Document oDM9jb4gJL64Q8DBG7ZvBV9Kg

J. Ray McDermott & Co., Inc. Annual Report For The Fiscal Year Ended March 31, 1980 On the cover and throughout this year's Annual Report are examples of the visual and textual materials in our longrange corporate advertising program. The initial phase began in January 1980, and will run for fifteen months in selected national business magazines, newspapers, and trade journals. Response to date has been excellent. Readership has been measured by independent research organizations, and our ads have consistently ranked in the top 25 percent or better of all ads read in any given publication. Our objectives are to increase awareness of our Company's name, stress the variety and quality of our engineering skills, and reinforce our position as a comprehensive energy services company because-no matter how the world solves its energy problems, McDermott is involved. i i Any problem as widespread and severe as the energy shortage, calls for a lot of solutions. Today, the McDermott companies are working around the world to find them. Offshore, we're helping recover the oil and gas locked deep beneath the seas. Onshore, our rugged steel tubing withstands punishing pressures and corrosion as it brings up oil and gas from deep within the earth. We've designed and built some of the most efficient utility boilers ever produced and the related equipment to help make thejbest use of the world's fossil fuel Our nuclear generatihg plan^are helping meet the enernv ______Mr r*f ftttur* norlAP^inn. J. Ray McDermott & Co., Inc. ^nd Subsidiaries for the Fiscal Years Ended March 3 ]. ! 980 and 1979 Results at a Glance In thousands of dollars except per share amounts and number of employees ______ 1980 Revenues------------------------------------------------------------------------------------------------S 3,282,510 Operating income----------------------------- ----------------------------------------------------------- 105,651 Net income ----------------------------------------------------------------------------------------- ---88,366 Earnings per common and common equivalent share: Primary----- --------------------------------- 1.77 Fully diluted--------------------------------------------- --1.76 Stockholders' equity per common share------------ 27.90 Cash dividends ------------------------- 70,684 Cash dividends per common share------ ---------- ------ ------ ------------------------------------------ 1.25 Working capital --------------------------------------------------------------------------------------------883,010 Capital expenditures ------------------------------------------------------------ -257,005 Backlog--------- ------------------------------------- 4,934,000 Number of employees including subcontract labor --------------------------------------------- 58,000 1979 S 3,144,564 182,050 92,957 1.94 1.92 27.09 62,427 1.00 871,829 131,026 4,900,000 61,000 i i i *V: ' . 1 i F~ TO OUR STOCKHOLDERS PAGE 2 To Our Stockholders J. E. CUNNINGHAM Chairman of the Board and Chief Executive Officer During fiscal year 1980, we experienced disappointing operating results. While worldwide competition was intense, it was not the only factor affecting the results. Quite frankly, operating performance was not up to our expectations. Additional provisions were made during fiscal 1980 with respect to the final settlement on steam generator repairs in Canada, as well as for repairs under certain export contracts. These provisions amounted to approximately $19.5 million. During the year-end closing in May 1980, it came to our attention that we faced sub stantial additional losses on certain major marine construc tion contracts. A provision of approximately $19 million for these losses was reflected in the fourth quarter results. Without this latter provision we would have reported approximately $2.35 per share (primary) for the year rather than $1.77 per share. Because of these problems, and to provide better direction and control for the business activities of the Corporation, we have realigned management responsibilities throughout the Company. McDermott Operating Unit Fiscal 1980 began with generally depressed conditions for the marine construction industry worldwide. But as the world begins to search seriously for answers to its energy problems, the offshore industry appears to be on the verge of a considerable upswing. Many business analysts now view the marine construction sector as the growth industry of the 1980s. We agree for two reasons. First, it has been projected that world offshore production will grow well over twice as fast as total world production. In 1970, about 10 percent of our oil came from offshore sites. This year, it will run about 16 percent. And by the year 2000, it is estimated that more than 25 percent of our oil supplies will be derived from offshore locations. The second reason is that more than 90 percent of the areas favorable to resource recovery lie at water depths of 1,000 feet or less. This means that we have the technology right now to get at that oil and get it out. Anticipating this, we've supplemented our equipment line. We've added Derrick Barge 100, one of the largest in the world. Through the acquisition of the marine assets of the Netherlands Offshore Company, we've added four other major pieces of construction equipment. And we are building the Intermac 650 - the world's largest launch barge. The cost of this new equipment - along with the upgrading of our existing fleet-is substantial. Until this equipment achieves a higher utilization rate, it will penalize our short-term financial results. But it will give us a solid base from which to participate in the growth of the offshore sector during the coming decade. We're also preparing for the future by continuing our engineering leadership in offshore technology. We've pioneered in The United States must become designing, building, and installing increasingly reliant on coal platforms in such hostile environ and nuclear power to survive the ments as the North Sea and coming decades. This was the Cook Inlet, Alaska. In 1978, we conclusion reached by the installed for Shell Oil the three- National Academy of Sciences in piece Cognac platform-the a four-year study. B&W is well tallest ever constructed. Now positioned to participate in both we're building the tallest one- these vital areas. piece platform in the world for Despite the fact that the boiler Union Oil-to be installed in 937 business has been flat, B&W has feet of water off the Texas coast been able to maintain a strong in the summer of 1981. market share. B&W has received To keep us in the lead, our more than 45 percent of the new research and development unit is studying new methods of secur ing offshore platforms to the sea floor, ocean wave energy, geo thermal energy from beneath the sea, and ocean thermal energy conversion (OTEC). Reflective of the intense worldwide competition, both revenues and operating income were down compared to last year. U.S. fossil boiler orders over the last five years. Additionally, B&W has designed and built all eleven of the coal-fired systems now operating in the U.S. with a capacity of greater than 1,000 megawatts. B&W and its subsidiaries are involved in all phases of develop ing more effective ways to use However, if the current upswing in offshore activity continues, we're hopeful for improvement in financial results this fiscal year. coal. We're a leading supplier of accessory equipment. And we maintain an extensive support organization to improve the efficiency of existing systems. Babcock & Wilcox Operating Unit President Carter recently proposed a $10 billion coal conversion program. WitiUour Since Three Mile Island, we're long tradition of providing the often asked if we're still pleased best and most efficient coal-fired about our merger with B&W. boilers,.B&W will obviously stand This is a complex question, but it to benefit significantly from any can be answered with one simple increased use of coal. word-yes! Although many utilities The merger looked good in evaluate the economics of nuclear fiscal 1978. It looks even better today. The combination of our power fav$*bly, the political ri^cs andrtMertainties associated two companies has made a bigger With siting and licensing, and and a better corporation than slow progress on the waste either alone ever could-have disposal issue, continue to make become. It balanced Sfli: business it a controversial power source. cycles. It increased our capacity These are very real and very to penetrate the international immediate concerns. But we market. And it broadened our believe, along with the National base to include all major forms of Academy of Sciences, that energy services. nuclear power will play an important role as electrical energy usage increases in the 1980s. And we intend to be there when we are needed. PAG 3 TO OUR STOCKHOLDERS . 'KSP* * & TO OURSTOCKHOIOERS PAGE 4 To Our Stockholders: B&W was again this year the major contributor to the Company's revenues and operating income. These results were achieved in spite of lowered demands for electric power. Because of its strength in customer services and environmental equipment, we expect B&W to be able to generate good profit levels despite a depressed boiler market. Three Mile Island During the past year, various lawsuits were brought by persons living in the vicinity of the Three Mile Island nuclear power plant against the Company and others as a result of the nuclear incident which occurred at that plant on March 28, 1979. The Company believes that it is fully protected against any financial liability to these plaintiffs by the provisions of the Price-Anderson Act and the provisions of its contracts with the utility. In March of this year, General Public Utilities and its affiliated utilities filed a lawsuit against the Company, which also arises out of the March 28,1979, nuclear incident at Three Mile Island. Based upon the facts developed during the investiga tions of that incident and the Company's review of its contracts for furnishing equip ment and services, the Company feels it has no material legal liability and will vigorously defend its position in the lawsuit. Antitrust A number of civil suits claim ing treble damages have been instituted against the Company, arising out of the Government's charges of antitrust violations, to which the Company pleaded nolo contendere. The Company intends to attempt to settle any claims which may be found to have sufficient merit to warrant settlement in the best interests of the Company; however, any claims which are without merit or cannot be equitably resolved will be vigorously defended. Financial Events In March 1980, we sold 4 million shares of common stock. The proceeds, which amounted to $121.5 million, were used to repay outstanding indebtedness to banks under a revolving credit and term loan agreement, and for working capital and other general corporate purposes. In fiscal 1980, dividends total led $2.20 a share for the Series A Cumulative Convertible Preferred Stock and $2.60 a share for the Series B Cumulative Preferred Stock. During the year, we declared Common Stock dividends amounting to $1.25 per share, a 25 percent increase over the $1.00 per share declared in fiscal 1979. At its February meeting, the Board of Directors voted to increase the regular quarterly Common Stock cash dividend 16 % percent to $0.35 per share. This is equivalent to an annual rate of $1.40 per share. r Management Changes J. E. Cunningham, Chief Executive Officer of McDermott, was elected Chairman of the Board. He replaced J. D. Ritchie, who resigned as Chairman, but remains a member of the Board. C. L. Graves, Chairman and Chief Executive Officer of McDermott from 1972 to 1979, has retired as an employee of the Company after 34 years of service. He continues as a mem ber of the Board of Directors. George G. Zipf, Vice Chairman of the Board, and President and Chief Operating Officer of the B&W Operating Unit has retired. He has also resigned from the Board. Other resigna tions from the Board include: Graham D. Mattison; William L. Wearly; C. L. Davis; and W. E. Earles. Mr. Earles continues as an officer of the Company. Walter 0. Spencer, Dean of the Graduate School of Business at Tulane University of Louisiana, Russell L. Wagner, Chairman and Chief Executive Officer of the NLT Corporation. Walter M. V'annoy, the new President and Chief Operating Officer of the B&W Operating Unit, and John A. Lynott, Executive Vice President and Chief Financial Officer, have been elected to the Board. H. W. Bailey was elected Executive Vice President and Chief Administrative Officer. He had been Executive Vice President, North American Operations. Edmund A. Robidoux was elected Vice President and Controller. And Charles F. Kraus-s was elected Vice President-Tax " Administration. The Outlook A new decade has begun. With it has come the usual variety of predictions about what is likely to happen during the next ten years. Prognostication is a difficult art at best. But one thing seems certain - no matter what happens, energy will remain a dominant concern. Left to right: K. J. Gilly, Vice President, General Counsel, and Corporate Secretary, H. W. Bailey, Executive Vice President and Chief Administrative Officer. J. A. Lynott, Executive Vice President and Chief Financial Officer PAGE 5 TO OUR STOCKHOLDERS. IO OUR STOCKHOLDERS PAOC 6 To Our Stockholders; *ZS" .v". As a comprehensive energy Solutions to our energy services company, we have a problems are not likely to come product that is not only desirable, from doctrinaire prescriptions or it is needed. Inflation, traditional dogmas. Just as the environmental constraints, and energy problem itself is linked regulatory red tape may slow politically and economically, so energy development. But if we too are the solutions. Only those are to maintain our standard of people who can recognize this living, if our economy is to linkage will contribute to the remain competitive, healthy, and effective management of the growing, we will have to solve problem. And that, quite simply, our energy problems. McDermott is why we've stressed the can - and will - participate in quality of our people in our this process. reorganization. We certainly don't mean to During the coming decade, we minimize the competition we face expect the basic energy questions in all our market sectors. Once to change very little. But we we forget that the competition is expect the answers - such as waiting in the wings to take over increased use of coal and the our role of serving the customer, development of synthetic fuels - we're in trouble. At McDermott, to be profoundly different. Our the customer is paramount in our new team gives us the capability minds. of providing those answers quick The world is changing so fast ly, efficiently, and with maximum these days that unless we can benefit to our stockholders. keep our sights on tomorrow, We're ready to commit whatever we cannot expect to remain in corporate resources are required touch with today. The trick is not to strengthen our position as a only to learn to live with change, comprehensive energy services but to learn how to capitalize company on the worldwide scene. on it by planning ahead. The Our goal is simple-to make a winners of this game will be profit in every area. We have those who can best interpret future trends and shape their the products. We have the technologies. We have the plans accordingly. resources. And most importantly, If it's true that history does we have the people. We can repeat itself, then it also seems truthfully say, as our new true that every time it happens, corporate advertising proclaims: the price doubles. To avoid this, No matter how the world solves we must plan carefully. A large its energy 'problems, McDermott is nuclear power plant or an oil field involved. requires about ten-to-twelve years to get from the drawing A /l A ,/ ^ / board to the commercial produc tion stage. Hence, planning for the distant future can't be . isolated from that immediately ^ J. E. Cunningham ahead. Chairman of the Board and Gone forever are the days when Chief Executive Officer the analysis of energy problems was limited to academicians. Energy now is the stuff of headlines. | : ; I 1 f { ! [[ ) i J ".\ I PAG= ' fO O U ff SfOCKHOl I.JtHS McDermott's Board of Directors____________________________ back row. left to right/ , Robert K.' Richie, William T. Seawell, James E. Cunningham, Walter B. Shaw, Walter 0. Spencer, John B. Tweedy, Walter M. Vannoy; '.'font row. left to right) H. W. Bailey, John A. Morgan, Russell L. Wagner, John D. Ritchie, G. W. Douglas Carver, James A- Hunt, and Charles L. Graves, John A. Lynott mot pictured;. p t THE VEAR IN REVIEW PAGE 8 The Year In Review ______________________ - Marine Construction Services Other Products and Services The Marine Construction Services segment provides a range of engineering and construction services. It enables the discoverer of an offshore oil or gas field anywhere in the world to bring the field into production. Services include the designing and building of offshore drilling and production platforms, the laying of subsea pipelines, and a variety of ancillary services. Engineered Materials The Engineered Materials segment includes the manufac ture of specialty steel tubing for the electrical power generation, oil-and-gas production, chemical processing, automotive and farm equipment, and metalworking industries. Specialty refractories and ceramic fibers are produced for the primary metals, furnace building, glass and ceramics, chemical and petroleum, and electric utility industries. The Other Products and Services segment includes the design and manufacture of control valves, automated machines and machine tools, and air-cooled heat exchangers. Power Generation Systems and Equipment The Power Generation Systems and Equipment segment provides a range of engineered and highly technical manufactured products and construction services. It allows utilities to produce steam to generate electricity from fossil fuel and nuclear power plants. Principal products and services include building steam generating systems, pollution control equipment-such as precipitators and sulfur-dioxide removal systems-air heaters and fans, automated control systems, and maintenance and repair services. Revenues FOR THE FISCAL YEAR ENDED MARCH 31. 1980 PAGE 9 THE YEAR IN REVIEW 982 Million (30%j 581 Million (!8%j 262 Million (8%) 1.458 Billion (44%| TOTAL 3.283 Billion (100%) McOERMOl r OPERATING UNIT McDermoct Operating Un/t PAGE 10 C D ccn <i_T5 CD CL O o E i-- <u Q u R. K. RICHIE President and Chief Operating Officer, McDermott Operating Unit In February 1980, Robert K. Richie, President and Chief Operating Officer of the McDermott Operating Unit, announced the restructuring of the unit into five major areas of responsibility. The changes more accurately reflect present and future conditions in the offshore industry, and will allow the unit to serve its customers better at home and abroad. E. R. H. Selley became Senior Vice President and Group Executive, responsible for Middle East; Southeast l jj Asia, and West Africa Areas. Si During fiscal 1980, we completed the "Dugas" onshore/offshore gas gathering ) and processing facility at Dubai. This is the largest project we've yet undertaken in the Middle East. In current projects, the Ju'Aymah LPG loading island system is near completion. Ju'Aymah will be the loading .i island terminal for a $6 billion ^ j Saudi Arabian gas program. The Company is continuing work in India's Bombay High Held. This summer, Derrick Barge 101, formerly the Narwhal, will be relocating to this sector along with related support equipment. One of America's few remaining undeveloped territories for oil and gas reserves is in the Gulf of Mexico, where the water is more than 1,000 feet deep. Recovery wasn't practical until we built and installed "Cognac", the world's tallest offshore drilling and production platform. Towering 1,265 feet above the sea floor and weighing 118 million pounds, the Cognac plat form was the first ever built and installed in three sections. Each had to be towed to the site, lowered into piace, and mated. Dri/ling has already begun. At full production. Cognac's 62 wel/s will produce 50,000 barrels of oil and 150 million cubic feet of gas every day. r- IS MrDERMOTT OPERATING UNIT PAGE 12 McDermott Operating Unit - ----------- ---- - The Company is also continuing work on fabrication, installation, and pipelaying in Dubai and the Gulf of Suez. In January 1980, we were awarded a $16 million contract for the construction and installation of 14 jackets in the Upper Zakum Field in Abu Dhabi. The political unrest in the Middle East has obviously impacted our operations in this area. But future business prospects still look bright. Total peak capacity of exportable crude oil has not yet been achieved. Vast natural gas fields are still 3 * virtually untapped. Reservoir maintenance projects will become more common as the fields age. And countries such as India, Pakistan, and Oman, which have promising offshore potential, will be pushing to develop their resources to obtain energy self-sufficiency. In this area, wellestablished companies will be the ones to survive and prosper. Southeast Asia is probably the area with the best growth prospects. Nearly all of the enormous potential of the Southeast Asia Shelf lies in water depths shallower than 600 feet. This factor, plus the presence of local governments in favor of continued brisk resource develop ment, indicates it will be an ; i M cDEkM O l r OJ'CRAIING UNIT active area for the rest of this century. Our operations in the area are very large. We are registered -o do business in Singapore, Indonesia, Malaysia, Brunei, Papua New Guinea, the Philippines, Thailand, and Australia. During fiscal 1980, we experienced a high level of utilization of our heavy marine construction equipment in Southeast Asia. We installed nine platforms, layed over 140 miles of pipe, and relocated two pipelines. We also completed work in the Bass Strait of Australia, consisting of the installation of the Snapper platform and the lay ing of 22 miles of pipeline. Recently, we were awarded a variety of new contracts totalling $60 million. They include offshore work in Thailand, Indonesia, and Brunei. Onshore, we established a process-vessel shop on Batam Island, Indonesia. We are constructing a barge wharf in East Kalimantan, Indonesia. We received an additional contract for further development of geothermal facilities in the Philippines. And Singapore International Airlines awarded us an $8.9 million subcontract to build a column-free roof at Singapore's Changi International Airport. In West Africa, we were awarded a $68 million contract for gas facilities off the coast of Cabinda. We also received a $21 million contract to lay 55 miles of pipeline in Nigeria. Additional work is now on hand for Texaco, Gulf, Shell, and Petrofina in the countries of Zaire, Nigeria, and Angola. I. R. Foster became Senior Vice President and Group Executive, North, Central, and South America Areas. Our shipyards had one of their busiest years. We constructed seven tugs, two tug/supply vessels, two posted drilling barges, and two self-contained package drilling rigs. Current projects include five tugs, four supply vessels, and seven posted drilling barges. To prepare for this work, we doubled our underroof module construction capacity. We added a new 5,000-ton dry dock at Morgan City, giving us the capability to lift most large offshore barges, or to accommodate as many as four vessels simultaneously. And we purchased a shipyard in Gulfport, Mississippi, to meet our contracts in fabrication and repair services. Our expanding operations also include Mexico. Our joint-venture company, Lan-Dermott, received an order to fabricate six package drilling rigs for Petroieos Mexicanos (PEMEX), the national petroleum company of Mexico. Most of these rigs will be built at our 125-acre facility near Tampico. To reach new deposits, we built a platform taller than the Empire State Building and placed it in the Gulf of Mexico. PAGE 13 Ji r sr McDermott Operating Unit PAGE 14 M cD e r m o t t o p e r a t in g u n it In November 1979, we formed We expect an equally active a new joint-venture with year in fiscal 1981. Two new PROTEXA, the leading offshore projects include: a contract to lay construction company in Mexico. 30 miles of pipe in the Gulf of The new company is called Mexico for Michigan Wisconsin Construcciones Maritimas Gas Company; and a contract Mexicanas, S.A. de C.V. (CMM). from Gulf Oil to lay 26 miles of The three large combination pipe in over 600 feet of water. derrick-and-lay barges owned by The deepwater experience we the new venture are now performing offshore work for gained on the Cognac project was one of the primary reasons we PEMEX. were chosen for this installation. Our Inland Service Division's volume of business is almost W. E. Earles became double its normal level. Major Senior Vice President and work totals approximately $20 Group Executive, million. It includes heightening Fabrication and Structural, levees, installing pilings, building Gulf ofMexico. a shipping dock, and constructing In recognition of McDermott's new oil-and-gas production long tradition of technological facilities. expertise, during fiscal 1980 we Our Pipeline Division had an were awarded a contract from it active year, laying 196 miles of Union Oil to fabricate what will pipe. The year was highlighted by be the tallest one-piece jacket in the laying of 23 miles of 12-inch the world. Scheduled to be pipe in 1,025 feet of water from installed in the Gulf of Mexico the Cognac platform, by far the next year, the East Breaks jacket deepest from a platform to the will weigh more than 20,000 tons, shore. This was achieved using have 40 well slots, and measure conventional equipment. It 968 feet from top to bottom - or proved our leadership in the -- about the height of the development of deep-water fields. Eiffel Tower. I And it showed that we haven't yet reached the limits in the To facilitate the transportation of this huge structure to its development of those fields using permanent siteiour Equipment * conventional equipment. and Materials unit designed and . is having-built the world's largest launch barge. Tins 650-foot vessel will have the capability to launch jackets weighing up to 40,000 tons. It keeps us in a-teadership position to instalUhe giant platforms that are^&ecoming necessary to develqp,deep-water !j ?ii! fields. W ii I t r During the year, we produced Also in January 1980, about 120,000 tons of more McDermott Scotland received a conventional structures as well. $23 million contract to build Our customers included all three topside facility modules for .if the major energy companies the North Cormorant Field. operating in the Gulf of Mexico. In August 1979, McDermott We anticipate that the tonnage of Scotland completed the platforms built in fiscal 1981 fabrication of the $70 million could be as much as 10 percent Murchison jacket and piles for greater than in fiscal 1980. Conoco. This 545-foot structure is Despite intense competition the tallest ever fabricated in one- in the Gulf of Mexico, we section for the North Sea. experienced good fleet utilization. McDermott Scotland also During the year, one of the completed an $18 million contract largest lease-sales occurred in for the construction of decks and the history of the Gulf. In production modules for Mesa anticipation of new work to be Petroleum's Beatrice Field. derived from these sales, we've upgraded our fleet. R. E. Howson became Senior Vice President and H. R. Reeves became Senior Vice President and Group Executive, McDermott Engineering. Group Executive, North Sea McDermott Engineering has Area. worldwide responsibility for Activity in the North Sea has engineering operations in increased substantially. In London and TSJerdeen, December 1979, we were Singapore, New Orleans, and awarded a $120 million contract Houston, where additional for the construction and installa facilities are being built. This also tion of the Amoco platform for includes the activities of our the United Kingdom's Northwest Research & Development and Hutton Field. This 14,000-ton Technical Services wherever structure will be installed in 474 needed. feet of water, in the summer of This operation better enafejgs us 1981. Fabrication is being done at to serve all our customers. "We ' our 800-acre facility at Ardersier, have the capability to provide Scotland. single-contractor responsibility In January 1980, we received for the design, engineering, a $125 million contract from fabrication, installation, and Amoco Norway Oil Company for the construction of production servicing of complete onshore/off shore facilities; We also have facilities in the Valhall Field of the capability of providing the Norwegian Sector. Included conventional engineering services 1 in the project is the hookup of on projects when the customer i operating and life-support desires split responsibility. In systems, and the commissioning today's competitive business of the facilities, scheduled for climate, this combination of : July 1981. j Other hookup work awarded ' this year includes British National Oil Corporation's Beatrice platform and Chevron's Ninian Southern facilities. We've found ways to beat 110' waves and hurricane force winds. I PACE 15 McDEKMOTT OPERATING UNIT '.V * McDermott Operating Unit PAGE I 6 Ai M cD e r m o t t o p e r a t in g u n it worldwide engineering offices with centralized control is the best and most efficient way of serving customers with interna tional operations, as well as those operating on a regional basis. E. J. Dressel became Vice President and General Manager, Equipment and Materials Operations, reporting to McDermott Engineering. Equipment and Materials Operations functions in several areas. We provide total procure ment service in support of operations at home and overseas. This includes purchasing, inspecting, expediting, and transporting materials. We service Gulf Coast industries in the sale of such materials as steel, valves,and fittings, lumber, and electrical equipment. We design, build, and maintain marine and associated equipment for both foreign and domestic operations. We assist field operations in the selection and use of specialized equipment. And we develop new tools, processes and procedures. To serve our customers better, for example, we're utilizing two new welding systems. The first is a conventional automatic marine welding system. Under development since 1976, the system will increase the speed and quality with which large-diameter pipe can be welded aboard pipe lay barges. We also signed a systems acceptance agreement with the Paton Welding Institute of the Soviet Union for a Flash Butt Welding System. McDermott, with exclusive marine application rights outside the U.S.S.R., will be the first to use the system for marine pipeline construction. The prototype machine is scheduled to arrive in New Orleans in January 1981. i \< ;t t| 1 j f i i j ] : il, i\ Despite relentless storms, the North Sea is yielding its treasures to the experience, resources, and skills of McDermott International, Inc., a McDermott company. Near Ardersier, Scotland, this McDermott- owned company builds all types of offshore structures. From its headquarters in Brussels, it directs a V-r fleet of marine construction vessels that includes some of the largest and most sophisticated equip ment in the world. BABCOCK & WILCOX OPERATING UNIT BaDcock & Wilcox Operating Unit PAGE 18 C D cn c -i-- -I 2 CD oQ_ oX u - u O u O ru cn W. M. VANNOY President and Chief Operating Officer, Babcock & Wilcox Operating Unit In February 1980, Walter M. Vannoy was elected President and Chief Operating Officer of the Babcock & Wilcox Operating Unit and a member of the Board of Directors. He replaced George G. Zipf, who retired after 38 years with B&W. In March 1980, Mr. Vannoy announced the restructuring of B&W into six operating units ; reporting directly to him. These changes will provide a more balanced distribution of manage ment responsibilities and a better focus for these responsibilities. \ L. M. Favret became i Executive Vice President and Group Executive, Business Integration Group. | The Business Integration Group j will concentrate on the technical j excellence of all B&W products, -> growth in international markets, ' the advancement of technology, and the future development of * the business. This Group will | provide direction and coordina- tion of the business activities of , f the B&W Operating Unit. Our new national energy policy has made coal the favored fuel for the foreseeable future. With reserves estimated at 300 billion tons, America has enough coal to keep up with its energy demands for generations. Duke Power Company's Belews Creek Steam Station proves coal can be burned cleanly and efficiently. With huge boilers designed and built j by Babcock & Wilcox, a McDermott company, this plant is regularly named among the most efficient generating stations in the nation. Babcock & Wiicox is also a major supplier to the world's utilities of everything from giant-sized pulverizers that grind coal for easier burning...to air heaters and fans that aid combustion...to soot blowers that clean up boilers...to pollution control equipment that protects the environment. * BABCOCK & Wlt.COX OPERATING UNIT PAGE 20 BaDcock & Wilcox Operating Unit During fiscal 19S0, we were awarded more than $150 million in new boiler orders from overseas customers. Included in this was a $72 million contract for five radiant boilers to be installed in the A1 Khobar Phase II desalinization plant in Saudi Arabia in 1982. In conjunction with this contract, TLT-Babcock received an order for ten centrifugal forced draft fans. The Comision Federal de Electricidad of Mexico placed an order for electromagnetic filters and associated equipment to be used at the Laguna Verde nuclear power plant. Bailey Controls received contracts to produce instrumentation and equipment in Spain, Korea, and Saudi Arabia. B&W and our Korean licensee - Hyundai Heavy Industries Company - signed a contract to manufacture components for two radiant boilers for Korea Electric Company. Shortly after the close of the fiscal year, we received a $25 million contract from the Taiwan Power Company for an oil-fired, radiant boiler with a 500-megawatt capacity. B&W Canada had an active year. We received a $50 million contract to provide three oilfired, 150-megawatt, steam generators to a regional electric utility company in Venezuela. We were awarded a $4 million project to supply F. F. Soucy, Inc., of Quebec with two boilers and related equipment for Soucy's newsprint mill. In March, we installed North America's 1' i i< r- largest wood-waste burning boiler industrialized world mobilizes to at Crown Zellerbach's Elk Falls solve its energy problems. Mill in British Columbia. To serve the oil and gas In the past year, we have markets better, we began received more than $75 million in construction of a tube finishing new orders for contract research. plant during fiscal 1980 near This will help keep us in the College Station, Texas. This $14 forefront of energy conversion million facility will increase our technology. Our R&D unit is total finishing capacity by about working on the commercialization 40 percent. of a fluidized-bed combustion As new construction is post system, an advanced water/steam poned because of the recession, solar receiver, and a more older facilities must be main efficient coal-fired electric tained. We look for continued utility plant utilizing strength in the maintenance and magnetohydrodynamics (MHD). repair markets. During fiscal 1980, the G. W. Kross became economy's problems unfavorably Executive Vice President impacted our Insulating Products and Group Executive, Division. However, the Division Materials Group. remained profitable. While slack The Materials Group will conditions will probably persist concentrate on maintaining through fiscal 1981, all industries market leadership with high- are actively searching for new quality, high-technology products, ways to save fuel and maximize | and capitalizing on the growth in heat-transfer exchange. products related to energy Maintenance and plant improve production and energy ment contracts should continue to I conservation. This Group is the nation's leading supplier of specialty steel provide a full range of active projects for the Division. E. M. Griffin became Senior Vice President and tubing. After a strong first half, demand for mechanical tubing, Group Executive, Fossil Power and Construction Group. which is used in the automotive, The Fossil Power and Construc farm equipment, rail transporta tion Group will concentrate on tion, and metalworking industries, weakened and developing the opportunities inherent in the increased use distributors stopped building of coal. inventories. The combination of a recession and inventory liquida tion is expected to continue to impact the results of this market New orders for fossil steam generating systems continued at a low level. During 1979, it was reported to the American sector during fiscal 1981. Sales of our pressure Boiler Manufacturers Association that 5,467 megawatts of new tubing are tied to the electric fossil-fired boiler systems were utility, process, and oil-and-gas ordered in the U.S., compared production industries. Record- with total industry capacity of high interest rates and reduced approximately 30,000 megawatts. demand for electrical power are Our Fossil Power and Construc expected to reduce capital tion Group received orders for expenditures drastically by the 1,642 megawatts--30 percent of utility, chemical, and refinery the total new orders placed industries. However, demand during the year. This is lower from the oil-and-gas production than our last five-year average segment has been strong and will continue to be strong as the DABCOCK & W ILCOX QI'KRANNG UNIT PAGE ?! ii HI f f BAOCOCK & WILCOX OPERATING UNIT PAGE 22 Babcock & Wilcox Operating Unit We're turning out tubing tough enough to get it out. .= market share of 45 percent and reflects the severe price competition in the marketplace. We were awarded a S50 million project for a 450-megawatt radiant boiler for the ColoradoUte Electric Association. We were also awarded a $45 million contract for the dry sulphurdioxide removal system for this boiler. Both awards included field construction. The Tennessee Valley Authority (TVA) awarded us a $35 million contract for the design, fabrication, and construction of a coal-fired prototype boiler employing advanced atmospheric fluidizedbed combustion technology. Also, Florida Power Corporation awarded us a $35 million contract with an option for field construction for a 640-megawatt, coal-fired radiant boiler. We have expanded our scope for fossil systems to include all of the equipment from coal pulverizers through stack gas clean-up systems, including new products such as fans, air heaters, precipitators, and scrubbers. During the year, we developed a bottom ash handling system for the removal of coal ash from furnaces. Customer acceptance of these new systems has been very good. We've also targeted operating plants with in-use B&W equipment as a primary market opportunity for replacement parts and maintenance. The size of this market is evident from the number of B&W units in active service: more than 750 utility boilers; more than 15,000 industrial boilers; and about 1,500 marine boilers. Our customers have a strong interest in keeping existing plants in operation and upgrading them to improve performance and reliability. We expect excellent growth of this market. D. E. Heyburn became Senior Vice President and Group Executive, Industrial Products and Services Group. The Industrial Products and Services Group will concentrate on maintaining a leading position in utility-related markets and exploiting growth opportunities in industrial markets. During the year, our Bailey Controls Company developed a new advanced-technology flame detector for use in B&W's low nitrogen-oxides, coal-fired boilers that should greatly enhance reliability and performance. Bailey Controls has been awarded contracts valued at $1 million or more from Houston Lighting and Power, Western Farmers Electric Cooperative, and Aramco. Sales of Bailey's Conserver Systems, which optimize fuel-burning efficiency in industrial boilers and process heaters, continued strong. During the year, the Mirror Insulation Unit of Diamond Power Specialty Company received its largest contract ever - $5 million. It will supply all-metal reflective insulation for piping and equipment at TVA's Bellefonte nuclear plant. Diamond Power is also a leading supplier of boiler cleaning equipment. The Industrial and Marine Division manufactures steam generating equipment. It also provides associated services for industrial and specialized electric utility applications, as well as for marine use. We received an order for two process recovery boilers and two large power boilers for the International Paper Company's new mill in De Soto Parish, Louisiana. The Division also supplied three boilers for Akron, Ohio's new recycle energy plant. Similar B&W-manufactured incinerator boilers n i/ i iij $ ii 5!ijl V i { :i C: V1 t W -------------------------------------------------------------------------------------------------------------------------------------------PAGE 23 BABCOCK & WILCOX OPERATING UNIT Tennessee, and Hamilton, markets, and preparing for the Ontario. revitalization of our nuclear The Automated Machine industry. Division was awarded contracts There have been no new .alued at $20 million to supply domestic orders for nuclear machinery for the new Chevrolet steam systems for the past two V-8 diesel truck engine program. years, and there has been a All segments of the Division will net reduction in backlog due supply equipment for the to cancellations. program. The equipment will be We have prepared for the used in manufacturing reduced market by phasing down components for the 1982-models. our Mount Vernon, Indiana, Effective April 1, 1980, facility and consolidating our operational responsibility for nuclear hardware manufacturing Hudson Products Corporation in Barberton, Ohio. Our was transferred from the commercial nuclear fuel and McDermott Operating Unit to the service businesses are expand Industrial Products & Services ing and are profitable today. Group of B&W. This change was We expect them to remain so in effected to take better advan the future. tage of the actual specialty During fiscal 1980, our markets this organization serves Nuclear Equipment Division as a producer of advanced- received several important new technology heat exchangers. The orders. Westinghouse and first air-cooled steam condenser General Electric awarded us con designed to Hudson's specifica tracts for $18 million to build tions was installed during the nuclear components. The Duke year at the University of Alaska. Power Company purchased six This unit is unique in the industry electromagnetic filters to be used because of its ability to operate in at the Cherokee and Perkins temperatures as low as -60F. nuclear power plants in North Similar units will be installed Carolina. We received a $24 during this fiscal year at a Rock million contract from General Island Refining Company facility Dynamics to produce missile in Indianapolis and for El Paso tubes and hatch covers for the Natural Gas at Farmington, U.S. Navy's nuclear submarines. New Mexico. Additionally, we have a number TLT-Babcock, a primary of contracts to supply com supplier of heavy-duty fans and ponents for the Clinch River noise abatement equipment for Breeder Reactor. the utility industry, has diversified its product line. J. P. Eckert became During the year, we received a Vice President and General number of contracts to supply fans for mining and industrial Manager, Naval Nuclear Fuel Division. purposes. The Naval Nuclear Fuel Division is the principal supplier J. H. MacMillan became of high-quality nuclear com Senior Vice President and ponents for the Navy. This Group Executive, Nuclear continues to be a profitable Power Group. and significant activity for the The Nuclear Power Group will Company. And with a good back concentrate on maintaining log, the Division is well the necessary critical skills during positioned to supply advanced- a period of depressed domestic technology components for the 1980s. > ;* ? `i / r- i rs .o v ? r*) <* i ?930 FsscaJ !979 Vo?' ... .< . ......... v>.:>. .- -'- 1SM3_____ i;i id;-. - Ended March Mi JK -i^s A Prsfsrred Srcek da.;ur.e MO VV i. ,*.... v *.v ---- .2 is-; "Sfciii i - Ended Dec. 31 ' :: - tnckd March MI 3$*: m .cries 3 Preferred Stock -.:. - Ended dune MO 28 2o% d - Ended Sect. 30 i - Ended Dec. Ml Jii 27 - Ended March Mi 24% 17U, ' 30 % 28 '< 2SS2S J-c:cn ! vi-'-.v !.c.v Most of the world's remaining oil and gas reserves lie very deep beneath the surface. Often ; three, four or even five miles down. The production tubing that brings this valuable resource to the surface must withstand extreme conditions of stress, pressure, and corrosion. That's why the oil and gas industry relies on Babcock & Wilcox, a McDermott 1 company. As America's largest specialty steel tubing manufacturer with our own steel mills, we can produce tubing with the right combination of properties for the toughest wells. I i 7! i'-f i ; MARKET PRICE O f VOTING STOCK | (Market Price of Voting Stock > Quarter 1 Common Stock 1st - Ended June 30 Fiscal 1980 Fiscal 1979 2nd - Ended Sept. 30 3rd - Ended Dec. 31 i 4th - Ended March 31 24% 18% 36)4 Series A Preferred Stock iI 1st - Ended June 30 25% 2nd - Ended Sept. 30 27% 24% 3rd - Ended Dec. 31 29% 23% 4th - Ended March 31 38% 21% Series B Preferred Stock 1st - Ended June 3C 29% 22% 35 29 28 25% 2nd - Ended Sept. 30 3rd - Ended Dec. 31 4th - Ended March 31 I High Low Voting Stock The Voting Stock of the Company is iisted on the New York Stock Exchange (symbols MDE, MDEA, MDEB). The following table shows the reported high and low sales price of these securities on the composite tape on a quarterly basis in fiscal years ended March 31, 1980 and 1979, as reported by The Wall Street Journal. PAGE 25 i MANAGEMENT'S DISCUSSION PAGE 26 Management's Discussion and Analysis of the Consolidated Statement of Income 1980 Versus 1979 Marine construction services revenues decreased by $28,778,000, as a result of decreases in domestic operations, partially offset by increases in foreign operations. Because of in tense competition, low utilization of the Company's equipment and depressed profit margins (particularly in foreign operations) and after providing for losses on contracts, costs and expenses for this segment increased by $78,970,000. The Company experienced in this segment an operating loss of $46,737,000 for the twelve months ended March 31, 1980, as compared with an operating pro fit of $61,011,000 for the twelve months ended March 31, 1979. Power generation systems and equipment revenues decreased by $6,403,000 primarily due to the impact of extended strikes at several plants. Costs and expenses decreased by $31,520,000 due to the lower volume and a substantially lower provision in fiscal 1980 related to warranty and other related design and fabrication problems experienced in certain nuclear contracts. In fiscal 1980 $11,285,000 of expenses in connection with the settlement relating to these same problems was provided. In addition, Dividends The Company has declared a quarterly dividend on its Common Stock for 101 consecutive quarters, and on its Series A and Series B preferred stock for eight consecutive quarters. A quarterly comparison of dividends declared in fiscal years ended March 31, 1980 and 1979 on a per share basis is as follows: Quarter Common Stock 1st - Ended June 30 2nd - Ended Sept. 30 3rd - Ended Dec. 31 4th - Ended March 31 Series A Preferred Stock Fiscal 1980 $ .30 .30 .30 .35 $1.25 Fiscal 1979 $ .25 .25 .25 .25 $1.00 1st - Ended June 30 2nd - Ended Sept. 30 3rd - Ended Dec. 31 4th - Ended March 31 $ .55 .55 .55 .55 $2.20 $ .55 .55 .55 .55 $2.20 Series B Preferred Stock 1st - Ended June 30 2nd - Ended Sept. 30 3rd - Ended Dec. 31 4th - Ended March 31 $ .65 .65 .65 .65 $2.60 $ -65. .65, ,65_ ,65_ $2.60, $8,200,000 was provided for repair of certain export : contracts. Extended strikes at i several plants also reduced operating profit for this segment by approximately $27,000,000. j Revenues and operating profits ,j for fiscal 1980 benefited by the J amount of $42,300,000 from the j recognition of a termination \ claim on the cancellation of a ^ nuclear steam system contract ij and the related sale of nuclear j fuel scheduled for delivery j| pursuant to such contract. This, j together with the lower provision in fiscal 1980 relating ii to the warranty and other related ^ design, and fabrication problems, were primary contributors to the increase in operating profit of $25,117,000, despite the impact of the strikes. The operating profit of this segment was $142,839,000 for the twelve months ended March 31,1980, as compared with $117,722,000 for the twelve months ended March 31,1979. Engineered materials revenues increased by $72,189,000, reflecting increased shipments of both tubular and refractory products. Costs and expenses increased by $60,277,000 due to the higher volume and increased scrap raw material and other costs. The increased revenues for engineered materials, together with a more profitable product mix, resulted in the increase in operating profit of $11,912,000 for fiscal 1980 over fiscal 1979. For the twelve months ended March 31, 1980 operating profit was $62,901,000, as compared with an operating profit of $50,989,000 for the twelve months ended March 31,1979. Other products and services revenues increased $94,433,000. Costs and expenses increased by $99,700,000. These increases are due principally to the completion of major projects in both the domestic and foreign onshore construction operations. Costs and expenses also increased due to an incurred loss of approximately $10,500,000 on a project in the domestic operations. This segment had an operating loss of $6,160,000 for the twelve months ended March 31,1980, as compared with an operating loss of $893,000 for the twelve months ended March 31, 1979. Increased losses in the onshore construction operations were offset by improvement in the valve business. Interest income decreased by $5,621,000 for the comparative periods. The interest income is consistent with changes in the Company's investments and the interest rates thereon prevailing in the respective periods. Interest expense for the twelve months ended March 31, 1980 decreased by $3,590,000 over that of the twelve months ended March 31, 1979, consistent with changes in the Company's debt and the interest rates thereon prevailing in the respective periods, net of interest cost capitalized. Beginning with fiscal 1980, in accordance with State ments Financial Accounting Standards No. 34, interest cost was capitalized on qualifying assets. In fiscal 1980, $1*0,632,000 of interest cost was capitalized. Equity in earnings of joint venture companies decreased by $1,387,000 for the twelve months ended March 31, 1980 over that of the twelve months ended March 31,1979. This decrease relates to a decrease in income reported by those equity ventures in which the Company participates. Other income increased by $31,859,000 for the twelve months ended March 31,1980 over that for the twelve months ended March 31,1979. Of this increase $16,921,000 was attributable to premium income from forward contracts for the PAGE 27 MANAGEMENT'S DISCUSSION Revenues $ MILLIONS 3900 -------- 3,145.3,283 0 If U iL III I 1976 1977 1978 1979 1980 Operating Income S MILLIONS -------------------------------------------------- 360 259.6 230.3 H1*TM 182.1 III III I I II 1976 1977 1978 1979 I960 300 240 180 120 60 0 MANAGEMENT'S DISCUSSION ? PAGE 23 Management's Discussion sale of foreign currency. Other items contributing to the increase were gains on translation of foreign currencies, gains on sale of assets and recovery of bad debts combined with reduced bad debt expense. Provision for income taxes decreased by $43,367,000 for the twelve months ended March 31, 1980 from that provided for the twelve months ended March 31, 1979. This decrease is due to the decrease in income before provision for income taxes, higher investment tax credits, a lower effective foreign tax rate, and lower domestic tax rates, resulting in an effective annual tax rate of 42% for fiscal 1980 compared to 54% for fiscal 1979. 1979 Versus 1978 Marine construction services revenues decreased by $105,303,000 largely as a result of decreases in revenues from foreign operations. Costs and expenses for this segment increased by $39,245,000 after providing $14,400,000 for the relocation of certain operations of one of the Company's foreign areas. The continuation of the slowdown in worldwide hydro carbon development in offshore areas has resulted in lower profit margins, both in domestic and foreign areas, reflecting intense competition and a lower rate of utilization of the Company's equipment in substantially all of the Company's markets. As a result of the above factors, operating income was $61,011,000 for fiscal 1979 as compared with $205,559,000 for fiscal 1978, a net decrease of $144,548,000. The power generation systems and equipment revenues were $1,464,964,000 and costs and expenses were $1,347,242,000 producing an operating income of $117,722,000. This segment of the operations of B&W was fully consolidated for the first time in the twelve months ended March 31, 1979. Included in the costs and expenses of the power generation and equipment segment was a provision of $34,000,000 in connection with related design and fabrication problems experienced in certain nuclear contracts. Revenues and costs and expenses of the engineered materials segment of B&W were $588,589,000 and $537,600,000, respectively, producing an operating profit of $50,989,000 .i j :) which was fully consolidated for the first time for the twelve months ended March 31, 1979. Other products and services r| ;l jj J' revenues decreased by $6,827,000, while costs and [jj jjf expenses increased by $9,430,000. jj;: B&W operations contributed to 'i this segment's revenues by ' $84,042,000, and to its costs and j. ! expenses by $85,754,000, produc- ^ \ ing an operating loss of l!i s $1,712,000. B&W's operations in | : this segment were fully con- 1 solidated for the first time in the U a ir Primary Earnings* Per Common & Common Equivalent Share S DOLLARS Capital Expenditures & Depreciation S MILLIONS 1976 1977 1978 1979 1980 Excludes Extraoroiruiy income Afijuued /or rwo-ior-one stoct 1976 1977 1978 1979 1980 Capital Expenditures Depreciation i jj twelve months ended March 31, i 11979. Revenues of the onshore 'operations included in this seg^ ment decreased by $90,869,000, i and costs and expenses decreased ,r S76,324,000. These decreases were principally due to a major | onshore project which was i completed in fiscal 1978. r; Interest income for the twelve \ j months ended March 31, 1979 : increased by $20,702,000 over ;] that of the twelve months ended >j March 31, 1978. This increase -e si resulted from the consolidation of Jj interest income of the power ij generation systems and equip- ment, engineered materials and r H other operations along with changes relating to the interest , | bearing investments of the marine and onshore construction operations, as well as the interest rates thereon prevailing in the DO. respective periods. Interest expense for the twelve months ended March 31,1979 d I increased $25,336,000 over that c- i of the twelve months ended March 31, 1978. Approximately in 1 one-half of this increase is attributable to the consolidation of interest expense on debt carried by the power generation systems and equipment, engineered materials and other operations. The remaining increase is attributable to the additional borrowings related to the investment in B&W, new debt incurred during the current year and fluctuations in the revolving credit and term loan agreement, along with changes in the interest rates prevailing in the respective periods. Additional changes in other income (expense) were attributable to a decrease in equity in earnings of affiliated companies for the twelve months ended March 31, 1979 of $15,240,000 from that of the twelve months ended March 31, 1978. For the twelve months end ed March 31,1978, the Company reported its share of its equity in the net income of B&W in the amount of $20,364,000. The principal increase in the current twelve month period, other than the equity income of the power generation systems and equipment, engineered materials and industrial products operations, was that of the equity in an unconsolidated joint venture company which began operations early in fiscal 1978. Decrease in other income is due mainly to losses in translation of foreign currency for the twelve months ended March 31, 1979, versus gains in translation of foreign currency for the twelve months ended March 31, 1978. The remaining differences were attributable to a number of other factors including workmen's compensation retrospective adjustments, bad debt expense, royalties, and minority interest. The provision for income taxes for the twelve months ended March 31,1979, increased by $27,475,000 over that provided for the twelve months ended March 31,1978. This increase is primarily due to the fact that a greater percentage of con solidated earnings were from domestic rather than foreign sources, and that certain foreign losses resulted in no tax benefits, resulting in an effective income tax rate of 54% for fiscal 1979 compared to 34% for fiscal 1978. PAGE 29 MANAGEMENT'S DISCUSSION ii Book Value Per Common Share* ' -S | 5 DOLLARS 36 ------ -------------------------- 27.09 27.90 Total Capitalization S MILLIONS ------------------------------------------------------------------- ------------------------ 2400 i AOruuw fey rwo-fey-one stock spfcts. ------------------------------ -------------:-------- :------:----- 1976 ' 1977 1978 1979 1SSO Redeemable Preferred Stock Common Stockholders' Equity Long Tenr. Deo: o PAGE 30 J. Ray McDermott & Co., fnc. and SuDsidianes Ten Year Summary of Operations In thousands of dollars except shares and per share amounts TEN YEAR SUMMARY FOR THE FISCAL YEARS ENDED MARCH 31, 1980 1979 1978 Revenues Costs and expenses Operating; income Other income (expense): Interest expense Other Income before provision for income taxes Provision for income taxes Income before extraordinary items and cumulative effect of accounting change Extraordinary items (net of taxes on income) Cumulative effect of accounting change (net of taxes on income) Net income $ 3,282,510 3,176,859 105,651 $ 3,144,564 2,962,514 182,050 $ 1,293.711 1,095,943 197,768 (48,633) 96,451 153,469 65,103 (52,223) 71,600 201,427 108,470 (26,887) 69,206 240,087 80,995 88,366 - 92,957 - 159,092 _ -- - $ 88,366 3! 92,957 $ 159,092 Earnings per common and common equivalent share: Primary earnings: Before extraordinary items and cumulative effect of accounting change Extraordinary items (net of taxes on income) Cumulative effect of accounting change (net of taxes on income) Net income $ 1.77 $; 1.94 $ 5.02 -- -- -- - $ 1.77 3; 1.94 ? 5.02 Fully diluted earnings: Before extraordinary items and cumulative effect of accounting change Extraordinary items (net of taxes on income) Cumulative effect of accounting change (net of taxes on income) Net income $ 1.76 3i 1.92 $ 4.92 -- - -- - $ 1.76 3; 1.92 $ 4.92 Cash dividends per common share Cash dividends paid on common stock Cash dividends paid on preferred stock Total amount $ 1.25 $ 1.00 $ .90 40,388 30,296 32,132 30,295 28,571 - $ 70,684 $ 62,427 ? 28,571 Weighted average number of common shares outstanding Stockholders' equity per common share 32,745,544 32,366,019 $ 27.90 $ 27.09 31,670,923 $ 26.15 PAGE 31 TEN YEAR SUMMARY j 1977 1976 1975 1974 1973 1972 1971 11 . :43 .i$ 1,223,841 964,210 $ 1,102,078 871,797 ? 742,825 649,543 $ 425,756 379,339 ? 358,399 331,145 $ 321,509 313,949 $ 238,158 231,052 1 i87) 259,631 (16,157) 230,281 (22,067) 93,282 (15,972) 46,417 (8,679) 27,254 (5,974) 7,560 (4,146) 7,106 (3,888) 1D6 18,152 13,487 13,354 9,461 8,179 6,867 4,762 87 261,626 95 70,116 221,701 66,427 90,664 14,217 47,199 12,178 29,459 12,554 10,281 2,128 7,980 1,188 92 191,510 132 155,274 4,910 - 92 $ 191,642 _ ? 160,184 $ i 1 02 ? 1lw 452 h li 6.11 $ - - 6.11 $ 4.97 $ .16 - 5.13 ? 76,447 - -- 76,447 $ 2.47 - $ - 2.47 ? 35,021 - (3,023) 31,998 $ 1.26 - % (-11) 1.15 $ 16,905 270 - 17,175 $ .63 $ .01 - .64 8,153 10,962 - 19,115 $ .30 $ .41 - .71 $ 6,792 - - 6,792 .25 _ .25 4i92 i t i 5.93 - i' '5i f i j 90 ft i ;7i i ft - 5.93 .575 18,038 18,038 ks 31,342,492 :15 t t 22.12 $ 4.80 .15 _ $ 4.95 $ .425 13,283 ? 13.283 31,247,192 $ 16.54 $ 2.39 - s 2.39 $ .30 9,289 9.289 30,891,736 $ 11.79 $ 1.13 $ - (.09) s 1.04 ? .61 .01 -- .62 $ .2625 ? .25 7,380 6,733 $ 7.380 S 6,733 27,852,508 $ 9.74 26,928,184 $ 7.66 ? .30 .41 - $ .71 $ .25 6,724 6.724 26,884,332 $ 7.22 $ .25 - - $ .25 $ .25 6,715 $ 6.715 26,859,712 $ 6.75 LINES OF BUSINESS PAGE 32 Revenues and Operating Income by Lines of Business REVENUES 1980 Marine Construction Services Power Generation Systems and Equipment Engineered Materials Other Products & Services Total $ 982,038 1,457,462 580,958 262.052 $3,282,510 Fiscal Years Ended March 31, 1979 1978 1977 (In thousands of dollars) $1,010,816 $1,116,119 $1,089,455 1976 $1,010,105 1,463,793 508,546 161,409 $3,144,564 177,592 $1,293,711 134,386 91.973 $1,223,841 $1,102,078 PERCENT OF REVENUES Marine Construction Services Power Generation Systems and Equipment Engineered Materials Other Products & Services Total 1980 30% 44% 18% 8% 100% Fiscal Years Ended March 31, 1979 1978 1977 32% 86% 89% 47% 16% 5% 100% 14% 100% 11% 100% 1976 92% 8% 100% OPERATING INCOME Marine Construction Services Power Generation Systems and Equipment Engineered Materials Other Products & Services Total PERCENT OF OPERATING INCOME Marine Construction Services Power Generation Systems and Equipment Engineered Materials Other Products & Services Total 1980 $ (46,737) 142,839 62,901 (6,160) $ 152,843 1980 (30%) 93% 41% (4%) 100% Fiscal Years Ended March 31, 1979 1978 1977 (In thousands of dollars) $ 61,011 $ 205,559 $ 247,644 1976 $ 219,752 117,722 50,989 (893) $ 228,829 15,364 $ 220,923 11,987 10.529 $ 259,631 $ 230,281 t r. Fiscal Years Ended March 31, 1979 1978 1977 27% 93% 95% 51% 22% - 100% 7% 100% 5% 100% 1976 95% 5% 100% vi'. X See Note 11 to the consolidated financial statements for a description of the Company's industry segments. For fiscal 1980,1979 and 1978, industry segments have been determined on a basis different from prior years to conform with FASB 14 on segment reporting, and operating income is before allocation of general corporate expenses. For the prior fiscal years 1977 and 1976, Onshore Construction Services (now categorized as a part of "Other Products and Services") consisted of amounts attributable to Hudson Engineering Corporation and its subsidiaries, and Marine Construction Services represented ah other. Operating income for these prior years was after allocation of general corporate expenses. Report of Certified Public Accountants __ _- ' The Board of Directors and Stockholders - J. Ray McDermott & Co., Inc. PACE 33 REI'OKt o r ACCOUNTANTS ; We have examined the accompanying consolidated balance sheets of J. Ray McDermott & Co.. Inc. and ' subsidiaries at March 31, 1980 and 1979 and the related consolidated statements of income and retained ! earnings and changes in financial position for the years then ended. Our examinations were made in ! j accordance with generally accepted auditing standards and, accordingly, included such tests of the 1 j accounting records and such other auditing procedures as we considered necessary in the circumstances. - ; As discussed in Note 7 to the financial statements, the Company has been named as a defendant in pending !_ * actions alleging violations of Sections 1 and 2 of the Sherman Act and various state laws. Additional similar f ; claims may also be asserted. The ultimate amount of any liability that might result from such actions is not ; presently determinable and no provision for any liability that might result has been made in the financial ) statements. In our report dated June 8,1979, our opinion on the 1979 financial statements was qualified as being , subject to the effects of such adjustments, if any, as might have been required had the outcome of the * '! uncertainty referred to above been known. In October 1979 the Auditing Standards Division of the American j Institute of Certified Public Accountants issued an interpretation under which we may now appropriately ; express an unqualified opinion on the Company's 1979 consolidated results of operations and changes in financial position. / * In our opinion, the financial statements mentioned above present fairly the consolidated results of ') operations and changes in financial position of J. Ray McDermott & Co., Inc. and subsidiaries for the year ; | ended March 31, 1980 and 1979 and, subject to the effects of such adjustments, if any, as might have been , | required had the outcome of the uncertainty referred to in the second preceding paragraph been known, the J consolidated financial position at March 31, 1980 and 1979, in conformity with generally accepted accounting j principles applied on a consistent basis during the period, except for the change, with which we concur, in \ ! the method of accounting for interest as described in Note 1 to the financial statements. CONSOLIDATED BALANCE SHEET PAGE 34 J. Ray McDermott & Co.. Inc. and Subsidiaries for the Fiscal Years Ended March 31. i960 and 1979 Consolidated Balance Sheet ASSETS Current Assets: Cash Short-term investments, at cost which approximates market Accounts and notes receivable (Note 2) Marketable securities, at cost (market $40,972,000 in 1980 and $18,302,000 in 1979) Contracts in progress (Note 2) Inventories (Note 3) Prepaid expenses Total Current Assets Long-Term Note Receivable-Unconsolidated Joint Venture Company 1980 1979 (In thousands of dollars) $ 38,280 S 19,752 485,867 725,066 13,788 361,125 422,349 14,889 2.061,364 621,112 604,059 9,231 280,420 392,093 10.083 1,936.750 29,669 Investments in Joint Venture Companies, at Equity Property, Plant and Equipment, at Cost: Land Buildings Machinery and equipment Property under construction Less accumulated depreciation and amortization Net Property, Plant and Equipment Excess of Cost Over Fair Value of Net Assets of Purchased Businesses Less Amortization Other Assets 17,830 36,034 204,543 1,222,167 91,030 1,553,774 527,933 1.025,841 12.398 36,579 194,535 1,021,738 108.238 1,361,090 440,346 920,744 357,253 58,691 379,404 51,646 Total See accompanying notes to consolidated financial statements $3,550,648 $3,300,942 LIABILITIES AND STOCKHOLDERS' EQUITY i Current Liabilities: Notes payable to banks and current 2 maturities of long-term debt (Note 6) Accounts payable 2 Accrued liabilities 9 Advance billings on contracts (Note 2) Provision for warranty expense .1 U.S. and foreign income taxes 0 Dividends payable 3 Total Current Liabilities > 9 Deferred and Non-Current Income Taxes (Note 5) Long-Term Debt (Note 6) | Other Liabilities Contingencies and Commitments (Note 7) Redeemable Preferred Stocks (Note 8) Common Stock and Other Stockholders' Equity (Note 9): Common stock Capital in excess of par value Retained earnings (Notes 5 and 6) Less: Cost of common stock in treasury i. 1 Unamortized deferred career executive stock plan expense > Total Common Stock and Other Stockholders' Equity Total $ CONSOUOATEO BALANCE SHEET PAGE 3S 1980 1979 (In thousands of dollars) S 29,840 191,167 357,318 313,116 106,903 161,087 18,923 1,178,354 $ 20,425 186,718 345,864 262,518 106,934 126,839 15,623 1,064,921 382,502 471,853 106,812 394,468 381,523 492,647 95,189 394,507 36,768 254,521 732,565 1,023,854 2,871 4,324 1,016,659 $3,550,648 32,523 133,038 714,883 880,444 2,871 5,418 872,155 53,300,942 W J. Ray McDermott & Co.. Inc. and Subsidiaries for the Fiscal Years Ended March 31. I9S0 and 1979 Consolidated Statement of Income and Retained Earnings INCOME AN D RETAINED EARNINGS Revenues Costs and Expenses: Cost of operations Depreciation and amortization Selling, general and administrative expenses Operating Income Other Income (Expense): Interest income Interest expense (Note 1) 'fsf" Equity in earnings of joint venture companies Other Income Before Provision for Income Taxes Provision for Income Taxes (Note 5): Current Deferred Net Income Retained Earnings, Beginning of Year Deduct: Cash dividends-common ($1.25 in 1980 and $1.00 in 1979 per share) -preferred (Series A, $2.20 and Series B, $2.60 per share in 1980 and 1979) Retained Earnings, End of Year (Note 6) Earnings Per Common and Common Equivalent Share: Primary Fully diluted See accompanying notes to consolidated financial statements 1980 1979 (In thousands of dollars except per share amounts $3,282,510 $3,144,564 2,803,872 111,803 261,184 3,176,859 105,651 2,600,274 111,365 250,875 2,962,514 182,050 49,205 (48,633) 7,291 39,955 47,818 153,469 54,826 (52,223) 8,678 8,096 19,377 201,427 17,847 47,256 65,103 88,366 714,883 40,388 30,296 $ 732,565 $ 1.77 $ 1.76 25,756 82,714 108,470 92,957 684,353 32,132 30,295 $ 714,883 j| $ 1.94 $ 1.92! w> i J Ray McDermott & Co.. Inc. and Subsidiaries for the Ffscal Years Ended March 3 Consolidated Statement of Changes in Financial Position 1980 and 1979 SOURCE OF FUNDS: Operations: 4 Net income Charges (credits) not affecting working capital: Depreciation and amortization Deferred income taxes Equity in earnings of joint venture companies net of dividends received of $8,051,000 in 1980 and $17,922,000 in 1979 Other Working capital provided from operations iO Issuance of common stock Proceeds from sale and exchange of property, plant and equipment 26 Decrease in excess of cost over fair value 23) 78 of net assets of B&W Long-term borrowing (including fluctuations 36 under the revolving credit agreement) 77 27 :56 i 14 1,70 | >57 a APPLICATION OF FUNDS: Additions to property, plant and equipment Reduction of long-term debt (including fluctuations under the revolving credit agreement) Reduction of deferred and non- current income taxes Cash dividends Increase in note receivableunconsolidated joint venture company Other- net 353 ) 1 NET INCREASE IN WORKING CAPITAL .132 5 295 * 883 1.94 CHANGES IN COMPONENTS OF WORKING CAPITAL: Increase (decrease) in current assets: Cash and short-term investments Accounts and notes receivable Contracts in progress Inventories Prepaid expenses Increase (decrease) in current liabilities: Notes and accounts payable and accrued liabilities Advance billings on contracts Provision for warranty expense U.S. & foreign income taxes Dividends payable NET INCREASE IN WORKING CAPITAL 1980 1979 (In thousands of dollars) $ 88,366 111,803 64,900 $ 92,957 111,365 100,205 (732) 8,623 272,960 125,728 58,320 12,685 189,976 659.669 7,952 8,712 321,191 3,749 3,412 14,352 405,318 748.022 257,005 210,770 63,921 70,684 29,669 16,439 648,488 $ 11,181 131,026 392,103 91,480 62,427 - 18,875 695,911 S 52,111 $ (112,160) 121,007 80,705 30,256 4,806 124,614 S 22,872 68,778 (3,601) 19.95S (2,271) 105,736 25,318 50,598 (31) 34,248 3,300 113,433 $ 11,181 28,621 (16,012) 27,544 5,848 7,624 53,625 $ 52,111 PAGE 37 CHANGES IN FINANCIAL POSITION See accompanying notes to consolidated financial statements PAGE 38 J. Ray McDermott & Co.. Inc. and Subsidiaries for the Fiscal Years Ended March 3). 1980 and 1979 Notes to Consolidated Financial Statements NOTE 1-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONSOLIDATED INANOAL STATEMENTSf Principles of Consolidation The consolidated financial statements include the accounts of the Company and all significant subsidiaries. All significant intercompany transactions and accounts have been eliminated. Investments in joint venture companies (20% to 50% owned) are accounted for on the equity method. Certain amounts previously reported in the consolidated financial statements at March 31,1979 have been reclassified to conform with the presentation at March 31, 1980. Contracts and Revenue Recognition Marine and onshore construction contract revenues are generally recognized as contractual obligations are completed. Revenues are recognized on certain marine contracts containing identifiable separate projects when such projects are completed and accepted by the customer. Revenues from time or dayrate basis marine contracts are recognized as earned. General and administrative costs are included in marine and onshore contract costs. Current provisions are made for all known or anticipated losses on marine and onshore construction contracts which have not been completed. Power generation systems and equipment contract revenues and related costs are principally recognized on a percentage of completion method for individual contracts or components thereof based upon work performed or the ratio of costs incurred to total estimated costs, as applicable to the product or activity involved. Revenues so recorded are included in unbilled revenues until invoiced to customers under the terms of the contracts. 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. The Company is usually entitled to financial settlements relative to the individual circumstances of deferrals or cancellations of power generation systems and equipment contracts. The Company does not recognize such settlements or claims for additional compensation until final settlement is reached. Foreign Currency Translation The accounts of foreign subsidiaries maintained in foreign currencies are translated into U.S. Dollars based on current exchange rates at the end of the fiscal year for assets and liabilities except for inventories, prepaid expenses, property, plant and equipment, and stockholders' equity for which historical exchange rates are used. Average exchange rates prevailing during the fiscal years are used for revenues and expenses other than depreciation and prepaid expenses. Exchange gains and losses are recognized in the year of occurrence. Included in other income are gains of $3,178,000 for fiscal 1980, and losses of $4,739,000 for fiscal 1979. Depreciation, Maintenance and Repairs Property, plant and equipment is depreciated by the straight-line method, using estimated useful lives of 8 to 40 years for buildings and 2 to 28 years for machinery and equipment. 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 Company's marine fleet, which are estimated and accrued pro rata over the period of time between drydockings, and such accruals are charged to operations currently. Amortization of Excess of Cost Over Fair Value of Net Assets of Purchased Businesses The excess of the Company's investment in B&W over the fair value of net assets acquired is being amortized on a straight-line basis over 40 years. Excess cost arising from business combinations prior to 1971 is not being amortized because, in the opinion of management, there has been no diminution in value. Warranty Expense The Company provides for estimated future warranty expense which may be required to satisfy contractual requirements, primarily of the power generation systems and equipment segment. Such provision is accrued relative to revenue recognition on the respective contracts. Research and Development The cost of research and development which is not performed on specific contracts is charged to operations as incurred. Such expense was $31,389,000 and $28,464,000 in fiscal 1980 and 1979, respectively. Capitalization of Interest Cost Beginning with fiscal 1980, in accordance with Statement of Financial Accounting Standard No. 34, interest cost was capitalized on qualifying assets. In fiscal 1980, total interest cost incurred was $59,265,000, of which $10,632,000 was capitalized. The effect of the changes was to increase income by $6,153,000 ($0.19 per share). Earnings Per Share Primary earnings per common share are computed after preferred dividend requirements and are based on the weighted average number of common and common equivalent shares (stock options) outstanding during the year. Fully diluted earnings per common share assume the conversion of the convertible subordinated debentures and convertible preferred stock, except when anti-dilutive. The Company sold 4,000,000 shares on March 5,1980. The net proceeds of the sale were $121,500,000, which were used to retire certain debt and for working capital and general corporate purposes. Assuming that the sale had taken place at the beginning of the fiscal year, and assuming that the entire net proceeds were used to only retire that certain debt to the extent that the debt was repayable, the primary earnings per common and common equivalent share would have been $1.70, and fully diluted earnings per common and common equivalent share would have been $1.69. NOTE 2-CONTRACTS IN PROGRESS Contracts in progress and advance billings on contracts at March 31 consist of the following: Marine and onshore construction contracts: Cost of uncompleted contracts Billings to customers Power generation systems and equipment and other contracts: Unbilled revenues Cost of work in progress Billings to customers in excess of revenues recognized Contracts in Progress Advance Billings on Contracts 1980 1979 1980 1979 (In thousands of dollars) $165,766 114,780 50,986 $144,459 116,135 28,324 $113,782 179,779 65,997 $206,889 258,080 51,191 256,935 219,871 476,806 166,667 310,139 $361,125 213,009 177,232 390,241 138,145 252,096 $280,420 247,119 247,119 $313,116 211,327 211,327 $262,518 PACE 39 CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS PAGE 40 Notes to Consolidated Financial Statements The amounts of general and administrative expenses remaining in the cost of uncompleted marine and onshore construction contracts at March 31, 1980 and 1979 were $34,334,000 and $48,384,000, respective ly. Cost of work in progress of power generation systems and equipment and other contracts is based upon accumulated production costs less estimated costs associated with revenues recognized. Unbilled revenues on contracts include $83,111,000 and $54,137,000 at March 31, 1980 and 1979, respectively, expected to be collected after one year. Included in accounts and notes receivable are amounts representing retainages on contracts as follows: 1980 1979 (In thousands of dollars) Retainages____________________________ $ 39,177 Retainages expected to be collected after one year-__________________________ ________________________________________$ 11,632 $ 27,377 $ 7,179 NOTE 3 - INVENTORIES Inventories are carried at the lower of cost or market. Cost is determined on an average cost basis except for certain domestic and foreign construction materials inventories, for which the last-in, first-out (LIFO) method is used. The cost of approximately 12% of total inventories was determined using the LIFO method at March 31,1980 and 1979. Consolidated inventories at March 31, 1980 and 1979 are summarized below: Raw Materials and Supplies Work in Progress Finished Goods 1980 1979 (In thousands of dollars) $195,769 166,450 60,130 $422,349 $180,003 156,843 55,247 $392,093 Inventories used in the computation of costs and expenses were $422,349,000, $392,093,000 and $372,135,000 at March 31, 1980, 1979 and 1978, respectively. CONSOLIDATED FINANCIAL STATEMENTS NOTE 4-PENSION AND SUPPLEMENTAL COMPENSATION PLANS PAGE 41 Pension Plans-The Company has several non-contributory pension plans covering substantially all employees except certain non-resident alien employees of foreign subsidiaries who do not earn income in the United States. Unfunded prior service costs based on the latest actuarial valuation was approximately $350,000,000. The Company's policy has been to fund pension cost accrued. The total value of the pension funds and balance sheet accruals was in excess of the actuarially computed value of vested benefits for all plans. Total pension expense included in costs and expenses was $62,137,000 in fiscal 1980 and $56,562,000 in fiscal 1979, and includes amortization of prior service costs over periods of 30 and 40 years. Supplemental Compensation Plan-The Company accrues annually an amount equal to 4% of the amount by which consolidated income (as defined in the Pian) exceeds an amount equal to 10% of capital employed in the business (as defined in the Plan) from which supplemental compensation awards may be made to eligible managerial and other key employees. The aggregate amount of an award may not exceed 50% of the recipient's aggregate compensation for the year for which the award is made. On February 13, 1979 the Plan was amended to make certain future awards payable in their entirety within 30 days of determination. Amounts charged to income under the Plan amounted to $621,931 and $3,254,000 in fiscal 1980 and 1979, respectively. Thrift Savings Plans- Effective April 1, 1978, the Company established a Thrift Savings Plan in which substantially all employees, except non-resident alien employees of foreign subsidiaries who do not earn income in the United States, and employees of B&W and its subsidiaries, are eligible to participate. B&W has its own established Thrift Incentive Plan in which substantially all salaried employees, except non resident alien employees of foreign subsidiaries who do not earn income in the United States, are eligible to participate. Participation in the Plans is voluntary, and an employee may elect to contribute 2%, 4% or 6% of his compensation as basic contributions and if the maximum 6% is elected, the employee may make an additional 2%, 4% or 6% supplemental contribution. The Company contributes an amount equal to 50% of the participants' basic contributions. Company contributions fully vest and are nonforfeitable after five years of participation in the Plans or upon retirement, death, or approved disability. The amounts charged to income under the Plans were $7,264,000, and $7,322,000 in fiscal 1980 and 1979, respectively. NOTE 5-INCOME TAXES The provision for income taxes consists of: Federal Foreign State and local 1980 1979 Current $ 17,252 (8,785) 9,380 $ 17,847 Deferred Current Deferred (In thousands of dollars) $ 48,545 (4,633) $ 12,694 11,042 $ 71,012 4,572 3,344 2,020 7,130 $ 47,256 $ 25,756 S 82,714 CO NSO llDAIED FINANCIAL STAIEMLNIS =>AG= 42 Notes to Consolidated Financial Statements Tax benefits of $12,696,000 in 1980 and $14,882,000 in 1979 arising from the use of net operating loss and investment tax credit carryforwards available from the B&W acquisition, have been credited to excess of cost over fair value of net assets of purchased business. Investment tax credits, accounted for on the flow-through method, utilized in fiscal 1980 and fiscal 1979, were $13,278,000 and $6,456,000, respectively. The effective income tax rate is reconciled to the statutory federal income tax rate as follows: 1980 Percent 1979 Percent Statutory federal tax rate Increases (reductions) in income tax rate resulting from: Foreign operations Earnings of joint venture companies reported net of taxes Investment tax credits Amortization of excess of cost over fair value of net assets of B&W State income taxes net of federal benefit Net U.S. tax on foreign dividends Other Effective tax rate 46.0 (5.0) (2.1) (8.7) 2.9 4.5 2.8 2.0 42.4 47.5 5.1 (2.0) (3.2) 2.3 2.4 - 1.8 53.9 Deferred income taxes are provided in the financial statements due to timing differences between financial and taxable income. The principal tuning differences in recognizing certain revenues and expenses for tax return and financial statement purposes and their effect on the provision for the deferred income taxes were: 1980 1979 (In thousands of dollars) Excess tax over financial depreciation Interest capitalized on assets constructed Long-term contracts, primarily on the completed contract method for tax purposes Warranty expense Other $ 6,884 4,418 $ 10,190 54,084 (7,624) (10,506) $ 47,256 86,127 (7,627) (5,976) $ 82,714 Undistributed income of foreign subsidiaries included in consolidated retained earnings at March 31, 1980, amounted to approximately $483,800,000. Under present law, such amount would be subject to United States income taxes at prevailing tax rates less foreign tax credits if remitted to the parent company; no provision for such taxes has been made in the consolidated financial statements as it is the Company's intention to indefinitely reinvest said undistributed earnings in the foreign subsidiaries. NOTE 6-LONG AND SHORT-TERM DEBT Long-term debt consists of: Unsecured Debt: Notes payable to banks under a revolving credit and term loan agreement 7.30% Note payable $3,000,000 annually to 1998 10.20% Sinking fund debentures due 1999 with annual sinking fund installments of $2,500,000 beginning 1981 9.40% Notes due 1984 4 %% Convertible (at $16.75 per share) subordinated debentures due 1987 9 %% Note due 1981 9 %% Sinking fund debentures due 2004 with annual sinking fund installments of $9,850,000 beginning 1990 6.80% Pollution control revenue bonds due 2009 with annual sinking fund installments of $4,250,000 beginning 2006 8 %% Note payable $3,960,000 annually to 1997 beginning 1983 9% Note payable $3,300,000 annually to 1991 9% Note payable $1,650,000 annually to 1996 beginning 1982 Other: Other notes payable through 1999 and capitalized lease obligations Less due within one year PAGE 43 CONSOLIDATED FINANCIAL STATEMENTS March 81, 1980 1979 (In thousands of dollars) $57,000 $ 14,000 60,000 50,000 35,000 3,743 20,000 50.000 35,000 5,524 20,000 150,000 150,000 17,000 60,000 40,100 25,000 17,000 60,000 43,400 25,000 25,110 482,953 11,100 $471,853 23,647 503,571 10,924 $492,647 During the year ended March 31,1980, the Company renegotiated its revolving credit and term loan agreement, decreasing the borrowing limit from $285,000,000 to $150,000,000, at the prime interest rate until March 31, 1981 and then 104% of prime until March 31, 1983, at which time all outstanding borrowings will convert to a term loan payable in sixteen equal quarterly installments to maturity at March 31, 1987 at an interest rate of 108% of prime. The Company pays a commitment fee at the rate of % of 1% and a fee of 7.5% of prime per annum on the unused portion. Maturities of long-term debt during the five fiscal years subsequent to March 31, 1980 are as follows: 1981 - $11,100,000; 1982 - $33,934,000; 1983 - $19,296,000; 1984 - $16,791,000; 1985 - $50,797,000. Certain of the Company's debt agreements contain, among other things, requirements as to maintenance of working capital and limitations on the payment of dividends and incurrence of future borrowings. Under the most restrictive covenants of these agreements at March 31, 1980, dividends were restricted to approximately $152,000,000. CONSOLIDATED FINANCIAL STATEMENTS Noies co Consolidated Financial Statements PAGE 44 At March 31, 1980 and 1979 the Company had borrowings outstanding of $18,740,000 and $9,501,000 under short-term lines of credit. The maximum available under the short-term lines of credit aggregated S118,798,000, and $65,153,000 at March 31, 1980 and 1979, respectively. Interest rates on the lines of credit ranged from 8.4% to 16.44% at March 31, 1980 and 6% to 14%% at March 31, 1979. Informal arrangements with the banks require maintenance of compensating balances which are not legally restricted by such banks. For the fiscal years ended March 31, 1980 and March 31, 1979, the maximum amounts of borrowings under these lines of credit were $37,012,000 and $38,550,000, respectively. The weighted average interest rate was 13.47% for the 1980 fiscal year and 9.96% for the 1979 fiscal year on weighted average borrowings of $20,516,000 and $11,605,000, respectively. The weighted average interest, rates were computed by dividing the actual interest incurred on the short-term borrowings by the average short-term borrowings. On March 31, 1980, the Company amended the J. Ray McDermott & Co., Inc., 9.70% sinking fund debentures due December 1, 1999, and 8.90% notes due December 1, 1984. Effective April 1, 1980, the amendments increased the annual interest rates on the debentures and notes to 10.20% and 9.40%, respectively, and modified convenants relating to the incurrence of funded debt and other matters to make them less restrictive. NOTE 7 - CONTINGENCIES AND COMMITMENTS Litigation - On December 14, 1978 a Federal grand jury in New Orleans, Louisiana, indicted the Company, Brown & Root, Inc. ("Brown & Root") and certain of their officers on charges of conspiring to allocate contracts and to fix prices and contract terms for marine construction projects in violation of Section 1 of the Sherman Act. In 1978 the Company and Brown & Root each pleaded nolo contendere to the charges and were each fined $1,000,000. In March and April, 1979, three executive officers and a former chief executive officer of the Company (all but one of whom are directors of the Company) pleaded nolo contendere to the Sherman Act charges and certain related charges of mail fraud and wire fraud. The Company and Brown & Root (and in some cases, Oceanic Contractors, Inc. (now McDermott International, Inc.), a wholly owned subsidiary of the Company, and certain officers of the Company) have been named as defendants in 68 pending actions (67 of which have thus far been transferred to the United States District Court for the Eastern District of Louisiana) instituted by or on behalf of customers in the United States and abroad and in an action by a competitor, alleging a conspiracy to restrain or eliminate competition in marine construction in violation of Sections 1 and 2 of the Sherman Act and various state laws through a conspiracy to allocate contracts, fix prices and contract terms and other means. Plaintiffs seek treble damages and other relief for injuries allegedly sustained, in some cases as early as the mid-1950s. From contacts with potential claimants, it appears that additional private parties may assert treble damage claims against the Company similar to those described above, and a number of these potential claimants have received temporary waivers of the statute of limitations from the Company. The outcome of these actions could have a material adverse effect on the Company. The Company and certain of its officers, directors and subsidiaries are defendants in numerous legal proceedings claiming amounts which are material, alleging, among other things, liability for damages allegedly caused by a nuclear incident at the nuclear power plant on Three Mile Island outside Harrisburg, Pennsylvania, and violations of federal securities laws in connection with the acquisition of B&W. It is the opinion of management and of general counsel that the outcome of these proceedings will not have a material adverse effect upon the Company's consolidated financial position. Operating Leases-The following is a schedule of future minimum rental payments required under operating leases that have initial or remaining noncancellable lease terms in excess of one year at March 31. 1980: Years Ending March 31: 1981 1982 1983 1984 1985 After 1985 Total minimum payments required (In thousands of dollars) $ 10,173 8,313 6,833 4,284 1,548 15,005 $ 46,156 PAGE 45 CONSOLIDATED FINANCIAL STATEMENTS Future minimum lease payments and leased property under capital leases are not material. Total rental expense for fiscal 1980 and 1979 was $98,519,000 and $83,315,000, respectively. These expense figures include contingent rentals and are net of sublease income, both of which are not material. Other-The Company performs significant amounts of work for the government under both prime contracts and subcontracts and thus is subject to continuing reviews by governmental agencies. Firm and contemplated commitments for capital expenditures amounted to $185,309,000 at March 31, 1980. The Company and certain subsidiaries are contingently liable under letters of credit totalling $80,153,000 issued in connection with contract performance guarantees and under indemnity agreements for performance bonds on contracts. NOTE 8 - REDEEMABLE PREFERRED STOCKS At March 31, 1980 and 1979, 25,000,000 shares of $1 par value preferred stock were authorized, 6,600,000 shares were designated Series A $2.20 Cumulative Convertible Preferred Stock and 6,600,000 shares were designated Series B $2.60 Cumulative Preferred Stock. Of the authorized Series A and Series B Preferred Stock, 6,305,420 and 6,317,545 shares, respectively, were issued and outstanding at March 31, 1980, and 6,306,692 and 6,317,545 shares, respectively, were issued and outstanding at March 31,1979. The issued and outstanding shares were entitled to $31.25 per share in liquidation. The outstanding shares were issued in connection with the acquisition of B&W and are stated at the mandatory redemption value which approximated market value at the time the shares were issued. Both series of preferred stock are entitled to general voting rights of one-half vote for each share. The Board of Directors may authorize ad ditional series of preferred stock and may set terms of each new series except that the Company cannot create any series of stock senior to the existing Series A and Series B Preferred Stock without the con sent of the holders of at least 50% of the shares of such preferred stock. Each share of the outstanding Series A Preferred Stock is convertible into one share of common stock. The shares are redeemable at the option of the Company on or after March 31 of each of the following years, at the following prices, plus accrued dividends: 1983 - $33.45; 1984 - $33.09; 1985 $32.72; 1986 - $32.35; 1987 - $31.97; 1988 - $31.62; and 1989 through 2008 - $31.25. On March 31, 1989 and each subsequent year through March 31, 2008, the Company is obligated to redeem, at a redemption price of $31.25 plus accrued dividends, 5% of the number of shares which are outstanding at December 31,1988. Series B Preferred Stock is redeemable at the option of the Company on or after March 31 of each of the following years, at the following prices plus accrued dividends: 1983 - $32.25; 1984 - $32.00;. 1985 - $31.75; 1986 S31.50; 1987 through 2008 - $31.25. For the periods March 31, 1986 through March 31, 1995, March 31, 1996 through March 31, 2006, and March 31, 2007 through March 31, 2008, the-* Company is obligated to redeem during each year shares of Series B Preferred Stock equal to 5%, 4% and 3%, respectively, of the number of shares which are outstanding at December 31, 1985. CONSOLIDATED FINANCIAL STATEMENTS PAGE 46 Notes to Consolidated Financial Statements Additional shares of Series A or Series B Preferred Stock, equal to the number of shares the Company is obligated to redeem, may be redeemed on each mandatory redemption date by the Company, on a noncumulative basis. The Company may apply to the mandatory sinking fund obligations any Series A or B Preferred Stock owned, previously redeemed or surrendered for conversion which have not been previously credited against the mandatory sinking fund obligations. NOTE 9 - COMMON STOCK At March 31,1980 and 1979, 60,000,000 shares of $1 par value common stock were authorized. Changes in common stock during the two years ended March 31, 1980 are summarized as follows: Capital in Par Excess of Shares Value Par Value (In thousands of dollars except share data) Balance, March 31, 1978 32,306,972 $ 32,307 $ 129,505 Conversion o'f 4%% convertible subordinated debentures 85,723 86 1,323 Shares issued upon conversion of Series A $2.20 cumulative convertible preferred stock Shares issued upon exercise of stock options 10,853 115,222 11 328 115 1,720 Shares issued under the Career Executive Stock Plan (net of forfeitures) 4,000 4 162 Balance, March 31,1979 32,522,770 $ 32,523 $ 133,038 Conversion of 4%% convertible subordinated debentures Shares issued upon conversion of Series A $2.20 cumulative convertible preferred stock Shares issued upon exercise of stock options Additional shares sold 106,323 1,272 138,040 4,000,000 106 1 138 4,000 1,658 38 2,287 117,500 Balance, March 31,1980 36,768,405 $ 36,768 $ 254,521 At March 31,1980 and 1979, 326,132 shares were in treasury. At March 31,1980, 6,835,503 shares were reserved for issuance in connection with the 1974 Career Executive Stock Plan, exercise of stock options, and conversion of the 4%% convertible subordinated debentures and Series A cumulative convertible preferred stock. Stock Options-In connection with the acquisition of B&W, options granted under a B&W stock option plan became options to purchase two shares of the Company's common stock. All options outstanding under this plan are non-qualified stock options and no additional options will be granted under the plan. Options were granted at an option price equal to at least 100% of the fair market value on the date of grant (adjusted to October 31,1974 closing price for options issued prior to that date). Changes in the number of shares covered by the stock option plan during the two years ended March 31, 1980 are as follows: Outstanding and Exercisable Balance, March 31, 1978 Exercised Expired Balance, March 31,1979 Exercised Expired Balance, March 31,1980 Number of Shares 470,482 115,222 5,650 349,610 138,040 13,350 198,220 Option Price Per Share $6,813 - $9,688 6.813- 9.688 9.688 Total $4,087,000 904,000 55,000 $3,128,000 $6,813 - $9,688 9.688 $1,176,000 129,000 $1,823,000 e aggregate market value of the shares issued upon the exercise of stock options was $3,716,000 and 24,000 in fiscal 1980 and 1979, respectively. treer Executive Stock Plan-The Plan, which was adopted in 1974, authorized 600,000 shares of -non stock to be issued to eligible employees in consideration of their services. Employees granted .< under the Plan pay $1.00 per share as the option price. Shares may be issued pursuant to the Plan June 30, 1984. Restrictions with respect to issued shares lapse in approximately equal amounts on second through tenth anniversary dates of the date of issuance. The cost of the Plan, based on fair ket value on the date of issuance of common stock, is amortized over a ten year period following the of issuance. Upon forfeiture of stock by employees, previous expense attributable to unvested stock is ited to income. Forfeited shares under the Plan returned to the Company amounted to 9,460 shares ng 1979. There were no forfeitures during 1980. As of March 31, 1980, 135,516 shares of common .< are available for grant to eligible employees pursuant to the terms of the Plan. Amounts charged to me under the Plan and its predecessor Plan amounted to $1,093,112 and $1,518,000 in fiscal 1980 and il 1979, respectively. PAGE 47 CONSOLIDATED FINANCIAL STATEMENTS TE 10 - FOREIGN SUBSIDIARIES ummarized financial information with respect to consolidated foreign subsidiaries is as follows: sets (including cash and short-term investments of $383,335,000 .nd $594,052,000 at March 31, 1980 and 1979, respectively) abilities >t assets _______ March 31, 1980 1979 (In thousands of dollars) $ 979,930 454,533 $ 525,397 $1,019,802 423,478 $ 596,324 t income (loss) $ 146 $ (5,005) )TE 11 - SEGMENT REPORTING The Company operates primarily in three industry segments - marine construction services, power deration systems and equipment and engineered materials. vlarine construction services principally involve construction of specialized offshore platforms and irine pipelines used for development drilling, production and transportation of oil and gas. ower generation systems and equipment include individually engineered complete fossil fuel boilers, clear steam systems, nuclear fuel and nuclear fuel assemblies, and associated equipment for electric ility and marine applications as well as fossil fuel boilers for industrial processes and power generation. .e associated equipment includes individually engineered recovery processes and pollution control stems for the process and utility industries, cleaning systems for heat transfer surfaces, control and rformance computers, instruments and nuclear control-rod drives. In addition, the Company is engaged the erection of this and other equipment through a separate construction unit. Engineered materials consists of tubular and refractory products designed and manufactured from basic id raw materials. Tubular products include stainless, ahoy and carbon steel, seamless and welded tubes id pipe, tubular and solid shapes, extrusions, special metal tubes, welding fittings and flanges, and amless rolled rings. These are primarily "specialty" products of high quality and engineered for special plications. Material amounts of tubes are manufactured by the Company to satisfy its own requirements, owever, the major portion of the Company's tubes are sold for use in the bearing, petroleum, machinery, rimary metal, fabricated metal and construction industries. Refractory products include kaolin clays, jecially engineered and vacuum formed ceramic fibers, and other insulating and specially producs for >e in high-temperature furnaces for various heating and heat treating purposes and in other applications here the temperatures and rates of combustion or chemical reactions are unusually demanding. v Notes to Consolidated Financial Statements CONSOLIDATED FINANCIAL STATEMENTS Other products and services engaged in by the Company include the design and manufacturing of control valves, automated machines and machine tools, as well as air-cooled heat exchangers and onshore construction services which were previously classified separately. Identifiable assets by industry segment are those assets that are used in the Company's operations in each segment. Corporate assets are principally cash, short-term investments and marketable securities . Intersegment sales are accounted for at prices which are generally established by reference to similar transactions with unaffiliated customers. Revenues attributable to transactions with unconsolidated joint venture companies were $112,500,000 in fiscal 1980 ($51,978,000 in fiscal 1979). Segment Information For the Fiscal Years Ended March 31,1980 and 1979 1. Information about the Company's Operations in Different Industry Segments. (In thousands of dollars) Revenues Intersegment Transfers Total Revenues Marine Construction Services Power Generation Systems and Equipment Engineered Materials Other Products & Services Eliminations Total 1980 1979 $ 982,038 $1,010,816 1,457,462 580,958 262,052 - $3,282,510 1,463,793 508,546 161,409 $3,144,564 1980 $- 1979 $- 1980 1979 $ 982,038 $1,010,816 1,099 79,820 3,146 (84,065) 1,171 1,458,561 1,464,964 80,043 660,778 588,589 9,356 265,198 170,765 (90,570) (84,065) (90,570) $- $- $3,282,510 $3,144,564 Operating Income (1) Equity In Earnings of Joint Venture Companies Marine Construction Services Power Generation Systems and Equipment Engineered Materials Other Products & Services Total 1980 1979 1980 1979 $ (46,737) $ 61,011 $ 4,897 $ 6,290 142,839 62,901 (6,160) 117,722 50,989 (893) $ 152,843 $ 228,829 $ 820 1,574 - 7,291 $ 877 1,511 - 8,678 Capital Expenditures Depreciation and Amortization Marine Construction Services Power Generation Systems and Equipment Engineered Materials Other Products & Services Corporate TotaJ 1980 1979 1980 1979 $ 155,647 $ 72,136 $ 61,751 $ 66,346 36,972 28,367 5,236 30,783 $ 257,005 29,063 20,648 1,934 7,245 $ 131,026 27,774 14,809 3,889 3,580 $ 111,803 23,809 14,104 5,658 1,448 $ 111,365 Investments In Net Identifiable Assets of Joint Venture Assets_________________ Companies Total Assets ine Construction Services ver Generation Systems and Equipment rineered Materials er Products & Services porate >tal 1980 1979 1980 1979 1980 1979 $ 908,996 $ 742,369 $ 9,937 $ 6,139 $ 918,933 $ 748,508 1,258,221 667,019 158,967 539,615 $3,532,818 1,120,087 644,023 173,261 608,804 $3,288,544 $ 2,663 5,230 - - 17,830 $ 1,899 4,360 - - 1,260,884 672,249 158,967 539,615 1,121,986 648,383 173,261 608,804 12,398 $3,550,648 $3,300,942 Reconciling items between Operating Income and Income Before Provision for Income Taxes are ;eral Corporate Expenses and Other Income (Expense). PAGE 4* CONSOLIDATED FINANCIAL SIAIi:M LI\HS nformation about the Company's Operations in Different Geographic Areas. (In thousands of dollars) Domestic__________________Foreign____________ Consolidated 'enues (1) ^rating Income by eographic Areas (2) uity in Earnings of oint Venture Companies ntifiable Assets estments in Net Assets of oint Venture Companies 'porate Assets *ai Assets 1980 1979 1980 1979 1980 1979 $2,497,880 $2,533,048 $ 784,630 $ 611,516 $3,282,510 $3,144,564 $ 220,642 $ 267,300 $ (67,799) $ (38,471)$ 152,843 $ 228,829 $- $- $ 7,291 $ 8,678 $ 7,291 $ 8,678 $2,404,183 $2,029,353 $ 589,020 $ 650,387 $2,993,203 $2,679,740 - - 17,830 12,398 17,830 12,398 539,615 608,804 $3,550,648 $3,300,942 Transfers between geographic areas are immaterial and not separately presented. Reconciling items between Operating Income by Geographic Areas and Income Before Provision for 'ome Taxes are General Corporate Expenses and Other Income (Expense). PAGE SO Notes to Consolidated Financial Statements NOTE 12 - QUARTERLY FINANCIAL DATA CONSOLIDATED FINANCIAL STATEMENTS The following tables set forth selected unaudited quarterly financial information for the years ended March 31, 1980 and 1979: 1980 ________________ Quarter Ended June 30, 1979 Sept. 30, 1979 Dec. 31, March 31, 1979 1980 (In thousands of dollars except per share amounts) (Restated) (Restated) (Restated) Revenues Operating income Net income Earnings per.common and common equivalent share: Primary Fully diluted $710,037 16,118 19,810 $752,216 2,314 12,386 $940,851 75,618 50,870 $879,406 11,601 5,300 0.38 0.38 0.15 0.15 1.33 (0.07) 1.20 (0.07) In fiscal 1980, $10,632,000 of interest cost was capitalized. The first three quarters of this fiscal year have been restated to reflect the capitalized interest. The restatement increased net income by $1,387,000, ($0.04 per share); $1,405,000, ($0.05 per share); and $1,592,000, ($0.04 per share) for the quarters ending June 30, 1979, September 30, 1979 and December 31, 1979, respectively. Operating income benefited during the quarters ended December 31,1979 and March 31,1980 by approximately $17,800,000 and $24,500,000, respectively, from the recognition of a termination claim on the cancellation of a nuclear steam system contract and the related sale of nuclear fuel scheduled for delivery pursuant to such contract. Revenues Operating income Net income Earnings per common and common equivalent share: Primary Fully diluted 1979 Quarter Ended June 30, 1978 Sept. 30, 1978 Dee. 31, March 31, 1978 1979 (In thousands of dollars except per share amounts) $719,327 $820,457 $800,244 55,072 96,938 56,773 32,262 55,484 34,711 $804,536 (26,733) (29,500) 0.76 0.72 1.48 1.32 0.84 0.79 (1-14) (1.14) During the quarter ended March 31,1979 approximately $43,000,000 was charged to net income in connection with the relocation of certain operations of one of the Company's foreign areas and warranty and other related design and fabrication problems experienced in certain nuclear contracts. E 13 - EFFECTS OF GENERAL INFLATION (Unaudited) compliance with FASB Statement No. 33 "Financial Reporting and Changing Prices", certain lementary information relating to the effects of general inflation and changes in specific prices is ented below. The information adjusted for general inflation is calculated by adjusting cost of sales and eciation expense to a unit of common purchasing power determined by the Consumer Price Index for Jrban Consumers. The information adjusted for changes in specific prices is calculated by adjusting of sales and depreciation expense for changes in those prices that relate to property, plant and pment, and inventory being used in the activities of the business. No other items of revenue or rise in the Condensed Consolidated Statement of Income are adjusted. predation expense included in income adjusted for changes in general inflation and adjusted for ges in specific prices is computed using the same depreciation methods and depreciable lives as are for conventional financial statements. Property, plant and equipment which was acquired as part of icquisition of B&W has been included in information presented for changes in general inflation and in ific prices based on the fair market values assigned at the time of acquisition, March 31, 1978. iy comparison between the conventional financial statements and the required supplemental osures must be viewed with caution. The amounts shown adjusted for general inflation only correct iistortions caused by recording transactions in dollars of varying purchasing power. The amounts vn adjusted for changes in specific prices include the use of estimates and assumptions. Changes in vidual prices are caused in part by changes in the general purchasing power of the dollar and in part ither supply and demand factors including technological change. ie provision for income taxes remains unchanged because income tax laws do not allow the Company !aim tax deductions related to these adjustments. These disclosures highlight an important view of the ipany's annual effective tax rate: 42% as presented in the conventional financial statements, 76% as .sted for the effects of general inflation, and 82% as adjusted for the effects of specific inflation, ie gain from the decline in purchasing power of net amounts owed reflects the fact that total liabilities mg a future fixed cash settlement exceeded total assets with similar characteristics. This unrealized ; theoretically represents the fact that net liabilities can be repaid with dollars having a lesser value i at the beginning of the year due to inflation. he increase in specific prices of inventories and property, plant and equipment represents the erence between the current cost amounts at the beginning of the year and the end of the year. Part of difference is attributable to inflation in general and part is attributable to economic factors affecting individual prices of the particular assets owned. To the extent that the difference has been realized by le during the year, it is included in income from operations on a current cost basis. The unrealized pordoes not represent receipt of cash and should not be considered as providing funds for reinvestment ividend distribution in the current period. ie net assets shown under changes in general inflation and under changes in specific prices are sted only for changes in inventory and property, plant and equipment. PAGE S l CONSOLIDATED FINANCIAL STATEMENT CONSOLIDATED FINANCIAL STATEMENTS PAGE 52 Notes to Consolidated Financial Statements Revenues Cost and Expenses Cost of operations Depreciation and amortization Selling, general and administrative expenses Other Income (Expense) Income Before Provision for Income Taxes Provision for Income Taxes Net Income --------------------- ----- --__________ _ Condensed Consolidated Statement of Income Adjusted for Inflation Fiscal Year Ended March 31, 1980 As Reported in the Conventional Financial Statements Adjusted for General Inflation (Constant Dollars) Adjusted for Changes in Specific Prices (Current Costs) (In thousands of dollars except for per share amounts) $3,282,510 $3,282,510 $3,282,510 2,803,872 111,803 261,184 47,818 2,846,585 137,158 261,184 47,818 2,831,959 157,823 261,184 47,818 153,469 65,103 $ 88,366 85,401 65,103 $ 20,298 79,362 65,103 $ 14,259 Income (loss) per common and common equivalent share (Primary) (After providing preferred dividends) $ 1.77 $ (0.31) $ (0.49) Gain from decline in purchasing power or net amounts owed $ 47,269 $ 47,269 Increase in current cost of inventory and property, plant and equipment held during the year (based on specific price changes) Effects in increase in general price level Increase in current cost of inventory and property, plant and equipment held during the year (based on specific price changes)* net of changes in the general price level $ 319,409 226,532 $ 92,877 Net assets at year end $1,411,127 $1,617,741 $1,669,208 "At March 31, 1980, current cost of inventory was $440,616 and current cost of property, plant, and equipment, net of accumulative depreciation was $1,379,506. Five-Year Comparison of Selected Supplementary Financial Data Adjusted for Effects of Inflation (In average fiscal 1980 dollars) Revenues (In thousands of dollars) Cash dividends per common share Market price per common share at fiscal year end Average consumer price index 1980 $3,282,510 $ 1.25 For Fiscal Years Ended March 31, 1979 1978 1977 $3,532,724 $ 1.12 $1,577,149 .$ 1-10 $1,591,206 $ 0.75 1976 $1,512,498 $ 0.58 24% 224.8 21% 200.1 29 184.4 33% 172.9 31 163.8 Corporate Information Board of Directors H. W. BAILEY Executive Vice President and Chief Administrative Officer SfG. W. DOUGLAS CARVER Independent oil producer and General Partner of Carao Company tJ. E. CUNNINGHAM Chairman of the Board and Chief Executive Officer C. L. GRAVES Former Chairman of the Board and ChiefExecutive Officer of the Company IT*JAMES A. HUNT Partner - Kalb, Voorkis & Co. securities brokers - JOHN A. LYNOTT Executive Vice President and ChiefFinancial Officer It*JOHN A. MORGAN Vice Chairman of the Board, Smith Barney, Harris Upham & Co. Incorporated - investment bankers R. K. RICHIE President and Chief Operating Officer, McDermott Operating Unit ItJOHN D. RITCHIE Consultant and Director ofvarious corporations SItWILLIAM T. SEAWELL Chairman and ChiefExecutive Officer, Pan American World Airways, Inc. commercial air transportation S'WALTER B. SHAW Chairman and President, Turner Construction Company - general construction contractors IWALTER 0. SPENCER Dean, Graduate School ofBusiness Administration, Tvlane University S'JOHN B. TWEEDY Executive Vice President and Director, Tosco Corporation - oil refining and marketing WALTER M. VANNOY President and ChiefOperating Officer, Babcock & Wilcox Operating Unit IRUSSELL L. WAGNER Chairman and ChiefExecutive Officer, NLT Corporation - insurance holding company 'Audit Committee *Directors Nominating Committee ^Officers Salary & Supplemental Compensation Committees ^Career Executive Stock Plan Committee Corporate Officers J. E. CUNNINGHAM Chairman of the Board and Chief Executive Officer R. K. RICHIE President and Chief Operating Officer. McDermott Operating Unit W. M. VANNOY President and Chief Operating Officer. Babcock & Wiicox Operating Unit H. W. BAILEY Executive Vice President and Chief Administrative Officer R. C. BASSETT Vice President, Materials and Transportation P. BREITMEYER, II Vice President, Corporate Planning and Development J. D DUPY Vice President, Public Affairs R. E. WOOLBERT Vice President, Employee Relations J. A. LYNOTT Executive Vice President and Chief Financial Officer C. F. KRAUS Vice President, Tax Administration E. A. ROBIDOUX Vice President and Controller R. A. JOLLIFP Treasurer K. J. GILLY Vice President, General Counsel, and Corporate Secretary McDermott Operating Unit R. K. RICHIE President and Chief Operating Officer W. E. EARLES Senior Vice President and Group Executive, Fabrication and Structural, Gulf of Mexico C. W. DYERSON Vice President and General Manager, Fabrication Divisions I. R. FOSTER Senior Vice President and Group Executive, North, Central, and South America Areas V. J. LEBLANC Vice President and Group Executive, Shipyards J. W, McCARTE Vice President and Group Executive, Harvey, Mexico, Central and South America R. V. JOFFRION Vice President and General Manager, Marine Pipeline, and Harvey Fabrication R. E. CURTIS Vice President, Mexico, Lan-Dennott Joint-Venture W. M. DOUGLAS Vice President, Mexico, CMM Joint-Venture R. E. HOWSON Senior Vice President and Group Executive, McDermott Engineering G. C. LEE Vice President and Group Executive. Research and Development, and Technical Services C. E. YOUNG Vice President, Research and Development J. L. BATES Vice President and General Manager, Houston Engineering E. J. DRESSEL Vice President and Genera] Manager, Equipment and Materials Operations W. H. FRASER Vice President and General Manager, London Engineering R. P. STAGG Vice President and General Manager, New Orleans Engineering S. P. VICTORY Vice President and General Manager, Singapore Engineering J. C. ANDREWS Vice President, Business Development PAGE 53 CORPORA IE INFORMATION CORPORATE INPORMAJTON Corporate Information PAGE 54 H. R. REEVES Senior Vice President and Group Executive, North Sea Area M. H. LAM Vice President and General Manager, European Area, Marine Operations R. J. MACHEN Vice President and General Manager, United Kingdom Area E. R. H. SELLEY Senior Vice President and Group Executive, Middle East. Southeast Asia, and West Africa Areas E. P- CLINE Vice President and Group Executive, Southeast Asia L. E. WALKER Vice President and General Manager, Southeast Asia Operations R. D. MILLER Vice President and Group Executive, Middle East-and West Africa Area W. L. HIGGINS Vice President and General Manager, Middle East and Egypt Operations W. D. HOWELL Vice President and Genera! Manager, West Africa Operations Babcock & Wilcox Operating Unit W. M. VANNOY President and Chief Operating Officer L. M. FAYRET Executive Vice President and Group Executive, Business Integration Group J. J. STEWART President, Babcock & Wilcox Canada Ltd. D. K. DAVIES Vice President, International Operations J. F. EWING Vice President, Quality and Technology W. MARKERT, JR. Vice President, Research and Development, and Contract Research Divisions J.W. THOMPSON Vice President, Utility Sales and Marketing G. W. KBOSS Executive Vice President and Group Executive, Materials Group T. M. KREBS Vice President and General Manager, Tubular Products Division R. P. STUNTZ Vice President and General Manager, Insulating Products Division E. M. GRIFFIN Senior Vice President and Group Executive, Fossil Power and Construction Group J. S. DZIEWISZ Vice President and General Manager, Fossil Power Generation Division W, D. WICK Vice President and General Manager, B&W Construction Company D. E. HEYBURN Senior Vice President and Group Executive, Industrial Products and Services Group J. R. HILL Vice President and General Manager, Automated Machine Division R. J. CAMPBELL President, Bailey Controls Company and Control Components International E. C. SMITH President, Hudson Products Corporation E. C. MONCRIEF Vice President, Industrial and Marine Division F. G. RAYNOR President, TLT-Babcock, Inc. J. H. MacMILLAN Senior Vice President and Group Executive, Nuclear Power Group W. B. BEISEL Vice President and General Manager, Nuclear Equipment Division D. E. GUILBERT Vice President and General Manager, Nuclear Power Generation Division J. P. ECKERT Vice President and General Manager, Naval Nudear Fuel Ehvision Transfer Agents and Registrars First City National Bank of Houston Post Office Box 809 Houston, Texas 77002 Morgan Guaranty Trust Company 30 West Broadway New York, New York 10015 Common Stock Series A $2.20 Cumulative Convertible Preferred Stock Series B $2.60 Cumulative Preferred Stock Trustees and Paying Agents Morgan Guaranty Trust Company 30 West Broadway New York, New York 10015 9%% Sinking Fund Debentures Due March 15, 2004 10.20% Sinking Fund Debentures Due December 1,1999 9.40% Notes Due December 1, 1984 Pittsburgh National Bank Post Office Box 340747 Pittsburgh, Pennsylvania 15230 6.80% Pollution Control Revenue Bonds, Series A Due February 1, 2009 Trustee, Paying Agent and Conversion Agent Citibank, N.A. 111 Wall Street New York, New York 10015 4%% Convertible Subordinated Debentures Due October 15, 1987 Certified Public Accountants Arthur Young & Company New Orleans, Louisiana 70112 Form 10-K A copy of the Annual Report to the Securities and Exchange Commission (Form 10*K) may be obtained, without charge, by writing Vice President, Public Affairs, J. Ray McDermott & Co.', Inc., Post Office Box 60035, Mew Orleans, Louisiana 70160. 504) 587-4411 Annual Meeting The Annual Meeting of the Stockholders of J. Ray McDermott & Co., Inc., for the fiscal year ended March 31, 1980 will be held in the Grand Salon of the Royal Orleans, 621 St. Louis Street, New Orleans, Louisiana, on Tuesday, August 12, 198C at 9:30 a.m. local time.