<PAGE>

               UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549
                               F O R M  1 0 - K

(Mark One)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934
                   For the fiscal year ended March 31, 1999
                                      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 Number 1-13570

                            J. RAY McDERMOTT, S.A.
--------------------------------------------------------------------------------
            (Exact name of registrant as specified in its charter)

     REPUBLIC OF PANAMA                                      72-1278896
--------------------------------------------------------------------------------
     (State or Other Jurisdiction of                      (I.R.S. Employer
     Incorporation or Organization)                      Identification No.)

     1450 Poydras Street, New Orleans, Louisiana             70112-6050
--------------------------------------------------------------------------------
     (Address of Principal Executive Offices)                (Zip Code)

       Registrant's Telephone Number, Including Area Code (504) 587-5300

          Securities Registered Pursuant to Section 12(b) of the Act:

                                                        Name of each Exchange
     Title of each class                                on which registered
     -------------------                                -------------------
Common Stock, $0.01 par value                           New York Stock Exchange

9.375% Senior Subordinated Notes due July 2006          New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:  None

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                              YES  [X]  NO  [  ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]

The aggregate market value of the Company's Common Stock held by non-affiliates
of the registrant was $450,955,103 as of April 29, 1999.

The number of shares outstanding of the Company's Common Stock at April 29, 1999
was 39,060,814.
                      DOCUMENTS INCORPORATED BY REFERENCE
                                     None
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                            J. RAY McDERMOTT, S.A.

                               INDEX - FORM 10-K

                                    PART 1
                                                                        PAGE
Items 1. & 2.  BUSINESS AND PROPERTIES
A.       General                                                          1

B.       Description of Operations

            General                                                       2
            Foreign Operations                                            4
            Raw Materials                                                 4
            Customers and Competition                                     4
            Backlog                                                       4
            Factors Affecting Demand                                      5

C.       Patents and Licenses                                             5

D.       Insurance                                                        5

E.       Employees                                                        6

F.       Environmental Regulations and Matters                            6

G.       Transactions with Related Parties                                6

Item 3.  LEGAL PROCEEDINGS                                                6

Item 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS              8

                                    PART II

Item 5.  MARKET FOR THE REGISTRANT'S COMMON STOCK
           AND RELATED STOCKHOLDER MATTERS                                9

Item 6.  SELECTED FINANCIAL DATA                                         10

Item 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
           CONDITION AND RESULTS OF OPERATIONS

         General                                                         12
         Fiscal Year 1999 vs Fiscal Year 1998                            12
         Fiscal Year 1998 vs Fiscal Year 1997                            13
         Effects of Inflation and Changing Prices                        14
         Liquidity and Capital Resources                                 15
         Impact of the Year 2000                                         17
         New Accounting Standards                                        19

                                       i
<PAGE>

                               INDEX - FORM 10-K
                                                                            PAGE
Item 7A.     QUANTITATIVE AND QUALITATIVE DISCLOSURES
               ABOUT MARKET RISK                                             20

Item 8.      CONSOLIDATED FINANCIAL STATEMENTS AND
               SUPPLEMENTARY DATA

             Company Report on Consolidated Financial Statements             21
             Report of PricewaterhouseCoopers LLP                            22
             Report of Ernst & Young LLP                                     23
             Consolidated Balance Sheet - March 31, 1999 and 1998            24
             Consolidated Statement of Income (Loss) for the
               Three Fiscal Years ended March 31, 1999                       26
             Consolidated Statement of Comprehensive Income (Loss) for the
               Three Fiscal Years ended March 31, 1999                       27
             Consolidated Statement of Stockholders' Equity for the
               Three Fiscal Years ended March 31, 1999                       28
             Consolidated Statement of Cash Flows for the
               Three Fiscal Years ended March 31, 1999                       30
             Notes to Consolidated Financial Statements                      32

Item 9.      CHANGES IN AND DISAGREEMENTS WITH AUDITORS ON
               ACCOUNTING AND FINANCIAL DISCLOSURE                           61

                                   PART III

Item 10.     DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT              62

Item 11.     EXECUTIVE COMPENSATION                                          65

Item 12.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
               MANAGEMENT                                                    78

Item 13.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                  80

                                    PART IV

Item 14.     EXHIBITS, FINANCIAL STATEMENT SCHEDULES
               AND REPORTS ON FORM 8-K                                       81

Signatures                                                                   84
Exhibit 21 - SIGNIFICANT SUBSIDIARIES OF THE REGISTRANT                      87

Exhibit 23.1 - CONSENT OF PRICEWATERHOUSECOOPERS LLP                         88

Exhibit 23.2  CONSENT OF ERNST & YOUNG LLP                                   89

Exhibit 27 - FINANCIAL DATA SCHEDULE                                         90

                                       ii
<PAGE>

                                  P A R T  I



Items 1. and 2.  BUSINESS AND PROPERTIES


A.  GENERAL

On January 31, 1995, McDermott International, Inc. ("MII") contributed
substantially all of its marine construction services business to J. Ray
McDermott, S.A. ("JRM"), a new company incorporated under the laws of the
Republic of Panama in 1994.  Also, on January 31, 1995, JRM acquired Offshore
Pipelines, Inc. ("OPI") in a merger transaction. Prior to the merger with OPI,
JRM was a wholly-owned subsidiary of MII.  As a result of the merger, JRM became
a majority-owned subsidiary of MII.  JRM's Common Stock and 9.375% Senior
Subordinated Notes due July 2006 are publicly traded.

MII received as consideration for its contribution to JRM: 3,200,000 shares of
JRM Series A $2.25 Cumulative Convertible Preferred Stock; $231,000,000 of 9%
Senior Subordinated Notes due 2001; 24,668,297 shares of JRM Common Stock; and
other consideration.  In exchange for all of the outstanding common stock,
common stock options and preferred stock of OPI, OPI investors received:
13,867,946 shares of JRM Common Stock; options to acquire 897,818 shares of JRM
Common Stock; and 458,632 shares of JRM Series B $2.25 Cumulative Convertible
Exchangeable Preferred Stock.  During fiscal year 1996, JRM investors converted
458,382 shares of Series B Preferred Stock into 1,065,193 shares of Common Stock
and JRM redeemed the remaining 250 shares of Series B Preferred Stock for cash.
During fiscal year 1997, JRM paid in full the 9% Senior Subordinated Notes due
2001 held by MII plus accrued interest using proceeds of a debt offering of
$250,000,000 in principal amount of 9.375% Senior Subordinated Notes due July
2006. During fiscal year 1999, JRM purchased for cash $248,575,000 in principal
amount of the outstanding 9.375% Senior Subordinated Notes.

On May 7, 1999, MII and JRM jointly announced that they executed a definitive
merger agreement pursuant to which MII will acquire all shares of JRM not
already owned by MII for $35.62 per share in cash.  Pursuant to the merger
agreement, on May 13, 1999, MII initiated a tender offer for all shares of JRM
Common Stock at $35.62 per share in cash.  The tender offer will expire on June
10, 1999, unless extended.  Any shares not purchased in the tender offer will be
acquired for the same price in cash in a second-step merger.  The tender offer
is subject to the condition that a majority of the publicly held shares are
validly tendered pursuant to the tender offer, as well as other customary
conditions.  JRM currently has approximately 39,060,000 shares of Common Stock
outstanding.  MII owns 24,668,297 shares, or approximately 63% of the
outstanding shares, and approximately 14,400,000 are publicly held.

Items 1. and 2., Business and Properties, describe the business of JRM as
currently conducted after the merger with OPI.

Hereinafter, unless the context requires otherwise, the following terms shall
mean:

        . JRM for J. Ray McDermott, S.A. and its consolidated subsidiaries,
        . MII for McDermott International, Inc., a Panama corporation that is
          the parent company of the McDermott group of companies and the
          majority owner of JRM, and
        . McDermott for MII and its consolidated subsidiaries.

JRM, together with its subsidiaries and joint ventures, supplies worldwide
services for the offshore oil and gas exploration and production and hydrocarbon
processing industries.  It also provides these services to other marine
construction companies.  Principal activities include the design, engineering,
fabrication and

                                       1
<PAGE>

installation of offshore drilling and production platforms and other specialized
structures, modular facilities, marine pipelines and subsea production systems.

JRM has a continuing program of reviewing joint venture, acquisition and
disposition opportunities.

B.  DESCRIPTION OF OPERATIONS

General

JRM's services include the basic and detailed design, engineering, fabrication
and installation of offshore drilling and production platforms and other
specialized structures, modular facilities, marine pipelines and subsea
production systems.  JRM also provides comprehensive project management
services, feasibility studies, procurement activities and removal, salvage and
refurbishment services for offshore fixed platforms. As a strategic operating
decision, JRM has transitioned away from installation, particularly heavy lift
technology, into deepwater subsea technology.  JRM operates throughout the world
in all major offshore oil and gas producing regions, including the Gulf of
Mexico, the North Sea, West Africa, South America, the Middle East, India and
the Far East.

JRM also participates in joint ventures.  The joint ventures are accounted for
using either the equity or the cost method.  JRM's joint ventures are largely
financed through their own resources, including, in some cases, stand-alone
borrowing arrangements. JRM's two most significant joint venture investments
were in the HeereMac joint venture and the McDermott-ETPM joint venture.  JRM
has terminated its interests in both of these joint ventures.

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.  On December 19, 1997,
JRM and Heerema Offshore Construction Group, Inc. ("Heerema") terminated the
HeereMac joint venture.  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 included two launch barges and
the derrick barge 101, a 3,500-ton lift capacity, semi-submersible derrick
barge. The HeereMac joint venture was accounted for using the equity method
until March 31, 1997 and the cost method thereafter.

JRM formed its initial joint venture with ETPM S.A., McDermott-ETPM, in April
1989 to provide general marine construction services to the petroleum industry
in West Africa, South America, the Middle East and India and to provide offshore
pipelaying services in the North Sea.  In March 1995, JRM and ETPM S.A. expanded
their joint venture's operations to include the Far East and began jointly
pursuing subsea contracting work on a worldwide basis.  Most of the operating
companies in the McDermott-ETPM joint venture were majority-owned and controlled
by JRM and were consolidated for financial reporting purposes. However, the
operations of McDermott-ETPM West, Inc., which conducts operations in the North
Sea, South America and West Africa, were managed and controlled by ETPM S.A.
McDermott-ETPM West, Inc. was accounted for using the equity method.  On April
3, 1998, JRM and ETPM S.A. terminated the McDermott-ETPM joint venture. Pursuant
to the termination, JRM received net cash of approximately $105,000,000 and the
derrick/lay barge 1601 and assumed 100% ownership of McDermott-ETPM East, Inc.
and McDermott-ETPM Far East, Inc.  ETPM S.A. received the lay barge 200 and took
ownership of McDermott Subsea Constructors Limited ("MSCL") and McDermott-ETPM
West, Inc.

JRM participates in other joint ventures involving operations in foreign
countries that require majority-ownership by local interests.  Through a
subsidiary, JRM also participates in an equally owned joint venture with the
Brown & Root Energy Services unit of Halliburton Company ("Brown & Root"), that
was formed

                                       2
<PAGE>

in February 1995 to combine the operations of JRM's Inverness and Brown & Root's
Nigg fabrication facilities in Scotland.

In May 1998, JRM sold its Aberdeen based engineering business of McDermott
Engineering (Europe) Limited and announced its intention to withdraw from
traditional European engineering markets.  See Note 16 to the consolidated
financial statements regarding these events.  JRM retains a presence in the
European markets via Mentor Subsea Technology Services, Ltd. to focus on subsea
opportunities.  During fiscal year 1999, JRM announced its intention to withdraw
from substantially all third-party engineering activities.

At March 31, 1999, JRM owned or operated 5 fabrication facilities throughout the
world.  JRM's principal domestic fabrication yard and offshore base is located
on 1,114 acres of land, under lease, near Morgan City, Louisiana.  JRM also owns
or operates fabrication facilities in the following locations: near Corpus
Christi, Texas; near Inverness, Scotland; in Indonesia on Batam Island; and in
Jebel Ali, U.A.E.  JRM also owns and operates a ship repair yard in Veracruz,
Mexico.

JRM's fabrication facilities are equipped with a wide variety of heavy-duty
construction and fabrication equipment, including cranes, welding equipment,
machine tools and robotic and other automated equipment, most of which is
movable.  JRM can fabricate a full range of offshore structures, from
conventional jacket-type fixed platforms to deepwater platform configurations
employing compliant-tower, tension leg, floating production platform and spar
technology.  JRM also fabricates platform deck structures and modular
components, including complete production processing systems, hydrocarbon
separation and treatment systems, pressure and flow control systems and
personnel quarters.

At March 31, 1999, expiration dates, including renewal options, of leases
covering land for JRM's fabrication yards were as follows:

        Morgan City, Louisiana                  Years 2000-2033
        Jebel Ali, U.A.E.                       Year 2005
        Batam Island, Indonesia                 Year 2008

JRM owns or, through its ownership interests in joint ventures, has interests in
one of the largest fleets of marine equipment used in major offshore
construction.  The nucleus of a "construction spread" is a large derrick barge,
pipelaying barge or combination derrick-pipelaying barge capable of offshore
operations for an extended period of time in remote locations.  At March 31,
1999, JRM owned or, through ownership interests in joint ventures, had interests
in 5 derrick vessels, 2 pipelaying vessels and 8 combination derrick-pipelaying
vessels. The lifting capacities of the derrick and combination derrick-
pipelaying vessels range from 800 to 5,000 tons.  These vessels range in length
from 400 to 698 feet and are fully equipped with stiff leg or revolving cranes,
auxiliary cranes, welding equipment, pile-driving hammers, anchor winches and a
variety of additional gear.  The largest vessel is the semi-submersible derrick
barge 101.

To support the operations of these major marine construction vessels, JRM and
its joint ventures also own or lease a substantial number of other vessels, such
as tugboats, utility boats, launch barges and cargo barges.

For segment information for the three fiscal years ended March 31, 1999, see
Note 16 to the consolidated financial statements.

                                       3
<PAGE>

Foreign Operations

JRM's revenues and segment income derived from operations located outside of the
United States, and the approximate percentages to JRM's total revenues and total
segment income, respectively, follow:


                                    REVENUES           SEGMENT INCOME
        FISCAL YEAR            AMOUNT      PERCENT   AMOUNT      PERCENT
                                        (Dollars in thousands)
            1999            $  731,081        57%   $129,440        83%
            1998             1,122,084        60%    317,482       231%
            1997               852,062        60%     14,525        45%

Raw Materials

JRM uses raw materials such as carbon and alloy steel in various forms, welding
gases, concrete, fuel oil and gasoline that are available from many sources.
JRM is not dependent upon any single supplier or source.  Although shortages of
certain of these raw materials and fuels have existed from time to time, no
serious shortage exists at the present time.

Customers and Competition

JRM's principal customers are oil and gas companies, including foreign
government-owned companies.  Customers generally contract with JRM for the
design, engineering, fabrication and installation of offshore drilling and
production platforms and other specialized structures, modular facilities,
marine pipelines and subsea production systems.  Contracts are usually awarded
on a competitive bid basis.  A number of companies compete effectively with JRM
and its joint ventures in each of the separate marine construction phases in
various parts of the world.  Examples are Aker Gulf Marine, Gulf Island
Fabrication, Inc., Hyundai Heavy Industries, Global Industries Ltd., Saipem
S.p.A., Heerema Offshore Construction Group, Inc. and other companies.

Backlog

At March 31, 1999 and 1998, JRM's backlog amounted to $407,223,000 and
$1,267,148,000, respectively. Backlog declined in all operating areas as a
result of lower oil prices.  In addition, backlog declined because of the
withdrawal from traditional engineering markets.  Finally, backlog decreased as
a result of sluggish economic conditions in the Middle and Far East and the
political instability in the Far East.  Of the March 31, 1999 backlog,
management expects that approximately $387,494,000 will be recognized in
revenues in fiscal year 2000 and $19,729,000 in fiscal year 2001.

JRM has been awarded a contract valued at $20,500,000 from Larsen & Toubro
Limited  for the ONGC Pipelines and Platform Modification Project.  Under this
contract, JRM is responsible for transportation of coated pipelines and offshore
installation of 12 pipelines, 17 risers, 3 subsea tie-ins, and 19 crossings.
JRM is also responsible for freespan rectification and de-watering and
commissioning of one pipeline with platform gas.

Subsequent to March 31, 1999, JRM was awarded a contract for $335,000,000 from
Conoco Indonesia Inc. and other West Natuna Sea operators to construct a subsea
natural gas pipeline from Indonesia's West Natuna Sea gas fields to Singapore.
This award was not included in backlog at March 31, 1999.

                                       4
<PAGE>

Work has historically been performed on a fixed-price, cost-plus or day-rate
basis or a combination thereof.  More recently, certain "partnering-type"
contracts have introduced a risk and reward element wherein a portion of total
compensation is tied to the overall performance of the alliance partners.  JRM
attempts to cover increased costs of anticipated changes in labor, material and
service costs of long-term contracts either through an estimate of such changes,
which is reflected in the original price, or through price escalation clauses.
Most long-term contracts have provisions for progress payments.

Factors Affecting Demand

The activity of JRM depends mainly on the capital expenditures of oil and gas
companies and foreign governments for developmental construction.  Several
factors influence these expenditures:

        . oil and gas prices along with the cost of production and delivery,
        . the terms and conditions of offshore leases,
        . the discovery rates of new reserves offshore,
        . the ability of the oil and gas industry to raise capital, and
        . local and international political and economic conditions.

In some Far East countries, internal consumption of oil and gas products has
decreased due to their current economic crises.

Oil and gas company capital exploration and production budgets for calendar year
1999 have been significantly reduced because of falling oil and gas prices.
These budgets are now set and, therefore, unaffected by the partial recovery in
prices resulting from the recent OPEC production agreements.  Economic and
political conditions in Asia have had an adverse effect on exploration and
production spending.

C.  PATENTS AND LICENSES

JRM owns or has exclusive rights to use, for marine construction purposes, a
number of patents relating to offshore platform design, fabrication and
installation and pipelaying operations.  JRM also co-owns several other patents
relating to such operations.  Although in the aggregate these patents are
important to JRM, JRM does not consider any single patent to be of a critical or
essential nature.  In general, JRM depends on its technological capabilities and
the application of know-how as well as patents in the conduct of its business.

D.  INSURANCE

JRM maintains liability and property insurance against such risks and in such
amounts as it considers adequate.  However, certain risks are either not
insurable or insurance is available only at rates which JRM considers
uneconomical.  These risks include war and confiscation of property in certain
areas of the world and pollution liability in excess of relatively low limits.
Depending on competitive conditions and other factors, JRM endeavors to obtain
contractual protection against uninsured risks from its customers.  However,
there is no assurance that insurance or contractual indemnity protection, when
obtained, will be sufficient or effective under all circumstances or against all
hazards to which JRM may be subject.

JRM's offshore construction business is subject to the usual risks of operations
at sea.  JRM has additional exposure because it uses expensive construction
equipment, sometimes under extreme weather conditions, often in remote areas of
the world.  In many cases, JRM also operates on or in proximity to existing
offshore facilities.  These facilities are subject to damage which could result
in the escape of oil and gas into the sea.

                                       5
<PAGE>

E.  EMPLOYEES

At March 31, 1999, JRM employed, under its direct supervision, approximately
7,100 persons compared with 11,700 at March 31, 1998.  Approximately 600
employees were members of labor unions at March 31, 1999 compared with 700 at
March 31, 1998. JRM considers its relationship with its employees to be
satisfactory.

F.  ENVIRONMENTAL REGULATIONS AND MATTERS

JRM is subject to the existing and evolving standards relating to the
environment.  These standards include the Clean Air Act, the Clean Water Act,
the Resource Conservation and Recovery Act, and the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980.  They also include any
similar laws that provide for responses to and liability for releases of
hazardous substances into the environment,  and other federal laws, each as
amended.  These standards also include similar foreign, state or local
counterparts to these federal laws, which regulate air emissions, water
discharges, hazardous substances and wastes and require public disclosure
related to the use of various hazardous substances.  JRM is also subject to laws
and regulations relating to workplace safety and worker health, primarily the
Occupational Safety and Health Act and regulations promulgated thereunder.  JRM
believes that its facilities are in substantial compliance with current
regulatory standards.

JRM's compliance with U.S. federal, state and local environmental control and
protection regulations did not necessitate any capital expenditures in fiscal
year 1999, and management expects such capital expenditures will not be material
for the foreseeable future.   Management cannot predict all of the environmental
requirements or circumstances that will exist in the future, but anticipates
that environmental control and protection standards will become increasingly
stringent and costly.  Complying with existing environmental regulations
resulted in pretax charges of approximately $1,314,000 in fiscal year 1999.

Compliance with existing government regulations controlling the discharge of
materials into the environment, or otherwise relating to the protection of the
environment, does not have, nor does management expect it to have, a material
adverse effect upon JRM's consolidated financial position or results of
operations.

G.   TRANSACTIONS WITH RELATED PARTIES

JRM has material transactions occurring during the normal course of operations
with MII and other affiliated companies. JRM has also entered into various
agreements with MII and its subsidiaries. (See Note 5 to the consolidated
financial statements.)

JRM's employee liability, comprehensive, general liability, property, marine and
other insurance programs are placed through commercial insurance carriers.
However, wholly-owned insurance subsidiaries of MII reinsure substantially all
of JRM's employee liability exposure and insure significant deductibles under
JRM's other insurance.  The premiums charged by the insurance companies of MII
are based upon the claims experience and forecasted activities of JRM and its
subsidiaries.  Management believes this approach is more cost effective as there
is generally no commercial market for insurance on the same economic terms for
these types of exposure.

Item 3.  LEGAL PROCEEDINGS

In March 1997, JRM and MII, with the help of outside counsel, began an
investigation into allegations of wrongdoing by a limited number of former
employees of JRM and MII and others. The allegations concerned the heavy-lift
business of JRM's HeereMac joint venture ("HeereMac") with Heerema Offshore
Construction Group, Inc. ("Heerema").  Upon becoming aware of these allegations,
JRM and MII notified authorities, including the Antitrust Division of the U.S.
Department of Justice and the European

                                       6
<PAGE>

Commission. As a result of JRM's and MII's prompt disclosure of the allegations,
both companies and their officers, directors and employees at the time of the
disclosure were granted immunity from criminal prosecution by the Department of
Justice for any anti-competitive acts involving worldwide heavy-lift activities.

After receiving the allegations, JRM initiated action to terminate its interest
in HeereMac, and, on December 19, 1997, JRM's co-venturer in the joint venture,
Heerema, acquired JRM's interest in exchange for cash and title to several
pieces of equipment.  On December 21, 1997, HeereMac and one of its employees
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 and the HeereMac employee were fined $49,000,000 and $100,000,
respectively.  As part of the plea, both HeereMac and certain employees of
HeereMac agreed to cooperate fully with the Department of Justice investigation.
Neither JRM, MII nor any of their officers, directors or employees was a party
to those proceedings.

JRM and MII have cooperated and are continuing to cooperate with the Department
of Justice in its investigation.  The Department of Justice also has requested
additional information from the companies relating to possible anti-competitive
activity in the marine construction business of McDermott-ETPM East, Inc., one
of the operating companies within JRM's former McDermott-ETPM joint venture with
ETPM S.A., a French company. In connection with the termination of the
McDermott-ETPM joint venture on April 3, 1998, JRM assumed 100% ownership of
McDermott-ETPM East, Inc., which has been renamed J. Ray McDermott Middle East,
Inc.

In June 1998, Phillips Petroleum Company (individually and on behalf of certain
co-venturers) and certain related entities (the "Phillips Plaintiffs") filed a
lawsuit in the United States District Court for the Southern District of Texas
against JRM, MII, McDermott Incorporated, McDermott-ETPM, Inc., certain JRM
subsidiaries, HeereMac, Heerema, certain Heerema affiliates, and others alleging
that the defendants engaged in anti-competitive acts in violation of Sections 1
and 2 of the Sherman Act and Sections 15.05 (a) and (b) of the Texas Business
and Commerce Code, engaged in fraudulent activity and tortiously interfered with
the plaintiffs' businesses in connection with certain offshore transportation
and installation projects in the Gulf of Mexico, North Sea and Far East (the
"Phillips Litigation").  In December 1998, Den norske stats oljeselskap a.s.,
individually and on behalf of certain of its ventures and its participants,
filed a similar lawsuit in the same court.  In addition to seeking injunctive
relief, actual damages and attorneys' fees, the plaintiffs in the Phillips
Litigation have requested punitive as well as treble damages.  In January 1999,
the court dismissed without prejudice, due to the court's lack of subject matter
jurisdiction, the claims of the Phillips Plaintiffs relating to alleged injuries
sustained on any foreign projects.

In June 1998, Shell Offshore, Inc. and certain related entities also filed a
lawsuit in the United States District Court for the Southern District of Texas
against JRM, MII, McDermott Incorporated, McDermott-ETPM Inc., certain JRM
subsidiaries, HeereMac, Heerema and others alleging that the defendants engaged
in anti-competitive acts in violation of Sections 1 and 2 of the Sherman Act
(the "Shell Litigation").  Subsequent thereto, Amoco Production Company and BP
Exploration & Oil, Inc.; Amerada Hess Corporation; Conoco Inc. and certain of
its affiliates; Texaco Exploration and Production Inc. and certain of its
affiliates; Elf Exploration UK PLC and Elf Norge a.s.; Burlington Resources
Offshore, Inc. and The Louisiana Land & Exploration Company; Marathon Oil
Company and certain of its affiliates; VK-Main Pass Gathering Company, L.L.C.,
Green Canyon Pipeline Company, L.L.C. and Delos Gathering Company, L.L.C.;
Chevron U.S.A. Inc. and Chevron Overseas Petroleum Inc.; Shell U.K. Limited and
certain of its affiliates; Woodside Energy, Ltd.; and Saga Petroleum, S.A.
intervened (acting for themselves and, if applicable, on behalf of their
respective co-venturers and for whom they operate) as plaintiffs in the Shell
Litigation.  Also, in December 1998, Total Oil Marine p.l.c. and Norsk Hydro
Produksjon a.s., individually and on behalf of their respective co-venturers,
filed similar lawsuits in the same court, which lawsuits were consolidated with
the Shell

                                       7
<PAGE>

Litigation. In addition to seeking injunctive relief, actual damages and
attorneys' fees, the plaintiffs in the Shell Litigation request treble damages.

JRM and MII are also cooperating with a Securities and Exchange Commission (the
"SEC") investigation into whether the companies may have violated U.S.
securities laws in connection with, but not limited to, the matters described
above.  JRM and MII are subject to a judicial order entered in 1976, with the
consent of McDermott Incorporated (which at that time was the parent of the
McDermott group of companies), pursuant to an SEC complaint (the "Consent
Decree").  The Consent Decree prohibits the companies from making false entries
in their books, maintaining secret or unrecorded funds or using corporate funds
for unlawful purposes. Violations of the Consent Decree could result in
substantial civil and/or criminal penalties to the companies.

As a result of the initial allegations of wrongdoing in March 1997, both JRM and
MII formed and continue to maintain special committees of their Board of
Directors to monitor and oversee the companies' investigation into all of these
matters.

It is not possible to predict the ultimate outcome of the Department of Justice
investigation, the SEC investigation, the companies' internal investigation, the
above-referenced lawsuits, or any actions that may be taken by others as a
result of HeereMac's guilty plea or otherwise.  However, these matters could
result in civil and criminal liability and have a material adverse effect on
JRM's consolidated financial position and results of operations.

Two purported class actions have been filed in the Civil District Court for the
Parish of Orleans, State of Louisiana, by alleged public shareholders of JRM,
challenging MII's initial proposal to acquire the publicly traded shares of JRM
Common Stock in a stock for stock merger.  On May 7, 1999, JRM and MII announced
that they had entered into a merger agreement pursuant to which MII will acquire
all of such publicly traded shares of JRM Common Stock for $35.62 per share
pursuant to a cash tender offer followed by a second-step merger.  On the same
day, the Court entered an order consolidating the two actions under the caption
In re J. Ray McDermott Shareholder Litigation.  There have been no further
proceedings in either of the actions to date.  JRM and MII believe that the
actions are without merit and intend to contest these suits vigorously.

Additionally, due to the nature of its business, JRM is, from time to time,
involved in routine litigation related to its business activities. It is
management's opinion that none of this routine litigation will have a material
adverse effect on JRM's consolidated financial position or results of
operations.


Item 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matter was submitted during the fourth quarter of the fiscal year covered by
this report to a vote of security holders, through the solicitation of proxies
or otherwise.

                                       8
<PAGE>

                                 P A R T   I I


Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

JRM's Common Stock is traded on the New York Stock Exchange.  High and low stock
prices for the fiscal years ended March 31, 1998 and 1999 were as follows:

                              FISCAL YEAR 1998
                              ----------------
                                SALES PRICE
                                -----------
     QUARTER ENDED           HIGH          LOW
     -------------           ----          ---

     June 30, 1997           $ 27-7/8   $ 16-1/4

     September 30, 1997        49         27

     December 31, 1997         52-1/4     34-3/16

     March 31, 1998            45-5/16    31-7/8


                              FISCAL YEAR 1999
                              ----------------
                                SALES PRICE
                                -----------
     QUARTER ENDED           HIGH          LOW
     -------------           ----          ---

     June 30, 1998           $ 47-3/8   $ 37-1/8

     September 30, 1998        43-7/8     25-1/2

     December 31, 1998         35-5/8     22-1/4

     March 31, 1999            31-1/2     20-3/16


JRM has never paid any dividends on its Common Stock, and management does not
anticipate any such dividends will be paid for the foreseeable future. As of
March 31, 1999, the approximate number of record holders of Common Stock was
545.

                                       9
<PAGE>

Item 6.  SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>

                                                               FOR THE FISCAL YEARS ENDED MARCH 31,
                                                   1999          1998        1997          1996          1995
                                                ----------   ----------   ----------    ----------    ----------
                                                                         (In thousands)
<S>                                            <C>           <C>          <C>           <C>           <C>

Revenues                                        $1,279,570   $1,855,486   $1,408,469    $1,259,451    $1,155,583
Income (Loss) before Extraordinary
     Item and Cumulative Effect of
     Accounting Change                          $  162,878   $   88,960   $  (12,900)   $   (1,280)   $   58,297

Net Income (Loss)                               $  124,159   $   88,960   $  (12,900)   $   (1,280)   $   56,971
Basic Earnings (Loss) per Common Share:
     Income (Loss) before
     Extraordinary Item                         $     3.93   $     2.00   $    (0.50)   $    (0.23)            -

     Net Income (Loss)                          $     2.95   $     2.00   $    (0.50)   $    (0.23)            -

Diluted Earnings (Loss) per Common
 Share:
     Income (Loss) before
     Extraordinary Item                         $     3.57   $     1.89   $    (0.50)   $    (0.23)            -

     Net Income (Loss)                          $     2.72   $     1.89   $    (0.50)   $    (0.23)            -

Total Assets                                    $1,181,973   $1,548,720   $1,506,792    $1,615,011    $1,527,080
Long-Term Debt                                  $    1,782   $  245,822   $  275,487    $  117,574    $  100,650
Notes Payable to MII                                     -            -            -       238,220       234,820
                                                ----------------------------------------------------------------
Total Long-Term Debt                            $    1,782   $  245,822   $  275,487    $  355,794    $  335,470
</TABLE>

See Note 17 to the consolidated financial statements for significant items
included in fiscal year 1999 and 1998 results.

Fiscal year 1997 results include:
 . gains on asset disposals of $60,553,000, including the realization of
  $12,271,000 of the deferred gain on the sale of major marine vessels to
  HeereMac,
 . asset impairment losses of $31,532,000,
 . favorable workers' compensation adjustments of $5,693,000, and
 . a $4,889,000 provision related to employee severance costs.

See Note 2 regarding acquisitions in fiscal year 1998 accounted for in a manner
similar to a pooling of interests.  See Note 3 to the consolidated financial
statements regarding the change to the cost method of accounting for JRM's
investment in the HeereMac joint venture in fiscal year 1997.  Equity income of
HeereMac was $1,083,000 and $6,244,000 in fiscal years 1996 and 1995,
respectively.  See Note 3 regarding the April 3, 1998 termination of the
McDermott-ETPM joint venture.  Fiscal year 1995 includes the cumulative effect
of the adoption of Statement of Financial Accounting Standards ("SFAS") No. 112.
See Note 11 regarding the uncertainty as to the results of the ongoing
investigations into possible anti-competitive practices by JRM and MII, and
related civil lawsuits.

                                       10
<PAGE>

JRM was incorporated on March 22, 1994 in the Republic of Panama and had no
significant operations prior to January 31, 1995 when MII contributed
substantially all of its marine construction services business to JRM and JRM
acquired OPI.  The contribution of MII's marine construction services business
to JRM was accounted for in a manner similar to a pooling of interests.  For the
period prior to the contribution, JRM's results of operations included charges
from MII for direct costs and allocations of corporate overhead and other costs.
Management believes that the allocation methods were reasonable and that the
allocations were representative of what the costs would have been on a stand-
alone basis.

Earnings per Common Share are not presented for fiscal year 1995 because JRM was
not a separate entity with its own capital structure during that period.

                                       11
<PAGE>

Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

General

Revenues of JRM are largely a function of the level of oil and gas development
activity in the world's major hydrocarbon producing regions.  In general, JRM's
business is capital intensive and relies on large contracts for a substantial
amount of its revenues. Consequently, revenues reflect the variability
associated with the timing of significant development projects.  As a result of
continuing lower oil prices, JRM's customers have significantly reduced capital
expenditures for exploration and production spending, and backlog has declined
over $850,000,000 since the beginning of the fiscal year.  At the current
backlog level, management expects revenues in fiscal year 2000 to be as much as
forty percent  lower than in the current fiscal year, and profitability to be
lower because of the volume decline.  Economic and political instability in Asia
have also had an adverse effect on the timing of exploration and production
spending.

A significant portion of JRM's revenues and operating results are derived from
its foreign operations.  As a result, international factors, such as changes in
foreign currency exchange rates, affect JRM's operations and financial results.
JRM attempts to minimize its exposure to changes in foreign currency exchange
rates by matching 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 reduce the impact of foreign exchange rate movements on
operating results.

Statements made herein which express a belief, expectation or intention, as well
as those that are not historical fact, are forward looking.  They involve a
number of risks and uncertainties that may cause actual results to differ
materially from such forward-looking statements.  These risks and uncertainties
include:
        . 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,
        . economic and political conditions in Asia,
        . the results of the ongoing investigation by JRM and MII and the U.S.
          Department of Justice into possible anti-competitive practices by JRM
          and MII, and related civil lawsuits, and
        . the results of the ongoing SEC investigation into whether McDermott
          may have violated U.S. securities laws in connection with such anti-
          competitive practices and other matters.

Fiscal Year 1999 vs Fiscal Year 1998

Revenues decreased $575,916,000 to $1,279,570,000, primarily due to lower volume
in Europe as a result of the withdrawal from traditional European engineering
markets and from lower volume in essentially all activities in North America,
the Middle East and in worldwide engineering.  These decreases were partially
offset by higher volume in the Far East.

Segment operating income increased $19,360,000 to $126,482,000, primarily due to
higher volume and margins in all activities in the Far East and a favorable
settlement of contract claims in that area.  There were also higher margins in
the Middle East fabrication operations and lower general and administrative
expenses. In addition, prior period results included amortization of OPI
goodwill of $16,318,000.  These increases were partially offset by lower volume
in essentially all activities in worldwide engineering, North America and the
Middle East.  There were also higher net operating expenses and a charge to
restructure foreign joint ventures.

                                       12
<PAGE>

Gain (loss) on asset disposals and impairments-net was a gain of $18,620,000
compared to a loss of $40,119,000 in the prior period.  This was primarily due
to gains recognized from the termination of the McDermott-ETPM joint venture and
the sale of three Gulf of Mexico vessels, partially offset by impairment losses
on fabrication facilities and goodwill associated with worldwide engineering and
a Mexican shipyard. The loss in the prior period was primarily due to the write-
off of $262,901,000 of goodwill associated with the acquisition of OPI,
partially offset by the $224,472,000 gain recognized from the termination of the
HeereMac joint venture.

Income from investees decreased $59,566,000 to $10,670,000, primarily due to a
$61,637,000 distribution of earnings related to the termination of the HeereMac
joint venture in the prior period.  In addition, Brown & Root McDermott
Fabricators Limited and a joint venture in Mexico had lower operating results.
These decreases were partially offset by a gain on the sale of assets in a
Malaysian joint venture.  In addition, losses were recorded by McDermott-ETPM
West, Inc. in the prior period.

Backlog at March 31, 1999 and 1998 was $407,223,000 and $1,267,148,000,
respectively.  JRM's backlog declined in all operating areas as a result of
lower oil prices.  In addition, backlog declined as a result of the withdrawal
from traditional engineering markets.  Finally, backlog decreased as a result of
sluggish economic conditions in the Middle East and Far East and the political
instability in Asia.

Interest income increased $18,761,000 to $45,013,000, primarily due to increases
in investments in government obligations and other debt securities.  This
increase was partially offset by a decrease in interest income due to the
collection of the promissory note received from the sale of the derrick barges
101 and 102.

Interest expense decreased $5,067,000 to $25,726,000, primarily due to changes
in debt obligations and interest rates prevailing thereon.

Other-net increased $7,071,000 to $11,248,000, primarily due to a net gain on
the settlement and curtailment of postretirement benefit plans (see Note 7 to
the condensed consolidated financial statements) and minority shareholder
participation in the increased losses of a consolidated foreign joint venture.

The provision for income taxes decreased $24,843,000 to $10,008,000, while
income before provision for income taxes and extraordinary item increased
$49,075,000 to $172,886,000. The change in the relationship of pretax income to
the provision for income taxes was primarily the result of favorable tax
settlements totaling $21,806,000 of prior years' disputed items in foreign
jurisdictions.  JRM operates in many different tax jurisdictions.  Within these
jurisdictions, tax provisions vary because of nominal rates, allowability of
deductions, credits and other benefits, and tax bases (for example, revenues
versus income).  These variances, along with variances in the mix of income
within jurisdictions, are responsible for shifts in the effective tax rate.

Fiscal Year 1998 vs Fiscal Year 1997

Revenues increased $447,017,000 to $1,855,486,000, primarily due to higher
volume in virtually all activities in all operating areas, except in offshore
activities in the Far East, engineering activities in the Middle East and
engineering and procurement activities in Europe and West Africa.

Segment operating income increased $96,303,000 to $107,122,000. Virtually all
activities in all operating areas, except the Far East and Engineering,
reflected this increase.

Gain (loss) on asset disposals and impairments-net decreased $69,140,000 from a
gain of $29,021,000 to a loss of $40,119,000, primarily due to the impairment
loss of $262,901,000 relating to goodwill associated with the acquisition of
OPI.  Also contributing to the decrease were:  prior year gains from the sale of
the

                                       13
<PAGE>

derrick barges 15 and 21; participation in a gain from the sale of the derrick
barge 100 by the HeereMac joint venture; and the realization of a portion of the
deferred gain resulting from the sale of the derrick barges 101 and 102. These
decreases were partially offset by the $224,472,000 gain recognized from the
termination of the HeereMac joint venture.

Income (loss) from investees increased $78,069,000 from a loss of $7,833,000 to
income of $70,236,000, primarily due to a $61,637,000 distribution of earnings
related to the termination of the HeereMac joint venture.  In addition, the loss
from the McDermott-ETPM West, Inc. joint venture decreased $9,248,000 to
$7,584,000 in fiscal year 1998.

See Note 3 to the consolidated financial statements regarding the April 3, 1998
termination of the McDermott-ETPM joint venture.  See Note 16 to the
consolidated financial statements regarding the sale and intention to exit
certain European operations.

General corporate expenses decreased $3,546,000 to $13,064,000, primarily due to
certain one-time costs incurred in the prior period.

Interest income increased $9,694,000 to $26,252,000, primarily due to increases
in cash equivalents, investments in government obligations and other debt
securities.

Interest expense decreased $10,785,000 to $30,793,000, primarily due to changes
in debt obligations and interest rates prevailing thereon.

Other-net decreased $4,278,000 to $4,177,000, primarily due to a decrease in
certain reimbursed financing costs and minority shareholder participation in the
improved results of MSCL.  These decreases were partially offset by higher
foreign currency transaction gains in the current year.

The provision for income taxes increased $23,119,000 to $34,851,000 while income
(loss) before the provision for income taxes and extraordinary item increased
$124,979,000 to income of $123,811,000 from a loss of $1,168,000.  The increase
in income taxes is primarily due to an increase in income.  In addition, JRM
operates in many different tax jurisdictions.  Within these jurisdictions, tax
provisions vary because of nominal rates, allowability of deductions, credits
and other benefits, and even tax basis (for example, revenue versus income).
These variances, along with variances in the mix of income within jurisdictions,
are responsible for shifts in the effective tax rate.

Effects of Inflation and Changing Prices

JRM's financial statements are prepared in accordance with generally accepted
accounting principles, using historical dollar accounting (historical cost).
Statements based on historical cost, however, do not adequately reflect the
cumulative effect of increasing costs and changes in the purchasing power of the
dollar, especially during times of significant and continued inflation.

In order to minimize the negative impact of inflation on its operations, JRM
attempts to cover the increased cost of anticipated changes in labor, material
and service costs, either through an estimate of such changes, which is
reflected in the original price, or through price escalation clauses in its
contracts.

                                       14
<PAGE>

Liquidity and Capital Resources

During fiscal year 1999, JRM's cash and cash equivalents decreased $86,015,000
to $65,996,000 and total debt decreased $275,006,000 to $2,088,000.  JRM's
operating activities provided cash of $142,148,000 and JRM received cash of
$137,728,000 from asset disposals (including $95,546,000 from the termination of
the McDermott-ETPM joint venture) and $48,149,000 from net sales and maturities
of investments.  In addition, JRM received cash of $2,127,000 from the issuance
of stock upon exercise of stock options.  JRM used cash of $281,004,000 to
purchase $248,575,000 in principal amount of its 9.375% Senior Subordinated
Notes.  JRM also used cash as follows:  $58,272,000 for stock repurchases;
$51,416,000 for additions to property, plant and equipment; $6,551,000 for
additional payments on long-term debt; $5,400,000 for dividends on preferred
stock; and $2,251,000 to reduce short-term borrowings.  The remaining decrease
in debt primarily resulted from the settlement of a $14,565,000 note payable
pursuant to the termination of the McDermott-ETPM joint venture.

During fiscal year 1999, JRM used cash of $8,984,000 to purchase from MII its
equity investment in a Mexican joint venture.  JRM recorded the excess of the
purchase price over the net book value of the net assets acquired of $322,000 as
a reduction of capital in excess of par value.

Expenditures for property, plant and equipment increased $24,271,000 to
$51,416,000 in fiscal year 1999. The majority of these expenditures were to
maintain, replace and upgrade existing facilities and equipment.  JRM has
budgeted to make capital expenditures of approximately $22,323,000 during the
next year.

On May 7, 1999, JRM and MII entered into a merger agreement pursuant to which
MII initiated a tender offer for those shares of JRM that it did not already own
for $35.62 per share in cash.  Under the merger agreement, any shares not
purchased in the tender offer will be acquired for the same price in cash in a
second-step merger.  MII estimates that it will require approximately
$560,000,000 to consummate the tender offer and second-step merger and to pay
related fees and expenses.  MII expects to obtain the funds from cash on hand
and from a new $525,000,000 senior secured term loan facility with Citibank,
N.A.  The facility will terminate and all borrowings thereunder will mature upon
the earlier of five business days after the consummation of the second-step
merger or September 30, 1999.  When the facility terminates, JRM will declare
and pay a dividend and/or loan to MII such amounts that, together with MII's
available cash, will be used to repay all outstanding loans under the facility.
Citibank, N.A. may act either as sole lender or syndicate all or a portion of
the facility to a group of financial institutions.  The facility contains
customary representations, warranties, covenants and events of default.  The
facility also includes financial covenants that require MII, JRM and certain
other MII subsidiaries to maintain cash, cash equivalents and investments in
debt securities of at least $575,000,000 at all times.  The facility is secured
by a first priority pledge of all JRM capital stock and securities convertible
into JRM capital stock held by or acquired by MII or any of its subsidiaries.

JRM's investment portfolio consists primarily of government obligations and
other investments in debt securities.  The fair value of short and long-term
investments at March 31, 1999 was $503,175,000.  Management anticipates that
approximately $425,000,000 of this investment portfolio will be used to fund the
dividend or loan to MII described above.

At March 31, 1999 and March 31, 1998,  JRM had available various uncommitted
short-term lines of credit from banks totaling $22,745,000 and $25,234,000,
respectively.  At March 31, 1999, JRM had no borrowings against these lines of
credit.  At March 31, 1998, JRM had borrowed $2,251,000 against these lines of
credit.  At March 31, 1998, JRM and certain of its subsidiaries were parties to
a revolving credit facility under which there were no borrowings.  In June 1998,
JRM and such subsidiaries entered into a new $200,000,000 three-year, unsecured
credit agreement (the "JRM Credit Agreement") with a group of banks. Borrowings
against the JRM Credit Agreement cannot exceed $50,000,000.  The remaining
$150,000,000 is reserved for the

                                       15
<PAGE>

issuance of letters of credit. At March 31, 1999, JRM had no borrowings under
the JRM Credit Agreement. Management does not anticipate JRM will need to borrow
funds under the JRM Credit Agreement during fiscal year 2000. Subsequent to
year-end, JRM elected to reduce the commitments on the JRM Credit Agreement from
$200,000,000 to $100,000,000.

JRM is restricted, as a result of covenants in the JRM Credit Agreement, in its
ability to transfer funds to MII and certain of its subsidiaries through
unsecured loans or investments.  At March 31, 1999, JRM could make unsecured
loans to or investments in MII of approximately $75,000,000 and pay dividends to
MII of approximately $146,300,000.  In connection with the tender offer and
merger described above, an amendment to the JRM Credit Agreement was entered
into that permits JRM to loan to MII such amounts as may be required for MII to
repay the amounts outstanding under the $525,000,000 senior secured term loan
facility with Citibank, N.A.

On March 5, 1999, JRM consummated its offer to purchase all of its outstanding
9.375% Senior Subordinated Notes at a purchase price of 113.046% of their
principal amount ($1,130.46 per $1,000 principal amount), plus accrued and
unpaid interest.  On that date, JRM purchased $248,575,000 in principal amount
of the notes for a total purchase price of $284,564,000, including interest of
$3,560,000.  As a result, JRM recorded an extraordinary loss of $38,719,000.  In
connection with the purchase of the notes, JRM received consents to certain
amendments that amended or eliminated certain restrictive covenants and other
provisions contained in the indenture relating to the notes.  Specifically, the
covenants contained in the indenture that restricted JRM's ability to pay
dividends, repurchase or redeem its capital stock, or to transfer funds through
unsecured loans to or investments in MII were eliminated.

Working capital decreased $49,564,000 from $7,173,000 at March 31, 1998 to a
deficit of $42,391,000 at March 31, 1999. During fiscal year 2000, JRM expects
to obtain funds to meet capital expenditure, working capital and debt maturity
requirements from operating activities and 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 joint ventures are largely financed through their own resources, including,
in some cases, stand-alone borrowing arrangements.  In some instances, JRM
provides guarantees on behalf of its joint ventures.  (See Note 11 to the
consolidated financial statements.)

During fiscal years 1999 and 1998, JRM paid dividends of $5,400,000 and
$7,200,000 on its Series A Preferred Stock, respectively.  The $1,800,000
dividend declared in the fourth quarter was paid in April 1999. JRM has annual
preferred stock dividend requirements of $7,200,000 on its Series A Preferred
Stock.

At March 31, 1999, the ratio of long-term debt to total stockholders' equity was
0.0026 as compared with 0.40 at March 31, 1998.

During fiscal year 1998, JRM's Board of Directors approved the repurchase of up
to two million shares of its common stock from time to time on the open market
or through negotiated transactions, depending on the availability of cash and
market conditions.  The purpose of the repurchases was to offset dilution
created by the issuance of shares pursuant to JRM's stock compensation and
thrift plans.  JRM repurchased 362,500 shares at an average share price of
$37.31 during fiscal year 1998.  During fiscal year 1999, JRM's Board of
Directors authorized the repurchase of up to an additional one million shares of
its common stock.  JRM repurchased another 1,837,700 shares of its common stock
at an average share price of $31.67 through October 8, 1998, at which time JRM
ceased all further share repurchases.  At such time, JRM had repurchased
2,200,200 of the three million shares of its common stock authorized to be
repurchased.

                                       16
<PAGE>

At March 31, 1999, JRM has provided a valuation allowance for deferred tax
assets of $13,555,000 which cannot be realized through carrybacks and future
reversals of existing taxable temporary differences. Management believes the
remaining deferred tax assets are realizable through carrybacks and future
reversals of existing taxable temporary differences.  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.

Impact of the Year 2000

The JRM company-wide Year 2000 Project is proceeding on schedule.  The project
addresses information technology components (hardware and software) in internal
business systems and the infrastructure and the embedded systems in offices,
plants and products delivered to customers.  In addition, an analysis of
critical suppliers is being performed to ensure the supply of materials and
services that are strategic to business continuity.  The Year 2000 Project began
with a planning phase during the latter part of 1996 followed by a company-wide
assessment that was completed in early 1997.  Based upon the results of the
assessment, a common approach as outlined below was developed that fit the
requirements of each JRM operating location.

A consistent work breakdown structure for the project is being employed
throughout JRM:
        . Business Applications and IT Infrastructure ("IT Systems")
        . Facilities (office buildings)
        . Embedded Systems (in plants and construction equipment)
        . Customer Products (embedded systems in customer products)
        . Critical Suppliers

The general phases of the project common to all of the above functions are:
      (1) establish priorities,
      (2) inventory items with potential Year 2000 impact,
      (3) assess and create a solution strategy for those items determined to be
          material to JRM,
      (4) implement solutions defined for those items assessed to have Year 2000
          impact, and
      (5) test and validate solutions.

At March 31, 1999, the assessment and remediation of critical IT Systems'
components were essentially complete.  The Facilities and Embedded Systems
phases of the project were 90% complete and on schedule showing significant
progress during the quarter. The analysis of Critical Suppliers includes the
determination of the compliance status of the suppliers' businesses as well as
the products they produce. Half of the JRM sites have completed this analysis
and the balance are near completion. The Customer Products phase of the project
was completed during the March 1999 quarter.

The critical IT Systems, Facilities and Embedded Systems that support JRM's
engineering, fabrication and marine operations are on schedule and are forecast
to be completed by June 30, 1999. The critical IT Systems and Facilities that
support the corporate office functions are scheduled to be Year 2000 compliant
by June 30, 1999.  The analysis and the compliance tasks for JRM's Critical
Suppliers are on schedule and are forecast to be substantially completed by June
30, 1999.

As an alternative to the remediation of the legacy payroll systems, MII has
elected to outsource its payroll function.  JRM's payroll is included in the
scope of the project as a corporate service from MII.  The transition to the
payroll service provider will be completed by October 31, 1999.

                                       17
<PAGE>

JRM does not expect that the cost associated with the modifications to critical
systems and other compliance activities will have a material impact on its
consolidated financial condition, cash flows or results of operations.  The cost
of the Year 2000 Project is estimated at $6,000,000 and is being funded through
operating cash flows.  The cost incurred to date is approximately $4,000,000.
The differences between the cost incurred to date and the project completion
percentage is due to certain project milestones with subcontractors for work
being performed for the corporate office.  Excluding the corporate office,
approximately, 90% of the total anticipated Year 2000 project cost has been
incurred through March 31, 1999.

JRM's Year 2000 compliance is also dependent upon the Year 2000 readiness of
external agents and third-party suppliers on a timely basis.  The failure of JRM
or its agents or suppliers to achieve Year 2000 compliance could result in,
among other things, production interruptions, delays in the delivery of
products, delays in the receipt of supplies, invoice and collection errors, and
inaccurate inventories.  These consequences could have a material adverse impact
on JRM's results of operations, financial condition and cash flows if it is
unable to conduct its businesses in the ordinary course.

JRM is taking steps to mitigate the risk of a material impact of Year 2000 on
its operations with the development of contingency plans. These plans focus on
the mission critical processes and third-party dependencies that could be at
risk with the century date change. Contingency plans are in the early stages of
development and are being prioritized consistent with the requirements of each
operating location. All contingency planning activities are scheduled to be
completed by September 30, 1999.

Although JRM is unable to determine at this time whether the consequences of
Year 2000 failures will have a material impact on its results of operations, JRM
believes that its Year 2000 Project, including contingency plans, should
significantly reduce the adverse effect that any such disruptions may have.

Statements made herein which express a belief, expectation or intention, as well
as those that are not historical fact, are forward looking.  They involve a
number of risks and uncertainties that may cause actual results to differ
materially from such forward-looking statements.  The dates on which JRM
believes the Year 2000 Project will be completed are based on management's best
estimates, which were derived utilizing numerous assumptions of future events,
including the continued availability of certain resources, third-party
modification plans and other factors.  However, there can be no guarantee that
these estimates will be achieved, or that there will not be a delay in, or
increased costs associated with, the implementation of the Year 2000 Project.
Specific factors that might cause differences between the estimates and actual
results include, but are not limited to, the following:
        . availability and cost of personnel trained in these areas,
        . the ability to locate and correct all relevant computer code,
        . timely responses to and corrections by third parties and suppliers,
        . the ability to implement interfaces between the new systems,
        . the systems not being replaced, and
        . similar uncertainties.

Due to the general uncertainty inherent in the Year 2000 problem, resulting in
part from the uncertainty of the Year 2000 readiness of third parties and the
interconnection of global businesses, JRM cannot ensure its ability to timely
and cost-effectively resolve problems associated with the Year 2000 issue that
may affect its operations and business or expose it to third-party liability.

                                       18
<PAGE>

New Accounting Standards

In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-Up
Activities," which is effective for fiscal years beginning after December 15,
1998.  SOP 98-5 provides guidance on accounting for the costs of start-up
activities and requires that entities expense start-up costs and organization
costs as they are incurred.  JRM's adoption of SOP 98-5 will not have a material
impact on its consolidated financial position or results of operations.

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which is
effective for fiscal years beginning after June 15, 1999.  SFAS No. 133 will
require JRM to recognize all derivatives on the balance sheet at fair value.
Derivatives that are not hedges must be adjusted to fair value through income.
If the derivative is a hedge, depending on the nature of the hedge, changes in
the fair value of derivatives will either be offset against the change in fair
value of the hedged assets, liabilities, or firm commitments through earnings or
recognized in other comprehensive income until the hedged item is recognized in
earnings.  The ineffective portion of a derivative's change in fair value will
be immediately recognized in earnings.  JRM has not yet determined what effect
the adoption of SFAS No. 133 will have on its consolidated financial position or
results of operations.

                                       19
<PAGE>

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

JRM's exposure to market risk from changes in interest rates relates primarily
to its investment portfolio, which is primarily comprised of investments in U.S.
government obligations and other highly liquid debt securities. JRM is averse to
principal loss and ensures the safety and preservation of its invested funds by
limiting default risk, market risk and reinvestment risk. All of JRM's
investments in debt securities are classified as available-for-sale. The table
below provides information about JRM's investments:

                                  Principal           Average
        Fiscal Year               Amount by           Interest
     Ending March 31,         Expected Maturity         Rate
     ----------------         -----------------         ----
          2000                  $244,476,000            4.96%
          2001                  $141,861,000            5.61%
          2002                  $ 56,260,000            6.59%
          2003                  $ 60,000,000            5.56%

          Total                 $502,597,000

Fair Value at March 31, 1999    $503,175,000

JRM has no material future earnings or cash flow exposures from changes in
interest rates on its long-term debt obligations, as all of these obligations
have fixed interest rates.  JRM has exposure to changes in interest rates on its
short-term uncommitted lines of credit and its unsecured and committed revolving
credit facility (see Liquidity and Capital Resources).  At March 31, 1999, JRM
had no borrowings against these short-term facilities.

JRM has operations in many foreign locations and as a result, its financial
results could be significantly affected by factors such as changes in foreign
currency exchange rates or weak economic conditions in those foreign markets.
In order to manage the risks associated with foreign currency exchange
fluctuations, JRM regularly hedges such risks with foreign currency forward
exchange contracts.  JRM does not enter into speculative forward exchange
contracts.  At March 31, 1999, JRM had no outstanding forward exchange
contracts.

                                       20
<PAGE>

Item 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

              COMPANY REPORT ON CONSOLIDATED FINANCIAL STATEMENTS


JRM has prepared the consolidated financial statements and related financial
information included in this report.  JRM has the primary responsibility for the
financial statements and other financial information and for ascertaining that
the data fairly reflect the financial position and results of operations of JRM.
The financial statements were prepared in accordance with generally accepted
accounting principles, and necessarily reflect informed estimates and judgments
by appropriate officers of JRM with appropriate consideration given to
materiality.

JRM believes that it maintains an internal control structure designed to provide
reasonable assurance that assets are safeguarded against loss or unauthorized
use and that the financial records are adequate and can be relied upon to
produce financial statements in accordance with generally accepted accounting
principles.  The concept of reasonable assurance is based on the recognition
that the cost of an internal control structure must not exceed the related
benefits.  Although internal control procedures are designed to achieve these
objectives, it must be recognized that fraud, errors or illegal acts may
nevertheless occur.  JRM seeks to assure the objectivity and integrity of its
accounts by its selection of qualified personnel, by organizational arrangements
that provide an appropriate division of responsibility and by the establishment
and communication of sound business policies and procedures throughout the
organization.  JRM believes that its internal control structure provides
reasonable assurance that fraud, errors or illegal acts that could be material
to the financial statements are prevented or would be detected.

JRM's accompanying consolidated financial statements have been audited by its
independent accountants, who provide JRM with advice on the application of U.S.
generally accepted accounting principles to JRM's business and also provide an
objective assessment of the degree to which JRM meets its responsibility for the
fairness of financial reporting.  They regularly evaluate the internal control
structure and perform such tests and other procedures as they deem necessary to
reach and express an opinion on the fairness of the financial statements.  The
reports of the independent accountants appear elsewhere herein.

The Board of Directors pursues its responsibility for JRM's consolidated
financial statements through its Audit Committee, which is composed solely of
directors who are not officers or employees of JRM or its parent, MII.  The
Audit Committee meets periodically with the independent accountants and
management to review matters relating to the quality of financial reporting and
internal control structure and the nature, extent and results of the audit
effort.  In addition, the Audit Committee is responsible for recommending the
engagement of independent accountants for JRM to the Board of Directors, who in
turn submit the engagement to the stockholders for their approval.  The
independent accountants have free access to the Audit Committee.

May 14, 1999

                                       21
<PAGE>

                       REPORT OF INDEPENDENT ACCOUNTANTS


To the Board of Directors and
Stockholders of J. Ray McDermott, S.A.

In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income (loss), comprehensive income (loss),
stockholders' equity, and cash flows present fairly, in all material respects,
the financial position of J. Ray McDermott, S.A. and subsidiaries at March 31,
1999, and the results of their operations and their cash flows for the year then
ended, in conformity with generally accepted accounting principles.  These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit.  We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform an
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement.  An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation.  We
believe that our audit provides a reasonable basis for the opinion expressed
above.

PricewaterhouseCoopers LLP
New Orleans, Louisiana
May 14, 1999

                                       22
<PAGE>

                        REPORT OF INDEPENDENT AUDITORS


The Board of Directors and Stockholders
J. Ray McDermott, S.A.


We have audited the accompanying consolidated balance sheet of J. Ray McDermott,
S.A. as of March 31, 1998, and the related consolidated statements of income
(loss), comprehensive income (loss), stockholders' equity and cash flows for
each of the two years in the period ended March 31, 1998.  These financial
statements are the responsibility of the Company's management.  Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of J. Ray McDermott,
S.A. at March 31, 1998, and the consolidated results of its operations and its
cash flows for each of the two years in the period ended March 31, 1998, in
conformity with generally accepted accounting principles.



                                                     ERNST & YOUNG LLP


New Orleans, Louisiana
May 19, 1998

                                       23
<PAGE>

                            J. RAY McDERMOTT, S.A.
                          CONSOLIDATED BALANCE SHEET
                            MARCH 31, 1999 and 1998


<TABLE>
<CAPTION>
                                    ASSETS
                                                                 1999        1998
                                                                 ----        ----
                                                                  (In thousands)
<S>                                                            <C>         <C>
Current Assets:
     Cash and cash equivalents                               $   65,996  $  152,011
     Accounts receivable - trade, net                           176,128     227,538
     Accounts receivable - unconsolidated affiliates             28,351      45,072
     Accounts receivable - other                                 25,205      26,327
     Contracts in progress                                       32,357      71,084
     Other current assets                                        39,458      45,634
-----------------------------------------------------------------------------------
        Total Current Assets                                    367,495     567,666
-----------------------------------------------------------------------------------

Property, Plant and Equipment:
     Land                                                        14,789      20,851
     Buildings                                                   71,413      80,668
     Machinery and equipment                                    848,729   1,070,640
     Property under construction                                 27,484      10,289
-----------------------------------------------------------------------------------
                                                                962,415   1,182,448
     Less accumulated depreciation                              702,238     839,298
-----------------------------------------------------------------------------------
        Net Property, Plant and Equipment                       260,177     343,150
-----------------------------------------------------------------------------------
Investments                                                     502,934     543,658
-----------------------------------------------------------------------------------
Excess of Cost over Fair Value of Net Assets of
     Purchased Businesses less Accumulated
     Amortization  of $8,542,000 at March 31, 1998                    -      22,153
-----------------------------------------------------------------------------------

Investment in Unconsolidated Affiliates                          13,648      29,069
-----------------------------------------------------------------------------------

Other Assets                                                     37,719      43,024
-----------------------------------------------------------------------------------

     TOTAL                                                   $1,181,973  $1,548,720
-----------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.

                                       24
<PAGE>

                     LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
                                                                   1999         1998
                                                                   ----         ----
<S>                                                              <C>          <C>
                                                                   (In thousands)
Current Liabilities:
     Notes payable and current maturities of long-term debt    $      306   $   31,272
     Accounts payable                                             103,349      162,792
     Accounts payable to McDermott International, Inc.                  -        8,388
     Accrued contract costs                                        51,067       88,518
     Accrued liabilities - other                                  119,107      110,345
     Advance billings on contracts                                 58,785       91,549
     Accrued employee benefits                                     43,805       44,572
     U.S. and foreign income taxes payable                         33,467       23,057
--------------------------------------------------------------------------------------
              Total Current Liabilities                           409,886      560,493
--------------------------------------------------------------------------------------

Long-Term Debt                                                      1,782      245,822
--------------------------------------------------------------------------------------

Deferred and Non-Current Income Taxes                              21,700       46,989
--------------------------------------------------------------------------------------

Other Liabilities                                                  61,772       78,854
--------------------------------------------------------------------------------------

Commitments and Contingencies.

Stockholders' Equity:
          Preferred stock, authorized 10,000,000 shares;
            outstanding 3,200,000 shares Series A $2.25
            cumulative convertible, par value $.01 per share,
            (liquidation preference $160,000,000)                      32           32
          Common stock, par value $0.01 per share,
           authorized 60,000,000 shares; issued
           41,261,014 at March 31, 1999 and
           41,130,328 at March 31, 1998                               413          411
          Capital in excess of par value                          620,210      615,515
          Retained earnings                                       152,377       35,418
          Treasury stock at cost; 2,200,200 shares at
            March 31, 1999 and 362,500 shares at
            March 31, 1998                                        (71,809)     (13,537)
          Accumulated other comprehensive loss                    (14,390)     (21,277)
--------------------------------------------------------------------------------------

              Total  Stockholders' Equity                         686,833      616,562
--------------------------------------------------------------------------------------
              TOTAL                                            $1,181,973   $1,548,720
--------------------------------------------------------------------------------------
</TABLE>

                                       25
<PAGE>

                            J. RAY McDERMOTT, S.A.
                    CONSOLIDATED STATEMENT OF INCOME (LOSS)
                FOR THE THREE FISCAL YEARS ENDED MARCH 31, 1999

<TABLE>
<CAPTION>

                                                                       1999          1998          1997
                                                                       ----          ----          ----
                                                                    (In thousands, except per share data)
<S>                                                                 <C>           <C>           <C>
Revenues                                                            $1,279,570    $1,855,486    $1,408,469
----------------------------------------------------------------------------------------------------------
Costs and Expenses:
  Cost of operations (excluding depreciation and amortization)       1,006,092     1,555,272     1,190,321
  Depreciation and amortization                                         56,761        93,843        99,675
  Selling, general and administrative expenses                         103,656       112,313       124,264
----------------------------------------------------------------------------------------------------------
                                                                     1,166,509     1,761,428     1,414,260
----------------------------------------------------------------------------------------------------------
Gain (Loss) on Asset Disposals and Impairments-Net                      18,620       (40,119)       29,021
----------------------------------------------------------------------------------------------------------

Operating Income before Income (Loss) from Investees                   131,681        53,939        23,230

Income (Loss) from Investees                                            10,670        70,236        (7,833)
----------------------------------------------------------------------------------------------------------

Operating Income                                                       142,351       124,175        15,397
----------------------------------------------------------------------------------------------------------
Other Income (Expense):
  Interest income                                                       45,013        26,252        16,558
  Interest expense                                                     (25,726)      (30,793)      (41,578)
  Other-net                                                             11,248         4,177         8,455
----------------------------------------------------------------------------------------------------------
                                                                        30,535          (364)      (16,565)
----------------------------------------------------------------------------------------------------------
Income (Loss) before Provision for  Income Taxes
  and Extraordinary Item                                                172,886      123,811        (1,168)

Provision for Income Taxes                                               10,008       34,851        11,732
----------------------------------------------------------------------------------------------------------

Income (Loss) before Extraordinary Item                                 162,878       88,960       (12,900)

Extraordinary Item                                                      (38,719)           -             -
----------------------------------------------------------------------------------------------------------
Net Income (Loss)                                                    $  124,159    $  88,960   $   (12,900)
----------------------------------------------------------------------------------------------------------
Net Income (Loss) Applicable to Common
  Stock (after Preferred Stock Dividends)                            $  116,959    $  81,760   $   (20,100)
----------------------------------------------------------------------------------------------------------
Earnings (Loss) per Common Share:
  Basic:
     Income (Loss) before Extraordinary Item                         $     3.93    $    2.00   $     (0.50)
     Net Income (Loss)                                               $     2.95    $    2.00   $     (0.50)
  Diluted:
     Income (Loss) before Extraordinary Item                         $     3.57    $    1.89   $     (0.50)
     Net Income (Loss)                                               $     2.72    $    1.89   $     (0.50)
----------------------------------------------------------------------------------------------------------
Cash Dividends:
  Per preferred share                                                $     2.25    $    2.25   $      2.25
----------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.

                                       26
<PAGE>

                            J. RAY McDERMOTT, S.A.
             CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
                FOR THE THREE FISCAL YEARS ENDED MARCH 31, 1999

<TABLE>
<CAPTION>

                                                           1999            1998             1997
                                                           ----            ----             ----
                                                                      (In thousands)
<S>                                                     <C>              <C>            <C>
Net Income (Loss)                                       $  124,159       $  88,960      $   (12,900)
---------------------------------------------------------------------------------------------------

Other Comprehensive Income (Loss):
     Currency translation adjustments:
       Foreign currency translation adjustments                (41)
       Foreign currency translation adjustments,
        net of reclassification adjustments                                    485           (8,288)
     Purchase of an equity investment from
       McDermott International, Inc.                       (10,262)
     Reclassification adjustment for sales
       of investments in foreign entities in
       fiscal year 1999                                     15,596
     Unrealized gains (losses) on investments:
       Unrealized gains (losses) arising
         during the period, net of taxes of
         $25,000 in fiscal 1999                              1,638
       Unrealized gains (losses), net of
         reclassification adjustments, arising
         during the period, net of taxes
         of $360,000 and $85,000 in fiscal years
         1998 and 1997, respectively                                           375              137
       Reclassification adjustment for gains
         included in net income, net of taxes of
         $11,000 in fiscal year 1999                           (21)
     Minimum pension liability                                 (23)              -                2
---------------------------------------------------------------------------------------------------
Other Comprehensive Income (Loss)                            6,887             860           (8,149)
---------------------------------------------------------------------------------------------------
Comprehensive Income (Loss)                             $  131,046       $  89,820      $   (21,049)
---------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.

                                       27
<PAGE>

J. RAY McDERMOTT, S.A.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE FISCAL YEARS ENDED MARCH 31, 1999
(In thousands, except for share amounts)

<TABLE>
<CAPTION>

                                                         Preferred Stock - Series A                    Common Stock
                                                         --------------------------     `         -------------------------
                                                           Shares        Par Value                 Shares         Par Value
                                                           ------        ---------                 ------         ---------
<S>                                                      <C>             <C>                     <C>              <C>
Balance March 31, 1996                                   3,200,000       $      32               40,197,946       $    402
--------------------------------------------------------------------------------------------------------------------------
Net loss                                                         -               -                        -              -
Preferred dividends                                              -               -                        -              -
Translation adjustments                                          -               -                        -              -
Exercise of stock options                                        -               -                  297,524              3
Tax benefit on exercise of stock options                         -               -                        -              -
Restricted stock purchases - net                                 -               -                   45,210              -
Contributions to thrift plan                                     -               -                   77,112              1
Deferred career executive stock plan expense                     -               -                        -              -
Gain on investments                                              -               -                        -              -
Minimum pension liability                                        -               -                        -              -
Acquisition of net assets from MII                               -               -                        -              -
--------------------------------------------------------------------------------------------------------------------------
Balance March 31, 1997                                   3,200,000              32               40,617,792            406
--------------------------------------------------------------------------------------------------------------------------
Net income                                                       -               -                        -              -
Preferred dividends                                              -               -                        -              -
Translation adjustments                                          -               -                        -              -
Exercise of stock options                                        -               -                  442,519              4
Tax benefit on exercise of stock options                         -               -                        -              -
Restricted stock purchases - net                                 -               -                   (3,620)             -
Contributions to thrift plan                                     -               -                   65,727              1
Deferred career executive stock plan expense                     -               -                        -              -
Gain on investments                                              -               -                        -              -
Acquisition of net assets from MII                               -               -                        -              -
Purchases of treasury stock                                      -               -                        -              -
Termination of directors' retirement plan                        -               -                    7,910              -
--------------------------------------------------------------------------------------------------------------------------
Balance March 31, 1998                                   3,200,000              32               41,130,328            411
--------------------------------------------------------------------------------------------------------------------------
Net income                                                       -               -                        -              -
Preferred dividends                                              -               -                        -              -
Translation adjustments                                          -               -                        -              -
Exercise of stock options                                        -               -                   60,152              1
Tax benefit on exercise of stock options                         -               -                        -              -
Restricted stock purchases - net                                 -               -                      700              -
Contributions to thrift plan                                     -               -                   68,104              1
Deferred career executive stock plan expense                     -               -                        -              -
Gain on investments                                              -               -                        -              -
Exercise of MII stock options                                    -               -                        -              -
Acquisition of net assets from MII                               -               -                        -              -
Purchases of treasury stock                                      -               -                        -              -
Directors' stock issuance                                        -               -                    1,730              -
Minimum pension liability                                        -               -                        -              -
--------------------------------------------------------------------------------------------------------------------------
Balance March 31, 1999                                   3,200,000       $      32               41,261,014       $    413
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.

                                       28
<PAGE>

<TABLE>
<CAPTION>

                                                                                                                 CONTINUED
                                                                           Accumulated
       Capital                     Retained                                   Other
      In Excess                    Earnings           Treasury             Comprehensive
     Of Par Value                 (Deficit)            Stock                  Loss                Total
     ------------                 ---------            -----                  ----                -----
     <S>                          <C>              <C>                    <C>                   <C>
      $610,366                    $ (26,242)       $       -              $   (13,988)          $570,570
      --------------------------------------------------------------------------------------------------
             -                      (12,900)               -                        -            (12,900)
             -                       (7,200)               -                        -             (7,200)
             -                            -                -                   (8,288)            (8,288)
         2,841                            -                -                        -              2,844
         1,724                            -                -                        -              1,724
            (9)                           -                -                        -                 (9)
         1,892                            -                -                        -              1,893
           963                            -                -                        -                963
             -                            -                -                      137                137
             -                            -                -                        2                  2
         1,243                            -                -                        -              1,243
      --------------------------------------------------------------------------------------------------
       619,020                      (46,342)               -                  (22,137)           550,979
      --------------------------------------------------------------------------------------------------
             -                       88,960                -                        -             88,960
             -                       (7,200)               -                        -             (7,200)
             -                            -                -                      485                485
         5,595                            -                -                        -              5,599
         2,576                            -                -                        -              2,576
           (30)                           -                -                        -                (30)
         2,218                            -                -                        -              2,219
         1,510                            -                -                        -              1,510
             -                            -                -                      375                375
       (15,671)                           -                -                        -            (15,671)
             -                            -          (13,537)                       -            (13,537)
           297                            -                -                        -                297
      --------------------------------------------------------------------------------------------------
       615,515                       35,418          (13,537)                 (21,277)           616,562
      --------------------------------------------------------------------------------------------------
             -                      124,159                -                        -            124,159
             -                       (7,200)               -                        -             (7,200)
             -                            -                -                    5,293              5,293
         2,127                            -                -                        -              2,128
           198                            -                -                        -                198
             1                            -                -                        -                  1
         2,023                            -                -                        -              2,024
         1,236                            -                -                        -              1,236
             -                            -                -                    1,617              1,617
          (620)                           -                -                        -               (620)
          (322)                           -                -                        -               (322)
             -                            -          (58,272)                       -            (58,272)
            52                            -                -                        -                 52
             -                            -                -                      (23)               (23)
      --------------------------------------------------------------------------------------------------
      $620,210                   $  152,377        $ (71,809)             $   (14,390)          $686,833
      --------------------------------------------------------------------------------------------------
</TABLE>

                                       29
<PAGE>

                            J. RAY McDERMOTT, S.A.
                     CONSOLIDATED STATEMENT OF CASH FLOWS
                FOR THE THREE FISCAL YEARS ENDED MARCH 31, 1999

               INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

<TABLE>
<CAPTION>

                                                            1999            1998            1997
                                                            ----            ----            ----
                                                                      (In thousands)
<S>                                                     <C>              <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss)                                       $  124,159       $  88,960    $   (12,900)
-------------------------------------------------------------------------------------------------
Adjustments to reconcile net income (loss) to net
  cash provided by (used in) operating activities:
Depreciation and amortization                               56,761          93,843         99,675
Extraordinary item                                          38,719               -              -
Income or loss of investees, less dividends                 10,121          (7,309)         7,833
(Gain) loss on asset disposals and
 impairments-net                                           (18,620)         40,119        (29,021)
Provision for (benefit from) deferred taxes                (13,534)          2,846         (7,600)
Other                                                       (2,209)          3,091          4,258
Changes in assets and liabilities:
     Accounts receivable                                    38,597          55,030        (50,289)
     Net contracts in progress and advance billings          5,745           6,635        154,811
     Accounts payable                                      (66,062)         15,746        (20,759)
     Accrued contract costs                                (37,451)         24,932         (6,241)
     Accrued liabilities                                    50,043          37,572        (13,868)
     Income taxes                                            8,951            (836)        (1,498)
     Other, net                                            (53,072)         11,370         (4,307)
-------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES                  142,148         371,999        120,094
-------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment                 (51,416)        (27,145)       (64,261)
Proceeds from asset disposals                              137,728         287,241         57,650
Purchases of available-for-sale securities                (459,728)       (545,066)       (79,435)
Maturities of available-for-sale securities                483,062          77,952              -
Sales of available-for-sale securities                      24,815           1,338          4,589
Acquisition of net assets from MII                          (8,984)        (14,543)             -
Investment in asset held for lease                               -               -         (1,821)
Investments in equity investees                                (55)           (205)        (3,908)
Returns from investees                                       5,678           2,124         12,500
Other                                                            -               -            117
-------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES        131,100        (218,304)       (74,569)
-------------------------------------------------------------------------------------------------
</TABLE>

                                       30
<PAGE>

                                                                       CONTINUED

               INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
                                                                   1999        1998         1997
                                                                   ----        ----         ----
                                                                          (In thousands)
<S>                                                             <C>          <C>         <C>
CASH FLOWS FROM FINANCING ACTIVITIES:

Payment of long-term debt                                       $(287,555)   $(84,352)   $ (11,022)
Issuance of long-term debt                                              -           -      244,375
Decrease in short-term borrowing                                   (2,251)    (26,068)     (73,451)
Decrease in notes payable to McDermott International, Inc.              -      (9,040)    (229,180)
Issuance of common stock                                            2,127       5,599        4,569
Preferred dividends paid                                           (5,400)     (7,200)      (7,200)
Purchases of treasury stock                                       (58,272)    (13,537)           -
Other                                                              (8,208)     (4,376)      (4,432)
--------------------------------------------------------------------------------------------------
NET CASH USED IN FINANCING ACTIVITIES                            (359,559)   (138,974)     (76,341)
--------------------------------------------------------------------------------------------------
EFFECTS OF EXCHANGE RATE CHANGES ON CASH                              296         495          701
--------------------------------------------------------------------------------------------------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS              (86,015)     15,216      (30,115)
--------------------------------------------------------------------------------------------------

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                    152,011     136,795      166,910
--------------------------------------------------------------------------------------------------

CASH AND CASH EQUIVALENTS AT END OF YEAR                        $  65,996    $152,011    $ 136,795
--------------------------------------------------------------------------------------------------

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

Cash paid during the period for:
     Interest (net of amount capitalized)                       $  30,617    $ 32,620    $  37,351
     Income taxes (net of refunds)                              $  30,376    $ 30,736    $  22,823
--------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.

                                       31
<PAGE>

                            J. RAY McDERMOTT, S.A.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                FOR THE THREE FISCAL YEARS ENDED MARCH 31, 1999

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements are presented in U.S. Dollars in
accordance with accounting principles generally accepted in the United States
("GAAP").  The consolidated financial statements include the accounts of J. Ray
McDermott, S.A. and its subsidiaries and controlled joint ventures.  Investments
in joint ventures and other entities that J. Ray McDermott, S.A. does not
control, but has significant influence over, are accounted for using the equity
method. All significant intercompany transactions and accounts have been
eliminated. Certain amounts previously reported have been reclassified to
conform with the presentation at March 31, 1999.

Hereinafter, the following acronyms will be used:
        . JRM for J. Ray McDermott, S.A. and its consolidated subsidiaries,
        . MII for McDermott International, Inc., a Panamanian corporation that
          is the parent company of the McDermott group of companies and the
          majority owner of JRM, and
        . McDermott for MII and its consolidated subsidiaries.

Use of Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.

Earnings Per Share

Earnings (loss) per common share has been computed on the basis of the weighted
average number of common shares and, where dilutive, common share equivalents,
outstanding during the indicated periods.

Investments

JRM's investments, primarily government obligations and other debt securities,
are classified as available-for-sale and are carried at fair value, with the
unrealized gains and losses, net of tax, reported as a component of accumulated
other comprehensive loss.  Investments available for current operations are
classified in the balance sheet as current assets while investments held for
long-term purposes are classified as non-current assets.  The amortized cost of
debt securities is adjusted for amortization of premiums and accretion of
discounts to maturity.  Such amortization is included in interest income.
Realized gains and losses are included in other income.  The cost of securities
sold is based on the specific identification method.  Interest on securities is
included in interest income.

Foreign Currency Translation

Assets and liabilities of foreign operations, other than operations in highly
inflationary economies, are translated into U.S. Dollars at current exchange
rates, and income statement  items are translated at average exchange rates for
the year.  Adjustments resulting from the translation of foreign currency
financial statements are recorded as a component of  accumulated other
comprehensive loss.  Foreign currency transaction adjustments are reported in
income.  Included in other income (expense) are transaction gains of $5,158,000,
$4,520,000 and $1,108,000 for fiscal years 1999, 1998 and 1997, respectively.
In fiscal years 1999 and 1998, a loss of $15,596,000 and a gain of $1,005,000,
respectively, were transferred from currency

                                       32
<PAGE>

translation adjustments and included in gain (loss) on asset disposals and
impairments - net due to sales of foreign investments.

Contracts and Revenue Recognition

Contract revenues and related costs are principally recognized on a percentage
of completion method for individual contracts, cost-plus or day-rate basis or
combinations thereof based upon work performed or a cost to cost method, as
applicable to the product or activity involved. Certain partnering contracts
contain a risk and reward element, whereby a portion of total compensation is
tied to overall performance of the alliance partners.  Revenues and related
costs so recorded, plus accumulated contract costs that exceed amounts invoiced
to customers under the terms of the contracts, are included in contracts in
progress.  Billings that exceed accumulated contract costs and revenues and
costs recognized under percentage of completion are included in advance billings
on contracts.  Most long-term contracts have provisions for progress payments.
All unbilled revenues will be billed.  Contract price and cost estimates are
reviewed periodically as the work progresses, and adjustments proportionate to
the percentage of completion are reflected in income in the period when such
estimates are revised.  Provisions are made currently for all known or
anticipated losses.  Variations from estimated contract performance could result
in a material adjustment to operating results for any fiscal quarter or year.
Claims for extra work or changes in scope of work are included in contract
revenues when collection is probable.


                                                            1999        1998
                                                          --------    --------
                                                             (In thousands)
Included in Contracts in Progress are:

     Costs incurred less costs of revenue recognized      $ 15,288    $ 20,028
     Revenues recognized less billings to customers         17,069      51,056
     -------------------------------------------------------------------------

     Contracts in Progress                                $ 32,357    $ 71,084
     -------------------------------------------------------------------------

Included in Advance Billings on Contracts are:

     Billings to customers less revenues recognized       $ 79,589    $106,470
     Costs incurred less costs of revenue recognized       (20,804)    (14,921)
     -------------------------------------------------------------------------

     Advance Billings on Contracts                        $ 58,785    $ 91,549
     -------------------------------------------------------------------------

Included in accounts receivable - trade are amounts representing retainages on
contracts as follows:

                                                            1999        1998
                                                          --------    --------
                                                             (In thousands)

     Retainages                                           $ 48,596    $ 14,945
     -------------------------------------------------------------------------

All of the 1999 retainages are expected to be collected within the next year.

Comprehensive Income (Loss)

Effective April 1, 1998, JRM adopted Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income," to report and display
comprehensive income and its components.  Under this new principle, the
accumulated other comprehensive income or loss is displayed in the consolidated
balance sheet as a component of stockholders' equity.  Comprehensive income
(loss) is displayed as a separate financial statement.

                                       33
<PAGE>

The components of accumulated other comprehensive loss included in stockholders'
equity at March 31, 1999 and 1998 are as follows:


                                                      1999        1998
                                                      ----        ----
                                                       (In thousands)
     Currency Translation Adjustments               $(15,669)   $(20,962)
     Net Unrealized Gain (Loss) on Investments         1,302        (315)
     Minimum Pension Liability                           (23)          -
     -------------------------------------------------------------------
       Accumulated Other Comprehensive Loss         $(14,390)   $(21,277)
     -------------------------------------------------------------------

Warranty Expense

JRM includes warranty costs as a component of its total contract cost estimate
to satisfy contractual requirements.  In addition, specific provisions are made
where the costs of warranty are expected to significantly exceed such accruals.

Long-Lived Assets

JRM evaluates the realizability of its long-lived assets, including property,
plant and equipment and goodwill, whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.

Property, Plant and Equipment

Property, plant and equipment are carried at cost, reduced by provisions to
recognize economic impairment when management determines such impairment has
occurred.

Except for major marine vessels, property, plant and equipment is depreciated
using the straight-line method over estimated economic useful lives of 8 to 30
years for buildings and 2 to 20 years for machinery and equipment.  Major marine
vessels are depreciated using the units-of-production method based on the
utilization of each vessel.  Depreciation expense calculated under the units-of-
production method may be less than, equal to, or greater than depreciation
expense calculated under the straight-line method in any period. The annual
depreciation based on utilization of each vessel will not be less than the
greater of 25% of annual straight-line depreciation, or 50% of cumulative
straight-line depreciation.  Depreciation expense was $49,334,000, $67,753,000
and $65,415,000 in fiscal years 1999, 1998 and 1997, respectively.

Maintenance, repairs and renewals which do not materially prolong the useful
life of an asset are expensed as incurred, except for drydocking costs for the
marine fleet, which are estimated and accrued over the period of time between
drydockings, generally 3 to 5 years.  Such accruals are charged to operations
currently.

Intangible Assets

JRM amortizes goodwill on a straight-line basis using a ten-year period.  During
fiscal year 1999, JRM recorded a reduction of goodwill of $9,267,000 relating to
the sale of McDermott Subsea Constructors Limited (see Note 3) and goodwill
impairments totaling $10,461,000 (see Note 8). In fiscal year 1998, JRM recorded
a goodwill impairment of  $262,901,000 related to the acquisition of Offshore
Pipelines, Inc.  Goodwill amortization expense was $1,571,000, $18,964,000 and
$24,494,000 for fiscal years 1999, 1998 and 1997, respectively.

Other intangible assets of $13,723,000 and $20,011,000 are included in other
assets at March 31, 1999 and 1998, respectively.  These intangible assets
consist primarily of investments in oil and gas properties and

                                       34
<PAGE>

non-competition agreements.  Amortization expense for these intangible assets
was $5,542,000, $6,870,000 and $8,363,000 for fiscal years 1999, 1998 and 1997,
respectively.

Capitalization of Interest Cost

Interest is capitalized in accordance with SFAS No. 34, "Capitalization of
Interest Cost."  In fiscal years 1999, 1998 and 1997, total interest cost
incurred was $26,206,000, $31,687,000 and $42,295,000, respectively, of which
$480,000, $894,000 and $717,000, respectively, was capitalized.

Cash Equivalents

Cash equivalents are highly liquid investments, with maturities of three months
or less when purchased, which are not held as part of the investment portfolio.

Derivative Financial Instruments

JRM attempts to minimize its exposure to changes in foreign currency exchange
rates by matching 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
derivatives, primarily forward exchange contracts, to reduce the impact of
foreign exchange rate movements on operating results. Gains and losses on
forward exchange contracts that qualify as hedges of firm purchase and sale
commitments are deferred and recognized in income or as adjustments of carrying
amounts when the hedged transactions occur.  Gains and losses on forward
exchange contracts that hedge foreign currency assets or liabilities are
recognized in income as incurred.  Such amounts effectively offset gains and
losses on the foreign currency assets or liabilities that are hedged.

Stock-Based Compensation

JRM follows Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," ("APB 25") and related Interpretations in accounting for
its employee stock plans.  Under APB 25, if the exercise price of the Company's
employee stock options equals or exceeds the fair value of the underlying stock
on the measurement date, no compensation expense is recognized.  If the
measurement date is later than the date of grant, compensation expense is
recorded to the measurement date based on the quoted market price of the
underlying stock at the end of each period.

New Accounting Standards

In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-Up
Activities," which is effective for fiscal years beginning after December 15,
1998.  SOP 98-5 provides guidance on accounting for the costs of start-up
activities and requires that entities expense start-up costs and organization
costs as they are incurred.  JRM's adoption of SOP 98-5 will not have a material
impact on its consolidated financial position or results of operations.

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which is
effective for fiscal years beginning after June 15, 1999.  SFAS No. 133 will
require JRM to recognize all derivatives on the balance sheet at fair value.
Derivatives that are not hedges must be adjusted to fair value through income.
If the derivative is a hedge, depending on the nature of the hedge, changes in
the fair value of derivatives will either be offset against the change in fair
value of the hedged assets, liabilities, or firm commitments through earnings or
recognized in other comprehensive income until the hedged item is recognized in
earnings.  The ineffective portion of a derivative's change in fair value will
be immediately recognized in earnings.  JRM has not yet determined what effect
the adoption of SFAS No. 133 will have on its consolidated financial position or
results of operations.

                                       35
<PAGE>

NOTE 2 - ACQUISITIONS

During fiscal year 1998, JRM acquired the following: a controlling interest in
Talleres Navales del Golfo, S.A. de C.V., a Mexican shipyard; a 100% interest in
Menck GmbH, a manufacturer of marine hammers; and the remaining interest in
McDermott Engineering Houston, LLC, an engineering joint venture.  JRM acquired
these interests from MII for an aggregate purchase price of $14,543,000.  These
acquisitions have been accounted for in a manner similar to a pooling of
interests, and accordingly, the consolidated financial statements have been
restated.

The restatement effects for periods prior to acquisition are:


                                                1998      1997
                                                ----      ----
                                  (In thousands, except per share amounts)

          Revenues                            $30,947   $40,882
          Operating Income (Loss)                 690    (1,674)
          Net Income (Loss)                     2,873    (1,074)

          Earnings (loss) per share:
            Basic                             $  0.07   $ (0.03)
            Diluted                           $  0.06   $ (0.03)


NOTE 3 - INVESTMENT IN UNCONSOLIDATED AFFILIATES

Summarized combined balance sheet and income statement information, based on the
most recent financial information, for investments in entities accounted for
using the equity method are presented below:


                                   1999        1998
                                   ----        ----
                                    (In thousands)

     Current Assets              $320,516   $  502,576
     Non-Current Assets            60,159       96,138
     -------------------------------------------------
       Total Assets              $380,675   $  598,714
     -------------------------------------------------
     Current Liabilities         $275,533   $  520,799
     Non-Current Liabilities            -        9,649
     Owners' Equity               105,142       68,266
     -------------------------------------------------
     Total Liabilities and
      Owners' Equity             $380,675   $  598,714
     -------------------------------------------------

                                       36
<PAGE>

                                           1999        1998            1997
                                           ----        ----            ----
                                                   (In thousands)

     Revenues                            $713,391   $1,091,056        $827,269
     -------------------------------------------------------------------------
     Gross Profit                        $ 11,056   $  103,780        $ 63,014

     Income (Loss) before Provision for
       (Benefit from) Income Taxes       $ 17,731   $   44,644        $ (5,504)
     Provision for (Benefit from)
       Income Taxes                        (1,227)      22,003           7,227
     -------------------------------------------------------------------------
     Net Income (Loss)                   $ 18,958   $   22,641        $(12,731)
     -------------------------------------------------------------------------

JRM's investment in equity method investees was less than JRM's underlying
equity in net assets of those investees based on stated ownership percentages by
$37,616,000 at March 31, 1999 and greater than JRM's underlying equity in net
assets by $108,000 at March 31, 1998.  These differences are primarily related
to the partial liquidation of an investee, cumulative losses, the timing of
distribution of dividends and various GAAP adjustments.

Reconciliation of net income (loss) per combined income statement information to
income (loss) from investees per consolidated statement of income (loss) is as
follows:
<TABLE>
<CAPTION>
                                                         1999       1998        1997
                                                         ----       ----        ----
                                                                (In thousands)
<S>                                                       <C>        <C>         <C>
     Equity income based on
       stated ownership percentages                    $ 9,673    $ 9,339     $(8,050)
     Distribution of earnings from HeereMac
       joint venture received as part of termination         -     61,637           -
     All other adjustments due to amortization of
       basis differences, timing of GAAP
       adjustments and other adjustments                   997       (740)        217
     -----------------------------------------------------------------------------------
     Income (loss) from investees                      $10,670    $70,236     $(7,833)
     -----------------------------------------------------------------------------------
</TABLE>

Undistributed earnings of equity method investees were $11,754,000 and
$16,238,000 at March 31, 1999 and 1998, respectively.

During fiscal year 1998, JRM and its joint venture partner, Heerema Offshore
Construction Group, Inc. ("Heerema"), terminated the HeereMac joint venture.
Each party had a 50% interest in the joint venture.  Heerema had responsibility
for its day-to-day operations. During fiscal year 1997, JRM changed from the
equity to the cost method of accounting for its investment in the HeereMac joint
venture because it was no longer able to exercise significant influence over
HeereMac's operating and financial policies.

Pursuant to the termination of the joint venture, Heerema acquired and assumed
JRM's 50% interest in the joint venture.  JRM received $318,500,000 in cash and
title to several pieces of equipment. The cash received included a $61,637,000
distribution of earnings and approximately $100,000,000 of principal and
interest owed to JRM under the 7.75% promissory note described in the next
paragraph.  The equipment received included two launch barges and the derrick
barge 101, a semi-submersible derrick barge with a 3,500-ton lift capacity.   As
a result of the termination, JRM recorded a gain on asset disposal of
$224,472,000 and income from investees of $61,637,000.  The $224,472,000 gain on
asset disposal includes recognition of the remaining deferred gain that had
resulted from the 1996 sale of vessels to the HeereMac joint venture described
in the next paragraph.

                                       37
<PAGE>

During fiscal year 1996, JRM sold to the HeereMac joint venture the major marine
vessels that it had been leasing to the joint venture.  JRM received cash of
$135,969,000 (including a $30,000,000 advance deposit on the sale of certain
marine equipment which was completed during fiscal year 1997) and a 7.75% note
receivable of $105,000,000. JRM recorded a deferred gain on the sale of
$103,239,000.  The note receivable, net of the deferred gain, was included in
investment in unconsolidated affiliates.  Prior to the change to the cost method
of accounting for its investment in HeereMac, JRM was amortizing the deferred
gain over the depreciable lives of the vessels that were assigned by HeereMac.
After the change to the cost method, JRM recognized pro rata portions of the
deferred gain as payments were received on the 7.75% note. In fiscal year 1997,
JRM received a $12,500,000 principal payment on the note and recognized
$12,271,000 of the deferred gain. At March 31, 1997, the note receivable and
deferred gain balances were $92,500,000 and $90,803,000, respectively.  Also, in
fiscal year 1997, JRM realized a gain of $16,682,000 on the sale of a marine
vessel by HeereMac on behalf of JRM.

On April 3, 1998, JRM and ETPM S.A. terminated their worldwide McDermott-ETPM
joint venture, and JRM recognized a gain on the termination of $37,353,000.
Pursuant to the termination, JRM received cash of approximately $105,000,000,
ETPM S.A.'s derrick/lay barge 1601 and ETPM S.A.'s interest in McDermott-ETPM
East, Inc. and McDermott-ETPM Far East, Inc.  ETPM S.A. received JRM's lay barge
200 and JRM's interest in McDermott Subsea Constructors Limited and McDermott-
ETPM West, Inc.  The consolidated statement of income (loss) includes revenues
of $74,096,000 and $44,033,000, and operating income (loss) of $18,751,000 and
($22,956,000) for fiscal years 1998 and 1997, respectively,  attributable to
operations transferred to ETPM S.A.

During fiscal year 1999, JRM's Malaysian joint venture sold two combination
pipelay  and derrick barges.  The joint venture, in which JRM holds a 49%
interest, received approximately $47,000,000 in cash for the barges.

JRM has investments in numerous joint ventures and other entities on a worldwide
basis.  No individual investee was significant for the periods presented.

Transactions with unconsolidated affiliates included the following:
<TABLE>
<CAPTION>

                                                      1999       1998       1997
                                                      ----       ----       ----
                                                            (in thousands)
<S>                                                 <C>        <C>        <C>
     Sales to                                       $116,155   $140,389   $110,150
     Leasing activities (included in Sales to)        42,154     10,491      9,609
     Purchases from                                        -     17,003      8,765
     Dividends received                               20,791      1,290          -
</TABLE>

Accounts payable includes $26,687,000 and $16,959,000 at March 31, 1999 and
1998, respectively, of payables to unconsolidated affiliates.  At March 31,
1999, property, plant and equipment includes cost of $63,594,000 and accumulated
depreciation of $29,497,000 of marine equipment that was leased, on an as needed
basis, to an unconsolidated affiliate.  At March 31, 1998, property, plant and
equipment includes cost of $137,513,000 and accumulated depreciation of
$113,528,000 of marine equipment that was leased to the McDermott-ETPM joint
venture.  This marine equipment was transferred to ETPM S.A. as part of the
termination of the McDermott-ETPM joint venture on April 3, 1998.

                                       38
<PAGE>

NOTE 4 - INCOME TAXES

Income taxes have been provided based upon the tax laws and rates in the
countries in which operations are conducted. All income has been earned outside
of Panama, and JRM is not subject to income tax in Panama on income earned
outside of Panama.  Income is earned within and subject to the tax laws of
various countries, each of which has a regime of taxation different from that of
any other country.  Differences exist not only with respect to nominal rate but
also with respect to the allowability of deductions, credits and other benefits.
The proportional extent to which JRM earns income in and is subject to tax by
any particular country or countries varies from year to year.  Because of these
factors, no expected relationship exists between the provision for income taxes
and income before income taxes.  In addition, JRM and certain of its
subsidiaries keep books and file tax returns on the completed contract method of
accounting.

Deferred income taxes reflect the net tax effects of temporary differences
between the financial and tax bases of assets and liabilities.  Significant
components of deferred tax assets and liabilities as of March 31, 1999 and 1998
were as follows:
<TABLE>
<CAPTION>
                                                                        1999       1998
                                                                        ----       ----
                                                                         (In thousands)
<S>                                                                   <C>         <C>
      Deferred tax assets:
          Accrued liabilities for antitrust litigation                $  2,247    $      -
          Accrued liabilities for self-insurance (including
            postretirement health care benefits)                         2,649       8,324
          Accrued liabilities for executive and
            employee incentive compensation                              5,308       4,403
          Long-term contracts                                            3,283         618
          Accrued pension liability                                     14,381       6,386
          Accrued drydock liability                                      2,295       1,966
          Investments in joint ventures and affiliated companies         2,637       2,539
          Operating loss carryforwards                                   4,783      18,032
          Property, plant and equipment                                  1,425         664
          Accrued vacation pay                                           1,241       1,274
          Other                                                          7,294       5,960
      ------------------------------------------------------------------------------------
              Total deferred tax assets                                 47,543      50,166

          Valuation allowance for deferred tax assets                  (13,555)    (17,196)
      ------------------------------------------------------------------------------------
              Total deferred tax assets                                 33,988      32,970
      ------------------------------------------------------------------------------------
      Deferred  tax liabilities:
          Property, plant and equipment                                 11,749      21,859
          Long-term contracts                                            3,056       4,270
          Prepaid pension costs                                              -       3,388
          Other                                                            785       1,491
      ------------------------------------------------------------------------------------
              Total deferred tax liabilities                            15,590      31,008
      ------------------------------------------------------------------------------------
              Net deferred tax assets                                 $ 18,398    $  1,962
      ------------------------------------------------------------------------------------

</TABLE>

                                       39
<PAGE>

Income (loss) before provision for income taxes and extraordinary item was as
follows:

                                              1999        1998        1997
                                              ----        ----        ----
                                                     (In thousands)

     U.S.                                   $ 51,505   $(202,388)   $(5,675)
     Other than U.S.                         121,381     326,199      4,507
     ----------------------------------------------------------------------
     Income (loss) before provision
       for income taxes and
       extraordinary item                   $172,886   $ 123,811    $(1,168)
     ----------------------------------------------------------------------

The provision for income taxes consists of:

                                    1999      1998      1997
                                    ----      ----      ----
                                         (In thousands)
     Current:
       U.S. - Federal            $ 28,231    $26,985   $15,568
       U.S. - State and local       3,224      2,846      (366)
       Other than U.S.             (7,913)     2,174     4,130
     ---------------------------------------------------------
       Total current               23,542     32,005    19,332
     ---------------------------------------------------------

     Deferred:
       U.S. - Federal              (7,990)    (1,564)   (6,080)
       U.S. - State and local        (284)       178    (2,585)
       Other than U.S.             (5,260)     4,232     1,065
     ---------------------------------------------------------
       Total deferred             (13,534)     2,846    (7,600)
     ---------------------------------------------------------
     Provision for income taxes  $ 10,008    $34,851   $11,732
     ---------------------------------------------------------

The extraordinary loss of $38,719,000 did not result in any provision for or
benefit from income taxes.

The current provision for other than U.S. income taxes in 1999, 1998 and 1997
includes a reduction of $525,000, $10,427,000 and $2,021,000, respectively, for
the benefit of net operating loss carryforwards.  In addition, fiscal 1999
included favorable tax settlements in foreign jurisdictions totaling
approximately $21,806,000.  Initial recognition of OPI pre-acquisition tax
benefits in fiscal year 1997 resulted in a reduction of excess cost over fair
value of assets acquired of $3,115,000.

JRM has provided a valuation allowance ($13,555,000 at March 31, 1999) for
deferred tax assets that cannot be realized through carrybacks and future
reversals of existing taxable temporary differences. The reduction of the
valuation allowance resulting from the sale of a foreign subsidiary generated no
tax benefit. Management believes that remaining deferred tax assets are
realizable through carrybacks and future reversals of existing taxable temporary
differences.  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.

JRM has foreign net operating loss carryforwards of approximately $15,000,000
available to offset future taxable income in foreign jurisdictions.

                                       40
<PAGE>

JRM would be subject to withholding taxes on distributions of earnings from its
U.S. and certain foreign subsidiaries.  No taxes have been provided as these
earnings are considered indefinitely reinvested.  It is not practicable to
estimate the deferred tax liability on these earnings.

NOTE 5 - RELATED PARTY TRANSACTIONS

Transactions with subsidiaries, divisions and controlled joint ventures of
McDermott that are not disclosed elsewhere, are as follows:

                                                1999      1998      1997
                                                ----      ----      ----
                                                     (In thousands)

     Sale of marine construction services      $ 3,241   $22,173   $31,970
     Purchase of other services                  2,882     8,878    16,256
     Insurance premiums                         11,888     8,072     8,012
     Pension benefit                             1,323     1,120     1,094
     Corporate administrative expense           13,017    13,148    11,900
     Other administrative expense                4,376     5,197     6,629
     Interest expense                                4        97     6,655


During fiscal year 1997, JRM paid a $231,000,000 note payable to MII and
purchased from MII certain diving support equipment and systems for $3,573,000
and nine cranes for use in JRM's fabrication and construction activities for
$8,295,000.  During fiscal year 1998, a tax adjustment of $1,128,000 on the
above purchase was included in Capital in Excess of Par Value.

Under a non-competition agreement entered into in connection with the
acquisition of OPI, a director who resigned in April 1996 received $1,500,000 in
each of fiscal years 1999, 1998 and 1997 and will receive an additional payment
of $1,500,000 in the next fiscal year.

In fiscal year 1995, JRM entered into an office sublease with an affiliate of
one of its directors (who resigned in April 1996).  Such sublease expired in
March 1997.  During fiscal year 1997, the affiliate paid $216,000 under the
sublease.  Under another agreement, JRM paid $576,000 to the affiliate in fiscal
year 1997 and reimbursed the affiliate for out-of-pocket expenses for the
management and operation of JRM's offshore producing oil and gas property.

JRM entered into agreements with an affiliate of another director (whose term as
director ended in August 1997) pursuant to which JRM acquired interests in a
certain offshore oil and gas property.  During fiscal year 1996, JRM sold its
interest in the property to the affiliate in exchange for an $8,000,000
convertible production payment relating to such property.   The production
payment allows JRM to share in up to $8,000,000 of the net proceeds on any
production from the property based upon a percentage of its original interest in
such property.  In December 1995, this property was placed in production, and
JRM earned approximately $174,000, $1,262,000 and $1,093,000 in fiscal years
1999, 1998 and 1997, respectively, under these agreements.  In addition, during
fiscal year 1998, JRM sold its investment in common stock of this affiliate and
its interest in a limited partnership that is also an affiliate of this
director.  JRM also entered into agreements with two affiliates of the same
former director to design, fabricate and install several offshore pipelines or
structures.  The value of these agreements was approximately $82,000,000.  At
March 31, 1997, all work under these agreements had been completed and invoiced.

McDermott provides administrative services to JRM under a service agreement.
These services include the following: accounting, treasury, tax administration
and other financial services; human relations; public

                                       41
<PAGE>

relations; corporate secretarial; and corporate officer services. The cost of
these services to JRM was $13,017,000, $13,148,000 and $11,900,000 for fiscal
years 1999, 1998 and 1997, respectively. McDermott also provides other
administrative services that are billed directly to JRM. These services include,
but are not limited to, telecommunications and automation. The cost of these
services to JRM was $4,376,000, $5,197,000 and $6,629,000 (including $2,087,000
for corporate officer severance) for fiscal years 1999, 1998 and 1997,
respectively.

Certain officers and employees of JRM participate in certain benefit plans that
involve the issuance of MII Common Stock.

See Note 3 for related party transactions with unconsolidated affiliates.

NOTE 6 LONG-TERM DEBT AND NOTES PAYABLE

<TABLE>
<CAPTION>
                                                                  1999       1998
                                                                  ----       ----
                                                                   (In thousands)
<S>                                                             <C>        <C>
Long-term debt consists of:

        Unsecured debt:
          9.375% Senior Subordinated Notes due 2006             $  1,397   $244,986
          ($250,000,000 principal amount)
        Other notes payable                                            -     16,454

        Secured debt:
          Floating rate notes, interest at one month LIBOR
          plus 2% (7.75% at March 31, 1998) due 1999                   -      4,503

          Capitalized Lease Obligations                              691      8,900
        ---------------------------------------------------------------------------
                                                                   2,088    274,843
        Less amounts due within one year                             306     29,021
        ---------------------------------------------------------------------------
        Long-term debt                                          $  1,782   $245,822
        ---------------------------------------------------------------------------

Notes payable and current maturities of long-term debt consist of:

        Short-term lines of credit - unsecured                  $      -   $  2,251
        Current maturities of long-term debt                         306     29,021
        ---------------------------------------------------------------------------

                                                                $    306   $ 31,272
        ---------------------------------------------------------------------------

        Weighted average interest rate on short-term borrowings     7.75%      7.69%
        ---------------------------------------------------------------------------
</TABLE>

On March 5, 1999, JRM consummated its offer to purchase all of its outstanding
9.375% Senior Subordinated Notes at a purchase price of 113.046% of their
principal amount ($1,130.46 per $1,000 principal amount), plus accrued and
unpaid interest.   On that date, JRM purchased $248,575,000 in principal amount
of the notes for a total purchase price of $284,564,000, including interest of
$3,560,000.  As a result, JRM recorded an extraordinary loss of $38,719,000.  In
connection with the purchase of the notes, JRM received consents to certain
amendments that amended or eliminated certain restrictive covenants and other
provisions contained in the indenture relating to the notes.  Specifically, the
covenants contained in the

                                       42
<PAGE>

indenture that restricted JRM's ability to pay dividends, repurchase or redeem
its capital stock, or to transfer funds through unsecured loans to or
investments in MII were eliminated.

Maturities of long-term debt during the five fiscal years subsequent to March
31, 1999 are as follows: 2000 - $306,000; 2001 - $259,000; 2002 - $125,000;
2003 - $0; 2004 - $0.

At March 31, 1999 and March 31, 1998,  JRM had available various uncommitted
short-term lines of credit from banks totaling $22,745,000 and $25,234,000,
respectively.  At March 31, 1999, JRM had no borrowings against these lines of
credit.  At March 31, 1998, JRM had borrowed $2,251,000 against these lines.  At
March 31, 1998, JRM and certain of its subsidiaries were parties to a revolving
credit facility under which there were no borrowings.  In June 1998, JRM and
such subsidiaries entered into a new $200,000,000 three-year, unsecured credit
agreement (the "JRM Credit Agreement") with a group of banks. Borrowings against
the JRM Credit Agreement cannot exceed $50,000,000.  The remaining $150,000,000
is reserved for the issuance of letters of credit. At March 31, 1999, JRM had no
borrowings under the JRM Credit Agreement.  Management does not anticipate JRM
will need to borrow funds under the JRM Credit Agreement during fiscal year
2000.  Subsequent to year-end, JRM elected to reduce the commitments on the JRM
Credit Agreement from $200,000,000 to $100,000,000.  Commitment fees are 0.35%
of the unused portion of the commitment.  Under the JRM Credit Agreement, there
are certain restrictive covenants, including limitations on additional
indebtedness, liens securing indebtedness, sales and leaseback transactions,
investments, loans and advances and the maintenance of certain financial ratios.
Commitment fees totaled approximately $610,000, $380,000 and $380,000 for fiscal
years 1999, 1998 and 1997, respectively.

JRM is restricted, as a result of covenants in the JRM Credit Agreement, in its
ability to transfer funds to MII and certain of its subsidiaries through
unsecured loans or investments.  At March 31, 1999, JRM could make unsecured
loans to or investments in MII of approximately $75,000,000 and pay dividends to
MII of approximately $146,300,000.

NOTE 7 - PENSION PLANS AND POSTRETIREMENT BENEFITS

JRM provides retirement benefits, primarily through non-contributory pension
plans, for substantially all of its regular full-time employees.  JRM does not
provide retirement benefits to certain non-resident alien employees of foreign
subsidiaries who are not citizens of a European Community country or who do not
earn income in the United States or the United Kingdom.  Salaried plan benefits
are based on final average compensation and years of service, while hourly plan
benefits are based on a flat benefit rate and years of service.  JRM's funding
policy is to fund applicable pension plans to meet the minimum funding
requirements of the Employee Retirement Income Security Act of 1974 (ERISA) and,
generally, to fund other pension plans as recommended by the respective plan
actuary and in accordance with applicable law.

Postretirement life insurance benefits are supplied to certain employees based
on postretirement contracts.  Effective April 1, 1998, JRM terminated all other
postretirement benefits.  On the same date, the pension plans for the employees
affected by the termination were amended to increase the benefits payable to
offset the cost of postretirement health care and life insurance to the
participants.  The decrease in the postretirement benefit obligation was
measured against the increase in the projected benefit obligation of the pension
plans, and a resulting curtailment gain of $3,536,000 was recognized in fiscal
year 1999.

                                       43
<PAGE>

Effective April 1, 1998, JRM adopted SFAS No. 132, "Employers' Disclosure about
Pensions and Other Postretirement Benefits."  SFAS No. 132 establishes new
disclosure requirements for pension and postretirement benefits.  Fiscal year
1998 balances have been restated to comply with the new requirements.

<TABLE>
<CAPTION>

                                                              Pension Benefits         Other Benefits
                                                            1999          1998        1999        1998
                                                            ----          ----        ----        ----
<S>                                                       <C>           <C>         <C>        <C>
                                                                         (In thousands)
Change in benefit obligation:
     Benefit obligation at beginning of fiscal year       $ 97,376      $ 76,469    $ 19,146    $ 17,510
     Service cost                                            7,773         5,680           -       1,065
     Interest cost                                           8,614         6,097          31       1,309
     Curtailments                                                -             -     (18,622)          -
     Amendments                                             16,548             -           -           -
     Change in assumptions                                  11,114         5,748           -           -
     Actuarial (gain) loss                                   8,519         4,153           -        (361)
     Benefits paid                                          (1,878)         (771)        (88)       (377)
--------------------------------------------------------------------------------------------------------
     Benefit obligation at end of year                     148,066        97,376         467      19,146
--------------------------------------------------------------------------------------------------------
Change in plan assets:
     Fair value of plan assets at beginning of year         78,181        64,910           -           -
     Actual return on plan assets                            8,776        12,862           -           -
     Company contributions                                   5,276         1,180          88         377
     Benefits paid                                          (1,959)         (771)        (88)       (377)
--------------------------------------------------------------------------------------------------------
     Fair value of plan assets at end of year               90,274        78,181           -           -
--------------------------------------------------------------------------------------------------------
     Funded status                                         (57,792)      (19,195)       (467)    (19,146)
     Unrecognized net obligation                            (1,157)       (1,570)          -           -
     Unrecognized prior service cost                        (7,405)       (8,044)          -           -
     Unrecognized actuarial (gain) loss                     27,977        11,573           -      (1,493)
--------------------------------------------------------------------------------------------------------
     Net amount recognized                                $(38,377)     $(17,236)   $   (467)   $(20,639)
--------------------------------------------------------------------------------------------------------
Amounts recognized in the statement of financial
position consist of:
     Accrued benefit liability                             (38,428)      (17,236)       (467)    (20,639)
     Intangible asset                                           28             -           -           -
     Accumulated other comprehensive income                     23             -           -           -
--------------------------------------------------------------------------------------------------------
     Net amount recognized                                $(38,377)     $(17,236)   $   (467)   $(20,639)
--------------------------------------------------------------------------------------------------------
Weighted average assumptions as of March 31
     Discount rate                                            7.00%         7.00%       7.00%       7.00%
     Expected return on plan assets                           8.25%         8.50%          -           -
     Rate of compensation increase                            4.50%         4.50%          -           -

</TABLE>

                                       44
<PAGE>

<TABLE>
<CAPTION>

                                                      Pension Benefits                      Other Benefits
                                               1999         1998        1997        1999            1998         1997
                                               ----         ----        ----        ----            ----         ----
                                                                         (In thousands)
<S>                                         <C>           <C>        <C>          <C>               <C>       <C>
Components of net periodic benefit cost:
     Service cost                           $  7,773      $  5,680    $  5,386    $      -          $1,065    $  1,289
     Interest cost                             8,614         6,097       5,029          31           1,309       1,383
     Expected return on plan assets           (6,674)       (5,527)     (6,598)          -               -           -
     Amortization of prior service cost         (639)         (639)       (639)          -               -           -
     Recognized net actuarial loss               865           451       2,094           -            (88)         150
----------------------------------------------------------------------------------------------------------------------
Net periodic benefit cost                   $  9,939      $  6,062    $  5,272    $     31          $2,286    $  2,822
----------------------------------------------------------------------------------------------------------------------
</TABLE>

The projected benefit obligation, accumulated benefit obligation and fair value
of plan assets for the pension plans with accumulated benefit obligations in
excess of plan assets were $135,235,000, $95,697,000 and $74,940,000,
respectively, for fiscal year ended March 31, 1999, and $85,017,000, $56,494,000
and $64,231,000, respectively, for fiscal year ended March 31, 1998.

NOTE 8 - IMPAIRMENT OF LONG-LIVED ASSETS AND GOODWILL

Impairment losses to write-down property, plant and equipment to estimated fair
values and to write-off goodwill are summarized as follows:

                                          1999       1998      1997
                                          ----       ----      ----
                                                (In thousands)

     Property, plant and equipment:
       Assets to be held and used        $16,458   $  2,891   $19,228
       Assets to be disposed of              877      7,000    12,162
     Goodwill                             10,461    262,901         -
     ----------------------------------------------------------------
     Total                               $27,796   $272,792   $31,390
     ----------------------------------------------------------------

Property, plant and equipment--assets to be held and used

During fiscal years 1999, 1998, and 1997 management identified certain long-
lived assets that were no longer expected to recover their entire carrying value
through future cash flows. Fair value was generally determined based on sales
prices of comparable assets.  The assets included non-core, surplus and obsolete
property, plant and equipment in substantially all of JRM's operating segments.

Property, plant and equipment--assets to be disposed of

In fiscal year 1999, JRM recorded a loss of  $877,000 to reduce a building
located near London to its fair value less cost to sell. Prior to recognition of
the impairment loss, the building had a net book value of approximately
$7,549,000.  Management decided to sell the building as a result of its
withdrawal from traditional European engineering operations.  The building is
expected to be sold during the next year.

In fiscal year 1998, JRM recorded a loss of $7,000,000 to reduce a Floating
Production, Storage and Offloading System ("FPSO") to its estimated fair value
less cost to sell.  Prior to recognition of the impairment loss, the FPSO had a
net book value of approximately $21,500,000. The estimated fair value was
determined based upon management's best estimate, as these types of vessels are
somewhat unique in nature. Management decided to sell the FPSO as a result of a
strategic decision to exit this market.  Excluding the impairment loss, net
income for fiscal year 1998 for the FPSO was $2,774,000.  The FPSO was sold
during fiscal year 1999 resulting in a loss on asset disposal of approximately
$2,382,000.

                                       45
<PAGE>

In fiscal year 1997, JRM recorded losses of $12,162,000 to reduce certain
property and equipment to estimated fair values less cost to sell.  Prior to
recognition of the impairment losses, the carrying value of these assets totaled
approximately $18,950,000.  Excluding the impairment losses, results of
operations for fiscal year 1997 for these assets were not material.
Substantially all of these assets were disposed of in fiscal year 1998, with no
significant gain or loss recognized.

Goodwill

In fiscal year 1999, JRM wrote off $4,834,000 associated with the acquisition of
a Mexican shipyard acquired in a prior year.  Management determined that the
goodwill related to the Mexican shipyard had no value as the facility's intended
use was as a new-build facility, and the facility has been engaged primarily in
ship repair. Also in fiscal year 1999, JRM wrote off $5,627,000 related to an
engineering business acquired in a prior year due to management's determination
that the business had no value as management has decided to withdraw from the
third-party engineering business.  Total annual amortization of this goodwill
was approximately $1,524,000.

In fiscal year 1998, JRM wrote off $262,901,000 associated with the acquisition
of OPI. In December 1997, management decided to exit the traditional shallow
water business, and abandoned OPI-type work. The decision was based upon the
industry outlook, the departure of key OPI executives, the disposal of
significant OPI joint ventures and the disposal of major OPI vessels. Annual
amortization of the OPI goodwill was approximately $21,800,000.

NOTE 9 - CAPITAL STOCK

At March 31, 1999 and 1998, 14,538,270 and 14,634,966 shares, respectively, of
Common Stock were reserved for issuance in connection with the possible
conversion of Series A $2.25 Cumulative Convertible Preferred Stock ("Series A
Preferred Stock"), the exercise of stock options and awards of restricted stock
under JRM's stock incentive plans and contributions to the Thrift Plan described
in Note 10.

At March 31, 1999 and 1998, MII owned 3,200,000 shares of JRM's Series A
Preferred Stock. Shares of Series A Preferred Stock are entitled to one vote per
share, voting as a single class with the Common Stock, and a liquidation
preference of $50.00 per share. Dividends on Series A Preferred Stock are
cumulative at the annual rate of $2.25 per share.  Series A Preferred Stock is
redeemable for cash at the option of JRM, at any time through January 31, 2000
provided that the last reported sales price of JRM's Common Stock in its
principal trading market for any 20 trading days within a period of 30
consecutive trading days is at least $55.74, or any time after January 31, 2000
at a price equal to $52.00 per share, plus accrued and unpaid dividends.  Each
share of Series A Preferred Stock is convertible into 1.794 shares of Common
Stock at any time after a call by JRM for redemption of any or all of the
outstanding Series A Preferred Stock or at any time after January 31, 2000.

During fiscal year 1998, JRM's Board of Directors approved the repurchase of up
to two million shares of its common stock from time to time on the open market
or through negotiated transactions, depending on the availability of cash and
market conditions.  The purpose of the repurchases was to offset dilution
created by the issuance of shares pursuant to JRM's stock compensation and
thrift plans.  JRM repurchased 362,500 shares at an average share price of
$37.31 during fiscal year 1998.  During fiscal year 1999, JRM's Board authorized
the repurchase of up to an additional one million shares of its common stock.
JRM repurchased another 1,837,700 shares of its common stock at an average share
price of $31.67 through October 8, 1998, at which time JRM ceased all further
share repurchases.  At such time, JRM had repurchased 2,200,200 of the three
million shares of its common stock authorized to be repurchased.

                                       46
<PAGE>

Subsequent Event - On May 13, 1999, MII commenced a tender offer to acquire all
outstanding shares of JRM not already owned by MII for $35.62 per share.  JRM
currently has approximately 39,060,000 shares outstanding, of which MII owns
approximately 63%. Under the merger agreement, any shares not purchased in the
tender offer will be acquired for the same price in cash in a second-step
merger.  MII estimates that it will require approximately $560,000,000 to
consummate the tender offer and second-step merger and to pay related fees and
expenses.  MII expects to obtain the funds from cash on hand and from a new
$525,000,000 senior secured term loan facility with Citibank, N.A.  The facility
will terminate and all borrowings thereunder will mature upon the earlier of
five business days after the consummation of the second-step merger or September
30, 1999.  When the facility terminates, JRM will declare and pay a dividend
and/or loan to MII such amounts that, together with MII's available cash, will
be used to repay all outstanding loans under the facility.  The facility is
secured by a first priority pledge of all JRM capital stock and securities
convertible into JRM capital stock held by or acquired by MII or any of its
subsidiaries.

NOTE 10 - STOCK PLANS

Executive Long-Term Incentive Compensation Plan - A total of 3,024,899 shares of
Common Stock are available for stock option grants and restricted stock awards
to officers and key employees under this plan at March 31, 1999.  The plan
permits the grant of nonqualified stock options, incentive stock options and
restricted stock.  Options to purchase shares are granted at not less than 100%
of the fair market value on the date of the grant, become exercisable at such
time or times as determined when granted and expire not more than ten years
after the date of grant.  Under the plan, eligible employees may be granted
rights to purchase shares of Common Stock at $1.00 per share, which shares are
subject to restrictions on transfer that lapse at such times and circumstances
as specified when granted.  During fiscal years 1999 and 1998, performance-based
restricted stock awards were granted to certain officers and key employees under
the plan. Under the provisions of the performance-based awards, no shares are
issued at the time of the initial award and the number of shares which will
ultimately be issued shall be determined based on the change in the market value
of JRM's Common Stock over a specified performance period.  The performance-
based awards in fiscal years 1999 and 1998 were represented by initial notional
grants totaling 46,480 and 32,510 rights to purchase restricted shares of Common
Stock, respectively.  These rights had weighted average fair values of $31.44
and $36.53 on their respective dates of grant during fiscal years 1999 and 1998.
Through March 31, 1999, a total of 112,940 shares of restricted stock (including
58,700 shares issued in fiscal year 1997 with a weighted average fair value of
$23.78 per share) have been issued under the plan.  No restricted shares were
issued in fiscal years 1999 or 1998.

Nonemployee Director Stock Plan - A total of 90,400 shares of Common Stock are
available for grants of options, and rights to purchase restricted shares, to
non-employee directors under this plan at March 31, 1999.  Options to purchase
600, 200 and 200 shares will be granted on the first, second, and third years of
a Director's term at not less than 100% of the fair market value on the date of
grant.  Options become exercisable, in full, six months after the date of grant,
and expire ten years and one day after the date of grant. Rights to purchase
300, 100 and 100 shares are granted on the first, second and third years,
respectively, of a Director's term, at $1.00 per share, which shares are subject
to restrictions on transfer that lapse at the end of such term. Through March
31, 1999, a total of 3,800 shares of restricted stock have been issued under the
Nonemployee Director Stock Plan.

1995 Senior Management Stock Option Plan - Under this plan, senior management
employees may be granted options to purchase shares of Common Stock.  The Board
of Directors determines the total number of shares available for grant from time
to time.  Options to purchase shares are granted at not less than 100% of the
fair market value on the date of grant, become exercisable at such time or times
as determined when granted, and expire not more than ten years after the date of
grant.

                                       47
<PAGE>

In the event of a change in control of JRM, all three programs have provisions
that may cause restrictions to lapse and accelerate the exercisability of
options outstanding.

The following table summarizes activity for JRM's stock option plans (share data
in thousands):
<TABLE>
<CAPTION>

                                      1999                   1998                 1997
                            -----------------------    ------------------   ------------------
                                          Weighted-            Weighted-             Weighted-
                                           Average              Average               Average
                                          Exercise              Exercise             Exercise
                            Options        Price       Options   Price      Options   Price
-----------------------------------------------------------------------------------------------
<S>                        <C>          <C>         <C>          <C>      <C>        <C>
Outstanding, April 1          687          $24.21       1,039    $17.31     1,092     $13.47
Granted                       250          $32.41         141    $37.54       276     $24.33
Exercised                     (60)         $22.37        (442)   $12.64      (297)    $ 9.56
Cancelled/forfeited           (38)         $23.92         (51)   $21.21       (32)    $18.91
-----------------------------------------------------------------------------------------------
Outstanding, March 31         839          $26.80         687    $24.21     1,039     $17.31
-----------------------------------------------------------------------------------------------
Exercisable, March 31         407          $23.75         244    $21.31       490     $13.15
-----------------------------------------------------------------------------------------------
</TABLE>

The following tables summarize the range of exercise prices and the weighted
average remaining contractual life of the options outstanding and the range of
exercise prices for the options exercisable at March 31, 1999 (share data in
thousands):

<TABLE>
<CAPTION>

                                   Options Outstanding
-----------------------------------------------------------------------------------------------
                                                    Weighted
                                                    Average
                                                   Remaining        Weighted
         Range of                                 Contractual        Average
     Exercise Prices              Outstanding    Life in Years   Exercise Price
-----------------------------------------------------------------------------------------------
<S>                             <C>             <C>             <C>
          $6.00                         4             1.6           $ 6.00
     $16.69 - $17.00                  197             7.0           $16.74
     $22.13 - $27.69                  258             7.3           $23.83
     $32.44 - $38.66                  380             4.4           $34.22
                                      ---
     $6.00 - $38.66                   839             5.8           $26.80
                                      ---

                                       Options Exercisable
-----------------------------------------------------------------------------------------------
                                                                   Weighted
         Range of                                                  Average
     Exercise Prices                       Exercisable          Exercise Price
------------------------------------------------------------------------------------------------
          $6.00                                   4                $ 6.00
     $16.69 - $17.00                            138                $16.77
     $22.13 - $27.69                            187                $23.72
     $32.44 - $38.66                             78                $37.01
                                                ---
     $6.00 - $38.66                             407                $23.75
                                                ---
</TABLE>

                                       48
<PAGE>

As discussed in Note 1, JRM applies APB 25 and related interpretations in
accounting for its stock-based compensation plans.  Charges to income related to
stock plan awards totaled approximately $1,174,000, $1,541,000 and $965,000 for
the fiscal years ended March 31, 1999, 1998 and 1997, respectively.  If JRM had
accounted for its stock plan awards using the alternative fair value method of
accounting under SFAS No. 123, "Accounting for Stock-Based Compensation," its
net income (loss) and earnings (loss) per share would have been the pro forma
amounts indicated as follows:
<TABLE>
<CAPTION>
                                                  1999         1998         1997
                                               ---------     --------     -------
                                             (In thousands, except per share data)
<S>                                          <C>           <C>          <C>
     Net income (loss):
          As reported                           $124,159      $88,960     $(12,900)
          Pro forma                             $122,582      $88,839     $(13,358)
     Basic earnings (loss) per share:
          As reported                           $   2.95      $  2.00     $  (0.50)
          Pro forma                             $   2.91      $  1.99     $  (0.51)
     Diluted earnings (loss) per share:
          As reported                           $   2.72      $  1.89     $  (0.50)
          Pro forma                             $   2.69      $  1.89     $  (0.51)
</TABLE>

The above pro forma information is not indicative of future pro forma amounts.
SFAS No. 123 does not apply to awards prior to fiscal year 1996 and additional
awards in future years are anticipated.  The fair value of each option grant was
estimated at the date of grant using a Black-Scholes option pricing model with
the following weighted-average assumptions:
<TABLE>
<CAPTION>
                                                          1999    1998    1997
                                                         -----   -----   -----
<S>                                                       <C>     <C>     <C>

     Risk-free interest rate                              4.70%   5.41%   6.28%
     Volatility factor of the expected  market price
        of JRM's common stock                              .53     .41     .41
     Expected life of the option in years                  3.5     3.6     5.0
     Expected dividend yield of JRM's common stock           0%      0%      0%
</TABLE>

The weighted average fair value of the stock options granted in fiscal years
1999, 1998 and 1997 was $13.98, $13.85 and $11.09, respectively.

Thrift Plan

Certain employees of JRM participate in the Thrift Plan for Employees of
McDermott Incorporated and Participating Subsidiary and Affiliated Companies
(the "Thrift Plan"), which is a defined contribution plan maintained by a
subsidiary of McDermott. On June 5, 1995, a maximum of 5,000,000 of the
authorized and unissued shares of JRM's Common Stock was reserved for possible
issuance as the JRM employer match for employee contributions to the Thrift
Plan.  Such employer contributions equal 50% of the first 6% of compensation, as
defined in the Thrift Plan, contributed by participants, and fully vest and are
non-forfeitable after five years of service or upon retirement, death, lay-off
or approved disability.  During fiscal years 1999, 1998 and 1997, 68,104, 65,727
and 77,112 shares, respectively, were issued as employer contributions pursuant
to the Thrift Plan.  At March 31, 1999, 4,708,701 shares remained available for
issuance.

NOTE 11 - CONTINGENCIES AND COMMITMENTS

Investigations and Litigation - In March 1997, JRM and MII, with the help of
outside counsel, began an investigation into allegations of wrongdoing by a
limited number of former employees of JRM and MII and others. The allegations
concerned the heavy-lift business of JRM's HeereMac joint venture ("HeereMac")

                                       49
<PAGE>

with Heerema Offshore Construction Group, Inc. ("Heerema").  Upon becoming aware
of these allegations, JRM and MII notified authorities, including the Antitrust
Division of the U.S. Department of Justice and the European Commission. As a
result of JRM's and MII's prompt disclosure of the allegations, both companies
and their officers, directors and employees at the time of the disclosure were
granted immunity from criminal prosecution by the Department of Justice for any
anti-competitive acts involving worldwide heavy-lift activities.

After receiving the allegations, JRM initiated action to terminate its interest
in HeereMac, and, on December 19, 1997, JRM's co-venturer in the joint venture,
Heerema, acquired JRM's interest in exchange for cash and title to several
pieces of equipment.  On December 21, 1997, HeereMac and one of its employees
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 and the HeereMac employee were fined $49,000,000 and $100,000,
respectively.  As part of the plea, both HeereMac and certain employees of
HeereMac agreed to cooperate fully with the Department of Justice investigation.
Neither JRM, MII nor any of their officers, directors or employees was a party
to those proceedings.

JRM and MII have cooperated and are continuing to cooperate with the Department
of Justice in its investigation.  The Department of Justice also has requested
additional information from the companies relating to possible anti-competitive
activity in the marine construction business of McDermott-ETPM East, Inc., one
of the operating companies within JRM's former McDermott-ETPM joint venture with
ETPM S.A., a French company. In connection with the termination of the
McDermott-ETPM joint venture on April 3, 1998, JRM assumed 100% ownership of
McDermott-ETPM East, Inc., which has been renamed J. Ray McDermott Middle East,
Inc.

In June 1998, Phillips Petroleum Company (individually and on behalf of certain
co-venturers) and certain related entities (the "Phillips Plaintiffs") filed a
lawsuit in the United States District Court for the Southern District of Texas
against JRM, MII, McDermott Incorporated, McDermott-ETPM, Inc., certain JRM
subsidiaries, HeereMac, Heerema, certain Heerema affiliates, and others alleging
that the defendants engaged in anti-competitive acts in violation of Sections 1
and 2 of the Sherman Act and Sections 15.05 (a) and (b) of the Texas Business
and Commerce Code, engaged in fraudulent activity and tortiously interfered with
the plaintiffs' businesses in connection with certain offshore transportation
and installation projects in the Gulf of Mexico, North Sea and Far East (the
"Phillips Litigation").  In December 1998, Den norske stats oljeselskap a.s.,
individually and on behalf of certain of its ventures and its participants,
filed a similar lawsuit in the same court.  In addition to seeking injunctive
relief, actual damages and attorneys' fees, the plaintiffs in the Phillips
Litigation have requested punitive as well as treble damages.  In January 1999,
the court dismissed without prejudice, due to the court's lack of subject matter
jurisdiction, the claims of the Phillips Plaintiffs relating to alleged injuries
sustained on any foreign projects.

In June 1998, Shell Offshore, Inc. and certain related entities also filed a
lawsuit in the United States District Court for the Southern District of Texas
against JRM, MII, McDermott Incorporated, McDermott-ETPM Inc., certain JRM
subsidiaries, HeereMac, Heerema and others alleging that the defendants engaged
in anti-competitive acts in violation of Sections 1 and 2 of the Sherman Act
(the "Shell Litigation").  Subsequent thereto, Amoco Production Company and BP
Exploration & Oil, Inc.; Amerada Hess Corporation; Conoco Inc. and certain of
its affiliates; Texaco Exploration and Production Inc. and certain of its
affiliates; Elf Exploration UK PLC and Elf Norge a.s.; Burlington Resources
Offshore, Inc. and The Louisiana Land & Exploration Company; Marathon Oil
Company and certain of its affiliates; VK-Main Pass Gathering Company, L.L.C.,
Green Canyon Pipeline Company, L.L.C. and Delos Gathering Company, L.L.C.;
Chevron U.S.A. Inc. and Chevron Overseas Petroleum Inc.; Shell U.K. Limited and
certain of its affiliates;Woodside Energy, Ltd.; and Saga Petroleum, S.A.
intervened (acting for themselves and, if applicable, on behalf of their
respective co-venturers and for whom they operate) as plaintiffs in the Shell
Litigation.  Also, in December

                                       50
<PAGE>

1998, Total Oil Marine p.l.c. and Norsk Hydro Produksjon a.s., individually and
on behalf of their respective co-venturers, filed similar lawsuits in the same
court, which lawsuits were consolidated with the Shell Litigation. In addition
to seeking injunctive relief, actual damages and attorneys' fees, the plaintiffs
in the Shell Litigation request treble damages.

JRM and MII are also cooperating with an Securities and Exchange Commission (the
"SEC") investigation into whether the companies may have violated U.S.
securities laws in connection with, but not limited to, the matters described
above.  JRM and MII are subject to a judicial order entered in 1976, with the
consent of McDermott Incorporated (which at that time was the parent of the
McDermott group of companies), pursuant to an SEC complaint (the "Consent
Decree").  The Consent Decree prohibits the companies from making false entries
in their books, maintaining secret or unrecorded funds or using corporate funds
for unlawful purposes. Violations of the Consent Decree could result in
substantial civil and/or criminal penalties to the companies.

As a result of the initial allegations of wrongdoing in March 1997, both JRM and
MII formed and continue to maintain special committees of their Board of
Directors to monitor and oversee the companies' investigation into all of these
matters.

It is not possible to predict the ultimate outcome of the Department of Justice
investigation, the SEC investigation, the companies' internal investigation, the
above-referenced lawsuits, or any actions that may be taken by others as a
result of HeereMac's guilty plea or otherwise.  However, these matters could
result in civil and criminal liability and have a material adverse effect on
JRM's consolidated financial position and results of operations.

Two purported class actions have been filed in the Civil District Court for the
Parish of Orleans, State of Louisiana, by alleged public shareholders of JRM,
challenging MII's initial proposal to acquire the publicly traded shares of JRM
Common Stock in a stock for stock merger.  On May 7, 1999, JRM and MII announced
that they had entered into a merger agreement pursuant to which MII will acquire
all of such publicly traded shares of JRM Common Stock for $35.62 per share
pursuant to a cash tender offer followed by a second-step merger.  On the same
day, the Court entered an order consolidating the two actions under the caption
In re J. Ray McDermott Shareholder Litigation.  There have been no further
proceedings in either of the actions to date.  JRM and MII believe that the
actions are without merit and intend to contest these suits vigorously.

Additionally, due to the nature of its business, JRM is, from time to time,
involved in routine litigation related to its business activities. It is
management's opinion that none of this routine litigation will have a material
adverse effect on JRM's consolidated financial position or results of
operations.

Operating Leases - Future minimum payments required under operating leases that
have initial or remaining noncancellable lease terms in excess of one year at
March 31, 1999 are as follows:

                         Fiscal year           Amount
                         -----------           ------

                           2000            $  3,756,000
                           2001            $  2,954,000
                           2002            $  1,719,000
                           2003            $  1,692,000
                           2004            $  1,570,000
                           thereafter      $ 36,605,000.

                                       51
<PAGE>

Total rental expense for fiscal years 1999, 1998 and 1997 was $70,790,000,
$74,262,000 and $67,990,000, respectively.  These expense amounts include
contingent rentals and are net of sublease income, neither of which are
material.

Other - JRM maintains liability and property insurance against such risk and in
such amounts as it considers adequate.  However, certain risks are either not
insurable or insurance is available only at rates which JRM considers
uneconomical.

JRM is contingently liable under standby letters of credit totaling $188,206,000
(including $16,434,000 issued on behalf of a former unconsolidated joint
venture) at March 31, 1999, all of which were issued in the normal course of
business.  In addition, JRM has a limited guarantee of approximately $51,000,000
of debt incurred by an unconsolidated foreign joint venture.

NOTE 12 - FINANCIAL INSTRUMENTS WITH CONCENTRATIONS OF CREDIT RISK

The principal customers of JRM are the offshore oil, natural gas and hydrocarbon
processing industries and other marine construction companies. These
concentrations of customers may impact JRM's overall exposure to credit risk,
either positively or negatively, in that the customers may be similarly affected
by changes in economic or other conditions.  In addition, JRM and its customers
operate worldwide giving rise to exposure to risks associated with the economic
and political forces of various countries and geographic areas.  (See Note 16
for information about JRM's operations in different geographic areas.)  However,
JRM's management believes that the portfolio of receivables is well diversified
and that this diversification minimizes any potential credit risk.  Receivables
are generally not collateralized.

JRM believes that its provision for possible losses on uncollectible accounts
receivable is adequate for its credit loss exposure.  At March 31, 1999 and
1998, the allowance for possible losses deducted from Accounts receivable-trade
on the accompanying balance sheet was $826,000 and $2,164,000, respectively.

NOTE 13 - INVESTMENTS

The following is a summary of available-for-sale debt securities at March 31,
1999:
<TABLE>
<CAPTION>

                                                                                    Gross        Gross    Estimated
                                                                   Amortized     Unrealized   Unrealized    Fair
                                                                     Cost          Gains        Losses      Value
                                                                   ---------     ---------    ----------    ------
                                                                                      (In thousands)
            <S>                                                     <C>           <C>          <C>          <C>
            U. S. Treasury securities and obligations
              of U.S. government agencies                           $310,742       $1,757         $401   $312,098
            Corporate notes and bonds                                 98,322            3           43     98,282
            Other debt securities                                     73,345            -            -     73,345
            -----------------------------------------------------------------------------------------------------
            Total                                                   $482,409       $1,760         $444   $483,725
            -----------------------------------------------------------------------------------------------------
</TABLE>

The amortized cost and estimated fair value amounts of debt securities at March
31, 1999 include $241,000 in other debt securities that are reported as cash
equivalents.  At March 31, 1999, JRM's investments also include $19,450,000 in
time deposits.

                                       52
<PAGE>

The following is a summary of available-for-sale debt securities at March 31,
1998:
<TABLE>
<CAPTION>

                                                                                 Gross         Gross     Estimated
                                                            Amortized          Unrealized    Unrealized    Fair
                                                              Cost                Gains        Losses      Value
                                                           -----------         ----------   -----------  ---------
                                                                                  (In thousands)
        <S>                                                 <C>                 <C>           <C>         <C>
      U. S. Treasury securities and obligations
        of U.S. government agencies                          $ 182,856             $  329        $  656  $ 182,529
      Corporate notes and bonds                                 72,767                 36            24     72,779
      ------------------------------------------------------------------------------------------------------------
            Total                                            $ 255,623             $  365        $  680  $ 255,308
      ------------------------------------------------------------------------------------------------------------
</TABLE>

At March 31, 1998, JRM's investments also included $288,350,000 in time
deposits.

Proceeds, gross realized gains and gross realized losses on sales of available-
for-sale debt securities were as follows:

                                            Gross      Gross
                                           Realized   Realized
             Fiscal year       Proceeds     Gains      Losses
             -----------       --------    --------  ----------
                 1999        $24,815,000   $44,000   $ 13,000
                 1998        $ 1,338,000         -   $672,000
                 1997        $ 4,589,000   $20,000          -

The amortized cost and estimated fair value of available-for-sale debt
securities at March 31, 1999, by contractual maturity, are as follows:

                                                                  Estimated
                                                  Amortized          Fair
                                                     Cost            Value
                                                  ---------       ----------
                                                        (In thousands)

          Due in one year or less                 $ 223,412        $ 223,607
          Due after one through three years         258,997          260,118
          ------------------------------------------------------------------
          Total                                   $ 482,409        $ 483,725
          ------------------------------------------------------------------

NOTE 14 - DERIVATIVE FINANCIAL INSTRUMENTS

JRM operates internationally giving rise to exposure to market risks from
changes in foreign exchange rates. Derivative financial instruments, primarily
forward exchange contracts, are utilized to reduce those risks. JRM does not
hold or issue financial instruments for trading purposes.

Forward exchange contracts are entered into primarily as hedges of certain firm
purchase and sale commitments denominated in foreign currencies. At March 31,
1999, JRM had no outstanding forward exchange contracts.  At March 31, 1998, JRM
had forward exchange contracts to purchase $42,674,000 in foreign currencies
(primarily Pound Sterling and Singapore Dollars), and to sell $18,910,000 in
foreign currencies (primarily Singapore Dollars), at varying maturities through
fiscal year 1999.

Deferred realized and unrealized gains and losses from hedging firm purchase and
sale commitments are included on a net basis in the balance sheet as a component
of either other current assets or accrued liabilities. They are recognized as
part of the purchase or sale transaction when it is recognized, or as other

                                       53
<PAGE>

gains or losses when a hedged transaction is no longer expected to occur. At
March 31, 1999, JRM had no deferred gains or losses related to forward exchange
contracts.  At March 31, 1998, JRM had deferred gains of $586,000 and deferred
losses of $24,000 related to forward exchange contracts which were recognized in
accordance with the percentage of completion method of accounting.

JRM is exposed to credit-related losses in the event of nonperformance by
counterparties to derivative financial instruments, but it does not anticipate
nonperformance by any of the counterparties. The amount of such exposure is
generally the unrealized gains in such contracts.

NOTE 15 - FAIR VALUES OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used by JRM in estimating its fair
value disclosures for financial instruments:

Cash and cash equivalents: The carrying amounts reported in the balance sheet
for cash and cash equivalents approximate their fair values.

Investments: The fair values of investments are estimated based on quoted market
prices.  For investments that have no quoted market prices, fair values are
derived from available yield curves for investments of similar quality and
terms.

Long and short-term debt:  The fair values of debt instruments are based on
quoted market prices or, where quoted prices are not available, on the present
value of future cash flows discounted at estimated borrowing rates for similar
debt instruments or on estimated prices based on current yields for debt issues
of similar quality and terms.

Foreign currency exchange contracts:  The fair values of foreign currency
forward exchange contracts are estimated by obtaining quotes from brokers.  At
March 31, 1999, JRM had no outstanding forward exchange contracts.  At March 31,
1998, JRM had net forward exchange contracts to purchase foreign currencies with
notional values of $23,764,000 and fair values of $24,238,000, respectively.

The estimated fair values of JRM's financial instruments are as follows:

<TABLE>
<CAPTION>
                                                 March 31, 1999         March 31, 1998
                                           ------------------------  --------------------
                                             Carrying      Fair      Carrying      Fair
                                              Amount       Value     Amount       Value
                                            ----------    ---------  ---------  ---------
                                                                    (In thousands)
     <S>                                     <C>          <C>         <C>        <C>
     Balance Sheet Instruments

     Cash and cash equivalents                $ 65,996     $ 65,996   $152,011   $152,011
     Investments                               502,934      502,934    543,658    543,658
     Debt excluding capital leases               1,397        1,491    268,194    293,072

</TABLE>

NOTE 16 - SEGMENT REPORTING

JRM supplies worldwide services for the offshore oil and gas exploration,
production and hydrocarbon processing industries and to other marine
construction companies.  Principal activities include the design, engineering,
fabrication and installation of offshore drilling and production platforms,
specialized structures, modular facilities, marine pipelines and subsea
production systems.  JRM also provides procurement activities and removal,
salvage and refurbishment services for offshore fixed platforms.  These
activities are managed and results are evaluated primarily on a geographic area
basis.  Engineering Operations, which

                                       54
<PAGE>

includes project management services and engineering services, is primarily
managed and evaluated on a worldwide basis. Other is comprised of chartering
activity as well as consolidating adjustments that pertain to operations but are
excluded from management's evaluation of segment performance.

Intersegment sales are accounted for at prices that are generally established by
reference to similar transactions with unaffiliated customers.  Reportable
segments are measured based on operating income exclusive of general corporate
expenses.  Other reconciling items to income (loss) before provision for
income taxes are interest income, interest expense and other-net.  Corporate
assets excluded from segment assets are primarily investments in debt
securities.

On May 7, 1998, JRM sold its interest in McDermott Engineering (Europe) Limited.
Management also intends to exit other European engineering operations.  In
fiscal years 1999, 1998 and 1997, these operations had revenues of $89,347,000,
$288,687,000 and $295,343,000, respectively, and operating income (loss) of
$(7,138,000), $6,177,000 and $9,739,000, respectively.  Operating income (loss)
for fiscal years 1999 and 1998 include closure costs and other disposition
losses of $2,818,000 and $4,200,000, respectively.

JRM does not believe it is dependent on any one customer. Sales to major
customers that exceeded 10% of revenues were: 1999--none; 1998--customer A
$208,299,000 (11%); and 1997--customer A  $235,590,000 (17%), customer B
$153,274,000 (11%).  Customer A is a customer of both the North American
Operations segment and the Europe Operations segment.  Customer B is a customer
of the Europe Operations segment.


Segment Information for the Three Fiscal Years Ended March 31, 1999.
<TABLE>
<CAPTION>

1.  Information about JRM's Operations in Different Segments.

                                                    1999          1998            1997
                                                 ----------    ----------       ---------
                                                             (In thousands)
<S>                                              <C>           <C>           <C>
     REVENUES/(1)/
          North American Operations              $  556,522    $  707,985       $  566,876
          Middle East Operations                    235,094       345,146          192,578
          Far East Operations                       372,676       336,692          221,159
          Europe and West Africa Operations         100,293       378,037          361,633
          Engineering Operations                     60,110       131,046           93,920
          Other                                       9,478        34,000           30,690
          Eliminations                              (54,603)      (77,420)         (58,387)
          --------------------------------------------------------------------------------
          Total Revenues                         $1,279,570    $1,855,486       $1,408,469
          --------------------------------------------------------------------------------

     /(1)/ Segment revenues are net of the following intersegment transfers:

           North American Operations              $    5,014    $       89       $      590
           Middle East Operations                      1,048         2,168                -
           Far East Operations                           128             -                -
           Europe and West Africa Operations               -           315            1,274
           Engineering Operations                     35,109        58,465           46,684
           Other                                      13,304        16,383            9,839
           --------------------------------------------------------------------------------

           Total Intersegment Transfers           $   54,603    $   77,420       $   58,387
           --------------------------------------------------------------------------------
</TABLE>

                                       55
<PAGE>

<TABLE>
<CAPTION>

OPERATING INCOME:                                           1999         1998        1997
                                                          --------     --------     -------
                                                                    (In thousands)
          <S>                                             <C>         <C>          <C>
          Segment Operating Income (Loss):
               North American Operations                  $ 51,115    $  75,588    $  30,076
               Middle East Operations                       40,502       34,292        1,432
               Far East Operations                          67,108      (11,306)      (4,016)
               Europe and West Africa Operations            (3,350)      15,093      (17,514)
               Engineering Operations                       (4,235)       3,775        5,960
               Other                                       (24,658)     (10,320)      (5,119)
          -----------------------------------------------------------------------------------
          Total Segment Operating Income                  $126,482    $ 107,122    $  10,819
          -----------------------------------------------------------------------------------

          Gain (Loss) On Asset Disposals
               and Impairments - Net:
               North American Operations/(1)/             $(10,233)   $  (6,532)   $  19,626
               Middle East Operations                          (47)         (34)        (176)
               Far East Operations                          (4,311)         817          792
               Europe and West Africa Operations/(2)/       34,890      224,552       21,758
               Engineering Operations                       (5,635)         (25)         (14)
               Other/(3)/                                    3,956     (258,897)     (12,965)
          -----------------------------------------------------------------------------------
           Total Gain (Loss) on Asset Disposals
               and Impairments - Net                      $ 18,620    $ (40,119)   $  29,021
          -----------------------------------------------------------------------------------

          Income (Loss) From Investees:
               North American Operations                  $ (1,239)   $   4,539    $   7,439
               Far East Operations                          13,350        4,253         (815)
               Europe and West Africa Operations/(4)/          127       59,748      (14,584)
               Other                                        (1,568)       1,696          127
          -----------------------------------------------------------------------------------
          Total Income (Loss) from Investees              $ 10,670    $  70,236    $  (7,833)
          -----------------------------------------------------------------------------------

          SEGMENT INCOME (LOSS):
               North American Operations                  $ 39,643    $  73,595    $  57,141
               Middle East Operations                       40,455       34,258        1,256
               Far East Operations                          76,147       (6,236)      (4,039)
               Europe and West Africa Operations/(5)/       31,667      299,393      (10,340)
               Engineering Operations                       (9,870)       3,750        5,946
               Other                                       (22,270)    (267,521)     (17,957)
          -----------------------------------------------------------------------------------

          Total Segment Income                             155,772      137,239       32,007
          -----------------------------------------------------------------------------------

          General Corporate Expenses                       (13,421)     (13,064)     (16,610)
          -----------------------------------------------------------------------------------

          Total Operating Income                          $142,351    $ 124,175    $  15,397
          -----------------------------------------------------------------------------------
</TABLE>

/(1)/  Fiscal year 1998 includes the write-down of certain marine vessels in the
       amount of $9,891,000.
/(2)/  Fiscal year 1998 includes a $224,472,000 gain on asset disposal resulting
       from the termination of the HeereMac joint venture.
/(3)/  Fiscal year 1998 includes the write-off of $262,901,000 of goodwill
       associated with the acquisition of OPI.
/(4)/  Fiscal year 1998 includes a $61,637,000 distribution of earnings
       resulting from the termination of the HeereMac joint venture.
/(5)/  Fiscal year 1999 includes a $37,353,000 gain resulting from the
       termination of the McDermott-ETPM joint venture.

                                       56
<PAGE>

<TABLE>
<CAPTION>
                                                                  1999        1998          1997
                                                              ----------   ----------    ---------
                                                                          (In thousands)
<S>                                                           <C>          <C>          <C>
     SEGMENT ASSETS
          North American Operations                           $  250,298   $  281,331   $  303,093
          Middle East Operations                                  99,228       95,761      103,518
          Far East Operations                                    127,491      121,529      116,611
          Europe and West Africa Operations/(1)/                  50,014      250,574      367,978
          Engineering Operations                                   7,064       20,274       25,712
          Other/(2)/                                              51,908      104,674      396,890
          ----------------------------------------------------------------------------------------
               Total Segment Assets                              586,003      874,143    1,313,802
          ----------------------------------------------------------------------------------------
               Corporate Assets                                  595,970      674,577      192,990
          ----------------------------------------------------------------------------------------
               Total Assets                                   $1,181,973   $1,548,720   $1,506,792
          ----------------------------------------------------------------------------------------

/(1)/  Segment assets of Europe and West Africa Operations decreased approximately
       $170,000,000 from 1998 to 1999, primarily as a result of the dispositions
       of McDermott Subsea Constructors Limited (see Note 3) and McDermott
       Engineering (Europe) Limited.
/(2)/  At March 31, 1997, Other segment assets include $279,218,000 of goodwill
       associated with the acquisition of OPI.  Corresponding amortization of this
       goodwill is reflected among the reportable segments.

CAPITAL EXPENDITURES
          North American Operations                           $   20,518   $   11,916   $   37,603
          Middle East Operations                                   3,309        4,915        7,028
          Far East Operations                                     26,888        1,684        8,551
          Europe and West Africa Operations/(1)/                  33,000       35,071       12,280
          Engineering Operations                                     330          447          529
          Other                                                      371        3,671           91
          ----------------------------------------------------------------------------------------
               Total Capital Expenditures                     $   84,416   $   57,704   $   66,082
          ----------------------------------------------------------------------------------------

/(1)/  Fiscal year 1999 amount represents property, plant and equipment acquired
       through the termination of the McDermott-ETPM joint venture. Fiscal year
       1998 includes property, plant and equipment of $30,559,000 acquired
       through the termination of the HeereMac joint venture.

DEPRECIATION AND AMORTIZATION
          North American Operations                           $   25,018   $   28,883   $   30,451
          Middle East Operations                                   4,141        6,183        6,518
          Far East Operations                                      8,174       10,231       10,942
          Europe and West Africa  Operations                       5,731       31,488       35,642
          Engineering Operations                                   1,308        1,895        2,407
          Other                                                   10,946       13,656       11,783
          ----------------------------------------------------------------------------------------
               Segment Depreciation and Amortization              55,318       92,336       97,743
          ----------------------------------------------------------------------------------------
               Corporate Depreciation and Amortization             1,443        1,507        1,932
          ----------------------------------------------------------------------------------------
               Total Depreciation and Amortization            $   56,761   $   93,843   $   99,675
          ----------------------------------------------------------------------------------------

INVESTMENTS IN UNCONSOLIDATED AFFILIATES
          North American Operations                           $        -   $       77   $        -
          Far East Operations                                      1,732       10,075        7,946
          Europe and West Africa Operations                        8,453       13,887       61,431
          Other                                                    3,463        5,030        3,335
          ----------------------------------------------------------------------------------------
           Total Investments in Unconsolidated Affiliates     $   13,648   $   29,069   $   72,712
          ----------------------------------------------------------------------------------------
</TABLE>

                                       57
<PAGE>

<TABLE>
<CAPTION>


2.   Information about JRM's Service Lines.
                                                                                     1999         1998         1997
                                                                                    -------      -------     -------
                                                                                             (In thousands)
     <S>                                                                           <C>            <C>        <C>
     Revenues:
          Offshore Operations                                                     $  605,024  $  743,114   $  591,021
          Fabrication Operations                                                     376,450     455,306      376,257
          Engineering Operations                                                     115,594     276,422      235,672
          Procurement Activities                                                     273,308     425,440      240,108
          Adjustments and Eliminations                                               (90,806)    (44,796)     (34,589)
          -----------------------------------------------------------------------------------------------------------
               Total Revenues                                                     $1,279,570  $1,855,486   $1,408,469
          -----------------------------------------------------------------------------------------------------------

3.   Information about JRM's Operations in Different Countries.

     Revenues/(1)/:
          United States                                                           $  428,731  $  657,068   $  468,168
          Indonesia                                                                  206,085     143,644       45,299
          Qatar                                                                      132,503     261,015       99,085
          United Kingdom                                                              98,955     324,063      284,594
          Myanmar                                                                     80,130     110,692       51,014
          Other Countries                                                            333,166     359,004      460,309
          -----------------------------------------------------------------------------------------------------------
               Total Revenues                                                     $1,279,570  $1,855,486   $1,408,469
          -----------------------------------------------------------------------------------------------------------

/(1)/ Revenues are allocated based on the location of the customer.

      Property, Plant and Equipment:
          United States                                                           $  120,390  $  129,551   $  139,277
          Mexico                                                                      48,246      23,800       24,296
          Indonesia                                                                   37,309      13,091       20,853
          Singapore                                                                   22,787      20,009       20,974
          United Kingdom                                                               5,735      73,621       83,091
          Netherlands                                                                      -      45,347       33,868
          Other Countries                                                             25,710      37,731       58,772
          -----------------------------------------------------------------------------------------------------------
               Total Property, Plant and Equipment                                $  260,177  $  343,150   $  381,131
          -----------------------------------------------------------------------------------------------------------
</TABLE>

                                       58
<PAGE>

NOTE 17 - QUARTERLY FINANCIAL DATA (UNAUDITED)

The following tables set forth selected unaudited quarterly financial
information for the fiscal years ended March 31, 1999 and 1998:
<TABLE>
<CAPTION>
                                                                                1999
                                                                                ----
                                                                        Q U A R T E R  E N D E D

                                                             JUNE 30,    SEPT. 30,   DEC. 31,   MARCH 31,
                                                               1998        1998        1998       1999
                                                             -------     --------    --------  ---------
                                                             (In thousands, except for per share amounts)
     <S>                                                     <C>         <C>        <C>         <C>

     Revenues                                                $370,552   $349,099    $313,348    $246,571
     Operating income (loss)                                   92,378     46,104      12,326      (8,457)
     Income (loss) before extraordinary item                   88,440     42,874      32,009        (445)
     Net income (loss)                                         88,440     42,874      32,009     (39,164)

     Earnings per common share:
          Basic:
               Income (loss) before extraordinary item           2.13       1.04        0.77       (0.06)
               Net income (loss)                                 2.13       1.04        0.77       (1.05)
          Diluted:
               Income (loss) before extraordinary item           1.89       0.94        0.71       (0.06)
               Net income (loss)                                 1.89       0.94        0.71       (1.05)
</TABLE>

Pretax results for the quarter ended June 30, 1998 include a gain on the
dissolution of a joint venture of $37,390,000, a gain of $12,000,000 from the
sale of assets of a joint venture and a gain on the settlement and curtailment
of postretirement benefit plans of $9,435,000.  Pretax results for the quarter
ended December 31, 1998 include a $9,600,000 charge to restructure foreign joint
ventures.  Pretax results for the quarter ended March 31, 1999 include an
extraordinary loss on the retirement of debt of $38,719,000 and losses of
$21,636,000 related to impairments of assets and goodwill.
<TABLE>
<CAPTION>

                                                                        1998
                                                                        ----
                                                                Q U A R T E R  E N D E D

                                                        JUNE 30,  SEPT. 30,    DEC. 31,    MARCH 31,
                                                         1997       1997         1997        1998
                                                        -------  ---------     --------    --------
                                                        (In thousands, except for per share amounts)
         <S>                                            <C>        <C>        <C>         <C>
          Revenues                                      $478,223   $506,046    $458,094    $413,123
          Operating income                                21,019     37,314      51,039      14,803
          Net income                                       8,110     18,894      51,114      10,842

          Earnings per common share:
               Basic                                        0.16       0.42        1.20        0.22
               Diluted                                      0.15       0.40        1.08        0.22
</TABLE>

Pretax results for the quarter ended December 31, 1997 include 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 a
write-off of goodwill associated with the acquisition of OPI of $262,901,000.

                                       59
<PAGE>

NOTE 18 - EARNINGS (LOSS) PER SHARE

The following table sets forth the computation of basic and diluted earnings
(loss) per share:

<TABLE>
<CAPTION>

                                                                             For the Three Fiscal Years Ended
                                                                                 1999           1998            1997
                                                                               --------        -------        -------
                                                                    (In thousands, except shares and per share amounts)
     <S>                                                                       <C>            <C>              <C>
            Basic:
               Income (loss) before extraordinary item                      $   162,878    $    88,960        $(12,900)
               Dividends on preferred stocks                                     (7,200)        (7,200)         (7,200)
            ----------------------------------------------------------------------------------------------------------

               Income (loss) for basic computation                              155,678         81,760         (20,100)
               Extraordinary item                                               (38,719)             -               -
            ----------------------------------------------------------------------------------------------------------
               Net income (loss) for basic computation                      $   116,959    $    81,760    $    (20,100)
            ----------------------------------------------------------------------------------------------------------

               Weighted average common shares                                39,585,255     40,926,294      40,357,026
            ----------------------------------------------------------------------------------------------------------

            Basic earnings (loss) per common share:
               Income (loss) before extraordinary item                      $      3.93    $      2.00    $      (0.50)
               Extraordinary item                                                 (0.98)             -               -
            ----------------------------------------------------------------------------------------------------------
               Net income (loss)                                            $      2.95    $      2.00    $      (0.50)
            ----------------------------------------------------------------------------------------------------------

            Diluted:
               Income (loss) before extraordinary item                      $   162,878    $    88,960    $    (12,900)
               Dividends on preferred stocks                                          -              -          (7,200)
            ----------------------------------------------------------------------------------------------------------
               Income (loss) for diluted computation                            162,878         88,960         (20,100)
               Extraordinary item                                               (38,719)             -               -
            ----------------------------------------------------------------------------------------------------------
               Net income (loss) for diluted computation                    $   124,159    $    88,960    $    (20,100)
            ----------------------------------------------------------------------------------------------------------
             Weighted average common shares (basic)                          39,585,255     40,926,294      40,357,026

             Effect of dilutive securities:
               Stock options and restricted stock                               263,458        289,521               -

               Series A $2.25 cumulative preferred stock                      5,740,940      5,740,940               -
            ----------------------------------------------------------------------------------------------------------
             Adjusted weighted average common
               shares and assumed conversions                                45,589,653     46,956,755      40,357,026
            ----------------------------------------------------------------------------------------------------------

             Diluted earnings (loss) per common share:
               Income (loss) before extraordinary item                      $      3.57    $      1.89    $      (0.50)
               Extraordinary item                                                 (0.85)             -               -
            ----------------------------------------------------------------------------------------------------------
               Net income (loss)                                            $      2.72    $      1.89    $      (0.50)
            ----------------------------------------------------------------------------------------------------------
</TABLE>

                                       60
<PAGE>

ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH AUDITORS ON ACCOUNTING AND
          FINANCIAL DISCLOSURE

Ernst & Young LLP ("E&Y") were previously the principal auditors for J. Ray
McDermott, S.A. ("JRM"). On July 24, 1998, the Board of Directors selected
PricewaterhouseCoopers LLP as E&Y's replacement.

For the two fiscal years ended March 31, 1998 and 1997, there were no
disagreements with E&Y on any matters of accounting principles or practice,
financial statement disclosure, or auditing scope or procedure, which, if not
resolved to the satisfaction of E&Y, would have caused it to make a reference to
the subject matter of the disagreement in connection with this report.  E&Y has
not advised JRM of any reportable events.  E&Y's reports on JRM's financial
statements for the two fiscal years ended March 31, 1998 and 1997 did not
contain an adverse opinion or a disclaimer of opinion, nor were they qualified
or modified as to uncertainty, audit scope or accounting principles.

For the fiscal year ended March 31, 1999, there were no disagreements with
PricewaterhouseCoopers LLP on accounting and financial disclosure.

                                       61
<PAGE>

                                P A R T   I I I


ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth for each director his name, principal occupation,
age (as of May 31, 1999), and year in which he first became a director of JRM.


                                                                    Director
Name and Principal Occupation                               Age       Since
-----------------------------                               ---     --------

Rick L. Burdick............................................. 47       1995

A partner in the law firm of Akin, Gump, Hauer & Feld,
L.L.P., since 1988.  He is also a director of AutoNation,
Inc. and Century Business Services, Inc.

Richard E. Woolbert......................................... 65       1996

Until his retirement in January 1999, he was Executive Vice
President and Chief Administrative Officer of JRM and MII
from February 1995.  Previously, Mr. Woolbert was Senior
Vice President and Chief Administrative Officer of MII from
August 1991.  He is also a director of MII.

William J. Johnson.......................................... 64       1997

President and a director of JonLoc Inc., an oil and gas
company of which he and his family are the sole shareholders,
and an independent consultant to the oil and gas industry.
From 1991 to 1994, Mr. Johnson was President and Chief
Operating Officer of Apache Corporation.  Previously,
Mr. Johnson held various positions in the oil and gas industry,
including President and Chief Executive Officer of Tex/Con Oil
and Gas Company, President USA of BP Exploration Company and
President of Standard Oil Production Company.  Mr. Johnson is
also a director of Snyder Oil Corporation and Tesoro
Petroleum Corporation.

Robert H. Rawle............................................. 51       1997

President and Chief Operating Officer since January 1997.
Previously, Mr. Rawle was Vice President and Group Executive
of the North, Central and South America Operations from
January 1996, prior to which, he was Vice President, Domestic
Operations from January 1995.  From March 1993 to January 1995,
he was Vice President of the Domestic Operations of MII's
Marine Construction Services Division.

                                       62
<PAGE>

Roger E. Tetrault..........................................  57       1997

Chairman of the Board since June 1997 and Chief Executive
Officer since March 1997 of JRM and MII.  Before assuming
his present positions, Mr. Tetrault was a Senior Vice
President of General Dynamics Corporation (a supplier of
weapons systems and services to the U.S. government and its
allies) and President of its Land Systems Division from April
1993; Vice President of General Dynamics and President of its
Electric Boat Division from August 1992 until April 1993; Vice
President and General Manager of General Dynamics' Electric
Boat Division from August 1991 until August 1992; and prior to
that, he served as a Vice President and Group Executive of MII's
Babcock & Wilcox subsidiary from 1990.  He is also a director
of MII.

Robert L. Howard...........................................  62       1997

Until his retirement in March 1995, he was Vice President
Domestic Operations, Exploration and Production, of Shell
Oil Company and President of Shell Western Exploration and
Production Inc. from 1992, and President of Shell Offshore,
Inc. from 1985.  He is also a director of MII, Southwestern
Energy Company and Ocean Energy, Inc.

Sean C. O'Keefe............................................  43       1997

Formerly Secretary of the Navy, Mr. O'Keefe currently holds
the Louis A. Bantle Chair  in Business and Government Policy
in the Maxwell School of Citizenship and Public Affairs at
Syracuse University.  He is also Director of National
Securities Study at Syracuse University and has been on the
faculty of the Maxwell School since 1996.  Previously,
Mr. O'Keefe was a professor of business administration and
assistant to the senior vice president for research and
graduate education at Pennsylvania State University from 1993.

Cedric E. Ritchie..........................................  71       1995

Chairman of the Board and Chairman of the Executive Committee
of the Board of The Bank of Nova Scotia from January 1993
until January 1995, prior to which, he served in various
executive and managerial capacities with the bank for over
40 years, including President and Chief Executive Officer.
He is also a director of MacMillan Bloedel Limited, Minorco,
Canadian National Railways, Concord Pacific Group Inc. and
TransCanada Pipelines Limited.


Set forth below is the age (as of May 31, 1999), positions held with JRM and
certain other business experience information for each of JRM's executive
officers who are not directors.

Daniel R. Gaubert, 50, Senior Vice President and Chief Financial Officer since
August 1997, prior to which, he was Vice President, Finance from August 1995 and
Acting Controller from February 1995 to August 1995.  Mr. Gaubert has also been
Senior Vice President and Chief Financial Officer of MII since February 1997,
prior to which, he was Vice President and Chief Financial Officer of MII from
September 1996 and Vice President and Controller of MII from February 1992.

Gary W. Drinkwater, 54, Senior Vice President and Group Executive, Western
Hemisphere, since February 1999, and Compliance Director since April 1997.
Before assuming his present positions, he was Senior Vice President and Group
Executive, Eastern Hemisphere, from March 1998; Senior Vice President and
General Manager, Project Services, from January 1997; and Vice President and
General Manager, Project Services, from September 1996.  Previously, Mr.
Drinkwater was Vice President and General Manager, Project

                                       63
<PAGE>

Management, of MII, from April 1995 and Vice President and General Manager,
Washington Operations, of MII from March 1993.

S. Wayne Murphy, 64, Senior Vice President, General Counsel and Corporate
Secretary since August 1997, prior to which, he was Acting General Counsel and
Acting Corporate Secretary from February 1996.  He also has been Senior Vice
President, General Counsel and Corporate Secretary of MII since February 1997,
prior to which, he was Vice President, General Counsel and Corporate Secretary
of MII from June 1996; Acting General Counsel and Acting Corporate Secretary of
MII from February 1996; and Associate General Counsel of MII from August 1993.

Kurt S. Nelson, 50, Vice President and Group Executive, Eastern Hemisphere,
since February 1999. Previously, he was Vice President and Area Executive,
Middle East Operations, from March 1998; Vice President and Group Executive,
Middle East Operations, from February 1997; Vice President and Group Executive,
Subsea Development, from September 1996; and Vice President and General Manager,
Sub-Ocean, from February 1995.  From March 1993 until February 1995, he was Vice
President, Marine Operations, of MII's Marine Construction Services Division.

Fred R. Oehrlein, 54, Vice President and Group Executive, Project Services,
since February 1999.  Before assuming his present position, Mr. Oehrlein was
Vice President and Group Executive, Western Hemisphere, from March 1998; Vice
President and Group Executive, European Operations, from September 1996; Vice
President and Group Executive, Project Services, from July 1996; Vice President
and Group Executive of Southeast Asia Operations from February 1995; and Vice
President and General Manager, Southeast Asia Operations, of MII's Marine
Construction Services Division from 1991.

J. R. Woolsey, 51, Senior Vice President and Chief Administrative Officer of JRM
and MII since January 1999 and MII's Compliance Director since November 1997.
Previously, he was Vice President, Business Venture Relations, of MII from
October 1997; and Vice President and General Manager of the Nuclear Equipment
Division of MII's Government Group from 1990.

COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

Section 16(a) of the Exchange Act requires JRM's directors and executive
officers, and persons who own 10% or more of JRM's voting stock to file reports
of ownership and changes in ownership of JRM's equity securities with the SEC
and the New York Stock Exchange. Directors, executive officers and 10% or more
shareholders are required by SEC regulations to furnish JRM with copies of all
Section 16(a) forms they file. Based solely on a review of the copies of such
forms furnished to JRM, or written representations that no forms were required,
JRM believes that its directors, executive officers and 10% or more beneficial
owners complied with all Section 16(a) filing requirements during fiscal year
1999.

                                       64
<PAGE>

ITEM 11.  EXECUTIVE COMPENSATION

                       REPORT ON EXECUTIVE COMPENSATION

To Our Shareholders

The Compensation Committee is comprised of three independent nonemployee
directors who have no "interlocking" relationships with JRM. The Compensation
Committee exists to develop executive compensation policies that support JRM's
strategic business objectives and values. The duties of this committee include:

 .    Review and approval of the design of executive compensation programs and
all salary arrangements that Company executives receive;

 .    Assessment of the effectiveness of the programs in light of compensation
policies; and

 .    Evaluation of executive performance.

Compensation Philosophy

The Compensation Committee adheres to an executive compensation philosophy that
supports JRM's business strategies. These strategies are to:

 .    Maximize profits;

 .    Increase shareholder value;

 .    Strengthen cash flow;

 .    Be the high tech, low cost provider of products and services within our
     markets; and

 .    Pursue internal and external iniatives for growth.

The Compensation Committee's philosophy for executive compensation is to:

 .    Emphasize at-risk compensation, while balancing short-term and long-term
     compensation to support JRM's business and financial strategic goals;

 .    Reflect positive, as well as negative, Company and individual performance
     in pay;

 .    Encourage equity-based compensation to reinforce management's focus on
     shareholder value; and

 .    Provide competitive pay opportunities that will attract, retain, and
     develop executive talent.

Executives participate in a comprehensive compensation program that is built
around this four-pronged philosophy. The key components of this program include
base salary, annual bonus opportunities, long-term incentives (stock options and
performance stock awards of restricted shares) and benefits.

Each of these components is reviewed by the Compensation Committee as previously
described. To ensure JRM's pay is comparable to median market practices,
competitive market data is collected from multiple

                                       65
<PAGE>

external sources. The data is collected both on an industry-specific basis and
an overall industrial basis. The industry-specific comparison is collected using
a group of companies that have national and international business operations
and similar sales volumes, market capitalizations, employment levels and lines
of business. The Compensation Committee reviews and approves the selection of
companies used for this purpose and attempts to mirror the peer group reflected
in the performance graph. These comparator groups, however, are not identical
because the market data used by JRM is much more broad-based than the companies
included in the performance graph peer group. This market information, which is
reviewed annually by the Compensation Committee, is used for assessing all
components of executives' pay.

In October 1998, MII solicited the Hay Group to perform a comprehensive custom
compensation study for MII and its consolidated enterprise.  The purpose of the
study was to determine the competitiveness of the executive compensation program
of MII and its consolidated enterprise, including JRM, against ten companies
within a similar industry.  The study addressed base salary, bonus, short and
long term incentives and benefits.  Based on the survey results, certain
adjustments were made to specific components of the executive compensation
package of JRM to more closely reflect the market with respect to the peer group
companies.  The Compensation Committee believes that, in the aggregate, the
compensation packages are competitive within JRM's industry.

When setting compensation levels, the Compensation Committee considers each
component of an executive's pay. Certain quantitative formulas have been adopted
for the individual compensation plans themselves (e.g., incentive plans). The
Compensation Committee uses a combination of the results of the performance-
based compensation determiners (mathematical formulas) and discretion, depending
on the particular component involved. Each component of pay is discussed in
greater detail below.

Base Salary

Generally, salaries reflect an individual's level of responsibility, prior
experience, breadth of knowledge, personal contributions, position within JRM's
executive structure, and market pay practices. Overall, salaries are targeted at
the median of the market practice, with annual adjustments based upon
performance. When making annual adjustments, a qualitative assessment of
performance is conducted, which considers many factors including individual
performance, both past and present. The factors used in making this evaluation
may vary by position.

Mr. Tetrault acts as JRM's Chief Executive Officer pursuant to an arrangement
with MII. Mr. Tetrault, however, does not receive a base salary from JRM.
Effective April 1998, Mr. Rawle's base salary increased 25% ($68,760) to
$343,800.

Annual Bonus

Annual bonuses promote JRM's compensation philosophy by providing executives
with short-term financial incentives to achieve corporate and individual
performance goals. Annual bonus opportunities allow JRM to communicate specific
goals that are of primary importance during the coming year and motivate
executives to achieve these goals.

In 1994, JRM adopted a Short-Term Incentive Compensation Plan to support its
short-term financial focus. In 1996, JRM restated its 1994 Short-Term Incentive
Compensation Plan, and such plan, as restated, was approved by JRM's
shareholders. Payments under the plan are intended to comply with the
deductibility requirements set forth under Section 162(m) of the Internal
Revenue Code of 1968, as amended.

For fiscal year 1999, as in the prior year, the plan was tied to net income
return on capital. The plan is formula driven and self-funded, based on a
minimum level of financial performance to be achieved each year

                                       66
<PAGE>

(8.5% adjusted net income return on capital for fiscal year 1999). Executives'
opportunities under the plan are expressed as a targeted percent of base salary.
These targets, like base salary, are set at approximately the median market
levels, as indicated by a group of similar companies. Mr. Rawle has a bonus
target of 55% of base salary. The Compensation Committee believes the goals
associated with target bonus payments are achievable yet require considerable
effort and innovation on the part of each executive. Executives only receive
payments under the plan if the minimum level of financial performance is
reached. Financial performance at the minimum level results in bonuses of one-
half the targeted amounts. If the minimum level of financial performance is
exceeded, bonus payments are increased. Bonus awards are considered when the
Compensation Committee reviews JRM's financial performance after the close of
the fiscal year.

In June 1998, MII solicited the Hay Group to review recommendations to improve
operational and financial performance of MII and its consolidated enterprise,
including JRM.  As a result, JRM has made the threshold and maximum awards more
difficult to achieve on the net income return of capital formula.

Under the arrangement between JRM and MII previously described, Mr. Tetrault is
not eligible to receive a bonus under JRM's Short-Term Incentive Compensation
Plan. Mr. Rawle, as JRM's President and Chief Operating Officer, received a
bonus of $378,180 for his services for fiscal year 1999, which represents 110%
of his base salary in effect at the beginning of fiscal year 1999 (versus a 55%
target). Mr. Rawle's bonus reflects JRM's superior adjusted net income return on
capital for fiscal year 1999 (16.4%), which greatly exceeded the minimum level
of financial performance for the year. Other executives' bonuses were determined
based upon the same factors.

Long-Term Incentives

In 1994, JRM adopted an Executive Long-Term Incentive Compensation Plan.
Subsequent thereto, the plan was amended and such amendments were approved by
JRM's shareholders. Compensation under the plan is intended to comply with the
deductibility requirements set forth under Section 162(m) of the Internal
Revenue Code, as amended. JRM's Restated 1994 Executive Long-Term Incentive
Compensation Plan, as amended, provides executives with equity-based
opportunities to earn additional compensation based upon Company and stock
performance over the mid- to long-term. Use of such incentives focuses
management on the long-term interests of shareholders.

The Compensation Committee considers the following multiple factors when
determining award sizes. Weighting between the factors listed below is informal,
not quantitative.

 .    Various financial performance criteria (which may include returns on
     capital and assets, profitability, and shareholder return);

 .    Level of responsibility;

 .    Prior experience;

 .    Historical award data; and

 .    Market practices among similar companies.

Stock Options. Under the plan, stock options are granted at exercise prices
equal to fair market value of the underlying Common Stock on the date of grant.
Executives do not realize value unless the stock price rises above the price on
the date of grant. This reflects JRM's focus on increasing shareholder value.

                                       67
<PAGE>

To reinforce the focus on creating shareholder value in the mid-term as well as
long term, options granted in fiscal years 1998 and 1999 were granted with a
five-year term as opposed to a ten-year term for option grants in previous
years. Moreover, these option grants vest in 50% increments on the first and
second anniversaries of the date of grant. Previous grants vested in one-third
increments on the first, second and third anniversaries of the date of the
grant.

During fiscal year 1999, Messrs. Tetrault and Rawle were granted options to
acquire 26,860 and 36,040 shares of Common Stock, respectively, at an exercise
price of $32.4375 per share.

Performance Stock Awards. Beginning in 1998, the Compensation Committee
increased the "at risk" component of JRM's restricted stock program by tying
the number of restricted shares awarded, if any, to future stock performance.
Under the new program, Company executives receive a performance stock award of
restricted stock based upon salary multiples corresponding to their title and
position within JRM. Performance stock awards are made as notional grants of
restricted stock. No shares are issued by JRM at the time of the grant. The
number of restricted shares actually received by a participant, if any, is
determined on the second anniversary of the grant date by calculating the
difference between the fair market value of a share of the Common Stock (based
upon the preceding 30 trading day average) and the fair market value on the
grant date. The difference is multiplied by that number of shares in an
executive's notional grant and the resulting product is divided by the fair
market value of the Common Stock as of the second anniversary of the grant date,
calculated as described above. The resulting number is added to (in the case of
an increase in share price) or subtracted from (in the case of a decrease in
share price) the number of shares in an executive's notional grant. The notional
grant, as adjusted (to the extent not reduced to zero), is then issued to the
executive as restricted stock on the second anniversary of the grant date, for
which the executive is required to pay $1.00 per share. The restricted stock
vests two years thereafter. As with previous restricted stock awards, restricted
shares are nontransferable and are subject to forfeiture under certain
circumstances prior to vesting. The Compensation Committee believes that the
above described program reinforces the importance of creating shareholder value
because the ultimate size of each annual restricted stock award, if any, is
based upon the future performance of the Common Stock.

During fiscal year 1999, Messrs. Tetrault and Rawle received performance stock
awards of 7,630 and 10,600 restricted shares of Common Stock, respectively.
Other officers received performance stock awards in accordance with the method
described above.

Benefits

Benefits offered to key executives serve a different purpose than the other
elements of compensation. In general, they provide a safety net of protection
against financial catastrophes that can result from illness, disability, or
death. Benefits offered to key executives are generally those offered to the
general employee population with some variation to promote tax efficiency and
replacement of benefit opportunities lost due to regulatory limits.

Policy with respect to Section 162(m)

Section 162(m) of the Internal Revenue Code limits the tax deduction JRM can
take with respect to the compensation of certain executive officers unless the
compensation is performance-based, and the material terms of performance goals
are disclosed to and approved by JRM's shareholders. JRM's executive
compensation plans have received shareholder approval and were drafted with the
intention that such incentive compensation qualify as performance-based
compensation under Section 162(m).

While the Compensation Committee intends to continue to rely on performance-
based compensation programs, it is cognizant of the need for flexibility in
making executive compensation decisions, based upon

                                       68
<PAGE>

the relevant facts and circumstances, so that the best interests of JRM are
achieved. To the extent consistent with this goal, the committee anticipates
that such programs will continue to satisfy the requirements of Section 162(m)
with respect to the deductibility of executive compensation paid.

Conclusion

The Compensation Committee believes these executive compensation policies and
programs serve the interests of shareholders and JRM effectively. The various
pay vehicles offered are appropriately balanced to provide increased motivation
for executives to contribute to JRM's overall future success, thereby enhancing
the value of JRM for the shareholders' benefit.

We will continue to monitor the effectiveness of JRM's total compensation
programs to meet the current needs of JRM.

                                     COMPENSATION COMMITTEE
                                     R.L. Howard, Chairman
                                     R.L. Burdick
                                     C.E. Ritchie

                                       69
<PAGE>

                               PERFORMANCE GRAPH

Set forth below is a graph comparing the cumulative total shareholder return on
Common Stock with the cumulative total return of the S&P 500 Index and a Peer
Group Index from January 31, 1995 through March 31, 1999 (the end of JRM's last
fiscal year). The Common Stock did not become publicly traded under Section 12
of the Exchange Act until January 31, 1995; therefore, return information for
earlier periods is not presented. The peer group of companies consists of Baker
Hughes Incorporated, BJ Services Co., Coflexip S.A., Global Marine, Inc.,
Halliburton Company, Schlumberger Limited, Stolt Comex Seaway, S.A., and
Tidewater, Inc.


                    Comparison of Cumulative Total Return*
                J. Ray McDermott, S.A.; S&P 500; and Peer Group



                             [table appears here]



* Assumes $100 invested on January 31, 1995 in JRM common stock; S&P 500; and
  the Peer Group and the reinvestment of dividends as they are paid.


                 1/31/95    3/31/95    3/31/96    3/31/97    3/31/98    3/31/99
                 -------    -------    -------    -------    -------    -------
     JRM         $100.00    $123.42    $ 88.57    $110.85    $192.56    $136.56
     S&P 500     $100.00    $107.11    $141.38    $169.37    $250.46    $296.62
     Peer Group  $100.00    $111.61    $163.11    $216.74    $301.13    $225.25

                                       70
<PAGE>

                      COMPENSATION OF EXECUTIVE OFFICERS

Summary Compensation Table

The following table summarizes the annual and long-term compensation for fiscal
years 1999, 1998 and 1997 of JRM's Chief Executive Officer ("CEO") and four
highest paid executive officers other than the CEO (collectively, the "Named
Executive Officers"). Mr. Tetrault received his salary from MII. Under a
services agreement between JRM and MII, JRM is required to pay to MII $2,000,000
annually for the services of certain of MII's executives who also serve as
officers of JRM, including the services of Mr. Tetrault as JRM's Chairman and
CEO.  The table does not provide any compensation information relating to the
services that Mr. Tetrault provided as an executive officer of MII.


                          Summary Compensation Table
<TABLE>
<CAPTION>
                                                           Annual Compensation/(1)/          Long-Term Compensation
                                                        ------------------------------   -------------------------------
                                                                                               Awards            Payouts
                                                                                        ----------------------   --------
                                                                                                   Securities
                                                                               Other               Underlying               All
                                              Fiscal                          Annual    Restricted    Stock       LTIP      Other
Name                  Principal Position       Year     Salary      Bonus   Comp./(2)/  Stock/(3)/  Options/(4)/ Payouts  Comp./(5)/
----                  ------------------       ----     ------      -----   ----------  ---------   ------------ -------  ----------
<S>                 <C>                       <C>     <C>        <C>        <C>        <C>        <C>            <C>      <C>
R.E. Tetrault        Chairman &                1999    $      0   $      0    $      0   $      0     26,860        $0       $    0
                     Chief Executive Officer   1998    $      0   $      0    $      0   $      0      9,500        $0       $    0
                                               1997    $      0   $      0    $      0   $181,238    108,100        $0       $    0

G.W. Drinkwater/(6)/ Senior VP &               1999    $237,060   $213,354    $     --   $      0     13,150        $0       $5,657
                     Group Executive           1998    $215,520   $193,968    $     --   $      0      8,610        $0       $5,292
                                               1997    $ 92,810   $      0    $ 18,238   $      0      8,640        $0       $2,453

K.S. Nelson          VP & Group                1999    $193,920   $174,528    $129,309   $      0      6,880        $0       $5,717
                     Executive                 1998    $176,280   $141,024    $165,786   $      0      6,110        $0       $5,139
                                               1997    $154,595   $      0    $261,506   $      0      4,450        $0       $4,566

F.R. Oehrlein        VP & Group                1999    $232,800   $209,520    $216,154   $      0     12,920        $0       $5,272
                     Executive                 1998    $196,620   $176,958    $364,130   $      0      6,810        $0       $5,292
                                               1997    $177,255   $      0    $300,455   $      0      7,590        $0       $5,360

R.H. Rawle           President &               1999    $343,800   $378,180    $     --   $      0     36,040        $0       $3,189
                     Chief Operating Officer   1998    $275,040   $302,544    $     --   $      0     12,460        $0       $5,228
                                               1997    $192,540   $      0    $107,334   $      0     10,090        $0       $4,614
</TABLE>
__________
/(1)/ Includes amounts earned in the fiscal year, whether or not deferred.

/(2)/ The aggregate value of perquisites and other personal benefits are not
      included if they do not exceed the lesser of $50,000 or 10 percent of the
      total amount of annual salary and bonus for the applicable fiscal year.
      With respect to Messrs. Nelson and Oehrlein, includes commodities,
      services, housing, utilities, expenses and tax equalization associated
      with their international assignments for fiscal years 1999, 1998 and 1997,
      and relocation expenses for Mr. Oehrlein for fiscal year 1999. With
      respect to Messrs. Drinkwater and Rawle, includes relocation expenses of
      $16,438 and $104,465, respectively, during fiscal year 1997.

/(3)/ No restricted stock awards were earned by JRM's officers for fiscal years
      1999, 1998 and 1997.  Mr. Tetrault, however, received 8,100 restricted
      shares of Common Stock in fiscal year 1997 when he joined JRM. Restricted
      stock awards in Common Stock are valued at the closing market price of the
      Common Stock on the date of grant less any amounts paid by the executive
      officers for such awards ($1.00 per

                                       71
<PAGE>

      share). As of March 31, 1999, the total number of restricted shares of
      Common Stock held by the Named Executive Officers and their market values
      (based upon the closing market price on March 31, 1999 of $29.875) are as
      follows:


                                Shares of           Market
           Name              Restricted Stock       Value

          Tetrault                 8,100           $233,888
          Nelson                   4,200           $121,275
          Oehrlein                 6,510           $187,976
          Rawle                    5,300           $153,038

      Mr. Drinkwater holds no restricted shares. Dividends are not currently
      paid on the Common Stock. Grants of restricted stock generally vest fifty
      percent in five years with the remaining fifty percent vesting in three to
      ten years based on performance. In the event of a change of control of
      JRM, the Compensation Committee may cause all restrictions to lapse. If
      the proposed merger between JRM and MII (the "Merger") is completed, each
      person who holds restricted shares of Common Stock will receive, at their
      election, either a cash payment or a replacement award of a comparable
      amount of restricted MII Common Stock.

      Beginning in fiscal year 1998, instead of granting restricted stock
      awards, JRM granted performance stock awards, which are more fully
      described in the table entitled "Long-Term Incentive Plan--Performance
      Stock Awards in Fiscal Year 1999".

/(4)/ If the Merger is completed, any outstanding options to purchase Common
      Stock, whether or not vested, will become vested options to purchase a
      comparable amount of MII Common Stock.

/(5)/ Amounts shown for fiscal year 1999 include company matching contributions
      to The Thrift Plan for Employees of McDermott Incorporated and
      Participating Subsidiary and Affiliated Companies (the "McDermott Thrift
      Plan") in the amount of $4,800 for each of Messrs. Drinkwater, Nelson,
      Oehrlein and Rawle and the value of insurance premiums paid by JRM for
      Messrs. Drinkwater, Nelson, Oehrlein and Rawle in the amounts of $857,
      $917, $472 and $708, respectively.

/(6)/ Prior to October 1996, Mr. Drinkwater was employed by MII. Compensation
      information for fiscal year 1997 only reflects amounts received by him
      from JRM for the six month period between October 1996 and March 1997.

                                       72
<PAGE>

Option Grant Table

Options granted in fiscal year 1999 vest in equal installments of one-half on
the first and second anniversaries of the date of grant and expire five years
from the date of grant. In general, vesting is contingent on continuing
employment with JRM. In the event of a change in control of JRM, the
Compensation Committee may accelerate the exercisability of any options
outstanding. The following table provides information about option grants to the
Named Executive Officers during fiscal year 1999.  If the Merger is completed,
any outstanding options to purchase Common Stock, whether or not vested, will
become vested options to purchase a comparable amount of MII Common Stock.

                       Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
                                                                                         Potential Realizable Value at
                                                                                         Assumed Annual Rates of Stock
                                                                                            Appreciation for Option
                                              Individual Grants                                     Term/(1)/
                       ------------------------------------------------------------       -----------------------------
                       Number of
                       Securities         % of Total
                       Underlying          Options                                             5%             10%
                        Options           Granted to        Exercise     Expiration
Name                    Granted          Employees/(2)/    Price/(3)/       Date          Dollar Gains     Dollar Gains
----                   ----------        --------------    ----------    ----------       ------------     ------------
<S>                   <C>                <C>              <C>            <C>             <C>              <C>
R.E. Tetrault
   Common Stock            26,860            10.8          $32.4375       11/11/03        $    240,716     $    531,920
G.W. Drinkwater
   Common Stock            13,150             5.3          $32.4375       11/11/03        $    117,849     $    260,415
K.S. Nelson
   Common Stock             6,880             2.8          $32.4375       11/11/03        $     61,658     $    136,248
F.R. Oehrlein
   Common Stock            12,920             5.2          $32.4375       11/11/03        $    115,788     $    255,860
R.H. Rawle
   Common Stock            36,040            14.5          $32.4375       11/11/03        $    322,986     $    713,715
All Shareholders /(4)/ 39,060,814              --          $32.4375             --        $350,058,452     $773,537,632
</TABLE>
__________
/(1)/ Potential Realizable Value is based on the assumed annual growth rates for
      each of the grants shown over their five-year option term. For example, if
      the exercise price is $32.4375, a 5% annual growth rate over five years
      results in a stock price of $41.40 per share and a 10% rate results in a
      price of $52.24 per share. Actual gains, if any, on stock option
      exercises are dependent on the future performance of the stock. Zero
      percent appreciation in stock price will result in no gain.

/(2)/ Based on options to acquire 248,280 shares of Common Stock granted to all
      employees of JRM during fiscal year 1999.

/(3)/ Fair market value on date of grant.

/(4)/ Total dollar gains based on the assumed annual rates of appreciation
      indicated in the table and calculated on 39,060,814 outstanding shares of
      Common Stock on March 31, 1999. The Named Executive Officers' gains as a
      percentage of the total dollar gains shown for all shareholders is .25%

                                       73
<PAGE>

Option Exercises and Year-End Value Table

The following table provides information concerning the exercise of stock
options during fiscal year 1999 by each of the Named Executive Officers and the
value at March 31, 1999 of unexercised options held by such individuals. The
value of unexercised options reflects the increase in market value of the Common
Stock from the date of grant through March 31, 1999 (when the fair market value
of the Common Stock was $25.3125 per share). The actual value realized upon
option exercise will depend on the value of the Common Stock at the time of
exercise.


                  Aggregated Option Exercises in Last Fiscal
                    Year and Fiscal Year-End Option Values

<TABLE>
<CAPTION>
                                                       Total Number of
                        Number of                    Securities Underlying           Total Value of Unexercised,
                         Shares                     Unexercised Options Held            In-the-Money Options
                        Acquired                       at Fiscal Year-End              Held at Fiscal Year-End
                           on           Value          ------------------              -----------------------
Name                    Exercise       Realized     Exercisable    Unexercisable     Exercisable    Unexercisable
----                    --------       --------     -----------    -------------     -----------    -------------
<S>                     <C>           <C>            <C>              <C>             <C>             <C>
R.E. Tetrault
   Common Stock            0              --          40,783/(1)/       67,643         $234,215        $234,215
G.W. Drinkwater
   Common Stock            0              --          10,065            20,335         $ 28,440        $ 14,220
K.S. Nelson
   Common Stock            0              --          16,652            14,608         $129,299        $ 49,390
F.R.Oehrlein
   Common Stock            0              --          25,308            22,912         $195,266        $ 65,994
R.H. Rawle
   Common Stock            0              --          25,437            48,853         $161,932        $ 59,069
</TABLE>
__________
/(1/ Mr. Tetrault exercised options to acquire 36,033 shares of JRM Common Stock
     after March 31, 1999.

                                       74
<PAGE>

Performance Stock Awards in Fiscal Year 1999

The following table provides information concerning performance stock awards of
restricted shares made to each of the Named Executive Officers during fiscal
year 1999.


              Long-Term Incentive Plans--Performance Stock Awards
                             in Fiscal Year 1999*

                       Number of
                      Performance           Performance
Name                    Shares                Period
----                    ------                ------
R.E. Tetrault             7,630                2 years
G.W. Drinkwater           4,020                2 years
K.S.Nelson                2,690                2 years
F.R. Oehrlein             3,950                2 years
R.H. Rawle               10,600                2 years

__________

*    No shares are issued by JRM at the time of the performance stock award
     (11/11/98). Actual number of shares issued to an executive will be based on
     the change in the market price of the Common Stock two years after the date
     of the award. The number of shares to be received by an executive, if any,
     is determined on the second anniversary of the award date by calculating
     the difference between the fair market value of the Common Stock (based
     upon the preceding 30 trading day average) and the fair market value of the
     Common Stock on the award date. The difference is multiplied by that number
     of shares in an executive's award, and the resulting product is divided by
     the fair market value of the Common Stock as of the second anniversary of
     the award date, calculated as described above. The resulting number is
     added to (in the case of an increase in share price) or subtracted from (in
     the case of a decrease in share price) the number of shares in an
     executive's applicable award. The award, as adjusted (to the extent not
     reduced to zero), is then issued to the executive as restricted stock as of
     the second anniversary of the award date, for which the executive is
     required to pay $1.00 per share. The restricted stock vests two years
     thereafter. Prior to vesting, such restricted stock is nontransferable and
     subject to forfeiture under certain circumstances.

     If the Merger is completed, each person who holds performance stock awards
     of Common Stock will receive, at their election, either a cash payment or a
     replacement award of a comparable amount of restricted shares of MII Common
     Stock with the same terms.


Retirement Plans

Pension Plan. Officers of JRM (other than Mr. Tetrault) and all regular full
time employees of JRM or certain of its subsidiaries, except certain non-
resident alien employees who are not citizens of a European Community country or
do not earn income in the United States, Canada or the United Kingdom, were
covered under The Retirement Plan for Employees of J. Ray McDermott Holdings,
Inc. (the "J. Ray McDermott Retirement Plan"). Mr. Tetrault and other
employees of MII who also serve as officers of JRM receive their salaries from
these other companies and are covered under these companies' retirement plans.
Employees do not contribute to the J. Ray McDermott Retirement Plan and company
contributions are determined on an actuarial basis. Generally, an employee must
be employed by JRM or a subsidiary for one year prior to participating in the
plan and must have five years of continuous service to vest in any accrued
benefits under the plan. To the extent that benefits payable under these
qualified plans are limited by Section 415(b) or 401(a)(17) of the Internal
Revenue Code, pension benefits will be paid directly by JRM or a subsidiary
under the terms of the unfunded excess benefit plans maintained by them (the
"Excess Plans").

                                       75
<PAGE>

The following table shows the annual benefit payable under the J. Ray McDermott
Retirement Plan at age 65 (the normal retirement age) to employees retiring in
April 1, 1999 in accordance with the lifetime only method of payment and before
profit sharing plan offsets. Benefits are based on the formula of a specified
percentage (dependent on years of service) of average annual basic earnings
(exclusive of bonus and allowances) during the 60 successive months out of the
120 successive months prior to retirement in which such earnings were highest
("Final Average Earnings") less a specified percentage of anticipated social
security benefits. As of March 31, 1999, Messrs. Drinkwater, Nelson, Oehrlein
and Rawle had Final Average Earnings and years of credited service as follows:
$190,400 and 25.2 years, $158,836 and 27.11 years, $180,833 and 27.3 years, and
$215,377 and 20.6 years, respectively, under the J. Ray McDermott Retirement
Plan. Unless elected otherwise by the employee, payment will be made in the form
of a joint and survivor annuity of equivalent actuarial value to the amount
shown below.


                   J. Ray McDermott Retirement Plan Benefits


 Final            Annual Benefits At Age 65 For Years of Service Indicated
Average           --------------------------------------------------------
Earnings          10        15        20      25       30        35       40
--------        ------    ------    ------  -------  -------   -------  -------
200,000         31,686    47,529    63,371   79,214   95,057   110,900  126,743
250,000         40,019    60,029    80,038  100,048  120,057   140,067  160,076
300,000         48,352    72,529    96,705  120,881  145,057   169,233  193,410

Supplemental Executive Retirement Plan. JRM is a participating employer in MII's
Supplemental Executive Retirement Plan (the "SERP"), and as a result, the SERP
covers certain officers of JRM as well as officers of MII and other designated
companies. Generally, retirement benefits are based upon a specified percentage
(determined by age, years of service and date of initial participation in the
SERP) of final 3-year average cash compensation (salary plus supplemental
compensation for the highest three out of the last ten years of service) or 3-
year average cash compensation prior to SERP scheduled retirement date,
whichever is greater. The maximum benefit payable to any officer that is an
employee of JRM may not exceed 60-65% (dependent upon date of initial
participation in the SERP) of such 3-year average cash compensation. Payments
under the SERP will be reduced by an amount equal to pension benefits payable
under any other retirement plan maintained by JRM or any of its subsidiary
companies. A surviving spouse death benefit is also provided under the SERP.
Before giving effect to such reductions, the approximate annual benefit payable
under the SERP to Messrs. Drinkwater, Nelson, Oehrlein and Rawle at retirement
age as stated in the SERP is 60% of each such person's final 3-year average cash
compensation. No officer of MII who also served as an officer of JRM during
fiscal year 1999, including Mr. Tetrault, will receive a benefit under the SERP
as a result of his service as an officer of JRM. Such officers, however, may
receive a benefit under the SERP as a result of their service as executive
officers of MII based upon the salary and bonus paid to them by such company.

A trust (the assets of which constitute corporate assets) has been established,
which is designed to ensure the payment of benefits arising under the SERP, the
Excess Plans and certain other contracts and arrangements (collectively, the
"Plans") in the event of an effective change in control of JRM. Although JRM
would retain primary responsibility for such payments, the trust would provide
for payments to designated participants, in the form of lump sum distributions,
if certain events occur following an effective change in control of JRM,
including but not limited to the failure by JRM to make such payments and the
termination of a participant's employment under certain specified circumstances.
In addition, with respect to benefits which otherwise would have been paid in
the form of an annuity, the trust provides for certain lump sum equalization
payments which, when added to the basic lump sum payments described above, would
be sufficient, after payment of all applicable taxes, to enable each active
participant receiving a lump sum distribution to

                                       76
<PAGE>

purchase an annuity that would provide such participant with the same net after-
tax stream of annuity benefits that such participant would have realized had he
retired as of the date of the lump sum distribution and commenced to receive
annuity payments at that time under the terms of the applicable Plan, based on
salary and service factors at the time of the effective change in control. With
respect to designated participants who retire prior to an effective change in
control and who receive a basic lump sum distribution under the circumstances
described above, the trust provides for similar lump sum equalization payments,
based on salary and service factors at the time of actual retirement.

Directors' Compensation

Directors' Attendance and Fees; Insurance. During fiscal year 1999, there were
seven meetings of the Board of Directors of JRM. Employee directors are not paid
for their services as a director or as a member of any committee of the Board.
All other directors are compensated as follows:

 .    an annual stipend of $20,000 plus a fee of $1,500 for each Board or
     committee meeting attended; and

 .    a fee of $1,000 for each telephonic Board or committee meeting in which
     such director participates.

     JRM also provides travel accident insurance and health care benefits to
non-employee directors under the same terms and conditions applicable to
employees.

Non-Employee Director Stock Plan. JRM has a Non-Employee Director Stock Plan
(the "Directors Plan") to encourage stock ownership by directors, to more
closely align the interests of directors with JRM's shareholders and to provide
JRM with an effective means of attracting and retaining qualified individuals to
serve on the Board of Directors. The Directors Plan, which is administered by
the Board of Directors, permits the Board to grant to directors who are not
employees of JRM or any of its Affiliates stock options and rights to purchase
restricted stock in an aggregate of up to 100,000 shares of Common Stock.
Options, which are granted at no less than 100% of the fair market value on the
date of grant, are fully vested and exercisable on the date of grant and remain
exercisable for not more than ten years thereafter. Rights to purchase
restricted Common Stock are granted at $1.00 per share.

Pursuant to the Directors Plan, each eligible director is granted options to
purchase at fair market value 600 shares of Common Stock on the first day of the
first year of such director's term, and 200 shares on the first day of each
subsequent year during such term. Pursuant to the Directors Plan, each eligible
director also is granted the right to purchase 300 shares of restricted stock on
the first day of the first year of such director's term, and 100 shares of
restricted stock on the first day of each subsequent year during such term.
Shares of restricted stock purchased under grants made during a director's term
are subject to transfer restrictions and forfeiture provisions, which generally
lapse at the end of such term. In the event of a change in control of JRM, all
such restrictions and forfeiture provisions will lapse and options will remain
exercisable throughout their term.

During fiscal year 1999, options to acquire 1,400 shares of Common Stock were
granted, and 700 shares of restricted stock were issued, under the Directors
Plan.

                                       77
<PAGE>

Item 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table furnishes information concerning all persons known to JRM to
beneficially own 5% or more of any class of voting stock of JRM.
<TABLE>
<CAPTION>
                                                                                     Amount and
                                                                                      Nature of
                                                                                     Beneficial                Percent of
Title of Class                   Name and Address of Beneficial Owner                Ownership                   Class
--------------                   ------------------------------------                ---------                  --------
<S>                             <C>                                                <C>                          <C>
Common Stock                     McDermott International, Inc.                      24,668,297/(1)/               63%/(2)/
                                 1450 Poydras Street
                                 New Orleans, LA 70112-6050

Series A Preferred Stock /(3)/   McDermott International, Inc.                       3,200,000/(4)/              100.00%
                                 1450 Poydras Street
                                 New Orleans, LA 70112-6050
</TABLE>
__________
/(1)/ As reported on a Schedule 13D dated February 9, 1995 filed by MII.

/(2)/ Percent of class based upon the outstanding shares of Common Stock on May
      31, 1999, plus those shares deemed to be outstanding pursuant to Rule 13d-
      3(d)(1) under the Exchange Act.

/(3)/ Entitles holders thereof to one vote per share, voting as a single class
      with holders of Common Stock.

/(4)/ As footnoted on a Schedule 13D dated February 9, 1995 filed by MII with
     respect to its ownership of Common Stock.

                                       78
<PAGE>

The following table sets forth, as of May 31, 1999 (except as otherwise noted),
the number of shares of Common Stock and MII Common Stock, beneficially owned by
each director, each Named Executive Officer, as defined in "COMPENSATION OF
EXECUTIVE OFFICERS", and all directors and executive officers of JRM as a
group, including shares which such persons have the right to acquire within 60
days pursuant to the exercise of stock options.

                                                                           MII
                                                                Common    Common
Name                                                            Stock     Stock
----                                                            ------    ------
Rick L. Burdick/(1)/                                             4,545         0
Gary W. Drinkwater/(2)/                                         10,440    57,056
Robert L. Howard/(3)/                                            2,445     3,820
William J. Johnson/(4)/                                          2,475         0
Kurt S. Nelson/(5)/                                             21,553    16,811
Fred R. Oehrlein/(6)/                                           32,509    25,958
Sean C. O'Keefe/(7)/                                             1,235         0
Robert H. Rawle/(8)/                                            33,234    18,658
Cedric E. Ritchie/(9)/                                           5,240         0
Roger E. Tetrault/(10)/                                         77,317   264,306
R. E. Woolbert/(11)/                                            35,000   231,127
All directors and executive officers as a group (14 persons)   238,901   761,091

__________

/(1)/ Shares owned by Mr. Burdick include 1,200 shares of Common Stock that may
      be acquired upon the exercise of stock options as described above, and 500
      restricted shares of Common Stock as to which he has sole voting power but
      no dispositive power.

/(2)/ Shares owned by Mr. Drinkwater include 10,065 shares of Common Stock and
      10,065 shares of MII Common Stock that may be acquired upon the exercise
      of stock options as described above, and 10,545 restricted shares of MII
      Common Stock as to which he has sole voting power but no dispositive
      power. Also includes 375 shares of Common Stock and 701 shares of MII
      Common Stock held in the McDermott Thrift Plan as of March 31, 1999.

/(3)/ Shares owned by Mr. Howard include 800 shares of Common Stock and 1,250
      shares of MII Common Stock that may be acquired upon the exercise of stock
      options as described above, and 400 restricted shares of Common Stock and
      625 restricted shares of MII Common Stock as to which he has sole voting
      power but no dispositive power.

/(4)/ Shares owned by Mr. Johnson include 800 shares of Common Stock that may be
      acquired upon the exercise of stock options as described above, and 300
      restricted shares of Common Stock as to which he has sole voting power but
      no dispositive power.

/(5)/ Shares owned by Mr. Nelson include 16,652 shares of Common Stock and
      10,700 shares of MII Common Stock that may be acquired upon the exercise
      of stock options as described above, and 4,200 restricted shares of Common
      Stock and 1,250 restricted shares of MII Common Stock as to which he has
      sole voting power but no dispositive power. Also includes 701 shares of
      Common Stock and 496 shares of MII Common Stock held in the McDermott
      Thrift Plan as of March 31, 1999.

                                       79
<PAGE>

/(6)/  Shares owned by Mr. Oehrlein include 25,308 shares of Common Stock and
       17,680 shares of MII Common Stock that may be acquired upon the exercise
       of stock options as described above, and 6,510 restricted shares of
       Common Stock and 3,105 restricted shares of MII Common Stock as to which
       he has sole voting power but no dispositive power. Also includes 691
       shares of Common Stock and 653 shares of MII Common Stock held in the
       McDermott Thrift Plan as of March 31, 1999.

/(7)/  Shares owned by Mr. O'Keefe include 200 shares of Common Stock that may
       be acquired upon the exercise of stock options as described above, and
       100 restricted shares of Common Stock as to which he has sole voting
       power but no dispositive power.

/(8)/  Shares owned by Mr. Rawle include 25,437 shares of Common Stock and
       10,510 shares of MII Common Stock that may be acquired upon the exercise
       of stock options as described above, and 5,300 restricted shares of
       Common Stock and 1,920 restricted shares of MII Common Stock as to which
       he has sole voting power but no dispositive power. Also includes 697
       shares of Common Stock and 573 shares of MII Common Stock held in the
       McDermott Thrift Plan as of March 31, 1999.

/(9)/  Shares owned by Mr. Ritchie include 1,200 shares of Common Stock that may
       be acquired upon the exercise of stock options as described above, and
       400 restricted shares of Common Stock as to which he has sole voting
       power but no dispositive power.

/(10)/ Shares owned by Mr. Tetrault include 4,750 shares of Common Stock and
       204,494 shares of MII Common Stock that may be acquired upon the exercise
       of stock options as described above, and 8,100 restricted shares of
       Common Stock and 18,900 restricted shares of MII Common Stock as to which
       he has sole voting power but no dispositive power. Also includes 387
       shares of MII Common Stock held in the McDermott Thrift Plan as of March
       31, 1999.

/(11)/ Shares owned by Mr. Woolbert include 30,550 shares of Common Stock and
       167,155 shares of MII Common Stock that may be acquired upon the exercise
       of stock options as described above. Also includes 1,752 shares of MII
       Common Stock held in the McDermott Thrift Plan as of March 31, 1999.

Total shares beneficially owned in all cases constituted less than one percent
of the outstanding shares of the applicable security, except that the 761,091
shares of MII Common Stock beneficially owned by all directors and executive
officers as a group constituted approximately 1.3% of the outstanding MII Common
Stock on May 31, 1999, less shares held by McDermott Incorporated, plus those
shares deemed to be outstanding pursuant to Rule 13d-3(d)(1) under the Exchange
Act.


Item 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     See "G. Transactions with Related Parties" under Items 1 and 2 of Part I of
     this Annual Report on Form 10-K.

                                       80
<PAGE>

                                 P A R T   I V

Item 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORT ON FORM 8-K

     (a)  The following documents are filed as part of this Annual Report or
          incorporated by reference:

          1.   CONSOLIDATED FINANCIAL STATEMENTS

               Reports of Independent Accountants

               Consolidated Balance Sheet
                    March 31, 1999 and 1998

               Consolidated Statement of Income (Loss) for the
                    Three Fiscal Years ended March 31, 1999

               Consolidated Statement of Comprehensive Income (Loss) for the
                    Three Fiscal Years ended March 31, 1999

               Consolidated Statement of Stockholders' Equity for the
                    Three Fiscal Years ended March 31, 1999

               Consolidated Statement of Cash Flows for the
                    Three Fiscal Years Ended March 31, 1999

               Notes to Consolidated Financial Statements for the
                    Three Fiscal Years Ended March 31, 1999

          2.   CONSOLIDATED FINANCIAL STATEMENT SCHEDULES

               All required schedules will be filed by amendment to this Form
               10-K on Form 10-K/A.

          3.    EXHIBITS

                    Exhibit No.                      Description

                       2.1       Agreement and Plan of Merger dated as of June
                                 2, 1994 (as amended) by and among J. Ray
                                 McDermott, S.A., McDermott International, Inc.,
                                 MCB I, Inc. and Offshore Pipelines, Inc. /(1)/

                       2.2       Agreement and Plan of Merger dated as of May 7,
                                 1999 between J. Ray McDermott and McDermott
                                 International, Inc. /(2)/

                       3.1       Certificate of Incorporation of J.Ray
                                 McDermott, S.A. including Resolutions of J. Ray
                                 McDermott, S.A. containing the Designation of
                                 Rights, Preferences and Privilege of Series A
                                 Preferred Stock. /(5)/

                       3.2       Amended and Restated Bylaws of J. Ray
                                 McDermott, S.A. /(4)/

                                       81
<PAGE>

                       4.1       Form of Common Stock Certificate. /(1)/

                                 JRM is a party to long-term debt instruments
                                 under which the total amount of securities
                                 authorized does not exceed 10% of the total
                                 assets of JRM and its subsidiaries on a
                                 consolidated basis. Pursuant to paragraph
                                 4(iii)(A) of Item 601(b) of Regulation S-X, JRM
                                 agrees to furnish a copy of such instruments to
                                 the Commission upon request.


                      10.1       Contribution and Sale Agreement dated as of
                                 August 16, 1994, between J. Ray McDermott, S.A.
                                 and McDermott International, Inc. /(1)/

                      10.2       Services Agreement dated as of August 16, 1994,
                                 between J. Ray McDermott, S.A. and McDermott
                                 International, Inc. /(1)/

                      10.3       Letter Agreement between J. Ray McDermott, S.A.
                                 and McDermott International, Inc. /(1)/

                      10.4*      Form of Noncompetition Agreements between J.
                                 Ray McDermott, S.A., J. Ray McDermott Holdings,
                                 Inc. (formerly MCB I, Inc.) and Frank C.
                                 Wade. /(1)/

                      10.5*      Form of Noncompetition Agreement between J. Ray
                                 McDermott, S.A., and Mike H. Lam. /(1)/

                      10.6*      Form of Employment and Noncompetition Agreement
                                 between J. Ray McDermott, S.A., and Richard R.
                                 Foreman. /(1)/

                      10.7*      Form of Employment and Noncompetition Agreement
                                 between J. Ray McDermott, S.A., and Don W.
                                 Wilson. /(1)/

                      10.8*      Form of Deferred Compensation Agreement between
                                 Offshore Pipelines, Inc. (as assumed by a
                                 subsidiary of J. Ray McDermott, S.A.) and
                                 Richard R. Foreman and Mike H. Lam. /(3)/

                      10.9*      Offshore Pipelines, Inc. Incentive Compensation
                                 Program. /(4)/

                      10.10*     J. Ray McDermott, S.A. Nonemployee Director
                                 Stock Plan. /(1)/

                      10.11*     J. Ray McDermott, S.A. Restated Short-Term
                                 Incentive Compensation Plan. /(6)/

                      10.12*     J. Ray McDermott, S.A., Restated 1994 Executive
                                 Long-Term Incentive Compensation Plan, as
                                 amended. /(6)/

                      10.13      Registration Rights Agreement between J. Ray
                                 McDermott, S.A. and McDermott International,
                                 Inc. /(1)/

                      21         Significant Subsidiaries of J. Ray McDermott,
                                 S.A.


                                       82
<PAGE>

                      23.1       Consent of  PricewaterhouseCoopers LLP.

                      23.2       Consent of Ernst & Young LLP.

                      27         Financial Data Schedule.


*    Management contract or compensatory plan or arrangement required to be
     filed as an exhibit pursuant to the requirements of Item 14(c) of
     Form 10-K.

/(1)/ Incorporated by reference to the Exhibits from the Registration Statement
      on Form S-4, as amended, of J. Ray McDermott, S.A. (Registration No. 33-
      87592).

/(2)/ Incorporated by reference to Exhibit (c)(1) from the Schedule 14D-9 filed
      by J. Ray McDermott, S.A. with the Commission on May 13, 1999.

/(3)/ Incorporated by reference to the Exhibits from the Annual Report on Form
      10-K of Offshore Pipelines, Inc. filed with the Commission on October 29,
      1992.

/(4)/ Incorporated by reference to the Exhibits from the Registration Statement
      on Form S-1, as amended, of Offshore Pipelines, Inc. (Registration No. 33-
      59958).

/(5)/ Incorporated by reference to Exhibit 3.2 of J. Ray McDermott, S.A.'s
      Quarterly Report on Form 10-Q for the quarter ended September 30, 1996.

/(6)/ Incorporated by reference to Appendix A to J. Ray McDermott, S.A.'s Proxy
      Statement for its Annual Meeting of Stockholders held on August 29, 1997
      as filed with the Commission under a Schedule 14A.



     (b)  Reports on Form 8-K:

          There were no reports on Form 8-K filed by J. Ray McDermott, S.A.
          during the three months ended March 31, 1999.

                                       83
<PAGE>

                                  SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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/ Roger E. Tetrault
                                       -------------------------------
                                       By:  Roger E. Tetrault
                                            Chairman of the Board and Chief
                                            Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated.

Signature                                       Title
---------                                       -----

/s/Roger E. Tetrault                            Chairman of the Board,
-----------------------------                   Chief Executive Officer,
Roger E. Tetrault                               and Director
                                                (Principal Executive Officer)


/s/Daniel R. Gaubert                            Senior Vice President and
-----------------------------                   Chief Financial Officer
Daniel R. Gaubert                               (Principal Financial and
                                                Accounting Officer)


                                                Director
-----------------------------
Rick L. Burdick


/s/Robert L. Howard
-----------------------------                   Director
Robert L. Howard


/s/William J. Johnson                           Director
-----------------------------
William J. Johnson


/s/Sean C. O'Keefe                              Director
-----------------------------
Sean C. O'Keefe


/s/Robert H. Rawle                              Director
-----------------------------
Robert H. Rawle


/s/Cedric E. Ritchie                            Director
-----------------------------
Cedric E. Ritchie


/s/Richard E. Woolbert                          Director
-----------------------------
Richard E. Woolbert


June 9, 1999

                                       84
<PAGE>

                               INDEX TO EXHIBITS
                                                                    Sequentially
                                                                      Numbered
Exhibit No.       Description                                           Pages


   2.1       Agreement and Plan of Merger dated as of June 2, 1994
             (as amended) by and among J. Ray McDermott, S.A.,
             McDermott International, Inc., MCB I, Inc. and
             Offshore Pipelines, Inc. /(1)/

   2.2       Agreement and Plan of Merger dated as of May 7, 1999
             between J. Ray McDermott, S.A. and McDermott
             International, Inc. /(2)/

   3.1       Certificate of Incorporation of J.Ray McDermott, S.A.
             including Resolutions of J. Ray McDermott, S.A.
             containing  the Designation of Rights, Preferences and
             Privilege of Series A Preferred Stock. /(1)/

   3.2       Amended and Restated Bylaws of J. Ray McDermott, S.A. /(5)/

   4.1       Form of Common Stock Certificate. /(1)/

  10.1       Contribution and Sale Agreement dated as of August 16, 1994,
             between J. Ray McDermott, S.A. and McDermott International,
             Inc. /(1)/

  10.2       Services Agreement dated as of August 16, 1994, between
             J. Ray McDermott, S.A. and McDermott International, Inc. /(1)/

  10.3       Letter Agreement between J. Ray McDermott, S.A. and McDermott
             International, Inc. /(1)/

  10.4*      Form of Noncompetition Agreements between J. Ray McDermott,
             S.A., J. Ray McDermott Holdings, Inc. (formerly MCB I, Inc.)
             and Frank C. Wade. /(1)/

  10.5*      Form of Noncompetition Agreement between J. Ray McDermott,
             S.A., and Mike H. Lam. /(1)/

  10.6*      Form of Employment and Noncompetition Agreement between
             J. Ray McDermott, S.A., and Richard R. Foreman. /(1)/

  10.7*      Form of Employment and Noncompetition Agreement between
             J. Ray McDermott, S.A., and Don W. Wilson. /(1)/

  10.8*      Form of Deferred Compensation Agreement between Offshore
             Pipelines, Inc (as assumed by a subsidiary of J. Ray
             McDermott, S.A.) and Richard R. Foreman and Mike H. Lam. /(3)/

  10.9*      Offshore Pipelines, Inc. Incentive Compensation Program. /(4)/

  10.10*     J. Ray McDermott, S.A. Nonemployee Director Stock Plan. /(1)/

                                       85
<PAGE>

  10.11*     J. Ray McDermott, S.A. Restated Short-Term Incentive
             Compensation Plan. /(6)/

  10.12*     J. Ray McDermott, S.A. Restated 1994 Executive Long-Term
             Incentive Compensation Plan, as amended. /(6)/

  10.13      Registration Rights Agreement between J. Ray McDermott,
             S.A. and McDermott International, Inc. /(1)/

  21         Significant Subsidiaries of J. Ray McDermott, S.A.

  23.1       Consent of  PricewaterhouseCoopers LLP

  23.2       Consent of  Ernst & Young LLP

  27         Financial Data Schedule


  *    Management contract or compensatory plan or arrangement required to be
       filed as an exhibit pursuant to the requirements of Item 14(c) of
       Form 10-K.

/(1)/  Incorporated by reference to the Exhibits from the Registration Statement
       on Form S-4, as amended, of J. Ray McDermott, S.A. (Registration No.
       33-87592).

/(2)/  Incorporated by reference to Exhibit (c)(1) from the Schedule 14D-9 filed
       by J. Ray McDermott, S.A. with the Commission on May 13, 1999.

/(3)/  Incorporated by reference to the Exhibits from the Annual Report on Form
       10-K of Offshore Pipelines, Inc. filed with the Commission on October 29,
       1992.

/(4)/  Incorporated by reference to the Exhibits from the Registration Statement
       on Form S-1, as amended, of Offshore Pipelines, Inc. (Registration No.
       33-59958).

/(5)/  Incorporated by reference to Exhibit 3.2 of J. Ray McDermott, S.A.'s
       Quarterly Report on Form 10-Q for the quarter ended September 30, 1996.

/(6)/  Incorporated by reference to Appendix A to J. Ray McDermott, S.A.'s Proxy
       Statement for its Annual Meeting of Stockholders held on August 29, 1997
       as filed with the Commission under a Schedule 14A.


                                       86