-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WgAV8dlE6Jo6/5VT5srtNo0cwAsdUzDeFIpr62NDExAqJf5Sq0468Dx4pQxm7kRQ eGOSEi36+XTybxE9wG9XxA== 0000899243-97-001287.txt : 19970715 0000899243-97-001287.hdr.sgml : 19970715 ACCESSION NUMBER: 0000899243-97-001287 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970714 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MCDERMOTT J RAY SA CENTRAL INDEX KEY: 0000934590 STANDARD INDUSTRIAL CLASSIFICATION: WATER, SEWER, PIPELINE, COMM AND POWER LINE CONSTRUCTION [1623] IRS NUMBER: 721278896 FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-13570 FILM NUMBER: 97640184 BUSINESS ADDRESS: STREET 1: 1450 POYDRAS ST STREET 2: PO BOX 61829 CITY: NEW ORLEANS STATE: LA ZIP: 70112-6050 BUSINESS PHONE: 5045874956 MAIL ADDRESS: STREET 1: 1450 POYDRAS STREET STREET 2: PO BOX 61829 CITY: NEW ORLEANS STATE: LA ZIP: 70161-1829 10-K 1 FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 F O R M 1 0 - K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the fiscal year ended March 31, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from _____________________ to ____________________ Commission File Number 1-13570 J. RAY McDERMOTT, S.A. (Exact name of registrant as specified in its charter) REPUBLIC OF PANAMA 72-1278896 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1450 Poydras Street, New Orleans, Louisiana 70112-6050 (Address of principal executive offices) (Zip Code) Registrant's Telephone Number, including area code (504) 587-5300 Securities Registered Pursuant to Section 12(b) of the Act: Name of each Exchange Title of each class on which registered ------------------- --------------------- Common Stock, $0.01 par value New York Stock Exchange 9-3/8% Senior Subordinated Notes due July 2006 New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of voting stock held by non-affiliates of the registrant was $342,147,904 as of May 12, 1997. The number of shares outstanding of the Company's Common Stock at May 12, 1997 was 40,627,188. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A under the Securities Exchange Act of 1934 in connection with the Company's 1997 Annual Meeting of Stockholders are incorporated by reference into Part III hereof. J. RAY McDERMOTT, S. A. INDEX - FORM 10-K PART 1
PAGE Items 1. & 2. BUSINESS AND PROPERTIES A. General 1 B. Description of Operations General 2 Foreign Operations 4 Raw Materials 4 Customers and Competition 4 Backlog 4 Factors Affecting Demand 5 C. Patents and Licenses 5 D. Insurance 6 E. Employees 6 F. Environmental Regulations and Matters 6 G. Transactions With Related Parties 7 Item 3. LEGAL PROCEEDINGS 8 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 9
II INDEX - FORM 10-K PART II
PAGE Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS 10 Item 6. SELECTED FINANCIAL DATA 11 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General 12 Fiscal Year 1997 vs Fiscal Year 1996 12 Fiscal Year 1996 vs Fiscal Year 1995 13 Effects of Inflation and Changing Prices 14 Liquidity and Capital Resources 15 New Accounting Standard 16 Item 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Company Report on Consolidated Financial Statements 17 Report of Independent Auditors 18 Consolidated Balance Sheet - March 31, 1997 and 1996 19 Consolidated Statement of Income (Loss) for the Three Fiscal Years ended March 31, 1997 21 Consolidated Statement of Equity for the Three Fiscal Years ended March 31, 1997 23 Consolidated Statement of Cash Flows for the Three Fiscal Years ended March 31, 1997 25 Notes to Consolidated Financial Statements 27 Item 9. DISAGREEMENTS WITH AUDITORS ON ACCOUNTING AND FINANCIAL DISCLOSURE 52
III INDEX - FORM 10-K PART III
PAGE Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 53 Item 11. EXECUTIVE COMPENSATION 53 Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 53 Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 53 PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K 54 Signatures 57 Exhibit 11 - STATEMENT RE COMPUTATION OF PER SHARE LOSS 61 Exhibit 21 - SIGNIFICANT SUBSIDIARIES OF THE REGISTRANT 62 Exhibit 23 - CONSENT OF INDEPENDENT AUDITORS 63 Exhibit 27 - FINANCIAL DATA SCHEDULE 64
IV P A R T I Items 1. and 2. BUSINESS AND PROPERTIES A. GENERAL During fiscal year 1995, McDermott International, Inc. contributed substantially all of its marine construction services business to J. Ray McDermott, S.A. ("JRM"), a new company incorporated under the laws of the Republic of Panama in 1994. Also, on January 31, 1995, JRM acquired Offshore Pipelines, Inc. (the "Merger"). Prior to the Merger with Offshore Pipelines, Inc. ("OPI"), JRM was a wholly owned subsidiary of McDermott International, Inc.; as a result of the Merger, JRM is a majority owned subsidiary of McDermott International, Inc. JRM's Common Stock and 9-3/8% Senior Subordinated Notes due July 2006 are publicly traded. McDermott International, Inc. received as consideration for its contribution to JRM: 3,200,000 shares of JRM Series A $2.25 Cumulative Convertible Preferred Stock; $231,000,000 of 9% Senior Subordinated Notes due 2001; 24,668,297 shares of JRM common stock; and other consideration. OPI investors received 13,867,946 shares of JRM common stock; options to acquire 897,818 shares of JRM common stock and 458,632 shares of JRM Series B $2.25 Cumulative Convertible Exchangeable Preferred Stock in exchange for all of the outstanding common stock, common stock options and preferred stock of OPI. During fiscal year 1996, 458,382 shares of Series B Preferred Stock were converted into 1,065,193 shares of common stock and the remaining 250 shares were redeemed for cash. The discussion set forth below under Items 1. and 2., Business and Properties, describes the business of JRM as currently conducted after the Merger. Unless the context otherwise requires, hereinafter, "JRM" will be used to mean J. Ray McDermott, S.A. and its consolidated subsidiaries; "International" will be used to mean McDermott International, Inc., a Panama corporation that is the parent company of the McDermott group of companies and the majority owner of JRM; and "McDermott International" will be used to mean the consolidated enterprise. JRM, together with its subsidiaries and joint ventures, supplies worldwide services for the offshore oil and gas exploration and production and hydrocarbon processing industries, and to other marine construction companies. Principal activities include the design, engineering, fabrication and installation of offshore drilling and production platforms and other specialized structures, modular facilities, marine pipelines and subsea production systems and onshore construction and maintenance services. JRM has a continuing program of reviewing joint venture, acquisition and disposition opportunities. 1 B. DESCRIPTION OF OPERATIONS GENERAL JRM's services include the basic and detailed design, engineering, fabrication and installation of offshore drilling and production platforms and other specialized structures, modular facilities, marine pipelines, and subsea production systems. JRM also provides comprehensive project management services, feasibility studies, engineering services, subsea trenching services, diving services, and removal, salvage and refurbishment services for offshore fixed platforms. JRM and its joint ventures operate throughout the world in all major offshore oil and gas producing regions, including the Gulf of Mexico, the North Sea, West Africa, South America, the Middle East, India and the Far East. JRM conducts operations both directly and through its participation in joint ventures, some of which it manages and others of which are managed by other marine construction contractors. Some of JRM's joint ventures are consolidated for financial reporting purposes while others are accounted for using either the equity or the cost method. JRM's joint ventures are largely financed through their own resources, including, in some cases, stand alone borrowing arrangements. JRM's two most significant joint venture investments are in the HeereMac joint venture, which is accounted for by the cost method, and the McDermott-ETPM West, Inc. joint venture, which is accounted for by the equity method. The HeereMac joint venture was formed with Heerema Offshore Construction Group, Inc. ("Heerema") in January 1989 and utilizes the specialized, heavy-lift marine construction vessels which were previously owned by the two parties. Each party has a 50% interest in the joint venture, and Heerema has responsibility for its day-to-day operations. In March 1996, JRM and Heerema, through their respective subsidiaries, sold to companies included in the HeereMac joint venture the semi submersible derrick vessels which they were formerly chartering to the joint venture (JRM's DB101 and DB102 and Heerema's Hermod and Balder). Effective as of the beginning of fiscal year 1997, JRM changed from the equity to the cost method of accounting for its investment in the HeereMac joint venture as a result of JRM's determination that it is unable to exercise significant influence over HeereMac's operating and financial policies. JRM formed its initial joint venture with ETPM S.A., McDermott-ETPM, in April 1989 to provide general marine construction services to the petroleum industry in West Africa, South America, the Middle East and India and offshore pipelaying services in the North Sea. With the addition of two new joint venture operating companies in March 1995, JRM and ETPM S.A. have expanded their joint venture's operations to include the Far East and to begin jointly pursuing subsea contracting work on a worldwide basis. Most of the operating companies in the McDermott-ETPM joint venture are majority-owned and controlled by JRM. However, the operations of McDermott-ETPM West, Inc., which conducts operations in the North Sea, South America and West Africa, are managed and controlled by ETPM S.A. ETPM S.A. has dedicated all of its marine construction assets to the joint ventures with JRM, including 3 combination derrick-pipelaying vessels and fabrication yards in Sharjah, U.A.E. and Tchengue, Gabon. JRM currently charters 4 combination derrick-pipelaying vessels and 1 pipelaying vessel to the ETPM joint venture and provides the use of its facilities in Jebel Ali in the U.A.E., Batam Island, Indonesia and Warri, Nigeria. 2 JRM participates in numerous other joint ventures (including joint ventures in Mexico and Malaysia) involving operations in foreign countries that require majority-ownership by local interests. Through a subsidiary, JRM also participates in an equally owned joint venture with the Brown & Root Energy Services unit of Halliburton Company ("Brown & Root"), which was formed in February 1995 to combine the operations of JRM's Inverness and Brown & Root's Nigg fabrication facilities in Scotland. JRM owns or operates 6 fabrication facilities throughout the world. JRM's principal domestic fabrication yard is located on 1,114 acres of land, under lease, near Morgan City, Louisiana. JRM also owns or operates fabrication facilities near Corpus Christi, Texas, near Inverness, Scotland, in Indonesia on Batam Island, in Jebel Ali, U.A.E. and in Warri, Nigeria. JRM's fabrication facilities are equipped with a wide variety of heavy-duty construction and fabrication equipment, including cranes, welding equipment, machine tools and robotic and other automated equipment, most of which is movable. JRM has the capability to fabricate a full range of offshore structures, from conventional jacket-type fixed platforms to deepwater platform configurations employing compliant-tower, tension leg, floating production platform and spar technology. JRM also fabricates platform deck structures and modular components, including complete production processing systems, hydrocarbon separation and treatment systems, pressure and flow control systems and personnel quarters. Expiration dates, including renewal options, of leases covering land for JRM's fabrication yards follow: Morgan City, Louisiana Years 2000-2033 Jebel Ali, U.A.E. Year 2005 Batam Island, Indonesia Year 2008 Warri, Nigeria Year 2065 JRM owns or, through its ownership interests in joint ventures, has interests in the largest fleet of marine equipment used in major offshore construction. The nucleus of a "construction spread" is a large derrick barge, pipelaying barge or combination derrick-pipelaying barge capable of offshore operations for an extended period of time in remote locations. JRM owns or, through ownership interests in joint ventures, has interests in 9 derrick vessels, 6 pipelaying vessels, 10 combination derrick-pipelaying vessels and 3 pipe burying vessels. The lifting capacities of the derrick and combination derrick-pipelaying vessels range from 250 to 13,200 tons. These vessels range in length from 400 to 660 feet and are fully equipped with stiff leg or revolving cranes, auxiliary cranes, welding equipment, pile-driving hammers, anchor winches and a variety of additional gear. Some of these vessels hold various records for heavy lifts and installations of deepwater pipelines in different regions of the world. The largest vessels are the derrick barge DB 102, which is one of the world's largest semi submersible derrick vessels in both size and lifting capacity and provides quarters for approximately 750 workers, and the LB 200, a semi submersible pipelaying vessel capable of laying 60-inch diameter pipe (including concrete coating) and operating in water depths of up to 2,000 feet. To support the operations of these major marine construction vessels, JRM and its joint ventures also own or lease a substantial number of other vessels, such as tugboats, utility boats, launch barges and cargo barges. In connection with its construction and pipelaying 3 activities, JRM conducts diving operations which, because of the water depths involved, require sophisticated equipment, including diving bells and an underwater habitat. FOREIGN OPERATIONS The amount of JRM's revenues and operating income derived from operations outside of the United States, and the approximate percentages of those revenues and operating income to JRM's total revenues and total geographic area operating income, respectively, follows: GEOGRAPHIC AREA REVENUES OPERATING INCOME FISCAL YEAR AMOUNT PERCENT AMOUNT PERCENT (Dollars in thousands) 1997 $ 803,778 59% $31,948 77% 1996 835,551 68% 28,058 71% 1995 778,134 69% 79,515 110% Revenues and geographic area operating income presented above do not include the operating results of JRM's equity investees. RAW MATERIALS The raw materials used by JRM, such as carbon and alloy steel in various forms, welding gases, concrete, fuel oil and gasoline, are available from many sources and JRM is not dependent upon any single supplier or source. Although shortages of certain of these raw materials and fuels have existed from time to time, no serious shortage exists at the present time. CUSTOMERS AND COMPETITION JRM's principal customers are oil and gas companies, including foreign government owned companies. Customers generally contract with JRM for the design, engineering, fabrication and installation of offshore drilling and production platforms and other specialized structures, modular facilities, marine pipelines and subsea production systems and onshore construction and maintenance services. Contracts are usually awarded on a competitive bid basis. There are a number of companies which compete effectively with JRM, the HeereMac joint venture, McDermott-ETPM and JRM's other joint ventures in each of the separate marine construction phases in various parts of the world. BACKLOG As of March 31, 1997 and 1996, JRM's backlog amounted to $1,760,226,000 and $977,896,000, respectively. Of the March 31, 1997 backlog, it is expected that approximately $1,278,424,000 will be recognized in revenues in fiscal year 1998, $437,401,000 in fiscal year 1999, and $44,401,000 thereafter. 4 During fiscal year 1997, JRM received contract awards valued at $141,000,000 for the fabrication and installation of the Genesis spar platform, a deepwater development in the Gulf of Mexico by Chevron U.S.A. Production Company; a $140,000,000 contract for the design, fabrication, and installation of a compliant tower to be installed in 1,754 feet of water in the Gulf of Mexico for Texaco Exploration & Production Inc.; and a contract valued at $88,000,000 for work awarded by Unocal Thailand, Ltd., a wholly-owned subsidiary of Union Oil Company of California, in the Gulf of Thailand for the first phase development of its Pailin Field. In addition, JRM's McDermott-ETPM East, Inc. joint venture was awarded a $130,000,000 contract by Qatar Liquefied Gas Company ("Qatargas") for the offshore portion of the third train of its Ras Laffan Liquified Natural Gas project. The remaining backlog of all contracts with the above four customers at March 31, 1997 is $683,609,000. Not included in JRM's backlog at March 31, 1997 and 1996 was backlog relating to contracts to be performed by unconsolidated joint ventures of approximately $1,439,000,000 and $1,374,000,000, respectively. Work has historically been performed on a fixed price, cost plus or day rate basis or combination thereof. More recently, certain partnering type contracts have seen the introduction of a risk and reward element wherein a portion of total compensation is tied to the overall performance of the alliance partners. JRM attempts to cover increased costs of anticipated changes in labor, material and service costs of long-term contracts either through an estimation of such changes, which is reflected in the original price, or through price escalation clauses. Most long-term contracts have provisions for progress payments. FACTORS AFFECTING DEMAND The activity of JRM depends mainly on the capital expenditures of oil and gas companies and foreign governments for developmental construction. These expenditures are influenced by the selling price of oil and gas along with the cost of production and delivery, the terms and conditions of offshore leases, the discovery rates of new reserves offshore, the ability of the oil and gas industry to raise capital, and local and international political and economic conditions. Oil company capital exploration and production budgets for calendar year 1997 are higher than 1996 expenditures. While oil prices remain flat, domestic natural gas prices have increased as compared to calendar year 1995. Expenditures in both domestic and international areas are expected to increase; domestic at a higher rate. Worldwide demand for offshore drilling rigs has increased and this, historically, has been a leading indicator for an increase in the need for marine construction services. JRM's markets are expected to begin to emerge from the competitive environment that has put pressure on margins in prior periods. C. PATENTS AND LICENSES JRM owns or has exclusive rights to use, for marine construction purposes, a number of patents relating to offshore platform design, fabrication and installation and pipelaying operations. JRM also co-owns several other patents relating to such operations. Although in the aggregate these patents are important to JRM, JRM does not consider any single patent to be of a critical or essential nature. In general, JRM depends on its technological capabilities and the application of know-how rather than patents in the conduct of its business. 5 D. INSURANCE JRM's offshore construction business is subject to the usual risks of operations at sea, with additional exposure due to the utilization of expensive construction equipment, sometimes under extreme weather conditions, often in remote areas of the world. In addition, JRM operates in many cases on or in proximity to existing offshore facilities which are subject to damage by JRM and such damage could result in the escape of oil and gas into the sea. JRM maintains liability and property insurance that it considers normal in the industry. However, certain risks are either not insurable or insurance is available only at rates which JRM considers uneconomical. Among such risks are war and confiscation of property in certain areas of the world and pollution liability in excess of relatively low limits. Depending on competitive conditions and other factors, JRM endeavors to obtain contractual protection against uninsured risks from its customers. However, there is no assurance that insurance or contractual indemnity protection, when obtained, will be sufficient or effective under all circumstances or against all hazards to which JRM may be subject. E. EMPLOYEES At March 31, 1997, JRM employed, under its direct supervision, approximately 10,800 persons compared with 10,400 at March 31, 1996. JRM considers its relationship with its employees to be satisfactory. None of these employees are members of labor unions. F. ENVIRONMENTAL REGULATIONS AND MATTERS JRM is subject to the existing and evolving standards relating to the environment. These laws include the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 and similar laws which provide for responses to and liability for releases of hazardous substances into the environment; and the Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act and other federal laws, each as amended, and similar foreign, state or local counterparts to these federal laws, which regulate air emissions, water discharges, hazardous substances and wastes, and require public disclosure related to use of various hazardous substances. JRM's operations are also governed by laws and regulations relating to workplace safety and worker health, primarily Occupational Safety and Health Act and regulations promulgated thereunder. JRM believes that its facilities are in substantial compliance with current regulatory standards. JRM's compliance with U.S. federal, state and local environmental control and protection regulations did not necessitate any capital expenditures in fiscal year 1997, and it expects such capital expenditures will not be material for the foreseeable future. JRM cannot predict all of the environmental requirements or circumstances which will exist in the future but it anticipates that environmental control and protection standards will become increasingly stringent and costly. Complying with existing environmental regulations resulted in pretax charges of approximately $1,469,000 in fiscal year 1997. Compliance with existing government regulations controlling the discharge of materials into the environment, or otherwise relating to the protection of the environment does not have, nor is it expected to have, a material adverse effect upon the consolidated financial position of JRM. 6 G. TRANSACTIONS WITH RELATED PARTIES JRM has material transactions occurring during the normal course of operations with McDermott International and other affiliated companies. JRM has also entered into various agreements with International and its subsidiaries. (See Note 6 to the consolidated financial statements.) JRM purchased engineering services from McDermott International based on charges to unrelated parties for similar work and for general and administrative activities based on an allocation of cost. Effective April 1, 1996, JRM and McDermott International, through subsidiaries, formed a joint venture which is a preferred (but not exclusive) provider of engineering services to certain subsidiaries of McDermott International in the U.S. for onshore-related work and to JRM for offshore-related work. The charges for such services are based on charges to unrelated parties for similar work and for general and administrative activities based on allocation of cost. Arrangements for pricing these services are reviewed periodically by the parties. While JRM's employee liability, comprehensive, general liability, property, marine and other insurance programs are placed through commercial insurance carriers, substantially all of such employee liability exposure is reinsured, and significant deductibles under JRM's other insurance programs are insured, by wholly owned insurance subsidiaries of McDermott International. The premiums charged by such insurance companies of McDermott International for such insurance are based upon the claims experience and forecasted activities of JRM and its subsidiaries. Management believes this approach is more cost effective as there is generally no commercial market for insurance on the same economic terms for these types of exposure. 7 Item 3. LEGAL PROCEEDINGS Due to the nature of its business, JRM is, from time to time, involved in routine litigation related to its business operations. It is management's opinion that none of this litigation will have a material adverse effect on the consolidated financial position of JRM. In addition to matters of the type referred to in the preceding paragraph, JRM and International are conducting an internal investigation, with the assistance of outside counsel, of allegations of wrongdoing by a limited number of former employees of JRM and International and by others. JRM and International notified the appropriate authorities in April 1997. In June 1997, International received a federal grand jury subpoena for documents relating principally to an investigation of possible anti-competitive activity in the heavy-lift barge service business of JRM and HeereMac. In July 1997, International received an informal request from the Securities and Exchange Commission for the voluntary production of documents. JRM and International are cooperating with the authorities. The allegations which are the subject of the internal investigation, if true, and the outcome of the grand jury proceedings, could result in civil and/or criminal liability. At this time, JRM and International do not have sufficient information to predict the ultimate outcome of this matter. 8 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted during the fourth quarter of the fiscal year covered by this report to a vote of security holders, through the solicitation of proxies or otherwise. 9 P A R T I I Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS JRM's Common Stock is traded on the New York Stock Exchange. High and low stock prices for the fiscal years ended March 31, 1996 and 1997 follow: FISCAL YEAR 1996 ---------------- SALES PRICE QUARTER ENDED HIGH LOW - ------------- ---- --- June 30, 1995 $28-5/8 $21-1/2 September 30, 1995 24-3/8 20-3/4 December 31, 1995 22-7/8 15 March 31, 1996 21-7/8 16 FISCAL YEAR 1997 ---------------- SALES PRICE QUARTER ENDED HIGH LOW - ------------- ---- --- June 30, 1996 $26-3/8 $18-7/8 September 30, 1996 29-7/8 21 December 31, 1996 30 21-1/2 March 31, 1997 26-1/8 21-3/4 JRM has not paid any dividends on its Common Stock since inception, and management does not anticipate any such dividends will be paid for the foreseeable future. As of March 31, 1997, the approximate number of record holders of Common Stock was 704. 10 Item 6. SELECTED FINANCIAL DATA
FOR THE FISCAL YEARS ENDED MARCH 31, 1997 1996 1995 1994 1993 ----------- ----------- ---------- ---------- ---------- (In thousands) Revenues $1,367,587 $1,227,841 $1,127,320 $1,193,881 $1,601,060 Income (Loss) before Cumulative Effect of Accounting Changes $ (11,826) $ 187 $ 60,700 $ 119,137 $ 95,756 Net Income (Loss) $ (11,826) $ 187 $ 59,374 $ 119,137 $ 37,011 Net Loss Applicable to Common Stock $ (19,026) $ (7,524) - - - Primary and Fully Diluted Loss Per Common Share $(0.47) $(0.19) - - - Total Assets $1,459,668 $1,537,745 $1,482,262 $1,007,609 $ 932,528 Long-Term Debt $ 273,443 $ 114,532 $ 93,872 $ 2,092 $ 1,115 Notes Payable to McDermott International - 231,000 231,000 281,419 239,301 ---------- ---------- ---------- ---------- ---------- Total Long-Term Debt $ 273,443 $ 345,532 $ 324,872 $ 283,511 $ 240,416
Fiscal year 1997 results include gains on asset disposals of $60,409,000 and asset impairment losses of $31,390,000. See Note 4 to the consolidated financial statements regarding the change to the cost method of accounting for JRM's investment in the HeereMac joint venture in fiscal year 1997. Equity income of HeereMac was $1,083,000, $6,244,000, $79,386,000 and $44,318,000 in fiscal years 1996, 1995, 1994 and 1993, respectively. Beginning in fiscal year 1997, only distributions of profits received from HeereMac will be included in income. JRM received distributions of profits from HeereMac of $25,741,000 and $42,899,000 in fiscal years 1995 and 1994, respectively. There were no distributions of profits in fiscal years 1997, 1996 or 1993. See Note 1 regarding the basis of presentation of the selected financial data, see Note 2 regarding the adoption of SFAS No. 112 in fiscal year 1995 and see Note 3 regarding the acquisition of OPI. Fiscal year 1993, includes the cumulative effect of the adoption of SFAS No. 106. See Note 12 regarding an internal investigation of allegations of wrongdoing by a limited number of former employees of JRM and International, and by others. Earnings per Common Share are not presented for fiscal years 1993 through 1995 because JRM was not a separate entity with its own capital structure during those periods. 11 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL A significant portion of JRM's revenues and operating results are derived from its foreign operations. As a result, JRM's operations and financial results are affected by international factors, such as changes in foreign currency exchange rates. JRM attempts to minimize its exposure to changes in foreign currency exchange rates by attempting to match foreign currency contract receipts with like foreign currency disbursements. To the extent that it is unable to match the foreign currency receipts and disbursements related to its contracts, its practice of entering into forward exchange contracts to hedge foreign currency transactions reduces the impact of foreign exchange rate movements on operating results. Revenues of JRM are largely a function of the level of oil and gas development activity in the world's major hydrocarbon producing regions. Consequently, revenues reflect the variability associated with the timing of significant development projects. JRM's operating results have been adversely affected by a substantial decline in significant projects in Southeast Asia, and low margins in all of its other major markets. JRM expects improvements in its markets, especially in Southeast Asia and the Gulf of Mexico. Consolidated backlog has increased significantly and there have been some pricing improvements. The foregoing statements regarding JRM's markets and other statements in this discussion are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties. These include the uncertainties relating to offshore development decisions to be made by oil and gas exploration and development companies. FISCAL YEAR 1997 VS FISCAL YEAR 1996 Revenues increased $139,746,000 to $1,367,587,000 primarily due to higher volume in North America, the Middle East and the Far East. These were partially offset by lower volume in the North Sea and lower leasing revenues due to the sale of the DB101 and DB102 to the HeereMac joint venture. Operating income by geographic area increased $2,402,000 to $41,745,000. Net gains on asset disposals, after deduction for certain writedowns of asset valuations, were $29,019,000 in fiscal year 1997 and $2,530,000 in fiscal year 1996. Excluding these net gains, operating income decreased $24,087,000. The decrease was primarily due to lower volume in the North Sea, lower leasing activities due to the sale of the DB101 and DB102, lower margins in the Far East, and the completion of profitable contracts in West Africa in the prior year. These decreases were partially offset by higher volume in North America and in the Middle East. Equity in income (loss) of investees decreased $17,188,000 from income of $9,124,000 to a loss of $8,064,000. This decrease was primarily due to lower results from the McDermott-ETPM West, Inc. joint venture. Revenues of the McDermott-ETPM West, Inc. joint venture increased $97,207,000 to $347,849,000 in fiscal year 1977 primarily due to increased volume in the North Sea and West Africa. Equity in income of this joint venture 12 decreased $19,366,000 to a loss of $16,833,000 in fiscal year 1997 primarily due to lower margins in West Africa. In addition, there were favorable results from a Mexican joint venture. Backlog at March 31, 1997 and 1996 was $1,760,226,000 and $977,896,000, respectively. Not included in backlog at March 31, 1997 and 1996 was backlog relating to contracts to be performed by its unconsolidated joint ventures of approximately $1,439,000,000 and $1,374,000,000, respectively. Interest income increased $10,373,000 to $16,387,000 primarily due to interest on the promissory note received as part of the consideration from the sale of the DB101 and DB102. Interest expense decreased $2,344,000 to $40,043,000 primarily due to changes in debt obligations and interest rates prevailing thereon. Other-net income increased $2,315,000 to $7,314,000, primarily due to foreign currency transaction gains in the current year compared to foreign currency transaction losses in the prior year. The provision for income taxes increased $7,663,000 to $12,555,000 while income before provision for income taxes decreased $4,350,000 to $729,000. JRM operates in many different tax jurisdictions. Within these jurisdictions, tax provisions vary because of nominal rates, allowability of deductions, credits and other benefits, and even tax basis (for example, revenue versus income). These variances, along with variances in the mix of income within jurisdictions, are responsible for shifts in the effective tax rate. FISCAL YEAR 1996 VS FISCAL YEAR 1995 Revenues increased $100,521,000 to $1,227,841,000 primarily due to higher purchased engineered equipment and subcontract activities in the North Sea related to the B.P. Exploration Foinaven Development program west of the Shetlands in the North Atlantic, higher revenues in North America and revenues resulting from the acquisition of OPI. These increases were partially offset by lower revenues in the Far East. Operating income by geographic area decreased $33,195,000 to $39,343,000 primarily due to higher amortization expense relating to goodwill and other intangibles resulting from the acquisition of OPI on January 31, 1995. There were also lower margins due to the completion of higher profit margin contracts in the Far East and the Middle East during fiscal year 1995, lower volume in the Far East this year, lower operating income in North America on offshore activities because of weather downtime and lower margins on certain contracts. This decrease was partially offset by higher volume and margins in North America on fabrication activities this year. In addition, there were operating losses associated with the fabrication yard in Scotland and accelerated depreciation of $4,314,000 on certain marine equipment in the Far East in the prior year. Equity in income of investees decreased $13,733,000 to $9,124,000. This decrease was primarily due to lower results from both the HeereMac and McDermott-ETPM West, Inc. joint ventures. The revenues of these two joint ventures declined from $656,490,000 to 13 $542,772,000, primarily in the Gulf of Mexico, the Far East and the North Sea, partially offset by increased volume in West Africa. The equity income from these two joint ventures declined from $24,759,000 to $3,616,000 as a result of reduced volume and margins in the North Sea. Together these two significant investees accounted for 40% of equity earnings of investees. Equity income in fiscal year 1996 benefited from the inclusion of the results of the CMM Mexican joint venture which was not a part of JRM's marine construction services business in the prior period and higher operating activity from the Brown & Root McDermott Fabricators Limited joint venture which was formed in the last quarter of the prior year. Interest income decreased $3,284,000 to $6,014,000 primarily due to settlement of claims for interest relating to foreign tax refunds and contract claims of $4,868,000 in the prior year. Interest expense increased $17,229,000 to $42,387,000 primarily due to interest on the 12.875% Guaranteed Senior Notes which were assumed in connection with the acquisition of OPI, and changes in other debt obligations and interest rates prevailing thereon. Other-net income increased $3,543,000 to $4,999,000 primarily due to minority shareholder participation in the increased losses of the McDermott-ETPM East joint venture. The provision for income taxes decreased $3,993,000 to $4,892,000 while income before provision for income taxes and cumulative effect of accounting changes decreased $64,506,000 to $5,079,000. The reduction in income taxes is primarily due to a decrease in income and a reappraisal of approximately $4,800,000 of liabilities in certain foreign tax jurisdictions. Effects of Inflation and Changing Prices - ---------------------------------------- JRM's financial statements are prepared in accordance with generally accepted accounting principles, using historical dollar accounting (historical cost). Statements based on historical cost, however, do not adequately reflect the cumulative effect of increasing costs and changes in the purchasing power of the dollar, especially during times of significant and continued inflation. The management of JRM is cognizant of the effects of inflation and, in order to minimize the negative impact of inflation on its operations, attempts to cover the increased cost of anticipated changes in labor, material and service costs, either through an estimation of such changes, which is reflected in an original price, or through price escalation clauses in its contracts. Liquidity and Capital Resources - ------------------------------- During fiscal year 1997, JRM's cash and cash equivalents decreased $31,460,000 to $134,948,000 and total debt decreased $59,124,000 to $382,538,000, primarily due to a net reduction in short-term borrowings of $72,094,000. During this period, JRM provided cash of $109,391,000 from operating activities and received cash of $244,375,000 from the issuance of long-term debt, $57,636,000 from asset disposals 14 and $12,500,000 from returns from investees. JRM used cash of $74,866,000 for net purchases of short-term investments, $56,790,000 for additions to property, plant and equipment, $244,090,000 for repayment of long-term debt, and $7,200,000 for dividends on JRM's preferred stock. Cash from asset disposals includes proceeds of $38,400,000 from the sale of JRM's interest in CCC Fabricaciones y Construcciones, S.A. de C.V., a Mexican joint venture, 2 derrick barges and other assets to Global Industries, Ltd. and proceeds of $15,050,000 from the sale of a marine vessel by HeereMac on behalf of JRM. Higher accounts receivable are primarily due to the timing of collection of billings on contracts performed in the Middle East. Decreases in net contracts and advance billings were primarily due to the timing of billings on the Foinaven contract and on contracts performed in the Middle East. Expenditures for property, plant and equipment increased $18,757,000 to $56,790,000 in fiscal year 1997. The majority of expenditures incurred in fiscal year 1997 were to maintain, replace and upgrade existing facilities and equipment. JRM has committed to make capital expenditures of $19,520,000 during fiscal year 1998. At March 31, 1997 and 1996, JRM had available various uncommitted short-term lines of credit from banks totaling $34,174,000 and $142,645,000, respectively. Borrowings by JRM against these lines of credit at March 31, 1997 and 1996 were $23,858,000 and $85,251,000, respectively. JRM is also a party to an unsecured and committed revolving credit facility (the "JRM Revolver") with a group of banks. There were no borrowings outstanding at March 31, 1997 and 1996 under the JRM Revolver. As a condition to borrowing under the facility, JRM must comply with certain requirements. Presently, JRM cannot satisfy these requirements and cannot borrow under the JRM Revolver. The JRM Revolver also limits the amount of funds which JRM can borrow from other sources and JRM is currently at such limits. However, it is not anticipated JRM will need to borrow funds under the JRM Revolver during fiscal year 1998. JRM is restricted, as a result of covenants in its credit agreements, in paying cash dividends to its public shareholders or in transferring funds through cash dividends (including annual cash dividends of $7,200,000 on its Series A Preferred Stock held by International) or through unsecured loans to or investments in International. At March 31, 1997, JRM could pay no cash dividends to its common stockholders, including International, could pay up to $9,600,000 of cash dividends on its Series A Preferred Stock held by International, and could make unsecured loans to or investments in International of approximately $10,142,000. Working capital decreased $37,274,000 to $132,135,000 at March 31, 1997 due, in part, to the classification of JRM's 12.875% Guaranteed Senior Notes as a current liability due to JRM's decision to redeem such Notes on July 15, 1997. During 1998, JRM expects to obtain funds to meet capital expenditure, working capital and debt maturity requirements from operating activities, cash and cash equivalents and investments in debt securities. Leasing agreements for equipment, which are short-term in nature, are not expected to impact JRM's liquidity or capital resources. 15 JRM joint ventures are largely financed through their own resources, including, in some cases, stand-alone borrowing arrangements. During fiscal year 1997 and 1996, JRM paid dividends of $7,200,000 on its Series A Preferred Stock and, during fiscal year 1996, JRM paid dividends of $511,000 on its Series B Preferred Stock. JRM has annual preferred stock dividend requirements of $7,200,000 on its Series A Preferred Stock. At March 31, 1997, the ratio of long-term debt to total stockholders' equity was 0.51 as compared with 0.62 at March 31, 1996. JRM has provided a valuation allowance ($19,136,000 at March 31, 1997) for deferred tax assets which cannot be realized through carrybacks and future reversals of existing taxable temporary differences. Management believes that remaining deferred tax assets are realizable through carrybacks and future reversals of existing taxable temporary differences and future taxable income. An uncertainty that affects the ultimate realization of deferred tax assets is the risk of incurring losses in the future. This factor has been considered in determining the valuation allowance. Management will continue to assess the adequacy of the valuation allowance on a quarterly basis. New Accounting Standard - ----------------------- In February 1997, the Financial Accounting Standards Board issued SFAS No. 128, "Earnings Per Share," which is required to be adopted on December 31, 1997. At that time, JRM will be required to change the method currently used to compute earnings per share and to restate all prior periods. Under the new requirements for calculating basic earnings per share, the dilutive effect of stock options and stock appreciation rights will be excluded. For the fiscal years 1997 and 1996, the new standard will have no impact on previously reported amounts. 16 Item 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA COMPANY REPORT ON CONSOLIDATED FINANCIAL STATEMENTS JRM has prepared the consolidated financial statements and related financial information included in this report. JRM has the primary responsibility for the financial statements and other financial information and for ascertaining that the data fairly reflects its financial position and results of operations. The financial statements were prepared in accordance with generally accepted accounting principles, and necessarily reflect informed estimates and judgments by appropriate officers of JRM with appropriate consideration given to materiality. JRM believes that it maintains an internal control structure designed to provide reasonable assurance that assets are safeguarded against loss or unauthorized use and that the financial records are adequate and can be relied upon to produce financial statements in accordance with generally accepted accounting principles. The concept of reasonable assurance is based on the recognition that the cost of an internal control structure must not exceed the related benefits. Although internal control procedures are designed to achieve these objectives, it must be recognized that errors or irregularities may nevertheless occur. JRM seeks to assure the objectivity and integrity of its accounts by its selection of qualified personnel, by organizational arrangements that provide an appropriate division of responsibility and by the establishment and communication of sound business policies and procedures throughout the organization. JRM believes that its internal control structure provides reasonable assurance that errors or irregularities that could be material to the financial statements are prevented or would be detected. JRM's accompanying consolidated financial statements have been audited by its independent auditors, who provide JRM with expert advice on the application of U.S. generally accepted accounting principles to JRM's business and also provide an objective assessment of the degree to which JRM meets its responsibility for the fairness of financial reporting. They regularly evaluate the internal control structure and perform such tests and other procedures as they deem necessary to reach and express an opinion on the fairness of the financial statements. The report of the independent auditors appears elsewhere herein. The Board of Directors pursues its responsibility for JRM's consolidated financial statements through its Audit Committee, which is composed solely of directors who are not officers or employees of JRM or its parent, International. The functions of the Audit Committee include the review of matters relating to the quality of financial reporting and internal control structure and the nature, extent and results of the audit effort. In addition, the Audit Committee is responsible for recommending the engagement of independent auditors for JRM to the Board of Directors, who in turn submit the engagement to the stockholders for their approval. The independent auditors have free access to the Audit Committee. July 10, 1997 17 REPORT OF INDEPENDENT AUDITORS The Board of Directors and Stockholders J. Ray McDermott, S.A. We have audited the accompanying consolidated balance sheet of J. Ray McDermott, S.A. as of March 31, 1997 and 1996, and the related consolidated statements of income (loss), equity and cash flows for each of the three years in the period ended March 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of J. Ray McDermott, S.A. at March 31, 1997 and 1996, and the consolidated results of its operations and its cash flows for each of the three years in the period ended March 31, 1997, in conformity with generally accepted accounting principles. As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for postemployment benefits in 1995. ERNST & YOUNG LLP New Orleans, Louisiana July 10, 1997 18 J. RAY McDERMOTT, S.A. CONSOLIDATED BALANCE SHEET MARCH 31, 1997 and 1996 ASSETS 1997 1996 ---------- ---------- (In thousands) Current Assets: Cash and cash equivalents $ 134,948 $ 166,408 Short-term investments in debt securities 75,516 - Accounts receivable - trade 261,621 193,643 Accounts receivable - unconsolidated affiliates 58,324 46,209 Accounts receivable - other 32,113 57,421 Contracts in progress 81,900 181,375 Other current assets 23,972 57,291 - --------------------------------------------------------------------- Total Current Assets 668,394 702,347 - --------------------------------------------------------------------- Property, Plant and Equipment, at Cost: Land 20,839 21,175 Buildings 78,962 76,774 Machinery and equipment 1,054,776 1,070,326 Property under construction 18,424 17,958 - --------------------------------------------------------------------- 1,173,001 1,186,233 Less accumulated depreciation 816,271 793,833 - --------------------------------------------------------------------- Net Property, Plant and Equipment 356,730 392,400 - --------------------------------------------------------------------- Excess of Cost Over Fair Value of Net Assets of Purchased Businesses Less Accumulated Amortization of $52,405,000 at March 31, 1997 and $28,799,000 at March 31, 1996 296,394 316,863 - --------------------------------------------------------------------- Investment in Unconsolidated Affiliates 81,981 72,806 - --------------------------------------------------------------------- Other Assets 56,169 53,329 - --------------------------------------------------------------------- TOTAL $1,459,668 $1,537,745 ===================================================================== See accompanying notes to consolidated financial statements. 19 LIABILITIES AND EQUITY 1997 1996 -------- -------- (In thousands) Current Liabilities: Notes payable and current maturities of long-term debt $ 109,095 $ 96,130 Accounts payable 144,388 103,473 Accounts payable to McDermott International - 47,695 Accrued contract costs 63,586 69,827 Accrued liabilities - other 110,366 120,515 Deposit on equipment sale - 30,000 Advance billings on contracts 86,542 36,581 U.S. and foreign income taxes 22,282 28,717 - ------------------------------------------------------------------------------ Total Current Liabilities 536,259 532,938 - ------------------------------------------------------------------------------ Long-Term Debt 273,443 114,532 - ------------------------------------------------------------------------------ Note Payable to McDermott International - 231,000 - ------------------------------------------------------------------------------ Deferred and Non-Current Income Taxes 42,556 50,016 - ------------------------------------------------------------------------------ Other Liabilities 71,452 55,362 - ------------------------------------------------------------------------------ Contingencies - ------------------------------------------------------------------------------ Stockholders' Equity: Preferred Stock, authorized 10,000,000 shares; outstanding 3,200,000 shares Series A $2.25 cumulative convertible, par value $.01 per share, (liquidation preference $160,000,000) 32 32 Common stock, par value $0.01 per share, authorized 60,000,000 shares; outstanding 40,617,792 at March 31, 1997 and 40,197,946 at March 31, 1996 406 402 Capital in excess of par value 590,263 581,609 Deficit (33,463) (14,576) Currency translation adjustments (21,280) (13,570) - ------------------------------------------------------------------------------ Total Stockholders' Equity 535,958 553,897 - ------------------------------------------------------------------------------ TOTAL $1,459,668 $1,537,745 ============================================================================== 20 J. RAY McDERMOTT, S.A. CONSOLIDATED STATEMENT OF INCOME (LOSS) FOR THE THREE FISCAL YEARS ENDED MARCH 31, 1997 1997 1996 1995 ---------- ---------- ---------- (In thousands) Revenues $1,367,587 $1,227,841 $1,127,320 - ----------------------------------------------------------------------- Costs and Expenses: Cost of operations (excluding depreciation and amortization) 1,158,025 1,000,751 883,513 Depreciation and amortization 96,469 85,566 70,372 Selling, general and administrative expenses 116,977 116,725 114,165 - ----------------------------------------------------------------------- 1,371,471 1,203,042 1,068,050 - ----------------------------------------------------------------------- Gain on Asset Disposals and Impairments-net 29,019 2,530 1,862 - ----------------------------------------------------------------------- Operating Income before Equity in Income of Investees 25,135 27,329 61,132 Equity in Income (Loss) of Investees (8,064) 9,124 22,857 - ----------------------------------------------------------------------- Operating Income 17,071 36,453 83,989 - ----------------------------------------------------------------------- Other Income (Expense): Interest income 16,387 6,014 9,298 Interest expense (40,043) (42,387) (25,158) Other-net 7,314 4,999 1,456 - ----------------------------------------------------------------------- (16,342) (31,374) (14,404) - ----------------------------------------------------------------------- Income before Provision for Income Taxes and Cumulative Effect of Accounting Change 729 5,079 69,585 Provision for Income Taxes 12,555 4,892 8,885 - ----------------------------------------------------------------------- Income (Loss) before Cumulative Effect of Accounting Change (11,826) 187 60,700 Cumulative Effect of Accounting Change - - (1,326) - ----------------------------------------------------------------------- Net Income (Loss) $ (11,826) $ 187 $ 59,374 ======================================================================= 21 CONTINUED 1997 1996 ---- ---- Net Loss Applicable to Common Stock (after Preferred Stock dividends) $(19,026) $(7,524) ==================================================================== Loss Per Common and Common Equivalent Share (Primary and Fully Diluted) $ (0.47) $ (0.19) ==================================================================== CASH DIVIDENDS: Per preferred share $ 2.25 $ 2.25 ==================================================================== Earnings per share are not presented for fiscal year 1995 because JRM was not a separate entity with its own capital structure for that period. See accompanying notes to consolidated financial statements. 22 J. RAY McDERMOTT, S.A. CONSOLIDATED STATEMENT OF EQUITY FOR THE THREE FISCAL YEARS ENDED MARCH 31, 1997 (In thousands, except for share amounts) Preferred Stock ---------------------------------- Series A Series B ---------------------------------- Par Par Shares Value Shares Value --------- ------ -------- ----- Balance March 31, 1994 - $ - - $ - - ------------------------------------------------------------------------------- Net Income - - - - Preferred dividends - - - - Translation adjustments - - - - Distributions to McDermott International - - - - Contribution of McDermott International's marine con- struction services business 3,200,000 32 - - Acquisition of Offshore Pipelines, Inc. - - 458,632 5 Exercise of stock options - - - - Loss on investments - - - - - ------------------------------------------------------------------------------- Balance March 31, 1995 3,200,000 32 458,632 5 - ------------------------------------------------------------------------------- Net income - - - - Preferred dividends - - - - Preferred stock conversion - - (458,632) (5) Translation adjustments - - - - Exercise of stock options - - - - Tax benefit on exercise of stock options - - - - Restricted stock purchases - net - - - - Contributions to thrift plan - - - - Deferred career executive stock plan expense - - - - Loss on investments - - - - Minimum pension liability - - - - Division of McDermott International pension plan - - - - - ------------------------------------------------------------------------------- Balance March 31, 1996 3,200,000 32 - - - ------------------------------------------------------------------------------- Net Loss - - - - Preferred dividends - - - - Translation adjustments - - - - Exercise of stock options - - - - Tax benefit on exercise of stock options - - - - Restricted stock purchases - net - - - - Contributions to thrift plan - - - - Deferred career executive stock plan expense Gain on investments - - - - Minimum pension liability - - - - Purchase of assets from International - - - - - ------------------------------------------------------------------------------- Balance March 31, 1997 3,200,000 $32 - $ - =============================================================================== See accompanying notes to consolidated financial statements. 23
Common Stock - -------------------------- Capital Currency Par In Excess Owner's Translation Shares Value Of Par Value Deficit Equity Adjustments Total ------ ----- ------------ ------- ---------- ------------ -------- - $ - $ - $ - $ 279,946 $(26,925) $253,021 - ------------------------------------------------------------------------------------- - - - (5,106) 64,480 - 59,374 - - - (1,117) - - (1,117) - - - - - 12,292 12,292 - - - - (46,249) - (46,249) 24,668,297 246 231,277 - (298,177) - (66,622) 13,917,946 139 348,573 - - - 348,717 63,106 1 429 - - - 430 - - - (375) - - (375) - ------------------------------------------------------------------------------------- 38,649,349 386 580,279 (6,598) - (14,633) 559,471 - ------------------------------------------------------------------------------------- - - - 187 - - 187 - - - (7,711) - - (7,711) 1,065,193 11 (13) - - - (7) - - - - - 1,063 1,063 353,978 4 1,527 - - - 1,531 - - 2,629 - - - 2,629 49,070 - 39 - - - 39 80,356 1 1,585 - - - 1,586 - - 148 - - - 148 - - - (452) - - (452) - - - (2) - - (2) - - (4,585) - - - (4,585) - ------------------------------------------------------------------------------------- 40,197,946 402 581,609 (14,576) - (13,570) 553,897 - ------------------------------------------------------------------------------------- - - - (11,826) - - (11,826) - - - (7,200) - - (7,200) - - - - - (7,710) (7,710) 297,524 3 2,841 - - - 2,844 - - 1,724 - - - 1,724 45,210 - (9) - - - (9) 77,112 1 1,892 - - - 1,893 - - 963 - - - 963 - - - 137 - - 137 - - - 2 - - 2 - - 1,243 - - - 1,243 - ------------------------------------------------------------------------------------- 40,617,792 406 $590,263 $(33,463) $ - $(21,280) $535,958 =====================================================================================
24 J. RAY McDERMOTT, S.A. CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE THREE FISCAL YEARS ENDED MARCH 31, 1997 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
1997 1996 1995 ---- ---- ---- (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net Income (Loss) $(11,826) $ 187 $ 59,374 - ----------------------------------------------------------------------------------------- Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 96,469 85,566 70,372 Equity in income or loss of investees, less dividends 8,064 (6,833) 42,810 Gain on asset disposals and impairments-net (29,019) (2,530) (1,862) Benefit from deferred taxes (7,600) (2,338) (35,769) Other 3,779 (3,461) 1,253 Changes in assets and liabilities, net of effects from acquisitions: Accounts receivable (52,378) 49,005 28,290 Net contracts in progress and advance billings 147,151 (150,121) 13,081 Accounts payable (9,019) (23,430) (46,707) Accrued contract costs (6,241) 16,217 (692) Accrued liabilities (12,859) (3,142) (32,997) Income taxes (418) (9,927) 9,958 Other, net (16,712) 1,901 (28,086) - ----------------------------------------------------------------------------------------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 109,391 (48,906) 79,025 - ----------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition - - 10,828 Purchases of property, plant and equipment (56,790) (38,033) (40,082) Proceeds from asset disposals 57,636 133,693 15,580 Purchases of short-term investments - net (74,866) Investment in asset held for lease (1,821) (29,620) (6,711) Increase in notes receivable from McDermott International - - (16,802) Investments in equity investees (3,908) (6,827) (398) Returns from investees 12,500 37,097 - Deposit on equipment sale - 30,000 - Other 137 (452) (375) - ----------------------------------------------------------------------------------------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (67,112) 125,858 (37,960) - -----------------------------------------------------------------------------------------
25 CONTINUED INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
1997 1996 1995 ---------- -------------- --------- (In thousands) CASH FLOWS FROM FINANCING ACTIVITIES: Payment of long-term debt $ (13,090) $ (6,808) $ (132) Issuance of long-term debt 244,375 32,756 2,348 Increase (decrease) in short-term borrowings (72,094) 36,001 22,348 Decrease in notes payable to McDermott International (231,000) (20,542) (19,705) Distributions to McDermott International - - (46,249) Issuance of common stock 4,569 4,197 430 Preferred dividends paid (7,200) (7,928) (900) Other - (523) (667) - -------------------------------------------------------------------------------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (74,440) 37,153 (42,527) - -------------------------------------------------------------------------------- EFFECTS OF EXCHANGE RATE CHANGES ON CASH 701 79 343 - -------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (31,460) 114,184 (1,119) - -------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 166,408 52,224 53,343 - -------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT END OF YEAR $134,948 $166,408 $52,224 ================================================================================ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest (net of amount capitalized) $ 35,816 $ 41,905 $23,146 Income taxes (net of refunds) $ 22,823 $ 11,277 $21,910 ================================================================================
See accompanying notes to consolidated financial statements. 26 J. RAY McDERMOTT, S.A. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE FISCAL YEARS ENDED MARCH 31, 1997 NOTE 1 - BASIS OF PRESENTATION J. Ray McDermott, S.A. ("JRM") was incorporated on March 22, 1994 in the Republic of Panama and had no significant operations prior to January 31, 1995 when McDermott International, Inc. ("International") contributed substantially all of its marine construction services business to JRM and JRM acquired Offshore Pipelines, Inc. ("OPI"). See Note 3 to the consolidated financial statements. JRM issued 3,200,000 shares of Series A $2.25 Cumulative Convertible Preferred Stock; 24,668,297 shares of common stock; $231,000,000 of 9% Senior Subordinated Notes due 2001 and a Floating Rate Demand Note of $39,750,000 to International in exchange for its marine construction services business excluding certain assets and liabilities which were retained by International. The contribution of International's marine construction services business to JRM was accounted for in a manner similar to a pooling of interests and the financial statements reflect International's historical cost of the assets and liabilities contributed. For the period prior to the contribution, the financial statements include charges from International for direct costs and allocations of corporate overhead and other costs. Management believes that the allocation methods were reasonable and that the allocations were representative of what the costs would have been on a stand alone basis. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation - --------------------------- The consolidated financial statements are presented in U.S. Dollars in accordance with accounting principles generally accepted in the United States. The consolidated financial statements include the accounts of JRM, and all subsidiaries and controlled joint ventures. Investments in joint ventures and other entities which JRM does not control but has significant influence over are accounted for on the equity method. Differences between the cost of equity method investments and the amount of underlying equity in net assets of the investees are amortized systematically to income. All significant intercompany transactions and accounts have been eliminated. Certain amounts previously reported have been reclassified to conform with the presentation at March 31, 1997. Unless the context otherwise requires, hereinafter, "JRM" will be used to mean J. Ray McDermott, S.A. and its consolidated subsidiaries; "International" will be used to mean McDermott International, Inc., a Panamanian corporation that is the parent company of the McDermott group of companies and the majority owner of JRM; and "McDermott International" will be used to mean the consolidated enterprise. Use of Estimates - ---------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the 27 amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Accounting Change - ----------------- Effective April 1, 1994, JRM adopted Statement of Financial Accounting Standards ("SFAS") No. 112, "Employers' Accounting for Postemployment Benefits," in accounting for disability benefits and other types of benefits paid to employees, their beneficiaries and covered dependents after active employment, but before retirement. The cumulative effect as of April 1, 1994 of this change in accounting was to reduce net income by $1,326,000 (net of income taxes of $72,000). Other than the cumulative effect, the accounting change had no material effect on the results of fiscal year 1995. Prior to April 1, 1994, JRM recognized the cost of providing most of these benefits on a cash basis. Investments - ----------- JRM's investments, primarily government obligations and other debt securities, are classified as available-for-sale and are carried at fair value, with the unrealized gains and losses, net of tax, reported in shareholders' equity. The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization is included in interest income. Realized gains and losses are included in other income. The cost of securities sold is based on the specific identification method. Interest on securities is included in interest income. Foreign Currency Translation - ---------------------------- Assets and liabilities of foreign operations, other than operations in highly inflationary economies, are translated into U.S. Dollars at current exchange rates and income statement items are translated at average exchange rates for the year. Adjustments resulting from the translation of foreign currency financial statements are recorded in a separate component of equity. Foreign currency transaction adjustments are reported in income. Included in Other Income (Expense) are transaction gains (losses) of $1,108,000, ($1,916,000), and $711,000 for fiscal years 1997, 1996 and 1995, respectively. Contracts and Revenue Recognition - --------------------------------- Contract revenues and related costs are principally recognized on a percentage of completion method for individual contracts or components thereof based upon work performed or a cost to cost method, as applicable to the product or activity involved. Revenues and related costs so recorded, plus accumulated contract costs that exceed amounts invoiced to customers under the terms of the contracts, are included in Contracts in Progress. Billings that exceed accumulated contract costs and revenues and costs recognized under percentage of completion are included in Advance Billings on Contracts. Most long-term contracts have provisions for progress payments. There are no unbilled revenues which will not be billed. Contract price and cost estimates are reviewed periodically as the work progresses and adjustments proportionate to the percentage of completion are reflected in income in the period when such estimates are revised. Provisions are made currently for all known or anticipated losses. Variations from estimated contract performance could result in a material adjustment to operating results for any fiscal quarter or year. Claims for extra work or changes in scope of work are 28 included in contract revenues when collection is probable. Included in Accounts Receivable and Contracts in Progress are approximately $508,000 and $7,639,000 relating to commercial contract claims whose final settlement is subject to future determination through negotiations or other procedures which had not been completed at March 31, 1997 and 1996, respectively. 1997 1996 ---- ---- (In thousands) Included in Contracts in Progress are: Costs incurred less costs of revenue recognized $ 59,660 $ 52,119 Revenues recognized less billings to customers 22,240 129,256 - -------------------------------------------------------------------------- Contracts in Progress $ 81,900 $181,375 ========================================================================== Included in Advance Billings on Contracts are: Billings to customers less revenues recognized $123,100 $ 52,071 Costs incurred less costs of revenue recognized (36,558) (15,490) - -------------------------------------------------------------------------- Advance Billings on Contracts $ 86,542 $ 36,581 ========================================================================== Included in accounts receivable - trade are amounts representing retainages on contracts as follows: 1997 1996 ---- ---- (In thousands) Retainages $ 13,693 $ 21,705 ========================================================================== All of the 1997 retainages are expected to be collected within the next year. Depreciation, Maintenance and Repairs and Drydocking Expenses - ------------------------------------------------------------- Except for major marine vessels, property, plant and equipment is depreciated on the straight-line method, using estimated economic useful lives of 8 to 30 years for buildings and 2 to 20 years for machinery and equipment. Major marine vessels are depreciated on the units-of-production method based on the utilization of each vessel. Depreciation expense calculated under the units-of- production method may be less than, equal to, or greater than depreciation expense calculated under the straight-line method in any period. The annual depreciation based on utilization of each vessel will not be less than the greater of 25% of annual straight-line depreciation, or 50% of cumulative straight-line depreciation. Maintenance, repairs and renewals which do not materially prolong the useful life of an asset are expensed as incurred except for drydocking costs for the marine fleet, which are estimated and accrued over the period of time between drydockings, and such accruals are charged to operations currently. 29 Amortization of Excess Cost Over Fair Value of Net Assets of Purchased - ---------------------------------------------------------------------- Businesses - ---------- Excess of cost over fair value of net assets of purchased businesses primarily pertains to the acquisition of OPI and is being amortized on a straight-line basis over 15 years. Management periodically reviews goodwill to access recoverability, and impairments would be recognized in operating results if a permanent diminution in value were to occur. Earnings Per Share - ------------------ Primary earnings per share is based on the weighted average number of common and dilutive common equivalent shares outstanding during the year. Fully diluted earnings per share is the same as primary since the computations were antidilutive. Capitalization of Interest Cost - ------------------------------- In fiscal years 1997, 1996 and 1995, total interest cost incurred was $40,760,000, $43,712,000 and $25,325,000, respectively, of which $717,000, $1,325,000 and $167,000, respectively, was capitalized. Cash Equivalents - ---------------- Cash equivalents are highly liquid investments, with maturities of three months or less when purchased. Derivative Financial Instruments - -------------------------------- Derivatives, primarily forward exchange contracts, are utilized to minimize exposure and reduce risk from foreign exchange fluctuations in the regular course of business. Gains and losses relating to qualifying hedges of firm commitments are deferred and recognized in income or as adjustments of carrying amounts when the hedged transactions occur. Gains and losses on forward exchange contracts which hedge foreign currency assets or liabilities are recognized in income as incurred. Such amounts effectively offset gains and losses on the foreign currency assets or liabilities that are hedged. NOTE 3 - ACQUISITION On January 31, 1995, JRM acquired OPI, a full-range provider of offshore marine construction and other related services to the oil and gas industry. Pursuant to the Merger Agreement, OPI investors received 13,867,946 shares of JRM common stock; options to acquire 897,818 shares of JRM common stock and 458,632 shares of JRM Series B $2.25 Cumulative Convertible Exchangeable Preferred Stock in exchange for all of the outstanding common stock, common stock options and preferred stock of OPI. The acquisition was accounted for by the purchase method and, accordingly, the purchase price ($369,868,000, including direct costs of acquisition and non-compete agreements) was allocated to the underlying assets and liabilities based upon preliminary fair values at the date of acquisition which resulted in excess cost over fair value of net assets acquired of $235,000,000. During fiscal year 1996, JRM completed certain asset and liability valuations related primarily to joint ventures, property, plant and equipment, and preacquisition contingencies resulting in an increase in excess cost over fair value of net assets acquired of $95,000,000. Additionally, during fiscal year 1996 management completed its assessment of the amortization period of excess of cost over fair value of 30 net assets acquired and determined the amortization period should be 15 years. Operating results have been included in the Consolidated Statement of Income from the acquisition date. Unaudited pro forma results of operations for fiscal year ended March 31, 1995 assuming that the contribution by McDermott International of substantially all of its marine construction services business to JRM and the acquisition of OPI had occurred as of the beginning of the fiscal year are: revenues of $1,442,694,000, income before cumulative effect of accounting change of $42,617,000 ($0.88 per share primary and fully diluted) and net income of $41,291,000 ($0.84 per share primary and fully diluted). The pro forma financial information is presented for informational purposes only and is not necessarily indicative of the operating results that would have occurred had the transaction been completed as of April 1, 1994. NOTE 4 - INVESTMENTS IN UNCONSOLIDATED AFFILIATES During the fourth quarter of fiscal year 1997, and effective as of the beginning of the year, JRM changed from the equity to the cost method of accounting for its investment in the HeereMac joint venture as a result of JRM's determination that it is unable to exercise significant influence over HeereMac's operating and financial policies. Equity income of HeereMac was $1,083,000 and $6,244,000 in fiscal years 1996 and 1995, respectively. Transactions with unconsolidated affiliates included sales to ($110,150,000, $135,051,000 and $136,681,000 in fiscal years 1997, 1996 and 1995, respectively, including approximately $9,609,000, $44,491,000 and $54,657,000, respectively, attributable to leasing activities) and purchases from ($8,765,000, $9,109,000, and $1,119,000 in fiscal years 1997, 1996 and 1995, respectively) these entities. Included in non-current Other Assets at March 31, 1997 was $2,102,000 of accounts receivable from an unconsolidated affiliate. Included in Accounts payable at March 31, 1997 and 1996 were $11,792,000 and $4,471,000, respectively, of payables to unconsolidated affiliates. In fiscal year 1997, JRM realized a gain of $16,682,000 on the sale of a marine vessel by HeereMac on behalf of JRM. During fiscal year 1996, JRM sold to the HeereMac joint venture the major marine vessels that it had been leasing to the joint venture. JRM received cash of $135,969,000, including a $30,000,000 advance deposit on the sale of certain marine equipment which was completed during fiscal year 1997, and a 7.75% note receivable of $105,000,000 and recorded a deferred gain of $103,239,000, which was being amortized over HeereMac's depreciable lives of the vessels prior to the change to the cost method of accounting for JRM's investment in HeereMac. Subsequent to the change, the deferred gain is recognized by JRM as the note is repaid. The note receivable ($92,500,000 at March 31, 1997), net of the deferred gain ($90,803,000 at March 31, 1997) is included in investment in unconsolidated affiliates. In addition to the vessel sale in fiscal year 1996, JRM received $37,097,000 as a return of capital from the HeereMac joint venture. In fiscal year 1995, JRM contributed various marine construction barges with a cost of $102,602,000 and accumulated depreciation of $76,763,000 and sold a derrick barge for $9,101,000 to the HeereMac joint venture. 31 At March 31, 1997 and 1996, property, plant and equipment included $141,409,000 and $141,293,000, and accumulated depreciation included $102,242,000 and $89,312,000, respectively, of marine equipment that is leased to unconsolidated investees. Dividends received from unconsolidated investees accounted for by the equity method were $2,291,000 and $65,667,000 in fiscal years 1996 and 1995, respectively. Undistributed earnings in unconsolidated affiliates accounted for by the equity method were $12,937,000 and $27,506,000, respectively, at March 31, 1997 and 1996. Summarized combined balance sheet and income statement information based on the most recent financial information for investments in entities accounted for by the equity method are presented below: 1997 1996 -------- -------- (In thousands) Current Assets $293,779 $ 407,205 Non-Current Assets 109,410 622,900 - -------------------------------------------------------------------------------- Total Assets $403,189 $1,030,105 ================================================================================ Current Liabilities $311,478 $ 405,818 Non-Current Liabilities 13,513 464,337 Owners' Equity 78,198 159,950 - -------------------------------------------------------------------------------- Total Liabilities and Owners' Equity $403,189 $1,030,105 ================================================================================ 1997 1996 1995 ---------- -------- --------- (In thousands) Revenues $846,659 $907,151 $725,225 Gross Profit $ 66,777 $203,102 $153,075 Income (Loss) before Provision for Income Taxes $ (5,924) $ 16,396 $ 52,899 Provision for Income Taxes 7,227 2,297 4,193 - -------------------------------------------------------------------------------- Net Income (Loss) $(13,151) $ 14,099 $ 48,706 ================================================================================ NOTE 5 - INCOME TAXES Income taxes have been provided based upon the tax laws and rates in the countries in which operations are conducted. All income has been earned outside of Panama and JRM is not subject to income tax in Panama on income earned outside of Panama. Therefore, there is no expected relationship between the provision for income taxes and income before income taxes. The major reason for the variations in such relationships is that income is earned within and subject to the taxation laws of various countries, each of which has a regime of taxation which varies from that of any other country (not only with respect to nominal rate but also with respect to the allowability of deductions, credits and other benefits) and because the proportional extent to which income is earned in, and 32 subject to tax by, any particular country or countries varies from year to year. JRM and certain of its subsidiaries keep books and file tax returns on the completed contract method of accounting. Prior to the January 31, 1995 contribution by International, the U.S. subsidiaries and divisions of JRM were included in the U.S. federal income tax return filed by McDermott Incorporated ("McDermott"), a subsidiary of International. McDermott's policy for allocation of U.S. federal income taxes provided generally that the U.S. subsidiaries and divisions of JRM compute the provision for U.S. federal income taxes on a separate company basis. Subsequent to the contribution, these U.S. subsidiaries and divisions are included in the U.S. federal tax return filed by J. Ray McDermott Holdings, Inc., a subsidiary of JRM. Deferred income taxes reflect the net tax effects of temporary differences between the financial and tax bases of assets and liabilities. Significant components of deferred tax assets and liabilities as of March 31, 1997 and 1996 were as follows: 1997 1996 ------- ------- (In thousands) Deferred tax assets: Accrued liabilities for postretirement health care benefits $ 7,127 $ 9,902 Accrued liabilities for executive and employee incentive compensation 2,043 1,567 Long-term contracts 3,176 4,973 Accrued pension liability 4,125 2,449 Accrued drydock liability 2,219 2,771 Investments in joint ventures and affiliated companies 1,599 - Operating loss carryforwards 32,595 21,520 Property, plant and equipment 1,036 1,057 Accrued provisions for facility closings 104 354 Accrued vacation pay 1,041 935 Other 4,932 5,132 - ------------------------------------------------------------------ Total deferred tax assets 59,997 50,660 Valuation allowance for deferred tax assets (19,136) (16,216) - ------------------------------------------------------------------ Total deferred tax assets - net 40,861 34,444 - ------------------------------------------------------------------ Deferred tax liabilities: Property, plant and equipment 31,105 27,808 Long-term contracts 4,394 10,149 Investment in joint ventures and affiliated companies - 762 Prepaid pension costs 1,488 - Other 1,583 2,695 - ------------------------------------------------------------------ Total deferred tax liabilities 38,570 41,414 - ------------------------------------------------------------------ Net deferred tax assets (liabilities) $ 2,291 $(6,970) ================================================================== 33 Income before provision for income taxes and cumulative effect of accounting change was as follows: 1997 1996 1995 -------- -------- -------- (In thousands) U.S. $(7,851) $(1,362) $ (3,265) Other than U.S. 8,580 6,441 72,850 - ----------------------------------------------------------- $ 729 $ 5,079 $ 69,585 =========================================================== The provision for income taxes consists of: 1997 1996 1995 -------- -------- -------- (In thousands) Current: U.S. - Federal $15,568 $ 986 $ 30,514 U.S. - State and local (366) - - Other than U.S. 4,953 6,244 14,140 - ----------------------------------------------------------- Total current 20,155 7,230 44,654 - ----------------------------------------------------------- Deferred: U.S. - Federal (6,080) 5,426 (31,742) U.S. - State and local (2,585) - - Other than U.S. 1,065 (7,764) (4,027) - ----------------------------------------------------------- Total deferred (7,600) (2,338) (35,769) - ----------------------------------------------------------- Provision for Income Taxes $12,555 $ 4,892 $ 8,885 =========================================================== The current provision for other than U.S. income taxes in 1997, 1996 and 1995 includes a reduction of $2,021,000, $3,763,000 and $1,323,000, respectively, for the benefit of net operating loss carryforwards. Initial recognition of OPI pre-acquisition tax benefits in fiscal year 1997 resulted in a reduction of excess cost over fair value of assets acquired of $3,115,000. JRM would be subject to U.S. withholding taxes on distributions of earnings from its U.S. subsidiaries. No U.S. withholding taxes have been provided as these earnings are considered indefinitely reinvested. 34 NOTE 6 - RELATED PARTY TRANSACTIONS Transactions with subsidiaries, divisions and controlled joint ventures of McDermott International that are not disclosed elsewhere, are as follows: 1997 1996 1995 ------- ------- ------- (In thousands) Sale of marine construction services $16,611 $10,243 $ 2,652 Purchase of engineering and other services 15,941 56,008 16,672 Insurance premiums 8,012 12,908 21,602 Postretirement health care benefits - - 6,075 Pension benefit 1,094 843 6,679 Selling, general and administrative expense 13,987 11,900 19,690 Interest income - 787 2,920 Interest expense 6,655 21,831 20,169 Included in Accounts receivable - trade at March 31, 1997 are receivables from International of $2,543,000. During fiscal year 1997, JRM paid a $231,000,000 note payable to International and purchased from International certain diving support equipment and systems for $3,573,000 and nine cranes for use in JRM's fabrication and construction activities for $8,295,000. In connection with the acquisition of OPI, two directors and two officers of JRM entered into noncompetition agreements. As consideration, such directors and officers received a total of approximately $10,131,000 (including 50,000 shares of JRM's common stock valued at $1,131,000) during fiscal year 1995. In addition, one director (who resigned in April 1996) received $1,500,000 in fiscal years 1997 and 1996 and will receive additional payments of $1,500,000 per year over the next three years. In fiscal year 1995, JRM entered into an office sublease with an affiliate of a director (who resigned in April 1996) of JRM which expired in March 1997. During fiscal years 1997 and 1996, the affiliate paid $216,000 and $185,000, respectively, under the sublease. Under another agreement, JRM paid $576,000 to the affiliate in each of fiscal years 1997 and 1996 and reimbursed the affiliate for out-of-pocket expenses for the management and operations of JRM's offshore producing oil and gas property. Also during fiscal year 1996, JRM fabricated a caisson for the affiliate for $84,000. JRM sold an offshore jacket and deck to the affiliate for $1,100,000 during fiscal year 1995 and received approximately $2,000,000 from the affiliate during fiscal year 1996 pursuant to a contract to refurbish, transport and install the jacket and deck. JRM entered into agreements with an affiliate of another director of JRM pursuant to which, the subsidiary acquired interests in certain offshore oil and gas property. During fiscal year 1996 and 1995, JRM paid $2,036,000 and $3,000,000, respectively, to the affiliate under the agreements in connection with the acquisition of its interests and the development of such property. During fiscal year 1996, JRM sold its interest in the property to the affiliate in exchange for an $8,000,000 convertible production payment 35 relating to such property. Pursuant to the terms of the agreements entered into in connection with such sale, JRM received a right to a production payment that allows it to share in up to $8,000,000 of the net proceeds on any production from the property based upon a percentage of its original interest in such property. In December 1995, this property was placed on production and JRM earned approximately $1,093,000 and $179,000 in fiscal years 1997 and 1996, respectively, as a result of this production payment. In addition, JRM owns 140,000 shares of common stock of this affiliate and 40,000 units in a limited partnership which is also an affiliate of this director. JRM has also entered into agreements with two affiliates of a director of JRM to design, fabricate and install several offshore pipelines or structures. The value of these agreements was approximately $82,000,000. At March 31, 1997, all work under these agreements had been completed and invoiced, of which $432,000 remained unpaid and is expected to be paid in the ordinary course of business. In connection with the acquisition of OPI, JRM entered into various agreements under which McDermott International provides administrative and technical services to JRM. These services include, but are not limited to: accounting, treasury, tax administration and other financial services; human relations; computing and telecommunications; corporate officer and secretarial; purchasing; and marine systems and automation. The cost of these services to JRM was $11,900,000 for fiscal years 1997 and 1996. Fiscal year 1997 selling, general and administrative expense also included $2,087,000 for corporate officer severance. Effective April 1, 1996, JRM and International, through subsidiaries, created a joint venture which is consolidated in JRM. The joint venture is a preferred (but not exclusive) provider of engineering services to certain subsidiaries of International in the U.S. for onshore-related work and to JRM for offshore- related work. The charges for such services are based on charges to unrelated parties for similar work and for general and administrative activities based on allocation of cost. Arrangements for pricing these services is reviewed periodically by the parties. During fiscal year 1997, the joint venture charged International and its subsidiaries approximately $10,867,000 for such services. Effective January 31, 1995, JRM sold to McDermott International those assets and liabilities comprising the shipyard business located in Morgan City, Louisiana that were included in the business contributed by McDermott International with the Merger. In consideration, JRM received $4,802,000. Certain officers and employees of JRM participate in certain benefit plans which involve the issuance of International Common Stock. 36 NOTE 7 - NOTES PAYABLE AND LONG-TERM DEBT
1997 1996 -------- -------- (In thousands) Long-term debt consists of: Unsecured debt: 9.375% Senior Subordinated Notes due 2006 ($250,000,000 principal amount) $244,610 $ - 12.875% Guaranteed Senior Notes due 2002 ($70,000,000 principal amount - callable July 15, 1997) 73,958 74,473 Other notes payable 14,143 13,401 Secured debt: Floating rate notes interest at one month LIBOR plus 2% (7.4375% inclusive at March 31, 1997) due 1999 12,693 21,139 Capitalized Lease Obligations 13,276 16,398 - ----------------------------------------------------------------------------------------- 358,680 125,411 Less amounts due within one year 85,237 10,879 - ----------------------------------------------------------------------------------------- $273,443 $114,532 ========================================================================================= Notes payable and current maturities of long-term debt consist of: 1997 1996 -------- -------- (In thousands) Short-term lines of credit - unsecured $ 23,858 $ 85,251 Current maturities of long-term debt 85,237 10,879 - ----------------------------------------------------------------------------------------- $109,095 $ 96,130 ========================================================================================= Weighted average interest rate on short-term borrowings 6.95% 6.88% =========================================================================================
During fiscal year 1997, JRM issued $250,000,000 principal amount 9.375% Senior Subordinated Notes due 2006 ("9.375% Notes"). The 9.375% Notes are redeemable, for cash, at the option of JRM in whole or in part, at any time on or after July 15, 2001 at a price of 104.688% of the principal amount, and thereafter at prices declining annually to 100% of the principal amount on or after July 15, 2004. The 12.875% Guaranteed Senior Notes ("12.875% Notes") are subject to mandatory sinking fund requirements beginning on July 15, 2000 calculated to retire 50% of the original principal amount prior to maturity in 2002. The 12.875% Notes are redeemable, for cash, at the option of JRM, at any time on or after July 15, 1997, in whole or in part, at a price of 106.4% of the principal amount, and thereafter at prices declining annually to 100% of the principal 37 amount on or after July 15, 2000. The 12.875 % Notes are included in current maturities of long-term debt at March 31, 1997 due to JRM's decision to redeem the 12.875% Notes in whole on July 15, 1997. Maturities of long-term debt during the five fiscal years subsequent to March 31, 1997 are as follows: 1998 - $85,237,000 (including the 12.875% Notes); 1999 - - $14,582,000; 2000 - $38,000; 2001 - $38,000; 2002 - $42,000. At March 31, 1997 and 1996, JRM had available various uncommitted short-term lines of credit from banks totaling $34,174,000 and $142,645,000, respectively. Borrowings by JRM against these lines of credit at March 31, 1997 and 1996 were $23,858,000 and $85,251,000, respectively. JRM is also a party to an unsecured and committed revolving credit facility (the "JRM Revolver") with a group of banks. There were no borrowings outstanding at March 31, 1997 and 1996 under the JRM Revolver. As a condition to borrowing under the facility, JRM must comply with certain requirements. Presently, JRM cannot satisfy these requirements and cannot borrow under the JRM Revolver. The JRM Revolver also limits the amount of funds which JRM can borrow from other sources and JRM is currently at such limits. JRM is restricted, as a result of covenants in its credit agreements, in paying cash dividends to its public shareholders or in transferring funds through cash dividends (including annual cash dividends of $7,200,000 on its Series A Preferred Stock held by International) or through unsecured loans to or investments in International. At March 31, 1997, JRM could pay no cash dividends to its common stock holders, including International, could pay up to $9,600,000 of cash dividends on its Series A Preferred Stock held by International, and could make unsecured loans to or investments in International of approximately $10,142,000. 38 NOTE 8 - PENSION PLANS AND POSTRETIREMENT BENEFITS Pension Plans - Prior to fiscal year 1996, JRM provided retirement benefits, primarily through employee participation, in non-contributory pension plans of McDermott International (See Note 6). Effective April 1, 1995, new plans were established for employees of JRM. As a result, a subsidiary of International transferred to JRM an accrued pension liability of approximately $4,585,000 relating to employees covered under the new plan and transferred to the plan assets, which were equal to the projected benefit obligation, of approximately $40,456,000. JRM provides retirement benefits through employee participation in two non- contributory pension plans for substantially all of its salaried employees, except certain non-resident alien employees of foreign subsidiaries who are not citizens of a European Community country or who do not earn income in the United States or the United Kingdom. Plan benefits are based on final average compensation and years of service. JRM's funding policy is to fund the applicable pension plan to meet minimum funding requirements of the Employee Retirement Income Security Act of 1974 ("ERISA") and to fund the other pension plan as recommended by the respective plan actuary in accordance with applicable law. At January 1, 1997 and 1996, approximately one-half of total plan assets were invested in listed stocks and bonds. The remaining assets were held in foreign equity funds, U.S. Government securities and investments of a short-term nature. JRM also provides benefits to employees in the United Kingdom through participation of certain of its subsidiaries and affiliate companies in a contributory pension plan (the U.K. plan) sponsored by McDermott International. JRM's policy was to fund the U.K. plan to meet the minimum requirements as recommended by the plan actuary and in accordance with applicable law. Under the terms of the Merger Agreement, this plan was excluded from the contribution of McDermott International's marine construction services business at January 31, 1995, but former employees of McDermott International's marine construction services business who transferred to JRM will continue to participate in this plan until a new one is established. 39 U.S. Pension Plans - ------------------ The net periodic pension cost for fiscal year 1997 and 1996 included the following components: 1997 1996 ------- ------- (In thousands) Service cost - benefits earned during the period $ 4,927 $ 2,976 Interest cost on projected benefit obligation 4,263 3,533 Actual return on plan assets (5,841) (6,484) Net amortization and deferral 1,857 2,286 - ---------------------------------------------------------------------------- Net periodic pension cost $ 5,206 $ 2,311 ============================================================================ The following table sets forth the U.S. plans' funded status and the amounts recognized in the consolidated financial statements: 1997 1996 ------- ------- (In thousands) Actuarial present value of benefit obligations: Vested benefit obligation $ 35,218 $ 29,946 ============================================================================ Accumulated benefit obligation $ 43,903 $ 40,174 ============================================================================ Projected benefit obligation $ 65,480 $ 58,377 Plan assets at fair value 52,582 46,904 - ---------------------------------------------------------------------------- Projected benefit obligation in excess of plan assets (12,898) (11,473) Unrecognized net loss 10,701 15,432 Adjustment required to recognize minimum liability (41) (57) Unrecognized prior service cost (8,684) (9,323) Unrecognized transition asset (1,261) (1,577) - ---------------------------------------------------------------------------- Net pension liability $(12,183) $ (6,998) ============================================================================ The assumptions used in determining the funded status of the U.S. plans were: 1997 1996 ------- ------- Actuarial assumptions: Discount rate 7.5% 7.25% - ---------------------------------------------------------------------------- Rate of increase in future compensation levels 5.0% 5.0% - ---------------------------------------------------------------------------- Expected long-term rate of return on plan assets 8.5% 8.5% - ---------------------------------------------------------------------------- 40 Non-U.S. Pension Plan - ---------------------- The net periodic pension cost (benefit) for fiscal years 1997, 1996 and 1995 included the following components:
1997 1996 1995 -------- -------- ------- (In thousands) Service cost - benefits earned during the period $ 459 $ 332 $ 1,450 Interest cost on projected benefit obligation 766 829 3,342 Actual return on plan assets (756) (1,046) (1,240) Net amortization and deferral (403) 30 (7,303) - ---------------------------------------------------------------------------------------- Net periodic pension cost (benefit) $ 66 $ 145 $(3,751) ======================================================================================== The following table sets forth the non-U.S. plan's funded status and the amounts recognized in the consolidated financial statements: 1997 1996 -------- ------- (In thousands) Actuarial present value of benefit obligations: Vested benefit obligation $ 8,198 $ 7,409 ======================================================================================== Accumulated benefit obligation $ 8,594 $ 7,997 ======================================================================================== Projected benefit obligation $10,989 $10,437 Plan assets at fair value 12,328 11,772 - ---------------------------------------------------------------------------------------- Plan assets in excess of projected benefit obligation 1,339 1,335 Unrecognized net gain (831) (663) Unrecognized transition asset (719) (817) - ---------------------------------------------------------------------------------------- Net pension liability $ (211) $ (145) ======================================================================================== The assumptions used in determining the funded status of the non-U.S. plan were: 1997 1996 1995 -------- -------- ------- Actuarial assumptions: Discount rate 7.25% 8.25% 8.25% - ---------------------------------------------------------------------------------------- Rate of increase in future compensation levels 5.0% 5.0% 5.0% - ---------------------------------------------------------------------------------------- Expected long-term rate of return on plan assets 8.5% 8.5% 8.5% - ----------------------------------------------------------------------------------------
Postretirement Health Care and Life Insurance Benefits - JRM offers postretirement health care and life insurance benefits to substantially all of its regular full time employees who retire and receive retirement income from a defined benefit pension plan funded by JRM, except certain non-resident alien retired employees who are not citizens of a European 41 Community country, or who, while employed, did not earn income in the United States, Canada or the United Kingdom. JRM shares the cost of providing these benefits, except for certain life insurance plans, with all affected retirees. JRM does not fund any of its plans. The following table sets forth the amounts recognized in the consolidated financial statements at March 31: 1997 1996 ------- ------- (In thousands) Accumulated Postretirement Benefit Obligation: Retirees $ 1,233 $ 663 Fully eligible active participants 2,467 1,363 Other active plan participants 13,810 14,805 - ------------------------------------------------------------------ 17,510 16,831 Unrecognized net gain 1,220 - - ------------------------------------------------------------------ Accrued postretirement benefit cost $18,730 $16,831 ================================================================== Weighted average discount rate 7.50% 7.25% ================================================================== The accumulated postretirement benefit obligation includes $16,322,000 and $16,048,000 for health care plans and $1,188,000 and $783,000 for life insurance plans at March 31, 1997 and 1996, respectively. Net periodic postretirement benefit cost for fiscal years 1997 and 1996 included the following components: 1997 1996 ------- ------- (In thousands) Service cost $ 1,289 $ 767 Interest cost 1,383 1,060 Net amortization and deferral 150 - - ------------------------------------------------------------------ Net periodic postretirement benefit cost $ 2,822 $ 1,827 ================================================================== For measurement purposes, a weighted-average annual assumed rate of increase in the per capita cost of covered health care claims of 7-1/2% was assumed for 1997 and 10-3/4% for 1996. For 1998, a rate of 6-1/2% was assumed. The rate was assumed to decrease gradually to 4% in 2005 and remain at that level thereafter. The health care cost trend rate assumption has a significant effect on the amounts reported. For example, increasing the assumed health care cost trend rates by one percentage point in each year would increase the accumulated postretirement benefit obligation as of March 31, 1997 by $2,697,000 and the aggregate of the service cost and interest cost components of net periodic postretirement benefit cost for fiscal year 1997 by $404,000. 42 NOTE 9 - IMPAIRMENT OF LONG-LIVED ASSETS During the quarter ended March 31, 1997 management identified certain long-lived assets that are no longer expected to recover their entire carrying value through future cash flows. The assets include non-core, surplus and obsolete property and equipment. Fair value was generally determined based on sales prices of comparable assets. Impairment losses to write the assets down to estimated fair values totaled $19,228,000. During the quarter ended March 31, 1997, management decided to sell a certain vessel and related equipment of a non-core business and to sell or otherwise dispose of certain other assets. As a result, impairment losses totaling $12,162,000 were recognized to reduce the property and equipment to estimated fair values less the costs to sell. Prior to recognition of the impairment losses, the carrying value of these assets totaled approximately $18,950,000. Excluding the impairment losses, results of operations for fiscal year 1997 for these assets were not material. Management expects to sell or dispose of these assets within the next year. NOTE 10 - CAPITAL STOCK At March 31, 1997 and 1996, 15,172,402 and 15,592,108 shares, respectively, of Common Stock were reserved for issuance in connection with the conversion of Series A $2.25 Cumulative Convertible Preferred Stock ("Series A Preferred Stock"), the exercise of stock options, awards of restricted stock under JRM's stock incentive plans and contributions to the Thrift Plan. Series A Preferred Stock - ------------------------- At March 31, 1997 and 1996, 3,200,000 shares of Series A Preferred Stock were owned by International. Shares of Series A Preferred Stock have one vote per share and a liquidation preference of $50.00 per share. Dividends on Series A Preferred Stock are cumulative at the annual rate of $2.25 per share. Each share of Series A Preferred Stock is redeemable for cash at the option of JRM, at any time through January 31, 2000 provided certain conditions are met, or anytime after January 31, 2000 at a price equal to $52.00 per share, plus accrued and unpaid dividends. Each share of Series A Preferred Stock is convertible into 1.794 shares of Common Stock at any time after a call by JRM for redemption of any or all of the outstanding Series A Preferred Stock or at any time after January 31, 2000. Series B Preferred Stock - ------------------------ During fiscal year 1996, 458,382 shares of Series B Preferred Stock were converted into 1,065,193 shares of Common Stock and the remaining 250 shares were redeemed for cash. NOTE 11 - STOCK PLANS A total of 3,298,111 shares of Common Stock are available for grants to officers and key employees of options, and rights to purchase shares, under the Executive Long-Term 43 Incentive Compensation Plan at March 31, 1997. The Plan permits the grant of Nonqualified Stock Options, Incentive Stock Options, Stock Appreciation Rights, Restricted Stock, Performance Shares, and Performance Units. Options to purchase shares are granted at not less than 100% of the fair market value on the date of the grant, become exercisable at such time or times as determined when granted and expire ten years after the date of grant. Pursuant to the program, eligible employees may be granted rights to purchase shares of Common Stock at $1.00 per share subject to restrictions on transfer which lapse at such times and circumstances as specified when granted. Through March 31, 1997, a total of 112,940 rights (including 58,700 rights granted in fiscal year 1997 with a weighted average fair value of $23.78 per right) have been granted to purchase shares under the Executive Long-Term Compensation Plan. A total of 94,600 shares of Common Stock are available for grants of options, and rights to purchase shares, to non-employee directors under the Nonemployee Director Stock Plan at March 31, 1997. Options to purchase 600, 200, and 200 shares will be granted on the first, second, and third years, respectively, of a Director's term at not less than 100% of the fair market value on the date of grant, are fully vested and exercisable on the date of grant and expire ten years after the date of the grant. Rights to purchase 300, 100 and 100 shares are granted on the first, second and third years, respectively, of a Director's term, at $1.00 per share, subject to restrictions on transfer which lapse at the end of such term. Through March 31, 1997, a total of 2,300 rights have been granted to purchase shares under the Nonemployee Director Stock Plan. Under the 1995 Senior Management Stock Option Plan, senior management employees may be granted options to purchase shares of Common Stock. The total number of shares available for grant is determined by the Board of Directors from time to time. Options to purchase shares are granted at not less than 100% of the fair market value on the date of grant, become exercisable at such time or times as determined when granted, and expire ten years after the date of grant. In the event of a change in control of JRM, all three programs have provisions that may cause restrictions to lapse and accelerate the exercisability of options outstanding. JRM has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related Interpretations in accounting for its employee stock options, and not the fair value accounting provided for under SFAS No. 123, "Accounting for Stock-Based Compensation." Pro forma results assuming application of the fair value method of SFAS No. 123 to JRM's stock-based awards would not be materially different from those reported. 44 The following table summarizes activity for JRM's stock option plans (share data in thousands):
1997 1996 1995 ------------------- ------------------- ------------------- Weighted- Weighted- Weighted- Average Average Average Exercise Exercise Exercise Options Price Options Price Options Price - -------------------------------------------------------------------------------------------- Outstanding, April 1 1,092 $13.47 1,078 $ 9.46 - $ - Issued January 31, 1995 per the terms of the merger agreement (See Note 3) - - - - 898 $ 5.70 Granted 276 $24.33 388 $16.76 243 $22.63 Exercised (297) $ 9.56 (354) $ 4.32 (63) $ 6.81 Cancelled/forfeited (32) $18.91 (20) $22.63 - - - -------------------------------------------------------------------------------------------- Outstanding, March 31 1,039 $17.31 1,092 $13.47 1,078 $ 9.46 ============================================================================================ Exercisable, March 31 490 $13.15 557 $ 8.77 835 $ 5.62 ============================================================================================
The following tables summarize the range of exercise prices and the weighted average remaining contractual life of the options outstanding and the range of exercise prices for the options exercisable at March 31, 1997 (share data in thousands):
Options Outstanding - --------------------------------------------------------------------- Weighted Average Remaining Weighted Range of Contractual Average Exercise Prices Outstanding Life Exercise Price - --------------------------------------------------------------------- $6.00 - $9.13 242 3.7 $ 6.00 $16.69 - $25.00 797 9.0 $20.74 ----- $6.00 - $25.00 1,039 7.8 $17.31 ===== Options Exercisable - --------------------------------------------------------------------- Weighted Range of Average Exercise Prices Exercisable Exercise Price - --------------------------------------------------------------------- $6.00 - $9.13 242 $ 6.00 $16.69 - $25.00 248 $20.12 ----- $6.00 - $25.00 490 $13.15 =====
45 Thrift Plan - ----------- Certain employees of JRM participate in the Thrift Plan for Employees of McDermott Incorporated and Participating Subsidiary and Affiliated Companies, which is a defined contribution plan maintained by a subsidiary of McDermott International. On June 5, 1995, a maximum of 5,000,000 of the authorized and unissued shares of JRM's Common Stock was reserved for possible issuance to be used as the JRM employer match for employee contributions to the Plan. Such employer contributions equal 50% of the first 6% of compensation, as defined in the Plan, contributed by participants, and fully vest and are non-forfeitable after five years of service or upon retirement, death, lay-off or approved disability. During fiscal years 1997 and 1996, 77,112 and 80,356 shares, respectively, were issued as employer contributions pursuant to the Plan. At March 31, 1997 and 1996, 4,842,532 and 4,919,644 shares, respectively, remained available for issuance. NOTE 12 - CONTINGENCIES AND COMMITMENTS Investigations - JRM and International are conducting an internal investigation, with the assistance of outside counsel, of allegations of wrongdoing by a limited number of former employees of JRM and International and by others. JRM and International notified the appropriate authorities in April 1997. In June 1997, International received a federal grand jury subpoena for documents relating principally to an investigation of possible anti-competitive activity in the heavy-lift barge service business of JRM and HeereMac. In July 1997, International received an informal request from the Securities and Exchange Commission for the voluntary production of documents. JRM and International are cooperating with the authorities. The allegations which are the subject of the internal investigation, if true, and the outcome of the grand jury proceedings, could result in civil and/or criminal liability. At this time, JRM and International do not have sufficient information to predict the ultimate outcome of this matter. Litigation - JRM and certain of its officers, directors and subsidiaries are defendants in numerous legal proceedings. Management believes that the outcome of these proceedings will not have a material adverse effect upon the consolidated financial position of JRM. Operating Leases - Future minimum payments required under operating leases that have initial or remaining noncancellable lease terms in excess of one year at March 31, 1997 are as follows: 1998 - $3,354,000; 1999 - $2,104,000; 2000 - $807,000; 2001 -$708,000; 2002 - $534,000; and thereafter - $11,018,000. Total rental expense for fiscal years 1997, 1996 and 1995 was $67,990,000, $66,617,000, and $79,098,000, respectively. These expense figures include contingent rentals and are net of sublease income, both of which are not material. Other - JRM maintains liability and property insurance that it considers normal in the industry. However, certain risks are either not insurable or insurance is available only at rates which JRM considers uneconomical. Commitments for capital expenditures amounted to approximately $19,520,000 at March 31, 1997, all of which relates to fiscal year 1998. 46 JRM is contingently liable under standby letters of credit totaling $248,165,000 (including $46,249,000 issued on behalf of unconsolidated foreign joint ventures) at March 31, 1997, issued in the normal course of business. JRM has guaranteed $17,840,000 of loans to and $17,714,000 of standby letters of credit issued by certain unconsolidated foreign joint ventures of JRM at March 31, 1997. NOTE 13 - FINANCIAL INSTRUMENTS WITH CONCENTRATIONS OF CREDIT RISK The principal customers of JRM are the offshore oil, natural gas and hydrocarbon processing industries and other marine construction companies. These concentrations of customers may impact JRM's overall exposure to credit risk, either positively or negatively, in that the customers may be similarly affected by changes in economic or other conditions. However, JRM's management believes that the portfolio of receivables is well diversified and that such diversification minimizes any potential credit risk. Receivables are generally not collateralized. JRM believes that its provision for possible losses on uncollectible accounts receivable is adequate for its credit loss exposure. At March 31, 1997 and 1996, the allowance for possible losses deducted from Accounts receivable-trade on the balance sheet was $3,634,000 and $584,000, respectively. NOTE 14 - INVESTMENTS The following is a summary of available-for-sale securities at March 31, 1997: Gross Estimated Amortized Unrealized Fair Cost Losses Value --------- ---------- --------- (In thousands) Debt securities: Obligations of U.S. government agencies $ 55,552 $ 36 $ 55,516 Other debt securities 61,150 - 61,150 - ---------------------------------------------------------- Total debt securities 116,702 36 116,666 - ---------------------------------------------------------- Equity securities 2,009 1,015 994 - ---------------------------------------------------------- Total $118,711 $1,051 $117,660 ========================================================== The amortized cost and estimated fair value amounts of debt securities above include $41,150,000 in other debt securities which are reported as cash equivalents. Proceeds and gross realized gains on sales of available-for-sale securities were approximately $4,589,000 and $20,000, respectively, for fiscal year 1997. At March 31, 1997, all of JRM's available-for-sale debt securities were due in one year or less. 47 NOTE 15 - DERIVATIVE FINANCIAL INSTRUMENTS JRM operates internationally, giving rise to exposure to market risks from changes in foreign exchange rates. Derivative financial instruments, primarily forward exchange contracts, are utilized to reduce those risks. JRM does not hold or issue financial instruments for trading purposes. Forward exchange contracts are entered into primarily as hedges of certain firm purchase and sale commitments denominated in foreign currencies. At March 31, 1997, JRM had forward exchange contracts to purchase $66,969,000 in foreign currencies (primarily Pound Sterling), and to sell $257,000 in foreign currencies (primarily Singapore Dollars), at varying maturities through fiscal year 1998. At March 31, 1996, JRM had forward exchange contracts to purchase $6,766,000 in foreign currencies (primarily Pound Sterling), and to sell $59,690,000 in foreign currencies (primarily Dutch Guilders, Saudi Riyals and Pound Sterling), at varying maturities through fiscal year 1997. Deferred realized and unrealized gains and losses from hedging firm purchase and sale commitments are included on a net basis in the balance sheet as a component of either other current assets or accrued liabilities. They are recognized as part of the purchase or sale transaction when it is recognized, or as other gains or losses when a hedged transaction is no longer expected to occur. At March 31, 1997 and 1996, JRM had deferred gains of $2,127,000 and $123,000, respectively, and deferred losses of $46,000 and $18,000, respectively, related to forward exchange contracts which will primarily be recognized in accordance with the percentage of completion method of accounting. JRM is exposed to credit-related losses in the event of nonperformance by counterparties to derivative financial instruments, but it does not anticipate nonperformance by any of the counterparties. The amount of such exposure is generally the unrealized gains in such contracts. NOTE 16 - FAIR VALUES OF FINANCIAL INSTRUMENTS The following methods and assumptions were used by JRM in estimating its fair value disclosures for financial instruments: Cash and cash equivalents: The carrying amounts reported in the balance sheet for cash and cash equivalents approximate their fair values. Investment securities: The fair values of investments are estimated based on quoted market prices. For investments for which there are no quoted market prices, fair values are derived from available yield curves for investments of similar quality and terms. The carrying amounts for investments are their estimated fair values (see Note 14). Note receivable from an unconsolidated affiliate: It was not practicable to estimate the fair value of JRM's 7.75% Note Receivable from the HeereMac joint venture because there are no quoted market prices and the time of its settlement cannot yet be determined. Long and short-term debt: The fair values of debt instruments are based on quoted market prices or where quoted prices are not available, on the present value of cash flows 48 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. At March 31, 1997 and 1996, JRM had total debt (excluding capitalized leases and notes payable to McDermott International) with carrying values of $369,262,000 and $194,264,000 and fair values of $387,322,000 and $207,700,000, respectively. Note payable to McDermott International: The fair value of JRM's note payable to McDermott International was calculated using estimated prices based on current yields for debt issues of similar quality and terms. At March 31, 1996, JRM's note payable to McDermott International had a carrying value of $231,000,000 which approximated fair value. Foreign currency exchange contracts: The fair values of foreign currency forward exchange contracts are estimated by obtaining quotes from brokers. JRM had net forward exchange contracts to purchase foreign currencies with notional values of $66,712,000 and fair values of $67,107,000 at March 31, 1997 and to sell foreign currencies with notional values of $52,924,000 and fair values of $50,022,000, at March 31, 1996. NOTE 17 - SEGMENT REPORTING JRM operates in a single business segment and supplies worldwide services for the offshore oil, natural gas and hydrocarbon processing industries, and to other marine construction companies. Principal activities include the design, engineering, fabrication and installation of marine pipelines and offshore structures and subsea production systems for development drilling and production, transportation of oil and gas and onshore construction and maintenance services. JRM also provides vessel chartering operations, principally to its unconsolidated affiliates. JRM does not believe it is dependent on any one customer. Sales to major customers that exceeded 10% of revenues were: 1997--customer A $235,590,000 (17%), customer B $153,274,000 (11%); 1996--customer A $190,000,000 (15%), customer B $198,453,000 (16%); and 1995--customer A $118,820,000 (11%). At March 31, 1997 and 1996 receivables of $4,388,000 and $6,824,000, respectively, were due from minority shareholders participating in JRM's consolidated joint ventures, primarily ETPM S.A. In fiscal years 1997, 1996 and 1995 equipment charters and overhead expenses of $3,995,000, $4,118,000 and $4,938,000, respectively, were charged by ETPM S.A. to the McDermott-ETPM joint venture. 49 Information about JRM's Operations in Different Geographic Areas.
1997 1996 1995 -------- -------- -------- (In thousands) REVENUES/(1)/ - ------------- United States $ 563,809 $ 392,290 $ 349,186 Europe and West Africa 377,631 483,317 322,817 Middle East 196,285 142,931 129,010 Far East 222,427 206,629 326,307 Other Foreign (including transfer eliminations) 7,435 2,674 - - ------------------------------------------------------------------------------------------------ Total Revenues $1,367,587 $1,227,841 $1,127,320 ================================================================================================ OPERATING INCOME - ---------------- Operating Income (Loss) by Geographic Area/(2)/: United States $ 9,797 $ 11,285 $ (6,977) Europe and West Africa (1,193) 25,756 24,024 Middle East 3,908 (886) 18,038 Far East (4,969) 2,062 38,931 Other Foreign/(3)/ 34,202 1,126 (1,478) - ------------------------------------------------------------------------------------------------ Total Operating Income by Geographic Area 41,745 39,343 72,538 - ------------------------------------------------------------------------------------------------ Total Equity in Income (Loss) of Investees (8,064) 9,124 22,857 - ------------------------------------------------------------------------------------------------ General Corporate Expenses/ (2)/ (16,610) (12,014) (11,406) - ------------------------------------------------------------------------------------------------ Total Operating Income $ 17,071 $ 36,453 $ 83,989 ================================================================================================ IDENTIFIABLE ASSETS United States $ 468,410 $ 448,397 $ 312,131 Europe and West Africa 439,781 541,361 609,618 Middle East 153,208 141,568 206,463 Far East 188,937 237,820 271,233 Other Foreign 26,079 12,715 - Corporate 183,253 155,884 82,817 - ------------------------------------------------------------------------------------------------ Total $1,459,668 $1,537,745 $1,482,262 ================================================================================================
/(1)/ Net of inter-geographic area revenues in fiscal years 1997, 1996 and 1995 as follows: United States -$15,138,000, $23,426,000 and $4,820,000; Europe and West Africa - $1,139,000, $1,058,000 and $5,074,000; Middle East - $1,265,000, $14,589,000 and $36,802,000; Far East - $680,000, $477,000 and $341,000; and Other Foreign -$3,666,000, $11,022,000 and $26,259,000. /(2)/ Fiscal years 1996 and 1995 have been restated to conform to the 1997 presentation which includes gains and losses on asset disposals and impairments in Operating Income. This restatement increased Operating Income by Geographic Area and Total Operating Income by $6,191,000 and $5,572,000 in fiscal years 1996 and 1995, respectively, from amounts previously reported. /(3)/ Includes a gain on the sale of two derrick barges of $30,232,000 in fiscal year 1997. 50 NOTE 18 - QUARTERLY FINANCIAL DATA (UNAUDITED) The following tables set forth selected unaudited quarterly financial information for the fiscal years ended March 31,1997 and 1996. Operating income (loss) includes gains and losses on asset disposals and impairments to conform with the presentation in the Consolidated Statement of Income (Loss). 1997 ---- QUARTER ENDED JUNE 30, SEPT. 30, DEC. 31, MARCH 31, 1996 1996 1996 1997 ---- ---- ---- ---- (In thousands) Revenues $ 389,189 $ 368,055 $ 316,899 $ 293,444 Operating income (loss) 12,807 907 48,443 (45,086) Net income (loss) 5,635 (12,637) 38,857 (43,681) Primary and Fully Diluted Earnings (Loss) per Share 0.09 (0.36) 0.83 (1.12) Quarterly results have been restated to reflect the discontinuance of the equity method for JRM's investment in HeereMac. This restatement reduced operating income by $7,894,000 and $26,388,000 and net income by $6,798,000 ($0.17 per share) and $25,308,000 ($0.63 per share) for the quarters ended June 30 and September 30, respectively, and increased operating income by $10,052,000 and net income by $11,307,000 ($0.24 per share) for the quarter ended December 31. Pretax results for the quarter ended December 31, 1996 include gains on asset disposals of $42,128,000, including realization of $12,271,000 of the deferred gain on the sale of major marine vessels to HeereMac, and favorable workers' compensation adjustments of $5,693,000. Pretax results for the quarter ended March 31, 1997 include gains on asset disposals of $17,220,000, asset impairment losses of $31,390,000 and a $4,889,000 provision for employee severance costs. 1996 ---- QUARTER ENDED JUNE 30, SEPT. 30, DEC. 31, MARCH 31, 1995 1995 1995 1996 ---- ---- ---- ---- (In thousands) Revenues $ 311,803 $ 355,957 $ 272,236 $ 287,845 Operating income (loss) 13,357 20,294 17,836 (15,034) Net income (loss) 3,267 9,099 6,110 (18,289) Primary and Fully Diluted Earnings (Loss) per Share 0.03 0.18 0.11 (0.50) 51 Item 9. DISAGREEMENTS WITH AUDITORS ON ACCOUNTING AND FINANCIAL DISCLOSURE None 52 P A R T I I I Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information required by this item with respect to directors and executive officers is incorporated by reference to the material appearing under the headings "Election of Directors" and "Executive Officers" in JRM's Proxy Statement for the 1997 Annual Meeting of Stockholders. Item 11. EXECUTIVE COMPENSATION Information required by this item is incorporated by reference to the material appearing under the heading "Compensation of Executive Officers" in JRM's Proxy Statement for the 1997 Annual Meeting of Stockholders. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information required by this item is incorporated by reference to the material appearing under the headings "Security Ownership of Certain Beneficial Owners" and "Security Ownership of Directors and Executive Officers" in JRM's Proxy Statement for the 1997 Annual Meeting of Stockholders. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information required by this item is incorporated by reference to the material appearing under the heading "Certain Transactions" in JRM's Proxy Statement for the 1997 Annual Meeting of Stockholders. 53 P A R T I V Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORT ON FORM 8-K (a) The following documents are filed as part of this Annual Report or incorporated by reference: 1. CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Auditors Consolidated Balance Sheet March 31, 1997 and 1996 Consolidated Statement of Income (Loss) for the Three Fiscal Years ended March 31, 1997 Consolidated Statement of Equity for the Three Fiscal Years ended March 31, 1997 Consolidated Statement of Cash Flows for the Three Fiscal Years Ended March 31, 1997 Notes to Consolidated Financial Statements for the Three Fiscal Years Ended March 31, 1997 2. CONSOLIDATED FINANCIAL SCHEDULES All required schedules will be filed by amendment to this Form 10-K on Form 10-K/A. 3. EXHIBITS Exhibit No. Description ----------- ----------- 2.1 Agreement and Plan of Merger dated as of June 2, 1994 (as amended) by and among J. Ray McDermott, S.A., McDermott International, Inc., MCB I, Inc. and Offshore Pipelines, Inc. /(1)/ 3.1 Certificate of Incorporation of J.Ray McDermott, S.A. including Resolutions of J. Ray McDermott, S.A. containing the Designation of Rights, Preferences and Privilege of Series A Preferred Stock. /(1)/ 3.2 Amended and Restated Bylaws of J. Ray McDermott, S.A. /(4)/ 4.1 Form of Common Stock Certificate. /(1)/ 54 JRM is a party to long-term debt instruments under which the total amount of securities authorized does not exceed 10% of the total assets of JRM and its subsidiaries on a consolidated basis. Pursuant to paragraph 4(iii)(A) of Item 601(b) of Regulation S-X, JRM agrees to furnish a copy of such instruments to the Commission upon request. 10.1 Contribution and Sale Agreement dated as of August 16, 1994, between J. Ray McDermott, S.A. and McDermott International, Inc. /(1)/ 10.2 Services Agreement dated as of August 16, 1994, between J. Ray McDermott, S.A. and McDermott International, Inc. /(1)/ 10.3 Letter Agreement between J. Ray McDermott, S.A. and McDermott International, Inc. /(1)/ 10.4* Form of Noncompetition Agreements between J. Ray McDermott, S.A., J. Ray McDermott Holdings, Inc. (formerly MCB I, Inc.) and Frank C. Wade. /(1)/ 10.5* Form of Noncompetition Agreement between J. Ray McDermott, S.A., and Mike H. Lam. /(1)/ 10.6* Form of Employment and Noncompetition Agreement between J. Ray McDermott, S.A., and Richard R. Foreman. /(1)/ 10.7* Form of Employment and Noncompetition Agreement between J. Ray McDermott, S.A., and Don W. Wilson. /(1)/ 10.8* Form of Deferred Compensation Agreement between Offshore Pipelines, Inc (as assumed by a subsidiary of J. Ray McDermott, S.A.) and Richard R. Foreman and Mike H. Lam. /(2)/ 10.9* Form of Contingent Severance Agreements (as assumed by a subsidiary of J. Ray McDermott, S.A.). /(3)/ 10.10* Offshore Pipelines, Inc. Incentive Compensation Program. /(3)/ 10.11* J. Ray McDermott, S.A. Senior Management Stock Option Plan. 10.12* J. Ray McDermott, S.A. Nonemployee Director Stock Plan. /(1)/ 10.13* J. Ray McDermott, S.A. Restated Short-Term Incentive Compensation Plan. /(5)/ 55 10.14* J. Ray McDermott, S.A. Restated Executive Long-Term Incentive Compensation Plan./(5)/ 10.15 Indenture, dated as of July 2, 1992, among Offshore Pipelines, Inc. (now J. Ray McDermott, Holdings, Inc.) and affiliated entities and NationsBank of Texas, N.A., pertaining to the 12 7/8 % Guaranteed Senior Notes due July 15, 2002. /(1)/ 10.16 Registration Rights Agreement between J. Ray McDermott, S.A. and McDermott International, Inc. /(1)/ 11 Statement Re Computation of Per Share Loss 21 Significant Subsidiaries of J. Ray McDermott, S.A. 23 Consent of Independent Auditors 27 Financial Data Schedule ------------ * Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to the requirements of Item 14(c) of Form 10-K. /(1)/ Incorporated by reference to the Exhibits from the Registration Statement on Form S-4, as amended, of J. Ray McDermott, S.A. (Registration No. 33-87592). /(2)/ Incorporated by reference to the Exhibits from the Annual Report on Form 10-K of Offshore Pipelines, Inc. filed with the Commission on October 29, 1992. /(3)/ Incorporated by reference to the Exhibits from the Registration Statement on Form S-1, as amended, of Offshore Pipelines, Inc. (Registration No. 33-59958). /(4)/ Incorporated by reference to Exhibit 3.2 of J. Ray McDermott, S.A.'s Quarterly Report on Form 10-Q for the quarter ended September 30, 1996. /(5)/ Incorporated by reference to the Appendices to J. Ray McDermott, S.A.'s Proxy Statement for its Annual Meeting of Stockholders held on August 2, 1996 as filed with the Commission under a Schedule 14A. FORM 8-K REPORTS There were no reports on Form 8-K filed during the three months ended March 31, 1997. 56 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. J. RAY McDERMOTT, S.A. July 10, 1997 /s/Roger E. Tetrault ------------------------------- By: Roger E.Tetrault Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. Signature Title - --------- ----- /s/ Roger E. Tetrault * Chairman of the Board, - --------------------------- Chief Executive Officer, Roger E. Tetrault and Director (Principal Executive Officer) /s/ Daniel R. Gaubert Vice President, - --------------------------- Finance Daniel R. Gaubert (Principal Financial and Accounting Officer) /s/ Rick L. Burdick * Director - --------------------------- Rick L. Burdick /s/ Cedric E. Ritchie * Director - --------------------------- Cedric E. Ritchie /s/ Richard E. Woolbert * Director - --------------------------- Richard E. Woolbert *Constitutes a majority of the Board of Directors of J. Ray McDermott, S.A. July 10, 1997 57 INDEX TO EXHIBITS
Sequentially Numbered Exhibit No. Description Pages - ----------- ----------- ----- 2.1 Agreement and Plan of Merger dated as of June 2, 1994 (as amended) by and among J. Ray McDermott, S.A., McDermott International, Inc., MCB I, Inc. and Offshore Pipelines, Inc. /(1)/ 3.1 Certificate of Incorporation of J.Ray McDermott, S.A. including Resolutions of J. Ray McDermott, S.A. containing the Designation of Rights, Preferences and Privilege of Series A Preferred Stock./(1)/ 3.2 Amended and Restated Bylaws of J. Ray McDermott, S.A. /(4)/ 4.1 Form of Common Stock Certificate. /(1)/ JRM is a party to long-term debt instruments under which the total amount of securities authorized does not exceed 10% of the total assets of JRM and its subsidiaries on a consolidated basis. Pursuant to paragraph 4(iii)(A) of Item 601(b) of Regulation S-X, JRM agrees to furnish a copy of such instruments to the Commission upon request. 10.1 Contribution and Sale Agreement dated as of August 16, 1994, between J. Ray McDermott, S.A. and McDermott International, Inc. /(1)/ 10.2 Services Agreement dated as of August 16, 1994, between J. Ray McDermott, S.A. and McDermott International, Inc. /(1)/ 10.3 Letter Agreement between J. Ray McDermott, S.A. and McDermott International, Inc. /(1)/ 10.4* Form of Noncompetition Agreements between J. Ray McDermott, S.A., J. Ray McDermott Holdings, Inc. (formerly MCB I, Inc.) and Frank C. Wade. /(1)/ 10.5* Form of Noncompetition Agreement between J. Ray McDermott, S.A., and Mike H. Lam. /(1)/ 10.6* Form of Employment and Noncompetition Agreement between J. Ray McDermott, S.A., and Richard R. Foreman. /(1)/ 10.7* Form of Employment and Noncompetition Agreement between J. Ray McDermott, S.A., and Don W. Wilson. /(1)/
10.8* Form of Deferred Compensation Agreement between Offshore Pipelines, Inc (as assumed by a subsidiary of J. Ray McDermott, S.A.) and Richard R. Foreman and Mike H. Lam. /(2)/ 10.9* Form of Contingent Severance Agreements (as assumed by a subsidiary of J. Ray McDermott, S.A.). /(3)/ 10.10* Offshore Pipelines, Inc. Incentive Compensation Program. /(3)/ 10.11* J. Ray McDermott, S.A. Senior Management Stock Option Plan. 10.12* J. Ray McDermott, S.A. Nonemployee Director Stock Plan. /(1)/ 10.13* J. Ray McDermott, S.A. Short-Term Incentive Compensation Plan./(5)/ 10.14* J. Ray McDermott, S.A. Executive Long-Term Incentive Compensation Plan./(5)/ 10.15 Indenture, dated as of July 2, 1992, among Offshore Pipelines, Inc. (now J. Ray McDermott Holdings, Inc.) and affiliated entities and NationsBank of Texas, N.A., pertaining to the 12 7/8 % Guaranteed Senior Notes due July 15, 2002. /(1)/ 10.16 Indenture between J. Ray McDermott, S.A. and NationsBank of Texas, N.A. pertaining to the 9% Convertible Subordinated Debentures due July 15, 2007. /(1)/ 10.17 Registration Rights Agreement between J. Ray McDermott, S.A. and McDermott International, Inc./ (1)/ 11 Statement Re Computation of Per Share Loss 21 Significant Subsidiaries of J. Ray McDermott, S.A. 23 Consent of Independent Auditors 27 Financial Data Schedule
- --------------- * Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to the requirements of Item 14(c) of Form 10-K. /(1)/ Incorporated by reference to the Exhibits from the Registration Statement on Form S-4, as amended, of J. Ray McDermott, S.A. (Registration No. 33-87592). /(2)/ Incorporated by reference to the Exhibits from the Annual Report on Form 10-K of Offshore Pipelines, Inc. filed with the Commission on October 29, 1992. /(3)/ Incorporated by reference to the Exhibits from the Registration Statement on Form S-1, as amended, of Offshore Pipelines, Inc. (Registration No. 33-59958). /(4)/ Incorporated by reference to Exhibit 3.2 of J. Ray McDermott, S.A.'s Quarterly Report on Form 10-Q for the quarter ended September 30, 1996. /(5)/ Incorporated by reference to the Appendices to J. Ray McDermott, S.A.'s Proxy Statement for its Annual Meeting of Stockholders held on August 2, 1996 as filed with the Commission under a Schedule 14A. FORM 8-K REPORTS (b) There were no current reports on Form 8-K filed during the three months ended March 31, 1997. EX-11 2 EXHIBIT 11 EXHIBIT 11 J. RAY MCDERMOTT, S.A. STATEMENT RE COMPUTATION OF PER SHARE LOSS FOR THE TWO FISCAL YEARS ENDED MARCH 31, 1997 (In thousands, except shares and per share amounts) PRIMARY AND FULLY DILUTED
1997 1996 ---- ---- Net Income (Loss) $(11,826) $ 187 - --------------------------------------------------------------------- Less dividend requirements of preferred stock: Series A (7,200) (7,200) Series B - (511) - --------------------------------------------------------------------- Net loss for primary computation $(19,026) $(7,524) ===================================================================== Weighted average number of common shares outstanding during the year 40,376,361 39,499,972 ===================================================================== Net loss per common and common equivalent share /(1)/ $ (0.47) $ (0.19) =====================================================================
/(1)/ Net loss per common and common equivalent share assuming full dilution are the same for the fiscal years presented. Earnings per share are not presented for fiscal year 1995 because JRM was not a separate entity with its own capital structure for that period. EX-21 3 EXHIBIT 21 EXHIBIT 21 J. RAY MCDERMOTT, S.A. SIGNIFICANT SUBSIDIARIES OF THE REGISTRANT FISCAL YEAR ENDED MARCH 31, 1997
ORGANIZED PERCENTAGE UNDER THE OF NAME OF COMPANY LAWS OF OWNERSHIP J. Ray McDermott Holdings, Inc. Delaware 100 J. Ray McDermott, Inc. Delaware 100 Offshore Pipelines International, Ltd. Cayman 100 OPI Vessels, Inc. Delaware 100 J. Ray McDermott International, Inc. Panama 100 J. Ray McDermott Contractors, Inc. Panama 100 McDermott Far East, Inc. Panama 100 P. T. McDermott Indonesia Indonesia 100 McDermott Holdings (U.K.) Limited United Kingdom 100 McDermott Marine Construction Limited United Kingdom 100 Hydro Marine Services, Inc. Panama 100
The subsidiaries omitted from the foregoing list do not, considered in the aggregate, constitute a significant subsidiary. EX-23 4 EXHIBIT 23 EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements (Forms S-8 No. 33-87592, No. 33-60369, No. 33-60373 and No. 33-60371) of J. Ray McDermott, S.A. of our report dated July 10, 1997 with respect to the consolidated financial statements of J. Ray McDermott, S.A. included in this Annual Report (Form 10-K) for the year ended March 31, 1997. ERNST & YOUNG LLP New Orleans, Louisiana July 10, 1997 EX-27 5 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM J. RAY MCDERMOTT'S MARCH 31, 1997 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS. 1,000 12-MOS MAR-31-1997 MAR-31-1997 134,948 75,516 300,564 38,942 87,840 668,394 1,173,001 816,271 1,459,668 536,259 0 0 32 406 535,520 1,459,668 1,367,587 1,367,587 1,371,471 1,371,471 0 0 40,043 729 12,555 (11,826) 0 0 0 (11,826) (0.47) (0.47)
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