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|McDermott Announces Completion of Babcock & Wilcox Settlement Payments and Reorganization of U.S. Legal Entities|
|HOUSTON, Dec 27, 2006 (BUSINESS WIRE) -- McDermott International, Inc. (NYSE:MDR) and its subsidiaries
("McDermott" or the "Company") announced today that the Company has
completed ahead of schedule its remaining financial obligations it was
required to make under The Babcock & Wilcox Company's ("B&W") plan of
reorganization and settlement agreement to fund the B&W asbestos
trust. On December 21, 2006, McDermott paid from cash on hand the $355
million contingent payment right; and on December 1, 2006, the Company
retired the $250 million contingent promissory note utilizing proceeds
from B&W's credit facility. The contingent payment right and
contingent note vested on December 1, 2006 as a result of the Fairness
in Asbestos Injury Resolution Act of 2005, or other similar
legislation, failing to become law by November 30, 2006.
"By completing all payments owed to the asbestos trust ahead of schedule and during this calendar year, the Company accelerates the tax benefit associated with these payments," indicated Frank Kalman, Executive Vice President and Chief Financial Officer. "We currently expect to receive a cash tax refund of approximately $250 million, most likely in late 2007 or early 2008, subject to the resolution of open IRS tax audits. In addition, with the completion of these payments, the Company has satisfied all of its financial obligations to the B&W asbestos trust."
To retire the contingent promissory note, B&W used the term loan feature under its credit facility. The new term debt matures on February 22, 2012 and bears interest at the LIBOR plus 3.0%. McDermott may prepay this loan at any time without penalty. "We intend to retire this loan during 2007 if B&W is able to simultaneously increase its capacity under its revolving credit facility," continued Kalman. As a result of the contingent note retirement, McDermott expects it will incur a charge of approximately $5 million during the fourth quarter of 2006. Please refer to McDermott's Form 10-K for the year ended December 31, 2005 and its Form 10-Q for September 30, 2006, both filed with the U.S. Securities and Exchange Commission, for additional information regarding the B&W settlement agreement.
Additionally, McDermott announced today its intention to combine the Company's two groups of U.S. legal entities, McDermott Incorporated (the indirect parent company of B&W and BWX Technologies, Inc) and J. Ray McDermott Holdings, LLC. (currently, the holding company of J. Ray McDermott, S.A.'s U.S. operations) into a single U.S. consolidated group. This reorganization will return the Company to a more tax-efficient U.S. legal structure now that the B&W asbestos issues have been resolved. After completion of the proposed consolidation, the Company expects at least $275 million of net operating losses to be available to offset the combined future taxable income generated by the single consolidated group. McDermott expects that this combination will be completed by December 31, 2006 and that it will likely result in the reversal of a substantial portion of the Company's federal deferred tax asset valuation allowance, which will increase net income by the amount reversed.
McDermott International, Inc. is a leading worldwide energy services company. McDermott subsidiaries provide engineering, construction, installation, procurement, research, manufacturing, environmental systems, project management and facility management services to a variety of customers in the power and energy industries, including the U.S. Department of Energy. Additional information on McDermott can be obtained at www.mcdermott.com.
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 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, among other things, the amount and timing of tax refunds expected by the Company related to the Chapter 11 settlement payments; the Company's intention to retire the new term loan provided under the B&W credit facility and the expected timing thereof; the Company's expectation that its net operating losses should offset future taxable income of the consolidated group; the timing of the Company's completion of the proposed consolidation and the significance and timing of the federal deferred tax asset valuation allowance expected to be reversed. 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 based on various underlying assumptions and are subject to numerous uncertainties and risks, including without limitation adverse changes in the Company's liquidity and expected cash requirements for 2007 and beyond, delays in resolving open IRS tax audits, the Company's inability to obtain an increase in its revolving credit capacity of the B&W credit facility on favorable terms, the Company's inability to complete the contemplated U.S. consolidation by December 31, 2006 and the risk that the proposed consolidation may not withstand an audit or other challenge by the Internal Revenue Service. 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, 2005 and the Company's quarterly reports on Form 10-Q filed with the Securities and Exchange Commission.
SOURCE: McDermott International, Inc.
McDermott International, Inc., Houston