Exhibit 99.1
McDermott Announces Proposed Revision to the Babcock & Wilcox Company
Chapter 11 Negotiated Settlement Agreement
NEW ORLEANS--(BUSINESS WIRE)--Aug. 29, 2005--McDermott
International, Inc. (NYSE:MDR) and its affiliates ("McDermott" or the
"Company") announced today that the Company and certain of its
subsidiaries, together with the Asbestos Claimants' Committee ("ACC")
and the Legal Representative for Future Asbestos-Related Claimants
("FCR"), have agreed upon the terms of a revised settlement agreement
(the "Proposed Settlement Agreement") in the Chapter 11 bankruptcy
proceedings involving The Babcock & Wilcox Company and certain of its
subsidiaries ("B&W"). The Proposed Settlement Agreement will modify
the existing plan and proposed settlement agreement currently before
the District Court and recorded in McDermott's financial statements.
Key Terms and Aspects of the Proposed Settlement Agreement
-- McDermott will retain full ownership of B&W and its
subsidiaries following the effective date;
-- The new plan of reorganization reflecting the Proposed
Settlement Agreement must reach a final, non-appealable
effective date no later than February 22, 2006. If the new
plan of reorganization proposed herein is not effective by
that date, and is not extended by the Company, the ACC and the
FCR, the parties will return to the existing plan of
reorganization now pending approval in the District Court, as
currently recorded in McDermott's financial statements;
-- On the effective date, the Company will pay the Asbestos PI
Trust $350 million and will also assign the Asbestos PI Trust
all insurance rights which were to be assigned under the
previous proposed agreement;
-- Also on the effective date, B&W will issue a contingent
promissory note in the principal amount of $250 million, and
the Company will provide a contingent payment right in the
amount of $355 million, both of which will be subject to the
condition precedent that the Fairness in Asbestos Injury
Resolution Act of 2005 (Senate Bill 852), or other legislation
similar thereto (the "Fair Act"), has not been enacted and
made law on or before November 30, 2006 (the "Trigger Date").
If the Fair Act is not made law on or before the Trigger Date,
the Company will be required to satisfy the contingent payment
right and the contingent promissory note;
-- If the Fair Act has been enacted and made law on or prior to
the Trigger Date, and is not subject to a constitutional
challenge or other challenge to its validity by January 31,
2007, the contingent payment right will not vest and the note
will be fully cancelled, null and void, except as to a payment
by the Company of $25 million, due to the condition precedent
not having been satisfied;
-- If as of the Trigger Date the Fair Act has been enacted and
made law but is subject to legal challenge, payments under the
promissory note and contingent payment right will be suspended
until the legal challenge to the legislation is resolved by
final non-appealable judgment;
-- The $250 million contingent promissory note, subject to the
condition precedent, shall be secured by 100% of the B&W
shares, and guaranteed by McDermott and Babcock & Wilcox
Investment Company. If the condition precedent is met, the
promissory note will bear annual interest at the rate of 7%
from the Trigger Date, with a five-year term and level annual
principal payments commencing December 1, 2007;
-- The $355 million contingent payment right, subject to the
condition precedent, shall be payable within 180 days after
the Trigger Date, will accrue interest at 7% per annum from
the Trigger Date and will be secured by the B&W shares, until
the payment is funded;
-- We expect that the initial funding at the effective date of
$350 million and payment of the contingent payment right, if
necessary, shall be funded through available cash (including
cash available at B&W), the sale of Company shares, the
issuance of debt or use of available credit facilities;
-- All payments, whether of principal or interest, made by
McDermott or B&W under the Proposed Settlement Agreement and
related documents are anticipated to be fully tax deductible
for purposes of the consolidated U.S. Tax Return filed by
McDermott Incorporated;
-- In exchange for the above payments and assignments, B&W will
receive a full release from any and all B&W-related asbestos
claims, with those claims being channeled to the Asbestos PI
Trust. All non-debtor McDermott companies will receive a
release and protection from all asbestos claims derivative
from B&W's use of asbestos through Section 524(g) of the
Bankruptcy Code; and
-- If the Proposed Settlement Agreement becomes effective by
February 22, 2006, or any mutually agreed extended date, the
existing settlement arrangement will be modified, and
McDermott will not be required to issue the 4.75 million
shares of Company stock or the $92 million note contemplated
thereby.
The Proposed Settlement Agreement is subject to many conditions
and events including but not limited to the parties negotiating and
entering into acceptable definitive agreements, any approvals required
by applicable bankruptcy law, Company Board and shareholder approval,
resolution of all objections to the Proposed Settlement Agreement and
Court approval.
An indicative comparison of the existing settlement arrangements,
the current draft of the Fair Act and the Proposed Settlement
Agreement (both with and without passage of the Fair Act by the
Trigger Date) is attached to this press release as Exhibit A.
Commentary from Chairman & CEO
"This is a watershed event for McDermott, its stockholders,
employees and other stakeholders," said Bruce W. Wilkinson, Chairman
of the Board and Chief Executive Officer. "This agreement will ensure
that B&W will remain part of McDermott's future, thereby providing
continuity and stability for B&W employees and retirees, as well as
reassurance to all its customers who entrust it with large, multi-year
capital projects. It should help expedite the resolution of the
bankruptcy process, which has lasted over 5 1/2 years, and enable
compensation to finally flow to claimants who have suffered the impact
of asbestos-related diseases. The agreement will provide a time frame
and a mechanism so that if the current national asbestos legislation
is signed into law within the specified time period, this Proposed
Settlement Agreement will result in similar economics as if that
legislation had passed without the agreement. Much hard work by
numerous parties has brought us to where we are today. I wish to
personally thank them for their efforts that have resulted in this
Proposed Settlement Agreement. Further detailed documentation and hard
work remains ahead to finalize this effort in order to implement
everything contemplated on the agreed schedule. We will do everything
in our power to assure a successful and timely conclusion."
About The Babcock & Wilcox Company
Incorporated in 1881, The Babcock & Wilcox Company has been
supplying innovative solutions to the world's growing energy needs for
well over a century. B&W, known for its utility boilers and
environmental services, was acquired by McDermott in 1978, creating a
diversified energy services company. In February 2000, B&W and certain
subsidiaries filed for Chapter 11 bankruptcy protection as a result of
mounting asbestos-related claims. Since February 2000, B&W has
continued to be managed by McDermott; however its results of
operations have been deconsolidated from McDermott's financial
statements. The Company wrote off its remaining investment in B&W of
$224.7 million during the second quarter of 2002.
For the year ended December 31, 2004, on a deconsolidated basis,
B&W generated operating income of $115.6 million on revenues of $1.37
billion. B&W's net income for the year-ended December 31, 2004, was
$99.1 million, including the result of favorable tax valuation
allowance adjustment of $26.2 million. Beginning in 2005, McDermott
spun off the pension plan assets and liabilities associated with B&W's
portion of McDermott Incorporated's pension plan, creating a
B&W-sponsored pension plan. As a result of the creation of a
B&W-sponsored pension plan, beginning in 2005 expenses associated with
this plan are accounted for on B&W's financials. In 2004, McDermott
recorded approximately $38 million in pension expense associated with
B&W pension on McDermott's income statement. At August 24, 2005, B&W
had unrestricted cash & cash equivalents of $352 million.
Conference Call to discuss Proposed Settlement Agreement
McDermott's management will host a conference call on Tuesday,
August 30, 2005, at 9:00 a.m. central time to discuss the Proposed
Settlement Agreement and answer questions. To participate in the live
call, the telephone number is 800-798-2864 with a password of
77297652. The call will also be available, both live and a replay, via
the Internet at www.mcdermott.com in the investor relations section of
the Web site.
About the Company
McDermott International, Inc. is a leading worldwide energy
services company. McDermott's subsidiaries provide engineering,
fabrication, installation, procurement, research, manufacturing,
environmental systems, project management and facility management
services to a variety of customers in the energy and power industries,
including the U.S. Department of Energy.
Forward-Looking Statements/Safe Harbor
In accordance with the Safe Harbor provisions of the Private
Securities Litigation Reform Act of 1995, McDermott International,
Inc. cautions that statements in this press release which are
forward-looking and which provide other than historical information,
involve risks and uncertainties that may impact McDermott's actual
results of operations. The forward-looking statements in this press
release include statements about the Proposed Settlement Agreement,
the expected financial and tax implications of that proposed
agreement, and the expected schedule for consummation of that proposed
agreement. Although McDermott's management believes that the
expectations reflected in those forward-looking statements are
reasonable, McDermott can give no assurance that those expectations
will prove to have been correct. Those statements are made by using
various underlying assumptions and are subject to numerous
uncertainties and risks, including the risk that the parties may not
be able to negotiate and enter into definitive agreements, or that one
or more of the required approvals may not be obtained by February 22,
2006. If one or more of these risks materialize, or if underlying
assumptions prove incorrect, actual results may vary materially from
those expected. For a more complete discussion of these risk factors,
please see McDermott's annual report on Form 10-K for the year ended
December 31, 2004, and its reports on Form 10-Q which are filed
quarterly.
EXHIBIT A
McDERMOTT INTERNATIONAL, INC.
INDICATIVE COMPARISON OF VARIOUS
B&W BANKRUPTCY RESOLUTION ALTERNATIVES
Consideration Existing FAIR Act Proposed Proposed
paid, Benefits Settlement only, Settlement Settlement
received & with no Agmt, no Agmt, with
Liabilities Settlement FAIR Act by FAIR Act by
retained 11/30/06 11/30/06
- ----------------------------------------------------------------------
B&W business/stock Surrendered Retained Retained Retained
- ----------------------------------------------------------------------
B&W cash, assets & Surrendered Retained Retained Retained
liabilities (1)
- ----------------------------------------------------------------------
Insurance rights Surrendered Partially Surrendered Surrendered
Surrendered
- ----------------------------------------------------------------------
Gross amount of $0 $700 million $0 $0
estimated Fair
Act payments (2)
- ----------------------------------------------------------------------
Net present value $0 $335 million $0 $0
of est. Fair Act (NPV)
payments (7%
discount rate)
(2)
- ----------------------------------------------------------------------
Initial cash $350 million $350 million
payment $0 $0
- ----------------------------------------------------------------------
Note / contingent $92 million $0 $250 million $25 million
note issued
- ----------------------------------------------------------------------
Stock issued / (greater $0 $355 million $0
contingent than)
payment $90 million
- ----------------------------------------------------------------------
Estimated gross $64 million $236 million $334 million $131 million
tax benefits from
consideration
paid (at 35%)
- ----------------------------------------------------------------------
Future B&W None Contingent None None
asbestos on
liability viability
of national
trust
- ----------------------------------------------------------------------
Expected Date of Uncertain Uncertain By 2/22/06 By 2/22/06;
Consummation FAIR Act
Uncertain
- ----------------------------------------------------------------------
(1) B&W available cash as of August 24, 2005 was $352 million
(2) Estimated based upon current draft legislation of Fair Act
CONTACT: McDermott International, Inc., Houston
Jay Roueche, 281-870-5462
jroueche@mcdermott.com