Power Generation Systems Segment (B&W)

- Income increased 200% to $75.4 million from $25.2 million in 2006 due to $50 million from contract terminations and settlements.
- Revenues were $670 million, of which $150 million related to the eight TXU units, and 80% to units 4 through 8 covered by the global settlement reached in April.
- Despite strong margins of 11.2%, the target margin range in the near term is expected to be in the 6% to 8% range.
- The backlog grew over $500 million to $2.8 billion excluding the three remaining TXU units which are being worked on.
- The $250 million term loan was paid off using proceed from a $272 million refund from the IRS.

Bids outstanding are worth $2.8 billion and include replacement boiler projects, as well as environmental work, such as scrubbers and SCRs.

- These projects remain outside of the backlog until a definitive purchaser is confirmed and a binding contract signed.
- Coal projects, including the 5.7 gigawatts of coal-fired boiler projects in the U.S., keep growing despite concerns about CO2 and other issues.
- The Chinese boiler manufacturing joint venture has 14 gigawatts of coal-fired boiler projects in its backlog.

Management Views on Environmental Issues

- Coal is the only fossil fuel where the U.S. is energy independent and it''s proven cleaner than ever.
- Before utilities start spending on CO2 technologies there is need for appropriate regulations as CO2 is currently not a regulated emission.
- In addition to the oxy coal combustion process, the firm is pursuing scrubbing technologies, using regenerable solvents and enzymes.

Research and Development

- Expenditure rose from $3 million in 2006 to $5 million.
- Recommendations on the Saskatchewan power nuclear plant project are being evaluated by the board.
- The AEP retro-fit study is progressing well while construction of the Oxy combustion technology at the 30-megawatt clean environment development facility in eastern Ohio is nearing completion.
- Oxy combustion will be over a 90% CO2 solution and scrubbing technology will likely remove less than 90%.

Several construction projects continued deteriorating leaving some upside unrealized.

- A capital spending program to support organic growth has been approved by management.
- Contributions to the under funded pension position are expected to amount to $115 million.
- Credit ratings were upgraded enabling the completion of amendments to J. Ray''s and B&W''s credit facilities in July resulting in annual savings between 50 and 150 basis.

The board of directors announced the approval of a two-for-one stock split.

- Consolidated backlog was $8.9 billion, up $1 billion from a year ago, an indication that the core energy ENC markets remain strong.

Fiscal 2007 Outlook

- The Americas facilities, including a new facility in Altamira, Mexico are well positioned for modules for the power market refineries and other specialty work.
- J. Ray''s marine activity to be fully utilized throughout the remainder of the year.
- Operating margins for J.Ray are expected to be in the10% to 12% range.

Key questions and answers from the second quarter earnings call conducted by McDermott International on August 8, 2007.

Jamie Cook (Credit Suisse): Looking at the margins on the power gen side, your margins were 4.8 and you mentioned some incremental costs. Including that, where would margins be and when do we get to the 6% to 8% operating margin target?

Bruce W. Wilkinson: These projects typically span two fiscal years and sometimes ten fiscal quarters or more, and at any particular time some perform better than others, and so I think the 6% to 8% is something that we will be achieving. It''s typical in the construction industry to have some projects that over perform and some that underperform. I am not particularly concerned about the 4.5 that you''re looking at there.

Michael S. Taff: In addition, contract settlements and change orders are a normal recurring part of the ENC business.

Jamie Cook: Following up your comments on the power gen business, there could be other things to come on the coal new generation side, and that''s despite information on the contrary. What do you think the chances are that there could be some new coal-fire power plants going ahead to be built in 2008?

Bruce W. Wilkinson: We continue to work on a number of smaller, low profile areas i.e. the greater Midwest. These are areas where coal is still not a bad word because they''re going on. We have to have regulatory certainty underlying that in order to have some waves of very large effect. Hence it is possible that we could have a little bit of a period of waiting for that though the ongoing smaller market, or many of the smaller projects, are going forward. There are some major utilities that are going to wait for regulatory certainty, but you have certain REAs, municipals, other places that are working on a different theme.