UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
D. C. 20549
X
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
quarterly period ended September 30, 2008
OR
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
transition period from ______________to______________
Commission
File No. 001-08430
McDERMOTT
INTERNATIONAL, INC.
|
(Exact
name of registrant as specified in its
charter)
|
REPUBLIC
OF PANAMA
|
72-0593134
|
(State
or Other Jurisdiction of
|
(I.R.S.
Employer Identification No.)
|
Incorporation
or Organization)
|
|
|
|
777
N. ELDRIDGE PKWY.
|
|
HOUSTON,
TEXAS
|
77079
|
(Address
of Principal Executive Offices)
|
(Zip
Code)
|
Registrant's
Telephone Number, Including Area Code (281)
870-5901
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (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 [ü] No
[ ]
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
Large
accelerated filer [ü] Accelerated
filer [ ]
Non-accelerated
filer [ ] (Do not check if a smaller reporting
company) Smaller
reporting company [ ]
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes
[ ] No [P]
The
number of shares of the registrant's common stock outstanding at October 31,
2008 was 227,944,920
I N D E
X - F O R M 1 0 - Q
McDERMOTT
INTERNATIONAL, INC.
FINANCIAL
INFORMATION
Item
1. Condensed
Consolidated Financial Statements
McDERMOTT
INTERNATIONAL, INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
September
30,
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
614,348 |
|
|
$ |
1,001,394 |
|
Restricted
cash and cash equivalents (Note 1)
|
|
|
68,517 |
|
|
|
64,786 |
|
Investments
|
|
|
226,792 |
|
|
|
300,092 |
|
Accounts
receivable – trade, net
|
|
|
734,617 |
|
|
|
770,024 |
|
Accounts
and notes receivable – unconsolidated affiliates
|
|
|
4,134 |
|
|
|
2,303 |
|
Accounts
receivable – other
|
|
|
126,083 |
|
|
|
116,744 |
|
Contracts
in progress
|
|
|
294,414 |
|
|
|
194,292 |
|
Inventories
(Note 1)
|
|
|
120,127 |
|
|
|
95,208 |
|
Deferred
income taxes
|
|
|
77,582 |
|
|
|
160,783 |
|
Other
current assets
|
|
|
66,275 |
|
|
|
51,874 |
|
|
|
|
|
|
|
|
|
|
Total
Current Assets
|
|
|
2,332,889 |
|
|
|
2,757,500 |
|
|
|
|
|
|
|
|
|
|
Property,
Plant and Equipment
|
|
|
2,151,980 |
|
|
|
2,004,138 |
|
Less
accumulated depreciation
|
|
|
(1,147,745 |
) |
|
|
(1,090,400 |
) |
|
|
|
|
|
|
|
|
|
Net
Property, Plant and Equipment
|
|
|
1,004,235 |
|
|
|
913,738 |
|
|
|
|
|
|
|
|
|
|
Investments
|
|
|
298,104 |
|
|
|
162,069 |
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
175,144 |
|
|
|
158,533 |
|
|
|
|
|
|
|
|
|
|
Deferred
Income Taxes
|
|
|
120,059 |
|
|
|
134,292 |
|
|
|
|
|
|
|
|
|
|
Investments
in Unconsolidated Affiliates
|
|
|
82,116 |
|
|
|
62,241 |
|
|
|
|
|
|
|
|
|
|
Other
Assets
|
|
|
246,338 |
|
|
|
223,113 |
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
$ |
4,258,885 |
|
|
$ |
4,411,486 |
|
See
accompanying notes to condensed consolidated financial statements.
McDERMOTT
INTERNATIONAL, INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
September
30,
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
Notes
payable and current maturities of long-term debt
|
|
$ |
9,331 |
|
|
$ |
6,599 |
|
Accounts
payable
|
|
|
472,602 |
|
|
|
455,659 |
|
Accrued
employee benefits
|
|
|
255,870 |
|
|
|
343,812 |
|
Accrued
liabilities – other
|
|
|
218,308 |
|
|
|
175,557 |
|
Accrued
contract cost
|
|
|
97,964 |
|
|
|
93,281 |
|
Advance
billings on contracts
|
|
|
1,044,409 |
|
|
|
1,463,223 |
|
Accrued
warranty expense
|
|
|
109,638 |
|
|
|
101,330 |
|
Income
taxes payable
|
|
|
57,380 |
|
|
|
57,071 |
|
|
|
|
|
|
|
|
|
|
Total
Current Liabilities
|
|
|
2,265,502 |
|
|
|
2,696,532 |
|
|
|
|
|
|
|
|
|
|
Long-Term
Debt
|
|
|
6,007 |
|
|
|
10,609 |
|
|
|
|
|
|
|
|
|
|
Accumulated
Postretirement Benefit Obligation
|
|
|
90,337 |
|
|
|
96,253 |
|
|
|
|
|
|
|
|
|
|
Self-Insurance
|
|
|
84,815 |
|
|
|
82,525 |
|
|
|
|
|
|
|
|
|
|
Pension
Liability
|
|
|
73,964 |
|
|
|
188,748 |
|
|
|
|
|
|
|
|
|
|
Other
Liabilities
|
|
|
154,334 |
|
|
|
169,814 |
|
|
|
|
|
|
|
|
|
|
Commitments
and Contingencies (Note 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
Equity:
|
|
|
|
|
|
|
|
|
Common
stock, par value $1.00 per share, authorized 400,000,000 shares; issued
233,620,079 and 231,722,659 shares at September 30, 2008 and
December
31, 2007, respectively
|
|
|
233,620 |
|
|
|
231,723 |
|
Capital
in excess of par value
|
|
|
1,191,712 |
|
|
|
1,145,829 |
|
Retained
earnings
|
|
|
521,589 |
|
|
|
135,289 |
|
Treasury
stock at cost, 5,842,014 and 5,852,248 shares at September 30, 2008 and
December 31, 2007, respectively
|
|
|
(63,045 |
) |
|
|
(63,903 |
) |
Accumulated
other comprehensive loss (Note 1)
|
|
|
(299,950 |
) |
|
|
(281,933 |
) |
|
|
|
|
|
|
|
|
|
Total
Stockholders’ Equity
|
|
|
1,583,926 |
|
|
|
1,167,005 |
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
$ |
4,258,885 |
|
|
$ |
4,411,486 |
|
See
accompanying notes to condensed consolidated financial statements.
McDERMOTT
INTERNATIONAL, INC.
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
|
|
(In
thousands, except shares and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
1,664,851 |
|
|
$ |
1,324,018 |
|
|
$ |
4,907,923 |
|
|
$ |
4,105,594 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
and Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of operations
|
|
|
1,445,749 |
|
|
|
1,067,437 |
|
|
|
4,067,181 |
|
|
|
3,278,055 |
|
(Gain)
loss on asset disposals – net
|
|
|
138 |
|
|
|
(630 |
) |
|
|
(11,322 |
) |
|
|
(2,380 |
) |
Selling,
general and administrative expenses
|
|
|
139,512 |
|
|
|
114,538 |
|
|
|
404,298 |
|
|
|
327,525 |
|
Total
Costs and Expenses
|
|
|
1,585,399 |
|
|
|
1,181,345 |
|
|
|
4,460,157 |
|
|
|
3,603,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
in Income of Investees
|
|
|
12,521 |
|
|
|
12,477 |
|
|
|
32,443 |
|
|
|
27,026 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Income
|
|
|
91,973 |
|
|
|
155,150 |
|
|
|
480,209 |
|
|
|
529,420 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Income (Expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
7,001 |
|
|
|
17,272 |
|
|
|
29,541 |
|
|
|
45,411 |
|
Interest
expense
|
|
|
(1,850 |
) |
|
|
(3,476 |
) |
|
|
(5,749 |
) |
|
|
(18,431 |
) |
Other
income (expense) – net
|
|
|
2,718 |
|
|
|
(205 |
) |
|
|
552 |
|
|
|
(5,050 |
)) |
Total
Other Income
|
|
|
7,869 |
|
|
|
13,591 |
|
|
|
24,344 |
|
|
|
21,930 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before Provision for Income Taxes
|
|
|
99,842 |
|
|
|
168,741 |
|
|
|
504,553 |
|
|
|
551,350 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for Income Taxes
|
|
|
14,271 |
|
|
|
28,333 |
|
|
|
118,253 |
|
|
|
103,507 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
$ |
85,571 |
|
|
$ |
140,408 |
|
|
$ |
386,300 |
|
|
$ |
447,843 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.38 |
|
|
$ |
0.63 |
|
|
$ |
1.70 |
|
|
$ |
2.01 |
|
Diluted
|
|
$ |
0.37 |
|
|
$ |
0.61 |
|
|
$ |
1.68 |
|
|
$ |
1.96 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
used in the computation of earnings per share (Note 6):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
227,440,858 |
|
|
|
224,480,807 |
|
|
|
226,645,175 |
|
|
|
222,944,800 |
|
Diluted
|
|
|
230,463,651 |
|
|
|
228,865,885 |
|
|
|
230,328,423 |
|
|
|
228,402,589 |
|
See
accompanying notes to condensed consolidated financial statements.
McDERMOTT
INTERNATIONAL, INC.
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
$ |
85,571 |
|
|
$ |
140,408 |
|
|
$ |
386,300 |
|
|
$ |
447,843 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Comprehensive Income (Loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency
translation adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustments
|
|
|
(15,016 |
) |
|
|
6,337 |
|
|
|
(8,849 |
) |
|
|
13,598 |
|
Unrealized
gains (losses) on derivative financial instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gains (losses) on derivative financial instruments
|
|
|
(18,923 |
) |
|
|
7,178 |
|
|
|
(15,709 |
) |
|
|
12,152 |
|
Reclassification
adjustment for (gains) losses included in net income
|
|
|
1,058 |
|
|
|
(741 |
) |
|
|
(2,692 |
) |
|
|
(3,272 |
) |
Amortization
of benefit plan costs
|
|
|
5,275 |
|
|
|
8,547 |
|
|
|
18,304 |
|
|
|
23,705 |
|
Unrealized
gains (losses) on investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gains (losses) arising during the period
|
|
|
(1,989 |
) |
|
|
748 |
|
|
|
(7,611 |
) |
|
|
1,145 |
|
Reclassification
adjustment for net (gains) losses
included
in net income
|
|
|
(358 |
) |
|
|
(16 |
) |
|
|
(1,460 |
) |
|
|
74 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Comprehensive Income (Loss)
|
|
|
(29,953 |
) |
|
|
22,053 |
|
|
|
(18,017 |
) |
|
|
47,402 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
Income
|
|
$ |
55,618 |
|
|
$ |
162,461 |
|
|
$ |
368,283 |
|
|
$ |
495,245 |
|
See
accompanying notes to condensed consolidated financial statements.
McDERMOTT
INTERNATIONAL, INC.
|
|
Nine
Months Ended
|
|
|
|
September
30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
|
|
(In
thousands)
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
Net
Income
|
|
$ |
386,300 |
|
|
$ |
447,843 |
|
Non-cash
items included in net income:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
95,059 |
|
|
|
67,108 |
|
Income
of investees, less dividends
|
|
|
(12,592 |
) |
|
|
(10,196 |
) |
Gains
on asset disposals – net
|
|
|
(11,322 |
) |
|
|
(2,380 |
) |
Provision
for deferred taxes
|
|
|
87,512 |
|
|
|
73,485 |
|
Amortization
of pension and postretirement costs
|
|
|
28,424 |
|
|
|
38,061 |
|
Excess
tax benefits from FAS 123(R) stock-based compensation
|
|
|
(6,404 |
) |
|
|
(27,234 |
) |
Other,
net
|
|
|
34,922 |
|
|
|
27,954 |
|
Changes
in assets and liabilities, net of effects of acquisitions and
divestitures:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
21,412 |
|
|
|
(129,353 |
) |
Income
tax receivable
|
|
|
10,666 |
|
|
|
262,185 |
|
Net
contracts in progress and advance billings on contracts
|
|
|
(516,623 |
) |
|
|
287,980 |
|
Accounts
payable
|
|
|
19,544 |
|
|
|
46,522 |
|
Income
taxes
|
|
|
(5,335 |
) |
|
|
(22,514 |
) |
Accrued
and other current liabilities
|
|
|
57,586 |
|
|
|
47,003 |
|
Pension
liability, accumulated postretirement benefit obligation and accrued
employee benefits
|
|
|
(207,672 |
) |
|
|
(116,827 |
) |
Other,
net
|
|
|
(88,562 |
) |
|
|
(30,359 |
) |
NET
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
|
|
|
(107,085 |
) |
|
|
959,278 |
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
(Increase)
decrease in restricted cash and cash equivalents
|
|
|
(3,731 |
) |
|
|
8,379 |
|
Purchases
of property, plant and equipment
|
|
|
(189,384 |
) |
|
|
(181,803 |
) |
Acquisition
of businesses, net of cash acquired
|
|
|
(33,731 |
) |
|
|
(334,457 |
) |
Net
increase in available-for-sale securities
|
|
|
(70,992 |
) |
|
|
(106,151 |
) |
Proceeds
from asset disposals
|
|
|
12,023 |
|
|
|
4,582 |
|
Other,
net
|
|
|
(2,029 |
) |
|
|
(2,016 |
) |
NET
CASH USED IN INVESTING ACTIVITIES
|
|
|
(287,844 |
) |
|
|
(611,466 |
) |
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Payment
of long-term debt
|
|
|
(4,660 |
) |
|
|
(255,629 |
) |
Increase
in short-term borrowing
|
|
|
2,920 |
|
|
|
- |
|
Issuance
of common stock
|
|
|
8,069 |
|
|
|
12,683 |
|
Payment
of debt issuance costs
|
|
|
(1,611 |
) |
|
|
(3,468 |
) |
Excess
tax benefits from FAS 123(R) stock-based compensation
|
|
|
6,404 |
|
|
|
27,234 |
|
Other,
net
|
|
|
- |
|
|
|
4 |
|
NET
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
|
|
|
11,122 |
|
|
|
(219,176 |
) |
EFFECTS
OF EXCHANGE RATE CHANGES ON CASH
|
|
|
(3,239 |
) |
|
|
6,120 |
|
NET
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
(387,046 |
) |
|
|
134,756 |
|
CASH
AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
|
|
|
1,001,394 |
|
|
|
600,843 |
|
CASH
AND CASH EQUIVALENTS AT END OF PERIOD
|
|
$ |
614,348 |
|
|
$ |
735,599 |
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
Cash
paid during the period for:
|
|
|
|
|
|
|
|
|
Interest
(net of amount capitalized)
|
|
$ |
5,967 |
|
|
$ |
23,896 |
|
Income
taxes (net of refunds)
|
|
$ |
49,193 |
|
|
$ |
(223,285 |
) |
See
accompanying notes to condensed consolidated financial statements.
McDERMOTT
INTERNATIONAL, INC.
SEPTEMBER
30, 2008
(UNAUDITED)
NOTE
1 – BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
We have
presented our condensed consolidated financial statements in U.S. Dollars in
accordance with the interim reporting requirements of Form 10-Q and
Rule 10-01 of Regulation S-X. Financial information and disclosures
normally included in our financial statements prepared annually in accordance
with accounting principles generally accepted in the United States (“GAAP”) have
been condensed or omitted. Readers of these financial statements should,
therefore, refer to the consolidated financial statements and the notes in our
annual report on Form 10-K for the year ended December 31, 2007.
We have
included all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation. These condensed consolidated
financial statements include the accounts of McDermott International, Inc. and
its subsidiaries and controlled entities consistent with Financial Accounting
Standards Board (“FASB”) Interpretation No. 46(R), Consolidation of Variable Interest
Entities (revised December 2003). We use the equity method to account for
investments in entities that we do not control, but over which we have
significant influence. We generally refer to these entities as “joint
ventures.” We have eliminated all significant intercompany
transactions and accounts. We have reclassified certain amounts
previously reported to conform to the presentation at September 30, 2008 and for
the three and nine months ended September 30, 2008. We present the
notes to our condensed consolidated financial statements on the basis of
continuing operations, unless otherwise stated.
McDermott
International, Inc. (“MII”), incorporated under the laws of the Republic of
Panama in 1959, is an engineering and construction company with specialty
manufacturing and service capabilities and is the parent company of the
McDermott group of companies, including J. Ray McDermott, S.A. (“JRMSA”) and The
Babcock & Wilcox Company (“B&W”). In this quarterly report on
Form 10-Q, unless the context otherwise indicates, “we,” “us” and “our” mean MII
and its consolidated subsidiaries.
We
operate in three business segments: Offshore Oil and Gas Construction,
Government Operations and Power Generation Systems, further described as
follows:
·
|
Offshore
Oil and Gas Construction includes the business and operations of JRMSA, J.
Ray McDermott Holdings, LLC and their respective
subsidiaries. This segment supplies services primarily to
offshore oil and gas field developments worldwide, including the front-end
design and detailed engineering, fabrication and marine installation of
offshore drilling and production facilities and installation of marine
pipelines and subsea production systems. This segment
operates in most major offshore oil and gas producing regions, including
the United States, Mexico, Canada, the Middle East, India, the Caspian Sea
and Asia Pacific.
|
·
|
Government
Operations includes the business and operations of BWX Technologies, Inc.,
Babcock & Wilcox Nuclear Operations Group, Inc., Babcock & Wilcox
Technical Services Group, Inc. and their respective subsidiaries. This
segment manufactures nuclear components and provides various services to
the U.S. Government, including uranium processing, environmental site
restoration services and management and operating services for various
U.S. Government-owned facilities, primarily within the nuclear weapons
complex of the U.S. Department of
Energy.
|
·
|
Power
Generation Systems includes the business and operations of Babcock &
Wilcox Power Generation Group, Inc. (“B&W PGG”), Babcock & Wilcox
Nuclear Power Generation Group, Inc. and their respective
subsidiaries. This segment manufactures fossil-fired steam
generating systems, commercial nuclear steam generators, environmental
equipment and components, and related services to customers around the
world. It designs, engineers, manufactures and services large utility and
industrial power generation systems, including boilers used to generate
steam in electric power plants, pulp and paper making, chemical and
process applications and other industrial
uses.
|
Operating
results for the three and nine months ended September 30, 2008 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2008. For further information, refer to the consolidated
financial statements and footnotes thereto included in our annual report on Form
10-K for the year ended December 31, 2007.
Comprehensive
Loss
The
components of accumulated other comprehensive loss included in stockholders'
equity are as follows:
|
|
September
30,
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
(In
thousands)
|
|
Currency
Translation Adjustments
|
|
$ |
16,479 |
|
|
$ |
25,328 |
|
Net
Unrealized Gain (Loss) on Investments
|
|
|
(8,087 |
) |
|
|
984 |
|
Net
Unrealized Gain on Derivative Financial Instruments
|
|
|
2,475 |
|
|
|
20,876 |
|
Unrecognized
Losses on Benefit Obligations
|
|
|
(310,817 |
) |
|
|
(329,121 |
) |
Accumulated
Other Comprehensive Loss
|
|
$ |
(299,950 |
) |
|
$ |
(281,933 |
) |
Inventories
The
components of inventories are as follows:
|
|
September
30,
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
(In
thousands)
|
|
Raw
Materials and Supplies
|
|
$ |
88,683 |
|
|
$ |
65,857 |
|
Work
in Progress
|
|
|
11,342 |
|
|
|
10,757 |
|
Finished
Goods
|
|
|
20,102 |
|
|
|
18,594 |
|
Total
Inventories
|
|
$ |
120,127 |
|
|
$ |
95,208 |
|
Restricted
Cash and Cash Equivalents
At
September 30, 2008, we had restricted cash and cash equivalents totaling $68.5
million, of which $67.2 million is held in restricted foreign accounts and $1.3
million is required to meet reinsurance reserve requirements of our captive
insurance companies.
Recently
Adopted Accounting Standards
In
September 2006, the Financial Accounting Standards Board (the “FASB”) issued
Statement of Financial Accounting Standard (“SFAS”) No. 157, Fair Value Measurements,
which is intended to increase consistency and comparability in fair value
measurements by defining fair value, establishing a framework for measuring fair
value and expanding disclosures about fair value measurements. SFAS
No. 157 applies to other accounting pronouncements that require or permit fair
value measurements and is effective for financial statements issued for fiscal
years beginning after November 15, 2007 and interim periods within those fiscal
years. On January 1, 2008, we adopted the provisions of SFAS No. 157
for our measurement of the fair value of financial instruments and recurring
fair value measurements of nonfinancial assets and liabilities. The
adoption of these provisions did not have a material impact on our consolidated
financial statements.
In
February 2008, the FASB issued: (1) FASB Staff Position (“FSP”) FAS 157-1, Application of FASB Statement
No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements
That Address Fair Value Measurements for Purposes of Lease Classification or
Measurement Under Statement 13, which removes certain leasing
transactions from the scope of SFAS No. 157; and (2) FSP FAS 157-2, Effective Date of FASB
Statement
No. 157, which defers
the effective date of SFAS No. 157 for one year for certain nonfinancial assets
and nonfinancial liabilities, except those that are recognized or disclosed at
fair value in the financial statements on a recurring
basis.
SFAS No.
157 establishes a hierarchy for inputs used in measuring fair value that
maximizes the use of observable inputs and minimizes the use of unobservable
inputs by requiring that the most observable inputs be used when
available. The majority of our investments have observable inputs and
are included in the first and second level of the hierarchy. We have
one investment included in the third level of the hierarchy, as pricing of some
of the underlying securities cannot be obtained through either direct quotes or
through quotes from independent pricing vendors and are priced using estimates
based upon similar securities with observable pricing data.
Our
derivative financial instruments consist primarily of foreign currency forward
contracts. Fair value is derived using valuation models, which take into account
the contract terms, such as maturity, as well as other inputs (i.e., exchange
rates, foreign currency forward curves and creditworthiness of the
counterparty). The data sources utilized in these valuation models that are
significant to the fair value measurement are Level 2 in the fair value
hierarchy.
Recently
Issued Accounting Standards
In
October of 2008, the FASB issued FSP No. 157-3 Determining the Fair Value of a
Financial Asset When the Market for That Asset Is Not Active. This FSP
applies to financial assets within the scope of accounting pronouncements that
require or permit fair value measurements in accordance with SFAS No. 157. FSP
No. 157-3 clarifies the application of SFAS No. 157 in a market that is not
active and provides an example to illustrate key considerations in determining
the fair value of a financial asset when the market for that asset is not
active. We do not expect FSP No. 157-3 to have a material impact on our
consolidated financial statements.
In May
2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted
Accounting Principles. SFAS No. 162 identifies the sources of accounting
principles and the framework for selecting the principles to be used in the
preparation of financial statements that are presented in conformity with
generally accepted accounting principles in the United States. This
Statement is effective 60 days following the SEC’s approval of the Public
Company Accounting Oversight Board amendments to AU Section 411, “The
Meaning of Present Fairly in Conformity with Generally Accepted Accounting
Principles.” We do not expect SFAS 162 to have a material impact on our
consolidated financial statements.
In
March 2008, the FASB issued SFAS No. 161, Disclosures About Derivative
Instruments and Hedging Activities— an amendment of FASB Statement
No. 133. SFAS No. 161 requires enhanced disclosures about
derivative and hedging activities and is effective for financial statements
issued for fiscal years and interim periods beginning after November 15,
2008. SFAS No. 161 will become effective for us January 1,
2009.
Other
than as disclosed above, there have been no material changes to the recent
pronouncements discussed in our annual report on Form 10-K for the year ended
December 31, 2007.
NOTE
2 – PENSION PLANS AND POSTRETIREMENT BENEFITS
Components
of net periodic benefit cost included in net income are as follows:
|
|
Pension
Benefits
|
|
|
Other
Benefits
|
|
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
|
|
(In
thousands)
|
|
Service
cost
|
|
$ |
9,105 |
|
|
$ |
7,630 |
|
|
$ |
28,645 |
|
|
$ |
28,092 |
|
|
$ |
81 |
|
|
$ |
88 |
|
|
$ |
246 |
|
|
$ |
212 |
|
Interest
cost
|
|
|
37,856 |
|
|
|
38,177 |
|
|
|
115,506 |
|
|
|
111,653 |
|
|
|
1,416 |
|
|
|
1,532 |
|
|
|
4,259 |
|
|
|
4,480 |
|
Expected
return on plan assets
|
|
|
(46,859 |
) |
|
|
(42,641 |
) |
|
|
(138,479 |
) |
|
|
(128,699 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Amortization
of prior service cost
|
|
|
517 |
|
|
|
665 |
|
|
|
2,054 |
|
|
|
2,317 |
|
|
|
18 |
|
|
|
20 |
|
|
|
56 |
|
|
|
53 |
|
Amortization
of transition obligation
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
71 |
|
|
|
75 |
|
|
|
218 |
|
|
|
205 |
|
Recognized
net actuarial loss
|
|
|
7,193 |
|
|
|
13,091 |
|
|
|
25,008 |
|
|
|
34,200 |
|
|
|
363 |
|
|
|
427 |
|
|
|
1,091 |
|
|
|
1,287 |
|
Net
periodic benefit cost
|
|
$ |
7,812 |
|
|
$ |
16,922 |
|
|
$ |
32,734 |
|
|
$ |
47,563 |
|
|
$ |
1,949 |
|
|
$ |
2,142 |
|
|
$ |
5,870 |
|
|
$ |
6,237 |
|
NOTE
3 – COMMITMENTS AND CONTINGENCIES
Other
than as noted below, there have been no material changes during the
period covered by this Form 10-Q in the status of the legal proceedings
disclosed in Note 11 to the consolidated financial statements in Part II of our
annual report on Form 10-K for the year ended December 31, 2007.
Investigations
and Litigation
Apollo/Parks
Township Claims – Hall Litigation
The
matter of Donald F. Hall and
Mary Ann Hall, et al., v. Babcock & Wilcox Company, et al. (the “Hall
Litigation”), pending in the United States District Court for the Western
District of Pennsylvania, presently involves approximately 500 separate claims
for compensatory damages against B&W PGG and Babcock & Wilcox Technical
Services Group, Inc., formerly known as B&W Nuclear Environmental Services,
Inc., (“B&W TSG”) (collectively, the “B&W Parties”), alleging, among
other things, death, personal injury, property damage and other damages as a
result of alleged radioactive and non-radioactive emissions from two former
nuclear fuel processing facilities located in Apollo and Parks Township,
Pennsylvania. These facilities were previously owned by Nuclear
Materials and Equipment Company (“Numec”), a subsidiary of Atlantic Richfield
Company (“ARCO”).
In
September 2008, the parties advised the District Court that they were pursuing a
negotiated resolution of the Hall Litigation and requested that the Court
suspend all pre-trial requirements and obligations. The parties
have negotiated the principle terms of a settlement that, if consummated,
would resolve all claims against the
B&W Parties. Specifically, the settlement contemplates,
among other things:
·
|
The
B&W Parties would be provided releases from each of the
“Apollo/Parks Township Releasors,” as that term will be defined in the
final settlement agreement generally to mean the existing claimants in the
Hall Litigation, including full and complete releases from each of the
Apollo/Parks Township Releasors asserting personal injury claims
and property damage releases from each of the Apollo/Parks
Township Releasors asserting property damage only
claims;
|
·
|
The
B&W Parties would make a $52.5 million cash payment to the
Apollo/Parks Township Releasors after certain conditions precedent to such
payment, as set forth in the final written settlement agreement, have been
satisfied; and
|
·
|
The
B&W Parties would retain all insurance rights and may pursue their
insurers to collect any of the amounts paid in
settlement.
|
A binding
settlement remains subject to the negotiation and execution of a final
settlement agreement and the satisfaction of all conditions
precedent. B&W PGG previously has negotiated prior settlement
arrangements with the Apollo/Parks Township Releasors that have not been
consummated. The proposed settlement is within amounts provided for in Other
Liabilities at September 30, 2008.
At the
time of ARCO’s sale of Numec to B&W PGG, B&W PGG received an indemnity
and hold harmless agreement from ARCO from claims or liabilities arising as a
result of pre-closing Numec or ARCO actions. In December 2007,
B&W PGG filed an action against ARCO for breach of contract and seeking a
declaratory judgment that ARCO is obligated to indemnify B&W PGG under the
indemnity agreement between the two parties against any losses that B&W PGG
may incur arising out of the nuclear fuel processing facilities at issue in the
Hall Litigation (the “Indemnity Action”). The Indemnity Action is
also pending in the United States District Court for the Western District of
Pennsylvania.
In
September 2008, B&W PGG and ARCO advised the District Court that they were
pursuing a negotiated resolution of the Indemnity Action. The parties
have negotiated the principle terms of a settlement that, if consummated, would
resolve all claims between ARCO and B&W PGG with respect to the claims of
the present Apollo/Parks Township Releasors. Specifically, the settlement
contemplates, among other things, that
·
|
ARCO
would assign to B&W PGG its rights to recover insurance
proceeds/amounts arising out of the claims alleged in the Hall Litigation
in the amount of not less than $17,500,000, which amount would increase if
the total ARCO insurance proceeds recovered exceed $30
million;
|
·
|
ARCO
would retain its rights to recover insurance proceeds/amounts arising out
of the claims alleged in the Hall Litigation in the amount of not less
than $12,500,000, which amount would increase if the total ARCO insurance
proceeds recovered exceed $30 million;
and
|
·
|
The
parties would dismiss with prejudice and release all claims between
B&W PGG and ARCO that arise out of the present claims of the
Apollo/Parks Township Releasors; any other claims between ARCO and B&W
PGG are preserved and are unaffected by the proposed
agreement.
|
A binding
settlement remains subject to the negotiation and execution of a final
settlement agreement and the satisfaction of all conditions
precedent.
For
further information regarding the Hall Litigation and the Indemnity Action, see
Note 11 to the consolidated financial statements included in Part II of our
annual report on Form 10-K for the year ended December 31, 2007 and Note 3 to
the condensed consolidated financial statements included in Part I of our
quarterly reports on Form 10-Q for the quarters ended March 31, 2008 and June
30, 2008.
Other Litigation
and Settlements
In the
matter of Iroquois Falls Power
Corp. v. Jacobs Canada Inc., et al., the claims against the defendants
have been concluded in favor of the defendants, subject to the appeal right of
Iroquois Falls Power Corp. (“Iroquois”). Iroquois filed suit filed in
June 2005 in the Superior Court of Justice, in Ontario, Canada seeking damages
as a result of an alleged breach by one of our former subsidiaries in connection
with the supply and installation of the heat recovery steam generator
enclosure. McDermott Incorporated, which provided a guarantee to
certain obligations of the former subsidiary, and two bonding companies with
whom MII entered into an indemnity arrangement, were also named as
defendants. In March 2007, the Superior Court granted summary
judgment in favor of all defendants and dismissed all claims of Iroquois, which
appealed the ruling. In April 2008, the Court of Appeals for Ontario
upheld the summary judgment, but sent the case back to the Superior Court of
Justice to allow Iroquois an opportunity to amend its complaint to assert new
claims. On October 30, 2008, the Superior Court of Justice denied
Iroquois’ request to amend its complaint and add new claims against the
defendant. Iroquois has 30 days to appeal the Superior Court’s
ruling.
On
November 3, 2008, we executed a binding settlement agreement for our claims
related to a project in India completed in the 1980s. The gross
settlement totals approximately $45 million and we anticipate our expenses and
related taxes associated with the settlement to be approximately 35% of the
settlement. We received the cash proceeds on November 4, 2008 and
will record the settlement in our statement of income in the three months ended
December 31, 2008, which will conclude this matter in full.
For a
detailed description of these and other pending legal proceedings, please refer
to Note 11 to the consolidated financial statements included in Part II of
our annual report on Form 10-K for the year ended December 31,
2007.
Additionally,
due to the nature of our business, we are, from time to time, involved in
routine litigation or subject to disputes or claims related to our business
activities, including, among other things:
·
|
performance-related
or warranty-related matters under our customer and supplier contracts and
other business arrangements; and
|
·
|
workers’
compensation claims, Jones Act claims, premises liability claims and other
claims.
|
In our
management’s opinion, based upon our prior experience, none of these other
routine litigation proceedings, disputes and claims are expected to have a
material adverse effect on our consolidated financial position, results of
operations or cash flows.
Other
Some of
our contracts have milestone due dates that must be met or we may be subject to
penalties for liquidated damages if claims are asserted and we are ultimately
responsible for the delays. These penalties relate to specified activities
within a project that must be completed by a set contractual date. The
applicable contracts define the conditions under which our customers may make
claims against us for liquidated damages. In most cases in which we have had
potential exposure for liquidated damages, such damages ultimately were not
asserted by our customers. We have not accrued for potential liquidated damages
totaling approximately $110 million at September 30, 2008, all in our Offshore
Oil and Gas Construction segment, that we could incur based upon completing
certain projects as currently forecasted, as we do not believe that claims for
these liquidated damages are probable of being assessed. The trigger dates for
the majority of these liquidated damages presently occur in the fourth quarter
of 2008. We are in active discussions with our customers on the issues giving
rise to delays in these projects and we believe we will be successful in
obtaining schedule extensions which will resolve the potential for liquidated
damages being assessed. While we believe we will be successful in negotiations
with our customers, it is possible we may not achieve schedule relief on some or
all of the issues. For certain other projects, all in our Offshore Oil and Gas
Construction segment, we have currently provided for approximately $25 million
in liquidated damages in our
estimates of revenues and gross profit, of which approximately $17 million has
been recognized in our financial statements to date through percentage of
completion accounting, as we believe, based on the individual facts and
circumstances, they are probable.
We were
advised in 2006 by the IRS of potential proposed unfavorable tax adjustments
related to the 2001 through 2003 tax years. We reviewed the IRS
positions and disagreed with certain proposed
adjustments. Accordingly, we filed a protest with the IRS regarding
the resolution of these issues, and the process has proceeded through an appeals
hearing with an IRS appellate conferee. We have provided for any
amounts that we believe will ultimately be payable for these proposed
adjustments. In the three and nine months ended September 30, 2008,
we recorded certain tax assets and benefits totaling approximately $45 million
and $55 million, respectively, primarily from the release of state valuation
allowances and as a result of audit activity.
In the
three and nine months ended September 30, 2008, we recorded contract losses of
approximately $90 million attributable to changes in our estimates on the
expected costs to complete various projects, primarily in the Middle East
region.
On October 28, 2008, one of our Canadian subsidiaries received a
Warranty Notice on one of its projects on a contract executed in 1998. We
responded to the Notice on November 3, 2008 disagreeing with the matters stated
in the Notice and disputing the claim. See Note 11 to the consolidated
financial statements included in Part II of our annual report on Form 10-K
for the year ended December 31, 2007 for further information.
NOTE
4 – STOCK-BASED COMPENSATION
Total
stock-based compensation expense recognized for the three and nine months ended
September 30, 2008 and 2007 was as follows:
|
|
Compensation
|
|
|
Tax
|
|
|
Net
|
|
|
|
Expense
|
|
|
Benefit
|
|
|
Impact
|
|
|
|
(Unaudited)
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended September 30, 2008
|
|
Stock
Options
|
|
$ |
14 |
|
|
$ |
(5 |
) |
|
$ |
9 |
|
Restricted
Stock
|
|
|
1,127 |
|
|
|
(305 |
) |
|
|
822 |
|
Performance
Shares
|
|
|
8,084 |
|
|
|
(2,578 |
) |
|
|
5,506 |
|
Performance
and Deferred Stock Units
|
|
|
(37 |
) |
|
|
14 |
|
|
|
(23 |
) |
Total
|
|
$ |
9,188 |
|
|
$ |
(2,874 |
) |
|
$ |
6,314 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended September 30, 2007
|
|
Stock
Options
|
|
$ |
660 |
|
|
$ |
(139 |
) |
|
$ |
521 |
|
Restricted
Stock
|
|
|
35 |
|
|
|
- |
|
|
|
35 |
|
Performance
Shares
|
|
|
6,448 |
|
|
|
(2,035 |
) |
|
|
4,413 |
|
Performance
and Deferred Stock Units
|
|
|
1,618 |
|
|
|
(520 |
) |
|
|
1,098 |
|
Total
|
|
$ |
8,761 |
|
|
$ |
(2,694 |
) |
|
$ |
6,067 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine
Months Ended September 30, 2008
|
|
Stock
Options
|
|
$ |
780 |
|
|
$ |
(239 |
) |
|
$ |
541 |
|
Restricted
Stock
|
|
|
3,343 |
|
|
|
(691 |
) |
|
|
2,652 |
|
Performance
Shares
|
|
|
26,429 |
|
|
|
(8,488 |
) |
|
|
17,941 |
|
Performance
and Deferred Stock Units
|
|
|
3,060 |
|
|
|
(1,006 |
) |
|
|
2,054 |
|
Total
|
|
$ |
33,612 |
|
|
$ |
(10,424 |
) |
|
$ |
23,188 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine
Months Ended September 30, 2007
|
|
Stock
Options
|
|
$ |
2,157 |
|
|
$ |
(584 |
) |
|
$ |
1,573 |
|
Restricted
Stock
|
|
|
869 |
|
|
|
(21 |
) |
|
|
848 |
|
Performance
Shares
|
|
|
13,497 |
|
|
|
(4,255 |
) |
|
|
9,242 |
|
Performance
and Deferred Stock Units
|
|
|
4,877 |
|
|
|
(1,563 |
) |
|
|
3,314 |
|
Total
|
|
$ |
21,400 |
|
|
$ |
(6,423 |
) |
|
$ |
14,977 |
|
NOTE
5 – SEGMENT REPORTING
An
analysis of our operations by segment is as follows:
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Offshore
Oil and Gas Construction
|
|
$ |
814,701 |
|
|
$ |
582,168 |
|
|
$ |
2,332,918 |
|
|
$ |
1,712,414 |
|
Government
Operations
|
|
|
222,434 |
|
|
|
177,215 |
|
|
|
638,792 |
|
|
|
506,340 |
|
Power
Generation Systems
|
|
|
630,955 |
|
|
|
567,173 |
|
|
|
1,945,324 |
|
|
|
1,896,178 |
|
Adjustments
and Eliminations(1)
|
|
|
(3,239 |
) |
|
|
(2,538 |
) |
|
|
(9,111 |
) |
|
|
(9,338 |
) |
|
|
$ |
1,664,851 |
|
|
$ |
1,324,018 |
|
|
$ |
4,907,923 |
|
|
$ |
4,105,594 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Segment
revenues are net of the following intersegment
|
|
transfers
and other adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Offshore
Oil and Gas Construction Transfers
|
|
$ |
3,007 |
|
|
$ |
2,390 |
|
|
$ |
8,400 |
|
|
$ |
8,713 |
|
Government
Operations Transfers
|
|
|
232 |
|
|
|
148 |
|
|
|
656 |
|
|
|
602 |
|
Power
Generation Systems Transfers
|
|
|
- |
|
|
|
- |
|
|
|
55 |
|
|
|
23 |
|
|
|
$ |
3,239 |
|
|
$ |
2,538 |
|
|
$ |
9,111 |
|
|
$ |
9,338 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
INCOME:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Operating Income
(Loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Offshore
Oil and Gas Construction
|
|
$ |
(18,655 |
) |
|
$ |
88,701 |
|
|
$ |
132,187 |
|
|
$ |
302,672 |
|
Government
Operations
|
|
|
26,585 |
|
|
|
18,578 |
|
|
|
87,491 |
|
|
|
68,397 |
|
Power
Generation Systems
|
|
|
78,998 |
|
|
|
42,340 |
|
|
|
249,498 |
|
|
|
157,766 |
|
|
|
$ |
86,928 |
|
|
$ |
149,619 |
|
|
$ |
469,176 |
|
|
$ |
528,835 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (Losses) on Asset Disposals –
Net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Offshore
Oil and Gas Construction
|
|
$ |
(110 |
) |
|
$ |
524 |
|
|
$ |
1,732 |
|
|
$ |
668 |
|
Government
Operations
|
|
|
- |
|
|
|
14 |
|
|
|
- |
|
|
|
1,631 |
|
Power
Generation Systems
|
|
|
(25 |
) |
|
|
92 |
|
|
|
9,593 |
|
|
|
81 |
|
|
|
$ |
(135 |
) |
|
$ |
630 |
|
|
$ |
11,325 |
|
|
$ |
2,380 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in Income (Loss) of
Investees:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Offshore
Oil and Gas Construction
|
|
$ |
(921 |
) |
|
$ |
(1,082 |
) |
|
$ |
(2,671 |
) |
|
$ |
(2,938 |
) |
Government
Operations
|
|
|
7,966 |
|
|
|
6,615 |
|
|
|
27,513 |
|
|
|
19,607 |
|
Power
Generation Systems
|
|
|
5,476 |
|
|
|
6,944 |
|
|
|
7,601 |
|
|
|
10,357 |
|
|
|
$ |
12,521 |
|
|
$ |
12,477 |
|
|
$ |
32,443 |
|
|
$ |
27,026 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Income (Loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Offshore
Oil and Gas Construction
|
|
$ |
(19,686 |
) |
|
$ |
88,143 |
|
|
$ |
131,248 |
|
|
$ |
300,402 |
|
Government
Operations
|
|
|
34,551 |
|
|
|
25,207 |
|
|
|
115,004 |
|
|
|
89,635 |
|
Power
Generation Systems
|
|
|
84,449 |
|
|
|
49,376 |
|
|
|
266,692 |
|
|
|
168,204 |
|
|
|
|
99,314 |
|
|
|
162,726 |
|
|
|
512,944 |
|
|
|
558,241 |
|
Corporate
|
|
|
(7,341 |
) |
|
|
(7,576 |
) |
|
|
(32,735 |
) |
|
|
(28,821 |
) |
Total
Operating Income
|
|
$ |
91,973 |
|
|
$ |
155,150 |
|
|
$ |
480,209 |
|
|
$ |
529,420 |
|
NOTE
6 – EARNINGS PER SHARE
The
following table sets forth the computation of basic and diluted earnings per
share:
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
|
|
(In
thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income for basic computation
|
|
$ |
85,571 |
|
|
$ |
140,408 |
|
|
$ |
386,300 |
|
|
$ |
447,843 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares
|
|
|
227,441 |
|
|
|
224,481 |
|
|
|
226,645 |
|
|
|
222,945 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per common share
|
|
$ |
0.38 |
|
|
$ |
0.63 |
|
|
$ |
1.70 |
|
|
$ |
2.01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income for diluted computation
|
|
$ |
85,571 |
|
|
$ |
140,408 |
|
|
$ |
386,300 |
|
|
$ |
447,843 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares (basic)
|
|
|
227,441 |
|
|
|
224,481 |
|
|
|
226,645 |
|
|
|
222,945 |
|
Effect
of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
options, restricted stock and performance shares
|
|
|
3,023 |
|
|
|
4,385 |
|
|
|
3,683 |
|
|
|
5,458 |
|
Adjusted
weighted average common shares and assumed exercises of stock options and
vesting of stock awards
|
|
|
230,464 |
|
|
|
228,866 |
|
|
|
230,328 |
|
|
|
228,403 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per common share
|
|
$ |
0.37 |
|
|
$ |
0.61 |
|
|
$ |
1.68 |
|
|
$ |
1.96 |
|
NOTE
7 – BUSINESS ACQUISITIONS
Acquisition
of the Intech Group of Companies
On July 15, 2008, certain B&W
subsidiaries completed their acquisition of the Intech group of companies
(“Intech”) for approximately $21 million. Intech consists of
Intech, Inc., Ivey-Cooper Services, L.L.C. and Intech International
Inc. Intech, Inc. provides nuclear inspection and maintenance
services, primarily for the U.S. market. Ivey-Cooper Services, L.L.C.
provides non-destructive inspection services to fossil-fueled power plants, as
well as chemical, pulp and paper, and heavy fabrication
facilities. Intech International Inc. provides non-destructive
testing, field engineering and repair and specialized tooling services,
primarily for the Canadian nuclear power generation industry. In
connection with the acquisition of Intech, we recorded goodwill of approximately
$7.9 million. We also recorded other intangible assets of
approximately $10.0 million. Those intangible assets consist of the
following (amounts in thousands):
|
|
|
|
Amortization
|
|
|
Amount
|
|
Period
|
Unpatented
Technology
|
|
$ |
5,600 |
|
10
years
|
Customer
Relationship
|
|
$ |
2,600 |
|
10
years
|
Trade
Name
|
|
$ |
1,800 |
|
10
years
|
Acquisition
of Delta Power Services, LLC
On August
1, 2008, a B&W subsidiary completed its acquisition of Delta Power Services,
LLC (“DPS”) for approximately $13 million. DPS is a provider of
operation and maintenance services for the U.S. power generation
industry. Headquartered in Houston, Texas, DPS has approximately 200
employees at nine gas, biomass or coal-fired power plants in Virginia,
California, Texas, Florida, Michigan and Massachusetts. In connection
with the acquisition of DPS, we recorded goodwill of approximately $3.7
million. We also recorded other intangible assets of approximately
$9.3 million, which have a weighted-average amortization period of 19.0
years. Those intangible assets consist of the following (amounts in
thousands):
|
|
|
|
Amortization
|
|
|
Amount
|
|
Period
|
Customer
Relationship
|
|
$ |
8,760 |
|
1.4-20
years
|
Trade
Name
|
|
$ |
250 |
|
25
years
|
Non-Compete
Agreement
|
|
$ |
240 |
|
3
years
|
Definitive
Agreement to Acquire Nuclear Fuel Services, Inc.
On August
8, 2008, B&W’s subsidiary entered into a definitive agreement to acquire
Nuclear Fuel Services, Inc. (“NFS”), contingent upon obtaining regulatory
approvals and satisfying other closing conditions. NFS is a provider of
specialty nuclear fuels and related services and is a leader in the conversion
of Cold War-era government stockpiles of highly enriched uranium into commercial
nuclear reactor fuel. NFS also owns and operates a nuclear fuel
fabrication facility licensed by the U.S. Nuclear Regulatory Commission in
Erwin, Tennessee and has approximately 700 employees. The acquisition is
expected to be completed by the end of 2008.
|
CAUTIONARY
STATEMENT CONCERNING FORWARD-LOOKING
STATEMENTS
|
The
following information should be read in conjunction with the unaudited condensed
consolidated financial statements and the notes thereto included under Item 1
and the audited consolidated financial statements and the notes thereto and Item
7 “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” included in our annual report on Form 10-K for the year ended
December 31, 2007.
In this
quarterly report on Form 10-Q, unless the context otherwise indicates, “we,”
“us” and “our” mean MII and its consolidated subsidiaries.
We are
including the following discussion to inform our existing and potential security
holders generally of some of the risks and uncertainties that can affect our
company and to take advantage of the “safe harbor” protection for
forward-looking statements that applicable federal securities law
affords.
From time
to time, our management or persons acting on our behalf make forward-looking
statements to inform existing and potential security holders about our
company. These statements may include projections and estimates
concerning the timing and success of specific projects and our future backlog,
revenues, income and capital spending. Forward-looking statements are
generally accompanied by words such as “estimate,” “project,” “predict,”
“believe,” “expect,” “anticipate,” “plan,” “goal” or other words that convey the
uncertainty of future events or outcomes. In addition, sometimes we
will specifically describe a statement as being a forward-looking statement and
refer to this cautionary statement.
In
addition, various statements in this quarterly report on Form 10-Q, including
those that express a belief, expectation or intention, as well as those that are
not statements of historical fact, are forward-looking
statements. These forward-looking statements speak only as of the
date of this report; we disclaim any obligation to update these statements
unless required by securities law, and we caution you not to rely on them
unduly. We have based these forward-looking statements on our current
expectations and assumptions about future events. While our
management
considers these expectations and assumptions to be reasonable, they are
inherently subject to significant business, economic, competitive, regulatory
and other risks, contingencies and uncertainties, most of which are
difficult to predict and many of which are beyond our control. These
risks, contingencies and uncertainties relate to, among other matters, the
following:
·
|
general
economic and business conditions and industry
trends;
|
·
|
general
developments in the industries in which we are
involved;
|
·
|
decisions
about offshore developments to be made by oil and gas
companies;
|
·
|
decisions
on spending by the U.S. Government and electric power generating
companies;
|
·
|
the
highly competitive nature of most of our
businesses;
|
·
|
cancellations
of and adjustments to backlog and the resulting impact from using backlog
as an indicator of future earnings;
|
·
|
the
ability of our suppliers to deliver raw materials in sufficient quantities
and in a timely manner;
|
·
|
our
ability to comply with covenants in our credit agreements and other debt
instruments and availability, terms and deployment of
capital;
|
·
|
the
continued availability of qualified
personnel;
|
·
|
the
operating risks normally incident to our lines of business, including the
potential impact of liquidated
damages;
|
·
|
changes
in, or our failure or inability to comply with, government
regulations;
|
·
|
adverse
outcomes from legal and regulatory
proceedings;
|
·
|
impact
of potential regional, national and/or global requirements to
significantly limit or reduce greenhouse gas emissions in the
future;
|
·
|
changes
in, and liabilities relating to, existing or future environmental
regulatory matters;
|
·
|
rapid
technological changes;
|
·
|
the
realization of deferred tax assets, including through a reorganization we
completed in December 2006;
|
·
|
the
consequences of significant changes in interest rates and currency
exchange rates;
|
·
|
difficulties
we may encounter in obtaining regulatory or other necessary approvals of
any strategic transactions;
|
·
|
the
risks of successfully integrating our
acquisitions;
|
·
|
social,
political and economic situations in foreign countries where we do
business, including countries in the Middle East and Asia Pacific and the
former Soviet Union;
|
·
|
the
possibilities of war, other armed conflicts or terrorist
attacks;
|
·
|
our
ability to obtain surety bonds, letters of credit and
financing;
|
·
|
our
ability to maintain builder’s risk, liability, property and other
insurance in amounts and on terms we consider adequate and at rates that
we consider economical;
|
·
|
the
aggregated risks retained in our insurance captives;
and
|
·
|
the
impact of the loss of certain insurance rights as part of the Chapter 11
Bankruptcy settlement.
|
We
believe the items we have outlined above are important factors that could cause
estimates in our financial statements to differ materially from actual results
and those expressed in a forward-looking statement made in this report or
elsewhere by us or on our behalf. We have discussed many of these
factors in more detail elsewhere in this report and in our annual report on Form
10-K for the year ended December 31, 2007. These factors are
not
necessarily
all the factors that could affect us. Unpredictable or unanticipated
factors we have not discussed in this report could also have material adverse
effects on actual results of matters that are the subject of our forward-looking
statements. We do not intend to update our description of important
factors each time a potential important factor arises, except as required by
applicable securities laws and regulations. We advise our security
holders that they should (1) be aware that factors not referred to above could
affect the accuracy of our forward-looking statements and (2) use caution and
common sense when considering our forward-looking statements.
GENERAL
In
general, our business segments are composed of capital-intensive businesses that
rely on large contracts for a substantial amount of their
revenues. Each of our business segments is currently financed on a
stand-alone basis. Our debt covenants limit using the financial resources of or
the movement of excess cash from one segment for the benefit of the
other. For further discussion, see “Liquidity and Capital Resources”
below.
As of
September 30, 2008, in accordance with the percentage-of-completion method of
accounting, we have provided for our estimated costs to complete all of our
ongoing contracts. However, it is possible that current estimates could change
due to unforeseen events, which could result in adjustments to overall contract
costs. The risk on fixed-priced contracts is that revenue from the customer does
not rise to cover increases in our costs. It is possible that current
estimates
could materially change for various reasons, including, but not limited to,
fluctuations in forecasted labor productivity, pipeline lay rates or steel and
other raw material prices. In some instances, we guarantee completion dates
related to our projects. Increases in costs on our fixed-price
contracts could have a material adverse impact on our consolidated results of
operations, financial condition and cash flows. Alternatively, reductions in
overall contract costs at completion could materially improve our consolidated
results of operations, financial condition and cash flows.
Some of
our contracts have milestone due dates that must be met or we may be subject to
penalties for liquidated damages if claims are asserted and we are ultimately
responsible for the delays. These penalties relate to specified activities
within a project that must be completed by a set contractual date. The
applicable contracts define the conditions under which our customers may make
claims against us for liquidated damages. In most cases in which we have had
potential exposure for liquidated damages, such damages ultimately were not
asserted by our customers. We have not accrued for potential liquidated damages
totaling approximately $110 million at September 30, 2008, all in our Offshore
Oil and Gas Construction segment, that we could incur based upon completing
certain projects as currently forecasted, as we do not believe that claims for
these liquidated damages are probable of being assessed.
The trigger dates for the majority of these liquidated damages presently occur
in the fourth quarter of 2008. We are in active discussions with our customers
on the issues giving rise to delays in these projects and we believe we will be
successful in obtaining schedule extensions which will resolve the potential for
liquidated damages being assessed. While we believe we will be successful in
negotiations with our customers, it is possible we may not achieve schedule
relief on some or all of the issues. For certain other projects, all in our
Offshore Oil and Gas Construction segment, we have currently provided for
approximately $25 million in liquidated damages in our estimates of revenues and
gross profit, of which approximately $17 million has been recognized in our
financial statements to date through percentage of completion accounting, as we
believe, based on the individual facts and circumstances, they are
probable.
Due to the extreme volatility and
substantial decline experienced in the stock market in 2008, the assets of our
major domestic qualified pension plans have experienced a loss of approximately
12% for the nine months ended September 30, 2008. Should this trend
continue through December 31, 2008, we expect to record a significant reduction
in stockholders’ equity in other comprehensive income at December 31, 2008. In
addition, we would expect to record greater pension expense in 2009 as compared
to 2008.
Offshore
Oil and Gas Construction Segment
The
demand for our Offshore Oil and Gas Construction segment’s products and services
depends primarily on the capital expenditures of the world’s major oil and gas
producing companies and national oil companies of foreign governments for
construction of development projects in the regions in which we operate. In
recent years, the worldwide demand for energy, along with high prices for oil
and gas, has led to strong levels of capital expenditures by the major oil and
gas producing companies and national oil companies of foreign
governments.
The
decision-making process for major oil and gas producing companies and national
oil companies of foreign governments in making capital expenditures on offshore
construction services for a development project differs depending on whether the
project involves new or existing development. In the case of new development
projects, the demand for offshore construction services generally follows the
exploratory drilling and, in some cases, initial development drilling
activities. Based on the results of these activities and evaluations of field
economics, customers determine whether to install new platforms and new
infrastructure, such as subsea gathering lines and pipelines. For existing
development projects, demand for offshore construction services is generated by
decisions to, among other things, expand development in existing fields and
expand existing infrastructure.
Government
Operations Segment
The
revenues of our Government Operations segment are largely a function of defense
spending by the U.S. Government. As a supplier of major nuclear
components for certain U.S. Government programs, this segment is a significant
participant in the defense industry. With its unique capability of
full life-cycle management of special nuclear materials, facilities and
technologies, our Government Operations segment is well positioned to continue
to participate in the continuing cleanup, operation and management of the
nuclear sites and weapons complexes maintained by the U.S. Department of
Energy.
Power
Generation Systems Segment
Our Power
Generation Systems segment’s overall activity depends mainly on the capital
expenditures of electric power generating companies and other steam-using
industries. This segment’s products and services are capital
intensive. As such, customer demand is heavily affected by the variations in
each customer’s business cycles and by the overall economies of the countries in
which it operates.
For a
summary of the critical accounting policies and estimates that we use in the
preparation of our unaudited condensed consolidated financial statements, see
Item 7 “Management’s Discussion and Analysis of Financial Condition and Results
of Operations” in our annual report on Form 10-K for the year ended December 31,
2007. There have been no material changes to these policies during
the nine months ended September 30, 2008, except as disclosed in the notes to
condensed consolidated financial statements included in this
report.
RESULTS
OF OPERATIONS – THREE MONTHS ENDED SEPTEMBER 30, 2008 VS. THREE MONTHS ENDED
SEPTEMBER 30, 2007
McDermott International,
Inc. (Consolidated)
Revenues
increased approximately 26%, or $340.9 million, to $1,664.9 million in the three
months ended September 30, 2008 compared to $1,324.0 million for the
corresponding period in 2007. Our Offshore Oil and Gas Construction
segment generated a $232.5 million, or 40%, increase in its revenues during the
third quarter of 2008 compared to the third quarter of 2007. This
increase was primarily attributable to increased activities in our Asia Pacific
and Middle East regions. Additionally, in the third quarter of 2008, as compared
to the corresponding period in 2007, our Government Operations segment generated
a $45.2 million, or 26%, increase in its revenues, and our Power Generation
Systems segment generated a $63.8 million, or 11%, increase in its
revenues.
Segment
operating income decreased $62.7 million to $86.9 million in the three
months ended September 30, 2008 from $149.6 million for the corresponding period
in 2007. The segment operating income of our Offshore Oil and Gas Construction
segment decreased $107.4 million primarily attributable to delays and associated
cost increases related to projects primarily in the Middle East
region. Our Government Operations and Power Generation Systems
segments increased $8.0 million and $36.7 million, respectively, in the third
quarter of 2008, as compared to the corresponding period in 2007.
For
purpose of this discussion and the discussions that follow, segment operating
income is before equity in income (loss) of investees and gains (losses) on
asset disposals – net.
Offshore Oil and Gas
Construction
Revenues
increased 40%, or $232.5 million, to $814.7 million for three months
ended September 30, 2008, compared to $582.2 million for the comparable period
in 2007, primarily due to increased marine installation activities on engineer,
procure, construct and install projects in our Asia Pacific region ($217.9
million) and increased fabrication and marine installation activities in our
Middle East region ($122.8 million). These increases were partially
offset by decreased activities in our Caspian region ($61.2
million). Revenues from all other activities decreased by
approximately $47.0 million in the three months ended September 30, 2008
compared to the corresponding period in 2007.
Segment
operating income decreased $107.4 million in the three months ended
September 30, 2008 from income of $88.7 million for the three months ended
September 30, 2007 to a loss of $18.7 million. This decrease was primarily
attributable to recognition of approximately $90 million of contract losses in
the three months ended September 30, 2008 on the expected costs to complete
various projects, primarily in the Middle East region. These losses are
attributable to revised cost estimates due to lower experienced and forecasted
productivity, combined with an increase in downtime on our marine vessels and
third-party costs, primarily on the Middle East pipeline installation projects.
Because of these project delays we expect to experience scheduling issues and
increased costs due to vessel mobilization in future periods. In addition we also experienced
increased costs for fuel and labor in all areas and increased charter costs for
support vessels in our marine operations. General and Administrative
expenses increased $9.8 million for the three months ended September 30, 2008 as
compared to the comparable period in 2007 primarily attributable to increased
employee headcount necessary to support our operations. Also, hurricanes
Ike and Gustav had a negative impact on our operating results for the three
months ended September 30, 2008 totaling approximately $4.8 million attributable
to reduced productivity and miscellaneous repairs.
Government
Operations
Revenues
increased approximately 26%, or $45.2 million, to $222.4 million in the three
months ended September 30, 2008 compared to $177.2 million for the corresponding
period in 2007, primarily attributable to higher volumes in the manufacture of
nuclear components for certain U.S. Government programs ($24.6 million),
including increased contract procurement activities. In addition, we experienced
higher volumes in the manufacture of commercial nuclear components ($22.5
million).
Segment
operating income increased $8.0 million to $26.6 million in the three months
ended September 30, 2008 compared to $18.6 million for the corresponding period
in 2007, primarily attributable to higher volumes in the manufacture of nuclear
components for certain U.S. Government programs, including increased contract
procurement. In addition we experienced higher volumes related to
commercial nuclear components and a decrease in our pension plan
expense. These improvements were partially offset by the end of a
management and operating (“M&O”) contract at a government site and higher
selling, general and administrative expenses, primarily due to increased
proposal costs.
Power Generation
Systems
Revenues
increased approximately 11%, or $63.8 million, to $631.0 million in the three
months ended September 30, 2008 compared to $567.2 million for the
corresponding period in 2007, primarily attributable to increased revenues from
our fabrication, repair and retrofit of existing facilities ($27.9 million),
nuclear service business ($18.0 million), and our boiler auxiliary equipment
business ($12.4 million). These increases were partially offset by decreased
revenues from our utility steam and system fabrication business ($5.7 million)
and our replacement nuclear steam generator business ($5.1
million).
Segment
operating income increased $36.7 million to $79.0 million in the three months
ended September 30, 2008 compared to $42.3 million for the corresponding period
in 2007, primarily attributable to improved margins in our utility steam and
system fabrication business, increased volume and margins in our fabrication,
repair and retrofit of existing facilities, increased volume in our nuclear
service, boiler auxiliary, and replacement parts businesses, lower pension plan
expense and contract improvements. Partially offsetting these
improvements were lower volume and margins in our replacement nuclear steam
generator business and higher selling general and administrative expenses,
including higher stock-based compensation expense.
Corporate
Unallocated
Corporate expenses decreased approximately $0.3 million to $7.3 million in the
three months ended September 30, 2008, as compared to $7.6 million for the
corresponding period in 2007, primarily attributable to improved results from
our captive insurers. These improvements were partially offset by increased
retirement expenses, increased labor expenses attributable to higher headcount
and higher expenses associated with our development of a global human resources
management system.
Other Income Statement
Items
Interest
income decreased $10.3 million to $7.0 million in the three months ended
September 30, 2008, primarily due to a decrease in average cash equivalents and
investments and prevailing interest rates.
Interest
expense decreased $1.6 million to $1.8 million in the three months ended
September 30, 2008, primarily due to lower amortization of debt issuance costs
on our credit facilities.
Other
income (expense) – net improved by $2.9 million to income of $2.7 million in the
three months ended September 30, 2008 from expense of $0.2 million for the
corresponding period in 2007, primarily due to higher currency exchange
gains.
Provision for Income
Taxes
We are
subject to U.S. federal income tax at a rate of 35% on our U.S. operations, plus
the applicable state income taxes on our profitable U.S.
subsidiaries. Our non-U.S. earnings are subject to tax at various tax
rates and different tax regimes, such as a deemed profits tax
regime. These variances, along with variances in our mix of income
from these jurisdictions, contribute to shifts in our effective tax
rate.
In the
three months ended September 30, 2008, the provision for income taxes decreased
$14.1 million to $14.3 million, and income before provision for income taxes
decreased $68.9 million to $99.8 million. Our effective tax rate for
the three months ended September 30, 2008 was approximately 14.3%, as compared
to 16.8% for the corresponding period in 2007. The decrease in our
effective tax rate was primarily attributable to certain tax assets and benefits
totaling approximately $45 million which we recognized in the three months ended
September 30, 2008 from the release of state valuation allowances and as a
result of audit activity. These tax benefits were partially offset by
a higher mix of U.S. versus non-U.S. income and an unfavorable mix within our
non-U.S. operations, including losses in certain tax jurisdictions that were not
tax benefited, resulting in a larger proportion of the total book income being
taxed at higher rates in the third quarter of 2008 compared to the same period
in 2007.
Income
before provision for income taxes, provision for income taxes and effective tax
rates for our U.S. and non-U.S. jurisdictions are as shown below:
|
|
Income
before
Provision for
Income
Taxes
|
|
|
Provision
for
(Benefit
from)
Income
Taxes
|
|
|
Effective
Tax Rate
|
|
|
|
For
the three months ended September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(In
thousands)
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
$ |
99,139 |
|
|
$ |
66,333 |
|
|
$ |
(2,980 |
) |
|
$ |
19,288 |
|
|
|
(3.01 |
%) |
|
|
29.08 |
% |
Non-United
States
|
|
|
703 |
|
|
|
102,408 |
|
|
|
17,251 |
|
|
|
9,045 |
|
|
|
2453.91 |
% |
|
|
8.83 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
99,842 |
|
|
$ |
168,741 |
|
|
$ |
14,271 |
|
|
$ |
28,333 |
|
|
|
14.29 |
% |
|
|
16.79 |
% |
RESULTS
OF OPERATIONS – NINE MONTHS ENDED SEPTEMBER 30, 2008 vs. NINE MONTHS ENDED
SEPTEMBER 30, 2007
McDermott International,
Inc. (Consolidated)
Revenues
increased approximately 20%, or $802.3 million, to $4,907.9 million in the nine
months ended September 30, 2008 compared to $4,105.6 million for the
corresponding period in 2007. Our Offshore Oil and Gas Construction segment
generated a $620.5 million, or 36%, increase in its revenues in the nine months
ended September 30, 2008 compared to the same period in 2007, primarily
attributable to increased activities in our Asia Pacific and Middle East
regions. In addition, our Government Operations segment generated an $132.5
million, or 26%, increase in its revenues in the nine months ended September 30,
2008, as compared to the same period in 2007. Our Power Generation
Systems segment also experienced an increase in revenues of approximately $49.1
million, or 3%, in the nine months ended September 30, 2008, as compared to the
corresponding period in 2007.
Segment
operating income decreased $59.6 million to $469.2 million in the nine
months ended September 30, 2008 from $528.8 million for the corresponding period
in 2007. Our Offshore Oil and Gas Construction segment experienced a decrease in
segment operating income totaling $170.5 million in the nine months ended
September 30, 2008 compared to the comparable period in 2007 primarily
attributable to delays and associated cost increases related to projects
primarily in the Middle East region. The segment operating income of our
Government Operations and Power Generation Systems segments increased $19.1
million and $91.7 million, respectively, in the nine months ended September 30,
2008, as compared to the corresponding period in 2007. The segment
operating income of our Power Generation Systems segment in the nine months
ended September 30, 2007 included a high level of income related to settlements,
change orders and contract close-outs.
Offshore Oil and Gas
Construction
Revenues
increased 36%, or $620.5 million, to $2,332.9 million in the nine
months ended September 30, 2008 compared to $1,712.4 million in the
corresponding period in 2007, primarily due to increased marine installation
activities on engineer, procure, construct, and install projects in our Asia
Pacific region ($416.5 million) and increased fabrication and marine
installation activities in our Middle East region ($303.5
million). In addition, we experienced increased revenues related to
the additional vessels we acquired in July 2007 from Secunda International
Limited ($41.8 million) and increased revenues related to activity at our new
fabrication yard in Altamira, Mexico ($23.4 million). These increases
were partially offset by decreased activities in our Caspian region ($158.7
million). Revenues from other activities decreased by approximately
$6.0 million in the nine months ended September 30, 2008 compared to the
comparable period in 2007.
Segment
operating income decreased $170.5 million to $132.2 million in the nine
months ended September 30, 2008 from $302.7 million in the comparable
period in 2007. This decrease was primarily attributable to
recognition of approximately $90 million of contract losses in the nine months
ended September 30, 2008 on the expected costs to complete various projects,
primarily in the Middle East region. These losses are attributable to revised
cost estimates due to lower experienced and forecasted productivity, combined
with an increase in downtime on our marine vessels and third-party costs,
primarily on the Middle East pipeline installation projects. Because
of these project delays we expect to experience scheduling issues and increased
costs due to vessel mobilization in future periods. In addition, we realized
benefits from project close-outs, change orders and settlements totaling
approximately $38 million for the nine months ended September 30, 2008 compared
to approximately $86 million for the corresponding period in 2007. We
also experienced increased costs for fuel and labor in all areas and increased
charter costs for support vessels in our marine operations. General
and Administrative expenses increased $35 million for the nine months ended
September 30, 2008 compared to the comparable period in 2007 primarily
attributable to increased employee headcount necessary to support our operations
and higher stock based compensation. Also, hurricanes Ike and Gustav had a
negative impact on our operating results for the nine months ended September 30,
2008 totaling approximately $4.8 million attributable to reduced productivity
and miscellaneous repairs.
Gain
(loss) on asset disposals and impairments – net increased $1.1 million in the
nine months ended September 30, 2008 primarily attributable to the sale of
cranes at our fabrication yard in Batam, Indonesia.
Government
Operations
Revenues
increased approximately 26%, or $132.5 million, to $638.8 million in the nine
months ended September 30, 2008 compared to $506.3 million for the corresponding
period in 2007, primarily attributable to higher volumes in the manufacture of
nuclear components for certain U.S. Government programs ($65.8 million),
including increased contract procurement activities and additional volume from
Marine Mechanical Corporation, which we acquired in May
2007. Additionally, we experienced higher volumes in the manufacture
of commercial nuclear components ($60.4 million) and higher volumes in M&O
contracts. These increases were partially offset by decreased
activities for governmental components contracts ($8.9), lower contract man-hour
volumes in our commercial nuclear environmental services business and lower
revenues from our terminated fuel cell development project.
Segment
operating income increased $19.1 million to $87.5 million in the nine months
ended September 30, 2008 compared to $68.4 million for the corresponding period
in 2007, primarily attributable to higher volumes in the manufacture of nuclear
components for certain U.S. Government programs, including increased contract
procurement activities and additional volume from our acquisition of Marine
Mechanical Corporation. In addition, we experienced higher volumes related to
commercial nuclear components and a decrease in our pension plan
expense. These improvements were partially offset by the completion
in 2007 of a subcontract at a DOE site cleanup in Ohio and the end of an M&O
contract at a government site .We also experienced higher selling, general
and administrative expenses, primarily due to increased proposal
costs.
Equity in
income of investees increased $7.9 million to $27.5 million in the nine months
ended September 30, 2008, primarily due to increased profitability from our
joint ventures in Idaho, Tennessee and Louisiana.
Power Generation
Systems
Revenues
increased approximately 3%, or $49.1 million, to $1,945.3 million in the nine
months ended September 30, 2008 compared to $1,896.2 million for the
corresponding period in 2007, primarily attributable to increased revenues from
our fabrication, repair and retrofit of existing facilities ($74.6 million),
nuclear service business ($44.9 million), boiler auxiliary equipment ($20.1
million), industrial boilers ($15.3 million), replacement parts ($12.5 million),
and our replacement nuclear steam generator business ($5.4
million). These increases were partially offset by decreased revenues
from our utility steam and system fabrication business ($137.7 million) due to
approximately $243 million in revenues recognized for the five terminated TXU
units in 2007.
Segment
operating income increased $91.7 million to $249.5 million in the nine months
ended September 30, 2008 compared to $157.8 million for the corresponding period
in 2007, primarily attributable to improved margins in our utility steam and
system fabrication business, increased volume and margins in our fabrication,
repair and retrofit of existing facilities and replacement parts businesses,
increased volume in our nuclear service business, contract improvements and
lower pension plan expense. Partially offsetting these improvements were lower
volume in our
utility steam and system fabrication business, and lower margins in our
industrial boilers, boiler auxiliary equipment, and our operations and
maintenance businesses. In addition we experienced higher selling, general and
administrative expenses including higher stock-based compensation expenses in
2008. The 2007 results for our utility steam system fabrication and industrial
boiler projects business included particularly high levels of related
settlements, change orders and contract close-outs.
Gains
(losses) on asset disposals – net increased by $9.5 million for the nine months
ended September 30, 2008 primarily attributable to the sale of our facility in
Dumbarton, Scotland.
Equity in
income of investees decreased $2.8 million to $7.6 million for the nine months
ended September 30, 2008, primarily attributable to material cost increases at
our joint venture in China.
Corporate
Unallocated
corporate expenses increased approximately $3.9 million to $32.7 million in the
nine months ended September 30, 2008, as compared to $28.8 million for the
corresponding period in 2007, primarily attributable to increased stock-based
compensation expense, increased labor expenses attributable to higher headcount,
increased retirement expenses and higher expenses associated with our
development of a global human resources management system. These increases were
partially offset by improved results from our captive insurers.
Other Income Statement
Items
Interest
income decreased $15.9 million to $29.5 million in the nine months ended
September 30, 2008, primarily due to a decrease in average cash equivalents and
investments and prevailing interest rates.
Interest
expense decreased $12.7 million to $5.7 million in the nine months ended
September 30, 2008, primarily due to interest during the nine months ended
September 30, 2007 on the B&W PGG term loan that was retired in April 2007
and lower amortization and costs on our credit facilities.
Other
income (expense) – net improved by $5.6 million to income of $0.6 million in the
nine months ended September 30, 2008 from expense of $5.0 million for the
corresponding period in 2007, primarily due to currency exchange gains in the
current period compared to currency exchange losses in 2007 as well as gains on
the sale of securities in the current period.
Provision for Income
Taxes
We are
subject to U.S. federal income tax at a rate of 35% on our U.S. operations, plus
the applicable state income taxes on our profitable U.S.
subsidiaries. Our non-U.S. earnings are subject to tax at various tax
rates and different tax regimes, such as a deemed profits tax
regime. These variances, along with variances in our mix of income
from these jurisdictions, contribute to shifts in our effective tax
rate.
In the
nine months ended September 30, 2008, the provision for income taxes increased
$14.7 million to $118.2 million, and income before provision for income taxes
decreased $46.8 million to $504.5 million. Our effective tax rate for
the nine months ended September 30, 2008 was approximately 23.4%, as compared to
18.8% for the corresponding period in 2007. The increase in our
effective tax rate was primarily attributable to a higher mix of U.S. versus
non-U.S. income and an unfavorable mix within our non-U.S. operations, resulting
in a larger proportion of the total book income being taxed at higher rates in
the nine months ended September 30, 2008 compared to the same period in
2007. This increase was partially offset by certain tax assets and
benefits totaling approximately $55 million which we recognized in the nine
months ended September 30, 2008 associated primarily with the release of state
valuation allowances and as a result of audit activity.
Income
before provision for income taxes, provision for income taxes and effective tax
rates for our U.S. and non-U.S. jurisdictions are as shown below:
|
|
Income
before
Provision for
Income
Taxes
|
|
|
Provision
for
Income
Taxes
|
|
|
Effective
Tax Rate
|
|
|
|
For
the nine months ended September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(In
thousands)
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
$ |
281,105 |
|
|
$ |
183,503 |
|
|
$ |
59,369 |
|
|
$ |
67,504 |
|
|
|
21.12 |
% |
|
|
36.79 |
% |
Non-United
States
|
|
|
223,448 |
|
|
|
367,847 |
|
|
|
58,884 |
|
|
|
36,003 |
|
|
|
26.35 |
% |
|
|
9.79 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
504,553 |
|
|
$ |
551,350 |
|
|
$ |
118,253 |
|
|
$ |
103,507 |
|
|
|
23.44 |
% |
|
|
18.77 |
% |
Backlog
Backlog
is not a measure recognized by generally accepted accounting principles. It is
possible that our methodology for determining backlog may not be comparable to
methods used by other companies. We generally include expected revenue in our
backlog when we receive written confirmation from our customers. Backlog may not
be indicative of future results.
|
|
September
30,
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
|
|
(In
millions)
|
|
Offshore
Oil and Gas Construction
|
|
$ |
4,956 |
|
|
$ |
4,753 |
|
Government
Operations
|
|
|
1,642 |
|
|
|
1,791 |
|
Power
Generation Systems
|
|
|
2,834 |
|
|
|
3,276 |
|
|
|
|
|
|
|
|
|
|
Total
Backlog
|
|
$ |
9,432 |
|
|
$ |
9,820 |
|
Of the
September 30, 2008 backlog, we expect to recognize revenues as
follows:
|
|
|
Q4 2008 |
|
|
2009
|
|
|
Thereafter
|
|
|
|
(Unaudited)
|
|
|
|
(In
approximate millions)
|
|
Offshore
Oil and Gas Construction
|
|
$ |
850 |
|
|
$ |
2,500 |
|
|
$ |
1,600 |
|
Government
Operations
|
|
|
150 |
|
|
|
600 |
|
|
|
800 |
|
Power
Generation Systems
|
|
|
500 |
|
|
|
1,100 |
|
|
|
1,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Backlog
|
|
$ |
1,500 |
|
|
$ |
4,200 |
|
|
$ |
3,600 |
|
At
September 30, 2008 the Offshore Oil and Gas Construction backlog included
approximately $1.3 billion related to contracts in or near loss positions, which
are estimated to recognize future revenues with approximately one percent gross
margins on average. Typical of our business, our estimates of gross
profit may improve based on improved productivity, decreased downtime and the
successful settlement of change orders and claims with our
customers.
At
September 30, 2008, Government Operations' backlog with the U. S. Government was
$1.6 billion, which was substantially fully funded. Only $7.2 million had not
been funded as of September 30, 2008.
At
September 30, 2008, Power Generation Systems’ backlog with the U. S. Government
was $23.9 million, all of which was fully funded.
Liquidity and Capital
Resources
Offshore
Oil and Gas Construction
On June
6, 2006, one of our subsidiaries, J. Ray McDermott, S.A., entered into a senior
secured credit facility with a syndicate of lenders (the “JRMSA Credit
Facility”). The JRMSA Credit Facility now provides for borrowings and
issuances of letters of credit in an aggregate amount of up to $800 million and
matures on June 6, 2011. The
proceeds of the JRMSA Credit Facility are available for working capital needs
and other general corporate purposes of our Offshore Oil and Gas Construction
segment.
JRMSA’s
obligations under the JRMSA Credit Facility are unconditionally guaranteed by
substantially all of our wholly owned subsidiaries comprising our Offshore Oil
and Gas Construction segment and secured by liens on substantially all the
assets of those subsidiaries (other than cash, cash equivalents, equipment and
certain foreign assets), including their major marine vessels.
Other
than customary mandatory prepayments on certain contingent events, the JRMSA
Credit Facility requires only interest payments on a quarterly basis until
maturity. JRMSA is permitted to prepay amounts outstanding under the
JRMSA Credit Facility at any time without penalty.
The JRMSA
Credit Facility contains customary financial covenants relating to leverage and
interest coverage and includes covenants that restrict, among other things, debt
incurrence, liens, investments, acquisitions, asset dispositions, dividends,
prepayments of subordinated debt, mergers, transactions with affiliates and
capital expenditures. At September 30, 2008, JRMSA was in compliance
with all of the covenants set forth in the JRMSA Credit Facility.
At
September 30, 2008, there were no borrowings outstanding and letters of credit
issued under the JRMSA Credit Facility totaled $277.3 million. At September 30,
2008, there was $522.7 million available for borrowings or to meet letter of
credit requirements under the JRMSA Credit Facility. If there had
been borrowings under this facility, the applicable interest rate at September
30, 2008 would have been 5.43% per year. In addition, JRMSA and its
subsidiaries had $289.2 million in outstanding unsecured letters of credit under
separate arrangements with financial institutions at September 30,
2008.
In
December 2005, JRMSA, as guarantor, and its subsidiary, J. Ray McDermott Middle
East, Inc. (“JRM Middle East”), entered into a $105.2 million unsecured
performance guarantee issuance facility with a syndicate of commercial banking
institutions to provide credit support for bank guarantees issued in connection
with three major projects. On February 3, 2008, JRM Middle East entered into a
new $88.8 million unsecured performance guarantee issuance facility to replace
the $105.2 million facility, which it terminated on February 14,
2008. The outstanding amount under the new facility is included in
the $289.2 million of outstanding letters of credit referenced
above. This new facility continues to provide credit support for bank
guarantees for the duration of the three projects. On an annualized basis, the
average commission rate of the new facility is less than 1.5%, compared to less
than 4.5% for the former facility. JRMSA is also a guarantor of the
new facility.
Based on
the liquidity position of our Offshore Oil and Gas Construction segment, we
believe this segment has sufficient cash and letter of credit and borrowing
capacity to fund its operating requirements for at least the next 12
months.
Government
Operations
On
December 9, 2003, one of our subsidiaries, BWX Technologies, Inc. (“BWXT”),
entered into a senior unsecured credit facility with a syndicate of lenders (the
“BWXT Credit Facility”), which is currently scheduled to mature March 18,
2010. This facility provides for borrowings and issuances of letters
of credit in an aggregate amount of up to $135 million. The proceeds of the BWXT
Credit Facility are available for working capital needs and other general
corporate purposes of our Government Operations segment.
The BWXT
Credit Facility contains customary financial and nonfinancial covenants and
reporting requirements. The financial covenants require maintenance
of a maximum leverage ratio, a minimum fixed charge coverage ratio and a maximum
debt to capitalization ratio within our Government Operations
segment.
At
September 30, 2008, BWXT was in compliance with all of the covenants set forth
in the BWXT Credit Facility.
The BWXT
Credit Facility only requires interest payments on a quarterly basis until
maturity. Amounts outstanding under the BWXT Credit Facility may be
prepaid at any time without penalty.
At
September 30, 2008, there were no borrowings outstanding and letters of credit
issued under the BWXT Credit Facility totaled $42.7 million. At
September 30, 2008, there was $92.3 million available for borrowings or to meet
letter of credit requirements under the BWXT Credit Facility. If
there had been borrowings under this facility, the applicable interest rate at
September 30, 2008 would have been 5.18 % per year.
Based on the liquidity position of our Government Operations segment, we believe
this segment has sufficient cash and letter of credit and borrowing capacity to
fund its operating requirements for at least the next 12 months.
Power
Generation Systems
On
February 22, 2006, one of our subsidiaries, Babcock & Wilcox Power
Generation Group, Inc., entered into a senior secured credit facility with a
syndicate of lenders (the “B&W PGG Credit Facility”). This facility provides
for borrowings and issuances of letters of credit in an aggregate amount of up
to $400 million. The proceeds of the B&W PGG Credit Facility are
available for working capital needs and other similar corporate purposes of our
Power Generation Systems segment.
B&W
PGG’s obligations under the B&W PGG Credit Facility are unconditionally
guaranteed by all of our domestic subsidiaries included in our Power Generation
Systems segment and secured by liens on substantially all the assets of those
subsidiaries, excluding cash and cash equivalents.
The
B&W PGG Credit Facility only requires interest payments on a quarterly basis
until maturity. Amounts outstanding under the B&W PGG Credit
Facility may be prepaid at any time without penalty.
The
B&W PGG Credit Facility contains customary financial covenants, including
maintenance of a maximum leverage ratio and a minimum interest coverage ratio
within our Power Generation Systems segment and covenants that, among other
things, restrict the ability of this segment to incur debt, create liens, make
investments and acquisitions, sell assets, pay dividends, prepay subordinated
debt, merge with other entities, engage in transactions with affiliates and make
capital expenditures. At September 30, 2008, B&W PGG was in compliance with
all of the covenants set forth in the B&W PGG Credit Facility.
As of
September 30, 2008, there were no outstanding borrowings and letters of credit
issued under the B&W PGG Credit Facility totaled $199 million. At
September 30, 2008, there was $201 million available for borrowings or to meet
letter of credit requirements under the B&W PGG Credit
Facility. If there had been borrowings under this facility, the
applicable interest rate at September 30, 2008 would have been 4.93% per
year.
Based on
the liquidity position of our Power Generation Systems segment, we believe this
segment has sufficient cash and letter of credit and borrowing capacity to fund
its operating requirements for at least the next 12 months.
Other
In
aggregate, our cash and cash equivalents, restricted cash and cash equivalents
and investments decreased by approximately $320.6 million
to $1,207.7
million at September 30, 2008 from $1,528.3 million at December 31, 2007,
primarily due to (1) cash used in operations, resulting from net contracts in
progress and advance billings and pension liabilities and (2) purchases of
property, plant and equipment.
Our
working capital, excluding cash and cash equivalents and restricted cash and
cash equivalents, increased by approximately $389.7 million to a negative $615.5
million at September 30, 2008 from a negative $1,005.2 million at
December 31, 2007, primarily due to the increase in the net amount of
contracts in progress and advance billings.
Our net
cash used in operations was approximately $107.1 million in the nine months
ended September 30, 2008, compared to net cash provided by operations of
approximately $959.3 million in corresponding period of 2007. This decrease was
primarily attributable to changes in net contracts in progress and advance
billings and a federal tax refund in April 2007 of $274 million reflected in the
change in income taxes receivable.
Our net
cash used in investing activities decreased by approximately $323.7 million to
approximately $287.8 million in the nine months ended September 30,
2008 from approximately $611.5 million in the corresponding period for 2007.
This decrease in net cash used in investing activities was primarily
attributable to a greater use of cash in 2007 relating to
acquisitions.
Our net
cash provided by (used in) financing activities changed by approximately $230.3
million to net cash provided by financing activities of $11.1 million in the
nine months ended September 30, 2008 from net cash used in financing
activities of $219.2 million in the corresponding period of 2007, primarily due
to the repayment of $250 million in borrowings under the B&W PGG Credit
Facility in April 2007.
At
September 30, 2008, we had restricted cash and cash equivalents totaling $68.5
million, $67.2 of which is held in restricted foreign accounts. and $1.3 million
is required to meet reinsurance reserve requirements of our captive insurance
companies.
At
September 30, 2008, we had investments with a fair value of $524.9
million. Our investment portfolio consists primarily of investments
in government obligations and other highly liquid money market
instruments. As of September 30, 2008, we had pledged approximately
$30.6 million fair value of these investments in connection with certain
reinsurance agreements.
Our
investments are classified as available for sale and are carried at fair value
with unrealized gains and losses, net of tax, reported as a component of other
comprehensive loss. Our net unrealized gain (loss) on investments is currently
in an unrealized loss position totaling approximately $8.1 million at September
30, 2008. At December 31, 2007 we had unrealized gains on our investments
totaling approximately $1.0 million. The major components of our investments in
an unrealized loss position are corporate bonds, asset-backed obligations, and
commercial paper. Based on our analysis of these investments, we believe that
none of our available for sale securities are permanently impaired at September
30, 2008.
See Note
1 to our unaudited condensed consolidated financial statements included in this
report for information on new accounting standards.
Our
exposures to market risks have not changed materially from those disclosed in
Item 7A included in Part II of our annual report on Form 10-K for the year ended
December 31, 2007.
As of the
end of the period covered by this quarterly report, we carried out an
evaluation, under the supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) adopted by
the SEC under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”)). Our disclosure controls and procedures were developed through a process
in which our management applied its judgment in assessing the costs and benefits
of such controls and procedures, which, by their nature, can provide only
reasonable assurance regarding the control objectives. You should note that the
design of any system of disclosure controls and procedures is based in part upon
various assumptions about the likelihood of future events, and we cannot assure
you that any design will succeed in achieving its stated goals under all
potential future conditions, regardless of how remote. Based on the evaluation
referred to above, our Chief Executive Officer and the Chief Financial Officer
concluded that the design and operation of our disclosure controls and
procedures are effective as of September 30, 2008 to provide reasonable
assurance that information required to be disclosed by us in the reports that we
file or submit under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the rules and forms of the
Securities and Exchange Commission, and such information is
accumulated and communicated to management as appropriate to allow timely
decisions +regarding disclosure. There has been no change in our
internal control over financial reporting during the quarter ended September 30,
2008 that has materially affected, or is reasonably likely to materially affect,
our internal control over financial reporting.
OTHER
INFORMATION
For
information regarding ongoing investigations and litigation, see Note 3 to our
unaudited condensed consolidated financial statements in Part I of this report,
which we incorporate by reference into this Item.
The
volatility and uncertainty of the credit markets may negatively impact
us
We intend
to finance our existing operations and initiatives with cash and cash
equivalents, investments, cash flows from operations, and potential borrowings
on our credit facilities. If adverse national and international economic
conditions continue or deteriorate further, it is possible that we may not be
able to fully draw upon our existing credit facilities and we may not be able to
obtain financing at favorable terms. In addition, while we believe our current
liquidity is adequate, continued deterioration in the credit markets could
adversely affect the ability of our non-U.S. Government customers to pay us on
time and the ability of our suppliers to meet our needs on a competitive
basis.
(a) On
November 3, 2008, the Compensation Committee of our Board of Directors approved
an amended form of Change-In-Control agreement for use with the following
officers: John A. Fees, Michael S. Taff, Brandon C. Bethards, Robert A.
Deason, Liane K. Hinrichs, Preston Johnson, Jr., and John T. Nesser
III. Under these agreements generally, we would pay the officer a
cash severance payment of two times the officer's annual base salary and bonus,
a prorated bonus payment and, if applicable, a tax gross-up payment, if the
officer is terminated for specified reasons within one year following
a change in control. The form of agreement was amended to
(1) provide an additional payment of two times the annual cost of medical,
dental and vision benefits and (2) conform the definition of “change in
control” within the agreement to the definition used in our 2001 Directors
and Officers Long-Term Incentive Plan. Additionally, the Compensation
Committee amended the form agreement for Mr. Fees to provide for a cash
severance payment of 2.99 times the officer's salary and bonus, in addition
to the other payments.
On
November 4, 2008, our Board of Directors reviewed the annual base salary of our
Chief Executive Officer, John A. Fees, and approved an increase in his salary,
effective January 1, 2009, from $750,000 to $900,000. Finally, on the
same date, our Board of Directors approved an amended and restated Supplemental
Executive Retirement Plan (the “SERP”) that was amended to (1) comply with the
requirements of Section 409(A) of the Internal Revenue Code of 1986, as amended,
and (2) conform the definition of “change in control” within the plan to the
definition used in our 2001 Directors and Officers Long-Term Incentive
Plan.
Exhibit
3.1 -
McDermott International, Inc.'s Amended and Restated Articles of
Incorporation.
Exhibit
3.2* - McDermott International, Inc.’s Amended and Restated By-Laws
(incorporated by reference to Exhibit 3.1 to McDermott International, Inc.'s
Current Report on Form 8-K dated May 3, 2006 (File No. 1-08430)).
Exhibit
3.3* -
Amended and Restated Certificate of Designation of Series D Participating
Preferred Stock (incorporated by reference to Exhibit 3.1 to McDermott
International, Inc.’s Quarterly Report on Form 10-Q for the quarter ended
September 30, 2001 (File No. 1-08430)).
Exhibit 10.1*
- Separation Agreement dated as of September 30, 2008 by and between McDermott
Incorporated and Bruce W. Wilkinson (incorporated by reference to Exhibit 10.1
to McDermott International, Inc.’s Current Report on Form 8-K dated September
30, 2008 (File No. 1-08430)).
Exhibit
10.2* - Consultancy Agreement dated as of October 1, 2008 by and between
McDermott Incorporated and Bruce W. Wilkinson (incorporated by reference to
Exhibit 10.2 to McDermott International, Inc.’s Current Report on Form 8-K dated
September 30, 2008 (File No. 1-08430)).
Exhibit
10.3 – Form of Change-In-Control Agreement to be entered into between McDermott
International, Inc. and John A. Fees.
Exhibit
10.4 – Form of Change-In-Control Agreement to be entered into between McDermott
International, Inc. and several of its executive officers.
Exhibit
10.5 – McDermott International, Inc. Amended and Restated Supplemental Executive
Retirement Plan.
Exhibit
31.1 - Rule 13a-14(a)/15d-14(a) certification of Chief Executive
Officer.
Exhibit
31.2 - Rule 13a-14(a)/15d-14(a) certification of Chief Financial
Officer.
Exhibit
32.1 - Section 1350 certification of Chief Executive Officer.
Exhibit
32.2 - Section 1350 certification of Chief Financial Officer.
|
*Incorporated
by reference to the filing
indicated.
|