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, 2009
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 has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
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 30,
2009 was 230,171,481.
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
|
September
30, 2009 and December 31, 2008
|
4
|
|
|
|
|
Three
and Nine Months Ended September 30, 2009 and 2008
|
6
|
|
Three
and Nine Months Ended September 30, 2009 and 2008
|
7
|
|
Nine
Months Ended September 30, 2009 and 2008
|
8
|
|
|
|
|
Nine
Months Ended September 30, 2009 and 2008
|
9
|
|
|
|
|
|
10
|
XBRL
Instance Document
XBRL
Taxonomy Extension Calculation Linkbase
XBRL
Taxonomy Extension Label Linkbase
XBRL
Taxonomy Extension Presentation Linkbase
XBRL
Taxonomy Extension Schema
XBRL
Taxonomy Extension Definition Linkbase
PART I
McDERMOTT
INTERNATIONAL, INC.
FINANCIAL
INFORMATION
Item
1. Condensed
Consolidated Financial Statements
McDERMOTT
INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE
SHEETS
ASSETS
|
|
September
30,
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
784,463
|
|
|
$
|
586,649
|
|
Restricted
cash and cash equivalents (Note 1)
|
|
|
64,050
|
|
|
|
50,536
|
|
Investments
|
|
|
16
|
|
|
|
131,515
|
|
Accounts
receivable – trade, net
|
|
|
650,350
|
|
|
|
712,055
|
|
Accounts
and notes receivable – unconsolidated affiliates
|
|
|
4,461
|
|
|
|
1,504
|
|
Accounts
receivable – other
|
|
|
86,241
|
|
|
|
139,062
|
|
Contracts
in progress
|
|
|
503,420
|
|
|
|
311,713
|
|
Inventories
(Note 1)
|
|
|
116,195
|
|
|
|
128,383
|
|
Deferred
income taxes
|
|
|
90,824
|
|
|
|
97,069
|
|
Other
current assets
|
|
|
62,932
|
|
|
|
58,499
|
|
|
|
|
|
|
|
|
|
|
Total
Current Assets
|
|
|
2,362,952
|
|
|
|
2,216,985
|
|
|
|
|
|
|
|
|
|
|
Property,
Plant and Equipment
|
|
|
2,440,113
|
|
|
|
2,234,050
|
|
Less
accumulated depreciation
|
|
|
1,250,990
|
|
|
|
1,155,191
|
|
|
|
|
|
|
|
|
|
|
Net
Property, Plant and Equipment
|
|
|
1,189,123
|
|
|
|
1,078,859
|
|
|
|
|
|
|
|
|
|
|
Investments
|
|
|
241,908
|
|
|
|
319,170
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
292,369
|
|
|
|
298,265
|
|
|
|
|
|
|
|
|
|
|
Deferred
Income Taxes
|
|
|
278,563
|
|
|
|
335,877
|
|
|
|
|
|
|
|
|
|
|
Investments
in Unconsolidated Affiliates
|
|
|
86,031
|
|
|
|
70,304
|
|
|
|
|
|
|
|
|
|
|
Other
Assets
|
|
|
284,698
|
|
|
|
282,233
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
$
|
4,735,644
|
|
|
$
|
4,601,693
|
|
See
accompanying notes to condensed consolidated financial statements.
McDERMOTT
INTERNATIONAL, INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
September
30,
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
Notes
payable and current maturities of long-term debt
|
|
$
|
5,288
|
|
|
$
|
9,021
|
|
Accounts
payable
|
|
|
531,398
|
|
|
|
551,435
|
|
Accrued
employee benefits
|
|
|
237,054
|
|
|
|
205,521
|
|
Accrued
liabilities – other
|
|
|
194,667
|
|
|
|
217,486
|
|
Accrued
contract cost
|
|
|
127,857
|
|
|
|
97,041
|
|
Advance
billings on contracts
|
|
|
708,086
|
|
|
|
951,895
|
|
Accrued
warranty expense
|
|
|
122,904
|
|
|
|
120,237
|
|
Income
taxes payable
|
|
|
69,855
|
|
|
|
55,709
|
|
|
|
|
|
|
|
|
|
|
Total
Current Liabilities
|
|
|
1,997,109
|
|
|
|
2,208,345
|
|
|
|
|
|
|
|
|
|
|
Long-Term
Debt
|
|
|
5,828
|
|
|
|
6,109
|
|
|
|
|
|
|
|
|
|
|
Accumulated
Postretirement Benefit Obligation
|
|
|
106,255
|
|
|
|
107,567
|
|
|
|
|
|
|
|
|
|
|
Self-Insurance
|
|
|
84,465
|
|
|
|
88,312
|
|
|
|
|
|
|
|
|
|
|
Pension
Liability
|
|
|
674,047
|
|
|
|
682,624
|
|
|
|
|
|
|
|
|
|
|
Other
Liabilities
|
|
|
142,842
|
|
|
|
192,223
|
|
|
|
|
|
|
|
|
|
|
Commitments
and Contingencies (Note 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
Equity:
|
|
|
|
|
|
|
|
|
Common
stock, par value $1.00 per share, authorized 400,000,000 shares; issued
236,495,637 and 234,174,088 shares at September 30, 2009 and
December
31, 2008, respectively
|
|
|
236,496
|
|
|
|
234,174
|
|
Capital
in excess of par value
|
|
|
1,287,764
|
|
|
|
1,252,848
|
|
Retained
earnings
|
|
|
852,945
|
|
|
|
564,591
|
|
Treasury
stock at cost, 6,103,951 and 5,840,314 shares at September 30, 2009 and
December 31, 2008, respectively
|
|
|
(67,773
|
)
|
|
|
(63,026
|
)
|
Accumulated
other comprehensive loss
|
|
|
(590,565
|
)
|
|
|
(672,415
|
)
|
Stockholders’
Equity – McDermott International, Inc.
|
|
|
1,718,867
|
|
|
|
1,316,172
|
|
Noncontrolling
interest
|
|
|
6,231
|
|
|
|
341
|
|
Total
Stockholders’ Equity
|
|
|
1,725,098
|
|
|
|
1,316,513
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
$
|
4,735,644
|
|
|
$
|
4,601,693
|
|
See
accompanying notes to condensed consolidated financial statements.
McDERMOTT
INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
INCOME
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
|
(In
thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
1,675,678
|
|
|
$
|
1,664,851
|
|
|
$
|
4,733,940
|
|
|
$
|
4,907,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
and Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of operations
|
|
|
1,383,046
|
|
|
|
1,445,749
|
|
|
|
3,886,726
|
|
|
|
4,067,181
|
|
Gains
(losses) on asset disposals – net
|
|
|
323
|
|
|
|
138
|
|
|
|
(333
|
)
|
|
|
(11,322
|
)
|
Selling,
general and administrative expenses
|
|
|
160,565
|
|
|
|
139,512
|
|
|
|
455,154
|
|
|
|
404,298
|
|
Total
Costs and Expenses
|
|
|
1,543,934
|
|
|
|
1,585,399
|
|
|
|
4,341,547
|
|
|
|
4,460,157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
in Income of Investees
|
|
|
13,050
|
|
|
|
12,521
|
|
|
|
31,347
|
|
|
|
32,443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Income (Loss)
|
|
|
144,794
|
|
|
|
91,973
|
|
|
|
423,740
|
|
|
|
480,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Income (Expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income – net
|
|
|
2,179
|
|
|
|
5,151
|
|
|
|
9,023
|
|
|
|
23,792
|
|
Other
income (expense) – net
|
|
|
(3,127
|
)
|
|
|
2,945
|
|
|
|
(24,098
|
)
|
|
|
848
|
|
Total
Other Income (Expense)
|
|
|
(948
|
)
|
|
|
8,096
|
|
|
|
(15,075
|
)
|
|
|
24,640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before Provision for Income Taxes
|
|
|
143,846
|
|
|
|
100,069
|
|
|
|
408,665
|
|
|
|
504,849
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for Income Taxes
|
|
|
23,793
|
|
|
|
14,271
|
|
|
|
112,316
|
|
|
|
118,253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
|
120,053
|
|
|
|
85,798
|
|
|
|
296,349
|
|
|
|
386,596
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less:
Net Income Attributable to Noncontrolling Interest
|
|
|
(1,946
|
)
|
|
|
(227
|
)
|
|
|
(7,995
|
)
|
|
|
(296
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income Attributable to McDermott International, Inc.
|
|
$
|
118,107
|
|
|
$
|
85,571
|
|
|
$
|
288,354
|
|
|
$
|
386,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income Attributable to McDermott International, Inc.
|
|
$
|
0.51
|
|
|
$
|
0.38
|
|
|
$
|
1.26
|
|
|
$
|
1.70
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income Attributable to McDermott International, Inc.
|
|
$
|
0.50
|
|
|
$
|
0.37
|
|
|
$
|
1.24
|
|
|
$
|
1.68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
used in the computation of earnings per share (Note 8):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
229,989,368
|
|
|
|
227,440,858
|
|
|
|
229,192,531
|
|
|
|
226,645,175
|
|
Diluted
|
|
|
234,314,619
|
|
|
|
230,463,651
|
|
|
|
233,335,605
|
|
|
|
230,328,423
|
|
See
accompanying notes to condensed consolidated financial statements.
McDERMOTT
INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
$
|
120,053
|
|
|
$
|
85,798
|
|
|
$
|
296,349
|
|
|
$
|
386,596
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Comprehensive Income (Loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency
translation adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustments
|
|
|
8,927
|
|
|
|
(15,036
|
)
|
|
|
24,878
|
|
|
|
(8,832
|
)
|
Unrealized
gains (losses) on derivative financial instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gains (losses) on derivative financial instruments
|
|
|
8,673
|
|
|
|
(18,923
|
)
|
|
|
13,438
|
|
|
|
(15,709
|
)
|
Reclassification
adjustment for gains included in net income
|
|
|
(1,306
|
)
|
|
|
1,058
|
|
|
|
(1,930
|
)
|
|
|
(2,692
|
)
|
Amortization
of benefit plan costs
|
|
|
15,918
|
|
|
|
5,275
|
|
|
|
44,340
|
|
|
|
18,304
|
|
Unrealized
gains (losses) on investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gains (losses) arising during the period
|
|
|
1,737
|
|
|
|
(1,989
|
)
|
|
|
1,099
|
|
|
|
(7,611
|
)
|
Reclassification
adjustment for net (gains) losses
included
in net income
|
|
|
147
|
|
|
|
(358
|
)
|
|
|
61
|
|
|
|
(1,460
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Comprehensive Income (Loss)
|
|
|
34,096
|
|
|
|
(29,973
|
)
|
|
|
81,886
|
|
|
|
(18,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Comprehensive Income
|
|
|
154,149
|
|
|
|
55,825
|
|
|
|
378,235
|
|
|
|
368,596
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
Income Attributable to Noncontrolling Interest
|
|
|
(1,947
|
)
|
|
|
(207
|
)
|
|
|
(8,031
|
)
|
|
|
(313
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
Income Attributable to
McDermott
International, Inc.
|
|
$
|
152,202
|
|
|
$
|
55,618
|
|
|
$
|
370,204
|
|
|
$
|
368,283
|
|
See
accompanying notes to condensed consolidated financial statements.
McDERMOTT
INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
In
|
|
|
|
|
|
Other
|
|
|
|
|
|
Stockholders’
|
|
|
Non-
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Excess
of
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Treasury
|
|
|
Equity
|
|
|
Controlling
|
|
|
Stockholders’
|
|
|
|
Shares
|
|
|
Par Value
|
|
|
Par Value
|
|
|
Earnings
|
|
|
Income (Loss)
|
|
|
Stock
|
|
|
MII
|
|
|
Interest
|
|
|
Equity
|
|
|
|
|
|
|
(In
thousands, except share amounts)
|
|
|
|
|
Balance
December 31, 2008
|
|
|
234,174,088
|
|
|
$
|
234,174
|
|
|
$
|
1,252,848
|
|
|
$
|
564,591
|
|
|
$
|
(672,415
|
)
|
|
$
|
(63,026
|
)
|
|
$
|
1,316,172
|
|
|
$
|
341
|
|
|
$
|
1,316,513
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
288,354
|
|
|
|
-
|
|
|
|
-
|
|
|
|
288,354
|
|
|
|
7,995
|
|
|
|
296,349
|
|
Amortization
of benefit plan costs
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
44,340
|
|
|
|
-
|
|
|
|
44,340
|
|
|
|
-
|
|
|
|
44,340
|
|
Unrealized
gain on investments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,160
|
|
|
|
-
|
|
|
|
1,160
|
|
|
|
-
|
|
|
|
1,160
|
|
Translation
adjustments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
24,842
|
|
|
|
-
|
|
|
|
24,842
|
|
|
|
36
|
|
|
|
24,878
|
|
Unrealized
gain on derivatives
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
11,508
|
|
|
|
-
|
|
|
|
11,508
|
|
|
|
-
|
|
|
|
11,508
|
|
Exercise
of stock options
|
|
|
184,158
|
|
|
|
184
|
|
|
|
372
|
|
|
|
-
|
|
|
|
-
|
|
|
|
157
|
|
|
|
713
|
|
|
|
-
|
|
|
|
713
|
|
Excess
tax benefits on stock options
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,458
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,458
|
)
|
|
|
-
|
|
|
|
(2,458
|
)
|
Contributions
to thrift plan
|
|
|
773,101
|
|
|
|
773
|
|
|
|
10,590
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
11,363
|
|
|
|
-
|
|
|
|
11,363
|
|
Shares
returned to treasury
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,904
|
)
|
|
|
(4,904
|
)
|
|
|
-
|
|
|
|
(4,904
|
)
|
Accelerated
vesting
|
|
|
1,364,290
|
|
|
|
1,365
|
|
|
|
(1,365
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Sale
of subsidiary shares to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
noncontrolling
interest
|
|
|
-
|
|
|
|
-
|
|
|
|
2,086
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,086
|
|
|
|
(2,086
|
)
|
|
|
-
|
|
Stock-based
compensation charges
|
|
|
-
|
|
|
|
-
|
|
|
|
25,691
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
25,691
|
|
|
|
-
|
|
|
|
25,691
|
|
Distributions
to noncontrolling interests
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(55
|
)
|
|
|
(55
|
)
|
Balance
September 30, 2009
|
|
|
236,495,637
|
|
|
$
|
236,496
|
|
|
$
|
1,287,764
|
|
|
$
|
852,945
|
|
|
$
|
(590,565
|
)
|
|
$
|
(67,773
|
)
|
|
$
|
1,718,867
|
|
|
$
|
6,231
|
|
|
$
|
1,725,098
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
December 31, 2007
|
|
|
231,722,659
|
|
|
$
|
231,723
|
|
|
$
|
1,145,829
|
|
|
$
|
135,289
|
|
|
$
|
(281,933
|
)
|
|
$
|
(63,903
|
)
|
|
$
|
1,167,005
|
|
|
$
|
373
|
|
|
$
|
1,167,378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
386,300
|
|
|
|
-
|
|
|
|
-
|
|
|
|
386,300
|
|
|
|
296
|
|
|
|
386,596
|
|
Amortization
of benefit plan costs
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
18,304
|
|
|
|
-
|
|
|
|
18,304
|
|
|
|
-
|
|
|
|
18,304
|
|
Unrealized
loss on investments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(9,071
|
)
|
|
|
-
|
|
|
|
(9,071
|
)
|
|
|
-
|
|
|
|
(9,071
|
)
|
Translation
adjustments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(8,849
|
)
|
|
|
-
|
|
|
|
(8,849
|
)
|
|
|
17
|
|
|
|
(8,832
|
)
|
Unrealized
loss on derivatives
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(18,401
|
)
|
|
|
-
|
|
|
|
(18,401
|
)
|
|
|
-
|
|
|
|
(18,401
|
)
|
Exercise
of stock options
|
|
|
1,435,135
|
|
|
|
1,436
|
|
|
|
(459
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
7,092
|
|
|
|
8,069
|
|
|
|
-
|
|
|
|
8,069
|
|
Excess
tax benefits on stock options
|
|
|
-
|
|
|
|
-
|
|
|
|
6,404
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,404
|
|
|
|
-
|
|
|
|
6,404
|
|
Contributions
to thrift plan
|
|
|
202,619
|
|
|
|
202
|
|
|
|
9,647
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9,849
|
|
|
|
-
|
|
|
|
9,849
|
|
Restricted
stock issuances – net
|
|
|
259,666
|
|
|
|
259
|
|
|
|
(259
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Purchase
of treasury shares
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(6,234
|
)
|
|
|
(6,234
|
)
|
|
|
-
|
|
|
|
(6,234
|
)
|
Stock-based
compensation charges
|
|
|
-
|
|
|
|
-
|
|
|
|
30,550
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
30,550
|
|
|
|
-
|
|
|
|
30,550
|
|
Distributions
to noncontrolling interests
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(310
|
)
|
|
|
(310
|
)
|
Balance
September 30, 2008
|
|
|
233,620,079
|
|
|
$
|
233,620
|
|
|
$
|
1,191,712
|
|
|
$
|
521,589
|
|
|
$
|
(299,950
|
)
|
|
$
|
(63,045
|
)
|
|
$
|
1,583,926
|
|
|
$
|
376
|
|
|
$
|
1,584,302
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to condensed consolidated financial statements.
McDERMOTT
INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS
|
|
Nine
Months Ended
|
|
|
|
September
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
|
(In
thousands)
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
Net
Income
|
|
$
|
296,349
|
|
|
$
|
386,596
|
|
Non-cash
items included in net income:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
118,871
|
|
|
|
95,059
|
|
Income
of investees, less dividends
|
|
|
(11,458
|
)
|
|
|
(12,592
|
)
|
Gains
on asset disposals – net
|
|
|
(333
|
)
|
|
|
(11,322
|
)
|
Provision
for deferred taxes
|
|
|
43,264
|
|
|
|
87,512
|
|
Amortization
of pension and postretirement costs
|
|
|
68,877
|
|
|
|
28,424
|
|
Excess
tax benefits from FAS 123(R) stock-based compensation
|
|
|
2,458
|
|
|
|
(6,404
|
)
|
Other,
net
|
|
|
36,736
|
|
|
|
34,922
|
|
Changes
in assets and liabilities, net of effects of acquisitions and
divestitures:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
62,932
|
|
|
|
21,412
|
|
Income
tax receivable
|
|
|
57,169
|
|
|
|
10,666
|
|
Net
contracts in progress and advance billings on contracts
|
|
|
(442,373
|
)
|
|
|
(516,623
|
)
|
Accounts
payable
|
|
|
(22,099
|
)
|
|
|
19,544
|
|
Income
taxes
|
|
|
10,571
|
|
|
|
(5,335
|
)
|
Accrued
and other current liabilities
|
|
|
(1,461
|
)
|
|
|
57,586
|
|
Pension
liability, accumulated postretirement benefit obligation and accrued
employee benefits
|
|
|
13,961
|
|
|
|
(201,109
|
)
|
Other,
net
|
|
|
(36,056
|
)
|
|
|
(95,421
|
)
|
NET
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
|
|
|
197,408
|
|
|
|
(107,085
|
)
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Increase
in restricted cash and cash equivalents
|
|
|
(13,514
|
)
|
|
|
(3,731
|
)
|
Purchases
of property, plant and equipment
|
|
|
(190,207
|
)
|
|
|
(189,384
|
)
|
Acquisition
of businesses, net of cash acquired
|
|
|
(8,497
|
)
|
|
|
(33,731
|
)
|
Net
decrease (increase) in available-for-sale securities
|
|
|
208,435
|
|
|
|
(70,992
|
)
|
Proceeds
from asset disposals
|
|
|
2,724
|
|
|
|
12,023
|
|
Other,
net
|
|
|
(2,676
|
)
|
|
|
(2,029
|
)
|
NET
CASH USED IN INVESTING ACTIVITIES
|
|
|
(3,735
|
)
|
|
|
(287,844
|
)
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Payment
of long-term debt
|
|
|
(5,652
|
)
|
|
|
(4,660
|
)
|
Increase
in short-term borrowing
|
|
|
1,606
|
|
|
|
2,920
|
|
Issuance
of common stock
|
|
|
713
|
|
|
|
8,069
|
|
Payment
of debt issuance costs
|
|
|
(56
|
)
|
|
|
(1,611
|
)
|
Excess
tax benefits from FAS 123(R) stock-based compensation
|
|
|
(2,458
|
)
|
|
|
6,404
|
|
Other,
net
|
|
|
(109
|
)
|
|
|
-
|
|
NET
CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES
|
|
|
(5,956
|
)
|
|
|
11,122
|
|
EFFECTS
OF EXCHANGE RATE CHANGES ON CASH
|
|
|
10,097
|
|
|
|
(3,239
|
)
|
NET
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
197,814
|
|
|
|
(387,046
|
)
|
CASH
AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
|
|
|
586,649
|
|
|
|
1,001,394
|
|
CASH
AND CASH EQUIVALENTS AT END OF PERIOD
|
|
$
|
784,463
|
|
|
$
|
614,348
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
Cash
paid during the period for:
|
|
|
|
|
|
|
|
|
Interest
(net of amount capitalized)
|
|
$
|
1,855
|
|
|
$
|
5,967
|
|
Income
taxes (net of refunds)
|
|
$
|
93
|
|
|
$
|
49,193
|
|
See
accompanying notes to condensed consolidated financial statements.
McDERMOTT
INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER
30, 2009
(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, 2008.
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 the Financial
Accounting Standards Board (the “FASB”) Topic
Consolidation.
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, 2009 and for
the three and nine months ended September 30, 2009. We have evaluated
subsequent events through November 9, 2009, the date of issuance of this
report. 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:
·
|
Our
Offshore Oil and Gas Construction segment 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. It also provides comprehensive
project management and procurement services. 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.
|
·
|
Our
Government Operations segment 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.
|
·
|
Our
Power Generation Systems segment 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 supplies fossil-fired boilers,
commercial nuclear steam generators and components, environmental
equipment and components, and related services to customers in different
regions around the world. It designs, engineers, manufactures, constructs
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, 2009 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2009. For further information, refer to the
consolidated
financial statements and the related footnotes included in our annual report on
Form 10-K for the year ended December 31, 2008.
Comprehensive
Loss
The
components of accumulated other comprehensive loss included in stockholders'
equity are as follows:
|
|
September
30,
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
(In
thousands)
|
|
Currency
Translation Adjustments
|
|
$
|
11,800
|
|
|
$
|
(13,042
|
)
|
Net
Unrealized Loss on Investments
|
|
|
(7,818
|
)
|
|
|
(8,978
|
)
|
Net
Unrealized Loss on Derivative Financial Instruments
|
|
|
(1,730
|
)
|
|
|
(13,238
|
)
|
Unrecognized
Losses on Benefit Obligations
|
|
|
(592,817
|
)
|
|
|
(637,157
|
)
|
Accumulated
Other Comprehensive Loss
|
|
$
|
(590,565
|
)
|
|
$
|
(672,415
|
)
|
Inventories
The
components of inventories are as follows:
|
|
September
30,
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
(In
thousands)
|
|
Raw
Materials and Supplies
|
|
$
|
85,493
|
|
|
$
|
95,593
|
|
Work
in Progress
|
|
|
7,277
|
|
|
|
12,157
|
|
Finished
Goods
|
|
|
23,425
|
|
|
|
20,633
|
|
Total
Inventories
|
|
$
|
116,195
|
|
|
$
|
128,383
|
|
Restricted
Cash and Cash Equivalents
At
September 30, 2009, we had restricted cash and cash equivalents totaling
$64.1
million, $51.1 million of which was held in restricted foreign accounts, $4.5
million was held in escrow pending final payment on a legal settlement, $3.6
million was held as cash collateral for letters of credit, $4.3 million was held
for future decommissioning of facilities, and $0.6 million was held to meet
reinsurance reserve requirements of our captive insurance
companies. It is possible that a significant portion of restricted
cash at September 30, 2009 will not be released within the next twelve
months.
Warranty
Expense
We
generally accrue estimated expense to satisfy contractual warranty requirements
of our Government Operations and Power Generation Systems segments when we
recognize the associated revenue on the related contracts. We
generally include warranty costs associated with our Offshore Oil and Gas
Construction segment as a component of our total contract cost estimate to
satisfy contractual requirements, and we record the associated expense under the
percent-of-completion method of accounting for long-term construction
contracts. In addition, we make specific provisions where we expect
the actual warranty costs to significantly exceed the accrued
estimates. Such provisions could have a material effect on our
consolidated financial condition, results of operations and cash
flows.
The
following summarizes the changes in our accrued warranty expense:
|
|
Nine
Months Ended
September
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
|
(In
thousands)
|
|
Balance
at beginning of period
|
|
$
|
120,237
|
|
|
$
|
101,330
|
|
Additions
and adjustments
|
|
|
16,651
|
|
|
|
14,482
|
|
Charges
|
|
|
(13,984
|
)
|
|
|
(6,174
|
)
|
Balance
at end of period
|
|
$
|
122,904
|
|
|
$
|
109,638
|
|
Research
&
Development Expense
Research
and development activities are related to development and improvement of new and
existing products and equipment, as well as conceptual and engineering
evaluation for translation into practical applications. We charge to cost of
operations the costs of research and development unrelated to specific contracts
as incurred. Substantially all of these costs are in our Power Generation
Systems segment and include costs related to the development of carbon capture
and sequestration and our modular and scalable nuclear reactor business,
mPower. For the three months ended September 30, 2009 and 2008, our
net research and development expense included in cost of operations totaled
approximately $12.8 million and $9.9 million, respectively. For the nine months
ended September 30, 2009 and 2008, our net research and development expense
totaled approximately $33.9 million and $28.7 million, respectively. We expect
to continue significant spending on research and development projects, as we
continue development on our carbon capture and sequestration efforts and our
commercial nuclear and mPower reactor projects.
Acquisitions
In
September 2009, a subsidiary of B&W acquired certain assets of
Instrumentation Y Mantenimiento De Caldersa, A.A. for approximately $12.3
million. In connection with this acquisition, we recorded goodwill of
approximately $8.5 million, property, plant and equipment of approximately $3.1
million and other current assets of approximately $0.7 million.
In
September 2009, we finalized our purchase price allocation for the Nuclear Fuel
Services, Inc. acquisition, which we completed on December 31, 2008. The
purchase price adjustments included a reduction in goodwill of approximately
$16.2 million and an increase in property, plant and equipment of approximately
$18.6 million.
Recently
Adopted Accounting Standards
In June
2009, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No.
168
– The FASB Accounting
Standards Codification and the Hierarchy of Generally Accepted Accounting
Principles a replacement of FASB Statement No. 162.
SFAS No. 168 made the
FASB Accounting Standards Codification (the “Codification”) the single source of
U.S. GAAP used by nongovernmental entities in preparation of financial
statements, except for rules and interpretive releases of the Securities and
Exchange Commission (the “SEC”) under authority of federal securities laws,
which are the sources of authoritative accounting guidance for SEC registrants.
The Codification is meant to simplify user access to all authoritative
accounting guidance by reorganizing U.S. GAAP pronouncements into roughly 90
accounting topics within a consistent structure; its purpose is not to create
new accounting and reporting guidance. The Codification supersedes all existing
non-SEC accounting and reporting standards and was effective for us beginning
July 1, 2009. Following SFAS No. 168, the FASB will not issue new standards in
the form of Statements, FASB Staff Positions, or Emerging Issues Task Force
Abstracts; instead, it will issue Accounting Standards Updates. The FASB will
not consider Accounting Standards Updates as authoritative in their own right;
these updates will serve only to update the Codification, provide background
information about the guidance, and provide the bases for conclusions on the
change(s) in the Codification. In the discussion that follows, references in
“italics” relate to Codification Topics and Subtopics, and their descriptive
titles, as appropriate.
In May
2009, the FASB issued the Topic
Subsequent Events
. This
section of the Codification incorporates specific accounting and disclosure
requirements for subsequent events into U.S. generally accepted accounting
principles. The adoption of these provisions did not have a material impact on
our consolidated financial statements.
In April
2009, the FASB issued a revision to the Topic
Business Combinations
. This
revision amends and clarifies the Topic
Business Combinations
to
address subsequent measurement and accounting for, and disclosure of, assets and
liabilities arising from contingencies in a business combination. On
January 1, 2009, we adopted the provisions of this update. The adoption of these
provisions did not have a material impact on our consolidated financial
statements.
In April
2009, the FASB issued a revision to the Topic
Financial Instruments.
This
revision requires disclosures about fair value of financial instruments in notes
to interim financial statements as well as annual financial
statements. The notes to our financial statements were updated for
this revision.
In
April 2008, the FASB issued a revision to the Topic
Intangibles – Goodwill and
Other
. This revision requires companies estimating the useful life of a
recognized intangible asset to consider their historical experience in
renewing
or extending similar arrangements or, in the absence of historical experience,
to consider assumptions that
market
participants would use about renewals or extensions as adjusted for the
entity-specific factors in this topic. On January 1, 2009, we adopted this
revision. The adoption of these provisions did not have a material
impact on our consolidated financial statements.
In
March 2008, the FASB issued a revision to the Topic
Derivatives and
Hedging
. This revision 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. On January 1, 2009, we adopted this revision for our
disclosures about derivative instruments and hedging activities. The notes to
our financial statements were updated for this revision.
In
December 2007, the FASB issued a revision to the Topic
Consolidation.
This revision
establishes accounting and reporting standards pertaining to ownership interests
in subsidiaries held by parties other than the parent, the amount of net income
attributable to the parent and to the noncontrolling interest, changes in a
parent’s ownership interest and the valuation of any
retained noncontrolling equity investment when a subsidiary is
deconsolidated. It also establishes disclosure requirements that
clearly identify and distinguish between the interests of the parent and the
interests of the noncontrolling owners. On January 1, 2009, we
adopted this revision. Noncontrolling interest has been presented as
a separate component of stockholders’ equity for the current reporting period
and prior comparative reporting period.
In
December 2007, the FASB issued a revision to the Topic
Business Combinations
. This
revision broadens the guidance of this Topic, extending its applicability to all
transactions and events in which one entity obtains control over one or more
other businesses. It broadens the fair value measurements and
recognition of assets acquired, liabilities assumed and interests transferred as
a result of business combinations. It also provides disclosure
requirements to enable users of the financial statements to evaluate the nature
and financial effects of business combinations. On January 1, 2009,
we adopted the provisions of this revision. The adoption of these provisions did
not have a material impact on our consolidated financial
statements.
Accounting
Standards Not Yet Adopted
In June
2009, the FASB issued a revision to the topic
Consolidation.
This revision
expands the scope of this topic and amends guidance for assessing and analyzing
variable interest entities. This revision will be effective for fiscal years
beginning after November 15, 2009. We do not expect this revision to have a
material impact on our consolidated financial statements.
Other
than as described 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, 2008.
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
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
|
(In
thousands)
|
|
Service
cost
|
|
$
|
9,824
|
|
|
$
|
9,105
|
|
|
$
|
29,000
|
|
|
$
|
28,645
|
|
|
$
|
234
|
|
|
$
|
81
|
|
|
$
|
696
|
|
|
$
|
246
|
|
Interest
cost
|
|
|
40,475
|
|
|
|
37,856
|
|
|
|
120,662
|
|
|
|
115,506
|
|
|
|
2,169
|
|
|
|
1,416
|
|
|
|
6,492
|
|
|
|
4,259
|
|
Expected
return on plan assets
|
|
|
(37,334
|
)
|
|
|
(46,859
|
)
|
|
|
(111,259
|
)
|
|
|
(138,479
|
)
|
|
|
(377
|
)
|
|
|
-
|
|
|
|
(1,130
|
)
|
|
|
-
|
|
Amortization
of prior service cost
|
|
|
955
|
|
|
|
517
|
|
|
|
2,342
|
|
|
|
2,054
|
|
|
|
17
|
|
|
|
18
|
|
|
|
49
|
|
|
|
56
|
|
Amortization
of transition obligation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
66
|
|
|
|
71
|
|
|
|
188
|
|
|
|
218
|
|
Recognized
net actuarial loss
|
|
|
23,339
|
|
|
|
7,193
|
|
|
|
65,088
|
|
|
|
25,008
|
|
|
|
405
|
|
|
|
363
|
|
|
|
1,214
|
|
|
|
1,091
|
|
Net
periodic benefit cost
|
|
$
|
37,259
|
|
|
$
|
7,812
|
|
|
$
|
105,833
|
|
|
$
|
32,734
|
|
|
$
|
2,514
|
|
|
$
|
1,949
|
|
|
$
|
7,509
|
|
|
$
|
5,870
|
|
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, 2008.
Investigations
and Litigation
With
regard to the matter of
Donald
F. Hall and Mary Ann Hall, et al., v. Babcock & Wilcox Company, et
al.
(the “Hall Litigation”), the parties entered into the final
settlement agreement described in our annual report on Form 10-K for the year
ended December 31, 2008 (our “2008 10-K”), and that settlement was approved by
the United States District Court for the Western District of Pennsylvania (the
“District Court”) in April 2009. In May 2009, B&W PGG paid
approximately $52.5 million pursuant to the terms of the final settlement
agreement, which is within the amount we have accrued for these claims.
Additionally, B&W PGG and Atlantic Richfield Company (“ARCO”), a former
defendant in the Hall Litigation, entered into the final settlement agreement
described in our 2008 10-K, relating to B&W PGG’s indemnity action against
ARCO for any liability as a result of the Hall Litigation. The
indemnity settlement was also approved by the District Court in April
2009. B&W PGG and Babcock & Wilcox Technical Services Group,
Inc., formerly known as B&W Nuclear Environmental Services, Inc., have
retained all insurance rights and are pursuing recovery from American Nuclear
Insurers and Mutual Atomic Energy Liability Underwriters (“ANI”) of the amounts
paid in settlement of the Hall Litigation in the matter of
The Babcock & Wilcox Company et
al. v. American Nuclear Insurers et al.
(the “ANI Litigation”), which is
pending before the Court of Common Pleas of Allegheny County,
Pennsylvania. On September 14, 2009, the Court of Common Pleas held a
hearing to determine the legal standard to be applied in determining ANI’s
insurance coverage obligations with respect to the settlement of the Hall
Litigation. The Court has not yet issued its ruling.
The three
separate purported class action complaints against MII, Bruce W. Wilkinson
(MII’s former Chief Executive Officer and Chairman of the Board), and Michael S.
Taff (the Chief Financial Officer of MII) described in our 2008 10-K have been
consolidated. In April 2009, our motion to transfer the consolidated cases to
the Southern District of Texas was granted. On May 22, 2009, the plaintiffs
filed an amended consolidated complaint, which, among other things, added Robert
A. Deason (JRMSA’s President and Chief Executive Officer) as a defendant in the
proceedings. On July 1, 2009, MII and the other defendants filed a motion to
dismiss the complaint. The plaintiffs filed two responses to the motion to
dismiss: (1) a motion to convert the motion to dismiss to a motion for summary
judgment and granting the plaintiffs leave to conduct discovery, which was filed
on July 10, 2009; and (2) an opposition to the motion to dismiss, which was
filed on August 3, 2009. MII and the other defendants filed: (1) a
response to the plaintiffs’ motion to convert on July 30, 2009; and (2) a reply
in support of the defendants’ motion to dismiss on August 24,
2009. On August 28, 2009, the Court denied the plaintiffs’ motion to
convert, and, on September 4, 2009, the Court advised us that the motion to
dismiss has been referred to a magistrate. We
anticipate
that the magistrate will make a recommendation to the Court as to whether to
grant or deny the motion to dismiss and, thereafter, the Court will rule on the
motion to dismiss.
With regard to the matter of
Iroquois Falls Power Corp. v. Jacobs
Canada Inc., et al.,
described in our 2008 10-K, Iroquois Falls Power
Corp. (“Iroquois”) filed a notice of appeal of the decision of the Superior
Court of Justice which denied the request of Iroquois to amend its complaint and
assert new claims against the defendants based on a breach of contractual
warranty. On June 25, 2009, the Court of Appeals for Ontario
reversed the decision of the Superior Court sending the case back to the
Superior Court for Iroquois to file an amended complaint on those new
claims. On September 21, 2009, we filed a notice to appeal the Court
of Appeals’ decision with the Supreme Court of Canada; however, the Court has
not scheduled a hearing on the appeal.
For a detailed description of these and other 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, 2008.
Other
Some of
our contracts contain penalty provisions that require us to pay liquidated
damages if we are responsible for the failure to meet specified contractual
milestone dates and the applicable customer asserts a claim under these
provisions. These contracts define the conditions under which our customers may
make claims against us for liquidated damages. In many cases in which we have
had potential exposure for liquidated damages, such damages ultimately were not
asserted by our customers. As of September 30, 2009, we have
liquidated damage contingencies of approximately $100 million based on our
failure to meet such specified contractual milestone dates, all in our Offshore
Oil and Gas Construction segment, of which $14 million has been recorded in our
financial statements. We do not believe any additional claims for
these potential liquidated damages are probable of being assessed. The trigger
dates for these potential liquidated damages range from June of 2008 to
September 30, 2009. 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 that should resolve the potential
for liquidated damages being assessed. However, we may not achieve relief on
some or all of the issues.
NOTE
4 – DERIVATIVE FINANCIAL INSTRUMENTS
Our
worldwide operations give rise to exposure to market risks from changes in
foreign exchange rates. We use derivative financial instruments
(primarily foreign currency forward-exchange contracts) to reduce the impact of
changes in foreign exchange rates on our operating results. We use
these instruments primarily to hedge our exposure associated with revenues or
costs on our long-term contracts and other cash flow exposures that are
denominated in currencies other than our operating entities’ functional
currencies. We do not hold or issue financial instruments for trading
or other speculative purposes.
We enter
into derivative financial instruments primarily as hedges of certain firm
purchase and sale commitments denominated in foreign currencies. We
record these contracts at fair value on our consolidated balance
sheets. Depending on the hedge designation at the inception of the
contract, the related gains and losses on these contracts are either deferred in
stockholders’ equity (deficit) as a component of accumulated other comprehensive
loss, until the hedged item is recognized in earnings, or offset against the
change in fair value of the hedged firm commitment through
earnings. The ineffective portion of a derivative’s change in fair
value and any portion excluded from the assessment of effectiveness are
immediately recognized in earnings. The gain or loss on a derivative
instrument not designated as a hedging instrument is also immediately recognized
in earnings. Gains and losses on derivative financial instruments
that require immediate recognition are included as a component of other income
(expense) – net in our consolidated statements of income.
We have
designated all of our forward contracts as cash flow hedges. The hedged risk is
the risk of changes in functional-currency-equivalent cash flows attributable to
changes in spot exchange rates of forecasted transactions related to long-term
contracts and certain capital expenditures. We exclude from our
assessment of effectiveness the portion of the fair value of the forward
contracts attributable to the difference between spot exchange rates and forward
exchange rates. Ineffective portions of our forward contracts are
recorded in other income (expense) – net on our Condensed Consolidated
Statements of Income. At September 30, 2009, we had deferred approximately $1.7
million of net losses on these derivative financial instruments in accumulated
other comprehensive loss. We expect to recognize substantially all of this
amount in the next 12 months.
At
September 30, 2009, all of our derivative financial instruments consisted of
foreign currency forward-exchange contracts. The notional value of our forward
contracts totaled $336.0 million at September 30, 2009, with maturities
extending to December 2011. These instruments consist primarily of contracts to
purchase or sell Euros or Canadian
Dollars.
The fair
value of these contracts totaled $1.5 million, all of which are Level 2 in
nature (See Note 5). We are
exposed
to credit-related losses in the event of nonperformance by counterparties to
derivative financial instruments. However, when possible, we enter into
International Swaps and Derivative Association, Inc. agreements with our hedge
counterparties to mitigate this risk. We also attempt to mitigate
this risk by using major financial institutions with high credit ratings and
limit our exposure to hedge counterparties based on their credit
ratings. The counterparties to all of our derivative financial
instruments are financial institutions included in our credit facilities
described in Note 6 to the consolidated financial statements included in Part II
of our annual report on Form 10-K for the year ended December 31, 2008. Our
hedge counterparties have the benefit of the same collateral arrangements and
covenants as described under these facilities.
The
following tables summarize our derivative financial instruments at September 30,
2009 (unaudited):
|
|
|
|
|
|
Asset
Derivatives
September
30, 2009
|
|
Liability
Derivatives
September
30, 2009
|
|
|
Balance
Sheet
Account
|
|
Fair
Value
|
|
Balance
Sheet
Account
|
|
Fair
Value
|
|
|
(Unaudited)
(In
thousands)
|
|
Derivatives
designated as hedging instruments:
|
|
|
|
|
|
|
|
|
Foreign-exchange
contracts
|
Accounts
receivable-other
|
|
$
|
7,552
|
|
Accounts
payable
|
|
$
|
6,365
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
Foreign-exchange
contracts
|
Accounts
receivable-other
|
|
$
|
920
|
|
Accounts
payable
|
|
$
|
593
|
|
The
Effect of Derivative Instruments on the Statements of Financial
Performance
September
30, 2009
(Unaudited)
(In
thousands)
|
|
|
|
Three
Months
Ended
September 30,
2009
|
|
|
Nine
Months
Ended
September 30,
2009
|
|
Derivatives Designated as
Hedges:
|
|
|
|
|
|
|
Cash Flow
Hedges:
|
|
|
|
|
|
|
Foreign Exchange
Contracts:
|
|
|
|
|
|
|
Amount
of gain (loss) recognized in
other
comprehensive income
|
|
$
|
10,454
|
|
|
$
|
16,061
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) reclassified from accumulated other
comprehensive
loss into income: effective portion
|
|
|
|
|
|
|
|
|
Location
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
507
|
|
|
$
|
293
|
|
Cost
of operations
|
|
$
|
1,000
|
|
|
$
|
2,194
|
|
Other
– net
|
|
$
|
(95
|
)
|
|
$
|
143
|
|
|
|
|
|
|
|
|
|
|
Gain
(loss) recognized in income: portion
excluded
from effectiveness testing
|
|
|
|
|
|
|
|
|
Location
|
|
|
|
|
|
|
|
|
Other
– net
|
|
$
|
671
|
|
|
$
|
(921
|
)
|
|
|
|
|
|
|
|
|
|
Derivatives Not Designated as
Hedges:
|
|
|
|
|
|
|
|
|
Foreign
Exchange Contracts
:
|
|
|
|
|
|
|
|
|
Gain
(loss) recognized in income:
|
|
|
|
|
|
|
|
|
Location
|
|
|
|
|
|
|
|
|
Other
– net
|
|
$
|
375
|
|
|
$
|
(5,972
|
)
|
NOTE
5 – FAIR VALUE MEASUREMENTS
The
following is a summary of our available-for-sale securities measured at fair
value at September 30, 2009 (in thousands) (unaudited):
|
|
9/30/09
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Mutual
funds
|
|
$
|
4,778
|
|
|
$
|
-
|
|
|
$
|
4,778
|
|
|
$
|
-
|
|
Certificates
of deposit
|
|
|
2,524
|
|
|
|
-
|
|
|
|
2,524
|
|
|
|
-
|
|
U.S.
Government and agency securities
|
|
|
171,863
|
|
|
|
156,963
|
|
|
|
14,900
|
|
|
|
-
|
|
Asset-backed
securities and collateralized mortgage obligations
|
|
|
10,214
|
|
|
|
-
|
|
|
|
3,076
|
|
|
|
7,138
|
|
Corporate
notes and bonds
|
|
|
52,545
|
|
|
|
-
|
|
|
|
52,545
|
|
|
|
-
|
|
Total
|
|
$
|
241,924
|
|
|
$
|
156,963
|
|
|
$
|
77,823
|
|
|
$
|
7,138
|
|
The
following is a summary of our available-for-sale securities measured at fair
value at December 31, 2008 (in thousands) (unaudited):
|
|
12/31/08
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Mutual
funds
|
|
$
|
4,253
|
|
|
$
|
-
|
|
|
$
|
4,253
|
|
|
$
|
-
|
|
Commercial
paper
|
|
|
19,080
|
|
|
|
-
|
|
|
|
19,080
|
|
|
|
-
|
|
Certificates
of deposit
|
|
|
36,014
|
|
|
|
-
|
|
|
|
36,014
|
|
|
|
-
|
|
U.S.
Government and agency securities
|
|
|
285,420
|
|
|
|
242,204
|
|
|
|
43,216
|
|
|
|
-
|
|
Foreign
government bonds
|
|
|
5,000
|
|
|
|
-
|
|
|
|
5,000
|
|
|
|
-
|
|
Asset-backed
securities and collateralized mortgage obligations
|
|
|
11,375
|
|
|
|
-
|
|
|
|
3,919
|
|
|
|
7,456
|
|
Corporate
notes and bonds
|
|
|
52,545
|
|
|
|
-
|
|
|
|
89,543
|
|
|
|
-
|
|
Total
|
|
$
|
450,685
|
|
|
$
|
242,204
|
|
|
$
|
201,025
|
|
|
$
|
7,456
|
|
Changes
in Level 3 Instrument
The
following is a summary of the changes in our Level 3 instrument measured on a
recurring basis for the period ended September 30, 2009 (in
thousands):
Balance,
beginning of the year
|
|
$
|
7,456
|
|
Total
realized and unrealized gains (losses):
|
|
|
|
|
Included
in other income (expense)
|
|
|
(1
|
)
|
Included
in other comprehensive income
|
|
|
1,476
|
|
Purchases,
issuances and settlements
|
|
|
-
|
|
Principal
repayments
|
|
|
(1,793
|
)
|
Balance,
end of period
|
|
$
|
7,138
|
|
Other
Financial Instruments
We used
the following methods and assumptions in estimating our fair value disclosures
for our other financial instruments, as follows:
Cash and cash equivalents and
restricted cash and cash equivalents
. The carrying amounts
that we have reported in the accompanying consolidated balance sheets for cash
and cash equivalents and restricted cash and cash equivalents approximate their
fair values.
Long-term and short-term
debt
. We base the fair values of debt instruments on quoted
market prices. Where quoted prices are not available, we base the
fair values on the present value of future cash flows discounted at estimated
borrowing rates for similar debt instruments or on estimated prices based on
current yields for debt issues of similar quality and terms.
The
estimated fair values of our financial instruments are as follows:
|
|
September
30, 2009
|
|
|
December
31, 2008
|
|
|
|
Carrying
Amount
|
|
|
Fair Value
|
|
|
Carrying
Amount
|
|
|
Fair Value
|
|
|
|
(Unaudited)
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
784,463
|
|
|
$
|
784,463
|
|
|
$
|
586,649
|
|
|
$
|
586,649
|
|
Restricted
cash and cash equivalents
|
|
$
|
64,050
|
|
|
$
|
64,050
|
|
|
$
|
50,536
|
|
|
$
|
50,536
|
|
Investments
|
|
$
|
241,924
|
|
|
$
|
241,924
|
|
|
$
|
450,685
|
|
|
$
|
450,685
|
|
Debt
|
|
$
|
11,116
|
|
|
$
|
11,299
|
|
|
$
|
15,130
|
|
|
$
|
15,221
|
|
Forward
contracts
|
|
$
|
1,514
|
|
|
$
|
1,514
|
|
|
$
|
(26,291
|
)
|
|
$
|
(26,291
|
)
|
NOTE
6 – STOCK-BASED COMPENSATION
Total
stock-based compensation expense recognized for the three and nine months ended
September 30, 2009 and 2008 was as follows:
|
|
Compensation
|
|
|
Tax
|
|
|
Net
|
|
|
|
Expense
|
|
|
Benefit
|
|
|
Impact
|
|
|
|
(Unaudited)
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended September 30, 2009
|
|
Stock
Options
|
|
$
|
900
|
|
|
$
|
(303
|
)
|
|
$
|
597
|
|
Restricted
Stock
|
|
|
1,160
|
|
|
|
(370
|
)
|
|
|
790
|
|
Performance
Shares
|
|
|
3,945
|
|
|
|
(1,309
|
)
|
|
|
2,636
|
|
Performance
and Deferred Stock Units
|
|
|
2,469
|
|
|
|
(817
|
)
|
|
|
1,652
|
|
Total
|
|
$
|
8,474
|
|
|
$
|
(2,799
|
)
|
|
$
|
5,675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine
Months Ended September 30, 2009
|
|
Stock
Options
|
|
$
|
1,959
|
|
|
$
|
(658
|
)
|
|
$
|
1,301
|
|
Restricted
Stock
|
|
|
4,538
|
|
|
|
(1,098
|
)
|
|
|
3,440
|
|
Performance
Shares
|
|
|
15,341
|
|
|
|
(5,203
|
)
|
|
|
10,138
|
|
Performance
and Deferred Stock Units
|
|
|
6,347
|
|
|
|
(2,106
|
)
|
|
|
4,241
|
|
Total
|
|
$
|
28,185
|
|
|
$
|
(9,065
|
)
|
|
$
|
19,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
NOTE
7 – SEGMENT REPORTING
An
analysis of our operations by segment is as follows:
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Offshore
Oil and Gas Construction
|
|
$
|
1,026,700
|
|
|
$
|
814,701
|
|
|
$
|
2,567,924
|
|
|
$
|
2,332,918
|
|
Government
Operations
|
|
|
259,752
|
|
|
|
222,434
|
|
|
|
778,254
|
|
|
|
638,792
|
|
Power
Generation Systems
|
|
|
389,638
|
|
|
|
630,955
|
|
|
|
1,389,802
|
|
|
|
1,945,324
|
|
Adjustments
and Eliminations
(1)
|
|
|
(412
|
)
|
|
|
(3,239
|
)
|
|
|
(2,040
|
)
|
|
|
(9,111
|
)
|
|
|
$
|
1,675,678
|
|
|
$
|
1,664,851
|
|
|
$
|
4,733,940
|
|
|
$
|
4,907,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Segment
revenues are net of the following intersegment transfers and other
adjustments:
|
|
Offshore
Oil and Gas Construction Transfers
|
|
$
|
19
|
|
|
$
|
3,007
|
|
|
$
|
693
|
|
|
$
|
8,400
|
|
Government
Operations Transfers
|
|
|
393
|
|
|
|
232
|
|
|
|
1,347
|
|
|
|
656
|
|
Power
Generation Systems Transfers
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
55
|
|
|
|
$
|
412
|
|
|
$
|
3,239
|
|
|
$
|
2,040
|
|
|
$
|
9,111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
INCOME:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Operating
Income
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Offshore
Oil and Gas Construction
|
|
$
|
107,001
|
|
|
$
|
(18,655
|
)
|
|
$
|
221,209
|
|
|
$
|
132,187
|
|
Government
Operations
|
|
|
10,818
|
|
|
|
26,585
|
|
|
|
96,689
|
|
|
|
87,491
|
|
Power
Generation Systems
|
|
|
29,980
|
|
|
|
78,998
|
|
|
|
128,818
|
|
|
|
249,498
|
|
|
|
$
|
147,799
|
|
|
$
|
86,928
|
|
|
$
|
446,716
|
|
|
$
|
469,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (Losses) on Asset Disposals –
Net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Offshore Oil and Gas Construction
|
|
$
|
120
|
|
|
$
|
(110
|
)
|
|
$
|
953
|
|
|
$
|
1,732
|
|
Government Operations
|
|
|
(101
|
)
|
|
|
-
|
|
|
|
(101
|
)
|
|
|
-
|
|
Power Generation Systems
|
|
|
(342
|
)
|
|
|
(25
|
)
|
|
|
(300
|
)
|
|
|
9,593
|
|
|
|
$
|
(323
|
)
|
|
$
|
(135
|
)
|
|
$
|
552
|
|
|
$
|
11,325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in Income (Loss) of
Investees
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Offshore
Oil and Gas Construction
|
|
$
|
(596
|
)
|
|
$
|
(921
|
)
|
|
$
|
(2,797
|
)
|
|
$
|
(2,671
|
)
|
Government
Operations
|
|
|
9,081
|
|
|
|
7,966
|
|
|
|
26,435
|
|
|
|
27,513
|
|
Power
Generation Systems
|
|
|
4,565
|
|
|
|
5,476
|
|
|
|
7,709
|
|
|
|
7,601
|
|
|
|
$
|
13,050
|
|
|
$
|
12,521
|
|
|
$
|
31,347
|
|
|
$
|
32,443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
Income
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Offshore
Oil and Gas Construction
|
|
$
|
106,525
|
|
|
$
|
(19,686
|
)
|
|
$
|
219,365
|
|
|
$
|
131,248
|
|
Government
Operations
|
|
|
19,798
|
|
|
|
34,551
|
|
|
|
123,023
|
|
|
|
115,004
|
|
Power
Generation Systems
|
|
|
34,203
|
|
|
|
84,449
|
|
|
|
136,227
|
|
|
|
266,692
|
|
|
|
|
160,526
|
|
|
|
99,314
|
|
|
|
478,615
|
|
|
|
512,944
|
|
Corporate
|
|
|
(15,732
|
)
|
|
|
(7,341
|
)
|
|
|
(54,875
|
)
|
|
|
(32,735
|
)
|
Total
Operating Income
|
|
$
|
144,794
|
|
|
$
|
91,973
|
|
|
$
|
423,740
|
|
|
$
|
480,209
|
|
NOTE
8 – 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,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
|
(In
thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income for basic computation
|
|
$
|
118,107
|
|
|
$
|
85,571
|
|
|
$
|
288,354
|
|
|
$
|
386,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares
|
|
|
229,989,368
|
|
|
|
227,440,858
|
|
|
|
229,192,531
|
|
|
|
226,645,175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per common share
|
|
$
|
0.51
|
|
|
$
|
0.38
|
|
|
$
|
1.26
|
|
|
$
|
1.70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income for diluted computation
|
|
$
|
118,107
|
|
|
$
|
85,571
|
|
|
$
|
288,354
|
|
|
$
|
386,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares (basic)
|
|
|
229,989,368
|
|
|
|
227,440,858
|
|
|
|
229,192,531
|
|
|
|
226,645,175
|
|
Effect
of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
options, restricted stock and performance shares
|
|
|
4,325,251
|
|
|
|
3,022,793
|
|
|
|
4,143,074
|
|
|
|
3,683,248
|
|
Adjusted
weighted average common shares and assumed exercises of stock options and
vesting of stock awards
|
|
|
234,314,619
|
|
|
|
230,463,651
|
|
|
|
233,335,605
|
|
|
|
230,328,423
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per common share
|
|
$
|
0.50
|
|
|
$
|
0.37
|
|
|
$
|
1.24
|
|
|
$
|
1.68
|
|
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 related notes 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, 2008.
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;
|
·
|
our
ability to perform projects in our Offshore Oil and Gas Construction
segment on time, in accordance with the schedules established by the
applicable contracts with
customers;
|
·
|
changes
in legislation and regulations which impact the ability of inverted
companies and their subsidiaries to obtain contracts from the U.S.
Government;
|
·
|
the
ability of our suppliers to deliver raw materials in sufficient quantities
and in a timely manner;
|
·
|
volatility
and uncertainty of the credit
markets;
|
·
|
our
ability to comply with covenants in our credit agreements and other debt
instruments and availability, terms and deployment of
capital;
|
·
|
the
unfunded liabilities of our pension plans may negatively impact our
liquidity and, depending upon future operations, our ability to fund our
pension obligations may be
impacted;
|
·
|
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 associated with integrating businesses we
acquire;
|
·
|
the
risk we might not be successful in updating and replacing current key
financial and human resources legacy systems with enterprise
systems;
|
·
|
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
affects of asserted and unasserted
claims;
|
·
|
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, 2008. 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
Capital
Intensive Business Segments
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 under a separate
credit facility. 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.
Accounting
for
Contracts
As of
September 30, 2009, 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 contain penalty provisions that require us to pay liquidated
damages if we are responsible for the failure to meet specified contractual
milestone dates and the applicable customer asserts a claim under these
provisions. These contracts define the conditions under which our customers may
make claims against us for liquidated damages. In many cases in which we have
had potential exposure for liquidated damages, such damages ultimately were not
asserted by our customers. As of September 30, 2009, we have
liquidated damage contingencies of approximately $100 million based on our
failure to meet such specified contractual milestone dates, all in our Offshore
Oil and Gas Construction segment, of which $14 million has been recorded in our
financial statements. We do not believe any additional claims for
these potential liquidated damages are probable of being assessed. The trigger
dates for these potential liquidated damages range from June of 2008 to
September 30, 2009. 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 that should resolve the potential
for liquidated damages being assessed. However, we may not achieve relief on
some or all of the issues.
Regulation
of Inverted Companies
As
a result of our reorganization we completed in 1982 through a transaction
commonly referred to as an “inversion,” the parent company of our group of
companies is McDermott International, Inc. (“MII”), a corporation organized
under the laws of the Republic of Panama. Certain prior and current U.S.
legislative proposals and enactments have sought to prohibit the U.S. Government
from contracting with so-called “inverted” companies and their subsidiaries in
connection with various government operations. To date, such legislative actions
have not adversely affected our U.S. Government contract work, although there
can be no assurance that this would continue to be the case.
Additionally,
on July 1, 2009, the Civilian Agency Acquisition
Council and the Defense
Acquisition Regulations Council (the “FAR Councils”), acting under the U.S.
Federal Acquisition Regulation (the “FAR”), adopted interim rules, with an
immediate effective date, that established contracting procedures to implement a
mandate in the Omnibus Appropriations Act, 2009, that generally prohibits
federal agencies from awarding new contracts to inverted companies and their
subsidiaries with U.S. federal appropriated funds for fiscal year 2009 and
certain prior fiscal years. The current version of the proposed U.S.
federal appropriations legislation for 2010 contains restrictions on contracting
with inverted companies similar to those in the 2009 Omnibus Appropriations
Act. The public comment period for the interim rules under the FAR
ended on August 31, 2009. As of the date of this report, it is
uncertain as to when the FAR councils will adopt final rules and whether and the
extent to which the final rules may differ from the interim rules. We
believe the interim rules do not have any impact on any of our existing
contracts, and we believe that they should not impact our ability to enter into
subcontracts relating to any government
projects. The
interim
rules are not clear as to how joint ventures are impacted, including those in
which we are the majority or controlling owner.
The
impact that the adoption of the interim rules under the FAR will have on our
ability to pursue new contract awards, directly or indirectly, with the U.S.
Government and its agencies is unclear. Additionally, the form in which, or the
scope of, any final rules under the FAR or any other rules or regulations
governing U.S. federal contracts using appropriated funds that may be adopted,
or any potential future legislation impacting such rules and regulations, is
also unclear. We are taking steps to determine what actions may be appropriate
to mitigate any adverse impact. These steps could include, in addition to
seeking, to the extent available, any appropriate waivers under the rules, one
or more transactions that would result in significant changes to our corporate
organization and structure. Depending on the application of the interim rules
and the actual provisions of the anticipated final rules and regulations, we may
not be able to mitigate, fully or partially, any material adverse impact from
the adoption of such rules or regulations. We derive a substantial amount of our
revenues and profits from services provided to the U.S. Government, mainly
through our Government Operations segment, and any exclusion from pursuing
future U.S. Government contract work could have a material adverse effect on our
financial condition, results of operations or cash flows.
Taxation
of Inverted Companies
As
a result of our reorganization in 1982 discussed above, MII is the parent
company of our group of companies. Tax legislative proposals intending to
eliminate some perceived tax advantages of companies that have legal domiciles
outside the U.S. but operate in the U.S. through one or more subsidiaries have
repeatedly been introduced in the U.S. Congress. Recent examples include, but
are not limited to, legislative proposals that would broaden the circumstances
in which a non-U.S. company would be considered a U.S. resident for U.S. tax
purposes. It is possible that, if legislation is enacted in this area, we could
be subject to a substantial increase in our corporate income taxes and,
consequently, decrease our future net income and increase our future cash
outlays for taxes. Although we are unable to predict the form in which any
proposed legislation might become law or the nature of regulations that may be
promulgated under any such future legislative enactments, such laws or
regulations could have a material adverse effect on our financial condition,
results of operations or cash flows.
Offshore
Oil and Gas Construction Segment
Our
Offshore Oil and Gas Construction segment’s activity depends mainly on the
capital expenditures for offshore construction services of oil and gas companies
and on foreign governments for construction of development projects in the
regions in which we operate. This segment’s operations are generally
capital intensive, and a number of factors influence its activities,
including:
·
|
oil
and gas prices, along with expectations about future
prices;
|
·
|
the
cost of exploring for, producing and delivering oil and
gas;
|
·
|
the
terms and conditions of offshore
leases;
|
·
|
the
discovery rates of new oil and gas reserves in offshore
areas;
|
·
|
the
ability of businesses in the oil and gas industry to raise capital;
and
|
·
|
local
and international political and economic
conditions.
|
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.
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. Several factors influence these expenditures, including:
·
|
prices
for electricity, along with the cost of production and
distribution;
|
·
|
prices
for coal and natural gas and other sources used to produce
electricity;
|
·
|
demand
for electricity, paper and other end products of steam-generating
facilities;
|
·
|
availability
of other sources of electricity, paper or other end
products;
|
·
|
requirements
for environmental improvements;
|
·
|
impact
of potential regional, state, national and/or global requirements to
significantly limit or reduce greenhouse gas emissions in the
future;
|
·
|
level
of capacity utilization at operating power plants, paper mills and other
steam-using facilities;
|
·
|
requirements
for maintenance and upkeep at operating power plants and paper mills to
combat the accumulated effects of wear and
tear;
|
·
|
ability
of electric generating companies and other steam users to raise capital;
and
|
·
|
relative
prices of fuels used in boilers, compared to prices for fuels used in gas
turbines and other alternative forms of
generation.
|
Research
and development activities are related to development and improvement of new and
existing products and equipment, as well as conceptual and engineering
evaluation for translation into practical applications. We charge to cost of
operations the costs of research and development unrelated to specific contracts
as incurred. Substantially all of these costs are in our Power Generation
Systems segment and include costs related to the development of carbon capture
and sequestration and our modular and scalable nuclear reactor business,
mPower. For the three months ended September 30, 2009 and 2008, our
net research and development expense included in cost of operations totaled
approximately $12.8 million and $9.9 million, respectively. For the nine months
ended September 30, 2009 and 2008, our net research and development expense
totaled approximately $33.9 million and $28.7 million, respectively. We expect
to continue significant spending on research and development projects, as we
continue development on our carbon capture sequestration efforts and our
commercial nuclear and mPower reactor projects.
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,
2008. There have been no material changes to these policies during
the nine months ended September 30, 2009, except as disclosed in Note 1 of the
notes to condensed consolidated financial statements included in this
report.
RESULTS
OF OPERATIONS – THREE MONTHS ENDED SEPTEMBER 30, 2009 VS. THREE MONTHS ENDED
SEPTEMBER 30, 2008
McDermott International,
Inc. (Consolidated)
Revenues
increased approximately 1%, or $10.8 million, to $1,675.7 million in the three
months ended September 30, 2009 compared to $1,664.9 million for the
corresponding period of 2008. In the third quarter of 2009, as compared to the
third quarter of 2008, our Offshore Oil and Gas Construction segment experienced
a $212.0 million, or 26%, increase in revenues and our Government Operations
segment experienced a $37.4 million or 17% increase in revenues. These increases
were partially offset by our Power Generation Systems segment which experienced
a $241.4 million, or 38%, reduction in its revenues, primarily due to a decrease
in its utility steam and system fabrication business revenues.
Segment
operating income increased $60.9 million to $147.8 million in the three months
ended September 30, 2009 from $86.9 million for the corresponding period of
2008. The segment operating income of our Offshore Oil and Gas Construction
segment increased $125.7 million in the three months ended September 30, 2009 as
compared to the third quarter of 2008, primarily attributable to improved
project performance in our Middle East region. The segment operating income of
our Government Operations and Power Generation Systems segments decreased by
$15.8 million and $49.0 million, respectively, in the three months ended
September 30, 2009 compared to the corresponding period in 2008. We experienced
a significant increase in our pension plan expense in the three months ended
September 30, 2009 compared to the corresponding period in 2008 totaling
approximately $29.4 million. This increase was primarily attributable to
amortization of losses on pension plan assets experienced in the year ended
2008.
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 26%, or $212.0 million, to $1,026.7 million in the three
months ended September 30, 2009 compared to $814.7 million in the corresponding
period of 2008, primarily attributable to increases in our Middle
Eas
t
($306.8
million) and Caspian ($42.5 million) regions, partially offset by decreases in
our Asia Pacific ($76.3 million) and Americas ($20.9 million)
regions.
Segment
operating income increased $125.7 million from a loss of $18.7 million
in the three months ended September 30, 2008 to income of $107.0 million in the
three months ended September 30, 2009, primarily attributable to improvements in
project performance in our Middle East region. In the three months ended
September 30, 2008, we recognized approximately $90.0 million of contract losses
on the expected costs to complete various projects primarily in our Middle East
region. In the three months ended September 30, 2009 we also experienced
increased segment operating income from our Asia Pacific region as a result of
project improvements and increased segment operating income from our Caspian
region, partially offset by a decrease in segment operating income from our
Americas region. In addition, we realized benefits from project
close-outs totaling approximately $14.0 million in the three months ended
September 30, 2009 compared to approximately $16.0 million in the corresponding
period of 2008.
Government
Operations
Revenues
increased approximately 17%, or $37.4 million, to $259.8 million in the three
months ended September 30, 2009 compared to $222.4 million for the corresponding
period of 2008, primarily attributable to our acquisition of Nuclear Fuel
Services, Inc. (“NFS”) ($32.9 million) and additional volume in the manufacture
of nuclear components of certain U.S. Government programs and recovery work.
These improvements were partially offset by lower volumes in the manufacture of
components for a commercial uranium enrichment project ($10.4 million) and lower
volumes in engineering and laboratory services. Additionally, we experienced
lower revenues from our management and operating contracts at several government
sites.
Segment
operating income decreased $15.8 million to $10.8 million in the three months
ended September 30, 2009 compared to $26.6 million for the corresponding period
of 2008, primarily attributable to losses incurred at NFS due to production
delays and poor productivity with respect to its downblending contracts. We also
experienced increased pension expense in the three months ended September 30,
2009 compared to the corresponding period of 2008. In addition, we
experienced lower volumes related to a commercial uranium enrichment project and
lower margins from our management and operating contracts at several government
sites. These decreases were partially offset by additional volumes in
the manufacture of nuclear components for certain U.S. Government programs and
recovery work.
Equity
income of investees increased $1.1 million to $9.1 million in the three months
ended September 30, 2009 compared to $8.0 million in the corresponding period of
2008, primarily attributable to decreases in expenses and higher fees earned at
two of our sites in Tennessee, partially offset by lower fees earned from a
contract in Idaho.
Power Generation
Systems
Revenues
decreased approximately 38%, or $241.4 million, to $389.6 million in the three
months ended September 30, 2009, compared to $631.0 million in the corresponding
period of 2008, primarily attributable to decreased revenues from our utility
steam and system fabrication business ($160.1 million), fabrication, repair and
retrofit of existing facilities business ($53.2 million), replacement parts
business ($10.0 million), boiler auxiliary equipment business ($9.8 million),
industrial boilers business ($6.8 million), and nuclear service
business ($6.2 million).
Segment
operating income decreased $49.0 million to $30.0 million in the three months
ended September 30, 2009 compared to $79.0 million in the corresponding period
of 2008, primarily attributable to lower volumes in our utility steam and system
fabrication business, fabrication, repair and retrofit of existing facilities
business, replacement parts business, and industrial boilers business, combined
with lower margins in our nuclear service business. We also
experienced higher pension expense in the three months ended
September 30, 2009 compared to the corresponding period in 2008. These decreases
were partially offset by profit increases attributable to improved margins in
our operations and maintenance business.
Equity in
income of investees decreased $0.9 million to $4.6 million in the three months
ended September 30, 2009 from $5.5 million in the corresponding period of 2008,
primarily attributable to our joint venture in China.
Unallocated
Corporate expenses increased $8.4 million to $15.7 million in the three months
ended September 30, 2009, as compared to $7.3 million for the corresponding
period of 2008, primarily attributable to increased pension expense attributable
to amortization of losses on pension plan assets experienced in the year ended
2008, and higher compensation expenses. We also experienced an increase in
information technology expenses in the three months ended September 30, 2009
compared to the corresponding period of 2008. These increases were partially
offset by improvements in our captive insurers attributable primarily to
favorable results from our actuarially determined workmen’s compensation
liabilities.
Other Income Statement
Items
Interest
income (expense) - net decreased $3.0 million to $2.2 million of income in the
three months ended September 30, 2009, primarily due to lower average interest
rates on our investments, and an increase in interest expense attributable to
borrowings and amortization of fees under our credit facilities. These decreases
were partially offset by an increase in capitalized interest.
Other
income (expense) – net decreased by $6.0 million to expense of $3.1
million in the three months ended September 30, 2009 from income of $2.9 million
for the corresponding period of 2008, primarily due to higher currency
translation exchange losses incurred in the third quarter of 2009.
Provision for Income
Taxes
For the
three months ended September 30, 2009, the provision for income taxes increased
$9.5 million to $23.8 million, while income before provision for income taxes
increased $43.7 million to $143.8 million. Our effective tax rate for
the three months ended September 30, 2009 was approximately 16.5%, as compared
to 14.3% for the three months ended September 30, 2008. The 2008
quarter included $45 million of additional tax assets and benefits resulting
primarily from the release of state tax valuations and audit activity offset by
losses in certain non-U.S. tax jurisdictions that had no corresponding tax
benefit.
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 September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In
thousands)
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
$
|
4,463
|
|
|
$
|
99,139
|
|
|
$
|
3,035
|
|
|
$
|
(2,980
|
)
|
|
|
68.00
|
%
|
|
|
(3.01
|
%)
|
Non-United
States
|
|
|
139,383
|
|
|
|
930
|
|
|
|
20,758
|
|
|
|
17,251
|
|
|
|
14.89
|
%
|
|
|
1854.95
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
143,846
|
|
|
$
|
100,069
|
|
|
$
|
23,793
|
|
|
$
|
14,271
|
|
|
|
16.54
|
%
|
|
|
14.26
|
%
|
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.
RESULTS
OF OPERATIONS – NINE MONTHS ENDED SEPTEMBER 30, 2009 vs. NINE MONTHS ENDED
SEPTEMBER 30, 2008
McDermott International,
Inc. (Consolidated)
Revenues
decreased approximately 3.5%, or $174.0 million, to $4,733.9 million in the nine
months ended
September
30, 2009 compared to $4,907.9 million for the corresponding period of 2008. Our
Power Generation Systems segment experienced a 28.6%, or $555.5 million,
reduction in its revenues for the nine months ended September 30, 2009 compared
to 2008 attributable primarily to decreased revenues from its utility steam and
system
fabrication
business. Our Offshore Oil and Gas Construction and Government
Operations segments generated increases in revenues totaling $235.0 million and
$139.5 million, respectively, in the nine months ended September 30, 2009
compared to the corresponding period of 2008. The increase in revenues from our
Offshore Oil and Gas Construction segment was primarily attributable to projects
in our Middle East region. The increase in revenues from our Government
Operations segment was primarily attributable to the acquisition of
NFS.
Segment
operating income decreased $22.5 million to $446.7 million in the nine months
ended September 30, 2009 from $469.2 million for the corresponding period of
2008. The segment operating income of our Power Generation Systems segment
decreased $120.7 million in the nine months ended September 30, 2009, as
compared to the corresponding period in 2008, primarily attributable to
decreased segment operating income from its utility steam and system
fabrication business. These decreases were partially offset by $9.2
million and $89.0 million increases in the segment operating income of our
Government Operations and Offshore Oil and Gas Construction segments,
respectively, in the nine months ended September 30, 2009, as compared to the
corresponding period in 2008. We experienced a significant increase in our
pension plan expense in the nine months ended September 30, 2009 compared to the
corresponding period of 2008 totaling approximately $73.1 million. This increase
was primarily attributable to amortization of losses on pension plan assets
experienced in the year ended 2008.
Offshore Oil and Gas
Construction
Revenues
increased 10%, or $235.0 million, to $2,567.9 million in the nine
months ended September 30, 2009 compared to $2,332.9 million in the
corresponding period of 2008, primarily attributable to increases from our
Middle East region ($527.0 million). This increase was partially
offset by decreases from our Asia Pacific ($99.6 million), Caspian ($84.9
million) and Americas ($48.7 million) regions.
Segment
operating income increased $89.0 million to $221.2 million in the nine
months ended September 30, 2009 from $132.2 million in the corresponding
period of 2008 primarily attributable to improvements in project
performance in our Middle East region. In the nine months ended September 30,
2008, we recognized approximately $90.0 million of contract losses related to
the expected costs to complete various projects, primarily in our Middle East
region. In addition, we experienced an increase in segment operating income from
our Asia Pacific region as a result of project improvements and an increase in
segment operating income from our Americas region from project close-outs and
change orders, partially offset by a decrease in segment operating income from
our Caspian region. We realized benefits from project close-outs
totaling approximately $50.0 million in the nine months ended September 30, 2009
compared to approximately $38.0 million in the corresponding period of
2008. We also experienced a reduction in selling, general and
administrative expenses totaling $5.1 million in the nine months ended September
30, 2009 compared to the corresponding period of 2008.
Government
Operations
Revenues
increased 21.8%, or $139.5 million, to $778.3 million in the nine
months ended September 30, 2009 compared to $638.8 million for the corresponding
period of 2008, primarily attributable to our acquisition of NFS ($120 million)
and additional volumes in the manufacture of nuclear components of certain U.S.
Government programs and recovery work. These improvements were partially offset
by lower volumes in the manufacture of components for a commercial uranium
enrichment project, engineering and laboratory services and lower revenues from
our management and operating contracts at several government sites.
Segment
operating income increased $9.2 million to $96.7 million in the nine months
ended September 30, 2009 compared to $87.5 million for the corresponding period
of 2008, primarily attributable to our acquisition of NFS and additional volumes
in the manufacture of nuclear components of certain U.S. Government programs and
recovery work. These improvements were partially offset by increased
pension expense, lower revenues from our management and operating contracts at
several government sites and lower volumes related to a commercial uranium
enrichment project.
Equity
income of investees decreased $1.1 million to $26.4 million in the nine months
ended September 30, 2009 compared to $27.5 million in the corresponding period
of 2008, primarily attributable to cost savings incentives earned in 2008 for a
site in Louisiana, and lower fees earned from a site in Idaho. These decreases
were partially offset by increased fees earned at sites in Tennessee and
Idaho.
Power Generation
Systems
Revenues
decreased approximately 29%, or $555.5 million, to $1,389.8 million for the nine
months ended September 30, 2009 compared to $1,945.3 million for the
corresponding period of 2008, primarily attributable to decreased revenues from
our utility steam and system fabrication business ($401.9 million),
fabrication, repair and retrofit of existing facilities business ($106.1
million), replacement parts business ($21.3 million), nuclear steam generators
business ($18.2 million), and industrial boiler business ($9.8
million).
Segment
operating income decreased $120.7 million to $128.8 million for the nine months
ended September 30, 2009 compared to $249.5 million for the corresponding period
of 2008, primarily attributable to lower volumes in our utility steam and system
fabrication business and our fabrication, repair and retrofit of existing
facilities business. In addition we experienced lower margins and volumes in our
replacement parts and nuclear steam generator businesses, and lower margins in
nuclear service and industrial boilers business. We also experienced
higher pension expense in the nine months ended September 30, 2009. These
decreases were partially offset by improved margins in our operations and
maintenance business.
Gains
(losses) on asset disposals - net decreased by $9.9 million from the
corresponding period of 2008.The prior year included a gain on the sale of our
Dumbarton, Scotland facilities.
Corporate
Unallocated
corporate expenses increased $22.2 million to $54.9 million in the nine months
ended September 30, 2009, as compared to $32.7 million for the corresponding
period of 2008, primarily attributable to increased pension expense from the
amortization of losses on pension plan assets experienced in the year ended
2008, and higher compensation expenses. We also experienced an increase in
information technology expenses in the nine months ended September 30, 2009
compared to the corresponding period of 2008. These increases were
partially offset by improvements in our captive insurers, attributable primarily
to favorable results from our actuarially determined workmen’s compensation
liabilities.
Other Income Statement
Items
Interest
income (expense) - net decreased $14.8 million to $9.0 million of income in the
nine months ended September 30, 2009, primarily due to reduced cash and
investment balances and lower average interest rates on our investments, and an
increase in interest expense attributable to borrowings and amortization of fees
under our credit facilities. These decreases were partially offset by an
increase in capitalized interest.
Other
income (expense) - net increased by $24.9 million to expense of
$24.1 million in the nine months ended September 30, 2009 from income of $0.8
million for the corresponding period of 2008, primarily due to higher currency
exchange losses incurred in 2009.
Provision for Income
Taxes
For the
nine months ended September 30, 2009, the provision for income taxes decreased
$6.0 million to $112.3 million, while income before provision for income taxes
decreased $96.2 million to $408.7 million. Our effective tax rate for
the nine months ended September 30, 2009 was approximately 27.5%, as compared to
23.4% for the nine months ended September 30, 2008. In the nine
months ended September 30, 2008, we recognized certain tax assets and benefits
totaling approximately $55 million from the release of state valuation
allowances and as a result of audit activity offset by losses in certain
non-U.S. tax jurisdictions that had no corresponding tax benefit.
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,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In
thousands)
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
$
|
134,017
|
|
|
$
|
281,105
|
|
|
$
|
57,876
|
|
|
$
|
59,369
|
|
|
|
43.19
|
%
|
|
|
21.12
|
%
|
Non-United
States
|
|
|
274,648
|
|
|
|
223,744
|
|
|
|
54,440
|
|
|
|
58,884
|
|
|
|
19.82
|
%
|
|
|
26.32
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
408,665
|
|
|
$
|
504,849
|
|
|
$
|
112,316
|
|
|
$
|
118,253
|
|
|
|
27.48
|
%
|
|
|
23.42
|
%
|
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 operating results, and projects in our backlog may be
cancelled, modified or otherwise altered by customers.
|
|
September
30,
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
|
(In
millions)
|
|
Offshore
Oil and Gas Construction
|
|
$
|
3,943
|
|
|
$
|
4,457
|
|
Government
Operations
|
|
|
2,539
|
|
|
|
2,883
|
|
Power
Generation Systems
|
|
|
2,062
|
|
|
|
2,476
|
|
|
|
|
|
|
|
|
|
|
Total
Backlog
|
|
$
|
8,544
|
|
|
$
|
9,816
|
|
Of the
September 30, 2009 backlog, we expect to recognize revenues as
follows:
|
|
2009
|
|
|
2010
|
|
|
Thereafter
|
|
|
|
(Unaudited)
|
|
|
|
(In
approximate millions)
|
|
Offshore
Oil and Gas Construction
|
|
$
|
810
|
|
|
$
|
2,145
|
|
|
$
|
988
|
|
Government
Operations
|
|
|
230
|
|
|
|
800
|
|
|
|
1,509
|
|
Power
Generation Systems
|
|
|
400
|
|
|
|
840
|
|
|
|
822
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Backlog
|
|
$
|
1,440
|
|
|
$
|
3,785
|
|
|
$
|
3,319
|
|
At
September 30, 2009, the Offshore Oil and Gas Construction backlog included
approximately $333 million related to contracts in or near loss positions, which
are estimated to recognize future revenues with approximately zero percent gross
margins. In the three months ended September 30, 2009 we recognized
approximately $306 million in revenues related to these contracts. It is
possible that our estimates of gross profit could increase or decrease based on
improved productivity, actual downtime and the resolution of change orders and
claims with our customers.
At
September 30, 2009, Government Operations' backlog with the U.S. Government was
$2.5 billion, which was substantially fully funded. Approximately $4.4 million
had not been funded as of September 30, 2009.
We
believe the current worldwide credit and economic environment and short-term
uncertainty regarding environmental regulations have affected customers in the
electric utility industry more than our other customers.
While we
have not experienced significant delays on existing projects in our Power
Generation Systems’ backlog, we have experienced some delays in expected
bookings on new planned projects.
At
September 30, 2009, Power Generation Systems’ backlog with the U.S. Government
was $5.1 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”). As amended to date, the JRMSA Credit Facility provides
for borrowings and issuances of letters of credit in an aggregate amount of up
to $800 million and is scheduled to mature 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, 2009, JRMSA was in compliance
with all of the covenants set forth in the JRMSA Credit Facility.
While
there were no borrowings outstanding as of September 30, 2009, we borrowed
under the JRMSA Credit Facility for working capital purposes during
the quarter ended September 30, 2009. We expect to access the JRMSA Credit
Facility for similar borrowings, as needed, in the future. As of September 30,
2009, letters of credit issued under the JRMSA Credit Facility totaled $214.0
million, and there was a total of $586.0 million available for borrowings or to
meet letter of credit requirements. Borrowings under this facility during the
September 30, 2009 quarter had an applicable average interest rate of
approximately 3.75% per year. In addition, JRMSA and its subsidiaries
had $292.9 million in outstanding unsecured letters of credit under separate
arrangements with financial institutions at September 30, 2009.
In 2007,
JRMSA executed a general agreement of indemnity in favor of a surety underwriter
based in Mexico relating to surety bonds that underwriter issued in support of
contracting activities of J. Ray McDermott de Mèxico, S.A. de C.V., a subsidiary
of JRMSA. As of September 30, 2009, bonds issued under this
arrangement totaled $7.7 million.
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, 2009, 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, 2009, there were no borrowings outstanding, but letters of credit
issued under the BWXT Credit Facility totaled $54.2 million. At
September 30, 2009, there was $80.8 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, 2009 would have been 3.50% per year.
At
September 30, 2009, Nuclear Fuel Services, Inc., a subsidiary of BWXT, had $3.8
million in letters of credit issued by various commercial banks on its
behalf. The obligations to the commercial banks issuing such letters
of credit are secured by cash, short-term certificates of deposit and certain
real and intangible assets.
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”). As amended to date,
this facility provides for borrowings and issuances of letters of credit in an
aggregate amount of up to $400 million and is scheduled to mature on February
22, 2011. 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, 2009, B&W PGG was in compliance with
all of the covenants set forth in the B&W PGG Credit Facility.
As of
September 30, 2009, there were no outstanding borrowings but letters of credit
issued under the B&W PGG Credit Facility totaled $190.7
million. At September 30, 2009, there was $209.3 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, 2009 would have been 3.25% per
year.
Certain
foreign subsidiaries of B&W PGG have credit arrangements with various
commercial banks for the issuance of bank guarantees. The aggregate
value of all such bank guarantees as of September 30, 2009 was $17.4
million.
MII,
B&W PGG and McDermott Holdings, Inc. have jointly executed certain general
agreements of indemnity in favor of surety underwriters relating to surety bonds
issued in support of B&W PGG’s contracting activity. As of
September 30, 2009, bonds issued under these arrangements in support of
contracts totaled approximately $81.5 million. Any claim successfully
asserted against a surety by one or more of the bond obligees would likely be
recoverable from MII, B&W PGG and McDermott Holdings, Inc. under the
indemnity agreements.
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 increased by
$2.5
million to
$1,090.4
million at
September 30, 2009 from $1,087.9 million at December 31, 2008, primarily due to
cash provided by operating activities.
Our
working capital, excluding cash and cash equivalents and restricted cash and
cash equivalents, improved by $145.8 million to a negative $482.7 million at
September 30, 2009 from a negative $628.5 million at December 31, 2008,
primarily due to the increase in the net amount of contracts in progress and
advance billings on contracts, partially offset by a decrease in
short term investments and accounts receivable.
Our net
cash provided by (used in) operations improved by $304.5 million to net cash
provided by operations of $197.4 million in the nine months ended September 30,
2009 from net cash used in operations of $107.1 million for the nine months
ended September 30, 2008. This change was primarily attributable to net
improvements in our contracts in progress and advance billings on contracts, and
a decrease in cash used in our pension, postretirement and employee benefit
obligations.
Our net
cash used in investing activities decreased by $284.1 million to $3.7 million in
the nine months ended September 30, 2009 from $287.8 million in the nine months
ended September 30, 2008. This change was primarily attributable to a net
increase in available-for-sale securities during the nine months ended September
30, 2009.
Our net
cash provided by (used in) financing activities changed by $17.1 million to net
cash used in financing activities of $6.0 million in the nine months ended
September 30, 2009 from net cash provided by financing activities of $11.1
million in the nine months ended September 30, 2008, primarily due to lower
excess tax benefits related to stock-based compensation, and issuance of common
stock.
At
September 30, 2009, we had restricted cash and cash equivalents totaling $64.1
million, $51.1 million of which was held in restricted foreign accounts, $4.5
million was held in escrow pending final payment on a legal settlement, $3.6
million was held as cash collateral for letters of credit, $4.3 million was held
for future decommissioning of facilities, and $0.6 million was held to meet
reinsurance reserve requirements of our captive insurance
companies. It is possible that a significant portion of restricted
cash at September 30, 2009 will not be released within the next twelve
months
At
September 30, 2009, we had investments with a fair value of $241.9
million. Our investment portfolio consists primarily of investments
in government obligations and other highly liquid money market
instruments. As of September 30, 2009, we had pledged approximately
$33.3 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 loss on investments was in an unrealized
loss position totaling $7.8 million at September 30, 2009. At December 31, 2008,
we had unrealized losses on our investments totaling $9.0 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
were other than temporarily impaired at September 30, 2009.
See Note
1 to our unaudited condensed consolidated financial statements included in this
report for information on new and recently adopted 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, 2008.
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 Chief Financial Officer
concluded that the design and operation of our disclosure controls and
procedures are effective as of September 30, 2009 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,
2009 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 1A. Risk Factors
Recent
U.S. regulation may adversely affect our ability to contract with the U.S.
Government
As
a result of our reorganization we completed in 1982 through a transaction
commonly referred to as an “inversion,” the parent company of our group of
companies, is McDermott International, Inc. (“MII”), a corporation organized
under the laws of the Republic of Panama. Certain prior and current
U.S. legislative proposals and enactments have sought to prohibit the U.S.
Government from contracting with so-called “inverted” companies and their
subsidiaries in connection with various government operations. To date, such
legislative actions have not adversely affected our U.S. Government contract
work, although there can be no assurance that this would continue to be the
case.
Additionally,
on July 1, 2009, the Civilian Agency Acquisition Council and the Defense
Acquisition Regulations Council (the “FAR Councils”), acting under the U.S.
Federal Acquisition Regulation (the “FAR”), adopted interim rules, with an
immediate effective date, that established contracting procedures to implement a
mandate in the Omnibus Appropriations Act, 2009, that generally prohibits
federal agencies from awarding new contracts to inverted companies and their
subsidiaries with U.S. federal appropriated funds for fiscal year 2009 and
certain prior fiscal years. The current version of the proposed U.S.
federal appropriations legislation for 2010 contains restrictions on contracting
with inverted companies similar to those in the 2009 Omnibus Appropriations
Act. The public comment period for the interim rules under the FAR
ended on August 31, 2009. As of the date of this report, it is
uncertain as to when the FAR councils will adopt final rules and whether and the
extent to which the final rules may differ from the interim rules. We
believe the interim rules do not have any impact on any of our existing
contracts, and we believe that they should not impact our ability to enter into
subcontracts relating to any government projects. The interim rules
are not clear as to how joint ventures are impacted, including those in which we
are the majority or controlling owner.
The
impact that the adoption of the interim rules under the FAR will have on our
ability to pursue new contract awards, directly or indirectly, with the U.S.
Government and its agencies is unclear. Additionally, the form in which, or the
scope of, any final rules under the FAR or any other rules or regulations
governing U.S. federal contracts using appropriated funds that may be adopted,
or any potential future legislation impacting such rules and regulations, is
also unclear. We are taking steps to determine what actions may be appropriate
to mitigate any adverse impact. These steps could include, in addition to
seeking, to the extent available, any appropriate waivers under the rules, one
or more transactions that would result in significant changes to our corporate
organization and structure. Depending on the application of the interim rules
and the actual provisions of the anticipated final rules and regulations, we may
not be able to mitigate, fully or partially, any material adverse impact from
the adoption of such rules or regulations. We derive a substantial amount of our
revenues and profits from services provided to the U.S. Government, mainly
through
our
Government Operations segment, and any exclusion from pursuing future U.S.
Government contract work could have a material adverse effect on our financial
condition, results of operations or cash flows.
A
change in tax laws could have a material adverse effect on us by substantially
increasing our corporate income taxes and, consequently, decreasing our future
net income and increasing our future cash outlays for taxes
As
a result of our reorganization in 1982 discussed above, MII is the parent
company of our group of companies. Tax legislative proposals intending to
eliminate some perceived tax advantages of companies that have legal domiciles
outside the U.S. but operate in the U.S. through one or more subsidiaries have
repeatedly been introduced in the U.S. Congress. Recent examples include, but
are not limited to, legislative proposals that would broaden the circumstances
in which a non-U.S. company would be considered a U.S. resident for U.S. tax
purposes. It is possible that, if legislation is enacted in this area, we could
be subject to a substantial increase in our corporate income taxes and,
consequently, decrease our future net income and increase our future cash
outlays for taxes. Although we are unable to predict the form in which any
proposed legislation might become law or the nature of regulations that may be
promulgated under any such future legislative enactments, such laws or
regulations could have a material adverse effect on our financial condition,
results of operations or cash flows.
Item 2. Unregistered Sales of
Equity Securities and Use of Proceeds
The
following table provides information on our purchases of equity securities
during the quarter ended September 30, 2009, all of which involved repurchases
of restricted shares of MII common stock pursuant to the provisions of employee
benefit plans that permit the repurchase of restricted shares to satisfy
statutory tax withholding obligations associated with the lapse of restrictions
applicable to those shares:
Period
|
|
Total
number
of
shares purchased
|
|
|
Average
price
paid
per
share
|
|
Total
number of shares purchased as part of publicly announced plans or
programs
|
Maximum
number of shares that may yet be purchased under the plans or
programs
|
|
|
|
|
|
|
|
|
|
July
1, 2009 – July 31, 2009
|
|
|
81
|
|
|
$
|
20.50
|
|
not
applicable
|
not
applicable
|
August
1, 2009 – August 31, 2009
|
|
|
2,999
|
|
|
$
|
22.92
|
|
not
applicable
|
not
applicable
|
September
1, 2009 –
September
30, 2009
|
|
|
-
|
|
|
|
-
|
|
not
applicable
|
not
applicable
|
Total
|
|
|
3,080
|
|
|
$
|
22.86
|
|
not
applicable
|
not
applicable
|
Item 6. Exhibits
Exhibit
3.1*
-
McDermott International, Inc.'s Amended and Restated Articles of Incorporation
(incorporated by reference to Exhibit 3.1 to McDermott International, Inc.’s
Quarterly Report on Form 10-Q for the quarter ended September 30, 2008 (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 3.3 to McDermott
International, Inc.’s Quarterly Report on Form 10-Q for the quarter ended
September 30, 2001 (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.
Exhibit
101 – Interactive data files.
|
*
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)
|
|
|
|
|
|
|
|
|
/s/
Dennis S. Baldwin
|
|
|
|
|
By:
|
Dennis
S. Baldwin
|
|
|
Vice
President and Chief Accounting Officer
|
|
|
(Principal
Accounting Officer and Duly Authorized
|
|
|
Representative)
|
|
|
|
November
9, 2009
|
|
|
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 September 30, 2008 (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 3.3 to McDermott
International, Inc.’s Quarterly Report on Form 10-Q for the quarter ended
September 30, 2001 (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.
|
|
|
101
|
Interactive
data files
|
*
Incorporated
by reference to the filing indicated.
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