed platforms, which are fastened to the seafloor by pilings driven through
their structural legs, have been installed by McDermott International in water
depths of more than 1,000 feet. These platforms have been engineered to
withstand increasingly greater weights and stresses as the search for oil and
gas has expanded into deeper water and into areas subject to severe weather
conditions. In addition, this segment is capable of fabricating and installing
tension-leg platforms, floating production systems and subsea templates.
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In order to compete effectively in markets with overcapacity for offshore
marine construction equipment, McDermott International participates in joint
ventures with other marine contractors. McDermott International owns 50% of
the HeereMac joint venture, formed with Heerema Offshore Construction Group,
Inc., to provide heavy-lift marine installation services to the petroleum
industry on a worldwide basis, especially in harsh environments. Each party
charters to the joint venture, on a long-term basis, 2 semi- submersible
derrick barges, with the largest being McDermott International's Derrick Barge
102 ("DB-102") with a lift capacity of 13,200 tons.
McDermott International's joint venture with ETPM S.A. ("McDermott-ETPM")
provides general marine construction services to the petroleum industry in the
Middle East, India, West Africa and South America; it also provides offshore
marine installation services in the North Sea. McDermott International owns
67.2% of McDermott-ETPM East and 49.9% of McDermott-ETPM West. McDermott-ETPM
East operates in the Middle East and India; and McDermott-ETPM West operates in
the North Sea, West Africa and South America. McDermott- ETPM utilizes 3
combination derrick-pipelaying barges and 1 semi-submersible lay barge which
are owned by McDermott International. McDermott International also provides
fabrication facilities located at Jebel Ali and Ras-al-Khaimah in the U.A.E.,
and at Warri, Nigeria. ETPM S.A. charters to this joint venture 4 combination
derrick-pipelaying barges and provides fabrication facilities at Sharjah,
U.A.E. and Tchengue, Gabon.
McDermott International also owns a 49% interest in a Mexican joint venture
that operates 2 self-propelled combination derrick- pipelaying barges (1
capable of lifting 2,000 tons) and 1 pipelaying barge.
The Marine Construction Services segment has its principal domestic fabrication
yard and offshore base located on approximately 1,114 acres of land, under
lease, near Morgan City, Louisiana. This segment also owns a fabrication yard
on approximately 218 acres of land in Nueces County, Texas, and operates
fabrication yards on leased property in Indonesia at Batam Island and on
company-owned property in Scotland, near Inverness. It also operates a
shipyard on approximately 58 acres of leased land near Morgan City.
The equipment used at these yards, which is capable of fabricating a full range
of offshore structures, consists principally of cranes, welding equipment,
machine tools, and robotic and other automated equipment, in addition to other
fabrication equipment, most of which is movable.
Expiration dates, including renewal options, of leases covering land for the
shipyard and fabrication yards, follow:
Ras-al-Khaimah, U.A.E. Year 1994
Morgan City, Louisiana Years 2001-2032
Jebel Ali, U.A.E. Year 2005
Batam Island, Indonesia Year 2008
Warri, Nigeria Year 2065
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McDermott International expects to renew the lease at Ras-al-Khaimah, U.A.E.,
which is negotiated on an annual basis.
McDermott International owns the largest fleet of marine equipment used in
major offshore construction. The nucleus of a "construction spread" is a large
derrick barge, pipelaying barge or combination derrick-pipelaying barge capable
of offshore operations for an extended period of time in remote locations.
McDermott International owns 6 derrick barges, 3 pipelaying barges and 8
combination derrick-pipelaying barges. The lifting capacities of the derrick
and combination derrick-pipelaying barges range from 700 tons to 13,200 tons.
These barges, which range in length from 400 feet to 661 feet, are fully
equipped with revolving cranes, auxiliary cranes, welding equipment, pile
driving hammers, anchor winches and a variety of additional gear.
The largest of these vessels are the DB-102, which is one of the world's
largest semi-submersible derrick barges in both size and lifting capacity and
provides quarters for approximately 750 workers, and a semi-submersible lay
barge capable of laying 60-inch diameter pipe (including concrete coating) and
operating in water depths of up to 2,000 feet. The HeereMac joint venture has
used the DB-102 for a lift of 10,700 tons, a record module lift in the North
Sea. This segment has also installed one of the deepest pipelines in over
1,400-ft. waters in the Gulf of Mexico.
In addition, McDermott International owns and operates a shearleg crane capable
of lifting up to 5,000 tons and has a long-term lease on a derrick barge with a
lifting capacity of approximately 4,000 tons. It also owns or leases a
substantial number of other vessels, such as tugboats, utility boats and cargo
barges to support the major marine vessels.
In connection with its construction and pipelaying activities, this segment
conducts diving operations which, because of the water depths involved, require
sophisticated equipment, including diving bells and an underwater habitat.
In February 1994, McDermott International acquired Northern Ocean Services
Limited ("NOS"). NOS owns and operates 2 major marine construction vessels and
specialized construction equipment for providing subsea and trenching services
to industries worldwide; including oil, gas, marine construction and
hydrocarbon processing.
During June 1993, the Delaware Company acquired a controlling interest in Delta
Catalytic Corporation ("DCC") in the first step of a two step transaction which
will be completed during fiscal 1997, when the Delaware Company intends to
acquire the balance of DCC. DCC provides engineering, procurement,
construction and maintenance services to industries worldwide; including oil,
gas, marine construction and hydrocarbon processing.
During March 1994, McDermott International and the JSC Amur Shipbuilding Plant
announced the formation of two joint ventures for marine construction,
shipbuilding and the fabrication of ship components at the Amur shipyard in the
Khabarovsk Region of the Russian Far East. The joint venture McAmur
Construction Services Company will provide fabrication services for marine
construction projects in the Russian Far East. The second joint venture,
McAmur Shipbuilding Company will market the shipbuilding and ship component
fabrication capabilities of the Amur shipyard on a world-wide basis. The
shipyard is located in the city of Komsomolsk on the Amur River and is the
largest shipyard in the Russian Far East.
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During fiscal year 1992, McDermott International, Mitsui & Co., Ltd., and
Marathon Oil Company formed a consortium to pursue and acquire hydrocarbon
rights and the right to explore, develop and produce hydrocarbons in certain
oil and gas fields lying offshore Sakhalin Island, Russian Federation. In
fiscal year 1993, Shell Development Sakhalin B.V. and Mitsubishi Corporation
joined the consortium specifically to pursue the development of the Piltun
Astohskoye and Lunskoye fields. During fiscal year 1994, negotiations between
the consortium and representatives of the central and regional governments
continued.
In May 1994, McDermott International and the State Oil Company of the
Azerbaijan Republic announced agreements to form two joint ventures, both of
which will be located in or near Baku, Azerbaijan. The joint venture MacShelf
Marine Construction Company, Ltd. will provide engineering, procurement, and
marine and onshore construction services to the oil and gas industry in the
Caspian Sea region. The other joint venture, MacDock Shipyard Company, Ltd.,
will repair, upgrade and maintain vessels and drill rigs.
Also, in June 1993, McDermott International, Amoco Caspian Sea Petroleum
Company, BP Exploration (Caspian Sea) Limited/Den Norske Oljeselskap a.s.,
Pennzoil Caspian Corporation/Ramco Energy Limited, Unocal Khazar Limited and
Turkish Petroleum Corporation agreed to a declaration promulgated by the State
Oil Company of the Azerbaijan Republic providing for the joint development of
the Guneshli, Chirag and Azeri fields by all the companies. McDermott
International and these companies are continuing negotiations with the
Azerbaijan government regarding a production sharing agreement for these
fields.
FOREIGN OPERATIONS
The amount of Marine Construction Services' revenues, including intersegment
revenues, and segment operating income derived from operations outside of the
United States, and the approximate percentages of those revenues and segment
operating income to McDermott International's total revenues and total segment
operating income, respectively, follows:
REVENUES SEGMENT OPERATING INCOME
FISCAL YEAR AMOUNT PERCENT AMOUNT PERCENT
(Dollars in Thousands)
1994 $ 1,076,610 35% $ 51,026 54%
1993 1,269,290 40% 59,756 48%
1992 1,372,082 39% 31,867 19%
Revenues and segment operating income presented above do not include the
operating results of this segment's less than majority- owned joint ventures
(equity investees), which include HeereMac and McDermott-ETPM West. Equity
income recognized from these joint ventures has contributed substantially to
this segment's results during fiscal years 1994 and 1993, but McDermott
International anticipates that these joint ventures will perform at
significantly lower levels in 1995.
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15
RAW MATERIALS
The raw materials used by this segment, such as carbon and alloy steel in
various forms, welding gases, concrete, fuel oil and gasoline, are available
from many sources and this segment is not dependent upon any single supplier or
source. Although shortages of certain of these raw materials and fuels have
existed from time to time, no serious shortage exists at the present time.
CUSTOMERS AND COMPETITION
This segment's principal customers are oil and gas companies (including foreign
government owned companies). Customers generally contract with this segment
for the design, construction and installation of specific platforms, pumping
stations, marine pipelines, and production networks and the construction of
marine vessels. Contracts are usually awarded on a competitive bid basis.
There are a number of companies which compete effectively with McDermott
International, HeereMac and McDermott-ETPM in each of the separate marine
construction phases in various parts of the world.
BACKLOG
As of March 31, 1994 and 1993, the Marine Construction Services' backlog
amounted to $1,054,142,000 (including $233,299,000 from DCC and $57,373,000
from NOS), and $1,129,577,000, or approximately 31% and 30%, respectively, of
McDermott International's total backlog. Excluding DCC and NOS, backlog of
$763,470,000 at March 31, 1994 was down from the level of backlog at March 31,
1993, but remains above the levels experienced during most of the 1980's. Of
the March 31, 1994 backlog, it is expected that approximately $825,861,000 will
be recognized in revenues in fiscal year 1995, $194,244,000 in fiscal year
1996, and $34,037,000 thereafter.
Not included in Marine Construction Services' backlog at March 31, 1994 and
1993 was backlog relating to contracts to be performed by unconsolidated
foreign joint ventures of approximately $840,000,000 and $900,000,000,
respectively.
Work is performed on a fixed price, cost plus or day rate basis or combination
thereof. This segment attempts to cover increased costs of anticipated changes
in labor, material and service costs of long-term contracts either through an
estimation of such changes, which is reflected in the original price, or
through price escalation clauses. Most long-term contracts have provisions
for progress payments.
FACTORS AFFECTING DEMAND
The activity of the Marine Construction Services' segment depends mainly on the
capital expenditures of oil and gas companies and foreign governments for
developmental construction. These expenditures are influenced by the selling
price of oil and gas along with the cost of production and delivery, the terms
and conditions of offshore leases, the discovery rates of new reserves
offshore, the ability of the oil and gas industry to raise capital, and local
and international political and economic conditions.
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16
Oil company capital expenditure budgets in calendar year 1994 are moderately
higher than 1993 as expenditures in North America are expected to increase,
while international expenditures are expected to decline slightly. World oil
prices in calendar year 1994 are generally expected to be below the average
price in 1993. If oil prices remain under pressure this could have a further
negative impact on this segment's, HeereMac's and McDermott-ETPM West's
backlog. The composite spot price for natural gas in the United States was
higher in calendar year 1993 than in 1992 and is expected to be similar or
higher in 1994.
This segment's markets are expected to be at a low level in the U. S. during
fiscal year 1995 while international markets are varied. In all areas, the
overcapacity of marine equipment will continue to result in a competitive
environment and put pressure on profit margins.
D. PATENTS AND LICENSES
Many U. S. and foreign patents have been issued to McDermott International and
it has many pending patent applications. Patents and licenses have been
acquired and licenses have been granted to others when advantageous to
McDermott International. While McDermott International regards its patents and
licenses to be of value, no single patent or license or group of related
patents or licenses is believed to be material in relation to its business as a
whole.
E. RESEARCH AND DEVELOPMENT ACTIVITIES
McDermott International conducts its principal research and development
activities at its research centers in Alliance, Ohio and Lynchburg, Virginia;
and also conducts development activities at its various manufacturing plants
and engineering and design offices. During the fiscal years ended March 31,
1994, 1993 and 1992, approximately $69,148,000, $61,541,000 and $88,400,000,
respectively, was spent by McDermott International on research and development
activities, of which approximately $48,112,000, $42,082,000 and $67,100,000,
respectively, was paid for by customers of McDermott International. Research
and development activities were related to development and improvement of new
and existing products and equipment and conceptual and engineering evaluation
for translation into practical applications. A new multi-million dollar clean
environment development facility is in progress at its Alliance, Ohio location
and is expected to be completed by March 31, 1995. The test facility is being
undertaken in response to present and future emission pollution standards in
the U. S. and worldwide. Approximately 241 employees were engaged full time in
research and development activities at March 31, 1994.
F. INSURANCE
McDermott International maintains liability and property insurance that it
considers normal in the industry. However, certain risks are either not
insurable or insurance is available only at rates which McDermott International
considers uneconomical. Among such risks are war and confiscation of property
in certain areas of the world, pollution liability in excess of relatively low
limits and, in recent years, asbestos liability. Depending on competitive
conditions and other factors, McDermott International endeavors to obtain
contractual protection against uninsured risks from its customers.
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McDermott International's insurance policies do not insure against liability
and property damage losses resulting from nuclear accidents at reactor
facilities of its utility customers. To protect against liability for damage
to customer's property, McDermott International has obtained waivers of
subrogation from the customer and its insurer and is generally named as an
additional insured under the utility customer's nuclear property policy. To
protect against liability from claims brought by third parties, McDermott
International is insured under the utility customer's nuclear liability
policies and has the benefit of the indemnity and limitation of any applicable
liability provision of the Price-Anderson Act, as amended ("the Act"). The Act
limits the public liability of manufacturers and operators of licensed nuclear
facilities and other parties who may be liable in respect of, and indemnifies
them against, all claims in excess of an amount which is determined by the sum
of commercially available liability insurance plus certain retrospective
premium assessments payable by operators of commercial nuclear reactors. For
those sites where McDermott International provides environmental remediation
services, it seeks the same protection from its customers as it does for its
other nuclear activities.
Although McDermott International does not own or operate any nuclear reactors,
it has coverage under commercially available nuclear liability and property
insurance for four of its five facilities which are licensed to maintain
special nuclear materials. The fifth facility operates primarily as a
conventional research center. However, this facility is licensed to possess
special nuclear material and has a small and limited amount of special nuclear
material on the premises. Two of the four owned facilities are located at
McDermott International's Lynchburg, Virginia site. These facilities are
insured under a nuclear liability policy which also insures the facility of B&W
Fuel Company ("BWFC") that was sold during fiscal year 1993. All three
facilities share the same nuclear liability insurance limit as the commercial
insurer would not allow BWFC to obtain a separate nuclear liability insurance
policy. Due to the type or quantity of nuclear material present, two of the
five facilities have the benefit of the indemnity and limitation of liability
provisions of the Act, pursuant to agreements entered into with the U. S.
Government. In addition, contracts to manufacture and supply nuclear fuel or
nuclear components to the U. S. Government generally contain contractual
indemnity clauses, which become effective at the time of shipment, whereby the
U. S. Government has assumed the risks of public liability claims.
McDermott International's offshore construction business is subject to the
usual risks of operations at sea, with additional exposure due to the
utilization of expensive construction equipment, sometimes under extreme
weather conditions, often in remote areas of the world. In addition, McDermott
International operates in many cases on or in proximity to existing offshore
facilities which are subject to damage by McDermott International and such
damage could result in the escape of oil and gas into the sea.
The insurance coverage of McDermott International for products liability and
employers' liability claims is subject to varying insurance limits which are
dependent upon the year involved. The Babcock & Wilcox Company has an
agreement with a majority of its principal insurers concerning the method of
allocation of products liability asbestos claim payments to the years of
coverage. Pursuant to the agreement, The Babcock & Wilcox Company negotiates
and settles these claims and bills these amounts to the appropriate insurers.
However, amounts allocable to policy year 1979 are excluded from this
agreement, and
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Babcock & Wilcox Company's ability to recover these amounts, and amounts
allocable to certain insolvent insurers, is only reasonably possible.
Accordingly, a provision for these estimated future costs has been recognized
for financial reporting purposes. McDermott International's estimated future
costs relating to policy year 1979 and certain insolvent insurers are derived
from its loss history and constitute management's best estimate of such future
costs. Inherent in the estimate of such future costs are assumptions which may
vary significantly as claims are filed and settled. Accordingly, the ultimate
loss may differ materially from the amount provided in the consolidated
financial statements.
McDermott International has two wholly-owned insurance subsidiaries. To date,
these subsidiaries have written policies concerning general and automobile
liability, builders' risk within certain limits, marine hull, and workers'
compensation for McDermott International, Inc. and its subsidiaries. No
significant amounts of insurance have been written for unrelated parties.
G. EMPLOYEES
At March 31, 1994, McDermott International employed, under its direct
supervision in continuing operations, approximately 23,000 persons compared
with 26,000 at March 31, 1993. Approximately 5,000 employees were members of
labor unions at March 31, 1994 as compared with approximately 4,000 at March
31, 1993. The majority of B&W's manufacturing facilities operate under union
contracts which customarily are renewed every two to three years. There are no
major union contracts expiring during the next year. McDermott International
considers its relationship with its employees to be satisfactory.
H. ENVIRONMENTAL REGULATIONS AND MATTERS
Like other companies, McDermott International is subject to the existing and
evolving standards relating to the environment. McDermott International's
compliance with U. S. federal, state and local environmental protection
regulations necessitated capital expenditures of $843,000 in fiscal year 1994,
and it expects to spend another $6,420,000 on capital expenditures over the
next five years. However, McDermott International cannot predict all of the
environmental requirements or circumstances which will exist in the future but
it anticipates that environmental control standards will become increasingly
stringent and costly. Complying with existing environmental regulations
resulted in a charge against income before taxes of approximately $11,404,000
in fiscal year 1994.
McDermott International has been identified as a potentially responsible party
at various cleanup sites under the Comprehensive Environmental Response,
Compensation and Liability Act, as amended. McDermott International has not
been determined to be a major contributor of wastes to these sites. However,
each potentially responsible party or contributor may face assertions of joint
and several liability. Generally, however, a final allocation of costs is made
based on relative contributions of wastes to each site. Based on its relative
contribution of waste to each site, McDermott International's share of the
ultimate liability for the various sites is not expected to have a material
adverse effect on McDermott International's consolidated financial position.
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19
Remediation projects have been or may be undertaken at certain of McDermott
International's current and former plant sites, and, during fiscal year 1994,
B&W completed subject to Nuclear Regulatory Commission ("NRC") certification,
the decommissioning and decontamination of its former nuclear fuel processing
plant at Apollo, Pennsylvania. All fabrication and support buildings have been
removed, and virtually all contaminated soil has been shipped to authorized
disposal facilities. B&W is in the final stage of obtaining approval from the
NRC to have the site released for unrestricted use.
The Department of Environmental Resources of the Commonwealth of Pennsylvania,
("PADER"), by letter dated March 19, 1994, advised B&W that it will seek
monetary sanctions, and remedial and monitoring relief, related to B&W's Parks
Facilities in Parks Township, Armstrong County, Pennsylvania. The relief
sought relates to potential groundwater contamination related to the previous
operations of the facilities. B&W is currently evaluating PADER's consent order
and expects to negotiate a settlement without having to resort to litigation.
Any sanctions ultimately assessed are not expected to have a material adverse
effect on the consolidated financial statements of McDermott International.
McDermott International performs significant amounts of work for the U. S.
Government under both prime contracts and subcontracts and operates certain
facilities that are licensed to possess and process special nuclear materials
and thus are subject to continuing reviews by governmental agencies, including
the Environmental Protection Agency and the Nuclear Regulatory Commission.
Decommissioning regulations promulgated by the U.S. Nuclear Regulatory
Commission require B&W to provide financial assurance that it will be able to
pay the expected cost of decommissioning its facilities at the end of their
service lives. B&W will provide financial assurance of approximately
$11,000,000 required by July 29, 1994 by issuing either a surety bond or a
letter of credit, or by funding a trust to provide for the ultimate
decommissioning of all its licensed facilities, except one. This facility,
which represents the largest portion of B&W's eventual decommissioning costs,
has provisions in its government contracts pursuant to which all of its
decommissioning costs and financial assurance obligations are covered by the U.
S. Government.
Compliance with existing government regulations controlling the discharge of
materials into the environment, or otherwise relating to the protection of the
environment (including decommissioning), does not have, nor is it expected to
have, a material adverse effect upon the consolidated financial position of
McDermott International.
I. DIVESTITURES AND DISCONTINUED OPERATIONS
During fiscal year 1993, McDermott International concluded the sale of its
remaining interests in the B&W Fuel Company ("BWFC") to a consortium of U. S.
subsidiaries of three French companies and its remaining interest in the B&W
Nuclear Service Company ("BWNSC") to a U. S. subsidiary of Framatome S. A.,
which is also one of the French companies that participated in BWFC. These
businesses consisted of fuel assemblies for refueling, engineering, field
repair and refurbishment services, and computer services for existing nuclear
reactors.
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20
During fiscal year 1992, McDermott International sold its Welded Tubular
Products Division in Alliance, Ohio, to Alliance Tubular Products, Co., a
wholly-owned subsidiary of J. H. Roberts Industries, Inc., of Des Plaines,
Illinois. The facility had previously produced specialty tubing for mechanical
and pressure applications.
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Item 3. LEGAL PROCEEDINGS
Due to the nature of its business, McDermott International is, from time to
time, involved in litigation. It is management's opinion that none of this
litigation will have a material adverse effect on the consolidated financial
position of McDermott International.
For a discussion of McDermott International's potential liability for
non-employee products liability asbestos claims see Item 1F and Note 1 to the
consolidated financial statements.
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Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of the fiscal year covered by
this report to a vote of security holders, through the solicitation of proxies
or otherwise.
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PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS
International's Common Stock is traded on the New York Stock Exchange. High
and low stock prices and dividends declared for the years ended March 31, 1994
and 1993 follow:
FISCAL YEAR 1993
----------------
SALES PRICE CASH
----------- DIVIDENDS
QUARTER ENDED HIGH LOW DECLARED
- - ------------- ---- --- ---------
June 30, 1992 25 - 3/4 18 - 1/2 $0.25
September 30, 1992 23 - 1/8 17 - 1/2 $0.25
December 31, 1992 23 - 5/8 20 - 1/8 $0.25
March 31, 1993 29 - 1/2 22 - 1/4 $0.25
FISCAL YEAR 1994
----------------
SALES PRICE CASH
----------- DIVIDENDS
QUARTER ENDED HIGH LOW DECLARED
- - ------------- ---- --- ---------
June 30, 1993 31 - 3/4 24 - 3/4 $0.25
September 30, 1993 32 - 3/4 27 - 1/4 $0.25
December 31, 1993 29 - 5/8 24 - 3/4 $0.25
March 31, 1994 27 - 1/2 20 $0.25
As of March 31, 1994, the approximate number of record holders of Common Stock
was 7,005.
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Item 6. SELECTED FINANCIAL DATA
FOR THE FISCAL YEARS ENDED MARCH 31,
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(In thousands except for per share amounts)
Revenues $ 3,059,912 $ 3,172,555 $ 3,524,482 $ 3,069,849 $ 2,584,184
Income (Loss)
From Continuing
Operations before
Extraordinary Items and
Cumulative Effect of
Accounting Changes $ 89,956 $ 67,323 $ 80,537 $ (87,697) $ (103,298)
Net Income (Loss) $ (10,794) $ (188,732) $ 77,169 $ (69,525) $ (10,201)
Primary and Fully
Diluted Earnings
(Loss) Per
Common Share:
Continuing
Operations before
Extraordinary Items and
Cumulative Effect of
Accounting Changes $ 1.57 $ 1.29 $ 1.75 $ (2.00) $ (2.76)
Net Income (Loss) $ (0.32) $ (3.63) $ 1.67 $ (1.58) $ (0.27)
Total Assets $ 3,208,948 $ 3,092,963 $ 3,126,195 $ 3,341,138 $ 3,248,578
Long-Term
Obligations $ 667,066 $ 583,211 $ 765,053 $ 639,645 $ 873,321
Subsidiary's
Redeemable
Preferred Stock 196,672 204,482 204,482 204,482 204,487
----------- ------------ ------------ ------------- ------------
Total $ 863,738 $ 787,693 $ 969,535 $ 844,127 $ 1,077,808
Cash Dividends Per
Common Share $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
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25
In fiscal year 1994, Net Income (Loss) includes a cumulative effect of an
accounting change of $100,750,000 due to the adoption of Emerging Issues Task
Force Issue No. 93-5 which resulted in a provision for estimated future costs
resulting from possible gaps in insurance coverage with respect to non-employee
products liability asbestos claims. Inherent in the estimate of such future
costs are assumptions which may vary significantly as claims are filed and
settled, and accordingly, the ultimate loss may differ materially from the
amount provided. In fiscal year 1993, Net Income (Loss) includes a cumulative
effect of an accounting change of $249,351,000 due to the adoption of Statement
of Financial Accounting Standards ("SFAS") No. 106. See Note 1 to the
consolidated financial statements regarding the above and the adoption of SFAS
No. 109 in fiscal year 1993, Note 2 regarding the acquisition of Northern Ocean
Services Limited and Delta Catalytic Corporation, and Note 13 regarding
discontinued operations.
In fiscal years 1993 and 1992, Income (Loss) from Continuing Operations before
Extraordinary Items and Cumulative Effect of Accounting Changes includes after
tax gains from the sale of McDermott International's interests in its two
commercial nuclear joint ventures of $15,667,000 and $35,436,000, respectively
(see Note 3 to the consolidated financial statements).
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26
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
FISCAL YEAR 1994 VS FISCAL YEAR 1993
Power Generation Systems and Equipment's revenues increased $90,730,000 to
$1,614,206,000. This was primarily due to higher revenues from fabrication and
erection of fossil fuel steam and environmental control systems, replacement
nuclear steam generators, repair and alteration of existing fossil fuel steam
systems, and nuclear fuel assemblies and reactor components for the U. S.
Government. These increases were partially offset by lower revenues from
extended scope of supply and fabrication of industrial boilers, defense and
space-related products other than nuclear fuel assemblies and reactor
components, and air cooled heat exchangers.
Power Generation Systems and Equipment's segment operating income decreased
$6,526,000 to $49,941,000. This was primarily due to lower volume and margins
on extended scope of supply and fabrication of industrial boilers as well as
defense and space-related products other than nuclear fuel assemblies and
reactor components. There were also lower margins on plant enhancements,
replacement parts, and repair and alteration of existing fossil fuel steam
systems, as well as higher royalty income recorded in the prior year. These
decreases were partially offset by higher volume and margins on replacement
nuclear steam generators, nuclear fuel assemblies and reactor components for
the U. S. Government and higher volume on fabrication and erection of fossil
fuel steam and environmental control systems. There were also lower general
and administrative expenses, and lower warranty expense primarily due to net
favorable warranty reserve adjustments (See Note 15 to the consolidated
financial statements).
Power Generation Systems and Equipment's equity in income of investees
increased $3,341,000 to $12,032,000 primarily due to improved results in a
foreign joint venture and in three domestic joint ventures which own and
operate a cogeneration plant and two small power plants, partially offset by
unfavorable results in another foreign joint venture.
Backlog for this segment at March 31, 1994 was $2,398,285,000 compared to
$2,614,708,000 at March 31, 1993. At March 31, 1994, this segment's backlog
with the U.S. Government was $775,909,000 (of which $17,055,000 had not been
funded). These amounts reflect the impact of Congressional budget reductions
on the advanced solid rocket motor and super conducting super collider
projects. Also, additional U. S. Government budget reductions have negatively
affected this segment's other government operations. The current competitive
economic environment has also negatively affected demand for other industrial
related product lines and these markets are expected to remain very
competitive.
The current competitive economic environment and uncertainties created by the
passage of the Energy Policy Act of 1992 and the Clean Air Act Amendments of
1990 have caused U.S. utilities to defer repairs and refurbishments on existing
plants. However, the Clean Air Act has created demand for environmental
control equipment and related plant enhancements. Most electric utilities have
already purchased equipment to comply with
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27
Phase I of the Clean Air Act, and they will purchase equipment to comply with
Phase II deadlines in a gradual manner, spread out over the next several years
as various deadlines approach. Electric utilities in Asia are active
purchasers of large, new baseload generating units, due to the rapid growth of
the Pacific Rim economies and to the small existing stock of electrical
generating capacity in most developing countries.
Marine Construction Services' revenues decreased $197,156,000 to
$1,452,497,000, primarily due to lower volume in worldwide fabrication and
engineering operations, foreign marine operations and procured materials.
These decreases were partially offset by the acquisition of Delta Catalytic
Corporation ("DCC").
Marine Construction Services' segment operating income decreased $23,258,000 to
$44,394,000, primarily due to lower volume in worldwide fabrication and
engineering operations and lower volume in procured materials. These decreases
were partially offset by the acquisition of DCC, higher margins in foreign
marine operations, the accelerated depreciation and write-off of certain
fabrication facilities and marine construction equipment in the prior year, and
reduced operating costs.
Marine Construction Services' equity in income of investees increased
$22,461,000 to $107,828,000. This increase was principally due to improved
operating results of the HeereMac joint venture. In 1995, this segment
anticipates that its joint ventures will perform at significantly lower levels.
Backlog for this segment at March 31, 1994 was $1,054,142,000 (including
$233,299,000 from DCC and $57,373,000 from NOS). Excluding DCC and NOS, backlog
of $763,470,000 at March 31, 1994 was down from backlog of $1,129,577,000 at
March 31, 1993, but remains above the levels experienced during most of the
1980's. Not included in backlog at March 31, 1994 and 1993, was backlog
relating to contracts to be performed by unconsolidated foreign joint ventures
of approximately $840,000,000 and $900,000,000, respectively. This segment's
markets are expected to be at a low level in the U. S. during 1995 while
international markets are varied. In all areas, the overcapacity of marine
equipment will continue to result in a competitive environment and put pressure
on profit margins.
Interest income decreased $1,640,000 to $38,751,000. This decrease was
primarily due to lower interest rates on investments in government securities
and other long-term investments.
Interest expense decreased $26,365,000 to $63,975,000, primarily due to changes
in debt obligations and interest rates prevailing thereon. The decrease
reflects the redemption of high coupon debt during April and June 1993, and a
reduction in accrued interest on proposed tax deficiencies.
Minority interest expense decreased $2,952,000 to $15,251,000 primarily due to
minority shareholder participation in the losses of the McDermott-ETPM East
joint venture in the current year and income in the prior year, partially
offset by participation in the results of DCC since its acquisition in June
1993 (See Note 2 to the consolidated financial statements).
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28
Other-net decreased $14,562,000 to a loss of $4,365,000 from income of
$10,197,000. This decrease was primarily due to gains on the sale of interests
in two commercial nuclear joint ventures (See Note 3 to the consolidated
financial statements), a foreign marine asset casualty gain and gains on the
sale of nineteen tugboats, all in the prior period.
Provision for income taxes decreased $15,101,000 to $24,998,000, while income
from continuing operations before provision for income taxes, extraordinary
items, and cumulative effect of accounting changes increased $7,532,000 to
$114,954,000. The decrease in the provision for income taxes is primarily due
to a reduction in a provision of taxes due to the settlement of outstanding
issues and higher non-taxable earnings.
Net loss decreased $177,938,000 to $10,794,000 reflecting the cumulative effect
of the change in accounting for non-employee products liability asbestos claims
of $100,750,000 in the current year and the cumulative effect of the adoption
of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions," of $249,351,000 in the prior year, in addition to other items
described above.
FISCAL YEAR 1993 VS FISCAL YEAR 1992
Power Generation Systems and Equipment's revenues decreased $70,025,000 to
$1,523,476,000. This was primarily due to lower revenues from nuclear fuel
assemblies and reactor components for the U. S. Government and plant
enhancements. Additionally, the segment's controlling interest in its
commercial nuclear fuel joint venture was sold during December 1991, and
revenue from this activity is no longer included in this segment's revenues.
These decreases were partially offset by higher revenues from fabrication and
erection of fossil fuel steam and environmental control systems and extended
scope of supply and fabrication of industrial boilers.
Power Generation Systems and Equipment's segment operating income decreased
$53,307,000 to $56,467,000. This was primarily due to non-recurring items
which benefitted 1992's results. These items included a Department of Energy
grant for decommissioning and restoration of an inactive nuclear facility, a
favorable adjustment to workers' compensation costs related to prior years, the
inclusion of the commercial nuclear fuel joint venture's results through
December 1991, and the reduction of a provision to relocate a manufacturing
plant. The decrease was also due to lower volume and margins on plant
enhancements and lower volume from nuclear fuel assemblies and reactor
components for the U. S. Government. This decrease was partially offset by
higher volume and margins on fabrication and erection of fossil fuel steam and
environmental control systems and higher margins on defense and space-related
products other than nuclear fuel assemblies and reactor components.
Marine Construction Services' revenues decreased $286,965,000 to $1,649,653,000
primarily due to the December 1991 deconsolidation of the McDermott-ETPM West
joint venture. There was lower volume in domestic fabrication and offshore
operations and in fabrication operations in Scotland. There was higher volume
on foreign turnkey projects.
Marine Construction Services' segment operating income increased $11,744,000 to
$67,652,000 primarily due to improved margins on domestic offshore operations
and on foreign turnkey projects, and contract loss provisions in 1992. These
were partially offset
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29
by the deconsolidation of the McDermott-ETPM West joint venture. There was
also lower volume in domestic fabrication and offshore operations and lower
margins on domestic fabrication operations.
Equity in income of investees increased $86,816,000 to $94,058,000. This
increase was principally due to improved operating results of the HeereMac
joint venture and both improved operating results and foreign currency
transaction gains in the McDermott-ETPM West joint venture.
Interest income decreased $13,377,000 to $40,391,000. This decrease was
principally due to lower interest rates on short-term investments and
investments in government securities and other long-term investments.
Interest expense decreased $11,981,000 to $90,340,000, resulting from a
reduction in the provision for interest on proposed tax deficiencies, lower
interest expense resulting from interest rate swap agreements, and changes in
debt obligations and interest rates prevailing thereon.
Minority interest decreased $862,000 to $18,203,000 due to the deconsolidation
of the McDermott-ETPM West joint venture and the reacquisition of McDermott
Scotland's minority shareholder's interest, both in 1991, mostly offset by
minority shareholder participation in the improved results of McDermott-ETPM
East.
Other-net decreased $60,172,000 to income of $10,197,000. This decrease was
principally due to lower gains on the sale of its interests in two commercial
nuclear joint ventures (see Note 3 to the consolidated financial statements),
lower marine casualty gains, and gains from the sale of certain marine assets
to the HeereMac joint venture in 1992. This was partially offset by a gain of
$4,762,000 from the sale of nineteen tugboats in 1993.
Provision for income taxes decreased $3,170,000 to $40,099,000, while income
from continuing operations before provision for income taxes, extraordinary
items, and cumulative effect of accounting changes decreased $16,384,000 to
$107,422,000. The decrease in the provision for income taxes is due primarily
to the decrease in income.
Net income (loss) decreased $265,901,000 to a loss of $188,732,000 from income
of $77,169,000 reflecting the cumulative effect of the adoption of SFAS No.
106, "Employers' Accounting for Postretirement Benefits Other Than Pensions,"
of $249,351,000, in addition to other items described above.
Effect of Inflation and Changing Prices
McDermott International's financial statements are prepared in accordance with
generally accepted accounting principles, using historical dollar accounting
(historical cost). Statements based on historical cost, however, do not
adequately reflect the cumulative effect of increasing costs and changes in the
purchasing power of the dollar, especially during times of significant and
continued inflation.
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30
The management of McDermott International is cognizant of the effects of
inflation and, in order to minimize the negative impact of inflation on its
operations, attempts to cover the increased cost of anticipated changes in
labor, material and service costs, either through an estimation of such
changes, which is reflected in the original fixed price, or through price
escalation clauses in its contracts.
Liquidity and Capital Resources
During 1994, McDermott International's cash and cash equivalents decreased
$5,713,000 to $133,809,000 and total debt decreased $63,789,000 to
$729,610,000. During this period, McDermott International provided cash of
$219,524,000 from operating activities; $92,841,000 from the issuance of
long-term debt; $16,441,000 from the issuance of common stock; and $140,066,000
from the issuance of Series C convertible preferred stock; and used cash of
$56,773,000 for dividends on International's common and preferred stock;
$85,894,000 for the acquisitions of Northern Ocean Services Limited ("NOS") and
Delta Catalytic Corporation ("DCC") (See Note 2 to the consolidated financial
statements); $222,646,000 for repayment of long-term debt and $76,321,000 for
additions to property, plant and equipment.
Lower accounts receivable are primarily due to lower volume and the timing of
Marine Construction Services' foreign offshore contract billings and
collections, and the acceleration of collections of retainage billings on the
Naval Reactors program, partially offset by collection delays on a certain
foreign Power Generation Systems and Equipment segment contract. Lower accrued
liabilities are primarily due to settlement of subcontract costs on a certain
foreign offshore contract. Decreases in net contracts in progress and advance
billings are primarily due to lower volume.
Pursuant to an agreement with the majority of its principal insurers, McDermott
International negotiates and settles products liability asbestos claims from
non-employees and bills these amounts to the appropriate insurers. As a result
of collection delays inherent in the process, reimbursement is usually delayed
for three months or more. McDermott International has outstanding receivables
of $29,079,000 at March 31, 1994 from its insurers for reimbursement of these
claims. The number of claims, which management believes peaked in fiscal year
1990, has declined moderately. However, the average amount of these claims
(historical average of less than $3,000 per claim) has continued to rise.
Claims paid in fiscal year 1994 were $112,271,000, including $7,810,000
applicable to insolvent insurers and $3,315,000 relating to the policy year
1979 (see Note 1 to the consolidated financial statements). Settlement of the
estimated liability of $135,053,000 at March 31, 1994 for future costs relating
to insolvent insurers and policy year 1979 is expected to occur over the next
30 years. McDermott International's estimated future costs relating to policy
year 1979 and certain insolvent insurers are derived from its loss history and
constitute management's best estimate of such future costs. Inherent in the
estimate of such future costs are assumptions which may vary significantly as
claims are filed and settled. Accordingly, the amount ultimately paid may
differ materially from the amount provided in the consolidated financial
statements. The collection delays, and the amount of claims paid that are
related to insolvent insurance carriers and the policy year 1979 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.
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31
McDermott International's expenditures for property, plant and equipment
decreased $5,713,000 to $76,321,000 in 1994. While the majority of these
expenditures were incurred to maintain and replace existing facilities and
equipment, $5,000,000 was expended in connection with the purchase of a
fabrication yard in Nueces County, Texas and $8,098,000 was expended on the
construction a new combustion and emission test facility at its Alliance, Ohio
research center. McDermott International has committed to make capital
expenditures of approximately $65,692,000 during fiscal 1995. In addition to
maintaining McDermott International's existing facilities, these expenditures
include $38,560,000 for a new concept steam generator facility for the Naval
Reactor Program in Lynchburg, Virginia, the anticipated purchase of a barge
currently leased, and the completion of a new combustion and emission facility
in Alliance, Ohio.
During April and May 1993, the Delaware Company issued $87,000,000 of Series B
Medium Term Notes at maturities ranging from four to twenty-nine years and
interest rates ranging from 6.50% to 8.75%. These notes have an average
maturity of approximately twenty years and an average interest rate of
approximately 7.95%.
At March 31, 1994 and 1993, The Babcock & Wilcox Company had sold, with limited
recourse, an undivided interest in a designated pool of qualified accounts
receivable of approximately $170,000,000 under an agreement with a certain U.
S. bank. The maximum sales limit available under this agreement was
$225,000,000 at March 31, 1994 (See Note 7 to the consolidated financial
statements).
At March 31, 1994 and 1993, McDermott International had available to it various
uncommitted short-term lines of credit from banks totaling $246,412,000 and
$129,734,000, respectively. Borrowings by McDermott International against
these lines of credit at March 31, 1994 and 1993 were $37,512,000 and $775,000,
respectively. In addition, the Babcock & Wilcox Company had available to it a
$128,000,000 unsecured and committed revolving line of credit facility. Loans
outstanding under the revolving credit facility may not exceed the banks'
commitments thereunder, which commitments are subject to reduction based upon
the ratio of the borrower's consolidated net tangible assets to specified
indebtedness plus unused commitments. In addition, it is a condition to
borrowing under the revolving credit facility that the borrower's consolidated
net tangible assets exceed a certain level. There were no borrowings against
this facility at March 31, 1994 and 1993. DCC had available from a certain
Canadian bank an unsecured and committed revolving credit facility of
$14,493,000 which expires on May 31, 1997. No borrowings were outstanding
against this facility at March 31, 1994.
McDermott International maintains an investment portfolio of government
obligations and other investments which is held for long- term investment
purposes. The amortized cost of the long-term portfolio at March 31, 1994 was
$715,131,000 (market value of $711,036,000). At March 31, 1994, approximately
$157,065,000 amortized cost (market value of $158,200,000) of this portfolio
was pledged to secure a letter of credit in connection with a long-term loan
and reinsurance agreements.
The Delaware Company is restricted, as a result of covenants in credit
agreements, in its ability to transfer funds to International through cash
dividends or through unsecured loans or investments. At March 31, 1994,
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.
- 27 -
32
During July 1993, International sold 2,875,000 shares of Series C Cumulative
Convertible Preferred Stock, and received net proceeds of $140,066,000.
Working capital decreased $117,486,000, to a deficit of $1,422,000 at March 31,
1994 from $116,064,000 at March 31, 1993. During 1995, McDermott International
expects to obtain funds to meet capital expenditure, working capital and debt
maturity requirements from operating activities and additional borrowings.
Leasing agreements for equipment, which are short-term in nature, are not
expected to impact McDermott International's liquidity or capital resources.
International's quarterly dividends of $0.25 per share on its Common Stock and
the Delaware Company's quarterly dividends of $0.55 per share on the Series A
$2.20 Cumulative Convertible Preferred Stock and $0.65 per share on the Series
B $2.60 Cumulative Preferred Stock were at the same rates in 1994 and 1993. At
March 31, 1994, International's quarterly dividend rate was $0.71875 per share
on its Series C Cumulative Convertible Preferred Stock.
At March 31, 1994 the ratio of long-term debt to total common stock and other
stockholders' equity was 1.23 as compared with 1.27 at March 31, 1993.
McDermott International accounts for income taxes in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes". This standard requires, among other things, recognition of future tax
benefits, measured by enacted tax rates, attributable to deductible temporary
differences between the financial statement and income tax basis of assets and
liabilities and to tax net operating loss carryforwards to the extent that
realization of such benefits is more likely than not.
McDermott International has provided a valuation allowance ($26,576,000 at
March 31, 1994) for deferred tax assets related primarily to net operating loss
carryforwards which can not be realized through carrybacks and future reversals
of existing taxable temporary differences. Management believes that remaining
deferred tax assets ($364,193,000 at March 31, 1994) in all other tax
jurisdictions are realizable through carrybacks and future reversals of
existing taxable temporary differences and, if necessary, the implementation of
tax planning strategies involving sales and sale/leasebacks of appreciated
assets. Major uncertainties that affect the ultimate realization of deferred
tax assets include the risks of incurring operating losses in the future and
the possibility of declines in value of appreciated assets involved in
identified tax planning strategies. These factors have been considered in
determining the valuation allowance. Management will continue to assess the
adequacy of the valuation allowance on a quarterly basis.
New Accounting Standards
McDermott International adopted SFAS No. 106 effective April 1, 1992 for all
domestic plans. McDermott International plans to adopt SFAS No. 106 for
foreign plans during fiscal year 1996, and the adoption is not expected to have
a material effect on the consolidated financial statements of McDermott
International. The new standard does not have any impact on the cash
requirements of any domestic or foreign postretirement health and welfare plan.
- 28 -
33
In November 1992, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 112, "Employers' Accounting for Postemployment Benefits," effective for
fiscal years beginning after December 15, 1993. SFAS No. 112 requires accrual
accounting, under certain conditions, for the estimated cost of benefits
provided by an employer to former or inactive employees after employment but
before retirement. The new standard will have no impact on the cash
requirements for any postemployment benefits, and will not have a material
effect on the consolidated financial statements of McDermott International.
In May 1993, the FASB issued SFAS No. 115, "Accounting for Certain Investments
in Debt and Equity Securities," effective for fiscal years beginning after
December 15, 1993. SFAS No. 115 addresses the accounting and reporting for
investments in equity securities that have readily determinable fair values and
for all investments in debt securities. Based on its current portfolio
management practices, McDermott International will report its investments at
fair value, with unrealized gains and losses excluded from earnings and
reported as a separate component of stockholders' equity. The initial adoption
of the new standard will not have a material effect on the consolidated
financial statements of McDermott International.
- 29 -
34
Item 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
COMPANY REPORT ON CONSOLIDATED FINANCIAL STATEMENTS
International has prepared the consolidated financial statements and related
financial information included in this report. International has the primary
responsibility for the financial statements and other financial information and
for ascertaining that the data fairly reflects the financial position and
results of operations of McDermott International. The financial statements
were prepared in accordance with generally accepted accounting principles, and
necessarily reflect informed estimates and judgments by appropriate officers of
McDermott International with appropriate consideration given to materiality.
McDermott International believes that it maintains an internal control
structure designed to provide reasonable assurance that assets are safeguarded
against loss or unauthorized use and that the financial records are adequate
and can be relied upon to produce financial statements in accordance with
generally accepted accounting principles. The concept of reasonable assurance
is based on the recognition that the cost of an internal control structure must
not exceed the related benefits. Although internal control procedures are
designed to achieve these objectives, it must be recognized that errors or
irregularities may nevertheless occur. McDermott International seeks to assure
the objectivity and integrity of its accounts by its selection of qualified
personnel, by organizational arrangements that provide an appropriate division
of responsibility and by the establishment and communication of sound business
policies and procedures throughout the organization. McDermott International
believes that its internal control structure provides reasonable assurance that
errors or irregularities that could be material to the financial statements are
prevented or would be detected.
McDermott International's accompanying consolidated financial statements have
been audited by its independent auditors, who provide McDermott International
with expert advice on the application of U. S. generally accepted accounting
principles to McDermott International's business and also provide an objective
assessment of the degree to which McDermott International meets its
responsibility for the fairness of financial reporting. They regularly
evaluate the internal control structure and perform such tests and other
procedures as they deem necessary to reach and express an opinion on the
fairness of the financial statements. The report of the independent auditors
appears elsewhere herein.
The Board of Directors pursues its responsibility for McDermott International's
consolidated financial statements through its Audit Committee, which is
composed solely of directors who are not officers or employees of McDermott
International. The Audit Committee meets periodically with the independent
auditors and management to review matters relating to the quality of financial
reporting and internal control structure and the nature, extent and results of
the audit effort. In addition, the Audit Committee is responsible for
recommending the engagement of independent auditors for McDermott International
to the Board of Directors, who in turn submit the engagement to the
stockholders for their approval. The independent auditors have free access to
the Audit Committee.
May 10, 1994
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35
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
McDermott International, Inc.
We have audited the accompanying consolidated balance sheet of McDermott
International, Inc. as of March 31, 1994 and 1993, and the related consolidated
statements of income (loss) and retained earnings (deficit) and cash flows for
each of the three years in the period ended March 31, 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of McDermott
International, Inc. at March 31, 1994 and 1993, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended March 31, 1994, in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the consolidated financial statements, the Company
has provided for estimated future costs for non- employee products liability
asbestos claims. Inherent in the estimate of such future costs are assumptions
which may vary significantly as claims are filed and settled. Accordingly, the
ultimate loss may differ materially from the amount provided in the
consolidated financial statements.
As discussed in Note 1 to the consolidated financial statements, the Company
changed its methods of accounting for recoveries of products liability claims
in 1994 and income taxes and postretirement benefits other than pensions in
1993.
ERNST & YOUNG
New Orleans, Louisiana
May 9, 1994
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36
McDERMOTT INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEET
MARCH 31, 1994 and 1993
ASSETS
1994 1993
---- ----
(In thousands)
Current Assets:
Cash and cash equivalents $ 133,809 $ 139,522
Short-term investments, at amortized
cost, which approximates market 990 179,444
Accounts receivable - trade 370,333 478,028
Accounts receivable - other 113,782 130,535
Contracts in progress 237,722 250,569
Inventories 66,469 65,376
Deferred income taxes 100,167 101,969
Other current assets 12,899 10,545
- - -------------------------------------------------------------------------------------------------------------
Total Current Assets 1,036,171 1,355,988
- - -------------------------------------------------------------------------------------------------------------
Property, Plant and Equipment, at Cost:
Land 32,683 18,547
Buildings 247,388 256,042
Machinery and equipment 1,825,482 1,745,623
Property under construction 45,175 36,934
- - -------------------------------------------------------------------------------------------------------------
2,150,728 2,057,146
Less accumulated depreciation 1,374,219 1,334,853
- - -------------------------------------------------------------------------------------------------------------
Net Property, Plant and Equipment 776,509 722,293
Investments:
Government obligations 395,556 362,042
Other investments 319,575 125,174
- - -------------------------------------------------------------------------------------------------------------
Total Investments 715,131 487,216
- - -------------------------------------------------------------------------------------------------------------
Excess of Cost Over Fair Value of Net Assets of
Purchased Businesses Less Accumulated Amortization
of $84,170,000 at March 31, 1994
and $77,828,000 at March 31, 1993 158,726 132,236
- - -------------------------------------------------------------------------------------------------------------
Prepaid Pension Costs 246,854 231,778
- - -------------------------------------------------------------------------------------------------------------
Other Assets 275,557 163,452
- - -------------------------------------------------------------------------------------------------------------
TOTAL $ 3,208,948 $ 3,092,963
=============================================================================================================
See accompanying notes to consolidated financial statements.
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37
LIABILITIES AND STOCKHOLDERS' EQUITY
1994 1993
---- ----
(In thousands)
Current Liabilities:
Notes payable and current
maturities of long-term debt $ 62,544 $ 210,188
Accounts payable 245,819 264,552
Accrued employee benefits 113,415 109,994
Accrued interest 47,283 55,471
Accrued liabilities - other 265,383 311,160
Advance billings on contracts 181,572 173,709
U.S. and foreign income taxes 121,577 114,850
- - --------------------------------------------------------------------------------------------------------------
Total Current Liabilities 1,037,593 1,239,924
- - --------------------------------------------------------------------------------------------------------------
Long-Term Debt 667,066 583,211
- - --------------------------------------------------------------------------------------------------------------
Accumulated Postretirement Benefit Obligation 380,309 369,502
- - --------------------------------------------------------------------------------------------------------------
Environmental and Products Liabilities 136,405 11,867
- - --------------------------------------------------------------------------------------------------------------
Other Liabilities 232,929 219,013
- - --------------------------------------------------------------------------------------------------------------
Contingencies
- - --------------------------------------------------------------------------------------------------------------
Minority Interest:
Subsidiary's Redeemable Preferred Stocks:
Series A $2.20 cumulative convertible,
$1.00 par value; at redemption value 88,089 88,089
Series B $2.60 cumulative, $1.00 par
value; at redemption value 108,583 116,393
Other minority interest 15,716 4,546
- - --------------------------------------------------------------------------------------------------------------
Total Minority Interest 212,388 209,028
- - --------------------------------------------------------------------------------------------------------------
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 -
Common stock, par value $1.00 per share,
authorized 150,000,000 shares; outstanding
53,444,467 at March 31, 1994 and
52,211,961 at March 31, 1993 53,444 52,212
Capital in excess of par value 730,987 568,329
Deficit (196,216) (126,264)
Minimum pension liability (931) (74)
Cumulative foreign exchange
translation adjustments (47,901) (33,785)
- - --------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 542,258 460,418
- - --------------------------------------------------------------------------------------------------------------
TOTAL $ 3,208,948 $ 3,092,963
==============================================================================================================
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38
McDERMOTT INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF INCOME (LOSS) AND RETAINED EARNINGS (DEFICIT)
FOR THE THREE FISCAL YEARS ENDED MARCH 31, 1994
1994 1993 1992
---- ---- ----
(In thousands)
Revenues $ 3,059,912 $ 3,172,555 $ 3,524,482
- - --------------------------------------------------------------------------------------------------------------
Costs and Expenses:
Cost of operations 2,657,712 2,742,260 3,025,998
Depreciation and amortization 99,393 121,508 125,812
Selling, general and
administrative expenses 262,873 237,468 258,859
- - --------------------------------------------------------------------------------------------------------------
3,019,978 3,101,236 3,410,669
- - --------------------------------------------------------------------------------------------------------------
39,934 71,319 113,813
Equity in Income of Investees 119,860 94,058 7,242
- - --------------------------------------------------------------------------------------------------------------
Operating Income 159,794 165,377 121,055
- - --------------------------------------------------------------------------------------------------------------
Other Income (Expense):
Interest income 38,751