<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
<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, 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         
<PAGE>
 
                      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
<PAGE>
 
                             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
<PAGE>
 
<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