10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2017

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  ☑    No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☑    No  ☐

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

Large accelerated filer	☑	Accelerated filer	☐
Non-accelerated filer	☐  (Do not check if a smaller reporting company)	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.           ☐

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

The number of shares of the registrant’s common stock outstanding at July 21, 2017 was 283,975,398.

McDERMOTT INTERNATIONAL, INC.

INDEX—FORM 10-Q

	PAGE
PART I—FINANCIAL INFORMATION	1
Item 1—Consolidated Financial Statements	1
Consolidated Statements of Operations	1
Consolidated Statements of Comprehensive Income	2
Consolidated Balance Sheets	3
Consolidated Statements of Cash Flows	4
Consolidated Statements of Stockholders’ Equity	5
Notes to the Consolidated Financial Statements	6
Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3—Quantitative and Qualitative Disclosures about Market Risk	37
Item 4—Controls and Procedures	39
PART II—OTHER INFORMATION	40
Item 1—Legal Proceedings	40
Item 6—Exhibits	41
SIGNATURES	42

PART I—FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

McDERMOTT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
	(In thousands, except share and per share amounts)
Revenues	$	788,673		$	706,627		$	1,308,104		$	1,435,659
Costs and Expenses:
Cost of operations		650,449			595,343			1,079,039			1,211,345
Research and development expenses		821			99			1,301			130
Selling, general and administrative expenses		50,022			52,075			86,609			90,403
Other operating (income) expenses, net		182			2,122			(2,029	)		40,800
Total costs and expenses		701,474			649,639			1,164,920			1,342,678
Operating income		87,199			56,988			143,184			92,981
Other expense:
Interest expense, net		(21,204	)		(12,655	)		(38,910	)		(23,893	)
Other non-operating expense, net		(2,491	)		(2,851	)		(1,877	)		(6,242	)
Total other expense, net		(23,695	)		(15,506	)		(40,787	)		(30,135	)
Income before provision for income taxes		63,504			41,482			102,397			62,846
Provision for income taxes		22,918			19,804			33,689			39,134
Income before income (loss) from Investments in Unconsolidated Affiliates		40,586			21,678			68,708			23,712
Income (loss) from Investments in Unconsolidated Affiliates		(4,127	)		127			(8,054	)		(4,351	)
Net income		36,459			21,805			60,654			19,361
Less: Net income attributable to noncontrolling interest		46			1,148			2,325			876
Net income attributable to McDermott International, Inc.	$	36,413		$	20,657		$	58,329		$	18,485
Net income per share attributable to McDermott International, Inc.:
Basic	$	0.13		$	0.09		$	0.22		$	0.08
Diluted	$	0.13		$	0.07		$	0.21		$	0.07
Shares used in the computation of net income per share:
Basic		282,660,314			240,338,540			262,438,822			239,739,204
Diluted		284,982,270			284,909,414			284,122,560			283,132,238

See accompanying Notes to the Consolidated Financial Statements.

1

McDERMOTT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017		2016
	(in thousands)
Net income	$	36,459		$	21,805		$	60,654	$	19,361
Other comprehensive income (loss), net of tax:
Unrealized gain on investments		20			12			39		17
Gain on derivatives		8,504			4,621			10,639		35,412
Foreign currency translation		(231	)		(4,027	)		8		(7,370	)
Other comprehensive income, net of tax		8,293			606			10,686		28,059
Total comprehensive income		44,752			22,411			71,340		47,420
Less: Comprehensive income attributable to noncontrolling interests		82			1,140			2,343		855
Comprehensive income attributable to McDermott International, Inc.	$	44,670		$	21,271		$	68,997	$	46,565

See accompanying Notes to the Consolidated Financial Statements.

2

McDERMOTT INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
	June 30, 2017			December 31, 2016
	(In thousands, except share and per share amounts)
Assets	(Unaudited)
Current assets:
Cash and cash equivalents	$	393,726		$	595,921
Restricted cash and cash equivalents		15,154			16,412
Accounts receivable—trade, net		331,327			334,384
Accounts receivable—other		40,239			36,929
Contracts in progress		619,164			319,138
Other current assets		38,047			29,599
Total current assets		1,437,657			1,332,383
Property, plant and equipment		2,617,382			2,586,179
Less accumulated depreciation		(939,651	)		(898,878	)
Property, plant and equipment, net		1,677,731			1,687,301
Accounts receivable—long-term retainages		92,797			127,193
Investments in Unconsolidated Affiliates		12,138			17,023
Deferred income taxes		18,748			21,116
Other assets		52,377			37,214
Total assets	$	3,291,448		$	3,222,230
Liabilities and Equity
Current liabilities:
Notes payable and current maturities of long-term debt	$	13,807		$	48,125
Accounts payable		434,954			173,203
Accrued liabilities		340,613			277,584
Advance billings on contracts		66,148			192,486
Income taxes payable		26,786			17,945
Total current liabilities		882,308			709,343
Long-term debt		526,692			704,395
Self-insurance		17,734			16,980
Pension liabilities		19,043			19,471
Non-current income taxes		60,341			60,870
Other liabilities		124,834			115,703
Commitments and contingencies
Stockholders' equity:
Common stock, par value $1.00 per share, authorized 400,000,000 shares;
issued 292,469,416 and 249,690,281 shares, respectively		292,469			249,690
Capital in excess of par value		1,656,231			1,695,119
Accumulated deficit		(168,438	)		(226,767	)
Accumulated other comprehensive loss		(56,191	)		(66,895	)
Treasury stock, at cost: 8,494,018 and 8,302,004 shares, respectively		(96,244	)		(94,957	)
Stockholders' Equity—McDermott International, Inc.		1,627,827			1,556,190
Noncontrolling interest		32,669			39,278
Total equity		1,660,496			1,595,468
Total liabilities and equity	$	3,291,448		$	3,222,230

See accompanying Notes to the Consolidated Financial Statements.

3

McDERMOTT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
	Six Months Ended June 30,
	2017			2016
	(In thousands)
Cash flows from operating activities:
Net income	$	60,654		$	19,361
Non-cash items included in net income:
Depreciation and amortization		49,685			48,929
Impairment loss		-			32,311
Stock-based compensation charges		11,838			9,242
Loss from investments in Unconsolidated Affiliates		8,054			4,351
Other non-cash items		12,375			4,948
Changes in operating assets and liabilities that provided (used) cash:
Accounts receivable		37,453			(30,835	)
Contracts in progress, net of Advance billings on contracts		(410,678	)		67,698
Accounts payable		260,091			(65,212	)
Accrued and other current liabilities		68,722			(45,523	)
Other assets and liabilities, net		(8,011	)		30,520
Total cash provided by operating activities		90,183			75,790
Cash flows from investing activities:
Purchases of property, plant and equipment		(80,922	)		(170,674	)
Proceeds from asset dispositions		55,391			388
Investments in Unconsolidated Affiliates		(1,300	)		(4,105	)
Total cash used in investing activities		(26,831	)		(174,391	)
Cash flows from financing activities:
Repayment of debt		(230,509	)		(88,845	)
Payment of debt and letter of credit issuance cost		(18,784	)		(8,211	)
Acquisition of NCI		(10,652	)		-
Repurchase of common stock		(7,020	)		(2,572	)
Total cash used in financing activities		(266,965	)		(99,628	)
Effects of exchange rate changes on cash, cash equivalents and restricted cash		160			(601	)
Net decrease in cash, cash equivalents and restricted cash		(203,453	)		(198,830	)
Cash, cash equivalents and restricted cash at beginning of period		612,333			781,645
Cash, cash equivalents and restricted cash at end of period	$	408,880		$	582,815

See accompanying Notes to the Consolidated Financial Statements.

4

McDERMOTT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF EQUITY
					(Unaudited)
		Common Stock Par Value			Capital in Excess of Par Value			Accumulated Deficit			Accumulated Other Comprehensive Loss ("AOCI")			Treasury Stock			Stockholders' Equity			Noncontrolling Interest ("NCI")			Total Equity
	(in thousands)
Balance at January 1, 2017		$	249,690		$	1,695,119		$	(226,767	)	$	(66,895	)	$	(94,957	)	$	1,556,190		$	39,278		$	1,595,468
Net income			-			-			58,329			-			-			58,329			2,325			60,654
Other comprehensive income (loss), net of tax			-			-			-			10,704			-			10,704			(18	)		10,686
Common stock issued			43,584			(43,584	)		-			-			-			-			-			-
Stock-based compensation charges			-			8,519			-			-			-			8,519			-			8,519
Purchase of treasury shares			-			-			-			-			(7,020	)		(7,020	)		-			(7,020	)
Retirement of common stock			(805	)		(4,928	)		-			-			5,733			-			-			-
Acquisition of NCI			-			2,121			-			-			-			2,121			(8,896	)		(6,775	)
Other			-			(1,016	)		-			-			-			(1,016	)		(20	)		(1,036	)
Balance at June 30, 2017		$	292,469		$	1,656,231		$	(168,438	)	$	(56,191	)	$	(96,244	)	$	1,627,827		$	32,669		$	1,660,496

See accompanying Notes to the Consolidated Financial Statements.

5

McDERMOTT INTERNATIONAL, INC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) TABLE OF CONTENTS	PAGE
Note 1—Basis of Presentation and Significant Accounting Policies	7
Note 2—Revenue Recognition	9
Note 3—Use of Estimates	9
Note 4—Restructuring	12
Note 5—Cash, Cash Equivalents and Restricted Cash	12
Note 6—Accounts Receivable	13
Note 7—Contracts in Progress and Advance Billings on Contracts	13
Note 8—Sale Leaseback	13
Note 9—Debt	14
Note 10—Pension and Postretirement Benefits	17
Note 11—Derivative Financial Instruments	17
Note 12—Fair Value Measurements	18
Note 13—Stockholders’ Equity	19
Note 14—Earnings Per Share	21
Note 15—Commitments and Contingencies	21
Note 16—Segment Reporting	22

6

McDERMOTT INTERNATIONAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(continued)

NOTE 1—BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

McDermott International, Inc. (“MDR”), a corporation incorporated under the laws of the Republic of Panama in 1959, is a leading provider of integrated engineering, procurement, construction and installation (“EPCI”), front-end engineering and design (“FEED”) and module fabrication services for upstream field developments worldwide.  We deliver fixed and floating production facilities, pipeline installations and subsea systems from concept to commissioning for complex offshore and subsea oil and gas projects. Operating in approximately 20 countries across the Americas, Europe, Africa, Asia and Australia, our integrated resources include 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 Consolidated Financial Statements, unless the context otherwise indicates, “we,” “us” and “our” mean MDR and its consolidated subsidiaries.

Basis of Presentation

The accompanying Consolidated Financial Statements are unaudited and have been prepared from our books and records in accordance with Rule 10-1 of Regulation S-X for interim financial information. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States (“U.S. GAAP”) for complete financial statements. In the opinion of our management, all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair presentation have been included. The results of operations for interim periods are not necessarily indicative of results of operations for a full year. These Consolidated Financial Statements should be read in conjunction with our Consolidated Financial Statements and Notes thereto included in our Current Report on Form 8-K filed with the SEC on April 25, 2017 (the “April 25 Form 8-K”).

Classification

Certain prior year amounts have been reclassified for consistency with the current year presentation. Previously reported Consolidated Financial Statements have been adjusted to reflect those changes.

In addition, in the first quarter of 2017, we implemented certain changes to our financial reporting structure. Corporate expenses, certain centrally managed initiatives (such as restructuring charges), impairments, year-end mark-to-market pension actuarial gains and losses, costs not attributable to a particular reportable segment, and unallocated direct operating expenses associated with the underutilization of vessels, fabrication facilities and engineering resources, are no longer apportioned to our reportable segments. Those expenses are reported under “Corporate and Other.” Previously reported segment financial information has been adjusted to reflect this change, see Note 16, Segment Reporting.

Accounting Guidance Issued But Not Adopted as of June 30, 2017

Stock Compensation—In May 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Updates (“ASU”) 2017-07, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting. The general model for modifications of share-based payment awards is to record the incremental value arising from a change as additional compensation cost. This guidance clarifies situations in which the existing award is not probable of vesting, and a modification gives rise to a new measurement date; no change in the total compensation cost recognized for an existing award will be required if there is no change to the fair value, vesting conditions and classification of the award. This ASU is effective prospectively for annual periods beginning on or after December 15, 2017. Early adoption is permitted. The application of this amendment is not expected to have a material impact on our future Consolidated Financial Statements or related disclosures.

7

Pension and Postretirement Benefits—In March 2017, the FASB issued ASU 2017-07, Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit. This ASU requires bifurcation of certain components of net pension and postretirement benefit cost (“benefit costs”) in the Consolidated Statements of Operations. The service cost components are required to be presented in operating income and the remaining components are required to be presented outside of operating income. This ASU is effective for interim and annual periods beginning after December 15, 2017. Early adoption is permitted.  Upon future adoption of this guidance, benefit costs, excluding service costs component, will be included in Other non-operating income (expense), net in our Consolidated Statements of Operations. Currently, all components of benefit costs are reported in Selling, general and administrative expenses in our Consolidated Statements of Operations.

Income Taxes—In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory.  This ASU requires entities to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs.  The ASU is effective for interim and annual periods beginning after December 15, 2017.  Early adoption is permitted.  The application of this amendment is not expected to have a material impact on our future Consolidated Financial Statements and related disclosures.

Financial Instruments—In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU will require a financial asset measured at amortized cost basis to be presented at the net amount expected to be collected. A valuation account, allowance for credit losses, will be deducted from the amortized cost basis of the financial asset to present the net carrying value at the amount expected to be collected on the financial asset. This ASU is effective for interim and annual periods beginning after December 15, 2019. We are currently assessing the impact of this guidance on our future Consolidated Financial Statements and related disclosures.

Leases—In February 2016, the FASB issued ASU 2016-02,Leases (Topic 842). The ASU will require entities that lease assets—referred to as “lessees”—to recognize on the balance sheet the assets and liabilities for the rights and obligations created by leases with lease terms of more than 12 months. Consistent with current U.S. GAAP, the recognition, measurement and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. However, unlike current U.S. GAAP—which requires only capital leases to be recognized on the balance sheet—the new ASU will require both types of leases to be recognized on the balance sheet. This ASU is effective for interim and annual periods beginning after December 15, 2018. Early adoption is permitted. We are currently assessing the impact of this ASU on our future Consolidated Financial Statements and related disclosures.

Revenue from Contracts with Customers (Topic 606)—In May 2014, the FASB issued a new standard related to revenue recognition which supersedes most of the existing revenue recognition requirements in U.S. GAAP and will require entities to recognize revenue at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. It also requires significantly expanded disclosures regarding the qualitative and quantitative information of an entity’s nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.

The FASB has issued several amendments to the standard, including clarification on accounting for licenses of intellectual property, identifying performance obligations, reporting gross versus net revenue and narrow-scope improvements and practical expedients.

The guidance permits two methods of adoption: retrospectively to each prior reporting period presented (“full retrospective method”), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (“modified retrospective application”).

We are currently assessing the impact of this ASU and the amendments on our future Consolidated Financial Statements and related disclosures. Adoption may affect the manner in which the company determines the unit of account for its projects and estimates revenue associated with unapproved change orders and claims. We intend to adopt the new standard on January 1, 2018 (the “initial application” date):

• using the modified retrospective application, with no restatement of the comparative periods presented and a cumulative effect adjustment as of the date of adoption;

• applying the new standard only to those contracts that are in process at the date of initial application; and

• disclosing the impact of the new standard on our 2018 Consolidated Financial Statements.

This standard could have a significant impact on our Consolidated Financial Statements and related disclosures.

8

NOTE 2—REVENUE RECOGNITION

Unapproved Change Orders

As of June 30, 2017, total unapproved change orders included in our estimates at completion aggregated approximately $94 million, of which approximately $13 million was included in backlog. As of June 30, 2016, total unapproved change orders included in our estimates at completion aggregated approximately $122 million, of which approximately $24 million was included in backlog.

Claims Revenue

The amount of revenues included in our estimates at completion (i.e., contract values) associated with claims was $10 million and $16 million as of June 30, 2017 and 2016, respectively, all in our Middle East segment. These amounts are determined based on various factors, including our analysis of the underlying contractual language and our experience in making and resolving claims. Our unconsolidated joint ventures did not include any material claims revenue or associated costs in their financial results for the three and six months ended June 30, 2017 and 2016.  

None of the claims included in our estimates at completion at June 30, 2017 were the subject of any litigation proceedings. 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.  

Loss Recognition

For all ongoing contracts, we have provided for estimated costs to complete. If a current estimate of total contract cost indicates a loss, the projected loss is recognized in full immediately and reflected in cost of operations in the Consolidated Statements of Operations. 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 loss projects, 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. In our Consolidated Balance Sheets, the provision for estimated losses on all active uncompleted projects is included in “Advance billings on contracts.”

As of June 30, 2017, KJO Hout, an EPCI project in our MEA segment, was in an estimated overall $9 million loss position. The project is expected to be substantially completed in the second half of 2017.

As of June 30, 2017 and December 31, 2016, the remaining provision for estimated losses to be recognized on all active uncompleted projects in our Consolidated Balance Sheets was not material.

NOTE 3—USE OF ESTIMATES

The following is a discussion of our most significant changes in estimates that impacted segment operating income for the three and six months ended June 30, 2017 and 2016.

Three months ended June 30, 2017

Segment operating income for the three months ended June 30, 2017 was positively impacted by net favorable changes in estimates totaling approximately $32 million, primarily in our MEA and ASA segments.

Americas, Europe and Africa Segment (“AEA”)—This segment was impacted by net unfavorable changes in estimates aggregating approximately $4 million on multiple projects, none of which individually were material.  

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Middle East Segment (“MEA”)—This segment was positively impacted by net favorable changes in estimates aggregating approximately $20 million, primarily due to:

• productivity improvements and associated cost savings during a marine hookup campaign and benefits from a change in estimate to complete a project in the Middle East;  

• cost savings associated with productivity improvements on multiple Saudi Aramco projects, none of which were individually material; and

• changes in estimate to complete a large pipeline repair project in the Middle East.

Those favorable net changes were partially offset by:

• higher fabrication costs on a lump-sum EPCI project under the second Saudi Aramco Long-Term Agreement (“LTA II”); and

• increases in costs to complete the 9 Jackets Saudi Aramco project due to weather downtime, including increased vessel demobilization and mobilization costs.

Asia Segment (“ASA”)—This segmentwas positively impacted by net favorable changes in estimates aggregating approximately $16 million, primarily due to the change in estimates associated with efficient project execution and productivity improvements on multiple projects which were individually not material.

In addition, during the second quarter of 2017, on the Ichthys project in Australia, we commenced replacing the supplier-provided subsea-pipe connector components, and the diving intervention was completed on July 7, 2017. Residual work is planned for the second half of 2017. The current estimated costs to replace the supplier-provided subsea-pipe connector components, at the completion of the project, is less than our December 31, 2016 estimate of $34 million, which has been reflected in the project’s total estimated costs at completion. Furthermore, we took action to mitigate the risk of possible additional increases in these costs. We expect the project to remain in an overall profitable position.

Six months ended June 30, 2017

Segment operating income for the six months ended June 30, 2017 was positively impacted by net favorable changes in estimates totaling approximately $79 million across all segments.

AEA—This segment was positively impacted by net favorable changes in estimates aggregating approximately $1 million on multiple projects, none of which individually were material. 

MEA—This segment was positively impacted by net favorable changes in estimates aggregating approximately $36 million, primarily due to:

• productivity improvements and associated cost savings during a marine hookup campaign and reduction in estimated costs to complete two projects in the Middle East, including a Saudi Aramco project;  

• marine campaign cost savings associated with productivity improvements, which were partially offset by higher fabrication costs on a lump-sum EPCI project under the LTA II;

• close-out improvements associated with the first phase of a large pipeline repair project in the Middle East, which was completed in 2016, and a change in estimate to complete the next phase of this project; and

• cost savings associated with productivity improvements on multiple Saudi Aramco projects, none of which were individually material.

Those favorable net changes in estimates were partially offset by increases in costs to complete the 9 Jackets Saudi Aramco project, due to weather downtime, including increased vessel demobilization and mobilization costs.

ASA—This segmentwas positively impacted by net favorable changes in estimates aggregating approximately $42 million, primarily due to changes in estimates driven by productivity improvements and associated cost savings and agreement on outstanding change orders on active and completed projects.

In addition, as of December 31, 2016, on the Ichthys project in Australia, we reported a $34 million increase in our estimated costs at completion due to a failure identified in a supplier-provided subsea-pipe connector component that we had previously installed, and

10

we identified possible additional increases of up to $10 million, due to potential need for alternative installation methods. We investigated the cause of the failure and developed a remediation plan in conjunction with the customer, and we commenced offshore replacement in June 2017. As of June 30, 2017, the work under the remediation plan has progressed well, and the diving intervention was completed on July 7, 2017. Residual work is planned for the second half of 2017. The current estimated costs to replace the supplier-provided subsea-pipe connector components, at the completion of the project, is less than our December 31, 2016 estimate. Furthermore, we took action to mitigate the risk of possible additional increases in these costs. We expect the project to remain in an overall profitable position.

Three months ended June 30, 2016

Operating income for the three months ended June 30, 2016 was positively impacted by net favorable changes in estimates totaling approximately $28 million across all segments.

AEA—This segment was positively impacted by net favorable changes in estimates aggregating approximately $7 million, primarily attributable to productivity improvement and associated cost savings related to our DB 50 and NO 102 vessels’ marine campaigns undertaken in the Gulf of Mexico in the second quarter of 2016.

MEA—This segment was positively impacted by net favorable changes in estimates aggregating approximately $10 million, primarily due to:

• productivity improvements and associated cost savings related to the Intermac 406 and DB 27 vessels, both associated with Saudi Aramco projects; and

• other miscellaneous projects, which individually were not material.

ASA—This segment was positively impacted by net favorable changes in estimates aggregating approximately $11 million which were primarily driven by productivity improvements and associated cost savings and agreement on outstanding change orders on our active projects.

Six months ended June 30, 2016

Operating income for the six months ended June 30, 2016 was positively impacted by net favorable changes in estimates totaling approximately $68 million across all segments.

AEA—This segment was positively impacted by net favorable changes in estimates aggregating approximately $23 million, primarily due to:

• successful execution and close-out improvements on two significant projects, PB Litoral and Exxon Julia Subsea Tieback;

• productivity improvement and associated cost savings related to our DB 50 and NO 102 vessels’ marine campaigns undertaken in the Gulf of Mexico; and

• a reversal of a $7 million provision for liquidated damages due to an agreed extension of the PB Litoral project completion date.

Those changes were partially offset by net unfavorable changes, none of which were material individually.

MEA—This segment was positively impacted by net favorable changes in estimates aggregating approximately $17 million, primarily due to:

• productivity improvements and associated cost savings related to the DB 27 and the Intermac 406 vessels, both associated with Saudi Aramco projects; and

• other miscellaneous projects, none of which were material individually.

ASA—This segment was positively impacted by net favorable changes in estimates aggregating approximately $28 million, primarily driven by productivity improvements and associated cost savings and agreement on outstanding change orders on active and completed projects.

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NOTE 4—RESTRUCTURING

Restructuring initiatives are driven and managed by our corporate management. These costs are not allocated to our reportable segments and are reported under Corporate and Other.

Restructuring expenses are reported as a component of Other operating (income) expenses, net in our Consolidated Statements of Operations. Previously, restructuring expenses were presented separately in our Consolidated Statements of Operations.

The following table presents restructuring costs incurred in the second quarter of 2016 and from inception, by major cost type. No restructuring costs were incurred during 2017.

		Three months ended			Six months ended			From  inception to
		June 30, 2016						June 30, 2017
	(in thousands)
Americas Restructuring		$	(1,500	)	$	(1,500	)	$	44,194
McDermott Profitability Initiative
Severance and other personnel-related costs			992			1,425			17,807
Asset impairment and disposal			-			-			7,471
Legal and other advisor fees			49			222			11,639
Other			1,541			2,436			10,045
			2,582			4,083			46,962
Additional Overhead Reduction
Severance and other personnel-related costs			1,073			4,044			5,012
Legal and other advisor fees			240			1,968			2,768
Other			89			256			385
			1,402			6,268			8,165
Total		$	2,484		$	8,851		$	99,321

NOTE 5—CASH, CASH EQUIVALENTS AND RESTRICTED CASH

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Consolidated Balance Sheets that sum to the totals of such amounts shown in the Consolidated Statements of Cash Flows.  

	June 30, 2017		December 31, 2016
	(in thousands)
Cash and cash equivalents	$	393,726	$	595,921
Restricted cash and cash equivalents		15,154		16,412
Total cash, cash equivalents, and restricted cash shown in the Consolidated Statements of Cash Flows	$	408,880	$	612,333

A majority of our restricted cash balances serve as collateral for letters of credit, discussed in Note 9, Debt.

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NOTE 6—ACCOUNTS RECEIVABLE

Accounts Receivable—Trade, Net―A summary of contract receivables is as follows:

	June 30, 2017			December 31, 2016
	(in thousands)
Contract receivables:
Contracts in progress	$	245,341		$	245,604
Completed contracts		24,755			40,345
Retainages		70,922			58,431
Unbilled(1)		4,303			4,303
Less allowances		(13,994	)		(14,299	)
Accounts receivable—trade, net	$	331,327		$	334,384

⁽¹⁾ This amount relates to a project milestone billing for which we are awaiting the customer’s final acceptance certificate. We expect to receive the final acceptance certificate during 2017.

Retainages—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:

	June 30, 2017		December 31, 2016
	(in thousands)
Retainages expected to be collected within one year	$	70,922	$	58,431
Retainages expected to be collected after one year		92,797		127,193
Total retainages	$	163,719	$	185,624

NOTE 7—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:

	June 30, 2017			December 31, 2016
	(In thousands)
Costs incurred less costs of revenue recognized	$	78,291		$	119,688
Revenues recognized less billings to customers		540,873			199,450
Contracts in Progress	$	619,164		$	319,138
Billings to customers less revenue recognized	$	161,083		$	42,637
Costs incurred less costs of revenue recognized		(94,935	)		149,849
Advance Billings on Contracts	$	66,148		$	192,486

NOTE 8—SALE LEASEBACK

In January 2017, we purchased the pipelay and construction vessel, the Amazon, for a total cash consideration of approximately $52 million. Following the purchase, we sold the Amazon to an unrelated third party for total cash consideration of $52 million and simultaneously entered into an 11-year bareboat charter agreement with the purchaser. The bareboat charter agreement provides us with options (exercisable periodically over the charter term) to purchase the Amazon, at a predetermined value.  We accounted for the transaction as a sale leaseback and are treating the bareboat charter agreement as an operating lease.  As the proceeds from the sale equaled the carrying value of the vessel, no gain or loss was recognized.  The annual charter obligation is $3 million through 2018, when it will increase to $8 million annually for the remainder of the charter term.

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NOTE 9—DEBT

The carrying values of our long-term debt obligations, net of unamortized debt issuance costs of $6 million and $14 million as of June 30, 2017 and December 31, 2016, respectively, are as follows:

	June 30, 2017		December 31, 2016
	(In thousands)
Senior Notes	$	494,230	$	493,461
North Ocean 105 construction financing		28,595		31,877
Vendor equipment financing		15,686		-
Term Loan		-		212,070
Amortizing Notes		-		7,932
Other		1,988		7,180
		540,499		752,520
Less: Amounts due within one year		13,807		48,125
Total long-term debt	$	526,692	$	704,395

Amended and Restated Credit Agreement

On June 30, 2017, we repaid all outstanding term loans, with an outstanding principal amount of approximately $217 million, under our credit agreement dated April 16, 2014 (the “Prior Credit Agreement”), and we amended and restated the Prior Credit Agreement by entering into an Amended and Restated Credit Agreement (the “Credit Agreement”) with a syndicate of lenders and letter of credit issuers, and Crédit Agricole Corporate and Investment Bank, as administrative agent and collateral agent.  All letters of credit outstanding under the Prior Credit Agreement were deemed issued under the Credit Agreement.

The Credit Agreement includes $810 million of commitments from the lenders, the full amount of which is available for the issuance of letters of credit, and $300 million of which is available for revolving loans. The senior secured credit facility established by the Credit Agreement is scheduled to mature in June 2022, unless we do not repay in full, by December 1, 2020, our $500 million second-lien notes due in April 2021, in which case the Credit Agreement will mature on December 1, 2020.

The Credit Agreement includes procedures for additional financial institutions to become lenders, or for any existing lender to increase its commitment thereunder, subject to an aggregate maximum of $1 billion for all commitments under the Credit Agreement.  Any such increase in the commitments will not increase the $300 million sublimit for revolving loans.  

The indebtedness and other obligations under the Credit Agreement are unconditionally guaranteed on a senior secured basis by substantially all of our wholly owned subsidiaries, other than our captive insurance subsidiary and certain other designated subsidiaries (collectively, the “Guarantors”). The obligations under the Credit Agreement are secured by first-priority liens on substantially all of our and the Guarantors’ assets, including certain vessels and bank accounts.

Other than mandatory commitment reductions and prepayments in connection with certain asset sales, casualty events, and incurrences of debt not permitted by the Credit Agreement, the Credit Agreement requires only periodic interest payments until maturity. We may prepay all revolving loans under the Credit Agreement at any time without premium or penalty (other than customary LIBOR breakage costs), subject to certain notice requirements.

Revolving loans under the Credit Agreement bear interest at our option at either the Eurodollar rate plus a margin ranging from 3.75% to 4.25% per year or the base rate (the highest of the Federal Funds rate plus 0.50%, the 30-day Eurodollar rate plus 1.0%, or the administrative agent’s prime rate) plus a margin ranging from 2.75% to 3.25% per year. The applicable margin varies depending on our leverage ratio (as defined in the Credit Agreement). We are charged a commitment fee of 0.50% per year on the daily amount of the unused portions of the commitments under the Credit Agreement.  Additionally, with respect to all letters of credit outstanding under the Credit Agreement, we are charged a fronting fee of 0.25% per year and a participation fee of (i) between 3.75% to 4.25% per year in respect of financial letters of credit and (ii) between 1.875% to 2.125% per year in respect of performance letters of credit, in each case depending on our leverage ratio. We also pay customary issuance fees and other fees and expenses in connection with the issuance of letters of credit under the Credit Agreement.

In connection with the Credit Agreement we incurred approximately $21 million of debt issuance costs. On the Consolidated Balance Sheets, those costs are reflected as an asset.

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As of June 30, 2017, the applicable margin for revolving loans was 4.0% for Eurodollar-rate loans and 3.0% for base-rate loans, and the letter of credit fee for financial letters of credit was 4.0% and for performance letters of credit was 2.0%.

The Credit Agreement includes the following financial covenants, defined in the Credit Agreement, which will be tested on a quarterly basis and, in respect of the collateral coverage ratio described below, on both a quarterly basis and on any date that a mortgaged vessel is sold:  

• the maximum permitted leverage ratio is (1) 3.50 to 1.00 for each fiscal quarter ending on or before December 31, 2019 and (2) 3.25 to 1.00 for each fiscal quarter ending after December 31, 2019;

• the minimum fixed charge coverage ratio is 1.15 to 1.00; 

• the minimum liquidity is $100 million;

• the minimum collateral coverage ratio is 1.20 to 1.0; and 

• the principal amount of revolving loans outstanding under the Credit Agreement cannot exceed the sum of 75% of our net trade accounts receivable plus the amount of our cash and cash equivalents subject to the control of the collateral agent under the Credit Agreement (this is also a condition to each revolving loan borrowing).

In addition, the Credit Agreement contains various covenants that, among other restrictions, limits our ability, and the ability of each of our subsidiaries, to: (1) incur or assume indebtedness; (2) grant or assume liens; (3) make acquisitions or engage in mergers; (4) sell, transfer, assign or convey assets; (5) make investments; (6) repurchase equity and make dividends and certain other restricted payments; (7) change the nature of our business; (8) engage in transactions with affiliates; (9) enter into burdensome agreements; (10) modify organizational documents; (11) enter into sale and leaseback transactions; (12) make capital expenditures; (13) enter into speculative hedging contracts; and (14) make prepayments on certain junior debt.

The Credit Agreement contains events of default that we believe are customary for a secured credit facility. If an event of default relating to bankruptcy or other insolvency events with respect to us occurs, all obligations under the Credit Agreement will immediately become due and payable. If any other event of default exists under the Credit Agreement, the lenders may accelerate the maturity of the obligations outstanding under the Credit Agreement and exercise other rights and remedies. In addition, if any event of default exists under the Credit Agreement, the lenders may commence foreclosure or other actions against the collateral.

If any default exists under the Credit Agreement, or if we are unable to make any of the representations and warranties in the Credit Agreement at the applicable time, we will be unable to borrow funds or have letters of credit issued under the Credit Agreement.

As of June 30, 2017, the aggregate amount of letters of credit issued and outstanding under the Credit Agreement was $333 million, included in which were $24 million of financial letters of credit, and there were no revolving loans outstanding under the Credit Agreement. As of December 31, 2016, under the Prior Credit Agreement, the aggregate amount of letters of credit issued and outstanding was $442 million.

The Credit Agreementpermits us to deposit up to $300 million with letter of credit issuers to cash collateralize letters of credit issued on a bilateral basis outside the Credit Agreement. As of June 30, 2017, we had bilateral arrangements to issue cash collateralized letters of credit of $175 million. As of June 30, 2017 and December 31, 2016, we had an aggregate face amount of approximately $15 million and $16 million of such letters of credit outstanding supported by cash collateral. We have included the supporting cash collateral in restricted cash and cash equivalents in the accompanying Consolidated Balance Sheets. During the first six months of 2017, the maximum amount of cash collateral used to support bilateral letters of credit was $166 million.

As of June 30, 2017, we were in compliance with all of the financial covenants set forth in the Credit Agreement.

Senior Notes

In April 2014, we issued $500 million in aggregate principal amount of 8.00% 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. 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.  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

15

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 S&P Global Ratings and no default has occurred.  For additional information relating to the Notes, see Note 10, Debt, to the Consolidated Financial Statements included in the April 25 Form 8-K.

North Ocean Financing

NO 105―On September 30, 2010, McDermott International Inc., as guarantor, and North Ocean 105 AS, in which we then had a 75% ownership interest, as borrower, entered into a financing agreement to pay a portion of the construction costs of the NO 105. 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 NO 105, and a lien on substantially all of the other assets of North Ocean 105 AS. The financing agreement requires principal repayment in 17 consecutive semiannual installments, which commenced on October 1, 2012.

In the second quarter of 2017 we exercised our option under the North Ocean 105 AS joint venture agreement and purchased the 25% ownership interest of Oceanteam ASA (“Oceanteam”) in the vessel-owning company for approximately $11 million in cash. As part of that transaction, we also assumed the right to a $5 million note payable from North Ocean 105 AS to Oceanteam (which had been issued in connection with a dividend declared by North Ocean 105 AS in 2016). For further discussion, see Note 13, Stockholders’ Equity.

The Credit Agreement eliminated the Prior Credit Agreement’s requirement for us to prepay by July 20, 2017 the North Ocean 105borrowing and to mortgage the NO 105 vessel in favor of the lenders.

Tangible Equity Units (“TEUs”)

In April 2014, we issued 11,500,000 6.25% TEUs, each with a stated amount of $25. Each TEU consists of (1) a prepaid common stock purchase contract and (2) a senior amortizing note due April 1, 2017 (each an “Amortizing Note”) that had an initial principal amount of $4.1266 per Amortizing Note and bore interest at a rate of 7.75% per annum and had a final scheduled installment payment date of April 1, 2017, which we repaid in full.

The prepaid common stock purchase contracts were accounted for as capital in excess of par value totaling $240 million in our Consolidated Balance Sheets. Each prepaid common stock purchase contract automatically settled in April 2017. We delivered 40.8 million shares of our common stock to holders of the TEU prepaid common stock purchase contracts, based on the settlement rate of 3.5496 shares per unit.

Receivables Factoring Facility

In February 2017, J. Ray McDermott de Mexico, S.A. de C.V. (“JRM Mexico”), one of our indirectly 100% owned subsidiaries, entered into a 364 day, $50 million committed revolving receivables purchase agreement which provides for the sale, at a discount rate of LIBOR plus an applicable margin of 4.25%, of certain receivables to a designated purchaser without recourse.  The facility provides for customary representations and warranties and compliance with customary covenants. JRM Mexico’s obligations in connection with the receivables purchase agreement are guaranteed by McDermott International, Inc.

During the first six months of 2017, we sold approximately $2 million of receivables under the receivables purchase agreement.

Vendor Equipment Financing

In February 2017, JRM Mexico entered into a 21-month loan agreement for equipment financing in the amount of $47 million. Borrowings under the loan agreement bear interest at a fixed rate of 5.75%. JRM Mexico’s obligations in connection with this equipment financing are guaranteed by McDermott International Management, S. de RL., one of our 100% owned subsidiaries. The equipment financing agreement contains various customary affirmative covenants, as well as specific affirmative covenants, including the pledge of specific equipment.  The equipment financing agreement also requires compliance with various negative covenants, including restricted use of the proceeds. At June 30, 2017, the total borrowing outstanding under this facility was approximately $16 million.

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Unsecured Bilateral Lines of Credit

MDR has uncommitted lines of credit in place with Middle Eastern banks in support of our contracting activities in the Middle East. Bank guarantees issued under these agreements totaled $518 million and $359 million, as of June 30, 2017 and December 31, 2016, respectively. As of June 30, 2017, overall capacity under these arrangements totaled $625 million.

Surety Bonds

As of June 30, 2017 and December 31, 2016, surety bonds issued under general agreements of indemnity in favor of surety underwriters in support of contracting activities of our subsidiaries JRM Mexico and McDermott, Inc. totaled $57 million and $79 million, respectively. As of June 30, 2017, overall uncommitted capacity under these arrangements totaled $300 million.

NOTE 10—PENSION AND POSTRETIREMENT BENEFITS

Net pension cost (benefit) recognized during each period presented relate to expected return on plan assets, net of interest costs, for our defined benefit pension plans.

Net periodic cost (benefit) for our qualified defined benefit pension plan and several of our non-qualified supplemental defined benefit pension plans (the “Domestic Plans”) and our J. Ray McDermott, S.A. Third Country National Employees Pension Plan (the “TCN Plan”) was as follows:

	Domestic Plans
	Three months ended June 30,						Six months ended June 30,
	2017			2016			2017			2016
	(In thousands)
Interest cost	$	4,991		$	5,293		$	9,982		$	10,552
Expected return on plan assets		(4,907	)		(5,001	)		(9,814	)		(10,004	)
Net periodic (benefit) cost	$	84		$	292		$	168		$	548

	TCN Plan
	Three months ended June 30,						Six months ended June 30,
	2017			2016			2017			2016
	(In thousands)
Interest cost	$	290		$	338		$	580		$	676
Expected return on plan assets		(345	)		(397	)		(690	)		(794	)
Net periodic (benefit) cost	$	(55	)	$	(59	)	$	(110	)	$	(118	)

We recognize actuarial gains and losses on defined benefit plans in our Consolidated Statements of Operations in the fourth quarter of each year at our annual measurement date of December 31, unless earlier remeasurements are required.

NOTE 11—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 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 Accumulated Other Comprehensive Income (“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 Other non-operating income (expense), net in our Consolidated Statements of Operations.

As of June 30, 2017, the majority of our foreign currency forward contracts were designated as cash flow hedging instruments. In addition, we deferred approximately $14 million of net losses on those derivative financial instruments in AOCI, and we expect to reclassify approximately $8 million of deferred losses out of AOCI by June 30, 2018, as hedged items are recognized. The notional value of our outstanding derivative contracts totaled $270 million at June 30, 2017, with maturities extending through March 2019. Of

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this amount, approximately $135 million is associated with various foreign currency expenditures we expect to incur on one of our ASA segment’s EPCI projects. These instruments consist of contracts to purchase or sell foreign-denominated currencies. As of June 30, 2017, the fair value of these contracts was in a net asset position totaling approximately $2 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

	June 30,		December 31,
	2017		2016
	(In thousands)
Derivatives Designated as Hedges:
Location:
Accounts receivable—other	$	3,543	$	2,631
Total derivatives asset	$	3,543	$	2,631
Accounts payable	$	1,283	$	9,361
Other liabilities		24		4
Total derivatives liability	$	1,307	$	9,365

The Effects of Derivative Instruments on our Financial Statements

	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
	(in thousands)
Derivatives Designated as Hedges:
Amount of gain (loss) recognized in other comprehensive income (loss)	$	4,610		$	(10,304	)	$	10,212		$	10,230
(Loss) gain reclassified from AOCI to Cost of operations		784			14,932			(2,731	)		24,611
Ineffective portion and amount excluded from effectiveness testing: loss recognized in Other non-operating expense		(1,225	)		(344	)		(919	)		(1,549	)

NOTE 12—FAIR VALUE MEASUREMENTS

The following table presents the financial instruments outstanding as of June 30, 2017 and December 31, 2016 that are measured at fair value on a recurring basis and financial instruments that are not measured at fair value on a recurring basis.

	June 30, 2017
	Carrying Amount			Fair Value			Level 1		Level 2			Level 3
	(In thousands)
Recurring
Forward contracts	$	2,236		$	2,236		$	-	$	2,236		$	-
Non-recurring
Debt		(540,499	)		(552,037	)		-		(505,310	)		(46,727	)
	December 31, 2016
	Carrying Amount			Fair Value			Level 1		Level 2			Level 3
	(In thousands)
Recurring
Forward contracts	$	(6,734	)	$	(6,734	)	$	-	$	(6,734	)	$	-
Non-recurring
Debt		(752,520	)		(777,072	)		-		(728,072	)		(49,000	)

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The carrying value of all non-derivative financial instruments included in current assets (including cash, cash equivalents and restricted cash and accounts receivable) and current liabilities (including accounts payable but excluding short-term debt) approximates the applicable fair value due to the short maturity of those instruments.

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

Short-term and long-term debt—The fair value of debt instruments valued using a market approach based on quoted prices for similar instruments traded in active markets is classified as Level 2 within the fair value hierarchy.

Quoted prices were not available for the NO 105 financing, vendor equipment financing or capital leases. The income approach was 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 and are classified as Level 3 within the fair value hierarchy.

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.

Fair Value Disclosure of Non-financial Assets

During the first quarter of 2016, we impaired our Agile vessel upon termination of its then-current charter in May 2016, given the lack of opportunities for that vessel. In connection with that decision, we recognized a non-cash impairment charge of $32 million during the first quarter of 2016, which equaled the vessel’s carrying value, in accordance with ASC 360-10, Property, Plant and Equipment.

These are reported as a component of Other operating (income) expenses, net in our Consolidated Statements of Operations. Previously, Impairment loss was presented separately in our Consolidated Statements of Operations.

NOTE 13—STOCKHOLDERS’ EQUITY

The changes in the number of shares outstanding and treasury shares held by the Company are as follows:

	Six Months Ended June 30,
	2017			2016
Shares outstanding
Beginning balance		241,388,277			239,016,924
Common stock issued		43,584,281			2,206,027
Purchase of common stock		(997,160	)		(651,291	)
Ending balance		283,975,398			240,571,660
Shares held as Treasury shares
Beginning balance		8,302,004			7,824,204
Purchase of common stock		997,160			651,291
Retirement of common stock		(805,146	)		(400,701	)
Ending balance		8,494,018			8,074,794
Ordinary shares issued at the end of the period		292,469,416			248,646,454

During the second quarter of 2017, we delivered 40.8 million shares of our common stock to holders of the prepaid common stock purchase contracts comprising part of the TEUs, based on the settlement rate of 3.5496 shares per unit. For further discussion see Note 9, Debt.

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Accumulated Other Comprehensive Income (Loss)

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

	June 30, 2017			December 31, 2016
	(In thousands)
Foreign currency translation adjustments ("CTA")	$	(42,074	)	$	(42,082	)
Net unrealized gain on investments		308			269
Net unrealized loss on derivative financial instruments		(14,425	)		(25,082	)
Accumulated other comprehensive loss	$	(56,191	)	$	(66,895	)

The following table presents the components of AOCI and the amounts that were reclassified during the periods indicated:

	Foreign currency translation adjustments			Unrealized holding gain (loss) on investments		Gain (loss) on derivative (1)				TOTAL
For the Three Months Ended June 30, 2017	(In thousands)
Balance at April 1, 2017	$	(41,843	)	$	288	$	(22,929	)		$	(64,484	)
Other comprehensive income (loss) before reclassification		(231	)		20		4,610				4,399
Acquisition of NCI		-			-		2,284				2,284
Amounts reclassified from AOCI		-			-		1,610		(2)		1,610
Net current period other comprehensive income		(231	)		20		8,504				8,293
Balance at June 30, 2017	$	(42,074	)	$	308	$	(14,425	)		$	(56,191	)
For the Six Months Ended June 30, 2017
Balance at January 1, 2017	$	(42,082	)	$	269	$	(25,082	)		$	(66,895	)
Other comprehensive income before reclassification		8			39		10,212				10,259
Acquisition of NCI		-			-		2,284				2,284
Amounts reclassified from AOCI		-			-		(1,839	)	(2)		(1,839	)
Net current period other comprehensive income		8			39		10,657				10,704
Balance at June 30, 2017	$	(42,074	)	$	308	$	(14,425	)		$	(56,191	)
For the Three Months Ended June 30, 2016											-
Balance at April 1, 2016	$	(33,268	)	$	252	$	(33,473	)		$	(66,489	)
Other comprehensive income (loss) before reclassification		(4,027	)		12		(10,304	)			(14,319	)
Amounts reclassified from AOCI		-			-		14,933		(2)		14,933
Net current period other comprehensive income		(4,027	)		12		4,629				614
Balance at June 30, 2016	$	(37,295	)	$	264	$	(28,844	)		$	(65,875	)
For the Six Months Ended June 30, 2016
Balance at January 1, 2016	$	(29,925	)	$	247	$	(64,277	)		$	(93,955	)
Other comprehensive income (loss) before reclassification		(7,370	)		17		10,230				2,877
Amounts reclassified from AOCI		-			-		25,203		(2)		25,203
Net current period other comprehensive income		(7,370	)		17		35,433				28,080
Balance at June 30, 2016	$	(37,295	)	$	264	$	(28,844	)		$	(65,875	)

⁽¹⁾ Refer to Note 11, Derivative Financial Instruments, for additional details.

⁽²⁾ Reclassified to Cost of operations and Other non-operating income (expense), net.

Noncontrolling Interest

North Ocean 105― In December 2010, J. Ray McDermott (Norway), AS (the “JRM”), one of our indirectly wholly owned subsidiaries, and Oceanteam entered into an Equity Owner’s Agreement (as amended to date, the “Equity Agreement”) to acquire a 75% interest in North Ocean 105 AS, the vessel-owning company. Under the Equity Agreement JRM was given an option to purchase Oceanteam ASA’s 25% ownership interest in the second quarter of 2017.

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In the second quarter of 2017, we exercised our option under the Equity Agreement and purchased Oceanteam’s 25% interest in the vessel-owning company for approximately $11 million in cash. As part of that transaction, we also assumed the right to a $5 million note payable from North Ocean 105 AS to Oceanteam (which had been issued in connection with a dividend declared by North Ocean 105 AS in 2016). In connection with this acquisition, we recorded a $9 million decrease in noncontrolling interest and a $5 million decrease in note payable to Oceanteam and we recognized a $2 million gain in Capital-in-excess of par value in our Consolidated Financial Statements. 

NOTE 14—EARNINGS PER SHARE

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
	(In thousands, except share and per share amounts)
Net income attributable to McDermott International, Inc.	$	36,413	$	20,657	$	58,329	$	18,485
Weighted average common stock (basic)		282,660,314		240,338,540		262,438,822		239,739,204
Effect of dilutive securities:
Tangible equity units1		898,820		40,896,300		19,347,386		40,896,300
Stock options, restricted stock and restricted stock units		1,423,136		3,674,574		2,336,352		2,496,734
Potential dilutive common stock		284,982,270		284,909,414		284,122,560		283,132,238
Net income per share attributable to McDermott International, Inc.
Basic:	$	0.13	$	0.09	$	0.22	$	0.08
Diluted:	$	0.13	$	0.07	$	0.21	$	0.07

¹ Represents weighted average TEUs outstanding for the three and six months periods ended June 30, 2017.

Approximately 1.7 million shares underlying outstanding stock-based awards for the three and six months ended June 30, 2017, respectively, and approximately 2 million shares underlying outstanding stock-based awards for the three and six months ended June 30, 2016, respectively, were excluded from the computation of diluted earnings per shares because inclusion of such shares would have been antidilutive in each of those periods. 

The common stock purchase contracts under the TEUs were settled in April 2017, see Note 9, Debt.

NOTE 15—COMMITMENTS AND CONTINGENCIES

Investigations and Litigation

We co-own interests in several entities (collectively, “FloaTEC”) with Keppel Corporation (including its subsidiaries, “Keppel”).  We have conducted an internal investigation in connection with allegations by a former Petrobras employee that Keppel’s agent made improper payments to secure project awards from Petrobras on a number of Keppel affiliated projects in Brazil, including a FloaTEC project on which we were also a subcontractor.  Keppel’s agent subsequently entered into a plea arrangement with the Brazilian authorities and admitted to having made improper payments on behalf of Keppel to former Petrobras employees on projects unrelated to FloaTEC.  We voluntarily contacted the U.S. Department of Justice (“DOJ”) to advise it of the preliminary results of our internal investigation, which identified no evidence to indicate any improper payments were made by us or FloaTEC or that any of our or FloaTEC’s employees authorized, had knowledge of, or direction or control over, any such payments.  We have responded to the DOJ’s requests for additional information.   If in the future, the DOJ determines that violations of applicable law have occurred involving us, we could be subject to civil or criminal sanctions, including monetary penalties, which could be material.   However, based on the preliminary results of our investigation, we do not expect this matter to have a material adverse effect on us or our operations. 

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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 other dispute resolution proceedings 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 waste 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.

In 2013, we established a $6 million environmental reserve in connection with our plan to discontinue the utilization of our Morgan City fabrication facility. We incurred approximately $4 million for remediation activities. Based on our completed remediation activities, as well as our internal assessment, we believe no environmental remediation liability exists with respect to the Morgan City site. As a result, in 2016, we reversed our remaining environmental remediation obligation accrual.  

Asset Retirement Obligations

Asset retirement obligations (“ARO”) are recorded at the present value of the estimated costs to retire the asset at the time the obligation is incurred.

At some sites, we are contractually obligated to decommission our fabrication facilities upon site exit. Currently, we are unable to estimate any ARO due to the indeterminate life of our fabrication facilities.  We regularly review the optimal future alternatives for our facilities. Any decision to retire one or more facilities will result in recording the present value of such obligations. As of June 30, 2017, no ARO is recorded.

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 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 June 30, 2017, we had approximately $20 million of potential liquidated damages exposure, however no liability is recorded in our Consolidated Financial Statements. We believe we will be successful in obtaining schedule extensions or other customer-agreed changes that should resolve the potential for these liquidated damages. However, we may not achieve relief on some or all of the issues involved and, as a result, could be subject to future liquidated damages.

NOTE 16—SEGMENT REPORTING

We disclose the results of each of our reportable segments in accordance with ASC 280, Segment Reporting. Each of the reportable segments is separately managed by a senior executive who is a member of our Executive Committee (“EXCOM”).  EXCOM is led by our Chief Executive Officer, who is the chief operating decision maker. Discrete financial information is available for each of the segments, and the EXCOM uses the operating results of each of the reportable segments for performance evaluation and resource allocation.

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We manage reportable segments along geographic lines consisting of (1) AEA, (2) MEA and (3) ASA. We also report certain corporate and other non-operating activities under the heading “Corporate and Other.”

Corporate and Other primarily reflects corporate expenses, certain centrally managed initiatives (such as restructuring charges), impairments, year-end mark-to-market (“MTM”) pension actuarial gains and losses, costs not attributable to a particular reportable segment and unallocated direct operating expenses associated with the underutilization of vessels, fabrication facilities and engineering resources.

We account for intersegment sales at prices that we generally establish by reference to similar transactions with unaffiliated customers. Reporting segments are measured based on operating income, which is defined as revenues reduced by total costs and expenses.

Summarized financial information is shown in the following tables:

	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
	(In thousands)
Revenues (1):
AEA	$	41,564		$	86,810		$	69,695		$	149,435
MEA		556,612			317,834			866,664			588,089
ASA		190,497			301,983			371,745			698,135
Total revenues:	$	788,673		$	706,627		$	1,308,104		$	1,435,659
Income before provision for income taxes:
Operating income (loss):
AEA	$	(11,302	)	$	13,861		$	(11,119	)	$	29,960
MEA		117,480			53,297			181,857			99,336
ASA		32,894			36,045			62,669			81,701
Segment operating income (loss)		139,072			103,203			233,407			210,997
Corporate and Other(2)		(51,873	)		(46,215	)		(90,223	)		(118,016	)
Total operating income		87,199			56,988			143,184			92,981
Interest expense, net		(21,204	)		(12,655	)		(38,910	)		(23,893	)
Other non-operating income (expense), net		(2,491	)		(2,851	)		(1,877	)		(6,242	)
Income before provision for income taxes	$	63,504		$	41,482		$	102,397		$	62,846
Capital expenditures:
AEA	$	10,074		$	941		$	15,325		$	3,526
MEA		4,779			2,469			10,631			4,703
ASA		2,224			134,567			5,736			161,575
Corporate and Other(3)		996			797			49,230			870
Total capital expenditures:	$	18,073		$	138,774		$	80,922		$	170,674
Depreciation and amortization:
AEA	$	7,395		$	9,406		$	11,408		$	19,725
MEA		13,762			6,562			21,665			11,908
ASA		5,372			6,289			12,947			12,907
Corporate and Other		1,775			2,130			3,665			4,389
Total depreciation and amortization:	$	28,304		$	24,387		$	49,685		$	48,929

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

⁽²⁾ Corporate and Other operating results for the first half of 2017 and 2016 include a $3 million gain on sale of assets and $32 million impairment charge related to our Agile vessel, respectively.

⁽³⁾ Corporate and Other capital expenditures in the first half of 2017 include the purchase of the Amazon, a pipelay and construction vessel. Following the purchase we sold this vessel to an unrelated third partyand simultaneously entered into an 11-year bareboat charter agreement, see Note 8, Sale Leaseback.

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	June 30, 2017		December 31, 2016
	(In thousands)
Segment assets(1):
AEA	$	626,524	$	727,328
MEA		1,530,971		907,936
ASA		750,650		976,470
Corporate and Other		383,303		610,496
Total assets	$	3,291,448	$	3,222,230

⁽¹⁾ Our marine vessels are included in the area in which they were located as of reporting date.

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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 Consolidated Financial Statements and the Notes thereto included in Item 1 of this report 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 Current Report on Form 8-K filed with the SEC on April 25, 2017 (the “April 25 Form 8-K”).

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.

In addition, various statements in this report, including those that express a belief, expectation or intention, as well as those that are not statements of historical fact, are forward-looking statements. Those forward-looking statements appear in the Notes to our Consolidated Financial Statements in Item 1 and in Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 2 of Part I of this report, and in Legal Proceedings in Item 1 of Part II of this report and elsewhere in this report.

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, cash flows, net income or earnings per share;

• the 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, and the ability of projects to generate sufficient revenues to cover our fixed costs;

• 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 offshore development of oil and gas;

• market outlook for the engineering, procurement, construction and installation (“EPCI”) market;

• expectations regarding cash flows from operating activities;

• 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;

• our 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 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 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;

• volatility of oil and gas prices;

• 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 construct new-build vessels and maintain and/or upgrade our existing 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 agreement, indentures and other debt instruments and availability, terms and deployment of capital;

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

• the continued availability of qualified personnel;

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

• 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;

• adverse outcomes from legal and regulatory proceedings;

• impact of potential 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;

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

• the risks associated with integrating acquired businesses and forming and operating joint ventures;

• the risk we may not be successful in updating and replacing current information technology and the risks associated with information technology systems interruptions and cybersecurity threats;

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

• the risks associated with our international operations, including local content or similar 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 2016 Annual Report on Form 10-K filed with the SEC on February 21, 2017. These factors are not necessarily all the factors that could affect us. Unpredictable or unanticipated factors we have not discussed in this report and in our 2016 Annual 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.

Business Segments and Results of Operations

Business Segments

We manage reportable segments along geographic lines consisting of (1) Americas, Europe and Africa (“AEA”), (2) the Middle East (“MEA”) and (3) Asia (“ASA”). We also report certain corporate and other non-operating activities under the heading “Corporate and Other.”

Segment operations

We use Operating income (loss) as our measure of profitability for segment reporting purposes. For additional financial information related to our reporting segments, as well as a reconciliation of segment operating income to income before provision for income taxes, as defined by generally accepted accounting principles (“GAAP”), see Note 16, Segment Reporting, to the accompanying Consolidated Financial Statements.

Our segment operating results are 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. 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.

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Three months ended June 30, 2017 vs three months ended June 30, 2016

Revenues

	Three Months ended June 30,
	2017		2016		Change
	(In thousands)							Percentage
Revenues:
AEA	$	41,564	$	86,810	$	(45,246	)		(52	)	%
MEA		556,612		317,834		238,778			75
ASA		190,497		301,983		(111,486	)		(37	)
Total revenues	$	788,673	$	706,627	$	82,046			12		%

Revenues increased by 12%, or $82 million, in the second quarter of 2017 compared to the second quarter of 2016.

AEA—Revenues decreased by 52%, or $45 million, primarily due to a reduction in active projects in the second quarter of 2017 compared to the second quarter of 2016.

In the second quarter of 2017, a variety of projects and activities contributed to revenues, as follows:

• fabrication activity progress on the Abkatun-A2 platform, a turnkey EPCI project in the Gulf of Mexico, which was awarded in the second quarter of 2016; and

• commencement of fabrication activity on BP Angelin, an EPCI gas field project off the east coast of Trinidad and Tobago, awarded in June 2017.

In the second quarter of 2016, a variety of projects and activities contributed to revenues, as follows:

• fabrication, spooling and installation of jumpers and control umbilicals at the Jack St. Malo project in the Gulf of Mexico, which was completed in the second quarter of 2016;

• transportation, installation and marine campaigns undertaken by our DB 50 and NO 105 vessels on the EOG Sercan project in Trinidad, which was completed in the fourth quarter of 2016;

• the Agile charter marine campaign, which was terminated in the second quarter of 2016; and

• fabrication activity on the Ayatsil-C jacket replacement and deck installation project at our Altamira facility.

MEA—Revenues increased by 75%, or $239 million, in the second quarter of 2017 compared to the second quarter of 2016.

In the second quarter of 2017, a variety of projects and activities contributed to revenues, as follows:

• higher engineering, fabrication and marine activities on the lump-sum EPCI project under the second Saudi Aramco Long-Term Agreement (“LTA II”);

• increased fabrication and marine activities undertaken on the Saudi Aramco Marjan power system replacement project;

• near completion of fabrication activities and the commencement of installation activities on the Saudi Aramco nine jackets project;

• completion of valve skid installation and significant marine activities on a pipeline, spool and risers for a flow assurance project in the Middle East;

• near completion of fabrication activities and commencement of jackets installation activities on two Saudi Aramco EPCI projects;

• increased marine activities to complete the Saudi Aramco Safaniya pipeline project;

• increased pipelay associated hookup activities on the KJO Hout project in the Divided Zone; and

• commencement of a Saudi Aramco four jackets and three observation platform project, which was awarded in the fourth quarter of 2016.

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In the second quarter of 2016, a variety of projects and activities with Saudi Aramco contributed to revenues, as follows:

• fabrication and marine activities on the Marjan power system replacement project;

• fabrication and installation progress on a 12 jackets supply project, completed in the fourth quarter of 2016; and

• engineering activities on a lump-sum EPCI project under the LTA II.

The commencement in 2016 of a large pipeline-related project in the Middle East and offshore marine hookup campaign progress on a wellhead jacket and umbilical project in the Middle East also contributed to the 2016 second quarter revenue.

ASA—Revenues decreased by 37%, or $111 million, in the second quarter of 2017 compared to the second quarter of 2016, primarily due to the following:

• reduced activity on the Ichthys EPCI project in Australia, as the project progresses through the installation phase;

• completion of activities on the Yamal project in the beginning of the second quarter of 2017; and

• completion of activities on the Bergading project during the second quarter of 2016.

Those decreases were partially offset by the following projects and activities:

• major marine installation activities undertaken on the Vashishta subsea field infrastructure development EPCI project in India; and

• commencement and substantial completion of the 2017 Brunei Shell Petroleum (“BSP”) marine campaign for transportation and installation of pipelines under a multi-year offshore installation project.

Segment Operating Income

	Three Months ended June 30,
	2017			2016		Change
	(In thousands)								Percentage
Segment operating income (loss):
AEA	$	(11,302	)	$	13,861	$	(25,163	)		(182	)	%
MEA		117,480			53,297		64,183			120
ASA		32,894			36,045		(3,151	)		(9	)
Total	$	139,072		$	103,203	$	35,869			35		%

Segment operating income increased by $36 million in the second quarter of 2017 compared to the second quarter of 2016.

AEA—Segment operating results decreased by $25 million in the second quarter of 2017 compared to the second quarter of 2016.

The decrease was primarily due to a reduction in the number of active projects, as both Jack St. Malo and PB Litoral were completed in 2016.

Those decreases were partially offset by:

• fabrication activity progress on the Abkatun-A2 platform; and

• fabrication activity commencement on the BP Angelin EPCI gas field project.

MEA—Segment operating income was $117 million and $53 million in the second quarter of 2017 and 2016, respectively.

In the second quarter of 2017, a variety of projects and activities contributed to the operating income as follows:

• higher engineering, fabrication and marine activities on the lump-sum EPCI project under the LTA II;

• increased fabrication and marine activities undertaken on the Saudi Aramco Marjan power systems replacement project;

• completion of valve skid installation and significant marine campaign transpooling, umbilical installation and hook-up activities on pipeline, spool and risers for the flow assurance project in the Middle East; and

• multiple Saudi Aramco projects, none which were individually material.

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In the second quarter of 2016, a variety of projects and activities with Saudi Aramco contributed to operating income, as follows:

• jacket fabrication and installation activity on the project to supply 12 jackets;

• increased engineering and marine activities on the Marjan power systems replacement project;

• engineering activity on the LTA II project; and

• productivity improvements and associated cost savings related to the DB 27 and  Intermac 406 vessels.

The commencement in 2016 of: (1) a large pipeline-related project in the Middle East; and (2) progress on offshore marine hookup campaign for a wellhead jacket and umbilical project in the Middle East also contributed to our MEA segment operating income.

ASA— Segment operating income was $33 million and $36 million in the second quarter of 2017 and 2016, respectively.

The decrease in segment operating income was primarily due to reduced activity on our Ichthys project in Australia as the project progressed through the marine installation phase and provided lower operating income.

The decrease in operating income was partially offset by the 2017 BSP campaign for transportation and installation of pipelines under the multi-year offshore installation contract.

During the quarter ended June 30, 2017, the Vashishta project did not significantly contribute to our operating margin. The estimated revenue at completion of the project includes change orders which we believe will be resolved favorably.  As of June 30, 2017, we expect the project to remain in an overall profitable position.

Other items in Operating Income

Corporate and Other

	Three Months ended June 30,
	2017			2016			Change
	(In thousands)									Percentage
Corporate and Other	$	(51,873	)	$	(46,215	)	$	(5,658	)		(12	)	%

Corporate and Other expenseswere $52 million and $46 million in the second quarter of 2017 and 2016, respectively. The increase in Corporate and Other expenses was primarily due to lower cost recovery associated with certain vessels due to a reduction in active projects in our AEA and ASA segments compared to the 2016 period.

Corporate and Other expensesin the second quarter of 2016 included a $2 million restructuring charge, as discussed in Note 4, Restructuring, to the accompanying Consolidated Financial Statements, not repeated in 2017. The associated restructuring programs were substantially complete in 2016.

Other Non-operating Items

Interest expense, net—Interest expense, net was $21 million and $13 million in the second quarter of 2017 and 2016, respectively.  Increase in interest expense was primarily due to:

• expensing of the remaining $4 million unamortized debt issuance costs associated with the repayment of the outstanding term loan under our Prior Credit Agreement (as defined below); and

• lower interest capitalization in the second quarter of 2017 compared to the first quarter of 2016. The DLV 2000 vessel, which was previously under construction, was deployed to our fleet in the second quarter of 2016.

Provision for income taxes—For the three months ended June 30, 2017, the Company recognized income before provision for income taxes of $64 million, compared to $41 million in the three months ended June 30, 2016.  The provision for income taxes was $23 million for the three months ended June 30, 2017 and $20 million for the three months ended June 30, 2016.  The effective tax rate for the three months ended June 30, 2017 was 36%, as compared to 49% for the three months ended June 30, 2016.  The rate decrease was primarily driven by increased mix of income in favorable tax jurisdictions, which was partially offset by losses in certain jurisdictions where we did not recognize a tax benefit.

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Six months ended June 30, 2017 vs six months ended June 30, 2016

Revenues

	Six Months ended June 30,
	2017		2016		Change
	(In thousands)							Percentage
Revenues:
AEA	$	69,695	$	149,435	$	(79,740	)		(53	)	%
MEA		866,664		588,089		278,575			47
ASA		371,745		698,135		(326,390	)		(47	)
Total revenues	$	1,308,104	$	1,435,659	$	(127,555	)		(9	)	%

Revenues decreased by 9%, or $128 million, in the six months ended June 30, 2017 compared to the six months ended June 30, 2017.

AEA—Revenues decreased by 53%, or $80 million, primarily due to a reduction in active projects in the 2017 period compared to the 2016 period.

In the first half of 2017, a variety of projects and activities contributed to revenues, as follows:

• fabrication activity progress on the Abkatun-A2 platform, which was awarded in the second quarter of 2016; and

• commencement of fabrication activity on the BP Angelin, EPCI gas field project, awarded in the second quarter of 2017.

In the first half of 2016, a variety of projects, which were complete or substantially complete in 2016, contributed to revenues, including the Jack St. Malo, PB Litoral, EOG Sercan, LLOG Otis Subsea-Tieback and Exxon Julia Subsea-Tieback projects.

Progress on jacket fabrication activity for the Ayatsil-C jacket replacement and deck installation project at our Altamira facility also contributed to 2016 period revenue.

MEA—Revenues increased by 47%, or $279 million, in the six months ended June 30, 2017 compared to the six months ended June 30, 2016.

In the first half of 2017, a variety of projects and activities contributed to revenues, as follows:

• higher fabrication and marine activities on the lump-sum EPCI project under the LTA II;

• increased fabrication and marine activities undertaken on the Marjan power system replacement project;

• near completion of fabrication activities and the commencement of the installation activities on the Saudi Aramco nine jackets project;

• completion of valve skid installation and significant marine campaign transpooling, umbilical installation and hook-up activities on pipeline, spool and risers for the flow assurance project in the Middle East;

• pipelay installation and hookup activities executed by our DB 27 vessel on the KJO Hout project in the Divided Zone;

• near completion of fabrication activities and commencement of jacket installation activities on two Saudi Aramco EPCI projects;

• marine hookup activities carried out during the shutdown of the TP-1 platform on the Saudi Aramco Karan-45 project; and

• completion of the next phase of a large pipeline repair-related project in the Middle East.

In the first half of 2016, a variety of projects and activities contributed to revenues, as follows:

• fabrication and installation progress on the 12 jackets supply project;

• fabrication and marine activities on the Marjan power system replacement project;

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• engineering activities on the lump-sum EPCI project under the LTA II, all with Saudi Aramco; and

• engineering and fabrication activity on the KJO Hout, a project in the Divided Zone;

Commencement in 2016 of the following projects also contributed to revenue in the first half of 2016:

• a large pipeline-related project in the Middle East, which commenced and was completed in 2016;

• offshore marine hookup campaign progress on a wellhead jacket and umbilical project in the Middle East;  and

• the pipeline, spool and risers flow assurance project in the Middle East awarded in the third quarter of 2015.

ASA—Revenues decreased 47%, or $326 million, primarily due to:

• reduced activity on our Ichthys EPCI project in Australia, as the project progresses through the installation phase;

• completion of activities on the Yamal project in the beginning of the second quarter of 2017; and

• completion of the Bergading offshore installation project in Malaysia in the second quarter of 2016.

This decrease was partially offset by the following projects and activities:

• progress on marine installation activities on the Vashishta subsea field infrastructure development EPCI project in India; and

• commencement and substantial completion of the 2017 campaign for transportation and installation of pipelines under the multi-year offshore installation contract with BSP.

Segment Operating Income

	Six Months ended June 30,
	2017			2016		Change
	(In thousands)								Percentage
Segment operating income (loss):
AEA	$	(11,119	)	$	29,960	$	(41,079	)		(137	)	%
MEA		181,857			99,336		82,521			83
ASA		62,669			81,701		(19,032	)		(23	)
Total	$	233,407		$	210,997	$	22,410			11		%

Segment operating income increased by $22 million in the first half of 2017 compared to the first half of 2016.

AEA—Segment operating income decreased by $41 million in the first half of 2017 compared to the first half of 2016.

The decrease in operating income was primarily due to a reduction in the number of active projects including the PB Litoral, the Jack St. Malo and Exxon Julia Subsea Tieback projects, both of which were completed in 2016.

Those decreases were partially offset by:

• fabrication activity progress on the Abkatun-A2 platform;

• commencement of fabrication activity on the BP Angelin EPCI gas field project; and

• close-out improvements and recognition of approved change orders on certain completed projects.

MEA—Segment operating income was $182 million and $99 million in the first half of 2017 and 2016, respectively.

In the first half of 2017, a variety of projects and activities contributed to operating income, as follows:

• higher engineering, fabrication and marine activities on the lump-sum EPCI project, under the LTA II;

• increased fabrication and marine activities undertaken on the Marjan power systems replacement project; and

• completion of valve skid installation and significant marine campaign transpooling, umbilical installation and hook-up activities on a pipeline, spool and risers for a flow assurance project in the Middle East;

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• multiple Saudi Aramco projects, none which were individually material;

• marine hookup activities carried out during the shutdown of the TP-1 platform on our Saudi Aramco Karan-45 project; and

• completion of the next phase of a large pipeline repair-related project in the Middle East.

In the first half of 2016, a variety of projects and activities contributed to operating income, as follows:

• jacket fabrication and installation activity on a project to supply 12 jackets;

• increased engineering and marine activities on the Marjan power systems replacement project;

• productivity improvements and associated cost savings related to the DB 27 and  Intermac 406 vessels;

• engineering activity on the LTA II lump sum EPCI project;

• a large pipeline-related project in the Middle East, which was commenced and was completed in 2016; and

• offshore marine hookup campaign progress on a wellhead jacket and umbilical project in the Middle East, which was completed in the second half of 2016.

ASA— Segment operating income was $63 million and $82 million in the second half of 2017 and 2016, respectively.

The decrease was primarily due to reduced activity on our Ichthys project in Australia as the project progressed through the marine installation phase and provided lower operating income.

This decrease in operating income was partially offset by the:

• 2017 marine campaign for transportation and installation of pipelines under the multi-year offshore installation contract with BSP; and

• close-out improvements from our completed projects.

During the six months ended June 30, 2017, the Vashishta project did not significantly contribute to operating margin. The estimated revenue at completion of the project includes change orders which we believe will be resolved favorably.  As of June 30, 2017, we expect the project to remain in an overall profitable position.

The first half of 2016 operating income was attributable to:

• improved productivity and project execution cost savings;

• recognition of approved change orders on active projects; and

• close out improvements from our 2015 pipeline-replacement campaign with BSP.

Other items in Operating Income

Corporate and Other

	Six Months ended June 30,
	2017			2016			Change
	(In thousands)								Percentage
Corporate and Other	$	(90,223	)	$	(118,016	)	$	27,793		24	%

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Corporate and Other expenseswere $90 million and $118 million in the first half of 2017 and 2016, respectively. The decrease in Corporate and Other expenses was primarily due to:

• a $32 million non-cash impairment charge related to our marine assets recorded in the first half of 2016, as discussed in Note 12, Fair Value Measurement, to the accompanying Consolidated Financial Statements, not repeated in 2017;

• $9 million of restructuring expense recorded in the first half of 2016, as discussed in Note 4, Restructuring, to the accompanying Consolidated Financial Statements (the associated restructuring programs were substantially complete in 2016); and

• a $3 million gain recognized on the asset sale in the first quarter of 2017.

Those decreases were partially offset by lower cost recovery associated with certain vessels due to a reduction in active projects in our AEA and ASA segments during 2017.

Other Non-operating Items

Interest expense, net—Interest expense, net was $39 million and $24 million in the second half of 2017 and 2016, respectively.  Increase in interest expense was primarily due to:

• expensing of the remaining $4 million unamortized debt issuance costs associated with the repayment of the term loan under our Prior Credit Agreement (as defined below); and

• lower interest capitalization in the first half of 2017 compared to the first half of 2016. The DLV 2000 vessel, which was previously under construction, was deployed to our fleet in the second quarter of 2016.

Provision for income taxes— For the six months ended June 30, 2017, we recognized income before provision for income taxes of $102 million, compared to $63 million in the six months ended June 30, 2016.  The provision for income taxes was $34 million and $39 million for the six months ended June 30, 2017 and June 30, 2016, respectively.  The effective tax rate for the six months ended June 30, 2017 was 33%, as compared to 62% for the six months ended June 30, 2016.  The rate decrease was primarily driven by increased mix of income in the favorable tax jurisdictions, which was partially offset by losses in certain jurisdictions where we did not recognize a tax benefit and the recognition of a $3 million tax benefit related to an uncertain tax position taken in prior periods associated with our activity in the Middle East.

Backlog

The following table summarizes changes to our backlog (in thousands):

Backlog at January 1, 2017	$	4,321,851
Bookings from new awards		120,940
Additions and reductions on existing contracts		162,904
Less: Amounts recognized in revenues		1,308,104
Backlog at June 30, 2017(1)	$	3,297,591

⁽¹⁾ At June 30, 2017, approximately 67% of this backlog revenue was attributable to Saudi Aramco.

Our backlog by segment was as follows:

	June 30, 2017
	(in approximate millions)
AEA	$	589	18	%
MEA		2,295	70	%
ASA		414	12	%
Total Backlog	$	3,298	100	%

Of the June 30, 2017 backlog, we expect to recognize revenues as follows:

	2017		2018		Thereafter
	(in approximate millions)
Total backlog	$	1,736	$	1,552	$	10

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For the full year of 2017, we expect to recognize approximately $3 billion of revenue from the backlog existing at December 31, 2016.

Liquidity and Capital Resources

General—Our primary ongoing sources of liquidity are cash flows generated from operations and cash and cash equivalents on hand.  We regularly review our sources and uses of funds and may access capital markets to increase our liquidity position or to refinance our existing debt.  We plan to fund our ongoing working capital, capital expenditures, debt service and other funding requirements with cash on hand, cash from operating activities, proceeds from the issuance of debt, or a combination thereof.

We believe our anticipated future operating cash flow, capacity under our credit facilities and uncommitted bilateral lines of credit, along with access to surety bonds, will be sufficient to finance our capital expenditures, settle our commitments and contingencies and address our normal, anticipated working capital needs for the foreseeable future.

Credit Agreements

Amended and Restated Credit Agreement—In June 2017, we repaid all outstanding term loans under our credit agreement dated April 16, 2014 (the “Prior Credit Agreement”), and we amended and restated the Prior Credit Agreement by entering into an Amended and Restated Credit Agreement (“Credit Agreement”) with a syndicate of lenders and letter of credit issuers, and Crédit Agricole Corporate and Investment Bank, as administrative agent and collateral agent. All letters of credit outstanding under the Prior Credit Agreement were deemed issued under the Credit Agreement.

The Credit Agreement includes $810 million of commitments from the lenders, the full amount of which is available for the issuance of letters of credit, and $300 million of which is available for revolving loans. The senior secured credit facility established by the Credit Agreement is scheduled to mature in June 2022, unless we do not repay in full by December 1, 2020 our $500 million second-lien notes that are due in April 2021, in which case the Credit Agreement will mature on December 1, 2020. As of June 30, 2017, the aggregate amount of letters of credit issued under the Credit Agreement was $333 million, there were no revolving loans under the Credit Agreement, and we had $477 million of available commitments under the Credit Agreement.

As of June 30, 2017, we were in compliance with the financial and other covenants under the Credit Agreement, including those as shown below:

Ratios	Requirement	Actual
Minimum fixed charge coverage ratio	1.15x	2.19x
Maximum total leverage ratio	3.50x	1.65x
Minimum collateral coverage ratio	1.20x	1.95x

North Ocean Financing―In the second quarter of 2017, we exercised our option under the North Ocean 105 AS joint venture agreement and purchased the 25% ownership interest of Oceanteam ASA (“Oceanteam”) in the vessel-owning company for approximately $11 million in cash. As part of that transaction, we also assumed the right to a $5 million note payable from North Ocean 105 AS to Oceanteam (which had been issued in connection with a dividend declared by North Ocean 105 AS in 2016). For further discussion, see Note 13, Stockholders’ Equity. The Credit Agreement eliminated the Prior Credit Agreement’s requirement for us to prepay by July 20, 2017 the North Ocean 105 borrowing and to mortgage the NO 105 vessel in favor of the lenders.

Receivables Factoring Facility—In February 2017, J. Ray McDermott de Mexico, S.A. de C.V. (“JRM Mexico”), one of our indirect, wholly owned subsidiaries, entered into a 364-day, $50 million committed revolving receivables purchase agreement which provides for the sale, at a discount rate of LIBOR plus an applicable margin of 4.25%, of certain receivables to a designated purchaser without recourse.  During the first half of 2017, we sold approximately $2 million of receivables.

Vendor Equipment Financing—In February 2017, JRM Mexico entered into a 21-month loan agreement for equipment financing in the amount of $47 million. Borrowings under the loan agreement bear interest at a fixed rate of 5.75%. JRM Mexico’s obligations in connection with this equipment financing are guaranteed by McDermott International Management, S. de RL., one of our 100% owned subsidiaries. At June 30, 2017, the total borrowings outstanding under this facility were approximately $16 million.

Tangible Equity Units (“TEUs”)—During April 2017, in connection with the mandatory settlement of the purchase contracts underlying our previously outstanding TEUs, we delivered 40.8 million shares of our common stock to holders of the TEU prepaid common stock purchase contracts, based on the settlement rate of 3.5496 shares per unit.

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Those TEUs were accounted for as capital in excess of par value totaling $240 million in our Consolidated Balance Sheets.

For additional information regarding our outstanding indebtness, see Note 9, Debt, to the accompanying Consolidated Financial Statements.

Cash, Cash Equivalents and Restricted Cash

As of June 30, 2017, we had $409 million of cash, cash equivalents and restricted cash compared to $612 million as of December 31, 2016. At June 30, 2017, we had $88 million of cash in jurisdictions outside the U.S., principally in Malaysia, Indonesia, the United Arab Emirates and Mauritius. Approximately 14% of our outstanding cash balance is held in countries that have established government imposed currency restrictions that could impede the ability of our subsidiaries to transfer funds to us.  

At June 30, 2017, we had restricted cash and cash equivalents totaling $15 million compared to $16 million as of December 31, 2016, collateralized to support letters of credits. During the first six months of 2017, the maximum amount of cash collateral used to support letters of credit was $166 million.

Cash Flow Activities

Operating activities―Our net cash provided by operating activities was $90 million in the six months ended June 30, 2017, as compared to $76 million provided in the six months ended June 30, 2016.

The cash provided by operating activities primarily reflected our net income (loss), adjusted for non-cash items and changes in components of our working capital—accounts receivable, contracts in progress net of advance billings on contracts, and accounts payable. Fluctuations in working capital are normal in our business. Working capital is impacted by the size of our projects and the achievement of billing milestones on backlog as we complete certain phases of the project.

In the six months ended June 30, 2017, net cash used by working capital was $113 million.

The components of working capital that used or provided cash were:

• Contracts in progress, net of Advance billings on contracts increased by $411 million primarily due to progress on:

o the Abkatun A-2 project in our AEA segment.

o Saudi Aramco projects including the LTA II lump sum EPCI project, the Header 9 Facilities and the Marjan power system replacement projects, in our MEA segment; and

o the Ichthys and Vashishta projects in our ASA segment.

Those increases were partially offset by:

• Accounts receivables—collections across all segments reduced our accounts receivable by $37 million; and

• Accounts payable—an increase of $260 million was driven by project progress across all segments.

Investing activities―Our net cash used in investing activities was $27 million in the six months ended June 30, 2017, compared to net cash used in investing activities of $174 million in the six months ended June 30, 2016. The cash uses in both periods primarily related to capital expenditures. Net cash used in investing activities in the first half of 2017 also included the sale lease back of the Amazon vessel discussed below.

Financing activities―Our net cash used in financing activities was $267 million in the six months ended June 30, 2017, as compared to net cash used in financing activities of $99 million in the six months ended June 30, 2016. Net cash used in the 2017 and 2016 periods was primarily attributable to:

• $218 million and $77 million of repayments of the term loan during the six months ended June 30, 2017 and 2016, respectively;

• $13 million and $12 million of repayments of other debts during the six months ended June 30, 2017 and 2016, respectively;

• $19 million of debt issuance costs associated with the Credit Agreement, discussed in Note 9, Debt, to the accompanying Consolidated Financial Statements in June 2017; and, in the first half of 2016, $8 million of debt issuance costs associated with amendments to the Prior Credit Agreement;

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• $11 million for the acquisition of the North Ocean AS 105 noncontrolling interest; and

• repurchases of common stock tendered by participants in our long-term incentive plans for payment of applicable withholding taxes upon vesting of awards under those plans.

Capital Expenditures

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

Capital expenditures for the six months ended June 30, 2017 were $81 million, as compared to $171 million for the six months ended June 30, 2016. Capital expenditures for the six months ended June 30, 2017 were primarily attributable to the purchase of the pipelay and construction vessel, the Amazon. Following the purchase, we sold the Amazon to an unrelated third party and simultaneously entered into an 11-year bareboat charter agreement with the purchaser. For additional information, see Note 8, Sale Leaseback, to the accompanying Consolidated Financial Statements.

Capital expenditures for the six months ended June 30, 2016 were primarily attributable to the construction of the DLV 2000 and were incurred as a result of the construction work reaching established milestones, including completion in the second quarter of 2016.

Critical Accounting Policies and Estimates

For a discussion of the impact of critical accounting policies and estimates on our Consolidated Financial Statements, refer to Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Current Report on Form 8-K filed with the SEC on April 25, 2017.

See Note 1, Basis of Presentation and Significant Accounting Policies, to the accompanying unaudited Consolidated Financial Statements for a discussion of the potential impact of new accounting standards on our unaudited Consolidated Financial Statements.

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 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.

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.

As of June 30, 2017, we had no material future earnings or cash flow exposures from changes in interest rates on our outstanding debt obligations, as substantially all of those 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.

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Interest Rate Sensitivity

The following table provides information about our financial instruments that are sensitive to changes in interest rates. The table below presents principal cash flows and related weighted-average interest rates by expected maturity dates as of June 30, 2017 (in thousands):

	Years Ending December 31,
	2017			2018			2019			2020			2021			Total		Fair Value at June 30, 2017
Long-term Debt — fixed rate	$	4,291		$	24,292		$	9,516		$	8,170		$	500,000		$	546,269	$	552,037
Average Interest Rate		7.68	%		7.76	%		7.87	%		7.96	%		8.00	%

Currency Exchange Rate Sensitivity

The following table provides information about our foreign currency forward contracts outstanding at June 30, 2017 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 Foreign Currencies in U.S. Dollars (in thousands):

Foreign Currency	Contract Notional Value at June 30, 2017		Contract Fair Value at June 30, 2017			Average Contractual Exchange Rate
Maturing in the Year Ending December 31, 2017
Australian Dollar		71,101		(720	)		0.7767
Danish Krone		8,635		28			6.5034
Euros		85,779		1,845			1.1216
Indian Rupee		8,138		659			70.5519
Norwegian Kroner		15,752		75			8.4030
Pound Sterling		12,709		86			1.2944
Singapore Dollar		488		2			1.3810
Swiss Frank		2,757		1			0.9574
Maturing in the Year Ending December 31, 2018
Australian Dollar		25,685		(3	)		0.7648
Euros		4,192		197			1.1045
Pound Sterling		3,440		61			1.2884
Singapore Dollar		847		7			1.3824
Maturing in the Year Ending December 31, 2019
Australian Dollar		3,105		(9	)		0.7641

Forward Contracts to Sell Foreign Currencies for U.S. Dollars (in thousands):

Foreign Currency	Contract Notional Value at June 30, 2017		Contract Fair Value at June 30, 2017			Average Contractual Exchange Rate
Maturing in the Year Ending December 31, 2017
Australian Dollar		4,464		(1	)		0.7677
Euros		4,619		(103	)		1.1194
Mexican Peso		2,784		31			17.9612
Norwegian Kroner		15,311		81			8.3234
Pound Sterling		139		(1	)		1.2955

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Item 4. Controls and Procedures

As of the end of the period covered by this quarterly report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) adopted by the SEC under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Our disclosure controls and procedures were developed through a process in which our management applied its judgment in assessing the costs and benefits of such controls and procedures, which, by their nature, can provide only reasonable assurance regarding the control objectives. You should note that the design of any system of disclosure controls and procedures is based in part upon various assumptions about the likelihood of future events, and we cannot assure you that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. Based on the evaluation referred to above, our Chief Executive Officer and Chief Financial Officer concluded that the design and operation of our disclosure controls and procedures are effective as of June 30, 2017 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 June 30, 2017 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 15 to our unaudited Consolidated Financial Statements in Part I of this report, which we incorporate by reference into this Item.

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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 Quarterly Report on Form 10-Q for the quarter ended June 30, 2014 (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*	Amended and Restated Credit Agreement, dated as of June 30, 2017, by and among McDermott International, Inc., a syndicate of lenders and letter of credit issuers, and Crédit Agricole Corporate and Investment Bank, as administrative agent and collateral agent (incorporated by reference to Exhibit 4.1 to McDermott International, Inc.’s Current Report on Form 8‑K filed on June 30, 2017 (File No. 1-08430)).
4.2*	Amended and Restated Pledge and Security Agreement, dated as of June 30, 2017, made by McDermott International, Inc. and the Guarantors referred to therein in favor of Crédit Agricole Corporate and Investment Bank, as collateral agent (incorporated by reference to Exhibit 4.2 to McDermott International, Inc.’s Current Report on Form 8‑K filed on June 30, 2017 (File No. 1-08430)).
10.1	Form of 2017 Non-Employee Director Restricted Stock Grant Letter.
12.1	Ratio of Earnings to Fixed Charges.
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.

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SIGNATURES

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

July 25, 2017
	McDERMOTT INTERNATIONAL, INC.
	By:	/s/ CHRISTOPHER A. KRUMMEL
		Christopher A. Krummel Vice President, Finance and Chief Accounting Officer

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EXHIBIT INDEX

Exhibit Number	Description
3.1*	McDermott International, Inc.’s Amended and Restated Articles of Incorporation (incorporated by reference to Exhibit 3.1 to McDermott International, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008 (File No. 1-08430)).
3.2*	McDermott International, Inc.’s Amended and Restated By-Laws (incorporated by reference to Exhibit 3.2 to McDermott International, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014 (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*	Amended and Restated Credit Agreement, dated as of June 30, 2017, by and among McDermott International, Inc., a syndicate of lenders and letter of credit issuers, and Crédit Agricole Corporate and Investment Bank, as administrative agent and collateral agent (incorporated by reference to Exhibit 4.1 to McDermott International, Inc.’s Current Report on Form 8‑K filed on June 30, 2017 (File No. 1-08430)).
4.2*	Amended and Restated Pledge and Security Agreement, dated as of June 30, 2017, made by McDermott International, Inc. and the Guarantors referred to therein in favor of Crédit Agricole Corporate and Investment Bank, as collateral agent (incorporated by reference to Exhibit 4.2 to McDermott International, Inc.’s Current Report on Form 8‑K filed on June 30, 2017 (File No. 1-08430)).
10.1	Form of 2017 Non-Employee Director Restricted Stock Grant Letter.
12.1	Ratio of Earnings to Fixed Charges.
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.

43

EX-10.1

Exhibit 10.1

May 5, 2017

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 20,579  shares of restricted stock under the 2016 McDermott International, Inc. Long-Term Incentive Plan (the “Plan”) to be made on May 5, 2017 (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; Withholding.  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.  Notwithstanding the foregoing, as provided by the Plan, the Company shall have the right to deduct applicable taxes from the shares otherwise deliverable pursuant to this Grant to the extent required by applicable law.  If shares are used to satisfy tax withholding, such shares shall be valued at their Fair Market Value on the date when the tax withholding is required to be made.

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

2

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.  

ACCEPTED:

_________________________________                Date:    _____________________

SIGNATURE

EX-12.1

Exhibit 12.1

RATIO OF EARNINGS TO FIXED CHARGES

(in thousands)

Our ratio of earnings to fixed charges is as follows:

	Six Months
	Ended
	June 30, 2017		2016		2015		2014			2013
Earnings:
Income (loss) from continuing operations before provision for income taxes and noncontrolling interest	$	94,343	$	78,225	$	43,124	$	(45,321	)	$	(440,859	)
Interest expense and other		40,155		63,399		57,894		62,919			5,748
Portion of rents representative of the interest factor(1)		6,990		11,994		13,480		35,516			38,850
	$	141,488	$	153,618	$	114,498	$	53,114		$	(396,261	)
Fixed charges:
Interest expense, including amount capitalized	$	40,998	$	74,624	$	73,603	$	85,361		$	8,886
Portion of rents representative of the interest factor(1)		6,990		11,994		13,480		35,516			38,850
	$	47,988	$	86,618	$	87,083	$	120,877		$	47,736
Ratio of earnings to fixed charges(2)	2.95x		1.77x		1.31x		—			—

⁽¹⁾ 33% of rental expense

⁽²⁾ For the years ended December 31, 2014 and 2013, earnings were deficient to cover fixed charges by $67,763 and $443,997, respectively, primarily as a result of operating losses.

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.;

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.

July 25, 2017
	/s/ DAVID DICKSON
	David Dickson President and Chief Executive Officer

EX-31.2

Exhibit 31.2

I, Stuart Spence, certify that:

1. I have reviewed this quarterly report on Form 10-Q of McDermott International, Inc.;

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.

July 25, 2017
	/s/ STUART SPENCE
	Stuart Spence Executive 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 period ended June 30, 2017 (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: July 25, 2017
	/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, Stuart Spence, Executive 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 period ended June 30, 2017 (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: July 25, 2017
	/s/ STUART SPENCE
	Stuart Spence Executive Vice President and Chief Financial Officer

XML

Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2017	Jul. 21, 2017
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2017
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	Q2
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		283,975,398

XML

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - USD ($) $ in Thousands		3 Months Ended		6 Months Ended
		Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Income Statement [Abstract]
Revenues	[1]	$ 788,673	$ 706,627	$ 1,308,104	$ 1,435,659
Costs and Expenses:
Cost of operations		650,449	595,343	1,079,039	1,211,345
Research and development expenses		821	99	1,301	130
Selling, general and administrative expenses		50,022	52,075	86,609	90,403
Other operating (income) expenses, net		182	2,122	(2,029)	40,800
Total costs and expenses		701,474	649,639	1,164,920	1,342,678
Operating income		87,199	56,988	143,184	92,981
Other expense:
Interest expense, net		(21,204)	(12,655)	(38,910)	(23,893)
Other non-operating expense, net		(2,491)	(2,851)	(1,877)	(6,242)
Total other expense, net		(23,695)	(15,506)	(40,787)	(30,135)
Income before provision for income taxes		63,504	41,482	102,397	62,846
Provision for income taxes		22,918	19,804	33,689	39,134
Income before income (loss) from Investments in Unconsolidated Affiliates		40,586	21,678	68,708	23,712
Income (loss) from Investments in Unconsolidated Affiliates		(4,127)	127	(8,054)	(4,351)
Net income		36,459	21,805	60,654	19,361
Less: Net income attributable to noncontrolling interest		46	1,148	2,325	876
Net income attributable to McDermott International, Inc.		$ 36,413	$ 20,657	$ 58,329	$ 18,485
Net income per share attributable to McDermott International, Inc.:
Basic		$ 0.13	$ 0.09	$ 0.22	$ 0.08
Diluted		$ 0.13	$ 0.07	$ 0.21	$ 0.07
Shares used in the computation of net income per share:
Basic		282,660,314	240,338,540	262,438,822	239,739,204
Diluted		284,982,270	284,909,414	284,122,560	283,132,238

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

XML

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Statement Of Income And Comprehensive Income [Abstract]
Net income	$ 36,459	$ 21,805	$ 60,654	$ 19,361
Other comprehensive income (loss), net of tax:
Unrealized gain on investments	20	12	39	17
Gain on derivatives	8,504	4,621	10,639	35,412
Foreign currency translation	(231)	(4,027)	8	(7,370)
Other comprehensive income, net of tax	8,293	606	10,686	28,059
Total comprehensive income	44,752	22,411	71,340	47,420
Less: Comprehensive income attributable to noncontrolling interests	82	1,140	2,343	855
Comprehensive income attributable to McDermott International, Inc.	$ 44,670	$ 21,271	$ 68,997	$ 46,565

XML

CONSOLIDATED BALANCE SHEETS (Unaudited) - USD ($) $ in Thousands		Jun. 30, 2017	Dec. 31, 2016
Current assets:
Cash and cash equivalents		$ 393,726	$ 595,921
Restricted cash and cash equivalents		15,154	16,412
Accounts receivable—trade, net		331,327	334,384
Accounts receivable—other		40,239	36,929
Contracts in progress		619,164	319,138
Other current assets		38,047	29,599
Total current assets		1,437,657	1,332,383
Property, plant and equipment		2,617,382	2,586,179
Less accumulated depreciation		(939,651)	(898,878)
Property, plant and equipment, net		1,677,731	1,687,301
Accounts receivable—long-term retainages		92,797	127,193
Investments in Unconsolidated Affiliates		12,138	17,023
Deferred income taxes		18,748	21,116
Other assets		52,377	37,214
Total assets	[1]	3,291,448	3,222,230
Current liabilities:
Notes payable and current maturities of long-term debt		13,807	48,125
Accounts payable		434,954	173,203
Accrued liabilities		340,613	277,584
Advance billings on contracts		66,148	192,486
Income taxes payable		26,786	17,945
Total current liabilities		882,308	709,343
Long-term debt		526,692	704,395
Self-insurance		17,734	16,980
Pension liabilities		19,043	19,471
Non-current income taxes		60,341	60,870
Other liabilities		124,834	115,703
Commitments and contingencies
Stockholders' equity:
Common stock, par value $1.00 per share, authorized 400,000,000 shares; issued 292,469,416 and 249,690,281 shares, respectively		292,469	249,690
Capital in excess of par value		1,656,231	1,695,119
Accumulated deficit		(168,438)	(226,767)
Accumulated other comprehensive loss		(56,191)	(66,895)
Treasury stock, at cost: 8,494,018 and 8,302,004 shares, respectively		(96,244)	(94,957)
Stockholders' Equity—McDermott International, Inc.		1,627,827	1,556,190
Noncontrolling interest		32,669	39,278
Total equity		1,660,496	1,595,468
Total liabilities and equity		$ 3,291,448	$ 3,222,230

[1] Our marine vessels are included in the area in which they were located as of reporting date.

XML

CONSOLIDATED BALANCE SHEETS (Unaudited) (Parenthetical) - $ / shares	Jun. 30, 2017	Dec. 31, 2016
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	292,469,416	249,690,281
Treasury stock, shares	8,494,018	8,302,004

XML

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016
Cash flows from operating activities:
Net income	$ 60,654	$ 19,361
Non-cash items included in net income:
Depreciation and amortization	49,685	48,929
Impairment loss		32,311
Stock-based compensation charges	11,838	9,242
Loss from investments in Unconsolidated Affiliates	8,054	4,351
Other non-cash items	12,375	4,948
Changes in operating assets and liabilities that provided (used) cash:
Accounts receivable	37,453	(30,835)
Contracts in progress, net of Advance billings on contracts	(410,678)	67,698
Accounts payable	260,091	(65,212)
Accrued and other current liabilities	68,722	(45,523)
Other assets and liabilities, net	(8,011)	30,520
Total cash provided by operating activities	90,183	75,790
Cash flows from investing activities:
Purchases of property, plant and equipment	(80,922)	(170,674)
Proceeds from asset dispositions	55,391	388
Investments in Unconsolidated Affiliates	(1,300)	(4,105)
Total cash used in investing activities	(26,831)	(174,391)
Cash flows from financing activities:
Repayment of debt	(230,509)	(88,845)
Payment of debt and letter of credit issuance cost	(18,784)	(8,211)
Acquisition of NCI	(10,652)
Repurchase of common stock	(7,020)	(2,572)
Total cash used in financing activities	(266,965)	(99,628)
Effects of exchange rate changes on cash, cash equivalents and restricted cash	160	(601)
Net decrease in cash, cash equivalents and restricted cash	(203,453)	(198,830)
Cash, cash equivalents and restricted cash at beginning of period	612,333	781,645
Cash, cash equivalents and restricted cash at end of period	$ 408,880	$ 582,815

XML

CONSOLIDATED STATEMENTS OF EQUITY (Unaudited) - USD ($) $ in Thousands	Total	Common Stock Par Value [Member]	Capital in Excess of Par Value [Member]	Retained Earnings/(Accumulated Deficit) [Member]	Accumulated Other Comprehensive Income (Loss) ("AOCI") [Member]	Treasury Stock [Member]	Stockholder's Equity [Member]	Noncontrolling Interest ("NCI") [Member]
Beginning Balance at Dec. 31, 2015					$ (93,955)
Net income	$ 19,361
Other comprehensive income (loss), net of tax	28,059				28,080
Ending Balance at Jun. 30, 2016					(65,875)
Beginning Balance at Mar. 31, 2016					(66,489)
Net income	21,805
Other comprehensive income (loss), net of tax	606				614
Ending Balance at Jun. 30, 2016					(65,875)
Beginning Balance at Dec. 31, 2016	1,595,468	$ 249,690	$ 1,695,119	$ (226,767)	(66,895)	$ (94,957)	$ 1,556,190	$ 39,278
Net income	60,654			58,329			58,329	2,325
Other comprehensive income (loss), net of tax	10,686				10,704		10,704	(18)
Common stock issued		43,584	(43,584)
Stock-based compensation charges	8,519		8,519				8,519
Purchase of treasury shares	(7,020)					(7,020)	(7,020)
Retirement of common stock		(805)	(4,928)			5,733
Acquisition of NCI	(6,775)		2,121		2,284		2,121	(8,896)
Other	(1,036)		(1,016)				(1,016)	(20)
Ending Balance at Jun. 30, 2017	1,660,496	292,469	1,656,231	(168,438)	(56,191)	(96,244)	1,627,827	32,669
Net income	36,459
Other comprehensive income (loss), net of tax	8,293				8,293
Acquisition of NCI					2,284
Ending Balance at Jun. 30, 2017	$ 1,660,496	$ 292,469	$ 1,656,231	$ (168,438)	$ (56,191)	$ (96,244)	$ 1,627,827	$ 32,669

XML

BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

6 Months Ended

Jun. 30, 2017

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. (“MDR”), a corporation incorporated under the laws of the Republic of Panama in 1959, is a leading provider of integrated engineering, procurement, construction and installation (“EPCI”), front-end engineering and design (“FEED”) and module fabrication services for upstream field developments worldwide.  We deliver fixed and floating production facilities, pipeline installations and subsea systems from concept to commissioning for complex offshore and subsea oil and gas projects. Operating in approximately 20 countries across the Americas, Europe, Africa, Asia and Australia, our integrated resources include 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 Consolidated Financial Statements, unless the context otherwise indicates, “we,” “us” and “our” mean MDR and its consolidated subsidiaries.

Basis of Presentation

The accompanying Consolidated Financial Statements are unaudited and have been prepared from our books and records in accordance with Rule 10-1 of Regulation S-X for interim financial information. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States (“U.S. GAAP”) for complete financial statements. In the opinion of our management, all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair presentation have been included. The results of operations for interim periods are not necessarily indicative of results of operations for a full year. These Consolidated Financial Statements should be read in conjunction with our Consolidated Financial Statements and Notes thereto included in our Current Report on Form 8-K filed with the SEC on April 25, 2017 (the “April 25 Form 8-K”).

Classification

Certain prior year amounts have been reclassified for consistency with the current year presentation. Previously reported Consolidated Financial Statements have been adjusted to reflect those changes.

In addition, in the first quarter of 2017, we implemented certain changes to our financial reporting structure. Corporate expenses, certain centrally managed initiatives (such as restructuring charges), impairments, year-end mark-to-market pension actuarial gains and losses, costs not attributable to a particular reportable segment, and unallocated direct operating expenses associated with the underutilization of vessels, fabrication facilities and engineering resources, are no longer apportioned to our reportable segments. Those expenses are reported under “Corporate and Other.” Previously reported segment financial information has been adjusted to reflect this change, see Note 16, Segment Reporting.

Accounting Guidance Issued But Not Adopted as of June 30, 2017

Stock Compensation—In May 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Updates (“ASU”) 2017-07, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting. The general model for modifications of share-based payment awards is to record the incremental value arising from a change as additional compensation cost. This guidance clarifies situations in which the existing award is not probable of vesting, and a modification gives rise to a new measurement date; no change in the total compensation cost recognized for an existing award will be required if there is no change to the fair value, vesting conditions and classification of the award. This ASU is effective prospectively for annual periods beginning on or after December 15, 2017. Early adoption is permitted. The application of this amendment is not expected to have a material impact on our future Consolidated Financial Statements or related disclosures.

Pension and Postretirement Benefits—In March 2017, the FASB issued ASU 2017-07, Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit. This ASU requires bifurcation of certain components of net pension and postretirement benefit cost (“benefit costs”) in the Consolidated Statements of Operations. The service cost components are required to be presented in operating income and the remaining components are required to be presented outside of operating income. This ASU is effective for interim and annual periods beginning after December 15, 2017. Early adoption is permitted.  Upon future adoption of this guidance, benefit costs, excluding service costs component, will be included in Other non-operating income (expense), net in our Consolidated Statements of Operations. Currently, all components of benefit costs are reported in Selling, general and administrative expenses in our Consolidated Statements of Operations.

Income Taxes—In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory.  This ASU requires entities to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs.  The ASU is effective for interim and annual periods beginning after December 15, 2017.  Early adoption is permitted.  The application of this amendment is not expected to have a material impact on our future Consolidated Financial Statements and related disclosures.

Financial Instruments—In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU will require a financial asset measured at amortized cost basis to be presented at the net amount expected to be collected. A valuation account, allowance for credit losses, will be deducted from the amortized cost basis of the financial asset to present the net carrying value at the amount expected to be collected on the financial asset. This ASU is effective for interim and annual periods beginning after December 15, 2019. We are currently assessing the impact of this guidance on our future Consolidated Financial Statements and related disclosures.

Leases—In February 2016, the FASB issued ASU 2016-02,Leases (Topic 842). The ASU will require entities that lease assets—referred to as “lessees”—to recognize on the balance sheet the assets and liabilities for the rights and obligations created by leases with lease terms of more than 12 months. Consistent with current U.S. GAAP, the recognition, measurement and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. However, unlike current U.S. GAAP—which requires only capital leases to be recognized on the balance sheet—the new ASU will require both types of leases to be recognized on the balance sheet. This ASU is effective for interim and annual periods beginning after December 15, 2018. Early adoption is permitted. We are currently assessing the impact of this ASU on our future Consolidated Financial Statements and related disclosures.

Revenue from Contracts with Customers (Topic 606)—In May 2014, the FASB issued a new standard related to revenue recognition which supersedes most of the existing revenue recognition requirements in U.S. GAAP and will require entities to recognize revenue at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. It also requires significantly expanded disclosures regarding the qualitative and quantitative information of an entity’s nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.

The FASB has issued several amendments to the standard, including clarification on accounting for licenses of intellectual property, identifying performance obligations, reporting gross versus net revenue and narrow-scope improvements and practical expedients.

The guidance permits two methods of adoption: retrospectively to each prior reporting period presented (“full retrospective method”), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (“modified retrospective application”).

We are currently assessing the impact of this ASU and the amendments on our future Consolidated Financial Statements and related disclosures. Adoption may affect the manner in which the company determines the unit of account for its projects and estimates revenue associated with unapproved change orders and claims. We intend to adopt the new standard on January 1, 2018 (the “initial application” date):

• using the modified retrospective application, with no restatement of the comparative periods presented and a cumulative effect adjustment as of the date of adoption;

• applying the new standard only to those contracts that are in process at the date of initial application; and

• disclosing the impact of the new standard on our 2018 Consolidated Financial Statements.

This standard could have a significant impact on our Consolidated Financial Statements and related disclosures.

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REVENUE RECOGNITION

6 Months Ended

Jun. 30, 2017

Revenue Recognition [Abstract]

REVENUE RECOGNITION

NOTE 2—REVENUE RECOGNITION

Unapproved Change Orders

As of June 30, 2017, total unapproved change orders included in our estimates at completion aggregated approximately $94 million, of which approximately $13 million was included in backlog. As of June 30, 2016, total unapproved change orders included in our estimates at completion aggregated approximately $122 million, of which approximately $24 million was included in backlog.

Claims Revenue

The amount of revenues included in our estimates at completion (i.e., contract values) associated with claims was $10 million and $16 million as of June 30, 2017 and 2016, respectively, all in our Middle East segment. These amounts are determined based on various factors, including our analysis of the underlying contractual language and our experience in making and resolving claims. Our unconsolidated joint ventures did not include any material claims revenue or associated costs in their financial results for the three and six months ended June 30, 2017 and 2016.  

None of the claims included in our estimates at completion at June 30, 2017 were the subject of any litigation proceedings. 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.  

Loss Recognition

For all ongoing contracts, we have provided for estimated costs to complete. If a current estimate of total contract cost indicates a loss, the projected loss is recognized in full immediately and reflected in cost of operations in the Consolidated Statements of Operations. 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 loss projects, 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. In our Consolidated Balance Sheets, the provision for estimated losses on all active uncompleted projects is included in “Advance billings on contracts.”

As of June 30, 2017, KJO Hout, an EPCI project in our MEA segment, was in an estimated overall $9 million loss position. The project is expected to be substantially completed in the second half of 2017.

As of June 30, 2017 and December 31, 2016, the remaining provision for estimated losses to be recognized on all active uncompleted projects in our Consolidated Balance Sheets was not material.

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USE OF ESTIMATES

6 Months Ended

Jun. 30, 2017

Accounting Policies [Abstract]

USE OF ESTIMATES

NOTE 3—USE OF ESTIMATES

The following is a discussion of our most significant changes in estimates that impacted segment operating income for the three and six months ended June 30, 2017 and 2016.

Three months ended June 30, 2017

Segment operating income for the three months ended June 30, 2017 was positively impacted by net favorable changes in estimates totaling approximately $32 million, primarily in our MEA and ASA segments.

Americas, Europe and Africa Segment (“AEA”)—This segment was impacted by net unfavorable changes in estimates aggregating approximately $4 million on multiple projects, none of which individually were material.  

Middle East Segment (“MEA”)—This segment was positively impacted by net favorable changes in estimates aggregating approximately $20 million, primarily due to:

• productivity improvements and associated cost savings during a marine hookup campaign and benefits from a change in estimate to complete a project in the Middle East;  

• cost savings associated with productivity improvements on multiple Saudi Aramco projects, none of which were individually material; and

• changes in estimate to complete a large pipeline repair project in the Middle East.

Those favorable net changes were partially offset by:

• higher fabrication costs on a lump-sum EPCI project under the second Saudi Aramco Long-Term Agreement (“LTA II”); and

• increases in costs to complete the 9 Jackets Saudi Aramco project due to weather downtime, including increased vessel demobilization and mobilization costs.

Asia Segment (“ASA”)—This segmentwas positively impacted by net favorable changes in estimates aggregating approximately $16 million, primarily due to the change in estimates associated with efficient project execution and productivity improvements on multiple projects which were individually not material.

In addition, during the second quarter of 2017, on the Ichthys project in Australia, we commenced replacing the supplier-provided subsea-pipe connector components, and the diving intervention was completed on July 7, 2017. Residual work is planned for the second half of 2017. The current estimated costs to replace the supplier-provided subsea-pipe connector components, at the completion of the project, is less than our December 31, 2016 estimate of $34 million, which has been reflected in the project’s total estimated costs at completion. Furthermore, we took action to mitigate the risk of possible additional increases in these costs. We expect the project to remain in an overall profitable position.

Six months ended June 30, 2017

Segment operating income for the six months ended June 30, 2017 was positively impacted by net favorable changes in estimates totaling approximately $79 million across all segments.

AEA—This segment was positively impacted by net favorable changes in estimates aggregating approximately $1 million on multiple projects, none of which individually were material. 

MEA—This segment was positively impacted by net favorable changes in estimates aggregating approximately $36 million, primarily due to:

• productivity improvements and associated cost savings during a marine hookup campaign and reduction in estimated costs to complete two projects in the Middle East, including a Saudi Aramco project;  

• marine campaign cost savings associated with productivity improvements, which were partially offset by higher fabrication costs on a lump-sum EPCI project under the LTA II;

• close-out improvements associated with the first phase of a large pipeline repair project in the Middle East, which was completed in 2016, and a change in estimate to complete the next phase of this project; and

• cost savings associated with productivity improvements on multiple Saudi Aramco projects, none of which were individually material.

Those favorable net changes in estimates were partially offset by increases in costs to complete the 9 Jackets Saudi Aramco project, due to weather downtime, including increased vessel demobilization and mobilization costs.

ASA—This segmentwas positively impacted by net favorable changes in estimates aggregating approximately $42 million, primarily due to changes in estimates driven by productivity improvements and associated cost savings and agreement on outstanding change orders on active and completed projects.

In addition, as of December 31, 2016, on the Ichthys project in Australia, we reported a $34 million increase in our estimated costs at completion due to a failure identified in a supplier-provided subsea-pipe connector component that we had previously installed, and we identified possible additional increases of up to $10 million, due to potential need for alternative installation methods. We investigated the cause of the failure and developed a remediation plan in conjunction with the customer, and we commenced offshore replacement in June 2017. As of June 30, 2017, the work under the remediation plan has progressed well, and the diving intervention was completed on July 7, 2017. Residual work is planned for the second half of 2017. The current estimated costs to replace the supplier-provided subsea-pipe connector components, at the completion of the project, is less than our December 31, 2016 estimate. Furthermore, we took action to mitigate the risk of possible additional increases in these costs. We expect the project to remain in an overall profitable position.

Three months ended June 30, 2016

Operating income for the three months ended June 30, 2016 was positively impacted by net favorable changes in estimates totaling approximately $28 million across all segments.

AEA—This segment was positively impacted by net favorable changes in estimates aggregating approximately $7 million, primarily attributable to productivity improvement and associated cost savings related to our DB 50 and NO 102 vessels’ marine campaigns undertaken in the Gulf of Mexico in the second quarter of 2016.

MEA—This segment was positively impacted by net favorable changes in estimates aggregating approximately $10 million, primarily due to:

• productivity improvements and associated cost savings related to the Intermac 406 and DB 27 vessels, both associated with Saudi Aramco projects; and

• other miscellaneous projects, which individually were not material.

ASA—This segment was positively impacted by net favorable changes in estimates aggregating approximately $11 million which were primarily driven by productivity improvements and associated cost savings and agreement on outstanding change orders on our active projects.

Six months ended June 30, 2016

Operating income for the six months ended June 30, 2016 was positively impacted by net favorable changes in estimates totaling approximately $68 million across all segments.

AEA—This segment was positively impacted by net favorable changes in estimates aggregating approximately $23 million, primarily due to:

• successful execution and close-out improvements on two significant projects, PB Litoral and Exxon Julia Subsea Tieback;

• productivity improvement and associated cost savings related to our DB 50 and NO 102 vessels’ marine campaigns undertaken in the Gulf of Mexico; and

• a reversal of a $7 million provision for liquidated damages due to an agreed extension of the PB Litoral project completion date.

Those changes were partially offset by net unfavorable changes, none of which were material individually.

MEA—This segment was positively impacted by net favorable changes in estimates aggregating approximately $17 million, primarily due to:

• productivity improvements and associated cost savings related to the DB 27 and the Intermac 406 vessels, both associated with Saudi Aramco projects; and

• other miscellaneous projects, none of which were material individually.

ASA—This segment was positively impacted by net favorable changes in estimates aggregating approximately $28 million, primarily driven by productivity improvements and associated cost savings and agreement on outstanding change orders on active and completed projects.

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RESTRUCTURING

6 Months Ended

Jun. 30, 2017

Restructuring And Related Activities [Abstract]

RESTRUCTURING

NOTE 4—RESTRUCTURING

Restructuring initiatives are driven and managed by our corporate management. These costs are not allocated to our reportable segments and are reported under Corporate and Other.

Restructuring expenses are reported as a component of Other operating (income) expenses, net in our Consolidated Statements of Operations. Previously, restructuring expenses were presented separately in our Consolidated Statements of Operations.

The following table presents restructuring costs incurred in the second quarter of 2016 and from inception, by major cost type. No restructuring costs were incurred during 2017.

		Three months ended			Six months ended			From  inception to
		June 30, 2016						June 30, 2017
	(in thousands)
Americas Restructuring		$	(1,500	)	$	(1,500	)	$	44,194
McDermott Profitability Initiative
Severance and other personnel-related costs			992			1,425			17,807
Asset impairment and disposal			-			-			7,471
Legal and other advisor fees			49			222			11,639
Other			1,541			2,436			10,045
			2,582			4,083			46,962
Additional Overhead Reduction
Severance and other personnel-related costs			1,073			4,044			5,012
Legal and other advisor fees			240			1,968			2,768
Other			89			256			385
			1,402			6,268			8,165
Total		$	2,484		$	8,851		$	99,321

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CASH, CASH EQUIVALENTS AND RESTRICTED CASH

6 Months Ended

Jun. 30, 2017

Cash And Cash Equivalents [Abstract]

CASH, CASH EQUIVALENTS AND RESTRICTED CASH

NOTE 5—CASH, CASH EQUIVALENTS AND RESTRICTED CASH

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Consolidated Balance Sheets that sum to the totals of such amounts shown in the Consolidated Statements of Cash Flows.  

	June 30, 2017		December 31, 2016
	(in thousands)
Cash and cash equivalents	$	393,726	$	595,921
Restricted cash and cash equivalents		15,154		16,412
Total cash, cash equivalents, and restricted cash shown in the Consolidated Statements of Cash Flows	$	408,880	$	612,333

A majority of our restricted cash balances serve as collateral for letters of credit, discussed in Note 9, Debt.

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ACCOUNTS RECEIVABLE

6 Months Ended

Jun. 30, 2017

Receivables [Abstract]

ACCOUNTS RECEIVABLE

NOTE 6—ACCOUNTS RECEIVABLE

Accounts Receivable—Trade, Net―A summary of contract receivables is as follows:

	June 30, 2017			December 31, 2016
	(in thousands)
Contract receivables:
Contracts in progress	$	245,341		$	245,604
Completed contracts		24,755			40,345
Retainages		70,922			58,431
Unbilled(1)		4,303			4,303
Less allowances		(13,994	)		(14,299	)
Accounts receivable—trade, net	$	331,327		$	334,384

⁽¹⁾ This amount relates to a project milestone billing for which we are awaiting the customer’s final acceptance certificate. We expect to receive the final acceptance certificate during 2017.

Retainages—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:

	June 30, 2017		December 31, 2016
	(in thousands)
Retainages expected to be collected within one year	$	70,922	$	58,431
Retainages expected to be collected after one year		92,797		127,193
Total retainages	$	163,719	$	185,624

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CONTRACTS IN PROGRESS AND ADVANCE BILLINGS ON CONTRACTS

6 Months Ended

Jun. 30, 2017

Contractors [Abstract]

CONTRACTS IN PROGRESS AND ADVANCE BILLINGS ON CONTRACTS

NOTE 7—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:

	June 30, 2017			December 31, 2016
	(In thousands)
Costs incurred less costs of revenue recognized	$	78,291		$	119,688
Revenues recognized less billings to customers		540,873			199,450
Contracts in Progress	$	619,164		$	319,138
Billings to customers less revenue recognized	$	161,083		$	42,637
Costs incurred less costs of revenue recognized		(94,935	)		149,849
Advance Billings on Contracts	$	66,148		$	192,486

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SALE LEASEBACK

6 Months Ended

Jun. 30, 2017

Leases [Abstract]

SALE LEASEBACK

NOTE 8—SALE LEASEBACK

In January 2017, we purchased the pipelay and construction vessel, the Amazon, for a total cash consideration of approximately $52 million. Following the purchase, we sold the Amazon to an unrelated third party for total cash consideration of $52 million and simultaneously entered into an 11-year bareboat charter agreement with the purchaser. The bareboat charter agreement provides us with options (exercisable periodically over the charter term) to purchase the Amazon, at a predetermined value.  We accounted for the transaction as a sale leaseback and are treating the bareboat charter agreement as an operating lease.  As the proceeds from the sale equaled the carrying value of the vessel, no gain or loss was recognized.  The annual charter obligation is $3 million through 2018, when it will increase to $8 million annually for the remainder of the charter term.

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DEBT

6 Months Ended

Jun. 30, 2017

Debt Disclosure [Abstract]

DEBT

NOTE 9—DEBT

The carrying values of our long-term debt obligations, net of unamortized debt issuance costs of $6 million and $14 million as of June 30, 2017 and December 31, 2016, respectively, are as follows:

	June 30, 2017		December 31, 2016
	(In thousands)
Senior Notes	$	494,230	$	493,461
North Ocean 105 construction financing		28,595		31,877
Vendor equipment financing		15,686		-
Term Loan		-		212,070
Amortizing Notes		-		7,932
Other		1,988		7,180
		540,499		752,520
Less: Amounts due within one year		13,807		48,125
Total long-term debt	$	526,692	$	704,395

Amended and Restated Credit Agreement

On June 30, 2017, we repaid all outstanding term loans, with an outstanding principal amount of approximately $217 million, under our credit agreement dated April 16, 2014 (the “Prior Credit Agreement”), and we amended and restated the Prior Credit Agreement by entering into an Amended and Restated Credit Agreement (the “Credit Agreement”) with a syndicate of lenders and letter of credit issuers, and Crédit Agricole Corporate and Investment Bank, as administrative agent and collateral agent.  All letters of credit outstanding under the Prior Credit Agreement were deemed issued under the Credit Agreement.

The Credit Agreement includes $810 million of commitments from the lenders, the full amount of which is available for the issuance of letters of credit, and $300 million of which is available for revolving loans. The senior secured credit facility established by the Credit Agreement is scheduled to mature in June 2022, unless we do not repay in full, by December 1, 2020, our $500 million second-lien notes due in April 2021, in which case the Credit Agreement will mature on December 1, 2020.

The Credit Agreement includes procedures for additional financial institutions to become lenders, or for any existing lender to increase its commitment thereunder, subject to an aggregate maximum of $1 billion for all commitments under the Credit Agreement.  Any such increase in the commitments will not increase the $300 million sublimit for revolving loans.  

The indebtedness and other obligations under the Credit Agreement are unconditionally guaranteed on a senior secured basis by substantially all of our wholly owned subsidiaries, other than our captive insurance subsidiary and certain other designated subsidiaries (collectively, the “Guarantors”). The obligations under the Credit Agreement are secured by first-priority liens on substantially all of our and the Guarantors’ assets, including certain vessels and bank accounts.

Other than mandatory commitment reductions and prepayments in connection with certain asset sales, casualty events, and incurrences of debt not permitted by the Credit Agreement, the Credit Agreement requires only periodic interest payments until maturity. We may prepay all revolving loans under the Credit Agreement at any time without premium or penalty (other than customary LIBOR breakage costs), subject to certain notice requirements.

Revolving loans under the Credit Agreement bear interest at our option at either the Eurodollar rate plus a margin ranging from 3.75% to 4.25% per year or the base rate (the highest of the Federal Funds rate plus 0.50%, the 30-day Eurodollar rate plus 1.0%, or the administrative agent’s prime rate) plus a margin ranging from 2.75% to 3.25% per year. The applicable margin varies depending on our leverage ratio (as defined in the Credit Agreement). We are charged a commitment fee of 0.50% per year on the daily amount of the unused portions of the commitments under the Credit Agreement.  Additionally, with respect to all letters of credit outstanding under the Credit Agreement, we are charged a fronting fee of 0.25% per year and a participation fee of (i) between 3.75% to 4.25% per year in respect of financial letters of credit and (ii) between 1.875% to 2.125% per year in respect of performance letters of credit, in each case depending on our leverage ratio. We also pay customary issuance fees and other fees and expenses in connection with the issuance of letters of credit under the Credit Agreement.

In connection with the Credit Agreement we incurred approximately $21 million of debt issuance costs. On the Consolidated Balance Sheets, those costs are reflected as an asset.

As of June 30, 2017, the applicable margin for revolving loans was 4.0% for Eurodollar-rate loans and 3.0% for base-rate loans, and the letter of credit fee for financial letters of credit was 4.0% and for performance letters of credit was 2.0%.

The Credit Agreement includes the following financial covenants, defined in the Credit Agreement, which will be tested on a quarterly basis and, in respect of the collateral coverage ratio described below, on both a quarterly basis and on any date that a mortgaged vessel is sold:  

• the maximum permitted leverage ratio is (1) 3.50 to 1.00 for each fiscal quarter ending on or before December 31, 2019 and (2) 3.25 to 1.00 for each fiscal quarter ending after December 31, 2019;

• the minimum fixed charge coverage ratio is 1.15 to 1.00; 

• the minimum liquidity is $100 million;

• the minimum collateral coverage ratio is 1.20 to 1.0; and 

• the principal amount of revolving loans outstanding under the Credit Agreement cannot exceed the sum of 75% of our net trade accounts receivable plus the amount of our cash and cash equivalents subject to the control of the collateral agent under the Credit Agreement (this is also a condition to each revolving loan borrowing).

In addition, the Credit Agreement contains various covenants that, among other restrictions, limits our ability, and the ability of each of our subsidiaries, to: (1) incur or assume indebtedness; (2) grant or assume liens; (3) make acquisitions or engage in mergers; (4) sell, transfer, assign or convey assets; (5) make investments; (6) repurchase equity and make dividends and certain other restricted payments; (7) change the nature of our business; (8) engage in transactions with affiliates; (9) enter into burdensome agreements; (10) modify organizational documents; (11) enter into sale and leaseback transactions; (12) make capital expenditures; (13) enter into speculative hedging contracts; and (14) make prepayments on certain junior debt.

The Credit Agreement contains events of default that we believe are customary for a secured credit facility. If an event of default relating to bankruptcy or other insolvency events with respect to us occurs, all obligations under the Credit Agreement will immediately become due and payable. If any other event of default exists under the Credit Agreement, the lenders may accelerate the maturity of the obligations outstanding under the Credit Agreement and exercise other rights and remedies. In addition, if any event of default exists under the Credit Agreement, the lenders may commence foreclosure or other actions against the collateral.

If any default exists under the Credit Agreement, or if we are unable to make any of the representations and warranties in the Credit Agreement at the applicable time, we will be unable to borrow funds or have letters of credit issued under the Credit Agreement.

As of June 30, 2017, the aggregate amount of letters of credit issued and outstanding under the Credit Agreement was $333 million, included in which were $24 million of financial letters of credit, and there were no revolving loans outstanding under the Credit Agreement. As of December 31, 2016, under the Prior Credit Agreement, the aggregate amount of letters of credit issued and outstanding was $442 million.

The Credit Agreementpermits us to deposit up to $300 million with letter of credit issuers to cash collateralize letters of credit issued on a bilateral basis outside the Credit Agreement. As of June 30, 2017, we had bilateral arrangements to issue cash collateralized letters of credit of $175 million. As of June 30, 2017 and December 31, 2016, we had an aggregate face amount of approximately $15 million and $16 million of such letters of credit outstanding supported by cash collateral. We have included the supporting cash collateral in restricted cash and cash equivalents in the accompanying Consolidated Balance Sheets. During the first six months of 2017, the maximum amount of cash collateral used to support bilateral letters of credit was $166 million.

As of June 30, 2017, we were in compliance with all of the financial covenants set forth in the Credit Agreement.

Senior Notes

In April 2014, we issued $500 million in aggregate principal amount of 8.00% 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. 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.  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 S&P Global Ratings and no default has occurred.  For additional information relating to the Notes, see Note 10, Debt, to the Consolidated Financial Statements included in the April 25 Form 8-K.

North Ocean Financing

NO 105―On September 30, 2010, McDermott International Inc., as guarantor, and North Ocean 105 AS, in which we then had a 75% ownership interest, as borrower, entered into a financing agreement to pay a portion of the construction costs of the NO 105. 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 NO 105, and a lien on substantially all of the other assets of North Ocean 105 AS. The financing agreement requires principal repayment in 17 consecutive semiannual installments, which commenced on October 1, 2012.

In the second quarter of 2017 we exercised our option under the North Ocean 105 AS joint venture agreement and purchased the 25% ownership interest of Oceanteam ASA (“Oceanteam”) in the vessel-owning company for approximately $11 million in cash. As part of that transaction, we also assumed the right to a $5 million note payable from North Ocean 105 AS to Oceanteam (which had been issued in connection with a dividend declared by North Ocean 105 AS in 2016). For further discussion, see Note 13, Stockholders’ Equity.

The Credit Agreement eliminated the Prior Credit Agreement’s requirement for us to prepay by July 20, 2017 the North Ocean 105borrowing and to mortgage the NO 105 vessel in favor of the lenders.

Tangible Equity Units (“TEUs”)

In April 2014, we issued 11,500,000 6.25% TEUs, each with a stated amount of $25. Each TEU consists of (1) a prepaid common stock purchase contract and (2) a senior amortizing note due April 1, 2017 (each an “Amortizing Note”) that had an initial principal amount of $4.1266 per Amortizing Note and bore interest at a rate of 7.75% per annum and had a final scheduled installment payment date of April 1, 2017, which we repaid in full.

The prepaid common stock purchase contracts were accounted for as capital in excess of par value totaling $240 million in our Consolidated Balance Sheets. Each prepaid common stock purchase contract automatically settled in April 2017. We delivered 40.8 million shares of our common stock to holders of the TEU prepaid common stock purchase contracts, based on the settlement rate of 3.5496 shares per unit.

Receivables Factoring Facility

In February 2017, J. Ray McDermott de Mexico, S.A. de C.V. (“JRM Mexico”), one of our indirectly 100% owned subsidiaries, entered into a 364 day, $50 million committed revolving receivables purchase agreement which provides for the sale, at a discount rate of LIBOR plus an applicable margin of 4.25%, of certain receivables to a designated purchaser without recourse.  The facility provides for customary representations and warranties and compliance with customary covenants. JRM Mexico’s obligations in connection with the receivables purchase agreement are guaranteed by McDermott International, Inc.

During the first six months of 2017, we sold approximately $2 million of receivables under the receivables purchase agreement.

Vendor Equipment Financing

In February 2017, JRM Mexico entered into a 21-month loan agreement for equipment financing in the amount of $47 million. Borrowings under the loan agreement bear interest at a fixed rate of 5.75%. JRM Mexico’s obligations in connection with this equipment financing are guaranteed by McDermott International Management, S. de RL., one of our 100% owned subsidiaries. The equipment financing agreement contains various customary affirmative covenants, as well as specific affirmative covenants, including the pledge of specific equipment.  The equipment financing agreement also requires compliance with various negative covenants, including restricted use of the proceeds. At June 30, 2017, the total borrowing outstanding under this facility was approximately $16 million.

Unsecured Bilateral Lines of Credit

MDR has uncommitted lines of credit in place with Middle Eastern banks in support of our contracting activities in the Middle East. Bank guarantees issued under these agreements totaled $518 million and $359 million, as of June 30, 2017 and December 31, 2016, respectively. As of June 30, 2017, overall capacity under these arrangements totaled $625 million.

Surety Bonds

As of June 30, 2017 and December 31, 2016, surety bonds issued under general agreements of indemnity in favor of surety underwriters in support of contracting activities of our subsidiaries JRM Mexico and McDermott, Inc. totaled $57 million and $79 million, respectively. As of June 30, 2017, overall uncommitted capacity under these arrangements totaled $300 million.

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PENSION AND POSTRETIREMENT BENEFITS

6 Months Ended

Jun. 30, 2017

Compensation And Retirement Disclosure [Abstract]

PENSION AND POSTRETIREMENT BENEFITS

NOTE 10—PENSION AND POSTRETIREMENT BENEFITS

Net pension cost (benefit) recognized during each period presented relate to expected return on plan assets, net of interest costs, for our defined benefit pension plans.

Net periodic cost (benefit) for our qualified defined benefit pension plan and several of our non-qualified supplemental defined benefit pension plans (the “Domestic Plans”) and our J. Ray McDermott, S.A. Third Country National Employees Pension Plan (the “TCN Plan”) was as follows:

	Domestic Plans
	Three months ended June 30,						Six months ended June 30,
	2017			2016			2017			2016
	(In thousands)
Interest cost	$	4,991		$	5,293		$	9,982		$	10,552
Expected return on plan assets		(4,907	)		(5,001	)		(9,814	)		(10,004	)
Net periodic (benefit) cost	$	84		$	292		$	168		$	548

	TCN Plan
	Three months ended June 30,						Six months ended June 30,
	2017			2016			2017			2016
	(In thousands)
Interest cost	$	290		$	338		$	580		$	676
Expected return on plan assets		(345	)		(397	)		(690	)		(794	)
Net periodic (benefit) cost	$	(55	)	$	(59	)	$	(110	)	$	(118	)

We recognize actuarial gains and losses on defined benefit plans in our Consolidated Statements of Operations in the fourth quarter of each year at our annual measurement date of December 31, unless earlier remeasurements are required.

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DERIVATIVE FINANCIAL INSTRUMENTS

6 Months Ended

Jun. 30, 2017

Derivative Instruments And Hedging Activities Disclosure [Abstract]

DERIVATIVE FINANCIAL INSTRUMENTS

NOTE 11—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 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 Accumulated Other Comprehensive Income (“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 Other non-operating income (expense), net in our Consolidated Statements of Operations.

As of June 30, 2017, the majority of our foreign currency forward contracts were designated as cash flow hedging instruments. In addition, we deferred approximately $14 million of net losses on those derivative financial instruments in AOCI, and we expect to reclassify approximately $8 million of deferred losses out of AOCI by June 30, 2018, as hedged items are recognized. The notional value of our outstanding derivative contracts totaled $270 million at June 30, 2017, with maturities extending through March 2019. Of this amount, approximately $135 million is associated with various foreign currency expenditures we expect to incur on one of our ASA segment’s EPCI projects. These instruments consist of contracts to purchase or sell foreign-denominated currencies. As of June 30, 2017, the fair value of these contracts was in a net asset position totaling approximately $2 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

	June 30,		December 31,
	2017		2016
	(In thousands)
Derivatives Designated as Hedges:
Location:
Accounts receivable—other	$	3,543	$	2,631
Total derivatives asset	$	3,543	$	2,631
Accounts payable	$	1,283	$	9,361
Other liabilities		24		4
Total derivatives liability	$	1,307	$	9,365

The Effects of Derivative Instruments on our Financial Statements

	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
	(in thousands)
Derivatives Designated as Hedges:
Amount of gain (loss) recognized in other comprehensive income (loss)	$	4,610		$	(10,304	)	$	10,212		$	10,230
(Loss) gain reclassified from AOCI to Cost of operations		784			14,932			(2,731	)		24,611
Ineffective portion and amount excluded from effectiveness testing: loss recognized in Other non-operating expense		(1,225	)		(344	)		(919	)		(1,549	)

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FAIR VALUE MEASUREMENTS

6 Months Ended

Jun. 30, 2017

Fair Value Disclosures [Abstract]

FAIR VALUE MEASUREMENTS

NOTE 12—FAIR VALUE MEASUREMENTS

The following table presents the financial instruments outstanding as of June 30, 2017 and December 31, 2016 that are measured at fair value on a recurring basis and financial instruments that are not measured at fair value on a recurring basis.

	June 30, 2017
	Carrying Amount			Fair Value			Level 1		Level 2			Level 3
	(In thousands)
Recurring
Forward contracts	$	2,236		$	2,236		$	-	$	2,236		$	-
Non-recurring
Debt		(540,499	)		(552,037	)		-		(505,310	)		(46,727	)
	December 31, 2016
	Carrying Amount			Fair Value			Level 1		Level 2			Level 3
	(In thousands)
Recurring
Forward contracts	$	(6,734	)	$	(6,734	)	$	-	$	(6,734	)	$	-
Non-recurring
Debt		(752,520	)		(777,072	)		-		(728,072	)		(49,000	)

The carrying value of all non-derivative financial instruments included in current assets (including cash, cash equivalents and restricted cash and accounts receivable) and current liabilities (including accounts payable but excluding short-term debt) approximates the applicable fair value due to the short maturity of those instruments.

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

Short-term and long-term debt—The fair value of debt instruments valued using a market approach based on quoted prices for similar instruments traded in active markets is classified as Level 2 within the fair value hierarchy.

Quoted prices were not available for the NO 105 financing, vendor equipment financing or capital leases. The income approach was 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 and are classified as Level 3 within the fair value hierarchy.

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.

Fair Value Disclosure of Non-financial Assets

During the first quarter of 2016, we impaired our Agile vessel upon termination of its then-current charter in May 2016, given the lack of opportunities for that vessel. In connection with that decision, we recognized a non-cash impairment charge of $32 million during the first quarter of 2016, which equaled the vessel’s carrying value, in accordance with ASC 360-10, Property, Plant and Equipment.

These are reported as a component of Other operating (income) expenses, net in our Consolidated Statements of Operations. Previously, Impairment loss was presented separately in our Consolidated Statements of Operations.

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STOCKHOLDERS’ EQUITY

6 Months Ended

Jun. 30, 2017

Stockholders Equity Note [Abstract]

STOCKHOLDERS’ EQUITY

NOTE 13—STOCKHOLDERS’ EQUITY

The changes in the number of shares outstanding and treasury shares held by the Company are as follows:

	Six Months Ended June 30,
	2017			2016
Shares outstanding
Beginning balance		241,388,277			239,016,924
Common stock issued		43,584,281			2,206,027
Purchase of common stock		(997,160	)		(651,291	)
Ending balance		283,975,398			240,571,660
Shares held as Treasury shares
Beginning balance		8,302,004			7,824,204
Purchase of common stock		997,160			651,291
Retirement of common stock		(805,146	)		(400,701	)
Ending balance		8,494,018			8,074,794
Ordinary shares issued at the end of the period		292,469,416			248,646,454

During the second quarter of 2017, we delivered 40.8 million shares of our common stock to holders of the prepaid common stock purchase contracts comprising part of the TEUs, based on the settlement rate of 3.5496 shares per unit. For further discussion see Note 9, Debt.

Accumulated Other Comprehensive Income (Loss)

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

	June 30, 2017			December 31, 2016
	(In thousands)
Foreign currency translation adjustments ("CTA")	$	(42,074	)	$	(42,082	)
Net unrealized gain on investments		308			269
Net unrealized loss on derivative financial instruments		(14,425	)		(25,082	)
Accumulated other comprehensive loss	$	(56,191	)	$	(66,895	)

The following table presents the components of AOCI and the amounts that were reclassified during the periods indicated:

	Foreign currency translation adjustments			Unrealized holding gain (loss) on investments		Gain (loss) on derivative (1)				TOTAL
For the Three Months Ended June 30, 2017	(In thousands)
Balance at April 1, 2017	$	(41,843	)	$	288	$	(22,929	)		$	(64,484	)
Other comprehensive income (loss) before reclassification		(231	)		20		4,610				4,399
Acquisition of NCI		-			-		2,284				2,284
Amounts reclassified from AOCI		-			-		1,610		(2)		1,610
Net current period other comprehensive income		(231	)		20		8,504				8,293
Balance at June 30, 2017	$	(42,074	)	$	308	$	(14,425	)		$	(56,191	)
For the Six Months Ended June 30, 2017
Balance at January 1, 2017	$	(42,082	)	$	269	$	(25,082	)		$	(66,895	)
Other comprehensive income before reclassification		8			39		10,212				10,259
Acquisition of NCI		-			-		2,284				2,284
Amounts reclassified from AOCI		-			-		(1,839	)	(2)		(1,839	)
Net current period other comprehensive income		8			39		10,657				10,704
Balance at June 30, 2017	$	(42,074	)	$	308	$	(14,425	)		$	(56,191	)
For the Three Months Ended June 30, 2016											-
Balance at April 1, 2016	$	(33,268	)	$	252	$	(33,473	)		$	(66,489	)
Other comprehensive income (loss) before reclassification		(4,027	)		12		(10,304	)			(14,319	)
Amounts reclassified from AOCI		-			-		14,933		(2)		14,933
Net current period other comprehensive income		(4,027	)		12		4,629				614
Balance at June 30, 2016	$	(37,295	)	$	264	$	(28,844	)		$	(65,875	)
For the Six Months Ended June 30, 2016
Balance at January 1, 2016	$	(29,925	)	$	247	$	(64,277	)		$	(93,955	)
Other comprehensive income (loss) before reclassification		(7,370	)		17		10,230				2,877
Amounts reclassified from AOCI		-			-		25,203		(2)		25,203
Net current period other comprehensive income		(7,370	)		17		35,433				28,080
Balance at June 30, 2016	$	(37,295	)	$	264	$	(28,844	)		$	(65,875	)

⁽¹⁾ Refer to Note 11, Derivative Financial Instruments, for additional details.

⁽²⁾ Reclassified to Cost of operations and Other non-operating income (expense), net.

Noncontrolling Interest

North Ocean 105― In December 2010, J. Ray McDermott (Norway), AS (the “JRM”), one of our indirectly wholly owned subsidiaries, and Oceanteam entered into an Equity Owner’s Agreement (as amended to date, the “Equity Agreement”) to acquire a 75% interest in North Ocean 105 AS, the vessel-owning company. Under the Equity Agreement JRM was given an option to purchase Oceanteam ASA’s 25% ownership interest in the second quarter of 2017.

In the second quarter of 2017, we exercised our option under the Equity Agreement and purchased Oceanteam’s 25% interest in the vessel-owning company for approximately $11 million in cash. As part of that transaction, we also assumed the right to a $5 million note payable from North Ocean 105 AS to Oceanteam (which had been issued in connection with a dividend declared by North Ocean 105 AS in 2016). In connection with this acquisition, we recorded a $9 million decrease in noncontrolling interest and a $5 million decrease in note payable to Oceanteam and we recognized a $2 million gain in Capital-in-excess of par value in our Consolidated Financial Statements. 

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EARNINGS PER SHARE

6 Months Ended

Jun. 30, 2017

Earnings Per Share [Abstract]

EARNINGS PER SHARE

NOTE 14—EARNINGS PER SHARE

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
	(In thousands, except share and per share amounts)
Net income attributable to McDermott International, Inc.	$	36,413	$	20,657	$	58,329	$	18,485
Weighted average common stock (basic)		282,660,314		240,338,540		262,438,822		239,739,204
Effect of dilutive securities:
Tangible equity units1		898,820		40,896,300		19,347,386		40,896,300
Stock options, restricted stock and restricted stock units		1,423,136		3,674,574		2,336,352		2,496,734
Potential dilutive common stock		284,982,270		284,909,414		284,122,560		283,132,238
Net income per share attributable to McDermott International, Inc.
Basic:	$	0.13	$	0.09	$	0.22	$	0.08
Diluted:	$	0.13	$	0.07	$	0.21	$	0.07

¹ Represents weighted average TEUs outstanding for the three and six months periods ended June 30, 2017.

Approximately 1.7 million shares underlying outstanding stock-based awards for the three and six months ended June 30, 2017, respectively, and approximately 2 million shares underlying outstanding stock-based awards for the three and six months ended June 30, 2016, respectively, were excluded from the computation of diluted earnings per shares because inclusion of such shares would have been antidilutive in each of those periods. 

The common stock purchase contracts under the TEUs were settled in April 2017, see Note 9, Debt.

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COMMITMENTS AND CONTINGENCIES

6 Months Ended

Jun. 30, 2017

Commitments And Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

NOTE 15—COMMITMENTS AND CONTINGENCIES

Investigations and Litigation

We co-own interests in several entities (collectively, “FloaTEC”) with Keppel Corporation (including its subsidiaries, “Keppel”).  We have conducted an internal investigation in connection with allegations by a former Petrobras employee that Keppel’s agent made improper payments to secure project awards from Petrobras on a number of Keppel affiliated projects in Brazil, including a FloaTEC project on which we were also a subcontractor.  Keppel’s agent subsequently entered into a plea arrangement with the Brazilian authorities and admitted to having made improper payments on behalf of Keppel to former Petrobras employees on projects unrelated to FloaTEC.  We voluntarily contacted the U.S. Department of Justice (“DOJ”) to advise it of the preliminary results of our internal investigation, which identified no evidence to indicate any improper payments were made by us or FloaTEC or that any of our or FloaTEC’s employees authorized, had knowledge of, or direction or control over, any such payments.  We have responded to the DOJ’s requests for additional information.   If in the future, the DOJ determines that violations of applicable law have occurred involving us, we could be subject to civil or criminal sanctions, including monetary penalties, which could be material.   However, based on the preliminary results of our investigation, we do not expect this matter to have a material adverse effect on us or our operations. 

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 other dispute resolution proceedings 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 waste 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.

In 2013, we established a $6 million environmental reserve in connection with our plan to discontinue the utilization of our Morgan City fabrication facility. We incurred approximately $4 million for remediation activities. Based on our completed remediation activities, as well as our internal assessment, we believe no environmental remediation liability exists with respect to the Morgan City site. As a result, in 2016, we reversed our remaining environmental remediation obligation accrual.  

Asset Retirement Obligations

Asset retirement obligations (“ARO”) are recorded at the present value of the estimated costs to retire the asset at the time the obligation is incurred.

At some sites, we are contractually obligated to decommission our fabrication facilities upon site exit. Currently, we are unable to estimate any ARO due to the indeterminate life of our fabrication facilities.  We regularly review the optimal future alternatives for our facilities. Any decision to retire one or more facilities will result in recording the present value of such obligations. As of June 30, 2017, no ARO is recorded.

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 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 June 30, 2017, we had approximately $20 million of potential liquidated damages exposure, however no liability is recorded in our Consolidated Financial Statements. We believe we will be successful in obtaining schedule extensions or other customer-agreed changes that should resolve the potential for these liquidated damages. However, we may not achieve relief on some or all of the issues involved and, as a result, could be subject to future liquidated damages.

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SEGMENT REPORTING

6 Months Ended

Jun. 30, 2017

Segment Reporting [Abstract]

SEGMENT REPORTING

NOTE 16—SEGMENT REPORTING

We disclose the results of each of our reportable segments in accordance with ASC 280, Segment Reporting. Each of the reportable segments is separately managed by a senior executive who is a member of our Executive Committee (“EXCOM”).  EXCOM is led by our Chief Executive Officer, who is the chief operating decision maker. Discrete financial information is available for each of the segments, and the EXCOM uses the operating results of each of the reportable segments for performance evaluation and resource allocation.

We manage reportable segments along geographic lines consisting of (1) AEA, (2) MEA and (3) ASA. We also report certain corporate and other non-operating activities under the heading “Corporate and Other.”

Corporate and Other primarily reflects corporate expenses, certain centrally managed initiatives (such as restructuring charges), impairments, year-end mark-to-market (“MTM”) pension actuarial gains and losses, costs not attributable to a particular reportable segment and unallocated direct operating expenses associated with the underutilization of vessels, fabrication facilities and engineering resources.

We account for intersegment sales at prices that we generally establish by reference to similar transactions with unaffiliated customers. Reporting segments are measured based on operating income, which is defined as revenues reduced by total costs and expenses.

Summarized financial information is shown in the following tables:

	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
	(In thousands)
Revenues (1):
AEA	$	41,564		$	86,810		$	69,695		$	149,435
MEA		556,612			317,834			866,664			588,089
ASA		190,497			301,983			371,745			698,135
Total revenues:	$	788,673		$	706,627		$	1,308,104		$	1,435,659
Income before provision for income taxes:
Operating income (loss):
AEA	$	(11,302	)	$	13,861		$	(11,119	)	$	29,960
MEA		117,480			53,297			181,857			99,336
ASA		32,894			36,045			62,669			81,701
Segment operating income (loss)		139,072			103,203			233,407			210,997
Corporate and Other(2)		(51,873	)		(46,215	)		(90,223	)		(118,016	)
Total operating income		87,199			56,988			143,184			92,981
Interest expense, net		(21,204	)		(12,655	)		(38,910	)		(23,893	)
Other non-operating income (expense), net		(2,491	)		(2,851	)		(1,877	)		(6,242	)
Income before provision for income taxes	$	63,504		$	41,482		$	102,397		$	62,846
Capital expenditures:
AEA	$	10,074		$	941		$	15,325		$	3,526
MEA		4,779			2,469			10,631			4,703
ASA		2,224			134,567			5,736			161,575
Corporate and Other(3)		996			797			49,230			870
Total capital expenditures:	$	18,073		$	138,774		$	80,922		$	170,674
Depreciation and amortization:
AEA	$	7,395		$	9,406		$	11,408		$	19,725
MEA		13,762			6,562			21,665			11,908
ASA		5,372			6,289			12,947			12,907
Corporate and Other		1,775			2,130			3,665			4,389
Total depreciation and amortization:	$	28,304		$	24,387		$	49,685		$	48,929

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

⁽²⁾ Corporate and Other operating results for the first half of 2017 and 2016 include a $3 million gain on sale of assets and $32 million impairment charge related to our Agile vessel, respectively.

⁽³⁾ Corporate and Other capital expenditures in the first half of 2017 include the purchase of the Amazon, a pipelay and construction vessel. Following the purchase we sold this vessel to an unrelated third partyand simultaneously entered into an 11-year bareboat charter agreement, see Note 8, Sale Leaseback.

	June 30, 2017		December 31, 2016
	(In thousands)
Segment assets(1):
AEA	$	626,524	$	727,328
MEA		1,530,971		907,936
ASA		750,650		976,470
Corporate and Other		383,303		610,496
Total assets	$	3,291,448	$	3,222,230

⁽¹⁾ Our marine vessels are included in the area in which they were located as of reporting date.

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BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Policies)

6 Months Ended

Jun. 30, 2017

Accounting Policies [Abstract]

Nature of Operations

Nature of Operations

McDermott International, Inc. (“MDR”), a corporation incorporated under the laws of the Republic of Panama in 1959, is a leading provider of integrated engineering, procurement, construction and installation (“EPCI”), front-end engineering and design (“FEED”) and module fabrication services for upstream field developments worldwide.  We deliver fixed and floating production facilities, pipeline installations and subsea systems from concept to commissioning for complex offshore and subsea oil and gas projects. Operating in approximately 20 countries across the Americas, Europe, Africa, Asia and Australia, our integrated resources include 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 Consolidated Financial Statements, unless the context otherwise indicates, “we,” “us” and “our” mean MDR and its consolidated subsidiaries.

Basis of Presentation

Basis of Presentation

The accompanying Consolidated Financial Statements are unaudited and have been prepared from our books and records in accordance with Rule 10-1 of Regulation S-X for interim financial information. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States (“U.S. GAAP”) for complete financial statements. In the opinion of our management, all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair presentation have been included. The results of operations for interim periods are not necessarily indicative of results of operations for a full year. These Consolidated Financial Statements should be read in conjunction with our Consolidated Financial Statements and Notes thereto included in our Current Report on Form 8-K filed with the SEC on April 25, 2017 (the “April 25 Form 8-K”).

Classification

Classification

Certain prior year amounts have been reclassified for consistency with the current year presentation. Previously reported Consolidated Financial Statements have been adjusted to reflect those changes.

In addition, in the first quarter of 2017, we implemented certain changes to our financial reporting structure. Corporate expenses, certain centrally managed initiatives (such as restructuring charges), impairments, year-end mark-to-market pension actuarial gains and losses, costs not attributable to a particular reportable segment, and unallocated direct operating expenses associated with the underutilization of vessels, fabrication facilities and engineering resources, are no longer apportioned to our reportable segments. Those expenses are reported under “Corporate and Other.” Previously reported segment financial information has been adjusted to reflect this change, see Note 16, Segment Reporting.

Accounting Guidance Issued But Not Adopted

Accounting Guidance Issued But Not Adopted as of June 30, 2017

Stock Compensation—In May 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Updates (“ASU”) 2017-07, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting. The general model for modifications of share-based payment awards is to record the incremental value arising from a change as additional compensation cost. This guidance clarifies situations in which the existing award is not probable of vesting, and a modification gives rise to a new measurement date; no change in the total compensation cost recognized for an existing award will be required if there is no change to the fair value, vesting conditions and classification of the award. This ASU is effective prospectively for annual periods beginning on or after December 15, 2017. Early adoption is permitted. The application of this amendment is not expected to have a material impact on our future Consolidated Financial Statements or related disclosures.

Pension and Postretirement Benefits—In March 2017, the FASB issued ASU 2017-07, Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit. This ASU requires bifurcation of certain components of net pension and postretirement benefit cost (“benefit costs”) in the Consolidated Statements of Operations. The service cost components are required to be presented in operating income and the remaining components are required to be presented outside of operating income. This ASU is effective for interim and annual periods beginning after December 15, 2017. Early adoption is permitted.  Upon future adoption of this guidance, benefit costs, excluding service costs component, will be included in Other non-operating income (expense), net in our Consolidated Statements of Operations. Currently, all components of benefit costs are reported in Selling, general and administrative expenses in our Consolidated Statements of Operations.

Income Taxes—In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory.  This ASU requires entities to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs.  The ASU is effective for interim and annual periods beginning after December 15, 2017.  Early adoption is permitted.  The application of this amendment is not expected to have a material impact on our future Consolidated Financial Statements and related disclosures.

Financial Instruments—In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU will require a financial asset measured at amortized cost basis to be presented at the net amount expected to be collected. A valuation account, allowance for credit losses, will be deducted from the amortized cost basis of the financial asset to present the net carrying value at the amount expected to be collected on the financial asset. This ASU is effective for interim and annual periods beginning after December 15, 2019. We are currently assessing the impact of this guidance on our future Consolidated Financial Statements and related disclosures.

Leases—In February 2016, the FASB issued ASU 2016-02,Leases (Topic 842). The ASU will require entities that lease assets—referred to as “lessees”—to recognize on the balance sheet the assets and liabilities for the rights and obligations created by leases with lease terms of more than 12 months. Consistent with current U.S. GAAP, the recognition, measurement and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. However, unlike current U.S. GAAP—which requires only capital leases to be recognized on the balance sheet—the new ASU will require both types of leases to be recognized on the balance sheet. This ASU is effective for interim and annual periods beginning after December 15, 2018. Early adoption is permitted. We are currently assessing the impact of this ASU on our future Consolidated Financial Statements and related disclosures.

Revenue from Contracts with Customers (Topic 606)—In May 2014, the FASB issued a new standard related to revenue recognition which supersedes most of the existing revenue recognition requirements in U.S. GAAP and will require entities to recognize revenue at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. It also requires significantly expanded disclosures regarding the qualitative and quantitative information of an entity’s nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.

The FASB has issued several amendments to the standard, including clarification on accounting for licenses of intellectual property, identifying performance obligations, reporting gross versus net revenue and narrow-scope improvements and practical expedients.

The guidance permits two methods of adoption: retrospectively to each prior reporting period presented (“full retrospective method”), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (“modified retrospective application”).

We are currently assessing the impact of this ASU and the amendments on our future Consolidated Financial Statements and related disclosures. Adoption may affect the manner in which the company determines the unit of account for its projects and estimates revenue associated with unapproved change orders and claims. We intend to adopt the new standard on January 1, 2018 (the “initial application” date):

• using the modified retrospective application, with no restatement of the comparative periods presented and a cumulative effect adjustment as of the date of adoption;

• applying the new standard only to those contracts that are in process at the date of initial application; and

• disclosing the impact of the new standard on our 2018 Consolidated Financial Statements.

This standard could have a significant impact on our Consolidated Financial Statements and related disclosures.

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RESTRUCTURING (Tables)

6 Months Ended

Jun. 30, 2017

Restructuring And Related Activities [Abstract]

Restructuring Costs Incurred and Future Cost Expected to be Incurred

		Three months ended			Six months ended			From  inception to
		June 30, 2016						June 30, 2017
	(in thousands)
Americas Restructuring		$	(1,500	)	$	(1,500	)	$	44,194
McDermott Profitability Initiative
Severance and other personnel-related costs			992			1,425			17,807
Asset impairment and disposal			-			-			7,471
Legal and other advisor fees			49			222			11,639
Other			1,541			2,436			10,045
			2,582			4,083			46,962
Additional Overhead Reduction
Severance and other personnel-related costs			1,073			4,044			5,012
Legal and other advisor fees			240			1,968			2,768
Other			89			256			385
			1,402			6,268			8,165
Total		$	2,484		$	8,851		$	99,321

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CASH, CASH EQUIVALENTS AND RESTRICTED CASH (Tables)

6 Months Ended

Jun. 30, 2017

Cash And Cash Equivalents [Abstract]

Reconciliation of Cash, Cash Equivalents, and Restricted Cash

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Consolidated Balance Sheets that sum to the totals of such amounts shown in the Consolidated Statements of Cash Flows.  

	June 30, 2017		December 31, 2016
	(in thousands)
Cash and cash equivalents	$	393,726	$	595,921
Restricted cash and cash equivalents		15,154		16,412
Total cash, cash equivalents, and restricted cash shown in the Consolidated Statements of Cash Flows	$	408,880	$	612,333

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ACCOUNTS RECEIVABLE (Tables)

6 Months Ended

Jun. 30, 2017

Receivables [Abstract]

Contract Receivables

A summary of contract receivables is as follows:

	June 30, 2017			December 31, 2016
	(in thousands)
Contract receivables:
Contracts in progress	$	245,341		$	245,604
Completed contracts		24,755			40,345
Retainages		70,922			58,431
Unbilled(1)		4,303			4,303
Less allowances		(13,994	)		(14,299	)
Accounts receivable—trade, net	$	331,327		$	334,384

⁽¹⁾ This amount relates to a project milestone billing for which we are awaiting the customer’s final acceptance certificate. We expect to receive the final acceptance certificate during 2017.

Retainages on Contracts

The following is a summary of retainages on our contracts:

	June 30, 2017		December 31, 2016
	(in thousands)
Retainages expected to be collected within one year	$	70,922	$	58,431
Retainages expected to be collected after one year		92,797		127,193
Total retainages	$	163,719	$	185,624

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CONTRACTS IN PROGRESS AND ADVANCE BILLINGS ON CONTRACTS (Tables)

6 Months Ended

Jun. 30, 2017

Contractors [Abstract]

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:

	June 30, 2017			December 31, 2016
	(In thousands)
Costs incurred less costs of revenue recognized	$	78,291		$	119,688
Revenues recognized less billings to customers		540,873			199,450
Contracts in Progress	$	619,164		$	319,138
Billings to customers less revenue recognized	$	161,083		$	42,637
Costs incurred less costs of revenue recognized		(94,935	)		149,849
Advance Billings on Contracts	$	66,148		$	192,486

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DEBT (Tables)

6 Months Ended

Jun. 30, 2017

Debt Disclosure [Abstract]

Summary of Long-Term Debt Obligations

The carrying values of our long-term debt obligations, net of unamortized debt issuance costs of $6 million and $14 million as of June 30, 2017 and December 31, 2016, respectively, are as follows:

	June 30, 2017		December 31, 2016
	(In thousands)
Senior Notes	$	494,230	$	493,461
North Ocean 105 construction financing		28,595		31,877
Vendor equipment financing		15,686		-
Term Loan		-		212,070
Amortizing Notes		-		7,932
Other		1,988		7,180
		540,499		752,520
Less: Amounts due within one year		13,807		48,125
Total long-term debt	$	526,692	$	704,395

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PENSION AND POSTRETIREMENT BENEFITS (Tables)

6 Months Ended

Jun. 30, 2017

Compensation And Retirement Disclosure [Abstract]

Net Periodic Cost (Benefit)

Net periodic cost (benefit) for our qualified defined benefit pension plan and several of our non-qualified supplemental defined benefit pension plans (the “Domestic Plans”) and our J. Ray McDermott, S.A. Third Country National Employees Pension Plan (the “TCN Plan”) was as follows:

	Domestic Plans
	Three months ended June 30,						Six months ended June 30,
	2017			2016			2017			2016
	(In thousands)
Interest cost	$	4,991		$	5,293		$	9,982		$	10,552
Expected return on plan assets		(4,907	)		(5,001	)		(9,814	)		(10,004	)
Net periodic (benefit) cost	$	84		$	292		$	168		$	548

	TCN Plan
	Three months ended June 30,						Six months ended June 30,
	2017			2016			2017			2016
	(In thousands)
Interest cost	$	290		$	338		$	580		$	676
Expected return on plan assets		(345	)		(397	)		(690	)		(794	)
Net periodic (benefit) cost	$	(55	)	$	(59	)	$	(110	)	$	(118	)

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DERIVATIVE FINANCIAL INSTRUMENTS (Tables)

6 Months Ended

Jun. 30, 2017

Derivative Instruments And Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments

The following tables summarize our derivative financial instruments:

Asset and Liability Derivatives

	June 30,		December 31,
	2017		2016
	(In thousands)
Derivatives Designated as Hedges:
Location:
Accounts receivable—other	$	3,543	$	2,631
Total derivatives asset	$	3,543	$	2,631
Accounts payable	$	1,283	$	9,361
Other liabilities		24		4
Total derivatives liability	$	1,307	$	9,365

Effects of Derivative Instruments on Financial Statements

The Effects of Derivative Instruments on our Financial Statements

	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
	(in thousands)
Derivatives Designated as Hedges:
Amount of gain (loss) recognized in other comprehensive income (loss)	$	4,610		$	(10,304	)	$	10,212		$	10,230
(Loss) gain reclassified from AOCI to Cost of operations		784			14,932			(2,731	)		24,611
Ineffective portion and amount excluded from effectiveness testing: loss recognized in Other non-operating expense		(1,225	)		(344	)		(919	)		(1,549	)

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FAIR VALUE MEASUREMENTS (Tables)

6 Months Ended

Jun. 30, 2017

Fair Value Disclosures [Abstract]

Schedule of Financial Instruments Outstanding Measured at Fair Value on Recurring and Nonrecurring Basis

The following table presents the financial instruments outstanding as of June 30, 2017 and December 31, 2016 that are measured at fair value on a recurring basis and financial instruments that are not measured at fair value on a recurring basis.

	June 30, 2017
	Carrying Amount			Fair Value			Level 1		Level 2			Level 3
	(In thousands)
Recurring
Forward contracts	$	2,236		$	2,236		$	-	$	2,236		$	-
Non-recurring
Debt		(540,499	)		(552,037	)		-		(505,310	)		(46,727	)
	December 31, 2016
	Carrying Amount			Fair Value			Level 1		Level 2			Level 3
	(In thousands)
Recurring
Forward contracts	$	(6,734	)	$	(6,734	)	$	-	$	(6,734	)	$	-
Non-recurring
Debt		(752,520	)		(777,072	)		-		(728,072	)		(49,000	)

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STOCKHOLDERS' EQUITY (Tables)

6 Months Ended

Jun. 30, 2017

Accumulated Other Comprehensive Income Loss [Line Items]

Changes in the Number of Shares Outstanding and Treasury Shares Held by the Company

The changes in the number of shares outstanding and treasury shares held by the Company are as follows:

	Six Months Ended June 30,
	2017			2016
Shares outstanding
Beginning balance		241,388,277			239,016,924
Common stock issued		43,584,281			2,206,027
Purchase of common stock		(997,160	)		(651,291	)
Ending balance		283,975,398			240,571,660
Shares held as Treasury shares
Beginning balance		8,302,004			7,824,204
Purchase of common stock		997,160			651,291
Retirement of common stock		(805,146	)		(400,701	)
Ending balance		8,494,018			8,074,794
Ordinary shares issued at the end of the period		292,469,416			248,646,454

Reclassifications [Member]

Accumulated Other Comprehensive Income Loss [Line Items]

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

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

	June 30, 2017			December 31, 2016
	(In thousands)
Foreign currency translation adjustments ("CTA")	$	(42,074	)	$	(42,082	)
Net unrealized gain on investments		308			269
Net unrealized loss on derivative financial instruments		(14,425	)		(25,082	)
Accumulated other comprehensive loss	$	(56,191	)	$	(66,895	)

The following table presents the components of AOCI and the amounts that were reclassified during the periods indicated:

	Foreign currency translation adjustments			Unrealized holding gain (loss) on investments		Gain (loss) on derivative (1)				TOTAL
For the Three Months Ended June 30, 2017	(In thousands)
Balance at April 1, 2017	$	(41,843	)	$	288	$	(22,929	)		$	(64,484	)
Other comprehensive income (loss) before reclassification		(231	)		20		4,610				4,399
Acquisition of NCI		-			-		2,284				2,284
Amounts reclassified from AOCI		-			-		1,610		(2)		1,610
Net current period other comprehensive income		(231	)		20		8,504				8,293
Balance at June 30, 2017	$	(42,074	)	$	308	$	(14,425	)		$	(56,191	)
For the Six Months Ended June 30, 2017
Balance at January 1, 2017	$	(42,082	)	$	269	$	(25,082	)		$	(66,895	)
Other comprehensive income before reclassification		8			39		10,212				10,259
Acquisition of NCI		-			-		2,284				2,284
Amounts reclassified from AOCI		-			-		(1,839	)	(2)		(1,839	)
Net current period other comprehensive income		8			39		10,657				10,704
Balance at June 30, 2017	$	(42,074	)	$	308	$	(14,425	)		$	(56,191	)
For the Three Months Ended June 30, 2016											-
Balance at April 1, 2016	$	(33,268	)	$	252	$	(33,473	)		$	(66,489	)
Other comprehensive income (loss) before reclassification		(4,027	)		12		(10,304	)			(14,319	)
Amounts reclassified from AOCI		-			-		14,933		(2)		14,933
Net current period other comprehensive income		(4,027	)		12		4,629				614
Balance at June 30, 2016	$	(37,295	)	$	264	$	(28,844	)		$	(65,875	)
For the Six Months Ended June 30, 2016
Balance at January 1, 2016	$	(29,925	)	$	247	$	(64,277	)		$	(93,955	)
Other comprehensive income (loss) before reclassification		(7,370	)		17		10,230				2,877
Amounts reclassified from AOCI		-			-		25,203		(2)		25,203
Net current period other comprehensive income		(7,370	)		17		35,433				28,080
Balance at June 30, 2016	$	(37,295	)	$	264	$	(28,844	)		$	(65,875	)

⁽¹⁾ Refer to Note 11, Derivative Financial Instruments, for additional details.

⁽²⁾ Reclassified to Cost of operations and Other non-operating income (expense), net.

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EARNINGS PER SHARE (Tables)

6 Months Ended

Jun. 30, 2017

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 June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
	(In thousands, except share and per share amounts)
Net income attributable to McDermott International, Inc.	$	36,413	$	20,657	$	58,329	$	18,485
Weighted average common stock (basic)		282,660,314		240,338,540		262,438,822		239,739,204
Effect of dilutive securities:
Tangible equity units1		898,820		40,896,300		19,347,386		40,896,300
Stock options, restricted stock and restricted stock units		1,423,136		3,674,574		2,336,352		2,496,734
Potential dilutive common stock		284,982,270		284,909,414		284,122,560		283,132,238
Net income per share attributable to McDermott International, Inc.
Basic:	$	0.13	$	0.09	$	0.22	$	0.08
Diluted:	$	0.13	$	0.07	$	0.21	$	0.07

¹ Represents weighted average TEUs outstanding for the three and six months periods ended June 30, 2017.

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SEGMENT REPORTING (Tables)

6 Months Ended

Jun. 30, 2017

Segment Reporting [Abstract]

Information about Operations in Different Segments

Summarized financial information is shown in the following tables:

	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
	(In thousands)
Revenues (1):
AEA	$	41,564		$	86,810		$	69,695		$	149,435
MEA		556,612			317,834			866,664			588,089
ASA		190,497			301,983			371,745			698,135
Total revenues:	$	788,673		$	706,627		$	1,308,104		$	1,435,659
Income before provision for income taxes:
Operating income (loss):
AEA	$	(11,302	)	$	13,861		$	(11,119	)	$	29,960
MEA		117,480			53,297			181,857			99,336
ASA		32,894			36,045			62,669			81,701
Segment operating income (loss)		139,072			103,203			233,407			210,997
Corporate and Other(2)		(51,873	)		(46,215	)		(90,223	)		(118,016	)
Total operating income		87,199			56,988			143,184			92,981
Interest expense, net		(21,204	)		(12,655	)		(38,910	)		(23,893	)
Other non-operating income (expense), net		(2,491	)		(2,851	)		(1,877	)		(6,242	)
Income before provision for income taxes	$	63,504		$	41,482		$	102,397		$	62,846
Capital expenditures:
AEA	$	10,074		$	941		$	15,325		$	3,526
MEA		4,779			2,469			10,631			4,703
ASA		2,224			134,567			5,736			161,575
Corporate and Other(3)		996			797			49,230			870
Total capital expenditures:	$	18,073		$	138,774		$	80,922		$	170,674
Depreciation and amortization:
AEA	$	7,395		$	9,406		$	11,408		$	19,725
MEA		13,762			6,562			21,665			11,908
ASA		5,372			6,289			12,947			12,907
Corporate and Other		1,775			2,130			3,665			4,389
Total depreciation and amortization:	$	28,304		$	24,387		$	49,685		$	48,929

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

⁽²⁾ Corporate and Other operating results for the first half of 2017 and 2016 include a $3 million gain on sale of assets and $32 million impairment charge related to our Agile vessel, respectively.

⁽³⁾ Corporate and Other capital expenditures in the first half of 2017 include the purchase of the Amazon, a pipelay and construction vessel. Following the purchase we sold this vessel to an unrelated third partyand simultaneously entered into an 11-year bareboat charter agreement, see Note 8, Sale Leaseback.

Information about Segment Assets by Country

	June 30, 2017		December 31, 2016
	(In thousands)
Segment assets(1):
AEA	$	626,524	$	727,328
MEA		1,530,971		907,936
ASA		750,650		976,470
Corporate and Other		383,303		610,496
Total assets	$	3,291,448	$	3,222,230

⁽¹⁾ Our marine vessels are included in the area in which they were located as of reporting date.

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Basis of Presentation and Significant Accounting Policies - Additional Information (Detail)	Jun. 30, 2017 Country
Organization Consolidation And Presentation Of Financial Statements [Abstract]
Number of countries	20

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Revenue Recognition - Additional Information (Detail) - USD ($)		3 Months Ended		6 Months Ended
		Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Revenue Recognition Multiple Deliverable Arrangements [Line Items]
Unapproved change orders		$ 94,000,000	$ 122,000,000	$ 94,000,000	$ 122,000,000
Revenues	[1]	788,673,000	706,627,000	1,308,104,000	1,435,659,000
MEA [Member] | Unconsolidated joint ventures [Member]
Revenue Recognition Multiple Deliverable Arrangements [Line Items]
Revenues		0	0	0	0
MEA [Member] | Claims Revenue [Member]
Revenue Recognition Multiple Deliverable Arrangements [Line Items]
Revenues				10,000,000	16,000,000
Backlog [Member]
Revenue Recognition Multiple Deliverable Arrangements [Line Items]
Unapproved change orders		$ 13,000,000	$ 24,000,000	13,000,000	$ 24,000,000
EPCI Project [Member] | MEA [Member] | KJO Hout Project [Member]
Revenue Recognition Multiple Deliverable Arrangements [Line Items]
Loss on contracts				$ 9,000,000
Project completion year				2017

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

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Use of Estimates - Additional Information (Detail) $ in Millions	3 Months Ended			6 Months Ended		12 Months Ended
	Jun. 30, 2017 USD ($) Jacket	Jun. 30, 2016 USD ($)	Mar. 31, 2016 USD ($)	Jun. 30, 2017 USD ($) Jacket Project	Jun. 30, 2016 USD ($) Project	Dec. 31, 2016 USD ($)
Organization Consolidation And Presentation Of Financial Statements Disclosure [Line Items]
Effect of changes in estimated project cost on operating results			$ 28	$ 79	$ 68
MEA and ASA Segments [Member]
Organization Consolidation And Presentation Of Financial Statements Disclosure [Line Items]
Effect of changes in estimated project cost on operating results	$ 32
AEA [Member]
Organization Consolidation And Presentation Of Financial Statements Disclosure [Line Items]
Effect of changes in estimated project cost on operating results	4	$ 7		1	$ 23
Number of projects | Project					2
AEA [Member] | PB Litoral project [Member]
Organization Consolidation And Presentation Of Financial Statements Disclosure [Line Items]
Effect of changes in estimated project cost on operating results					$ 7
MEA [Member]
Organization Consolidation And Presentation Of Financial Statements Disclosure [Line Items]
Effect of changes in estimated project cost on operating results	$ 20		10	$ 36	17
Number of Jackets Saudi Aramco project | Jacket	9			9
Number of projects | Project				2
ASA [Member]
Organization Consolidation And Presentation Of Financial Statements Disclosure [Line Items]
Effect of changes in estimated project cost on operating results	$ 16		$ 11	$ 42	$ 28
ASA [Member] | Ichthys Project [Member]
Organization Consolidation And Presentation Of Financial Statements Disclosure [Line Items]
Effect of changes in estimated project cost on operating results						$ 34
ASA [Member] | Ichthys Project [Member] | Maximum [Member]
Organization Consolidation And Presentation Of Financial Statements Disclosure [Line Items]
Effect of additional estimated project costs On Income						$ 10

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Restructuring - Additional Information (Detail) - USD ($)	3 Months Ended	6 Months Ended
	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Restructuring And Related Activities [Abstract]
Restructuring costs	$ 2,484,000	$ 0	$ 8,851,000

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Restructuring - Restructuring Costs Incurred and Future Cost Expected to be Incurred (Detail) - USD ($)	3 Months Ended	6 Months Ended
	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Income Statement Balance Sheet And Additional Disclosures By Disposal Groups Including Discontinued Operations [Line Items]
Incurred for the period	$ 2,484,000	$ 0	$ 8,851,000
Incurred from inception to June 30, 2017		99,321,000
Americas Restructuring [Member]
Income Statement Balance Sheet And Additional Disclosures By Disposal Groups Including Discontinued Operations [Line Items]
Incurred for the period	(1,500,000)		(1,500,000)
Incurred from inception to June 30, 2017		44,194,000
McDermott Profitability Initiative [Member]
Income Statement Balance Sheet And Additional Disclosures By Disposal Groups Including Discontinued Operations [Line Items]
Incurred for the period	2,582,000		4,083,000
Incurred from inception to June 30, 2017		46,962,000
McDermott Profitability Initiative [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 period	992,000		1,425,000
Incurred from inception to June 30, 2017		17,807,000
McDermott Profitability Initiative [Member] | Asset impairment and disposal [Member]
Income Statement Balance Sheet And Additional Disclosures By Disposal Groups Including Discontinued Operations [Line Items]
Incurred from inception to June 30, 2017		7,471,000
McDermott Profitability Initiative [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 period	49,000		222,000
Incurred from inception to June 30, 2017		11,639,000
McDermott Profitability Initiative [Member] | Other Charges [Member]
Income Statement Balance Sheet And Additional Disclosures By Disposal Groups Including Discontinued Operations [Line Items]
Incurred for the period	1,541,000		2,436,000
Incurred from inception to June 30, 2017		10,045,000
Additional Overhead Reduction [Member]
Income Statement Balance Sheet And Additional Disclosures By Disposal Groups Including Discontinued Operations [Line Items]
Incurred for the period	1,402,000		6,268,000
Incurred from inception to June 30, 2017		8,165,000
Additional Overhead Reduction [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 period	1,073,000		4,044,000
Incurred from inception to June 30, 2017		5,012,000
Additional Overhead Reduction [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 period	240,000		1,968,000
Incurred from inception to June 30, 2017		2,768,000
Additional Overhead Reduction [Member] | Other Charges [Member]
Income Statement Balance Sheet And Additional Disclosures By Disposal Groups Including Discontinued Operations [Line Items]
Incurred for the period	$ 89,000		$ 256,000
Incurred from inception to June 30, 2017		$ 385,000

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Cash, Cash Equivalents and Restricted Cash - Reconciliation of Cash, Cash Equivalents, and Restricted Cash (Detail) - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016	Jun. 30, 2016	Dec. 31, 2015
Cash And Cash Equivalents [Abstract]
Cash and cash equivalents	$ 393,726	$ 595,921
Restricted cash and cash equivalents	15,154	16,412
Total cash, cash equivalents, and restricted cash shown in the Consolidated Statements of Cash Flows	$ 408,880	$ 612,333	$ 582,815	$ 781,645

XML

Accounts Receivable - Contract Receivables (Detail) - USD ($) $ in Thousands		Jun. 30, 2017	Dec. 31, 2016
Accounts Notes And Loans Receivable [Line Items]
Retainages		$ 70,922	$ 58,431
Accounts receivable—trade, net		331,327	334,384
Contract receivables [Member]
Accounts Notes And Loans Receivable [Line Items]
Contracts receivable		245,341	245,604
Unbilled	[1]	4,303	4,303
Less allowances		(13,994)	(14,299)
Accounts receivable—trade, net		331,327	334,384
Contract receivables [Member] | Completed contracts [Member]
Accounts Notes And Loans Receivable [Line Items]
Contracts receivable		$ 24,755	$ 40,345

[1] This amount relates to a project milestone billing for which we are awaiting the customer’s final acceptance certificate. We expect to receive the final acceptance certificate during 2017.

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Accounts Receivable - Retainages on Contracts (Detail) - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
Receivables [Abstract]
Retainages expected to be collected within one year	$ 70,922	$ 58,431
Retainages expected to be collected after one year	92,797	127,193
Total retainages	$ 163,719	$ 185,624

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Contracts in Progress and Advance Billings on Contracts - Components of Contracts in Progress and Advance Billings on Contracts (Detail) - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
Contractors [Abstract]
Costs incurred less costs of revenue recognized	$ 78,291	$ 119,688
Revenues recognized less billings to customers	540,873	199,450
Contracts in Progress	619,164	319,138
Billings to customers less revenue recognized	161,083	42,637
Costs incurred less costs of revenue recognized	(94,935)	149,849
Advance Billings on Contracts	$ 66,148	$ 192,486

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Sale Leaseback - Additional Information (Detail) - Amazon Pipelay and Construction Vessel [Member] - USD ($)	1 Months Ended	6 Months Ended
	Jan. 31, 2017	Jun. 30, 2017
Sale Leaseback Transaction [Line Items]
Purchase of vessel, cash consideration	$ 52,000,000
Proceeds from sale of vessel, cash consideration	$ 52,000,000
Bareboat charter agreement, term	11 years	11 years
Gain loss on sale of business	$ 0
Annual charter obligation due year one and two	3,000,000
Annual charter obligation due year three through eleven	$ 8,000,000

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Debt - Additional Information (Detail)	1 Months Ended			3 Months Ended	6 Months Ended		12 Months Ended
	Jun. 30, 2017 USD ($) shares	Feb. 28, 2017 USD ($)	Apr. 30, 2014 USD ($) $ / EquityUnits shares	Jun. 30, 2017 USD ($) shares	Jun. 30, 2017 USD ($) Installment shares	Jun. 30, 2016 USD ($) shares	Dec. 31, 2016 USD ($) shares	Apr. 30, 2017 $ / shares shares	Dec. 31, 2010	Sep. 30, 2010
Debt Instrument [Line Items]
Unamortized debt issuance costs	$ 6,000,000			$ 6,000,000	$ 6,000,000		$ 14,000,000
Repayment of outstanding term loans					230,509,000	$ 88,845,000
Line of Credit facility maximum amount outstanding					$ 333,000,000
Units issued | shares			11,500,000
Tangible units interest rate percentage			6.25%
Unit price per share | $ / EquityUnits			25
Initial principal amount per amortizing note | $ / EquityUnits			4.1266
Common stock issued to holders of TEU | shares	292,469,416			292,469,416	292,469,416	248,646,454	249,690,281	40,800,000
Settlement rate per tangible equity unit | $ / shares								$ 3.5496
Bank guarantees issued	$ 518,000,000			$ 518,000,000	$ 518,000,000		$ 359,000,000
Bonds issued related to JRM Mexico general agreement of indemnity	57,000,000			57,000,000	57,000,000		79,000,000
Line of Credit facility maximum uncommitted outstanding amount	300,000,000			300,000,000	300,000,000
JRM Mexico [Member]
Debt Instrument [Line Items]
Letter of credit, first lien		$ 50,000,000
Amortizing note interest rate percentage		5.75%
Percentage of ownership in the subsidiary		100.00%
Purchase agreement period		364 days
Receivables sold					2,000,000
Loan agreement for equipment financing, term		21 months
Equipment financing amount		$ 47,000,000
Borrowing outstanding	16,000,000			16,000,000	$ 16,000,000
McDermott International Management [Member]
Debt Instrument [Line Items]
Percentage of ownership in the subsidiary		100.00%
Description of loan agreement					JRM Mexico’s obligations in connection with this equipment financing are guaranteed by McDermott International Management, S. de RL., one of our 100% owned subsidiaries
Financial Letters of Credit [Member]
Debt Instrument [Line Items]
Line of Credit facility maximum amount outstanding					$ 24,000,000
London Interbank Offered Rate (LIBOR) [Member] | JRM Mexico [Member]
Debt Instrument [Line Items]
Base rate and applicable margin		4.25%
Senior Notes [Member]
Debt Instrument [Line Items]
Debt instrument maturity date					May 01, 2021
Issue of second-lien seven-year senior secured notes			$ 500,000,000
Debt instrument interest rate					8.00%
Issuance of tangible equity units					$ 240,000,000
Letter of Credit Facility [Member]
Debt Instrument [Line Items]
Cash collateralize letter of credit permitted to deposit, amount	300,000,000			300,000,000	300,000,000
Cash collateralized letters of credit	175,000,000			175,000,000	175,000,000
Letter of credit supported by cash collateral	$ 15,000,000			$ 15,000,000	15,000,000		16,000,000
Letter of Credit Facility [Member] | Maximum [Member]
Debt Instrument [Line Items]
Letter of credit supported by cash collateral maximum amount					166,000,000
Revolving Loans [Member]
Debt Instrument [Line Items]
Line of Credit facility maximum amount outstanding					$ 0
Prior Credit Agreement [Member]
Debt Instrument [Line Items]
Line of Credit facility maximum amount outstanding							$ 442,000,000
North Ocean 105 [Member]
Debt Instrument [Line Items]
Percentage of interest acquired in subsidiary									75.00%
Ownership percentage in Oceanteam ASA's	25.00%			25.00%	25.00%
Amended and Restated Credit Agreement [Member]
Debt Instrument [Line Items]
Unamortized debt issuance costs	$ 21,000,000			$ 21,000,000	$ 21,000,000
Repayment of outstanding term loans	217,000,000
Line of Credit facility maximum borrowing capacity	$ 1,000,000,000			$ 1,000,000,000	$ 1,000,000,000
Commitment fee on the unused portion of credit agreement	0.50%
Letter of credit outstanding fronting fee percentage	0.25%			0.25%	0.25%
Minimum fixed charge coverage ratio	1.15%
Debt instrument covenant minimum liquidity	$ 100,000,000			$ 100,000,000	$ 100,000,000
Minimum collateral coverage ratio	1.20%
Amended and Restated Credit Agreement [Member] | Fiscal Quarter Ending on or Before December 31, 2019 [Member]
Debt Instrument [Line Items]
Maximum permitted leverage ratio	3.50%			3.50%	3.50%
Amended and Restated Credit Agreement [Member] | Fiscal Quarter Ending After December 31, 2019 [Member]
Debt Instrument [Line Items]
Maximum permitted leverage ratio	3.25%			3.25%	3.25%
Amended and Restated Credit Agreement [Member] | Financial Letters of Credit [Member]
Debt Instrument [Line Items]
Letter of credit fee	4.00%			4.00%	4.00%
Amended and Restated Credit Agreement [Member] | Financial Letters of Credit [Member] | Minimum [Member]
Debt Instrument [Line Items]
Letter of credit participation fee percentage	3.75%			3.75%	3.75%
Amended and Restated Credit Agreement [Member] | Financial Letters of Credit [Member] | Maximum [Member]
Debt Instrument [Line Items]
Letter of credit participation fee percentage	4.25%			4.25%	4.25%
Amended and Restated Credit Agreement [Member] | Performance Stand By Letters Of Credit [Member]
Debt Instrument [Line Items]
Letter of credit fee	2.00%			2.00%	2.00%
Amended and Restated Credit Agreement [Member] | Performance Stand By Letters Of Credit [Member] | Minimum [Member]
Debt Instrument [Line Items]
Letter of credit participation fee percentage	1.875%			1.875%	1.875%
Amended and Restated Credit Agreement [Member] | Performance Stand By Letters Of Credit [Member] | Maximum [Member]
Debt Instrument [Line Items]
Letter of credit participation fee percentage	2.125%			2.125%	2.125%
Amended and Restated Credit Agreement [Member] | Eurodollar Rate [Member] | Minimum [Member]
Debt Instrument [Line Items]
Base rate and applicable margin	3.75%
Amended and Restated Credit Agreement [Member] | Eurodollar Rate [Member] | Maximum [Member]
Debt Instrument [Line Items]
Base rate and applicable margin	4.25%
Amended and Restated Credit Agreement [Member] | Federal Funds Rate [Member]
Debt Instrument [Line Items]
Base rate and applicable margin	0.50%
Amended and Restated Credit Agreement [Member] | 30-day Eurodollar Rate [Member]
Debt Instrument [Line Items]
Base rate and applicable margin	1.00%
Amended and Restated Credit Agreement [Member] | Base Rate [Member] | Minimum [Member]
Debt Instrument [Line Items]
Base rate and applicable margin	2.75%
Amended and Restated Credit Agreement [Member] | Base Rate [Member] | Maximum [Member]
Debt Instrument [Line Items]
Base rate and applicable margin	3.25%
Amended and Restated Credit Agreement [Member] | Second-lien Notes [Member]
Debt Instrument [Line Items]
Debt instrument face amount	$ 500,000,000			$ 500,000,000	$ 500,000,000
Debt instrument, description					Our $500 million second-lien notes due in April 2021, in which case the Credit Agreement will mature on December 1, 2020.
Debt instrument extended maturity month and year	2021-04
Debt instrument maturity date	Dec. 01, 2020
Amended and Restated Credit Agreement [Member] | Letter of Credit Facility [Member]
Debt Instrument [Line Items]
Letter of credit, first lien	$ 810,000,000			810,000,000	$ 810,000,000
Amended and Restated Credit Agreement [Member] | Revolving Loans [Member]
Debt Instrument [Line Items]
Letter of credit, first lien	300,000,000			300,000,000	300,000,000
Line of Credit facility maximum borrowing capacity	$ 300,000,000			$ 300,000,000	$ 300,000,000
Amended and Restated Credit Agreement [Member] | Revolving Loans [Member] | Maximum [Member]
Debt Instrument [Line Items]
Percentage of line of credit facility limitation on trade accounts receivable and cash and cash equivalents	75.00%
Amended and Restated Credit Agreement [Member] | Revolving Loans [Member] | Eurodollar Rate [Member]
Debt Instrument [Line Items]
Base rate and applicable margin	4.00%
Amended and Restated Credit Agreement [Member] | Revolving Loans [Member] | Base Rate [Member]
Debt Instrument [Line Items]
Base rate and applicable margin	3.00%
Amended and Restated Credit Agreement [Member] | Senior Secured Credit Facility [Member]
Debt Instrument [Line Items]
Line of credit facility, description					The senior secured credit facility established by the Credit Agreement is scheduled to mature in June 2022, unless we do not repay in full, by December 1, 2020
Line of credit, extended maturity month and year	2022-06
Line of credit, expiration date	Dec. 01, 2020
North Ocean Construction Financing [Member] | North Ocean 105 [Member] | Secured Debt [Member]
Debt Instrument [Line Items]
Percentage of interest acquired in subsidiary										75.00%
Number of semiannual installments of principal repayment | Installment					17
Principal repayment, description					The financing agreement requires principal repayment in 17 consecutive semiannual installments, which commenced on October 1, 2012.
Ownership percentage in Oceanteam ASA's	25.00%			25.00%	25.00%
Purchase of vessel, cash consideration				$ 11,000,000
Note payable assumed	$ 5,000,000			$ 5,000,000	$ 5,000,000
Senior Amortizing Note Due April 1, 2017
Debt Instrument [Line Items]
Debt instrument maturity date			Apr. 01, 2017
Amortizing note interest rate percentage			7.75%
Middle Eastern Bank [Member] | Letter of Credit Facility [Member]
Debt Instrument [Line Items]
Line of Credit facility maximum amount outstanding					$ 625,000,000

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Debt - Summary of Long-Term Debt Obligations (Detail) - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
Debt Instrument [Line Items]
Long-term borrowing	$ 540,499	$ 752,520
Less: Amounts due within one year	13,807	48,125
Long-term debt	526,692	704,395
Senior Notes [Member]
Debt Instrument [Line Items]
Long-term borrowing	494,230	493,461
Term Loan [Member]
Debt Instrument [Line Items]
Long-term borrowing		212,070
Amortizing Notes [Member]
Debt Instrument [Line Items]
Long-term borrowing		7,932
Other [Member]
Debt Instrument [Line Items]
Long-term borrowing	1,988	7,180
North Ocean 105 Construction Financing [Member]
Debt Instrument [Line Items]
Long-term borrowing	28,595	$ 31,877
Vendor Equipment Financing [Member]
Debt Instrument [Line Items]
Long-term borrowing	$ 15,686

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Pension and Postretirement Benefits - Net Periodic Cost (Benefit) (Detail) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Domestic Plans [Member]
Defined Benefit Plan Disclosure [Line Items]
Interest cost	$ 4,991	$ 5,293	$ 9,982	$ 10,552
Expected return on plan assets	(4,907)	(5,001)	(9,814)	(10,004)
Net periodic (benefit) cost	84	292	168	548
TCN Plan [Member]
Defined Benefit Plan Disclosure [Line Items]
Interest cost	290	338	580	676
Expected return on plan assets	(345)	(397)	(690)	(794)
Net periodic (benefit) cost	$ (55)	$ (59)	$ (110)	$ (118)

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Derivative Financial Instruments - Additional Information (Detail) - USD ($)	6 Months Ended
	Jun. 30, 2017	Dec. 31, 2016
Derivative [Line Items]
Net gain (loss) on derivative financial instruments	$ (14,425,000)	$ (25,082,000)
Net deferred losses expected to be reclassified from AOCI over next 12 months	(8,000,000)
Notional value of outstanding derivative contracts	$ 270,000,000
Derivative contracts, maturity date	Mar. 31, 2019
Fair value of derivative contracts	$ 2,000,000
EPCI projects [Member]
Derivative [Line Items]
Notional value of outstanding derivative contracts	$ 135,000,000

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Derivative Financial Instruments - Derivative Financial Instruments (Detail) - Derivatives Designated as Hedges [Member] - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
Derivatives Fair Value [Line Items]
Asset derivatives fair value	$ 3,543	$ 2,631
Liability derivatives fair value	1,307	9,365
Accounts receivable-other [Member]
Derivatives Fair Value [Line Items]
Asset derivatives fair value	3,543	2,631
Other liabilities [Member]
Derivatives Fair Value [Line Items]
Liability derivatives fair value	24	4
Accounts payable [Member]
Derivatives Fair Value [Line Items]
Liability derivatives fair value	$ 1,283	$ 9,361

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Derivative Financial Instruments - Effects of Derivative Instruments on Financial Statements (Detail) - Derivatives Designated as Hedges [Member] - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Derivative Instruments Gain Loss [Line Items]
Amount of gain (loss) recognized in other comprehensive income (loss)	$ 4,610	$ (10,304)	$ 10,212	$ 10,230
Cost of operations [Member]
Derivative Instruments Gain Loss [Line Items]
(Loss) gain reclassified from AOCI	784	14,932	(2,731)	24,611
Other non-operating expense [Member]
Derivative Instruments Gain Loss [Line Items]
Ineffective portion and amount excluded from effectiveness testing: loss recognized	$ (1,225)	$ (344)	$ (919)	$ (1,549)

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Fair Value Measurements - Schedule of Financial Instruments Outstanding Measured at Fair Value on Recurring and Nonrecurring Basis (Detail) - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
Carrying Amount [Member]
Recurring
Forward contracts	$ 2,236	$ (6,734)
Non-recurring
Debt	(540,499)	(752,520)
Fair value [Member]
Recurring
Forward contracts	2,236	(6,734)
Non-recurring
Debt	(552,037)	(777,072)
Level 2 [Member]
Recurring
Forward contracts	2,236	(6,734)
Non-recurring
Debt	(505,310)	(728,072)
Level 3 [Member]
Non-recurring
Debt	$ (46,727)	$ (49,000)

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Fair Value Measurements - Additional Information (Detail) $ in Millions	3 Months Ended
	Mar. 31, 2016 USD ($)
AEA [Member]
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Non-cash impairment charges	$ 32

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Stockholder's Equity - Changes in the Number of Shares Outstanding and Treasury Shares Held by the Company (Details) - shares	6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Apr. 30, 2017	Dec. 31, 2016
Shares Outstanding [Abstract]
Beginning balance	241,388,277	239,016,924
Common stock issued	43,584,281	2,206,027
Purchase of common stock	(997,160)	(651,291)
Ending balance	283,975,398	240,571,660
Shares Held as Treasury Shares [Abstract]
Beginning balance	8,302,004	7,824,204
Purchase of common stock	997,160	651,291
Retirement of common stock	(805,146)	(400,701)
Ending balance	8,494,018	8,074,794
Common stock, shares issued	292,469,416	248,646,454	40,800,000	249,690,281

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Stockholder's Equity - Additional Information (Detail) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended	6 Months Ended
	Jun. 30, 2017	Jun. 30, 2017	Jun. 30, 2016	Apr. 30, 2017	Dec. 31, 2016	Dec. 31, 2010
Accumulated Other Comprehensive Income Loss [Line Items]
Common stock issued to holders of TEU	292,469,416	292,469,416	248,646,454	40,800,000	249,690,281
Settlement rate per tangible equity unit				$ 3.5496
Decrease in noncontrolling interest		$ (6,775)
Accounts payable		260,091	$ (65,212)
Oceanteam ASA [Member]
Accumulated Other Comprehensive Income Loss [Line Items]
Purchase of vessel, cash consideration	$ 11,000
Note payable assumed	5,000	5,000
Decrease in noncontrolling interest	9,000
Accounts payable	5,000
Capital-in-excess	$ 2,000	$ 2,000
North Ocean 105 [Member]
Accumulated Other Comprehensive Income Loss [Line Items]
Percentage of interest acquired in subsidiary						75.00%
Ownership percentage in Oceanteam ASA's	25.00%	25.00%

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Stockholder's Equity - Components of Accumulated Other Comprehensive Income (Loss) included in Stockholders' Equity (Detail) - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
Stockholders Equity Note [Abstract]
Foreign currency translation adjustments ("CTA")	$ (42,074)	$ (42,082)
Net unrealized gain on investments	308	269
Net unrealized loss on derivative financial instruments	(14,425)	(25,082)
Accumulated other comprehensive loss	$ (56,191)	$ (66,895)

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Stockholder's Equity - Components of Accumulated Other Comprehensive Income (Loss) Reclassified (Detail) - USD ($) $ in Thousands		3 Months Ended		6 Months Ended
		Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Accumulated Other Comprehensive Income Loss [Line Items]
Beginning Balance				$ 1,595,468
Acquisition of NCI				(6,775)
Other comprehensive income, net of tax		$ 8,293	$ 606	10,686	$ 28,059
Ending Balance		1,660,496		1,660,496
Foreign currency translation adjustments [Member]
Accumulated Other Comprehensive Income Loss [Line Items]
Beginning Balance		(41,843)	(33,268)	(42,082)	(29,925)
Other comprehensive income (loss) before reclassification		(231)	(4,027)	8	(7,370)
Other comprehensive income, net of tax		(231)	(4,027)	8	(7,370)
Ending Balance		(42,074)	(37,295)	(42,074)	(37,295)
Unrealized holding gain (loss) on investments [Member]
Accumulated Other Comprehensive Income Loss [Line Items]
Beginning Balance		288	252	269	247
Other comprehensive income (loss) before reclassification		20	12	39	17
Other comprehensive income, net of tax		20	12	39	17
Ending Balance		308	264	308	264
Gain (loss) on derivatives[Member]
Accumulated Other Comprehensive Income Loss [Line Items]
Beginning Balance	[1]	(22,929)	(33,473)	(25,082)	(64,277)
Other comprehensive income (loss) before reclassification	[1]	4,610	(10,304)	10,212	10,230
Acquisition of NCI	[1]	2,284		2,284
Amounts reclassified from AOCI	[1],[2]	1,610	14,933	(1,839)	25,203
Other comprehensive income, net of tax	[1]	8,504	4,629	10,657	35,433
Ending Balance	[1]	(14,425)	(28,844)	(14,425)	(28,844)
Accumulated Other Comprehensive Income (Loss) [Member]
Accumulated Other Comprehensive Income Loss [Line Items]
Beginning Balance			(66,489)	(66,895)	(93,955)
Other comprehensive income (loss) before reclassification		4,399	(14,319)	10,259	2,877
Acquisition of NCI		2,284		2,284
Amounts reclassified from AOCI		1,610	14,933	(1,839)	25,203
Other comprehensive income, net of tax		8,293	614	10,704	28,080
Ending Balance		$ (56,191)	$ (65,875)	$ (56,191)	$ (65,875)

[1] Refer to Note 11, Derivative Financial Instruments, for additional details.

[2] Reclassified to Cost of operations and Other non-operating income (expense), net.

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Earnings Per Share - Computation of Basic and Diluted Earnings Per Share (Detail) - USD ($) $ / shares in Units, $ in Thousands		3 Months Ended		6 Months Ended
		Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Earnings Per Share [Abstract]
Net income attributable to McDermott International, Inc.		$ 36,413	$ 20,657	$ 58,329	$ 18,485
Weighted average common stock (basic)		282,660,314	240,338,540	262,438,822	239,739,204
Effect of dilutive securities:
Tangible equity units	[1]	898,820	40,896,300	19,347,386	40,896,300
Stock options, restricted stock and restricted stock units		1,423,136	3,674,574	2,336,352	2,496,734
Potential dilutive common stock		284,982,270	284,909,414	284,122,560	283,132,238
Net income per share attributable to McDermott International, Inc.
Basic:		$ 0.13	$ 0.09	$ 0.22	$ 0.08
Diluted:		$ 0.13	$ 0.07	$ 0.21	$ 0.07

[1] Represents weighted average TEUs outstanding for the three and six months periods ended June 30, 2017.

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Earnings Per Share - Additional Information (Detail) - shares shares in Millions	3 Months Ended		6 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Jun. 30, 2017	Jun. 30, 2016
Earnings Per Share [Abstract]
Antidilutive securities excluded from earnings per share computation, shares	1.7	2.0	1.7	2.0

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Commitments and Contingencies - Additional Information (Detail) - USD ($)	Jun. 30, 2017	Dec. 31, 2013
Commitments And Contingencies Disclosure [Line Items]
Asset retirement obligations	$ 0
Liquidated damages exposure	20,000,000
Liabilities of liquidated damages	0
Morgan City fabrication facility [Member]
Commitments And Contingencies Disclosure [Line Items]
Potential environmental liabilities		$ 6,000,000
Environmental loss contingencies, incurred	$ 4,000,000

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Segment Reporting - Additional Information (Detail)	6 Months Ended
	Jun. 30, 2017 Segment
Segment Reporting [Abstract]
Number of reportable segments	3
Number of operating segments	3

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Segment Reporting - Information about Operations in Different Segments (Detail) - USD ($) $ in Thousands		3 Months Ended		6 Months Ended
		Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Segment Reporting Information [Line Items]
Revenues	[1]	$ 788,673	$ 706,627	$ 1,308,104	$ 1,435,659
Operating income (loss)		87,199	56,988	143,184	92,981
Interest expense, net		(21,204)	(12,655)	(38,910)	(23,893)
Other non-operating income (expense), net		(2,491)	(2,851)	(1,877)	(6,242)
Income before provision for income taxes		63,504	41,482	102,397	62,846
Capital expenditures		18,073	138,774	80,922	170,674
Depreciation and amortization		28,304	24,387	49,685	48,929
Operating Segments [Member]
Segment Reporting Information [Line Items]
Operating income (loss)		139,072	103,203	233,407	210,997
Operating Segments [Member] | AEA [Member]
Segment Reporting Information [Line Items]
Revenues	[1]	41,564	86,810	69,695	149,435
Operating income (loss)		(11,302)	13,861	(11,119)	29,960
Capital expenditures		10,074	941	15,325	3,526
Depreciation and amortization		7,395	9,406	11,408	19,725
Operating Segments [Member] | MEA [Member]
Segment Reporting Information [Line Items]
Revenues	[1]	556,612	317,834	866,664	588,089
Operating income (loss)		117,480	53,297	181,857	99,336
Capital expenditures		4,779	2,469	10,631	4,703
Depreciation and amortization		13,762	6,562	21,665	11,908
Operating Segments [Member] | ASA [Member]
Segment Reporting Information [Line Items]
Revenues	[1]	190,497	301,983	371,745	698,135
Operating income (loss)		32,894	36,045	62,669	81,701
Capital expenditures		2,224	134,567	5,736	161,575
Depreciation and amortization		5,372	6,289	12,947	12,907
Corporate and Other [Member]
Segment Reporting Information [Line Items]
Operating income (loss)	[2]	(51,873)	(46,215)	(90,223)	(118,016)
Capital expenditures	[3]	996	797	49,230	870
Depreciation and amortization		$ 1,775	$ 2,130	$ 3,665	$ 4,389

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

[2] Corporate and Other operating results for the first half of 2017 and 2016 include a $3 million gain on sale of assets and $32 million impairment charge related to our Agile vessel, respectively.

[3] Corporate and Other capital expenditures in the first half of 2017 include the purchase of the Amazon, a pipelay and construction vessel. Following the purchase we sold this vessel to an unrelated third party and simultaneously entered into an 11-year bareboat charter agreement, see Note 8, Sale Leaseback.

XML

Segment Reporting - Information about Operations in Different Segments (Parenthetical) (Detail) - USD ($) $ in Millions	1 Months Ended	6 Months Ended
	Jan. 31, 2017	Jun. 30, 2017	Jun. 30, 2016
Amazon Pipelay and Construction Vessel [Member]
Segment Reporting Information [Line Items]
Bareboat charter agreement, term	11 years	11 years
Corporate and Other [Member]
Segment Reporting Information [Line Items]
Gain on sale of assets		$ 3	$ 3
Asset Impairment Charges		$ 32	$ 32

XML

Segment Reporting - Information about Segment Assets by Country (Detail) - USD ($) $ in Thousands		Jun. 30, 2017	Dec. 31, 2016
Segment Reporting Information [Line Items]
Total assets	[1]	$ 3,291,448	$ 3,222,230
Operating Segments [Member] | AEA [Member]
Segment Reporting Information [Line Items]
Total assets	[1]	626,524	727,328
Operating Segments [Member] | MEA [Member]
Segment Reporting Information [Line Items]
Total assets	[1]	1,530,971	907,936
Operating Segments [Member] | ASA [Member]
Segment Reporting Information [Line Items]
Total assets	[1]	750,650	976,470
Corporate and Other [Member]
Segment Reporting Information [Line Items]
Total assets	[1]	$ 383,303	$ 610,496

[1] Our marine vessels are included in the area in which they were located as of reporting date.