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 March 31, 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 April 30, 2008
was 226,465,342.
M c D E R M O T T I N T E R N A T I O N A L
, I N C.
I N D E
X - F O R M 1 0 - Q
PART I
McDERMOTT
INTERNATIONAL, INC.
FINANCIAL
INFORMATION
Item 1. Condensed Consolidated Financial
Statements
McDERMOTT INTERNATIONAL, INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
ASSETS
|
|
March
31,
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
800,600
|
|
|
$
|
1,001,394
|
|
Restricted
cash and cash equivalents (Note 1)
|
|
|
79,347
|
|
|
|
64,786
|
|
Investments
|
|
|
348,186
|
|
|
|
300,092
|
|
Accounts
receivable – trade, net
|
|
|
817,577
|
|
|
|
770,024
|
|
Accounts
and notes receivable – unconsolidated affiliates
|
|
|
3,328
|
|
|
|
2,303
|
|
Accounts
receivable – other
|
|
|
100,078
|
|
|
|
71,162
|
|
Contracts
in progress
|
|
|
212,917
|
|
|
|
194,292
|
|
Inventories
(Note 1)
|
|
|
108,098
|
|
|
|
95,208
|
|
Deferred
income taxes
|
|
|
143,123
|
|
|
|
160,783
|
|
Other
current assets
|
|
|
109,079
|
|
|
|
97,456
|
|
|
|
|
|
|
|
|
|
|
Total
Current Assets
|
|
|
2,722,333
|
|
|
|
2,757,500
|
|
|
|
|
|
|
|
|
|
|
Property,
Plant and Equipment
|
|
|
2,031,973
|
|
|
|
2,004,138
|
|
Less
accumulated depreciation
|
|
|
1,101,097
|
|
|
|
1,090,400
|
|
|
|
|
|
|
|
|
|
|
Net
Property, Plant and Equipment
|
|
|
930,876
|
|
|
|
913,738
|
|
|
|
|
|
|
|
|
|
|
Investments
|
|
|
200,807
|
|
|
|
162,069
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
165,212
|
|
|
|
158,533
|
|
|
|
|
|
|
|
|
|
|
Deferred
Income Taxes
|
|
|
132,014
|
|
|
|
134,292
|
|
|
|
|
|
|
|
|
|
|
Investments
in Unconsolidated Affiliates
|
|
|
69,238
|
|
|
|
62,241
|
|
|
|
|
|
|
|
|
|
|
Other
Assets
|
|
|
231,585
|
|
|
|
223,113
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
$
|
4,452,065
|
|
|
$
|
4,411,486
|
|
See
accompanying notes to condensed consolidated financial
statements.
McDERMOTT
INTERNATIONAL, INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
March
31,
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
Notes
payable and current maturities of long-term debt
|
|
$
|
6,771
|
|
|
$
|
6,599
|
|
Accounts
payable
|
|
|
453,757
|
|
|
|
455,659
|
|
Accrued
employee benefits
|
|
|
264,503
|
|
|
|
343,812
|
|
Accrued
liabilities – other
|
|
|
223,375
|
|
|
|
175,557
|
|
Accrued
contract cost
|
|
|
117,534
|
|
|
|
93,281
|
|
Advance
billings on contracts
|
|
|
1,379,739
|
|
|
|
1,463,223
|
|
Accrued
warranty expense
|
|
|
105,726
|
|
|
|
101,330
|
|
Income
taxes payable
|
|
|
53,267
|
|
|
|
57,071
|
|
|
|
|
|
|
|
|
|
|
Total
Current Liabilities
|
|
|
2,604,672
|
|
|
|
2,696,532
|
|
|
|
|
|
|
|
|
|
|
Long-Term
Debt
|
|
|
6,368
|
|
|
|
10,609
|
|
|
|
|
|
|
|
|
|
|
Accumulated
Postretirement Benefit Obligation
|
|
|
93,791
|
|
|
|
96,253
|
|
|
|
|
|
|
|
|
|
|
Self-Insurance
|
|
|
86,083
|
|
|
|
82,525
|
|
|
|
|
|
|
|
|
|
|
Pension
Liability
|
|
|
166,503
|
|
|
|
188,748
|
|
|
|
|
|
|
|
|
|
|
Other
Liabilities
|
|
|
171,672
|
|
|
|
169,814
|
|
|
|
|
|
|
|
|
|
|
Commitments
and Contingencies (Note 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
Equity:
|
|
|
|
|
|
|
|
|
Common
stock, par value $1.00 per share, authorized 400,000,000 shares; issued
232,566,598 and 231,722,659 at March 31, 2008 and
December
31, 2007, respectively
|
|
|
232,567
|
|
|
|
231,723
|
|
Capital
in excess of par value
|
|
|
1,167,370
|
|
|
|
1,145,829
|
|
Retained
earnings
|
|
|
258,479
|
|
|
|
135,289
|
|
Treasury
stock at cost, 5,823,698 and 5,852,248 at March 31, 2008 and December 31,
2007, respectively
|
|
|
(63,806
|
)
|
|
|
(63,903
|
)
|
Accumulated
other comprehensive loss
|
|
|
(271,634
|
)
|
|
|
(281,933
|
)
|
|
|
|
|
|
|
|
|
|
Total
Stockholders’ Equity
|
|
|
1,322,976
|
|
|
|
1,167,005
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
$
|
4,452,065
|
|
|
$
|
4,411,486
|
|
See
accompanying notes to condensed consolidated financial
statements.
McDERMOTT INTERNATIONAL, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
|
|
(In
thousands, except shares and per share amounts)
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
1,450,426
|
|
|
$
|
1,363,430
|
|
Costs
and Expenses:
|
|
|
|
|
|
|
|
|
Cost
of operations
|
|
|
1,188,696
|
|
|
|
1,082,066
|
|
Gains
on asset disposals and impairments – net
|
|
|
(11,443
|
)
|
|
|
(1,635
|
)
|
Selling,
general and administrative expenses
|
|
|
126,731
|
|
|
|
97,762
|
|
Total
Costs and Expenses
|
|
|
1,303,984
|
|
|
|
1,178,193
|
|
|
|
|
|
|
|
|
|
|
Equity
in Income of Investees
|
|
|
10,670
|
|
|
|
7,241
|
|
|
|
|
|
|
|
|
|
|
Operating
Income
|
|
|
157,112
|
|
|
|
192,478
|
|
|
|
|
|
|
|
|
|
|
Other
Income (Expense):
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
13,395
|
|
|
|
12,318
|
|
Interest
expense
|
|
|
(2,940
|
)
|
|
|
(9,589
|
)
|
Other
expense – net
|
|
|
(3,997
|
)
|
|
|
(3,870
|
)
|
Total
Other Income (Expense)
|
|
|
6,458
|
|
|
|
(1,141
|
)
|
|
|
|
|
|
|
|
|
|
Income
before Provision for Income Taxes
|
|
|
163,570
|
|
|
|
191,337
|
|
|
|
|
|
|
|
|
|
|
Provision
for Income Taxes
|
|
|
40,380
|
|
|
|
33,276
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
$
|
123,190
|
|
|
$
|
158,061
|
|
|
|
|
|
|
|
|
|
|
Earnings
per Share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.55
|
|
|
$
|
0.71
|
|
Diluted
|
|
$
|
0.54
|
|
|
$
|
0.69
|
|
|
|
|
|
|
|
|
|
|
Shares
used in the computation of earnings per share (Note 6):
|
|
|
|
|
|
|
|
|
Basic
|
|
|
225,632,169
|
|
|
|
221,589,626
|
|
Diluted
|
|
|
230,112,858
|
|
|
|
228,438,412
|
|
See
accompanying notes to condensed consolidated financial
statements.
McDERMOTT INTERNATIONAL, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
Net
Income
|
|
$
|
123,190
|
|
|
$
|
158,061
|
|
|
|
|
|
|
|
|
|
|
Other
Comprehensive Income:
|
|
|
|
|
|
|
|
|
Currency
translation adjustments:
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustments
|
|
|
3,380
|
|
|
|
1,120
|
|
Unrealized
gains on derivative financial instruments:
|
|
|
|
|
|
|
|
|
Unrealized
gains on derivative financial instruments
|
|
|
4,548
|
|
|
|
2,141
|
|
Reclassification
adjustment for (gains) losses included in net income
|
|
|
72
|
|
|
|
(1,169
|
)
|
Amortization
of benefit plan costs
|
|
|
6,539
|
|
|
|
7,651
|
|
Unrealized
gains (losses) on investments:
|
|
|
|
|
|
|
|
|
Unrealized
gains (losses) arising during the period
|
|
|
(2,910
|
)
|
|
|
211
|
|
Reclassification
adjustment for net (gains) losses included in net income
|
|
|
(1,330
|
)
|
|
|
66
|
|
|
|
|
|
|
|
|
|
|
Other
Comprehensive Income
|
|
|
10,299
|
|
|
|
10,020
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
Income
|
|
$
|
133,489
|
|
|
$
|
168,081
|
|
See
accompanying notes to condensed consolidated financial
statements.
McDERMOTT INTERNATIONAL, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
|
|
(In
thousands)
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
Net
Income
|
|
$
|
123,190
|
|
|
$
|
158,061
|
|
Non-cash
items included in net income:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
31,311
|
|
|
|
16,538
|
|
Income
of investees, less dividends
|
|
|
(3,057
|
)
|
|
|
(319
|
)
|
Gains
on asset disposals and impairments – net
|
|
|
(11,443
|
)
|
|
|
(1,635
|
)
|
Provision
for deferred taxes
|
|
|
16,063
|
|
|
|
28,880
|
|
Amortization
of pension and postretirement costs
|
|
|
10,137
|
|
|
|
11,863
|
|
Excess
tax benefits from FAS 123(R) stock-based compensation
|
|
|
(5,346
|
)
|
|
|
(6,784
|
)
|
Other,
net
|
|
|
10,727
|
|
|
|
6,164
|
|
Changes
in assets and liabilities, net of effects of acquisitions and
divestitures:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(75,109
|
)
|
|
|
(139,263
|
)
|
Net
contracts in progress and advance billings on contracts
|
|
|
(103,241
|
)
|
|
|
125,833
|
|
Accounts
payable
|
|
|
7,754
|
|
|
|
(15,937
|
)
|
Income
taxes
|
|
|
2,150
|
|
|
|
(26,807
|
)
|
Accrued
and other current liabilities
|
|
|
77,316
|
|
|
|
10,376
|
|
Pension
liability, accumulated postretirement benefit obligation and accrued
employee benefits
|
|
|
(104,121
|
)
|
|
|
(70,346
|
)
|
Other,
net
|
|
|
(29,258
|
)
|
|
|
(22,040
|
)
|
NET
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
|
|
|
(52,927
|
)
|
|
|
74,584
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Increase
in restricted cash and cash equivalents
|
|
|
(14,561
|
)
|
|
|
(7,886
|
)
|
Purchases
of property, plant and equipment
|
|
|
(59,286
|
)
|
|
|
(45,504
|
)
|
Net
(increase) decrease in available-for-sale securities
|
|
|
(88,633
|
)
|
|
|
55,864
|
|
Proceeds
from asset disposals
|
|
|
11,921
|
|
|
|
2,203
|
|
Other,
net
|
|
|
(820
|
)
|
|
|
167
|
|
NET
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
|
|
|
(151,379
|
)
|
|
|
4,844
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Payment
of long-term debt
|
|
|
(4,385
|
)
|
|
|
(5,375
|
)
|
Issuance
of common stock
|
|
|
2,845
|
|
|
|
2,471
|
|
Payment
of debt issuance costs
|
|
|
(164
|
)
|
|
|
-
|
|
Excess
tax benefits from FAS 123(R) stock-based compensation
|
|
|
5,346
|
|
|
|
6,784
|
|
NET
CASH PROVIDED BY FINANCING ACTIVITIES
|
|
|
3,642
|
|
|
|
3,880
|
|
EFFECTS
OF EXCHANGE RATE CHANGES ON CASH
|
|
|
(130
|
)
|
|
|
903
|
|
NET
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
(200,794
|
)
|
|
|
84,211
|
|
CASH
AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
|
|
|
1,001,394
|
|
|
|
600,843
|
|
CASH
AND CASH EQUIVALENTS AT END OF PERIOD
|
|
$
|
800,600
|
|
|
$
|
685,054
|
|
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
Cash
paid during the period for:
|
|
|
|
|
|
|
|
|
Interest
(net of amount capitalized)
|
|
$
|
3,139
|
|
|
$
|
11,594
|
|
Income
taxes (net of refunds)
|
|
$
|
30,058
|
|
|
$
|
21,487
|
|
See
accompanying notes to condensed consolidated financial
statements.
McDERMOTT INTERNATIONAL, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 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 March 31, 2008 and for the
three months ended March 31, 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.
During
2007, we renamed, and in some cases restructured, many of the principal
operating companies within our Government Operations and Power Generation
Systems segments. One of the renamed companies, Babcock & Wilcox
Power Generation Group, Inc. (“B&W PGG”), was previously named The Babcock
& Wilcox Company. See the segment description below for the new
names of the other principal operating companies. In addition, we
changed the name of the parent company of our Government Operations and Power
Generation Systems subsidiaries to The Babcock & Wilcox
Company. As a result, The Babcock & Wilcox Company now refers to
the parent company of our subsidiaries comprising substantially all of our
Government Operations and Power Generation Systems segments.
Our
business segments are outlined 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 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 supplies 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 B&W PGG,
Babcock & Wilcox Nuclear Power Generation Group, Inc. and their
respective subsidiaries. This segment supplies fossil-fired
steam generating systems, replacement 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 months ended March 31, 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:
|
|
March
31,
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
(In
thousands)
|
|
Currency
Translation Adjustments
|
|
$
|
28,708
|
|
|
$
|
25,328
|
|
Net
Unrealized Gain (Loss) on Investments
|
|
|
(3,256
|
)
|
|
|
984
|
|
Net
Unrealized Gain on Derivative Financial Instruments
|
|
|
25,496
|
|
|
|
20,876
|
|
Unrecognized
Losses on Benefit Obligations
|
|
|
(322,582
|
)
|
|
|
(329,121
|
)
|
Accumulated
Other Comprehensive Loss
|
|
$
|
(271,634
|
)
|
|
$
|
(281,933
|
)
|
Inventories
Inventories
are summarized below:
|
|
March
31,
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
(In
thousands)
|
|
Raw
Materials and Supplies
|
|
$
|
67,087
|
|
|
$
|
65,857
|
|
Work
in Progress
|
|
|
11,224
|
|
|
|
10,757
|
|
Finished
Goods
|
|
|
29,787
|
|
|
|
18,594
|
|
Total
Inventories
|
|
$
|
108,098
|
|
|
$
|
95,208
|
|
Restricted
Cash and Cash Equivalents
At March
31, 2008, we had restricted cash and cash equivalents totaling $79.3 million, of
which $1.5 million is required to meet reinsurance reserve requirements of our
captive insurance companies and $77.8 million is held in restricted foreign
accounts.
Recently
Adopted Accounting Standards
In
September 2006, the Financial Accounting Standards Board (“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
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
|
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
|
March
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
|
|
(In
thousands)
|
|
Service
cost
|
|
$
|
9,783
|
|
|
$
|
9,997
|
|
|
$
|
83
|
|
|
$
|
55
|
|
Interest
cost
|
|
|
38,855
|
|
|
|
36,390
|
|
|
|
1,413
|
|
|
|
1,855
|
|
Expected
return on plan assets
|
|
|
(45,833
|
)
|
|
|
(42,638
|
)
|
|
|
-
|
|
|
|
-
|
|
Amortization
of prior service cost
|
|
|
769
|
|
|
|
822
|
|
|
|
19
|
|
|
|
16
|
|
Amortization
of transition obligation
|
|
|
-
|
|
|
|
-
|
|
|
|
74
|
|
|
|
63
|
|
Recognized
net actuarial loss
|
|
|
8,911
|
|
|
|
10,533
|
|
|
|
364
|
|
|
|
429
|
|
Net
periodic benefit cost
|
|
$
|
12,485
|
|
|
$
|
15,104
|
|
|
$
|
1,953
|
|
|
$
|
2,418
|
|
NOTE
3 – COMMITMENTS AND CONTINGENCIES
Other
than as noted below, there have been no material changes 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
On
June 7, 1994, Donald F. Hall, Mary Ann Hall and others filed suit against
B&W PGG, Babcock & Wilcox Technical Services Group, Inc., formerly known
as B&W Nuclear Environmental Services, Inc., and Atlantic Richfield Company
(“ARCO”) in the United States District Court for the Western District of
Pennsylvania (the “Pennsylvania District Court”). The suit, which has been
amended from time to time, presently involves approximately 500 separate claims
for compensatory and punitive damages relating to the operation of two
nuclear
fuel
processing facilities located in Apollo and Parks Township, Pennsylvania (the
“Hall Litigation”), previously owned by Nuclear Materials and Equipment Company
(“Numec”). The plaintiffs in the Hall Litigation allege, among other things,
that they suffered death, personal injury, property damage and other damages as
a result of alleged radioactive and non-radioactive emissions from these
facilities.
At the
time of ARCO’s sale of Numec (a subsidiary of ARCO) 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. We believe that this indemnity should protect B&W PGG
from claims caused by or arising from the actions of Numec or ARCO prior to
B&W PGG’s acquisition of Numec.
In
December 2007, B&W PGG filed an action for breach of contract against ARCO
in the Court of Common Pleas Allegheny County, Pennsylvania. In
addition to its claim for breach of contract, B&W PGG seeks 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. ARCO removed the declaratory judgment action to federal
court and the case was assigned to the same judge handling the Hall
Litigation. B&W PGG filed a motion to remand to state court,
which was denied, and the matter is presently under the jurisdiction of the
federal court.
In
February 2008, the plaintiffs and ARCO reached an agreement to settle ARCO’s
exposure in the Hall Litigation and have asked the Pennsylvania District Court
to approve the settlement. On February 19, 2008, B&W PGG filed
objections to the settlement with the Court. The Court approved the
settlement in March 2008.
We
believe these claims will be resolved within the limits of coverage of our
insurance policies and/or the ARCO indemnity. However, should any judgment on
these claims prove excessive, or additional future claims be asserted, there may
be an issue as to whether our insurance coverage is adequate, and we may be
materially and adversely impacted if our liabilities exceed our coverage, the
benefits of the ARCO indemnity and the amount we have reserved for these
claims.
For
further information regarding the Hall Litigation, 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.
Other
Litigation and Settlements
In the
matter of
Iroquois Falls Power
Corp. v. Jacobs Canada Inc., et al.
, the Court of Appeals for Ontario, in
April 2008, upheld in part and reversed in part the summary judgment previously
granted in favor of the defendants, and the matter will proceed in the Superior
Court of Justice in Ontario. Filed in 2005, Iroquois Falls Power
Corp. seeks damages of approximately $14 million (Canadian) as a result of an
alleged breach by one of our former subsidiaries in connection with the supply
and installation of heat recovery steam generators. McDermott, Inc.,
which provided a guarantee of certain obligations of that former subsidiary, and
two bonding companies, with whom MII entered into an indemnity arrangement, are
also named as defendants. For further information regarding this
litigation, 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.
Other
One of
our Canadian subsidiaries has received notice of a possible warranty claim on
one of its projects on a contract executed in 1998. This situation relates to
technical issues concerning components associated with nuclear steam
generators
.
Data
collection and analysis can only be performed at specific time periods when the
power plant is scheduled to be off-line for maintenance. A scheduled outage of
this facility occurred in April 2008. We are presently collecting and
analyzing data based on this most recent outage. However, the
ultimate resolution of this possible claim is uncertain, and an adverse outcome
could have a material adverse impact on our consolidated financial position,
results of operations and cash flows.
We have
been advised by the IRS of potential proposed unfavorable tax adjustments
related to the 2001 through 2003 tax years. We have reviewed the IRS positions
and disagree with certain proposed adjustments. Accordingly, we have
filed a protest with the IRS regarding the resolution of these issues. We have
provided for amounts that we believe will be ultimately payable under the
proposed adjustments; however, these proposed IRS adjustments, should they be
sustained, would result in a tax liability of approximately $15 million in
excess of amounts provided for in our condensed consolidated financial
statements.
For a
detailed description of these and other pending 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
litigation proceedings, disputes and claims are expected to have a material
adverse effect on our consolidated financial position, results of operations or
cash flows.
NOTE
4 – STOCK-BASED COMPENSATION
Total
stock-based compensation expense recognized for the three months ended March 31,
2008 and 2007 was as follows:
|
|
Compensation
|
|
|
Tax
|
|
|
Net
|
|
|
|
Expense
|
|
|
Benefit
|
|
|
Impact
|
|
|
|
(Unaudited)
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended March 31, 2008
|
|
Stock
Options
|
|
$
|
521
|
|
|
$
|
(160
|
)
|
|
$
|
361
|
|
Restricted
Stock
|
|
|
340
|
|
|
|
(93
|
)
|
|
|
247
|
|
Performance
Shares
|
|
|
9,755
|
|
|
|
(3,143
|
)
|
|
|
6,612
|
|
Performance
and Deferred Stock Units
|
|
|
1,349
|
|
|
|
(444
|
)
|
|
|
905
|
|
Total
|
|
$
|
11,965
|
|
|
$
|
(3,840
|
)
|
|
$
|
8,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended March 31, 2007
|
|
Stock
Options
|
|
$
|
911
|
|
|
$
|
(274
|
)
|
|
$
|
637
|
|
Restricted
Stock
|
|
|
86
|
|
|
|
(21
|
)
|
|
|
65
|
|
Performance
Shares
|
|
|
2,997
|
|
|
|
(957
|
)
|
|
|
2,040
|
|
Performance
and Deferred Stock Units
|
|
|
649
|
|
|
|
(217
|
)
|
|
|
432
|
|
Total
|
|
$
|
4,643
|
|
|
$
|
(1,469
|
)
|
|
$
|
3,174
|
|
NOTE
5 – SEGMENT REPORTING
An
analysis of our operations by segment is as follows:
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
REVENUES:
|
|
|
|
|
|
|
Offshore
Oil and Gas Construction
|
|
$
|
645,949
|
|
|
$
|
550,269
|
|
Government
Operations
|
|
|
190,594
|
|
|
|
161,399
|
|
Power
Generation Systems
|
|
|
616,298
|
|
|
|
655,414
|
|
Adjustments
and Eliminations
(1)
|
|
|
(2,415
|
)
|
|
|
(3,652
|
)
|
|
|
$
|
1,450,426
|
|
|
$
|
1,363,430
|
|
|
|
|
|
|
|
|
|
|
(1)
Segment
revenues are net of the following intersegment transfers and other
adjustments:
|
|
Offshore
Oil and Gas Construction Transfers
|
|
$
|
2,243
|
|
|
$
|
3,497
|
|
Government
Operations Transfers
|
|
|
170
|
|
|
|
140
|
|
Power
Generation Systems Transfers
|
|
|
2
|
|
|
|
15
|
|
|
|
$
|
2,415
|
|
|
$
|
3,652
|
|
|
|
|
|
|
|
|
|
|
OPERATING
INCOME:
|
|
|
|
|
|
|
|
|
Segment Operating
Income
:
|
|
|
|
|
|
|
|
|
Offshore
Oil and Gas Construction
|
|
$
|
51,883
|
|
|
$
|
122,015
|
|
Government
Operations
|
|
|
29,201
|
|
|
|
26,665
|
|
Power
Generation Systems
|
|
|
63,936
|
|
|
|
41,866
|
|
|
|
$
|
145,020
|
|
|
$
|
190,546
|
|
|
|
|
|
|
|
|
|
|
Gains on Asset
Disposals and Impairments – Net:
|
|
|
|
|
|
|
|
|
Offshore
Oil and Gas Construction
|
|
$
|
1,796
|
|
|
$
|
1
|
|
Government
Operations
|
|
|
-
|
|
|
|
1,617
|
|
Power
Generation Systems
|
|
|
9,647
|
|
|
|
17
|
|
|
|
$
|
11,443
|
|
|
$
|
1,635
|
|
|
|
|
|
|
|
|
|
|
Equity in Income
(Loss) of Investees
:
|
|
|
|
|
|
|
|
|
Offshore
Oil and Gas Construction
|
|
$
|
(754
|
)
|
|
$
|
(813
|
)
|
Government
Operations
|
|
|
8,749
|
|
|
|
6,473
|
|
Power
Generation Systems
|
|
|
2,675
|
|
|
|
1,581
|
|
|
|
$
|
10,670
|
|
|
$
|
7,241
|
|
|
|
|
|
|
|
|
|
|
Segment
Income
:
|
|
|
|
|
|
|
|
|
Offshore
Oil and Gas Construction
|
|
$
|
52,925
|
|
|
$
|
121,203
|
|
Government
Operations
|
|
|
37,950
|
|
|
|
34,755
|
|
Power
Generation Systems
|
|
|
76,258
|
|
|
|
43,464
|
|
|
|
|
167,133
|
|
|
|
199,422
|
|
Corporate
|
|
|
(10,021
|
)
|
|
|
(6,944
|
)
|
Total
Operating Income
|
|
$
|
157,112
|
|
|
$
|
192,478
|
|
NOTE
6 – EARNINGS PER SHARE
The
following table sets forth the computation of basic and diluted earnings per
share, as adjusted for the stock split effected in the form of a stock dividend
completed on September 10, 2007:
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
|
|
(In
thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income for basic computation
|
|
$
|
123,190
|
|
|
$
|
158,061
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares
|
|
|
225,632,169
|
|
|
|
221,589,626
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per common share
|
|
$
|
0.55
|
|
|
$
|
0.71
|
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income for diluted computation
|
|
$
|
123,190
|
|
|
$
|
158,061
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares (basic)
|
|
|
225,632,169
|
|
|
|
221,589,626
|
|
Effect
of dilutive securities:
|
|
|
|
|
|
|
|
|
Stock
options, restricted stock and performance shares
|
|
|
4,480,689
|
|
|
|
6,848,786
|
|
Adjusted
weighted average common shares and assumed exercises of stock options and
vesting of stock awards
|
|
|
230,112,858
|
|
|
|
228,438,412
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per common share
|
|
$
|
0.54
|
|
|
$
|
0.69
|
|
Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations
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;
|
·
|
the
ability of our suppliers to deliver raw materials in sufficient quantities
and in a timely manner;
|
·
|
our
future financial performance, including compliance 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;
|
·
|
changes
in, or our failure or inability to comply with, government regulations and
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;
|
·
|
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;
|
·
|
the
effects of asserted and unasserted
claims;
|
·
|
our
ability to obtain surety bonds and letters of
credit;
|
·
|
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 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 important factors that could affect
us. Unpredictable or unknown 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 important 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 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
March 31, 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. 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.
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 three months ended March 31, 2008, except as disclosed in the notes to
condensed consolidated financial statements included in this
report.
RESULTS
OF OPERATIONS – THREE MONTHS ENDED MARCH 31, 2008 VS. THREE MONTHS ENDED MARCH
31, 2007
McDermott International,
Inc. (Consolidated)
Revenues
increased approximately 6%, or $87.0 million, to $1,450.4 million for the three
months ended March 31, 2008, compared to $1,363.4 million for the three months
ended March 31, 2007. Our Offshore Oil and Gas Construction segment generated a
17% increase in its revenues in the three months ended March 31, 2008 compared
to the three months ended March 31, 2007, primarily attributable to an increase
in activity in its Middle East and Asia Pacific regions. Our Government
Operations segment revenues increased approximately 18% in the three months
ended March 31, 2008, as compared to the three months ended March 31, 2007,
primarily attributable to higher volumes in the manufacture of components for
the American Centrifuge Project under a contract that was awarded to us in
2007. These increases were partially offset by a 6% decrease in
revenues for our Power Generation Systems segment in the three months ended
March 31, 2008, as compared to the three months ended March 31,
2007,
primarily attributable to our utility steam and system fabrication business and
our business involving the fabrication, repair and retrofit of existing
facilities.
Segment
operating income decreased $45.5 million from $190.5 million in the three
months ended March 31, 2007 to $145.0 million in the three months ended March
31, 2008. The segment operating income of our Offshore Oil and Gas Construction
segment decreased $70.1 million in the three months ended March 31, 2008, as
compared to the three months ended March 31, 2007. This decrease was
partially offset by increases of $22.1 million and $2.5 million in the segment
operating income of our Power Generation Systems and Government Operations
segments in the three months ended March 31, 2008, as compared to the three
months ended March 31, 2007.
For
purpose of this discussion and the discussions to follow, segment operating
income is before equity in income of investees and gains on asset disposals and
impairments – net.
Offshore Oil and Gas
Construction
Revenues
increased 17%, or $95.6 million, to $645.9 million in the three months
ended March 31, 2008 compared to $550.3 million in the three months ended March
31, 2007, primarily due to increased fabrication activities in our Middle East
($70.3 million) and Asia Pacific ($63.2 million) regions. These
increases were partially offset by decreased activities in our Caspian region
($83.4 million).
Segment
operating income decreased $70.1 million from $122.0 million in the
three months ended March 31, 2007 to $51.9 million in the three months ended
March 31, 2008. This decrease was primarily attributable to an abnormally high
number of unproductive work days for our major marine barges, as a result of
poor weather conditions in most of our major areas of operation, and the
decreased activities in our Caspian region referenced above. In
addition, we realized benefits from project close-outs, change orders and
settlements totaling approximately $11 million for the three months ended March
31, 2008 compared to approximately $40 million for the three months ended March
31, 2007. We also experienced an increase in general and
administrative expenses totaling $16.1 million for the three months ended March
31, 2008 compared to the three months ended March 31, 2007, primarily
attributable to the increased employee headcount necessary to support our
contracts reflected in backlog.
Government
Operations
Revenues
increased approximately 18%, or $29.2 million, to $190.6 million in the three
months ended March 31, 2008 compared to $161.4 million in the three months ended
March 31, 2007, primarily attributable to higher volumes in the manufacture of
components for the American Centrifuge Project under a contract that was awarded
to us by USEC, Inc. in 2007 ($17.2 million) and higher volumes in the
manufacture of nuclear components for certain U.S. Government programs,
including additional volume attributable to our acquisition of Marine Mechanical
Corporation in May 2007 ($14.5 million).
Segment
operating income increased $2.5 million to $29.2 million in the three months
ended March 31, 2008 compared to $26.7 million in the three months ended March
31, 2007, primarily attributable to the American Centrifuge Project referenced
above and a decrease in our pension expense, primarily attributable to
investment performance. Additionally, we experienced higher volumes,
partially offset by lower margins, in the manufacture of nuclear components for
certain U.S. Government programs, including additional volume attributable to
acquisition of Marine Mechanical Corporation.
Equity in
income of investees increased $2.3 million to $8.7 million in the three months
ended March 31, 2008, primarily due to increases in profitability of our joint
ventures in Tennessee and Idaho.
Power Generation
Systems
Revenues
decreased approximately 6%, or $39.1 million, to $616.3 million in the three
months ended March 31, 2008, compared to $655.4 million in the three months
ended March 31, 2007, primarily attributable to decreases in revenues from our
utility steam and system fabrication business ($49.5 million) and our business
involving the fabrication, repair and retrofit of existing facilities ($15.1
million). These decreases were partially offset by increased revenues
from our nuclear service ($7.7 million), industrial boilers ($7.3 million),
boiler auxiliary equipment ($4.3 million), replacement parts ($3.3 million) and
replacement nuclear steam generator ($2.9 million) businesses.
Segment
operating income increased $22.1 million to $63.9 million in the three months
ended March 31, 2008 compared to $41.8 million in the three months ended March
31, 2007, primarily attributable to improved margins in our utility steam and
system fabrication business and increased volumes in our replacement parts,
nuclear service, and industrial boiler businesses. In addition, we experienced
lower pension plan expense in the three months ended March 31, 2008 compared to
the three months ended March 31, 2007, primarily attributable to investment
performance. These items were partially offset by lower margins in
our industrial boiler and nuclear service businesses and lower volumes in our
utility steam and system fabrication business and our business involving the
fabrication, repair and retrofit of existing facilities. We also
experienced higher selling, general and administrative expenses and higher
stock-based compensation expense in the three months ended March 31, 2008
compared to the three months ended March 31, 2007.
Gains on
asset disposals and impairments – net increased by $9.6 million in the three
months ended March 31, 2008, primarily attributable to the sale of our facility
in Dumbarton, Scotland.
Equity in
income of investees increased $1.1 million to $2.7 million in the three months
ended March 31, 2008 compared to $1.6 million in the three months ended March
31, 2007, primarily attributable to our joint venture in China.
Corporate
Unallocated
corporate expenses increased approximately $3.1 million to $10.0 million for the
three months ended March 31, 2008, as compared to $6.9 million for the three
months ended March 31, 2007, primarily attributable to increased stock-based
compensation expense, higher salary expenses resulting primarily from an
increased number of employees and higher expenses associated with development of
a global human resources management system.
Other Income Statement
Items
Interest
income increased $1.1 million to $13.4 million for the three months ended March
31, 2008, primarily due to an increase in average cash equivalents and
investments.
Interest
expense decreased $6.6 million to $2.9 million for the three months ended March
31, 2008, primarily due to interest during the three months ended March 31, 2007
on the B&W PGG term loan that was retired in April 2007.
Provision for Income
Taxes
For the
three months ended March 31, 2008, the provision for income taxes increased $7.1
million to $40.4 million, while income before provision for income taxes
decreased $27.8 million to $163.6 million. Our effective tax rate for
the three months ended March 31, 2008 was approximately 24.7%, as compared to
17.4% for the three months ended March 31, 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
during the three months ended March 31, 2008 compared to the three months ended
March 31, 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
Income
Taxes
|
|
|
Effective
Tax Rate
|
|
|
|
For
the three months ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(In
thousands)
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
$
|
62,145
|
|
|
$
|
42,891
|
|
|
$
|
23,961
|
|
|
$
|
18,009
|
|
|
|
38.56
|
%
|
|
|
41.99
|
%
|
Non-United
States
|
|
|
101,425
|
|
|
|
148,446
|
|
|
|
16,419
|
|
|
|
15,267
|
|
|
|
16.19
|
%
|
|
|
10.28
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
163,570
|
|
|
$
|
191,337
|
|
|
$
|
40,380
|
|
|
$
|
33,276
|
|
|
|
24.69
|
%
|
|
|
17.39
|
%
|
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.
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.
|
|
March
31,
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
|
|
(In
millions)
|
|
Offshore
Oil and Gas Construction
|
|
$
|
5,321
|
|
|
$
|
4,753
|
|
Government
Operations
|
|
|
1,677
|
|
|
|
1,791
|
|
Power
Generation Systems
|
|
|
3,179
|
|
|
|
3,276
|
|
|
|
|
|
|
|
|
|
|
Total
Backlog
|
|
$
|
10,177
|
|
|
$
|
9,820
|
|
Of the
March 31, 2008 backlog, we expect to recognize revenues as follows:
|
|
|
Q2 2008
|
|
|
|
Q3 2008
|
|
|
|
Q4 2008
|
|
|
2009
|
|
|
Thereafter
|
|
|
|
(Unaudited)
|
|
|
|
(In
approximate millions)
|
|
Offshore
Oil and Gas Construction
|
|
$
|
1,020
|
|
|
$
|
1,270
|
|
|
$
|
870
|
|
|
$
|
1,470
|
|
|
$
|
690
|
|
Government
Operations
|
|
|
170
|
|
|
|
160
|
|
|
|
160
|
|
|
|
500
|
|
|
|
690
|
|
Power
Generation Systems
|
|
|
570
|
|
|
|
410
|
|
|
|
370
|
|
|
|
760
|
|
|
|
1,070
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Backlog
|
|
$
|
1,760
|
|
|
$
|
1,840
|
|
|
$
|
1,400
|
|
|
$
|
2,730
|
|
|
$
|
2,450
|
|
At March
31, 2008, Government Operations' backlog with the U. S. Government was $1.7
billion, which is substantially fully funded. Only $4.8 million had not been
funded as of March 31, 2008.
At March 31, 2008, Power Generation
Systems’ backlog with the U. S. Government was $32.7 million, 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”). During April 2008, the JRMSA Credit Facility was amended
to increase the revolving credit facility by $300 million to $800
million. The JRMSA Credit Facility now consists of an $800 million
revolving credit facility (under which all of the credit capacity may be used
for the issuance of letters of credit and revolver borrowings), which 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.
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 March 31, 2008, JRMSA was in compliance with
all of the covenants set forth in the JRMSA Credit Facility.
At March
31, 2008, there were no borrowings outstanding and letters of credit issued
under the JRMSA Credit Facility totaled $279.1 million. In addition, JRMSA and
its subsidiaries had $179.3 million in outstanding unsecured letters of credit
under separate arrangements with financial institutions at March 31,
2008. At March 31, 2008, there
was
$220.9 million available for borrowings or to meet letter of credit requirements
under the JRMSA Credit Facility. As discussed above, an additional
$300 million in capacity was added to the JRMSA Credit Facility during April
2008. If there had been borrowings under this facility, the
applicable interest rate at March 31, 2008 would have been 4.45% per
year.
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 this facility is included in the
$179.3 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., 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 requires BWXT to comply with various 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 March
31, 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 March
31, 2008, there were no borrowings outstanding and letters of credit issued
under the BWXT Credit Facility totaled $48.0 million. At March 31,
2008, there was $87.0 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 March 31, 2008
would have been 3.95% 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 March 31, 2008, B&W PGG was in compliance with all
of the covenants set forth in the B&W PGG Credit Facility.
As of
March 31, 2008, there were no outstanding borrowings and letters of credit
issued under the B&W PGG Credit Facility totaled $212.5
million. At March 31, 2008, there was $187.5 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 March 31, 2008 would have been 3.95% 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
One of
our Canadian subsidiaries has received notice of a possible warranty claim on
one of its projects on a contract executed in 1998. This situation relates to
technical issues concerning components associated with nuclear steam
generators
.
Data
collection and analysis can only be performed at specific time periods when the
power plant is scheduled to be off-line for maintenance. A scheduled outage of
this facility occurred in April 2008. We are presently collecting and
analyzing data based on this most recent outage. However, the
ultimate resolution of this possible claim is uncertain, and an adverse outcome
could have a material adverse impact on our consolidated financial position,
results of operations and cash flows.
In
aggregate, our cash and cash equivalents, restricted cash and cash equivalents
and investments decreased by approximately $99.4 million from $1,528.3 million
at December 31, 2007 to $1,428.9 million at March 31, 2008, primarily
attributable to cash used in operations and purchases of property, plant and
equipment.
Our
working capital, excluding cash and cash equivalents and restricted cash and
cash equivalents, increased by approximately $242.9 million from a negative
$1,005.2 million at December 31, 2007 to a negative $762.3 million at March
31, 2008, primarily attributable to increased accounts receivable and advance
billings on contracts, net of contracts in progress.
Our net
cash used in operations was approximately $52.9 million for the three months
ended March 31, 2008, compared to net cash provided by operations of
approximately $74.6 million for the three months ended March 31, 2007. This
decrease was primarily attributable to an increase in accounts receivable and
net contracts in progress (net of advance billings on contracts) and a decrease
in income tax liabilities and accrued employee benefits.
Our net
cash used in investing activities changed by approximately $156.2 million from
net cash provided by investing activities of approximately $4.8 million for the
three months ended March 31, 2007 to net cash used in investing activities of
approximately $151.4 million for the three months ended March 31, 2008. This
decrease was primarily attributable to a net increase in available-for-sale
securities during the three months ended March 31, 2008, as compared to a net
decrease during the three months ended March 31, 2007.
At March
31, 2008, we had restricted cash and cash equivalents totaling $79.3 million, of
which $1.5 million is required to meet reinsurance reserve requirements of our
captive insurance companies and $77.8 million is held in restricted foreign
accounts.
At
March 31, 2008 and December 31, 2007, our balance in cash and cash
equivalents on our consolidated balance sheets included approximately $21.2
million and $20.2 million, respectively, in adjustments for book overdrafts,
with a corresponding increase in accounts payable for these
overdrafts.
At March
31, 2008, we had investments with a fair value of $549.0 million. Our
investment portfolio consists primarily of investments in government obligations
and other highly liquid money market instruments. As of March 31,
2008, we had pledged approximately $30.8 million fair value of these investments
to secure a letter of credit in connection with certain reinsurance
agreements.
See Note
1 to our unaudited condensed consolidated financial statements included in this
report for information on new accounting standards.
Item 3. Quantitative and Qualitative Disclosures About
Market Risk
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.
Item 4. Controls and Procedures
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 March 31, 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 March 31, 2008 that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
PART II
OTHER
INFORMATION
Item 1. Legal Proceedings
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.
Item 5. Other Information
From time
to time, our directors, officers and employees may adopt trading plans pursuant
to Exchange Act Rule 10b5-1(c). Bruce Wilkinson adopted a 10b5-1
trading plan in March 2008.
Item 6. Exhibits
Exhibit
3.1*
-
McDermott International, Inc.'s Articles of Incorporation, as amended
(incorporated by reference to Exhibit 3.1 to McDermott International, Inc.'s
Quarterly Report on Form 10-Q for the quarter ended June 30, 2007 (File No.
1-08430)).
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
4.1* - Fifth Amendment to Credit Agreement, dated as of April 7, 2008, by and
between J. Ray McDermott, S.A., certain guarantors thereto, certain lenders and
issuers party thereto, Credit Suisse, Cayman Islands Branch, as administrative
agent and collateral agent, and other agents party thereto (incorporated
by
reference
to Exhibit 10.1 to McDermott International, Inc.’s Current Report on Form 8-K
dated April 7, 2008 (File No. 1-08430)).
Exhibit
10.1* - Separation Agreement dated as of February 8, 2008 by and between
McDermott Incorporated and Francis S. Kalman (incorporated by reference to
Exhibit 10.1 to McDermott International, Inc.’s Current Report on Form 8-K dated
February 8, 2008 (File No. 1-08430)).
Exhibit
10.2* - Consultancy Agreement dated as of March 1, 2008 by and between the
Governance Committee of the Board of Directors of McDermott International, Inc.
and Francis S. Kalman (incorporated by reference to Exhibit 10.1 to McDermott
International, Inc.’s Current Report on Form 8-K dated March 3, 2008 (File No.
1-08430)).
Exhibit
10.3* - McDermott International, Inc. Executive Compensation Incentive Plan 2008
target award opportunities and financial performance goals (incorporated by
reference to Part II, Item 9B of McDermott International, Inc.’s Annual Report
on Form 10-K for the year ended December 31, 2007 (File No.
1-08430)).
Exhibit
10.4* - Form of 2008 Performance Shares Grant Agreement (incorporated by
reference to Exhibit 10.26 to McDermott International, Inc.’s Annual Report on
Form 10-K for the year ended December 31, 2007 (File No. 1-08430)).
Exhibit
10.5* - Form of 2008 Restricted Stock Grant Agreement (incorporated by reference
to Exhibit 10.27 to McDermott International, Inc.’s Annual Report on Form 10-K
for the year ended December 31, 2007 (File No. 1-08430)).
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.
|
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
|
McDERMOTT
INTERNATIONAL, INC.
|
|
|
|
|
|
|
|
|
/s/
Michael S. Taff
|
|
|
|
|
By:
|
Michael
S. Taff
|
|
|
Senior
Vice President and Chief Financial Officer
|
|
|
(Principal
Financial Officer and Duly Authorized
|
|
|
Representative)
|
|
|
|
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|
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/s/
Dennis S. Baldwin
|
|
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By:
|
Dennis
S. Baldwin
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Vice
President and Chief Accounting Officer
|
|
|
(Principal
Accounting Officer and Duly Authorized
|
|
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Representative)
|
|
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|
May
12, 2008
|
|
|
EXHIBIT
INDEX
Exhibit
Number
|
Description
|
|
3.1*
|
McDermott
International, Inc.'s Articles of Incorporation, as amended (incorporated
by reference to Exhibit 3.1 to McDermott International, Inc.'s Quarterly
Report on Form 10-Q for the quarter ended June 30, 2007 (File No.
1-08430)).
|
|
|
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)).
|
|
|
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)).
|
|
|
4.1*
|
Fifth
Amendment to Credit Agreement, dated as of April 7, 2008, by and between
J. Ray McDermott, S.A., certain guarantors thereto, certain lenders and
issuers party thereto, Credit Suisse, Cayman Islands Branch, as
administrative agent and collateral agent, and other agents party thereto
(incorporated by reference to Exhibit 10.1 to McDermott International,
Inc.’s Current Report on Form 8-K dated April 7, 2008 (File No.
1-08430)).
|
|
|
10.1*
|
Separation
Agreement dated as of February 8, 2008 by and between McDermott
Incorporated and Francis S. Kalman (incorporated by reference to Exhibit
10.1 to McDermott International, Inc.’s Current Report on Form 8-K dated
February 8, 2008 (File No. 1-08430)).
|
|
|
10.2*
|
Consultancy
Agreement dated as of March 1, 2008 by and between the Governance
Committee of the Board of Directors of McDermott International, Inc. and
Francis S. Kalman (incorporated by reference to Exhibit 10.1 to McDermott
International, Inc.’s Current Report on Form 8-K dated March 3, 2008 (File
No. 1-08430)).
|
|
|
10.3*
|
McDermott
International, Inc. Executive Compensation Incentive Plan 2008 target
award opportunities and financial performance goals (incorporated by
reference to Part II, Item 9B of McDermott International, Inc.’s Annual
Report on Form 10-K for the year ended December 31, 2007 (File No.
1-08430)).
|
|
|
10.4*
|
Form
of 2008 Performance Shares Grant Agreement (incorporated by reference to
Exhibit 10.26 to McDermott International, Inc.’s Annual Report on Form
10-K for the year ended December 31, 2007 (File No.
1-08430)).
|
|
|
10.5*
|
Form
of 2008 Restricted Stock Grant Agreement (incorporated by reference to
Exhibit 10.27 to McDermott International, Inc.’s Annual Report on Form
10-K for the year ended December 31, 2007 (File No.
1-08430)).
|
|
|
31.1
|
Rule
13a-14(a)/15d-14(a) certification of Chief Executive
Officer.
|
|
|
31.2
|
Rule
13a-14(a)/15d-14(a) certification of Chief Financial
Officer.
|
|
|
32.1
|
Section
1350 certification of Chief Executive Officer.
|
|
|
32.2
|
Section
1350 certification of Chief Financial Officer.
|
|
|
*
Incorporated
by reference to the filing indicated.
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