-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, H80wVuteLi2EdlCp5o8+AhCkYBrNWNxGEiqdHNo7E/25gddHRLZZla8YDno99K91 AMMXfoKQvkJZlfefrKDXzA== 0000950134-95-003070.txt : 19951121 0000950134-95-003070.hdr.sgml : 19951121 ACCESSION NUMBER: 0000950134-95-003070 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19950331 FILED AS OF DATE: 19951117 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MCDERMOTT J RAY SA CENTRAL INDEX KEY: 0000934590 STANDARD INDUSTRIAL CLASSIFICATION: WATER, SEWER, PIPELINE, COMM AND POWER LINE CONSTRUCTION [1623] FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-13570 FILM NUMBER: 95594728 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/A 1 AMENDMENT NO.2 TO FORM 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 F O R M 1 0 - K/A-2 /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. /X/ 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
Page ---- SIGNATURE OF REGISTRANT Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 13
3 SIGNATURE OF REGISTRANT Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this amendment to be signed on its behalf by the undersigned, thereunto duly authorized. J. RAY McDERMOTT, S.A. /s/ Daniel R. Gaubert ---------------------- Daniel R. Gaubert Vice President, Finance (Principal Accounting Officer) November 15, 1995 4 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 5 JRM's equity in income of investees decreased $83,736,000 to $22,857,000. Both the HeereMac and McDermott-ETPM West, Inc. joint ventures performed at lower levels than in the previous year, as several large contracts were completed in fiscal 1994. The revenues of these two joint ventures declined from $895,666,000 to $656,490,000. Most of the HeereMac decline was in the North Sea. McDermott-ETPM West, Inc. also declined in the North Sea but this was partially offset by increased volume in West Africa. The equity income from these two joint ventures declined from $106,783,000 to $24,759,000. HeereMac's equity income decreased as a result of the reduced volume and reduced margins. McDermott-ETPM West, Inc.'s equity income also decreased as a result of the reduced volume, but the decrease was not as severe. McDermott-ETPM West, Inc. also had a loss provision of approximately $7,500,000 on a major North Sea contract. Together these two significant investees accounted for 108% of equity in earnings of investees. No other venture contributed significantly to the decline. Both joint ventures are expected to remain at low levels in fiscal 1996 and 1997. 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 (including its significant investees) depends mainly on the capital expenditures of oil and gas companies and foreign governments for developmental construction. These expenditures are influenced by the selling price of oil and gas along with the cost of production and delivery, the terms and conditions of offshore leases, the discovery rates of new reserves offshore, the ability of the oil and gas industry to raise capital, and local and international political and economic conditions. Oil company exploration and production budgets in calendar 1995 are 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 1994 were below those in 1993. This had a negative impact on near term marine construction activities. World oil prices in calendar 1995 are expected to be somewhat higher than those in 1994. The composite spot price for natural gas in the United States was substantially lower in calendar 1994 than in 1993 and has continued to decline. JRM's markets are expected to be at relatively low levels, and during fiscal year 1996, the overcapacity of marine equipment will continue to result in a competitive environment and put pressure on profit margins, including those of the two significant investees. 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. 14 6 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 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. Improved results of the HeereMac joint venture were partially offset by lower results of the McDermott-ETPM West, Inc. joint venture. HeereMac's equity income increased significantly based on improved margins resulting from decreased project and operating expenses. McDermott-ETPM West, Inc's equity income declined based primarily on reduced volume in the North Sea and West Africa. Together these two significant investees accounted for 100% of equity in earnings of investees. No other venture significantly contributed to the increase. 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 15 7 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 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 16 8 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 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 -----END PRIVACY-ENHANCED MESSAGE-----