If your shares are held of record, you also will be able You should refer to give us your proxy by calling a toll-free telephone number or using the Internet — 24 hours a day, seven days a week. If your shares are heldinstructions provided in street name,the enclosed voting instruction form for further information. Additionally, the availability of telephone or Internet voting depends on the voting process used by the broker or nominee that holds your shares.

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	•	if a change in control of our company occurs, all transfer restrictions and forfeiture provisions on the shares of restricted stock will lapse and all outstanding stock options will become immediately exercisable; and
	•	we granted 4,125 options to acquirepurchase 4,725 shares of our common stock and 2,0632,363 shares of restricted stock during fiscalthe year 2003.ended December 31, 2004.

Grant of Deferred Stock Units to Ronald C. Cambre. On January 31, 2002, we made a one-time grant of 5,000 deferred stock units (“DSUs”) to Ronald C. Cambre. That grant was identical to DSU grants we made to our other directors in fiscal year 2000. Under the terms of the DSU grant, each DSU represents the right to receive one share of our common stock upon vesting, which is the earlier of the third anniversary of the grant date (if Mr. Cambre is still serving as a member of the Board) or the termination of his service as a Board member due to death, total and permanent disability, or approved retirement; provided that the receipt of shares underlying the DSU grant may be deferred by him for tax reasons. DSUs do not carry voting or cash dividend rights until vested and the underlying shares of common stock are issued; provided that they will accrue dividend equivalents in the form of additional DSUs if and when dividends are declared and paid on our common stock.

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	(7)	Shares owned by Mr. Howard include 9,377 shares of common stock that he may acquire on the exercise of stock options, as described above, and 650 restricted shares of common stock as to which he has sole voting power but no dispositive power.
	(8)	Shares owned by Mr. Johnstone include 10,100 shares of common stock that he may acquire on the exercise of stock options, as described above, and 1,100 restricted shares of common stock as to which he has sole voting power but no dispositive power.
	(9)	Shares owned by Mr. Kalman include 134,901 shares of common stock that he may acquire on the exercise of stock options, as described above, and 69,500 restricted shares of common stock as to which he has sole voting power but no dispositive power. Also includes 4351,058 shares of common stock held in the McDermott Thrift Plan and 21,000 shares held by a family limited partnership, of which he and his wife are the two sole general and limited partners. Mr. Kalman disclaims beneficial ownership of the 21,000 shares held by that family limited partnership, except to the extent of his pecuniary interest.
(9)	Shares owned by Mr. Kingsley include 75 restricted shares of common stock as to which he has sole voting power but no dispositive power.

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approve the selection of companies used for this purpose. The

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general industry industry-specific comparison group includes more companies thanis the peer groupsame as the 2004 Peer Group used in the performance graph included in this proxy statement.

     The

      Since 2000, the Committee has engaged Apogee, Holdings, an executive compensation consulting firm, to assist in revising McDermott’s executive compensation program to more clearly reflect a total compensation approach. Under this approach, McDermott’s executive compensation program focuses on competitive opportunities that are contingent upon the achievement of operational and financial performance goals. Individual opportunities are formulated by giving consideration to the executive’s position in the Company,with McDermott, individual accountabilities, corporate and unit objectives and compensation practices in the competitive marketplace.

Base Salary

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

      As part of the review conducted by Apogee, Holdings, a thorough analysis was performed to compare current executive salaries with comparablecompetitive industry benchmarks. The analysis determined that our salaries were generally within 10% of the market median considered to be fully competitive. As a result, we did not grant across-the-boardcompetitive and salary increases to McDermott’s executives in 2003. Instead, we focused on a new structure for annual cash incentives and an increased emphasis on long-term incentives.

adjustments were determined individually as described above.

      During fiscal year 2003, Bruce W.2004, Mr. Wilkinson served as McDermott’s Chief Executive Officer. DuringWhile the year,Committee was highly pleased with Mr. Wilkinson’s base salary was increased by 8.3% to $650,000.performance, at Mr. Wilkinson’s request, his base salary for 2004 will bewas not increased and was maintained at the current level of $650,000.

Annual Bonus

      As part of the short-term component of McDermott’s overall executive compensation program for the year ended December 31, 2003,2004, we provided bonus opportunities to our executive officers and key executivesselected salaried employees through McDermott’s Executive Incentive Compensation Plan (the “EICP”).

     For the year ended December 31, 2003, we provided annual bonus opportunities that focused on The EICP is a cash-based performance incentive program designed to motivate and reward eligible employees for their contributions to those factors and objectives that drive McDermott’s earnings and growth. KeyExecutive officers and key employees at McDermott’s corporate headquarters and business groups whose effective performance can have a reasonable impact on McDermott’s tactical and strategic initiatives participatedparticipate in the EICP. Each participant hadEICP annually.

      For each year under the EICP, the Committee establishes a target award, expressed as a percentage (or multiplier) of theirthe participant’s annual base annual salary. Businesssalary, for executive officers and certain employees. The Committee establishes weighted business plan performance measures and individual performance measures, were definedappropriate for the position of each participating officer, at the beginning of the year. AFor each business plan measure, the Committee defines a threshold, target and maximum level of performance. Target performance was defined for eachin both the business plan measure. Target performanceand individual measures results in eligibility for payment of 100% of the targeted amount.target award. Performance below the target, but above the threshold amount, and performance above the target, would result in a decreased or increased payout, respectively. Additionally, the EICP contemplates that the Committee may authorize an additional payment in an amount equal to 30% of the target award to recognize exemplary accomplishments in any year, regardless of whether performance was above or below the targeted levels. Bonuses of up to 200% of individual target awards may be earned under the EICP.

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      The target awards for 2004, as a percentage of the operating losses encountered by McDermott’s J. Ray McDermott Group, attainment of the threshold performance and financial measures was not achieved for 2003 for McDermott or the J. Ray McDermott Group. Although none of McDermott’s senior executive officers received EICP awards for 2003, we approved and paid special bonuses to selected corporate staff officers and members who, under the terms of the EICP, would not have otherwise received incentive compensation. The awards, whichparticipating officer’s annual base salary on 1/1/04 (the “EICP muliplier”), were a fraction of the individuals’ target awards, were approved as a result of our assessment that these individuals performed commendably in 2003, relative to their individual performance measures, and their contributions merited recognition. Mr. Wilkinson did not receive any bonus forfollows:

	•	Chief executive officer, 80%;
	•	Business group presidents, 65%;
	•	Other senior officers of McDermott International, Inc., 55%; and
	•	Other elected officers of McDermott International, Inc. and business groups, 45%

      For the year ended December 31, 2003. Additionally, certain J. Ray McDermott2004, participating officers receivedearned bonuses pursuant to contractual obligations separate

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fromunder the EICP. Executives at McDermott’s BWXT Group and B&W Group earned and received bonusesEICP greater than their targetedtarget awards based on performance measures that included return on adjusted assets, operating income and other measures reflecting individual accountabilities of each executive officer. During that period, Mr. Wilkinson earned a bonus amounts under the EICP.of $1,014,000 on a target award of 80%.

Long-Term Incentives

     McDermott

      The Committee believes that the interests of its stockholders are best served when a significant percentage of officers’ compensation opportunities is comprised of equity-based and other long-term incentives that acquire value contingent upon increases in the share price of McDermott’s common stock and other indicators that reflect improvements in business fundamentals. In determining the size and frequency of individual long-term incentive awards, the Committee considers:

	•	market practices among similarcomparable and other companies;
	•	level of responsibility;
	•	individual performance; and
	•	the potential of the grant recipient to affect future outcomes.

      The Committee does not apply any specific weighting of these factors in its determinations.

      In 2003, McDermott2004, the Committee awarded executives and key employees with equity-based incentives through the 1996 Officer Long-Term Incentive Plan and 2001 Directors and Officers Long-Term Incentive Plan (the “2001 LTIP”). It is McDermott’sthe Committee’s intention to review compensation opportunities annually and to make awards under itsMcDermott’s long-term plans at such times and in such amounts as may be required to accomplish the objectives described above.

     Stock Options. Stock options are granted to McDermott’s executives to provide an equity-based incentive component to their compensation. In 2003,2004, McDermott granted stock options at exercise prices equal to the fair market value of the underlying common stock on the date of grant.

      During the year ended December 31, 2003,2004, McDermott granted Mr. Wilkinson options to acquire 160,100129,200 shares of common stock at an exercise price of $3.15$9.01 per share. These options vest one-third on each of the first three anniversaries of the date of grant and have a term of 10 years.

     Restricted Stock. In fiscalthe year 2003,ended December 31, 2004, we made grants of restricted stock under the 2001 LTIP. Actual shares of stock were issued at the time of grant, the vesting of which is scheduled to occur upon the earlier of the fifth anniversary of the award date or the achievement of predetermined individual performance measures. Until those shares of restricted stock vest, they are nontransferable and subject to forfeiture under certain circumstances.

      In April 2003,2004, Mr. Wilkinson received 27,400was granted 29,700 shares of restricted stock.

stock, excluding the shares granted under our Key Executive Retention Program (“KERP”), discussed further below.

      Generally, the vesting of restricted stock is taxable income subject to statutory tax withholding. In March 2004, the Committee approved the irrevocable electionelections of each of Messrs. Wilkinson, Burkhart, Fees, Henzler, Kalman, Nesser and Sanninocertain officers to satisfy withholding obligations relating to all or a portion of any applicable federal, state or other taxes that may be due on the vesting in fiscal year 2004 of certainwithhold shares of restricted stock that each has been awardedupon vesting to satisfy the statutory minimum tax withholding obligation on restricted stock vesting during 2004, other than stock granted under various long-term incentive plans by returningthe KERP. Seven executive officers, including Mr. Wilkinson, and several other key employees elected to us a number of such vested shares having a fair market value equalbe subject to the amountshare witholding in satisfaction of such taxes.

Performance Units. McDermott introduced performance units as a new incentive and retention concept for its officers and key employees in 2003. The performance units will result in a cash payment at the end of a three-year measurement period if the predetermined performance measure is achieved. In April 2003, Mr. Wilkinson received an initial grant of 39,800 performance units. The final number and value of the performance units will be determined based on the average price of a share of the Company’s common stock over the ten-day period ending on the performance measurement date. The performance units become vested on the third anniversary of the date of grant.applicable

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statutory tax withholding requirements. Additionally, in October 2004, the Committee approved the irrevocable election of six executive officers, including Mr. Wilkinson, as well as several other key employees, to have some or all of their minimum statutory tax withholding obligation satisfied with the withholding of an equivalent number of shares for restricted stock vesting during 2005, other than stock granted under the KERP.

Performance Units. The Committee did not grant any performance units in 2004.

Key Executive Retention Program

      In May 2004, the Committee instituted the Key Executive Retention Program (the “KERP”) in an effort to maintain continuity of corporate management as McDermott worked through a number of operational challenges. The KERP provided certain executives and other key employees with quarterly vesting of shares of restricted stock and cash payments concluding on March 1, 2005, conditioned on continued employment by the participating executive on each vesting date.

      Under the KERP, Mr. Wilkinson was granted (1) periodic cash retention payments in an aggregate amount equal to 25% of his annualized base salary as of January 1, 2004, (2) a final cash retention payment on March 1, 2005 equal to 25% of his annualized base salary as of January 1, 2004, subject to the satisfaction of performance goals the Committee established (which goals were attained), and (3) 37,143 shares of restricted stock, the vesting of 50% of which was subject to the attainment of performance goals the Committee established (which goals were attained). The final vesting date under the KERP was March 1, 2005. The agreements setting forth the terms of Mr. Wilkinson’s and the other executive officers’ KERP compensation have been filed with the SEC as exhibits to McDermott’s Form 10-Q for the quarter ended June 30, 2004.

Change-in-Control

      The Committee approved and McDermott entered into change-in-control agreements with Messrs. Deason, Fees, Kalman, Nesser, Sannino and Wilkinson. Under these agreements, if McDermott terminates an executive officer’s employment, other than for cause or as a result of his death or disability, or if an executive officer terminates his employment for good reason within the one year following a change in control, McDermott will pay that executive officer all of the following, pursuant to the change-in-control agreement:

	•	Various accrued benefits, such as earned but unpaid salary, earned but unused vacation and reimbursements,
	•	A cash payment equal to the product of the EICP muliplier used for the executive officer and the executive officer’s annual base salary for the applicable period, in the event an EICP bonus for the year prior to termination is paid to other EICP participants after the date of the executive’s termination. For example, for an applicable termination in 2005, the cash payment would equal the executive officer’s target award percentage multiplied by the executive officer’s 2004 annual salary.
	•	A prorated cash payment under the EICP based upon the executive officer’s target award for the year in which the termination occurs and the number of days in which the executive was employed with McDermott during that year. For example, for an applicable termination in 2005, the cash payment would equal the product of (1) the executive officer’s 2005 annual base salary multiplied by the executive officer’s 2005 EICP target percentage and (2) the number of days employed in 2005 divided by 365).
	•	A cash payment equal to 200% of the executive’s annual base salary immediately prior to termination plus his EICP target bonus applicable to the year in which the termination occurs. For example, for an applicable termination in 2005, the cash payment would equal two times the sum of the executive officer’s 2005 annual base salary plus the executive officer’s target bonus.

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	•	In the event any payment is subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended, an additional cash payment equal to such excise tax, as well as a gross-up payment for any resulting income or excise tax.

Benefits

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

Policy with Respect to Section 162(m)

      Section 162(m) of the Internal Revenue Code limits McDermott’s tax deductions relating to the compensation paid to certain executive officers, unless the compensation is performance-based and the material terms of the applicable performance goals are disclosed to and approved by McDermott’s stockholders. All of McDermott’s past executive equity-based compensation plans have received stockholder approval and were prepared with the intention that McDermott’s incentive compensation would qualify as performance-based compensation under Section 162(m).

      While we intend to continue to rely on performance-based compensation programs, we are cognizant of the need for flexibility in making executive compensation decisions, based on the relevant facts and circumstances, so that the best interests of McDermott are achieved. To the extent consistent with this goal, we will attempt to satisfy the requirements of Section 162(m) in the future.

Conclusion

      We believe McDermott’s executive compensation policies and programs serve the interests of McDermott and its stockholders effectively, and that the various pay vehicles offered are appropriately balanced to provide appropriate motivation for executives to contribute to McDermott’s overall future success, thereby enhancing the value of McDermott for its stockholders’ benefit.

      We will continue to monitor the effectiveness of McDermott’s total compensation programs to meet the current needs of our company.

	THE COMPENSATION COMMITTEE
R.L.	R. L. Howard, Chairman
	R.C.R. A. Brown
	R. C. Cambre
	J.W. Johnstone,O. D. Kingsley, Jr.
	D.B.D. B. McWilliams
	T.C.T. C. Schievelbein
	R.E.R. E. Woolbert

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PERFORMANCE GRAPH

      The following graph compares the yearly percentage change in McDermott’s cumulative total return on its common stock over the preceding five-year period with the cumulative total return of the Standard & Poor’s 500 Stock Index (“S&P 500 Index”) and with atwo peer groupgroups of publicly traded companies over the same period. The first peer group (the “2003 Peer Group”) was used in the presentation of the performance graph we included in the proxy statement for our 2002, 2003 Peer Groupand 2004 Annual Meetings and consists of the following companies: Cal Dive International, Inc., Fluor Corporation, Foster Wheeler Corporation, Global Industries, Ltd., Gulf Island Fabrication, Inc., Halliburton Company, Jacobs Engineering Group, Inc., Oceaneering International, Inc., Stolt Offshore S.A., and Technip.

Technip S.A. The second peer group (the “2004 Peer Group”) is a new group of companies we selected in order to provide a better representation of companies in the defense and related industries that are comparable to our Government Operations segment and to update our group of peers that are comparable to our Marine Construction Services segment. The 2004 Peer Group consists of Fluor Corporation, Global Industries, Ltd. GlobalSantaFe Corporation, Goodrich Corporation, Halliburton Company, Jacobs Engineering Group Inc., Rockwell Collins, Inc., The Shaw Group Inc., Stolt Offshore S.A., Technip S.A., United Defense Industries, Inc. and Washington Group International, Inc. In accordance with SEC rules, we are presenting the 2004 Peer Group along with the 2003 Peer Group in the graph below.

Comparison of Cumulative Total Return*

McDermott International, Inc., S&P 500, 2003 Peer Group, and 2004 Peer GroupsGroup

*	*	AssumesAssuming $100 invested on December 31, 1998 in our common stock, the S&P 500,1999 and the Peer Group, and the reinvestment of dividends as they are paid.on quarterly basis.

		12/31/98				12/31/99				12/31/00				12/31/01				12/31/02				12/31/03
McDermott International, Inc.		$	100.00			$	37.14			$	44.55			$	50.85			$	18.15			$	49.52
S&P 500		$	100.00			$	121.01			$	109.99			$	96.98			$	75.59			$	97.24
Peer Group		$	100.00			$	128.12			$	124.91			$	72.73			$	68.01			$	94.77

		12/31/99				12/31/00				12/31/01				12/31/02				12/31/03				12/31/04
McDermott International		$	100.00			$	119.94			$	136.90			$	48.87			$	133.33			$	204.85
S&P 500		$	100.00			$	90.89			$	80.14			$	62.47			$	80.35			$	89.07
2003 Peer Group		$	100.00			$	97.47			$	56.73			$	53.08			$	73.97			$	110.96
2004 Peer Group		$	100.00			$	111.64			$	69.83			$	65.34			$	88.47			$	124.74

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COMPENSATION OF EXECUTIVE OFFICERS

      The following table summarizes the annual and long-term compensation of our Chief Executive Officer and our four highest paid executive officers other than our CEO (collectively, the “Named Executive Officers”) for the fiscal years ended December 31, 2004, 2003 2002 and 2001.

2002.

Summary Compensation Table

								Annual Compensation(1)												Long-Term Compensation
																																										Annual Compensation(1)												Long-Term Compensation
																				Awards								Payouts																										Awards								Payouts
																Other				Restricted				Securities																										Other				Restricted				Securities
		Principal		Period												Annual				Stock				Underlying				LTIP				All Other						Period												Annual				Stock				Underlying				LTIP				All Other
Name		Position		Ended				Salary				Bonus				Comp.(2)				Awards(3)				Options				Payouts				Comp.(4)				Principal Position		Ended				Salary				Bonus				Comp.(2)				Awards(3)				Options				Payouts				Comp.(4)
B.W. Wilkinson		Chairman & Chief			12/03			$	650,000			$	0			$	0			$	85,485				160,100			$	0			$	5,001			Chairman & Chief			12/04			$	650,000			$	1,339,000	(5)			—			$	545,279				129,200			$	0			$	6,151
		Executive Officer			12/02			$	600,000			$	144,000			$	0			$	2,299,676				200,000			$	0			$	3,750			Executive Officer			12/03			$	650,000			$	0				—			$	85,485				160,100			$	0			$	5,001
					12/01			$	500,004			$	800,000			$	0			$	671,486				180,000			$	0			$	6,336						12/02			$	600,000			$	144,000				—			$	2,299,676				200,000			$	0			$	3,750
R.A. Deason		President & Chief			12/03			$	262,500	(5)		$	50,000	(6)		$	0			$	77,998				100,000			$	0			$	5,216			President & Chief			12/04			$	370,008			$	647,967	(6)			—			$	261,843				50,000			$	0			$	6,156
		Operating Officer,																																		Operating Officer,			12/03			$	262,500	(7)		$	50,000	(8)			—			$	77,998				100,000			$	0			$	5,216
		J. Ray McDermott																																		J. Ray McDermott
J.A. Fees		President & Chief			12/03			$	366,667			$	416,520			$	0			$	24,959				46,600			$	0			$	6,009			President & Chief			12/04			$	410,694			$	533,000				—			$	112,250				54,300			$	0			$	6,157
		Operating Officer,			12/02			$	280,208			$	195,615			$	0			$	348,293				64,800			$	0			$	4,508			Operating Officer,			12/03			$	366,667			$	416,520				—			$	24,959				46,600			$	0			$	6,009
		BWX Technologies			12/01			$	260,000			$	228,150			$	0			$	210,548				116,440			$	0			$	5,820			BWX Technologies			12/02			$	280,208			$	195,615				—			$	348,293				64,800			$	0			$	4,508
F.S. Kalman		Executive Vice			12/03			$	380,000			$	0			$	0			$	45,239				84,700			$	0			$	2,377			Executive Vice President			12/04			$	400,000			$	629,000	(9)			—			$	303,434				63,700			$	0			$	6,156
		President & Chief			12/02			$	307,576	(7)		$	200,000	(8)		$	0			$	572,222				160,000			$	0			$	0			& Chief Financial			12/03			$	380,000			$	0				—			$	45,239				84,700			$	0			$	2,377
		Financial Officer																																		Officer			12/02			$	307,576	(10)		$	200,000	(11)			—			$	572,222				160,000			$	0			$	0
J.T. Nesser, III		Executive Vice			12/03			$	317,040			$	0			$	0			$	29,327				55,000			$	0			$	6,010			Executive Vice President,			12/04			$	335,000			$	526,788	(12)			—			$	232,475				42,900			$	0			$	6,154
		President,			12/02			$	317,040			$	52,312			$	107,405			$	649,772				84,000			$	0			$	4,508			General Counsel &			12/03			$	317,040			$	0				—			$	29,327				55,000			$	0			$	6,010
		General Counsel &			12/01			$	313,590			$	335,000			$	0			$	387,969				104,000			$	0			$	5,109			Corporate Secretary			12/02			$	317,040			$	52,312			$	107,405			$	649,772				84,000			$	0			$	4,508
		Corporate Secretary

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(1)	Includes salary and bonus earned in a fiscal year, whether or not deferred. Bonuses areBonus amounts include bonuses paid after thein 2005, 2004 and 2003, but earned in fiscal year during which they are earned.years 2004, 2003 and 2002, respectively.
(2)	The aggregate value of perquisites and other personal benefits received by a Named Executive Officer during a fiscal year is not included if it does not exceed the lesser of $50,000 or 10 percent of the total amount of such officer’s salary and bonus for that period. For purposes of determining whether perquisites exceeded that threshold amount, we did not assign any value to the inclusion of family members on charter flights, because we did not incur any incremental cost for the family member(s) to accompany the executive officer on those flights. The amount shown for Mr. Nesser in 2002 is attributable to relocation expenses.
(3)	Includes restricted stock granted in 2004, 2003 and 2002 and restricted stock issued in 2002 as a result of performance share awards granted during fiscal year 2000. The restricted stock awards are valued at the closing market price of our common stock on the date of grant. The restricted stock issued as a result of the performance share awards are valued at the closing market price of common stock on the date the restricted stock was issued. McDermott waived the $1.00 per share payment requirement for the restricted stock issued as a result of the performance share awards.

As of December 31, 2003,2004, the total number of shares of restricted stock held by the Named Executive Officers and their market value (based on a closing market price on December 31, 20032004 of $11.95,$18.36, net of any consideration paid for such shares) are as follows:

		Shares of				Market				Shares of				Market
Name		Restricted Stock				Value				Restricted Stock				Value
Mr. Wilkinson			239,306			$	2,859,707				196,243			$	3,603,021
Mr. Deason			25,000			$	298,750				50,243			$	922,461
Mr. Fees			49,061			$	586,279				36,700			$	673,812
Mr. Kalman			69,500			$	830,525				86,057			$	1,580,007
Mr. Nesser			82,909			$	990,763				77,043			$	1,414,509

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Dividends, if any, would be paid on restricted stock at the same time and at the same rate as dividends paid to all stockholders. Grants of restricted stock in 20032004 vest on the third anniversaryover a period of three to five years from the grant date, based upon the attainment of predetermined financial goals butgoals. The above share amounts include grants of restricted stock of 37,143, 21,143, 22,857 and 19,143 to Messrs. Wilkinson, Deason, Kalman and Nesser, respectively, granted in no event later than five years after the date of grant.May 2004 under our Key Executive Retention Program (“KERP”), discussed above under “Compensation Committee Report,” and which vested in quarterly installments through March 1, 2005.

(4)	Amounts shown for each Named Executive Officer for the fiscal yearyears ended December 31,2002, 2003 and 2004 are attributable to our matching contributions to suchthe officer’s contribution under the McDermott Thrift Plan.
(5)	Includes cash retention payments made to Mr. Wilkinson of $325,000 under our KERP.
(6)	Includes cash retention payments made to Mr. Deason of $185,004 under our KERP.
(7)	Reflects only the compensation paid to Mr. Deason from the time he joined our company in March 2003.
(6)  (8)	Reflects a $50,000 signing bonus.
(7)  (9)	Includes cash retention payments made to Mr. Kalman of $200,000 under our KERP.

(10)	Reflects only the compensation paid to Mr. Kalman from the time he joined our company in February 2002.
(8)(11)	Includes a $100,000 signing bonus.
(12)	Includes cash retention payments made to Mr. Nesser of $167,500 under our KERP.

Option Grant Table

      The following table provides information about option grants to the Named Executive Officers during fiscalthe year 2003.

ended December 31, 2004.

Option Grants in Fiscal Year 20032004

		Individual Grants(1)																								Individual Grants(1)
		Number of				% of Total												Potential Realizable Value at								Number of																Potential Realizable Value
		Securities				Options												Assumed Annual Rates of								Securities				% of Total												at Assumed Annual Rates
		Underlying				Granted to												Stock Price Appreciation for								Underlying				Options												of Stock Price Appreciation
		Options				Employees												Option Term(2)								Options				Granted to												for Option Term(4)
		Granted in				in				Exercise Price				Expiration												Granted				Employees				Exercise Price				Expiration
Name		2003				2003(3)				(Per Share)(4)				Date				5%				10%				in 2004				in 2004(2)				(per Share)(3)				Date				5%				10%
B.W. Wilkinson			160,100				14.80			$	3.15				04/02/13			$	317,161			$	803,748				129,200				14.53			$	9.01				03/18/14			$	732,091			$	1,855,263
R.A. Deason			100,000				9.24			$	3.15				04/02/13			$	198,102			$	502,029				50,000				5.62			$	9.01				03/18/14			$	283,317			$	717,981
J.A. Fees			46,600				4.31			$	3.15				04/02/13			$	92,315			$	233,945				54,300				6.11			$	9.01				03/18/14			$	307,682			$	779,727
F.S. Kalman			84,700				7.83			$	3.15				04/02/13			$	167,792			$	425,218				63,700				7.16			$	9.01				03/18/14			$	360,946			$	914,708
J.T. Nesser, III			55,000				5.08			$	3.15				04/02/13			$	108,956			$	276,116				42,900				4.82			$	9.01				03/18/14			$	243,086			$	616,028

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(1)	Options granted in fiscalthe year 2003ended December 31, 2004 vest in equal installments of one-third on the first, second and third anniversaries of the date of grant and expire ten years from the date of grant. In general, vesting is contingent on continuing employment with us or one of our subsidiaries. In the event of a “change in control” of our company, all outstanding options will vest and become immediately exercisable.
(2)	Based on options to acquire 889,131 shares of common stock granted to all employees of McDermott and its subsidiaries during the year ended December 31, 2004.
(3)	Fair market value on the date of grant, based on the average of the high and low sales prices reported on the New York Stock Exchange on that date.
(4)	Potential Realizable Value is based on the assumed annual growth rates for each of the grants shown over their ten-year option term. For example, if the exercise price is $3.15,$9.01, a 5% annual growth rate over ten

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	years results in a stock price of $5.13$14.68 per share, and a 10% rate results in a price of $8.17$23.37 per share. Actual gains, if any, on stock option exercises are dependentdepend on the future performance of theour common stock. Zero percent appreciation in the price of our common stock price will result in no gain.
(3)	Based on options to acquire 1,082,000 shares of common stock granted to all employees of McDermott and its subsidiaries during fiscal year 2003.
(4)	Fair market value on date of grant.

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Option Exercises and Year-End Value Table

      The following table provides information concerning the exercise of stock options during fiscalthe year 2003ended December 31, 2004 by each of the Named Executive Officers and the value at December 31, 20032004 of unexercised options held by those persons. The value of unexercised options reflects the increase (if any) in market value of our common stock from the date of grant through December 31, 20032004 (when the fair market value of our common stock was $12.06$18.335 per share)share, based on the average of the high and low sales prices reported on the New York Stock Exchange on that date). The actual value realized on option exercise will depend on the value of our common stock at the time of exercise.

Aggregated Option Exercises in Fiscal Year 20032004

and Fiscal Year-End Option Values

										Total Number of								Total Value of Unexercised,																Total Number of								Total Value of Unexercised,
		Shares								Unexercised Options at								In-the-Money Options at																Unexercised Options								In-the-Money Options
		Acquired								Fiscal Year-End								Fiscal Year-End								Shares								at Fiscal Year-End								at Fiscal Year-End
		on				Value																				Acquired on				Value
Name		Exercise				Realized				Exercisable				Unexercisable				Exercisable				Unexercisable				Exercise				Realized				Exercisable				Unexercisable				Exercisable				Unexercisable
B.W. Wilkinson			0			$	0				490,167				353,433			$	1,200,912			$	1,425,691				0			$	0				670,200				302,600			$	5,112,602			$	3,081,199
R.A. Deason			0			$	0				0				100,000			$	0			$	890,500				0			$	0				33,334				116,666			$	506,177			$	1,478,573
J.A. Fees			0			$	0				75,258				108,612			$	98,300			$	526,651				0			$	0				131,204				106,966			$	922,992			$	1,142,843
F.S. Kalman			0			$	0				53,334				191,366			$	0			$	754,254				0			$	0				134,901				173,499			$	1,066,965			$	1,770,551
J.T. Nesser, III			0			$	0				133,433				145,667			$	95,618			$	489,775				0			$	0				214,434				107,566			$	1,210,688			$	1,064,196

Long-Term Incentive Awards

     The following table provides information concerning awards of performance units made to each of the Named Executive Officers during fiscal year 2003.

Long-Term Incentive Plans — Awards in Fiscal Year 2003

							Performances or
			Number of				Other Period
			Shares, Units				Until Maturation
Name			or Other Rights				or Payout
B.W. Wilkinson
	Performance Units(1)			39,800			3 years
R.A. Deason
	Performance Units(1)			0			—
J.A. Fees
	Performance Units(1)			11,600			3 years
F.S. Kalman
	Performance Units(1)			21,100			3 years
J.T. Nesser, III
	Performance Units(1)			13,700			3 years

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(1)

These awards were granted under the Company’s 2001 Directors and Officers Long-Term Incentive Plan on April 2, 2003. The performance units represent a right to receive a cash bonus determined as of the third anniversary of the date of grant (the “vesting date”). The number of performance units that vest, if any, is determined based on the average stock price of a share of the Company’s common stock over the ten trading day period ending on the vesting date in accordance with the following schedule:

Average Stock Price		Vested Percentage
$8.00			50%
$14.00			100%
$20.00			150%

	The value of the cash bonus will be equal in value to the number of vested performance units multiplied by the average stock price. No payment will be made if the average stock price is below $8.00. Prior to vesting, such performance units are subject to forfeiture under certain circumstances.

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Employment and Severance Arrangements

Although McDermott does

      We do not currently have any employment or severance agreements with any of our Named Executive Officers, we have agreed to certain severance terms with Mr. Deason.except for the change-in-control agreements described below.

Change in Control Arrangements

      We have agreed that,entered into change-in-control agreements with Messrs. Deason, Fees, Kalman, Nesser, Sannino and Wilkinson. Under these agreements, if we terminate Mr. Deason without “cause” prior to December 31, 2004, we would pay to himan executive officer’s employment, other than for cause or as a severance amount equal to 12 monthsresult of his then-current monthly salary. For this purpose, cause has been defined generally as actsdeath or disability, or if an executive officer terminates his employment for good reason within the one year following a change in control, we will pay that executive officer all of personal dishonesty intendedthe following pursuant to result in substantial personal enrichment at the expense of McDermott or any third party, repeated failures to perform job duties which are demonstrably willful and deliberate and are not remedied within a reasonable period of time following written notice, conviction of a felony involving moral turpitude, and acts that are material violations of McDermott’s standards of business ethics and conduct.change-in-control agreement:

	•	Various accrued benefits, such as earned but unpaid salary, earned but unused vacation and reimbursements.
	•	A cash payment equal to the product of the Executive Incentive Compensation Plan (“EICP”) muliplier used for the executive officer and the executive officer’s annual base salary for the applicable period, in the event an EICP bonus for the year prior to termination is paid to other EICP participants after the date of the executive’s termination. For example, for an applicable termination in 2005, the cash payment would equal the executive officer’s target award percentage multiplied by the executive officer’s 2004 annual salary.
	•	A prorated cash payment under the EICP based upon the executive officer’s target award for the year in which the termination occurs and the number of days in which the executive was employed with McDermott during that year. For example, for an applicable termination in 2005, the cash payment would equal the product of (1) the executive officer’s 2005 annual base salary multiplied by the executive officer’s 2005 EICP target percentage and (2) the number of days employed in 2005 divided by 365).

Change in Control Arrangements23

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	•	A cash payment equal to 200% of the executive’s annual base salary immediately prior to termination plus his EICP target bonus applicable to the year in which the termination occurs. For example, for an applicable termination in 2005, the cash payment would equal two times the sum of the executive officer’s 2005 annual base salary plus the executive officer’s target bonus.
	•	In the event any payment is subject to the excise tax imposed by section 4999 of the Internal Revenue Code of 1986, as amended, an additional cash payment equal to such excise tax, as well as a gross-up payment for any resulting income or excise tax.

Under our equity-based long-term incentive compensation plans, upon a “change in control” of McDermott, all stock options will immediately become exercisable, all restrictions applicable to shares of restricted stock will immediately lapse and all DSUsdeferred stock units and performance units will immediately become vested.

      Under the Supplemental Executive Retirement Plan (discussed further below under “Retirement Plans — Supplemental Executive Retirement Plan”), a participant shall have a vested percentage of 100% upon the date of termination of the participant’s employment within 24 months following a change in control.

Retirement Plans

     Pension Plans. We maintain retirement plans that are funded by trusts thatand cover substantially all regular full-time employees of McDermott and its subsidiaries, except certain nonresident alien employees who are not citizens of a European Community country or who do not earn income in the United States, Canada or the United Kingdom. Officers who are employees of McDermott or certain of its subsidiaries, including but not limited to McDermott Incorporated and The Babcock & Wilcox Company (“B&W,&W”), are covered under The Retirement Plan for Employees of McDermott Incorporated and Participating Subsidiary and Affiliated Companies (the “McDermott Retirement Plan”). Under the McDermott Retirement Plan, salaried B&W employees and other salaried employees who began their career with B&W (collectively, the “B&W tenured employees”) accrue benefits under a different formula than other participants in the plan. Officers who are employed by J. Ray McDermott or certain of its subsidiaries or affiliates are covered under The Retirement Plan of Employees of J. Ray McDermott Holdings, Inc. (the “J. Ray McDermott Retirement Plan”). As of March 31, 2003, benefit accruals under the J. Ray McDermott Retirement Plan ceased. On November 31, 2003, assets and liabilities attributable to current and former employees of the Company’sour Government and Industrial business unit were spun-off from the McDermott Retirement Plan into a separate plan called the “Retirement Plan for Employees of BWX Technologies, Inc.” (the “BWXT Retirement Plan”). On January 31, 2005, assets and liabilities attributable to current and former employees of our Power Generation Systems business segment’s current operations were spun-off from the McDermott Retirement Plan into a separate plan called the “Retirement Plan for Employees of The Babcock & Wilcox Company and Participating Subsidiary and Affiliated Companies” (the “B&W Plan”). All plan rights and features, including individual retirement benefits payable under the plan, remainplans, remained unchanged. Employees do not contribute to eitherany of these plans, and company contributions are determined on an actuarial basis. To the extent benefits payable under these qualified plans are limited by Section 415(b) or 401(a)(17) of the Internal Revenue Code, pension benefits will be paid directly by the applicable company or a subsidiary under the terms of unfunded excess benefit plans maintained by them (the “Excess Plans”). An employee must be employed by the applicable company or a subsidiary for one year prior to participating in the plans and must have five years of continuous service to vest in any accrued benefits under the plans, except that all employees participating in the J. Ray McDermott Retirement Plan on March 31, 2003 became fully vested at that time.

      The benefit formula under the McDermott Retirement Plan and the BWXT Retirement Plan applicable to participants who are not B&W tenured employees is the same as those payable to employees covered under the J. Ray McDermott Retirement Plan, prior to the cessation of benefit accruals under the J. Ray McDermott Retirement Plan as described above. The following table shows the annual benefit payable to non-B&W tenured employees under the McDermott Retirement Plan and the BWXT Retirement Plan and to J. Ray McDermott employees under the J. Ray McDermott Retirement Plan, at age 65 (the normal retirement age), who retire in 20042005 in accordance with the lifetime-only method of payment and before profit sharingprofit-sharing plan offsets. Benefits are based on the formula of a specified percentage (dependent on years of service) of

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average annual basic earnings (exclusive of bonus and allowances) during the 60 successive months out of the 120 successive months before retirement in which such earnings were highest (“Final Average Earnings”), less a specified percentage of anticipated social security benefits. As of December 31, 2003,2004, Mr. Nesser had Final Average Earnings of $291,801$311,213 and 5.256.25 years of credited service under the McDermott Retirement Plan and Messrs. Deason, Kalman and Wilkinson had not vested in any accrued benefits under the McDermott Retirement Plan. Unless elected otherwise by the employee, payment will be made in the form of a joint and survivor annuity of equivalent actuarial value to the amount shown below.

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McDermott Retirement Plan Benefits and the BWXT Retirement Plan Benefits for

for Non-B&W Tenured Employees

and J. Ray McDermott Retirement Plan Benefits

		Annual Benefits at Age 65 for Years of Service Indicated
Final Average Earnings		10				15				20				25				30				35				40
250,000			39,526				59,289				79,052				98,815				118,578				138,341				158,103
275,000			43,693				65,539				87,385				109,231				131,078				152,924				174,770
300,000			47,859				71,789				95,718				119,648				143,578				167,507				191,437

		Annual Benefits at Age 65 for Years of Service Indicated
Final Average Earnings		10				15				20				25				30				35				40
$275,000			43,585				65,377				87,169				108,961				130,754				152,546				174,338
$300,000			47,751				71,627				95,502				119,378				143,254				167,129				191,005
$325,000			51,918				77,877				103,836				129,795				155,754				181,713				207,671

      The following table shows the annual benefit payable under the McDermott Retirement Plan and the BWXT Retirement Plan at age 65 (the normal retirement age) to B&W tenured employees who retire in 20042005 in accordance with the lifetime-only method of payment. Benefits payable to B&W tenured employees are based on the formula of a specified percentage (dependent on the level of wages subject to social security taxes during the employee’s career) of average annual earnings (inclusive of bonuses) during the 60 successive months out of the 120 successive months prior to retirement in which such earnings were highest (“B&W Final Average Earnings”). Final Average Earnings and credited service under the BWXT Retirement Plan as of December 31, 20032004 for Mr. Fees were $406,713$512,848 and 24.5825.58 years. Unless elected otherwise by the employee, payment will be made in the form of a joint and survivor annuity of equivalent actuarial value to the amount shown below.

McDermott Retirement Plan Benefits and the BWXT Retirement Plan Benefits

for B&W Tenured Employees

		Annual Benefits at Age 65 for Years of Service Indicated
B&W Final
Average Earnings		10				15				20				25				30				35				40
300,000			37,500				56,250				75,000				93,750				112,500				131,250				150,000
400,000			50,000				75,000				100,000				125,000				150,000				175,000				200,000
500,000			62,500				93,750				125,000				156,250				187,500				218,750				250,000

		Annual Benefits at Age 65 for Years of Service Indicated
B&W Final Average Earnings		10				15				20				25				30				35				40
400,000			50,000				75,000				100,000				125,000				150,000				175,000				200,000
500,000			62,500				93,750				125,000				156,250				187,500				218,750				250,000
600,000			75,000				112,500				150,000				187,500				225,000				262,500				300,000

     Supplemental Executive Retirement Plan. We maintain Until December 31, 2004, we maintained an unfunded Supplemental Executive Retirement Plan (the “SERP”“Retirement Plan”) that coverscovered certain of our officers and officers of some of our subsidiaries, including McDermott Incorporated, J. Ray McDermott, S.A. (“J. Ray McDermott”), BWX Technologies, Inc. (“BWXT”) and B&W. Generally, benefits arewere based on a specified percentage (determined by age, years of service and date of initial participation in the SERP)Retirement Plan) of final three-year average cash compensation (salary plus supplemental compensation for the highest three out of the last ten fiscal years of service) or three-year average cash compensation prior to the SERPRetirement Plan scheduled retirement date, whichever is greater. The maximum benefit maycould not exceed 60% (depending on the date of initial participation in the SERP)Retirement Plan) of such three-year average cash compensation. Payments under the SERP willRetirement Plan would be reduced by an amount equal to pension benefits payable under any other retirement plan maintained by us or any of our subsidiaries. Before giving effectThe Retirement Plan also provided a surviving spouse death benefit.

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      On December 31, 2004, we terminated the Retirement Plan and adopted, effective January 1, 2005, a replacement unfunded Supplemental Executive Retirement Plan (the “SERP”). The SERP covers certain of our officers and officers of our subsidiaries, including J. Ray McDermott, BWXT and B&W. Beginning balances in the SERP for those executives who were participants in the Retirement Plan were a fraction of the accrued value of their Retirement Plan benefits. Generally, benefits are based upon a participating officer’s vested percentage in a notional account (consisting of contributions made by us and hypothetical accrued gains or losses) at the time of retirement or termination. A participating officer’s vested percentage is the lesser of (1) 20% multiplied by the participating officer’s years of participation and (2) 100%, subject to such reductions,accelerated vesting for death, disability and termination without cause or within 24 months following a change in control. Other than distribution of a participating officer’s vested account balance to the approximate annual benefitdesignated beneficiary on the officer’s death, the SERP does not provide any surviving spouse death benefit.

      We intend to establish a grantor trust designed to assist in the administration and tracking of the SERP contributions and hypothetical gains and losses. However, no special or separate fund will be established nor shall any other segregation of assets be made to assure that distribution of benefits will be made under the SERP. Any benefits or distributions payable under the SERP to Messrs. Wilkinsonwill be made from our general assets and Nesser if they remain employed with McDermott until retirement age as stated inany participant or beneficiary will be an unsecured general creditor.

SERP Contribution and Vesting Table

      The following table shows, through February 28, 2005, the SERP is 30% and 48%, respectively, of each such person’s final three-year average cash compensation. The SERP also provides a surviving spouse death benefit.

     Weannual amounts we have established a trust designed to provide funding for the payment of benefits arising under the SERP, the Excess Plans and certain other contracts and arrangements (collectively, the “Plans”) in the event of an effective change in control of McDermott. The trust is currently unfunded. Although we would retain primary responsibility for such payments,contributed to the extent ofnotional SERP accounts for each Named Executive Officer, the available assets, the trust would provide for payments to designated participants, in the form of lump-sum distributions, if certain events occur following an effective change in control of McDermott, including but not limited to our failure to make such paymentsaccumulated account value (including gains and losses) and the termination of a participant’s employment under certain specified circumstances. In addition, with respect to benefitsofficer’s vested percentage in that otherwise would have been paid in the form of an annuity, the trust provides for certain lump-sum equalization payments, which, when added to the basic lump-sum payments described above, would be sufficient, after payment of all applicable taxes, to enable each active participant receiving a lump-sum distribution to purchase an annuity that would provide such participant with the same net after-tax stream of annuity benefits that such participant would have realized had he retired as of the date of the lump-sum distribution and began receiving annuity payments at that time under the terms of the applicable Plan, based on salary and service factors at the time of the effective change in control. In the case of designated participants who retire before an effective change in control and who receive a basic lump-sum distribution under the circumstances described above, the trust provides for similar lump-sum equalization payments, based on salary and service factors at the time of actual retirement.account.

		Initial				2005				Aggregate				Vested
Name		Contribution				Contribution				Account Value				Percentage
B.W. Wilkinson		$	552,277			$	32,500			$	600,032				0	%
R.A. Deason		$	77,643			$	18,500			$	98,921				0	%
J.A. Fees		$	33,825			$	41,326			$	77,286				0	%
F.S. Kalman		$	124,603			$	20,000			$	148,945				0	%
J. T.Nesser, III		$	347,037			$	16,750			$	372,864				0	%

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AUDIT COMMITTEE REPORT

      Each year, the Board of Directors appoints an audit committeeAudit Committee to review McDermott International, Inc.’s financial matters. Each member of the audit committeeAudit Committee meets the independence requirements established by the New York Stock Exchange. Our responsibilities as membersThe Audit Committee is responsible for the appointment, compensation, retention and oversight of the audit committee include recommending to the Board an accounting firm to be hired as McDermott’s independent auditors.registered public accounting firm. We are also responsible for recommending to the Board that McDermott’s audited financial statements be included in its Annual Report on Form 10-K for the fiscal year.

      In making our recommendation that McDermott’s financial statements be included in its Annual Report on Form 10-K for the year ended December 31, 2003,2004, we have taken the following steps:

	•	We discussed with PricewaterhouseCoopers LLP (“PWC”), McDermott’s independent auditorsregistered public accounting firm for the year ended December 31, 2003,2004, those matters required to be discussed by Statements on Auditing Standards Nos. 61 and 90, each as amended, issued by the Auditing Standards Board of the American Institute of Certified Public Accountants, including information regarding the scope and results of the audit. These communications and discussions are intended to assist us in overseeing the financial reporting and disclosure process.
	•	We conducted periodic executive sessions with PWC, at each audit committee meeting, with no members of McDermott management present during those discussions. PWC did not identify any material audit issues, questions or discrepancies, other than those previously discussed with management, which were resolved to the satisfaction of all parties.
	•	We conducted periodic executive sessions with McDermott’s Vice President, Internal Auditinternal audit department and regularly received reports regarding McDermott’s internal control procedures.
	•	We required comprehensiveperiodic reviews of improvements to McDermott’s project management systems, sought to determine reasons for cost overruns on major projects, and supported and monitored management’s initiatives to revise, improve, and upgrade its project management systems, controls, and personnel for dealing with these issues.personnel.
	•	We reviewed, and discussed with McDermott’s management and PWC, management’s report and PWC’s report and attestation on internal control over financial reporting, each of which was prepared in accordance with Section 404 of the Sarbanes-Oxley Act.
	•	We received and reviewed the written disclosures and the letter from PWC required by the Independent Board’s Standard No. 1,Independence Discussions with Audit Committees, as amended, and we discussed with PWC its independence and received from PWC a letter concerning its independence as required by applicable independence standards for auditors of public companies. This discussion and disclosure helped us in evaluating such independence.McDermott. We also considered whether the provision of nonaudit services to McDermott is compatible with the auditors’PWC’s independence.
	•	During 2002,2004, McDermott migratedcontinued its migration to an internal audit function staffed primarily with company employees rather than outsourcing internal audit services. That migration continuedWhile McDermott increased the number of company internal audit employees in 2003. Ernst & Young is2004, consultants continue to be engaged on an as-needed basis based onto provide particular areas of expertise.
	•	We determined that while McDermott has no policy prohibiting it, there were no former PWC employees, who previously participated in the McDermott audit, engaged in the financial function of McDermott.

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	•	We have confirmed that the Corporate Compliance Officer of McDermott has reviewed the ethics and conflict of interest statements received from directors, officers, key employees and joint venture partners and has determined that there were no material instances of conflict of interest or breach of McDermott’s code of conduct reported. In addition, the Corporate Compliance Officer has reviewed the reports of incidents of noncompliance and has confirmed that the appropriate actions were taken and that adequate procedures are in place.
	•	We reviewed, and discussed with McDermott’s management and PWC, McDermott’s audited consolidated balance sheet at December 31, 2003,2004, and consolidated statements of loss,income (loss), comprehensive loss,income (loss), cash flows, and stockholders’ deficitequity (deficit) for the year ended December 31, 2003.2004.

      Based on the reviews and actions described above, we recommended to the Board that McDermott’s audited financial statements be included in its Annual Report on Form 10-K for its fiscalthe year ended December 31, 2003.

2004 for filing with the Securities and Exchange Commission.

	THE AUDIT COMMITTEE
Joe B. Foster	D. Bradley McWilliams (Chairman)
	Ronald C. Cambre
	Bruce DeMars
	John W. Johnstone, Jr.
	D. Bradley McWilliamsJoe B. Foster
	Thomas C. Schievelbein

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RATIFICATION OF RETENTION OF

INDEPENDENT AUDITORS FOR

FISCAL INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR

YEAR 2004ENDING DECEMBER 31, 2005

(ITEM 2)

      Our Board of Directors has ratified the decision of the Audit Committee to retain PricewaterhouseCoopers LLP to serve as independent auditorsregistered public accounting firm to audit our financial statements for fiscalthe year 2004.ending December 31, 2005. Although we are not required to seek stockholder approval of this appointment, it has been our practice to do so, ourso. No determination has been made as to what action the Audit Committee and the Board of Directors has directed that the decision to retain PricewaterhouseCoopers also be submitted towould take if our stockholders for ratificationfail to ratify the appointment. Even if the appointment is ratified, the Audit Committee retains discretion to appoint a new independent audit firm at any time if the Annual Meeting.Audit Committee concludes such a change would be in the best interests of McDermott. PricewaterhouseCoopers LLP has served as our independent auditors for fiscal years 2001, 2002 and 2003. Representativesregistered public accounting firm since 1999. We expect representatives of PricewaterhouseCoopers will be present at the Annual Meeting and will have an opportunity to make a statement if they desire to do so and to respond to appropriate questions.

During the years ended December 31, 2003,2004 and December 31, 2002,2003, McDermott paid PricewaterhouseCoopers fees, including expenses and taxes, totaling $6,198,958$9,412,278 and $5,753,182,$6,198,958, respectively, which can be categorized as follows:

		2003				2002				2004				2003
Audit
The Audit fees for the years ended December 31, 2003 and 2002, respectively, were for professional services rendered for the audits of the consolidated financial statements of McDermott, statutory and subsidiary audits, reviews of the quarterly consolidated financial statements of the Company, and assistance with review of documents filed with the SEC		$	4,368,562			$	4,234,655
The Audit fees for the years ended December 31, 2004 and 2003, respectively, were for professional services rendered for the audits of the consolidated financial statements of McDermott, internal control over financial reporting, statutory and subsidiary audits, reviews of the quarterly consolidated financial statements of McDermott, and assistance with review of documents filed with the SEC.										$	7,342,622			$	4,368,562
Audit Related
The Audit Related fees for the years ended December 31, 2003 and 2002, respectively, were for assurance and related services for employee benefit plan audits, agreed upon procedures engagements, accounting consultations, advisory services related to Sarbanes-Oxley Section 404 compliance, and professional services in connection with the issuance of J. Ray McDermott, S.A.’s 11% Senior Secured Notes during 2003		$	1,296,430			$	178,152
The Audit Related fees for the years ended December 31, 2004 and 2003, respectively, were for assurance and related services for employee benefit plan audits, agreed upon procedures engagements, accounting consultations, advisory services related to Sarbanes-Oxley Section 404 compliance, and professional services in connection with the issuance of J. Ray McDermott, S.A.’s 11% Senior Secured Notes during 2003.										$	1,442,216			$	1,296,430
Tax
The Tax fees for the years ended December 31, 2003 and 2002, respectively, were for professional services rendered for consultations on various U.S. federal, state and international tax matters, international tax compliance and tax planning, and assistance with tax examinations		$	437,046			$	289,345
The Tax fees for the years ended December 31, 2004 and 2003, respectively, were for professional services rendered for consultations on various U.S. federal, state and international tax matters, international tax compliance and tax planning, and assistance with tax examinations.										$	602,233			$	437,046
All Other
The fees for All Other services for the years ended December 31, 2003 and 2002, respectively, were for professional services rendered for risk management advisory services, translation services, claims management services and restructuring activities related to the Chapter 11 Bankruptcy filing of B&W and certain of its subsidiaries through August 30, 2002.		$	96,920			$	1,051,030
The fees for All Other services for the years ended December 31, 2004 and 2003, respectively, were for professional services rendered for risk management advisory services, translation services and other advisory or consultation services not related to audit or tax.										$	25,207			$	96,920
Total		$	6,198,958			$	5,753,182			$	9,412,278			$	6,198,958

It is the policy of our Audit Committee to preapprove all audit, review or attest engagements and permissible non-audit services, including the fees and terms thereof, to be performed by the Company’sour independent auditors,registered public accounting firm, subject to, and in compliance with, thede minimisexception for non-audit services described in Section 10A(i)(1)(B) of the Securities Exchange Act of 1934 and the applicable rules and regulations of the Securities Exchange Commission. Our Audit Committee did not rely on thede minimisexception for any of the fees disclosed above.

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Recommendation and Vote Required

      Our Board of Directors unanimously recommends that stockholders vote “FOR” the ratification of the decision of our Board of Directors to retain PricewaterhouseCoopers as our independent auditorsregistered public accounting firm for fiscalthe year 2004.ending December 31, 2005. The proxy holders will vote all proxies received for approval of this proposal unless instructed otherwise. Approval of this proposal requires the

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affirmative vote of a majority of the outstanding shares of common stock present in person or represented by proxy and entitled to vote on this proposal at the Annual Meeting. Because abstentions are counted as present for purposes of the vote on this matter but are not votes “FOR” this proposal, they have the same effect as votes “AGAINST” this proposal. Broker non-votes will have no effect on the vote.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Newfield Exploration Company,

      McDermott is a companylarge business organization with worldwide operations, and it engages in numerous purchase, sale and other transactions annually. We have various types of business arrangements with corporations and other organizations in which Joe B. Foster (onea McDermott executive officer, director, or nominee for director may also be a director, executive or investor, or have some other direct or indirect relationship. We enter into these arrangements in the ordinary course of our directors) is the Non-executive Chairman of the Boardbusiness, and Philip J. Burguieres (another of our directors) is alsothey typically involve McDermott receiving or providing some good or service on a member of the Board of Directors, managednonexclusive basis and operated an offshore producing oil and gas property for one of J. Ray McDermott’s subsidiaries under a production and operation agreement. During 2003, J. Ray McDermott sold its interestat arm’s-length negotiated rates or in this property and, as a result, terminated the production and operation agreement. Under the agreement, however, this subsidiary was required to pay Newfield (1) an operations management fee of $10,764 per month, (2) a marketing services fee at a rate of $.01/MMBTU,accordance with a minimum monthly fee of $1,500, (3) a minimum accounting and property supervision fee of $5,382 per month and (4) reimbursement for certain costs incurred by Newfield in connection with the agreement. During fiscal year 2003, this subsidiary paid approximately $485,000 to Newfield under the agreement. This J. Ray McDermott subsidiary also sold natural gas at established market prices to Newfield. During fiscal year 2003, such natural gas sales were approximately $2.95 million. Another subsidiary of J. Ray McDermott also periodically enters into agreements to design, fabricate or install offshore pipelines or structures for Newfield. There were no such transactions between Newfield and J. Ray McDermott during the year ended December 31, 2003.

     From time to time, one or more of our subsidiaries purchases materials, products or services from Northrop Grumman Corporation or one or more of its affiliated companies. One of our directors, Thomas C. Shievelbein, is also the President of Northrop Grumman Newport News, a subsidiary of the Northrop Grumman Corporation. During fiscal year 2003, such purchases amounted to approximately $2.5 million.

regulated price schedules.

      Each of Messrs. Wilkinson, Burkhart, Fees,Burkart, Henzler, Kalman Nesser and Sannino has irrevocably elected to satisfy withholding obligations relating to all or a portion of any applicable federal, state or other taxes that may be due on the vesting in fiscalthe year 2004ending December 31, 2005 of certain shares of restricted stock that each has been awarded under various long-term incentive plans by returning to us athe number of such vested shares having a fair market value equal to the amount of such taxes. These elections, which apply to an aggregate of 96,906,10,000, 1,000, 10,571, 11,867,2,165, 5,000 21,509 and 13,9801,500 shares vesting in fiscalthe year 2004 with respect toending December 31, 2005 and held by Messrs. Wilkinson, Burkhart, Fees,Burkart, Henzler, Kalman Nesser and Sannino, respectively, are subject to approval of the Compensation Committee of our Board of Directors, which approval was granted. In the year ended December 31, 2004, each of Messrs. Wilkinson, Burkart, Fees, Henzler, Kalman, Nesser and Sannino made a similar election which applied to an aggregate of 96,906, 1,000, 10,571, 10,617, 5,000, 19,009 and 13,980 shares, respectively, that vested in the year ended December 31, 2004. Those elections were also approved by the Compensation Committee has granted.

Committee. We expect any transfers ofreflecting shares of restricted stock backreturned to us will be reported in the SEC filings made by those transferring holders who are obligated to report transactions in our securities under Section 16 of the Securities Exchange Act of 1934.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

      Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers, and persons who own 10% or more of our voting stock, to file reports of ownership and changes in ownership of our equity securities with the SEC and the New York Stock Exchange. Directors, executive officers and 10% or more holders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file. Based solely on a review of the copies of those forms furnished to us, or written representations that no forms were required, we believe that our directors, executive officers and 10% or more beneficial owners complied with all Section 16(a) filing requirements during the year ended December 31, 2003.2004.

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STOCKHOLDERS’ PROPOSALS

      Any stockholder who wishes to have a qualified proposal considered for inclusion in our proxy statement for our 20052006 Annual Meeting must send notice of the proposal to our Corporate Secretary at our principal executive office no later than December 3, 2004.2, 2005. If you make such a proposal, you must provide your name, address, the number of shares of common stock you hold of record or beneficially, the date or dates on which such common stock was acquired and documentary support for any claim of beneficial ownership.

In addition, any stockholder who intends to submit a proposal for consideration at our 20052006 Annual Meeting, but not for inclusion in our proxy materials, or who intends to submit nominees for election as directors at the meeting must notify our Corporate Secretary. Under our by-laws, such notice must (1) be received at our executive offices no earlier than November 6, 20045, 2005 or later than January 5, 20054, 2006 and (2) satisfy specified requirements. A copy of the pertinent by-law provisions can be found on our website atwww.mcdermott.comat “Investor Relations — Corporate Governance.��

”

	By Order of the Board of Directors,
	JOHN T. NESSER, III
	Secretary

Dated: April 2, 20048, 2005

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APPENDIX A

McDERMOTT INTERNATIONAL, INC.

Categorical Standards for Director Independence

      For a director to be deemed “independent,” the Board of Directors shall affirmatively determine that the director has no material relationship with the Company. In making this determination, the Board shall apply the following standards:

	•	A director who is, or has been within the last three years, an employee, or whose immediate family member is, or has been within the last three years, an executive officer, of the Company shall not be determined to be independent. Employment as an interim Chairman or Chief Executive Officer or other executive officer of the Company shall not disqualify a director from being considered independent following that employment.
	•	A director who received, or whose immediate family member received, during any twelve-month period within the last three years, more than $100,000 in direct compensation from the Company, other than director and committee fees and pension or other forms of deferred compensation for prior service (provided such compensation is not contingent in any way on continued service), shall not be determined to be independent. Compensation received by a director for former service as an interim Chairman or Chief Executive Officer or other executive officer need not be considered in determining independence under this test. Compensation received by an immediate family member for service as an employee of the Company (other than an executive officer) shall not be considered in determining independence under this test.
	•	A director shall not be determined to be independent if: (A) the director or an immediate family member is a current partner of a firm that is the Company’s internal or external auditor; (B) the director is a current employee of such a firm; (C) the director has an immediate family member who is a current employee of such a firm and who participates in the firm’s audit, assurance or tax compliance (but not tax planning) practice; or (D) the director or immediate family member was within the last three years (but is no longer) a partner or employee of such a firm and personally worked on the Company’s audit within that time.
	•	A director or an immediate family member who is, or has been with the last three years, employed as an executive officer of another entity where any of the Company’s current executive officers at the same time serves or served on that entity’s compensation committee shall not be determined to be independent.
	•	A director who is a current employee, or whose immediate family member is a current executive officer, of an entity that has made payments to, or received payments from, the Company for property or services in an amount which, in any of the last three fiscal years, exceeds the greater of $1 million or 2% of such other entity’s consolidated gross revenues, shall not be determined to be independent.
	•	A director who is a partner of or of counsel to a law firm that performs legal services for the Company on a regular basis shall not be determined to be independent.
	•	A director who is a partner, officer or employee of an investment bank or consulting firm that performs substantial services for the Company on a regular basis shall not be determined to be independent.

      In addition, the Board of Directors shall consider the following standard; however, failure to satisfy this standard will not automatically result in a determination that the director is not independent.

	•	Is the director, or an immediate family member of the director, affiliated with or employed by a tax exempt organization that receives significant contributions (i.e., more than 2% of the annual contributions received by the organization, or more than $200,000 in a single fiscal year, whichever amount is lower) from the Company or any of its affiliates within the preceding fiscal year?

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	•	Does the director serve on so many other public company boards that his ability to devote sufficient time and attention to the Company’s affairs is compromised?

      In addition to the foregoing, for a director to be determined to be “independent” for purposes of the Audit Committee of the Board of Directors, that director must meet the criteria for independence established by Section 10A(m)(3) of the Securities Exchange Act of 1934, as amended.

      For purposes of the foregoing:

	•	The term “affiliate” of the Company is a person (including a partnership, corporation or other legal entity such as a trust or estate) that controls, is controlled by or is under common control with the Company. As used in this definition, “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a person (whether through ownership of capital stock of that person, by contract or otherwise).
	•	The term “immediate family member” includes a person’s spouse, parents, children, siblings, mothers and fathers-in-law, sons and daughters-in-law, brothers and sisters-in-law, and anyone (other than a domestic employee) who shares such person’s home.
	•	References to the “Company” include any parent of subsidiary in a consolidated group with the Company.

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APPENDIX AB

Effective January 30, 2004February 23, 2005

McDERMOTT INTERNATIONAL, INC.

AUDIT COMMITTEE OF THE BOARD OF DIRECTORS

CHARTER

Preamble

The Audit Committee of the Board of Directors of McDermott International, Inc. (hereinafter sometimes the “Company” or “McDermott”) adopts this charter.

I.	Purpose

      The primary function of the Audit Committee (the “Committee”) is to assist the Board of Directors (the Board) in fulfilling its oversight responsibilities with respect to financial reports and other financial information provided by the Company to its shareholders and others by carrying out the following duties:

	•	Serve as an independent and objective party to monitor the Company’s financial reporting process and internal control system.
	•	Oversee the integrity of the financial statements of the Company.
	•	Monitor the compliance by the Company with legal and regulatory financial requirements.
	•	Evaluate the independence, qualifications and performance of the Company’s independent auditors.
	•	Oversee the performance of the Company’s internal audit function.
	•	Oversee certain aspects of the Company’s Compliance and Ethics Program relating to financial matters, books and records and accounting and as required by applicable statutes, rules and regulations.
	•	Provide an open avenue of communication among the Company’s outside auditors, financial and senior management, the internal audit department and the Board.
	•	Comply with the applicable reporting requirements established by the Securities and Exchange Commission (the “SEC”).

II.	II.     Committee Composition

      The Committee will be composed of not less than three members of the Board. All members of the Committee shall have a working familiarity with basic finance and accounting practices, and at least one member shall meet the qualifications of an “audit committee financial expert,” as defined in Item 401(h) of Regulation S-K promulgated by the SEC.

      Each member of the Committee shall meet the independence requirements of Section 10A(m)(3) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Corporate Governance Rules of the New York Stock Exchange (NYSE), as defined in the NYSE Listed Company Manual. Accordingly, all of the members will be directors independent of management and free from any relationship that, in the opinion of the Board, would interfere with the exercise of independent judgment as a Committee member.

      The members of the Committee shall be elected by the Board at each annual organizational meeting and shall serve until the Board’s next annual organizational meeting and their successors are duly elected and qualified, or until their earlier resignation or removal. The Board shall have the authority at any time to remove one or more members of the Committee. The Chairman shall be elected by the full Board. If the Board should fail to elect a chairman, or should the chairman be absent or unavailable, the members of the Committee may designate a chair by majority vote of the full Committee membership. No member of the Audit Committee may serve as a member of in excess of two other audit committees.

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      The Committee shall have the authority to engage independent counsel or other advisors, as it determines necessary to carry out its duties.

The Company shall provide for appropriate funding, as determined by the Committee, for payment of compensation to the Company’s outside auditors for the purpose of preparing or issuing an audit report or performing any other services for the Company, compensation to any advisors employed by the Committee, and administrative expenses of the Committee that are necessary or appropriate in carrying out its duties.

III.	III.     Meetings

      The Committee shall meet at least four times annually or more frequently as circumstances dictate. A detailed written agenda shall be prepared by or under supervision of the Chair of the Committee and distributed in advance.

      The Committee shall meet at least annuallyperiodically with management, those responsible for the internal audit directorfunction and the outside auditors, in separate executive sessions, to discuss any matters that the Committee or any of these individuals or groups believe should be discussed privately. The Committee shall maintain a high degree of independence both in establishing its agenda and directly accessing various members of McDermott and subsidiary management.

The Committee will maintain written minutes of all its meetings, which will be available to every member of the Board.

IV.	IV.     Responsibilities and Duties

      The Committee’s principal responsibility is one of oversight. The Company’s management is responsible for preparing the Company’s financial statements and the outside auditors are responsible for auditing and reviewing those financial statements. Additionally, the Committee recognizes that financial management (including the internal audit staff), as well as the outside auditors, have more knowledge and more detailed information about the Company than do the members of the Committee; consequently, in carrying out its oversight responsibilities the Committee is not providing any expert or special assurance as to the Company’s financial statements or any professional certification as to the independent accountants’ work.

      Pursuant to the Sarbanes-Oxley Act of 2002 and the rules and regulations of the SEC, the Committee shall be directly responsible for the appointment, compensation, retention and oversight of the work of any registered public accounting firm engaged for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for the Company (any such firm is referred to in this charter as the Company’s outside auditors). The Committee shall have and may exercise all the powers of the Board, except as may be prohibited by law, with respect to all matters encompassed by this charter, and shall have all the power and authority required under the Sarbanes-Oxley Act of 2002.

      The outside auditors of the Company are ultimately accountable to the Committee and the Board, as opposed to management of the Company. The Committee shall have the sole authority to appoint and, where appropriate, replace the Company’s outside auditors (subject to shareholder ratification) and to approve all audit engagement fees and terms. The Committee shall be directly responsible for the compensation and oversight of the work of the Company’s outside auditors (including resolution of disagreements between management and the outside auditors regarding financial reporting) for the purpose of preparing or issuing an audit report or related work or performing any other services for the Company. The Company’s outside auditors shall report directly to the Committee.

The Committee shall preapprove all audit, review or attest engagements and permissible non-audit services, including the fees and terms thereof, to be performed by the Company’s outside auditors, subject to, and in compliance with, thede minimisexception for non-audit services described in Section 10A(i)(1)(B) of the Exchange Act and the applicable rules and regulations of the SEC.

      The Committee may form and delegate authority to subcommittees consisting of one or more members when the Committee deems it appropriate to do so, including the authority to grant preapprovals of audit and

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other permissible services. The Committee also may delegate such preapproval authority to any of its members. Any decisions of such subcommittees or members to grant preapprovals shall be reported to the full Committee at the next meeting of the Committee.

      The following functions shall be the common recurring activities of the Committee in carrying out its oversight responsibility. These functions are set forth as a guide with the understanding that the Committee may diverge from this guide as appropriate given the circumstances.

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Disclosure and Reporting

      1. The Committee will prepare a report for inclusion in the Company’s annual proxy statement, with the names of all Committee members, stating whether the Committee:

	(1) reviewed and discussed the audited financial statements with management;
	(2) discussed with the outside auditors matters requiring discussions by the Statement on Audit Standards (SAS) No. 61,Communication with Audit Committees;
	(3) received the written disclosures and letter from the outside auditors required by Independence Standards Board No. 1, and discussed with the outside auditors their independence; and
	(4) based on that review and discussion, recommended to the full Board that the audited financial statements be included in McDermott’s Annual Report on Form 10-K.

      2. Ensure that McDermott provides the NYSE with applicable written confirmationconfirmations, including but not limited to any confirmations regarding:

	(1) any determination the Board has made regarding the independence of directors;
	(2) financial literacy of Committee members;
	(3) the determination that at least one of the Committee members has accounting or related financial management expertise; and
	(4) the annual review and reassessment of the adequacy of the Committee charter.

Documents/Reports Review

      3. Review and discuss with management and the Company’s outside auditors the annual audited financial statements, and the related footnotes and disclosures, as well as specific disclosures made in management’s discussion and analysis of financial condition and results of operations in the Company’s Annual Report on Form 10-K.

      4. Review and discuss with management and the Company’s outside auditors the Company’s quarterly financial statements, and the related footnotes and disclosures, as well as specific disclosures made in management’s discussion and analysis of financial condition and results of operations prior to the filing of the Company’s Quarterly Reports on Form 10-Q, including any matters provided in Statement on Auditing Standards No. 100 arising in connection with the Company’s quarterly financial statements.

      5. Review and discuss with management and the Company’s outside auditors:

	•	Major issues regarding accounting principles and financial statement presentations, including any significant changes in the selection or application of accounting principles, any major issues concerning the adequacy of the Company’s internal controls and any special audit steps adopted in light of material control deficiencies.
	•	Analyses prepared by management and/or the Company’s outside auditors setting forth significant financial reporting issues and judgments made in connection with the preparation of the Company’s financial statements, including analyses of the effects of alternative methods of generally accepted accounting principles on the financial statements.

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      6. Review with management the Company’s earnings press releases, with particular emphasis on the use of any “non-GAAP financial measures,” as well as financial information and earnings guidance provided to analysts and rating agencies. Such discussion may be done generally (covering, for example, the types of information to be disclosed and the type of presentation to be made).

      7. Review with management and the Company’s outside auditors the effect of regulatory and accounting initiatives, as well as any off-balance sheet structures on the Company’s financial statements.

      8. Meet periodically with management to review the Company’s major financial risk exposures and the steps management has taken to monitor and control those exposures; and discuss the Company’s policies and guidelines concerning risk assessment and risk management.

      9. Review significant internal audit reports and management’s responses with those responsible for the Vice President of Internal Audit.

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internal audit function.

      10. The Committee will review and discuss a report from the Company’s outside auditors that contains all “critical policies and practices to be used all alternative treatments of financial information within (GAAP) that have been discussed with management ramifications of the use of such alternative disclosures and treatments, and the treatment preferred other material written communications between the firm and management” by the firm.

      11. Have oversight responsibility for certain aspects of the Company’s Compliance and Ethics Program relating to financial matters, books and records, and accounting and as required by applicable statutes, rules and regulations.

      12. At least annually, obtain and review a report by the company’s outside auditors describing (i) the outside auditors’ internal quality-control procedures; (ii) any material issues raised by the most recent internal quality-control review, or peer review, of the outside auditors, or by any inquiry or investigation by governmental or professional authorities, within the preceding five years, respecting one or more independent audits carried out by the firm, and any steps taken to deal with any such issues; and (iii) all relationships between the outside auditors and the Company as contemplated by Independence Standards Board Standard No. 1. Evaluate the Company’s outside auditors’ qualifications, performance and independence, including considering whether the outside auditors’ quality controls are adequate and the provision of permitted non-audit services is compatible with maintaining the outside auditors’ independence. In making this evaluation, the Committee shall take into account the opinions of management and internal auditors. The Committee shall present its conclusions with respect to the Company’s outside auditors to the full Board.

Outside Auditors

      13. Recommend to the Board each year, a firm of independent certified public accountants to serve as McDermott’s principal independent auditors. The Board will not recommend a registered public accounting firm to perform an audit if the company’s Chief Executive Officer, Chief Financial Officer, Chief Administrative Officer, Controller (or equivalent) was employed by the audit firm and participated in the Company’s audit during the one-year period preceding the date of initiation of the current audit.

      14. On an annual basis, after completion of the annual audit of the Company’s consolidated financial statement included in the Annual Report on Form 10-K and prior to its filing, review with outside auditors any significant changes required in the examination plan; any serious difficulties or disputes with management encountered during the course of the audit; and other matters related to the conduct of the audit which are to be communicated to the Audit Committee under Generally Accepted Auditing Standards (GAAS), including but not limited to discussions relating to the outside auditors’ judgment about such matters as the quality, not just the acceptability, of the Company’s accounting practices and other items set forth in SAS 61. On an annual basis, obtain from the Company’s outside auditors assurance that Section 10A(b) of the Exchange Act has not been implicated with respect to the Company’s most recently completed fiscal year.

      15. Annually approve the fees and other compensation to be paid to the outside auditor.

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      16. Require a formal written statement from the outside auditor consistent with Independence Standards Board Standard No. 1. The Committee is responsible for oversight of auditor independence and shall discuss annually with the outside auditor any relationships or services that may impact the auditor’s independence, and take, or recommend to the full Board, actions to ensure that independence.

17. Discuss with the outside auditor the auditor’s judgment about the quality of McDermott’s accounting principles and the underlying estimates as required by SAS No. 90,Audit Committee Communications.

      18. Require that the outside auditor communicates to the Committee (or be satisfied that management has communicated) with regard to their quarterly reviews any matters of the types described in SAS No. 61.

      19. Review the capabilities and performance of the lead and engagement partner of the Company’s outside auditors.

      20. Confirm the regular rotation of the audit partners as required by applicable law. Consider whether there should be regular rotation of the outside auditing firm.

      21. Review with the Company’s outside auditors any communication or consultation between the Company’s audit team and the outside auditors’ national office respecting auditing or accounting issues presented by the engagement.

      22. Establish hiring policies for the Company’s employment of the Company’s outside auditors’ personnel or former personnel, which may take into account whether a proposed employee participated in any capacity in the audit of the Company.

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      23. Meet with the Company’s outside auditors prior to the audit to review the planning and staffing of the audit.

Internal Audit Function

      24. The Committee shall review and approve the appointment, replacement, reassignment or dismissal of those responsible for the Vice President of Internal Audit.

internal audit function.

      25. Annually review and approve the internal audit plan and discuss any subsequent changes in the scope of the audit plan.

      26. Review the results of the internal audit process with management and those responsible for the Vice President of Internal Auditinternal audit function, including significant findings, management’s responses thereto, and the status of corrective actions or implementation of recommendations.

      27. Evaluate the budget, activities, organizational structure, and qualifications of the internal audit department.

Ethical and Legal Compliance

      28. Review the disclosures that the Company’s Chief Executive Officer and Chief Financial Officer make to the Committee and the Company’s outside auditors in connection with the certification process for the Company’s Reports on Form 10-K and Form 10-Q concerning any significant deficiencies or weaknesses in the design or operation of internal control over financial reporting and any fraud that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

      29. Obtain reports from management, those responsible for the Company’s senior internal auditing executiveaudit function and the Company’s outside auditors that the Company’s subsidiary/ foreign affiliated entities are in conformity with applicable legal requirements and the Company’s Code of Business Conduct.

      30. Review with McDermott’s General Counsel any legal matter that could have a significant impact on the financial statements, the Company’s relevant compliance policies and any material reports or inquiries received from regulators or governmental agencies.

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      31. Review management’s monitoring of compliance with McDermott’s Code of Business Conduct, and ensure that management has the proper review system in place to ensure that McDermott’s financial statements, reports and other financial information disseminated to the public satisfy legal requirements.

      32. The Committee shall establish procedures for the receipt, retention, and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters and the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters.

      33. Committee members are prohibited from taking any action to fraudulently influence, coerce, manipulate, or mislead any auditor engaged in the performance of an audit for the purpose of rendering the financial statements materially misleading.

Other

      34. In addition to the activities described above, the Committee will perform such other functions the Committee or the Board deems necessary or appropriate under law; the Company’s articles of incorporation, by-laws and governing documents; and the resolutions and other directives of the Board of Directors. The duties and responsibilities of a member of the Committee are in addition to those duties generally pertaining to a member of the Board of Directors.

      35. The Committee shall have the authority to engage independent counsel or other advisors, as it determines necessary to carry out its duties.

      36. Review annually the Committee’s own performance.

      37. Make regular reports to the Board.

      38. The Committee will review this charter periodically, as conditions dictate, but at least annually, and update this charter if necessary or appropriate.

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McDERMOTT INTERNATIONAL, INC.

ANNUAL MEETING OF STOCKHOLDERS

Wednesday, May 5, 20044, 2005
9:30 a.m.
Hotel Inter-Continental
Pelican I Room
444 St. CharlesSt.Charles Avenue
New Orleans, Louisiana

Dear Stockholder:

McDermott International, Inc. encourages you to vote your shares electronically through the Internet or the telephone 24 hours a day, 7 days a week. This eliminates the need to return the proxy card.

1. To vote over the Internet:

Log on the Internet and go to the web site http://www.eproxyvote.com/mdr

2. To vote over the telephone:

1.	To vote over the Internet:

•

Log on the Internet and go to the web site http://www.eproxyvote.com/mdr

2.	To vote over the telephone:

	•	On a touch-tone telephone call 1-877-PRX-VOTE (1-877-779-8683)
	•		Outside of the U.S. and Canada call 201-536-8073201-536-8073.

Your electronic vote authorizes the named proxies in the same manner as if you marked, signed, dated and returned the proxy card.

If you choose to vote your shares electronically, there is no need for you to mail back your proxy card.

Your vote is important. Thank you for voting.

PLEASE FOLD AND DETACH HERE IF YOU ARE NOT VOTING BY INTERNET OR TELEPHONE

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McDERMOTT INTERNATIONAL, INC.

This Proxy isIs Solicited on Behalf of the Board of Directors

		The undersigned hereby appoints John T. Nesser III and Francis S. Kalman, and each of them individually, as attorneys, agents and
P		proxies of the undersigned, with full power of substitution and resubstitution, to vote all the shares of common stock of McDermott
R		International, Inc. (“McDermott”) that the undersigned may be entitled to vote at McDermott’s Annual Meeting of Stockholders to be held
O		on May 5, 2004, and at any adjournment or postponement of such meeting, as indicated on the reverse side hereof, with all powers which
X		the undersigned would possess if personally present.
P R O X Y
		The undersigned acknowledges receipt of McDermott’s Annual Report for the fiscal year ended December 31, 2003 and its Notice of 2004 Annual Meeting of Stockholders and related Proxy Statement.

The undersigned hereby appoints John T. Nesser III and Francis S. Kalman, and each of them individually, as attorneys, agents and proxies of the undersigned, with full power of substitution and resubstitution, to vote all the shares of common stock of McDermott International, Inc. (“McDermott”) that the undersigned may be entitled to vote at McDermott’s Annual Meeting of Stockholders to be held on May 4, 2005, and at any adjournment or postponement of such meeting, as indicated on the reverse side hereof, with all powers which the undersigned would possess if personally present.

The undersigned acknowledges receipt of McDermott’s Annual Report for the fiscal year ended December 31, 2004 and its Notice of 2005 Annual Meeting of Stockholders and related Proxy Statement.

PLEASE MARK, SIGN AND DATE THE REVERSE SIDE OF THIS PROXY CARD AND PROMPTLY RETURN IT IN THE ENCLOSED ENVELOPE.

PLEASE MARK, SIGN AND DATE THE REVERSE SIDE OF THIS PROXY CARD AND PROMPTLY RETURN IT IN THE ENCLOSED ENVELOPE.

SEE REVERSE SIDE

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McDermott International, Inc.

C/O EQUISERVE TRUST COMPANY, N.A.
P.O. BOX 8242
EDISON, NJ 08818-8242

The EquiServe Vote by Telephone and Vote by Internet systems can be accessed
24-hours a day, seven days a week until 11:59 PM on 05/04/04.03/05.

Your vote is important. Please vote immediately.

Vote-by-Internet
1. Log on to the internetInternet and go to http://www.eproxyvote.com/mdr
2. Follow the easy steps outlined on the secured website.

OR

OR

Vote-by-Telephone
1. Call toll-free 1-877-PRX-VOTE (1-877-779-8683)
2. Follow the easy recorded instructions.

If you vote over the Internet or by telephone, please do not mail your card.

DETACH HERE IF YOU ARE RETURNING YOUR PROXY CARD BY MAIL

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x		Please mark votes as in this example.example	1317

IMPORTANT—

IMPORTANT–PLEASE MARK APPROPRIATE BOXES ONLY IN BLUE OR BLACK INK AS SHOWN ABOVE.

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McDERMOTT INTERNATIONAL, INC.

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McDERMOTT INTERNATIONAL, INC.

1.

Election of Directors: (the Directors favorrecommend a vote ("FOR"“FOR”). Nominees as Class II Directors: 01. Joe B. Foster, 02. Robert L. Howard, 03. D. Bradley McWilliams and 04. Thomas C. Schievelbein.

Nominees as Class I Directors: 01. Roger A. Brown, 02. Oliver D. Kingsley, Jr. and 03. Bruce W. Wilkinson.

Nominees as Class III Directors: 04. Ronald C. Cambre and 05. Bruce DeMars.

FOR ALL NOMINEES		o		o		WITHHOLD FROM ALL NOMINEES

o
		For all nominees except as written above

FOR

AGAINST

ABSTAIN

FOR ALL NOMINEES

WITHHOLD FROM ALL NOMINEES

2.

Retention Ratification of retention of PricewaterhouseCoopers LLP as McDermott’s independent auditorsregistered public accounting firm for the year ending December 31, 20042005 (the Directors favorrecommend a vote “FOR”).

o

o

o

o

o

Annual Report

Annual Report

o

For all nominees except as written above

Mark here to discontinue annual report mailing for the account (for (for multiple-account holders only).

o

Every properly signed Proxy will be voted in accordance with the specifications made thereon. If not otherwise specified, this Proxy will be voted FOR (1) the election of Directors, and (2) the retention of PricewaterhouseCoopers LLP as McDermott’s independent auditors. Every properly signed Proxy will be voted in accordance with the specifications made thereon.If not otherwise specified, this Proxy will be voted FOR (1) the election of Directors to Class I, the election of Directors to Class III, and (2) the ratification of retention of PricewaterhouseCoopers LLP as McDermott’s independent registered public accounting firm. The proxy holders named on the reverse side also will vote in their discretion on any other matter that may properly come before the meeting. NOTE:   Signature(s) should agree with name(s) on stock certificates as specified hereon. Executors, administrators, trustees, etc., should indicate when signing. All proxies heretofore given by the signatory to vote at such meeting or any adjournment or postponement thereof are hereby revoked.                               Signature:       Date:       Signature:       Date:     NOTICE TO PARTICIPANTS OF THE THRIFT PLAN FOR EMPLOYEES OF MCDERMOTTMcDERMOTT INCORPORATED AND PARTICIPATING SUBSIDIARY AND AFFILIATED COMPANIES April 2, 2004 April 8, 2005 Dear Thrift Plan Participant:      The Annual Meeting of Stockholders of McDermott International, Inc. (“McDermott”) will be held on Wednesday, May 5, 2004.4, 2005. Enclosed for your review are the Notice of McDermott’s Annual Meeting of Stockholders and the related Proxy Statement. YOUR VOTE IS IMPORTANT!      As a participant in The Thrift Plan for Employees of McDermott Incorporated and Participating Subsidiary and Affiliated Companies (the “Thrift Plan”), you are strongly encouraged to direct Vanguard Fiduciary Trust Company (“Vanguard”), the trustee of your Thrift Plan, to vote your shares of McDermott common stock held in your separate Thrift Plan account. PROVIDING YOUR INSTRUCTIONS TO VANGUARD      To instruct Vanguard how to vote the shares of McDermott common stock in your Thrift Plan account, you may vote by mail, telephone or the Internet. To vote by mail, complete, sign, and date the enclosed instruction form and mail it to Vanguard in the enclosed postage-paid reply envelope. If you wish to vote via telephone, please call1-888-221-0697and follow the appropriate prompts. If you wish to vote via the Internet, log on towww.401kproxy.comand follow the instructions provided.Regardless of the method you choose, your instructions must be received at Vanguard by the Thrift Plan Deadline, which is 4:00 p.m. Eastern time on Friday, April 30, 2004.29, 2005. Please note, should you elect to vote via telephone or Internet, there is no need to mail in your proxy card. Your telephone or Internet vote serves as an electronic ballot and provides instruction to vote your shares in the same manner as if you signed and returned your proxy card.      Your proxy voting direction will apply to shares held in your Thrift Plan account at the close of the New York Stock Exchange on the record date, March 26, 2004.28, 2005. THE TERMS OF YOUR THRIFT PLAN      Please note the terms of your Thrift Plan provide that Vanguard will vote the shares of McDermott common stock held in your Thrift Plan account as directed. Additionally, any shares of McDermott common stock held in the Thrift Plan for which Vanguard does not receive timely participant directions generally will be voted by Vanguard in the same proportion as the shares for which Vanguard receives timely voting instructions from participants within the Thrift Plan.        The enclosed information relates only to shares of McDermott common stock held in your Thrift Plan account. If you own other shares outside of the Thrift Plan, you should receive separate mailings relating to those shares. YOUR DECISION IS CONFIDENTIAL      All instructions received by Vanguard from individual participants will be held in confidence and will not be divulged to any person, including McDermott, or any of their respective directors, officers, employees or affiliates. FOR ADDITIONAL QUESTIONS      If you have any questions about the proxy solicitation by McDermott, please direct all inquiries to: McDermott International, Inc. 1450 Poydras Street New Orleans, LA 70112-6050 Attention: Corporate Secretary Or call (504) 587-5400 Additionally, all proxy-solicitation materials are available online at www.sec.gov.www.sec.gov. If you have questions on how to provide voting instructions to Vanguard, please contact Vanguard Participant Services weekdays during normal business hours at 1-800-523-1188. Sincerely, Vanguard Fiduciary Trust Company 3 Easy Ways to Vote Your Voting Instruction Form 24 Hours a Day         Sincerely,       Vanguard Fiduciary Trust Company (VANGUARD GROUP LETTERHEAD) 3 Easy Ways to Vote Your Voting Instruction Form 24 Hours a Day                           VOTE ON THE INTERNET       VOTE BY PHONE       VOTE BY MAIL • Read the Proxy Statement and have • Read the Proxy Statement and have • Read the Proxy Statement and have    this card at hand    this card at hand    this card at hand • Log on towww.401kproxy.com • Call toll-free1-888-221-0697 • Check the appropriate boxes on reverse • Follow the on-screen instructions • Follow the recorded instructions • Sign and date proxy card • Do not return this paper ballot • Do not return this paper ballot • Return promptly in the enclosed envelope                         • Read the Proxy Statement and have this card at hand     • Read the Proxy Statement and have this card at hand     • Read the Proxy Statement and have this card at hand • Log on to www.401kproxy.com     • Call toll-free 1-888-221-0697   • Check the appropriate boxes on reverse • Follow the on-screen instructions • Follow the recorded instructions • Sign and date proxy card • Do not return this paper ballot • Do not return this paper ballot • Return promptly in the enclosed envelope                       ê6   Please fold and detach card at perforation before mailingê6 CONFIDENTIAL VOTING INSTRUCTION FORM TO:VANGUARD FIDUCIARY TRUST COMPANY, TRUSTEE UNDER THE THRIFT PLAN FOR EMPLOYEES OF McDERMOTT INCORPORATED AND PARTICIPATING SUBSIDIARY AND AFFILIATED COMPANIES The undersigned participant in The Thrift Plan for Employees of McDermott Incorporated and Participating Subsidiary and Affiliated Companies (the "Thrift Plan"“Thrift Plan”) hereby directs Vanguard Fiduciary Trust Company ("Vanguard"(“Vanguard”), the trustee for the Thrift Plan, to vote all the shares of common stock ("(“common stock"stock”) of McDermott International, Inc. ("McDermott"(“McDermott”) held in the undersigned'sundersigned’s Thrift Plan account at McDermott'sMcDermott’s Annual Meeting of Stockholders to be held in the Pelican I Room of the Hotel Inter-Continental, 444 St. Charles Avenue, New Orleans, Louisiana, on Wednesday, May 5, 2004,4, 2005, at 9:30 a.m. local time, and at any adjournment or postponement of such meeting, as indicated on the reverse side of this voting instruction form. Every properly signed voting instruction form will be voted in accordance with the specifications made thereon. If your voting instruction form is not properly signed or dated or if no direction is provided, your shares generally will be voted in the same proportion as the shares for which Vanguard receives timely voting instructions from participants in the Thrift Plan. THIS INSTRUCTION FORM MUST BE RECEIVED AT VANGUARD BY 4:00 p.m. Eastern time, Friday, April 30, 2004.29, 2005. The undersigned acknowledges receipt of McDermott'sMcDermott’s Annual Report for the fiscal year ended December 31, 20032004 and its Notice of 20042005 Annual Meeting of Stockholders and related Proxy Statement. ê Dated, 2005 SIGNATURE   Dated ___________________,2004 SIGNATURE                                          (Please sign in Box) NOTE: Signature should be the same as the name on your Thrift Plan account. When signing as attorney, executor, administrator, trustee, guardian or other similar capacity, please give full title as such. The person signing above hereby revokes all instructions heretofore given by such person to vote the shares of McDermott common stock held in such person’s Thrift Plan account at such meeting or any adjournment or postponement thereof. ê NOTE: Signature should be the same as the name on your Thrift Plan account. When signing as attorney, executor, administrator, trustee, guardian or other similar capacity, please give full title as such. The person signing above hereby revokes all instructions heretofore given by such person to vote the shares of McDermott common stock held in such person's Thrift Plan account at such meeting or any adjournment or postponement thereof. ê 131 kc 131 kg ê6Please fold and detach card at perforation before mailingê6 Please fill in box(es) as shown using black or blue ink.x PLEASE DO NOT USE FINE POINT PENS.           ê   Please fill in box(es) as shown using black or blue ink.x PLEASE DO NOT USE FINE POINT PENS.   ê       1.   Election of Directors: FOR all WITHHOLD nominees, AUTHORITY Nominees as Class II Directors: (the Directors favorrecommend a vote "FOR"“FOR”). except as for all specified nominees (01) Joe B. Foster, (03) D. Bradley McWilliams and at left.         (02) Robert L. Howard,Nominees as Class I Directors:   (04) Thomas C. Schievelbein.(01) Roger A. Brown, (02) Oliver D. Kingsley, Jr. and (03) Bruce W. Wilkinson.         Nominees as Class III Directors:   (04) Ronald C. Cambre and (05) Bruce DeMars.             o o     INSTRUCTION: To withhold authority to vote for any individual nominee(s), write the number(s) of the nominee(s) in the space provided above.           FOR all nominees, except as specified at left.   WITHHOLD AUTHORITY for all nominees             FOR o o       AGAINST ABSTAIN     2.   RetentionRatification of retention of PricewaterhouseCoopers LLP as McDermott'sMcDermott’s independent auditorsregistered public accounting firm for the year ending December 31, 20042005 (the Directors favorrecommend a vote "FOR"“FOR”). FOR AGAINST ABSTAIN o   o   o o The terms of your Thrift Plan provide that Vanguard will vote the shares of McDermott common stock held in your Thrift Plan account as directed. Additionally, McDermott common stock held in the Thrift Plan for which Vanguard does not receive direction before 4:00 p.m. Eastern time, on Friday, April 30, 2004,29, 2005, generally will be voted by Vanguard in the same proportion as the shares for which Vanguard receives timely voting instructions from participants in the Thrift Plan. ê PLEASE SIGN AND DATE THE FRONT SIDE OF THIS VOTING INSTRUCTION FORM AND PROMPTLY RETURN IT IN THE ENCLOSED ENVELOPE. 131 kc ê PLEASE SIGN AND DATE THE FRONT SIDE OF THIS VOTING INSTRUCTION FORM AND PROMPTLY RETURN IT IN THE ENCLOSED ENVELOPE.