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McDermott Provides Tax Basis Allocation Methodology Following B&W Spin-Off

08/04/2010

HOUSTON, Aug 04, 2010 (BUSINESS WIRE) --

McDermott International, Inc. (NYSE:MDR) ("McDermott" or the "Company") today provided information relating to tax basis allocation methodology for shareholders of McDermott following the Company's spin-off distribution of the common stock of The Babcock & Wilcox Company (NYSE:BWC) ("B&W").

Tax Basis Allocation Methodology

As a consequence of the spin-off, a shareholder must allocate the tax basis in its shares of McDermott common stock immediately before the spin-off among its shares of McDermott common stock and its newly received shares of B&W common stock (including any fractional share for which the shareholder received cash). The allocation of tax basis among shares of McDermott common stock and the shares of B&W common stock that a shareholder received in the spin-off (including any fractional share for which the shareholder received cash) is based on the relative fair market values of the McDermott stock and B&W stock immediately after the spin-off.

U.S. federal income tax law does not specify how to determine these relative fair market values. Fair market value generally is the price at which property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of the facts. For this purpose, the trading prices of McDermott common stock and B&W common stock on the New York Stock Exchange will be used, but it is uncertain which trading prices should be used for this purpose. The following are several alternative trading prices for determining the fair market values of the McDermott common stock and the B&W common stock, although other trading prices might be used:

  • The closing trading prices of the McDermott and B&W "when-issued" common stock as quoted on the NYSE Consolidated Transactions Reporting System on July 30, 2010, the last day of "when-issued" trading before the spin-off;
  • The opening trading prices of McDermott and B&W common stock as quoted on the NYSE Consolidated Transactions Reporting System on August 2, 2010, the first day of "regular way" trading for B&W common stock after the spin-off;
  • The closing trading prices of McDermott and B&W common stock as quoted on the NYSE Consolidated Transactions Reporting System on August 2, 2010, the first day of "regular way" trading for B&W common stock after the spin-off; and
  • The average of the high and low trading prices of McDermott and B&W common stock as quoted on the NYSE Consolidated Transactions Reporting System on August 2, 2010, the first day of "regular way" trading for B&W common stock after the spin-off.

A comparison of these alternatives is in the following tables, with an indicative example.

Trading Prices

Common
Stock

July 30
When-Issued
Closing Price

Aug. 2
Opening
Price

Aug. 2
Closing
Price

Aug. 2
Avg. of
High & Low
Price

McDermott $ 12.05 $ 12.56 $ 12.54 $ 12.73
B&W $ 22.75 $ 23.01 $ 23.15 $ 23.31
Tax Basis Allocation Percentages (1)

Common
Stock

July 30
When-Issued
Closing Price

Aug. 2
Opening
Price

Aug. 2
Closing
Price

Aug. 2
Avg. of
High &
Low Price

McDermott 51.44 % 52.19 % 52.00 % 52.19 %
B&W 48.56 % 47.81 % 48.00 % 47.81 %

(1) Determined by computing the ratio of (a) the per share trading price of McDermott or ½ of the per share trading price of B&W stock, as applicable, in the table above and (b) the sum of the per share trading price of McDermott stock and ½ of the per share trading price of B&W stock.

Indicative Example

Assumptions

Shares of McDermott owned before B&W spin-off: 1,000
Per share tax basis in McDermott shares owned before the B&W spin off: $10
Aggregate tax basis of McDermott shares before B&W spin-off: $10,000
Shares of B&W received in B&W spin-off: 500
Aggregate Tax Basis (2)

Common
Stock

July 30
When-Issued
Closing Price

Aug. 2
Opening
Price

Aug. 2
Closing
Price

Aug. 2
Avg. of
High &
Low Price

McDermott $ 5,144.08 $ 5,219.20 $ 5,200.08

$

5,219.44

B&W $ 4,855.92 $ 4,780.80 $ 4,799.92

$

4,780.56

(2) Determined by multiplying $10,000 by the applicable tax basis allocation percentage in the table above.

Per Share Tax Basis (3)

Common
Stock

July 30
When-Issued
Closing Price

Aug. 2
Opening
Price

Aug. 2
Closing
Price

Aug. 2
Avg. of
High & Low
Price

McDermott $ 5.144 $ 5.22 $ 5.20 $ 5.22
B&W $ 9.712 $ 9.56 $ 9.60 $ 9.56

(3) Determined, in the case of the McDermott stock, by dividing the aggregate tax basis allocable to the McDermott shares in the table above by 1,000 (the number of McDermott shares owned before the spin-off) and, in the case of the B&W stock, by dividing the aggregate tax basis allocable to the B&W shares in the table above by 500 (the number of B&W shares received in the spin-off).

This information is not a complete analysis of all of the potential U.S. federal income tax consequences relating to the spin-off of B&W or each shareholder's particular circumstances.McDermott stockholders are encouraged to consult their own tax advisors regarding the tax consequences of the spin-off in light of their specific circumstances.

This information does not apply to McDermott shareholders (i) who did not receive their B&W common stock in the spin-off on July 30, 2010, (ii) who were not record holders of McDermott common stock as of the close of business on July 9, 2010, (iii) who did not continuously hold their shares from the record date through the time of the spin-off, or (iv) who acquired blocks of McDermott common stock at different times and prices.

To comply with Internal Revenue Service Circular 230, you are hereby notified that this notice is not intended or written by McDermott to be used, and cannot be used, (i) for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or (ii) to promote, market or recommend to another party any transaction or matter addressed herein.

About McDermott

McDermott is a leading engineering, procurement, construction and installation ("EPCI") company focused on executing complex offshore oil and gas projects worldwide. Providing fully integrated EPCI services for upstream field developments, the Company delivers fixed and floating production facilities, pipelines and subsea systems from concept to commissioning. McDermott's customers include national and major energy companies. Operating in more than 20 countries across the Atlantic, Middle East and Asia Pacific, the Company's integrated resources include more than 16,000 employees and a diversified fleet of marine vessels, fabrication facilities and engineering offices. McDermott has served the energy industry since 1923. To learn more, please visit McDermott's Web site on the Internet at www.mcdermott.com

SOURCE: McDermott International, Inc.

McDermott International, Inc.
Jay Roueche or Robby Bellamy, 281-870-5011
Investor Relations & Corporate Communications
www.mcdermott.com
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