-----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, ONUX6eqwzvhLVGOe/nAg5WE5srLcU8qcN+c37/0pfABTe3G+VvgIHMDcrSkDnxvG IEdsrOIwufd7lHGtlFfBnA== 0000899243-97-001383.txt : 19970730 0000899243-97-001383.hdr.sgml : 19970730 ACCESSION NUMBER: 0000899243-97-001383 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970729 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/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-13570 FILM NUMBER: 97646569 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/A 1 FORM 10-K/A UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 F O R M 1 0 - K/A-1 [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 1996 Annual Meeting of Stockholders are incorporated by reference into Part III hereof. J. RAY McDERMOTT, S.A. INDEX TO FINANCIAL STATEMENT SCHEDULES AND EXHIBITS Page Report of Independent Auditors 2 Financial Statement Schedule Covered by Report of Independent Auditors: I Condensed Financial Information of Registrant 3 Signature of Registrant 9 Exhibit Index - ------------- 23 Consent of Independent Auditors 99 McDermott-ETPM West, Inc. Combined Financial Statements for the Years Ended March 31, 1997, 1996 and 1995. All schedules other than the above have been omitted because they are not required or the information is included in the Consolidated Financial Statements or Notes thereto. 1 REPORT OF INDEPENDENT AUDITORS The Board of Directors and Stockholders J. Ray McDermott, S.A. We have audited the consolidated financial statements of J. Ray McDermott, S.A. as of March 31, 1997 and 1996, and for each of the three years in the period ended March 31, 1997, and have issued our report thereon dated July 10, 1997. Our audits also included the financial statement schedule listed in the Index to Financial Statement Schedules and Exhibits in this Form 10-K/A-1. This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. ERNST & YOUNG LLP New Orleans, Louisiana July 10, 1997 2 Schedule I J. RAY McDERMOTT, S.A. (PARENT COMPANY ONLY) BALANCE SHEET MARCH 31, 1997 AND 1996 ASSETS - ------ 1997 1996 ---- ---- (In thousands) Current Assets: Cash and cash equivalents $ 28,195 $ 58,077 Short term investments in debt securities 45,344 - Accounts receivable - trade 172 2,656 Accounts receivable - other 16,024 12,437 Accounts receivable from McDermott International 1,418 - Accounts receivable from subsidiaries 66,097 84,038 Contracts in progress 1,637 1,280 Other current assets 909 - -------- -------- Total Current Assets 159,796 158,488 -------- -------- Investments in Subsidiaries and Other Investees, at Equity 504,063 525,095 -------- -------- Property, Plant and Equipment, at Cost: Buildings 8,080 8,066 Machinery and equipment 47,021 52,924 Property under construction 224 4,160 -------- -------- 55,325 65,150 Less accumulated depreciation 46,857 51,462 -------- -------- Net Property, Plant and Equipment 8,468 13,688 -------- -------- Notes Receivable from Subsidiaries 125,860 155,149 -------- -------- Other Assets 46,240 39,573 -------- -------- TOTAL $844,427 $891,993 ======== ======== See accompanying notes to condensed financial information. 3 Schedule I LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ 1997 1996 ---- ---- (In thousands) Current Liabilities: Accounts payable $ 3,072 $ 5,821 Accounts payable to McDermott International - 19,134 Accrued liabilities - other 27,785 25,171 Advance billings on contracts 1,768 1,605 Income taxes 1,785 2,288 -------- -------- Total Current Liabilities 34,410 54,019 -------- -------- Long-Term Debt 244,610 - -------- -------- Note Payable to McDermott International - 231,000 -------- -------- Notes Payable to Subsidiaries 2,042 28,614 -------- -------- Deferred and Non-Current Income Taxes 13,788 9,853 -------- -------- Other Liabilities 13,619 14,610 -------- -------- Contingencies Stockholders' Equity: Preferred stock 32 32 Common stock 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 $844,427 $891,993 ======== ======== 4 Schedule I J. RAY McDERMOTT, S.A. (PARENT COMPANY ONLY) STATEMENT OF INCOME (LOSS) FOR THE THREE FISCAL YEARS ENDED MARCH 31, 1997 1997 1996 1995 ---- ---- ---- Revenues $ 9,248 $ 24,002 $ 74,247 -------- -------- -------- Costs and Expenses: Cost of operations (excluding depreciation and amortization) 1,563 5,685 74,981 Depreciation and amortization 5,495 5,678 3,045 Selling, general and administrative expenses 20,396 27,401 15,111 -------- -------- -------- 27,454 38,764 93,137 -------- -------- -------- Gain on Asset Disposals - Net 335 171 8,317 -------- -------- -------- Operating Loss before Equity in Income of Investees (17,871) (14,591) (10,573) Equity in Income of Subsidiaries and Other Investees 30,463 29,877 73,860 -------- -------- -------- Operating Income 12,592 15,286 63,287 -------- -------- -------- Other Income (Expense): Interest income 3,825 17,749 7,988 Interest expense (24,160) (28,533) (6,734) Other - net (778) (4,064) (1,144) -------- -------- -------- (21,113) (14,848) 110 -------- -------- -------- Income (Loss) before Provision for Income Taxes and Cumulative Effect of Accounting Change (8,521) 438 63,397 Provision for Income Taxes 3,305 251 2,697 -------- -------- -------- 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 ======== ======== ======== See accompanying notes to condensed financial information 5 Schedule I J. RAY McDERMOTT, S.A. (PARENT COMPANY ONLY) 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 $(11,826) $ 187 $ 59,374 -------- -------- -------- Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 5,495 5,678 3,045 Equity in income of subsidiaries and other investees, less dividends (29,618) (15,787) (73,860) Gain on asset disposals - net (335) (171) (8,317) Benefit from deferred taxes - (17) (149) Other - - 1,303 Changes in assets and liabilities: Net contracts in progress and advance billings (194) 6,341 21,740 Accounts and notes receivable 56,601 50,314 4,600 Accounts payable (21,883) (58,791) 42,980 Income taxes 3,432 (5,943) 5,138 Other, net (2,777) 385 1,930 -------- -------- -------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (1,105) (17,804) 57,784 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from asset disposals 340 325 26 Purchases of property, plant and equipment (213) (2,121) (3,153) Purchases of short-term investments - net (45,344) - - Decrease in loans to subsidiaries 32,131 127,438 - Other 137 (452) (375) -------- -------- -------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (12,949) 125,190 (3,502) -------- -------- -------- 6 CONTINUED INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1997 1996 1995 ---- ---- ---- (In thousands) CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of long-term debt $ 244,375 $ - $ - Issuance of common stock 4,569 4,197 430 Decrease in notes payable to McDermott International (231,000) (20,542) - Distributions to McDermott International - - (46,249) Decrease in notes payable to subsidiaries (26,572) (36,807) _ Dividends paid (7,200) (7,928) (900) Other - (5) - --------- -------- -------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (15,828) (61,085) (46,719) --------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (29,882) 46,301 7,563 --------- -------- -------- CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 58,077 11,776 4,213 --------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 28,195 $ 58,077 $ 11,776 ========= ======== ======== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest, including intercompany interest (net of amount capitalized) $ 20,143 $ 29,030 $ 5,380 Income taxes, net of refunds $ 50 $ 1,138 $ 821 ========= ======== ======== See accompanying notes to condensed financial information. 7 SCHEDULE I J. RAY McDERMOTT, S.A. (PARENT COMPANY ONLY) NOTES TO CONDENSED FINANCIAL INFORMATION FOR THE THREE FISCAL YEARS ENDED MARCH 31, 1997 NOTE 1 - BASIS OF PRESENTATION The accompanying financial statements have been prepared to present the unconsolidated financial position, results of operations and cash flows of J. Ray McDermott, S.A. (Parent Company Only). Investments in subsidiaries and other investees are stated at cost plus equity in undistributed earnings from date of acquisition. These Parent Company Only financial statements should be read in conjunction with J. Ray McDermott, S.A. consolidated financial statements. NOTE 2 - LONG-TERM DEBT Long-Term Debt Consists of: 1997 1996 ---- ---- 9.375% Senior Subordinated Notes Due 2006 ($250,000,000 principal amount, unsecured) $244,610 $ - ======== ======== NOTE 3 - CONTINGENCIES J. Ray McDermott, S.A. is contingently liable under standby letters of credit totaling $246,373,000 at March 31, 1997 issued in the normal course of business. J. Ray McDermott, S.A. has guaranteed the indebtedness of certain of its subsidiaries and other investees. At March 31, 1997, these guarantees included $41,698,000 of loans to and $17,714,000 of standby letters of credit issued by certain subsidiaries and other investees. NOTE 4 - DIVIDENDS RECEIVED J. Ray McDermott, S.A. received dividends from its consolidated subsidiaries of $845,000 and $14,090,000, for the fiscal years ended March 31, 1997 and 1996, respectively. 8 SIGNATURE OF THE REGISTRANT Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this amendment to be signed on its behalf by the undersigned, thereunto duly authorized. J. RAY McDERMOTT, S.A. --------------------------- (REGISTRANT) By: /s/ ---------------------------- Daniel R. Gaubert Vice President, Finance (Principal Financial and Accounting Officer) July 24, 1997 9 EXHIBIT INDEX Exhibit Number ------- 23 Consent of Independent Auditors 99 McDermott-ETPM West, Inc. Combined Financial Statements for the Years Ended March 31, 1997, 1996 and 1995 10 EX-23 2 CONSENT 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. 33-60371, No. 33-60373) of J. Ray McDermott, S.A. of our report dated April 25, 1997 with respect to the combined financial statements of McDermott-ETPM West, Inc. included in this Annual Report (Form 10-K/A-1) for the year ended March 31, 1997. ERNST & YOUNG LLP New Orleans, Louisiana July 24, 1997 11 EX-99 3 FINANCIAL STATEMENTS EXHIBIT 99 McDERMOTT-ETPM WEST, INC. COMBINED FINANCIAL STATEMENTS FOR THE FISCAL YEARS ENDED MARCH 31, 1997, 1996 AND 1995 McDERMOTT-ETPM WEST, INC. INDEX PAGE REPORT OF INDEPENDENT AUDITORS 3 COMBINED BALANCE SHEET - MARCH 31, 1997 AND 1996 4 COMBINED STATEMENT OF INCOME (LOSS) FOR THE THREE FISCAL YEARS ENDED MARCH 31, 1997 5 COMBINED STATEMENT OF CASH FLOWS FOR THE THREE FISCAL YEARS ENDED MARCH 31, 1997 6 COMBINED STATEMENT OF COMMON STOCK AND OTHER EQUITY - FOR THE THREE FISCAL YEARS ENDED MARCH 31, 1997 7 NOTES TO COMBINED FINANCIAL STATEMENTS 8 2 REPORT OF INDEPENDENT AUDITORS ------------------------------ The Board of Directors J. Ray McDermott, S.A. We have audited the accompanying combined balance sheet of McDermott - ETPM West, Inc. as of March 31, 1997 and 1996, and the related combined statements of income (loss), common stock and other 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 combined financial position of McDermott - ETPM West, Inc. at March 31, 1997 and 1996, and the combined 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. ERNST & YOUNG LLP New Orleans, Louisiana April 25, 1997 3 McDERMOTT-ETPM WEST INC. COMBINED BALANCE SHEET MARCH 31, 1997 and 1996
1997 1996 -------- -------- (In thousands) ASSETS Current Assets: Cash and cash equivalents $ 28,517 $ 76,720 Accounts receivable - trade 62,083 40,083 Accounts receivable - affiliates 3,323 5,658 Accounts receivable - other 1,661 2,295 Contracts in progress 20,151 2,777 Other current assets 5,359 5,720 -------- -------- Total Current Assets 121,094 133,253 -------- -------- Machinery and Equipment, at Cost: 48,178 27,230 Less accumulated depreciation 12,477 9,451 -------- -------- Net Machinery and Equipment 35,701 17,779 -------- -------- Other Assets 104 111 -------- -------- TOTAL $156,899 $151,143 ======== ======== LIABILITIES AND EQUITY (DEFICIT) Current Liabilities: Accounts payable $ 94,396 $ 48,354 Accounts payable - affiliates 40,405 27,941 Advance billings on contracts 355 4,799 Estimated loss on uncompleted contract 12,847 24,133 Accrued liabilities - other 6,592 15,595 Income taxes payable 6,437 3,506 -------- -------- Total Current Liabilities 161,032 124,328 -------- -------- Other Liabilities 4,705 4,451 -------- -------- Common Stock and Other Equity (Deficit): Common stock (par value $1.00 per share, authorized 1,000,000 shares; outstanding 10,000 shares) 10 10 Retained earnings and other venture capital (deficit) (4,736) 24,303 Currency translation adjustments (4,112) (1,949) -------- -------- Total Common Stock and Other Equity (Deficit) (8,838) 22,364 -------- -------- TOTAL $156,899 $151,143 ======== ========
See accompanying notes to combined financial statements. 4 McDERMOTT-ETPM WEST, INC. COMBINED STATEMENT OF INCOME (LOSS) FOR THE THREE FISCAL YEARS ENDED MARCH 31, 1997
1997 1996 1995 -------- -------- -------- (In thousands) Revenues $347,849 $250,642 $342,247 -------- -------- -------- Costs and Expenses: Cost of operations (excluding depreciation) 347,358 225,369 267,637 Depreciation 3,026 1,423 6,064 Selling, general and administrative expenses 19,032 19,696 28,509 -------- -------- -------- 369,416 246,488 302,210 -------- -------- -------- Operating Income (Loss) (21,567) 4,154 40,037 -------- -------- -------- Other Income (Expense): Interest income 1,973 5,593 6,729 Foreign currency transactions losses - net (2,179) (1,946) (3,853) -------- -------- -------- (206) 3,647 2,876 -------- -------- -------- Income (Loss) before Provision for Income Taxes (21,773) 7,801 42,913 Provision for Income Taxes 7,266 625 5,807 -------- -------- -------- Net Income (Loss) $(29,039) $ 7,176 $ 37,106 ======== ======== ========
See accompanying notes to combined financial statements. 5 McDERMOTT-ETPM WEST, INC. COMBINED 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) $(29,039) $ 7,176 $ 37,106 -------- -------- -------- Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation 3,026 1,423 6,064 Changes in assets and liabilities: Net contracts in progress, advance billings and estimated loss on uncompleted contracts (33,104) (11,669) 18,121 Accounts receivable (19,031) 6,272 (19,864) Accounts payable 58,506 23,564 (7,020) Other, net (4,574) (17,811) (9,986) -------- -------- -------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (24,216) 8,955 24,421 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment (20,948) (15,299) (6,190) -------- -------- -------- NET CASH USED IN INVESTING ACTIVITIES (20,948) (15,299) (6,190) -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Dividends paid - (3,618) (82,002) -------- -------- -------- NET CASH USED IN FINANCING ACTIVITIES - (3,618) (82,002) -------- -------- -------- EFFECTS OF EXCHANGE RATE CHANGES ON CASH (3,039) (2,091) 15,659 -------- -------- -------- NET DECREASE IN CASH AND CASH EQUIVALENTS (48,203) (12,053) (48,112) -------- -------- -------- CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 76,720 88,773 136,885 -------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 28,517 $ 76,720 $ 88,773 ======== ======== ========
See accompanying notes to combined financial statements. 6 McDERMOTT-ETPM WEST, INC. COMBINED STATEMENT OF COMMON STOCK AND OTHER EQUITY MARCH 31, 1997 (In thousands)
Retained Earnings Currency Common and Other Translation Stock Venture Capital (Deficit) Adjustments Total ------ -------------------------- ------------ --------- Balance April 1, 1994 $10 $ 65,641 $(17,929) $ 47,722 --- -------- -------- -------- Net income - 37,106 - 37,106 Dividends paid - (82,002) - (82,002) Currency translation adjustments - - 14,288 14,288 --- -------- -------- -------- Balance March 31, 1995 10 20,745 (3,641) 17,114 --- -------- -------- -------- Net income - 7,176 - 7,176 Dividends paid - (3,618) - (3,618) Currency translation adjustments - - 1,692 1,692 --- -------- -------- -------- Balance March 31, 1996 10 24,303 (1,949) 22,364 --- -------- -------- -------- Net income (Loss) - (29,039) - (29,039) Currency translation adjustments - - (2,163) (2,163) --- -------- -------- -------- Balance March 31, 1997 $10 $ (4,736) $ (4,112) $ (8,838) === ======== ======== ========
See accompanying notes to combined financial statements. 7 McDERMOTT-ETPM WEST, INC. NOTES TO COMBINED FINANCIAL STATEMENTS FOR THE FISCAL YEARS ENDED MARCH 31, 1997, 1996 AND 1995 NOTE 1 - GENERAL McDermott-ETPM West, Inc. a Panamanian corporation, is a joint venture between J. Ray McDermott S.A. ("JRM") and ETPM S.A. ("ETPM") which provides general marine construction services to the petroleum industry in the North Sea and West Africa. Its principal activity is installation of marine pipelines. McDermott- ETPM West, Inc. charters one semi-submersible lay barge from JRM and two combination derrick-pipelaying barges from ETPM. JRM and ETPM also provide fabrication facilities located in Warri, Nigeria and Tchenque, Gabon, respectively. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation - --------------------- The combined financial statements are presented in U.S. dollars in accordance with accounting principles generally accepted in the United States. The combined financial statements combine financial information of McDermott-ETPM West, Inc. and its subsidiaries, and other entities of both JRM and ETPM, which perform contracts on behalf of McDermott-ETPM West, Inc. All significant intercompany transactions and accounts have been eliminated. Unless the context otherwise requires, hereinafter the "Joint Venture" will be used to mean the combined 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 amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Cash and Cash Equivalents - ------------------------- Cash equivalents are highly liquid investments, with maturities of three months or less when purchased. The carrying amounts reported in the balance sheet for cash and cash equivalents approximate their fair value. Contracts and Revenue Recognition - --------------------------------- Contract revenues on long-term contracts are recognized on a percentage of completion method. Under this method revenues and costs are recognized based on the percentage that costs to date bear to total estimated costs. Revenues that exceed amounts invoiced to customers under the terms of the contracts are included in Contracts in Progress. Billings that exceed revenues recognized 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 included in contract revenues when collection is probable. Included in Contracts in Progress 8 are approximately $15,464,000 relating to commercial contract claims whose final settlement is subject to future determination through negotiation or other procedures which had not been completed at March 31, 1997. Depreciation, Maintenance and Repairs and Drydocking Expenses - ------------------------------------------------------------- Machinery and equipment is depreciated on the straight-line method, using estimated useful lives of four to seven years. 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. Drydocking costs are estimated and accrued over the period of time between drydockings, and are charged to operations currently. Included in Accrued liabilities-other are accruals for drydocking of $3,447,000 and $9,342,000 at March 31, 1997 and 1996, respectively. Foreign Currency Translation - ---------------------------- Assets and liabilities 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. Derivative Financial Instruments - -------------------------------- The Joint Venture 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. The Joint Venture 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 and 1996, the Joint Venture had forward exchange contracts to purchase $35,924,000 and $14,913,000, respectively, in foreign currencies (primarily Dutch Guilders, Norwegian Kroner, British Pounds, German Marks and Spanish Pesetas) with French Francs, and to sell $86,200,000 and $9,681,000, respectively, in foreign currencies (primarily U.S. Dollars) for French Francs. The 1997 forward exchange contracts have varying maturities, all of which occur during fiscal year 1998. 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 the Joint Venture had no deferred gains or losses ($210,000 deferred gains at March 31, 1996). The fair values of foreign currency forward exchange contracts are estimated by obtaining quotes from brokers. At March 31, 1997 and 1996, notional amounts approximate the fair values. 9 NOTE 3 - INCOME TAXES All income has been earned outside of Panama and McDermott-ETPM West, Inc. along with the other entities included in the Joint Venture are not subject to income tax in Panama on income earned outside of Panama. Substantially all income taxes provided are based on the deemed profits of contracts performed in various taxing jurisdictions or the profits of contracts performed by McDermott-ETPM U. K. Ltd, a subsidiary of McDermott-ETPM West, Inc. In the countries in which Joint Venture operations are conducted through an ad hoc joint venture between JRM and ETPM or through a registered partnership between a McDermott and ETPM entity, the respective McDermott and ETPM entities are responsible for taxes based on their proportionate share of contract revenues and costs; therefore, no taxes are reflected in these statements. Therefore, there is no expected relationship between the provision for income taxes and income before provision for income taxes. NOTE 4 - CONTINGENCIES AND COMMITMENTS The Joint Venture is a defendant in numerous legal proceedings. Management believes that the outcome of these proceedings will not have a material adverse effect on the combined financial position of the Joint Venture. The stockholders of the Joint Venture are contingently liable under standby letters of credit totalling approximately $53,706,000 at March 31, 1997, issued in the normal course of business. NOTE 5 - FINANCIAL INSTRUMENTS WITH CONCENTRATIONS OF CREDIT RISK The Joint Venture's customers are primarily in the petroleum industry in the North Sea and West Africa. Sales to major customers that exceeded 10% of revenues were: 1997 - Customer A -$101,000,000 (29%), Customer B - $72,000,000 (21%), Customer C - $50,000,000 (14%), Customer D - $44,000,000 (13%), Customer E - $40,000,000 (11%); 1996 - Customer E -$108,000,000 (43%), Customer C - $54,000,000 (22%), Customer A - $43,000,000 (17%); 1995 - Customer E - $212,000,000 (62%), Customer F $92,000,000 (27%). Management is cognizant of its concentration of customers, but feels that the risk associated with this is minimal as all of its customers are well known and established participants in the petroleum industry. Receivables are generally not collateralized. NOTE 6 - RELATED PARTY TRANSACTIONS The Joint Venture has material transactions with JRM and ETPM occurring in the normal course of operations. Under the joint venture agreement, marine equipment and fabrication facilities are chartered into the Joint Venture by JRM and ETPM. Charter expense for fiscal years 1997, 1996 and 1995 was $21,175,000, $21,175,000 and $23,061,000, respectively. In addition, an ETPM subsidiary provides general and administrative services to the Joint Venture. In fiscal years 1997, 1996 and 1995, the amounts of these services were approximately $19,032,000, $19,696,000 and $28,509,000, respectively. 10 -----END PRIVACY-ENHANCED MESSAGE-----