<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, 1997
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 23, 1998 WAS 41,094,987.
<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, 1997 AND MARCH 31, 1997 4
CONDENSED CONSOLIDATED STATEMENT OF INCOME
THREE AND NINE MONTHS ENDED DECEMBER 31, 1997 AND 1996 6
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED DECEMBER 31, 1997 AND 1996 8
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 10
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 16
PART II - OTHER INFORMATION
- ---------------------------
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 24
SIGNATURES 25
EXHIBIT 27 - FINANCIAL DATA SCHEDULE 26
<PAGE>
PART I
J. RAY MCDERMOTT, S.A.
FINANCIAL INFORMATION
---------------------
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE>
J. RAY MCDERMOTT, S.A.
CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
ASSETS
12/31/97 3/31/97
--------- --------
(UNAUDITED)
(IN THOUSANDS)
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $ 413,892 $134,948
SHORT-TERM INVESTMENTS IN DEBT SECURITIES - 75,516
ACCOUNTS RECEIVABLE-TRADE 215,046 261,621
ACCOUNTS RECEIVABLE-UNCONSOLIDATED
AFFILIATES 59,006 58,324
ACCOUNTS RECEIVABLE-OTHER 26,091 32,113
CONTRACTS IN PROGRESS 103,639 81,900
OTHER CURRENT ASSETS 41,281 23,972
- --------------------------------------------------------------------
TOTAL CURRENT ASSETS 858,955 668,394
- --------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT, AT COST 1,180,376 1,173,001
LESS ACCUMULATED DEPRECIATION 826,042 816,271
- --------------------------------------------------------------------
NET PROPERTY, PLANT AND EQUIPMENT 354,334 356,730
- --------------------------------------------------------------------
INVESTMENTS IN DEBT SECURITIES 317,350 -
- --------------------------------------------------------------------
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS
OF PURCHASED BUSINESSES LESS ACCUMULATED
AMORTIZATION OF $5,984,000 AT DECEMBER 31,
1997 AND $52,405,000 AT MARCH 31, 1997 22,869 296,394
- --------------------------------------------------------------------
INVESTMENT IN UNCONSOLIDATED AFFILIATES 24,683 81,981
- --------------------------------------------------------------------
OTHER ASSETS 46,103 56,169
- --------------------------------------------------------------------
TOTAL $1,624,294 $1,459,668
====================================================================
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
12/31/97 3/31/97
-------- -------
(UNAUDITED)
(IN THOUSANDS)
CURRENT LIABILITIES:
NOTES PAYABLE AND CURRENT
MATURITIES OF LONG-TERM DEBT $ 12,131 $ 109,095
ACCOUNTS PAYABLE 181,975 144,388
ACCRUED CONTRACT COSTS 91,937 63,586
ACCRUED LIABILITIES - OTHER 138,008 110,366
ADVANCE BILLINGS ON CONTRACTS 140,736 86,542
U.S. AND FOREIGN INCOME TAXES 45,120 22,282
- ------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 609,907 536,259
- ------------------------------------------------------------------
LONG-TERM DEBT 270,798 273,443
- ------------------------------------------------------------------
DEFERRED AND NON-CURRENT INCOME TAXES 41,122 42,556
- ------------------------------------------------------------------
OTHER LIABILITIES 82,341 71,452
- ------------------------------------------------------------------
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
41,094,987 AT DECEMBER 31, 1997 AND
40,617,792 AT MARCH 31, 1997 411 406
CAPITAL IN EXCESS OF PAR VALUE 602,868 590,263
RETAINED EARNINGS (DEFICIT) 36,537 (33,463)
CURRENCY TRANSLATION ADJUSTMENTS (19,722) (21,280)
- ------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 620,126 535,958
- ------------------------------------------------------------------
TOTAL $1,624,294 $1,459,668
==================================================================
5
<PAGE>
J. RAY McDERMOTT, S.A.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
DECEMBER 31, 1997
THREE NINE
MONTHS ENDED MONTHS ENDED
12/31/97 12/31/96 12/31/97 12/31/96
-------- -------- --------- ----------
(UNAUDITED)
(IN THOUSANDS)
REVENUES $452,659 $316,899 $1,411,416 $1,074,143
- -------------------------------------------------------------------------------
COSTS AND EXPENSES:
COST OF OPERATIONS (EXCLUDING
DEPRECIATION AND AMORTIZATION) 378,476 264,201 1,175,110 895,469
DEPRECIATION AND AMORTIZATION 21,093 23,165 74,499 67,567
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 23,803 27,229 74,695 86,019
- -------------------------------------------------------------------------------
423,372 314,595 1,324,304 1,049,055
- -------------------------------------------------------------------------------
GAIN (LOSS) ON ASSET DISPOSALS AND
IMPAIRMENTS-NET (40,330) 42,128 (40,306) 43,189
- -------------------------------------------------------------------------------
OPERATING INCOME (LOSS) BEFORE
INCOME (LOSS) FROM INVESTEES (11,043) 44,432 46,806 68,277
INCOME (LOSS) FROM INVESTEES 63,845 4,011 61,876 (6,120)
- -------------------------------------------------------------------------------
OPERATING INCOME 52,802 48,443 108,682 62,157
- -------------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
INTEREST INCOME 6,961 4,198 16,549 11,297
INTEREST EXPENSE (6,749) (10,190) (23,354) (31,254)
OTHER-NET 4,211 3,101 4,693 9,698
- -------------------------------------------------------------------------------
4,423 (2,891) (2,112) (10,259)
- -------------------------------------------------------------------------------
INCOME BEFORE PROVISION FOR
INCOME TAXES 57,225 45,552 106,570 51,898
PROVISION FOR INCOME TAXES 6,214 6,695 31,379 20,043
- -------------------------------------------------------------------------------
NET INCOME $ 51,011 $ 38,857 $ 75,191 $ 31,855
===============================================================================
NET INCOME APPLICABLE TO COMMON
STOCK (AFTER PREFERRED STOCK
DIVIDENDS) $ 49,211 $ 37,057 $ 69,791 $ 26,455
===============================================================================
6
<PAGE>
CONTINUED
THREE NINE
MONTHS ENDED MONTHS ENDED
12/31/97 12/31/96 12/31/97 12/31/96
-------- -------- --------- ----------
(UNAUDITED)
BASIC EARNINGS PER COMMON SHARE $ 1.20 $ 0.92 $ 1.71 $ 0.66
===============================================================================
EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE
ASSUMING DILUTION $ 1.08 $ 0.83 $ 1.60 $ 0.65
===============================================================================
CASH DIVIDENDS:
PER PREFERRED SHARE $ 0.5625 $ 0.5625 $ 1.6875 $ 1.6875
===============================================================================
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
7
<PAGE>
J. RAY MCDERMOTT, S.A.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
DECEMBER 31, 1997
INCREASE IN CASH AND CASH EQUIVALENTS
NINE MONTHS ENDED
12/31/97 12/31/96
-------- --------
(UNAUDITED)
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $ 75,191 $ 31,855
- ------------------------------------------------------------------------------
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION 74,499 67,567
EQUITY IN (INCOME) LOSS OF INVESTEES,
LESS DIVIDENDS 1,573 21,170
(GAIN) LOSS ON ASSET DISPOSALS AND IMPAIRMENTS-NET 40,306 (43,189)
OTHER (6,189) 3,139
CHANGES IN ASSETS AND LIABILITIES:
ACCOUNTS RECEIVABLE 56,806 (53,309)
NET CONTRACTS IN PROGRESS AND ADVANCE BILLINGS 37,050 159,100
ACCOUNTS PAYABLE 207 (18,361)
ACCRUED CONTRACT COSTS 28,351 2,447
ACCRUED LIABILITIES 21,244 (23,441)
INCOME TAXES 24,804 (162)
OTHER, NET 4,024 (10,754)
- ------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 357,866 136,062
- ------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
PURCHASES OF PROPERTY, PLANT AND EQUIPMENT (18,917) (53,512)
PURCHASES OF INVESTMENTS (317,350) -
SALES AND MATURITIES OF INVESTMENTS 76,400 -
PROCEEDS FROM ASSET DISPOSALS 283,827 32,810
INVESTMENT IN EQUITY INVESTEES (1,419) (3,908)
OTHER - 155
- ------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 22,541 (24,455)
- ------------------------------------------------------------------------------
8
<PAGE>
CONTINUED
INCREASE IN CASH AND CASH EQUIVALENTS
NINE MONTHS ENDED
12/31/97 12/31/96
-------- --------
(UNAUDITED)
(IN THOUSANDS)
CASH FLOWS FROM FINANCING ACTIVITIES:
PAYMENT OF LONG-TERM DEBT $ (81,169) $ (8,657)
ISSUANCE OF LONG-TERM DEBT - 244,375
DECREASE IN SHORT-TERM BORROWING (23,856) (86,774)
DECREASE IN NOTES PAYABLE TO
MCDERMOTT INTERNATIONAL - (231,000)
ISSUANCE OF COMMON STOCK 8,477 2,225
PREFERRED DIVIDENDS PAID (5,400) (5,400)
OTHER - 1,294
- ------------------------------------------------------------------------------
NET CASH USED IN FINANCING ACTIVITIES (101,948) (83,937)
- ------------------------------------------------------------------------------
EFFECTS OF EXCHANGE RATE CHANGES ON CASH 485 3,735
- ------------------------------------------------------------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 278,944 31,405
- ------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 134,948 166,408
- ------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 413,892 $197,813
==============================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
CASH PAID DURING THE PERIOD FOR:
INTEREST (NET OF AMOUNT CAPITALIZED) $ 19,314 $ 18,992
INCOME TAXES (NET OF REFUNDS) $ 11,613 $ 21,677
==============================================================================
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
9
<PAGE>
J. RAY MCDERMOTT, S.A.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
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 A GAIN OF $223,651,000 AND A $61,637,000
DISTRIBUTION OF EARNINGS FROM THE TERMINATION OF THE HEEREMAC JOINT VENTURE AND
IMPAIRMENT LOSSES OF $275,112,000, INCLUDING $262,901,000 OF GOODWILL ASSOCIATED
WITH THE ACQUISITION OF OFFSHORE PIPELINES, INC. ("OPI") INCLUDED IN THE THREE
AND NINE MONTHS ENDED DECEMBER 31, 1997; AND FAVORABLE WORKERS' COMPENSATION
COST ADJUSTMENTS OF $5,693,000 INCLUDED IN THE THREE AND NINE MONTHS ENDED
DECEMBER 31, 1996. OPERATING RESULTS FOR THE THREE AND NINE MONTHS ENDED
DECEMBER 31, 1997 ARE NOT NECESSARILY INDICATIVE OF THE RESULTS THAT MAY BE
EXPECTED FOR THE FISCAL YEAR ENDING MARCH 31, 1998. RESULTS FOR THE THREE AND
NINE MONTHS ENDED DECEMBER 31, 1996 HAVE BEEN RESTATED TO REFLECT THE CHANGE IN
FISCAL YEAR 1997 FROM THE EQUITY TO THE COST METHOD OF ACCOUNTING FOR JRM'S
INVESTMENT IN THE HEEREMAC JOINT VENTURE. 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, 1997.
10
<PAGE>
NOTE 2 - INVESTIGATIONS
SINCE MARCH 1997, JRM AND INTERNATIONAL, WITH THE HELP OF OUTSIDE COUNSEL, HAVE
BEEN INVESTIGATING ALLEGATIONS OF WRONGDOING BY A LIMITED NUMBER OF FORMER
EMPLOYEES OF JRM AND INTERNATIONAL AND BY OTHERS. UPON RECEIVING THESE
ALLEGATIONS, JRM AND INTERNATIONAL NOTIFIED AUTHORITIES, INCLUDING THE ANTITRUST
DIVISION OF THE U.S. DEPARTMENT OF JUSTICE ("ANTITRUST DIVISION") AND THE
EUROPEAN COMMISSION.
IN RETURN FOR JRM AND INTERNATIONAL'S PROMPT DISCLOSURE OF THE ALLEGATIONS, THE
COMPANIES AND INDIVIDUALS WHO WERE OFFICERS, DIRECTORS AND EMPLOYEES AT THE TIME
OF THE DISCLOSURE WERE GRANTED IMMUNITY FROM CRIMINAL PROSECUTION BY THE
ANTITRUST DIVISION FOR ANY ANTI-COMPETITIVE ACTS INVOLVING WORLDWIDE HEAVY-LIFT
ACTIVITIES.
JRM AND INTERNATIONAL HAVE RECEIVED SUBPOENAS IN CONNECTION WITH THE ANTITRUST
DIVISION'S INVESTIGATION. THEY ADDRESS PRINCIPALLY THE HEAVY-LIFT BUSINESS OF
JRM'S FORMER HEEREMAC JOINT VENTURE ("HEEREMAC") AND POSSIBLE ANTI-COMPETITIVE
ACTIVITY IN THE MARINE CONSTRUCTION BUSINESS OF MCDERMOTT-ETPM EAST, INC., A
MIDDLE EAST JOINT VENTURE WITH ETPM S.A., A FRENCH COMPANY. JRM AND
INTERNATIONAL ARE ALSO COMPLYING WITH THE SECURITIES AND EXCHANGE COMMISSION'S
("SEC") REQUEST FOR DOCUMENTS.
AFTER RECEIVING THE ALLEGATIONS IN MARCH 1997, JRM INITIATED ACTION TO TERMINATE
ITS INTEREST IN HEEREMAC, AND ON DECEMBER 19, 1997, JRM'S JOINT VENTURE PARTNER,
HEEREMA OFFSHORE CONSTUCTION GROUP, INC., ACQUIRED JRM'S INTEREST IN EXCHANGE
FOR $318,500,000 IN CASH AND TITLE TO SEVERAL PIECES OF EQUIPMENT, INCLUDING
LAUNCH BARGES AND THE DB 101, A 3,500-TON CAPACITY SEMI-SUBMERSIBLE DERRICK
BARGE. JRM WILL RECEIVE THE EQUIPMENT IN THE SPRING OF 1998, AFTER IT COMPLETES
CONTRACTS IN PROGRESS.
ON DECEMBER 21, 1997, HEEREMAC AND A HEEREMAC EMPLOYEE PLED GUILTY TO CRIMINAL
CHARGES BY THE DEPARTMENT OF JUSTICE THAT THEY AND OTHERS HAD PARTICIPATED IN A
CONSPIRACY TO RIG BIDS IN CONNECTION WITH THE HEAVY-LIFT BUSINESS OF HEEREMAC IN
THE GULF OF MEXICO, NORTH SEA AND FAR EAST. HEEREMAC WAS FINED $49,000,000 AND
THE EMPLOYEE $100,000. AS PART OF THE PLEA, BOTH HEEREMAC AND CERTAIN EMPLOYEES
OF HEEREMAC ARE OBLIGATED TO COOPERATE FULLY WITH THE
11
<PAGE>
ANTITRUST DIVISION'S INVESTIGATION. NEITHER JRM, INTERNATIONAL NOR ANY OF THEIR
OFFICERS, DIRECTORS OR EMPLOYEES WAS A PARTY TO THESE PROCEEDINGS.
IT IS NOT POSSIBLE AT THIS TIME TO PREDICT THE ULTIMATE OUTCOME OF THE
DEPARTMENT OF JUSTICE'S INVESTIGATION, THE GRAND JURY PROCEEDINGS, THE INQUIRY
FROM THE SEC OR THE COMPANIES' INTERNAL INVESTIGATIONS, OR ACTIONS THAT MAY BE
TAKEN BY OTHERS AS A RESULT OF HEEREMAC'S GUILTY PLEA. HOWEVER, THESE MATTERS
COULD RESULT IN CIVIL AND/OR CRIMINAL LIABILITY TO THE COMPANIES AND HAVE A
MATERIAL EFFECT ON FUTURE RESULTS OF OPERATIONS.
12
<PAGE>
NOTE 3 - EARNINGS PER SHARE
IN FEBRUARY 1997, THE FINANCIAL ACCOUNTING STANDARDS BOARD ("FASB") ISSUED
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS ("SFAS") NO. 128, "EARNINGS PER
SHARE." SFAS NO. 128 REPLACED THE PREVIOUSLY REPORTED PRIMARY AND FULLY DILUTED
EARNINGS PER SHARE WITH BASIC AND DILUTED EARNINGS PER SHARE. UNLIKE PRIMARY
EARNINGS PER SHARE, BASIC EARNINGS PER SHARE EXCLUDES ANY DILUTIVE EFFECTS OF
OPTIONS, WARRANTS, AND CONVERTIBLE SECURITIES. DILUTED EARNINGS PER SHARE IS
VERY SIMILAR TO THE PREVIOUSLY REPORTED FULLY DILUTED EARNINGS PER SHARE. ALL
EARNINGS PER SHARE AMOUNTS HAVE BEEN RESTATED TO CONFORM TO THE NEW
REQUIREMENTS.
THE FOLLOWING TABLE SETS FORTH THE COMPUTATION OF BASIC AND DILUTED EARNINGS PER
SHARE:
THREE NINE
MONTHS ENDED MONTHS ENDED
12/31/97 12/31/96 12/31/97 12/31/96
-------- -------- -------- --------
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE AMOUNTS)
BASIC:
NET INCOME $ 51,011 $ 38,857 $ 75,191 $ 31,855
- -------------------------------------------------------------------------------
LESS DIVIDEND REQUIREMENTS OF
PREFERRED STOCKS (1,800) (1,800) (5,400) (5,400)
- -------------------------------------------------------------------------------
NET INCOME FOR BASIC COMPUTATION $ 49,211 $ 37,057 $ 69,791 $ 26,455
===============================================================================
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING
DURING THE PERIOD 41,083,819 40,445,740 40,922,281 40,322,348
- -------------------------------------------------------------------------------
EARNINGS PER COMMON SHARE $ 1.20 $ 0.92 $ 1.71 $ 0.66
===============================================================================
13
<PAGE>
CONTINUED
THREE NINE
MONTHS ENDED MONTHS ENDED
12/31/97 12/31/96 12/31/97 12/31/96
-------- -------- -------- --------
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE AMOUNTS)
DILUTED:
NET INCOME $ 51,011 $ 38,857 $ 75,191 $ 31,855
LESS DIVIDEND REQUIREMENTS OF
PREFERRED STOCKS - - - (5,400)
- -------------------------------------------------------------------------------
NET INCOME FOR DILUTED
COMPUTATION $ 51,011 $ 38,857 $ 75,191 $ 26,455
===============================================================================
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING
DURING THE PERIOD 41,083,819 40,445,740 40,922,281 40,322,348
COMMON STOCK EQUIVALENTS OF
STOCK OPTIONS BASED ON
"TREASURY STOCK" METHOD 289,758 442,197 271,853 460,953
SHARES APPLICABLE TO SERIES A $2.25
CUMULATIVE CONVERTIBLE
PREFERRED STOCK 5,740,940 5,740,940 5,740,940 -
- -------------------------------------------------------------------------------
WEIGHTED AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT SHARES
OUTSTANDING DURING THE PERIOD,
ASSUMING DILUTION 47,114,517 46,628,877 46,935,074 40,783,301
===============================================================================
EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE ASSUMING
DILUTION $ 1.08 $ 0.83 $ 1.60 $ 0.65
===============================================================================
DILUTED EARNINGS PER SHARE INCLUDES ONLY COMPUTATIONS WHICH CAUSE DILUTION.
14
<PAGE>
NOTE 4 - DISPOSITION OF ASSETS
ON DECEMBER 19, 1997, JRM AND HEEREMA ENTERED INTO A TRANSACTION PURSUANT TO
WHICH THEY TERMINATED THE HEEREMAC JOINT VENTURE (THE "TERMINATION AGREEMENT").
THE HEEREMAC JOINT VENTURE WAS FORMED IN JANUARY 1989 AND UTILIZED THE
SPECIALIZED, HEAVY-LIFT MARINE CONSTRUCTION VESSELS WHICH WERE PREVIOUSLY OWNED
BY THE TWO PARTIES. EACH PARTY HAD A 50% INTEREST IN THE JOINT VENTURE, AND
HEEREMA HAD RESPONSIBILITY FOR ITS DAY-TO-DAY OPERATIONS.
UNDER THE TERMS OF THE TERMINATION AGREEMENT, HEEREMA ACQUIRED AND ASSUMED JRM'S
50% INTEREST IN THE JOINT VENTURE IN EXCHANGE FOR CASH OF $318,500,000 AND TITLE
TO SEVERAL PIECES OF EQUIPMENT. THE EQUIPMENT TRANSFERRED TO JRM INCLUDES TWO
LAUNCH BARGES AND THE DB101, A 3,500-TON LIFT CAPACITY, SEMI-SUBMERSIBLE
DERRICK BARGE. THE EQUIPMENT WILL BE CHARTERED TO HEEREMA UNTIL THE SPRING OF
1998.
THE CONSIDERATION RECEIVED BY JRM INCLUDED A DISTRIBUTION OF EARNINGS OF THE
HEEREMAC JOINT VENTURE AND PAYMENT OF PRINCIPAL AND INTEREST UNDER A PROMISSORY
NOTE PREVIOUSLY DUE TO JRM (APPROXIMATELY $100,000,000). AS A RESULT OF THE
TERMINATION OF THE HEEREMAC JOINT VENTURE, JRM RECORDED A GAIN ON ASSET DISPOSAL
OF $223,651,000 AND A DISTRIBUTION OF EARNINGS OF $61,637,000.
NOTE 5 - GOODWILL IMPAIRMENT
DURING THE DECEMBER 1997 QUARTER, MANAGEMENT CONCLUDED THE GOODWILL ASSOCIATED
WITH THE ACQUISITION OF OPI IN 1995 NO LONGER HAD VALUE AND RECORDED A CHARGE
FOR THE REMAINING GOODWILL OF $262,901,000. THE DECISION WAS BASED ON THE LACK
OF VOLUME RELATED TO OPI, THE DEPARTURE OF KEY OPI EXECUTIVES FROM JRM AND THE
DISPOSAL OF SIGNIFICANT OPI JOINT VENTURES AND MAJOR OPI VESSELS. THE CHARGE
WILL REDUCE FUTURE ANNUAL AMORTIZATION BY APPROXIMATELY $21,800,000.
15
<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 IT IS UNABLE TO MATCH THE FOREIGN CURRENCY
RECEIPTS AND DISBURSEMENTS RELATED TO ITS CONTRACTS, JRM ENTERS INTO FORWARD
EXCHANGE CONTRACTS TO HEDGE FOREIGN CURRENCY TRANSACTIONS, WHICH REDUCES THE
IMPACT OF FOREIGN EXCHANGE RATE MOVEMENTS ON OPERATING RESULTS.
MANAGEMENT'S DISCUSSION OF REVENUES AND OPERATING INCOME IS PRESENTED BY
GEOGRAPHIC AREA. OTHER GEOGRAPHIC AREA REVENUES INCLUDE ACTIVITY IN CENTRAL AND
SOUTH AMERICA AND ELIMINATIONS BETWEEN GEOGRAPHIC AREAS; AND OTHER GEOGRAPHIC
AREA OPERATING INCOME INCLUDES ACTIVITY IN CENTRAL AND SOUTH AMERICA AND THE
AMORTIZATION OF COVENANTS-NOT-TO-COMPETE RESULTING FROM JRM'S ACQUISITION OF
OFFSHORE PIPELINES, INC. ("OPI") DURING FISCAL YEAR 1995. RESULTS FOR THE THREE
AND NINE MONTHS ENDED DECEMBER 31, 1996 HAVE BEEN RESTATED TO REFLECT THE
DISCONTINUANCE OF THE EQUITY METHOD OF ACCOUNTING FOR JRM'S INVESTMENT IN THE
HEEREMAC JOINT VENTURE.
STATEMENTS MADE HEREIN WHICH EXPRESS A BELIEF, EXPECTATION OR INTENTION, AS WELL
AS THOSE WHICH ARE NOT HISTORICAL FACT, ARE FORWARD LOOKING. THEY INVOLVE A
NUMBER OF RISKS AND UNCERTAINTIES WHICH MAY CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM SUCH FORWARD LOOKING STATEMENTS. THESE RISKS AND UNCERTAINTIES
INCLUDE, BUT ARE NOT LIMITED TO: DECISIONS ABOUT OFFSHORE DEVELOPMENTS TO BE
MADE BY OIL AND GAS COMPANIES; THE HIGHLY COMPETITIVE NATURE OF THE MARINE
CONSTRUCTION SERVICES BUSINESS; OPERATING RISKS ASSOCIATED WITH THE MARINE
CONSTRUCTION SERVICES BUSINESS; AND THE RESULTS OF THE ONGOING INVESTIGATION BY
JRM AND THE U.S. DEPARTMENT OF JUSTICE INTO POSSIBLE ANTI-COMPETITIVE PRACTICES
BY JRM.
16
<PAGE>
<TABLE>
<CAPTION>
THREE NINE
MONTHS ENDED MONTHS ENDED
12/31/97 12/31/96 12/31/97 12/31/96
--------- --------- --------- ---------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
REVENUES
UNITED STATES $ 214,740 $ 117,876 $ 597,425 $ 463,056
EUROPE AND WEST AFRICA 82,577 104,526 322,900 305,906
MIDDLE EAST 87,402 62,038 270,607 134,285
FAR EAST 73,928 37,574 239,313 175,265
OTHER (INCLUDING TRANSFER ELIMINATIONS) (5,988) (5,115) (18,829) (4,369)
- ---------------------------------------------------------------------------------------------------------------
TOTAL REVENUES $ 452,659 $ 316,899 $1,411,416 $1,074,143
===============================================================================================================
OPERATING INCOME
BUSINESS UNIT INCOME (LOSS) BY GEOGRAPHIC AREA:
UNITED STATES $ 21,835 $ 7,280 $ 65,934 $ 39,807
EUROPE AND WEST AFRICA 2,715 (4,697) 13,192 (12,294)
MIDDLE EAST 7,632 4,155 30,143 (494)
FAR EAST 1,938 (3,337) (10,627) 3,786
OTHER (3,430) 2,029 (2,426) 4,371
- ---------------------------------------------------------------------------------------------------------------
TOTAL 30,690 5,430 96,216 35,176
- ---------------------------------------------------------------------------------------------------------------
GAIN (LOSS) ON ASSET DISPOSALS AND IMPAIRMENTS-NET:
UNITED STATES 8,268 (411) 6,173 373
EUROPE AND WEST AFRICA 216,318 29,949 217,199 29,974
MIDDLE EAST (976) 33 (840) 412
FAR EAST - 648 814 648
OTHER (263,940) 11,909 (263,652) 11,782
- ---------------------------------------------------------------------------------------------------------------
TOTAL (40,330) 42,128 (40,306) 43,189
- ---------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTEES:
UNITED STATES (140) (5) 1,346 200
EUROPE AND WEST AFRICA 62,246 (4,167) 58,666 (13,296)
FAR EAST 1,378 (86) 2,961 (869)
OTHER 361 8,269 (1,097) 7,845
- ---------------------------------------------------------------------------------------------------------------
TOTAL 63,845 4,011 61,876 (6,120)
- ---------------------------------------------------------------------------------------------------------------
CORPORATE G&A EXPENSE (1,403) (3,126) (9,104) (10,088)
- ---------------------------------------------------------------------------------------------------------------
TOTAL OPERATING INCOME $ 52,802 $ 48,443 $ 108,682 $ 62,157
===============================================================================================================
</TABLE>
17
<PAGE>
RESULTS OF OPERATIONS - THREE MONTHS ENDED DECEMBER 31, 1997 VS. THREE MONTHS
ENDED DECEMBER 31, 1996
REVENUES INCREASED $135,760,000 TO $452,659,000, PRIMARILY DUE TO HIGHER VOLUME
IN VIRTUALLY ALL ACTIVITIES IN THE UNITED STATES, THE MIDDLE EAST AND THE FAR
EAST. THESE INCREASES WERE PARTIALLY OFFSET BY LOWER VOLUME IN OFFSHORE AND
ENGINEERING ACTIVITIES IN EUROPE AND WEST AFRICA AND LOWER ENGINEERING
ACTIVITIES IN THE MIDDLE EAST.
BUSINESS UNIT INCOME INCREASED $25,260,000 TO $30,690,000, PRIMARILY DUE TO
HIGHER VOLUME IN OFFSHORE AND ENGINEERING ACTIVITIES AND HIGHER VOLUME AND
MARGINS IN FABRICATION IN THE UNITED STATES, HIGHER MARGINS IN ENGINEERING IN
EUROPE AND WEST AFRICA AND THE MIDDLE EAST, AND HIGHER VOLUME AND LOWER MARGINS
IN ALL ACTIVITIES IN THE FAR EAST. IN ADDITION, THERE WERE LOWER OVERALL NET
OPERATING EXPENSES IN ALL OF THE GEOGRAPHIC AREAS.
GAIN (LOSS) ON ASSET DISPOSALS AND IMPAIRMENTS-NET DECREASED $82,458,000 FROM A
GAIN OF $42,128,000 TO A LOSS OF $40,330,000, PRIMARILY DUE TO THE IMPAIRMENT
LOSS OF $262,901,000 RELATING TO GOODWILL ASSOCIATED WITH THE ACQUISITION OF
OPI. PRIOR YEAR GAINS FROM THE SALE OF THE DB21, PARTICIPATION IN A GAIN FROM
THE SALE OF THE DB100 BY THE HEEREMAC JOINT VENTURE AND THE AMORTIZATION OF THE
DEFERRED GAIN RESULTING FROM THE SALE OF THE DB101 AND DB102 ALSO CONTRIBUTED TO
THE DECREASE. THESE DECREASES WERE PARTIALLY OFFSET BY THE $223,651,000 GAIN
RECOGNIZED FROM THE TERMINATION OF THE HEEREMAC JOINT VENTURE.
INCOME FROM INVESTEES INCREASED $59,834,000 TO $63,845,000, PRIMARILY DUE TO A
$61,637,000 DISTRIBUTION OF EARNINGS RELATED TO THE TERMINATION OF THE HEEREMAC
JOINT VENTURE.
INTEREST INCOME INCREASED $2,763,000 TO $6,961,000, PRIMARILY DUE TO INCREASES
IN CASH EQUIVALENTS, INVESTMENTS IN GOVERNMENT OBLIGATIONS AND OTHER INVESTMENTS
DURING THE CURRENT PERIOD.
INTEREST EXPENSE DECREASED $3,441,000 TO $6,749,000, PRIMARILY DUE TO CHANGES IN
DEBT OBLIGATIONS AND INTEREST RATES PREVAILING THEREON.
OTHER-NET INCOME INCREASED $1,110,000 TO $4,211,000, PRIMARILY DUE TO HIGHER
FOREIGN CURRENCY TRANSACTION GAINS PARTIALLY OFFSET BY MINORITY SHAREHOLDER
PARTICIPATION IN THE IMPROVED RESULTS OF MCDERMOTT-ETPM EAST, INC. AND OFFSHORE
PRODUCTION VESSELS LIMITED.
18
<PAGE>
THE PROVISION FOR INCOME TAXES DECREASED $481,000 TO $6,214,000 WHILE INCOME
BEFORE THE PROVISION FOR INCOME TAXES INCREASED $11,673,000 TO INCOME OF
$57,225,000. JRM OPERATES IN MANY 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, AS WELL AS THE REAPPRAISAL OF TAX
LIABILITIES IN CERTAIN JURISDICTIONS, THE PROVISION FOR INCOME TAXES WAS 11% OF
PRETAX INCOME FOR THE THREE MONTHS ENDED DECEMBER 31, 1997 COMPARED TO A
PROVISION FOR INCOME TAXES OF 15% OF PRETAX INCOME FOR THE THREE MONTHS ENDED
DECEMBER 31, 1996.
RESULTS OF OPERATIONS - NINE MONTHS ENDED DECEMBER 31, 1997 VS. NINE MONTHS
ENDED DECEMBER 31, 1996
REVENUES INCREASED $337,273,000 TO $1,411,416,000, PRIMARILY DUE TO HIGHER
VOLUME IN VIRTUALLY ALL ACTIVITIES IN ALL GEOGRAPHIC AREAS, EXCEPT IN OFFSHORE
ACTIVITIES IN THE FAR EAST AND ENGINEERING ACTIVITIES IN THE MIDDLE EAST AND
EUROPE AND WEST AFRICA.
BUSINESS UNIT INCOME INCREASED $61,040,000 TO $96,216,000. VIRTUALLY ALL
ACTIVITIES IN ALL GEOGRAPHIC AREAS, EXCEPT THE FAR EAST, REFLECTED THIS
INCREASE.
GAIN (LOSS) ON ASSET DISPOSALS AND IMPAIRMENTS-NET DECREASED $83,495,000 FROM A
GAIN OF $43,189,000 TO A LOSS OF $40,306,000, PRIMARILY DUE TO THE IMPAIRMENT
LOSS OF $262,901,000 RELATING TO GOODWILL ASSOCIATED WITH THE ACQUISITION OF
OPI. PRIOR YEAR GAINS FROM THE SALE OF THE DB21, PARTICIPATION IN A GAIN FROM
THE SALE OF THE DB100 BY THE HEEREMAC JOINT VENTURE AND THE AMORTIZATION OF THE
DEFERRED GAIN RESULTING FROM THE SALE OF THE DB101 AND DB102 ALSO CONTRIBUTED TO
THE DECREASE. THESE DECREASES WERE PARTIALLY OFFSET BY THE $223,651,000 GAIN
RECOGNIZED FROM THE TERMINATION OF THE HEEREMAC JOINT VENTURE.
INCOME (LOSS) FROM INVESTEES INCREASED $67,996,000 FROM A LOSS OF $6,120,000 TO
INCOME OF $61,876,000, PRIMARILY DUE TO A $61,637,000 DISTRIBUTION OF EARNINGS
RELATED TO THE TERMINATION OF THE HEEREMAC JOINT VENTURE.
INTEREST INCOME INCREASED $5,252,000 TO $16,549,000, PRIMARILY DUE TO INCREASES
IN CASH EQUIVALENTS, INVESTMENTS IN GOVERNMENT OBLIGATIONS AND OTHER INVESTMENTS
DURING THE CURRENT PERIOD.
19
<PAGE>
INTEREST EXPENSE DECREASED $7,900,000 TO $23,354,000, PRIMARILY DUE TO CHANGES
IN DEBT OBLIGATIONS AND INTEREST RATES PREVAILING THEREON.
OTHER-NET DECREASED $5,005,000 TO $4,693,000, PRIMARILY DUE TO A DECREASE IN
CERTAIN REIMBURSED FINANCING COSTS AND MINORITY SHAREHOLDER PARTICIPATION IN THE
IMPROVED RESULTS OF OFFSHORE PRODUCTION VESSELS LIMITED AND MCDERMOTT SUBSEA
CONSTUCTORS LIMITED. THESE DECREASES WERE PARTIALLY OFFSET BY HIGHER FOREIGN
CURRENCY TRANSACTION GAINS.
THE PROVISION FOR INCOME TAXES INCREASED $11,336,000 TO $31,379,000 WHILE INCOME
BEFORE THE PROVISION FOR INCOME TAXES INCREASED $54,672,000 TO $106,570,000.
THE PROVISION FOR INCOME TAXES WAS 29% OF PRETAX INCOME FOR THE NINE MONTHS
ENDED DECEMBER 31, 1997 COMPARED TO A PROVISION FOR INCOME TAXES OF 39% FOR THE
NINE MONTHS ENDED DECEMBER 31, 1996.
BACKLOG
- -------
12/31/97 3/31/97
-------- -------
(UNAUDITED)
(IN THOUSANDS)
UNITED STATES $ 505,778 $ 565,318
EUROPE AND WEST AFRICA 116,542 297,767
MIDDLE EAST 240,233 443,393
FAR EAST 439,906 453,748
OTHER 3,068 -
- -------------------------------------------------------------
TOTAL BACKLOG $ 1,305,527 $1,760,226
=============================================================
JRM'S UNITED STATES, FAR EAST AND NORTH SEA MARINE MARKETS REMAIN STEADY. THE
NORTH SEA ENGINEERING MARKET AND MIDDLE EAST MARKETS ARE BEGINNING TO WEAKEN.
BACKLOG RELATING TO CONTRACTS TO BE PERFORMED BY JRM'S UNCONSOLIDATED JOINT
VENTURES (NOT INCLUDED ABOVE) WAS $1,127,000,000 AT DECEMBER 31, 1997 COMPARED
TO $1,439,000,000 (OF WHICH $645,000,000 WAS RELATED TO THE HEEREMAC JOINT
VENTURE) AT MARCH 31, 1997.
IN GENERAL, JRM'S BUSINESS IS CAPITAL INTENSIVE AND RELIES ON LARGE CONTRACTS
FOR A SUBSTANTIAL AMOUNT OF ITS REVENUES.
Liquidity and Capital Resources
- -------------------------------
DURING THE NINE MONTHS ENDED DECEMBER 31, 1997, JRM'S CASH AND CASH EQUIVALENTS
INCREASED $278,944,000 TO $413,892,000 AND TOTAL DEBT DECREASED $99,609,000 TO
$282,929,000, PRIMARILY DUE TO REPAYMENT OF $81,169,000 IN LONG-TERM DEBT AND A
DECREASE IN SHORT-TERM BORROWINGS OF $23,856,000. DURING THIS PERIOD, JRM
PROVIDED CASH OF $357,866,000 FROM OPERATING ACTIVITIES, AND RECEIVED CASH OF
$283,827,000 FROM THE DISPOSITION OF ASSETS AND $8,477,000 FROM THE ISSUANCE
20
<PAGE>
OF STOCK UPON EXERCISE OF STOCK OPTIONS. JRM USED CASH OF $240,950,000 FOR NET
PURCHASES OF INVESTMENTS, $18,917,000 FOR ADDITIONS TO PROPERTY, PLANT AND
EQUIPMENT AND $5,400,000 FOR CASH DIVIDENDS ON PREFERRED STOCK.
ON DECEMBER 19, 1997, JRM AND HEEREMA OFFSHORE CONSTRUCTION GROUP, INC.
("HEEREMA") ENTERED INTO A TRANSACTION PURSUANT TO WHICH THEY TERMINATED THE
HEEREMAC JOINT VENTURE (THE "TERMINATION AGREEMENT"). UNDER THE TERMS OF THE
TERMINATION AGREEMENT, HEEREMA ACQUIRED AND ASSUMED JRM'S 50% INTEREST IN THE
JOINT VENTURE IN EXCHANGE FOR CASH OF $318,500,000 AND TITLE TO SEVERAL PIECES
OF EQUIPMENT, INCLUDING TWO LAUNCH BARGES AND THE DB101, A 3,500-TON LIFT
CAPACITY, SEMI-SUBMERSIBLE DERRICK BARGE. THE CONSIDERATION RECEIVED BY JRM
INCLUDED A $61,637,000 DISTRIBUTION OF EARNINGS OF THE HEEREMAC JOINT VENTURE
AND PAYMENT OF PRINCIPAL AND INTEREST UNDER A PROMISSORY NOTE PREVIOUSLY DUE TO
JRM (APPROXIMATELY $100,000,000). AS A RESULT OF THE TERMINATION AGREEMENT, JRM
RECORDED A GAIN ON ASSET DISPOSAL OF APPROXIMATELY $223,651,000 AND A
DISTRIBUTION OF EARNINGS OF $61,637,000. JRM INVESTED THE CASH PROCEEDS IT
RECEIVED IN DEBT SECURITIES.
EXPENDITURES FOR PROPERTY, PLANT AND EQUIPMENT DECREASED $34,595,000 TO
$18,917,000 FOR THE NINE MONTHS ENDED DECEMBER 31, 1997, COMPARED WITH THE SAME
PERIOD IN THE PRIOR YEAR. THE MAJORITY OF THESE EXPENDITURES WERE TO MAINTAIN,
REPLACE AND UPGRADE EXISTING FACILITIES AND EQUIPMENT.
AT DECEMBER 31 AND MARCH 31, 1997, JRM HAD AVAILABLE VARIOUS UNCOMMITTED SHORT-
TERM LINES OF CREDIT FROM BANKS TOTALING $27,963,000 AND $34,174,000,
RESPECTIVELY. BORROWINGS BY JRM AGAINST THESE LINES OF CREDIT AT DECEMBER 31
AND MARCH 31, 1997 WERE $4,123,000 AND $23,858,000, RESPECTIVELY. JRM IS ALSO A
PARTY TO AN UNSECURED AND COMMITTED REVOLVING CREDIT FACILITY (THE "JRM
REVOLVER"). THERE WERE NO BORROWINGS OUTSTANDING AT DECEMBER OR MARCH 31, 1997
UNDER THE JRM REVOLVER. AS A CONDITION TO BORROWING UNDER THE FACILITY, JRM
MUST COMPLY WITH CERTAIN REQUIREMENTS, INCLUDING LEGAL REPRESENTATIONS. DUE TO
THE UNCERTAINTY ASSOCIATED WITH THE ONGOING INVESTIGATION BY JRM AND THE U.S.
DEPARTMENT OF JUSTICE INTO POSSIBLE ANTI-COMPETITIVE PRACTICES BY JRM AND OTHERS
(SEE NOTE 2 TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS), JRM CANNOT
PRESENTLY SATISFY THESE LEGAL REPRESENTATIONS, AND THEREFORE, CANNOT BORROW
UNDER THE JRM REVOLVER. THE JRM REVOLVER ALSO LIMITS THE AMOUNT OF FUNDS WHICH
JRM CAN BORROW FROM OTHER SOURCES. IT IS NOT ANTICIPATED THAT JRM WILL NEED TO
BORROW FUNDS UNDER THE JRM REVOLVER DURING FISCAL YEAR 1998.
JRM IS RESTRICTED, AS A RESULT OF COVENANTS IN ITS CREDIT AGREEMENTS, IN PAYING
CASH DIVIDENDS ON
21
<PAGE>
OR BUYING BACK ITS OUTSTANDING COMMON AND PREFERRED STOCK (INCLUDING PAYING THE
ANNUAL CASH DIVIDENDS OF $7,200,000 ON ITS SERIES A PREFERRED STOCK HELD BY
INTERNATIONAL OR BUYING BACK SUCH PREFERRED STOCK OR THE SHARES OF COMMON STOCK
OWNED BY INTERNATIONAL). AT DECEMBER 31, 1997, JRM HAD APPROXIMATELY $49,468,000
WITH WHICH IT COULD PAY DIVIDENDS OR PURCHASE ITS COMMON AND PREFERRED STOCK
UNDER THESE COVENANTS. IN ADDITION, JRM IS RESTRICTED IN MAKING UNSECURED LOANS
TO OR INVESTMENTS IN INTERNATIONAL UNDER ITS CREDIT AGREEMENTS.
ON JULY 15, 1997, JRM REDEEMED THE $70,000,000 OUTSTANDING PRINCIPAL AMOUNT OF
ITS 12.875% GUARANTEED SENIOR NOTES DUE 2002 FOR AN AGGREGATE REDEMPTION PRICE
OF $78,986,250 INCLUDING A PREMIUM OF $4,480,000 AND ACCRUED INTEREST TO THE
REDEMPTION DATE OF $4,506,250.
WORKING CAPITAL INCREASED $116,913,000 TO $249,048,000 AT DECEMBER 31, 1997 FROM
$132,135,000 AT MARCH 31, 1997. DURING THE REMAINDER OF FISCAL YEAR 1998, JRM
EXPECTS TO OBTAIN FUNDS TO MEET WORKING CAPITAL, CAPITAL EXPENDITURE AND DEBT
MATURITY REQUIREMENTS FROM OPERATING ACTIVITIES 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.
JRM HAS PROVIDED A VALUATION ALLOWANCE FOR DEFERRED TAX ASSETS WHICH CANNOT BE
REALIZED THROUGH CARRYBACKS AND FUTURE REVERSALS OF EXISTING TAXABLE TEMPORARY
DIFFERENCES. MANAGEMENT BELIEVES THAT REMAINING DEFERRED TAX ASSETS ARE
REALIZABLE THROUGH CARRYBACKS AND FUTURE REVERSALS OF EXISTING TAXABLE TEMPORARY
DIFFERENCES AND FUTURE TAXABLE INCOME. AN UNCERTAINTY THAT AFFECTS THE ULTIMATE
REALIZATION OF DEFERRED TAX ASSETS IS THE RISK OF INCURRING LOSSES IN THE
FUTURE. THIS FACTOR HAS BEEN CONSIDERED IN DETERMINING THE VALUATION ALLOWANCE.
MANAGEMENT WILL CONTINUE TO ASSESS THE ADEQUACY OF THE VALUATION ALLOWANCE ON A
QUARTERLY BASIS.
NEW ACCOUNTING STANDARDS
- ------------------------
IN JUNE 1997, THE FASB ISSUED SFAS NO. 130, "REPORTING COMPREHENSIVE INCOME,"
WHICH IS EFFECTIVE FOR FISCAL YEARS BEGINNING AFTER DECEMBER 15, 1997. SFAS NO.
130 ESTABLISHES STANDARDS FOR REPORTING AND DISPLAY OF COMPREHENSIVE INCOME AND
ITS COMPONENTS IN A FULL SET OF GENERAL-PURPOSE FINANCIAL STATEMENTS. 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.
ALSO IN JUNE 1997, THE FASB ISSUED SFAS NO. 131, "DISCLOSURES ABOUT SEGMENTS OF
AN ENTERPRISE AND RELATED INFORMATION," WHICH IS EFFECTIVE FOR FISCAL YEARS
BEGINNING AFTER DECEMBER 15, 1997.
22
<PAGE>
SFAS NO. 131 REQUIRES THAT CERTAIN FINANCIAL INFORMATION BE REPORTED ON THE
BASIS THAT IT IS REPORTED INTERNALLY FOR EVALUATING SEGMENT PERFORMANCE AND
DECIDING HOW TO ALLOCATE RESOURCES TO SEGMENTS. JRM ANTICIPATES ADOPTING THIS
STANDARD DURING THE LAST QUARTER OF FISCAL YEAR 1998. BECAUSE THIS STATEMENT
ADDRESSES HOW SUPPLEMENTAL FINANCIAL INFORMATION IS DISCLOSED IN ANNUAL AND
INTERIM REPORTS, THE ADOPTION WILL HAVE NO MATERIAL IMPACT ON THE CONSOLIDATED
FINANCIAL STATEMENTS.
AT ITS JULY 1997 MEETING, THE EMERGING ISSUES TASK FORCE REACHED A FINAL
CONSENSUS ON ISSUE 96 -16, "INVESTOR'S ACCOUNTING FOR AN INVESTEE WHEN THE
INVESTOR HAS A MAJORITY OF THE VOTING INTEREST BUT THE MINORITY SHAREHOLDER OR
SHAREHOLDERS HAVE CERTAIN APPROVAL OR VETO RIGHTS." THIS ISSUE ADDRESSES WHETHER
TO CONSOLIDATE A MAJORITY OWNED INVESTEE WHEN THE RIGHTS OF THE MINORITY MAKE IT
UNCLEAR IF THE MAJORITY OWNER ACTUALLY HAS CONTROL, AND ESTABLISHES CRITERIA FOR
MAKING THIS DECISION. FOR EXISTING INVESTMENT AGREEMENTS, THE GUIDANCE IS
EFFECTIVE FOR FISCAL YEARS ENDING AFTER DECEMBER 15, 1998. JRM HAS NOT YET
FINALIZED ITS REVIEW OF THE IMPACT OF THIS GUIDANCE.
23
<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
27 FINANCIAL DATA SCHEDULE
(B) REPORTS ON FORM 8-K
A CURRENT REPORT ON FORM 8-K WAS FILED ON JANUARY 2, 1998.
24
<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.
/S/ DANIEL R. GAUBERT
----------------------------------
BY: DANIEL R. GAUBERT
SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER
AND DULY AUTHORIZED REPRESENTATIVE)
FEBRUARY 10, 1998
25
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
27 FINANCIAL DATA SCHEDULE
26
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM J. RAY
MCDERMOTT'S DECEMBER 31, 1997 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-31-1998
<PERIOD-END> DEC-31-1997
<CASH> 413,892
<SECURITIES> 0
<RECEIVABLES> 253,764
<ALLOWANCES> 38,718
<INVENTORY> 106,577
<CURRENT-ASSETS> 858,955
<PP&E> 1,180,376
<DEPRECIATION> 826,042
<TOTAL-ASSETS> 1,624,294
<CURRENT-LIABILITIES> 609,907
<BONDS> 0
411
0
<COMMON> 32
<OTHER-SE> 619,683
<TOTAL-LIABILITY-AND-EQUITY> 1,624,294
<SALES> 1,411,416
<TOTAL-REVENUES> 1,411,416
<CGS> 1,324,304
<TOTAL-COSTS> 1,324,304
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,354
<INCOME-PRETAX> 106,570
<INCOME-TAX> 31,379
<INCOME-CONTINUING> 75,191
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 75,191
<EPS-PRIMARY> 1.71
<EPS-DILUTED> 1.60
</TABLE>
