-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, cjlmVGLKR/gFZaf4ftwiM2q390whN4RV+LqJ/15h4deCEcRdUYw6ARZwEf9YD/6U Sy0CC6ZyiLM++x0TI1crag== 0000950134-95-001411.txt : 19950719 0000950134-95-001411.hdr.sgml : 19950719 ACCESSION NUMBER: 0000950134-95-001411 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19950331 FILED AS OF DATE: 19950619 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MCDERMOTT J RAY SA CENTRAL INDEX KEY: 0000934590 STANDARD INDUSTRIAL CLASSIFICATION: 1623 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-13570 FILM NUMBER: 95547887 BUSINESS ADDRESS: STREET 1: 1450 POYDRAS ST STREET 2: PO BOX 61829 CITY: NEW ORLEANS STATE: LA ZIP: 70161-1829 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 1 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, 1995 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (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 Series B $2.25 Cumulative Convertible Exchangeable Preferred Stock, $0.01 par value 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. / / The aggregate market value of voting stock held by non-affiliates of the registrant was $318,706,293 as of April 26, 1995. The number of shares outstanding of the Company's Common Stock at April 26, 1995 was 38,649,474. DOCUMENTS INCORPORATED BY REFERENCE The Proxy Statement for the 1995 Annual Meeting of Stockholders is incorporated by reference into Part III of this report. 2 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 5 Raw Materials 6 Customers and Competition 6 Backlog 6 Factors Affecting Demand 6 C. Patents and Licenses 7 D. Insurance 7 E. Employees 7 F. Environmental Regulations and Matters 8 G. Transactions With Related Parties 8 Item 3. LEGAL PROCEEDINGS 9 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 10
-i- 3 INDEX - FORM 10-K PART II
PAGE Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS 11 Item 6. SELECTED FINANCIAL DATA 12 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS 13 General 13 Fiscal Year 1995 vs Fiscal Year 1994 13 Fiscal Year 1994 vs Fiscal Year 1993 14 Effect of Inflation and Changing Prices 15 Liquidity and Capital Resources 16 Item 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 18 Company Report on Consolidated Financial Statements 18 Report of Independent Auditors 19 Consolidated Balance Sheet - March 31, 1995 and 1994 20 Consolidated Statement of Income for the Three Fiscal Years ended March 31, 1995 22 Consolidated Statement of Equity for the Three Fiscal Years ended March 31, 1995 23 Consolidated Statement of Cash Flows for the Three Fiscal Years ended March 31, 1995 25 Notes to Consolidated Financial Statements 27 Item 9. DISAGREEMENTS WITH AUDITORS ON ACCOUNTING AND FINANCIAL DISCLOSURE 51 PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 52 Item 11. EXECUTIVE COMPENSATION 52 Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 52 Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 52
-ii- 4 INDEX - FORM 10-K PART IV
PAGE Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K 53 Signatures 57
-iii- 5 P A R T I Items 1. and 2. BUSINESS AND PROPERTIES A. GENERAL On January 31, 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"), pursuant to an Agreement and Plan of Merger dated as of June 2, 1994, as amended (the "Merger Agreement"). 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. 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. JRM's Common Stock and Series B $2.25 Cumulative Convertible Exchangeable Preferred Stock are publicly traded. 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 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. JRM, together with its subsidiaries and joint ventures, 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 has a continuing program of reviewing joint venture, acquisition and disposition opportunities. -1- 6 B. DESCRIPTION OF OPERATIONS GENERAL JRM's business consists of the design, construction, and installation of specialized offshore fixed platforms and marine pipelines used for development drilling, production and transportation of oil and gas. It also provides engineering and construction services for oil production in shoreline and marshland areas (principally in Louisiana and Texas); subsea and trenching services; the removal of offshore fixed platforms (principally in the Gulf of Mexico); and vessel chartering operations, principally to JRM's joint ventures. Fixed platforms, which are fastened to the seafloor by pilings driven through their structural legs, have been installed by JRM in water depths of more than 1,000 feet. These platforms have been engineered to withstand increasingly greater weights and stresses as the search for oil and gas has expanded into deeper water and into areas subject to severe weather conditions. In addition, JRM is capable of fabricating and installing tension-leg platforms, floating production systems and subsea templates. In order to compete effectively in markets with overcapacity for offshore marine construction equipment, JRM participates in joint ventures with other marine contractors. JRM owns 50% of the HeereMac joint venture, formed with Heerema Offshore Construction Group, Inc., to provide heavy-lift marine installation services to the petroleum industry on a worldwide basis, especially in harsh environments. Each party charters to the joint venture, on a long-term basis, 2 semi-submersible derrick barges, with the largest being JRM's Derrick Barge 102 ("DB-102") with a lift capacity of 13,200 tons. During March 1995, JRM contributed the Derrick Barge 100 semi- submersible derrick barge and sold the Derrick Barge 51 to the joint venture. JRM's joint venture with ETPM S.A. ("McDermott-ETPM") provides general marine construction services to the petroleum industry in the Middle East, India, West Africa and South America; it also provides offshore marine installation services in the North Sea. JRM owns 67.2% of McDermott-ETPM East and 49.9% of McDermott-ETPM West. McDermott-ETPM East operates in the Middle East and India; and McDermott-ETPM West operates in the North Sea, West Africa and South America. McDermott-ETPM utilizes 3 combination derrick-pipelaying barges and 1 semi-submersible lay barge which are owned by JRM. JRM also provides fabrication facilities located at Jebel Ali and Ras-al-Khaimah in the U.A.E., and at Warri, Nigeria. ETPM S.A. charters to this joint venture 4 combination derrick- pipelaying barges and provides fabrication facilities at Sharjah, U.A.E. and Tchengue, Gabon. On March 31, 1995, JRM and ETPM S.A. signed a preliminary agreement to restructure this joint venture. The preliminary agreement calls for the expansion of the joint venture into the Far East, the Mediterranean Sea, and all of Africa and for ETPM S.A. to take a minority interest in a new JRM subsea company. Final agreements are expected in the summer of 1995, subject to any necessary government approvals or authorizations. JRM also participates in an equally owned joint venture with Hyundai Heavy Industries Co. Ltd. The joint venture was formed for the purpose of jointly pursuing marine construction projects in India, the Middle East, Southeast Asia and the Far East. The joint venture, formed in September 1992, has a limited life of ten years. JRM charters one derrick barge to the joint venture for the life of the joint venture. -2- 7 JRM has also established joint ventures in which it has a 49% interest in Malaysia with Renong Berhad, a Malaysian industrial conglomerate and in Mexico with CCC Fabricaciones y Construcciones, S.A. de C.V., a marine construction company. It also has a 70% interest in a joint venture established in Angola with Sociedade Nacional de Combustiveis de Angola, the Angolan state owned oil company. JRM has its principal domestic fabrication yard and offshore base located on approximately 1,114 acres of land, under lease, near Morgan City, Louisiana. JRM also owns a fabrication yard on approximately 218 acres of land in Nueces County, Texas, and operates a fabrication yard on leased property in Indonesia at Batam Island and on company-owned property in Scotland, near Inverness. The property in Scotland is operated by Brown and Root McDermott Fabricators Limited, an equally owned joint venture company formed by JRM and Halliburton Company's Brown and Root Energy Services business unit in February 1995. Halliburton's yard at Nigg Scotland is also operated by this joint venture. The equipment used at these yards, which is capable of fabricating a full range of offshore structures, consists principally of cranes, welding equipment, machine tools, and robotic and other automated equipment, in addition to other fabrication equipment, most of which is movable. Expiration dates, including renewal options, of leases covering land for the fabrication yards follow: Ras-al-Khaimah, U.A.E. Year 1995 Morgan City, Louisiana Years 2001-2032 Jebel Ali, U.A.E. Year 2005 Batam Island, Indonesia Year 2008 Onne, Nigeria Year 2014 Warri, Nigeria Year 2065 JRM expects to renew the lease at Ras-al-Khaimah, U.A.E., which is negotiated on an annual basis. JRM owns 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. These barges, which range in length from 180 feet to 677 feet, are fully equipped with revolving cranes, auxiliary cranes, welding equipment, pile driving hammers, anchor winches and a variety of additional gear. The largest of these vessels are the DB-102, which is one of the world's largest semi-submersible derrick barges in both size and lifting capacity and provides quarters for approximately 750 workers, and a semi-submersible lay barge capable of laying 60-inch diameter pipe (including concrete coating) and operating in water depths of up to 2,000 feet. The HeereMac joint venture has used the DB-102 for a lift of 10,700 tons, a record module lift in the North Sea. JRM has also installed one of the deepest pipelines in over 1,400-ft. waters in the Gulf of Mexico. -3- 8 The following table describes the major marine construction vessels utilized to conduct JRM's marine construction business and their location at March 31, 1995:
Maximum Maximum Derrick Pipe Vessel Vessel Type Lift Diameter ------ ----------- ---- -------- (tons) (inches) United States: DB 28 Pipelay/Derrick 860 40 DB 16 Derrick 860 - DB 23 Derrick 750 - DB 50 Derrick 4,000 - DB II Derrick 600 - Oceanic 93 Shearleg Crane 5,000 - OPI 2500 Shearleg Crane 1,600 - LB 280 Pipelay - 48 LB Pipeliner 5 Pipelay - 16 JB 3 Pipe Bury - - BB 356 Pipe Bury - - OPI 263 Pipe Bury - - Ocean Builder (1) Derrick 2,000 - Europe and West Africa: DB 101 Semi-Submersible Derrick 3,500 - DB 102 Semi-Submersible Derrick 13,200 - LB 200 Semi-Submersible Pipelay - 60 DLB 1 Pipelay/Derrick 250 24 DB 21 Pipelay/Derrick 1,000 40 LB Pipeliner 6 Pipelay - 16 MV Norlift Pipelay - 10 MV Northern Explorer Pipe Bury - - Middle East: DB 27 Pipelay/Derrick 2,400 60 DB 14 Pipelay/Derrick 700 40 JB 4 Pipe Bury - - BB 316 Pipe Bury - - Far East: DLB KP1 Pipelay/Derrick 800 60 DB 15 Pipelay/Derrick 860 40 DB 26 Pipelay/Derrick 900 60 DB 17 Pipelay/Derrick 860 60 OHI 5000 (2) Derrick 5,510 - LB 29 Pipelay - 60 LB 30 Pipelay - 60
(1) In February 1994, this vessel was sold by OPI in a sale-leaseback transaction. JRM is chartering and operating the vessel and has an option to purchase the vessel at the end of the five-year charter term. (2) Damaged in typhoon, insurance claim submitted. -4- 9 The following table describes the major marine construction vessels owned by JRM's joint venture companies and utilized in the conduct of JRM's marine construction business and their location at March 31, 1995.
Maximum Maximum Derrick Pipe Vessel Vessel Type Lift Diameter ------ ----------- ---- -------- (tons) (inches) Europe and West Africa: DB 051 Derrick 3,000 - DB 100 Semi-Submersible Derrick 2,000 - Far East: Teknik Pada Pipelay/Derrick 1,100 60 Teknik Perdana Pipelay/Derrick 925 60
JRM also owns or leases a substantial number of other vessels, such as tugboats, utility boats and cargo barges to support the major marine vessels. In connection with its construction and pipelaying 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 operating income, respectively, follows:
REVENUES OPERATING INCOME (1) FISCAL YEAR AMOUNT PERCENT AMOUNT PERCENT (Dollars in thousands) 1995 $ 778,134 69% $ 85,232 109% (2) 1994 842,585 71% 58,189 84% 1993 1,266,206 79% 76,346 92%
Revenues and operating income presented above include the contribution of OPI from January 31, 1995 and do not include the operating results of JRM's less than majority-owned joint ventures (equity investees), which include HeereMac and McDermott-ETPM West, Offshore Hyundai International, Ltd., CCC Fabricaciones y Construcciones, S.A. de C.V. and its Malaysian joint venture. Equity income recognized from the Heeremac and McDermott-ETPM West joint ventures has contributed substantially to JRM's results during fiscal years 1994 and 1993. In fiscal year 1995, the contribution from joint ventures was significantly less compared to the prior two fiscal years due to lower volume and margins. - - ---------- (1) Before general and allocated corporate expenses in fiscal year 1995 and allocated general corporate expenses in fiscal years 1994 and 1993, respectively, and equity in income of investees. (2) Reflects the impact of losses in the U.S. operations. (See Note 14 to the consolidated financial statements). -5- 10 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, construction and installation of specific platforms, pumping stations, marine pipelines, and production networks. Contracts are usually awarded on a competitive bid basis. There are a number of companies which compete effectively with JRM, HeereMac, McDermott-ETPM and its various other joint ventures in each of the separate marine construction phases in various parts of the world. BACKLOG As of March 31, 1995 and 1994, JRM's backlog amounted to $1,097,468,000 (including approximately $46,000,000 from the acquisition of OPI), and $803,358,000, respectively. Backlog at March 31, 1995 was up from the level of backlog at March 31, 1994, due principally to a contract award from Britoil for the Atlantic Frontier Programme Development of Foinaven Phase One facility. Of the March 31, 1995 backlog, it is expected that approximately $765,703,000 will be recognized in revenues in fiscal year 1996, $296,679,000 in fiscal year 1997, and $35,086,000 thereafter. Not included in JRM's backlog at March 31, 1995 and 1994 was backlog relating to contracts to be performed by its unconsolidated foreign joint ventures of approximately $922,000,000 and $700,000,000, respectively. Work is performed on a fixed price, cost plus or day rate basis or combination thereof. 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 -6- 11 oil and gas industry to raise capital, and local and international political and economic conditions. Oil company exploration and production budgets in calendar year 1995 are, in general, moderately higher than 1994 expenditures. Both domestic and international areas are expected to increase, although domestic will rise at a slower rate. World oil prices in calendar year 1994 were below those in 1993. This has had a negative impact on near term marine construction activities. World oil prices in calendar year 1995 are expected to be somewhat higher than those in 1994. The composite spot price for natural gas in the United States was lower in calendar year 1994 than in 1993 and has continued to decline through May 1995. JRM's markets are expected to be at a low level in the U. S. during fiscal year 1996 while international markets are varied. In all areas, the overcapacity of marine equipment will continue to result in a competitive environment and put pressure on profit margins. In addition, the contribution to equity income from the Heeremac and McDermott-ETPM West joint ventures which has contributed substantially to JRM's results in 1994 and 1993 is expected to continue at the low levels experienced during fiscal year 1995 through fiscal year 1997. C. PATENTS AND LICENSES Several U.S. patents are co-owned by JRM and one of its smaller competitors and are available to the competitor in the Gulf of Mexico. Patent licenses have been acquired by JRM. While JRM regards its patents and licenses to be of value, no single patent or license or group of related patents or licenses is believed to be material in relation to its business as a whole. D. INSURANCE 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. 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. E. EMPLOYEES At March 31, 1995, JRM employed, under its direct supervision, approximately 9,000 persons compared with 8,500 at March 31, 1994. JRM considers its relationship with its employees -7- 12 to be satisfactory. None of these employees are members of labor unions. F. ENVIRONMENTAL REGULATIONS AND MATTERS Like other companies, JRM is subject to the existing and evolving standards relating to the environment. JRM's compliance with U. S. federal, state and local environmental protection regulations necessitated capital expenditures of $20,000 in fiscal year 1995, and it expects to spend another $340,000 on capital expenditures over the next five years. However, JRM cannot predict all of the environmental requirements or circumstances which will exist in the future but it anticipates that environmental control standards will become increasingly stringent and costly. Complying with existing environmental regulations resulted in a charge against income before taxes of approximately $650,000 in fiscal year 1995, primarily due to the cleanup of facilities acquired from OPI. JRM has been identified as a potentially responsible party at two cleanup sites under the Comprehensive Environmental Response, Compensation and Liability Act, as amended. JRM has not been determined to be a major contributor of wastes to these sites. However, each potentially responsible party or contributor may face assertions of joint and several liability. Generally, however, a final allocation of costs is made based on relative contribution of wastes to each site. Based on estimates of its relative contribution of waste to each site (clean up efforts at one site are nearing completion), JRM's share of the ultimate liability for the sites is not expected to have a material effect on its consolidated financial position. 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. 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 purchases engineering services from McDermott International based on reference to charges to unrelated parties for similar work and for general and administrative activities based on an allocation of cost. Arrangements for pricing these services will be reviewed from time to time. The casualty and marine insurance programs of JRM are placed through commercial insurance carriers which in turn substantially reinsure these exposures to a wholly-owned insurance subsidiary of International. Management believes that this approach is more cost effective as there is no commercial market on the same economic terms for these types of exposures. -8- 13 Item 3. LEGAL PROCEEDINGS Due to the nature of its business, JRM is, from time to time, involved in litigation. It is management's opinion that none of this litigation will have a material adverse effect on the consolidated financial position of JRM. -9- 14 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. -10- 15 P A R T I I Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS JRM's Common Stock commenced trading on the New York Stock Exchange on January 31, 1995. High and low stock prices from January 31, 1995 through March 31, 1995 follow:
PRICE PER SHARE --------------- HIGH LOW ---- --- 27-1/4 19-5/8
JRM did not pay dividends on its Common Stock. As of March 31, 1995, the approximate number of record holders of Common Stock was 176. -11- 16 Item 6. SELECTED FINANCIAL DATA FOR THE FISCAL YEARS ENDED MARCH 31,
1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- (In thousands) Revenues $ 1,127,320 $ 1,193,881 $ 1,601,060 $ 1,903,281 $ 1,331,861 Income (Loss) before Cumulative Effect of Accounting Changes $ 60,700 $ 119,137 $ 95,756 $ (2,874) $ (86,985) Net Income (Loss) $ 59,374 $ 119,137 $ 37,011 $ (2,874) $ (86,985) Total Assets $ 1,482,262 $ 1,007,609 $ 932,528 $ 984,063 $ 1,127,121 Long-Term Debt $ 93,872 $ 2,092 $ 1,115 $ 2,105 $ 5,207 Notes Payable to McDermott International 231,000 281,419 239,301 285,097 310,410 ----------- ---------- ----------- ----------- ----------- Total Long-Term Debt $ 324,872 $ 283,511 $ 240,416 $ 287,202 $ 315,617
In fiscal year 1995, Net Income includes a cumulative effect of accounting change of $1,326,000 resulting from the adoption of Statement of Financial Accounting Standards ("SFAS") No. 112, "Employers' Accounting for Postemployment Benefits"; in fiscal year 1993, Net Income (Loss) includes a cumulative effect of accounting change of $58,745,000 resulting from the adoption of SFAS No. 106, "Employers' Accounting for Postretirement Benefits other than Pensions". Results for fiscal year 1995 include the accounts and operations of OPI for the periods after the Merger. See Note 1 to the consolidated financial statements regarding the above and the basis of presentation of the selected financial data and see Note 3 regarding the acquisition of OPI and Northern Ocean Services. Earnings per Common Share are not presented because JRM was not a separate entity with its own capital structure during the periods presented. -12- 17 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The following discussion presents the results of operations of JRM for the periods indicated and includes the accounts of the subsidiaries, divisions and controlled joint ventures that McDermott International contributed to JRM prior to the Merger with OPI. For the periods after the Merger, the discussion includes the accounts and operations of JRM on a stand alone basis (including the contribution from OPI from January 31, 1995). For fiscal years 1994 and 1993 and through the date of the Merger, certain expenses included in the consolidated financial statements include charges from McDermott International for direct costs, allocation of corporate overhead and interest on intercompany debt. Management believes that the allocation methods were reasonable, and that the allocations were representative of what costs would have been on a stand alone basis. However, the assets, liabilities and capital structure of JRM after the Merger differ significantly from the assets, liabilities and capital structure of JRM prior to the Merger (which reflected substantially all of International's marine construction services business), and accordingly, the following discussion should be read in conjunction with the Notes to the Consolidated Financial Statements. 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 could be significantly affected by international factors, such as changes in foreign currency exchange rates. JRM's policy is to minimize its exposure to changes in foreign currency exchange rates by attempting to match foreign currency contract receipts with like foreign currency disbursements during contract negotiations. To the extent that it is unable to match the foreign currency receipts and disbursements related to its contracts, it enters into forward exchange contracts to hedge foreign currency transactions on a continuing basis for periods consistent with its committed exposures. This practice minimizes the impact of foreign exchange rate movements on JRM's operating results. FISCAL YEAR 1995 VS FISCAL YEAR 1994 JRM's revenues decreased $66,561,000 to $1,127,320,000 primarily due to lower volume in worldwide marine and domestic fabrication operations. These decreases were partially offset by the inclusion of revenues as a result of the acquisition of OPI (approximately $44,000,000) on January 31, 1995 and Northern Ocean Services ("NOS") ($59,644,000 for the full fiscal year) in February 1994 (See Note 3 to the Consolidated Financial Statements), and higher volume in foreign fabrication and procured materials. JRM's operating income (before general and allocated corporate expenses of $22,623,000 and equity in income of investees of $22,857,000) increased $8,753,000 to $78,183,000 from $69,430,000 (before allocated general corporate expenses of $21,240,000 and equity in income of investees of $106,593,000) primarily due to improved margins in foreign marine operations, inclusion of the operating results of NOS for the full fiscal year, and higher volume in foreign fabrication and procured materials. These increases were partially offset by higher operating expenses. -13- 18 JRM's equity in income of investees decreased $83,736,000 to $22,857,000. This decrease was primarily due to lower operating volume and margins of the McDermott-ETPM West and HeereMac joint ventures. Backlog for JRM at March 31, 1995 and 1994 was $1,097,468,000 (including approximately $46,000,000 from the acquisition of OPI) and $803,358,000, respectively. Not included in JRM's backlog at March 31, 1995 and 1994 was backlog relating to contracts to be performed by its unconsolidated joint ventures of approximately $922,000,000 and $700,000,000, respectively. The activity of JRM depends mainly on the capital expenditures of oil and gas companies which in turn are influenced by world oil and gas prices. World oil and gas prices are expected to remain weak in the near term resulting in a negative impact on new business awards. In addition, the continued overcapacity of marine equipment worldwide will result in a competitive environment and put pressure on operating profit margins worldwide. In fiscal year 1995, JRM's Heeremac and McDermott-ETPM West joint ventures performed at significantly lower levels as several large contracts were completed in fiscal year 1994 and are expected to remain at low levels in fiscal 1996 and 1997. Interest income increased $5,815,000 to $9,298,000 primarily due to settlement of claims for interest relating to foreign tax refunds and contract claims. Interest expense increased $5,082,000 to $25,158,000 primarily due to changes in debt obligations and interest rates prevailing thereon. Other-net income decreased $1,969,000 to $7,028,000 primarily due to minority shareholder participation in the improved results of the McDermott-ETPM East joint venture partially offset by lower foreign currency transaction losses. The provision for income taxes decreased $19,165,000 to $8,885,000 while income before provision for income taxes and cumulative effect of accounting changes decreased $77,602,000 to $69,585,000. The decrease in the provision for income taxes is primarily due to a decrease in income from operations. In addition, 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 often responsible for shifts in the effective tax rate. During the period, these factors reduced the effective tax rate to 13% from 19%. Net income decreased $59,763,000 to $59,374,000. This decrease included the cumulative effect of the adoption of SFAS No. 112 "Employers' Accounting for Postemployment Benefits" of $1,326,000, in addition to other items described above. FISCAL YEAR 1994 VS FISCAL YEAR 1993 JRM's revenues decreased $407,179,000 to $1,193,881,000 primarily due to lower volume in worldwide fabrication, foreign marine operations and procured materials. This -14- 19 decrease reflects a reduction in the level of capital expenditures by oil and gas companies resulting from weak worldwide oil and gas prices. JRM's operating income (before allocated general corporate expenses of $21,240,000 and equity in income of investees of $106,593,000) decreased $13,533,000 to $69,430,000 from $82,963,000 (before allocated general corporate expenses of $22,354,000 and equity in income of investees of $84,973,000) primarily due to lower volume in worldwide fabrication and engineering operations and lower volume in procured materials. These decreases were partially offset by higher margins in foreign marine operations, the accelerated depreciation and write-off of certain fabrication facilities and marine construction equipment in the prior year, and reduced operating costs. JRM's equity in income of investees increased $21,620,000 to $106,593,000. This increase was principally due to improved operating results of the HeereMac joint venture and relate primarily to a large contract for a customer in Australia. Other-net income decreased $3,733,000 to $8,997,000. This decrease was primarily due to a foreign marine asset casualty gain and gains on the sale of nineteen tugboats in the prior period. This decrease was partially offset by minority shareholder participation in the losses of the McDermott-ETPM East joint venture in fiscal year 1994. Provision for income taxes decreased $14,710,000 to $28,050,000, while income before provision for income taxes and cumulative effect of accounting changes increased $8,671,000 to $147,187,000. The decrease in the provision for income taxes is primarily due to a reduction in a provision for taxes of $10,000,000 due to a settlement of outstanding issues and higher non-taxable earnings. In addition, 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, revenues versus income). These variances, along with variances in the mix of income within jurisdictions, are responsible for shifts in the effective tax rate. During this period, these factors reduced the effective tax rate to 19% from 31%. Net income increased $82,126,000 to $119,137,000 reflecting the cumulative effect of the adoption of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," of $58,745,000 in the prior year, in addition to other items described above. Effect 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 -15- 20 such changes, which is reflected in an original price, or through price escalation clauses in its contracts. Liquidity and Capital Resources The following discusses JRM's Liquidity and Capital Resources situation after the Merger. As the assets, liabilities and capital structure after the Merger differ significantly from the assets, liabilities and capital structure prior to the Merger, any comparison to prior periods would not be meaningful. At March 31, 1995, JRM's cash and cash equivalents were $52,224,000 and total debt was $420,516,000 (including notes payable to McDermott International of $270,750,000 and debt assumed in the acquisition of OPI of $120,200,000). At March 31, 1995 the ratio of long-term debt (including notes payable to McDermott International) to total equity was 0.58. At March 31, 1995, JRM had available to it various uncommitted short-term lines of credit from banks totaling $119,581,000. Borrowings by JRM against these lines of credit at March 31, 1995 were $24,750,000. JRM had available secured and committed credit facilities totaling $53,500,000 of which $24,500,000 was outstanding at March 31, 1995 which were repaid and terminated on May 10, 1995. In consideration for the contribution of substantially all of McDermott International's marine construction services business, JRM issued 3,200,000 shares of Series A $2.25 Cumulative Convertible Preferred Stock, $231,000,000 9% Senior Subordinated Notes due 2001 and a $39,750,000 Floating Rate Note at 7.69% at the Merger Date (7.4375% at March 31, 1995) to International. The Floating Rate Note is due January 31, 1997 or earlier upon demand. JRM expects to pay this note during fiscal year 1996. In addition, a subsidiary of JRM assumed all of OPI's $70,000,000 12-7/8% Guaranteed Senior Notes due 2002. The Notes due 2002 are redeemable at the option of a subsidiary of JRM after June 1997. On June 7, 1995, JRM entered into an agreement with a group of banks to provide a $150,000,000 three year unsecured and committed line of credit to support the operating requirements of its domestic and international operations. JRM is restricted, as a result of covenants in these agreements, in its ability to transfer funds to International and its subsidiaries through cash dividends or through unsecured loans or investments. As approximately $40,000,000 of its net assets were not subject to these restrictions, they are not expected to impact JRM's ability to make preferred dividend payments. JRM has committed to make capital expenditures of approximately $31,042,000 (including $9,457,000 for a new pipelay system on marine equipment and $14,286,000 for the conversion of a barge to a floating production unit) during fiscal year 1996. The barge conversion is financed by a $16,700,000 note. The note is payable in 30 monthly installments beginning with the completion of the conversion and bears interest at Libor plus 2%. There were no borrowings against this facility at March 31, 1995. The working capital deficit was $26,588,000 at March 31, 1995. During 1996, JRM expects to obtain funds to meet working capital, capital expenditures and debt maturity -16- 21 requirements from operating activities and additional borrowings. Leasing agreements for equipment are not expected to impact JRM's liquidity or capital resources. At March 31, 1995, JRM paid dividends of $900,000 on its Series A Preferred Stock and on April 17, 1995 paid $217,000 on its Series B Preferred Stock for a partial quarterly period. JRM has annual preferred stock dividend requirements of $7,200,000 on its Series A Preferred Stock and $1,032,000 on its Series B Preferred Stock. JRM's quarterly dividends on its Series A and Series B Preferred Stock are $0.5625 per share. JRM accounts for income taxes in accordance with Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes". This standard requires, among other things, recognition of future tax benefits, measured by enacted tax rates, attributable to deductible temporary differences between the financial statement and income tax basis of assets and liabilities and to tax net operating loss and foreign tax credit carryforwards to the extent that realization of such benefits is more likely than not. JRM has provided a valuation allowance ($21,091,000 at March 31, 1995) for deferred tax assets which can not be realized through carrybacks and future reversals of existing taxable temporary differences. Management believes that remaining deferred tax assets ($31,857,000 at March 31, 1995) are realizable through carrybacks and future reversals of existing taxable temporary differences. Management will continue to assess the adequacy of the valuation allowance on a quarterly basis. -17- 22 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. May 24, 1995 -18- 23 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, 1995 and 1994, and the related consolidated statements of income, equity and cash flows for each of the three years in the period ended March 31, 1995. 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, 1995 and 1994, and the consolidated results of its operations and its cash flows for each of the three years in the period ended March 31, 1995, in conformity with generally accepted accounting principles. As discussed in Note 2 to the consolidated financial statements, the Company changed its methods of accounting for postemployment benefits in 1995 and postretirement benefits other than pensions in 1993. ERNST & YOUNG LLP New Orleans, Louisiana May 24, 1995 -19- 24 J. RAY McDERMOTT, S.A. CONSOLIDATED BALANCE SHEET MARCH 31, 1995 and 1994 ASSETS
1995 1994 ---- ---- (In thousands) Current Assets: Cash and cash equivalents $ 52,224 $ 53,343 Accounts receivable - trade 244,212 152,047 Accounts receivable - unconsolidated affiliates 56,104 11,126 Accounts receivable - other 33,830 48,134 Contracts in progress 54,947 47,202 Other current assets 28,819 19,946 - - ------------------------------------------------------------------------------------------------------------- Total Current Assets 470,136 331,798 - - ------------------------------------------------------------------------------------------------------------- Property, Plant and Equipment, at Cost: Land 21,948 16,949 Buildings 82,490 84,393 Machinery and equipment 1,374,672 1,392,814 Property under construction 25,607 10,380 - - ------------------------------------------------------------------------------------------------------------- 1,504,717 1,504,536 Less accumulated depreciation 910,555 1,022,729 - - ------------------------------------------------------------------------------------------------------------- Net Property, Plant and Equipment 594,162 481,807 - - ------------------------------------------------------------------------------------------------------------- Notes Receivable from McDermott International - 57,382 - - ------------------------------------------------------------------------------------------------------------- Excess of Cost Over Fair Value of Net Assets of Purchased Businesses Less Accumulated Amortization of $5,483,000 at March 31, 1995 245,179 15,662 - - ------------------------------------------------------------------------------------------------------------- Investment in Unconsolidated Affiliates 105,283 90,370 - - ------------------------------------------------------------------------------------------------------------- Other Assets 67,502 30,590 - - ------------------------------------------------------------------------------------------------------------- TOTAL $1,482,262 $1,007,609 =============================================================================================================
See accompanying notes to consolidated financial statements. -20- 25 LIABILITIES AND EQUITY
1995 1994 ---- ---- (In thousands) Current Liabilities: Notes payable and current maturities of long-term debt $ 55,894 $ 3,346 Note payable to McDermott International 39,750 - Current maturity of note payable to McDermott International - 16,600 Accounts payable 141,376 112,022 Accrued employee benefits 18,351 16,739 Accrued contract costs 53,610 54,302 Accrued liabilities - other 86,891 57,625 Advance billings on contracts 62,495 49,211 U.S. and foreign income taxes 38,357 27,329 - - --------------------------------------------------------------------------- Total Current Liabilities 496,724 337,174 - - --------------------------------------------------------------------------- Long Term Debt 93,872 2,092 - - --------------------------------------------------------------------------- Notes Payable to McDermott International 231,000 281,419 - - --------------------------------------------------------------------------- Deferred and Non-Current Income Taxes 44,697 105,163 - - --------------------------------------------------------------------------- Other Liabilities 56,498 28,740 - - --------------------------------------------------------------------------- Contingencies - - --------------------------------------------------------------------------- Equity: Preferred Stock,par value $.01 per share, authorized 10,000,000 shares: Series A $2.25 cumulative convertible, outstanding 3,200,000 shares (liquidation preference $160,000,000) 32 - Series B $2.25 cumulative convertible exchangeable, outstanding 458,632 shares (liquidation preference $11,465,800) 5 - Common stock, par value $0.01 per share, authorized 60,000,000 shares; outstanding 38,649,349 shares 386 - Capital in excess of par value 580,279 - Deficit (6,598) - Owner's equity - 279,946 Currency translation adjustments (14,633) (26,925) - - --------------------------------------------------------------------------- Total Equity 559,471 253,021 - - --------------------------------------------------------------------------- TOTAL $ 1,482,262 $ 1,007,609 ===========================================================================
-21- 26 J. RAY McDERMOTT, S.A. CONSOLIDATED STATEMENT OF INCOME FOR THE THREE FISCAL YEARS ENDED MARCH 31, 1995
1995 1994 1993 ---- ---- ---- (In thousands) Revenues $ 1,127,320 $ 1,193,881 $ 1,601,060 - - ---------------------------------------------------------------------------------------- Costs and Expenses: Cost of operations (excluding depreciation and amortization) 887,223 976,636 1,344,115 Depreciation and amortization 70,372 53,627 80,856 Selling, general and administrative expenses 114,165 115,428 115,480 - - ---------------------------------------------------------------------------------------- 1,071,760 1,145,691 1,540,451 - - ---------------------------------------------------------------------------------------- 55,560 48,190 60,609 Equity in Income of Investees 22,857 106,593 84,973 - - ---------------------------------------------------------------------------------------- Operating Income 78,417 154,783 145,582 - - ---------------------------------------------------------------------------------------- Other Income (Expense): Interest income 9,298 3,483 2,773 Interest expense (25,158) (20,076) (22,569) Other-net 7,028 8,997 12,730 - - ---------------------------------------------------------------------------------------- (8,832) (7,596) (7,066) - - ---------------------------------------------------------------------------------------- Income before Provision for Income Taxes and Cumulative Effect of Accounting Changes 69,585 147,187 138,516 Provision for Income Taxes 8,885 28,050 42,760 - - ---------------------------------------------------------------------------------------- Income before Cumulative Effect of Accounting Changes 60,700 119,137 95,756 Cumulative Effect of Accounting Changes (1,326) - (58,745) - - ---------------------------------------------------------------------------------------- Net Income $ 59,374 $ 119,137 $ 37,011 ========================================================================================
See accompanying notes to consolidated financial statements. Significant related party transactions are disclosed in Note 6. -22- 27 J. RAY McDERMOTT, S.A. CONSOLIDATED STATEMENT OF EQUITY FOR THE THREE FISCAL YEARS ENDED MARCH 31, 1995 (In thousands, except for share amounts)
Preferred Stock ------------------------------------------------------------ Series A Series B --------------------------- ------------------------- Par Par Shares Value Shares Value ------ ----- ------ ----- Balance March 31, 1992 - $ - - $ - - - ------------------------------------------------------------------------------------------------------ Net income - - - - Translation adjustments - - - - Distributions to McDermott International - - - - - - ------------------------------------------------------------------------------------------------------ Balance March 31, 1993 - - - - - - ------------------------------------------------------------------------------------------------------ Net income - - - - Translation adjustments - - - - Distributions to McDermott International - - - - - - ------------------------------------------------------------------------------------------------------ Balance March 31, 1994 - - - - - - ------------------------------------------------------------------------------------------------------ Net income - - - - Dividends declared on preferred stock - - - - Translation adjustments - - - - Distributions to McDermott International - - - - Contribution of McDermott International's marine construction services business 3,200,000 32 - - Acquisition of Offshore Pipelines, Inc. - - 458,632 5 Shares issued upon exercise of stock options - - - - Net unrealized loss on Investments - - - - - - ------------------------------------------------------------------------------------------------------ Balance March 31, 1995 3,200,000 $ 32 458,632 $ 5 ======================================================================================================
See accompanying notes to consolidated financial statements. -23- 28
Common Stock ------------------------ Capital Currency Par In Excess Owner's Translation Shares Value Of Par Value Deficit Equity Adjustments Total ------ ------ ------------ ------- --------- ----------- --------- Balance March 31, 1992 - $ - $ - $ - $ 201,426 $ (6,239) $ 195,187 - - ---------------------------------------------------------------------------------------------------------------------------------- Net income - - - - 37,011 - 37,011 Translation adjustments - - - - - (15,242) (15,242) Distributions to McDermott International - - - - (47,333) - (47,333) - - ---------------------------------------------------------------------------------------------------------------------------------- Balance March 31, 1993 - - - - 191,104 (21,481) 169,623 - - ---------------------------------------------------------------------------------------------------------------------------------- Net income - - - - 119,137 - 119,137 Translation adjustments - - - - - (5,444) (5,444) Distributions to McDermott International - - - - (30,295) - (30,295) - - ---------------------------------------------------------------------------------------------------------------------------------- Balance March 31, 1994 - - - - 279,946 (26,925) 253,021 - - ---------------------------------------------------------------------------------------------------------------------------------- Net income - - - (5,106) 64,480 - 59,374 Dividends declared on preferred stock - - - (1,117) - - (1,117) Translation adjustments - - - - - 12,292 12,292 Distributions to McDermott International - - - - (46,249) - (46,249) Contribution of McDermott International's marine construction services business 24,668,297 246 231,277 - (298,177) - (66,622) Acquisition of Offshore Pipelines, Inc. 13,917,946 139 348,573 - - - 348,717 Shares issued upon exercise of stock options 63,106 1 429 - - - 430 Net unrealized loss on Investments - - - (375) - - (375) - - ---------------------------------------------------------------------------------------------------------------------------------- Balance March 31, 1995 38,649,349 $ 386 $ 580,279 $ (6,598) $ - $ (14,633) $ 559,471 ==================================================================================================================================
-24- 29 J. RAY McDERMOTT, S.A. CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE THREE FISCAL YEARS ENDED MARCH 31, 1995 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
1995 1994 1993 ---- ---- ---- (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 59,374 $ 119,137 $ 37,011 - - ---------------------------------------------------------------------------------------------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 70,372 53,627 80,856 Equity in income of investees less dividends 42,810 (47,414) (83,611) Gain on sale and disposal of assets (1,862) (2,997) (20,708) Provision for (benefit from) deferred taxes (35,769) 3,616 (15,804) Other 1,253 (23,410) (2,215) Changes in assets and liabilities, net of effects from acquisitions: Accounts receivable 28,290 85,955 (16,851) Net contracts in progress and advance billings 13,081 25,506 11,224 Accounts payable (46,707) (29,490) 7,321 Accrued liabilities (33,689) (39,172) 41,368 Income taxes 9,958 (6,525) 33,017 Other, net (28,086) (3,315) 62,666 - - ---------------------------------------------------------------------------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 79,025 135,518 134,274 - - ---------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquired from Offshore Pipelines, Inc. 10,828 - - Purchases of property, plant and equipment (46,793) (18,898) (35,576) Proceeds from sale and disposal of assets 15,580 3,938 9,129 (Increase) decrease in notes receivable from McDermott International (16,802) (50,096) 818 Other (773) - (97) - - ---------------------------------------------------------------------------------------------- NET CASH USED IN INVESTING ACTIVITIES (37,960) (65,056) (25,726) - - ----------------------------------------------------------------------------------------------
-25- 30 CONTINUED INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
1995 1994 1993 ---- ---- ---- (In thousands) CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of long-term debt $ 2,348 $ - $ - Increase (decrease) in short-term borrowings 22,348 1,627 (9,782) Decrease in notes payable to McDermott International (19,705) (13,927) (30,796) Distributions to McDermott International (46,249) (30,295) (47,333) Preferred dividends paid (900) - - Other (369) (410) (2,965) - - ----------------------------------------------------------------------------------------------- NET CASH USED IN FINANCING ACTIVITIES (42,527) (43,005) (90,876) - - ----------------------------------------------------------------------------------------------- EFFECTS OF EXCHANGE RATE CHANGES ON CASH 343 (1,108) (8,869) - - ----------------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,119) 26,349 8,803 - - ----------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 53,343 26,994 18,191 - - ----------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 52,224 $ 53,343 $ 26,994 =============================================================================================== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest (net of amount capitalized) $ 23,146 $ 20,080 $ 22,584 Income taxes (net of refunds) $ 21,910 $ 15,233 $ 11,075 - - -----------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. -26- 31 J. RAY McDERMOTT, S.A. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE FISCAL YEARS ENDED MARCH 31, 1995 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") (the "Merger") pursuant to an Agreement and Plan of Merger dated as of June 2, 1994 as amended (the "Merger Agreement"). 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 has been 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 periods 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 in which JRM has a 20% to 50% interest 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, 1995. 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. -27- 32 Changes in Accounting Policies Postemployment Benefits - 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. Under this new principle of accounting, the cost of these benefits is accrued when it becomes probable that such benefits will be paid and when sufficient information exists to make reasonable estimates of the amounts to be paid. In accordance with the Statement, prior period financial statements have not been restated to reflect this change in accounting principle. Postretirement Health Care Benefits - Effective April 1, 1992, JRM adopted SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions". In accordance with the Statement, JRM elected immediate recognition of the transition obligation and recognized $58,745,000 (net of income tax benefit of $25,478,000) as the cumulative effect of an accounting change. In fiscal year 1993, other than the cumulative effect of the accounting change, the adoption of SFAS No. 106 resulted in a decrease in Income before Cumulative Effect of Accounting Change of $1,958,000. Income Taxes Income taxes have been provided using the liability method in accordance with SFAS No. 109, "Accounting for Income Taxes". 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. 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 $771,000, ($2,029,000), and ($4,540,000) for fiscal years 1995, 1994 and 1993, respectively. -28- 33 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. 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. There are no unbilled revenues which will not be billed. Provisions are made currently for all known or anticipated losses. Claims for extra work or changes in scope of work are included in contract revenues when collection is probable. Included in Accounts Receivable and Contracts in Progress at March 31, 1994 was $46,567,000 relating to commercial and U.S. Government contract claims whose final settlement was subject to future determination through negotiations or other procedures which had not been completed. These claims were excluded from the contribution of McDermott International's marine construction services business to JRM under the terms of the Merger Agreement.
1995 1994 ---- ---- (In thousands) Included in Contracts in Progress are: Costs incurred less costs of revenue recognized $ 2,795 $ 29,703 Revenues recognized less billings to customers 52,152 17,499 - - ----------------------------------------------------------------------------- Contracts in Progress $ 54,947 $ 47,202 ============================================================================= Included in Advance Billings on Contracts are: Billings to customers less revenues recognized $ 67,839 $ 49,235 Costs incurred less costs of revenue recognized (5,344) (24) - - ----------------------------------------------------------------------------- Advance Billings on Contracts $ 62,495 $ 49,211 =============================================================================
-29- 34 Included in accounts receivable - trade are amounts representing retainages on contracts as follows:
1995 1994 ---- ---- (In thousands) Retainages $ 20,864 $ 12,253 ===============================================================================
All of the 1995 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. Amortization of Excess of Cost Over Fair Value of Net Assets of Purchased Businesses Excess of the cost over fair value of net assets of purchased businesses pertains to the acquisitions of OPI and Northern Ocean Services Limited (See Note 3) and is being amortized on a straight-line basis over ten years. Management periodically reviews goodwill to assess recoverability, and impairments would be recognized in operating results if a permanent diminution in value were to occur. Earnings Per Share Earnings per share has been omitted because JRM was not a separate entity with its own capital structure during the periods presented (See Note 3). Cash Equivalents Cash equivalents are highly liquid investments, with maturities of three months or less when purchased. -30- 35 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 qualified 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 - ACQUISITIONS 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) has been allocated to the underlying assets and liabilities based upon the preliminary fair values at the date of acquisition. The excess of cost over fair value of net assets acquired is being amortized over 10 years. The operating results have been included in the Consolidated Statement of Income from the acquisition date. The preliminary purchase price allocation is subject to change when additional information concerning asset and liability valuations is obtained. Therefore, the final allocation may differ from the preliminary allocation summarized as follows:
(In thousands) Cash and cash equivalents $ 10,828 Other working capital-net 18,875 Excess of cost over fair value of net assets of purchased businesses 235,000 Net property, plant and equipment 173,134 Other assets-net 17,965 Long-term debt (107,085) Stockholders' equity (348,717)
-31- 36 The following unaudited pro forma results of operations for the years ended March 31, 1995 and 1994 assume 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 periods presented.
FISCAL YEAR ENDED 3/31/95 3/31/94 ------- ------- (Unaudited) (In thousands) Revenues $ 1,444,090 $ 1,531,773 Income before Cumulative Effect of Accounting Change $ 29,846 $ 101,518 Net Income $ 28,520 $ 101,518 Earnings Per Common and Common Equivalent Share: Primary: Income before Cumulative Effect of Accounting Change $ 0.55 $ 2.23 Net Income $ 0.52 $ 2.23 Fully Diluted: Income before Cumulative Effect of Accounting Change $ 0.55 $ 2.21 Net Income $ 0.52 $ 2.21
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, 1993, nor is it necessarily indicative of future operating results. The proforma information does not reflect estimates of cost savings that may be realized. On February 28, 1994, JRM acquired Northern Ocean Services Limited ("NOS") with cash provided by McDermott International. JRM issued a $58,040,000 note payable to McDermott International in consideration for the financing. NOS owns and operates 2 major marine construction vessels and specialized construction equipment for providing subsea and trenching services to industries worldwide; including oil, gas, marine construction and hydrocarbon processing. The acquisition was accounted for by the purchase method of accounting and, accordingly, the purchase price has been allocated to the underlying assets and liabilities based on fair values at the date of acquisition. The excess of cost over fair -32- 37 value of net assets acquired is being amortized over a period of 10 years. The operating results, which were not material for the one month ended March 31, 1994 to the consolidated financial statements of JRM, have been included in the Consolidated Statement of Income from the acquisition date. A summary of the purchase price allocation follows:
(In thousands) Net working capital $ (10,738) Excess of cost over fair value of net assets of purchased businesses 15,662 Net property, plant and equipment 53,116 Note payable to McDermott International (58,040)
NOTE 4 - INVESTMENTS IN UNCONSOLIDATED AFFILIATES Transactions with unconsolidated affiliates which are accounted for by the equity method included sales to ($136,681,000, $78,748,000 and $75,839,000 in fiscal years 1995, 1994 and 1993, respectively, including approximately $54,657,000, $49,121,000 and $47,535,000, respectively, attributable to leasing activities) and purchases from ($1,119,000, $131,608,000, and $59,606,000 in fiscal years 1995, 1994 and 1993, respectively) these entities. Included in non-current Other Assets at March 31, 1995 was a 4% interest bearing note receivable of $5,000,000 from an unconsolidated affiliate. Included in Accounts payable at March 31, 1995 and 1994 were $3,815,000 and $14,438,000, respectively, of payables to unconsolidated affiliates. In fiscal year 1995, JRM contributed various marine construction barges (including the DB100 semi-submersible derrick barge) with a book value of $102,602,000 and accumulated depreciation of $76,763,000 and sold the Derrick Barge 51 to the HeereMac joint venture for $9,101,000. In fiscal year 1994, JRM recognized revenues of $131,000,000 on work subcontracted to HeereMac. At March 31, 1995 and 1994, property, plant and equipment included $402,479,000 and $409,952,000, and accumulated depreciation included $230,674,000 and $221,503,000, respectively, of marine equipment that is leased to unconsolidated investees. Dividends received from unconsolidated investees were $65,667,000, $59,179,000 and $28,764,000 (including a return of capital of $27,402,000) in fiscal years 1995, 1994 and 1993, respectively. Undistributed earnings in unconsolidated affiliates were $25,929,0000 and $62,265,000, respectively, at March 31, 1995 and 1994. -33- 38 Summarized combined balance sheet and income statement information based on the most recent financial information for equity investments in joint ventures and other entities (49-50% owned) are presented below:
1995 1994 ---- ---- (In thousands) Current Assets $ 400,197 $ 408,065 Non-Current Assets 202,673 76,679 - - ------------------------------------------------------------------------------ Total Assets $ 602,870 $ 484,744 ============================================================================== Current Liabilities $ 341,306 $ 200,086 Non-Current Liabilities 68,152 61,510 Owners' Equity 193,412 223,148 - - ------------------------------------------------------------------------------ Total Liabilities and Owners' Equity $ 602,870 $ 484,744 ==============================================================================
1995 1994 1993 ---- ---- ---- (In thousands) Revenues $ 725,225 $ 896,412 $ 1,129,856 Gross Profit $ 153,075 $ 318,503 $ 336,775 Income before Provision for Income Taxes $ 52,899 $ 213,862 $ 182,647 Provision for Income Taxes 4,193 8,025 3,003 - - ------------------------------------------------------------------------------------------ Net Income $ 48,706 $ 205,837 $ 179,644 ==========================================================================================
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 subject to tax by, any particular country or countries varies from year to year. JRM and certain of its -34- 39 subsidiaries keep books and file tax returns on the completed contract method of accounting. U.S. and foreign income taxes payable and net deferred tax liabilities at March 31, 1994 included allocated income tax liabilities of $36,365,000, under McDermott's policy for allocation of U.S. federal income taxes. 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, 1995 and 1994 were as follows:
1995 1994 ---- ---- (In thousands) Deferred tax assets: Accrued provisions for facility closings $ 1,480 $ - Accrued liabilities for executive and employee incentive compensation 1,670 - Long-term contracts 3,837 19,309 Investments in joint ventures and affiliated companies 5,179 - Net operating loss carryforwards 17,323 18,185 Foreign tax credits 15,662 - Property, plant and equipment 3,753 - Other 4,044 14,183 - - -------------------------------------------------------------------------------- Total deferred tax assets 52,948 51,677 Valuation allowance for deferred tax assets (21,091) (16,337) - - -------------------------------------------------------------------------------- Net deferred tax assets 31,857 35,340 - - -------------------------------------------------------------------------------- Deferred tax liabilities: Property, plant and equipment 30,031 63,428 Long-term contracts 10,064 11,891 Prepaid pension costs 1,846 5,059 Other 3,882 777 - - -------------------------------------------------------------------------------- Total deferred tax liabilities 45,823 81,155 - - -------------------------------------------------------------------------------- Net deferred tax liabilities $ 13,966 $ 45,815 ================================================================================
-35- 40 Income before provision for income taxes and cumulative effect of accounting changes was as follows:
1995 1994 1993 ---- ---- ---- (In thousands) U.S. $ (3,265) $ 18,435 $ 5,946 Other than U.S. 72,850 128,752 132,570 - - ------------------------------------------------------------------------------- $ 69,585 $ 147,187 $ 138,516 ===============================================================================
The provision for income taxes consists of:
1995 1994 1993 ---- ----- ---- (In thousands) Current: U.S. - Federal $ 30,514 $ 3,388 $ 21,746 Other than U.S. 14,140 21,046 36,818 - - ------------------------------------------------------------------------------- Total current 44,654 24,434 58,564 - - ------------------------------------------------------------------------------- Deferred: U.S. - Federal (31,742) (2,579) (19,693) Other than U.S. (4,027) 6,195 3,889 - - ------------------------------------------------------------------------------- Total deferred (35,769) 3,616 (15,804) - - ------------------------------------------------------------------------------- Provision for Income Taxes $ 8,885 $ 28,050 $ 42,760 ===============================================================================
The current provision for other than U.S. income taxes in 1995, 1994 and 1993 includes a reduction of $1,323,000, $21,987,000 and $26,606,000, respectively, for the benefit of net operating loss carryforwards. -36- 41 NOTE 6 - RELATED PARTY TRANSACTIONS Transactions with subsidiaries, divisions and controlled joint ventures of McDermott International that are not disclosed elsewhere, are as follows:
1995 1994 1993 ---- ---- ---- (In thousands) Sale of marine construction services $ 2,652 $ 1,221 $ 1,017 Purchase of engineering services 16,672 7,981 7,599 Insurance premiums 21,602 30,114 35,698 Postretirement health care benefits 6,075 8,029 7,821 Pension expense (benefit) (6,679) 1,030 (1,553) Selling, general and administrative expense 19,690 21,240 22,354 Interest income 2,920 1,433 335 Interest expense 20,169 18,799 21,563
Non-current Notes Receivable from McDermott International and Notes Payable to McDermott International are as follows:
Notes receivable: 1995 1994 - - ----------------- ---- ---- (In thousands) Note due December 1996 (Interest at 3.25%) $ - $ 28,100 Non-interest bearing notes due April 1999 - 20,600 Interest bearing note (Interest at 5.32%) - 8,682 - - ------------------------------------------------------------------------------ Total $ - $ 57,382 ============================================================================== Notes payable: 9% Senior Subordinated Notes due 2001 $ 231,000 $ - 10.375% Note due 1998 - 90,400 15% Note due April 2003 - 60,872 Non-interest bearing notes - 94,871 Non-interest bearing notes due April 1996 - 41,750 Other notes payable - 10,126 - - ------------------------------------------------------------------------------ 231,000 298,019 Less: Amounts due within one year - 16,600 - - ------------------------------------------------------------------------------ Total $ 231,000 $ 281,419 ==============================================================================
-37- 42 The 9% Senior Subordinated Notes due 2001 ("9% Notes") are redeemable at any time after September 15, 1997 (subject to any required approvals), in whole or in part, for cash, at the option of JRM, initially at a price of 105% of the principal amount, and thereafter at prices declining annually to 100% of the principal amount after September 15, 2000. The terms of the 9% Notes impose certain restrictions or limitations on, among other things, the ability of JRM to pledge its assets as security for certain indebtedness or to incur debt ranking senior to these notes. JRM issued a Floating Rate Demand Note of $39,750,000 at 7.69% on the date of Merger (7.4375% at March 31, 1995) to International. This note is due January 31, 1997 or earlier upon demand. JRM expects to pay this note during fiscal year 1996. Included in Accounts receivable-trade are receivables from McDermott International of $7,668,000 and $2,550,000 at March 31, 1995 and 1994, respectively. Included in Accounts payable are payables to McDermott International of $5,272,000 and $3,396,000 at March 31, 1995 and 1994, respectively. In connection with the Merger, two directors and two officers of JRM entered into noncompetition agreements. As consideration, the directors and officers received a total of $10,117,000 (including 50,000 shares of JRM's common stock valued at $1,117,000) during fiscal year 1995. In addition, one director will receive additional payments of $1,500,000 per year over the next five years. A subsidiary of JRM has entered into an office sublease with an affiliate of two of JRM's directors. Under the sublease which expires no later than March 1997, the affiliate is required to make monthly rental payments of approximately $18,000 to the subsidiary. Under another agreement, the affiliate will manage and operate the subsidiary's offshore producing oil and gas property for a monthly fee of $48,000 and reimbursement of certain costs. In addition, a subsidiary of JRM sold an offshore jacket and deck to the affiliate for $1,100,000 during fiscal year 1995 and has a contract to refurbish and install the jacket and deck for approximately $1,300,000. A subsidiary of 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 1995, the subsidiary paid $3,000,000 to the affiliate under the agreements in connection with the acquisition of its interests and the development of such property. In addition, a subsidiary of JRM owns 140,000 shares of common stock of this affiliate and 20,000 units in a limited partnership which is also an affiliate of this director. JRM has a $15,000,000 contract to fabricate and install a platform with the limited partnership. In connection with the Merger, JRM entered into various agreements under which McDermott International will provide 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 annual cost of these services to JRM is approximately $13,400,000. -38- 43 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. Certain former employees of McDermott International's marine construction services business who transferred to 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. Monthly employer contributions are equal to 50% of the first 6% of compensation (as defined in the plan) contributed by participants. JRM will establish a similar plan during fiscal 1996. JRM maintains employment agreements with certain officers and employees which contain change in control provisions that would entitle each to receive two times his three-year average annual salary plus continuation of certain benefits if there is a change in control of JRM (as defined) and a termination of his employment within two years after a change in control. These agreements also provide medical and health insurance benefits for a two year period following the termination of employment. NOTE 7 - NOTES PAYABLE AND LONG-TERM DEBT
Long-term debt consists of: 1995 1994 ---- ---- (In thousands) Unsecured Debt: 12.875% Guaranteed Senior Notes due 2002 ($70,000,000 face value) $ 74,933 $ - Other notes payable 5,771 - Secured debt: Capitalized Lease Obligations 19,812 3,037 - - ----------------------------------------------------------------------------- 100,516 3,037 Less amounts due within one year 6,644 945 - - ----------------------------------------------------------------------------- $ 93,872 $ 2,092 =============================================================================
In connection with the Merger, a subsidiary of JRM assumed OPI's $70,000,000 12-7/8% Guaranteed Senior Notes ("12.875% Notes"). The 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 -39- 44 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 amount on or after July 15, 2000. JRM is restricted, as a result of covenants in this credit agreement, in its ability to transfer funds to International and its subsidiaries through cash dividends or through unsecured loans or investments. Maturities of long-term debt during the five fiscal years subsequent to March 31, 1995 are as follows: 1996 - $6,644,000; 1997 - $3,651,000; 1998 - $3,782,000; 1999 - $8,778,000; 2000 - $381,000. At March 31, 1995 and 1994, JRM had available to it various uncommitted short-term lines of credit from banks totaling $119,581,000 and $16,493,000, respectively. Borrowings against these lines of credit at March 31, 1995 and 1994 were $24,750,000 and $2,401,000, respectively. In addition, JRM had available two secured and committed revolving credit facilities with banks totaling $53,500,000 of which $24,500,000 was outstanding at March 31, 1995. These two facilities were repaid and terminated on May 10, 1995. The weighted average interest rate on all short term borrowings outstanding as of March 31, 1995 and 1994 was 7.86% and 7.81%, respectively. -40- 45 NOTE 8 - PENSION PLANS AND POSTRETIREMENT BENEFITS Pension Plans - JRM provides retirement benefits, primarily through employee participation in non-contributory pension plans of McDermott International (See Note 6), for substantially all of its regular full-time 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. 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. Assets and liabilities attributable to former employees of McDermott International's marine construction services business who transferred to JRM in connection with the Merger are to be transferred to pension plans established by JRM during fiscal year 1996. The net periodic pension cost (benefit) of the U.K. plan for the ten months ended January 31, 1995 and fiscal years 1994 and 1993 included the following components:
1995 1994 1993 ---- ---- ---- (In thousands) Service cost - benefits earned during the period $ 1,450 $ 1,544 $ 4,328 Interest cost on projected benefit obligation 3,342 4,130 4,989 Actual return on plan assets (1,240) (14,608) (23,545) Net amortization and deferral (7,303) 2,679 14,291 - - --------------------------------------------------------------------------------------- Net periodic pension cost (benefit) $ (3,751) $ (6,255) $ 63 =======================================================================================
Due to a reduction in workforce at one foreign subsidiary, net income in fiscal year 1994 includes a net after-tax loss of $1,456,000 resulting from the recognition of a curtailment of the U.K. plan. -41- 46 The following table sets forth the U.K. plan's funded status and the amount recognized in JRM's consolidated financial statements at March 31, 1994:
1994 ---- (In thousands) Actuarial present value of benefit obligations: Vested benefit obligation $ 58,017 ============================================================================ Accumulated benefit obligation $ 58,017 ============================================================================ Projected benefit obligation $ 66,943 Plan assets at fair value 110,530 - - ---------------------------------------------------------------------------- Plan assets in excess of projected benefit obligation 43,587 Unrecognized net gain (14,443) Unrecognized prior service cost 1,058 Unrecognized transition asset (15,202) - - ---------------------------------------------------------------------------- Net prepaid pension cost $ 15,000 ============================================================================
The assumptions used in determining the funded status and net periodic pension cost (benefit) of the U.K. plan were:
1995 1994 1993 ---- ---- ---- Actuarial assumptions: Discount rate 8.25% 7.5% 9.5% - - ---------------------------------------------------------------------------- Rate of increase in future compensation levels 5.0% 6.0% 7.5% - - ---------------------------------------------------------------------------- Expected long-term rate of return on plan assets 8.5% 8.0% 9.0% - - ----------------------------------------------------------------------------
-42- 47 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 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, 1995:
(In thousands) Accumulated Postretirement Benefit Obligation: Fully eligible active participants $ 1,313 Other active plan participants 11,539 - - ----------------------------------------------------------------------------- Accrued postretirement benefit cost $ 12,852 ============================================================================= Weighted-average discount rate 8.25% =============================================================================
The accumulated postretirement benefit obligation in the above table includes $12,264,000 for health care plans and $588,000 for life insurance plans at March 31, 1995. For the period January 31 to March 31, 1995, net periodic postretirement benefit cost was $337,000. For measurement purposes, a weighted-average annual assumed rate of increase in the per capita cost of covered health care claims of 11-1/2% was assumed for 1995. For 1996, a rate of 10-3/4% will be assumed. The rate was assumed to decrease gradually to 5% 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, 1995 by $2,017,000. -43- 48 NOTE 9- CAPITAL STOCK At March 31, 1995, 12,081,354 shares 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") and Series B $2.25 Cumulative Convertible Exchangeable Preferred Stock ("Series B Preferred Stock"), conversion of subordinated debentures and the exercise of stock options and awards of restricted stock under JRM's stock incentive plans. Series A Preferred Stock At March 31, 1995, 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 $52.00 per share, after January 31, 1997 (subject to any required approvals) and prior to January 31, 2000, provided that the last reported sales price of JRM Common Stock in its principal trading market for any 20 trading days within a period of 30 consecutive trading days ending not more than five days prior to the date the Series A Preferred Stock is called for redemption is at least $55.74 after January 31, 2000. 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 Dividends on Series B Preferred shares are cumulative at an annual rate of $2.25 per share. The stock is non-voting and has a liquidation preference of $25.00 per share. Each share of Series B Preferred Stock is convertible into 2.192 shares (subject to adjustment in certain circumstances) of Common Stock at the option of the holder, at any time. The stock is redeemable, in whole or in part, at the option of JRM after July 15, 1995, initially at a redemption price of $26.60 per share and thereafter at prices declining to $25.00 per share on July 15, 2000. The stock is exchangeable, in whole but not in part, at the option of JRM, for 9% Convertible Subordinated Debentures due 2007 at a rate of $25.00 principal amount of debentures for each share of stock. Each $25.00 principal amount of debentures would be convertible into 2.192 shares of Common Stock. -44- 49 Stock Incentive Plans - The following table summarizes activity related to stock options under JRM's stock incentive plans for the year ended March 31, 1995:
1995 ---- Issued January 31,1995 under the terms of the Merger Agreement (See Note 3) 897,818 Granted 243,530 Exercised (63,106) - - --------------------------------------------------------------------------- Options outstanding, March 31, 1,078,242 =========================================================================== Options exercisable at March 31, 834,712 =========================================================================== Average price: Outstanding options $ 9.4574 Exercisable options $ 5.6158 =========================================================================== Shares available at March 31, that may be granted for options 4,156,470 ===========================================================================
Generally, all options awarded expire 10 years after the date of grant. Pursuant to the stock incentive plans, 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. At March 31, 1995, no rights have been granted. NOTE 10 - CONTINGENCIES AND COMMITMENTS 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, 1995 are as follows: 1996 - $9,837,000; 1997 - $5,633,000; 1998 - $3,562,000; 1999 - $2,978,000; 2000 - $2,494,000; and thereafter - $22,042,000. Total rental expense for fiscal years 1995, 1994 and 1993 was $79,098,000, $87,531,000, and $93,153,000, 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. -45- 50 JRM has been identified as a potentially responsible party at two cleanup sites under the Comprehensive Environmental Response, Compensation and Liability Act, as amended. JRM has not been determined to be a major contributor of wastes to these sites. However, each potentially responsible party or contributor may face assertions of joint and several liability. Generally, however, a final allocation of costs is made based on relative contribution of wastes to each site. Based on estimates of its relative contribution of waste to each site (clean up efforts at one site are nearing completion), JRM's share of the ultimate liability for the sites is not expected to have a material effect on its consolidated financial position. Commitments for capital expenditures amounted to approximately $31,042,000 at March 31, 1995, all of which relates to fiscal year 1996. JRM is contingently liable under standby letters of credit totaling $168,804,000 (including $47,403,000 issued on behalf of unconsolidated foreign joint ventures) at March 31, 1995, issued in the normal course of business. JRM has guaranteed $20,500,000 of loans to and McDermott International continues to guarantee $26,559,000 of standby letters of credit issued by certain unconsolidated foreign joint ventures of JRM at March 31, 1995. NOTE 11 - 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, 1995 and 1994, the allowance for possible losses deducted from Accounts receivable-trade on the balance sheet was $795,000 and $646,000, respectively. NOTE 12 - 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, 1995, JRM had forward exchange contracts to purchase $10,134,000 in foreign currencies (primarily Pound Sterling), and to sell $60,445,000 in foreign currencies (primarily Dutch Guilders and Malaysian Ringgits), at varying maturities through fiscal year 1996. At March 31, 1994, JRM had forward exchange contracts to purchase $21,065,000 in foreign currencies (primarily Dutch Guilders, Australian Dollars and Saudi Riyals) and to sell -46- 51 $48,362,000 in foreign currencies (primarily Dutch Guilders, Malaysian Ringgits and Saudi Riyals) at varying maturities through fiscal year 1995. 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 in income 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, 1995, JRM had deferred gains of $537,000 and deferred losses of $1,570,000 related to forward exchange contracts which are expected to be recognized during fiscal year 1996. 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 13 - 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 amount reported in the balance sheet for cash and cash equivalents approximates its fair value. Long and short-term debt: The fair value of JRM's debt instruments are based on quoted market prices or where quoted prices are not available, on the present value of cash flows discounted at estimated borrowing rates for similar debt instruments or on estimated prices based on current yields for debt issues of similar quality and terms. At March 31, 1995 and 1994, JRM had total debt (excluding capitalized leases and notes payable to McDermott International) with a carrying value of $129,954,000 and $2,401,000 and a fair value of $130,814,000 and 2,401,000, respectively. Notes payable to and receivable from McDermott International: The fair value of JRM's notes payable to McDermott International are calculated using estimated prices based on current yields for debt issues of similar quality and terms. At March 31, 1995 JRM's total notes payable issued to McDermott International on January 31, 1995 had a carrying value of $270,750,000 which approximates fair value. At March 31, 1994, the 10.375% Note due 1998 had a carrying value of $90,400,000 and a fair value of $99,336,000. At March 31, 1994, it was not practicable to estimate the fair value of JRM's non-current Notes Receivable from and Payable to McDermott International (other than the 10.375% Note) because the time of their settlement had not yet been determined. Foreign currency exchange contracts: The fair values of foreign currency forward exchange contracts are estimated by obtaining quotes from brokers. At March 31, 1995 and 1994, JRM had net forward exchange contracts to sell foreign currencies with a notional value of $50,311,000 and $27,297,000 and a fair value of $51,647,000 and $27,403,000, respectively. -47- 52 NOTE 14 - 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: 1995-- customer A $118,820,000 (11%); 1994--customer B $174,688,000 (15%), customer C $160,195,000 (13%). At March 31, 1995 and 1994 receivables of $6,230,000 and $810,000, respectively, were due from minority shareholders participating in JRM's majority-owned joint ventures, primarily ETPM S.A. Sales to ETPM S.A. were $1,801,000, $3,133,000 and $31,234,000, respectively, for the fiscal years ended March 31, 1995, 1994 and 1993. In fiscal years 1995, 1994 and 1993 equipment charters and overhead expenses of $4,938,000, $6,330,000 and $6,046,000, respectively, were charged by ETPM S.A. to the McDermott-ETPM joint venture. -48- 53 Information about JRM's Operations in Different Geographic Areas.
1995 1994 1993 ---- ---- ---- (In thousands) Revenues(1) - United States $ 349,186 $ 351,296 $ 334,854 - Europe and West Africa 322,817 142,525 516,894 - Middle East 129,010 154,791 238,221 - Far East 326,307 545,269 511,076 - Other Foreign - - 15 - - ---------------------------------------------------------------------------------------------- Total $1,127,320 $1,193,881 $1,601,060 ============================================================================================== Operating Income (Loss) by Geographic Area(2) - United States $ (7,049) $ 11,241 $ 6,617 - Europe and West Africa 26,568 8,359 19,582 - Middle East 18,468 12,662 21,388 - Far East 41,692 38,719 35,894 - Other Foreign (1,496) (1,551) (518) - - ---------------------------------------------------------------------------------------------- Total $ 78,183 $ 69,430 $ 82,963 ============================================================================================== Identifiable Assets - United States $ 312,131 $ 293,344 $ 268,478 - Europe and West Africa 609,618 411,271 326,977 - Middle East 206,463 101,141 115,804 - Far East 271,233 195,967 219,558 - Other Foreign - 5,886 1,711 - Corporate 82,817 - - - - ---------------------------------------------------------------------------------------------- Total $1,482,262 $1,007,609 $ 932,528 ==============================================================================================
(1) Net of inter-geographic area revenues in fiscal years 1995 and 1994 as follows: United States - $4,820,000, $16,537,000; Europe and West Africa - $5,074,000, $15,543,000; Middle East - $36,802,000, $2,660,000; Far East - $341,000, $475,000; and Other Foreign - $26,259,000, none. United States in fiscal year 1993: $63,291,000. (2) Reconciling items to Operating Income on the Consolidated Statement of Income are General and Allocated Corporate Expenses of $2,933,000 and $19,690,000, respectively, for fiscal year 1995, and allocated General Corporate Expenses of $21,240,000 and $22,354,000 for fiscal years 1994 and 1993, respectively, and Equity in Income of Investees. -49- 54 NOTE 15 - QUARTERLY FINANCIAL DATA (UNAUDITED) The following tables set forth selected unaudited quarterly financial information for the fiscal years ended March 31,1995 and 1994:
1995 ---- Q U A R T E R E N D E D ------------------------------------------------------------ JUNE 30, SEPT. 30, DEC. 31, MARCH 31, 1994 1994 1994 1995 ---- ---- ---- ---- (In thousands) Revenues $ 279,046 $ 279,322 $ 247,190 $ 321,762 Operating income 16,799 32,481 31,071 (1,934) Income (loss) before cumulative effect of accounting change 14,024 29,649 18,017 (990) Net income (loss) 12,698 29,649 18,017 (990)
Pre-tax results for the quarter ended September 30, 1994 include the settlement of claims for interest on certain foreign tax refunds of $2,233,000 and the acceleration of depreciation on certain marine construction equipment of $4,314,000. Results for the quarter ended December 31, 1994 include the settlement of claims for interest on certain foreign tax refunds of $2,163,000. Results for the quarter ended March 31, 1995 included a reduction in taxes due to settlement of outstanding tax issues of $5,200,000.
1994 ---- Q U A R T E R E N D E D ------------------------------------------------------------ JUNE 30, SEPT. 30, DEC. 31, MARCH 31, 1993 1993 1993 1994 ---- ---- ---- ---- (In thousands) Revenues $ 353,501 $ 304,247 $ 294,857 $ 241,276 Operating income 66,959 59,031 27,209 1,584 Net income 47,500 38,468 14,476 18,693
Net income for the quarter ended March 31, 1994 includes a reduction in the provision for taxes of $10,000,000 due to the settlement of outstanding tax issues. -50- 55 Item 9. DISAGREEMENTS WITH AUDITORS ON ACCOUNTING AND FINANCIAL DISCLOSURE None -51- 56 P A R T I I I Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT There are no family relationships between any of the executive officers, directors or persons nominated to be such, and except as, described in JRM's Proxy Statement for the 1995 Annual Meeting of Stockholders, no executive officer was elected to his position pursuant to any arrangements or understanding between himself and any other person. Information required by this item with respect to directors and executive officers is incorporated by reference to the material appearing under the heading "Election of Directors" in JRM's Proxy Statement for the 1995 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" and "Certain Relationships" in JRM's Proxy Statement for the 1995 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 1995 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 "Compensation of Executive Officers" and "Certain Relationships" in JRM's Proxy Statement for the 1995 Annual Meeting of Stockholders. -52- 57 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, 1995 and 1994 Consolidated Statement of Income for the Three Fiscal Years ended March 31, 1995 Consolidated Statement of Equity for the Three Fiscal Years ended March 31, 1995 Consolidated Statement of Cash Flows For the Three Fiscal Years Ended March 31, 1995 Notes to Consolidated Financial Statements For the Three Fiscal Years Ended March 31, 1995 2. CONSOLIDATED FINANCIAL SCHEDULES All required schedules will be filed by amendment to this Form 10-K on Form 10-K/A.
-53- 58 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 Privileges of Series A Preferred Stock and Series B Preferred Stock.(1) 3.2 Bylaws of J. Ray McDermott, S.A. (1) 4.1 Form of Common Stock Certificate. (1) 4.2 Form of Series B Preferred Stock Certificate. (1) 4.3 Form of 9% Senior Subordinated Note due 2001. (1) 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 Transition Services Agreement dated as of August 16, 1994, between J. Ray McDermott, S.A. and McDermott International, Inc. (1) 10.4 Letter Agreement between J. Ray McDermott, S.A. and McDermott International, Inc. (1) 10.5 Form of Noncompetition Agreements between J. Ray McDermott, S.A., J. Ray McDermott Holdings, Inc. (formerly MCB I, Inc.) and Frank C. Wade. (1) 10.6 Form of Noncompetition Agreement between J. Ray McDermott, S.A., and Mike H. Lam. (1) 10.7 Form of Employment and Noncompetition Agreement between J. Ray McDermott, S.A., and Richard R. Foreman. (1) 10.8 Form of Employment and Noncompetition Agreement between J. Ray McDermott, S.A., and Don W Wilson. (1) 10.9 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)
-54- 59
Exhibit No. Description - - ----------- ----------- 10.10 Form of Contingent Severance Agreements (as assumed by a subsidiary of J. Ray McDermott, S.A.) (3) 10.11 Offshore Pipelines, Inc. Incentive Compensation Program. (3) 10.12 J. Ray McDermott, S.A. Senior Management Stock Option Plan. 10.13 J. Ray McDermott, S.A. Nonemployee Director Stock Plan. (1) 10.14 J. Ray McDermott, S.A. Short-Term Incentive Compensation Plan (1) 10.15 J. Ray McDermott, S.A. Executive Long-Term Incentive Compensation Plan (1) 10.16 Indenture, dated as of July 2, 1992, among Offshore Pipelines, Inc. and affiliated entities and Nationsbank of Texas, N.A., pertaining to the 12 7/8 % Guaranteed Senior Notes due July 15, 2002. (1) 10.17 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) 10.18 Registration Rights Agreement between J. Ray McDermott, S.A. and McDermott International, Inc. (1) 22 Significant Subsidiaries of J. Ray McDermott, S.A. 27 Financial Data Schedule. - - ----------
(1) Incorporated by reference from the Registration Statement on Form S-4, as amended, of J. Ray McDermott, S.A. (Registration No. 33-87592). (2) Incorporated by reference from the Annual Report on Form 10-K of Offshore Pipelines, Inc. filed with the Commission on October 29, 1992. (3) Incorporated by reference from the Registration Statement on Form S-1, as amended, of Offshore Pipelines, Inc. (Registration No. 33-59958). -55- 60 FORM 8-K REPORTS (b) A current report on Form 8-K, Item 2 was filed on February 14, 1995. -56- 61 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. June 16, 1995 By s/ Robert E. Howson -------------------------------- Robert E. Howson 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/ Robert E. Howson Chairman of the Board, Chief - - ---------------------------------- Executive Officer and Director Robert E. Howson (Principal Executive Officer) s/ Richard R. Foreman Executive Vice President and - - ---------------------------------- Chief Financial Officer (Principal Richard R. Foreman Financial and Accounting Officer) s/ John F. Bookout Director - - ---------------------------------- John F. Bookout s/ Brock A. Hattox Director - - ---------------------------------- Brock A. Hattox s/ Mike H. Lam Director - - ---------------------------------- Mike H. Lam s/ Howard Macdonald Director - - ---------------------------------- Howard Macdonald
-57- 62
Signature Title --------- ----- s/ Cedric E. Ritchie Director - - ---------------------------------- Cedric E. Ritchie s/ Thomas P. Tatham Director - - ---------------------------------- Thomas P. Tatham s/ Frank C. Wade Vice Chairman of the Board - - ---------------------------------- and Director Frank C. Wade s/ James J. Wildasin President, Chief Operating - - ---------------------------------- Officer and Director James J. Wildasin
June 16, 1995 -58- 63
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 Privileges of Series A Preferred Stock and Series B Preferred Stock.(1) 3.2 Bylaws of J. Ray McDermott, S.A. (1) 4.1 Form of Common Stock Certificate. (1) 4.2 Form of Series B Preferred Stock Certificate. (1) 4.3 Form of 9% Senior Subordinated Note due 2001. (1) 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 Transition Services Agreement dated as of August 16, 1994, between J. Ray McDermott, S.A. and McDermott International, Inc. (1) 10.4 Letter Agreement between J. Ray McDermott, S.A. and McDermott International, Inc. (1) 10.5 Form of Noncompetition Agreements between J. Ray McDermott, S.A., J. Ray McDermott Holdings, Inc. (formerly MCB I, Inc.) and Frank C. Wade. (1) 10.6 Form of Noncompetition Agreement between J. Ray McDermott, S.A., and Mike H. Lam. (1) 10.7 Form of Employment and Noncompetition Agreement between J. Ray McDermott, S.A., and Richard R. Foreman. (1) 10.8 Form of Employment and Noncompetition Agreement between J. Ray McDermott, S.A., and Don W Wilson. (1) 10.9 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)
64
INDEX TO EXHIBITS Sequentially Numbered Exhibit No. Description Pages - - ----------- ----------- ------------ 10.10 Form of Contingent Severance Agreements (as assumed by a subsidiary of J. Ray McDermott, S.A.) (3) 10.11 Offshore Pipelines, Inc. Incentive Compensation Program. (3) 10.12 J. Ray McDermott, S.A. Senior Management Stock Option Plan. 10.13 J. Ray McDermott, S.A. Nonemployee Director Stock Plan. (1) 10.14 J. Ray McDermott, S.A. Short-Term Incentive Compensation Plan (1) 10.15 J. Ray McDermott, S.A. Executive Long-Term Incentive Compensation Plan (1) 10.16 Indenture, dated as of July 2, 1992, among Offshore Pipelines, Inc. and affiliated entities and Nationsbank of Texas, N.A., pertaining to the 12 7/8 % Guaranteed Senior Notes due July 15, 2002. (1) 10.17 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) 10.18 Registration Rights Agreement between J. Ray McDermott, S.A. and McDermott International, Inc. (1) 22 Significant Subsidiaries of J. Ray McDermott, S.A. 27 Financial Data Schedule. - - ----------
(1) Incorporated by reference from the Registration Statement on Form S-4, as amended, of J. Ray McDermott, S.A. (Registration No. 33-87592). (2) Incorporated by reference from the Annual Report on Form 10-K of Offshore Pipelines, Inc. filed with the Commission on October 29, 1992. (3) Incorporated by reference from the Registration Statement on Form S-1, as amended, of Offshore Pipelines, Inc. (Registration No. 33-59958). EX-10.12 2 J.RAY MCDERMOTT SENIOR MGMT STOCK OPTION PLAN 1 EXHIBIT 10.12 J. RAY MCDERMOTT, S.A. 1995 SENIOR MANAGEMENT STOCK OPTION PLAN ARTICLE I - ESTABLISHMENT, PURPOSE, AND DURATION 1.1 ESTABLISHMENT OF THE PLAN J. Ray McDermott, S.A., a Panamanian corporation (hereinafter referred to as "J. Ray"), hereby establishes an incentive compensation plan to be known as the "J. Ray McDermott, S.A. Senior Management Stock Option Plan" (hereinafter referred to as the "Plan"), as set forth in this document. The Plan permits the grant of Options (as hereinafter defined) to senior managers of the Company (as hereinafter defined). Upon approval by the Board of Directors (as hereinafter defined), the plan shall become effective as of March 1, 1995 (the "Effective Date"), and shall remain in effect as provided in Section 1.3 herein. 1.2 PURPOSE OF THE PLAN The purpose of the Plan is to promote the success, and enhance the value, of the Company by linking the personal interests of Participants (as hereinafter defined) to those of J. Ray's shareholders and by providing Participants with an incentive for outstanding performance. The Plan is further intended to provide flexibility to the Company in its ability to motivate, attract and retain the services of Participants. 1.3 DURATION OF THE PLAN The Plan shall commence on the Effective Date, as described in Section 1.1 herein, and shall remain in effect, subject to the right of the Board of Directors to terminate the Plan at any time pursuant to Article X herein, until all Shares (as hereinafter defined) subject to Awards (as hereinafter defined) granted under it shall have been purchased or acquired according to the Plan's provisions. However, in no event may an Award be granted under the Plan on or after March 1, 2005. ARTICLE II - DEFINITIONS 2.1 DEFINITIONS Whenever used in the Plan, the following terms shall have the meanings set forth below and, when the meaning is intended, the initial letter of the word is capitalized: (a) "Award" means a grant under the Plan of Options. (b) "Beneficial Owner" shall have the meaning ascribed to such term in Section 13(d) of the Securities Exchange Act of 1934 and the rules thereunder, without regard, however, to the 60-day period referred to in such Section. -1- 2 (c) "Board" or "Board of Directors" means the Board of Directors of J. Ray. (d) "Change in Control" of J. Ray shall be deemed to have occurred if the conditions set forth in any one or more of the following paragraphs shall have been satisfied: (1) Any person, as described in Section 3(a)(9) of the Securities Exchange Act of 1934, (other than a person in control of J. Ray on the Effective Date, or other than a trustee or other fiduciary holding securities under an Employee benefit plan of J. Ray, or a corporation owned directly or indirectly by the stockholders of J. Ray in substantially the same proportions as their ownership of Shares of voting securities of J. Ray), is or becomes the Beneficial Owner, directly or indirectly, of voting securities of J. Ray representing 30 percent or more of the combined voting power of J. Ray's then outstanding securities, excluding for these purposes the Series A $2.25 Cumulative Convertible Preferred Stock of J. Ray; or (2) During any period of two consecutive years (not including any period prior to the execution of the Plan), individuals who at the beginning of such period constitute the Board (and any new Director, whose election by the Board or nomination for election by J. Ray's stockholders was approved by a vote of at least two- thirds of the Directors then still in office who either were Directors at the beginning of the period or whose election or nomination for election was previously so approved), cease for any reason to constitute a majority thereof; or (3) The stockholders of J. Ray approve: (a) a plan of complete liquidation of J. Ray; or (b) an agreement for the sale or disposition of all or substantially all J. Ray's assets; or (c) a merger or consolidation of J. Ray with any other corporation, other than a merger or consolidation which would result in the voting securities of J. Ray outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity), at least 50.1 percent of the combined voting securities of J. Ray (or such surviving entity) outstanding immediately after such merger or consolidation. However, in no event shall a Change in Control be deemed to have occurred, with respect to a Participant, if that Participant is part of a purchasing group which consummates the Change-in-Control transaction. A Participant shall be deemed "part of a purchasing group" for purposes of the preceding sentence if the Participant is an equity participant, has been identified as a potential equity participant or has agreed to become an equity participant in the purchasing company or group (except for: (i) passive ownership of less than 3 percent of the shares of voting securities of the purchasing company; or (ii) ownership of equity participation in the purchasing company or group which is otherwise not deemed to be significant, as determined prior to the Change in Control by a majority of the disinterested Directors). (e) "Code" means the Internal Revenue Code of 1986, as amended from time to time. (f) "Company" means J. Ray McDermott, S.A., a Panamanian corporation (or any successor thereto) and its subsidiaries and affiliates. (g) "Director" means any individual who is a member of the Board of Directors of J. Ray. -2- 3 (h) "Employee" means any part-time or full-time Employee of the Company. Directors who are not otherwise employed by J. Ray shall not be considered Employees under the Plan. (i) "Fair Market Value" shall mean the fair market value of a Share of common stock, as determined in accordance with procedures established by the Plan Administration Committee. (j) "Insider" shall mean an Employee of the Company included in the definition of Officer under Section 16 of the Securities Exchange Act of 1934 and the rules promulgated thereunder or other Employees designated as Officers by the Board. (k) "Officer" means an Employee of the Company included in the definition of Officer under Section 16 of the Securities Exchange Act of 1934 and the rules promulgated thereunder or other Employees designated as Officers by the Board. (l) "Option" means a nonqualified Option to purchase Shares, granted under Article VI herein. The Options granted are not intended to qualify as "incentive stock options" as defined in Section 422 of the Code. (m) "Option Price" means the price at which a Share may be purchased by a Participant pursuant to an Option, as determined by the Plan Administration Committee. (n) "Participant" means an Employee of the Company who has outstanding an Award granted under the Plan. (o) "Plan Administration Committee" means a Committee of Insiders designated by the Board to oversee the Plan (as specified in Article III). (p) "Qualified Domestic Relations Order" shall mean a valid and effective domestic relations order, as determined by the Plan Administration Committee. (q) "Reorganization" means a merger, consolidation, sale of all or substantially all of the Company's assets; or other corporate Reorganization in which the Company is not the surviving corporation (other than any such transaction the effect of which is merely to change the jurisdiction of incorporation of the Company); or any merger in which the Company is the surviving corporation but the holders of its Shares receive cash or securities of another corporation or different securities of the surviving corporation; or a dissolution or liquidation of the Company. (r) "Shares" means the Shares of common stock, $1 par value, of J. Ray. ARTICLE III - ADMINISTRATION 3.1 PLAN ADMINISTRATION The Plan shall be administered by the Plan Administration Committee of J. Ray, each member of which shall serve at the discretion of the Board of Directors. The Plan Administration Committee may delegate its authorities as identified hereunder, except that they may not be delegated to any member of management who participates in or is eligible to participate in this Plan. -3- 4 3.2 AUTHORITY OF THE PLAN ADMINISTRATION COMMITTEE The Plan Administration Committee shall have full power, except as limited by law or by the articles of incorporation or bylaws of J. Ray, and subject to the provisions herein, to determine the terms and conditions of Awards in a manner consistent with the Plan; to construe and interpret the Plan and any agreement or instrument entered into under the Plan; to establish, amend, or waive rules and regulations for the Plan's administration; and (subject to the provisions of Article X herein) to amend the terms and conditions of any outstanding Award to the extent such terms and conditions are within the discretion of the Plan Administration Committee as provided in the Plan. Further, the Plan Administration Committee shall make all other determinations which may be necessary or advisable for the administration of the Plan. 3.3 DECISIONS BINDING All determinations and decisions made by the Plan Administration Committee pursuant to the provisions of the Plan and all related orders or resolutions of the Board of Directors shall be final, conclusive, and binding on all persons, including the Company, its stockholders, Employees, Participants, and their estates and beneficiaries. ARTICLE IV - SHARES SUBJECT TO THE PROGRAM 4.1 NUMBER OF SHARES Subject to adjustment as provided in Section 4.3 herein, the total number of Shares available for grant under the Plan shall be determined by the Board from time to time. These Shares may be either authorized but unissued Shares of common stock of J. Ray, or from Shares reacquired by J. Ray, including Shares purchased in the open market. 4.2 LAPSED AWARDS If any unexercised Option granted under this Plan is cancelled, terminates, expires, or lapses for any reason, any Shares subject to such Award again shall be available for the grant of an Award under the Plan. 4.3 ADJUSTMENTS IN AUTHORIZED SHARES In the event of any merger, reorganization, consolidation, recapitalization, separation, liquidation, stock dividend, Share combination, or other change in the corporate structure of the Company affecting the Shares, such adjustment shall be made in the number and class of Shares which may be delivered under the Plan, and in the number and class of and/or price of Shares subject to outstanding Awards, as may be determined to be appropriate and equitable by the Plan Administration Committee, in its sole discretion, to prevent dilution or enlargement of rights; and provided that the number of Shares subject to any Award shall always be a whole number. -4- 5 ARTICLE V - ELIGIBILITY AND PARTICIPATION 5.1 ELIGIBILITY Persons eligible to participate in this Plan include select senior management Employees as determined at the discretion of the Plan Administration Committee. Officers will not be granted Options under this Plan. Officer is defined in Section 2.1 herein and includes all individuals eligible to receive grants under J. Ray's Executive Long-Term Incentive Compensation Plan. If, as a result of a change in employment, a Participant becomes an Officer, the Officer Participant will no longer be eligible to receive Awards under the Plan. 5.2 ACTUAL PARTICIPATION Subject to the provisions of the Plan, the Plan Administration Committee may, from time to time, at its sole discretion, select from senior management Employees of the Company those to whom Awards shall be granted and shall determine the amount of each Award. No Employee shall have any right to be granted an Award under the Plan. The receipt of an Award in any given year does not guarantee that any Award will be made in any succeeding year. ARTICLE VI - STOCK OPTIONS 6.1 OPTION GRANTS Subject to the terms and provisions of the Plan, Options may be granted to eligible Employees at any time, and from time to time, as shall be determined by the Plan Administration Committee. The Plan Administration Committee shall have discretion in determining the number of Shares subject to Options granted to each Participant. 6.2 OPTION AGREEMENT Each Option grant shall be evidenced by an Option agreement that shall specify the Option Price, the duration of the Option, the number of Shares to which the Option pertains, the exercisability provisions of the Option, payment terms, and such other provisions as the Plan Administration Committee shall determine. 6.3 OPTION PRICE The Option Price for each grant of an Option shall be determined by the Plan Administration Committee; provided that, notwithstanding any other provision of the Plan, the Option Price shall not be less than the Fair Market Value of such Share on the date the Option is granted. 6.4 DURATION OF OPTIONS Each Option shall expire at such time as the Plan Administration Committee shall determine at the time of grant; provided, however, that no Option shall be exercisable later than ten years following the anniversary date of its grant. -5- 6 6.5 EXERCISE OF OPTIONS Options granted under the Plan shall be exercisable at such times and be subject to such restrictions and conditions as the Plan Administration Committee shall in each instance approve, which need not be the same for each grant or for each Participant. Options shall be exercised by the delivery of a written notice of exercise to the Plan Administration Committee, setting forth the number of Shares with respect to which the Option is to be exercised. 6.6 PAYMENT The method of payment of the Option Price related to any Option exercised shall be determined at the discretion of the Plan Administration Committee. However, without limitation, payment in the form of previously acquired Shares will be permitted at the discretion of the Plan Administration Committee. 6.7 RESTRICTIONS ON SHARE TRANSFERABILITY The Plan Administration Committee shall impose such restrictions on any Shares acquired pursuant to the exercise of an Option under the Plan as it may deem advisable, including, without limitation, restrictions under applicable federal securities laws, under the requirements of any stock exchange or market upon which such Shares are then listed and/or traded, and under any blue sky or state securities laws applicable to such Shares. 6.8 TERMINATION OF EMPLOYMENT In the event the employment of a Participant is terminated, the exercisability and duration of outstanding Options granted to that Participant shall be determined at the discretion of the Plan Administration Committee and the procedures shall be specified in the Option agreement. 6.9 NONTRANSFERABILITY OF OPTIONS No Option granted under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution or pursuant to a Qualified Domestic Relations Order. ARTICLE VII - BENEFICIARY DESIGNATION 7.1 BENEFICIARY DESIGNATION Each Participant under the Plan may, from time to time, name any beneficiary or beneficiaries (who may be named contingently or successively) to whom any benefit under the Plan is to be paid in case of his death before he receives any or all of such benefit. Each such designation shall revoke all prior designations by the same Participant, shall be in a form prescribed by the Plan Administration Committee, and will be effective only when filed by the Participant in writing with the Plan Administration Committee during the Participant's lifetime. In the absence of any such designation, benefits remaining unpaid at the Participant's death shall be paid to the Participant's estate. In the event that any question arises as to any beneficiary designation, the Plan Administration Committee -6- 7 may, in its sole discretion, elect to pay any benefits remaining at the Participant's death to the Participant's estate. ARTICLE VIII - RIGHTS OF PARTICIPANTS 8.1 EMPLOYMENT Nothing in the Plan shall interfere with or limit in any way the right of the Company to terminate any Participant's service to the Company at any time, nor confer upon any Participant any right to continue service as an Employee of the Company. 8.2 PARTICIPATION No Employee shall have the right to be selected to receive an Award under the Plan, or, having been so selected, to be selected to receive a future Award. ARTICLE IX - REORGANIZATION OR CHANGE IN CONTROL 9.1 REORGANIZATION If, in the event of a Reorganization, provision has not been made for substitution of new stock Options by the surviving corporation for and having a value equal to the Options held under the Plan at the date of such Reorganization, the owner of such Options shall receive within 30 days after such Reorganization in full satisfaction of such unexpired Options, cash representing the excess, if any, of the value of stock subject to such Option, valued with reference to the highest sale price at which the common stock of J. Ray is traded as reported for consolidated trading for issues listed on the New York Stock Exchange (or if not so listed, then as reported on any other national securities exchange) during the 30 days preceding the date on which the Reorganization is consummated, over the applicable Option purchase price for such stock, without regard to the exercise dates provided in such Options under Section 6.5 of the Plan. 9.2 CHANGE IN CONTROL In the event of a Change in Control, notwithstanding any other provision of the Plan to the contrary, all outstanding Options granted under the Plan shall immediately become exercisable. ARTICLE X - AMENDMENT, MODIFICATION, AND TERMINATION 10.1 AMENDMENT, MODIFICATION, AND TERMINATION With the approval of the Board, at any time, and from time to time, the Plan Administration Committee may terminate, amend, or modify the Plan and any Award agreement outstanding hereunder. -7- 8 10.2 AWARDS PREVIOUSLY GRANTED Notwithstanding Section 10.1, no termination, amendment, or modification of the Plan or of any Award agreement, shall in any manner adversely affect any Award previously granted under the Plan, without the written consent of the Participant holding such Award. ARTICLE XI - WITHHOLDING 11.1 TAX WITHHOLDING The Company shall have the power and the right to deduct or withhold, or require Participants to remit to the Company, amounts sufficient to satisfy federal, state, and local taxes (including the Participants' FICA obligations) required by law to be withheld with respect to any grant, exercise, or payment made under or as a result of the Plan. The Plan Administration Committee, in its sole discretion, shall promulgate rules governing methods by which such requirements are to be satisfied. ARTICLE XII - MISCELLANEOUS 12.1 GENDER AND NUMBER Except as otherwise indicated by the context, any masculine term used herein also shall include the feminine; the plural shall include the singular and the singular shall include the plural. 13.2 SEVERABILITY In the event any provision of the Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included. 13.3 REQUIREMENTS OF LAW The granting of Awards and the issuance of Shares under the Plan shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required. -8- 9 IN WITNESS WHEREOF, the Company has caused this instrument to be executed this 15th day of June, 1995, effective as of March 1, 1995. J. RAY McDERMOTT, S.A. Attest: By: s/ R.E. Wollbert ---------------------------------------- R.E. Woolbert, Executive Vice President and Chief Administrative Officer s/ John Tsai - - --------------------------- John Tsai Assistant Secretary -9- EX-22 3 SIGNIFICANT SUBSIDIARIES 1 EXHIBIT 22 J. RAY MCDERMOTT, S.A. SIGNIFICANT SUBSIDIARIES OF THE REGISTRANT FISCAL YEAR ENDED MARCH 31, 1995
PERCENTAGE ORGANIZED OF VOTING UNDER THE SHARES NAME OF COMPANY LAWS OF OWNED J. Ray McDermott Holdings, Inc. Delaware 100 J. Ray McDermott, Inc. Delaware 100 McDermott Holdings (U.K.) Limited United Kingdom 100 Hydro Marine Services, Inc. Panama 100 Varsy International N.V. Netherlands Antilles 100 McDermott (Holland) B.V. Netherlands 100 McDermott Far East, Inc. Panama 100 P.T. McDermott Indonesia Indonesia 100 Malmac Sdn. Bhd. Malaysia 100 J. Ray McDermott (Aust.) Holding Pty. Limited Australia 100 McDermott Industries (Aust.) Pty. Limited Australia 100
The subsidiaries omitted from the foregoing list do not, considered in the aggregate, constitute a significant subsidiary. EX-27 4 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM J.RAY MCDERMOTT S.A.'S MARCH 31, 1995 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS. 1000 YEAR MAR-31-1995 MAR-31-1995 52,224 2,346 317,561 17,245 57,277 470,136 1,504,717 910,555 1,482,262 496,724 0 386 0 37 559,048 1,482,262 1,127,320 1,127,320 1,071,760 1,071,760 0 0 25,158 69,585 8,885 60,700 0 0 (1,326) 59,374 0 0
-----END PRIVACY-ENHANCED MESSAGE-----