<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10 - Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the period ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission File No. 1-13570
J. RAY McDERMOTT, S.A.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
REPUBLIC OF PANAMA 72-1278896
- --------------------------------------------------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
1450 Poydras Street, New Orleans, Louisiana 70112-6050
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (504) 587-5300
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
The number of shares of Common Stock, par value $.01 per share, outstanding as
of January 30, 1996 was 40,182,333.
<PAGE> 2
J. RAY M c D E R M O T T, S.A.
I N D E X - F O R M 10 - Q
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I - FINANCIAL INFORMATION
- ------------------------------
Item 1 - Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheet
December 31, 1995 and March 31, 1995 4
Condensed Consolidated Statement of Income
Three Months Ended and Nine Months
Ended December 31, 1995 and 1994 6
Condensed Consolidated Statement of Cash Flows
Nine Months Ended December 31, 1995 and 1994 8
Notes to Condensed Consolidated Financial Statements 10
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 13
PART II - OTHER INFORMATION
- ---------------------------
Item 6 - Exhibits and Reports on Form 8-K 21
SIGNATURES 22
Exhibit 11 - Calculation of Earnings Per Common
and Common Equivalent Share 23
</TABLE>
2
<PAGE> 3
PART I
J. RAY McDERMOTT, S.A.
FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
3
<PAGE> 4
J. RAY McDERMOTT, S.A.
CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1995
ASSETS
<TABLE>
<CAPTION>
12/31/95 3/31/95
-------- --------
(Unaudited)
(In thousands)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 79,454 $ 52,224
Accounts receivable-trade 245,985 244,212
Accounts receivable-unconsolidated
affiliates 66,149 56,104
Accounts receivable-other 20,712 33,830
Contracts in progress 174,953 54,947
Other current assets 16,134 28,819
- --------------------------------------------------------------------------------------------------------------
Total Current Assets 603,387 470,136
- --------------------------------------------------------------------------------------------------------------
Property, Plant and Equipment, at Cost: 1,474,473 1,504,717
Less accumulated depreciation and amortization 931,274 910,555
- --------------------------------------------------------------------------------------------------------------
Net Property, Plant and Equipment 543,199 594,162
- --------------------------------------------------------------------------------------------------------------
Excess of Cost Over Fair Value of Net Assets
of Purchased Businesses Less Accumulated
Amortization of $23,034,000 at December 31, 1995
and $5,483,000 at March 31, 1995 322,750 245,179
- --------------------------------------------------------------------------------------------------------------
Investment in Unconsolidated Affiliates 88,231 105,283
- --------------------------------------------------------------------------------------------------------------
Other Assets 86,923 67,502
- --------------------------------------------------------------------------------------------------------------
TOTAL $ 1,644,490 $ 1,482,262
==============================================================================================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
12/31/95 3/31/95
-------- -------
(Unaudited)
(In thousands)
<S> <C> <C>
Current Liabilities:
Notes payable and current
maturities of long-term debt $ 145,138 $ 55,894
Note payable to McDermott International 20,543 39,750
Accounts payable 188,569 141,376
Accrued contract costs 51,770 53,610
Accrued liabilities - other 111,243 105,242
Advanced billings on contracts 50,071 62,495
U.S. and foreign income taxes 26,240 38,357
- -------------------------------------------------------------------------------------------------------------
Total Current Liabilities 593,574 496,724
- -------------------------------------------------------------------------------------------------------------
Long-Term Debt 123,358 93,872
- -------------------------------------------------------------------------------------------------------------
Note Payable to McDermott International 231,000 231,000
- -------------------------------------------------------------------------------------------------------------
Deferred and Non-Current Income Taxes 55,101 44,697
- -------------------------------------------------------------------------------------------------------------
Other Liabilities 66,391 56,498
- -------------------------------------------------------------------------------------------------------------
Contingencies
- -------------------------------------------------------------------------------------------------------------
Stockholders' Equity:
Preferred Stock, par value $0.01 per share,
authorized 10,000,000 shares:
Series A $2.25 cumulative convertible,
outstanding 3,200,000 shares
(liquidation preference $160,000,000) 32 32
Series B $2.25 cumulative convertible
exchangeable, outstanding
458,632 at March 31, 1995 - 5
Common stock, par value $0.01 per share,
authorized 60,000,000 shares; outstanding
40,180,333 at December 31, 1995 and
38,649,349 at March 31, 1995 402 386
Capital in excess of par value 584,432 580,279
Retained earnings (deficit) 5,462 (6,598)
Currency translation adjustments (15,262) (14,633)
- -------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 575,066 559,471
- -------------------------------------------------------------------------------------------------------------
TOTAL $ 1,644,490 $ 1,482,262
=============================================================================================================
</TABLE>
5
<PAGE> 6
J. RAY McDERMOTT, S.A.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
DECEMBER 31, 1995
<TABLE>
<CAPTION>
THREE NINE
MONTHS ENDED MONTHS ENDED
12/31/95 12/31/94 12/31/95 12/31/94
-------- -------- -------- --------
(Unaudited)
(In thousands)
<S> <C> <C> <C> <C>
Revenues $ 272,236 $ 247,190 $ 939,996 $ 805,558
- -------------------------------------------------------------------------------------------------------------
Costs and Expenses:
Cost of operations (excluding
depreciation and amortization) 219,098 181,791 752,450 605,449
Depreciation and amortization 20,289 12,757 66,045 52,094
Selling, general and
administrative expenses 26,786 29,985 85,107 90,508
- -------------------------------------------------------------------------------------------------------------
266,173 224,533 903,602 748,051
- -------------------------------------------------------------------------------------------------------------
Operating Income before Equity in
Income of Investees 6,063 22,657 36,394 57,507
Equity in Income of Investees 12,646 8,414 9,845 22,844
- -------------------------------------------------------------------------------------------------------------
Operating Income 18,709 31,071 46,239 80,351
- -------------------------------------------------------------------------------------------------------------
Other Income (Expense):
Interest income 1,592 3,873 3,339 8,114
Interest expense (11,812) (6,410) (33,494) (17,173)
Other-net (2,785) (1,381) 6,371 5,428
- -------------------------------------------------------------------------------------------------------------
(13,005) (3,918) (23,784) (3,631)
- -------------------------------------------------------------------------------------------------------------
Income before Provision for (Benefit
from) Income Taxes and Cumulative
Effect of Accounting Change 5,704 27,153 22,455 76,720
Provision for (Benefit from)
Income Taxes (406) 9,136 3,979 15,030
- -------------------------------------------------------------------------------------------------------------
Income before Cumulative Effect
of Accounting Change 6,110 18,017 18,476 61,690
Cumulative Effect of Accounting
Change - - - (1,326)
- -------------------------------------------------------------------------------------------------------------
Net Income $ 6,110 $ 18,017 $ 18,476 $ 60,364
=============================================================================================================
</TABLE>
6
<PAGE> 7
CONTINUED
<TABLE>
<CAPTION>
THREE NINE
MONTHS ENDED MONTHS ENDED
12/31/95 12/31/95
-------- --------
(Unaudited)
(In thousands,except shares
and per share amounts)
<S> <C> <C>
NET INCOME APPLICABLE TO
COMMON STOCK (AFTER PREFERRED
STOCK DIVIDENDS) $ 4,313 $ 12,565
==========================================================================================================
EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE (PRIMARY
AND FULLY DILUTED) $ 0.11 $ 0.32
==========================================================================================================
Weighted average number of common and
common equivalent shares 40,298,112 39,738,798
CASH DIVIDENDS:
Per preferred share $ 0.5625 $ 1.6875
==========================================================================================================
</TABLE>
Earnings per share are not presented for the three and nine months ended
December 31, 1994 because JRM was not a separate entity with its own capital
structure for those periods.
See accompanying notes to condensed consolidated financial statements.
7
<PAGE> 8
J. RAY McDERMOTT, S.A.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
DECEMBER 31, 1995
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
12/31/95 12/31/94
-------- --------
(Unaudited)
(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 18,476 $ 60,364
- -------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 66,045 52,094
Equity in income or loss of investees,
less dividends 3,684 32,180
Gain on sale and disposal of assets (2,232) (2,345)
Benefit from deferred taxes (1,737) (1,127)
Other 854 1,008
Changes in assets and liabilities:
Accounts receivable (28,954) 677
Net contracts in progress and advance billings (128,646) (19,025)
Accounts payable 15,247 (22,847)
Accrued contract costs (1,840) (16,428)
Accrued liabilities (7,217) (13,198)
Income taxes (8,795) (7,752)
Other, net 9,827 (10,712)
- -------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (65,288) 52,889
- -------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (26,583) (30,124)
Proceeds from sale and disposal of assets 23,108 1,997
Investment in asset held for lease (26,518) -
Increase in notes receivable from
McDermott International - (15,490)
Other 8,218 -
- -------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (21,775) (43,617)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE> 9
CONTINUED
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
12/31/95 12/31/94
-------- --------
(Unaudited)
(In thousands)
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of long-term debt $ (5,407) $ (666)
Issuance of long-term debt 32,291 -
Increase in short-term borrowing 92,413 8,385
Decrease in notes payable to affiliates - (5,935)
Distributions to McDermott International - (36,121)
Issuance of common stock 1,572 -
Preferred dividends paid (5,911) -
Other (182) -
- -------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 114,776 (34,337)
- -------------------------------------------------------------------------------------------------------------
EFFECTS OF EXCHANGE RATE CHANGES ON CASH (483) 377
- -------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 27,230 (24,688)
- -------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 52,224 53,343
- -------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 79,454 $ 28,655
- -------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amount capitalized) $ 30,825 $ 17,049
Income taxes (net of refunds) $ 10,352 $ 19,571
=============================================================================================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
9
<PAGE> 10
J. RAY McDERMOTT, S.A.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 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. The contribution of International's marine construction
services business to JRM was accounted for in a manner similar to a pooling of
interests and the financial statements reflect International's historical cost
of the assets and liabilities contributed.
The accompanying unaudited condensed consolidated financial statements are
presented in U.S. Dollars and have been prepared in accordance with accounting
principles generally accepted in the United States for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments considered necessary
for a fair presentation have been included. Such adjustments are of a normal,
recurring nature except for an adjustment to the OPI acquisition preliminary
purchase price allocation (see Note 3); the settlement of claims for interest
relating to foreign tax refunds and contract claims of $2,163,000 and
$4,396,000 included in the three and nine months ended December 31, 1994,
respectively; and the accelerated depreciation on marine equipment of
$4,314,000 and the cumulative effect of the accounting change for the adoption
of Statement of Financial Accounting Standards No. 112, "Employers' Accounting
for Postemployment Benefits" included in the nine months ended December 31,
1994. Operating results for the three and nine months ended December 31, 1995
are not necessarily indicative of the results that may be expected for the year
ended March 31, 1996. For further information, refer to the consolidated
financial statements and footnotes thereto included in JRM's Annual Report on
Form 10-K for the year ended March 31, 1995.
10
<PAGE> 11
NOTE 2 - SUMMARIZED INCOME STATEMENT INFORMATION OF UNCONSOLIDATED AFFILIATES
The combined financial results of JRM's equity investments in HeereMac and
McDermott-ETPM West, Inc. are summarized below. These ventures were
significant as defined by applicable SEC regulations in fiscal year 1995. The
following summarizes their combined income statements:
<TABLE>
<CAPTION>
THREE NINE
MONTHS ENDED MONTHS ENDED
12/31/95 12/31/94 12/31/95 12/31/94
-------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C>
Revenues $ 117,465 $ 136,026 $ 435,488 $ 560,171
- -----------------------------------------------------------------------------------------------------------------
Operating Income $ 2,084 $ 17,400 $ 6,422 $ 37,169
- -----------------------------------------------------------------------------------------------------------------
Income before Income Taxes $ 7,534 $ 22,103 $ 17,545 $ 50,459
Provision for Income Taxes 888 5,070 1,206 4,178
- -----------------------------------------------------------------------------------------------------------------
Net Income $ 6,646 $ 17,033 $ 16,339 $ 46,281
=================================================================================================================
Equity in Net Income $ 3,833 $ 8,438 $ 8,706 $ 22,993
=================================================================================================================
</TABLE>
NOTE 3 - ACQUISITION OF OFFSHORE PIPELINES, INC.
During the December quarter of fiscal 1996, JRM recorded adjustments to the OPI
preliminary purchase price allocation resulting in an increase of $95,000,000
in excess of cost over fair value of net assets acquired. These adjustments
resulted from the completion of certain asset and liability valuations related
primarily to joint ventures, property, plant and equipment, and preacquisition
contingencies. Additionally, during the December quarter, management completed
its assessment of the amortization period of excess of cost over fair value of
net assets acquired and determined the amortization period should be 15 years.
11
<PAGE> 12
NOTE 4 - OTHER AGREEMENTS
During the June 1995 quarter, JRM and ETPM S.A. entered into agreements
restructuring their joint venture. These agreements expand the joint venture
into the Far East, the Mediterranean Sea, and all of Africa, give ETPM S.A. a
minority interest in a new JRM subsea company and give JRM a minority interest
in a new ETPM company. This transaction is not significant as defined by
applicable SEC regulations.
12
<PAGE> 13
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The following discussion presents the results of operations of J. Ray
McDermott, S.A. ("JRM") for the periods indicated and includes the accounts of
the subsidiaries, divisions and controlled joint ventures that McDermott
International contributed to JRM prior to the Merger with Offshore Pipelines,
Inc. ("OPI") which occurred on January 31, 1995. For the three and nine months
ended December 31, 1995, the discussion includes the accounts and operations of
JRM on a stand alone basis. For the three and nine months ended December 31,
1994, certain expenses included in the consolidated financial statements
include charges from McDermott International for direct costs, allocation of
corporate overhead and interest on intercompany debt. Management believes that
the allocation methods were reasonable, and that the allocations were
representative of what costs would have been on a stand alone basis.
Beginning with the June 1995 quarter, management's discussion of revenues and
operating income is discussed by the geographic areas presented in the tables
below. Other geographic area revenues includes eliminations between geographic
areas; and Other geographic area operating income (loss) includes certain
expenses including the costs of certain employee benefit programs, and the
three and nine months ended December 31, 1995 includes the amortization of
goodwill and covenants-not-to-compete relating to the acquisition of OPI. Prior
year information has been reclassified to conform with the December 31, 1995
presentation.
<TABLE>
<CAPTION>
THREE NINE
MONTHS ENDED MONTHS ENDED
12/31/95 12/31/94 12/31/95 12/31/94
-------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C>
REVENUES
North and South America $ 123,139 $ 98,227 $ 321,794 $ 280,837
North Sea and West Africa 79,330 59,038 372,896 212,558
Middle East 50,936 56,631 117,568 114,844
Far East 44,940 48,289 165,132 220,044
Other (including Transfer Eliminations) (26,109) (14,995) (37,394) (22,725)
- -------------------------------------------------------------------------------------------------------------
TOTAL REVENUES $ 272,236 $ 247,190 $ 939,996 $ 805,558
=============================================================================================================
</TABLE>
13
<PAGE> 14
CONTINUED
<TABLE>
<CAPTION>
THREE NINE
MONTHS ENDED MONTHS ENDED
12/31/95 12/31/94 12/31/95 12/31/94
-------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C>
OPERATING INCOME
Operating Income (Loss) by Geographic Area:
North and South America $ 9,209 $ 7,356 $ 35,877 $ 6,407
North Sea and West Africa 485 1,502 20,427 18,944
Middle East 5,796 11,626 3,849 10,749
Far East 1,815 11,516 11,386 38,540
Other (9,907) (6,182) (28,770) (7,532)
- -------------------------------------------------------------------------------------------------------------
TOTAL OPERATING INCOME BY
GEOGRAPHIC AREA 7,398 25,818 42,769 67,108
- -------------------------------------------------------------------------------------------------------------
Equity in Income (Loss) of Investees:
North and South America 2,050 - (2,011) -
North Sea and West Africa 6,322 8,414 9,015 22,844
Far East 4,274 - 2,841 -
- -------------------------------------------------------------------------------------------------------------
TOTAL EQUITY IN INCOME
OF INVESTEES 12,646 8,414 9,845 22,844
- -------------------------------------------------------------------------------------------------------------
Corporate G&A Expense (1,335) (3,161) (6,375) (9,601)
- -------------------------------------------------------------------------------------------------------------
TOTAL OPERATING INCOME $ 18,709 $ 31,071 $ 46,239 $ 80,351
=============================================================================================================
</TABLE>
RESULTS OF OPERATIONS - THREE MONTHS ENDED DECEMBER 31, 1995 VS. THREE MONTHS
ENDED DECEMBER 31, 1994
Revenues increased $25,046,000 to $272,236,000, primarily due to higher
purchased engineered equipment and subcontract activities in the North Sea
related to the B.P. Exploration Foinaven Development program west of the
Shetlands in the North Atlantic, and higher offshore and fabrication activities
in North America.
Operating income by geographic area decreased $18,420,000 to $7,398,000
primarily due to the completion of higher profit margin contracts in the Far
East and Middle East in the prior period and lower operating income on marine
activities in North America due to weather downtime and margins on certain
contracts. These decreases were partially offset
14
<PAGE> 15
by higher volume and margins on North American fabrication activities. Other
geographic operating income (loss) includes the amortization of goodwill and
covenants-not-to-compete, and higher employee benefit expenses in the current
period which occurred due to the acquisition of OPI.
Equity in income of investees increased $4,232,000 to $12,646,000. This
increase was primarily due to including the results of the CMM Mexican joint
venture which was not a part of JRM's marine construction services business in
the prior period and higher operating activity from the Brown and Root
McDermott Fabricators Limited joint venture which was formed in the last
quarter of the prior year. These increases were partially offset by lower
results from both the HeereMac and McDermott-ETPM West, Inc. joint ventures.
The revenues of these two joint ventures declined from $136,026,000 to
$117,465,000, primarily in the U.S. Gulf, the Far East and in the North Sea,
partially offset by increased volume in West Africa. The equity income from
these two joint ventures declined from $8,438,000 to $3,833,000 but the decline
was not as severe due to a reduction to an anticipated loss on a joint venture
contract. While both joint ventures performed at low levels during fiscal 1996,
worldwide demand for offshore drilling rigs has increased and has resulted in
an increase in these joint venture's backlog.
Interest income decreased $2,281,000 to $1,592,000 primarily due to the
settlement of claims for interest relating to foreign tax refunds and contract
claims of $2,163,000 in the prior period.
Interest expense increased $5,402,000 to $11,812,000, primarily due to interest
on the notes which were issued to International in connection with its
contribution to JRM, and changes in other debt obligations and interest rates
prevailing thereon.
The provision for income taxes decreased $9,542,000 to a benefit of $406,000
from a provision of $9,136,000 while income before the provision for income
taxes decreased $21,449,000 to $5,704,000. The decrease in the provision for
income taxes is primarily due to a decrease in income. In addition, JRM
operates in many different tax jurisdictions. Within these jurisdictions, tax
provisions vary because of nominal rates, allowability of deductions, credits
and other benefits, and tax basis (for example, revenue versus income).
15
<PAGE> 16
These variances, along with variances in the mix of income within
jurisdictions, are often responsible for shifts in the effective tax rate. As a
result of these factors, the income tax benefit was 7% of pretax income for the
three months ended December 31, 1995 compared to a provision for income taxes
of 34% of pretax income for the three months ended December 31, 1994.
RESULTS OF OPERATIONS - NINE MONTHS ENDED DECEMBER 31, 1995 VS. NINE MONTHS
ENDED DECEMBER 31, 1994
Revenues increased $134,438,000 to $939,996,000, primarily due to higher
purchased engineered equipment and subcontract activities in the North Sea
related to the B.P. Exploration Foinaven Development program west of the
Shetlands in the North Atlantic, and higher revenues in North America. These
increases were partially offset by lower revenues in the Far East.
Operating income by geographic area decreased $24,339,000 to $42,769,000
primarily due to lower margins because of the completion of higher profit
margin contracts in the Far East and the Middle East in the prior period, and
lower operating income on marine activities in North America due to weather
downtime and margins on certain contracts. These decreases were partially
offset by higher volume and margins on North American fabrication activities,
higher volume and margins on North Sea offshore activities and improved margins
from engineering activities in the current period, and operating losses
associated with the fabrication yard in Scotland (which is now operated by the
Brown and Root McDermott Fabricators Limited joint venture, which was formed in
the last quarter of the prior year and is now reported on the equity method)
and the accelerated depreciation of $4,314,000 on certain marine equipment in
the Far East in the prior period. Other geographic operating income (loss)
includes the amortization of goodwill and covenants-not-to-compete, and higher
employee benefits expenses in the current period which occurred due to the
acquisition of OPI.
Equity in income of investees decreased $12,999,000 to $9,845,000. Both the
HeereMac and McDermott-ETPM West, Inc. joint ventures performed at lower
levels than in the previous year. The revenues of these two joint ventures
declined from $560,171,000 to $435,488,000, primarily in the U.S. Gulf, the Far
East and in the North Sea, partially offset by increased volume in West
Africa. The equity income from these two joint ventures
16
<PAGE> 17
declined from $22,993,000 to $8,706,000 as a result of reduced volume and
reduced margins. While both joint ventures performed at low levels during
fiscal 1996, worldwide demand for offshore drilling rigs has increased and has
resulted in an increase in these joint venture's backlog. Equity in income of
investees also increased due to income from the Brown and Root McDermott
Fabricators Limited joint venture.
Interest income decreased $4,775,000 to $3,339,000 primarily due to the
settlement of claims for interest relating to foreign tax refunds and contract
claims of $4,396,000 in the prior period.
Interest expense increased $16,321,000 to $33,494,000, primarily due to
interest on the notes which were issued to International in connection with its
contribution to JRM, and changes in other debt obligations and interest rates
prevailing thereon.
The provision for income taxes decreased $11,051,000 to $3,979,000 while income
before the provision for income taxes and cumulative effect of accounting
change decreased $54,265,000 to $22,455,000. The decrease in the provision for
income taxes was in part due to a decrease in income and a reappraisal of
liabilities in certain foreign tax jurisdictions. In addition, JRM operates in
many different tax jurisdictions. Within these jurisdictions, tax provisions
vary because of nominal rates, allowability of deductions, credits and other
benefits, and tax basis (for example, revenue versus income). These variances,
along with variances in the mix of income within jurisdictions, are often
responsible for shifts in the effective tax rate. As a result of these factors,
the provision for income taxes was 18% of pretax income for the nine months
ended December 31, 1995 compared to a provision of income taxes of 20% of
pretax income for the nine months ended December 31, 1994.
Net income decreased $41,888,000 to $18,476,000 reflecting the cumulative
effect of the adoption of Statement of Financial Accounting Standards No. 112,
"Employers' Accounting for Postemployment Benefits," of $1,326,000 in the prior
year, in addition to the other items mentioned above.
17
<PAGE> 18
Backlog
<TABLE>
<CAPTION>
12/31/95 3/31/95
-------- -------
(In thousands)
<S> <C> <C>
North and South America $ 300,243 $ 218,661
North Sea and West Africa 204,422 420,810
Middle East 71,359 99,698
Far East 159,636 225,031
Other (1,406) 38,768
- -------------------------------------------------------------------------------------------------------------
TOTAL BACKLOG $ 734,254 $ 1,002,968
=============================================================================================================
</TABLE>
Backlog at December 31, 1995 and March 31, 1995 was $734,254,000 and
$1,002,968,000 respectively. Fiscal 1996 revenues are expected to be about 20%
below what JRM anticipated at the beginning of the fiscal year. This lower
market activity is reflected in the decrease in JRM's backlog at December 31,
1995 and in the low level of performance of JRM's unconsolidated joint ventures
expected through the remainder of fiscal 1996. However, worldwide demand for
offshore drilling rigs has increased and this, historically, has been a leading
indicator for an increase in JRM's operations. This is already reflected in the
increase in backlog relating to contracts to be performed by JRM's
unconsolidated joint ventures to approximately $1,240,000,000 at December 31,
1995 from $922,000,000 at March 31, 1995.
Liquidity and Capital Resources
During the nine months ended December 31, 1995, JRM's cash and cash equivalents
increased $27,230,000 to $79,454,000 and total debt increased $99,523,000 to
$520,039,000, primarily due to short-term borrowings of $92,413,000. During
this period, JRM used cash of $65,288,000 in operating activities; $26,583,000
for additions to property plant and equipment; $26,518,000 for investment in
asset held for lease; and $5,911,000 for cash dividends on preferred stocks.
JRM has annual preferred stock dividend requirements of $7,200,000 on its
Series A Preferred Stock. During the December quarter JRM converted 452,957
shares of its outstanding Series B Preferred Stock into 1,053,297 shares of
common stock and redeemed the remaining 250 shares for cash. No shares of
Series B Preferred Stock remain outstanding.
Higher accounts receivable are primarily due to the timing of the collection of
contract billings by North American fabrication and marine operations and
higher accounts payable are primarily related to activities associated with the
Foinaven Development program.
18
<PAGE> 19
Increases in net contracts in progress and advance billings are primarily
related to the Foinaven Development program and the timing of billings on
contracts performed in the Far East.
Expenditures for property, plant and equipment decreased $3,541,000 to
$26,583,000 for the nine months ended December 31, 1995 as compared with the
same period last year. These expenditures included $8,669,000 for installation
of a new pipe reel system on a marine barge. In addition to expenditures for
property, plant and equipment, JRM expended $26,518,000 in the nine months
ended December 31, 1995 for the conversion of a barge to a floating production
unit which is now leased to a third party. The barge conversion is financed by
$21,700,000 in loan facilities, of which $20,674,000 was outstanding at
December 31, 1995.
At December 31, 1995 and March 31, 1995, JRM had available to it various
uncommitted short-term lines of credit from banks totaling $112,302,000 and
$119,581,000, respectively. Borrowings by JRM against these lines of credit at
December 31, 1995 and March 31, 1995 were $81,626,000 and $24,750,000,
respectively. JRM also had available an $150,000,000 unsecured and committed
revolving credit facility of which $60,000,000 was outstanding at December 31,
1995. JRM is restricted, as a result of the consolidated tangible net worth
covenant in this agreement, in its ability to transfer funds to International
and its subsidiaries through cash dividends or through unsecured loans or
investments.
Working capital increased $36,401,000 to $9,813,000 at December 31, 1995 from a
deficit of $26,588,000 at March 31, 1995. During the remainder of fiscal year
1996, JRM expects to obtain funds to meet working capital, capital expenditure
and debt maturity requirements from operating activities and asset sales.
Leasing agreements for equipment, which are short-term in nature, are not
expected to impact JRM's liquidity or capital resources.
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
effective for fiscal years beginning after December 15, 1995. SFAS No. 121
requires that long-lived assets and certain
19
<PAGE> 20
identifiable intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. SFAS No. 121 also applies
to similar assets that are held for disposal, except for the assets of a
discontinued operation. JRM has not yet finalized its review of the impact of
this statement, but it is not expected to have a material impact on the
consolidated financial statements.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation," effective for fiscal years beginning after December 15, 1995.
SFAS No. 123 establishes financial accounting and reporting standards for
stock-based employee compensation plans. JRM has not yet finalized its review
of the provisions of this statement, and accordingly, has not yet determined
whether it will adopt SFAS No. 123 for expense recognition purposes, or
continue to follow Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and make the pro forma information disclosures
required under the new standard.
20
<PAGE> 21
PART II
J. RAY McDERMOTT, S.A.
OTHER INFORMATION
No information is applicable to Part II for the current quarter, except as
noted below:
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 11 - Calculation of Earnings Per Common and Common
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
There were no current reports on Form 8-K filed during the three
months ended December 31, 1995.
Signatures
21
<PAGE> 22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
J. RAY McDERMOTT, S.A.
/s/ Daniel R. Gaubert
---------------------------------
By: Daniel R. Gaubert
Vice President, Finance
(Principal Accounting Officer)
February 12, 1996
22
<PAGE> 23
EXHIBIT INDEX
Exhibit Description
Exhibit 11 - Calculation of Earnings Per Common and Common Equivalent Share -
Exhibit 27 - Financial Data Schedule
<PAGE> 1
EXHIBIT 11
J. RAY MCDERMOTT, S.A.
CALCULATION OF EARNINGS
PER COMMON AND COMMON EQUIVALENT SHARE
(In thousands, except shares and per share amounts)
PRIMARY AND FULLY DILUTED
<TABLE>
<CAPTION>
THREE NINE
MONTHS ENDED MONTHS ENDED
12/31/95 (2) 12/31/95 (2)
------------ ------------
<S> <C> <C>
Net income $ 6,110 $ 18,476
Less dividend requirements of preferred stocks,
Series A and B (1,797) (5,911)
- ----------------------------------------------------------------------------------------------------
Net income for primary computation $ 4,313 $ 12,565
====================================================================================================
Weighted average number of common
shares outstanding during the period 39,991,811 39,271,000
Common stock equivalents of stock options
based on "treasury stock" method 306,301 467,798
- ----------------------------------------------------------------------------------------------------
Weighted average number of common
and common equivalent shares
outstanding during the period 40,298,112 39,738,798
====================================================================================================
Earnings per common and
common equivalent share: (1) $ 0.11 $ 0.32
====================================================================================================
</TABLE>
(1) Earnings per common and common equivalent share assuming full dilution
are the same for the period presented.
(2) Earnings per share are not presented for the three and nine months ended
December 31, 1994 because JRM was not a separate entity with its own
capital structure for those periods.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM J. RAY
MCDERMOTT'S DECEMBER 31, 1995 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> DEC-31-1995
<CASH> 79,454
<SECURITIES> 1,465
<RECEIVABLES> 302,676
<ALLOWANCES> 56,691
<INVENTORY> 178,774
<CURRENT-ASSETS> 603,387
<PP&E> 1,474,473
<DEPRECIATION> 931,274
<TOTAL-ASSETS> 1,644,490
<CURRENT-LIABILITIES> 593,574
<BONDS> 0
<COMMON> 402
0
32
<OTHER-SE> 574,632
<TOTAL-LIABILITY-AND-EQUITY> 1,644,490
<SALES> 939,996
<TOTAL-REVENUES> 939,996
<CGS> 903,602
<TOTAL-COSTS> 903,602
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 33,494
<INCOME-PRETAX> 22,455
<INCOME-TAX> 3,979
<INCOME-CONTINUING> 18,476
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,476
<EPS-PRIMARY> 0.32
<EPS-DILUTED> 0.32
</TABLE>
