<PAGE>
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 quarterly period ended December 31, 1996
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 or other Jurisdiction (I.R.S. Employer
of 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
--------------
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 24, 1997 was 40,506,098.
<PAGE>
J. RAY McDERMOTT, S.A.
I N D E X - F O R M 10 - Q
--------------------------
PAGE
----
PART I - FINANCIAL INFORMATION
- ------------------------------
Item 1 - Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheet
December 31, 1996 and March 31, 1996 4
Condensed Consolidated Statement of Income
Three and Nine Months Ended December 31, 1996 and 1995 6
Condensed Consolidated Statement of Cash Flows
Nine Months Ended December 31, 1996 and 1995 8
Notes to Condensed Consolidated Financial Statements 10
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
PART II - OTHER INFORMATION
- ---------------------------
Item 6 - Exhibits and Reports on Form 8-K 20
SIGNATURES 21
Exhibit 11 - Calculation of Earnings Per Common
and Common Equivalent Share 23
Exhibit 27 - Financial Data Schedule 24
2
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PART I
J. RAY McDERMOTT, S.A.
FINANCIAL INFORMATION
---------------------
Item 1. Condensed Consolidated Financial Statements
3
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J. RAY McDERMOTT, S.A.
CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996
ASSETS
12/31/96 3/31/96
--------- --------
(Unaudited)
(In thousands)
Current Assets:
Cash and cash equivalents $ 197,813 $ 166,408
Accounts receivable-trade 276,423 193,643
Accounts receivable-unconsolidated
affiliates 32,552 46,209
Accounts receivable-other 37,315 57,421
Contracts in progress 51,358 181,375
Other current assets 25,921 57,291
- ---------------------------------------------------------------------------
Total Current Assets 621,382 702,347
- ---------------------------------------------------------------------------
Property, Plant and Equipment, at Cost: 1,239,676 1,186,233
Less accumulated depreciation 831,751 793,833
- ---------------------------------------------------------------------------
Net Property, Plant and Equipment 407,925 392,400
- ---------------------------------------------------------------------------
Excess of Cost Over Fair Value of Net Assets
of Purchased Businesses Less Accumulated
Amortization of $46,498,000 at December 31, 1996
and $28,799,000 at March 31, 1996 305,415 316,863
- ---------------------------------------------------------------------------
Investment in Unconsolidated Affiliates 101,050 72,806
- ---------------------------------------------------------------------------
Other Assets 50,311 53,329
- ---------------------------------------------------------------------------
TOTAL $1,486,083 $1,537,745
===========================================================================
See accompanying notes to condensed consolidated financial statements.
4
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LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
<S> <C> <C>
12/31/96 3/31/96
-------- -------
(Unaudited)
(In thousands)
Current Liabilities:
Notes payable and current
maturities of long-term debt $ 94,189 $ 96,130
Accounts payable 138,937 103,473
Accounts payable to International and affiliates 14 47,695
Accrued contract costs 72,274 69,827
Accrued liabilities - other 101,094 120,515
Deposit on equipment sale - 30,000
Advance billings on contracts 66,164 36,581
U.S. and foreign income taxes 28,533 28,717
- -----------------------------------------------------------------------------------
Total Current Liabilities 501,205 532,938
- -----------------------------------------------------------------------------------
Long-Term Debt 277,362 114,532
- -----------------------------------------------------------------------------------
Note Payable to International - 231,000
- -----------------------------------------------------------------------------------
Deferred and Non-Current Income Taxes 52,001 50,016
- -----------------------------------------------------------------------------------
Other Liabilities 70,734 55,362
- -----------------------------------------------------------------------------------
Contingencies
- -----------------------------------------------------------------------------------
Stockholders' Equity:
Preferred stock, authorized 10,000,000 shares;
outstanding 3,200,000 Series A $2.25 cumulative
convertible, par value $0.01 per share,
(liquidation preference $160,000,000) 32 32
Common stock, par value $0.01 per share,
authorized 60,000,000 shares; outstanding
40,454,720 at December 31, 1996 and
40,197,946 at March 31, 1996 405 402
Capital in excess of par value 584,915 581,609
Retained earnings (deficit) 32,834 (14,576)
Currency translation adjustments (33,405) (13,570)
- -----------------------------------------------------------------------------------
Total Stockholders' Equity 584,781 553,897
- -----------------------------------------------------------------------------------
TOTAL $1,486,083 $1,537,745
===================================================================================
</TABLE>
5
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J. RAY McDERMOTT, S.A.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
DECEMBER 31, 1996
<TABLE>
<CAPTION>
THREE NINE
MONTHS ENDED MONTHS ENDED
12/31/96 12/31/95 12/31/96 12/31/95
-------- -------- -------- --------
(Unaudited)
(In thousands)
<S> <C> <C> <C> <C>
Revenues $316,899 $272,236 $1,074,143 $939,996
- --------------------------------------------------------------------------------------------
Costs and Expenses:
Cost of operations (excluding
depreciation and amortization) 265,167 219,098 897,742 752,450
Depreciation and amortization 23,165 20,289 67,567 66,045
Selling, general and
administrative expenses 27,229 26,786 86,019 85,107
- --------------------------------------------------------------------------------------------
315,561 266,173 1,051,328 903,602
- --------------------------------------------------------------------------------------------
Gain (Loss) on Asset Disposals-net 29,857 (1,670) 30,918 2,232
- --------------------------------------------------------------------------------------------
Operating Income before Equity in
Income of Investees 31,195 4,393 53,733 38,626
Equity in Income of Investees 6,230 12,646 30,381 9,845
- --------------------------------------------------------------------------------------------
Operating Income 37,425 17,039 84,114 48,471
- --------------------------------------------------------------------------------------------
Other Income (Expense):
Interest income 4,198 1,592 11,297 3,339
Interest expense (10,190) (11,812) (31,254) (33,494)
Other-net 4,067 (1,115) 11,971 4,139
-------------------------------------------------------------------------------------------
(1,925) (11,335) (7,986) (26,016)
- --------------------------------------------------------------------------------------------
Income before Provision for
(Benefit from) Income Taxes 35,500 5,704 76,128 22,455
Provision for (Benefit from)
Income Taxes 7,950 (406) 23,474 3,979
- --------------------------------------------------------------------------------------------
Net Income $ 27,550 $ 6,110 $ 52,654 $ 18,476
============================================================================================
</TABLE>
6
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<TABLE>
<CAPTION>
THREE NINE
MONTHS ENDED MONTHS ENDED
12/31/96 12/31/95 12/31/96 12/31/95
-------- -------- -------- --------
(Unaudited)
(In thousands, except shares
and per share amounts)
<S> <C> <C> <C> <C>
Net Income Applicable to Common
Stock (after Preferred Stock
Dividends) $ 25,750 $ 4,313 $47,254 $12,565
===========================================================================================
Net Income per Common and Common
Equivalent Share (Primary and
Fully Diluted) $ 0.59 $ 0.11 $ 1.13 $ 0.32
===========================================================================================
Weighted Average Number of
Common and Common
Equivalent Shares Outstanding 46,628,877 40,298,112 46,524,241 39,738,798
===========================================================================================
Cash Dividends:
Per preferred share $ 0.5625 $0.5625 $1.6875 $1.6875
===========================================================================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
7
<PAGE>
J. RAY McDERMOTT, S.A.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
DECEMBER 31, 1996
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
12/31/96 12/31/95
--------- ---------
(Unaudited)
(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 52,654 $ 18,476
- -----------------------------------------------------------------------------------
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 67,567 66,045
Equity in income or loss of investees,
less dividends (15,331) 3,684
Gain on asset disposals-net (30,918) (2,232)
Other 3,139 (883)
Changes in assets and liabilities:
Accounts receivable (53,309) (28,954)
Net contracts in progress and advance billings 159,100 (128,646)
Accounts payable (18,361) 15,247
Accrued contract costs 2,447 (1,840)
Accrued liabilities (23,441) (7,217)
Income taxes (162) (8,795)
Other, net (7,323) 9,827
- -----------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 136,062 (65,288)
- -----------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (53,512) (26,583)
Proceeds from asset disposals 32,810 23,108
Investment in asset held for lease - (26,518)
Investments in equity investees (3,908) 8,723
Other 155 (505)
- -----------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (24,455) (21,775)
- -----------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
CONTINUED
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
NINE MONTHS ENDED
12/31/96 12/31/95
-------- --------
(Unaudited)
(In thousands)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of long-term debt $ (8,657) $(5,407)
Issuance of long-term debt 244,375 32,291
Increase (decrease) in short-term borrowing (86,774) 92,413
Payment of note payable to International (231,000) -
Issuance of common stock 2,225 1,572
Preferred dividends paid (5,400) (5,911)
Other 1,294 (182)
- --------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (83,937) 114,776
- --------------------------------------------------------------------------------
EFFECTS OF EXCHANGE RATE CHANGES ON CASH 3,735 (483)
- --------------------------------------------------------------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 31,405 27,230
- --------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 166,408 52,224
- --------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 197,813 $79,454
================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amount capitalized) $ 18,992 $30,825
Income taxes (net of refunds) $ 21,677 $10,352
================================================================================
See accompanying notes to condensed consolidated financial statements.
9
<PAGE>
J. RAY McDERMOTT, S.A.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 1 - BASIS OF PRESENTATION
J. Ray McDermott, S.A. ("JRM") is a majority owned subsidiary of McDermott
International, Inc. ("International").
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 favorable workers' compensation cost adjustments of
$5,693,000 included in the three and nine months ended December 31, 1996.
Certain amounts previously reported have been reclassified to conform with the
presentation at December 31, 1996. Operating results for the three and nine
months ended December 31, 1996 are not necessarily indicative of the results
that may be expected for the fiscal year ending March 31, 1997. For further
information, refer to the consolidated financial statements and footnotes
thereto included in JRM's annual report on Form 10-K for the fiscal year ended
March 31, 1996.
10
<PAGE>
NOTE 2 - SUMMARIZED INCOME STATEMENT INFORMATION OF SIGNIFICANT UNCONSOLIDATED
AFFILIATES
The combined financial results of two of JRM's joint ventures, HeereMac and
McDermott-ETPM West, Inc., which are accounted for using the equity method, are
summarized below. These ventures were significant (as defined by applicable
Securities and Exchange Commission regulations) in fiscal year 1996.
THREE NINE
MONTHS ENDED MONTHS ENDED
12/31/96 12/31/95 12/31/96 12/31/95
-------- -------- -------- --------
(Unaudited)
(In thousands)
Revenues $148,359 $117,465 $534,116 $435,488
- --------------------------------------------------------------------------------
Operating Income $ 10,845 $ 2,084 $ 75,705 $ 6,422
- --------------------------------------------------------------------------------
Income (Loss) before Income
Taxes $ (6,687) $ 7,534 $ 39,568 $ 17,545
Provision for Income Taxes 2,047 888 6,460 1,206
- -------------------------------- -----------------------------------------------
Net Income (Loss) $ (8,734) $ 6,646 $ 33,108 $ 16,339
================================ ===============================================
Equity in Net Income (Loss) $ (4,853) $ 3,833 $ 14,503 $ 8,706
================================================================================
11
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
J. Ray McDermott, S.A. ("JRM") is a majority owned subsidiary of McDermott
International, Inc. ("International"). 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 are affected by international factors,
such as changes in foreign currency exchange rates. JRM attempts to minimize
its exposure to changes in foreign currency exchange rates by attempting to
match foreign currency contract receipts with like foreign currency
disbursements. To the extent that JRM 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, which reduce the
impact of foreign exchange rate movements on operating results.
In general, JRM's performance is a function of the level of oil and gas
development activity in the world's major hydrocarbon producing regions. As a
result, JRM's revenues and profitability reflect some variability associated
with the timing of the completion of significant development projects and the
commencement of others as to which JRM has contracts, as well as the worldwide
volume of projects and their geographic distribution.
Management's discussion of revenues and operating income is presented by
geographic area. Other geographic area revenues include eliminations between
geographic areas; and Other geographic area operating loss includes the
amortization of goodwill and covenants-not-to-compete resulting from JRM's
acquisition of Offshore Pipelines, Inc. during fiscal year 1995. The three and
nine months ended December 31, 1995 have been restated to reflect the allocation
of certain expenses from geographic area operating income (loss) to Corporate
General & Administrative Expense to conform with the presentation at December
31, 1996.
12
<PAGE>
<TABLE>
<CAPTION>
THREE NINE
MONTHS ENDED MONTHS ENDED
12/31/96 12/31/95 12/31/96 12/31/95
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES
North and South America $ 116,363 $ 123,139 $ 459,822 $ 321,794
North Sea and West Africa 107,528 79,330 317,004 372,896
Middle and Far East 99,308 95,876 307,460 282,700
Other (including Transfer Eliminations) (6,300) (26,109) (10,143) (37,394)
- --------------------------------------------------------------------------------------------------
TOTAL REVENUES $ 316,899 $ 272,236 $1,074,143 $ 939,996
==================================================================================================
OPERATING INCOME
Operating Income (Loss) by Geographic Area:
North and South America $ 7,284 $ 8,652 $ 43,844 $ 34,173
North Sea and West Africa (3,416) 989 (7,470) 20,303
Middle and Far East 1,866 8,114 8,895 14,985
Other (1,270) (9,719) (12,366) (23,775)
- --------------------------------------------------------------------------------------------------
TOTAL OPERATING INCOME BY
GEOGRAPHIC AREA 4,464 8,036 32,903 45,686
- --------------------------------------------------------------------------------------------------
Gain (Loss) on Asset Disposals-net 29,857 (1,670) 30,918 2,232
- --------------------------------------------------------------------------------------------------
Equity in Income (Loss) of Investees:
North and South America 8,264 2,050 8,045 (2,011)
North Sea and West Africa (1,948) 6,322 23,205 9,015
Middle and Far East (86) 4,274 (869) 2,841
-------------------------------------------------------------------------------------------------
TOTAL EQUITY IN INCOME
OF INVESTEES 6,230 12,646 30,381 9,845
- --------------------------------------------------------------------------------------------------
Corporate General & Administrative
Expense (3,126) (1,973) (10,088) (9,292)
- --------------------------------------------------------------------------------------------------
TOTAL OPERATING INCOME $ 37,425 $ 17,039 $ 84,114 $ 48,471
==================================================================================================
</TABLE>
13
<PAGE>
RESULTS OF OPERATIONS - THREE MONTHS ENDED DECEMBER 31, 1996 VS. THREE MONTHS
ENDED DECEMBER 31, 1995
Revenues increased $44,663,000 to $316,899,000, primarily due to higher volume
in offshore and engineering activities in the North Sea and engineering
activities in North America. These increases were partially offset by lower
volume in offshore activities in North America and lower leasing activities due
to the sale of the DB101 and DB102 to the HeereMac joint venture.
Operating income by geographic area decreased $3,572,000 to $4,464,000,
primarily due to lower volume in North America, higher operating expense in the
Middle East and the Far East, lower leasing activities due to the sale of the
DB101 and DB102 and the completion of profitable contracts in West Africa in the
prior year. These decreases were partially offset by higher volume in the North
Sea. Other geographic operating loss decreased primarily due to the timing of
workers' compensation cost adjustments.
Gain (loss) on asset disposals-net increased $31,527,000 from a loss of
$1,670,000 to a gain of $29,857,000, primarily due to the gain on the sale of
the DB21 and participation in a gain from the sale of the DB100 by the HeereMac
joint venture.
Equity in income of investees decreased $6,416,000 to $6,230,000, primarily due
to lower operating results from the McDermott-ETPM West, Inc. joint venture and
the shut-down of a Far East joint venture in the prior year. These were
partially offset by favorable operating results from the HeereMac joint venture
and a Mexican joint venture. Equity in income of investees also includes income
of $2,168,000 from the amortization of the deferred gain resulting from the sale
of the DB101 and DB102. The revenues of the HeereMac and the McDermott-ETPM
West, Inc. joint ventures increased from $117,465,000 to $148,359,000 primarily
due to increased volume in the Far East and West Africa. Equity in income of
investees from these two joint ventures decreased from income of $3,833,000 to a
loss of $4,853,000, primarily as a result of foreign currency transaction losses
and a reduction of an anticipated loss on a joint venture contract in the prior
year. In addition, the HeereMac joint venture incurred higher interest expense
as a result of debt it issued to finance the purchase of major marine vessels it
had been chartering, including the DB101 and DB102.
14
<PAGE>
Interest income increased $2,606,000 to $4,198,000, primarily due to interest on
the promissory note of $105,000,000 received as part of the consideration from
the sale of the DB101 and DB102.
Interest expense decreased $1,622,000 to $10,190,000, primarily due to changes
in debt obligations and interest rates prevailing thereon.
Other-net increased $5,182,000 from expense of $1,115,000 to income of
$4,067,000. This increase was primarily due to foreign currency transaction
gains compared to foreign currency transaction losses in the prior year.
The provision for (benefit from) income taxes increased $8,356,000 to a
provision of $7,950,000 from a benefit of $406,000, while income before the
provision for income taxes increased $29,796,000 to $35,500,000. The increase
in income taxes is due primarily to the increase in income. JRM operates in many
tax jurisdictions and within these jurisdictions, tax provisions vary because of
nominal rates, allowability of deductions, credits and other benefits, and basis
of taxation (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 22% of pretax income for the three months ended December
31, 1996 compared to a benefit from income taxes of 7% of pretax income for the
three months ended December 31, 1995.
RESULTS OF OPERATIONS - NINE MONTHS ENDED DECEMBER 31, 1996 VS. NINE MONTHS
ENDED DECEMBER 31, 1995
Revenues increased $134,147,000 to $1,074,143,000, primarily due to higher
volume in North America, the Middle East and the Far East. These were partially
offset by lower volume in the North Sea and lower leasing activities due to the
sale of the DB101 and DB102 to the HeereMac joint venture.
Operating income by geographic area decreased $12,783,000 to $32,903,000,
primarily due to lower volume in the North Sea, higher operating expense in the
Middle East and the Far East, lower leasing activities due to the sale of the
DB101 and DB102 and the completion of profitable contracts in West Africa in the
prior year. These decreases were partially offset by
15
<PAGE>
higher volume in North America. Other geographic operating loss decreased
primarily due to the timing of workers' compensation cost adjustments.
Gain on asset disposals-net increased $28,686,000 to $30,918,000, primarily due
to a gain on the sale of the DB21 and participation in a gain from the sale of
the DB100 by the HeereMac joint venture.
Equity in income of investees increased $20,536,000 to $30,381,000, primarily
due to the improved operating results from the HeereMac joint venture, partially
offset by lower results from the McDermott-ETPM West, Inc. joint venture. In
addition, there were favorable results in the Mexican joint ventures. Equity in
income of investees also includes income of $6,481,000 from the amortization of
the deferred gain resulting from the sale of the DB101 and DB102. The revenues
of the HeereMac and McDermott-ETPM West, Inc. joint ventures increased from
$435,488,000 to $534,116,000 primarily due to increased volume in the North Sea
and North America, partially offset by decreased volume in the Far East and West
Africa. Equity in income of investees from these two joint ventures increased
from $8,706,000 to $14,503,000 primarily as a result of higher volume and
margins, partially offset by foreign currency transaction losses. In addition,
the HeereMac joint venture incurred higher interest expense as a result of debt
it issued to finance the purchase of major marine vessels it had been
chartering, including the DB101 and DB102.
Interest income increased $7,958,000 to $11,297,000, primarily due to interest
on the promissory note of $105,000,000 received as part of the consideration
from the sale of the DB101 and DB102.
Interest expense decreased $2,240,000 to $31,254,000, primarily due to changes
in debt obligations and interest rates prevailing thereon.
Other-net income increased $7,832,000 to $11,971,000, primarily due to increases
in certain reimbursed financing costs. There were also foreign currency
transaction gains compared to foreign currency transaction losses in the prior
year.
The provision for income taxes increased $19,495,000 to $23,474,000 while income
before the provision for income taxes increased $53,673,000 to $76,128,000. The
increase in
16
<PAGE>
income taxes is due primarily to the increase in income and also, in part, due
to a reduction in the provision in the prior year resulting from the reappraisal
of tax liabilities in certain foreign tax jurisdictions. JRM operates in many
tax jurisdictions and within these jurisdictions, tax provisions vary because of
nominal rates, allowability of deductions, credits and other benefits, and basis
of taxation (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 31% of pretax income for the nine months ended December 31,
1996 compared to a provision for income taxes of 18% of pretax income for the
nine months ended December 31, 1995.
Backlog
- -------
12/31/96 3/31/96
-------- -------
(Unaudited)
(in thousands)
North and South America $ 619,669 $313,643
North Sea and West Africa 284,556 195,293
Middle and Far East 679,024 468,960
- --------------------------------------------------------
TOTAL BACKLOG $1,583,249 $977,896
========================================================
In general, JRM's business is capital intensive and relies on large contracts
for a substantial amount of their revenues.
JRM's backlog at December 31, 1996 was $1,583,249,000 compared to $977,896,000
at March 31, 1996, and backlog relating to contracts to be performed by JRM's
unconsolidated joint ventures (not included above) was $1,386,000,000 at
December 31, 1996 compared to $1,374,000,000 at March 31, 1996. JRM believes
its markets are beginning to emerge from the difficult competitive environment
that has put pressure on margins in recent years. JRM also believes that these
strong markets and increased backlog suggest improving financial results over
the longer term. However, in this historically seasonal business, JRM
frequently incurs operating losses during the fiscal quarter ending March 31.
Liquidity and Capital Resources
- -------------------------------
During the nine months ended December 31, 1996, JRM's cash and cash equivalents
increased $31,405,000 to $197,813,000 and total debt decreased $70,011,000 to
$371,551,000, primarily due to a net reduction in short-term borrowings of
$86,774,000.
17
<PAGE>
During this period, JRM used cash of $53,512,000 for additions to property,
plant and equipment and $5,400,000 for cash dividends on preferred stock. Also
during the nine months ended December 31, 1996, JRM provided cash of
$136,062,000 from operating activities and received cash of $32,810,000 from
asset disposals.
Decreases in net contracts in progress and advance billings are primarily due to
the timing of billings on the Foinaven contract.
During the three months ended December 31, 1996, JRM sold its interest in CCC
Fabricaciones y Construcciones, S.A. de C.V., a Mexican joint venture, the DB21
and other assets to Global Industries, Ltd ("Global"). Global also acquired an
option to purchase the DB15. The sales price of the Global transaction,
including the option, was approximately $38,000,000.
Expenditures for property, plant and equipment increased $26,929,000 to
$53,512,000 for the nine months ended December 31, 1996. In addition to
maintaining existing facilities and equipment, these expenditures included
$4,887,000 for the purchase of a cable lay vessel, and modifications thereto,
which operates in the North Sea; $3,625,000 for cable lay equipment, which
includes a deep bury plow used in the installation of fiber optic cable; and
$11,879,000 to upgrade a marine barge operating in the Gulf of Mexico.
At December 31 and March 31, 1996, JRM had an unsecured and committed revolving
credit facility which contains a debt to capitalization covenant limiting its
incremental borrowing capacity ($122,000,000 at December 31, 1996). There were
no borrowings outstanding on this facility at December 31 or March 31, 1996. At
December 31 and March 31, 1996, JRM also had available to it various uncommitted
short-term lines of credit from banks totalling $40,222,000 and $142,645,000,
respectively. Borrowings by JRM against these lines of credit at December 31 and
March 31, 1996 were $9,178,000 and $85,251,000, respectively. The reduction in
borrowings against uncommitted short-term lines of credit is primarily due to
the collection of the Foinaven project receivables and repayment of the project
financing debt during the December 1996 quarter. In addition, JRM is
restricted, as a result of the consolidated tangible net worth covenant in this
agreement, in its ability to pay cash dividends to its public shareholders or to
transfer funds to International and its other
18
<PAGE>
subsidiaries through cash dividends (including annual preferred stock dividends
of $7,200,000 on its Series A Preferred Stock held by International) or through
unsecured loans or investments. As of December 31, 1996, approximately
$28,000,000 of JRM's net assets were not subject to this restriction.
Working capital decreased $49,232,000 to $120,177,000 at December 31, 1996 from
$169,409,000 at March 31, 1996 due, in part, to the classification of the
12.875% Guaranteed Senior Notes as a current liability as JRM plans on redeeming
such Notes in the second quarter of fiscal year 1998. During the September 1996
quarter, JRM issued $250,000,000 principal amount of 9.375% Senior Subordinated
Notes due 2006 and received net proceeds of $244,375,000 which were used
primarily to repay indebtedness (including interest) of approximately
$239,000,000 owed to International. The remaining net proceeds were used for
general corporate purposes. Also during the September quarter, the sale of
certain equipment to the HeereMac joint venture was completed. Prior to this
sale, JRM had received $30,000,000 as a deposit in March 1996. During the
remainder of fiscal year 1997, JRM expects to obtain funds to meet working
capital, capital expenditure and debt maturity requirements from operating
activities, sales of non-strategic assets and from cash and cash equivalents.
Leasing agreements for equipment, which are short-term in nature, are not
expected to impact JRM's liquidity or capital resources.
New Accounting Standard
- -----------------------
In June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities," effective
for transactions occurring after December 31, 1996. SFAS No. 125 established
accounting and reporting standards for transfers and servicing of financial
assets and extinguishment of liabilities. This statement also provides
consistent standards for distinguishing transfers of financial assets that are
sales from transfers that are secured borrowings. JRM has not yet finalized its
review of the impact of this statement, but it is not expected to have a
material impact on the consolidated financial statements.
19
<PAGE>
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) Exhibits
11 - Calculation of Earnings Per Common and Common Equivalent Share
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, 1996.
Signatures
20
<PAGE>
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.
By: /s/ DANIEL R. GAUBERT
--------------------------
Daniel R. Gaubert
Vice President, Finance
(Principal Accounting Officer
and Duly Authorized Representative)
February 7, 1997
21
<PAGE>
EXHIBIT INDEX
Exhibit Description
- ------- -----------
11 Calculation of Earnings Per Common and Common Equivalent Share
27 Financial Data Schedule
22
<PAGE>
EXHIBIT 11
J. RAY MCDERMOTT, S.A.
CALCULATION OF EARNINGS
PER COMMON AND COMMON EQUIVALENT SHARE
(Unaudited)
(In thousands, except shares and per share amounts)
PRIMARY AND FULLY DILUTED
<TABLE>
<CAPTION>
THREE NINE
MONTHS ENDED MONTHS ENDED
12/31/96 12/31/95 12/31/96 12/31/95
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income $ 27,550 $ 6,110 $ 52,654 $ 18,476
Less dividend requirements of
preferred stocks - (1,797) - (5,911)
- -----------------------------------------------------------------------------------------
Net income for primary computation $ 27,550 $ 4,313 $ 52,654 $ 12,565
=========================================================================================
Weighted average number of
common shares outstanding
during the period 40,445,740 39,991,811 40,322,348 39,271,000
Common stock equivalents of
stock options based on
"treasury stock" method 442,197 306,301 460,953 467,798
Shares applicable to Series A
$2.25 cumulative convertible
preferred stock 5,740,940 - 5,740,940 -
- -----------------------------------------------------------------------------------------
Weighted average number of common
and common equivalent shares
outstanding during the period 46,628,877 40,298,112 46,524,241 39,738,798
=========================================================================================
Net income per common and
common equivalent share: /(1)/ $0.59 $0.11 $1.13 $0.32
=========================================================================================
</TABLE>
/(1)/ Net income per common and common equivalent share assuming full dilution
are the same for the periods presented.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM J. RAY
MCDERMOTT'S DECEMBER 31, 1996 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-31-1997
<PERIOD-END> DEC-31-1996
<CASH> 197,813
<SECURITIES> 1,876
<RECEIVABLES> 303,841
<ALLOWANCES> 27,418
<INVENTORY> 57,154
<CURRENT-ASSETS> 621,382
<PP&E> 1,239,676
<DEPRECIATION> 831,751
<TOTAL-ASSETS> 1,486,083
<CURRENT-LIABILITIES> 501,205
<BONDS> 0
0
32
<COMMON> 405
<OTHER-SE> 584,344
<TOTAL-LIABILITY-AND-EQUITY> 1,486,083
<SALES> 1,074,143
<TOTAL-REVENUES> 1,074,143
<CGS> 1,051,328
<TOTAL-COSTS> 1,051,328
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 31,254
<INCOME-PRETAX> 76,128
<INCOME-TAX> 23,474
<INCOME-CONTINUING> 52,654
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 52,654
<EPS-PRIMARY> 1.16
<EPS-DILUTED> 1.16
</TABLE>
