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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (date of earliest event reported): February 22, 2000
McDERMOTT INTERNATIONAL, INC.
(Exact Name of Registrant as Specified in Its Charter)
Republic of Panama 1-8430 72-0593134
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File No.) Identification No.)
1450 Poydras Street
New Orleans, Louisiana 70112-6050
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (504) 587-5400
Not Applicable
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(Former Name or Former Address, if Changed Since Last Report)
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ITEM 5. OTHER EVENTS
On February 22, 2000, McDermott International, Inc., a Panama
corporation, announced that its wholly owned subsidiary, The Babcock & Wilcox
Company ("B&W"), and certain of its subsidiaries, had on that day filed a
voluntary petition in the U.S. Bankruptcy Court for the Eastern District of
Louisiana in New Orleans (the "Bankruptcy Court") to reorganize under Chapter 11
of the U.S. Bankruptcy Code. B&W and these subsidiaries took this action as a
means to determine and comprehensively resolve their asbestos products
liability. Included in the filing are B&W and its subsidiaries Americon, Inc.,
Babcock & Wilcox Construction Co., Inc. and Diamond Power International, Inc.
B&W's and its subsidiaries' businesses remain solvent and strong and
they are committed to operating their businesses as normal, delivering products
and services as usual and pursuing new contracts and growth opportunities. To
ensure that it and its subsidiaries have the capital necessary to meet letter of
credit and cash needs to continue to operate their businesses, B&W has obtained
a commitment of up to $300 million in debtor-in-possession financing provided by
Citibank, N.A. and Salomon Smith Barney, members of Citigroup.
The foregoing summary does not purport to be complete and is qualified
in its entirety by reference to the press release attached hereto as Exhibit
99.1 and the Chapter 11 petition, motions and related pleadings and papers on
file with the Bankruptcy Court.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits.
Exhibit Number
99.1 McDermott International, Inc. Press Release dated February 22, 2000.
2
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant had duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
McDERMOTT INTERNATIONAL, INC.
By: /s/ JOHN T. NESSER, III
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Name: John T. Nesser, III
Title: Senior Vice President and
General Counsel and
Corporate Secretary
Date: February 28, 2000
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EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
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<S> <C>
99.1 McDermott International, Inc. Press Release dated February 22, 2000.
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Exhibit 99.1
FOR IMMEDIATE RELEASE
NEW ORLEANS - February 22, 2000 00-01
MCDERMOTT INTERNATIONAL, INC. ANNOUNCES THAT
BABCOCK & WILCOX SUBSIDIARY FILES VOLUNTARY PETITION FOR
CHAPTER 11 REORGANIZATION
o ONLY MEANS FOR B&W TO RESOLVE ASBESTOS LIABILITY CLAIMS
o B&W TO CONTINUE NORMAL OPERATIONS
o B&W RECEIVES COMMITMENT FOR $300 MILLION IN DIP FINANCING
o MCDERMOTT INTERNATIONAL, INC. AND SUBSIDIARIES RECEIVE $500 MILLION IN
ADDITIONAL FINANCING
o OTHER MCDERMOTT INTERNATIONAL, INC. SUBSIDIARIES NOT INCLUDED IN FILING
McDermott International, Inc. (NYSE: MDR) today announced that its wholly owned
subsidiary, The Babcock & Wilcox Company (B&W), and certain of B&W's
subsidiaries, filed a voluntary petition in the U.S. Bankruptcy Court for the
Eastern District of Louisiana in New Orleans to reorganize under Chapter 11 of
the U.S. Bankruptcy Code. B&W is taking this action because it offers the only
viable legal process by which it can seek to determine and comprehensively
resolve asbestos liability claims.
"Unfortunately, the other avenues through which we might reasonably resolve this
issue appear to have been closed," said Roger Tetrault, chairman of the board
and chief executive officer of McDermott International, Inc. "Historically it
has been B&W's practice to settle asbestos claims out of court. This has been a
reasonable and responsible approach for nearly 20 years, which minimized costs
to B&W and maximized payments to claimants. However, recent increases in
settlement demands from claimants, coupled with a lack of legislative relief
from the financial burden presented by the increased demands, have forced us to
reexamine that approach. The asbestos claims, in the context in which they are
now presented, represent a serious threat to B&W's future. This filing is the
only means available to resolve them."
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Included in the filing are The Babcock & Wilcox Company and its subsidiaries
Americon, Inc., The Babcock & Wilcox Construction Company, Inc. and Diamond
Power International, Inc. B&W Canada is not part of the filing; however, B&W has
requested that the Court issue an injunction staying asbestos suits from being
brought against B&W Canada. No other B&W subsidiary, nor any other McDermott
subsidiary, such as BWX Technologies, Hudson Products, the Delta companies,
McDermott Technology and J. Ray McDermott, is included in the filing.
To ensure that it has the capital necessary to meet letter of credit and cash
needs to continue to operate its business, B&W has obtained a commitment of up
to $300 million in debtor-in-possession (DIP) financing provided by Citibank,
N.A. and Salomon Smith Barney, members of Citigroup. B&W has requested, on an
expedited basis, Court approval of this financing package. McDermott
International, Inc. and certain of its other subsidiaries have obtained an
additional $500 million of financing provided by Citibank, N.A. and Salomon
Smith Barney, members of Citigroup, to ensure uninterrupted operations in the
balance of its operating segments. The additional financing consists of up to
$300 million at J. Ray McDermott and up to $200 million at McDermott
International, Inc.
"Our business remains solvent and strong. However, the recent increased demands
for settlement of asbestos claims represent a real threat to B&W's long-term
health unless we take this step now," said James F. Wood, president of B&W.
"Although it is not unusual for B&W to receive high initial settlement demands,
we generally have been successful in negotiating those demands to tolerable
levels. Recently, however, this has not been the case. As a result we are forced
to make this Chapter 11 filing.
"We expect that this filing will have little effect, if any, on our customers,
suppliers, employees or retirees. We are committed to operating the business as
normal, delivering products and services as usual and pursuing new contracts and
growth opportunities for our company and its subsidiaries," continued Wood.
Wood noted the outstanding contributions of the company's employees over the
years, and emphasized that B&W fully expects to continue to pay all employee
wages, salaries and benefits as usual. Retiree pension benefits are fully
protected from the claims of creditors. B&W also intends to pay for the
post-petition delivery of goods and services in the ordinary course of business.
B&W expects that the claims of trade creditors should be paid in full under its
plan of reorganization. B&W's DIP financing provides substantial assurance that
B&W can meet these obligations.
As part of a plan of reorganization to be filed at a later date, B&W intends to
establish a trust that will provide a process through which future asbestos
claims will be evaluated and resolved.
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Like many other companies, B&W was a purchaser of asbestos rather than a
manufacturer. The material was used many years ago in the power generation
industry as insulation to protect people and equipment from high temperatures
inside industrial, utility and marine boilers. The use of asbestos was specified
and encouraged by U.S. government agencies for decades. B&W utilized asbestos in
conformance with guidelines published by applicable regulatory bodies. Like many
other users of asbestos, B&W was unaware that its use of asbestos posed health
hazards. After government regulations imposed low exposure thresholds for
asbestos in the early 1970s, asbestos use by B&W and others in industry was
phased out.
B&W was acquired by McDermott in 1978. In 1982, B&W began to settle claims for
asbestos exposure. As of December 31, 1999, B&W had settled over 340,000
asbestos claims, with approximately another 45,000 claims outstanding and
presented for settlement. The total cost of settling claims since 1982 has been
over $1.6 billion, including payments to claimants, defense and legal costs, and
claims processing costs. The settlement costs were borne by both B&W and its
insurers.
In recent months, settlement demands from claimants' lawyers have spiked to
levels dramatically above the historical pattern. B&W's effort to negotiate the
increases down to tolerable levels has been unsuccessful, which has precipitated
today's filing.
"Recently, B&W saw a sharp increase in the price demanded by some claimants'
lawyers to settle asbestos claims against B&W. Those increases were not
justified by any change in the facts, the law, or in B&W's liability posture,
nor was the company offered any reasonable explanation for these increases by
the claimants' attorneys. Under these circumstances, this step is the only way
approved by the courts to determine B&W's total asbestos liability and to
resolve legitimate asbestos claims," said Wood. "A balance must be struck
between the legitimate rights of plaintiffs who were actually injured by
asbestos exposure, and who can establish that their injury was attributable to
B&W, and the interests of employees, shareholders and communities that have
suffered from this phenomenon."
The U.S. Supreme Court has on several occasions stated that the asbestos issue
requires legislative relief. In Ortiz et al. v. Fibreboard Corporation et al.
(1999), the Court stated that the "elephantine mass of asbestos cases...defies
customary judicial administration and calls out for national legislation." While
legislation has been introduced into Congress, no action has been concluded to
date. The Supreme Court has also observed that Chapter 11 - in contrast to class
actions or other traditional means of resolving mass claims in the legal system
- - offers the only viable legal means for companies seeking to settle and resolve
asbestos exposure claims.
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"We concur with the Supreme Court's position that there needs to be a reasonable
legislative solution to the asbestos issue, particularly since the current
targets of litigation are largely not manufacturers of asbestos, but customers
who were unaware of the hazards it presented," said Tetrault. "It is unfortunate
that such legislation has not been implemented in time to help B&W resolve its
particular situation."
Babcock & Wilcox is a subsidiary of McDermott International, Inc., a leading
worldwide energy services company. McDermott subsidiaries manufacture
steam-generating equipment, environmental equipment, and products for the U.S.
government. They also provide engineering and construction services for
industrial, utility, and hydrocarbon processing facilities, and to the offshore
oil and natural gas industry. More information about McDermott and Babcock &
Wilcox can be found on the company's web sites at www.mcdermott.com and
www.babcock.com. Statements in this release which express a belief, expectation
or intention, as well as those which are not historical fact, are forward
looking. They involve a number of risks and uncertainties which may cause actual
results to differ materially from such forward looking statements. These risks
and uncertainties include factors that are detailed from time to time in the
company's filings with the Securities and Exchange Commission.
# # #
INVESTOR RELATIONS MEDIA RELATIONS
Don Washington Pierre DeGruy
McDermott International, Inc. McDermott International, Inc
504-587-4080 504-587-6451
Sharyn McCaulley
Babcock & Wilcox
330-860-1326
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