10-Q

Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

(Mark One) F O R M 1 0–Q

X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2009

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________to______________

Commission File No. 001-08430

McDERMOTT INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

REPUBLIC OF PANAMA	72-0593134
(State or Other Jurisdiction of	(I.R.S. Employer Identification No.)
Incorporation or Organization)
777 N. ELDRIDGE PKWY.
HOUSTON, TEXAS	77079
(Address of Principal Executive Offices)	(Zip Code)

Registrant's Telephone Number, Including Area Code (281) 870-5901

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes [ü]   No [  ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

 Yes [  ]     No [  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [ü]                                                                                      Accelerated filer [   ]

Non-accelerated filer   [   ] (Do not check if a smaller reporting company)           Smaller reporting company [   ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes [  ]     No [P]

The number of shares of the registrant's common stock outstanding at April 30, 2009 was 228,520,662

M c D E R M O T T   I N T E R N A T I O N A L ,   I N C.

I N D E X  -  F O R M   1 0 - Q

PAGE

Item 1 – Condensed Consolidated Financial Statements 3

Condensed Consolidated Balance Sheets March 31, 2009 and December 31, 2008	4
Condensed Consolidated Statements of Income Three Months Ended March 31, 2009 and 2008	6
Condensed Consolidated Statements of Comprehensive Income Three Months Ended March 31, 2009 and 2008	7
Condensed Consolidated Statements of Cash Flows Three Months Ended March 31, 2009 and 2008	8
Notes to Condensed Consolidated Financial Statements	9

Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations 18

Item 3 – Quantitative and Qualitative Disclosures About Market Risk 27

Item 4 – Controls and Procedures 27

Item 1 – Legal Proceedings	28
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds	28
Item 5 – Other Information	28
Item 6 – Exhibits	29

SIGNATURES 30

Form of Change-In-Control Agreement entered into between McDermott International, Inc. and Stephen M. Johnson

LTIP Restricted Stock Unit Grant Agreement

LTIP Performance Shares Agreement

LTIP Stock Options Grant Agreement

Amended Supplemental Executive Retirement Plan

2

PART I

McDERMOTT INTERNATIONAL, INC.

FINANCIAL INFORMATION

Item 1.                   Condensed Consolidated Financial Statements

3

McDERMOTT INTERNATIONAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

ASSETS

	March 31,		December 31,
	2009		2008
	(Unaudited)
	(In thousands)
Current Assets:
Cash and cash equivalents	$	528,624	$	586,649
Restricted cash and cash equivalents (Note 1)		59,026		50,536
Investments		81,912		131,515
Accounts receivable – trade, net		613,537		712,055
Accounts and notes receivable – unconsolidated affiliates		4,569		1,504
Accounts receivable – other		141,021		139,062
Contracts in progress		400,305		311,713
Inventories (Note 1)		113,273		128,383
Deferred income taxes		100,364		97,069
Other current assets		63,670		58,499
Total Current Assets		2,106,301		2,216,985
Property, Plant and Equipment		2,276,138		2,234,050
Less accumulated depreciation		1,172,208		1,155,191
Net Property, Plant and Equipment		1,103,930		1,078,859
Investments		317,292		319,170
Goodwill		297,525		298,265
Deferred Income Taxes		288,804		335,877
Investments in Unconsolidated Affiliates		73,001		70,304
Other Assets		274,416		282,233
TOTAL	$	4,461,269	$	4,601,693

See accompanying notes to condensed consolidated financial statements.

4

McDERMOTT INTERNATIONAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

LIABILITIES AND STOCKHOLDERS' EQUITY

	March 31,			December 31,
	2009			2008
	(Unaudited)
	(In thousands)
Current Liabilities:
Notes payable and current maturities of long-term debt	$	4,161		$	9,021
Accounts payable		464,875			551,435
Accrued employee benefits		181,264			205,521
Accrued contract cost		92,896			97,041
Advance billings on contracts		828,610			951,895
Accrued warranty expense		119,708			120,237
Income taxes payable		40,603			55,709
Accrued liabilities – other		249,883			217,486
Total Current Liabilities		1,982,000			2,208,345
Long-Term Debt		5,915			6,109
Accumulated Postretirement Benefit Obligation		106,431			107,567
Self-Insurance		91,637			88,312
Pension Liability		665,518			682,624
Other Liabilities		197,028			192,564
Contingencies and Commitments (Note 3)
Stockholders’ Equity:
Common stock, par value $1.00 per share, authorized 400,000,000 shares; issued 234,544,195 and 234,174,088 shares at March 31, 2009 and December 31, 2008, respectively		234,544			234,174
Capital in excess of par value		1,264,556			1,252,848
Retained earnings		642,283			564,591
Treasury stock at cost, 5,854,959 and 5,840,314 shares at March 31, 2009 and December 31, 2008, respectively		(63,166	)		(63,026	)
Accumulated other comprehensive loss (Note 1)		(665,477	)		(672,415	)
Total Stockholders’ Equity		1,412,740			1,316,172
TOTAL	$	4,461,269		$	4,601,693

See accompanying notes to condensed consolidated financial statements.

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McDERMOTT INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

	Three Months Ended
	March 31,
	2009			2008
	(Unaudited)
	(In thousands, except shares and per share amounts)
Revenues	$	1,493,263		$	1,450,426
Costs and Expenses:
Cost of operations		1,228,622			1,188,696
(Gains) losses on asset disposals and impairments – net		1,241			(11,443	)
Selling, general and administrative expenses		141,394			126,731
Total Costs and Expenses		1,371,257			1,303,984
Equity in Income of Investees		9,200			10,670
Operating Income		131,206			157,112
Other Income (Expense):
Interest income		2,813			13,395
Interest expense		(956	)		(2,940	)
Other expense – net		(11,493	)		(3,997	)
Total Other Income (Expense)		(9,636	)		6,458
Income before Provision for Income Taxes		121,570			163,570
Provision for Income Taxes		43,878			40,380
Net Income	$	77,692		$	123,190
Earnings per Share:
Basic	$	0.34		$	0.55
Diluted	$	0.33		$	0.54
Shares used in the computation of earnings per share (Note 8):
Basic		228,314,785			225,632,169
Diluted		232,586,245			230,112,858

See accompanying notes to condensed consolidated financial statements.

6

McDERMOTT INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	Three Months Ended
	March 31,
	2009			2008
	(Unaudited)
	(In thousands)
Net Income	$	77,692		$	123,190
Other Comprehensive Income (Loss):
Currency translation adjustments:
Foreign currency translation adjustments		(5,363	)		3,380
Unrealized gains on derivative financial instruments:
Unrealized gains (losses) on derivative financial instruments		(1,854	)		4,548
Reclassification adjustment for losses included in net income		1,922			72
Amortization of benefit plan costs		14,155			6,539
Unrealized gains (losses) on investments:
Unrealized losses arising during the period		(1,872	)		(2,910	)
Reclassification adjustment for net gains included in net income		(50	)		(1,330	)
Other Comprehensive Income		6,938			10,299
Comprehensive Income	$	84,630		$	133,489

See accompanying notes to condensed consolidated financial statements.

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McDERMOTT INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	Three Months Ended
	March 31,
	2009			2008
	(Unaudited)
	(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income	$	77,692		$	123,190
Non-cash items included in net income:
Depreciation and amortization		36,022			31,311
Income of investees, less dividends		(1,142	)		(3,057	)
(Gains) losses on asset disposals and impairments – net		1,241			(11,443	)
Provision for deferred taxes		38,407			16,063
Amortization of pension and postretirement costs		21,970			10,137
Excess tax benefits from FAS 123(R) stock-based compensation		(134	)		(5,346	)
Other, net		13,159			10,727
Changes in assets and liabilities, net of effects of acquisitions and divestitures:
Accounts receivable		90,367			(75,109	)
Net contracts in progress and advance billings on contracts		(208,063	)		(103,241	)
Accounts payable		(85,830	)		7,754
Income taxes		(16,717	)		2,150
Accrued and other current liabilities		29,767			77,316
Pension liability, accumulated postretirement benefit obligation and accrued employee benefits		(43,281	)		(107,488	)
Other, net		19,629			(25,891	)
NET CASH USED IN OPERATING ACTIVITIES		(26,913	)		(52,927	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in restricted cash and cash equivalents		(8,490	)		(14,561	)
Purchases of property, plant and equipment		(61,388	)		(59,286	)
Net (increase) decrease in available-for-sale securities		49,007			(88,633	)
Proceeds from asset disposals		279			11,921
Other, net		(1,055	)		(820	)
NET CASH USED IN INVESTING ACTIVITIES		(21,647	)		(151,379	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of long-term debt		(4,825	)		(4,385	)
Issuance of common stock		160			2,845
Payment of debt issuance costs		(19	)		(164	)
Excess tax benefits from FAS 123(R) stock-based compensation		134			5,346
Other		943			-
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES		(3,607	)		3,642
EFFECTS OF EXCHANGE RATE CHANGES ON CASH		(5,858	)		(130	)
NET DECREASE IN CASH AND CASH EQUIVALENTS		(58,025	)		(200,794	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		586,649			1,001,394
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	528,624		$	800,600
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amount capitalized)	$	1,124		$	3,139
Income taxes (net of refunds)	$	19,786		$	30,058

See accompanying notes to condensed consolidated financial statements.

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McDERMOTT INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2009

(UNAUDITED)

NOTE 1 – BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

We have presented our condensed consolidated financial statements in U.S. Dollars in accordance with the interim reporting requirements of Form 10-Q and Rule 10-01 of Regulation S-X. Financial information and disclosures normally included in our financial statements prepared annually in accordance with accounting principles generally accepted in the United States (“GAAP”) have been condensed or omitted. Readers of these financial statements should, therefore, refer to the consolidated financial statements and the notes in our annual report on Form 10-K for the year ended December 31, 2008.

We have included all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation.  These condensed consolidated financial statements include the accounts of McDermott International, Inc. and its subsidiaries and controlled entities consistent with Financial Accounting Standards Board (“FASB”) Interpretation No. 46(R), Consolidation of Variable Interest Entities (revised December 2003). We use the equity method to account for investments in entities that we do not control, but over which we have significant influence. We generally refer to these entities as “joint ventures.”  We have eliminated all significant intercompany transactions and accounts.  We have reclassified certain amounts previously reported to conform to the presentation at March 31, 2009 and for the three months ended March 31, 2009.  We present the notes to our condensed consolidated financial statements on the basis of continuing operations, unless otherwise stated.

McDermott International, Inc. (“MII”), incorporated under the laws of the Republic of Panama in 1959, is an engineering and construction company with specialty manufacturing and service capabilities and is the parent company of the McDermott group of companies, including J. Ray McDermott, S.A. (“JRMSA”) and The Babcock & Wilcox Company (“B&W”).  In this quarterly report on Form 10-Q, unless the context otherwise indicates, “we,” “us” and “our” mean MII and its consolidated subsidiaries.

We operate in three business segments: Offshore Oil and Gas Construction, Government Operations and Power Generation Systems, further described as follows:

·   Our Offshore Oil and Gas Construction segment includes the business and operations of JRMSA, J. Ray McDermott Holdings, LLC and their respective subsidiaries.  This segment supplies services primarily to offshore oil and gas field developments worldwide, including the front-end design and detailed engineering, fabrication and installation of offshore drilling and production facilities and installation of marine pipelines and subsea production systems.   It also provides comprehensive project management and procurement services. This segment operates in most major offshore oil and gas producing regions, including the United States, Mexico, Canada, the Middle East, India, the Caspian Sea and Asia Pacific.

·   Our Government Operations segment includes the business and operations of BWX Technologies, Inc., Babcock & Wilcox Nuclear Operations Group, Inc., Babcock & Wilcox Technical Services Group, Inc. and their respective subsidiaries. This segment manufactures nuclear components and provides various services to the U.S. Government, including uranium processing, environmental site restoration services and management and operating services for various U.S. Government-owned facilities, primarily within the nuclear weapons complex of the U.S. Department of Energy.

·   Our Power Generation Systems segment includes the business and operations of Babcock & Wilcox Power Generation Group, Inc. (“B&W PGG”), Babcock & Wilcox Nuclear Power Generation Group, Inc. and their respective subsidiaries.  This segment supplies fossil-fired boilers, commercial nuclear steam generators and components, environmental equipment and components, and related services to customers in different regions around the world.  It designs, engineers, manufactures, constructs and services large utility and industrial power generation systems, including boilers used to generate steam in electric power plants, pulp and paper making, chemical and process applications and other industrial uses.

Operating results for the three months ended March 31, 2009 are not necessarily indicative of the results that may be expected for the year ending December 31, 2009.  For further information, refer to the consolidated financial statements and footnotes thereto included in our annual report on Form 10-K for the year ended December 31, 2008.

9

Comprehensive Loss

The components of accumulated other comprehensive loss included in stockholders' equity are as follows:

	March 31,			December 31,
	2009			2008
	(Unaudited)
	(In thousands)
Currency Translation Adjustments	$	(18,405	)	$	(13,042	)
Net Unrealized Loss on Investments		(10,900	)		(8,978	)
Net Unrealized Loss on Derivative Financial Instruments		(13,170	)		(13,238	)
Unrecognized Losses on Benefit Obligations		(623,002	)		(637,157	)
Accumulated Other Comprehensive Loss	$	(665,477	)	$	(672,415	)

Inventories

The components of inventories are as follows:

	March 31,		December 31,
	2009		2008
	(Unaudited)
	(In thousands)
Raw Materials and Supplies	$	80,555	$	95,593
Work in Progress		10,873		12,157
Finished Goods		21,845		20,633
Total Inventories	$	113,273	$	128,383

Restricted Cash and Cash Equivalents

At March 31, 2009, we had restricted cash and cash equivalents totaling $59.0 million, $49.0 million of which was held in restricted foreign accounts, $3.0 million was held as cash collateral for letters of credit, $5.0 million was held for future decommissioning of facilities, and $2.0 million was held to meet reinsurance reserve requirements of our captive insurance companies.

Research & Development Expense

Research and development activities are related to development and improvement of new and existing products and equipment, as well as conceptual and engineering evaluation for translation into practical applications. We charge to cost of operations the costs of research and development unrelated to specific contracts as incurred.  For the three months ended March 31, 2009 and 2008 our net research and development expense included in cost of operations totaled approximately $10.2 million and $9.0 million respectively.

Recently Adopted Accounting Standards

In April 2009, the FASB issued FASB Staff Position (“FSP”) 141(R)-1, Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies. FSP 141(R)-1 amends and clarifies Statement of Financial Accounting Standards (“SFAS”) No. 141 to address subsequent measurement and accounting for, and disclosure of, assets and liabilities arising from contingencies in a business combination.  On January 1, 2009, we adopted the provisions of FSP 141(R)-1. The adoption of these provisions did not have a material impact on our consolidated financial statements.

In January 2009, the FASB issued FSP 107-b, Interim Disclosures about Fair Value of Financial Instruments. FSP 107-b amends SFAS No. 107, Disclosures about Fair Value of Financial Instruments, to require disclosures about fair value of financial instruments in financial statements.  On January 1, 2009, we adopted the provisions of FSP 107-b. The adoption of these provisions did not have a material impact on our consolidated financial statements.

In April 2008, the FASB issued FSP 142-3, Determination of the Useful Life of Intangible Assets. FSP 142-3 requires companies estimating the useful life of a recognized intangible asset to consider their historical experience in renewing or extending similar arrangements or, in the absence of historical experience, to consider assumptions

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that market participants would use about renewals or extensions as adjusted for the entity-specific factors in SFAS No. 142, Goodwill and Other Intangible Assets. On January 1, 2009, we adopted the provisions of FSP 142-3 for the determination of the useful life of intangible assets. The adoption of the provisions did not have a material impact on our consolidated financial statements.

In March 2008, the FASB issued SFAS No. 161, Disclosures About Derivative Instruments and Hedging Activities— an amendment of FASB Statement No. 133.  SFAS No. 161 requires enhanced disclosures about derivative and hedging activities and is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008.  On January 1, 2009, we adopted the provisions of SFAS No. 161 for our disclosures about derivative instruments and hedging activities. The adoptions of these provisions did not have a material impact on our consolidated financial statements.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements – An Amendment of ARB No. 51.  SFAS No. 160 establishes accounting and reporting standards pertaining to ownership interests in subsidiaries held by parties other than the parent, the amount of net income attributable to the parent and to the noncontrolling interest, changes in a parent’s ownership interest and the valuation of any retained noncontrolling equity investment when a subsidiary is deconsolidated.  It also establishes disclosure requirements that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners.  On January 1, 2009, we adopted the provisions of SFAS No. 160. The adoption of these provisions did not have a material impact on our consolidated financial statements.  Income attributable to noncontrolling interests and the related liability are not material to us. Therefore, we have not presented these items separately in our financial statements. Income attributable to noncontrolling interests is included in other expense-net in our condensed consolidated statements of income, and the related liability is included in other liabilities in our condensed consolidated balance sheets. The following is a summary of noncontrolling interests:

	Three Months Ended March 31,				Twelve Months Ended December 31,
	2009		2008		2008		2007		2006
	(In thousands)
Income Statement Item:    Minority Interest Expense       included in Other-net	$	723	$	57	$	287	$	93	$	1,023

	March 31,		December 31,
	2009		2008		2007
	(In thousands)
Balance Sheet Item:    Minority Interest Liability       included in Other liabilities	$	1,055	$	341	$	373

In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (“SFAS No. 141(R)”), which amends SFAS No. 141, Business Combinations.  SFAS No. 141(R) broadens the guidance of SFAS No. 141, extending its applicability to all transactions and events in which one entity obtains control over one or more other businesses.  It broadens the fair value measurements and recognition of assets acquired, liabilities assumed and interests transferred as a result of business combinations.  It also provides disclosure requirements to enable users of the financial statements to evaluate the nature and financial effects of business combinations.  On January 1, 2009, we adopted the provisions of SFAS 141(R). The adoption of these provisions did not have a material impact on our consolidated financial statements.

New Accounting Standards

In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles. SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements that are presented in conformity with generally accepted accounting principles in the United States. This Statement will be effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles.  We do not expect SFAS No. 162 to have a material impact on our consolidated financial statements.

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Other than as described above, there have been no material changes to the recent pronouncements discussed in our annual report on Form 10-K for the year ended December 31, 2008.

NOTE 2 – PENSION PLANS AND POSTRETIREMENT BENEFITS

Components of net periodic benefit cost included in net income are as follows:

	Pension Benefits						Other Benefits
	Three Months Ended						Three Months Ended
	March 31,						March 31,
	2009			2008			2009			2008
	(Unaudited)
	(In thousands)
Service cost	$	9,565		$	9,783		$	231		$	83
Interest cost		40,101			38,855			2,170			1,413
Expected return on plan assets		(36,909	)		(45,833	)		(377	)		-
Amortization of prior service cost		690			769			15			19
Amortization of transition obligation		-			-			59			74
Recognized net actuarial loss		20,801			8,911			405			364
Net periodic benefit cost	$	34,248		$	12,485		$	2,503		$	1,953

NOTE 3 – CONTINGENCIES AND COMMITMENTS

Other than as noted below, there have been  no material changes during the period covered by this Form 10-Q in the status of the legal proceedings disclosed in Note 11 to the consolidated financial statements in Part II of our annual report on Form 10-K for the year ended December 31, 2008.

Investigations and Litigation

With regard to the matter of Donald F. Hall and Mary Ann Hall, et al., v. Babcock & Wilcox Company, et al. (the “Hall Litigation”), the parties entered into the final settlement agreement described in our annual report on Form 10-K for the year ended December 31, 2008 (our “2008 10-K”), and that settlement was approved by the United States District Court for the Western District of Pennsylvania (the “District Court”) in April 2009.  In May 2009, B&W PGG paid approximately $52.5 million pursuant to the terms of the final settlement agreement, which is within the amount we have accrued for these claims. B&W PGG and Babcock & Wilcox Technical Services Group, Inc., formerly known as B&W Nuclear Environmental Services, Inc., have retained all insurance rights and may pursue its insurers to collect any of the settlement amount paid. Additionally, B&W PGG and Atlantic Richfield Company (“ARCO”), a former defendant in the Hall Litigation, entered into the final settlement agreement described in our 2008 10-K, relating to B&W PGG’s indemnity action against ARCO for any liability as a result of the Hall Litigation.  The indemnity settlement was also approved by the District Court in April 2009.

The three separate purported class action complaints against MII, Bruce Wilkinson (MII’s former Chief Executive Officer and Chairman of the Board), and Michael S. Taff (the Chief Financial Officer of MII) described in our 2008 Form 10-K have been consolidated. In April 2009, our motion to transfer the consolidated cases to the Southern District of Texas was granted.

With regard to the matter of Iroquois Falls Power Corp. v. Jacobs Canada Inc., et al., described in our 2008 10-K, Iroquois Falls Power Corp. (“Iroquois”) filed a notice of appeal of the decision of the Superior Court of Justice which denied the request of Iroquois to amend its complaint and assert new claims against the defendants based on a breach of contractual warranty. A hearing on the appeal has been scheduled for June 2, 2009.

For a detailed description of these and other proceedings, please refer to Note 11 to the consolidated financial statements included in Part II of our annual report on Form 10-K for the year ended December 31, 2008.

Other

Some of our contracts contain penalty provisions that require us to pay liquidated damages if we are responsible for the failure to meet specified contractual milestone dates and the applicable customer asserts a claim under these provisions. These contracts define the conditions under which our customers may make claims against us for

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liquidated damages. In many cases in which we have had potential exposure for liquidated damages, such damages ultimately were not asserted by our customers.  As of March 31, 2009, we had not accrued for approximately $110 million of potential liquidated damages that we believe we could incur based upon our current expectations of the time to complete certain projects in our Offshore Oil and Gas Construction segment.  We do not believe any claims for these potential liquidated damages are probable of being assessed. The trigger dates for the majority of these potential liquidated damages occurred during the fourth quarter of 2008. We are in active discussions with our customers on the issues giving rise to delays in these projects, and we believe we will be successful in obtaining schedule extensions that should resolve the potential for liquidated damages being assessed. However, we may not achieve relief on some or all of the issues. For certain other projects in our Offshore Oil and Gas Construction segment, we have currently provided for approximately $23 million in liquidated damages in our estimates of revenues and gross profit, of which approximately $19 million has been recognized in our financial statements to date, as we believe, based on the individual facts and circumstances, that these liquidated damages are probable.

NOTE 4 – DERIVATIVE FINANCIAL INSTRUMENTS

Our worldwide operations give rise to exposure to market risks from changes in foreign exchange rates.  We use derivative financial instruments (primarily foreign currency forward-exchange contracts) to reduce the impact of changes in foreign exchange rates on our operating results.  We use these instruments primarily to hedge our exposure associated with revenues or costs on our long-term contracts and other cash flow exposures that are denominated in currencies other than our operating entities’ functional currencies.  We do not hold or issue financial instruments for trading or other speculative purposes.

We enter into derivative financial instruments primarily as hedges of certain firm purchase and sale commitments denominated in foreign currencies.  We record these contracts at fair value on our consolidated balance sheets.  Depending on the hedge designation at the inception of the contract, the related gains and losses on these contracts are either deferred in stockholders’ equity (deficit) as a component of accumulated other comprehensive loss, until the hedged item is recognized in earnings, or offset against the change in fair value of the hedged firm commitment through earnings.  The ineffective portion of a derivative’s change in fair value and any portion excluded from the assessment of effectiveness are immediately recognized in earnings.  The gain or loss on a derivative instrument not designated as a hedging instrument is also immediately recognized in earnings.  Gains and losses on derivative financial instruments that require immediate recognition are included as a component of other income (expense) – net in our consolidated statements of income.

We have designated all of our forward contracts as either cash flow or fair value hedging instruments. The hedged risk is the risk of changes in functional-currency-equivalent cash flows attributable to changes in spot exchange rates of forecasted transactions related to long-term contracts and certain capital expenditures.  We exclude from our assessment of effectiveness the portion of the fair value of the forward contracts attributable to the difference between spot exchange rates and forward exchange rates.  At March 31, 2009, we had deferred approximately $13.2 million of net losses on these derivative financial instruments in accumulated other comprehensive loss. Of this amount, we expect to recognize approximately $1.0 million of income in the next twelve months.

At March 31, 2009 all of our derivative financial instruments consisted of foreign currency forward-exchange contracts. The notional value of our forward contracts totaled $317.0 million at March 31, 2009 with maturities extending to December 2011 and consists primarily of contracts to purchase or sell Euros or Canadian Dollars. The fair value of these contracts totaled ($23.9) million. We are exposed to credit-related losses in the event of nonperformance by counterparties to derivative financial instruments. However, when possible, we enter into  International Swaps and Derivative Association, Inc. agreements  with our hedge counterparties to mitigate this risk.  We also attempt to mitigate this risk by using major financial institutions with high credit ratings and limit our exposure to hedge counterparties based on their credit ratings.  The counterparties to all of our derivative financial instruments are financial institutions included in our credit facilities described in Note 6 to the consolidated financial statements included in Part II of our annual report on Form 10-K for the year ending December 31, 2008. Our hedge counterparties have the benefit of the same collateral arrangements and covenants as described under these facilities.

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The following tables summarize our derivative financial instruments at March 31, 2009:

	Asset Derivatives March 31, 2009			Liability Derivatives March 31, 2009
	Balance Sheet Account	Fair Value		Balance Sheet Account	Fair Value
	(In thousands)
Derivatives designated as hedging instruments:
Foreign-exchange contracts	Accounts receivable-other	$	2,487	Accounts payable	$	21,350
Derivatives not designated as hedging instruments:
Foreign-exchange contracts	Accounts receivable-other	$	2,445	Accounts payable	$	7,512

The Effect of Derivative Instruments on the Statement of Financial Performance For the Three Months Ended March 31, 2009 (in thousands)
Derivatives Designated as Hedges:
Cash Flow Hedges:
Foreign Exchange Contracts:	Amount
Amount of gain (loss) recognized in other  comprehensive income	$	(2,872	)
Loss reclassified from accumulated other            comprehensive loss into income: effective            portion
Location	Amount
Revenues	$	578
Cost of operations	$	926
Other-net	$	37
Gain (loss) recognized in income: portion             excluded from effectiveness testing
Location	Amount
Other-net	$	(1,100	)
Derivatives Not Designated as Hedges:
Foreign Exchange Contracts:
Gain (loss) recognized in income:
Location	Amount
Other-net	$	(8,289	)

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NOTE 5 – FAIR VALUE MEASUREMENTS

The following is a summary of our available-for-sale securities measured at fair value at March 31, 2009 (in thousands):

	3/31/09		Level 1		Level 2		Level 3
Mutual funds	$	4,024	$	-	$	4,024	$	-
Commercial paper		-		-		-		-
Certificates of deposit		7,671		-		7,671		-
U.S. Government and agency securities		287,777		245,627		42,150		-
Foreign government bonds		-		-		-		-
Asset-backed securities and collateralized mortgage obligations		10,150		-		3,452		6,698
Corporate notes and bonds		89,582		-		89,582		-
Total	$	399,204	$	245,627	$	146,879	$	6,698

Changes in Level 3 Instrument

The following is a summary of the changes in our Level 3 instrument measured on a recurring basis for the period ended March 31, 2009 (in thousands):

Balance, beginning of the year	$	7,456
Total realized and unrealized gains (losses):		-
Included in other income (expense)		-
Included in other comprehensive income		(288	)
Purchases, issuances and settlements		-
Principal repayments		(470	)
Balance, end of period	$	6,698

Other Financial Instruments

We used the following methods and assumptions in estimating our fair value disclosures for our other financial instruments, as follows:

Cash and cash equivalents and restricted cash and cash equivalents.  The carrying amounts that we have reported in the accompanying consolidated balance sheets for cash and cash equivalents approximate their fair values.

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

The estimated fair values of our financial instruments are as follows:

	March 31, 2009				December 31, 2008
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	(In thousands)
Balance Sheet Instruments
Cash and cash equivalents	$	528,624	$	528,624	$	586,649	$	586,649
Restricted cash and cash equivalents	$	59,026	$	59,026	$	50,536	$	50,536
Investments	$	399,204	$	399,204	$	450,685	$	450,685
Debt	$	10,076	$	10,401	$	15,130	$	15,221

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NOTE 6 – STOCK-BASED COMPENSATION

Total stock-based compensation expense recognized for the three months ended March 31, 2009 and 2008 was as follows:

	Compensation		Tax			Net
	Expense		Benefit			Impact
	(Unaudited)
	(In thousands)
	Three Months Ended March 31, 2009
Stock Options	$	228	$	(76	)	$	152
Restricted Stock		1,162		(362	)		800
Performance Shares		6,525		(2,182	)		4,343
Performance and Deferred Stock Units		1,109		(365	)		744
Total	$	9,024	$	(2,985	)	$	6,039
	Three Months Ended March 31, 2008
Stock Options	$	521	$	(160	)	$	361
Restricted Stock		340		(93	)		247
Performance Shares		9,755		(3,143	)		6,612
Performance and Deferred Stock Units		1,349		(444	)		905
Total	$	11,965	$	(3,840	)	$	8,125

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NOTE 7 – SEGMENT REPORTING

An analysis of our operations by segment is as follows:

	Three Months Ended
	March 31,
	2009			2008
	(Unaudited)
	(In thousands)
REVENUES:
Offshore Oil and Gas Construction	$	708,524		$	645,949
Government Operations		257,105			190,594
Power Generation Systems		528,573			616,298
Adjustments and Eliminations(1)		(939	)		(2,415	)
	$	1,493,263		$	1,450,426
(1)  Segment revenues are net of the following intersegment transfers and other adjustments:
Offshore Oil and Gas Construction Transfers	$	315		$	2,243
Government Operations Transfers		624			170
Power Generation Systems Transfers		-			2
	$	939		$	2,415
OPERATING INCOME:
Segment Operating Income:
Offshore Oil and Gas Construction	$	47,217		$	51,883
Government Operations		37,050			29,201
Power Generation Systems		56,504			63,936
	$	140,771		$	145,020
Gains (Losses) on Asset Disposals and Impairments – Net:
Offshore Oil and Gas Construction	$	(1,034	)	$	1,796
Government Operations		-			-
Power Generation Systems		12			9,647
	$	(1,022	)	$	11,443
Equity in Income (Loss) of Investees:
Offshore Oil and Gas Construction	$	(1,145	)	$	(754	)
Government Operations		8,702			8,749
Power Generation Systems		1,643			2,675
	$	9,200		$	10,670
Segment Income:
Offshore Oil and Gas Construction	$	45,038		$	52,925
Government Operations		45,752			37,950
Power Generation Systems		58,159			76,258
		148,949			167,133
Corporate		(17,743	)		(10,021	)
Total Operating Income	$	131,206		$	157,112

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NOTE 8 – EARNINGS PER SHARE

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

	Three Months Ended
	March 31,
	2009		2008
	(Unaudited)
	(In thousands, except per share amounts)
Basic:
Net income for basic computation	$	77,692	$	123,190
Weighted average common shares		228,315		225,632
Basic earnings per common share	$	0.34	$	0.55
Diluted:
Net income for diluted computation	$	77,692	$	123,190
Weighted average common shares (basic)		228,315		225,632
Effect of dilutive securities:
Stock options, restricted stock and performance shares		4,271		4,481
Adjusted weighted average common shares and assumed exercises of stock options and  vesting of stock awards		232,586		230,113
Diluted earnings per common share	$	0.33	$	0.54

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

The following information should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto included under Item 1 and the audited consolidated financial statements and the related notes and Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our annual report on Form 10-K for the year ended December 31, 2008.

In this quarterly report on Form 10-Q, unless the context otherwise indicates, “we,” “us” and “our” mean MII and its consolidated subsidiaries.

We are including the following discussion to inform our existing and potential security holders generally of some of the risks and uncertainties that can affect our company and to take advantage of the “safe harbor” protection for forward-looking statements that applicable federal securities law affords.

From time to time, our management or persons acting on our behalf make forward-looking statements to inform existing and potential security holders about our company.  These statements may include projections and estimates concerning the timing and success of specific projects and our future backlog, revenues, income and capital spending.  Forward-looking statements are generally accompanied by words such as “estimate,” “project,” “predict,” “believe,” “expect,” “anticipate,” “plan,” “goal” or other words that convey the uncertainty of future events or outcomes.  In addition, sometimes we will specifically describe a statement as being a forward-looking statement and refer to this cautionary statement.

In addition, various statements in this quarterly report on Form 10-Q, including those that express a belief, expectation or intention, as well as those that are not statements of historical fact, are forward-looking statements.  These forward-looking statements speak only as of the date of this report; we disclaim any obligation to update these

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statements unless required by securities law, and we caution you not to rely on them unduly.  We have based these forward-looking statements on our current expectations and assumptions about future events.  While our management considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond our control.  These risks, contingencies and uncertainties relate to, among other matters, the following:

·   general economic and business conditions and industry trends;

·   general developments in the industries in which we are involved;

·   decisions about offshore developments to be made by oil and gas companies;

·   decisions on spending by the U.S. Government and electric power generating companies;

·   the highly competitive nature of most of our businesses;

·   cancellations of and adjustments to backlog and the resulting impact from using backlog as an indicator of future earnings;

·   the ability of our suppliers to deliver raw materials in sufficient quantities and in a timely manner;

·   volatility and uncertainty of the credit markets;

·   our ability to comply with covenants in our credit agreements and other debt instruments and availability, terms and deployment of capital;

·   the continued availability of qualified personnel;

·   the operating risks normally incident to our lines of business, including the potential impact of liquidated damages;

·   changes in, or our failure or inability to comply with, government regulations;

·   adverse outcomes from legal and regulatory proceedings;

·   impact of potential regional, national and/or global requirements to significantly limit or reduce greenhouse gas emissions in the future;

·   changes in, and liabilities relating to, existing or future environmental regulatory matters;

·   rapid technological changes;

·   the realization of deferred tax assets, including through a reorganization we completed in December 2006;

·   the consequences of significant changes in interest rates and currency exchange rates;

·   difficulties we may encounter in obtaining regulatory or other necessary approvals of any strategic transactions;

·   the risks of successfully integrating our acquisitions;

·   social, political and economic situations in foreign countries where we do business, including countries in the Middle East and Asia Pacific and the former Soviet Union;

·   the possibilities of war, other armed conflicts or terrorist attacks;

·   the affects of asserted and unasserted claims;

·   our ability to obtain surety bonds, letters of credit and financing;

·   our ability to maintain builder’s risk, liability, property and other insurance in amounts and on terms we consider adequate and at rates that we consider economical;

·   the aggregated risks retained in our insurance captives; and

·   the impact of the loss of certain insurance rights as part of the Chapter 11 Bankruptcy settlement.

We believe the items we have outlined above are important factors that could cause estimates in our financial statements to differ materially from actual results and those expressed in a forward-looking statement made in this report or elsewhere by us or on our behalf.  We have discussed many of these factors in more detail elsewhere in this report and in our annual report on Form 10-K for the year ended December 31, 2008.  These factors are not necessarily all the factors that could affect us.  Unpredictable or unanticipated factors we have not discussed in this report could also have material adverse effects on actual results of matters that are the subject of our forward-looking statements.  We do not intend to update our description of important factors each time a potential important factor arises, except as required by applicable securities laws and regulations.  We advise our security holders that they should (1) be aware that factors not referred to above could affect the accuracy of our forward-looking statements and (2) use caution and common sense when considering our forward-looking statements.

GENERAL

In general, our business segments are composed of capital-intensive businesses that rely on large contracts for a substantial amount of their revenues.  Each of our business segments is currently financed on a stand-alone basis. Our debt covenants limit using the financial resources of or the movement of excess cash from one segment for the benefit of the other.  For further discussion, see “Liquidity and Capital Resources” below.

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As of March 31, 2009, in accordance with the percentage-of-completion method of accounting, we have provided for our estimated costs to complete all of our ongoing contracts. However, it is possible that current estimates could change due to unforeseen events, which could result in adjustments to overall contract costs. The risk on fixed-priced contracts is that revenue from the customer does not rise to cover increases in our costs. It is possible that current estimates could materially change for various reasons, including, but not limited to, fluctuations in forecasted labor productivity, pipeline lay rates or steel and other raw material prices. In some instances, we guarantee completion dates related to our projects.  Increases in costs on our fixed-price contracts could have a material adverse impact on our consolidated results of operations, financial condition and cash flows. Alternatively, reductions in overall contract costs at completion could materially improve our consolidated results of operations, financial condition and cash flows.

Some of our contracts contain penalty provisions that require us to pay liquidated damages if we are responsible for the failure to meet specified contractual milestone dates and the applicable customer asserts a claim under these provisions. These contracts define the conditions under which our customers may make claims against us for liquidated damages. In many cases in which we have had potential exposure for liquidated damages, such damages ultimately were not asserted by our customers.  As of March 31, 2009, we had not accrued for approximately $110 million of potential liquidated damages that we believe we could incur based upon our current expectations of the time to complete certain projects in our Offshore Oil and Gas Construction segment.  We do not believe any claims for these potential liquidated damages are probable of being assessed. The trigger dates for the majority of these potential liquidated damages occurred during the fourth quarter of 2008. We are in active discussions with our customers on the issues giving rise to delays in these projects, and we believe we will be successful in obtaining schedule extensions that should resolve the potential for liquidated damages being assessed. However, we may not achieve relief on some or all of the issues. For certain other projects in our Offshore Oil and Gas Construction segment, we have currently provided for approximately $23 million in liquidated damages in our estimates of revenues and gross profit, of which approximately $19 million has been recognized in our financial statements to date, as we believe, based on the individual facts and circumstances, that these liquidated damages are probable.

Offshore Oil and Gas Construction Segment

Our Offshore Oil and Gas Construction segment’s activity depends mainly on the capital expenditures for offshore construction services of oil and gas companies and foreign governments for construction of development projects in the regions in which we operate.  This segment’s operations are generally capital intensive, and a number of factors influence its activities, including:

·   oil and gas prices, along with expectations about future prices;

·   the cost of exploring for, producing and delivering oil and gas;

·   the terms and conditions of offshore leases;

·   the discovery rates of new oil and gas reserves in offshore areas;

·   the ability of businesses in the oil and gas industry to raise capital; and

·   local and international political and economic conditions.

Government Operations Segment

The revenues of our Government Operations segment are largely a function of defense spending by the U.S. Government.  As a supplier of major nuclear components for certain U.S. Government programs, this segment is a significant participant in the defense industry.  With its unique capability of full life-cycle management of special nuclear materials, facilities and technologies, our Government Operations segment is well positioned to continue to participate in the continuing cleanup, operation and management of the nuclear sites and weapons complexes maintained by the U.S. Department of Energy.

Power Generation Systems Segment

Our Power Generation Systems segment’s overall activity depends mainly on the capital expenditures of electric power generating companies and other steam-using industries. Several factors influence these expenditures, including:

·   prices for electricity, along with the cost of production and distribution;

·   prices for coal and natural gas and other sources used to produce electricity;

·   demand for electricity, paper and other end products of steam-generating facilities;

·   availability of other sources of electricity, paper or other end products;

·   requirements for environmental improvements;

·   impact of potential regional, state, national and/or global requirements to significantly limit or reduce greenhouse gas emissions in the future;

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·   level of capacity utilization at operating power plants, paper mills and other steam-using facilities;

·   requirements for maintenance and upkeep at operating power plants and paper mills to combat the accumulated effects of wear and tear;

·   ability of electric generating companies and other steam users to raise capital; and

·   relative prices of fuels used in boilers, compared to prices for fuels used in gas turbines and other alternative forms of generation.

For a summary of the critical accounting policies and estimates that we use in the preparation of our unaudited condensed consolidated financial statements, see Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our annual report on Form 10-K for the year ended December 31, 2008.  There have been no material changes to these policies during the three months ended March 31, 2009, except as disclosed in Note 1 of the notes to condensed consolidated financial statements included in this report.

RESULTS OF OPERATIONS – THREE MONTHS ENDED MARCH 31, 2009 VS. THREE MONTHS ENDED MARCH 31, 2008

McDermott International, Inc. (Consolidated)

Revenues increased approximately 3%, or $42.9 million, to $1,493.3 million in the three months ended March 31, 2009 compared to $1,450.4 million for the corresponding period in 2008 due to increases from our Offshore Oil and Gas Construction and Government Operations segments, partially offset by declines in our Power Generation Systems segment. Our Offshore Oil and Gas Construction segment generated a $62.6 million, or 10%, increase in its revenues during the first quarter of 2009 compared to the first quarter of 2008. This increase was primarily attributable to increased activities in our Middle East region. Additionally, in the first quarter of 2009, as compared to the corresponding period in 2008, our Government Operations segment generated a $66.5 million, or 35%, increase in its revenues primarily attributable to our acquisition of Nuclear Fuel Services Inc. while our Power Generation Systems segment generated an $87.7 million, or 14%, decrease in its revenues primarily attributable to lower revenues from our utility steam and system fabrication business.

Segment operating income decreased $4.3 million to $140.7 million in the three months ended March 31, 2009 from $145.0 million for the corresponding period in 2008 due to our Offshore Oil and Gas Construction and Power Generation Systems segments, partially offset by our Government Operations segment. The segment operating income of our Offshore Oil and Gas Construction and Power Generation Systems segments decreased $4.7 million and $7.4 million, respectively, in 2009, while our Government Operations segment experienced an increase totaling $7.8 million in the first quarter of 2009, as compared to the corresponding period in 2008. We experienced a significant increase in our pension plan expense in the three months ended March 31, 2009 compared to the corresponding period of 2008 totaling approximately $21.8 million. This increase is primarily attributable to losses on pension plan assets experienced in the year ended 2008.

For purpose of this discussion and the discussions that follow, segment operating income is before equity in income (loss) of investees and gains (losses) on asset disposals – net.

Offshore Oil and Gas Construction

Revenues increased approximately 10% or $62.6 million to $708.5 million in the three months ended March 31, 2009 compared to $645.9 million in the corresponding period of 2008 primarily attributable to increased activities from our Middle East ($86.4 million) and Americas ($23.3 million) regions partially offset by decreased activities from our Caspian region ($30.8 million).  Revenues from all other activities decreased by approximately $16.3 million in the three months ended March 31, 2009 compared to the corresponding period of 2008.

Segment operating income decreased $4.7 million from $51.9 million in the three months ended March 31, 2008 to $47.2 million for the corresponding period of 2009 primarily attributable to reduced profits on projects in our Middle East region, where we recognized approximately $214 million in revenues with little or no gross profit.  In the three months ended March 31, 2009, we recognized approximately $5 million in net contract losses on these projects, which were largely a result of costs incurred in preparation for our offshore pipeline operations and increases in forecasted third party costs. We also experienced increases in the Americas, Asia Pacific and Caspian regions, primarily attributable to project close-outs and change orders. We realized total benefits from project close-outs and change orders totaling approximately $25 million in the three months ended March 31, 2009 compared to approximately $11 million in the corresponding period of 2008.  We also experienced a decrease in general and

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administrative expenses totaling $4.3 million for the three months ended March 31, 2009 compared to the corresponding period of 2008.

Gain (loss) on asset disposals and impairments – net decreased $2.8 million in the three months ended March 31, 2009. We recognized a loss totaling approximately $1.0 million in the three months ended March 31, 2009 attributable to the impairment of obsolete assets in our Asia Pacific region, and the sale of a vessel we acquired in our acquisition of Secunda International, Limited. We recognized a gain totaling approximately $1.8 million in the three months ended March 31, 2008 on the sale of cranes at our fabrication facility in Batam, Indonesia.

Equity in loss of investees increased $0.4 million to a loss totaling $1.1 million in the three months ended March 31, 2009, primarily attributable to our share of expenses in our FloaTEC LLC joint venture formed in late 2005.

Government Operations

Revenues increased approximately 35%, or $66.5 million, to $257.1 million in the three months ended March 31, 2009 compared to $190.6 million for the corresponding period of 2008, primarily attributable our acquisition of Nuclear Fuel Services, Inc. in Erwin, Tennessee ($42.1 million) and additional volume in the manufacture of nuclear components of certain U.S. Government programs and recovery work. In addition, we experienced higher volumes in the manufacture of components for a commercial uranium enrichment project ($8.8 million).  These improvements were partially offset by lower revenues from our management and operating contracts at several government sites.

Segment operating income increased $7.8 million to $37.0 million in the three months ended March 31, 2009 compared to $29.2 million for the corresponding period of 2008, primarily attributable to additional volume in the manufacture of nuclear components of certain U.S. Government programs and recovery work.  In addition, we experienced higher volumes related to a commercial uranium enrichment project . These improvements were partially offset by increased pension expense and lower revenues from our management and operating contracts at several government sites. We also experienced higher depreciation and amortization expense in the three months ended March 31, 2009 associated with our acquisition of Nuclear Fuel Services, Inc.

Power Generation Systems

Revenues decreased approximately 14%, or $87.7 million, to $528.6 million in the three months ended March 31, 2009, compared to $616.3 million for the corresponding period of 2008, primarily attributable to decreases in our utility steam and system fabrication business ($100.6 million), our replacement nuclear steam generator business ($10.6 million), our nuclear service business ($3.3 million), and our replacement parts business ($3.0 million).  These decreases were partially offset by increased revenues from our fabrication, repair and retrofit of existing facilities business ($18.2 million), boiler auxiliary equipment business ($7.7 million), and our operations and maintenance business ($3.3 million).

Segment operating income decreased $7.4 million to $56.5 million in the three months ended March 31, 2009, compared to $63.9 million for the corresponding period of 2008, primarily attributable to lower volumes in our utility steam and system fabrication business, combined with lower volume and margins in our replacement nuclear steam generator and nuclear service businesses, and lower margins in our industrial boiler business. We also experienced higher qualified pension plan expense in the three months ended March 31, 2009 compared to the corresponding period in 2008. These items were partially offset by improved margins in our utility steam and system fabrication and operations and maintenance businesses.  These increased margins resulted from favorable cost improvements on a preponderance of our contracts in the three months ended March 31, 2009. Other improvements included increased volume and margins in our fabrication, repair and retrofit of existing facilities, and boiler auxiliary equipment businesses.

Gains (losses) on asset disposals and impairments – net decreased by $9.6 million in the three months ended March 31, 2009 compared to the corresponding period of 2008 due to a 9.6 million gain on the sale of our Dumbarton facilities in 2008.

Equity in income of investees decreased $1.0 million in the three months ended March 31, 2009 compared to the corresponding period of 2008 primarily attributable to material cost increases at our joint venture in China.

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Corporate

Unallocated corporate expenses increased  $7.7 million to $17.7 million for the three months ended March 31, 2009, as compared to $10.0 million for the corresponding period in 2008, primarily attributable to increased qualified pension plan expense due to the negative returns realized by our pension plan assets in 2008 and higher salary expenses resulting primarily from an increased number of employees.

Other Income Statement Items

Interest income decreased $10.6 million to $2.8 million in the three months ended March 31, 2009, primarily due to decreases in average cash equivalents and investments and prevailing interest rates.

Interest expense decreased $1.9 million to $1.0 million in the three months ended March 31, 2009, primarily due to lower amortization of debt issuance costs on our credit facilities.

Other expense – net increased by $7.5 million to $11.5 million in the three months ended March 31, 2009 primarily due to losses incurred in the change in fair value of our foreign currency forward-exchange contracts attributable to mark-to-market adjustments and ineffectiveness totaling approximately $7.0 million in the three months ended March 31, 2009.

Provision for Income Taxes

For the three months ended March 31, 2009, the provision for income taxes increased $3.5 million to $43.9 million, while income before provision for income taxes decreased $42.0 million to $121.6 million.  Our effective tax rate for the three months ended March 31, 2009 was approximately 36.1%, as compared to 24.7% for the three months ended March 31, 2008.  The rate increase was attributable to a higher mix of U.S. versus non-U.S. income for the quarter and an unfavorable mix within our non-U.S. operations resulting in a larger proportion of the total book income being taxed at higher rates.

Income before provision for income taxes, provision for income taxes and effective tax rates for our U.S. and non-U.S. jurisdictions are as shown below:

	Income before Provision for Income Taxes				Provision for (Benefit from) Income Taxes				Effective Tax Rate
	For the three months ended March 31,
	2009		2008		2009		2008		2009			2008
	(In thousands)				(In thousands)
United States	$	76,925	$	62,145	$	33,309	$	23,961		43.30	%		38.56	%
Non-United States		44,645		101,425		10,569		16,419		23.67	%		16.19	%
Total	$	121,570	$	163,570	$	43,878	$	40,380		36.09	%		24.69	%

We are subject to U.S. federal income tax at a rate of 35% on our U.S. operations, plus the applicable state income taxes on our profitable U.S. subsidiaries.  Our non-U.S. earnings are subject to tax at various tax rates and different tax regimes, such as a deemed profits tax regime.  These variances, along with variances in our mix of income from these jurisdictions, contribute to shifts in our effective tax rate.

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Backlog

Backlog is not a measure recognized by generally accepted accounting principles. It is possible that our methodology for determining backlog may not be comparable to methods used by other companies. We generally include expected revenue in our backlog when we receive written confirmation from our customers. Backlog may not be indicative of future operating results, and projects in our backlog may be cancelled, modified or otherwise altered by customers.

	March 31,		December 31,
	2009		2008
	(Unaudited)
	(In millions)
Offshore Oil and Gas Construction	$	5,044	$	4,457
Government Operations		2,699		2,883
Power Generation Systems		2,220		2,476
Total Backlog	$	9,963	$	9,816

Of the March 31, 2009 backlog, we expect to recognize revenues as follows:

	2009		2010		Thereafter
	(Unaudited)
	(In approximate millions)
Offshore Oil and Gas Construction	$	2,300	$	1,925	$	819
Government Operations		700		750		1,249
Power Generation Systems		940		580		700
Total Backlog	$	3,940	$	3,255	$	2,768

At March 31, 2009, the Offshore Oil and Gas Construction backlog included approximately $865 million related to contracts in or near loss positions, which are estimated to recognize future revenues with approximately zero percent gross margins on average.  It is possible that our estimates of gross profit could increase or decrease based on improved productivity, actual downtime and the resolution of change orders and claims with our customers.

At March 31, 2009, Government Operations' backlog with the U. S. Government was $2.6 billion, which was substantially fully funded. Only $5.9 million had not been funded as of March 31, 2009.

We believe the current worldwide credit and economic environment and short-term uncertainty regarding environmental regulations, has affected the electric utility industry more than our other customers. As these factors affect electrical consumption and customer demand, our bookings during the two most recent quarters have been lower than recent periods. While we have not experienced significant delays on existing projects in our Power Generation Systems’ backlog, we have experienced increasing delays in expected bookings on new planned projects.

At March 31, 2009, Power Generation Systems’ backlog with the U. S. Government was $5.9 million, all of which was fully funded.

Liquidity and Capital Resources

Offshore Oil and Gas Construction

On June 6, 2006, one of our subsidiaries, J. Ray McDermott, S.A., entered into a senior secured credit facility with a syndicate of lenders (the “JRMSA Credit Facility”).  As amended to date, the JRMSA Credit Facility provides for borrowings and issuances of letters of credit in an aggregate amount of up to $800 million and is scheduled to mature on June 6, 2011.  The proceeds of the JRMSA Credit Facility are available for working capital needs and other general corporate purposes of our Offshore Oil and Gas Construction segment.

JRMSA’s obligations under the JRMSA Credit Facility are unconditionally guaranteed by substantially all of our wholly owned subsidiaries comprising our Offshore Oil and Gas Construction segment and secured by liens on

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substantially all the assets of those subsidiaries (other than cash, cash equivalents, equipment and certain foreign assets), including their major marine vessels.

Other than customary mandatory prepayments on certain contingent events, the JRMSA Credit Facility requires only interest payments on a quarterly basis until maturity.  JRMSA is permitted to prepay amounts outstanding under the JRMSA Credit Facility at any time without penalty.

The JRMSA Credit Facility contains customary financial covenants relating to leverage and interest coverage and includes covenants that restrict, among other things, debt incurrence, liens, investments, acquisitions, asset dispositions, dividends, prepayments of subordinated debt, mergers, transactions with affiliates and capital expenditures.  At March 31, 2009, JRMSA was in compliance with all of the covenants set forth in the JRMSA Credit Facility.

At March 31, 2009, there were no borrowings outstanding but letters of credit issued under the JRMSA Credit Facility totaled $219.7 million. At March 31, 2009, there was a total of $580.3 million available under this facility, $398.0 million of which could be used for cash borrowings.  If there had been borrowings under this facility, the applicable interest rate at March 31, 2009 would have been 3.75% per year.  In addition, JRMSA and its subsidiaries had $274.6 million in outstanding unsecured letters of credit under separate arrangements with financial institutions at March 31, 2009.

In 2007, JRMSA executed a general agreement of indemnity in favor of a surety underwriter based in Mexico relating to surety bonds that underwriter issued in support of contracting activities of J. Ray McDermott de Mèxico, S.A. de C.V., a subsidiary of JRMSA.  As of March 31, 2009, bonds issued under this arrangement totaled $7.6 million.

Based on the liquidity position of our Offshore Oil and Gas Construction segment, we believe this segment has sufficient cash and letter of credit and borrowing capacity to fund its operating requirements for at least the next 12 months.

Government Operations

On December 9, 2003, one of our subsidiaries, BWX Technologies, Inc. (“BWXT”), entered into a senior unsecured credit facility with a syndicate of lenders (the “BWXT Credit Facility”), which is currently scheduled to mature March 18, 2010.  This facility provides for borrowings and issuances of letters of credit in an aggregate amount of up to $135 million. The proceeds of the BWXT Credit Facility are available for working capital needs and other general corporate purposes of our Government Operations segment.

The BWXT Credit Facility contains customary financial and nonfinancial covenants and reporting requirements.  The financial covenants require maintenance of a maximum leverage ratio, a minimum fixed charge coverage ratio and a maximum debt to capitalization ratio within our Government Operations segment. At March 31, 2009, BWXT was in compliance with all of the covenants set forth in the BWXT Credit Facility.

The BWXT Credit Facility only requires interest payments on a quarterly basis until maturity.  Amounts outstanding under the BWXT Credit Facility may be prepaid at any time without penalty.

At March 31, 2009, there were no borrowings outstanding but letters of credit issued under the BWXT Credit Facility totaled $54.3 million.  At March 31, 2009, there was $80.7 million available for borrowings or to meet letter of credit requirements under the BWXT Credit Facility.  If there had been borrowings under this facility, the applicable interest rate at March 31, 2009 would have been 3.50 % per year.

At March 31, 2009, Nuclear Fuel Services, Inc., a subsidiary of BWXT, had $3.6 million in letters of credit issued by various commercial banks on its behalf.  The obligations to the commercial banks issuing such letters of credit are secured by cash, short-term certificates of deposit and certain real and intangible assets.

Based on the liquidity position of our Government Operations segment, we believe this segment has sufficient cash and letter of credit and borrowing capacity to fund its operating requirements for at least the next 12 months.

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Power Generation Systems

On February 22, 2006, one of our subsidiaries, Babcock & Wilcox Power Generation Group, Inc., entered into a senior secured credit facility with a syndicate of lenders (the “B&W PGG Credit Facility”). As amended to date, this facility provides for borrowings and issuances of letters of credit in an aggregate amount of up to $400 million and is scheduled to mature on February 22, 2011.  The proceeds of the B&W PGG Credit Facility are available for working capital needs and other similar corporate purposes of our Power Generation Systems segment.

B&W PGG’s obligations under the B&W PGG Credit Facility are unconditionally guaranteed by all of our domestic subsidiaries included in our Power Generation Systems segment and secured by liens on substantially all the assets of those subsidiaries, excluding cash and cash equivalents.

The B&W PGG Credit Facility only requires interest payments on a quarterly basis until maturity.  Amounts outstanding under the B&W PGG Credit Facility may be prepaid at any time without penalty.

The B&W PGG Credit Facility contains customary financial covenants, including maintenance of a maximum leverage ratio and a minimum interest coverage ratio within our Power Generation Systems segment and covenants that, among other things, restrict the ability of this segment to incur debt, create liens, make investments and acquisitions, sell assets, pay dividends, prepay subordinated debt, merge with other entities, engage in transactions with affiliates and make capital expenditures. At March 31, 2009, B&W PGG was in compliance with all of the covenants set forth in the B&W PGG Credit Facility.

As of March 31, 2009, there were no outstanding borrowings but letters of credit issued under the B&W PGG Credit Facility totaled $203.7 million.  At March 31, 2009, there was $196.3 million available for borrowings or to meet letter of credit requirements under the B&W PGG Credit Facility.  If there had been borrowings under this facility, the applicable interest rate at March 31, 2009 would have been 3.25% per year.

Certain foreign subsidiaries of B&W PGG have credit arrangements with various commercial banks for the issuance of bank guarantees.  The aggregate value of all such bank guarantees as of March 31, 2009 was $16.4 million.

In June 2008, MII, B&W PGG and McDermott Holdings, Inc. jointly executed a general agreement of indemnity in favor of a surety underwriter relating to surety bonds that underwriter issued in support of B&W PGG’s contracting activity.  As of March 31, 2009, bonds issued under this arrangement in support of contracts totaled approximately $59 million.  Any claim successfully asserted against the surety by one or more of the bond obligees would likely be recoverable from MII, B&W PGG and McDermott Holdings, Inc. under the indemnity agreement.

Based on the liquidity position of our Power Generation Systems segment, we believe this segment has sufficient cash and letter of credit and borrowing capacity to fund its operating requirements for at least the next 12 months.

Other

In aggregate, our cash and cash equivalents, restricted cash and cash equivalents and investments decreased by $101.0 million to $986.9 million at March 31, 2009 from $1,087.9 million at December 31, 2008, primarily due to cash used in operating activities and purchases of property, plant and equipment.

Our working capital, excluding cash and cash equivalents and restricted cash and cash equivalents, increased by $165.2 million to a negative $463.3 million at March 31, 2009 from a negative $628.5 million at December 31, 2008, primarily due to the increase in the net amount of contracts in progress and advance billings on contracts.

Our net cash used in operations was $26.9 million in the three months ended March 31, 2009, compared to  $52.9 million for the three months ended March 31, 2008. This decrease in cash used was primarily attributable to improvements in our accounts receivable position, partially offset by our accounts payable and net contracts in progress and advance billings on contracts.

Our net cash used in investing activities decreased by $129.8 million to $21.6 million in the three months ended March 31, 2009 from $151.4 million in the three months ended March 31, 2008. This decrease in net cash used in

26

investing activities was primarily attributable to a net increase in available-for-sale securities during the three months ended March 31, 2009.

Our net cash provided by (used in) financing activities changed by $7.2 million to net cash used in financing activities of $3.6 million in the three months ended March 31, 2009 from net cash provided by financing activities of $3.6 million in the three months ended March 31, 2008, primarily due to lower excess tax benefits related to stock-based compensation.

At March 31, 2009, we had restricted cash and cash equivalents totaling $59.0 million, $49.0 of which was held in restricted foreign accounts, $3.0 million was held as cash collateral for letters of credit, $5.0 million was held for future decommissioning of facilities, and $2.0 million was held to meet reinsurance reserve requirements of our captive insurance companies.

At March 31, 2009, we had investments with a fair value of $399.2 million.  Our investment portfolio consists primarily of investments in government obligations and other highly liquid money market instruments.  As of March 31, 2009, we had pledged approximately $31.0 million fair value of these investments in connection with certain reinsurance agreements.

Our investments are classified as available for sale and are carried at fair value with unrealized gains and losses, net of tax, reported as a component of other comprehensive loss. Our net unrealized gain (loss) on investments is currently in an unrealized loss position totaling $10.9 million at March 31, 2009. At December 31, 2008, we had unrealized losses on our investments totaling $9.0 million. The major components of our investments in an unrealized loss position are corporate bonds, asset-backed obligations and commercial paper. Based on our analysis of these investments, we believe that none of our available-for-sale securities were permanently impaired at March 31, 2009.

See Note 1 to our unaudited condensed consolidated financial statements included in this report for information on new and recently adopted accounting standards.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

Our exposures to market risks have not changed materially from those disclosed in Item 7A included in Part II of our annual report on Form 10-K for the year ended December 31, 2008.

Item 4.  Controls and Procedures

As of the end of the period covered by this quarterly report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) adopted by the SEC under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Our disclosure controls and procedures were developed through a process in which our management applied its judgment in assessing the costs and benefits of such controls and procedures, which, by their nature, can provide only reasonable assurance regarding the control objectives. You should note that the design of any system of disclosure controls and procedures is based in part upon various assumptions about the likelihood of future events, and we cannot assure you that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. Based on the evaluation referred to above, our Chief Executive Officer and the Chief Financial Officer concluded that the design and operation of our disclosure controls and procedures are effective as of March 31, 2009 to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission,  and such information is accumulated and communicated to management as appropriate to allow timely decisions regarding disclosure.  There has been no change in our internal control over financial reporting during the quarter ended March 31, 2009 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II

OTHER INFORMATION

Item 1.  Legal Proceedings

For information regarding ongoing investigations and litigation, see Note 3 to our unaudited condensed consolidated financial statements in Part I of this report, which we incorporate by reference into this Item.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceed

Period	Total number of shares purchased		Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs	Maximum number of shares that may yet be purchased under the plans or programs
March 3, 2009		19,045	$	9.8450	not applicable	not applicable
Total		19,045	$	9.8450	not applicable	not applicable

Item 5. Other Information

On May 7, 2009, the Compensation Committee of our Board of Directors (the “Committee”) approved an amendment to the McDermott International Inc. New Supplemental Executive Retirement Plan to vest all amounts allocated to each participant’s account as of December 31, 2008.

Robert L. Howard retired from our Board of Directors after 12 years of service effective as of the end of the Annual Meeting of Stockholders on May 8, 2009.

On May 8, 2009, Stephen G. Hanks and David A. Trice were appointed to the Board of Directors effective May 12, 2009.  Mr. Hanks will serve as a member of the Audit and Finance Committees of the Board and Mr. Trice will serve as a member of the Audit and Compensation Committees of the Board.

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Item 6.  Exhibits

Exhibit 3.1*- McDermott International, Inc.'s Amended and Restated Articles of Incorporation (incorporated by reference to Exhibit 3.1 to McDermott International, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008 (File No. 1-08430)).

Exhibit 3.2* - McDermott International, Inc.’s Amended and Restated By-Laws (incorporated by reference to Exhibit 3.1 to McDermott International, Inc.'s Current Report on Form 8-K dated May 3, 2006 (File No. 1-08430)).

Exhibit 3.3*- Amended and Restated Certificate of Designation of Series D Participating Preferred Stock (incorporated by reference to Exhibit 3.1 to McDermott International, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2001 (File No. 1-08430)).

Exhibit 10.1- Form of Change-In-Control Agreement entered into between McDermott International, Inc. and Stephen M. Johnson.

Exhibit 10.2- Form 0f 2009 LTIP Restricted Stock Unit Grant Agreement.

Exhibit 10.3- Form of 2009 LTIP Performance Shares Grant Agreement.

Exhibit 10.4- Form of 2009 LTIP Stock Options Grant Agreement.

Exhibit 10.5 - The McDermott International, Inc. Supplemental Executive Retirement Plan, amended effective December 31, 2008.

Exhibit 31.1 - Rule 13a-14(a)/15d-14(a) certification of Chief Executive Officer.

Exhibit 31.2 - Rule 13a-14(a)/15d-14(a) certification of Chief Financial Officer.

Exhibit 32.1 - Section 1350 certification of Chief Executive Officer.

Exhibit 32.2 - Section 1350 certification of Chief Financial Officer.

*Incorporated by reference to the filing indicated.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		McDERMOTT INTERNATIONAL, INC.
		/s/ Michael S. Taff
	By:	Michael S. Taff
		Senior Vice President and Chief Financial Officer
		(Principal Financial Officer and Duly Authorized
		Representative)
		/s/ Dennis S. Baldwin
	By:	Dennis S. Baldwin
		Vice President and Chief Accounting Officer
		(Principal Accounting Officer and Duly Authorized
		Representative)
May 11, 2009

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EXHIBIT INDEX

Exhibit Number Description

3.1*	McDermott International, Inc.'s Amended and Restated Articles of Incorporation (incorporated by reference to Exhibit 3.1 to McDermott International, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008 (File No. 1-08430)).
3.2*	McDermott International, Inc.’s Amended and Restated By-Laws (incorporated by reference to Exhibit 3.1 to McDermott International, Inc.'s Current Report on Form 8-K dated May 3, 2006 (File No. 1-08430)).
3.3*	Amended and Restated Certificate of Designation of Series D Participating Preferred Stock (incorporated by reference to Exhibit 3.1 to McDermott International, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2001 (File No. 1-08430)).
10.1	Form of Change-In-Control Agreement entered into between McDermott International, Inc. and Stephen M. Johnson.
10.2	Form of 2009 LTIP Restricted Stock Unit Grant Agreement.
10.3	Form of 2009 LTIP Performance Shares Grant Agreement.
10.4	Form of 2009 LTIP Stock Options Grant Agreement.
10.5	The McDermott International, Inc. Supplemental Executive Retirement Plan, amended effective December 31, 2008.
31.1	Rule 13a-14(a)/15d-14(a) certification of Chief Executive Officer.
31.2	Rule 13a-14(a)/15d-14(a) certification of Chief Financial Officer.
32.1	Section 1350 certification of Chief Executive Officer.
32.2	Section 1350 certification of Chief Financial Officer.

*Incorporated by reference to the filing indicated.

EXHIBIT 31.1

CERTIFICATIONS

I, John A. Fees, certify that:

1.  I have reviewed this quarterly report on Form 10-Q of McDermott International, Inc. for the quarterly period ended March 31, 2009;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.   designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.   designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.   evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.   disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.   all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.   any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

May 11, 2009

/s/ John A. Fees

          John A. Fees

          Chief Executive Officer

EXHIBIT 31.2

I, Michael S. Taff, certify that:

1.  I have reviewed this quarterly report on Form 10-Q of McDermott International, Inc. for the quarterly period ended March 31, 2009;

2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.   The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.   designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.   designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.   evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.   disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.   The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.   all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.   any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

May 11, 2009

/s/ Michael S. Taff

          Michael S. Taff

          Chief Financial Officer

EXHIBIT 32.1

MCDERMOTT INTERNATIONAL, INC.

Certification Pursuant to

        Section 906 of the Sarbanes-Oxley Act of 2002

      (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), I, John A. Fees, Chief Executive Officer of McDermott International, Inc., a Panamanian corporation (the “Company”), hereby certify, to my knowledge, that:

(1) the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2009 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated:  May 11, 2009	/s/ John A. Fees
	John A. Fees
	Chief Executive Officer

EXHIBIT 32.2

MCDERMOTT INTERNATIONAL, INC.

Certification Pursuant to

        Section 906 of the Sarbanes-Oxley Act of 2002

      (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), I, Michael S. Taff, Senior Vice President and Chief Financial Officer of McDermott International, Inc., a Panamanian corporation (the “Company”), hereby certify, to my knowledge, that:

(1) the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2009 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated:  May 11, 2009	/s/ Michael S. Taff
	Michael S. Taff
	Senior Vice President and Chief Financial Officer

EX-10.1

CHANGE IN CONTROL

AGREEMENT

THIS AGREEMENT is made as of the 1st day of April, 2009 by and between McDermott International, Inc., a corporation duly organized under the laws of the Republic of Panama (the “Company”) and Stephen M. Johnson (“Executive”.)

In consideration of the mutual covenants and agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby expressly acknowledged, the parties hereto agree as follows:

          I. Obligations of the Company Upon Termination of Executive After Change In Control.  

Following the Effective Date of a Change In Control, in the event Executive’s employment by the Company is terminated before the one-year anniversary of the Effective Date of a Change In Control either (i) by the Company for any reason other than Cause, or (ii) by the Executive for Good Reason, then subject to the provisions of paragraph (b) below, the Company shall:

(a)   Pay to the Executive within thirty days after the date of termination of Executive’s employment (or such earlier time as may be required by law) the Accrued Benefits;

(b)   In the event that a bonus is paid after the date of Executive’s termination of employment under the Company’s Executive Incentive Compensation Plan (“EICP”) for the year prior to the year in which the termination takes place (the “Measurement Period”), pay to the Executive in a lump sum, at the same time such bonus is paid to other EICP participants, a cash bonus equal to the product of the multiplier used for Executive’s position during the Measurement Period and Executive’s annual base salary for the Measurement Period.

(c)   Pay to Executive in a lump sum in cash within thirty days after the date of termination of Executive’s employment a payment equal to the product of Executive’s target bonus under EICP as in effect immediately prior to the date of termination and a fraction, the numerator of which is the number of days that have elapsed in the year in which the termination takes place through the date of termination of Executive’s employment and the denominator of which is 365.

(d)   Pay to Executive in a lump sum in cash as soon as administratively practicable after the date of termination of Executive’s employment 200% of the sum of (1) Executive’s annual base salary as in effect immediately prior to the date of termination of Executive’s employment, and (2) Executive’s target bonus under EICP as in effect immediately prior to the date of termination.

(e)   Pay to Executive in a lump sum in cash within thirty days after the date of termination of Executive’s employment a payment equal to two times the full annual cost of coverage for medical, dental and vision benefits provided to Executive and Executive’s covered dependents by Company for the year in which Executive’s termination takes place.

II.   Participation In Other Company Programs.

Nothing in this Agreement shall prevent or limit Executive’s continuing or future participation in any plan, program, policy or practice provided by the Company for which Executive may qualify, nor, subject to paragraph (d) of Section X, shall anything herein limit or otherwise affect such rights as Executive may have under any contract or agreement with the Company.  Amounts which are vested benefits or which Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company at or subsequent to the date of termination of Executive’s employment shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement.  Notwithstanding the foregoing, it is expressly understood and acknowledged by Executive that any payment by the Company under Section I hereof shall be in lieu of any obligation on the part of the Company for payment of severance benefits under the Severance Plan for Employees of McDermott Incorporated and Participating Subsidiary and Affiliated Companies or any successor thereto or any other plan, policy or agreement of the Company in the event of termination of Executive’s employment as provided in Section I hereof with the Company during the one-year period following the Effective Date of a Change In Control.

III.   Confidential and Proprietary Information.

Executive acknowledges and agrees that any and all non-public information regarding the Company, any of its Subsidiaries and its or their customers (including but not limited to any and all information relating to its or their business practices, products, services, finances, management, strategy, profits and overhead) is confidential and the unauthorized disclosure of such confidential information will result in irreparable harm to the Company.  Executive shall not, during his employment by the Company or any of its Subsidiaries and for a period of five years after termination of such employment (or such shorter period as may be required by law), disclose or permit the disclosure of any such confidential information to any person other than an employee or director of the Company or its Subsidiaries or any successor thereto or an individual engaged by the Company or its Subsidiaries or any successor thereto to render professional services to the Company or its Subsidiaries under circumstances that require such person to maintain the confidentiality of such information, except as such disclosure may be required by law.  The provisions of this Section III shall survive any termination of this Agreement.  For purposes of this Section III, the term “confidential information” shall not include information that was or becomes generally available to the public other than as a result of disclosure by Executive.  Executive acknowledges that the execution of this Agreement and the payments described in Section I herein constitute consideration for the limitations on activities set forth in this Section III, the adequacy of which is hereby expressly acknowledged by Executive.  Executive understands and agrees that the Company shall suffer irreparable harm if Executive breaches Section III hereof, and that monetary damages shall be inadequate to address any such breach.  Accordingly, Executive agrees that the Company shall have the right, to the extent permitted by applicable law, and in addition to any other rights or remedies it may have, to obtain from any court of competent jurisdiction, injunctive relief to restrain any breach or threatened breach hereof or otherwise to specifically enforce the provisions hereof.

IV.   Notices.

All notices and other communications provided for by this Agreement shall be in writing and shall be deemed to have been duly given when (a) delivered by hand, (b) sent by facsimile or email to the facsimile number or email address given below, provided that a copy is also sent by a nationally recognized overnight delivery service, (c) the day after being sent by a nationally recognized overnight delivery service, or (d) three days after being mailed by United States Certified Mail, return receipt requested, postage prepaid, addressed as follows:

If to Executive:                   Stephen M. Johnson

Village on Memorial

15200 Memorial, Apartment 1806

Houston, TX  77079

Email:                   smjohnson@mcdermott.com

Facsimile:            281-870-5924

If to the Company:             McDermott International, Inc.

c/o                        Preston Johnson

Senior Vice President, Human Resources

777 N. Eldridge Parkway

Houston, TX  77079

Email:                  pjohnsonjr@mcdermott.com

Facsimile:           281-870-5095

or to such other address as any party may have furnished to the other in writing in accordance with this Agreement.

V.   Governing Law.

The provisions of this Agreement shall be interpreted and construed in accordance with, and enforcement may be made under, the law of the State of Texas without reference to principles of conflict of laws.

VI.   Successors and Assigns.

(a)   This Agreement is personal to Executive and, without the prior written consent of the Company, shall not be assignable by Executive otherwise than by will or the laws of descent and distribution.

(b)   This Agreement shall be binding upon and shall inure to the benefit of the Company and its successors and assigns.

(c)   The Company will require that any successor to all or substantially all of its business and/or assets (whether such successor acquires such business and/or assets directly or indirectly, and whether by purchase, merger, consolidation or otherwise) expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place.  As used in this Agreement, “Company” shall mean the Company as herein defined and any successor to its business and/or assets.

VII.   Employment by Subsidiaries.

If Executive is not employed by McDermott International, Inc., but is only employed by one or more Subsidiaries of McDermott International, Inc., then (a) the “Company” as defined herein shall be deemed to include such Subsidiary or Subsidiaries, and (b) termination of employment shall be determined with reference to Executive’s employment by all such Subsidiaries.  Further, the Company agrees that it will perform its obligations hereunder without regard to whether Executive is employed by the Company or by a Subsidiary or Subsidiaries of the Company.

VIII.   Severability.

If any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, the remaining provisions of this Agreement shall be unaffected thereby and shall remain in full force and effect to the fullest extent permitted by applicable law.

IX.   Entire Agreement; Amendment.

This Agreement sets forth the entire Agreement of the parties hereto and supersedes all prior agreements, understandings and covenants between the parties with respect to the subject matter hereof.  Except as provided in Section X, paragraphs (d) and (f) or Section XI, this Agreement may be amended or terminated only by mutual agreement of the parties in writing.

X.   Miscellaneous.

(a)   The captions and headings of this Agreement are not part of the provisions hereof and shall have no force or effect.

(b)   The Company shall be entitled to withhold from any amounts payable under this Agreement such Federal, state, local, foreign or excise taxes as shall be required or permitted to be withheld pursuant to any applicable law or regulation.

(c)   Executive’s or the Company’s failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right Executive or the Company may have hereunder, including, without limitation, the right of Executive to terminate employment for Good Reason pursuant to paragraph (g) of Section XII of this Agreement, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement.

(d)   Executive and the Company acknowledge that, except as may otherwise be provided under any other written agreement between Executive and the Company, the employment of Executive by the Company is “at will” and, subject to the last sentence of paragraph (f) of Section XII hereof, Executive’s employment may be terminated by either Executive or the Company at any time prior to the Effective Date of a Change In Control, in which case this Agreement shall terminate as provided in Section XI below and Executive shall have no further rights under this Agreement.

(e)   For purposes of this Agreement, the date of termination of Executive’s employment shall be: (i) if Executive’s employment is terminated by the Company for Cause, the date on which the Company delivers to Executive the resolution referred to in the last sentence of Section XII, paragraph (c), or, with respect to a termination under Section XII, paragraph (c)(iii), the date on which the Company notifies Executive of such termination, (ii) if Executive’s employment is terminated by the Company because of Executive’s Disability or for a reason other than Cause or Executive’s death or Disability, the date on which the Company notifies Executive of such termination, (iii) if executive’s employment is terminated by Executive for Good Reason, the date on which Executive notifies the Company of such termination (after having given the Company notice and a thirty-day cure period), or (iv) if Executive’s employment is terminated by reason of death, the date of death of executive.

(f)   The Company may terminate this Agreement at any time prior to a Change In Control upon giving Executive written notice of such termination at least thirty days prior to the date of termination if either of the following circumstances take place: (i) Executive’s position with the Company is changed so that he ceases to be an officer of the Company, or (ii) Executive ceases to be a fulltime employee; provided that if a Change In Control is announced or occurs during such thirty-day period, the termination shall not be effective.

(g)   This Agreement may be executed in two counterparts, each of which shall be deemed an original and together shall constitute one and the same agreement, with one counterpart being delivered to each party hereto.

(h)   In the event the Executive’s employment is terminated following the Effective Date of a Change In Control and before the one-year anniversary of the Effective Date of a Change In Control (i) by the Company for Cause or an a result of Executive’s death or disability, or (ii) by Executive without Good Reason, Executive shall not be entitled to the payments described in Section 1 hereof.

XI.   Term.

This Agreement shall terminate on the earliest to occur of (i) termination by the Company in accordance with Section X, paragraph (f) above, (ii) the date one year after the Effective Date of a Change or Control, or (iii) the date on which Executive’s employment with the Company is terminated (subject to the last sentence of Section XII, paragraph (g)); provided, however, that if Executive’s employment with the Company is terminated under any of the circumstances described in Section I hereof, Executive’s rights hereunder shall continue following the termination of his/her employment with the Company until all benefits to which Executive is entitled hereunder has been paid and the Company’s rights hereunder shall continue until all obligations owed to it hereunder have been satisfied.

XII.   Definitions.

For purposes of this Agreement, the following terms shall have the meanings given them in this Section XII.

(a)   “Accrued Benefits” shall mean:

         (i) Any portion of Executive’s Annual Base Salary earned through the date of termination of Executive’s employment and not yet paid;

(ii)   Reimbursement for any and all amounts advanced in connection with Executive’s employment for reasonable and necessary expenses incurred by Executive through the date of termination of Executive’s employment in accordance with the Company’s policies and procedures on reimbursement of expenses;

(iii)   Any earned vacation pay not theretofore used or paid in accordance with the Company’s policy for payment of earned and unused vacation time; and

(iv)   All other payments and benefits to which Executive may be entitled under the terms of any applicable compensation arrangement or benefit plan or program of the Company that do not specify the time of distribution; provided that Accrued Benefits shall not include any entitlement to severance under any severance policy of the Company generally applicable to the salaried employees of the Company.

(b)   “Annual Base Salary” shall mean Executive’s annual rate of pay excluding all other elements of compensation such as, without limitation, bonuses, perquisites, expatriate or hardship premiums, restricted stock awards, stock options and retirement and welfare benefits.

(c)   “Cause” shall mean:

         (i) the willful and continued failure of Executive to perform substantially his/her duties with the Company (occasioned by reason other than physical or mental illness or disability of Executive) after a written demand for substantial performance is delivered to Executive by the Compensation Committee of the Board or the Chief Executive Officer of the Company which specifically identifies the manner in which the Compensation Committee of the Board or the Chief Executive Officer believes that Executive has not substantially performed his/her duties, after which Executive shall have thirty days to defend or remedy such failure to substantially perform his/her duties:

(ii)   the willful engaging by Executive in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company; or

(iii)   the conviction of Executive with no further possibility of appeal or, or plea of nolo contendere by Executive to, any felony.

The cessation of employment of Executive under subparagraph (i) and (ii) above shall not be deemed to be for “Cause” unless and until there shall have been delivered a Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters (3/4) of the entire membership of the Compensation Committee of the Board at a meeting of such Committee called and held for such purpose (after reasonable notice is provided to Executive and Executive is given an opportunity, together with counsel, to be heard before the Compensation Committee of the Board), finding that, in the good faith opinion of the Compensation Committee of the Board, Executive is guilty of the conduct described in subparagraph (i) or (ii) above, and specifying the particulars thereof in detail.

(d)   “Change In Control” shall be deemed to occur if:

         (i) When any “person” or “group” of persons (as such terms are used in §13 and 14 of the Securities Exchange Act of 1934, as amended from time to time (the “Exchange Act”)), other than the Company or any employee benefit plan sponsored by the Company, becomes the “beneficial owner” (as such term is used in §13 of the Exchange Act) of 30 percent or more of the total number of the Company’s common shares at the time outstanding; or

(ii)   The shareholders of the Company approve: a) a merger or consolidation of the Company, with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto, continuing to represent  (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least fifty percent (50%) of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or b) the shareholders of the Company approve a plan of complete liquidation of the Company, or c) an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets or;

(iii)   During any period of two (2) consecutive years (not including any period prior to the execution of this Plan), individuals who at the beginning of such period constitute the Board of the Company,  and any new Director of the Company (other than a Director designated by a Person who has entered into an agreement with the Company to effect a transaction described in Clauses (a) or (c) of this Section 2.5) whose election by the Company’s Board or nomination for election by the stockholders of the Company, was approved by a vote of at least two-thirds (2/3) of the Directors of the Company’s Board, then still in office who either were Directors thereof at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or

(iv)   Such other circumstances as may be deemed by the Board in its sole discretion to constitute a change in control of the Company.

However, in no event shall a “Change in Control” be deemed to have occurred with respect to the Executive if the Executive is part of the purchasing group which consummates the Change-in-Control transaction.  An Executive shall be deemed “part of a purchasing group” for purposes of the preceding sentence if the Executive is an equity participant in the purchasing company or group (except for: (i) passive ownership of less than three percent (3%) of the stock of the purchasing company; or (ii) ownership of equity participation in the purchasing company or group which is otherwise not significant, as determined prior to the Change in Control by a majority of the non-employee continuing Directors).  A Change In Control shall not result from any transaction precipitated by the Company’s insolvency, appointment of a conservator or determination by a regulatory agency that the Company is insolvent.

(e)   “Disability” shall mean circumstances that qualify Executive for long-term disability benefits under the Company’s Long-Term Disability Plan as in effect immediately prior to the Change In Control.

(f)   “Effective Date” with respect to a Change In Control for purposes of this Agreement shall be the earliest to occur of (i) the date on which the Company receives a copy of a Schedule 13D disclosing beneficial ownership of shares in accordance with Section XII, paragraph (d)(i) above; (ii) the effective date of the consummation of a merger, consolidation, share exchange or similar form of corporate transaction or liquidation or reorganization in accordance with Section XII, paragraph (d)(ii); or (iii) the date of the annual or special meeting of shareholders at which the last director necessary to meet the requirements of Section XII, paragraph (d)(iii) is elected.  Upon the occurrence of the Effective Date of a Change In Control, the Board of Directors or its designee shall, within thirty days thereof, provide written notice to Executive of the Effective Date of the Change In Control.  Notwithstanding anything to the contrary in this Agreement, if a Change In Control occurs and if Executive’s employment with the Company is terminated within the ninety days prior to the Effective Date of the Change In Control as determined in accordance with the first sentence of this paragraph (f), and if it is reasonably demonstrated by Executive that such termination of employment was at the request of a third party who has taken steps reasonably calculated to effect a Change In Control, or otherwise arose in connection with or in anticipation of a Change In Control, then for all purposes of this Agreement, the “Effective Date” of the Change In Control shall mean the date immediately prior to the date of such termination of employment.

(g)   “Good Reason” shall mean:

         (i) the assignment to Executive of duties that are materially inconsistent with Executive’s position, authority, duties or responsibilities immediately prior to the Change In Control, or any other action by the Company which results in a material diminution in such position, authority, duties or responsibilities;

(ii)   requiring Executive, without his consent, to be based at any office or location other than the office or location a which Executive was employed immediately prior to the Change In Control; provided, however, that any such relocation requests shall not be grounds for resignation with Good Reason if such relocation is within a twenty-mile radius of the location at which Executive was based prior to the Effective Date of a Change In Control;

(iii)   a reduction in Executive’s Annual Base Salary in effect immediately prior to the Change In Control or a reduction in the target multiplier used to calculate the annual bonus awarded to Executive below the target multiplier used to calculate the bonus paid to Executive under the EICP immediately prior to the Change In Control, provided, however that in either case a reduction in the Annual Base Salary or the target bonus multiplier shall not be considered “Good Reason” with respect to any year for which such reduction is part of a reduction uniformly applicable to all similarly situated employees;

(iv)   a change in Executive’s eligibility to participate in incentive compensation plans as in effect immediately prior to the Change In Control; or

(v)   any material breach of this Agreement by the Company, excluding for this purpose an isolated, insubstantial or inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by Executive.

Upon the occurrence of any of the events described above, Executive shall give the Company written notice that such event constitutes Good Reason and the Company shall thereafter have thirty days in which to cure.  If the Company has not cured in that time, the event shall constitute Good Reason.

(h)   “Subsidiaries” shall mean every, limited liability company, partnership or other entity of which 50% or more of the total combined voting power of all classes of voting securities or other equity interests is owned, directly or indirectly, by McDermott International, Inc.

XIII.   Arbitration

Any controversy or claim arising out of or relating to this Agreement (or the breach thereof) shall be settled by final and binding arbitration in Houston, Texas by one arbitrator selected in accordance with the Commercial Arbitration Rules (the “Rules”) of the American Arbitration Association (the “Association”) then in effect.  Subject to the following provisions, the arbitration shall be conducted in accordance with the Rules then in effect.  Any award entered by the arbitrator shall be final and binding, and judgment may be entered thereon by any party hereto in any court of law having competent jurisdiction.  This arbitration provision shall be specifically enforceable.  The Company and the Executive shall each pay half of the administrative fees of the Association and the compensation of the arbitrator and shall each be responsible for its or his/her own attorney’s fees and expenses relating to the conduct of the arbitration.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.

McDERMOTT INTERNATIONAL, INC.

By:                      /s/ John A. Fees

Printed Name:                  John A. Fees

Title:                                 Chief Executive Officer

Date:                                 April 1, 2009

Executive:                        /s/ Stephen M. Johnson

Date:                                 April 1, 2009                                                      

EX-10.2

Restricted Stock Unit Grant Agreement

2009 McDermott International, Inc. Long-Term Incentive Plan

On _____, ____ (the “Date of Grant”), the Compensation Committee of the Board of Directors (the “Committee”) of McDermott International, Inc. (the “Company”) selected you to receive a grant of Restricted Stock Units (“RSUs”) under the Company’s 2009 McDermott International, Inc. Long-Term Incentive Plan (the “Plan”).  The provisions of the Plan are incorporated herein by reference.

Any reference or definition contained in this Agreement shall, except as otherwise specified, be construed in accordance with the terms and conditions of the Plan and all determinations and interpretations made by the Committee with regard to any question arising hereunder or under the Plan shall be binding and conclusive on you and your legal representatives and beneficiaries.  The term “Company” as used in this Agreement with reference to employment shall include subsidiaries of the Company.  Whenever the words “you or your” are used in any provision of this Agreement under circumstances where the provision should logically be construed to apply to the beneficiary, estate, or personal representative, to whom any rights under this Agreement may be transferred by will or by the laws of descent and distribution, it shall be deemed to include such person.

Restricted Stock Units

RSU Award.  You have been awarded the number of RSUs shown on the attached Notice of Grant.  Each RSU represents a right to receive a share of Company common stock on the Vesting Date (as set forth in the “Vesting Requirements” paragraph below) provided the vesting requirements set forth in this agreement have been satisfied.

Vesting Requirements.  Subject to the “Forfeiture of RSUs” paragraph below, RSUs do not provide you with any rights or interest therein until they become vested in one-third (1/3) increments on the first, second and third anniversaries of the Date of Grant.

If your employment is terminated prior to the third anniversary of the Date of Grant due to “Retirement,” 25% of the then outstanding RSUs will vest provided your termination date is on or after the first anniversary of the Date of Grant, and 50% of the then outstanding RSUs will vest provided your termination date is on or after the second anniversary of the Date of Grant.  For this purpose, “Retirement” means a voluntary termination of employment after attaining age 60 and completing 10 years of service with the Company or its subsidiaries, or an involuntary termination due to reduction in force.

All outstanding RSUs shall become vested if you terminate employment due to death or disability, or upon the occurrence of a “Change in Control” as defined in the Plan.

The Committee may, in its sole discretion, provide for additional vesting.

Forfeiture of RSUs.  RSUs which are not and will not become vested upon your termination of employment shall, coincident therewith, terminate and be of no force or effect.

In the event that (a) you are convicted of (i) a felony or (ii) a misdemeanor involving fraud, dishonesty or moral turpitude, or (b) you engage in conduct that adversely affects or may reasonably be expected to adversely affect the business reputation or economic interests of the Company, as determined in the sole judgment of the Committee, then all RSUs and all rights or benefits awarded to you under this grant of RSUs are forfeited, terminated and withdrawn immediately upon such conviction or notice of such determination.  The Committee shall have the right to suspend any and all rights or benefits awarded to you hereunder pending its investigation and final determination with regard to such matters.

Payment of RSUs.  RSUs shall be paid in shares of Company common stock, which shall be distributed as soon as administratively practicable, but in no event later than 30 days, after the applicable Vesting Date.

Taxes

You will realize income on the grant of RSUs in accordance with the tax laws of the jurisdiction that is applicable to you.

Any statutory minimum tax withholding requirement will be satisfied by withholding shares having an aggregate fair market value on the applicable Vesting Date equal to the amount of such required tax withholding.  You may arrange to pay all of the amount of such required tax withholding in cash, in lieu of share withholding, by contacting the principal Human Resources officer of the Company, in writing, at least 60 days prior to the applicable Vesting Date.

Transferability

RSUs granted hereunder are non-transferable other than by will or by the laws of descent and distribution or pursuant to a qualified domestic relations order.

Securities and Exchange Commission Requirements

If you are a Section 16 insider, this type of transaction must be reported on a Form 4 before the end of the second (2nd) business day following the Date of Grant.  Please be aware that if you are going to reject the grant, you should do so immediately after the Date of Grant to avoid potential Section 16 liability.  Please advise Kathy Peres and Renee Hack immediately by e-mail, fax or telephone if you intend to reject this grant.  Absent such notice of rejection, the Company will prepare and file the required Form 4 on your behalf within the required two business day deadline.

Those of you covered by these requirements will have already been advised of your status.  Others may become Section 16 insiders at some future date, in which case reporting will be required at that time.

Other Information

Neither the action of the Company in establishing the Plan, nor any action taken by it, by the Committee or by your employer, nor any provision of the Plan or this Agreement shall be construed as conferring upon you the right to be retained in the employ of the Company, Inc. or any of its subsidiaries or affiliates.

EX-10.3

PERFORMANCE SHARE

GRANT AGREEMENT

2009 McDermott International, Inc. Long-Term Incentive Plan

On _____, ____ (the “Date of Grant”), the Compensation Committee of the Board of Directors (the “Committee”) of McDermott International, Inc. (the “Company”) selected you to receive a grant of Performance Shares under the Company’s 2009 McDermott International, Inc. Long-Term Incentive Plan (the “Plan”).  The provisions of the Plan are incorporated herein by reference.

Any reference or definition contained in this Agreement shall, except as otherwise specified, be construed in accordance with the terms and conditions of the Plan and all determinations and interpretations made by the Committee with regard to any question arising hereunder or under the Plan shall be binding and conclusive on you and your legal representatives and beneficiaries.  The term “Company” as used in this Agreement with reference to employment shall include subsidiaries of the Company.  Whenever the words “you or your” are used in any provision of this Agreement under circumstances where the provision should logically be construed to apply to the beneficiary, estate, or personal representative, to whom any rights under this Agreement may be transferred by will or by the laws of descent and distribution, it shall be deemed to include such person.

Performance Shares

Performance Shares Award.  You have been awarded an initial grant (the “Initial Grant”) of Performance Shares.  This grant represents a right to receive shares of common stock of the Company, calculated as described below, provided the applicable performance measures and vesting requirements set forth in this agreement have been satisfied.  No shares are awarded or issued to you on the Initial Grant Date.

Vesting Requirements.  Except as provided in the following paragraph, Performance Shares do not provide you with any rights or interest therein until they become vested on the third anniversary of the Date of Grant (the “Vesting Date”), provided you are still employed by the Company or one of its subsidiaries.

In the event you terminate employment prior to the third anniversary of the Date of Grant due to “Retirement,” 33% of the Initial Grant will continue to vest provided your termination date is on or after the first anniversary of the Date of Grant, and 66% of the Initial Grant will continue to vest provided your termination date is on or after the second anniversary of the Date of Grant.

For this purpose, the term “Retirement” means (a) voluntary termination of employment after attaining age 60 and completing at least 10 years of service with the Company or its subsidiaries, or (b) involuntary termination in connection with a reduction in force.

In the event your employment terminates by reason of your death or disability prior to the third anniversary of the Date of Grant, 100% of the Initial Grant shall continue to vest.

The Committee may, in its sole discretion, provide for additional vesting.

Forfeiture of Performance Shares.  Except as otherwise provided above, Performance Shares which are not vested at your termination of employment for any reason shall, coincident therewith, be forfeited.

In the event that (a) you are convicted of (i) a felony or (ii) a misdemeanor involving fraud, dishonesty or moral turpitude, or (b) you engage in conduct that adversely affects or may reasonably be expected to adversely affect the business reputation or economic interests of the Company, as determined in the sole judgment of the Committee, then all Performance Shares and all rights or benefits awarded to you under this grant of Performance Units are forfeited, terminated and withdrawn immediately upon such conviction or notice of such determination.  The Committee shall have the right to suspend any and all rights or benefits awarded to you hereunder pending its investigation and final determination with regard to such matters.

Number of Performance Shares.  The number of Performance Shares of your Initial Grant in which you will vest, if any, shall be determined based one-half on the Cumulative Operating Income of the Company and one-half on the Company’s Total Shareholder Return relative to the Total Shareholder Return of our Peer Group (defined below), each over the Performance Measurement Period as illustrated in the schedules set forth below.  The “Performance Measurement Period” means the period beginning on January 1, 2009 and ending on December 31, 2011.  The maximum number of Performance Shares in which you can vest is 200% of your Initial Grant.

Cumulative Operating Income

The term “Cumulative Operating Income” means the Company’s operating income determined in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) for the Performance Measurement Period.  The Committee, in its discretion, may adjust the GAAP results for unusual or non-recurring items.  The percentage of Performance Shares in your Initial Grant in which you will vest based on this performance measure is determined based on the schedule set forth below.  Vested percentages between the amounts shown will be calculated by linear interpolation.

           Cumulative Operating Income                             Vested Percentage of Initial Grant

$ _______                                                                12.5%

$ _______                                                                   50%

$ _______                                                                 100%

The vested percentage of the one half of the Performance Shares in your Initial Grant that is based on Cumulative Operating Income will be zero if the Cumulative Operating Income as of December 31, 2011 is below $___ million.  In no event will the vested percentage of this portion of your Initial Grant be greater than 100% of your Initial Grant.

Relative Total Shareholder Return

“Total Shareholder Return” means A- B + C, where

                                                              B

A = the average closing stock price for the 20 day period ending on December 31, 2011,

B = the average closing stock price for the 20 day period ending on January 1, 2009, and

C = dividends paid during the period beginning on January 1, 2009 and ending on December 31, 2011, if any.

The Total Shareholder Return for the Company and for the Company’s “Peer Group” will be calculated in accordance with the formula set forth above.  For this purpose, “Peer Group” means the companies in the custom peer group used in the performance graph included in our annual report on Form-10K for the year ended December 31, 2008.  The Committee may adjust the composition of the Peer Group in consideration of extraordinary corporate events affecting individual companies in the Peer Group, such as merger, acquisition, insolvency, dissolution or the like. The percentage of Performance Shares in your Initial Grant in which you will vest based on the Company’s Total Shareholder Return relative to the Total Shareholder Return of its proxy peer group is determined in accordance with the schedule set forth below.  Vested percentages between the amounts shown will be calculated by linear interpolation.

Company’s Percentile Rank                    Vested Percentage of Initial Grant

                                                  _____                                                                 12.5%

                                                  _____                                                                   50%

                                                  _____                                                                 100%

The vested percentage of the one-half of the Performance Shares in your Initial Grant that is based on relative Total Shareholder Return will be zero if the Company’s Total Shareholder Return ranks lower than the ___ percentile relative to the proxy peer group.  In no event will the vested percentage of this portion of your Initial Grant be greater than 100% of your Initial Grant.  Notwithstanding the Company’s percentile rank, if the Company’s Total Shareholder Return ranks first or second among the companies in the Peer Group during the applicable measurement period, the vested percentage of this portion of your award will be 100% of your Initial Grant.

Payment of Performance Shares.  Except as otherwise provided below in the section entitled “Change in Control,” you (or your beneficiary, if applicable) will receive one share of common stock of the Company for each Performance Share that vests. Shares shall be distributed as soon as administratively practicable after the Vesting Date.

Change in Control

If a Change in Control (as defined in the Plan) of the Company occurs, all outstanding Performance Shares granted hereunder shall immediately vest.  The number of Performance Shares that vest in connection with a Change in Control shall be the greater of (i) 100% of the Initial Grant or (ii) the vested percentage determined in accordance with the schedules set forth above, with a Vesting Date as of the date such Change in Control occurs and based on (1) Adjusted Cumulative Operating Income earned as of the end of the fiscal quarter coincident with or immediately prior to the date the Change in Control occurs and Adjusted Cumulative Operating Income targets with respect to one-half of the Initial Grant, and (2) relative Total Shareholder Return determined as the date the Change in Control occurs with respect to the remaining one-half of the Initial Grant.  The Adjusted Cumulative Operating Income target shall be determined by multiplying the targets set forth above by a fraction, the numerator of which is the number of months from January 1, 2009 through the end of the fiscal quarter coincident with or immediately prior to the date the Change in Control occurs and the denominator of which is 36.  Shares of common stock shall be distributed as soon as administratively possible, but in no event more than 30 days following the date of the Change in Control.

Taxes

You will realize income on the grant of Performance Shares in accordance with the tax laws of the jurisdiction applicable to you.  By acceptance of this letter you agree that, upon vesting in the shares, any statutory minimum required income or employment tax withholding will be satisfied by withholding shares having an aggregate fair market value on the Vesting Date equal to the amount of such required tax withholding.  You may arrange to pay the amount of any such required tax withholding in cash, in lieu of share withholding, by contacting the principal Human Resources officer of the Company, in writing, at least 60 days prior to the Vesting Date.

Transferability

Performance Shares granted hereunder are non-transferable other than by will or by the laws of descent and distribution or pursuant to a qualified domestic relations order.

Securities and Exchange Commission Requirements

If you are a Section 16 insider, this grant of Performance Shares is not reportable on a Form 4 unless and until they become vested.  At that time, the number of Performance Shares ultimately awarded to you must be reported on a Form 4 before the end of the second (2nd) business day following the Vesting Date or your date of retirement, as applicable.  Please be aware that if you are going to reject the grant, you should do so immediately after the Date of Grant.  Please advise Kathy Peres and Renee Hack immediately by e-mail, fax or telephone if you intend to reject this grant.

Those of you covered by these requirements will have already been advised of your status.  Others may become Section 16 insiders at some future date, in which case reporting will be required in the same manner noted above.

Other Information

Neither the action of the Company in establishing the Plan, nor any action taken by it, by the Committee or by your employer, nor any provision of the Plan or this Agreement shall be construed as conferring upon you the right to be retained in the employ of the Company, Inc. or any of its subsidiaries or affiliates.

EX-10.4

STOCK OPTION

GRANT AGREEMENT

2009 McDermott International, Inc. Long-Term Incentive Plan

On ________, _____ (the “Date of Grant”) the Compensation Committee of the Board of Directors (the “Committee”) of McDermott International, Inc. (the “Company”) selected you to receive a grant of Non-Qualified Stock Options (the “Options”) under the Company’s 2009 McDermott International, Inc. Long-Term Incentive Plan (the “Plan”).  The provisions of the Plan are incorporated herein by reference.

Any reference or definition contained in this Agreement shall, except as otherwise specified, be construed in accordance with the terms and conditions of the Plan and all determinations and interpretations made by the Committee with regard to any question arising hereunder or under the Plan shall be binding and conclusive on you and your legal representatives and beneficiaries.  Whenever the words “you or your” are used in any provision of this Agreement under circumstances where the provision should logically be construed to apply to the beneficiary, estate, or personal representative, to whom any rights under this Agreement may be transferred by will or by the laws of descent and distribution, it shall be deemed to include such person.

Subject to the provisions of the Plan, the terms and conditions of this grant are as follows:

1.   Number and Price of Options – The Company grants to you the option to purchase from the Company at the price of $___ up to, but not exceeding in the aggregate, the number of shares of the Company’s Common Stock (the “Common Stock”), as shown on the attached Notice of Grant and as explained hereinafter and in the Program.

2.   Option Term – Options have been granted for a period of seven (7) years from the Date of Grant (the “Option Term”).

3.   Vesting of Options – Subject to the “Forfeiture of Options” paragraph below, options do not provide you with any rights or interest therein until they vest and become exercisable in one-third (1/3) increments on the first, second and third anniversaries of the Date of Grant.  Options which are or become exercisable at the time of termination of employment continue to be exercisable until terminated in accordance with Paragraph 6 below.

All unvested Options shall become vested and exercisable upon your termination of employment due to death or disability, or upon the occurrence of a “Change in Control” as defined in the Plan.

If your employment is terminated prior to the third anniversary of the Date of Grant due to “Retirement,” 25% of the then unvested Options will become vested and exercisable provided your termination date is on or after the first anniversary of the Date of Grant, and 50% of the then unvested Options will become vested and exercisable provided your termination date is on or after the second anniversary of the Date of Grant.  For this purpose, “Retirement” means a voluntary termination of employment after attaining age 60 and completing 10 years of service with the Company or its subsidiaries, or an involuntary termination due to reduction in force.

The Committee, in its sole discretion, may provide for additional vesting.

4.   Forfeiture of Options - Options which are not and do not vest and become exercisable at your termination of employment with the Company or its subsidiaries for any reason shall, coincident therewith, terminate and be of no force and effect.

In the event that (i) you are convicted of (1) a felony or (2) misdemeanor involving fraud, dishonesty or moral turpitude, or (ii) you engage in conduct that adversely effects or may reasonably be expected to adversely affect the business reputation or economic interests of the Company, as determined in the sole discretion of the Committee, then all outstanding Options awarded to you under this grant terminate and have no force and effect immediately upon notice of such conviction or determination.  In addition, your right to exercise Options may be suspended during any inquiry regarding any such acts pending a final determination by the Committee.

5.   How to Exercise – Charles Schwab & Co., Inc. (“Schwab”) currently administers the Company’s stock plans and you must exercise your Options with Schwab.  You have two ways to exercise your Options through Schwab:

1.   Online – http://equityawardcenter.schwab.com; or

2.   Telephone – 1-800-654-2593.

Certain restrictions apply if you are a Section 16 insider.  The Committee may change Plan administrators or exercise procedures from time to time.  You will be notified of such changes, as applicable.

6.   Termination of Options – The Options, which become exercisable as provided in paragraphs 3 and 4 above, shall terminate and be of no force or effect as follows:

(a)   If your employment terminates during the Option Term by reason of Retirement or disability, the Options terminate and have no force or effect upon the expiration of the Option Term;

(b)   If your employment terminates during the Option Term by reason of death, the Options terminate and have no force or effect three (3) years after the date of death, or upon the expiration of the Option Term, whichever occurs first;

(c)   If your employment terminates during the Option Term for any other reason, the Options terminate and have no force or effect upon the expiration of twelve (12) months after your termination of employment or the expiration of the Option Term, whichever occurs first;

(d)   If you continue in the employ of the Company through the Option Term, the Options terminate and have no force or effect upon the expiration of the Option Term.

7.   Who Can Exercise – During your lifetime the Options shall be exercisable only by you.  No assignment or transfer of the Options, whether voluntary or involuntary, by operation of law or otherwise, except by will or the laws of descent and distribution or pursuant to a Qualified Domestic Relations Order, shall vest in the assignee or transferee any interest whatsoever.

8.   Securities and Exchange Commission Requirements.  If you are a Section 16 insider, this type of transaction must be reported on a Form 4 before the end of the second (2) business day following the Date of Grant.  Please be aware that if you are going to reject the grant, you should do so immediately after the Date of Grant to avoid potential Section 16 liability.  Please advise Kathy Peres and Renee Hack immediately by e-mail, fax or telephone call if you intend to reject this grant.  Absent such notice of rejection, the Company will prepare and file the required Form 4 on your behalf within the required two business day deadline. If Section 16 applies to you, you are also subject to Rule 144.  This Rule is applicable only when the shares are sold, so you need not take any action under Rule 144 at this time.

Those of you covered by these requirements have already been advised of your status.  Others of you may become Section 16 insiders at some future date, in which case reporting will be required at that time.

You will recognize income upon the exercise of non-qualified stock options in accordance with the tax laws of the jurisdiction that is applicable to you.  You will be required to pay forthwith to the Company the amount which the Company must withhold on your behalf upon exercise of the Options.  State income tax and FICA withholding may also be required and will be withheld in the same manner.

Neither the action of the Company in establishing the Program, nor any action taken by it, by the Committee or the Board of Directors under this Program nor any provisions of this Agreement shall be construed as giving to you the right to be retained in the employ of the Company.

EX-10.5

McDermott International, Inc.

New Supplemental Executive Retirement Plan

As Amended and Restated Effective December 31, 2008

ARTICLE I

Purpose

1.1           Purpose of Plan.  The purpose of this McDermott International, Inc., New Supplemental Executive Retirement Plan (the “Plan”) is to advance the interests of McDermott International, Inc., its subsidiaries and affiliates by providing certain retirement benefits that will attract and retain highly qualified key employees accountable for the successful conduct of its business.

1.2           ERISA Status.  The Plan is governed by the Employee Retirement Income Security Act of 1974, as amended (“ERISA”).  It has been designed to qualify for certain exemptions under Title I of ERISA that apply to plans that are unfunded and maintained primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees.  The Plan is intended to comply with Section 409A of the Internal Revenue Code of 1986, as amended, and regulations and rulings issued thereunder.

1.3Effective Date.   The original effective date of this Plan is January 1, 2005.  The effective date of this restatement is the close of business December 31, 2008.

ARTICLE II

Definitions and Construction

Definitions.  Where the following words and phrases appear in the Plan, they shall have the respective meanings set forth below, unless their context clearly indicates to the contrary.

2.1        Account. Collectively, means the Participant’s Company Account and the Participant’s Deferral Account.

2.2Account Value.  At any given time, the sum of all amounts credited to the Participant’s Account, adjusted for any income, gain or loss and any payments attributable to such account.

 2.2.1           Beneficiary.  The person designated by each Participant, on a form provided by the Company for this purpose, to receive the Participant’s distribution under Article VI in the event of the Participant’s death prior to receiving complete payment of his Account.  In order to be effective under this Plan, any form designating a Beneficiary must be delivered to the Committee before the Participant’s death.  In the absence of such an effective designation of a Beneficiary, “Beneficiary” means the Participant’s spouse, or if there is no spouse on the date of the Participant’s death, the Participant’s estate, or heirs at law if there is no administration of the Participant’s estate.

2.4           Board.  The Board of Directors of McDermott International, Inc. or the board of directors of a company that is a successor to the Company.

2.5           Bonus.Any bonus paid to a Participant under any plan, policy or program of the Company providing for the payment of annual bonuses to employees or any extraordinary payment paid to a Participant if such payment is designated by the Committee to be a Bonus for purposes of this Plan.  Bonus shall not include any compensation under the 2002 B&W Performance Incentive Plan.

2.6           Cause.Cause means:

(a) the overt and willful disobedience of orders or directives issued to a Participant that are within his scope of duties, or any other willful and continued failure of a Participant to perform substantially his duties with the Company (occasioned by reason other than physical or mental illness or disability) after a written demand for substantial performance is delivered to the Participant by the Committee or the Chief Executive Officer of the Company which specifically identifies the manner in which the Committee or the Chief Executive Officer believes that the Participant has not substantially performed his duties, after which the Participant shall have thirty days to defend or remedy such failure to substantially perform his duties;

(b) the willful engaging by the Participant in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company; or

(c) the conviction of the Participant with no further possibility of appeal or, or plea of nolo contendere by the Participant to, any felony or crime of falsehood.

The cessation of employment of a Participant under subparagraph (a) and (b) above shall not be deemed to be for “Cause” unless and until there shall have been delivered to him a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters (3/4) of the entire membership of the Committee at a meeting of such Committee called and held for such purpose (after reasonable notice is provided to the Participant and the Participant is given an opportunity to be heard before the Committee), finding that, in the good faith opinion of the Committee, the Participant is guilty of the conduct described in subparagraph (a) or (b) above, and specifying the particulars thereof in detail.

2.7           Change in Control.A change in control shall occur when:

(a) any person (other than a trustee or other fidicuary holding securities under an Employee benefit plan of the Company or a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company) is or becomes the beneficial owner, directly or indirectly, of securities of the Company representing thirty percent (30%) or more of the combined voting power of the Company’s then outstanding voting securities;

(b) during any period of two (2) consecutive years (not including any period prior to the execution of this Plan), individuals who at the beginning of such period constitute the Board of the Company, and any new director of the Company (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in Clauses (a) or (c) of this Paragraph (7) whose election by the Company’s Board or nomination for election by the stockholders of the Company, was approved by a vote of at least two-thirds (2/3) of the Directors of the Company’s Board, then still in office who either were Directors thereof at the beginning of the period or who election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof:

(c) the shareholders of the Company approve a) a merger or consolidation of the Company, with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto, continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least fifty percent (50%) of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or b) the shareholders of the Company approve a plan of complete liquidation of the Company, or c) an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets; or

(d) Such other circumstances as may be deemed by the Board in its sole discretion to constitute a change in control of the Company.

However, in no event shall a “Change In Control” be deemed to have occurred with respect to a Participant if the Participant is part of the purchasing group which consummates the Change-In-Control transaction.  A Participant shall be deemed “part of a purchasing group” for purposes of the preceding sentence if the Participant is an equity participant in the purchasing company or group (except for:  (i) passive ownership of less than three percent (3%) of the stock of the purchasing company; or (ii) ownership of equity participation in the purchasing company or group which is otherwise not significant, as determined prior to the Change in Control by a majority of the non-employee continuing directors).

2.8           Code.  The Internal Revenue Code of 1986, as amended.

2.9           Committee.  The Compensation Committee of the Board, or such other administrative committee that is appointed by the Board to administer the Plan.

2.10         Company.  McDermott International, Inc. and except where the context clearly indicates otherwise, shall include the Company’s subsidiaries and affiliates, as well as any successor to any such entities.

2.11         Company Account.  The notional account maintained by the Committee reflecting each Participant’s Company Contributions, together with any income, gain or loss and any payments attributable to such account.

2.12         Company Contribution.  The total contributions credited to a Participant’s Company Account for any one Plan Year pursuant to the provisions of Section 4.1 or 4.2.

2.13         Compensation.The salary, wages and other cash remuneration received by a Participant during any Plan Year or in respect of employment with the Company, including any contributions made to a plan described in Sections 125, 132(f) or 401(k) of the Code pursuant to a salary reduction agreement entered into between a Participant and the Company and Bonuses, and amounts, if any, deferred by the Participant under this Plan, but excluding cash payments under the Company’s 2001 Directors and Officers Long Term Incentive Plan and any successor plan thereto and other additional remuneration in any form.

2.14         Deemed Investments.  With respect to any Account, the hypothetical investment options with respect to which such Account is deemed to be invested for purposes of determining the value of such Account under this Plan, as selected from time to time by the Committee in its discretion.

2.15         Deferral Account.  The notional account maintained by the Committee reflecting each Participant’s Deferral Contributions, together with any income, gain or loss and any payments attributable to such amount.

2.16         Deferral Contribution.  Compensation that is deferred by a Participant pursuant to Section 4.3 and credited to a Participant’s Deferral Account pursuant to the provisions of Section 4.3.

2.17         Disabled.  A Participant will be considered Disabled if the Committee determines in its sole discretion that the Participant is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that is expected to last for a continuous period of not less than twelve (12) months.

2.18         Eligible Employee.  The Company’s CEO and any officers of the Company and its subsidiaries and affiliates.

2.19         ERISA.  The Employee Retirement Income Security Act of 1974, as amended.

2.20         Exchange Act.  The Securities Exchange Act of 1934, as amended.

2.21         Participant.  An Eligible Employee who has been selected by the Committee as a Participant in the Plan until such Eligible Employee ceases to be a Participant in accordance with Article III of the Plan.

2.22         Plan Year.  The twelve-consecutive month period commencing January 1 of each year.

2.23         Retirement.Separation from Service with the Company on or after the first of the calendar month following the Participant’s attainment of the age of 65.

2.24         Separation from Service.A Separation from Service occurs on the date a Participant dies, retires or otherwise has a termination of employment with the Company.  A termination of employment occurs on the date after which the Participant and the Company reasonably anticipate that no further services will be performed by the Participant or that the level of bona fide services reasonably anticipated to be performed after such date will permanently decrease to 49% or less of the average level of bona fide services provided in the immediately preceding thirty-six months.

2.25         Specified Person.Specified Person shall have the meaning set forth in Code Section 409A(a)(2)(B)(i) and regulations and ruling promulgated thereunder.

2.26         Unforeseeable Emergency.A severe financial hardship to the Participant resulting from an illness or accident of the Participant, the Participant’s spouse, the Participant’s Beneficiary, or the Participant’s dependent (as defined in Section 409A of the Code); loss of the Participant’s property due to casualty; or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant.  Whether a Participant is faced with an Unforeseeable Emergency is to be determined by the Committee in its sole discretion, based on the relevant facts and circumstances of each case.  In any case, a distribution on account of Unforeseeable Emergency may not exceed the amount necessary to relieve the emergency, plus amounts necessary to pay taxes reasonably anticipated as a result of the distribution, after taking into account the extent that the emergency may be relieved through reimbursement or compensation from insurance or otherwise, by liquidation of the Participant’s assets, to the extent the liquidation of such assets would not itself cause severe financial hardship, or by cessation of deferrals under the Plan.

2.27         Vested Account.  The sum of the Participant’s vested Company Account and the Participant’s Deferral Account.

2.28         Vested Percentage.  The percentage as to which a Participant is vested in his or her Company Account as determined under Sections 5.4 and 5.5.

2.29         Years of Participation.  The sum of whole Plan Years of participation in the Plan as an active employee in continuous employment, excluding fractional years.

                                               ARTICLE III

Participation

The Committee, in its sole discretion, shall select and notify in writing those Eligible Employees of the Company who shall participate in the Plan.  An Eligible Employee who has been selected by the Committee as a Participant shall begin participation in the Plan effective on the date specified by the Committee in its notification and shall continue to participate in the Plan until the earlier of (a) the date the Committee notifies the Participant that he is no longer eligible to participate in the Plan or (b) the date of his Separation from Service.  A Participant who ceases to participate in the Plan pursuant to (a) of the preceding sentence shall be treated as if he had terminated employment with the Company but (i) his benefit, if any, shall not be payable until after his Separation from Service, and (ii) his Vested Account shall be adjusted as provided in Article V.  An Eligible Employee who is rehired by the Company following his Separation from Service shall become a Participant only if such Eligible Employee is again selected to participate in the Plan by the Committee.

ARTICLE IV

Contributions

4.1Annual Company Contribution.  As of the first day of each Plan Year, the Company shall declare a contribution percentage for each Participant’s Company Account.  The contribution percentage declared for a Participant may, but need not be, the same as the contribution percentage declared for other Participants.  Company Contributions shall be credited as a bookkeeping entry as of the first day of the Plan Year or at other such times as determined by the Committee to each Participant’s Company Account, in an amount equal to the contribution percentage declared for the Participant multiplied by the Participant’s Compensation received during the prior Plan Year.

4.2Discretionary Company Contribution.  The Committee may in its sole discretion at any time make an extraordinary contribution to the Company Account of any Participant.

4.3Participant Deferrals.  For any Plan Year, the Committee may, in its sole discretion, allow a Participant to elect to defer the payment by the Company of any whole percentage (or dollar amount) of his annual base salary that would otherwise be paid during such Plan Year and/or of any whole percentage (or dollar amount) of any Bonus earned during such Plan Year, and instead have such amounts credited as a bookkeeping entry to his Deferral Account.  The Compensation otherwise payable to the Participant shall be reduced by the amount the Participant elected to have contributed to the Participant’s Deferral Account, which shall be a Deferral Contribution.

4.4Participant Elections.  Prior to the first day of each Plan Year, a Participant shall file a written election with the Committee specifying (i) the type(s) and amount(s) of Compensation that he wishes to defer pursuant to Section 4.3, if Deferral Contributions are permitted by the Committee for the relevant Plan Year, (ii) the payment date or payment commencement date pertaining to the portion of his Vested Account that is attributable to contributions made in the relevant Plan Year, and (iii) the form of payment of the portion of his Vested Account that is attributable to contributions made in the relevant Plan Year.  Such election with respect to any Plan Year must be filed with the Committee no later than the last day of the immediately preceding Plan Year; provided however, that an election made by a new Participant who is first eligible to participate in the Plan may be made no later than the 30th day following the date on which he is initially eligible to participate in the Plan but only with respect to Compensation earned after the effective date of such election.  If Deferral Contributions are permitted, a Participant may elect to defer up to 50% of his annual Salary and/or up to 100% of any Bonus earned in any Plan Year.

Except as set forth in Section 6.3, a Participant shall not be permitted to change his election with respect to the timing or form of payment and any election made hereunder shall not apply with respect to prior Plan Years.  Failure to make a timely Deferral Contribution election will result in no Deferral Contributions for the relevant Plan Year.  If a Participant fails to make a timely election specifying time and form of payment, payment of the portion of the Participant’s Vested Account that is attributable to contributions made in the relevant Plan Year shall be paid in accordance with Section 6.4

4.5Suspension of Deferral Contributions.  Except as provided below, an election to make Deferral Contributions in a Plan Year shall be irrevocable on the last day of the immediately preceding Plan Year. To the extent expressly permitted under Code Section 409A and regulations and rulings issued thereunder, a Participant’s deferral election shall be suspended during any unpaid leave of absence granted in accordance with Company policies; provided, however that such deferral election shall become fully operative as of the first day of the payroll period commencing coincident with or next following the Participant’s return to active employment following termination of the approved unpaid leave in the Plan Year to which the Participant’s deferral pertains.  In the event of an Unforeseeable Emergency, a Participant shall suspend deferrals in order  to relieve the emergency, provided that the deferrals must be suspended for the entire remainder of the Plan Year.  In the event of a Disability, the Participant may suspend deferrals by the later of the end of the taxable year of the Company in which the Disability arises, or the 15th of the third month following the date that the Disability arises.

                                                                                                                ARTICLE V

Accounts

5.1Company Accounts.  The Committee shall establish and maintain an individual bookkeeping account for each Participant, which shall be the Participant’s Company Account.  A separate “Company Sub Account” may be maintained for each Participant for each Plan Year in respect of which Company Contributions are credited under the Plan for the benefit of the Participant.  The Committee shall credit the amount of each Company Contribution made on behalf of a Participant to such Participant’s Company Account pursuant to Section 4.1 and 4.2.  The Committee shall further debit and/or credit the Participant’s Company Account with any income, gain or loss based upon the performance of the Deemed Investments selected by the participant and any payments attributable to such account on a daily basis, or at such other times as it shall determine appropriate.  The sole purpose of the Participant’s Company Account is to record and reflect the Company’s Plan obligations related to Company Contributions to each Participant under the Plan.  The Company shall not be required to segregate any of its assets with respect to Plan obligations nor shall any provision of the Plan be construed as constituting such segregation.

5.2Deferral Accounts.  The Committee shall establish and maintain an individual bookkeeping account for each Participant, which shall be the Participant’s Deferral Account.  A separate “Deferral Sub Account” may be maintained for each Participant for each Plan Year in respect of which Deferral Contributions are credited under the Plan for the benefit of the Participant. The Committee shall credit the amount of each Deferral Contribution made on behalf of a Participant to such Participant’s Deferral Account as soon as administratively feasible following the applicable deferral.  The Committee shall further debit and/or credit the Participant’s Deferral Account with any income, gain or loss based upon the performance of the Deemed Investments selected by the Participant and any payments attributable to such Account on a daily basis, or at such other times as it shall determine appropriate.  The sole purpose of the Participant’s Deferral Account is to record and reflect the Company’s Plan obligations related to Deferral Contributions of each Participant under the Plan.  The Company shall not be required to segregate any of its assets with respect to Plan obligations, nor shall any provision of the Plan be construed as constituting such segregation.

5.3Hypothetical Accruals to the Account.  In accordance with procedures established by the Committee and subject to this Section 5.3, the Participant may designate the Deemed Investments with respect to which his or her Account shall be deemed to be invested. If a Participant fails to make a proper designation, then his Account shall be deemed to be invested in the Deemed Investments designated by the Committee in its sole discretion.   A Participant may change such designation with respect to future Company and Deferral Contributions, as well as amounts, already credited to his Account in accordance with procedures established by the Committee.  A copy of any available prospectus or other disclosure materials for each of the Deemed Investments shall be made available to each Participant upon request.  The Committee shall determine from time to time each of the Deemed Investments made available under the Plan and may change any such determinations at any time.  Nothing herein shall obligate the Company to invest any part of its assets in any of the investment vehicles serving as the Deemed Investments.

5.4Vesting of Company Account.  A Participant’s vested percentage with respect to the Participant’s Company Account, adjusted by any income, gain or loss and any payments attributable thereto, shall be the lesser of i) twenty percent times the Participant’s Years of Participation, and ii) 100%.  Except as provided in Section 5.5, upon Separation from Service or cessation of Plan participation, whichever is earlier, a Participant shall forfeit all amounts credited to his Account other than his Vested Account value determined as of the close of business coincident with or next following the date on which the Participant separated from service or ceased to participate in the Plan, as applicable, provided, however, that amounts not so forfeited shall continue to be debited and credited in accordance with Section 5.3 from and after Separation from Service.

5.5Accelerated Vesting.  The vesting provisions above notwithstanding, each Participant shall have a Vested Percentage of 100% for his entire Account upon the soonest of the following to occur during the Participant’s employment with the Company:  (i) the date of Separation from Service as a result of a Participant’s death, disability or termination by the Company for reasons other than cause, (ii) the Participant’s Disability, (iii) the Participant’s Retirement, or (iv) the date a Change in Control occurs.  Each Participant who was employed by the Company on December 31, 2008 shall have a vested percentage of 100% of amounts allocated to his Account as of December 31, 2008 and future gains and losses thereon.  Amounts allocated on or after January 1, 2009 and gains and losses thereon shall vest in accordance with Section 5.4 and the first sentence of this Section 5.5.

5.6Vesting of Deferral Account. A Participant’s Vested Percentage with regard to his Deferral Account shall at all times be 100%.

5.7Nature and Source of Payments.  The obligation to make distributions under this Plan with respect to each Participant and any Beneficiary in accordance with the terms of this Plan shall constitute a liability of the Company which employed the Participant when the obligation was accrued, and no other Company shall have such obligation and any failure by a particular Company to live up to its obligation under this Plan shall have no effect on any other Company.  All distributions payable hereunder shall be made from the general assets of the Company, and nothing herein shall be deemed to create a trust of any kind between the Company and any Participant or other person.  No special or separate fund shall be established nor shall any other segregation of assets be made to assure that distributions will be made under this Plan.  No Participant or Beneficiary shall have any interest in any particular asset of the Company by virtue of the existence of this Plan.  Each Participant and Beneficiary shall be an unsecured general creditor of the Company.

5.8Statements to Participants.  Periodically as determined by the Committee, but not less frequently than annually, the Committee shall transmit to each Participant a written statement regarding the Participant's Account for the period beginning on the date following the effective date of the preceding statement and ending on the effective date of the current statement.

ARTICLE VI

Payment of Benefits

6.1Occasions for Distributions.  The Company shall distribute a Participant's Vested Account following the events and in the manner set forth in this Article VI.  A Participant’s Vested Account shall be debited in the amount of any distribution made from the Account as of the date of the distribution.  The occasions for distributions shall be (i) the Participant’s Separation From Service, including upon Retirement or death, (ii) Disability, (iii) the occurrence of an Unforeseeable Emergency, or (iv) the completion of fixed period of deferral.

6.2Distribution Elections.  A Participant shall elect the time and form of payment of his Vested Account in the manner set forth in Section 4.4.  A Participant who fails to timely file a distribution election for a Plan Year shall be deemed to have elected to receive the portion of his Vested Account attributable to the relevant Plan Year in a single lump sum payment within 30 days after his Separation from Service, or on the first day of the seventh month following his Separation from Service if he is a Specified Person as of the date of the Separation from Service.  If a Participant’s Vested Account is less than $50,000, it will be distributed in a single lump sum distribution irrespective of any election to the contrary.

6.3Change of Former Timing of Payments.  A Participant may make a subsequent election no later than twelve months prior to the date that he would be eligible to receive a distribution under the Plan, to change the timing and form of payment of the distribution; provided, however, that the payment, or first payment in the case of a series of payments, under the subsequent election shall be deferred to a date that is at least five (5) years after the date the Participant would have been eligible to receive, or begin receiving, the distribution under the prior election.  To be effective, any such election must be in writing timely and received by the Committee, and cannot be effective for at least twelve months after the date on which the election is made.  The requirement in this Section 6.3 that the first payment with respect to which any election thereunder applies must be deferred for at least five (5) years shall not apply to a payment on account of the Participant’s death, Disability or in the event of an Unforeseeable Emergency.  Notwithstanding the provisions of this Section 6.3, for subsequent distribution elections made in 2008 only, the five year delay shall not be applicable, so long as the distribution is not payable in 2008 under the prior election, and the subsequent election does not schedule the distribution until after December 31, 2008.

6.4Distribution on Account of Separation from Service or Disability. Subject to Section 6.8, upon a Participant’s Disability or Separation from Service, the Company shall distribute, or begin distributing, to the Participant (or the Participant’s Beneficiary) within a reasonable period of time (not to exceed 30 days after such separation), the Participant’s Vested Account.  Such distribution(s) shall be in the form specified on the distribution election form(s) filed with the Committee that covers the relevant Vested Account.  If no effective election form exists, the distribution shall be distributed in the form of a lump sum payment equal to the relevant portion of the Participant’s Vested Account.

6.5Continuation of Hypothetical Accruals to the Vested Account After Commencement of Distributions.   If any Vested Account of a Participant is to be distributed in a form other than a lump sum, then such Vested Account shall continue to be adjusted for hypothetical income, gain or loss and any payment or distributions attributable to the Vested Account as described in Section 5.1, and 5.2, until the entire Vested Account has been distributed.

6.6Unforeseeable Emergency Distribution.   In the event that the Committee, upon the written request of a Participant, determines in its sole discretion that such Participant has incurred an Unforeseeable Emergency, as defined in Section 2.26, such Participant may be entitled to receive a distribution of part or all of the Participant’s Vested Account, in an amount not to exceed the lesser of (a) the amount determined by the Committee under Section 2.26, or (b) the value of such Participant’s Vested Account at the time of the emergency.  Such amount shall be paid in a single lump sum payment as soon as administratively practicable after the Committee has made its determination with respect to the availability and amount of such distribution; provided, however, that the payment shall not be made after the later of the end of the taxable year of the Company in which the Unforeseeable Emergency arises or the 15th day of the third month following the date of the occurrence of the Unforeseeable Emergency.  If a Participant’s Account is deemed to be invested in more than one Deemed Investment, such distribution shall be made pro rata from each of such Deemed Investments.  For purposes of the foregoing, such distribution shall be made from the Participant’s Account beginning with the oldest Account in the following order:  First, such amount shall be debited from the Participant’s Deferral Account, and second, from the Participant’s Company Account (subject to forfeitures with respect to the non-vested portion of the Company Account utilized for such distribution).

6.7  Distribution on Account of Completion of a Fixed Deferral Period.   At the time of a Participant’s election to participate in the Plan, the Participant may elect to receive the Distribution of a Participant’s Vested Account (established only in respect of the relevant Plan Year), or any applicable Vested Plan Year Company Sub-Account or Plan Year Deferral Sub-Account on the completion of a fixed deferral period elected by the Participant on forms provided by the Committee.

6.8          Limitation on Distributions to Certain Key Employees.Notwithstanding any other provision of the Plan to the contrary, to the extent that a Participant is a Specified Person and the Participant’s distribution is on account of any reason other than death or Disability distributions may not be made before the date which is six months after the date of the Separation from Service.  Payments to which the Participant would otherwise be entitled during the six-month period described above shall be delayed and paid in a lump sum on the first day of the seventh month after the date of his Separation from Service.

ARTICLE VII

Committee

7.1          Authority.  The Committee has full and absolute discretion in the exercise of each and every aspect of the rights, power, authority and duties retained or granted it under the Plan, including without limitation, the authority to determine all facts, to interpret this Plan, to apply the terms of this Plan to the facts determined, to make decisions based upon those facts and to make any and all other decisions required of it by this Plan, such as the right to benefits, the correct amount and form of benefits, the determination of any appeal, the review and correction of the actions of any prior administrative committee, and the other rights, powers, authority and duties specified in this Article and elsewhere in this Plan.  The Committee may correct any defect or supply any omission or reconcile any inconsistency in this Plan or any agreement or document related to this Plan in the manner and to the extent the Committee deems necessary or appropriate to carry this Plan into effect.  Notwithstanding any provision of law, or any explicit ruling or implicit provision of this document, any action taken, or finding, interpretation, ruling or decision made by the Committee in the exercise of any of its rights, powers, authority or duties under this Plan shall be final and conclusive as to all parties, including without limitation all Participants, former Participants and beneficiaries, regardless of whether the Committee or one or more if its members may have an actual or potential conflict of interest with respect to the subject matter of the action, finding, interpretation, ruling or decision.  No final action, finding, interpretation, ruling or decision of the Committee shall be subject to de novo review in any judicial proceeding.  No final action, finding, interpretation, ruling or decision of the Committee may be set aside unless it is held to have been arbitrary and capricious by a final judgment of a court having jurisdiction with respect to the issue.  To the extent Plan distributions are payable in a form other than a single lump sum (e.g., installments), the Committee shall determine the methodology for computing such payments.

7.2           Delegation of Authority.  The Committee may delegate any of its powers or responsibilities to one or more members of the Committee or any other person or entity.

7.3           Procedures.  The Committee may establish procedures to conduct its operations and to carry out its rights and duties under the Plan.  Committee decisions may be made by majority action.  The Committee may act by written consent.

7.4Compensation and Expenses.  The members of the Committee shall serve without compensation for their services, but all expenses of the Committee and all other expense incurred in administering the Plan shall be paid by the Company

7.5Indemnification.  The Company shall indemnify the members of the Committee and/or any of their delegates against the reasonable expenses, including attorney’s fees, actually and appropriately incurred by them in connection with the defense of any action, suit or proceeding, of in connection with any appeal thereto, to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with the Plan and against all amounts paid by them in settlement thereof (provided such settlement is approved by independent legal counsel selected by the Company) and against all amounts paid by them in satisfaction of a judgment in any such action, suit or proceeding, except in relation to matters as to which it shall be adjudged in a suit of final adjudication that such Committee member is liable for fraud, deliberate dishonesty of willful misconduct in the performance of his duties; provided that within 60 days after the institution of any such action, suit or proceeding a Committee member has offered in writing to allow the Company, at its own expense, to handle and defend any such action, suit or proceeding.

ARTICLE VIII

Amendment and Termination

The Company retains the power to amend the Plan or to terminate the Plan at any time by action of the Board.  No such amendment or termination shall adversely affect any Participant or Beneficiary with respect to his right to receive a benefit in accordance with Article VI, determined as of the later of the date that the Plan amendment or termination is adopted or the date such Plan amendment or termination is effective, unless the affected Participant or Beneficiary consents to such amendment or termination.

ARTICLE IX

Miscellaneous

9.1           Plan Does Not Affect the Rights of Employee.  Nothing contained in this Plan shall be deemed to give any Participant the right to be retained in the employment of the Company, to interfere with the rights of the Company to discharge any Participant at any time or to interfere with a Participant’s right to terminate his employment at any time.

9.2           Nonalienation and Nonassignment.  Except for debts owed the Company by a Participant or Beneficiary, no amounts payable or to become payable under the Plan to a Participant or Beneficiary shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge, whether voluntary, involuntary, by operation of law or otherwise, and any attempt to so anticipate, alienate, sell, transfer, assign, pledge, encumber or charge the same by a Participant or Beneficiary prior to distribution as herein provided shall be null and void.

9.3           Tax Withholding.  The Company shall have the right to deduct from any payments to a Participant or Beneficiary under the Plan any taxes required by law to be withheld with respect to such payments.  In addition, the Company shall have the right to deduct from any Participant’s base salary or other compensation any applicable employment taxes or other required withholdings with respect to a Participant.

9.4           FICA Withholding/Employee Deferrals/Company Contributions.For each payroll period, the Company shall withhold from that portion of the Participant’s Compensation that is not being deferred under this Plan, the Participant’s share of FICA and other applicable taxes that are required to be withheld with respect to (i) Employee Deferrals, and (ii) Company Contributions as they vest and become subject to such FICA withholding.  To the extent that there are insufficient funds to satisfy all applicable tax withholding requirements in a timely manner, the Company reserves the right to reduce the Participant’s Employee Deferrals, as required to  provide available funds for applicable tax withholding requirements.  To the extent there are still insufficient funds to satisfy all such applicable tax withholding requirements, the Participant agrees to timely remit cash funds to the Company sufficient to cover such withholding requirements.

9.5           Setoffs. As a condition to the receipt of any benefits hereunder, the Committee, in its sole discretion, may require a Participant or Beneficiary to first execute a written authorization, in the form established by the Committee, authorizing the Company to offset from the benefits otherwise due hereunder any and all amounts, debts or other obligations, incurred in the ordinary course of the service relationship, owed to the Company by the Participant.  Where such written authorization has been so executed by a Participant, benefits hereunder shall be reduced accordingly.  The Committee shall have full discretion to determine the application of such offset and the manner in which such offset will reduce benefits under the Plan; provided, however, that the amount offset in any one taxable year does not exceed $5,000 and the offset is taken at the same time and in the same amount as the debt otherwise would have been due from the Participant.

9.6Number and Gender.  Wherever appropriate herein, words used in the singular shall be considered to include the plural and words used in the plural shall be considered to include the singular.  The masculine gender, where appearing in the Plan, shall be deemed to include the feminine gender.

9.7Headings.  The headings of Articles and Sections herein are included solely for convenience, and if there is any conflict between such headings and the text of the Plan, the text shall control.

9.8Applicable Law.  Except to the extent preempted by federal law, the terms and provisions of the Plan shall be construed in accordance with the laws of the State of Texas.

9.9Successors.  All obligations under the Plan shall be binding upon the Company and any successors and assigns, in accordance with its terms, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation or other transaction, involving all or substantially all of the business and/or assets of the Company.

9.10Claims Procedure.  The Committee shall have sole discretionary authority with regard to the adjudication of any claims made under the Plan.  All claims for benefits under the Plan shall be submitted in writing, shall be signed by the claimant and shall be considered filed on the date the claim is received by the Committee.  In the event a claim is denied, in whole or in part, the claims procedures set forth below shall be applicable.

Upon the filing of a claim as above provided and in the event the claim is denied, in whole or in part, the Committee shall within ninety (90 days, forty five (45) days for disability related claims,) provide the claimant with a written statement which shall be delivered or mailed to the claimant to his last known address, which statement shall contain the following:

(a)           the specific reason or reasons for the denial of benefits;

(b) a specific reference to the pertinent provisions of the Plan upon which the denial is based;

(c) a description of any additional material or information necessary for the claimant to perfect his claim for benefits and an explanation of why such material and information is necessary; and

(d)           an explanation of the review procedure provided below.

If special circumstances require additional time for processing the claim, the Committee shall advise the claimant prior to the end of the initial ninety (90) day or forty-five (45) day period, setting forth the reasons for the delay and the approximate date the Committee expects to render its decision.  Any such extension shall not exceed ninety (90) days, or thirty (30) days for disability related claims.

Within ninety (90) days after receipt of the written notice of denial of a claim as provided above, a claimant or his authorized representative may request a review of the denial upon written application to the Committee, may review pertinent documents and may submit issues and comments in writing to the Committee.  Within sixty (60) days (or forty-five days in the case of a disability related claim) after receipt of a written request for review, or within one hundred and twenty (120) days (or ninety days for disability related claims) in the event of special circumstances which require an extension of time for processing such application for review, the Committee shall notify the claimant of its decision by delivery or by Certified or Registered Mail to his last known address.  The decision of the Committee shall be in writing and shall include the specific reasons for the decision and specific references to the pertinent provisions of the Plan on which such decision is based.  The Committee shall advise the claimant prior to the end of the initial sixty (60) day or forty-five day period, as applicable, if additional time is needed to process such application for review.  The decision of the Committee shall be final and conclusive.

9.11     Claims/Disputes.  Any dispute or claim arising out of this Plan or the breach thereof, which is not settled under the Plan’s administrative claims procedure and which is pursued beyond such claims procedure, shall be brought in Federal District Court, in Harris County, Texas.

9.12     Conduct Injurious to the Company.  Notwithstanding anything in the Plan to the contrary, any and all benefits otherwise payable to any Participant hereunder, except to the extent of any prior distributions under the Plan, shall be forever forfeited if it is determined by the Committee, in its sole discretion, that such Participant has engaged in conduct injurious to the Company, including but not limited to the following:

(a)           dishonesty while in the employ of the Company;

(b) imparting, disclosing or appropriating proprietary information for himself or to or for any other person, firm, corporation, association or entity for any reason or purpose whatsoever, except if required by law or at the Company’s direction;

(c) performing any act or engaging in any course of conduct which has or may reasonably have the effect of demeaning the name or business reputation of the Company; or

(d) providing goods or services to or becoming an employee, owner, officer, agent, consultant, advisor or director of any firm or person in any geographic area which competes with the Company in any phase of any of the business lines or services offered by the Company as of the Participant’s Retirement Date.

9.13                      Compliance with Code Section 409A.The Plan is intended to meet the requirements of Section 409A of the Code in order to avoid any adverse tax consequences resulting from any failure to comply with Section 409A of the Code and, as a result, the Plan shall be operated in a manner consistent with such compliance.  Except to the extent expressly set forth in the Plan, the Participant (and/or the Participant’s Beneficiary, as applicable) shall have no right to dictate the taxable year in which any payment hereunder that is subject to Section 409A of the Code should be paid.

9.14                      No Guarantee of Tax Consequences.None of the Board of Directors, officers or employees of the Company, the Company or any Affiliate makes any commitment or guarantee that any federal, state or local tax treatment will apply or be available to any individual or person participating hereunder or eligible to participate hereunder.

9.15                      Entire Agreement.  This Plan document constitutes the entire Plan governing the Company and the Participant with respect to the subject matters hereof and supercedes all prior written and oral and all contemporaneous written and oral agreements and understandings, with respect to the subject matters herein.  This Plan may not be changed orally, but only by an amendment in writing signed by the Company, subject to the provisions in this Plan regarding amendments thereto.

IN WITNESS WHEREOF, McDermott International, Inc. has caused this Plan to be executed by its duly authorized officer, effective as provided herein.

          McDermott International, Inc.

By:                       _____________________________

Title:                     _____________________________

Date:                     _____________________________