(Mark
One)
|
F
O R M 1 0–Q
|
X
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
McDERMOTT
INTERNATIONAL, INC.
|
(Exact
name of registrant as specified in its
charter)
|
REPUBLIC
OF PANAMA
|
72-0593134
|
(State
or Other Jurisdiction of
|
(I.R.S.
Employer Identification No.)
|
Incorporation
or Organization)
|
|
777
N. ELDRIDGE PKWY.
|
|
HOUSTON,
TEXAS
|
77079
|
(Address
of Principal Executive Offices)
|
(Zip
Code)
|
PAGE
|
4
|
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6
|
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7
|
||
8
|
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9
|
28
|
||
29
|
||
29
|
||
29
|
31
|
September
30,
|
December
31,
|
|||||||
2008
|
2007
|
|||||||
(Unaudited)
|
||||||||
(In
thousands)
|
||||||||
Current
Assets:
|
||||||||
Cash
and cash equivalents
|
$ | 614,348 | $ | 1,001,394 | ||||
Restricted
cash and cash equivalents (Note 1)
|
68,517 | 64,786 | ||||||
Investments
|
226,792 | 300,092 | ||||||
Accounts
receivable – trade, net
|
734,617 | 770,024 | ||||||
Accounts
and notes receivable – unconsolidated affiliates
|
4,134 | 2,303 | ||||||
Accounts
receivable – other
|
126,083 | 116,744 | ||||||
Contracts
in progress
|
294,414 | 194,292 | ||||||
Inventories
(Note 1)
|
120,127 | 95,208 | ||||||
Deferred
income taxes
|
77,582 | 160,783 | ||||||
Other
current assets
|
66,275 | 51,874 | ||||||
Total
Current Assets
|
2,332,889 | 2,757,500 | ||||||
Property,
Plant and Equipment
|
2,151,980 | 2,004,138 | ||||||
Less
accumulated depreciation
|
(1,147,745 | ) | (1,090,400 | ) | ||||
Net
Property, Plant and Equipment
|
1,004,235 | 913,738 | ||||||
Investments
|
298,104 | 162,069 | ||||||
Goodwill
|
175,144 | 158,533 | ||||||
Deferred
Income Taxes
|
120,059 | 134,292 | ||||||
Investments
in Unconsolidated Affiliates
|
82,116 | 62,241 | ||||||
Other
Assets
|
246,338 | 223,113 | ||||||
TOTAL
|
$ | 4,258,885 | $ | 4,411,486 |
September
30,
|
December
31,
|
|||||||
2008
|
2007
|
|||||||
(Unaudited)
|
||||||||
(In
thousands)
|
||||||||
Current
Liabilities:
|
||||||||
Notes
payable and current maturities of long-term debt
|
$ | 9,331 | $ | 6,599 | ||||
Accounts
payable
|
472,602 | 455,659 | ||||||
Accrued
employee benefits
|
255,870 | 343,812 | ||||||
Accrued
liabilities – other
|
218,308 | 175,557 | ||||||
Accrued
contract cost
|
97,964 | 93,281 | ||||||
Advance
billings on contracts
|
1,044,409 | 1,463,223 | ||||||
Accrued
warranty expense
|
109,638 | 101,330 | ||||||
Income
taxes payable
|
57,380 | 57,071 | ||||||
Total
Current Liabilities
|
2,265,502 | 2,696,532 | ||||||
Long-Term
Debt
|
6,007 | 10,609 | ||||||
Accumulated
Postretirement Benefit Obligation
|
90,337 | 96,253 | ||||||
Self-Insurance
|
84,815 | 82,525 | ||||||
Pension
Liability
|
73,964 | 188,748 | ||||||
Other
Liabilities
|
154,334 | 169,814 | ||||||
Commitments
and Contingencies (Note 3)
|
||||||||
Stockholders’
Equity:
|
||||||||
Common
stock, par value $1.00 per share, authorized 400,000,000 shares; issued
233,620,079 and 231,722,659 shares at September 30, 2008 and
December
31, 2007, respectively
|
233,620 | 231,723 | ||||||
Capital
in excess of par value
|
1,191,712 | 1,145,829 | ||||||
Retained
earnings
|
521,589 | 135,289 | ||||||
Treasury
stock at cost, 5,842,014 and 5,852,248 shares at September 30, 2008 and
December 31, 2007, respectively
|
(63,045 | ) | (63,903 | ) | ||||
Accumulated
other comprehensive loss (Note 1)
|
(299,950 | ) | (281,933 | ) | ||||
Total
Stockholders’ Equity
|
1,583,926 | 1,167,005 | ||||||
TOTAL
|
$ | 4,258,885 | $ | 4,411,486 |
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||
2008
|
2007
|
2008
|
2007
|
|||||||||||||
(Unaudited)
|
||||||||||||||||
(In
thousands, except shares and per share amounts)
|
||||||||||||||||
Revenues
|
$ | 1,664,851 | $ | 1,324,018 | $ | 4,907,923 | $ | 4,105,594 | ||||||||
Costs
and Expenses:
|
||||||||||||||||
Cost
of operations
|
1,445,749 | 1,067,437 | 4,067,181 | 3,278,055 | ||||||||||||
(Gain)
loss on asset disposals – net
|
138 | (630 | ) | (11,322 | ) | (2,380 | ) | |||||||||
Selling,
general and administrative expenses
|
139,512 | 114,538 | 404,298 | 327,525 | ||||||||||||
Total
Costs and Expenses
|
1,585,399 | 1,181,345 | 4,460,157 | 3,603,200 | ||||||||||||
Equity
in Income of Investees
|
12,521 | 12,477 | 32,443 | 27,026 | ||||||||||||
Operating
Income
|
91,973 | 155,150 | 480,209 | 529,420 | ||||||||||||
Other
Income (Expense):
|
||||||||||||||||
Interest
income
|
7,001 | 17,272 | 29,541 | 45,411 | ||||||||||||
Interest
expense
|
(1,850 | ) | (3,476 | ) | (5,749 | ) | (18,431 | ) | ||||||||
Other
income (expense) – net
|
2,718 | (205 | ) | 552 | (5,050 | )) | ||||||||||
Total
Other Income
|
7,869 | 13,591 | 24,344 | 21,930 | ||||||||||||
Income
before Provision for Income Taxes
|
99,842 | 168,741 | 504,553 | 551,350 | ||||||||||||
Provision
for Income Taxes
|
14,271 | 28,333 | 118,253 | 103,507 | ||||||||||||
Net
Income
|
$ | 85,571 | $ | 140,408 | $ | 386,300 | $ | 447,843 | ||||||||
Earnings
per Share:
|
||||||||||||||||
Basic
|
$ | 0.38 | $ | 0.63 | $ | 1.70 | $ | 2.01 | ||||||||
Diluted
|
$ | 0.37 | $ | 0.61 | $ | 1.68 | $ | 1.96 | ||||||||
Shares
used in the computation of earnings per share (Note 6):
|
||||||||||||||||
Basic
|
227,440,858 | 224,480,807 | 226,645,175 | 222,944,800 | ||||||||||||
Diluted
|
230,463,651 | 228,865,885 | 230,328,423 | 228,402,589 |
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||
2008
|
2007
|
2008
|
2007
|
|||||||||||||
(Unaudited)
|
||||||||||||||||
(In
thousands)
|
||||||||||||||||
Net
Income
|
$ | 85,571 | $ | 140,408 | $ | 386,300 | $ | 447,843 | ||||||||
Other
Comprehensive Income (Loss):
|
||||||||||||||||
Currency
translation adjustments:
|
||||||||||||||||
Foreign
currency translation adjustments
|
(15,016 | ) | 6,337 | (8,849 | ) | 13,598 | ||||||||||
Unrealized
gains (losses) on derivative financial instruments:
|
||||||||||||||||
Unrealized
gains (losses) on derivative financial instruments
|
(18,923 | ) | 7,178 | (15,709 | ) | 12,152 | ||||||||||
Reclassification
adjustment for (gains) losses included in net income
|
1,058 | (741 | ) | (2,692 | ) | (3,272 | ) | |||||||||
Amortization
of benefit plan costs
|
5,275 | 8,547 | 18,304 | 23,705 | ||||||||||||
Unrealized
gains (losses) on investments:
|
||||||||||||||||
Unrealized
gains (losses) arising during the period
|
(1,989 | ) | 748 | (7,611 | ) | 1,145 | ||||||||||
Reclassification
adjustment for net (gains) losses
included
in net income
|
(358 | ) | (16 | ) | (1,460 | ) | 74 | |||||||||
Other
Comprehensive Income (Loss)
|
(29,953 | ) | 22,053 | (18,017 | ) | 47,402 | ||||||||||
Comprehensive
Income
|
$ | 55,618 | $ | 162,461 | $ | 368,283 | $ | 495,245 |
Nine
Months Ended
|
||||||||
September
30,
|
||||||||
2008
|
2007
|
|||||||
(Unaudited)
|
||||||||
(In
thousands)
|
||||||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
Net
Income
|
$ | 386,300 | $ | 447,843 | ||||
Non-cash
items included in net income:
|
||||||||
Depreciation
and amortization
|
95,059 | 67,108 | ||||||
Income
of investees, less dividends
|
(12,592 | ) | (10,196 | ) | ||||
Gains
on asset disposals – net
|
(11,322 | ) | (2,380 | ) | ||||
Provision
for deferred taxes
|
87,512 | 73,485 | ||||||
Amortization
of pension and postretirement costs
|
28,424 | 38,061 | ||||||
Excess
tax benefits from FAS 123(R) stock-based compensation
|
(6,404 | ) | (27,234 | ) | ||||
Other,
net
|
34,922 | 27,954 | ||||||
Changes
in assets and liabilities, net of effects of acquisitions and
divestitures:
|
||||||||
Accounts
receivable
|
21,412 | (129,353 | ) | |||||
Income
tax receivable
|
10,666 | 262,185 | ||||||
Net
contracts in progress and advance billings on contracts
|
(516,623 | ) | 287,980 | |||||
Accounts
payable
|
19,544 | 46,522 | ||||||
Income
taxes
|
(5,335 | ) | (22,514 | ) | ||||
Accrued
and other current liabilities
|
57,586 | 47,003 | ||||||
Pension
liability, accumulated postretirement benefit obligation and accrued
employee benefits
|
(207,672 | ) | (116,827 | ) | ||||
Other,
net
|
(88,562 | ) | (30,359 | ) | ||||
NET
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
|
(107,085 | ) | 959,278 | |||||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
(Increase)
decrease in restricted cash and cash equivalents
|
(3,731 | ) | 8,379 | |||||
Purchases
of property, plant and equipment
|
(189,384 | ) | (181,803 | ) | ||||
Acquisition
of businesses, net of cash acquired
|
(33,731 | ) | (334,457 | ) | ||||
Net
increase in available-for-sale securities
|
(70,992 | ) | (106,151 | ) | ||||
Proceeds
from asset disposals
|
12,023 | 4,582 | ||||||
Other,
net
|
(2,029 | ) | (2,016 | ) | ||||
NET
CASH USED IN INVESTING ACTIVITIES
|
(287,844 | ) | (611,466 | ) | ||||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Payment
of long-term debt
|
(4,660 | ) | (255,629 | ) | ||||
Increase
in short-term borrowing
|
2,920 | - | ||||||
Issuance
of common stock
|
8,069 | 12,683 | ||||||
Payment
of debt issuance costs
|
(1,611 | ) | (3,468 | ) | ||||
Excess
tax benefits from FAS 123(R) stock-based compensation
|
6,404 | 27,234 | ||||||
Other,
net
|
- | 4 | ||||||
NET
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
|
11,122 | (219,176 | ) | |||||
EFFECTS
OF EXCHANGE RATE CHANGES ON CASH
|
(3,239 | ) | 6,120 | |||||
NET
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
(387,046 | ) | 134,756 | |||||
CASH
AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
|
1,001,394 | 600,843 | ||||||
CASH
AND CASH EQUIVALENTS AT END OF PERIOD
|
$ | 614,348 | $ | 735,599 | ||||
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION:
|
||||||||
Cash
paid during the period for:
|
||||||||
Interest
(net of amount capitalized)
|
$ | 5,967 | $ | 23,896 | ||||
Income
taxes (net of refunds)
|
$ | 49,193 | $ | (223,285 | ) |
·
|
Offshore
Oil and Gas Construction includes the business and operations of JRMSA, J.
Ray McDermott Holdings, LLC and their respective
subsidiaries. This segment supplies services primarily to
offshore oil and gas field developments worldwide, including the front-end
design and detailed engineering, fabrication and marine installation of
offshore drilling and production facilities and installation of marine
pipelines and subsea production systems. This segment
operates in most major offshore oil and gas producing regions, including
the United States, Mexico, Canada, the Middle East, India, the Caspian Sea
and Asia Pacific.
|
·
|
Government
Operations includes the business and operations of BWX Technologies, Inc.,
Babcock & Wilcox Nuclear Operations Group, Inc., Babcock & Wilcox
Technical Services Group, Inc. and their respective subsidiaries. This
segment manufactures nuclear components and provides various services to
the U.S. Government, including uranium processing, environmental site
restoration services and management and operating services for various
U.S. Government-owned facilities, primarily within the nuclear weapons
complex of the U.S. Department of
Energy.
|
·
|
Power
Generation Systems includes the business and operations of Babcock &
Wilcox Power Generation Group, Inc. (“B&W PGG”), Babcock & Wilcox
Nuclear Power Generation Group, Inc. and their respective
subsidiaries. This segment manufactures fossil-fired steam
generating systems, commercial nuclear steam generators, environmental
equipment and components, and related services to customers around the
world. It designs, engineers, manufactures and services large utility and
industrial power generation systems, including boilers used to generate
steam in electric power plants, pulp and paper making, chemical and
process applications and other industrial
uses.
|
September
30,
|
December
31,
|
|||||||
2008
|
2007
|
|||||||
(Unaudited)
|
||||||||
(In
thousands)
|
||||||||
Currency
Translation Adjustments
|
$ | 16,479 | $ | 25,328 | ||||
Net
Unrealized Gain (Loss) on Investments
|
(8,087 | ) | 984 | |||||
Net
Unrealized Gain on Derivative Financial Instruments
|
2,475 | 20,876 | ||||||
Unrecognized
Losses on Benefit Obligations
|
(310,817 | ) | (329,121 | ) | ||||
Accumulated
Other Comprehensive Loss
|
$ | (299,950 | ) | $ | (281,933 | ) |
September
30,
|
December
31,
|
|||||||
2008
|
2007
|
|||||||
(Unaudited)
|
||||||||
(In
thousands)
|
||||||||
Raw
Materials and Supplies
|
$ | 88,683 | $ | 65,857 | ||||
Work
in Progress
|
11,342 | 10,757 | ||||||
Finished
Goods
|
20,102 | 18,594 | ||||||
Total
Inventories
|
$ | 120,127 | $ | 95,208 |
Pension
Benefits
|
Other
Benefits
|
|||||||||||||||||||||||||||||||
Three
Months Ended
|
Nine
Months Ended
|
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||||||||||||||||
2008
|
2007
|
2008
|
2007
|
2008
|
2007
|
2008
|
2007
|
|||||||||||||||||||||||||
(Unaudited)
|
||||||||||||||||||||||||||||||||
(In
thousands)
|
||||||||||||||||||||||||||||||||
Service
cost
|
$ | 9,105 | $ | 7,630 | $ | 28,645 | $ | 28,092 | $ | 81 | $ | 88 | $ | 246 | $ | 212 | ||||||||||||||||
Interest
cost
|
37,856 | 38,177 | 115,506 | 111,653 | 1,416 | 1,532 | 4,259 | 4,480 | ||||||||||||||||||||||||
Expected
return on plan assets
|
(46,859 | ) | (42,641 | ) | (138,479 | ) | (128,699 | ) | - | - | - | - | ||||||||||||||||||||
Amortization
of prior service cost
|
517 | 665 | 2,054 | 2,317 | 18 | 20 | 56 | 53 | ||||||||||||||||||||||||
Amortization
of transition obligation
|
- | - | - | - | 71 | 75 | 218 | 205 | ||||||||||||||||||||||||
Recognized
net actuarial loss
|
7,193 | 13,091 | 25,008 | 34,200 | 363 | 427 | 1,091 | 1,287 | ||||||||||||||||||||||||
Net
periodic benefit cost
|
$ | 7,812 | $ | 16,922 | $ | 32,734 | $ | 47,563 | $ | 1,949 | $ | 2,142 | $ | 5,870 | $ | 6,237 |
·
|
The
B&W Parties would be provided releases from each of the
“Apollo/Parks Township Releasors,” as that term will be defined in the
final settlement agreement generally to mean the existing claimants in the
Hall Litigation, including full and complete releases from each of the
Apollo/Parks Township Releasors asserting personal injury claims
and property damage releases from each of the Apollo/Parks
Township Releasors asserting property damage only
claims;
|
·
|
The
B&W Parties would make a $52.5 million cash payment to the
Apollo/Parks Township Releasors after certain conditions precedent to such
payment, as set forth in the final written settlement agreement, have been
satisfied; and
|
·
|
The
B&W Parties would retain all insurance rights and may pursue their
insurers to collect any of the amounts paid in
settlement.
|
·
|
ARCO
would assign to B&W PGG its rights to recover insurance
proceeds/amounts arising out of the claims alleged in the Hall Litigation
in the amount of not less than $17,500,000, which amount would increase if
the total ARCO insurance proceeds recovered exceed $30
million;
|
·
|
ARCO
would retain its rights to recover insurance proceeds/amounts arising out
of the claims alleged in the Hall Litigation in the amount of not less
than $12,500,000, which amount would increase if the total ARCO insurance
proceeds recovered exceed $30 million;
and
|
·
|
The
parties would dismiss with prejudice and release all claims between
B&W PGG and ARCO that arise out of the present claims of the
Apollo/Parks Township Releasors; any other claims between ARCO and B&W
PGG are preserved and are unaffected by the proposed
agreement.
|
·
|
performance-related
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.
|
Compensation
|
Tax
|
Net
|
||||||||||
Expense
|
Benefit
|
Impact
|
||||||||||
(Unaudited)
|
||||||||||||
(In
thousands)
|
||||||||||||
Three
Months Ended September 30, 2008
|
||||||||||||
Stock
Options
|
$ | 14 | $ | (5 | ) | $ | 9 | |||||
Restricted
Stock
|
1,127 | (305 | ) | 822 | ||||||||
Performance
Shares
|
8,084 | (2,578 | ) | 5,506 | ||||||||
Performance
and Deferred Stock Units
|
(37 | ) | 14 | (23 | ) | |||||||
Total
|
$ | 9,188 | $ | (2,874 | ) | $ | 6,314 | |||||
Three
Months Ended September 30, 2007
|
||||||||||||
Stock
Options
|
$ | 660 | $ | (139 | ) | $ | 521 | |||||
Restricted
Stock
|
35 | - | 35 | |||||||||
Performance
Shares
|
6,448 | (2,035 | ) | 4,413 | ||||||||
Performance
and Deferred Stock Units
|
1,618 | (520 | ) | 1,098 | ||||||||
Total
|
$ | 8,761 | $ | (2,694 | ) | $ | 6,067 | |||||
Nine
Months Ended September 30, 2008
|
||||||||||||
Stock
Options
|
$ | 780 | $ | (239 | ) | $ | 541 | |||||
Restricted
Stock
|
3,343 | (691 | ) | 2,652 | ||||||||
Performance
Shares
|
26,429 | (8,488 | ) | 17,941 | ||||||||
Performance
and Deferred Stock Units
|
3,060 | (1,006 | ) | 2,054 | ||||||||
Total
|
$ | 33,612 | $ | (10,424 | ) | $ | 23,188 | |||||
Nine
Months Ended September 30, 2007
|
||||||||||||
Stock
Options
|
$ | 2,157 | $ | (584 | ) | $ | 1,573 | |||||
Restricted
Stock
|
869 | (21 | ) | 848 | ||||||||
Performance
Shares
|
13,497 | (4,255 | ) | 9,242 | ||||||||
Performance
and Deferred Stock Units
|
4,877 | (1,563 | ) | 3,314 | ||||||||
Total
|
$ | 21,400 | $ | (6,423 | ) | $ | 14,977 |
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||
2008
|
2007
|
2008
|
2007
|
|||||||||||||
(Unaudited)
|
||||||||||||||||
(In
thousands, except per share amounts)
|
||||||||||||||||
Basic:
|
||||||||||||||||
Net
income for basic computation
|
$ | 85,571 | $ | 140,408 | $ | 386,300 | $ | 447,843 | ||||||||
Weighted
average common shares
|
227,441 | 224,481 | 226,645 | 222,945 | ||||||||||||
Basic
earnings per common share
|
$ | 0.38 | $ | 0.63 | $ | 1.70 | $ | 2.01 | ||||||||
Diluted:
|
||||||||||||||||
Net
income for diluted computation
|
$ | 85,571 | $ | 140,408 | $ | 386,300 | $ | 447,843 | ||||||||
Weighted
average common shares (basic)
|
227,441 | 224,481 | 226,645 | 222,945 | ||||||||||||
Effect
of dilutive securities:
|
||||||||||||||||
Stock
options, restricted stock and performance shares
|
3,023 | 4,385 | 3,683 | 5,458 | ||||||||||||
Adjusted
weighted average common shares and assumed exercises of stock options and
vesting of stock awards
|
230,464 | 228,866 | 230,328 | 228,403 | ||||||||||||
Diluted
earnings per common share
|
$ | 0.37 | $ | 0.61 | $ | 1.68 | $ | 1.96 |
Amortization
|
|||||
Amount
|
Period
|
||||
Unpatented
Technology
|
$ | 5,600 |
10
years
|
||
Customer
Relationship
|
$ | 2,600 |
10
years
|
||
Trade
Name
|
$ | 1,800 |
10
years
|
Amortization
|
|||||
Amount
|
Period
|
||||
Customer
Relationship
|
$ | 8,760 |
1.4-20
years
|
||
Trade
Name
|
$ | 250 |
25
years
|
||
Non-Compete
Agreement
|
$ | 240 |
3
years
|
|
CAUTIONARY
STATEMENT CONCERNING FORWARD-LOOKING
STATEMENTS
|
·
|
general
economic and business conditions and industry
trends;
|
·
|
general
developments in the industries in which we are
involved;
|
·
|
decisions
about offshore developments to be made by oil and gas
companies;
|
·
|
decisions
on spending by the U.S. Government and electric power generating
companies;
|
·
|
the
highly competitive nature of most of our
businesses;
|
·
|
cancellations
of and adjustments to backlog and the resulting impact from using backlog
as an indicator of future earnings;
|
·
|
the
ability of our suppliers to deliver raw materials in sufficient quantities
and in a timely manner;
|
·
|
our
ability to comply with covenants in our credit agreements and other debt
instruments and availability, terms and deployment of
capital;
|
·
|
the
continued availability of qualified
personnel;
|
·
|
the
operating risks normally incident to our lines of business, including the
potential impact of liquidated
damages;
|
·
|
changes
in, or our failure or inability to comply with, government
regulations;
|
·
|
adverse
outcomes from legal and regulatory
proceedings;
|
·
|
impact
of potential regional, national and/or global requirements to
significantly limit or reduce greenhouse gas emissions in the
future;
|
·
|
changes
in, and liabilities relating to, existing or future environmental
regulatory matters;
|
·
|
rapid
technological changes;
|
·
|
the
realization of deferred tax assets, including through a reorganization we
completed in December 2006;
|
·
|
the
consequences of significant changes in interest rates and currency
exchange rates;
|
·
|
difficulties
we may encounter in obtaining regulatory or other necessary approvals of
any strategic transactions;
|
·
|
the
risks of successfully integrating our
acquisitions;
|
·
|
social,
political and economic situations in foreign countries where we do
business, including countries in the Middle East and Asia Pacific and the
former Soviet Union;
|
·
|
the
possibilities of war, other armed conflicts or terrorist
attacks;
|
·
|
our
ability to obtain surety bonds, letters of credit and
financing;
|
·
|
our
ability to maintain builder’s risk, liability, property and other
insurance in amounts and on terms we consider adequate and at rates that
we consider economical;
|
·
|
the
aggregated risks retained in our insurance captives;
and
|
·
|
the
impact of the loss of certain insurance rights as part of the Chapter 11
Bankruptcy settlement.
|
Income
before
Provision for
Income
Taxes
|
Provision
for
(Benefit
from)
Income
Taxes
|
Effective
Tax Rate
|
||||||||||||||||||||||
For
the three months ended September 30,
|
||||||||||||||||||||||||
2008
|
2007
|
2008
|
2007
|
2008
|
2007
|
|||||||||||||||||||
(In
thousands)
|
(In
thousands)
|
|||||||||||||||||||||||
United
States
|
$ | 99,139 | $ | 66,333 | $ | (2,980 | ) | $ | 19,288 | (3.01 | %) | 29.08 | % | |||||||||||
Non-United
States
|
703 | 102,408 | 17,251 | 9,045 | 2453.91 | % | 8.83 | % | ||||||||||||||||
Total
|
$ | 99,842 | $ | 168,741 | $ | 14,271 | $ | 28,333 | 14.29 | % | 16.79 | % |
Income
before
Provision for
Income
Taxes
|
Provision
for
Income
Taxes
|
Effective
Tax Rate
|
||||||||||||||||||||||
For
the nine months ended September 30,
|
||||||||||||||||||||||||
2008
|
2007
|
2008
|
2007
|
2008
|
2007
|
|||||||||||||||||||
(In
thousands)
|
(In
thousands)
|
|||||||||||||||||||||||
United
States
|
$ | 281,105 | $ | 183,503 | $ | 59,369 | $ | 67,504 | 21.12 | % | 36.79 | % | ||||||||||||
Non-United
States
|
223,448 | 367,847 | 58,884 | 36,003 | 26.35 | % | 9.79 | % | ||||||||||||||||
Total
|
$ | 504,553 | $ | 551,350 | $ | 118,253 | $ | 103,507 | 23.44 | % | 18.77 | % |
September
30,
|
December
31,
|
|||||||
2008
|
2007
|
|||||||
(Unaudited)
|
||||||||
(In
millions)
|
||||||||
Offshore
Oil and Gas Construction
|
$ | 4,956 | $ | 4,753 | ||||
Government
Operations
|
1,642 | 1,791 | ||||||
Power
Generation Systems
|
2,834 | 3,276 | ||||||
Total
Backlog
|
$ | 9,432 | $ | 9,820 |
Q4 2008 |
2009
|
Thereafter
|
||||||||||
(Unaudited)
|
||||||||||||
(In
approximate millions)
|
||||||||||||
Offshore
Oil and Gas Construction
|
$ | 850 | $ | 2,500 | $ | 1,600 | ||||||
Government
Operations
|
150 | 600 | 800 | |||||||||
Power
Generation Systems
|
500 | 1,100 | 1,200 | |||||||||
Total
Backlog
|
$ | 1,500 | $ | 4,200 | $ | 3,600 |
|
|
*
Incorporated
by reference to the filing
indicated.
|
McDERMOTT
INTERNATIONAL, INC.
|
||
/s/
Michael S. Taff
|
||
By:
|
Michael
S. Taff
|
|
Senior
Vice President and Chief Financial Officer
|
||
(Principal
Financial Officer and Duly Authorized
|
||
Representative)
|
||
/s/
Dennis S. Baldwin
|
||
By:
|
Dennis
S. Baldwin
|
|
Vice
President and Chief Accounting Officer
|
||
(Principal
Accounting Officer and Duly Authorized
|
||
Representative)
|
||
November
5, 2008
|
Exhibit
Number
|
Description
|
3.1
|
McDermott
International, Inc.'s Amended and Restated Articles of
Incorporation.
|
3.2*
|
McDermott
International, Inc.’s Amended and Restated By-Laws (incorporated by
reference to Exhibit 3.1 to McDermott International, Inc.'s Current Report
on Form 8-K dated May 3, 2006 (File No. 1-08430)).
|
3.3*
|
Amended
and Restated Certificate of Designation of Series D Participating
Preferred Stock (incorporated by reference to Exhibit 3.1 to McDermott
International, Inc.’s Quarterly Report on Form 10-Q for the quarter ended
September 30, 2001 (File No. 1-08430)).
|
10.1*
|
Separation
Agreement dated as of September 30, 2008 by and between McDermott
incorporated and Bruce W. Wilkinson (incorporated by reference to Exhibit
10.1 to McDermott International, Inc.’s Current Report on Form 8-K dated
September 20, 2008 (File No. 1-08430)).
|
10.2*
|
Consultancy
Agreement dated as of October 1, 2008 by and between McDermott
Incorporated and Bruce W. Wilkinson (incorporated by reference to Exhibit
10.2 to McDermott International, Inc.’s Current report on Form 8-K dated
September 30, 2008 (File No. 1-08430)).
|
10.3
|
Form
of Change-In-Control Agreement to be entered into between McDermott
International, Inc. and John A. Fees.
|
10.4
|
Form
of Change-In-Control Agreement to be entered into between McDermott
International, Inc. and several of its executive
officers.
|
10.5
|
McDermott
International, Inc. Amended and restated Supplemental Executive Retirement
Plan.
|
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.
|
1.
|
I
have reviewed this quarterly report on Form 10-Q of McDermott
International, Inc. for the quarterly period ended September 30,
2008;
|
2.
|
Based
on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
|
3.
|
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
report;
|
4.
|
The
registrant’s other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and
have:
|
a.
|
designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
|
b.
|
designed
such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
|
c.
|
evaluated
the effectiveness of the registrant’s disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation;
and
|
d.
|
disclosed
in this report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s most recent
fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial
reporting; and
|
5.
|
The
registrant’s other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting,
to the registrant’s auditors and the audit committee of the registrant’s
board of directors (or persons performing the equivalent
functions):
|
a.
|
all
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information;
and
|
b.
|
any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant’s internal control
over financial reporting.
|
1.
|
I
have reviewed this quarterly report on Form 10-Q of McDermott
International, Inc. for the quarterly period ended September 30,
2008;
|
2.
|
Based
on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
|
3.
|
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
report;
|
4.
|
The
registrant’s other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and
have:
|
a.
|
designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
|
b.
|
designed
such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
|
c.
|
evaluated
the effectiveness of the registrant’s disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation;
and
|
d.
|
disclosed
in this report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s most recent
fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial
reporting; and
|
5.
|
The
registrant’s other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting,
to the registrant’s auditors and the audit committee of the registrant’s
board of directors (or persons performing the equivalent
functions):
|
a.
|
all
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information;
and
|
b.
|
any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant’s internal control
over financial reporting.
|
|
(1)
|
the
Company’s Quarterly Report on Form 10-Q for the quarter ended September
30, 2008 (the “Report”) fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934;
and
|
|
(2)
|
information
contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the
Company.
|
Dated: November
5, 2008
|
/s/
John A. Fees
|
John
A. Fees
|
|
Chief
Executive Officer
|
|
(1)
|
the
Company’s Quarterly Report on Form 10-Q for the quarter ended September
30, 2008 (the “Report”) fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934;
and
|
|
(2)
|
information
contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the
Company.
|
Dated: November
5, 2008
|
/s/
Michael S. Taff
|
Michael
S. Taff
|
|
Senior
Vice President and Chief Financial
Officer
|
I.
|
Obligations
of the Company Upon Termination of Executive After Change In
Control.
|
(a)
|
Pay
to the Executive within thirty days after the date of termination of
Executive’s employment (or such earlier time as may be required by law)
the Accrued Benefits;
|
(b)
|
In
the event that a bonus is paid after the date of Executive’s termination
of employment under the Company’s Executive Incentive Compensation Plan
(“EICP”) for the year prior to the year in which the termination takes
place (the “Measurement Period”), pay to the Executive in a lump sum, at
the same time such bonus is paid to other EICP participants, a cash bonus
equal to the product of the multiplier used for Executive’s position
during the Measurement Period and Executive’s annual base salary for
the Measurement Period.
|
(c)
|
Pay
to Executive in a lump sum in cash within thirty days after the date of
termination of Executive’s employment a payment equal to the product of
Executive’s target bonus under EICP as in effect immediately prior to the
date of termination and a fraction, the numerator of which is the number
of days that have elapsed in the year in which the termination takes place
through the date of termination of Executive’s employment and the
denominator of which is 365.
|
(d)
|
Pay
to Executive in a lump sum in cash as soon as administratively practicable
after the date of termination of Executive’s employment 299% of the sum of
(1) Executive’s annual base salary as in effect immediately prior to the
date of termination of Executive’s employment, and (2) Executive’s target
bonus under EICP as in effect immediately prior to the date of
termination.
|
(e)
|
Pay
to Executive in a lump sum in cash within thirty days after the date of
termination of Executive’s employment a payment equal to two times the
full annual cost of coverage for medical, dental and vision benefits
provided to Executive and Executive’s covered dependents by Company for
the year in which Executive’s termination takes
place.
|
(f)
|
In
the event that it is determined that any payment or distribution of any
type to or for the benefit of the Executive made by the Company, by any of
its affiliates, by any person who acquires ownership or effective control
or ownership of a substantial portion of the Company’s assets (within the
meaning of section 280G of the Internal Revenue Code of 1986, as amended,
and the regulations thereunder (the “Code”)) or by any affiliate of such
person, whether paid or payable or distributed or distributable pursuant
to the terms of this Agreement or otherwise (the “Total Payments”) would
be subject to the excise tax imposed by Section 4999 of the Code (the
“Excise Tax”), then the Executive shall be entitled to receive an
additional payment (an “Excise Tax Restoration Payment”) in an amount that
shall fund the payment by the Executive of any Excise Tax on the Total
Payments as well as all income taxes imposed on the Excise Tax Restoration
Payment, and any Excise Tax imposed on the Excise Tax Restoration
Payment.
|
II.
|
Participation
In Other Company Programs.
|
III.
|
Confidential
and Proprietary Information.
|
IV.
|
Notices.
|
V.
|
Governing
Law.
|
VI.
|
Successors
and Assigns.
|
(a)
|
This
Agreement is personal to Executive and, without the prior written consent
of the Company, shall not be assignable by Executive otherwise than by
will or the laws of descent and
distribution.
|
(b)
|
This
Agreement shall be binding upon and shall inure to the benefit of the
Company and its successors and
assigns.
|
(c)
|
The
Company will require that any successor to all or substantially all of its
business and/or assets (whether such successor acquires such business
and/or assets directly or indirectly, and whether by purchase, merger,
consolidation or otherwise) expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would
be required to perform it if no such succession had taken
place. As used in this Agreement, “Company” shall mean the
Company as herein defined and any successor to its business and/or
assets.
|
VII.
|
Employment
by Subsidiaries.
|
VIII.
|
Severability.
|
IX.
|
Entire
Agreement; Amendment.
|
X.
|
Miscellaneous.
|
(a)
|
The
captions and headings of this Agreement are not part of the provisions
hereof and shall have no force or
effect.
|
(b)
|
The
Company shall be entitled to withhold from any amounts payable under this
Agreement such Federal, state, local, foreign or excise taxes as shall be
required or permitted to be withheld pursuant to any applicable law or
regulation.
|
(c)
|
Executive’s
or the Company’s failure to insist upon strict compliance with any
provision of this Agreement or the failure to assert any right Executive
or the Company may have hereunder, including, without limitation, the
right of Executive to terminate employment for Good Reason pursuant to
paragraph (g) of Section XII of this Agreement, shall not be deemed to be
a waiver of such provision or right or any other provision or right of
this Agreement.
|
(d)
|
Executive
and the Company acknowledge that, except as may otherwise be provided
under any other written agreement between Executive and the Company, the
employment of Executive by the Company is “at will” and, subject to the
last sentence of paragraph (f) of Section XII hereof, Executive’s
employment may be terminated by either Executive or the Company at any
time prior to the Effective Date of a Change In Control, in which case
this Agreement shall terminate as provided in Section XI below and
Executive shall have no further rights under this
Agreement.
|
(e)
|
For
purposes of this Agreement, the date of termination of Executive’s
employment shall be: (i) if Executive’s employment is terminated by the
Company for Cause, the date on which the Company delivers to Executive the
resolution referred to in the last sentence of Section XII, paragraph (c),
or, with respect to a termination under Section XII, paragraph (c)(iii),
the date on which the Company notifies Executive of such termination, (ii)
if Executive’s employment is terminated by the Company because of
Executive’s Disability or for a reason other than Cause or Executive’s
death or Disability, the date on which the Company notifies Executive of
such termination, (iii) if executive’s employment is terminated by
Executive for Good Reason, the date on which Executive notifies the
Company of such termination (after having given the Company notice and a
thirty-day cure period), or (iv) if Executive’s employment is terminated
by reason of death, the date of death of
executive.
|
(f)
|
The
Company may terminate this Agreement at any time prior to a Change In
Control upon giving Executive written notice of such termination at least
thirty days prior to the date of termination if either of the following
circumstances take place: (i) Executive’s position with the Company is
changed so that he ceases to be an officer of the Company, or (ii)
Executive ceases to be a fulltime employee; provided that if a Change In
Control is announced or occurs during such thirty-day period, the
termination shall not be effective.
|
(g)
|
This
Agreement may be executed in two counterparts, each of which shall be
deemed an original and together shall constitute one and the same
agreement, with one counterpart being delivered to each party
hereto.
|
(h)
|
In
the event the Executive’s employment is terminated following the Effective
Date of a Change In Control and before the one-year anniversary of the
Effective Date of a Change In Control (i) by the Company for Cause or an a
result of Executive’s death or disability, or (ii) by Executive without
Good Reason, Executive shall not be entitled to the payments described in
Section 1 hereof.
|
XI.
|
Term.
|
XII.
|
Definitions.
|
(a)
|
“Accrued
Benefits” shall mean:
|
|
(i)
|
Any
portion of Executive’s Annual Base Salary earned through the date of
termination of Executive’s employment and not yet
paid;
|
(ii)
|
Reimbursement
for any and all amounts advanced in connection with Executive’s employment
for reasonable and necessary expenses incurred by Executive through the
date of termination of Executive’s employment in accordance with the
Company’s policies and procedures on reimbursement of
expenses;
|
(iii)
|
Any
earned vacation pay not theretofore used or paid in accordance with the
Company’s policy for payment of earned and unused vacation time;
and
|
(iv)
|
All
other payments and benefits to which Executive may be entitled under the
terms of any applicable compensation arrangement or benefit plan or
program of the Company that do not specify the time of distribution;
provided that Accrued Benefits shall not include any entitlement to
severance under any severance policy of the Company generally applicable
to the salaried employees of the
Company.
|
(b)
|
“Annual
Base Salary” shall mean Executive’s annual rate of pay excluding all other
elements of compensation such as, without limitation, bonuses,
perquisites, expatriate or hardship premiums, restricted stock awards,
stock options and retirement and welfare
benefits.
|
(c)
|
“Cause”
shall mean:
|
|
(i)
|
the
willful and continued failure of Executive to perform substantially
his/her duties with the Company (occasioned by reason other than physical
or mental illness or disability of Executive) after a written demand for
substantial performance is delivered to Executive by the Compensation
Committee of the Board or the Chief Executive Officer of the Company which
specifically identifies the manner in which the Compensation Committee of
the Board or the Chief Executive Officer believes that Executive has not
substantially performed his/her duties, after which Executive shall have
thirty days to defend or remedy such failure to substantially perform
his/her duties:
|
(ii)
|
the
willful engaging by Executive in illegal conduct or gross misconduct which
is materially and demonstrably injurious to the Company;
or
|
(iii)
|
the
conviction of Executive with no further possibility of appeal or, or plea
of nolo contendere by Executive to, any
felony.
|
(d)
|
“Change
In Control” shall be deemed to occur
if:
|
|
(i)
|
When
any “person” or “group” of persons (as such terms are used in §13 and 14
of the Securities Exchange Act of 1934, as amended from time to time (the
“Exchange Act”)), other than the Company or any employee benefit plan
sponsored by the Company, becomes the “beneficial owner” (as such term is
used in §13 of the Exchange Act) of 30 percent or more of the total number
of the Company’s common shares at the time outstanding;
or
|
(ii)
|
The
shareholders of the Company approve: a) a merger or consolidation of the
Company, with any other corporation, other than a merger or consolidation
which would result in the voting securities of the Company outstanding
immediately prior thereto, continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least fifty percent (50%) of the combined voting
power of the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation, or b) the
shareholders of the Company approve a plan of complete liquidation of the
Company, or c) an agreement for the sale or disposition by the Company of
all or substantially all of the Company’s assets
or;
|
(iii)
|
During
any period of two (2) consecutive years (not including any period prior to
the execution of this Plan), individuals who at the beginning of such
period constitute the Board of the Company, and any new
Director of the Company (other than a Director designated by a Person who
has entered into an agreement with the Company to effect a transaction
described in Clauses (a) or (c) of this Section 2.5) whose election by the
Company’s Board or nomination for election by the stockholders of the
Company, was approved by a vote of at least two-thirds (2/3) of the
Directors of the Company’s Board, then still in office who either were
Directors thereof at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any reason
to constitute a majority thereof;
or
|
(iv)
|
Such
other circumstances as may be deemed by the Board in its sole discretion
to constitute a change in control of the
Company.
|
(e)
|
“Disability”
shall mean circumstances that qualify Executive for long-term disability
benefits under the Company’s Long-Term Disability Plan as in effect
immediately prior to the Change In
Control.
|
(f)
|
“Effective
Date” with respect to a Change In Control for purposes of this Agreement
shall be the earliest to occur of (i) the date on which the Company
receives a copy of a Schedule 13D disclosing beneficial ownership of
shares in accordance with Section XII, paragraph (d)(i) above; (ii) the
effective date of the consummation of a merger, consolidation, share
exchange or similar form of corporate transaction or liquidation or
reorganization in accordance with Section XII, paragraph (d)(ii); or (iii)
the date of the annual or special meeting of shareholders at which the
last director necessary to meet the requirements of Section XII, paragraph
(d)(iii) is elected. Upon the occurrence of the Effective Date
of a Change In Control, the Board of Directors or its designee shall,
within thirty days thereof, provide written notice to Executive of the
Effective Date of the Change In Control. Notwithstanding
anything to the contrary in this Agreement, if a Change In Control occurs
and if Executive’s employment with the Company is terminated within the
ninety days prior to the Effective Date of the Change In Control as
determined in accordance with the first sentence of this paragraph (f),
and if it is reasonably demonstrated by Executive that such termination of
employment was at the request of a third party who has taken steps
reasonably calculated to effect a Change In Control, or otherwise arose in
connection with or in anticipation of a Change In Control, then for all
purposes of this Agreement, the “Effective Date” of the Change In Control
shall mean the date immediately prior to the date of such termination of
employment.
|
(g)
|
“Good
Reason” shall mean:
|
|
(i)
|
the
assignment to Executive of duties that are materially inconsistent with
Executive’s position, authority, duties or responsibilities immediately
prior to the Change In Control, or any other action by the Company which
results in a material diminution in such position, authority, duties or
responsibilities;
|
(ii)
|
requiring
Executive, without his consent, to be based at any office or location
other than the office or location a which Executive was employed
immediately prior to the Change In Control; provided, however, that any
such relocation requests shall not be grounds for resignation with Good
Reason if such relocation is within a twenty-mile radius of the location
at which Executive was based prior to the Effective Date of a Change In
Control;
|
(iii)
|
a
reduction in Executive’s Annual Base Salary in effect immediately prior to
the Change In Control or a reduction in the target multiplier used to
calculate the annual bonus awarded to Executive below the target
multiplier used to calculate the bonus paid to Executive under the EICP
immediately prior to the Change In Control, provided, however that in
either case a reduction in the Annual Base Salary or the target bonus
multiplier shall not be considered “Good Reason” with respect to any year
for which such reduction is part of a reduction uniformly applicable to
all similarly situated employees;
|
(iv)
|
a
change in Executive’s eligibility to participate in incentive compensation
plans as in effect immediately prior to the Change In Control;
or
|
(v)
|
any
material breach of this Agreement by the Company, excluding for this
purpose an isolated, insubstantial or inadvertent action not taken in bad
faith and which is remedied by the Company promptly after receipt of
notice thereof given by Executive.
|
(h)
|
“Subsidiaries”
shall mean every, limited liability company, partnership or other entity
of which 50% or more of the total combined voting power of all classes of
voting securities or other equity interests is owned, directly or
indirectly, by McDermott International,
Inc.
|
XIII.
|
Arbitration
|
I.
|
Obligations
of the Company Upon Termination of Executive After Change In
Control.
|
(a)
|
Pay
to the Executive within thirty days after the date of termination of
Executive’s employment (or such earlier time as may be required by law)
the Accrued Benefits;
|
(b)
|
In
the event that a bonus is paid after the date of Executive’s termination
of employment under the Company’s Executive Incentive Compensation Plan
(“EICP”) for the year prior to the year in which the termination takes
place (the “Measurement Period”), pay to the Executive in a lump sum, at
the same time such bonus is paid to other EICP participants, a cash bonus
equal to the product of the multiplier used for Executive’s position
during the Measurement Period and Executive’s annual base salary for
the Measurement Period.
|
(c)
|
Pay
to Executive in a lump sum in cash within thirty days after the date of
termination of Executive’s employment a payment equal to the product of
Executive’s target bonus under EICP as in effect immediately prior to the
date of termination and a fraction, the numerator of which is the number
of days that have elapsed in the year in which the termination takes place
through the date of termination of Executive’s employment and the
denominator of which is 365.
|
(d)
|
Pay
to Executive in a lump sum in cash as soon as administratively practicable
after the date of termination of Executive’s employment 200% of the sum of
(1) Executive’s annual base salary as in effect immediately prior to the
date of termination of Executive’s employment, and (2) Executive’s target
bonus under EICP as in effect immediately prior to the date of
termination.
|
(e)
|
Pay
to Executive in a lump sum in cash within thirty days after the date of
termination of Executive’s employment a payment equal to two times the
full annual cost of coverage for medical, dental and vision benefits
provided to Executive and Executive’s covered dependents by Company for
the year in which Executive’s termination takes
place.
|
(f)
|
In
the event that it is determined that any payment or distribution of any
type to or for the benefit of the Executive made by the Company, by any of
its affiliates, by any person who acquires ownership or effective control
or ownership of a substantial portion of the Company’s assets (within the
meaning of section 280G of the Internal Revenue Code of 1986, as amended,
and the regulations thereunder (the “Code”)) or by any affiliate of such
person, whether paid or payable or distributed or distributable pursuant
to the terms of this Agreement or otherwise (the “Total Payments”) would
be subject to the excise tax imposed by Section 4999 of the Code (the
“Excise Tax”), then the Executive shall be entitled to receive an
additional payment (an “Excise Tax Restoration Payment”) in an amount that
shall fund the payment by the Executive of any Excise Tax on the Total
Payments as well as all income taxes imposed on the Excise Tax Restoration
Payment, and any Excise Tax imposed on the Excise Tax Restoration
Payment.
|
II.
|
Participation
In Other Company Programs.
|
III.
|
Confidential
and Proprietary Information.
|
IV.
|
Notices.
|
V.
|
Governing
Law.
|
VI.
|
Successors
and Assigns.
|
(a)
|
This
Agreement is personal to Executive and, without the prior written consent
of the Company, shall not be assignable by Executive otherwise than by
will or the laws of descent and
distribution.
|
(b)
|
This
Agreement shall be binding upon and shall inure to the benefit of the
Company and its successors and
assigns.
|
(c)
|
The
Company will require that any successor to all or substantially all of its
business and/or assets (whether such successor acquires such business
and/or assets directly or indirectly, and whether by purchase, merger,
consolidation or otherwise) expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would
be required to perform it if no such succession had taken
place. As used in this Agreement, “Company” shall mean the
Company as herein defined and any successor to its business and/or
assets.
|
VII.
|
Employment
by Subsidiaries.
|
VIII.
|
Severability.
|
IX.
|
Entire
Agreement; Amendment.
|
X.
|
Miscellaneous.
|
(a)
|
The
captions and headings of this Agreement are not part of the provisions
hereof and shall have no force or
effect.
|
(b)
|
The
Company shall be entitled to withhold from any amounts payable under this
Agreement such Federal, state, local, foreign or excise taxes as shall be
required or permitted to be withheld pursuant to any applicable law or
regulation.
|
(c)
|
Executive’s
or the Company’s failure to insist upon strict compliance with any
provision of this Agreement or the failure to assert any right Executive
or the Company may have hereunder, including, without limitation, the
right of Executive to terminate employment for Good Reason pursuant to
paragraph (g) of Section XII of this Agreement, shall not be deemed to be
a waiver of such provision or right or any other provision or right of
this Agreement.
|
(d)
|
Executive
and the Company acknowledge that, except as may otherwise be provided
under any other written agreement between Executive and the Company, the
employment of Executive by the Company is “at will” and, subject to the
last sentence of paragraph (f) of Section XII hereof, Executive’s
employment may be terminated by either Executive or the Company at any
time prior to the Effective Date of a Change In Control, in which case
this Agreement shall terminate as provided in Section XI below and
Executive shall have no further rights under this
Agreement.
|
(e)
|
For
purposes of this Agreement, the date of termination of Executive’s
employment shall be: (i) if Executive’s employment is terminated by the
Company for Cause, the date on which the Company delivers to Executive the
resolution referred to in the last sentence of Section XII, paragraph (c),
or, with respect to a termination under Section XII, paragraph (c)(iii),
the date on which the Company notifies Executive of such termination, (ii)
if Executive’s employment is terminated by the Company because of
Executive’s Disability or for a reason other than Cause or Executive’s
death or Disability, the date on which the Company notifies Executive of
such termination, (iii) if executive’s employment is terminated by
Executive for Good Reason, the date on which Executive notifies the
Company of such termination (after having given the Company notice and a
thirty-day cure period), or (iv) if Executive’s employment is terminated
by reason of death, the date of death of
executive.
|
(f)
|
The
Company may terminate this Agreement at any time prior to a Change In
Control upon giving Executive written notice of such termination at least
thirty days prior to the date of termination if either of the following
circumstances take place: (i) Executive’s position with the Company is
changed so that he ceases to be an officer of the Company, or (ii)
Executive ceases to be a fulltime employee; provided that if a Change In
Control is announced or occurs during such thirty-day period, the
termination shall not be effective.
|
(g)
|
This
Agreement may be executed in two counterparts, each of which shall be
deemed an original and together shall constitute one and the same
agreement, with one counterpart being delivered to each party
hereto.
|
(h)
|
In
the event the Executive’s employment is terminated following the Effective
Date of a Change In Control and before the one-year anniversary of the
Effective Date of a Change In Control (i) by the Company for Cause or an a
result of Executive’s death or disability, or (ii) by Executive without
Good Reason, Executive shall not be entitled to the payments described in
Section 1 hereof.
|
XI.
|
Term.
|
XII.
|
Definitions.
|
(a)
|
“Accrued
Benefits” shall mean:
|
|
(i)
|
Any
portion of Executive’s Annual Base Salary earned through the date of
termination of Executive’s employment and not yet
paid;
|
(ii)
|
Reimbursement
for any and all amounts advanced in connection with Executive’s employment
for reasonable and necessary expenses incurred by Executive through the
date of termination of Executive’s employment in accordance with the
Company’s policies and procedures on reimbursement of
expenses;
|
(iii)
|
Any
earned vacation pay not theretofore used or paid in accordance with the
Company’s policy for payment of earned and unused vacation time;
and
|
(iv)
|
All
other payments and benefits to which Executive may be entitled under the
terms of any applicable compensation arrangement or benefit plan or
program of the Company that do not specify the time of distribution;
provided that Accrued Benefits shall not include any entitlement to
severance under any severance policy of the Company generally applicable
to the salaried employees of the
Company.
|
(b)
|
“Annual
Base Salary” shall mean Executive’s annual rate of pay excluding all other
elements of compensation such as, without limitation, bonuses,
perquisites, expatriate or hardship premiums, restricted stock awards,
stock options and retirement and welfare
benefits.
|
(c)
|
“Cause”
shall mean:
|
|
(i)
|
the
willful and continued failure of Executive to perform substantially
his/her duties with the Company (occasioned by reason other than physical
or mental illness or disability of Executive) after a written demand for
substantial performance is delivered to Executive by the Compensation
Committee of the Board or the Chief Executive Officer of the Company which
specifically identifies the manner in which the Compensation Committee of
the Board or the Chief Executive Officer believes that Executive has not
substantially performed his/her duties, after which Executive shall have
thirty days to defend or remedy such failure to substantially perform
his/her duties:
|
(ii)
|
the
willful engaging by Executive in illegal conduct or gross misconduct which
is materially and demonstrably injurious to the Company;
or
|
(iii)
|
the
conviction of Executive with no further possibility of appeal or, or plea
of nolo contendere by Executive to, any
felony.
|
(d)
|
“Change
In Control” shall be deemed to occur
if:
|
|
(i)
|
When
any “person” or “group” of persons (as such terms are used in §13 and 14
of the Securities Exchange Act of 1934, as amended from time to time (the
“Exchange Act”)), other than the Company or any employee benefit plan
sponsored by the Company, becomes the “beneficial owner” (as such term is
used in §13 of the Exchange Act) of 30 percent or more of the total number
of the Company’s common shares at the time outstanding;
or
|
(ii)
|
The
shareholders of the Company approve: a) a merger or consolidation of the
Company, with any other corporation, other than a merger or consolidation
which would result in the voting securities of the Company outstanding
immediately prior thereto, continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least fifty percent (50%) of the combined voting
power of the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation, or b) the
shareholders of the Company approve a plan of complete liquidation of the
Company, or c) an agreement for the sale or disposition by the Company of
all or substantially all of the Company’s assets
or;
|
(iii)
|
During
any period of two (2) consecutive years (not including any period prior to
the execution of this Plan), individuals who at the beginning of such
period constitute the Board of the Company, and any new
Director of the Company (other than a Director designated by a Person who
has entered into an agreement with the Company to effect a transaction
described in Clauses (a) or (c) of this Section 2.5) whose election by the
Company’s Board or nomination for election by the stockholders of the
Company, was approved by a vote of at least two-thirds (2/3) of the
Directors of the Company’s Board, then still in office who either were
Directors thereof at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any reason
to constitute a majority thereof;
or
|
(iv)
|
Such
other circumstances as may be deemed by the Board in its sole discretion
to constitute a change in control of the
Company.
|
(e)
|
“Disability”
shall mean circumstances that qualify Executive for long-term disability
benefits under the Company’s Long-Term Disability Plan as in effect
immediately prior to the Change In
Control.
|
(f)
|
“Effective
Date” with respect to a Change In Control for purposes of this Agreement
shall be the earliest to occur of (i) the date on which the Company
receives a copy of a Schedule 13D disclosing beneficial ownership of
shares in accordance with Section XII, paragraph (d)(i) above; (ii) the
effective date of the consummation of a merger, consolidation, share
exchange or similar form of corporate transaction or liquidation or
reorganization in accordance with Section XII, paragraph (d)(ii); or (iii)
the date of the annual or special meeting of shareholders at which the
last director necessary to meet the requirements of Section XII, paragraph
(d)(iii) is elected. Upon the occurrence of the Effective Date
of a Change In Control, the Board of Directors or its designee shall,
within thirty days thereof, provide written notice to Executive of the
Effective Date of the Change In Control. Notwithstanding
anything to the contrary in this Agreement, if a Change In Control occurs
and if Executive’s employment with the Company is terminated within the
ninety days prior to the Effective Date of the Change In Control as
determined in accordance with the first sentence of this paragraph (f),
and if it is reasonably demonstrated by Executive that such termination of
employment was at the request of a third party who has taken steps
reasonably calculated to effect a Change In Control, or otherwise arose in
connection with or in anticipation of a Change In Control, then for all
purposes of this Agreement, the “Effective Date” of the Change In Control
shall mean the date immediately prior to the date of such termination of
employment.
|
(g)
|
“Good
Reason” shall mean:
|
|
(i)
|
the
assignment to Executive of duties that are materially inconsistent with
Executive’s position, authority, duties or responsibilities immediately
prior to the Change In Control, or any other action by the Company which
results in a material diminution in such position, authority, duties or
responsibilities;
|
(ii)
|
requiring
Executive, without his consent, to be based at any office or location
other than the office or location a which Executive was employed
immediately prior to the Change In Control; provided, however, that any
such relocation requests shall not be grounds for resignation with Good
Reason if such relocation is within a twenty-mile radius of the location
at which Executive was based prior to the Effective Date of a Change In
Control;
|
(iii)
|
a
reduction in Executive’s Annual Base Salary in effect immediately prior to
the Change In Control or a reduction in the target multiplier used to
calculate the annual bonus awarded to Executive below the target
multiplier used to calculate the bonus paid to Executive under the EICP
immediately prior to the Change In Control, provided, however that in
either case a reduction in the Annual Base Salary or the target bonus
multiplier shall not be considered “Good Reason” with respect to any year
for which such reduction is part of a reduction uniformly applicable to
all similarly situated employees;
|
(iv)
|
a
change in Executive’s eligibility to participate in incentive compensation
plans as in effect immediately prior to the Change In Control;
or
|
(v)
|
any
material breach of this Agreement by the Company, excluding for this
purpose an isolated, insubstantial or inadvertent action not taken in bad
faith and which is remedied by the Company promptly after receipt of
notice thereof given by Executive.
|
(h)
|
“Subsidiaries”
shall mean every, limited liability company, partnership or other entity
of which 50% or more of the total combined voting power of all classes of
voting securities or other equity interests is owned, directly or
indirectly, by McDermott International,
Inc.
|
XIII.
|
Arbitration
|
2.1
|
Account
.
Collectively,
means the Particpant's Company Account and the Particpant's Deferral
Account.
|
2.2
|
Account
Value
.
At any
given time, the sum of all amounts credited to the Participant's Account,
adjusted for any income, gain or loss and any payments attributable to
such account.
|
2.3
|
Beneficiary
.
The person
designated by each Participant, on a form provided by the Company for this
purpose, to receive the Participant's distribution under Article VI in the
event of the Participant's death prior to receiving complete payment of
his Account. In order to be effective under this Plan, any form
designating a Beneficiary must be delivered to the Committee before the
Participant's death. In the adsence of such an effective designation of a
Beneficiary , "Beneficiary" means the Participant's spouse, or if there is
no spouse on the date of the participant's death, the Participant's estate
or heirs at law if there is no administration of the Participant's
estate.
|
|
2.4
|
Board
.
The Board
of Directors of McDermott International, Inc. or the board of directors of
a company that is a successor to the
Company.
|
|
2.5
|
Bonus.
Any bonus paid to
a Participant under any plan, policy or program of the Company providing
for the payment of annual bonuses to employees or any extraordinary
payment paid to a Participant if such payment is designated by the
Committee to be a Bonus for purposes of this Plan. Bonus shall
not include any compensation under the 2002 B&W Performance Incentive
Plan.
|
|
(a)
|
the
overt and willful disobedience of orders or directives issued to a
Participant that are within his scope of duties, or any other willful and
continued failure of a Participant to perform substantially his duties
with the Company (occasioned by reason other than physical or mental
illness or disability) after a written demand for substantial performance
is delivered to the Participant by the Committee or the Chief Executive
Officer of the Company which specifically identifies the manner in which
the Committee or the Chief Executive Officer believes that the Participant
has not substantially performed his duties, after which the Participant
shall have thirty days to defend or remedy such failure to substantially
perform his duties;
|
|
(b)
|
the
willful engaging by the Participant in illegal conduct or gross misconduct
which is materially and demonstrably injurious to the Company;
or
|
|
(c)
|
the
conviction of the Participant with no further possibility of appeal or, or
plea of nolo contendere by the Participant to, any felony or crime of
falsehood.
|
(a)
|
any
person (other than a trustee or other fiduciary holding securities under
an Employee benefit plan of the Company or a corporation owned, directly
or indirectly, by the stockholders of the Company in substantially the
same proportions as their ownership of stock of the Company) is or becomes
the beneficial owner, directly or indirectly, of securities of the Company
representing thirty percent (30%) or more of the combined voting power of
the Company’s then outstanding voting
securities;
|
|
(b)
|
during
any period of two (2) consecutive years (not including any period prior to
the execution of this Plan), individuals who at the beginning of such
period constitute the Board of the Company, and any new director of the
Company (other than a director designated by a person who has entered into
an agreement with the Company to effect a transaction described in Clauses
(a) or (c) of this Paragraph (7) whose election by the Company’s Board or
nomination for election by the stockholders of the Company, was approved
by a vote of at least two-thirds (2/3) of the Directors of the Company’s
Board, then still in office who either were Directors thereof at the
beginning of the period or who election or nomination for election was
previously so approved, cease for any reason to constitute a majority
thereof:
|
|
(c)
|
the
shareholders of the Company approve a) a merger or consolidation of the
Company, with any other corporation, other than a merger or consolidation
which would result in the voting securities of the Company outstanding
immediately prior thereto, continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) at least fifty percent (50%) of the combined voting power of the
voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or b) the shareholders of
the Company approve a plan of complete liquidation of the Company, or c)
an agreement for the sale or disposition by the Company of all or
substantially all of the Company’s assets;
or
|
|
(d)
|
Such
other circumstances as may be deemed by the Board in its sole discretion
to constitute a change in control of the
Company.
|
|
2.9
|
Committee
.
The
Compensation Committee of the Board, or such other administrative
committee that is appointed by the Board to administer the
Plan.
|
|
2.10
|
Company.
McDermott
International, Inc. and except where the context clearly indicates
otherwise, shall include the Company’s subsidiaries and affiliates, as
well as any successor to any such
entities.
|
|
2.11
|
Company
Account
.
The
notional account maintained by the Committee reflecting each Participant’s
Company Contributions, together with any income, gain or loss and any
payments attributable to such
account.
|
|
2.12
|
Company
Contribution.
The total contributions credited
to a Participant’s Company Account for any one Plan Year pursuant to the
provisions of Section 4.1 or
4.2.
|
|
2.13
|
Compensation.
The salary, wages
and other cash remuneration received by a Participant during any Plan Year
or in respect of employment with the Company, including any contributions
made to a plan described in Sections 125, 132(f) or 401(k) of the Code
pursuant to a salary reduction agreement entered into between a
Participant and the Company and Bonuses, and amounts, if any, deferred by
the Participant under this Plan, but excluding cash payments under the
Company’s 2001 Directors and Officers Long Term Incentive Plan and any
successor plan thereto and other additional remuneration in any
form.
|
|
2.14
|
Deemed
Investments
.
With
respect to any Account, the hypothetical investment options with respect
to which such Account is deemed to be invested for purposes of determining
the value of such Account under this Plan, as selected from time to time
by the Committee in its discretion.
|
|
2.15
|
Deferral
Account.
The notional account maintained by the
Committee reflecting each Participant’s Deferral Contributions, together
with any income, gain or loss and any payments attributable to such
amount.
|
|
2.16
|
Deferral
Contribution.
Compensation that is deferred by a
Participant pursuant to Section 4.3 and credited to a Participant’s
Deferral Account pursuant to the provisions of Section
4.3.
|
|
2.17
|
Disabled
.
A
Participant will be considered Disabled if the Committee determines in its
sole discretion that the Participant is unable to engage in any
substantial gainful activity by reason of any medically determinable
physical or mental impairment that is expected to last for a continuous
period of not less than twelve (12)
months.
|
|
2.18
|
Eligible
Employee
.
The
Company’s CEO and any officers of the Company and its subsidiaries and
affiliates.
|
|
2.19
|
ERISA
.
The
Employee Retirement Income Security Act of 1974, as
amended.
|
|
2.21
|
Participant
.
An Eligible
Employee who has been selected by the Committee as a Participant in the
Plan until such Eligible Employee ceases to be a Participant in accordance
with Article III of the Plan.
|
|
2.22
|
Plan
Year
.
The
twelve-consecutive month period commencing January 1 of each
year.
|
|
2.23
|
Retirement.
Separation
from Service with the Company on or after the first of the calendar month
following the Participant’s attainment of the age of
65.
|
|
2.24
|
Separation
from Service
.
A
Separation from Service occurs on the date a Participant dies, retires or
otherwise has a termination of employment with the Company. A
termination of employment occurs on the date after which the Participant
and the Company reasonably anticipate that no further services will be
performed by the Participant or that the level of bona fide services
reasonably anticipated to be performed after such date will permanently
decrease to 49% or less of the average level of bona fide services
provided in the immediately preceding thirty-six
months.
|
|
2.25
|
Specified
Person
.
Specified
Person shall have the meaning set forth in Code Section 409A(a)(2)(B)(i)
and regulations and ruling promulgated
thereunder.
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2.26
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Unforeseeable
Emergency
.
A severe
financial hardship to the Participant resulting from an illness or
accident of the Participant, the Participant’s spouse, the Participant’s
Beneficiary, or the Participant’s dependent (as defined in Section 409A of
the Code); loss of the Participant’s property due to casualty; or other
similar extraordinary and unforeseeable circumstances arising as a result
of events beyond the control of the Participant. Whether a
Participant is faced with an Unforeseeable Emergency is to be determined
by the Committee in its sole discretion, based on the relevant facts and
circumstances of each case. In any case, a distribution on
account of Unforeseeable Emergency may not exceed the amount necessary to
relieve the emergency, plus amounts necessary to pay taxes reasonably
anticipated as a result of the distribution, after taking into account the
extent that the emergency may be relieved through reimbursement or
compensation from insurance or otherwise, by liquidation of the
Participant’s assets, to the extent the liquidation of such assets would
not itself cause severe financial hardship, or by cessation of deferrals
under the Plan.
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2.27
|
Vested
Account
. The sum of the Participant’s vested Company
Account and the Participant’s Deferral
Account.
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|
2.28
|
Vested
Percentage
.
The
percentage as to which a Participant is vested in his or her Company
Account as determined under Sections 5.4 and
5.5.
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|
2.29
|
Years
of Participation
. The sum of whole Plan Years of
participation in the Plan as an active employee in continuous employment,
excluding fractional years.
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(b)
|
a
specific reference to the pertinent provisions of the Plan upon which the
denial is based;
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(c)
|
a
description of any additional material or information necessary for the
claimant to perfect his claim for benefits and an explanation of why such
material and information is necessary;
and
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(b)
|
imparting,
disclosing or appropriating proprietary information for himself or to or
for any other person, firm, corporation, association or entity for any
reason or purpose whatsoever, except if required by law or at the
Company’s direction;
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(c)
|
performing
any act or engaging in any course of conduct which has or may reasonably
have the effect of demeaning the name or business reputation of the
Company; or
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(d)
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providing
goods or services to or becoming an employee, owner, officer, agent,
consultant, advisor or director of any firm or person in any geographic
area which competes with the Company in any phase of any of the business
lines or services offered by the Company as of the Participant’s
Retirement Date.
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