Document KGR8mDybR2G7JjVRE2Ee2jwqr

' /-Vi,V*- V;;'.--.- m i v^'JTi JtfcaS S -j.Qjj-yjS&t- / sSiXj- .IthCi ^/teyJtfcDeOTott^C6lvInc.,and Subsidiaries for the Fiscal Years Ended^Iarch3i,.1979and:1978 ke^lt^-ata-Gldnceh ::* S-:C ?v^-': -^Fulivdiluted^- ' - -' '-; r per common shared Cash dividends- .I"'- *? --'Cash'divideods per common share .- .'V r** v- Number of employees including subcontract labor 92,957: 159,092 : - : 1.921 ' 27.09 - . 62,427' 1.00 26.15 ' 28,571 : o.90 61,000 59,000 To Our Shareholders: JAMES E. CUNNINGHAM \ ice Chairman of the Board and Chief Executive Officer JOHN D. RITCHIE Chairman of the Board The past year tested the character and operating base. B & W's contribution strength of J. Ray McDermott & Co.. Inc., to earnings helped compensate for against forces of adversity and change. the decline in McDermott's traditional The Three Mile Island nucicar incident marine construction business. highlighted a year of uncommon problems and depressed markets. Three Mile Island -- The un Earnings were down. Financial provisions precedented publicity of the Three were made, however, to offset the Mile Island nuclear incident on March 28 effects of several major problems has implied that Babcock & Wilcox on future results. At the same designed and built the entire nuclear time, we made progressive changes, power plant. B & W supplied the nuclear developed new opportunities, and steam system and fuel, which represent realized significant achievements. In approximately 10 percent of the total total, we remain a strong, versatile cost of the Three Mile Island power organization, well positioned to move plant. B & W's basic responsibilities forward in the service of energy-related were: to design and supply the compo industries. nents of the nuclear steam system and Fiscal 19~9 was the first year that the reactor safety systems: to provide McDermott and Babcock & Wilcox interface information to the engineering operated as one company. The firm for the balance of the plant; and to McDermott and B & W staff functions provide support to the utiliry in obtain have been consolidated at our New ing a license from the Nuclear Orleans headquarters to improve Regulatory Commission and in starting organizational clarity and efficiency. Our up the plant. combined skills enable us to serve B & W personnel demonstrated diverse energy markets. Consistent with technical excellence and dedication in our strategy to broaden the Company's helping our customer bring the Three .Mile Island reactor to a stable condition. We, our customers, and the government are making an exhaustive investigation of the incident. We believe that others will conclude, as we have, that the B & W-supplied equipment operated as designed, except for a purchased pressure relief valve which did not re-seat. The system was designed to enable the operator to take corrective action for this condition. It is probable that no significant core damage would have occurred if the automatically initiated emergency coolant flow had not been prematurely stopped by an operator. In fact, the nuclear system performed exceptionally well under the severe conditions imposed upon it. Human reactions changed a minor equipment failure into a major incident. We believe the Three Mile Island incident has taught us all -- equipment suppliers, utilities and regulatory authorities -- a great deal about the importance of the human fiictor in plant $ 5> operation. The immediate lessons have been posting individual price marginal, but prospects for these fields learned will enable improvements in the increases and surcharges (above the should improve with a Conservative man-machine interface, operator April l OPEC price of S14.55 per barrel government and higher world prices effectiveness and licensing requirements for "marker crude") with no consistent for oil. to make nuclear energy even safer. pattern. Because there is a sense of In the rest of the world, the future \\'e have also concluded that our insecurity about the situation in the appears particularly bright in South East liability from the Three Mile Island Middle East, we have seen no increase in Asia and West Africa. Longer-term, two incident, if any. is not significant. the market for offshore construction. of the most promising areas are China Antitrust -- In December 1978, the Company and certain officers were Beyond the immediate future, we are and Mexico. By invitation. McDermott confident of an upturn in the demand representatives recently visited the for platforms and subsea pipelines. There People's Republic of China to discuss charged with violating the Sherman are strong indications that Saudi Arabia offshore construction opportunities, and Antitrust Act. Primary consideration was will take steps aimed at stabilizing world wchave formed a joint-venture company given to bringing these legal matters to a prices for crude oil -- albeit at a level in Mexico. Vie look forward to major conclusion so that we can concentrate on higher than the current official price. participation in both of these areas. the future. The Company subsequently It also appears that President Carter is In summary, the overall market for pleaded nolo contendere to the charges serious about permitting U. 5. crude marine construction has been at a and was fined Si million. The-officers, prices, as well as gas prices, to reach relatively low level, but a recovery who were charged with additional parity with world prices. Stability in these appears imminent in some areas. To offenses, entered pleas of nolo prices will improve the economics of improve our competitive position contendere and were sentenced developing new fields, both in the worldwide, we are reducing personnel accordingly. exporting countries and in those and equipment where there is low We regret that events leading to these countries, such as the United States, market activity and consolidating these charges occurred and are taking every' which seek greater self-sufficiency in oil resources in areas of greater opportunity. practicable action to prevent a and gas supply, and by its effect on A provision has been made in the recurrence. As previously indicated there consumption, help bring worldwide accounts for restructuring and relocating is a possibility of civil suits claiming supply and demand back into balance. the operations involved. treble damages being instituted against Offshore exploration drilling around the Company. The Company intends to the world has continued to increase to Babcock & Wilcox Operating Unit -- attempt to resolve any such claims record levels. A large number of new rigs The revenues of the B & W Operating without litigation. are under construction, and most are Unit reached record levels, and,despite already under contract for use when they certain significant charges against McDermott Operating Unit -- are completed. Historically, a high level income ,B & W was the major contributor Revenues and profits are down from of searching results in discoveries and to the Company's operating results. recent years in marine and onshore leads to future offshore construction New orders by the U. S. electric utility- construction. As we forecast last year, die opportunities. industry have been at a low level for the market for offshore construction has Activity remains strong in the Gulf of past several years, primarily due to remained spotty' -- generally strong in Mexico. Although exploration results off cost-induced conservation and a the Gulf of Mexico, but w'eak throughout the Louisiana and Texas coasts have been resultant decline in electricity demand most of the rest of the world. We have poor recently, we anticipate increased growth and uncertainties caused by been passing through a low phase of a interest in the licenses for untested excessive government regulation and the business cycle. The temporary surplus of deeper water areas due for bids during lack of a national energy policy. worldwide oil produdbility over demand the next few years. With these areas Despite the depressed market in 1977 and 1978 tended to restrain oil becoming more attractive, McDermott conditions, the fossil fuel operations of prices and to discourage both oil will benefit from proven capability to B & Ws business had another record companies and produdng-country fabricate and install deep water year in fiscal 1979, and work loads in governments from pushing the platforms. B & V manufacturing facilities for utility development of promising discoveries. Exploration in the British North Sea boilers will remain at optimum levels The construction capadry built by our has turned up a number of fair-sized through fiscal 1980. Last year, B & W industry during thepeak demand years of prospects. The discovering companies, captured more than 50 percent of the 1975 and 1976 continues to exceed how-ever. have withheld development U. S. utility boiler market for the second the demand for sen-ices. Consequently, because of high taxes and the late Labor successive year. In addition, B & W has we expect pressure on profit margins government's policy of giving a share been highly successful in other markets to continue through fiscal 1980. of each field to the government-owned The revolution in Iran and the cutback oil company. The economics of in Iranian production have altered the development have been no better than world situation. Supplies of oil are once again tight, as Americans are all too aware this summer. All the OPEC governments related to the base boiler business, such Robert K. Richie continues as resources efficiently. .!' environmental equipment and President and Chief Operating Officer of Lessons learned at Three Mile Island customer services. the McDermott Operating Unit, and will provide farther assurance of the The nuclear industry has suffered a lack George G. Zipf continues as President safety of nuclear power plants. We 01 orders, as well as delays and and Chief Operating Officer of the believe the ultimate conclusion of this cancellations for the past few years. Babcock & Wilcox Operating Unit and incident will be public support of nuclear Because of the low level of work at our Vice Chairman of the Board. power, and we remain committed to this facility in Mt. Vernon. Indiana, the John A. Lynott was elected Executive form of energy. manufacture of commercial nuclear Vice President and Chief Financial Our country has an energy problem, equipment in the United States is being Officer. Walter M. Vannoy was elected and whichever way we turn to solve this consolidated at the Barberton. Ohio, Executive Vice President and Chief problem -- whether it involves oil. eas. tacilirv as part of an overall plan to ensure Administrative Officer. Louis M. Favret coal or nuclear--J. Ray McDermott will staving power in the nuclear business. was elected Executive Vice President. participate in the solution. This is the Barberton provides a stable operating Power Generation Group. Babcock & inherent strength of your Company. We base with the flexibility to manufacture Wilcox, to replace Mr. Vannoy. build platforms and pipelines for oil and fossil, commercial nuclear and Navy KennedyJ. GiUy was elected Corporate gas production; we build steam nuclear products. Financial provisions Secretary and will continue as Vice generating plants that use all types offuel, have been made for ihephasedown of the President and General Counsel of the for electric power production and Mt. Vernon facility, which will be Company. industrial application. maintained in a standby condition. We regret to report the death in April We plan to build on the inherent Financial provisions have also been of Louis V. Sierra. In his thirty-one years of strength of the Company and become made for extensive steam generator service to the Company, most recently as even more versatile. The acquisition Of repairs by B & W Canada. To date. B & V Corporate Secretary, he contributed Babcock & Wilcox has proved to be a Canada has supplied all the steam greatly to the growih and working spirit strategically sound diversification. As generators for nuclear power plants that of McDermott. stated last year, we continue to explore are in service in that country, and the RaymondJ. Cantw-ell. Senior Executive new opportunities for farther growth performance record has been excellent. Vice President of Babcock & Wilcox, through diversification. A change in the manufacturing process retired and resigned from the McDermott We appreciate the loyalty of our was made on some steam generators that Board of Directors in March. shareholders who have supported us are not yet in service, but had been through an unusually trying period. We delivered to customers. Recent shop and The Outlook -- We emerge from a also want to express our appreciation and field inspections indicate that a distortion tough year well prepared for the future. commendation to ail employees ofJ. Ray of tubes and tube support plates occurred Many of our problems are behind us; McDermott for a job well done in a year during the final heat treatment of this others are still ahead. An experienced of exceptional demands. Our sixty group of steam generators. Repairs will management team is in place to meet this thousand employees -- their knowledge, be made either in the shops or in the field. challenge. McDermott is strategically skill and dedication -- are our most positioned throughout the w'orld and Management Changes -- A number of ready to capitalize on opportunities that important management changes were develop in diverse energy-related important asset and the foundation of future success. effected during the past year. The markets. Board of Directors reluctantly accepted the resignation of C. L Graves. Chairman of the Board and Chief Executive Officer of the Company, due to his medical problems. The Board extended its gratitude to him for his thirty-three years of Unselfish dedication, leadership and wisdom. He will continue Lines forming at gasoline pumps bring our business close to home. Today, we are facing the realities of America's energy deficiencies. The United States uses more than 30 percent of the world's total energy production, and our energy resources are finite. To utilize these resources effectively, we need a diversity J. E. Cunningham Vice Chairman of the Board and Chief Executive Officer to serve as a Director of the Company, John D. Ritchie, an outside Director, was elected Chairman of the Board. Mr. of energy supplies and balance in their application. We do not have much oil and natural Ritchie is an energy consultant and a former President and Chief Executive Officer of Asiatic Petroleum Corporation (now Scallop Corporation). gas--onlyabout 5 percent of the world's reserves. We must find andproduce more oil and gas and use it judiciously. We have abundant coal and nuclear J. E. Cunningham was elected Vice Chairman and Chief Executive Officer. energy. We must mine our coal and overcome environmental and John D. Ritchie Mr. Cunningham most recently was Vice transportation problems to use it Chairman of the Board Chairman, Finance and Administration. effectively. We must continue to develop nuclear energy, including the breeder reactor, to use our uranium Tfoe Year hi Review During the past fiscal year our operating units had many significant accomplishments that demonstrate the Company's ability to serve diverse energv-related markets. Although most major markets remained depressed, we received a number of important new orders that will provide a base workload for future years. In addition, there are signals of an upturn in some of our markets. We also continued to participate in research and development projects that will ensure our maintaining a position of technological leadership. , engineered ; OTHERS MATERIALS PRODUCTS : : Revenues For Fiscal Year Ended March 31. 1979 1.011 Billion (32%) 509 Million (16%) 161 Million (5%) 1.463 Billion (47%) TOTAL 3.144 Billion (100% ) ' ^ O:t Qberr.i'in" U/iit I nited States -- Activity in the schedule, and drilling of its o2 t of' Mexico has continued .it .1 wells ha> already begun. In May inch rate, and our Morgan City and 19~9 McDermott's Marine Pipeline r-i.ir\e\ vards have been working at Division iaid Cognac'^ 23 1'2- or near capacity. Slowdowns in mile-long line. Although this . >t!ier parts of the world, however, line was laid in 1.U00 feet of nave led to an influx of foreign water -- the deepest water ever or'i'xhore construction equipment. for a pipeline that originates from Despite the increased competition. a producing structure -- we were >e\ era I developments indicate that able to lay almost 2 miles of pipe McDermott's position remains strong. each day. y--ince the installation of the ROBERT K. RICHIE I'wuicnr iind Chief Q~c'\unr Office ^IcDe/nn;; Oce. - :* ast summer, after four Cognac platform. Cm: vears of planning and- McDermott has received a . work, we completed and contract for design, fabrication, and massive 6-sO-foot-long launch installed the Cognac platform in installation of a 968-foot jacket to barge. Expansion of the yard at i.025 feet of water in the.Gulf be placed in the East Breaks Morgan City to accommodate of Mexico. This is the world's field of the Gulf of Mexico in 1981. fabrication has already begun. The tallest and heaviest steel platform. The jacket will be second only to new project, coming as it does Both the fabrication and Cognac in height and will be the close behind the Cognac job. installation were among the tallest ever to be built and launched affirms McDermott's leadership in most challenging projects that wre iit one piece. It will have 40 well .. the design and fabrication of the have ever undertaken. slots and weigh 20.000 tons. To tow giant platforms that will be Because the platform was built the structure to location and launch necessary for development of in three sections, sophisticated it on site. McDermott will build a deep-water oil fields in the future. measuring devices were needed to meet the close tolerances necessary for fitting the sections together. Extensive coordination was required of the huge cranes that lifted the sections, and at times welders worked at heights ofmorp, tharvthirry scggies. For installation, underwater cameras and pile drivers, sonar beacons, and an elaborate mooring system were all utilized. The job was completed ahead of s Activity at the Morgan City and The Dredging and Inland onshore import terminal. The Harvev fabrication yards should Service divisions completed access Company also is designing continue at hit?h levels as we have canals for the Louisiana Offshore packaged power plants that use many substantia! fabrication Oil Port, pipe ditches, bulkheads, geothermal energy as fuel, is jobs of more conventional sized and other work, mostly in the engineering solar heating units structures. To keep up with the marshlands of Louisiana. suitable for large buildings, and is TI demand for larger, more complex platforms, a new pipemill that can roll -4* 1/2-inch steel was installed at Morgan City. A high level of installation work has kept our derrick barges active. To meet the equipment competition in the Gulf, we are increasing the lifting capacity of two of our derrick barges from 600 to 800 tons and purchasing larger pile driving hammers. These improvements are relatively inexpensive, and will make the barges even more competitive with he Morgan City and New studying the use of geothermal Iberia shipyards delivered energy as a means of heating. eleven supply vessels and A separate Research and five tugboats, a self-contained Development Unit was established drilling rig. and living quarters. to ensure that we will maintain out- Both yards expanded their leadership in technological facilities, and prospects are good expertise in marine construction. for this fiscal year. The task of this organization is to Onshore, several major projects assess and devise new technology* were completed recently. These (1) to keep McDermott first in include a processing plant for serving the offshore oil industry treatment of sour natural gas and and (2) to prepare the Company for engineering and construction of a developing resources from die sea liquefied petroleum gas (LPG) other than oil. i those that other companies have moved into the Gulf. Despite keen competition in the Gulf, the Marine Pipeline Division was a^varded a high percentage of the projects it bid last year. Less pipeline will-be laid in the Gulf this year, but we expect to maintain our share of the market. At present the division has several projects under contract, including iO miles of pipelaying for the High Island complex. 1 v i i j: Tl>e onshore portion of the "Dugas'"production and storagefacility *s part of the largest turnkey project ever * undertaken by the Company. n * r ii 9 a mong the resources thru McDermott's engineers are Xja* studying are wave energy, undersea mining, geothermal energy from beneath the sea floor, and ocean thermal energy conversion (OTEC). All would require engineering, fabrication, and installation capabilities similar to ones McDermott now lias. Geothermal energy, for example, which is heat from beneath the earth's surface, might involve only slight modification to existing platform designs. An OTEC plant. The Marine Pipeline Division set a new record when Lay Barge 29 installed a 12-inch pipeline in more than 1.000 feet of water in the Gulf of Mexico. on the other hand, would be even larger than the platforms for 1.000 feet of water that we have already built. McDermott is working on conceptual studies for such a plant, but as yet OTEC remains an undeveloped technology. We believe that McDermott's expertise, equipment, and facilities will give us a natural advantage in helping to develop new energy resources in a marine environment. Mexico--A recent study indicates that proven reserves off the east coast of Mexico are more than 20 billion barrels. Thus, earlier in the year, McDermott formed a joint-venrure company, Lan-Dermott. with a major supplier of diverse equipment to the xMexican oil industry. Lan-Dermott will design, manufacture, fabricate, assemble, repair, and market offshore oil and gas platforms, packaged offshore drilling rigs, production modules, and related products. The government of Mexico plans to develop its discoveries at a deliberate pace. North Sea -- Activity has been slowing for several years, in part because policies by governments ofNorth Sea countries have created uncertainty about the economics of production. We are hopeful that the new Conservative government in the United Kingdom will provide a better climate for oil and gas development. Also, at the sixth round of bidding on North Sea tracts, more than 100 companies submitted 55 applications covering all 46 blocks, indicating that interest in the area is high. This should mean more work for the Company. t present, the yard at A Ardersier, Scotland, has L three projects in progress. The largest is the fabrication and Jtejidout ofthe 25,000-ton jacketfor fne Murchison field -- so far the largest jacket ever assembled in one piece. The yard also has the \ i \ 0 Murchison and the Fulmar platform pilings. Platform hook-up and maintenance work was a profitable activity this year and will provide future business opportunities. One unfortunate event was the lo.ss overboard of Brazil's Pecrobras jacket. The jacket was lost in heavy seas in the English Channel as it was being towed to its installation site off the Brazilian coast. Recently. Derrick Barge 100 was completed. This new giant semi-submersible has a lift capacity of 2.000 tons and will improve our capabilities in heavy seas. (LPG) extracted, and the remainder used for an industrial plant. Another facility being built and installed is an LPG loading island situated in SO feet of water at the end of a 6-milc-iong causewav. This island will enable loading of propane and butane onto tankers of 25.000- to 200.000-ton capacity. The fabrication involves more chan 12.000 tons of steel, and structures include four main jackets with six deck sections, piping, and complex electrical and instrument controls. The project is due to be completed later this vear. ndia is very active, and we Irecently were awarded two important jobs. The first is for design, procurement, fabrication, and installation of an eight-pile gas compression platform in the Bombay High North field. The Company also was successful in its bid for fabrication and installation of the Bombay High South complex, which will include a production platform, a drilling platform, and a flare structure. These turnkey projects also include pipelaying and hook-up work and will be completed next year along with the Middle East -- The Middle East is active bd'f'not at a high level. The biggest project yet undertaken by us in the area is the "Dugas" onshore/offshore gas gathering and processing facility at Dubai in the United Arab Emirates. The Company provided engineering, fabrication, and installation for the project, which is designed to recover 100 million cubic feet per iV day ofgas that had been flared The gas will be collected off^gDre, compressed, and movedTO shore by pipeline. There it will be processed, liquid petroleum gas * f ovher jobs in progress. The biggest project in fiscal '*9 | Sarawak. Brunei. Sabah. Malaysia, At present, we are building a was the Conoco Udang platform. j and Indonesia. utility in Eg\pt, the first phase of The eight-pile, 2.100-ton jacket was , It now appears that the long- which is scheduled for completion the largest ever fabricated in the anticipated development of the m August. .Although construction area, and the job was completed in Northwest Shelf of Australia will work is still in progress, the first only five months. The drilling and begin this year. Fifteen drilling rigs jacket has been completed at production complex was installed are in operation and so far have this facility. The new facility is in in 303 feet of water in the South found mostly gas. an ideal location on the Gulf of ; China Sea. At present smaller We are installing a platform in Suez and will be expanded as jackets are being fabricated at the the Bass Strait for the development the market requires. Batam Yard. of the Snapper field. South East Asia -- The potential of South East Asia is great, and expectations for increased activity in the near future are high. At present, the amount of work is above last year's level. Among the areas with the most potential are the gas fields off Thailand and the Northwest Shelf of Australia. In the Philippines, we are designing and building an onshore geothermal plant, which presents an interesting West Africa, Central and South America -- In West .Africa, we are neWfwabarrirciaFtianbgrisceavtieornal platforms at die Yard and have challenge for the Company. For the Republic of the Philippines, a nation with few energy resources, the geothermal plant is a step installation and pipelaying jobs off of the coasts of Nigeria. Zaire, and Angola. There are more contracts in the area now than a year ago. toward a degree of energy self-sufficiency. and we foresee a number of prospects for the next several In the past, pipelaying jobs in South East Asia have been for small-diameter pipe and for short distances. Prospective jobs, are larger and more complex? For example, we are laying 140 miles of pipe in the South China Sea. During the year, platforms will be installed and pipelines laid off years. In Brazil, Petrobras recently announced the discovery of two more offshore fields, bringing the total to eight. We installed several platforms this year, and pipeline work should be available beginning in the 1981 or 1982 season. In Venezuela, we recently completed a dual 3S-inch pipeline from the mainland to Margarita Island. The 23-mile-long line will be used to supply the island with fresh water. \ Babcock & Wilcox Operating Unit 13 GEORGE G. 2IPF Vice Chairman of the Board. President and Chief Operating Officer, Babcock & Wilcox Operating Unit Power Generation Systems and Equipment-- About three-fourths of the B & W Operating Unit's business is from the sale of power generation systems and equipment, with the electric utility* industry alone providing about one-half of the business. The utility market is depressed and has been so for several years. However, extended scope of supply for power generation systems-andjjlrvices to operating plants has compensated for this decline. B & IF built this 750-megawatt generating station, which is one of thefirst lignite-coalfired units in the Southwest. j-^hc" Fos-.il Power Lakeland. Florida. The Lakeland j Generation Division contract for $3$ million includes --L received tiicr largest order the unit s airheaters. precipitators, i;i it> history from Middle South and a system that removes siillur of New Orleans. The dioxide. contract b f<>r six "50-megawatt The U.-00 megawatts of boiler coal-fired boilers valued at $250 capacity ordered this year by the million. We also received a contract t'.S. utility industry was an for a 5-iO-megawatt, coal-fired improvement over the 13.000 of boiler from Cajun Electric Power I the year before. Still, the figure is Cooperative. Inc., of New Roads. Li aiisiana Among the other important orders for coal-fired radiant boilers were a letter of intent for a -TO-megawact unit from Colorado L'te Electric Association and a contract fora 364-megawatt unit for far below the megawatts per vear that were ordered in the earlv 19 Os. Because of the decline in the L'.S. market. B N W b making a stronger thrust in the international market. A recent success was a contract for five oil- and gas-fired. 190-megawatt radiant boilers for the Middle East. B & W has been highly successful ** OurUPScoalpulverizers have gained iride acceptance a/nonji electric utilities: more than 600 units hare been sold worldu'ide. iii ocher markets related to the base boiler business.- extended scope of supply products -- airheaters. fans, and ash-handling equipment: environmental equipment -- electrostatic precipitators, wet and dry scrubbers; customer services -- replacement parts, engineered upgrades, alterations, in-service inspection and maintenance. ith the stricter air Wquality requirements now in effect, we can expect more orders for environmental equipment. Most new boilers will be required to have sulfur dioxide removal systems, and many old boilers will be retrofitted. B & has made significant progress in environmental qualitysystems based on extensive experience with operating units. For example, we recently received a $40 million order for an advanced flue-gas desulfurization system. The end product of the process is a dry pow'der rather than wet sludge, which facilitates disposal. The extended scope of supply for B & W fossil steam systems provides additional sales for erection, controls and other auxiliary equipment. TLT-Babcock. which makes heavy-duty fans and sound-abatement equipment for use by utilities and industry, made further progress during the past year. The company produced a large share of the fans sold to utilities and improved its share of the market for fans used by industry in such applications as Through these pipes, pulverisedcoal is blown to the burner ofa lignite-fired boiler. mine ventilation and cement plant stress improved performance and and steel mill processes. The availability. Thus, this division had company's first resonant silencers an outstanding year. went into operation in the United The reduced load growth, States, and we believe this market excess generating capacitv. and has considerable growth potential. financial pressures on the Sales last year were higher utility industry have resulted in than in the previous year, and we continued delays and cancellations expect the growth to continue. of nuclear steam system contracts, and few new orders are expected he Industrial and Marine by the Nuclear Power Generation TDivision captured 2" Division in the near term. percent of die total Customer sen-ice has been an domestic and international indeuxspandeding part of our nuclear trial and marine markets. I &M utility business, and prospects for held or improved its share of the growth are good. bookings in every product line. To compensate for reduced boiler sales, the division has improved its ability to provide a broad range of customer services, including the supply of replacement parts, fuel conversions, energy conservation equipment, and engineered improvements to boilers. uring the year, we D were awarded all major process recovery boilers bought by the pulp.and paper industry. In Akron, a refuse burning unitwas completed and six refuse burning boilers were sold to Columbus, Ohio. The latter was the largest municipal order placed during the year and , the largest order in the history of -the division. As die need for new steam gen erators has declined, the B & W Construction Company has expanded into relate^bconstruction fields. Particular]#, maintenance and upgrading <$|g?dsung boilers continues at a higft level as utilities 'm v- U > fire-iiif^inriiU M>ltir reccircr. designed mid tested for the ( . S. Deportment of inis exceet/et/ e.vfn'chition.s mid hits heen de/irered lo the Smiditi ihonUories Central Rereirer lest IneditY for more tests. r The nuclear fuel business c mumies to Jo well. as we Mipplv ref iad fuel for the nine B <N NT units that are in operation, and we anticipate expansion as new units come on-line. The Nuclear Materials and Manufacturing Di- ision. which supplies nuclear fuel for both commercial and gov ernment applications, had its best vear ever in these operations. The Naval Nuclear Fuel Division was awarded new orders, which maintained the division's substantial backlog. The Nuclear Equipment Division, which supplies component.*- for the Nan- and for commercial nuclear power plant-', was awarded a major share o! the available business for die l`.S. Naw's nuclear propulsion program. The division is expanding its activities in markets <;/'s.'rrJtuning i:. <>/> nftmr JitsU's: "rtui'iirj nc.'irilies. requiring similar equipment and expertise. The divi-hm is now designing :ii\! muuutactunnq tile reactin' vessel and several other components for the Clinch River Breeder Reactor plant. .0 well as desiqninq ami m.mur.icturinq a 19 prototype of an advanced breeder reaaor steam generator under a contract with the Department of Imergy. B & \\" Canada supplies both fossil and nuclear steam generating equipment for domestic and international markets. The market 200-megawatt coal-fired boilers. conditions in Canada parallel those The combined value of these in the United States for both utility contracts is about $80 million. and industrial steam generating equipment. Nevertheless. B & VC Canada had a high level of bookings during the year, including new equipment, repair and alteration work on existing boilers, and an expanding customer service and replacement parts business. B & W Canada received two orders from Ontario Hydro -- one for 16 nuclear steam generators and the other for two ailey Controls Company Breceived a record number of new orders during the year and considerably improved overall performance. The demand for Baileys products and systems was strong here and overseas, where customers are ordering combustion control equipment at record rates. The recent success is largely the result of new products such as the Model KA Pressure Transmitter and Direct Digital Control system supplied by our Bailey Controls Company is installed in tite control room of a utility- pott erplant. the 1035 Computer. During the fiscal year, the first shipments of the 1055 Computer were made and a significant backlog is now on order. This is one of the most powerful computers in the utility* industry, and Bailey expects continued rapid sales. Bailey's Conserver Control System has been well received for use in industrial and chemical processes, where it provides significant fuel i i savings to such industries as steel, oil, chemical, and pulp and paper. i i f! r i1 ! j i- ' & .jtr o vr--iamund Power Specialty The industrial market for ^ a Corporation, which is cleaning equipment is expected to the world's leading grow -- for new installations and supplier of boiler cleaning for conversion from gas to oil or equipment. had another in a long coal -- while the replacement parts hi<torv of record years. Diamond s business is another large and position ha.'- been enhanced by growing market for Diamond's the trend toward coal-fired boilers equipment. and its technological leadership in developing advanced designs. Engineered Among the new products introduced this year was a Materials retractable sootblower designed to Improved manufacturing clean heat exchangers for the performance, modernization, petroleum, chemical, and other expansion, and increased product industries. demand at the Tubular Products Division led to nearly a 10 percent increase in tonnage shipments and a 25 percent increase in dollar shipments during the 1979 fiscal year. Record volumes were achieved at the division's Alliance, Ohio, and Beaver Falls, Pennsylvania, facilities. The Alliance plant increased its tonnage shipments bv more than 9 percent, and the Beaver Falls plant, which includes the new Ambridge operations, finished the year with more than a 15 percent increase in total volume. The Ambridge hot n^U -- the heart ofthe new $70 million facility and one of the most advanced seamless-pipe mills in the world -- nearly, doubled the tube-piercing race of a year ago. Oil well tubing shipments were at a record level. Shipments of large-diameter and heavy-wall welded products from the Alliance plant increased over last year's volume. Ac the Milwaukee plant, the modernization program was .be:ner G>unrv indu.Mn.il >. ..It -pi:lent Authority i><ucd 5!~ m i if 0.8 percent Pollution >)i Revenue Bond> Due ;e:':->.u:y 1. 2<)0'A The del'll service ihe h< >nd> i-' payable pursuant t> > , i\ >1 iuii* >n Control Financing Vereement between the Authorin' md the Company. The proceeds > tiib U-ue will be used in nm-arncting water treatment acilitie'' at our Beaver Fails and Koppel. Pennsylvania, plants. -^n fiscal 19~9 dividends totaled S2.20 a share tor the Series A Stimulative Convertible Preferred Mock, and $2.60 a share for the Series B Cumulative Preferred Stock. During the year the Common Share dividend rate was ; ncreased 11 percent over the $0.90 per share paid in fiscal 19"8. On lunc 11. 19"9. the Board of Directors voted to increase the regular quarterly Common Stock cash dividend 20 percent to $0.30 per share from $0.25 per share. 6 19"9 VERSUS 1978 Revenue* for the twelve months ended March 31. 1979. increased by >1.850.853.000 over those of the twelve months ended March 31. 1978. This increase is attributable to the revenues of The Babcock & Wilcox Company's ( B&W) operations (power generation svsterns and equipment, engineered materials and other operations) in the' amount of S2.047,025,000 which are hill v consolidated for the first time in the in the marine and onshore construction operations to be lower during fiscal year 1980 chan in fiscal year 19"9 and. as a result, such operations may not be profitable. For the rwelve months ended March 31. 19T9. operating income from the marine and onshore construction operations was S34,589,000. as compared to S 197,768.000 for the twelve months ended March 31, 1978, equity in an unconsolidatcdaffiliated company which began operations early in fiscal 19~S. Decrease in other income is due mainly to losses in translation of foreign currency for the twelve months ended March 31. 19~9. versus gains in translation of foreign currencv for the twelve months ended March 31. 1978. The remaining differences were attributable to a number of other factors twelve months ended March 31, 19' offset bv marine and onshore and operating income from the power including workmen's compensation generation systems and equipment, retrospective adjustments, bad debt construction operations' revenues.' which decreased by $196,172,000, largely as a result of a decrease in revenues from foreign operations of S170.286.000. engineered materials and other operations was $147,461,000. Interest income for the twelve months ended March 31, 1979, increased by 520.702.000 over that of the twleve expense, royalties, and minority interest. The provision for income taxes for the twelve months ended March 31 19-9. increased by $2".4"5.000 over that provided for the twelve months ended Costs and expenses for the twelve months ended March 31,1979, increased by Sl.866,57l,000 over those of the twelve months ended March 31, 1978! Included in this increase were costs and expenses of $48,494,000 in connection with the relocation of certain operations of one of the Company's foreign areas and months ended March 31, 1978. This increase results from the consolidation of interest income of the power generation systems and equipment, engineered materials and other operations along with changes relating to the interest bearing investments of the marine and onshore construction operations, as well as the March 31. I9~8. This increase is primarily due to the fact that a greater percentage of consolidated earnings were from domestic rather than foreign sources, and that certain foreign losses resulted in no tax benefits, resulting in an effective income tax rate of 54% for fiscal 1979 compared to 54% for fiscal 1978. warranty and other related design and fabrication problems experienced in certain nuclear contracts. Of the total increase, SI,899,564,000 reflects the . costs and expenses of the power generation systems and equipment, engineered materials and other operations, offset by costs and expenses of the marine and onshore construction operations which decreased by $32,993,000. Costs and expenses of the power generation systems and equipment, engineered materials and other operations were 93% ofrelated revenues for the twelve months ended March 31, 1979- Costs and expenses of the marine and onshore construction operations were 97% of related revenues for the twelve months ended March 31,1979, as compared to 85% for the twelve months ended March 31, 1978, producing lower profit margins in both the North American and foreign areas of the marine and onshore construction operations. The continuation of the slowdown in worldwide hydrocarbon development in offshore areas has resulted in lowerprofit margins reflecting intense competition and a lower rate of utilization of the Company's equipment in substantially all of the Company's markets. The Company expects the rates ofequipment utilization interest rates thereon prevailing in the respective periods. Interest expense for the twelve months ended March 31, 1979, increased 525.336.000 over that of the twelve months ended March 31, 1978. Approximatelyone-halfof this increase is attributable to the consolidation of interest expense on debt carried by the power generation systems and equipment, engineered materials and other operations. The remaining increase is attributable to the additional borrowings related to the investment in B & V, new debt incurred during the current year and fluctuations in the revolving credit and term loan agreement, along with changes in the interest rates prevailing in the respective periods. Equity in earnings of affiliated companies for the twelve months ended March 31, 1979 decreased $15,240,000 from that of the twelve months ended March 31, 1978. For the twelve months ended March 31, 1978, the Company reported its share of its equity in the net income of B & W in the amount of $20,364,000. The principal increase in the current twelve months' period, other than the equity income of the power generation systems and equipment, engineered materials and industrial products operations, was that of the 1978 VERSUS 1977 Revenues for the fiscal year ended March 31, 1978, increased $69,870,000 as compared to the fiscal year ended March 31,1977. This increase marks the. culmination offive years of extraordinary growth of worldwide hydrocarbon' development in offshore areas, peaking in the third quarter of fiscal year 1978. Domestic revenues increased to an all-time high, while foreign revenues decreased. Costs and expenses for the fiscal year ended March 31. 1978 were 83% of revenues as compared to 79% for the fiscal year ended March 31, 1977. This increase was attributable to lower utilization of Company-operated equipment, particularly in the North Sea, South East Asia and \Test Africa areas, resulting from a slowdown in offshore activity and increased competition in foreign markets. Interest expense increased $ 10,730,000 principally as a result erfthe additional borrowings related to the investment in B & The increase in equity in wming: of affiliated companies in the fiscal year 1978 is principally attributable to the Company's share of the earnings of B & W. The Company increased its . 'S : ?- :i\oinient to approximately 49% of : o>. w in September 19"*'. and its share : B V"s earnings has been accounted . ir on the equity method through March 51. 19~8. at which time the . .ompanv acquired the remaining merest in B & \V. The Company ncluded its equity in the earnings of i & \v as other income in the amount J 520.364,000. Additional increases in other income were attributable to an increase in interest income of 512.300.000. consistent with changes in interest ->eanng investments as well`as interest rates thereon, prevailing in the respective periods; further increases were attributable to a net gain on foreign currency translation of Si2.400.000 as well as workmen's compensation premium adjustments, gains and losses on disposal of assets, royalty income, bad debt recoveries and inventory adjustments. Domestic operations accounted for a greater proportion of income before provision for income taxes during fiscal year 1978 than was the case in the prior fiscal year. United States investment tax credits for fiscal year 1978 were less than those for the .prior fiscal year. Also, a .greater proportion of income before taxes attributable to foreign operations was generated in geopolitical areas subject to higher tax fates. Additionally, an income tax holiday applicable in fiscal year 197" was not applicable in the fiscal year 1978. These combined factors increased the effective income tax rate for the fiscal yeaT ended March 31, 1978, to 34% as compared to 27% for the fiscal year ended March 31, 1977. producing provisions for income taxes of 580,993,000 and 570,116,000, respectively. Net income was increased for the fiscal year ending March 31, 1977 by an extraordinary item of 5132,000 resulting from utilization of foreign tax benefits from an operating loss carryforward. There-were no extraordinary' items in fiscal year 1978. MARKET PRICE OF VOTING STOCK ' The Voting Stock of the Company is listed on the New York Stock Exchange (symbols MDE, MDEa, MDEb). The following table shows the reported high and low sales price of these securities on aquarterly basis in fiscal years ended March 31, 1979 and 1978, as reported by the National Quotation Bureau, Inc. . Common Stock' First Quarter Ended June 30 FISCAL 1979 High ; Low FISCAL 1 " 1978 ; , High u : Low '; 31 1/2 23 1/4 29 7/8 '25 1/8. .. . Second Quarter ' Ended Sept. 30 29 1/4' - 22 5/8'. 29 5/8! ? 22 1/8* * 7 Third Quarter ' Ended Dec. 31 ' ' ' ' Fourth Quarter - . Ended March. 31 28 1/2 20 3/V : s 29 3/4 - : 22 7/8M-*: - * _ .r ' ; !- : 22 3/4 - .18 3/4 . 28 i/2- -.21 1/2: i Series A Preferred Stock - * . --- : First Quarter Ended June-30 35 3/4 29 i/8 !* Second Quarter Ended Sept. 30 Third Quarter Ended Dec. 31 ' - '' ' 35 29 33 5/8 25 3/4 ' ; ; ' \- Fourth Quarter Ended March 31 28- - 25 1/2- f - Series B Preferred Stock ; ; ; ; i l ; First Quarter' -, Ended June 30 ' ' < 30 3/4 if i 28 3/4? 1 Second Quarter ' ; : Ended Sept. 30 C - . : 2 32 1/8 28 7/8--- * .5 V , .*.'**** * i Third Quarter Ende'd Dec. 31 31 T ; 28 1/4' Fourth Quarter ; . Ended March 31. * ' 1 ' ;\v i ' ' ` ; 30 5/8 ; 28 i/2- > DIVIDENDS: - : The Company has. declared a quarterly dividend on the-Common Stock for 97 consecutive quarters. A quarterly comparison of' dividends declared in fiscal years ended March ' 31. 1979 and 1978 on a per share basis - is as follows:Common Stock ; ; ; - FISCAL ; FISCAL * 1979: . 197s First.Quarter - ' ' ---------- ' --:------- Ended June.30 ; ; $ .25 7 ':'!$ `.2Cy Second Quarter. . * - . i * ^ J - * t : - Ended Sept. 30 : - * -.25 V > r'-i 120- Third Quarter; - - K iv-.i '! -.3 h ft ; ` Ended Dec. 31 ' : . * t * ..25 * : - -.25: : Fourth Quarter : ?' . * ; x 4 a ; : ! * !; * ' -'EndedMarch31 ' - : : : - '.25 ; :> ' -{ .25 ?; " r . * .*.'*'* '* - si.oo ' ;$ :90; , Series A Preferred Stock ; J 4, * . * First-Quarter . : T' ' *f 1 1 i : ; ** * ` Ended )une-.3b< ` i v . Second Quarter' ' : ;}. :V 3 ft *. t ?.i-.. * J Ended Sept. 30 * ;! .55 1 Third Quarter Ended Dec. 31 -.55 . Fourth Quarter * i -. * - Ended March 31"'" :'.55 ' ? i: ; ;: / ; < : - si $2.20,' ?.> ii ; ! 'Series B'Preferred Stock; ?--1------ . T $m: : - First Quarter . : ' 3 i.F.?-5-s 1* ; ; . Ended June30-'; : * - ? Second Quarter : - -- ; : 1: Ended Sept.' 30 : ; * - 5 ^ 5 5i65 HI? t .-Third .Quarter > ; . i ? 5 .' f, :.i ' ` ` ; . ' iEnded Dec31 .. - ^ ..65 ^ / -1 Fourth Quarter > ` : Ended March 31 . ; . f <* ' 3 -* J - * T v -. :; $2.60! :; 3 W-Hl * . J. Ray McDermott & Co., Inc. and Subsidiaries Ten Year Summary of Operations s------------- ---------------------------------------------------------------------------------------In Thousands of Dollars Except Shares and Per Share Amounts FOR THE FISCAL YEARS ENDED MARCH 31. Revenues Costs and expenses Operating income Other income (expense): Interest expense Other Income before provision for income taxes Provision for income taxes Income before extraordinary items and cumulative effect of accounting change Extraordinary items (net of taxes on income) Cumulative effect of accounting change (net of taxes on income) Net income Earnings per common and common equivalent share: Primary earnings: Before extraordinary items and cumulative effect of accounting change Extraordinary items (net of taxes on income) Cumulative effect of accounting change (net of taxes on income) Net income Fully diluted earnings: Before extraordinary items and cumulative effect of accounting change Extraordinary items (net of taxes on income) Cumulative effect of accounting change (net of taxes on income) Net income 1979 5 3.144,564 2.962.514 182,050 (52,223) 71,600 201,427 108,470 92,957 $ 92,957 $ 1.94 $ 1.94 S 1.92 $ 1.92 Cash dividends: Per common share Cash dividends paid on common stock Cash dividends paid on preferred stock Total amount Weighted average number of common shares outstanding Stockholders' equity per common share at March 31 $ 1.00 32,132 30,295 $ 62,427 32,366,019 $ 27.09 1978 s 1,293.~11 1.095.943 197.768 (26.88") 69.206 240,087 80.995 159.092 s 159.092 s 5.02 s 5.02 s 4.92 s 4.92 s .90 28,571 $ 28,571 31,670,923 S 26.15 1977 s 1,223.8-t 1 964.210 259.631 (16.1 18.152 261,626 "0.116 191.510 132 $ 191.642 s 6.11 $ 6.11 s 5.93 s 5-9? s .5"5 18,0?S s 18.038 31,342.492 s 22.12 Primary* Earnings Per Common & t DOLUS* Common Equivalent Share 6^5 '1EA9xd7cjlu5utdtced!1fEo9xrt7nra>6oor4doinr1a9ray7elo7ttcoadte(iv.yuet 1979 I 29 i 1976 < 1.102.0-8 8"1.?9" 230,281 C22.06-) 13.48" 221."01 66.42" 155.2"4 4.910 _ $ 160.184 1975 S '42.825 649.543 93.282 (15.972) 13.354 90,664 14.217 . 76.447 -- -- 5 "6.447 1974 S 425.756 379.339 46,417 (8.679) 9-461 47,199 12.178 35,021 -- (3.023) 5 31.998 1973 S 358.399 331.145 27.254 (5.974) 8.179 29.459 12,554 16.905 270 ___ . $ 17.175 1972 S 321.509 313.949 7.560 (4.146) 6.86" 10,281 2.128 8,153 10.962 _ s 19.115 1971 s 238,158 231,052 7,106 (3,888) 4.762 7,980 1.188 6,792 -- S 6,792 1970 5 28^.547 259.234 25.313 (3.842) 3.409 24.880 8.801 16.079 8.109 . 5 24.188 > 4.97 S .16 2.47 S 1.26 $ (-11) 5 5.13 s 2.47 s 1.15 s .63 s .01 .64 s .30 S .41 .71 s .25 S .25 s .61 .31 .92 s 4.80 .15 s 4.95 $ .425 13.283 s 13.283 31.247.192 s 16.54 s 2.39 s 239 $ .30 9.289 s 9.289 30.891,736 $ 11.79 $ M3 s (09) S 1.04 s .61 .01 .62 s .2625 7,380 s 7.380 27,852,508 S 9.74 s .25 6.733 s 6.733 26,928,184 S 7.66 Capital Expenditures & Depreciation t MILLIONS 175 Book Value Per Common Share* s .30 S .25 $ .61 .41 .31 S .71 S .25 $ .92 S .25 6.724 $ 6.724 26,884,332 S 7.22 5 .25 6,715 S 6,715 26,859,712 $ 6.75 $ .25 6,604 s 6,604 26,404,928 S 6.91 Total Capitalization f MILLIONS 2,710.8 , 2000 1975 1976 1977 1978 1979 1 3 Capital Expenditures G Depreciation 1975 1976 1977 1978 1979 * Adjunct! tor cwfor-onc nock iplin. 1975 1976 1977 1978 1979 @ Long Term Debt G Stockholder's Equity REVENUES ______ Marine Construction Services Power Generation Svstems and Equipment Engineered Materials Other Products & Services Total _______________ Fiscal Years Ended March 31. 1979 1978 1977 1976 $1,010,816 (In thousands of dollars) SI.116.119 SI,089.455 $1,010,105 1.463.793 508,546 161,409 S3.l44.564 177.592 SI.293.71 1 134.386 SI.223.841 91.9".** $1.102.0~8 19-5 S 6S4.309 58.516 S "42.825 PERCENT OF REVENUES Marine Construction Services Power Generation Svstems and Equipment Engineered .Materials Other Products & Sendees Total 1979 32% 47% 16% 5% 100% Fiscal Years Ended March 31, 1978 1977 1976 86% 89% 92% 14% 100% 11% 100% 8% 100% 19-5 92% 8% 10 0% OPERATING INCOME Marine Construction Services Power Generation Svstems and Equipment Engineered Materials Other Products & Sendees Total 1979 $ 61,011 117,722 50.989 (893) S 228,829 Fiscal Years Ended March 31. 1978 1977 1976 (In thousands of dollars) S 205,559 S 247,644 S 219C52 15.364 s 220,923 11.987 S 259.631 10.529 S 230.281 1975 S 95.893 (2.611) S 93.282 PERCENT OF OPERATING INCOME Marine Construction Sendees Power Generation Svstems and Equipment Engineered Materials Other Products & Services Total 1979 27% 51% 22% -- 100% Fiscal Years Ended March 31, 1978 1977 1976 93% 95% 95% 7% 100% 5% 100% 5% 100% 1975 103% (3%) 100% See Note 11 to the consolidated financial statements for a description of the Company's industry segments. For fiscal 1979 and 1978, industry segments have been determined on a basis different from prior years to conform with FASB 14 on segment reporting, and operating income is before allocation of general corporate expenses. For the' prior fiscal years 1977,1976 and 1975. Onshore Construction Services (now categorized as apart of"Other Products & Services") consisted of amounts attributable to Hudson Engineering Corporation and its subsidiaries, and Marine Construction Services represented all other. Operating income for these prior years was after allocation of general corporate expenses. ) ICt\ McDermott & Co.. Inc. and Subsidiaries March 51. 19"9and 1978 nicoliciatecl Balance Sheet ASSETS Current Assets: Cash Short-term investments, at cost which approximates market Accounts and notes receivable (Note 3) Marketable securities, at cost (market S18.302.000 in 1979 and 517,056,000 in 1978) Contracts in progress (Note 3) Inventories (Note 4) ! Prepaid expenses Total Current Assets Investments in Affiliated Companies, at Equity - Property, Plant and Equipment, at CostLand Buildings Machinery and equipment Property under construction Less accumulated depreciation and amortization Net Property, Plant and Equipment Excess of Cost Over Fair Value of Net Assets of Purchased Businesses Less Amortization I Other Assets Total See accompanying notes to consolidated financial statements 1979 1978 (In thousands of dollars) $ 19,752 5 22.842 621,112 604,059 595.150 535.281 9,231 330,020 342,493 10,083 1,936,750 9.231 324.126 332.030 12.354 1.831.014 12,398 19.906 36,579 194,535 1,021,738 108,238 1,361,090 440,346 920,744 36.0-- 174,390 931.226 97.1U 1.238.80" 347.226 891.5S1 379,404 51,646 403.320 36.9S6 $3,300,942 S3.182.80" JO LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: maturities of long-term debt (Note 7) Accounts payable Accrued liabilities Advance billings on contracts (Note 3) Provision for warranty expense . U.S. and foreign income taxes Dividends parable Total Current Liabilities Deferred and Non-Current 1 ' Income Taxes (Note 6)-; ' 1979 1978 (In thousands of dollars) ; : i ; r: ; _' $ 20,425 186,718 345,864 $ 12,108 . 232,606 279,672 262,518 278,530 106,934 79,390 126,839 15,623 120,991 7,999 1,064,921. ' ; 1.011.296 '- 381,523 ; 372,798 Long-Term Debt (Note;?)/ : . :- , : " : . ' - ; ; 492^647;.; . ; 479,432 Other liabilities i f... ? `.: - Contingencies and Commitments (Notc8)_ \ ; i . ,; ( ; ; j Hi H, : ' : ^5,189 .j '' ; 87,842. .# ' V-;, ^ ; ' *7 ' ; , 7 Stockholders' Equity (Note 9X ' Preferred stock ; ;*O; ^ * 7v ; ^^}). - . : : y. - , ; i : = - : - V . i ; 7 . 394,507 . ; 394,847 .Common stock"~ -i * 11 ' J - I - > i .Capital in excess of'par value ' i ` . - - ' :i ? . * : - , . 'Rerained earnings (Notes 6-& :7.)".'\ ' ' - i n i ' r ' " :<: 5 ? 32,523 ` - 32,307 : 133,038 i .:7 129,505 , ; .714,883 i* 684,353 .,:- ;- ;-1^74,951:; : i,24i-,012 > :Less; Cost of common stock in;treasury: tit;.- .' t- i l Vi i ;: i ` :.:: v i i i;. :;i2,68i * ; - Unaroortized- deferred Career Executive StockvPlan expense 18^n i ? * C6.892. ; : Total Stockholders' Eauity- "'a :: - -* > : -3 -"-t 5 7 , 5 ;: ;K? i? ;1^266;<>62 7 k * : 1,231,439 'i.( :;} ] C-w'-iz :; }j |; '; : ^i u i.* 'i v ^ t-.i ' t ? ' - J ` W' A 5 ;;' : i - . - Total ; t W ; ? i ; t -. : ' ' 7 : ^ ! ; : . - cf t1 K .^3300,942; i ^53.182,807: : . ,V : I .. : : : Yi.&r v.ir* : : : -s >-M`K':; ;;;'}>: V;:' ' ' ' - 'J ^ a * fi%*'\ u.X > } ] *' v ; ; : ;; v ^ 5: ^ ^ ^:1 1 ^: - : ; > - 'T ' ; : ; * i : * ' . r - . ; * ' 4 * S ?.j. .} * . ; * - ' ' ' **;*'*. . ! 1 ; 7 : ; >,, t \X ': - -. ; ; - ; i i : ' ' ` v: : $ ` |? '-j i' t 1 V ' t * * '1 * * . t j 4 i i : - - `t.. ^ Yt\ \: ; - 7j f "r j:. > : * j 1 * , j ^ ^ * i - j ! ' \ i 'i ? r f * "? ; ^ . : 4 ^ M 3 :!'< 2 f 5. V: ? : ;'>< M ir f j- f f : : V ' ;. *; w:.v : r' w J. Ray McDermott & Co.. Inc. and Subsidiaries tor die Fi>cal Years F.nded M;trch 31. 1979 and 19 8 Consul id cited Slate men? of Income and Retained 'Earnings Revenues Costs and Expenses: Cost of operations Depreciation and amortization Seilinc. general and administrative expenses Operaung Income 1979 1978 (In thousands of dollars except per share amounts) $3,144,564 $1,293,711 2,600,274 111,365 250,875 2,962,514 182,050 901.696 676 M 126.633 1.095.943 197"68 Other Income (Expense): Interest income Interest expense Equity in earnings of affiliated companies -- B & W" -- Other Other Income Before Provision for Income Taxes Provision for Income Taxes (Note 6): Current Deferred Net Income 54,826 (52,223) 8.678 8.096 19,377 201,427 34,124 (26.88") 20.564 3.554 11.164 42.319 240,08" 25,756 82.714 108,470 92,957 68,290 12,705 80.995 159.092 Retained Earnings, Beginning of Year Deduct: Cash dividends -- common (S1.00 in 1979 and S0.90 in 1978 per share ) -- preferred (Series A, S2.20 and Series B. $2.60 per share in 1979) 684,353 32,132 30,295 553.852 28.571 Retained Earnings, End of Year (Note 7) Earnings Per Common and Common Equivalent Share: Primary Fullv diluted See accompanying notes to consolidatedfinancial statements $ 714,883 5 684.353 $1.94 $1.92 $5.02 S4.92 J. Ray McDermott & Co.. Inc. and Subsidiaries for the Fiscal Years Ended March 31, 1979 and 1978 Consolidated Statement of Changes in Financial Position 35 1979 1978 SOURCE OF FUNDS: ; Operations: ' '" . Net income Charges (credits) nor affecting working capital: Depreciation and amortization . " Deferred income taxes .;" . Equitv-.in earnings of affiliated companies net of dividends received of . ; 517,922.000 in 1979 and 5750,000 in.1978 . . - ' Other `; (In thousands of dollars) ; :: ` '' : $ 92,957 s ; 159,092 111,365 100,205 .- : 9,244- 7,420 : '67,614 -10,464 (23,168) 14,168 Working capital provided from operations ,. Issuance of common, stock ' ., . Issuance (conversion) of preferred stock i : ' ` . ! ; , ; Non-current liabilities of.B:& .V?,:-p<rinapaIJy;Ipng-termjdebt : ; .Jatid hon-current tricorne-taxes. ` ^ . Long-term borrowing (including fluctuations under. - ?. I \ . . : r .> : ' 321,191 3,749 ' (340) : .228,170 . . .. .9,172; : 1394,847- : ; s ` . :495;358 ; S . 'the revolving credit agreement) f f Vi j i:; ; .jo- : Other -- net * ;' ( . ^ y . : t !.{ L V- i H^.% 1; . ? ? . 405318* i ' : ,275,000' . -- 'i ;1 : `2;813: .> 7291918 ?:I;405.3<S0 =: i i\ - - 1 131;,026 f; l '84,975 ;7 v392|l<B l; ::L08i6b2v"^ : 91,480:: c - : v " ' {62,427 = \ V, ;28,57I;.. (l4'352) h '- 399,764/. u :.s? * : v ' -;'y*;:4'26^S:75" * *. ; i < i " ` : l< a ; 7 '!:$ t * ` X i-rK >: { ;.'i| I'H-? INET: INCREASE IN-WORKiNG CAPITAt 1V H 1,'i > - .?- ^ < .. ; ;;v J.,\- < ' b'l<4'> ?;.V5-'- , '.j..' ! > : s -Sd- y-i; (p-t4 "5 VV-f f y -P'r^aTd1-expenses' vy-M {'/ ; 11 i t y->,t i ;1 ; r.:-v{ 11 / ?! v s - 677307 5 ^ ^048387 0- 0 ? 'H - (i$. i *52,111i U *30*6)773 uimHk :<F&872;ii:i rl:i85;470 ? v . $ -- A V. 4. *3 s|277'629:v|:. lr: 3394^ i 3! i, 5292,076 It | x ^I0v463il 5 1 i28i;b6i; ' I s(2^27lj | r T ^105^736; ? ?1^942;60i fxl. J* J. R:iy McDermott & Co., Inc. and Subsidiaries March si. 10-yand hrs 'ole. V.O ! s' 7 ;;; o ; NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The consolidated financial statements include the accounts of the Company and aLl significant subsidiaries. All significant intercompany transactions and accounts have been eliminated. Investments in affiliated (20% to 50% owned) companies arc accounted for on the equity method. Certain amounts previously reported in the consolidated financial statements at March 31. 19"$ have been reclassified to conform with the presentation at March 31. 1979. Contracts and Revenue Recognition Marine and onshore construction contract revenues are generally recognized as contractual obligations arc completed. Revenues are recognized on certain marine contracts containing identifiable separate projects when such projects are completed and accepted by the customer. Revenues from time or day-rate basis marine contracts are recognized as earned. General and administrative costs are included in marine and onshore contract costs. Current provisions are made for all known or anticipated losses on marine and onshore construction contracts which have not been completed. Power generation systems and equipment contract revenues and related costs are principally recognized on a percentage of completion method for individual contracts or components thereofbased upon work performed or the ratio of costs incurred to total estimated costs, as applicable to the product or activity involved. Revenues so recorded are includedin unbilled revenues until invoiced to customers under the terms ofthe contracts. Contract price and cost estimates are reviewed periodically as the work progresses and adjustments proportionate to the percentage of completion are reflected in income in the period when such estimates are revised. The Company is usually entitled to financial settlements relative to the individual circumstances of deferrals or cancellations ofpower generation systems and equipment contracts. The Company does not recognize such settlements or claims for additional compensation until final settlement is reached. Foreign Currency Translation The accounts of foreign subsidiaries maintained in foreign currencies are translated into U.S. Dollars based on current exchange rates at the end of the fiscal year for assets and liabilities except for inventories, prepaid expenses, property, plant and equipment, and.stockholders' equity for which historical exchange rates are used. Average exchange rates prevailing during the fiscal years are used for revenues and expenses other than depreciation and prepaid expenses. Exchange gains and losses are recognized in the year of occurrence. Included in other income are losses of $4,739,000 for the fiscal year ended March 31, 1979, and gains of $3,460,000 for the fiscal year ended March 31, 1978. Depreciation, Maintenance and Repairs Property, plant and equipment is depredated by the straight-line method, using estimated useful lives of 8 to 40 years for buildings and 2 to 20 years for machinery and equipment. Maintenance, repairs and renewals which do not materially prolong the useful life ofan asset are expensed as incurred except for drydocking costs for the Company's marine fleet. Under the accounting method for accrual of drydocking costs, estimated costs are provided and charged to operations currently. Amortization of Excess of Cost Over Fair Value of Net Assets of Purchased Businesses The excess of the Company's investment in B&W over the fair value of net assets acquired is being amortized on a straight-line basis over forty* years. Excess cost arising from business combinations prior to 19"1 is not being amortized because, in the opinion of management, there has been no diminution in value. Warranty Expense The Company* provides for estimated future warranty expense which may* be required to satisfy contractual requirements, primarily ofthe power generation systems and equipment segment. Such provision isaccrued relative to revenue recognition on the respective contracts. 'y Research and Development The cost of research and development which is not performed on specific contracts is charged to operations as incurred. Such expense was $28,464,000 in fiscal 1979. Earnings Per Share Primary earnings per common share are computed after preferred dividend requirements and are based on the weighted average number ofcommon and common equivalent shares (stock options) outstanding during the year. Fully diluted earnings per common share assume the conversion ofthe convertible subordinated debentures and convertible preferred stock. NOTE.2 -- ACQUISITION OF THE BABCOCK & WILCOX COMPANY In'September 1977, the Company acquired approximately 4,800,000 common shares of B & W for S62.50per share pursuant to a tender offer. An additional 1,205,600 shares had been acquiredpreviously in open market transactions. These acquisitions represented approximately 49% ofthe B & W shares outstanding- Qa March 31,1978, the Company acquired the remaining outstanding shares of B &-W in exchange for 6,31.7,545 shares of Series A $2.20 Cumulative Convertible Preferred Stock and 6,317,545 shares ofSeries B$2.60;CumuLacive Preferred Stock.'The total cost of the acquisition, which has been accounted for as a purchase,;was approximately $748,000,000, including expenses. The assets and liabilities ofB & W were consolidatedwiththe Company's afMarch 31!, 1978. The results ofoperations of B'.& "W have been fully consolidated for ;1979- ` i ; : ; J ' . - r : . If B & W had been combined with the Company throughout' 1978^ pro forma-unaudited revenues and net income would have been $3,216,000,000and $193,000,000, respectively: pro forma unaudited net income per common share, primary and fully diluted,wouldhave been.'*5.09 and $4:53,-respectively./ - ' NOTE 3 -- CONTRACTS IN PROGRESS \ ^ H ' ? / '; H ' ? *: i '? ? i J Contracts in progress and advance biliihgs: ori-contracts at March3.1lJjconsist of the following:- ' > .- - ; Contracts' ; in Progress ; ' Advance BUHngs on Contracts .. < : V 1979 ' i : T j 1978; .3979' ; / ~ 1798 - .Marineland onshore construction-contracts: Billinas 'to customers v: i t ' } 4' ! ' : i; ''V; i (In.thousands 'ofdollars) >, ` h.+ U)it'-*.'\y yyytyyy itiy:r iVg-i-S.; \ \ ]'$144,459'- * 3*120,3*6 i i $206,889; : *183,904 ` 4 ; 7 ' '' - - .'? l ' ll6,'l'35 v : ' 84,608 ?)' - 258,080. ' 5263:749 ! i ' : : ' . ; : ,.. ? : \-t;- t i ;-28,3'24: : 35,738 ' .; 1 l 5I,191: - - ' .|79,845' : ; Power igeneratiOQ systems & equipment & other contracts:, i ; . . t ; r: V 5 ~y 7' j- t ^ ' *' / Unbilled revenues ; . , ` . : 1.'t ; i . ; - ; 213,009-; * j207,268 v: ' : 1' ' ; 1 . Cost.of work ia oroaress^ . ; ? 1 ` ; j ? ! ; 1 ' :.226,832; , J 75,846 ; r : ? - ' .i f; * * * T 439,8<i: V ' '383,114 Billings to customers in excess of ' -: "T' > ; 1 * - ; >.t \ j ; , V 1 w * : * revenues recognized . l 138.145- : ' 94,726 , i 3 211.327 7*198,685. ; , : - - .. .- - f'- >; ; %. j'; r . ' '! 301-.696' : ! 288,388 r : 211.327 ; : 198:685^. : - . ' r-:) : y: i - . ' J $330,020 : '$324426 ' *262.518 7 ' *278i530 ; . The amounts of general and administrative expenses/remaining in the cost ofuricompleted.marinejahd onshore, construction contracts at March 31,1979 and 1978/were .*48,384,000 and^$37,337,600, respectively. Cbty>fworkin progress ofpowergeaerado.nsystemsandequipmentandothcr;contracts'isbaseduppnacdimulated'productiqnc6sfc; i less'estimated costs associated with revenues'-recqghized.^t f ? < ; * ' '7:.-;; l r H) >.? H\1) '* : . ; v 4 - y ; i r * * ; ' ;- s . I is: = i , * ; ; 5 i i. 39 NOTE 6 -- INCOME TAXES The provision for income taxes consists of: Federal Foreign State and local 1979 1978 Current Deferred Current Deferred $ 12,694 11,042 " 2.020 (In thousands of dollars) $ 71,012 . 5 30,808 . 4,572 ; -35,397 7,130 :2,085 12,829 (124) S 25.756 S 82,714 $ 68,290 $ 12.705 Tax benefits of $-14,882,000, arising from the use of net operating loss and investment tax credit carryforwards available from the B&W acquisition, have been credited to excess of cost over fair value of net assets of purchased businesses. ' .' - Investment tax credits, accounted for on the flow-through.method, utilized in fiscal 1979 and fiscal 1978, were 56,456,000 and $1,609,000, respectively. >; ;` : . The effective income tax. rate is reconciled to the statutory federal income tax rate as follows: .' Statutory federal tax:rate . ; f i. 1979 ; -Percent i -47.5' . 1978 Percent - 48.0 . State income taxes net of federal benefit .Other.- . 7 -S ;. :r Effective tax rate vr 5-1' : 2.o)- (3-2). i; 2.4:' '53.9' (10-3) ; (4.4) ;::(-7) ; i ; ` .5 ? ; " : 16: ' 33.7: .`Deferred income taxes are provided in thcfinaridal statements due 'cotiming' differences between financial arid taxable incorae.'The*principali timing differences'infrepogoizing certain revenues andexpehses-for tax returnand.; financial statement purposes and their effect ori th'e?prpvisiph forfrhe deferred, income taxes-' were? ' ' -;f> t i-'i' v i i ;": U'*;4U \ ?:5 wT> UpM -11979- - ^ K '"' H i w. -.;.v 1-; * i :'. \ 7 thousands,., i ] ; ; ; ; V * ' " \ ; ?of dollars)-* < Excess tax over financial depredation *: ' '5 U.H.* \ ;v 4* I ilp^90r: }t- 11,984'.' ; Long-term contfactsrprimarily on the completed-; -j t ' \-i ' t '-'i : i v $ \ !"* ; ? * ; ' : v.. i i : contract-method-for tax purposes' : ' 5 ; T; *--XX w; , : : Vi x m:$i ;86;127 iJ ) 12,929 : * Other ' -:Z ~ ' >- - - : : tz r. : m ? '. r''> f-j-;? ^tHci-3;6b3) -?. ? (2^08). : - ; ` : '*2 i-: V '.J .'82771^ ; : ;I12,705 : - Undistributed income of foreign subsidiaries .iacluded in .consolidated retainedieaniings at March:'31, 1979,); ; " amounted to ^jproximately .$535,000,000: Uadcx present law, such amount /would be stibjeref toUnited-States7 ? income taxes at prevailing tax rates lessfordgn tax credits ifremitted to thepareht company;'no provision forsuchtaxes has been made in the consolidated financial statements as it is'the .Company?? intention tb indefinitdy reinvest ; said undistributed eamings in'the foreign subsidiaries.' t r ; ; ' r ; : ' ' ' - ; \ f * ? ('jTs-1 j ~ ' At March 3i; 1979, the Company classified income takes'payable and deferred income taxes applicable to long-term construction contracts as non-current to the extenrthat such amounts-will not reyecse or.be paid during'the next year.. To conform to this presentation at March 31; 1978, 5304,748,(100 has beoiVed^ified.frdm U-S andToreighjiiidome- taxes tovdeferred and non-currenriihcome-taxes? J.i ; i Vi I-? ; ' ;.e-I ?' j ^ i.f *-$ ' _ The Compands income tax?returns for the^fourfiscal years ended March &1,-1975 ;are uoder chil^ahd fraud .? , examination by thelntemai RevenueServi<fe.` to;additipn,`the fiscal years ended Mardh(31, i976ahd 197-7jsmd%St^s.! years 1975 and 1976 are uhderdvil cxaminationohly^ No reports have beenreceivedfrom tBeInthal Revenue Sbiyice; for any of these years; however, in the opinion of management the results oe ------ - '-------------- ---:-t- : adverse effect upon the Company's consolidated7financial] r NOTE 8 -- CONTINGENCIES AND COMMITMENTS Antitrust Investigation -- On December 14, 1978 a Federal grand jury in New Orleans, Louisiana indicted the Company. Brown & Root, Inc. and certain of their officers on charges of conspiring to allocate contracts and to fix prices and contract terms for marine construction projects in violation of Section I of the Sherman Act during a period from 1960 through 19" 5. The Company and Brown & Root, Inc. each pleaded nolo contendere to the charges and were each fined S 1,000.000. This might lead to civil antitrust treble damage claims which might have a material adverse effect upon the Company. Litigation -- The Company and certain of its officers, directors and subsidiaries are defendants in several legal proceedings claiming amounts which are material, alleging, among other things, liability for damages allegedly caused by a nuclear incident at the nuclear power plant on Three Mile Island outside Harrisburg, Pennsylvania and violations of federal securities laws in connection with the acquisition of B & W. It is the opinion of management and of general counsel that the outcome of these proceedings will not have a material adverse effect upon the Company's consolidated financial position or results of operations. Operating Leases--The following is a schedule offuture minimum rental payments required under operating leases that have initial or remaining noncancellable lease terms in excess of one year at March 31, 1979: Years ending March 31: : 1980 1981 1982 1983 1984 After 1984 ; ,. 4 (In thousands ofdollars) 5 11,502 8,359 6,525 5,927 . 4,255.'. - 16.277 * ' Total minimum payments required . - 5 52.845 Future minimum lease payments and leased property under .capital leases arc not material. . ... Total rental expense forfiscal 1979 and 1978, was $83,315,000 and 580,921,000, respectively. These expense figures include contingent rentals and are net of sublease income, both of w-hich are not material. - .K Other -- TheCompany performs significant amounts ofwork for the government under both prime contracts'and ; subcontracts and :thus is subject to continuing .reviews; by governmental agencies. - . > -; -- . Firm and contemplated commitments for capital expenditures amounted to $159,412,000 at March 31,`1979.; ; NOTE 9-- CAPITAL STOCK : 7 : / : - ,; : ^ . PreferredStbck--AtMarch31,1979,25,000,000 shares,of 51 par value preferred stockwere authorized, 6,600,000 shares were designated Series A 52.20 Cumulative Convertible Preferred.Stock and 6,600,000'shares weredesignated '' Series B 52.60 Cumulative Preferred.Stock. Of the authorized Series A Preferred Stock.and Series-B Preferred Stock.. 6,306,692 and 6/317,545 shares/respectively, were issued and outstanding and were entitled to $31:25 per share in ' liquidation. The outstanding shares were issued in/connection with the acquisition, of B & W and are stated-.at the ' mandatory redemption value which approximated market value at the time the-.shares were issued. Both series of-, preferred stock are entitled to general voting rights ofone-halfvote for each share. The Board ofDirectors may authorize . additional series ofpreferred stockand mayset the terms of each newserics except that the Company cannot create any series ofstock senior to the existing Series A and'Scries B; Preferred Stock without the/consent of theholdcrs of atleast 50% of the shares of such preferred stock. * ; ` - - - '' . Each share of the outstanding Series A Preferred Stock is convertible into one common share. The shares are . redeemable at the option of the Company pn or after March 31,1983 at the following prices plus accrued dividends: 1983 -- 533.45;T984 -- S33,09; 1985-- $32.72; 1986-- 532.35; 1987--S31.97; 1988 -- S31.62;.and;l 989 through 2008 -- S31.25. On March 31, 1989 and each subsequent year through March`31;2008,the Company is obligated to: . redeem, at a redemption price of 531.25 plus accrued dividends, 5% of the number of shares which are outstanding at . . December 31,1988. * ; { .. ? i . *. >5 41 i itti > Series U Preferred Stock is redeemable at the option of the Company on or after March 51. 1985. at the following prices plus accrued dividends: 1983-- $32.25; 19S4 -- $32.00: 1985 -- 531 "5. 1986-- $31.50: and 19S" through 2008 -- S3 1.25. For die periods March 31, 1986. through March 31. 1995. March 31. 1996. through March 31.2006. and March 3 1.200". through March 31.2008, the Company is obligated to redeem during each year shares of Series H Preferred Stock equal to 5% . 4% and 3% , respectively, of the number of shares which are outstanding at December 31. 1985. Additional shares of Scries A or Series B Preferred Stock, equal to the number of shares the Company is obligated to redeem, mav be redeemed on each redemption date by die Company, on a non-cumulative basis. The Company may applv to the mandatory sinking fund obligations any Series A or B Preferred Stock owned, previously redeemed or surrendered for conversion which have not been previously credited against the mandatory sinking hind obligation. Common Stock--At March 31,19?9and 19"8.60.000.000 shares of 51 par value common stock were audiorized. Changes in common stock during die wo years ended March 31. I9"9. are summarized as follows: Capital in Excess of Shares Par Value Par Value Balance, March 31, 1977 Conversion of 4-3/4% convertible subordinated debentures Issuance of Shares to effect stock split Forfeitures under the Career Executive Stock Plan (In thousands of dollars except share data) 15.877,948 S 15,S"8 $136,762 322.820 323 8.72S 16.106,204 16.106 (16,106') 121 Balance. March 31, 1978 Conversion of 4-3/4% convertible subordinated debentures Shares issued upon conversion of Series A $2.20 cumulative convertible preferred stock Shares issued upon exercise of stock options Shares issued under the Career Executive Stock Plan (net of forfeitures) 32,306.972 85.723 10,853 115,222 4.000 32,30" 86 ll 115 4 129,505 1,323 328 1,720 162 Balance. March 31. 1979 32.522,770 $ 32.523 $133,038 At March 31, 1979 and 1978, 326,132 and 316,672 shares, respectively, were in treasury. At March 31. 1979. 7,094,493 shares were reserved for issuance in connection with the 1974 Career Executive Stock Plan, exercise ofstock options, and conversion of the 4-3/4% convertible subordinated debentures and Series A cumulative convertible preferred stock. Stock Options -- In connection with the acquisition of B & W, options granted under a B & V stock option plan became options to purchase cwo'shares of the Company's common stock. All options outstanding under, this plan are non-qualified stock options and no additional options will be granted under die plan. Options were granted at an option price equal to at least 100% of the .fair market value on the date of grant. Changes during 1979 in the number of shares covered by the stock option plan are as follows: Number of _____ Option Price Outstanding and ExercisableSharesPer ShareTotal Balance, March 31, 1978 Exercised Expired 470,482 115,222 5.650 $6,813 - S9-688 6.813 - 9-688 9-688 $4,087,000 904,000 55.000 Balance. March 31. 1979 349,610 $3,128,000 The aggregate market value of the shares issued upon the exercise of stock options was $2,824,000. Career Executive Stock Plan--The Plan, which was adopted in 1974, authorized 600.000 shares ofcommon stock to be issued to eligible employees in consideration of their services. Employees granted stock under the plan pay $1.00 per share as the option price. Shares may be issued pursuant to the Plan until June 30, 1984. Restrictions with respect . to issued shares lapse in approximately equal amounts on the second through tenth anniversary dates of the date ofissuance. The cost ofthe Plan, based on fair market value on the date ofissuance ofcommon stock, is amortized over a ten-year period following the date of issuance. Upon forfeiture of stock by employees, previous expense attributable to unvested stock is credited to income. Forfeited shares under the Plan returned to the Company amounted to 9,460 shares during 1979, and 6,716 shares during 1978. As of March 31, 1979, 135,516 shares of common stock are available for grant to eligible employees pursuant to the terms of the Plan. Amounts charged to income under the Plan and its predecessor Plan amounted to SI,518.000 and $1,541,000 in fiscal 1979 and fiscal 197S. respectively. r' NOTE 10 -- FOREIGN SUBSIDIARIES Summarized financial information with respect to consolidated foreign subsidiaries is as follows: ________ March 51, Assets (including cash and short-term investments of S 594,052,000 and 5337,436,000 at March 31. 1979 and 1978, respectively) Liabilities Net assets 1979 1978 (In thousands of dollars) SI,019,802 423,478 S 596,324 S923.602 338,985 S584.617 Net income floss) S (5.005) S 89.392 NOTE 11 -- SEGMENT REPORTING The Company has operated primarily in three, industry segment since the acquisition of B & W -- marine construction services, power generation systems and equipment and engineered materials. Marine construction services principally involve construction of specialized offshore platforms and marine pipelines used for development drilling, production and .transportation of oil and gas. t 1 Power generation systems and equipment include individually engineered complete fossil fuel boilers, nuclear steam systems, nuclear fuel and nuclear fuel assemblies; and associated equipment for electric utility and marine.applications as well as fossil fuel boilers for industrial processes and power generation. The associated equipment includes individually engineered recovery processes and pollution control systemsfor the process and utility industries, cleaning systems for ' heat transfer surfaces, control and performance computers, instruments and nuclear control-rod drives. In addition, the Company is engaged in-the erection of this and other equipment through a separate construction unit.' Engineered materials consist of tubular and refractor}' products designed and manufactured from basic'and raw materials. Tubular products include stainless, alloy and carbon steel, seamless and welded tubes and pipe, hibular and solid shapes, extrusions? special metal cubes, welding fittings and flanges, and seamless rolled rings. These are primarily "specialty" products ofhigh quality and engineered forspecial applications. xMaterial amounts oftubes are manufactured by the Company to satisfy its own requirements. However,the major portion ofthe Company's tubes aresoldforusein the bearing, petroleum, machinery, primary ractal,'fabricated metal and construction industries. Refractory products include kaolin clays,, specially'engineered and yacuum-'formedceramic fibers,.and other insulating and;specialty .. products for use in high'temperature.furnacesforvarious helting'and heat treating purposes and in Other applications ! where the temperarures and rates ;of combustion or chemical reactions' are unusually-!demanding.' ; . Other products and services engaged-in by the Company include the design and manufacruring'of control valves, automated machines and machinetools, as well as air-tooled heat exchangers and onshore construction services which - y .were previously classified separately. : J '' -i . * v {4 . v ' -> , Identifiable assets by industry segment are thoseassets that are used in theCompany's operations in :each segment.'! Corporate assets are principally cash, short-term; investments and'marketable securities. l . ' .- ^ ' . Intersegment sales are accounted for at prices which'are generally established by reference to similar transactions with unaffiliated customers. ;' ;' ' - ' 'vy .- ; , r- ' Transfers berween geographic areas are accounted format prices which are'generally-established by reference^to similar ' transactions with unaffiliated customers or,'in certain circumstances, by reference to provisions of the'U.S. Internal Revenue Code. ". S'' ; - ^' Revenues attributable to domestic govemmeritjagencies,' including government owned utilities, amounted{to -.' . * ' S317,220.000 in fiscal 1979, These revenues were.primarily related to the power generation systems and equipment . industry segment. - : ; |- - f - Revenues attributable to foreign governments orany one individual customer m fiscal 1979 did not exceed 10% ;of - revenue. In fiscal 1978, revenues, attributable tb foreign governmentswere $2.1.1^945,000 and;to an fridividuilicbmpany, ; were 5175,037,000.- - {: , .'/.} ^ J !. 5 -1 i ?;' ; i. ; ? ' ' { .; ; ? .7 `... - i y : j 5 j j > ; {Foreignoperationsarepresehtedintheraggregaieforfiscai 1979 because there were no foreign geographic^ ? - ) ; {; areas which exceeded 10%.of revenueoricientifiablVass.efs for fiscal 1979. i H - \ *. ' i -i - i. x > Revenues attributable to transactions with-unconsolidated affiliated.companies were!; $51,978,000 in!fiscal'-1979 - -.( S 104,338,000 in fiscal 1978).' ; i) *\ r ' y * * f *:s . : : ? .:{.` V ; ; * . j l.i j r/i ; - < *. 1 | Segment Information For the Fiscal Years Ended March 31, 1979 and 1978 I. Information about the Company's Operations in Different Industry Segments. (In thousands of dollars) Revenues Intersegment Transfers Total Revenues 1979 1978 19T9 1978 1979 1978 Marine Construction Services Power Generation Svstems & Equipment Ent'ineered .Materials Other Products & Services Eliminations Sl.010.8l6 S1.116,119 1.**<53.793 508.546 161.409 -- -- -- 1--`.592 -- S-- s 1.1"1 80.045 9.356 (90.570) -- -- -- -- -- 5l.010.Slb 51.116.1 19 1.46-1.96-* 588.5S9 1-0 ."6* (90.5 "01 -- -- l"".592 -- Total S3.144.564 Sl.293.71l $ -- s-- S3.144.56-* S1.293.~l 1 Operating Income (1) Equity In Earnings of Affiliated Companies Marine Construction Sendees Power Generation Systems & Equipment Engineered Materials Other Products & Sendees Corporate 1979 S 61,011 1978 S 205.559 117,722 50,989 (893) -- -- -- 15,364 -- 1979 S 6.290 877 1.511 -- -- 1978 S 3.554 -- -- -- 20,364 ( 2) Total 5 228,829 S 220.923 S 8.678 S 23.918 Marine Construction Services Power Generation Svstems & Equipment Engineered Materials Other Products & Services Corporate Total Capital Expenditures 1979 1978 S 72,136 S 61,642 29.063 20,648 1,934 7,245 -- -- 22,660 673 S 131,026 S 84,975 Depreciation & Amortization 1979 1978 S 66.346 S 57,528 23,809 14,104 5.658 1.448 S 111,365 -- -- 8.954 U32 S 67.614 Marine Construction Services Power Generation Svstems & Equipment Engineered Materials Other Products & Services Corporate Total Identifiable Assets (3) 1979 1978 S 742,369 S 777,147 1.120,087 644,023 -173,261 608,804 S3,288.544 1.030,240 602,246 181,307 571,961 S3.l62.901 Investments In Net Assets of Vertically Integrated Affiliated Companies 1979 1978 S 6.139 S 16,299 1.899 4,360 -- -- 1,021 2,586 -- -- S 12,398 $ ` 19,906 Total Assets 1979 1978 S 748.50S S 793.446 1,121,986 648,383 173.261 608.804 S3.300.942 1,031.261 604,832 181.50" 571.961 S3,182.$0" (1) Reconciling items between Operating Income and Income Before Provision for Income Taxes are General -Corporate Expenses and Other Income (Expense). (2) Equitv in the earnings of affiliated companies for 1978 includes the Company's share of B & VC's earnings of S20,364,000. (3) Identifiable assets for 1978 have been restated to reflect the Allocation of excess ofcost over fair value of net assets of purchased businesses to industry segments. ' 45 2. information about the Company's Operations in Different Geographic Areas. (In thousands of dollars) Revenues Transfers between Geographic Areas Total Revenues Operating-Income bv Geographic -Areas (I) Equity In Earnings of Affiliated Companies Identifiable Assets (2) Investments In Net Assets 'of Vertically Integrated Affiliated Companies Corporate .Assets Total Assets Domestic___________________Foreign________________ Consolidated 1979 S2,533.048 1978 s 638,556 1979 S 611,516 1978 S 655,155 1979 S3,144,564 1978 Si,293.711 18.984 S2.552.032 28.560 s 667.116 (18.984) (28.560) s 592.532 $ 626.595 S3.144,564 Sl.293.711 S 267.300 s 128,260 s C38.4?n $ 92,663 $ 228.829 S 220,923 S2.029.353 s 20,364 . s 8.678 Si.946,904 $ 650,387 5 3,534 S 644,036 S 8,678 S2,679,740 S 23.918 S2.590.940 $ 12,398 S 19.906 S 12,398 S 19,906 608,804 571.961 . S3,300,942 $3,182,807 are General Corporate Expenses and Other Income '(Expense).. ; (2) Identifiable assets for 1978 have been restated to reflect the allocation of excess of cost over fair value ofnet assets of. purchased businesses to geographic segments. . V 1 v: ' i h : ; - H:? - w ; t : \ .* > NOTH 12 -- QUARTERLY FINANCIAL DATA The- following t:thlc.s set forth selected unaudited quarterly financial information for the years ended March 31, 19"9 and iy"6: 1979 Quarter Ended June 30, 1978 Sept. 30, 1978 Dec. 31, 1978 March 31. 1979 (In thousands of dollars except per share amounts) Revenues Operating income Net income Earnings per common and common equivalent share: Primary Fully diiured Revenues Operating income Equity in earnings of B & W Net income Earnings per common and common equivalent share: Primarv Fully diluted 5~ 19.32" 55.0-2 32.262 S820.45" 96.938 55.484 $800,244 56.-3 34,- n $804,536 (26,733) (29,500) 0.-6 0~2 June 30, 1977 S298.852 69,448 -- 45.64" 1.48 0.8-1 1.32 0."9 1978 Quarter Ended (1.14) (1.14) Sept. 30, 1977 Dec. 31, 1977 March 31, 1978 (In thousands of dollars except per share amounts) S324.972 61,513 3,195 46,581 S448.869 52.293 7.341 49,779 $221,018 14,514 9,828 17,085 1.45 1.48 1.57 I.4l 1.44 1.54 0.53 0.55 During the quarter ended March 31,1979, approximately $43,000,000 was charged to net income in connection with the relocation of certain operations of one of the Company's foreign areas and warranty and other related design and fabrication problems experienced in certain nuclear contracts. NOTE 13 -- REPLACEMENT COST INFORMATION As required by the Securities and Exchange Commission, the Company's annual report on Form 10-K. a copy of which is available upon request, contains unaudited replacement cost information on inventories and productive capacity and its estimated effect on depredation expense for the current fiscal year. The information is included in the notes to financial statements included in the Form 10-K. The amounts reported attributable to unaudited replacement cost information are based on hypothetical assumptions and subjective assumptions. On this basis, the Company makes no representation that the replacement cost information is useful. Corporate 7;iformation 4 BOARD OF DIRECTORS H. V. BAILEY JAMES A. HUNT WALTER B. SHAW Executive Vice President of the Partner, . Chairman and President, . Company - Kalb Voorhis & Co. -- securities Turner Construction Company -- '0. W. DOUGLAS CARVER Independent oil producer and General Partner of Cardo Company brokers ' GRAHAiM D. MATTISON ' Director of various corporations general construction contractors JOHN B. TWEEDY Executive Vice President and Director, : J. E. CUNNINGHAM Vice Chairman of the Board and ChiefExecutive Officer of the ' Company JOHN A. MORGAN ' Vice Chairman of the Board, Smith Barney, Harris Upbam & Co., Incorporated -- investment bankers Tosco Corporation--oil refining and marketing > WILLIAM L WEARLY ; Chairman and ChiefExecutive Officer, C. L. DAVIS - President, \ Oceanic Contractors, Inc,, a wholly : R K. RICHIE Ingersoll-Rand Company -- Presidentand ChiefOperating Officer,, manufacturer of industrial McDermott. Operating Unit machinery and equipment ; owned subsidiary' of the Company 5:! - JOHN D. RITCHIE : ... GEORGE G.-ZIPF W. E. EARLES Chairman ofthe Board --Consultant Vice Chairman of the Board, Group Vice President ofthe Company and Director oj various corporations; President and Chief Operating Officer,' C. L.. GRAVES \ .. " , * ; j : WILUAMT.*SEAWELL 7: . O { Babcock & Wilcox. Operating Unit. former Chairman of the Board and' Chairman arid ChiefExecutive Officer, ChiefExecutive Officer.of the . Pan American World Airways, /c.`--- Company . . ^ r : ! V ' - commercial'atr. transportation 1 ; ` i *MmBER OF THEAUDn COMMITTEE 1 CORPORATE OFFICERS: JOHN- D. RITCHIE . . - . ` ; . R-A. JOLUFF; |.j * -, ; : J.. tEON BATES- W J j h ; Chairman of the Board " Treasurer:' * \ \1 j Senior Vice President, U; -. ; , ). E..CUNNINGHAM -'v ` Vice Chairman of the Board`and r charIes'a. Ki^us.i;; Controller,'.Tax-Administration McDermott Engineering Services Groutp) V.. ^*! J ^` Chief Exezccutive OOffffiicceer.r ; j` : \ i . : ; - EDMUND:A.JROBIDOUX; ?.V - Er j. DRESSELH ? i 'V1] W/if- ` GEORGE'G:ZIPF ' ^ fs ..i ;' v Controller-:,I f{; '}fyi SeniofVice-President;, Vice Chairman of the Board? ; >v** 7i ; . - McDerinOtt Operating:frUvnit Pre..s. id.en_t a.nd Chi_eJf Ope ratin.Ag ; :' V. -d v-ipt^w t:p-- :;? J .,-a:. t ' . . ; . ' k Equipment^ and Materials:Gihup'i W'4\7rn r> o * = -i * President and ChiefOperating Officer,. yExecutive;VicePrfstdeht,: ........ v McDermott Operating Vnit ' / . . . VNorth American Qperqtions { :.? f ;dtARm^^ Executive y,ceP,es,dmt ofFinance , Ma^SttStrucmM Gr6up : ) ; f ; and Chieffinancial Officer ' ' . . : : :. .. . . . - ?WAETER:M. VANNQV.-h ^ ^up^ce Pr^dedtf.v U \ .:i Executive Vice President-aarid CChhiieef:f ':< Administration5-Coordination* Administrative Officer- R C.' BASSETT ' , ' ' r ; 1 ; v . i . yij. lebiXnc ;: . - '`. 'Group. Vice President; - '. Vice President, Materials and McDermott Shipyard Group Transportation " ` GRIFF: C.;LEE - : - ~ ; . r .PHILIP BREITME-tTR; fl ; ' : Group. Vice President; H? " " C 1 juu^LUw^iUl^ * , . ^ ; Cbrporatid'ni; - i. -. :v -- . " i'i-/* ;; : T; < * : i 5- L B. SMITH \: ?i Oceanic Contractors, Inc. A. C. TEXDI.ER Refractories Division C. L. DAVIS President l.. P. CLINE 1 'ice President. International Power Generation Group R. P. STUNT/ Division Vice President Tubular Products Division Croup Vice President. Middle East Croup I.. M. FAVRET Executive Vice President T. M. KREBS Division Vice President R.E. HOWSON Croup Vice President. North Sea Cropp ). W. McCARTE-, \ Cwj`p Vice President, West Africa and Central and South America Group _ Babcock & Wilcox Canada Ud. T. M. CAMPBELL President and Chief Executive Officer Bc-W' Construction Company E. M. GRIFFIN Division Vice President R. C ANGELL Wcv President Sales, Tabular Products Other Divisions Naval Nuclear Fuel Division J. E. EWING R. D. MILLER \ , Fossil Power Generation Division Division Vice President Cjppup Vice President, \ South East Asia Group j ERIC R. H. SELLEV 1 i Group Vice President; *v Engineering Services Group j/C. ANDREVC'S ! ! Vice President, J! i Administration-Coordination \X`. L. HIGGINS, III/ D. E. HEYBURN Division Vice President TLT-Babcock. Inc. F. G. RAYNOR President Industrial and Marine Division E. C. MONCRIEF Division Vice President Transfer Agents and Registrars First City National Bank of Houston Post Office Box 809 Houston, Texas "'002 Morgan Guaranty Trust Company ?0 West Broadway New York, New York 10015 Vice President, y i Sorth Sea Group R. J. MACHEN Nuclear Equipment Division VC. B. BEISEL Division Vice President Common Stock Series A S2.20 Cumulative Convertible Preferred Stock ii Vice President, / McDermott Scotland s Nuclear Materials Division J. S. DZIEWI5Z Series B S2.60 Cumulative Preferred Stock i R. J. MaXSON Division Vice President Trustee and Vice President, Middle East Group J. M. SMITH Vice President, Middle East Group \ R. P. STAGG Wice President, Engineering Services Group Babcock & Wilcox Operating Unit Nuclear Power Generation Division J. H. MACMILLAN Division Vice President Utility Sales J. W. THOMPSON Division Vice President Industrial Products Group H. D. KURT Executive Vice President Paying Agent Morgan Guaranty Trust Company 30 West Broadway New York. New York 10015 9.58% Sinking Fund Debentures Due March 15. 2004 9.70% Sinking Fund Debentures Due December 1. 1999 8.90% Notes Due December 1. 1984 GEORGE G. ZIPF President and Chief Operating Officer L. M. FAVRET Executive Vice President, Power Generation Group Automated Machine Division S. W. BARANYK Division Vice President Bailey Controls Company R. J. CAMPBELL President Pittsburgh National Bank P. O. Box 340747 Pittsburgh. Pennsylvania 15230 6.80% Pollution Control Revenue Bonds, Series A` Due February 1. 2009 G. W. KROSS, JR. Executive Vice President, Materials Group H. D. KURT Executive Vice President, Industrial Products Group W. MARKERT, JR. Vice President, Control Components International H. D. KURT Acting President DiamondPowerSpecialty Corporation J. L MENSON President Materials Group Trustee, Paying Agent and Conversion Agent Citibank, N.A. 111 Wall Street New York, New York 10015 4*3/4% Convertible Subordinated Debentures Due October 1987 Research and Development H. H. POOR Vice President, Contract Research G. W. KROSS, JR. : Executive Vice President Certified Public Accountants Arthur Young & Company New Orleans, Louisiana \ Jj}\ CORPORATE HEApQU^R'raSs New Orleans, Louisiana T . HARVEY DIVISION GROUP V Dredging- ................. ?, *$ouih"East Asia% S' '^u^a:Lumpiir>'Maiaysia-;7?X'y^;r.^.,r^::. .S'.K.