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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-K/A

(Amendment No. 1)

(Mark One)



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

For the fiscal year ended December 31, 2010

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 Number 001-08430





McDERMOTT
INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)



|                                                              |  |                                    
|------------------------------------------------------------- |  | -----------------------------------
|REPUBLIC OF PANAMA                                            |  | 72-0593134                         
|(State or Other Jurisdiction ofIncorporation or Organization) |  | (I.R.S. EmployerIdentification 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

Securities Registered Pursuant to Section 12(b) of the Act:



|                              |  |                                          
|----------------------------- |  | -----------------------------------------
|Title of each class           |  | Name of each Exchange on which registered
|Common Stock, $1.00 par value |  | New York Stock Exchange                  

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act.    Yes  þ    No   ̈

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange
Act.    Yes   ̈    No  þ

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  þ    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  þ    No  
 ̈

Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.   ̈

Indicate by check mark whether the registrant is
a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of large accelerated filer, accelerated filer and smaller reporting company in
Rule 12b-2 of the Exchange Act. (Check one):



|                        |  |   |  |                           |  |  
|----------------------- |  | - |  | ------------------------- |  | -
|Large accelerated filer |  | þ |  | Accelerated filer         |  |  ̈
|                        |  |   | 
|Non-accelerated filer   |  |  ̈ |  | Smaller reporting company |  |  ̈

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

The aggregate market value of the registrants common stock held by nonaffiliates of the registrant on the last business day of the
registrants most recently completed second fiscal quarter (based on the closing sales price on the New York Stock Exchange on June 30, 2010) was approximately $5.0 billion.

The number of shares of the registrants common stock outstanding at February 18, 2011 was 233,916,525.





DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrants Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A under the Securities Exchange Act of 1934 in connection with the
registrants 2011 Annual Meeting of Stockholders are incorporated by reference into Part III of this report.









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EXPLANATORY NOTE

This Amendment No. 1 on Form 10-K/A (this Form 10-K/A) to our Annual Report on Form 10-K for the year ended December 31,
2010, initially filed with the Securities and Exchange Commission on March 1, 2011 (the Original Filing), is being filed to amend Item 8 and Item 9A in the Original Filing to add the name of our independent registered public accounting
firm to the signature lines of the Report of Independent Registered Public Accounting Firm regarding the consolidated financial statements of McDermott International, Inc. and Subsidiaries and the supporting financial statement schedule, and the
Report of Independent Registered Public Accounting Firm regarding our internal control over financial reporting (each, a Report). In addition, Item 15 of the Original Filing has been amended to (1) add the name of our independent
registered public accounting firm to the signature line of Exhibit 23.1 and (2) contain currently dated certifications from our Chief Executive Officer and Chief Financial Officer as required by Sections 302 and 906 of the Sarbanes-Oxley Act of
2002. Such Exhibit 23.1 and such certifications are attached to this Form 10-K/A as Exhibits 23.1, 31.1, 31.2, 32.1 and 32.2. In addition, we have disclosed that certain exhibits that were filed with the Original Filing were previously filed.

The conformed signature of Deloitte & Touche LLP was inadvertently omitted from the electronic version of each Report and
Exhibit 23.1, although we had manually signed copies of each Report and Exhibit 23.1 in our possession prior to making the Original Filing. Except for the aforementioned amended information, this Form 10-K/A does not amend or update any other
information contained in the Original Filing, and we have not updated the disclosures contained therein to reflect events that occurred at any subsequent date.



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McDERMOTT INTERNATIONAL, INC.

INDEXFORM 10-K/A



|           |  |                                                                                            |    |  |    | 
|---------- |  | ------------------------------------------------------------------------------------------ | -- |  | -- | 
|           |  | PAGE                                                                                       |   
|Item 8.    |  | Financial Statements and Supplementary Data                                                |    |  |    | 
|           |  | Report of Independent Registered Public Accounting Firm                                    |    |  | 1  | 
|           |  | Consolidated Balance SheetsDecember 31, 2010 and December 31, 2009                        |    |  | 2  | 
|           |  | Consolidated Statements of Income for the Years Ended December 31, 2010, 2009 and
2008     |    |  | 4  | 
|           |  | Consolidated Statements of Equity for the Years Ended December 31, 2010, 2009 and
2008     |    |  | 5  | 
|           |  | Consolidated Statements of Cash Flows for the Years Ended December 31, 2010, 2009 and
2008 |    |  | 6  | 
|           |  | Notes to Consolidated Financial Statements                                                 |    |  | 7  | 
|Item 9A.   |  | Controls and Procedures                                                                    |    |  | 50 | 
|           |  | Disclosure Controls and Procedures                                                         |    |  | 50 | 
|           |  | Managements Report on Internal Control Over Financial Reporting                           |    |  | 50 | 
|           |  | Changes in Internal Control Over Financial Reporting                                       |    |  | 51 | 
|           |  | Report of Independent Registered Public Accounting Firm                                    |    |  | 51 | 
|           |  |                                                                                           
|           |  | PART IV                                                                                    |    |  |    | 
|Item 15.   |  | Exhibits and Financial Statement Schedules                                                 |    |  | 53 | 
|Signatures |  |                                                                                            | 59 | 



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|ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|------- | -------------------------------------------

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To
the Board of Directors and Stockholders of McDermott International, Inc.

Houston, Texas

We have audited the accompanying consolidated balance sheets of McDermott International, Inc. and subsidiaries (the Company)
as of December 31, 2010 and 2009, and the related consolidated statements of income, equity, and cash flows for each of the three years in the period ended December 31, 2010. Our audits also included the financial statement schedule listed in the
Index at Item 15. These financial statements and financial statement schedule are the responsibility of the Companys management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on
our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of McDermott International, Inc. and subsidiaries as of December 31, 2010 and 2009, and the results of their operations and their cash flows for each of the three years in the period ended December
31, 2010, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth therein.

As discussed in Note 1 to the
consolidated financial statements, on July 30, 2010, the Company completed the spin-off of its Government Operations and Power Generations Systems segments into an independent, publicly traded company named The Babcock & Wilcox Company.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
Companys internal control over financial reporting as of December 31, 2010, based on the criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
and our report dated March 1, 2011 expressed an unqualified opinion on the Companys internal control over financial reporting.

/s/
DELOITTE & TOUCHE LLP

Houston, Texas

March 1, 2011



1



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McDERMOTT INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEETS



|                                                        |  |                |           |  |      |   |           | 
|------------------------------------------------------- |  | -------------- | --------- |  | ---- | - | --------- | 
|                                                        |  | December 31,   |          
|                                                        |  | 2010           |           |  | 2009 |  
|                                                        |  | (In thousands) |          
|ASSETS                                                  |  |                |           |  |      |   |           | 
|Current Assets:                                         |  |                |           |  |      |   |           | 
|Cash and cash equivalents                               |  | $              | 403,463   |  |      | $ | 899,270   | 
|Restricted cash and cash equivalents (Note 1)           |  |                | 197,861   |  |      |   | 69,920    | 
|Investments (Note 6)                                    |  |                | 209,463   |  |      |   | 12        | 
|Accounts receivabletrade, net (Note 1)                 |  |                | 323,497   |  |      |   | 642,995   | 
|Accounts and notes receivableunconsolidated affiliates |  |                | 2,960     |  |      |   | 5,806     | 
|Accounts receivableother                               |  |                | 25,487    |  |      |   | 68,035    | 
|Contracts in progress                                   |  |                | 65,853    |  |      |   | 400,831   | 
|Inventories                                             |  |                | 1,675     |  |      |   | 101,494   | 
|Deferred income taxes                                   |  |                | 10,323    |  |      |   | 100,828   | 
|Assets held for sale (Note 2)                           |  |                | 10,161    |  |      |   |          | 
|Other current assets                                    |  |                | 34,895    |  |      |   | 68,730    | 
|                                                        |  |                |           |  |      |   |           | 
|Total Current Assets                                    |  |                | 1,285,638 |  |      |   | 2,357,921 | 
|                                                        |  |                |           |  |      |   |           | 
|Property, Plant and Equipment                           |  |                | 1,720,040 |  |      |   | 2,608,740 | 
|Less accumulated depreciation                           |  |                | 804,471   |  |      |   | 1,271,135 | 
|                                                        |  |                |           |  |      |   |           | 
|Net Property, Plant and Equipment                       |  |                | 915,569   |  |      |   | 1,337,605 | 
|                                                        |  |                |           |  |      |   |           | 
|Assets Held for Sale (Note 2)                           |  |                | 77,150    |  |      |   |          | 
|                                                        |  |                |           |  |      |   |           | 
|Investments (Note 6)                                    |  |                | 75,742    |  |      |   | 228,706   | 
|                                                        |  |                |           |  |      |   |           | 
|Goodwill                                                |  |                | 41,202    |  |      |   | 306,497   | 
|                                                        |  |                |           |  |      |   |           | 
|Deferred Income Taxes                                   |  |                |          |  |      |   | 275,567   | 
|                                                        |  |                |           |  |      |   |           | 
|Investments in Unconsolidated Affiliates                |  |                | 45,016    |  |      |   | 86,932    | 
|                                                        |  |                |           |  |      |   |           | 
|Other Assets                                            |  |                | 158,371   |  |      |   | 255,882   | 
|                                                        |  |                |           |  |      |   |           | 
|TOTAL                                                   |  | $              | 2,598,688 |  |      | $ | 4,849,110 | 
|                                                        |  |                |           |  |      |   |           | 

See accompanying notes to consolidated financial statements.



2



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McDERMOTT INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEETS(Continued)



|                                                                                                                                                                           |  |                |           |   |      |   |           |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | --------- | - | ---- | - | --------- | -
|                                                                                                                                                                           |  | December 31,   |          
|                                                                                                                                                                           |  | 2010           |           |   | 2009 |  
|                                                                                                                                                                           |  | (In thousands) |          
|LIABILITIES AND EQUITY                                                                                                                                                     |  |                |           |   |      |   |           |  
|Current Liabilities:                                                                                                                                                       |  |                |           |   |      |   |           |  
|Notes payable and current maturities of long-term debt                                                                                                                     |  | $              | 8,547     |   |      | $ | 16,270    |  
|Accounts payable                                                                                                                                                           |  |                | 252,974   |   |      |   | 471,858   |  
|Accrued employee benefits                                                                                                                                                  |  |                | 80,585    |   |      |   | 217,178   |  
|Accrued pension liabilitycurrent portion                                                                                                                                  |  |                | 8,797     |   |      |   | 173,271   |  
|Accrued liabilitiesother                                                                                                                                                  |  |                | 107,511   |   |      |   | 155,773   |  
|Accrued contract cost                                                                                                                                                      |  |                | 89,888    |   |      |   | 103,041   |  
|Advance billings on contracts                                                                                                                                              |  |                | 250,053   |   |      |   | 689,334   |  
|Deferred income taxes                                                                                                                                                      |  |                | 12,849    |   |      |   | 4,735     |  
|Income taxes                                                                                                                                                               |  |                | 32,851    |   |      |   | 59,294    |  
|Accrued warranty                                                                                                                                                           |  |                | 50        |   |      |   | 118,278   |  
|Liabilities associated with assets held for sale (Note 2)                                                                                                                  |  |                | 20,902    |   |      |   |          |  
|                                                                                                                                                                           |  |                |           |   |      |   |           |  
|Total Current Liabilities                                                                                                                                                  |  |                | 865,007   |   |      |   | 2,009,032 |  
|                                                                                                                                                                           |  |                |           |   |      |   |           |  
|Long-Term Debt                                                                                                                                                             |  |                | 46,748    |   |      |   | 56,714    |  
|                                                                                                                                                                           |  |                |           |   |      |   |           |  
|Accumulated Postretirement Benefit Obligation                                                                                                                              |  |                | 5,258     |   |      |   | 105,605   |  
|                                                                                                                                                                           |  |                |           |   |      |   |           |  
|Self-Insurance                                                                                                                                                             |  |                | 35,655    |   |      |   | 87,222    |  
|                                                                                                                                                                           |  |                |           |   |      |   |           |  
|Pension Liability                                                                                                                                                          |  |                | 52,831    |   |      |   | 610,166   |  
|                                                                                                                                                                           |  |                |           |   |      |   |           |  
|Other Liabilities                                                                                                                                                          |  |                | 80,922    |   |      |   | 147,271   |  
|                                                                                                                                                                           |  |                |           |   |      |   |           |  
|Commitments and Contingencies (Note 14)                                                                                                                                    |  |                |           |   |      |   |           |  
|Stockholders Equity:                                                                                                                                                      |  |                |           |   |      |   |           |  
|Common stock, par value $1.00 per share, authorized 400,000,000 shares; issued 240,791,473 and 236,919,404 shares at
December 31, 2010 and December 31, 2009, respectively |  |                | 240,791   |   |      |   | 236,919   |  
|Capital in excess of par value                                                                                                                                             |  |                | 1,357,316 |   |      |   | 1,300,998 |  
|Retained earnings                                                                                                                                                          |  |                | 100,373   |   |      |   | 951,647   |  
|Treasury stock at cost, 6,906,262 and 6,168,705 shares at December 31, 2010 and December 31, 2009,
respectively                                                            |  |                | (85,735   | ) |      |   | (69,370   | )
|Accumulated other comprehensive loss                                                                                                                                       |  |                | (163,717  | ) |      |   | (612,997  | )
|                                                                                                                                                                           |  |                |           |   |      |   |           |  
|Stockholders EquityMcDermott International, Inc.                                                                                                                         |  |                | 1,449,028 |   |      |   | 1,807,197 |  
|Noncontrolling interest                                                                                                                                                    |  |                | 63,239    |   |      |   | 25,903    |  
|                                                                                                                                                                           |  |                |           |   |      |   |           |  
|Total Equity                                                                                                                                                               |  |                | 1,512,267 |   |      |   | 1,833,100 |  
|                                                                                                                                                                           |  |                |           |   |      |   |           |  
|TOTAL                                                                                                                                                                      |  | $              | 2,598,688 |   |      | $ | 4,849,110 |  
|                                                                                                                                                                           |  |                |           |   |      |   |           |  

See accompanying notes to consolidated financial statements.



3



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McDERMOTT INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF INCOME



|                                                                                                |  |                                          |             |   |      |   |             |      |  |   |             |  
|----------------------------------------------------------------------------------------------- |  | ---------------------------------------- | ----------- | - | ---- | - | ----------- | ---- |  | - | ----------- | -
|                                                                                                |  | Year Ended December 31,                  |            
|                                                                                                |  | 2010                                     |             |   | 2009 |   |             | 2008 | 
|                                                                                                |  | (In thousands, except per share amounts) |            
|Revenues                                                                                        |  | $                                        | 2,403,743   |   |      | $ | 3,281,790   |      |  | $ | 3,098,104   |  
|                                                                                                |  |                                          |             |   |      |   |             |      |  |   |             |  
|Costs and Expenses:                                                                             |  |                                          |             |   |      |   |             |      |  |   |             |  
|Cost of operations                                                                              |  |                                          | 1,842,261   |   |      |   | 2,781,735   |      |  |   | 2,787,803   |  
|(Gain) loss on asset disposals and impairmentsnet                                              |  |                                          | 22,220      |   |      |   | (914        | )    |  |   | (2,599      | )
|Selling, general and administrative expenses                                                    |  |                                          | 216,763     |   |      |   | 218,063     |      |  |   | 202,252     |  
|                                                                                                |  |                                          |             |   |      |   |             |      |  |   |             |  
|Total Costs and Expenses                                                                        |  |                                          | 2,081,244   |   |      |   | 2,998,884   |      |  |   | 2,987,456   |  
|                                                                                                |  |                                          |             |   |      |   |             |      |  |   |             |  
|Equity in Loss of Unconsolidated Affiliates                                                     |  |                                          | (7,594      | ) |      |   | (3,557      | )    |  |   | (3,661      | )
|                                                                                                |  |                                          |             |   |      |   |             |      |  |   |             |  
|Operating Income                                                                                |  |                                          | 314,905     |   |      |   | 279,349     |      |  |   | 106,987     |  
|                                                                                                |  |                                          |             |   |      |   |             |      |  |   |             |  
|Other Income (Expense):                                                                         |  |                                          |             |   |      |   |             |      |  |   |             |  
|Interest income                                                                                 |  |                                          | 1,495       |   |      |   | 6,021       |      |  |   | 21,619      |  
|Interest expense                                                                                |  |                                          | (2,584      | ) |      |   |            |      |  |   | (4,285      | )
|Other income (expense)net                                                                      |  |                                          | (10,022     | ) |      |   | (15,257     | )    |  |   | 94          |  
|                                                                                                |  |                                          |             |   |      |   |             |      |  |   |             |  
|Total Other Income (Expense)                                                                    |  |                                          | (11,111     | ) |      |   | (9,236      | )    |  |   | 17,428      |  
|                                                                                                |  |                                          |             |   |      |   |             |      |  |   |             |  
|Income from continuing operations before provision for income taxes and noncontrolling interest |  |                                          | 303,794     |   |      |   | 270,113     |      |  |   | 124,415     |  
|                                                                                                |  |                                          |             |   |      |   |             |      |  |   |             |  
|Provision for Income Taxes                                                                      |  |                                          | 41,182      |   |      |   | 60,561      |      |  |   | 63,567      |  
|                                                                                                |  |                                          |             |   |      |   |             |      |  |   |             |  
|Income from continuing operations before noncontrolling interest                                |  |                                          | 262,612     |   |      |   | 209,552     |      |  |   | 60,848      |  
|                                                                                                |  |                                          |             |   |      |   |             |      |  |   |             |  
|Loss on disposal of discontinued operations                                                     |  |                                          | (123,311    | ) |      |   | (7,118      | )    |  |   |            |  
|Income from discontinued operations, net of tax                                                 |  |                                          | 88,411      |   |      |   | 188,016     |      |  |   | 368,653     |  
|                                                                                                |  |                                          |             |   |      |   |             |      |  |   |             |  
|Total income (loss) from discontinued operations, net of tax                                    |  |                                          | (34,900     | ) |      |   | 180,898     |      |  |   | 368,653     |  
|                                                                                                |  |                                          |             |   |      |   |             |      |  |   |             |  
|Net Income                                                                                      |  |                                          | 227,712     |   |      |   | 390,450     |      |  |   | 429,501     |  
|                                                                                                |  |                                          |             |   |      |   |             |      |  |   |             |  
|Less: net income attributable to noncontrolling interest                                        |  |                                          | (26,046     | ) |      |   | (3,394      | )    |  |   | (199        | )
|                                                                                                |  |                                          |             |   |      |   |             |      |  |   |             |  
|Net Income Attributable to McDermott International, Inc.                                        |  | $                                        | 201,666     |   |      | $ | 387,056     |      |  | $ | 429,302     |  
|                                                                                                |  |                                          |             |   |      |   |             |      |  |   |             |  
|Earnings per Common Share:                                                                      |  |                                          |             |   |      |   |             |      |  |   |             |  
|Basic:                                                                                          |  |                                          |             |   |      |   |             |      |  |   |             |  
|Income from continuing operations, less noncontrolling interest                                 |  | $                                        | 1.02        |   |      | $ | 0.90        |      |  | $ | 0.27        |  
|Income (loss) from discontinued operations, net of tax                                          |  |                                          | (0.15       | ) |      |   | 0.79        |      |  |   | 1.62        |  
|                                                                                                |  |                                          |             |   |      |   |             |      |  |   |             |  
|Net Income                                                                                      |  | $                                        | 0.87        |   |      | $ | 1.69        |      |  | $ | 1.89        |  
|                                                                                                |  |                                          |             |   |      |   |             |      |  |   |             |  
|Diluted:                                                                                        |  |                                          |             |   |      |   |             |      |  |   |             |  
|Income from continuing operations, less noncontrolling interest                                 |  | $                                        | 1.00        |   |      | $ | 0.88        |      |  | $ | 0.26        |  
|Income (loss) from discontinued operations, net of tax                                          |  |                                          | (0.15       | ) |      |   | 0.78        |      |  |   | 1.60        |  
|                                                                                                |  |                                          |             |   |      |   |             |      |  |   |             |  
|Net Income                                                                                      |  | $                                        | 0.85        |   |      | $ | 1.66        |      |  | $ | 1.86        |  
|                                                                                                |  |                                          |             |   |      |   |             |      |  |   |             |  
|Shares used in the computation of earnings per share (Note 11):                                 |  |                                          |             |   |      |   |             |      |  |   |             |  
|Basic                                                                                           |  |                                          | 232,173,362 |   |      |   | 229,471,020 |      |  |   | 226,918,776 |  
|Diluted                                                                                         |  |                                          | 235,622,029 |   |      |   | 233,626,876 |      |  |   | 230,393,782 |  
|                                                                                                |  |                                          |             |   |      |   |             |      |  |   |             |  

See accompanying notes to consolidated financial statements.



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McDERMOTT INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF EQUITY



|                                            |  |                                      |             |  |           |   |         |                             |  |   |                  |   |  |               |            |   |                                    |   |         |                     |  |   |                               |   |  |             |           |   |  |   |        |   |  |   |           |  
|------------------------------------------- |  | ------------------------------------ | ----------- |  | --------- | - | ------- | --------------------------- |  | - | ---------------- | - |  | ------------- | ---------- | - | ---------------------------------- | - | ------- | ------------------- |  | - | ----------------------------- | - |  | ----------- | --------- | - |  | - | ------ | - |  | - | --------- | -
|                                            |  |                                      |             |  |           |   |         | Capital InExcess
ofParValue |  |   | RetainedEarnings |   |  | TreasuryStock |            |   | AccumulatedOther
ComprehensiveLoss |   |         | StockholdersEquity |  |   | Non-Controlling
Interest(NCI) |   |  | TotalEquity |          
|                                            |  | Common Stock                         |             |  |           |   |         |                             |  |  
|                                            |  | Shares                               |             |  | Par Value |   |         |                             |  |   |                  |   | 
|                                            |  | (In thousands, except share amounts) |            
|Balance January 1, 2008                     |  |                                      | 231,722,659 |  |           | $ | 231,723 |                             |  | $ | 1,145,829        |   |  | $             | 135,289    |   |                                    | $ | (63,903 | )                   |  | $ | (281,933                      | ) |  | $           | 1,167,005 |   |  | $ | 373    |   |  | $ | 1,167,378 |  
|                                            |  |                                      |             |  |           |   |         |                             | 
|Comprehensive Income                        |  |                                      |             |  |           |   |         |                             |  |   |                  |   |  |               |            |   |                                    |   |         |                     |  |   |                               |   |  |             |           |   |  |   |        |   |  |   |           |  
|Net Income                                  |  |                                      |            |  |           |   |        |                             |  |   |                 |   |  |               | 429,302    |   |                                    |   |        |                     |  |   |                              |   |  |             | 429,302   |   |  |   | 199    |   |  |   | 429,501   |  
|Amortization of benefit plan costs          |  |                                      |            |  |           |   |        |                             |  |   |                 |   |  |               |           |   |                                    |   |        |                     |  |   | 24,651                        |   |  |             | 24,651    |   |  |   |       |   |  |   | 24,651    |  
|Unrecognized losses on benefit obligations  |  |                                      |            |  |           |   |        |                             |  |   |                 |   |  |               |           |   |                                    |   |        |                     |  |   | (332,687                      | ) |  |             | (332,687  | ) |  |   |       |   |  |   | (332,687  | )
|Unrealized loss of investments              |  |                                      |            |  |           |   |        |                             |  |   |                 |   |  |               |           |   |                                    |   |        |                     |  |   | (8,470                        | ) |  |             | (8,470    | ) |  |   |       |   |  |   | (8,470    | )
|Realized gains on investments               |  |                                      |             |  |           |   |         |                             |  |   |                  |   |  |               |            |   |                                    |   |         |                     |  |   | (1,492                        | ) |  |             | (1,492    | ) |  |   |        |   |  |   | (1,492    | )
|Translation adjustments and other           |  |                                      |            |  |           |   |        |                             |  |   |                 |   |  |               |           |   |                                    |   |        |                     |  |   | (38,370                       | ) |  |             | (38,370   | ) |  |   | 80     |   |  |   | (38,290   | )
|Unrealized loss on derivatives              |  |                                      |            |  |           |   |        |                             |  |   |                 |   |  |               |           |   |                                    |   |        |                     |  |   | (28,929                       | ) |  |             | (28,929   | ) |  |   |       |   |  |   | (28,929   | )
|Realized gains on derivatives               |  |                                      |            |  |           |   |        |                             |  |   |                 |   |  |               |           |   |                                    |   |        |                     |  |   | (5,185                        | ) |  |             | (5,185    | ) |  |   |       |   |  |   | (5,185    | )
|                                            |  |                                      |             |  |           |   |         |                             |  |   |                  |   |  |               |            |   |                                    |   |         |                     |  |   |                               |   |  |             |           |   |  |   |        |   |  |   |           |  
|Total comprehensive income, net of tax      |  |                                      |             |  |           |   |         |                             |  |   |                  |   |  |               | 429,302    |   |                                    |   |        |                     |  |   | (390,482                      | ) |  |             | 38,820    |   |  |   | 279    |   |  |   | 39,099    |  
|                                            |  |                                      |             |  |           |   |         |                             |  |   |                  |   |  |               |            |   |                                    |   |         |                     |  |   |                               |   |  |             |           |   |  |   |        |   |  |   |           |  
|Exercise of stock options                   |  |                                      | 1,687,536   |  |           |   | 1,688   |                             |  |   | 825              |   |  |               |           |   |                                    |   | 7,111   |                     |  |   |                              |   |  |             | 9,624     |   |  |   |       |   |  |   | 9,624     |  
|Restricted stock issuances-net              |  |                                      | 350,946     |  |           |   | 351     |                             |  |   | (351             | ) |  |               |           |   |                                    |   |        |                     |  |   |                              |   |  |             |          |   |  |   |       |   |  |   |          |  
|Contributions to thrift plan                |  |                                      | 412,947     |  |           |   | 412     |                             |  |   | 12,194           |   |  |               |           |   |                                    |   |        |                     |  |   |                              |   |  |             | 12,606    |   |  |   |       |   |  |   | 12,606    |  
|Purchase of treasury shares                 |  |                                      |            |  |           |   |        |                             |  |   |                 |   |  |               |           |   |                                    |   | (6,234  | )                   |  |   |                              |   |  |             | (6,234    | ) |  |   |       |   |  |   | (6,234    | )
|Stock-based compensation charges            |  |                                      |            |  |           |   |        |                             |  |   | 94,351           |   |  |               |           |   |                                    |   |        |                     |  |   |                              |   |  |             | 94,351    |   |  |   |       |   |  |   | 94,351    |  
|Distributions to NCI                        |  |                                      |            |  |           |   |        |                             |  |   |                 |   |  |               |           |   |                                    |   |        |                     |  |   |                              |   |  |             |          |   |  |   | (311   | ) |  |   | (311      | )
|                                            |  |                                      |             |  |           |   |         |                             |  |   |                  |   |  |               |            |   |                                    |   |         |                     |  |   |                               |   |  |             |           |   |  |   |        |   |  |   |           |  
|Balance December 31, 2008                   |  |                                      | 234,174,088 |  |           | $ | 234,174 |                             |  | $ | 1,252,848        |   |  | $             | 564,591    |   |                                    | $ | (63,026 | )                   |  | $ | (672,415                      | ) |  | $           | 1,316,172 |   |  | $ | 341    |   |  | $ | 1,316,513 |  
|                                            |  |                                      |             |  |           |   |         |                             |  |   |                  |   |  |               |            |   |                                    |   |         |                     |  |   |                               |   |  |             |           |   |  |   |        |   |  |   |           |  
|Comprehensive Income                        |  |                                      |             |  |           |   |         |                             |  |   |                  |   |  |               |            |   |                                    |   |         |                     |  |   |                               |   |  |             |           |   |  |   |        |   |  |   |           |  
|Net Income                                  |  |                                      |            |  |           |   |        |                             |  |   |                 |   |  |               | 387,056    |   |                                    |   |        |                     |  |   |                              |   |  |             | 387,056   |   |  |   | 3,394  |   |  |   | 390,450   |  
|Amortization of benefit plan costs          |  |                                      |            |  |           |   |        |                             |  |   |                 |   |  |               |           |   |                                    |   |        |                     |  |   | 59,413                        |   |  |             | 59,413    |   |  |   |       |   |  |   | 59,413    |  
|Unrecognized losses on benefit obligations  |  |                                      |            |  |           |   |        |                             |  |   |                 |   |  |               |           |   |                                    |   |        |                     |  |   | (41,066                       | ) |  |             | (41,066   | ) |  |   |       |   |  |   | (41,066   | )
|Unrealized gains of investments             |  |                                      |            |  |           |   |        |                             |  |   |                 |   |  |               |           |   |                                    |   |        |                     |  |   | 1,993                         |   |  |             | 1,993     |   |  |   |       |   |  |   | 1,993     |  
|Realized loss on investments                |  |                                      |            |  |           |   |        |                             |  |   |                 |   |  |               |           |   |                                    |   |        |                     |  |   | 124                           |   |  |             | 124       |   |  |   |        |   |  |   | 124       |  
|Translation adjustments and other           |  |                                      |            |  |           |   |        |                             |  |   |                 |   |  |               |           |   |                                    |   |        |                     |  |   | 29,406                        |   |  |             | 29,406    |   |  |   | 201    |   |  |   | 29,607    |  
|Unrealized gains on derivatives             |  |                                      |            |  |           |   |        |                             |  |   |                 |   |  |               |           |   |                                    |   |        |                     |  |   | 11,403                        |   |  |             | 11,403    |   |  |   |       |   |  |   | 11,403    |  
|Realized gains on derivatives               |  |                                      |            |  |           |   |        |                             |  |   |                 |   |  |               |           |   |                                    |   |        |                     |  |   | (1,855                        | ) |  |             | (1,855    | ) |  |   |       |   |  |   | (1,855    | )
|                                            |  |                                      |             |  |           |   |         |                             |  |   |                  |   |  |               |            |   |                                    |   |         |                     |  |   |                               |   |  |             |           |   |  |   |        |   |  |   |           |  
|Total comprehensive income, net of tax      |  |                                      |             |  |           |   |         |                             |  |   |                  |   |  |               | 387,056    |   |                                    |   |        |                     |  |   | 59,418                        |   |  |             | 446,474   |   |  |   | 3,595  |   |  |   | 450,069   |  
|                                            |  |                                      |             |  |           |   |         |                             |  |   |                  |   |  |               |            |   |                                    |   |         |                     |  |   |                               |   |  |             |           |   |  |   |        |   |  |   |           |  
|Exercise of stock options                   |  |                                      | 285,318     |  |           |   | 285     |                             |  |   | 570              |   |  |               |           |   |                                    |   | 187     |                     |  |   |                              |   |  |             | 1,042     |   |  |   |       |   |  |   | 1,042     |  
|Excess tax benefits on stock options        |  |                                      |            |  |           |   |        |                             |  |   | (2,324           | ) |  |               |           |   |                                    |   |        |                     |  |   |                              |   |  |             | (2,324    | ) |  |   |       |   |  |   | (2,324    | )
|Contributions to thrift plan                |  |                                      | 941,348     |  |           |   | 941     |                             |  |   | 14,423           |   |  |               |           |   |                                    |   |        |                     |  |   |                              |   |  |             | 15,364    |   |  |   |       |   |  |   | 15,364    |  
|Accelerated vesting                         |  |                                      | 1,518,650   |  |           |   | 1,519   |                             |  |   | (1,519           | ) |  |               |           |   |                                    |   |        |                     |  |   |                              |   |  |             |          |   |  |   |       |   |  |   |          |  
|Stock-based compensation charges            |  |                                      |            |  |           |   |        |                             |  |   | 34,914           |   |  |               |           |   |                                    |   |        |                     |  |   |                              |   |  |             | 34,914    |   |  |   |       |   |  |   | 34,914    |  
|Purchase of treasury shares                 |  |                                      |            |  |           |   |        |                             |  |   |                 |   |  |               |           |   |                                    |   | (6,531  | )                   |  |   |                              |   |  |             | (6,531    | ) |  |   |       |   |  |   | (6,531    | )
|Sale of subsidiary shares to NCI            |  |                                      |            |  |           |   |        |                             |  |   | 2,086            |   |  |               |           |   |                                    |   |        |                     |  |   |                              |   |  |             | 2,086     |   |  |   | (2,086 | ) |  |   |          |  
|Acquisition of NCI (Note 3)                 |  |                                      |            |  |           |   |        |                             |  |   |                 |   |  |               |           |   |                                    |   |        |                     |  |   |                              |   |  |             |          |   |  |   | 24,109 |   |  |   | 24,109    |  
|Distributions to NCI                        |  |                                      |            |  |           |   |        |                             |  |   |                 |   |  |               |           |   |                                    |   |        |                     |  |   |                              |   |  |             |          |   |  |   | (56    | ) |  |   | (56       | )
|                                            |  |                                      |             |  |           |   |         |                             |  |   |                  |   |  |               |            |   |                                    |   |         |                     |  |   |                               |   |  |             |           |   |  |   |        |   |  |   |           |  
|Balance December 31, 2009                   |  |                                      | 236,919,404 |  |           | $ | 236,919 |                             |  | $ | 1,300,998        |   |  | $             | 951,647    |   |                                    | $ | (69,370 | )                   |  | $ | (612,997                      | ) |  | $           | 1,807,197 |   |  | $ | 25,903 |   |  | $ | 1,833,100 |  
|                                            |  |                                      |             |  |           |   |         |                             |  |   |                  |   |  |               |            |   |                                    |   |         |                     |  |   |                               |   |  |             |           |   |  |   |        |   |  |   |           |  
|Comprehensive Income                        |  |                                      |             |  |           |   |         |                             |  |   |                  |   |  |               |            |   |                                    |   |         |                     |  |   |                               |   |  |             |           |   |  |   |        |   |  |   |           |  
|Net income                                  |  |                                      |            |  |           |   |        |                             |  |   |                 |   |  |               | 201,666    |   |                                    |   |        |                     |  |   |                              |   |  |             | 201,666   |   |  |   | 26,046 |   |  |   | 227,712   |  
|Amortization of benefit plan costs          |  |                                      |            |  |           |   |        |                             |  |   |                 |   |  |               |           |   |                                    |   |        |                     |  |   | 44,322                        |   |  |             | 44,322    |   |  |   |       |   |  |   | 44,322    |  
|Unrecognized losses on benefits obligations |  |                                      |            |  |           |   |        |                             |  |   |                 |   |  |               |           |   |                                    |   |        |                     |  |   | (21,612                       | ) |  |             | (21,612   | ) |  |   |       |   |  |   | (21,612   | )
|Unrealized gain on investments              |  |                                      |            |  |           |   |        |                             |  |   |                 |   |  |               |           |   |                                    |   |        |                     |  |   | 2,440                         |   |  |             | 2,440     |   |  |   |       |   |  |   | 2,440     |  
|Realized losses on investments              |  |                                      |            |  |           |   |        |                             |  |   |                 |   |  |               |           |   |                                    |   |        |                     |  |   | 91                            |   |  |             | 91        |   |  |   |       |   |  |   | 91        |  
|Translation adjustments and other           |  |                                      |            |  |           |   |        |                             |  |   |                 |   |  |               |           |   |                                    |   |        |                     |  |   | (23,252                       | ) |  |             | (23,252   | ) |  |   |       |   |  |   | (23,252   | )
|Unrealized gains on derivatives             |  |                                      |            |  |           |   |        |                             |  |   |                 |   |  |               |           |   |                                    |   |        |                     |  |   | 606                           |   |  |             | 606       |   |  |   |       |   |  |   | 606       |  
|Realized losses on derivatives              |  |                                      |            |  |           |   |        |                             |  |   |                 |   |  |               |           |   |                                    |   |        |                     |  |   | 2,229                         |   |  |             | 2,229     |   |  |   |       |   |  |   | 2,229     |  
|                                            |  |                                      |             |  |           |   |         |                             |  |   |                  |   |  |               |            |   |                                    |   |         |                     |  |   |                               |   |  |             |           |   |  |   |        |   |  |   |           |  
|Total Comprehensive Income, net of tax      |  |                                      |             |  |           |   |         |                             |  |   |                  |   |  |               | 201,666    |   |                                    |   |        |                     |  |   | 4,824                         |   |  |             | 206,490   |   |  |   | 26,046 |   |  |   | 232,536   |  
|                                            |  |                                      |             |  |           |   |         |                             |  |   |                  |   |  |               |            |   |                                    |   |         |                     |  |   |                               |   |  |             |           |   |  |   |        |   |  |   |           |  
|Spin-off of The Babcock & Wilcox Company    |  |                                      |            |  |           |   |        |                             |  |   | (1,441           | ) |  |               | (1,052,940 | ) |                                    |   |        |                     |  |   | 444,456                       |   |  |             | (609,925  | ) |  |   | (503   | ) |  |   | (610,428  | )
|Exercise of stock options                   |  |                                      | 1,039,114   |  |           |   | 1,040   |                             |  |   | 2,352            |   |  |               |           |   |                                    |   | (650    | )                   |  |   |                              |   |  |             | 2,742     |   |  |   |       |   |  |   | 2,742     |  
|Excess tax on stock options                 |  |                                      |            |  |           |   |        |                             |  |   | 2,192            |   |  |               |           |   |                                    |   |        |                     |  |   |                              |   |  |             | 2,192     |   |  |   |       |   |  |   | 2,192     |  
|Accelerated vesting, net of forfeitures     |  |                                      | 2,550,933   |  |           |   | 2,550   |                             |  |   | (2,528           | ) |  |               |           |   |                                    |   |        |                     |  |   |                              |   |  |             | 22        |   |  |   |       |   |  |   | 22        |  
|Contributions to thrift plan                |  |                                      | 282,022     |  |           |   | 282     |                             |  |   | 6,641            |   |  |               |           |   |                                    |   |        |                     |  |   |                              |   |  |             | 6,923     |   |  |   |       |   |  |   | 6,923     |  
|Purchase of treasury shares                 |  |                                      |            |  |           |   |        |                             |  |   |                 |   |  |               |           |   |                                    |   | (15,715 | )                   |  |   |                              |   |  |             | (15,715   | ) |  |   |       |   |  |   | (15,715   | )
|Stock-based compensation charges            |  |                                      |            |  |           |   |        |                             |  |   | 50,888           |   |  |               |           |   |                                    |   |        |                     |  |   |                              |   |  |             | 50,888    |   |  |   |       |   |  |   | 50,888    |  
|Acquisition of NCI                          |  |                                      |            |  |           |   |        |                             |  |   | (1,786           | ) |  |               |           |   |                                    |   |        |                     |  |   |                              |   |  |             | (1,786    | ) |  |   | 11,793 |   |  |   | 10,007    |  
|                                            |  |                                      |             |  |           |   |         |                             |  |   |                  |   |  |               |            |   |                                    |   |         |                     |  |   |                               |   |  |             |           |   |  |   |        |   |  |   |           |  
|Balance at December 31, 2010                |  |                                      | 240,791,473 |  |           | $ | 240,791 |                             |  | $ | 1,357,316        |   |  | $             | 100,373    |   |                                    | $ | (85,735 | )                   |  | $ | (163,717                      | ) |  | $           | 1,449,028 |   |  | $ | 63,239 |   |  | $ | 1,512,267 |  
|                                            |  |                                      |             |  |           |   |         |                             |  |   |                  |   |  |               |            |   |                                    |   |         |                     |  |   |                               |   |  |             |           |   |  |   |        |   |  |   |           |  

See accompanying notes to consolidated financial statements.



5



---

##### Table of Contents

McDERMOTT INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS



|                                                                          |  |                         |          |   |      |   |          |      |  |   |          |  
|------------------------------------------------------------------------- |  | ----------------------- | -------- | - | ---- | - | -------- | ---- |  | - | -------- | -
|                                                                          |  | Year Ended December 31, |         
|                                                                          |  | 2010                    |          |   | 2009 |   |          | 2008 | 
|                                                                          |  | (In thousands)          |         
|CASH FLOWS FROM OPERATING ACTIVITIES:                                     |  |                         |          |   |      |   |          |      |  |   |          |  
|Net income                                                                |  | $                       | 227,712  |   |      | $ | 390,450  |      |  | $ | 429,501  |  
|(Income) loss from discontinued operations, net of tax                    |  |                         | 34,900   |   |      |   | (180,898 | )    |  |   | (368,653 | )
|                                                                          |  |                         |          |   |      |   |          |      |  |   |          |  
|Income from continuing operations                                         |  |                         | 262,612  |   |      |   | 209,552  |      |  |   | 60,848   |  
|Non-cash items included in net income:                                    |  |                         |          |   |      |   |          |      |  |   |          |  
|Depreciation and amortization                                             |  |                         | 76,452   |   |      |   | 79,867   |      |  |   | 72,555   |  
|Equity in loss of unconsolidated affiliates                               |  |                         | 7,594    |   |      |   | 3,557    |      |  |   | 3,661    |  
|(Gains) losses on asset disposals and impairmentsnet                     |  |                         | 22,220   |   |      |   | (914     | )    |  |   | (2,599   | )
|Provision for deferred taxes                                              |  |                         | 1,830    |   |      |   | 5,252    |      |  |   | 2,180    |  
|Amortization of pension and postretirement costs                          |  |                         | 21,814   |   |      |   | 27,352   |      |  |   | 16,758   |  
|Tax expense (benefits) from stock-based compensation                      |  |                         | (1,393   | ) |      |   | 912      |      |  |   | (9,786   | )
|Other                                                                     |  |                         | 9,344    |   |      |   | 44,226   |      |  |   | 58,749   |  
|Changes in assets and liabilities, net of effects from acquisitions:      |  |                         |          |   |      |   |          |      |  |   |          |  
|Accounts receivable                                                       |  |                         | (6,457   | ) |      |   | 25,871   |      |  |   | 83,197   |  
|Net contracts in progress and advance billings on contracts               |  |                         | 182,472  |   |      |   | (295,110 | )    |  |   | (395,818 | )
|Accounts payable                                                          |  |                         | (38,536  | ) |      |   | (8,054   | )    |  |   | 63,180   |  
|Income taxes                                                              |  |                         | 84,269   |   |      |   | 5,882    |      |  |   | 37,015   |  
|Accrued and other current liabilities                                     |  |                         | 40,110   |   |      |   | (57,311  | )    |  |   | (30,024  | )
|Pension liability and accrued postretirement and employee benefits        |  |                         | (106,338 | ) |      |   | 41,101   |      |  |   | (137,621 | )
|Other                                                                     |  |                         | (171,666 | ) |      |   | 103,450  |      |  |   | 72,809   |  
|                                                                          |  |                         |          |   |      |   |          |      |  |   |          |  
|NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIESCONTINUING OPERATIONS |  |                         | 384,327  |   |      |   | 185,633  |      |  |   | (104,896 | )
|                                                                          |  |                         |          |   |      |   |          |      |  |   |          |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                     |  |                         |          |   |      |   |          |      |  |   |          |  
|(Increase) decrease in restricted cash and cash equivalents               |  |                         | (142,853 | ) |      |   | (10,718  | )    |  |   | 15,753   |  
|Purchases of property, plant and equipment                                |  |                         | (186,862 | ) |      |   | (186,518 | )    |  |   | (205,447 | )
|Net (increase) decrease in available-for-sale securities                  |  |                         | (127,526 | ) |      |   | 177,137  |      |  |   | 61,211   |  
|Proceeds from asset disposals                                             |  |                         | 4,824    |   |      |   | 2,761    |      |  |   | 4,018    |  
|Investments in unconsolidated affiliates                                  |  |                         | (32,550  | ) |      |   | (13,484  | )    |  |   |         |  
|Acquisition of businesses, net of cash acquired                           |  |                         | (1,954   | ) |      |   | (28,293  | )    |  |   | (1,062   | )
|Other                                                                     |  |                         |         |   |      |   | (134     | )    |  |   | (2,996   | )
|                                                                          |  |                         |          |   |      |   |          |      |  |   |          |  
|NET CASH USED IN INVESTING ACTIVITIESCONTINUING OPERATIONS               |  |                         | (486,921 | ) |      |   | (59,249  | )    |  |   | (128,523 | )
|                                                                          |  |                         |          |   |      |   |          |      |  |   |          |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                     |  |                         |          |   |      |   |          |      |  |   |          |  
|Payment of debt                                                           |  |                         | (8,540   | ) |      |   | (4,106   | )    |  |   | (4,248   | )
|Debt issuance costs                                                       |  |                         | (17,881  | ) |      |   | (105     | )    |  |   | (1,756   | )
|Issuance of common stock                                                  |  |                         | 1,040    |   |      |   | 1,042    |      |  |   | 9,624    |  
|Tax (expense) benefits from stock-based compensation                      |  |                         | 1,393    |   |      |   | (912     | )    |  |   | 9,786    |  
|Cash contribution from The Babcock & Wilcox Company                       |  |                         | 100,000  |   |      |   |         |      |  |   |         |  
|Other                                                                     |  |                         | 80       |   |      |   | (127     | )    |  |   | (2       | )
|                                                                          |  |                         |          |   |      |   |          |      |  |   |          |  
|NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIESCONTINUING OPERATIONS |  |                         | 76,092   |   |      |   | (4,208   | )    |  |   | 13,404   |  
|                                                                          |  |                         |          |   |      |   |          |      |  |   |          |  
|EFFECTS OF EXCHANGE RATE CHANGES ON CASH                                  |  |                         | 498      |   |      |   | 1,096    |      |  |   | (998     | )
|                                                                          |  |                         |          |   |      |   |          |      |  |   |          |  
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                      |  |                         | (26,004  | ) |      |   | 123,372  |      |  |   | (221,013 | )
|                                                                          |  |                         |          |   |      |   |          |      |  |   |          |  
|CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                          |  |                         | 429,467  |   |      |   | 306,195  |      |  |   | 527,208  |  
|                                                                          |  |                         |          |   |      |   |          |      |  |   |          |  
|CASH AND CASH EQUIVALENTS AT END OF PERIODCONTINUING OPERATIONS          |  | $                       | 403,463  |   |      | $ | 429,467  |      |  | $ | 306,195  |  
|                                                                          |  |                         |          |   |      |   |          |      |  |   |          |  
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:                        |  |                         |          |   |      |   |          |      |  |   |          |  
|Cash paid (received) during the period for:                               |  |                         |          |   |      |   |          |      |  |   |          |  
|Interest (net of amount capitalized)                                      |  | $                       | 2,957    |   |      | $ | 2,807    |      |  | $ | 8,328    |  
|Income taxes (net of refunds)                                             |  | $                       | 52,946   |   |      | $ | (7,928   | )    |  | $ | 53,686   |  
|                                                                          | 
|                                                                          |  | Year Ended December 31, |         
|                                                                          |  | 2010                    |          |   | 2009 |   |          | 2008 | 
|                                                                          |  | (In thousands)          |         
|CASH FLOWS FROM DISCONTINUED OPERATIONS:                                  |  |                         |          |   |      |   |          |      |  |   |          |  
|NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES                       |  | $                       | (44,153  | ) |      | $ | 232,441  |      |  | $ | 55,929   |  
|NET CASH USED IN INVESTING ACTIVITIES                                     |  |                         | (65,084  | ) |      |   | (51,598  | )    |  |   | (291,849 | )
|NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES                       |  |                         | (109,600 | ) |      |   | (1,728   | )    |  |   | 52,055   |  
|EFFECTS OF EXCHANGE RATE CHANGES ON CASH                                  |  |                         | (578     | ) |      |   | 10,234   |      |  |   | (9,867   | )
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                      |  |                         | (219,415 | ) |      |   | 189,349  |      |  |   | (193,732 | )
|CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                          |  |                         | 469,803  |   |      |   | 280,454  |      |  |   | 474,186  |  
|TRANSFER OF CASH ATTRIBUTABLE TO B&W                                      |  |                         | 250,388  |   |      |   |         |      |  |   |         |  
|                                                                          |  |                         |          |   |      |   |          |      |  |   |          |  
|CASH AND CASH EQUIVALENTS AT END OF PERIOD                                |  | $                       |         |   |      | $ | 469,803  |      |  | $ | 280,454  |  
|                                                                          |  |                         |          |   |      |   |          |      |  |   |          |  

See accompanying notes to consolidated financial statements.



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McDERMOTT INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010

NOTE 1BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING
POLICIES

Nature of Operations

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

Basis of Presentation

On July 30, 2010, we completed the spin-off of our previously reported Government Operations and Power Generation Systems segments into an independent, publicly traded company named The
Babcock & Wilcox Company (B&W). Additionally, during the quarter ended September 30, 2010, we committed to a plan to sell our charter fleet business which operates 10 of the 14 vessels acquired in our 2007 acquisition
of substantially all of the assets of Secunda International Limited (the Secunda acquisition). The consolidated balance sheet as of December 31, 2010 reflects the charter fleet business as held for sale. The consolidated statements
of income and the consolidated statements of cash flows reflect the historical operations of B&W and the charter fleet business as discontinued operations. The 2009 consolidated balance sheet and the 2009 and prior consolidated statements of
equity contain amounts attributable to the spun-off B&W operations. Accordingly, we have generally presented the notes to our consolidated financial statements on the basis of continuing operations.

In connection with the spin-off of B&W, as discussed in Note 2Discontinued Operations and Other Charges, we have modified our
previous reporting segments, which included the operations of B&W, to reflect our geographic operating segments. We operate in five primary business segments, which consist of Asia Pacific, Atlantic, Caspian, the Middle East and Corporate. The
operations of the Caspian and Middle East are aggregated into our Middle East reporting segment due to the proximity of regions, similarities in the nature of services provided, economic characteristics and oversight responsibilities. As a result,
we have four segments on which we report financial results. For financial information about our segments, see Note 12Segment Reporting.

We have presented our consolidated financial statements in U.S. Dollars in accordance with accounting principles generally accepted in the United States (GAAP). These consolidated financial
statements include the accounts of McDermott International, Inc., its subsidiaries and controlled entities. We use the equity method to account for investments in entities that we do not control, but over which we have significant influence. We
generally refer to these entities as joint ventures. We have eliminated intercompany transactions.

Use of
Estimates

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

Revenue Recognition

We determine the appropriate accounting method for each of our long-term contracts before work on the project begins. We generally recognize contract revenues and related costs on a
percentage-of-completion



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method for individual contracts or combinations of contracts based on work performed, man hours, or a cost-to-cost method, as applicable to the activity involved. We include revenues and related
costs recorded, plus accumulated contract costs that exceed amounts invoiced to customers, under the terms of the contracts, in contracts in progress. We include in advance billings on contracts, billings that exceed accumulated contract costs and
revenues and costs recognized under the percentage-of-completion method. Most long-term contracts contain provisions for progress payments. We expect to invoice customers for all unbilled revenues. Certain costs are excluded from the cost-to-cost
method of measuring progress, such as significant costs for materials and major third-party subcontractors, if it appears that such exclusion would result in a more meaningful measurement of actual contract progress and resulting periodic allocation
of income. Total estimated costs, and resulting contract income, are affected by changes in the expected cost of materials and labor, productivity, scheduling and other factors. Additionally, external factors such as weather, customer requirements
and other factors outside of our control may affect the progress and estimated cost of a projects completion and, therefore, the timing and amount of revenue and income recognition. In addition, change orders, which are a normal and recurring
part of our business, can increase (and sometimes substantially) the future scope and cost of a job. Therefore, change order awards (although frequently beneficial in the long-term) can have the short term effect of reducing the job percentage of
completion and thus the revenues and profits recognized to date. We regularly review contract price and cost estimates as the work progresses and reflect adjustments proportionate to the percentage-of-completion revenue in income in the period when
those estimates are revised.

For contracts as to which we are unable to estimate the final profitability except to assure
that no loss will ultimately be incurred, we recognize equal amounts of revenue and cost until the final results can be estimated more precisely. For these contracts, we only recognize gross margin when reasonably estimable, which we generally
determine to be when the contract is approximately 70% complete. We treat long-term construction contracts that contain such a level of risk and uncertainty that estimation of the final outcome is impractical except to assure that no loss will be
incurred, as deferred profit recognition contracts. During the quarter ended September 30, 2010, we determined that one active contract qualified to be accounted for under our deferred profit recognition policy.

Our policy is to account for fixed-price contracts under the completed contract method if we believe that we are unable to reasonably
forecast cost to complete at start-up. Under the completed contract method, income is recognized only when a contract is completed or substantially complete. We did not enter into any contracts that we have accounted for under the completed contract
method during 2010, 2009 or 2008.

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



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Accounts Receivable  Trade, net

A summary of contract receivables is as follows:



|                                                       |  |                |         |   |      |   |         |  
|------------------------------------------------------ |  | -------------- | ------- | - | ---- | - | ------- | -
|                                                       |  | December 31,   |        
|                                                       |  | 2010           |         |   | 2009 |  
|                                                       |  | (In thousands) |        
|Contract receivables(1):                               |  |                |         |   |      |   |         |  
|Contracts in progress                                  |  | $              | 191,216 |   |      | $ | 184,953 |  
|Completed contracts                                    |  |                | 85,587  |   |      |   | 74,411  |  
|Retainages                                             |  |                | 63,558  |   |      |   | 100,676 |  
|Unbilled                                               |  |                | 12,697  |   |      |   | 5,340   |  
|Less allowances                                        |  |                | (29,561 | ) |      |   | (42,246 | )
|                                                       |  |                |         |   |      |   |         |  
|Accounts receivable  trade, netcontinuing operations |  |                | 323,497 |   |      |   | 323,134 |  
|                                                       |  |                |         |   |      |   |         |  
|Discontinued operations, net                           |  |                |        |   |      |   | 319,861 |  
|                                                       |  |                |         |   |      |   |         |  
|Total                                                  |  | $              | 323,497 |   |      | $ | 642,995 |  
|                                                       |  |                |         |   |      |   |         |  



|(1) | Contract receivables attributable to the charter fleet business are classified as held for sale and are excluded from the 2010 presentation.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------

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

The following amounts represent retainages on contracts:



|                                                    |  |                |         |  |      |   |         | 
|--------------------------------------------------- |  | -------------- | ------- |  | ---- | - | ------- | 
|                                                    |  | December 31,   |        
|                                                    |  | 2010           |         |  | 2009 |  
|                                                    |  | (In thousands) |        
|Retainages expected to be collected within one year |  | $              | 63,558  |  |      | $ | 100,676 | 
|Retainages expected to be collected after one year  |  |                | 83,143  |  |      |   | 42,916  | 
|                                                    |  |                |         |  |      |   |         | 
|Total retainages                                    |  | $              | 146,701 |  |      | $ | 143,592 | 
|                                                    |  |                |         |  |      |   |         | 

We have included in accounts receivabletrade, net, retainages expected to be collected in 2011.
Retainages expected to be collected after one year are included in other assets. Of the long-term retainages at December 31, 2010, we anticipate collecting $59.0 million in 2012, $22.7 million in 2013 and $1.4 million in 2014.

Impairment Review

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

We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be
recoverable. If an evaluation is required on a nonrecurring basis, recent appraisals, the estimated undiscounted future cash flows associated with the assets or other valuation measurements are compared to the assets carrying value to
determine if impairment exists, and, if an impairment is determined to exist, an impairment charge is recognized for the difference between the recorded and fair value of the asset.



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Loss Contingencies

We estimate liabilities for loss contingencies when it is probable that a liability has been incurred and the amount of loss is reasonably
estimable. We provide disclosure when there is a reasonable possibility that the ultimate loss will exceed the recorded provision or if such loss is not reasonably estimable. We are currently involved in some significant litigation, as discussed in
Note 14. We have accrued our estimates of the probable losses associated with these matters. However, our losses are typically resolved over long periods of time and are often difficult to estimate due to various factors, including the possibility
of multiple actions by third parties. Therefore, it is possible future earnings could be affected by changes in our estimates related to these matters.

Cash and Cash Equivalents

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

We record current cash and cash equivalents as
restricted when we are unable to freely use such cash and cash equivalents for our general operating purposes. At December 31, 2010, we had restricted cash and cash equivalents totaling $197.9 million, $197.7 million of which was held in
restricted foreign accounts and $0.2 million was held to meet reinsurance reserve requirements of our captive insurance subsidiary. It is possible that a portion of restricted cash at December 31, 2010 will not be released within the next 12
months.

Investments

Our investment portfolio consists primarily of government obligations and other highly liquid money market instruments. Our investments are classified as available-for-sale and are carried at fair value
with unrealized gains and losses, net of tax, reported as a component of other comprehensive loss. Our net unrealized loss on investments was $4.3 million at December 31, 2010. At December 31, 2009, we had net unrealized losses on our
investments totaling $6.9 million. The major components of our investments are U.S. government and agency securities, asset-backed obligations and corporate bonds. Based on our analysis of these investments, we believe that none of our
available-for-sale securities were other than temporarily impaired at December 31, 2010.

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

Investments in Unconsolidated Affiliates

We use the equity method of accounting for affiliates in which our investment ownership ranges from 20% to 50%. The equity method is also
used for affiliates in which our investment ownership is greater than 50% but we do not have a controlling interest. Currently, most of our significant investments in affiliates that are not consolidated are recorded using the equity method.
Investments in affiliates where our ownership interest is less than 20% and where we are unable to exert significant influence are carried at cost.

During the year ended December 31, 2009, we commenced a joint venture to establish a new fabrication facility in Qingdao, Shandong, China. In connection with this joint venture, we contributed $32.5
million and $10.6 million in 2010 and 2009, respectively.

Fair Value of Financial Instruments

The carrying amounts that we have reported for financial instruments, including cash and cash equivalents, accounts receivables and
accounts payable approximate their fair values. See Note 8Fair Values of Financial Instruments, for additional fair value measurements.



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Derivative Financial Instruments

Our worldwide operations give rise to exposure to changes in certain market conditions, which may adversely impact our financial
performance. When we deem it appropriate, we use derivatives as a risk management tool to mitigate the potential impacts of certain market risks. The primary market risk we manage through the use of derivative instruments is movement in foreign
currency exchange rates. We use foreign currency forward-exchange contracts to reduce the impact of changes in foreign currency exchange rates on our operating results. We use these instruments to hedge our exposure associated with revenues or costs
on our long-term contracts and other cash flow exposures that are denominated in currencies other than our operating entities functional currencies. We do not hold or issue financial instruments for trading or other speculative purposes.

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

Concentration of Credit Risk

Our principal customers are businesses
in the offshore oil and natural gas industry. This concentration of customers may impact our overall exposure to credit risk, either positively or negatively, in that our customers may be similarly affected by changes in economic or other
conditions. In addition, we and many of our customers operate worldwide and are therefore exposed to risks associated with the economic and political forces of various countries and geographic areas. We generally do not obtain any collateral for our
receivables. See Note 12 for additional information about our operations in different geographic areas.

Foreign
Currency Translation

We translate assets and liabilities of our foreign operations, other than operations in highly
inflationary economies, into U.S. Dollars at current exchange rates, and we translate income statement items at average exchange rates for the periods presented. We record adjustments resulting from the translation of foreign currency financial
statements as a component of accumulated other comprehensive loss. We report foreign currency transaction gains and losses in income. We have included in other income (expense)net, transaction losses of $3.5 million, $9.7 million and $3.9
million for the years ended December 31, 2010, 2009 and 2008, respectively.

Capitalization of Interest Cost

We incurred total interest of $14.6 million, $11.7 million and $10.3 million in the years ended December 31,
2010, 2009 and 2008, respectively. We capitalized $12.0 million, $12.6 million and $6.0 million of interest cost in the years ended December 31, 2010, 2009 and 2008, respectively.

Earnings per Share

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



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##### Table of Contents

Comprehensive Loss

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



|                                              |  |                |          |   |      |   |          |  
|--------------------------------------------- |  | -------------- | -------- | - | ---- | - | -------- | -
|                                              |  | December 31,   |         
|                                              |  | 2010           |          |   | 2009 |  
|                                              |  | (In thousands) |         
|Foreign currency translation adjustments      |  | $              | (6,888   | ) |      | $ | 16,364   |  
|Net loss on investments                       |  |                | (4,330   | ) |      |   | (6,861   | )
|Net loss on derivative financial instruments  |  |                | (855     | ) |      |   | (3,690   | )
|Unrecognized losses on benefit obligations(1) |  |                | (151,644 | ) |      |   | (618,810 | )
|                                              |  |                |          |   |      |   |          |  
|Accumulated other comprehensive loss          |  | $              | (163,717 | ) |      | $ | (612,997 | )
|                                              |  |                |          |   |      |   |          |  



| | (1) | Amortization of benefit plan costs in the consolidated statement of equity is shown net of $18.6 million of taxes. Future amortization will not reflect a tax benefit
until those benefits can be recognized and the existing deferred tax benefits will not change significantly.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Stock-Based Compensation

We expense stock-based compensation. The fair value of equity-classified awards, such as restricted stock and stock options, is determined on the date of grant. Grant date fair values for
restricted stock are determined using the closing price of our common stock on the date of grant. Grant date fair values for stock options are determined using a Black-Scholes option-pricing model (Black-Scholes), which requires the
input of highly subjective assumptions, such as the expected life of the award and stock price volatility. For liability-classified awards, such as cash-settled deferred stock units, fair values are determined at grant date using the closing price
of our common stock and are remeasured at the end of each reporting period through the date of settlement.

We recognize
expense based on the grant date fair value, for all share-based awards granted on a straight-line basis over the requisite service periods of the awards, which is generally equivalent to the vesting term. We review the estimate for forfeitures
periodically and record any adjustments deemed necessary. If our actual forfeiture rate is materially different from our estimate, the stock-based compensation expense could be significantly different from what we have recorded in the current
period.

Excess tax benefits are reported as a financing cash flow, rather than as a reduction of taxes paid. These excess tax
benefits result from tax deductions in excess of the cumulative compensation expense recognized for options exercised and other equity-classified awards. See Note 9 for a further discussion of stock-based compensation.

Property, Plant and Equipment

We carry our property, plant and equipment at depreciated cost, less any impairment provisions. Except for major marine vessels, we depreciate our property, plant and equipment using the straight-line
method over estimated economic useful lives of eight to 33 years for buildings and three to 28 years for machinery and equipment. We depreciate major marine vessels using the units-of-production method based on the utilization of each vessel. Our
depreciation expense calculated under the units-of-production method may be less than, equal to or greater than depreciation expense calculated under the straight-line method in any period. Our depreciation expense was $75.8 million, $79.1 million
and $70.8 million for the years ended December 31, 2010, 2009 and 2008, respectively.

We expense the costs of
maintenance, repairs and renewals that do not materially prolong the useful life of an asset as we incur them. We depreciate leasehold improvements over the shorter of the remaining lease term or useful life of the asset. We capitalize drydocking
costs in other assets when incurred and amortize the costs over the period of time between drydockings, which is generally three to five years.



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Based on market conditions, expected future utilization and pricing on two of the four
vessels in our Atlantic segment that we expect to retain from the Secunda acquisition, we recognized an impairment charge of approximately $24.4 million during the quarter ended September 30, 2010 in our consolidated statements of income. We
used appraised values and undiscounted future cash flows associated with the assets to determine the impairment. We consider this nonrecurring fair value measurement as Level 2 in nature.

Additionally, we incurred approximately $21 million of costs in 2010 to discontinue our development plans for a new fabrication yard in
Kazakhstan, including estimated lease termination costs. These costs are reflected in our consolidated statements of income in costs of operations. Also in connection with our plan to sell the charter fleet business, we recognized a $27.7 million
write-down of the carrying value of these assets. See Note 2Discontinued Operations and Other Charges for further information regarding these charges.

Goodwill and Other Intangible Assets

Goodwill

In the quarter ended September 30, 2010, we allocated our remaining goodwill to our new operating segments using an income approach
fair value measurement, which was based on estimates of future earnings and discount rates. We also completed our annual review of goodwill as of December 31, 2010, which indicated that the fair values for those operating segments was
significantly in excess of their carrying amounts, resulting in no goodwill impairment.

The following summarizes the changes
in the carrying amount of goodwill:



|                                                                                     |  |                            |          |   |                                   |   |         |              |  |   |          |  |  |             |   |  |  |   |        |  |  |   |          |  
|------------------------------------------------------------------------------------ |  | -------------------------- | -------- | - | --------------------------------- | - | ------- | ------------ |  | - | -------- |  |  | ----------- | - |  |  | - | ------ |  |  | - | -------- | -
|                                                                                     |  | Old Basis                  |          |   | New Basis                         |   |         | Total        | 
|                                                                                     |  | Spun-off 
B&WOperations(1) |          |   | Offshore Oil &Gas Construction(2) |   |         | Asia Pacific |  |   | Atlantic |  |  | Middle East |   | 
|Balance at December 31, 2008                                                         |  | $                          | 263,152  |   |                                   | $ | 35,113  |              |  | $ |         |  |  | $           |  |  |  | $ |       |  |  | $ | 298,265  |  
|                                                                                     |  |                            |          |   |                                   |   |         |              |  |   |          |  |  |             |   |  |  |   |        |  |  |   |          |  
|Transaction with Oceanteam ASA                                                       |  |                            |         |   |                                   |   | 1,904   |              |  |   |         |  |  |             |  |  |  |   |       |  |  |   | 1,904    |  
|B&W de Monterrey asset acquisition                                                   |  |                            | 7,442    |   |                                   |   |        |              |  |   |         |  |  |             |  |  |  |   |       |  |  |   | 7,442    |  
|Adjustment related to the acquisition of Nuclear Fuel Services, Inc.                 |  |                            | (8,066   | ) |                                   |   |        |              |  |   |         |  |  |             |  |  |  |   |       |  |  |   | (8,066   | )
|Adjustment related to the acquisition of the assets of Secunda International Limited |  |                            |         |   |                                   |   | 4,952   |              |  |   |         |  |  |             |  |  |  |   |       |  |  |   | 4,952    |  
|Foreign currency translation adjustments and other                                   |  |                            | 338      |   |                                   |   | 1,662   |              |  |   |         |  |  |             |  |  |  |   |       |  |  |   | 2,000    |  
|                                                                                     |  |                            |          |   |                                   |   |         |              |  |   |          |  |  |             |   |  |  |   |        |  |  |   |          |  
|Balance at December 31, 2009                                                         |  | $                          | 262,866  |   |                                   | $ | 43,631  |              |  | $ |         |  |  | $           |  |  |  | $ |       |  |  | $ | 306,497  |  
|Adjustment related to the acquisition of Götaverken Miljö AB assets                  |  |                            | 7,983    |   |                                   |   |        |              |  |   |         |  |  |             |  |  |  |   |       |  |  |   | 7,983    |  
|Acquisition of GE Energy assets                                                      |  |                            | 9,973    |   |                                   |   |        |              |  |   |         |  |  |             |  |  |  |   |       |  |  |   | 9,973    |  
|Purchase price adjustments associated with Oceanteam ASA transaction                 |  |                            |         |   |                                   |   | (1,904  | )            |  |   |         |  |  |             |  |  |  |   |       |  |  |   | (1,904   | )
|Foreign currency translation adjustments and other                                   |  |                            | (726     | ) |                                   |   | (1,299  | )            |  |   | 372      |  |  |             |  |  |  |   | 402    |  |  |   | (1,251   | )
|Segment allocations                                                                  |  |                            |         |   |                                   |   | (40,428 | )            |  |   | 19,405   |  |  |             |  |  |  |   | 21,023 |  |  |   |         |  
|B&W Spin-off                                                                         |  |                            | (280,096 | ) |                                   |   |        |              |  |   |         |  |  |             |  |  |  |   |       |  |  |   | (280,096 | )
|                                                                                     |  |                            |          |   |                                   |   |         |              |  |   |          |  |  |             |   |  |  |   |        |  |  |   |          |  
|Balance at December 31, 2010                                                         |  | $                          |         |   |                                   | $ |        |              |  | $ | 19,777   |  |  | $           |  |  |  | $ | 21,425 |  |  | $ | 41,202   |  
|                                                                                     |  |                            |          |   |                                   |   |         |              |  |   |          |  |  |             |   |  |  |   |        |  |  |   |          |  



|(1) | Previously reported separately as Government Operations and Power Generation Systems segments.
|--- | ----------------------------------------------------------------------------------------------

|(2) | Previously reported operating segment.
|--- | --------------------------------------



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Other Intangible Assets

We amortize our intangible assets over their estimated useful lives using the straight-line method. Our intangible assets are primarily
composed of customer relationships. The following summarizes the changes in the carrying amount of other intangible assets:



|                                                   |  |                         |       |   |      |   |         |  
|-------------------------------------------------- |  | ----------------------- | ----- | - | ---- | - | ------- | -
|                                                   |  | Year Ended December 31, |      
|                                                   |  | 2010                    |       |   | 2009 |  
|                                                   |  | (In thousands)          |      
|Balance at beginning of period                     |  | $                       | 1,139 |   |      | $ | 1,766   |  
|Additions                                          |  |                         | 1,299 |   |      |   |        |  
|Amortization expense                               |  |                         | (680  | ) |      |   | (799    | )
|Foreign currency translation adjustments and other |  |                         | 47    |   |      |   | 172     |  
|                                                   |  |                         |       |   |      |   |         |  
|Balance at end of periodcontinuing operations     |  | $                       | 1,805 |   |      | $ | 1,139   |  
|                                                   |  |                         |       |   |      |   |         |  
|Discontinued operations                            |  |                         |      |   |      |   | 103,378 |  
|                                                   |  |                         |       |   |      |   |         |  
|Balance at end of period                           |  | $                       | 1,805 |   |      | $ | 104,517 |  
|                                                   |  |                         |       |   |      |   |         |  

The estimated amortization expense for the next five fiscal years are as follows (in thousands):



|                         |  |        |     | 
|------------------------ |  | ------ | --- | 
|Year Ending December 31, |  | Amount |    
|2011                     |  | $      | 456 | 
|2012                     |  | $      | 456 | 
|2013                     |  | $      | 456 | 
|2014                     |  | $      | 437 | 
|2015                     |  | $      |    | 

Other
Non-Current Assets

We have included deferred debt issuance costs in other assets. We amortize deferred debt issuance
cost as interest expense over the life of the related debt. The following summarizes the changes in the carrying amount of these assets:



|                                                        |  |                         |        |   |      |   |        |      |  |   |        |  
|------------------------------------------------------- |  | ----------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                        |  | Year Ended December 31, |       
|                                                        |  | 2010                    |        |   | 2009 |   |        | 2008 | 
|                                                        |  | (In thousands)          |       
|Balance at beginning of period                          |  | $                       | 4,635  |   |      | $ | 7,431  |      |  | $ | 8,071  |  
|Deferred debt issuance costs and performance guarantees |  |                         | 17,881 |   |      |   | 105    |      |  |   | 1,756  |  
|Reductions and other transfers                          |  |                         | (181   | ) |      |   |       |      |  |   |       |  
|Interest expensedebt issuance costs                    |  |                         | (6,262 | ) |      |   | (2,901 | )    |  |   | (2,396 | )
|                                                        |  |                         |        |   |      |   |        |      |  |   |        |  
|Balance at end of periodcontinuing operations          |  |                         | 16,073 |   |      |   | 4,635  |      |  |   | 7,431  |  
|                                                        |  |                         |        |   |      |   |        |      |  |   |        |  
|Discontinued operations                                 |  |                         |       |   |      |   | 1,898  |      |  |   | 4,169  |  
|                                                        |  |                         |        |   |      |   |        |      |  |   |        |  
|Balance at end of period                                |  | $                       | 16,073 |   |      | $ | 6,533  |      |  | $ | 11,600 |  
|                                                        |  |                         |        |   |      |   |        |      |  |   |        |  

Warranty Expense

We estimate warranty costs associated with projects on a case-by-case basis. We include these specific provisions as a component of our total contract cost estimates and we record the associated expense
under the percentage-of-completion method of accounting for long-term construction contracts.



14



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##### Table of Contents

Self-Insurance

We have a wholly owned insurance subsidiary that provides employers liability, general and automotive liability and workers
compensation insurance and, from time to time, builders risk insurance, within certain limits and marine hull insurance to our companies.

Reserves related to these insurance programs are based on the facts and circumstances specific to the insurance claims, our past experience with similar claims, loss factors and the performance of the
outside insurance market for the type of risk at issue. The actual outcome of insured claims could differ significantly from estimated amounts. We maintain actuarially determined accruals in our consolidated balance sheets to cover self-insurance
retentions for the coverages discussed above. These accruals are based on assumptions developed utilizing historical data to project future losses. Loss estimates in the calculation of these accruals are adjusted, as required based upon actual claim
settlements and reported claims. These loss estimates and accruals recorded in our financial statements for claims have historically been reasonable.

Recently Adopted Accounting Standards

In January 2010, the FASB
issued an update to the topic Fair Value Measurements and Disclosures.This update adds new fair value disclosures for certain transfers of investments between Level 1 and Level 2 measurements and clarifies existing disclosures regarding
valuation techniques. On January 1, 2010, we adopted this revision. The adoption of this revision did not have a material impact on our consolidated financial statements.

In January 2010, the FASB issued a revision to the topic Consolidation.This revision clarifies the scope of partial sale and deconsolidation provisions related to acquisitions and noncontrolling
interests. On January 1, 2010, we adopted this revision. The adoption of this revision did not have a material impact on our consolidated financial statements.

In June 2009, the FASB issued a revision to the topic Consolidation.This revision was subsequently amended in December 2009 and February 2010. These revisions expand the scope of this topic and
amend guidance for assessing and analyzing variable interest entities. On January 1, 2010, we adopted this revision. The adoption of this revision did not have a material impact on our consolidated financial statements.

In January 2010, the FASB issued a revision to the topic Fair Value Measurements and Disclosures.This revision sets forth new
rules on providing enhanced information for Level 3 measurements. On January 1, 2011, we adopted this revision for both interim and annual disclosures. We do not expect the adoption of this revision to have a material impact on our consolidated
financial statements.

NOTE 2DISCONTINUED OPERATIONS AND OTHER CHARGES

Spin-Off of B&W

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

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



15



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##### Table of Contents

Master Separation Agreement

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

Tax Sharing Agreement

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

Transition Services Agreements

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

Financial Information

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



|                                                          |  |                         |           |   |      |   |           |      |  |   |           |  
|--------------------------------------------------------- |  | ----------------------- | --------- | - | ---- | - | --------- | ---- |  | - | --------- | -
|                                                          |  | Year Ended December 31, |          
|                                                          |  | 2010(1)                 |           |   | 2009 |   |           | 2008 | 
|                                                          |  | (In thousands)          |          
|Revenues                                                  |  | $                       | 1,524,424 |   |      | $ | 2,854,632 |      |  | $ | 3,398,574 |  
|                                                          |  |                         |           |   |      |   |           |      |  |   |           |  
|Loss on disposal of discontinued operations, before taxes |  |                         | (95,621   | ) |      |   | (7,118    | )    |  |   |          |  
|Income before provision for income taxes                  |  |                         | 105,796   |   |      |   | 260,834   |      |  |   | 449,867   |  
|                                                          |  |                         |           |   |      |   |           |      |  |   |           |  
|                                                          |  |                         | 10,175    |   |      |   | 253,716   |      |  |   | 449,867   |  
|                                                          |  |                         |           |   |      |   |           |      |  |   |           |  
|Provision for income taxes                                |  |                         | (22,755   | ) |      |   | (67,751   | )    |  |   | (91,681   | )
|                                                          |  |                         |           |   |      |   |           |      |  |   |           |  
|Income (loss) from discontinued operations, net of tax    |  | $                       | (12,580   | ) |      | $ | 185,965   |      |  | $ | 358,186   |  
|                                                          |  |                         |           |   |      |   |           |      |  |   |           |  



|(1) | Includes the B&W operations through July 30, 2010.
|--- | --------------------------------------------------



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##### Table of Contents

Loss on disposal of discontinued operations for the years ended December 31, 2010 and
2009 includes approximately $95.6 million and $7.1 million, respectively, in costs related to the spin-off of B&W. The following table presents the significant categories of these costs:



|                                     |  |                |         | 
|------------------------------------ |  | -------------- | ------- | 
|                                     |  | Total          |        
|                                     |  | (In thousands) |        
|Severance and employee-related costs |  | $              | 49,379  | 
|Professional services fees           |  |                | 37,339  | 
|Asset disposals and write-offs       |  |                | 9,245   | 
|Other costs                          |  |                | 6,776   | 
|                                     |  |                |         | 
|Total spin-off costs                 |  | $              | 102,739 | 
|                                     |  |                |         | 

The following table presents the carrying values of the major accounts of discontinued operations related to
B&W that are included in our December 31, 2009 consolidated balance sheet:



|                                                          |  |                  |           | 
|--------------------------------------------------------- |  | ---------------- | --------- | 
|                                                          |  | December 31,2009 |          
|                                                          |  | (In thousands)   |          
|Cash and cash equivalents                                 |  | $                | 469,803   | 
|Accounts receivabletrade, net                            |  |                  | 319,861   | 
|Contracts in progress                                     |  |                  | 245,998   | 
|Inventory                                                 |  |                  | 98,644    | 
|Other current assets                                      |  |                  | 267,784   | 
|                                                          |  |                  |           | 
|Total current assets                                      |  | $                | 1,402,090 | 
|                                                          |  |                  |           | 
|                                                          | 
|Net property, plant and equipment                         |  | $                | 396,822   | 
|Goodwill                                                  |  |                  | 262,866   | 
|Other long-term assets                                    |  |                  | 375,933   | 
|                                                          |  |                  |           | 
|Total long-term assets                                    |  | $                | 1,035,621 | 
|                                                          |  |                  |           | 
|Total assets attributable to discontinued operations      |  | $                | 2,437,711 | 
|                                                          |  |                  |           | 
|                                                          | 
|Accounts payable and accrued liabilities                  |  | $                | 698,496   | 
|Advance billings on contracts                             |  |                  | 537,448   | 
|                                                          |  |                  |           | 
|Total current liabilities                                 |  | $                | 1,235,944 | 
|                                                          |  |                  |           | 
|                                                          | 
|Pension and other post-retirement benefits                |  | $                | 573,763   | 
|Other long-term liabilities                               |  |                  | 122,808   | 
|                                                          |  |                  |           | 
|Total long-term liabilities                               |  | $                | 696,571   | 
|                                                          |  |                  |           | 
|Total liabilities associated with discontinued operations |  | $                | 1,932,515 | 
|                                                          |  |                  |           | 

Charter Fleet Business

During the quarter ended September 30, 2010, we committed to a plan to sell our charter fleet business, which has been classified as
discontinued operations. We measured the associated assets to be sold, using the estimated fair value of consideration expected from the sale less estimated selling costs. Accordingly, we recognized a $27.7 million write-down of the carrying value
of these assets to their estimated net realizable value within loss on disposal of discontinued operations. We consider this fair value measurement as Level 2 in nature.



17



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##### Table of Contents

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



|                                                          |  |                         |         |   |      |   |        |      |  |   |        |  
|--------------------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                          |  | Year Ended December 31, |        
|                                                          |  | 2010                    |         |   | 2009 |   |        | 2008 | 
|                                                          |  | (In thousands)          |        
|Revenues                                                  |  | $                       | 57,528  |   |      | $ | 56,655 |      |  | $ | 75,745 |  
|                                                          |  |                         |         |   |      |   |        |      |  |   |        |  
|Loss on disposal of discontinued operations, before taxes |  |                         | (27,690 | ) |      |   |       |      |  |   |       |  
|Income (loss) before provision for income taxes           |  |                         | 8,081   |   |      |   | (1,533 | )    |  |   | 13,032 |  
|                                                          |  |                         |         |   |      |   |        |      |  |   |        |  
|                                                          |  |                         | (19,609 | ) |      |   | (1,533 | )    |  |   | 13,032 |  
|                                                          |  |                         |         |   |      |   |        |      |  |   |        |  
|Provision for income taxes                                |  |                         | (2,711  | ) |      |   | (3,534 | )    |  |   | (2,565 | )
|                                                          |  |                         |         |   |      |   |        |      |  |   |        |  
|Income (loss) from discontinued operations, net of tax    |  | $                       | (22,320 | ) |      | $ | (5,067 | )    |  | $ | 10,467 |  
|                                                          |  |                         |         |   |      |   |        |      |  |   |        |  

The following table presents the carrying values of the major accounts of held for sale discontinued
operations related to our charter fleet business:



|                                                       |  |                  |        | 
|------------------------------------------------------ |  | ---------------- | ------ | 
|                                                       |  | December 31,2010 |       
|                                                       |  | (In thousands)   |       
|Cash                                                   |  | $                | 1,426  | 
|Accounts receivablenet                                |  |                  | 5,253  | 
|Other assets                                           |  |                  | 3,482  | 
|                                                       |  |                  |        | 
|Total current assets held for sale                     |  | $                | 10,161 | 
|                                                       |  |                  |        | 
|                                                       | 
|Property, plant and equipment                          |  | $                | 68,595 | 
|Other assets                                           |  |                  | 8,555  | 
|                                                       |  |                  |        | 
|Total assets held for sale                             |  | $                | 87,311 | 
|                                                       |  |                  |        | 
|                                                       | 
|Accounts payable and accrued liabilities               |  | $                | 8,748  | 
|Other liabilities                                      |  |                  | 12,154 | 
|                                                       |  |                  |        | 
|Total liabilities associated with assets held for sale |  | $                | 20,902 | 
|                                                       |  |                  |        | 

Fabrication Facility

During the quarter ended September 30, 2010, some of our customers indicated to us they expect substantial delays in their planned projects in the Caspian region of our Middle East reporting segment.
Accordingly, we incurred approximately $21 million of costs to discontinue our development plans for a new fabrication yard in Kazakhstan, including estimated lease termination costs. These costs are reflected in our consolidated statements of
income in costs of operations. We believe any remaining costs that may be incurred in connection with the facility closure will not materially exceed the costs already recognized.

NOTE 3BUSINESS ACQUISITIONS

We had no significant acquisitions
during 2010. In December 2009 we completed a transaction with Oceanteam ASA involving the acquisition of an approximate 50% interest in a vessel-owning company that owns a subsea construction vessel and a 75% interest in another company that has
commenced constructing a similar vessel. The acquisition cost to us was approximately $30.2 million, net of cash acquired. We agreed to charter each vessel from the respective vessel owning companies for a five-year period, after which time we will
have the option to purchase Oceanteams interest in each vessel-owning company. In connection with this acquisition, we recorded property, plant and equipment of approximately $132.7 million, notes payable of approximately



18



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##### Table of Contents

$60.7 million (all of which was acquired with the vessel owning company), minority interest liability of $25.8 million and other net payables of approximately $15.9 million. Pro forma results
have not been presented for this acquisition, because its operations were not material to our consolidated financial statements.

NOTE
4LONG-TERM DEBT AND NOTES PAYABLE

Long-term debt obligations are as follows:



|                                        |  |                |        |  |      |   |        | 
|--------------------------------------- |  | -------------- | ------ |  | ---- | - | ------ | 
|                                        |  | December 31,   |       
|                                        |  | 2010           |        |  | 2009 |  
|                                        |  | (In thousands) |       
|Long-term debt consists of:             |  |                |        |  |      |   |        | 
|Oceanteam debt                          |  | $              | 51,872 |  |      | $ | 62,330 | 
|North Ocean 105 Construction Financing  |  |                | 3,423  |  |      |   |       | 
|                                        |  |                |        |  |      |   |        | 
|                                        |  |                | 55,295 |  |      |   | 62,330 | 
|Less: Amounts due within one year       |  |                | 8,547  |  |      |   | 9,838  | 
|                                        |  |                |        |  |      |   |        | 
|Long-term debtcontinuing operations    |  |                | 46,748 |  |      |   | 52,492 | 
|                                        |  |                |        |  |      |   |        | 
|Long-term debtdiscontinuing operations |  |                |       |  |      |   | 4,222  | 
|                                        |  |                |        |  |      |   |        | 
|Total debt                              |  | $              | 46,748 |  |      | $ | 56,714 | 
|                                        |  |                |        |  |      |   |        | 

Maturities of long-term debt during the five years subsequent to December 31, 2010 are as follows:



|           |  |                |        | 
|---------- |  | -------------- | ------ | 
|           |  | (In thousands) |       
|2011       |  | $              | 8,547  | 
|2012       |  |                | 6,177  | 
|2013       |  |                | 6,379  | 
|2014       |  |                | 31,776 | 
|2015       |  |                | 403    | 
|Thereafter |  |                | 2,013  | 
|           |  |                |        | 
|Total      |  | $              | 55,295 | 
|           |  |                |        | 

Long-term debt obligations as of December 31, 2009 attributable to the spun-off B&W operations are
as follows:



|                                                                   |  |                  |       | 
|------------------------------------------------------------------ |  | ---------------- | ----- | 
|                                                                   |  | December 31,2009 |      
|                                                                   |  | (In thousands)   |      
|Spun-off B&W debt consists of:                                     |  |                  |       | 
|Unsecured notes payable                                            |  | $                | 5,916 | 
|Secured notes payable and other                                    |  |                  | 1,672 | 
|                                                                   |  |                  |       | 
|                                                                   |  |                  | 7,588 | 
|                                                                   |  |                  |       | 
|Less: Amounts due within one year                                  |  |                  | 3,366 | 
|                                                                   |  |                  |       | 
|Long-term debt                                                     |  | $                | 4,222 | 
|                                                                   |  |                  |       | 
|Notes payable and current maturities of long-term debt consist of: |  |                  |       | 
|Short-term lines of credit                                         |  | $                | 3,066 | 
|Current maturities of long-term debt                               |  |                  | 3,366 | 
|                                                                   |  |                  |       | 
|Total                                                              |  | $                | 6,432 | 
|                                                                   |  |                  |       | 



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##### Table of Contents

Credit Facility

On May 3, 2010, MII and J. Ray McDermott, S.A. (JRMSA), a direct, wholly owned subsidiary of MII, entered into a credit
agreement (the Credit Agreement) with a syndicate of lenders and letter of credit issuers relating to our credit facility. JRMSA was the initial borrower under the Credit Agreement and, on July 30, 2010, MII replaced JRMSA as the
borrower under the Credit Agreement. The Credit Agreement replaced JRMSAs prior $800 million senior secured revolving credit facility. All amounts outstanding under JRMSAs previous senior secured revolving credit facility were repaid
with borrowings under the Credit Agreement, and all letters of credit outstanding under that previous facility are now deemed issued under the Credit Agreement.

The Credit Agreement provides for revolving credit borrowings and issuances of letters of credit in an aggregate outstanding amount of up to $900 million, and the credit facility is scheduled to mature on
May 3, 2014. Proceeds from borrowings under the Credit Agreement are available for working capital needs and other general corporate purposes. The Credit Agreement includes procedures for additional financial institutions to become lenders, or
for any existing lender to increase its commitment thereunder, subject to an aggregate maximum of $1.2 billion for all revolving loan and letter of credit commitments under the Credit Agreement.

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

The Credit Agreement contains financial covenants relating to leverage and interest coverage and includes covenants that restrict, among
other things, debt incurrence, liens, investments, acquisitions, asset dispositions, dividends, prepayments of subordinated debt, mergers and capital expenditures. At December 31, 2010, we were in compliance with these covenant requirements.

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

At December 31, 2010, there were no borrowings outstanding, and letters of credit issued under the Credit Agreement totaled $254.6
million. At December 31, 2010, there was $645.4 million available for borrowings or to meet letter of credit requirements under the Credit Agreement. Borrowings under this facility during the year ended December 31, 2010, had an applicable
interest rate of approximately 5.25% per annum. In addition, MII and its subsidiaries had $331.0 million in outstanding unsecured letters of credit at December 31, 2010.

Based on the credit ratings at December 31, 2010 applicable to the Credit Agreement, the applicable margin for Eurodollar-rate loans
was 3.00%, the applicable margin for base-rate loans was 2.00%, the letter of credit fee for financial letters of credit was 3.00%, the letter of credit fee for performance letters of credit was 1.50%, and the commitment fee for unused portions of
the Credit Agreement was 0.50%. The Credit Agreement does not have a floor for the base rate or the Eurodollar rate.



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North Ocean Construction Financing

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

Oceanteam Debt (Vessel-Owning Joint Ventures)

In December 2009, we entered
into a vessel-owning joint venture transaction with Oceanteam ASA as discussed in Note 3. As a result of this transaction, we included consolidated notes payable of approximately $51.9 million on our balance sheet, of which approximately $8.5
million is classified as current. JRMSA has guaranteed approximately 50% of this debt based on its ownership percentages in the vessel-owning companies.

Unsecured Performance Guarantee (Middle East)

In December 2005, JRMSA, as
guarantor, and its subsidiary, J. Ray McDermott Middle East, Inc., a subsidiary of JRMSA (JRM Middle East), entered into a $105.2 million unsecured performance guarantee issuance facility with a syndicate of commercial banking
institutions to provide credit support for bank guarantees issued in connection with three major projects. On February 3, 2008, JRM Middle East entered into an $88.8 million unsecured performance guarantee issuance facility to replace the
$105.2 million facility, which it terminated on February 14, 2008. This facility continues to provide credit support for bank guarantees for the duration of the three projects. At December 31, 2010, the outstanding amount under this
facility is included in the $331.0 million of outstanding letters of credit referenced above. On an annualized basis, the average commission rate of this facility is less than 1.5%. JRMSA is also a guarantor of the new facility.

Surety Bonds (Atlantic)

In 2007, JRMSA executed a general agreement of indemnity in favor of a surety underwriter based in Mexico relating to surety bonds that underwriter issued in support of contracting activities of J. Ray
McDermott de Mèxico, S.A. de C.V., a subsidiary of JRMSA. As of December 31, 2010, bonds issued under this arrangement totaled $5.1 million.

NOTE 5PENSION PLANS AND POSTRETIREMENT BENEFITS

We historically
provided retirement benefits for most of our regular employees through noncontributory defined benefit pension plans. The Retirement Plan for Employees of J. Ray McDermott Holdings, LLC and Participating Subsidiary and Affiliated Companies (the
J. Ray Plan) generally provided benefits for certain U.S.-based employees of McDermotts offshore oil and gas construction segment, while the Retirement Plan for Employees of McDermott Incorporated and Participating Subsidiary and
Affiliated Companies (the MI Plan) generally provided benefits for certain corporate and other U.S.-based employees. We also provide supplemental defined pension benefits to certain U.S.-based employees. The J. Ray McDermott, S.A. Third
Country National Employees Pension Plan (the TCN Plan) provides retirement benefits for certain of our foreign employees.

In 2003, the J. Ray Plan was closed to new entrants and benefit accruals were frozen for existing participants. In 2006, the MI Plan was closed to new entrants and benefit accruals were frozen for certain
participants based on years of service. In 2007, other participants in the MI Plan who met certain years of service criteria were given the option of continuing to accrue benefits under the MI Plan or having benefit accruals



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frozen and receiving company contributions under McDermotts qualified defined contribution 401(k) plan. Additionally, on May 31, 2010, the MI Plan was merged into the J. Ray Plan. In
connection with the merger of the plans, we made a contribution of $84 million to fund the anticipated future benefit obligations under the continuing J. Ray Plan, which was renamed the McDermott (U.S.) Retirement Plan (the McDermott
Plan). Effective June 30, 2010, in connection with the B&W spin-off, benefit accruals under the McDermott Plan were frozen for all participants. The McDermott Plan and the supplemental defined pension benefits are collectively
referred to as the Domestic Plan.

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

Obligations and Funded Status



|                                                                   |  |                        |         |   |                        |   |          |      |  |   |         |   |  |   |         |  
|------------------------------------------------------------------ |  | ---------------------- | ------- | - | ---------------------- | - | -------- | ---- |  | - | ------- | - |  | - | ------- | -
|                                                                   |  | Domestic Plan          |         |   | TCN Plan               |  
|                                                                   |  | Year EndedDecember 31, |         |   | Year EndedDecember 31, |  
|                                                                   |  | 2010                   |         |   | 2009                   |   |          | 2010 |  |   | 2009    |  
|                                                                   |  | (In thousands)         |        
|Change in benefit obligation:                                      |  |                        |         |   |                        |   |          |      |  |   |         |   |  |   |         |  
|Benefit obligation at beginning of year                            |  | $                      | 552,854 |   |                        | $ | 572,017  |      |  | $ | 37,800  |   |  | $ | 30,313  |  
|Service cost                                                       |  |                        | 543     |   |                        |   | 888      |      |  |   | 2,305   |   |  |   | 2,179   |  
|Interest cost                                                      |  |                        | 30,639  |   |                        |   | 31,460   |      |  |   | 2,185   |   |  |   | 1,984   |  
|Actuarial loss (gain)                                              |  |                        | 36,270  |   |                        |   | (20,036  | )    |  |   | 5,879   |   |  |   | 4,106   |  
|Transfers                                                          |  |                        | (25,871 | ) |                        |   | 3,680    |      |  |   |        |   |  |   |        |  
|Divestitures                                                       |  |                        | (6,863  | ) |                        |   |         |      |  |   |        |   |  |   |        |  
|Curtailments                                                       |  |                        | (2,258  | ) |                        |   |         |      |  |   |        |   |  |   |        |  
|Benefits paid                                                      |  |                        | (34,083 | ) |                        |   | (35,155  | )    |  |   | (979    | ) |  |   | (782    | )
|                                                                   |  |                        |         |   |                        |   |          |      |  |   |         |   |  |   |         |  
|Benefit obligation at end of year                                  |  | $                      | 551,231 |   |                        | $ | 552,854  |      |  | $ | 47,190  |   |  | $ | 37,800  |  
|                                                                   |  |                        |         |   |                        |   |          |      |  |   |         |   |  |   |         |  
|Change in plan assets:                                             |  |                        |         |   |                        |   |          |      |  |   |         |   |  |   |         |  
|Fair value of plan assets at beginning of year                     |  | $                      | 416,252 |   |                        | $ | 448,173  |      |  | $ | 25,634  |   |  | $ | 19,156  |  
|Actual return on plan assets                                       |  |                        | 47,547  |   |                        |   | (4,856   | )    |  |   | 2,588   |   |  |   | 4,960   |  
|Company contributions                                              |  |                        | 90,568  |   |                        |   | 6,074    |      |  |   | 5,300   |   |  |   | 2,300   |  
|Plan merger                                                        |  |                        | (14,431 | ) |                        |   | 2,016    |      |  |   |        |   |  |   |        |  
|Benefits paid                                                      |  |                        | (34,083 | ) |                        |   | (35,155  | )    |  |   | (979    | ) |  |   | (782    | )
|                                                                   |  |                        |         |   |                        |   |          |      |  |   |         |   |  |   |         |  
|Fair value of plan assets at end of year                           |  |                        | 505,853 |   |                        |   | 416,252  |      |  |   | 32,543  |   |  |   | 25,634  |  
|                                                                   |  |                        |         |   |                        |   |          |      |  |   |         |   |  |   |         |  
|Funded status                                                      |  | $                      | (45,378 | ) |                        | $ | (136,602 | )    |  | $ | (14,647 | ) |  | $ | (12,166 | )
|                                                                   |  |                        |         |   |                        |   |          |      |  |   |         |   |  |   |         |  
|Amounts recognized in balance sheet consist of:                    |  |                        |         |   |                        |   |          |      |  |   |         |   |  |   |         |  
|Accrued pension liabilitycurrent                                  |  | $                      | (4,797  | ) |                        | $ | (11,395  | )    |  | $ | (4,000  | ) |  | $ | (5,300  | )
|Pension liability                                                  |  |                        | (40,581 | ) |                        |   | (125,207 | )    |  |   | (10,647 | ) |  |   | (6,866  | )
|                                                                   |  |                        |         |   |                        |   |          |      |  |   |         |   |  |   |         |  
|Accrued benefit liability, net                                     |  | $                      | (45,378 | ) |                        | $ | (136,602 | )    |  | $ | (14,647 | ) |  | $ | (12,166 | )
|                                                                   |  |                        |         |   |                        |   |          |      |  |   |         |   |  |   |         |  
|Amounts recognized in accumulated comprehensive loss:              |  |                        |         |   |                        |   |          |      |  |   |         |   |  |   |         |  
|Net actuarial loss (gain)                                          |  | $                      | 129,830 |   |                        | $ | 143,840  |      |  | $ | 14,505  |   |  | $ | 11,552  |  
|Prior service cost (credit)                                        |  |                        |        |   |                        |   | (1,558   | )    |  |   | 31      |   |  |   | 47      |  
|                                                                   |  |                        |         |   |                        |   |          |      |  |   |         |   |  |   |         |  
|Total before taxes                                                 |  | $                      | 129,830 |   |                        | $ | 142,282  |      |  | $ | 14,536  |   |  | $ | 11,599  |  
|                                                                   |  |                        |         |   |                        |   |          |      |  |   |         |   |  |   |         |  
|Supplemental information:                                          |  |                        |         |   |                        |   |          |      |  |   |         |   |  |   |         |  
|Plans with accumulated benefit obligation in excess of plan assets |  |                        |         |   |                        |   |          |      |  |   |         |   |  |   |         |  
|Projected benefit obligation                                       |  | $                      | 551,231 |   |                        | $ | 552,854  |      |  | $ | 47,190  |   |  | $ | 37,800  |  
|Accumulated benefit obligation                                     |  | $                      | 551,231 |   |                        | $ | 547,759  |      |  | $ | 38,165  |   |  | $ | 30,869  |  
|Fair value of plan assets                                          |  | $                      | 505,852 |   |                        | $ | 416,251  |      |  | $ | 32,543  |   |  | $ | 25,634  |  



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|                                                                 |  |                         |         |   |                         |   |         |      |  |   |        |   |  |   |        |  
|---------------------------------------------------------------- |  | ----------------------- | ------- | - | ----------------------- | - | ------- | ---- |  | - | ------ | - |  | - | ------ | -
|                                                                 |  | Domestic Plan           |         |   | TCN Plan                |  
|                                                                 |  | Year EndedDecember 
31, |         |   | Year EndedDecember 
31, |  
|                                                                 |  | 2010                    |         |   | 2009                    |   |         | 2010 |  |   | 2009   |  
|                                                                 |  | (In thousands)          |        
|Components of periodic benefit cost:                             |  |                         |         |   |                         |   |         |      |  |   |        |   |  |   |        |  
|Service cost                                                     |  | $                       | 543     |   |                         | $ | 888     |      |  | $ | 2,305  |   |  | $ | 2,179  |  
|Interest cost                                                    |  |                         | 30,639  |   |                         |   | 31,460  |      |  |   | 2,185  |   |  |   | 1,766  |  
|Expected return on plan assets                                   |  |                         | (30,830 | ) |                         |   | (28,210 | )    |  |   | (1,829 | ) |  |   | (1,392 | )
|Amortization of net loss                                         |  |                         | 18,071  |   |                         |   | 18,698  |      |  |   | 2,167  |   |  |   | 2,390  |  
|Amortization of prior service cost (credit)                      |  |                         | (268    | ) |                         |   | (725    | )    |  |   | 16     |   |  |   | 16     |  
|Recognized (gain) loss due to curtailments and other adjustments |  |                         | (1,185  | ) |                         |   |        |      |  |   |       |   |  |   | 282    |  
|                                                                 |  |                         |         |   |                         |   |         |      |  |   |        |   |  |   |        |  
|Net periodic benefit cost                                        |  | $                       | 16,970  |   |                         | $ | 22,111  |      |  | $ | 4,844  |   |  | $ | 5,241  |  
|                                                                 |  |                         |         |   |                         |   |         |      |  |   |        |   |  |   |        |  



|                                                                                      |  |                        |        |  |                         |   |        |      |  |   |       |  |  |   |     | 
|------------------------------------------------------------------------------------- |  | ---------------------- | ------ |  | ----------------------- | - | ------ | ---- |  | - | ----- |  |  | - | --- | 
|                                                                                      |  | Domestic Plan          |        |  | TCN Plan                |  
|                                                                                      |  | Year EndedDecember 31, |        |  | Year EndedDecember 
31, |  
|                                                                                      |  | 2010                   |        |  | 2009                    |   |        | 2010 |  |   | 2009  | 
|                                                                                      |  | (In thousands)         |       
|Increase in accumulated other comprehensive loss due to actuarial lossesbefore taxes |  | $                      | 16,492 |  |                         | $ | 13,757 |      |  | $ | 5,120 |  |  | $ | 474 | 

We have recognized in 2010, and expect to recognize in 2011, the 
following amounts in other comprehensive loss as a component of net periodic benefit cost.



|                                                      |  |                    |        |   |                         |   |       |              |  |   |         |  |  |   |       | 
|----------------------------------------------------- |  | ------------------ | ------ | - | ----------------------- | - | ----- | ------------ |  | - | ------- |  |  | - | ----- | 
|                                                      |  | Recognized in 2010 |        |   | To Be Recognizedin
2011 |  
|                                                      |  | DomesticPlan       |        |   | TCNPlan                 |   |       | DomesticPlan |  |   | TCNPlan | 
|                                                      |  | (In thousands)     |       
|Pension cost in accumulated other comprehensive loss: |  |                    |        |   |                         |   |       |              |  |   |         |  |  |   |       | 
|Net actuarial loss                                    |  | $                  | 18,071 |   |                         | $ | 2,167 |              |  | $ | 16,500  |  |  | $ | 2,736 | 
|Prior service cost (credit)                           |  |                    | (268   | ) |                         |   | 16    |              |  |   |        |  |  |   | 16    | 
|                                                      |  |                    |        |   |                         |   |       |              |  |   |         |  |  |   |       | 
|                                                      |  | $                  | 17,803 |   |                         | $ | 2,183 |              |  | $ | 16,500  |  |  | $ | 2,752 | 
|                                                      |  |                    |        |   |                         |   |       |              |  |   |         |  |  |   |       | 

Assumptions



|                                                                                                          |  |               |      |   |          |  |      |      |  |  |      |   |  |  |      |  
|--------------------------------------------------------------------------------------------------------- |  | ------------- | ---- | - | -------- |  | ---- | ---- |  |  | ---- | - |  |  | ---- | -
|                                                                                                          |  | Domestic Plan |      |   | TCN Plan | 
|                                                                                                          |  | 2010          |      |   | 2009     |  |      | 2010 |  |  | 2009 |  
|Weighted average assumptions used to determine net periodic benefit obligations at December 31:           |  |               |      |   |          |  |      |      |  |  |      |   |  |  |      |  
|Discount rate                                                                                             |  |               | 5.30 | % |          |  | 5.90 | %    |  |  | 5.25 | % |  |  | 6.00 | %
|Rate of compensation increase                                                                             |  |               | N/A  |   |          |  | N/A  |      |  |  | 4.50 | % |  |  | 4.50 | %
|Weighted average assumptions used to determine net periodic benefit cost for the years ended
December 31: |  |               |      |   |          |  |      |      |  |  |      |   |  |  |      |  
|Discount rate                                                                                             |  |               | 5.85 | % |          |  | 5.67 | %    |  |  | 5.25 | % |  |  | 6.00 | %
|Expected return on plan assets                                                                            |  |               | 7.05 | % |          |  | 6.87 | %    |  |  | 7.50 | % |  |  | 6.80 | %
|Rate of compensation increase                                                                             |  |               | 1.49 | % |          |  | 2.34 | %    |  |  | 4.50 | % |  |  | 4.50 | %

The expected rate of
return on plan assets assumption is based on the long-term expected returns for the investment mix of assets currently and anticipated in the portfolio. In setting this rate, we use a building-block approach. Historic real return trends for the
various asset classes in the plans portfolio are combined with



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anticipated future market conditions to estimate the real rate of return for each class. These rates are then adjusted for anticipated future inflation to determine estimated nominal rates of
return for each class. The expected rate of return on plan assets is determined to be the weighted average of the nominal returns based on the weightings of the classes within the total asset portfolio. We have been using an expected return on plan
assets assumption of 5.75% for our Domestic Plan and 7.50% for our TCN Plan, which is consistent with the long-term asset returns of the portfolio.

Investment Goals

General

The current overall investment strategy of the pension trusts is to avoid excessive risk and minimize the probability of loss of principal
over the long term. The current specific investment goals that have been set for the pension trusts in the aggregate are (1) to ensure that plan liabilities are met when due and (2) to achieve an investment return on trust assets
consistent with a reasonable level of risk.

Allocations to each asset class for both the Domestic Plan and TCN Plan are
reviewed periodically and rebalanced, if appropriate, to assure the continued relevance of the goals, objectives and strategies. The pension trusts for both our Domestic Plan and our TCN Plan employ a professional investment advisor and a number of
professional investment managers whose individual benchmarks are, in the aggregate, consistent with the plans overall investment objectives. The goals of each investment manager are (1) to meet (in the case of passive accounts) or exceed
(for actively managed accounts) the benchmark selected and agreed upon by the manager and the Trust and (2) to display an overall level of risk in its portfolio that is consistent with the risk associated with the agreed upon benchmark. The
estimated allocations discussed below are periodically reviewed to assess the appropriateness of the particular funds in which they are invested and these estimated allocations are subject to change.

The investment performance of total portfolios, as well as asset class components, is periodically measured against commonly accepted
benchmarks, including the individual investment manager benchmarks. In evaluating investment manager performance, consideration is also given to personnel, strategy, research capabilities, organizational and business matters, adherence to discipline
and other qualitative factors that may impact the ability to achieve desired investment results.

Domestic Plan

The following is a summary of the Domestic Plans asset allocations at December 31, 2010 and 2009 by asset
category. The changes in the allocation of assets at December 31, 2010 compared to December 31, 2009 are primarily a result of the B&W spin-off. The funds from the J. Ray Plan and the MI Plan were combined in July 2010 and invested
primarily in fixed income funds, which was the historical asset allocation of the J. Ray Plan.



|                                    |  |      |     |   |      |  |     |  
|----------------------------------- |  | ---- | --- | - | ---- |  | --- | -
|                                    |  | 2010 |     |   | 2009 | 
|Asset Category:                     |  |      |     |   |      |  |     |  
|Fixed Income                        |  |      | 99  | % |      |  | 32  | %
|Equity Securities                   |  |      |    | % |      |  | 25  | %
|Commingled and Mutual Funds         |  |      |    | % |      |  | 15  | %
|U.S. Government Securities          |  |      |    | % |      |  | 12  | %
|Partnerships with Security Holdings |  |      |    | % |      |  | 10  | %
|Real Estate                         |  |      |    | % |      |  | 4   | %
|Other                               |  |      | 1   | % |      |  | 2   | %
|                                    |  |      |     |   |      |  |     |  
|Total                               |  |      | 100 | % |      |  | 100 | %
|                                    |  |      |     |   |      |  |     |  



24



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The estimated allocation for 2011 for the domestic plans, by asset class, is as follows:



|                  |  |                |    |  
|----------------- |  | -------------- | -- | -
|                  |  | Domestic Plans |   
|Asset Class:      |  |                |    |  
|Fixed Income      |  |                | 90 | %
|Equity Securities |  |                | 10 | %

TCN Plan

The weighted average asset allocations of this plan at December 31, 2010 and 2009 by asset category was as follows:



|                  |  |      |     |   |      |  |     |  
|----------------- |  | ---- | --- | - | ---- |  | --- | -
|                  |  | 2010 |     |   | 2009 | 
|Asset Category:   |  |      |     |   |      |  |     |  
|Equity Securities |  |      | 70  | % |      |  | 70  | %
|Fixed Income      |  |      | 30  | % |      |  | 30  | %
|                  |  |      |     |   |      |  |     |  
|Total             |  |      | 100 | % |      |  | 100 | %
|                  |  |      |     |   |      |  |     |  

The estimated allocation for 2011 for the TCN Plan, by asset class, is as follows:



|             |  |               |    |  
|------------ |  | ------------- | -- | -
|             |  | 2011 Estimate |   
|Asset Class: |  |               |    |  
|Equity       |  |               | 70 | %
|Fixed Income |  |               | 30 | %

Fair Value

The following is a summary of total investments for our plans, measured at fair value at December 31, 2010 and
2009. See Note 8 for a detailed description of fair value measurements and the hierarchy established for valuation inputs.



|                                    |  |                |          |  |         |   |         |         |  |   |         |  |  |   |        | 
|----------------------------------- |  | -------------- | -------- |  | ------- | - | ------- | ------- |  | - | ------- |  |  | - | ------ | 
|                                    |  | 12/31/10       |          |  | Level 1 |   |         | Level 2 |  |   | Level 3 | 
|                                    |  | (In thousands) |         
|Pension Benefits:                   |  |                |          |  |         |   |         |         |  |   |         |  |  |   |        | 
|Fixed Income                        |  | $              | 514,594  |  |         | $ | 514,594 |         |  | $ |        |  |  | $ |       | 
|Equities                            |  |                | 23,424   |  |         |   | 23,424  |         |  |   |        |  |  |   |       | 
|Cash and Accrued Items              |  |                | 378      |  |         |   | 378     |         |  |   |        |  |  |   |       | 
|                                    |  |                |          |  |         |   |         |         |  |   |         |  |  |   |        | 
|Total Investments                   |  |                | $538,396 |  |         | $ | 538,396 |         |  | $ |        |  |  | $ |       | 
|                                    |  |                |          |  |         |   |         |         |  |   |         |  |  |   |        | 
|                                    |  |                |          | 
|                                    |  | 12/31/09       |          |  | Level 1 |   |         | Level 2 |  |   | Level 3 | 
|                                    |  | (In thousands) |         
|Pension Benefits:                   |  |                |          |  |         |   |         |         |  |   |         |  |  |   |        | 
|Fixed Income                        |  | $              | 285,398  |  |         | $ | 285,398 |         |  | $ |        |  |  | $ |       | 
|Equities                            |  |                | 135,345  |  |         |   | 113,005 |         |  |   | 22,340  |  |  |   |       | 
|Commingled and Mutual Funds         |  |                | 7,698    |  |         |   |        |         |  |   | 7,698   |  |  |   |       | 
|U.S. Government Securities          |  |                |         |  |         |   |        |         |  |   |        |  |  |   |       | 
|Partnerships with Security Holdings |  |                |         |  |         |   |        |         |  |   |        |  |  |   |       | 
|Real Estate                         |  |                | 13,175   |  |         |   |        |         |  |   |        |  |  |   | 13,175 | 
|Cash and Accrued Items              |  |                | 270      |  |         |   | 270     |         |  |   |        |  |  |   |       | 
|                                    |  |                |          |  |         |   |         |         |  |   |         |  |  |   |        | 
|Total Investments                   |  | $              | 441,886  |  |         | $ | 398,673 |         |  | $ | 30,038  |  |  | $ | 13,175 | 
|                                    |  |                |          |  |         |   |         |         |  |   |         |  |  |   |        | 



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##### Table of Contents

The following is a summary of the changes in the Plans Level 3 instruments measured on
a recurring basis for the years ended December 31, 2010 and 2009 (In thousands):



|                               |  |      |         |   |      |   |        |  
|------------------------------ |  | ---- | ------- | - | ---- | - | ------ | -
|                               |  | 2010 |         |   | 2009 |  
|Balance at beginning of period |  | $    | 13,175  |   |      | $ | 19,062 |  
|Issuances and acquisitions     |  |      |        |   |      |   | 200    |  
|Dispositions and B&W spin-off  |  |      | (13,175 | ) |      |   | (936   | )
|Realized loss                  |  |      |        |   |      |   | (91    | )
|Unrealized gain                |  |      |        |   |      |   | (5,061 | )
|                               |  |      |         |   |      |   |        |  
|Balance at end of period       |  | $    |        |   |      | $ | 13,175 |  
|                               |  |      |         |   |      |   |        |  

Cash Flows



|                                                                    |  |                |         |  |          |   |        | 
|------------------------------------------------------------------- |  | -------------- | ------- |  | -------- | - | ------ | 
|                                                                    |  | Domestic Plan  |         |  | TCN Plan |  
|                                                                    |  | (In thousands) |        
|Expected employer contributions to trusts of defined benefit plans: |  |                |         |  |          |   |        | 
|2011                                                                |  | $              | 3,150   |  |          | $ | 4,000  | 
|Expected benefit payments:                                          |  |                |         |  |          |   |        | 
|2011                                                                |  | $              | 34,718  |  |          | $ | 3,750  | 
|2012                                                                |  | $              | 35,395  |  |          | $ | 3,508  | 
|2013                                                                |  | $              | 36,078  |  |          | $ | 4,582  | 
|2014                                                                |  | $              | 36,778  |  |          | $ | 4,164  | 
|2015                                                                |  | $              | 37,304  |  |          | $ | 3,995  | 
|2016-2020                                                           |  | $              | 194,782 |  |          | $ | 40,290 | 

The expected employer
contributions to trusts for 2011 are included in current liabilities at December 31, 2010.

Defined Contribution
Plans

We provide benefits under the McDermott International, Inc. Director and Executive Deferred Compensation Plan
(Deferred Compensation Plan), which is a defined contribution plan. Expense associated with the Deferred Compensation Plan was not material to the consolidated financial statements for the years presented.

We also provide benefits under the McDermott Thrift Plan, (f/k/a the Thrift Plan for Employees of McDermott Incorporated and
Participating Subsidiary and Affiliated Companies (Thrift Plan)). The Thrift Plan generally provides for matching employer contributions of 50% of participants contributions up to 6 percent of compensation. The Thrift Plan provides
for unmatched employer cash contributions to certain hourly employees as well as service-based contributions to salaried corporate employees. Amounts charged to expense for employer contributions under the Thrift Plan totaled approximately $6.7
million, $7.3 million and $7.6 million in the years ended December 31, 2010, 2009 and 2008, respectively.



26



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##### Table of Contents

NOTE 6INVESTMENTS

The following is a summary of our available-for-sale securities at December 31, 2010:



|                                                                     |  |                |         |  |                      |   |    |                       |  |   |                    |   |  |   |         | 
|-------------------------------------------------------------------- |  | -------------- | ------- |  | -------------------- | - | -- | --------------------- |  | - | ------------------ | - |  | - | ------- | 
|                                                                     |  | AmortizedCost  |         |  | GrossUnrealizedGains |   |    | GrossUnrealizedLosses |  |   | EstimatedFairValue |  
|                                                                     |  | (In thousands) |        
|U.S. Treasury securities and obligations of U.S. Government agencies |  | $              | 269,154 |  |                      | $ | 8  |                       |  | $ | (1                 | ) |  | $ | 269,161 | 
|Money market instruments and short-term investments                  |  |                | 1,975   |  |                      |   | 32 |                       |  |   |                   |   |  |   | 2,007   | 
|Asset-backed securities and collateralized mortgage obligations(1)   |  |                | 14,248  |  |                      |   |   |                       |  |   | (4,379             | ) |  |   | 9,869   | 
|Corporate and foreign government bonds and notes                     |  |                | 4,167   |  |                      |   | 1  |                       |  |   |                   |   |  |   | 4,168   | 
|                                                                     |  |                |         |  |                      |   |    |                       |  |   |                    |   |  |   |         | 
|Total                                                                |  | $              | 289,544 |  |                      | $ | 41 |                       |  | $ | (4,380             | ) |  | $ | 285,205 | 
|                                                                     |  |                |         |  |                      |   |    |                       |  |   |                    |   |  |   |         | 



|(1) | Included in our asset-backed securities and collateralized mortgage obligations is approximately $7.4 million of commercial paper secured by mortgaged-backed
securities. These investments originally matured in August 2007 but were extended.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We believe the decline
in fair value is generally attributable to the collapse in the residential mortgage market. We currently do not have the intent to sell these asset-backed and collateralized mortgage securities before their anticipated recovery. We do not consider
these securities to be other than temporarily impaired at December 31, 2010.

The 2009 and prior amounts, presented below
include B&W operations, which were spun-off on July 30, 2010. The following is a summary of our available-for-sale securities at December 31, 2009:



|                                                                     |  |                |         |  |                      |   |     |                       |  |   |                      |   |  |   |         | 
|-------------------------------------------------------------------- |  | -------------- | ------- |  | -------------------- | - | --- | --------------------- |  | - | -------------------- | - |  | - | ------- | 
|                                                                     |  | AmortizedCost  |         |  | GrossUnrealizedGains |   |     | GrossUnrealizedLosses |  |   | EstimatedFair 
Value |  
|                                                                     |  | (In thousands) |        
|U.S. Treasury securities and obligations of U.S. Government agencies |  | $              | 163,310 |  |                      | $ | 166 |                       |  | $ | (10                  | ) |  | $ | 163,466 | 
|Money market instruments and short-term investments                  |  |                | 7,445   |  |                      |   | 21  |                       |  |   |                     |   |  |   | 7,466   | 
|Asset-backed securities and collateralized mortgage obligations(1)   |  |                | 17,677  |  |                      |   |    |                       |  |   | (7,122               | ) |  |   | 10,555  | 
|Corporate and foreign government bonds and notes                     |  |                | 47,147  |  |                      |   | 89  |                       |  |   | (5                   | ) |  |   | 47,231  | 
|                                                                     |  |                |         |  |                      |   |     |                       |  |   |                      |   |  |   |         | 
|Total(2)                                                             |  | $              | 235,579 |  |                      | $ | 276 |                       |  | $ | (7,137               | ) |  | $ | 228,718 | 
|                                                                     |  |                |         |  |                      |   |     |                       |  |   |                      |   |  |   |         | 



|(1) | Included in our asset-backed securities and collateralized mortgage obligations is approximately $7.5 million of commercial paper secured by mortgaged-backed
securities. These investments originally matured in August 2007 but were extended. We changed our investment policy effective in August 2007 to no longer make new investments in asset-backed securities or asset-backed commercial paper. These
investments represented approximately 1.0% of our total cash and cash equivalents and investments at December 31, 2009.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Fair value of $32.5 million pledged to secure payments under certain reinsurance agreements.
|--- | --------------------------------------------------------------------------------------------

At December 31, 2010, our available-for-sale debt securities had contractual maturities primarily in 2011 and 2012.



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Proceeds, gross realized gains and gross realized losses on sales of available-for-sale
securities were as follows:



|                             |  |                |           |  |                      |   |       |                       |  |   |    | 
|---------------------------- |  | -------------- | --------- |  | -------------------- | - | ----- | --------------------- |  | - | -- | 
|                             |  | Proceeds       |           |  | GrossRealized 
Gains |   |       | GrossRealized 
Losses | 
|                             |  | (In thousands) |          
|Year Ended December 31, 2010 |  | $              | 1,363,803 |  |                      | $ |      |                       |  | $ | 91 | 
|Year Ended December 31, 2009 |  | $              | 331,474   |  |                      |   |       |                       |  | $ | 94 | 
|Year Ended December 31, 2008 |  | $              | 1,161,960 |  |                      | $ | 1,345 |                       |  | $ |   | 

NOTE 7DERIVATIVE FINANCIAL
INSTRUMENTS

We enter into derivative financial instruments primarily as hedges of certain firm purchase and sale
commitments denominated in foreign currencies. We record these contracts at fair value on our consolidated balance sheets. Depending on the hedge designation at the inception of the contract, the related gains and losses on these contracts are
either (1) deferred in stockholders equity as a component of accumulated other comprehensive loss until the hedged item is recognized in earnings or (2) offset against the change in fair value of the hedged firm commitment through
earnings. At the inception and on an ongoing basis, we assess the hedging relationship to determine its effectiveness in offsetting changes in cash flows attributable to the hedged risk. We exclude from our assessment of effectiveness the portion of
the fair value of the forward contracts attributable to the difference between spot exchange rates and forward exchange rates. The ineffective portion of a derivatives change in fair value and any portion excluded from the assessment of
effectiveness are immediately recognized in earnings. Gains and losses on derivative financial instruments that are immediately recognized in earnings are included as a component of other income (expense)net in our consolidated statements of
income. At December 31, 2010, we had designated the majority of our foreign currency forward-exchange contracts as cash flow hedging instruments.

At December 31, 2010, we had deferred approximately $0.9 million of net losses on these derivative financial instruments in accumulated other comprehensive loss, and we expect to reclassify the net
losses on the derivative financial instruments in the periods that we reclassify the net gains on the forecasted transactions. We expect to reclassify out of accumulated other comprehensive loss approximately $1.9 million, of the net deferred losses
over the next 12 months.

At December 31, 2010, the majority of our derivative financial instruments consisted of foreign
currency forward-exchange contracts. The notional value of our forward contracts totaled $366.7 million at December 31, 2010, with maturities extending to December 2013. These instruments consist primarily of contracts to purchase or sell
foreign-denominated currencies. The fair value of these contracts was in a net asset position totaling $1.4 million at December 31, 2010. The fair value of outstanding derivative instruments is determined using observable financial market
inputs, such as quoted market prices and is classified as Level 2 in nature.



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##### Table of Contents

The following tables summarize our derivative financial instruments at December 31,
2010. 2009 balance sheet data below includes the spun-off B&W operations:

Asset and Liability Derivatives



|                                           |  |                  |        |  |                  |   |       | 
|------------------------------------------ |  | ---------------- | ------ |  | ---------------- | - | ----- | 
|                                           |  | December 31,2010 |        |  | December 31,2009 |  
|                                           |  | (In thousands)   |       
|Derivatives Designated as Hedges:          |  |                  |        |  |                  |   |       | 
|Foreign Exchange Contracts:                |  |                  |        |  |                  |   |       | 
|Location                                   |  |                  |        |  |                  |   |       | 
|Accounts receivableother                  |  | $                | 6,066  |  |                  | $ | 3,527 | 
|Other assets                               |  |                  | 3,225  |  |                  |   |      | 
|                                           |  |                  |        |  |                  |   |       | 
|Total asset derivatives                    |  | $                | 9,291  |  |                  | $ | 3,527 | 
|                                           |  |                  |        |  |                  |   |       | 
|Accounts payable                           |  | $                | 2,207  |  |                  | $ | 4,313 | 
|Other liabilities                          |  |                  | 5,733  |  |                  |   |      | 
|                                           |  |                  |        |  |                  |   |       | 
|Total liability derivatives                |  | $                | 7,940  |  |                  | $ | 4,313 | 
|                                           |  |                  |        |  |                  |   |       | 
|                                           |  |                 
|Derivatives Not Designated as Hedges:      |  |                  |        |  |                  |   |       | 
|Foreign Exchange Contracts:                |  |                  |        |  |                  |   |       | 
|Location                                   |  |                  |        |  |                  |   |       | 
|Accounts receivableother                  |  | $                |       |  |                  | $ | 458   | 
|Accounts payable                           |  |                  |       |  |                  |   | 65    | 
|                                           |  |                  |        |  |                  |   |       | 
|Total derivatives not designated as hedges |  | $                |       |  |                  | $ | 523   | 
|                                           |  |                  |        |  |                  |   |       | 
|Total derivatives                          |  | $                | 17,231 |  |                  | $ | 8,363 | 
|                                           |  |                  |        |  |                  |   |       | 

The Effects of Derivative Instruments on our Financial Statements



|                                                                                                     |  |                |        |   |      |   |        |  
|---------------------------------------------------------------------------------------------------- |  | -------------- | ------ | - | ---- | - | ------ | -
|                                                                                                     |  | December 31,   |       
|                                                                                                     |  | 2010           |        |   | 2009 |  
|                                                                                                     |  | (In thousands) |       
|Derivatives Designated as Hedges:                                                                    |  |                |        |   |      |   |        |  
|Cash Flow Hedges:                                                                                    |  |                |        |   |      |   |        |  
|Foreign Exchange Contracts:                                                                          |  |                |        |   |      |   |        |  
|Amount of gain (loss) recognized in other comprehensive income                                       |  | $              | (3,236 | ) |      | $ | 3,267  |  
|                                                                                                     |  |               
|Income (loss) reclassified from accumulated other comprehensive loss into income: effective portion  |  |                |        |   |      |   |        |  
|Location                                                                                             |  |                |        |   |      |   |        |  
|Cost of operations                                                                                   |  | $              | 2,474  |   |      | $ | (304   | )
|                                                                                                     |  |               
|Gain (loss) recognized in income: ineffective portion and amount excluded from effectiveness testing |  |                |        |   |      |   |        |  
|Location                                                                                             |  |                |        |   |      |   |        |  
|Other income (expense)net                                                                           |  | $              | (3,434 | ) |      | $ | 3,745  |  
|                                                                                                     |  |               
|Derivatives Not Designated as Hedges:                                                                |  |                |        |   |      |   |        |  
|Foreign Exchange Contracts:                                                                          |  |                |        |   |      |   |        |  
|Gain (loss) recognized in income                                                                     |  |                |        |   |      |   |        |  
|Location                                                                                             |  |                |        |   |      |   |        |  
|Other income (expense)net                                                                           |  | $              |       |   |      | $ | (6,055 | )



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Credit Risk

We are exposed to credit-related losses in the event of nonperformance by counterparties to derivative financial instruments. However,
when possible, we enter into International Swaps and Derivative Association, Inc. agreements with our hedge counterparties to mitigate this risk. We also attempt to mitigate this risk by using major financial institutions with high credit ratings
and limiting our exposure to hedge counterparties based on their credit ratings. The counterparties to all of our derivative financial instruments are financial institutions included in our credit facilities. Our hedge counterparties have the
benefit of the same collateral arrangements and covenants as described under those facilities.

NOTE 8FAIR VALUES OF FINANCIAL
INSTRUMENTS

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a
liability (an exit price) in an orderly transaction between market participants at the measurement date. In addition to defining fair value, the authoritative accounting guidance expands disclosures about fair value measurements and establishes a
hierarchy for valuation inputs that emphasizes the use of observable inputs when measuring fair value. A financial instruments categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the
fair value measurement. The fair value hierarchy established by this topic is broken down as follows:



| |  |  | Level 1inputs are based upon quoted prices for identical instruments traded in active markets.
| | - |  | -----------------------------------------------------------------------------------------------



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



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

The following sections describe the valuation methodologies we use to measure the fair values of our available-for-sale securities and
derivatives. 2009 amounts presented below include the spun-off B&W operations.

Available-for-Sale Securities

Investments other than derivatives primarily include U.S. Government and agency securities, money-market funds,
mortgage-backed securities and corporate notes and bonds.

In general, and where applicable, we use a pricing service that
principally uses a composite of observable prices and quoted prices in active markets for identical assets or liabilities to determine fair value. This pricing methodology applies to our Level 1 and 2 investments. Our Level 3 investment consists of
asset-backed commercial paper notes backed by a pool of mortgage-backed securities. The fair value of this Level 3 investment was based on the calculation of an overall weighted-average valuation, using the prices of the underlying individual
securities. Individual securities in the pool were valued based on market observed prices, where available. If market prices were not available, prices of similar securities backed by similar assets were used.

Our net unrealized loss on investments was approximately $4.3 million at December 31, 2010. At December 31, 2009, we had net
unrealized losses on our investments totaling approximately $6.9 million. The major components of our investments in an unrealized loss position are asset-backed obligations and commercial paper. Based on our analysis of these investments, we
believe that none of our available-for-sale securities were other than temporarily impaired at December 31, 2010.



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##### Table of Contents

Derivatives

Level 2 derivative assets and liabilities primarily include over-the-counter forwards, primarily consisting of foreign exchange rate
derivatives. Where applicable, the value of these derivative assets and liabilities is computed by discounting the projected future cash flow amounts to present value using market-based observable inputs, including foreign exchange forward and
spot rates, interest rates and counterparty performance risk adjustments.

At December 31, 2010, we had forward contracts
outstanding to purchase or sell foreign currencies with a total notional value of $366.7 million and a total fair value of $1.4 million.

Fair Value MeasurementsRecurring Basis

The following is a
summary of our available-for-sale securities measured at fair value at December 31, 2010:



|                                                                   |  |                |         |  |         |   |         |         |  |   |         |  |  |   |       | 
|------------------------------------------------------------------ |  | -------------- | ------- |  | ------- | - | ------- | ------- |  | - | ------- |  |  | - | ----- | 
|                                                                   |  | 12/31/10       |         |  | Level 1 |   |         | Level 2 |  |   | Level 3 | 
|                                                                   |  | (In thousands) |        
|Mutual funds(1)                                                    |  | $              | 2,007   |  |         | $ |        |         |  | $ | 2,007   |  |  | $ |      | 
|Certificates of deposit                                            |  |                |        |  |         |   |        |         |  |   |        |  |  |   |      | 
|U.S. Government and agency securities(2)                           |  |                | 269,161 |  |         |   | 269,161 |         |  |   |        |  |  |   |      | 
|Asset-backed securities and collateralized mortgage obligations(3) |  |                | 9,869   |  |         |   |        |         |  |   | 2,497   |  |  |   | 7,372 | 
|Corporate notes and bonds(4)                                       |  |                | 4,168   |  |         |   |        |         |  |   | 4,168   |  |  |   |      | 
|                                                                   |  |                |         |  |         |   |         |         |  |   |         |  |  |   |       | 
|Total                                                              |  | $              | 285,205 |  |         | $ | 269,161 |         |  | $ | 8,672   |  |  | $ | 7,372 | 
|                                                                   |  |                |         |  |         |   |         |         |  |   |         |  |  |   |       | 

The following is a summary of our available-for-sale securities measured at fair value at December 31,
2009:



|                                                                |  |                |         |  |         |   |         |         |  |   |         |  |  |   |       | 
|--------------------------------------------------------------- |  | -------------- | ------- |  | ------- | - | ------- | ------- |  | - | ------- |  |  | - | ----- | 
|                                                                |  | 12/31/09       |         |  | Level 1 |   |         | Level 2 |  |   | Level 3 | 
|                                                                |  | (In thousands) |        
|Mutual funds                                                    |  | $              | 4,944   |  |         | $ |        |         |  | $ | 4,944   |  |  | $ |      | 
|Certificates of deposit                                         |  |                | 2,522   |  |         |   |        |         |  |   | 2,522   |  |  |   |      | 
|U.S. Government and agency securities                           |  |                | 163,466 |  |         |   | 148,683 |         |  |   | 14,783  |  |  |   |      | 
|Asset-backed securities and collateralized mortgage obligations |  |                | 10,555  |  |         |   |        |         |  |   | 3,061   |  |  |   | 7,494 | 
|Corporate notes and bonds                                       |  |                | 47,231  |  |         |   |        |         |  |   | 47,231  |  |  |   |      | 
|                                                                |  |                |         |  |         |   |         |         |  |   |         |  |  |   |       | 
|Total                                                           |  | $              | 228,718 |  |         | $ | 148,683 |         |  | $ | 72,541  |  |  | $ | 7,494 | 
|                                                                |  |                |         |  |         |   |         |         |  |   |         |  |  |   |       | 



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

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

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

|(4) | Corporate notes and bonds with maturities of three years or less.
|--- | -----------------------------------------------------------------



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Changes in Level 3 Instrument

The following is a summary of the changes in our Level 3 instrument measured on a recurring basis for the years ended December 31,
2010 and 2009:



|                                                    |  |                         |        |   |      |   |        |  
|--------------------------------------------------- |  | ----------------------- | ------ | - | ---- | - | ------ | -
|                                                    |  | Year ended December 31, |       
|                                                    |  | 2010                    |        |   | 2009 |  
|                                                    |  | (In thousands)          |       
|Balance at beginning of period                      |  | $                       | 7,494  |   |      | $ | 7,456  |  
|Instruments attributable to discontinued operations |  |                         | (168   | ) |      |   |       |  
|Total realized and unrealized gains                 |  |                         | 1,821  |   |      |   | 2,402  |  
|Purchases, issuances, and settlements               |  |                         | 172    |   |      |   |       |  
|Principal repayments                                |  |                         | (1,947 | ) |      |   | (2,364 | )
|                                                    |  |                         |        |   |      |   |        |  
|Balance at end of period                            |  | $                       | 7,372  |   |      | $ | 7,494  |  
|                                                    |  |                         |        |   |      |   |        |  

Other Financial Instruments

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

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

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

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



|                                     |  |                   |         |  |                   |   |         |                |  |   |            |   |  |   |         |  
|------------------------------------ |  | ----------------- | ------- |  | ----------------- | - | ------- | -------------- |  | - | ---------- | - |  | - | ------- | -
|                                     |  | December 31, 2010 |         |  | December 31, 2009 |  
|                                     |  | CarryingAmount    |         |  | Fair Value        |   |         | CarryingAmount |  |   | Fair Value |  
|                                     |  | (In thousands)    |        
|Balance Sheet Instruments            |  |                   |         |  |                   |   |         |                |  |   |            |   |  |   |         |  
|Cash and cash equivalents            |  | $                 | 403,463 |  |                   | $ | 403,463 |                |  | $ | 899,270    |   |  | $ | 899,270 |  
|Restricted cash and cash equivalents |  | $                 | 197,861 |  |                   | $ | 197,861 |                |  | $ | 69,920     |   |  | $ | 69,920  |  
|Investments                          |  | $                 | 285,205 |  |                   | $ | 285,205 |                |  | $ | 228,718    |   |  | $ | 228,718 |  
|Debt                                 |  | $                 | 55,295  |  |                   | $ | 56,180  |                |  | $ | 72,984     |   |  | $ | 73,505  |  
|Forward contracts                    |  | $                 | 1,352   |  |                   | $ | 1,352   |                |  | $ | (394       | ) |  | $ | (394    | )
|Foreign currency options             |  | $                 |        |  |                   | $ |        |                |  | $ | 4,747      |   |  | $ | 4,747   |  

NOTE 9CAPITAL STOCK AND
STOCKBASED COMPENSATION

Capital Stock

The Panamanian regulations that relate to acquisitions of securities of companies registered with the Panamanian National Securities
Commission, such as MII, require, among other matters, that detailed disclosure concerning an offeror be finalized before that person acquires beneficial ownership of more than 5% of the outstanding shares of any class of our stock. The detailed
disclosure is subject to review by either the Panamanian National Securities Commission or our Board of Directors. Transfers of shares of common stock in violation of these regulations are invalid and cannot be registered for transfer.



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At December 31, 2010 and 2009, approximately 14.3 million and 16.5 million shares of
common stock, respectively, were reserved for issuance in connection with our 2009 McDermott International, Inc. Long-Term Incentive Plan (the 2009 LTIP) and our Thrift Plan.

Stock Plans

B&W Spin-off Changes

In connection with the spin-off of B&W, we
made certain adjustments to our stock-based compensation awards. For our employees who held performance shares issued in or prior to May 2009, we cancelled the performance shares and issued restricted stock in an amount equal to the fair value of
the shares held immediately prior to the spin-off. For holders of restricted stock granted in or prior to May 2010, the holder received additional units of restricted stock to maintain the total fair value of restricted stock held immediately prior
to the spin-off. For stock options granted in or prior to May 2010, we adjusted the number of options held by each holder so that the intrinsic value of the stock options held immediately following the spin-off equaled the intrinsic value of the
stock options held immediately prior to the spin-off. The adjustments to stock-based compensation awards were treated as a modification and resulted in total incremental compensation cost of $14.5 million, of which approximately $9.3 million was
recognized in the year ended December 31, 2010 and the remainder will be expensed in 2011.

2009 McDermott
International, Inc. Long-Term Incentive Plan

In May 2009, our shareholders approved the 2009 LTIP. Members of the Board of
Directors, executive officers and key employees are eligible to participate in the plan. The Compensation Committee of the Board of Directors selects the participants for the plan. The plan provides for a number of forms of stock-based compensation,
including incentive and non-qualified stock options, restricted stock, restricted stock units and performance shares and performance units, subject to satisfaction of specific performance goals. Shares approved under the 2001 Directors and Officers
Long-Term Incentive Plan (the 2001 LTIP) that were not awarded as of the date of approval of the 2009 LTIP, or shares that are subject to awards that are cancelled, terminated, forfeited, expired or settled in cash in lieu of shares, are
available for issuance under the 2009 LTIP. In addition, 9,000,000 shares were authorized for issuance through the 2009 LTIP. Options to purchase shares are granted at the fair market value (closing trading price) on the date of grant and become
exercisable at such time or times as determined when granted and expire not more than seven years after the date of grant. At December 31, 2010, we had a total of 9,484,241 shares of our common stock available for award under the 2009 LTIP.

2001 Directors and Officers Long-Term Incentive Plan

In May 2009, our shareholders approved the 2009 LTIP. As a result we no longer issue awards under the 2001 LTIP. Members of the Board of
Directors, executive officers, key employees and consultants were eligible to participate in the 2001 LTIP. The Compensation Committee of the Board of Directors selected the participants for the plan. The plan provided for a number of forms of
stock-based compensation, including incentive and nonqualified stock options, stock appreciation rights, restricted stock, deferred stock units, performance shares and performance units, subject to satisfaction of specific performance goals. Options
to purchase shares were granted at not less than 100% of the fair market value (average of the high and low trading price) on the date of grant, became exercisable at such time or times as determined when granted and expire not more than seven years
after the date of the grant. Options granted prior to May 2009 expire not more than ten years after the date of the grant. Shares of common stock available to be awarded under the 2001 LTIP are available under the terms of the 2009 LTIP and have
been included in the amount available for grant discussed above.

1997 Director Stock Program

Until 2007, we also maintained a 1997 Director Stock Program. Under this program, nonmanagement directors were entitled to receive a
grant of options to purchase 2,700 shares of our common stock in the first



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year of a directors term and a grant of options to purchase 900 shares in subsequent years of such term at a purchase price equal to the fair market value of one share of our common
stock on the date of grant. These options became exercisable, in full, six months after the date of grant and expire ten years from the date of grant. In addition, nonmanagement directors were entitled to receive a grant of 1,350 shares
of restricted stock in the first year of a directors term and 450 shares in subsequent years of such term. The shares of restricted stock were subject to payment by the director of a purchase price at par value ($1.00 per share)
and to transfer restrictions that lapse at the end of the directors term. By the terms of the 1997 Director Stock Program, no award may be granted under the program beginning June 6, 2007. As a result, we made our final grants
of stock options and restricted stock under the 1997 Directors Stock Program in connection with our Annual Meeting of Stockholders in May 2007. The shares of common stock available to be awarded under the 1997 Director Stock
Program are available under the terms of the 2001 LTIP Plan and have been included in the amount available for grant discussed above.

In the event of a change in control of our company, all of these stock-based compensation programs have provisions that may cause restrictions to lapse with respect to restricted stock and accelerate the
exercisability of outstanding options.

Total compensation expense recognized for the years ended December 31, 2010, 2009
and 2008 was as follows:



|                                     |  |                              |        |  |            |   |        |           |  |   |        | 
|------------------------------------ |  | ---------------------------- | ------ |  | ---------- | - | ------ | --------- |  | - | ------ | 
|                                     |  | CompensationExpense          |        |  | TaxBenefit |   |        | NetImpact | 
|                                     |  | (In thousands)               |       
|                                     | 
|                                     |  | Year Ended December 31, 2010 |       
|Stock Options                        |  | $                            | 2,489  |  |            | $ | (765   | )         |  | $ | 1,724  | 
|Restricted Stock                     |  |                              | 4,101  |  |            |   | (1,079 | )         |  |   | 3,022  | 
|Restricted Stock Units               |  |                              | 12,662 |  |            |   | (3,764 | )         |  |   | 8,898  | 
|Performance Shares                   |  |                              | 3,437  |  |            |   | (1,087 | )         |  |   | 2,350  | 
|Performance and Deferred Stock Units |  |                              | 723    |  |            |   | (259   | )         |  |   | 464    | 
|                                     |  |                              |        |  |            |   |        |           |  |   |        | 
|Total                                |  | $                            | 23,412 |  |            | $ | (6,954 | )         |  | $ | 16,458 | 
|                                     |  |                              |        |  |            |   |        |           |  |   |        | 
|                                     | 
|                                     |  | Year Ended December 31, 2009 |       
|Stock Options                        |  | $                            | 1,078  |  |            | $ | (319   | )         |  | $ | 759    | 
|Restricted Stock                     |  |                              | 2,882  |  |            |   | (566   | )         |  |   | 2,316  | 
|Restricted Stock Units               |  |                              | 2,956  |  |            |   | (887   | )         |  |   | 2,069  | 
|Performance Shares                   |  |                              | 9,217  |  |            |   | (2,817 | )         |  |   | 6,400  | 
|Performance and Deferred Stock Units |  |                              | 2,127  |  |            |   | (684   | )         |  |   | 1,443  | 
|                                     |  |                              |        |  |            |   |        |           |  |   |        | 
|Total                                |  | $                            | 18,260 |  |            | $ | (5,273 | )         |  | $ | 12,987 | 
|                                     |  |                              |        |  |            |   |        |           |  |   |        | 
|                                     | 
|                                     |  | Year Ended December 31, 2008 |       
|Stock Options                        |  | $                            | 423    |  |            | $ | (181   | )         |  | $ | 242    | 
|Restricted Stock                     |  |                              | 2,263  |  |            |   | (383   | )         |  |   | 1,880  | 
|Performance Shares                   |  |                              | 12,267 |  |            |   | (3,431 | )         |  |   | 8,836  | 
|Performance and Deferred Stock Units |  |                              | 1,760  |  |            |   | (545   | )         |  |   | 1,215  | 
|                                     |  |                              |        |  |            |   |        |           |  |   |        | 
|Total                                |  | $                            | 16,713 |  |            | $ | (4,540 | )         |  | $ | 12,173 | 
|                                     |  |                              |        |  |            |   |        |           |  |   |        | 

The impact on basic earnings per share of stock-based compensation expense recognized for the years ended
December 31, 2010, 2009 and 2008 was $0.07, $0.06 and $0.05 per share, respectively, and on diluted earnings per share was $0.07, $0.06 and $0.05 per share, respectively.



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As of December 31, 2010, total unrecognized estimated compensation expense related to
nonvested awards was $12.9 million, net of estimated tax benefits of $7.0 million. The components of the total gross unrecognized estimated compensation expense of $19.9 million and their expected weighted-average periods for expense recognition are
as follows (amounts in millions; periods in years):



|                       |  |        |      |  |                        |  |     | 
|---------------------- |  | ------ | ---- |  | ---------------------- |  | --- | 
|                       |  | Amount |      |  | Weighted-AveragePeriod | 
|Stock options          |  | $      | 4.8  |  |                        |  | 1.9 | 
|Restricted stock       |  | $      | 2.6  |  |                        |  | 0.5 | 
|Restricted stock units |  | $      | 12.5 |  |                        |  | 1.5 | 

Stock Options

The fair value of each option grant was estimated at the date of grant using Black-Scholes, with the following
weighted-average assumptions:



|                                     |  |                         |      |   |      |  |      |      |  |    
|------------------------------------ |  | ----------------------- | ---- | - | ---- |  | ---- | ---- |  | ---
|                                     |  | Year Ended December 31,
|                                     |  | 2010                    |      |   | 2009 |  |      | 2008
|Risk-free interest rate              |  |                         | 2.12 | % |      |  | 2.03 | %    |  | N/A
|Expected volatility                  |  |                         | 54   | % |      |  | 78   | %    |  | N/A
|Expected life of the option in years |  |                         | 4.64 |   |      |  | 4.63 |      |  | N/A
|Expected dividend yield              |  |                         | 0.0  | % |      |  | 0.0  | %    |  | N/A

The risk-free interest
rate is based on the implied yield on a U.S. Treasury zero-coupon issue with a remaining term equal to the expected life of the option. The expected volatility is based on implied volatility from publicly traded options on our common stock,
historical volatility of the price of our common stock and other factors. The expected life of the option is based on observed historical patterns. The expected dividend yield is based on the projected annual dividend payment per share divided by
the stock price at the date of grant. This amount is zero because we have not paid cash dividends in recent years and do not expect to pay cash dividends for the foreseeable future.

The following table summarizes activity for our stock options for the year ended December 31, 2010 (share data in thousands):



|                                   |  |                |        |   |                               |   |       |                                          |  |  |                                      |  |  |   |      | 
|---------------------------------- |  | -------------- | ------ | - | ----------------------------- | - | ----- | ---------------------------------------- |  |  | ------------------------------------ |  |  | - | ---- | 
|                                   |  | NumberofShares |        |   | Weighted-AverageExercisePrice |   |       | Weighted-AverageRemainingContractualTerm |  |  | AggregateIntrinsicValue(in millions) | 
|Outstanding at beginning of period |  |                | 2,511  |   |                               | $ | 8.84  |                                          |  |  |                                      |  |  |   |      | 
|Granted                            |  |                | 688    |   |                               |   | 25.39 |                                          |  |  |                                      |  |  |   |      | 
|Exercised                          |  |                | (1,126 | ) |                               |   | 4.83  |                                          |  |  |                                      |  |  |   |      | 
|Spin-off adjustment                |  |                | 1,266  |   |                               |   | 6.68  |                                          |  |  |                                      |  |  |   |      | 
|Cancelled/expired/forfeited        |  |                | (958   | ) |                               |   | 26.51 |                                          |  |  |                                      |  |  |   |      | 
|                                   |  |                |        |   |                               |   |       |                                          |  |  |                                      |  |  |   |      | 
|Outstanding at end of period(1)    |  |                | 2,381  |   |                               | $ | 7.42  |                                          |  |  | 5.0 Years                            |  |  | $ | 31.2 | 
|                                   |  |                |        |   |                               |   |       |                                          |  |  |                                      |  |  |   |      | 
|Exercisable at end of period       |  |                | 987    |   |                               | $ | 4.03  |                                          |  |  | 3.9 Years                            |  |  | $ | 16.3 | 
|                                   |  |                |        |   |                               |   |       |                                          |  |  |                                      |  |  |   |      | 



|(1) | Of the remaining outstanding shares, we expect approximately 1.4 million shares to vest at a weighted-average exercise price of $9.83.
|--- | --------------------------------------------------------------------------------------------------------------------------------------

The aggregate intrinsic value included in the table above represents the total pretax intrinsic value that would have been received by
the option holders had all option holders exercised their options on December 31,



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2010. The intrinsic value is calculated as the total number of option shares multiplied by the difference between the closing price of our common stock on the last trading day and the exercise
price of the options. This amount changes based on the fair market value of our common stock.

The weighted-average fair value
of the stock options granted in the years ended December 31, 2010 and 2009 was $25.39 and $11.57, respectively. There were no stock options granted in the year ended December 31, 2008. The total fair value of shares vested during the years
ended December 31, 2010 and 2008 was $1.6 million and $2.2 million, respectively. No stock options vested in 2009.

During the years ended December 31, 2010, 2009 and 2008, the total intrinsic value of stock options exercised was $4.0 million, $5.6
million and $81.5 million, respectively. We recorded cash received in the years ended December 31, 2010, 2009 and 2008 from the exercise of these stock options totaling $5.4 million, $1.1 million and $9.6 million, respectively.

The actual tax benefits realized related to the stock options exercised during the years ended December 31, 2010, 2009 and 2008 were
$0.8 million, $1.8 million and $17.2 million, respectively.

Restricted Stock

Nonvested restricted stock awards as of December 31, 2010 and changes during the year ended December 31, 2010 were as follows
(share data in thousands):



|                                 |  |                |      |   |                                      |   |       | 
|-------------------------------- |  | -------------- | ---- | - | ------------------------------------ | - | ----- | 
|                                 |  | NumberofShares |      |   | Weighted-AverageGrant DateFair Value |  
|Nonvested at beginning of period |  |                | 222  |   |                                      | $ | 40.88 | 
|Granted                          |  |                | 351  |   |                                      |   | 14.16 | 
|Vested                           |  |                | (163 | ) |                                      |   | 34.25 | 
|Spin-off adjustment              |  |                | 39   |   |                                      |   | 22.61 | 
|Cancelled/forfeited              |  |                | (72  | ) |                                      |   | 32.15 | 
|                                 |  |                |      |   |                                      |   |       | 
|Nonvested at end of period       |  |                | 377  |   |                                      | $ | 14.65 | 
|                                 |  |                |      |   |                                      |   |       | 

The actual tax benefits realized related to the restricted stock lapsed during the years ended
December 31, 2010, 2009 and 2008 were $1.6 million, $3.4 million and $3.3 million, respectively.

Restricted Stock
Units

Nonvested restricted stock units as of December 31, 2010 and changes during the year ended December 31,
2010 were as follows (share data in thousands):



|                                 |  |                |        |   |                                      |   |       | 
|-------------------------------- |  | -------------- | ------ | - | ------------------------------------ | - | ----- | 
|                                 |  | NumberofShares |        |   | Weighted-AverageGrant DateFair Value |  
|Nonvested at beginning of period |  |                | 1,478  |   |                                      | $ | 11.25 | 
|Granted                          |  |                | 666    |   |                                      |   | 25.39 | 
|Vested                           |  |                | (1,050 | ) |                                      |   | 11.56 | 
|Transfers                        |  |                | 794    |   |                                      |   | 16.55 | 
|Spin-off adjustment              |  |                | 996    |   |                                      |   | 12.93 | 
|Cancelled/forfeited              |  |                | (771   | ) |                                      |   | 17.01 | 
|                                 |  |                |        |   |                                      |   |       | 
|Nonvested at end of period       |  |                | 2,113  |   |                                      | $ | 13.26 | 
|                                 |  |                |        |   |                                      |   |       | 



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Performance Shares and Deferred Stock Units

Nonvested performance share awards as of December 31, 2010 and changes during the year ended December 31, 2010 were as follows
(share data in thousands):



|                                 |  |                |        |   |                                      |   |       | 
|-------------------------------- |  | -------------- | ------ | - | ------------------------------------ | - | ----- | 
|                                 |  | NumberofShares |        |   | Weighted-AverageGrant DateFair Value |  
|Nonvested at beginning of period |  |                | 1,845  |   |                                      | $ | 32.57 | 
|Granted                          |  |                | 393    |   |                                      |   | 26.19 | 
|Vested                           |  |                | (1,178 | ) |                                      |   | 31.22 | 
|Cancelled/forfeited              |  |                | (1,060 | ) |                                      |   | 31.68 | 
|                                 |  |                |        |   |                                      |   |       | 
|Nonvested at end of period       |  |                |       |   |                                      | $ |      | 
|                                 |  |                |        |   |                                      |   |       | 

Nonvested performance and deferred stock unit awards as of December 31, 2010 and changes during the
year ended December 31, 2010 (share data in thousands):



|                                 |  |               |      |   |                         |   |   | 
|-------------------------------- |  | ------------- | ---- | - | ----------------------- | - | - | 
|                                 |  | NumberofUnits |      |   | AggregateIntrinsicValue |  
|Nonvested at beginning of period |  |               | 113  |   |                         |   |   | 
|Granted                          |  |               |     |   |                         |   |   | 
|Vested                           |  |               | (101 | ) |                         |   |   | 
|Cancelled/forfeited              |  |               | (12  | ) |                         |   |   | 
|                                 |  |               |      |   |                         |   |   | 
|Nonvested at end of period       |  |               |     |   |                         | $ |  | 
|                                 |  |               |      |   |                         |   |   | 

As discussed above, in connection with the spin-off of B&W, for our employees who held performance
shares issued in or prior to May 2009, we cancelled the performance shares and issued restricted stock in an amount equal to the fair value of the shares held immediately prior to the spin-off.

Thrift Plan

On November 12, 1991, 15,000,000 of the authorized and unissued shares of MII common stock were reserved for issuance for the employer match to the Thrift Plan. On October 11, 2002, an
additional 15,000,000 of the authorized and unissued shares of MII common stock were reserved for issuance for the employer match to the Thrift Plan. Those employer matching contributions equal 50% of the first 6% of compensation, as defined in the
Thrift Plan, contributed by participants, and fully vest and are nonforfeitable after three years of service or upon retirement, death, involuntary termination of employment due to reduction in force or approved disability. During the years ended
December 31, 2010, 2009 and 2008, we issued 282,022, 941,348 and 412,947 shares, respectively, of MIIs common stock as employer matching contributions pursuant to the Thrift Plan. At December 31, 2010, 4,795,934 shares of MIIs
common stock remained available for issuance under the Thrift Plan. Effective June 2010, MII began making employer matching contributions in cash, in lieu of MII common stock.

NOTE 10INCOME TAXES

We provide for income taxes based on the tax
laws and rates in the countries in which we conduct our operations. MII is a Panamanian corporation that earns all of its income outside of Panama. As a result, we are not subject to income tax in Panama. We operate in various taxing jurisdictions
around the world. Each of these jurisdictions has a regime of taxation that varies, not only with respect to nominal rates, but also with respect to the basis on which these rates are applied. These variations, along with changes in our mix of
income from these jurisdictions, contribute to shifts in our effective tax rate.



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We conduct business globally and, as a result, we or one or more of our subsidiaries file
income tax returns in a number of jurisdictions. In the normal course of business, we are subject to examination by taxing authorities throughout the world, including such major jurisdictions as Indonesia, Malaysia, Singapore, Saudi Arabia, Kuwait,
India, Qatar, Azerbaijan and the United States. With few exceptions, we are no longer subject to tax examinations for years prior to 2006.

U.S. state income tax returns are generally subject to examination for a period of three to five years after filing the respective returns. With few exceptions, we do not have any U.S. state returns under
examination for years prior to 2006.

A reconciliation of unrecognized tax benefits for the year ended December 31, 2010
was as follows (in thousands). 2009 and 2008 amounts include discontinued operations:



|                                                                 |  |                         |         |   |      |   |        |      |  |   |         |  
|---------------------------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------ | ---- |  | - | ------- | -
|                                                                 |  | Year Ended December 31, |        
|                                                                 |  | 2010                    |         |   | 2009 |   |        | 2008 | 
|Balance at beginning of period                                   |  | $                       | 59,113  |   |      | $ | 57,484 |      |  | $ | 64,810  |  
|Increases based on tax positions taken in the current year       |  |                         | 3,511   |   |      |   | 9,895  |      |  |   | 13,575  |  
|Increases based on tax positions taken in prior years            |  |                         | 920     |   |      |   | 1,322  |      |  |   | 704     |  
|Decreases based on tax positions taken in prior years            |  |                         | (875    | ) |      |   | (775   | )    |  |   | (6,166  | )
|Unrecognized tax benefits transferred to discontinued operations |  |                         | (35,920 | ) |      |   |       |      |  |   |        |  
|Decreases due to settlements with tax authorities                |  |                         | (95     | ) |      |   | (8,813 | )    |  |   | (15,027 | )
|Decreases due to lapse of applicable statute of limitation       |  |                         | (242    | ) |      |   |       |      |  |   | (412    | )
|                                                                 |  |                         |         |   |      |   |        |      |  |   |         |  
|Balance at end of period                                         |  | $                       | 26,412  |   |      | $ | 59,113 |      |  | $ | 57,484  |  
|                                                                 |  |                         |         |   |      |   |        |      |  |   |         |  

The entire balance of unrecognized tax benefits at December 31, 2010 would reduce our effective tax
rate if recognized.

During the year ended December 31, 2010, we made additional accruals of $5.1 million offset by a
reduction of $4.3 million related to the spin-off of B&W resulting in recorded liabilities of approximately $16.4 million for the payment of tax-related interest and penalties. At December 31, 2009 and 2008, we had recorded liabilities of
approximately $15.6 million and $15.7 million, respectively, for the payment of tax-related interest and penalties. The additional accrual of $3.1 million during 2009 was offset by payments of $3.2 million.



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Deferred income taxes reflect the net tax effects of temporary differences between the
financial and tax bases of assets and liabilities. Significant components of deferred tax assets and liabilities as of December 31, 2010 and 2009 were as follows:



|                                                                                             |  |                |         |   |      |   |          |  
|-------------------------------------------------------------------------------------------- |  | -------------- | ------- | - | ---- | - | -------- | -
|                                                                                             |  | December 31,   |        
|                                                                                             |  | 2010           |         |   | 2009 |  
|                                                                                             |  | (In thousands) |        
|Deferred tax assets:                                                                         |  |                |         |   |      |   |          |  
|Pension liability                                                                            |  | $              | 3,093   |   |      | $ | 210,288  |  
|Accrued liabilities for self-insurance                                                       |  |                | 1,840   |   |      |   | 53,737   |  
|Accrued liabilities for incentive compensation                                               |  |                | 23,664  |   |      |   | 40,305   |  
|Net operating loss carryforward                                                              |  |                | 60,172  |   |      |   | 78,401   |  
|Accrued warranty expense                                                                     |  |                |        |   |      |   | 41,324   |  
|State tax credits and net operating loss carryforward                                        |  |                | 25,439  |   |      |   | 49,805   |  
|Environmental and products liability                                                         |  |                | 175     |   |      |   | 11,678   |  
|Minimum tax credit carryforward                                                              |  |                |        |   |      |   | 10,657   |  
|Foreign tax credit carryforward                                                              |  |                |        |   |      |   | 16,062   |  
|Long-term contracts                                                                          |  |                | 9,820   |   |      |   | 25,475   |  
|Accrued vacation pay                                                                         |  |                | 963     |   |      |   | 12,805   |  
|Investments in joint ventures and affiliated companies                                       |  |                |        |   |      |   | 2,521    |  
|Other                                                                                        |  |                | 2,651   |   |      |   | 16,851   |  
|                                                                                             |  |                |         |   |      |   |          |  
|Total deferred tax assets                                                                    |  |                | 127,817 |   |      |   | 569,909  |  
|Valuation allowance for deferred tax assets                                                  |  |                | (95,734 | ) |      |   | (108,737 | )
|                                                                                             |  |                |         |   |      |   |          |  
|Deferred tax assets                                                                          |  | $              | 32,083  |   |      | $ | 461,172  |  
|                                                                                             |  |                |         |   |      |   |          |  
|Deferred tax liabilities:                                                                    |  |                |         |   |      |   |          |  
|Property, plant and equipment                                                                |  | $              | 16,326  |   |      | $ | 40,275   |  
|Intangibles                                                                                  |  |                |        |   |      |   | 32,386   |  
|Prepaid drydock                                                                              |  |                | 7,859   |   |      |   | 9,468    |  
|Investments in joint ventures and affiliated companies                                       |  |                | 10,630  |   |      |   | 6,573    |  
|Other                                                                                        |  |                | 2,993   |   |      |   | 4,873    |  
|                                                                                             |  |                |         |   |      |   |          |  
|Total deferred tax liabilities                                                               |  | $              | 37,808  |   |      | $ | 93,575   |  
|                                                                                             |  |                |         |   |      |   |          |  
|Net deferred tax asset (liability)                                                           |  | $              | (5,725  | ) |      | $ | 367,597  |  
|                                                                                             |  |                |         |   |      |   |          |  
|Deferred tax assets and liabilities in the accompanying consolidated balance sheets include: |  |                |         |   |      |   |          |  
|Current deferred tax assets                                                                  |  | $              | 10,323  |   |      | $ | 11,223   |  
|Noncurrent deferred tax assets                                                               |  |                |        |   |      |   | 106,360  |  
|                                                                                             |  |                |         |   |      |   |          |  
|Total deferred tax assets, netcontinuing operations                                         |  |                | 10,323  |   |      |   | 117,583  |  
|Total deferred tax assets, netdiscontinued operations                                       |  |                |        |   |      |   | 258,812  |  
|                                                                                             |  |                |         |   |      |   |          |  
|Total                                                                                        |  | $              | 10,323  |   |      | $ | 376,395  |  
|                                                                                             |  |                |         |   |      |   |          |  
|                                                                                             |  |               
|Current deferred tax liabilities                                                             |  | $              | 12,849  |   |      | $ | 3,860    |  
|Noncurrent deferred tax liabilities                                                          |  |                | 3,199   |   |      |   | 4,923    |  
|                                                                                             |  |                |         |   |      |   |          |  
|Total deferred tax liabilities, netcontinuing operations                                    |  |                | 16,048  |   |      |   | 8,783    |  
|Total deferred tax liabilities, netdiscontinued operations                                  |  |                |        |   |      |   | 15       |  
|                                                                                             |  |                |         |   |      |   |          |  
|Total                                                                                        |  | $              | 16,048  |   |      | $ | 8,798    |  
|                                                                                             |  |                |         |   |      |   |          |  
|Net deferred tax asset (liability)                                                           |  | $              | (5,725  | ) |      | $ | 367,597  |  
|                                                                                             |  |                |         |   |      |   |          |  



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Income before provision for income taxes was as follows:



|                                         |  |                         |          |   |      |   |         |      |  |   |         |  
|---------------------------------------- |  | ----------------------- | -------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                         |  | Year Ended December 31, |         
|                                         |  | 2010                    |          |   | 2009 |   |         | 2008 | 
|                                         |  | (In thousands)          |         
|U.S.                                     |  | $                       | (132,673 | ) |      | $ | (66,688 | )    |  | $ | (22,332 | )
|Other than U.S.                          |  |                         | 436,467  |   |      |   | 336,801 |      |  |   | 146,747 |  
|                                         |  |                         |          |   |      |   |         |      |  |   |         |  
|Income before provision for income taxes |  | $                       | 303,794  |   |      | $ | 270,113 |      |  | $ | 124,415 |  
|                                         |  |                         |          |   |      |   |         |      |  |   |         |  

The provision for income taxes consisted of:



|                                    |  |                         |        |  |      |   |        |      |  |   |        | 
|----------------------------------- |  | ----------------------- | ------ |  | ---- | - | ------ | ---- |  | - | ------ | 
|                                    |  | Year Ended December 31, |       
|                                    |  | 2010                    |        |  | 2009 |   |        | 2008 | 
|                                    |  | (In thousands)          |       
|Other than U.S.:                    |  |                         |        |  |      |   |        |      |  |   |        | 
|Current                             |  | $                       | 39,352 |  |      | $ | 55,309 |      |  | $ | 61,387 | 
|Deferred                            |  |                         | 1,830  |  |      |   | 5,252  |      |  |   | 2,180  | 
|                                    |  |                         |        |  |      |   |        |      |  |   |        | 
|Total provision for income taxes(1) |  | $                       | 41,182 |  |      | $ | 60,561 |      |  | $ | 63,567 | 
|                                    |  |                         |        |  |      |   |        |      |  |   |        | 



|(1) | We have no income tax provision applicable to U.S. federal, state or local jurisdictions.
|--- | -----------------------------------------------------------------------------------------

The following is a reconciliation of the Panama statutory federal tax rate to the consolidated effective tax rate. Effective January,
2010, the Panama tax rate was reduced to 27.5%:



|                                                         |  |                         |       |   |      |  |       |      |  |  |       |  
|-------------------------------------------------------- |  | ----------------------- | ----- | - | ---- |  | ----- | ---- |  |  | ----- | -
|                                                         |  | Year Ended December 31, |      
|                                                         |  | 2010                    |       |   | 2009 |  |       | 2008 | 
|Panama federal statutory rate                            |  |                         | 27.5  | % |      |  | 30    | %    |  |  | 30    | %
|Non-Panama operations                                    |  |                         | (32.8 | ) |      |  | (27.4 | )    |  |  | (15.3 | )
|Effect of change in tax rates                            |  |                         | 12.0  |   |      |  |      |      |  |  |      |  
|Valuation allowance for deferred tax assets              |  |                         | 2.9   |   |      |  | 19.2  |      |  |  | 49.0  |  
|Audit settlements                                        |  |                         | 2.8   |   |      |  | 2.6   |      |  |  | (14.2 | )
|Other                                                    |  |                         | 1.2   |   |      |  | (2.0  | )    |  |  | 1.6   |  
|                                                         |  |                         |       |   |      |  |       |      |  |  |       |  
|Effective tax rate attributable to continuing operations |  |                         | 13.6  | % |      |  | 22.4  | %    |  |  | 51.1  | %
|                                                         |  |                         |       |   |      |  |       |      |  |  |       |  

At December 31, 2010, we had a valuation allowance of $95.7 million for deferred tax assets, which
we expect cannot be realized through carrybacks, future reversals of existing taxable temporary differences or based on our estimate of future taxable income. We believe that our remaining deferred tax assets will more likely than not be realized
through carrybacks, future reversals of existing taxable temporary differences and future taxable income. Any changes to our estimated valuation allowance could be material to our consolidated financial statements.

We have foreign net operating loss carryforwards of $193.0 million available to offset future taxable income in foreign
jurisdictions. Of the foreign net operating loss carryforwards, $85.8 million is scheduled to expire in 2011 to 2013. The foreign net operating losses have a valuation allowance of $38.1 million against the related deferred taxes. We have U.S.
federal net operating loss carryforwards of approximately $65.1 million, which carry a $22.1 million valuation allowance. These net operating loss carryforwards are scheduled to expire in years 2023 to 2030. We have state net operating losses
of $477.4 million available to offset future taxable income in various states. The state net operating loss carryforwards begin to expire in 2011. We are carrying a valuation allowance of $25.4 million against the deferred tax asset related to
the state loss carryforwards. We also have an approximate $10.1 million valuation allowance against other deferred tax assets.

We would be subject to withholding taxes if we were to distribute earnings from our U.S. subsidiaries and certain foreign subsidiaries.
At December 31, 2010, the undistributed earnings of these subsidiaries were $191.5 million. Unrecognized deferred income tax liabilities, including withholding taxes, of approximately $12.7 million would be payable upon distribution
of these earnings. We have provided $10.7 million of taxes on earnings we intend to remit. All other earnings are considered permanently reinvested.



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NOTE 11EARNINGS PER SHARE

Basic earnings per share is computed by dividing net income attributable to McDermott International, Inc. by the weighted average number
of common shares outstanding during the period. Diluted earnings per share equals net income attributable to McDermott International, Inc. divided by the weighted average common shares outstanding adjusted for the dilutive effect of our stock
options and restricted stock units. The diluted earnings per share calculation excludes 221,731, 144,243 and 22,500 shares underlying outstanding stock-based awards for the years ended December 31, 2010, 2009 and 2008, respectively, as they
were antidilutive.

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



|                                                               |  |                                                     |             |   |      |   |             |      |  |   |             | 
|-------------------------------------------------------------- |  | --------------------------------------------------- | ----------- | - | ---- | - | ----------- | ---- |  | - | ----------- | 
|                                                               |  | Year Ended December 31,                             |            
|                                                               |  | 2010                                                |             |   | 2009 |   |             | 2008 | 
|                                                               |  | (In thousands, except shares and
per share amounts) |            
|Basic:                                                         |  |                                                     |             |  
|Income from continuing operations less noncontrolling interest |  | $                                                   | 236,566     |   |      | $ | 206,158     |      |  | $ | 60,649      | 
|Income (loss) from discontinued operations, net of tax         |  |                                                     | (34,900     | ) |      |   | 180,898     |      |  |   | 368,653     | 
|                                                               |  |                                                     |             |   |      |   |             |      |  |   |             | 
|Net income attributable to McDermott International, Inc.       |  | $                                                   | 201,666     |   |      | $ | 387,056     |      |  | $ | 429,302     | 
|                                                               |  |                                                     |             |   |      |   |             |      |  |   |             | 
|Weighted average common shares                                 |  |                                                     | 232,173,362 |   |      |   | 229,471,020 |      |  |   | 226,918,776 | 
|                                                               |  |                                                     |             |   |      |   |             |      |  |   |             | 
|Basic earnings per common share:                               |  |                                                     |             |   |      |   |             |      |  |   |             | 
|Income from continuing operations less noncontrolling interest |  | $                                                   | 1.02        |   |      | $ | 0.90        |      |  | $ | 0.27        | 
|Income (loss) from discontinued operations, net of tax         |  | $                                                   | (0.15       | ) |      | $ | 0.79        |      |  | $ | 1.62        | 
|                                                               |  |                                                     |             |   |      |   |             |      |  |   |             | 
|Net income attributable to McDermott International, Inc.       |  | $                                                   | 0.87        |   |      | $ | 1.69        |      |  | $ | 1.89        | 
|                                                               |  |                                                     |             |   |      |   |             |      |  |   |             | 
|Diluted:                                                       |  |                                                     |             |   |      |   |             |      |  |   |             | 
|Income from continuing operations less noncontrolling interest |  | $                                                   | 236,566     |   |      | $ | 206,158     |      |  | $ | 60,649      | 
|Income (loss) from discontinued operations, net of tax         |  |                                                     | (34,900     | ) |      |   | 180,898     |      |  |   | 368,653     | 
|                                                               |  |                                                     |             |   |      |   |             |      |  |   |             | 
|Net income attributable to McDermott International, Inc.       |  | $                                                   | 201,666     |   |      | $ | 387,056     |      |  | $ | 429,302     | 
|                                                               |  |                                                     |             |   |      |   |             |      |  |   |             | 
|Weighted average common shares (basic)                         |  |                                                     | 232,173,362 |   |      |   | 229,471,020 |      |  |   | 226,918,776 | 
|                                                               |  |                                                     |             |   |      |   |             |      |  |   |             | 
|Effect of dilutive securities:                                 |  |                                                     |             |   |      |   |             |      |  |   |             | 
|Stock options, restricted stock and performance shares         |  |                                                     | 3,448,667   |   |      |   | 4,155,856   |      |  |   | 3,475,006   | 
|                                                               |  |                                                     |             |   |      |   |             |      |  |   |             | 
|Adjusted weighted average common shares                        |  |                                                     | 235,622,029 |   |      |   | 233,626,876 |      |  |   | 230,393,782 | 
|                                                               |  |                                                     |             |   |      |   |             |      |  |   |             | 
|Diluted earnings per common share:                             |  |                                                     |             |   |      |   |             |      |  |   |             | 
|Income from continuing operations less noncontrolling interest |  | $                                                   | 1.00        |   |      | $ | 0.88        |      |  | $ | 0.26        | 
|Income (loss) from discontinued operations, net of tax         |  | $                                                   | (0.15       | ) |      | $ | 0.78        |      |  | $ | 1.60        | 
|                                                               |  |                                                     |             |   |      |   |             |      |  |   |             | 
|Net income attributable to McDermott International, Inc.       |  | $                                                   | 0.85        |   |      | $ | 1.66        |      |  | $ | 1.86        | 
|                                                               |  |                                                     |             |   |      |   |             |      |  |   |             | 

NOTE 12SEGMENT REPORTING

In connection with the July 30, 2010 spin-off of B&W, we developed a geographic-based reporting structure, which coincides with how our financial information is reviewed and evaluated on a
regular basis by our chief operating decision maker. Accordingly, we now report our financial results under four reporting segments, consisting of Asia Pacific, Atlantic, the Middle East and Corporate. For purposes of the following presentation, all
prior period segment disclosures have been restated to reflect the new segments and to account for the spin-off of B&W.



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

Summarized financial information is shown in the following table:

1. Information about Operations in our Different Segments:



|                                                                                |  |      |           |   |      |   |           |      |  |   |           |  
|------------------------------------------------------------------------------- |  | ---- | --------- | - | ---- | - | --------- | ---- |  | - | --------- | -
|                                                                                |  | 2010 |           |   | 2009 |   |           | 2008 | 
|Revenues:                                                                       |  |      |           |   |      |   |           |      |  |   |           |  
|Asia Pacific(1)                                                                 |  | $    | 870,410   |   |      | $ | 997,938   |      |  | $ | 1,097,230 |  
|Atlantic                                                                        |  |      | 183,001   |   |      |   | 230,428   |      |  |   | 372,246   |  
|Middle East(2)                                                                  |  |      | 1,350,332 |   |      |   | 2,053,424 |      |  |   | 1,628,628 |  
|                                                                                |  |      |           |   |      |   |           |      |  |   |           |  
|Total revenues                                                                  |  | $    | 2,403,743 |   |      | $ | 3,281,790 |      |  | $ | 3,098,104 |  
|                                                                                |  |      |           |   |      |   |           |      |  |   |           |  
|Segment revenues include the following intersegment transfers and eliminations: |  |      |           |   |      |   |           |      |  |   |           |  
|Asia Pacific                                                                    |  | $    | 154       |   |      | $ |          |      |  | $ | 17        |  
|Atlantic                                                                        |  |      | 20,129    |   |      |   | 71,136    |      |  |   | 72,876    |  
|Middle East                                                                     |  |      | 330       |   |      |   | 4,243     |      |  |   |          |  
|Eliminations                                                                    |  |      | (20,613   | ) |      |   | (75,379   | )    |  |   | (72,893   | )
|                                                                                |  |      |           |   |      |   |           |      |  |   |           |  
|Total adjustments and eliminations                                              |  | $    |          |   |      | $ |          |      |  | $ |          |  
|Operating income(3):                                                            |  |      |           |   |      |   |           |      |  |   |           |  
|Asia Pacific                                                                    |  | $    | 88,012    |   |      | $ | 141,494   |      |  | $ | 75,613    |  
|Atlantic                                                                        |  |      | (89,692   | ) |      |   | (20,942   | )    |  |   | 10,478    |  
|Middle East                                                                     |  |      | 316,585   |   |      |   | 158,797   |      |  |   | 20,896    |  
|                                                                                |  |      |           |   |      |   |           |      |  |   |           |  
|Total operating income                                                          |  | $    | 314,905   |   |      | $ | 279,349   |      |  | $ | 106,987   |  
|                                                                                |  |      |           |   |      |   |           |      |  |   |           |  
|Segment assets:                                                                 |  |      |           |   |      |   |           |      |  |   |           |  
|Asia Pacific                                                                    |  | $    | 564,403   |   |      | $ | 395,102   |      |  | $ | 496,266   |  
|Atlantic                                                                        |  |      | 265,607   |   |      |   | 568,601   |      |  |   | 463,973   |  
|Middle East                                                                     |  |      | 1,302,398 |   |      |   | 885,222   |      |  |   | 689,805   |  
|Corporate                                                                       |  |      | 378,969   |   |      |   | 562,474   |      |  |   | 530,141   |  
|                                                                                |  |      |           |   |      |   |           |      |  |   |           |  
|Total continuing operations                                                     |  | $    | 2,511,377 |   |      | $ | 2,411,399 |      |  | $ | 2,180,185 |  
|                                                                                |  |      |           |   |      |   |           |      |  |   |           |  
|Total discontinued operations                                                   |  | $    | 87,311    |   |      | $ | 2,437,711 |      |  | $ | 2,421,508 |  
|                                                                                |  |      |           |   |      |   |           |      |  |   |           |  
|Total assets                                                                    |  | $    | 2,598,688 |   |      | $ | 4,849,110 |      |  | $ | 4,601,693 |  
|                                                                                |  |      |           |   |      |   |           |      |  |   |           |  
|Capital expenditures:                                                           |  |      |           |   |      |   |           |      |  |   |           |  
|Asia Pacific                                                                    |  | $    | 25,345    |   |      | $ | 47,680    |      |  | $ | 43,859    |  
|Atlantic                                                                        |  |      | 100,673   |   |      |   | 20,122    |      |  |   | 44,409    |  
|Middle East                                                                     |  |      | 47,851    |   |      |   | 90,893    |      |  |   | 75,095    |  
|Corporate                                                                       |  |      | 12,993    |   |      |   | 27,823    |      |  |   | 42,084    |  
|                                                                                |  |      |           |   |      |   |           |      |  |   |           |  
|Total continuing operations                                                     |  | $    | 186,862   |   |      | $ | 186,518   |      |  | $ | 205,447   |  
|                                                                                |  |      |           |   |      |   |           |      |  |   |           |  
|Depreciation and amortization:                                                  |  |      |           |   |      |   |           |      |  |   |           |  
|Asia Pacific                                                                    |  | $    | 19,002    |   |      | $ | 22,347    |      |  | $ | 30,051    |  
|Atlantic                                                                        |  |      | 17,681    |   |      |   | 15,688    |      |  |   | 11,453    |  
|Middle East                                                                     |  |      | 24,357    |   |      |   | 21,827    |      |  |   | 16,908    |  
|Corporate                                                                       |  |      | 15,412    |   |      |   | 20,005    |      |  |   | 14,143    |  
|                                                                                |  |      |           |   |      |   |           |      |  |   |           |  
|Total continuing operations                                                     |  | $    | 76,452    |   |      | $ | 79,867    |      |  | $ | 72,555    |  
|                                                                                |  |      |           |   |      |   |           |      |  |   |           |  



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|                                               |  |      |        |  |      |   |        |      |  |   |        | 
|---------------------------------------------- |  | ---- | ------ |  | ---- | - | ------ | ---- |  | - | ------ | 
|                                               |  | 2010 |        |  | 2009 |   |        | 2008 | 
|Investments in unconsolidated affiliates:      |  |      |        |  |      |   |        |      |  |   |        | 
|Asia Pacific                                   |  | $    | 41,471 |  |      | $ | 10,634 |      |  | $ |       | 
|Atlantic                                       |  |      | 65     |  |      |   | 4,018  |      |  |   | 4,234  | 
|Corporate                                      |  |      | 3,480  |  |      |   | 3,953  |      |  |   | 4,443  | 
|                                               |  |      |        |  |      |   |        |      |  |   |        | 
|Total continuing operations                    |  | $    | 45,016 |  |      | $ | 18,605 |      |  | $ | 8,677  | 
|                                               |  |      |        |  |      |   |        |      |  |   |        | 
|Total discontinued operations                  |  | $    |       |  |      | $ | 68,327 |      |  | $ | 61,627 | 
|                                               |  |      |        |  |      |   |        |      |  |   |        | 
|Total Investments in unconsolidated affiliates |  | $    | 45,016 |  |      | $ | 86,932 |      |  | $ | 70,304 | 
|                                               |  |      |        |  |      |   |        |      |  |   |        | 



|(1) | Includes revenues from Chevron Corporation and Exxon Mobil Corporation, which account for 15% and 10%, respectively of our 2010 consolidated revenues.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Includes revenues from Saudi Aramco, which accounts for 40% of our 2010 consolidated revenues.
|--- | ----------------------------------------------------------------------------------------------

|(3) | Operating income includes equity in loss of unconsolidated affiliates and (gain) loss on asset disposals and impairment net.
|--- | -----------------------------------------------------------------------------------------------------------------------------

2. Information about our Service Lines:



|                                            |  |                         |           |   |      |   |           |      |  |   |           |  
|------------------------------------------- |  | ----------------------- | --------- | - | ---- | - | --------- | ---- |  | - | --------- | -
|                                            |  | Year Ended December 31, |          
|                                            |  | 2010                    |           |   | 2009 |   |           | 2008 | 
|                                            |  | (In thousands)          |          
|REVENUES:                                   |  |                         |           |  
|Offshore Operations                         |  | $                       | 883,559   |   |      | $ | 1,107,866 |      |  | $ | 1,175,385 |  
|Fabrication Operations                      |  |                         | 412,145   |   |      |   | 499,916   |      |  |   | 412,615   |  
|Project Services and Engineering Operations |  |                         | 255,298   |   |      |   | 403,845   |      |  |   | 407,770   |  
|Procurement Activities                      |  |                         | 852,838   |   |      |   | 1,315,929 |      |  |   | 1,111,795 |  
|Eliminations                                |  |                         | (97       | ) |      |   | (45,766   | )    |  |   | (9,461    | )
|                                            |  |                         |           |   |      |   |           |      |  |   |           |  
|                                            |  | $                       | 2,403,743 |   |      | $ | 3,281,790 |      |  | $ | 3,098,104 |  
|                                            |  |                         |           |   |      |   |           |      |  |   |           |  

3. Information about our Operations in Different Geographic Areas:



|                |  |                         |           |  |      |   |           |      |  |   |           | 
|--------------- |  | ----------------------- | --------- |  | ---- | - | --------- | ---- |  | - | --------- | 
|                |  | Year Ended December 31, |          
|                |  | 2010                    |           |  | 2009 |   |           | 2008 | 
|                |  | (In thousands)          |          
|REVENUES:       |  |                         |           |  |      |   |           |      |  |   |           | 
|Saudi Arabia    |  | $                       | 966,504   |  |      | $ | 657,863   |      |  | $ | 298,167   | 
|Australia       |  |                         | 373,864   |  |      |   | 186,164   |      |  |   | 187,838   | 
|Qatar           |  |                         | 352,508   |  |      |   | 1,293,755 |      |  |   | 804,545   | 
|Thailand        |  |                         | 351,275   |  |      |   | 226,981   |      |  |   | 118,567   | 
|United States   |  |                         | 108,377   |  |      |   | 131,622   |      |  |   | 169,109   | 
|Brazil          |  |                         | 57,128    |  |      |   | 243,273   |      |  |   | 136,060   | 
|Malaysia        |  |                         | 52,705    |  |      |   | 98,321    |      |  |   | 184,856   | 
|Vietnam         |  |                         | 43,528    |  |      |   | 166,583   |      |  |   | 369,016   | 
|Trinidad        |  |                         | 18,382    |  |      |   | 37,566    |      |  |   | 155,892   | 
|Azerbaijan      |  |                         | 4,899     |  |      |   | 22,855    |      |  |   | 146,587   | 
|India           |  |                         | 3,868     |  |      |   | 19,520    |      |  |   | 351,232   | 
|Other Countries |  |                         | 70,705    |  |      |   | 197,287   |      |  |   | 176,235   | 
|                |  |                         |           |  |      |   |           |      |  |   |           | 
|                |  | $                       | 2,403,743 |  |      | $ | 3,281,790 |      |  | $ | 3,098,104 | 
|                |  |                         |           |  |      |   |           |      |  |   |           | 





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|                                       |  |                         |         |  |      |   |           |      |  |   |           | 
|-------------------------------------- |  | ----------------------- | ------- |  | ---- | - | --------- | ---- |  | - | --------- | 
|                                       |  | Year Ended December 31, |        
|                                       |  | 2010                    |         |  | 2009 |   |           | 2008 | 
|                                       |  | (In thousands)          |        
|PROPERTY, PLANT AND EQUIPMENT, NET(4): |  |                         |         |  |      |   |           |      |  |   |           | 
|United Arab Emirates                   |  | $                       | 407,423 |  |      | $ | 208,061   |      |  | $ | 176,514   | 
|Indonesia                              |  |                         | 163,111 |  |      |   | 215,186   |      |  |   | 210,409   | 
|Saudi Arabia                           |  |                         | 116,289 |  |      |   |          |      |  |   | 12,812    | 
|United States                          |  |                         | 114,499 |  |      |   | 436,130   |      |  |   | 386,389   | 
|Mexico                                 |  |                         | 49,597  |  |      |   | 39,157    |      |  |   | 48,871    | 
|Trinidad                               |  |                         |        |  |      |   |          |      |  |   | 12,178    | 
|Spain                                  |  |                         | 16,376  |  |      |   |          |      |  |   |          | 
|Canada                                 |  |                         | 61      |  |      |   | 126,571   |      |  |   | 72,443    | 
|United Kingdom                         |  |                         | 58      |  |      |   | 145,633   |      |  |   | 46,753    | 
|Qatar                                  |  |                         |        |  |      |   | 108,695   |      |  |   | 57,556    | 
|Other Countries                        |  |                         | 48,155  |  |      |   | 58,172    |      |  |   | 54,934    | 
|                                       |  |                         |         |  |      |   |           |      |  |   |           | 
|                                       |  | $                       | 915,569 |  |      | $ | 1,337,605 |      |  | $ | 1,078,859 | 
|                                       |  |                         |         |  |      |   |           |      |  |   |           | 



|(4) | Our marine vessels are included in the country in which they were operating as of year-end.
|--- | -------------------------------------------------------------------------------------------

NOTE 13RELATED-PARTY TRANSACTIONS

We are a large business organization with worldwide operations, and we engage in numerous purchase, sale and other transactions annually. We have various types of business arrangements with
corporations and other organizations in which an executive officer, director or nominee for director may also be a director, executive or investor, or have some other direct or indirect relationship. We enter into these arrangements in the
ordinary course of our business, and they typically involve us receiving some good or service on a nonexclusive basis and at arms-length negotiated rates or in accordance with regularly prepared price schedules.

Certain of our grant agreements for restricted stock and restricted stock units awarded under various long-term incentive plans provide
that the withholding obligation of any applicable federal, state or other taxes that may be due on the vesting in the year ending December 31, 2011 of those awards be satisfied by the grantee returning to us the number of such vested shares having a
fair market value equal to the amount of such taxes. Additionally, each of Messrs. Stephen M. Johnson, John A. Fees, Perry L. Elders, Gary L. Carlson, Daniel M. Houser, John T. McCormack, Stewart A. Mitchell, John T. Nesser and Steven W. Roll and
Ms. Liane K. Hinrichs, each a current or former executive officer, has irrevocably elected to satisfy withholding obligations relating to all or a portion of any applicable federal, state or other taxes that may be due on the vesting in the year
ending December 31, 2011 of certain shares of restricted stock and restricted stock units awarded under various long-term incentive plans that do not provide for a withholding method in the same manner. These elections are subject to approval of the
Compensation Committee of our Board, which approval was granted. Accordingly, this withholding method will apply to an aggregate of 205,316 shares held by Mr. Johnson, 142,445 shares held by Mr. Fees, 12,886 shares held by Mr. Elders, 13,136 shares
held by Mr. Carlson, 12,964 shares held by Mr. Scott V. Cummins, 119,901 shares held by Ms. Hinrichs, 19,452 shares held by Mr. Houser, 29,822 shares held by Mr. McCormack, 14,021 shares held by Mr. Mitchell, 120,469 shares held by Mr. Nesser, and
21,479 shares held by Mr. Roll. In the year ended December 31, 2010, a similar withholding method applied, including with respect to the exercise price and tax withholding on the exercise and hold of stock options prior to the Spin-off, to an
aggregate of 30,995 shares held by Mr. Johnson, 566,507 shares held by Mr. Fees, 59,019 shares held by Mr. Taff, 93,810 shares held by Mr. Brandon C. Bethards, 11,805 shares held by Mr. Cummins, 66,862 shares held by Ms. Hinrichs, 19,613 shares held
by Mr. Houser, 27,992 shares held by Mr. McCormack, 22,031 shares held by Mr. Mitchell, 162,684 shares held by Mr. Nesser and 20,342 shares held by Mr. Roll, that vested in the year ended December 31, 2010. Those elections were also approved by the
Compensation Committee. We expect any transfers reflecting shares of restricted stock returned to us will be reported in the SEC filings made by those



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transferring holders who are obligated to report transactions in our securities under Section 16 of the Securities Exchange Act of 1934.

NOTE 14COMMITMENTS AND CONTINGENCIES

Investigations and
Litigation

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

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

On November 17, 2008, December 5, 2008 and January 20, 2009, three separate alleged purchasers of our common stock
during the period from February 27, 2008 through November 5, 2008 filed purported class action complaints against MII, Bruce Wilkinson (MIIs former Chief Executive Officer and Chairman of the Board), and Michael S. Taff (MIIs
former Chief Financial Officer) in the United States District Court for the Southern District of New York. Each of the complaints alleges that the defendants violated federal securities laws by disseminating materially false and misleading
information and/or concealing material adverse information relating to the operational and financial status of three ongoing construction contracts for the installation of pipelines off the coast of Qatar. Each complaint sought relief, including
unspecified compensatory damages and an award for costs and expenses. The three cases were consolidated and transferred to the United States District Court for the Southern District of Texas. In May 2009, the plaintiffs filed an amended consolidated
complaint, which, among other things, added Robert A. Deason (JRMSAs former President and Chief Executive Officer) as a defendant in the proceedings. In July 2009, MII and the other defendants filed a motion to dismiss the complaint, which was
referred to a Magistrate Judge. In February 2010, the Magistrate Judge issued a Memorandum and Recommendation on the motion, finding that the plaintiffs had failed to state a claim for relief under the securities laws and therefore recommended
to the District Court that the motion to dismiss be granted. On March 26, 2010, the Court issued an order adopting the Magistrate Judges recommendations in full and dismissing the case. However, the order granted the plaintiffs leave to
request to amend their complaint and, on April 30, 2010, the plaintiffs filed a motion with the District Court for leave to amend the complaint. The defendants filed their opposition to the plaintiffs motion in May 2010, and in December 2010
the Magistrate Judge issued a Memorandum and Recommendation that plaintiffs motion to amend be denied and that the case



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be finally dismissed. In January 2011, the plaintiffs filed their objections to the Memorandum and Recommendation, and the defendants filed their response to those objections. Oral argument
was held before the District Court on February 15, 2011, and we await the District Court decision. We cannot reasonably estimate the extent of a potential adverse judgement, if any. We continue to believe the substantive allegations contained
in the amended complaint are without merit, and we intend to continue defending against these claims vigorously.

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

In a proceeding entitledAntoine, et al. vs. J. Ray McDermott, Inc., et al., filed in the 24th
Judicial District Court, Jefferson Parish, Louisiana, approximately 88 plaintiffs filed suit against approximately 215 defendants, including JRMI and Delta Hudson Engineering Corporation (DHEC), another affiliate of ours, generally
alleging injuries for exposure to asbestos, and unspecified chemicals, metals and noise while the plaintiffs were allegedly employed as Jones Act seamen. On January 10, 2007, the District Court dismissed the Plaintiffs claims, without
prejudice to their right to refile their claims. On January 29, 2007, in a matter entitledBoudreaux, et al. v. McDermott, Inc., et al., originally filed in the United States District Court for the Southern District of Texas, 21
plaintiffs originally named in the Antoine matter filed suit against JRMI, MI and approximately 30 other employer defendants, alleging Jones Act seaman status and generally alleging exposure to welding fumes, solvents, dyes, industrial paints
and noise. Boudreaux was transferred to the United States District Court for the Eastern District of Louisiana on May 2, 2007. The District Court entered an order in September 2007 staying the matter until further order of the court due
to the bankruptcy filing of one of the co-defendants. Additionally, on January 29, 2007, in a matter entitledAntoine, et al. v. McDermott, Inc., et al., filed in the 164th Judicial District Court for Harris County, Texas, 43 plaintiffs
originally named in the Antoine matter filed suit against JRMI, MI and approximately 65 other employer defendants and 42 maritime products defendants, alleging Jones Act seaman status and generally alleging personal injuries for exposure to
asbestos and noise. On April 27, 2007, the District Court entered an order staying all activity and deadlines in this matter other than service of process and answer/appearance dates until further order of the court. The plaintiffs filed a
motion to lift the stay on February 20, 2009, which is pending before the District Court. The plaintiffs seek monetary damages in an unspecified amount in both cases and attorneys fees in the new Antoinecase.

Additionally, due to the nature of our business, we are, from time to time, involved in routine 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, premises liability claims and other claims.
| | - |  | -------------------------------------------------------------------------------------------

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

Environmental
Matters

We have been identified as a potentially responsible party at various cleanup sites under the Comprehensive
Environmental Response, Compensation, and Liability Act, as amended (CERCLA) and other state and foreign CERCLA-type environmental laws. Such laws can impose liability for the entire cost of cleanup on any of the



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potentially responsible parties, regardless of fault or the lawfulness of the original conduct. Generally, however, where there are multiple responsible parties, a final allocation of costs is
made based on the amount and type of wastes disposed of by each party and the number of financially viable parties, although this may not be the case with respect to any particular site. We have not been determined to be a major contributor of
wastes to any of these sites. On the basis of our relative contribution of waste to each site, we expect our share of the ultimate liability for the various sites will not have a material adverse effect on our consolidated financial condition,
results of operations or cash flows in any given year.

At December 31, 2010 and 2009, we had total environmental
reserves of $2.9 million and $3.2 million, respectively, excluding B&W reserves. Of our total environmental reserves at December 31, 2010 and 2009, $2.4 million and $3.2 million, respectively, were included in current liabilities. Inherent in
the estimates of those reserves and recoveries are our expectations regarding the levels of contamination, remediation costs and recoverability from other parties, which may vary significantly as remediation activities progress. Accordingly, changes
in estimates could result in material adjustments to our operating results, and the ultimate loss may differ materially from the amounts that we have provided for in our consolidated financial statements.

Contracts Containing Liquidated Damages Provisions

Some of our contracts contain penalty provisions that require us to pay liquidated damages if we are responsible for the failure to meet specified contractual milestone dates and the applicable customer
asserts a claim under these provisions. These contracts define the conditions under which our customers may make claims against us for liquidated damages. In many cases in which we have historically had potential exposure for liquidated damages,
such damages ultimately were not asserted by our customers. As of December 31, 2010 it is possible that we may incur liabilities for liquidated damages aggregating approximately $82 million, of which $14 million has been recorded in our financial
statements, based on our actual or projected failure to meet certain specified contractual milestone dates. The date range during which these potential liquidated damages could arise is from June 2008 to May 2011. We are in active discussions with
our customers on the issues giving rise to delays in these projects, and in January 2011 we reached an agreement with one customer to reduce these potential liquidated damages by approximately $19 million. We believe we will be successful in
obtaining schedule extensions or other customer agreed changes that should resolve the potential for additional liquidated damages being incurred. However, we may not achieve relief on some or all of the issues. We do not believe any amounts for
these potential liquidated damages in excess of the amounts recorded in our financial statements are probable of being paid by us.

Other

MII, B&W PGG and McDermott Holdings, Inc., which in
connection with the spin-off of B&W was renamed Babcock & Wilcox Holdings, Inc. and merged with B&W, have jointly executed general agreements of indemnity in favor of various surety underwriters relating to surety bonds those
underwriters issued in support of B&W PGGs contracting activity. As of December 31, 2010, bonds issued under such arrangements totaled approximately $82.3 million. Pursuant to the master separation agreement entered into between us
and B&W in connection with the spin-off, B&W has agreed to indemnify us with respect to any losses we may incur in connection with these surety bonds. B&W is in the process of obtaining releases of our obligations relating
to certain of these surety bonds as it enters into new bonding arrangements with sureties.



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Operating Leases

Future minimum payments required under operating leases that have initial or remaining noncancellable lease terms in excess of one year at
December 31, 2010 are as follows (in thousands):



|                                |  |        |         | 
|------------------------------- |  | ------ | ------- | 
|Fiscal Year Ending December 31, |  | Amount |        
|2011                            |  | $      | 9,958   | 
|2012                            |  | $      | 7,791   | 
|2013                            |  | $      | 7,247   | 
|2014                            |  | $      | 6,365   | 
|2015                            |  | $      | 4,208   | 
|Thereafter                      |  | $      | 121,806 | 

Total rental expense
for the years ended December 31, 2010, 2009 and 2008 was $47.9 million, $54.1 million and $67.8 million, respectively. These expense amounts include contingent rentals and are net of sublease income, neither of which is material.

NOTE 15QUARTERLY FINANCIAL DATA (UNAUDITED)

The following tables set forth selected unaudited quarterly financial information for the years ended December 31, 2010 and 2009:



|                                                                |  |                                          |         |  |              |   |         |                   |  |   |                  |   |  |   |         |  
|--------------------------------------------------------------- |  | ---------------------------------------- | ------- |  | ------------ | - | ------- | ----------------- |  | - | ---------------- | - |  | - | ------- | -
|                                                                |  | Quarter Ended                            |        
|Year Ended December 31, 2010                                    |  | March 31,2010                            |         |  | June 30,2010 |   |         | September 30,2010 |  |   | December 31,2010 |  
|                                                                |  | (In thousands, except per share amounts) |        
|Revenues                                                        |  | $                                        | 504,882 |  |              | $ | 627,144 |                   |  | $ | 732,095          |   |  | $ | 539,622 |  
|Operating income                                                |  | $                                        | 73,187  |  |              | $ | 98,142  |                   |  | $ | 84,303           |   |  | $ | 59,273  |  
|                                                                |  |                                          |         | 
|Income from continuing operations, less noncontrolling interest |  | $                                        | 51,562  |  |              | $ | 78,691  |                   |  | $ | 60,833           |   |  | $ | 45,480  |  
|Income (loss) from discontinued operations, net of tax          |  |                                          | 8,379   |  |              |   | (2,657  | )                 |  |   | (40,030          | ) |  |   | (592    | )
|                                                                |  |                                          |         |  |              |   |         |                   |  |   |                  |   |  |   |         |  
|Net income(1)                                                   |  | $                                        | 59,941  |  |              | $ | 76,034  |                   |  | $ | 20,803           |   |  | $ | 44,888  |  
|                                                                |  |                                          |         |  |              |   |         |                   |  |   |                  |   |  |   |         |  
|                                                                | 
|                                                                |  | Per Share Data                           |        
|Basic earnings per common share:                                |  |                                          |         |  |              |   |         |                   |  |   |                  |   |  |   |         |  
|Income from continuing operations, less noncontrolling interest |  | $                                        | 0.22    |  |              | $ | 0.34    |                   |  | $ | 0.26             |   |  | $ | 0.20    |  
|Income (loss) from discontinued operations, net of tax          |  | $                                        | 0.04    |  |              | $ | (0.01   | )                 |  | $ | (0.17            | ) |  | $ |        |  
|Net income                                                      |  | $                                        | 0.26    |  |              | $ | 0.33    |                   |  | $ | 0.09             |   |  | $ | 0.19    |  
|                                                                |  |                                          |         | 
|Diluted earnings per common share:                              |  |                                          |         |  |              |   |         |                   |  |   |                  |   |  |   |         |  
|Income from continuing operations, less noncontrolling interest |  | $                                        | 0.22    |  |              | $ | 0.34    |                   |  | $ | 0.26             |   |  | $ | 0.19    |  
|Income (loss) from discontinued operations, net of tax          |  | $                                        | 0.04    |  |              | $ | (0.01   | )                 |  | $ | (0.17            | ) |  | $ |        |  
|Net income                                                      |  | $                                        | 0.26    |  |              | $ | 0.32    |                   |  | $ | 0.09             |   |  | $ | 0.19    |  



|(1) | See Note 2 for discussion on discontinued operations and other charges.
|--- | -----------------------------------------------------------------------





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|                                                                |  |                                          |         |  |              |   |         |                   |  |   |                  |  |  |   |         | 
|--------------------------------------------------------------- |  | ---------------------------------------- | ------- |  | ------------ | - | ------- | ----------------- |  | - | ---------------- |  |  | - | ------- | 
|                                                                |  | Quarter Ended                            |        
|Year Ended December 31, 2009                                    |  | March 31,2009                            |         |  | June 30,2009 |   |         | September 30,2009 |  |   | December 31,2009 | 
|                                                                |  | (In thousands, except per share amounts) |        
|Revenues                                                        |  | $                                        | 693,748 |  |              | $ | 818,770 |                   |  | $ | 1,012,474        |  |  | $ | 756,798 | 
|Operating income                                                |  | $                                        | 34,076  |  |              | $ | 56,829  |                   |  | $ | 97,589           |  |  | $ | 90,855  | 
|                                                                |  |                                          |         | 
|Income from continuing operations, less noncontrolling interest |  | $                                        | 21,328  |  |              | $ | 35,415  |                   |  | $ | 76,056           |  |  | $ | 73,359  | 
|Income (loss) from discontinued operations, net of tax          |  |                                          | 56,364  |  |              |   | 57,140  |                   |  |   | 42,051           |  |  |   | 25,343  | 
|                                                                |  |                                          |         |  |              |   |         |                   |  |   |                  |  |  |   |         | 
|Net income                                                      |  | $                                        | 77,692  |  |              | $ | 92,555  |                   |  | $ | 118,107          |  |  | $ | 98,702  | 
|                                                                |  |                                          |         |  |              |   |         |                   |  |   |                  |  |  |   |         | 
|                                                                | 
|                                                                |  | Per Share Data                           |        
|Basic earnings per common share:                                |  |                                          |         |  |              |   |         |                   |  |   |                  |  |  |   |         | 
|Income from continuing operations, less noncontrolling interest |  | $                                        | 0.09    |  |              | $ | 0.15    |                   |  | $ | 0.33             |  |  | $ | 0.32    | 
|Income from discontinued operations, net of tax                 |  | $                                        | 0.25    |  |              | $ | 0.25    |                   |  | $ | 0.18             |  |  | $ | 0.11    | 
|Net income                                                      |  | $                                        | 0.34    |  |              | $ | 0.40    |                   |  | $ | 0.51             |  |  | $ | 0.43    | 
|                                                                |  |                                          |         | 
|Diluted earnings per common share:                              |  |                                          |         |  |              |   |         |                   |  |   |                  |  |  |   |         | 
|Income from continuing operations, less noncontrolling interest |  | $                                        | 0.09    |  |              | $ | 0.15    |                   |  | $ | 0.32             |  |  | $ | 0.32    | 
|Income from discontinued operations, net of tax                 |  | $                                        | 0.24    |  |              | $ | 0.25    |                   |  | $ | 0.18             |  |  | $ | 0.11    | 
|Net income                                                      |  | $                                        | 0.33    |  |              | $ | 0.40    |                   |  | $ | 0.50             |  |  | $ | 0.43    | 



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|Item 9A. | CONTROLS AND PROCEDURES
|-------- | -----------------------

Disclosure Controls and Procedures

As of the end of the period covered by this annual 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 there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions,
regardless of how remote. Based on the evaluation referred to above, our Chief Executive Officer and the Chief Financial Officer concluded that the design and operation of our disclosure controls and procedures are effective as of December 31,
2010 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 its principal executives and principal financial officers or persons performing similar functions, as appropriate to allow
timely decisions regarding required disclosure.

Managements Report on Internal Control Over Financial
Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial
reporting (as that term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) and for our assessment of the effectiveness of internal control over financial reporting.

Our internal control over financial reporting includes policies and procedures that (1) pertain to the maintenance of records that,
in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of our consolidated financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of our management and Board of Directors; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the consolidated financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject
to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management, including our Chief Executive Officer and Chief Financial Officer, has conducted an assessment of the effectiveness of our internal control over financial reporting as of December 31,
2010, based on the framework established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO Framework). This assessment included an evaluation of the
design of our internal control over financial reporting and testing of the operational effectiveness of those controls. Based on our assessment under the criteria described above, management has concluded that our internal control over financial
reporting was effective as of December 31, 2010. Deloitte & Touche LLP has audited our internal control over financial reporting as of December 31, 2010, and their report is included in Item 9A.



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Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting during the quarter ended December 31, 2010 that has
materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of

McDermott International, Inc.

Houston, Texas

We have audited the internal control over financial reporting of McDermott International, Inc. and subsidiaries (the Company) as of December 31, 2010, based on criteria established in
Internal Control  Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission. The Companys management is responsible for maintaining effective internal control over financial reporting and
for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Managements Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the
Companys internal control over financial reporting based on our audit.

We conducted our audit in accordance with the
standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in
all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control
based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A companys internal control over financial reporting is a process designed by, or under the supervision of, the companys
principal executive and principal financial officers, or persons performing similar functions, and effected by the companys board of directors, management, and other personnel 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. A companys internal control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors
of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to
future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2010, based on the criteria established in Internal Control  Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission.



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We have also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the year ended December 31, 2010 of the Company and our report dated March 1, 2011 expressed an unqualified opinion on
those financial statements and financial statement schedule and included an explanatory paragraph regarding the Companys completed spin-off of its Government Operations and Power Generations Systems segments into an independent, publicly
traded company named The Babcock & Wilcox Company.

/s/ DELOITTE & TOUCHE LLP

Houston, Texas

March 1, 2011



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PART IV



|Item 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULE
|-------- | --------------------------------------

The following documents are filed as part of this annual report or incorporated by reference:



|                                                                                                                                                                                                                                                                                                                                                      |  |                |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                      |  | 1.             |  | CONSOLIDATED FINANCIAL STATEMENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|                                                                                                                                                                                                                                                                                                                                                      |  |                |  | Report of Independent Registered Public Accounting Firm                                                                                                                                                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                                                                      |  |                |  | Consolidated Balance Sheets as of December 31, 2010 and 2009                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                                                                                                                      |  |                |  | Consolidated Statements of Income for the Years Ended December 31, 2010, 2009 and 2008                                                                                                                                                                                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                                                                                                                                      |  |                |  | Consolidated Statements of Equity for the Years Ended December 31, 2010, 2009 and
2008                                                                                                                                                                                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                                                                                                                                      |  |                |  | Consolidated Statements of Cash Flows for the Years Ended December 31, 2010, 2009 and
2008                                                                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                                      |  |                |  | Notes to Consolidated Financial Statements for the Years Ended December 31, 2010, 2009 and 2008                                                                                                                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                                                      |  |               
|                                                                                                                                                                                                                                                                                                                                                      |  | 2.             |  | CONSOLIDATED FINANCIAL STATEMENT SCHEDULE                                                                                                                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                     
|Schedule II is filed with this annual report. All other schedules for which provision is made of the applicable regulations of the SEC
have been omitted because they are not required under the relevant instructions or because the required information is included in the financial statements or the related footnotes contained in this report.
|                                                                                                                                                                                                                                                                                                                                                      |  |               
|                                                                                                                                                                                                                                                                                                                                                      |  | 3.             |  | EXHIBITS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                                                                      |  |               
|                                                                                                                                                                                                                                                                                                                                                      |  | Exhibit
Number |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                                                      |  |               
|                                                                                                                                                                                                                                                                                                                                                      |  | 3.1            |  | McDermott International, Inc.s Amended and Restated Articles of Incorporation (incorporated by reference to Exhibit 3.1 to McDermott International, Inc.s Quarterly
Report on Form 10-Q for the quarter ended September 30, 2008 (File No. 1-08430)).                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                                                                      |  |               
|                                                                                                                                                                                                                                                                                                                                                      |  | 3.2#           |  | McDermott International, Inc.s Amended and Restated By-laws.                                                                                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                      |  |               
|                                                                                                                                                                                                                                                                                                                                                      |  | 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            |  | Credit Agreement dated as of June 6, 2006, by and among J. Ray McDermott, S.A., credit lenders, synthetic investors and issuers party thereto, Credit Suisse, Cayman Islands Branch,
Credit Suisse Securities (USA), LLC, Bank of America, N.A., Calyon New York Branch, Fortis Capital Corp. and Wachovia Bank, National Association (incorporated by reference to Exhibit 10.1 to McDermott International, Inc.s Current Report on
Form 8-K filed on June 9, 2006 (File No. 1-08430)).
|                                                                                                                                                                                                                                                                                                                                                      |  |               
|                                                                                                                                                                                                                                                                                                                                                      |  | 4.2            |  | First Amendment to Credit Agreement, dated as of August 4, 2006, by and among J. Ray McDermott, S.A., certain lenders and issuers party thereto, Credit Suisse, Cayman Islands
Branch, as administrative agent and collateral agent, and other agents party thereto (incorporated by reference to Exhibit 4.8 to McDermott International, Inc.s Annual Report on Form 10-K for the year ended December 31, 2007 (File No.
1-08430)).                                                    
|                                                                                                                                                                                                                                                                                                                                                      |  |               
|                                                                                                                                                                                                                                                                                                                                                      |  | 4.3            |  | Second Amendment to Credit Agreement, dated as of December 1, 2006, by and among J. Ray McDermott, S.A., certain guarantors thereto, certain lenders and issuers party thereto,
Credit Suisse, Cayman Islands Branch, as administrative agent and collateral agent, and other agents party thereto (incorporated by reference to Exhibit 4.9 to McDermott International, Inc.s Annual Report on Form 10-K for the year ended
December 31, 2007 (File No. 1-08430)).                     



53



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| |  |                                                                                                                                                                                                                                                                                                                                                          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |                                                                                                                                                                                                                                                                                                                                                         
| |  | Exhibit
Number                                                                                                                                                                                                                                                                                                                                           |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  |                                                                                                                                                                                                                                                                                                                                                         
| |  | 4.4                                                                                                                                                                                                                                                                                                                                                      |  | Third Amendment to Credit Agreement, dated as of July 9, 2007, by and among J. Ray McDermott, S.A., certain guarantors thereto, certain lenders and issuers party thereto,
Credit Suisse, Cayman Islands Branch, as administrative agent and collateral agent, and other agents party thereto (incorporated by reference to Exhibit 4.1 to McDermott International, Inc.s Quarterly Report on Form 10-Q for the quarter ended
June 30, 2007 (File No. 1-08430)).
| |  |                                                                                                                                                                                                                                                                                                                                                         
| |  | 4.5                                                                                                                                                                                                                                                                                                                                                      |  | Fourth Amendment to Credit Agreement, dated as of July 20, 2007, by and among J. Ray McDermott, S.A., certain guarantors thereto, certain lenders and issuers party thereto,
Credit Suisse, Cayman Islands Branch, as administrative agent and collateral agent, and other agents party thereto (incorporated by reference to Exhibit 10.2 to McDermott International, Inc.s Current Report on Form 8-K filed on July 26,
2007 (File No. 1-08430)).             
| |  |                                                                                                                                                                                                                                                                                                                                                         
| |  | 4.6                                                                                                                                                                                                                                                                                                                                                      |  | Fifth Amendment to Credit Agreement, dated as of April 7, 2008, by and between J. Ray McDermott, S.A., certain guarantors thereto, certain lenders and issuers party thereto,
Credit Suisse, Cayman Islands Branch, as administrative agent and collateral agent, and other agents party thereto (incorporated by reference to Exhibit 10.1 to McDermott International, Inc.s Current Report on Form 8-K filed on April 8,
2008 (File No. 1-08430)).            
| |  |                                                                                                                                                                                                                                                                                                                                                         
| |  | 4.7                                                                                                                                                                                                                                                                                                                                                      |  | Pledge and Security Agreement by J. Ray McDermott, S.A. and certain of its subsidiaries in favor of Credit Suisse, Cayman Islands Branch, as administrative agent and collateral
agent, dated as of June 6, 2006 (incorporated by reference to Exhibit 10.2 to McDermott International, Inc.s Current Report on Form 8-K filed on June 9, 2006 (File No. 1-08430)).                                                                                             
| |  |                                                                                                                                                                                                                                                                                                                                                         
| |  | 4.8                                                                                                                                                                                                                                                                                                                                                      |  | Credit Agreement dated as of May 3, 2010, among J. Ray McDermott, S.A., McDermott International, Inc., the lenders and issuers party thereto, and Crédit Agricole Corporate
and Investment Bank, as administrative agent and collateral agent (incorporated by reference to Exhibit 10.1 to McDermott International, Inc.s Current Report on Form 8-K filed on May 7, 2010 (File No. 1-08430)).                                                                 
| |  |                                                                                                                                                                                                                                                                                                                                                         
| |  | 4.9                                                                                                                                                                                                                                                                                                                                                      |  | Pledge and Security Agreement dated as of May 3, 2010, by McDermott International, Inc., J. Ray McDermott, S.A. and certain of their subsidiaries in favor of Crédit
Agricole Corporate and Investment Bank, as administrative agent and collateral Agent (incorporated by reference to Exhibit 10.2 to McDermott International, Inc.s Current Report on Form 8-K filed on May 7, 2010 (File
No. 1-08430)).                                                     
| |  |                                                                                                                                                                                                                                                                                                                                                         
| |  | 4.10                                                                                                                                                                                                                                                                                                                                                     |  | New Borrower Joinder Agreement dated as of August 6, 2010, among McDermott International, Inc., J. Ray McDermott, S.A., and Crédit Agricole Corporate and
Investment Bank, as administrative agent and collateral agent (incorporated by reference to Exhibit 4.3 to McDermott International, Inc.s Quarterly Report on Form 10-Q for the quarter ended June 30, 2010 (File No.
1-08430)).                                                                      
| | 
| |  | We and certain of our consolidated subsidiaries are parties to other debt instruments under which the total amount of securities authorized does not exceed 10% of our
total consolidated assets. Pursuant to paragraph 4(iii)(A) of Item 601 (b) of Regulation S-K, we agree to furnish a copy of those instruments to the Commission upon its request.
| |  |                                                                                                                                                                                                                                                                                                                                                         
| |  | 10.1*                                                                                                                                                                                                                                                                                                                                                    |  | McDermott International, Inc.s Executive Incentive Compensation Plan (incorporated by reference to Appendix C to McDermott International, Inc.s Proxy Statement on
Schedule 14A filed on May 3, 2006 (File No. 1-08430)).                                                                                                                                                                                                                                      
| |  |                                                                                                                                                                                                                                                                                                                                                         
| |  | 10.2*                                                                                                                                                                                                                                                                                                                                                    |  | McDermott International, Inc.s 1996 Officer Long-Term Incentive Plan (incorporated by reference to Appendix B to McDermott International, Inc.s Proxy Statement on
Schedule 14A filed on July 29,1997 (File No. 1-08430)).                                                                                                                                                                                                                                     
| |  |                                                                                                                                                                                                                                                                                                                                                         
| |  | 10.3*                                                                                                                                                                                                                                                                                                                                                    |  | McDermott International, Inc.s 1997 Director Stock Program (incorporated by reference to Appendix A to McDermott International, Inc.s Proxy Statement on Schedule
14A filed on July 29,1997 (File No. 1-08430)).                                                                                                                                                                                                                                               



54



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| |  |                |  |                                                                                                                                                                                                                                                                                                    
| |  | -------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |               
| |  | Exhibit
Number |  | Description                                                                                                                                                                                                                                                                                        
| |  |               
| |  | 10.4*          |  | McDermott International, Inc.s Amended and Restated 2001 Directors & Officers Long-Term Incentive Plan (incorporated by reference to Appendix B to McDermott International,
Inc.s Proxy Statement on Schedule 14A filed on May 3, 2006 (File No. 1-08430)).                                      
| |  |               
| |  | 10.5*          |  | Notice of Grant (Stock Options and Deferred Stock Units) (incorporated by reference to Exhibit 10.1 to McDermott International, Inc.s Current Report on Form 8-K filed on
May 18, 2005 (File No. 1-08430)).                                                                                       
| |  |               
| |  | 10.6*          |  | Form of 2001 LTIP Stock Option Grant Agreement (incorporated by reference to Exhibit 10.2 to McDermott International, Inc.s Current Report on Form 8-K filed on May 18, 2005
(File No. 1-08430)).                                                                                                 
| |  |               
| |  | 10.7*          |  | Form of 2001 LTIP Deferred Stock Unit Grant Agreement (incorporated by reference to Exhibit 10.3 to McDermott International, Inc.s Current Report on Form 8-K filed on May
18, 2005 (File No. 1-08430)).                                                                                          
| |  |               
| |  | 10.8*          |  | Form of 2001 LTIP Stock Option Grant Agreement to Nonemployee Directors (incorporated by reference to Exhibit 10.5 to McDermott International, Inc.s Current Report on Form 8-K
filed on May 18, 2005 (File No. 1-08430)).                                                                        
| |  |               
| |  | 10.9*          |  | Form of 2001 LTIP 2007 Performance Shares Grant Agreement (incorporated by reference to Exhibit 10.1 to McDermott International, Inc.s Current Report on Form 8-K filed on May
4, 2007 (File No. 1-08430)).                                                                                       
| |  |               
| |  | 10.10*         |  | Form of 2001 LTIP 2008 Restricted Stock Grant Agreement (incorporated by reference to Exhibit 10.27 to McDermott International, Inc.s Annual Report on Form 10-K for the year
ended December 31, 2007 (File No. 1-08430)).                                                                        
| |  |               
| |  | 10.11*         |  | Form of Change-in-Control Agreement entered into between McDermott International, Inc. and John A. Fees (incorporated by reference to Exhibit 10.3 to McDermott International,
Inc.s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008 (File No. 1-08430)).                  
| |  |               
| |  | 10.12*         |  | Form of 2001 LTIP 2009 Deferred Stock Grant Agreement (incorporated by reference to Exhibit 10.24 to McDermott International, Inc.s Annual Report on Form 10-K for the year
ended December 31, 2008 (File No. 1-08430)).                                                                          
| |  |               
| |  | 10.13*         |  | Form of 2001 LTIP 2009 Stock Options Grant Agreement (incorporated by reference to Exhibit 10.26 to McDermott International, Inc.s Annual Report on Form 10-K for the year
ended December 31, 2008 (File No. 1-08430)).                                                                           
| |  |               
| |  | 10.14*         |  | Form of 2009 LTIP Restricted Stock Unit Grant Agreement (incorporated by reference to Exhibit 10.2 to McDermott International, Inc.s Quarterly Report on Form 10-Q for the
quarter ended March 31, 2009 (File No. 1-08430)).                                                                      
| |  |               
| |  | 10.15*         |  | Form of 2009 LTIP Performance Shares Grant Agreement (incorporated by reference to Exhibit 10.3 to McDermott International, Inc.s Quarterly Report on Form 10-Q for the quarter
ended March 31, 2009 (File No. 1-08430)).                                                                         
| |  |               
| |  | 10.16*         |  | Form of 2009 LTIP Stock Option Grant Agreement (incorporated by reference to Exhibit 10.4 to McDermott International, Inc.s Quarterly Report on Form 10-Q for the quarter ended
March 31, 2009 (File No. 1-08430)).                                                                               
| |  |               
| |  | 10.17*         |  | McDermott International, Inc. New Supplemental Executive Retirement Plan, as amended and restated effective December 31, 2008 (incorporated by reference to Exhibit 10.5 to
McDermott International, Inc.s Quarterly Report on Form 10-Q for the quarter ended March 31, 2009 (File No. 1-08430)).



55



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| |  |                |  |                                                                                                                                                                                                                                                                                                                                                                                                  
| |  | -------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Exhibit
Number |  | Description                                                                                                                                                                                                                                                                                                                                                                                      
| |  |               
| |  | 10.18*         |  | 2009 McDermott International, Inc. Long-Term Incentive Plan (incorporated by reference to Appendix A to McDermott International, Inc.s Proxy Statement on Schedule 14A filed on
March 27, 2009 (File No. 1-08430)).                                                                                                                                                                             
| |  |               
| |  | 10.19*         |  | Form of Restructuring Transaction Retention Agreement between McDermott International, Inc. and John A. Fees (incorporated by reference to Exhibit 10.1 to McDermott International,
Inc.s Current Report on Form 8-K filed on December 11, 2009 (File No. 1-08430)).                                                                                                                            
| |  |               
| |  | 10.20*         |  | Form of Restructuring Transaction Retention Agreement between McDermott International, Inc. and Michael S. Taff (incorporated by reference to Exhibit 10.2 to McDermott
International, Inc.s Current Report on Form 8-K filed on December 11, 2009 (File No. 1-08430)).                                                                                                                         
| |  |               
| |  | 10.21*         |  | Form of Restructuring Transaction Retention Agreement between McDermott International, Inc. and certain executive officers (other than Messrs. Fees or Taff) (incorporated by
reference to Exhibit 10.3 to McDermott International, Inc.s Current Report on Form 8-K filed on December 11, 2009 (File No. 1-08430)).                                                                            
| |  |               
| |  | 10.22*         |  | Form of Restructuring Transaction Retention Agreement between McDermott International, Inc. and certain other officers (incorporated by reference to Exhibit 10.4 to McDermott
International, Inc.s Current Report on Form 8-K filed on December 11, 2009 (File No. 1-08430)).                                                                                                                  
| |  |               
| |  | 10.23*         |  | Form of 2009 LTIP 2010 Restricted Stock Unit Grant Agreement (incorporated by reference to Exhibit 10.32 to McDermott International, Inc.s Annual Report on Form 10-K for the
year ended December 31, 2009 (File No. 1-08430)).                                                                                                                                                                 
| |  |               
| |  | 10.24*         |  | Form of 2009 LTIP 2010 Stock Option Grant Agreement (incorporated by reference to Exhibit 10.33 to McDermott International, Inc.s Annual Report on Form 10-K for the year
ended December 31, 2009 (File No. 1-08430)).                                                                                                                                                                          
| |  |               
| |  | 10.25          |  | Separation Agreement, dated as of March 23, 2010, by and between J. Ray McDermott, Inc. and Robert A. Deason (incorporated by reference to Exhibit 10.1 to McDermott International,
Inc.s Current Report on Form 8-K filed on March 29, 2010 (File No. 1-08430)).                                                                                                                               
| |  |               
| |  | 10.26          |  | Assumption and Loss Allocation Agreement dated as of May 18, 2010 by and among ACE American Insurance Company and the Ace Affiliates (as defined therein), McDermott International,
Inc. and Babcock & Wilcox Holdings, Inc. (incorporated by reference to Exhibit 10.6 to McDermott International, Inc.s Quarterly Report on Form 10-Q for the quarter ended June 30, 2010 (File No. 1-08430)).
| |  |               
| |  | 10.27          |  | Novation and Assumption Agreement dated as of May 18, 2010 by and among ACE American Insurance Company and the Ace Affiliates (as defined therein), Creole Insurance Company, Ltd.
and Boudin Insurance Company, Ltd. (incorporated by reference to Exhibit 10.7 to McDermott International, Inc.s Quarterly Report on Form 10-Q for the quarter ended June 30, 2010 (File No. 1-08430)).       
| |  |               
| |  | 10.28          |  | Novation and Assumption Agreement dated as of May 18, 2010 by and among McDermott International, Inc., Babcock & Wilcox Holdings, Inc., Boudin Insurance Company, Ltd. and Creole
Insurance Company, Ltd. (incorporated by reference to Exhibit 10.8 to McDermott International, Inc.s Quarterly Report on Form 10-Q for the quarter ended June 30, 2010 (File No. 1-08430)).                   
| |  |               
| |  | 10.29          |  | Tax Sharing Agreement dated as of June 7, 2010 between J. Ray Holdings, Inc. and Babcock & Wilcox Holdings, Inc. (incorporated by reference to Exhibit 10.3 to McDermott
International, Inc.s Quarterly Report on Form 10-Q for the quarter ended June 30, 2010 (File No. 1-08430)).                                                                                                            



56



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| |  |                |  |                                                                                                                                                                                                                                                                                                                                                                                           
| |  | -------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Exhibit
Number |  | Description                                                                                                                                                                                                                                                                                                                                                                               
| |  |               
| |  | 10.30          |  | Transition Services Agreement dated as of July 2, 2010 between McDermott International, Inc. as service provider and The Babcock & Wilcox Company as service receiver
(incorporated by reference to Exhibit 10.4 to McDermott International, Inc.s Quarterly Report on Form 10-Q for the quarter ended June 30, 2010 (File No. 1-08430)).                                                
| |  |               
| |  | 10.31          |  | Transition Services Agreement dated as of July 2, 2010 between The Babcock & Wilcox Company as service provider and McDermott International, Inc. as service receiver
(incorporated by reference to Exhibit 10.5 to McDermott International, Inc.s Quarterly Report on Form 10-Q for the quarter ended June 30, 2010 (File No. 1-08430)).                                                
| |  |               
| |  | 10.32          |  | Employee Matters Agreement, dated as of July 2, 2010, among McDermott International, Inc., McDermott Investments LLC, The Babcock & Wilcox Company and Babcock & Wilcox
Investment Company (incorporated by reference to Exhibit 10.1 to McDermott International, Inc.s Current Report on Form 8-K filed on July 2, 2010 (File No. 1-08430)).                                            
| |  |               
| |  | 10.33          |  | Amendment to Employee Matters Agreement, dated as of August 3, 2010, among McDermott International, Inc., McDermott Investments, LLC, The Babcock & Wilcox Company and Babcock
& Wilcox Investment Company (incorporated by reference to Exhibit 10.2 to McDermott International, Inc.s Quarterly Report on Form 10-Q for the quarter ended June 30, 2010 (File No. 1-08430)).           
| |  |               
| |  | 10.34          |  | Amendment No. 2 to Employee Matters Agreement, dated as of August 10, 2010 among McDermott International, Inc., McDermott Investments, LLC, The Babcock & Wilcox Company and
Babcock & Wilcox Investment Company (incorporated by reference to Exhibit 10.3 to McDermott International, Inc.s Quarterly Report on Form 10-Q for the quarter ended September 30, 2010 (File No. 1-08430)).
| |  |               
| |  | 10.35*         |  | Form of Change in Control Agreement to be entered into among McDermott International, Inc., J. Ray McDermott, Inc. and Stephen M. Johnson (incorporated by reference to Exhibit
10.9 to McDermott International, Inc.s Quarterly Report on Form 10-Q for the quarter ended June 30, 2010 (File No. 1-08430)).                                                                            
| |  |               
| |  | 10.36*         |  | Form of Change in Control Agreement to be entered into among McDermott International, Inc., J. Ray McDermott, Inc. and each of Perry L. Elders and certain other officers
(incorporated by reference to Exhibit 10.10 to McDermott International, Inc.s Quarterly Report on Form 10-Q for the quarter ended June 30, 2010 (File No. 1-08430)).                                           
| |  |               
| |  | 10.37*         |  | Form of Change in Control Agreement to be entered into among McDermott International, Inc., J. Ray McDermott, Inc. and each of Liane K. Hinrichs and John T. Nesser, III
(incorporated by reference to Exhibit 10.11 to McDermott International, Inc.s Quarterly Report on Form 10-Q for the quarter ended June 30, 2010 (File No. 1-08430)).                                            
| |  |               
| |  | 10.38*         |  | McDermott International, Inc. Director and Executive Deferred Compensation Plan, as amended and restated November 8, 2010 (incorporated by reference to Exhibit 10.10 to McDermott
International, Inc.s Quarterly Report on Form 10-Q for the quarter ended September 30, 2010 (File No. 1-08430)).                                                                                      
| |  |               
| |  | 10.39*#        |  | Form of 2009 LTIP Stock Option Grant Agreement for replacement grants in connection with the B&W spin-off.                                                                                                                                                                                                                                                                                
| |  |               
| |  | 10.40*#        |  | Form of 2009 LTIP Restricted Stock Unit Grant Agreement for 2008 performance share replacement grants in connection with the B&W spin-off.                                                                                                                                                                                                                                                
| |  |               
| |  | 10.41*#        |  | Form of 2009 LTIP Restricted Stock Unit Grant Agreement for 2009 performance share replacement grants in connection with the B&W
spin-off                                                                                                                                                                                                                                                 



57



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| |  |                |  |                                                                                                                                                                                                                                
| |  | -------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Exhibit
Number |  | Description                                                                                                                                                                                                                    
| |  |               
| |  | 10.42*#        |  | Form of 2009 LTIP Restricted Stock Grant Agreement for 2010 retention grants made to Messrs. Johnson and Nesser and Ms. Hinrichs.                                                                                              
| |  |               
| |  | 10.43#         |  | Rabbi Trust Agreement by and between McDermott International, Inc. and Mellon Bank, N.A., as amended as of November 18, 2010.                                                                                                  
| |  |               
| |  | 10.44*         |  | Summary of Named Executive Officer 2010 Salaries and EICP Award Opportunities (incorporated by reference to Exhibit 10.17 to McDermott International, Inc.s Annual Report on
Form 10-K for the year ended December 31, 2009)).
| |  |               
| |  | 10.45*#        |  | McDermott International, Inc. Executive Incentive Compensation Plan (as amended and restated March 1, 2011).                                                                                                                   
| |  |               
| |  | 10.46*#        |  | Form of 2009 LTIP 2011 Total Shareholder Return Performance Share Grant Agreement.                                                                                                                                             
| |  |               
| |  | 10.47*#        |  | Form of 2009 LTIP 2011 Restricted Stock Unit Grant Agreement.                                                                                                                                                                  
| |  |               
| |  | 10.48*#        |  | Form of 2009 LTIP 2011 Stock Option Grant Agreement.                                                                                                                                                                           
| |  |               
| |  | 10.49*#        |  | Summary of Named Executive Officer 2011 Salaries and EICP Target Award Opportunities.                                                                                                                                          
| |  |               
| |  | 12.1#          |  | Ratio of Earnings to Fixed Charges.                                                                                                                                                                                            
| |  |               
| |  | 21.1#          |  | Significant Subsidiaries of the Registrant.                                                                                                                                                                                    
| |  |               
| |  | 23.1           |  | Consent of Deloitte & Touche LLP.                                                                                                                                                                                              
| |  |               
| |  | 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                                                                                                                                                                           



|* | Management contract or compensatory plan or arrangement.
|- | --------------------------------------------------------

|# | Previously filed with the original Annual Report on Form 10-K for the year ended December 31, 2010.
|- | ---------------------------------------------------------------------------------------------------



58



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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.



|              |  |  |  |                               |  |                                      
|------------- |  |  |  | ----------------------------- |  | -------------------------------------
|              |  |  |  | McDERMOTT INTERNATIONAL, INC.
|              |  |  | 
|              |  |  |  | By:                           |  | /s/    STEPHEN M.
JOHNSON            
|March 3, 2011 |  |  |  |                               |  | Stephen M. Johnson                   
|              |  |  |  |                               |  | President and Chief Executive Officer





59



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Schedule II

McDERMOTT INTERNATIONAL, INC.

VALUATION AND QUALIFYING ACCOUNTS



|                                               |  |                                |          |   |                          |   |         |                        |  |   |        |   |  |   |          |  
|---------------------------------------------- |  | ------------------------------ | -------- | - | ------------------------ | - | ------- | ---------------------- |  | - | ------ | - |  | - | -------- | -
|Description                                    |  | Balance atBeginningof Period   |          |   | Additions                |   |         | Balance atEnd ofPeriod | 
|                                               |  | Charged toCosts andExpenses(1) |          |   | Charged to OtherAccounts |   |        
|Valuation Allowance for Deferred Tax Assets(2) |  |                                |          |   |                          |   |         |                        |  |   |        |   |  |   |          |  
|Year Ended December 31, 2010                   |  | $                              | (108,737 | ) |                          | $ | (8,155  | )                      |  | $ | 21,158 |   |  | $ | (95,734  | )
|Year Ended December 31, 2009                   |  | $                              | (78,249  | ) |                          | $ | (30,776 | )                      |  | $ | 288    |   |  | $ | (108,737 | )
|Year Ended December 31, 2008                   |  | $                              | (100,617 | ) |                          | $ | 22,707  |                        |  | $ | (339   | ) |  | $ | (78,249  | )



2009 and 2008 amounts presented below include the spun-off B&W operations.

|(1) | Net of reductions and other adjustments, all of which are charged to costs and expenses.
|--- | ----------------------------------------------------------------------------------------

|(2) | Amounts charged to other accounts included in other comprehensive loss (minimum pension liability).
|--- | ---------------------------------------------------------------------------------------------------



|                                             |  |                              |         |   |                             |   |         |            |  |   |            |  |  |                         |        |  |  |   |         |  
|-------------------------------------------- |  | ---------------------------- | ------- | - | --------------------------- | - | ------- | ---------- |  | - | ---------- |  |  | ----------------------- | ------ |  |  | - | ------- | -
|Description                                  |  | Balance atBeginningof Period |         |   | Charged toCosts andExpenses |   |         | Write-offs |  |   | Recoveries |  |  | Balance atEnd 
ofPeriod |       
|Allowance for Doubtful and Disputed Accounts |  |                              |         |   |                             |   |         |            |  |   |            |  |  |                         |        |  |  |   |         |  
|Year Ended December 31, 2010                 |  | $                            | (42,246 | ) |                             | $ | (8,108  | )          |  | $ | 11,231     |  |  | $                       | 9,562  |  |  | $ | (29,561 | )
|Year Ended December 31, 2009                 |  | $                            | (28,308 | ) |                             | $ | (39,684 | )          |  | $ | 1,630      |  |  | $                       | 24,116 |  |  | $ | (42,246 | )
|Year Ended December 31, 2008                 |  | $                            | (70,569 | ) |                             | $ | (30,048 | )          |  | $ | 36,385     |  |  | $                       | 35,924 |  |  | $ | (28,308 | )



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##### Table of Contents

INDEX TO EXHIBITS



Exhibit
Number

Description3.1

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.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

Credit Agreement dated as of June 6, 2006, by and among J. Ray McDermott, S.A., credit lenders, synthetic investors and issuers party thereto, Credit Suisse, Cayman Islands Branch,
Credit Suisse Securities (USA), LLC, Bank of America, N.A., Calyon New York Branch, Fortis Capital Corp. and Wachovia Bank, National Association (incorporated by reference to Exhibit 10.1 to McDermott International, Inc.s Current Report on
Form 8-K filed on June 9, 2006 (File No. 1-08430)).4.2

First Amendment to Credit Agreement, dated as of August 4, 2006, by and among J. Ray McDermott, S.A., certain lenders and issuers party thereto, Credit Suisse, Cayman Islands
Branch, as administrative agent and collateral agent, and other agents party thereto (incorporated by reference to Exhibit 4.8 to McDermott International, Inc.s Annual Report on Form 10-K for the year ended December 31, 2007 (File No.
1-08430)).4.3

Second Amendment to Credit Agreement, dated as of December 1, 2006, by and among J. Ray McDermott, S.A., certain guarantors thereto, certain lenders and issuers party thereto,
Credit Suisse, Cayman Islands Branch, as administrative agent and collateral agent, and other agents party thereto (incorporated by reference to Exhibit 4.9 to McDermott International, Inc.s Annual Report on Form 10-K for the year ended
December 31, 2007 (File No. 1-08430)).4.4

Third Amendment to Credit Agreement, dated as of July 9, 2007, by and among J. Ray McDermott, S.A., certain guarantors thereto, certain lenders and issuers party thereto,
Credit Suisse, Cayman Islands Branch, as administrative agent and collateral agent, and other agents party thereto (incorporated by reference to Exhibit 4.1 to McDermott International, Inc.s Quarterly Report on Form 10-Q for the quarter ended
June 30, 2007 (File No. 1-08430)).4.5

Fourth Amendment to Credit Agreement, dated as of July 20, 2007, by and among J. Ray McDermott, S.A., certain guarantors thereto, certain lenders and issuers party thereto, Credit
Suisse, Cayman Islands Branch, as administrative agent and collateral agent, and other agents party thereto (incorporated by reference to Exhibit 10.2 to McDermott International, Inc.s Current Report on Form 8-K filed on July 26, 2007 (File
No. 1-08430)).4.6

Fifth Amendment to Credit Agreement, dated as of April 7, 2008, by and between J. Ray McDermott, S.A., certain guarantors thereto, certain lenders and issuers party thereto, Credit
Suisse, Cayman Islands Branch, as administrative agent and collateral agent, and other agents party thereto (incorporated by reference to Exhibit 10.1 to McDermott International, Inc.s Current Report on Form 8-K filed on April 8, 2008 (File
No. 1-08430)).4.7

Pledge and Security Agreement by J. Ray McDermott, S.A. and certain of its subsidiaries in favor of Credit Suisse, Cayman Islands Branch, as administrative agent and collateral
agent, dated as of June 6, 2006 (incorporated by reference to Exhibit 10.2 to McDermott International, Inc.s Current Report on Form 8-K filed on June 9, 2006 (File No.
1-08430)).




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##### Table of Contents

Exhibit
Number

Description4.8

Credit Agreement dated as of May 3, 2010, among J. Ray McDermott, S.A., McDermott International, Inc., the lenders and issuers party thereto, and Crédit Agricole
Corporate and Investment Bank, as administrative agent and collateral agent (incorporated by reference to Exhibit 10.1 to McDermott International, Inc.s Current Report on Form 8-K filed on May 7, 2010 (File No. 1-08430)).4.9

Pledge and Security Agreement dated as of May 3, 2010, by McDermott International, Inc., J. Ray McDermott, S.A. and certain of their subsidiaries in favor of Crédit
Agricole Corporate and Investment Bank, as administrative agent and collateral Agent (incorporated by reference to Exhibit 10.2 to McDermott International, Inc.s Current Report on Form 8-K filed on May 7, 2010 (File No.
1-08430)).4.10

New Borrower Joinder Agreement dated as of August 6, 2010, among McDermott International, Inc., J. Ray McDermott, S.A., and Crédit Agricole Corporate and Investment
Bank, as administrative agent and collateral agent (incorporated by reference to Exhibit 4.3 to McDermott International, Inc.s Quarterly Report on Form 10-Q for the quarter ended June 30, 2010 (File No. 1-08430)).We and certain of our consolidated subsidiaries are parties to other debt instruments under which the total amount of securities authorized does not exceed 10% of
our total consolidated assets. Pursuant to paragraph 4(iii)(A) of Item 601 (b) of Regulation S-K, we agree to furnish a copy of those instruments to the Commission upon its request.10.1*

McDermott International, Inc.s Executive Incentive Compensation Plan (incorporated by reference to Appendix C to McDermott International, Inc.s Proxy Statement on
Schedule 14A filed on May 3, 2006 (File No. 1-08430)).10.2*

McDermott International, Inc.s 1996 Officer Long-Term Incentive Plan (incorporated by reference to Appendix B to McDermott International, Inc.s Proxy Statement on
Schedule 14A filed on July 29,1997 (File No. 1-08430)).10.3*

McDermott International, Inc.s 1997 Director Stock Program (incorporated by reference to Appendix A to McDermott International, Inc.s Proxy Statement on
Schedule 14A filed on July 29,1997 (File No. 1-08430)).10.4*

McDermott International, Inc.s Amended and Restated 2001 Directors & Officers Long-Term Incentive Plan (incorporated by reference to Appendix B to McDermott
International, Inc.s Proxy Statement on Schedule 14A filed on May 3, 2006 (File No. 1-08430)).10.5*

Notice of Grant (Stock Options and Deferred Stock Units) (incorporated by reference to Exhibit 10.1 to McDermott International, Inc.s Current Report on Form 8-K filed on
May 18, 2005 (File No. 1-08430)).10.6*

Form of 2001 LTIP Stock Option Grant Agreement (incorporated by reference to Exhibit 10.2 to McDermott International, Inc.s Current Report on Form 8-K filed on
May 18, 2005 (File No. 1-08430)).10.7*

Form of 2001 LTIP Deferred Stock Unit Grant Agreement (incorporated by reference to Exhibit 10.3 to McDermott International, Inc.s Current Report on Form 8-K filed on
May 18, 2005 (File No. 1-08430)).10.8*

Form of 2001 LTIP Stock Option Grant Agreement to Nonemployee Directors (incorporated by reference to Exhibit 10.5 to McDermott International, Inc.s Current Report on Form 8-K
filed on May 18, 2005 (File No. 1-08430)).




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##### Table of Contents

Exhibit
Number

Description10.9*

Form of 2001 LTIP 2007 Performance Shares Grant Agreement (incorporated by reference to Exhibit 10.1 to McDermott International, Inc.s Current Report on Form 8-K filed on
May 4, 2007 (File No. 1-08430)).10.10*

Form of 2001 LTIP 2008 Restricted Stock Grant Agreement (incorporated by reference to Exhibit 10.27 to McDermott International, Inc.s Annual Report on Form 10-K for the year
ended December 31, 2007 (File No. 1-08430)).10.11*

Form of Change-in-Control Agreement entered into between McDermott International, Inc. and John A. Fees (incorporated by reference to Exhibit 10.3 to McDermott International,
Inc.s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008 (File No. 1-08430)).10.12*

Form of 2001 LTIP 2009 Deferred Stock Grant Agreement (incorporated by reference to Exhibit 10.24 to McDermott International, Inc.s Annual Report on Form 10-K for the year
ended December 31, 2008 (File No. 1-08430)).10.13*

Form of 2001 LTIP 2009 Stock Options Grant Agreement (incorporated by reference to Exhibit 10.26 to McDermott International, Inc.s Annual Report on Form 10-K for the year
ended December 31, 2008 (File No. 1-08430)).10.14*

Form of 2009 LTIP Restricted Stock Unit Grant Agreement (incorporated by reference to Exhibit 10.2 to McDermott International, Inc.s Quarterly Report on Form 10-Q for the
quarter ended March 31, 2009 (File No. 1-08430)).10.15*

Form of 2009 LTIP Performance Shares Grant Agreement (incorporated by reference to Exhibit 10.3 to McDermott International, Inc.s Quarterly Report on Form 10-Q for the quarter
ended March 31, 2009 (File No. 1-08430)).10.16*

Form of 2009 LTIP Stock Option Grant Agreement (incorporated by reference to Exhibit 10.4 to McDermott International, Inc.s Quarterly Report on Form 10-Q for the quarter
ended March 31, 2009 (File No. 1-08430)).10.17*

McDermott International, Inc. New Supplemental Executive Retirement Plan, as amended and restated effective December 31, 2008 (incorporated by reference to Exhibit 10.5 to
McDermott International, Inc.s Quarterly Report on Form 10-Q for the quarter ended March 31, 2009 (File No. 1-08430)).10.18*

2009 McDermott International, Inc. Long-Term Incentive Plan (incorporated by reference to Appendix A to McDermott International, Inc.s Proxy Statement on Schedule 14A filed on
March 27, 2009 (File No. 1-08430)).10.19*

Form of Restructuring Transaction Retention Agreement between McDermott International, Inc. and John A. Fees (incorporated by reference to Exhibit 10.1 to McDermott International,
Inc.s Current Report on Form 8-K filed on December 11, 2009 (File No. 1-08430)).10.20*

Form of Restructuring Transaction Retention Agreement between McDermott International, Inc. and Michael S. Taff (incorporated by reference to Exhibit 10.2 to McDermott
International, Inc.s Current Report on Form 8-K filed on December 11, 2009 (File No. 1-08430)).10.21*

Form of Restructuring Transaction Retention Agreement between McDermott International, Inc. and certain executive officers (other than Messrs. Fees or Taff) (incorporated by
reference to Exhibit 10.3 to McDermott International, Inc.s Current Report on Form 8-K filed on December 11, 2009 (File No. 1-08430)).




63



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##### Table of Contents

Exhibit Number

Description10.22*

Form of Restructuring Transaction Retention Agreement between McDermott International, Inc. and certain other officers (incorporated by reference to Exhibit 10.4 to McDermott
International, Inc.s Current Report on Form 8-K filed on December 11, 2009 (File No. 1-08430)).10.23*

Form of 2009 LTIP 2010 Restricted Stock Unit Grant Agreement (incorporated by reference to Exhibit 10.32 to McDermott International, Inc.s Annual Report on Form 10-K for the
year ended December 31, 2009 (File No. 1-08430)).10.24*

Form of 2009 LTIP 2010 Stock Option Grant Agreement (incorporated by reference to Exhibit 10.33 to McDermott International, Inc.s Annual Report on Form 10-K for the year
ended December 31, 2009 (File No. 1-08430)).10.25

Separation Agreement, dated as of March 23, 2010, by and between J. Ray McDermott, Inc. and Robert A. Deason (incorporated by reference to Exhibit 10.1 to McDermott
International, Inc.s Current Report on Form 8-K filed on March 29, 2010 (File No. 1-08430)).10.26

Assumption and Loss Allocation Agreement dated as of May 18, 2010 by and among ACE American Insurance Company and the Ace Affiliates (as defined therein), McDermott International,
Inc. and Babcock & Wilcox Holdings, Inc. (incorporated by reference to Exhibit 10.6 to McDermott International, Inc.s Quarterly Report on Form 10-Q for the quarter ended June 30, 2010 (File No. 1-08430)).10.27

Novation and Assumption Agreement dated as of May 18, 2010 by and among ACE American Insurance Company and the Ace Affiliates (as defined therein), Creole Insurance Company, Ltd.
and Boudin Insurance Company, Ltd. (incorporated by reference to Exhibit 10.7 to McDermott International, Inc.s Quarterly Report on Form 10-Q for the quarter ended June 30, 2010 (File No. 1-08430)).10.28

Novation and Assumption Agreement dated as of May 18, 2010 by and among McDermott International, Inc., Babcock & Wilcox Holdings, Inc., Boudin Insurance Company, Ltd. and Creole
Insurance Company, Ltd. (incorporated by reference to Exhibit 10.8 to McDermott International, Inc.s Quarterly Report on Form 10-Q for the quarter ended June 30, 2010 (File No. 1-08430)).10.29

Tax Sharing Agreement dated as of June 7, 2010 between J. Ray Holdings, Inc. and Babcock & Wilcox Holdings, Inc. (incorporated by reference to Exhibit 10.3 to
McDermott International, Inc.s Quarterly Report on Form 10-Q for the quarter ended June 30, 2010 (File No. 1-08430)).10.30

Transition Services Agreement dated as of July 2, 2010 between McDermott International, Inc. as service provider and The Babcock & Wilcox Company as service receiver
(incorporated by reference to Exhibit 10.4 to McDermott International, Inc.s Quarterly Report on Form 10-Q for the quarter ended June 30, 2010 (File No. 1-08430)).10.31

Transition Services Agreement dated as of July 2, 2010 between The Babcock & Wilcox Company as service provider and McDermott International, Inc. as service receiver
(incorporated by reference to Exhibit 10.5 to McDermott International, Inc.s Quarterly Report on Form 10-Q for the quarter ended June 30, 2010 (File No. 1-08430)).10.32

Employee Matters Agreement, dated as of July 2, 2010, among McDermott International, Inc., McDermott Investments LLC, The Babcock & Wilcox Company and Babcock & Wilcox
Investment Company (incorporated by reference to Exhibit 10.1 to McDermott International, Inc.s Current Report on Form 8-K filed on July 2, 2010 (File No.
1-08430)).




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##### Table of Contents

Exhibit Number

Description10.33

Amendment to Employee Matters Agreement, dated as of August 3, 2010, among McDermott International, Inc., McDermott Investments, LLC, The Babcock & Wilcox Company and Babcock
& Wilcox Investment Company (incorporated by reference to Exhibit 10.2 to McDermott International, Inc.s Quarterly Report on Form 10-Q for the quarter ended June 30, 2010 (File No. 1-08430)).10.34

Amendment No. 2 to Employee Matters Agreement, dated as of August 10, 2010 among McDermott International, Inc., McDermott Investments, LLC, The Babcock & Wilcox Company and
Babcock & Wilcox Investment Company (incorporated by reference to Exhibit 10.3 to McDermott International, Inc.s Quarterly Report on Form 10-Q for the quarter ended September 30, 2010 (File No. 1-08430)).10.35*

Form of Change in Control Agreement to be entered into among McDermott International, Inc., J. Ray McDermott, Inc. and Stephen M. Johnson (incorporated by reference to Exhibit
10.9 to McDermott International, Inc.s Quarterly Report on Form 10-Q for the quarter ended June 30, 2010 (File No. 1-08430)).10.36*

Form of Change in Control Agreement to be entered into among McDermott International, Inc., J. Ray McDermott, Inc. and each of Perry L. Elders and certain other officers
(incorporated by reference to Exhibit 10.10 to McDermott International, Inc.s Quarterly Report on Form 10-Q for the quarter ended June 30, 2010 (File No. 1-08430)).10.37*

Form of Change in Control Agreement to be entered into among McDermott International, Inc., J. Ray McDermott, Inc. and each of Liane K. Hinrichs and John T. Nesser, III
(incorporated by reference to Exhibit 10.11 to McDermott International, Inc.s Quarterly Report on Form 10-Q for the quarter ended June 30, 2010 (File No. 1-08430)).10.38*

McDermott International, Inc. Director and Executive Deferred Compensation Plan, as amended and restated November 8, 2010 (incorporated by reference to Exhibit 10.10 to McDermott
International, Inc.s Quarterly Report on Form 10-Q for the quarter ended September 30, 2010 (File No. 1-08430)).10.39*#

Form of 2009 LTIP Stock Option Grant Agreement for replacement grants in connection with the B&W spin-off.10.40*#

Form of 2009 LTIP Restricted Stock Unit Grant Agreement for 2008 performance share replacement grants in connection with the B&W spin-off.10.41*#

Form of 2009 LTIP Restricted Stock Unit Grant Agreement for 2009 performance share replacement grants in connection with the B&W spin-off10.42*#

Form of 2009 LTIP Restricted Stock Grant Agreement for 2010 retention grants made to Messrs. Johnson and Nesser and Ms. Hinrichs.10.43#

Rabbi Trust Agreement by and between McDermott International, Inc. and Mellon Bank, N.A., as amended as of November 18, 2010.10.44*

Summary of Named Executive Officer 2010 Salaries and EICP Award Opportunities (incorporated by reference to Exhibit 10.17 to McDermott International, Inc.s Annual Report on
Form 10-K for the year ended December 31, 2009)).10.45*#

McDermott International, Inc. Executive Incentive Compensation Plan (as amended and restated March 1, 2011).10.46*#

Form of 2009 LTIP 2011 Total Shareholder Return Performance Share Grant Agreement.10.47*#

Form of 2009 LTIP 2011 Restricted Stock Unit Grant Agreement.




65



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##### Table of Contents

Exhibit Number

Description10.48*#

Form of 2009 LTIP 2011 Stock Option Grant Agreement.10.49*#

Summary of Named Executive Officer 2011 Salaries and EICP Target Award Opportunities.12.1#

Ratio of Earnings to Fixed Charges.21.1#

Significant Subsidiaries of the Registrant.23.1

Consent of Deloitte & Touche LLP.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 Document101.SCH#

XBRL Taxonomy Extension Schema Document101.CAL#

XBRL Taxonomy Extension Calculation Linkbase Document101.LAB#

XBRL Taxonomy Extension Label Linkbase Document101.PRE#

XBRL Taxonomy Extension Presentation Linkbase Document101.DEF#

XBRL Taxonomy Extension Definition Linkbase Document




|* | Management contract or compensatory plan or arrangement.
|- | --------------------------------------------------------

|# | Previously filed with the original Annual Report on Form 10-K for the year ended December 31, 2010.
|- | ---------------------------------------------------------------------------------------------------



66