<PAGE> 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.
<PAGE> 2
J. RAY McDERMOTT, S. A.
INDEX - FORM 10-K
PART 1
<TABLE>
<CAPTION>
PAGE
<S> <C>
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
</TABLE>
-i-
<PAGE> 3
INDEX - FORM 10-K
PART II
<TABLE>
<CAPTION>
PAGE
<S> <C>
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
</TABLE>
-ii-
<PAGE> 4
INDEX - FORM 10-K
PART IV
<TABLE>
<CAPTION>
PAGE
<S> <C>
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K 53
Signatures 57
</TABLE>
-iii-
<PAGE> 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-
<PAGE> 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-
<PAGE> 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-
<PAGE> 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:
<TABLE>
<CAPTION>
Maximum Maximum
Derrick Pipe
Vessel Vessel Type Lift Diameter
------ ----------- ---- --------
(tons) (inches)
<S> <C> <C> <C>
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
</TABLE>
(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-
<PAGE> 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.
<TABLE>
<CAPTION>
Maximum Maximum
Derrick Pipe
Vessel Vessel Type Lift Diameter
------ ----------- ---- --------
(tons) (inches)
<S> <C> <C> <C>
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
</TABLE>
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:
<TABLE>
<CAPTION>
REVENUES OPERATING INCOME (1)
FISCAL YEAR AMOUNT PERCENT AMOUNT PERCENT
(Dollars in thousands)
<S> <C> <C> <C> <C>
1995 $ 778,134 69% $ 85,232 109% (2)
1994 842,585 71% 58,189 84%
1993 1,266,206 79% 76,346 92%
</TABLE>
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).
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<PAGE> 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
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<PAGE> 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
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<PAGE> 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.
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<PAGE> 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.
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<PAGE> 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.
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<PAGE> 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:
<TABLE>
<CAPTION>
PRICE PER SHARE
---------------
<S> <C>
HIGH LOW
---- ---
27-1/4 19-5/8
</TABLE>
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.
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<PAGE> 16
Item 6. SELECTED FINANCIAL DATA
FOR THE FISCAL YEARS ENDED MARCH 31,
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
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
</TABLE>
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.
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<PAGE> 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-
<PAGE> 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-
<PAGE> 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-
<PAGE> 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-
<PAGE> 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-
<PAGE> 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-
<PAGE> 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-
<PAGE> 24
J. RAY McDERMOTT, S.A.
CONSOLIDATED BALANCE SHEET
MARCH 31, 1995 and 1994
ASSETS
<TABLE>
<CAPTION>
1995 1994
---- ----
(In thousands)
<S> <C> <C>
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
=============================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
-20-
<PAGE> 25
LIABILITIES AND EQUITY
<TABLE>
<CAPTION>
1995 1994
---- ----
(In thousands)
<S> <C> <C>
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
===========================================================================
</TABLE>
-21-
<PAGE> 26
J. RAY McDERMOTT, S.A.
CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE FISCAL YEARS ENDED MARCH 31, 1995
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
(In thousands)
<S> <C> <C> <C>
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
========================================================================================
</TABLE>
See accompanying notes to consolidated financial statements. Significant
related party transactions are disclosed in Note 6.
-22-
<PAGE> 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)
<TABLE>
<CAPTION>
Preferred Stock
------------------------------------------------------------
Series A Series B
--------------------------- -------------------------
Par Par
Shares Value Shares Value
------ ----- ------ -----
<S> <C> <C> <C> <C>
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
======================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
-23-
<PAGE> 28
<TABLE>
<CAPTION>
Common Stock
------------------------ Capital Currency
Par In Excess Owner's Translation
Shares Value Of Par Value Deficit Equity Adjustments Total
------ ------ ------------ ------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
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
==================================================================================================================================
</TABLE>
-24-
<PAGE> 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
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
(In thousands)
<S> <C> <C> <C>
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)
- - ----------------------------------------------------------------------------------------------
</TABLE>
-25-
<PAGE> 30
CONTINUED
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
(In thousands)
<S> <C> <C> <C>
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
- - -----------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
-26-
<PAGE> 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-
<PAGE> 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-
<PAGE> 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.
<TABLE>
<CAPTION>
1995 1994
---- ----
(In thousands)
<S> <C> <C>
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
=============================================================================
</TABLE>
-29-
<PAGE> 34
Included in accounts receivable - trade are amounts representing retainages on
contracts as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
(In thousands)
<S> <C> <C>
Retainages $ 20,864 $ 12,253
===============================================================================
</TABLE>
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-
<PAGE> 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:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
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)
</TABLE>
-31-
<PAGE> 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.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
3/31/95 3/31/94
------- -------
(Unaudited)
(In thousands)
<S> <C> <C>
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
</TABLE>
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-
<PAGE> 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:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
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)
</TABLE>
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-
<PAGE> 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:
<TABLE>
<CAPTION>
1995 1994
---- ----
(In thousands)
<S> <C> <C>
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
==============================================================================
</TABLE>
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
(In thousands)
<S> <C> <C> <C>
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
==========================================================================================
</TABLE>
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-
<PAGE> 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:
<TABLE>
<CAPTION>
1995 1994
---- ----
(In thousands)
<S> <C> <C>
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
================================================================================
</TABLE>
-35-
<PAGE> 40
Income before provision for income taxes and cumulative effect of accounting
changes was as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
(In thousands)
<S> <C> <C> <C>
U.S. $ (3,265) $ 18,435 $ 5,946
Other than U.S. 72,850 128,752 132,570
- - -------------------------------------------------------------------------------
$ 69,585 $ 147,187 $ 138,516
===============================================================================
</TABLE>
The provision for income taxes consists of:
<TABLE>
<CAPTION>
1995 1994 1993
---- ----- ----
(In thousands)
<S> <C> <C> <C>
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
===============================================================================
</TABLE>
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-
<PAGE> 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:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
(In thousands)
<S> <C> <C> <C>
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
</TABLE>
Non-current Notes Receivable from McDermott International and Notes Payable to
McDermott International are as follows:
<TABLE>
<CAPTION>
Notes receivable: 1995 1994
- - ----------------- ---- ----
(In thousands)
<S> <C> <C>
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
==============================================================================
</TABLE>
-37-
<PAGE> 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-
<PAGE> 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
<TABLE>
<CAPTION>
Long-term debt consists of: 1995 1994
---- ----
(In thousands)
<S> <C> <C>
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
=============================================================================
</TABLE>
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-
<PAGE> 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-
<PAGE> 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:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
(In thousands)
<S> <C> <C> <C>
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
=======================================================================================
</TABLE>
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-
<PAGE> 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:
<TABLE>
<CAPTION>
1994
----
(In thousands)
<S> <C>
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
============================================================================
</TABLE>
The assumptions used in determining the funded status and net periodic pension
cost (benefit) of the U.K. plan were:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
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%
- - ----------------------------------------------------------------------------
</TABLE>
-42-
<PAGE> 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:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
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%
=============================================================================
</TABLE>
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-
<PAGE> 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-
<PAGE> 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:
<TABLE>
<CAPTION>
1995
----
<S> <C>
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
===========================================================================
</TABLE>
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-
<PAGE> 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-
<PAGE> 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-
<PAGE> 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-
<PAGE> 53
Information about JRM's Operations in Different Geographic Areas.
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
(In thousands)
<S> <C> <C> <C> <C>
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
==============================================================================================
</TABLE>
(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-
<PAGE> 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:
<TABLE>
<CAPTION>
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)
<S> <C> <C> <C> <C>
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)
</TABLE>
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.
<TABLE>
<CAPTION>
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)
<S> <C> <C> <C> <C>
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
</TABLE>
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-
<PAGE> 55
Item 9. DISAGREEMENTS WITH AUDITORS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
-51-
<PAGE> 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-
<PAGE> 57
P A R T I V
<TABLE>
<S> <C>
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.
</TABLE>
-53-
<PAGE> 58
3. EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
- - ----------- -----------
<S> <C>
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)
</TABLE>
-54-
<PAGE> 59
<TABLE>
<CAPTION>
Exhibit No. Description
- - ----------- -----------
<S> <C>
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.
- - ----------
</TABLE>
(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-
<PAGE> 60
FORM 8-K REPORTS
(b) A current report on Form 8-K, Item 2 was filed on February 14, 1995.
-56-
<PAGE> 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.
<TABLE>
<CAPTION>
Signature
---------
Title
-----
<S> <C>
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
</TABLE>
-57-
<PAGE> 62
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
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
</TABLE>
June 16, 1995
-58-
<PAGE> 63
<TABLE>
<CAPTION>
INDEX TO EXHIBITS
Sequentially
Numbered
Exhibit No. Description Pages
- - ----------- ----------- ------------
<S> <C> <C>
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)
</TABLE>
<PAGE> 64
<TABLE>
<CAPTION>
INDEX TO EXHIBITS
Sequentially
Numbered
Exhibit No. Description Pages
- - ----------- ----------- ------------
<S> <C> <C>
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.
- - ----------
</TABLE>
(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).
<PAGE> 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-
<PAGE> 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-
<PAGE> 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-
<PAGE> 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-
<PAGE> 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-
<PAGE> 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-
<PAGE> 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-
<PAGE> 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-
<PAGE> 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-
<PAGE> 1
EXHIBIT 22
J. RAY MCDERMOTT, S.A.
SIGNIFICANT SUBSIDIARIES OF THE REGISTRANT
FISCAL YEAR ENDED MARCH 31, 1995
<TABLE>
<CAPTION>
PERCENTAGE
ORGANIZED OF VOTING
UNDER THE SHARES
NAME OF COMPANY LAWS OF OWNED
<S> <C> <C>
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
</TABLE>
The subsidiaries omitted from the foregoing list do not, considered in the
aggregate, constitute a significant subsidiary.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 52,224
<SECURITIES> 2,346
<RECEIVABLES> 317,561
<ALLOWANCES> 17,245
<INVENTORY> 57,277
<CURRENT-ASSETS> 470,136
<PP&E> 1,504,717
<DEPRECIATION> 910,555
<TOTAL-ASSETS> 1,482,262
<CURRENT-LIABILITIES> 496,724
<BONDS> 0
<COMMON> 386
0
37
<OTHER-SE> 559,048
<TOTAL-LIABILITY-AND-EQUITY> 1,482,262
<SALES> 1,127,320
<TOTAL-REVENUES> 1,127,320
<CGS> 1,071,760
<TOTAL-COSTS> 1,071,760
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25,158
<INCOME-PRETAX> 69,585
<INCOME-TAX> 8,885
<INCOME-CONTINUING> 60,700
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (1,326)
<NET-INCOME> 59,374
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
