10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2011

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 Incorporation or Organization)	(I.R.S. Employer Identification No.)
757 N. ELDRIDGE PKWY HOUSTON, TEXAS	77079
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s Telephone Number, Including Area Code: (281) 870-5000

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

Indicate by check mark 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  x    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	x	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  x

The number of shares of the registrant’s common stock outstanding at April 29, 2011 was 234,549,485.

McDERMOTT INTERNATIONAL, INC.

INDEX - FORM 10-Q

	PAGE
PART I - FINANCIAL INFORMATION
Item 1 – Condensed Consolidated Financial Statements—(Unaudited)		3
Condensed Consolidated Statements of Income Three Months Ended March 31, 2011 and 2010		3
Condensed Consolidated Balance Sheets March 31, 2011 and December 31, 2010		4
Condensed Consolidated Statements of Cash Flows Three Months Ended March 31, 2011 and 2010		5
Condensed Consolidated Statements of Equity Three Months Ended March 31, 2011 and 2010		6
Notes to Condensed Consolidated Financial Statements—(Unaudited)		7
Item  2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations		19
Item 3 – Quantitative and Qualitative Disclosures About Market Risk		26
Item 4 – Controls and Procedures		26
PART II - OTHER INFORMATION
Item 1 – Legal Proceedings		26
Item 1A – Risk Factors		27
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds		27
Item 5 – Other Information		27
Item 6 – Exhibits		28
SIGNATURES		29

PART I – FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

McDERMOTT INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

	Three Months Ended March 31,
	2011			2010
	(Unaudited) (In thousands, except share and per share amounts)
Revenues	$	899,240		$	504,882
Costs and Expenses:
Cost of operations		747,225			379,206
Gain on asset disposals and impairments – net		(225	)		(2,080	)
Selling, general and administrative expenses		55,369			51,138
Total costs and expenses		802,369			428,264
Equity in Income (Loss) of Unconsolidated Affiliates		3,427			(3,431	)
Operating Income		100,298			73,187
Other Income (Expense):
Interest income		449			490
Interest expense		—			(162	)
Other expense – net		(5,403	)		(1,450	)
Total other expense – net		(4,954	)		(1,122	)
Income from continuing operations before provision for income taxes and noncontrolling interest		95,344			72,065
Provision for Income Taxes		22,579			12,239
Income from continuing operations before noncontrolling interest		72,765			59,826
Loss on disposal of discontinued operations		—			(24,202	)
Income from discontinued operations, net of tax		1,662			32,581
Total income from discontinued operations, net of tax		1,662			8,379
Net Income		74,427			68,205
Less net income attributable to noncontrolling interest		(4,007	)		(8,264	)
Net Income Attributable to McDermott International, Inc.	$	70,420		$	59,941
Earnings per Common Share:
Basic:
Income from continuing operations, less noncontrolling interest	$	0.29		$	0.22
Income from discontinued operations, net of tax	$	0.01		$	0.04
Net Income attributable to McDermott International, Inc.	$	0.30		$	0.26
Diluted:
Income from continuing operations, less noncontrolling interest	$	0.29		$	0.22
Income from discontinued operations, net of tax	$	0.01		$	0.04
Net Income attributable to McDermott International, Inc.	$	0.30		$	0.26
Shares used in the computation of earnings per common share (Note 8):
Basic		233,841,075			230,824,301
Diluted		236,745,578			234,753,035

See accompanying notes to condensed consolidated financial statements.

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McDERMOTT INTERNATIONAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

	March 31, 2011			December 31, 2010
	(Unaudited)
	(In thousands)
Assets
Current Assets:
Cash and cash equivalents	$	209,207		$	403,463
Restricted cash and cash equivalents (Note 1)		206,354			197,861
Investments		257,584			209,463
Accounts receivable—trade, net (Note 1)		297,269			323,497
Accounts receivable—other		37,607			28,447
Contracts in progress		122,198			65,853
Deferred income taxes		12,426			10,323
Assets held for sale (Note 2)		14,220			10,161
Other current assets		47,972			36,570
Total Current Assets		1,204,837			1,285,638
Property, Plant and Equipment		1,789,093			1,720,040
Less accumulated depreciation		824,107			804,471
Net Property, Plant and Equipment		964,986			915,569
Assets Held for Sale (Note 2)		78,148			77,150
Investments		68,211			75,742
Goodwill		41,202			41,202
Investments in Unconsolidated Affiliates		48,459			45,016
Other Assets		164,508			158,371
Total Assets	$	2,570,351		$	2,598,688
Liabilities and Equity
Current Liabilities:
Notes payable and current maturities of long-term debt	$	8,001		$	8,547
Accounts payable		281,331			252,974
Accrued liabilities		280,956			286,831
Advance billings on contracts		62,336			250,053
Deferred income taxes		14,971			12,849
Income taxes payable		50,370			32,851
Liabilities associated with assets held for sale (Note 2)		23,028			20,902
Total Current Liabilities		720,993			865,007
Long-Term Debt		57,091			46,748
Self-Insurance		36,179			35,655
Pension Liability		54,598			52,831
Other Liabilities		97,862			86,180
Commitments and Contingencies (Note 9)
Stockholders’ Equity:
Common stock, par value $1.00 per share, authorized 400,000,000 shares; issued 241,912,337 and 240,791,473 shares at March 31, 2011 and December 31, 2010, respectively		241,912			240,791
Capital in excess of par value		1,363,335			1,357,316
Retained earnings		170,793			100,373
Treasury stock, at cost, 7,159,192 and 6,906,262 shares at March 31, 2011 and December 31, 2010, respectively		(92,218	)		(85,735	)
Accumulated other comprehensive loss		(148,559	)		(163,717	)
Stockholders’ Equity—McDermott International, Inc.		1,535,263			1,449,028
Noncontrolling interest		68,365			63,239
Total Equity		1,603,628			1,512,267
Total Liabilities and Equity	$	2,570,351		$	2,598,688

See accompanying notes to condensed consolidated financial statements.

4

McDERMOTT INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	Three Months Ended March 31,
	2011			2010
	(Unaudited)
	(In thousands)
Cash Flows From Operating Activities:
Net income	$	74,427		$	68,205
Income from discontinued operations, net of tax		(1,662	)		(8,379	)
Income from continuing operations		72,765			59,826
Non-cash items included in net income:
Depreciation and amortization		20,525			18,787
Equity in (income) loss of unconsolidated affiliates		(3,427	)		3,431
Gains on asset disposals and impairments—net		(225	)		(2,080	)
Benefit from deferred taxes		(6,929	)		(2,497	)
Pension costs		6,153			6,473
Other non-cash items		4,368			13,084
Changes in assets and liabilities, net of effects from acquisitions:
Accounts receivable		17,045			62,206
Net contracts in progress and advance billings on contracts		(244,062	)		(25,758	)
Accounts payable		23,947			(104,169	)
Accrued and other current liabilities		39,311			3,863
Pension liability and accrued postretirement and employee benefits		(41,546	)		(55,295	)
Other		20,038			(16,590	)
Net Cash Used In Operating Activities—Continuing Operations		(92,037	)		(38,719	)
Cash Flows From Investing Activities:
Increase in restricted cash and cash equivalents		(8,493	)		(23,498	)
Purchases of property, plant and equipment		(63,986	)		(48,412	)
Net (increase) decrease in available-for-sale securities		(39,808	)		48,408
Other investing activities, net		218			2,459
Net Cash Used In Investing Activities—Continuing Operations		(112,069	)		(21,043	)
Cash Flows From Financing Activities:
Payment of debt		(2,158	)		(2,176	)
Increase in debt		11,837			—
Other financing activities, net		57			1,246
Net Cash Provided By (Used In) Financing Activities—Continuing Operations		9,736			(930	)
Effects of exchange rate changes on cash and cash equivalents		114			435
Net decrease in cash and cash equivalents		(194,256	)		(60,257	)
Cash and cash equivalents at beginning of period		403,463			428,298
Cash and cash equivalents at end of period—Continuing Operations	$	209,207		$	368,041
Supplemental Disclosures of Cash Flow Information:
Cash paid (received) during the period for:
Interest (net of amount capitalized)	$	—		$	(115	)
Income taxes (net of refunds)	$	3,574		$	9,044
Cash Flows From Discontinued Operations:
Net Cash Provided By (Used In) Operating Activities	$	4,484		$	(39,876	)
Net Cash Used In Investing Activities		—			(26,083	)
Net Cash Provided By Financing Activities		—			1,098
Effects of exchange rate changes on cash		(115	)		1,828
Net increase (decrease) in cash and cash equivalents		4,369			(63,033	)
Cash and cash equivalents at beginning of period		1,426			470,972
Cash and cash equivalents at end of period—Discontinued Operations	$	5,795		$	407,939

See accompanying notes to condensed consolidated financial statements.

5

McDERMOTT INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

	Common Stock				Capital In Excess  of Par Value			Retained Earnings		Treasury Stock			Accumulated Other Comprehensive Loss			Stockholders’ Equity			Non- Controlling Interest		Total Equity
	Shares		Par Value
	(In thousands, except share amounts) (Unaudited)
Balance December 31, 2009		236,919,404	$	236,919	$	1,300,998		$	951,647	$	(69,370	)	$	(612,997	)	$	1,807,197		$	25,903	$	1,833,100
Comprehensive Income
Net income		—		—		—			59,941		—						59,941			8,264		68,205
Amortization of benefit plan costs (net of tax-$8,122)		—		—		—			—		—			14,738			14,738			—		14,738
Unrealized gain on investments		—		—		—			—		—			915			915			—		915
Realized loss on investments		—		—		—			—		—			138			138			—		138
Translation adjustments and other		—		—		—			—		—			3,496			3,496			16		3,512
Unrealized loss on derivatives		—		—		—			—		—			(4,006	)		(4,006	)		—		(4,006	)
Realized loss on derivatives		—		—		—			—		—			871			871			—		871
Total comprehensive income, net of tax		—		—		—			59,941		—			16,152			76,093			8,280		84,373
Exercise of stock options		242,081		242		(426	)		—		—			—			(184	)		—		(184	)
Excess tax benefits on stock options		—		—		2,556			—		—			—			2,556			—		2,556
Contributions to thrift plan		150,912		151		3,505			—		—			—			3,656			—		3,656
Share vesting		488,206		489		(489	)		—		—			—			—			—		—
Purchase of treasury shares		—		—		—			—		(4,355	)		—			(4,355	)		—		(4,355	)
Stock-based compensation charges		—		—		17,568			—		—			—			17,568			—		17,568
Acquisition of noncontrolling interests		—		—		—			—		—			—			—			1,475		1,475
Balance March 31, 2010		237,800,603	$	237,801	$	1,323,712		$	1,011,588	$	(73,725	)	$	(596,845	)	$	1,902,531		$	35,658	$	1,938,189
Balance December 31, 2010		240,791,473	$	240,791	$	1,357,316		$	100,373	$	(85,735	)	$	(163,717	)	$	1,449,028		$	63,239	$	1,512,267
Comprehensive income
Net income		—		—		—			70,420		—			—			70,420			4,007		74,427
Amortization of benefit plan costs (net of tax-$0)		—		—		—			—		—			4,963			4,963			—		4,963
Unrealized gain on investments		—		—		—			—		—			699			699			—		699
Realized loss on investments		—		—		—			—		—			8			8			—		8
Translation adjustments		—		—		—			—		—			2,763			2,763			—		2,763
Unrealized gain on derivatives		—		—		—			—		—			6,948			6,948			1,119		8,067
Realized gain on derivatives		—		—		—			—		—			(223	)		(223	)		—		(223	)
Total comprehensive income, net of tax		—		—		—			70,420		—			15,158			85,578			5,126		90,704
Exercise of stock options		269,556		270		1,255			—		—			—			1,525			—		1,525
Share vesting		851,308		851		(851	)		—		—			—			—			—		—
Purchase of treasury shares		—		—		—			—		(6,483	)		—			(6,483	)		—		(6,483	)
Stock-based compensation charges		—		—		5,615			—		—			—			5,615			—		5,615
Balance March 31, 2011		241,912,337	$	241,912	$	1,363,335		$	170,793	$	(92,218	)	$	(148,559	)	$	1,535,263		$	68,365	$	1,603,628

See accompanying notes to condensed consolidated financial statements.

6

McDERMOTT INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2011

(UNAUDITED)

NOTE 1 – BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

McDermott International, Inc. (“MII”), incorporated under the laws of the Republic of Panama, is a leading engineering, procurement, construction and installation (“EPCI”) company focused on designing and executing complex offshore oil and gas projects worldwide. Providing fully integrated EPCI services for oil and gas field developments, we deliver fixed and floating production facilities, pipeline and subsea systems from concept to commissioning. We support these activities with comprehensive project management and procurement services. Our customers include national and major energy companies, and we operate in most major offshore oil and gas producing regions throughout the world. In these notes to our condensed consolidated financial statements, unless the context otherwise indicates, “we,” “us” and “our” mean MII and its consolidated subsidiaries.

Basis of Presentation

We have presented our unaudited condensed consolidated financial statements in U.S. Dollars, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) applicable to interim reporting. 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 accompanying notes in our annual report on Form 10-K for the year ended December 31, 2010.

We have included all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation. These unaudited condensed consolidated financial statements include the accounts of McDermott International, Inc. and its consolidated subsidiaries and controlled entities. 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,” or “unconsolidated affiliates.” We have eliminated intercompany transactions and accounts.

On July 30, 2010, we completed the spin-off of our previously reported Government Operations and Power Generation Systems segments into an independent publicly traded company named The Babcock & Wilcox Company (“B&W”). Additionally, during the quarter ended September 30, 2010, we committed to a plan to sell our charter fleet business which operates 10 of the 14 vessels acquired in our 2007 acquisition of substantially all of the assets of Secunda International Limited. The condensed consolidated balance sheets reflect the charter fleet business as held for sale. The condensed consolidated statements of income and the condensed consolidated statements of cash flows reflect the historical operations of B&W and the charter fleet business as discontinued operations. The March 31, 2010 condensed consolidated statement of equity contains amounts attributable to the spun-off B&W operations. We have presented the notes to our condensed consolidated financial statements on the basis of continuing operations.

Business Segments

Following the spin-off of B&W, we modified our previous reporting segments to reflect our geographic operating segments. As a result, we have the following reporting segments:

• Asia Pacific

• Atlantic

• Middle East

• Corporate

Revenue Recognition

We determine the appropriate accounting method for each of our long-term contracts before work on the project begins. We generally recognize contract revenues and related costs on a percentage-of-completion method for individual contracts or combinations of contracts based on work performed, man hours, or a cost-to-cost method, as applicable to the activity involved. We include revenues and related costs recorded, plus accumulated contract costs that exceed amounts invoiced to customers under the terms of the contracts, in contracts in progress. We include in advance billings on contracts, billings that exceed accumulated contract costs and revenues and costs recognized under the percentage-of-completion method. Most long-term contracts contain provisions for progress payments. We expect to invoice customers for all unbilled revenues. Certain costs are excluded from the cost-to-cost method of measuring progress, such as significant costs for materials and major third-party subcontractors, if it appears that such exclusion would result in a more meaningful measurement of actual contract progress and resulting periodic allocation of income. Total estimated costs, and resulting contract income, are affected by changes in the expected cost

7

of materials and labor, productivity, scheduling and other factors. Additionally, external factors such as weather, customer requirements and other factors outside of our control may affect the progress and estimated cost of a project’s completion and, therefore, the timing and amount of revenue and income recognition. In addition, change orders, which are a normal and recurring part of our business, can increase (and sometimes substantially) the future scope and cost of a job. Therefore, change order awards (although frequently beneficial in the long term) can have the short-term effect of reducing the job percentage of completion and thus the revenues and profits recognized to date. We regularly review contract price and cost estimates as the work progresses and reflect adjustments proportionate to the percentage-of-completion revenue in income in the period when those estimates are revised.

For contracts as to which we are unable to estimate the final profitability except to assure that no loss will ultimately be incurred, we recognize equal amounts of revenue and cost until the final results can be estimated more precisely. For these contracts, we only recognize gross margin when reasonably estimable, which we generally determine to be when the contract is approximately 70% complete. We treat long-term construction contracts that contain such a level of risk and uncertainty that estimation of the final outcome is impractical except to assure that no loss will be incurred, as deferred profit recognition contracts. We currently have one active contract being accounted for under our deferred profit recognition policy.

Our policy is to account for fixed-price contracts under the completed contract method if we believe that we are unable to reasonably forecast cost to complete at start-up. Under the completed contract method, revenue and gross profit is recognized only when a contract is completed or substantially complete. We did not enter into any significant contracts that we have accounted for under the completed contract method during the quarters ended March 31, 2011 and March 31, 2010.

Variations from estimated contract performance could result in material adjustments to operating results for any fiscal quarter or year. We include claims for extra work or changes in scope of work to the extent of costs incurred in contract revenues when we believe collection is probable. For all contracts, if a current estimate of total contract costs indicates a loss, the projected loss is recognized in full when determined.

Use of Estimates

We use estimates and assumptions to prepare our financial statements in conformity with GAAP. These estimates and assumptions affect the amounts we report in our financial statements and accompanying notes. Our actual results could differ from these estimates, and variances could materially affect our financial condition and results of operations.

Impairment Review

We do not amortize goodwill but instead review goodwill for impairment on an annual basis or more frequently if circumstances indicate that an impairment may exist. The annual impairment review, which is performed as of December 31, involves comparing an estimate of discounted future cash flows to the net book value of each applicable operating segment and, therefore, is significantly impacted by estimates and judgments.

We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If an evaluation is required, the estimated undiscounted future cash flows associated with an asset are compared to the carrying value of the asset to determine if impairment exists, in which case an impairment is recognized for the difference between the recorded and fair value of the asset.

Loss Contingencies

We estimate liabilities for loss contingencies when it is probable that a liability has been incurred and the amount of loss is reasonably estimable. We provide disclosure when there is a reasonable possibility that the ultimate loss will exceed the recorded provision or if such loss is not reasonably estimable. We are currently involved in some significant litigation, as discussed in Note 9. We have accrued our estimates of the probable losses associated with these matters. However, our losses are typically resolved over long periods of time and are often difficult to estimate due to various factors, including the possibility of multiple actions by third parties. Therefore, it is possible future earnings could be affected by changes in our estimates related to these matters.

Cash and Cash Equivalents

Our cash and cash equivalents are highly liquid investments with maturities of three months or less when we purchase them.

We record current cash and cash equivalents as restricted when we are unable to freely use such cash and cash equivalents for our general operating purposes. At March 31, 2011, we had restricted cash and cash equivalents of $206.4 million in the aggregate, of which $206.1 million was held in restricted foreign accounts and $0.3 million was held to meet reinsurance reserve requirements of our captive insurance subsidiary. It is possible that a portion of restricted cash at March 31, 2011 will not be released within the next 12 months.

8

Investments

At March 31, 2011, we had investments with a fair value of $325.8 million. Our investment portfolio consists primarily of investments in government and agency obligations and commercial paper. 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 accumulated other comprehensive loss. Our net unrealized loss on investments was $3.6 million and $4.3 million at March 31, 2011 and December 31, 2010, respectively. 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 other than temporarily impaired at March 31, 2011.

Accounts Receivable – Trade, Net

A summary of contract receivables is as follows:

	March 31, 2011			December 31, 2010
	(Unaudited)
	(In thousands)
Contract receivables:
Contracts in progress	$	207,412		$	191,216
Completed contracts		83,022			85,587
Retainages		40,025			63,558
Unbilled		10,388			12,697
Less allowances		(43,578	)		(29,561	)
Accounts receivable – trade, net	$	297,269		$	323,497

We expect to invoice our unbilled receivables after contractually specified milestones or other metrics are reached, and we expect to collect all unbilled amounts. We believe that our provision for losses on uncollectible accounts receivable is adequate for our credit loss exposure.

The following amounts represent retainages on contracts:

	March 31, 2011		December 31, 2010
	(Unaudited)
	(In thousands)
Retainages expected to be collected within one year	$	40,025	$	63,558
Retainages expected to be collected after one year		83,633		83,143
Total retainages	$	123,658	$	146,701

We have included in accounts receivable—trade, net, retainages expected to be collected within one year. Retainages expected to be collected after one year are included in other assets.

Comprehensive Loss

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

	March 31, 2011			December 31, 2010
	(Unaudited)
	(In thousands)
Foreign currency translation adjustments	$	(4,125	)	$	(6,888	)
Net loss on investments		(3,623	)		(4,330	)
Net gain (loss) on derivative financial instruments		5,870			(855	)
Unrecognized losses on benefit obligations		(146,681	)		(151,644	)
Accumulated other comprehensive loss	$	(148,559	)	$	(163,717	)

Recently Adopted Accounting Standard

In January 2010, the FASB issued a revision to the topic Fair Value Measurements and Disclosures. This revision sets forth new rules on providing enhanced information for Level 3 measurements. We adopted the disclosure provisions required by this revision on January 1, 2011, for both interim and annual disclosures, which did not have a material impact on our consolidated financial statements.

We do not expect other recently issued standards and updates to have a material impact on our consolidated financial statements.

NOTE 2 – DISCONTINUED OPERATIONS

Spin-off of B&W

On July 30, 2010, we completed the spin-off of B&W to our stockholders through a stock distribution. B&W’s assets and businesses primarily consisted of those that we previously reported as our Government Operations and Power Generation Systems segments. In connection with the spin-off, our stockholders received 100% (approximately 116 million shares) of the outstanding

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common stock of B&W. The distribution of B&W common stock occurred by way of a pro rata stock dividend to our stockholders. Each stockholder generally received one share of B&W common stock for every two shares of our common stock held by such stockholder on July 9, 2010, and cash in lieu of any fractional shares. Prior to the completion of the spin-off, B&W made a cash distribution to us totaling $100 million.

In order to effect the distribution and govern MII’s relationship with B&W after the distribution, MII and B&W entered into a master separation agreement and several other agreements, including a tax sharing agreement and transition services agreements.

Master Separation Agreement

The master separation agreement between us and B&W contains the key provisions relating to the separation of the B&W business from MII and the distribution of B&W shares of common stock. The master separation agreement identified the assets transferred to, liabilities assumed by and contracts assigned to B&W by MII or by B&W to MII in the spin-off and provided the mechanisms for these transfers, assumptions and assignments to occur. Under the master separation agreement we agreed to indemnify B&W against various claims and liabilities related to the past operation of MII’s business (other than B&W’s business) and B&W agreed to indemnify us against various claims and liabilities related to its business.

Tax Sharing Agreement

A subsidiary of MII and a subsidiary of B&W entered into an agreement providing for the sharing of taxes incurred before and after the distribution, various indemnification rights with respect to tax matters and restrictions to preserve the tax-free status of the distribution to MII. Under the terms of the tax sharing agreement, B&W is generally responsible for any taxes imposed on MII or B&W in the event that certain transactions related to the spin-off fail to qualify for tax-free treatment. However, if these transactions fail to qualify for tax-free treatment because of actions or failures to act by MII or its subsidiaries, a subsidiary of MII would be responsible for all such taxes. B&W is also entitled to the historical tax benefits generated by MII’s U.S. operations, and these amounts are shown in income from discontinued operations, net of tax in our unaudited condensed consolidated statements of income for the first quarter of 2010.

Transition Services Agreements

Under the transition services agreements, MII and B&W are providing each other certain transition services on an interim basis. Such services currently being provided include human resources, information technology, legal, and tax services. In consideration for such services, MII and B&W each pay fees to the other for the services provided, and those fees are generally in amounts intended to allow the party providing the services to recover its direct and indirect costs incurred in providing those services. The transition services agreements contain customary mutual indemnification provisions.

Financial Information

The following table presents selected financial information regarding the results of operations of our former B&W business for the first quarter of 2010:

	Three Months Ended March  31, 2010
	(Unaudited) (In thousands)
Revenues	$	662,388
Loss on disposal of discontinued operations, before taxes		(24,202	)
Income before provision for income taxes		36,871
		12,669
Provision for income taxes		6,329
Income from discontinued operations, net of tax	$	6,340

Loss on disposal of discontinued operations for the three months ended March 31, 2010 included $24.2 million of costs incurred in connection with the B&W spin-off.

Charter Fleet Business

During the quarter ended September 30, 2010, we committed to a plan to sell our charter fleet business, which has been classified as discontinued operations. In conjunction with classifying the charter fleet business as a discontinued operation during the quarter ended September 30, 2010, we recognized a $27.7 million write-down of the carrying value of these assets to their estimated net realizable value, based on the estimated fair value of consideration expected from the sale and estimated selling costs.

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The following table presents selected financial information regarding the results of operations attributable to our charter fleet business:

	Three Months Ended March 31,
	(Unaudited) (In thousands)
	2011		2010
Revenues	$	9,504	$	14,661
Income before provision for income taxes		2,411		3,143
Provision for income taxes		749		1,104
Income from discontinued operations, net of tax	$	1,662	$	2,039

The following table presents the carrying values of the major classes of assets held for sale that are included in our unaudited condensed consolidated balance sheets:

	March 31, 2011		December 31, 2010
	(Unaudited)
	(In thousands)
Cash	$	5,795	$	1,426
Accounts receivable – net		5,160		5,253
Other assets		3,265		3,482
Total current assets held for sale	$	14,220	$	10,161
Property, plant and equipment	$	69,263	$	68,595
Other assets		8,885		8,555
Total long-term assets held for sale	$	78,148	$	77,150
Total	$	92,368	$	87,311
Accounts payable and accrued liabilities	$	9,215	$	8,748
Other liabilities		13,813		12,154
Total liabilities associated with assets held for sale	$	23,028	$	20,902

NOTE 3 – PENSION PLANS

We historically provided retirement benefits for certain U.S.-based employees through the McDermott (U.S.) Retirement Plan (the “McDermott Plan”) and other supplemental defined pension benefits. The McDermott Plan and the supplemental defined pension benefits are collectively referred to as the “Domestic Plan.” The J. Ray McDermott, S.A. Third Country National Employees Pension Plan (the “TCN Plan”) provides retirement benefits for certain of our foreign employees.

Net periodic benefit cost for the Domestic Plan and the TCN Plan includes the following components:

	Domestic Plan						TCN Plan
	Three Months Ended March 31,
	2011			2010			2011			2010
	(Unaudited)
	(In thousands)
Service cost	$	—		$	168		$	685		$	576
Interest cost		7,075			9,501			595			546
Expected return on plan assets		(6,525	)		(9,560	)		(613	)		(457	)
Amortization of prior service cost		—			(84	)		4			4
Recognized net actuarial loss		4,248			5,237			684			542
Net periodic benefit cost	$	4,798		$	5,262		$	1,355		$	1,211

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NOTE 4 – DERIVATIVE FINANCIAL INSTRUMENTS

Our worldwide operations give rise to exposure to changes in certain market conditions, which may adversely impact our financial performance. When we deem it appropriate, we use derivatives as a risk management tool to mitigate the potential impacts of certain market risks. The primary market risk we manage through the use of derivative instruments is movement in foreign currency exchange rates. We use foreign currency forward-exchange contracts to reduce the impact of changes in foreign currency exchange rates on our operating results. We use these instruments 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.

In certain cases, contracts with our customers may contain provisions under which payments from our customers are denominated in U.S. Dollars and in a foreign currency. The payments denominated in a foreign currency are designed to compensate us for costs that we expect to incur in such foreign currency. In these cases, we may use derivative instruments to reduce the risks associated with foreign currency exchange rate fluctuations arising from differences in timing of our foreign currency cash inflows and outflows.

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 (1) deferred in stockholders’ equity as a component of accumulated other comprehensive loss until the hedged item is recognized in earnings or (2) offset against the change in fair value of the hedged firm commitment through earnings. At the inception and on an ongoing basis, we assess the hedging relationship to determine its effectiveness in offsetting changes in cash flows attributable to the hedged risk. 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. 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. Gains and losses on derivative financial instruments that are immediately recognized in earnings are included as a component of other expense—net in our condensed consolidated statements of income. At March 31, 2011, we had designated the majority of our foreign currency forward-exchange contracts as cash flow hedging instruments.

At March 31, 2011, we had deferred approximately $5.9 million of net gains on these derivative financial instruments in accumulated other comprehensive loss, and we expect to reclassify the net gains on the derivative financial instruments in the periods that we reclassify the net losses on the forecasted transactions. We expect to reclassify approximately $1.0 million of the net deferred gains out of accumulated other comprehensive loss over the next 12 months.

At March 31, 2011, all of our derivative financial instruments consisted of foreign currency forward-exchange contracts. The notional value of our forward contracts totaled $375.7 million at March 31, 2011, with maturities extending to December 2013. These instruments consist of contracts to purchase or sell foreign-denominated currencies. The fair value of these contracts was in a net asset position totaling $3.0 million at March 31, 2011. The fair value of outstanding derivative instruments is determined using observable financial market inputs, such as quoted market prices, and is classified as Level 2 in nature.

The following tables summarize our derivative financial instruments:

Asset and Liability Derivatives

	March 31, 2011		December 31, 2010
	(Unaudited)
	(In thousands)
Derivatives Designated as Hedges:
Foreign Exchange Contracts:
Location
Accounts receivable–other	$	12,425	$	6,066
Other assets		4,293		3,225
Total asset derivatives	$	16,718	$	9,291
Accounts payable	$	4,787	$	2,207
Other liabilities		8,953		5,733
Total liability derivatives	$	13,740	$	7,940

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The Effects of Derivative Instruments on our Financial Statements

	Three Months Ended March 31,
	2011			2010
	(Unaudited)
	(In thousands)
Derivatives Designated as Hedges:
Cash Flow Hedges:
Foreign Exchange Contracts:
Amount of gain (loss) recognized in other comprehensive income	$	6,948		$	(4,953	)
Income (loss) reclassified from accumulated other comprehensive loss into income: effective portion
Location
Cost of operations	$	(135	)	$	262
Loss recognized in income: ineffective portion and amount excluded from effectiveness testing
Location
Other expense – net	$	(1,970	)	$	(2,349	)

NOTE 5 – FAIR VALUE MEASUREMENTS

The following tables summarize our available-for-sale securities measured at fair value:

	3/31/11		Level 1		Level 2		Level 3
	(Unaudited) (In thousands)
Mutual funds(1)	$	2,067	$	—	$	2,067	$	—
Commercial paper		158,738		—		158,738		—
U.S. Government and agency securities(2)		154,914		138,917		15,997		—
Asset-backed securities and collateralized mortgage obligations(3)		10,076		—		2,573		7,503
Total	$	325,795	$	138,917	$	179,375	$	7,503
	12/31/10		Level 1		Level 2		Level 3
	(In thousands)
Mutual funds	$	2,007	$	—	$	2,007	$	—
U.S. Government and agency securities		269,161		269,161		—		—
Asset-backed securities and collateralized mortgage obligations		9,869		—		2,497		7,372
Corporate notes and bonds		4,168		—		4,168		—
Total	$	285,205	$	269,161	$	8,672	$	7,372

(1) Various U.S. equities and other investments managed under mutual funds.

(2) Investments in U.S. Treasury securities with maturities of two years or less.

(3) Asset-backed and mortgage-backed securities with maturities of up to 26 years.

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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 periods ended March 31, 2011 and 2010:

	Three Months Ended March 31,
	2011			2010
	(Unaudited) (In thousands)
Balance at beginning of period	$	7,372		$	7,494
Total realized and unrealized gains		504			1,277
Purchases, issuances and settlements		—			(111	)
Principal repayments		(373	)		(1,005	)
Balance at end of period	$	7,503		$	7,655

Our Level 3 investment consists of asset-backed commercial paper notes backed by a pool of mortgage-backed securities. The fair value of this Level 3 investment was based on the calculation of an overall weighted-average valuation, using the prices of the underlying individual securities. Individual securities in the pool were valued based on market observed prices, where available. If market prices were not available, prices of similar securities backed by similar assets were used.

Other Financial Instruments

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

	March 31, 2011				December 31, 2010
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	(Unaudited)
	(In thousands)
Balance Sheet Instruments
Cash and cash equivalents	$	209,207	$	209,207	$	403,463	$	403,463
Restricted cash and cash equivalents	$	206,354	$	206,354	$	197,861	$	197,861
Debt	$	65,092	$	65,541	$	55,295	$	56,180
Forward contracts	$	2,978	$	2,978	$	1,352	$	1,352

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

Cash and cash equivalents and restricted cash and cash equivalents. The carrying amounts that we have reported in the accompanying unaudited condensed 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.

Forward contracts. The fair value of forward contracts is determined using observable financial market inputs, such as quoted market prices.

NOTE 6 – STOCK-BASED COMPENSATION

In connection with the spin-off of B&W, we made certain adjustments to our stock-based compensation awards. For holders of performance shares issued in or prior to May 2009, we cancelled the performance shares and issued restricted stock in an amount equal to the fair value of the shares held immediately prior to the spin-off. For holders of restricted stock granted in or prior to May 2010, the holder received additional units of restricted stock to maintain the total fair value of restricted stock held immediately prior to the spin-off. For stock options granted in or prior to May 2010, we adjusted the number of options held by each holder so that the intrinsic value of the stock options held immediately following the spin-off equaled the intrinsic value of the stock options held immediately prior to the spin-off.

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Total stock-based compensation expense recognized for the three months ended March 31, 2011 and 2010 is as follows:

	Compensation Expense		Unrealized Tax  Benefit			Net Impact
	(Unaudited)
	(In thousands)
Three Months Ended March 31, 2011
Stock Options	$	808	$	—		$	808
Restricted Stock		673		—			673
Performance Shares		122		—			122
Restricted Stock Units		4,012		—			4,012
Total	$	5,615	$	—		$	5,615
Three Months Ended March 31, 2010
Stock Options	$	435	$	(129	)	$	306
Restricted Stock		368		(124	)		244
Performance Shares		2,288		(711	)		1,577
Restricted Stock Units		806		(232	)		574
Performance and Deferred Stock Units		603		(194	)		409
Total	$	4,500	$	(1,390	)	$	3,110

NOTE 7 – SEGMENT REPORTING

We account for intersegment sales at prices that we generally establish by reference to similar transactions with unaffiliated customers. Reporting segments are measured based on operating income, which is defined as revenues reduced by total costs and expenses and equity in income (loss) of unconsolidated affiliates. Summarized financial information is shown in the following table:

	Three Months Ended March 31,
	2011			2010
	(Unaudited) (In thousands)
Revenues:
Asia Pacific	$	474,813		$	220,866
Atlantic		39,894			54,266
Middle East		384,533			229,750
Total revenues	$	899,240		$	504,882
Segment revenues include the following intersegment transfers and eliminations:
Atlantic	$	80		$	3,808
Eliminations		(80	)		(3,808	)
Total adjustments and eliminations	$	—		$	—
Operating income:
Asia Pacific	$	38,879		$	44,621
Atlantic		(17,637	)		(3,347	)
Middle East		79,056			31,913
Total operating income	$	100,298		$	73,187
Capital expenditures:
Asia Pacific	$	26,986		$	12,508
Atlantic		28,752			10,343
Middle East		7,711			23,552
Corporate		537			2,009
Total capital expenditures	$	63,986		$	48,412
Depreciation and amortization:
Asia Pacific	$	5,736		$	5,385
Atlantic		3,793			5,089
Middle East		7,363			4,901
Corporate		3,633			3,412
Total depreciation and amortization	$	20,525		$	18,787

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	March 31, 2011		December 31, 2010
	(Unaudited)
	(In thousands)
Segment assets:
Asia Pacific	$	727,937	$	564,403
Atlantic		288,827		265,607
Middle East		1,142,548		1,302,398
Corporate		318,671		378,969
Total continuing operations	$	2,477,983	$	2,511,377
Total discontinued operations	$	92,368	$	87,311
Total assets	$	2,570,351	$	2,598,688

NOTE 8 – EARNINGS PER SHARE

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

	Three Months Ended March 31,
	2011		2010
	(Unaudited) (In thousands, except shares and per share amounts)
Basic:
Income from continuing operations less noncontrolling interest	$	68,758	$	51,562
Income from discontinued operations, net of tax		1,662		8,379
Net income attributable to McDermott International, Inc.	$	70,420	$	59,941
Weighted average common shares		233,841,075		230,824,301
Basic earnings per common share:
Income from continuing operations less noncontrolling interest	$	0.29	$	0.22
Income from discontinued operations, net of tax	$	0.01	$	0.04
Net income attributable to McDermott International, Inc.	$	0.30	$	0.26
Diluted:
Income from continuing operations less noncontrolling interest	$	68,758	$	51,562
Income from discontinued operations, net of tax		1,662		8,379
Net income attributable to McDermott International, Inc.	$	70,420	$	59,941
Weighted average common shares (basic)		233,841,075		230,824,301
Effect of dilutive securities:
Stock options, restricted stock and performance shares(1)		2,904,503		3,928,734
Adjusted weighted average common shares		236,745,578		234,753,035
Diluted earnings per common share:
Income from continuing operations less noncontrolling interest	$	0.29	$	0.22
Income from discontinued operations, net of tax	$	0.01	$	0.04
Net income attributable to McDermott International, Inc.	$	0.30	$	0.26

⁽¹⁾  As of March 31, 2011, approximately 413,304 shares underlying outstanding stock-based awards were excluded from the computation of diluted earnings per share because they were antidilutive.

NOTE 9 – COMMITMENTS AND CONTINGENCIES

Investigations and Litigation

The following discussion updates Note 14 – Commitments and Contingencies in our Annual Report on Form 10-K for the year ended December 31, 2010.

On November 17, 2008, December 5, 2008 and January 20, 2009, three separate alleged purchasers of our common stock during the period from February 27, 2008 through November 5, 2008 filed purported class action complaints against MII, Bruce Wilkinson (MII’s former Chief Executive Officer and Chairman of the Board), and Michael S. Taff (MII’s former Chief Financial Officer) in the United States District Court for the Southern District of New York. Each of the complaints alleges that the defendants violated federal

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securities laws by disseminating materially false and misleading information and/or concealing material adverse information relating to the operational and financial status of three ongoing construction contracts for the installation of pipelines off the coast of Qatar. Each complaint sought relief, including unspecified compensatory damages and an award for costs and expenses. The three cases were consolidated and transferred to the United States District Court for the Southern District of Texas. In May 2009, the plaintiffs filed an amended consolidated complaint, which, among other things, added Robert A. Deason (JRMSA’s former President and Chief Executive Officer) as a defendant in the proceedings. In July 2009, MII and the other defendants filed a motion to dismiss the complaint, which was referred to a Magistrate Judge. In February 2010, the Magistrate Judge issued a Memorandum and Recommendation on the motion, finding that the plaintiffs had failed to state a claim for relief under the securities laws and therefore recommended to the District Court that the motion to dismiss be granted. On March 26, 2010, the Court issued an order adopting the Magistrate Judge’s recommendations in full and dismissing the case. However, the order granted the plaintiffs leave to request to amend their complaint and, on April 30, 2010, the plaintiffs filed a motion with the District Court for leave to amend the complaint. The defendants filed their opposition to the plaintiffs’ motion in May 2010, and in December 2010 the Magistrate Judge issued a Memorandum and Recommendation that plaintiffs’ motion to amend be denied and that the case be finally dismissed. In January 2011, the plaintiffs filed their objections to the Memorandum and Recommendation, and the defendants filed their response to those objections. Oral argument was held before the District Court on February 15, 2011. On March 2, 2011, the District Court adopted the Memorandum and Recommendation and dismissed the case with prejudice. The plaintiffs did not appeal this ruling and accordingly the case is now concluded.

The following discussion presents the remaining investigations and litigation disclosure contained in Note 14 – Commitments and Contingencies in our Annual Report on Form 10-K for the year ended December 31, 2010, for which there have been no material developments.

A lawsuit entitled Coto v. J. Ray McDermott, S.A., et al. was filed in Civil District Court for the Parish of Orleans, Louisiana in November 1995. The lawsuit arose out of the sinking of the DLB-269 off the coast of Mexico on October 15, 1995. At the time trial began in 2005, 13 plaintiffs had claims pending, primarily for post traumatic stress disorder allegedly suffered as a result of the incident. Settlement agreements have been executed with 10 of the 13 claimants. Appeals of two outstanding judgments in principal amounts of approximately $4.3 million and $5.8 million, respectively, are pending. We intend to continue to vigorously defend the remaining claims and expect that any adverse judgments against us would be covered by available insurance.

On April 9, 2009, two of our subsidiaries, McDermott Gulf Operating Company (“MGOC”) and J. Ray McDermott Canada, Ltd., through its registered business name, Secunda Marine Services (“Secunda”), filed a lawsuit in the Supreme Court of Nova Scotia against Oceanografia Sociedad Anonima de Capital Variable (“OSA”) and Con-Dive, LLC for damages, including unpaid charter hire for the charter of the vessel Bold Endurance. On or about April 13, 2009, as security for the unpaid charter hire, MGOC filed suit and obtained seizure orders for a saturation dive system aboard the Bold Endurance in the United States District Court for the Southern District of Alabama in a matter entitled McDermott Gulf Operating Company, et al. v. Con-Dive, LLC et al. The seizure was vacated on equitable grounds by the court via order dated May 29, 2009. MGOC and Secunda appealed the decision to the United States Court of Appeals for the Eleventh Circuit, which affirmed the order to vacate. On April 13, 2010, OSA filed a lawsuit entitled Oceanografia S.A. de C.V. v. McDermott Gulf Operating Company, Inc. and Secunda Marine Services, Inc. in the United States District Court for the Southern District of Alabama, alleging wrongful arrest, wrongful attachment and conversion of the saturation-diving system. OSA claims damages for loss of revenue in excess of $10 million and physical damage to the equipment and further requests awards for punitive damages, attorneys’ fees and costs. We cannot reasonably estimate the extent of a potential adverse judgment against us, if any, and we intend to vigorously defend the wrongful seizure suit and continue to pursue payment of the charter hire in the Supreme Court of Nova Scotia.

On or about August 23, 2004, a declaratory judgment action entitled Certain Underwriters at Lloyd’s London, et al. v. J. Ray McDermott, Inc. et al., was filed by certain underwriters at Lloyd’s, London and Threadneedle Insurance Company Limited (the “London Insurers”), in the 23rd Judicial District Court, Assumption Parish, Louisiana, against MII, JRMI and two insurer defendants, Travelers and INA, seeking a declaration that the London Insurers have no obligation to indemnify MII and JRMI for certain bodily injury claims, including claims for asbestos and welding rod fume personal injury which have been filed by claimants in various state courts, and an environmental claim involving Babcock & Wilcox Power Generation Group, Inc., a subsidiary of B&W (“B&W PGG”). Additionally, Travelers filed a cross-claim requesting a declaration of non-coverage in approximately 20 underlying matters. This proceeding was stayed by the court on January 3, 2005.

In a proceeding entitled Antoine, et al. vs. J. Ray McDermott, Inc., et al., filed in the 24th Judicial District Court, Jefferson Parish, Louisiana, approximately 88 plaintiffs filed suit against approximately 215 defendants, including JRMI and Delta Hudson Engineering Corporation (“DHEC”), another affiliate of ours, generally alleging injuries for exposure to asbestos, and unspecified chemicals, metals and noise while the plaintiffs were allegedly employed as Jones Act seamen. On January 10, 2007, the District Court dismissed the plaintiffs’ claims, without prejudice to their right to refile their claims. On January 29, 2007, in a matter entitled Boudreaux, et al. v. McDermott, Inc., et al., originally filed in the United States District Court for the Southern District of Texas, 21 plaintiffs originally named in the Antoine matter filed suit against JRMI, MI and approximately 30 other employer defendants, alleging Jones Act seaman status and generally alleging exposure to welding fumes, solvents, dyes, industrial paints and noise.

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Boudreaux was transferred to the United States District Court for the Eastern District of Louisiana on May 2, 2007. The District Court entered an order in September 2007 staying the matter until further order of the court due to the bankruptcy filing of one of the co-defendants. Additionally, on January 29, 2007, in a matter entitled Antoine, et al. v. McDermott, Inc., et al., filed in the 164th Judicial District Court for Harris County, Texas, 43 plaintiffs originally named in the Antoine matter filed suit against JRMI, MI and approximately 65 other employer defendants and 42 maritime products defendants, alleging Jones Act seaman status and generally alleging personal injuries for exposure to asbestos and noise. On April 27, 2007, the District Court entered an order staying all activity and deadlines in this matter other than service of process and answer/appearance dates until further order of the court. The plaintiffs filed a motion to lift the stay on February 20, 2009, which is pending before the District Court. The plaintiffs seek monetary damages in an unspecified amount in both cases and attorneys’ fees in the new Antoine case.

Additionally, due to the nature of our business, we are, from time to time, involved in routine litigation or subject to other disputes or claims related to our business activities, including, among other things:

• performance- or warranty-related matters under our customer and supplier contracts and other business arrangements; and

• workers’ compensation claims, Jones Act claims, premises liability claims and other claims.

Based upon our prior experience, we do not expect that any of these other litigation proceedings, disputes and claims will have a material adverse effect on our consolidated financial condition, results of operations or cash flows.

Environmental Matters

We have been identified as a potentially responsible party at various cleanup sites under the Comprehensive Environmental Response, Compensation, and Liability Act, as amended (“CERCLA”) and other state and foreign CERCLA-type environmental laws. Such laws can impose liability for the entire cost of cleanup on any of the potentially responsible parties, regardless of fault or the lawfulness of the original conduct. Generally, however, where there are multiple responsible parties, a final allocation of costs is made based on the amount and type of wastes disposed of by each party and the number of financially viable parties, although this may not be the case with respect to any particular site. We have not been determined to be a major contributor of wastes to any of these sites. On the basis of our relative contribution of waste to each site, we expect our share of the ultimate liability for the various sites will not have a material adverse effect on our consolidated financial condition, results of operations or cash flows in any given year.

At March 31, 2011 and December 31, 2010 we had total environmental reserves of $2.9 million, of which $2.4 million was included in current liabilities. Inherent in the estimates of those reserves and recoveries are our expectations regarding the levels of contamination, remediation costs and recoverability from other parties, which may vary significantly as remediation activities progress. Accordingly, changes in estimates could result in material adjustments to our operating results, and the ultimate loss may differ materially from the amounts that we have provided for in our consolidated financial statements.

Contracts Containing Liquidated Damages Provisions

Some of our contracts contain 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 historically had potential exposure for liquidated damages, such damages ultimately were not asserted by our customers. As of March 31, 2011, it is possible that we may incur liabilities for liquidated damages aggregating approximately $70 million, of which approximately $17 million has been recorded in our financial statements, based on our actual or projected failure to meet certain specified contractual milestone dates. The date range during which these potential liquidated damages could arise is from June 2008 to June 2011. We believe we will be successful in obtaining schedule extensions or other customer-agreed changes that should resolve the potential for additional liquidated damages being incurred. However, we may not achieve relief on some or all of the issues. We do not believe any amounts for these potential liquidated damages in excess of the amounts recorded in our financial statements are probable of being paid by us.

Other

MII, B&W PGG and McDermott Holdings, Inc., which in connection with the spin-off of B&W was renamed Babcock & Wilcox Holdings, Inc. and merged with B&W, have jointly executed general agreements of indemnity in favor of various surety underwriters relating to surety bonds those underwriters issued in support of B&W PGG’s contracting activity. As of March 31, 2011, bonds issued under such arrangements totaled approximately $82.3 million. Pursuant to the master separation agreement entered into between us and B&W in connection with the spin-off, B&W has agreed to indemnify us with respect to any losses we may incur in connection with these surety bonds.

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

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

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. This 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, 2010.

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

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,” “forecast,” “believe,” “expect,” “anticipate,” “plan,” “seek,” “goal,” “could,” “may,” or “should” 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.

These forward-looking statements include, but are not limited to, statements that relate to, or statements that are subject to risks, contingencies or uncertainties that relate to:

• future levels of revenues, operating margins, income from operations, net income or earnings per share;

• outcome of project awards and execution;

• anticipated levels of demand for our products and services;

• future levels of capital, environmental or maintenance expenditures;

• the success or timing of completion of ongoing or anticipated capital or maintenance projects;

• expectations regarding the acquisition or divestiture of assets;

• the ability to dispose of assets held for sale in a timely manner or for a price at or above net realizable value;

• the potential effects of judicial or other proceedings on our business, financial condition, results of operations and cash flows; and

• the anticipated effects of actions of third parties such as competitors, or federal, foreign, state or local regulatory authorities, or plaintiffs in litigation.

These forward-looking statements speak only as of the date of this report; we disclaim any obligation to update these 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;

• the highly competitive nature of our industry;

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

• the ability of our suppliers and subcontractors to deliver raw materials in sufficient quantities and/or perform in a timely manner;

• our ability to perform projects on time, in accordance with the schedules established by the applicable contracts with customers;

• 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;

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• the unfunded liabilities of our pension plans, which may negatively impact our liquidity and, depending upon future operations, may impact our ability to fund our pension obligations;

• 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 and other emissions in the future;

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

• rapid technological changes;

• 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 associated with integrating acquired businesses;

• the risk we may not be successful in updating and replacing current key financial and human resources legacy systems with enterprise systems;

• social, political and economic situations in foreign countries where we do business;

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

• the effects of asserted and unasserted claims and the extent of available insurance coverages;

• 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 captive insurance subsidiary; and

• the impact of the loss of insurance rights as part of the Chapter 11 Bankruptcy settlement concluded in 2006 involving several B&W subsidiaries.

We believe the items 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, 2010. 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.

Recent Developments

Spin-off of B&W

On July 30, 2010, we completed the spin-off of B&W to our stockholders through a stock distribution. B&W’s assets and businesses primarily consisted of those that we previously reported as our Government Operations and Power Generation Systems segments. In connection with the spin-off, our stockholders received 100% (approximately 116 million shares) of the outstanding common stock of B&W. The distribution of B&W common stock occurred by way of a pro rata stock dividend to our stockholders. Each stockholder generally received one share of B&W common stock for every two shares of our common stock held by such stockholder on July 9, 2010, and cash in lieu of any fractional shares. Prior to the completion of the spin-off, B&W made a cash distribution to us totaling $100 million.

In order to effect the distribution and govern MII’s relationship with B&W after the distribution, MII and B&W entered into a master separation agreement and several other agreements, including a tax sharing agreement and transition services agreements.

Master Separation Agreement

The master separation agreement between us and B&W contains the key provisions relating to the separation of the B&W business from MII and the distribution of B&W shares of common stock. The master separation agreement identified the assets transferred to, liabilities assumed by and contracts assigned to B&W by MII or by B&W to MII in the spin-off and provided the mechanisms for these transfers, assumptions and assignments to occur. Under the master separation agreement we agreed to indemnify B&W against various claims and liabilities related to the past operation of MII’s business (other than B&W’s business) and B&W agreed to indemnify us against various claims and liabilities related to its business.

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Tax Sharing Agreement

A subsidiary of MII and a subsidiary of B&W entered into an agreement providing for the sharing of taxes incurred before and after the distribution, various indemnification rights with respect to tax matters and restrictions to preserve the tax-free status of the distribution to MII. Under the terms of the tax sharing agreement, B&W is generally responsible for any taxes imposed on MII or B&W in the event that certain transactions related to the spin-off fail to qualify for tax-free treatment. However, if these transactions fail to qualify for tax-free treatment because of actions or failures to act by MII or its subsidiaries, a subsidiary of MII would be responsible for all such taxes. B&W is also entitled to the historical tax benefits generated by MII’s U.S. operations, and these amounts are shown in income from discontinued operations, net of tax in our unaudited condensed consolidated statements of income for the first quarter of 2010.

Transition Services Agreements

Under the transition services agreements, MII and B&W are providing each other certain transition services on an interim basis. Such services currently being provided include human resources, information technology, legal, and tax services. In consideration for such services, MII and B&W each pay fees to the other for the services provided, and those fees are generally in amounts intended to allow the party providing the services to recover its direct and indirect costs incurred in providing those services. The transition services agreements contain customary mutual indemnification provisions.

Charter Fleet Business

During the quarter ended September 30, 2010, we committed to a plan to sell our charter fleet business, which has been classified as discontinued operations. In conjunction with classifying the charter fleet business as a discontinued operation during the quarter ended September 30, 2010, we recognized a $27.7 million write-down of the carrying value of these assets to their estimated net realizable value, based on the estimated fair value of consideration expected from the sale and estimated selling costs.

Our results of operations for the periods presented in this report reflect the operations of B&W and the charter fleet business as discontinued operations. The discussion in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” is presented on the basis of continuing operations.

Accounting for Contracts

We execute our contracts through a variety of methods, including fixed-price, cost reimbursable, cost-plus, day-rate and unit-rate basis or some combination of those methods. Contracts are usually awarded through a competitive bid process, primarily based on price. However, other factors that customers may consider include facility or equipment availability, technical capabilities of equipment and personnel, efficiency, safety record and reputation.

Fixed-price contracts are for a fixed amount to cover costs and any profit element for a defined scope of work. Fixed-price contracts entail more risk to us because they require us to predetermine both the quantities of work to be performed and the costs associated with executing the work.

We have contracts that extend beyond one year. Most of our long-term contracts have provisions for progress payments. We attempt to cover anticipated increases in labor, material and service costs of our long-term contracts either through an estimate of such charges, which is reflected in the original price, or through risk-sharing mechanisms, such as escalation or price adjustments for items such as labor and commodity prices.

We generally recognize our contract revenues and related costs on a percentage-of-completion basis. Accordingly, we review contract price and cost estimates periodically as the work progresses and reflect adjustments in profit proportionate to the percentage-of-completion in the period when we revise those estimates. To the extent that these adjustments result in a reduction or elimination of previously reported profits with respect to a project, we would recognize a charge against current earnings, which could be material.

Our arrangements with customers frequently require us to provide letters of credit, bid and performance bonds or guarantees to secure bids or performance under contracts. While these letters of credit, bonds and guarantees may involve significant dollar amounts, historically, there have been no material payments to our customers under these arrangements.

In the event of a contract deferral or cancellation, we generally would be entitled to recover costs incurred, settlement expenses and profit on work completed prior to deferral or termination. Significant or numerous cancellations could adversely affect our business, financial condition, results of operations and cash flows.

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Business Segments and Results of Operations

Business Segments

We report our financial results under four reporting segments, consisting of Asia Pacific, Atlantic, the Middle East and Corporate. Our Corporate segment primarily reflects corporate personnel and activities, incentive compensation programs and other costs. Costs incurred in our Corporate segment are generally fully allocated to our other segments. The following is a discussion of our Asia Pacific, Atlantic and Middle East segments.

Asia Pacific Segment

Through our Asia Pacific segment, we serve the needs of national and major energy companies primarily in Australia, Indonesia, Vietnam, Malaysia and Thailand. Project focus in this segment includes the fabrication and installation of fixed and floating structures and the installation of pipelines and subsea systems. The majority of segment operations are performed on an EPCI basis. Engineering and procurement services are provided by our Singapore office and are supported by additional resources located in Houston, Texas. The primary fabrication facility for this segment is located on Batam Island, Indonesia. Additionally, through our equity ownership interest in a joint venture, we are developing a fabrication facility located in China.

Atlantic Segment

Through our Atlantic segment, we serve the needs of national and major energy companies, primarily in the United States, Mexico, Canada, Trinidad, Brazil, West Africa and the North Sea. Project focus in this segment includes the fabrication and installation of fixed and floating structures and the installation of pipelines and subsea systems. Engineering and procurement services are provided by our Houston office, and our New Orleans office provides specialized marine engineering capabilities to support our global marine activities. The primary fabrication facilities for this segment are located in Morgan City, Louisiana and Altamira, Mexico.

Middle East Segment

Through our Middle East segment, which includes the Caspian region, we serve the needs of national and major energy companies primarily in Saudi Arabia, Qatar, the United Arab Emirates (U.A.E.), Kuwait, India, Azerbaijan, Russia, Kazakhstan and Turkmenistan. Project focus in this segment relates primarily to the fabrication and installation of bottom-founded production platforms and the installation of related subsea pipelines in shallow water. The majority of our projects in this segment are performed on an EPCI basis. Engineering and procurement services are provided by our Dubai, U.A.E. and Chennai, India offices and are supported by additional resources from our Houston and Baku, Azerbaijan offices. The primary fabrication facility for this segment is located in Dubai, U.A.E.

The above-mentioned fabrication facilities in each segment are equipped with a wide variety of heavy-duty construction and fabrication equipment, including cranes, welding equipment, machine tools and robotic and other automated equipment. Project installation is performed by major construction vessels, which we own or operate and are stationed throughout the various regions and provide structural lifting/lowering and pipelay services. These major construction vessels are supported by our multi-function vessels and chartered vessels from third parties to perform a wide array of installation activities that include anchor handling, pipelay, cable/umbilical lay, dive support and hookup/commissioning.

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Results of Operations

Selected Financial Data:

	Three Months Ended March 31,
	2011			2010
	(In thousands)
Revenues:
Asia Pacific	$	474,813		$	220,866
Atlantic		39,894			54,266
Middle East		384,533			229,750
Total revenue	$	899,240		$	504,882
Operating income(1):
Asia Pacific	$	38,879		$	44,621
Atlantic		(17,637	)		(3,347	)
Middle East		79,056			31,913
Total operating income	$	100,298		$	73,187
Other income (expense):
Interest income	$	449		$	490
Interest expense		—			(162	)
Other income (expense) – net		(5,403	)		(1,450	)
Total other income (expense)	$	(4,954	)	$	(1,122	)
Provision for income taxes	$	22,579		$	12,239
Discontinued operations:
Loss on disposal of discontinued operations:
B&W spin-off costs	$	—		$	(24,202	)
Income from discontinued operations:
B&W operations, net of tax	$	—		$	30,542
Charter fleet operations, net of tax		1,662			2,039
	$	1,662		$	32,581
Total discontinued operations	$	1,662		$	8,379
Net income attributable to noncontrolling interests	$	4,007		$	8,264

⁽¹⁾  Operating income includes equity in income (loss) of unconsolidated affiliates and gain on asset disposals and impairments—net.

Three months ended March 31, 2011 vs. 2010

Revenues

Revenues increased approximately 78%, or $394.3 million, to $899.2 million in the three months ended March 31, 2011 compared to $504.9 million for the corresponding 2010 period. The revenue growth was attributable to the Asia Pacific and Middle East segments. Revenues in our Asia Pacific segment increased $253.9 million, to $474.8 million, in the three months ended March 31, 2011 compared to $220.9 million in the three months ended March 31, 2010, influenced by the combination of expanded scope and increased marine activity on certain EPCI projects. In addition, revenues in the Middle East segment improved by $154.8 million over the comparable prior year period, to $384.5 million, in the three months ended March 31, 2011, primarily attributable to increased marine activities on certain projects in Saudi Arabia, and, to a lesser extent, an overall increase in engineering activities. The revenue improvements in our Asia Pacific and Middle East segments were partially offset by a $14.4 million revenue decrease in our Atlantic segment for the three months ended March 31, 2011, as a result of reduced marine asset utilization, driven principally by lower activity levels in the U.S. Gulf of Mexico.

Operating Income

Operating income increased $27.1 million, from $73.2 million in the quarter ended March 31, 2010 to $100.3 million in the quarter ended March 31, 2011, attributable to our Middle East segment, which was influenced by higher marine and engineering activities, including increased activity on certain EPCI projects in Saudi Arabia. The Middle East segment increase was moderated as we recognized less income from change orders, settlements and close-outs in the first quarter of 2011 as compared to the 2010 period. Conversely, we experienced declines in operating income in our Atlantic and Asia Pacific segments. The decline in our Atlantic segment was caused primarily by reduced marine asset utilization. The operating income decline in the Asia Pacific segment was primarily attributable to lower project close-outs, which generally contribute higher operating margins, in the quarter ended March 31, 2011 as compared to the quarter ended March 31, 2010.

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During the quarter ended September 30, 2010, our Atlantic segment began accounting for one contract under our deferred profit recognition policy, under which we recognize revenue and cost equally and only recognize profit when probable and reasonably estimable, generally when the contract is approximately 70% complete. This contract, which is being performed by one of our joint ventures, is in the early stages of activity. The Atlantic segment backlog includes $161.1 million relating to this project, and revenues on this project totaled $7.9 million in the quarter ended March 31, 2011.

Other Items in Operating Income

Selling, general and administrative expenses increased $4.2 million to $55.4 million in the three months ended March 31, 2011 as compared to $51.1 million in the three months ended March 31, 2010. The increase was primarily due to increased bidding and proposal related costs incurred in the quarter ended March 31, 2011 compared to the comparable prior year quarter.

Equity in income (loss) of unconsolidated affiliates increased $6.8 million to $3.4 million of income in the quarter ended March 31, 2011 as compared to a $3.4 million loss in the quarter ended March 31, 2010, primarily attributable to fee income recognized during the current period at our joint ventures. Our March 31, 2010 results also included an asset impairment at our FloaTEC LLC joint venture, which further supports the period to period increase.

Other Items

Interest income was $0.4 million and $0.5 million for the three months ended March 31, 2011 and March 31, 2010, respectively.

Interest expense incurred in the three months ended March 31, 2011 was fully capitalized. Interest expense was $0.2 million in the three months ended March 31, 2010.

Other expense – net increased by $3.9 million to $5.4 million in the three months ended March 31, 2011, primarily due to increased foreign currency exchange losses.

Provision for Income Taxes

For the three months ended March 31, 2011, the provision for income taxes increased $10.3 million to $22.6 million, while income before provision for income taxes increased $23.3 million to $95.3 million. Our effective tax rate for the three months ended March 31, 2011 was approximately 24%, as compared to 17% for the comparable prior year period. The rate increase was primarily attributable to the current mix of earnings, resulting in a larger proportion of our income being taxed at higher tax rates.

Discontinued Operations and Noncontrolling Interests

Total income from discontinued operations, net of tax was $1.7 million and $8.4 million for the three months ended March 31, 2011 and 2010, respectively. For the quarter ended March 31, 2010, we incurred $24.2 million of costs related to the spin-off of B&W.

Net income attributable to noncontrolling interest decreased by $4.3 million to $4.0 million in the three months ended March 31, 2011, primarily due to a project-specific profit sharing arrangement on an installation project in the comparable prior period.

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. We can provide no assurance as to the profitability of our contracts reflected in backlog.

	March 31, 2011				December 31, 2010
	(Dollars in millions)
Asia Pacific	$	1,949	41	%	$	2,176	43	%
Atlantic		615	13	%		315	6	%
Middle East		2,200	46	%		2,548	51	%
Total Backlog	$	4,764	100	%	$	5,039	100	%

Of the March 31, 2011 backlog, we expect to recognize revenues as follows:

	2011		2012		Thereafter
	(In millions)
Total Backlog	$	2,537	$	1,771	$	456

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Liquidity and Capital Resources

Credit Agreement

On May 3, 2010, we entered into a credit agreement (the “Credit Agreement”) with a syndicate of lenders and letter of credit issuers. The Credit Agreement provides for revolving credit borrowings and issuances of letters of credit in an aggregate outstanding amount of up to $900.0 million, and the credit facility is scheduled to mature on May 3, 2014. Proceeds from borrowings under the Credit Agreement are available for working capital needs and other general corporate purposes. The Credit Agreement includes procedures for additional financial institutions to become lenders, or for any existing lender to increase its commitment thereunder, subject to an aggregate maximum of $1.2 billion for all revolving loan and letter of credit commitments under the Credit Agreement.

Other than customary mandatory prepayments in connection with casualty events, the Credit Agreement requires only interest payments on a quarterly basis until maturity. We may prepay all loans under the Credit Agreement at any time without premium or penalty (other than customary LIBOR breakage costs), subject to certain notice requirements.

The Credit Agreement 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, and capital expenditures. At March 31, 2011, we were in compliance with our covenant requirements.

Loans outstanding under the Credit Agreement bear interest at the borrower’s option at either the Eurodollar rate plus a margin ranging from 2.50% to 3.50% per year or the base rate (the highest of the Federal Funds rate plus 0.50%, the 30-day Eurodollar rate plus 1.0%, or the administrative agent’s prime rate) plus a margin ranging from 1.50% to 2.50% per year. The applicable margin for revolving loans varies depending on the credit ratings of the Credit Agreement. We are charged a commitment fee on the unused portions of the Credit Agreement, and that fee varies between 0.375% and 0.625% per year depending on the credit ratings of the Credit Agreement. Additionally, we are charged a letter of credit fee of between 2.50% and 3.50% per year with respect to the amount of each financial letter of credit issued under the Credit Agreement and a letter of credit fee of between 1.25% and 1.75% per year with respect to the amount of each performance letter of credit issued under the Credit Agreement, in each case depending on the credit ratings of the Credit Agreement. Under the Credit Agreement, we also pay customary issuance fees and other fees and expenses in connection with the issuance of letters of credit under the Credit Agreement. In connection with entering into the Credit Agreement, we paid certain up-front fees to the lenders thereunder, and certain arrangement and other fees to the arrangers and agents for the Credit Agreement, which are being amortized to interest expense over the term of the Credit Agreement.

At March 31, 2011, there were no borrowings outstanding and letters of credit issued under the Credit Agreement totaled $270.1 million. At March 31, 2011, there was $629.9 million available for borrowings or to meet letter of credit requirements under the Credit Agreement. There were no borrowings under this facility during the quarter ended March 31, 2011. Had there been borrowings, the applicable base interest rate would have been approximately 5.25% per annum. In addition, MII and its subsidiaries had $304.1 million in outstanding unsecured letters of credit at March 31, 2011.

Based on the credit ratings at March 31, 2011 applicable to the Credit Agreement, the applicable margin for Eurodollar-rate loans was 3.00%, the applicable margin for base-rate loans was 2.00%, the letter of credit fee for financial letters of credit was 3.00%, the letter of credit fee for performance letters of credit was 1.50%, and the commitment fee for unused portions of the Credit Agreement was 0.50%. The Credit Agreement does not have a floor for the base rate or the Eurodollar rate.

North Ocean Construction Financing

North Ocean 105

On September 30, 2010, MII, as guarantor, and North Ocean 105 AS, in which we have a 75% ownership interest, as borrower, entered into a financing agreement to finance a portion of the construction costs of a pipeline construction support vessel to be named the North Ocean 105. The agreement provides for borrowings of up to $69.4 million, bearing interest at 2.76% per year, and requires principal repayment in 17 consecutive semi-annual installments commencing on the earlier of six months after the delivery date of the vessel and October 1, 2012. Borrowings under the agreement are secured by, among other things, a pledge of all of the equity of North Ocean 105 AS, a mortgage on the North Ocean 105, and a lien on substantially all of the other assets of North Ocean 105 AS. MII unconditionally guaranteed all amounts to be borrowed under the agreement. At March 31, 2011 and December 31, 2010, there were $15.2 million and $3.4 million, respectively, in borrowings outstanding under this agreement.

North Ocean 102

In December 2009, J. Ray McDermott, S.A. (“IRMSA”) entered into a vessel-owning joint venture transaction with Oceanteam ASA. As a result of this transaction, we have consolidated notes payable of approximately $49.7 million onto our balance sheet at March 31, 2011, of which approximately $8.0 million is classified as current notes payable. JRMSA has guaranteed approximately 50% of this debt based on its ownership percentages in the vessel-owning companies.

Other

In the aggregate, our cash and cash equivalents, restricted cash and investments decreased by $145.1 million to $741.4 million at March 31, 2011 from $886.5 million at December 31, 2010, primarily due to purchases of property, plant and equipment, payments associated with employee benefits and purchases of available for sale securities.

At March 31, 2011, we had investments with a fair value of $325.8 million. Our investment portfolio consists primarily of investments in government and agency obligations and commercial paper. 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 loss on investments was $3.6 million and $4.3 million at March 31, 2011 and December 31, 2010, respectively. The major components of our investments in an unrealized loss position are corporate bonds, asset-backed obligations and commercial paper.

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Our current assets, less current liabilities, excluding cash and cash equivalents and restricted cash increased by $249.0 million to $68.3 million at March 31, 2011 from a negative $180.7 million at December 31, 2010, primarily due to an increase in the net amount of contracts in progress and advanced billings.

Our net cash used in operations was $92.0 million in the three-month period ended March 31, 2011, compared to $38.7 million in the three-month period ended March 31, 2010. This increase was primarily attributable to changes in contracts in progress and advance billings.

Our net cash used in investing activities increased by $91.1 million to $112.1 million in the three months ended March 31, 2011 from $21.0 million in the three months ended March 31, 2010. This increase was primarily attributable to an increase in available for sale investments and increased capital expenditures.

Our net cash provided by financing activities was $9.7 million in the three months ended March 31, 2011 as compared to net cash used in financing activities of $1.0 million in the three months ended March 31, 2010, primarily attributable to the increased borrowings associated with the North Ocean 105 construction financing during the period.

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

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, 2010.

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 Chief Financial Officer concluded that the design and operation of our disclosure controls and procedures are effective as of March 31, 2011 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, 2011 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II

OTHER INFORMATION

Item 1. Legal Proceedings

For information regarding ongoing investigations and litigation, see Note 9 to our unaudited condensed consolidated financial statements in Part I of this report, which we incorporate by reference into this Item.

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Item 1A. Risk Factors

The following discussion updates the risk factor disclosure in “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2010.

We could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act, other applicable worldwide anti-corruption laws or our 1976 Consent Decree.

The U.S. Foreign Corrupt Practices Act (“FCPA”) and other applicable worldwide anti-corruption laws generally prohibit companies and their intermediaries from making improper payments to government officials for the purpose of obtaining or retaining business. These laws include the recently enacted U.K. Bribery Act, which is scheduled to become effective on July 1, 2011 and which is broader in scope than the FCPA, as it contains no facilitating payments exception. Additionally, in 1976 we entered into a consent decree with the U.S. Securities and Exchange Commission which forbids us, among other things, from making payments in the nature of a commercial bribe to any customer or supplier to induce the purchase or sale of goods, services or supplies. We operate in some countries that international corruption monitoring groups have identified as having high levels of corruption. Our activities create the risk of unauthorized payments or offers of payments by one of our employees or agents that could be in violation of the FCPA or other applicable anti-corruption laws. Our training program and policies mandate compliance with applicable anti-corruption laws and the 1976 consent decree, and although we have policies, procedures and internal controls in place to monitor internal and external compliance, we cannot assure that our policies and procedures will protect us from governmental investigations or inquiries surrounding actions of our employees or agents. If we are found to be liable for violations of the FCPA or other applicable anti-corruption laws or of the 1976 consent decree (either due to our own acts or our inadvertence, or due to the acts or inadvertence of others), we could suffer from civil and criminal penalties or other sanctions, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Our results of operations could be affected by natural disasters in locations in which we and our customers operate.

Our customers have operations in locations that are subject to natural disasters, such as flooding, hurricanes, tsunamis, earthquakes, volcanic eruptions or nuclear or other disasters, or a combination of such disasters, such as the recent events experienced in Japan. The occurrence of any of these events and the impacts of such events could disrupt and adversely affect the operations of our customers and suppliers as well as our operations in the areas in which these types of events occur.

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

The following table provides information on our purchases of equity securities during the quarter ended March 31, 2011, all of which involved repurchases of restricted shares of MII common stock pursuant to the provisions of employee benefit plans that permit the repurchase of restricted shares to satisfy statutory tax withholding obligations associated with the lapse of restrictions applicable to those shares:

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
January 1 – January 31, 2011		—	$	—		not applicable		not applicable
February 1 – February 28, 2011		—		—		not applicable		not applicable
March 1 – March 31, 2011		252,930		25.43		not applicable		not applicable
Total		252,930	$	25.43		not applicable		not applicable

Item 5. Other Information

Pending Retirement of Chief Operating Officer

On May 9, 2011, Mr. John T. Nesser, III, our Executive Vice President and Chief Operating Officer, informed McDermott that he intends to retire on July 29, 2011, consistent with his previously disclosed intention to retire by year-end 2011. Effective June 30, 2011, Mr. Nesser will remain Executive Vice President until his retirement date.

In connection with Mr. Nesser’s pending retirement, on May 10, 2011, one of McDermott’s subsidiaries entered into a Separation Agreement with Mr. Nesser. Under the terms of the Separation Agreement, Mr. Nesser will be entitled to receive the payments and benefits detailed in Section 1 of the Restructuring Transaction Retention Agreement entered into between Mr. Nesser and a subsidiary of McDermott in connection with the spin-off of The Babcock & Wilcox Company. These payments and benefits include: (1) a cash payment of two times the sum of Mr. Nesser’s annual base salary and target Executive Incentive Compensation Plan (“EICP”) award; (2) a prorated target EICP award; (3) a cash payment equal to two years of medical benefits; and (4) full vesting of Mr. Nesser’s outstanding equity awards granted in 2008 and 2009. In addition to those benefits, Mr. Nesser will be treated as if he had continued to be an employee of McDermott for purposes of the vesting of the 24,828 restricted stock units and options to purchase 36,818 shares of stock, which were granted to Mr. Nesser in 2010 and currently remain unvested, in accordance with the vesting schedule of those awards.

Additionally, under the Separation Agreement Mr. Nesser will provide general consulting and advisory services to McDermott for a period of six months following Mr. Nesser’s retirement. In consideration of those services, Mr. Nesser will receive $25,000 per month, as well as reimbursement of reasonable expenses incurred by Mr. Nesser in rendering those services. The terms and conditions of the consulting services may be amended and/or extended by written agreement of the parties.

Appointment of New Chief Operating Officer

On May 6, 2011, our Board of Directors appointed John T. McCormack, our current Senior Vice President, Operations, as Executive Vice President and Chief Operating Officer, effective June 30, 2011.

Mr. McCormack, age 64, has served as McDermott’s Senior Vice President, Operations, since July 2010. Previously, he served as: Senior Vice President, Operations of J. Ray McDermott, S.A. (“JRM”), a subsidiary of McDermott, from January 2006 to July 2010; Vice President of JRM from May 2004 to January 2006; and Vice President, Project Services of JRM from January 2003 to May 2004.

In connection with Mr. McCormack’s appointment, our Board of Directors approved new compensation arrangements for Mr. McCormack, including: (1) annual base salary of $500,000, effective June 30, 2011, (2) the increase of Mr. McCormack’s target EICP award, expressed as a percentage of Mr. McCormack’s actual base salary compensation earned during 2011, for use in connection with his EICP award for the year ending December 31, 2011, from 50% to 70%, effective and for the period beginning June 30, 2011, and (3) a grant of long-term incentives valued at $660,000, comprised of 50% performance shares, 25% restricted stock units, and 25% stock options, under the same terms and conditions as contained in the Form of 2009 LTIP 2011 Total Shareholder Return Performance Share Grant Agreement, Form of 2009 LTIP 2011 Restricted Stock Unit Grant Agreement and the Form of 2009 LTIP 2011 Stock Option Grant Agreement included as exhibits to our annual report on Form 10-K for the year ended December 31, 2010.

Certain of McDermott’s grant agreements provide that the withholding obligation of any applicable federal, state or other taxes that may be due on the vesting of those awards be satisfied by the grantee returning to us the number of such vested shares having a fair market value equal to the amount of such taxes. Accordingly, the withholding obligations relating to the federal, state or other taxes that may be due on the vesting of certain of Mr. McCormack’s equity awards shall be satisfied by Mr. McCormack returning to McDermott the number of vested shares having a fair market value equal to the amount of such taxes.

27

Item 6. Exhibits

3. EXHIBITS

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 3.2 to McDermott International, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2010 (file No. 1-08430)).
3.3*	Amended and Restated Certificate of Designation of Series D Participating Preferred Stock of McDermott International, Inc. (incorporated by reference to Exhibit 3.3 to McDermott International, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2001 (File No. 1-08430)).
10.1*	McDermott International, Inc. Executive Incentive Compensation Plan (as amended and restated March 1, 2011) (incorporated by reference to Exhibit 10.45 to McDermott International, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2010).
10.2*	Form of 2009 LTIP 2011 Total Shareholder Return Performance Share Grant Agreement (incorporated by reference to Exhibit 10.46 to McDermott International, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2010).
10.3*	Form of 2009 LTIP 2011 Restricted Stock Unit Grant Agreement (incorporated by reference to Exhibit 10.47 to McDermott International, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2010).
10.4*	Form of 2009 LTIP 2011 Stock Option Grant Agreement (incorporated by reference to Exhibit 10.48 to McDermott International, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2010).
10.5	Separation Agreement, dated as of May 10, 2011, between McDermott, Inc. and John T. Nesser, III.
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.

101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

28

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.
By:	/S/    PERRY L. ELDERS
	Perry L. Elders
	Senior Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

May 10, 2011

29

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 3.2 to McDermott International, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2010 (file No. 1-08430)).
3.3*	Amended and Restated Certificate of Designation of Series D Participating Preferred Stock of McDermott International, Inc. (incorporated by reference to Exhibit 3.3 to McDermott International, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2001 (File No. 1-08430)).
10.1*	McDermott International, Inc. Executive Incentive Compensation Plan (as amended and restated March 1, 2011) (incorporated by reference to Exhibit 10.45 to McDermott International, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2010).
10.2*	Form of 2009 LTIP 2011 Total Shareholder Return Performance Share Grant Agreement (incorporated by reference to Exhibit 10.46 to McDermott International, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2010).
10.3*	Form of 2009 LTIP 2011 Restricted Stock Unit Grant Agreement (incorporated by reference to Exhibit 10.47 to McDermott International, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2010).
10.4*	Form of 2009 LTIP 2011 Stock Option Grant Agreement (incorporated by reference to Exhibit 10.48 to McDermott International, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2010).
10.5	Separation Agreement, dated as of May 10, 2011, between McDermott, Inc. and John T. Nesser, III.
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.

101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

30

EX-10.5

Exhibit 10.5

SEPARATION AGREEMENT

This Separation Agreement (the “Agreement”) is entered into by and between, and shall inure to the benefit of and be binding upon, the following parties:

JOHN T. NESSER, III, hereinafter referred to as “Mr. Nesser”; and

MCDERMOTT, INC., hereinafter referred to as the “Company.”

WITNESSETH:

WHEREAS, pursuant to the letter attached hereto as Exhibit A, Mr. Nesser has tendered his resignation effective July 29, 2011 (“Resignation Date”); and

WHEREAS, the Company and Mr. Nesser mutually desire to establish and agree upon the terms and conditions of Mr. Nesser’s separation from service.

NOW, THEREFORE, in consideration of the mutual promises and obligations set forth herein, Mr. Nesser and the Company hereby agree as follows:

1. Termination Date and Type. For purposes of interpreting and applying the provisions of the Restructuring Transaction Retention Agreement by and between Mr. Nesser and McDermott International, Inc., dated as of December 10, 2009 (“Retention Agreement”), a copy of which is attached hereto as Exhibit B and incorporated herein by reference, (a) Mr. Nesser’s date of termination shall be the Resignation Date, (b) Mr. Nesser’s termination of employment shall be treated as by Mr. Nesser for “Good Reason” as defined in the Retention Agreement, (c) any notice or cure period described in Section XI(e)(iii) of the Retention Agreement shall be inapplicable, and (d) subject to complying with the requirements of this Agreement, Mr. Nesser shall be entitled to the benefits provided in this Agreement.

2. Benefits and Payments Under Retention Agreement. Subject to the execution of this Agreement, including the Release in Paragraph 6 hereunder, by Mr. Nesser and the lapse of the seven (7) day revocation period referenced in Paragraph 11 below (“Revocation Period”) without revocation of the Agreement or any part hereof by Mr. Nesser, Mr. Nesser

shall be entitled to receive the payments and benefits detailed in Section I of the Retention Agreement, in accordance with the terms therein. All payments made pursuant to this Paragraph 2 shall be subject to appropriate tax withholdings. The payments and benefits are subject to all the terms and conditions of this Agreement.

3. Incentive Payments. During 2010, Mr. Nesser received the following incentive awards under the 2009 McDermott International, Inc. Long-Term Incentive Plan (the “2009 LTIP”):

(a) On March 4, 2010, a grant of 12,810 Restricted Stock Units which was adjusted in connection with the spin-off of The Babcock & Wilcox Company from McDermott International, Inc. (“Spin-Off”) to 24,828 Restricted Stock Units (“2010 RSU Award”); and

(b) On March 4, 2010, a grant of 18,996 nonqualified Stock Options which was adjusted in connection with the Spin-Off to 36,818 nonqualified Stock Options (“2010 Option Award”).

Subject to the provisions of Paragraph 8 below, the 66 2/3% of each of (i) the 2010 RSU Award and (ii) the 2010 Option Award which would, absent Mr. Nesser’s termination of employment, vest during the period between the Resignation Date and March 4, 2013 (“Extended Vesting Period”) shall remain in full force and effect during the Extended Vesting Period and shall become vested and payable in accordance with the terms of the 2009 LTIP and the applicable Grant Agreement as if Mr. Nesser’s employment had continued to the end of the Extended Vesting Period. Any other outstanding unvested equity awards granted to Mr. Nesser, including, but not limited to, the award granted to Mr. Nesser under Section II of the Retention Agreement, shall be forfeited on the Resignation Date, provided, however, that the equity awards described in Section I(f) and Schedule A of the Retention Agreement shall vest as provided therein and in Paragraph 2 above.

4. Retirement Benefits. Mr. Nesser shall be entitled to benefits under the McDermott (U.S.) Retirement Plan and under the Restoration of Retirement Income Plan (the “Excess Plan”) in accordance with the applicable terms of each such plan.

5. Consulting Services. During the period beginning on August 1, 2011 and ending on January 31, 2012 (the “Consulting Period”), Mr. Nesser shall provide such cooperation and consulting services as the Company requests in accordance with the terms and conditions set forth in Exhibit C which is attached hereto and incorporated herein by reference. The Consulting Period may be extended by written agreement of the Company and Mr. Nesser. It is expressly understood and agreed by the parties that in no event will the level of consulting services performed by Mr. Nesser hereunder exceed 20% of the average level of services he performed over the 36 month period ending on the Resignation Date.

6. Release of Claims. In lieu of the release required by the Retention Agreement and in consideration of the foregoing, the adequacy of which is hereby expressly acknowledged, Mr. Nesser hereby unconditionally and irrevocably releases and forever discharges, to the fullest extent applicable law permits, the Company, its predecessors, successors and assigns and past, present and future affiliates, subsidiaries, divisions, parent corporations and joint ventures and all their respective past, present and future officers, directors, managers, shareholders, employee benefit plan administrators, employees and agents, individually and in their respective capacities (each a “Releasee” and, collectively, “Releasees”) from any and every action, cause of action, complaint, claim, demand, administrative charge, legal right, compensation, obligation, damages (including consequential, exemplary and punitive damages), liability, cost and/or expense (including attorney’s fees) that he has, may have or may be entitled to from or against the Releasees, whether legal, equitable or administrative, in any forum or jurisdiction, whether known or unknown, foreseen or unforeseen, matured or unmatured, accrued or not accrued which arises directly or indirectly out of, or is based on or related in any way to Mr. Nesser’s employment with or termination of employment from the Releasees, including, without limitation, any such matter arising from the negligence, gross negligence or willful misconduct of the Releasees, (together, the “Released Claims”); provided, however, that this Release does not apply (a) to any claims arising solely and specifically under the Age Discrimination in Employment Act of 1967, as amended, arising after the date this Agreement is executed, (b) to any claim for indemnification (including, without limitation, under the Company’s organizational documents or insurance policies) arising in connection with an action instituted by a third party against the Company, its affiliates

or Mr. Nesser in his capacity as a former officer or director of the Company or its affiliates, or (c) to any claim arising from any breach or failure to perform this Agreement.

The parties intend this Release to cover any and all such Released Claims, whether arising under any employment contract (express or implied), policies, procedures or practices of any of the Releasees, and/or by any acts or omissions of any of the Releasees’ agents or employees or former agents or employees and/or whether arising under any state or federal statute, including but not limited to Texas’ employment discrimination laws, all federal discrimination laws, the Age Discrimination in Employment Act of 1967, as amended, the Employee Retirement Income Security Act of 1974, as amended, all local laws and ordinances and/or common law, without exception. As such, it is expressly acknowledged and agreed that this Release is a general release, representing a full and complete disposition and satisfaction of all of the Company’s real or alleged legal obligations to Mr. Nesser with the exceptions noted above.

Mr. Nesser expressly agrees that neither he nor any person acting on his behalf will file or permit to be filed any action for legal or equitable relief against the Releasees involving any matter related in any way to his employment with, or resignation from employment with the Releasees, including the matters covered by the Released Claims. In the event that such an action is filed, Mr. Nesser agrees that the Releasees are entitled to legal and equitable remedies against him, including an award of attorney’s fees. However, it is expressly understood and agreed that the foregoing sentence shall not apply to any charge filed by Mr. Nesser with the Equal Employment Opportunity Commission or to any action filed by Mr. Nesser that is narrowly limited to seeking a determination as to the validity of this Agreement and enforcement thereof. Should Mr. Nesser file a charge with the Equal Employment Opportunity Commission, or should any governmental entity, agency, or commission file a charge, action, complaint or lawsuit against any of the Releasees based on any Released Claim, Mr. Nesser agrees not to seek or accept any resulting relief whatsoever.

7. Undertakings By Mr. Nesser. Mr. Nesser shall immediately return to the Company any and all documents, records, files, reports, memoranda, books, papers, plans, letters and

any other data in his possession regardless of the medium held or stored that relate in any way to the business of the Company or its past, present and future parent corporations, subsidiaries, divisions, affiliates and/or joint ventures (the Company and each such entity a “Company Entity” and collectively, the “Company Entities”), other than any such data that the Company deems necessary for the provision of consulting services requested pursuant to Paragraph 5 above, and any credit cards, keys, access cards, calling cards, computer equipment and software, telephone, facsimile or other equipment or property of the Company Entities. The Company agrees that during the Consulting Period Mr. Nesser may retain his Company provided computer and mobile telephone.

8. Confidentiality and Non-Competition Agreement.

(a) Definition of Trade Secrets and Confidential Business Information. Mr. Nesser acknowledges and agrees that any and all non-public information regarding the Company Entities and their customers (including but not limited to any and all information relating to their business practices, products, services, finances, customers, equipment, marketing programs and other business systems and materials, management, strategy, profits and overhead) is confidential and the unauthorized disclosure of such confidential information will result in irreparable harm to the Company Entities. Such confidential information includes each Company Entity’s property interest in its trade secrets, including, without limitation, its lists of customers and prospective customers, and other information that has recognized value and that is not generally available through other sources (“Trade Secrets”), and information regarding its various products, services, procedures and systems that is treated as confidential by the Company Entity which may not rise to the level of a Trade Secret (“Confidential Business Information”). Confidential Business Information does not include information that properly and lawfully has become generally known to the public other than as a result of the act or omission of Mr. Nesser. Collectively, Trade Secrets and Confidential Business Information are referred to hereafter as “Confidential Information.” These obligations are in addition to any confidentiality obligations Mr. Nesser may have under any other agreements or arrangements with a Company Entity.

(b) Importance of Confidential Information. The parties hereby agree that Mr. Nesser will be provided with Confidential Information during the period beginning with the execution of this Agreement and extending through the Consulting Period. By signing this Agreement, Mr. Nesser acknowledges delivery and receipt of Confidential Information. Mr. Nesser acknowledges that during the period beginning with the execution of this Agreement and extending through the Consulting Period he will be making use of, acquiring, accessing and/or adding to such Confidential Information. Mr. Nesser further acknowledges that the preservation and protection of the Confidential Information is an essential part of Mr. Nesser’s consulting with the Company and that Mr. Nesser has a duty of fidelity and trust to the Company Entities in handling the Confidential Information.

(c) Non-Disclosure or Misuse. Mr. Nesser agrees that he will not disclose or take away any of the Confidential Information, directly or indirectly, or use such information in any way, except as required in the ordinary course of providing consulting services for the benefit of the Company or as may be required by law.

(d) Return of Confidential Information. At the termination of the Consulting Period for any reason, all documents or other information containing or referring to the Confidential Information of the Company Entities as may be in Mr. Nesser’s possession, or over which Mr. Nesser may have control, and all other documents, data, records, materials, notes, reports and other property of the Company Entities retained by or provided to Mr. Nesser in connection with his performance of consulting services, regardless of whether prepared by Mr. Nesser, shall be returned by Mr. Nesser to the Company immediately, with no request being required (and Mr. Nesser shall not retain, recreate or deliver to anyone else such information).

(e) Noncompetition Agreement. Mr. Nesser acknowledges and agrees that information, including the Confidential Information, Mr. Nesser has acquired and will acquire in connection with the performance of consulting services will enable him to irreparably injure the Company if he should engage in competition during the period beginning with the execution of this Agreement and extending through

the last day of the Consulting Period (“Non-Compete Period”). Ancillary to the above agreements and in consideration of the consulting fees, additional equity vesting pursuant to Paragraph 3, receipt of the payments and benefits described in Section I of the Retention Agreement and Confidential Information provided to Mr. Nesser, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Mr. Nesser hereby agrees that the following covenants are reasonable and necessary protective covenants for the protection of the value of the agreements described in subparagraphs (a), (b), (c) and (d) above and the other terms and conditions contained in this Agreement:

(i) During the Non-Compete Period, Mr. Nesser shall not, directly or indirectly, without the prior written approval of Stephen M. Johnson on behalf of the Company, act in any capacity for, be employed by, provide services to, or contract with any other company or entity engaged in Competing Services (a “Competitive Entity”), or acquire any interest of any type in any Competitive Entity; provided, however, that the foregoing shall not be deemed to prohibit Mr. Nesser from acquiring, solely as an investment and through market purchases, securities of any Competitive Entity which are registered under Section 12(b) or 12(g) of the Securities and Exchange Act of 1934 and which are publicly traded, so long as Mr. Nesser is not part of any control group of such Competitive Entity and such securities, including converted securities, do not constitute more than one percent of the outstanding voting power of that entity. For the purposes of this Agreement, the phrase “Competing Services” shall mean any services that are the same as or similar to the services currently being provided or offered by the Company Entities and/or which are provided or offered by the Company Entities during the Non-Compete Period. Competing Services include, but are not limited to, engineering services, construction services, installation services and project management services to offshore oil and gas field development;

(ii) During the Non-Compete Period, Mr. Nesser shall not, directly or indirectly, solicit any Company Entity’s Protected Customers for the

purpose of engaging in any business which is the same as or similar to the business in which a Company Entity is engaged. The phrase “Protected Customers” means all persons or entities with whom Mr. Nesser has had contact with by virtue of Mr. Nesser’s position with a Company Entity, and to whom a Company Entity has sold any product or service, whether or not for compensation, within a period of three (3) years prior to the time the Consulting Period terminates.

(iii) During the Non-Compete Period, Mr. Nesser shall not, on his own behalf or on behalf of any other person or entity, solicit, divert or recruit any person who is, during such time frame, an employee of a Company Entity to leave such employment or in any other manner attempt, directly or indirectly, to influence, induce, or encourage any employee of a Company Entity to leave the employment of the Company Entity.

(iv) Notwithstanding the foregoing, if Mr. Nesser provides professional legal services either as in-house or outside counsel to a person or an entity that competes with a Company Entity, he shall not be subject to the enforcement provisions described in Paragraph 8(f) but shall be subject to the repayment and forfeiture provisions of Paragraph 8(h).

It is expressly agreed by the parties that following the conclusion of the Non-Compete Period, no further restrictions shall apply under this Section 8(e).

(f) Enforcement of Covenants. Either party may seek a temporary restraining order, preliminary injunction, specific performance or other equitable relief regarding the other party’s obligations set forth in this Paragraph 8 before a court of law pending a final resolution of the disputes between the parties before an arbitrator, and either party may seek a judgment including a permanent injunction, if appropriate, from the court based on the final decision of the arbitrator. In addition, in the event that the Company determines that Mr. Nesser has breached any term of this Paragraph 8, in addition to any other remedies at law or in equity the Company may have available to it, it is agreed that the Company shall be entitled, upon application to any court of proper jurisdiction, to a temporary restraining order or preliminary injunction (without the necessity of (i) proving

irreparable harm, (ii) establishing that monetary damages are inadequate, or (iii) posting any bond with respect thereto) against Mr. Nesser prohibiting such breach or attempted or threatened breach by proving only the existence of such breach or attempted or threatened breach. It is expressly agreed by the parties that each of the parties shall act reasonably in any actions taken under the terms of this Section 8(f).

(g) Right of Court or Arbitrator to Reform Restrictions. The Company and Mr. Nesser state that it was their intent to enter into a valid and enforceable agreement. Mr. Nesser and the Company hereby acknowledge the reasonableness of the restrictions set forth in this Paragraph 8, including the reasonableness of the geographic area, duration as to time and scope of activity restrained. Mr. Nesser agrees that if a court or arbitrator finds that this Paragraph 8 contains limitations as to geographic area, time or scope of activity to be restrained that are not reasonable and impose a greater restraint than is necessary to protect the goodwill or other business interest of the Company Entities, the court or arbitrator may reform the covenants to the extent necessary to cause the limitations contained in this Paragraph 8 as to geographic area, time or scope of activity to be reasonable and to impose a restraint that is not greater than necessary to protect the goodwill or other business interest of the Company Entities and enforce Paragraph 8 of this Agreement.

(h) Repayment and Forfeiture. Mr. Nesser agrees that in the event that (i) he breaches any term of Paragraph 6 or Paragraph 8 of this Agreement, or (ii) Mr. Nesser challenges the validity of all or any part of Paragraph 8, and all or any part of Paragraph 8 is found invalid or unenforceable for any reason whatsoever by a court of competent jurisdiction or an arbitrator in a proceeding between Mr. Nesser and a Company Entity, in addition to any other remedies at law or in equity the Company may have available to it, the Company shall not be obligated to make any of the payments and may cease to make such payments or to provide for any of the benefits specified in Paragraphs 2 and 3 of this Agreement, and shall be entitled to recoup from Mr. Nesser (I) any and all of the value of the 2010 RSU Award and/or the 2010 Option Award that have vested pursuant to

Paragraph 3 and (II) consulting fees under Exhibit C hereto, but in each case only to the extent paid or vesting on and/or following the Resignation Date through either (A) the date of a material breach by Mr. Nesser of the provisions of Paragraph 6 or 8, which breach continues without having been cured within fifteen (15) days after written notice to Mr. Nesser specifying the breach in reasonable detail, or (B) the date of the determination of invalidity or unenforceability by the court or arbitrator, as applicable.

9. Miscellaneous Provisions.

(a) Failure on the part of the Company or Mr. Nesser at any time to insist on strict compliance by the other party with any provisions of this Agreement shall not constitute a waiver of either party’s obligations in respect thereof, or of either party’s right hereunder to require strict compliance therewith in the future.

(b) The obligations set forth in this Agreement are severable and divisible, and the unenforceability of any clause or portion thereof shall not affect the enforceability of the remainder of such clause or of any other obligation contained herein.

10. Entire Agreement. Mr. Nesser and the Company agree and acknowledge that this Agreement, including the Exhibits hereto, contains and comprises the entire agreement and understanding between the parties, that no other representation, promise, covenant or agreement of any kind whatsoever has been made to cause any party to execute this Agreement, and that all agreements and understandings between the parties are embodied and expressed in this Agreement. The parties also agree that the terms of this Agreement shall not be amended or changed except in writing and signed by Mr. Nesser and a duly authorized agent of the Company. The parties to this Agreement further agree that this Agreement shall be binding on and inure to the benefit of Mr. Nesser, the Company and the Releasees as defined in this Agreement. Any other agreements or understandings between the parties, whether written or oral, are hereby null and void. Notwithstanding the foregoing, except as otherwise specified in this Agreement, the Retention Agreement shall remain in full force and effect in accordance with its terms.

11. Timing and Consultation with Counsel. Mr. Nesser acknowledges that he has been given a reasonable period of time, not less than twenty-one (21) days, within which to consider

this Agreement and has been advised to discuss the terms of this Agreement with legal counsel. Mr. Nesser acknowledges that this Agreement was offered to him on May 6, 2011, and he was advised that if accepted (i) it must be executed on or prior to May 27, 2011, and (ii) the Agreement could be revoked, in writing, for up to seven (7) days following the date of such acceptance. Based upon his review, Mr. Nesser acknowledges that he fully and completely understands and accepts the terms of this Agreement, including the Release in Paragraph 6, and enters into it freely, voluntarily and of his own free will.

12. Applicable Law. This Agreement shall be interpreted and construed in accordance with the laws of the State of Texas.

13. Section 409A. This Agreement is intended to provide payments that are exempt from or compliant with the provisions of Section 409A of the Internal Revenue Code of 1986 (the “Code”) and related regulations and Treasury pronouncements (“Section 409A”), and the Agreement shall be interpreted accordingly. Notwithstanding anything herein to the contrary, if on the date of his separation from service Mr. Nesser is a “specified employee,” as defined in Section 409A, then all or a portion of any severance payments, or benefits under this Agreement that would be subject to the additional tax provided by Section 409A(a)(1)(B) of the Code if not delayed as required by Section 409A(a)(2)(B)(i) of the Code shall be delayed until the first day of the seventh month following his separation from service date (or, if earlier, Mr. Nesser’s date of death) and shall be paid as a lump sum (without interest) on such date. For purposes of this Agreement, a termination of Mr. Nesser’s employment must be a “separation from service” for purposes of Section 409A.

[Signature page follows]

I HAVE READ THE FOREGOING SEPARATION AGREEMENT, FULLY UNDERSTAND IT AND HAVE VOLUNTARILY EXECUTED IT ON THE DATE WRITTEN BELOW, SIGNIFYING THEREBY MY ASSENT TO, AND WILLINGNESS TO BE BOUND BY, ITS TERMS:

Date:	May 10, 2011	/s/ John T. Nesser, III
		John T. Nesser, III

Before me, a Notary Public in and for Harris County, Texas, and for Mr. Nesser, personally appeared the above-named Mr. Nesser, who acknowledged that he did sign the foregoing instrument, and that the same is his free act and deed.

IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal at Houston, Texas, this 10 day of May, 2011.

/s/ Angela R. Smith
NOTARY PUBLIC
McDERMOTT, INC.
By:	/s/ Stephen M. Johnson

Before me, a Notary Public in and for Harris County, Texas, personally appeared the above-named McDermott, Inc. through Stephen M. Johnson, its President and Chief Executive Officer, who acknowledged that he did sign the foregoing instrument for and on behalf of McDermott, Inc., and that the same is the free act and deed of McDermott, Inc. and the free act and deed of him as its agent.

IN WITNESS WHEREOF, I have hereunto set my hand and official seal at Houston, Texas, this 10 day of May, 2011.

/s/ Angela R. Smith

NOTARY PUBLIC

EXHIBIT A

May 10, 2011

Stephen M. Johnson, President and CEO

McDermott International, Inc.

757 N. Eldridge Parkway

Houston, TX 77079

RE: Resignation

Dear Mr. Johnson:

I hereby tender my resignation from employment with McDermott, Inc. and from all officer, director, manager and other positions and appointments held with McDermott International, Inc. and its subsidiaries, affiliates, divisions and/or joint ventures, including but not limited to those as reflected on the attachment hereto, effective as of July 29, 2011.

Very truly yours,

/s/ John T. Nesser, III

John T. Nesser, III

Corporate Information System

Positions Held by Nesser, John, T

Legal Entity Types and Status: All, Current

Foreign and Domestic Entities, Current Positions Only

Committee Type: All

LE #	Legal Entity Name	Title	Current
0159	Delta Catalytic (Holland) B.V.	Managing Director	Y
0301	DHEC Corporation	Director	Y
		President	Y
0249	Global Energy - McDermott Limited	Director	Y
		President	Y
0309	Hudson Engineering (Canada), Ltd.	President	Y
2036	J. Ray Holdings, Inc.	Director	Y
0220	J. Ray McDermott Far East, Inc.	Director	Y
0211	J. Ray McDermott Holdings, LLC	Executive Vice President and Chief Operating Officer	Y
0627	J. Ray McDermott International Vessels, Ltd.	Director	Y
0602	J. Ray McDermott International, Inc.	Executive Vice President and Chief Operating Officer	Y
0160	J. Ray McDermott Investments B.V.	Managing Director	Y
0239	J. Ray McDermott Solutions, Inc.	Director	Y
0625	J. Ray McDermott Technology, Inc.	Director	Y
		President	Y
1960	J. Ray McDermott Underwater Services, Inc.	Director	Y
		President	Y
0248	J. Ray McDermott West Africa Holdings, Inc.	Director	Y

Corporate Information System

Positions Held by Nesser, John, T

Legal Entity Types and Status: All, Current

Foreign and Domestic Entities, Current Positions Only

Committee Type: All

LE #	Legal Entity Name	Title	Current
0248	J. Ray McDermott West Africa Holdings, Inc.	President	Y
0244	J. Ray McDermott West Africa, Inc.	Director	Y
		President	Y
0207	J. Ray McDermott, S.A.	Director	Y
		Executive Vice President and Chief Operating Officer	Y
0183	McDermott Azerbaijan Marine Construction, Inc.	Director	Y
		President	Y
1950	McDermott Engineering, LLC	Manager	Y
0133	McDermott Gulf Operating Company, Inc.	Director	Y
0119	McDermott International Marine Investments N.V.	Managing Director	Y
0213	McDermott International Marketing, Inc.	Director	Y
		President	Y
0130	McDermott International Trading Co., Inc.	Director	Y
		President	Y
1971	McDermott International Vessels, Inc.	Director	Y
0100	McDermott International, Inc.	Executive Vice President and Chief Operating Officer	Y
0136	McDermott Middle East, Inc.	Director	Y
0135	McDermott Offshore Services Company, Inc.	Director	Y

Corporate Information System

Positions Held by Nesser, John, T

Legal Entity Types and Status: All, Current

Foreign and Domestic Entities, Current Positions Only

Committee Type: All

LE #	Legal Entity Name	Title	Current
0135	McDermott Offshore Services Company, Inc.	President	Y
0176	McDermott Old JV Office, Inc.	Director	Y
		President	Y
0390	McDermott Overseas, Inc.	Director	Y
		President	Y
0306	McDermott Subsea Engineering, Inc.	Director	Y
0320	McDermott Trade Corporation	Director	Y
		President	Y
0601	McDermott, Inc.	Executive Vice President and Chief Operating Officer	Y
0612	Offshore Pipelines International, Ltd.	Director	Y
		President	Y
0626	OPI Vessels, Inc.	Director	Y
		President	Y
0623	OPMI, Ltd.	Director	Y
		President	Y
0636	Sabine River Realty, Inc.	Director	Y
		President	Y
0640	SparTEC, Inc.	Director	Y
0145	Varsy International N.V.	Managing Director	Y

EXHIBIT B

RESTRUCTURING TRANSACTION

RETENTION AGREEMENT

THIS AGREEMENT is made by and between McDermott International, Inc., a corporation duly organized under the laws of the Republic of Panama (the “Company”) and John T. Nesser, III (“Employee”) as of the 10^th day of December, 2009 (this “Agreement”).

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:

If the Company, with the prior approval of the Board of Directors of the Company, engages in a transaction that results in the sale or other disposition of all or substantially all of the operations of either of its subsidiaries The Babcock & Wilcox Company or J. Ray McDermott, S.A. (each an “Operating Sub” and, together, the “Operating Subs”), whether by sale of the capital stock or assets of one or both of the Operating Subs, spinoff of one or both of the Operating Subs or otherwise, with an Effective Date (this term and other terms that are capitalized (but not otherwise defined herein) are used as defined in Section XIII of this Agreement) within the 24-month period beginning on the date of this Agreement (a “Restructuring Transaction”), Employee shall be entitled to compensation and benefits under the circumstances set out below. In addition, if Employee’s employment is terminated under certain circumstances set out below before a Restructuring Transaction, Employee will be entitled to the compensation and benefits set out below. The sale or disposition of less than 100% of the assets or stock of an Operating Sub shall not be considered a sale or other disposition of substantially all of the operations of such Operating Sub unless it is a sale or other disposition of at least 80% of the stock or assets of such Operating Sub.

I. Obligations of the Company or a Successor Upon Termination of Employee In Connection With or After a Restructuring Transaction.

In the event that either

(X) while employed by the Company, Employee’s employment by the Company is terminated following the date of this Agreement and before the earlier of (A) the termination of this Agreement in accordance with Section XII and (B) the one-year anniversary of the Effective Date of a Restructuring Transaction, either (i) by the Company for any reason other than Cause or Employee’s Disability or (ii) by Employee for Good Reason or

(Y) while employed by a Successor, Employee’s employment by such Successor is terminated following the Effective Date of a Restructuring Transaction and before the one-year anniversary of such Effective Date, either (i) by the Successor for any reason other than Cause or Employee’s Disability or (ii) by Employee for Good Reason (in the case of either of the immediately preceding clause (i) or this clause (ii), the Successor being substituted for the Company in the definitions of Cause and Good Reason herein),

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then, in either case, the Company or such Successor, as applicable, shall (in all cases, subject to the proviso in clause (f) below with respect to awards described in that clause, no later than March 15 following the year in which Employee so terminates); provided that by such date, Employee has signed an agreement that is no longer subject to rescission prepared by the Company or Successor, as applicable, which is solely a release of the Company, Successor (if applicable), and each of their respective affiliates, directors, officers and other customary persons from any claim or liability arising out of or related to Employee’s employment with or termination from the Company or a Successor, except for amounts to which Employee is legally entitled pursuant to employee benefit plans or this Agreement, and rights to insurance coverage or indemnification:

(a) pay to Employee within 30 days after the date of termination of Employee’s employment (or such earlier time as may be required by applicable law) the Accrued Benefits;

(b) in the event that a bonus is paid after the date of Employee’s termination of employment under the Company’s or such Successor’s Executive Incentive Compensation Plan (such plan or any successor or replacement plan, including any annual bonus plan of such Successor, in any case in which Employee was a participant immediately prior to such termination being hereinafter referred to as the “EICP”), as applicable, for the year prior to the year in which the termination takes place (the “Measurement Period”), pay to Employee in a lump sum, at the same time such bonus is paid to other participants in the EICP, a cash bonus equal to the product of the multiplier used for Employee’s position during the Measurement Period and Employee’s annual base salary for the Measurement Period;

(c) pay to Employee in a lump sum, in cash, within 30 days after the date of termination of Employee’s employment, a payment equal to the product of Employee’s target bonus under the 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 Employee’s employment and the denominator of which is 365;

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

(e) (1) pay to Employee in a lump sum, in cash, within 30 days after the date of termination of Employee’s employment, a payment equal to two times the full annual cost of coverage for medical, dental and vision benefits provided to

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Employee and Employee’s covered dependents by the Company and, if applicable, a Successor for the year in which Employee’s termination takes place and (2) permit Employee and Employee’s covered dependents to be covered under the Company’s, or if applicable, a Successor’s medical, dental and vision benefits for 48 months provided Employee pays the full then applicable COBRA premium;

(f) as of the date of Employee’s termination of employment, cause Employee to have a fully vested and nonforfeitable interest in each of the awards identified on the attached Schedule A (as the same may be modified pursuant to the terms of the applicable plans and award agreements in connection with the Restructuring Transaction), and to the extent applicable immediately pay such awards to Employee; provided that none of the awards subject to Section 409A of the Internal Revenue Code of 1986, as amended (“Code”), will be paid on a date earlier than as provided in the applicable award agreements without regard to this Agreement;

(g) as of the date of Employee’s termination of employment, cause Employee to have a fully vested and nonforfeitable interest in Employee’s account balance in the McDermott International, Inc. New Supplemental Executive Retirement Plan (“SERP”); provided that, notwithstanding anything to the contrary, Employee’s SERP benefits shall be distributed in accordance with the terms of the SERP; and

(h) pay to Employee within 30 days after the date of termination of Employee’s employment an amount equal to the portion of Employee’s account under the Thrift Plan for Employees of McDermott Incorporated and Participating Subsidiary and Affiliated Companies that was not vested as of the date of termination of Employee’s employment.

Notwithstanding the foregoing provisions of Section I, payments and benefits shall be subject to reduction as set out in Schedule B.

II. Obligations of the Company if Employee remains employed through the Effective Date of a Restructuring Transaction.

In the event that Employee’s employment by the Company is not terminated as of the Effective Date of the Restructuring Transaction under circumstances entitling Employee to benefits under Section I above, and if Employee has remained employed with the Company through the Effective Date of the Restructuring Transaction, then the Company or, if applicable, the Successor shall cause Employee to be granted the number of whole shares of restricted stock under the Company’s or Successor’s, as applicable, stock plan, as near equal in value to, but not greater than, 50% of the amount described in Section I(d) above, on terms and conditions set forth in the grant agreement approved in accordance with such stock plan; provided, however, the restricted stock shall vest on the first anniversary of the Effective Date of the Restructuring Transaction if, and only if, Employee remains employed with the Company or the Successor through such first anniversary.

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III. Participation In Other Company Programs.

Nothing in this Agreement shall prevent or limit Employee’s continuing or future participation in any plan, program, policy or practice provided by the Company for which Employee may qualify, nor shall anything herein limit or otherwise affect such rights as Employee may have under any other contract or agreement with the Company, except as provided in Section X of this Agreement. Amounts which are vested benefits or which Employee 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 Employee’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 Employee that any payment by the Company or a Successor under Section I of this Agreement shall be in lieu of any obligation on the part of the Company or such Successor 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 or such Successor in the event of termination of Employee’s employment as provided in Section I of this Agreement with the Company or such Successor during the one-year period following the Effective Date of a Restructuring Transaction.

IV. Confidential and Proprietary Information.

Employee 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. Employee shall not, during Employee’s 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 IV shall survive any termination of this Agreement. For purposes of this Section IV, 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 Employee. Employee acknowledges that the execution of this Agreement and the payments described in Section I of this Agreement constitute consideration for the limitations on activities set forth in this Section IV, the adequacy of which is hereby expressly acknowledged by Employee. Employee understands and agrees that the Company shall suffer irreparable harm if Employee breaches Section IV of this Agreement, and that monetary damages shall be inadequate to address any such breach. Accordingly, Employee 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

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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. For purposes of this Section IV, the term “Company” shall include a Successor.

V. 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 to the facsimile number 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 Employee:	John T. Nesser, III 874 Country Lane Houston, Texas 77024
Facsimile:	713-467-2336
If to the Company or a Successor:
McDermott International, Inc. Vice President, Human Resources 777 N. Eldridge Parkway Houston, TX 77079
Facsimile:	281-870-5095

or to such other address as Employee, the Company or a Successor may hereafter specify in a notice furnished in writing in accordance with this Section V.

VI. 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 giving effect to any principles of conflict of laws thereof which would result in the application of the laws of any other jurisdiction.

VII. Successors and Assigns.

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

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(b) This Agreement shall be binding upon and shall inure to the benefit of Employee, and of the Company and any Successor and their respective successors and assigns.

(c) The Company will require that any successor to all or substantially all of its business and/or assets (other than a Successor, as to which the last sentence of this Section VII(c) shall apply) (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 such successor to its business and/or assets. In the event that Employee becomes employed by a Successor in connection with a Restructuring Transaction, the Company shall require such Successor to expressly assume and adopt this Agreement and to honor the terms and conditions of this Agreement applicable to such Successor, unless Employee terminates Employee’s employment within thirty-one days after the Effective Date of the Restructuring Transaction for a Good Reason event which occurs upon the consummation of such Restructuring Transaction (in which case the Company shall remain obligated under this Agreement).

VIII. Employment by Subsidiaries.

If Employee is not employed by McDermott International, Inc., but is only employed by a Subsidiary of McDermott International, Inc., then, except for purposes of determining whether a Restructuring Transaction has occurred, (a) the “Company” as defined herein shall be deemed to include such Subsidiary, and (b) termination of employment shall be determined with reference to Employee’s employment by such Subsidiary, but, in each case, only if such Subsidiary is not a Successor. Further, the Company agrees that it will perform its obligations hereunder without regard to whether Employee is employed by the Company or by a Subsidiary of the Company.

IX. 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.

X. 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; provided that: if Employee is entitled to payments and benefits under both Section I of this Agreement and the Change in Control Agreement between the Company and Employee, dated as of October 1, 2008 (the “Change in Control Agreement”), Employee will receive payments and benefits only under Section I of this

6

Agreement (and not under the Change in Control Agreement), except that Section I(f) of the Change in Control Agreement will continue to apply, with the payments (if any) under such Section I(f) limited to those which would have been payable had Employee received the payments and benefits under the Change in Control Agreement (and not under this Agreement) (it being the intention of the parties hereto that, in no event, shall substantially the same benefits become payable under both the Change in Control Agreement and Section I of this Agreement). This Agreement may be amended or terminated (other than pursuant to Section XII of this Agreement) only by mutual agreement of the parties in writing.

XI. 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 (or a Successor) 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) Employee’s or the Company’s (or a Successor’s) failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right Employee or the Company (or a Successor) may have hereunder, including, without limitation, the right of Employee to terminate employment for Good Reason pursuant to paragraph (f) of Section XIII 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) Employee and the Company acknowledge that, except as may otherwise be provided under any other written agreement between Employee and the Company, the employment of Employee by the Company is “at will.”

(e) For purposes of this Agreement, the date of termination of Employee’s employment shall be: (i) if Employee’s employment is terminated by the Company (or a Successor) for Cause, the date on which the Company (or a Successor) delivers to Employee the resolution referred to in the last sentence of Section XIII, paragraph (c), or, with respect to a termination as described in this Agreement under Section XIII, paragraph (c)(iii), the date on which the Company (or a Successor) notifies Employee of such termination, (ii) if Employee’s employment is terminated by the Company (or a Successor) for a reason other than Cause (including on account of Disability), the date on which the Company (or a Successor) notifies Employee of such termination, or such later date as is reflected in such notification, (iii) if Employee’s employment is terminated by Employee for Good Reason, the date on which Employee notifies the Company (or a Successor) of such termination (after having given the Company (or such Successor) notice and a 30-day cure period), or (iv) if Employee’s employment is terminated by reason of death, the date of death of Employee.

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(f) 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.

(g) In the event Employee’s employment is terminated (i) by the Company (or a Successor) for Cause or as a result of Employee’s Disability, (ii) by Employee without Good Reason, or (iii) on account of Employee’s death, Employee shall not be entitled to the payments described in Section 1 of this Agreement.

XII. Term.

This Agreement shall terminate on the earliest to occur of (i) the date one year after the Effective Date of a Restructuring Transaction, or (ii) the date on which Employee’s employment with the Company (or a Successor) is terminated; provided, however, that if Employee’s employment with the Company (or a Successor) is terminated under any of the circumstances described in Section I of this Agreement, Employee’s rights hereunder shall continue following the termination of Employee’s employment until all benefits to which Employee is entitled hereunder has been paid and the Company’s (or a Successor’s) rights hereunder shall continue until all obligations owed to it hereunder have been satisfied. Notwithstanding the foregoing: (a) if no Restructuring Transaction shall have been completed with an Effective Date on or before the second anniversary of the date of this Agreement, then this Agreement shall automatically terminate on such second anniversary; and (b) the provisions of this Section XII and Sections II, XIII and XIV shall survive any termination of this Agreement.

XIII. Definitions.

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

(a) “Accrued Benefits” shall mean:

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

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

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

(iv) All other payments and benefits to which Employee may be entitled under the terms of any applicable compensation arrangement or benefit plan or program of the Company (or a Successor) that do not specify the time of

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distribution; provided that Accrued Benefits shall not include any entitlement to severance under any severance policy of the Company (or such Successor) generally applicable to the salaried employees of the Company (or such Successor).

(b) “Annual Base Salary” shall mean Employee’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 Employee to perform substantially Employee’s duties with the Company (occasioned by reason other than physical or mental illness or disability of Employee) after a written demand for substantial performance is delivered to Employee 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 Employee has not substantially performed Employee’s duties, after which Employee shall have thirty days to defend or remedy such failure to substantially perform Employee’s duties;

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

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

The cessation of employment of Employee under subparagraph (i) and (ii) above shall not be deemed to be for “Cause” unless and until there shall have been delivered to Employee 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 of Directors of the Company at a meeting of such Committee called and held for such purpose (after reasonable notice is provided to Employee and Employee is given an opportunity, together with Employee’s counsel, to be heard before such Committee), finding that, in the good faith opinion of such Committee, Employee is guilty of the conduct described in subparagraph (i) or (ii) above, and specifying the particulars thereof in detail.

(d) “Disability” shall mean circumstances that would qualify Employee for long-term disability benefits under the Company’s Long-Term Disability Plan as in effect immediately prior to the Restructuring Transaction, whether or not such Plan remains in effect subsequent to the Restructuring Transaction.

(e) “Effective Date” with respect to a Restructuring Transaction for purposes of this Agreement shall be the effective date of date of the consummation of the spinoff or split off (i.e., the date shares of the Subsidiary subject to the spinoff or split off are first distributed to the Company’s stockholders) or sale (i.e., the closing date for the sale) that results in the completion of the Restructuring Transaction.

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(f) “Good Reason” shall mean:

(i) any action by the Company which results in a material diminution in Employee’s position, authority, duties or responsibilities immediately prior to the date of this Agreement; but, for the avoidance of doubt, if Employee has a position with either the Company or a Successor and, in either case, the employer is publicly traded, a material diminution in position, authority, duties or responsibilities will not have occurred if Employee has a position, authority, duties and responsibilities substantially the same as those attendant to Employee’s position with the Company immediately prior to the date of this Agreement (notwithstanding that the business operations of the Company or such Successor may be smaller or less complex).

(ii) Requiring Employee, without Employee’s consent, to be based at any office or location other than the office or location at which Employee was employed immediately following the date of this Agreement; provided, however, that any such relocation requests shall not be grounds for resignation with Good Reason if such relocation is within a fifty mile radius of the location at which Employee was employed immediately following the date of this Agreement or such relocation does not result in an increase in Employee’s actual commuting distance from his principal residence to Employee’s new office or location;

(iii) a material reduction in Employee’s Annual Base Salary in effect immediately prior to the date of this Agreement or a material reduction in the target multiplier used to calculate the annual bonus awarded to Employee below the target multiplier used to calculate the bonus paid to Employee under the EICP immediately prior to the date of this Agreement, provided, however that in either case a material 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 material adverse change in Employee’s eligibility to participate in long-term incentive compensation plans as in effect immediately prior to the date of this Agreement, unless Employee is eligible to participate in a comparable plan; 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 Employee.

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In the event (A) any of the events described above occurs (an “Event”) or (B) the Company, in connection with but prior to the Effective Date of a Restructuring Transaction, notifies Employee in writing that the terms and conditions of Employee’s employment will be changed in connection with the consummation of a Restructuring Transaction in a manner that would constitute Good Reason (a “Company Notice”), Employee shall give the Company or Successor written notice (the “Employee Notice”) within 60 days following Employee’s knowledge of an Event or receipt of the Company Notice, as applicable, that such change in employment terms or conditions would constitute Good Reason and Employee intends to terminate employment as a result. The Company or Successor shall have thirty days following receipt of the Employee Notice in which to cure the Event or retract the Company Notice, or amend the Company Notice such that the proposed changes in employment terms or conditions do not constitute Good Reason. If the Company does not take such action within that time, the Event, or the event described in the Company Notice when it would have occurred, as applicable, shall constitute Good Reason. If Employee does not provide the Employee Notice within 60 days as required above in this clause (f), then the Event, or the change in employment terms and conditions described in the Company Notice, as applicable, shall not constitute Good Reason, and thereafter, for purposes of determining whether Employee has Good Reason, Employee's terms and conditions of employment after the occurrence of the Event or the implementation of the changes described in the Company Notice, as applicable, shall be substituted for those terms and conditions of Employee's employment in effect immediately prior to the date of this Agreement in each of clauses (i), (ii), (iii) and (iv) above.

(g) “Subsidiaries” shall mean every corporation, 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. or, upon and following a Restructuring Transaction, by the Successor.

(h) “Successor” shall mean an entity that has acquired a separate reporting segment of the Company (by reference to the Company’s audited consolidated financial statements as of and for the year ended December 31, 2008) from the Company in a Restructuring Transaction or a Subsidiary that is sold or spun off to the stockholders of the Company in a Restructuring Transaction.

XIV. 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

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jurisdiction. This arbitration provision shall be specifically enforceable. The Company (or a Successor, if applicable) and Employee shall each pay half of the administrative fees of the Association and the compensation of the arbitrator and shall each be responsible for its 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/ Preston Johnson, Jr.
Printed Name:		Preston Johnson, Jr.
Title:	Senior Vice President, Human Resources
Date:	December 10, 2009
EMPLOYEE:		/s/ John T. Nesser, III
Date:	December 10, 2009

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SCHEDULE A

(a) 2008 Performance Shares Agreement dated March 3, 2008, between Employee and the Company, the amount of shares calculated as if the Restructuring Transaction were a “change in control” as defined in such grant agreement.

(b) 2008 Restricted Stock Grant Agreement dated March 3, 2008, between Employee and the Company.

(c) 2008 Performance Shares Agreement dated August 14, 2008, between Employee and the Company, the amount of shares calculated as if the Restructuring Transaction were a “change in control” as defined in such grant agreement.

(d) 2008 Restricted Stock Grant Agreement dated August 14, 2008, between Employee and the Company.

(e) 2009 Performance Share Grant Agreement dated March 5, 2009, between the Company and Employee, applicable only as to the Initial Grant of shares.

(f) 2009 Deferred Stock Unit Grant Agreement dated March 5, 2009, between the Company and Employee.

(g) 2009 Stock Option Grant Agreement dated March 5, 2009, between the Company and Employee.

Effective as of the date of this Agreement, any of the foregoing awards that are subject to Section 409A of the Code are hereby modified to provide that no “Change in Control” (as defined in the applicable award) shall occur unless it is a change in control within the meaning of Section 409A of the Code.

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SCHEDULE B

Excise Tax Modified Cutback Provisions

Anything in this Agreement to the contrary notwithstanding, in the event the Firm (as defined below) shall determine that Employee shall become entitled to payments and/or benefits provided by this Agreement which would be subject to the excise tax imposed by Section 4999 of the Code (the “Payments”), the Firm shall determine whether to reduce any of the Payments to the Reduced Amount (as defined below). The Payments shall be reduced to the Reduced Amount only if the Firm determines that Employee would have a greater Net After-Tax Receipt (as defined below) of aggregate Payments if the Employee’s Payments were reduced to the Reduced Amount. If such a determination is not made by the Firm, Employee shall receive all Payments to which Employee is entitled under this Agreement.

If the Firm determines that aggregate Payments should be reduced to the Reduced Amount, the Company shall promptly give Employee notice to that effect and a copy of the detailed calculation thereof. All determinations made by the Firm under this Schedule B shall be binding upon the Company and Employee absent manifest error and shall be made as soon as reasonably practicable and in no event later than 15 business days of the receipt of notice from the Company that there has been a Payment, or such earlier time as is requested by the Company. For purposes of reducing the Payments to the Reduced Amount, only amounts payable under this Agreement (and no other Payments) shall be reduced. The reduction of the amounts payable hereunder, if applicable, shall be made by reducing, in order, cash payments otherwise due under clauses (c), (d), (e) and (h) of Section I of this Agreement, and then by reducing equity-based compensation otherwise due under clause (f) of Section I of this Agreement in chronological order with the most recent equity-based compensation awards reduced first.

As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Firm hereunder, it is possible that amounts will have been paid or distributed by the Company to or for the benefit of Employee pursuant to this Agreement which should not have been so paid or distributed (“Overpayment”) or that additional amounts which will have not been paid or distributed by the Company to or for the benefit of Employee pursuant to this Agreement could have been so paid or distributed (“Underpayment”), in each case, consistent with the calculation of the Reduced Amount hereunder. In the event that the Firm, based upon the assertion of a deficiency by the Internal Revenue Service against either the Company or Employee which the Firm believes has a high probability of success determines that an Overpayment has been made, Employee shall pay any such Overpayment to the Company together with interest at the applicable federal rate provided for in Section 7872(f)(2) of the Code; provided, however, that no amount shall be payable by Employee to the Company if and to the extent such payment would not either reduce the amount on which Employee is subject to tax under Section 1 and Section 4999 of the Code or generate a refund of such taxes. In the event that the Firm, based upon controlling precedent or substantial authority, determines that an Underpayment has occurred, any such Underpayment shall be paid promptly (and in no event later than 60 days following the date on which the Underpayment is determined) by the Company to or for the benefit of Employee together with interest at the applicable federal rate provided for in Section 7872(f)(2) of the Code.

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For purposes hereof, the following terms have the meanings set forth below:

“Firm” shall mean an internationally recognized accounting or employee benefits consulting firm selected by the Company with the input of Employee (but without Employee’s consent) and which shall not, during the one year preceding the date of its selection, have acted in any way on behalf of the Company or its affiliated companies.

“Net After-Tax Receipt” shall mean the present value (as determined in accordance with Sections 280G(b)(2)(A)(ii) and 280G(d)(4) of the Code) of a Payment net of all taxes imposed on Employee with respect thereto under Sections 1 and 4999 of the Code and under applicable state and local laws, determined by applying the highest marginal rate under Section 1 of the Code and under state and local laws which applied to the Employee’s taxable income for the immediately preceding taxable year, or such other rate(s) as Employee certifies, in Employee’s sole discretion, as likely to apply to him in the relevant tax year(s).

“Reduced Amount” shall mean the greatest amount of Payments that can be paid that would not result in the imposition of the excise tax under Section 4999 of the Code if the Firm determines to reduce Payments pursuant to paragraph (a) of this Attachment A.

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EXHIBIT C

CONSULTING SERVICES

TERMS AND CONDITIONS

1. Description of Services. As requested by the Company, Mr. Nesser shall serve as a special consultant furnishing advice, consultation and related services including but not limited to:

• Provide advice and counsel on strategic issues;

• Provide input on organizational structure and key personnel;

• Provide advice and counsel on project issues as they arise;

• Provide input on key client and business partner issues as requested; and

• Provide such other services and advice as shall be agreed by the parties.

2. Status. During the Consulting Period, Mr. Nesser shall be an independent contractor and shall not be an employee of the Company. The Company shall not be entitled to exercise supervision over the details or methods of performance by Mr. Nesser hereunder or to require adherence to specific procedures in performing services hereunder. Except as provided herein, Mr. Nesser shall not be subject to rules or regulations applicable to Company’s employees or any established work schedule or routine or other supervision of or direction by Company, as to hours worked or otherwise, provided, however, that all services rendered hereunder shall be so rendered to the satisfaction of Company. Mr. Nesser shall not have authority to obligate the Company to any agreement or to exercise any supervision or direction over the Company’s employees. Since the Consultant is not an employee of the Company, he is not entitled to participate in any of the Company’s employee benefit plans, programs or arrangements provided, however, the retirement and other payments or benefits that he may be entitled to as a result of previous employment with the Company shall continue uninterrupted in accordance with the terms and conditions of each respective benefit plan or arrangement.

3. Compensation. Mr. Nesser’s individual contact shall be Stephen M. Johnson, or his designee, who shall be responsible for transmitting requests for such advice and consultation from the Company where necessary to enable Mr. Nesser to carry out his responsibilities hereunder. During the Consulting Period, the Company agrees to pay $25,000 per month, which amount will be payable on the last day of each calendar month. The Company also agrees to reimburse Mr. Nesser actual reasonable costs and expenses of first class airfare and other travel, meals and lodging necessarily incurred by Mr. Nesser in rendering services hereunder, but not any other fees, costs, or expenses. Mr. Nesser shall submit a statement for each month in which services are rendered showing costs and expenses payable with respect to services rendered during such month, along with documentation substantiating expenses for which reimbursement is sought. The Company agrees to remit to Mr. Nesser the appropriate amount upon receipt of such invoices. Mr. Nesser will be responsible for income or other taxes assessed on his receipt of the monthly fee and expense reimbursement from the Company.

4. Security and Non-Disclosure of Information. Mr. Nesser shall be responsible for, and bear the expense of, compliance with governmental laws and regulations applicable to the

C-1

procurement, utilization or production of information in connection with the furnishing of services hereunder. Mr. Nesser agrees that during the Consulting Period he will refrain from 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 affects adversely or may reasonably affect adversely the Company’s best interests, economic or otherwise. Mr. Nesser also acknowledges that applicable securities laws prohibit the trading of Company securities while in possession of any material non-public information, including information concerning the financial condition, results of operations, business or prospects of the Company.

5. Property and Information. All property and information, including but not limited to reports, findings, recommendations, plans, data, and memoranda of every description, and all copies thereof, furnished to Mr. Nesser or developed in the course of or relating to the services rendered hereunder shall be the property of the Company, and Mr. Nesser shall not retain copies of any such matter or material. Mr. Nesser agrees that all inventions, discovery or improvements (whether patentable or not) made or conceived by Mr. Nesser are and will remain the sole property of the Company, and Mr. Nesser further agrees to assist the Company in obtaining patents in the Company’s name covering any such inventions, discoveries or improvements.

6. Law. Mr. Nesser will comply with all applicable laws and regulations in the course of his activities on the Company’s behalf.

7. Code of Business Conduct. Mr. Nesser expressly acknowledges that he has received and reviewed the most recent McDermott International, Inc. Code of Business Conduct, and Mr. Nesser will conform his activities undertaken for or on behalf of the Company consistent with the principles of the highest ethical behavior as described therein.

Signature:	/s/ John T. Nesser, III	Date:	May 10, 2011
	John T. Nesser, III

8. Reports. Mr. Nesser agrees that, upon request, he will file periodic reports on his activities on the Company’s behalf.

9. Indemnity. Company agrees to protect, hold harmless, defend, and indemnify Mr. Nesser from and against any and all claims, suits, and demands, of any kind whatsoever, by whomsoever asserted, as a result of, or arising from, the activities of Mr. Nesser under this Agreement; provided, however, that the Company shall have no liability or responsibility under this provision for any such claim, suit, or demand resulting from the gross negligence or intentional misconduct of Mr. Nesser.

10. Conflict of Interest. Mr. Nesser agrees that he is not presently engaged and will not engage during the term of this Agreement in any activity which might reasonably create a conflict of interest between him and the Company or which might reasonable and adversely affect his judgment with respect to the business of the Company. Mr. Nesser further agrees that he will accept no payment from any competitor or supplier of materials or services, customer, borrower, or lender of the Company.

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11. Consulting Period. The Consulting Period shall begin on August 1, 2011 and continue through January 31, 2012, unless terminated earlier by Mr. Nesser upon thirty (30) days advance written notice to the Company. The Consulting Period will be terminated without further liability or obligation on the part of the Company should Mr. Nesser breach any of the terms or covenants of the Agreement or Exhibits B or C thereto.

12. Amendment and Extension. This Consulting Agreement may be amended and/or extended by written agreement of the Company and Mr. Nesser.

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EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, Stephen M. Johnson, certify that:

1. I have reviewed this quarterly report on Form 10-Q of McDermott International, Inc. for the quarterly period ended March 31, 2011;

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 10, 2011

/s/ Stephen M. Johnson

Stephen M. Johnson

President and Chief Executive Officer

EX-31.2

Exhibit 31.2

I, Perry L. Elders, certify that:

1. I have reviewed this quarterly report on Form 10-Q of McDermott International, Inc. for the quarterly period ended March 31, 2011;

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 10, 2011

/s/ Perry L. Elders

Perry L. Elders

Senior Vice President and Chief Financial Officer

EX-32.1

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, Stephen M. Johnson, 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, 2011 (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 10, 2011

/s/ Stephen M. Johnson

Stephen M. Johnson

President and Chief Executive Officer

EX-32.2

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, Perry L. Elders, 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, 2011 (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 10, 2011

/s/ Perry L. Elders

Perry L. Elders

Senior Vice President and Chief Financial Officer