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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.
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(Exact name of registrant as specified in its charter)
REPUBLIC OF PANAMA 72-1278896
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1450 POYDRAS STREET
NEW ORLEANS, LOUISIANA 70112-6050
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(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
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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.
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J. RAY McDERMOTT, S.A
INDEX
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SIGNATURE OF REGISTRANT
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
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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
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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.
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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.
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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
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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
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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.
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