NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2013
(UNAUDITED)
NOTE 1BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
McDermott International, Inc. (MII), a corporation incorporated under the laws of the Republic of Panama in 1959, is a leading engineering, procurement, construction and installation
(EPCI) company focused on designing and executing complex offshore oil and gas projects worldwide. Providing fully integrated EPCI services, we deliver fixed and floating production facilities, pipeline installations and subsea systems
from concept to commissioning. We support these activities with comprehensive project management and procurement services, while utilizing our fully integrated capabilities in both shallow water and deepwater construction. Our customers include
national, major integrated and other oil and gas companies, and we operate in most major offshore oil and gas producing regions throughout the world. In these notes to our unaudited condensed consolidated financial statements, unless the context
otherwise indicates, we, us and our mean MII and its consolidated subsidiaries.
Basis of Presentation
We have presented our unaudited condensed consolidated financial statements in U.S. Dollars, pursuant to the rules and regulations of the Securities and Exchange Commission (the SEC)
applicable to interim reporting. 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 accompanying notes in our annual report on Form 10-K for the year ended December 31, 2012.
We have included all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation. These condensed
consolidated financial statements include the accounts of McDermott International, Inc., its consolidated subsidiaries and controlled entities. 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 unconsolidated affiliates or joint ventures. We have eliminated all intercompany transactions and accounts.
During the quarter ended June 30, 2013, we commenced a restructuring of our Atlantic segment. See Note 2 for information relating to
that restructuring. On March 19, 2012, we completed the sale of our former charter fleet business, which operated 10 of the 14 vessels acquired in our 2007 acquisition of substantially all of the assets of Secunda International Limited (the
Secunda Acquisition). The condensed consolidated statements of income, comprehensive income, cash flows and equity reflect the historical operations of the charter fleet business as a discontinued operation through March 19, 2012.
Accordingly, we have presented the notes to our condensed consolidated financial statements on the basis of continuing operations. In addition, certain 2012 amounts in the condensed consolidated balance sheet and statement of cash flows have been
reclassified to conform to the 2013 presentation.
Business Segments
We operate in four primary operating segments, which consist of Asia Pacific, Atlantic, Caspian and the Middle East. The Caspian and
Middle East operating segments are aggregated into the Middle East reporting segment due to the proximity of regions and similarities in the nature of services provided, economic characteristics and oversight responsibilities. Accordingly, we report
financial results under reporting segments consisting of Asia Pacific, Atlantic and the Middle East. We also report certain corporate and other non-operating
8
activities under the heading Corporate and Other. Corporate and Other primarily reflects corporate personnel and activities, incentive compensation programs and other costs, which are
generally fully allocated to our operating segments. See Note 9 for summarized financial information on our segments.
Revenue Recognition
We determine the appropriate accounting method for each of our long-term contracts before work on the project begins. We generally recognize contract revenues and related costs on a
percentage-of-completion method for individual contracts or combinations of contracts based on work performed, man hours, or a cost-to-cost method, as applicable to the activity involved. We include the amount of accumulated contract costs and
estimated earnings that exceed billings to customers in contracts in progress. We include billings to customers that exceed accumulated contract costs and estimated earnings in advance billings on contracts. Most long-term contracts contain
provisions for progress payments. We expect to invoice customers and collect all unbilled revenues. Certain costs are generally excluded from the cost-to-cost method of measuring progress, such as significant procurement costs for materials and
third-party subcontractors. Costs incurred prior to a project award are generally expensed during the period in which they are incurred. Total estimated project costs, and resulting income, are affected by changes in the expected cost of materials
and labor, productivity, vessel costs, scheduling and other factors. Additionally, external factors such as weather, customer requirements and other factors outside of our control may affect the progress and estimated cost of a projects
completion and, therefore, the timing and amount of revenue and income recognition.
In addition, change orders, which are a
normal and recurring part of our business, can increase (and sometimes substantially) the future scope and cost of a job. Therefore, change order awards (although frequently beneficial in the long term) can have the short-term effect of reducing the
job percentage of completion and thus the revenues and profits recognized to date. We regularly review contract price and cost estimates as the work progresses and reflect adjustments in profit, proportionate to the job percentage of completion in
the period when those estimates are revised. Revenue from unapproved change orders is generally recognized to the extent of the lesser of amounts management expects to recover or costs incurred. The total unapproved change orders included in our
estimates at completion aggregated approximately $445 million, of which approximately $170 million was included in backlog at June 30, 2013. Unapproved change orders that are disputed by the customer are treated as claims.
Deferred Profit Recognition
For contracts as to which we are unable to estimate the final profitability due to their uncommon nature, including first-of-a-kind projects, we recognize equal amounts of revenue and cost until the final
results can be estimated more precisely. For these contracts, we only recognize gross margin when reliably estimable and the level of uncertainty has been significantly reduced, which we generally determine to be when the contract is at least 70%
complete. We treat long-term construction contracts that contain such a level of risk and uncertainty that estimation of the final outcome is impractical as deferred profit recognition contracts. If while being accounted for under our deferred
profit recognition policy, a current estimate of total contract costs indicates a loss, the projected loss is recognized in full and the project is accounted for under our normal revenue recognition guidelines.
We currently account for an Atlantic segment project under our deferred profit recognition policy. This project was awarded to one of our
joint ventures, and the Atlantic segments backlog includes a subcontract from that joint venture, of which $211.9 million relating to this project remains in backlog at June 30, 2013. This project contributed revenues and costs equally,
totaling approximately $37.0 million and $7.9 million for the three-month periods ended June 30, 2013 and 2012, respectively
, and approximately $42.1 million and $13.1 million for the six-month periods ended June 30, 2013
and 2012, respectively.
9
Completed Contract Method
Under the completed contract method, revenue and gross profit is recognized only when a contract is completed or substantially complete.
We generally do not enter into fixed-price contracts without an estimate of cost to complete that we believe to be accurate. However, it is possible that in the time between contract award and the commencement of work on a project, we could lose the
ability to adequately forecast costs to complete based on intervening events, including, but not limited to, experience on similar projects, civil unrest, strikes and volatility in our expected costs. In such a situation, we would use the completed
contract method of accounting for that project. We currently do not have any contracts that we account for under the completed contract method.
Claims Revenue
Claims revenue may relate to various factors, including the
procurement of materials, equipment performance failures, change order disputes or schedule disruptions and other delays, including those associated with weather conditions. Claims revenue, when recorded, is only recorded to the extent of the lesser
of the amounts management expects to recover or the associated costs incurred in our consolidated financial statements. We include certain unapproved claims in the applicable contract values when we have a legal basis to do so, consider collection
to be probable and believe we can reliably estimate the ultimate value. Amounts attributable to unapproved change orders are not included in claims. We continue to actively engage in negotiations with our customers on our outstanding claims.
However, these claims may be resolved at amounts that differ from our current estimates, which could result in increases or decreases in future estimated contract profits or losses. Claims are generally negotiated over the course of the respective
projects and many of our projects are long-term in nature. None of the claims at June 30, 2013 were involved in litigation.
The amount of revenues and costs included in our estimates at completion (
i.e.
, contract values) associated with such claims was $173.4 million and $29.0 million as of June 30, 2013 and
2012, respectively. Approximately 44%, 10% and 46% of those claim amounts at June 30, 2013 were related to our Asia Pacific, Atlantic and Middle East segments, respectively. These amounts are determined based on various factors, including our
analysis of the underlying contractual language and our experience in making and resolving claims. For the three months ended June 30, 2013 and 2012, $11.0 million and $29.0 million, respectively, of revenues and costs are included in our financial
statements. For the six months ended June 30, 2013 and 2012, $39.4 million and $38.5 million, respectively, of revenues and costs are reflected in our financial statements pertaining to claims. Approximately 14%, 13% and 73% of those
claim amounts are related to our Asia Pacific, Atlantic and Middle East segments, respectively.
Our unconsolidated joint
ventures also included an aggregate of $3.7 million of claims revenue and costs in their financial results for the six months ended June 30, 2013, with no amounts recognized during the three months ended June 30, 2013. For the three months and
six months ended June 30, 2012, our joint ventures included approximately $1.0 million and $5.0 million, respectively of claims revenue and costs in their financial results.
Loss Recognition
A risk associated with fixed-priced contracts is that revenue from customers may not 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 and vessel productivity, vessel repair requirements, weather downtime, supplier performance, pipeline lay rates or steel and other raw material prices. Increases in costs associated
with our fixed-priced contracts could have a material adverse impact on our consolidated financial condition, results of operations and cash flows. Alternatively, reductions in overall contract costs at completion could materially improve our
consolidated financial condition, results of operations and cash flows.
As of June 30, 2013, we have provided for our
estimated costs to complete on 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. Variations from estimated contract
performance could result in material
10
adjustments to operating results for any fiscal quarter or year. For all contracts, if a current estimate of total contract cost indicates a loss, the projected loss is recognized in full when
determined.
We currently have three active projects in our backlog that are in loss positions at June 30, 2013, whereby
future revenues are expected to equal costs when recognized. Included in these projects are a marine project in our Asia Pacific segment, which we began in 2012 and expect to complete by mid-2014, and a five-year charter in Brazil, which we began in
early 2012 and we are conducting through our Atlantic segment. These two projects represent the majority of our contract value in a loss position.
Use of Estimates
We use estimates and assumptions to prepare our
financial statements in conformity with GAAP. These estimates and assumptions affect the amounts we report in our financial statements and accompanying notes. Our actual results could differ from these estimates, and variances could materially
affect our financial condition and results of operations in future periods. Changes in project estimates generally exclude change orders and changes in scope, but may include, without limitation, unexpected changes in weather conditions,
productivity, unanticipated vessel repair requirements, customer and vendor delays and other costs. We generally expect to experience a variety of unanticipated events, and some of these events can result in significant cost increases above cost
amounts we previously estimated. Variations from estimated contract performance could result in material adjustments to operating results.
The following is a discussion of our most significant changes in estimates, which impacted operating income in each of our segments for the three and six months ended June 30, 2013 and 2012.
Three months ended June 30, 2013
The Asia Pacific segment was primarily impacted by changes in estimates on one subsea project in Malaysia. On that project, we increased our estimated cost at completion by approximately $62.0 million in
the three months ended June 30, 2013, primarily due to project delays related to the availability of the marine vessel dedicated for this project, which required certain vessel upgrades. Marine campaign activities are now planned to occur in
two phases to avoid anticipated adverse weather periods. As a result, the project will require two vessel mobilizations, resulting in increases to the estimated costs to complete, including costs associated with forecasted liquidated damages. The
marine campaign has also been impacted by third-party vessel mechanical downtime. In consideration of these factors, the expected completion date for the project was extended from the fourth quarter of 2013 to the middle of 2014.
The Middle East segment was impacted by changes in estimates on one of our EPCI projects in Saudi Arabia. On that project, we increased
our estimated cost at completion by approximately $38.0 million in the three months ended June 30, 2013, primarily as a result of revisions to the projects execution plan, increases in our estimated cost to complete due to an extended
offshore hookup campaign requiring multiple vessel mobilizations and, to a lesser extent, delays in the completion of onshore activities. While the project recognized losses in the three months ended June 30, 2013, it remains in an overall
profitable position and is expected to be completed during the first half of 2014, subject to customer deliverables and concurrence on execution plans.
The Atlantic segment was impacted by changes in estimates on two projects. On one of those projects, we recognized approximately $7.0 million of incremental project losses in the three months ended
June 30, 2013, primarily due to lower than expected labor productivity. That project is currently in a loss position and is expected to be completed by the end of 2013. We also recognized project losses of approximately $3.0 million in the
three months ended June 30, 2013 on a fabrication project in Morgan City, which was completed during the quarter ended June 30, 2013.
11
Six months ended June 30, 2013
The Asia Pacific segment was primarily impacted by changes in estimates on one project. On this project (the project in Malaysia described
above), we increased our estimated cost at completion by approximately $66.0 million in the six months ended June 30, 2013, primarily due to project delays related to the availability of the marine vessel dedicated for this project, which
required certain vessel upgrades. Marine campaign activities are now planned to occur in two phases to avoid anticipated adverse weather periods. As a result, the project will require two vessel mobilizations, resulting in increases to the estimated
costs to complete, including costs associated with forecasted liquidated damages. The marine campaign has also been impacted by third-party vessel mechanical downtime.
The Middle East segment was impacted by changes in estimates on the EPCI project in Saudi Arabia discussed above. On that project, we increased our estimated cost at completion by approximately $43.0
million in the six months ended June 30, 2013, primarily as a result of revisions to the projects execution plan, increases in our estimated cost to complete due to an extended offshore hookup campaign requiring multiple vessel
mobilizations and, to a lesser extent, delays in the completion of onshore activities. While the project recognized losses in the six months ended June 30, 2013, it remains in an overall profitable position and is expected to be completed
during the first half of 2014, subject to customer deliverables and concurrence on execution plans.
The Atlantic segment was
impacted by changes in estimates on one project. On that project, we recognized approximately $14.0 million of incremental project losses in the six months ended June 30, 2013, primarily due to lower than expected labor productivity. That
project is currently in a loss position and is expected to be completed by the end of 2013.
2012 Periods
Operating income for each of the three-month and six-month periods ended June 30, 2012 was not significantly affected by changes in
estimates.
Loss Contingencies
We record liabilities for loss contingencies when it is probable that a liability has been incurred and the amount of loss is reasonably estimable. We provide disclosure when there is a reasonable
possibility that the ultimate loss will exceed the recorded provision or if such loss is not reasonably estimable. We are currently involved in litigation and other proceedings, as discussed in Note 10. We have accrued our estimates of the probable
losses associated with these matters, and associated legal costs are generally recognized in selling, general and administrative expenses as incurred. However, our losses are typically resolved over long periods of time and are often difficult to
estimate due to various factors, including the possibility of multiple actions by third parties. Therefore, it is possible future earnings could be affected by changes in our estimates related to these matters.
Cash and Cash Equivalents
Our cash and cash equivalents are highly liquid investments with maturities of three months or less when we purchase them. We record cash and cash equivalents as restricted when we are unable to freely
use such cash and cash equivalents for our general operating purposes. At June 30, 2013, all of our restricted cash was held in restricted foreign-entity accounts.
Investments
We classify investments available for current
operations as current assets in the accompanying balance sheets, and we classify investments held for long-term purposes as noncurrent assets. We adjust the amortized
12
cost of debt securities for amortization of premiums and accretion of discounts to maturity. That amortization is included in interest income. We include realized gains and losses on our
investments in other income (expense)net. The cost of securities sold is based on the specific identification method. We include interest earned on securities in interest income.
Investments in Unconsolidated Affiliates
We generally use the equity method of accounting for affiliates in which our investment ownership ranges from 20% to 50%. Currently, most of our significant investments in affiliates that are not
consolidated are recorded using the equity method.
Accounts Receivable
Accounts ReceivableTrade, Net
A summary of contract receivables is as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30,
2013
|
|
|
December 31,
2012
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands)
|
|
Contract receivables:
|
|
|
|
|
|
|
|
|
Contracts in progress
|
|
$
|
209,880
|
|
|
$
|
273,729
|
|
Completed contracts
|
|
|
61,450
|
|
|
|
38,858
|
|
Retainages
|
|
|
64,839
|
|
|
|
133,619
|
|
Unbilled
|
|
|
5,087
|
|
|
|
4,710
|
|
Less allowances
|
|
|
(22,531
|
)
|
|
|
(22,116
|
)
|
|
|
|
|
|
|
|
|
|
Accounts receivabletrade, net
|
|
$
|
318,725
|
|
|
$
|
428,800
|
|
|
|
|
|
|
|
|
|
|
We expect to invoice our unbilled receivables once certain milestones or other metrics are reached, and
we expect to collect all unbilled amounts. We believe that our provision for losses on uncollectible accounts receivable is adequate for our credit loss exposure.
Contract retainages generally represent amounts withheld by our customers until project completion, in accordance with the terms of the applicable contracts. The following is a summary of retainages on
our contracts:
|
|
|
|
|
|
|
|
|
|
|
June 30,
2013
|
|
|
December 31,
2012
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands)
|
|
Retainages expected to be collected within one year
|
|
$
|
64,839
|
|
|
$
|
133,619
|
|
Retainages expected to be collected after one year
|
|
|
95,286
|
|
|
|
32,085
|
|
|
|
|
|
|
|
|
|
|
Total retainages
|
|
$
|
160,125
|
|
|
$
|
165,704
|
|
|
|
|
|
|
|
|
|
|
We have included in accounts receivabletrade, net, retainages expected to be collected within one
year. Retainages expected to be collected after one year are included in other assets.
Accounts ReceivableOther
Accounts receivableother was $65.6 million and $75.5 million at June 30, 2013 and December 31, 2012,
respectively. The balance primarily relates to transactions with unconsolidated affiliates, receivables associated with our hedging activities and value-added tax. These amounts are expected to be collected within 12 months, and any allowance for
doubtful accounts on our accounts receivableother is based on our estimate of the
13
amount of probable losses due to the inability to collect these amounts (based on historical collection experience and other available information). As of June 30, 2013 and December 31,
2012, no such allowance for doubtful accounts was recorded.
Contracts in Progress and Advance Billings on Contracts
Contracts in progress was $623.9 million and $560.1 million at June 30, 2013 and December 31, 2012,
respectively. Advance billings on contracts was $301.4 million and $241.7 million at June 30, 2013 and December 31, 2012, respectively. A detail of the components of contracts in progress and advance billings on contracts is as
follows:
|
|
|
|
|
|
|
|
|
|
|
June 30,
2013
|
|
|
December 31,
2012
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands)
|
|
Costs incurred less costs of revenue recognized
|
|
$
|
83,354
|
|
|
$
|
65,321
|
|
Revenues recognized less billings to customers
|
|
|
540,576
|
|
|
|
494,833
|
|
|
|
|
|
|
|
|
|
|
Contracts in Progress
|
|
$
|
623,930
|
|
|
$
|
560,154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2013
|
|
|
December 31,
2012
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands)
|
|
Billings to customers less revenue recognized
|
|
$
|
467,049
|
|
|
$
|
394,352
|
|
Costs incurred less costs of revenue recognized
|
|
|
(165,623
|
)
|
|
|
(152,656
|
)
|
|
|
|
|
|
|
|
|
|
Advance Billings on Contracts
|
|
$
|
301,426
|
|
|
$
|
241,696
|
|
|
|
|
|
|
|
|
|
|
Fair Value of Financial Instruments
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in an
orderly transaction between market participants at the measurement date. An established hierarchy for inputs is used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that
the most observable inputs be used when available. Observable inputs are inputs that market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company.
Unobservable inputs are inputs that reflect our assumptions about the factors that market participants would use in valuing the asset or liability.
Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest
level of input that is available and significant to the fair value measurement:
|
|
|
Level 1inputs are based upon quoted prices for identical instruments traded in active markets.
|
|
|
|
Level 2inputs are based upon quoted prices for similar instruments in active markets, quoted prices for similar or identical instruments in
inactive markets and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets and liabilities.
|
|
|
|
Level 3inputs are generally unobservable and typically reflect managements estimates of assumptions that market participants would use in
pricing the asset or liability. The fair values are therefore determined using model-based techniques that include option pricing models, discounted cash flow models and similar valuation techniques.
|
14
The carrying amounts that we have reported for financial instruments, including cash and
cash equivalents, accounts receivables and accounts payable approximate their fair values. See Note 6 for additional information regarding fair value measurements.
Derivative Financial Instruments
Our worldwide operations give rise
to exposure to changes in certain market conditions, which may adversely impact our financial performance. When we deem it appropriate, we use derivatives as a risk management tool to mitigate the potential impacts of certain market risks. The
primary market risk we manage through the use of derivative instruments is movement in foreign currency exchange rates. We use foreign currency derivative contracts to reduce the impact of changes in foreign currency exchange rates on our operating
results. We use these instruments to hedge our exposure associated with revenues and/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.
In certain cases, contracts with our
customers contain provisions under which some payments from our customers are denominated in U.S. Dollars and other payments are denominated in a foreign currency. In general, the payments denominated in a foreign currency are designed to compensate
us for costs that we expect to incur in such foreign currency. In these cases, we may use derivative instruments to reduce the risks associated with foreign currency exchange rate fluctuations arising from differences in timing of our foreign
currency cash inflows and outflows. See Note 5 for additional information regarding derivative financial instruments.
Foreign Currency Translation
We translate assets and liabilities of our foreign operations, other than operations in highly inflationary economies, into U.S. Dollars at period-end exchange rates, and we translate income statement
items at average exchange rates for the periods presented. We record adjustments resulting from the translation of foreign currency financial statements as a component of accumulated other comprehensive income (loss) (AOCI), net of tax.
Earnings per Share
We have computed earnings per common share on the basis of the weighted average number of common shares, and, where dilutive, common share equivalents, outstanding during the indicated periods. See Note 8
for our earnings per share computations.
Accumulated Other Comprehensive Loss
The components of AOCI included in stockholders equity are as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30,
2013
|
|
|
December 31,
2012
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands)
|
|
Foreign currency translation adjustments
|
|
$
|
(2,886
|
)
|
|
$
|
(3,366
|
)
|
Net loss on investments
|
|
|
(1,875
|
)
|
|
|
(2,316
|
)
|
Net gain (loss) on derivative financial instruments
|
|
|
(58,316
|
)
|
|
|
11,735
|
|
Unrecognized losses on benefit obligations
|
|
|
(93,596
|
)
|
|
|
(100,466
|
)
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss
|
|
$
|
(156,673
|
)
|
|
$
|
(94,413
|
)
|
|
|
|
|
|
|
|
|
|
15
The following tables present the components of AOCI and the amounts that were reclassified
during the period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended
June 30, 2013
|
|
Unrealized holding
gain (loss) on
investment
|
|
|
Deferred gain
(loss) on
derivatives
(1)
|
|
|
Foreign
currency gain
(loss)
|
|
|
Defined benefit
pension plans gain (loss)
(2)
|
|
|
Total
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands)
|
|
Balance, March 31, 2013
|
|
$
|
(1,915
|
)
|
|
$
|
(5,819
|
)
|
|
$
|
3,848
|
|
|
$
|
(96,811
|
)
|
|
$
|
(100,697
|
)
|
Other comprehensive income (loss)
|
|
|
40
|
|
|
|
(55,563
|
)
|
|
|
(6,734
|
)
|
|
|
|
|
|
|
(62,257
|
)
|
Amounts reclassified from AOCI
|
|
|
|
|
|
|
3,066
|
(3)
|
|
|
|
|
|
|
3,215
|
(4)
|
|
|
6,281
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current period other comprehensive income (loss)
|
|
|
40
|
|
|
|
(52,497
|
)
|
|
|
(6,734
|
)
|
|
|
3,215
|
|
|
|
(55,976
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2013
|
|
$
|
(1,875
|
)
|
|
$
|
(58,316
|
)
|
|
$
|
(2,886
|
)
|
|
$
|
(93,596
|
)
|
|
$
|
(156,673
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended
June 30, 2012
|
|
Unrealized holding
gain (loss) on
investment
|
|
|
Deferred gain
(loss) on
derivatives
(1)
|
|
|
Foreign
currency gain
(loss)
|
|
|
Defined benefit
pension plans gain (loss)
(2)
|
|
|
Total
|
|
|
|
(Unaudited)
(In thousands)
|
|
Balance, March 31, 2012
|
|
$
|
(3,706
|
)
|
|
$
|
(1,657
|
)
|
|
$
|
(9,325
|
)
|
|
$
|
(85,233
|
)
|
|
$
|
(99,921
|
)
|
Other comprehensive income
|
|
|
431
|
|
|
|
(18,164
|
)
|
|
|
3,326
|
|
|
|
|
|
|
|
(14,407
|
)
|
Amounts reclassified from AOCI
|
|
|
|
|
|
|
1,107
|
(3)
|
|
|
|
|
|
|
2,681
|
(4)
|
|
|
3,788
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current period other comprehensive income
|
|
|
431
|
|
|
|
(17,057
|
)
|
|
|
3,326
|
|
|
|
2,681
|
|
|
|
(10,619
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2012
|
|
$
|
(3,275
|
)
|
|
$
|
(18,714
|
)
|
|
$
|
(5,999
|
)
|
|
$
|
(82,552
|
)
|
|
$
|
(110,540
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30,
2013
|
|
Unrealized holding
gain (loss) on
investment
|
|
|
Deferred gain
(loss) on
derivatives
(1)
|
|
|
Foreign
currency gain
(loss)
|
|
|
Defined benefit
pension plans gain (loss)
(2)
|
|
|
Total
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands)
|
|
Balance, December 31, 2012
|
|
$
|
(2,316
|
)
|
|
$
|
11,735
|
|
|
$
|
(3,366
|
)
|
|
$
|
(100,466
|
)
|
|
$
|
(94,413
|
)
|
Other comprehensive income (loss)
|
|
|
441
|
|
|
|
(71,013
|
)
|
|
|
480
|
|
|
|
|
|
|
|
(70,092
|
)
|
Amounts reclassified from AOCI
|
|
|
|
|
|
|
962
|
(3)
|
|
|
|
|
|
|
6,870
|
(4)
|
|
|
7,832
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current period other comprehensive income (loss)
|
|
|
441
|
|
|
|
(70,051
|
)
|
|
|
480
|
|
|
|
6,870
|
|
|
|
(62,260
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2013
|
|
$
|
(1,875
|
)
|
|
$
|
(58,316
|
)
|
|
$
|
(2,886
|
)
|
|
$
|
(93,596
|
)
|
|
$
|
(156,673
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30,
2012
|
|
Unrealized holding
gain (loss) on
investment
|
|
|
Deferred gain
(loss) on
derivatives
(1)
|
|
|
Foreign
currency gain
(loss)
|
|
|
Defined benefit
pension plans gain (loss)
(2)
|
|
|
Total
|
|
|
|
(Unaudited)
(In thousands)
|
|
Balance, December 31, 2011
|
|
$
|
(4,402
|
)
|
|
$
|
3,088
|
|
|
$
|
(12,438
|
)
|
|
$
|
(88,278
|
)
|
|
$
|
(102,030
|
)
|
Other comprehensive income
|
|
|
1,127
|
|
|
|
(24,051
|
)
|
|
|
6,439
|
|
|
|
|
|
|
|
(16,485
|
)
|
Amounts reclassified from AOCI
|
|
|
|
|
|
|
2,249
|
(3)
|
|
|
|
|
|
|
5,726
|
(4)
|
|
|
7,975
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current period other comprehensive income
|
|
|
1,127
|
|
|
|
(21,802
|
)
|
|
|
6,439
|
|
|
|
5,726
|
|
|
|
(8,510
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2012
|
|
$
|
(3,275
|
)
|
|
$
|
(18,714
|
)
|
|
$
|
(5,999
|
)
|
|
$
|
(82,552
|
)
|
|
$
|
(110,540
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Refer to Note 5 for additional details
|
(2)
|
Refer to Note 4 for additional details
|
(3)
|
Reclassified to cost of operations
|
(4)
|
Reclassified to selling, general and administrative expenses
|
Impairment Review
We review goodwill for impairment on an annual
basis or more frequently if circumstances indicate that impairment may exist. The annual impairment review involves comparing the fair value to the net book value of each applicable reporting unit and, therefore, is significantly impacted by
estimates and judgments.
We review our long-lived assets for impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. If an evaluation is required, the fair value of each applicable asset is compared to its carrying value. Factors that impact our determination of potential impairment include forecasted utilization of
equipment and estimates of forecasted cash flows from projects expected to be performed in future periods. Our estimates of cash flow may differ from actual cash flow due to, among other things, technological changes, economic conditions or changes
in operating performance. Any changes in such factors may negatively affect our business segments and result in future asset impairments.
Income Taxes
We provide for income taxes based on the tax laws and
rates in the countries in which we conduct our operations. MII is a Panamanian corporation that earns all of its income outside of Panama. As a result, we are not subject to income tax in Panama. We operate in various taxing jurisdictions around the
world. Each of these jurisdictions has a regime of taxation that varies, not only with respect to nominal rates, but also with respect to the basis on which these rates are applied. These variations, along with changes in our mix of income or loss
from these jurisdictions, may contribute to shifts, sometimes significant, in our effective tax rate.
Three months ended
June 30, 2013
For the three months ended June 30, 2013, we recognized a loss before provision for income taxes of $140.2
million, compared to income of $82.3 million in the three months ended June 30, 2012. In the aggregate, the provision for income taxes was $5.9 million and $28.3 million for the three months ended June 30, 2013 and 2012, respectively. The decline in
the provision for income taxes was principally driven by lower taxable income, which was partially offset by losses in certain tax jurisdictions where we do not expect to receive a tax benefit (primarily the United States, the United Arab Emirates
and Malaysia).
17
Six months ended June 30, 2013
For the six months ended June 30, 2013, we recognized a loss before provision for income taxes of $88.6 million, compared to income of
$172.9 million in the six months ended June 30, 2012. In the aggregate, the provision for income taxes was $33.2 million and $57.1 million for the six months ended June 30, 2013 and 2012, respectively. The decline in the provision for income taxes
was principally driven by lower taxable income, which was partially offset by losses in certain tax jurisdictions where we do not expect to receive a tax benefit (primarily the United States, the United Arab Emirates and Malaysia).
At June 30, 2013, we had foreign net operating loss carryforwards available to offset future taxable income in foreign jurisdictions,
with a valuation allowance of $69 million against $78 million of the related deferred taxes. The remaining $9 million of foreign deferred taxes is expected to be realized through future foreign taxable income. At June 30, 2013, we had U.S. federal
net operating loss carryforwards but have fully reserved the $133 million deferred tax asset.
Recently Issued
Accounting Standards
On July 18, 2013, the Financial Accounting Standards Board (FASB) issued an update to
the topic
Income Taxes
. The update clarifies that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss
carryforward, a similar tax loss, or a tax credit carryforward if such settlement is required or expected in the event the uncertain tax position is disallowed. In situations where these items are not available at the reporting date under the
tax law of the applicable jurisdiction or the tax law of the jurisdiction does not require, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements
as a liability and should not be combined with deferred tax assets. The update is effective for reporting periods after December 15, 2013 and the adoption of this update is not expected to have a material impact on our condensed consolidated
financial statements.
In February 2013, the FASB issued an update to the topic
Comprehensive Income
. The update
requires companies to provide additional information about the nature and amount of certain reclassifications out of AOCI, which impact the income statement. While the amendment does not change current reporting requirements, companies are
required to provide information about the amounts reclassified out of AOCI by the respective line item. The update is effective for reporting periods after December 15, 2012 and the adoption of this update did not have a material impact on
our condensed consolidated financial statements.
In January 2013, the FASB issued an update to the topic
Balance
Sheet
. This update requires new disclosures presenting detailed information regarding both the gross and net basis of derivatives and other financial instruments that are eligible for offset in the balance sheet or that are subject to a
master netting arrangement. The update is effective for the first quarter of 2013 and is to be applied retrospectively. As this new guidance relates to presentation only, the adoption of this update did not have a material impact on our
condensed consolidated financial statements.
NOTE 2ACQUISITION, DISPOSITIONS AND ATLANTIC RESTRUCTURING CHARGES
Acquisition
During the quarter ended March 31, 2013, we entered into a share purchase agreement to acquire all of the issued and outstanding shares of capital stock of Deepsea Group Limited, a United
Kingdom-based company that provides subsea and other engineering services to international energy companies, primarily through offices in the United Kingdom and the United States. Total consideration was approximately $9.0 million, which includes
cash ($6.0 million) and the delivery of 313,580 restricted shares of MII common stock (out of treasury). The transaction is being accounted for using the acquisition method and, accordingly, assets acquired and liabilities assumed are recorded at
their respective fair values. The preliminary purchase price allocation has not been
18
completed and is subject to change for a period of one-year following the acquisition. Results of operations and pro forma results have not been presented, as the effects of this transaction
were not material to our condensed consolidated financial statements.
Dispositions
Assets Held for Sale
We previously committed to a plan to sell four of our multi-function marine vessels, specifically the
Bold Endurance, DB 16
,
DB 26
and the
DLB KPI
. Assets classified as held for sale
are no longer depreciated. During the quarter ended March 31, 2013, we completed the sale of the
Bold Endurance
and the
DB 26
for aggregate cash proceeds of approximately $32.0 million, resulting in an aggregate gain of
approximately $12.5 million. We remain in active discussions with interested parties to sell the
DLB KP1
and
DB 16
.
Charter Fleet Business
On March 19, 2012, we completed the sale of
our former charter fleet business, which operated 10 of the 14 vessels acquired in 2007 in the Secunda Acquisition. The cash proceeds from the charter fleet sale were approximately $61.0 million, resulting in a gain on the sale of approximately $0.3
million. For the year ended December 31, 2011, we recognized an approximate $22.0 million write-down of our former charter fleet business.
The following table presents selected financial information regarding the results of operations attributable to our former charter fleet business:
|
|
|
|
|
|
|
Six Months Ended
June 30, 2012
|
|
|
|
(Unaudited)
(In thousands)
|
|
Revenues
|
|
$
|
8,184
|
|
|
|
|
|
|
Gain on disposal of discontinued operations
|
|
|
257
|
|
Income before provision for income taxes
|
|
|
3,240
|
|
|
|
|
|
|
Income from discontinued operations, net of tax
|
|
$
|
3,497
|
|
|
|
|
|
|
Atlantic Restructuring
We have previously implemented various cost reduction measures to better align our Atlantic operations with anticipated business levels. However, due to the continued decline and recurring operating
losses experienced in our Atlantic segment, we commenced a restructuring of this segments operations during the quarter ended June 30, 2013, which involves our Morgan City, Louisiana, Houston, Texas, New Orleans, Louisiana and Brazil
locations. The restructuring involves, among other things, reductions of administrative, fabrication and engineering personnel, and a plan to discontinue utilization of the Morgan City facility (after the completion of existing backlog projects,
which are currently forecasted to be completed in the second quarter of 2014). Future fabrication and marine operations in the Atlantic segment are expected to be executed using the Altamira, Mexico facility for the foreseeable future. In addition,
we have decided to exit a joint venture. Costs associated with the restructuring primarily include severance and other personnel-related costs, asset impairment and relocation costs and future unutilized lease costs. These costs are expected to
range between $45 million to $60 million in the aggregate, and the majority of these costs are expected to be recognized over four quarters beginning with the quarter ended June 30, 2013. Of the total anticipated costs, we incurred
approximately $15.5 million during the quarter ended June 30, 2013.
19
NOTE 3LONG-TERM DEBT AND NOTES PAYABLE
Credit Facility
In May 2010, we entered into a credit agreement with a syndicate of lenders and letter of credit issuers (as amended in August 2011, March 2013 and August 2013, the Credit Agreement). The
Credit Agreement provides for revolving credit borrowings and issuances of letters of credit in an aggregate outstanding amount of up to $950.0 million and is scheduled to mature on August 19, 2016. Proceeds from borrowings under the Credit
Agreement are available for working capital needs and other general corporate purposes. The Credit Agreement includes procedures for additional financial institutions to become lenders, or for any existing lender to increase its commitment
thereunder.
In August 2013, we amended the Credit Agreement to, among other things: (1) add certain amounts to EBITDA
(as defined in the Credit Agreement) for the fiscal quarters ended December 31, 2012, March 31, 2013 and June 30, 2013; (2) permit us to add to EBITDA certain cash expenses related to the Atlantic segment restructuring for the
quarters ending September 30, 2013, December 31, 2013 and March 31, 2014; and (3) increase the maximum permitted leverage ratio of total indebtedness to EBITDA from 3.00:1.00 to 3.75:1.00 for the quarters ending
September 30, 2013, December 31, 2013 and March 31, 2014. The August amendment to the Credit Agreement also provides that if we issue senior unsecured notes with a principal amount of at least $300 million, from the date of such
issuance until March 31, 2014, the maximum permitted leverage ratio will increase from 3.75:1.00 to 5.00:1.00 and we will have to comply with a maximum permitted secured leverage ratio of total secured indebtedness to EBITDA of 2.00:1.00. The
maximum leverage ratio and the minimum interest coverage ratio as defined in the Credit Agreement may differ in the method of calculation from similarly titled measures used by other companies or in other agreements. The Credit Agreement also
contains covenants that restrict, among other things, debt incurrence, liens, investments, acquisitions, asset dispositions, dividends, prepayments of subordinated debt, mergers and capital expenditures.
Other than customary mandatory prepayments in connection with casualty events, the Credit Agreement requires only interest payments on a
quarterly basis until maturity. We may prepay all loans under the Credit Agreement at any time without premium or penalty (other than customary LIBOR breakage costs), subject to certain notice requirements.
Our overall borrowing capacity is in large part dependent on maintaining compliance with covenants under the Credit Agreement by
generating sufficient income from operations. At June 30, 2013, we were in compliance with our covenant requirements. A comparison of the key financial covenants and compliance (prior to the amendment to the Credit Agreement effected in August 2013)
is as follows:
|
|
|
|
|
|
|
|
|
|
|
Required
|
|
|
Actual
|
|
Maximum leverage ratio
|
|
|
3.00
|
|
|
|
0.92
|
|
Minimum interest coverage ratio
|
|
|
4.00
|
|
|
|
17.19
|
|
Loans outstanding under the Credit Agreement bear interest at the borrowers option at either the
Eurodollar rate plus a margin ranging from 1.50% to 2.50% per year or the base rate (the highest of the Federal Funds rate plus 0.50%, the 30-day Eurodollar rate plus 1.0%, or the administrative agents prime rate) plus a margin ranging
from 0.50% to 1.50% per year. The applicable margin for revolving loans varies depending on the credit ratings of the Credit Agreement. We are charged a commitment fee on the unused portions of the Credit Agreement, and that fee varies between
0.200% and 0.450% per year depending on the credit ratings of the Credit Agreement. Additionally, we are charged a letter of credit fee of between 1.50% and 2.50% per year with respect to the amount of each financial letter of credit
issued under the Credit Agreement and a letter of credit fee of between 0.75% and 1.25% per year with respect to the amount of each performance letter of credit issued under the Credit Agreement, in each case depending on the credit ratings of
the Credit Agreement. Under the Credit Agreement, we also pay customary issuance fees and other fees and expenses in connection with the issuance of letters of credit under the Credit Agreement. In connection with entering into the Credit Agreement
and certain
20
amendments to the Credit Agreement, we paid certain fees to the lenders thereunder, and certain arrangement and other fees to the arrangers and agents for the Credit Agreement, which are being
amortized to interest expense over the term of the Credit Agreement.
At June 30, 2013, there were no borrowings
outstanding, and letters of credit issued under the Credit Agreement totaled $265.8 million. At June 30, 2013, there was $684.2 million available for borrowings or to meet letter of credit requirements under the Credit Agreement. There were no
borrowings under the Credit Agreement during the quarter ended June 30, 2013. Had there been any such borrowings at June 30, 2013, the applicable base interest rate would have been approximately 4.0% per annum. In addition, we had
$116.4 million in outstanding unsecured bilateral letters of credit at June 30, 2013.
At June 30, 2013, based on
the credit ratings applicable to the Credit Agreement, the applicable margin for Eurodollar-rate loans was 1.75%, the applicable margin for base-rate loans was 0.75%, the letter of credit fee for financial letters of credit was 1.75%, the letter of
credit fee for performance letters of credit was 0.875%, and the commitment fee for unused portions of the Credit Agreement was 0.25%. The Credit Agreement does not have a floor for the base rate or the Eurodollar rate.
North Ocean Financing
North Ocean 102
In December 2009, J. Ray McDermott, S.A.
(JRMSA), a wholly owned subsidiary of MII, entered into a vessel-owning joint venture transaction with Oceanteam ASA. As a result of this transaction, we had consolidated notes payable of $34.4 million and $37.3 million on our condensed
consolidated balance sheets at June 30, 2013 and December 31, 2012, respectively, of which $34.4 million and $6.0 million was classified as current notes payable at June 30, 2013 and December 31, 2012, respectively. JRMSA has
guaranteed approximately 50% of this debt based on its ownership percentages in the vessel-owning companies. The outstanding debt bears interest at a rate equal to the three-month LIBOR (which resets every three months) plus a margin of 3.315% and
matures in January 2014.
North Ocean 105
On September 30, 2010, MII, as guarantor, and North Ocean 105 AS, in which we have a 75% ownership interest, as borrower, entered into a financing agreement to finance a portion of the construction
costs of the
North Ocean 105
. The agreement provides for borrowings of up to $69.4 million, bearing interest at 2.76% per year, and requires principal repayment in 17 consecutive semi-annual installments, which commenced on
October 1, 2012. Borrowings under the agreement are secured by, among other things, a pledge of all of the equity of North Ocean 105 AS, a mortgage on the
North Ocean 105
, and a lien on substantially all of the other assets of North
Ocean 105 AS. MII unconditionally guaranteed all amounts to be borrowed under the agreement. There was $61.3 million and $65.4 million in borrowings outstanding under this agreement on our balance sheets at June 30, 2013 and
December 31, 2012, respectively, of which $8.2 million was classified as current notes payable at June 30, 2013 and December 31, 2012.
ANZ Reimbursement Agreement
On April 20, 2012, McDermott and
one of its wholly owned subsidiaries, McDermott Australia Pty. Ltd. (McDermott Australia), entered into a secured Letter of Credit Reimbursement Agreement (the Reimbursement Agreement) with Australia and New Zealand Banking
Group Limited (ANZ). In accordance with the terms of the Reimbursement Agreement, ANZ issued letters of credit in the aggregate amount of approximately $109.0 million to support McDermott Australias performance obligations under
contractual arrangements relating to a field development project. The obligations of McDermott and McDermott Australia under the Reimbursement Agreement are secured by McDermott Australias interest in the contractual arrangements and certain
related assets.
21
Surety Bonds
In 2012 and 2007, JRMSA executed general agreements of indemnity in favor of surety underwriters based in Mexico relating to surety bonds issued in support of contracting activities of J. Ray McDermott de
Mèxico, S.A. de C.V., a subsidiary of JRMSA. As of June 30, 2013, the aggregate principal amount of bonds issued under these arrangements totaled $46.2 million.
Long-term debt and notes payable obligations
A summary of our
long-term debt obligations are as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30,
2013
|
|
|
December 31,
2012
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands)
|
|
Long-term debt consists of:
|
|
|
|
|
|
|
|
|
North Ocean 102
Construction Financing
|
|
$
|
34,361
|
|
|
$
|
37,349
|
|
North Ocean 105
Construction Financing
|
|
|
61,274
|
|
|
|
65,359
|
|
|
|
|
|
|
|
|
|
|
|
|
|
95,635
|
|
|
|
102,708
|
|
Less: Amounts due within one year
|
|
|
42,531
|
|
|
|
14,146
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
$
|
53,104
|
|
|
$
|
88,562
|
|
|
|
|
|
|
|
|
|
|
NOTE 4PENSION PLANS
Although we currently provide retirement benefits for most of our U.S. employees through sponsorship of the McDermott
Thrift Plan, some of our longer-term U.S. employees and former employees are entitled to retirement benefits under the McDermott (U.S.) Retirement Plan, a non-contributory qualified defined benefit pension plan (the McDermott Plan), and
several non-qualified supplemental defined benefit pension plans. The McDermott Plan and the non-qualified supplemental defined benefit pension plans are collectively referred to herein as the Domestic Plans. The McDermott Plan has been
closed to new participants since 2006, and benefit accruals under the McDermott Plan were frozen completely in 2010.
We also
sponsor a defined benefit pension plan established under the laws of the Commonwealth of the Bahamas, the J. Ray McDermott, S.A. Third Country National Employees Pension Plan (the TCN Plan), which provides retirement benefits for certain
of our current and former foreign employees. Effective August 1, 2011, new entry into the TCN Plan was closed, and effective December 31, 2011, benefit accruals under the TCN Plan were frozen. Effective January 1, 2012, we established
a new global defined contribution plan to provide retirement benefits to non-U.S. expatriate employees who may have otherwise obtained benefits under the TCN Plan.
Net periodic benefit cost for the Domestic Plans and the TCN Plan includes the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic Plans
|
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
|
(Unaudited)
(In thousands)
|
|
Interest cost
|
|
$
|
11,831
|
|
|
$
|
6,569
|
|
|
$
|
11,998
|
|
|
$
|
13,262
|
|
Expected return on plan assets
|
|
|
(16,153
|
)
|
|
|
(8,905
|
)
|
|
|
(19,153
|
)
|
|
|
(17,905
|
)
|
Recognized net actuarial loss and other
|
|
|
2,714
|
|
|
|
2,228
|
|
|
|
5,866
|
|
|
|
4,818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
(1,608
|
)
|
|
$
|
(108
|
)
|
|
$
|
(1,289
|
)
|
|
$
|
175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TCN Plan
|
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
|
(Unaudited)
(In thousands)
|
|
Interest cost
|
|
$
|
467
|
|
|
$
|
461
|
|
|
$
|
934
|
|
|
$
|
922
|
|
Expected return on plan assets
|
|
|
(650
|
)
|
|
|
(611
|
)
|
|
|
(1,301
|
)
|
|
|
(1,222
|
)
|
Recognized net actuarial loss
|
|
|
508
|
|
|
|
447
|
|
|
|
1,015
|
|
|
|
893
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
325
|
|
|
$
|
297
|
|
|
$
|
648
|
|
|
$
|
593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 5DERIVATIVE FINANCIAL INSTRUMENTS
We enter into derivative financial instruments primarily to hedge certain firm purchase commitments and forecasted
transactions 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: (1) deferred as a component of AOCI until the hedged item is recognized in earnings; (2) offset against the change in fair value of the hedged firm commitment through earnings; or (3) recognized immediately in earnings. At the
inception and on an ongoing basis, we assess the hedging relationship to determine its effectiveness in offsetting changes in cash flows or fair value attributable to the hedged risk. 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. The ineffective portion of a derivatives change in fair value and any portion excluded from the assessment of
effectiveness are immediately recognized in earnings. Gains and losses on derivative financial instruments that are immediately recognized in earnings are included as a component of gain (loss) on foreign currencynet in our condensed
consolidated statements of income.
At June 30, 2013, the majority of our foreign currency forward contracts were
designated as cash flow hedging instruments. In addition, we deferred approximately $58.3 million of net losses on these derivative financial instruments in AOCI, and we expect to reclassify approximately $15.1 million of deferred losses out of AOCI
by June 30, 2014, as hedged items are recognized in earnings.
The notional value of our outstanding derivative contracts
totaled $1.5 billion at June 30, 2013, with maturities extending through 2017. Of this amount, approximately $815.9 million is associated with various foreign currency expenditures we expect to incur on one of our Asia Pacific segment EPCI
projects. These instruments consist of contracts to purchase or sell foreign-denominated currencies. At June 30, 2013, the fair value of these contracts was in a net liability position totaling $42.9 million.
23
The following tables summarize our derivative financial instruments:
Asset and Liability Derivatives
|
|
|
|
|
|
|
|
|
|
|
June 30,
2013
|
|
|
December 31,
2012
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands)
|
|
Derivatives Designated as Hedges:
|
|
|
|
|
|
|
|
|
Location
|
|
|
|
|
|
|
|
|
Accounts receivableother
|
|
$
|
5,427
|
|
|
$
|
12,311
|
|
Other assets
|
|
|
1,498
|
|
|
|
13,770
|
|
|
|
|
|
|
|
|
|
|
Total asset derivatives
|
|
$
|
6,925
|
|
|
$
|
26,081
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
15,539
|
|
|
$
|
3,604
|
|
Other liabilities
|
|
|
34,278
|
|
|
|
1,043
|
|
|
|
|
|
|
|
|
|
|
Total liability derivatives
|
|
$
|
49,817
|
|
|
$
|
4,647
|
|
|
|
|
|
|
|
|
|
|
The Effects of Derivative Instruments on our Financial Statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
|
(Unaudited)
(In thousands)
|
|
Derivatives Designated as Hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of loss recognized in other comprehensive income (loss)
|
|
$
|
(55,563
|
)
|
|
$
|
(18,164
|
)
|
|
$
|
(71,013
|
)
|
|
$
|
(24,204
|
)
|
Income (loss) reclassified from AOCI into income: effective portion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of operations
|
|
$
|
(2,845
|
)
|
|
$
|
676
|
|
|
$
|
(831
|
)
|
|
$
|
1,970
|
|
Loss recognized in income: ineffective portion and amount excluded from effectiveness testing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on foreign currencynet
|
|
$
|
7,291
|
|
|
$
|
9,115
|
|
|
$
|
4,442
|
|
|
$
|
11,465
|
|
NOTE 6FAIR VALUE MEASUREMENTS
The following is a summary of our available-for-sale securities measured at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total at
June 30, 2013
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands)
|
|
Mutual funds
(1)
|
|
$
|
2,058
|
|
|
$
|
|
|
|
$
|
2,058
|
|
|
$
|
|
|
Commercial paper
|
|
|
9,893
|
|
|
|
|
|
|
|
9,893
|
|
|
|
|
|
Asset-backed securities and collateralized mortgage obligations
(2)
|
|
|
8,092
|
|
|
|
|
|
|
|
2,190
|
|
|
|
5,902
|
|
Corporate notes and bonds
(3)
|
|
|
1,001
|
|
|
|
|
|
|
|
1,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
21,044
|
|
|
$
|
|
|
|
$
|
15,142
|
|
|
$
|
5,902
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total at
December 31, 2012
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
(In thousands)
|
|
Mutual funds
|
|
$
|
2,023
|
|
|
$
|
|
|
|
$
|
2,023
|
|
|
$
|
|
|
Commercial paper
|
|
|
29,737
|
|
|
|
|
|
|
|
29,737
|
|
|
|
|
|
Asset-backed securities and collateralized mortgage obligations
|
|
|
8,477
|
|
|
|
|
|
|
|
2,134
|
|
|
|
6,343
|
|
Corporate notes and bonds
|
|
|
5,755
|
|
|
|
|
|
|
|
5,755
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
45,992
|
|
|
$
|
|
|
|
$
|
39,649
|
|
|
$
|
6,343
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Various U.S. equities and other investments managed under mutual funds
|
(2)
|
Asset-backed and mortgage-backed securities with maturities of up to 26 years
|
(3)
|
Corporate notes and bonds with maturities of three years or less
|
Our Level 2 investments consist primarily of commercial paper, corporate notes and bonds, asset-backed commercial paper notes backed by a pool of mortgage-backed securities and mutual funds. The fair
value of our Level 2 investments was determined using a market approach which is based on quoted prices and other information for similar or identical instruments.
Our Level 3 investment consists of asset-backed commercial paper notes backed by a pool of mortgage-backed securities. The fair value of this Level 3 investment was based on the calculation of an overall
weighted-average valuation, using the prices of the underlying individual securities. Individual securities in the pool were valued based on market observed prices, where available. If market prices were not available, prices of similar securities
backed by similar assets were used.
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 three months and six months
ended June 30, 2013 and June 30, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
|
(Unaudited)
(In thousands)
|
|
Balance at beginning of period
|
|
$
|
6,157
|
|
|
$
|
6,177
|
|
|
$
|
6,343
|
|
|
$
|
6,030
|
|
Total realized and unrealized gains
|
|
|
18
|
|
|
|
456
|
|
|
|
228
|
|
|
|
898
|
|
Principal repayments
|
|
|
(273
|
)
|
|
|
(295
|
)
|
|
|
(669
|
)
|
|
|
(590
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
5,902
|
|
|
$
|
6,338
|
|
|
$
|
5,902
|
|
|
$
|
6,338
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
Unrealized Losses on Investments
Our net unrealized loss on investments was $1.9 million and $2.4 million at June 30, 2013 and December 31, 2012, respectively.
The investments in an unrealized loss position for twelve months or longer are asset-backed and mortgage-backed obligations. These investments have generally shown a positive trend and continue to perform, and we currently do not have the intent to
sell these securities before their anticipated recovery. Based on our analysis of these investments, we believe that none of our available-for-sale securities were other than temporarily impaired as of June 30, 2013. The amount of investments
in an unrealized loss position for less than twelve months was not significant for either of the periods presented. The following is a summary of our available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
Twelve Months or
Greater
|
|
|
|
Fair Value
|
|
|
Unrealized
Losses
|
|
|
|
(Unaudited)
(In thousands)
|
|
June 30, 2013
|
|
|
|
|
|
|
|
|
Mutual funds
|
|
$
|
2,058
|
|
|
$
|
|
|
Commercial paper
|
|
|
9,893
|
|
|
|
|
|
Asset-backed securities and collateralized mortgage obligations
|
|
|
8,092
|
|
|
|
(1,659
|
)
|
Corporate notes and bonds
|
|
|
1,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
21,044
|
|
|
$
|
(1,659
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months or
Greater
|
|
|
|
Fair Value
|
|
|
Unrealized
Losses
|
|
|
|
(Unaudited)
(In thousands)
|
|
December 31, 2012
|
|
|
|
|
|
|
|
|
Mutual funds
|
|
$
|
2,023
|
|
|
$
|
|
|
Commercial paper
|
|
|
29,737
|
|
|
|
|
|
Asset-backed securities and collateralized mortgage obligations
|
|
|
8,477
|
|
|
|
(2,376
|
)
|
Corporate notes and bonds
|
|
|
5,755
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
45,992
|
|
|
$
|
(2,376
|
)
|
|
|
|
|
|
|
|
|
|
Other Financial Instruments
We used the following methods and assumptions in estimating our fair value disclosures for our other financial instruments:
Cash and restricted cash and cash equivalents
. The carrying amounts that we have reported in the accompanying condensed consolidated balance sheets for cash, cash equivalents and restricted cash
and cash equivalents approximate their fair values and are classified as Level 1 within the fair value hierarchy.
Short-term and long-term debt.
The fair value of debt instruments is classified as Level 2 within the fair value hierarchy and is
valued using a market approach based on quoted prices for similar instruments traded in active markets. Where quoted prices are not available, the income approach is used to value these instruments based 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.
Forward contracts
. The fair value of forward contracts is classified as Level 2 within the fair value hierarchy and is valued using observable market parameters for similar instruments traded in
active markets.
26
Where quoted prices are not available, the income approach is used to value these forward contracts, which discounts future cash flows based on current market expectations and credit risk.
The estimated fair values of certain of our financial instruments are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2013
|
|
|
December 31, 2012
|
|
|
|
Carrying
Amount
|
|
|
Fair Value
|
|
|
Carrying
Amount
|
|
|
Fair Value
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands)
|
|
Balance Sheet Instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
427,711
|
|
|
$
|
427,711
|
|
|
$
|
640,147
|
|
|
$
|
640,147
|
|
Restricted cash and cash equivalents
|
|
$
|
24,486
|
|
|
$
|
24,486
|
|
|
$
|
18,116
|
|
|
$
|
18,116
|
|
Investments
|
|
$
|
21,044
|
|
|
$
|
21,044
|
|
|
$
|
45,992
|
|
|
$
|
45,992
|
|
Debt
|
|
$
|
(95,635
|
)
|
|
$
|
(98,640
|
)
|
|
$
|
(102,708
|
)
|
|
$
|
(106,324
|
)
|
Forward contracts
|
|
$
|
(42,892
|
)
|
|
$
|
(42,892
|
)
|
|
$
|
21,434
|
|
|
$
|
21,434
|
|
NOTE 7STOCK-BASED COMPENSATION
Equity instruments are measured at fair value on the grant date. Stock-based compensation expense is generally
recognized on a straight-line basis over the requisite service periods of the awards. Compensation expense is based on awards we expect to ultimately vest. Therefore, we have reduced compensation expense for estimated forfeitures based on our
historical forfeiture rates. Our estimate of forfeitures is determined at the grant date and is revised if our actual forfeiture rate is materially different from our estimate.
We use a Black-Scholes model to determine the fair value of certain share-based awards, such as stock options. Additionally, we use a
Monte Carlo model to determine the fair value of certain share-based awards that contain market and performance-based conditions. The use of these models requires highly subjective assumptions, such as assumptions about the expected life of the
award, vesting probability, expected dividend yield and the volatility of our stock price. Total stock-based compensation expense, net recognized for the three months and six months ended June 30, 2013 and June 30, 2012 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
|
(Unaudited)
(In thousands)
|
|
Stock Options
|
|
$
|
1,170
|
|
|
$
|
1,023
|
|
|
$
|
2,200
|
|
|
$
|
2,017
|
|
Restricted Stock and Restricted Stock Units
|
|
|
3,250
|
|
|
|
2,258
|
|
|
|
4,987
|
|
|
|
3,718
|
|
Performance Shares and Deferred Stock Units
|
|
|
1,767
|
|
|
|
1,235
|
|
|
|
2,923
|
|
|
|
2,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,187
|
|
|
$
|
4,516
|
|
|
$
|
10,110
|
|
|
$
|
7,810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
NOTE 8EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
|
(Unaudited)
(In thousands)
|
|
Income (loss) from continuing operations less noncontrolling interests
|
|
$
|
(149,423
|
)
|
|
$
|
52,739
|
|
|
$
|
(128,870
|
)
|
|
$
|
112,000
|
|
Income from discontinued operations, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,497
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to McDermott International, Inc.
|
|
$
|
(149,423
|
)
|
|
$
|
52,739
|
|
|
$
|
(128,870
|
)
|
|
$
|
115,497
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares (basic)
|
|
|
236,199,438
|
|
|
|
235,681,213
|
|
|
|
236,070,311
|
|
|
|
235,444,733
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options, restricted stock and restricted stock units
(1)
|
|
|
|
|
|
|
1,779,552
|
|
|
|
|
|
|
|
1,951,964
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted weighted average common shares and assumed exercises of stock options and vesting of stock awards
(diluted)
|
|
|
236,199,438
|
|
|
|
237,460,765
|
|
|
|
236,070,311
|
|
|
|
237,396,697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations less noncontrolling interests
|
|
|
(0.63
|
)
|
|
|
0.22
|
|
|
|
(0.55
|
)
|
|
|
0.48
|
|
Income from discontinued operations, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.01
|
|
Net income (loss) attributable to McDermott International, Inc.
|
|
|
(0.63
|
)
|
|
|
0.22
|
|
|
|
(0.55
|
)
|
|
|
0.49
|
|
Diluted earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations less noncontrolling interests
|
|
|
(0.63
|
)
|
|
|
0.22
|
|
|
|
(0.55
|
)
|
|
|
0.47
|
|
Income from discontinued operations, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.01
|
|
Net income (loss) attributable to McDermott International, Inc.
|
|
|
(0.63
|
)
|
|
|
0.22
|
|
|
|
(0.55
|
)
|
|
|
0.49
|
|
(1)
|
Approximately 2.9 million shares underlying outstanding stock-based awards were excluded from the computation of diluted earnings per share because they were
antidilutive for the three months and six months ended June 30, 2013. Approximately 1.8 million and 3.6 million shares underlying outstanding stock-based awards were excluded from the computation of diluted earnings per share because
they were antidilutive for the three months and six months ended June 30, 2012, respectively.
|
NOTE 9SEGMENT REPORTING
We report our financial results under a geographic-based reporting structure, which coincides with how our financial
information is reviewed and evaluated on a regular basis by our chief operating decision maker. We operate in four primary operating segments, which consist of Asia Pacific, Atlantic, Caspian and the Middle East. The Caspian and Middle East
operating segments are aggregated into the Middle East reporting segment due to the proximity of regions and similarities in the nature of services provided, economic characteristics and oversight responsibilities. Accordingly, we have three
reporting segments consisting of Asia Pacific, Atlantic and the Middle East. We also report certain corporate and other non-operating activities under the heading Corporate and Other.
28
Reporting segments are measured based on operating income, which is defined as revenues
reduced by total costs and expenses and equity in income (loss) of unconsolidated affiliates. Summarized financial information is shown in the following tables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
|
(Unaudited)
(In thousands)
|
|
Revenues
(1)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia Pacific
|
|
$
|
229,829
|
|
|
$
|
338,464
|
|
|
$
|
555,891
|
|
|
$
|
635,499
|
|
Atlantic
|
|
|
186,554
|
|
|
|
110,304
|
|
|
|
334,738
|
|
|
|
209,908
|
|
Middle East
|
|
|
230,867
|
|
|
|
440,480
|
|
|
|
564,109
|
|
|
|
771,519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
647,250
|
|
|
$
|
889,248
|
|
|
$
|
1,454,738
|
|
|
$
|
1,616,926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia Pacific
|
|
$
|
(32,395
|
)
|
|
$
|
46,605
|
|
|
$
|
55,557
|
|
|
$
|
104,039
|
|
Atlantic
|
|
|
(48,651
|
)
|
|
|
(14,042
|
)
|
|
|
(65,061
|
)
|
|
|
(26,035
|
)
|
Middle East
|
|
|
(68,490
|
)
|
|
|
46,819
|
|
|
|
(86,999
|
)
|
|
|
81,554
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income (loss)
|
|
$
|
(149,536
|
)
|
|
$
|
79,382
|
|
|
$
|
(96,503
|
)
|
|
$
|
159,558
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
(2)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia Pacific
|
|
$
|
41,430
|
|
|
$
|
21,666
|
|
|
$
|
45,185
|
|
|
$
|
38,231
|
|
Atlantic
|
|
|
34,303
|
|
|
|
52,615
|
|
|
|
56,313
|
|
|
|
64,490
|
|
Middle East
|
|
|
27,391
|
|
|
|
10,935
|
|
|
|
37,943
|
|
|
|
26,711
|
|
Corporate and Other
|
|
|
3,702
|
|
|
|
1,694
|
|
|
|
5,034
|
|
|
|
2,229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital expenditures
|
|
$
|
106,826
|
|
|
$
|
86,910
|
|
|
$
|
144,475
|
|
|
$
|
131,661
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia Pacific
|
|
$
|
4,507
|
|
|
$
|
5,235
|
|
|
$
|
9,537
|
|
|
$
|
10,092
|
|
Atlantic
|
|
|
5,181
|
|
|
|
6,111
|
|
|
|
11,986
|
|
|
|
13,295
|
|
Middle East
|
|
|
7,516
|
|
|
|
7,554
|
|
|
|
14,026
|
|
|
|
15,048
|
|
Corporate and Other
|
|
|
1,892
|
|
|
|
3,698
|
|
|
|
3,769
|
|
|
|
7,439
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total depreciation and amortization
|
|
$
|
19,096
|
|
|
$
|
22,598
|
|
|
$
|
39,318
|
|
|
$
|
45,874
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Drydock amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia Pacific
|
|
$
|
2,088
|
|
|
$
|
2,997
|
|
|
$
|
5,049
|
|
|
$
|
5,989
|
|
Atlantic
|
|
|
1,908
|
|
|
|
2,877
|
|
|
|
3,816
|
|
|
|
6,313
|
|
Middle East
|
|
|
385
|
|
|
|
621
|
|
|
|
1,066
|
|
|
|
1,305
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total drydock amortization
|
|
$
|
4,381
|
|
|
$
|
6,495
|
|
|
$
|
9,931
|
|
|
$
|
13,607
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Intersegment transactions included in revenues were not significant for any of the periods presented.
|
(2)
|
Total capital expenditures presents expenditures for which cash payments were made during the period. These amounts exclude approximately $10.8 million
and $1.3 million in accrued capital expenditures for the six months ended June 30, 2013 and 2012, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2013
|
|
|
December 31,
2012
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands)
|
|
Segment assets:
|
|
|
|
|
|
|
|
|
Asia Pacific
|
|
$
|
1,176,446
|
|
|
$
|
1,402,923
|
|
Atlantic
|
|
|
561,633
|
|
|
|
536,734
|
|
Middle East
|
|
|
1,262,792
|
|
|
|
1,006,284
|
|
Corporate and other
|
|
|
195,076
|
|
|
|
387,686
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
3,195,947
|
|
|
$
|
3,333,627
|
|
|
|
|
|
|
|
|
|
|
29
NOTE 10COMMITMENTS AND CONTINGENCIES
Litigation
The following discussion presents information relating to pending litigation discussed in Note 12Commitments and Contingencies in our Annual Report on Form 10-K for the year ended
December 31, 2012. There have been no material subsequent developments relating to these matters.
On or about
August 23, 2004, a declaratory judgment action entitled
Certain Underwriters at Lloyds London, et al. v. J. Ray McDermott, Inc. et al.
, was filed by certain underwriters at Lloyds, London and Threadneedle Insurance Company
Limited (the London Insurers), in the 23rd Judicial District Court, Assumption Parish, Louisiana, against MII, J. Ray McDermott, Inc. (JRMI) and two insurer defendants, Travelers and INA, seeking a declaration that the London
Insurers have no obligation to indemnify MII and JRMI for certain bodily injury claims, including claims for asbestos and welding rod fume personal injury which have been filed by claimants in various state courts. Additionally, Travelers filed a
cross-claim requesting a declaration of non-coverage in approximately 20 underlying matters. This proceeding was stayed by the Court on January 3, 2005. We do not believe an adverse judgment or material losses in this matter are probable, and,
accordingly, we have not accrued any amounts relating to this contingency. Although there is a possibility of an adverse judgment, the amount or potential range of loss is not estimable at this time. The insurer-plaintiffs in this matter commenced
this proceeding in a purported attempt to obtain a determination of insurance coverage obligations for occupational exposure and/or environmental matters for which we have given notice that we could potentially seek coverage. Because estimating
losses would require, for every matter, known and unknown, on a case-by-case basis, anticipating what impact on coverage a judgment would have and a determination of an otherwise expected insured value, damages cannot be reasonably estimated.
On December 16, 2005, a proceeding entitled
Antoine, et al. vs. J. Ray McDermott, Inc., et al. (Antoine
Suit),
was filed in the 24th Judicial District Court, Jefferson Parish, Louisiana, by approximately 88 plaintiffs against approximately 215 defendants, including our subsidiaries formerly known as JRMI and Delta Hudson Engineering
Corporation (DHEC), generally alleging injuries for exposure to asbestos, and unspecified chemicals, metals and noise while the plaintiffs were allegedly employed as Jones Act seamen. This case was dismissed by the Court on
January 10, 2007, without prejudice to plaintiffs rights to refile their claims. On January 29, 2007, 21 plaintiffs from the dismissed
Antoine Suit
filed a matter entitled
Boudreaux, et al. v. McDermott, Inc., et al.
(the Boudreaux Suit), in the United States District Court for the Southern District of Texas, against JRMI and our subsidiary formerly known as McDermott Incorporated, and approximately 30 other employer defendants, alleging Jones Act
seaman status and generally alleging exposure to welding fumes, solvents, dyes, industrial paints and noise. The Boudreaux Suit was transferred to the United States District Court for the Eastern District of Louisiana on May 2, 2007, which
entered an order in September 2007 staying the matter until further order of the Court due to the bankruptcy filing of one of the co-defendants. Additionally, on January 29, 2007, another 43 plaintiffs from the dismissed
Antoine Suit
filed a matter entitled
Antoine, et al. v. McDermott, Inc., et al. (
the New Antoine Suit
),
in the 164th Judicial District Court for Harris County, Texas, against JRMI, our subsidiary formerly known as McDermott Incorporated
and approximately 65 other employer defendants and 42 maritime products defendants, alleging Jones Act seaman status and generally alleging personal injuries for exposure to asbestos and noise. On April 27, 2007, the District Court entered an
order staying all activity and deadlines in the New Antoine Suit, other than service of process and answer/appearance dates, until further order of the Court. The New Antoine Suit plaintiffs filed a motion to lift the stay on February 20, 2009,
which is pending before the Texas District Court. The plaintiffs seek monetary damages in an unspecified amount in both the Boudreaux Suit and New Antoine Suit cases and attorneys fees in the New Antoine Suit. We cannot reasonably estimate the
extent of a potential judgment against us, if any, and we intend to vigorously defend these suits.
Additionally, due to the
nature of our business, we and our affiliates are, from time to time, involved in litigation or subject to disputes or claims related to our business activities, including, among other things:
|
|
|
performance- or warranty-related matters under our customer and supplier contracts and other business arrangements; and
|
30
|
|
|
workers compensation claims, Jones Act claims, occupational hazard claims, including asbestos-exposure claims, premises liability claims and
other claims.
|
Based upon our prior experience, we do not expect that any of these other litigation
proceedings, disputes and claims will have a material adverse effect on our consolidated financial condition, results of operations or cash flows; however, because of the inherent uncertainty of litigation and, in some cases, the availability and
amount of potentially applicable insurance, we can provide no assurance that the resolution of any particular claim or proceeding to which we are a party will not have a material effect on our consolidated financial condition, results of operations
or cash flows for the fiscal period in which that resolution occurs.
Environmental Matters
We have been identified as a potentially responsible party at various cleanup sites under the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended (CERCLA). CERCLA and other environmental laws can impose liability for the entire cost of cleanup on any of the potentially responsible parties, regardless of fault or the lawfulness of
the original conduct. Generally, however, where there are multiple responsible parties, a final allocation of costs is made based on the amount and type of wastes disposed of by each party and the number of financially viable parties, although this
may not be the case with respect to any particular site. We have not been determined to be a major contributor of wastes to any of these sites. On the basis of our relative contribution of waste to each site, we expect our share of the ultimate
liability for the various sites will not have a material adverse effect on our consolidated financial condition, results of operations or cash flows in any given year.
At June 30, 2013 we had total environmental reserves of $0.6 million, all of which was included in current liabilities. Inherent in the estimates of those reserves and recoveries are our expectations
regarding the levels of contamination, remediation costs and recoverability from other parties, which may vary significantly as remediation activities progress. Accordingly, changes in estimates could result in material adjustments to our operating
results, and the ultimate loss may differ materially from the amounts we have provided for in our consolidated financial statements.
Contracts Containing Liquidated Damages Provisions
Some of our
contracts contain 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 historically had potential exposure for liquidated damages, such damages ultimately were not asserted by our customers. As of
June 30, 2013, it is possible that we may incur liabilities for liquidated damages aggregating approximately $153.8 million, of which approximately $24.0 million has been recorded in our financial statements, based on our actual or
projected failure to meet certain specified contractual milestone dates. The dates for which these potential liquidated damages could arise extend to November 2013. We believe we will be successful in obtaining schedule extensions or other
customer-agreed changes that should resolve the potential for additional liquidated damages. Accordingly, we believe that no amounts for these potential liquidated damages in excess of the amounts currently reflected in our financial statements are
probable of being paid by us. However, we may not achieve relief on some or all of the issues.
Contractual Obligations
At June 30, 2013, we had outstanding obligations related to our new vessel construction contracts on the
LV 108
and
DLV 2000
of $418.6 million in the aggregate, with $98.0 million, $124.5 million and $196.1 million due in the years ending December 31, 2013, 2014 and 2015, respectively.
31