<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10 - Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the period ended September 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File No. 1-13570
J. RAY McDERMOTT, S.A.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
REPUBLIC OF PANAMA 72-1278896
- --------------------------------------------------------------------------------
(State of Incorporation) (I.R.S. Employer 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
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 Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
The number of shares of Common Stock, par value $.01 per share, outstanding as
of October 30, 1995 was 40,154,212.
<PAGE> 2
J. RAY M c D E R M O T T, S.A.
I N D E X - F O R M 10 - Q
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PART I - FINANCIAL INFORMATION
- ------------------------------
Item 1 - Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheet
September 30, 1995 and March 31, 1995 4
Condensed Consolidated Statement of Income
Three Months Ended and Six Months
Ended September 30, 1995 and 1994 6
Condensed Consolidated Statement of Cash Flows
Six Months Ended September 30, 1995 and 1994 8
Notes to Condensed Consolidated Financial Statements 10
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
PART II - OTHER INFORMATION
- ---------------------------
Item 6 - Exhibits and Reports on Form 8-K 20
SIGNATURES 21
Exhibit 11 - Calculation of Earnings Per Common
and Common Equivalent Share 23
</TABLE>
2
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PART I
J. RAY McDERMOTT, S.A.
FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
3
<PAGE> 4
J. RAY McDERMOTT, S.A.
CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1995
ASSETS
<TABLE>
<CAPTION>
9/30/95 3/31/95
------- --------
(Unaudited)
(In thousands)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 68,034 $ 52,224
Accounts receivable-trade 291,080 244,212
Accounts receivable-unconsolidated
affiliates 65,346 56,104
Accounts receivable-other 22,921 33,830
Contracts in progress 120,980 54,947
Other current assets 33,613 28,819
-------------------------------------------------------------------------------------------------------------
Total Current Assets 601,974 470,136
-------------------------------------------------------------------------------------------------------------
Property, Plant and Equipment, at Cost: 1,523,926 1,504,717
Less accumulated depreciation 934,267 910,555
-------------------------------------------------------------------------------------------------------------
Net Property, Plant and Equipment 589,659 594,162
- --------------------------------------------------------------------------------------------------------------
Excess of Cost Over Fair Value of Net Assets
of Purchased Businesses Less Accumulated
Amortization of $18,016,000 at September 30, 1995
and $5,483,000 at March 31, 1995 232,646 245,179
- --------------------------------------------------------------------------------------------------------------
Investment in Unconsolidated Affiliates 107,090 105,283
- --------------------------------------------------------------------------------------------------------------
Other Assets 66,491 67,502
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TOTAL $ 1,597,860 $ 1,482,262
===============================================================================================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
9/30/95 3/31/95
---------- ----------
(Unaudited)
(In thousands)
<S> <C> <C>
Current Liabilities:
Notes payable and current
maturities of long-term debt $ 155,635 $ 55,894
Note payable to McDermott International 39,750 39,750
Accounts payable 171,415 141,376
Accrued contract costs 47,322 53,610
Accrued liabilities - other 92,466 105,242
Advanced billings on contracts 29,083 62,495
U.S. and foreign income taxes 35,566 38,357
- -------------------------------------------------------------------------------------------------------------
Total Current Liabilities 571,237 496,724
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Long-Term Debt 105,267 93,872
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Note Payable to McDermott International 231,000 231,000
- -------------------------------------------------------------------------------------------------------------
Deferred and Non-Current Income Taxes 47,925 44,697
- -------------------------------------------------------------------------------------------------------------
Other Liabilities 69,339 56,498
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Contingencies
- -------------------------------------------------------------------------------------------------------------
Stockholders' Equity:
Preferred Stock, par value $0.01 per share,
authorized 10,000,000 shares:
Series A $2.25 cumulative convertible,
outstanding 3,200,000 shares
(liquidation preference $160,000,000) 32 32
Series B $2.25 cumulative convertible
exchangeable, outstanding 453,207 at
September 30, 1995 and 458,632 at March 31, 1995
(liquidation preference $11,330,175 at
September 30, 1995) 5 5
Common stock, par value $0.01 per share,
authorized 60,000,000 shares; outstanding
39,100,215 at September 30, 1995 and
38,649,349 at March 31, 1995 391 386
Capital in excess of par value 583,979 580,279
Retained Earnings (Deficit) 1,429 (6,598)
Currency translation adjustments (12,744) (14,633)
- -------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 573,092 559,471
- -------------------------------------------------------------------------------------------------------------
TOTAL $ 1,597,860 $ 1,482,262
=============================================================================================================
</TABLE>
5
<PAGE> 6
J. RAY McDERMOTT, S.A.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
THREE SIX
MONTHS ENDED MONTHS ENDED
9/30/95 9/30/94 9/30/95 9/30/94
------- ------- ------- -------
(Unaudited)
(In thousands)
<S> <C> <C> <C> <C>
Revenues $ 355,957 $ 279,322 $ 667,760 $ 558,368
- -------------------------------------------------------------------------------------------------------------
Costs and Expenses:
Cost of operations (excluding
depreciation and amortization) 286,650 214,081 533,352 423,658
Depreciation and amortization 23,624 14,150 45,756 39,337
Selling, general and
administrative expenses 27,766 30,073 58,321 60,523
- -------------------------------------------------------------------------------------------------------------
338,040 258,304 637,429 523,518
- -------------------------------------------------------------------------------------------------------------
Operating Income before Equity in
Income (Loss) of Investees 17,917 21,018 30,331 34,850
Equity in Income (Loss) of Investees (1,903) 11,463 (2,801) 14,430
- -------------------------------------------------------------------------------------------------------------
Operating Income 16,014 32,481 27,530 49,280
- -------------------------------------------------------------------------------------------------------------
Other Income (Expense):
Interest income 1,154 3,330 1,747 4,241
Interest expense (12,334) (5,632) (21,682) (10,763)
Other-net 5,404 3,479 9,156 6,809
- -------------------------------------------------------------------------------------------------------------
(5,776) 1,177 (10,779) 287
- -------------------------------------------------------------------------------------------------------------
Income before Provision for Income
Taxes and Cumulative Effect of
Accounting Change 10,238 33,658 16,751 49,567
Provision for Income Taxes 1,139 4,009 4,385 5,894
- -------------------------------------------------------------------------------------------------------------
Income before Cumulative Effect
of Accounting Change 9,099 29,649 12,366 43,673
Cumulative Effect of Accounting
Change - - - (1,326)
- -------------------------------------------------------------------------------------------------------------
Net Income $ 9,099 $ 29,649 $ 12,366 $ 42,347
=============================================================================================================
</TABLE>
6
<PAGE> 7
CONTINUED
<TABLE>
<CAPTION>
THREE SIX
MONTHS ENDED MONTHS ENDED
9/30/95 9/30/95
------- -------
(Unaudited)
(In thousands,except shares
and per share amounts)
<S> <C> <C>
NET INCOME APPLICABLE TO
COMMON STOCK (AFTER PREFERRED
STOCK DIVIDENDS) $ 7,041 $ 8,252
==========================================================================================================
EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE (PRIMARY
AND FULLY DILUTED) $ 0.18 $ 0.21
==========================================================================================================
Weighted average number of common and
common equivalent shares 39,569,889 39,459,142
CASH DIVIDENDS:
Per preferred share $ 0.5625 $ 1.125
==========================================================================================================
</TABLE>
Earnings per share are not presented for the three and six months ended
September 30, 1994 because JRM was not a separate entity with its own capital
structure for those periods.
See accompanying notes to condensed consolidated financial statements.
7
<PAGE> 8
J. RAY McDERMOTT, S.A.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
SEPTEMBER 30, 1995
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
9/30/95 9/30/94
------- -------
(Unaudited)
(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 12,366 $ 42,347
- -------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 45,756 39,337
Equity in income or loss of investees,
less dividends 11,083 20,567
Gain on sale and disposal of assets (3,901) (1,076)
Provision for (benefit from) deferred taxes 3,073 (3,935)
Other 1,246 1,264
Changes in assets and liabilities:
Accounts receivable (34,738) (19,415)
Net contracts in progress and advance billings (99,964) (8,193)
Accounts payable 30,794 (28,136)
Accrued contract costs (6,288) (6,968)
Accrued liabilities (12,629) (10,742)
Income taxes (1,243) (3,292)
Other, net (9,203) (6,653)
- -------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (63,648) 15,105
- -------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (21,205) (23,222)
Proceeds from sale of property, plant and equipment 8,810 1,688
Investment in asset held for lease (9,802) -
Increase in notes receivable from
McDermott International - (15,270)
Investments in equity investees (6,824) -
Other (224) (1,473)
- -------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (29,245) (38,277)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE> 9
CONTINUED
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
9/30/95 9/30/94
------- -------
(Unaudited)
(In thousands)
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of long-term debt $ (5,330) $ (475)
Issuance of long-term debt 13,240 -
Increase (decrease) in short-term borrowing 102,775 (1,096)
Contributions from McDermott International - 2,235
Issuance of common stock 1,572 -
Preferred dividends paid (4,073) -
Other 276 (434)
- -------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 108,460 230
- -------------------------------------------------------------------------------------------------------------
EFFECTS OF EXCHANGE RATE CHANGES ON CASH 243 464
- -------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 15,810 (22,478)
- -------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 52,224 53,343
- -------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 68,034 $ 30,865
=============================================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amount capitalized) $ 21,035 $ 10,613
Income taxes (net of refunds) $ 4,126 $ 10,216
=============================================================================================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
9
<PAGE> 10
J. RAY McDERMOTT, S.A.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 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. The contribution of International's marine construction
services business to JRM was accounted for in a manner similar to a pooling of
interests and the financial statements reflect International's historical cost
of the assets and liabilities contributed.
The accompanying unaudited condensed consolidated financial statements are
presented in U.S. Dollars and have been prepared in accordance with accounting
principles generally accepted in the United States for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments considered necessary
for a fair presentation have been included. Such adjustments are of a normal,
recurring nature except for the settlement of a claim for interest on certain
foreign tax refunds of $2,233,000 included in the three and six months ended
September 30, 1994; and the accelerated depreciation on marine equipment of
$4,314,000 and the cumulative effect of the accounting change for the adoption
of Statement of Financial Accounting Standards No. 112, "Employers' Accounting
for Postemployment Benefits" included in the six months ended September 30,
1994. Operating results for the three and six months ended September 30, 1995
are not necessarily indicative of the results that may be expected for the year
ended March 31, 1996. For further information, refer to the consolidated
financial statements and footnotes thereto included in JRM's Annual Report on
Form 10-K for the year ended March 31, 1995.
10
<PAGE> 11
NOTE 2 - SUMMARIZED INCOME STATEMENT INFORMATION OF UNCONSOLIDATED
AFFILIATES
The combined financial results of JRM's equity investments in HeereMac and
McDermott-ETPM West, Inc. are summarized below. These ventures were
significant as defined by applicable SEC regulations in fiscal year 1995. The
following summarizes their combined income statements:
<TABLE>
<CAPTION>
THREE SIX
MONTHS ENDED MONTHS ENDED
9/30/95 9/30/94 9/30/95 9/30/94
------- ------- ------- -------
(In thousands)
<S> <C> <C> <C> <C>
Revenues $ 126,104 $ 186,860 $ 318,023 $ 424,145
- -----------------------------------------------------------------------------------------------------------------
Operating Income (Loss) $ (1,274) $ 18,913 $ 4,338 $ 19,769
- -----------------------------------------------------------------------------------------------------------------
Income (Loss) before Income Taxes $ (200) $ 22,768 $ 10,011 $ 28,356
Provision for (Benefit from) Income Taxes (1,355) (342) 318 (892)
- -----------------------------------------------------------------------------------------------------------------
Net Income $ 1,155 $ 23,110 $ 9,693 $ 29,248
=================================================================================================================
Equity in Net Income $ 891 $ 11,504 $ 4,873 $ 14,555
=================================================================================================================
</TABLE>
NOTE 3 - ACQUISITION OF OFFSHORE PIPELINES, INC.
The acquisition of OPI was accounted for by the purchase method and,
accordingly, the purchase price was allocated to the underlying assets and
liabilities based upon the preliminary fair values at the date of acquisition.
The preliminary purchase price allocation is subject to change when additional
information concerning asset and liability valuations is obtained.
NOTE 4 - OTHER AGREEMENTS
During the June 1995 quarter, substantially all of the agreements required to
restructure the JRM and ETPM joint venture were finalized, but are still
subject to any necessary government approvals or authorizations. The
agreements expand the joint venture into the Far East, the Mediterranean Sea,
and all of Africa, give ETPM S.A. a minority interest in a new JRM subsea
company and give JRM a minority interest in a new ETPM company. This
transaction is not significant as defined by applicable SEC regulations.
11
<PAGE> 12
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The following discussion presents the results of operations of J. Ray
McDermott, S.A. ("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 which occurred on
January 31, 1995. For the three and six months ended September 30, 1995, the
discussion includes the accounts and operations of JRM on a stand alone basis.
For the three and six months ended September 30, 1994, 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.
Beginning with the June 1995 quarter, management's discussion of revenues and
operating income is discussed by the geographic areas presented in the tables
below. Other geographic area revenues includes eliminations between geographic
areas; and Other geographic area operating income (loss) includes certain
expenses including the costs of certain employee benefit programs, and the
three and six months ended September 30,1995 includes the amortization of
goodwill and covenants-not-to-compete relating to the acquisition of Offshore
Pipelines, Inc. Prior year information has been reclassified to conform with
the September 30, 1995 presentation.
<TABLE>
<CAPTION>
THREE SIX
MONTHS ENDED MONTHS ENDED
9/30/95 9/30/94 9/30/95 9/30/94
------- ------- ------- -------
(In thousands)
<S> <C> <C> <C> <C>
REVENUES
North and South America $ 116,618 $ 114,522 $ 198,655 $ 182,610
North Sea and West Africa 179,074 80,034 293,566 153,520
Middle East 23,370 29,139 66,632 58,213
Far East 35,121 71,923 120,192 171,755
Other (including Transfer Eliminations) 1,774 (16,296) (11,285) (7,730)
- --------------------------------------------------------------------------------------------------------------
TOTAL REVENUES $ 355,957 $ 279,322 $ 667,760 $ 558,368
==============================================================================================================
</TABLE>
12
<PAGE> 13
CONTINUED
<TABLE>
<CAPTION>
THREE SIX
MONTHS ENDED MONTHS ENDED
9/30/95 9/30/94 9/30/95 9/30/94
------- ------- ------- -------
(In thousands)
<S> <C> <C> <C> <C>
OPERATING INCOME
Operating Income (Loss) by Geographic Area:
North and South America $ 21,829 $ (6,148) $ 26,668 $ (949)
North Sea and West Africa 12,476 9,605 19,942 17,442
Middle East (2,142) (241) (1,947) (877)
Far East 186 14,560 9,571 27,024
Other (11,620) 6,687 (18,863) (1,350)
- ---------------------------------------------------------------------------------------------------------------
TOTAL OPERATING INCOME BY
GEOGRAPHIC AREA 20,729 24,463 35,371 41,290
- ---------------------------------------------------------------------------------------------------------------
Equity in Income (Loss) of Investees:
North and South America (1,011) - (4,061) -
North Sea and West Africa 1,335 11,463 4,621 14,430
Middle East (2,209) - (1,928) -
Far East (18) - (1,433) -
- ---------------------------------------------------------------------------------------------------------------
TOTAL EQUITY IN INCOME (LOSS)
IN INVESTEES (1,903) 11,463 (2,801) 14,430
- ---------------------------------------------------------------------------------------------------------------
Corporate G&A Expense (2,812) (3,445) (5,040) (6,440)
- ---------------------------------------------------------------------------------------------------------------
TOTAL OPERATING INCOME $ 16,014 $ 32,481 $ 27,530 $ 49,280
===============================================================================================================
</TABLE>
RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 1995 VS. THREE MONTHS
ENDED SEPTEMBER 30, 1994
Revenues increased $76,635,000 to $355,957,000, primarily due to higher
purchased engineered equipment and subcontract activities in the North Sea
related to the B.P. Exploration Foinaven Development program west of the
Shetlands in the North Atlantic, and higher revenues in North America. These
increases were partially offset by lower revenues in the Far East.
Operating income by geographic area decreased $3,734,000 to $20,729,000
primarily due to lower volume in the Far East this year and the completion of
higher profit margin contracts
13
<PAGE> 14
in both the Far East and Middle East in the prior period. These decreases were
partially offset by higher volume and margins on North American fabrication
activities and higher volume and margins on North Sea engineering and offshore
activities. Other geographic operating income (loss) includes the amortization
of goodwill and covenants-not-to- compete, and higher employee benefits
expenses in the current period which occurred due to the acquisition of
Offshore Pipelines, Inc.
Equity in income (loss) of investees decreased $13,366,000 from income of
$11,463,000 to a loss of $1,903,000. Both the HeereMac and McDermott-ETPM
West, Inc. joint ventures performed at lower levels than in the previous year.
The revenues of these two joint ventures declined from $186,860,000 to
$126,104,000. HeereMac declined primarily in the U.S. Gulf and the Far East.
McDermott-ETPM West, Inc. declined in the North Sea, partially offset by
increased volume in West Africa. The equity income from these two joint
ventures declined from $11,504,000 to $891,000. HeereMac's equity income
decreased as a result of reduced volume and reduced margins. McDermott-ETPM
West, Inc.'s equity income also decreased as a result of reduced volume and
reduced margins, but the decrease was not as severe. Both joint ventures are
expected to remain at low levels through 1997. The remaining decrease in
equity in income (loss) of investees is due to losses incurred by several
foreign joint ventures which were acquired as part of the merger with Offshore
Pipelines, Inc.
Interest income decreased $2,176,000 to $1,154,000 primarily due to the
settlement of an interest claim on certain foreign tax refunds of $2,233,000 in
the prior period.
Interest expense increased $6,702,000 to $12,334,000, primarily due to interest
on the notes which were issued to International in connection with its
contribution to JRM, and changes in other debt obligations and interest rates
prevailing thereon.
Other - net income increased $1,925,000 to $5,404,000 primarily due to gains on
the disposal of assets in the current period.
The provision for income taxes decreased $2,870,000 to $1,139,000 while income
before the provision for income taxes decreased $23,420,000 to $10,238,000.
The decrease in the provision for income taxes was in part due to a reappraisal
of liabilities in other foreign tax jurisdictions and to a decrease in income.
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 tax basis (for example, revenue
14
<PAGE> 15
versus income). These variances, along with variances in the mix of income
within jurisdictions, are often responsible for shifts in the effective tax
rate. As a result of these factors, the provision for income taxes was 11% of
pretax income for the three months ended September 30, 1995 compared to a
provision for income taxes of 12% of pretax income for the three months ended
September 30, 1994.
RESULTS OF OPERATIONS - SIX MONTHS ENDED SEPTEMBER 30, 1995 VS. SIX MONTHS
ENDED SEPTEMBER 30, 1994
Revenues increased $109,392,000 to $667,760,000, primarily due to higher
purchased engineered equipment and subcontract activities in the North Sea
related to the B.P. Exploration Foinaven Development program west of the
Shetlands in the North Atlantic, and higher revenues in North America and the
Middle East. These increases were partially offset by lower revenues in the
Far East.
Operating income by geographic area decreased $5,919,000 to $35,371,000
primarily due to lower volume and margins in the Far East this year and the
completion of higher profit margin contracts in both the Far East and Middle
East in the prior period. These decreases were partially offset by higher
volume and margins on North American fabrication activities, higher volume and
margins on North Sea engineering and offshore activities, and the accelerated
depreciation of $4,314,000 on certain marine equipment in the Far East in the
prior period. Other geographic operating income (loss) includes the
amortization of goodwill and covenants-not-to-compete, and higher employee
benefits expenses in the current period which occurred due to the acquisition
of Offshore Pipelines, Inc.
Equity in income (loss) of investees decreased $17,321,000 from income of
$14,430,000 to a loss of $2,801,000. Both the HeereMac and McDermott-ETPM
West, Inc. joint ventures performed at lower levels than in the previous year.
The revenues of these two joint ventures declined from $424,145,000 to
$318,023,000. HeereMac declined primarily in the U.S. Gulf and Australia.
McDermott-ETPM West, Inc. declined in the North Sea, partially offset by
increased volume in West Africa. The equity income from these two joint
ventures declined from $14,555,000 to $4,873,000. McDermott-ETPM West, Inc.'s
equity income decreased as a result of reduced volume and reduced margins.
HeereMac's equity income also decreased as a result of reduced volume and
reduced margins, but the decrease was not as severe. Both joint ventures are
expected to remain at low levels through 1997.
15
<PAGE> 16
Equity in income (loss) of investees also decreased due to foreign currency
transaction losses of the CMM Mexican joint venture (which was not a part of
JRM's marine construction services business in the prior year) and losses
incurred by several foreign joint ventures which were acquired as part of the
merger with Offshore Pipelines, Inc.
Interest income decreased $2,494,000 to $1,747,000 primarily due to the
settlement of an interest claim on certain foreign tax refunds of $2,233,000 in
the prior period.
Interest expense increased $10,919,000 to $21,682,000, primarily due to
interest on the notes which were issued to International in connection with its
contribution to JRM, and changes in other debt obligations and interest rates
prevailing thereon.
Other - net income increased $2,347,000 to $9,156,000 primarily due to gains on
the disposal of assets in the current period.
The provision for income taxes decreased $1,509,000 to $4,385,000 while income
before the provision for income taxes and cumulative effect of accounting
change decreased $32,816,000 to $16,751,000. The decrease in the provision for
income taxes was in part due to a reappraisal of liabilities in other foreign
tax jurisdictions and to a decrease in income. 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 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. As a result of these factors,
the provision for income taxes was 26% of pretax income for the six months
ended September 30, 1995 compared to a provision of income taxes of 12% of
pretax income for the six months ended September 30, 1994.
Net income decreased $29,981,000 to $12,366,000 reflecting the cumulative
effect of the adoption of Statement of Financial Accounting Standards No. 112,
"Employers' Accounting for Postemployment Benefits," of $1,326,000 in the prior
year, in addition to the other items mentioned above.
16
<PAGE> 17
Backlog
<TABLE>
<CAPTION>
9/30/95 3/31/95
------- -------
(In thousands)
<S> <C> <C>
North and South America $ 353,297 $ 218,661
North Sea and West Africa 222,637 420,810
Middle East 107,382 99,698
Far East 160,115 225,031
Other (8,497) 38,768
- -------------------------------------------------------------------------------------------------------------
TOTAL BACKLOG $ 834,934 $ 1,002,968
=============================================================================================================
</TABLE>
Backlog at September 30, 1995 and March 31, 1995 was $834,934,000 and
$1,002,968,000, respectively. Not included in JRM's backlog at September 30,
1995 and March 31, 1995 was backlog relating to contracts to be performed by
unconsolidated joint ventures of approximately $1,208,000,000 and $922,000,000,
respectively. JRM's markets are expected to be at a low level during the
coming year. The overcapacity of marine equipment worldwide will continue to
result in a competitive environment and put pressure on profit margins.
Liquidity and Capital Resources
During the six months ended September 30, 1995, JRM's cash and cash equivalents
increased $15,810,000 to $68,034,000 and total debt increased $111,136,000 to
$531,652,000, primarily due to short-term borrowings of $102,870,000. During
this period, JRM used cash of $63,648,000 in operating activities; $21,250,000
for additions to property plant and equipment; and $4,073,000 for cash
dividends on preferred stocks. JRM has annual preferred stock dividend
requirements of $7,200,000 on its Series A Preferred Stock and $1,020,000 on
its Series B Preferred Stock. Subsequent to September 30, 1995, JRM converted
452,957 shares of its outstanding Series B Preferred Stock into 1,053,297
shares of common stock.
Higher accounts receivable, accounts payable and net contracts in progress and
advance billings are primarily related to activities associated with the
Foinaven Development program. In addition, increases in net contracts in
progress and advance billings were primarily due to
17
<PAGE> 18
the timing of billings on contracts performed in the Far East. The reduction
in accrued liabilities included the settlement of liabilities assumed during
the acquisition of Offshore Pipelines, Inc.
Expenditures for property, plant and equipment decreased $2,017,000 to
$21,205,000 for the six months ended September 30, 1995 as compared with the
same period last year. These expenditures included $8,669,000 for installation
of a new pipe reel system on a marine barge. In addition to expenditures for
property, plant and equipment, JRM expended $9,802,000 in the six months
ended September 30, 1995 for the conversion of a barge to a floating production
unit which upon completion will be leased to a third party. 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 September
30, 1995. In November 1995, the outstanding borrowings against this facility
were $10,724,000.
At September 30, 1995 and March 31, 1995, JRM had available to it various
uncommitted short-term lines of credit from banks totaling $128,505,000 and
$119,581,000, respectively. Borrowings by JRM against these lines of credit at
September 30, 1995 and March 31, 1995 were $72,119,000 and $24,750,000,
respectively. JRM also had available an $150,000,000 unsecured and committed
revolving credit facility of which $80,000,000 was outstanding at September 30,
1995. JRM is restricted, as a result of the consolidated tangible net worth
covenant in this agreement, in its ability to transfer funds to International
and its subsidiaries through cash dividends or through unsecured loans or
investments. As approximately $59,000,000 of its net assets are not subject to
this restriction, it is not expected to impact JRM's ability to make preferred
dividend payments.
Working capital increased $57,325,000 to $30,737,000 at September 30, 1995 from
a deficit of $26,588,000 at March 31, 1995. During the remainder of fiscal year
1996, JRM expects to obtain funds to meet working capital, capital expenditures
and debt maturity requirements from operating activities and additional
borrowings from existing lines of credit. Leasing agreements for equipment,
which are short-term in nature, are not expected to impact JRM's liquidity or
capital resources.
18
<PAGE> 19
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
effective for fiscal years beginning after December 15, 1995. SFAS No. 121
requires that long-lived assets and certain identifiable intangibles to be held
and used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. SFAS No. 121 also applies to simialr assets that are held for
disposal, except for the assets of a discontinued operation. JRM has not yet
finalized its review of the impact of this statement, but it is not expected to
have a material impact on the consolidated financial statements.
19
<PAGE> 20
PART II
J. RAY McDERMOTT, S.A.
OTHER INFORMATION
No information is applicable to Part II for the current quarter, except as
noted below:
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 11 - Calculation of Earnings Per Common and Common
Equivalent Share - Page 23
(b) Reports on Form 8-K
There were no current reports on Form 8-K filed during the three
months ended September 30, 1995.
Signatures
20
<PAGE> 21
SIGNATURES
Pursuant to the requirements 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.
s/ DANIEL R. GAUBERT
----------------------------------
Daniel R. Gaubert
Vice President, Finance (Principal
Accounting Officer)
November 10, 1995
21
<PAGE> 22
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
11 Calculation of Earnings Per Common and Common Equivalent
Share
27 Financial Data Schedule
</TABLE>
22
<PAGE> 1
EXHIBIT 11
J. RAY MCDERMOTT, S.A.
CALCULATION OF EARNINGS
PER COMMON AND COMMON EQUIVALENT SHARE
(In thousands, except shares and per share amounts)
PRIMARY AND FULLY DILUTED
<TABLE>
<CAPTION>
THREE SIX
MONTHS ENDED MONTHS ENDED
9/30/95 (2) 9/30/95 (2)
------- -------
<S> <C> <C>
Net income $ 9,099 $ 12,366
Less dividend requirements of preferred stocks,
Series A and B (2,058) (4,114)
- ---------------------------------------------------------------------------------------------------------
Net income for primary computation $ 7,041 $ 8,252
=========================================================================================================
Weighted average number of common
shares outstanding during the period 39,043,457 38,910,595
Common stock equivalents of stock options
based on "treasury stock" method 526,432 548,547
- ---------------------------------------------------------------------------------------------------------
Weighted average number of common
and common equivalent shares
outstanding during the period 39,569,889 39,459,142
=========================================================================================================
Earnings per common and
common equivalent share: (1) $ 0.18 $ 0.21
=========================================================================================================
</TABLE>
(1) Earnings per common and common equivalent share assuming full dilution
are the same for the period presented.
(2) Earnings per share are not presented for the three and six months ended
September 30, 1994 because JRM was not a separate entity with its own
capital structure for those periods.
23
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM J. RAY
MCDERMOTT'S SEPTEMBER 30, 1995 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> SEP-30-1995
<CASH> 68,034
<SECURITIES> 6,864
<RECEIVABLES> 313,059
<ALLOWANCES> 21,979
<INVENTORY> 123,968
<CURRENT-ASSETS> 601,974
<PP&E> 1,523,926
<DEPRECIATION> 934,267
<TOTAL-ASSETS> 1,597,860
<CURRENT-LIABILITIES> 571,237
<BONDS> 0
<COMMON> 391
0
37
<OTHER-SE> 572,664
<TOTAL-LIABILITY-AND-EQUITY> 1,597,860
<SALES> 667,760
<TOTAL-REVENUES> 667,760
<CGS> 637,429
<TOTAL-COSTS> 637,429
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,682
<INCOME-PRETAX> 16,751
<INCOME-TAX> 4,385
<INCOME-CONTINUING> 12,366
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,366
<EPS-PRIMARY> 0.21
<EPS-DILUTED> 0.21
</TABLE>
