team stern iag

Team Stern IAG Kapish Haldia Ador Michael Cristofi Joshua Cao Thomas Li October 26, 2013

I.  McDermott International

II.  Recent Performance

III.  Investment Thesis

A.  Strategic Transformation

B.  Strong Buyout Potential

C.  Liquidation Value

IV.  Understanding the Opportunity

V.  Valuation & Risks

Agenda

2

Executive Summary

•  Leading engineering & construction company

•  Transitioning to deep-water and subsea segments

•  New management with potential for buyout

•  Trades significantly below replacement value of assets

Pure-play offshore EPCI turnaround story Competitive advantage in attractive industry

Favorable risk-reward; strong downside protection Many near term catalysts to realize value

3

Source: Company filings, Wall Street research, Industry Journals

Bull: +63%

Base: +29%

Bear: -16% $5.00

$8.00

$11.00

$14.00

Oct-12 Oct-13 Oct-14 Oct-15

MDR Bull Base Bear

•  Ultra-deep offshore spend expected to grow at ~40%

CAGR through 2018

•  Comprehensive EPCI solutions provide economic moat

•  Global footprint and existing relations provide advantage

in biddings

Catalyst Calendar

Q3 Earnings Release 4-Nov-13

New CEO Takes Over Dec-13

Chevron Gendalo Bid FYE2013

Project Ichthys Completion 2014

60%+ Backlog Realization 2014

I. McDermott International

4

Section Slide 4


•  E&C companies design, engineer, construct, and install rigs and support systems

•  Contract large, holistic projects for national and major clients

Upstream Support – Rig Construction Upstream – Drilling and Exploration

Midstream – Transport Downstream – Oil Refining

•  Midstream players (e.g. Frontline) lease or sell ships, rail, barges, and trucks to transport oil

•  Includes pipeline transportation, logistics and technology

5

•  Refining companies (e.g. Shell) process crude oil to gasoline, kerosene and other products

•  Bring many of the products directly to market

•  Drilling and production companies purchase rigs and support systems

•  Include large national players and oil majors (Shell, Exxon, BP)

Source: Company filings, Wall Street research, Industry Journals

$110bn $320bn

$30bn $731bn

National Oil Companies


•  Oil rig construction & services firm with $1.7bn mkt cap

•  Share price: $7.41 | 52 wk range: $6.68 – $13.48

•  $5.1bn backlog provides revenue visibility

–  Bids & change orders outstanding: $8.1bn

–  Identified target projects: $9.7bn

•  $3.2bn total asset base

•  Net Cash: $401mm

–  $2.22/share in cash

•  $950mm borrowing capacity

•  ~7-11% offshore market share (since 2010)

Key Facts Global business with multi-local footprint

Diversified & well balanced customer base

6

International Majors

Source: Company filings, Wall Street research. Market data as of October 21, 2013.


•  Shift to ultra-deep water projects

•  Growth in Brazil, North Sea and West Africa

•  Scale will matter more as projects get bigger

–  Consolidation in industry to achieve scale

E&C growing in size & scale in offshore space MDR well positioned to capitalize on industry growth

•  2015: 6 out of 14 vessels are ultra-deep

•  Presence largely in U.S. GOM, Mid East & Pacific

•  Achieving scale and global footprint through JVs

–  FloaTEC: JV with Keppel includes Brazil

Offshore drilling growing rapidly in key MDR regions Ultra-deep segment fastest growing in offshore

7

in M illions USD 2012 2016E CAGR 09-12 CAGR 12-15

Total Offshore $78,301 $160,622 11% 20%

Shallow-water $22,322 $30,635 6% 6%

Deep-Water $23,329 $29,759 8% 4%

Ultra-Deep $15,662 $56,807 23% 39%

Total Onshore $155,596 $201,024 26% 6%

in M illions USD Country 2012 2017E CAGR '17

Angola $8,887 $16,269 13%Nigeria $3,501 $10,344 24%

Azerbaijan $3,926 $7,791 15%UAE $2,117 $1,448 -7%

Brazil Brazil $17,888 $30,522 11%Norway $4,295 $15,649 30%

UK $1,874 $6,319 28%US $7,163 $21,178 24%

Canada $114 $3,377 97%

West Africa

Middle East

North Sea

North America

Source: Company filings, Wall Street research, industry journals,, KBSM.

II. Recent Performance

8

Section Slide 8

II. Recent Performance While the E&C industry has seen explosive growth since 2008, MDR’s performance has lagged

9

Source: CapitalIQ. Market data as of October 21, 2013. Peer Index includes Technip, Subsea 7, and Saipem.

MDR (41%)

Peers: 254%

S&P: 99%

50%

150%

250%

350%

450%

Oct-08 Oct-09 Oct-10 Oct-11 Oct-12 Oct-13

MDR Peer Index S&P

Share Price Performance, indexed to 100

MDR: 1.1x

Peers: 2.1x

5 Yr Avg: 2.6x

0.0x

1.0x

2.0x

3.0x

4.0x

5.0x

6.0x

7.0x

Oct-08 Oct-09 Oct-10 Oct-11 Oct-12 Oct-13

II. Recent Performance In contrast to E&C peers, MDR trades at a discount to tangible book as investors wait for clarity

10

Price / Tangible Book Value


MDR: (41%)

50%

150%

250%


II. Recent Performance Mismanagement, transitional friction, and regional losses have spooked investors from a sound company

11

Share Price, indexed to 100


October 26, 2011: Management revised guidance downwards, including lowering operating margins to 7-10%.

October 18, 2013: CEO Stephen Johnson announces he will be replaced in Dec. 2013 by David Dickson, COO.

August 15, 2013: Reported large loss in Malaysia. COO John McCormack steps down; replaced by David Dickson from Technip USA. January 4, 2012: Wins INPEX

Ichtys project in Australia, slated to bring in $2bn+ in revenue.

January 7, 2013: Formed exclusive alliance with Ocean Installer for in the North Sea region.

November 6, 2012: Beat earnings by wide margin due to margin improvement. August 8, 2011: Missed consensus

due to losses in Mid East & Atlantic operations and delays.

July 30, 2010: Spin-off of Babcock & Wilcox resulting in MDR being a pure-play EPCI.

III. Investment Thesis

12

Section Slide 12

III. Investment Thesis

Leading onshore and offshore construction

company

Winning contracts in deep-water space

Expanding capacity to support larger, deeper

projects – Ichtys

New Management / Project Bidding team

Global EPCI with shallow water experience & deep-water experience – Chevron Gendalo

Opportunity to own best-in-class EPCI business at an inflection point

13

14% EBITDA Margin

0-4% EBITDA Margin

8-9% EBITDA Margin

2010 2013 2014-15

Source: Company filings and documents, WSJ, Wall Street research.

A. Strategic Transformation

•  Traditionally ran 12-14 shallow and deep-water

vessels

•  Increasing productivity through new and

revamped vessels

Revamping their fleet

Catching up to main competitor Case Study: Inpex Ichthys

•  $2+ bn subsea contract awarded in Jan 2012

–  17,600 tons of subsea structures

•  60% detailed engineering complete

•  90% of costs committed

14

2011 2012 2013

Bought 1st subsea vessel

Bought 2 vessels, upgraded 3

2 additional subsea vessels

2014 2010

Technip McDermott

Total Vessels 36 16

Subsea Vessels 15 6

P/B 2.5x 0.9x

Backlog ($bn) $15.2 $5.1

EV / Backlog 0.9x 0.3x

A. Strategic Transformation

•  Invested $710mm to build 2 new vessels for

ultra-deep sea work

•  Additional planned expenditures of $750mm in

upgrading vessels and fab yards through 2016

McDermott is investing heavily in this transition… Technip followed the same path 3 years ago in subsea…

•  Invested $2.5bn since 2010 to upgrade their fleet

for subsea

•  Backlog for subsea grew from $3.1bn to $7.4bn

•  Added 11 vessels to support subsea expansion

The guy that made it happen for Technip is… At Technip, this resulted in significant value creation

15

Source: Company filings and documents, WSJ, Wall Street research. Market data as of October 21, 2013.

•  David Dickson, slated to take over MDR at year end

–  Has 28 years of subsea experience

–  EBIT margins from 1.3% (2007) to 10% LTM

–  Followed similar Capex pattern

•  MDR also replacing CFO and project teams

Technip: +53%

90%

125%

160%

Oct-11 Feb-12 Jul-12 Dec-12 May-13 Oct-13

B. Strong Buyout Potential

•  McDermott is a strong brand in the EPC industry and holds high quality assets

•  Negative net debt means that competitors would easily acquire using debt

–  $502 million in cash and $101 million in debt = $401M Net Cash

•  Rumors of competitors looking for acquisitions in the space to gain scale and geographic expansion

At current valuation and balance sheet characteristics, MDR makes an ideal buyout candidate

Precedent transactions Following previous script

16

Source: Company filings and documents, WSJ, Wall Street research.

2011 2012 2013

Dickson put on board of Global Industries

Technip buys Global Industries

Dickson to be COO and CEO of McDermott

Precedent Transactions

Date Target Acquirer EV Multiple

08-Sep-13 Sinclair Knight Merz Pty Jacobs Engineering Group Inc. $1,195.79 7.2x

19-Aug-13 Kentz Corporation Ltd AMEC plc (LSE:AMEC) $1,074.21 -

30-Jul-12 The Shaw Group Inc. Chicago Bridge & Iron Company $4,921.61 20.4x

14-May-12 Bravida ASA Bain Capital Private Equity $853.97 9.0x

27-May-07 URS Energy & Construction URS Corporation $3,179.43 15.4x

12-Sep-11 Global Industries Technip $1,235.49 -

C. Liquidation Value

•  Currently trades at less than 1.0x Tangible Book Value

•  We assessed each vessel according to age, recent upgrades, original purchase price, and recent market

comparisons

–  We stuck to conservatism wherever possible

•  Fleet Value

–  We arrived at a fleet value of $6.15 per share with an increasing outlook as 2 new vessels are added

–  MDR’s fleet is currently insured at $5.30 per share ($1.2bn)

•  Fabrication Yards

–  We value MDR’s 5 fabrication yards at a 20% residual value of the cost of building a new yard

–  We exclude the Morgan City yard from our calculations

–  At such a deep discount, we value the yards at $1.32 per share

MDR currently trades at a deep discount to its replacement value

17

Source: Company filings, Offshore Magezine, Dredge Brokers, Offshore Solutions Unlimited

Liquidation Analysis

BV LVASSETS Total Cash & ST Investments $427.71 $427.71

Total Receivables $1,002.86 $372.26

Total Current Assets $1,509.31 $799.98

Net Property, Plant & Equipment $1,385.96 $2,510.20

Total Assets $3,195.95 $3,502.95

LIABILITIES Total Current Liabilities $1,159.55 $1,008.83

Total Liabilities $1,430.05 $1,279.34

Market Equity $2,223.62Shares Outstanding 226.0Price per share $9.84

Implied ROI 31%

C. Liquidation Value Conservative liquidation analysis yields upside Increasing asset value going forward

18

Replacement Value

Book Value Market ValueVessels $476,231.53 $1,390,000.00Construction Equipment $294,666.98 $294,666.98In Progress $395,949.00 $395,949.00Buildings $89,458.09 $300,000.00Other $129,585.40 $129,585.40Book $1,385,891.00 $2,510,201.38Potential Upside 81%

IV. Understanding the Opportunity

19

Section Slide 15

Analyst Rating Analyst PT UpsideBarclays Buy $10.00 31.4%Credit Suisse Buy $9.00 18.3%Macquarie Buy $9.00 18.3%KeyBanc Hold - -BB&T Hold $8.00 5.1%Deutsche Bank Hold $8.00 5.1%Goldman Sachs Hold $10.00 31.4%William Blair Hold $8.50 11.7%Morgan Stanley Sell $8.00 5.1%HSBC Sell $6.75 -11.3%

IV. Understanding the Opportunity

•  Recent sell-side research has downgraded recommendations based on McDermott missing earnings

•  Replacement value, based on comparable vessels and precedent transactions for fabrication yards, ranges from

$9 - $12 using conservative estimates

•  Significant structural selling based on reduced sell-side recommendations

McDermott has become a show-me story for investors with many waiting on the sidelines

Analysts advising “Hold” but PTs still lofty Analyst commentary provides further comfort

•  “execution risk & loss of investor confidence”

•  “$9.38 /share liquidation value”

•  “wait for confirming evidence”

•  “investment case 'in transition”

Source: Company filings and documents, WSJ, Wall Street research, Brown, Wei, & Wermers – Analyst Recommendations.

21

IV. Understanding the Opportunity Smart money piling in, institutional investors selling on technicalities

Holder % O/S Δ 30-Jun-13 Δ 31-Mar-13 31-Dec-12Artisan Partners Limited 7.03% 1.25 16.64 0.74 15.39 14.65Fairpointe Capital 6.44% 5.93 15.23 9.30 9.30 0.00The Vanguard Group, Inc. 5.31% 1.36 12.57 0.59 11.21 10.62T. Rowe Price Group, Inc. 7.60% -6.91 17.98 -2.18 24.89 27.07BlackRock, Inc. 4.62% -0.32 10.93 -3.76 11.24 15.01Putnam LLC 3.63% 2.72 8.59 4.23 5.87 1.64JANA Partners 2.56% 6.07 6.07 0.00 0.00 0.00LSV Asset Management 2.44% -0.04 5.78 -3.25 5.82 9.06Fidelity Investments 2.37% -13.40 5.60 -1.16 19.00 20.15Wellington Management Company 2.32% 1.42 5.50 2.23 4.08 1.85Guggenheim Partners 2.26% -0.60 5.34 1.90 5.94 4.04State Street Global Advisors, Inc. 2.11% 0.92 5.00 0.15 4.08 3.93Westfield Capital Management 2.02% 1.48 4.78 3.29 3.30 0.01S.A.C. Capital Advisors 1.89% 2.05 4.48 2.11 2.43 0.32Millennium Management 1.81% -1.71 4.29 4.75 6.00 1.24NWQ Investment Management 1.68% 1.99 3.97 1.98 1.98 0.00Franklin Resources Inc. 1.53% 2.73 3.62 0.89 0.89 0.00Lee Munder Capital Group 1.09% 0.61 2.59 0.31 1.97 1.66Hotchkis and Wiley Capital 0.94% 2.22 2.22 0.00 0.00 0.00BNY Mellon Asset Management 0.65% -3.76 1.54 0.56 5.31 4.75AQR Capital Management 0.52% -0.81 1.24 0.01 2.05 2.04American Century Investment 0.47% -1.00 1.11 2.07 2.12 0.05D. E. Shaw 0.42% -0.73 0.99 -0.68 1.72 2.40Tocqueville Asset Management 0.37% 0.22 0.87 0.65 0.65 0.00

Johnson, Stephen M. 0.20% 0.00 0.47 0.05 0.47 0.42

Funds we want to invest alongside:

•  Fairpointe Capital (long-term value fund)

•  JANA Partners (activist – industrials)

•  S.A.C. Capital (unusually large position)

Biggest sellers in the last 3 quarters:

•  T. Rowe Price

•  Fidelity

•  BlackRock

•  BNY Mellon

Source: CapitalIQ. Market data as of October 21, 2013.

V. Valuation & Risks

22

Section Slide 18

V. Valuation & Risks McDermott offers a compelling risk-reward for a stellar business at an inflection point

23

Bull: +63%

Base: +29%

Bear: -16%

$5.00

$8.00

$11.00

$14.00


DCF

WACC 12%

TV EBITDA Multiple 8.0x

TV 2,119.40

PV TV $1,202.61

PV FCF $1,521.13

MV $2,723.74

Target Price $12.05

ROI

Current Price $7.41

Target Price $12.05

Implied Upside 63%

V. Valuation & Risks With rapidly improving fundamentals, McDermott remains the best value in the offshore EPCI industry

24

Source: CapitalIQ. Market data as of October 21, 2013.

LTM Multiples NTM Multiples

EV/Rev EV/EBITDA EV/EBIT P/E P/BV EV/Rev EV/EBITDA P/E

Engineering & Construction

Chicago Bridge & Iron Company N.V. (NYSE:CBI) 1.2x 13.2x 15.6x 24.5x NM 0.8x 9.1x 15.7x

Fluor Corporation (NYSE:FLR) 0.4x 10.5x 13.3x 27.2x 3.5x 0.4x 7.9x 17.9x

Foster Wheeler AG (NasdaqGS:FWLT) 0.8x 8.2x 10.7x 19.4x 7.4x 0.7x 8.1x 15.3x

Jacobs Engineering Group Inc. (NYSE:JEC) 0.6x 9.4x 10.7x 18.9x 3.8x 0.6x 8.5x 16.6x

KBR, Inc. (NYSE:KBR) 0.6x 6.3x 6.9x 22.9x 2.9x 0.5x 6.1x 11.7x

Oceaneering International, Inc. (NYSE:OII) 2.9x 12.9x 18.0x 26.7x 5.8x 2.6x 11.3x 22.7x

The Babcock & Wilcox Company (NYSE:BWC) 1.0x 8.4x 10.1x 18.1x 6.1x 1.0x 7.7x 14.1x

URS Corporation (NYSE:URS) 0.5x 6.4x 9.0x 12.8x NM 0.5x 6.9x 11.9x

Mean 1.0x 9.4x 11.8x 21.3x 4.9x 0.9x 8.2x 15.7x Median 0.7x 8.9x 10.7x 21.2x 4.8x 0.6x 8.0x 15.5x

EPCI

Saipem SpA (BIT:SPM) 1.0x 11.5x 43.2x NM 1.9x 0.9x 9.4x 65.8x

Subsea 7 SA (OB:SUBC) 1.1x 7.9x 12.2x 17.0x 2.0x 1.1x 5.6x 13.7x

Technip (ENXTPA:TEC) 1.2x 9.6x 12.0x 19.0x 16.6x 1.0x 8.0x 15.1x

Mean 1.1x 9.7x 22.5x 18.0x 6.8x 1.0x 7.7x 31.5x Median 1.1x 9.6x 12.2x 18.0x 2.0x 1.0x 8.0x 15.1x

McDermott International Inc. (NYSE:MDR) 1.1x 0.5x 5.8x 18.5x

V. Valuation & Risks A leveraged buyout of McDermott would create significant value to a strategic acquirer

25


Tangible Assets + Net Cash Allows an underwriting of 20% IRR LBO at a 21% Premium to Market Value

Sources & Uses LBO Analysis

Sources

Senior Secured (PPE) 60% LTV $831.60

5.0%

Securitzed Receivables 30% LTV $1,098.20

8.5% $329.46

Cash $427.70

Premium to MV 21% $354.57

Equity Injection 28% $627.31

$2,216.07

Uses

Total Debt 95.6

Total Common Equity 1705.3Total Minority Interest 60.6

2216.0663

LBO SummaryTV EBITDA Multiple 8.0xBuyout IRR 20%Cash-on-cash 3.1x

LBO Analysis

2013E 2014E 2015E 2016E 2017E 2018E TV

Proforma EBITDA 19.5 64.7 168.1 243.5 239.9 238.0 -

6.0%

Total Liability on Debt 1,161.1 1,211.1 1,219.0 1,219.0 1,219.0 1,219.0 -

Interest 69.6 72.6 73.1 73.1 73.1 73.1 -

Paydown 19.5 64.7 73.1 73.1 73.1 73.1 -

EOP 1,211.1 1,219.0 1,219.0 1,219.0 1,219.0 1,219.0 -

Excess EBITDA - - 95.1 170.4 166.8 165.0 1,319.65

-$627.31 - - 95.1 170.4 166.8 165.0 1,319.7

LBO Summary

TV EBITDA Multiple 8.0x

Buyout IRR 20%

Cash-on-cash 3.1x

Risks

•  Exposure to weather

–  Delays in deliveries and damage to rigs

•  Lack of demand for oil would represent lower

profits for their clients and hence lesser contracts

•  Counterparty credit risk from clients’ inability to

fulfill timely payments

Systematic risks faced by industry Idiosyncratic risks actively mitigated by MDR

•  Attempts to grow fail to pan out, leading to cash burn:

–  Estimated cash and credit burn estimated to

last for 2 years

•  Continued poor execution and failure to keep costs

low would represent further impairments and loss

recognition

•  Lack of oversight resulting in large scale

environmental damages and hence fines (e.g. BP

Gulf of Mexico accident)

26

Source: Company filings, Wall Street research.

Appendix

•  EPCI

•  McDermott’s Global Scale

•  Project Lifecycle

•  Key Clients – Private

•  Key Clients – National

•  Backlog Analysis

•  Inpex Ichthys

Investment Underwriting Analysis

27

Appendix Starts Here.

•  Discounted Cash Flow Summary

•  Liquidation Analysis – Assets

•  Liquidation Analysis – Liabilities & Equity

•  Vessel Valuation

•  JV Precedence

•  Litigation Risk Analysis

EPCI Value Chain Only U.S. based pure-play in the EPCI space, offering unique delivery platform

28

Engineering Procurement Construction Installation

•  8 locations; 900+ engineers

•  FloaTEC, LLC – JV with Keppel

•  Services: •  Studies & conceptual

designs •  Front End Engineering •  Detailed Engineering •  Transportation &

installation

•  300+ employees •  Services: •  Negotiating,

purchasing, transporting, inventory control and quality assurance

•  Global sourcing; local knowledge

•  Strong supplier relations

•  600+ acres of strategically located facilities

•  Capabilities: •  Topside & onshore

modules •  Jackets, piles, compliant

towers •  Subsea production

systems •  Standardized fabrication

processes & procedures

•  Dedicated installation fleet •  Global construction fleet,

multi-functional and subsea support vessels

•  Capabilities: •  Single & dual heavy-lift •  Floatover install •  Various diameter pipeline

install •  Dynamic positioning systems •  Subsea installation support

Return to appendix

Global EPCI Player Globally positioned and rapidly expanding footprint to improve access and lower costs

29

Return to appendix

Project Lifecycle

• Marine installation • Manage changes • Estimate completion costs

• Optimize capacity

• Customer analysis • Lessons learned • Warranty period • Close-out negotiations

• Develop execution plan

• Confirm estimates • Risk contingency planning

• Bid margins • Risk identification • Negotiate • Evaluate opportunities

Business Acquisition

& Award

Project Planning

Project Delivery

Post Completion

McDermott has a comprehensive and dynamic project execution strategy

30

Return to appendix

Key Clients Independent

National Owned Corporations

31

Return to appendix

Key Clients Nationally Owned Corporations

32

Return to appendix

40% 38% 39% 35%

60%

59%

25%

2%

2%

0

5000

2010 2011 Today Conventional SubSea Float

Backlog

•  Americas/Atlantic

–  Floater: Papa Terra (EPCI) - (Dec ‘09): $1.1bn

–  Fixed: PB-Litoral (EPCI) - (Jan ‘13): $230mm

–  Subsea: Julia (EPC) - (Jul ‘13)

•  Asia Pacific

–  Subsea

•  Ichtys (EPCI) (Jan 2012) ($2B)

•  Siakap (EPCI) (May 2012)

•  Gorgon (C) (May 2010) ($150 MM)

•  Macedon (EPCI) (July 2011) ($1.5B)

•  Targeting more sub-sea projects

–  MDR has a historical win-rate 35% of target

projects

Strong and diversified backlog Bids outstanding have grown rapidly in Subsea

Robust backlog of over $5.1bn provides visibility

33

89% 73%

39%

9%

24% 59%

2%

3%

2%

0

1000

2000

3000

4000

5000

2010 2011 Today

Conventional SubSea Float

Source: Company filings, Wall Street research. Return to appendix

Project Inpex Ichthys

•  Estimated $2bn project for McDermott

•  High Profile: INPEX and Total JV in Australia

with $34bn invested capital to date

•  1.6mm tonnes of LNG per annum at peak

•  McDermott provide Engineering, Procurement,

Construction and Installation services

•  Reputation: Complex Sub-sea project will raise

McDermott’s reputation in this high-growth sector

•  New Fleet in Action: McDermott can prove that

new fleet built since 2009 is best in class again

One of the Largest Projects in Market Complex in Nature

34

Return to appendix

V. Valuation & Risks Our valuation takes into account difficulty ramping up in ultra-deep but margin recovery as well

35

Source: Company filings, CapitalIQ, Wall Street research. Market data as of October 21, 2013.

Discounted Cash Flows

F igures in $mm, except per share data 2008A 2009A 2010A 2011A 2012A 2013E 2014E 2015E 2016E 2017E 2018E Revenue 3,098.1 3,281.8 2,403.7 3,445.1 3,641.6 3,470.7 3,338.2 3,354.1 3,375.7 3,403.2 3,436.6

% Growth 6% -27% 43% 6% -5% -4% 0% 1% 1% 1%

Cost Of Goods Sold 2,787.8 2,781.7 1,842.3 2,980.4 3,100.0 3,123.6 3,004.4 3,018.7 3,038.2 3,062.9 3,092.9

COGS as % Revenue 90.0% 84.8% 76.6% 86.5% 85.1% 90.0% 90.0% 90.0% 90.0% 90.0% 90.0%

Gross Profit 310.3 500.1 561.5 464.7 541.6 347.1 333.8 335.4 337.6 340.3 343.7

Gross Margin 10% 15% 23% 13% 15% 10% 10% 10% 10% 10% 10%

Selling General & Admin Exp. 202.3 218.1 216.8 212.0 206.0 277.65 267.06 268.33 270.06 272.26 274.93

% on revenue 6.5% 6.6% 9.0% 6.2% 5.7% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00%

Depreciation & Amort. 72.56 79.87 76.45 82.39 86.44 79.88 88.47 90.24 92.05 93.89 95.77

Operating Income 35.5 202.1 268.3 170.3 249.2 (10.5) (21.7) (23.2) (24.5) (25.8) (27.0)

Income Tax Expense 63.6 60.6 41.2 87.1 129.2 (3.93) (8.14) (8.69) (9.20) (9.68) (10.14)

Effective Tax Rate - - - - - 37.5% 37.5% 37.5% 37.5% 37.5% 37.5%

Earnings from Cont. Ops. (32.4) 141.6 224.5 82.7 120.0 (6.5) (13.6) (14.5) (15.3) (16.1) (16.9)

Earnings of Discontinued Ops. 368.7 180.9 (34.9) (12.8) 3.5 - - - - - -

Net Income to Company 336.3 322.5 189.6 69.9 123.5 (6.5) (13.6) (14.5) (15.3) (16.1) (16.9)

Minority Int. in Earnings (0.2) (3.4) (26.0) (12.6) (10.8) (10.0) (10.0) (10.0) (10.0) (10.0) (10.0)

Net Income 429.3 387.1 201.7 138.7 112.7 (16.5) (23.6) (24.5) (25.3) (26.1) (26.9)

Per Share Itemsno. of shares 227.14 229.03 231.80 235.14 226.29 226 226 226 226 226 226EPS $1.89 $1.69 $0.87 $0.59 $0.5 ($0.07) ($0.1) ($0.11) ($0.11) ($0.12) ($0.12)

Return to appendix

Liquidation Value - Detail

36


BV % LVASSETSCash And Equivalents 427.7 100% 427.71 Total Cash & ST Investments 427.7 427.71

Accounts Receivable 942.7 312.06 Other Receivables 60.2 100% 60.2 Total Receivables 1,002.9 372.26

Deferred Tax Assets, Curr. 7.7 0% 7.72 Restricted Cash 24.5 0% - Other Current Assets 46.5 0% - Total Current Assets 1,509.3 807.70

Gross Property, Plant & Equipment 2,231.3 Accumulated Depreciation (845.4) Net Property, Plant & Equipment 1,386.0 2,510.2

Long-term Investments 49.7 100% 49.72 Goodwill 41.2 0% - Accounts Receivable Long-Term 95.3 30% 28.59 Other Long-Term Assets 114.5 100% 114.47 Total Assets 3,195.95 3,510.7

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Liquidation Value – Detail (cont’d)

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LIABILITIESAccounts Payable 434.8 100% 434.78 Accrued Exp. 328.2 100% 328.17 Short-term Borrowings -Curr. Port. of LT Debt 42.5 100% 42.53 Curr. Income Taxes Payable 37.1 100% 37.11 Unearned Revenue, Current 301.4 50% 150.71 Def. Tax Liability, Curr. 15.5 100% 15.53 Other Current Liabilities - Total Current Liabilities 1,159.5

1,008.83

Long-Term Debt 53.1 100% 53.10 Pension & Other Post-Retire. Benefits 24.4 100% 24.35 Other Non-Current Liabilities 193.0 100% 193.05 Total Liabilities 1,430.0 1,279.3

Market Equity $2,231.34Shares Outstanding 226.0Price per Share $9.87

Implied ROI 31%

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V. Valuation & Risks Using original prices paid and comparable vessels on market, we arrive at a base market value of fleet

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Heavy Lift DWLS Reel-Lay S-Lay/J-Lay Flex Lay DP Market ValueAgile 1 1 1 $100.00DB 101 1 $60.00DB 16 1 1 1 $120.00DB 27 1 1 $110.00DB 30 1 1 $110.00DB 32 1 $50.00DB 50 1 1 1 1 $180.00DLV 2000 1 1 1 1 $180.00Emerald Sea 1 1 $80.00KP1 1 $50.00LV 108 1 3 1 1 $100.00North Ocean 105 1 1 1 1 $100.00North Ocean 102 1 1 1 $100.00Theabaud Sea 1 $50.00

Value of Component $60.00 $20.00 $50.00 $30.00 $50.00 $1,390.00

Source: Company filings, Offshore Magezine, Dredge Brokers, Offshore Solutions Unlimited Return to appendix

Joint Ventures

•  Failure to be cost leader in the past due to smaller scale compared to competitors

•  2009: Qing Dao Wuchang JV in China

•  2010: 2 JVs with Keppel, worlds largest offshore company

•  2010: JV in Brazil with, Construcap and Orteng

Gaining Scale and Utilizing Synergies

39

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Litigation Risk

•  Conversation with leading attorney in Levi & Korsinsky à low confidence of preventing lawsuit from being thrown-out by defendants

•  Lawsuit based on improper disclosure on losses in Malaysia and Saudi Arabia

–  McDermott’s auditors has not raised any issues with McDermott’s reporting standards

•  Levi & Korsinsky has questionable success rates at winning shareholder class action suits

•  Initial stages of lawsuit: yet to be certified to be class action

Low probability, low impact, currently non-existence lawsuit

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Return to appendix

team stern iag

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