ML20055J341
| ML20055J341 | |
| Person / Time | |
|---|---|
| Site: | 07000364, 07000824, 07000135 |
| Issue date: | 07/24/1990 |
| From: | Lynott J BABCOCK & WILCOX CO. |
| To: | Haughney C NRC OFFICE OF NUCLEAR MATERIAL SAFETY & SAFEGUARDS (NMSS) |
| Shared Package | |
| ML20055J314 | List: |
| References | |
| NUDOCS 9008020116 | |
| Download: ML20055J341 (42) | |
Text
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BABCOCK & WILC3X INVESTMENT CEMPANY a Mcuermon company 1910 common street New Orleans. Louisiana 70112 (504) 587 4411 i
July 24,1990 i
Mr. C. J. IIaughney, Chief Fuel Cycle Safety Branch Division of Industrial and Medical Nuclear Safety, NhiSS United States Nuclear Regulatory Commission Washington, D.C. 20555 i
Dear hir. IInughney:
1 I am the Executive Vice President and Clilcf Financial Officer of The Babcock &
Wilcox Investment Company, a Delaware corporation. This letter is in support of this firm's use of the financial test to demonstrate financial assurance, as specified in 10 CFR Part 30,40 and 70.
This firm guarantees, through the parent company guarantee submitted to demonstrate compliance under 10 CFR Part 30,40, and 70, the decommissioning of the facilities owned or operated by a subsidiary of this firm. The current cost estimate or certified amounts for decommissioning, so guaranteed are shown for each facility on Attachment I.
This firm is not required to file a Form 10K with the U.S. Securities and Exchange Commission for the latest fiscal year.
This fiscal year of this firm ends on hiarch 31,1991.1he figures for the following items marked with an asterisk are derived from this firm's independently audited, year-end financial statements and footnotes for the latest completed fiscal year, ended hiarch 31,1990.
Financial Test: Alternative I
($000) 1.
Decommissioning cost estimate or certified I
amount for facilities on Attachment I 2.905
- 2.
Total liabilities (if any portion of the cost estimates for decommissioning is included in total habilities on your firm's financial statement, L
deduct the amount of that portion from this line and add that amount to lines 3 and 4)
$ 889.713
'3.
Tangible Net Worth
$ 963.850
'4.
Net Worth
$1.107.673 9008020116 900724
{DR ADOCK0700g5
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^
Mr. C. J. Ilaughney U.S. Nuclear Regulatory Commission July 24,1990 Page 2
'5.
Current Assets
$ 744.270
' 6.
Current Liabilities
$ 634.567
' 7.
Net Working Capital (line 5 minus line 6)
$ 100.703
' 8.
The sum of Net income plus Depreciation,
$ 148.756 Depletion, and Amortization
' 9.
Total assets in United States (required only.if less than 90 percent of firm's assets are located in the United States Yes
.Ho_
10.
Is line 3 at least $10 million?
.X.
11.
Is line 3 at least 6 times line 1?
X.
12.
Is line 7 at least 6 times line 1?
_.X_
13.
Are at least 90 percent of firm's assets located in the United States?
._K.
14.
Is line 9 at least 6 times line 17
._X_
(Guarantor must meet two of the following three ratios) 15.
Is line 2 divided by line 4 less than 2,07
_X.
16.
Is line 8 divided by line 2 greater than 0.17 X.
17.
Is line 5 divided by line 6 greater than 1.57
._X._
- Denotes figures derived from financial statements.
I hereby certify that the content of this letter is true and correct to the best of my knowledge.
Very truly yours.
BABCOCK & WILCOX INVESTMENT COMPANY
'Y
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/
oh A. Lynot Exe itive V' e President and I
Chi in. ncial Officer JAL:atl i
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l ATTACSMENT 1 1
SABCOCK & WILCOX WlVESTRENT COtrANY PARENT COtrANY GUARANTEE 1
[
CERTIFIED 1 CURRENT COST UCENSEE FACal3TY ADDRESS UCENSE NI)GMER OGSOUNT_
ESTREATE (630'S)
(000'S) l The Babcock & Wilcox P;--.;,L z'- Nu %sr 609 N. Warren Ave.
SNRS-145
$ 750
' Co.
Service Operations Apollo, PA 15613 (Apollon
\\
Pennsylvania Nuclear 609 N. Warren Ave.
SNRS-414
$ 750 Service Operations Apollo, PA 15613 (Parks Township) l Naval Nuclear Fuel P. O. Box 11165 SNRS-778
$ 750 Division Research Lynchburg, VA 24506 Laboratory
'1 Alliance Research 1562 Beacon Street SNRS-30
$ 6552 Laboratory Alliance, OH 44601 BP94-34-03043-03 SUB-1259 I.
1.
Refer to Attachment I-A
- 2. The Alliance Research Laboratory is submitting the specified Decommi::';.;.g Funding Plan i
l.
4 1
2
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I
t ATTACHMENT l-A CERTIFICATION OF FINANCIAL ASSURANCE f
This is to certify that the licensees on Attachment I are licensed to possess the types of material in the amounts listed below and that financial assurance in the amount prescribed by 10 CFR Part 70 has been obtained for the purpose of decommissioning.
Possession Certified License Number Amounts Amount SNM 145 945 KGS U-235
$750,000 SNM 414 450 g Pu
$750,000 750 g U 235 SNM 778 71.73 Kg U 235
$750,000 50 g Pu TyE ABCOCK & WILCOX COMF-ANY v
,, t A'hry'A. Lynott
/Exe utive Vice resident and Chi f Financ' Officer Corporate Seal:
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Ernst & Young 4?03 ov Shell Saare 701 Poycras St New orleans Lou +ana 70139 Telephone (504) sB1-4?00 The Board of Directors Babcock & Wilcox investment Company We have audited,in accordance with generally accepted auditing standards, the consolidated financial -
statements of Babcock & Wilcox Investment Company (the " Company") for the year ended March 31, 1990, and have issued our report thereon dated June 4,1990 except for Note 1, as to which the date is July 20,1990.
With resyct to the attached schedule reconciling amounts contained in the chief financial officer's (CFO's).etter with amountr. in the financial statements of the Company for the year ended March 31, 1990, we have:
1.
Compared the amounts in the column "Per Financial Statements" with the corresponding amounts shown in the Company's financial statements for the year ended March 31,1990 and found them to be in agreement; 2.
Compared the amounts in the column "Per CFO's letter" with the corresponding amounts shown in John A. Lynott's letter to Mr. C.J. Haughney of the United States Nuclear Regulatory Commission dated July 24,1990 and found them to be in agreement; 3.
Compared the amounts in the column " Reconciling items" with the corresponding amounts shown in analyses prepared by the Company and found them to be in agreement; and 4.
Proved the arithmetic accuracy of subtotals and totals.
Because the procedures in 1 through 4 above do not constitute an audit made in accordance with acnerally accepted auditing standards, we do not express an opinion on the amounts referred to above, n connection with the procedures referred to above, no matters came to our attention that caused us to believe that the amounts should be adjusted. Had we performed additional procedures or had we performed an audit in accordance with generally accepted auditing standards, matters might have come to our attention that would have been reported to you.
This repon is intended solely for filing with the United States Nuclear Regulatory Commission and should not be used for any other purpose.
+
July 24,1990 l'
f
'e SCl!EDULE RECONCILING AMOUNTS CONTAINED IN Ti!E 1
CillEF FINANCIAL OIT1CER'S LE7TER WITil AMOUNTS IN TFIE FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS)
BABCOCK & Wilf0X INVESTMENTCOMPANY YEAR ENDED MARCil 31,1990 Line Number Itr in Financial Reconciling Per CFO's CFO's I2nar Statements ligms laskt 2
Total liabilitics less accrued decommissioning costs:
Total Cunent Liabilities 5 643,288 12mg Term Debt 83,853 DeferredIncomeTaxes 143,633 Other Liabilities 64.454 Sub Total
$ 935??R tess accrued decommissioning costs in:
Current Liabilitics S
8,721 Long Term Liabilities 36.794 Sub Total 1 45.515 Total Line 2
$ 8R9,713 4
Net Worth:
Stockhokler's Eqoity
$ 1,043,151 Wnority Interest 19.007 Sub Total
$ 1.062.158 Add accrued decommissioning costs S 45.515 Total Line 4
$1.107.673 3
Tangible Net Worth:
Total Line 4 11.107.673 less intangibles:
Excess of Cost Over Fair Value of Purchased Businesses
$ 142.301 Other intangibles 1.522 Total Line 3
$ 963 850 2
Current Assets S 744.270 Total Line 5
$ 744,270 6
Current Liabilities S 643.2RR tess accrued decommissioning costs in Current Liabilitics S
8.721 Total Line 6
$_634,56"!
7 Net Working Capital t
(Total Line 5 less Total Line 6)
S 109.703 8
Net income 96,999 Depreciation and Amortization 48.711-Sub Total
$ 145.710 Add depreciation ark! amortization expense of discontinued operations prior to date of sale 3.N 6 Total Line 8
$ 148 75#
PARENT _ COMPANY. GUARANTEE Guarantee made as of July 24,1990 by Babcock & Wilcox investment Company (BWlCO), a corporation organized under the laws of the State of Delaware, herein referred to as
" Guarantor", to the U.S. Nuclear Regulatory Commission (NRC), obligee, on behalf of our subsidiary The Babcock & Wilcox Company (B&W),1010 Common Street, New Orleans, LA 70161.
Recitals i
1.
The Guarantor has full authority anri capacity to enter into this Guarantee under its Bylaws, Articles of incorporation, and the laws of the State of Delaware, its State of incorporation. Guarantor has approval from its Board of Directors to enter into this Guarantee.
2.
This Guarantee is being issued to comply with regulations issued by the NRC, an agency of the U.S. Government, pursuant to the Atomic Energy Act of 1954, as amended, and the Energy Reorganization Act of 1974. NRC has promulgated regulations in Title 10, Chapter i of the Code of Federal Regulations, Part 30,40 and 70 which require that a holder of, or an applicant for, a materials license issued pursuant to 10 CFR, Part 30,40 and 70 provide assurance that funds will be available when needed for required decommissioning activities.
3.
The Guarantee is issued to provide financial assurance for decommissioning activities for the licenses facilities and amounts listed on Attachment I as required by 10 CFR, Part 30,40 and 70.
4.
The Guarantor meets or exceeds the following financial test criteria and agrees to comply with all notification requirements as specified in 10 CFR, Part 30,40,70.
The Guarantor shall meet the following financial test:
(a)
(i)
Net working capital and tangible net worth each at least six time
$2,905,000; and (ii)
Assets located in the United States amounting to at least 90 percent of its total assets or at least six times $2,905,000; and (iii)
Meets two o,' the following three ratios: a ratio of total liabilities to net worth less than 2.0; a ratio of the sum of net income plus depreciation, depletion, and amortization to total liabliities that is greater than 0.1; and a ratio of current assets to current liabilities that is greater than 1.0; and (iv)
Tangible net worth of at least $10 million.
5.
The Guarantor has majority control of the voting stock for the licensees covered by this guarantee. Refer to Attachment 1.
6.
Decommissioning activities as used below refers to the activities required by 10 CFR, l
1 Part 30,40 and 70 for decommissioning of facilities above.
l 7.
For value received from licensees on Attachment I and pursuant to the authority conferred upon the Guarantor by the unanimous resolution of its Directors, a certified copy of which is attached, the Guarantor guarantees to the NRC that if any of the licensees listed on Attachment I fails to perform the required decommissioning activities, i
as required by its referenced License, the Guarantor shall (a) carry out the required activities,.nt (b) set up a trust fund in favor of the above identified beneficiary in the amount of the current cost estimates for these activities.
8.
The Guarantor agrees to submit revised financial statements, financial test data, and a special auditor's report and reconciling schedule annually within 90 days of the close of the Parent Guarantor's fiscal year.
9.
The Guarantor agrees that if, at the end of any fiscal year before termination of this l
Guarantee, it falls to meet the financial test criteria, it shall cause the licensees to send within 90 days of the end of the fiscal years by certified mall, notice to the NRC that the licensees intend to provide alternative financial assurance as specified in 10 CFR, Part 30,40 and 70, as applicable.
10.
The Guarantor also agrees to notify the beneficiary promptly if the ownership of any licensees on Attachment I or the parent firm is transferred and to maintain this Guarantee until the new parent firm or the licensee provides alternative financial assurance acceptable to the beneficiary, 11.
The Guarantor agrees that within 30 days after it determines that it no longer meets the financial test criteria or it is disallowed from continuing as a Guarantor, it shall establish an alternative financial assurance as specified in 10 CFR, Part 30, 40 or 70, as applicable, in the name of the licensees on Attachment 1.
12.
The Guarantor, as well as its successors and assigns, agree to remain bound jointly and severally under this guarantee notwithstanding any or all of the following: amendment I
or modification of license or NRC approved decommissioning funding plan for that facility, the extension or reduction of the time of performance of required activities, or any other modification or alternation of an obligation of the licensee pursuant to 10 CFR, Part 30,40 and 70.
13.
The Guarantor agrees that all bound parties shall be jointly and severally liable for all litigation costs incurred by the beneficiary in any successful effort to enforce the 2
i agreement against the Guarantor.
14.
The Guarantor agrees to remain bound under this guarantee for as long as the licensees on Attachment I must comply with the applicable financial assurance requirements of 10 CFR, Part 30,40 and 70 for those listed facilities, except that the Guarantor may cancel this Guarantee by sending notice by certified mail to the NRC and to the affected licensees on Attachment I, such cancellation to become effective no earlier than 120 days after receipt of such notice by both the NRC and the licensees as evidenced by the return receipts.
15.
The Guarantor agrees that if the licensees on Attachment I fall to provide alternative financial assurance as specified in 10 CFR, Part 30,40 and 70 as applicable, and obtain written approval of such assurance from the NRC within 90 days after a notice of cancellation by the Guarantor is received by both the NRC and the ilcensees from the Guarantor, the Guarantor shall provide such alternative financial assurance in the name of the licensees or make full payment under the Guarantee, i
16.
The Guarantor expressly waives notice of acceptance of the Guarantee by the NRC or by licensees on Attachment 1.
The Guarantor also expressly waives notice of amendments or modification of the decommissioning requirements and of amendments or modifications of the licenses.
17, if the Guarantor files financial reports with the U.S. Securities and Exchange Commission, then it shall promptly submit them to the NRC during each year in which this Guarantee is in effect.
I hereby certify that this Guarantee is true and correct to the best of my knowledge.
Effective Date:
July 24.1990 BABCOCK & WILCOX INVESTMENT COMPANY
/
0 Joly(A.
nott Ex6cutiv Vice P sident and Chief Fi n/ Officer WITNESS:
N M[
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RESOLUTION RESOLVED, by the Board of Directors of Babcock & Wilcox Investment Comoany, that the i
Executive Vice President, Chief Financial and l
Administrative Officer, and the Treasurer, and
.i' each of them, acting singly, be hereby authorized, and each hereby is authorized, in the name and on I
behalf of this company to execute and deliver to and in favor of any person, firm'or corporation, Letters of Guarantee or other instruments whereby this Company will guarantee the prompt payment of any obligations of any one or more of the Company's subsidiary or affiliated companies, whether said obligations are now or hereafter existing, together with interests and expenses in connection therewith, each such Letter of Guarantee or other such instrument to be in such form and to be on such terms and to contain such conditions, stipulations and provisions as the said corporate officer. executing same may deem appropriate.
k CERTI FICATE I, the undersigned, Assistant Secretary of Babcock
& Wilcox Investment Company, a Delaware corporation, do hereby certify that the above and foregoing is a true and correct copy of a certain resolution adopted by the Board of Directors of said corporation, pursuant to a consent in lieu of a meeting dated July 13, 1990, and that said resolution has not been vacated or recalled or amended and remains in full force and effect.
IN WITNESS WHEREOF, I hereunto set my hand and I
affix the seal of said corporation on this 16th day of July, 1990 M A/
Robert E.'$tu~pf, Assistant Secretary t
6
CERTIFICATE OF INCUMBENCY 1, Robert E. Stumpf, do hereby certify that I am a duly elected and qualified Assistant Secretary of The Babcock & Wilcox investments Company, a Delaware corporation, and I do further certify that the individuals whose names, titles, and signatures appearing below are duly elected, qualified, and acting officers of said corporation and hold on the date of this certificate the office set opposite his name and that the signature appearing opposite his name is the genuine signature of said officer:
r Name of Officer Title of Officet Sionature Robert E. Howson President and
/ ^^A Chief Executive Officer John A. Lynott Executive Vice President J
an Chief Financial IN WITNESS WHEREOF, I have hereunder set my hand and affixed the seal of said corporation this 24th day of July,1990.
')
ll Rodert E, Sju'nipf[ /
l Assistant Secretar)
I I
1
T STANDBY TRUST AGREEMENT TRUST AGREEMENT, the Agreement entered into as of July 24,1990 by and between THE BABCOCK & WILCOX COMPANY, a Delaware corporation, herein referred to as the " Grantor",
and MORGAN GUARANTY TRUST COMPANY OF NEW YORK,60 Wall Street, New York, New York 10260, the ' Trustee".
l WHEREAS, the U.S. Nuclear Regulatory Commission (NRC), an agency of the U.S.
Government, pursuant to the Atomic Energy Act of 1974, has promulgated regulations in Title l
10, Chapter I of the Code of Federal Regulations, Part (30, 40, or 70). These regulations, applicable to the Grantor, require that a holdcr of, or an applicant for, a Part 30,40, and 70 license provide assurance that funds will be available when needed for required decommissioning activities.
WHEREAS, the Grantor has elected to use a Parent Guarantee to provide all of such financial assurance for the facilities identified herein; and WHEREAS, when payment is made under a Parent Guarantee, this standby trust shall be used for the receipt of such payment; and WHEREAS, the Grantor, acting through its duly authorized officers, has selected the Trustee to be the trustee under this Agreement, and the Trustee is wi!!ing to act as trustee, NOW, THEREFORE, the Grantor and the Trustee agree as follows:
Section 1. Definitions. As used in this Agreement:
I (a)
The term " Grantor" means the NRC licensee who enters into this Agreement and any successors or assigns of the Grantor.
(b)
The term ' Trustee" means the trustee who enters into this Agreement and any successor Trustee.
Section 2.
Costs of Decommissioning.
This Agreement pertains to the costs of decommissioning the materials and activities identified in Schedule A.
Section 3. Establishment of Fund. The grantor and the Trustee hereby establish a standby trust fund (the Fund) for the benefit of the NRC. The Grantor and the Trustee intend that no third party have access to the Fund except as provided herein.
1 i
T
.Section 4. Payments Constituting the Fund. Payments mado to the Trustee for the Fund shall consist of cash and Eligible Securities. The Fund is established initially as consisting of the prcperty. Such property and any other property subsequently transferred to the Trustee are referred to as the " Fund", together with all earnings and profits thereon, less any payments or distributions made by the Trusteo pursuant to this Agreement. The Fund shall be held by the Trustee, IN TRUST, as hereinafter provided. The Trustee shall not be responsible nor shallit undertake any responsibility for the amount of, or adequacy of the Fund, nor any duty to collect j
from the Grantor, any payments necessary to discharge any liabilities of the Grantor established by the NRC.
.Sgr&gn_5. Payment for Recuired Activities Soecified in the Plan. The Trustee shall make payments from the Fund to the Grantor upon presentation to the Trustee of the following:
a.
A certificate duly executed by the Secretary of the Grantor attesting to the occurrence of the events, and in the form set forth in the attached Specimen Certificate, and b.
A certificate executed by the Grantor attesting to the following conditions:
(1) that decommissioning is proceeding pursuant to an NRC-approved plan.
(2) that the funds withdrawn will be expended for activities undertaken pursuant to that Plan, and (3) that the NRC has been given 30 days' prior notice of The Babcock & Wilcox Company's intent to withdraw funds from the escrow fund.
No withdrawal from the fund can exceed 10% percent of the outstanding balance of the Fund l
or $10,000,000 dollars, whichever is greater unless NRC approval is attached.
In the event of the Grantor's default or inability to direct decommissioning activities, the Trustee shall make payments from the Fund as the NRC shall direct, in writing, to provide for the payment of the costs of required activities covered by this Agreement. The Trustee shall l
reimburse the Grantor or other persons as specified bi the NRC from the Fund for l
expenditures for required activities in such amounts as the NRC shall direct in writing. In I
addition, the Trustee shall refund to the Grantor such amounts as the NRC specifies in writing.
Upon refund, such funds shall no longer constitute part of the Fund as defined herein.
Section 6. Trust Management. The Trustee shall invest and reinvest the principal and income of the Fund and keep the Fund invested as a single fund, without distinction between principal and income, in accordance with instructions from the Grantor which the Grantor may j
communicate in writing to the Trustee from time to time;.egep_t.Lhat:
1
- 1
i J
(a)
Securities or other obligations of the Grantor, or any other owner or operator of the facilities, or any of their affiliates as defined in the Investment Company Act of 1940, as j
amended (15 U.S.C. 80A 2(a)), shall not be acquired or held, unless they are securities or other obligations of the Federal or a State government; I
(b)
The Trustea is authorized to invest the fund in Eligible Securities as hereinafter defined.
c Eligible Securities shall be securities or other obligations of the Federal Government, i.e.,
GNMA, FNMA, and FHLM bonds and certificates or State and Municipal bonds rated BBB or higher by Standard & Puor's or Baa or higher by Moody's investment Services.
Section 7. Exoress Powers of Trustee. Without in any way limiting the powers and discretion conferred upon the Trustee by the other provisions of this Agreement or by law, the Trustee is expressly authorized and empowered:
(a)
To sell, exchange, convey, transfer, or otherwise dispose of any property held by it, by f
public or private salo, as necessary to allow duly authorized withdrawals or to reinvest in Eligible Securities at the direction of the Grantor.
(b)
To make, execute, acknowledge, and deliver any and all documents of transfer and conveyance and any and all other instruments that may be necessary or appropriate to carry out the powers herein granted; (c)
To register any securities held in the Fund in the name of the Grantor, and to hold any security in bearer form or in book entry, to reinvest interest payments and funds from matured and redeemed instruments in Eligible Securities, to file proper forms concerning l
securities held in the fund in a timely fashion with appropriate government agencies, or to deposit or arrange for the deposit of such securities in a qualified central depository, or to deposit or arrange for the deposit of any securities issued by the U.S. Government, or any agency or instrumentality thereof, with a Federal Reserve Bank in book entry form, but the books and records of the Trustee shall at all times show that all such securities are part of the fund.
1 i
(d)
To compromise or otherwise adjust all claims in favor of or against the Fund.
i Section 8. Taxes and Expenses. All taxes of any kind that may be assessed or levied against l
or in respect of the Fund and all brokerage commissions incurred by the Fund shall be paid l
from the Fund, All other expenses incurred by the Trustee in connection with the administration of this Trust, including fees for legal services rendered to the Trustee, the compensation of the Trustee to the extent not paid directly by the Grantor, and all other proper charges and disbursements of the Trustee shall be paid from the Fund.
.SEMnj. Annual Valuation. After payment has been made into this standby trust fund, the Trustee shall annually, at least 30 days before the anniversary date of receipt of payment into the standby trust fund, furnish to the Grantor and to the NRC a statement confirming the value i
3
4 of the Trust. Any securities in the Fund shall be valued at market value as of no more than 60 days before the anniversary date of the establishment of the Fund. The failure of the Grantor to object in writing to the Trustee within 90 days after the statement has been furnished to the grantor and the NRC shall constitute a conclusively binding assent by the Grantor, barring the Grantor from asserting any claim or liability against the Trustee with respect to the matters disclosed in the statement.
Section 10. Advice of Counsel. The Trustee may from time to time consult with counsel, who may be counsel to the Grantor, with respect to any question arising as to the construction of this Agreement or any action to be taken hereunder. The Trustee shall be fully protected, to the extent permitted by law, in acting on the advice of counsel.
Section 11. Trustee Comoensa100. The Trustee shall be entitled to reasonable compensation for its services as agreed upon in writing from time to time with the Grantor.
Section 12. Successor Trustee. Upon 90 days notice to the NRC, the Trustee may resign; upon 90 days notice to NRC and the Trustee, the Grantor may replace the Trustee; but such resignation or replacement shall not be effective until the Grantor has appointed a successor Trustee and this successor accepts the appointment. The successor Trustee shall have the same powers and duties as those conferred upon the Trustee hereunder. Upon the successor Trustee's acceptance of the appointment, the Trustee shall assign, transfer, and pay over to the successor Trustee the funds and properties then constituting the Fund. If for any reason the Grantor cannot or does not act in the event of the resignation of the Trustee, the Trustee may apply to a court of competent jurisdiction for the appointment of a successor Trustee or for instructions, The successor Trustee shall specify the date on which it assumes l
administration of the trust in a writing sent to the Grantor, the NRC, and the present Trustee by certified mall 10 days before such change becomes effective. Any expenses incurred by the Trustee as a result of any of the acts contemplated by this section shall be paid as provided in Section 8.
Section 13. Instructions to the Trustee. All orders, requests, and instructions by the Grantor to the Trustee shall be in writing, signed by such persons as are signatories to this agreement or such other designees as the Grantor may designate in writing. Tte Trustee shall be fully protected in acting without inquiry in accordance with the Grantor's orders, requests, and instructions, if the NRC tssues orders, requests, or instructions to the Trustee, these shall be in writing, signed by the NRC or their designees, and the Trustee shall act and shall be fully protected in acting in accordance with such orders, requests, and instructions. The Trustee shall have the right to assume, in the absence of written notice to the contrary, that no event constituting a change or a termination of the authority of any person to act on behalf of the Grantor or the NRC hereunder has occurred. The Trustee shall have no duty to act in the absence of such orders, requests, and instruction from the Grantor and/or the NRC except as provided for herein.
Section 14. Amendment of Aoreement. This Agreement may be amended by an instrument in writing executed by the Grantor, the Trustee and the NRC or by the Trustee and the NRC or State Agency, if the Grantor ceases to exist.
SectiorL15. kmvocability and Termination. Subject to the right of the parties to amend this Agreement as provided in Section 14, this trust shall be irrevocable and shall continue until terminated at the written agreement of the Grantor, the Trustee, and the NRC or State agency, or by the Trustee and the NRC or State agency, if the Grantor ceases to exist. Upon termination of the trust, all remaining trust property, less final trust administration expenses, shall be delivered to the Grantor or its successor.
Section 16. Immunity and Indemnification. The Trustee shall not incur personalliability of any natee in connection with any act or omission, made in good faith, in the administration of this trust, or in carrying out any directions by the Grantor or the NRC issued in accordance with this Agreement. The Trustee shall be indemnified and saved harmless by the Grantor or from the trust fund, or both, from and against any personal liability to which the Trustee may be subjected by reason of any act or conduct in its official capacity, including all expenses reasonably incurred in its defense in the event the Grantor fails to provide such defense.
Section 17. This Agreement shall be administered, construed, and enforced according to the laws of the State of New York.
Hection 18. Interoretation and Severability. As used in this Agreement, words in the singular include the plural and words in the pluralinclude the singular. The descriptive headings for each section of this Agreement shall not affect the interpretation or the legal efficacy of this Agreement. It any part of this agreement is invalid, it shall not affect the remaining provisions l
which will remain valid and enforceable.
l l
s 5
i
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IN WITNESS WHEREOF the parties have caused this Agreement to be executed by the respective officers duly authorized and the incorporate seals to be hereto affixed and attested as of the date first written above.
ATTEST:
THE BABCOCK & WILCOX COMPANY g,
pp A
K Assr.56c' By n A. Lyno 1
ecutiv ice President and C
-inancial Officer ATTEST:
MORGAN GUARANTY TRUST OF NEW YORK s
odh.cw f b et.,
J 4 Vm!
P/.TRICIA T LWii!G gy; ; g,y FAHEY
[ Title) A 554 h< n e Secre/<t r y
Title:
vio, president (Seal) i I
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IN WITNESS WHEREOF the parties have caused this Agreement to be executed by the respective officers duly authorized and the incorporate seals to be hereto affixed and attested i
as of the date first written above.
ATTEST:
THE BABCOCK & WILCOX COMPANY f
7 d, 1/F As sr. S6r ~
B
~
n A. Lyno cutiv ice President and Ci inancial Officer i
ATTEST:
MORGAN GUARANTY TRUST OF NEW YORK Ll]hlctLi~ Sts 4 \\L, /
P^ *
- I' NN By: ; Al.#. FAlfEy [j
[ Title] A s 5 : /r. a 4 3 cc re/4 ry
Title:
vice Preeiddat
[ Seal) 4 3
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L ACKNOWLEDGEMENT STATE OF NEW YORK l
CITY OF NEW YORK On this 19th day of July, before.me, a notary public in and for the City;and State aforesaid, personally appeared Marlene~Fahey and she did depose and say that she is a Vice President.of Morgan Guaranty Trust Company of New. York, a New York State banking association, Trustee, which executed the above u
instrumer.t, that she knows the seal of said-association; that the' seal affixed to:such instrument is such corporate seal; that it was so. affixed by order'of the association; and that she signed her-namethereyoby-likeorder,
' Im CLO) u u
(signature of-. notary public) f
- stuoNE Q. VINOCOUM L
IKITARY PUBUC, State of New York No. 314938491 My Commission Expires:
yuauncu m ovw iurn wumy Cert ficate Filed kt New York County Commission Expires November 7,1990.
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SCHEDULE A STANDBY TRUST BABCOCK & WILCOX INVESTMENT COOFANY CERTIFIED CURRENT COST LICENSEE FACluTY ADDRESS UCENSE NUBEER AMOUNT ESTIRBATE (000'S)
(000'S)
The Babcock & Wilcox Pennsylvania Nuclear 609 N. Warren Ave.
$ 750 Co.
Service Operations Apollo, PA 15613 (Apollo)
Pennsylvania Nuclear 609 N. Warren Ave.
$ 750 Service Operations Apollo,PA 15613 (Parks Township)
Naval Nuclear Fuel P. O. Box 11165 SNM-778
$ 750 Division Research Lynchburg, VA 24506 Laboratory 1
Alliance Research 1562 Beacon Street SNM-30 s655 Alliance, OH 44601 BPM-34-0304343 Laboratory S N 1259
- 1. The Alliance Research Laboratory is submitting the specified Decommissioning FurnNng Plan
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., _ _ _..m m.
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t CERTIFICATE OF INCUMBENCY
[
I, Robert E. Stumpf, do hereby certify that I am a duly elected and qualified Assistant Secretary of The Babcock & Wilcox Company, a Delaware l
corporation, and I do further certify that the individuals whose names, titles, and L
signatures appearing below are duly elected, qualified, and acting officers of said l
corporation and hold on the date of this certificate the office set opposite his name and that the signature appearing opposite his name is the genuine signature of said officer:
1 Name of Officer Title of Officer Sianature Robd E. Howson President and W
l Chief Executive Officer
/
/
- John A. Lynott Executive Vice PresidentC
/
and Chief Financial
/I Officer I
i IN WITNESS WHEREOF, I have hereunder se. my hand and affixed the-s6al of said corporation this 24th day of July,'1990.
l R6bert E. Stumpf/
' Assistant Secretdry
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Il.
!I BABC0CK'.&'WILC0X INVESTMENT-COMPANY
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CONSOLIDATED FINANCIAL STATEMENTS March 31, 1990 and 1989 with REPORT OF INDEPENDENT AUDITORS I-l l
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l.
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i iE lmi Ernst & Young 1
I Ernst& Young l
4?00 One Shea Square 701 Poydras St.
New Orleans Lousana 70139 l
Tolophone. (504) 5814200 REPORTOFINDEPENDENT AUDITORS I
l j
The Board of Directors Babcock & Wilcox Investment Company We have audited the accompanying consolidated balance sheet of Babcock & Wilcox Investirent i
Company as of March 31,1990 and 1989, and the related consolidated statements of income and l
I retained camings and cash flows for the years then ended. These financial statements are the responsibility of the Com?any's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonaale assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the
)
overall financial statement presentation. We believe that our audits provide a reasonable basis for our -
opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Babcock & Wilcox Investment Company at March 31,1990 and I
1 1989, and the consolidated results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles.
I As discussed in Note 7 to the consolidated financial statements, the Company changed its method of accounting for income taxes in 1989.
Y June 4,1990, except for Note 1, as to which the date is July 20,1990 I
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I BABC0CK & WILC0X INVESTMENT CONPANY CONSOLIDATED BALANCE SHEET MARCH 31, 1990-AND 1989 L
ID_Q 12.6 E
(Inthousands)
B ASSETS Current Assets:
Cash and cash equivalents 38,663 25,943 Accounts receivable - trade 169,738 278,025
- Accounts receivable - other 111,684 21,394
- Accounts and note receivable - affiliates 38,772 203,979 Contracts in progress 207,963L 241,035 Inventories 89,618 140,369 E
Deferred income taxes 49,968 5
-Other current assets 37.864 5.704 i
Total Current Assets 744.270 916.449 Property, Plant and Equipment, at Cost:
l!
Land 10,595 12,404 l
Buildings 94,492 103,407 Machinery and equipment 518,775 553,414 Property under construction 86,648 25.200 710,510-694,425 less accumulated deoreciation 318.971 313.047 1
Net Property. Plant and Eouioment 391.539 381.378 Note receivable - McDermott Incoroorated 535.006 129.535 Excess of Cost Over Fair Value of Net 3
Assets of Purchased Businesses Less Accumulated g-Amortization of $61,499,000 at March 31, 1990 and $61.805.000 at March 31. 1989
'142.301 161.296 l
Preoaid Pension Costs 141.750 122.335 i
i Other Assets 42.520 108.998 TOTAL
$1.997.386-
$1.819.991' See accompanying notes to consolhated financial statements.
I! i I
I
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=
j LIABILITIES AND STOCKHOLDER'S EQUITY
,I Current Liabilities:
Notes payable and current maturities of long-term debt 5
15,551 4,221 Accounts payable 112,579 115,576=
'B Accounts payable - affiliates 29,315 44,327 Accrued employee. benefits 48,421 73,640 Accrued liabilities - other 174,421 158,392 Advance billings on contracts 157,959 135,553 Accrued warranty expense 40,831 42,264 U.S. and foreian income taxes 64.211 69.405 Total Current Liabilities 643.288 643.378 Deferred Income Taxes 143.633 123.241 Lona Term Debt 83.853 29.600 Other Liabilities 64 # 4 62.687 Minority Interest 19.007
-12.895-Common Stock and Other Stockholder's Equity:
j Common stock, par value $1.00 per share, 1,000 shares authorized and issued' 1
1 Capital in excess of par value 749,881 749,881-
_i Retained earnings 291,668 194,669
,L Cumulative foreign exchange translation ad.iustments 1.601 3.639 E
Total Common Stock and Other Stockholder's Eaulty 1.043.d51 948.190 L
m TOTAL
$1.997'.386
$1.819.991 L I s
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BABC0CK & WILC0X INVESTMENT COMPANY CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS FOR THE FISCAL YEARS ENDED MARCH 31, 1990 AND 1989 m
l 19.Q 1101 (In thousands)
I.
Revenues
$1.764.167
$1.593.584 Cost and Expenses:
Cost of operations 1,597,050 1,414,661 Depreciation and amortization 48,711 47,691 I
Selling, general _and administrative exoenses 110.232 97.889 1.755.993 1.560.241 Operatina Income 8.174 33.347 I
Other Income (Expense):
Interest income 3,689 10,871 Interest expense (16,414)
(9,813)
Equity in income of investees 4,406 721 i
1 Other-net' 15.111 3-262 6.792 5,041 1
Income From Continuing Operations Before Provision For Income Taxes and Cumulative Effect of Accounting Change 14,966 38,388 Provision For Income Taxes 4'787 15.147 Income From Continuing Operations Before Cumulative Effect of Accountina Chanae 10.179 23.241 l
I Income From Discontinued Operations 86.820 6'.821
'l Income Before Cumulative Effect of Accounting Change 96,999 30,062 Cumulative Effect of Accountina Chance 41.669 Net Income 96.999 71.731-Retained Earninas - Beainnina of Year 194.669 122.938 Retained Earninas - End of Year =
$ 291.668 194.669 See accompanying notes to consolidated financial statements.
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BABCOCK & WILCOX INVESTMENT COMPANY-CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE FISCAL YEARS ENDED MARCH 31, 1990 AND 1989-i INCREASE (DECREASE)INCASHANDCASHEQUIVALENTS L
[
m n
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income 1 96.999
$ 71.731-Adjustment: tu reconcile net income to net cash provided by (used in) operating.
activities:
9 Depreciation and amortization 48,711 47,691 Gain on disposal of property (33,992)
(611)
Gain on disposal of Bailey operations, net of applicable income taxes (85,890)-
Cumulative effect of accounting change
- (Increase) decrease in accounts receivable (68,'729).
(41,669)-
65,191-Increase in accounts payable 30,143-6,546 (Increase) decrease.in inventories (15,723)-
3,636 Net (increase) decrease in contracts in progress and advance billings on contracts 4,906 (13,086)
(
Net decrease in current, non-current and deferred income taxes payable (34,276).
(41,932)
Net increase in other net liabilities 56,501 19,421 Other (8.576)
'89 NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $
(9.926)-
$ 117.007 CASH FLOWS FROM INVESTING-ACTIVITIES:
Proceeds from the disposal of assets 57,'278 12,558 Proceeds from sale of Bailey operations 292,639-Purchases of property, plant and equipment
.(96,802)
(31,136)
Increase in loans to an affiliate (306,296)
(214,050)
Other 10.575 (2.417)
NET CASH USED IN INVESTING ACTIVITIES
$ (42.606)
$f235.045)
, c
- - =.
Continued' I
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS' I
1D.Q 120.2 (In thousands) ll CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of long-term debt (3,381)
$ (72,155)
Issuance of long-term debt 57,692 13,769 3
Increase in short-term borrowing 11,746-Other (776)
.!E NET CASH PROVIDED BY (USED IN) 5.
FINANCING ACTIVITIES
$ 65.281
$ (58.386).
EFFECTS OF EXCHANGE RATE CHANGES ON CASH-(29) 806' NET INCREASE (DECREASE) IN CASH AND CASH E0VIVALENTS 12.720 (175.618) ll CASH AND CASH EQUIVALENTS AT BEGINNING 0F YEAR 25.943' 201.561 CASH AND CASH EQUIVALENTS AT END OF YEAR
'$' 38.663
$ 25.943 3-SUPPLEMENTAL-DISCLOSURES 0F CASH FLOW g
INFORMATION:
Cash paid during the period for:-
I Interest (net of amount capitalized)-
$ 10,214 8,250 Income taxes (includes amounts paid to McDermott Incorporated in fiscal 1990 see Note 7)
$ 71.550
$ 11.161 See accompanying notes to. financial statements.
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I BABC0CK & WILC0X INVESTMENT COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE FISCAL YEARS ENDED MARCH 31, 1990 AND 1989 I
NOTE 1 - BASIS OF PRESENTATION Babcock & Wilcox Investment ' Company ("BWIC0") is. a wholly-owned subsidiary of McDermott Incorporated ("McDermott")~ whose parent is McDermott International, I.
Inc. ("leternational"). On July 20, 1990, McDermott, the then parent company of The Babcot.k & Wilcox Company ("B&W"), transferred its investment in the common stock of BW to BWICO in exchange for all of its common stock.
As a. result -
I BWICO became +he parent company of B&W.
The transaction.has been accounted for and reflected i., the accompanying financial statements in a manner similar to a pooling of intere3ts as if the transaction had occurred on March 31, 1990.
NOTE 2 -
SUMMARY
-0F SIGNIFICANT ACCOUNTING POLICIES Princioles of Consolidation The consolidated financial statements include 'the accounts of BWIC0 and its I
wholly-owned subsidiary, B&W, and al1~ of its subsidiaries, controlled joint ventures and partnerships (the " Company").
Investments in joint ventures and L
other entities in which the Company has a 20% to 50% interest are accounted for
'a on the equity method.
All significant intercompany transactions and accounts E
have been eliminated-L The notes to consolidated financial statements are presented on -the basis of continuing operations, unless otherwise stated; Contracts and Revenue Recoanition Contract _ revenues and related costs are principally recognized on a percentage.
l of completion method for individual contracts and components thereof based.upon work performed or the ratio of costs incurred to total estimated costs, as I
applicable to the product or activity involved.
Revenues and related costs so recorded, plus accumulated contract cost that exceeds' amounts invoiced to I
customers under the terms of the contract are included in Contracts in Progress.
B Billings that exceed accumulated contract costs and revenues and costs recog-nized under percentage of completion are included in'_ Advance Billings on-Contracts.
Most long-term contracts have provisions -for : progress payments.
,I Contract _ price and cost estimates are reviewed periodically as the -work progresses and adjustments proportionate to the percentage of completion are l
reflected in income in the period when such estimates are revised. -There are no-unbilled revenues which will not be billed.
Provisions are made currently.for.
all known or anticipated losses.
Claims for extra work or changes in scope of work are included in contract revenues when collection is probable. L
s 1990 1989 L
(In thousands)
Included in Contracts in Progress are:
Costs' incurred less costs of revenue recognized
$ 88,523
$ 119,676 Revenues recoanized less billinas~to customers 119.440 121.359 Contracts in Proaress
$-207.963
$ 241.035 Included in Advance Billings on Contracts are:
Billings to customers less revenues recognized
$ 134,203
$ 120,282 Costs of revenue recoanized less costs incurred-23.756 15.271 Advance Billinas on Contracts
$ : 57.959 -
$ 135.553
]
The Company is usually entitled to financial settlements relative to the indi-vidual circumstances of deferrals or cancellations of lor,q-term contracts.
The i
Company does not recognize such settlements or claims for additional compensa -
tion until final settlement is reached. -
Included in accounts receivable - trade are amounts representing retainages on contracts as follows:
1990 1989 (In thousands)
Retainages L$ 78,746
$ 120,439 Retainages expected to be collected after one year
$ - 77,781
$ 60,356 Deoreciation Except for a major marine vessel, property,. plant and equipment is depreciated on the straight-line method, using estimated economic useful lives of 8 to 40 years for buildings and 2 to 28 years for machinery and equipment.
The major marine vessel, which has an estimated economic vseful life of 10 to 20 years, is 4
L depreciated under the units-of production method % sed en utilization.
Cash Eauivalenti Cash equivalents are highly liquid investments, with maturities of three months
- or less when purchased.
Amortization of Excess of Cost Over Fair Value of-Net Assets of Purchased Businesses Excess of the cost over fair value of net assets of purchased businesses prin-cipally represents the excess of McDermott's cost of acquiring B&W over the fair I
value of B&W's net assets and is being amortized on a straight-line basis over forty years.
During fiscal 1990, $14,799,000 of excess cost was written off in i
connection with discontinued operations.
Warranty Exoense a
The Company provides for estimated future warranty expense which may be required g
to satisfy contractual requirements.
Such provisions are accrued relative to a
revenue recognition on the respective contracts.
In addition, specific provi-sions are made where the costs of warranty are expected to significantly excee; l
such accruals.
Environmental Clean-up Costs The Company provides for future environmental clean-up for its nuclear fecili-ties that will permit the release of these facilities to unrestricted use nt the end of each facility's life, which is a condition of -its licenses frca the
- Nuclear Regulatory Commission..The Company is accruing the current estimated cost of these clean-up activities over the economic useful life of each of these facilities, which is estimated at 40 years.
In addition, a specific provision l
of approximately $12,800,000 was made at March 31, 1990 to reflect changes-in the current estimate of clean-up costs for these facilities and changes in the economic lives of certain of these facilities.
Research and Develooment
- i The cost of research and development which is not performed on specific con-l tracts is charged to operations as incurred.- Such expense was approximately
$18,900,000 and $22,300,000 in fiscal years 1990 and 1989, respectively.
In addition, expenditures on research and development activities of approximately
$33,610,000 and $48,700,000 in fiscal years 1990 and 1989, respectively,. were paid for by customers of the Company.
9-
J Caoitalization of Interest Cost In fiscal years 1990 and 1989, total interest cost incurred, including discon-tinued operations, was $19,990,000 and $10,490,000, respectively, of which
$3,524,000 and $323,000 was capitalized in fiscal 1990 and 1989, respectively..
Foreton Currency Translation Assets and liabilities of. foreign optrations, other than operations-in highly inflationary economies, are translattd into U.S. Dollars at current exchange 1
rates and income statement items are translated at average exchange rates for the year.
Adjustments resulting fiom the translation of foreign currency financial statements are recorded in i. separate component of equity; an analysis I
of these adjustments follows:
(Inthousands) l Balance March 31, 1988 271 B
Divestiture of foreign investments 17-IC3nslation adjustments for fiscal 1989 3.351 Balance March 31, 1989 3,639 i
Divestiture of foreign investments (4,649) i Translation adjustments for fiscal 1990 2.611 Balance March 31. 1990
$ 1.601 Foreign currency transaction adjustments are reported in income.
Included in I
Other-net income are transaction gains of $686,000 and $72,000 for fiscal years 1990 and 1989, respectively.
I NOTE 3 - DISCONTINUED OPERATIONS Bailev Controls Grouc On October 31, 1989, the Company sold its Bailey Controls (" Bailey") operations g
to ELSAG, a subsidiary of Finmeccanica Societa Finanziaria per Azioni, a manu-l facturing holding company of IRI, an Italian industrial group.
The purchase price paid at closing was $295,000,000, including $2,361,000 collected on behalf of International, and is subject to final purchase price adjustments-that have a
l not yet been determined.
Bailey's operations have been accounted for as a discontinued operation in the consolidated financial statements and the Con-solidated Statement of Income and Retained Earnings has been restated for fiscal year 1989.
I I,
4
. Condensed financial information for Bailey follows:
=
(In thousands)
Revenues
$ 170,996
$ 255,939 Income (loss) from operations, net of applicable income taxes of $423,000 I
and $3,509,000, respectively, in fiscal 1990 and 1989 (423) 7,785-Gain on disposal, net of applicable I
income taxes of $52,457,000 85,890 The gain of $85,690,000 in fiscal 1990 included income from operations '_ of I
$2,357,000 during the phase out period.
Final sales price adjustments are not i
expected to have a material effect on the-consolidated financial statements.
Insulatina Products Group in fiscal 1988, the Company-sold its Insulating Products Group to Thermal-Ceramics, Inc., a subsidiary of the Morgan Crucible Company Plc, a company l
1 headquartered in the United Kingdom, for approximately $73,000,000 and accounted for it as a discontinued operation.
y Condensed financial information for the Insulating Products Group follows:
(In thousands)
Gain (loss) on disposal, net of applicable income taxes (benefit) of I
$53,000 and $(136,000), respectively, in fiscal 1990 and 1989 1,353 (964)
Seamless Tubular line of Businen in June 1987, the Company announced its intention to permanently close its g
seamless tubular line of business and accordingly accounted for it as a discon-
)
tinued operation at March 31, 1987.
During fiscal year 1990, the Company agreed to sell to Ambridge Tube Corporation
("Ambridge"), a Texas corporation (or a related entity designated by Ambridge),
substantially all of the assets of its seamless tubular line of business and to transfer to Ambridge certain of its liabilities and obligations.
The seamless 1
l 1 i
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1 tubular line of business includes the equipment, technology, and plants located l
in Beaver Falls, Ambridge and Koppel, Pennsylvania; and Bryan, Texas.
The proposed sale is expected to take place during fiscal 1991, subject to certain contingencies, primarily related to applicable government approvals and environmental-related matters.
I No gain or loss attributable to the discontinued operations was recognized in fiscal years 1990 and 1989 and at March 31, 1990 management believes remaining-provisions are adequate.
Net assets of $12,140,000 of the seamless tubular line of business are included in the consolidated balance sheet in Other current assets at March 31, 1990.
NOTE 4 - SALE OF ACCOUNTS RECEIVABLE B
In December 1988, B&W entered into a three-year agreement with a certain U.S.
y bank, whereby B&W can sell, up to a maximum of $100,000,000, with limited I
recourse, an undivided interest in a designed pool of qualified accounts receiv-(
's able.
Under the terms of the agreement, new receivables are added to the pool g
as collections reduce previously sold accounts receivable.
Effective December 1989, the maximum sales limit was increased to $200,000,000. At March 31, 1990, approximately $175,000,000 of receivables had been sold for cash under this agreement.
Included in Other-net income were expenses recorded on the sale of receivables which represent bank fees and discounts of $13,087,000 and
$1,350,000 for the fiscal years ended March 31, 1990 and 1989, respectively.
I NOTE 5 - INVENTORIES Inventories are carried at the lower of cost or market.
Cost is determined on an average cost basis except for certain materials ' inventories, for which the last-in first-out (LIFO) method is used.
The cost of approximately 31% and 16%
of total inventories was determined using the LIF0 method at-March 31, 1990 and 1989, respectively.
Consolidated inventories at March 31,1990 and 1989 are summarized below:
1210 1939 (In thousands) i Raw Materials and Supplies
$ 43,495
$ 45,910 Work in Progress 27,702 36,296 Finished Goods 18.421 58.163
$ 89.618
$ 140.369..
s NOTE 6 - PENSION PLANS AND POSTRETIREMENT BENEFITS Pension Plans The Company provides retirement benefits, primarily through non-contributory i
pension pl ans, for substantially all of its regular full-time employees.
Salaried plan benefits are based on final average compensation and years of service, while hourly plan benefits are based on a flat benefit rate and years
(
of service. The Company's funding policy is to fund applicable pension plans to t
meet the minimum funding requirements of the Employee Retirement Income Security Act of 1974 (ERISA) and, generally, to fund other pension plans as recommended by the respective plan actuary and in accordance with applicable law.
At January 1,1990, approximately one-half of total plan assets were held in U.S.
I Government securities.
The remaining assets were invested in listed stocks and bonds and investments of a short-term nature.
Net periodic pension cost for fiscal years 1990 and 1989 included the following i
components:
1990 1989 (In thousands)
Service cost - benefits earned during the period
$ 12,881
$ 12,'008 Interest cost on projected benefit obligation 31,821 25,666 Actual return on plan assets (114,295)
(47,833)
Net amortization and deferral 59,627 4,961 Net periodic pension cost
$ (9.966)
$ (5.198)
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At January 1,1990 and 1989, the weighted-average discount rate for active and retired employees, and the expected long-term rate of return on assets were both 8-1/2% and 8-1/2%, respectively.
The rate of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligations were 5% and 4-1/2%, respectively.
Due to the sale of its Bailey operations on October 31, 1989, the Company curtailed certain related salaried pension plans in the United States and Canada.
Consequently, income from discontinued operations in fiscal year 1990 includes a net after-tax gain of $3,118,000 resulting from the curtai'~ents.
Accordingly, net periodic pension cost relating to these ' pension
- was remeasured at October 31, 1989.
The impact on net periodic pension
'st for fiscal year 1990 was to increase the pre-tax income from continuing oprations by $3,523,000.
The following table sets forth the plans' funded status and amounts recognized in the Company's consolidated financial statements:
J Plans for Which Plans for Which Assets Exceed Accumulated Accumulated Benefits i*'
Benefits Exceed Assets 1990 1989 1990 1989
{.
(Inthousands)
Actuarial present value of benefit obligations:
Vested benefit obligation
$.265.853
$ 218.549
$ 57.698
$ 51.875 Accumulated benefit obligation
$ 314.960
$ 257.444
$ 75.874
$ 66.248 Projected benefit obligation
$ 376,540
$ 331,841
$:'76,000
$ 66,437 Plan assets at fcir value 639.095 531.000 57.890_
52.257
(
Projected benefit obliga-tion (in excess of) or less than plan assets 262,555 199,159 (18,110)
(14,180)
[
Unrecognized net (gain) or loss (52,081)
-4,636
-(4,942)
(504) l Prior service cost not yet recognized in net periodic pension cost 6,672 1,268 5,711 491 Unrecognized transition (asset) liability (75,396)
(82,728) 487 449-Adjustment required to recognize minimum liability
'(1.285)
Prepaid pension cost (pensionliability) recognized in the consolidated finan-cial statements
$ 141.750
$ 122.335
$ (18.139)
$ (13.774)
The principal ERISA pension plan provides that, subject to certain limitations, any excess assets in such plan would be used to increase pension benefits if certain events occurred within a 60-month period following a change in control of International.
m su*
Multiemolover olans One of the Company's subsidiaries contributes to various multiemployer plans.
The plans generally provide defined benefits to substantially all unionized workers in this subsidiary.
Amounts charged to pension cost and contributed to r
l the plans were $9,059,000 and $8,691,000 in fiscal years 1990 and 1989, respectively.
Postretirement health care and life insurance benefits The Company offers postretirement health care and life insurance benefits to substantially all of its retired regular full-time empluyees, including those i
associated with discontinued operations.
The Company shares the cost of pro-viding these benefits with all affceted retirees.
The Company's cost of pro-viding such benefits is recognized by expensing the insurance program's premiums
(
and the estimated liability for claims incurred by plan participants.
The aggregate cost including discontinued operations, totaled $15,296,000 and
$16,850,000 in fiscal years 1990 and 1989, respectively.
The Company has made
{.
no provision for recognizing the cost of postretirement benefits which may eventually be paid to employees who have not yet retired.
(
NOTE 7 - INCOME TAXES The Company is included in the consolidated federal income tax return filed by McDermott.
McDermott's policy for intercompany allocation of federal income taxes provides that the Company computes the provision for federal income taxes on a separate company basis.
The Company makes payments to McDermott
($60,218,000 in fiscal 1990) in the amount it would have paid to the Internal Revenue Service had it not been a member of the consolidated tax group.
Included net in the Note receivable - McDermott incorporated are income taxes payable to McDermott of $119,955,000 and $60,218,000 at March 31, 1990 and 1989,
(
respectively.
Accounts payable - affiliates includes income taxes payable to McDermott of $35,402,000 at March 31, 1989.
U.S. and foreign income taxes and net deferred income taxes include approximately $132,000,000 and $160,000,000 at
{
March 31, 1990 and 1989, respectively, which may ultimately be payable to McDermott.
Effective April 1, 1988, McDermott and the Company adopted FAS No. 96, " Account-ing for Income Taxes."
This Statement provides for a liability approach under which deferred income taxes are provided based upon enacted tax laws and rates applicable to the period:; in which the taxes become payable.
For periods prior to April 1, 1988, deferred income taxes were provided based upon tax laws applicable to the current year without adjustment for subsequent changes.
The cumulative effect of accounting change at April 1,1988 was $41,669,000.
The effect of the change, excluding the cumulative effect, was to decrease income from continuing operations by $573,000 and to increase income before extraordi-nary items and cumulative effect of accounting change by $633,000 and to decrease net income by $1,248,000 for the fiscal year ended March 31, 1989.. _ _ _.
I I
The provision for (benefit from) income taxes from continuing operations con-sists of:
I 1990 1989 R
Current Deferred Current-Deferred I
(Inthousands)
Federal-
$ 36,639
$ (35,281
$ 50,829
$ (39,476 Foreign 3,829:-
(276 2,158 (688 State & Local 10.001 (10.125 9.828 (7.504 1 50.469
$ (45.682)
$ 62.815
$ (47.668)
The effective income tax rate on continuing operations is reconciled to the 8
statutory federal income tax rate as follows:
1 1990 1989 Percent Percent Statutory federal tax rate 34.0 34.0 i
I Change in income tax rate resulting from:
Excess of Cost Over Fair Market Value of Net Assets 12.1-4.6 State and local tax effect (0.6) 4.8 B
Tax benefit of NOL utilization (18.0)
(3.5)
Foreign operations 2.0 (3.7)
Non-deductible portion of business expenses 2.9 0.9 Other (0.4) 2.4
)
Effective income tax rate'
-32.0 39.5 Deferred income taxes result from the tax effect of temporary differences'in the financial and tax bases of assets and liabilities.
Significant components of
\\
i' deferred -income taxes and their related impact on the provision for (benefit from) deferred income taxes were:
191Q 1222 (In thousands) l Excess tax over financial depreciation (5,386) 376 l
Long-term contracts, primarily on the r
completed contract method for tax purposes (28,715)
(43,298)
Warranty expense (340) 6,573 Provision for cost of certain facility closings, relocations, dispositions, environmental cleanup and idle facility costs (1,531) 6,383)
Interest on proposed tax deficiencies (2,154) 1,336)
.Self insurance 3,191 3,126)
Pension expense (7,655) 2,375 Bad debt expense (1,037)
(1,784)
Vacation pay expense (313)
(1,058) q Inventory valuation (1,007) 193 i
Other (735)
(200)
$ (45.682)
$-(47.668)
During the fiscal year ended March 31, 1990, decisions were entered in the United States Tax Court concerning McDermott's U.S. income tax liability for the fiscal years ended March 31, 1981 and March 31, 1982 which includes the Com:any.
.McDermott is continuing to contest claims -for its fiscal year ended Marc 131, 1983 in the United States Tax Court.
Tne. Internal Revenue Service has issued notices for fiscal years 1984, 1985 and 1986 which propose substantial addi.
tional taxes.
The Company believes that the outcome of any income taxes ulti-mately assessed will not have a material adverse effect on 'its-consolidated i
financial statements.
NOTE 8 - RELATED PARTY TRANSACTIONS The Company has material transactions with International and its other subsidiaries occurring in the normal course of operations.
Such transactions include the leasing of marine equipment to International
($16,040,000 and
$15,954,000, in fiscal years 1990 and.1989, respectively), the allocation of general and administrative costs by McDermott to the-Company ($32,697,000 and I
$23,382,000 in fiscal years 1990 and 1989, respectively), placing certain insurance coverage (at prices determined on an annual basis of $17,424,000 and
$18,517,000 in fiscal years 1990 and 1989, respectively, including discontinued operations) through commercial insurance carriers which in turn substantially reinsure such exposure to a wholly-owned subsidiary of International, the purchase of engineering and construction services ($11,25',000 and $2,105,000 in fiscal years 1990 and 1969, respectively) from a subsidiary of McDermott, the I
sale of construction services ($1,133,000 and $705,000 in fiscal years 1990 and 1989, respectively) to a subsidiary of McDermott, and the management of certain 3
of the investments of the Company's pension plans by a wholly-owned subsidiary l
of International for which the Company paid fees of $1,794,000 and $1,753,000 in fiscal years 1990 and 1989, respectively.
There were no purchases of steel and other raw materials from International in fiscal 1990.
In fiscal year 1989, there were purchases of $32,598,000.
Also during fiscal 1989, the Company purchased from McDermott a wholly-owned subsidiary for its net book value of
$28,756,000.
The Company had sales to its unconsolidated affiliates of $28,951,000 and
$43,533,000 in fiscal years 1990 and 1989, respectively.
Purchases from its unconsolidated affiliates were $6,114,000 and $838,000 in fiscal years 1990 and I
1989, respectively.
The Company had : ales to unconsolidated affiliates of International and its I
other subsdiaries of $7,455,000 and $8,558,000 in fiscal years 1990 and 1989, respectively.
Purchases from these unconsolidated affiliates were $8,440,000 and $5,462,000 in fiscal years 1990 and 1989.
Property, plant and equipment and accumulated depreciation and amortization, respectively, include $174,437,000 and $65,805,000 at March 31, 1990 and
$175,958,000 and $57,507,000 at March 31, 1989 of marine equipment len;ed to ini croational.
The non-current note receivable from McDermott is a non-interest bearing note, I
repayable within 30 days of written demand by the Company.
However, it is not the intent of the Company and McDermott to settle the non-current note receiv-l able outstanding at March 31, 1990 during fiscal year 1991.
l Included in interest expense in fiscal 1990 is $6,666,000 of interest on income taxes due to McDermott under McDermott's policy for intercompany allocation of I
federal income taxes (see Note 7).
Interest income includes $7,215,000 in fiscal 1989 on government obligations that had been purchased by the Company from McDermott and a subsidiary of International under reverse repurchase l
agreements.
Certain officers and employees of the Company participate in certain benefit plans which involve the issuance of International common stock.
I L
18 -
F
s
- 1 NOTE 9 - LONG-TERM DEBT.
Long term debt consists of:
lHD 1922 i
(In thousands) 9.375% Note payable $1,681,250 annually to 1997
$ 11,769
$ 13,450
[
Project financing notes 68,268 10,577
[.
Other notes payable through 1999 (interest at various rates. ranging from 6% to 10%) and capitalized lease obligations 7.621
._f.J.91 87,658 33,821 Less: Amounts due within one year 1 691 4'.221
$ 83.853
$ 29.600 r
1 L
Project financing notes of_ $68,268,000 result from withdrawals of funds avail-able from the issuances,- by. a governmental authority, of approximately
$87,000,000 of tax-exempt energy development revenue bonds-and a $23,000,000
(
project financing line of credit.
The revenue' bonds bear interest at variable interest rates (6.50% at March 31, 1990) and the project financing line of credit bears interest at 90-day LIBOR plus 1-1/4% (9.91% at March 31, 1990).
l
_ The project financing notes are secured solely by the assets of the project.
Maturities of long-term debt during the five fiscal years subsequent to March 31,1990 are as follows:
1991 - $3,805,000; 1992 - $12,351,000; 1993 -
i
$5,042,000; 1994 - $4,291,000; 1995 - $3,577,000.
NOTE 10 - CONTINGENCIES AND COMMITMENTS Litioation The Company is a defendant in numerous _ legal proceedings.
Management and general counsel believe that the outcome of these proceedings will not have a material adverse effect upon the Company's consolidated financial. statements. l l
r
Ooeratina leases Future minimum payments required under operating leases that have initial or remaining noncancelable lease terms in excess of one year at March 31, 1990 are as follows:
1991 - $5,175,000; 1992 - $1,916,000; 1993 - $876,000; 1994
- $614,000; 1995 - $661,000; and thereafter - $7,230,000.
Future minimum lease payments and leased property under capital leases are not material.
Total rental expense for fiscal 1990 and 1989 was $30,252,000 and $25,103,000, respec-
[
tively.
These expense figures include contingent rentals and are net of sub-I lease income, both of which are not material.
Other The Company performs significant amounts of work for the U.S. Government under both prime contracts and subcontracts and thus-is subject to continuing reviews by governmental agencies.
The Company maintains liability and property insurance that it considers normal in the industry.
However, certain risks are either not insurable or insurance is available only at rates which the Company considers uneconomical.
Commitments for_ capital expenditures, including specially-financed projects, amounted to ap)roximately $41,679,000 at March 31, 1990, of which approximately
$38,137,000 relates to fiscal 1991.
The Company is contingently liable under standby letters of credit totaling
$78,351,000 at March 31, 1990, issued in the normal course of business.
In addition, McDermott has indemnified performance bonds on contracts of the Company.
NOTE 11 - FOREIGN OPERATIONS Summarized financial information of foreign subsidiaries included in the consol-idated financial statement is as follows:
191Q l989 (In thousands)
Assets
$ 138,695
$ 116,786 Liabilities 5 84,501
$ 82,452 Net income
$ 16,585 S,226
[-
'ht income includes income of $6 337 000 in 1990 attributable to discontinued
(
Bailey operations.
The 1989 net income includes a loss of $1,157,000 attributable to Insulating Products Group and Bailey discontinued operations (See Note 3).
f 4
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