UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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| |
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended SeptemberJune 30, 20192020
OR
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| |
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File No. 001-36876
BABCOCK & WILCOX ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
|
| | |
| DELAWARE | | 47-2783641 |
| (State or other Jurisdiction of Incorporation or Organization) | | (I.R.S. Employer Identification No.) |
| |
20 SOUTH VAN BUREN AVENUE1200 EAST MARKET STREET, SUITE 650 | | |
BARBERTON,AKRON, OHIO | | 4420344305 |
| (Address of Principal Executive Offices) | | (Zip Code) |
Registrant's Telephone Number, Including Area Code: (330) 753-4511
Securities registered pursuant to Section 12(b) of the Act:
|
| | |
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| Common Stock, $0.01 par value | BW | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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| | | | | | |
| Large accelerated filer | | ¨ | | Accelerated filer | | x¨
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| | | | |
| Non-accelerated filer | | ¨
x | | Smaller reporting company | | x |
| | | | | | | |
| | | | | Emerging growth company | | ¨ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨ No x
The number of shares of the registrant's common stock outstanding at November 1, 2019August 7, 2020 was 46,340,524.49,312,405.
BABCOCK & WILCOX ENTERPRISES, INC.
FORM 10-Q
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Financial Statements
BABCOCK & WILCOX ENTERPRISES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
| | | | Three months ended September 30, | Nine months ended September 30, | Three months ended June 30, | Six months ended June 30, |
| (in thousands, except per share amounts) | 2019 | 2018 | 2019 | 2018 | 2020 | 2019 | 2020 | 2019 |
| Revenues | $ | 198,644 |
| $ | 294,963 |
| $ | 678,695 |
| $ | 839,476 |
| $ | 135,397 |
| $ | 248,115 |
| $ | 283,951 |
| $ | 480,051 |
|
| Costs and expenses: | | |
| Cost of operations | 158,273 |
| 284,501 |
| 563,171 |
| 894,249 |
| 102,907 |
| 203,831 |
| 217,535 |
| 404,898 |
|
| Selling, general and administrative expenses | 35,956 |
| 45,022 |
| 120,431 |
| 151,537 |
| 34,579 |
| 42,076 |
| 72,187 |
| 84,475 |
|
| Goodwill impairment | — |
| — |
| — |
| 37,540 |
| |
| Advisory fees and settlement costs | 4,474 |
| 7,244 |
| 22,862 |
| 15,475 |
| 1,989 |
| 4,778 |
| 6,228 |
| 18,388 |
|
| Restructuring activities and spin-off transaction costs | 2,556 |
| 2,863 |
| 9,571 |
| 13,551 |
| |
| Restructuring activities | | 2,392 |
| 936 |
| 4,343 |
| 7,015 |
|
| Research and development costs | 828 |
| 452 |
| 2,281 |
| 2,881 |
| 1,231 |
| 710 |
| 2,572 |
| 1,453 |
|
| (Gain) loss on asset disposals, net | (266 | ) | 28 |
| (224 | ) | 1,412 |
| |
| Loss (gain) on asset disposals, net | | 2 |
| 42 |
| (913 | ) | 42 |
|
| Total costs and expenses | 201,821 |
| 340,110 |
| 718,092 |
| 1,116,645 |
| 143,100 |
| 252,373 |
| 301,952 |
| 516,271 |
|
| Equity in income and impairment of investees | — |
| — |
| — |
| (11,757 | ) | |
| Operating loss | (3,177 | ) | (45,147 | ) | (39,397 | ) | (288,926 | ) | (7,703 | ) | (4,258 | ) | (18,001 | ) | (36,220 | ) |
| Other (expense) income: |
| |
|
| Interest expense | (29,463 | ) | (10,419 | ) | (67,434 | ) | (35,748 | ) | (15,482 | ) | (26,837 | ) | (37,573 | ) | (37,971 | ) |
| Interest income | 112 |
| 172 |
| 872 |
| 432 |
| 223 |
| 201 |
| 263 |
| 760 |
|
| Loss on debt extinguishment | — |
| — |
| (3,969 | ) | (49,241 | ) | (6,194 | ) | (3,969 | ) | (6,194 | ) | (3,969 | ) |
| Gain (loss) on sale of business | — |
| 39,731 |
| (3,601 | ) | 39,731 |
| |
| Loss on sale of business | | (108 | ) | (3,601 | ) | (108 | ) | (3,601 | ) |
| Benefit plans, net | 3,571 |
| 10,756 |
| 9,072 |
| 24,839 |
| 7,450 |
| 2,471 |
| 14,986 |
| 5,501 |
|
| Foreign exchange | (26,735 | ) | (4,939 | ) | (27,382 | ) | (22,680 | ) | 7,112 |
| 9,506 |
| (2,214 | ) | (647 | ) |
| Other – net | (255 | ) | (45 | ) | 208 |
| 221 |
| (2,586 | ) | 43 |
| (2,792 | ) | 463 |
|
| Total other (expense) income | (52,770 | ) | 35,256 |
| (92,234 | ) | (42,446 | ) | |
| Loss before income tax expense | (55,947 | ) | (9,891 | ) | (131,631 | ) | (331,372 | ) | |
| Total other expense | | (9,585 | ) | (22,186 | ) | (33,632 | ) | (39,464 | ) |
| Loss before income tax (benefit) expense | | (17,288 | ) | (26,444 | ) | (51,633 | ) | (75,684 | ) |
| Income tax expense | 1,043 |
| 94,256 |
| 3,560 |
| 99,285 |
| 845 |
| 1,891 |
| 35 |
| 2,517 |
|
| Loss from continuing operations | (56,990 | ) | (104,147 | ) | (135,191 | ) | (430,657 | ) | (18,133 | ) | (28,335 | ) | (51,668 | ) | (78,201 | ) |
| (Loss) income from discontinued operations, net of tax | — |
| (1,447 | ) | 694 |
| (60,875 | ) | (113 | ) | 694 |
| 1,800 |
| 694 |
|
| Net loss | (56,990 | ) | (105,594 | ) | (134,497 | ) | (491,532 | ) | (18,246 | ) | (27,641 | ) | (49,868 | ) | (77,507 | ) |
| Net income (loss) attributable to noncontrolling interest | 35 |
| (94 | ) | 137 |
| (357 | ) | |
| Net income attributable to non-controlling interest | | 142 |
| 1 |
| 238 |
| 102 |
|
| Net loss attributable to stockholders | $ | (56,955 | ) | $ | (105,688 | ) | $ | (134,360 | ) | $ | (491,889 | ) | $ | (18,104 | ) | $ | (27,640 | ) | $ | (49,630 | ) | $ | (77,405 | ) |
| | | |
| Basic and diluted loss per share - continuing operations | $ | (1.39 | ) | $ | (5.68 | ) | $ | (5.21 | ) | $ | (35.02 | ) | $ | (0.39 | ) | $ | (1.54 | ) | $ | (1.10 | ) | $ | (4.26 | ) |
| Basic and diluted (loss) earnings per share - discontinued operations | — |
| (0.08 | ) | 0.03 |
| (4.95 | ) | |
| Basic and diluted earnings per share - discontinued operations | | — |
| 0.04 |
| 0.04 |
| 0.04 |
|
| Basic and diluted loss per share | $ | (1.39 | ) | $ | (5.76 | ) | $ | (5.18 | ) | $ | (39.97 | ) | $ | (0.39 | ) | $ | (1.50 | ) | $ | (1.06 | ) | $ | (4.22 | ) |
| |
|
|
|
| |
| Shares used in the computation of (loss) earnings per share: |
|
|
|
|
|
|
|
| |
|
|
|
|
Basic and diluted(1) | 40,879 |
| 18,344 |
| 25,950 |
| 12,305 |
| 46,853 |
| 18,366 |
| 46,628 |
| 18,362 |
|
(1) Basic and diluted shares at June 30, 2019 reflect the bonus element for the 2019 Rights Offering on July 23, 2019 as described in Note 2 and the one-for-ten reverse stock split on July 24, 2019 as described in Note 1.2019.
See accompanying notes to Condensed Consolidated Financial Statements.
BABCOCK & WILCOX ENTERPRISES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME |
| | | | | | | | | | | | |
| | Three months ended September 30, | Nine months ended September 30, |
| (in thousands) | 2019 | 2018 | 2019 | 2018 |
| Net loss | $ | (56,990 | ) | $ | (105,594 | ) | $ | (134,497 | ) | $ | (491,532 | ) |
| Other comprehensive income (loss): |
|
|
|
|
| Currency translation adjustments (CTA) | 21,433 |
| 296 |
| 23,714 |
| 12,036 |
|
|
|
|
|
|
| Reclassification of CTA to net loss | — |
| 2,595 |
| 3,176 |
| 551 |
|
|
|
|
|
|
| Derivative financial instruments: |
|
|
|
|
| Unrealized gains (losses) on derivative financial instruments | — |
| 103 |
| (1,367 | ) | 1,102 |
|
| Income tax (benefit) expense | — |
| (47 | ) | — |
| 241 |
|
| Unrealized gains (losses) on derivative financial instruments, net of taxes | — |
| 150 |
| (1,367 | ) | 861 |
|
| Derivative financial instrument (losses) gains reclassified into net loss | — |
| (502 | ) | 202 |
| (1,641 | ) |
| Income tax benefit | — |
| (110 | ) | — |
| (358 | ) |
| Reclassification adjustment for (losses) gains included in net loss, net of taxes | — |
| (392 | ) | 202 |
| (1,283 | ) |
|
|
|
|
|
| Derivative financial instruments reclassified to advanced billings on contracts | (197 | ) | — |
| (197 | ) | — |
|
| | | | | |
| Benefit obligations: |
|
|
|
|
| Unrealized (losses) gains on benefit obligations, net of taxes | — |
| (11 | ) | — |
| 46 |
|
|
|
|
|
|
|
|
|
|
| Amortization of benefit plan benefits | (515 | ) | (168 | ) | (1,385 | ) | (1,918 | ) |
| Income tax (benefit) expense | — |
| (46 | ) | — |
| 1,846 |
|
| Amortization of benefit plan benefits, net of taxes | (515 | ) | (122 | ) | (1,385 | ) | (3,764 | ) |
|
|
|
|
|
| Other | — |
| — |
| — |
| (38 | ) |
|
|
|
|
|
| Other comprehensive income | 20,721 |
| 2,516 |
| 24,143 |
| 8,409 |
|
| Total comprehensive loss | (36,269 | ) | (103,078 | ) | (110,354 | ) | (483,123 | ) |
| Comprehensive (loss) income attributable to noncontrolling interest | (88 | ) | 23 |
| 341 |
| (175 | ) |
| Comprehensive loss attributable to stockholders | $ | (36,357 | ) | $ | (103,055 | ) | $ | (110,013 | ) | $ | (483,298 | ) |
|
| | | | | | | | | | | | |
| | Three months ended June 30, | Six months ended June 30, |
| (in thousands) | 2020 | 2019 | 2020 | 2019 |
| Net loss | $ | (18,246 | ) | $ | (27,641 | ) | $ | (49,868 | ) | $ | (77,507 | ) |
| Other comprehensive income (loss): | | | | |
| Currency translation adjustments (CTA) | (4,095 | ) | (7,979 | ) | (1,715 | ) | 2,281 |
|
| | | | | |
| Reclassification of CTA to net loss | — |
| 3,176 |
| — |
| 3,176 |
|
| | | | | |
| Derivative financial instruments: | | | | |
| Unrealized losses on derivative financial instruments | — |
| (189 | ) | — |
| (1,367 | ) |
| Derivative financial instrument (losses) gains reclassified into net loss | — |
| (22 | ) | — |
| 202 |
|
| | | | | |
| Benefit obligations: | | | | |
| Amortization of benefit plan benefits | (246 | ) | (514 | ) | (492 | ) | (870 | ) |
| | | | | |
| Other comprehensive (loss) income | (4,341 | ) | (5,528 | ) | (2,207 | ) | 3,422 |
|
| Total comprehensive loss | (22,587 | ) | (33,169 | ) | (52,075 | ) | (74,085 | ) |
| Comprehensive income attributable to non-controlling interest | 105 |
| 307 |
| 259 |
| 429 |
|
| Comprehensive loss attributable to stockholders | $ | (22,482 | ) | $ | (32,862 | ) | $ | (51,816 | ) | $ | (73,656 | ) |
See accompanying notes to Condensed Consolidated Financial Statements.
BABCOCK & WILCOX ENTERPRISES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS |
| | | | | | |
| (in thousands, except per share amount) | September 30, 2019 | December 31, 2018 |
| Cash and cash equivalents | $ | 32,063 |
| $ | 43,214 |
|
| Restricted cash and cash equivalents | 11,282 |
| 17,065 |
|
| Accounts receivable – trade, net | 182,736 |
| 197,203 |
|
| Accounts receivable – other | 20,619 |
| 44,662 |
|
| Contracts in progress | 118,440 |
| 144,727 |
|
| Inventories | 64,526 |
| 61,323 |
|
| Other current assets | 65,325 |
| 41,425 |
|
| Total current assets | 494,991 |
| 549,619 |
|
| Net property, plant and equipment | 74,330 |
| 90,892 |
|
| Goodwill | 47,008 |
| 47,108 |
|
| Intangible assets | 26,432 |
| 30,793 |
|
| Right-of-use assets | 13,088 |
| — |
|
| Other assets | 16,761 |
| 27,085 |
|
| Total assets | $ | 672,610 |
| $ | 745,497 |
|
|
|
|
|
|
| Revolving credit facilities | $ | 191,700 |
| $ | 145,506 |
|
| Last out term loans | 101,888 |
| 30,649 |
|
| Accounts payable | 125,618 |
| 199,882 |
|
| Accrued employee benefits | 25,054 |
| 19,319 |
|
| Advance billings on contracts | 80,964 |
| 149,367 |
|
| Accrued warranty expense | 35,598 |
| 45,117 |
|
| Lease liabilities | 4,303 |
| — |
|
| Other accrued liabilities | 90,512 |
| 122,149 |
|
| Total current liabilities | 655,637 |
| 711,989 |
|
| Pension and other accumulated postretirement benefit liabilities | 271,917 |
| 281,647 |
|
| Noncurrent lease liabilities | 8,654 |
| — |
|
| Other noncurrent liabilities | 26,479 |
| 29,158 |
|
| Total liabilities | 962,687 |
| 1,022,794 |
|
| Commitments and contingencies |
|
|
| Stockholders' deficit: |
|
|
Common stock, par value $0.01 per share, authorized 500,000 shares at September 30, 2019 and 200,000 shares at December 31, 2018, respectively; issued and outstanding 46,341 and 16,879 shares at September 30, 2019 and December 31, 2018, respectively (1) | 4,694 |
| 1,748 |
|
| Capital in excess of par value | 1,142,208 |
| 1,047,062 |
|
Treasury stock at cost, 599 and 587 shares at September 30, 2019 and December 31, 2018, respectively (1) | (105,634 | ) | (105,590 | ) |
| Accumulated deficit | (1,352,274 | ) | (1,217,914 | ) |
| Accumulated other comprehensive income (loss) | 12,711 |
| (11,432 | ) |
| Stockholders' deficit attributable to shareholders | (298,295 | ) | (286,126 | ) |
| Noncontrolling interest | 8,218 |
| 8,829 |
|
| Total stockholders' deficit | (290,077 | ) | (277,297 | ) |
| Total liabilities and stockholders' deficit | $ | 672,610 |
| $ | 745,497 |
|
(1) Issued and outstanding common shares and treasury stock shares reflect the one-for-ten reverse stock split on July 24, 2019 as described in Note 1. |
| | | | | | |
| (in thousands, except per share amount) | June 30, 2020 | December 31, 2019 |
| Cash and cash equivalents | $ | 36,815 |
| $ | 43,772 |
|
| Restricted cash and cash equivalents | 11,301 |
| 13,169 |
|
| Accounts receivable – trade, net | 112,658 |
| 142,201 |
|
| Accounts receivable – other | 27,585 |
| 23,263 |
|
| Contracts in progress | 86,091 |
| 91,579 |
|
| Inventories | 61,390 |
| 63,103 |
|
| Other current assets | 25,292 |
| 27,044 |
|
| Current assets held for sale | 6,726 |
| 8,089 |
|
| Total current assets | 367,858 |
| 412,220 |
|
| Net property, plant and equipment, and finance lease | 90,577 |
| 97,053 |
|
| Goodwill | 47,020 |
| 47,160 |
|
| Intangible assets | 23,665 |
| 25,300 |
|
| Right-of-use assets | 11,367 |
| 12,498 |
|
| Other assets | 30,170 |
| 24,966 |
|
| Non-current assets held for sale | 7,296 |
| 7,322 |
|
| Total assets | $ | 577,953 |
| $ | 626,519 |
|
|
|
|
|
|
| Revolving credit facilities | $ | — |
| $ | 179,000 |
|
| Last out term loans | — |
| 103,953 |
|
| Financing lease liabilities | 820 |
| — |
|
| Accounts payable | 73,995 |
| 109,913 |
|
| Accrued employee benefits | 17,561 |
| 18,256 |
|
| Advance billings on contracts | 60,977 |
| 75,287 |
|
| Accrued warranty expense | 28,491 |
| 33,376 |
|
| Operating lease liabilities | 4,280 |
| 4,323 |
|
| Other accrued liabilities | 80,424 |
| 68,848 |
|
| Current liabilities held for sale | 7,537 |
| 9,538 |
|
| Total current liabilities | 274,085 |
| 602,494 |
|
| Revolving credit facilities | 164,700 |
| — |
|
| Last out term loans | 173,330 |
| — |
|
| Pension and other accumulated postretirement benefit liabilities | 243,829 |
| 259,272 |
|
| Non-current finance lease liabilities | 30,140 |
| 30,454 |
|
| Non-current operating lease liabilities | 7,374 |
| 8,388 |
|
| Other non-current liabilities | 23,149 |
| 20,850 |
|
| Non-current liabilities held for sale | 46 |
| — |
|
| Total liabilities | 916,653 |
| 921,458 |
|
| Commitments and contingencies |
|
|
| Stockholders' deficit: |
|
|
| Common stock, par value $0.01 per share, authorized shares of 500,000; issued and outstanding shares of 49,312 and 46,374 at June 30, 2020 and December 31, 2019, respectively | 4,732 |
| 4,699 |
|
| Capital in excess of par value | 1,150,999 |
| 1,142,614 |
|
| Treasury stock at cost, 619 and 616 shares at June 30, 2020 and December 31, 2019, respectively | (105,717 | ) | (105,707 | ) |
| Accumulated deficit | (1,389,518 | ) | (1,339,888 | ) |
| Accumulated other comprehensive income | (281 | ) | 1,926 |
|
| Stockholders' deficit attributable to shareholders | (339,785 | ) | (296,356 | ) |
| Non-controlling interest | 1,085 |
| 1,417 |
|
| Total stockholders' deficit | (338,700 | ) | (294,939 | ) |
| Total liabilities and stockholders' deficit | $ | 577,953 |
| $ | 626,519 |
|
See accompanying notes to Condensed Consolidated Financial Statements.
BABCOCK & WILCOX ENTERPRISES, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' (DEFICIT) EQUITY
| | | | Common Stock | Capital In
Excess of
Par Value | Treasury Stock | Accumulated Deficit | Accumulated
Other
Comprehensive
(Loss) Income | Noncontrolling
Interest | Total
Stockholders’
Deficit | Common Stock | Capital In
Excess of
Par Value | Treasury Stock | Accumulated Deficit | Accumulated
Other
Comprehensive
Loss | Non-controlling
Interest | Total
Stockholders’
Deficit |
| |
| | Shares (1) | Par Value | Shares (1) | Par Value |
| | | (in thousands, except share and per share amounts) | | (in thousands, except share and per share amounts) |
| Balance at December 31, 2018 | 16,879 |
| $ | 1,748 |
| $ | 1,047,062 |
| $ | (105,590 | ) | $ | (1,217,914 | ) | $ | (11,432 | ) | $ | 8,829 |
| $ | (277,297 | ) | 16,879 |
| $ | 1,748 |
| $ | 1,047,062 |
| $ | (105,590 | ) | $ | (1,217,914 | ) | $ | (11,432 | ) | $ | 8,829 |
| $ | (277,297 | ) |
| | | | | | |
| Net loss | — |
| — |
| — |
| — |
| (49,765 | ) | — |
| (101 | ) | (49,866 | ) | — |
| — |
| — |
| — |
| (49,765 | ) | — |
| (101 | ) | (49,866 | ) |
| Currency translation adjustments | — |
| — |
| — |
| — |
| — |
| 10,260 |
| (21 | ) | 10,239 |
| — |
| — |
| — |
| — |
| — |
| 10,260 |
| (21 | ) | 10,239 |
|
| Derivative financial instruments | — |
| — |
| — |
| — |
| — |
| (954 | ) | — |
| (954 | ) | — |
| — |
| — |
| — |
| — |
| (954 | ) | — |
| (954 | ) |
| Defined benefit obligations | — |
| — |
| — |
| — |
| — |
| (356 | ) | — |
| (356 | ) | — |
| — |
| — |
| — |
| — |
| (356 | ) | — |
| (356 | ) |
| Stock-based compensation charges | 7 |
| — |
| 404 |
| (22 | ) | — |
| — |
| — |
| 382 |
| 7 |
| — |
| 404 |
| (22 | ) | — |
| — |
| — |
| 382 |
|
| Balance at March 31, 2019 | 16,886 |
| $ | 1,748 |
| $ | 1,047,466 |
| $ | (105,612 | ) | $ | (1,267,679 | ) | $ | (2,482 | ) | $ | 8,707 |
| $ | (317,852 | ) | 16,886 |
| $ | 1,748 |
| $ | 1,047,466 |
| $ | (105,612 | ) | $ | (1,267,679 | ) | $ | (2,482 | ) | $ | 8,707 |
| $ | (317,852 | ) |
| Net loss | — |
| — |
| — |
| — |
| (27,640 | ) | — |
| (1 | ) | (27,641 | ) | — |
| — |
| — |
| — |
| (27,640 | ) | — |
| (1 | ) | (27,641 | ) |
| Currency translation adjustments | — |
| — |
| — |
| — |
| — |
| (4,803 | ) | (306 | ) | (5,109 | ) | — |
| — |
| — |
| — |
| — |
| (4,803 | ) | (306 | ) | (5,109 | ) |
| Derivative financial instruments | — |
| — |
| — |
| — |
| — |
| (211 | ) | — |
| (211 | ) | — |
| — |
| — |
| — |
| — |
| (211 | ) | — |
| (211 | ) |
| Defined benefit obligations | — |
| — |
| — |
| — |
| — |
| (514 | ) | — |
| (514 | ) | — |
| — |
| — |
| — |
| — |
| (514 | ) | — |
| (514 | ) |
| Stock-based compensation charges | 2 |
| — |
| 205 |
| (1 | ) | — |
| — |
| — |
| 204 |
| 2 |
| — |
| 205 |
| (1 | ) | — |
| — |
| — |
| 204 |
|
| Issuance of beneficial conversion option of Last Out Term Loan Tranche A-3 | — |
| — |
| 2,022 |
| — |
| — |
| — |
| — |
| 2,022 |
| — |
| — |
| 2,022 |
| — |
| — |
| — |
| — |
| 2,022 |
|
| Warrants | — |
| — |
| 6,066 |
| — |
| — |
| — |
| — |
| 6,066 |
| — |
| — |
| 6,066 |
| — |
| — |
| — |
| — |
| 6,066 |
|
| Balance at June 30, 2019 | 16,888 |
| $ | 1,748 |
| $ | 1,055,759 |
| $ | (105,613 | ) | $ | (1,295,319 | ) | $ | (8,010 | ) | $ | 8,400 |
| $ | (343,035 | ) | 16,888 |
| $ | 1,748 |
| $ | 1,055,759 |
| $ | (105,613 | ) | $ | (1,295,319 | ) | $ | (8,010 | ) | $ | 8,400 |
| $ | (343,035 | ) |
| Net loss | — |
| — |
| — |
| — |
| (56,955 | ) | — |
| (35 | ) | (56,990 | ) | |
| Currency translation adjustments | — |
| — |
| — |
| — |
| — |
| 21,433 |
| 123 |
| 21,556 |
| |
| Derivative financial instruments | — |
| — |
| — |
| — |
| — |
| (197 | ) | — |
| (197 | ) | |
| Defined benefit obligations | — |
| — |
| — |
| — |
| — |
| (515 | ) | — |
| (515 | ) | |
| Stock-based compensation charges | 66 |
| 7 |
| 1,225 |
| (21 | ) | — |
| — |
| — |
| 1,211 |
| |
| Rights Offering | 13,922 |
| 1,392 |
| 40,376 |
| — |
| — |
| — |
| — |
| 41,768 |
| |
| Last Out Term Loan principal value exchanged for common stock | 15,465 |
| 1,547 |
| 44,848 |
| — |
| — |
| — |
| — |
| 46,395 |
| |
| Dividends to noncontrolling interest | — |
| — |
| — |
| — |
| — |
| — |
| (270 | ) | (270 | ) | |
| Balance at September 30, 2019 | 46,341 |
| $ | 4,694 |
| $ | 1,142,208 |
| $ | (105,634 | ) | $ | (1,352,274 | ) | $ | 12,711 |
| $ | 8,218 |
| $ | (290,077 | ) | |
(1) Common stock shares reflect the one-for-ten reverse stock split on July 24, 2019 as described in Note 1.2019.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | Capital In
Excess of
Par Value | Treasury Stock | Accumulated Deficit | Accumulated
Other
Comprehensive
Loss | Noncontrolling
Interest | Total
Stockholders’
Equity (Deficit) |
| |
| | Shares (1) | Par Value |
| | | (in thousands, except share and per share amounts) |
| Balance at December 31, 2017 | 4,407 |
| $ | 499 |
| $ | 800,968 |
| $ | (104,785 | ) | $ | (492,150 | ) | $ | (22,429 | ) | $ | 8,600 |
| $ | 190,703 |
|
| | | | | | | | | |
| Net (loss) income | — |
| — |
| — |
| — |
| (120,433 | ) | — |
| 98 |
| (120,335 | ) |
| Revenue recognition | — |
| — |
| — |
| — |
| (472 | ) | — |
| — |
| (472 | ) |
| Currency translation adjustments | — |
| — |
| — |
| — |
| — |
| 1,179 |
| (25 | ) | 1,154 |
|
| Derivative financial instruments | — |
| — |
| — |
| — |
| — |
| (48 | ) | — |
| (48 | ) |
| Defined benefit obligations | — |
| — |
| — |
| — |
| — |
| (439 | ) | — |
| (439 | ) |
| Available-for-sale investments | — |
| — |
| — |
| — |
| 38 |
| (38 | ) | — |
| — |
|
| Stock-based compensation charges | — |
| 4 |
| 149 |
| (720 | ) | — |
| — |
| — |
| (567 | ) |
| Balance at March 31, 2018 | 4,407 |
| $ | 503 |
| $ | 801,117 |
| $ | (105,505 | ) | $ | (613,017 | ) | $ | (21,775 | ) | $ | 8,673 |
| $ | 69,996 |
|
| Net (loss) income | — |
| — |
| — |
| — |
| (265,768 | ) | — |
| 165 |
| (265,603 | ) |
| Currency translation adjustments | — |
| — |
| — |
| — |
| — |
| 8,517 |
| (40 | ) | 8,477 |
|
| Derivative financial instruments | — |
| — |
| — |
| — |
| — |
| (132 | ) | — |
| (132 | ) |
| Defined benefit obligations | — |
| — |
| — |
| — |
| — |
| (3,146 | ) | — |
| (3,146 | ) |
| Available-for-sale investments | — |
| — |
| — |
| — |
| (38 | ) | — |
| — |
| (38 | ) |
| Rights offering, net | 12,426 |
| 1,243 |
| 243,907 |
| — |
| — |
| — |
| — |
| 245,150 |
|
| Stock-based compensation charges | 34 |
| — |
| 877 |
| (26 | ) | — |
| — |
| — |
| 851 |
|
| Balance at June 30, 2018 | 16,867 |
| $ | 1,746 |
| $ | 1,045,901 |
| $ | (105,531 | ) | $ | (878,823 | ) | $ | (16,536 | ) | $ | 8,798 |
| $ | 55,555 |
|
| Net (loss) income | — |
| — |
| — |
| — |
| (105,688 | ) | — |
| 94 |
| (105,594 | ) |
| Currency translation adjustments | — |
| — |
| — |
| — |
| — |
| 2,891 |
| (117 | ) | 2,774 |
|
| Derivative financial instruments | — |
| — |
| — |
| — |
| — |
| (242 | ) | — |
| (242 | ) |
| Defined benefit obligations | — |
| — |
| — |
| — |
| — |
| (133 | ) | — |
| (133 | ) |
| Rights offering, net | — |
| — |
| (61 | ) | — |
| — |
| — |
| — |
| (61 | ) |
| Stock-based compensation charges | 2 |
| 1 |
| 965 |
| (20 | ) | — |
| — |
| — |
| 946 |
|
| Balance at September 30, 2018 | 16,869 |
| $ | 1,747 |
| $ | 1,046,805 |
| $ | (105,551 | ) | $ | (984,511 | ) | $ | (14,020 | ) | $ | 8,775 |
| $ | (46,755 | ) |
(1) Common stock shares reflect the one-for-ten reverse stock split on July 24, 2019 as described in Note 1. |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | Capital In
Excess of
Par Value | Treasury Stock | Accumulated Deficit | Accumulated
Other
Comprehensive
Income (Loss) | Non-controlling
Interest | Total
Stockholders’
Deficit |
| |
| | Shares | Par Value |
| | | (in thousands, except share and per share amounts) |
| Balance at December 31, 2019 | 46,374 |
| $ | 4,699 |
| $ | 1,142,614 |
| $ | (105,707 | ) | $ | (1,339,888 | ) | $ | 1,926 |
| $ | 1,417 |
| $ | (294,939 | ) |
| | | | | | | | | |
| Net loss | — |
| — |
| — |
| — |
| (31,526 | ) | — |
| (96 | ) | (31,622 | ) |
| Currency translation adjustments | — |
| — |
| — |
| — |
| — |
| 2,380 |
| (58 | ) | 2,322 |
|
| Defined benefit obligations | — |
| — |
| — |
| — |
| — |
| (246 | ) | — |
| (246 | ) |
| Stock-based compensation charges | 33 |
| 4 |
| 876 |
| (9 | ) | — |
| — |
| — |
| 871 |
|
| Dividends to non-controlling interest | — |
| — |
| — |
| — |
| — |
| — |
| (36 | ) | (36 | ) |
| Balance at March 31, 2020 | 46,407 |
| $ | 4,703 |
| $ | 1,143,490 |
| $ | (105,716 | ) | $ | (1,371,414 | ) | $ | 4,060 |
| $ | 1,227 |
| $ | (323,650 | ) |
| Net loss | — |
| — |
| — |
| — |
| (18,104 | ) | — |
| (142 | ) | (18,246 | ) |
| Currency translation adjustments | — |
| — |
| — |
| — |
| — |
| (4,095 | ) | 37 |
| (4,058 | ) |
| Defined benefit obligations | — |
| — |
| — |
| — |
| — |
| (246 | ) | — |
| (246 | ) |
| Stock-based compensation charges | — |
| — |
| 923 |
| (1 | ) | — |
| — |
| — |
| 922 |
|
| Equitized guarantee fee payment | 1,713 |
| 17 |
| 3,883 |
| — |
| — |
| — |
| — |
| 3,900 |
|
| Equitized Last Out Term Loan interest payment | 1,192 |
| 12 |
| 2,703 |
| — |
| — |
| — |
| — |
| 2,715 |
|
| Dividends to non-controlling interest | — |
| — |
| — |
| — |
| — |
| — |
| (37 | ) | (37 | ) |
| Balance at June 30, 2020 | 49,312 |
| $ | 4,732 |
| $ | 1,150,999 |
| $ | (105,717 | ) | $ | (1,389,518 | ) | $ | (281 | ) | $ | 1,085 |
| $ | (338,700 | ) |
See accompanying notes to Condensed Consolidated Financial Statements.
BABCOCK & WILCOX ENTERPRISES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
| | | | | | |
| | Nine months ended September 30, |
| (in thousands) | 2019 | 2018 |
| Cash flows from operating activities: | |
| Net loss | $ | (134,497 | ) | $ | (491,532 | ) |
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | | |
| Depreciation and amortization of long-lived assets | 19,123 |
| 24,487 |
|
| Amortization of deferred financing costs, debt discount and payment-in-kind interest | 42,185 |
| 10,121 |
|
| Non-cash operating lease cost | 4,134 |
| — |
|
| Loss (gain) on sale of business | 3,601 |
| (39,731 | ) |
| Loss on debt extinguishment | 3,969 |
| 49,241 |
|
| Goodwill impairment of discontinued operations | — |
| 72,309 |
|
| Goodwill impairment | — |
| 37,540 |
|
| Income from equity method investees | — |
| (6,605 | ) |
| Other-than-temporary impairment of equity method investment in TBWES | — |
| 18,362 |
|
| (Gains) losses on asset disposals and impairments | (224 | ) | 1,922 |
|
| Reserve for claims receivable | — |
| 15,523 |
|
| (Benefit from) provision for deferred income taxes, including valuation allowances | (722 | ) | 97,707 |
|
| Mark to market gains and prior service cost amortization for pension and postretirement plans | (107 | ) | (6,612 | ) |
| Stock-based compensation, net of associated income taxes | 1,841 |
| 2,002 |
|
| Changes in assets and liabilities: | | |
| Accounts receivable | 41,274 |
| 45,379 |
|
| Contracts in progress and advance billings on contracts | (45,003 | ) | (41,243 | ) |
| Inventories | (6,571 | ) | 5,197 |
|
| Income taxes | 1,620 |
| (6,866 | ) |
| Accounts payable | (71,284 | ) | (12,305 | ) |
| Accrued and other current liabilities | (21,097 | ) | 28,829 |
|
| Accrued contract loss | (49,820 | ) | 1,417 |
|
| Pension liabilities, accrued postretirement benefits and employee benefits | (5,750 | ) | (29,329 | ) |
| Other, net | 16,211 |
| 10,695 |
|
| Net cash used in operating activities | (201,117 | ) | (213,492 | ) |
| Cash flows from investing activities: | | |
| Purchase of property, plant and equipment | (1,634 | ) | (5,019 | ) |
| Proceeds from sale of business | 7,445 |
| 43,920 |
|
| Proceeds from sale of equity method investments in joint venture | — |
| 28,764 |
|
| Purchases of available-for-sale securities | (3,469 | ) | (17,823 | ) |
| Sales and maturities of available-for-sale securities | 5,132 |
| 18,216 |
|
| Other, net | (382 | ) | (379 | ) |
| Net cash from investing activities | 7,092 |
| 67,679 |
|
| | | | Nine months ended September 30, | Six months ended June 30, |
| (in thousands) | 2019 | 2018 | 2020 | 2019 |
| Cash flows from operating activities: | | |
| Net loss | | $ | (49,868 | ) | $ | (77,507 | ) |
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | | |
| Depreciation and amortization of long-lived assets | | 8,239 |
| 13,842 |
|
| Amortization of deferred financing costs, debt discount and payment-in-kind interest | | 14,785 |
| 23,115 |
|
| Amortization of guaranty fee | | 236 |
| — |
|
| Non-cash operating lease expense | | 2,403 |
| 2,861 |
|
| Loss on sale of business | | 108 |
| 3,601 |
|
| Loss on debt extinguishment | | 6,194 |
| 3,969 |
|
| (Gains) losses on asset disposals and impairments | | (913 | ) | 42 |
|
| Benefit from deferred income taxes, including valuation allowances | | (793 | ) | (776 | ) |
| Mark to market (gains) losses and prior service cost amortization for pension and postretirement plans | | (492 | ) | 390 |
|
| Stock-based compensation, net of associated income taxes | | 1,803 |
| 609 |
|
| Changes in assets and liabilities: | | |
| Accounts receivable | | 36,105 |
| (5,765 | ) |
| Contracts in progress | | 6,847 |
| (8,384 | ) |
| Advance billings on contracts | | (14,957 | ) | (45,187 | ) |
| Inventories | | (570 | ) | (3,951 | ) |
| Income taxes | | (3,141 | ) | 1,295 |
|
| Accounts payable | | (37,347 | ) | (31,688 | ) |
| Accrued and other current liabilities | | 15,277 |
| (15,670 | ) |
| Accrued contract loss | | (4,432 | ) | (45,779 | ) |
| Pension liabilities, accrued postretirement benefits and employee benefits | | (16,946 | ) | (110 | ) |
| Other, net | | (11,860 | ) | (7,918 | ) |
| Net cash used in operating activities | | (49,322 | ) | (193,011 | ) |
| Cash flows from investing activities: | | |
| Purchase of property, plant and equipment | | (1,675 | ) | (434 | ) |
| Proceeds from sale of business | | 8,000 |
| 7,445 |
|
| Purchases of available-for-sale securities | | (13,668 | ) | (4,187 | ) |
| Sales and maturities of available-for-sale securities | | 10,835 |
| 2,880 |
|
| Other, net | | 773 |
| (462 | ) |
| Net cash from investing activities | | 4,265 |
| 5,242 |
|
| Cash flows from financing activities: | | |
| Borrowings under our U.S. revolving credit facility | 251,917 |
| 446,400 |
| 94,200 |
| 179,700 |
|
| Repayments of our U.S. revolving credit facility | (205,117 | ) | (350,100 | ) | (108,500 | ) | (140,200 | ) |
| Repayments of our second lien term loan facility | — |
| (212,590 | ) | |
| Borrowings under Last Out Term Loan Tranche A-1 | — |
| 20,000 |
| |
| Borrowings under Last Out Term Loan Tranche A-2 | 10,000 |
| — |
| — |
| 10,000 |
|
| Repayments under Last Out Term Loan Tranche A-2 | (10,309 | ) | — |
| |
| Borrowings under Last Out Term Loan Tranche A-3 | 141,350 |
| — |
| — |
| 141,350 |
|
| Repayments under Last Out Term Loan Tranche A-3 | (31,457 | ) | — |
| |
| Borrowings under Last Out Term Loan Tranche A-4 and Tranche A-6 | | 60,000 |
| — |
|
| Repayments under our foreign revolving credit facilities | (605 | ) | (5,607 | ) | — |
| (605 | ) |
| Shares of our common stock returned to treasury stock | (44 | ) | (766 | ) | (10 | ) | (23 | ) |
| Proceeds from rights offering | 40,376 |
| 247,132 |
| |
| Costs related to rights offering | (682 | ) | (3,286 | ) | — |
| (682 | ) |
| Debt issuance costs | (15,509 | ) | (8,080 | ) | (10,356 | ) | (14,400 | ) |
| Issuance of common stock | 1,392 |
| 1,243 |
| |
| Other, net | (270 | ) | (6 | ) | 326 |
| — |
|
| Net cash from financing activities | 181,042 |
| 134,340 |
| 35,660 |
| 175,140 |
|
| Effects of exchange rate changes on cash | (3,951 | ) | (1,356 | ) | 572 |
| (3,280 | ) |
| Net decrease in cash, cash equivalents and restricted cash | (16,934 | ) | (12,829 | ) | (8,825 | ) | (15,909 | ) |
| Less net increase in cash and cash equivalents of discontinued operations | — |
| 4,696 |
| |
| Net decrease in cash, cash equivalents and restricted cash of continuing operations | (16,934 | ) | (17,525 | ) | |
| Cash, cash equivalents and restricted cash of continuing operations, beginning of period | 60,279 |
| 69,697 |
| |
| Cash, cash equivalents and restricted cash of continuing operations, end of period | $ | 43,345 |
| $ | 52,172 |
| |
| Cash, cash equivalents and restricted cash, beginning of period | | 56,941 |
| 60,279 |
|
| Cash, cash equivalents and restricted cash, end of period | | $ | 48,116 |
| $ | 44,370 |
|
See accompanying notes to Condensed Consolidated Financial Statements.
BABCOCK & WILCOX ENTERPRISES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBERJUNE 30, 20192020
NOTE 1 – BASIS OF PRESENTATION
These interim financial statementsCondensed Consolidated Financial Statements of Babcock & Wilcox Enterprises, Inc. ("(“B&W, Enterprises," "we," "us," "our"” “management,” “we,” “us,” “our” or "the Company"the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States and Securities and Exchange Commission ("SEC") instructions for interim financial information, and should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2018, as amended ("Annual Report"). Accordingly, significant accounting policies and other disclosures normally provided have been omitted since such items are disclosed in our Annual Report. We have included all adjustments, in the opinion of management, consisting only of normal, recurring adjustments, necessary for a fair presentation of the interim financial statements. We have eliminated all intercompany transactions and accounts. We present the notes to our Condensed Consolidated Financial Statements on the basis of continuing operations, unless otherwise stated.
Going Concern Considerations
The accompanying Condensed Consolidated Financial Statements have beenare prepared onin accordance with generally accepted accounting principles applicable to a going concern, basis, which contemplates the realization of assets and the dischargesatisfaction of liabilities in the normal course of business forbusiness.
As of December 31, 2019 and March 30, 2020, the foreseeable future. The Condenseddate we issued our 2019 Consolidated Financial Statements, do not include any adjustments that might result from the outcome of the going concern uncertainty.
We face liquidity challenges from continued net operating losses and significant decreaseswe were in revenues and backlog including those losses recognized on our six European Vølund EPC loss contracts described in Note 4, which have required amendments and waivers to maintain compliance with the Amended Credit Agreement, inclusiveterms of Amendments No. 16the agreements governing our debt and No. 17. Ourno events of default existed. However, the Company’s uncertainty regarding liquidity is provided under aand the ability to refinance our credit agreement dated(as amended, the "Amended Credit Agreement") by May 11, 2015,2020 represented conditions and events that raised substantial doubt about the Company’s ability to continue as amended, with a syndicate of lenders ("Amended Credit Agreement")going concern within one year after the date that governs a revolving credit facility ("U.S. Revolving Credit Facility")the 2019 Consolidated Financial Statements were issued, as we were not able to assert that it was probable that our plans when fully implemented would alleviate the events and our last out term loan facility ("Last Out Term Loans"). The Amended Credit Agreement and the amendments and waivers are described inconditions. However, more detailfully explained in Note 13 and Note 14 below, on May 14, 2020, among other things, the Company refinanced and Note 18.extended the term of its Revolving Credit Agreement to June 30, 2022. Additionally, as described below, the Company took other actions all of which reduced the substantial doubt of the Company’s ability to be considered a going concern.
To addressSince January 1, 2020 and through the issuance of our liquidity needs and the going concern uncertainty,2019 Consolidated Financial Statements on March 30, 2020, we have takentook the following actions, among others, and have successfully implemented, or are in 2019 as follows:the process of implementing the following:
completed equitization transactions on July 23, 2019 as described in Note 18 and Note 17, which included an exchange of all of the outstanding balance of Tranche A-1 of the Last Out Term Loans for equity and a rights offering to raise $50.0 million that was used to fully repay Tranche A-2 of the Last Out Term Loans and to reduce a portion of the outstanding principal under Tranche A-3 of the Last Out Term Loans;
executed a one-for-ten reverse stock split of our issued and outstanding common stock, which became effective on July 24, 2019;
completed the sale of a non-core materials handling business in Germany, Loibl GmbH ("Loibl") effective May 31, 2019 for €10.0 million (approximately $11.4 million), subject to adjustment, resulting in net receipt of $7.4 million;
received $150.0 million in face value from Tranche A-3 of the Last Out Term Loans before original issuance discount and fees, as described in Note 14, from B. Riley FBR, Inc., a related party, on April 5, 2019;
received $10.0 million in net proceeds from Tranche A-2 of the Last Out Term Loans, described in Note 14, from B. Riley Financial, Inc. (together with its affiliates, including B. Riley FBR, Inc., "B. Riley"), a related party, on March 20, 2019;
reduced uncertainty and provided better visibility into our future liquidity requirements by turning over five of the six European Vølund EPC loss contracts to the customers by the end of second quarter of 2019, partly facilitated by a settlement related to the second and fifth loss contracts as described in Note 4, which was funded with proceeds from Tranche A-3 of the Last Out Term Loans;
entered into an additional settlement as described in Note 4 in connection with an additional European waste-to-energy EPC contract, for which notice to proceed was not given and the contract was not started, whereby our obligations and our risk from acting as the prime EPC should the project move forward was eliminated;
entered into several amendments and waivers to avoid default and improve our liquidity under the terms of our Amended Credit Agreement as described in Note 13 and Note 14, the most recent of which were Amendments No. 1619, No. 20 and No. 21 dated January 17, dated April 5, 20192020, January 31, 2020 and August 7, 2019, respectively, which providedMarch 27, 2020, respectively;
on January 31, 2020, received $30.0 million of additional gross borrowings from B. Riley Financial, Inc. (together with its affiliates, "B. Riley") under a new Tranche A-3A-4 of the Last Out
Term Loans described above and in Note 14, reset the financial and other covenants, adjusted the interest rate of the Last Out Term Loans, reset the maturity dateas described in in Note 14;
on January 31, 2020, received an incremental Tranche A-5 of the Last Out Term LoansLoan commitment to December 31, 2020, increased borrowing capacity underbe used in the U.S. Revolving Credit Facility by reducing the minimum liquidity requirement, allowed for the issuance of a limited amount of newevent certain customer letters of credit with respect to any future Vølund project, permitted other letters of credit to expire up to one year after the maturity of the U.S. Revolving Credit Facility, clarifies (Amendment No. 17) the definition cumulatively through Amendment No. 16 of the amounts that can be usedare drawn, as described in calculating the loss basket for certain Vølund contracts, and resets the loss basket for certain Vølund contracts to $15.0 million to align with the clarification commencing with the quarter endingNote 14;
on March 31, 2019; and
12, 2020, filed and plan to file for waiver of required minimum contributions to the U.S. Pension Plan as described in Note 12, that if granted, would reduce cash funding requirements in 20192020 by approximately $15$25.0 million and a similar or greater amount in 2020 and would increase contributions over the following five years. The Company cannot make any assurances that such waiver request forwill be granted; and
on March 17, 2020, we fully settled the 2018 plan year was approved byremaining escrow associated with the IRS on August 27, 2019sale of Palm Beach Resource Recovery Corporation ("PBRRC") and the waiver request for the 2019 plan year is expected to be filed laterreceived $4.5 million in 2019 or early 2020.cash.
Management believes it has taken and is continuing to take prudent actions to address the substantial doubt regarding our ability to continue as a going concern, but we cannot assert that it is probable that our plans will fully mitigate the liquidity challenges we face because some matters may not fully be in our control. Amendment No. 16 to the Amended Credit Facility also created a new event of default for failure to terminate the existing U.S. Revolving Credit Facility on or prior to March 15, 2020, which is within twelve months of the date of this filing. Our ability to comply with the financial and other covenants of the Amended Credit Facility through that date are dependent upon achieving our forecasted financial results. While management believes it will be able to obtain additional financing to replace our U.S. Revolving Credit facility, the ability to do so will depend on credit markets and other matters that are outside of our control.
In addition to the discussions regarding additional financing describedactions taken above, subsequent to March 30, 2020 we continue to evaluate further dispositions, opportunities for additional cost savings and opportunities for insurance recoveries and other claims where appropriate and available. Ifhave taken the value of our business were to decline, or iffollowing actions:
on April 6, 2020, we were to determine that we were unable to recognize an amount in connectionfully settled the remaining escrow associated with any proposed disposition in excessthe sale of the carrying valueMEGTEC and Universal businesses and received $3.5 million in cash;
on May 14, 2020, the Company entered into an agreement with its lenders amending and restating the Amended Credit Agreement, among the Company, Bank of any disposed asset, we may be required to recognize impairments for one or more of our assets that may adversely impact our business, financial conditionAmerica, N.A., as administrative agent (the "Administrative Agent") and results of operations.
NYSE Continued Listing Status
On November 27, 2018, we received written notification fromlender, and the New York Stock Exchangeother lenders party thereto. The credit agreement, as amended and restated (the "NYSE"“A&R Credit Agreement”), that we were not in compliance with an NYSE continued listing standard in Rule 802.01C ofamong other amendments, extends the NYSE Listed Company Manual because the average closing price of our common stock fell below $1.00 over a period of 30 consecutive trading days. We completed a reverse stock split effective as of July 24, 2019 to regain compliance as described below.
On September 4, 2019, we received written notification from the NYSE that we regained compliance after the Company’s average stock price for the 30-trading-day period ended September 4, 2019 was above the NYSE’s minimum listing criteria of $1.00. The Company’s average share price for the period was $3.63.
Reverse Stock Split
On July 11, 2019, the Company's board of directors approved a reverse stock split of one-for-tenmaturity date on the Company's issuedrevolving credit facility to June 30, 2022 and outstanding common stock which became effectivethe maturity date on July 24, 2019. The one-for-ten reverse stock split automatically converted every ten shares of the Company's outstanding and treasury common stock priorlast out term loans (the "Last Out Term Loans") to December 30, 2022. Under the effectiveness of the reverse stock split into one share of common stock. No fractional shares were issued in the reverse stock split. Instead, stockholders who would otherwise have held fractional shares received cash payments (without interest) in respect of such fractional shares. The reverse stock split did not impact any stockholder's percentage ownership of the Company, subject to the treatment of fractional shares. The reverse stock split was undertaken to allow the Company to regain compliance with the NYSE's continued listing standards relating to minimum price per share.
All share and per share data contained in these condensed consolidated financial statements reflects the retroactive application of the aforementioned reverse stock split.
A&R Credit Agreement, B. Riley has committed to provide the Company with up to $70.0 million of additional Last Out Term Loans. B. Riley has entered into a limited guaranty (the "B. Riley Guaranty") which provides for the guarantee of all of the Company's obligations with respect to the revolving credit facility (other than with respect to letters of credit and contingent obligations), including the obligation to repay outstanding revolving credit loans and pay earned interest and fees. For more information regarding the A&R Credit Agreement and the additional last out term loans being provided by B. Riley, see Note 13 and Note 14; and
on May 14, 2020, we received $30.0 million of additional gross borrowings from B. Riley under a new Tranche A- 6 of Last Out Term Loans, as described in Note 14.
In December 2019, a novel strain of coronavirus, COVID-19, was identified in Wuhan, China and has subsequently spread globally. This global pandemic has disrupted business operations, trade, commerce, financial and credit markets, and daily life throughout the world. Our business has been adversely impacted by the measures taken and restrictions imposed in the countries in which we operate and by local governments and others to control the spread of this virus. These measures and restrictions have varied widely and have been subject to significant changes from time to time depending on the changes in the severity of the virus in these countries and localities. These restrictions, including travel and curtailment of other activity negatively impact our ability to conduct business. In some countries restrictions have lessened, in others they have lessened and then increased. These varying and changing events have caused many of the projects we anticipated to begin in 2020 to be delayed to later in 2020 and others to be delayed further into 2021 and 2022. Also, we have experienced and continue to experience variations in the levels of restrictions and expect such restrictions to continue to change depending on the severity of the virus in various locations around the world. Many customers and projects require B&W's employees to travel to customer and project worksites. Certain customers and significant projects are located in areas where travel restrictions have been imposed, certain customers have closed or reduced on-site activities, and timelines for completion of certain projects have, as noted above, been extended into next year and beyond. Additionally, out of concern for our employees, even where restrictions permit employees to return to our offices and worksites, we have advised those who are uncomfortable returning to worksites due to the pandemic that they are not required to do so for an indefinite period of time. The resulting uncertainty concerning, among other things, the spread and economic impact of the virus has also caused significant volatility and, at times, illiquidity in global equity and credit markets.
Beginning in April 2020, as part of the Company’s response to the impact of the COVID-19 pandemic on its business, the Company has taken the following cash conservation and cost reduction measures which include:
temporary unpaid furloughs for certain employees:
temporarily deferring the monthly fee paid to BRPI Executive Consulting, LLC for the services of our Chief Executive Officer by 50%;
deferrals of the base salaries of our Chief Strategy Officer by 50%, Chief Financial Officer by 30% and our Senior Vice President of The Babcock & Wilcox Company by 30%;
suspension of our 401(k) match for U.S. employees for the remainder of 2020;
approval by the Company’s Board for a temporary deferral of 50% of the cash compensation payable to non-employee directors under the Company’s board compensation program to be paid during the first quarter of 2021;
negotiating temporary rent payment deferrals related to leased facilities located in the U.S., Canada, Italy and Denmark;
utilizing options for government loans and programs in the U.S. and abroad that are appropriate and available; and
we elected to defer, in accordance with the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") signed into law in March 2020, the contribution payments of $5.5 million each for the 2020 Plan year that would have been made on April 15, 2020 and July 15, 2020, respectively, related to our Pension Plan.
Based upon the terms of the A&R Credit Agreement and the cash conservation and cost reduction measures taken to date, the Company is projecting sufficient liquidity to fund future operations and to meet its obligations as they become due for at least one year following the date that these Condensed Consolidated Financial Statements are issued. As a result, the Company has concluded that conditions and events, considered in the aggregate, no longer raise substantial doubt about the entity’s ability to continue as a going concern.
NOTE 2 – EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share of our common stock, net of noncontrollingnon-controlling interest:
| | | | Three months ended September 30, | Nine months ended September 30, | Three months ended June 30, | Six months ended June 30, |
| (in thousands, except per share amounts) | 2019 | 2018 | 2019 | 2018 | 2020 | 2019 | 2020 | 2019 |
| Loss from continuing operations | $ | (56,955 | ) | $ | (104,241 | ) | $ | (135,054 | ) | $ | (431,014 | ) | $ | (17,991 | ) | $ | (28,334 | ) | $ | (51,430 | ) | $ | (78,099 | ) |
| (Loss) income from discontinued operations, net of tax | — |
| (1,447 | ) | 694 |
| (60,875 | ) | |
| Loss (income) from discontinued operations, net of tax | | (113 | ) | 694 |
| 1,800 |
| 694 |
|
| Net loss attributable to stockholders | $ | (56,955 | ) | $ | (105,688 | ) | $ | (134,360 | ) | $ | (491,889 | ) | $ | (18,104 | ) | $ | (27,640 | ) | $ | (49,630 | ) | $ | (77,405 | ) |
| | | |
Weighted average shares used to calculate basic and diluted earnings per share(1) | 40,879 |
| 18,344 |
| 25,950 |
| 12,305 |
| 46,853 |
| 18,366 |
| 46,628 |
| 18,362 |
|
| | | |
| Basic and diluted loss per share - continuing operations | $ | (1.39 | ) | $ | (5.68 | ) | $ | (5.21 | ) | $ | (35.02 | ) | $ | (0.39 | ) | $ | (1.54 | ) | $ | (1.10 | ) | $ | (4.26 | ) |
| Basic and diluted (loss) earnings per share - discontinued operations | — |
| (0.08 | ) | 0.03 |
| (4.95 | ) | |
| Basic and diluted earnings per share - discontinued operations | | — |
| 0.04 |
| 0.04 |
| 0.04 |
|
| Basic and diluted loss per share | $ | (1.39 | ) | $ | (5.76 | ) | $ | (5.18 | ) | $ | (39.97 | ) | $ | (0.39 | ) | $ | (1.50 | ) | $ | (1.06 | ) | $ | (4.22 | ) |
(1) Weighted average shares used to calculate basic and diluted earnings (loss) per share reflect the bonus element for the 2019 Rights Offering on July 23, 2019 as described below and the one-for-ten reverse stock split on July 24, 2019 as described in Note 1.
In July 2019, the Company completed the 2019 Rights Offering as described in Note 17, to existing common stockholders. Because the rights issuance was offered to all existing stockholders at an exercise price that was less than the fair value of the stock, the weighted average shares outstanding and basic and diluted earnings (loss) per share were adjusted retroactively to reflect the bonus element of the rights offering for all periods presented by a factor of 1.0875. Weighted average shares, prior to giving effect to the 2019 Rights Offering, in the three and six months ended SeptemberJune 30, 2019 was 16,888 and 2018 were 8,140 thousand and 16,868 thousand, respectively. Weighted average shares, prior to giving effect to the 2019 Rights Offering, in the nine months ended September 30, 2019 and 2018 were 13,938 thousand and 11,315 thousand,16,884, respectively.
Because we incurred a net loss in the three and ninesix months ended SeptemberJune 30, 20192020 and 2018,2019, basic and diluted shares are the same.
If we had net income in the three and six months ended SeptemberJune 30, 2019 and 2018,2020, diluted shares would include an additional 141.333.3 thousand and 47.1216.1 thousand shares, respectively. If we had net income in the ninethree and six months ended SeptemberJune 30, 2019, and 2018, diluted shares would include an additional 71.025.7 thousand and 82.035.8 thousand shares, respectively.
We excluded 301.0 thousand1.5 million and 376.5 thousand0.3 million shares related to stock options from the diluted share calculation for the three months ended SeptemberJune 30, 20192020 and 2018,2019, respectively, because their effect would have been anti-dilutive. We excluded 251.4 thousand1.7 million and 278.2 thousand0.3 million shares related to stock options from the diluted share calculation for the ninesix months ended SeptemberJune 30, 20192020 and 2018,2019, respectively, because their effect would have been anti-dilutive.
NOTE 3 – SEGMENT REPORTING
Our operations are assessed based on three reportable segments which are summarized as follows:
Babcock & Wilcox segment: focused on the supply of, and aftermarket services, for steam-generating, environmental and auxiliary equipment for power generation and other industrial applications. This segment was formerly named the Power segment.
Vølund & Other Renewable segment: focused on the supply of steam-generating systems, environmental and auxiliary equipment and operations and maintenance services for the waste-to-energy and biomass power generation industries. This segment was formerly named the Renewable segment.
SPIG segment: focused on the supply of custom-engineered cooling systems for steam applications along with related aftermarket services. This segment was formerly part of the Industrial segment.
Revenues exclude eliminations of revenues generated from sales to other segments or to other product lines within the segment. The primary component of the Babcock & Wilcox segment elimination is revenue associated with construction services. The primary component of total eliminations is associated with Babcock & Wilcox segment construction services provided to the SPIG segment. An analysis of our operations by segment is as follows:
| | | | Three months ended September 30, | Nine months ended September 30, | Three months ended June 30, | Six months ended June 30, |
| (in thousands) | 2019 | 2018 | 2019 | 2018 | 2020 | 2019 | 2020 | 2019 |
| Revenues: | | |
| Babcock & Wilcox segment | | |
| Retrofits | $ | 36,887 |
| $ | 52,366 |
| $ | 112,484 |
| $ | 183,693 |
| $ | 30,240 |
| $ | 44,923 |
| $ | 59,888 |
| $ | 75,597 |
|
| New build utility and environmental | 18,759 |
| 38,039 |
| 143,043 |
| 93,080 |
| 5,438 |
| 55,377 |
| 11,989 |
| 124,284 |
|
| Aftermarket parts and field engineering services | 61,708 |
| 67,678 |
| 189,103 |
| 204,050 |
| 52,788 |
| 64,308 |
| 116,478 |
| 127,395 |
|
| Industrial steam generation | 49,108 |
| 41,143 |
| 145,475 |
| 84,513 |
| 19,173 |
| 49,357 |
| 42,730 |
| 96,367 |
|
| Eliminations | (4,638 | ) | (8,176 | ) | (38,759 | ) | (17,408 | ) | (2,849 | ) | (13,001 | ) | (4,339 | ) | (34,121 | ) |
| | 161,824 |
| 191,050 |
| 551,346 |
| 547,928 |
| 104,790 |
| 200,964 |
| 226,746 |
| 389,522 |
|
| Vølund & Other Renewable segment | | |
| Renewable new build and services | 29,378 |
| 62,834 |
| 90,464 |
| 147,622 |
| 16,746 |
| 31,553 |
| 28,559 |
| 61,086 |
|
| Operations and maintenance services | 2,972 |
| 14,278 |
| 5,845 |
| 44,450 |
| 3,504 |
| 2,313 |
| 7,002 |
| 2,873 |
|
| Eliminations | — |
| (628 | ) | (732 | ) | (628 | ) | — |
| (171 | ) | (2 | ) | (732 | ) |
| | 32,350 |
| 76,484 |
| 95,577 |
| 191,444 |
| 20,250 |
| 33,695 |
| 35,559 |
| 63,227 |
|
| SPIG segment | | |
| New build cooling systems | 3,451 |
| 26,852 |
| 41,842 |
| 89,596 |
| 5,950 |
| 17,385 |
| 12,952 |
| 38,391 |
|
| Aftermarket cooling system services | 6,207 |
| 7,997 |
| 21,681 |
| 28,012 |
| 4,903 |
| 7,303 |
| 9,242 |
| 15,474 |
|
| Eliminations | 653 |
| — |
| (1,476 | ) | — |
| — |
| (1,854 | ) | (4 | ) | (2,129 | ) |
| | 10,311 |
| 34,849 |
| 62,047 |
| 117,608 |
| 10,853 |
| 22,834 |
| 22,190 |
| 51,736 |
|
| | | |
| Eliminations | (5,841 | ) | (7,420 | ) | (30,275 | ) | (17,504 | ) | (496 | ) | (9,378 | ) | (544 | ) | (24,434 | ) |
| | $ | 198,644 |
| $ | 294,963 |
| $ | 678,695 |
| $ | 839,476 |
| $ | 135,397 |
| $ | 248,115 |
| $ | 283,951 |
| $ | 480,051 |
|
Beginning in 2018, we changed our primary measure of segment profitability from gross profit to adjusted earnings before interest, tax, depreciation and amortization ("EBITDA").
The presentation of the components of our adjusted EBITDA in the table below is consistent with the way our chief operating decision maker reviews the results of our operations and makes strategic decisions about our business. Items such as gains or losses on asset sales, mark to market ("MTM") pension adjustments, restructuring and spinspin-off costs, impairments, losses on debt extinguishment, costs related to financial consulting required under our U.S. Revolving Credit Facility and other costs that may not be directly controllable by segment management are not allocated to the segment. Beginning in the first quarter of 2019, pension benefit (expense), which affected only the Babcock & Wilcox segment, is also not allocated to adjusted EBITDA of the segments. Beginning in the third quarter of 2019, stock compensation expense is not allocated to adjusted EBITDA of the segments. Prior periods have been conformed to be comparable.
Adjusted EBITDA for each segment is presented below with a reconciliation to loss before income tax.
| |
| Three months ended September 30, | Nine months ended September 30, | Three months ended June 30, | Six months ended June 30, |
| (in thousands) | 2019 | 2018 | 2019 | 2018 | 2020 | 2019 | 2020 | 2019 |
Adjusted EBITDA (1) |
|
|
|
|
|
|
|
| |
|
|
|
|
Babcock & Wilcox segment(2) | $ | 19,309 |
| $ | 15,639 |
| $ | 47,535 |
| $ | 30,751 |
| |
| Babcock & Wilcox segment | | $ | 9,498 |
| $ | 19,137 |
| $ | 20,152 |
| $ | 28,226 |
|
| Vølund & Other Renewable segment | (2,921 | ) | (25,703 | ) | (12,428 | ) | (165,944 | ) | (506 | ) | (718 | ) | (3,799 | ) | (9,507 | ) |
| SPIG segment | (2,361 | ) | (11,192 | ) | (1,845 | ) | (24,621 | ) | (2,525 | ) | (142 | ) | (3,717 | ) | 516 |
|
Corporate(3) | (3,059 | ) | (4,952 | ) | (16,973 | ) | (20,787 | ) | (3,807 | ) | (9,323 | ) | (7,950 | ) | (13,914 | ) |
| Research and development costs | (828 | ) | (452 | ) | (2,281 | ) | (2,881 | ) | (1,231 | ) | (710 | ) | (2,572 | ) | (1,453 | ) |
| 10,140 |
| (26,660 | ) | 14,008 |
| (183,482 | ) | 1,429 |
| 8,244 |
| 2,114 |
| 3,868 |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
| Restructuring activities and spin-off transaction costs | (2,556 | ) | (2,863 | ) | (9,571 | ) | (13,551 | ) | |
| Restructuring activities | | (2,392 | ) | (936 | ) | (4,343 | ) | (7,015 | ) |
| Financial advisory services | (1,213 | ) | (7,244 | ) | (8,368 | ) | (15,475 | ) | (582 | ) | (3,197 | ) | (1,511 | ) | (7,155 | ) |
Settlement cost to exit Vølund contract(4)(2) | — |
| — |
| (6,575 | ) | — |
| — |
| — |
| — |
| (6,575 | ) |
| Advisory fees for settlement costs and liquidity planning | (2,787 | ) | — |
| (7,445 | ) | — |
| (1,155 | ) | (1,581 | ) | (3,769 | ) | (4,658 | ) |
| Litigation settlement | (475 | ) | — |
| (475 | ) | — |
| |
| Litigation legal costs | | (252 | ) | — |
| (948 | ) | — |
|
| Stock compensation | (1,271 | ) | (1,277 | ) | (2,072 | ) | (4,507 | ) | (1,187 | ) | (210 | ) | (1,899 | ) | (801 | ) |
| Goodwill impairment | — |
| — |
| — |
| (37,540 | ) | |
| Impairment of equity method investment in TBWES | — |
| — |
| — |
| (18,362 | ) | |
| Gain on sale of equity method investment in BWBC | — |
| — |
| — |
| 6,509 |
| |
| Income (loss) from business held for sale | | 470 |
| — |
| (318 | ) | — |
|
| Depreciation & amortization | (5,281 | ) | (7,103 | ) | (19,123 | ) | (21,005 | ) | (4,032 | ) | (6,536 | ) | (8,240 | ) | (13,842 | ) |
| Gain (loss) on asset disposals, net | 266 |
| — |
| 224 |
| (1,513 | ) | (2 | ) | (42 | ) | 913 |
| (42 | ) |
| Operating loss | (3,177 | ) | (45,147 | ) | (39,397 | ) | (288,926 | ) | (7,703 | ) | (4,258 | ) | (18,001 | ) | (36,220 | ) |
| Interest expense, net | (29,351 | ) | (10,247 | ) | (66,562 | ) | (35,316 | ) | (15,259 | ) | (26,636 | ) | (37,310 | ) | (37,211 | ) |
| Loss on debt extinguishment | — |
| — |
| (3,969 | ) | (49,241 | ) | (6,194 | ) | (3,969 | ) | (6,194 | ) | (3,969 | ) |
| Gain (loss) on sale of business | — |
| 39,731 |
| (3,601 | ) | 39,731 |
| |
| Loss on sale of business | | (108 | ) | (3,601 | ) | (108 | ) | (3,601 | ) |
| Net pension benefit before MTM | 3,589 |
| 6,560 |
| 10,350 |
| 20,099 |
| 7,450 |
| 3,333 |
| 14,986 |
| 6,761 |
|
| MTM (loss) gain from benefit plans | (18 | ) | 4,196 |
| (1,278 | ) | 4,740 |
| |
| MTM loss from benefit plans | | — |
| (862 | ) | — |
| (1,260 | ) |
| Foreign exchange | (26,735 | ) | (4,939 | ) | (27,382 | ) | (22,680 | ) | 7,112 |
| 9,506 |
| (2,214 | ) | (647 | ) |
| Other – net | (255 | ) | (45 | ) | 208 |
| 221 |
| (2,586 | ) | 43 |
| (2,792 | ) | 463 |
|
| Loss before income tax expense | $ | (55,947 | ) | $ | (9,891 | ) | $ | (131,631 | ) | $ | (331,372 | ) | |
| Loss before income tax (benefit) expense | | $ | (17,288 | ) | $ | (26,444 | ) | $ | (51,633 | ) | $ | (75,684 | ) |
(1) Adjusted EBITDA, for the three and ninesix months ended SeptemberJune 30, 20182019, excludes stock compensation that was previously included in segment results and totals $0.3$0.1 million and $1.3$0.2 million, respectively, in the Babcock & Wilcox segment, $0.1 million and $0.3$0.1 million, respectively, in the Vølund & Other Renewable segment, and $0.0 million and $0.1 million, respectively in the SPIG segment, and $0.9 million and $2.8$0.4 million, respectively, in Corporate. Beginning in the third quarter of 2019, stock compensation is no longer allocated toconsidered in Adjusted EBITDA for purposes of managing the segments,business, and prior periods have been adjusted to be presented on a comparable basis.
| |
(2) | The Babcock & Wilcox segment adjusted EBITDA for the three and nine months ended September 30, 2018 excludes $6.6 million and $20.1 million, respectively, of net benefit from pension and other postretirement benefit plans, excluding MTM adjustments, that were previously included in the segment results. Beginning in 2019, net pension benefits are no longer allocated to the segments, and prior periods have been adjusted to be presented on a comparable basis.
|
| |
(3)
| Allocations are excluded from discontinued operations. Accordingly, allocations previously absorbed by the MEGTEC and Universal businesses in the SPIG segment have been included with other unallocated costs in Corporate, and total $2.9 million and $8.6 million in the three months and nine months ended September 30, 2018, respectively. |
| |
(4)
| In March 2019, we entered into a settlement in connection with an additional European waste-to-energy EPC contract, for which notice to proceed was not given and the contract was not started. The settlement eliminateseliminated our obligations to act, and our risk related to acting, as the prime EPC should the project movehave moved forward. |
We do not separately identify or report our assets by segment as our chief operating decision maker does not consider assets by segment to be a critical measure by which performance is measured.
NOTE 4 – REVENUE RECOGNITION AND CONTRACTS
Adoption of Accounting Standards Codification ("ASC") Topic 606, Revenue from Contracts with Customers ("Topic 606")
On January 1, 2018, we adopted Topic 606 using the modified retrospective method applied to all contracts that were not completed as of January 1, 2018. Results for reporting periods beginning on or after January 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported under the accounting standards in effect for the prior period. We recorded a $0.5 million net increase to opening retained earnings as of January 1, 2018 from the cumulative effect of adopting Topic 606 that primarily related to transitioning the timing of certain sales commissions expense. The effect on revenue from adopting Topic 606 was not material for the nine months ended September 30, 2018.
Revenue Recognition
A performance obligation is a contractual promise to transfer a distinct good or service to the customer. A contract's transaction price is allocated to each distinct performance obligation and is recognized as revenue when (point in time) or as (over time) the performance obligation is satisfied.
Revenue from goods and services transferred to customers at a point in time, which includes certain aftermarket parts and services primarily in the Babcock & Wilcox segment, accounted for 25%31% and 22% of our revenue18% for the three months ended SeptemberJune 30, 20192020 and 2018,2019, respectively and 20%31% and 18% of our revenue for the ninesix months ended SeptemberJune 30, 20192020 and 2018,2019, respectively. Revenue on these contracts is recognized when the customer obtains control of the asset, which is generally upon shipment or delivery and acceptance by the customer. Standard commercial payment terms generally apply to these sales.
Revenue from products and services transferred to customers over time accounted for 75%69% and 78%82% of our revenue for the three months ended SeptemberJune 30, 20192020 and 2018,2019, respectively and 80%69% and 82% of our revenue for the ninesix months ended SeptemberJune 30, 20192020 and 2018,2019, respectively. Revenue recognized over time primarily relates to customized, engineered solutions and construction services from all three of our segments. Typically, revenue is recognized over time using the percentage-of-completioncost-to-cost input method that uses costs incurred to date relative to total estimated costs at completion to measure progress toward satisfying our performance obligations. Incurred cost represents work performed, which corresponds with, and thereby best depicts, the transfer of control to the customer. Contract costs include labor, material, overhead and, when appropriate, SG&A expenses. Variable consideration in these contracts includes estimates of liquidated damages, and contractual bonuses and penalties.penalties, and contract modifications. Substantially all of our revenue recognized over time under the percentage-of-completioncost-to-cost input method containcontains a single performance obligation as the interdependent nature of the goods and services provided prevents them from being separately identifiable within the contract. Generally, we try to structure contract milestones to mirror our expected cash outflows over the course of the contract; however, the timing of milestone receipts can greatly affect our overall cash position and have done so, particularly in our Vølund and& Other Renewable segment. Refer to Note 3 for our disaggregation of revenue by product line.
As of June 30, 2020, we have estimated the costs to complete all of our in-process contracts in order to estimate revenues using a cost-to-cost input method. However, it is possible that current estimates could change due to unforeseen events, which could result in adjustments to overall contract costs. The risk on fixed-priced contracts is that revenue from the customer does not cover increases in our costs. It is possible that current estimates could materially change for various reasons, including, but not limited to, fluctuations in forecasted labor productivity, transportation, fluctuations in foreign exchange rates or steel and other raw material prices. Increases in costs on our fixed-price contracts could have a material adverse impact on our consolidated financial condition, results of operations and cash flows. Alternatively, reductions in overall contract costs at completion could materially improve our consolidated financial condition, results of operations and cash flows. Variations from estimated contract performance could result in material adjustments to operating results for any fiscal quarter or year.
Contract modifications are routine in the performance of our contracts. Contracts are often modified to account for changes in the contract specifications or requirements. In manymost instances, contract modifications are for goods or services that are not distinct and, therefore, are accounted for as part of the existing contract, with cumulative adjustment to revenue.
We recognize accrued claims in contract revenues for extra work or changes in scope of work to the extent of costs incurred when we believe we have an enforceable right to the modification or claim and the amount can be estimated reliably, and its realization is probable. In evaluating these criteria, we consider the contractual/legal basis for enforcing the claim, the cause of any additional costs incurred and whether those costs are identifiable or otherwise determinable, the nature and reasonableness of those costs, and the objective evidence available to support the claim.amount of the claim, and our relevant history with the counter-party that supports our expectations about their willingness and ability to pay for the additional cost along with a reasonable margin.
We generally recognize sales commissions in equal proportion as revenue is recognized. Our sales agreements are structured such that commissions are only payable upon receipt of payment, thus a capitalized asset at contract inception has not been recorded for sales commissioncommissions as a liability has not been incurred at that point.
Contract Balances
The following represents the components of our contracts in progress and advance billings on contracts included in our Condensed Consolidated Balance Sheets:
|
| | | | | | | | | | | |
| (in thousands) | September 30, 2019 | December 31, 2018 | $ Change | % Change |
| Contract assets - included in contracts in progress: | | | | |
| Costs incurred less costs of revenue recognized | $ | 30,264 |
| $ | 49,910 |
| $ | (19,646 | ) | (39 | )% |
| Revenues recognized less billings to customers | 88,176 |
| 94,817 |
| (6,641 | ) | (7 | )% |
| Contracts in progress | $ | 118,440 |
| $ | 144,727 |
| $ | (26,287 | ) | (18 | )% |
| Contract liabilities - included in advance billings on contracts: | | | | |
| Billings to customers less revenues recognized | $ | 77,449 |
| $ | 140,933 |
| $ | (63,484 | ) | (45 | )% |
| Costs of revenue recognized less cost incurred | 3,515 |
| 8,434 |
| (4,919 | ) | (58 | )% |
| Advance billings on contracts | $ | 80,964 |
| $ | 149,367 |
| $ | (68,403 | ) | (46 | )% |
| | | | | |
| Net contract balance | $ | 37,476 |
| $ | (4,640 | ) | $ | 42,116 |
| 908 | % |
| | | | | |
| Accrued contract losses | $ | 6,973 |
| $ | 61,651 |
| $ | (54,678 | ) | (89 | )% |
The impact of adopting Topic 606 on components of our contracts in progress and advance billings on contracts was not material at January 1, 2018. |
| | | | | | | | | | | |
| (in thousands) | June 30, 2020 | December 31, 2019 | $ Change | % Change |
| Contract assets - included in contracts in progress: | | | | |
| Costs incurred less costs of revenue recognized | $ | 34,507 |
| $ | 29,877 |
| $ | 4,630 |
| 15 | % |
| Revenues recognized less billings to customers | 51,584 |
| 61,702 |
| (10,118 | ) | (16 | )% |
| Contracts in progress | $ | 86,091 |
| $ | 91,579 |
| $ | (5,488 | ) | (6 | )% |
| Contract liabilities - included in advance billings on contracts: | | | | |
| Billings to customers less revenues recognized | $ | 59,543 |
| $ | 76,468 |
| $ | (16,925 | ) | (22 | )% |
| Costs of revenue recognized less cost incurred | 1,434 |
| (1,181 | ) | 2,615 |
| (221 | )% |
| Advance billings on contracts | $ | 60,977 |
| $ | 75,287 |
| $ | (14,310 | ) | (19 | )% |
| | | | | |
| Net contract balance | $ | 25,114 |
| $ | 16,292 |
| $ | 8,822 |
| 54 | % |
| | | | | |
| Accrued contract losses | $ | 1,707 |
| $ | 6,139 |
| $ | (4,432 | ) | (72 | )% |
Backlog
On SeptemberJune 30, 20192020 we had $473.0$457.0 million of remaining performance obligations, which we also refer to as total backlog. We expect to recognize approximately 27.7%29.1%, 33.0%33.9% and 39.3%37.0% of our remaining performance obligations as revenue in the remainder of 2019, 2020, 2021 and thereafter, respectively.
Changes in Contract Estimates
In the three and ninesix months ended SeptemberJune 30, 20192020 and 2018,2019, we recognized changes in estimated gross profit related to long-term contracts accounted for on the percentage-of-completion basis, which are summarized as follows:
| | | | Three months ended September 30, | Nine months ended September 30, | Three months ended June 30, | Six months ended June 30, |
| (in thousands) | 2019 | 2018 | 2019 | 2018 | 2020 | 2019 | 2020 | 2019 |
| Increases in gross profits for changes in estimates for over time contracts | $ | 10,279 |
| $ | 2,326 |
| $ | 25,089 |
| $ | 16,182 |
| $ | 4,037 |
| $ | 8,088 |
| $ | 7,561 |
| $ | 15,894 |
|
| Decreases in gross profits for changes in estimates for over time contracts | (13,248 | ) | (26,583 | ) | (35,892 | ) | (136,992 | ) | (5,102 | ) | (16,051 | ) | (5,288 | ) | (23,728 | ) |
| Net changes in gross profits for changes in estimates for over time contracts | $ | (2,969 | ) | $ | (24,257 | ) | $ | (10,803 | ) | $ | (120,810 | ) | $ | (1,065 | ) | $ | (7,963 | ) | $ | 2,273 |
| $ | (7,834 | ) |
Vølund EPC Loss Contracts
We had six Vølund EPC contracts for renewable energy facilities in Europe that were loss contracts at December 31, 2017. The scope of these EPC (Engineer, Procure and Construct) contracts extended beyond our core technology, products and services. In addition to these loss contracts, we have one remaining extended scope contract in our Vølund & Other Renewables segment which turned into a loss contract in the fourth quarter of 2019.
In the three months ended SeptemberJune 30, 20192020 and 2018,2019, we recorded $0.7$0.4 million and $19.1$3.2 million in net losses, respectively, inclusive of warranty expense as described in Note 10, resulting from changes in the estimated revenues and costs to complete the six European Vølund EPC loss contracts. In the three months ended SeptemberJune 30, 20192020 we did not change our estimate of liquidated damages on these contracts and 2018,in the three months ended June 30, 2019, we reduced our estimate of liquidated damages on these contracts by $1.8 million and $0.2 million, respectively.$0.4 million.
In the ninesix months ended SeptemberJune 30, 20192020 and 2018,2019, we recorded $8.0$0.3 million and $129.1$7.4 million in net losses, respectively, inclusive of warranty expense as described in Note 10, resulting from changes in the estimated revenues and
costs to complete the six European Vølund EPC loss contracts. In the ninesix months ended SeptemberJune 30, 2020 we did not change our estimate
of liquidated damages on these contracts and in the six months ended June 30, 2019, we reduced our estimate of liquidated damages on these contracts by $2.2 million. These changes in estimates in the nine months ended September 30, 2018 included increases in our estimates of anticipated liquidated damages that reduced revenue associated with these six contracts by $16.1$0.4 million. Total anticipated liquidated damages associated with these six contracts were $86.3$88.2 million and $93.2$88.2 million at SeptemberJune 30, 20192020 and SeptemberJune 30, 2018,2019, respectively.
As of SeptemberJune 30, 2019,2020, five of the six European Vølund EPC loss contracts had been turned over to the customer, with only punch list or agreed remediation items and performance testing remaining, some of which are expected to be performed during the customers' scheduled maintenance outages. Turnover is not applicable to the fifth loss contract under the terms of the March 29, 2019 settlement agreement with the customers of the second and fifth loss contracts, who are related parties to each other. Under that settlement agreement, we limited our remaining risk related to these contracts by paying a combined £70 million ($91.5 million) on April 5, 2019 in exchange for limiting and further defining our obligations under the second and fifth loss contracts, including waiver of the rejection and termination rights on the fifth loss contract that could have resulted in repayment of all monies paid to us and our former civil construction partner (up to approximately $144 million), and requirement to restore the property to its original state if the customer exercised this contractual rejection right. On the fifth loss contract, we agreed to continue to support construction services to complete certain key systems of the plant by May 31, 2019, for which penalty for failure to complete these systems is limited to the unspent portion of our quoted cost of the activities through that date. The settlement eliminated all historical claims and remaining liquidated damages. Upon completion of these activities inIn accordance with the settlement, we will have no further obligation related to the fifth loss contract other than customary warranty of core products if the plant is used as a biomass plant as designed. We estimated the portion of this settlement related to waiver of the rejection right on the fifth projectloss contract was $81.1 million, which was recorded in the fourth quarter of 2018 as a reduction in the selling price. We are still pursuing insurance recoveries and claims against subcontractors. For the second loss project,contract, the settlement limited the remaining performance obligations and settled historic claims for nonconformance and delays, and we turned over the plant in May 2019, and subsequently began the operations and maintenance contract to operate this plant.
As of SeptemberJune 30, 2019,2020, the status of these six Vølund EPC loss contracts was as follows:
The first contract, a waste-to-energy plant in Denmark, became a loss contract in the second quarter of 2016. As of SeptemberJune 30, 2019,2020, this contract was approximately 98%100% complete and construction activities are complete as of the date of this report. The unit became operational during the second quarter of 2017. A settlement was reached with the customer to achieve takeover on January 31, 2019, after which only punch list items and other agreed to remediation items remain, most of which are expected to be performed during the customer's scheduled maintenance outages. As of January 31, 2019, the contract is in the warranty phase. During the three and ninesix months ended SeptemberJune 30, 2019,2020, we recognized additional contract losses of $0.3$0.8 million and $2.3 million, respectively, on this contract as a resultinclusive of identifying additional remediation costs in the third quarter of 2019.warranty. Our estimate at completion as of SeptemberJune 30, 20192020 includes $8.9$9.1 million of total expectedestimated liquidated damages. As of SeptemberJune 30, 2019,2020, the reserve for estimated contract losses recorded in other accrued liabilities in our Condensed Consolidated Balance Sheets was $1.6$0.4 million. InDuring the three and ninesix months ended SeptemberJune 30, 2018,2019, we recognized additional contract losses of $3.9$2.0 million and $19.3 million, respectively,on the contract as a result of differencesidentifying additional remediation costs in actual and estimated costs, schedule delays, issues encountered during trial operations and increases in expected warranty costs.the second quarter of 2019. As of SeptemberJune 30, 2018,2019, this contract had $3.0$3.2 million of accrued losses and was 97% complete.
The second contract, a biomass plant in the United Kingdom, became a loss contract in the fourth quarter of 2016. As of SeptemberJune 30, 2019,2020, this contract was approximately 100% complete. Trial operations began in April 2019 and takeover by the customer occurred effective May 2019. This project is subject to the March 29, 2019 settlement agreement described above. During the three and nine months ended SeptemberJune 30, 2019,2020, we did not recognize additional contract losses and during the six months ended June 30, 2020, we recognized additional contract losses of $0.7$0.1 million on this contract as a result of additional punch list and other commissioning costs. Our estimate at completion as of June 30, 2020 includes $19.0 million of total estimated liquidated damages due to schedule delays. Our estimates at completion as of June 30, 2020 and 2019 also include contractual bonus opportunities for guaranteed higher power output and other performance metrics. As of June 30, 2020, we expect no future charges due to this contract and, accordingly, have no reserve for estimated contract losses. In the three and six months ended June 30, 2019, we recognized contract losses of $1.2 million and $2.6$1.9 million, respectively, on this contract as a result of repairs required during startup commissioning activities, additional expected punch list and other commissioning costs, and changes in construction cost estimates. Our estimate at completion as of September 30, 2019 includes $18.6 million of total expected liquidated damages due to schedule delays. Our estimates at completion as of September 30, 2019 and 2018 also include contractual bonus opportunities for guaranteed higher power output and other performance metrics. As of SeptemberJune 30, 2019, the reserve for estimated contract losses recorded in other accrued liabilities in our Condensed Consolidated Balance Sheets was $0.2 million. In the three and nine months ended September 30, 2018, we recognized contract losses of $3.4 million and $16.8 million, respectively, on this contract as a result of repairs required during startup commissioning activities in the third quarter of 2018, increases in expected warranty costs, changes in construction cost estimates, subcontractor productivity being lower than previous estimates, and additional expected punch list and other commissioning costs. As of September 30, 2018, this contract had $5.6$0.1 million of accrued losses and was 93%100% complete.
The third contract, a biomass plant in Denmark, became a loss contract in the fourth quarter of 2016. As of SeptemberJune 30, 2019,2020, this contract was approximately 100% complete. Warranty began in March 2018, when we agreed to a partial takeover with the customer, and we agreed to a full takeover by the customer at the end of October 2018, when we also agreed to a scheduled timeline for remaining punch list activities to be completed around the customer's future planned outages. During the three and ninesix months ended SeptemberJune 30, 2019,2020, we did not recognize additional charges on the contract.contract
losses. Our estimate at completion as of SeptemberJune 30, 20192020 includes $6.6$6.7 million of total expectedestimated liquidated damages due to schedule delays. As of SeptemberJune 30, 2019,2020, we expect no future charges due to this contract and, accordingly, we have no reserve for estimated contract losses. In the three and ninesix months ended SeptemberJune 30, 2018,2019, we recognizeddid not recognize additional contract losseslosses. As of $3.0 million and $6.5 million, respectively, as a result of changes in the estimated costs at completion, and as of SeptemberJune 30, 2018,2019, this contract had $1.1$0.1 million of accrued losses and was 97%100% complete.
The fourth contract, a biomass plant in the United Kingdom, became a loss contract in the fourth quarter of 2016. As of SeptemberJune 30, 2019,2020, this contract was approximately 99%100% complete. Trial operations began in November 2018 and takeover by the customer occurred in February 2019, after which only final performance testing, for which performance metrics have been previously demonstrated, and punch list and other agreed upon items remain, some of which are expected to be performed during the customer's scheduled maintenance outages. During the three and ninesix months ended SeptemberJune 30, 2020, we recognized additional contract charges of $0.1 million and $0.2 million, respectively, on this contract due to changes in cost to complete remaining punch list and other close out items. Our estimate at completion as of June 30, 2020 includes $20.8 million of total estimated liquidated damages due to schedule delays. Our estimates at completion as of June 30, 2020 also include contractual bonus opportunities for guaranteed higher power output and other performance metrics. As of June 30, 2020, we expect no future charges due to this contract and, accordingly, we have no reserve for estimated contract losses. In the three and six months ended June 30, 2019, we recognized additional contract chargeslosses of $0.4$4.0 million and $4.8$4.3 million, respectively, on this contract due to changes in estimated bonus revenue and cost to complete remaining punch list, remediation of certain performance guarantees and other close out items. Our estimate at completion as of September 30, 2019 includes $20.3 million of total expected liquidated damages due to schedule delays. Our estimates at completion as of SeptemberJune 30, 2019 also includeincluded contractual bonus opportunities for guaranteed higher power output and other performance metrics. As of SeptemberJune 30, 2019, the reserve for estimated contract losses recorded in other accrued liabilities in our Condensed Consolidated Balance Sheets was $0.3 million. In the three and nine months ended September 30, 2018, we recognized additional contract losses of $4.1 million and $28.9 million, respectively, on this contract as a result of challenges in startup commissioning activities, additional expected punch list and other commissioning costs, additional subcontractor costs and estimated liquidated damages. Losses in the nine months ended September 30, 2018 also include increases in expected warranty costs and subcontractor productivity being lower than previous estimates, and as of September 30, 2018, this contract had $3.1$0.4 million of accrued losses and was 95%99% complete.
The fifth contract, a biomass plant in the United Kingdom, became a loss contract in the second quarter of 2017. As of SeptemberJune 30, 2019,2020, this contract was approximately 98%100% complete. This project is subject to the March 29, 2019 settlement agreement described above. We estimated the portion of this settlement related to waiver of the rejection right on the fifth projectloss contract was $81.1 million, which was recorded in the fourth quarter of 2018 as a reduction in the selling price. Under the settlement, our remaining performance obligations were limited to construction support services to complete certain key systems of the plant by May 31, 2019. The settlement also eliminateseliminated all historical claims and remaining liquidated damages. Remaining items at SeptemberJune 30, 20192020 are primarily related to punch list and other finalization items for the key systems under the terms of the settlement and subcontract close outs. During the three and six months ended SeptemberJune 30, 2020, our estimated loss on the contract improved by $0.1 million and $0.4 million, respectively. Our estimate at completion as of June 30, 2020, includes $13.6 million of total estimated liquidated damages due to schedule delays. As of June 30, 2020, we expect no future charges due to this contract and, accordingly, we have no reserve for estimated contract losses. During the three and six months ended June 30, 2019, our estimated loss on the contract improved by $0.9 million. During the nine months ended September 30, 2019, our estimated loss on the contract improved by $2.6$4.0 million and $1.8 million, respectively, inclusive of warranty. Our estimate at completion as of September 30, 2019, includes $13.3 million of total expected liquidated damages due to schedule delays. As of SeptemberJune 30, 2019, the reserve for estimated contract losses recorded in other accrued liabilities in our Condensed Consolidated Balance Sheets was $3.4 million. In the three months ended September 30, 2018, we did not recognize any additional charges from changes in our estimate at completion. In the nine months ended September 30, 2018, we recognized additional contract losses of $39.7 million from changes in our estimate at completion, and as of September 30, 2018, this contract had $22.8$5.3 million of accrued losses and was 70%97% complete.
The sixth contract, a waste-to-energy plant in the United Kingdom, became a loss contract in the second quarter of 2017. As of SeptemberJune 30, 2019,2020, this contract was approximately 100%99% complete. Trial operations began in December 2018 and customer takeover occurred on January 25, 2019, after which only final performance testing, for which performance metrics have been previously demonstrated, and punch list and other agreed upon items remain, some of which are expected to be performed during the customer's scheduled maintenance outages. The contract is in the warranty phase. During the three and ninesix months ended SeptemberJune 30, 2020, our estimated loss on the contract improved by $0.4 million inclusive of warranty. Our estimate at completion as of June 30, 2020 includes $19.0 million of total estimated liquidated damages due to schedule delays. As of June 30, 2020, the reserve for estimated contract losses recorded in other accrued liabilities in our Consolidated Balance Sheets was $0.2 million. In the three and six months ended June 30, 2019, we revised our estimated revenue and costs at completion for this loss contract, which resulted in additional contract chargeslosses of $0.1 million and $1.0$0.9 million, respectively, related to matters encountered in completing punch list items. Our estimate at completion as of September 30, 2019 includes $18.6 million of total expected liquidated damages due to schedule delays. As of SeptemberJune 30, 2019, the reserve for estimated contract losses recorded in other accrued liabilities in our Condensed Consolidated Balance Sheets was $0.1 million. In the three and nine months ended September 30, 2018, we recognized additional contract losses of $4.7 million and $17.9 million, respectively, as a result of changes in our estimate at completion, and as of September 30, 2018, this contract had $1.9$0.2 million of accrued losses and was 92%99% complete.
In the fourth quarter of 2019, one of our other Vølund renewable energy contracts turned into a loss contract (estimated loss of $0.2 million) due to the extension of time and other start-up costs associated with the completion of the trial operations run and turnover to the client. This contract was turned over to the client in October 2019. During the three and ninesix months ended SeptemberJune 30, 2020, we did not recognize additional contract losses and during the three and six months ended June 30, 2019, we recognized additional charges of $1.5$1.3 million and $3.0$1.5 million, respectively, on our other Vølund renewable energy projects that are not loss contracts. During the three and nine months ended September 30, 2018, we recognized additional charges of $1.4 million, respectively, on our other Vølund renewable energy projects that are not loss contracts.this contract.
In September 2017, we identified the failure of a structural steel beam on the fifth contract, which stopped work in the boiler building and other areas pending corrective actions to stabilize the structure. Provisional regulatory approval to begin
structural repairs to the failed beam was obtained on March 29, 2018 (later than previously estimated), and full approval to proceed with repairs was obtained in April 2018. Full access to the site was obtained on June 6, 2018 after completion of the repairs to the structure. The engineering, design and manufacturing of the steel structure were the responsibility of our subcontractors. A similar design was also used on the second and fourth contracts, and although no structural failure occurred on these two other contracts, work was also stopped in certain restricted areas while we added reinforcement to the structures, which also resulted in delays that lasted until late January 2018. The total costs related to the structural steel issues on these three contracts, including contract delays, are estimated to be approximately $36 million, which is included in the SeptemberJune 30, 20192020 estimated losses at completion for these three contracts. We are continuing to aggressively pursue recovery of this cost under various applicable insurance policies and from responsible subcontractors. In June 2019, we agreed in principle to a settlement agreement under one insurance policy related to recover GBP 2.8 million ($3.5 million) of certain losses on the fifth project; which our insurer paid us in September 2019.
During the third quarter of 2016, we claimed a DKK 100.0 million ($15.5 million)The Company is continuing to pursue other potential insurance recovery for a portion of the losses on the first Vølund contract discussed above. In May 2018, our insurer disputed coverage on our insurance claim. We continued to aggressively pursue full recovery under the policy,recoveries and we filed for arbitration in July 2018. On June 28, 2019, we agreed to a full settlement, under which our insurer paid DKK 37 million ($5.6 million) to us in July 2019. At December 31, 2018, we had a net receivable of DKK 20.0 million ($3.2 million) in accounts receivable - other in our Condensed Consolidated Balance Sheets.claims where appropriate and available.
Other Vølund Contract Settlement
In March 2019, we entered into a settlement in connection with an additional European waste-to-energy EPC contract, for which notice to proceed was not given and the contract was not started. TheWe made a payment of £5.0 million (approximately $6.6 million) payment on April 5, 2019 for the settlement eliminateswhich eliminated our obligations to act, and our risk related to acting, as the prime EPC should the project have moved forward.
SPIG's Loss ContractContracts
At SeptemberJune 30, 2019,2020, SPIG had onetwo significant loss contract,contracts, each of which is a contract to engineer, procure materials and then constructare contracts for a dry cooling system for a gas-fired power plant in the United States. At SeptemberIn the three and six months ended June 30, 2020, we did not recognize additional charges on these contracts. In the three and six months ended June 30, 2019, our estimated loss on the second contract improved by $0.7 million, respectively, due to recovery of tariffs.
At June 30, 2020, the design and procurement are substantially complete, and construction is nearing completion.completion on the first loss contract. Overall, the contract is approximately 97%99% complete and it is expectedwith only performance testing remaining which will be fully complete in late-2019.the third quarter of 2020. As of SeptemberJune 30, 2019, the2020, we have no reserve for estimated contract losses. As of June 30, 2019, this contract had accrued losses recorded in other accrued liabilities in our Condensed Consolidated Balance Sheetsof $0.6 million and was $0.5 million related to this contract.96% complete. Construction is being performed by the Babcock & Wilcox segment, but the contract loss is included in the SPIG segment.
At June 30, 2020, the design and procurement are nearing completion on the second loss contract. Overall, the contract is approximately 96% complete and final completion is expected to be in the third quarter of 2020. As of June 30, 2020, the reserve for estimated contract losses recorded in other accrued liabilities in our Condensed Consolidated Balance Sheets was $0.3 million related to this contract. As of June 30, 2019, this contract had accrued losses of $0.1 million and was 97% complete. The percent completion declined at June 30, 2020 compared to the prior year period due to an increase in additional contract charges of $3.3 million recognized in late 2019 due to issues with the seismic design and fans.
NOTE 5 – INVENTORIES
The components of inventories are as follows:
| | | (in thousands) | September 30, 2019 | December 31, 2018 | June 30, 2020 | December 31, 2019 |
| Raw materials and supplies | $ | 45,262 |
| $ | 44,833 |
| $ | 41,832 |
| $ | 42,685 |
|
| Work in progress | 6,929 |
| 5,348 |
| 7,666 |
| 7,502 |
|
| Finished goods | 12,335 |
| 11,142 |
| 11,892 |
| 12,916 |
|
| Total inventories | $ | 64,526 |
| $ | 61,323 |
| $ | 61,390 |
| $ | 63,103 |
|
NOTE 6 – PROPERTY, PLANT & EQUIPMENT, & FINANCE LEASE
Property, plant and equipment less accumulated depreciation is as follows:
|
| | | | | | |
| (in thousands) | September 30, 2019 | December 31, 2018 |
| Land | $ | 3,521 |
| $ | 3,575 |
|
| Buildings | 105,303 |
| 106,238 |
|
| Machinery and equipment | 175,311 |
| 181,825 |
|
| Property under construction | 3,312 |
| 2,290 |
|
| | 287,447 |
| 293,928 |
|
| Less accumulated depreciation | 213,117 |
| 203,036 |
|
| Net property, plant and equipment | $ | 74,330 |
| $ | 90,892 |
|
In September 2018, we relocated our corporate headquarters to Barberton, Ohio from Charlotte, North Carolina. At the same time, we announced that we would consolidate most of our Barberton and Copley, Ohio operations into new, leased office space in Akron, Ohio. The move to the new, leased office space is expected to occur during the fourth quarter of 2019. We do not expect to incur significant relocation costs; however, since the decision to relocate in the third quarter of 2018, we recognized $7.9 million of accelerated depreciation, of which $0.7 million and $4.7 million was incurred during the three and nine months ended September 30, 2019, respectively. |
| | | | | | |
| (in thousands) | June 30, 2020 | December 31, 2019 |
| Land | $ | 3,005 |
| $ | 2,998 |
|
| Buildings | 83,570 |
| 84,005 |
|
| Machinery and equipment | 152,491 |
| 154,016 |
|
| Property under construction | 5,836 |
| 6,204 |
|
| | 244,902 |
| 247,223 |
|
| Less accumulated depreciation | 183,831 |
| 180,562 |
|
| Net property, plant and equipment | 61,071 |
| 66,661 |
|
| Finance lease | 30,549 |
| 30,405 |
|
| Less finance lease accumulated amortization | 1,043 |
| 13 |
|
| Net property, plant and equipment, and finance lease | $ | 90,577 |
| $ | 97,053 |
|
NOTE 7 - GOODWILL
The following summarizes the changes in the net carrying amount of goodwill as of SeptemberJune 30, 2019:2020: |
| | | |
| (in thousands) | Babcock & Wilcox |
| Balance at December 31, 2018 | $ | 47,108 |
|
| Currency translation adjustments | (100 | ) |
| Balance at September 30, 2019 | $ | 47,008 |
|
In January 2017, the Financial Accounting Standards Board ("FASB") issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment (ASU 2017-04). The standard simplifies the subsequent measurement of goodwill by removing the requirement to perform a hypothetical purchase price allocation to compute the implied fair value of goodwill to measure impairment. Instead, goodwill impairment is measured as the difference between the fair value of the reporting unit and the carrying value of the reporting unit. The standard also clarifies the treatment of the income tax effect of tax-deductible goodwill when measuring goodwill impairment loss. We early adopted ASU 2017-04 on April 1, 2018, effective the first day of our 2018 second quarter. |
| | | |
| (in thousands) | Babcock & Wilcox Segment |
| Balance at December 31, 2019 | $ | 47,160 |
|
| Currency translation adjustments | (140 | ) |
| Balance at June 30, 2020 | $ | 47,020 |
|
Goodwill is tested for impairment annually and when impairment indicators exist. All of our remaining goodwill is related to the Babcock & Wilcox reporting unit and the Babcock & Wilcox Construction Company reporting unit, which are both included in the Babcock & Wilcox segment. Because the Babcock & Wilcox and the Babcock & Wilcox Construction Company reporting unitunits each had a negative carrying value, reasonable changes in the assumptions would not indicate impairment. No impairment indicators were identified during the ninethree months ended SeptemberJune 30, 2019. 2020.
In the nine months ended September 30, 2018,first quarter of 2020, our share price declined significantly, which we recognized $37.5 millionconsidered to be a triggering event for an interim goodwill assessment. We primarily attributed the significant decline in our share price to the current macroeconomic conditions and impacts COVID-19 will have on our operations. Based on the interim assessment, as of March 31, 2020, no impairment was indicated during the first quarter of all the remaining goodwill in the SPIG reporting unit resulting from a reduction in their bookings than previously forecasted.2020.
NOTE 8 – INTANGIBLE ASSETS
Our intangible assets are as follows: | | | (in thousands) | September 30, 2019 | December 31, 2018 | June 30, 2020 | December 31, 2019 |
| Definite-lived intangible assets | | |
| Customer relationships | $ | 24,318 |
| $ | 24,764 |
| $ | 24,444 |
| $ | 24,440 |
|
| Unpatented technology | 14,698 |
| 15,098 |
| 14,939 |
| 14,917 |
|
| Patented technology | 2,583 |
| 2,616 |
| 2,601 |
| 2,598 |
|
| Tradename | 12,193 |
| 12,566 |
| 12,402 |
| 12,372 |
|
| All other | 9,920 |
| 9,728 |
| 9,248 |
| 9,225 |
|
| Gross value of definite-lived intangible assets | 63,712 |
| 64,772 |
| 63,634 |
| 63,552 |
|
| Customer relationships amortization | (18,284 | ) | (17,219 | ) | (19,119 | ) | (18,616 | ) |
| Unpatented technology amortization | (4,880 | ) | (3,760 | ) | (5,972 | ) | (5,245 | ) |
| Patented technology amortization | (2,444 | ) | (2,348 | ) | (2,538 | ) | (2,476 | ) |
| Tradename amortization | (4,112 | ) | (3,672 | ) | (4,539 | ) | (4,257 | ) |
| All other amortization | (8,865 | ) | (8,285 | ) | (9,106 | ) | (8,963 | ) |
| Accumulated amortization | (38,585 | ) | (35,284 | ) | (41,274 | ) | (39,557 | ) |
| Net definite-lived intangible assets | $ | 25,127 |
| $ | 29,488 |
| $ | 22,360 |
| $ | 23,995 |
|
| Indefinite-lived intangible assets | | |
| Trademarks and trade names | $ | 1,305 |
| $ | 1,305 |
| $ | 1,305 |
| $ | 1,305 |
|
| Total intangible assets, net | $ | 26,432 |
| $ | 30,793 |
| $ | 23,665 |
| $ | 25,300 |
|
The following summarizes the changes in the carrying amount of intangible assets: | | | | Nine months ended September 30, | Six months ended June 30, |
| (in thousands) | 2019 | 2018 | 2020 | 2019 |
| Balance at beginning of period | $ | 30,793 |
| $ | 42,065 |
| $ | 25,300 |
| $ | 30,793 |
|
| Amortization expense | (3,301 | ) | (5,398 | ) | (1,716 | ) | (2,331 | ) |
| Currency translation adjustments and other | (1,060 | ) | (1,565 | ) | 81 |
| (67 | ) |
| Balance at end of the period | $ | 26,432 |
| $ | 35,102 |
| $ | 23,665 |
| $ | 28,395 |
|
Amortization of intangible assets is included in cost of operations and SG&A in our Condensed Consolidated Statement of Operations but is not allocated to segment results.
Estimated future intangible asset amortization expense is as follows (in thousands):
|
| | | |
| | Amortization Expense |
| Three months ending December 31, 2019 | $ | 908 |
|
| Twelve months ending December 31, 2020 | 3,355 |
|
| Twelve months ending December 31, 2021 | 3,128 |
|
| Twelve months ending December 31, 2022 | 3,086 |
|
| Twelve months ending December 31, 2023 | 3,085 |
|
| Twelve months ending December 31, 2024 | 2,946 |
|
| Thereafter | 8,619 |
|
|
| | | |
| | Amortization Expense |
| Year ending December 31, 2020 | $ | 1,590 |
|
| Year ending December 31, 2021 | 3,057 |
|
| Year ending December 31, 2022 | 3,034 |
|
| Year ending December 31, 2023 | 3,033 |
|
| Year ending December 31, 2024 | 2,960 |
|
| Year ending December 31, 2025 | 2,470 |
|
| Thereafter | 6,216 |
|
Long-livedThe circumstances leading to the first quarter interim goodwill assessment as described in Note 7 also triggered an evaluation for long-lived assets, including intangible assets. The company performed an analysis as required by ASC 360-10-35 to assess the recoverability of other long-lived assets are reviewed for impairment annually, or whenever circumstances indicate that the carrying amount might not be recoverable. Interim impairment testing was performed for the SPIG andin its Vølund & Other Renewable reporting units dueand SPIG asset groups. With respect to continued net operating losses and significant decreases in revenues experiencedthese asset groups no impairment was indicated during 2019.the first quarter of 2020.
In the fourth quarter of 2018, a strategic decision was made to exit certain geographies of the SPIG segment, and as a result, $2.5 million of the customer relationship and other intangible assets related to these geographies were impaired during the fourth quarter of 2018. As of September 30, 2019 and December 31, 2018, the SPIG reporting unit had $22.3 million and $25 million of identifiable intangible assets, net of accumulated amortization, respectively.
As of September 30, 2019 and December 31, 2018, the Vølund & Other Renewable reporting unit had $1.2 million and $2 million of identifiable intangible assets, net of accumulated amortization, respectively.
In our interim tests as of September 30, 2019, the sum of the undiscounted cash flows and the residual value of the primary assets exceeded the carrying value of both the SPIG and Vølund & Other Renewable reporting units and no impairment was indicated.
We believe the estimates and assumptions utilized in our interim impairment testing are reasonable. However, actual results could differ substantially from those used in our valuations. To the extent such factors result in a failure to achieve the level of undiscounted forecasted cash flows used to estimate fair value for the purpose determining whether or not an impairment calculation should be performed for the intangible assets, or if we committed to a strategy to sell one or more of the reporting units in the near future as we continue to revaluate our ongoing operations, we may be required to record non-cash impairment charges in the future which could have an adverse impact on our business, financial condition and results of operations.
NOTE 9 – LEASES
Accounting for Leases
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). We adopted this new standard on January 1, 2019 and used the effective date as our date of initial application while continuing to present the comparative periods in accordance with the guidance under the lease standard in effect during those prior periods in the Condensed Consolidated Financial Statements. We recorded an immaterial cumulative-effect adjustment to the opening balance of retained earnings on the date of adoption. We elected the "package of practical expedients", which permits us not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs. However, we did not elect to adopt the hindsight practical expedient and are therefore maintaining the lease terms we previously determined under ASC 840.
We have implemented new lease accounting software and have established new processes and internal controls that are required to comply with the new lease accounting and disclosure requirements set forth by the new standard. See Note 27 for additional information about the impact of adopting ASC 842 in the Condensed Consolidated Financial Statements.
We determine if an arrangement is a lease at inception. Leases are included in Right-of-use ("ROU") assets, lease liabilities and noncurrent lease liabilities in the Condensed Consolidated Balance Sheets. ROU assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As substantially all of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at lease commencement date in determining the present value of future payments. The ROU assets also include any prepaid lease payments made and initial direct costs incurred and excludes lease incentives. Our lease terms may include options to extend or terminate the lease, which we recognize when it is reasonably certain that we will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. Leases with an initial term of 12 months or less are not recorded on the balance sheet.
For leases beginning in 2019 and later, we account for lease components (e.g., fixed payments including rent) together with the non-lease components (e.g., common-area maintenance costs) as a single lease component for all classes of underlying assets.
In September 2018, we announced that we would consolidate most of our Barberton and Copley, Ohio operations into new, leased office space in Akron, Ohio. The move to the new, leased office space is expected to occur during the fourth quarter of 2019. As of September 30, 2019, the lease agreement for the office space in Akron had not yet commenced; it will commence when it is ready for occupation. The lease has an initial term of fifteen years, with an option to extend up to two additional ten-year terms. Base rent will increase two percent annually, making the total future minimum payments during the initial term of the lease approximately $55 million. This lease, which has not yet commenced, is not included in the following tables disclosed below. At commencement of this lease, we expect assets and liabilities within our Condensed Consolidated Balance Sheet to increase by approximately $31 million.
Operating Leases
We have operating leases for real estate, vehicles, and certain equipment. We do not have any financing leases in our portfolio. Our leases have remaining lease terms of up to 10 years, some of which may include options to extend the leases for up to 5 years, and some of which may include options to terminate the leases within 1 year.
The components of lease expense included on our Condensed Consolidated Statements of Operations were as follows: | | | | | | | | | Three months ended June 30, | Six months ended June 30, |
| (in thousands) | Three months ended September 30, 2019 | Nine months ended September 30, 2019 | Classification | 2020 | 2019 | 2020 | 2019 |
| Operating lease expense: | | | |
| Operating lease expense | $ | 1,569 |
| $ | 5,067 |
| Selling, general and administrative expenses | $ | 1,389 |
| $ | 1,589 |
| $ | 2,896 |
| $ | 3,498 |
|
| Short-term lease expense | 1,193 |
| 6,153 |
| Selling, general and administrative expenses | 292 |
| 2,335 |
| 480 |
| 5,196 |
|
| Variable lease expense | 121 |
| 682 |
| |
Sublease income (1) | (22 | ) | (46 | ) | |
| Total lease expense | $ | 2,861 |
| $ | 11,856 |
| |
Variable lease expense (1) | | Selling, general and administrative expenses | (382 | ) | 871 |
| 394 |
| 983 |
|
| Total operating lease expense | | | $ | 1,299 |
| $ | 4,795 |
| $ | 3,770 |
| $ | 9,677 |
|
| | | |
|
| |
| Finance lease expense: | | | |
| Amortization of right-of-use assets | | Selling, general and administrative expenses | $ | 514 |
| $ | — |
| $ | 1,029 |
| $ | — |
|
| Interest on lease liabilities | | Interest expense | 616 |
| — |
| 1,231 |
| — |
|
| Total finance lease expense | | | $ | 1,130 |
| $ | — |
| $ | 2,260 |
| $ | — |
|
| | | |
Sublease income (2) | | Other – net | $ | (21 | ) | $ | (14 | ) | $ | (43 | ) | $ | (24 | ) |
| Net lease cost | | | $ | 2,408 |
| $ | 4,781 |
| $ | 5,987 |
| $ | 9,653 |
|
(1)Variable lease expense primarily consists of common area maintenance expenses paid directly to lessors of real estate leases.
(2) Sublease income excludes rental income from owned properties, which is not material.
Other information related to leases is as follows:
| | | (in thousands) | Three months ended September 30, 2019 | Nine months ended September 30, 2019 | June 30, 2020 | December 31, 2019 |
| Cash paid for amounts included in the measurement of lease liabilities: | | |
| Operating cash flows from operating leases | $ | 1,428 |
| $ | 5,089 |
| $ | 2,743 |
| $ | 6,578 |
|
| Operating cash flows from finance leases | | 1,231 |
| 14 |
|
| Financing cash flows from finance leases | | (399 | ) | (12 | ) |
| | | |
| Right-of-use assets obtained in exchange for lease liabilities: |
|
| | |
| Operating leases | $ | 1,513 |
| $ | 2,526 |
| $ | 1,196 |
| $ | 3,014 |
|
| Finance leases | | $ | 146 |
| $ | 30,404 |
|
| | | |
| Weighted-average remaining lease term: | | |
| Operating leases (in years) | | 3.2 |
| 3.4 |
|
| Finance leases (in years) | | 14.4 |
| 15.0 |
|
| Weighted-average discount rate: | | |
| Operating leases | | 9.14 | % | 9.27 | % |
| Finance leases | | 8.00 | % | 8.00 | % |
Amounts relating to leases were presented in theon our Condensed Consolidated Balance Sheets as of September 30, 2019 in the following line items:
|
| | | |
| (in thousands, except lease term and discount rate) | September 30, 2019 |
| Right-of-use assets | $ | 13,088 |
|
| | |
| Liabilities: | |
| Lease liabilities | $ | 4,303 |
|
| Noncurrent lease liabilities | 8,654 |
|
| Total lease liabilities | $ | 12,957 |
|
| | |
| Weighted-average remaining lease term: | |
| Operating leases (in years) | 3.34 |
|
| Weighted-average discount rate: |
|
|
| Operating leases | 9.36 | % |
|
| | | | | | | |
| (in thousands) | | | |
| Assets: | Classification | June 30, 2020 | December 31, 2019 |
| Operating lease assets | Right-of-use assets | $ | 11,367 |
| $ | 12,498 |
|
| Finance lease assets | Net property, plant and equipment, and finance lease | 29,506 |
| 30,392 |
|
| Total non-current lease assets | | $ | 40,873 |
| $ | 42,890 |
|
| | | | |
| Liabilities: | | | |
| Current | | | |
| Operating lease liabilities | Operating lease liabilities | $ | 4,280 |
| $ | 4,323 |
|
| Finance lease liabilities | Financing lease liabilities | 820 |
| (38 | ) |
| Non-current | | | |
| Operating lease liabilities | Non-current operating lease liabilities | 7,374 |
| 8,388 |
|
| Finance lease liabilities | Non-current finance lease liabilities | 30,140 |
| 30,454 |
|
| Total lease liabilities | | $ | 42,614 |
| $ | 43,127 |
|
Future minimum lease payments required under non-cancellable operating leases as of SeptemberJune 30, 20192020 were as follows: | | | (in thousands) | | Operating Leases | Finance Leases | Total |
| Three months ending December 31, 2019 | $ | 1,359 |
| |
| Twelve months ending December 31, 2020 | 4,867 |
| |
| Twelve months ending December 31, 2021 | 3,469 |
| |
| Twelve months ending December 31, 2022 | 2,301 |
| |
| Twelve months ending December 31, 2023 | 1,523 |
| |
| 2020 (excluding the six months ended June 30, 2020) | | $ | 2,762 |
| $ | 1,607 |
| $ | 4,369 |
|
| 2021 | | 4,227 |
| 3,277 |
| 7,504 |
|
| 2022 | | 3,007 |
| 3,342 |
| 6,349 |
|
| 2023 | | 2,034 |
| 3,408 |
| 5,442 |
|
| 2024 | | 1,236 |
| 3,472 |
| 4,708 |
|
| Thereafter | 860 |
| 106 |
| 38,285 |
| 38,391 |
|
| Total | $ | 14,379 |
| $ | 13,372 |
| $ | 53,391 |
| $ | 66,763 |
|
| Less imputed interest | (1,422 | ) | (1,718 | ) | (22,431 | ) | (24,149 | ) |
| Lease liability | $ | 12,957 |
| $ | 11,654 |
| $ | 30,960 |
| $ | 42,614 |
|
In connection with the COVID-19 pandemic, the Company has received temporary rent payment deferrals related to leased facilities located in the U.S., Canada, Italy and Denmark. We have elected to account for the deferral in timing of lease payments as if there were no changes to the lease contract, including continued recognition of expense during the deferral period.
NOTE 10 – ACCRUED WARRANTY EXPENSE
We may offer assurance type warranties on products and services we sell. Changes in the carrying amount of our accrued warranty expense are as follows:
| | | | Nine months ended September 30, | Six months ended June 30, |
| (in thousands) | 2019 | 2018 | 2020 | 2019 |
| Balance at beginning of period | $ | 45,117 |
| $ | 33,514 |
| $ | 33,376 |
| $ | 45,117 |
|
| Additions | 4,793 |
| 30,621 |
| 2,063 |
| 2,717 |
|
| Expirations and other changes | (5,172 | ) | (1,865 | ) | (1,584 | ) | (4,412 | ) |
| Payments | (7,848 | ) | (9,418 | ) | (5,410 | ) | (3,641 | ) |
| Translation and other | (1,292 | ) | (688 | ) | 46 |
| (192 | ) |
| Balance at end of period | $ | 35,598 |
| $ | 52,164 |
| $ | 28,491 |
| $ | 39,589 |
|
We accrue estimated expense included in cost of operations on our Condensed Consolidated Statements of Operations to satisfy contractual warranty requirements when we recognize the associated revenues on the related contracts, or in the case of a loss contract, the full amount of the estimated warranty costs is accrued when the contract becomes a loss contract. In addition, we record specific provisions or reductions where we expect the actual warranty costs to significantly differ from the accrued estimates. Such changes could have a material effect on our consolidated financial condition, results of operations and cash flows. Warranty expense infor the ninethree and six months ended SeptemberJune 30, 2019 includes $3.9 million of warranty reversal related to developments in the quarter stemming from the March 29, 2019 settlement agreement for the Vølund EPC loss contracts described in Note 4. Warranty expense for the nine months ended September 30, 2018, includes a $15.1 million increase in expected warranty costs for the six European renewable energy loss contracts based on experience from the startup and commissioning activities in the second quarter of 2018 and $5.3 million of specific provisions on certain contracts in the Babcock & Wilcox segment for specific technical matters and customer requirements.
NOTE 11 – RESTRUCTURING ACTIVITIES AND SPIN-OFF TRANSACTION COSTS
The following tables summarize the restructuring activity and spin-off costs incurred by segment:
| | | | Three months ended September 30, | Three months ended June 30, | | Three months ended June 30, |
| | 2019 | | 2018 | 2020 | | 2019 |
| (in thousands) | Total severance and related costs | | Severance and related costs | Exit costs | Total | Total | Severance and related costs | COVID-19 related costs | Other (1) | | Severance and related costs |
| Babcock & Wilcox segment | $ | 1,138 |
| | $ | 1,340 |
| $ | 28 |
| $ | 1,368 |
| $ | 1,514 |
| $ | 566 |
| $ | 274 |
| $ | 674 |
| | $ | 127 |
|
| Vølund & Other Renewable segment | 274 |
| | — |
| — |
| — |
| 622 |
| 46 |
| 576 |
| — |
| | 437 |
|
| SPIG segment | — |
| | 1,871 |
| — |
| 1,871 |
| — |
| — |
| — |
| — |
| | 258 |
|
| Corporate | 1,144 |
| | (376 | ) | — |
| (376 | ) | 256 |
| — |
| 92 |
| 164 |
| | 114 |
|
| | $ | 2,556 |
| | $ | 2,835 |
| $ | 28 |
| $ | 2,863 |
| $ | 2,392 |
| $ | 612 |
| $ | 942 |
| $ | 838 |
| | $ | 936 |
|
| | | | Nine months ended September 30, | Six months ended June 30, | | Six months ended June 30, |
| | 2019 | | 2018 | 2020 |
| 2019 |
| (in thousands) | Total severance and related costs | | Severance and related costs | Exit costs | Spin-off transaction costs | Total | Total | Severance and related costs | COVID-19 related costs | Other (1) | | Severance and related costs |
| Babcock & Wilcox segment | $ | 5,213 |
| | $ | 5,201 |
| $ | 177 |
| $ | — |
| $ | 5,378 |
| $ | 2,837 |
| $ | 1,108 |
| $ | 274 |
| $ | 1,455 |
| | $ | 4,075 |
|
| Vølund & Other Renewable segment | 1,289 |
| | 441 |
| — |
| — |
| 441 |
| 1,181 |
| 605 |
| 576 |
| — |
| | 1,015 |
|
| SPIG segment | 401 |
| | 2,621 |
| — |
| — |
| 2,621 |
| — |
| — |
| — |
| — |
| | 401 |
|
| Corporate | 2,668 |
| | 4,781 |
| — |
| 330 |
| 5,111 |
| 325 |
| — |
| 92 |
| 233 |
| | 1,524 |
|
| | $ | 9,571 |
| | $ | 13,044 |
| $ | 177 |
| $ | 330 |
| $ | 13,551 |
| $ | 4,343 |
| $ | 1,713 |
| $ | 942 |
| $ | 1,688 |
| | $ | 7,015 |
|
In 2018, we began to implement a series(1) Other amounts consist primarily of cost restructuring actions, primarily in our U.S., European, Canadianexit, relocation and Asian operations, and corporate functions. These actions were intended to appropriately size our operations and support functions in response to the continuing decline in certain global markets for new build coal-fired power generation, the announcement of the MEGTEC and Universal sale, the level of activity in our Vølund business and our liquidity needs. Severance expense is recognized over the remaining service periods of affected employees, and as of September 30, 2019, we do not expect additional severance expense to be recognized based on actions taken through that date.other costs.
Restructuring liabilities are included in other accrued liabilities on our Condensed Consolidated Balance Sheets. Activity related to the restructuring liabilities is as follows:
| | | | Three months ended September 30, | Nine months ended September 30, | Three months ended June 30, | Six months ended June 30, |
| (in thousands) | 2019 | 2018 | 2019 | 2018 | 2020 | 2019 | 2020 | 2019 |
Balance at beginning of period | $ | 6,974 |
| $ | 7,882 |
| $ | 7,359 |
| $ | 2,320 |
| $ | 5,341 |
| $ | 10,196 |
| $ | 5,358 |
| $ | 7,359 |
|
| Restructuring expense | 2,557 |
| 2,849 |
| 9,572 |
| 13,013 |
| 2,392 |
| 936 |
| 4,343 |
| 7,015 |
|
| Payments | (2,957 | ) | (3,113 | ) | (10,357 | ) | (7,715 | ) | (2,646 | ) | (4,158 | ) | (4,614 | ) | (7,400 | ) |
| Balance at September 30 | $ | 6,574 |
| $ | 7,618 |
| $ | 6,574 |
| $ | 7,618 |
| |
| Balance at end of period | | $ | 5,087 |
| $ | 6,974 |
| $ | 5,087 |
| $ | 6,974 |
|
Accrued restructuring liabilities at SeptemberJune 30, 20192020 and 20182019 relate primarily to employee termination benefits. Excluded from restructuring expense inSeverance payments are expected to extend through the table above are non-cash restructuring charges that did not impact the accrued restructuring liability. In the nine months ended September 30, 2018, we recognized $0.2 million in non-cash restructuring expense related to losses on the disposalsend of long-lived assets.2020.
NOTE 12 – PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS
Components of net periodic benefit cost (benefit) included in net income (loss) are as follows:
| | | | Pension Benefits | | Other Benefits | Pension Benefits | | Other Benefits |
| | Three months ended September 30, | Nine months ended September 30, | | Three months ended September 30, | Nine months ended September 30, | Three months ended June 30, | Six months ended June 30, | | Three months ended June 30, | Six months ended June 30, |
| (in thousands) | 2019 | 2018 | 2019 | 2018 | | 2019 | 2018 | 2019 | 2018 | 2020 | 2019 | 2020 | 2019 | | 2020 | 2019 | 2020 | 2019 |
| Interest cost | $ | 10,685 |
| $ | 9,739 |
| $ | 32,507 |
| $ | 29,237 |
| | $ | 139 |
| $ | 97 |
| $ | 378 |
| $ | 289 |
| $ | 8,250 |
| $ | 10,965 |
| $ | 16,511 |
| $ | 21,822 |
| | $ | 72 |
| $ | 119 |
| $ | 144 |
| $ | 239 |
|
| Expected return on plan assets | (13,901 | ) | (16,235 | ) | (41,700 | ) | (48,680 | ) | | — |
| — |
| — |
| — |
| (15,544 | ) | (13,905 | ) | (31,185 | ) | (27,799 | ) | | — |
| — |
| — |
| — |
|
| Amortization of prior service cost | 28 |
| 25 |
| 83 |
| 75 |
| | (540 | ) | (186 | ) | (1,618 | ) | (1,020 | ) | 43 |
| 27 |
| 86 |
| 55 |
| | (271 | ) | (539 | ) | (542 | ) | (1,078 | ) |
| Recognized net actuarial loss (gain) | 18 |
| (4,196 | ) | 1,278 |
| (4,740 | ) | | — |
| — |
| — |
| — |
| |
| Recognized net actuarial (gain) loss | | — |
| 862 |
| — |
| 1,260 |
| | — |
| — |
| — |
| — |
|
Benefit plans, net(1) | (3,170 | ) | (10,667 | ) | (7,832 | ) | (24,108 | ) | | (401 | ) | (89 | ) | (1,240 | ) | (731 | ) | (7,251 | ) | (2,051 | ) | (14,588 | ) | (4,662 | ) | | (199 | ) | (420 | ) | (398 | ) | (839 | ) |
Service cost included in COS(2) | 346 |
| 186 |
| 646 |
| 562 |
| | 4 |
| 4 |
| 12 |
| 12 |
| 209 |
| 150 |
| 420 |
| 300 |
| | 4 |
| 4 |
| 9 |
| 8 |
|
| Net periodic benefit cost (benefit) | $ | (2,824 | ) | $ | (10,481 | ) | $ | (7,186 | ) | $ | (23,546 | ) | | $ | (397 | ) | $ | (85 | ) | $ | (1,228 | ) | $ | (719 | ) | $ | (7,042 | ) | $ | (1,901 | ) | $ | (14,168 | ) | $ | (4,362 | ) | | $ | (195 | ) | $ | (416 | ) | $ | (389 | ) | $ | (831 | ) |
| |
(1) | Benefit plans, net, which is presented separately in the Condensed Consolidated Statements of Operations, is not allocated to the segments. |
| |
(2) | Service cost related to a small group of active participants is presented within cost of salesoperations in the Condensed Consolidated Statement of Operations and is allocated to the Babcock & Wilcox segment. |
Settlements are triggered in a plan when the distributions exceed the sumRecognized net actuarial (gain) loss consists primarily of the service cost and interest cost of the respective plan. Lump sum payments from our Canadian Plans resulted in plan settlements during the first and second quarters of 2019. The settlements themselves were not material, but they triggered interim mark to market ("MTM") remeasurements of the Canadian Plan's assets and liabilities that were losses of $1.3 million in the nine months ended September 30, 2019. Both thereported actuarial (gain) loss, curtailments, settlements, and the difference between the actual return on plan assets and the expected return on plan assets. There were noMTM remeasurements are reflected inadjustments for our pension and other postretirement benefit plans during the three and six months ended June 30, 2020 and we incurred losses of Recognized net actuarial loss (gain)$0.9 million and $1.3 million in the table abovethree and are includedsix months ended June 30, 2019. We have excluded the recognized net actuarial (gain) loss from our reportable segments and such amount has been reflected in our Condensed Consolidated Statements of Operations inNote 3 as the BenefitMTM loss from benefit plans net line item. There were no lump sum payments from our Canadian pension plan during the third quarter of 2019.
During the second quarter of 2018, lump sum payments from our Canadian pension plan resulted in a plan settlement gain of $0.1 million, which also resulted in interim MTM accounting for the pension plan. The MTM adjustment in the second quarter of 2018 was a gain of $0.4 million. The effect of these charges and MTM adjustments are reflected in the Recognized net actuarial loss (gain)in the table above.reconciliation of Adjusted EBITDA for each segment to consolidated loss before income tax. The recognized net actuarial (gain) loss was recorded in our Condensed Consolidated Statements of Operations in theBenefitbenefit plans, net line item. There were no lump sum payments from our Canadian pension plan during the third quarter of 2018.
While we retained the pension liability related to employees of Palm Beach Resource Recovery Corporation ("PBRRC") after the September 2018 sale of this business, the status change of these participants in the Retirement Plan for Employees of Babcock & Wilcox Commercial Operations (the "Commercial Operations Plan") resulted in a $3.5 million curtailment loss in the third quarter of September 30, 2018, which also triggered an interim MTM of the Commercial Operations Plan assets and liabilities that led to a gain of $7.7 million in the three months ended September 30, 2018. Both the curtailment and the MTM are reflected in the Recognized net actuarial loss (gain) in the table above and are included in our Condensed Consolidated Statements of Operations in the Benefit plans, net line item.Operations.
We made contributions to our pension and other postretirement benefit plans totaling $0.5$0.6 million and $3.3$1.1 million during the three and ninesix months ended SeptemberJune 30, 2019,2020, respectively, as compared to $9.1$1.4 million and $17.6$2.8 million during the three and ninesix months ended SeptemberJune 30, 2018,2019, respectively. Expected employer contributions to the U.S. Pension Plan ("Plan")trusts of defined benefit plans assume that relief is granted under U.S. pension contribution waivers, which would defer minimum pension contributions for approximately one year to then be repaid over a five-year period. Related to the 2018 Plan year, we filed a request for waiver with the IRS in January 2019 and obtained a letter on August 27, 2019 that the waiver request had been approved subject to certain conditions. The
We filed a temporary hardship waiver request with the IRS on March 12, 2020 related to our contributions for our pension and other postretirement benefit plans for the 2019 Plan year. As of August 12, 2020, final determination of this waiver request had not been received. Pursuant to the provisions of the waiver granted by the IRS related to the 2018 Plan year, the Company iswas required to resume quarterly contributions on April 15, 2020 equal to the required quarterly contributions to the Plan while the waiver is in effect with respect to the Plan. We intend to file a waiver request withIf we receive an adverse response from the IRS later in 2019 or early in 2020 related to the 2019 Plan year. Iffor the temporary hardship waiver is not fully granted,request for the 2019 Plan year, our required minimum employer pension contributions could increase upby approximately $25.0 million, to a total pension and other postretirement benefit funding requirement of approximately $15$46.0 million or greater in 2020, plus interest and, if assessed, penalties.
On March 27, 2020, the CARES Act was signed into law and among other things, provides deferral of certain U.S. pension plan contributions until January 1, 2021. We elected to defer the contribution payments of $5.5 million each for the 2020 Plan year that would have been made on April 15, 2020 and July 15, 2020.
The total funding contributions of $46.0 million estimated for 2020 that have been deferred includes $1.1 million for the 2018 Plan year, $23.7 million for the 2019 Plan year, $16.5 million for the 2020 Plan year and $4.5 million related to other non-qualified pension plans, non-U.S. pension plans and other postretirement benefits plans. The Company cannot make any assurances that such waiver will be granted.
NOTE 13 – REVOLVING DEBT
The components of ourOur revolving debt areis comprised of separatea revolving credit facilitiesfacility in the following locations:
|
| | | | | | |
| (in thousands) | September 30, 2019 | December 31, 2018 |
| United States | $ | 191,700 |
| $ | 144,900 |
|
| Foreign | — |
| 606 |
|
| Total revolving debt | $ | 191,700 |
| $ | 145,506 |
|
U.S. RevolvingA&R Credit FacilityAgreement
On May 11, 2015, we entered into a credit agreement (as amended, the "AmendedAmended Credit Agreement")Agreement with a syndicate of lenders in connection with our spin-off from The Babcock & Wilcox Company (now BWX Technologies, Inc. or "BWXT") which governs the U.S. Revolving Credit Facility and the Last Out Term Loans. Since June 2016, we have entered into a number of waivers and
amendments (the "Amendments") to the Amended Credit Agreement, including thoseseveral to avoid default. Asdefault under the financial and other covenants
specified in the Amended Credit Agreement.
On May 14, 2020, we entered into an agreement with our lenders amending and restating the Amended Credit Agreement. The A&R Credit Agreement refinances and extends the maturity of our revolving credit facility and Last Out Term Loans.
Under the A&R Credit Agreement, B. Riley has committed to provide the Company with up to $70.0 million of additional Last Out Term Loans on the same terms as the term loans extended under the Amended Credit Agreement. An aggregate $30.0 million of this new commitment was funded upon execution of the A&R Credit Agreement. Of the remaining commitments, at least $35.0 million will be funded in installments, subject to reduction for the gross proceeds from certain equity offerings conducted by the Company, and $5.0 million will be funded upon request by the Company. The proceeds from the $30.0 million of new term loans will be used to pay transaction fees and expenses and repay outstanding borrowings under the revolving credit facility governed by the A&R Credit Agreement (the "revolving credit facility"). Proceeds from the additional $40.0 million of term loans will be used to repay outstanding borrowings under the revolving credit facility, with any remaining amounts used for working capital, capital expenditures, permitted acquisitions and general corporate purposes.
The A&R Credit Agreement also provides that, (i) the revolving credit facility continues to be available for issuances of existing and new letters of credit, subject to the L/C Sublimit (as defined below), (ii) the $205.0 million sublimit on borrowings under the revolving credit facility is maintained, and (iii) interest payments on the unpaid principal amount of revolving credit loans incurred during the period from May 14, 2020 through and including August 31, 2020 are deferred and will be paid in six equal installments on the last business day of each calendar month beginning on January 29, 2021 and through June 30, 2021. No swing line borrowings are permitted under the A&R Credit Agreement.
The A&R Credit Agreement also amends the following terms, among others, as compared with the Amended Credit Agreement:
| |
| (i) | the maturity date of the revolving credit facility will be extended to June 30, 2022, and the maturity date of all Last Out Term Loans under the A&R Credit Agreement will be extended to December 30, 2022 (six months after the maturity date of the revolving credit facility); |
| |
| (ii) | the interest rate for loans under the revolving credit facility will be reduced to LIBOR plus 7.0% or base rate (as defined in the A&R Credit Agreement) plus 6.0%. These margins will be reduced by 2.0% if commitments under the revolving credit facility are reduced to less than $200.0 million. The fee for letters of credit will be set at 4.0%; |
| |
| (iii) | the interest rate for all Last Out Term Loans will be set at 12.0%; |
| |
| (iv) | the commitments under the revolving credit facility will automatically and permanently decrease in the following amounts on the following dates, which match the funding dates and amounts for the committed term loans: (x) $10.0 million on November 30, 2020; and (y) $5.0 million on each of March 31, 2021, June 30, 2021, September 30, 2021, December 31, 2021 and March 31, 2022, respectively; |
| |
| (v) | the amount of revolving loans and letters of credit available in currencies other than U.S. dollars will be capped at $125.0 million through April 30, 2021 and will step down to $110.0 million on May 1, 2021; and |
| |
| (vi) | the amount of financial letters of credit will be capped at $75.0 million, and the amount of all letters of credit will be capped at $190.0 million through April 30, 2021 and step down to $175.0 million on May 1, 2021 (the “L/C Sublimit”). |
Affirmative and negative covenants under the A&R Credit Agreement are substantially consistent with the Amended Credit Agreement, except that, among other changes: (i) the indebtedness covenant has been modified to permit the incurrence of any governmental assistance in the form of indebtedness in connection with COVID-19 relief in an aggregate principal amount not to exceed $10.0 million; (ii) a third-party letter of credit basket of up to $50.0 million has been added; (iii) certain liens and restricted payments are modified to permit liens and repayments of indebtedness incurred in connection with governmental assistance in connection with COVID-19 relief; and (iv) covenants related to the European Vølund EPC loss projects have been removed. The minimum required liquidity condition of $30.0 million remains constant but has been modified to exclude cash of non-loan parties in an amount in excess of $25.0 million. Certain financial covenant testing has been suspended through September 30, 2019, we were in compliance2020, with the Company and the Administrative Agent having agreed to renegotiate such covenant levels and related definitions prior to October 31, 2020.
Events of default under the A&R Credit Agreement are substantially consistent with the Amended Credit Agreement, except that: (i) B. Riley’s failure to fund any of its additional Last Out Term Loans committed under the A&R Credit Agreement will constitute an event of default; and (ii) the failure to renegotiate and set certain financial covenant testing levels and related definitions prior to October 31, 2020 will constitute an event of default.
In connection with the A&R Credit Agreement, the Company will incur certain customary amendment and commitment fees, a portion of which will be deferred pursuant to the terms of the A&R Credit Agreement along with certain previously deferred fees incurred under the Amended Credit Agreement.
B. Riley Limited Guaranty
In connection with the Company’s entry into the A&R Credit Agreement, inclusiveB. Riley has entered into the B. Riley Guaranty for the benefit of Amendments No. 16the Administrative Agent and No. 17 describedthe lenders under the revolving credit facility. The B. Riley Guaranty provides for the guarantee of all of the Company’s obligations with respect to the revolving credit facility (other than with respect to letters of credit and contingent obligations), including the obligation to repay outstanding revolving credit loans and pay earned interest and fees. The B. Riley Guaranty is enforceable in certain circumstances, including, among others: (i) B. Riley’s failure to timely fund in full any of its additional Last Out Term Loans committed under the A&R Credit Agreement; (ii) certain events of default relating to bankruptcy or insolvency occurring with respect to B. Riley; (iii) the acceleration of the Company’s borrowings under the revolving credit facility; (iv) the Company’s failure to pay any amount due to the Administrative Agent or any lender under the revolving credit facility; or (v) any assertion that the B. Riley Guaranty or any portion thereof is not valid, binding or enforceable.
In connection with the B. Riley Guaranty, the Company entered into a fee letter with B. Riley pursuant to which the Company agreed to pay B. Riley a fee of $3.9 million (the “B. Riley Guaranty Fee”). On June 8, 2020 and June 30, 2020, the company issued 1,712,479 shares of common stock and 1,192,371 shares of common stock, respectively, to B. Riley and certain of its affiliates in settlement of the B. Riley Guaranty Fee in connection with the Fee and Interest Equitization Agreement discussed below.
On April 5, 2019, weFee and Interest Equitization Agreement
In connection with the B. Riley Guaranty, the Company entered into Amendment No. 16 toa Fee and Interest Equitization Agreement (the “Equitization Agreement”) with B. Riley and, solely for certain limited purposes under the Amended Credit Agreement. Amendment No. 16 provides (i) $150.0 million in additional commitments fromEquitization Agreement, B. Riley FBR, Inc.
The Equitization Agreement provides that, in lieu of receiving (a) $13.4 million of interest payments with respect to Last Out Term Loans under the A&R Credit Agreement between May 14, 2020 and December 31, 2020 (the “Equitized Interest Payments”) and (b) the B. Riley Guaranty Fee (the “Equitized Fee Payment” and, together with the Equitized Interest Payments, the “Equitized Fees and Interest Payments”), B. Riley will receive shares of the Company’s common stock.
Under the Equitization Agreement, B. Riley will receive a number of shares of common stock equal to (i) the aggregate dollar value of the Equitized Fees and Interest Payments divided by (ii) the Conversion Price. For purposes of the Equitization Agreement, the “Conversion Price” means the average volume weighted average price of the common stock over 15
consecutive trading days beginning on and including May 15, 2020 (the “Measurement Period”), subject to customary adjustments. For purposes of the listing requirements of the New York Stock Exchange (the "NYSE"), the Equitization Agreement sets a minimum for the Conversion Price of $1.55 per share of common stock, unless and until approval is obtained from the Company’s stockholders under Tranche A-3the rules of last out term loans described in Note 14 and (ii) an incremental uncommitted facilitythe NYSE. On June 5, 2020, the conversion price was calculated at $2.2774 per share.
The Company is required under the Equitization Agreement to use its reasonable best efforts to take all actions to obtain any necessary stockholder approval under the rules of upthe NYSE for the issuance of the Shares. B. Riley has agreed to $15.0 million, to be providedcause all shares of common stock beneficially owned by B. Riley or an assignee.
Amendment No. 16to be voted in favor of any proposal presented to the Amended Credit Agreement also created a new event of default for failure to terminate the existing revolving credit facility on or prior to March 15, 2020, which effectively accelerated the maturity dateCompany’s stockholders seeking approval of the issuance of shares pursuant to the Equitization Agreement. The required stockholder
approvals were obtained at the Company’s 2020 annual meeting of stockholders held on June 16, 2020.
U.S. Revolving Credit Facility from
As of June 30, 2020. As of September 30, 2019,2020, the U.S. Revolving Credit Facility provides for a senior secured revolving credit facility in an aggregate amount of up to $340.0$326.9 million, (reduced to $337.8 million in October 2019 as a result of the sale of an asset), as amended and adjusted for completed asset sales. The proceeds from loans under the U.S. Revolving Credit Facility are available for working capital needs, capital expenditures, permitted acquisitions and other general corporate purposes, and the full amount is available to support the issuance of letters of credit, subject to the limits specified in the amendment described below.agreement.
On August 7, 2019, we entered into Amendment No. 17 to the Amended Credit Agreement, which clarifies the definition cumulatively through Amendment No. 16As of the amounts that can be usedJune 30, 2020, in calculating the loss basket for certain Vølund contracts and resets the loss basket for certain Vølund contracts to $15.0 million to align with the clarification commencing with the quarter ended March 31, 2019.
The Amended Credit Agreement and our cash management agreements with our lenders and their affiliates continue to be (1) guaranteed by substantially all of our wholly owned domestic subsidiaries and certain of our foreign subsidiaries, but excluding our captive insurance subsidiary, and (2) secured by first-priority liens on certain assets owned by us and the guarantors. The U.S. Revolving Credit Facility requires interest payments on revolving loans on a periodic basis until maturity. We may prepay all loans at any time without premium or penalty (other than customary LIBOR breakage costs), subject to notice requirements, with the exception to the prepayment of certain Last Out Term Loans pursuant to the Equitization Transactions described in Note 18; such Last Out Term Loan prepayments were limited by an aggregate principal amount of $86 million plus interest. The U.S. Revolving Credit Facility requires certain prepayments on any outstanding revolving loans after receipt of cash proceeds from certain asset sales or other events, subject to certain exceptions. Such prepayments may require us to reduce the commitments under the U.S. Revolving Credit Facility by a corresponding amount of such prepayments.
After giving effect to the Amendments through September 30, 2019, revolving loans outstanding under the U.S. Revolving Credit Facility bear interest at our option at either (1) the LIBOR rate plus 6.0% per annum during 2019 and 7.0% per annum during 2020, or (2) the Base Rate plus 5.0% per annum during 2019, and 6.0% per annum during 2020. The Base Rate is the highest of the Federal Funds rate plus 0.5%, the one-month LIBOR rate plus 1.0%, or the administrative agent's prime rate. The components of our interest expense are detailed in Note 19. A commitment fee of 1.0% per annum is charged on the unused portions of the U.S. Revolving Credit Facility. Additionally, an annual facility fee of $1.5 million was paid on the first business day of 2019, and a pro-rated amount is payable on the first business day of 2020. A deferred fee reduction from 2.5% to 1.5% became effective October 10, 2018, due to achieving certain asset sales. A letter of credit fee of 2.5% per annum is charged with respect to the amount of each financial letter of credit outstanding, and a letter of credit fee of 1.5%
per annum is charged with respect to the amount of each performance and commercial letter of credit outstanding. Letter of credit fees are payable on the tenth business day after the last business day of each fiscal quarter.
In connection with Amendment No. 16, a contingent consent fee of $13.9 million (4.0% of total availability) is payable on December 15, 2019, but will be waived if certain actions are undertaken to refinance the facility by that date. We recorded the contingent consent fee as part of deferred financing fees in other current assets in the Condensed Consolidated Balance Sheets because it has been earned but may be waived, and it is being amortized to interest expense. See further discussion in Note 19. Amendment No. 16 to the U.S. Revolving Credit Facility also established awe have accrued deferred ticking fee costs of 1.0% of total availability$6.7 million due to certain required actions that is payable if certain actions arewere not undertaken to refinance the facilitycompleted by December 15, 2019, in addition to an incremental 1.0% per month after December 15, 2019. No expense has been recognized for the deferred ticking fee because the Company believes it is not probable of being earned by the lenders.
The Amended Credit Agreement includes financial covenants that are tested on a quarterly basis, based on the rolling four-quarter period that ends on the last day of each fiscal quarter. These include a maximum permitted senior debt leverage ratio and a minimum consolidated interest coverage ratio, each as defined in the Amended Credit Agreement. Compliance with these ratios was waived with respect to the quarter ended December 31, 2018 and new ratios were established in Amendment No. 16 commencing with the quarter ended March 31, 2019. Amendment No. 16 also, among other items, (1) modifies the definition of EBITDA in the Credit Agreement to, among other things, include addbacks related to losses in connection with the Vølund projects, fees and expenses related to the Amendment and prior waivers to the Credit Agreement and fees associated with Vølund project related settlement agreements, (2) reduces to $30 million the minimum liquidity we are required to maintain at the time of any credit extension request and at the last business day of any calendar month, (3) allows for the issuance of up to $20.0 million of new letters of credit with respect to any future Vølund project, (4) changes the consolidated interest coverage and senior leverage coverage covenant ratios, (5) decreases the relief period borrowing sublimit, (6) changes or removes certain contract completion milestones that we had been required to meet in connection with one renewable energy project, (7) permits letters of credit to expire one year after the maturity of the revolving credit facility, (8) creates a new event of default for failure to terminate the existing revolving credit facility on or prior to March 15, 2020, (9) establishes a deferred ticking fee of 1.0% if certain actions are not undertaken to refinance the facility by December 15, 2019, in addition to an incremental 1.0% per month after December 15, 2019 and (10) provides for a contingent consent fee of 4.0% if certain actions are not undertaken to refinance the facility by December 15, 2019. Amendment No. 17, among other items, (1) clarifies from Amendment No. 16 the definition of the amounts that can be used in calculating the loss basket for certain Vølund contracts, and (2) resets the loss basket for certain Vølund contracts to $15.0 million to align with the clarification commencing with the quarter ending March 31, 2019.
Effective beginning April 5, 2019 with Amendment No. 16, the remaining maximum permitted senior debt leverage ratios, as defined in the Amended Credit Agreement, are as follows:
•6.75:1.00 for the quarter ending September 30, 2019
•6.00:1.00 for the quarter ending December 31, 2019
•3.50:1.00 for the quarter ending March 31, 2020
•3.25:1.00 for the quarter ending June 30, 2020
Effective beginning April 5, 2019 with Amendment No. 16, the remaining minimum consolidated interest coverage ratios, as defined in the Amended Credit Agreement, are as follows:
•1.10:1.00 for the quarter ending September 30, 2019
•1.10:1.00 for the quarter ending December 31, 2019
•1.50:1.00 for the quarter ending March 31, 2020
•1.75:1.00 for the quarter ending June 30, 2020
At SeptemberJune 30, 2019,2020, borrowings under the U.S. Revolving Credit Facility consisted of $191.7$164.7 million at a weighted average interest rate of 8.95%7.53%. Usage under the U.S. Revolving Credit Facility consisted of $191.7$164.7 million of revolving loan borrowings, $27.0$25.0 million of financial letters of credit and $98.0$95.4 million of performance letters of credit. At SeptemberJune 30, 2019,2020, we had approximately $23.3$41.8 million available to meet letter of credit requirements based on our overall facility size, of which $18.3$40.3 million was available for additional borrowings under our sublimit.
Foreign Revolving Credit Facilities
Outside of the United States, we had revolving credit facilities in Turkey that were used to provide working capital to local operations. At December 31, 2018, we had aggregate borrowings under these facilities of $0.6 million whose weighted average interest rate was 40.0%. In 2018, our banking counterparties in Turkey began requiring the conversion of these revolving credit facilities to be denominated in Turkish liras instead of euros, resulting in correspondingly higher market interest rates. As of January 4, 2019, the foreign revolving credit facilities were paid in full and closed.
Letters of Credit, Bank Guarantees and Surety Bonds
Certain subsidiaries primarily outside of the United States have credit arrangements with various commercial banks and other financial institutions for the issuance of letters of credit and bank guarantees in association with contracting activity. The aggregate value of all such letters of credit and bank guarantees opened outside of the U.S. Revolving Credit Facility as of SeptemberJune 30, 20192020 and December 31, 20182019 was $97.7$81.7 million and $175.9$88.5 million, respectively. The aggregate value of the letters of credit provided by the U.S. Revolving Credit Facility backstopping letters of credit or bank guarantees was $34.4$30.7 million as of SeptemberJune 30, 2019.2020. Of the letters of credit issued under the U.S. Revolving Credit Facility, $31.5$35.2 million are subject to foreign currency revaluation.
We have posted surety bonds to support contractual obligations to customers relating to certain contracts. We utilize bonding facilities to support such obligations, but the issuance of bonds under those facilities is typically at the surety's discretion. These bonds generally indemnify customers should we fail to perform our obligations under the applicable contracts. We, and certain of our subsidiaries, have jointly executed general agreements of indemnity in favor of surety underwriters relating to surety bonds those underwriters issue in support of some of our contracting activity. As of SeptemberJune 30, 2019,2020, bonds issued and outstanding under these arrangements in support of contracts totaled approximately $218.5$272.0 million. The aggregate value of the letters of credit provided by the U.S. Revolving Credit facility backstopping surety bonds was $22.7$31.7 million.
Our ability to obtain and maintain sufficient capacity under our U.S. Revolving Credit Facility is essential to allow us to support the issuance of letters of credit, bank guarantees and surety bonds. Without sufficient capacity, our ability to support contract security requirements in the future will be diminished.
NOTE 14 – LAST OUT TERM LOANS
The components of the Last Out Term Loans by Tranche are as follows:
| | | | September 30, 2019 | December 31, 2018 | June 30, 2020 |
| (in thousands) | A-3 | A-1 | A-3 | A-4 | A-6 | Total |
Proceeds (1) | $ | 101,660 |
| $ | 30,000 |
| $ | 101,660 |
| $ | 30,000 |
| $ | 30,000 |
| $ | 161,660 |
|
| Discount and fees | 8,650 |
| 5,111 |
| 8,650 |
| — |
| — |
| 8,650 |
|
| Paid-in-kind interest | 3,020 |
| 132 |
| 3,020 |
| — |
| — |
| 3,020 |
|
| Principal | 113,330 |
| 35,243 |
| |
| Unamortized discount and fees | (11,442 | ) | (4,594 | ) | |
| Net debt balance | $ | 101,888 |
| $ | 30,649 |
| $ | 113,330 |
| $ | 30,000 |
| $ | 30,000 |
| $ | 173,330 |
|
(1) Tranche A-3 proceeds represent the net proceeds after the $39.7 million principal prepayment of the tranche as of July 23, 2019, the date of the Equitization TransactionsTransactions.
|
| | | |
| | December 31, 2019 |
| (in thousands) | A-3 |
Proceeds (1) | $ | 101,660 |
|
| Discount and fees | 8,650 |
|
| Paid-in-kind interest | 3,020 |
|
| Principal | 113,330 |
|
| Unamortized discount and fees | (9,377 | ) |
| Net debt balance | $ | 103,953 |
|
(1) Tranche A-3 proceeds represent the net proceeds after the $39.7 million principal prepayment of the tranche as discussed below.of July 23, 2019, the date of the Equitization Transactions.
Last Out Term Loans are incurred under our AmendedA&R Credit Agreement and are pari passu with the U.S. Revolving Credit Facility except for certain payment subordination provisions. The Last Out Term Loans are subject to the same representations and warranties, covenants and events of default underas the Amended Credit Agreement. In connection with Amendment No. 16, the maturity date for all Last Out Term Loans was extended to December 31, 2020. As of September 30, 2019 and December 31, 2018, the Last Out Term Loans' net carrying values are presented as a current liability in our Condensed Consolidated Balance Sheets due to the uncertainty of our ability to refinance our U.S. Revolving Credit Facility as required by the Amended Credit Agreement (as described above).
Until July 22, 2019, after giving effect to Amendment No. 16, all outstanding Last Out Term Loans bear interest at a fixed rate per annum of 15.5% per annum. of which 7.5% is payable in cash and 8% is payable in kind. As of September 30, 2019, and
after giving effect to the completion of the 2019 Rights Offering (as defined below) on July 23, 2019, the interest rate on the Tranche A-3 Last Out Term Loans under the Amended Credit Agreement is a fixed rate per annum of 12% payable in cash. The total effective interest rate of Tranche A-3 was 20.64% on September 30, 2019. The total effective interest rate of Tranche A-1 was 25.38% on December 31, 2018. Interest expense associated with the Last Out Term Loans is detailed in Note 19.
Tranche A-1
We borrowed $30.0 million of net proceeds under Tranche A-1 of the Last Out Term Loans from B. Riley FBR, Inc., a related party, in three draws in September and October 2018. In November 2018, Tranche A-1 was assigned to Vintage Capital Management, LLC ("Vintage"), also a related party. The original face principal amount of Tranche A-1 is $30.0 million, which excludes a $2.0 million up-front fee that was added to the principal balance on the first funding date, transaction expenses, paid-in-kind interest, and original issue discounts of 10% for each draw under Tranche A-1.
On April 5, 2019, Amendment No. 16 and the Letter Agreement (defined in Note 18) modified Tranche A-1 by adding a substantive conversion option that required the conversion of the Tranche A-1 to common stock at $0.30 per share in connection with the Equitization Transactions described in Note 18, which was conditioned upon, among other things, the closing of the 2019 Rights Offering and shareholder approval.Facility. Under U.S. GAAP, a debt modification with the same borrower that results in substantially different terms is accounted for as an extinguishment of the existing debt and a reborrowing of new debt. An extinguishment gain or loss is then recognized based on the fair value of the new debt as compared to the carrying value of the extinguished debt. The carrying value of the Tranche A-1 was $33.3 million on April 5, 2019 before the modification. The initial fair value of the new debt was estimated to be its initial principal value of $37.3 million. WeCompany recognized a loss on debt extinguishment of $4.0$6.2 million in the quarter ended June 30, 2019,2020, primarily representing the unamortized value of the original issuance discount and fees on the extinguished debt.Tranche A-3 Last Out Term Loan. In connection with the effectiveness of the A&R Credit Agreement, the maturity date for the Last Out Term Loans was extended to December 30, 2022.
On June 30, 2020, the company issued 1,192,371 shares of common stock to B. Riley in settlement of the quarterly interest payable in connection with the Fee and Interest Equitization Agreement further discussed in Note 13.
The total effective interest rate of Tranche A-3, Tranche A-4 and Tranche A-6 was 12.0% on June 30, 2020. The interest ratesrate on the Last Out Term Loans under the A&R Credit Agreement is a fixed rate per annum of 12.0%. Interest expense associated with the Last Out Term Loans is detailed in Note 15.
Tranche A-1
We borrowed $30.0 million of net proceeds under Tranche A-1 of the Last Out Term Loans from B. Riley, a related party, in September and October of 2018. In November 2018, Tranche A-1 was assigned to Vintage, also a related party. As part of the Equitization Transactions in July 2019, the outstanding principal of Tranche A-1 are described above. As described in Note 18, Tranche A-1of the Last Out Term Loans including accrued paid-in-kind interest remaining as of March 31, 2019 was exchanged for shares on July 23, 2019, after which no remaining amounts were outstanding.of common stock.
Tranche A-2
On March 19, 2019, we entered into an amendment and limited waiver ("Amendment No. 15") to our Amended Credit Agreement, which allowed us to borrowWe borrowed $10.0 million of net proceeds from B. Riley, a related party, under a Tranche A-2 of Last Out Term Loans which were fully borrowed onfrom B. Riley, a related party in March 20, 2019. Interest rates were adjusted with Amendment No. 16 as described above. Interest rates of Tranche A-2 are described above. As described in Note 18, Tranche A-2 was fully repaid on July 23, 2019 with proceeds from the 2019 Rights Offering as part of the Equitization Transactions.Transactions in July 2019.
Tranche A-3
Under Amendment No. 16 to our Amended Credit Agreement, we borrowed $150.0 million face value from B. Riley, a related party, under a Tranche A-3 of Last Out Term Loans. The $141.4 million net proceeds from Tranche A-3 were primarily used to pay the amounts due under the settlement agreements covering certain European Vølund loss projects as described in Note 4, with the remainder used for working capital and general corporate purposes. Tranche A-3 included an original issue discount of 3.2% of the gross cash proceeds. An additional discount was recorded upon shareholder approval of the warrants and Equitization Transactions. These additional discounts totaled $8.1 million, which included $6.1 million for the estimated fair value of warrants issued to B. Riley, a related party, as described in Note 15 and Note 18 and $2.0 million for the intrinsic value of the beneficial conversion feature that allows conversion of a portion of the Tranche A-3 to equity under the Backstop Commitment described in Note 18. Both the warrants and the Backstop Commitment were contemplated in connection of the original extension of Tranche A-3.
Interest rates for Tranche A-3 are described above. Tranche A-3 may be prepaid, subject to the subordination provisions under the Equitization TransactionsAmended Credit Agreement as described above, and in Note 18, but not re-borrowed. As part of the July 23, 2019 Equitization Transactions, described in Note 18, the total prepayment of principal of Tranche A-3 of the Last Out Term Loans was $39.7 million.
Tranche A-4
On January 31, 2020, we entered into Amendment No. 20 to the Amended Credit Agreement. Amendment No. 20 provides $30.0 million inclusiveof additional commitments from B. Riley, a related party, under a new Tranche A-4 of Last Out Term Loans. The proceeds from Tranche A-4 may be used under the terms of Amendment No. 20 to repay revolving credit loans, for working capital and general corporate purposes, and to reimburse certain expenses of B. Riley as specified by Amendment No. 20. The terms of Tranche A-4 are the same as the terms for the Tranche A-3 under the Amended Credit Agreement.
As of January 31, 2020, we borrowed $30.0 million face value of the $8.2Tranche A-4 and received net proceeds of $26.3 million after incurring total fees of $3.7 million related to Amendment No, 20 described above.
Tranche A-5
On January 31, 2020, we entered into Amendment No. 20 to the Amended Credit Agreement. Amendment No. 20 provides an incremental Tranche A-5 of Last Out Term Loans to be extended prior to maturity of the Last Out Term Loans under the Amended Credit Agreement in the event certain customer letters of credit are drawn. The terms of Tranche A-5 are the same as the terms for the Tranche A-3 under the Amended Credit Agreement. As of August 12, 2020, no borrowings have occurred under Tranche A-5.
Tranche A-6
The A&R Credit Agreement provided us with up to $70.0 million of principaladditional funding in the form of Tranche A-6 Last Out Term Loans from B. Riley, a related party, as more fully described in Note 13. An aggregate $30.0 million of this new commitment was funded upon execution of the A&R Credit Agreement. The $35.0 million will be funded in installments, subject to reduction for the gross proceeds from certain equity offerings conducted by the Company. The remaining $5.0 million will be available upon request by the Company.
On May 14, 2020, we borrowed $30.0 million face value exchangedof the Tranche A-6 and received gross proceeds of $30.0 million related to the A&R Credit Agreement that is more fully described in Note 13.
Tranche A-7
The A&R Credit Agreement provided us with up to $50.0 million of additional funding for common sharesletters of credit in the form of Tranche A-7 Last Out Term Loans from B. Riley, a related party, as more fully described in Note 13. The $50.0 million will be available upon request by the Company, subject to certain limitations. As of August 12, 2020, no borrowings have occurred under the Backstop Commitment.Tranche A-7.
NOTE 15– WARRANTS
On July 23, 2019, 1,666,667 warrants were issued to certain entities affiliated with B. Riley in connection with the Equitization Transactions described in Note 18. Each warrant can be converted to one share of our common stock at an exercise price of $0.01 per share. As of September 30, 2019, 1,666,667 warrants remain unexercised.
The warrants were contemplated in the April 5, 2019 Letter Agreement (defined in Note 18) and on June 14, 2019, the issuance of the warrants was approved by stockholders in the Company's annual stockholder meeting, which established the grant date for accounting purposes. The grant date fair value of the warrants was estimated to be $6.1 million using the Black-Scholes option pricing model. The warrants may not be put back to the Company for cash, and they qualify for equity classification. The grant date value of the warrants was included as part of the original-issue discount based on the relative fair value method for Tranche A-3 of the Last Out Term Loans described in Note 14 because the value was part of the consideration required by the Tranche A-3 lender in order to extend the Tranche A-3 loans.
The Black-Scholes option pricing model key assumptions are as follows:
|
| | | |
Stock price (1) | $ | 0.385 |
|
| Exercise price | $ | 0.010 |
|
| Time to expiration | 3 years |
|
| Annualized volatility | 121.00 | % |
| Annual rate of quarterly dividends | — | % |
| Discount rate - bond equivalent rate | 2.30 | % |
| Expiration of option | April 5, 2022 |
|
| Warrant value | $ | 0.38 |
|
(1) The stock price is the April 5, 2019 closing price, the date the Black-Scholes option pricing model was performed. The stock price used in the model was not adjusted for the one-for-ten reverse stock split.
NOTE 16– COMMON SHARES
On June 14, 2019, after approval of the stockholders at the Company's annual meeting of stockholders, the Company amended its Amended and Restated Certificate of Incorporation to increase the authorized number of shares of the Company's common stock from 200,000,000 shares to 500,000,000 shares to allow for the Equitization Transactions described in Note 18. The reverse stock split on July 24, 2019, described in Note 1 did not affect the number of authorized shares.
On June 14, 2019, at the Company's annual meeting of stockholders, upon the recommendation of the Company's Board of Directors, the stockholders approved the Babcock & Wilcox Enterprises, Inc. Amended and Restated 2015 Long-Term Incentive Plan (amended and restated as of June 14, 2019) (the "Fourth Amended and Restated 2015 LTIP"), which became effective upon such stockholder approval. The Fourth Amended and Restated 2015 LTIP, among other immaterial changes, increases the number of shares available for awards by 1,700,000 shares to a total of 2,927,173 shares of the Company's common stock, subject to adjustment as provided under the plan document. The increase in the maximum number of shares available for awards will allow us to establish the previously announced equity pool of 1,666,666 shares of its common stock for issuance for long-term incentive planning purposes.
NOTE 17 – RIGHTS OFFERINGS
2019 Rights Offering
On June 28, 2019, we distributed to holders of our common stock one nontransferable subscription right to purchase 0.986896 common shares for each common share held as of 5:00 p.m., New York City time, on June 27, 2019 at a subscription price of $0.30 per whole share of common stock (the "2019 Rights Offering"). The 2019 Rights Offering expired at 5:00 p.m., New York City time, on July 18, 2019, and settled on July 23, 2019. The Company did not issue fractional rights or pay cash in lieu of fractional rights. The 2019 Rights Offering did not include an oversubscription privilege. Direct costs of the 2019 Rights Offering totaled $0.7 million for the nine months ended September 30, 2019.
The 2019 Rights Offering resulted in the issuance of 13.9 million common shares as a result of the exercise of subscription rights in the offering. Gross proceeds from the 2019 Rights Offering were $41.8 million, $10.3 million which was used to fully repay Tranche A-2 of the Last Out Term Loans and the remaining $31.5 million was used to reduce outstanding borrowings under Tranche A-3 of the Last Out Term Loans. Concurrently with the closing of the 2019 Rights Offering, and in satisfaction of the Backstop Commitment as described in Note 18, the Company issued an aggregate of 2.7 million common shares in exchange for a portion of the Tranche A-3 Last Out Term Loans totaling $8.2 million, to B. Riley, a related party, as
described in Note 24. The 2019 Rights Offering was pursuant to the April 5, 2019 Letter Agreement and the Equitization Transactions described in Note 18 and were approved by stockholders at the Company's annual stockholder meeting on June 14, 2019.
2018 Rights Offering
On March 19, 2018, we distributed to holders of our common stock one nontransferable subscription right to purchase 1.4 common shares for each common share held as of 5:00 p.m., New York City time, on March 15, 2018 at a price of $3.00 per common share (the "2018 Rights Offering"). On April 10, 2018, we extended the expiration date and amended certain other terms regarding the 2018 Rights Offering. As amended, each right entitled holders to purchase 2.8 common shares at a price of $2.00 per share. The 2018 Rights Offering expired at 5:00 p.m., New York City time, on April 30, 2018. The Company did not issue fractional rights or pay cash in lieu of fractional rights. The 2018 Rights Offering did not include an oversubscription privilege.
The 2018 Rights Offering resulted in the issuance of 12.4 million common shares on April 30, 2018. Gross proceeds from the 2018 Rights Offering were $248.4 million. Of the proceeds received, $214.9 million was used to fully repay the Second Lien Credit Agreement, including $2.3 million of accrued interest, and the remainder was used for working capital purposes. Direct costs of the 2018 Rights Offering totaled $3.3 million. The shares issued in the 2018 Rights Offering were then subject to the one-for-ten reverse stock split described in Note 1.
NOTE 18 – EQUITIZATION TRANSACTIONS
In connection with Amendment No. 16 to the Amended Credit Agreement and the extension of Tranche A-3 of the Last Out Term Loans, the Company, B. Riley and Vintage, each related parties, entered into the "Letter Agreement" on April 5, 2019, pursuant to which the parties agreed to use their reasonable best efforts to effect a series of equitization transactions for a portion of the Last Out Term Loans, subject to, among other things, stockholder approval. Stockholder approval was received at the Company's annual stockholder meeting on June 14, 2019 and the contemplated transactions (the "Equitization Transactions") occurred on July 23, 2019. The Equitization Transactions included:
A $50.0 million rights offering ("2019 Rights Offering") as described in Note 17, for which B. Riley FBR, Inc. agreed to act as a backstop, by purchasing from us, at a price of $0.30 per share, all unsubscribed shares in the 2019 Rights Offering for cash or by exchanging an equal principal amount of outstanding Tranche A-2 or Tranche A-3 Last Out Term Loans (the "Backstop Commitment"). Under the 2019 Rights Offering, 16,666,666 shares of common stock were issued, of which 12,589,170 shares were purchased through the exercise of rights in the rights offering generating $37.8 million of cash, 1,333,333 shares were issued through assigned portions of the Backstop Commitment generating an additional $4.0 million of cash, and the final 2,744,163 shares were exchanged for $8.2 million of principal value including accrued paid-in-kind interest of Tranche A-3 Last Out Term Loans.
$10.3 million of the proceeds of 2019 Rights Offering were used to fully repay Tranche A-2 of the Last Out Term Loans including accrued paid-in-kind interest.
$31.5 million of the proceeds of the 2019 Rights Offering were used to partially prepay Tranche A-3 of the Last Out Term Loans including paid-in-kind interest. The total prepayment of principal of Tranche A-3 of the Last Out Term Loans was $39.7 million inclusive of the $8.2 million of principal value exchanged for common shares under the Backstop Commitment described above.
All $38.2 million of outstanding principal of Tranche A-1 of the Last Out Term Loans including accrued paid-in-kind interest was exchanged for 12,720,785 shares of common stock (10,720,785 shares to Vintage and 2,000,000 shares to affiliates of B. Riley) at a price of $0.30 per share (the "Debt Exchange"). Prior to the Debt Exchange, $6.0 million of Tranche A-1 was held by affiliates of B. Riley and the remainder was held by Vintage.
1,666,667 warrants, each to purchase one share of our common stock at an exercise price of $0.01 per share were issued to B. Riley.
Immediately after completion of the Equitization Transactions, Tranches A-1 and A-2 of the Last Out Term Loans were fully extinguished, and Tranche A-3 of the Last Out Term Loans had a balance of $114.0 million, including accrued paid-in-kind interest, which bears interest at a fixed rate of 12.0% per annum payable in cash and continues to bear the other terms described in Note 14. Based on Schedule 13D filings made by B. Riley and Vintage, after completion of the Equitization Transactions, Vintage increased its beneficial ownership in us to 32.8% and B. Riley increased its beneficial ownership in us to 18.4% inclusive of the outstanding warrants held by B. Riley.
NOTE 1915 –INTEREST EXPENSE AND SUPPLEMENTAL CASH FLOW INFORMATION
In addition to non-cash items described in the Condensed Consolidated Statements of Cash Flows, we also recognized non-cash changes in our Condensed Consolidated Balance Sheets related to interest expense as described below:
|
| | | | | | |
| | Nine months ended September 30, |
| (in thousands) | 2019 | 2018 |
| Accrued capital expenditures in accounts payable | $ | 62 |
| $ | 23 |
|
| Accreted interest expense on our Second Lien Term Loan Facility | $ | — |
| $ | 3,202 |
|
The following cash activity is presented as a supplement to Condensed Consolidated Statements of Cash Flows and is included in Net cash used in operations:
|
| | | | | | |
| | Nine months ended September 30, |
| (in thousands) | 2019 | 2018 |
| Income tax payments (refunds), net | $ | 304 |
| $ | 3,440 |
|
| | | |
| Interest payments on our U.S. Revolving Credit Facility | $ | 9,748 |
| $ | 9,200 |
|
| Interest payments on our Last Out Term Loans | 4,909 |
| — |
|
| Interest payments on our Second Lien Term Loan Facility | — |
| 7,627 |
|
| Total cash paid for interest | $ | 14,657 |
| $ | 16,827 |
|
Interest expense in our Condensed Consolidated Financial Statements consisted of the following components:
|
| | | | | | | | | | | | |
| | Three months ended September 30, | Nine months ended September 30, |
| (in thousands) | 2019 | 2018 | 2019 | 2018 |
| Components associated with borrowings from: | | | | |
| U.S. Revolving Credit Facility | $ | 4,292 |
| $ | 3,879 |
| $ | 11,644 |
| $ | 9,658 |
|
| Last Out Term Loans - cash interest | 3,613 |
| 38 |
| 7,732 |
| 38 |
|
| Last Out Term Loans - paid-in-kind interest | 1,024 |
| 83 |
| 5,964 |
| 83 |
|
| Second Lien Term Loan Facility | — |
| — |
| — |
| 7,460 |
|
| Foreign Revolving Credit Facilities | — |
| 157 |
| — |
| 436 |
|
| | 8,929 |
| 4,157 |
| 25,340 |
| 17,675 |
|
| Components associated with amortization or accretion of: | | | | |
| U.S. Revolving Credit Facility - deferred financing fees and commitment fees | 8,836 |
| 6,104 |
| 22,985 |
| 14,419 |
|
U.S. Revolving Credit Facility - contingent consent fee for Amendment 16 (1) | 5,011 |
| — |
| 9,686 |
| — |
|
| Last Out Term Loans - discount and financing fees | 6,445 |
| 49 |
| 8,514 |
| 49 |
|
| Second Lien Term Loan Facility - discount and financing fees | — |
| — |
| — |
| 3,202 |
|
| | 20,292 |
| 6,153 |
| 41,185 |
| 17,670 |
|
| | | | | |
| Other interest expense | 242 |
| 109 |
| 909 |
| 403 |
|
| | | | | |
| Total interest expense | $ | 29,463 |
| $ | 10,419 |
| $ | 67,434 |
| $ | 35,748 |
|
| |
(1)
| As described in Note 13, in connection with Amendment No. 16, a contingent consent fee of $13.9 million (4.0% of total availability) is payable on December 15, 2019, but will be waived if certain actions are undertaken to refinance the facility by that date. We recorded the contingent consent fee as |
part of deferred financing fees in other current assets in the Condensed Consolidated Balance Sheets because it has been earned but may be waived, and it is being amortized to interest expense through December 15, 2019. Amendment No. 16 to the U.S. Revolving Credit Facility also established a deferred ticking fee of 1.0% of total availability that is payable if certain actions are not undertaken to refinance the facility by December 15, 2019, in addition to an incremental monthly fee of 1.0% of total availability of the U.S. Revolving Credit Facility after December 15, 2019. No expense has been recognized for the deferred ticking fee because the company believes it is not probable of being earned by the lenders. |
| | | | | | | | | | | | |
| | Three months ended June 30, | Six months ended June 30, |
| (in thousands) | 2020 | 2019 | 2020 | 2019 |
| Components associated with borrowings from: | | | | |
| U.S. Revolving Credit Facility | $ | 3,409 |
| $ | 3,801 |
| $ | 7,448 |
| $ | 7,351 |
|
| Last Out Term Loans - cash interest | 4,828 |
| 3,606 |
| 8,875 |
| 4,119 |
|
| Last Out Term Loans - paid-in-kind interest | — |
| 3,881 |
| — |
| 4,941 |
|
| | 8,237 |
| 11,288 |
| 16,323 |
| 16,411 |
|
| Components associated with amortization or accretion of: | | | | |
| U.S. Revolving Credit Facility - deferred financing fees and commitment fees | 3,629 |
| 8,880 |
| 12,664 |
| 14,149 |
|
| United States revolving credit facility contingent consent fee for Amendment 16 | — |
| 4,674 |
| — |
| 4,674 |
|
| U.S. Revolving Credit Facility - deferred ticking fee for Amendment 16 | 2 |
| — |
| 1,660 |
| — |
|
| Last Out Term Loans - discount and financing fees | 1,579 |
| 1,479 |
| 3,729 |
| 2,069 |
|
| | 5,210 |
| 15,033 |
| 18,053 |
| 20,892 |
|
| | | | | |
| Other interest expense | 2,035 |
| 516 |
| 3,197 |
| 668 |
|
| | | | | |
| Total interest expense | $ | 15,482 |
| $ | 26,837 |
| $ | 37,573 |
| $ | 37,971 |
|
The following table provides a reconciliation of cash, cash equivalents and restricted cash reporting within the Condensed Consolidated Balance Sheets that sum to the total of the same amounts in the Condensed Consolidated Statements of Cash Flows:
| | | (in thousands) | September 30, 2019 | December 31, 2018 | September 30, 2018 | December 31, 2017 | June 30, 2020 | December 31, 2019 | June 30, 2019 | December 31, 2018 |
| Held by foreign entities | $ | 30,590 |
| $ | 35,522 |
| $ | 25,838 |
| $ | 42,490 |
| $ | 34,676 |
| $ | 38,921 |
| $ | 30,932 |
| $ | 35,522 |
|
| Held by United States entities | 1,473 |
| 7,692 |
| 6,645 |
| 1,227 |
| |
| Held by U.S. entities | | 2,139 |
| 4,851 |
| 4,258 |
| 7,692 |
|
| Cash and cash equivalents of continuing operations | 32,063 |
| 43,214 |
| 32,483 |
| 43,717 |
| 36,815 |
| 43,772 |
| 35,190 |
| 43,214 |
|
| | | |
| Reinsurance reserve requirements | 8,802 |
| 11,768 |
| 13,390 |
| 21,061 |
| 5,596 |
| 9,318 |
| 5,350 |
| 11,768 |
|
| Restricted foreign accounts | 2,480 |
| 5,297 |
| 6,299 |
| 4,919 |
| 2,661 |
| 3,851 |
| 3,830 |
| 5,297 |
|
| Bank guarantee collateral | | 3,044 |
| — |
| — |
| — |
|
| Restricted cash and cash equivalents | 11,282 |
| 17,065 |
| 19,689 |
| 25,980 |
| 11,301 |
| 13,169 |
| 9,180 |
| 17,065 |
|
| Total cash, cash equivalents and restricted cash of continuing operations shown in the Condensed Consolidated Statements of Cash Flows | $ | 43,345 |
| $ | 60,279 |
| $ | 52,172 |
| $ | 69,697 |
| |
| | | |
| Total cash and cash equivalents of discontinued operations | $ | — |
| $ | — |
| $ | 17,646 |
| $ | 12,950 |
| |
| Total cash, cash equivalents and restricted cash shown in the Condensed Consolidated Statements of Cash Flows | | $ | 48,116 |
| $ | 56,941 |
| $ | 44,370 |
| $ | 60,279 |
|
Our U.S. Revolving Credit Facility described in Note 13 allows for nearly immediate borrowing of available capacity to fund cash requirements in the normal course of business, meaning that the minimum United States cash on hand is maintained to minimize borrowing costs.
The following cash activity is presented as a supplement to our Condensed Consolidated Statements of Cash Flows and is included in Net cash used in activities:
|
| | | | | | |
| | Six months ended June 30, |
| (in thousands) | 2020 | 2019 |
| Income tax payments, net | $ | 1,438 |
| $ | 32 |
|
| | | |
| Interest payments on our U.S. Revolving Credit Facility | $ | 8,110 |
| $ | 6,921 |
|
| Interest payments on our Last Out Term Loans | 6,140 |
| 1,022 |
|
| Total cash paid for interest | $ | 14,250 |
| $ | 7,943 |
|
NOTE 2016 – PROVISION FOR INCOME TAXES
In the three months ended SeptemberJune 30, 2019,2020, income tax expense was $1.0$0.8 million, resulting in an effective tax rate of (1.9)(4.9)%. We are subject to federal income tax in the United States and numerous countries that have statutory tax rates different than the U.S. federal statutory rate of 21%. The most significant of these foreign operations are located in Canada, Denmark, Germany, Italy, Mexico, Sweden and the United Kingdom with effective tax rates ranging between 19% and approximately 30%. We provide for income taxes based on the tax laws and rates in the jurisdictions in which we conduct our operations. These jurisdictions may have regimes of taxation that vary with respect to both nominal rates and the basis on which these rates are applied. Our consolidated effective income tax rate can vary significantly from period to period due to these variations, changes in jurisdictional mix of our income and valuation allowances in certain jurisdictions that can offset income tax expense or benefit.
In the three months ended SeptemberJune 30, 2018, we recognized2019, income tax expense of $94.3was $1.9 million, which includes $99.6 million of non-cash income tax charges to increase the valuation allowance against our remaining net deferred tax assets, resulting inwith an effective tax rate of (952.9)(7.2)%.
Our effective tax rate for the three months ended SeptemberJune 30, 2018 was not reflective of the U.S. federal statutory rate primarily due to the increase in the valuation allowance against net deferred tax assets. Discrete items in the three months ended September 30, 2018 included $99.6 million of expense from increasing the valuation allowance against remaining deferred tax assets2020 and a $1.6 million benefit related to the release of a tax reserve when the statute of limitations expired. The remainder of the income tax in the three months ended September 30, 2018 related to changes in the jurisdictional mix of income and losses.
In the nine months ended September 30, 2019, income tax expense was $3.6 million, resulting in an effective tax rate of (2.7)%. Our effective tax rate for the nine months ended September 30, 2019 is not reflective of the U.S. federal statutory rate primarily due to valuation allowances against our net deferred tax assets. In jurisdictions where we have available net operating loss carryforwards ("NOLs"), such as the U.S., Denmark and Italy, the existence of a full valuation allowance
against deferred tax assets results in income tax benefit or expense relating primarily to discrete items. We have favorable discrete items of $1.8 million and unfavorable discrete items of $0.2 million in the three months ended June 30, 2020 and 2019, respectively.
In other profitable jurisdictions, however, we may recordthe six months ended June 30, 2020, income tax expense even though we have established a fullwas $35 thousand, resulting in an effective tax rate of (0.1)%. In the six months ended June 30, 2019, income tax expense was $2.5 million, resulting in an effective tax rate of (3.3)%.
Our effective tax rate for the six months ended June 30, 2020 and 2019 is not reflective of the U.S. statutory rate primarily due to valuation allowanceallowances against our net deferred tax assets. In jurisdictions where we have available net operating loss carryforwards ("NOLs"), such as the U.S., Denmark and Italy, the existence of a full valuation allowance against deferred tax assets results in income tax benefit or expense relating primarily to discrete items. We have favorable discrete items of $1.3 million and unfavorable discrete items of $0.6$0.1 million in the ninesix months ended SeptemberJune 30, 2019.2020 and 2019, respectively.
In the nine months ended September 30, 2018,We are subject to federal income tax expense was $99.3 million, an effectivein the United States and numerous countries that have statutory tax rate of (30.0)% that was not reflective ofrates different than the U.S.United States federal statutory rate primarilyof 21%. The most significant of these foreign operations are located in Canada, Denmark, Germany, Italy, Mexico, Sweden, and the United Kingdom, with effective tax rates ranging between approximately 17.5% and 30%. We provide for income taxes based on the tax laws and rates in the jurisdictions where we conduct operations. These jurisdictions may have regimes of taxation that vary in both nominal rates and the basis on which these rates are applied. Our consolidated effective income tax rate can vary significantly from period to period due to the reasons noted above. Unfavorable discrete items were an expense of $1.4 million and include a valuation allowance on the net deferred tax assets of onethese variations, changes in jurisdictional mix of our foreign subsidiariesincome, and the income tax effects of vested and exercised share-based compensation awards.valuation allowances.
Sections 382 and 383 of the Internal Revenue Code ("IRC") limits for US federal income tax purposes, the annual use of NOL carryforwards (including previously disallowed interest carryforwards) and tax credit carryforwards, respectively, following an ownership change. Under IRC Section 382 (Section 382), a company has undergone an ownership change if shareholders owning at least 5% of the company have increased their collective holdings by more than 50% during the prior three-year period. Based on information that is publicly available, the Company determined that a Section 382 ownership change occurred on July 23, 2019 as a result of the Equitization Transactions described in Note 18. As a result of this change in ownership, the Company estimated that the future utilization of our federal NOLs (and certain credits and previously disallowed interest deductions) will become limited to approximately $1.2 million annually ($0.3 million tax effected). The Company is currently in the process of refining and finalizing these calculations. The Company maintains a full valuation allowance on its net deferred tax assets including the deferred tax assets associated with the federal NOLs, credits and disallowed interest carryforwards.
New TaxCARES Act
The United States Tax CutsOn March 27, 2020, in response to the COVID-19 pandemic, the Coronavirus Aid, Relief, and JobsEconomic Security Act (the “Tax(“CARES Act” or “Act”) was enacted on December 22, 2017 and introduced significant changessigned into law. The Act contains a number of provisions designed to assist companies during the pandemic. Certain provisions may impact the Company’s income tax provision. Management has concluded the CARES Act will not have an impact to the United States incomeCompany’s tax law. Beginning in 2018, the Tax Act reduced the United States statutory corporate income tax rate from 35% to 21% and created a modified territorial system that will generally allow United States companies a full dividend received deduction for any future dividends from non-U.S. subsidiaries. In addition to the tax rate reduction and changes to the territorial nature of the US tax system, the Tax Act introduced a new limitation on interest deductions, a Foreign Derived Intangible Income (“FDII”) and new minimum tax on foreign sourced income, Global Low Taxed Intangible Income (“GILTI”). The Company will account for GILTI as a period cost in the year the tax is incurred. In 2019, we do not anticipate any FDII benefit or GILTI taxes but expect an interest limitation. This disallowed interest expense will be available for carryforward and is not subject to expiration but can only be used in a future year when the net interest expense for that period (including carryforward amounts) exceeds the relevant annual limitation.attributes.
NOTE 2117 – CONTINGENCIES
Stockholder Class Action Litigation Relating to Boiler Installation and Supply Contract
On March 3, 2017 and March 13, 2017, theDecember 27, 2019, a complaint was filed against Babcock & Wilcox by P.H. Glatfelter Company and certain of its former officers were named as defendants in two separate but largely identical complaints alleging violations of the federal securities laws. The two complaints were brought on behalf of a class of investors who purchased the Company's common stock between July 1, 2015 and February 28, 2017 and were filed(“Glatfelter”) in the United States District Court for the WesternMiddle District of North Carolina (collectively,Pennsylvania, Case No. 1:19-cv-02215-JPW, alleging claims of breach of contract, fraud, negligent misrepresentation, promissory estoppel and unjust enrichment (the “Glatfelter Litigation”). The complaint alleges damages in excess of $58.9 million. We are evaluating Glatfelter’s claims as well as potential counter claims against Glatfelter and intend to vigorously defend against the "Stockholder Litigation"). Duringaction. However, given the second quarterpreliminary stage of 2017, the Stockholder Litigation was consolidated into a single action and a lead plaintiff was selected by the Court. Through subsequent amendments, the putative class period was expanded to include investors who purchased shares between June 17, 2015 and August 9, 2017. The plaintiff in the Stockholder Litigation alleged fraud, misrepresentation and a course of conduct relating to certain projects undertaken by the Vølund & Other Renewable segment, which, according to the plaintiff, had the effect of artificially inflating the price of the Company's common stock. The plaintiff further alleged that stockholders were harmed when the Company later disclosed that it would incur losses on these projects. The plaintiff sought an unspecified amount of damages.
On November 13, 2017, defendants filed a motion to dismiss (“MTD”) in the Stockholder Litigation, and on December 28, 2017, plaintiff filed its opposition to the MTD. The federal trial court judge denied the MTD on February 8, 2018, which allowed the case to proceed. After engaging in some discovery, the parties held a mediation on December 14, 2018 to discuss possible settlement of the Stockholder Litigation. The parties did not successfully resolve the Stockholder Litigation at the December 14, 2018 mediation. Following a period of additional discovery, the parties held a second mediation on April 16, 2019. At the second mediation, the parties reached an agreement in principle to settle the Stockholder Litigation. The
agreement require defendantslitigation, it is too early to pay or cause to be paid $19.5 million into a settlement fund. The parties subsequently executed a stipulation of settlement and plaintiff's counsel submitted it to the Court for its preliminary approval. The Court entered an order preliminarily approving the settlement on August 12, 2019. The $19.5 million payment was subsequently made by certain of our insurance carriers. A final approval hearing is scheduled for December 16, 2019. Within our Condensed Consolidated Balance Sheets as of September 30, 2019, the $19.5 million liability is recorded in other accrued liabilities and the $19.5 million insurance proceeds held in escrow are recorded in other current assets.
We believe the allegations in the Stockholder Litigation were without merit, and thatdetermine if the outcome of the StockholderGlatfelter Litigation will not have a material adverse impact on our consolidated financial condition, results of operations or cash
flows, net of any insurance coverage.
Derivative Litigation
On February 16, 2018 and February 22, 2018, the Company and certain of its present and former officers and directors were named as defendants in three separate but substantially similar derivative lawsuits filed in the United States District Court for the District of Delaware (the "Federal Court Derivative Litigation"). On April 23, 2018, the United States District Court for the District of Delaware entered an order consolidating the related derivative actions and designating co-lead and co-liaison counsel. On June 1, 2018, plaintiffs filed a consolidated derivative complaint. Plaintiffs asserted a variety of claims against the defendants including alleged violations of the federal securities laws, waste, breach of fiduciary duties and unjust enrichment. Plaintiffs, who purport to be current stockholders of the Company's common stock, sued on behalf of the Company to recover costs and an unspecified amount of damages, and to force the implementation of certain corporate governance changes. On June 28, 2018, the Federal Court Derivative Litigation was transferred to the United States District Court for the Western District of North Carolina, where the Stockholder Litigation is pending. The parties filed a motion to stay the Federal Court Derivative Litigation, which was granted by the Court on August 13, 2018.
On November 14, 2018, the Company and certain of its present and former officers and directors were named as defendants in an additional shareholder derivative lawsuit filed in the North Carolina Superior Court (the "State Court Derivative Litigation"). The complaint in that action covers the same period and contains allegations substantially similar to those asserted in the pending Federal Court Derivative Litigation.
The parties to the Federal Court and State Court Derivative Litigations held a mediation on April 17, 2019 in an attempt to resolve these pending matters. At this mediation, the parties reached an agreement in principle with plaintiffs' counsel to resolve these cases based on certain corporate governance changes that the Company has already implemented or is willing to implement in the future and payment by certain of the Company's insurance carriers of $1 million in attorneys' fees and expenses to plaintiffs' counsel. There is no other monetary payment associated with this settlement. The parties subsequently executed a stipulation of settlement and plaintiffs' counsel submitted it to the Court for its preliminary approval. The Court entered an order preliminarily approving the settlement on August 12, 2019. A final approval hearing is scheduled for December 16, 2019.
We believe the allegations in the Federal Court Derivative Litigation and State Court Derivative Litigation were without merit, and that the outcome of the Derivative Litigations will not have a material adverse impact on ourcondensed consolidated financial condition, results of operations or cash flows, netflows.
SEC Investigation
The U.S. SEC is conducting a formal investigation of the Company, focusing on the accounting charges and related matters involving the Company's Vølund and Other Renewable segment from 2015-2019. The SEC has served multiple subpoenas on the Company for documents. The Company is cooperating with the SEC related to the subpoenas and investigation. The Company is still in the process of producing documents to the SEC. In addition, the SEC has taken testimony from past and current officers and directors and has requested additional testimony from present and former employees. It is reasonably possible that the SEC may bring one or more claims against the Company and certain individuals. Due to the stage of the investigation, we are unable to estimate the amount of loss or range of potential loss of any insurance coverage.claim. However, there can be no assurance that such claims will not have a material impact on the Company.
Stockholder Derivative and Class Action Litigation Relating to the Equitization Transactions
On May 28, 2019,April 14, 2020, a putative B&W stockholder (“Plaintiff”) filed a derivative and class action complaint against certain of the Company’s directors (current and former), executives and significant stockholders (“Defendants”) and the Company (as a nominal defendant). The action was filed againstin the Board in theDelaware Court of Chancery of the State of Delaware. The complaintand is captioned PriceParker v. Avril, et al., C.A. No. 2019-0393-JRS (Del. Ch.). The complaint asserted,2020-0280-PAF. Plaintiff alleges that Defendants, among other things, that the Board breacheddid not properly discharge their fiduciary duties by failing to disclose all material information necessary for a fully-informed vote on certain of the proposals presented for consideration at the annual meeting of the Company's stockholders. The plaintiff also filed a motion to preliminarily enjoin the stockholder vote on the proposals unless and until all material information regarding the proposals was disclosed to the Company’s stockholders. The plaintiff withdrew her motion to preliminarily enjoin the stockholder vote on the proposals following the Company’s issuance of a supplemental proxy statement on June 6, 2019. The Court granted the plaintiff's request to voluntarily dismiss this action with prejudice on July 31, 2019 and retained jurisdiction solely for the purpose of adjudicating an anticipated application for attorneys' fees and expenses incurred by plaintiff's counsel. Thereafter, following a period of negotiations, the Company paid $0.4 million in October 2019 in attorneys’ fees and expenses to plaintiff’s counsel in connection with the mooted disclosure2019 rights offering and related transactions. The Company is evaluating Plaintiff’s claims asserted in the action without admitting any fault or wrongdoing. On October 16, 2019, the Court entered an order closing the case.
In entering the order, the Court was not askedand intends to review, and did not pass judgment on, the payment of the attorneys’ fees and expenses or their reasonableness.
In addition, on June 3, 2019, a second putative class action complaint was filedvigorously defend against the Company, the Board and Mr. Young in the United States District Court for the District of Delaware. The complaint is captioned Kent v. Babcock & Wilcox Enterprises, Inc., et. al., No. 1:19-cv-01032-MN (D. Del.). The complaint asserted, among other things, claims under Sections 14(a) and 20(a) of the Exchange Act for allegedly disseminating a materially incomplete and misleading proxy statement in connection with the Equitization Transactions, which was filed with the SEC on May 13, 2019. The complaint sought an order rescinding the Equitization Transactions or, in the alternative, awarding monetary damages as well as other relief. On September 19, 2019, the Kent action was voluntarily dismissed as to the named plaintiff only. On October 7, 2019, the parties to the Kent action executed a definitive agreement pursuant to which the Company, without admitting any liability or wrongdoing, agreed to pay Kent’s counsel attorneys' fees and costs of $0.1 million.action.
Other
Due to the nature of our business, we are, from time to time, involved in routine litigation or subject to disputes or claims related to our business activities, including, among other things: performance or warranty-related matters under our customer and supplier contracts and other business arrangements; and workers' compensation, premises liability and other claims. Based on our prior experience, we do not expect that any of these other litigation proceedings, disputes and claims will have a material adverse effect on our condensed consolidated financial condition, results of operations or cash flows.
NOTE 2218 – COMPREHENSIVE INCOME
Gains and losses deferred in accumulated other comprehensive income (loss) ("AOCI") are generally reclassified and recognized in the Condensed Consolidated Statements of Operations once they are realized. The changes in the components of AOCI, net of tax, for the first threetwo quarters of 20192020 and 20182019 were as follows:
|
| | | | | | | | | | | | |
| (in thousands) | Currency translation (loss) gain | Net unrealized gain (loss) on derivative instruments | Net unrecognized loss related to benefit plans (net of tax) | Total |
| Balance at December 31, 2018 | $ | (10,834 | ) | $ | 1,362 |
| $ | (1,960 | ) | $ | (11,432 | ) |
| Other comprehensive income (loss) before reclassifications | 10,260 |
| (1,178 | ) | — |
| 9,082 |
|
| Reclassified from AOCI to net income (loss) | — |
| 224 |
| (356 | ) | (132 | ) |
| Net other comprehensive income (loss) | 10,260 |
| (954 | ) | (356 | ) | 8,950 |
|
| Balance at March 31, 2019 | $ | (574 | ) | $ | 408 |
| $ | (2,316 | ) | $ | (2,482 | ) |
| Other comprehensive loss before reclassifications | (7,979 | ) | (189 | ) | — |
| (8,168 | ) |
| Reclassified from AOCI to net income (loss) | 3,176 |
| (22 | ) | (514 | ) | 2,640 |
|
| Net other comprehensive (loss) income | (4,803 | ) | (211 | ) | (514 | ) | (5,528 | ) |
| Balance at June 30, 2019 | $ | (5,377 | ) | $ | 197 |
| $ | (2,830 | ) | $ | (8,010 | ) |
| Other comprehensive income before reclassifications | 21,433 |
| — |
| — |
| 21,433 |
|
| Reclassified from AOCI to net loss | — |
| — |
| (515 | ) | (515 | ) |
Amounts reclassified from AOCI to advanced billings on contracts(1) | — |
| (197 | ) | — |
| (197 | ) |
| Net other comprehensive income (loss) | 21,433 |
| (197 | ) | (515 | ) | 20,721 |
|
| Balance at September 30, 2019 | $ | 16,056 |
| $ | — |
| $ | (3,345 | ) | $ | 12,711 |
|
|
| | | | | | | | | |
| (in thousands) | Currency translation (loss) gain | Net unrecognized loss related to benefit plans (net of tax) | Total |
| Balance at December 31, 2019 | $ | 5,743 |
| $ | (3,817 | ) | $ | 1,926 |
|
| Other comprehensive income (loss) before reclassifications | 2,380 |
| — |
| 2,380 |
|
| Reclassified from AOCI to net income (loss) | — |
| (246 | ) | (246 | ) |
| Net other comprehensive income (loss) | 2,380 |
| (246 | ) | 2,134 |
|
| Balance at March 31, 2020 | $ | 8,123 |
| $ | (4,063 | ) | $ | 4,060 |
|
| Other comprehensive income (loss) before reclassifications | (4,095 | ) | — |
| (4,095 | ) |
| Reclassified from AOCI to net income (loss) | — |
| (246 | ) | (246 | ) |
| Net other comprehensive income (loss) | (4,095 | ) | (246 | ) | (4,341 | ) |
| Balance at June 30, 2020 | $ | 4,028 |
| $ | (4,309 | ) | $ | (281 | ) |
|
| | | | | | | | | | | | |
| (in thousands) | Currency translation (loss) gain | Net unrealized gain (loss) on derivative instruments (1) | Net unrecognized loss related to benefit plans (net of tax) | Total |
| Balance at December 31, 2018 | $ | (10,834 | ) | $ | 1,362 |
| $ | (1,960 | ) | $ | (11,432 | ) |
| Other comprehensive income (loss) before reclassifications | 10,260 |
| (1,178 | ) | — |
| 9,082 |
|
| Reclassified from AOCI to net income (loss) | — |
| 224 |
| (356 | ) | (132 | ) |
| Net other comprehensive income (loss) | 10,260 |
| (954 | ) | (356 | ) | 8,950 |
|
| Balance at March 31, 2019 | $ | (574 | ) | $ | 408 |
| $ | (2,316 | ) | $ | (2,482 | ) |
| Other comprehensive loss before reclassifications | (7,979 | ) | (189 | ) | — |
| (8,168 | ) |
| Reclassified from AOCI to net income (loss) | 3,176 |
| (22 | ) | (514 | ) | 2,640 |
|
| Net other comprehensive (loss) income | (4,803 | ) | (211 | ) | (514 | ) | (5,528 | ) |
| Balance at June 30, 2019 | $ | (5,377 | ) | $ | 197 |
| $ | (2,830 | ) | $ | (8,010 | ) |
(1) The remaining unrealized FX gain balance was transferred to advanced billings on contracts on our Condensed Consolidated Balance Sheets during the third quarter of 2019 andgain/(loss) is expected to be recognized over time as the related projects are completed.
|
| | | | | | | | | | | | | | | |
| (in thousands) | Currency translation (loss) gain | Net unrealized gain (loss) on investments (net of tax) | Net unrealized gain (loss) on derivative instruments | Net unrecognized gain (loss) related to benefit plans (net of tax) | Total |
| Balance at December 31, 2017 | $ | (27,837 | ) | $ | 38 |
| $ | 1,737 |
| $ | 3,633 |
| $ | (22,429 | ) |
ASU 2016-1 cumulative adjustment(1) | — |
| (38 | ) | — |
| — |
| (38 | ) |
| Other comprehensive income (loss) before reclassifications | 3,223 |
| — |
| 1,224 |
| (55 | ) | 4,392 |
|
| Reclassified from AOCI to net loss | (2,044 | ) | — |
| (1,272 | ) | (384 | ) | (3,700 | ) |
| Net other comprehensive income (loss) | 1,179 |
| (38 | ) | (48 | ) | (439 | ) | 654 |
|
| Balance at March 31, 2018 | $ | (26,658 | ) | $ | — |
| $ | 1,689 |
| $ | 3,194 |
| $ | (21,775 | ) |
| Other comprehensive income (loss) before reclassifications | 8,517 |
| — |
| (513 | ) | 112 |
| 8,116 |
|
| Reclassified from AOCI to net income (loss) | — |
| — |
| 381 |
| (427 | ) | (46 | ) |
| Amounts reclassified from AOCI to pension, other accumulated postretirement benefit liabilities and deferred income taxes | — |
| — |
| — |
| (2,831 | ) | (2,831 | ) |
| Net other comprehensive income (loss) | 8,517 |
| — |
| (132 | ) | (3,146 | ) | 5,239 |
|
| Balance at June 30, 2018 | $ | (18,141 | ) | $ | — |
| $ | 1,557 |
| $ | 48 |
| $ | (16,536 | ) |
| Other comprehensive income (loss) before reclassifications | 296 |
| — |
| 150 |
| (11 | ) | 435 |
|
| Reclassified from AOCI to net income (loss) | 2,595 |
| — |
| (392 | ) | (122 | ) | 2,081 |
|
| Net other comprehensive income (loss) | 2,891 |
| — |
| (242 | ) | (133 | ) | 2,516 |
|
| Balance at September 30, 2018 | $ | (15,250 | ) | $ | — |
| $ | 1,315 |
| $ | (85 | ) | $ | (14,020 | ) |
(1) ASU 2016-1, Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities, requires investments to be measured at fair value through earnings each reporting period as opposed to changes in fair value being reported in other comprehensive income (loss). The standard was effective as of January 1, 2018 and requires application by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption.
The amounts reclassified out of AOCI by component and the affected Condensed Consolidated Statements of Operations line items are as follows (in thousands):
| | | AOCI component | Line items in the Condensed Consolidated Statements of Operations affected by reclassifications from AOCI | Three months ended September 30, | Nine months ended September 30, | Line items in the Condensed Consolidated Statements of Operations affected by reclassifications from AOCI | Three months ended June 30, | Six months ended June 30, |
| 2019 | 2018 | 2019 | 2018 | 2020 | 2019 | 2020 | 2019 |
| Release of currency translation gain with the sale of equity method investment and the sale of business | Equity in income and impairment of investees | $ | — |
| $ | (2,595 | ) | $ | — |
| $ | (551 | ) | Loss on sale of business | $ | — |
| $ | (3,176 | ) | $ | — |
| $ | (3,176 | ) |
| | Loss on sale of business | — |
| — |
| (3,176 | ) | — |
| |
| | Net loss | $ | — |
| $ | (2,595 | ) | $ | (3,176 | ) | $ | (551 | ) | |
| | | | |
| Derivative financial instruments | Revenues | $ | — |
| $ | 508 |
| $ | — |
| $ | 1,646 |
| Other – net | — |
| 22 |
| — |
| (202 | ) |
| | Cost of operations | — |
| (6 | ) | — |
| (5 | ) | |
| | Other | — |
| — |
| (202 | ) | — |
| |
| | Total before tax | — |
| 502 |
| (202 | ) | 1,641 |
| |
| | Provision for income taxes | — |
| 110 |
| — |
| 358 |
| |
| | Net income (loss) | $ | — |
| $ | 392 |
| $ | (202 | ) | $ | 1,283 |
| Net loss | $ | — |
| $ | (3,154 | ) | $ | — |
| $ | (3,378 | ) |
| | | | | |
| Amortization of prior service cost on benefit obligations | Benefit plans, net | $ | 515 |
| $ | 168 |
| $ | 1,385 |
| $ | 979 |
| Benefit plans, net | 246 |
| 514 |
| 492 |
| 870 |
|
| | Provision for income taxes | — |
| 46 |
| — |
| 46 |
| Net income | $ | 246 |
| $ | 514 |
| $ | 492 |
| $ | 870 |
|
| | Net income | $ | 515 |
| $ | 122 |
| $ | 1,385 |
| $ | 933 |
| |
NOTE 2319 – FAIR VALUE MEASUREMENTS
The following tables summarize our financial assets and liabilities carried at fair value, all of which were valued from readily available prices or using inputs based upon quoted prices for similar instruments in active markets (known as "Level 1" and "Level 2" inputs, respectively, in the fair value hierarchy established by the FASB Topic, Fair Value Measurements and Disclosures).
| | | (in thousands) | | |
| Available-for-sale securities | September 30, 2019 | Level 1 | Level 2 | June 30, 2020 | Level 1 | Level 2 |
| Corporate notes and bonds | $ | 10,957 |
| $ | 10,957 |
| $ | — |
| $ | 9,465 |
| $ | 9,465 |
| $ | — |
|
| Mutual funds | — |
| — |
| — |
| 577 |
| — |
| 577 |
|
| United States Government and agency securities | 2,652 |
| 2,652 |
| — |
| 5,617 |
| 5,617 |
| — |
|
| Total fair value of available-for-sale securities | $ | 13,609 |
| $ | 13,609 |
| $ | — |
| $ | 15,659 |
| $ | 15,082 |
| $ | 577 |
|
|
| | | | | | | | | |
| (in thousands) | | | |
| Available-for-sale securities | December 31, 2018 | Level 1 | Level 2 |
| Corporate notes and bonds | $ | 13,028 |
| $ | 13,028 |
| $ | — |
|
| Mutual funds | 1,283 |
| — |
| 1,283 |
|
| United States Government and agency securities | 1,437 |
| 1,437 |
| — |
|
| Total fair value of available-for-sale securities | $ | 15,748 |
| $ | 14,465 |
| $ | 1,283 |
|
|
| | | | | | |
| (in thousands) | | |
| Derivatives | September 30, 2019 | December 31, 2018 |
| Forward contracts to purchase/sell foreign currencies | $ | — |
| $ | 546 |
|
|
| | | | | | | | | |
| (in thousands) | | | |
| Available-for-sale securities | December 31, 2019 | Level 1 | Level 2 |
| Corporate notes and bonds | $ | 8,310 |
| $ | 8,310 |
| $ | — |
|
| Mutual funds | 587 |
| — |
| 587 |
|
| United States Government and agency securities | 3,868 |
| 3,868 |
| — |
|
| Total fair value of available-for-sale securities | $ | 12,765 |
| $ | 12,178 |
| $ | 587 |
|
Available-For-Sale Securities
Our investments in available-for-sale securities are presented in other assets on our Condensed Consolidated Balance Sheets with contractual maturities ranging from 0-6 years.
Derivatives
Derivative assets and liabilities usually consist of FX forward contracts. Where applicable, the value of these derivative assets and liabilities is computed by discounting the projected future cash flow amounts to present value using market-based observable inputs, including FX forward and spot rates, interest rates and counterparty performance risk adjustments. As of SeptemberJune 30, 2019,2020, we do not hold any derivative assets or liabilities; the last of our derivative contracts were sold during the first quarter of 2019.
Other Financial Instruments
We used the following methods and assumptions in estimating our fair value disclosures for our other financial instruments:
Cash and cash equivalents and restricted cash and cash equivalents. The carrying amounts that we have reported in the accompanying Condensed Consolidated Balance Sheets for cash and cash equivalents and restricted cash and cash equivalents approximate their fair values due to their highly liquid nature.
Revolving debt and Last Out Term Loans. We base the fair values of debt instruments on quoted market prices. Where quoted prices are not available, we base the fair values on Level 2 inputs such as the present value of future cash flows discounted at estimated borrowing rates for similar debt instruments or on estimated prices based on current yields for debt issues of similar quality and terms. The fair value of our debt instruments approximated their carrying value at SeptemberJune 30, 20192020 and December 31, 2018.2019.
Warrants. The fair value of the warrants was established using the Black-Scholes option pricing model value approach.
Non-Recurring Fair Value Measurements
The measurement of the net actuarial gain or loss associated with our pension and other postretirement plans was determined using unobservable inputs (see Note 12). These inputs included the estimated discount rate, expected return on plan assets and other actuarial inputs associated with the plan participants.
Tests for impairment annually and when impairment indicators exist require significant fair value measurements using unobservable inputs (see Note 7). The fair values of the reporting units were based on an income approach using a discounted cash flow analysis, a market approach using multiples of revenue and EBITDA of guideline companies, and a market approach using multiples of revenue and EBITDA from recent, similar business combinations.
Property, plant and equipment and definite-lived intangible asset amounts are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset, or asset group, may not be recoverable. An impairment loss would be recognized when the carrying amount of an asset exceeds the estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition. The amount of the impairment loss to be recorded is calculated by the excess of the asset carrying value over its fair value. Fair value is generally determined based on an income approach using a discounted cash flow analysis or based on the price that the Company expects to receive upon the sale of these assets. Both of those approaches utilize unobservable inputs (see Note 116 and Note 6)8).
NOTE 2420 – RELATED PARTY TRANSACTIONS
The Letter Agreement described in Note 18entered into on April 5, 2019, pursuant to which the parties agreed to use their reasonable best efforts to effect a series of equitization transactions for a portion of the Last Out Term Loans, between B. Riley, Financial, Inc. (together with its affiliates, "B. Riley"), Vintage Capital Management, LLC ("Vintage") and the Company included agreement to negotiate one or more agreements that provide B. Riley and Vintage with certain governance rights, including (i) the right for B. Riley and Vintage to each nominate up to three individuals to serve on our board of directors, subject to certain continued lending and equity ownership thresholds and (ii) pre-emptive rights permitting B. Riley to participate in future issuances of our equity securities. The sizeCompany also entered into a Registration Rights Agreement with B. Riley and Vintage on April 30, 2019 providing each with certain customary registration rights for the shares of our board of directors is currently expected to remain at seven directors.common stock that they hold. On April 30, 2019, the Company entered into an Investor Rights Agreement with B. Riley Financial, Inc. and Vintage providing the governance rights contemplated by the Letter Agreement. The Company also entered into a Registration Rights Agreement with B. Riley Financial, Inc. and Vintage on April 30, 2019 providing each of B. Riley Financial, Inc. and Vintage with certain customary registration rights for the shares of our common stock that they hold.
Transactions with B. Riley and its Affiliates
B. Riley Financial, Inc. and its affiliates became the beneficial owner of greater than five percent of our common stock in May 2018, upon completion of the 2018 Rights Offering described in Note 17. Based on its Schedule 13D filings, B. Riley beneficially owns 18.3%22.5% of our outstanding common stock inclusive of the warrants further described in Note 15, as of SeptemberJune 30, 2019.2020.
B. Riley is party to the Last Out Term Loans as described in Note 14 and Note 18 and was a party to14. B. Riley has also provided the Equitization TransactionsB. Riley Guaranty as more fully described in Note 18, which included providing13.
In connection with the Backstop Commitment toB. Riley Guaranty, the 2019 Rights Offering described in Note 17Company entered into a Fee and Note 18 and receiving warrantsInterest Equitization Agreement as described in Note 1513. Under the Equitization Agreement the Company issued 1.7 million shares of common stock on June 8, 2020 and 1.2 million shares of common stock on June 30, 2020 to B. Riley in satisfaction of the B. Riley Guaranty Fee and payment of certain interest payments as more fully described in Note 18.13.
We entered into an agreement with BPRIBRPI Executive Consulting, LLC, an affiliate of B. Riley, on November 19, 2018 for the services of Mr. Kenny Young, to serve as our Chief Executive Officer until November 30, 2020, unless terminated by either party with thirty days written notice. Under this agreement, payments are $0.75 million per annum, paid monthly. Subject to the achievement of certain performance objectives as determined by the Compensation Committee of the Board, a bonus or bonuses may also be earned and payable to BPRIBRPI Executive Consulting, LLC. In June 2019, we granted a total of $2.0 million in cash bonuses to BRPI Executive Consulting LLC an affiliate of B. Riley, for Mr. Young's performance and services. In December 2018,April 2020, we granted a total of 840 thousand stock appreciation rightstemporarily deferred the monthly fee paid to BRPI Executive Consulting, LLC ("Non-employee SARs"for the services of our Chief Executive Officer by 50% as more fully described in Note 1.
Total fees associated with B. Riley related to the Last Out Term Loans and services of Mr. Kenny Young, both as described above, were $3.3 million and $7.5 million for the three and six months ended June 30, 2020, respectively, and were $10.1 million and $11.5 million for the three and six months ended June 30, 2019, respectively.
On August 10, 2020, B. Riley Financial, Inc. entered into a project specific indemnity rider (the “Indemnity Rider”) to the General Agreement of Indemnity, dated May 28, 2015, between us and Berkley Insurance Company (the “Surety”). The Non-employee SARs expire ten years afterPursuant to the grant dateterms of the Indemnity Rider, B. Riley will indemnify the Surety for losses the Surety may incur as a result of providing a payment and vest 100% upon completion afterperformance bond in an aggregate amount not to exceed $30.0 million in connection with our proposed performance on a specified project. In consideration of B. Riley's execution of the required yearsIndemnity Rider, we will pay B. Riley a fee of service. Upon vesting, the Non-employee SARs may be exercised within ten business$0.6 million no later than 30 days following the end of any calendar quarter during which the volume weighted average share price is greater than the per share price goal of $22.50 for 510 thousandissuance of the Non-employee SARS and $25.00bond by the Surety, which represents approximately 2.0% of the bonded obligations. Under the A&R Credit Agreement, any draw or claim under the Indemnity Rider will convert into a Tranche A- 5 Last Out Term Loan for the remaining 330 thousandbenefit of Non-employee SARS. Upon exercise of the Non-employee SARs, the holder receives a cash-settled payment equalB. Riley.
Refer to the number of Non-employee SARs that are being exercised multiplied by the difference between the stock price on the date of exercise minus the Non-employee SARs base price of $20.00 per stock appreciation right. Non-employee SARs are issued under a Non-employee SARs agreement.Note 13 for additional related party transactions with B. Riley and its affiliates.
Transactions with Vintage Capital Management, LLC
Based on its Schedule 13D filings, Vintage beneficially owns 33.9%31.8% of our outstanding common stock as of SeptemberJune 30, 2019.
Vintage was a party to Tranche A-1 of the Last Out Term Loans as described in Note 14 and Note 18 and was a party to the Equitization Transactions described in Note 18, which included participation in the 2019 Rights Offering described in Note 17 and Note 18 and conversion of Tranche A-1 of the Last Out Term Loans in the Debt Exchange as described in Note 14 and Note 18. Prior to Debt Exchange, $6.0 million of Tranche A-1 had been transferred or sold to affiliates of B. Riley and the remainder was held by Vintage.
On April 10, 2018, the Company and Vintage entered into an equity commitment agreement (the "Equity Commitment Agreement"), which Equity Commitment Agreement amended and restated in its entirety the prior letter agreement, dated as of March 1, 2018, between the Company and Vintage, pursuant to which Vintage agreed to backstop the 2018 Rights Offering for the purpose of providing at least $245 million of new capital.
On July 23, 2019, concurrent with the completion of the 2019 Rights Offering, described in Note 17 and Note 18, the Tranche A-1 principal and paid-in-kind interest totaling $38.2 million was exchanged for 12.7 million of our common shares of which 10.7 million of common shares were issued to Vintage, a related party, and the remainder were issued to B.Riley, also a related party, described above.2020.
NOTE 2521 – ASSETS HELD FOR SALE, DIVESTITURES AND DISCONTINUED OPERATIONS
Assets Held for Sale
In December 2019, we determined that a small business within the Babcock & Wilcox segment met the criteria to be classified as held for sale. Assets and liabilities held for sale are required to be recorded at the lower of carrying value or fair value less any costs to sell. At June 30, 2020, the carrying value of the assets held for sale approximated the estimated fair value less costs to sell, therefore an impairment charge was not required. The divestiture of the business held for sale could result in a gain or loss on sale to the extent the ultimate selling price differs from the current carrying value of the net assets recorded. The sale is expected to occur in 2020.
The following table summarizes the carrying value of the assets and liabilities held for sale at June 30, 2020 and December 31, 2019:
|
| | | | | | |
| (in thousands) | June 30, 2020 | December 31, 2019 |
| Accounts receivable – trade, net | $ | 3,289 |
| $ | 5,472 |
|
| Accounts receivable – other | 150 |
| 147 |
|
| Contracts in progress | 452 |
| 586 |
|
| Inventories | 2,646 |
| 1,555 |
|
| Other current assets | 189 |
| 329 |
|
| Current assets held for sale | 6,726 |
| 8,089 |
|
| | | |
| Net property, plant and equipment | 6,537 |
| 6,534 |
|
| Intangible assets | 708 |
| 725 |
|
| Right-of-use-asset | 34 |
| 63 |
|
| Other assets | 17 |
| — |
|
| Non-current assets held for sale | 7,296 |
| 7,322 |
|
| | | |
| Total assets held for sale | $ | 14,022 |
| $ | 15,411 |
|
| | | |
| Accounts payable | $ | 5,719 |
| $ | 7,898 |
|
| Accrued employee benefits | 453 |
| 430 |
|
| Advance billings on contracts | 90 |
| 227 |
|
| Accrued warranty expense | 472 |
| 515 |
|
| Operating lease liabilities | 18 |
| 6 |
|
| Other accrued liabilities | 785 |
| 462 |
|
| Current liabilities held for sale | 7,537 |
| 9,538 |
|
| | | |
| Non-current liabilities held for sale | 46 |
| — |
|
| | | |
| Total liabilities held for sale | $ | 7,583 |
| $ | 9,538 |
|
Divestitures
On March 17, 2020, we fully settled the remaining escrow associated with the sale of PBRRC and received $4.5 million in cash.
Effective May 31, 2019, we sold all of the issued and outstanding capital stock of Loibl, a material handling business in Germany, to Lynx Holding GmbH for €10.0 million (approximately $11.4 million), subject to adjustment. We received $7.4 million in cash and recognized a $3.6 million pre-tax loss on the sale of this business in the nine monthsquarter ended SeptemberJune 30, 2019, net of $0.7 million in transaction costs. Proceeds from the transaction were primarily used to reduce outstanding balances under our U.S. Revolving Credit Facility. Through
Discontinued Operations
On April 6, 2020, we fully settled the remaining escrow associated with the sale we were also able to release performance letters of credit totaling $8.5 million, which improved our borrowing capacity. Prior to the divestiture, Loibl was part of the Vølund & Other Renewable segmentMEGTEC and had revenues of approximately $30Universal businesses and received $3.5 million for the year ended December 31, 2018.in cash.
On September 17, 2018, we sold all of the issued and outstanding capital stock of PBRRC, a subsidiary that held two
operations and maintenance contracts for waste-to-energy facilities in West Palm Beach, Florida, to Covanta Pasco, Inc., a
wholly owned subsidiary of Covanta Holding Company for $45 million, subject to adjustment. We received $38.8 million in cash and $4.9 million that was deposited in escrow pending final settlement of working capital and other customary matters.
The escrow is available to resolve any submitted claims or adjustments up to 18 months from the closing date, and was
primarily recorded in non-current other assets as of September 30, 2018. We recognized a $39.7 million pre-tax gain on sale
of this business in 2018, net of $0.8 million of transaction costs. PBRRC was formerly part of the Vølund & Other Renewable segment and represented most of the operations and maintenance revenue in the three and nine months ended September 30, 2018.
NOTE 26– DISCONTINUED OPERATIONS
On October 5, 2018, we sold all of the capital stock of our MEGTEC and Universal businesses to Dürr Inc., a wholly owned subsidiary of Dürr AG ("Dürr"), pursuant to a stock purchase agreement executed on June 5, 2018 for $130.0 million, subject to adjustment. We received $112.0 million in cash, net of $22.5 million in cash sold with the businesses, and $7.7 million, which was deposited in escrow pending final settlement of working capital and other customary matters. We primarily used proceeds from the transaction to reduce outstanding balances under our U.S. Revolving Credit Facility and for working capital purposes. During the quarter ended June 30, 2019, we received $1.5 million that was released from escrow. For the nine months ended September 30, 2019, $0.7 million of pretax income from discontinued operations was recognized primarily for the release of an accrued liability. On July 1, 2019, $2.7 million was released from escrow to Dürr. The remaining escrow matters are expected to be resolved within 18 months from the closing date.
The following table presents selected financial information regarding the discontinued operations of our former MEGTEC and Universal businesses included in the Condensed Consolidated Statements of Operations:
|
| | | | | | |
| (in thousands) | Three months ended September 30, 2018 | Nine months ended September 30, 2018 |
| Revenue | $ | 50,969 |
| $ | 167,408 |
|
| Cost of operations | 40,597 |
| 130,785 |
|
| Selling, general and administrative | 9,220 |
| 26,244 |
|
| Goodwill impairment | — |
| 72,309 |
|
| Research and development | 424 |
| 1,180 |
|
| Loss on asset disposals | (2,234 | ) | (2,234 | ) |
| Operating income (loss) | 2,962 |
| (60,877 | ) |
| Net loss | (1,447 | ) | (60,875 | ) |
The significant components of discontinued operations of our former MEGTEC and Universal businesses included in our Condensed Consolidated Statements of Cash Flows are as follows:
|
| | | |
| (in thousands) | Nine months ended September 30, 2018 |
| Depreciation and amortization | $ | 3,482 |
|
| Goodwill impairment | 72,309 |
|
| Loss on asset disposals | (2,234 | ) |
| Provision for deferred income taxes | (974 | ) |
| Purchase of property, plant equipment | (77 | ) |
NOTE 2722 – NEW ACCOUNTING STANDARDS
NewWe adopted the following new accounting standards adopted are summarized as follows:standard during the first quarter of 2020:
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). We adopted the new standard on January 1, 2019 and used the effective date as our date of initial application and continued applying the guidance under the lease standard in effect at that time to the comparative periods presented in the Condensed Consolidated Financial Statements. We recorded an
immaterial cumulative-effect adjustment to the opening balance of retained earnings on the date of adoption. We also elected the "package of practical expedients", which permits us not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs. However, we are not electing to adopt the hindsight practical expedient and are therefore maintaining the lease terms we previously determined under ASC 840.
We have implemented new leasing software and established new processes and internal controls designed to comply with the new lease accounting and disclosure requirements set by the new standard. The impact of the standard upon adoption increased our assets and liabilities within our Condensed Consolidated Balance Sheets by approximately $16 million but did not materially impact our results of operations or cash flows.
In FebruaryAugust 2018, the FASB issued ASU 2018-02,2018-15, Income StatementIntangibles - Reporting Comprehensive Income (Topic 220)Goodwill and Other - Internal-Use Software (Subtopic 350-40): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive IncomeCustomer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The new guidance providesrequires companies withacting as the optioncustomer in a cloud hosting service arrangement to reclassify stranded tax effects resulting fromfollow the Tax Act from accumulated other comprehensive income to retained earnings. Existing guidance requiringrequirements of ASC 350-40 for capitalizing implementation costs for internal-use software and requires the effectamortization of a change in tax law or rates to be recorded in continuing operations is not affected. This standard is effective for all public business entities for fiscal years beginning after December 15, 2018, and any interim periods within those fiscal years. We did not elect to reclassifythese costs over the income tax effectslife of the Tax Act from accumulated other comprehensive income to retained earnings.related service contract. The impact of this standard on our condensed consolidated financial statements was immaterial.
New accounting standards not yet adopted that could affect our Condensed Consolidated Financial Statements in the future are summarized as follows:
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform of Financial Reporting. The amendments in this update provide optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this update apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. The amendments in this update are effective for all entities upon issuance and may be adopted any date on or after March 12, 2020 up to December 31, 2022. We are currently evaluating the impact of the standard on our condensed consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in this update simplify the accounting for income taxes by removing exceptions related to the incremental approach for intra-period tax allocation, certain deferred tax liabilities, and the general methodology for calculating income taxes in an interim period. The amendment also provides simplification related to accounting for franchise (or similar) tax, evaluating the tax basis step up of goodwill, allocation of consolidated current and deferred tax expense, reflection of the impact of enacted tax law or rate changes in annual effective tax rate calculations in the interim period that includes enactment date, and other minor codification improvements. For public business entities, the amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption of the amendments is permitted, including adoption in any interim period for public business entities for periods in which financial statements have not yet been issued. We are currently evaluating the impact of the standard on our condensed consolidated financial statements.
In November 2018, the FASB issued ASU 2018-19, Codification Improvements to Topic 326: Financial Instruments - Credit Losses. This update is an amendment to the new credit losses standard, ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, that was issued in June 2016 and clarifies that operating lease receivables are not within the scope of Topic 326. The new credit losses standard changes the accounting for credit losses for certain instruments. The new measurement approach is based on expected losses, commonly referred to as the current expected credit loss (CECL) model, and applies to financial assets measured at amortized cost, including loans, held-to-maturity debt securities, net investment in leases, and reinsurance and trade receivables, as well as certain off-balance sheet credit exposures, such as loan commitments. The standard also changes the impairment model for available-for-sale debt securities. The provisions of this standard will primarily impact the allowance for doubtful accounts on our trade receivables, contracts in progress, and potentially our impairment model for available-for-sale debt securities (to the extent we have any upon adoption). For SEC filers,public, smaller reporting companies, this standard is effective for fiscal years beginning after December 15, 2019,2022, including interim periods within those fiscal years. We are currently evaluating the impact of both standards on our condensed consolidated financial statements.
In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The new guidance requires companies acting as the customer in a cloud hosting service arrangement to follow the requirements of ASC 350-40 for capitalizing implementation costs for internal-use software and requires the amortization of these costs over the life of the related service contract. This standard is effective for all public business entities for fiscal years beginning after December 15, 2019, and any interim periods within those fiscal years. Early adoption is permitted in any interim period. We expect the impact of this standard on our financial statements will be immaterial.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
***** Cautionary Statement Concerning Forward-Looking Information *****
This quarterly report, including Management's Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. You should not place undue reliance on these statements. Statements that include the words "expect," "intend," "plan," "believe," "project," "forecast," "estimate," "may," "should," "anticipate" and similar statements of a future or forward-looking nature identify forward-looking statements.
These forward-looking statements address matters thatare based on management’s current expectations and involve a number of risks and uncertainties, including, among other things, the impact of COVID-19 on us and include statements that reflect the current views of our senior management with respect to our financial performancecapital markets and future events with respect to our business and industry in general. There are or will be important factors that could cause our actual results to differ materially from those indicated in these statements. If one or more events related to these or other risks or uncertainties materialize, or if
our underlying assumptions prove to be incorrect, actual results may differ materially from what we anticipate. Differences between actual results and any future performance suggested in our forward-looking statements could result from a variety of factors, including the following: our ability to continue as a going concern;global economic climate generally; our recognition of any asset impairments as a result of any decline in the value of our assets or our efforts to dispose of any assets in the future; our ability to obtain and maintain sufficient financing to provide liquidity to meet our business objectives, surety bonds, letters of credit and similar financing; our ability to satisfycomply with the requirements of, and to service the indebtedness under, our revolving credit facilityagreement as amended; our ability to refinance said facility in a timely manner, if at all;amended and restated (the "A&R Credit Agreement"); our ability to obtain waivers of required pension contributions; the highly competitive nature of our businesses;businesses and our ability to win work, including identified project opportunities in our pipeline; general economic and business conditions, including changes in interest rates and currency exchange rates; cancellations of and adjustments to backlog and the resulting impact from using backlog as an indicator of future earnings; our ability to perform contracts on time and on budget, in accordance with the schedules and terms established by the applicable contracts with customers; failure by third-party subcontractors, partners or suppliers to perform their obligations on time and as specified; our ability to successfully resolve claims by vendors for goods and services provided and claims by customers for items under warranty; our ability to realize anticipated savings and operational benefits from our restructuring plans, and other cost-savings initiatives; our ability to successfully address remaining itemsproductivity and any warranty obligations within our accrued estimated costs forschedule issues in our Vølund & Other Renewable segment;and SPIG segments, including the ability to complete our European EPC projects and SPIG U.S. loss projects within the expected time frame and the estimated costs; our ability to successfully partner with third parties to win and execute contracts within theour SPIG and Vølund & Other Renewable segment;segments; changes in our effective tax rate and tax positions, including any limitation on our ability to use our net operating loss carryforwards and other tax assets as a result of an "ownership change" under Section 382 of the Internal Revenue Code;assets; our ability to maintain operational support for our information systems against service outages and data corruption, as well as protection against cyber-based network security breaches and theft of data; our ability to protect our intellectual property and renew licenses to use intellectual property of third parties; our use of the percentage-of-completion method of accounting to recognize revenue over time; our ability to successfully manage research and development projects and costs, including our efforts to successfully develop and commercialize new technologies and products; the operating risks normally incident to our lines of business, including professional liability, product liability, warranty and other claims against us; changes in, or our failure or inability to comply with, laws and government regulations; actual ofor anticipated changes in governmental regulation, including trade and tariff policies; difficulties we may encounter in obtaining regulatory or other necessary permits or approvals; changes in, and liabilities relating to, existing or future environmental regulatory matters; changes in actuarial assumptions and market fluctuations that affect our net pension liabilities and income; potential violations of the Foreign Corrupt Practices Act; our ability to successfully compete with current and future competitors; the loss of key personnel and the continued availability of qualified personnel; our ability to negotiate and maintain good relationships with labor unions; changes in pension and medical expenses associated with our retirement benefit programs; social, political, competitive and economic situations in foreign countries where we do business or seek new business; the possibilities of war, other armed conflicts or terrorist attacks; and the willingness of customers and suppliers to continue to do business with us on reasonable terms and conditions as well asconditions; our ability to successfully consummate strategic alternatives for non-core assets, if we determine to pursue them. These factors include the cautionary statements included in this reportthem; and the other factors specified and set forth under Part I, Item 1A "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2018, as amended ("Annual Report")periodic reports filed with the Securities and Exchange Commission.
These factors areCommission, including our most recent annual report on Form 10-K and our quarterly report on Form 10-Q for the quarter ended June 30, 2020. The Company cautions not necessarily allto place undue reliance on these forward-looking statements, which speak only as of the factors that could affect us. We assumedate of this report, and the Company undertakes no obligation to reviseupdate or updaterevise any forward-looking statement, included in this quarterly report orexcept to the Annual Report for any reason, except asextent required by applicable law.
OVERVIEW OF RESULTS
In December 2019, a novel strain of coronavirus, COVID-19, was identified in Wuhan, China and has subsequently spread globally. This global pandemic has disrupted business operations, trade, commerce, financial and credit markets, and daily life throughout the world. Our business has been adversely impacted by the measures taken and restrictions imposed in the countries in which we operate and by local governments and others to control the spread of this report, unlessvirus. These measures and restrictions have varied widely and have been subject to significant changes from time to time depending on the context otherwise indicates, "BW," "we," "us," "our" and "the Company" mean Babcock & Wilcox Enterprises, Inc. and its consolidated subsidiaries. The presentationchanges in the severity of the componentsvirus in these countries and localities. These restrictions, including travel and curtailment of our revenues, adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA"), and adjusted gross profit as reconciled in the table on the following pages of this Management's Discussion and Analysis of Financial Condition and Results of Operations is consistent with the way our chief operating decision maker reviews the results of operations and makes strategic decisions about the business.
We recorded operating losses of $3.2 million and $39.4 million in the three and nine months ended September 30, 2019, respectively, compared to losses of $45.1 million and $288.9 million in the three and nine months ended September 30, 2018, respectively, and we showed improved results from each of our reporting segments. Prior to 2019, the most significant driver of our operating losses was the charges for the six European Vølund EPC loss contracts. The scope of these EPC (Engineer, Procure and Construct) contracts extended beyond our core technology, products and services. In the three and nine months ended September 30, 2019, we recorded $0.7 million and $8.0 million, respectively, in net losses compared to losses of $19.1 million and $129.1 million in the three and nine months ended September 30, 2018, respectively, from changes in theother activity
negatively impact our ability to conduct business. In some countries restrictions have lessened, in others they have lessened and then increased. These varying and changing events have caused many of the projects we anticipated to begin in 2020 to be delayed to later in 2020 and others to be delayed further into 2021 and 2022. Also, we have experienced and continue to experience variations in the levels of restrictions and expect such restrictions to continue to change depending on the severity of the virus in various locations around the world. Many customers and projects require B&W's employees to travel to customer and project worksites. Certain customers and significant projects are located in areas where travel restrictions have been imposed, certain customers have closed or reduced on-site activities, and timelines for completion of certain projects have, as noted above, been extended into next year and beyond. Additionally, out of concern for our employees, even where restrictions permit employees to return to our offices and worksites, we have advised those who are uncomfortable returning to worksites due to the pandemic that they are not required to do so for an indefinite period of time. The resulting uncertainty concerning, among other things, the spread and economic impact of the virus has also caused significant volatility and, at times, illiquidity in global equity and credit markets.
Our operating results for the three and six months ended June 30, 2020 have been negatively impacted by the COVID-19 pandemic. Because the majority of our revenues are driven by projects, we cannot reasonably estimate the amount of the decreases in our operating results directly caused by COVID-19. We have experienced adverse impacts on our 2020 revenues due to delays in closing new business deals, deferrals or delays in starting new projects, and other product volume decreases due to COVID-19 in 2020 caused by the following, among other reasons:
Customers’ concern regarding the duration and magnitude of COVID-19;
Customers’ hesitance to place large orders;
Certain planned 2020 projects being extended out to next year and beyond;
Field service personnel unable to get to certain site projects;
Travel restrictions impeding our ability to acquire new customers; and
International growth plans hindered by recruitment, training & deployment of new field personnel.
We recorded operating losses of $7.7 million and $18.0 million in the three and six months ended June 30, 2020, respectively, compared to losses of $4.3 million and $36.2 million in the three and six months ended June 30, 2019, respectively and we showed improved results in our Vølund & Other Renewable segment.
Our Babcock & Wilcox segment generated adjusted EBITDA of $9.5 million and $20.2 million in the three and six months ended June 30, 2020, respectively, compared to $19.1 million and $28.2 million in the three and six months ended June 30, 2019, respectively. This decline is primarily attributable to the decrease in revenue volume including the impacts of COVID-19, as described above, partially offset by the results of costs savings and restructuring initiatives.
Adjusted EBITDA in the Vølund & Other Renewable segment was $(0.5) million and $(3.8) million in the three and six months ended June 30, 2020, respectively, and $(0.7) million and $(9.5) million in the three and six months ended June 30, 2019, respectively. The improvement was primarily due to changes in the estimated revenues and costs to complete the six European Vølund EPC loss contracts.contracts being partially offset by the divestiture of Loibl, a material handling business in
Germany, as well as the impacts of COVID-19, as described above. In the three and six months ended June 30, 2020, we recorded $0.4 million of additional costs related to the six European Vølund EPC loss contracts as compared to $3.2 million and $7.4 million, in net losses recorded for the three and six months ended June 30, 2019, respectively. Aside from these loss projects, we have one remaining extended scope contract in our Vølund & Other Renewable business for which we continue to expectturned into a small profit; thisloss contract is expected to be turned over to our customer in the fourth quarter of 2019 due to an increase in estimate to complete; this contract was turned over to the customer in October 2019.
As of SeptemberJune 30, 2019,2020, five of the six European Vølund EPC loss contracts had been turned over to the customer, with only punch list or agreed remediation items and performance testing remaining, some of which are expected to be performed during the customers' scheduled maintenance outages. Turnover is not applicable to the fifth loss contract under the terms of the March 29, 2019 settlement agreement with the customers of the second and fifth loss contracts, who are related parties to each other. Under that settlement agreement, we limited our remaining risk related to these contracts by paying a combined £70 million ($91.5 million) on April 5, 2019 in exchange for limiting and further defining our obligations under the second and fifth loss contracts, including waiver of the rejection and termination rights on the fifth loss contract that could have resulted in repayment of all monies paid to us and our former civil construction partner (up to approximately $144 million), and requirement to restore the property to its original state if the customer exercised this contractual rejection right. On the fifth loss contract, we agreed to continue to support construction services to complete certain key systems of the plant by May 31, 2019, for which penalty for failure to complete these systems is limited to the unspent portion of our quoted cost of
the activities through that date. The settlement eliminated all historical claims and remaining liquidated damages. Upon completion of these activities inIn accordance with the settlement, we will have no further obligation related to the fifth loss contract other than customary warranty of core products if the plant is used as a biomass plant as designed. We estimated the portion of this settlement related to waiver of the rejection right on the fifth projectloss contract was $81.1 million, which was recorded in the fourth quarter of 2018 as a reduction in the selling price. We are still pursuing insurance recoveries and claims against subcontractors. For the second loss project,contract, the settlement limited the remaining performance obligations and settled historic claims for nonconformance and delays, and we turned over the plant in May 2019, and subsequently began the operations and maintenance contract to operate this plant. See further discussion of the loss projects in Note 4.4 to the Condensed Consolidated Financial Statements.
The SPIG segment contributed to ourincluded operating results with $(2.4)of $(2.5) million and $(1.8)$(3.7) million of adjusted EBITDA in the three and ninesix months ended SeptemberJune 30, 2019,2020, respectively, compared to $(11.2)$(0.1) million and $(24.6)$0.5 million in the three and ninesix months ended SeptemberJune 30, 2018,2019, respectively. The improvement continuesdecline is due to reflect the effectsimpacts of a 2017 change in strategyCOVID-19, as described above. While the segment was able to improve profitabilitymitigate the impact on project executions, the decision for new investments by focusing on more selective bidding in core geographiesseveral customers has been postponed impacting revenues and products. SPIG's adjusted EBITDAoperating results. At June 30, 2020, SPIG had two significant legacy loss in thecontracts. The first nine months of 2018 was primarily driven by increases in estimated costs to complete new build cooling systems contracts sold under a previous strategy and lower volumes of aftermarket cooling system services. SPIG's new build cooling systems contracts that were sold under the previous strategy were mostly complete as of December 31, 2018; however, included in these few remaining contractsloss contract is a loss contract to engineer, procure materials and then construct a dry cooling system for a gas-fired power plant in the United States, which continued through the nine months of 2019 and will be substantially completed by December 31, 2019. For the three and ninesix months ended SeptemberJune 30, 2019, SPIG's significant2020. Final completion of the first loss contract is expected to be in the third quarter of 2020. The second loss contract is a contract to engineer and procure materials for a dry cooling system for a gas-fired power plant in the United States, which continued through the six months ended June 30, 2020. Final completion of the second loss contract is expected to be in the third quarter of 2020. SPIG's two significant loss contracts, as disclosed in Note 4 to the Condensed Consolidated Financial Statements, generated gross profit (losses)revenues of $(2.5)$2.3 million and $(2.5) million, respectively. For the three and nine months ended September 30, 2018, SPIG's significant loss contract in the United States generated gross profit (losses) of $(2.0) million and $(2.0) million, respectively.
Our Babcock & Wilcox segment generated adjusted EBITDA of $19.3 million and $47.5$3.2 million in the three and ninesix months ended SeptemberJune 30, 2019,2020, respectively, compared to $15.6$7.8 million and $30.8$19.3 million in the three and ninesix months ended SeptemberJune 30, 2018,2019, respectively. The increase is primarily attributable to lower costs
We have manufacturing facilities in Mexico, China, Unites States, Denmark and Scotland. Many aspects of our operations and properties could be affected by political developments, environmental regulations and operating risks. These and other factors may have a material impact on construction projects, cost savings from restructuring initiativesour international and lower warranty expenses partly offset by increases in overhead being absorbed by the segment that were previously absorbed by other segmentsdomestic operations or our business as a whole.
Through our restructuring efforts, we madecontinue to make significant stridesprogress to make our cost structure more variable and to reduce costs. We expect our cost-savings measures to continue to translate to bottom-line results, with top-line growth driven by opportunities for our core technologies and support services across the Babcock & Wilcox, Vølund and Other Renewable, and SPIG segments globally.
We have identified additional initiatives that are underway as of the date of this filing that are expected to further reduce costs, and we expect to continue to explore other cost saving initiatives to improve cash generation and to evaluate additional non-core asset sales to reducecontinue to strengthen our debt.liquidity. There are or will be important factors that could cause our actual results to differ materially from those indicated in these statements. If one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what we anticipate.
ComparisonsYear-over-year comparisons of our results from continuing operations for the three and nine months ended September 30, 2019 to the corresponding periods of 2018 were also affected by the following:by:
$3.62.4 million and $4.3 million of loss on sale of business was recognized in the nine months ended ended September 30, 2019 for a non-core materials handling business in Germany, Loibl GmbH, as described in Note 25.
$2.6 million and $9.6 million of restructuring and spin-off costs were recognized in the three and ninesix months ended SeptemberJune 30, 2019,2020, respectively, compared to $2.9$0.9 million and $13.6$7.0 million of restructuring and spin-off costs recognized in the three and ninesix months ended SeptemberJune 30, 2018.2019, respectively. The actionsrestructuring costs primarily related to severance and COVID-19 related costs in the first ninesix months of 2019
2020 and was primarily related to severance. Inseverance in the first ninesix months of 2018 restructuring costs related primarily to executive severance and the remaining severance costs of prior restructuring initiatives.2019.
$1.20.6 million and $8.4$1.5 million of financial advisory servicesservice fees were recorded in the three and ninesix months ended SeptemberJune 30, 2019,2020, respectively, as compared to $7.2$3.2 million and $15.5$7.2 million in the corresponding periods of 2018.2019. These services are requirements of therequired under our U.S. Revolving Credit Facility. Financial advisory service fees are included in advisory fees and settlement costs in the Condensed Consolidated Statement of Operations.
$6.6 million of settlement cost was recognized in the nine months ended September 30,first quarter of 2019 for costs of a settlement in connection with an additional European waste-to-energy EPC contract, for which notice to proceed was not given and the contract was not started.started and is included in advisory fees and settlement costs in the Condensed Consolidated Statement of Operations. The settlement limits our obligations to our core scope activities and eliminates risk related to acting as the prime EPC should the project have moved forward.
$2.81.2 million and $7.4$3.8 million of legal and other advisory fees were recognized in the three and ninesix months ended SeptemberJune 30, 2019,2020, respectively, compared to $1.6 million and $4.7 million in the corresponding periods of 2019. These fees are related to the contract settlementssettlement and liquidity planning and are included in advisory fees and settlement
costs in the Condensed Consolidated Statement of Operations. The contract settlement is further described above and in Note 4 and for liquidity planning.to the Condensed Consolidated Financial Statements.
$0.72.0 million and $4.74.0 million of accelerated depreciation expense infor the three and ninesix months ended SeptemberJune 30, 2019, respectively, for fixed assets affected by our September 2018 announcement to consolidate office space and relocate our global headquarters to Akron, Ohio expected in the fourth quarterDecember 2019.
$1.30.9 million and $1.3 million of actuarially determined MTMmark to market ("MTM") losses fromon our Canadian pension plan was recognized in the nine months ended September 30, 2019, compared to $4.2 million and $4.7 million of MTM gains from our Canadian pension plan inother post-retirement benefits in the three and ninesix months ended SeptemberJune 30, 2018,2019, respectively. MTM losses are further described in Note 12.
$37.5 million12 to fully impair goodwill related to our SPIG reporting unit in the second quarter of 2018.
$18.4 million of other-than-temporary impairment was recognized in the nine months ended September 30, 2018 for our interest in TBWES, an equity method investment in India based on an agreement to sell our ownership interest.
$6.5 million of gain on sale was recognized during the first quarter 2018 for our equity method investment in China and is included in equity in income and impairment of investees in the Condensed Consolidated Statement of Operations.Financial Statements.
We face liquidity challenges from continued net operating losses and significant decreases in revenues and backlog including those losses recognized on our six European Vølund EPC loss contracts described in Note 4, which have required amendments and waivers to maintain compliance with the Amended Credit Agreement, inclusive of Amendments No. 16 and No. 17. Our liquidity is provided under a credit agreement dated May 11, 2015, as amended, with a syndicate of lenders ("Amended Credit Agreement") that governs a revolving credit facility ("U.S. Revolving Credit Facility") and our last out term loan facility ("Last Out Term Loans"). The Amended Credit Agreement and the amendments and waivers are described in more detail in Note 13, Note 14 and Note 18.
To address our liquidity needs and the going concern uncertainty, we have taken the following actions in 2019 as follows:
completed equitization transactions on July 23, 2019 as described in Note 18 and Note 17, which included an exchange of all of the outstanding balance of Tranche A-1 of the Last Out Term Loans for equity and a rights offering to raise $50.0 million that was used to fully repay Tranche A-2 of the Last Out Term Loans and to reduce a portion of the outstanding principal under Tranche A-3 of the Last Out Term Loans;
executed a one-for-ten reverse stock split of our issued and outstanding common stock, which became effective on July 24, 2019;
completed the sale of a non-core materials handling business in Germany, Loibl GmbH ("Loibl") effective May 31, 2019 for €10.0 million (approximately $11.4 million), subject to adjustment, resulting in net receipt of $7.4 million;
received $150.0 million in face value from Tranche A-3 of the Last Out Term Loans before original issuance discount and fees, as described in Note 14, from B. Riley FBR, Inc., a related party, on April 5, 2019;
received $10.0 million in net proceeds from Tranche A-2 of the Last Out Term Loans, described in Note 14, from B. Riley Financial, Inc. (together with its affiliates, including B. Riley FBR, Inc., "B. Riley"), a related party, on March 20, 2019;
reduced uncertainty and provided better visibility into our future liquidity requirements by turning over five of the six European Vølund EPC loss contracts to the customers by the end of second quarter of 2019, partly facilitated by a settlement related to the second and fifth loss contracts as described in Note 4, which was funded with proceeds from Tranche A-3 of the Last Out Term Loans;
entered into an additional settlement as described in Note 4 in connection with an additional European waste-to-energy EPC contract, for which notice to proceed was not given and the contract was not started, whereby our obligations and our risk from acting as the prime EPC should the project move forward was eliminated;
entered into several amendments and waivers to avoid default and improve our liquidity under the terms of our Amended Credit Agreement as described in Note 13 and Note 14, the most recent of which were Amendments No. 16 and No. 17, dated April 5, 2019 and August 7, 2019, respectively, which provided Tranche A-3 of the Last Out Term Loans described above and in Note 14, reset the financial and other covenants, adjusted the interest rate of the Last Out Term Loans, reset the maturity date of the Last Out Term Loans to December 31, 2020, increased borrowing capacity under the U.S. Revolving Credit Facility by reducing the minimum liquidity requirement, allowed for the issuance of a limited amount of new letters of credit with respect to any future Vølund project, permitted other letters of credit to expire up to one year after the maturity of the U.S. Revolving Credit Facility, clarifies (Amendment No. 17) the definition cumulatively through Amendment No. 16 of the amounts that can be used in calculating the loss basket for certain Vølund contracts, and resets the loss basket for certain Vølund contracts to $15.0 million to align with the clarification commencing with the quarter ending March 31, 2019; and
filed and plan to file for waiver of required minimum contributions to the U.S. Pension Plan as described in Note 12, that if granted, would reduce cash funding requirements in 2019 by approximately $15 million and a similar or greater amount in 2020 and would increase contributions over the following five years. The waiver request for the 2018 plan year was approved by the IRS on August 27, 2019 and the waiver request for the 2019 plan year is expected to be filed later in 2019 or early 2020.
Management believes it has taken and is continuing to take prudent actions to address the substantial doubt regarding our ability to continue as a going concern, but we cannot assert that it is probable that our plans will fully mitigate the liquidity challenges we face because some matters may not fully be in our control. Amendment No. 16 to the Amended Credit Facility also created a new event of default for failure to terminate the existing U.S. Revolving Credit Facility on or prior to March 15, 2020, which is within twelve months of the date of this filing. Our ability to comply with the financial and other covenants of the Amended Credit Facility through that date are dependent upon achieving our forecasted financial results. While management believes it will be able to obtain additional financing to replace our U.S. Revolving Credit facility, the ability to do so will depend on credit markets and other matters that are outside of our control.
In addition to the discussions regarding additional financing described above, we continue to evaluate further dispositions, opportunities for additional cost savings and opportunities for insurance recoveries and other claims where appropriate and available. If the value of our business werewas to decline, or if we were to determine that we were unable to recognize an amount in connection with any proposed disposition in excess of the carrying value of any disposed asset, we may be required to recognize impairments for one or more of our assets that may adversely impact our business, financial condition and results of operations.
RESULTS OF OPERATIONS
Condensed Consolidated Results of Operations
Beginning in 2018, we changed our primary measure of segment profitability from gross profit to adjusted earnings before interest, tax, depreciation and amortization ("EBITDA"). The presentation of the components of our adjusted EBITDA in the table below is consistent with the way our chief operating decision maker reviews the results of our operations and makes strategic decisions about our business. Items such as gains or losses on asset sales, mark to market ("MTM") pension adjustments, restructuring and spinspin-off costs, impairments, losses on debt extinguishment, costs related to financial consulting required under our U.S. Revolving Credit Facility and other costs that may not be directly controllable by segment management are not allocated to the segment. Beginning
|
| | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, | Six months ended June 30, |
| (In thousands) | 2020 | 2019 | $ Change | 2020 | 2019 | $ Change |
| Revenues: | | | | | | |
| Babcock & Wilcox segment | $ | 104,790 |
| $ | 200,964 |
| $ | (96,174 | ) | $ | 226,746 |
| $ | 389,522 |
| $ | (162,776 | ) |
| Vølund & Other Renewable segment | 20,250 |
| 33,695 |
| (13,445 | ) | 35,559 |
| 63,227 |
| (27,668 | ) |
| SPIG segment | 10,853 |
| 22,834 |
| (11,981 | ) | 22,190 |
| 51,736 |
| (29,546 | ) |
| Eliminations | (496 | ) | (9,378 | ) | 8,882 |
| (544 | ) | (24,434 | ) | 23,890 |
|
| | $ | 135,397 |
| $ | 248,115 |
| $ | (112,718 | ) | $ | 283,951 |
| $ | 480,051 |
| $ | (196,100 | ) |
|
| | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, | Six months ended June 30, |
| (in thousands) | 2020 | 2019 | $ Change | 2020 | 2019 | $ Change |
Adjusted EBITDA (1) | | | | | | |
| Babcock & Wilcox segment | $ | 9,498 |
| $ | 19,137 |
| $ | (9,639 | ) | $ | 20,152 |
| $ | 28,226 |
| $ | (8,074 | ) |
| Vølund & Other Renewable segment | (506 | ) | (718 | ) | 212 |
| (3,799 | ) | (9,507 | ) | 5,708 |
|
| SPIG segment | (2,525 | ) | (142 | ) | (2,383 | ) | (3,717 | ) | 516 |
| (4,233 | ) |
| Corporate | (3,807 | ) | (9,323 | ) | 5,516 |
| (7,950 | ) | (13,914 | ) | 5,964 |
|
| Research and development costs | (1,231 | ) | (710 | ) | (521 | ) | (2,572 | ) | (1,453 | ) | (1,119 | ) |
| | $ | 1,429 |
| $ | 8,244 |
| $ | (6,815 | ) | $ | 2,114 |
| $ | 3,868 |
| $ | (1,754 | ) |
(1) Adjusted EBITDA, for the three and six months ended June 30, 2019, excludes stock compensation that was previously included in the first quarter of 2019, pension benefit (expense), which affected onlysegment results and totals $0.1 million and $0.2 million, respectively, in the Babcock & Wilcox segment, is also not allocated to adjusted EBITDA of$0.1 million and $0.1 million, respectively, in the segments.Vølund & Other Renewable segment, and $0.0 million and $0.4 million, respectively, in Corporate. Beginning in the third quarter of 2019, stock compensation expense is not allocated to adjustedno longer considered in Adjusted EBITDA for purposes of managing the segments. Priorbusiness, and prior periods have been conformedadjusted to be comparable.presented on a comparable basis.
Three Months Ended June 30, 2020 and 2019
Revenues decreased by$112.7 millionto $135.4 million in the second quarter of 2020 as compared to $248.1 million in the second quarter of 2019. Revenues for each of our segments have been adversely impacted by COVID-19. Revenue in the Babcock & Wilcox segment decreased by $96.2 million primarily due to the completion of several large construction projects
and a lower level of volume related to customers' concern regarding the duration and magnitude of COVID-19 as well as delays to place large orders due to the impacts of COVID-19. Revenue in the Vølund & Other Renewable segment decreased by $13.4 million partially due to the divestiture of Loibl, a materials handling business in Germany, which contributed $7.1 million of revenue in the second quarter of 2019, as well as new anticipated activities being deferred due to COVID-19. Revenue was also lower in the Vølund & Other Renewable segment due to the advanced completion of activities on the EPC loss projects being partially offset by a full period of activities on two operations and maintenance contracts in the U.K. which followed the turnover of the EPC loss contracts to the customers. SPIG segment revenue declined $12.0 million partially due to the postponement of new projects by several customers as a result of COVID-19.
Operating losses increased $3.4 million to $(7.7) million in the second quarter of 2020 from $(4.3) million in the second quarter of 2019, primarily due to the decrease in revenue volume as described above, partially offset by the impacts of costs savings and restructuring initiatives in the Babcock & Wilcox segment, the divestiture of Loibl and the impacts of COVID-19 in the Vølund & Other Renewable segment being partially offset by lower levels of direct overhead support and SG&A and a decline in overall volume and unfavorable product mix in the SPIG segment. Restructuring expenses, advisory fees, amortization expense, gains (losses) on dispositions of equity method investees, and impairments are discussed in further detail in the sections below.
Six Months Ended June 30, 2020 and 2019
Revenues decreased by $196.1 million to $284.0 million in the six months ended June 30, 2020 as compared to $480.1 million in the six months ended June 30, 2019. Revenues for each of our segments have been adversely impacted by COVID-19. Revenue in the Babcock & Wilcox segment decreased by $162.8 million primarily due to the completion of several large construction projects that were actively being worked on during the comparable prior year period. Additionally, revenue is down due to a lower level of volume related to customers' concern regarding the duration and magnitude of COVID-19 as well as delays to place large orders due to the impacts of COVID-19. Revenue in the Vølund & Other Renewable segment decreased by $27.7 million partially due to the divestiture of Loibl, a materials handling business in Germany, which contributed $14.3 million of revenue in the six months ended June 30, 2019, as well as new anticipated revenues being deferred due to COVID-19. Revenue was also lower in the Vølund & Other Renewable segment due to the advanced completion of activities on the EPC loss projects in the prior year being partially offset by the startup and full period of activities on two operations and maintenance contracts in the U.K. which followed the turnover of the EPC loss contracts to the customers. SPIG segment revenue declined $29.5 million partially due to the postponement of new projects by several customers as a result of COVID-19.
Operating losses improved $18.2 million to $(18.0) million in the six months ended June 30, 2020 from $(36.2) million in the six months ended June 30, 2019, primarily due to the absence of losses on the EPC loss contracts, profit from the startup and full period of activities on two operations and maintenance contracts in the U.K. and lower levels of direct overhead support and SG&A, in the Vølund & Other Renewable segment being partly offset by the divestiture of Loibl and the impacts of COVID-19 in the Vølund & Other Renewable segment, a decline in overall volume in the SPIG segment and an overall decrease in revenue volume in the Babcock & Wilcox segment as described above. Restructuring expenses, advisory fees, amortization expense, gains (losses) on dispositions of equity method investees, and impairments are discussed in further detail in the sections below.
Non-GAAP Financial Measures
The following discussion of Consolidated Resultsour business segment results of Operations and Business Segment Resultsoperations includes a discussion of Operations includesadjusted gross profit, a non-GAAP financial measure. This financial measure includes adjustedAdjusted gross profit for each business segment, which differs from the most directly comparable measure calculated in accordance with generally accepted accounting principles (GAAP)("GAAP"). Intangible amortizationAmortization expense is not allocated to the segments’ adjusted gross profit. A reconciliation of operating loss, the most directly comparable GAAP measure, to adjusted gross profit is included in the table below. Management believes that this financial measure is useful to investors because it excludes certain expenses, allowing investors to more easily compare our financial performance period to period.
|
| | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | Nine months ended September 30, |
| (In thousands) | 2019 | 2018 | $ Change | 2019 | 2018 | $ Change |
| Revenues: | | | | | | |
| Babcock & Wilcox segment | $ | 161,824 |
| $ | 191,050 |
| $ | (29,226 | ) | $ | 551,346 |
| $ | 547,928 |
| $ | 3,418 |
|
| Vølund & Other Renewable segment | 32,350 |
| 76,484 |
| (44,134 | ) | 95,577 |
| 191,444 |
| (95,867 | ) |
| SPIG segment | 10,311 |
| 34,849 |
| (24,538 | ) | 62,047 |
| 117,608 |
| (55,561 | ) |
| Eliminations | (5,841 | ) | (7,420 | ) | 1,579 |
| (30,275 | ) | (17,504 | ) | (12,771 | ) |
| | $ | 198,644 |
| $ | 294,963 |
| $ | (96,319 | ) | $ | 678,695 |
| $ | 839,476 |
| $ | (160,781 | ) |
|
| | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | Nine months ended September 30, |
| (in thousands) | 2019 | 2018 | $ Change | 2019 | 2018 | $ Change |
Adjusted EBITDA (1) | | | | | | |
Babcock & Wilcox segment(2) | $ | 19,309 |
| $ | 15,639 |
| $ | 3,670 |
| $ | 47,535 |
| $ | 30,751 |
| $ | 16,784 |
|
| Vølund & Other Renewable segment | (2,921 | ) | (25,703 | ) | 22,782 |
| (12,428 | ) | (165,944 | ) | 153,516 |
|
| SPIG segment | (2,361 | ) | (11,192 | ) | 8,831 |
| (1,845 | ) | (24,621 | ) | 22,776 |
|
Corporate(3) | (3,059 | ) | (4,952 | ) | 1,893 |
| (16,973 | ) | (20,787 | ) | 3,814 |
|
| Research and development costs | (828 | ) | (452 | ) | (376 | ) | (2,281 | ) | (2,881 | ) | 600 |
|
| $ | 10,140 |
| $ | (26,660 | ) | $ | 36,800 |
| $ | 14,008 |
| $ | (183,482 | ) | $ | 197,490 |
|
|
| | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | Six months ended June 30, |
| (in thousands) | 2020 | 2019 | $ Change | 2020 | 2019 | $ Change |
Adjusted gross profit (loss) (1) | | | |
|
| | |
| Operating loss | $ | (7,703 | ) | $ | (4,258 | ) | $ | (3,445 | ) | $ | (18,001 | ) | $ | (36,220 | ) | $ | 18,219 |
|
| Selling, general and administrative ("SG&A") expenses | 34,504 |
| 41,948 |
| (7,444 | ) | 72,036 |
| 84,217 |
| (12,181 | ) |
| Advisory fees and settlement costs | 1,989 |
| 4,778 |
| (2,789 | ) | 6,228 |
| 18,388 |
| (12,160 | ) |
| Amortization expense | 1,335 |
| 1,142 |
| 193 |
| 2,745 |
| 2,329 |
| 416 |
|
| Restructuring activities | 2,392 |
| 936 |
| 1,456 |
| 4,343 |
| 7,015 |
| (2,672 | ) |
| Research and development costs | 1,231 |
| 710 |
| 521 |
| 2,572 |
| 1,453 |
| 1,119 |
|
| Losses (gains) on asset disposals, net | 2 |
| 42 |
| (40 | ) | (913 | ) | 42 |
| (955 | ) |
| | $ | 33,750 |
| $ | 45,298 |
| $ | (11,548 | ) | $ | 69,010 |
| $ | 77,224 |
| $ | (8,214 | ) |
(1) Adjusted EBITDA for the three and nine months ended September 30, 2018 excludes stock compensation that was previously included in segment results and totals $0.3 million and $1.3 million, respectively in the Babcock & Wilcox segment, $0.1 million and $0.3 million, respectively in the Vølund & Other Renewable segment, $0.0 million and $0.1 million, respectively in the SPIG segment, and $0.9 million and $2.8 million, respectively in Corporate. Beginning in the third quarter of 2019, stock compensation is no longer allocated to the segments, and prior periods have been adjusted to be presented on a comparable basis.
| |
(2)
| The Babcock & Wilcox segment adjusted EBITDA for the three and nine months ended September 30, 2018 excludes $6.6 million and $20.1 million, respectively, of net benefit from pension and other postretirement benefit plans, excluding MTM adjustments, that were previously included in the segment results. Beginning in 2019, net pension benefits are no longer allocated to the segments, and prior periods have been adjusted to be presented on a comparable basis.
|
| |
(3)
| Allocations are excluded from discontinued operations. Accordingly, allocations previously absorbed by the MEGTEC and Universal businesses in the SPIG segment have been included with other unallocated costs in Corporate, and total $2.9 million and $8.6 million in the three months and nine months ended September 30, 2018, respectively. |
|
| | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | Nine months ended September 30, |
| (in thousands) | 2019 | 2018 | $ Change | 2019 | 2018 | $ Change |
Adjusted gross profit (loss)(1) | | | |
|
| | |
| Operating loss | $ | (3,177 | ) | $ | (45,147 | ) | $ | 41,970 |
| $ | (39,397 | ) | $ | (288,926 | ) | $ | 249,529 |
|
| Selling, general and administrative ("SG&A") expenses | 35,828 |
| 44,887 |
| (9,059 | ) | 120,045 |
| 151,007 |
| (30,962 | ) |
| Advisory fees and settlement costs | 4,474 |
| 7,244 |
| (2,770 | ) | 22,862 |
| 15,475 |
| 7,387 |
|
| Intangible amortization expense | 972 |
| 1,342 |
| (370 | ) | 3,301 |
| 5,398 |
| (2,097 | ) |
| Goodwill impairment | — |
| — |
| — |
| — |
| 37,540 |
| (37,540 | ) |
| Restructuring activities and spin-off transaction costs | 2,556 |
| 2,863 |
| (307 | ) | 9,571 |
| 13,551 |
| (3,980 | ) |
| Research and development costs | 828 |
| 452 |
| 376 |
| 2,281 |
| 2,881 |
| (600 | ) |
| (Gain) loss on asset disposals, net | (266 | ) | 28 |
| (294 | ) | (224 | ) | 1,412 |
| (1,636 | ) |
| Equity in income and impairment of investees | — |
| — |
| — |
| — |
| 11,757 |
| (11,757 | ) |
| | $ | 41,215 |
| $ | 11,669 |
| $ | 29,546 |
| $ | 118,439 |
| $ | (49,905 | ) | $ | 168,344 |
|
(1) Intangible amortizationAmortization is not allocated to the segments' adjusted gross profit, but depreciation is allocated to the segments' adjusted gross profit.
Adjusted gross profit by segment is as follows:
|
| | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | Nine months ended September 30, |
| (in thousands) | 2019 | 2018 | $ Change | 2019 | 2018 | $ Change |
| Adjusted gross profit (loss) | | | | | | |
| Babcock & Wilcox segment | $ | 40,970 |
| $ | 34,313 |
| $ | 6,657 |
| $ | 109,929 |
| $ | 95,189 |
| $ | 14,740 |
|
| Vølund & Other Renewable segment | 1,259 |
| (17,120 | ) | 18,379 |
| 3,460 |
| (136,898 | ) | 140,358 |
|
| SPIG segment | (1,014 | ) | (5,524 | ) | 4,510 |
| 5,050 |
| (8,196 | ) | 13,246 |
|
| | $ | 41,215 |
| $ | 11,669 |
| $ | 29,546 |
| $ | 118,439 |
| $ | (49,905 | ) | $ | 168,344 |
|
Consolidated Results of Operations
Three Months Ended September 30, 2019 and 2018
Revenues decreased by $96.3 million to $198.6 million in the third quarter of 2019 as compared to $295.0 million in the third quarter of 2018. Revenue in the Babcock & Wilcox segment decreased by $29.2 million primarily due to lower volume related to the completion of large construction new build projects. Revenue in the Vølund & Other Renewable segment revenues decreased by $44.1 million due to the divestiture of our Palm Beach Resources Recovery Corporation ("PBRRC") operations and maintenance contracts in the third quarter of 2018 and Loibl, a materials handling business in Germany in the second quarter of 2019. Revenue was also lower due to the level of activity and changes in estimates in the Engineer, Procure and Construct ("EPC") loss contracts, as described in Note 4, which was partially offset by the startup of two operations and maintenance contracts in the U.K. that followed turnover of the EPC contracts to the customers. SPIG segment revenue declined $24.5 million due to lower volume of new build cooling systems following a 2017 change in strategy to improve profitability by focusing on more selective bidding in core geographies and products.
Operating losses improved $42.0 million to $(3.2) million in the third quarter of 2019 from $(45.1) million in the third quarter of 2018, primarily due to improved gross margins on construction projects in the Babcock & Wilcox segment, a lower level of losses on the six European Vølund EPC loss contracts as described in Note 4 and a change in strategy in the SPIG segment to improve profitability by focusing on more selective bidding in core geographies and products. Restructuring expenses, advisory fees, intangible asset amortization expense, gains (losses) on dispositions of equity method investees, and impairments are discussed in further detail in the sections below.
Nine Months Ended September 30, 2019 and 2018
Revenues decreased by $160.8 million to $678.7 million in the first nine months of 2019 as compared to $839.5 million in the first nine months of 2018. Revenue in the Babcock & Wilcox segment increased by $3.4 million primarily due to a higher volume of large construction new build projects, which were partly offset by a decline in the global new build market. Revenue in the Vølund & Other Renewable segment revenues decreased by $95.9 million due to the divestitures of PBRRC, a subsidiary that held two operations and maintenance contracts for waste-to-energy facilities in West Palm Beach, Florida and Loibl, a materials handling business in Germany. Revenue was also lower due to the lower level of activity and changes in estimates, including the effect of the settlements, on the EPC loss contracts as described above and in Note 4, which was partially offset by the startup of two operations and maintenance contracts in the U.K. SPIG segment revenue declined $55.6 million due to lower volume of new build cooling systems following a 2017 change in strategy to improve profitability by focusing on more selective bidding in core geographies and products.
Operating losses improved $249.5 million to $(39.4) million in the first nine months of 2019 from $(288.9) million in the first nine months of 2018, primarily due to improved revenues and lower costs on construction projects in the Babcock & Wilcox segment, a lower level of losses on the six European Vølund EPC loss contracts as described in Note 4 and a change in strategy in the SPIG segment to improve profitability by focusing on more selective bidding in core geographies and products. Restructuring expenses, advisory fees, intangible asset amortization expense, gains (losses) on dispositions of equity method investees, and impairments are discussed in further detail in the sections below. |
| | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, | Six months ended June 30, |
| (in thousands) | 2020 | 2019 | $ Change | 2020 | 2019 | $ Change |
| Adjusted gross profit (loss) | | | | | | |
| Babcock & Wilcox segment | $ | 29,264 |
| $ | 37,853 |
| $ | (8,589 | ) | $ | 62,145 |
| $ | 68,959 |
| $ | (6,814 | ) |
| Vølund & Other Renewable segment | 4,174 |
| 5,057 |
| (883 | ) | 5,632 |
| 2,201 |
| 3,431 |
|
| SPIG segment | 312 |
| 2,388 |
| (2,076 | ) | 1,233 |
| 6,064 |
| (4,831 | ) |
| | $ | 33,750 |
| $ | 45,298 |
| $ | (11,548 | ) | $ | 69,010 |
| $ | 77,224 |
| $ | (8,214 | ) |
Babcock & Wilcox Segment Results
| | | | Three months ended September 30, | Nine months ended September 30, | Three months ended June 30, | Six months ended June 30, |
| (In thousands) | 2019 | 2018 | $ Change | 2019 | 2018 | $ Change | 2020 | 2019 | $ Change | 2020 | 2019 | $ Change |
| Revenues | $ | 161,824 |
| $ | 191,050 |
| $ | (29,226 | ) | $ | 551,346 |
| $ | 547,928 |
| $ | 3,418 |
| $ | 104,790 |
| $ | 200,964 |
| $ | (96,174 | ) | $ | 226,746 |
| $ | 389,522 |
| $ | (162,776 | ) |
| Adjusted EBITDA | $ | 19,309 |
| $ | 15,639 |
| $ | 3,670 |
| $ | 47,535 |
| $ | 30,751 |
| $ | 16,784 |
| $ | 9,498 |
| $ | 19,137 |
| $ | (9,639 | ) | $ | 20,152 |
| $ | 28,226 |
| $ | (8,074 | ) |
| Adjusted gross profit | $ | 40,970 |
| $ | 34,313 |
| $ | 6,657 |
| $ | 109,929 |
| $ | 95,189 |
| $ | 14,740 |
| $ | 29,264 |
| $ | 37,853 |
| $ | (8,589 | ) | $ | 62,145 |
| $ | 68,959 |
| $ | (6,814 | ) |
| Adjusted gross profit % | 25.3 | % | 18.0 | % | | 19.9 | % | 17.4 | % | | 27.9 | % | 18.8 | % | | 27.4 | % | 17.7 | % | |
Three Months Ended SeptemberJune 30, 20192020 and 20182019
Revenues in the Babcock & Wilcox segment decreased 15%48%, or $29.2$96.2 million to $161.8$104.8 million in the thirdsecond quarter of 20192020 compared to $191.1$201.0 million in the thirdsecond quarter of 2018.2019. The revenue decrease is primarily attributable to lower volume related to the completion of several large construction new build projects.projects and adverse impacts of COVID-19 including a lower level of volume related to customers' concern regarding the duration and magnitude of COVID-19 as well as delays to place large orders due to the impacts of COVID-19.
Adjusted EBITDA in the Babcock & Wilcox segment increased 23%decreased 50%, or $3.7$9.6 million, to $19.3$9.5 million in the thirdsecond quarter of 20192020 compared to $15.6$19.1 million in the thirdsecond quarter of 2018,2019, which is mainly attributable to improved gross margins on construction projects, which were partially offset by the effect of lower volume as described above and increases in corporate overhead being absorbed by the segment that were previously absorbed by the Vølund & Other Renewable and SPIG segments.
Adjusted gross profit in the Babcock & Wilcox increased $6.7 million to $41.0 million in the third quarter of 2019 compared to $34.3 million in the third quarter of 2018, primarily related to improved gross margins on construction projects, which partially offset the gross profit effect of lower volume as described above.
Nine Months Ended September 30, 2019 and 2018
Revenues in the Babcock & Wilcox segment increased 1%, or $3.4 million, to $551.3 million in the nine months ended September 30, 2019 compared to $547.9 million in the corresponding period in 2018. The revenue increase is attributable to a higher volume of large construction new build projects, which were partly offset by a decline in the global new build market.
Adjusted EBITDA in the Babcock & Wilcox segment increased 55%, or $16.8 million, to $47.5 million in the nine months ended September 30, 2019 compared to $30.8 million in the corresponding period in 2018, which is mainly attributable to an increasedecrease in revenue volume as described above lower warranty expense andbeing partially offset by the results of costcosts savings and restructuring initiatives partly offset by increases in corporate overhead being absorbed by the segment that were previously absorbed by the Vølund & Other Renewable and SPIG segments.
initiatives.
Adjusted gross profit in the Babcock & Wilcox segment increased $14.7decreased $8.6 million to $109.9$29.3 million in the nine months ended September 30, 2019 compared to $95.2 million in the corresponding period in 2018, which reflects the increase in revenue above as well as lower costs on construction projects. Additionally, warranty expense in the second quarter of 2018 included $5.32020 compared to $37.9 million of specific provisions on certain contracts in the B&Wsecond quarter of 2019, which is consistent with the decrease in Adjusted EBITDA as described above.
Six Months Ended June 30, 2020 and 2019
Revenues in the Babcock & Wilcox segment for specific technical mattersdecreased 42%, or $162.8 million, to $226.7 million in the six months ended June 30, 2020 compared to $389.5 million in the six months ended June 30, 2019. The revenue decrease is attributable to the completion of several large construction projects that were actively being worked on during the comparable prior year period. Additionally, revenue decreased due to adverse impacts of COVID-19 including a lower level of volume related to customers' concern regarding the duration and customer requirements.magnitude of COVID-19 as well as delays to place large orders due to the impacts of COVID-19.
Adjusted EBITDA in the Babcock & Wilcox segment decreased 29%, or $8.1 million, to $20.2 million in the six months ended June 30, 2020 compared to $28.2 million in the six months ended June 30, 2019, which is mainly attributable to lower revenue volume as described above being partially offset by higher parts margins and the results of costs savings and restructuring initiatives.
Adjusted gross profit in the Babcock & Wilcox segment decreased $6.8 million to $62.1 million in the six months ended June 30, 2020 compared to $69.0 million in the six months ended June 30, 2019, which is consistent with the decrease in Adjusted EBITDA as described above.
Vølund & Other Renewable Segment Results
| | | | Three months ended September 30, | Nine months ended September 30, | Three months ended June 30, | Six months ended June 30, |
| (in thousands) | 2019 | 2018 | $ Change | 2019 | 2018 | $ Change | 2020 | 2019 | $ Change | 2020 | 2019 | $ Change |
| Revenues | $ | 32,350 |
| $ | 76,484 |
| $ | (44,134 | ) | $ | 95,577 |
| $ | 191,444 |
| $ | (95,867 | ) | $ | 20,250 |
| $ | 33,695 |
| $ | (13,445 | ) | $ | 35,559 |
| $ | 63,227 |
| $ | (27,668 | ) |
| Adjusted EBITDA | $ | (2,921 | ) | $ | (25,703 | ) | $ | 22,782 |
| $ | (12,428 | ) | $ | (165,944 | ) | $ | 153,516 |
| $ | (506 | ) | $ | (718 | ) | $ | 212 |
| $ | (3,799 | ) | $ | (9,507 | ) | $ | 5,708 |
|
| Adjusted gross profit (loss) | $ | 1,259 |
| $ | (17,120 | ) | $ | 18,379 |
| $ | 3,460 |
| $ | (136,898 | ) | $ | 140,358 |
| |
| Adjusted gross profit | | $ | 4,174 |
| $ | 5,057 |
| $ | (883 | ) | $ | 5,632 |
| $ | 2,201 |
| $ | 3,431 |
|
| Adjusted gross profit (loss) % | 3.9 | % | (22.4 | )% | | 3.6 | % | (71.5 | )% | | 20.6 | % | 15.0 | % | | 15.8 | % | 3.5 | % | |
Three Months Ended SeptemberJune 30, 20192020 and 20182019
Revenues in the Vølund & Other Renewable segment decreased 58%40%, or $44.1$13.4 million to $32.4$20.3 million in the thirdsecond quarter of 20192020 compared to $76.5$33.7 million in the thirdsecond quarter of 2018.2019. The reduction in revenue partially relates to the divestituresdivestiture of PBRRC, a subsidiary that held two operations and maintenance contracts for waste-to-energy facilities in West Palm Beach, Florida and Loibl, a materials handling business in Germany, that had previously generated annual revenues of approximately $60 million and $30 million respectively. Revenueannually and contributed $7.1 million in the second quarter of 2019, as well as new anticipated revenues being deferred due to COVID-19. The reduction in revenue was also lower due to the leveladvanced completion of activity and changes in estimates inactivities on the EPC loss contracts, as described in Note 4, which wasprojects being partially offset by the startupa full period of activities on two operations and maintenance contracts in the U.K. thatwhich followed the turnover of the EPC loss contracts to the customers. Our revenue
Adjusted EBITDA in 2019 was also affected by a previous change in strategy for the Vølund business. In 2017, we redefined our approach& Other Renewable segment was $(0.5) million in the second quarter of 2020 compared to bidding on and executing renewable energy contracts, under which we are focusing on engineering and supplying our core waste-to-energy and renewable energy technologies - steam generation, combustion grate, environmental equipment, material handling and cooling condensers - while partnering with other firms$(0.7) million in the second quarter of 2019. The small improvement is primarily attributable to execute the balance of plant and civil construction scope on contracts we pursue. We expect this lower, more focused scope to result in lower levels of revenue, but better execution on future work. Additionally, we previously madedirect overhead support and SG&A, reflecting the decision to limit bidding onbenefits of restructuring, offset by the divestiture of Loibl and the impacts of COVID-19, as described above
Adjusted gross profit in the Vølund renewable energy& Other Renewable segment decreased $0.9 million to $4.2 million in the second quarter of 2020 compared to $5.1 million in the second quarter of 2019. The decline was primarily driven by the divestiture of Loibl, the impacts of COVID-19 and lower revenue, as described above, partially offset by lower levels of direct overhead.
Six Months Ended June 30, 2020 and 2019
Revenues in the Vølund & Other Renewable segment decreased 44%, or $27.7 million to $35.6 million in the six months ended June 30, 2020 compared to $63.2 million in the six months ended June 30, 2019. The reduction in revenue partially relates to the divestiture of Loibl, a materials handling business in Germany, that had previously generated annual revenues of approximately $30 million annually and contributed $14.3 million in the six months ended June 30, 2019, as well as new anticipated revenues being deferred due to COVID-19. The reduction in revenue was also due to the advanced completion of activities on the EPC loss projects in the prior year being partially offset by the startup and full period of activities on two operations and maintenance contracts while we focused on progressingin the U.K. which followed the turnover of the EPC loss contracts and that previous limit on bidding has resulted in lower revenue in 2019.to the customers.
Adjusted EBITDA in the Vølund & Other Renewable segment improved $22.8$5.7 million to $(2.9)$(3.8) million in the third quarter of 2019six months ended June 30, 2020 compared to $(25.7)$(9.5) million in the third quarter of 2018.six months ended June 30, 2019. The improvement was primarily due to changes in the estimated revenues and costs to complete the six European Vølund EPC loss contracts. In the third quarter of 2018,six months ended June 30, 2020 and 2019, we recorded $19.1$0.3 million and $7.4 million in net losses, including warranty resulting from changes in the estimated revenues and costs to complete the six European Vølund EPC loss contracts as compared to $0.7 million of equivalent losses recorded in the third quarter of 2019 inclusive of warranty.respectively. Beyond the effect of the loss contracts, Adjusted EBITDA for 2020 included profit from the startup and full period of activities on two operations and maintenance contracts in the third quarter 2019 includedU.K. and lower levels of direct overhead support warranty expense and lower SG&A, reflecting the benefits of restructuring, partially offset partially by the absencedivestiture of gross profit from PBRRCLoibl and Loiblthe impacts of COVID-19, as described above.
Adjusted gross profit (loss) in the Vølund & Other Renewable segment increased $18.4$3.4 million to $1.3$5.6 million in the third quarter of 2019six months ended June 30, 2020 compared to $(17.1)$2.2 million in the third quarter of 2018.six months ended June 30, 2019. The improvement was primarily driven by lowerthe additional costs related to complete the six European Vølund EPC loss contracts as described in the Adjusted EBITDA section above. Beyond the effect of the loss contracts, the third quarter 2019adjusted gross profit for the six months ended June 30, 2020 included lower levels of direct overhead support and warranty expense,profits from operations and maintenance contracts, offset by the absence of adjusted gross profit from PBRRCLoibl and Loibl as described above.
Nine Months Ended September 30, 2019 and 2018
Revenues in the Vølund & Other Renewable segment decreased 50%, or $95.9 million to $95.6 million in the nine months ended September 30, 2019 compared to $191.4 million in the corresponding period in 2018. The reduction in revenue relates to the divestituresimpacts of PBRRC, a subsidiary that held two operations and maintenance contracts for waste-to-energy facilities in West Palm Beach, Florida and Loibl, a materials handling business in Germany, that had previously generated annual revenues of approximately $60 million and $30 million, respectively. Revenue was also lower due to the lower level of activity and changes in estimates, including the effect of the settlements, on the EPC loss contracts as described in Note 4,
which was partially offset by the startup of two operations and maintenance contracts in the U.K. that followed turnover of the EPC contracts to the customers. Our revenue in 2019 was also affected by a previous change in strategy for the Vølund business and a previous decision to limit bidding on Vølund renewable energy contracts while we focused on progressing the EPC loss contracts, both of which are described above.
Adjusted EBITDA in the Vølund & Other Renewable segment improved $153.5 million to $(12.4) million in the nine months ended September 30, 2019 compared to $(165.9) million in the corresponding period of 2018. The improvement was primarily due to changes in the estimated revenues and costs to complete the six European Vølund EPC loss contracts. In the nine months ended September 30, 2019 and September 30, 2018, we recorded $8.0 million and $129.1 million in net losses including warranty, respectively. Beyond the effect of the loss contracts, Adjusted EBITDA for the nine months ended September 30, 2019 included lower levels of direct overhead support, warranty expense and lower SG&A, reflecting the benefits of restructuring offset partially by the absence of gross profit from PBRRC and Loibl as described above.
Adjusted gross profit (loss) in the Vølund & Other Renewable segment increased $140.4 million to $3.5 million in the nine months ended September 30, 2019 compared to $(136.9) million in the corresponding period in 2018. The improvement was primarily driven by lower costs to complete the six European Vølund EPC loss contracts as described in the Adjusted EBITDA section above. Beyond the effect of the loss contracts, gross profit for the nine months ended September 30, 2019 included lower levels of direct overhead support and warranty expense, offset by the absence of gross profit from PBRRC and LoiblCOVID-19 as described above.
SPIG Segment Results
| | | | Three months ended September 30, | Nine months ended September 30, | Three months ended June 30, | Six months ended June 30, |
| (In thousands) | 2019 | 2018 | $ Change | 2019 | 2018 | $ Change | 2020 | 2019 | $ Change | 2020 | 2019 | $ Change |
| Revenues | $ | 10,311 |
| $ | 34,849 |
| $ | (24,538 | ) | $ | 62,047 |
| $ | 117,608 |
| $ | (55,561 | ) | $ | 10,853 |
| $ | 22,834 |
| $ | (11,981 | ) | $ | 22,190 |
| $ | 51,736 |
| $ | (29,546 | ) |
| Adjusted EBITDA | $ | (2,361 | ) | $ | (11,192 | ) | $ | 8,831 |
| $ | (1,845 | ) | $ | (24,621 | ) | $ | 22,776 |
| $ | (2,525 | ) | $ | (142 | ) | $ | (2,383 | ) | $ | (3,717 | ) | $ | 516 |
| $ | (4,233 | ) |
| Adjusted gross (loss) profit | $ | (1,014 | ) | $ | (5,524 | ) | $ | 4,510 |
| $ | 5,050 |
| $ | (8,196 | ) | $ | 13,246 |
| |
| Adjusted gross (loss) profit % | (9.8 | )% | (15.9 | )% | | 8.1 | % | (7.0 | )% | | |
| Adjusted gross profit | | $ | 312 |
| $ | 2,388 |
| $ | (2,076 | ) | $ | 1,233 |
| $ | 6,064 |
| $ | (4,831 | ) |
| Adjusted gross profit % | | 2.9 | % | 10.5 | % | | 5.6 | % | 11.7 | % | |
Three Months Ended SeptemberJune 30, 20192020 and 20182019
Revenues in the SPIG segment decreased 70%52%, or $24.5$12.0 million, to $10.3$10.9 million in the thirdsecond quarter of 20192020 from $34.8$22.8 million in the thirdsecond quarter of 2018.2019. The decrease is primarily due to lower volumethe postponement of new build cooling systems followingprojects by several customers as a 2017 change in strategy to improve profitability by focusing on more selective bidding in core geographies and products. For the three months ended September 30, 2019 and 2018,result of COVID-19. SPIG's onetwo significant legacy loss contract,contracts, as disclosed in Note 4 to the Condensed Consolidated Financial Statements, generated revenues of $0.8$2.3 million and $13.9$7.8 million in the second quarter of 2020 and 2019, respectively.
Adjusted EBITDA in the SPIG segment improved $8.8decreased $2.4 million to $(2.4)$(2.5) million in the thirdsecond quarter of 2020 compared to $(0.1) million in the second quarter of 2019, compareddriven primarily by the impact of COVID-19. While the segment was able to $(11.2) million inmitigate the third quarter of 2018, drivenimpact on project executions, the decision for new investments by a 2017 change in strategy to improve profitability by focusing on more selective bidding in core geographies and products in addition to the benefits of restructuring, SG&A cost savingsseveral customers has been postponed impacting revenues and operating cost reductions.results.
Adjusted gross profit (loss) in the SPIG segment increased $4.5decreased $2.1 million, to $(1.0)$0.3 million in the thirdsecond quarter of 2019,2020, compared to $(5.5)$2.4 million in the thirdsecond quarter of 2018.2019. The SPIG segment improvement was decreased by SPIG's one significant loss contract, as disclosed in Note 4, increased adjusted gross profit (loss) of $(0.5) million in the third quarter ended September 30, 2019 compareddecrease is primarily attributable to the same prior year period. The improvement reflects the effects of a 2017 changedecrease in strategy as described in the Adjusted EBITDA section above.volume.
NineSix Months Ended SeptemberJune 30, 20192020 and 20182019
Revenues in the SPIG segment decreased 47%57%, or $55.6$29.5 million, to $62.0$22.2 million in the ninesix months ended SeptemberJune 30, 20192020 from $117.6$51.7 million in the corresponding period in 2018.six months ended June 30, 2019. The decrease is primarily due to lower volumethe postponement of new build cooling systems followingprojects nt by several customers as a 2017 change in strategyresult of COVID-19. Additionally, revenue is down due to improve profitability by focusing on more selective bidding in core geographies and products. For the nine months ended September 30, 2019products and 2018,a focus on profitability. SPIG's onetwo significant legacy loss contract,contracts, as disclosed in Note 4 generated revenues of $19.1 million and $29.8 million, respectively.
to the Condensed
Consolidated Financial Statements, generated revenues of $3.2 million and $19.3 million in the six months ended June 30, 2020 and 2019, respectively.
Adjusted EBITDA in the SPIG segment improved $22.8decreased $4.2 million to $(1.8) million of adjusted EBITDA income in the nine months ended September 30, 2019 compared to $(24.6)$(3.7) million in the corresponding periodsix months ended June 30, 2020 compared to $0.5 million in 2018,the six months ended June 30, 2019, driven primarily by a 2017 change in strategythe impact of COVID-19. While the segment was able to improve profitabilitymitigate the impact on project executions, the decision for new investments by focusing on more selective bidding in core geographies and products in addition to the benefit of restructuring, SG&A cost savingsseveral customers has been postponed impacting revenues and operating cost reductions.results.
Adjusted gross profit (loss) in the SPIG segment increased $13.2decreased $4.8 million, to $5.1$1.2 million in the ninesix months ended SeptemberJune 30, 2019,2020, compared to $(8.2)$6.1 million in the corresponding period in 2018. The SPIG segment improvement was decreased by SPIG's one significant loss contract, as disclosed in Note 4, increased adjusted gross profit (loss) of $(0.5) million in the ninesix months ended SeptemberJune 30, 2019 compared2019. The decrease is primarily attributable to the same prior year period. The improvement reflects the effects of a 2017 changedecrease in strategy as described in the Adjusted EBITDA section above.volume.
Bookings and Backlog
Bookings and backlog are our measure of remaining performance obligations under our sales contracts. It is possible that our methodology for determining bookings and backlog may not be comparable to methods used by other companies.
We generally include expected revenue from contracts in our backlog when we receive written confirmation from our customers authorizing the performance of work and committing the customers to payment for work performed. Backlog may not be indicative of future operating results, and contracts in our backlog may be canceled, modified or otherwise altered by customers. Backlog can vary significantly from period to period, particularly when large new build projects or operations and maintenance contracts are booked because they may be fulfilled over multiple years. Additionally, because we operate globally, our backlog is also affected by changes in foreign currencies each period. We do not include orders of our unconsolidated joint ventures in backlog.
Bookings represent changes to the backlog. Bookings include additions from booking new business, subtractions from customer cancellations or modifications, changes in estimates of liquidated damages that affect selling price and revaluation of backlog denominated in foreign currency. We believe comparing bookings on a quarterly basis or for periods less than one year is less meaningful than for longer periods, and that shorter-term changes in bookings may not necessarily indicate a material trend.
| | | | Three months ended September 30, | Nine months ended September 30, | Three months ended June 30, | Six months ended June 30, |
| (In approximate millions) | 2019 | 2018 | 2019 | 2018 | 2020 | 2019 | 2020 | 2019 |
| Babcock & Wilcox | $ | 84 |
| $ | 131 |
| $ | 411 |
| $ | 535 |
| $ | 67 |
| $ | 140 |
| $ | 226 |
| $ | 327 |
|
Vølund & Other Renewable(2)(1) | (1 | ) | (440 | ) | (60 | ) | (417 | ) | 15 |
| (78 | ) | 33 |
| (59 | ) |
| SPIG | 8 |
| 5 |
| 38 |
| 51 |
| 3 |
| 18 |
| 36 |
| 30 |
|
| Other/eliminations | (5 | ) | — |
| (20 | ) | (2 | ) | (1 | ) | (13 | ) | (1 | ) | (15 | ) |
| Bookings | $ | 86 |
| $ | (304 | ) | $ | 369 |
| $ | 167 |
| $ | 84 |
| $ | 67 |
| $ | 294 |
| $ | 283 |
|
| |
(1)
| Vølund & Other Renewable bookings includes the revaluation of backlog denominated in currency other than U.S. dollars. The foreign exchange impact on Vølund & Other Renewable bookings in the three months ended September 30, 2019 and 2018 was $(6.9) million and $0.8 million, respectively, and the foreign exchange impact on Vølund & Other Renewable bookings in the nine months ended September 30, 2019 and 2018 was $(7.4) million and $(11.5) million, respectively.
|
(2)(1) In the three and nine months ended September 30, 2019, Vølund & Other Renewable bookings includes debookingsthe revaluation of $19 million related to the sale of Loibl and $72 million related to a 15-year operations and maintenance contract previously expected to follow completion of the fifth European Vølund EPC loss contract, which was cancelled following the settlement agreement describedbacklog denominated in Note 4. In the three months ended September 30, 2018,currency other than U.S. dollars. The foreign exchange impact on Vølund & Other Renewable includes a reductionbookings in the second quarter of approximately $4672020 and 2019 was $(1.6) million fromand $(4.0) million, respectively. The foreign exchange impact on Vølund & Other Renewable bookings in the salesix months ended June 30, 2020 and 2019 was $(0.6) million and $(0.5) million, respectively.
Our backlog decline, as expected is primarily driven by the timing of PBRRC.large new build projects in addition to the Company's focus on core technologies and profitability across all segments, as well as resolution of the European EPC loss contracts. Our backlog as of June 30, 2020 and 2019 was as follows:
| | | | Nine months ended September 30, | Six months ended June 30, |
| (In approximate millions) | 2019 | 2018 | 2020 | 2019 |
| Babcock & Wilcox | $ | 245 |
| $ | 440 |
| $ | 220 |
| $ | 323 |
|
Vølund & Other Renewable(1) | 172 |
| 400 |
| 185 |
| 205 |
|
| SPIG | 63 |
| 109 |
| 52 |
| 65 |
|
| Other/eliminations | (7 | ) | (28 | ) | — |
| (8 | ) |
| Backlog | $ | 473 |
| $ | 921 |
| $ | 457 |
| $ | 585 |
|
| |
(1) | Vølund & Other Renewable backlog at SeptemberJune 30, 2019,2020, includes $139.5$156.0 million related to long-term operation and maintenance contracts for renewable energy plants, with remaining durations extending until 2034. Generally, such contracts have a duration of 10-20 years and include options to extend. |
Of the backlog at SeptemberJune 30, 2019,2020, we expect to recognize revenues as follows:
| | | (In approximate millions) | 2019 | 2020 | Thereafter | Total | 2020 | 2021 | Thereafter | Total |
| Babcock & Wilcox | $ | 98 |
| $ | 117 |
| $ | 30 |
| $ | 245 |
| $ | 83 |
| $ | 124 |
| $ | 13 |
| $ | 220 |
|
| Vølund & Other Renewable | 20 |
| 25 |
| 127 |
| 172 |
| 29 |
| 15 |
| 141 |
| 185 |
|
| SPIG | 15 |
| 14 |
| 34 |
| 63 |
| 21 |
| 16 |
| 15 |
| 52 |
|
| Other/eliminations | (2 | ) | — |
| (5 | ) | (7 | ) | — |
| — |
| — |
| — |
|
| Expected revenue from backlog | $ | 131 |
| $ | 156 |
| $ | 186 |
| $ | 473 |
| $ | 133 |
| $ | 155 |
| $ | 169 |
| $ | 457 |
|
Corporate
Corporate costs in adjusted EBITDA include SG&A expenses that are not allocated to the reportable segments. These costs include certain executive, compliance, strategic, reporting and legal expenses associated with governance of the total organization and being an SEC registrant. Corporate costs decreased $1.9$5.5 million to $3.1$3.8 million in the thirdsecond quarter of 20192020 as compared to $5.0$9.3 million in the thirdsecond quarter of 2018,2019, primarily due to the benefits of restructuring, and discretionary spend reductions partly offset by an incentive compensation award.
and lower bonus costs. Corporate costs decreased $3.8$6.0 million to $17.0$8.0 million in the ninesix months ended SeptemberJune 30, 20192020 as compared to $20.8$13.9 million in the ninesix months ended SeptemberJune 30, 2018,2019, primarily due to the benefits of restructuring, and discretionary spend reductions partly offset by an incentive compensation award.
Allocations are excluded from discontinued operations, and accordingly, $2.9 million and $8.6 million of indirect costs that were previously absorbed by the MEGTEC and Universal businesses were included as other unallocated costs in Corporate for the three and nine months ended September 30, 2018, respectively.lower bonus costs.
Advisory Fees and Settlement Costs
Advisory fees and settlement costs decreased by $2.8 million to $4.5$2.0 million in the thirdsecond quarter of 20192020 as compared to $7.2$4.8 million in the thirdsecond quarter of 2018,2019, primarily due to a decrease in financial advisory fees, partly offset by an increase in legal fees related to pursuit of insurance recoveries.fees.
Advisory fees and settlement costs increaseddecreased by $7.4$12.2 million to $22.9$6.2 million in the ninesix months ended SeptemberJune 30, 20192020 as compared to $15.5$18.4 million in the ninesix months ended SeptemberJune 30, 2018,2019, primarily due to settlement costcosts to exit a certainthe fifth Vølund contract in the first quarter of 2019 as described in Note 4 an increase in legal fees related to liquidity planningthe Condensed Consolidated Financial Statements and pursuit of insurance recoveries, partly offset by a decrease in financial advisory fees.
Research and Development
Our research and development activities are related to improving our products through innovations to reduce the cost of our products to make them more competitive and through innovations to reduce performance risk of our products to better meet our and our customers' expectations. Research and development costs unrelated to specific contracts are expensed as incurred. Research and development expenses totaled $0.8$1.2 million and $0.5$0.7 million for the three months ended September 30,second quarter of 2020 and 2019, and 2018, respectively. Research and development expenses totaled $2.3$2.6 million and $2.9$1.5 million for the ninesix months ended SeptemberJune 30, 20192020 and 2018,2019, respectively. The reductions for the nine months ended September 30, 2019increase resulted primarily from restructuringtiming of specific research and cost-control initiatives.development efforts.
Restructuring
In 2018, we began to implement a series of cost restructuring actions, primarily in our U.S., European, Canadian and Asian operations, and corporate functions. These actions were intended to appropriately size our operations and support functions in response to the continuing decline in certain global markets for new build coal-fired power generation, the announcement of the MEGTEC and Universal sale, the level of activity in our Vølund business and our liquidity needs. SeveranceRestructuring actions across our business units and corporate functions, including executive severances, resulted in $2.6$2.4 million and $2.9$0.9 million of expense in the three months ended September 30,second quarter of 2020 and 2019, and 2018, respectively. SeveranceRestructuring actions across our business units and corporate functions, including executive severances, resulted in $9.6$4.3 million and $13.6$7.0 million of expense in the ninesix months ended SeptemberJune 30, 20192020 and 2018,2019, respectively. Severance expense is recognized over the remaining service periods of affected employees, and as of
September June 30, 2019,2020, we do not expect additional severance expense to be recognized based on actions taken through that date.
Our restructuring actions and other additional cost reductions since the second quarter of 2018 are targeting to save approximately $119 million annually once fully implemented.
Goodwill Impairment
Goodwill and other intangible assets are required to beis tested for impairment annually or earlier if there areand when impairment indicators. Interim impairment testing asindicators exist. All of June 30, 2018 was performed at SPIG due to lower bookings in the second quarter of 2018 than previously forecasted, which resulted in a reduction in the forecast for the reporting unit. As a result of the impairment test, we recognized a $37.5 million impairment of goodwill in the SPIG reporting unit, after which it did not have any remaining goodwill. Since June 30, 2018, allour remaining goodwill is related to the Babcock & Wilcox segmentreporting unit and the Babcock & Wilcox Construction Company reporting unit, which are both included in the Babcock & Wilcox segment. Because the Babcock & Wilcox and the Babcock & Wilcox Construction Company reporting units each had a negative carrying value, reasonable changes in the assumptions would not indicate impairment. No impairment indicators were identified during the three months ended June 30, 2020.
In the first quarter of 2020, our share price declined significantly, which we considered to be a triggering event for an interim goodwill assessment. We primarily attributed the significant decline in our share price to the current macroeconomic conditions and impacts COVID-19 will have on our operations. Based on the interim assessment, as describedof March 31, 2020, no impairment was indicated during the first quarter of 2020.
Also as a result of the conditions associated with COVID-19, including the adverse impacts on our operations, the company performed an analysis as required by ASC 360-10-35 to assess the recoverability of other long-lived assets in Note 7.its Vølund and SPIG asset groups. With respect to these asset groups no impairment was indicated during the first quarter of 2020.
Equity in Income (Loss) of Investees
At September 30, 2019, we do not have any remaining investments in equity method investees. During the first quarter of 2018, we sold our interest in BWBC to our joint venture partner in China for approximately $21.1 million, resulting in a gain of approximately $6.5 million, which was classified in equity in income and impairment of investees in the Condensed Consolidated Statement of Operations. Proceeds from this sale, net of $1.3 million of withholding tax, were $19.8 million. Our former equity method investment in BWBC had a manufacturing facility that designed, manufactured, produced and sold various power plant and industrial boilers, primarily in China.
In July 2018, we completed the sale of our investment in TBWES together with the settlement of related contractual claims and received $15.0 million in cash, of which $7.7 million related to our investment in TBWES and $7.3 million of proceeds were used to pay outstanding claims. In July 2018, the AOCI related to cumulative currency translation loss from our investment in TBWES of $2.6 million was also recognized as a loss and is included in foreign exchange in our Condensed Consolidated Statement of Operations. TBWES had a manufacturing facility that produced boiler parts and equipment intended primarily for new build coal boiler contracts in India. During the first quarter of 2018, based on a preliminary agreement to sell our investment in TBWES, we recognized an additional $18.4 million other-than-temporary-impairment. The impairment charge was based on the difference in the carrying value of our investment in TBWES and the preliminary sale price. These other-than-temporary-impairment losses were classified in equity in income and impairment of investees in the Condensed Consolidated Statements of Operations.
Depreciation and Intangible Asset Amortization
Depreciation expense was $4.3 million and $5.8 million in the three months ended September 30, 2019 and 2018, respectively. Depreciation expense was $15.8 million and $15.6 million in the nine months ended September 30, 2019 and 2018, respectively.
We recorded intangible asset amortization expense of $1.0 million and $1.3 million in the three months ended September 30, 2019 and 2018, respectively, and $3.3$2.9 million and $5.4 million in the ninesecond quarter of 2020 and 2019, respectively.
Depreciation expense was $5.5 million and $11.5 million in the six months ended SeptemberJune 30, 20192020 and 2018,2019, respectively.
In September 2018, we relocated our corporate headquarters to Barberton, Ohio from Charlotte, North Carolina. AtWe recorded amortization expense of $1.3 million and $1.1 million in the same time, we announced that we would consolidate most of our Barberton and Copley, Ohio operations into new, leased office space in Akron, Ohio. The move to the new, leased office space is expected to occur during the fourthsecond quarter of 2019.2020 and 2019, respectively. We do not expect to incur significant relocation costs; however, since the decision to relocaterecorded amortization expense of $2.7 million and $2.3 million in the third quarter of 2018, we recognized $7.9 million of accelerated depreciation, of which $0.7 million and $4.7 million was incurred during the three and ninesix months ended SeptemberJune 30, 2020 and 2019, respectively.
Pension and Other Postretirement Benefit Plans
We recognize pension benefitbenefits from our defined benefit and other postretirement benefit plans which are based on actuarial calculations. We recognize benefitcalculations primarily because our expected return on assets is greater than our service costs. Service cost is low because our plan benefits are frozen except for a small number of hourly participants. Pension benefits excluding
MTM adjustments were $3.6$7.5 million and $6.6$3.3 million in the three months ended September 30,second quarter of 2020 and 2019, and 2018, respectively, and $10.4respectively. Pension benefits were $15.0 million and $20.1$6.8 million in the ninesix months ended SeptemberJune 30, 2020 and 2019, respectively. There were no MTM adjustments for our pension and other postretirement benefit plans during the three and six months ended June 30, 2020. The pension benefits for thethree and six months ended June 30, 2019 exclude MTM adjustment losses $0.9 million and 2018,$1.3 million, respectively. Refer to Note 12 to the Condensed Consolidated Financial Statements.
Our pension costs also include MTM adjustments from time to time, as described further in Note 12.12 to the Condensed Consolidated Financial Statements. Interim MTM charges are a result of curtailments or settlements. Any MTM charge or gain should not be considered to be representative of future MTM adjustments as such events are not currently predicted and are in each case subject to market conditions and actuarial assumptions as of the date of the evenevent giving rise to the MTM adjustment.
Lump sum payments from our Canadian Plans resulted in plan settlements during the first and second quarters of 2019. The settlements themselves were not material, but they triggered interim MTM remeasurements of the Canadian Plan's assets and liabilities that were losses of $1.3 million in the nine months ended September 30, 2019. There were no lump sum payments from our Canadian pension plan during the third quarter of 2019.
During the second quarter of 2018, lump sum payments from our Canadian pension plan resulted in a plan settlement gain of $0.1 million, which also resulted in interim MTM accounting for the pension plan. The MTM adjustment in the second quarter of 2018 was a gain of $0.4 million. There were no lump sum payments from our Canadian pension plan during the third quarter of 2018.
Refer to Note 12 for further information regarding our pension and other postretirement plans. Other than service cost of $0.4$0.2 million and $0.2 million in the three months ended September 30,second quarter of 2020 and 2019, and 2018, respectively, and $0.7 $0.4 million and $0.6$0.3 million in the ninesix months ended SeptemberJune 30, 20192020 and 2018,2019, respectively, which are related to the small number of hourly participants still accruing benefits within the Babcock & Wilcox segment, pension benefit and MTM adjustments are excluded from the results of our segments. Refer to Note 12 to the Condensed Consolidated Financial Statements for further information regarding our pension and other postretirement plans.
The costs and funding requirements of our pension and postretirement benefit plans depend on our various assumptions, including estimates of rates of return on benefit-related assets, discount rates for future payment obligations, rates of future cost growth, mortality assumptions and trends for future costs. Variances from these estimates could have a material adverse effect on us. Our policy to recognize these variances annually through MTM accounting could result in volatility in our results of operations, which could be material. The funding obligations for the Company’s pension plans are impacted by the performance of the financial markets, particularly the equity markets, and interest rates. If the financial markets do not provide the long-term returns that are expected, or discount rates increase the present value of liabilities, the Company could be required to make larger contributions.
Foreign Exchange
We translate assets and liabilities of our foreign operations into United States dollars at current exchange rates, and we translate items in our statement of operations at average exchange rates for the periods presented. We record adjustments resulting from the translation of foreign currency financial statements as a component of accumulated other comprehensive income (loss). We report foreign currency transaction gains and losses in income.
Foreign exchange was a gain of $7.1 million and $9.5 million for the three months ended June 30, 2020 and 2019, respectively. Foreign exchange was a loss of $26.7$2.2 million and $27.4$0.6 million for the three and ninesix months ended SeptemberJune 30, 2019, respectively,2020 and was a loss of $4.9 million and $22.7 million for the three and nine months ended September 30, 2018,2019, respectively. Foreign exchange gains and losses are primarily related to unhedged intercompany loans denominated in European currencies to fund foreign operations. Foreign exchange losses infor the six months ended June 30, 2020 and 2019 were driven primarily by a strengthening U.S. dollar compared to the underlying European currencies.
Income Taxes
| | | | Three months ended September 30, | Nine months ended September 30, | Three months ended June 30, | Six months ended June 30, |
| (In thousands, except for percentages) | 2019 | 2018 | $ Change | 2019 | 2018 | $ Change | 2020 | 2019 | $ Change | 2020 | 2019 | $ Change |
| Loss before income taxes | $ | (55,947 | ) | $ | (9,891 | ) | $ | (46,056 | ) | $ | (131,631 | ) | $ | (331,372 | ) | $ | 199,741 |
| $ | (17,288 | ) | $ | (26,444 | ) | $ | 9,156 |
| $ | (51,633 | ) | $ | (75,684 | ) | $ | 24,051 |
|
| Income tax expense | $ | 1,043 |
| $ | 94,256 |
| $ | (93,213 | ) | $ | 3,560 |
| $ | 99,285 |
| $ | (95,725 | ) | $ | 845 |
| $ | 1,891 |
| $ | (1,046 | ) | $ | 35 |
| $ | 2,517 |
| $ | (2,482 | ) |
| Effective tax rate | (1.9 | )% | (952.9 | )% | | (2.7 | )% | (30.0 | )% | | (4.9 | )% | (7.2 | )% | | (0.1 | )% | (3.3 | )% | |
Our income tax expense in the three and nine monthssecond quarter of 2020 reflects a full valuation allowance against substantially all our net deferred tax assets.assets, except in Mexico, Canada, the United Kingdom, and Sweden. Deferred tax assets are evaluated each period to determine whether itrealization is more likely than not that those deferred tax assets will be realized in the future, and valuationnot. Valuation allowances are recorded when the likelihood of having the ability to utilize thoseparticular deferred tax assets to reduce taxable income in the foreseeable future is less than more likely than not. Valuation allowances do not limit our ability to use deferred tax assets in the future. Valuation allowances may be reversed in the future if sufficient positive evidence exists to outweigh the negative evidence under the framework of ASC 740, Income Taxes.
Our effective tax rate for the three and nine months ended September 30, 2019second quarter of 2020 is not reflective of the U.S.United States statutory rate primarily due to a full valuation allowance against substantially all net deferred tax assets. In certain jurisdictions where we have available net operating loss carryforwards ("NOLs"), such as the U.S.,United States, Denmark, and Italy, the existence of a full valuation allowance against net deferred tax assets in those jurisdictions results in income tax benefit or expense relating primarily to discrete items. In other profitable
jurisdictions, however, we may record income tax expense, even though we have established a full valuation allowance against our net deferred tax assets. Our income tax expense (benefit) also reflects changes in the jurisdictional mix of income and losses.
In the three and nine months ended September 30, 2018,second quarter of 2019, our effective tax rate was not reflective of the U.S. statutory rate primarily due to the increase in thealso impacted by valuation allowance against net deferred tax assets. In jurisdictions where we had available net operating loss carryforwards (NOLs), such as the U.S., Denmark and Italy, the existence of a full valuation allowance against deferred tax assets resulted in income tax benefit or expense related primarily to discrete items. In other profitable jurisdictions, however, we recorded income tax expense, even though we established a full valuation allowance against our net deferred tax assets. Discrete items in the three months ended September 30, 2018 included $99.6 million of expense from increasing the valuation allowance against remaining deferred tax assets and a $1.6 million benefitallowances related to the releaselosses incurred in certain jurisdictions. Additionally, we operated in numerous countries that had statutory tax rates different from that of tax reserve when the statute of limitations expired.
Loss before provision for income taxes generated in the United States federal statutory rate of 21%. The most significant of these foreign operations are located in Canada, Denmark, Germany, Italy, Mexico, Sweden, and foreign locations for the threeUnited Kingdom, with statutory tax rates ranging between 19% and nine months ended September 30, 201930%. In addition to statutory rate differences, the jurisdictional mix of our income (loss) before tax can be significantly impacted by mark-to-market adjustments related to our pension and 2018 is presented in the table below.
|
| | | | | | | | | | | | |
| | Three months ended September 30, | Nine months ended September 30, |
| (in thousands) | 2019 | 2018 | 2019 | 2018 |
| United States | $ | (23,446 | ) | $ | 28,607 |
| $ | (60,951 | ) | $ | (80,141 | ) |
| Other than the United States | (32,501 | ) | (38,498 | ) | (70,680 | ) | (251,231 | ) |
| Loss before provision for income taxes | $ | (55,947 | ) | $ | (9,891 | ) | $ | (131,631 | ) | $ | (331,372 | ) |
See Note 2016 for an explanation of differences between our effective income tax rate and our statutory rate.Note 20 also describes the impact of an "ownership change" under Section 382 of the Internal Revenue Code ("IRC"). The Equitization Transactions described in Note 18 have resulted in an "ownership change" under IRC Section 382.
Liquidity and Capital Resources
Liquidity
To addressOur primary liquidity requirements include debt service and working capital needs. We fund our liquidity needsrequirements primarily through cash generated from operations and external sources of financing, including our A&R Credit Agreement (as defined below) that governs the U.S. Revolving Credit Facility and the last out term loans (the "Last Out Term Loans"), each of which are described below in further detail along with other sources of liquidity.
As of December 31, 2019 and March 30, 2020, the date we issued our 2019 Consolidated Financial Statements, we were in compliance with the terms of the agreements governing our debt and no events of default existed. However, the Company’s uncertainty regarding liquidity and the ability to refinance our credit agreement (as amended, the "Amended Credit Agreement") by May 11, 2020 represented conditions and events that raised substantial doubt about the Company’s ability to continue as a going concern uncertainty,within one year after the date that the 2019 Consolidated Financial Statements were issued, as we have takenwere not able to assert that it was probable that our plans when fully implemented would alleviate the events and conditions.
Since January 1, 2020 and through the issuance of our 2019 Consolidated Financial Statements on March 30, 2020, we took the following actions, among others, and have successfully implemented, or are in 2019 as follows:the process of implementing the following:
completed equitization transactions on July 23, 2019 as described in Note 18 and Note 17, which included an exchange of all of the outstanding balance of Tranche A-1 of the Last Out Term Loans for equity and a rights offering to raise $50.0 million that was used to fully repay Tranche A-2 of the Last Out Term Loans and to reduce a portion of the outstanding principal under Tranche A-3 of the Last Out Term Loans;
executed a one-for-ten reverse stock split of our issued and outstanding common stock, which became effective on July 24, 2019;
completed the sale of a non-core materials handling business in Germany, Loibl GmbH ("Loibl") effective May 31, 2019 for €10.0 million (approximately $11.4 million), subject to adjustment, resulting in net receipt of $7.4 million;
received $150.0 million in face value from Tranche A-3 of the Last Out Term Loans before original issuance discount and fees, as described in Note 14, from B. Riley FBR, Inc., a related party, on April 5, 2019;
received $10.0 million in net proceeds from Tranche A-2 of the Last Out Term Loans, described in Note 14, from B. Riley Financial, Inc. (together with its affiliates, including B. Riley FBR, Inc., "B. Riley"), a related party, on March 20, 2019;
reduced uncertainty and provided better visibility into our future liquidity requirements by turning over five of the six European Vølund EPC loss contracts to the customers by the end of second quarter of 2019, partly facilitated by a settlement related to the second and fifth loss contracts as described in Note 4, which was funded with proceeds from Tranche A-3 of the Last Out Term Loans;
entered into an additional settlement as described in Note 4 in connection with an additional European waste-to-energy EPC contract, for which notice to proceed was not given and the contract was not started, whereby our obligations and our risk from acting as the prime EPC should the project move forward was eliminated;
entered into several amendments and waivers to avoid default and improve our liquidity under the terms of our Amended Credit Agreement as described in Note 13 and Note 14, the most recent of which were Amendments No. 1619, No. 20 and No. 21 dated January 17, dated April 5, 20192020, January 31, 2020 and August 7, 2019, respectively, which providedMarch 27, 2020, respectively;
on January 31, 2020, received $30.0 million of additional gross borrowings from B. Riley Financial, Inc. (together with its affiliates, "B. Riley") under a new Tranche A-3A-4 of the Last Out
Term Loans described above and in Note 14, reset the financial and other covenants, adjusted the interest rate of the Last Out Term Loans, reset the maturity dateas described in in Note 14;
on January 31, 2020, received an incremental Tranche A-5 of the Last Out Term LoansLoan commitment to December 31, 2020, increased borrowing capacity underbe used in the U.S. Revolving Credit Facility by reducing the minimum liquidity requirement, allowed for the issuance of a limited amount of newevent certain customer letters of credit with respect to any future Vølund project, permitted other letters of credit to expire up to one year after the maturity of the U.S. Revolving Credit Facility, clarifies (Amendment No. 17) the definition cumulatively through Amendment No. 16 of the amounts that can be usedare drawn, as described in calculating the loss basket for certain Vølund contracts, and resets the loss basket for certain Vølund contracts to $15.0 million to align with the clarification commencing with the quarter endingNote 14;
on March 31, 2019; and
12, 2020, filed and plan to file for waiver of required minimum contributions to the U.S. Pension Plan as described in Note 12, that if granted, would reduce cash funding requirements in 20192020 by approximately $15$25.0 million and a similar or greater amount in 2020 and would increase contributions over the following five years. The Company cannot make any assurances that such waiver requestwill be granted; and
on March 17, 2020, we fully settled the remaining escrow associated with the sale of Palm Beach Resource Recovery Corporation and received $4.5 million in cash.
In addition to the actions taken above, subsequent to March 30, 2020 we have taken the following actions:
on April 6, 2020, we fully settled the remaining escrow associated with the sale of the MEGTEC and Universal businesses and received $3.5 million in cash;
on May 14, 2020, the Company entered into an agreement with its lenders amending and restating the Amended Credit Agreement, among the Company, Bank of America, N.A., as administrative agent (the “Administrative Agent”) and lender, and the other lenders party thereto. The credit agreement, as amended and restated (the "A&R Credit Agreement"), among other amendments, extends the maturity date on the revolving credit facility to June 30, 2022 and the maturity date on the Last Out Term Loans to December 30, 2022. Under the A&R Credit Agreement, B. Riley has committed to provide the Company with up to $70.0 million of additional Last Out Term Loans. B. Riley has entered into a limited guaranty (the "B. Riley Guaranty") which provides for the 2018 plan year was approvedguarantee of all of the Company's obligations with respect to the revolving credit facility (other than with respect to letters of credit and contingent obligations), including the obligation to repay outstanding revolving credit loans and pay earned interest and fees; and,
on May 14, 2020, we received $30.0 million of additional gross borrowings from B. Riley Financial, Inc. (together with its affiliates, "B. Riley") under a new Tranche A-6 of Last Out Term Loans, as described in in Note 14.
Beginning in April 2020, as part of the Company’s response to the impact of the COVID-19 pandemic on its business, the Company has taken the following cash conservation and cost reduction measures which include:
temporary unpaid furloughs for certain employees:
temporarily deferring the monthly fee paid to BRPI Executive Consulting, LLC for the services of our Chief Executive Officer by 50%;
deferrals of the base salaries of our Chief Strategy Officer by 50%, Chief Financial Officer by 30% and our Senior Vice President of The Babcock & Wilcox Company by 30%;
suspension of our 401(k) match for U.S. employees for the remainder of 2020;
approval by the IRSCompany’s Board for a temporary deferral of 50% of the cash compensation payable to non-employee directors under the Company’s board compensation program to be paid during the first quarter of 2021;
negotiating temporary rent payment deferrals related to leased facilities located in the U.S., Canada, Italy and Denmark;
utilizing options for government loans and programs in the U.S. and abroad that are appropriate and available; and
we elected to defer, in accordance with the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") signed into law in March 2020, the contribution payments of $5.5 million each for the 2020 Plan year that would have been made on August 27, 2019April 15, 2020 and July 15, 2020, respectively, related to our Pension Plan.
Based upon the terms of the A&R Credit Agreement and the waiver requestcash conservation and cost reduction measures taken to date, the Company is projecting sufficient liquidity to fund future operations and to meet its obligations as they become due for at least one year following the 2019 plan year is expected to be filed laterdate that these Condensed Consolidated Financial Statements are issued. As a result, the Company has concluded that conditions and events, considered in 2019 or early 2020.
Management believes it has taken and is continuing to take prudent actions to address the aggregate, no longer raise substantial doubt regarding ourabout the entity’s ability to continue as a going concern, but we cannot assert that it is probable that our plans will fully mitigate the liquidity challenges we face because some matters may not fully be in our control. Amendment No. 16 to the Amended Credit Facility also created a new event of default for failure to terminate the existing U.S. Revolving Credit Facility on or prior to March 15, 2020, which is within twelve months of the date of this filing. Our ability to comply with the financial and other covenants of the Amended Credit Facility through that date are dependent upon achieving our forecasted financial results. While management believes it will be able to obtain additional financing to replace our U.S. Revolving Credit facility, the ability to do so will depend on credit markets and other matters that are outside of our control.concern.
In addition to the discussions regarding additional financing described above, we continue to evaluate further dispositions, opportunities for additional cost savings and opportunities for insurance recoveries and other claims where appropriate and available. If the value of our business were to decline, or if we were to determine that we were unable to recognize an amount in connection with any proposed disposition in excess of the carrying value of any disposed asset, we may be required to recognize impairments for one or more of our assets that may adversely impact our business, financial condition and results of operations.
On November 27, 2018, we received written notification from the New York Stock Exchange (the "NYSE"), that we were not in compliance with an NYSE continued listing standard in Rule 802.01C of the NYSE Listed Company Manual because the average closing price of our common stock fell below $1.00 over a period of 30 consecutive trading days. We completed a reverse stock split effective as of July 24, 2019 to regain compliance as described below.
On September 4, 2019, we received written notification from the NYSE that we regained compliance after the Company’s average stock price for the 30-trading-day period ended September 4, 2019 was above the NYSE’s minimum listing criteria of $1.00. The Company’s average share price for the period was $3.63.
On July 11, 2019, the Company's board of directors approved a reverse stock split of one-for-ten on the Company's issued and outstanding common stock which became effective on July 24, 2019. The one-for-ten reverse stock split automatically converted every ten shares of the Company's outstanding and treasury common stock prior to the effectiveness of the reverse stock split into one share of common stock. No fractional shares were issued in the reverse stock split. Instead, stockholders who would otherwise have held fractional shares received cash payments (without interest) in respect of such fractional shares. The reverse stock split did not impact any stockholder's percentage ownership of the Company, subject to the treatment of fractional shares. The reverse stock split was undertaken to allow the Company to regain compliance with the NYSE's continued listing standards relating to minimum price per share.
All share and per share data contained in these condensed consolidated financial statements reflects the retroactive application of the aforementioned reverse stock split.
Cash as of September 30, 2019 and Cash Flows for the nine months ended September 30, 2019 and 2018
At SeptemberJune 30, 2019,2020, our unrestricted cash and cash equivalents totaled $32.1$36.8 million and we had total debt of $293.6$338.0 million. Our foreign business locations held $30.6$34.7 million of our total unrestricted cash and cash equivalents at SeptemberJune 30, 2019.2020. Our U.S. Revolving Credit Facility allows for nearly immediate borrowing of available capacity to fund
cash requirements in the normal course of business, meaning that U.S. cash on hand is minimized to reduce borrowing costs. In general, our foreign cash balances are not available to fund our U.S. operations unless the funds are repatriated or used to repay intercompany loans made from the U.S. to foreign entities, which could expose us to taxes we presently have not made a provision for in our results of operations. We presently have no plans to repatriate these funds to the U.S. At SeptemberJune 30, 2019,2020, we had approximately $18.3$40.3 million available for borrowings under the U.S. Revolving Credit Facility.
Cash used in operations was $201.1$49.3 million in the ninesix months ended SeptemberJune 30, 2020, which is primarily represented in the net loss of continuing operations before depreciation and amortization. There was also a $0.9 million net increase in operating cash outflows associated with changes in working capital. In the six months ended June 30, 2019, whichcash used in operations was $193.0 million primarily due to funding settlements related to European Vølund EPC contracts, as described in Note 4, progress against accrued losses on the six European Vølund EPC loss contracts and working capital build within the Babcock & Wilcox segment related to the timing of and mix of work. In the nine months ended September 30, 2018, cash used in operations was $213.5 million and primarily related to funding progress on the six European Vølund EPC loss contracts in the Vølund & Other Renewable segment, corporate overhead (inclusive of interest, pension and other postretirement benefits, financial advisory services, restructuring and spin costs, and research and development) and working capital build within the Babcock & Wilcox segment related to the timing and mix of work. Operating cash flows in the nine months ended September 30, 2018 are primarily represented in the operating loss of continuing operations before non-cash impairments of goodwill, equity method investments and an allowance for an insurance receivable.
Cash flows from investing activities provided net cash of $7.1$4.3 million in the ninesix months ended SeptemberJune 30, 2020, primarily related to $8.0 million from the settlement of remaining escrows associated with the sale of Palm Beach Resource Recovery Corporation and MEGTEC and Universal businesses, the net change in available-for-sale securities and $1.7 million of capital expenditures. In the six months ended June 30, 2019, cash flows from investing activities provided net cash of $5.2 million, primarily from proceeds received from the sale of Loibl for $7.4 million. In the nine months ended September 30, 2018, net cash provided by investing activities was $67.7 million, primarily from asset sales, including the sales of two equity method investments, BWBC and TBWES, for $28.8 million, the sale of a small emissions monitoring business for $5.1 million and the sale of PBRRC for $38.8 million, offset by $5.0 million of capital expenditures.
Cash flows from financing activities provided net cash of $181.0$35.7 million in the ninesix months ended SeptemberJune 30, 2020, primarily related to $60.0 million face value borrowings from the Tranche A-4 and Tranche A- 6 of the Last Out Term Loans, partly offset by a $14.3 million change on the U.S. Revolving Credit Facility and $10.4 million of financing fees. Cash flows from financing activities provided net cash of $175.1 million in the six months ended June 30, 2019, primarily related to $109.6$151.4 million net borrowingsof proceeds from the Last Out Term Loans $46.8and $39.5 million of net borrowings from the U.S. Revolving Credit Facility, and $40.4 million proceeds from the Rights Offering, partly offset by $15.5$14.4 million of financing fees. Net cash provided by financing activities in the nine months ended September 30, 2018 was $134.3 million primarily related to $96.3 million of net borrowings from the U.S. Revolving Credit Facility and the $20.0 million borrowings from the Last Out Term Loan for working capital purposes. Gross proceeds received from the rights offering were $248.4 million, of which $214.9 million were used to repay the Second Lien Term Loan, including $2.3 million of accrued interest, with the remainder used to fund operations. Cost associated with the financing activity in the nine months ended September 30, 2018 totaled $11.4 million.
U.S. Revolving Credit Facility
On May 11, 2015, we entered into "thethe Amended Credit Agreement"Agreement with a syndicate of lenders in connection with our spin-off from The Babcock & Wilcox Company (now BWX Technologies, Inc. or "BWXT") which governs the U.S. Revolving Credit Facility and the Last Out Term Loans. Since June 2016, we have entered into a number of waivers and amendments ("the Amendments") to the Amended Credit Agreement, including thoseseveral to avoid default. As of September 30, 2019, we weredefault under the financial and other covenants specified in compliance with the terms of the Amended Credit Agreement inclusive of Amendments No. 16 and No. 17. On April 5, 2019, we entered into Amendment No. 16 to the Amended Credit Agreement. Amendment No. 16 provides (i) $150.0 million in additional commitments from B. Riley FBR, Inc., under Tranche A-3As of last out term loans described in Note 14 and (ii) an incremental uncommitted facility of up to $15.0 million, to be provided by B. Riley or an assignee. On August 7, 2019, we entered into Amendment No. 17 to the Amended Credit Agreement, which clarifies the definition cumulatively through Amendment No. 16 of the amounts that can be used in calculating the loss basket for certain Vølund contracts and resets the loss basket for certain Vølund contracts to $15.0 million to align with the clarification commencing with the quarter ending March 31, 2019.
Amendment No. 16 to the Amended Credit Agreement also created a new event of default for failure to terminate the existing revolving credit facility on or prior to March 15, 2020, which effectively accelerated the maturity date of the U.S. Revolving Credit Facility from June 30, 2020. As of September 30, 2019,2020, the U.S. Revolving Credit Facility provides for a senior secured revolving credit facility in an aggregate amount of up to $340.0$326.9 million, (reduced to $337.8 million in October 2019 as a result of the sale of an asset), as amended and adjusted for completed asset sales. The proceeds from loans under the U.S. Revolving Credit Facility are available for working capital needs, capital expenditures, permitted acquisitions and other general corporate purposes, and the full amount is available to support the issuance of letters of credit, subject to the limits specified in the amendment described below.agreement. As of June 30, 2020, we were in compliance with the terms of the Amended Credit Agreement.
The Amended Credit Agreement and our cash management agreements with our lenders and their affiliates continue to be (1) guaranteed by substantially allAs of our wholly owned domestic subsidiaries and certain of our foreign subsidiaries, but excluding our captive insurance subsidiary, and (2) secured by first-priority liens on certain assets owned by us and the guarantors. The U.S. Revolving Credit Facility requires interest payments on revolving loans on a periodic basis until maturity. We may prepay all loans at any time without premium or penalty (other than customary LIBOR breakage costs), subject to notice requirements, with the exception to the prepayment of certain Last Out Term Loans pursuant to the Equitization Transactions describedJune 30, 2020, in Note 18; such Last Out Term Loan prepayments were limited by an aggregate principal amount of $86 million plus interest. The U.S. Revolving Credit Facility requires certain prepayments on any outstanding revolving loans after receipt of cash proceeds from certain asset sales or other events, subject to certain exceptions. Such prepayments may require us to reduce the commitments under the U.S. Revolving Credit Facility by a corresponding amount of such prepayments.
After giving effect to the Amendments through September 30, 2019, revolving loans outstanding under the U.S. Revolving Credit Facility bear interest at our option at either (1) the LIBOR rate plus 6.0% per annum during 2019 and 7.0% per annum during 2020, or (2) the Base Rate plus 5.0% per annum during 2019, and 6.0% per annum during 2020. The Base Rate is the highest of the Federal Funds rate plus 0.5%, the one-month LIBOR rate plus 1.0%, or the administrative agent's prime rate. The components of our interest expense are detailed in Note 19. A commitment fee of 1.0% per annum is charged on the unused portions of the U.S. Revolving Credit Facility. Additionally, an annual facility fee of $1.5 million was paid on the first business day of 2019, and a pro-rated amount is payable on the first business day of 2020. A deferred fee reduction from 2.5% to 1.5% became effective October 10, 2018, due to achieving certain asset sales. A letter of credit fee of 2.5% per annum is charged with respect to the amount of each financial letter of credit outstanding, and a letter of credit fee of 1.5% per annum is charged with respect to the amount of each performance and commercial letter of credit outstanding. Letter of credit fees are payable on the tenth business day after the last business day of each fiscal quarter.
In connection with Amendment No. 16, a contingent consent fee of $13.9 million (4.0% of total availability) is payable on December 15, 2019, but will be waived if certain actions are undertaken to refinance the facility by that date. We recorded the contingent consent fee as part of deferred financing fees in other current assets in the Condensed Consolidated Balance Sheets because it has been earned but may be waived, and it is being amortized to interest expense. See further discussion in Note 19. Amendment No. 16 to the U.S. Revolving Credit Facility also established awe have accrued deferred ticking fee costs of 1.0% of total availability that is payable if$6.7 million due to certain actions arerequired that were not undertaken to refinance the facilitycompleted by December 15, 2019, in addition to an incremental 1.0% per month after December 15, 2019. No expense has been recognized for the deferred ticking fee because the company believes it is not probable of being earned by the lenders.
The Amended Credit Agreement includes financial covenants that are tested on a quarterly basis, based on the rolling four-quarter period that ends on the last day of each fiscal quarter. These include a maximum permitted senior debt leverage ratio and a minimum consolidated interest coverage ratio, each as defined in the Amended Credit Agreement. Compliance with these ratios was waived with respect to the quarter ended December 31, 2018 and new ratios were established in Amendment No. 16 commencing with the quarter ended March 31, 2019. Amendment No. 16 also, among other items, (1) modifies the definition of EBITDA in the Credit Agreement to, among other things, include addbacks related to losses in connection with the Vølund projects, fees and expenses related to the Amendment and prior waivers to the Credit Agreement and fees associated with Vølund project related settlement agreements, (2) reduces to $30 million the minimum liquidity we are required to maintain at the time of any credit extension request and at the last business day of any calendar month, (3) allows for the issuance of up to $20.0 million of new letters of credit with respect to any future Vølund project, (4) changes the consolidated interest coverage and senior leverage coverage covenant ratios, (5) decreases the relief period borrowing sublimit, (6) changes or removes certain contract completion milestones that we had been required to meet in connection with one renewable energy project, (7) permits letters of credit to expire one year after the maturity of the revolving credit facility, (8) creates a new event of default for failure to terminate the existing revolving credit facility on or prior to March 15, 2020, (9) establishes a deferred ticking fee of 1.0% if certain actions are not undertaken to refinance the facility by December 15, 2019, in addition to an incremental 1.0% per month after December 15, 2019 and (10) provides for a contingent consent fee of 4.0% if certain actions are not undertaken to refinance the facility by December 15, 2019. Amendment No. 17, among other items, (1) clarifies from Amendment No. 16 the definition of the amounts that can be used in calculating the loss basket for certain Vølund contracts, and (2) resets the loss basket for certain Vølund contracts to $15.0 million to align with the clarification commencing with the quarter ending March 31, 2019.
Effective beginning April 5, 2019 with Amendment No. 16, the remaining maximum permitted senior debt leverage ratios, as defined in the Amended Credit Agreement, are as follows:
•6.75:1.00 for the quarter ending September 30, 2019
•6.00:1.00 for the quarter ending December 31, 2019
•3.50:1.00 for the quarter ending March 31, 2020
•3.25:1.00 for the quarter ending June 30, 2020
Effective beginning April 5, 2019 with Amendment No. 16, the remaining minimum consolidated interest coverage ratios, as defined in the Amended Credit Agreement, are as follows:
•1.10:1.00 for the quarter ending September 30, 2019
•1.10:1.00 for the quarter ending December 31, 2019
•1.50:1.00 for the quarter ending March 31, 2020
•1.75:1.00 for the quarter ending June 30, 2020
At SeptemberJune 30, 2019,2020, borrowings under the U.S. Revolving Credit Facility consisted of $191.7$164.7 million at a weighted average interest rate of 8.95%7.53%. Usage under the U.S. Revolving Credit Facility consisted of $191.7$164.7 million of borrowings, $27.0$25.0 million of financial letters of credit and $98.0$95.4 million of performance letters of credit. At SeptemberJune 30, 2019,2020, we had approximately $23.3$41.8 million available to meet letter of credit requirements based on our overall facility size, of which $18.3$40.3 million was available for additional borrowings under our sublimit.
Foreign RevolvingUnder the A&R Credit FacilitiesAgreement, the interest rate for the revolving credit facility will be reduced to LIBOR plus 7.0% or base rate (as defined in the A&R Credit Agreement) plus 6.0%, which margins will be reduced by 2.0% upon the commitments under such facility being reduced to less than $200.0 million. The interest payments on the unpaid principal amount of revolving credit loans incurred during the period from May 14, 2020 through and including August 31, 2020 are
deferred and will be paid in six equal installments on the last business day of each calendar month beginning on January 29, 2021 and through June 30, 2021. The maturity date under the revolving credit facility will be extended to June 30, 2022 pursuant to the terms of the United States, we had revolving credit facilities in Turkey that were used to provide working capital to local operations. At December 31, 2018, we had aggregate borrowings under these facilities of $0.6 million whose weighted average interest rate was 40.0%. In 2018, our banking counterparties in Turkey began requiring the conversion of these revolving credit facilities to be denominated in Turkish liras instead of euros, resulting in correspondingly higher market interest rates. As of January 4, 2019, the foreign revolving credit facilities were paid in full and closed.A&R Credit Agreement.
Last Out Term Loans
Last Out Term Loans are incurred under our AmendedA&R Credit Agreement and are pari passu with the U.S. Revolving Credit Facility except for certain payment subordination provisions. The Last Out Term Loans are subject to the same representations and warranties, covenants and events of default underas the Amended Credit Agreement. In connection with Amendment No. 16, the maturity date for all Last Out Term Loans was extended to December 31, 2020. As of September 30, 2019 and December 31, 2018, the Last Out Term Loans' net carrying values are presented as a current liability in our Condensed Consolidated Balance Sheets due to the uncertainty of our ability to refinance our U.S. Revolving Credit Facility as required by the Amended Credit Agreement (as described above).
Until July 22, 2019, after giving effect to Amendment No. 16, all outstanding Last Out Term Loans bear interest at a fixed rate per annum of 15.5% per annum. of which 7.5% is payable in cash and 8% is payable in kind. As of September 30, 2019, and after giving effect to the completion of the 2019 Rights Offering (as defined below) on July 23, 2019, the interest rate on the Tranche A-3 Last Out Term Loan under the Amended Credit Agreement is a fixed rate per annum of 12% payable in cash. The total effective interest rate of Tranche A-3 was 20.64% on September 30, 2019. The total effective interest rate of Tranche A-1 was 25.38% on December 31, 2018. Interest expense associated with the Last Out Term Loans is detailed in Note 19.
Tranche A-1
We borrowed $30.0 million of net proceeds under Tranche A-1 of the Last Out Term Loans from B. Riley FBR, Inc., a related party, in three draws in September and October 2018. In November 2018, Tranche A-1 was assigned to Vintage Capital Management, LLC ("Vintage"), also a related party. The original face principal amount of Tranche A-1 is $30.0 million, which excludes a $2.0 million up-front fee that was added to the principal balance on the first funding date, transaction expenses, paid-in-kind interest, and original issue discounts of 10% for each draw under Tranche A-1.
On April 5, 2019, Amendment No. 16 and the Letter Agreement (defined in Note 18) modified Tranche A-1 by adding a substantive conversion option that required the conversion of the Tranche A-1 to common stock at $0.30 per share in connection with the Equitization Transactions described in Note 18, which was conditioned upon, among other things, the closing of the 2019 Rights Offering and shareholder approval.Facility. Under U.S. GAAP, a debt modification with the same borrower that results in substantially different terms is accounted for as an extinguishment of the existing debt and a reborrowing of new debt. An extinguishment gain or loss is then recognized based on the fair value of the new debt as compared to the carrying value of the extinguished debt. The carrying value of the Tranche A-1 was $33.3 million on April 5, 2019 before the modification. The initial fair value of the new debt was estimated to be its initial principal value of $37.3 million. WeCompany recognized a loss on debt extinguishment of $4.0$6.2 million in the quarter ended June 30, 2019,2020, primarily representing the unamortized value of the original issuance discount and fees on the extinguished debt.Tranche A-3 Last Out Term Loan. In connection with the effectiveness of the A&R Credit Agreement, the maturity date for the Last Out Term Loans was extended to December 30, 2022.
On June 30, 2020, the company issued 1,192,371 shares of common stock to B. Riley in settlement of the quarterly interest payable in connection with the Equitization Agreement further discussed in Note 13.
The total effective interest rate of Tranche A-3, Tranche A-4 and Tranche A-6 was 12.0% on June 30, 2020. The interest rate on the Last Out Term Loans under the A&R Credit Agreement is a fixed rate per annum of 12.0%. Interest ratesexpense associated with the Last Out Term Loans is detailed in Note 15.
Tranche A-1
We borrowed $30.0 million of net proceeds under Tranche A-1 of the Last Out Term Loans from B. Riley, a related party, in September and October of 2018. In November 2018, Tranche A-1 was assigned to Vintage, also a related party. As part of the Equitization Transactions in July 2019, the outstanding principal of Tranche A-1 are described above. As described in Note 18, Tranche A-1of the Last Out Term Loans including accrued paid-in-kind interest remaining as of March 31, 2019 was exchanged for shares on July 23, 2019, after which no remaining amounts were outstanding.of common stock.
Tranche A-2
On March 19, 2019, we entered into an amendment and limited waiver ("Amendment No. 15") to our Amended Credit Agreement, which allowed us to borrowWe borrowed $10.0 million of net proceeds from B. Riley, a related party, under a Tranche A-2 of Last Out Term Loans which were fully borrowed onfrom B. Riley, a related party in March 20, 2019. Interest rates were adjusted with Amendment No. 16 as described above. Interest rates of Tranche A-2 are described above. As described in Note 18, Tranche A-2 was fully repaid on July 23, 2019 with proceeds from the 2019 Rights Offering as part of the Equitization Transactions.Transactions in July 2019.
Tranche A-3
Under Amendment No. 16 to our Amended Credit Agreement, we borrowed $150.0 million face value from B. Riley, a related party, under a Tranche A-3 of Last Out Term Loans. The $141.4 million net proceeds from Tranche A-3 were primarily used to pay the amounts due under the settlement agreements covering certain European Vølund loss projects as described in Note 4, with the remainder used for working capital and general corporate purposes. Tranche A-3 included an original issue discount of 3.2% of the gross cash proceeds. An additional discount was recorded upon shareholder approval of the warrants and Equitization Transactions. These additional discounts totaled $8.1 million, which included $6.1 million for the estimated fair value of warrants issued to B. Riley, a related party, as described in Note 15 and Note 18 and $2.0 million for the intrinsic value of the beneficial conversion feature that allows conversion of a portion of the Tranche A-3 to equity under the Backstop Commitment described in Note 18. Both the warrants and the Backstop Commitment were contemplated in connection of the original extension of Tranche A-3.
Interest rates for Tranche A-3 are described above. Tranche A-3 may be prepaid, subject to the subordination provisions under the Equitization TransactionsAmended Credit Agreement as described above, and in Note 18, but not re-borrowed. As part of the July 23, 2019 Equitization Transactions, described in Note 18, the total prepayment of principal of Tranche A-3 of the Last Out Term Loans was $39.7 million.
Tranche A-4
On January 31, 2020, we entered into Amendment No. 20 to the Amended Credit Agreement. Amendment No. 20 provides $30.0 million inclusiveof additional commitments from B. Riley, a related party, under a new Tranche A-4 of Last Out Term Loans. The proceeds from Tranche A-4 may be used under the terms of Amendment No. 20 to repay revolving credit loans, for working capital and general corporate purposes, and to reimburse certain expenses of B. Riley as specified by Amendment No. 20. The terms of Tranche A-4 are the same as the terms for the Tranche A-3 under the Amended Credit Agreement.
As of January 31, 2020, we borrowed $30.0 million face value of the $8.2Tranche A-4 and received net proceeds of $26.3 million after incurring total fees of $3.7 million related to Amendment No, 20 described above.
Tranche A-5
On January 31, 2020, we entered into Amendment No. 20 to the Amended Credit Agreement. Amendment No. 20 provides an incremental Tranche A-5 of Last Out Term Loans to be extended prior to maturity of the Last Out Term Loans under the Amended Credit Agreement in the event certain customer letters of credit are drawn. The terms of Tranche A-5 are the same as the terms for the Tranche A-3 under the Amended Credit Agreement. As of August 12, 2020, no borrowings have occurred under Tranche A-5.
Tranche A-6
The A&R Credit Agreement provided us with up to $70.0 million of principaladditional funding in the form of Tranche A-6 Last Out Term Loans from B. Riley, a related party, as more fully described in Note 13. An aggregate $30.0 million of this new commitment was funded upon execution of the A&R Credit Agreement. The $35.0 million will be funded in installments, subject to reduction for the gross proceeds from certain equity offerings conducted by the Company. The remaining $5.0 million will be available upon request by the Company.
On May 14, 2020, we borrowed $30.0 million face value exchangedof the Tranche A-6 and received gross proceeds of $30.0 million related to the A&R Credit Agreement that is more fully described in Note 13.
Tranche A-7
The A&R Credit Agreement provided us with up to $50.0 million of additional funding for common sharesletters of credit in the form of Tranche A-7 Last Out Term Loans from B. Riley, a related party, as more fully described in Note 13. The $50.0 million will be available upon request by the Company, subject to certain limitations. As of August 12, 2020, no borrowings have occurred under Tranche A-7.
Letters of Credit, Bank Guarantees and Surety Bonds
Certain subsidiaries primarily outside of the United States have credit arrangements with various commercial banks and other financial institutions for the issuance of letters of credit and bank guarantees in association with contracting activity. The aggregate value of all such letters of credit and bank guarantees opened outside of the U.S. Revolving Credit Facility as of June 30, 2020 and December 31, 2019 was $81.7 million and $88.5 million, respectively. The aggregate value of the letters of credit provided by the U.S. Revolving Credit Facility backstopping letters of credit or bank guarantees was $30.7 million as of June 30, 2020. Of the letters of credit issued under the Backstop Commitment.U.S. Revolving Credit Facility, $35.2 million are subject to foreign currency revaluation.
We have posted surety bonds to support contractual obligations to customers relating to certain contracts. We utilize bonding facilities to support such obligations, but the issuance of bonds under those facilities is typically at the surety's discretion. These bonds generally indemnify customers should we fail to perform our obligations under the applicable contracts. We, and certain of our subsidiaries, have jointly executed general agreements of indemnity in favor of surety underwriters relating to surety bonds those underwriters issue in support of some of our contracting activity. As of June 30, 2020, bonds issued and outstanding under these arrangements in support of contracts totaled approximately $272.0 million. The aggregate value of the letters of credit provided by the U.S. Revolving Credit facility backstopping surety bonds was $31.7 million.
Our ability to obtain and maintain sufficient capacity under our U.S. Revolving Credit Facility is essential to allow us to support the issuance of letters of credit, bank guarantees and surety bonds. Without sufficient capacity, our ability to support contract security requirements in the future will be diminished.
A&R Credit Agreement
On May 11, 2015, we entered into the Amended Credit Agreement with a syndicate of lenders in connection with our
spin-off from The Babcock & Wilcox Company (now BWX Technologies, Inc. or "BWXT") which governs the U.S.
Revolving Credit Facility and the Last Out Term Loans. Since June 2016, we have entered into a number of waivers and
amendments to the Amended Credit Agreement, including several to avoid default under the financial and other covenants
specified in the Amended Credit Agreement.
On May 14, 2020, we entered into an agreement with our lenders amending and restating the Amended Credit Agreement.
among the Company, Bank of America, N.A., as administrative agent (the “Administrative Agent”) and lender, and the
other lenders party thereto. The credit agreement, as amended and restated (the “A&R Credit Agreement”) refinances and
extends the maturity of our existing revolving credit facility and Last Out Term Loans.
Under the A&R Credit Agreement, B. Riley has committed to provide the Company with up to $70.0 million of additional Last Out Term Loans on the same terms as the term loans extended under the Amended Credit Agreement. An aggregate $30.0 million of this new commitment was funded upon execution of the A&R Credit Agreement. Of the remaining commitments, at least $35.0 million will be funded in installments, subject to reduction for the gross proceeds from certain equity offerings conducted by the Company, and $5.0 million will be funded upon request by the Company. The proceeds from the $30.0 million of new term loans will be used to pay transaction fees and expenses and repay outstanding borrowings under the revolving credit facility governed by the A&R Credit Agreement (the "revolving credit facility"). Proceeds from the additional $40.0 million of term loans will be used to repay outstanding borrowings under the revolving credit facility, with any remaining amounts used for working capital, capital expenditures, permitted acquisitions and general corporate purposes.
The A&R Credit Agreement also provides that, (i) the revolving credit facility continues to be available for issuances of existing and new letters of credit, subject to the L/C Sublimit (as defined below), (ii) the $205.0 million sublimit on borrowings under the revolving credit facility is maintained, and (iii) interest payments on the unpaid principal amount of revolving credit loans incurred during the period from May 14, 2020 through and including August 31, 2020 are deferred and will be paid in six equal installments on the last business day of each calendar month beginning on January 29, 2021 and through June 30, 2021. No swing line borrowings are permitted under the A&R Credit Agreement.
The A&R Credit Agreement also amends the following terms, among others, as compared with the Amended Credit Agreement:
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| (i) | the maturity date of the revolving credit facility will be extended to June 30, 2022, and the maturity date of all Last Out Term Loans under the A&R Credit Agreement will be extended to December 30, 2022 (six months after the maturity date of the revolving credit facility); |
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| (ii) | the interest rate for loans under the revolving credit facility will be reduced to LIBOR plus 7.0% or base rate (as defined in the A&R Credit Agreement) plus 6.0%. These margins will be reduced by 2.0% if commitments under the revolving credit facility are reduced to less than $200.0 million. The fee for letters of credit will be set at 4.0%; |
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| (iii) | the interest rate for all Last Out Term Loans will be set at 12.0%; |
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| (iv) | the commitments under the revolving credit facility will automatically and permanently decrease in the following amounts on the following dates, which match the funding dates and amounts for the committed term loans: (x) $10.0 million on November 30, 2020; and (y) $5.0 million on each of March 31, 2021, June 30, 2021, September 30, 2021, December 31, 2021 and March 31, 2022, respectively; |
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| (v) | the amount of revolving loans and letters of credit available in currencies other than U.S. dollars will be capped at $125.0 million through April 30, 2021 and will step down to $110.0 million on May 1, 2021; and |
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| (vi) | the amount of financial letters of credit will be capped at $75.0 million, and the amount of all letters of credit will be capped at $190.0 million through April 30, 2021 and step down to $175.0 million on May 1, 2021 (the “L/C Sublimit”). |
Affirmative and negative covenants under the A&R Credit Agreement are substantially consistent with the Amended Credit Agreement, except that, among other changes: (i) the indebtedness covenant has been modified to permit the incurrence of any governmental assistance in the form of indebtedness in connection with COVID-19 relief in an aggregate principal amount not to exceed $10.0 million; (ii) a third-party letter of credit basket of up to $50.0 million has been added; (iii) certain liens and restricted payments are modified to permit liens and repayments of indebtedness incurred in connection with governmental assistance in connection with COVID-19 relief; and (iv) covenants related to the European Vølund EPC loss projects have been removed. The minimum required liquidity condition of $30.0 million remains constant but has been modified to exclude cash of non-loan parties in an amount in excess of $25.0 million. Certain financial covenant testing has
been suspended through September 30, 2020, with the Company and the Administrative Agent having agreed to renegotiate such covenant levels and related definitions prior to October 31, 2020.
Events of default under the A&R Credit Agreement are substantially consistent with the Amended Credit Agreement, except that: (i) B. Riley’s failure to fund any of its additional Last Out Term Loans committed under the A&R Credit Agreement will constitute an event of default; and (ii) the failure to renegotiate and set certain financial covenant testing levels and related definitions prior to October 31, 2020 will constitute an event of default.
In connection with the A&R Credit Agreement, the Company will incur certain customary amendment and commitment fees, a portion of which will be deferred pursuant to the terms of the A&R Credit Agreement along with certain previously deferred fees incurred under the Amended Credit Agreement.
B. Riley Limited Guaranty
In connection with the Company’s entry into the A&R Credit Agreement, B. Riley has entered into the B. Riley Guaranty for the benefit of the Administrative Agent and the lenders under the revolving credit facility. The B. Riley Guaranty provides for the guarantee of all of the Company’s obligations with respect to the revolving credit facility (other than with respect to letters of credit and contingent obligations), including the obligation to repay outstanding revolving credit loans and pay earned interest and fees. The B. Riley Guaranty is enforceable in certain circumstances, including, among others: (i) B. Riley’s failure to timely fund in full any of its additional Last Out Term Loans committed under the A&R Credit Agreement; (ii) certain events of default relating to bankruptcy or insolvency occurring with respect to B. Riley; (iii) the acceleration of the Company’s borrowings under the revolving credit facility; (iv) the Company’s failure to pay any amount due to the Administrative Agent or any lender under the revolving credit facility; or (v) any assertion that the B. Riley Guaranty or any portion thereof is not valid, binding or enforceable.
In connection with the B. Riley Guaranty, the Company entered into a fee letter with B. Riley pursuant to which the Company agreed to pay B. Riley a fee of $3.9 million (the “B. Riley Guaranty Fee”). On June 8, 2020 and June 30, 2020, the company issued 1,712,479 shares of common stock and 1,192,371 shares of common stock, respectively, to B. Riley and certain of its affiliates in settlement of the B. Riley Guaranty Fee in connection with the Equitization Agreement discussed below.
Fee and Interest Equitization Agreement
In connection with the B. Riley Guaranty, the Company entered into a Fee and Interest Equitization Agreement (the “Equitization Agreement”) with B. Riley and, solely for certain limited purposes under the Equitization Agreement, B. Riley FBR, Inc.
The Equitization Agreement provides that, in lieu of receiving (a) $13.4 million of interest payments with respect to Last Out Term Loans under the A&R Credit Agreement between May 14, 2020 and December 31, 2020 (the “Equitized Interest Payments”) and (b) the B. Riley Guaranty Fee (the “Equitized Fee Payment” and, together with the Equitized Interest Payments, the “Equitized Fees and Interest Payments”), B. Riley will receive shares of the Company’s common stock.
Under the Equitization Agreement, B. Riley will receive a number of shares of common stock equal to (i) the aggregate dollar value of the Equitized Fees and Interest Payments divided by (ii) the Conversion Price. For purposes of the Equitization Agreement, the “Conversion Price” means the average volume weighted average price of the common stock over 15 consecutive trading days beginning on and including May 15, 2020 (the “Measurement Period”), subject to customary adjustments. For purposes of the listing requirements of the New York Stock Exchange (the "NYSE"), the Equitization Agreement sets a minimum for the Conversion Price of $1.55 per share of common stock, unless and until approval is obtained from the Company’s stockholders under the rules of the NYSE. On June 5, 2020, the conversion price was calculated at $2.2774 per share.
The Company is required under the Equitization Agreement to use its reasonable best efforts to take all actions to obtain any necessary stockholder approval under the rules of the NYSE for the issuance of the Shares. B. Riley has agreed to cause all shares of common stock beneficially owned by B. Riley to be voted in favor of any proposal presented to the Company’s stockholders seeking approval of the issuance of shares pursuant to the Equitization Agreement. The required stockholder
approvals were obtained at the Company’s 2020 annual meeting of stockholders held on June 16, 2020.
Off-Balance Sheet Arrangements
There were no significant off-balance sheet arrangements at June 30, 2020.
Equitization Transactions
In connection with Amendment No. 16 to the Amended Credit Agreement and the extension of Tranche A-3 of the Last Out Term Loans, the Company, B. Riley and Vintage, each related parties, entered into the "Letter Agreement" on April 5, 2019, pursuant to which the parties agreed to use their reasonable best efforts to effect a series of equitization transactions for a portion of the Last Out Term Loans, subject to, among other things, stockholder approval. Stockholder approval was received at the Company's annual stockholder meeting on June 14, 2019 and the contemplated transactions (the "Equitization Transactions") occurred on July 23, 2019. The Equitization Transactions included:
A $50.0 million rights offering ("The 2019 Rights Offering") as described in Note 17,Offering, for which B. Riley FBR, Inc. agreed to act as a backstop, by purchasing from us, at a price of $0.30 per share, all unsubscribed shares in the 2019 Rights Offering for cash or by exchanging an equal principal amount of outstanding Tranche A-2 or Tranche A-3 Last Out Term Loans (the "Backstop Commitment"). Under the 2019 Rights Offering, 16,666,666 shares of common stock were issued, of which 12,589,170 shares were purchased through the exercise of rights in the rights offering generating $37.8 million of cash, 1,333,333 shares were issued through assigned portions of the Backstop Commitment generating an additional $4.0 million of cash, and the final 2,744,163 shares were exchanged for $8.2 million of principal value including accrued paid-in-kind interest of Tranche A-3 Last Out Term Loans.
$10.3 million of the proceeds of the 2019 Rights Offering were used to fully repay Tranche A-2 of the Last Out Term Loans, including accrued paid-in-kind interest.
$31.5 million of the proceeds of the 2019 Rights Offering were used to partially prepay Tranche A-3 of the Last Out Term Loans including paid-in-kind interest. The total prepayment of principal of Tranche A-3 of the Last Out Term Loans was $39.7 million inclusive of the $8.2 million of principal value exchanged for common shares under the Backstop Commitment described above.
All $38.2 million of outstanding principal of Tranche A-1 of the Last Out Term Loans including accrued paid-in-kind interest was exchanged for 12,720,785 shares of common stock (10,720,785 shares to Vintage and 2,000,000 shares to affiliates of B. Riley) at a price of $0.30 per share (the "Debt Exchange"). Prior to the Debt Exchange, $6.0 million of Tranche A-1 was held by affiliates of B. Riley and the remainder was held by Vintage.
1,666,667 warrants, each to purchase one share of our common stock at an exercise price of $0.01 per share were issued to B. Riley.
Immediately after completion of the Equitization Transactions, Tranches A-1 and A-2 of the Last Out Term Loans were fully extinguished, and Tranche A-3 of the Last Out Term Loans had a balance of $114.0 million, including accrued paid-in-kind interest, which bears interest at a fixed rate of 12.0% per annum payable in cash and continues to bear the other terms described in Note 14. Based on Schedule 13D filings made by B. Riley and Vintage, as a resultafter completion of the Equitization Transactions, Vintage increased its beneficial ownership in us to 32.8% and B. Riley increased its beneficial ownership in us to 18.4% inclusive of the outstanding warrants held by B. Riley.
Letters of Credit, Bank Guarantees and Surety Bonds
Certain subsidiaries primarily outside of the United States have credit arrangements with various commercial banks and other financial institutions for the issuance of letters of credit and bank guarantees in association with contracting activity. The aggregate value of all such letters of credit and bank guarantees opened outside of the U.S. Revolving Credit Facility as of September 30, 2019 and December 31, 2018 was $97.7 million and $175.9 million, respectively. The aggregate value of the letters of credit provided by the U.S. Revolving Credit Facility backstopping letters of credit or bank guarantees was $34.4 million as of September 30, 2019. Of the letters of credit issued under the U.S. Revolving Credit Facility, $31.5 million are subject to foreign currency revaluation.
We have posted surety bonds to support contractual obligations to customers relating to certain contracts. We utilize bonding facilities to support such obligations, but the issuance of bonds under those facilities is typically at the surety's discretion. These bonds generally indemnify customers should we fail to perform our obligations under the applicable contracts. We, and certain of our subsidiaries, have jointly executed general agreements of indemnity in favor of surety underwriters relating to surety bonds those underwriters issue in support of some of our contracting activity. As of September 30, 2019, bonds issued and outstanding under these arrangements in support of contracts totaled approximately $218.5 million. The aggregate value of the letters of credit provided by the U.S. Revolving Credit facility backstopping surety bonds was $22.7 million.
Our ability to obtain and maintain sufficient capacity under our U.S. Revolving Credit Facility is essential to allow us to support the issuance of letters of credit, bank guarantees and surety bonds. Without sufficient capacity, our ability to support contract security requirements in the future will be diminished.
2019 Rights Offering
On June 28, 2019, we distributed to holders of our common stock one nontransferable subscription right to purchase 0.986896 common shares for each common share held as of 5:00 p.m., New York City time, on June 27, 2019 at a subscription price of $0.30 per whole share of common stock (the "2019 Rights Offering"). The 2019 Rights Offering expired at 5:00 p.m., New York City time, on July 18, 2019, and settled on July 23, 2019. The Company did not issue fractional rights or pay cash in lieu of fractional rights. The 2019 Rights Offering did not include an oversubscription privilege. Direct costs of the 2019 Rights Offering totaled $0.7 million for the nine months ended September 30, 2019.
The 2019 Rights Offering resulted in the issuance of 13.9 million common shares as a result of the exercise of subscription rights in the offering. Gross proceeds from the 2019 Rights Offering were $41.8 million, $10.3 million which was used to fully repay Tranche A-2 of the Last Out Term Loans and the remaining $31.5 million was used to reduce outstanding borrowings under Tranche A-3 of the Last Out Term Loans. Concurrently with the closing of the 2019 Rights Offering, and in satisfaction of the Backstop Commitment, as described in Note 18, the Company issued an aggregate of 2.7 million common
shares in exchange for a portion of the Tranche A-3 Last Out Term Loans totaling $8.2 million, to B. Riley, a related party, as described in Note 24. 20.
The 2019 Rights Offering was pursuant to the April 5, 2019 Letter Agreement and the Equitization Transactions described in Note 18 and werewas approved by stockholders at the Company's annual stockholder meeting on June 14, 2019.
2018 Rights Offering
On March 19, 2018, we distributed to holders of our common stock one nontransferable subscription right to purchase 1.4 common shares for each common share held as of 5:00 p.m., New York City time, on March 15, 2018 at a price of $3.00 per common share (the "2018 Rights Offering"). On April 10, 2018, we extended the expiration date and amended certain other terms regarding the 2018 Rights Offering. As amended, each right entitled holders to purchase 2.8 common shares at a price of $2.00 per share. The 2018 Rights Offering expired at 5:00 p.m., New York City time, on April 30, 2018. The Company did not issue fractional rights or pay cash in lieu of fractional rights. The 2018 Rights Offering did not include an oversubscription privilege.
The 2018 Rights Offering resulted in the issuance of 12.4 million common shares on April 30, 2018. Gross proceeds from the 2018 Rights Offering were $248.4 million. Of the proceeds received, $214.9 million was used to fully repay the Second Lien Credit Agreement, including $2.3 million of accrued interest, and the remainder was used for working capital purposes. Direct costs of the 2018 Rights Offering totaled $3.3 million. The shares issued in the 2018 Rights Offering were then subject to the one-for-ten reverse stock split described in Note 1.
Warrants
On July 23, 2019, 1,666,667 warrants were issued to certain entities affiliated with B. Riley in connection with the Equitization Transactions described in Note 18. Each warrant was to purchase one share of our common stock at an exercise price of $0.01 per share were issued to B. Riley. As of September 30, 2019, 1,666,667 warrants remain unexercised.
The warrants were contemplated in the April 5, 2019 Letter Agreement (defined in Note 18) and on June 14, 2019, the issuance of the warrants was approved by stockholders in the Company's annual stockholder meeting, which established the grant date for accounting purposes. The grant date fair value of the warrants was estimated to be $6.1 million using the Black-Scholes option pricing model. The warrants may not be put back to the Company for cash, and they qualify for equity classification. The grant date value of the warrants was included as part of the original-issue discount based on the relative fair value method for Tranche A-3 of the Last Out Term Loans described in Note 14 because the value was part of the consideration required by the Tranche A-3 lender in order to extend the Tranche A-3 loans.
Common Shares
On June 14, 2019, after approval of the stockholders at the Company's annual meeting of stockholders, the Company amended its Amended and Restated Certificate of Incorporation to increase the authorized number of shares of the Company's common stock from 200,000,000 shares to 500,000,000 shares to allow for the Equitization Transactions described in Note 18. The reverse stock split on July 24, 2019, described in Note 1 did not affect the number of authorized shares.
On June 14, 2019, at the Company's annual meeting of stockholders, upon the recommendation of the Company's Board of Directors, the stockholders approved the Babcock & Wilcox Enterprises, Inc. Amended and Restated 2015 Long-Term Incentive Plan (amended and restated as of June 14, 2019) (the "Fourth Amended and Restated 2015 LTIP"), which became effective upon such stockholder approval. The Fourth Amended and Restated 2015 LTIP, among other immaterial changes, increases the number of shares available for awards by 1,700,000 shares to a total of 2,927,173 shares of the Company's common stock, subject to adjustment as provided under the plan document. The increase in the maximum number of shares available for awards will allow us to establish the previously announced equity pool of 1,666,666 shares of its common stock for issuance for long-term incentive planning purposes.
Second Lien Term Loan Extinguished in 2018
On August 9, 2017, we entered into a second lien credit agreement (the "Second Lien Credit Agreement") with an affiliate of AIP, governing the Second Lien Term Loan Facility. The Second Lien Term Loan Facility consisted of a second lien term
loan in the principal amount of $175.9 million, all of which was borrowed on August 9, 2017, and a delayed draw term loan facility in the principal amount of up to $20.0 million, which was drawn in a single draw on December 13, 2017.
On May 4, 2018, we fully repaid the Second Lien Term Loan Facility using $212.6 million of the proceeds from the 2018 Rights Offering, plus accrued interest of $2.3 million. A loss on extinguishment of this debt of approximately $49.2 million was recognized in the second quarter of 2018 as a result of the remaining $32.5 million unamortized debt discount on the date of the repayment, $16.2 million of make-whole interest, and $0.5 million of fees associated with the extinguishment. See Note 19 for the Second Lien Term Loan Facility's interest expense.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
For a summary of the critical accounting policies and estimates that we use in the preparation of our unaudited Condensed Consolidated Financial Statements, see "Critical Accounting Policies and Estimates" in our Annual Report. There have been no significant changes to our policies during the ninesix months ended SeptemberJune 30, 2019.
Adoption of ASU 2016-02, Leases (Topic 842), did not have a material effect on our critical accounting policies and estimates. See Note 9 for further discussion.2020.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Our exposures to market risks have not changed materially from those disclosed under "Quantitative and Qualitative Disclosures About Market Risk" in our Annual Report.Report except for those described below.
In December 2019, a novel strain of coronavirus, COVID-19, was identified in Wuhan, China and has subsequently spread globally. This global pandemic has disrupted business operations, trade, commerce, financial and credit markets, and daily life throughout the world. Our business has been adversely impacted by the measures taken by local governments and others to control the spread of this virus. The resulting uncertainty concerning, among other things, the spread and economic impact of the virus has also caused significant volatility and, at times, illiquidity in global equity and credit markets.
This outbreak, and any outbreak of a contagious disease or any other adverse public health developments in countries where we operate, could have material and adverse effects on our business, financial condition and results of operations. In addition, any outbreak may result in a widespread health crisis that could adversely affect the economies and financial markets of many countries, resulting in an economic downturn or recession that could affect demand for our products or our ability to obtain financing for our business or projects.
The ultimate effect of the COVID-19 outbreak or any other outbreak on our business, financial condition and operations will depend heavily on the future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the outbreak, new information that may emerge concerning the severity of the virus and the actions taken to contain the virus or treat its impact, among others. In particular, the actual and threatened spread of the virus could have a material adverse effect on the global economy, could continue to negatively impact financial markets, including the trading price of our common stock, and could cause continued interest rate volatility and movements that could make obtaining financing or refinancing our debt obligations more challenging or more expensive. Any of these developments could have a material adverse effect on our business, liquidity, capital resources and financial results and may result in our inability to continue operating as a going concern or require us to reorganize our company in its entirety, including through bankruptcy proceedings.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
As of the end of the period covered by this report, the Company's management, with the participation of our Chief Executive Officer and the Chief Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended (the "Exchange Act")). Our disclosure controls and procedures, by their nature, can provide only reasonable assurance regarding the control objectives. YouIt should notebe noted that the design of any system of disclosure controls and procedures is based in part upon various assumptions about the likelihood of future events, and we cannot assure you that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.
Based on the evaluation referred to above, our Chief Executive Officer and Chief Financial Officer concluded that the design and operation of our disclosure controls and procedures are effective as of SeptemberJune 30, 20192020 to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and such information is accumulated and communicated to management as appropriate to allow timely decisions regarding disclosure.
Changes in Internal Control Over Financial Reporting
On August 8, 2019, our former Vice President, Controller and Chief Accounting Officer, Daniel W. Hoehn, resigned from the Company, at which time Louis Salamone, the Company’s Chief Financial Officer, assumed the additional role of the Company’s Chief Accounting Officer.
Beginning January 1, 2019, we implemented ASU 2016-02, Leases (Topic 842). Although adoption of the lease standard had an immaterial impact on our results of operations, it materially impacted our Condensed Consolidated Balance Sheets. Therefore, we implemented changes to our processes related to our accounting for leases and the related control activities. These changes included implementing new lease software and training.
There were no other changes in our internal control over financial reporting during the threesix months ended SeptemberJune 30, 20192020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We have not experienced any material impact to our internal controls over financial reporting, despite the fact that some of our team members are working remotely in response to the COVID-19 pandemic. We are continually monitoring and assessing the COVID-19 situation on our internal controls to ensure their operating effectiveness.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
For information regarding ongoing investigations and litigation, see Note 2117 to the unaudited Condensed Consolidated Financial Statements in Part I of this report, which we incorporate by reference into this Item.
Additionally, the Company has received subpoenas from the staff of the SEC in connection with an investigation into the accounting charges and related matters involving its Vølund & Other Renewable segment in 2016, 2017 and 2018. We are cooperating with the staff of the SEC related to the subpoenas and investigation. We cannot predict the length, scope or results of the investigation, or the impact, if any, of the investigation on our results of operations.
Item 1A. Risk Factors
We are subject to various risks and uncertainties in the course of our business. The discussion of such risks and uncertainties may be found under "Risk Factors'Factors" in our Annual Report.Report on Form 10-K for the fiscal year ended December 31, 2019 and
in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020. There have been no material changes to such risk factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
In accordance with the provisions of the employee benefit plans, the Company acquired the following shares in connection with the vesting of employee restricted stock that require us to repurchase shares to satisfy employee statutory income tax withholding obligations. The following table identifies the number of common shares and average purchase price paid by the Company, for each month during the quarter ended SeptemberJune 30, 2019.2020. The Company does not have a general share repurchase program at this time.
|
| | | | | | | | | | |
| Period | Total number of shares purchased (1) (2) | Average price paid per share (2) | Total number of shares purchased as part of publicly announced plans or programs | Approximate dollar value of shares that may yet be purchased under the plans or programs |
| July 2019 | 52 |
| $ | 3.80 |
| — |
| $ | — |
|
| August 2019 | 5,995 |
| $ | 3.49 |
| — |
| $ | — |
|
| September 2019 | 56 |
| $ | 3.47 |
| — |
| $ | — |
|
| Total | 6,103 |
| $ | 3.49 |
| — |
| $ | — |
|
|
| | | | | | | | | | |
| (share data in thousands) | | | | |
| Period | Total number of shares purchased (1) | Average price paid per share | Total number of shares purchased as part of publicly announced plans or programs | Approximate dollar value of shares that may yet be purchased under the plans or programs |
| April 2020 | — |
| $ | — |
| — |
| $ | — |
|
| May 2020 | 156 |
| $ | 0.93 |
| — |
| $ | — |
|
| June 2020 | — |
| $ | — |
| — |
| $ | — |
|
| Total | 156 |
| $ | — |
| — |
| $ | — |
|
(1) Repurchased shares are recorded in treasury stock in our Condensed Consolidated Balance Sheets.
(2) Total number of shares purchased and average price paid per share reflect the one-for-ten reverse stock split on July 24, 2019 as described in Note 1.
Item 6. Exhibits
|
| | |
| | Amendment and Restatement Agreement (attaching the Amended and Restated Credit Agreement), dated as of May 14, 2020, among Babcock & Wilcox Enterprises, Inc., as the borrower, Bank of America, N.A., as Administrative Agent, and the other lenders party thereto (incorporated by reference to Exhibit 10.1 of the Babcock & Wilcox Enterprises, Inc. Current Report on Form 8-K filed May 15, 2020 (File No. 001-36876)). |
| |
| | Fee Letter, dated as of 2019 Restricted Stock Units Director GrantMay 14, 2020, among Babcock & Wilcox Enterprises, Inc. and B. Riley Financial, Inc.(incorporated by reference to Exhibit 10.2 of the Babcock & Wilcox Enterprises, Inc. Current Report on Form 8-K filed May 15, 2020 (File No. 001-36876)). |
| | |
| | Fee and Interest Equitization Agreement, dated May 14, 2020, between Babcock & Wilcox Enterprises, Inc., B. Riley Financial, Inc. and, solely for limited purposes under the Equitization Agreement, B. Riley FBR, Inc.(incorporated by reference to Exhibit 10.3 of the Babcock & Wilcox Enterprises, Inc. Current Report on Form 8-K filed May 15, 2020 (File No. 001-36876)). |
| | |
| | Termination Agreement, dated as of May 14, 2020, between Babcock & Wilcox Enterprises, Inc. and B. Riley Financial, Inc. and acknowledged by Bank of America, N.A. (incorporated by reference to Exhibit 10.4 of the Babcock & Wilcox Enterprises, Inc. Current Report on Form 8-K filed May 15, 2020 (File No. 001-36876)). |
| | |
| | Babcock & Wilcox Enterprises, Inc. Amended and Restated 2015 Long-Term Incentive Plan (Amended and Restated as of June 16, 2020) (incorporated by reference to Appendix D to the Babcock & Wilcox Enterprises, Inc. Definitive Proxy Statement filed with the Securities and Exchange Commission on May 5, 2020). |
| | |
| | First Amendment to the Executive Services Agreement between Babcock & Wilcox Enterprises, Inc. and BRPI Executive Consulting, LLC. |
| | |
| | Second Amendment to the Executive Employment Agreement between Babcock & Wilcox Enterprises, Inc. and Henry Bartoli. |
| | |
| | First Amendment to the Executive Employment Agreement between Babcock & Wilcox Enterprises, Inc. and Louis Salamone. |
| | |
| | Salary Deferral Agreement, dated as of April 21, 2020, by and between Babcock & Wilcox Enterprises, Inc. and Jimmy Morgan. |
| | | |
| | Rule 13a-14(a)/15d-14(a) certification of Chief Executive OfficerOfficer. |
| | |
| | Rule 13a-14(a)/15d-14(a) certification of Chief Financial OfficerOfficer. |
| | |
| | Section 1350 certification of Chief Executive OfficerOfficer. |
| | |
| | Section 1350 certification of Chief Financial OfficerOfficer. |
| | |
| 101.INS | | XBRL Instance DocumentDocument. |
| | |
| 101.SCH | | XBRL Taxonomy Extension Schema DocumentDocument. |
| | |
| 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase DocumentDocument. |
| | |
| 101.LAB | | XBRL Taxonomy Extension Label Linkbase DocumentDocument. |
| | |
| 101.PRE | | XBRL Taxonomy Extension Presentation Linkbase DocumentDocument. |
| | |
| 101.DEF | | XBRL Taxonomy Extension Definition Linkbase DocumentDocument. |
| | |
* The Company has omitted certain information contained in this exhibit pursuant to Rule 601(b)(10) of Regulation S-K. The omitted information is not material and, if publicly disclosed, would likely cause competitive harm to the Company. Certain schedules and annexes to this exhibit have been omitted pursuant to Item 601(a)(5) of Regulation S-K. A copy of any omitted schedule and/or annex will be furnished to the U.S. Securities and Exchange Commission or its staff upon request.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
| | |
| | | BABCOCK & WILCOX ENTERPRISES, INC. |
| | | |
November 7, 2019August 12, 2020 | By: | /s/ Louis Salamone |
| | | Louis Salamone |
| | | Executive Vice President, Chief Financial Officer and Chief Accounting Officer (Principal Financial and Accounting Officer and Duly Authorized Representative) |
| | |
67