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, 2014

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 May 1, 2014 was 237,544,687.

McDERMOTT INTERNATIONAL, INC.

INDEX—FORM 10-Q

	PAGE
PART I—FINANCIAL INFORMATION
Item 1—Condensed Consolidated Financial Statements		3
Condensed Consolidated Statements of Operations—(Unaudited) Three Months Ended March 31, 2014 and 2013		3
Condensed Consolidated Statements of Comprehensive Income (Loss)—(Unaudited) Three Months Ended March  31, 2014 and 2013		4
Condensed Consolidated Balance Sheets—(Unaudited) March 31, 2014 and December 31, 2013		5
Condensed Consolidated Statements of Cash Flows—(Unaudited) Three Months Ended March 31, 2014 and 2013		6
Condensed Consolidated Statements of Equity—(Unaudited) Three Months Ended March 31, 2014 and 2013		7
Notes to Condensed Consolidated Financial Statements—(Unaudited)		8
Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations		33
Item 3—Quantitative and Qualitative Disclosures about Market Risk		48
Item 4—Controls and Procedures		50
PART II—OTHER INFORMATION
Item 1—Legal Proceedings		52
Item 1A—Risk Factors		52
Item 2—Unregistered Sales of Equity Securities and Use of Proceeds		52
Item 5—Other Information		52
Item 6—Exhibits		53
SIGNATURES		55

PART I—FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

McDERMOTT INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

	Three Months Ended March 31,
	2014			2013
	(Unaudited) (In thousands, except share and per share amounts)
Revenues	$	603,811		$	807,488
Costs and Expenses:
Cost of operations		591,493			712,814
Selling, general and administrative expenses		55,397			52,226
Gain on asset disposals		(6,439	)		(14,716	)
Restructuring charges		6,125			—
Total costs and expenses		646,576			750,324
Equity in Earnings (Loss) of Unconsolidated Affiliates		1,123			(4,131	)
Operating Income (Loss)		(41,642	)		53,033
Other Income (Expense):
Interest income		61			342
Loss on foreign currency—net		(4,082	)		(2,526	)
Other income (expense)—net		(265	)		782
Total other income (expense)		(4,286	)		(1,402	)
Income (loss) before provision for income taxes and noncontrolling interests		(45,928	)		51,631
Provision for Income Taxes		3,489			27,313
Net Income (Loss)		(49,417	)		24,318
Less: Net Income Attributable to Noncontrolling Interests		536			3,765
Net Income (Loss) Attributable to McDermott International, Inc.	$	(49,953	)	$	20,553
Earnings per Common Share:
Basic:
Income (loss) from operations, less noncontrolling interests		(0.21	)		0.09
Net income (loss) attributable to McDermott International, Inc.		(0.21	)		0.09
Diluted:
Income (loss) from operations, less noncontrolling interests		(0.21	)		0.09
Net income (loss) attributable to McDermott International, Inc.		(0.21	)		0.09
Shares used in the computation of earnings per share:
Basic		236,961,158			235,941,185
Diluted		236,961,158			239,199,881

See accompanying notes to condensed consolidated financial statements.

3

McDERMOTT INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

	Three Months Ended March 31,
	2014			2013
	(Unaudited) (In thousands)
Net Income (Loss)	$	(49,417	)	$	24,318
Other comprehensive income (loss), net of tax:
Amortization of benefit plan costs		3,171			3,655
Unrealized gain on investments		(24	)		401
Translation adjustments		(320	)		7,214
Gain (loss) on derivatives		14,529			(17,566	)
Other comprehensive income, net of tax(1)		17,356			(6,296	)
Total Comprehensive Income (Loss)	$	(32,061	)	$	18,022
Less: Comprehensive Income Attributable to Noncontrolling Interests	$	503			3,753
Comprehensive Income (Loss) Attributable to McDermott International, Inc.	$	(32,564	)	$	14,269

(1) The tax impacts on amounts presented in other comprehensive income are not significant.

See accompanying notes to condensed consolidated financial statements.

4

McDERMOTT INTERNATIONAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

	March 31, 2014			December 31, 2013
	(Unaudited) (In thousands, except share and per share amounts)
Assets
Current Assets:
Cash and cash equivalents	$	268,130		$	118,702
Restricted cash and cash equivalents		43,286			23,652
Accounts receivable—trade, net		332,062			381,858
Accounts receivable—other		109,330			89,273
Contracts in progress		431,893			425,986
Deferred income taxes		7,092			7,091
Investments		3,248			—
Assets held for sale		1,396			1,396
Other current assets		61,353			32,242
Total Current Assets		1,257,790			1,080,200
Property, Plant and Equipment		2,397,254			2,367,686
Less accumulated depreciation		(913,650	)		(889,009	)
Net Property, Plant and Equipment		1,483,604			1,478,677
Investments		2,189			13,511
Investments in Unconsolidated Affiliates		48,897			50,536
Assets held for sale		10,121			12,243
Other Assets		221,328			172,204
Total Assets	$	3,023,929		$	2,807,371
Liabilities and Equity
Current Liabilities:
Notes payable and current maturities of long-term debt	$	258,417		$	39,543
Accounts payable		423,166			398,739
Accrued liabilities		383,401			365,224
Advance billings on contracts		278,881			278,929
Deferred income taxes		20,257			17,892
Income taxes payable		16,656			20,657
Total Current Liabilities		1,380,778			1,120,984
Long-Term Debt		49,761			49,019
Self-Insurance		21,715			20,531
Pension Liability		15,516			15,681
Non-current Income Taxes		55,455			56,042
Other Liabilities		89,019			104,770
Commitments and Contingencies
Stockholders’ Equity:
Common stock, par value $1.00 per share, authorized 400,000,000 shares; issued 244,739,400 and 244,271,365 shares at March 31, 2014 and December 31, 2013, respectively		244,739			244,271
Capital in excess of par value		1,417,374			1,414,457
Retained earnings		(121,110	)		(71,157	)
Treasury stock, at cost, 7,231,536 and 7,130,294 shares at March 31, 2014 and December 31, 2013, respectively		(97,407	)		(97,926	)
Accumulated other comprehensive loss		(122,742	)		(140,131	)
Stockholders’ Equity—McDermott International, Inc.		1,320,854			1,349,514
Noncontrolling Interests		90,831			90,830
Total Equity		1,411,685			1,440,344
Total Liabilities and Equity	$	3,023,929		$	2,807,371

See accompanying notes to condensed consolidated financial statements.

5

McDERMOTT INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	Three Months Ended March 31,
	2014			2013
	(Unaudited) (In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	(49,417	)	$	24,318
Non-cash items included in net income (loss):
Depreciation and amortization		24,602			20,222
Drydock amortization		6,946			5,550
Restructuring charges		675			—
Equity in (earnings) loss of unconsolidated affiliates		(1,123	)		4,131
Gain on asset disposals		(6,439	)		(14,716	)
Benefit for deferred taxes		(2,628	)		5,332
Stock-based compensation charges		4,387			3,923
Net periodic pension benefit cost		2,854			642
Other non-cash items		2,331			1,749
Changes in assets and liabilities, net of effects from acquisitions and dispositions:
Accounts receivable		26,365			(6,573	)
Net contracts in progress and advance billings on contracts		(5,974	)		(19,935	)
Accounts payable		32,727			(125,234	)
Accrued and other current liabilities		15,046			(20,774	)
Pension liability and accrued postretirement and employee benefits		5,880			(19,657	)
Other assets and liabilities		(78,560	)		(46,093	)
TOTAL CASH USED IN OPERATING ACTIVITIES		(22,328	)		(187,115	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment		(37,893	)		(37,649	)
Increase in restricted cash and cash equivalents		(19,634	)		(3,826	)
Purchases of available-for-sale securities		(1,997	)		(3,744	)
Sales and maturities of available-for-sale securities		10,055			31,193
Proceeds from the sale and disposal of assets		8,370			35,621
Other investing activities		(1,950	)		(4,596	)
TOTAL CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES		(43,049	)		16,999
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short term debt		250,000			—
Payment of debt		(31,373	)		(1,494	)
Distributions to noncontrolling interests		(502	)		(6,200	)
Debt issuance cost and other financing activities		(3,356	)		(1,015	)
TOTAL CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES		214,769			(8,709	)
EFFECTS OF EXCHANGE RATE CHANGES ON CASH		36			213
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		149,428			(178,612	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		118,702			640,147
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	268,130		$	461,535
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Income taxes (net of refunds)	$	11,668		$	25,916

See accompanying notes to condensed consolidated financial statements.

6

McDERMOTT INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

	Common Stock				Capital In Excess of Par Value			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Stockholders’ Equity			Non- Controlling Interests			Total Equity
	Shares		Par Value
	(Unaudited) (In thousands, except share amounts)
Balance December 31, 2012		243,442,156	$	243,442	$	1,391,271		$	445,756		$	(98,725	)	$	(94,413	)	$	1,887,331		$	64,774		$	1,952,105
Net income		—		—		—			20,553			—			—			20,553			3,765			24,318
Other comprehensive income, net of tax		—		—		—			—			—			(6,284	)		(6,284	)		(12	)		(6,296	)
Exercise of stock options		18,549		18		54			—			—			—			72			—			72
Share vesting		317,664		318		(318	)		—			—			—			—			—			—
Purchase of treasury shares		—		—		—			—			(1,034	)		—			(1,034	)		—			(1,034	)
Stock-based compensation charges		—		—		3,852			—			71			—			3,923			—			3,923
Distributions to noncontrolling interests		—		—		—			—			—			—			—			(6,200	)		(6,200	)
Balance March 31, 2013		243,778,369	$	243,778	$	1,394,859		$	466,309		$	(99,688	)	$	(100,697	)	$	1,904,561		$	62,327		$	1,966,888
Balance December 31, 2013		244,271,365	$	244,271	$	1,414,457		$	(71,157	)	$	(97,926	)	$	(140,131	)	$	1,349,514		$	90,830		$	1,440,344
Net loss		—		—		—			(49,953	)		—			—			(49,953	)		536			(49,417	)
Other comprehensive income, net of tax		—		—		—			—			—			17,389			17,389			(33	)		17,356
Exercise of stock options		118,410		118		147			—			—			—			265			—			265
Share vesting		349,625		350		(350	)		—			—			—			—			—			—
Purchase of treasury shares		—		—		—			—			(748	)		—			(748	)		—			(748	)
Stock-based compensation charges		—		—		3,120			—			1,267			—			4,387			—			4,387
Distributions to noncontrolling interests		—		—		—			—			—			—			—			(502	)		(502	)
Balance March 31, 2014		244,739,400	$	244,739	$	1,417,374		$	(121,110	)	$	(97,407	)	$	(122,742	)	$	1,320,854		$	90,831		$	1,411,685

See accompanying notes to condensed consolidated financial statements.

7

McDERMOTT INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1—BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

McDermott International, Inc. (“MII”), a corporation incorporated under the laws of the Republic of Panama in 1959, 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, we deliver fixed and floating production facilities, pipeline installations and subsea systems from concept to commissioning. Operating in approximately 20 countries across the Americas, Middle East and Asia Pacific, our integrated resources include approximately 14,000 employees and a diversified fleet of marine vessels, fabrication facilities and engineering offices. We support our activities with comprehensive project management and procurement services, while utilizing our fully integrated capabilities in both shallow water and deepwater construction. Our customers include national, major integrated and other oil and gas companies, and we operate in most major offshore oil and gas producing regions throughout the world. We execute our contracts through a variety of methods, principally fixed-price, but also including cost reimbursable, cost-plus, day-rate and unit-rate basis or some combination of those methods. In these notes to our unaudited 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 (the “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, 2013.

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

Certain 2013 amounts in the condensed consolidated balance sheet and statement of cash flows have been reclassified to conform to the 2014 presentation.

Business Segments

In March 2014, we changed our organizational structure to orient around our offshore and subsea business activities through four primary geographic regions. The four geographic regions, which we consider to be our operating segments, consist of Asia Pacific, Americas (previously Atlantic), Middle East and North Sea and Africa. The Caspian is no longer considered an operating segment and will continue to be aggregated in the Middle East reporting segment. The North Sea and Africa operating segment is also aggregated into the Middle East reporting segment due to the proximity of regions and similarities in the nature of services provided, economic characteristics and oversight responsibilities. Accordingly, we continue to report financial results under reporting segments consisting of Asia Pacific, Americas and the Middle East. We also report certain corporate and other non-operating activities under the heading “Corporate and other”. “Corporate and other” primarily

8

reflects corporate personnel and activities, incentive compensation programs and other costs, which are generally fully allocated to our operating segments. The only corporate costs currently not being allocated to our operating segments are the restructuring costs associated with our corporate reorganization. See Note 9 for summarized financial information on our segments.

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 the amount of accumulated contract costs and estimated earnings that exceed billings to customers in contracts in progress. We include billings to customers that exceed accumulated contract costs and estimated earnings in advance billings on contracts. Most long-term contracts contain provisions for progress payments. We expect to invoice customers for and collect all unbilled revenues. Certain costs are generally excluded from the cost-to-cost method of measuring progress, such as significant procurement costs for materials and third-party subcontractors. Total estimated project costs, and resulting income, are affected by changes in the expected cost of materials and labor, productivity, vessel costs, 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 in profit, proportionate to the job percentage of completion in the period when those estimates are revised. Revenue from unapproved change orders is generally recognized to the extent of the lesser of amounts management expects to recover or costs incurred. Additionally, to the extent that claims included in backlog, including those that arise from change orders which are under dispute or which have been previously rejected by the customer, are not resolved in our favor, there could be reductions in or reversals of previously reported, revenues and profits, and charges against current earnings, which could be material.

Claims Revenue

Claims revenue may relate to various factors, including the procurement of materials, equipment performance failures, change order disputes or schedule disruptions and other delays, including those associated with weather or sea conditions. Claims revenue, when recorded, is only recorded to the extent of the lesser of the amounts management expects to recover or the associated costs incurred in our consolidated financial statements. We include certain unapproved claims in the applicable contract values when we have a legal basis to do so, consider collection to be probable and believe we can reliably estimate the ultimate value. Amounts attributable to unapproved change orders are not included in claims. We continue to actively engage in negotiations with our customers on our outstanding claims. However, these claims may be resolved at amounts that differ from our current estimates, which could result in increases or decreases in future estimated contract profits or losses. Claims are generally negotiated over the course of the respective projects and many of our projects are long-term in nature. None of the claims as of March 31, 2014 were involved in litigation.

The amount of revenues and costs included in our estimates at completion (i.e., contract values) associated with such claims was $6.5 million and $225.8 million as of March 31, 2014 and March 31, 2013, respectively. All of those claim amounts at March 31, 2014 were related to our Middle East segment. For the three months ended March 31, 2014, no revenues and costs pertaining to claims were included in our condensed consolidated financial statements. For the three months ended March 31, 2013, $29.0 million of revenues and costs pertaining to claims were included in our condensed consolidated financial statements.

9

Our unconsolidated joint ventures did not include any claims revenue or associated cost in their financial results for the period ended March 31, 2014. For the period ended March 31, 2013, our unconsolidated joint ventures included $3.7 million of claims revenue and associated costs in their financial results.

Deferred Profit Recognition

For contracts as to which we are unable to estimate the final profitability due to their uncommon nature, including first-of-a-kind projects, 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 reliably estimable and the level of uncertainty has been significantly reduced, which we generally determine to be when the contract is at least 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 as deferred profit recognition contracts. If, while being accounted for under our deferred profit recognition policy, a current estimate of total contract costs indicates a loss, the projected loss is recognized in full and the project is accounted for under our normal revenue recognition guidelines. At March 31, 2014, no projects were accounted for under our deferred profit recognition policy.

Completed Contract Method

Under the completed contract method, revenue and gross profit is recognized only when a contract is completed or substantially complete. We generally do not enter into fixed-price contracts without an estimate of cost to complete that we believe to be accurate. However, it is possible that in the time between contract execution and the start of work on a project, we could lose the ability to forecast cost to complete based on intervening events, including, but not limited to, experience on similar projects, civil unrest, strikes and volatility in our expected costs. In such a situation, we would use the completed contract method of accounting for that project. We did not enter into any contracts that we accounted for under the completed contract method during the quarters ended March 31, 2014 and March 31, 2013.

Loss Recognition

A risk associated with fixed-priced contracts is that revenue from customers may not cover increases in our costs. It is possible that current estimates could materially change for various reasons, including, but not limited to, fluctuations in forecasted labor and vessel productivity, vessel repair requirements, weather downtime, subcontractor or supplier performance, pipeline lay rates or steel and other raw material prices. Increases in costs associated with our fixed-price contracts could have a material adverse impact on our consolidated financial condition, results of operations and cash flows. Alternatively, reductions in overall contract costs at completion could materially improve our consolidated financial condition, results of operations and cash flows.

As of March 31, 2014, we have provided for our estimated costs to complete on all of our ongoing contracts. However, it is possible that current estimates could change due to unforeseen events, which could result in adjustments to overall contract costs. Variations from estimated contract performance could result in material adjustments to operating results for any fiscal quarter or year. For all contracts, if a current estimate of total contract cost indicates a loss, the projected loss is recognized in full when determined.

Of the March 31, 2014 backlog amount of $4.4 billion, approximately $550.7 million relates to nine active projects that are in loss positions, whereby future revenues are expected to equal costs when recognized. Included in this amount is $191.6 million of backlog associated with an EPCI project in Altamira, which is expected to be completed in the third quarter of 2015, $144.6 million pertaining to a five-year charter of the Agile in Brazil, which began in early 2012, and $65.9 million relating to a subsea project in the U.S. Gulf of Mexico scheduled for completion during 2014, all of which are being conducted by our Americas segment. The amount also includes $91.5 million of backlog relating to an EPCI project in Saudi Arabia, in our Middle East segment, which is expected to be completed by the end of 2015. These four projects represent approximately 90% of the backlog amount in a loss position. It is possible that our estimates of gross profit could increase or decrease based on changes in productivity, actual downtime and the resolution of change orders and claims with the customers.

10

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 in future periods. Changes in project estimates generally exclude change orders and changes in scope, but may include, without limitation, unexpected changes in weather conditions, productivity, unanticipated vessel repair requirements, customer, subcontractor and supplier delays and other costs. We generally expect to experience a reasonable amount of unanticipated events, and some of these events can result in significant cost increases above cost amounts we previously estimated. As of March 31, 2014, we have provided for our estimated costs to complete on all of our ongoing contracts. However, it is possible that current estimates could change due to unforeseen events, which could result in adjustments to overall contract costs. Variations from estimated contract performance could result in material adjustments to operating results.

The following is a discussion of our most significant changes in estimates that impacted operating income for the three months ended March 31, 2014 and 2013.

2014 Period

Operating income for the three months ended March 31, 2014 was impacted by changes in cost estimates relating to projects in each of our segments.

The Asia Pacific segment experienced an improvement of approximately $20.6 million mostly due to changes in estimates on a subsea project in Malaysia during the quarter ended March 31, 2014, primarily due to productivity improvements on our marine vessels as well as offshore support activities.

The Middle East segment was negatively impacted by losses of approximately $31.9 million, mostly due to changes in estimates on three projects in Saudi Arabia during the three months ended March 31, 2014. On two EPCI projects in Saudi Arabia, we increased our estimated cost at completion by approximately $24.3 million, primarily as a result of vessel downtime due to weather and standby delays (which may be recoverable from the customer, but which were not recognizable at March 31, 2014), and reduced productivity on fabrication and engineering activities. Both projects remain in a profitable position at March 31, 2014. On another EPCI project in Saudi Arabia, we increased our estimated cost to complete by approximately $7.6 million, primarily due to increases in our cost estimates for the completion of onshore activities on the project.

The Americas segment was negatively impacted by changes in estimates of approximately $35.4 million on an EPCI project in Altamira during the quarter ended March 31, 2014. The estimated cost at completion on this project increased primarily due to expected delays in final project delivery, resulting in a revised execution plan, increased fabrication labor costs and recognition of liquidated damages.

2013 Period

Operating income for the three months ended March 31, 2013 was impacted by changes in cost estimates relating to projects in each of our segments.

The Middle East segment was impacted by changes in estimates on five projects. In total, those five projects recognized approximately $7.7 million in project losses in the three months ended March 31, 2013, as a result of increases to the estimated costs to complete those projects of approximately $38.0 million. On one of those projects, we increased our estimated cost at completion by $17.5 million, which resulted in the recognition of a $5.4 million loss in the three months ended March 31, 2013, primarily due to changes in the project’s execution plan, which resulted in additional third-party construction vessel usage and marine downtime, cost overruns on offshore hook-up activities, and additional costs for project management-related activities. This project remained in a profitable position at March 31, 2014.

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On three projects in the Middle East segment, we increased our estimated cost at completion by $16.7 million, which resulted in the recognition of only $1.8 million of project income in the three months ended March 31, 2013. The changes in estimated cost at completion were principally driven by cost overruns associated with marine equipment downtime, including productivity, hook-up and project management-related activities. Each of those projects was in a profitable position at March 31, 2013. One of those projects was completed in the third quarter of 2013, and the remaining two projects are expected to be completed during 2014. On the remaining project in the Middle East segment, we recognized incremental costs of $4.1 million in the three months ended March 31, 2013, primarily due to cost overruns on marine installation activities. That project was in a loss position at March 31, 2013 and was completed in the second quarter of 2013.

The Americas segment was impacted by changes in estimates on two projects. On one of those projects, we recognized approximately $6.9 million of incremental project losses in the three months ended March 31, 2013, primarily due to declines in fabrication productivity. That project remained in a loss position through its completion in the fourth quarter of 2013. The other project was completed in the first quarter of 2013 and recognized $2.4 million of cost savings as a result of efficiencies associated with fabrication activities.

The Asia Pacific segment benefited from certain changes in estimates, which resulted in a reduction of estimated costs at completion in the three months ended March 31, 2013 of approximately $14.0 million, primarily due to efficiencies associated with the marine campaigns on two of our EPCI projects, both of which were completed in 2013. These benefits were partially offset by project charges recognized in the three months ended March 31, 2013 of approximately $4.1 million associated with cost overruns on support vessels on one of our subsea projects, which remains in a loss position and is expected to be completed in the second quarter of 2014.

Loss Contingencies

We record 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 litigation and other proceedings, as discussed in Note 10. We have accrued our estimates of the probable losses associated with these matters, and associated legal costs are generally recognized in selling, general and administrative expenses as incurred. 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 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, 2014, all of our restricted cash was held in restricted foreign-entity accounts.

Investments

We classify investments available for current operations as current assets in the accompanying balance sheets, and we classify investments held for long-term purposes as noncurrent assets. We adjust the amortized cost of debt securities for amortization of premiums and accretion of discounts to maturity. That amortization is included in interest income. We include realized gains and losses on our investments in other income (expense)—net. The cost of securities sold is based on the specific identification method. We include interest earned on securities in interest income.

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Investments in Unconsolidated Affiliates

We generally use the equity method of accounting for affiliates in which our investment ownership ranges from 20% to 50%, and in which we do not exercise control over the entity. Currently, most of our investments in affiliates that are not consolidated are recorded using the equity method.

Accounts Receivable

Accounts Receivable—Trade, Net

A summary of contract receivables is as follows:

	March 31, 2014			December 31, 2013
	(Unaudited)
	(In thousands)
Contract receivables:
Contracts in progress	$	189,044		$	192,745
Completed contracts		55,880			77,248
Retainages		110,718			127,698
Unbilled		4,325			14,571
Less allowances		(27,905	)		(30,404	)
Accounts receivable—trade, net	$	332,062		$	381,858

We expect to invoice our unbilled receivables once certain 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.

Contract retainages generally represent amounts withheld by our customers until project completion, in accordance with the terms of the applicable contracts. The following is a summary of retainages on our contracts:

	March 31, 2014		December 31, 2013
	(Unaudited)
	(In thousands)
Retainages expected to be collected within one year	$	110,718	$	127,698
Retainages expected to be collected after one year		107,315		65,365
Total retainages	$	218,033	$	193,063

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.

Accounts Receivable—Other

Accounts receivable—other was $109.3 million and $89.3 million at March 31, 2014 and December 31, 2013, respectively. The balance primarily relates to transactions with unconsolidated affiliates, receivables associated with our hedging activities, value-added tax, other items and employee receivables. Employee receivables were $4.2 million and $4.5 million as of March 31, 2014 and December 31, 2013, respectively. These amounts are expected to be collected within 12 months, and any allowance for doubtful accounts on our accounts receivable—other is based on our estimate of the amount of probable losses due to the inability to collect these amounts (based on historical collection experience and other available information). As of March 31, 2014 and December 31, 2013, no such allowance for doubtful accounts was recorded.

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Contracts in Progress and Advance Billings on Contracts

Contracts in progress were $431.9 million and $426.0 million at March 31, 2014 and December 31, 2013, respectively. Advance billings on contracts were $278.9 million at both March 31, 2014 and December 31, 2013. A detail of the components of contracts in progress and advance billings on contracts is as follows:

	March 31, 2014		December 31, 2013
	(Unaudited)
	(In thousands)
Costs incurred less costs of revenue recognized	$	127,773	$	65,113
Revenues recognized less billings to customers		304,120		360,873
Contracts in Progress	$	431,893	$	425,986

	March 31, 2014			December 31, 2013
	(Unaudited)
	(In thousands)
Billings to customers less revenue recognized	$	496,040		$	466,205
Costs incurred less costs of revenue recognized		(217,159	)		(187,276	)
Advance Billings on Contracts	$	278,881		$	278,929

Fair Value of Financial Instruments

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. An established hierarchy for inputs is used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors that market participants would use in valuing the asset or liability.

Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:

• Level 1—inputs are based upon quoted prices for identical instruments traded in active markets.

• Level 2—inputs are based upon quoted prices for similar instruments in active markets, quoted prices for similar or identical instruments in inactive markets and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets and liabilities.

• Level 3—inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques that include option pricing models, discounted cash flow models and similar valuation techniques.

The carrying amounts that we have reported for financial instruments, including cash and cash equivalents, accounts receivables and accounts payable approximate their fair values. See Note 6 for additional information regarding fair value measurements.

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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 derivative 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 and/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 contain provisions under which some payments from our customers are denominated in U.S. Dollars and other payments are denominated in a foreign currency. In general, 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. See Note 5 for additional information regarding derivative financial instruments.

Foreign Currency Translation

We translate assets and liabilities of our foreign operations, other than operations in highly inflationary economies, into U.S. Dollars at period-end exchange rates, and we translate income statement items at average exchange rates for the periods presented. We record adjustments resulting from the translation of foreign currency financial statements as a component of accumulated other comprehensive income (loss) (“AOCI”), net of tax.

Earnings per Share

We have computed earnings per common share on the basis of the weighted average number of common shares, and, where dilutive, common share equivalents, outstanding during the indicated periods. See Note 8 for our earnings per share computations.

Accumulated Other Comprehensive Loss

The components of AOCI included in stockholders’ equity are as follows:

	March 31, 2014			December 31, 2013
	(Unaudited)
	(In thousands)
Foreign currency translation adjustments	$	(2,882	)	$	(2,562	)
Net gain on investments		214			238
Net loss on derivative financial instruments		(30,824	)		(45,386	)
Unrecognized losses on benefit obligations		(89,250	)		(92,421	)
Accumulated other comprehensive loss	$	(122,742	)	$	(140,131	)

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The following tables present the components of AOCI and the amounts that were reclassified during the period:

For the three months ended March 31, 2014	Unrealized holding loss on investment			Deferred gain (loss) on derivatives(1)			Foreign currency gain (loss)			Defined benefit pension plans loss(2)			TOTAL
	(Unaudited)
	(In thousands)
Balance, December 31, 2013	$	238		$	(45,386	)	$	(2,562	)	$	(92,421	)	$	(140,131	)
Other comprehensive income (loss) before reclassification		(24	)		12,358			(320	)		—			12,014
Amounts reclassified from AOCI		—			2,204	(3)		—			3,171	(4)		5,375
Net current period other comprehensive income (loss)		(24	)		14,562			(320	)		3,171			17,389
Balance, March 31, 2014	$	214		$	(30,824	)	$	(2,882	)	$	(89,250	)	$	(122,742	)

For the three months ended March 31, 2013	Unrealized holding loss on investment			Deferred gain (loss) on derivatives(1)			Foreign currency gain (loss)			Defined benefit pension plans loss(2)			TOTAL
	(Unaudited)
	(In thousands)
Balance, December 31, 2012	$	(2,315	)	$	11,734		$	(3,366	)	$	(100,466	)	$	(94,413	)
Other comprehensive income before reclassification		401			(15,450	)		7,214			—			(7,835	)
Amounts reclassified from AOCI		—			(2,104	)(3)		—			3,655	(4)		1,551
Net current period other comprehensive income		401			(17,554	)		7,214			3,655			(6,284	)
Balance, March 31, 2013	$	(1,914	)	$	(5,820	)	$	3,848		$	(96,811	)	$	(100,697	)

(1) Refer to Note 5 for additional details.

(2) Refer to Note 4 for additional details.

(3) Reclassified to cost of operations and gain on foreign currency, net.

(4) Reclassified to selling, general and administrative expenses.

Recently Issued Accounting Standards

On July 18, 2013, the Financial Accounting Standards Board (“FASB”) issued an update to the topic Income Taxes. The update clarifies that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward if settlement is required or expected in the event the uncertain tax position is disallowed. In situations where these items are not available at the reporting date under the tax law of the applicable jurisdiction or the tax law of the applicable jurisdiction does not require, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The update is effective for reporting periods beginning after December 15, 2013, and the adoption of this update does not have a material impact on our condensed consolidated financial statements.

In February 2013, the FASB issued an update to the topic Comprehensive Income. The update requires companies to provide additional information about the nature and amount of certain reclassifications out of AOCI, which impact the income statement. While the amendment does not change current reporting

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requirements, companies are required to provide information about the amounts reclassified out of AOCI by the respective line item. The update is effective for reporting periods beginning after December 15, 2012, and the adoption of this update did not have a material impact on our condensed consolidated financial statements.

In January 2013, the FASB issued an update to the topic Balance Sheet. This update requires new disclosures presenting detailed information regarding both the gross and net basis of derivatives and other financial instruments that are eligible for offset in the balance sheet or that are subject to a master netting arrangement. The update is effective for the first quarter of 2013 and is to be applied retrospectively. As this new guidance relates to presentation only, the adoption of this update did not have a material impact on our condensed consolidated financial statements.

NOTE 2—ACQUISITION AND DISPOSITIONS

Acquisition

During the quarter ended March 31, 2013, we entered into a share purchase agreement to acquire all of the issued and outstanding shares of capital stock of Deepsea Group Limited, a United Kingdom-based company that provides subsea and other engineering services to international energy companies, primarily through offices in the United Kingdom and the United States. Total consideration was approximately $9.0 million, which includes cash ($6.0 million) and the delivery of 313,580 restricted shares of MII common stock (out of treasury). The transaction is being accounted for using the acquisition method and, accordingly, assets acquired and liabilities assumed are recorded at their respective fair values.

During the quarter ended December 31, 2013, we entered into two joint ventures with TH Heavy Engineering Berhad (“THHE”), whereby we acquired a 30% interest in a subsidiary of THHE, THHE Fabricators Sdn. Bhd., and THHE acquired a 30% interest in our Malaysian subsidiary, Berlian McDermott Sdn. Bhd. Accounting for these transactions is preliminary at March 31, 2014 and is pending finalization of these transactions by mid-2014. As of March 31, 2014, we recorded an equity method investment of approximately $25.5 million, a non-controlling interest of approximately $20.9 million and an increase in capital in excess of par value of approximately $4.6 million arising from these transactions.

Non-Core Asset Sales

We previously committed to a plan to sell four of our multi-function marine vessels, specifically the Bold Endurance, DB 16, DB 26 and the DLB KP1. Assets classified as held for sale are no longer depreciated. During the quarter ended March 31, 2014, we completed the sale of the DLB KP1 for aggregate cash proceeds of approximately $8.4 million, resulting in a gain of approximately $6.4 million recognized in our Middle East segment. During the quarter ended March 31, 2013, we completed the sale of the Bold Endurance and the DB 26 for aggregate cash proceeds of approximately $32.0 million, resulting in an aggregate gain of approximately $12.5 million. We remain in active discussions with interested parties to sell the DB 16.

Americas and Corporate Restructuring

We commenced a restructuring of our Americas operations during the quarter ended June 30, 2013, which involves our Morgan City, Louisiana, Houston, Texas, New Orleans, Louisiana and Brazil locations. The restructuring involves, among other things, reductions of management, administrative, fabrication and engineering personnel, and a plan to discontinue utilization of the Morgan City facility (after the completion of existing backlog projects, which are currently forecasted to be completed in the third quarter of 2014). Future fabrication operations in the Americas segment are expected to be executed using the Altamira, Mexico facility. In addition, we have reached an agreement to exit our joint venture operation in Brazil. Costs associated with our Americas restructuring activities primarily include severance and other personnel-related costs, costs associated

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with exiting the joint venture in Brazil, asset impairment and relocation costs, environmental reserves and future unutilized lease costs. The total costs are expected to range between $55.0 and $60.0 million in the aggregate. Of the total anticipated costs, we incurred approximately $3.6 million during the quarter ended March 31, 2014 and had incurred an aggregate of $37.7 million through March 31, 2014.

In October 2013, we announced certain executive management changes that became effective during the fourth quarter of 2013. In March 2014, we changed our organizational structure to orient around offshore and subsea business activities through four primary geographic regions. Costs associated with our corporate reorganization activities will primarily include severance, relocation and other personnel-related costs and costs for advisors. The total of these costs is expected to range between $20.0 million and $25.0 million and to be incurred by the end of 2014. Of the total anticipated costs, we incurred approximately $2.5 million during the quarter ended March 31, 2014 and had incurred an aggregate of $4.2 million as of March 31, 2014.

The following table presents total amounts incurred during the quarter ended March 31, 2014, as well as amounts incurred from inception of restructuring efforts up to March 31, 2014 and amounts expected to be incurred in the future by major type of cost and by segment.

	Incurred for three months ended March 31, 2014		Incurred from restructuring inception to March 31, 2014		Remaining to be incurred		Total
	(In thousands)
Americas
Impairments and write offs	$	—	$	14,138	$	112	$	14,250
Severance and other personnel-related costs		2,029		11,676		1,324		13,000
Morgan City environmental reserve (accrued)		—		5,925		—		5,925
Morgan City yard-related expenses		1,602		5,800		9,450		15,250
Other		—		158		6,417		6,575
	$	3,631	$	37,697	$	17,303	$	55,000
Corporate
Severance and other personnel-related costs	$	908	$	2,569	$	6,931	$	9,500
Legal and other advisor fees		1,586		1,586		8,914		10,500
	$	2,494	$	4,155	$	15,845	$	20,000
Total	$	6,125	$	41,852	$	33,148	$	75,000

Accrued liabilities associated with restructuring activities were approximately $7.9 million and $8.0 million as of March 31, 2014 and December 31, 2013, respectively.

NOTE 3—LONG-TERM DEBT AND NOTES PAYABLE

During April 2014, we refinanced our existing obligations, and replaced in its entirety, our then existing $950.0 million credit agreement (the “Former Credit Agreement”) with a new credit agreement (the “New Credit Agreement”), which provides for:

• a $400.0 million first-lien, first-out three-year letter of credit facility (the “LC Facility”); and

• a $300.0 million first-lien, second-out five-year term loan (the “Term Loan”).

As of March 31, 2014 we had $250.0 million of revolving credit borrowings outstanding and approximately $376.0 million of letters of credit outstanding under the Former Credit Agreement.

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Additionally, during April 2014, we completed the following new financing transactions:

• the issuance of $500.0 million of second-lien seven-year senior secured notes (the “Notes”).

• the issuance of $287.5 million of tangible equity units (“Units”) composed of (1) three-year amortizing, senior unsecured notes, in an aggregate principal amount of $47.5 million, and (2) prepaid common stock purchase contracts.

With the completion of these financing transactions in April 2014, we terminated the bridge loan commitment we had obtained from an affiliate of Goldman, Sachs, & Co. (“Goldman Sachs”). As a result of the termination of the bridge loan commitment, the fee we previously paid to Goldman Sachs to obtain the bridge loan commitment will be recognized as interest expense in the second quarter of 2014. Due to the replacement of the Former Credit Agreement, the unamortized issuance fees related to the Former Credit Agreement will also be recognized as interest expense in the second quarter of 2014. The total additional interest expense related to these items is expected to be approximately $28.0 million in the quarter ending June 30, 2014.

The Former Credit Agreement provided for revolving credit borrowings and issuances of letters of credit in an aggregate outstanding amount of up to $950.0 million.

At March 31, 2014, there was $250.0 million of revolving credit borrowings outstanding, and letters of credit issued under the Former Credit Agreement totaled approximately $376.0 million, including letters of credit in the aggregate amount of $109.0 million issued in February 2014 to replace the letters of credit issued by Australia and New Zealand Banking Group Limited discussed below. During the quarter ended March 31, 2014, our outstanding borrowings under the Former Credit Agreement did not exceed $250.0 million, and we had average outstanding borrowings under the Former Credit Agreement of approximately $165.0 million, with an average interest rate of 3.45%. At December 31, 2013, there were no borrowings outstanding, and letters of credit issued under the Former Credit Agreement totaled approximately $214.3 million.

At March 31, 2014, the applicable margin for Eurodollar-rate loans was 2.00%, the applicable margin for base-rate loans was 1.00%, the letter of credit fee for financial letters of credit was 2.00%, the letter of credit fee for performance letters of credit was 1.00%, and the commitment fee for unused portions of the Former Credit Agreement was 0.3%. The Former Credit Agreement did not have a floor for the base rate or the Eurodollar rate.

Obligations under the Former Credit Agreement were secured on a first-lien basis by pledges of capital stock of certain of our subsidiaries and mortgages and other security interests covering (1) all of our personal property and substantially all of the personal property of our wholly owned subsidiaries, subject to exceptions for bank accounts, equipment and certain other assets, and (2) certain of our marine vessels.

New Credit Facilities

During April 2014 we entered into the New Credit Agreement, which provides for the LC Facility and the Term Loan.

The New Credit Agreement includes the $400.0 million first-lien, first-out LC Facility, which is scheduled to mature on April 16, 2017, and the $300.0 million first-lien, second-out Term Loan, which is scheduled to mature April 16, 2019. The indebtedness and other obligations under the New Credit Agreement are guaranteed by substantially all of our material, wholly owned subsidiaries, other than our captive insurance subsidiary (collectively, the “Guarantors”).

In connection with the New Credit Agreement, we paid certain fees to the lenders thereunder, as well as certain arrangement fees to the arrangers and agents for the New Credit Facilities, which we intend to amortize to interest expense over the respective terms of the LC Facility and the Term Loan.

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LC Facility

The LC Facility provides for an initial letter of credit capacity of $400.0 million and allows for uncommitted increases in capacity of $100.0 million through December 31, 2014 and an additional $100.0 million thereafter, potentially increasing the total capacity to $600.0 million through the term of the LC Facility. Letters of credit issuable under the LC Facility support the obligations of McDermott and its affiliates and joint ventures. The aggregate amount of the LC Facility available for financial letters of credit is capped at 25% of the total LC Facility.

The LC Facility is secured on a first-lien, first-out basis (with relative priority over the Term Loan) by pledges of the capital stock of all the Guarantors and mortgages on, or other security interests in, substantially all the tangible and intangible assets of our company and the Guarantors, subject to specific exceptions.

The LC Facility contains various customary affirmative covenants, as well as specific affirmative covenants, including specific reporting requirements and a requirement for ongoing periodic financial reviews by a financial advisor. The LC Facility also requires compliance with various negative covenants, including limitations with respect to the incurrence of other indebtedness and liens, restrictions on acquisitions, capital expenditures and other investments, restrictions on sale/leaseback transactions and restrictions on prepayments of other indebtedness.

The LC Facility requires us to meet a minimum EBITDA (as defined) covenant, which requires that we generate consolidated EBITDA of at least certain specified amounts for different periods over the term of the facility. The LC Facility also requires us to maintain a ratio of fair market value of vessel collateral to the sum of (1) the outstanding principal amount of the Term Loan, (2) the aggregate amount of undrawn financial letters of credit outstanding under the LC Facility, (3) all drawn but unreimbursed letters of credit under the LC Facility, and (4) mark-to-market foreign exchange exposure that is not cash secured of at least 1.20:1.00. The LC Facility also requires us to maintain at least $200.0 million of minimum available cash, excluding restricted cash, at the end of each quarter.

The LC Facility provides for a commitment fee of 0.50% per year on the unused portion of the LC Facility and letter of credit fees at an annual rate of 2.25% for performance letters of credit and 4.50% for financial letters of credit, as well as customary issuance fees and other fees and expenses.

Term Loan

The Term Loan is secured on a first-lien, second-out basis (with the LC Facility having relative priority over the Term Loan) by pledges of the capital stock of all the Guarantors and mortgages on, or other security interests in, substantially all tangible and intangible assets of our company and the Guarantors, subject to specific exceptions.

The Term Loan requires mandatory prepayments from: (1) the proceeds from the sale of assets, as well as insurance proceeds, in each case subject to certain exceptions, to the extent such proceeds are not reinvested in our business within 365 days of receipt; (2) net cash proceeds from the incurrence of indebtedness not otherwise permitted by the New Credit Facilities; and (3) 50% of amounts deemed to be “excess cash flow,” subject to specified adjustments. The Term Loan also requires quarterly amortization payments equal to $750,000. The Term Loan also provides for a prepayment premium if we prepay or re-price the Term Loan prior to April 16, 2016.

The Term Loan requires compliance with various customary affirmative and negative covenants. We must also maintain a ratio of “ownership adjusted fair market value” of marine vessels to the sum of (1) the outstanding principal amount of the Term Loan and (2) the aggregate principal amount of unreimbursed drawings and advances under the LC Facility of at least 1.75:1.00.

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The Term Loan was incurred with 25 basis points of original issue discount and bears interest at a floating rate, which can be, at our option, either: (1) a LIBOR rate for a specified interest period (subject to a LIBOR “floor” of 1.00%) plus an applicable margin of 4.25%; or (2) an alternate base rate (subject to a base rate “floor” of 2.00%) plus an applicable margin of 3.25%.

Senior Notes

During April 2014 we issued $500.0 million in aggregate principal amount of 8.000% senior secured notes due 2021 (the “Notes”) in a private placement in accordance with Rule 144A and Regulation S under the Securities Act of 1933, as amended. Interest on the Notes is payable semi-annually in arrears on May 1 and November 1 of each year, beginning on November 1, 2014, at an annual rate of 8%. The Notes are scheduled to mature on May 1, 2021.

The Notes are unconditionally guaranteed on a senior secured basis by the Guarantors, and the Notes are secured on a second—lien basis by pledges of capital stock of certain of our subsidiaries and mortgages and other security interests covering (1) specified marine vessels owned by certain of the Guarantors and (2) substantially all the other tangible and intangible assets of our company and the Guarantors, subject to exceptions for certain assets.

At any time or from time to time on or after May 1, 2017, at our option, we may redeem the Notes, in whole or in part, at the redemption prices (expressed as percentages of principal amount of the Notes to be redeemed) set forth below, together with accrued and unpaid interest to the redemption date, if redeemed during the 12-month period beginning May 1 of the years indicated:

Year	Percentage
2017		104	%
2018		102	%
2019 and thereafter		100	%

The Indenture governing the Notes contains covenants that, among other things, limit our ability and the ability of our restricted subsidiaries to: (1) incur or guarantee additional indebtedness or issue preferred stock; (2) make investments or certain other restricted payments; (3) pay dividends or distributions on capital stock or purchase or redeem subordinated indebtedness; (4) sell assets; (5) create restrictions on the ability of our restricted subsidiaries to pay dividends or make other payments to us; (6) create certain liens; (7) sell all or substantially all of our assets or merge or consolidate with or into other companies; (8) enter into transactions with affiliates; and (9) create unrestricted subsidiaries. Many of those covenants would become suspended if the Notes were to attain an investment grade rating from both Moody’s Investors Service, Inc. and Standard and Poor’s Ratings Services and no default has occurred. The covenants mentioned above are subject to a number of important exceptions and limitations.

Units

During April 2014, we issued 11,500,000 6.25% tangible equity units, each with a stated amount of $25.00. Each Unit consists of (1) a prepaid common stock purchase contract and (2) a senior amortizing note due April 1, 2017 (each an “Amortizing Note”) that has an initial principal amount of $4.1266 per Amortizing Note, bears interest at a rate of 7.75% per annum and has a final scheduled installment payment date of April 1, 2017. Each prepaid common stock purchase contract will automatically settle on April 1, 2017, unless settled earlier: (1) at the holder’s option, upon which we will deliver shares of our common stock, based on the applicable settlement rate and applicable market value of our stock as determined under the purchase contract; or (2) at our option, upon which we will deliver shares of our common stock, based upon the stated maximum settlement rate of 3.5562 shares per unit, subject to adjustment.

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North Ocean Financing

North Ocean 102

In December 2009, J. Ray McDermott, S.A. (“JRMSA”), a wholly owned subsidiary of MII, entered into a vessel-owning joint venture transaction with Oceanteam ASA. JRMSA has guaranteed approximately 50% of this debt based on its ownership percentages in the vessel-owning companies. The outstanding debt bore interest at a rate equal to the three-month LIBOR (which was subject to reset every three months) plus a margin of 3.315%. JRMSA paid in full the approximately $31.4 million notes payable balance upon maturity during January 2014. JRMSA expects to exercise its option to purchase Oceanteam ASA’s 50% ownership interest in the vessel-owing companies in December 2014. As of December 31, 2013 we reported a consolidated notes payable of $31.4 million on our consolidated balance sheet, all of which was classified as current notes payable.

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 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, which commenced on 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, 2014 and December 31, 2013, there was $57.2 million in borrowings outstanding under this agreement, of which approximately $8.2 million was classified as current notes payable.

Unsecured Bilateral Letters of Credit and Bank Guarantees

In 2012, McDermott Middle East, Inc, and MII executed a general reimbursement agreement in favor of a bank located in the UAE relating to issuances of bank guarantees in support of contracting activities in the Middle East and India. As of March 31, 2014 and December 31, 2013, bank guarantees issued under these arrangements totaled $56.2 million and $55.8 million, respectively. In 2007 and in 2012, JRMSA and MII executed general unsecured reimbursement agreements in favor of two institutions that were lenders under the Former Credit Agreement relating to issuances of letters of credit in support of contracting activities primarily in Asia and the Middle East. The letters of credit issued under these arrangements totaled $23.3 million and $26.0 million as of March 31, 2014 and December 31, 2013, respectively.

On April 20, 2012, McDermott and one of its wholly owned subsidiaries, McDermott Australia Pty. Ltd. (“McDermott Australia”), entered into a secured Letter of Credit Reimbursement Agreement (the “Reimbursement Agreement”) with Australia and New Zealand Banking Group Limited (“ANZ”). In accordance with the terms of the Reimbursement Agreement, ANZ issued letters of credit in the aggregate amount of approximately $109.0 million to support McDermott Australia’s performance obligations under contractual arrangements relating to a field development project. The obligations of McDermott and McDermott Australia under the Reimbursement Agreement are secured by McDermott Australia’s interest in the contractual arrangements and certain related assets. During February 2014, we replaced these letters of credit with letters of credit issued under the Former Credit Agreement and subsequently replaced those letters of credit with letters of credit under the LC Facility.

Surety Bonds

In 2012 and 2011, MII executed general agreements of indemnity in favor of surety underwriters based in Mexico relating to surety bonds issued in support of contracting activities of J. Ray McDermott de Mèxico, S.A. de C.V. and McDermott, Inc, both subsidiaries of MII. As of March 31, 2014 and December 31, 2013, bonds issued under these arrangements totaled $42.1 million and $43.5 million, respectively. In October 2013, MII

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executed general agreements of indemnity in favor of surety underwriters relating to surety bonds in support of vessels operating in Brazil. The bonds issued under these arrangements totaled $111.2 million and $106.3 million as of March 31, 2014 and December 31, 2013, respectively.

Long-term debt and notes payable obligations

A summary of our long-term debt obligations are as follows:

	March 31, 2014		December 31, 2013
	(Unaudited)
	(In thousands)
Long-term debt consists of:
Former Credit Agreement	$	250,000	$	—
North Ocean 102 Construction Financing		—		31,373
North Ocean 105 Construction Financing		57,189		57,189
Other financing		989		—
		308,178		88,562
Less: Amounts due within one year		258,417		39,543
Total long-term debt	$	49,761	$	49,019

NOTE 4—PENSION PLANS

Although we currently provide retirement benefits for most of our U.S. employees through sponsorship of the McDermott Thrift Plan, some of our longer-term U.S. employees and former employees are entitled to retirement benefits under the McDermott (U.S.) Retirement Plan, a non-contributory qualified defined benefit pension plan (the “McDermott Plan”), and several non-qualified supplemental defined benefit pension plans. The McDermott Plan and the non-qualified supplemental defined benefit pension plans are collectively referred to herein as the “Domestic Plans.” The McDermott Plan has been closed to new participants since 2006, and benefit accruals under the McDermott Plan were frozen completely in 2010.

We also sponsor a defined benefit pension plan established under the laws of the Commonwealth of the Bahamas, the J. Ray McDermott, S.A. Third Country National Employees Pension Plan (the “TCN Plan”), which provides retirement benefits for certain of our current and former foreign employees. Effective August 1, 2011, new entry into the TCN Plan was closed, and effective December 31, 2011, benefit accruals under the TCN Plan were frozen. Effective January 1, 2012, we established a new global defined contribution plan to provide retirement benefits to non-U.S. expatriate employees who may have otherwise obtained benefits under the TCN Plan.

Retirement benefits under the McDermott Plan and the TCN Plan are generally based on final average compensation and years of service, subject to the applicable freeze in benefit accruals under the plans. Our funding policy is to fund the plans as recommended by the respective plan actuaries and in accordance with the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), or other applicable law. The Pension Protection Act of 2006 (“PPA”) amended ERISA and modified the funding requirements for certain defined benefit pension plans including the McDermott Plan. Funding provisions under the PPA accelerated funding requirements are applicable to the McDermott Plan to ensure full funding of benefits accrued.

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

	Domestic Plans						TCN Plan
	Three Months Ended March 31,
	2014			2013			2014			2013
	(Unaudited)
	(In thousands)
Interest cost	$	6,778		$	167		$	475		$	467
Expected return on plan assets		(6,875	)		(3,000	)		(740	)		(651	)
Recognized net actuarial loss and other		3,290			3,152			(74	)		507
Net periodic benefit cost (gain)	$	3,193		$	319		$	(339	)	$	323

NOTE 5—DERIVATIVE FINANCIAL INSTRUMENTS

We enter into derivative financial instruments primarily to hedge certain firm purchase commitments and forecasted transactions denominated in foreign currencies. We record these contracts at fair value on our condensed 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 as a component of AOCI until the hedged item is recognized in earnings; (2) offset against the change in fair value of the hedged firm commitment through earnings; or (3) recognized immediately in earnings. At inception and on an ongoing basis, we assess the hedging relationship to determine its effectiveness in offsetting changes in cash flows or fair value 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 gain (loss) on foreign currency-net in our condensed consolidated statements of operations.

At March 31, 2014, the majority of our foreign currency forward contracts were designated as cash flow hedging instruments. In addition, we deferred approximately $30.8 million of net losses on these derivative financial instruments in AOCI, and we expect to reclassify approximately $22.0 million of deferred losses out of AOCI by March 31, 2015, as hedged items are recognized in earnings. The notional value of our outstanding derivative contracts totaled $1.0 billion at March 31, 2014, with maturities extending through 2017. Of this amount, approximately $635.3 million is associated with various foreign currency expenditures we expect to incur on one of our Asia Pacific segment EPCI projects. These instruments consist of contracts to purchase or sell foreign-denominated currencies. At March 31, 2014, the fair value of these contracts was in a net liability position totaling $15.0 million. 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.

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The following tables summarize our derivative financial instruments:

Asset and Liability Derivatives

	March 31, 2014		December 31, 2013
	(Unaudited)
	(In thousands)
Derivatives Designated as Hedges:
Location
Accounts receivable—other	$	8,258	$	11,641
Other assets		964		1,647
Total asset derivatives	$	9,222	$	13,288
Accounts payable	$	11,781	$	20,209
Other liabilities		12,436		21,846
Total liability derivatives	$	24,217	$	42,055

The Effects of Derivative Instruments on our Financial Statements

	Three Months Ended March 31,
	2014			2013
	(Unaudited)
	(In thousands)
Derivatives Designated as Hedges:
Amount of gain/ (loss) recognized in other comprehensive income	$	12,358		$	(15,450	)
Income reclassified from AOCI into income: effective portion
Location
Cost of operations	$	202		$	2,014
Gain (loss) recognized in income: ineffective portion and amount excluded from effectiveness testing
Location
Gain (loss) on foreign currency—net	$	(847	)	$	(2,849	)

NOTE 6—FAIR VALUE MEASUREMENTS

The following is a summary of our available-for-sale securities measured at fair value:

	Total at March 31, 2014		Level 1		Level 2		Level 3
	(Unaudited)
	(In thousands)
Mutual funds(1)	$	2,189	$	—	$	2,189	$	—
Commercial paper		3,248		—		3,248		—
Total	$	5,437	$	—	$	5,437	$	—

	Total at December 31, 2013		Level 1		Level 2		Level 3
	(In thousands)
Mutual funds(1)	$	2,173	$	—	$	2,173	$	—
Commercial paper		3,699		—		3,699		—
Asset-backed securities and collateralized mortgage obligations(2)		7,639		—		2,082		5,557
Total	$	13,511	$	—	$	7,954	$	5,557

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

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

Our Level 2 investments consist primarily of commercial paper, asset-backed commercial paper notes backed by a pool of mortgage-backed securities and mutual funds. The fair value of our Level 2 investments was determined using a market approach which is based on quoted prices and other information for similar or identical instruments.

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.

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 three months ended March 31, 2014 and March 31, 2013:

	Three Months Ended March 31,
	2014			2013
	(Unaudited)
	(In thousands)
Balance at beginning of period	$	5,557		$	6,343
Total realized and unrealized gains		1,248			210
Sales/ principal repayments		(6,805	)		(396	)
Balance at end of period	$	—		$	6,157

Unrealized Gains and Losses on Investments

Our net unrealized gain on investments was $0.2 million at March 31, 2014. During the year ended December 31, 2013, we recognized other than temporary impairment of $1.6 million on the asset-backed securities and collateralized mortgage obligations. Our net unrealized gain on investments was $0.2 million as of December 31, 2013. The amount of investments in an unrealized loss position for less than twelve months was not significant for either of the periods presented.

Other Financial Instruments

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 condensed consolidated balance sheets for cash, cash equivalents and restricted cash and cash equivalents approximate their fair values and are classified as Level 1 within the fair value hierarchy.

Short-term and long-term debt. The fair value of debt instruments is classified as Level 2 within the fair value hierarchy and is valued using a market approach based on quoted prices for similar instruments traded in active markets. Where quoted prices are not available, the income approach is used to value these instruments based 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.

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Forward contracts. The fair value of forward contracts is classified as Level 2 within the fair value hierarchy and is valued using observable market parameters for similar instruments traded in active markets. Where quoted prices are not available, the income approach is used to value forward contracts, which discounts future cash flows based on current market expectations and credit risk.

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

	March 31, 2014						December 31, 2013
	Carrying Amount			Fair Value			Carrying Amount			Fair Value
	(Unaudited)
	(In thousands)
Balance Sheet Instruments
Cash and cash equivalents	$	268,130		$	268,130		$	118,702		$	118,702
Restricted cash and cash equivalents	$	43,286		$	43,286		$	23,652		$	23,652
Investments	$	5,437		$	5,437		$	13,511		$	13,511
Debt	$	(308,178	)	$	(309,430	)	$	(88,562	)	$	(90,005	)
Forward contracts	$	(14,995	)	$	(14,995	)	$	(28,767	)	$	(28,767	)

NOTE 7—STOCK-BASED COMPENSATION

Equity instruments are measured at fair value on the grant date. Stock-based compensation expense is generally recognized on a straight-line basis over the requisite service periods of the awards. Compensation expense is based on awards we expect to ultimately vest. Therefore, we have reduced compensation expense for estimated forfeitures based on our historical forfeiture rates. Our estimate of forfeitures is determined at the grant date and is revised if our actual forfeiture rate is materially different from our estimate.

We use a Black-Scholes model to determine the fair value of certain share-based awards, such as stock options. Additionally, we use a Monte Carlo model to determine the fair value of certain share-based awards that contain market and performance-based conditions. The use of these models requires highly subjective assumptions, such as assumptions about the expected life of the award, vesting probability, expected dividend yield and the volatility of our stock price.

Total stock-based compensation expense, net recognized for the three months ended March 31, 2014 and March 31, 2013 is as follows:

	Three Months Ended March 31,
	2014		2013
	(Unaudited)
	(In thousands)
Stock Options	$	680	$	1,030
Restricted Stock Units		3,379		1,737
Performance Shares		328		1,156
Total	$	4,387	$	3,923

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NOTE 8—EARNINGS PER SHARE

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

	Three Months Ended March 31,
	2014			2013
	(Unaudited)
	(In thousands, except share and per share amounts)
Income from operations less noncontrolling interests	$	(49,953	)	$	20,553
Net income attributable to McDermott International, Inc.	$	(49,953	)	$	20,553
Weighted average common shares (basic)		236,961,158			235,941,185
Effect of dilutive securities:
Stock options, restricted stock and restricted stock units(1)		—			3,258,696
Adjusted weighted average common shares and assumed exercises of stock options and vesting of stock awards (diluted)		236,961,158			239,199,881
Basic earnings per share:
Income (loss) from operations less noncontrolling interests		(0.21	)		0.09
Net income (loss) attributable to McDermott International, Inc.		(0.21	)		0.09
Diluted earnings per share:
Income (loss) from operations less noncontrolling interests		(0.21	)		0.09
Net income (loss) attributable to McDermott International, Inc		(021	)		0.09

(1) Approximately 3.0 million and 2.9 million shares underlying outstanding stock-based awards were excluded from the computation of diluted earnings per share because they were antidilutive for the three months ended March 31, 2014 and 2013, respectively.

NOTE 9—SEGMENT REPORTING

In March 2014, we changed our organizational structure to orient around our offshore and subsea business activities through four primary geographic regions. The four geographic regions, which we consider to be our operating segments, consist of Asia Pacific, Americas, Middle East, and North Sea and Africa. The Caspian is no longer considered an operating segment and will continue to be aggregated in the Middle East reporting segment. The North Sea and Africa operating segment is also aggregated into the Middle East reporting segment due to the proximity of regions and similarities in the nature of services provided, economic characteristics and oversight responsibilities. Accordingly, we continue to report financial results under reporting segments consisting of Asia Pacific, Americas and the Middle East. We also report certain corporate and other non-operating activities under the heading “Corporate and other.” “Corporate and other” primarily reflects corporate personnel and activities, incentive compensation programs and other costs, which are generally fully allocated to our operating segments. The only corporate costs currently not being allocated to our operating segments are the restructuring costs associated with our corporate reorganization.

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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 tables:

	Three Months Ended March 31,
	2014			2013
	(Unaudited)
	(In thousands)
Revenues(1):
Asia Pacific	$	161,825		$	326,062
Americas		181,625			148,184
Middle East		260,361			333,242
Total revenues	$	603,811		$	807,488
Operating income:
Asia Pacific	$	2,091		$	87,952
Americas		(31,811	)		(16,410	)
Middle East		(9,428	)		(18,509	)
Corporate		(2,494	)		—
Total operating income	$	(41,642	)	$	53,033
Capital expenditures(2):
Asia Pacific	$	4,068		$	3,755
Americas		7,405			22,010
Middle East		22,579			10,552
Corporate and other		3,841			1,332
Total capital expenditures	$	37,893		$	37,649
Depreciation and amortization:
Asia Pacific	$	5,032		$	5,030
Americas		8,297			6,805
Middle East		9,575			6,510
Corporate and Other		1,698			1,877
Total depreciation and amortization	$	24,602		$	20,222
Drydock amortization:
Asia Pacific	$	1,955		$	2,961
Americas		4,562			1,908
Middle East		429			681
Total drydock amortization	$	6,946		$	5,550

(1) Intersegment transactions included in revenues were not significant for either of the periods presented.

(2) Total capital expenditures presents expenditures for which cash payments were made during the period. Capital expenditures for the three months ended March 31, 2014 include $8.3 million of cash payments for accrued capital expenditures outstanding as of December 31, 2013. Capital expenditures for the three months ended March 31, 2013 exclude approximately $34.0 million in accrued liabilities related to capital expenditures.

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	March 31, 2014		December 31, 2013
	(Unaudited)
	(In thousands)
Segment assets:
Asia Pacific	$	740,507	$	1,030,823
Americas		795,598		522,713
Middle East		1,148,041		1,129,529
Corporate and other		339,783		124,306
Total assets	$	3,023,929	$	2,807,371

NOTE 10—COMMITMENTS AND CONTINGENCIES

Investigations and Litigation

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, J. Ray McDermott, Inc. (“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. 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. We do not believe an adverse judgment or material losses in this matter are probable, and, accordingly, we have not accrued any amounts relating to this contingency. Although there is a possibility of an adverse judgment, the amount or potential range of loss is not estimable at this time. The insurer-plaintiffs in this matter commenced this proceeding in a purported attempt to obtain a determination of insurance coverage obligations for occupational exposure and/or environmental matters for which we have given notice that we could potentially seek coverage. Because estimating losses would require, for every matter, known and unknown, on a case by case basis, anticipating what impact on coverage a judgment would have and a determination of an otherwise expected insured value, damages cannot be reasonably estimated.

On December 16, 2005, a proceeding entitled Antoine, et al. vs. J. Ray McDermott, Inc., et al. (“Antoine Suit”), was filed in the 24th Judicial District Court, Jefferson Parish, Louisiana, by approximately 88 plaintiffs against approximately 215 defendants, including our subsidiaries formerly known as JRMI and Delta Hudson Engineering Corporation (“DHEC”), generally alleging injuries for exposure to asbestos, and unspecified chemicals, metals and noise while the plaintiffs were allegedly employed as Jones Act seamen. This case was dismissed by the Court on January 10, 2007, without prejudice to plaintiffs’ rights to refile their claims. On January 29, 2007, 21 plaintiffs from the dismissed Antoine Suit filed a matter entitled Boudreaux, et al. v. McDermott, Inc., et al. (the “Boudreaux Suit”), in the United States District Court for the Southern District of Texas, against JRMI and our subsidiary formerly known as McDermott Incorporated, and approximately 30 other employer defendants, alleging Jones Act seaman status and generally alleging exposure to welding fumes, solvents, dyes, industrial paints and noise. The Boudreaux Suit was transferred to the United States District Court for the Eastern District of Louisiana on May 2, 2007, which 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, another 43 plaintiffs from the dismissed Antoine Suit filed a matter entitled Antoine, et al. v. McDermott, Inc., et al. (the “New Antoine Suit”), in the 164th Judicial District Court for Harris County, Texas, against JRMI, our subsidiary formerly known as McDermott Incorporated 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 the New Antoine Suit, other than service of process and answer/appearance dates, until further order of the Court. The New Antoine Suit plaintiffs filed a motion to lift the stay on February 20, 2009, which is pending before the Texas District Court. On April 4, 2014, 20 of the plaintiffs in the

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New Antoine Suit voluntarily dismissed their claims against McDermott without prejudice to re-filing. The remaining plaintiffs seek monetary damages in an unspecified amount in both the Boudreaux Suit and New Antoine Suit cases and attorneys’ fees in the New Antoine Suit. We cannot reasonably estimate the extent of a potential judgment against us, if any, and we intend to vigorously defend these suits.

On August 15, 2013 and August 20, 2013, two separate alleged purchasers of our common stock filed purported class action complaints against us, Stephen M. Johnson and Perry L. Elders in the United States District Court for the Southern District of Texas. Both of the complaints sought to represent a class of purchasers of our stock between November 6, 2012 and August 5, 2013, and alleged, among other things, that the defendants violated federal securities laws by disseminating materially false and misleading information and failing to disclose material information relating to weaknesses in project bidding and execution, poor risk evaluation, poor project management and losses in each of our reporting segments. Each complaint sought relief, including unspecified compensatory damages and an award for attorneys’ fees and other costs. By order dated December 5, 2013, the District Court consolidated the two cases and appointed a lead plaintiff and lead plaintiff’s counsel. The lead plaintiff filed a consolidated amended complaint on February 6, 2014. The consolidated amended complaint asserts substantially the same claims as were made in the two original complaints, with some additional factual allegations, and purports to extend the class period to August 6, 2013. It also seeks relief, including unspecified compensatory damages and an award for attorneys’ fees and other costs. On April 7, 2014, MII and the other defendants filed a motion to dismiss the case, which motion is still pending before the court. We believe the substantive allegations contained in the complaints on file are without merit, and we intend to defend against these claims vigorously.

Additionally, due to the nature of our business, we and our affiliates are, from time to time, involved in litigation or subject to 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, occupational hazard claims, including asbestos-exposure 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; however, because of the inherent uncertainty of litigation and, in some cases, the availability and amount of potentially applicable insurance, we can provide no assurance that the resolution of any particular claim or proceeding to which we are a party will not have a material effect on our consolidated financial condition, results of operations or cash flows for the fiscal period in which that resolution occurs.

Environmental Matters

We have been identified as a potentially responsible party at various cleanup sites under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (“CERCLA”). CERCLA and other environmental 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, 2014, we had total environmental reserves of $6.3 million, all of which was included in noncurrent liabilities. We established an environmental reserve of $5.9 million in connection with our plan to

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discontinue the utilization of our Morgan City fabrication facility. 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 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, 2014, it is possible that we may incur liabilities for liquidated damages aggregating approximately $56.9 million, of which approximately $37.9 million has been recorded in our financial statements, based on our actual or projected failure to meet certain specified contractual milestone dates. The dates for which these potential liquidated damages could arise extend to June 2015. We believe we will be successful in obtaining schedule extensions or other customer-agreed changes that should resolve the potential for additional liquidated damages. Accordingly, we believe that no amounts for these potential liquidated damages in excess of the amounts currently reflected in our financial statements are probable of being paid by us. However, we may not achieve relief on some or all of the issues involved and, as a result, could be subject to higher damage amounts.

Contractual Obligations

At March 31, 2014, we had outstanding obligations related to our new vessel construction contracts on the LV 108 and DLV 2000 of $325.6 million in the aggregate, with $132.4 million and $193.2 million due in the years ending December 31, 2014 and 2015, respectively.

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

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

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, 2013.

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 scope, execution, 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. 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 scope, execution and timing of specific projects, including timing to complete and cost to complete these projects;

• future project activities, including the commencement and subsequent timing of marine or installation campaigns on specific projects;

• estimates of percentage of completion and contract profits or losses;

• anticipated levels of demand for our products and services;

• global demand for oil and gas and fundamentals of the oil and gas industry;

• expectations regarding the trend towards offshore development of oil and gas;

• market outlook for the EPCI market, including subsea;

• expectations regarding backlog;

• future levels of capital, environmental or maintenance expenditures;

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

• the adequacy of our sources of liquidity and capital resources;

• interest expense;

• the effectiveness of our derivative contracts in mitigating foreign currency risk;

• results of our capital investment program;

• 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;

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• the restructuring of our Americas operations, including the expected costs and timing of cost recognition;

• 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;

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

• changes in project design or schedule;

• changes in scope or timing of work to be completed under contracts;

• cancellations of contracts, change orders and other modifications and related adjustments to backlog and the resulting impact from using backlog as an indicator of future revenues or earnings;

• the collectability of amounts reflected in change orders and claims relating to work previously performed on contracts;

• the capital investment required to maintain and/or upgrade our fleet of vessels;

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

• volatility and uncertainty of the credit markets;

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

• the unfunded liabilities of our pension plans 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;

• natural or man-caused disruptive events that could damage our facilities, equipment or our work-in-progress and cause us to incur losses and/or liabilities;

• equipment failure;

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

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• 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;

• changes in tax laws;

• 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 information technology;

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

• the risks associated with our international operations, including local content requirements;

• interference from adverse weather or sea conditions;

• 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 of our former subsidiaries.

We believe the items we have outlined above are important factors that could cause estimates in our financial statements to differ materially from actual results and those expressed in a forward-looking statement made in this quarterly 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, 2013. 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

Refinancing Transactions

During April 2014, we refinanced our existing obligations, and replaced in its entirety, our then existing $950.0 million credit agreement (the “Former Credit Agreement”) with a new credit agreement (the “New Credit Agreement”), which provides for:

• a $400.0 million first-lien, first-out three-year letter of credit facility (the “LC Facility”); and

• a $300.0 million first-lien, second-out five-year term loan (the “Term Loan”).

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As of March 31, 2014 we had $250.0 million of revolving credit borrowings outstanding and approximately $376.0 million of letters of credit outstanding under the Former Credit Facility.

Additionally, during April 2014, we completed the following new financing transactions:

• the issuance of $500.0 million of second-lien seven-year senior secured notes (the “Notes”).

• the issuance of $287.5 million of tangible equity units (“Units”) composed of (1) three-year amortizing, senior unsecured notes, in an aggregate principal amount of $47.5 million, and (2) prepaid common stock purchase contracts.

With the completion of these financing transactions in April 2014, we terminated the bridge loan commitment we had obtained from an affiliate of Goldman, Sachs, & Co. (“Goldman Sachs”). As a result of the termination of the bridge loan commitment, the fee we previously paid to Goldman Sachs to obtain the bridge loan commitment will be recognized as interest expense in the second quarter of 2014. Due to the replacement of the Former Credit Agreement, the unamortized issuance fees related to the Former Credit Agreement will also be recognized as interest expense in the second quarter of 2014. The total additional interest expense related to these items is expected to be approximately $28.0 million in the quarter ending June 30, 2014.

Non-Core Asset Sales

During the quarter ended March 31, 2014, we completed the sale of the DLB KP1 for aggregate cash proceeds of approximately $8.4 million, resulting in a gain of approximately $6.4 million recognized in our Middle East segment. In April 2014, we completed the sale of our Harbor Island facility near Corpus Christi, Texas for proceeds of approximately $31.7 million and a gain of approximately $25.0 million, which will be recognized in our Americas segment.

Americas and Corporate Restructuring

We commenced a restructuring of our Americas operations during the quarter ended June 30, 2013, which involves our Morgan City, Louisiana, Houston, Texas, New Orleans, Louisiana and Brazil locations. The restructuring involves, among other things, reductions of management, administrative, fabrication and engineering personnel, and a plan to discontinue utilization of the Morgan City facility (after the completion of existing backlog projects, which are currently forecasted to be completed in the third quarter of 2014). Future fabrication operations in the Americas segment are expected to be executed using the Altamira, Mexico facility. In addition, we have reached an agreement to exit our joint venture operation in Brazil. Costs associated with our Americas restructuring activities primarily include severance and other personnel-related costs, costs associated with exiting the joint venture in Brazil, asset impairment and relocation costs, environmental reserves and future unutilized lease costs. The total costs are expected to range between $55 million to $60 million in the aggregate. Of the total anticipated costs, we incurred approximately $3.6 million during the quarter ended March 31, 2014 and had incurred an aggregate of $37.7 million as of March 31, 2014.

In October 2013, we announced certain executive management changes that became effective during the fourth quarter of 2013. In March 2014, we changed our organizational structure to orient around offshore and subsea business activities through four primary geographic regions. The four geographic regions consist of Asia Pacific, Americas (previously Atlantic), Middle East and North Sea and Africa. Costs associated with our corporate reorganization activities will primarily include severance, relocation and other personnel-related costs and costs for advisors. The total of these costs is expected to range between $20 million to $25 million and to be incurred by the end of 2014. Of the total anticipated costs, we incurred approximately $2.5 million during the quarter ended March 31, 2014 and had incurred an aggregate of $4.2 million as of March 31, 2014.

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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, with fixed-price being the most prevalent. Contracts are usually awarded through a competitive bid process. Factors that customers may consider include price, 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, for each contract, we regularly review contract price and cost estimates as the work progresses and reflect adjustments in profit proportionate to the percentage of completion of the related project 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.

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 those provisions. Those 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, 2014, it is possible that we may incur liabilities for liquidated damages aggregating to approximately $56.9 million, of which approximately $37.9 million has been recorded in our financial statements, based on our actual or projected failure to meet certain specified contractual milestone dates. The dates for which these potential liquidated damages could arise extend to June 2015. We believe we will be successful in obtaining schedule extensions or other customer-agreed changes that should resolve the potential for additional liquidated damages. Accordingly, we believe that no amounts for these potential liquidated damages in excess of the amounts currently reflected in our financial statements are probable of being paid by us. However, we may not achieve relief on some or all of the issues involved and, as a result, could be subject to higher damage amounts.

Change orders, which are a normal and recurring part of our business, can increase (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 in profit, proportionate to the job percentage of completion in the period when those estimates are revised. Revenue from unapproved change orders is recognized to the extent of amounts management expects to recover or costs incurred. Unapproved change orders that are disputed by the customer are treated as claims.

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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Critical Accounting Policies and Estimates

For a discussion of critical accounting policies and estimates we use in the preparation of our consolidated financial statements, refer to 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, 2013. See Note 1 to our unaudited condensed consolidated financial statements included in this report for information on recently adopted accounting standards.

Business Segments and Results of Operations

Business Segments

In March 2014, we changed our organizational structure to orient around our offshore and subsea business activities through four primary geographic regions. The four geographic regions, which we consider to be our operating segments, consist of Asia Pacific, Americas, Middle East, and North Sea and Africa. The Caspian is no longer considered an operating segment and will continue aggregated in the Middle East reporting segment. The North Sea and Africa operating segment is also aggregated into the Middle East reporting segment due to the proximity of regions and similarities in the nature of services provided, economic characteristics and oversight responsibilities. Accordingly, we continue to report financial results under reporting segments consisting of Asia Pacific, Americas and the Middle East. We also report certain corporate and other non-operating activities under the heading “Corporate and other.” “Corporate and other” primarily reflects corporate personnel and activities, incentive compensation programs and other costs, which are generally fully allocated to our operating segments. The only Corporate costs currently not be allocated to our operating segments are the restructuring costs associated with our corporate reorganization. See Note 9 for summarized financial information on our segments.

Asia Pacific Segment

Through our Asia Pacific segment, we serve the needs of customers 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 our projects in this segment are performed on an engineering, procurement, construction and installation (“EPCI”) basis. Engineering and procurement services are provided by our Singapore office and are supported by additional resources located in Chennai, India. The primary fabrication facility for this segment is located on Batam Island, Indonesia. Additionally, through our equity ownership interest in two separate joint ventures, we have access to fabrication capacity in China and Malaysia.

Americas Segment

Through our Americas segment, we serve the needs of customers primarily in the United States, Brazil, Mexico and Trinidad. 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 supported by engineering resources in Chennai, India, Dubai, U.A.E. and Houston. The primary fabrication facility for this segment is located in Altamira, Mexico. We are in the process of preparing for the discontinued utilization of the Morgan City fabrication facility, as further discussed below under the caption “Americas and Corporate Restructuring.”

Middle East Segment

Through our Middle East segment, which includes the Caspian region, the North Sea and Africa, we serve the needs of customers in Saudi Arabia, Qatar, the United Arab Emirates (U.A.E.), Kuwait, India, Azerbaijan, Russia, the North Sea, West Africa, and East Africa. Project focus in this segment relates primarily to the fabrication and offshore installation of fixed and floating structures and the installation of pipelines and subsea systems. 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., Chennai, India, Al Khobar, Saudi Arabia and United Kingdom offices and are supported by additional resources from our Houston office. The primary fabrication facility for this segment is located in Dubai, U.A.E.

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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 lease 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.

Results of Operations

Selected Financial Data:

	Three Months Ended March 31,
	2014			2013
	(In thousands)
Revenues:
Asia Pacific	$	161,825		$	326,062
Americas		181,625			148,184
Middle East		260,361			333,242
Total Revenues	$	603,811		$	807,488
Cost of Operations		591,493			712,814
Selling, general and administrative expenses		55,397			52,226
Restructuring charges		6,125			—
Gain on asset disposals		(6,439	)		(14,716	)
Total costs and expenses		646,576			750,324
Equity in Loss of Unconsolidated Affiliates		1,123			(4,131	)
Operating Income (Loss):
Asia Pacific	$	2,091		$	87,952
Americas		(31,811	)		(16,410	)
Middle East		(9,428	)		(18,509	)
Corporate		(2,494	)		—
Total Operating Income	$	(41,642	)	$	53,033
Other Income (Expense):
Interest income		61			342
Gain (loss) on foreign currency—net		(4,082	)		(2,526	)
Other income (expense)—net		(265	)		782
Total Other Income (Expense)		(4,286	)		(1,402	)
Income before provision for income taxes and noncontrolling interests		(45,928	)		51,631
Provision for Income Taxes		3,489			27,313
Net Income Attributable to Noncontrolling Interests		536			3,765
Net Income Attributable to McDermott International, Inc.	$	(49,953	)	$	20,553

Three months ended March 31, 2014 vs. three months ended March 31, 2013

Revenues

Revenues declined approximately 25%, or $203.7 million, to $603.8 million in the three months ended March 31, 2014 compared to $807.5 million for the corresponding prior-year period, primarily attributable to decreases in our Asia Pacific and Middle East segments.

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Revenues in our Asia Pacific segment declined approximately 50%, or $164.3 million, to $161.8 million in the three months ended March 31, 2014 from $326.1 million in the corresponding prior-year period, largely due to the absence of marine activity on two of our EPCI projects in Australia that had significant marine activity during the three months ended March 31, 2013 and were completed during the year ended December 31, 2013.

Revenues in our Middle East segment declined approximately 22%, or $72.8 million, to $260.4 million in the three months ended March 31, 2014 from $333.2 million in the corresponding prior-year period, largely due to the substantial completion of activities on multiple EPCI projects in Saudi Arabia and India and a pipelay project in the Caspian. These projects had significantly higher marine activity during the three months ended March 31, 2013 and were substantially completed during the year ended December 31, 2013. These decreases were partially offset by increased activity on an EPCI project in Saudi Arabia.

The revenue declines in our Asia Pacific and Middle East segments were partially offset by improvements in our Americas segment. In this segment revenues increased approximately 23%, or $33.4 million, to $181.6 million in the three months ended March 31, 2014 compared to $148.2 million in the three months ended March 31, 2013, primarily due to increased marine activity in Brazil and the U.S. Gulf of Mexico during the three months ended March 31, 2014, partially offset by lower Morgan City fabrication activity on projects that were completed during the year ended December 31, 2013.

Cost of Operations

Cost of operations decreased approximately 17%, or $121.3 million, primarily due to decreases in our Asia Pacific and Middle East segments. Cost of operations in our Asia Pacific segment decreased by $89.8 million, driven primarily by the absence of marine activity on two of our EPCI projects in Australia that had significant marine activity during the three months ended March 31, 2013 and were completed during the year ended December 31, 2013. The decrease in our Middle East segment of $79.9 million was primarily attributable to the substantial completion of activities on multiple EPCI projects in Saudi Arabia, India and a pipelay project in the Caspian. These projects had significant marine activity during the three months ended March 31, 2013 and were substantially completed during the year ended December 31, 2013. These decreases were partially offset by increased activity on an EPCI project in Saudi Arabia. Cost of operations in our Americas segment increased by $48.4 million, primarily due to increased marine activity in Brazil and the U.S. Gulf of Mexico and increased fabrication activity at the Altamira fabrication facility during the three months ended March 31, 2014, partially offset by lower Morgan City fabrication activity on projects that were completed during the year ended December 31, 2013.

Operating Income (Loss)

Operating results decreased approximately $94.6 million to an operating loss of $41.6 million in the three months ended March 31, 2014 compared to operating income of $53.0 million for the corresponding prior-year period, attributable to declines in the Asia Pacific and Americas segments.

Operating income in our Asia Pacific segment declined $85.9 million to $2.1 million in the three months ended March 31, 2014 compared to $88.0 million for the corresponding prior-year period. The decrease was primarily due to an approximate $91.2 million decline in operating income from two of our EPCI projects in Australia, which had significant marine activity in the three months ended March 31, 2013 and were completed during the year ended December 31, 2013. The decline in operating income was partly offset by an improvement of approximately $27.8 million on a subsea project in Malaysia, primarily driven by changes to the estimated costs at completion due to favorable productivity on our marine vessels as well as offshore support activities and recognition of approved change orders.

Operating results at our Middle East segment improved by approximately $9.1 million to an operating loss of $9.4 million in the three months ended March 31, 2014 compared to an operating loss of $18.5 million for the corresponding prior-year period. An improvement of $12.3 million was driven primarily by recognition of

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approved change orders on a pipe lay project in the Caspian. Recognition of the gain on the sale of the DLB KP1 resulted in an improvement of $6.4 million during the three months ended March 31, 2014. The improvements were partially offset by declines in two EPCI projects in Saudi Arabia aggregating approximately $12.9 million, primarily attributable to an increase in estimated costs to complete as a result of vessel downtime due to weather and standby delays and adverse productivity on fabrication and engineering activities. Both projects remained in a profitable position at March 31, 2014.

The Americas segment recognized an operating loss of $31.8 million in the three months ended March 31, 2014 compared to an operating loss of $16.4 million in the three months ended March 31, 2013. On an EPCI project in Altamira, we increased our estimated cost at completion by approximately $36.8 million, primarily due to expected delays in final project delivery, resulting in a revised execution plan, increased fabrication labor costs and recognition of liquidated damages. The decline was partially offset by an improvement of approximately $17.2 million related to increased marine activity in the U.S. Gulf of Mexico and increased utilization of the Altamira fabrication facility.

Operating Margins

Operating income is frequently influenced by the resolution of change orders, project close-outs and settlements, which generally can cause operating margins to improve during the period in which these items are approved or finalized as these items generally contribute higher operating margins. While we expect change orders, close-outs and settlements to continue as part of our normal business activities, the period in which they are recognized is largely driven by the finalization of agreements with customers and suppliers and, as a result, is difficult to predict. Additionally, the future margin increases or decreases associated with these items are difficult to predict, due to, among other items, the difficulty of predicting the timing of recognition of change orders, close-outs and settlements and the timing of new project awards.

Other Items in Operating Income

Selling, general and administrative expenses increased $3.2 million to $55.4 million in the three months ended March 31, 2014 as compared to $52.2 million in the three months ended March 31, 2013, primarily as a result of increased amortization of deferred non-cash benefit plan losses.

Equity in earnings of unconsolidated affiliates improved approximately $5.2 million, primarily due to profit recognized from our FloaTEC joint venture.

Operating loss was further impacted by restructuring expense of approximately $6.1 million incurred in the three months ended March 31, 2014 as discussed above under “Recent Developments-Americas and Corporate Restructuring.”

Other Items

Results for the quarters ended March 31, 2014 and 2013 were not significantly impacted by interest income, expense or other expense, due primarily to lower cash and cash equivalents balances, the continuation of low interest rates in general and the capitalization of interest expense on capital projects.

Loss on foreign currency—net increased by $1.6 million to a loss of $4.1 million in the three months ended March 31, 2014 from a loss of $2.5 million in the three months ended March 31, 2013, primarily due to foreign currency losses of $3.2 million and losses related to derivative instruments and hedging activities of $0.9 million recognized during the three months ended March 31, 2014, as compared to foreign currency gains of $0.3 million and losses related to derivative instruments and hedging activities of $2.8 million recognized during the three months ended March 31, 2013.

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During the quarter ended March 31, 2012, we entered into derivative contracts to mitigate currency exchange movements associated with various foreign currency expenditures we expect to incur on one of our Asia Pacific segment EPCI projects, through 2017. While we currently believe that these contracts will be effective in mitigating the associated currency exchange risks, it is possible that changes in the EPCI project may cause reduced effectiveness of these derivative contracts. Therefore, we may experience larger gains or losses on foreign currency movements due to the ineffective portion or the portion excluded from the assessment of effectiveness of these and other derivative contracts.

At March 31, 2014, our derivative financial instruments consisted primarily of foreign currency forward contracts. The notional value of our outstanding derivative contracts totaled approximately $1.0 billion at March 31, 2014, with maturities extending through 2017. Of this amount, approximately $635.3 million is associated with various foreign currency expenditures we expect to incur on the Asia Pacific segment EPCI project.

Provision for Income Taxes

For the three months ended March 31, 2014, we recognized a loss before provision for income taxes of $45.9 million, compared to income of $51.6 million in the three months ended March 31, 2013. In the aggregate, the provision for income taxes was $3.5 million and $27.3 million for the three months ended March 31, 2014 and 2013, respectively.

The decline in the provision for income taxes was principally driven by lower taxable income, which was partially offset by losses in certain tax jurisdictions where we did not recognize a tax benefit.

Noncontrolling Interests

Net income attributable to noncontrolling interests decreased by $3.3 million to $0.5 million in the three months ended March 31, 2014 compared to $3.8 million for the three months ended March 31, 2013, primarily due to decreased activity and lower net income at our joint ventures.

Backlog

Backlog represents the dollar amount of revenues we expect to recognize in the future from contracts awarded and in progress. Backlog is not a measure defined by generally accepted accounting principles and is not a measure of contract profitability. Our methodology for determining backlog may not be comparable to methodologies used by other companies in determining their backlog amounts. We generally include expected revenues of contracts in our backlog when we enter into a written confirmation with our customers. We do not include expected revenues of contracts related to unconsolidated joint ventures in our backlog. 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.

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Of the March 31, 2014 backlog amount of $4.4 billion, approximately $550.7 million relates to nine active projects that are in loss positions, whereby future revenues are expected to equal costs when recognized. Included in this amount is $191.6 million of backlog associated with an EPCI project in Altamira, which is expected to be completed in the third quarter of 2015, $144.6 million pertaining to a five-year charter of the Agile in Brazil, which began in early 2012, and $65.9 million relating to a subsea project in the U.S. Gulf of Mexico scheduled for completion during 2014, all of which are being conducted by our Americas segment. The amount also includes $91.5 million of backlog relating to an EPCI project in Saudi Arabia, in our Middle East segment, which is expected to be completed by the end of 2015. These four projects represent approximately 90% of the backlog amount in a loss position. It is possible that our estimates of gross profit could increase or decrease based on changes in productivity, actual downtime and the resolution of change orders and claims with the customers.

	March 31, 2014				December 31, 2013
	(Dollars in millions)
Asia Pacific	$	2,232	51	%	$	2,365	49	%
Middle East		1,437	33	%		1,653	35	%
Americas		695	16	%		784	16	%
Total Backlog	$	4,364	100	%	$	4,802	100	%

Of the March 31, 2014 backlog, we expect to recognize revenues as follows:

	2014		2015		Thereafter
	(In millions)
Total Backlog	$	2,040	$	2,095	$	229

Liquidity and Capital Resources

Our primary sources of liquidity are cash flows generated from operations and cash from the refinancing transactions we completed during April 2014. Management believes that our cash flows from operations and the sources of liquidity and capital resources described below will be sufficient to fund our liquidity requirements for at least the next twelve months.

Due to our recent refinancing transactions, we estimate that the average interest rate on our borrowings increased from 2.76% as at March 31, 2014 to 7.2% as at April 30, 2014.

Former Credit Agreement

The Former Credit Agreement provided for revolving credit borrowings and issuances of letters of credit in an aggregate outstanding amount of up to $950.0 million. Proceeds from borrowings under the Former Credit Agreement were available for working capital needs and other general corporate purposes.

At March 31, 2014, there was $250.0 million of revolving credit borrowings outstanding, and letters of credit issued under the Former Credit Agreement totaled approximately $376.0 million, including letters of credit in the aggregate amount of $109.0 million issued in February 2014 to replace the letters of credit issued by Australia and New Zealand Banking Group Limited discussed below. During the quarter ended March 31, 2014, our outstanding borrowings under the Former Credit Agreement did not exceed $250.0 million, and we had average outstanding borrowings under the Former Credit Agreement of approximately $165.0 million, with an average interest rate of 3.45%. At December 31, 2013, there were no borrowings outstanding, and letters of credit issued under the Former Credit Agreement totaled approximately $214.3 million.

At March 31, 2014, the applicable margin for Eurodollar-rate loans was 2.00%, the applicable margin for base-rate loans was 1.00%, the letter of credit fee for financial letters of credit was 2.00%, the letter of credit fee

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for performance letters of credit was 1.00%, and the commitment fee for unused portions of the Former Credit Agreement was 0.3%. The Former Credit Agreement did not have a floor for the base rate or the Eurodollar rate.

Obligations under the Former Credit Agreement were secured on a first-lien basis by pledges of capital stock of certain of our subsidiaries and mortgages and other security interests covering (1) all of our personal property and substantially all of the personal property of our wholly owned subsidiaries, subject to exceptions for bank accounts, equipment and certain other assets, and (2) certain of our marine vessels.

New Credit Facilities

During April 2014 we entered into the New Credit Agreement, which provides for the LC Facility and the Term Loan.

The New Credit Agreement includes the $400.0 million first-lien, first-out LC Facility, which is scheduled to mature on April 16, 2017, and the $300.0 million first-lien, second-out Term Loan, which is scheduled to mature April 16, 2019. The indebtedness and other obligations under the New Credit Agreement are guaranteed by substantially all of our material, wholly owned subsidiaries, other than our captive insurance subsidiary (collectively, the “Guarantors”).

In connection with the New Credit Agreement, we paid certain fees to the lenders thereunder, as well as certain arrangement fees to the arrangers and agents for the New Credit Facilities, which we intend to amortize to interest expense over the respective terms of the LC Facility and the Term Loan.

LC Facility

The LC Facility provides for an initial letter of credit capacity of $400.0 million and allows for uncommitted increases in capacity of $100.0 million through December 31, 2014 and an additional $100.0 million thereafter, potentially increasing the total capacity to $600.0 million through the term of the LC Facility. Letters of credit issuable under the LC Facility support the obligations of McDermott and its affiliates and joint ventures. The aggregate amount of the LC Facility available for financial letters of credit is capped at 25% of the total LC Facility.

The LC Facility is secured on a first-lien, first-out basis (with relative priority over the Term Loan) by pledges of the capital stock of all the Guarantors and mortgages on, or other security interests in, substantially all the tangible and intangible assets of our company and the Guarantors, subject to specific exceptions.

The LC Facility contains various customary affirmative covenants, as well as specific affirmative covenants, including specific reporting requirements and a requirement for ongoing periodic financial reviews by a financial advisor. The LC Facility also requires compliance with various negative covenants, including limitations with respect to the incurrence of other indebtedness and liens, restrictions on acquisitions, capital expenditures and other investments, restrictions on sale/leaseback transactions and restrictions on prepayments of other indebtedness.

The LC Facility requires us to meet a minimum EBITDA (as defined) covenant, which requires that we generate consolidated EBITDA of at least certain specified amounts for different periods over the term of the facility. The LC Facility also requires us to maintain a ratio of fair market value of vessel collateral to the sum of (1) the outstanding principal amount of the Term Loan, (2) the aggregate amount of undrawn financial letters of credit outstanding under the LC Facility, (3) all drawn but unreimbursed letters of credit under the LC Facility, and (4) mark-to-market foreign exchange exposure that is not cash secured of at least 1.20:1.00. The LC Facility also requires us to maintain at least $200.0 million of minimum available cash, excluding restricted cash, at the end of each quarter.

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The LC Facility provides for a commitment fee of 0.50% per year on the unused portion of the LC Facility and letter of credit fees at an annual rate of 2.25% for performance letters of credit and 4.50% for financial letters of credit, as well as customary issuance fees and other fees and expenses.

Term Loan

The Term Loan is secured on a first-lien, second-out basis (with the LC Facility having relative priority over the Term Loan) by pledges of the capital stock of all the Guarantors and mortgages on, or other security interests in, substantially all tangible and intangible assets of our company and the Guarantors, subject to specific exceptions.

The Term Loan requires mandatory prepayments from: (1) the proceeds from the sale of assets, as well as insurance proceeds, in each case subject to certain exceptions, to the extent such proceeds are not reinvested in our business within 365 days of receipt; (2) net cash proceeds from the incurrence of indebtedness not otherwise permitted by the New Credit Facilities; and (3) 50% of amounts deemed to be “excess cash flow,” subject to specified adjustments. The Term Loan also requires quarterly amortization payments equal to $750,000. The Term Loan also provides for a prepayment premium if we prepay or re-price the Term Loan prior to April 16, 2016.

The Term Loan requires compliance with various customary affirmative and negative covenants. We must also maintain a ratio of “ownership adjusted fair market value” of marine vessels to the sum of (1) the outstanding principal amount of the Term Loan and (2) the aggregate principal amount of unreimbursed drawings and advances under the LC Facility of at least 1.75:1.00.

The Term Loan was incurred with 25 basis points of original issue discount and bears interest at a floating rate, which can be, at our option, either: (1) a LIBOR rate for a specified interest period (subject to a LIBOR “floor” of 1.00%) plus an applicable margin of 4.25%; or (2) an alternate base rate (subject to a base rate “floor” of 2.00%) plus an applicable margin of 3.25%.

Senior Notes

During April 2014 we issued $500.0 million in aggregate principal amount of 8.000% senior secured notes due 2021 (the “Notes”) in a private placement in accordance with Rule 144A and Regulation S under the Securities Act of 1933, as amended. Interest on the Notes is payable semi-annually in arrears on May 1 and November 1 of each year, beginning on November 1, 2014, at an annual rate of 8 %. The Notes are scheduled to mature on May 1, 2021.

The Notes are unconditionally guaranteed on a senior secured basis by the Guarantors, and the Notes are secured on a second—lien basis by pledges of capital stock of certain of our subsidiaries and mortgages and other security interests covering (1) specified marine vessels owned by certain of the Guarantors and (2) substantially all the other tangible and intangible assets of our company and the Guarantors, subject to exceptions for certain assets.

At any time or from time to time on or after May 1, 2017, at our option, we may redeem the Notes, in whole or in part, at the redemption prices (expressed as percentages of principal amount of the Notes to be redeemed) set forth below, together with accrued and unpaid interest to the redemption date, if redeemed during the 12-month period beginning May 1 of the years indicated:

Year	Percentage
2017		104	%
2018		102	%
2019 and thereafter		100	%

The Indenture governing the Notes contains covenants that, among other things, limit our ability and the ability of our restricted subsidiaries to: (1) incur or guarantee additional indebtedness or issue preferred stock;

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(2) make investments or certain other restricted payments; (3) pay dividends or distributions on capital stock or purchase or redeem subordinated indebtedness; (4) sell assets; (5) create restrictions on the ability of our restricted subsidiaries to pay dividends or make other payments to us; (6) create certain liens; (7) sell all or substantially all of our assets or merge or consolidate with or into other companies; (8) enter into transactions with affiliates; and (9) create unrestricted subsidiaries. Many of those covenants would become suspended if the Notes were to attain an investment grade rating from both Moody’s Investors Service, Inc. and Standard and Poor’s Ratings Services and no default has occurred. The covenants mentioned above are subject to a number of important exceptions and limitations.

Units

During April 2014, we issued 11,500,000 6.25% tangible equity units, each with a stated amount of $25.00. Each Unit consists of (1) a prepaid common stock purchase contract and (2) a senior amortizing note due April 1, 2017 (each an “Amortizing Note”) that has an initial principal amount of $4.1266 per Amortizing Note, bears interest at a rate of 7.75% per annum and has a final scheduled installment payment date of April 1, 2017. Each prepaid common stock purchase contract will automatically settle on April 1, 2017, unless settled earlier: (1) at the holder’s option, upon which we will deliver shares of our common stock, based on the applicable settlement rate and applicable market value of our stock as determined under the purchase contract; or (2) at our option, upon which we will deliver shares of our common stock, based upon the stated maximum settlement rate of 3.5562 shares per unit, subject to adjustment.

North Ocean Financing

North Ocean 102

In December 2009, J. Ray McDermott, S.A. (“JRMSA”), a wholly owned subsidiary of MII, entered into a vessel-owning joint venture transaction with Oceanteam ASA. JRMSA has guaranteed approximately 50% of this debt based on its ownership percentages in the vessel-owning companies. The outstanding debt bore interest at a rate equal to the three-month LIBOR (which was subject to reset every three months) plus a margin of 3.315%. JRMSA paid in full the approximately $31.4 million notes payable balance upon maturity during January 2014. JRMSA expects to exercise its option to purchase Oceanteam ASA’s 50% ownership interest in the vessel-owing companies in December 2014. As of December 31, 2013 we reported a consolidated notes payable of $31.4 million on our consolidated balance sheet, all of which was classified as current notes payable.

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 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, which commenced on 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, 2014 and December 31, 2013, there was $57.2 million in borrowings outstanding under this agreement, of which approximately $8.2 million was classified as current notes payable.

Unsecured Bilateral Letters of Credit and Bank Guarantees

In 2012, McDermott Middle East, Inc, and MII executed a general reimbursement agreement in favor of a bank located in the UAE relating to issuances of bank guarantees in support of contracting activities in the Middle East and India. As of March 31, 2014 and December 31, 2013, bank guarantees issued under these arrangements totaled $56.2 million and $55.8 million, respectively. In 2007 and in 2012, JRMSA and MII

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executed general unsecured reimbursement agreements in favor of two institutions that were lenders under the Former Credit Agreement relating to issuances of letters of credit in support of contracting activities primarily in Asia and the Middle East. The letters of credit issued under these arrangements totaled $23.3 million and $26.0 million as of March 31, 2014 and December 31, 2013, respectively.

On April 20, 2012, McDermott and one of its wholly owned subsidiaries, McDermott Australia Pty. Ltd. (“McDermott Australia”), entered into a secured Letter of Credit Reimbursement Agreement (the “Reimbursement Agreement”) with Australia and New Zealand Banking Group Limited (“ANZ”). In accordance with the terms of the Reimbursement Agreement, ANZ issued letters of credit in the aggregate amount of approximately $109.0 million to support McDermott Australia’s performance obligations under contractual arrangements relating to a field development project. The obligations of McDermott and McDermott Australia under the Reimbursement Agreement are secured by McDermott Australia’s interest in the contractual arrangements and certain related assets. During February 2014, we replaced these letters of credit with letters of credit issued under the Former Credit Agreement and subsequently replaced those letters of credit with letters of credit under the LC Facility.

Surety Bonds

In 2012 and 2011, MII executed general agreements of indemnity in favor of surety underwriters based in Mexico relating to surety bonds issued in support of contracting activities of J. Ray McDermott de Mèxico, S.A. de C.V. and McDermott, Inc, both subsidiaries of MII. As of March 31, 2014 and December 31, 2013, bonds issued under these arrangements totaled $42.1 million and $43.5 million, respectively. In October 2013, MII executed general agreements of indemnity in favor of surety underwriters relating to surety bonds in support of vessels operating in Brazil. The bonds issued under these arrangements totaled $111.2 million and $106.3 million as of March 31, 2014 and December 31, 2013, respectively.

Cash, Cash Equivalents and Investments

At March 31, 2014, we had cash and cash equivalents, restricted cash and investments of $316.9 million. In the aggregate, our cash and cash equivalents, restricted cash and investments increased by $783.1 million to $1.1 billion at April 30, 2014, primarily due to the refinancing transactions.

At March 31, 2014, we had current restricted cash and cash equivalents totaling $43.3 million, all of which was held in restricted foreign-entity accounts.

At March 31, 2014, we had investments with a fair value of $5.4 million. Our investment portfolio consists of commercial paper and mutual funds. 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 income (loss). Our net unrealized gain on investments was $0.2 million at March 31, 2014. During the year ended December 31, 2013, we recognized other than temporary impairment of $1.6 million on the asset-backed securities and collateralized mortgage obligations. Our net unrealized gain on investments was $0.2 million as of December 31, 2013.

Our current assets, less current liabilities, excluding cash and cash equivalents and current restricted cash, declined by $251.3 million to a negative $434.4 million at March 31, 2014 from a negative $183.1 million at December 31, 2013, primarily due to the increases in short term notes payables and accounts payable.

Cash Flow Activities—Continuing Operations

Operating activities. Our net cash used in operating activities was $22.3 million in the three months ended March 31, 2014, compared to $187.1 million in the three months ended March 31, 2013. This reduction was primarily attributable to an increase in our accounts payable and accrued liabilities balances and higher accounts receivable collections.

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Investing activities. Our net cash used in investing activities was $43.0 million in the three months ended March 31, 2014, compared to cash provided by investing activities of $17.0 million in the three months ended March 31, 2013. This change was primarily attributable to proceeds associated with vessel sales that occurred during the three months ended March 31, 2013, an increase in restricted cash balances and a decrease in the sales and purchases of available-for-sale securities.

Financing activities. Our net cash provided by financing activities was $214.8 million in the three months ended March 31, 2014 as compared to net cash used in financing activities of $8.7 million in the three months ended March 31, 2013. The change was primarily attributable to borrowings under the Former Credit Agreement, partially offset by repayment of the debt associated with the North Ocean 102.

Capital Expenditures

As part of our strategic growth program, our management regularly evaluates our marine vessel fleet to ensure our fleet capability is adequately aligned with our overall growth strategy. These assessments may result in capital expenditures to upgrade, acquire or operate vessels that would enhance or grow our technical capabilities, or may involve engaging in discussions to dispose of certain marine vessels.

Capital expenditures for the three months ended March 31, 2014 were $37.9 million, as compared to $37.7 million for the three months ended March 31, 2013. Capital expenditures for the three months ended March 31, 2014 were primarily attributable to the construction of the Lay Vessel 108 (“LV 108”) and the continued development of our Altamira Mexico fabrication facility, as well as costs associated with upgrading the capabilities of other marine vessels. Capital expenditures for the three months ended March 31, 2013 were primarily attributable to the construction of the LV 108 and the North Ocean 105, as well as costs associated with upgrading the capabilities of other marine vessels.

In addition, based, in December 2012, we entered into a contract to construct another vessel—the Deepwater Lay Vessel 2000 (“DLV 2000”). Like the LV 108, the DLV 2000 is designed for advanced deepwater subsea and marine construction operations. Prior to December 31, 2015, we expect to incur capital expenditures ranging from approximately $325.0 million to $350.0 million associated with the construction of the LV 108 and DLV 2000 vessels.

Derivative Contracts

We previously entered into derivative contracts to mitigate currency exchange movements primarily associated with certain firm purchase commitments and various foreign currency expenditures we expect to incur on one of our Asia Pacific segment’s EPCI projects through 2017. While we currently believe that these contracts will be effective in mitigating the associated currency exchange risks, it is possible that changes in the project may cause reduced effectiveness of these derivative contracts. Therefore, we may experience larger gains or losses on foreign currency movements due to the ineffective portion or the portion excluded from the assessment of effectiveness of these and other derivative contracts.

At March 31, 2014, our derivative financial instruments consisted primarily of foreign currency forward contracts. The notional value of our outstanding derivative contracts totaled approximately $1.0 billion at March 31, 2014, with maturities extending through 2017. Of this amount, approximately $635.3 million is associated with various foreign currency expenditures we expect to incur on the Asia Pacific segment EPCI project.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

In the normal course of business, our results of operations are exposed to certain market risks, primarily associated with fluctuations in currency exchange rates and interest rate risk. Our exposure to market risk from changes in interest rates relates primarily to our cash equivalents and our investment portfolio, which primarily consists of investments in commercial paper and other highly liquid money market instruments denominated in U.S. dollars. We are averse to principal loss and seek to ensure the safety and preservation of our invested funds by limiting default risk, market risk and reinvestment risk. All of our investments in debt securities are classified as available-for-sale.

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We have operations in many locations around the world, and, as a result, our financial results could be significantly affected by factors such as changes in currency exchange rates or weak economic conditions in foreign markets. In order to manage the risks associated with currency exchange rate fluctuations, we attempt to hedge those risks with foreign currency derivative instruments. Historically, we have hedged those risks with foreign currency forward contracts. 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 currency exchange rate fluctuations arising from differences in timing of our foreign currency cash inflows and outflows. Our operational cash flows and cash balances, though predominately held in U.S. dollars, may consist of different currencies at various points in time in order to execute our project contracts globally. Non-U.S. denominated asset and liability balances are subject to currency fluctuations when measured period to period for financial reporting purposes in U.S. dollars.

We have exposure to changes in interest rates under our credit facilities (see Item 2—“Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources”). At March 31, 2014, we had $250.0 million of outstanding borrowings under the Former Credit Agreement. We had no material future earnings or cash flow exposures from changes in interest rates on our other outstanding debt obligations, as substantially all of these obligations had fixed interest rates.

Our operational cash flows and cash balances, though predominately held in U.S. dollars, may consist of different currencies at various points in time in order to execute our project contracts globally. Non-U.S. denominated asset and liability balances are subject to currency fluctuations when measured period to period for financial reporting purposes in U.S. dollars.

Interest Rate Sensitivity

The following tables provide information about our financial instruments that are sensitive to changes in interest rates. The tables present principal cash flows and related weighted-average interest rates by expected maturity dates.

At March 31, 2014:	Principal Amount by Expected Maturity (In thousands)
	Years Ending December 31,																				Fair Value at March 31, 2014
	2014			2015			2016			2017			2018			Thereafter			Total
Investments	$	3,248		$	—		$	—		$	—		$	—		$	1,975		$	5,223	$	5,437
Average Interest Rate		0.22	%														—
Long-term Debt (including current maturities)	$	8,417		$	8,417		$	8,417		$	8,417		$	8,170		$	16,340		$	58,178	$	59,234
Average Interest Rate		2.76	%		2.76	%		2.76	%		2.76	%		2.76	%		2.76	%
At December 31, 2013:	Principal Amount by Expected Maturity (In thousands)
	Years Ending December 31,																				Fair Value at December 31, 2013
	2014			2015			2016			2017			2018			Thereafter			Total
Investments	$	—		$	—		$	—		$	—		$	—		$	14,908		$	14,908	$	13,511
Average Interest Rate																	1.02	%
Long-term Debt (including current maturities)	$	39,543		$	8,170		$	8,170		$	8,170		$	8,170		$	16,339		$	88,562	$	90,005
Average Interest Rate(1)		2.78	%		2.76	%		2.76	%		2.76	%		2.76	%		2.76	%

(1) Fixed and floating interest rates through the year ending December 31, 2014 and fixed interest rates thereafter.

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Currency Exchange Rate Sensitivity

The following table provides information about our foreign currency forward contracts outstanding at March 31, 2014 and presents such information in U.S. dollar equivalents. The table presents notional amounts and related weighted-average exchange rates by expected (contractual) maturity dates and constitutes a forward-looking statement. These notional amounts generally are used to calculate the contractual payments to be exchanged under the contract. The average contractual exchange rates are expressed using market convention, which is dependent on the currencies being bought and sold under the forward contract.

Forward Contracts to Purchase or Sell Foreign Currencies in U.S. Dollars (in thousands)

Foreign Currency	Year Ending December 31, 2014		Fair Value at March 31, 2014			Average Contractual Exchange Rate
Australian Dollar	$	115,079	$	(6,548	)		0.9776
Danish Krone	$	20,960	$	420			5.5255
Euros	$	162,298	$	4,214			1.3447
Pound Sterling	$	51,798	$	623			1.6195
Indonesian Rupiah	$	5,201	$	201			64.0225
Norwegian Kroner	$	158,128	$	170			6.0228
Singapore Dollar	$	180,504	$	(2,511	)		1.2404
Foreign Currency	Year Ending December 31, 2015		Fair Value at March 31, 2014			Average Contractual Exchange Rate
Australian Dollar	$	112,778	$	(5,866	)		0.9479
Danish Krone	$	26,578	$	1,061			5.6226
Euros	$	2,020	$	76			1.3272
Pound Sterling	$	2,900	$	51			1.5922
Norwegian Kroner	$	17,541	$	(22	)		6.0553
Singapore Dollars	$	67,849	$	(2,317	)		1.2139
Foreign Currency	Year Ending December 31, 2016		Fair Value at March 31, 2014			Average Contractual Exchange Rate
Australian Dollar	$	77,104	$	(4,071	)		0.9349
Danish Krone	$	6,654	$	273			5.6143
Euros	$	961	$	41			1.3312
Pound Sterling	$	834	$	13			1.5917
Foreign Currency	Year Ending December 31, 2017		Fair Value at March 31, 2014			Average Contractual Exchange Rate
Australian Dollar	$	19,632	$	(827	)		0.9062
Euros	$	458	$	24			1.3348

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

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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, 2014 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, including our principal executive and principal financial officers or persons performing similar functions, 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, 2014 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II

OTHER INFORMATION

Item 1. Legal Proceedings

For information regarding ongoing investigations and litigation, see Note 10 to our unaudited condensed consolidated financial statements in Part I of this report, which we incorporate by reference into this Item.

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, 2013.

Our debt and funded debt levels have increased significantly as a result of our recently completed refinancing transactions.

Our debt and funded debt obligations have increased significantly as a result of our recently completed financing transactions. Our significant debt and funded debt levels and related debt service obligations could have negative consequences, including:

• requiring us to dedicate significant cash flow from operations to the payment of principal, interest and other amounts payable on our debt, which would reduce the funds we have available for other purposes, such as working capital, capital expenditures and acquisitions;

• making it more difficult or expensive for us to obtain any necessary future financing for working capital, capital expenditures, debt service requirements, debt refinancing, acquisitions or other purposes;

• reducing our flexibility in planning for or reacting to changes in our industry and market conditions;

• making us more vulnerable in the event of a downturn in our business; and

• exposing us to increased interest rate risk given that a portion of our debt obligations are at variable interest rates.

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, 2014, all of which involved repurchases of shares of MII common stock in connection with the vesting of restricted stock units pursuant to the provisions of employee benefit plans that permit the repurchase of common stock to satisfy statutory tax withholding obligations associated with the vesting of restricted stock units:

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, 2014		414	$	9.05		not applicable		not applicable
February 1—February 28, 2014		4,719		8.58		not applicable		not applicable
March 1—March 31, 2014		100,828		7.38		not applicable		not applicable
Total		105,961	$	7.43		not applicable		not applicable

Item 5. Other Information

On May 6, 2014, our Board of Directors (the “Board”) approved the amended and restated McDermott International, Inc. Director and Executive Deferred Compensation Plan (the “DCP”). The amendment to the DCP revised the definition of a “Change in Control” under the DCP. The DCP is attached hereto as Exhibit 10.4 and is incorporated herein by reference.

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Additionally, on May 5, 2014, the Compensation Committee of the Board approved discretionary bonus awards for Perry L. Elders, our Senior Vice President and Chief Financial Officer, and Liane K. Hinrichs, our Senior Vice President, General Counsel and Corporate Secretary, in the amount of $50,000 each, in recognition of their respective contributions to and results achieved in connection with our recent refinancing transactions.

Item 6. 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)).
4.1*	Indenture, dated April 16, 2014, by and among McDermott International, Inc., the Guarantors party thereto and Wells Fargo Bank, National Association, as Trustee, relating to 8.000% Senior Notes due 2021 (incorporated by reference to Exhibit 4.1 to McDermott International, Inc.’s Current Report on Form 8-K filed on April 16, 2014 (File No. 1-08430)).
4.2*	Form of 8.000% Senior Note due 2021 (incorporated by reference to Exhibit 4.2 to McDermott International, Inc.’s Current Report on Form 8-K filed on April 16, 2014 (File No. 1-08430)).
4.3*	Credit Agreement, dated April 16, 2014, by and among McDermott International, Inc., McDermott Finance L.L.C., a syndicate of lenders and letter of credit issuers, Crédit Agricole Corporate and Investment Bank, as administrative agent and collateral agent for the LC Facility and the Term Loan and as joint lead arranger and joint bookrunner for the LC Facility, Wells Fargo Securities, LLC, as joint lead arranger and joint bookrunner for the LC Facility, Wells Fargo Bank, N.A., as syndication agent for the LC Facility, and Goldman Sachs Lending Partners LLC, as sole lead arranger, sole bookrunner and sole syndication agent for the Term Loan (incorporated by reference to Exhibit 4.3 to McDermott International, Inc.’s Current Report on Form 8-K filed on April 16, 2014 (File No. 1-08430)).
4.4*	Intercreditor Agreement, dated April 16, 2014, by and among McDermott International, Inc., McDermott Finance L.L.C., the other Guarantors party thereto, Crédit Agricole Corporate and Investment Bank, as first priority agent, and Wells Fargo Bank, National Association, as second priority agent (incorporated by reference to Exhibit 4.4 to McDermott International, Inc.’s Current Report on Form 8-K filed on April 16, 2014 (File No. 1-08430)).
4.5*	Form of First Lien Pledge and Security Agreement, dated April 16, 2014, made by McDermott International, Inc. and the Guarantors party thereto in favor of Crédit Agricole Corporate and Investment Bank, as collateral agent (incorporated by reference to Exhibit 4.5 to McDermott International, Inc.’s Current Report on Form 8-K filed on April 16, 2014 (File No. 1-08430)).
4.6*	Form of Second Lien Pledge and Security Agreement, dated April 16, 2014, made by McDermott International, Inc. and the Guarantors party thereto in favor of Wells Fargo Bank, National Association, as collateral agent (incorporated by reference to Exhibit 4.6 to McDermott International, Inc.’s Current Report on Form 8-K filed on April 16, 2014 (File No. 1-08430)).
4.7*	Indenture, dated April 7, 2014, between McDermott International, Inc. and U.S. Bank National Association (incorporated by reference to Exhibit 4.1 to McDermott International, Inc.’s Current Report on Form 8-K filed on April 7, 2014 (File No. 1-08430)).

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Exhibit Number	Description
4.8*	First Supplemental Indenture dated April 7, 2014, between McDermott International, Inc. and U.S. Bank National Association relating to Amortizing Notes included in Tangible Equity Units (incorporated by reference to Exhibit 4.2 to McDermott International, Inc.’s Current Report on Form 8-K filed on April 7, 2014 (File No. 1-08430)).
4.9*	Purchase Contract Agreement, dated April 7, 2014, between McDermott International, Inc. and U.S. Bank National Association, relating to Tangible Equity Units (incorporated by reference to Exhibit 4.3 to McDermott International, Inc.’s Current Report on Form 8-K filed on April 7, 2014 (File No. 1-08430)).
4.10*	Form of Unit for Tangible Equity Units (incorporated by reference to Exhibit 4.4 to McDermott International, Inc.’s Current Report on Form 8-K filed on April 7, 2014 (File No. 1-08430)).
4.11*	Form of Purchase Contract, relating to Tangible Equity Units (incorporated by reference to Exhibit 4.5 to McDermott International, Inc.’s Current Report on Form 8-K filed on April 7, 2014 (File No. 1-08430)).
4.12*	Form of Amortizing Note, relating to Tangible Equity Units (incorporated by reference to Exhibit 4.6 to McDermott International, Inc.’s Current Report on Form 8-K filed on April 7, 2014 (File No. 1-08430)).
10.1*	Form of 2014 Restricted Stock Unit Grant Agreement (incorporated by reference to Exhibit 10.1 to McDermott International, Inc.’s Current Report on Form 8-K filed on March 7, 2014).
10.2*	Form of 2014 Performance Share Grant Agreement (incorporated by reference to Exhibit 10.2 to McDermott International, Inc.’s Current Report on Form 8-K filed on March 7, 2014).
10.3	Separation Agreement dated February 27, 2014 between J. Ray McDermott, S.A. and Stewart A. Mitchell.
10.4	McDermott International, Inc. Director and Executive Deferred Compensation Plan, as Amended and Restated May 6, 2014.
10.5	Form of 2014 Non-Executive Director Restricted Stock Grant Letter.
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.
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

* Incorporated by reference to the filing indicated.

54

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 7, 2014

55

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)).
4.1*	Indenture, dated April 16, 2014, by and among McDermott International, Inc., the Guarantors party thereto and Wells Fargo Bank, National Association, as Trustee, relating to 8.000% Senior Notes due 2021 (incorporated by reference to Exhibit 4.1 to McDermott International, Inc.’s Current Report on Form 8-K filed on April 16, 2014 (File No. 1-08430)).
4.2*	Form of 8.000% Senior Note due 2021 (incorporated by reference to Exhibit 4.2 to McDermott International, Inc.’s Current Report on Form 8-K filed on April 16, 2014 (File No. 1-08430)).
4.3*	Credit Agreement, dated April 16, 2014, by and among McDermott International, Inc., McDermott Finance L.L.C., a syndicate of lenders and letter of credit issuers, Crédit Agricole Corporate and Investment Bank, as administrative agent and collateral agent for the LC Facility and the Term Loan and as joint lead arranger and joint bookrunner for the LC Facility, Wells Fargo Securities, LLC, as joint lead arranger and joint bookrunner for the LC Facility, Wells Fargo Bank, N.A., as syndication agent for the LC Facility, and Goldman Sachs Lending Partners LLC, as sole lead arranger, sole bookrunner and sole syndication agent for the Term Loan (incorporated by reference to Exhibit 4.3 to McDermott International, Inc.’s Current Report on Form 8-K filed on April 16, 2014 (File No. 1-08430)).
4.4*	Intercreditor Agreement, dated April 16, 2014, by and among McDermott International, Inc., McDermott Finance L.L.C., the other Guarantors party thereto, Crédit Agricole Corporate and Investment Bank, as first priority agent, and Wells Fargo Bank, National Association, as second priority agent (incorporated by reference to Exhibit 4.4 to McDermott International, Inc.’s Current Report on Form 8-K filed on April 16, 2014 (File No. 1-08430)).
4.5*	Form of First Lien Pledge and Security Agreement, dated April 16, 2014, made by McDermott International, Inc. and the Guarantors party thereto in favor of Crédit Agricole Corporate and Investment Bank, as collateral agent (incorporated by reference to Exhibit 4.5 to McDermott International, Inc.’s Current Report on Form 8-K filed on April 16, 2014 (File No. 1-08430)).
4.6*	Form of Second Lien Pledge and Security Agreement, dated April 16, 2014, made by McDermott International, Inc. and the Guarantors party thereto in favor of Wells Fargo Bank, National Association, as collateral agent (incorporated by reference to Exhibit 4.6 to McDermott International, Inc.’s Current Report on Form 8-K filed on April 16, 2014 (File No. 1-08430)).
4.7*	Indenture, dated April 7, 2014, between McDermott International, Inc. and U.S. Bank National Association (incorporated by reference to Exhibit 4.1 to McDermott International, Inc.’s Current Report on Form 8-K filed on April 7, 2014 (File No. 1-08430)).
4.8*	First Supplemental Indenture dated April 7, 2014, between McDermott International, Inc. and U.S. Bank National Association relating to Amortizing Notes included in Tangible Equity Units (incorporated by reference to Exhibit 4.2 to McDermott International, Inc.’s Current Report on Form 8-K filed on April 7, 2014 (File No. 1-08430)).

Exhibit Number	Description
4.9*	Purchase Contract Agreement, dated April 7, 2014, between McDermott International, Inc. and U.S. Bank National Association, relating to Tangible Equity Units (incorporated by reference to Exhibit 4.3 to McDermott International, Inc.’s Current Report on Form 8-K filed on April 7, 2014 (File No. 1-08430)).
4.10*	Form of Unit for Tangible Equity Units (incorporated by reference to Exhibit 4.4 to McDermott International, Inc.’s Current Report on Form 8-K filed on April 7, 2014 (File No. 1-08430)).
4.11*	Form of Purchase Contract, relating to Tangible Equity Units (incorporated by reference to Exhibit 4.5 to McDermott International, Inc.’s Current Report on Form 8-K filed on April 7, 2014 (File No. 1-08430)).
4.12*	Form of Amortizing Note, relating to Tangible Equity Units (incorporated by reference to Exhibit 4.6 to McDermott International, Inc.’s Current Report on Form 8-K filed on April 7, 2014 (File No. 1-08430)).
10.1*	Form of 2014 Restricted Stock Unit Grant Agreement (incorporated by reference to Exhibit 10.1 to McDermott International, Inc.’s Current Report on Form 8-K filed on March 7, 2014).
10.2*	Form of 2014 Performance Share Grant Agreement (incorporated by reference to Exhibit 10.2 to McDermott International, Inc.’s Current Report on Form 8-K filed on March 7, 2014).
10.3	Separation Agreement dated February 27, 2014 between J. Ray McDermott, S.A. and Stewart A. Mitchell.
10.4	McDermott International, Inc. Director and Executive Deferred Compensation Plan, as Amended and Restated May 6, 2014.
10.5	Form of 2014 Non-Executive Director Restricted Stock Grant Letter.
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.
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

* Incorporated by reference to the filing indicated.

EX-10.3

Exhibit 10.3

SEPARATION AGREEMENT

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

STEWART A. MITCHELL, hereinafter referred to as “Employee”; and

J. RAY McDERMOTT, S.A., a Panama corporation, and McDermott Dubai, License No. 5033, a branch of a foreign corporation, collectively hereinafter referred to as the “Company.”

W I T N E S S E T H:

WHEREAS, Employee is currently an employee of the Company;

WHEREAS, pursuant to a resignation letter in the form attached hereto as Exhibit A, Employee has tendered to McDermott International, Inc., a Panamanian corporation of which the Company is a wholly owned subsidiary (“MII”), Employee’s resignation from all positions held as an officer, employee, member of the board of directors or board of managers (and member of any and all committees thereof), of MII and its subsidiaries and joint venture entities, and from any and all positions or capacities with respect to any employee benefit plan sponsored or maintained by any such entity, effective January 27, 2014; and

WHEREAS, Employee’s resignation from each such position shall be effective as of January 27, 2014, except that Employee shall remain an employee of the Company through March 6, 2014, the “Resignation Date”, whereupon his resignation from employment with the Company shall take effect; and

WHEREAS, Employee and the Company mutually desire to establish and agree on the terms and conditions of Employee’s separation from service;

NOW, THEREFORE, in consideration of the premises and the mutual agreements, covenants and obligations set forth herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, Employee and the Company hereby agree as follows:

Section 1. Termination Date and Type. For purposes of interpreting and applying the provisions of compensation arrangements and employee benefit plans of MII or any of its subsidiaries (including the Company) applicable to Employee and subject to Section 2 hereof, (a) Employee’s date of termination shall be the Resignation Date, (b) Employee’s termination of employment is voluntary by Employee and not by the Company, and (c) subject to complying with the requirements of this Agreement, Employee shall be entitled to the compensation and benefits provided in this Agreement.

Section 2. Severance Benefits and Payments. Subject to the execution of this Agreement by Employee and the lapse of the seven (7) day revocation period referenced in Section 7 hereof (the “Revocation Period”) without revocation of the Agreement or any part hereof by Employee, Employee shall be entitled to receive the following payments and benefits, to which Employee would not otherwise be entitled, subject to the terms and conditions set forth in this Agreement:

(a) End of service gratuity payment in the amount of $748,693.94, in lieu of any accrued pension benefits under the J. Ray McDermott Third Country National Employee Pension Plan (as amended to date, the “TCN Pension Plan”);

(b) Relocation allowance in the amount of $10,000;

(c) Accrued but unutilized vacation pay and premium in the amount of $16,985.34;

All payments made pursuant to this Section 2 shall be subject to appropriate tax withholding where applicable and are subject to all the terms and conditions of this Agreement.

Section 3. Release of Claims.

(a) General Release by Employee. In consideration of the foregoing (including the payments and benefits under Section 2 hereof, which the Company is not required to make or provide under any preexisting agreement, plan or policy), which Employee hereby expressly acknowledges as good and sufficient consideration for the releases provided below, Employee hereby unconditionally and irrevocably releases, acquits and forever discharges, to the fullest extent permitted by applicable law, (i) the Company and all of its predecessors, successors and assigns, (ii) all of the Company’s past, present and future affiliates, parent corporations (including MII), subsidiaries, divisions and joint venture entities and all of their respective predecessors, successors and assigns and (iii) all of the past, present and future officers, directors, managers, shareholders, investors, employee benefit plan administrators, employees, agents, attorneys and other representatives of each of the entities described in the immediately preceding clauses (i) and (ii), individually and in their respective representative capacities (the persons or entities referred to in the immediately preceding clauses (i), (ii) and (iii) being, individually, a “Releasee” and, collectively, the “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 or expense (including attorney’s fees) that Employee has, may have or may be entitled to from or against any of 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 Employee’s employment with or termination of employment from the Company or Employee’s service for or other affiliation with MII or any of its subsidiaries (including the Company) or joint venture entities, including any such matter arising from the negligence, gross negligence or reckless, willful or wanton misconduct of any of the Releasees (together, the “Released Claims”); provided, however, that this Release does not apply to, and the Released Claims do not include: (i) any claims arising solely and specifically under the U.S. Age Discrimination in Employment Act of 1967 after the date this Agreement is executed by Employee; (ii) any claim for indemnification (including under MII’s or the Company’s organizational documents or insurance policies) arising in connection with an action instituted by a third party against MII or the Company or any of their affiliates or Employee, in his capacity as an officer, director, manager, employee, agent or other representative of MII or the Company or any of their affiliates; (iii) any claims for vested benefits under the Company’s 401(k) plan or vested benefits under the McDermott International, Inc. Director and Executive Deferred Compensation Plan (“EDCP”); (iv) any claims relating to Employee’s eligibility to continue participating in health coverage currently available to Employee in accordance with the U.S. Consolidated Omnibus Reconciliation Act, subject to the terms, conditions and restrictions of that Act; (v) any claim arising from any breach or failure to perform any provision of this Agreement; or (vi) any claim for worker’s compensation benefits or any other claim that cannot be waived by a general release.

(b) Release to be Full and Complete; Waiver of Claims, Rights and Benefits. The parties intend this Release to cover any and all such Released Claims, whether they are contract claims, equitable claims, fraud claims, tort claims, discrimination claims, harassment claims, whistleblower or retaliation claims, personal injury claims, constructive or wrongful discharge claims, emotional distress claims, pain and suffering claims, public policy claims, claims for debts, claims for expense reimbursement, wage claims, claims with respect to any other form of compensation, claims for attorneys’ fees, other claims or any combination of the foregoing, and whether they may arise under any employment contract (express or implied), policies, procedures, practices or by any acts or omissions of any of the Releasees or whether they may arise under any state, local or federal law (including UAE Federal Law No. 8 of 1980 as amended), statute, ordinance, rule or regulation, including all Texas employment discrimination laws, the Texas Commission on Human Rights Act, the Texas Labor Code, all U.S. federal discrimination laws, the U.S. Age Discrimination in Employment Act of 1967, the U.S. Employee Retirement Income Security Act of 1974, Title VII of the U.S.

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Civil Rights Act of 1964, the U.S. Civil Rights Act of 1991, the U.S. Rehabilitation Act of 1973, the U.S. Americans with Disabilities Act of 1990, the U.S. Equal Pay Act, the U.S. National Labor Relations Act, the U.S. Fair Labor Standards Act, the U.S. Older Workers Benefit Protection Act, the U.S. Worker Adjustment and Retraining Notification Act, the U.S. Family and Medical Leave Act, the U.S. Sarbanes-Oxley Act of 2002 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 and any Releasee’s real or alleged legal obligations to Employee, with the only exceptions being as expressly stated in the proviso to Section 3(a) hereof. Employee understands and agrees, in compliance with any law, statute, ordinance, rule or regulation which requires a specific release of unknown claims or benefits, that this Agreement includes a release of unknown claims, and Employee hereby expressly waives and relinquishes any and all Released Claims and any associated rights or benefits that Employee may have, including any that are unknown to Employee at the time of the execution this Agreement.

(c) Certain Representations of Employee. Employee represents and warrants that: (i) Employee is the sole and lawful owner of all rights, titles and interests in and to all Released Claims; and (ii) Employee has the fully legal right, power, authority and capacity to execute and deliver this Agreement.

(d) Covenant Not to Sue. Employee expressly agrees that neither Employee nor any person acting on Employee’s behalf will file or bring or permit to be filed or brought any lawsuit or other action before any court, agency or other governmental authority for legal or equitable relief against any of the Releasees involving any of the Released Claims (including raising any complaint with the UAE Ministry of Labour or the Dubai or UAE Courts). In the event that such an action is filed against any of the Releasees, Employee agrees that such Releasees are entitled to legal and equitable remedies against Employee, 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 Employee with the Equal Employment Opportunity Commission or to any action filed by Employee that is narrowly limited to seeking a determination as to the validity of this Agreement and enforcement thereof. Should Employee 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, Employee agrees not to seek or accept any resulting relief whatsoever.

Section 4. Return of Materials, Nondisparagement and Cooperation Undertakings.

(a) Return of Materials. On or promptly after the Resignation Date, Employee shall return to MII or the Company, with no request being required of MII or the Company: (i) any and all documents, records, files, reports, memoranda, books, papers, plans, letters and any other data in Employee’s possession regardless of the medium maintained, held or stored (whether documentary, computer or other electronic storage or other) that relate in any way to the business or operations of MII or the Company or any of their past or present affiliates, subsidiaries, divisions or joint ventures (such entities being, individually, a “Company Entity” and, collectively, the “Company Entities”) (and Employee shall not retain, recreate or deliver to anyone else such information); and (ii) any credit cards, keys, access cards, calling cards, computer equipment and software, telephone, facsimile or other equipment or property of any of the Company Entities.

(b) Nondisparagement. Employee shall refrain from making, directly or indirectly, in any public or private communication (whether oral, written or electronic), any criticisms or negative or disparaging comments or other statements about the Company or any of the other Releasees, or about any aspect of the respective businesses, operations, financial results or prospects of any of the Company Entities, including comments relating to Employee’s termination of employment. Notwithstanding the foregoing, it is understood and agreed that nothing in this Section 4(b) or in Section 5 hereof is intended to prevent Employee from: (i) testifying truthfully in any legal proceeding brought by any governmental authority or other third party or to interfere with any obligation Employee may have to cooperate with or provide information to any government agency or commission, subject to compliance with the provisions of Section 5(c) hereof, if applicable; (ii) advising Employee’s spouse of the terms and conditions of this Agreement; or (iii) consulting with Employee’s own legal counsel, as contemplated by Section 7 of this Agreement.

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(c) Cooperation. Employee agrees to be reasonably available to the Company Entities or their representatives (including their attorneys) to provide information and assistance as requested by MII or the Company. Such information and assistance may include testifying (and preparing to testify) as a witness in any proceeding or otherwise providing information or reasonable assistance to the Company Entities in connection with any investigation, claim or suit, and cooperating with the Company Entities regarding any litigation, government investigation, regulatory matter, claim or other disputed item involving any of the Company Entities that relate to matters within the knowledge or responsibility of Employee during Employee’s employment. Specifically, Employee agrees (i) to meet with the Company Entities’ representatives, their counsel or other designees at reasonable times and places with respect to any matter within the scope of the foregoing provisions of this Section 4(c); (ii) to provide truthful testimony regarding any such matter to any applicable court, agency or other adjudicatory body; (iii) to provide the Company Entities with immediate notice of contact or subpoena by any non-governmental adverse party (known to Employee to be adverse to any of the Company Entities or their interests), and (iv) to not voluntarily assist any such non-governmental adverse party or such non-governmental adverse party’s representatives. Such cooperation required by Employee shall not unreasonably interfere with Employee’s other business endeavors.

(d) Visa cancellation: Employee hereby agrees and undertakes that he will co-operate with the cancellation of his visa on or around the Resignation Date and shall, no later than seven days from receipt of a request by the Company, provide to the Company his passport together with the passports of any dependents sponsored by him, and shall sign and execute any documents for or in front of the competent immigration and labour authorities and any other competent authorities in Dubai, the UAE, as may be required, including visa and work permit cancellation forms and any termination certificates required by the Company in the course of its standard policy and procedures.

(e) Enforcement. The covenants set forth in the foregoing provisions of this Section 4 may be enforced pursuant to the provisions of Section 5(f) hereof.

Section 5. Confidentiality and Non-Competition Agreement.

(a) Definition of Trade Secrets and Confidential Business Information. Employee acknowledges and agrees that any and all non-public information regarding the Company Entities and their customers and suppliers (including any and all information relating to the Company Entities’ respective business plans or practices, products, services, contracts with customers, backlog, bids outstanding, target projects, financial or operational performance, finances, financial accounting policies, practices or systems, internal controls or internal control systems, financial projections or budgets, board of directors or board committee proceedings, investor relations practices, capital expenditures, equipment, pricing strategies, marketing programs or plans, executive management or other personnel, human resources plans, policies, practices, records or systems, information technology systems or other business systems, project management, business strategy, profits or overhead) is confidential and the unauthorized disclosure of such confidential information could result in irreparable harm to one or more of the Company Entities. Such confidential information, in whatever form maintained, held or stored (whether documentary, computer or other electronic storage or other), includes each Company Entity’s proprietary interest in its trade secrets, including its lists of customers and prospective customers, and other information that has recognized value and that is not generally available through other sources (collectively, “Trade Secrets”), and information regarding each Company Entity’s various services, projects, products, procedures or systems that is treated as confidential by such Company Entity which may not rise to the level of a Trade Secret (collectively, “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 any act or omission of Employee. Collectively, Trade Secrets and Confidential Business Information (and including all the non-public information referred to in the first sentence of this Section 5(a) and all information relating to Employee’s separation from service with the Company) are referred to herein as “Confidential Information.”

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(b) Importance of Confidential Information. The parties hereby agree that Employee has been provided with Confidential Information during the period of Employee’s employment. By signing this Agreement, Employee acknowledges delivery to and receipt by Employee of Confidential Information. Employee further acknowledges that the preservation and protection of the Confidential Information was an essential part of Employee’s employment with the Company and that Employee has had a duty of fidelity and trust to the Company Entities in handling the Confidential Information.

(c) Nondisclosure or Misuse. Employee agrees that Employee will not disclose or take away any of the Confidential Information, directly or indirectly, or use such information in any way. Without limiting the generality of the foregoing, Employee will not disclose any of the Confidential Information to any securities analysts, shareholders, prospective investors, customers, competitors or any other third party, including any third party who has or may express an interest in acquiring any of the Company Entities or all or any significant portion of their respective outstanding equity securities or assets. If Employee is legally required to disclose any Confidential Information, Employee shall, to the extent not prohibited by applicable law or legal process, promptly notify the Company in writing of such requirement so that the Company or any of the other Company Entities may seek an appropriate protective order or other relief or waive compliance with the nondisclosure provisions of this Section 5 with respect to such Confidential Information. To the extent not prohibited by applicable law, Employee agrees to cooperate with and not to oppose any effort by the Company or any other Company Entity to resist or narrow such request or to seek a protective order or other appropriate remedy. In any such case, Employee will: (i) disclose only that portion of the Confidential Information that, according to written advice of Employee’s counsel, is required to be disclosed; (ii) use reasonable best efforts to obtain assurances that such Confidential Information will be treated confidentially; and (iii) to the extent not prohibited by applicable law, promptly notify the Company in writing of the items of Confidential Information so disclosed. The foregoing obligations are in addition to any confidentiality obligations Employee may have under any other agreements or arrangements with any of the Company Entities.

(d) Return of Confidential Information. On or promptly after the Resignation Date, all documents or other information containing or referring to any of the Confidential Information as may be in Employee’s possession, or over which Employee may have control, regardless of whether prepared by Employee, shall be returned by Employee to the Company in accordance with the provisions of Section 4(a) hereof.

(e) Noncompetition Agreement. Employee acknowledges and agrees that information, including the Confidential Information, Employee has acquired will enable Employee to irreparably injure the Company if Employee should engage in competition during the period beginning from the Resignation Date and extending through the first anniversary thereof (the “Non-Compete Period”). Accordingly, as a material and substantial part of the agreements set forth herein, and particularly in consideration of the payments and the other benefits provided to Employee pursuant to Section 2 hereof, Employee hereby agrees that the following covenants are reasonable and necessary covenants for the protection of the value of the agreements of Employee contained herein:

(i) During the Non-Compete Period, Employee shall not, directly or indirectly, without the prior written approval of the Company’s Chief Executive Officer (which approval shall not be unreasonably withheld), act in any capacity for, be employed by, provide services to, or contract with any of the entities identified as “Competitive Entities” (or any of their respective subsidiaries or affiliated) in a written memorandum delivered concurrently with this Agreement from MII to Employee.

(ii) During the Non-Compete Period, Employee 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 to whom a Company Entity has sold, or proposed the sale of, any product or service within the period of three (3) years immediately prior to the Resignation Date.

(iii) During the Non-Compete Period, Employee shall not, on Employee’s own behalf or on behalf of any other person or entity, solicit, divert or recruit any person who is, during such time frame, an

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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 that Company Entity.

(f) Enforcement of Covenants. Employee acknowledges that the injury that would be suffered by the Company Entities as a result of a breach or threatened breach of the provisions of Section 4 hereof or this Section 5 would be immediate and irreparable and that, because of the difficulty of measuring economic loss of any such breach or threatened breach, an award of monetary damages to the Company Entities for any such breach would be an inadequate remedy. Accordingly, in the event that the Company determines that Employee has breached or attempted to breach or is threatening to breach any provision of Section 4 hereof or this Section 5, in addition to any other remedies at law or in equity that any of the Company Entities may have available to them, it is agreed that each of the Company Entities shall be entitled, upon application to any court of proper jurisdiction, to temporary or permanent restraining orders or injunctions against Employee prohibiting such breach or attempted or threatened breach, without the necessity of: (i) proving immediate or irreparable harm; (ii) establishing that monetary damages are inadequate or that the Company Entities do not have an adequate remedy at law; or (iii) posting any bond with respect thereto.

(g) Right of Court or Arbitrator to Reform Restrictions. The Company and Employee state that it was their intent to enter into a valid and enforceable agreement. Employee and the Company hereby acknowledge the reasonableness of the restrictions set forth in this Section 5, including the reasonableness of the geographic area, duration as to time and scope of activity restrained. Employee agrees that if an arbitrator or court of competent jurisdiction finds that this Section 5 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 arbitrator or court may: (i) reform the covenants to the extent necessary to cause the limitations contained in this Section 5 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 business interests of the Company Entities; and (ii) enforce this Section 5 as so reformed.

(h) Repayment and Forfeiture. Employee agrees that in the event that (i) Employee breaches any term of Sections 3 or 4 hereof or this Section 5, or (ii) Employee challenges the validity of all or any part of this Section 5, and all or any part of this Section 5 is found invalid or unenforceable for any reason whatsoever by a court of competent jurisdiction or an arbitrator in a proceeding between Employee 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 Section 2 hereof, and shall be entitled to recoup from Employee any and all of the value of the payments and benefits provided pursuant to Section 2 hereof that have vested or been paid pursuant to that Section.

Section 6. Entire Agreement; Amendment; Third-Party Beneficiaries. Employee and the Company agree and acknowledge that this Agreement contains and comprises the entire agreement and understanding between the parties with respect to the subject matter hereof, that no other representation, promise, covenant or agreement of any kind whatsoever has been made to cause either party hereto to execute this Agreement, that all agreements and understandings between the parties with respect to the subject matter hereof are embodied and expressed in this Agreement and that this Agreement supersedes all prior agreements, negotiations, discussions, understandings and commitments, written or oral, between the parties hereto with respect to such subject matter. The parties also agree that the terms of this Agreement shall not be amended or changed except in writing and signed by Employee 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 Employee and the Company and the Company’s successors and assigns. Except to the extent otherwise provided in this Agreement with respect to the Company Entities and the Releasees (each such Company Entity and each such Releasee hereby being expressly made a third-party beneficiary of this Agreement), the provisions of this Agreement shall not confer upon any third party any remedy, claim, liability, reimbursement or other right in excess of those existing without reference to this Agreement.

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Section 7. Timing and Consultation with Counsel. Employee acknowledges that Employee 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 of Employee’s own choosing. Employee acknowledges that this Agreement was offered to Employee on February 27, 2014, and Employee was advised that if accepted (i) it must be executed on or prior to March 20, 2014, and (ii) the Agreement could be revoked, in writing, for up to seven (7) days following the date of such acceptance. If Employee revokes this Agreement, Employee’s resignation shall nevertheless remain effective. Employee represents that Employee has relied on Employee’s own knowledge and judgment and on the advice of independent legal counsel of Employee’s choosing and has consulted with such other independent advisors as Employee and Employee’s counsel deemed appropriate in connection with Employee’s review of this Agreement and Employee’s rights with respect to Employee’s separation from service from the Company and other Company Entities and with respect to this Agreement. Based on Employee’s review, Employee acknowledges that Employee fully and completely understands and accepts all the terms of this Agreement, including the Release in Section 3 hereof, and their legal effects, and Employee is entering into this Agreement voluntarily and of Employee’s own free will, with full consideration of any and all rights which Employee may currently have. Employee further acknowledges that Employee is not relying on any representations or statements made by the Company or any other Company Entity, or by any of their respective officers, directors, employees, affiliates, agents, attorneys or other representatives, regarding this Agreement, except to the extent such representations are expressly set forth in this Agreement. Employee also acknowledges that Employee is not relying upon a legal duty, if one exists, on the part of the Company or any other Company Entity, or any of their respective officers, directors, employees, subsidiaries, affiliates, agents, attorneys or other representatives, to disclose any information in connection with the execution of this Agreement or its preparation, it being expressly understood that Employee shall never assert any failure to disclose information on the part of any such person or entity as a ground for challenging this Agreement or any provision hereof.

Section 8. Applicable Law; Venue. This Agreement shall be interpreted and construed in accordance with the substantive laws of the State of Texas, without giving effect to any conflicts of laws provisions thereof that would result in the application of the laws of any other jurisdiction. THE EXCLUSIVE VENUE FOR THE RESOLUTION OF ANY DISPUTE RELATING TO THIS AGREEMENT OR EMPLOYEE’S EMPLOYMENT (EXCEPT FOR ANY DISPUTE THAT MAY BE SUBJECTED TO ARBITRATION BY MUTUAL AGREEMENT OF THE PARTIES HERETO AFTER THE DATE HEREOF) SHALL BE IN THE STATE AND FEDERAL COURTS LOCATED IN HARRIS COUNTY, TEXAS AND THE PARTIES HEREBY EXPRESSLY CONSENT TO THE JURISDICTION OF THOSE COURTS.

Section 9. Section 409A; Other Tax Matters. This Agreement is intended to provide payments that are exempt from or compliant with the provisions of Section 409A of the U.S. Internal Revenue Code of 1986 (the “Code”) and related regulations and Treasury pronouncements (“Section 409A”), and the Agreement shall be interpreted accordingly. Notwithstanding any provisions of an RSU to the contrary, no RSU shall be settled by reason of a change in control of McDermott International, Inc. or disability of Employee unless such event is a change in control or disability, as applicable, within the meaning of Section 409A. Notwithstanding anything herein to the contrary, if on the date of Employee’s separation from service Employee 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 Employee’s separation from service date (or, if earlier, Employee’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 Employee’s employment must be a “separation from service” for purposes of Section 409A. Employee acknowledges and agrees that Employee has obtained no advice from the Company or any of the other Company Entities, or any of their respective officers, directors, employees, subsidiaries, affiliates, agents, attorneys or other representatives, and that none of such persons or entities have made any representation regarding the tax consequences, if any, of Employee’s receipt of the payments, benefits and other consideration provided for in this Agreement. Employee further acknowledges and agrees that Employee is personally responsible for the payment of all federal, state and

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local taxes that are due, or may be due, for any payments and other consideration received by Employee under this Agreement. Employee agrees to indemnify the Company and hold the Company harmless for any and all taxes, penalties or other assessments that Employee is, or may become, obligated to pay on account of any payments made and other consideration provided to Employee under this Agreement.

Section 10. Miscellaneous Provisions.

(a) Waivers. Any term or provision of this Agreement may be waived, or the time for its performance may be extended, by the party hereto entitled to the benefit thereof. Any such waiver shall be validly and sufficiently given for the purposes of this Agreement if, as to either party hereto, it is in writing signed by such party or an authorized representative thereof. Failure on the part of the Company or Employee at any time to insist on strict compliance by the other party with any provisions of this Agreement shall not constitute a waiver of the obligations of either party hereto in respect thereof, or of either such party’s right hereunder to require strict compliance therewith in the future. No waiver of any breach of this Agreement shall be deemed to constitute a waiver of any other or subsequent breach.

(b) Severability. If any provision of this Agreement is held to be illegal, invalid or unenforceable under applicable law, that provision shall be severable and this Agreement shall be construed and enforced as if that illegal, invalid or unenforceable provision never comprised a part hereof, and the remaining provisions hereof shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision, and there shall be added automatically as part of this Agreement a provision as similar in its terms to such illegal, invalid or unenforceable provision as may be possible and be legal, valid and enforceable.

(c) Further Assurances. Employee shall, on request by the Company from time to time after the date hereof, execute, acknowledge and deliver to the Company such other documents and instruments as the Company may require to give effect to the provisions of this Agreement, including a confirmatory release of the Released Claims as of the Resignation Date.

(d) Section Headings. Titles and headings to Sections and subsections hereof are for the purpose of reference only and shall in no way limit, define or otherwise affect the provisions hereof.

(e) Construction. In this Agreement, unless the context clearly indicates otherwise: (i) words used in the singular include the plural and words used in the plural include the singular; (ii) reference to any gender includes the other gender and the neuter; (iii) the words “include,” “includes” and “including” shall be deemed to be followed by the words “without limitation”; (iv) the words “shall” and “will” are used interchangeably and have the same meaning; (v) the word “or” shall have the inclusive meaning represented by the phrase “and/or”; (vi) the words “this Agreement,” “herein,” “hereunder,” “hereof,” “hereto” and words of similar import shall be deemed references to this Agreement as a whole and not to any particular Section or other provision of this Agreement; (vii) reference to any law (including statutes and ordinances) means such law (including all rules and regulations promulgated thereunder) as amended, modified, codified or reenacted, in whole or in part, and in effect at the time of determining compliance or applicability; (viii) relative to the determination of any period of time, “from” means “from and including” and “through” means “through and including”; and (ix) all references to dollar amounts herein shall be in respect of lawful currency of the United States. The language this Agreement uses shall be deemed to be the language that the parties hereto have chosen to express their mutual intent, and no rule of strict construction shall be applied against either party hereto.

(f) Execution in Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute one and the same instrument.

[Signature page follows]

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

Date: February 27, 2014	/s/ Stewart A. Mitchell
	STEWART A. MITCHELL

On this             day of                 , 2014, personally appeared the above-named Mr. Stewart A. Mitchell, who acknowledged that he executed the foregoing instrument for the purposes and consideration therein expressed, and acknowledged the same to be his free act and deed.

WITNESS

McDERMOTT MIDDLE EAST, INC.
By:	/s/ Scott V. Cummins
	Name:	Scott V. Cummins
	Title:	President

Before me, a Notary Public in and for Harris County, Texas, personally appeared the above-named officer of McDermott Middle East, Inc., who acknowledged that he executed the foregoing instrument for and on behalf of McDermott Middle East, Inc., a Panama corporation, and for the purposes and consideration therein expressed, and acknowledged the same to be [his] free act and deed and the free act and deed of said corporation.

IN WITNESS WHEREOF, I have hereunto set my hand and official seal, in the County of Harris and State of Texas, this 28th day of February, 2014.

/s/ Traci D. Brown
	NOTARY PUBLIC

J. RAY McDERMOTT, S.A.
By:	/s/ Gary L. Carlson
	Name:	Gary L. Carlson
	Title:	Senior Vice President and Chief Administration Officer

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Before me, a Notary Public in and for Harris County, Texas, personally appeared the above-named officer of J. Ray McDermott, S.A., who acknowledged that he executed the foregoing instrument for and on behalf of J. Ray McDermott, S.A., a Panama corporation, and for the purposes and consideration therein expressed, and acknowledged the same to be his free act and deed and the free act and deed of said corporation.

IN WITNESS WHEREOF, I have hereunto set my hand and official seal, in the County of Harris and State of Texas, this 28th day of February, 2014.

/s/ Traci D. Brown

NOTARY PUBLIC

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EXHIBIT A

Notice of Resignation

To the Board of Directors of McDermott International, Inc.

Effective January 27, 2014, the undersigned, Stewart A. Mitchell, resigns from all positions held as an officer of McDermott International, Inc., a Panamanian corporation (“McDermott”), and from all positions held as an officer, employee, member of the board of directors or board of managers (and member of any and all committees thereof) of any of McDermott’s subsidiaries (whether corporations, limited liability companies, limited partnerships or other forms of entity) and joint venture entities, and from any and all positions or capacities with respect to any employee benefit plan sponsored or maintained by any such entity, including but not limited to those as reflected on the attachment hereto. This resignation is not subject to any condition to effectiveness (including, but not limited to, acceptance by the Board of Directors of McDermott) and is irrevocable.

Dated: February 27, 2014

/s/ Stewart A. Mitchell

Stewart A. Mitchell

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EX-10.4

Exhibit 10.4

McDermott International, Inc. Director and Executive Deferred Compensation Plan

As Amended and Restated May 6, 2014

ARTICLE I

Purpose

1.1 Purpose of Plan. The purpose of this McDermott International, Inc. Director and Executive Deferred Compensation Plan (the “Plan”) is to advance the interests of McDermott International, Inc., its subsidiaries and affiliates by providing certain deferred compensation opportunities for directors and executives as well as retirement benefits that will attract and retain highly qualified key employees accountable for the successful conduct of its business.

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

1.3 Effective Date. The original effective date of this Plan was January 1, 2005, and this Plan was amended and restated as of the close of business December 31, 2008, further amended and restated as of the close of business November 8, 2010, and further amended and restated as of the close of business November 8, 2011. The effective date of this amendment and restatement is the close of business May 6, 2014 (the “Effective Date”).

ARTICLE II

Definitions and Construction

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

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

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

2.3 Beneficial Owner or Beneficial Ownership. Beneficial Owner or Beneficial Ownership has the meaning ascribed to such term in Rule 13d-3 of the General Rules and Regulations under the Exchange Act.

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

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

2.6 Bonus. Any bonus paid to a Participant under any plan, policy or program of the Company providing for the payment of annual bonuses to employees or any extraordinary payment paid to a Participant if such payment is designated by the Committee to be a Bonus for purposes of this Plan. Bonus shall not include any compensation under the 2009 McDermott International, Inc. Long-Term Incentive Plan and any successor plan thereto.

2.7 Cause. Cause means:

(a) the overt and willful disobedience of orders or directives issued to a Participant who is an Eligible Employee that are within his scope of duties, or any other willful and continued failure of such a Participant to perform substantially his duties with the Company (occasioned by reason other than physical or mental illness or disability) after a written demand for substantial performance is delivered to such Participant by the Committee or the Chief Executive Officer of the Company which specifically identifies the manner in which the Committee or the Chief Executive Officer believes that such Participant has not substantially performed his duties, after which such Participant shall have 30 days to defend or remedy such failure to substantially perform his duties;

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

(c) the conviction of a Participant who is an Eligible Employee with no further possibility of appeal or, or plea of nolo contendere by such Participant to, any felony or crime of falsehood.

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

2.8 Change in Control. Means the occurrence or existence of any of the following facts or circumstances after the Effective Date:

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

(b) within any period of two (2) consecutive years (not including any period prior to the initial execution of this Plan), individuals who at the beginning of such period constitute the Board, and any new Directors (other than a Director designated by a Person who has entered into an agreement with the Company to effect any transaction described in Clause (a), (c), (d) or (e) of this Section 2.7) whose election by the Board or nomination for election by the stockholders of the Company, was approved by a vote of at least two-thirds (2/3) of the Directors, then still in office who either were Directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority of the Board;

(c) a merger or consolidation of the Company, with any other corporation or other entity has been consummated, other than a merger or consolidation which results in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least fifty percent (50%) of the combined voting power of the voting securities of the Company or the surviving entity outstanding immediately after such merger or consolidation;

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(d) the shareholders of the Company approve a plan of complete liquidation of the Company

(e) the consummation of a sale or disposition by the Company of all or substantially all of the Company’s assets other than to an entity that is under common control with the Company or to an entity for which at least fifty percent (50%) of the combined voting power of its voting securities outstanding immediately after such sale or disposition are owned or controlled by the shareholders of the Company immediately prior to such sale or disposition; or

(f) within one year following the consummation of a merger or consolidation transaction involving the Company (whether as a constituent corporation, the acquiror, the direct or indirect parent entity of the acquiror, the entity being acquired, or the direct or indirect parent entity of the entity being acquired): (i) individuals who, at the time of the execution and delivery of the definitive agreement pursuant to which such transaction has been consummated by the parties thereto (a “Definitive Transaction Agreement”) (or, if there are multiple such agreements relating to such transaction, the first time of execution and delivery by the parties to any such agreement) (the “Execution Time”), constituted the Board cease, for any reason (excluding death, disability or voluntary resignation but including any such voluntary resignation effected in accordance with any Definitive Transaction Agreement), to constitute a majority of the Board; or (ii) the individual who, at the Execution Time, served as the Chief Executive Officer of the Company does not, for any reason (excluding as a result of death, disability or voluntary termination but including any such voluntary termination effected in accordance with any Definitive Transaction Agreement), serve as the Chief Executive Officer of the Company or, if the Company does not continue as a registrant with a class of equity securities registered pursuant to Section 12(b) of the Exchange Act, as the Chief Executive Officer of a corporation or other entity that is (A) a registrant with a class of equity securities registered pursuant to Section 12(b) of the Exchange Act and (B) the surviving entity in such transaction or a direct or indirect parent entity of the surviving entity or the Company following the consummation of such transaction; provided, however, that a Change in Control shall not be deemed to have occurred pursuant to this clause (f) in the case of a merger or consolidation which results in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 55% of the combined voting power of the voting securities of the Company or the surviving entity outstanding immediately after such merger or consolidation.

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

Anything in this definition to the contrary notwithstanding, no Change in Control shall be deemed to have occurred unless such event constitutes an event specified in Code Section 409A(2)(A)(v) and the Treasury Regulations promulgated thereunder.

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

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

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

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

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

2.14 Compensation. In the case of Participants who are Eligible Employees, (i) the salary and wages received by a Participant during any Plan Year or in respect of employment or service with the Company, including any contributions made to a plan described in Sections 125, 132(f) or 401(k) of the Code pursuant to a salary reduction agreement entered into between a Participant and the Company and Bonuses; (ii) amounts, if any, deferred by the Participant under this Plan; and (iii) to the extent specified by the Committee with respect to a Participant, other additional remuneration in any form.

In the case of a Participant who is a Director and not an employee of the Company, the annual retainer and fees received by the Participant during any Plan Year.

Cash payments under the 2009 McDermott International, Inc. Long-Term Incentive Plan and any successor plan thereto shall be excluded with respect to a Participant unless otherwise specified by the Committee.

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

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

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

2.18 Director. Any individual who is a member of the Board; provided, however, that any member of the Board who is employed by the Company shall be considered an Eligible Employee under this Plan and not a Director (except for purposes of Section 2.7).

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

2.20 Eligible Employee. An employee of the Company or its subsidiaries or affiliates who has an annual salary rate of $200,000 or more as of January 1 of the applicable Plan Year.

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

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

2.23 IRS. The Internal Revenue Service.

2.24 Participant. An Eligible Employee or Director who has been selected by the Committee as a Participant in this Plan or a portion thereof until such Eligible Employee or Director ceases to be a Participant in accordance with Article III of this Plan.

2.25 Person. Person has the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act and used in Section 13(d) and 14(d) thereof, including a “group” (as that term is used in Section 13(d)(3) thereof).

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

2.27 Retirement. Retirement means, in the case of a Participant who is an Eligible Employee, Separation from Service with the Company on or after the first of the calendar month following the Participant’s attainment of the age of 65.

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2.28 Separation from Service. If the Participant is an Eligible Employee, a Separation from Service occurs on the date a Participant dies, retires or otherwise has a termination of employment with the Company. A termination of employment occurs on the date after which the Participant and the Company reasonably anticipate that no further services will be performed by the Participant or that the level of bona fide services reasonably anticipated to be performed after such date will permanently decrease to 49% or less of the average level of bona fide services provided in the immediately preceding 36 months.

If the Participant is a Director, a Separation from Service occurs on the date the Participant ceases to be a Director of the Company, provided that as of such date the Participant and the Company reasonably anticipate that no further services will be performed by the Participant or that the level of bona fide services reasonably anticipated to be performed after such date will permanently decrease to 49% or less of the average level of bona fide services provided in the immediately preceding 36 months.

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

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

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

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

2.33 Years of Participation. The sum of whole Plan Years of participation in this Plan as an active Eligible Employee in continuous employment or as a Director in continuous service, excluding fractional years.

ARTICLE III

Participation

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

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selected to participate in this Plan by the Committee. A Director who again becomes a member of the Board following his or her Separation from Service shall become a Participant only if such Director is again selected to participate in this Plan by the Committee.

ARTICLE IV

Contributions

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

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

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

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

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

4.5 Suspension of Deferral Contributions. Except as provided below, an election to make Deferral Contributions in a Plan Year shall be irrevocable on the last day of the immediately preceding Plan Year. To the extent expressly permitted under Code Section 409A and regulations and rulings promulgated by the IRS

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thereunder, the deferral election of a Participant who is an Eligible Employee shall be suspended during any unpaid leave of absence granted in accordance with any applicable Company policy; provided, however that such deferral election shall become fully operative as of the first day of the payroll period commencing coincident with or next following the Participant’s return to active employment following termination of the approved unpaid leave in this Plan Year to which the Participant’s deferral pertains. In the event of an Unforeseeable Emergency, a Participant shall suspend deferrals in order to relieve the emergency, provided that the deferrals must be suspended for the entire remainder of the applicable Plan Year. In the event of a Disability, the Participant may suspend deferrals by the later of the end of the taxable year of the Company in which the Disability arises, or the 15th of the third month following the date that the Disability arises.

ARTICLE V

Accounts

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

5.2 Deferral Accounts. The Committee shall establish and maintain an individual bookkeeping account for each Participant, which shall be the Participant’s Deferral Account. A separate “Deferral Sub Account” may be maintained for each Participant for each Plan Year in respect of which Deferral Contributions are credited under this Plan for the benefit of the Participant. The Committee shall credit the amount of each Deferral Contribution made on behalf of a Participant to such Participant’s Deferral Account as soon as administratively feasible following the applicable deferral. The Committee shall further debit and/or credit the Participant’s Deferral Account with any income, gain or loss based upon the performance of the Deemed Investments selected by the Participant and any payments attributable to such Account on a daily basis, or at such other times as it shall determine appropriate. The sole purpose of the Participant’s Deferral Account is to record and reflect the Company’s Plan obligations related to Deferral Contributions of the Participant under this Plan.

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

5.4 Vesting of Company Account. A Participant’s vested percentage with respect to the Participant’s Company Account, adjusted by any income, gain or loss and any payments attributable thereto, shall be the lesser

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of (i) 20% times the Participant’s Years of Participation, and (ii) 100%. Except as provided in Section 5.5, upon Separation from Service or cessation of Plan participation, whichever is earlier, a Participant shall forfeit all amounts credited to his or her Company Account other than his or her Vested Account value determined as of the close of business coincident with or next following the date of such Separation from Service or cessation of Plan participation, as applicable, provided, however, that amounts not so forfeited shall continue to be debited and credited in accordance with Section 5.3 from and after Separation from Service.

5.5 Accelerated Vesting. The vesting provisions in Section 5.4 notwithstanding, the Participant shall have a Vested Percentage of 100% for his or her entire Account upon the soonest of the following to occur during the Participant’s employment with the Company: (i) the date of Separation from Service as a result of the Participant’s death or disability or termination by the Company for any reason other than Cause, (ii) the Participant’s Disability, (iii) the Participant’s Retirement (if the Participant is not a Director), or (iv) the date a Change in Control occurs. Each Participant who was employed by the Company on December 31, 2008 shall have a vested percentage of 100% of amounts allocated to his or her Account as of December 31, 2008 and future gains and losses thereon. Amounts allocated on or after January 1, 2009 and gains and losses thereon shall vest in accordance with Section 5.4 and the first sentence of this Section 5.5.

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

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

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

ARTICLE VI

Payment of Benefits

6.1 Occasions for Distributions. The Company shall distribute a Participant’s Vested Account following the events and in the manner set forth in this Article VI. A Participant’s Vested Account shall be debited in the amount of any distribution made from the Account as of the date of the distribution. The occasions for distributions shall be (i) the Participant’s Separation From Service, including upon Retirement (if the Participant is not a Director) or death, (ii) Disability, (iii) the occurrence of an Unforeseeable Emergency, or (iv) the completion of fixed period of deferral.

6.2 Distribution Elections. A Participant shall elect the time and form of payment of his or her Vested Account in the manner set forth in Section 4.4. A Participant who fails to timely file a distribution election for a Plan Year shall be deemed to have elected to receive the portion of his or her Vested Account attributable to the relevant Plan Year in a single lump-sum payment within 30 days after his or her Separation from Service, or on

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the first day of the seventh month following his Separation from Service if he or she is a Specified Person as of the date of the Separation from Service. If a Participant’s Vested Account is less than $50,000, it will be distributed in a single lump-sum distribution irrespective of any election to the contrary.

6.3 Change of Former Timing of Payments. A Participant may make a subsequent election no later than 12 months prior to the date that he or she would be eligible to receive a distribution under this Plan, to change the timing and form of payment of the distribution; provided, however, that the payment, or first payment in the case of a series of payments, under the subsequent election shall be deferred to a date that is at least five (5) years after the date the Participant would have been eligible to receive, or begin receiving, the distribution under the prior election. To be effective, any such election must be in writing timely made and received by the Committee, and cannot be effective for at least 12 months after the date on which the election is made. The requirement in this Section 6.3 that the first payment with respect to which any election thereunder applies must be deferred for at least five (5) years shall not apply to a payment on account of the Participant’s death, Disability or in the event of an Unforeseeable Emergency.

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

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

6.6 Unforeseeable Emergency Distribution. In the event that the Committee, upon the written request of a Participant, determines in its sole discretion that such Participant has incurred an Unforeseeable Emergency, as defined in Section 2.30, such Participant may be entitled to receive a distribution of part or all of the Participant’s Vested Account, in an amount not to exceed the lesser of (a) the amount determined by the Committee in accordance with Section 2.30, or (b) the value of such Participant’s Vested Account at the time of the emergency. Such amount shall be paid in a single lump-sum payment as soon as administratively practicable after the Committee has made its determination with respect to the availability and amount of such distribution; provided, however, that the payment shall not be made after the later of the end of the taxable year of the Company with respect to which the Unforeseeable Emergency arises or the 15th day of the third month following the date of the occurrence of the Unforeseeable Emergency. If a Participant’s Account is deemed to be invested in more than one Deemed Investment, such distribution shall be made pro rata from each of such Deemed Investments. For purposes of the foregoing, such distribution shall be made from the Participant’s Account beginning with the oldest Account in the following order: First, such amount shall be debited from the Participant’s Deferral Account, and second, from the Participant’s Company Account (subject to forfeitures with respect to the non-vested portion of the Company Account utilized for such distribution).

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

6.8 Limitation on Distributions to Certain Key Employees. Notwithstanding any other provision of this Plan to the contrary, to the extent that a Participant is a Specified Person and the Participant’s distribution is on

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account of Separation from Service, distributions may not be made before the date which is six months after the date of the Separation from Service. Payments to which the Participant would otherwise be entitled during the six-month period described above shall be delayed and paid in a lump sum on the first day of the seventh month after the date of the Separation from Service.

ARTICLE VII

Committee

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

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

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

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

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

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ARTICLE VIII

Amendment and Termination

The Company retains the power to amend this Plan or to terminate this Plan at any time by action of the Board. No such amendment or termination shall adversely affect any Participant or Beneficiary with respect to his or her right to receive a benefit in accordance with Article VI, determined as of the later of the date that the Plan amendment or termination is adopted or the date such Plan amendment or termination is effective, unless the affected Participant or Beneficiary consents to such amendment or termination. No amendment or termination of this Plan shall be made in a manner that results in noncompliance with the requirements of Code Section 409A, to the extent applicable.

ARTICLE IX

Miscellaneous

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

9.2 Nonalienation and Nonassignment. Except for debts owed to the Company by a Participant or Beneficiary, and in accordance with Section 9.5, no amounts payable or to become payable under this Plan to a Participant or Beneficiary shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge, whether voluntary, involuntary, by operation of law or otherwise, and any attempt to so anticipate, alienate, sell, transfer, assign, pledge, encumber or charge the same by a Participant or Beneficiary prior to distribution as herein provided shall be null and void.

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

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

9.5 Setoffs. As a condition to the receipt of any benefits hereunder, the Committee, in its sole discretion, may require a Participant or Beneficiary to first execute a written authorization, in the form established by the Committee, authorizing the Company to offset from the benefits otherwise due hereunder any and all amounts, debts or other obligations, incurred in the ordinary course of the service relationship, owed to the Company by the Participant. Where such written authorization has been so executed by a Participant, benefits hereunder shall be reduced accordingly. The Committee shall have full discretion to determine the application of such offset and the manner in which such offset will reduce benefits under this Plan; provided, however, that the amount offset in

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any one taxable year does not exceed $5,000 and the offset is taken at the same time and in the same amount as the debt otherwise would have been due from the Participant, but only at the time that an amount is otherwise payable to a Participant under this Plan.

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

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

9.8 Applicable Law. Except to the extent preempted by U.S. federal law, the terms and provisions of this Plan shall be construed in accordance with the laws of the State of Texas, other than any conflicts of laws provisions thereof which would result in the application of the laws of any other jurisdiction.

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

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

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

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

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

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

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

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

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

12

Committee shall advise the claimant prior to the end of the initial sixty (60) day or forty-five day period, as applicable, if additional time is needed to process such application for review. The decision of the Committee shall be final and conclusive.

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

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

(a) dishonesty while in the employ of the Company or while serving as a director of the Company;

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

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

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

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

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

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

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

McDermott International, Inc.
By:	/s/ David Dickson
Title:	President and Chief Executive Officer
Date:	May 6, 2014

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EX-10.5

Exhibit 10.5

May [—], 2014

PERSONAL & CONFIDENTIAL

[Director]

Board of Directors

McDermott International, Inc.

RE: RESTRICTED STOCK AWARD

Dear [Director]:

I am pleased to advise you that the Compensation Committee of the Board of Directors (the “Committee”) of McDermott International, Inc. (the “Company”) approved a grant to you (the “Grant”) of [—] shares of restricted stock under the 2014 McDermott International, Inc. Long-Term Incentive Plan (the “Plan”) on May [—], 2014 (the “Grant Date”). A copy of the Prospectus relating to the Plan, which includes a copy of the Plan, has previously been made available to you. The restricted stock award will have no Vesting Period (as defined in the Plan), and the restrictions on the Grant will lapse on the Grant Date.

Restricted Stock Award. On the Grant Date, you will have the right to be issued the number of shares of Common Stock of the Company set forth above. Such shares will be issued to you in book-entry form in an account in your name with our transfer agent, Computershare, absent other instructions from you, subject to the terms and conditions of the Plan.

Tax Consequences. You are solely responsible for the taxes associated with the Grant, and you should consult with and rely on your own tax advisor, accountant or legal advisor as to the tax consequences to you of the Grant. A general description of the tax consequences relating to the type of award provided through the Grant is included in the Prospectus.

Securities and Exchange Commission Requirements. Because you are a Section 16 insider, this type of transaction must be reported on a Form 4 before the end of the second (2^nd) business day following the Grant Date. Please be aware that if you are going to reject the Grant, you should do so as soon as possible to avoid potential Section 16 liability. Please advise Kim Wolford and Dennis Edge immediately by e-mail, fax or telephone call if you intend to reject this grant.

Absent such notice of rejection, we will prepare and file the required Form 4 on your behalf (pursuant to your standing authorization for us to do so) within the required two business day deadline.

You are also deemed to be an “affiliate” for purposes of Rule 144 under the Securities Act of 1933, as amended, and accordingly subject to Rule 144. Rule 144 is applicable only when the shares are sold, so you need not take any action under Rule 144 at this time.

Other Information. If you have any questions concerning the Grant, please do not hesitate to contact Dennis Edge at 281/870-7342.

Please acknowledge receipt and acceptance of all of the aforesaid by signing both this letter and the duplicate copy enclosed and returning one of them in the pre-paid envelope provided and addressed to the Company at

757 N. Eldridge Parkway, Houston, Texas 77079, attention of Dennis Edge, and marked “Personal and Confidential” within sixty (60) days from the date hereof.

Very truly yours,

McDERMOTT INTERNATIONAL, INC.

David Dickson

President and Chief Executive Officer

ACCEPTED:

	Date:
SIGNATURE

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EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, David Dickson, certify that:

1. I have reviewed this quarterly report on Form 10-Q of McDermott International, Inc. for the quarterly period ended March 31, 2014;

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 7, 2014

/s/ David Dickson

David Dickson

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, 2014;

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 7, 2014

/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, David Dickson, President and 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, 2014 (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 7, 2014

/s/ David Dickson

David Dickson

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, 2014 (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 7, 2014

/s/ Perry L. Elders

Perry L. Elders

Senior Vice President and Chief Financial Officer

XML

Long-Term Debt and Notes Payable - Summary of Redemption Prices Expressed as Percentage (Detail)	3 Months Ended
	Mar. 31, 2014
2017 [Member]
Debt Instrument, Redemption [Line Items]
Redemption prices expressed as percentage	104.00%
2018 [Member]
Debt Instrument, Redemption [Line Items]
Redemption prices expressed as percentage	102.00%
2019 and thereafter [Member]
Debt Instrument, Redemption [Line Items]
Redemption prices expressed as percentage	100.00%

XML

Segment Reporting - Information about Operations in Different Segments (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Segment Reporting Information [Line Items]
Revenues	$ 603,811	$ 807,488
Operating income	(41,642)	53,033
Capital expenditures	37,893	37,649
Depreciation and amortization	24,602	20,222
Drydock amortization	6,946	5,550
Asia Pacific [Member]
Segment Reporting Information [Line Items]
Revenues	161,825	326,062
Operating income	2,091	87,952
Capital expenditures	4,068	3,755
Depreciation and amortization	5,032	5,030
Drydock amortization	1,955	2,961
Americas [Member]
Segment Reporting Information [Line Items]
Revenues	181,625	148,184
Operating income	(31,811)	(16,410)
Capital expenditures	7,405	22,010
Depreciation and amortization	8,297	6,805
Drydock amortization	4,562	1,908
Middle East [Member]
Segment Reporting Information [Line Items]
Revenues	260,361	333,242
Operating income	(9,428)	(18,509)
Capital expenditures	22,579	10,552
Depreciation and amortization	9,575	6,510
Drydock amortization	429	681
Corporate [Member]
Segment Reporting Information [Line Items]
Operating income	(2,494)
Corporate and Other [Member]
Segment Reporting Information [Line Items]
Capital expenditures	3,841	1,332
Depreciation and amortization	$ 1,698	$ 1,877

XML

Fair Values of Financial Instruments - Estimated Fair Values of Financial Instruments (Detail) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014	Dec. 31, 2013	Mar. 31, 2013	Dec. 31, 2012
Fair Value Disclosures [Abstract]
Cash and cash equivalents, Carrying Amount	$ 268,130	$ 118,702	$ 461,535	$ 640,147
Restricted cash and cash equivalents, Carrying Amount	43,286	23,652
Investments, Carrying Amount	5,437	13,511
Debt, Carrying Amount	(308,178)	(88,562)
Forward contracts, Carrying Amount	(14,995)	(28,767)
Cash and cash equivalents, Fair Value	268,130	118,702
Restricted cash and cash equivalents, Fair Value	43,286	23,652
Investments, Fair Value	5,437	13,511
Debt, Fair Value	(309,430)	(90,005)
Forward contracts, Fair Value	$ (14,995)	$ (28,767)

XML

Segment Reporting - Information about Segment Assets by Country (Detail) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014	Dec. 31, 2013
Segment Reporting Information [Line Items]
Total assets	$ 3,023,929	$ 2,807,371
Asia Pacific [Member]
Segment Reporting Information [Line Items]
Assets, continuing operations	740,507	1,030,823
Americas [Member]
Segment Reporting Information [Line Items]
Assets, continuing operations	795,598	522,713
Middle East [Member]
Segment Reporting Information [Line Items]
Assets, continuing operations	1,148,041	1,129,529
Corporate and Other [Member]
Segment Reporting Information [Line Items]
Assets, continuing operations	$ 339,783	$ 124,306

XML

Fair Values of Financial Instruments - Additional Information (Detail) (USD $) In Millions, unless otherwise specified	3 Months Ended	12 Months Ended
	Mar. 31, 2014	Dec. 31, 2013
Fair Value Measurements [Line Items]
Net unrealized gain (loss) on investment	$ 0.2	$ 0.2
Temporary impairment on the asset-backed securities and collateralized mortgage obligations		$ 1.6
Asset-backed securities and collateralized mortgage obligations [Member]
Fair Value Measurements [Line Items]
Asset-backed and mortgage-backed securities with maturities	26 years

XML

Basis of Presentation and Significant Accounting Policies - Components of Accumulated Other Comprehensive Income (Loss) Reclassified (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2014		Mar. 31, 2013
Accumulated Other Comprehensive Income (Loss) [Line Items]
Beginning Balance	$ (140,131)		$ (94,413)
Other comprehensive income (loss) before reclassification	12,014		(7,835)
Amounts reclassified from AOCI	5,375		1,551
Other comprehensive income, net of tax including minority interest effect	17,389		(6,284)
Other comprehensive income, net of tax	17,356	[1]	(6,296)	[1]
Ending Balance	(122,742)		(100,697)
Unrealized holding loss on investment [Member]
Accumulated Other Comprehensive Income (Loss) [Line Items]
Beginning Balance	238		(2,315)
Other comprehensive income (loss) before reclassification	(24)		401
Other comprehensive income, net of tax	(24)		401
Ending Balance	214		(1,914)
Deferred gain (loss) on derivatives [Member]
Accumulated Other Comprehensive Income (Loss) [Line Items]
Beginning Balance	(45,386)		11,734
Other comprehensive income (loss) before reclassification	12,358		(15,450)
Other comprehensive income, net of tax	14,562		(17,554)
Ending Balance	(30,824)		(5,820)
Foreign currency gain (loss) [Member]
Accumulated Other Comprehensive Income (Loss) [Line Items]
Beginning Balance	(2,562)		(3,366)
Other comprehensive income (loss) before reclassification	(320)		7,214
Other comprehensive income, net of tax	(320)		7,214
Ending Balance	(2,882)		3,848
Defined benefit pension plans loss [Member]
Accumulated Other Comprehensive Income (Loss) [Line Items]
Beginning Balance	(92,421)		(100,466)
Other comprehensive income, net of tax	3,171		3,655
Ending Balance	$ (89,250)		$ (96,811)

[1] The tax impacts on amounts presented in other comprehensive income are not significant.

XML

STOCK-BASED COMPENSATION (Tables)

3 Months Ended

Mar. 31, 2014

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Total Stock-Based Compensation Expense Recognized

Total stock-based compensation expense, net recognized for the three months ended March 31, 2014 and March 31, 2013 is as follows:

	Three Months Ended March 31,
	2014		2013
	(Unaudited)
	(In thousands)
Stock Options	$	680	$	1,030
Restricted Stock Units		3,379		1,737
Performance Shares		328		1,156
Total	$	4,387	$	3,923

XML

Stock-based Compensation - Total Stock-Based Compensation Expense Recognized (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expenses	$ 4,387	$ 3,923
Stock Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expenses	680	1,030
Restricted Stock Units [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expenses	3,379	1,737
Performance Shares [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expenses	$ 328	$ 1,156

XML

Derivative Financial Instruments - Additional Information (Detail) (USD $)	3 Months Ended
	Mar. 31, 2014	Dec. 31, 2013
Derivative Instruments and Hedging Activities Disclosures [Line Items]
Net gain (loss) on derivative financial instruments	$ (30,824,000)	$ (45,386,000)
Net deferred losses expected to be reclassified from AOCI over next 12 months	22,000,000
Notional value of outstanding derivative contracts	1,000,000,000
Derivative contracts, maturity date	Dec. 31, 2017
Fair value of derivative contracts	15,000,000
EPCI projects [Member]
Derivative Instruments and Hedging Activities Disclosures [Line Items]
Notional value of outstanding derivative contracts	$ 635,300,000

XML

Long-Term Debt and Notes Payable - Additional Information 1 (Detail) (USD $)	3 Months Ended
	Mar. 31, 2014
Debt Instrument [Line Items]
Aggregate amount financial letters of credit	25.00%
Letter of credit facility covenant terms	The LC Facility requires us to meet a minimum EBITDA (as defined) covenant, which requires that we generate consolidated EBITDA of at least certain specified amounts for different periods over the term of the facility. The LC Facility also requires us to maintain a ratio of fair market value of vessel collateral to the sum of (1) the outstanding principal amount of the Term Loan,(2) the aggregate amount of undrawn financial letters of credit outstanding under the LC Facility,(3) all drawn but unreimbursed letters of credit under the LC Facility, and (4) mark-to-market foreign exchange exposure that is not cash secured of at least 1.201.00. The LC Facility also requires us to maintain at least $200.0 million of minimum available cash, excluding restricted cash, at the end of each quarter.
Minimum required cash balance as per letter of credit agreement	$ 200,000,000
Excess cash flow	50.00%
Term Loan amortization amount	750,000
Date of repay to provide a prepayment premium	April 16, 2016
Aggregate principal amount of unreimbursed drawings and advances under line of credit facility	1.75
Original issue discount	25 basis points
Maximum [Member] | London Interbank Offered Rate (LIBOR) [Member]
Debt Instrument [Line Items]
Base rate and applicable margin	4.25%
Maximum [Member] | Base Rate [Member]
Debt Instrument [Line Items]
Base rate and applicable margin	3.25%
Minimum [Member] | London Interbank Offered Rate (LIBOR) [Member]
Debt Instrument [Line Items]
Base rate and applicable margin	1.00%
Minimum [Member] | Base Rate [Member]
Debt Instrument [Line Items]
Base rate and applicable margin	2.00%
Financial Letter of Credit [Member]
Debt Instrument [Line Items]
Letter of credit fee	2.25%
Letter of Credit Facility [Member]
Debt Instrument [Line Items]
Uncommitted increases in letter of credit capacity	100,000,000
Additional uncommitted increases in letter of credit capacity	100,000,000
Total capacity that letter of credit can be increased	$ 600,000,000
Commitment fee on the unused portion of credit agreement	0.50%
Performance Letters of Credit [Member]
Debt Instrument [Line Items]
Letter of credit fee	4.50%
Term Loan [Member] | Maximum [Member]
Debt Instrument [Line Items]
Reinvestment period	365 days

XML

Earnings Per Share - Additional Information (Detail) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Earnings Per Share [Abstract]
Antidilutive securities excluded from earnings per share computation, shares	3.0	2.9

XML

Fair Values of Financial Instruments - Changes in Level Three Instrument Measured on Recurring Basis (Detail) (Level 3 [Member], USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Level 3 [Member]
Changes In Level 3 Assets And Liabilities Measured At Fair Value On Recurring Basis [Line Items]
Balance at beginning of period	$ 5,557	$ 6,343
Total realized and unrealized gains	1,248	210
Sales/ principal repayments	(6,805)	(396)
Balance at end of period		$ 6,157

XML

ACQUISITION AND DISPOSITIONS

3 Months Ended

Mar. 31, 2014

Discontinued Operations And Disposal Groups [Abstract]

ACQUISITION AND DISPOSITIONS

NOTE 2—ACQUISITION AND DISPOSITIONS

Acquisition

During the quarter ended March 31, 2013, we entered into a share purchase agreement to acquire all of the issued and outstanding shares of capital stock of Deepsea Group Limited, a United Kingdom-based company that provides subsea and other engineering services to international energy companies, primarily through offices in the United Kingdom and the United States. Total consideration was approximately $9.0 million, which includes cash ($6.0 million) and the delivery of 313,580 restricted shares of MII common stock (out of treasury). The transaction is being accounted for using the acquisition method and, accordingly, assets acquired and liabilities assumed are recorded at their respective fair values.

During the quarter ended December 31, 2013, we entered into two joint ventures with TH Heavy Engineering Berhad (“THHE”), whereby we acquired a 30% interest in a subsidiary of THHE, THHE Fabricators Sdn. Bhd., and THHE acquired a 30% interest in our Malaysian subsidiary, Berlian McDermott Sdn. Bhd. Accounting for these transactions is preliminary at March 31, 2014 and is pending finalization of these transactions by mid-2014. As of March 31, 2014, we recorded an equity method investment of approximately $25.5 million, a non-controlling interest of approximately $20.9 million and an increase in capital in excess of par value of approximately $4.6 million arising from these transactions.

Non-Core Asset Sales

We previously committed to a plan to sell four of our multi-function marine vessels, specifically the Bold Endurance, DB 16, DB 26 and the DLB KP1. Assets classified as held for sale are no longer depreciated. During the quarter ended March 31, 2014, we completed the sale of theDLB KP1 for aggregate cash proceeds of approximately $8.4 million, resulting in a gain of approximately $6.4 million recognized in our Middle East segment. During the quarter ended March 31, 2013, we completed the sale of the Bold Endurance and the DB 26 for aggregate cash proceeds of approximately $32.0 million, resulting in an aggregate gain of approximately $12.5 million. We remain in active discussions with interested parties to sell the DB 16.

Americas and Corporate Restructuring

We commenced a restructuring of our Americas operations during the quarter ended June 30, 2013, which involves our Morgan City, Louisiana, Houston, Texas, New Orleans, Louisiana and Brazil locations. The restructuring involves, among other things, reductions of management, administrative, fabrication and engineering personnel, and a plan to discontinue utilization of the Morgan City facility (after the completion of existing backlog projects, which are currently forecasted to be completed in the third quarter of 2014). Future fabrication operations in the Americas segment are expected to be executed using the Altamira, Mexico facility. In addition, we have reached an agreement to exit our joint venture operation in Brazil. Costs associated with our Americas restructuring activities primarily include severance and other personnel-related costs, costs associated with exiting the joint venture in Brazil, asset impairment and relocation costs, environmental reserves and future unutilized lease costs. The total costs are expected to range between $55.0 and $60.0 million in the aggregate. Of the total anticipated costs, we incurred approximately $3.6 million during the quarter ended March 31, 2014 and had incurred an aggregate of $37.7 million through March 31, 2014.

In October 2013, we announced certain executive management changes that became effective during the fourth quarter of 2013. In March 2014, we changed our organizational structure to orient around offshore and subsea business activities through four primary geographic regions. Costs associated with our corporate reorganization activities will primarily include severance, relocation and other personnel-related costs and costs for advisors. The total of these costs is expected to range between $20.0 million and $25.0 million and to be incurred by the end of 2014. Of the total anticipated costs, we incurred approximately $2.5 million during the quarter ended March 31, 2014 and had incurred an aggregate of $4.2 million as of March 31, 2014.

The following table presents total amounts incurred during the quarter ended March 31, 2014, as well as amounts incurred from inception of restructuring efforts up to March 31, 2014 and amounts expected to be incurred in the future by major type of cost and by segment.

	Incurred for three months ended March 31, 2014		Incurred from restructuring inception to March 31, 2014		Remaining to be incurred		Total
	(In thousands)
Americas
Impairments and write offs	$	—	$	14,138	$	112	$	14,250
Severance and other personnel-related costs		2,029		11,676		1,324		13,000
Morgan City environmental reserve (accrued)		—		5,925		—		5,925
Morgan City yard-related expenses		1,602		5,800		9,450		15,250
Other		—		158		6,417		6,575
	$	3,631	$	37,697	$	17,303	$	55,000
Corporate
Severance and other personnel-related costs	$	908	$	2,569	$	6,931	$	9,500
Legal and other advisor fees		1,586		1,586		8,914		10,500
	$	2,494	$	4,155	$	15,845	$	20,000
Total	$	6,125	$	41,852	$	33,148	$	75,000

Accrued liabilities associated with restructuring activities were approximately $7.9 million and $8.0 million as of March 31, 2014 and December 31, 2013, respectively.

XML

Derivative Financial Instruments - Derivative Financial Instruments (Detail) (Derivatives Designated as Hedges [Member], USD $) In Thousands, unless otherwise specified	Mar. 31, 2014	Dec. 31, 2013
Derivative [Line Items]
Asset derivatives fair value	$ 9,222	$ 13,288
Liability derivatives fair value	24,217	42,055
Accounts receivable-other [Member]
Derivative [Line Items]
Asset derivatives fair value	8,258	11,641
Accounts payable [Member]
Derivative [Line Items]
Liability derivatives fair value	11,781	20,209
Other assets [Member]
Derivative [Line Items]
Asset derivatives fair value	964	1,647
Other liabilities [Member]
Derivative [Line Items]
Liability derivatives fair value	$ 12,436	$ 21,846

XML

Basis of Presentation and Significant Accounting Policies - Contract Receivables (Detail) (USD $)	Mar. 31, 2014	Dec. 31, 2013
Accounts, Notes, Loans and Financing Receivable [Line Items]
Retainages	$ 110,718,000	$ 127,698,000
Less allowances	0	0
Accounts receivable-trade, net	332,062,000	381,858,000
Contract receivables [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Unbilled	4,325,000	14,571,000
Less allowances	(27,905,000)	(30,404,000)
Accounts receivable-trade, net	332,062,000	381,858,000
Contract receivables [Member] | Contracts in progress [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Contracts receivable	189,044,000	192,745,000
Contract receivables [Member] | Completed contracts [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Contracts receivable	$ 55,880,000	$ 77,248,000

XML

Basis of Presentation and Significant Accounting Policies - Additional Information (Detail) (USD $)	3 Months Ended		12 Months Ended
	Mar. 31, 2014 Segment Project Country Employee	Mar. 31, 2013	Dec. 31, 2013
Organization, Consolidation and Presentation of Financial Statements Disclosure [Line Items]
Number of countries	20
Number of employees	14,000
Number of operating segments	4
Revenue	$ 603,811,000	$ 807,488,000
Cost of operation	591,493,000	712,814,000
Percentage of completion to recognize expected profit	70.00%
Number of projects accounted under deferred profit recognition policy	0
Loss on contracts	4,400,000,000
Accounts receivable - other	109,330,000		89,273,000
Employee receivables	4,200,000		4,500,000
Allowance for doubtful accounts	0		0
Contracts in progress	431,893,000		425,986,000
Advance billing on contracts	278,881,000		278,929,000
Minimum [Member]
Organization, Consolidation and Presentation of Financial Statements Disclosure [Line Items]
Equity method of accounting investment ownership	20.00%
Maximum [Member]
Organization, Consolidation and Presentation of Financial Statements Disclosure [Line Items]
Equity method of accounting investment ownership	50.00%
Active Projects [Member]
Organization, Consolidation and Presentation of Financial Statements Disclosure [Line Items]
Loss on contracts	550,700,000
Backlog [Member]
Organization, Consolidation and Presentation of Financial Statements Disclosure [Line Items]
Backlog loss position, percent	90.00%
Middle East Segment [Member]
Organization, Consolidation and Presentation of Financial Statements Disclosure [Line Items]
Claim amounts	100.00%
Changes in project estimates	31,900,000
Middle East Segment [Member] | Project Two of Three [Member]
Organization, Consolidation and Presentation of Financial Statements Disclosure [Line Items]
Reduction in estimated cost of completion	24,300,000
Middle East Segment [Member] | Project One of Three [Member]
Organization, Consolidation and Presentation of Financial Statements Disclosure [Line Items]
Reduction in estimated cost of completion	7,600,000
Asia Pacific [Member]
Organization, Consolidation and Presentation of Financial Statements Disclosure [Line Items]
Changes in project estimates	20,600,000
Americas [Member]
Organization, Consolidation and Presentation of Financial Statements Disclosure [Line Items]
Changes in project estimates	35,400,000
Middle East [Member]
Organization, Consolidation and Presentation of Financial Statements Disclosure [Line Items]
Changes in project estimates		7,700,000
Changes in project estimates		38,000,000
Number of projects		5
Middle East [Member] | Project One [Member]
Organization, Consolidation and Presentation of Financial Statements Disclosure [Line Items]
Project Completion Year		2013
Changes in project estimates		5,400,000
Changes in project estimates		17,500,000
Middle East [Member] | Project One of Two [Member]
Organization, Consolidation and Presentation of Financial Statements Disclosure [Line Items]
Project Completion Year		2013
Changes in project estimates		1,800,000
Changes in project estimates		16,700,000
Middle East [Member] | Project Three of Five [Member]
Organization, Consolidation and Presentation of Financial Statements Disclosure [Line Items]
Project Completion Year		2013
Changes in project estimates		4,100,000
Americas [Member]
Organization, Consolidation and Presentation of Financial Statements Disclosure [Line Items]
Project Completion Year		2013
Changes in project estimates		2,400,000
Changes in project estimates		6,900,000
Number of projects		2
Asia Pacific [Member]
Organization, Consolidation and Presentation of Financial Statements Disclosure [Line Items]
Project Completion Year		2013
Reduction in estimated cost of completion		14,000,000
Project charges		4,100,000
Altamira [Member]
Organization, Consolidation and Presentation of Financial Statements Disclosure [Line Items]
Loss on contracts	191,600,000
Brazil [Member]
Organization, Consolidation and Presentation of Financial Statements Disclosure [Line Items]
Loss on contracts	144,600,000
U.S. Gulf of Mexico [Member]
Organization, Consolidation and Presentation of Financial Statements Disclosure [Line Items]
Loss on contracts	65,900,000
Saudi Arabia [Member]
Organization, Consolidation and Presentation of Financial Statements Disclosure [Line Items]
Number of projects accounted under deferred profit recognition policy	9
Loss on contracts	91,500,000
Saudi Arabia [Member] | Middle East Segment [Member]
Organization, Consolidation and Presentation of Financial Statements Disclosure [Line Items]
Project Completion Year	2015
Claims Revenue [Member] | Middle East Segment [Member]
Organization, Consolidation and Presentation of Financial Statements Disclosure [Line Items]
Revenue	6,500,000	225,800,000
Cost of operation	6,500,000	225,800,000
Consolidated Entities [Member] | Middle East Segment [Member]
Organization, Consolidation and Presentation of Financial Statements Disclosure [Line Items]
Revenue	0	29,000,000
Cost of operation	0	29,000,000
Unconsolidated joint ventures [Member] | Middle East Segment [Member]
Organization, Consolidation and Presentation of Financial Statements Disclosure [Line Items]
Revenue	0	3,700,000
Cost of operation	$ 0	$ 3,700,000

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Commitments and Contingencies - Additional Information (Detail) (USD $) In Millions, unless otherwise specified	3 Months Ended	0 Months Ended
	Mar. 31, 2014	Dec. 16, 2005 Antoine, et al. vs. J. Ray McDermott, Inc., et al. [Member] LegalMatter	Jan. 29, 2007 Antoine, et al. vs. J. Ray McDermott, Inc., et al. [Member] Judicial District Court for Harris County, Texas [Member] LegalMatter	Jan. 29, 2007 Antoine, et al. vs. J. Ray McDermott, Inc., et al. [Member] Judicial District Court for Harris County, Texas [Member] Maritime products [Member] LegalMatter	Apr. 04, 2014 Antoine, et al. vs. J. Ray McDermott, Inc., et al. [Member] Judicial District Court for Harris County, Texas [Member] Maritime products [Member] Subsequent Event [Member] LegalMatter	Jan. 29, 2007 Boudreaux, et al. v. McDermott, Inc., et al. [Member] United States District Court for the Southern District of Texas [Member] LegalMatter
Commitments and Contingencies Disclosure [Line Items]
Legal claims	On December 16, 2005, a proceeding entitled Antoine, et al. vs. J. Ray McDermott, Inc., et al.(“Antoine Suit”), was filed in the 24th Judicial District Court, Jefferson Parish, Louisiana, by approximately 88 plaintiffs against approximately 215 defendants, including our subsidiaries formerly known as JRMI and Delta Hudson Engineering Corporation (“DHEC”), generally alleging injuries for exposure to asbestos, and unspecified chemicals, metals and noise while the plaintiffs were allegedly employed as Jones Act seamen. This case was dismissed by the Court on January 10, 2007, without prejudice to plaintiffs’ rights to refile their claims. On January 29, 2007, 21 plaintiffs from the dismissed Antoine Suit filed a matter entitled Boudreaux, et al. v. McDermott, Inc., et al. (the “Boudreaux Suit”), in the United States District Court for the Southern District of Texas, against JRMI and our subsidiary formerly known as McDermott Incorporated, and approximately 30 other employer defendants, alleging Jones Act seaman status and generally alleging exposure to welding fumes, solvents, dyes, industrial paints and noise. The Boudreaux Suit was transferred to the United States District Court for the Eastern District of Louisiana on May 2, 2007, which 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.
Number of plaintiffs		88	43		20	21
Number of defendants		215	65	42		30
Environmental reserves, current	$ 6.3
Environmental reserve	5.9
Aggregate possible liquidated damage due to failure to meet specified contractual milestone dates, offshore oil and gas construction segment	56.9
Liquidated damage contingencies, accrued	37.9
Trigger dates, potential liquidated damages	2015-06
Outstanding obligation in 2013	132.4
Outstanding obligation in 2014	193.2
Outstanding obligation	$ 325.6

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Derivative Financial Instruments - Effects of Derivative Instruments on Financial Statements (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Derivative Instruments and Hedging Activities Disclosures [Line Items]
Amount of gain/ (loss) recognized in other comprehensive income	$ 12,358	$ (15,450)
Cost of operations [Member]
Derivative Instruments and Hedging Activities Disclosures [Line Items]
Income reclassified from AOCI into income: effective portion	202	2,014
Gain (loss) on foreign currency-net [Member]
Derivative Instruments and Hedging Activities Disclosures [Line Items]
Gain (loss) recognized in income: ineffective portion and amount excluded from effectiveness testing	$ (847)	$ (2,849)

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Basis of Presentation and Significant Accounting Policies - Retainages on Contracts (Detail) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014	Dec. 31, 2013
Contractors [Abstract]
Retainages expected to be collected within one year	$ 110,718	$ 127,698
Retainages expected to be collected after one year	107,315	65,365
Total retainages	$ 218,033	$ 193,063

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Basis of Presentation and Significant Accounting Policies - Components of Contracts in Progress and Advance Billings on Contracts (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended	12 Months Ended
	Mar. 31, 2014	Dec. 31, 2013
Contractors [Abstract]
Costs incurred less costs of revenue recognized	$ 127,773	$ 65,113
Revenues recognized less billings to customers	304,120	360,873
Contracts in Progress	431,893	425,986
Billings to customers less revenue recognized	496,040	466,205
Costs incurred less costs of revenue recognized	(217,159)	(187,276)
Advance Billings on Contracts	$ 278,881	$ 278,929

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BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

3 Months Ended

Mar. 31, 2014

Accounting Policies [Abstract]

BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

NOTE 1—BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

McDermott International, Inc. (“MII”), a corporation incorporated under the laws of the Republic of Panama in 1959, 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, we deliver fixed and floating production facilities, pipeline installations and subsea systems from concept to commissioning. Operating in approximately 20 countries across the Americas, Middle East and Asia Pacific, our integrated resources include approximately 14,000 employees and a diversified fleet of marine vessels, fabrication facilities and engineering offices. We support our activities with comprehensive project management and procurement services, while utilizing our fully integrated capabilities in both shallow water and deepwater construction. Our customers include national, major integrated and other oil and gas companies, and we operate in most major offshore oil and gas producing regions throughout the world. We execute our contracts through a variety of methods, principally fixed-price, but also including cost reimbursable, cost-plus, day-rate and unit-rate basis or some combination of those methods. In these notes to our unaudited 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 (the “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, 2013.

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

Certain 2013 amounts in the condensed consolidated balance sheet and statement of cash flows have been reclassified to conform to the 2014 presentation.

Business Segments

In March 2014, we changed our organizational structure to orient around our offshore and subsea business activities through four primary geographic regions. The four geographic regions, which we consider to be our operating segments, consist of Asia Pacific, Americas (previously Atlantic), Middle East and North Sea and Africa. The Caspian is no longer considered an operating segment and will continue to be aggregated in the Middle East reporting segment. The North Sea and Africa operating segment is also aggregated into the Middle East reporting segment due to the proximity of regions and similarities in the nature of services provided, economic characteristics and oversight responsibilities. Accordingly, we continue to report financial results under reporting segments consisting of Asia Pacific, Americas and the Middle East. We also report certain corporate and other non-operating activities under the heading “Corporate and other”. “Corporate and other” primarily reflects corporate personnel and activities, incentive compensation programs and other costs, which are generally fully allocated to our operating segments. The only corporate costs currently not being allocated to our operating segments are the restructuring costs associated with our corporate reorganization. See Note 9 for summarized financial information on our segments.

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 the amount of accumulated contract costs and estimated earnings that exceed billings to customers in contracts in progress. We include billings to customers that exceed accumulated contract costs and estimated earnings in advance billings on contracts. Most long-term contracts contain provisions for progress payments. We expect to invoice customers for and collect all unbilled revenues. Certain costs are generally excluded from the cost-to-cost method of measuring progress, such as significant procurement costs for materials and third-party subcontractors. Total estimated project costs, and resulting income, are affected by changes in the expected cost of materials and labor, productivity, vessel costs, 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 in profit, proportionate to the job percentage of completion in the period when those estimates are revised. Revenue from unapproved change orders is generally recognized to the extent of the lesser of amounts management expects to recover or costs incurred. Additionally, to the extent that claims included in backlog, including those that arise from change orders which are under dispute or which have been previously rejected by the customer, are not resolved in our favor, there could be reductions in or reversals of previously reported, revenues and profits, and charges against current earnings, which could be material.

Claims Revenue

Claims revenue may relate to various factors, including the procurement of materials, equipment performance failures, change order disputes or schedule disruptions and other delays, including those associated with weather or sea conditions. Claims revenue, when recorded, is only recorded to the extent of the lesser of the amounts management expects to recover or the associated costs incurred in our consolidated financial statements. We include certain unapproved claims in the applicable contract values when we have a legal basis to do so, consider collection to be probable and believe we can reliably estimate the ultimate value. Amounts attributable to unapproved change orders are not included in claims. We continue to actively engage in negotiations with our customers on our outstanding claims. However, these claims may be resolved at amounts that differ from our current estimates, which could result in increases or decreases in future estimated contract profits or losses. Claims are generally negotiated over the course of the respective projects and many of our projects are long-term in nature. None of the claims as of March 31, 2014 were involved in litigation.

The amount of revenues and costs included in our estimates at completion (i.e., contract values) associated with such claims was $6.5 million and $225.8 million as of March 31, 2014 and March 31, 2013, respectively. All of those claim amounts at March 31, 2014 were related to our Middle East segment. For the three months ended March 31, 2014, no revenues and costs pertaining to claims were included in our condensed consolidated financial statements. For the three months ended March 31, 2013, $29.0 million of revenues and costs pertaining to claims were included in our condensed consolidated financial statements.

Our unconsolidated joint ventures did not include any claims revenue or associated cost in their financial results for the period ended March 31, 2014. For the period ended March 31, 2013, our unconsolidated joint ventures included $3.7 million of claims revenue and associated costs in their financial results.

Deferred Profit Recognition

For contracts as to which we are unable to estimate the final profitability due to their uncommon nature, including first-of-a-kind projects, 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 reliably estimable and the level of uncertainty has been significantly reduced, which we generally determine to be when the contract is at least 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 as deferred profit recognition contracts. If, while being accounted for under our deferred profit recognition policy, a current estimate of total contract costs indicates a loss, the projected loss is recognized in full and the project is accounted for under our normal revenue recognition guidelines. At March 31, 2014, no projects were accounted for under our deferred profit recognition policy.

Completed Contract Method

Under the completed contract method, revenue and gross profit is recognized only when a contract is completed or substantially complete. We generally do not enter into fixed-price contracts without an estimate of cost to complete that we believe to be accurate. However, it is possible that in the time between contract execution and the start of work on a project, we could lose the ability to forecast cost to complete based on intervening events, including, but not limited to, experience on similar projects, civil unrest, strikes and volatility in our expected costs. In such a situation, we would use the completed contract method of accounting for that project. We did not enter into any contracts that we accounted for under the completed contract method during the quarters ended March 31, 2014 and March 31, 2013.

Loss Recognition

A risk associated with fixed-priced contracts is that revenue from customers may not cover increases in our costs. It is possible that current estimates could materially change for various reasons, including, but not limited to, fluctuations in forecasted labor and vessel productivity, vessel repair requirements, weather downtime, subcontractor or supplier performance, pipeline lay rates or steel and other raw material prices. Increases in costs associated with our fixed-price contracts could have a material adverse impact on our consolidated financial condition, results of operations and cash flows. Alternatively, reductions in overall contract costs at completion could materially improve our consolidated financial condition, results of operations and cash flows.

As of March 31, 2014, we have provided for our estimated costs to complete on all of our ongoing contracts. However, it is possible that current estimates could change due to unforeseen events, which could result in adjustments to overall contract costs. Variations from estimated contract performance could result in material adjustments to operating results for any fiscal quarter or year. For all contracts, if a current estimate of total contract cost indicates a loss, the projected loss is recognized in full when determined.

Of the March 31, 2014 backlog amount of $4.4 billion, approximately $550.7 million relates to nine active projects that are in loss positions, whereby future revenues are expected to equal costs when recognized. Included in this amount is $191.6 million of backlog associated with an EPCI project in Altamira, which is expected to be completed in the third quarter of 2015, $144.6 million pertaining to a five-year charter of the Agile in Brazil, which began in early 2012, and $65.9 million relating to a subsea project in the U.S. Gulf of Mexico scheduled for completion during 2014, all of which are being conducted by our Americas segment. The amount also includes $91.5 million of backlog relating to an EPCI project in Saudi Arabia, in our Middle East segment, which is expected to be completed by the end of 2015. These four projects represent approximately 90% of the backlog amount in a loss position. It is possible that our estimates of gross profit could increase or decrease based on changes in productivity, actual downtime and the resolution of change orders and claims with the customers.

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 in future periods. Changes in project estimates generally exclude change orders and changes in scope, but may include, without limitation, unexpected changes in weather conditions, productivity, unanticipated vessel repair requirements, customer, subcontractor and supplier delays and other costs. We generally expect to experience a reasonable amount of unanticipated events, and some of these events can result in significant cost increases above cost amounts we previously estimated. As of March 31, 2014, we have provided for our estimated costs to complete on all of our ongoing contracts. However, it is possible that current estimates could change due to unforeseen events, which could result in adjustments to overall contract costs. Variations from estimated contract performance could result in material adjustments to operating results.

The following is a discussion of our most significant changes in estimates that impacted operating income for the three months ended March 31, 2014 and 2013.

2014 Period

Operating income for the three months ended March 31, 2014 was impacted by changes in cost estimates relating to projects in each of our segments.

The Asia Pacific segment experienced an improvement of approximately $20.6 million mostly due to changes in estimates on a subsea project in Malaysia during the quarter ended March 31, 2014, primarily due to productivity improvements on our marine vessels as well as offshore support activities.

The Middle East segment was negatively impacted by losses of approximately $31.9 million, mostly due to changes in estimates on three projects in Saudi Arabia during the three months ended March 31, 2014. On two EPCI projects in Saudi Arabia, we increased our estimated cost at completion by approximately $24.3 million, primarily as a result of vessel downtime due to weather and standby delays (which may be recoverable from the customer, but which were not recognizable at March 31, 2014), and reduced productivity on fabrication and engineering activities. Both projects remain in a profitable position at March 31, 2014. On another EPCI project in Saudi Arabia, we increased our estimated cost to complete by approximately $7.6 million, primarily due to increases in our cost estimates for the completion of onshore activities on the project.

The Americas segment was negatively impacted by changes in estimates of approximately $35.4 million on an EPCI project in Altamira during the quarter ended March 31, 2014. The estimated cost at completion on this project increased primarily due to expected delays in final project delivery, resulting in a revised execution plan, increased fabrication labor costs and recognition of liquidated damages.

2013 Period

Operating income for the three months ended March 31, 2013 was impacted by changes in cost estimates relating to projects in each of our segments.

The Middle East segment was impacted by changes in estimates on five projects. In total, those five projects recognized approximately $7.7 million in project losses in the three months ended March 31, 2013, as a result of increases to the estimated costs to complete those projects of approximately $38.0 million. On one of those projects, we increased our estimated cost at completion by $17.5 million, which resulted in the recognition of a $5.4 million loss in the three months ended March 31, 2013, primarily due to changes in the project’s execution plan, which resulted in additional third-party construction vessel usage and marine downtime, cost overruns on offshore hook-up activities, and additional costs for project management-related activities. This project remained in a profitable position at March 31, 2014.

On three projects in the Middle East segment, we increased our estimated cost at completion by $16.7 million, which resulted in the recognition of only $1.8 million of project income in the three months ended March 31, 2013. The changes in estimated cost at completion were principally driven by cost overruns associated with marine equipment downtime, including productivity, hook-up and project management-related activities. Each of those projects was in a profitable position at March 31, 2013. One of those projects was completed in the third quarter of 2013, and the remaining two projects are expected to be completed during 2014. On the remaining project in the Middle East segment, we recognized incremental costs of $4.1 million in the three months ended March 31, 2013, primarily due to cost overruns on marine installation activities. That project was in a loss position at March 31, 2013 and was completed in the second quarter of 2013.

The Americas segment was impacted by changes in estimates on two projects. On one of those projects, we recognized approximately $6.9 million of incremental project losses in the three months ended March 31, 2013, primarily due to declines in fabrication productivity. That project remained in a loss position through its completion in the fourth quarter of 2013. The other project was completed in the first quarter of 2013 and recognized $2.4 million of cost savings as a result of efficiencies associated with fabrication activities.

The Asia Pacific segment benefited from certain changes in estimates, which resulted in a reduction of estimated costs at completion in the three months ended March 31, 2013 of approximately $14.0 million, primarily due to efficiencies associated with the marine campaigns on two of our EPCI projects, both of which were completed in 2013. These benefits were partially offset by project charges recognized in the three months ended March 31, 2013 of approximately $4.1 million associated with cost overruns on support vessels on one of our subsea projects, which remains in a loss position and is expected to be completed in the second quarter of 2014.

Loss Contingencies

We record 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 litigation and other proceedings, as discussed in Note 10. We have accrued our estimates of the probable losses associated with these matters, and associated legal costs are generally recognized in selling, general and administrative expenses as incurred. 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 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, 2014, all of our restricted cash was held in restricted foreign-entity accounts.

Investments

We classify investments available for current operations as current assets in the accompanying balance sheets, and we classify investments held for long-term purposes as noncurrent assets. We adjust the amortized cost of debt securities for amortization of premiums and accretion of discounts to maturity. That amortization is included in interest income. We include realized gains and losses on our investments in other income (expense)—net. The cost of securities sold is based on the specific identification method. We include interest earned on securities in interest income.

Investments in Unconsolidated Affiliates

We generally use the equity method of accounting for affiliates in which our investment ownership ranges from 20% to 50%, and in which we do not exercise control over the entity. Currently, most of our investments in affiliates that are not consolidated are recorded using the equity method.

Accounts Receivable

Accounts Receivable—Trade, Net

A summary of contract receivables is as follows:

	March 31, 2014			December 31, 2013
	(Unaudited)
	(In thousands)
Contract receivables:
Contracts in progress	$	189,044		$	192,745
Completed contracts		55,880			77,248
Retainages		110,718			127,698
Unbilled		4,325			14,571
Less allowances		(27,905	)		(30,404	)
Accounts receivable—trade, net	$	332,062		$	381,858

We expect to invoice our unbilled receivables once certain 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.

Contract retainages generally represent amounts withheld by our customers until project completion, in accordance with the terms of the applicable contracts. The following is a summary of retainages on our contracts:

	March 31, 2014		December 31, 2013
	(Unaudited)
	(In thousands)
Retainages expected to be collected within one year	$	110,718	$	127,698
Retainages expected to be collected after one year		107,315		65,365
Total retainages	$	218,033	$	193,063

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.

Accounts Receivable—Other

Accounts receivable—other was $109.3 million and $89.3 million at March 31, 2014 and December 31, 2013, respectively. The balance primarily relates to transactions with unconsolidated affiliates, receivables associated with our hedging activities, value-added tax, other items and employee receivables. Employee receivables were $4.2 million and $4.5 million as of March 31, 2014 and December 31, 2013, respectively. These amounts are expected to be collected within 12 months, and any allowance for doubtful accounts on our accounts receivable—other is based on our estimate of the amount of probable losses due to the inability to collect these amounts (based on historical collection experience and other available information). As of March 31, 2014 and December 31, 2013, no such allowance for doubtful accounts was recorded.

Contracts in Progress and Advance Billings on Contracts

Contracts in progress were $431.9 million and $426.0 million at March 31, 2014 and December 31, 2013, respectively. Advance billings on contracts were $278.9 million at both March 31, 2014 and December 31, 2013. A detail of the components of contracts in progress and advance billings on contracts is as follows:

	March 31, 2014		December 31, 2013
	(Unaudited)
	(In thousands)
Costs incurred less costs of revenue recognized	$	127,773	$	65,113
Revenues recognized less billings to customers		304,120		360,873
Contracts in Progress	$	431,893	$	425,986

	March 31, 2014			December 31, 2013
	(Unaudited)
	(In thousands)
Billings to customers less revenue recognized	$	496,040		$	466,205
Costs incurred less costs of revenue recognized		(217,159	)		(187,276	)
Advance Billings on Contracts	$	278,881		$	278,929

Fair Value of Financial Instruments

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. An established hierarchy for inputs is used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors that market participants would use in valuing the asset or liability.

Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:

• Level 1—inputs are based upon quoted prices for identical instruments traded in active markets.

• Level 2—inputs are based upon quoted prices for similar instruments in active markets, quoted prices for similar or identical instruments in inactive markets and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets and liabilities.

• Level 3—inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques that include option pricing models, discounted cash flow models and similar valuation techniques.

The carrying amounts that we have reported for financial instruments, including cash and cash equivalents, accounts receivables and accounts payable approximate their fair values. See Note 6 for additional information regarding fair value measurements.

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 derivative 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 and/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 contain provisions under which some payments from our customers are denominated in U.S. Dollars and other payments are denominated in a foreign currency. In general, 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. See Note 5 for additional information regarding derivative financial instruments.

Foreign Currency Translation

We translate assets and liabilities of our foreign operations, other than operations in highly inflationary economies, into U.S. Dollars at period-end exchange rates, and we translate income statement items at average exchange rates for the periods presented. We record adjustments resulting from the translation of foreign currency financial statements as a component of accumulated other comprehensive income (loss) (“AOCI”), net of tax.

Earnings per Share

We have computed earnings per common share on the basis of the weighted average number of common shares, and, where dilutive, common share equivalents, outstanding during the indicated periods. See Note 8 for our earnings per share computations.

Accumulated Other Comprehensive Loss

The components of AOCI included in stockholders’ equity are as follows:

	March 31, 2014			December 31, 2013
	(Unaudited)
	(In thousands)
Foreign currency translation adjustments	$	(2,882	)	$	(2,562	)
Net gain on investments		214			238
Net loss on derivative financial instruments		(30,824	)		(45,386	)
Unrecognized losses on benefit obligations		(89,250	)		(92,421	)
Accumulated other comprehensive loss	$	(122,742	)	$	(140,131	)

The following tables present the components of AOCI and the amounts that were reclassified during the period:

For the three months ended March 31, 2014	Unrealized holding loss on investment			Deferred gain (loss) on derivatives(1)			Foreign currency gain (loss)			Defined benefit pension plans loss(2)			TOTAL
	(Unaudited)
	(In thousands)
Balance, December 31, 2013	$	238		$	(45,386	)	$	(2,562	)	$	(92,421	)	$	(140,131	)
Other comprehensive income (loss) before reclassification		(24	)		12,358			(320	)		—			12,014
Amounts reclassified from AOCI		—			2,204	(3)		—			3,171	(4)		5,375
Net current period other comprehensive income (loss)		(24	)		14,562			(320	)		3,171			17,389
Balance, March 31, 2014	$	214		$	(30,824	)	$	(2,882	)	$	(89,250	)	$	(122,742	)

For the three months ended March 31, 2013	Unrealized holding loss on investment			Deferred gain (loss) on derivatives(1)			Foreign currency gain (loss)			Defined benefit pension plans loss(2)			TOTAL
	(Unaudited)
	(In thousands)
Balance, December 31, 2012	$	(2,315	)	$	11,734		$	(3,366	)	$	(100,466	)	$	(94,413	)
Other comprehensive income before reclassification		401			(15,450	)		7,214			—			(7,835	)
Amounts reclassified from AOCI		—			(2,104	)(3)		—			3,655	(4)		1,551
Net current period other comprehensive income		401			(17,554	)		7,214			3,655			(6,284	)
Balance, March 31, 2013	$	(1,914	)	$	(5,820	)	$	3,848		$	(96,811	)	$	(100,697	)

(1) Refer to Note 5 for additional details.

(2) Refer to Note 4 for additional details.

(3) Reclassified to cost of operations and gain on foreign currency, net.

(4) Reclassified to selling, general and administrative expenses.

Recently Issued Accounting Standards

On July 18, 2013, the Financial Accounting Standards Board (“FASB”) issued an update to the topic Income Taxes. The update clarifies that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward if settlement is required or expected in the event the uncertain tax position is disallowed. In situations where these items are not available at the reporting date under the tax law of the applicable jurisdiction or the tax law of the applicable jurisdiction does not require, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The update is effective for reporting periods beginning after December 15, 2013, and the adoption of this update does not have a material impact on our condensed consolidated financial statements.

In February 2013, the FASB issued an update to the topic Comprehensive Income. The update requires companies to provide additional information about the nature and amount of certain reclassifications out of AOCI, which impact the income statement. While the amendment does not change current reporting requirements, companies are required to provide information about the amounts reclassified out of AOCI by the respective line item. The update is effective for reporting periods beginning after December 15, 2012, and the adoption of this update did not have a material impact on our condensed consolidated financial statements.

In January 2013, the FASB issued an update to the topic Balance Sheet. This update requires new disclosures presenting detailed information regarding both the gross and net basis of derivatives and other financial instruments that are eligible for offset in the balance sheet or that are subject to a master netting arrangement. The update is effective for the first quarter of 2013 and is to be applied retrospectively. As this new guidance relates to presentation only, the adoption of this update did not have a material impact on our condensed consolidated financial statements.

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Basis of Presentation and Significant Accounting Policies - Components of Accumulated Other Comprehensive Income (Loss) included in Stockholders' Equity (Detail) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014	Dec. 31, 2013	Mar. 31, 2013	Dec. 31, 2012
Statement Of Income And Comprehensive Income [Abstract]
Foreign currency translation adjustments	$ (2,882)	$ (2,562)
Net gain on investments	214	238
Net loss on derivative financial instruments	(30,824)	(45,386)
Unrecognized losses on benefit obligations	(89,250)	(92,421)
Accumulated other comprehensive loss	$ (122,742)	$ (140,131)	$ (100,697)	$ (94,413)

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Long-Term Debt and Notes Payable - Summary of Long-Term Debt Obligations (Detail) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014	Dec. 31, 2013
Long-term debt consists of:
Long-term borrowing	$ 308,178	$ 88,562
Less: Amounts due within one year	258,417	39,543
Total long-term debt	49,761	49,019
Former Credit Agreement [Member]
Long-term debt consists of:
Long-term borrowing	250,000
Other financing [Member]
Long-term debt consists of:
Long-term borrowing	989
North Ocean Construction Financing [Member] | North Ocean 102 [Member]
Long-term debt consists of:
Long-term borrowing		31,373
North Ocean Construction Financing [Member] | North Ocean 105 [Member]
Long-term debt consists of:
Long-term borrowing	$ 57,189	$ 57,189

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Segment Reporting - Additional Information (Detail) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2014 Segment	Mar. 31, 2013
Segment Reporting [Abstract]
Number of reporting segments	3
Number of operating segments	4
Accrued capital expenditures		$ 34.0
Cash payments for accrued capital expenditures outstanding	$ 8.3

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Income Statement [Abstract]
Revenues	$ 603,811	$ 807,488
Costs and Expenses:
Cost of operations	591,493	712,814
Selling, general and administrative expenses	55,397	52,226
Gain on asset disposals	(6,439)	(14,716)
Restructuring charges	6,125
Total costs and expenses	646,576	750,324
Equity in Earnings (Loss) of Unconsolidated Affiliates	1,123	(4,131)
Operating Income (Loss)	(41,642)	53,033
Other Income (Expense):
Interest income	61	342
Loss on foreign currency-net	(4,082)	(2,526)
Other income (expense)-net	(265)	782
Total other income (expense)	(4,286)	(1,402)
Income (loss) before provision for income taxes and noncontrolling interests	(45,928)	51,631
Provision for Income Taxes	3,489	27,313
Net Income (Loss)	(49,417)	24,318
Less: Net Income Attributable to Noncontrolling Interests	536	3,765
Net Income (Loss) Attributable to McDermott International, Inc.	$ (49,953)	$ 20,553
Basic:
Income (loss) from operations, less noncontrolling interests	$ (0.21)	$ 0.09
Net income (loss) attributable to McDermott International, Inc.	$ (0.21)	$ 0.09
Diluted:
Income (loss) from operations, less noncontrolling interests	$ (0.21)	$ 0.09
Net income (loss) attributable to McDermott International, Inc.	$ (0.21)	$ 0.09
Shares used in the computation of earnings per share:
Basic	236,961,158	235,941,185
Diluted	236,961,158	239,199,881

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Fair Values of Financial Instruments - Available-for-Sale Securities Measured at Fair Value (Detail) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014	Dec. 31, 2013
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale securities	$ 5,437	$ 13,511
Mutual funds [Member]
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale securities	2,189	2,173
Commercial paper [Member]
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale securities	3,248	3,699
Asset-backed securities and collateralized mortgage obligations [Member]
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale securities		7,639
Level 1 [Member]
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale securities
Level 1 [Member] | Mutual funds [Member]
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale securities
Level 1 [Member] | Commercial paper [Member]
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale securities
Level 1 [Member] | Asset-backed securities and collateralized mortgage obligations [Member]
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale securities
Level 2 [Member]
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale securities	5,437	7,954
Level 2 [Member] | Mutual funds [Member]
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale securities	2,189	2,173
Level 2 [Member] | Commercial paper [Member]
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale securities	3,248	3,699
Level 2 [Member] | Asset-backed securities and collateralized mortgage obligations [Member]
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale securities		2,082
Level 3 [Member]
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale securities		5,557
Level 3 [Member] | Mutual funds [Member]
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale securities
Level 3 [Member] | Commercial paper [Member]
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale securities
Level 3 [Member] | Asset-backed securities and collateralized mortgage obligations [Member]
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale securities		$ 5,557

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$ (49,417)	$ 24,318
Non-cash items included in net income (loss):
Depreciation and amortization	24,602	20,222
Drydock amortization	6,946	5,550
Restructuring charges	675
Equity in (earnings) loss of unconsolidated affiliates	(1,123)	4,131
Gain on asset disposals	(6,439)	(14,716)
Benefit for deferred taxes	(2,628)	5,332
Stock-based compensation charges	4,387	3,923
Net periodic pension benefit cost	2,854	642
Other non-cash items	2,331	1,749
Changes in assets and liabilities, net of effects from acquisitions and dispositions:
Accounts receivable	26,365	(6,573)
Net contracts in progress and advance billings on contracts	(5,974)	(19,935)
Accounts payable	32,727	(125,234)
Accrued and other current liabilities	15,046	(20,774)
Pension liability and accrued postretirement and employee benefits	5,880	(19,657)
Other assets and liabilities	(78,560)	(46,093)
TOTAL CASH USED IN OPERATING ACTIVITIES	(22,328)	(187,115)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment	(37,893)	(37,649)
Increase in restricted cash and cash equivalents	(19,634)	(3,826)
Purchases of available-for-sale securities	(1,997)	(3,744)
Sales and maturities of available-for-sale securities	10,055	31,193
Proceeds from the sale and disposal of assets	8,370	35,621
Other investing activities	(1,950)	(4,596)
TOTAL CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES	(43,049)	16,999
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short term debt	250,000
Payment of debt	(31,373)	(1,494)
Distributions to noncontrolling interests	(502)	(6,200)
Debt issuance cost and other financing activities	(3,356)	(1,015)
TOTAL CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES	214,769	(8,709)
EFFECTS OF EXCHANGE RATE CHANGES ON CASH	36	213
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	149,428	(178,612)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	118,702	640,147
CASH AND CASH EQUIVALENTS AT END OF PERIOD	268,130	461,535
Cash paid during the period for:
Income taxes (net of refunds)	$ 11,668	$ 25,916

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Acquisition and Dispositions - Amounts Incurred and Amounts Expected to be Incurred in Future by Major Type of Cost and by Segment (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2014
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Incurred for the quarter	$ 6,125
Incurred from restructuring inception to March 31, 2014	41,852
Remaining to be incurred	33,148
Total	75,000
Americas [Member]
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Incurred for the quarter	3,631
Incurred from restructuring inception to March 31, 2014	37,697
Remaining to be incurred	17,303
Total	55,000
Americas [Member] | Impairments and write offs [Member]
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Incurred for the quarter
Incurred from restructuring inception to March 31, 2014	14,138
Remaining to be incurred	112
Total	14,250
Americas [Member] | Severance and other personnel-related costs [Member]
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Incurred for the quarter	2,029
Incurred from restructuring inception to March 31, 2014	11,676
Remaining to be incurred	1,324
Total	13,000
Americas [Member] | Morgan City yard-related expenses [Member]
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Incurred for the quarter	1,602
Incurred from restructuring inception to March 31, 2014	5,800
Remaining to be incurred	9,450
Total	15,250
Americas [Member] | Other [Member]
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Incurred for the quarter
Incurred from restructuring inception to March 31, 2014	158
Remaining to be incurred	6,417
Total	6,575
Americas [Member] | Morgan City environmental reserve [Member]
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Incurred for the quarter
Incurred from restructuring inception to March 31, 2014	5,925
Remaining to be incurred
Total	5,925
Corporate [Member]
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Incurred for the quarter	2,494
Incurred from restructuring inception to March 31, 2014	4,155
Remaining to be incurred	15,845
Total	20,000
Corporate [Member] | Severance and other personnel-related costs [Member]
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Incurred for the quarter	908
Incurred from restructuring inception to March 31, 2014	2,569
Remaining to be incurred	6,931
Total	9,500
Corporate [Member] | Legal and other advisor fees [Member]
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Incurred for the quarter	1,586
Incurred from restructuring inception to March 31, 2014	1,586
Remaining to be incurred	8,914
Total	$ 10,500

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PENSION PLANS (Tables)

3 Months Ended

Mar. 31, 2014

Compensation And Retirement Disclosure [Abstract]

Net Periodic Benefit Cost

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

	Domestic Plans						TCN Plan
	Three Months Ended March 31,
	2014			2013			2014			2013
	(Unaudited)
	(In thousands)
Interest cost	$	6,778		$	167		$	475		$	467
Expected return on plan assets		(6,875	)		(3,000	)		(740	)		(651	)
Recognized net actuarial loss and other		3,290			3,152			(74	)		507
Net periodic benefit cost (gain)	$	3,193		$	319		$	(339	)	$	323

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Long-Term Debt and Notes Payable - Additional Information (Detail) (USD $) In Millions, unless otherwise specified	3 Months Ended				3 Months Ended			3 Months Ended					3 Months Ended			1 Months Ended
	Mar. 31, 2014	Mar. 31, 2014 Financial Letter of Credit [Member]	Mar. 31, 2014 Performance Letters of Credit [Member]	Mar. 31, 2014 Commitments [Member]	Mar. 31, 2014 Senior Notes [Member]	Mar. 31, 2014 Eurodollar rate [Member]	Mar. 31, 2014 Base Rate [Member]	Mar. 31, 2014 Letter of Credit Facility [Member]	Mar. 31, 2014 Term Loan [Member]	Mar. 31, 2014 Revolving Credit Facility [Member]	Feb. 28, 2014 Revolving Credit Facility [Member]	Dec. 31, 2013 Revolving Credit Facility [Member]	Jun. 30, 2014 Revolving Credit Facility [Member] Scenario, Forecast [Member]	Mar. 31, 2014 Former Credit Agreement [Member]	Apr. 30, 2014 Subsequent [Member]	Apr. 30, 2014 Subsequent [Member] Senior Notes [Member]	Apr. 30, 2014 Subsequent [Member] Letter of Credit Facility [Member]	Apr. 30, 2014 Subsequent [Member] Term Loan [Member]	Apr. 30, 2014 Subsequent [Member] Tangible Equity Units [Member]
Debt Instrument [Line Items]
Letter of credit, first lien															$ 950.0		$ 400.0	$ 300.0
Revolving credit borrowings outstanding										250.0		0
Letters of credit outstanding	376.0									376.0	109.0	214.3
Issue of second-lien seven-year senior secured notes					500.0											500.0
Issue of tangible equity units																			287.5
Tangible equity units, aggregate principal amount																47.5
Unamortized issuance fees recognized as expenses													28.0
Line of credit aggregate borrowing capacity								600.0		950.0				250.0
Average outstanding borrowings under the Former Credit Agreement														$ 165.0
Average interest rate														3.45%
Applicable margin						2.00%	1.00%
Letter of credit fee		2.00%	1.00%	0.30%
Debt instrument maturity date	Apr. 01, 2017				May 01, 2021			Apr. 16, 2017	Apr. 16, 2019

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FAIR VALUE MEASUREMENTS (Tables)

3 Months Ended

Mar. 31, 2014

Fair Value Disclosures [Abstract]

Available-For-Sale Securities Measured at Fair Value

The following is a summary of our available-for-sale securities measured at fair value:

	Total at March 31, 2014		Level 1		Level 2		Level 3
	(Unaudited)
	(In thousands)
Mutual funds(1)	$	2,189	$	—	$	2,189	$	—
Commercial paper		3,248		—		3,248		—
Total	$	5,437	$	—	$	5,437	$	—

	Total at December 31, 2013		Level 1		Level 2		Level 3
	(In thousands)
Mutual funds(1)	$	2,173	$	—	$	2,173	$	—
Commercial paper		3,699		—		3,699		—
Asset-backed securities and collateralized mortgage obligations(2)		7,639		—		2,082		5,557
Total	$	13,511	$	—	$	7,954	$	5,557

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

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

Changes in Level Three Instrument Measured on Recurring Basis

The following is a summary of the changes in our Level 3 instrument measured on a recurring basis for the three months ended March 31, 2014 and March 31, 2013:

	Three Months Ended March 31,
	2014			2013
	(Unaudited)
	(In thousands)
Balance at beginning of period	$	5,557		$	6,343
Total realized and unrealized gains		1,248			210
Sales/ principal repayments		(6,805	)		(396	)
Balance at end of period	$	—		$	6,157

Estimated Fair Values of Financial Instruments

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

	March 31, 2014						December 31, 2013
	Carrying Amount			Fair Value			Carrying Amount			Fair Value
	(Unaudited)
	(In thousands)
Balance Sheet Instruments
Cash and cash equivalents	$	268,130		$	268,130		$	118,702		$	118,702
Restricted cash and cash equivalents	$	43,286		$	43,286		$	23,652		$	23,652
Investments	$	5,437		$	5,437		$	13,511		$	13,511
Debt	$	(308,178	)	$	(309,430	)	$	(88,562	)	$	(90,005	)
Forward contracts	$	(14,995	)	$	(14,995	)	$	(28,767	)	$	(28,767	)

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CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (Unaudited) (USD $) In Thousands, except Share data	Total		Common Stock [Member]	Capital In Excess of Par Value [Member]	Retained Earnings [Member]	Treasury Stock [Member]	Accumulated Other Comprehensive Income (Loss) [Member]	Stockholders' Equity [Member]	Non-Controlling Interests [Member]
Beginning Balance at Dec. 31, 2012	$ 1,952,105		$ 243,442	$ 1,391,271	$ 445,756	$ (98,725)	$ (94,413)	$ 1,887,331	$ 64,774
Beginning Balance (in shares) at Dec. 31, 2012			243,442,156
Net loss	24,318				20,553			20,553	3,765
Other comprehensive income, net of tax	(6,296)	[1]					(6,284)	(6,284)	(12)
Exercise of stock options	72		18	54				72
Exercise of stock options (in shares)			18,549
Share vesting			318	(318)
Share vesting (in shares)			317,664
Purchase of treasury shares	(1,034)					(1,034)		(1,034)
Stock-based compensation charges	3,923			3,852		71		3,923
Distributions to noncontrolling interests	(6,200)								(6,200)
Ending Balance at Mar. 31, 2013	1,966,888		243,778	1,394,859	466,309	(99,688)	(100,697)	1,904,561	62,327
Ending Balance (in shares) at Mar. 31, 2013			243,778,369
Beginning Balance at Dec. 31, 2013	1,440,344		244,271	1,414,457	(71,157)	(97,926)	(140,131)	1,349,514	90,830
Beginning Balance (in shares) at Dec. 31, 2013			244,271,365
Net loss	(49,417)				(49,953)			(49,953)	536
Other comprehensive income, net of tax	17,356	[1]					17,389	17,389	(33)
Exercise of stock options	265		118	147				265
Exercise of stock options (in shares)			118,410
Share vesting			350	(350)
Share vesting (in shares)			349,625
Purchase of treasury shares	(748)					(748)		(748)
Stock-based compensation charges	4,387			3,120		1,267		4,387
Distributions to noncontrolling interests	(502)								(502)
Ending Balance at Mar. 31, 2014	$ 1,411,685		$ 244,739	$ 1,417,374	$ (121,110)	$ (97,407)	$ (122,742)	$ 1,320,854	$ 90,831
Ending Balance (in shares) at Mar. 31, 2014			244,739,400

[1] The tax impacts on amounts presented in other comprehensive income are not significant.

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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2014		Mar. 31, 2013
Statement Of Income And Comprehensive Income [Abstract]
Net income (loss)	$ (49,417)		$ 24,318
Other comprehensive income (loss), net of tax:
Amortization of benefit plan costs	3,171		3,655
Unrealized gain on investments	(24)		401
Translation adjustments	(320)		7,214
Gain (loss) on derivatives	14,529		(17,566)
Other comprehensive income, net of tax	17,356	[1]	(6,296)	[1]
Total Comprehensive Income (Loss)	(32,061)		18,022
Less: Comprehensive Income Attributable to Noncontrolling Interests	503		3,753
Comprehensive Income (Loss) Attributable to McDermott International, Inc.	$ (32,564)		$ 14,269

[1] The tax impacts on amounts presented in other comprehensive income are not significant.

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COMMITMENTS AND CONTINGENCIES

3 Months Ended

Mar. 31, 2014

Commitments And Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

NOTE 10—COMMITMENTS AND CONTINGENCIES

Investigations and Litigation

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, J. Ray McDermott, Inc. (“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. 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. We do not believe an adverse judgment or material losses in this matter are probable, and, accordingly, we have not accrued any amounts relating to this contingency. Although there is a possibility of an adverse judgment, the amount or potential range of loss is not estimable at this time. The insurer-plaintiffs in this matter commenced this proceeding in a purported attempt to obtain a determination of insurance coverage obligations for occupational exposure and/or environmental matters for which we have given notice that we could potentially seek coverage. Because estimating losses would require, for every matter, known and unknown, on a case by case basis, anticipating what impact on coverage a judgment would have and a determination of an otherwise expected insured value, damages cannot be reasonably estimated.

On December 16, 2005, a proceeding entitled Antoine, et al. vs. J. Ray McDermott, Inc., et al. (“Antoine Suit”), was filed in the 24th Judicial District Court, Jefferson Parish, Louisiana, by approximately 88 plaintiffs against approximately 215 defendants, including our subsidiaries formerly known as JRMI and Delta Hudson Engineering Corporation (“DHEC”), generally alleging injuries for exposure to asbestos, and unspecified chemicals, metals and noise while the plaintiffs were allegedly employed as Jones Act seamen. This case was dismissed by the Court on January 10, 2007, without prejudice to plaintiffs’ rights to refile their claims. On January 29, 2007, 21 plaintiffs from the dismissed Antoine Suit filed a matter entitled Boudreaux, et al. v. McDermott, Inc., et al. (the “Boudreaux Suit”), in the United States District Court for the Southern District of Texas, against JRMI and our subsidiary formerly known as McDermott Incorporated, and approximately 30 other employer defendants, alleging Jones Act seaman status and generally alleging exposure to welding fumes, solvents, dyes, industrial paints and noise. The Boudreaux Suit was transferred to the United States District Court for the Eastern District of Louisiana on May 2, 2007, which 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, another 43 plaintiffs from the dismissed Antoine Suit filed a matter entitled Antoine, et al. v. McDermott, Inc., et al. (the “New Antoine Suit”), in the 164th Judicial District Court for Harris County, Texas, against JRMI, our subsidiary formerly known as McDermott Incorporated 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 the New Antoine Suit, other than service of process and answer/appearance dates, until further order of the Court. The New Antoine Suit plaintiffs filed a motion to lift the stay on February 20, 2009, which is pending before the Texas District Court. On April 4, 2014, 20 of the plaintiffs in the New Antoine Suit voluntarily dismissed their claims against McDermott without prejudice to re-filing. The remaining plaintiffs seek monetary damages in an unspecified amount in both the Boudreaux Suit and New Antoine Suit cases and attorneys’ fees in the New Antoine Suit. We cannot reasonably estimate the extent of a potential judgment against us, if any, and we intend to vigorously defend these suits.

On August 15, 2013 and August 20, 2013, two separate alleged purchasers of our common stock filed purported class action complaints against us, Stephen M. Johnson and Perry L. Elders in the United States District Court for the Southern District of Texas. Both of the complaints sought to represent a class of purchasers of our stock between November 6, 2012 and August 5, 2013, and alleged, among other things, that the defendants violated federal securities laws by disseminating materially false and misleading information and failing to disclose material information relating to weaknesses in project bidding and execution, poor risk evaluation, poor project management and losses in each of our reporting segments. Each complaint sought relief, including unspecified compensatory damages and an award for attorneys’ fees and other costs. By order dated December 5, 2013, the District Court consolidated the two cases and appointed a lead plaintiff and lead plaintiff’s counsel. The lead plaintiff filed a consolidated amended complaint on February 6, 2014. The consolidated amended complaint asserts substantially the same claims as were made in the two original complaints, with some additional factual allegations, and purports to extend the class period to August 6, 2013. It also seeks relief, including unspecified compensatory damages and an award for attorneys’ fees and other costs. On April 7, 2014, MII and the other defendants filed a motion to dismiss the case, which motion is still pending before the court. We believe the substantive allegations contained in the complaints on file are without merit, and we intend to defend against these claims vigorously.

Additionally, due to the nature of our business, we and our affiliates are, from time to time, involved in litigation or subject to 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, occupational hazard claims, including asbestos-exposure 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; however, because of the inherent uncertainty of litigation and, in some cases, the availability and amount of potentially applicable insurance, we can provide no assurance that the resolution of any particular claim or proceeding to which we are a party will not have a material effect on our consolidated financial condition, results of operations or cash flows for the fiscal period in which that resolution occurs.

Environmental Matters

We have been identified as a potentially responsible party at various cleanup sites under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (“CERCLA”). CERCLA and other environmental 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, 2014, we had total environmental reserves of $6.3 million, all of which was included in noncurrent liabilities. We established an environmental reserve of $5.9 million in connection with our plan to discontinue the utilization of our Morgan City fabrication facility. 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 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, 2014, it is possible that we may incur liabilities for liquidated damages aggregating approximately $56.9 million, of which approximately $37.9 million has been recorded in our financial statements, based on our actual or projected failure to meet certain specified contractual milestone dates. The dates for which these potential liquidated damages could arise extend to June 2015. We believe we will be successful in obtaining schedule extensions or other customer-agreed changes that should resolve the potential for additional liquidated damages. Accordingly, we believe that no amounts for these potential liquidated damages in excess of the amounts currently reflected in our financial statements are probable of being paid by us. However, we may not achieve relief on some or all of the issues involved and, as a result, could be subject to higher damage amounts.

Contractual Obligations

At March 31, 2014, we had outstanding obligations related to our new vessel construction contracts on the LV 108 and DLV 2000 of $325.6 million in the aggregate, with $132.4 million and $193.2 million due in the years ending December 31, 2014 and 2015, respectively.

XML

Document and Entity Information	3 Months Ended
	Mar. 31, 2014	May 01, 2014
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2014
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	Q1
Trading Symbol	MDR
Entity Registrant Name	MCDERMOTT INTERNATIONAL INC
Entity Central Index Key	0000708819
Current Fiscal Year End Date	--12-31
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		237,544,687

XML

BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Policies)

3 Months Ended

Mar. 31, 2014

Accounting Policies [Abstract]

Nature of Operations

Nature of Operations

McDermott International, Inc. (“MII”), a corporation incorporated under the laws of the Republic of Panama in 1959, 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, we deliver fixed and floating production facilities, pipeline installations and subsea systems from concept to commissioning. Operating in approximately 20 countries across the Americas, Middle East and Asia Pacific, our integrated resources include approximately 14,000 employees and a diversified fleet of marine vessels, fabrication facilities and engineering offices. We support our activities with comprehensive project management and procurement services, while utilizing our fully integrated capabilities in both shallow water and deepwater construction. Our customers include national, major integrated and other oil and gas companies, and we operate in most major offshore oil and gas producing regions throughout the world. We execute our contracts through a variety of methods, principally fixed-price, but also including cost reimbursable, cost-plus, day-rate and unit-rate basis or some combination of those methods. In these notes to our unaudited condensed consolidated financial statements, unless the context otherwise indicates, “we,” “us” and “our” mean MII and its consolidated subsidiaries.

Basis of Presentation

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 (the “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, 2013.

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

Certain 2013 amounts in the condensed consolidated balance sheet and statement of cash flows have been reclassified to conform to the 2014 presentation.

Business Segments

Business Segments

In March 2014, we changed our organizational structure to orient around our offshore and subsea business activities through four primary geographic regions. The four geographic regions, which we consider to be our operating segments, consist of Asia Pacific, Americas (previously Atlantic), Middle East and North Sea and Africa. The Caspian is no longer considered an operating segment and will continue to be aggregated in the Middle East reporting segment. The North Sea and Africa operating segment is also aggregated into the Middle East reporting segment due to the proximity of regions and similarities in the nature of services provided, economic characteristics and oversight responsibilities. Accordingly, we continue to report financial results under reporting segments consisting of Asia Pacific, Americas and the Middle East. We also report certain corporate and other non-operating activities under the heading “Corporate and other”. “Corporate and other” primarily reflects corporate personnel and activities, incentive compensation programs and other costs, which are generally fully allocated to our operating segments. The only corporate costs currently not being allocated to our operating segments are the restructuring costs associated with our corporate reorganization. See Note 9 for summarized financial information on our segments.

Revenue Recognition

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 the amount of accumulated contract costs and estimated earnings that exceed billings to customers in contracts in progress. We include billings to customers that exceed accumulated contract costs and estimated earnings in advance billings on contracts. Most long-term contracts contain provisions for progress payments. We expect to invoice customers for and collect all unbilled revenues. Certain costs are generally excluded from the cost-to-cost method of measuring progress, such as significant procurement costs for materials and third-party subcontractors. Total estimated project costs, and resulting income, are affected by changes in the expected cost of materials and labor, productivity, vessel costs, 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 in profit, proportionate to the job percentage of completion in the period when those estimates are revised. Revenue from unapproved change orders is generally recognized to the extent of the lesser of amounts management expects to recover or costs incurred. Additionally, to the extent that claims included in backlog, including those that arise from change orders which are under dispute or which have been previously rejected by the customer, are not resolved in our favor, there could be reductions in or reversals of previously reported, revenues and profits, and charges against current earnings, which could be material.

Claims Revenue

Claims revenue may relate to various factors, including the procurement of materials, equipment performance failures, change order disputes or schedule disruptions and other delays, including those associated with weather or sea conditions. Claims revenue, when recorded, is only recorded to the extent of the lesser of the amounts management expects to recover or the associated costs incurred in our consolidated financial statements. We include certain unapproved claims in the applicable contract values when we have a legal basis to do so, consider collection to be probable and believe we can reliably estimate the ultimate value. Amounts attributable to unapproved change orders are not included in claims. We continue to actively engage in negotiations with our customers on our outstanding claims. However, these claims may be resolved at amounts that differ from our current estimates, which could result in increases or decreases in future estimated contract profits or losses. Claims are generally negotiated over the course of the respective projects and many of our projects are long-term in nature. None of the claims as of March 31, 2014 were involved in litigation.

The amount of revenues and costs included in our estimates at completion (i.e., contract values) associated with such claims was $6.5 million and $225.8 million as of March 31, 2014 and March 31, 2013, respectively. All of those claim amounts at March 31, 2014 were related to our Middle East segment. For the three months ended March 31, 2014, no revenues and costs pertaining to claims were included in our condensed consolidated financial statements. For the three months ended March 31, 2013, $29.0 million of revenues and costs pertaining to claims were included in our condensed consolidated financial statements.

Our unconsolidated joint ventures did not include any claims revenue or associated cost in their financial results for the period ended March 31, 2014. For the period ended March 31, 2013, our unconsolidated joint ventures included $3.7 million of claims revenue and associated costs in their financial results.

Deferred Profit Recognition

For contracts as to which we are unable to estimate the final profitability due to their uncommon nature, including first-of-a-kind projects, 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 reliably estimable and the level of uncertainty has been significantly reduced, which we generally determine to be when the contract is at least 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 as deferred profit recognition contracts. If, while being accounted for under our deferred profit recognition policy, a current estimate of total contract costs indicates a loss, the projected loss is recognized in full and the project is accounted for under our normal revenue recognition guidelines. At March 31, 2014, no projects were accounted for under our deferred profit recognition policy.

Completed Contract Method

Under the completed contract method, revenue and gross profit is recognized only when a contract is completed or substantially complete. We generally do not enter into fixed-price contracts without an estimate of cost to complete that we believe to be accurate. However, it is possible that in the time between contract execution and the start of work on a project, we could lose the ability to forecast cost to complete based on intervening events, including, but not limited to, experience on similar projects, civil unrest, strikes and volatility in our expected costs. In such a situation, we would use the completed contract method of accounting for that project. We did not enter into any contracts that we accounted for under the completed contract method during the quarters ended March 31, 2014 and March 31, 2013.

Loss Recognition

A risk associated with fixed-priced contracts is that revenue from customers may not cover increases in our costs. It is possible that current estimates could materially change for various reasons, including, but not limited to, fluctuations in forecasted labor and vessel productivity, vessel repair requirements, weather downtime, subcontractor or supplier performance, pipeline lay rates or steel and other raw material prices. Increases in costs associated with our fixed-price contracts could have a material adverse impact on our consolidated financial condition, results of operations and cash flows. Alternatively, reductions in overall contract costs at completion could materially improve our consolidated financial condition, results of operations and cash flows.

As of March 31, 2014, we have provided for our estimated costs to complete on all of our ongoing contracts. However, it is possible that current estimates could change due to unforeseen events, which could result in adjustments to overall contract costs. Variations from estimated contract performance could result in material adjustments to operating results for any fiscal quarter or year. For all contracts, if a current estimate of total contract cost indicates a loss, the projected loss is recognized in full when determined.

Of the March 31, 2014 backlog amount of $4.4 billion, approximately $550.7 million relates to nine active projects that are in loss positions, whereby future revenues are expected to equal costs when recognized. Included in this amount is $191.6 million of backlog associated with an EPCI project in Altamira, which is expected to be completed in the third quarter of 2015, $144.6 million pertaining to a five-year charter of the Agile in Brazil, which began in early 2012, and $65.9 million relating to a subsea project in the U.S. Gulf of Mexico scheduled for completion during 2014, all of which are being conducted by our Americas segment. The amount also includes $91.5 million of backlog relating to an EPCI project in Saudi Arabia, in our Middle East segment, which is expected to be completed by the end of 2015. These four projects represent approximately 90% of the backlog amount in a loss position. It is possible that our estimates of gross profit could increase or decrease based on changes in productivity, actual downtime and the resolution of change orders and claims with the customers.

Use of Estimates

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 in future periods. Changes in project estimates generally exclude change orders and changes in scope, but may include, without limitation, unexpected changes in weather conditions, productivity, unanticipated vessel repair requirements, customer, subcontractor and supplier delays and other costs. We generally expect to experience a reasonable amount of unanticipated events, and some of these events can result in significant cost increases above cost amounts we previously estimated. As of March 31, 2014, we have provided for our estimated costs to complete on all of our ongoing contracts. However, it is possible that current estimates could change due to unforeseen events, which could result in adjustments to overall contract costs. Variations from estimated contract performance could result in material adjustments to operating results.

The following is a discussion of our most significant changes in estimates that impacted operating income for the three months ended March 31, 2014 and 2013.

2014 Period

Operating income for the three months ended March 31, 2014 was impacted by changes in cost estimates relating to projects in each of our segments.

The Asia Pacific segment experienced an improvement of approximately $20.6 million mostly due to changes in estimates on a subsea project in Malaysia during the quarter ended March 31, 2014, primarily due to productivity improvements on our marine vessels as well as offshore support activities.

The Middle East segment was negatively impacted by losses of approximately $31.9 million, mostly due to changes in estimates on three projects in Saudi Arabia during the three months ended March 31, 2014. On two EPCI projects in Saudi Arabia, we increased our estimated cost at completion by approximately $24.3 million, primarily as a result of vessel downtime due to weather and standby delays (which may be recoverable from the customer, but which were not recognizable at March 31, 2014), and reduced productivity on fabrication and engineering activities. Both projects remain in a profitable position at March 31, 2014. On another EPCI project in Saudi Arabia, we increased our estimated cost to complete by approximately $7.6 million, primarily due to increases in our cost estimates for the completion of onshore activities on the project.

The Americas segment was negatively impacted by changes in estimates of approximately $35.4 million on an EPCI project in Altamira during the quarter ended March 31, 2014. The estimated cost at completion on this project increased primarily due to expected delays in final project delivery, resulting in a revised execution plan, increased fabrication labor costs and recognition of liquidated damages.

2013 Period

Operating income for the three months ended March 31, 2013 was impacted by changes in cost estimates relating to projects in each of our segments.

The Middle East segment was impacted by changes in estimates on five projects. In total, those five projects recognized approximately $7.7 million in project losses in the three months ended March 31, 2013, as a result of increases to the estimated costs to complete those projects of approximately $38.0 million. On one of those projects, we increased our estimated cost at completion by $17.5 million, which resulted in the recognition of a $5.4 million loss in the three months ended March 31, 2013, primarily due to changes in the project’s execution plan, which resulted in additional third-party construction vessel usage and marine downtime, cost overruns on offshore hook-up activities, and additional costs for project management-related activities. This project remained in a profitable position at March 31, 2014.

On three projects in the Middle East segment, we increased our estimated cost at completion by $16.7 million, which resulted in the recognition of only $1.8 million of project income in the three months ended March 31, 2013. The changes in estimated cost at completion were principally driven by cost overruns associated with marine equipment downtime, including productivity, hook-up and project management-related activities. Each of those projects was in a profitable position at March 31, 2013. One of those projects was completed in the third quarter of 2013, and the remaining two projects are expected to be completed during 2014. On the remaining project in the Middle East segment, we recognized incremental costs of $4.1 million in the three months ended March 31, 2013, primarily due to cost overruns on marine installation activities. That project was in a loss position at March 31, 2013 and was completed in the second quarter of 2013.

The Americas segment was impacted by changes in estimates on two projects. On one of those projects, we recognized approximately $6.9 million of incremental project losses in the three months ended March 31, 2013, primarily due to declines in fabrication productivity. That project remained in a loss position through its completion in the fourth quarter of 2013. The other project was completed in the first quarter of 2013 and recognized $2.4 million of cost savings as a result of efficiencies associated with fabrication activities.

The Asia Pacific segment benefited from certain changes in estimates, which resulted in a reduction of estimated costs at completion in the three months ended March 31, 2013 of approximately $14.0 million, primarily due to efficiencies associated with the marine campaigns on two of our EPCI projects, both of which were completed in 2013. These benefits were partially offset by project charges recognized in the three months ended March 31, 2013 of approximately $4.1 million associated with cost overruns on support vessels on one of our subsea projects, which remains in a loss position and is expected to be completed in the second quarter of 2014.

Loss Contingencies

Loss Contingencies

We record 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 litigation and other proceedings, as discussed in Note 10. We have accrued our estimates of the probable losses associated with these matters, and associated legal costs are generally recognized in selling, general and administrative expenses as incurred. 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

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 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, 2014, all of our restricted cash was held in restricted foreign-entity accounts.

Investments

Investments

We classify investments available for current operations as current assets in the accompanying balance sheets, and we classify investments held for long-term purposes as noncurrent assets. We adjust the amortized cost of debt securities for amortization of premiums and accretion of discounts to maturity. That amortization is included in interest income. We include realized gains and losses on our investments in other income (expense)—net. The cost of securities sold is based on the specific identification method. We include interest earned on securities in interest income.

Investments in Unconsolidated Affiliates

Investments in Unconsolidated Affiliates

We generally use the equity method of accounting for affiliates in which our investment ownership ranges from 20% to 50%, and in which we do not exercise control over the entity. Currently, most of our investments in affiliates that are not consolidated are recorded using the equity method.

Accounts Receivable

Accounts Receivable

Accounts Receivable—Trade, Net

A summary of contract receivables is as follows:

	March 31, 2014			December 31, 2013
	(Unaudited)
	(In thousands)
Contract receivables:
Contracts in progress	$	189,044		$	192,745
Completed contracts		55,880			77,248
Retainages		110,718			127,698
Unbilled		4,325			14,571
Less allowances		(27,905	)		(30,404	)
Accounts receivable—trade, net	$	332,062		$	381,858

We expect to invoice our unbilled receivables once certain 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.

Contract retainages generally represent amounts withheld by our customers until project completion, in accordance with the terms of the applicable contracts. The following is a summary of retainages on our contracts:

	March 31, 2014		December 31, 2013
	(Unaudited)
	(In thousands)
Retainages expected to be collected within one year	$	110,718	$	127,698
Retainages expected to be collected after one year		107,315		65,365
Total retainages	$	218,033	$	193,063

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.

Accounts Receivable—Other

Accounts receivable—other was $109.3 million and $89.3 million at March 31, 2014 and December 31, 2013, respectively. The balance primarily relates to transactions with unconsolidated affiliates, receivables associated with our hedging activities, value-added tax, other items and employee receivables. Employee receivables were $4.2 million and $4.5 million as of March 31, 2014 and December 31, 2013, respectively. These amounts are expected to be collected within 12 months, and any allowance for doubtful accounts on our accounts receivable—other is based on our estimate of the amount of probable losses due to the inability to collect these amounts (based on historical collection experience and other available information). As of March 31, 2014 and December 31, 2013, no such allowance for doubtful accounts was recorded.

Contracts in Progress and Advance Billings on Contracts

Contracts in Progress and Advance Billings on Contracts

Contracts in progress were $431.9 million and $426.0 million at March 31, 2014 and December 31, 2013, respectively. Advance billings on contracts were $278.9 million at both March 31, 2014 and December 31, 2013. A detail of the components of contracts in progress and advance billings on contracts is as follows:

	March 31, 2014		December 31, 2013
	(Unaudited)
	(In thousands)
Costs incurred less costs of revenue recognized	$	127,773	$	65,113
Revenues recognized less billings to customers		304,120		360,873
Contracts in Progress	$	431,893	$	425,986

	March 31, 2014			December 31, 2013
	(Unaudited)
	(In thousands)
Billings to customers less revenue recognized	$	496,040		$	466,205
Costs incurred less costs of revenue recognized		(217,159	)		(187,276	)
Advance Billings on Contracts	$	278,881		$	278,929

Fair Value of Financial Instruments

Fair Value of Financial Instruments

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. An established hierarchy for inputs is used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors that market participants would use in valuing the asset or liability.

Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:

• Level 1—inputs are based upon quoted prices for identical instruments traded in active markets.

• Level 2—inputs are based upon quoted prices for similar instruments in active markets, quoted prices for similar or identical instruments in inactive markets and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets and liabilities.

• Level 3—inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques that include option pricing models, discounted cash flow models and similar valuation techniques.

The carrying amounts that we have reported for financial instruments, including cash and cash equivalents, accounts receivables and accounts payable approximate their fair values. See Note 6 for additional information regarding fair value measurements.

Derivative Financial Instruments

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 derivative 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 and/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 contain provisions under which some payments from our customers are denominated in U.S. Dollars and other payments are denominated in a foreign currency. In general, 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. See Note 5 for additional information regarding derivative financial instruments.

Foreign Currency Translation

Foreign Currency Translation

We translate assets and liabilities of our foreign operations, other than operations in highly inflationary economies, into U.S. Dollars at period-end exchange rates, and we translate income statement items at average exchange rates for the periods presented. We record adjustments resulting from the translation of foreign currency financial statements as a component of accumulated other comprehensive income (loss) (“AOCI”), net of tax.

Earnings per Share

Earnings per Share

We have computed earnings per common share on the basis of the weighted average number of common shares, and, where dilutive, common share equivalents, outstanding during the indicated periods. See Note 8 for our earnings per share computations.

Accumulated Other Comprehensive Loss

Accumulated Other Comprehensive Loss

The components of AOCI included in stockholders’ equity are as follows:

	March 31, 2014			December 31, 2013
	(Unaudited)
	(In thousands)
Foreign currency translation adjustments	$	(2,882	)	$	(2,562	)
Net gain on investments		214			238
Net loss on derivative financial instruments		(30,824	)		(45,386	)
Unrecognized losses on benefit obligations		(89,250	)		(92,421	)
Accumulated other comprehensive loss	$	(122,742	)	$	(140,131	)

The following tables present the components of AOCI and the amounts that were reclassified during the period:

For the three months ended March 31, 2014	Unrealized holding loss on investment			Deferred gain (loss) on derivatives(1)			Foreign currency gain (loss)			Defined benefit pension plans loss(2)			TOTAL
	(Unaudited)
	(In thousands)
Balance, December 31, 2013	$	238		$	(45,386	)	$	(2,562	)	$	(92,421	)	$	(140,131	)
Other comprehensive income (loss) before reclassification		(24	)		12,358			(320	)		—			12,014
Amounts reclassified from AOCI		—			2,204	(3)		—			3,171	(4)		5,375
Net current period other comprehensive income (loss)		(24	)		14,562			(320	)		3,171			17,389
Balance, March 31, 2014	$	214		$	(30,824	)	$	(2,882	)	$	(89,250	)	$	(122,742	)

For the three months ended March 31, 2013	Unrealized holding loss on investment			Deferred gain (loss) on derivatives(1)			Foreign currency gain (loss)			Defined benefit pension plans loss(2)			TOTAL
	(Unaudited)
	(In thousands)
Balance, December 31, 2012	$	(2,315	)	$	11,734		$	(3,366	)	$	(100,466	)	$	(94,413	)
Other comprehensive income before reclassification		401			(15,450	)		7,214			—			(7,835	)
Amounts reclassified from AOCI		—			(2,104	)(3)		—			3,655	(4)		1,551
Net current period other comprehensive income		401			(17,554	)		7,214			3,655			(6,284	)
Balance, March 31, 2013	$	(1,914	)	$	(5,820	)	$	3,848		$	(96,811	)	$	(100,697	)

(1) Refer to Note 5 for additional details.

(2) Refer to Note 4 for additional details.

(3) Reclassified to cost of operations and gain on foreign currency, net.

(4) Reclassified to selling, general and administrative expenses.

Recently Issued Accounting Standards

Recently Issued Accounting Standards

On July 18, 2013, the Financial Accounting Standards Board (“FASB”) issued an update to the topic Income Taxes. The update clarifies that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward if settlement is required or expected in the event the uncertain tax position is disallowed. In situations where these items are not available at the reporting date under the tax law of the applicable jurisdiction or the tax law of the applicable jurisdiction does not require, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The update is effective for reporting periods beginning after December 15, 2013, and the adoption of this update does not have a material impact on our condensed consolidated financial statements.

In February 2013, the FASB issued an update to the topic Comprehensive Income. The update requires companies to provide additional information about the nature and amount of certain reclassifications out of AOCI, which impact the income statement. While the amendment does not change current reporting requirements, companies are required to provide information about the amounts reclassified out of AOCI by the respective line item. The update is effective for reporting periods beginning after December 15, 2012, and the adoption of this update did not have a material impact on our condensed consolidated financial statements.

In January 2013, the FASB issued an update to the topic Balance Sheet. This update requires new disclosures presenting detailed information regarding both the gross and net basis of derivatives and other financial instruments that are eligible for offset in the balance sheet or that are subject to a master netting arrangement. The update is effective for the first quarter of 2013 and is to be applied retrospectively. As this new guidance relates to presentation only, the adoption of this update did not have a material impact on our condensed consolidated financial statements.

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CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014	Dec. 31, 2013
Current Assets:
Cash and cash equivalents	$ 268,130	$ 118,702
Restricted cash and cash equivalents	43,286	23,652
Accounts receivable-trade, net	332,062	381,858
Accounts receivable-other	109,330	89,273
Contracts in progress	431,893	425,986
Deferred income taxes	7,092	7,091
Investments	3,248
Assets held for sale	1,396	1,396
Other current assets	61,353	32,242
Total Current Assets	1,257,790	1,080,200
Property, Plant and Equipment	2,397,254	2,367,686
Less accumulated depreciation	(913,650)	(889,009)
Net Property, Plant and Equipment	1,483,604	1,478,677
Investments	2,189	13,511
Investments in Unconsolidated Affiliates	48,897	50,536
Assets held for sale	10,121	12,243
Other Assets	221,328	172,204
Total Assets	3,023,929	2,807,371
Current Liabilities:
Notes payable and current maturities of long-term debt	258,417	39,543
Accounts payable	423,166	398,739
Accrued liabilities	383,401	365,224
Advance billings on contracts	278,881	278,929
Deferred income taxes	20,257	17,892
Income taxes payable	16,656	20,657
Total Current Liabilities	1,380,778	1,120,984
Long-Term Debt	49,761	49,019
Self-Insurance	21,715	20,531
Pension Liability	15,516	15,681
Non-current Income Taxes	55,455	56,042
Other Liabilities	89,019	104,770
Commitments and Contingencies
Stockholders' Equity:
Common stock, par value $1.00 per share, authorized 400,000,000 shares; issued 244,739,400 and 244,271,365 shares at March 31, 2014 and December 31, 2013, respectively	244,739	244,271
Capital in excess of par value	1,417,374	1,414,457
Retained earnings	(121,110)	(71,157)
Treasury stock, at cost, 7,231,536 and 7,130,294 shares at March 31, 2014 and December 31, 2013, respectively	(97,407)	(97,926)
Accumulated other comprehensive loss	(122,742)	(140,131)
Stockholders' Equity-McDermott International, Inc.	1,320,854	1,349,514
Noncontrolling Interests	90,831	90,830
Total Equity	1,411,685	1,440,344
Total Liabilities and Equity	$ 3,023,929	$ 2,807,371

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DERIVATIVE FINANCIAL INSTRUMENTS

3 Months Ended

Mar. 31, 2014

Derivative Instruments And Hedging Activities Disclosure [Abstract]

DERIVATIVE FINANCIAL INSTRUMENTS

NOTE 5—DERIVATIVE FINANCIAL INSTRUMENTS

We enter into derivative financial instruments primarily to hedge certain firm purchase commitments and forecasted transactions denominated in foreign currencies. We record these contracts at fair value on our condensed 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 as a component of AOCI until the hedged item is recognized in earnings; (2) offset against the change in fair value of the hedged firm commitment through earnings; or (3) recognized immediately in earnings. At inception and on an ongoing basis, we assess the hedging relationship to determine its effectiveness in offsetting changes in cash flows or fair value 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 gain (loss) on foreign currency-net in our condensed consolidated statements of operations.

At March 31, 2014, the majority of our foreign currency forward contracts were designated as cash flow hedging instruments. In addition, we deferred approximately $30.8 million of net losses on these derivative financial instruments in AOCI, and we expect to reclassify approximately $22.0 million of deferred losses out of AOCI by March 31, 2015, as hedged items are recognized in earnings. The notional value of our outstanding derivative contracts totaled $1.0 billion at March 31, 2014, with maturities extending through 2017. Of this amount, approximately $635.3 million is associated with various foreign currency expenditures we expect to incur on one of our Asia Pacific segment EPCI projects. These instruments consist of contracts to purchase or sell foreign-denominated currencies. At March 31, 2014, the fair value of these contracts was in a net liability position totaling $15.0 million. 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, 2014		December 31, 2013
	(Unaudited)
	(In thousands)
Derivatives Designated as Hedges:
Location
Accounts receivable—other	$	8,258	$	11,641
Other assets		964		1,647
Total asset derivatives	$	9,222	$	13,288
Accounts payable	$	11,781	$	20,209
Other liabilities		12,436		21,846
Total liability derivatives	$	24,217	$	42,055

The Effects of Derivative Instruments on our Financial Statements

	Three Months Ended March 31,
	2014			2013
	(Unaudited)
	(In thousands)
Derivatives Designated as Hedges:
Amount of gain/ (loss) recognized in other comprehensive income	$	12,358		$	(15,450	)
Income reclassified from AOCI into income: effective portion
Location
Cost of operations	$	202		$	2,014
Gain (loss) recognized in income: ineffective portion and amount excluded from effectiveness testing
Location
Gain (loss) on foreign currency—net	$	(847	)	$	(2,849	)

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PENSION PLANS

3 Months Ended

Mar. 31, 2014

Compensation And Retirement Disclosure [Abstract]

PENSION PLANS

NOTE 4—PENSION PLANS

Although we currently provide retirement benefits for most of our U.S. employees through sponsorship of the McDermott Thrift Plan, some of our longer-term U.S. employees and former employees are entitled to retirement benefits under the McDermott (U.S.) Retirement Plan, a non-contributory qualified defined benefit pension plan (the “McDermott Plan”), and several non-qualified supplemental defined benefit pension plans. The McDermott Plan and the non-qualified supplemental defined benefit pension plans are collectively referred to herein as the “Domestic Plans.” The McDermott Plan has been closed to new participants since 2006, and benefit accruals under the McDermott Plan were frozen completely in 2010.

We also sponsor a defined benefit pension plan established under the laws of the Commonwealth of the Bahamas, the J. Ray McDermott, S.A. Third Country National Employees Pension Plan (the “TCN Plan”), which provides retirement benefits for certain of our current and former foreign employees. Effective August 1, 2011, new entry into the TCN Plan was closed, and effective December 31, 2011, benefit accruals under the TCN Plan were frozen. Effective January 1, 2012, we established a new global defined contribution plan to provide retirement benefits to non-U.S. expatriate employees who may have otherwise obtained benefits under the TCN Plan.

Retirement benefits under the McDermott Plan and the TCN Plan are generally based on final average compensation and years of service, subject to the applicable freeze in benefit accruals under the plans. Our funding policy is to fund the plans as recommended by the respective plan actuaries and in accordance with the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), or other applicable law. The Pension Protection Act of 2006 (“PPA”) amended ERISA and modified the funding requirements for certain defined benefit pension plans including the McDermott Plan. Funding provisions under the PPA accelerated funding requirements are applicable to the McDermott Plan to ensure full funding of benefits accrued.

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

	Domestic Plans						TCN Plan
	Three Months Ended March 31,
	2014			2013			2014			2013
	(Unaudited)
	(In thousands)
Interest cost	$	6,778		$	167		$	475		$	467
Expected return on plan assets		(6,875	)		(3,000	)		(740	)		(651	)
Recognized net actuarial loss and other		3,290			3,152			(74	)		507
Net periodic benefit cost (gain)	$	3,193		$	319		$	(339	)	$	323

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DERIVATIVE FINANCIAL INSTRUMENTS (Tables)

3 Months Ended

Mar. 31, 2014

Derivative Instruments And Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments

The following tables summarize our derivative financial instruments:

Asset and Liability Derivatives

	March 31, 2014		December 31, 2013
	(Unaudited)
	(In thousands)
Derivatives Designated as Hedges:
Location
Accounts receivable—other	$	8,258	$	11,641
Other assets		964		1,647
Total asset derivatives	$	9,222	$	13,288
Accounts payable	$	11,781	$	20,209
Other liabilities		12,436		21,846
Total liability derivatives	$	24,217	$	42,055

Effects of Derivative Instruments on Financial Statements

The Effects of Derivative Instruments on our Financial Statements

	Three Months Ended March 31,
	2014			2013
	(Unaudited)
	(In thousands)
Derivatives Designated as Hedges:
Amount of gain/ (loss) recognized in other comprehensive income	$	12,358		$	(15,450	)
Income reclassified from AOCI into income: effective portion
Location
Cost of operations	$	202		$	2,014
Gain (loss) recognized in income: ineffective portion and amount excluded from effectiveness testing
Location
Gain (loss) on foreign currency—net	$	(847	)	$	(2,849	)

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BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Tables)

3 Months Ended

Mar. 31, 2014

Contract Receivables

A summary of contract receivables is as follows:

	March 31, 2014			December 31, 2013
	(Unaudited)
	(In thousands)
Contract receivables:
Contracts in progress	$	189,044		$	192,745
Completed contracts		55,880			77,248
Retainages		110,718			127,698
Unbilled		4,325			14,571
Less allowances		(27,905	)		(30,404	)
Accounts receivable—trade, net	$	332,062		$	381,858

Retainages on Contracts

The following is a summary of retainages on our contracts:

	March 31, 2014		December 31, 2013
	(Unaudited)
	(In thousands)
Retainages expected to be collected within one year	$	110,718	$	127,698
Retainages expected to be collected after one year		107,315		65,365
Total retainages	$	218,033	$	193,063

Components of Contracts in Progress and Advance Billings on Contracts

A detail of the components of contracts in progress and advance billings on contracts is as follows:

	March 31, 2014		December 31, 2013
	(Unaudited)
	(In thousands)
Costs incurred less costs of revenue recognized	$	127,773	$	65,113
Revenues recognized less billings to customers		304,120		360,873
Contracts in Progress	$	431,893	$	425,986

	March 31, 2014			December 31, 2013
	(Unaudited)
	(In thousands)
Billings to customers less revenue recognized	$	496,040		$	466,205
Costs incurred less costs of revenue recognized		(217,159	)		(187,276	)
Advance Billings on Contracts	$	278,881		$	278,929

Components of Accumulated Other Comprehensive Income (Loss) Included in Stockholders' Equity

The components of AOCI included in stockholders’ equity are as follows:

	March 31, 2014			December 31, 2013
	(Unaudited)
	(In thousands)
Foreign currency translation adjustments	$	(2,882	)	$	(2,562	)
Net gain on investments		214			238
Net loss on derivative financial instruments		(30,824	)		(45,386	)
Unrecognized losses on benefit obligations		(89,250	)		(92,421	)
Accumulated other comprehensive loss	$	(122,742	)	$	(140,131	)

Reclassifications [Member]

Components of Accumulated Other Comprehensive Income (Loss) Included in Stockholders' Equity

The following tables present the components of AOCI and the amounts that were reclassified during the period:

For the three months ended March 31, 2014	Unrealized holding loss on investment			Deferred gain (loss) on derivatives(1)			Foreign currency gain (loss)			Defined benefit pension plans loss(2)			TOTAL
	(Unaudited)
	(In thousands)
Balance, December 31, 2013	$	238		$	(45,386	)	$	(2,562	)	$	(92,421	)	$	(140,131	)
Other comprehensive income (loss) before reclassification		(24	)		12,358			(320	)		—			12,014
Amounts reclassified from AOCI		—			2,204	(3)		—			3,171	(4)		5,375
Net current period other comprehensive income (loss)		(24	)		14,562			(320	)		3,171			17,389
Balance, March 31, 2014	$	214		$	(30,824	)	$	(2,882	)	$	(89,250	)	$	(122,742	)

For the three months ended March 31, 2013	Unrealized holding loss on investment			Deferred gain (loss) on derivatives(1)			Foreign currency gain (loss)			Defined benefit pension plans loss(2)			TOTAL
	(Unaudited)
	(In thousands)
Balance, December 31, 2012	$	(2,315	)	$	11,734		$	(3,366	)	$	(100,466	)	$	(94,413	)
Other comprehensive income before reclassification		401			(15,450	)		7,214			—			(7,835	)
Amounts reclassified from AOCI		—			(2,104	)(3)		—			3,655	(4)		1,551
Net current period other comprehensive income		401			(17,554	)		7,214			3,655			(6,284	)
Balance, March 31, 2013	$	(1,914	)	$	(5,820	)	$	3,848		$	(96,811	)	$	(100,697	)

(1) Refer to Note 5 for additional details.

(2) Refer to Note 4 for additional details.

(3) Reclassified to cost of operations and gain on foreign currency, net.

(4) Reclassified to selling, general and administrative expenses.

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EARNINGS PER SHARE

3 Months Ended

Mar. 31, 2014

Earnings Per Share [Abstract]

EARNINGS PER SHARE

NOTE 8—EARNINGS PER SHARE

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

	Three Months Ended March 31,
	2014			2013
	(Unaudited)
	(In thousands, except share and per share amounts)
Income from operations less noncontrolling interests	$	(49,953	)	$	20,553
Net income attributable to McDermott International, Inc.	$	(49,953	)	$	20,553
Weighted average common shares (basic)		236,961,158			235,941,185
Effect of dilutive securities:
Stock options, restricted stock and restricted stock units(1)		—			3,258,696
Adjusted weighted average common shares and assumed exercises of stock options and vesting of stock awards (diluted)		236,961,158			239,199,881
Basic earnings per share:
Income (loss) from operations less noncontrolling interests		(0.21	)		0.09
Net income (loss) attributable to McDermott International, Inc.		(0.21	)		0.09
Diluted earnings per share:
Income (loss) from operations less noncontrolling interests		(0.21	)		0.09
Net income (loss) attributable to McDermott International, Inc		(021	)		0.09

(1) Approximately 3.0 million and 2.9 million shares underlying outstanding stock-based awards were excluded from the computation of diluted earnings per share because they were antidilutive for the three months ended March 31, 2014 and 2013, respectively.

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FAIR VALUE MEASUREMENTS

3 Months Ended

Mar. 31, 2014

Fair Value Disclosures [Abstract]

FAIR VALUE MEASUREMENTS

NOTE 6—FAIR VALUE MEASUREMENTS

The following is a summary of our available-for-sale securities measured at fair value:

	Total at March 31, 2014		Level 1		Level 2		Level 3
	(Unaudited)
	(In thousands)
Mutual funds(1)	$	2,189	$	—	$	2,189	$	—
Commercial paper		3,248		—		3,248		—
Total	$	5,437	$	—	$	5,437	$	—

	Total at December 31, 2013		Level 1		Level 2		Level 3
	(In thousands)
Mutual funds(1)	$	2,173	$	—	$	2,173	$	—
Commercial paper		3,699		—		3,699		—
Asset-backed securities and collateralized mortgage obligations(2)		7,639		—		2,082		5,557
Total	$	13,511	$	—	$	7,954	$	5,557

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

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

Our Level 2 investments consist primarily of commercial paper, asset-backed commercial paper notes backed by a pool of mortgage-backed securities and mutual funds. The fair value of our Level 2 investments was determined using a market approach which is based on quoted prices and other information for similar or identical instruments.

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.

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 three months ended March 31, 2014 and March 31, 2013:

	Three Months Ended March 31,
	2014			2013
	(Unaudited)
	(In thousands)
Balance at beginning of period	$	5,557		$	6,343
Total realized and unrealized gains		1,248			210
Sales/ principal repayments		(6,805	)		(396	)
Balance at end of period	$	—		$	6,157

Unrealized Gains and Losses on Investments

Our net unrealized gain on investments was $0.2 million at March 31, 2014. During the year ended December 31, 2013, we recognized other than temporary impairment of $1.6 million on the asset-backed securities and collateralized mortgage obligations. Our net unrealized gain on investments was $0.2 million as of December 31, 2013. The amount of investments in an unrealized loss position for less than twelve months was not significant for either of the periods presented.

Other Financial Instruments

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 condensed consolidated balance sheets for cash, cash equivalents and restricted cash and cash equivalents approximate their fair values and are classified as Level 1 within the fair value hierarchy.

Short-term and long-term debt. The fair value of debt instruments is classified as Level 2 within the fair value hierarchy and is valued using a market approach based on quoted prices for similar instruments traded in active markets. Where quoted prices are not available, the income approach is used to value these instruments based 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 classified as Level 2 within the fair value hierarchy and is valued using observable market parameters for similar instruments traded in active markets. Where quoted prices are not available, the income approach is used to value forward contracts, which discounts future cash flows based on current market expectations and credit risk.

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

	March 31, 2014						December 31, 2013
	Carrying Amount			Fair Value			Carrying Amount			Fair Value
	(Unaudited)
	(In thousands)
Balance Sheet Instruments
Cash and cash equivalents	$	268,130		$	268,130		$	118,702		$	118,702
Restricted cash and cash equivalents	$	43,286		$	43,286		$	23,652		$	23,652
Investments	$	5,437		$	5,437		$	13,511		$	13,511
Debt	$	(308,178	)	$	(309,430	)	$	(88,562	)	$	(90,005	)
Forward contracts	$	(14,995	)	$	(14,995	)	$	(28,767	)	$	(28,767	)

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STOCK-BASED COMPENSATION

3 Months Ended

Mar. 31, 2014

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

STOCK-BASED COMPENSATION

NOTE 7—STOCK-BASED COMPENSATION

Equity instruments are measured at fair value on the grant date. Stock-based compensation expense is generally recognized on a straight-line basis over the requisite service periods of the awards. Compensation expense is based on awards we expect to ultimately vest. Therefore, we have reduced compensation expense for estimated forfeitures based on our historical forfeiture rates. Our estimate of forfeitures is determined at the grant date and is revised if our actual forfeiture rate is materially different from our estimate.

We use a Black-Scholes model to determine the fair value of certain share-based awards, such as stock options. Additionally, we use a Monte Carlo model to determine the fair value of certain share-based awards that contain market and performance-based conditions. The use of these models requires highly subjective assumptions, such as assumptions about the expected life of the award, vesting probability, expected dividend yield and the volatility of our stock price.

Total stock-based compensation expense, net recognized for the three months ended March 31, 2014 and March 31, 2013 is as follows:

	Three Months Ended March 31,
	2014		2013
	(Unaudited)
	(In thousands)
Stock Options	$	680	$	1,030
Restricted Stock Units		3,379		1,737
Performance Shares		328		1,156
Total	$	4,387	$	3,923

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SEGMENT REPORTING

3 Months Ended

Mar. 31, 2014

Segment Reporting [Abstract]

SEGMENT REPORTING

NOTE 9—SEGMENT REPORTING

In March 2014, we changed our organizational structure to orient around our offshore and subsea business activities through four primary geographic regions. The four geographic regions, which we consider to be our operating segments, consist of Asia Pacific, Americas, Middle East, and North Sea and Africa. The Caspian is no longer considered an operating segment and will continue to be aggregated in the Middle East reporting segment. The North Sea and Africa operating segment is also aggregated into the Middle East reporting segment due to the proximity of regions and similarities in the nature of services provided, economic characteristics and oversight responsibilities. Accordingly, we continue to report financial results under reporting segments consisting of Asia Pacific, Americas and the Middle East. We also report certain corporate and other non-operating activities under the heading “Corporate and other.” “Corporate and other” primarily reflects corporate personnel and activities, incentive compensation programs and other costs, which are generally fully allocated to our operating segments. The only corporate costs currently not being allocated to our operating segments are the restructuring costs associated with our corporate reorganization.

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 tables:

	Three Months Ended March 31,
	2014			2013
	(Unaudited)
	(In thousands)
Revenues(1):
Asia Pacific	$	161,825		$	326,062
Americas		181,625			148,184
Middle East		260,361			333,242
Total revenues	$	603,811		$	807,488
Operating income:
Asia Pacific	$	2,091		$	87,952
Americas		(31,811	)		(16,410	)
Middle East		(9,428	)		(18,509	)
Corporate		(2,494	)		—
Total operating income	$	(41,642	)	$	53,033
Capital expenditures(2):
Asia Pacific	$	4,068		$	3,755
Americas		7,405			22,010
Middle East		22,579			10,552
Corporate and other		3,841			1,332
Total capital expenditures	$	37,893		$	37,649
Depreciation and amortization:
Asia Pacific	$	5,032		$	5,030
Americas		8,297			6,805
Middle East		9,575			6,510
Corporate and Other		1,698			1,877
Total depreciation and amortization	$	24,602		$	20,222
Drydock amortization:
Asia Pacific	$	1,955		$	2,961
Americas		4,562			1,908
Middle East		429			681
Total drydock amortization	$	6,946		$	5,550

(1) Intersegment transactions included in revenues were not significant for either of the periods presented.

(2) Total capital expenditures presents expenditures for which cash payments were made during the period. Capital expenditures for the three months ended March 31, 2014 include $8.3 million of cash payments for accrued capital expenditures outstanding as of December 31, 2013. Capital expenditures for the three months ended March 31, 2013 exclude approximately $34.0 million in accrued liabilities related to capital expenditures.

	March 31, 2014		December 31, 2013
	(Unaudited)
	(In thousands)
Segment assets:
Asia Pacific	$	740,507	$	1,030,823
Americas		795,598		522,713
Middle East		1,148,041		1,129,529
Corporate and other		339,783		124,306
Total assets	$	3,023,929	$	2,807,371

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Acquisition and Dispositions - Additional Information (Detail) (USD $)	0 Months Ended	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2014 Vessel	Dec. 31, 2013 JointVentures	Mar. 31, 2013
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Total purchase consideration				$ 9,000,000
Purchase consideration - cash				6,000,000
Purchase consideration - restricted shares				313,580
Number of joint ventures entered			2
Equity method investment recorded	25,500,000	25,500,000
Non controlling interest of equity method investment	20,900,000	20,900,000
Increase in capital in excess of par value	4,600,000
Number of vessels held for sale		4
Proceeds from sale of discontinued assets		8,400,000		32,000,000
Gain on sale of the Bold Endurance		6,400,000		12,500,000
Expected restructuring charges		33,148,000
Restructuring aggregate cost incurred		6,125,000
Restructuring aggregate cost incurred		75,000,000
Accrued liabilities associated with restructuring activities	7,900,000	7,900,000	8,000,000
Americas [Member]
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Expected restructuring charges		17,303,000
Restructuring aggregate cost incurred		3,631,000
Restructuring aggregate cost incurred		55,000,000
THHE Fabricators Sdn. Bhd [Member]
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Percentage of interest acquired in subsidiary			30.00%
Berlian McDermott Sdn, Bhd, [Member]
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Percentage of interest acquired in subsidiary			30.00%
Americas restructuring activities [Member] | Americas [Member]
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Restructuring aggregate cost incurred		37,700,000
Restructuring aggregate cost incurred		36,000,000
Americas restructuring activities [Member] | Minimum [Member] | Americas [Member]
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Expected restructuring charges		55,000,000
Americas restructuring activities [Member] | Maximum [Member] | Americas [Member]
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Expected restructuring charges		60,000,000
Corporate reorganization activities [Member] | Americas [Member]
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Restructuring aggregate cost incurred		4,200,000
Restructuring aggregate cost incurred		2,500,000
Corporate reorganization activities [Member] | Minimum [Member] | Americas [Member]
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Expected restructuring charges		20,000,000
Corporate reorganization activities [Member] | Maximum [Member] | Americas [Member]
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Expected restructuring charges		$ 25,000,000

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Earnings Per Share - Computation of Basic and Diluted Earnings Per Share (Detail) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Earnings Per Share [Abstract]
Income from operations less noncontrolling interests	$ (49,953)	$ 20,553
Net Income (Loss) Attributable to McDermott International, Inc.	$ (49,953)	$ 20,553
Weighted average common shares (basic)	236,961,158	235,941,185
Effect of dilutive securities:
Stock options, restricted stock and restricted stock units		3,258,696
Adjusted weighted average common shares and assumed exercises of stock options and vesting of stock awards (diluted)	236,961,158	239,199,881
Basic earnings per share:
Income (loss) from operations less noncontrolling interests	$ (0.21)	$ 0.09
Net income (loss) attributable to McDermott International, Inc.	$ (0.21)	$ 0.09
Diluted earnings per share:
Income (loss) from operations less noncontrolling interests	$ (0.21)	$ 0.09
Net income (loss) attributable to McDermott International, Inc	$ (0.21)	$ 0.09

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LONG-TERM DEBT AND NOTES PAYABLE (Tables)

3 Months Ended

Mar. 31, 2014

Debt Disclosure [Abstract]

Summary of Redemption Prices Expressed as Percentage

At any time or from time to time on or after May 1, 2017, at our option, we may redeem the Notes, in whole or in part, at the redemption prices (expressed as percentages of principal amount of the Notes to be redeemed) set forth below, together with accrued and unpaid interest to the redemption date, if redeemed during the 12-month period beginning May 1 of the years indicated:

Year	Percentage
2017		104	%
2018		102	%
2019 and thereafter		100	%

Long-Term Debt Obligations

A summary of our long-term debt obligations are as follows:

	March 31, 2014		December 31, 2013
	(Unaudited)
	(In thousands)
Long-term debt consists of:
Former Credit Agreement	$	250,000	$	—
North Ocean 102 Construction Financing		—		31,373
North Ocean 105 Construction Financing		57,189		57,189
Other financing		989		—
		308,178		88,562
Less: Amounts due within one year		258,417		39,543
Total long-term debt	$	49,761	$	49,019

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EARNINGS PER SHARE (Tables)

3 Months Ended

Mar. 31, 2014

Earnings Per Share [Abstract]

Computation of Basic and Diluted Earnings Per Share

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

	Three Months Ended March 31,
	2014			2013
	(Unaudited)
	(In thousands, except share and per share amounts)
Income from operations less noncontrolling interests	$	(49,953	)	$	20,553
Net income attributable to McDermott International, Inc.	$	(49,953	)	$	20,553
Weighted average common shares (basic)		236,961,158			235,941,185
Effect of dilutive securities:
Stock options, restricted stock and restricted stock units(1)		—			3,258,696
Adjusted weighted average common shares and assumed exercises of stock options and vesting of stock awards (diluted)		236,961,158			239,199,881
Basic earnings per share:
Income (loss) from operations less noncontrolling interests		(0.21	)		0.09
Net income (loss) attributable to McDermott International, Inc.		(0.21	)		0.09
Diluted earnings per share:
Income (loss) from operations less noncontrolling interests		(0.21	)		0.09
Net income (loss) attributable to McDermott International, Inc		(021	)		0.09

(1) Approximately 3.0 million and 2.9 million shares underlying outstanding stock-based awards were excluded from the computation of diluted earnings per share because they were antidilutive for the three months ended March 31, 2014 and 2013, respectively.

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Stock-based Compensation - Additional Information (Detail)	3 Months Ended
	Mar. 31, 2014
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]
Fair value assumptions method used	We use a Black-Scholes model to determine the fair value of certain share-based awards, such as stock options. Additionally, we use a Monte Carlo model to determine the fair value of certain share-based awards that contain market and performance-based conditions.

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Pension Plans - Net Periodic Benefit Cost (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Net Periodic Benefit Cost Assumptions [Line Items]
Net periodic benefit cost (gain)	$ 2,854	$ 642
Domestic Plans [Member]
Net Periodic Benefit Cost Assumptions [Line Items]
Interest cost	6,778	167
Expected return on plan assets	(6,875)	(3,000)
Recognized net actuarial loss and other	3,290	3,152
Net periodic benefit cost (gain)	3,193	319
TCN Plan [Member]
Net Periodic Benefit Cost Assumptions [Line Items]
Interest cost	475	467
Expected return on plan assets	(740)	(651)
Recognized net actuarial loss and other	(74)	507
Net periodic benefit cost (gain)	$ (339)	$ 323

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CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (Parenthetical) (USD $)	Mar. 31, 2014	Dec. 31, 2013
Statement Of Financial Position [Abstract]
Common stock, par value	$ 1.00	$ 1.00
Common stock, shares authorized	400,000,000	400,000,000
Common stock, shares issued	244,739,400	244,271,365
Treasury stock, shares	7,231,536	7,130,294

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LONG-TERM DEBT AND NOTES PAYABLE

3 Months Ended

Mar. 31, 2014

Debt Disclosure [Abstract]

LONG-TERM DEBT AND NOTES PAYABLE

NOTE 3—LONG-TERM DEBT AND NOTES PAYABLE

During April 2014, we refinanced our existing obligations, and replaced in its entirety, our then existing $950.0 million credit agreement (the “Former Credit Agreement”) with a new credit agreement (the “New Credit Agreement”), which provides for:

• a $400.0 million first-lien, first-out three-year letter of credit facility (the “LC Facility”); and

• a $300.0 million first-lien, second-out five-year term loan (the “Term Loan”).

As of March 31, 2014 we had $250.0 million of revolving credit borrowings outstanding and approximately $376.0 million of letters of credit outstanding under the Former Credit Agreement.

Additionally, during April 2014, we completed the following new financing transactions:

• the issuance of $500.0 million of second-lien seven-year senior secured notes (the “Notes”).

• the issuance of $287.5 million of tangible equity units (“Units”) composed of (1) three-year amortizing, senior unsecured notes, in an aggregate principal amount of $47.5 million, and (2) prepaid common stock purchase contracts.

With the completion of these financing transactions in April 2014, we terminated the bridge loan commitment we had obtained from an affiliate of Goldman, Sachs, & Co. (“Goldman Sachs”). As a result of the termination of the bridge loan commitment, the fee we previously paid to Goldman Sachs to obtain the bridge loan commitment will be recognized as interest expense in the second quarter of 2014. Due to the replacement of the Former Credit Agreement, the unamortized issuance fees related to the Former Credit Agreement will also be recognized as interest expense in the second quarter of 2014. The total additional interest expense related to these items is expected to be approximately $28.0 million in the quarter ending June 30, 2014.

The Former Credit Agreement provided for revolving credit borrowings and issuances of letters of credit in an aggregate outstanding amount of up to $950.0 million.

At March 31, 2014, there was $250.0 million of revolving credit borrowings outstanding, and letters of credit issued under the Former Credit Agreement totaled approximately $376.0 million, including letters of credit in the aggregate amount of $109.0 million issued in February 2014 to replace the letters of credit issued by Australia and New Zealand Banking Group Limited discussed below. During the quarter ended March 31, 2014, our outstanding borrowings under the Former Credit Agreement did not exceed $250.0 million, and we had average outstanding borrowings under the Former Credit Agreement of approximately $165.0 million, with an average interest rate of 3.45%. At December 31, 2013, there were no borrowings outstanding, and letters of credit issued under the Former Credit Agreement totaled approximately $214.3 million.

At March 31, 2014, the applicable margin for Eurodollar-rate loans was 2.00%, the applicable margin for base-rate loans was 1.00%, the letter of credit fee for financial letters of credit was 2.00%, the letter of credit fee for performance letters of credit was 1.00%, and the commitment fee for unused portions of the Former Credit Agreement was 0.3%. The Former Credit Agreement did not have a floor for the base rate or the Eurodollar rate.

Obligations under the Former Credit Agreement were secured on a first-lien basis by pledges of capital stock of certain of our subsidiaries and mortgages and other security interests covering (1) all of our personal property and substantially all of the personal property of our wholly owned subsidiaries, subject to exceptions for bank accounts, equipment and certain other assets, and (2) certain of our marine vessels.

New Credit Facilities

During April 2014 we entered into the New Credit Agreement, which provides for the LC Facility and the Term Loan.

The New Credit Agreement includes the $400.0 million first-lien, first-out LC Facility, which is scheduled to mature on April 16, 2017, and the $300.0 million first-lien, second-out Term Loan, which is scheduled to mature April 16, 2019. The indebtedness and other obligations under the New Credit Agreement are guaranteed by substantially all of our material, wholly owned subsidiaries, other than our captive insurance subsidiary (collectively, the “Guarantors”).

In connection with the New Credit Agreement, we paid certain fees to the lenders thereunder, as well as certain arrangement fees to the arrangers and agents for the New Credit Facilities, which we intend to amortize to interest expense over the respective terms of the LC Facility and the Term Loan.

LC Facility

The LC Facility provides for an initial letter of credit capacity of $400.0 million and allows for uncommitted increases in capacity of $100.0 million through December 31, 2014 and an additional $100.0 million thereafter, potentially increasing the total capacity to $600.0 million through the term of the LC Facility. Letters of credit issuable under the LC Facility support the obligations of McDermott and its affiliates and joint ventures. The aggregate amount of the LC Facility available for financial letters of credit is capped at 25% of the total LC Facility.

The LC Facility is secured on a first-lien, first-out basis (with relative priority over the Term Loan) by pledges of the capital stock of all the Guarantors and mortgages on, or other security interests in, substantially all the tangible and intangible assets of our company and the Guarantors, subject to specific exceptions.

The LC Facility contains various customary affirmative covenants, as well as specific affirmative covenants, including specific reporting requirements and a requirement for ongoing periodic financial reviews by a financial advisor. The LC Facility also requires compliance with various negative covenants, including limitations with respect to the incurrence of other indebtedness and liens, restrictions on acquisitions, capital expenditures and other investments, restrictions on sale/leaseback transactions and restrictions on prepayments of other indebtedness.

The LC Facility requires us to meet a minimum EBITDA (as defined) covenant, which requires that we generate consolidated EBITDA of at least certain specified amounts for different periods over the term of the facility. The LC Facility also requires us to maintain a ratio of fair market value of vessel collateral to the sum of (1) the outstanding principal amount of the Term Loan, (2) the aggregate amount of undrawn financial letters of credit outstanding under the LC Facility, (3) all drawn but unreimbursed letters of credit under the LC Facility, and (4) mark-to-market foreign exchange exposure that is not cash secured of at least 1.20:1.00. The LC Facility also requires us to maintain at least $200.0 million of minimum available cash, excluding restricted cash, at the end of each quarter.

The LC Facility provides for a commitment fee of 0.50% per year on the unused portion of the LC Facility and letter of credit fees at an annual rate of 2.25% for performance letters of credit and 4.50% for financial letters of credit, as well as customary issuance fees and other fees and expenses.

Term Loan

The Term Loan is secured on a first-lien, second-out basis (with the LC Facility having relative priority over the Term Loan) by pledges of the capital stock of all the Guarantors and mortgages on, or other security interests in, substantially all tangible and intangible assets of our company and the Guarantors, subject to specific exceptions.

The Term Loan requires mandatory prepayments from: (1) the proceeds from the sale of assets, as well as insurance proceeds, in each case subject to certain exceptions, to the extent such proceeds are not reinvested in our business within 365 days of receipt; (2) net cash proceeds from the incurrence of indebtedness not otherwise permitted by the New Credit Facilities; and (3) 50% of amounts deemed to be “excess cash flow,” subject to specified adjustments. The Term Loan also requires quarterly amortization payments equal to $750,000. The Term Loan also provides for a prepayment premium if we prepay or re-price the Term Loan prior to April 16, 2016.

The Term Loan requires compliance with various customary affirmative and negative covenants. We must also maintain a ratio of “ownership adjusted fair market value” of marine vessels to the sum of (1) the outstanding principal amount of the Term Loan and (2) the aggregate principal amount of unreimbursed drawings and advances under the LC Facility of at least 1.75:1.00.

The Term Loan was incurred with 25 basis points of original issue discount and bears interest at a floating rate, which can be, at our option, either: (1) a LIBOR rate for a specified interest period (subject to a LIBOR “floor” of 1.00%) plus an applicable margin of 4.25%; or (2) an alternate base rate (subject to a base rate “floor” of 2.00%) plus an applicable margin of 3.25%.

Senior Notes

During April 2014 we issued $500.0 million in aggregate principal amount of 8.000% senior secured notes due 2021 (the “Notes”) in a private placement in accordance with Rule 144A and Regulation S under the Securities Act of 1933, as amended. Interest on the Notes is payable semi-annually in arrears on May 1 and November 1 of each year, beginning on November 1, 2014, at an annual rate of 8%. The Notes are scheduled to mature on May 1, 2021.

The Notes are unconditionally guaranteed on a senior secured basis by the Guarantors, and the Notes are secured on a second—lien basis by pledges of capital stock of certain of our subsidiaries and mortgages and other security interests covering (1) specified marine vessels owned by certain of the Guarantors and (2) substantially all the other tangible and intangible assets of our company and the Guarantors, subject to exceptions for certain assets.

At any time or from time to time on or after May 1, 2017, at our option, we may redeem the Notes, in whole or in part, at the redemption prices (expressed as percentages of principal amount of the Notes to be redeemed) set forth below, together with accrued and unpaid interest to the redemption date, if redeemed during the 12-month period beginning May 1 of the years indicated:

Year	Percentage
2017		104	%
2018		102	%
2019 and thereafter		100	%

The Indenture governing the Notes contains covenants that, among other things, limit our ability and the ability of our restricted subsidiaries to: (1) incur or guarantee additional indebtedness or issue preferred stock; (2) make investments or certain other restricted payments; (3) pay dividends or distributions on capital stock or purchase or redeem subordinated indebtedness; (4) sell assets; (5) create restrictions on the ability of our restricted subsidiaries to pay dividends or make other payments to us; (6) create certain liens; (7) sell all or substantially all of our assets or merge or consolidate with or into other companies; (8) enter into transactions with affiliates; and (9) create unrestricted subsidiaries. Many of those covenants would become suspended if the Notes were to attain an investment grade rating from both Moody’s Investors Service, Inc. and Standard and Poor’s Ratings Services and no default has occurred. The covenants mentioned above are subject to a number of important exceptions and limitations.

Units

During April 2014, we issued 11,500,000 6.25% tangible equity units, each with a stated amount of $25.00. Each Unit consists of (1) a prepaid common stock purchase contract and (2) a senior amortizing note due April 1, 2017 (each an “Amortizing Note”) that has an initial principal amount of $4.1266 per Amortizing Note, bears interest at a rate of 7.75% per annum and has a final scheduled installment payment date of April 1, 2017. Each prepaid common stock purchase contract will automatically settle on April 1, 2017, unless settled earlier: (1) at the holder’s option, upon which we will deliver shares of our common stock, based on the applicable settlement rate and applicable market value of our stock as determined under the purchase contract; or (2) at our option, upon which we will deliver shares of our common stock, based upon the stated maximum settlement rate of 3.5562 shares per unit, subject to adjustment.

North Ocean Financing

North Ocean 102

In December 2009, J. Ray McDermott, S.A. (“JRMSA”), a wholly owned subsidiary of MII, entered into a vessel-owning joint venture transaction with Oceanteam ASA. JRMSA has guaranteed approximately 50% of this debt based on its ownership percentages in the vessel-owning companies. The outstanding debt bore interest at a rate equal to the three-month LIBOR (which was subject to reset every three months) plus a margin of 3.315%. JRMSA paid in full the approximately $31.4 million notes payable balance upon maturity during January 2014. JRMSA expects to exercise its option to purchase Oceanteam ASA’s 50% ownership interest in the vessel-owing companies in December 2014. As of December 31, 2013 we reported a consolidated notes payable of $31.4 million on our consolidated balance sheet, all of which was classified as current notes payable.

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 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, which commenced on 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, 2014 and December 31, 2013, there was $57.2 million in borrowings outstanding under this agreement, of which approximately $8.2 million was classified as current notes payable.

Unsecured Bilateral Letters of Credit and Bank Guarantees

In 2012, McDermott Middle East, Inc, and MII executed a general reimbursement agreement in favor of a bank located in the UAE relating to issuances of bank guarantees in support of contracting activities in the Middle East and India. As of March 31, 2014 and December 31, 2013, bank guarantees issued under these arrangements totaled $56.2 million and $55.8 million, respectively. In 2007 and in 2012, JRMSA and MII executed general unsecured reimbursement agreements in favor of two institutions that were lenders under the Former Credit Agreement relating to issuances of letters of credit in support of contracting activities primarily in Asia and the Middle East. The letters of credit issued under these arrangements totaled $23.3 million and $26.0 million as of March 31, 2014 and December 31, 2013, respectively.

On April 20, 2012, McDermott and one of its wholly owned subsidiaries, McDermott Australia Pty. Ltd. (“McDermott Australia”), entered into a secured Letter of Credit Reimbursement Agreement (the “Reimbursement Agreement”) with Australia and New Zealand Banking Group Limited (“ANZ”). In accordance with the terms of the Reimbursement Agreement, ANZ issued letters of credit in the aggregate amount of approximately $109.0 million to support McDermott Australia’s performance obligations under contractual arrangements relating to a field development project. The obligations of McDermott and McDermott Australia under the Reimbursement Agreement are secured by McDermott Australia’s interest in the contractual arrangements and certain related assets. During February 2014, we replaced these letters of credit with letters of credit issued under the Former Credit Agreement and subsequently replaced those letters of credit with letters of credit under the LC Facility.

Surety Bonds

In 2012 and 2011, MII executed general agreements of indemnity in favor of surety underwriters based in Mexico relating to surety bonds issued in support of contracting activities of J. Ray McDermott de Mèxico, S.A. de C.V. and McDermott, Inc, both subsidiaries of MII. As of March 31, 2014 and December 31, 2013, bonds issued under these arrangements totaled $42.1 million and $43.5 million, respectively. In October 2013, MII executed general agreements of indemnity in favor of surety underwriters relating to surety bonds in support of vessels operating in Brazil. The bonds issued under these arrangements totaled $111.2 million and $106.3 million as of March 31, 2014 and December 31, 2013, respectively.

Long-term debt and notes payable obligations

A summary of our long-term debt obligations are as follows:

	March 31, 2014		December 31, 2013
	(Unaudited)
	(In thousands)
Long-term debt consists of:
Former Credit Agreement	$	250,000	$	—
North Ocean 102 Construction Financing		—		31,373
North Ocean 105 Construction Financing		57,189		57,189
Other financing		989		—
		308,178		88,562
Less: Amounts due within one year		258,417		39,543
Total long-term debt	$	49,761	$	49,019

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SEGMENT REPORTING (Tables)

3 Months Ended

Mar. 31, 2014

Segment Reporting [Abstract]

Information about Operations in Different Segments

Summarized financial information is shown in the following tables:

	Three Months Ended March 31,
	2014			2013
	(Unaudited)
	(In thousands)
Revenues(1):
Asia Pacific	$	161,825		$	326,062
Americas		181,625			148,184
Middle East		260,361			333,242
Total revenues	$	603,811		$	807,488
Operating income:
Asia Pacific	$	2,091		$	87,952
Americas		(31,811	)		(16,410	)
Middle East		(9,428	)		(18,509	)
Corporate		(2,494	)		—
Total operating income	$	(41,642	)	$	53,033
Capital expenditures(2):
Asia Pacific	$	4,068		$	3,755
Americas		7,405			22,010
Middle East		22,579			10,552
Corporate and other		3,841			1,332
Total capital expenditures	$	37,893		$	37,649
Depreciation and amortization:
Asia Pacific	$	5,032		$	5,030
Americas		8,297			6,805
Middle East		9,575			6,510
Corporate and Other		1,698			1,877
Total depreciation and amortization	$	24,602		$	20,222
Drydock amortization:
Asia Pacific	$	1,955		$	2,961
Americas		4,562			1,908
Middle East		429			681
Total drydock amortization	$	6,946		$	5,550

(1) Intersegment transactions included in revenues were not significant for either of the periods presented.

(2) Total capital expenditures presents expenditures for which cash payments were made during the period. Capital expenditures for the three months ended March 31, 2014 include $8.3 million of cash payments for accrued capital expenditures outstanding as of December 31, 2013. Capital expenditures for the three months ended March 31, 2013 exclude approximately $34.0 million in accrued liabilities related to capital expenditures.

Information about Segment Assets by Country

	March 31, 2014		December 31, 2013
	(Unaudited)
	(In thousands)
Segment assets:
Asia Pacific	$	740,507	$	1,030,823
Americas		795,598		522,713
Middle East		1,148,041		1,129,529
Corporate and other		339,783		124,306
Total assets	$	3,023,929	$	2,807,371

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Long-Term Debt and Notes Payable - Additional Information 2 (Detail) (USD $) In Millions, except Share data, unless otherwise specified	3 Months Ended								3 Months Ended		3 Months Ended	9 Months Ended	12 Months Ended
	Mar. 31, 2014	Mar. 31, 2014 Reimbursement Agreement [Member]	Dec. 31, 2013 Reimbursement Agreement [Member]	Apr. 20, 2012 ANZ Reimbursement Agreement [Member]	Mar. 31, 2014 Mexico [Member]	Dec. 31, 2013 Mexico [Member]	Mar. 31, 2014 Brazil [Member]	Dec. 31, 2013 Brazil [Member]	Mar. 31, 2014 North Ocean Construction Financing [Member] North Ocean 102 [Member]	Dec. 31, 2013 North Ocean Construction Financing [Member] North Ocean 102 [Member]	Mar. 31, 2014 Senior Notes [Member]	Sep. 30, 2010 Secured Debt [Member] North Ocean Construction Financing [Member] North Ocean 105 [Member]	Dec. 31, 2013 Secured Debt [Member] North Ocean Construction Financing [Member] North Ocean 105 [Member]	Mar. 31, 2014 Secured Debt [Member] North Ocean Construction Financing [Member] North Ocean 105 [Member] Installment	Mar. 31, 2014 Secured Debt [Member] North Ocean Construction Financing [Member] North Ocean 105 [Member] Maximum [Member]
Debt Instrument [Line Items]
Aggregate principal amount of debt issued											$ 500.0
Debt instrument interest rate											8.00%	2.76%
Debt instrument maturity date	Apr. 01, 2017										May 01, 2021
Units issued	11,500,000
Tangible units interest rate percentage	6.25%
Unit price per share	25.00
Initial principal amount per amortizing note	4.1266
Amortizing note interest rate percentage	7.75%
Maximum settlement rate per tangible equity unit	$ 3.5562
Notes payable										31.4
Notes payable, current										31.4			8.2	8.2
Debt description									The outstanding debt bore interest at a rate equal to the three-month LIBOR (which was subject to reset every three months) plus a margin of 3.315%. JRMSA paid in full the approximately $31.4 million notes payable balance upon maturity during January 2014.
Applicable margin for LIBOR borrowing									3.315%
Debt maturity date									2014-01
Percentage of debt guaranteed by JRMSA									50.00%
Repayments of notes payable by JRMSA									31.4
Ownership percentage in Oceanteam ASA's									50.00%
Secured debt															69.4
Business acquisition percentage, interests acquired														75.00%
Principal repayment	April 16, 2016												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, which commenced on October 1, 2012.
Number of consecutive semi-annual installments														17
Borrowing outstanding													57.2	57.2
Bank guarantees issued		56.2	55.8
Letters of credit outstanding amount	376.0	23.3	26.0	109.0
Bonds issued related to JRMSA general agreement of indemnity					$ 42.1	$ 43.5	$ 111.2	$ 106.3

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ACQUISITION AND DISPOSITIONS (Tables)

3 Months Ended

Mar. 31, 2014

Discontinued Operations And Disposal Groups [Abstract]

Amounts Incurred and Amounts Expected to be Incurred in Future by Major Type of Cost and by Segment

The following table presents total amounts incurred during the quarter ended March 31, 2014, as well as amounts incurred from inception of restructuring efforts up to March 31, 2014 and amounts expected to be incurred in the future by major type of cost and by segment.

	Incurred for three months ended March 31, 2014		Incurred from restructuring inception to March 31, 2014		Remaining to be incurred		Total
	(In thousands)
Americas
Impairments and write offs	$	—	$	14,138	$	112	$	14,250
Severance and other personnel-related costs		2,029		11,676		1,324		13,000
Morgan City environmental reserve (accrued)		—		5,925		—		5,925
Morgan City yard-related expenses		1,602		5,800		9,450		15,250
Other		—		158		6,417		6,575
	$	3,631	$	37,697	$	17,303	$	55,000
Corporate
Severance and other personnel-related costs	$	908	$	2,569	$	6,931	$	9,500
Legal and other advisor fees		1,586		1,586		8,914		10,500
	$	2,494	$	4,155	$	15,845	$	20,000
Total	$	6,125	$	41,852	$	33,148	$	75,000