<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
F O R M 1 0 - K/A-1
[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, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO 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
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
The aggregate market value of voting stock held by non-affiliates of the
registrant was $305,343,980 as of April 23, 1996.
The number of shares outstanding of the Company's Common Stock at April 23,
1996 was 40,197,946.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A under the Securities Exchange Act of 1934
in connection with the Company's 1996 Annual Meeting of Stockholders are
incorporated by reference into Part III hereof.
<PAGE> 2
J. RAY McDERMOTT, S.A
INDEX
Page
Signature 3
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K 4
2. FINANCIAL STATEMENT SCHEDULES (See Exhibit 99)
3. EXHIBIT INDEX
Exhibit
Number Description
------- -----------
23 Consent of Independent Auditors
(1) KPMG Accountants N.V.
(2) Ernst & Young LLP
99 McDermott-ETPM West, Inc. and Heerema Offshore
Construction Group Inc. - McDermott International,
Inc. Joint Venture Combined Financial Statements for
the Years Ended March 31, 1996, 1995 and 1994
- 2 -
<PAGE> 3
SIGNATURE OF THE REGISTRANT
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
J. RAY McDERMOTT, S.A.
/s/ Daniel R. Gaubert
---------------------------------------
Daniel R. Gaubert
Vice President, Finance
(Principal Accounting Officer)
June 18, 1996
- 3 -
<PAGE> 4
INDEX TO EXHIBITS
Exhibit
Number Description
------- -----------
23 Consent of Independent Auditors
(1) KPMG Accountants N.V.
(2) Ernst & Young LLP
99 McDermott-ETPM West, Inc. and Heerema Offshore
Construction Group Inc. - McDermott International, Inc.
Joint Venture Combined Financial Statements for the Years
Ended March 31, 1996, 1995 and 1994
- 4 -
<PAGE> 1
EXHIBIT 23(1)
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements on
Forms S-8 (No. 33-87592, No. 33-60369, No. 33-60371 and No. 33-60373) of J. Ray
McDermott, S.A. of our report dated May 30, 1996 with respect to the combined
financial statements of McDermott-ETPM West, Inc. and Heerema Offshore
Construction Group Inc. - McDermott International, Inc. Joint Venture included
in this Annual Report (Form 10-K/A-1) for the fiscal year ended March 31, 1996.
The Hague, June 13, 1996
KPMG Accountants N.V.
<PAGE> 1
EXHIBIT 23(2)
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 No.33-87592, No.33-60369, No.33 60371, and No.33-60373) of J. Ray
McDermott, S.A. of our report dated April 26, 1996 with respect to the combined
financial statements of McDermott-ETPM West, Inc. (not presented separately
herein) included in this Annual Report (Form 10-K/A-1) for the year ended March
31, 1996.
ERNST & YOUNG LLP
New Orleans, Louisiana
June 13, 1996
<PAGE> 1
EXHIBIT 99
McDermott - ETPM West, Inc.
and Heerema Offshore Construction Group Inc. -
McDermott International, Inc. Joint Venture
Combined Financial Statements
for the Years Ended March 31, 1996, 1995 and 1994
<PAGE> 2
Contents
<TABLE>
<S> <C>
Auditors' Report 2
Combined Balance Sheet, March 31, 1996 and 1995 4
Combined Statement of Income for the Three Years
ended March 31, 1996 6
Combined Statement of Owners' Equity for the Three Years
ended March 31, 1996 7
Combined Statement of Cash Flows for the Three Years
ended March 31, 1996 8
Notes to Combined Financial Statements 9
</TABLE>
- 1 -
<PAGE> 3
INDEPENDENT AUDITORS' REPORT
To The Board of Directors
of J. Ray McDermott, S.A.
We have audited the accompanying combined balance sheet of McDermott - ETPM
West, Inc. and Heerema Offshore Construction Group Inc. - McDermott
International Inc. Joint Venture as of March 31, 1996 and 1995 and the related
combined statements of income, owners' equity and cash flows for each of the
three years in the period ended March 31, 1996. These combined financial
statements are the responsibility of the Joint Ventures' management. Our
responsibility is to express an opinion on these combined financial statements
based on our audits. We did not audit the combined financial statements of
McDermott - ETPM West Inc., which reflect total assets constituting 38% in 1996
and 37% in 1995 and total revenues constituting 47%, 49% and 43% in 1996, 1995
and 1994 of the related combined totals. Those statements were audited by
other auditors, whose report has been furnished to us, and our opinion, insofar
as it relates to the amounts included for McDermott - ETPM West, Inc., is based
solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards in the United States of America. 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 and the report of the other auditors, provide a reasonable basis for our
opinion.
In our opinion, based on our audits and the report of the other auditors, the
combined financial statements, referred to above, present fairly, in all
material respects, the combined financial position of McDermott - ETPM West,
Inc. and Heerema Offshore Construction Group Inc. - McDermott International
Inc. Joint Venture at March 31, 1996 and 1995 and the combined results of their
operations and their cash flows for each of the three years in the period ended
March 31, 1996, in conformity with generally accepted accounting principles in
the United States of America.
The Hague, May 30, 1996
KPMG Accountants N.V.
- 2 -
<PAGE> 4
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
J. Ray McDermott, S.A.
We have audited the combined balance sheet of McDermott - ETPM West, Inc. as of
March 31, 1996 and 1995, and the related combined statements of income, common
stock and other equity, and cash flows for each of the three years in the
period ended March 31, 1996 (not presented separately herein). 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 combined financial position of McDermott - ETPM
West, Inc. at March 31, 1996 and 1995, and the combined results of its
operations and its cash flows for each of the three years in the period ended
March 31, 1996, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
New Orleans, Louisiana
April 26, 1996
- 3 -
<PAGE> 5
McDermott - ETPM West, Inc.
and
Heerema Offshore Construction Group Inc. -
McDermott International, Inc. Joint Venture
Combined Balance Sheet as of March 31, 1996 and 1995
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
Assets 1996 1995
- ---------------------------------------------------------------------
(In thousands of U.S. Dollars)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 141,057 $ 232,244
Accounts receivable - trade 57,424 52,563
Accounts receivable - related parties 36,503 20,841
Accounts receivable - other 2,295 5,596
Contracts in progress 9,077 3,658
Asset held for sale 14,207 -
Other current assets 15,629 11,123
- ---------------------------------------------------------------------
Total current assets 276,192 326,025
- ---------------------------------------------------------------------
Fixed assets at cost 271,787 178,698
Less accumulated depreciation (152,466) (107,821)
- ---------------------------------------------------------------------
Net fixed assets 119,321 70,877
- ---------------------------------------------------------------------
Other assets 111 130
- ---------------------------------------------------------------------
TOTAL $ 395,624 $ 397,032
=====================================================================
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
- 4 -
<PAGE> 6
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
Liabilities and Owners' Equity 1996 1995
- ---------------------------------------------------------------------
(In thousands of U.S. Dollars)
<S> <C> <C>
Current liabilities:
Notes payable and current maturities
of long-term debt $ 9,397 $ 18,110
Accounts payable 59,877 46,222
Accounts payable - related parties 32,426 35,663
Advance billings and provisions for
losses on contracts 67,769 84,361
Accrued dry-docking 25,170 35,872
Accrued liabilities - other 21,163 9,834
Income taxes payable 3,506 9,392
- ---------------------------------------------------------------------
Total current liabilities 219,308 239,454
- ---------------------------------------------------------------------
Other liabilities 4,451 7,671
- ---------------------------------------------------------------------
Pension liability 711 1,958
- ---------------------------------------------------------------------
Long-term debt 23,161 28,441
- ---------------------------------------------------------------------
Owners' equity:
Common stock and capital contributions 77,076 53,888
Retained earnings 63,881 69,096
Currency translation adjustments 7,036 (3,476)
- ---------------------------------------------------------------------
Total owners' equity 147,993 119,508
- ---------------------------------------------------------------------
TOTAL $ 395,624 $ 397,032
=====================================================================
</TABLE>
-5-
<PAGE> 7
McDermott - ETPM West, Inc.
and
Heerema Offshore Construction Group Inc. -
McDermott International, Inc. Joint Venture
Combined Statement of Income for the Three Years ended
March 31, 1996
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
1996 1995 1994
- -------------------------------------------------------------------------------------------------------------
(In thousands of U. S. Dollars)
<S> <C> <C> <C>
Revenues $ 536,375 $ 704,316 $ 890,866
- -------------------------------------------------------------------------------------------------------------
Costs and expenses:
Cost of operations (before depreciation) 450,166 538,973 617,764
Depreciation 25,702 27,849 30,879
Selling, general and administrative expenses 49,600 65,123 66,447
- -------------------------------------------------------------------------------------------------------------
525,468 631,945 715,090
- -------------------------------------------------------------------------------------------------------------
Operating income 10,907 72,371 175,776
- -------------------------------------------------------------------------------------------------------------
Other income (expense):
Interest income 12,933 13,305 12,886
Interest expense (3,393) (2,866) (3,865)
Foreign currency transaction gains (losses) 5,007 (2,537) 1,507
- -------------------------------------------------------------------------------------------------------------
14,547 7,902 10,528
- -------------------------------------------------------------------------------------------------------------
Income before provision for income taxes 25,454 80,273 186,304
Provision for income taxes 5,855 7,226 6,284
- -------------------------------------------------------------------------------------------------------------
Net Income $ 19,599 $ 73,047 $ 180,020
=============================================================================================================
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
-6-
<PAGE> 8
McDermott - ETPM West, Inc.
and
Heerema Offshore Construction Group Inc. -
McDermott International, Inc. Joint Venture
Combines Statement of Owners' Equity for the
Three Years ended
March 31, 1996
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Common
Stock and Currency
Capital Retained Translation
Contributions Earnings Adjustments Total
- ----------------------------------------------------------------------------------------------------------------
(In thousands of U.S. Dollars)
<S> <C> <C> <C> <C>
Balance April 1, 1993 $ 137,754 $ 1,868 $ (17,354) $ 122,268
- ----------------------------------------------------------------------------------------------------------------
Net Income 180,020 180,020
Repayment of capital (83,871) (83,871)
Distribution of profits (53,790) (53,790)
Currency translation adjustments (11,838) (11,838)
- ----------------------------------------------------------------------------------------------------------------
Balance March 31, 1994 53,883 128,098 (29,192) 152,789
- ----------------------------------------------------------------------------------------------------------------
Net Income 73,047 73,047
Contribution of capital 5 5
Distribution of profits (132,049) (132,049)
Currency translation adjustments 25,716 25,716
- ----------------------------------------------------------------------------------------------------------------
Balance March 31, 1995 53,888 69,096 (3,476) 119,508
- ----------------------------------------------------------------------------------------------------------------
Net Income 19,599 19,599
Contribution of capital 23,188 23,188
Distribution of profits (24,814) (24,814)
Currency translation adjustments 10,512 10,512
- ----------------------------------------------------------------------------------------------------------------
Balance March 31, 1996 $ 77,076 $ 63,881 $ 7,036 $ 147,993
================================================================================================================
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
-7-
<PAGE> 9
McDermott - ETPM West, Inc.
and
Heerema Offshore Construction Group Inc. -
McDermott International, Inc. Joint Venture
Combines Statement of Cash Flows for the Three
Years ended March 31, 1996
<TABLE>
<CAPTION>
Increase (decrease) in cash and cash equivalents
- ------------------------------------------------------------------------------------------------------------
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------
(In thousands of U. S. Dollars)
<S> <C> <C> <C>
Cash flows from operating activities:
Net Income $ 19,599 $ 73,047 $ 180,020
- ------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation 25,702 27,849 30,879
Changes in assets and liabilities:
Accounts receivable (27,319) 24,054 70,416
Net contracts in progress,
advanced billings and provision for losses (18,176) 40,751 (664)
Accounts payable 20,222 (18,880) (50,943)
Other, net (19,140) (22,423) 17,044
- ------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 888 124,398 246,752
- ------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Investment in fixed assets (68,329) (12,448) (9,499)
Investment in asset held for sale (14,172) - -
- ------------------------------------------------------------------------------------------------------------
Total cash used in investing activities (82,501) (12,448) (9,499)
- ------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Capital (repayment) contributions 23,188 5 (83,871)
Distribution of profits to owners (24,814) (132,049) (53,790)
Repayment of long-term debt (7,701) (19,244) (34,096)
Issuance of long-term debt - - 14,910
Increase (decrease) in short-term borrowing (10,244) 183 (5,084)
- ------------------------------------------------------------------------------------------------------------
Total cash used in financing activities (19,571) (151,105) (161,931)
- ------------------------------------------------------------------------------------------------------------
Effects of exchange rate changes on cash 9,997 28,925 (12,719)
- ------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (91,187) (10,230) 62,603
- ------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of year 232,244 242,474 179,871
- ------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 141,057 $ 232,244 $ 242,474
============================================================================================================
Supplemental disclosures of cash flow information:
Interest paid during the year $ 3,393 $ 2,866 $ 6,025
Taxes paid during the year $ 6,048 $ 3,554 $ 3,010
============================================================================================================
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
-8-
<PAGE> 10
McDermott - ETPM West, Inc.
and
Heerema Offshore Construction Group Inc. -
McDermott International, Inc. Joint Venture
Notes to combined financial statements for the three years ended March 31, 1996
1. GENERAL
The McDermott-ETPM West, Inc. and Heerema Offshore Construction Group Inc. -
McDermott International Inc. Joint Venture is comprised of the Joint Ventures
between J. Ray McDermott S.A. ("JRM") and ETPM, S.A. ("ETPM"), respectively
55.5% (through direct and indirect ownership interests of 33.3% and 22.2%,
respectively) and 44.5% owners, and the Joint Venture between Heerema Offshore
Construction Group Inc. ("HOCG") and JRM, 50% owner each. The combined
financial statements include the combined financial statements of McDermott
ETPM-West, Inc. as of and for the year ended March 31, 1996, and Heerema
Offshore Construction Group Inc. - McDermott International, Inc. Joint Venture
as of and for the year ended December 31, 1995.
The Joint Ventures provide general marine construction to the petroleum
industry. To this purpose the Joint Ventures charter two semi-submersible
derrick barges and one semi-submersible lay barge from JRM, two combination
derrick- pipelaying barges from ETPM, and two semi-submersible derrick barges
from HOCG. During March 1996, the Joint Ventures acquired the four
semi-submersible derrick barges which were previously chartered. In addition,
the Joint Ventures own a fleet of anchor handling tugs and cargo barges. JRM
and ETPM also provide fabrication facilities located in Warri, Nigeria and
Tchengue, Gabon, respectively.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
2.1 Basis of presentation
The combined financial statements are presented in U.S. Dollars in accordance
with accounting principles generally accepted in the United States of America.
These statements combine financial information of McDermott - ETPM West Inc., a
company incorporated in Panama, and its wholly-owned subsidiaries and other
entities of both JRM and ETPM S.A., which perform contracts on behalf of
McDermott - ETPM West Inc. ("JRM-ETPM Joint Venture") and of HOCG and JRM
("HOCG-JRM Joint Venture"). The HOCG-JRM Joint Venture combines HeereMac
v.o.f., a Dutch partnership and its wholly-owned subsidiaries and other
entities of both HOCG and JRM which perform contracts on behalf of HeereMac
v.o.f., Panama Offshore Chartering Company Inc. and its wholly-owned
subsidiaries, all incorporated in Panama and Offshore Marine Chartering N.V., a
company incorporated in the Netherlands Antilles.
Unless the context otherwise requires, hereinafter "Joint Ventures" will be
used to mean the combined enterprises.
The preparation of combined financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the combined financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.
-9-
<PAGE> 11
McDermott - ETPM West, Inc.
and
Heerema Offshore Construction Group Inc. -
McDermott International, Inc. Joint Venture
Certain reclassifications have been made to March 31, 1995 and 1994 amounts in
order to provide comparative financial statements.
2.2 Principles of combination
All significant intergroup balances and transactions have been eliminated in
the combined financial statements.
2.3 Foreign currency translation
Assets and liabilities are translated into U. S. Dollars at current exchange
rates and income statement items are translated at average rate 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 recorded in income.
2.4 Contracts and revenue recognition
Revenues on long-term contracts are recognized on a percentage of completion
method. Under this method, revenues and cost are recognized based on the
percentage that costs to date bear to total estimated costs. Revenues that
exceed amounts invoiced to customers under the terms of the contracts are
included in Contracts in Progress. Billings that exceed revenues 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 currently made for all known
or anticipated losses. Included in Advance billings and provisions for losses
on contracts are provision for losses on contract of US$ 43,555,000 and US$
69,247,000, respectively. Variations from estimated contract performance could
result in a material adjustment to operating results for any fiscal quarter or
year. Claims for extra work or changes in scope of work are included in
contract revenues when collection is probable.
2.5 Fixed assets
Fixed assets are stated at cost. Modifications to leased equipment which
enhance their usefulness and which remain the property of the Joint Ventures
are capitalized and are amortized over their useful life or the life of the
related lease, if shorter.
Depreciation on all remaining fixed assets is calculated on a straight-line
basis using estimated useful lives of 3 to 8 years.
Significant expenditures that add materially to the utility or useful lives of
property, plant and equipment are capitalized. All other maintenance and
repair costs are charged to current operations. The cost and related
accumulated depreciation of assets replaced, retired or otherwise disposed of
are eliminated from the property accounts and any gain or loss is reflected as
other income and expense.
-10-
<PAGE> 12
McDermott - ETPM West, Inc.
and
Heerema Offshore Construction Group Inc. -
McDermott International, Inc. Joint Venture
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 121, Accounting for Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed of (SFAS No. 121). This statement
requires that long-lived assets and certain identifiable intangibles be
reviewed for impairment when events indicate that the carrying amount of an
asset may not be recoverable. SFAS No. 121 is effective for fiscal years
beginning after December 15, 1995. The Joint Ventures have not yet finalized
their review of the impact of this statement.
2.6 Accrued dry-docking
Dry-docking costs are estimated and accrued over the period of time between
dry-dockings and are charged to operations currently.
2.7 Cash and cash equivalents
Cash equivalents are highly liquid investments, with original maturities of
three months or less. The carrying amounts reported in the balance sheet for
cash and cash equivalents approximate their fair value.
2.8 Accounts receivable
Accounts receivable are stated at net realizable value after deduction of a
provision for uncollectability.
2.9 Derivative financial instruments and credit risk concentration
The Joint Ventures enter into forward exchange contracts with international
financial institutions primarily relating to identifiable foreign currency
exposures with respect to operations. These financial instruments are designed
to minimize exposure and reduce risk from exchange rate fluctuations in the
regular course of business. Gains and losses on forward exchange contracts
which hedge exposure on firm foreign currency commitments are deferred and
recognized as adjustments of the bases of those assets.
Gains and losses on forward exchange contracts which hedge foreign currency
assets and liabilities are recognized in income as incurred. The Joint
Ventures' risk in the forward exchange transactions is the cost of replacing at
current market rates, these contracts in the event of default by the financial
institution. The Joint Ventures believe that risk of such losses is remote.
The Joint Ventures' customers are primarily in the petroleum industry in the
North Sea and West Africa. Sales to major customers that exceed 10% of
revenues were: 1996 - Customer A - US$ 108,000,000 (20.1%), Customer B - US$
54,000,000 (10.1%), Customer C - US$ 83,016,000 (15.5%); 1995 - Customer A -
US$ 212,000,000 (30.1%), Customer D - US$ 92,000,000 (13.1%). Management is
cognizant of its concentration of customers, but feels that the risk associated
with this is minimal as all of its customers are well known and established
participants in the petroleum industry. Receivables are generally not
collateralized.
3. INCOME TAXES
The Joint Ventures operate through various entities in various countries under
different tax jurisdictions. Substantially all income taxes provided are based
on the deemed profits of contracts performed in various taxing jurisdictions.
-11-
<PAGE> 13
McDermott - ETPM West, Inc.
and
Heerema Offshore Construction Group Inc. -
McDermott International, Inc. Joint Venture
In the countries in which the Joint Ventures' operations are conducted through
a registered partnership the respective partners are responsible for taxes
based on their proportionate share of contract revenues and costs, therefore no
taxes are reflected in these financial statements. Therefore, there is no
expected relationship between the provision for income taxes and income before
provision for income taxes. Panama Offshore Chartering Company Inc. and its
subsidiaries as well as McDermott - ETPM West Inc., and its subsidiaries are
not subject to income tax in Panama on income earned outside Panama and
consequently incurred no income taxes in the three-year period ended March 31,
1996.
4. RELATED PARTY TRANSACTIONS
The Joint Ventures have material transactions with JRM, ETPM and HOCG and their
subsidiaries, occurring in the normal course of operations. Under the various
Joint Venture agreements marine equipment and fabrication facilities are
chartered into the Joint Ventures by the respective partners. The charter
expenses for the years 1996, 1995 and 1994 were US$ 93 million, US$ 86 million
and US$ 88 million, respectively. In addition, ETPM provides general and
administrative services to one of the Joint Ventures. In 1996, 1995 and 1994
the amount of these services were approximately US$ 20 million, US$ 29 million
and US$ 36 million, respectively.
In 1995, the Joint Ventures acquired from JRM and HOCG a number of derrick,
launch and cargo barges for a total value of US$ 65 million. The transactions
have been financed by additional capital and cash contributions from both
partners.
5. LONG-TERM DEBT AND SHORT-TERM BORROWINGS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
1996 1995
- ---------------------------------------------------------------------------
(In thousands of U.S. Dollars)
<S> <C> <C>
Third-Party Loans $ 30,881 $ 35,552
Less: amounts due within one year (7,720) (7,111)
- ---------------------------------------------------------------------------
Total long-term debt $ 23,161 $ 28,441
===========================================================================
</TABLE>
These are Dutch Guilder roll over loans at prevailing market rates
(approximately 7% at March 31, 1996) maturing 1999. The installments are Dfl.
12,372,000 (US$ 7,720,000 at year-end 1996) in each of the following four
years. The carrying amount of long-term debt approximates its fair value.
In 1994, an interest-swap agreement was entered into which effectively fixes
the interest at 6.7% until maturity. The loans are secured by the right of
first and second mortgages on the anchor handling tugs and most of the cargo
barges.
Short-term borrowings are denominated in foreign currencies and carry interest
at prevailing market rates (approximately 7% at March 31, 1996). In general
these short-term borrowings mature within a month.
-12-
<PAGE> 14
McDermott - ETPM West, Inc.
and
Heerema Offshore Construction Group Inc. -
McDermott International, Inc. Joint Venture
6. PENSION LIABILITY
One of the Joint Ventures' entities, HeereMac v.o.f., has pension plans
covering the majority of its permanent staff. These plans are fully insured by
a third party life insurance company in the Netherlands. Premiums charged by
the insurance company and expensed by the Joint Ventures relate to a calendar
year and are calculated by determining the actuarial present value of future
benefits to be provided based upon current compensation levels. Further, at
the time of granting compensation increases, the Joint Ventures accrue as
pension provision the increase in its actuarial present value of future
benefits. Such amounts will be funded through enhanced future premiums. The
discount rate used to calculate the actuarial present value of future benefits
was 5% in 1996, 6% in 1995 and 5% in 1994. Pension cost paid by the Joint
Ventures amounted to US$ 3.7 million in 1996, US$ 2.1 million in 1995 and US$
1.8 million in 1994.
As of 1995, HeereMac v.o.f changed its pension scheme from a defined benefits
plan to a defined contribution plan. At year-end, the defined contribution
plan covers the majority of HeereMac v.o.f.'s full-time employees. A minority
of the employees chose to remain in the defined benefits plan.
7. CONTINGENCIES AND COMMITMENTS
The Joint Ventures have the usual liability of a contractor for the completion
of contracts and the warranty of its work. In relation to this liability, bank
guarantees, performance bonds and standby letters of credit are issued in the
normal line of business.
At year end 1996, the Joint Ventures had lines of credit and bank guarantees
available amounting in total to US$ 106 million, guaranteed by the Partners.
Amounts drawn on these facilities bear interest at prevailing market rates.
There were no borrowing against these facilities at year end (US$ 11,000,000 in
1995). The Joint Ventures had bank guarantees drawn on this facility of US$
39.3 million. Also, the stockholders of McDermott-ETPM West, Inc. are
contingently liable under standby letters of credit totaling approximately US$
56.9 million at March 31, 1996, issued in the normal course of business. Due
to the short term nature of the guarantees, the fair value is considered to be
nil. Management is not aware of any material exposure related thereto which
has not been provided for the accompanying combined financial statements.
Certain marine equipment (primarily anchor handling tugs and cargo barges) have
been pledged as collateral to secure long-term debt.
Commitments for capital expenditures amounted to approximately US$ 270,000, and
the 1996 lease commitment for office space US$ 1.1 million.
The Joint Ventures are a defendant in various legal proceedings. Management
believes that the outcome of these proceedings will not have a material adverse
effect on the combined financial position of the Joint Ventures.
-13-
<PAGE> 15
McDermott - ETPM West, Inc.
and
Heerema Offshore Construction Group Inc. -
McDermott International, Inc. Joint Venture
8. FIXED ASSETS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
1996 1995
- ------------------------------------------------------------------------------
(In thousands of U. S. Dollars)
<S> <C> <C>
At cost:
Machinery and equipment $ 185,659 $ 141,736
Cargo barges 37,355 30,856
Derrick and launch barges 40,722 -
Onshore office equipment 8,051 6,106
- ------------------------------------------------------------------------------
271,787 178,698
Less accumulated depreciation (152,466) (107,821)
- ------------------------------------------------------------------------------
Net fixed assets $ 119,321 $ 70,877
==============================================================================
</TABLE>
9. FINANCIAL INSTRUMENTS AND CREDIT RISK CONCENTRATION
The Joint Ventures had forward exchange contracts to sell US$ 117.8 million and
US$ 70.6 million in foreign currencies (primarily US Dollars, British Pounds,
Dutch Guilders and Norwegian Kroner) for 1996 and 1995, respectively, for
foreign currencies (primarily Dutch Guilders and French Francs). The Joint
Ventures had forward exchange contracts to purchase US$ 14.9 million and US$
18.2 million in foreign currencies (primarily Dutch Guilders) for 1996 and
1995, respectively, for French Francs. The 1996 year end forward exchange
contracts have varying maturities, all of which occur before the end of next
fiscal year.
The fair values of forward exchange contracts are estimated by obtaining quotes
from brokers. At year end, the net fair value of the contracts approximates
the notional amounts.
Financial instruments which potentially subject the Joint Ventures to
concentrations of credit risk are primarily cash and cash equivalents and
accounts receivable. The Joint Ventures have not experienced any significant
losses related to any of the short-term instruments it has used for excess cash
balances, nor from receivables from individual customers or groups of
customers.
10. PURCHASE OF VESSELS
The transaction described below took place at the HOCG-JRM Joint Venture level
and is not reflected in the combined financial statements.
In March 1996, JRM and HOCG, through their respective subsidiaries, sold to
companies included in the HOCG-JRM Joint Venture the major marine vessels they
had been chartering to the Joint Venture (JRM's DB101 and DB102, and HOCG's
Hermod and Balder). The vessel sales transaction was entered into for the
primary purpose of more permanently committing these highly-specialized
heavy-lift vessels to the HOCG-JRM Joint Venture, thereby ensuring long-term
maximum utilization of these vessels.
-14-
<PAGE> 16
McDermott - ETPM West, Inc.
and
Heerema Offshore Construction Group Inc. -
McDermott International, Inc. Joint Venture
Under the terms of the transaction, JRM received approximately US$ 211 million
for its two vessels, and HOCG received the same amount for all of the
outstanding stock of the two subsidiaries that owned the HOCG vessels (each
consisting of cash of approximately US $106 million and a promissory note in
the principal amount of US$ 105 million). Substantially all of the cash
portion of the combined purchase price for the JRM vessels and the stock of the
HOCG subsidiaries was funded through a US$ 200 million stand-alone credit
arrangement obtained by the HOCG-JRM Joint Venture (the "Vessel Sale Credit
Agreement"), which has an initial term of five years and is secured by
mortgages on the four vessels.
In addition, the HOCG-JRM Joint Venture paid a US$ 30,000,000 deposit in
advance of the sale of certain other equipment by JRM to the Joint Ventures.
The promissory note issued by the Joint Venture to each of the Partners is
subordinated to all indebtedness outstanding pursuant to the Vessel Sale Credit
Agreement, and incurs interest from the date of issue at a rate of 7.75% per
annum, and is scheduled to mature on March 31, 2003.
-15-
