UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| | | | | |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended SeptemberJune 30, 20212022
OR
| | | | | |
☐ | 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.) |
|
1200 East Market Street, Suite 650 | | |
Akron, Ohio | | 44305 |
(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 |
8.125% Senior Notes due 2026 | BWSN | New York Stock Exchange |
6.50% Senior Notes due 2026 | BWNB | New York Stock Exchange |
7.75% Series A Cumulative Perpetual Preferred Stock | BW PRA | 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 ☒ 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 ☒ 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.
| | | | | | | | | | | | | | | | | | | | |
Large accelerated filer | | ☐ | | Accelerated filer | | ☐☒ |
| | | |
Non-accelerated filer | | ☒☐ | | Smaller reporting company | | ☒☐ |
| | | | | | |
| | | | 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 ☒
The number of shares of the registrant's common stock outstanding at November 5, 2021August 1, 2022 was 86,260,649.88,083,520.
***** Cautionary Statement Concerning Forward-Looking Information *****
This quarterly report,Quarterly Report on Form 10-Q, 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. All statements other than statements of historical or current fact included in this Quarterly Report are forward-looking statements. You should not place undue reliance on these statements. Statements thatForward-looking statements include words such as “expect,” “intend,” “plan,” “likely,” “seek,” “believe,” “project,” “forecast,” “target,” “goal,” “potential,” “estimate,” “may,” “might,” “will,” “would,” “should,” “could,” “can,” “have,” “due,” “anticipate,” “assume,” “contemplate,” “continue” and other words and terms of similar meaning in connection with any discussion of the words "expect," "intend," "plan," "believe," "project," "forecast," "estimate," "may," "should," "anticipate" and similar statementstiming or nature of a future operational performance or forward-looking nature identify forward-looking statements.other events.
These forward-looking statements are based on management’s current expectations and involve a number of risks and uncertainties, including, among other things, the impact of COVID-19, on usthe invasion of Ukraine by Russia and the capital markets and global economic climate generally; our ability to integrate acquired businesses and the impact of those acquired businesses on our cash flows, results of operations and financial condition, including our acquisitionrecent acquisitions of Fosler Construction Company Inc;Inc., VODA A/S, Fossil Power Systems, Inc., and Optimus Industries, LLC; 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 comply with the requirements of, and to service the indebtedness under, our debt facility agreements; our ability to pay dividends on our 7.75% Series A Cumulative Perpetual Preferred Stock,Stock; our ability to make interest payments on our 8.125% senior notes due 2026 and our 6.50% notes due 2026; the highly competitive nature of our 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 productivity and schedule issues in our B&W Renewable, B&W Environmental and B&W Thermal segments; our ability to successfully partner with third parties to win and execute contracts within our B&W Environmental, B&W Renewable and B&W Thermal 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; 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; difficulties we may encounter in obtaining regulatory or other necessary permits or approvals; changes in actuarial assumptions and market fluctuations that affect our net pension liabilities and income; our ability to successfully compete with current and future competitors; 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;business, and the other factors specified and set forth under "Risk Factors" in our periodic reports filed with the Securities and Exchange Commission, including our most recent annual report on Form 10-K.10-K filed on March 8, 2022.
These forward-looking statements are made based upon detailed assumptions and reflect management’s current expectations and beliefs. While we believe that these assumptions underlying the forward-looking statements are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect actual results.
The forward-looking statements included herein are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events, or otherwise, except as required by law.
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, |
(in thousands, except per share amounts) | 2021 | | 2020 | | 2021 | | 2020 |
Revenues | $ | 159,960 | | | $ | 132,513 | | | $ | 531,068 | | | $ | 416,464 | |
Costs and expenses: | | | | | | | |
Cost of operations | 114,643 | | | 75,156 | | | 404,827 | | | 292,691 | |
Selling, general and administrative expenses | 38,206 | | | 35,689 | | | 112,367 | | | 107,876 | |
Advisory fees and settlement costs | 1,841 | | | 3,846 | | | 9,658 | | | 10,074 | |
Restructuring activities | 4,575 | | | 2,396 | | | 7,968 | | | 6,739 | |
Research and development (benefit) costs | (228) | | | 1,355 | | | 969 | | | 3,927 | |
Gain on asset disposals, net | (13,838) | | | (3) | | | (15,804) | | | (916) | |
Total costs and expenses | 145,199 | | | 118,439 | | | 519,985 | | | 420,391 | |
Operating income (loss) | 14,761 | | | 14,074 | | | 11,083 | | | (3,927) | |
Other income (expense): | | | | | | | |
Interest expense | (8,330) | | | (12,203) | | | (30,574) | | | (49,776) | |
Interest income | 130 | | | 167 | | | 385 | | | 430 | |
Gain (loss) on debt extinguishment | — | | | — | | | 6,530 | | | (6,194) | |
Loss on sale of business | — | | | — | | | (2,240) | | | (108) | |
Benefit plans, net | 9,867 | | | 7,328 | | | 24,889 | | | 22,314 | |
Foreign exchange | (1,673) | | | 24,963 | | | (1,056) | | | 22,749 | |
Other – net | (806) | | | (276) | | | (988) | | | (3,068) | |
Total other income (expense) | (812) | | | 19,979 | | | (3,054) | | | (13,653) | |
Income (loss) before income tax expense | 13,949 | | | 34,053 | | | 8,029 | | | (17,580) | |
Income tax expense (benefit) | 301 | | | (502) | | | 6,683 | | | (467) | |
Income (loss) from continuing operations | 13,648 | | | 34,555 | | | 1,346 | | | (17,113) | |
Income from discontinued operations, net of tax | — | | | — | | | — | | | 1,800 | |
Net income (loss) | 13,648 | | | 34,555 | | | 1,346 | | | (15,313) | |
Net (income) loss attributable to non-controlling interest | (5) | | | 169 | | | (41) | | | 407 | |
Net income (loss) attributable to stockholders | 13,643 | | | 34,724 | | | 1,305 | | | (14,906) | |
Less: Dividend on Series A preferred stock | 3,681 | | | — | | | 5,412 | | | — | |
Net income (loss) attributable to stockholders of common stock | $ | 9,962 | | | $ | 34,724 | | | $ | (4,107) | | | $ | (14,906) | |
| | | | | | | |
Basic earnings (loss) per share | | | | | | | |
Continuing operations | $ | 0.12 | | | $ | 0.70 | | | $ | (0.05) | | | $ | (0.35) | |
Discontinued operations | — | | | — | | | — | | | 0.04 | |
Basic earnings (loss) per share | $ | 0.12 | | | $ | 0.70 | | | $ | (0.05) | | | $ | (0.31) | |
Diluted earnings (loss) per share | | | | | | | |
Continuing operations | $ | 0.11 | | | $ | 0.69 | | | $ | (0.05) | | | $ | (0.35) | |
Discontinued operations | — | | | — | | | — | | | 0.04 | |
Diluted earnings (loss) per share | $ | 0.11 | | | $ | 0.69 | | | $ | (0.05) | | | $ | (0.31) | |
Shares used in the computation of earnings (loss) per share: | | | | | | | |
Basic | 86,002 | | | 49,478 | | | 81,088 | | | 47,585 | |
Diluted | 86,964 | | | 50,056 | | | 81,088 | | | 47,585 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
(in thousands, except per share amounts) | 2022 | | 2021 | | 2022 | | 2021 | | |
Revenues | $ | 221,019 | | | $ | 202,860 | | | $ | 425,068 | | | $ | 371,108 | | | |
Costs and expenses: | | | | | | | | | |
Cost of operations | 173,340 | | | 158,799 | | | 336,400 | | | 290,184 | | | |
Selling, general and administrative expenses | 44,951 | | | 33,704 | | | 87,995 | | | 74,161 | | | |
Advisory fees and settlement costs | 5,142 | | | 4,526 | | | 9,077 | | | 7,817 | | | |
Restructuring activities | (102) | | | 2,400 | | | (8) | | | 3,393 | | | |
Research and development costs | 1,137 | | | 609 | | | 1,856 | | | 1,197 | | | |
(Gain) loss on asset disposals, net | (7,117) | | | 38 | | | (7,137) | | | (1,966) | | | |
Total costs and expenses | 217,351 | | | 200,076 | | | 428,183 | | | 374,786 | | | |
Operating income (loss) | 3,668 | | | 2,784 | | | (3,115) | | | (3,678) | | | |
Other (expense) income: | | | | | | | | | |
Interest expense | (10,662) | | | (8,021) | | | (21,929) | | | (22,244) | | | |
Interest income | 103 | | | 146 | | | 220 | | | 255 | | | |
Gain (loss) on debt extinguishment | — | | | 6,530 | | | — | | | 6,530 | | | |
Loss on sale of business | — | | | (2,598) | | | — | | | (2,240) | | | |
Benefit plans, net | 7,403 | | | 5,924 | | | 14,855 | | | 15,022 | | | |
Foreign exchange | (4,296) | | | 1,826 | | | (1,211) | | | 617 | | | |
Other expense – net | (565) | | | 96 | | | (623) | | | (182) | | | |
Total other (expense) income | (8,017) | | | 3,903 | | | (8,688) | | | (2,242) | | | |
(Loss) income before income tax expense | (4,349) | | | 6,687 | | | (11,803) | | | (5,920) | | | |
Income tax (benefit) expense | (1,355) | | | 3,546 | | | (125) | | | 6,382 | | | |
| | | | | | | | | |
| | | | | | | | | |
Net (loss) income | (2,994) | | | 3,141 | | | (11,678) | | | (12,302) | | | |
Net loss (income) attributable to non-controlling interest | 427 | | | (15) | | | 847 | | | (36) | | | |
Net (loss) income attributable to stockholders | (2,567) | | | 3,126 | | | (10,831) | | | (12,338) | | | |
Less: Dividend on Series A preferred stock | 3,715 | | | 1,731 | | | 7,430 | | | 1,731 | | | |
Net (loss) income attributable to stockholders of common stock | $ | (6,282) | | | $ | 1,395 | | | $ | (18,261) | | | $ | (14,069) | | | |
| | | | | | | | | |
Basic (loss) earnings per share | $ | (0.07) | | | $ | 0.02 | | | $ | (0.21) | | | $ | (0.18) | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Diluted (loss) earnings per share | $ | (0.07) | | | $ | 0.02 | | | $ | (0.21) | | | $ | (0.18) | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Shares used in the computation of (loss) earnings per share: | | | | | | | | | |
Basic | 88,029 | | | 85,724 | | | 88,011 | | | 78,589 | | | |
Diluted | 88,029 | | | 87,003 | | | 88,011 | | | 78,589 | | | |
See accompanying notes to Condensed Consolidated Financial Statements.
BABCOCK & WILCOX ENTERPRISES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
(in thousands) | 2021 | | 2020 | | 2021 | | 2020 |
Net income (loss) | $ | 13,648 | | | $ | 34,555 | | | $ | 1,346 | | | $ | (15,313) | |
Other comprehensive income (loss): | | | | | | | |
Currency translation adjustments (CTA) | (1,292) | | | (22,916) | | | (2,840) | | | (24,631) | |
| | | | | | | |
Reclassification of CTA to net income (loss) | — | | | — | | | (4,512) | | | — | |
| | | | | | | |
Benefit obligations: | | | | | | | |
Amortization of benefit plan benefits | 197 | | | (246) | | | 593 | | | (738) | |
| | | | | | | |
Other comprehensive loss | (1,095) | | | (23,162) | | | (6,759) | | | (25,369) | |
Total comprehensive income (loss) | 12,553 | | | 11,393 | | | (5,413) | | | (40,682) | |
Comprehensive income attributable to non-controlling interest | 25 | | | 175 | | | 18 | | | 434 | |
Comprehensive income (loss) attributable to stockholders | $ | 12,578 | | | $ | 11,568 | | | $ | (5,395) | | | $ | (40,248) | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
(in thousands) | 2022 | | 2021 | | 2022 | | 2021 | | |
Net (loss) income | $ | (2,994) | | | $ | 3,141 | | | $ | (11,678) | | | $ | (12,302) | | | |
Other comprehensive (loss) income: | | | | | | | | | |
Currency translation adjustments ("CTA") | (6,634) | | | (1,478) | | | (10,919) | | | (1,548) | | | |
| | | | | | | | | |
Reclassification of CTA to net loss | — | | | — | | | — | | | (4,512) | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Benefit obligations: | | | | | | | | | |
Pension and post retirement adjustments, net of tax | (198) | | | 198 | | | 395 | | | 396 | | | |
| | | | | | | | | |
Other comprehensive loss | (6,832) | | | (1,280) | | | (10,524) | | | (5,664) | | | |
Total comprehensive (loss) income | (9,826) | | | 1,861 | | | (22,202) | | | (17,966) | | | |
Comprehensive income (loss) attributable to non-controlling interest | 498 | | | (10) | | | 959 | | | (7) | | | |
Comprehensive (loss) income attributable to stockholders | $ | (9,328) | | | $ | 1,851 | | | $ | (21,243) | | | $ | (17,973) | | | |
See accompanying notes to Condensed Consolidated Financial Statements.
BABCOCK & WILCOX ENTERPRISES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| (in thousands, except per share amount) | (in thousands, except per share amount) | September 30, 2021 | | December 31, 2020 | (in thousands, except per share amount) | June 30, 2022 | | December 31, 2021 |
Cash, cash equivalents and restricted cash | $ | 115,747 | | | $ | 67,423 | | |
Cash and cash equivalents | | Cash and cash equivalents | $ | 71,524 | | | $ | 224,874 | |
Restricted cash and cash equivalents | | Restricted cash and cash equivalents | 8,664 | | | 1,841 | |
Accounts receivable – trade, net | Accounts receivable – trade, net | 129,908 | | | 128,317 | | Accounts receivable – trade, net | 147,467 | | | 132,068 | |
Accounts receivable – other | Accounts receivable – other | 36,941 | | | 35,442 | | Accounts receivable – other | 49,306 | | | 34,553 | |
Contracts in progress | Contracts in progress | 68,266 | | | 59,308 | | Contracts in progress | 111,913 | | | 80,176 | |
Inventories | 72,999 | | | 67,161 | | |
Inventories, net | | Inventories, net | 99,112 | | | 79,527 | |
Other current assets | Other current assets | 22,907 | | | 26,421 | | Other current assets | 27,568 | | | 29,395 | |
Current assets held for sale | — | | | 4,728 | | |
| Total current assets | Total current assets | 446,768 | | | 388,800 | | Total current assets | 515,554 | | | 582,434 | |
Net property, plant and equipment, and finance lease | Net property, plant and equipment, and finance lease | 109,918 | | | 85,078 | | Net property, plant and equipment, and finance lease | 80,528 | | | 85,627 | |
Goodwill | Goodwill | 90,548 | | | 47,363 | | Goodwill | 164,777 | | | 116,462 | |
Intangible assets | 37,528 | | | 23,908 | | |
Intangible assets, net | | Intangible assets, net | 63,561 | | | 43,795 | |
Right-of-use assets | Right-of-use assets | 9,812 | | | 10,814 | | Right-of-use assets | 29,948 | | | 30,163 | |
Other assets | Other assets | 34,784 | | | 24,673 | | Other assets | 59,571 | | | 54,784 | |
Non-current assets held for sale | — | | | 11,156 | | |
| Total assets | Total assets | $ | 729,358 | | | $ | 591,792 | | Total assets | $ | 913,939 | | | $ | 913,265 | |
| Accounts payable | Accounts payable | $ | 85,948 | | | $ | 73,481 | | Accounts payable | $ | 109,527 | | | $ | 85,929 | |
Accrued employee benefits | Accrued employee benefits | 15,660 | | | 13,906 | | Accrued employee benefits | 13,174 | | | 12,989 | |
Advance billings on contracts | Advance billings on contracts | 44,439 | | | 64,002 | | Advance billings on contracts | 95,718 | | | 68,380 | |
Accrued warranty expense | Accrued warranty expense | 15,210 | | | 25,399 | | Accrued warranty expense | 11,083 | | | 12,925 | |
Financing lease liabilities | Financing lease liabilities | 3,302 | | | 886 | | Financing lease liabilities | 1,493 | | | 2,445 | |
Operating lease liabilities | Operating lease liabilities | 3,651 | | | 3,995 | | Operating lease liabilities | 3,893 | | | 3,950 | |
Other accrued liabilities | Other accrued liabilities | 51,996 | | | 80,858 | | Other accrued liabilities | 63,866 | | | 54,385 | |
Loans payable | Loans payable | 10,137 | | | — | | Loans payable | 3,781 | | | 12,380 | |
Current liabilities held for sale | — | | | 8,305 | | |
| Total current liabilities | Total current liabilities | 230,343 | | | 270,832 | | Total current liabilities | 302,535 | | | 253,383 | |
Senior notes | Senior notes | 181,150 | | | — | | Senior notes | 329,968 | | | 326,366 | |
Long term loans payable | Long term loans payable | 1,789 | | | — | | Long term loans payable | 579 | | | 1,543 | |
Last out term loans | — | | | 183,330 | | |
Revolving credit facilities | — | | | 164,300 | | |
Pension and other accumulated postretirement benefit liabilities | 205,079 | | | 252,292 | | |
| Pension and other postretirement benefit liabilities | | Pension and other postretirement benefit liabilities | 166,056 | | | 182,730 | |
Non-current finance lease liabilities | Non-current finance lease liabilities | 52,526 | | | 29,690 | | Non-current finance lease liabilities | 28,788 | | | 29,369 | |
Non-current operating lease liabilities | Non-current operating lease liabilities | 6,298 | | | 7,031 | | Non-current operating lease liabilities | 26,770 | | | 26,685 | |
Other non-current liabilities | Other non-current liabilities | 31,773 | | | 22,579 | | Other non-current liabilities | 27,526 | | | 34,567 | |
Total liabilities | Total liabilities | 708,958 | | | 930,054 | | Total liabilities | 882,222 | | | 854,643 | |
Commitments and contingencies | Commitments and contingencies | 0 | | 0 | Commitments and contingencies | 0 | | 0 |
Stockholders' equity (deficit): | | |
Preferred stock, par value $0.01 per share, authorized shares of 20,000; issued and outstanding shares of 7,599 and 0 at September 30, 2021 and December 30, 2020, respectively | 76 | | | — | | |
Common stock, par value $0.01 per share, authorized shares of 500,000; issued and outstanding shares of 86,244 and 54,452 at September 30, 2021 and December 31, 2020, respectively | 5,110 | | | 4,784 | | |
Stockholders' equity: | | Stockholders' equity: | |
Preferred stock, par value $0.01 per share, authorized shares of 20,000; issued and outstanding shares of 7,669 and 7,669 at June 30, 2022 and December 31, 2021, respectively | | Preferred stock, par value $0.01 per share, authorized shares of 20,000; issued and outstanding shares of 7,669 and 7,669 at June 30, 2022 and December 31, 2021, respectively | 77 | | | 77 | |
Common stock, par value $0.01 per share, authorized shares of 500,000; issued and outstanding shares of 86,392 and 86,286 at June 30, 2022 and December 31, 2021, respectively | | Common stock, par value $0.01 per share, authorized shares of 500,000; issued and outstanding shares of 86,392 and 86,286 at June 30, 2022 and December 31, 2021, respectively | 5,112 | | | 5,110 | |
Capital in excess of par value | Capital in excess of par value | 1,516,368 | | | 1,164,436 | | Capital in excess of par value | 1,521,931 | | | 1,518,872 | |
Treasury stock at cost, 1,512 and 718 shares at September 30, 2021 and December 31, 2020, respectively | (110,853) | | | (105,990) | | |
Treasury stock at cost, 1,552 and 1,525 shares at June 30, 2022 and December 31, 2021, respectively | | Treasury stock at cost, 1,552 and 1,525 shares at June 30, 2022 and December 31, 2021, respectively | (111,155) | | | (110,934) | |
Accumulated deficit | Accumulated deficit | (1,354,313) | | | (1,350,206) | | Accumulated deficit | (1,339,415) | | | (1,321,154) | |
Accumulated other comprehensive loss | Accumulated other comprehensive loss | (59,149) | | | (52,390) | | Accumulated other comprehensive loss | (69,346) | | | (58,822) | |
Stockholders' deficit attributable to shareholders | (2,761) | | | (339,366) | | |
Stockholders' equity attributable to shareholders | | Stockholders' equity attributable to shareholders | 7,204 | | | 33,149 | |
Non-controlling interest | Non-controlling interest | 23,161 | | | 1,104 | | Non-controlling interest | 24,513 | | | 25,473 | |
Total stockholders' equity (deficit) | 20,400 | | | (338,262) | | |
Total liabilities and stockholders' equity (deficit) | $ | 729,358 | | | $ | 591,792 | | |
Total stockholders' equity | | Total stockholders' equity | 31,717 | | | 58,622 | |
Total liabilities and stockholders' equity | | Total liabilities and stockholders' equity | $ | 913,939 | | | $ | 913,265 | |
See accompanying notes to Condensed Consolidated Financial Statements.
BABCOCK & WILCOX ENTERPRISES, INC.
CONDENSED CONSOLIDATED STATEMENTSTATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Preferred Stock | | Capital In Excess of Par Value | | Treasury Stock | | Accumulated Deficit | | Accumulated Other Comprehensive Loss | | Non-controlling Interest | | Total Stockholders’ Equity (Deficit) |
(in thousands, except share and per share amounts) | Shares | | Par Value | | Shares | | Par Value | | | | | | |
Balance at December 31, 2020 | 54,452 | | | $ | 4,784 | | | — | | | $ | — | | | $ | 1,164,436 | | | $ | (105,990) | | | $ | (1,350,206) | | | $ | (52,390) | | | $ | 1,104 | | | $ | (338,262) | |
Net (loss) income | — | | | — | | | — | | | — | | | — | | | — | | | (15,464) | | | — | | | 21 | | | (15,443) | |
Currency translation adjustments | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (4,582) | | | (24) | | | (4,606) | |
Defined benefit obligations | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 198 | | | — | | | 198 | |
Stock-based compensation charges | 1,725 | | | 22 | | | — | | | — | | | 4,480 | | | (3,308) | | | — | | | — | | | — | | | 1,194 | |
Common stock offering, net | 29,487 | | | 295 | | | — | | | — | | | 161,218 | | | — | | | — | | | — | | | — | | | 161,513 | |
Dividends to non-controlling interest | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (38) | | | (38) | |
Balance at March 31, 2021 | 85,664 | | | $ | 5,101 | | | — | | | $ | — | | | $ | 1,330,134 | | | $ | (109,298) | | | $ | (1,365,670) | | | $ | (56,774) | | | $ | 1,063 | | | $ | (195,444) | |
Net income | — | | | — | | | — | | | — | | | — | | | — | | | 3,126 | | | — | | | 15 | | | 3,141 | |
Currency translation adjustments | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (1,478) | | | (5) | | | (1,483) | |
Defined benefit obligations | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 198 | | | — | | | 198 | |
Stock-based compensation charges | 65 | | | 2 | | | — | | | — | | | 1,201 | | | (3) | | | — | | | — | | | — | | | 1,200 | |
Common stock offering | — | | | — | | | — | | | — | | | (529) | | | — | | | — | | | — | | | — | | | (529) | |
Preferred stock offering, net | — | | | — | | | 4,445 | | | 45 | | | 105,998 | | | — | | | — | | | — | | | — | | | 106,043 | |
Equitized Last Out Term Loan principal payment | — | | | — | | | 2,917 | | | 29 | | | 72,893 | | | — | | | — | | | — | | | — | | | 72,922 | |
Dividends to preferred stockholders | — | | | — | | | — | | | — | | | — | | | — | | | (1,731) | | | — | | | — | | | (1,731) | |
Dividends to non-controlling interest | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (36) | | | (36) | |
Balance at June 30, 2021 | 85,729 | | | $ | 5,103 | | | 7,362 | | | $ | 74 | | | $ | 1,509,697 | | | $ | (109,301) | | | $ | (1,364,275) | | | $ | (58,054) | | | $ | 1,037 | | | $ | (15,719) | |
Net income | — | | | — | | | — | | | — | | | — | | | — | | | 13,643 | | | — | | | 5 | | | 13,648 | |
Currency translation adjustments | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (1,292) | | | (30) | | | (1,322) | |
Defined benefit obligations | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 197 | | | — | | | 197 | |
Stock-based compensation charges | 515 | | | 7 | | | — | | | — | | | 916 | | | (1,552) | | | — | | | — | | | — | | | (629) | |
Common stock offering | — | | | — | | | — | | | — | | | (50) | | | — | | | — | | | — | | | — | | | (50) | |
Preferred stock offering, net | — | | | — | | | 237 | | | 2 | | | 5,805 | | | — | | | — | | | — | | | — | | | 5,807 | |
Dividends to preferred stockholders | — | | | — | | | — | | | — | | | — | | | — | | | (3,681) | | | — | | | — | | | (3,681) | |
Non-controlling interest from acquisition | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 22,262 | | | 22,262 | |
Dividends to non-controlling interest | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (113) | | | (113) | |
Balance at September 30, 2021 | 86,244 | | | $ | 5,110 | | | 7,599 | | | $ | 76 | | | $ | 1,516,368 | | | $ | (110,853) | | | $ | (1,354,313) | | | $ | (59,149) | | | $ | 23,161 | | | $ | 20,400 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Preferred Stock | | Capital In Excess of Par Value | | Treasury Stock | | Accumulated Deficit | | Accumulated Other Comprehensive (Loss) | | Non-controlling Interest | | Total Stockholders’ Equity |
(in thousands, except share amounts) | Shares | | Par Value | | Shares | | Par Value | | | | | | |
Balance at December 31, 2021 | 86,286 | | | $ | 5,110 | | | 7,669 | | | $ | 77 | | | $ | 1,518,872 | | | $ | (110,934) | | | $ | (1,321,154) | | | $ | (58,822) | | | $ | 25,473 | | | $ | 58,622 | |
Net loss | — | | | — | | | — | | | — | | | — | | | — | | | (8,264) | | | — | | | (420) | | | (8,684) | |
Currency translation adjustments | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (4,285) | | | (41) | | | (4,326) | |
| | | | | | | | | | | | | | | | | | | |
Pension and post retirement adjustments, net of tax | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 593 | | | — | | | 593 | |
Stock-based compensation charges | 52 | | | 1 | | | — | | | — | | | 1,673 | | | (221) | | | — | | | — | | | — | | | 1,453 | |
Dividends to preferred stockholders | — | | | — | | | — | | | — | | | — | | | — | | | (3,715) | | | — | | | — | | | (3,715) | |
Preferred stock, net | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Dividends to non-controlling interest | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (1) | | | (1) | |
Balance at March 31, 2022 | 86,338 | | | $ | 5,111 | | | 7,669 | | | $ | 77 | | | $ | 1,520,545 | | | $ | (111,155) | | | $ | (1,333,133) | | | $ | (62,514) | | | $ | 25,011 | | | $ | 43,942 | |
Net loss | — | | | — | | | — | | | — | | | — | | | — | | | (2,567) | | | — | | | (427) | | | (2,994) | |
Currency translation adjustments | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (6,634) | | | (71) | | | (6,705) | |
Pension and post retirement adjustments, net of tax | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (198) | | | — | | | (198) | |
Stock-based compensation charges | 54 | | | 1 | | | — | | | — | | | 1,386 | | | — | | | — | | | — | | | — | | | 1,387 | |
Dividends to preferred stockholders | — | | | — | | | — | | | — | | | — | | | — | | | (3,715) | | | — | | | — | | | (3,715) | |
Preferred stock, net | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Dividends to non-controlling interest | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | | — | |
Balance at June 30, 2022 | 86,392 | | | $ | 5,112 | | | 7,669 | | | $ | 77 | | | $ | 1,521,931 | | | $ | (111,155) | | | $ | (1,339,415) | | | $ | (69,346) | | | $ | 24,513 | | | $ | 31,717 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | Common Stock | | Capital In Excess of Par Value | | Treasury Stock | | Accumulated Deficit | | Accumulated Other Comprehensive Income | | Non-controlling Interest | | Total Stockholders’ Deficit | | Common Stock | | Preferred Stock | | Capital In Excess of Par Value | | Treasury Stock | | Accumulated Deficit | | Accumulated Other Comprehensive (Loss) | | Non-controlling Interest | | Total Stockholders’ Deficit |
(in thousands, except share and per share amounts) | Shares | | Par Value | | |
Balance at December 31, 2019 | 46,374 | | | $ | 4,699 | | | $ | 1,142,614 | | | $ | (105,707) | | | $ | (1,339,888) | | | $ | 1,926 | | | $ | 1,417 | | | $ | (294,939) | | |
(in thousands, except share amounts) | | (in thousands, except share amounts) | Shares | | Par Value | | Shares | | Par Value | | Capital In Excess of Par Value | | Treasury Stock | | Accumulated Deficit | | Accumulated Other Comprehensive (Loss) | | Non-controlling Interest | | Total Stockholders’ Deficit |
Balance at December 31, 2020 | | Balance at December 31, 2020 | 54,452 | | | $ | 4,784 | | | — | | | $ | — | | | |
Net loss | Net loss | — | | | — | | | — | | | — | | | (31,526) | | | — | | | (96) | | | (31,622) | | Net loss | — | | | — | | | — | | | — | | | — | | | — | | | (15,464) | | | — | | | 21 | | | (15,443) | |
Currency translation adjustments | Currency translation adjustments | — | | | — | | | — | | | — | | | — | | | 2,380 | | | (58) | | | 2,322 | | Currency translation adjustments | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (4,582) | | | (24) | | | (4,606) | |
Defined benefit obligations | — | | | — | | | — | | | — | | | — | | | (246) | | | — | | | (246) | | |
Pension and post retirement adjustments, net of tax | | Pension and post retirement adjustments, net of tax | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 198 | | | — | | | 198 | |
Stock-based compensation charges | Stock-based compensation charges | 33 | | | 4 | | | 876 | | | (9) | | | — | | | — | | | — | | | 871 | | Stock-based compensation charges | 1,725 | | | 22 | | | — | | | — | | | 4,480 | | | (3,308) | | | — | | | — | | | — | | | 1,194 | |
Common stock offering | | Common stock offering | 29,487 | | | 295 | | | — | | | — | | | 161,218 | | | — | | | — | | | — | | | — | | | 161,513 | |
Dividends to non-controlling interest | Dividends to non-controlling interest | — | | | — | | | — | | | — | | | — | | | — | | | (36) | | | (36) | | Dividends to non-controlling interest | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (38) | | | (38) | |
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) | | |
Balance at March 31, 2021 | | Balance at March 31, 2021 | 85,664 | | | $ | 5,101 | | | — | | | $ | — | | | $ | 1,330,134 | | | $ | (109,298) | | | $ | (1,365,670) | | | $ | (56,774) | | | $ | 1,063 | | | $ | (195,444) | |
Net income | | Net income | — | | | — | | | — | | | — | | | — | | | — | | | 3,126 | | | — | | | 15 | | | 3,141 | |
Currency translation adjustments | Currency translation adjustments | — | | | — | | | — | | | — | | | — | | | (4,095) | | | 37 | | | (4,058) | | Currency translation adjustments | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (1,478) | | | (5) | | | (1,483) | |
Defined benefit obligations | — | | | — | | | — | | | — | | | — | | | (246) | | | — | | | (246) | | |
Pension and post retirement adjustments, net of tax | | Pension and post retirement adjustments, net of tax | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 198 | | | — | | | 198 | |
Stock-based compensation charges | Stock-based compensation charges | — | | | — | | | 923 | | | (1) | | | — | | | — | | | — | | | 922 | | Stock-based compensation charges | 65 | | | 2 | | | — | | | — | | | 1,201 | | | (3) | | | — | | | — | | | — | | | 1,200 | |
Equitized guarantee fee payment | 1,713 | | | 17 | | | 3,883 | | | — | | | — | | | — | | | — | | | 3,900 | | |
Common stock offering, net | | Common stock offering, net | — | | | — | | | — | | | — | | | (529) | | | (529) | |
Preferred stock offering, net | | Preferred stock offering, net | — | | | — | | | 4,445 | | | 45 | | | 105,998 | | | — | | | — | | | — | | | — | | | 106,043 | |
Equitized Last Out Term Loan interest payment | Equitized Last Out Term Loan interest payment | 1,192 | | | 12 | | | 2,703 | | | — | | | — | | | — | | | — | | | 2,715 | | Equitized Last Out Term Loan interest payment | — | | | — | | | 2,917 | | | 29 | | | 72,893 | | | — | | | — | | | — | | | — | | | 72,922 | |
Dividends to preferred stockholders | | Dividends to preferred stockholders | — | | | — | | | — | | | — | | | — | | | — | | | (1,731) | | | — | | | — | | | (1,731) | |
Dividends to non-controlling interest | Dividends to non-controlling interest | — | | | — | | | — | | | — | | | — | | | — | | | (37) | | | (37) | | Dividends to non-controlling interest | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (36) | | | (36) | |
Balance at June 30, 2020 | 49,312 | | | $ | 4,732 | | | $ | 1,150,999 | | | $ | (105,717) | | | $ | (1,389,518) | | | $ | (281) | | | $ | 1,085 | | | $ | (338,700) | | |
Net income (loss) | — | | | — | | | — | | | — | | | 34,724 | | | — | | | (169) | | | 34,555 | | |
Currency translation adjustments | — | | | — | | | — | | | — | | | — | | | (22,916) | | | (6) | | | (22,922) | | |
Defined benefit obligations | — | | | — | | | — | | | — | | | — | | | (246) | | | — | | | (246) | | |
Stock-based compensation charges | 360 | | | 4 | | | 1,520 | | | (268) | | | — | | | — | | | — | | | 1,256 | | |
Equitized Last Out Term Loan interest payment | 2,334 | | | 24 | | | 5,292 | | | — | | | — | | | — | | | — | | | 5,316 | | |
Dividends to non-controlling interest | — | | | — | | | — | | | — | | | — | | | — | | | (37) | | | (37) | | |
Balance at September 30, 2020 | 52,006 | | | $ | 4,760 | | | $ | 1,157,811 | | | $ | (105,985) | | | $ | (1,354,794) | | | $ | (23,443) | | | $ | 873 | | | $ | (320,778) | | |
Balance at June 30, 2021 | | Balance at June 30, 2021 | 85,729 | | | $ | 5,103 | | | 7,362 | | | $ | 74 | | | $ | 1,509,697 | | | $ | (109,301) | | | $ | (1,364,275) | | | $ | (58,054) | | | $ | 1,037 | | | $ | (15,719) | |
|
See accompanying notes to Condensed Consolidated Financial Statements.
BABCOCK & WILCOX ENTERPRISES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | Nine months ended September 30, | | Six Months Ended June 30, |
(in thousands) | (in thousands) | 2021 | | 2020 | (in thousands) | 2022 | | 2021 | |
Cash flows from operating activities: | Cash flows from operating activities: | | | | Cash flows from operating activities: | | | | |
Net income (loss) | $ | 1,346 | | | $ | (15,313) | | |
Net loss | | Net loss | $ | (11,678) | | | $ | (12,302) | | |
Adjustments to reconcile net loss to net cash used in operating activities: | Adjustments to reconcile net loss to net cash used in operating activities: | | Adjustments to reconcile net loss to net cash used in operating activities: | | |
Depreciation and amortization of long-lived assets | Depreciation and amortization of long-lived assets | 12,684 | | | 12,296 | | Depreciation and amortization of long-lived assets | 11,938 | | | 8,379 | | |
Amortization of deferred financing costs and debt discount | Amortization of deferred financing costs and debt discount | 7,150 | | | 16,013 | | Amortization of deferred financing costs and debt discount | 2,328 | | | 6,464 | | |
Amortization of guaranty fee | Amortization of guaranty fee | 1,370 | | | 698 | | Amortization of guaranty fee | 387 | | | 908 | | |
Non-cash operating lease expense | Non-cash operating lease expense | 3,206 | | | 3,600 | | Non-cash operating lease expense | 3,866 | | | 2,238 | | |
Loss on sale of business | 2,240 | | | 108 | | |
(Gain) loss on debt extinguishment | (6,530) | | | 6,194 | | |
(Gain) loss on sale of business | | (Gain) loss on sale of business | (7,000) | | | 2,240 | | |
Loss (gain) on debt extinguishment | | Loss (gain) on debt extinguishment | — | | | (6,530) | | |
Gain on asset disposals | Gain on asset disposals | (15,804) | | | (916) | | Gain on asset disposals | — | | | (1,966) | | |
Provision for (benefit from) deferred income taxes, including valuation allowances | 2,601 | | | (788) | | |
Mark to market, prior service cost amortization for pension and postretirement plans | (1,660) | | | (738) | | |
(Benefit from) provision for deferred income taxes | | (Benefit from) provision for deferred income taxes | (3,075) | | | 2,002 | | |
Prior service cost amortization for pension and postretirement plans | | Prior service cost amortization for pension and postretirement plans | 395 | | | 396 | | |
Stock-based compensation, net of associated income taxes | Stock-based compensation, net of associated income taxes | 6,628 | | | 3,327 | | Stock-based compensation, net of associated income taxes | 3,061 | | | 5,705 | | |
Equitized non-cash interest expense | — | | | 8,031 | | |
| Foreign exchange | Foreign exchange | 1,056 | | | (22,749) | | Foreign exchange | 1,211 | | | (617) | | |
Changes in assets and liabilities: | Changes in assets and liabilities: | | Changes in assets and liabilities: | | |
Accounts receivable | Accounts receivable | 1,466 | | | 28,577 | | Accounts receivable | (13,804) | | | (576) | | |
Accrued insurance receivable | — | | | (26,000) | | |
Contracts in progress | Contracts in progress | (9,365) | | | 21,633 | | Contracts in progress | (31,255) | | | (5,014) | | |
Advance billings on contracts | Advance billings on contracts | (20,625) | | | (23,161) | | Advance billings on contracts | 24,567 | | | (10,512) | | |
Inventories | Inventories | (4,681) | | | (4,865) | | Inventories | (13,691) | | | (4,821) | | |
Income taxes | Income taxes | (4,239) | | | (4,820) | | Income taxes | (1,992) | | | (1,961) | | |
Accounts payable | Accounts payable | 7,375 | | | (33,450) | | Accounts payable | 23,669 | | | 10,227 | | |
Accrued and other current liabilities | Accrued and other current liabilities | (44,768) | | | 13,793 | | Accrued and other current liabilities | (17,861) | | | (34,717) | | |
Accrued contract loss | Accrued contract loss | (266) | | | (5,294) | | Accrued contract loss | 1,471 | | | (261) | | |
Pension liabilities, accrued postretirement benefits and employee benefits | Pension liabilities, accrued postretirement benefits and employee benefits | (47,108) | | | (25,922) | | Pension liabilities, accrued postretirement benefits and employee benefits | (17,480) | | | (40,339) | | |
Other, net | Other, net | 90 | | | (17,550) | | Other, net | (18,648) | | | (5,018) | | |
Net cash used in operating activities | Net cash used in operating activities | (107,834) | | | (67,296) | | Net cash used in operating activities | (63,591) | | | (86,075) | | |
Cash flows from investing activities: | Cash flows from investing activities: | | | | Cash flows from investing activities: | | | | |
Purchase of property, plant and equipment | Purchase of property, plant and equipment | (4,213) | | | (2,274) | | Purchase of property, plant and equipment | (2,721) | | | (2,168) | | |
Acquisition of business | (27,211) | | | — | | |
Acquisition of business, net of cash acquired | | Acquisition of business, net of cash acquired | (64,914) | | | — | | |
Proceeds from sale of business and assets, net | Proceeds from sale of business and assets, net | 23,770 | | | 8,784 | | Proceeds from sale of business and assets, net | — | | | 7,170 | | |
Purchases of available-for-sale securities | Purchases of available-for-sale securities | (9,597) | | | (19,149) | | Purchases of available-for-sale securities | (3,209) | | | (6,694) | | |
Sales and maturities of available-for-sale securities | Sales and maturities of available-for-sale securities | 11,373 | | | 14,597 | | Sales and maturities of available-for-sale securities | 5,028 | | | 8,303 | | |
Other, net | | Other, net | 234 | | | — | | |
Net cash (used in) from investing activities | Net cash (used in) from investing activities | (5,878) | | | 1,958 | | Net cash (used in) from investing activities | (65,582) | | | 6,611 | | |
| | | Nine months ended September 30, | | Six Months Ended June 30, |
(in thousands) | (in thousands) | 2021 | | 2020 | (in thousands) | 2022 | | 2021 | |
Cash flows from financing activities: | Cash flows from financing activities: | | | | Cash flows from financing activities: | | | | |
Issuance of senior notes, net | 151,239 | | | — | | |
Issuance of senior notes | | Issuance of senior notes | 2,419 | | | 138,287 | | |
Borrowings on loan payable | Borrowings on loan payable | 3,472 | | | — | | Borrowings on loan payable | 1,342 | | | 2,566 | | |
Borrowings under last out term loans | — | | | 60,000 | | |
Repayments on loan payable | | Repayments on loan payable | (13,373) | | | — | | |
| Repayments under last out term loans | Repayments under last out term loans | (75,408) | | | — | | Repayments under last out term loans | — | | | (75,408) | | |
Borrowings under U.S. revolving credit facility | Borrowings under U.S. revolving credit facility | 14,500 | | | 126,300 | | Borrowings under U.S. revolving credit facility | — | | | 14,500 | | |
Repayments of U.S. revolving credit facility | Repayments of U.S. revolving credit facility | (178,800) | | | (123,400) | | Repayments of U.S. revolving credit facility | — | | | (178,800) | | |
| Issuance of preferred stock, net | Issuance of preferred stock, net | 111,850 | | | — | | Issuance of preferred stock, net | — | | | 106,043 | | |
Payment of preferred stock dividends | Payment of preferred stock dividends | (5,412) | | | — | | Payment of preferred stock dividends | (7,430) | | | (1,731) | | |
Shares of common stock returned to treasury stock | Shares of common stock returned to treasury stock | (4,863) | | | (278) | | Shares of common stock returned to treasury stock | (221) | | | (3,311) | | |
| Issuance of common stock, net | Issuance of common stock, net | 160,934 | | | — | | Issuance of common stock, net | — | | | 160,984 | | |
Debt issuance costs | Debt issuance costs | (16,725) | | | (10,343) | | Debt issuance costs | — | | | (10,933) | | |
Other, net | Other, net | (1,569) | | | 98 | | Other, net | 1,621 | | | (908) | | |
Net cash from financing activities | 159,218 | | | 52,377 | | |
Net cash (used in) from financing activities | | Net cash (used in) from financing activities | (15,642) | | | 151,289 | | |
Effects of exchange rate changes on cash | Effects of exchange rate changes on cash | 2,818 | | | 4,389 | | Effects of exchange rate changes on cash | (1,712) | | | 4,350 | | |
Net increase (decrease) in cash, cash equivalents and restricted cash | 48,324 | | | (8,572) | | |
Net (decrease) increase in cash, cash equivalents and restricted cash | | Net (decrease) increase in cash, cash equivalents and restricted cash | (146,527) | | | 76,175 | | |
Cash, cash equivalents and restricted cash, beginning of period | Cash, cash equivalents and restricted cash, beginning of period | 67,423 | | | 56,941 | | Cash, cash equivalents and restricted cash, beginning of period | 226,715 | | | 67,423 | | |
Cash, cash equivalents and restricted cash, end of period | Cash, cash equivalents and restricted cash, end of period | $ | 115,747 | | | $ | 48,369 | | Cash, cash equivalents and restricted cash, end of period | $ | 80,188 | | | $ | 143,598 | | |
See accompanying notes to Condensed Consolidated Financial Statements.
BABCOCK & WILCOX ENTERPRISES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBERJUNE 30, 20212022
NOTE 1 – BASIS OF PRESENTATION
These interim Condensed Consolidated Financial Statements of Babcock & Wilcox Enterprises, Inc. (“B&W,” “management,” “we,” “us,” “our” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP") and Securities and Exchange Commission (“SEC”) instructions for interim financial information, and should be read in conjunction with 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.
COVID-19
In December 2019, a novel strain of coronavirus, COVID-19,("COVID-19"), was identified in Wuhan, China and subsequently spread globally. This global pandemic has disrupted business operations, including global supply chains, trade, commerce, financial and credit markets, and daily life throughout the world. Our business has been, and continues to be, 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 changes in the severity of the virus in these countries and localities. These restrictions, including curtailment of travel and other activity, negatively impact our ability to conduct business.
The COVID-19 pandemic has also disruptedDisruption to our global supply chains includingchanges from COVID-19 has included impacts to the manufacturing, supply, distribution, transportation and delivery of our products. We could also seeobserved significant disruptions of the operations of our logistics, service providers, delays in shipments and negative impacts to pricing of certain of our products. Disruptions and delays in our supply chains as a result of the COVID-19 pandemic could continue to adversely impact our ability to meet our customers’ demands. Lastly,Additionally, the prioritization of shipments of certain products as a result of the pandemic could cause delays in the shipment or delivery of our products. Such disruptions could result in reduced sales.
The volatility and variability of the virus has limited our ability to forecast the impact of the virusCOVID-19 on our customers and our business. The continuing resurgenceongoing impact of COVID-19, including newevolving strains such as the delta variant,and omicron variants, has resulted in the reimposition of certain restrictions and may lead to the implementation of other restrictions being implemented in response to efforts to reduce the spread of the virus. These varying and changing events have caused many of the projects we had anticipated wouldto begin in 2020during the prior two years to be delayed into the second half of 20212022 and beyond. 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 the fourth quarter of 20212022 and beyond. Additionally, out of concern for our employees, even where restrictions permit employees to return to our offices and worksites, we incurred additional costs to protect our employees and 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. The full extent of the impact of COVID-19 impact, including new strains such as the delta variant, that may arise along with the availability of vaccines and anti-vaccination attitudes of the public, that could negatively impact our evaluationits variants on our operational and financial performance will depend on future developments, including the ultimate duration and spread of the pandemic and related actions taken by the U.S. government, state and local government officials, and international governments to prevent disease spread,outbreaks, as well as the availability, effectiveness and effectivenessacceptance of COVID-19 vaccinations in the U.S. and abroad, all of which are uncertain, out of our control, and cannot be predicted.
NOTE 2 – EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings (loss) per share of our common stock, net of non-controlling interest and dividends on preferred stock:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
(in thousands, except per share amounts) | 2021 | | 2020 | | 2021 | | 2020 |
Income (loss) from continuing operations attributable to stockholders of common stock | $ | 9,962 | | | $ | 34,724 | | | $ | (4,107) | | | $ | (16,706) | |
Income from discontinued operations attributable to stockholders of common stock, net of tax | — | | | — | | | — | | | 1,800 | |
Net income (loss) attributable to stockholders of common stock | $ | 9,962 | | | $ | 34,724 | | | $ | (4,107) | | | $ | (14,906) | |
| | | | | | | |
Weighted average shares used to calculate basic earnings (loss) per share | 86,002 | | | 49,478 | | | 81,088 | | | 47,585 | |
Dilutive effect of stock options, restricted stock and performance units | 962 | | | 578 | | | — | | | — | |
Weighted average shares used to calculate diluted earnings (loss) per share | 86,964 | | | 50,056 | | | 81,088 | | | 47,585 | |
| | | | | | | |
Basic earnings (loss) per share | | | | | | | |
Continuing operations | $ | 0.12 | | | $ | 0.70 | | | $ | (0.05) | | | $ | (0.35) | |
Discontinued operations | — | | | — | | | — | | | 0.04 | |
Basic earnings (loss) per share | $ | 0.12 | | | $ | 0.70 | | | $ | (0.05) | | | $ | (0.31) | |
| | | | | | | |
Diluted earnings (loss) per share | | | | | | | |
Continuing operations | $ | 0.11 | | | $ | 0.69 | | | $ | (0.05) | | | $ | (0.35) | |
Discontinued operations | — | | | — | | | — | | | 0.04 | |
Diluted earnings (loss) per share | $ | 0.11 | | | $ | 0.69 | | | $ | (0.05) | | | $ | (0.31) | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
(in thousands, except per share amounts) | 2022 | | 2021 | | 2022 | | 2021 | | |
| | | | | | | | | |
| | | | | | | | | |
Net (loss) income attributable to stockholders of common stock | $ | (6,282) | | | $ | 1,395 | | | $ | (18,261) | | | $ | (14,069) | | | |
| | | | | | | | | |
Weighted average shares used to calculate basic and diluted earnings (loss) per share | 88,029 | | | 85,724 | | | 88,011 | | | 78,589 | | | |
Dilutive effect of stock options, restricted stock and performance units | — | | | 1,279 | | | — | | | — | | | |
Weighted average shares used to calculate diluted earnings (loss) per share | 88,029 | | | 87,003 | | | 88,011 | | | 78,589 | | | |
| | | | | | | | | |
Basic earnings (loss) per share | $ | (0.07) | | | $ | 0.02 | | | $ | (0.21) | | | $ | (0.18) | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Diluted earnings (loss) per share | $ | (0.07) | | | $ | 0.02 | | | $ | (0.21) | | | $ | (0.18) | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Because we incurred a net loss in the ninethree and six months ended SeptemberJune 30, 20212022 and 2020,in the six months ended June 30, 2021, basic and diluted shares are the same.
If we were in a net income position during the six months ended June 30, 2022 and 2021, diluted shares would include an additional 0.9 million and 1.4 million shares, respectively. If we had net income in the ninethree months ended SeptemberJune 30, 2021 and 2020,2022, diluted shares would include an additional 1.30.9 million and 422.3 thousand shares, respectively. shares.
We excluded 0.90.4 million and 1.10.3 million shares related to stock options from the diluted share calculation for the three months ended SeptemberJune 30, 20212022 and 2020,2021, respectively, because their effect would have been anti-dilutive. We excluded 1.00.4 million and 1.30.4 million shares related to stock options from the diluted share calculation for the ninesix months ended SeptemberJune 30, 20212022 and 2020,2021, respectively, because their effect would have been anti-dilutive.
NOTE 3 – SEGMENT REPORTING
B&W’s innovative products and servicesOur operations are organized intoassessed based on 3 reportable market-facing segments as part of the Company's strategic, market-focused organizational and re-branding initiative to accelerate growth and provide stakeholders with improved visibility into our renewable and environmental growth platforms. Our reportable segments are as follows:
•Babcock & Wilcox Renewable: Supplies cost-effectiveCost-effective technologies for efficient and environmentally sustainable power and heat generation, including waste-to-energy, solar construction and installation, biomass energy and black liquor systems for the pulp and paper industry. B&W’s leading technologies support a circular economy by diverting waste from landfills to use for power generation and replacing fossil fuels while recovering metals and reducing emissions.
•Babcock & Wilcox Environmental: Provides aA full suite of best-in-class emissions control and environmental technology solutions for utility, waste to energy, biomass, carbon black and industrial steam generation applications
around the world. B&W’s broad experience includes systems for cooling, ash handling, particulate control, nitrogen oxides and sulfur dioxides removal, chemical looping for carbon control, and mercury control.
•Babcock & Wilcox Thermal: Distributes and manufactures steamSteam generation equipment, aftermarket parts, construction, maintenance and field services for plants in the power generation, oil and gas, and industrial sectors. B&W has an extensive global base of installed equipment for utilities and general industrial applications including refining, petrochemical, food processing, metals and others.
Revenues exclude eliminations of revenues generated from sales to other segments.segments or to other product lines within the 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) | (in thousands) | 2021 | | 2020 | | 2021 | | 2020 | (in thousands) | 2022 | | 2021 | | 2022 | | 2021 | |
Revenues: | Revenues: | | | | | | | | Revenues: | | | | | | | | |
B&W Renewable segment | B&W Renewable segment | | B&W Renewable segment | | |
B&W Renewable | B&W Renewable | $ | 20,783 | | | $ | 21,253 | | | $ | 63,481 | | | $ | 70,657 | | B&W Renewable | $ | 35,510 | | | $ | 24,701 | | | $ | 55,221 | | | $ | 42,698 | | |
B&W Renewable Services (1) | | B&W Renewable Services (1) | 19,544 | | | 3,593 | | | 27,832 | | | 8,853 | | |
Vølund | Vølund | 17,217 | | | 17,809 | | | 41,674 | | | 47,913 | | Vølund | 18,557 | | | 10,050 | | | 34,893 | | | 15,604 | | |
Fosler Solar | | Fosler Solar | 1,616 | | | — | | | 25,242 | | | — | | |
| | 38,000 | | | 39,062 | | | 105,155 | | | 118,570 | | | 75,227 | | | 38,344 | | | 143,188 | | | 67,155 | | |
B&W Environmental segment | B&W Environmental segment | | | | | | | | B&W Environmental segment | | | | | | | | |
B&W Environmental | B&W Environmental | 14,338 | | | 11,841 | | | 42,766 | | | 35,289 | | B&W Environmental | 12,801 | | | 10,995 | | | 30,986 | | | 28,428 | | |
SPIG | SPIG | 16,514 | | | 10,323 | | | 40,892 | | | 32,510 | | SPIG | 14,234 | | | 13,194 | | | 26,294 | | | 24,378 | | |
GMAB | GMAB | 7,397 | | | 3,098 | | | 14,109 | | | 8,555 | | GMAB | 4,577 | | | 4,169 | | | 9,280 | | | 6,712 | | |
| | 38,249 | | | 25,262 | | | 97,767 | | | 76,354 | | | 31,612 | | | 28,358 | | | 66,560 | | | 59,518 | | |
B&W Thermal segment | B&W Thermal segment | | | | | | | | B&W Thermal segment | | | | | | | | |
B&W Thermal | B&W Thermal | 83,819 | | | 70,025 | | | 328,416 | | | 223,920 | | B&W Thermal | 116,305 | | | 136,316 | | | 218,544 | | | 244,597 | | |
| | 83,819 | | | 70,025 | | | 328,416 | | | 223,920 | | | 116,305 | | | 136,316 | | | 218,544 | | | 244,597 | | |
| Other | (108) | | | (1,836) | | | (270) | | | (2,380) | | |
Eliminations | | Eliminations | (2,125) | | | (158) | | | (3,224) | | | (162) | | |
Total Revenues | Total Revenues | $ | 159,960 | | | $ | 132,513 | | | $ | 531,068 | | | $ | 416,464 | | Total Revenues | $ | 221,019 | | | $ | 202,860 | | | $ | 425,068 | | | $ | 371,108 | | |
(1) B&W Renewable Services' 2021 revenues were reclassed from Vølund's prior year reported amount for year-over-year comparability.
The presentationAdjusted EBITDA on a consolidated basis is a non-GAAP metric defined as the sum of the components of our adjusted EBITDA infor each of the tablesegments, further adjusted for corporate allocations and research and development costs. At a segment level, the adjusted EBITDA presented below is consistent with the way ourmanner in which the Company's chief operating decision maker ("CODM") reviews the results of our operations and makes strategic decisions about our business. Itemsthe business and is calculated as earnings before interest, tax, depreciation and amortization adjusted for items such as gains or losses on asset sales,arising from the sale of non-income producing assets, net pension benefits, restructuring costs,activities, impairments, gains and losses on debt extinguishment, costs related to financial consulting, research and development costs and other costs that may not be directly controllable by segment management and are not allocated to the segments.segment.The Company uses adjusted EBITDA internally to evaluate its performance and in making financial and operational decisions. When viewed in conjunction with GAAP results, the Company believes that its presentation of adjusted EBITDA provides investors with greater transparency and a greater understanding of factors affecting its financial condition and results of operations than GAAP measures alone. Prior period results have been revised to conform with the revised definition and present separate reconciling items in our reconciliation, including business transition costs.
Adjusted EBITDA for each segment is presented below with a reconciliation tofrom net income (loss) attributable to stockholders of common stock.loss.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
(in thousands) | 2021 | | 2020 | | 2021 | | 2020 |
Adjusted EBITDA (1) | | | | | | | |
B&W Renewable segment (2) | $ | 11,399 | | | $ | 23,575 | | | $ | 15,030 | | | $ | 22,003 | |
B&W Environmental segment | 3,471 | | | 2,177 | | | 7,270 | | | 1,408 | |
B&W Thermal segment | 9,205 | | | 7,287 | | | 32,066 | | | 22,879 | |
Corporate | (5,866) | | | (4,916) | | | (11,548) | | | (12,864) | |
Research and development benefit (costs) | 513 | | | (1,355) | | | (560) | | | (3,927) | |
| 18,722 | | | 26,768 | | | 42,258 | | | 29,499 | |
| | | | | | | |
Restructuring activities | (4,575) | | | (2,396) | | | (7,968) | | | (6,739) | |
Acquisition pursuit and related costs | (4,037) | | | — | | | (4,037) | | | — | |
Financial advisory services | (322) | | | (1,650) | | | (2,554) | | | (3,161) | |
Advisory fees for settlement costs and liquidity planning | (954) | | | (1,387) | | | (4,991) | | | (5,156) | |
Litigation legal costs | (566) | | | (809) | | | (2,113) | | | (1,757) | |
Stock compensation | (152) | | | (1,175) | | | (8,032) | | | (3,074) | |
Interest on letters of credit included in cost of operations | (572) | | | (186) | | | (1,178) | | | (585) | |
Loss from business held for sale | — | | | (93) | | | (483) | | | (411) | |
Depreciation & amortization | (4,305) | | | (4,056) | | | (12,684) | | | (12,296) | |
Contract asset amortization | (73) | | | — | | | (146) | | | — | |
Product development | (2,427) | | | — | | | (2,690) | | | — | |
Gain (loss) from a non-strategic business | 184 | | | (945) | | | (103) | | | (1,163) | |
Gain on asset disposals, net | 13,838 | | | 3 | | | 15,804 | | | 916 | |
Operating income (loss) | 14,761 | | | 14,074 | | | 11,083 | | | (3,927) | |
Interest expense, net | (8,200) | | | (12,036) | | | (30,189) | | | (49,346) | |
Gain (loss) on debt extinguishment | — | | | — | | | 6,530 | | | (6,194) | |
Loss on sale of business | — | | | — | | | (2,240) | | | (108) | |
Net pension benefit before MTM | 7,614 | | | 7,328 | | | 22,636 | | | 22,314 | |
MTM gain from benefit plans | 2,253 | | | — | | | 2,253 | | | — | |
Foreign exchange | (1,673) | | | 24,963 | | | (1,056) | | | 22,749 | |
Other – net | (806) | | | (276) | | | (988) | | | (3,068) | |
Total other income (expense) | (812) | | | 19,979 | | | (3,054) | | | (13,653) | |
Income (loss) before income tax expense | 13,949 | | | 34,053 | | | 8,029 | | | (17,580) | |
Income tax expense (benefit) | 301 | | | (502) | | | 6,683 | | | (467) | |
Income (loss) from continuing operations | 13,648 | | | 34,555 | | | 1,346 | | | (17,113) | |
Income from discontinued operations, net of tax | — | | | — | | | — | | | 1,800 | |
Net income (loss) | 13,648 | | | 34,555 | | | 1,346 | | | (15,313) | |
Net (income) loss attributable to non-controlling interest | (5) | | | 169 | | | (41) | | | 407 | |
Net income (loss) attributable to stockholders | 13,643 | | | 34,724 | | | 1,305 | | | (14,906) | |
Less: Dividend on Series A preferred stock | 3,681 | | | — | | | 5,412 | | | — | |
Net income (loss) attributable to stockholders of common stock | $ | 9,962 | | | $ | 34,724 | | | $ | (4,107) | | | $ | (14,906) | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
(in thousands) | 2022 | | 2021 | | 2022 | | 2021 | | |
Net (loss) income | $ | (2,994) | | | $ | 3,141 | | | $ | (11,678) | | | $ | (12,302) | | | |
Interest expense | 12,058 | | | 8,341 | | | 24,382 | | | 22,850 | | | |
Income tax (benefit) expense | (1,355) | | | 3,546 | | | (125) | | | 6,382 | | | |
Depreciation & amortization | 5,736 | | | 4,321 | | | 11,938 | | | 8,379 | | | |
EBITDA | 13,445 | | | 19,349 | | | 24,517 | | | 25,309 | | | |
| | | | | | | | | |
Benefit plans, net | (7,403) | | | (5,924) | | | (14,855) | | | (15,022) | | | |
(Gain) loss on sales, net | (117) | | | 2,636 | | | (137) | | | 274 | | | |
Stock compensation | 475 | | | 51 | | | 1,794 | | | 7,880 | | | |
Restructuring activities and business services transition costs | 1,754 | | | 2,400 | | | 4,442 | | | 3,393 | | | |
Advisory fees for settlement costs and liquidity planning | 879 | | | 2,059 | | | 1,911 | | | 4,037 | | | |
Litigation costs | 3,911 | | | 1,167 | | | 6,439 | | | 1,547 | | | |
Gain on debt extinguishment | — | | | (6,530) | | | — | | | (6,530) | | | |
Acquisition pursuit and related costs | 1,350 | | | — | | | 2,193 | | | — | | | |
Product development (1) | 991 | | | 263 | | | 1,843 | | | 263 | | | |
Foreign exchange | 4,296 | | | (1,826) | | | 1,211 | | | (617) | | | |
Financial advisory services | 352 | | | 1,299 | | | 727 | | | 2,232 | | | |
Contract step-up purchase price adjustment | — | | | — | | | 1,745 | | | — | | | |
Loss from business held for sale | — | | | — | | | — | | | 483 | | | |
Other - net | 675 | | | 278 | | | 798 | | | 544 | | | |
Adjusted EBITDA(2) | $ | 20,608 | | | $ | 15,222 | | | $ | 32,628 | | | $ | 23,793 | | | |
(1) Adjusted EBITDA for the three and nine months ended September 30, 2020, excludes losses relatedCosts associated with development of commercially viable products that are ready to a non-strategic business and interest on letters of credit included in cost of operations that were previously included in Adjusted EBITDA and total $0.9 million and $0.2 million, respectively, and $1.2 million and $0.6 million, respectively.go to market.
(2) Adjusted EBITDA for the three and ninesix months ended SeptemberJune 30, 20202022 includes a $26$7.0 million non-recurring loss recoverygain on sale related to claims in connection with multiple Renewable EPC loss contracts.development rights of a future solar project that was sold.
14 | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
(in thousands) | 2022 | | 2021 | | 2022 | | 2021 | | |
Adjusted EBITDA | | | | | | | | | |
B&W Renewable segment(1) | $ | 8,869 | | | $ | 3,427 | | | $ | 10,324 | | | $ | 3,631 | | | |
B&W Environmental segment | 591 | | | 2,705 | | | 2,030 | | | 3,810 | | | |
B&W Thermal segment | 16,361 | | | 12,572 | | | 30,515 | | | 23,107 | | | |
Corporate | (4,226) | | | (2,997) | | | (8,599) | | | (5,682) | | | |
Research and development costs | (987) | | | (485) | | | (1,642) | | | (1,073) | | | |
| $ | 20,608 | | | $ | 15,222 | | | $ | 32,628 | | | $ | 23,793 | | | |
We do not separately identify or report our assets by segment as our chief operating decision makerCODM does not consider assets by segment to be a critical measure by which performance is measured.
NOTE 4 – REVENUE RECOGNITION AND CONTRACTS
Revenue Recognition
We generate the vast majority of our revenues from the supply of, and aftermarket services for, steam-generating, environmental and auxiliary equipment. We also earn revenue from the supply of custom-engineered cooling systems for
steam applications along with related aftermarket services.
Revenue from goods and services transferred to customers at a point in time, which includes certain aftermarket parts and services, accounted for 21% and 18% of our revenue for the three months ended June 30, 2022 and 2021, respectively, and 20% and 22% of our revenue for the six months ended June 30, 2022 and 2021, respectively. Revenue from products and services transferred to customers over time, which primarily relates to customized, engineered solutions and construction services, accounted for 79% and 82% of our revenue for the three months ended June 30, 2022 and 2021, respectively, and 80% and 78% of our revenue for six months ended June 30, 2022 and 2021, respectively
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, accounted for 21% and 34% for the three months ended September 30, 2021 and 2020, respectively, and 20% and 32% of our revenue for the nine months ended September 30, 2021 and 2020, respectively. Revenue from products and services transferred to customers over time, which primarily relates to customized, engineered solutions and construction services, accounted for 79% and 66% for the three months ended September 30, 2021 and 2020, respectively, and 80% and 68% of our revenue for the nine months ended September 30, 2021 and 2020, respectively.
Refer to Note 3 for our disaggregation of revenue by product line.
Contract Balances
The following represents the components of our contractsContracts in progress and advanceAdvance billings on contracts included in our Condensed Consolidated Balance Sheets:
| (in thousands) | (in thousands) | September 30, 2021 | | December 31, 2020 | | $ Change | | % Change | (in thousands) | June 30, 2022 | | December 31, 2021 | | $ Change | | % Change |
Contract assets - included in contracts in progress: | Contract assets - included in contracts in progress: | | | | | | | | Contract assets - included in contracts in progress: | | | | | | | |
Costs incurred less costs of revenue recognized | Costs incurred less costs of revenue recognized | $ | 29,038 | | | $ | 25,888 | | | $ | 3,150 | | | 12 | % | Costs incurred less costs of revenue recognized | $ | 40,822 | | | $ | 35,939 | | | $ | 4,883 | | | 14 | % |
Revenues recognized less billings to customers | Revenues recognized less billings to customers | 39,228 | | | 33,420 | | | 5,808 | | | 17 | % | Revenues recognized less billings to customers | 71,091 | | | 44,237 | | | 26,854 | | | 61 | % |
Contracts in progress | Contracts in progress | $ | 68,266 | | | $ | 59,308 | | | $ | 8,958 | | | 15 | % | Contracts in progress | $ | 111,913 | | | $ | 80,176 | | | $ | 31,737 | | | 40 | % |
Contract liabilities - included in advance billings on contracts: | Contract liabilities - included in advance billings on contracts: | | | | | | | | Contract liabilities - included in advance billings on contracts: | | | | | | | |
Billings to customers less revenues recognized | Billings to customers less revenues recognized | $ | 44,275 | | | $ | 61,884 | | | $ | (17,609) | | | (28) | % | Billings to customers less revenues recognized | $ | 97,318 | | | $ | 68,615 | | | $ | 28,703 | | | 42 | % |
Costs of revenue recognized less cost incurred | Costs of revenue recognized less cost incurred | 164 | | | 2,118 | | | (1,954) | | | (92) | % | Costs of revenue recognized less cost incurred | (1,600) | | | (235) | | | (1,365) | | | 581 | % |
Advance billings on contracts | Advance billings on contracts | $ | 44,439 | | | $ | 64,002 | | | $ | (19,563) | | | (31) | % | Advance billings on contracts | $ | 95,718 | | | $ | 68,380 | | | $ | 27,338 | | | 40 | % |
| Net contract balance | Net contract balance | $ | 23,827 | | | $ | (4,694) | | | $ | 28,521 | | | (608) | % | Net contract balance | $ | 16,195 | | | $ | 11,796 | | | $ | 4,399 | | | 37 | % |
| Accrued contract losses | Accrued contract losses | $ | 316 | | | $ | 582 | | | $ | (266) | | | (46) | % | Accrued contract losses | $ | 1,849 | | | $ | 378 | | | $ | 1,471 | | | 389 | % |
Backlog
On SeptemberJune 30, 20212022 we had $540.0had $731.0 million of remaining performance obligations, which we also refer to as total backlog. We expect to recognize approximately 29.1%48.4%, 32.6% and 38.3%28.2% and 23.4% of our remaining performance obligations as revenue in the remainder of 2021, 2022, 2023 and thereafter, respectively.
Changes in Contract Estimates
In the three and nine months ended Septembersix June 30, 20212022 and 2020,2021, we recognized changes in estimated gross profit related to long-term contracts accounted for on the over time basis, which are summarized as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
(in thousands) | 2021 | | 2020 | | 2021 | | 2020 |
Increases in gross profit for changes in estimates for over time contracts (1) | $ | 7,001 | | | $ | 27,237 | | | $ | 12,340 | | | $ | 34,453 | |
Decreases in gross profit for changes in estimates for over time contracts | (1,523) | | | (8,058) | | | (6,018) | | | (13,003) | |
Net changes in gross profit for changes in estimates for over time contracts | $ | 5,478 | | | $ | 19,179 | | | $ | 6,322 | | | $ | 21,450 | |
(1) Increases in gross profits for changes in estimates for over time contracts reflects a non-recurring loss recovery of $26.0 million in the three and nine months ended September 30, 2020. | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
(in thousands) | 2022 | | 2021 | | 2022 | | 2021 | | |
Increases in gross profit for changes in estimates for over time contracts | $ | 5,348 | | | $ | 2,314 | | | $ | 8,689 | | | $ | 5,339 | | | |
Decreases in gross profit for changes in estimates for over time contracts | (2,612) | | | (3,137) | | | (5,474) | | | (4,495) | | | |
Net changes in gross profit for changes in estimates for over time contracts | $ | 2,736 | | | $ | (823) | | | $ | 3,215 | | | $ | 844 | | | |
B&W Renewable EPC Loss ContractsProjects
WeDuring March 2022, we determined that our Fosler Solar reporting unit had 6 B&W Renewable 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 Babcock & Wilcox Renewable segment which turned into a loss contract9 projects located in the fourth quarter of 2019.
NaN ofUnited States that existed at the 6 contracts were 100% complete and the remaining 2 contracts were nearly 100% complete attime we acquired Fosler on September 30, 2021 with only limited warranty obligations remaining, and all have been turned overwhich generated losses that arose due to the customers. Instatus of certain construction activities, existing at acquisition date, not adequately disclosed in the three months ended Septembersales agreement and not recognized in the financial records of the seller. As of June 30, 2021 and 2020,2022, we recorded $0.2an increase in goodwill of $14.4 million, in net gainsprimarily resulting from the initial recognition of $14.1 million of accrued liabilities and $1.1$0.4 million in net losses, respectively, and in the nine months ended September 30, 2021 and 2020, we recorded $0.3 million in net gains and $1.4 million in net losses, respectively, inclusive of warranty expenseaccruals as described in Note 10, resulting from changes in the estimated revenues and costspreliminary measurement period adjustments. We have submitted insurance claims to complete those contracts. All liquidated damages associated withrecover a portion of these 6 contracts have been settled and paidlosses as of December 31, 2020.
In October 2020, we entered into a settlement agreement with an insurer under which we received a settlement of $26.0 million to settle claims in connection with 5 of 6 European B&W Renewable EPC loss contracts disclosed above. We recognized this non-recurring loss recovery of $26.0 million as a reduction of our cost of operations in our Condensed Consolidated Statements of Operations and recorded the insurance receivable in accounts receivable - other in our Condensed Consolidated Balance Sheets at SeptemberJune 30, 2020 because we determined the loss recovery was probable as of such date.
During the third quarter of 2021, the Company received an offer from a subcontractor to reimburse the Company for project costs related to three of the Renewable EPC loss contracts described above. As we have been in negotiations with this subcontractor for some time, our determination that this recent offer, while not accepted, was deemed to have met the probability threshold for recognition. Accordingly, we have recognized this offer as a reduction of our cost of operations in our Condensed Consolidated Statements of Operations and recorded the receivable in accounts receivable - other in our Condensed Consolidated Balance Sheets at September 30, 2021 and in the Table above. We continue to pursue further recoveries relative to these project costs, similar to our normal practice, and the ultimate resolution of this matter could change materially.
The Company, as a normal part of its ongoing business operations, is continuing to pursue other additional potential claims and recoveries from subcontractors and others where appropriate and available.
B&W Environmental Loss Contracts
At September 30, 2021, the B&W Environmental segment had 2 significant loss contracts of which both contracts were nearly 100% complete. We did not recognize additional contract losses in the three months ended September 30, 2021 and in the nine months ended September 30, 2021 our estimated loss on these contracts improved by $0.4 million. In the three and nine months ended September 30, 2020, we recognized $1.3 million of additional charges on these contracts.2022.
NOTE 5 – INVENTORIES
Inventories are stated at the lower of cost or net realizable value. The components of inventories are as follows:
| (in thousands) | (in thousands) | September 30, 2021 | | December 31, 2020 | (in thousands) | June 30, 2022 | | December 31, 2021 |
Raw materials and supplies | Raw materials and supplies | $ | 49,356 | | | $ | 46,659 | | Raw materials and supplies | $ | 73,681 | | | $ | 56,352 | |
Work in progress | Work in progress | 6,571 | | | 8,195 | | Work in progress | 9,198 | | | 5,723 | |
Finished goods | Finished goods | 17,072 | | | 12,307 | | Finished goods | 16,233 | | | 17,452 | |
Total inventories | Total inventories | $ | 72,999 | | | $ | 67,161 | | Total inventories | $ | 99,112 | | | $ | 79,527 | |
NOTE 6 – PROPERTY, PLANT & EQUIPMENT, & FINANCE LEASELEASES
Property, plant and equipment less accumulated depreciation is as follows:
| (in thousands) | (in thousands) | September 30, 2021 | | December 31, 2020 | (in thousands) | June 30, 2022 | | December 31, 2021 |
Land | Land | $ | 1,524 | | | $ | 1,584 | | Land | $ | 2,460 | | | $ | 1,489 | |
Buildings | Buildings | 32,523 | | | 34,207 | | Buildings | 35,291 | | | 31,895 | |
Machinery and equipment | Machinery and equipment | 150,751 | | | 151,399 | | Machinery and equipment | 147,161 | | | 144,325 | |
Property under construction | Property under construction | 11,224 | | | 5,336 | | Property under construction | 4,834 | | | 12,480 | |
| | 196,022 | | | 192,526 | | | 189,746 | | | 190,189 | |
Less accumulated depreciation | Less accumulated depreciation | 138,619 | | | 135,925 | | Less accumulated depreciation | 135,783 | | | 133,137 | |
Net property, plant and equipment | Net property, plant and equipment | 57,403 | | | 56,601 | | Net property, plant and equipment | 53,963 | | | 57,052 | |
Finance lease | 57,393 | | | 30,551 | | |
Finance leases | | Finance leases | 34,159 | | | 34,159 | |
Less finance lease accumulated amortization | Less finance lease accumulated amortization | 4,878 | | | 2,074 | | Less finance lease accumulated amortization | 7,594 | | | 5,584 | |
Net property, plant and equipment, and finance lease | Net property, plant and equipment, and finance lease | $ | 109,918 | | | $ | 85,078 | | Net property, plant and equipment, and finance lease | $ | 80,528 | | | $ | 85,627 | |
NOTE 7 - GOODWILL
The following summarizes the changes in the net carrying amount of goodwill as of SeptemberJune 30, 2021:2022:
| | | | | | | | | | | | | | |
(in thousands) | B&W Renewable | B&W Environmental | B&W Thermal | Total |
Balance at December 31, 2020 | $ | 10,211 | | $ | 5,673 | | $ | 31,479 | | $ | 47,363 | |
Addition - Fosler Construction(1) | 43,230 | | — | | — | | 43,230 | |
Currency translation adjustments | (7) | | (6) | | (32) | | (45) | |
Balance at September 30, 2021 | $ | 53,434 | | $ | 5,667 | | $ | 31,447 | | $ | 90,548 | |
| | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | B&W Renewable | | B&W Environmental | | B&W Thermal | | Total |
Balance at December 31, 2021 | $ | 79,357 | | | $ | 5,667 | | | $ | 31,438 | | | $ | 116,462 | |
Addition - Fossil Power(1) | — | | | — | | | 35,392 | | | 35,392 | |
Addition - Optimus Industries(1) | — | | | — | | | 11,081 | | | 11,081 | |
Measurement period adjustments - Fosler(1)(2) | 10,697 | | | — | | | — | | | 10,697 | |
Measurement period adjustments - VODA(1)(2) | (61) | | | — | | | — | | | (61) | |
Measurement period adjustments - Fossil Power(1)(2) | — | | | — | | | 270 | | | 270 | |
Measurement period adjustments - Optimus Industries(1)(2) | — | | | — | | | (7,273) | | | (7,273) | |
Currency translation adjustments | (433) | | | (156) | | | (1,202) | | | (1,791) | |
Balance at June 30, 2022 | $ | 89,560 | | | $ | 5,511 | | | $ | 69,706 | | | $ | 164,777 | |
(1) As described in Note 24,21, we are in the process of completing the purchase price allocation associated with the Fosler Construction, acquisitionVODA, Fossil Power and Optimus Industries acquisitions and as a result, the provisional measurements of goodwill associated with this acquisitionthese acquisitions are subject to change.
(2) Our preliminary purchase price allocation changed due to additional information and further analysis.
Goodwill is tested for impairment annually and on an interim basis when impairment indicators exist. No impairment indicators were identified during the threesix months ended SeptemberJune 30, 2021. Because the B&W Thermal, B&W Construction Co., LLC, B&W Renewable and B&W Environmental reporting units each had negative carrying values, reasonable changes in assumptions would not indicate impairment.
As of June 30, 2022, Fosler's goodwill increase of $10.7 million included a $14.4 million increase, mostly resulting from the initial recognition of $14.1 million of accrued liabilities and $0.4 million of warranty accruals during this acquisition's annual measurement period, as described in Note 4.
NOTE 8 – INTANGIBLE ASSETS
Our intangible assets are as follows:
| | | | | | | | | | | |
(in thousands) | September 30, 2021 | | December 31, 2020 |
Definite-lived intangible assets | | | |
Customer relationships | $ | 38,251 | | | $ | 24,862 | |
Unpatented technology | 15,514 | | | 15,713 | |
Patented technology | 3,115 | | | 2,642 | |
Tradename | 12,726 | | | 13,088 | |
Acquired backlog | 2,700 | | | — | |
All other | 9,413 | | | 9,262 | |
Gross value of definite-lived intangible assets | 81,719 | | | 65,567 | |
Customer relationships amortization | (20,297) | | | (19,537) | |
Unpatented technology amortization | (7,935) | | | (6,751) | |
Patented technology amortization | (2,696) | | | (2,593) | |
Tradename amortization | (5,281) | | | (4,831) | |
All other amortization | (9,287) | | | (9,252) | |
Accumulated amortization | (45,496) | | | (42,964) | |
Net definite-lived intangible assets | $ | 36,223 | | | $ | 22,603 | |
Indefinite-lived intangible assets | | | |
Trademarks and trade names | $ | 1,305 | | | $ | 1,305 | |
Total intangible assets, net | $ | 37,528 | | | $ | 23,908 | |
The following summarizes the changes in the carrying amount of intangible assets:
| | | | | | | | | | | |
| Nine months ended September 30, |
(in thousands) | 2021 | | 2020 |
Balance at beginning of period | $ | 23,908 | | | $ | 25,300 | |
Business acquisitions and adjustments(1) | 17,100 | | | — | |
Amortization expense | (2,531) | | | (2,564) | |
Currency translation adjustments | (949) | | | 955 | |
Balance at end of the period | $ | 37,528 | | | $ | 23,691 | |
| | | | | | | | | | | |
(in thousands) | June 30, 2022 | | December 31, 2021 |
Definite-lived intangible assets(1) | | | |
Customer relationships | $ | 68,041 | | | $ | 46,903 | |
Unpatented technology | 18,189 | | | 15,410 | |
Patented technology | 3,638 | | | 3,103 | |
Tradename | 13,228 | | | 12,747 | |
Acquired backlog | 3,100 | | | 3,100 | |
All other | 9,228 | | | 9,319 | |
Gross value of definite-lived intangible assets | 115,424 | | | 90,582 | |
Customer relationships amortization | (23,275) | | | (20,800) | |
Unpatented technology amortization | (9,158) | | | (8,313) | |
Patented technology amortization | (2,799) | | | (2,729) | |
Tradename amortization | (5,772) | | | (5,425) | |
Acquired backlog | (3,100) | | | (1,620) | |
All other amortization | (9,064) | | | (9,205) | |
Accumulated amortization | (53,168) | | | (48,092) | |
Net definite-lived intangible assets | $ | 62,256 | | | $ | 42,490 | |
Indefinite-lived intangible assets | | | |
Trademarks and trade names | $ | 1,305 | | | $ | 1,305 | |
Total intangible assets, net | $ | 63,561 | | | $ | 43,795 | |
(1) As described in Note 24,21, we are in the process of completing the purchase price allocation associated with the Fosler Construction, acquisitionVODA, Fossil Power and Optimus Industries acquisitions and as a result, the increase in amortization expenseintangible assets associated with this acquisition isthese acquisitions are subject to change.
The following summarizes the changes in the carrying amount of intangible assets, net:
| | | | | | | | | | | |
| Six Months Ended June 30, |
(in thousands) | 2022 | | 2021 |
Balance at beginning of period | $ | 43,795 | | | $ | 23,908 | |
Business acquisitions and adjustments(1) | 27,412 | | | — | |
Amortization expense | (5,076) | | | (1,705) | |
Currency translation adjustments | (2,570) | | | (551) | |
Balance at end of the period | $ | 63,561 | | | $ | 21,652 | |
(1) As described in Note 21, we are in the process of completing the purchase price allocation associated with the Fosler Construction, VODA, Fossil Power and Optimus Industries acquisitions and as a result, the increase in intangible assets associated with these acquisitions are subject to change.
Amortization of intangible assets is included in costCost of operations and SG&A in our Condensed Consolidated Statement of Operations but is not allocated to segment results.
18Intangible assets are assessed for impairment on an interim basis when impairment indicators exist. No impairment indicators were identified during the six months ended June 30, 2022.
Estimated future intangible asset amortization expense including the increase in amortization expense resulting from the Septemberas of June 30, 2021 acquisition of Fosler Construction,2022 is as follows (in thousands):
| | | | | |
| Amortization Expense(1) |
Year ending December 31, 2021 | $ | 2,744 | |
Year ending December 31, 2022 | 5,6333,987 | |
Year ending December 31, 2023 | 4,5527,973 | |
Year ending December 31, 2024 | 4,4697,901 | |
Year ending December 31, 2025 | 3,7087,061 | |
Year ending December 31, 2026 | 2,4525,909 | |
Year ending December 31, 2027 | 5,276 | |
Thereafter | 12,66524,149 | |
(1) As describedSee Note 21 for intangible assets identified in Note 24, weconjunction with the acquisitions of Fosler Construction, VODA, Fossil Power and Optimus Industries, which are insubject to change pending the processfinalization of completing the purchase price allocation associated with the Fosler Construction acquisition and as a result, the estimated future intangible asset amortization expense associated with this acquisition is subject to change.these acquisitions.
NOTE 9– LEASES
Certain real property assets for our Copley, Ohio location were sold on March 15, 2021, as described in Note 24. In conjunction with the sale, we executed a leaseback agreement commencing March 16, 2021 and expiring on March 31, 2033. The lease is classified as a finance lease with total future minimum payments during the initial term of the lease of approximately $5.6 million as of September 30, 2021. An incremental borrowing rate of 7.19% was used to determine the right-of-use (the "ROU") asset. As of September 30, 2021, a $3.5 million ROU asset is recorded in net property, plant and equipment, and finance lease with corresponding liabilities of $3.8 million in otheraccrued liabilities and other non-current finance liabilities in our Condensed Consolidated Balance Sheets.
Certain real property assets for our Lancaster, Ohio location were sold on August 13, 2021, as described in Note 24. In conjunction with the sale, we executed a leaseback agreement commencing August 13, 2021 and expiring on August 31, 2041. The lease is classified as a finance lease with total future minimum payments during the initial term of the lease of approximately $36.6 million as of September 30, 2021. An incremental borrowing rate of 6.65% was used to determine the ROU asset. We recorded a $19.4 million ROU asset in net property, plant and equipment, and finance lease and corresponding liabilities of $19.5 million in otheraccrued liabilities and other non-current finance liabilities in our Condensed Consolidated Balance Sheets as of September 30, 2021.
On September 30, 2021, we acquired a 60% controlling ownership stake in Illinois-based solar energy contractor Fosler Construction, as described in Note 24. As of September 30, 2021, there were 2 Fosler Construction leases classified as operating leases with total future minimum payments during the remaining term of the leases of approximately $1.5 million. As of September 30, 2021, a $1.1 million ROU asset is recorded in right-of-use assets with corresponding liabilities of $1.1 million in operating lease liabilities and non-current operating lease liabilities in our Condensed Consolidated Balance Sheets. As of September 30, 2021, there was 1 lease classified as a finance lease with total future minimum payments during the remaining term of the leases of approximately $1.5 million. An incremental borrowing rate of 6.65% was used to determine the ROU asset. We recorded a $0.7 million ROU asset in net property, plant and equipment, and finance lease and corresponding liabilities of $0.7 million in otheraccrued liabilities and other non-current finance liabilities in our Condensed Consolidated Balance Sheets as of September 30, 2021.
The components of lease expense included on our Condensed Consolidated Statements of Operations were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
(in thousands) | Classification | 2021 | | 2020 | | 2021 | | 2020 |
Operating lease expense: | | | | | | | | |
Operating lease expense | Selling, general and administrative expenses | $ | 1,172 | | | $ | 1,433 | | | $ | 3,819 | | | $ | 4,329 | |
Short-term lease expense | Selling, general and administrative expenses | 435 | | | 866 | | | 3,076 | | | 1,346 | |
Variable lease expense (1) | Selling, general and administrative expenses | 58 | | | 625 | | | 256 | | | 1,019 | |
Total operating lease expense | | $ | 1,665 | | | $ | 2,924 | | | $ | 7,151 | | | $ | 6,694 | |
| | | | | | | | |
Finance lease expense: | | | | | | | | |
Amortization of right-of-use assets | Cost of operations | $ | 723 | | | $ | 517 | | | $ | 1,844 | | | $ | 1,546 | |
Amortization of right-of-use assets | Selling, general and administrative expenses | 482 | | | — | | | 959 | | | — | |
Interest on lease liabilities | Interest expense | 870 | | | 612 | | | 2,194 | | | 1,843 | |
Total finance lease expense | | $ | 2,075 | | | $ | 1,129 | | | $ | 4,997 | | | $ | 3,389 | |
| | | | | | | | |
Sublease income (2) | Other – net | $ | (22) | | | $ | (22) | | | $ | (65) | | | $ | (65) | |
Net lease cost | | $ | 3,718 | | | $ | 4,031 | | | $ | 12,083 | | | $ | 10,018 | |
(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:
| | | | | | | | | | | |
| Nine months ended September 30, |
(in thousands) | 2021 | | 2020 |
Cash paid for amounts included in the measurement of lease liabilities: | | | |
Operating cash flows from operating leases | $ | 3,925 | | | $ | 4,275 | |
Operating cash flows from finance leases | 2,194 | | | 1,843 | |
Financing cash flows from finance leases | 1,382 | | | (208) | |
| | | | | | | | | | | |
(in thousands) | September 30, 2021 | | December 31, 2020 |
Right-of-use assets obtained in exchange for lease liabilities: | | | |
Operating leases | $ | 3,102 | | | $ | 2,629 | |
Finance leases | $ | 26,841 | | | $ | 146 | |
| | | |
Weighted-average remaining lease term: | | | |
Operating leases (in years) | 3.7 | | 3.1 |
Finance leases (in years) | 15.3 | | 13.9 |
Weighted-average discount rate: | | | |
Operating leases | 8.79 | % | | 9.26 | % |
Finance leases | 7.39 | % | | 8.00 | % |
Amounts relating to leases were presented on our Condensed Consolidated Balance Sheets in the following line items:
| | | | | | | | | | | | | | |
(in thousands) | | | | |
Assets: | Classification | September 30, 2021 | | December 31, 2020 |
Operating lease assets | Right-of-use assets | $ | 9,812 | | | $ | 10,814 | |
Finance lease assets | Net property, plant and equipment, and finance lease | 52,515 | | | 28,477 | |
Total non-current lease assets | | $ | 62,327 | | | $ | 39,291 | |
| | | | |
Liabilities: | | | | |
Current | | | | |
Operating lease liabilities | Operating lease liabilities | $ | 3,651 | | | $ | 3,995 | |
Finance lease liabilities | Financing lease liabilities | 3,302 | | | 886 | |
Non-current | | | | |
Operating lease liabilities | Non-current operating lease liabilities | 6,298 | | | 7,031 | |
Finance lease liabilities | Non-current finance lease liabilities | 52,526 | | | 29,690 | |
Total lease liabilities | | $ | 65,777 | | | $ | 41,602 | |
Future minimum lease payments required, including the future minimum lease payments resulting from the September 30, 2021 acquisition of Fosler Construction, under non-cancellable leases as of September 30, 2021 were as follows: | | | | | | | | | | | |
(in thousands) | Operating Leases | Finance Leases | Total |
2021 (excluding the nine months ended September 30, 2021) | $ | 1,108 | | $ | 1,840 | | $ | 2,948 | |
2022 | 4,047 | | 6,803 | | 10,850 | |
2023 | 2,754 | | 5,481 | | 8,235 | |
2024 | 1,645 | | 5,577 | | 7,222 | |
2025 | 613 | | 5,635 | | 6,248 | |
Thereafter | 1,131 | | 69,650 | | 70,781 | |
Total | $ | 11,298 | | $ | 94,986 | | $ | 106,284 | |
Less imputed interest | (1,349) | | (39,158) | | (40,507) | |
Lease liability | $ | 9,949 | | $ | 55,828 | | $ | 65,777 | |
NOTE 109 – ACCRUED WARRANTY EXPENSE
We may offer assurance type warranties on products and services that 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) | (in thousands) | 2021 | | 2020 | (in thousands) | 2022 | | 2021 |
Balance at beginning of period | Balance at beginning of period | $ | 25,399 | | | $ | 33,376 | | Balance at beginning of period | $ | 12,925 | | | $ | 25,399 | |
Additions | Additions | 5,155 | | | 4,508 | | Additions | 2,942 | | | 3,608 | |
Expirations and other changes | Expirations and other changes | (4,790) | | | (3,523) | | Expirations and other changes | (2,028) | | | (4,309) | |
Payments | Payments | (10,212) | | | (8,410) | | Payments | (2,144) | | | (8,576) | |
Translation and other | Translation and other | (342) | | | 852 | | Translation and other | (612) | | | 254 | |
Balance at end of period | Balance at end of period | $ | 15,210 | | | $ | 26,803 | | Balance at end of period | $ | 11,083 | | | $ | 16,376 | |
We accrue estimated expense included in costCost 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. Additions at June 30, 2022 included $0.4 million related to the Fosler projects, as described in Note 4. 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.
NOTE 1110 – RESTRUCTURING ACTIVITIES
The Company incurred restructuring charges (benefit) in the three and six months ended SeptemberJune 30, 20212022, and 2020.2021. The charges (benefit) primarily consist of severance and business service transitionrelated costs related to actions taken including as part of the Company’s strategic, market-focused organizational and re-branding initiative. During 2020, these charges also include actions taken to address the impact of COVID-19 on our business.
The following tables summarizes the restructuring activity incurred by segment:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Three months ended September 30, |
| 2021 | | 2020 |
(in thousands) | Total | Severance and related costs | Other (1) | | Total | Severance and related costs | Other (1) |
B&W Renewable segment | $ | 715 | | $ | 382 | | $ | 333 | | | $ | 594 | | $ | 340 | | $ | 254 | |
B&W Environmental segment | 332 | | 128 | | 204 | | | 299 | | 119 | | 180 | |
B&W Thermal segment | 1,242 | | 362 | | 880 | | | 1,370 | | 422 | | 948 | |
Corporate | 2,286 | | 124 | | 2,162 | | | 133 | | — | | 133 | |
| $ | 4,575 | | $ | 996 | | $ | 3,579 | | | $ | 2,396 | | $ | 881 | | $ | 1,515 | |
| | | Nine months ended September 30, | | Nine months ended September 30, | | Three Months Ended June 30, | | Three Months Ended June 30, |
| | 2021 | | 2020 | | 2022 | | 2021 |
(in thousands) | (in thousands) | Total | Severance and related costs | Other (1) | | Total | Severance and related costs | Other (1) | (in thousands) | Total | Severance and related costs (benefit) | Other (1) | | Total | Severance and related costs | Other(1) |
B&W Renewable segment | B&W Renewable segment | $ | 1,781 | | $ | 1,301 | | $ | 480 | | | $ | 2,346 | | $ | 1,153 | | $ | 1,193 | | B&W Renewable segment | $ | (20) | | $ | (34) | | $ | 14 | | | $ | 557 | | $ | 466 | | $ | 91 | |
B&W Environmental segment | B&W Environmental segment | 630 | | 335 | | 295 | | | 676 | | 330 | | 346 | | B&W Environmental segment | 34 | | 9 | | 25 | | | 209 | | 172 | | 37 | |
B&W Thermal segment | B&W Thermal segment | 3,132 | | 1,409 | | 1,723 | | | 3,259 | | 1,111 | | 2,148 | | B&W Thermal segment | 82 | | 66 | | 16 | | | 1,542 | | 1,035 | | 507 | |
Corporate | Corporate | 2,425 | | 132 | | 2,293 | | | 458 | | — | | 458 | | Corporate | (198) | | (228) | | 30 | | | 92 | | 8 | | 84 | |
| | $ | 7,968 | | $ | 3,177 | | $ | 4,791 | | | $ | 6,739 | | $ | 2,594 | | $ | 4,145 | | | $ | (102) | | $ | (187) | | $ | 85 | | | $ | 2,400 | | $ | 1,681 | | $ | 719 | |
Cumulative costs to date | $ | 48,282 | | 36,390 | | 11,892 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 |
(in thousands) | Total | Severance and related costs (benefit) | Other (1) | | Total | Severance and related costs | Other(1) |
B&W Renewable segment | $ | (213) | | $ | (263) | | $ | 50 | | | $ | 1,066 | | $ | 919 | | $ | 147 | |
B&W Environmental segment | 103 | | 19 | | 84 | | | 298 | | 207 | | 91 | |
B&W Thermal segment | 280 | | 116 | | 164 | | | 1,890 | | 1,047 | | 843 | |
Corporate | (178) | | (228) | | 50 | | | 139 | | 8 | | 131 | |
| $ | (8) | | $ | (356) | | $ | 348 | | | $ | 3,393 | | $ | 2,181 | | $ | 1,212 | |
Cumulative costs to date | $ | 45,175 | | 36,896 | | 8,279 | | | | | |
(1) Other amounts consist primarily of business service transition, exit, relocation, COVID-19 related and other costs.
Restructuring liabilities are included in otherOther 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) | (in thousands) | | 2021 | | 2020 | | 2021 | | 2020 | (in thousands) | 2022 | | 2021 | | 2022 | | 2021 |
Balance at beginning of period | Balance at beginning of period | | $ | 7,945 | | | $ | 5,087 | | | $ | 8,146 | | | $ | 5,359 | | Balance at beginning of period | $ | 5,906 | | | $ | 8,022 | | | $ | 6,561 | | | $ | 8,146 | |
Restructuring expense | | 4,575 | | | 2,396 | | | 7,968 | | | 6,739 | | |
Restructuring (benefit) expense | | Restructuring (benefit) expense | (102) | | | 2,400 | | | (8) | | | 3,393 | |
Payments | Payments | | (5,482) | | | (2,307) | | | (9,076) | | | (6,922) | | Payments | (1,668) | | | (2,477) | | | (2,417) | | | (3,594) | |
Balance at end of period | Balance at end of period | | $ | 7,038 | | | $ | 5,176 | | | $ | 7,038 | | | $ | 5,176 | | Balance at end of period | $ | 4,136 | | | $ | 7,945 | | | $ | 4,136 | | | $ | 7,945 | |
The payments shown above for the three and six months ended SeptemberJune 30, 20212022 and 20202021 relate primarily to severance and business service transition costs.severance. Accrued restructuring liabilities at SeptemberJune 30, 20212022 and 20202021 relate primarily to employee termination benefits and business service transition costs.benefits.
NOTE 1211 – PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS
Components of net periodic benefit cost (benefit) included in net (loss) 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) | (in thousands) | 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 | (in thousands) | 2022 | | 2021 | | 2022 | | 2021 | | | 2022 | | 2021 | | 2022 | | 2021 | |
Interest cost | Interest cost | $ | 5,603 | | | $ | 8,263 | | | $ | 16,883 | | | $ | 24,773 | | | $ | 109 | | | $ | 88 | | | $ | 187 | | | $ | 232 | | Interest cost | $ | 6,609 | | | $ | 5,609 | | | $ | 13,273 | | | $ | 11,280 | | | | $ | 49 | | | $ | 39 | | | $ | 98 | | | $ | 78 | | |
Expected return on plan assets | Expected return on plan assets | (13,527) | | | (15,452) | | | (40,309) | | | (46,636) | | | — | | | — | | | — | | | — | | Expected return on plan assets | (14,261) | | | (11,773) | | | (28,627) | | | (26,782) | | | | — | | | — | | | — | | | — | | |
Amortization of prior service cost (credit) | 28 | | | 44 | | | 84 | | | 130 | | | 173 | | | (271) | | | 519 | | | (813) | | |
Recognized net actuarial gain | (2,253) | | | — | | | (2,253) | | | — | | | — | | | — | | | — | | | — | | |
Amortization of prior service cost | | Amortization of prior service cost | 27 | | | 28 | | | 55 | | | 56 | | | | 173 | | | 173 | | | 346 | | | 346 | | |
Benefit plans, net (1) | Benefit plans, net (1) | (10,149) | | | (7,145) | | | (25,595) | | | (21,733) | | | 282 | | | (183) | | | 706 | | | (581) | | Benefit plans, net (1) | (7,625) | | | (6,136) | | | (15,299) | | | (15,446) | | | | 222 | | | 212 | | | 444 | | | 424 | | |
Service cost included in COS (2) | Service cost included in COS (2) | 217 | | | 212 | | | 652 | | | 632 | | | 6 | | | 5 | | | 18 | | | 14 | | Service cost included in COS (2) | 198 | | | 218 | | | 399 | | | 435 | | | | 5 | | | 6 | | | 10 | | | 12 | | |
Net periodic benefit cost (benefit) | Net periodic benefit cost (benefit) | $ | (9,932) | | | $ | (6,933) | | | $ | (24,943) | | | $ | (21,101) | | | $ | 288 | | | $ | (178) | | | $ | 724 | | | $ | (567) | | Net periodic benefit cost (benefit) | $ | (7,427) | | | $ | (5,918) | | | $ | (14,900) | | | $ | (15,011) | | | | $ | 227 | | | $ | 218 | | | $ | 454 | | | $ | 436 | | |
(1) Benefit plans, net, which is presented separately in our Condensed Consolidated Statements of Operations, is not allocated to the segments.
(2) Service cost related to a small group of active participants is presented withincost Cost of operations in our Condensed Consolidated StatementStatements of Operations and is allocated to the B&W Thermal segment.
Recognized net actuarial gain consists primarily of our reported actuarial gain and the difference between the actual return on plan assets and the expected return on plan assets. Total mark to market (“MTM”) adjustments for our pension benefit plans were gains of $2.3 million for the three and nine months ended September 30, 2021. There were no MTM adjustments for our other postretirement benefit plans during the three and nine months ended September 30, 2021. There were no MTMmark-to-market ("MTM") adjustments for our pension and other postretirement benefit plans during the three and ninesix months ended SeptemberJune 30, 2020. The recognized net actuarial gain was recorded in 2022 and 2021.
benefit plans, net in our Condensed Consolidated Statements of Operations.
We made contributions to our pension and other postretirement benefit plans totaling $0.4 $0.1 million and $24.7$0.5 million during the three and six months ended June 30, 2022, respectively, as compared to $0.3 million and $24.3 million during the three and ninesix months ended SeptemberJune 30, 2021, respectively, as compared to $0.5 million and $1.6 million during the three and nine months ended September 30, 2020, respectively. Contributions made during the three months ended September 30, 2021 includes no interest and during the nine months ended September 30, 2021 includes $0.4 million of interest as required per the CARES Act that was signed into law on March 27, 2020.
In accordance with the American Rescue Plan Act of 2021, we elected to defer $20.9 million of the estimated Pension Plan contribution payments of $45.6 million that would have been due during 2021.
NOTE 1312 – 2021 SENIOR NOTES OFFERINGDEBT
On February 12,Senior Notes
8.125% Senior Notes
During 2021, we completed a public offeringsales of $125.0$151.2 million aggregate principal amount of our 8.125% senior notes due 2026 (the "Senior Notes"“8.125% Senior Notes”). At the completion of the offering, we received for net proceeds of approximately $120.0 million after deducting underwriting discounts, commissions, and before expenses.
$146.6 million. In addition to the public offering,completed sales, we issued $35.0 million of 8.125% Senior Notes to B. Riley Financial, Inc., a related party, in exchange for a deemed prepayment of our then existing Last Out Term Loan Tranche A-3A-3. The 8.125% Senior Notes bear interest at the rate of 8.125% per annum which is payable quarterly in a concurrent private offering.arrears on January 31, April 30, July 31 and October 31 of each year, commencing on April 30, 2021. The 8.125% Senior Notes mature on February 28, 2026.
On March 31, 2021, we entered into a sales agreement with B. Riley Securities, Inc., a related party, in which we may sell to or through B. Riley Securities, Inc., from time to time, additional 8.125% Senior Notes up to an aggregate principal amount of $150.0 million of Senior Notes.million. The 8.125% Senior Notes have the same terms as (other than date of issuance), form a single series of debt securities with and have the same CUSIP number and beare fungible with the initial 8.125% Senior Notes issued February 12, 2021, as described above.issuance in 2021.
AsDuring the first six months of September 30, 2021,2022, the Company has sold $25.6$2.4 million aggregate principal amount of 8.125% Senior Notes under the sales agreement discloseddescribed above for $26.0$2.4 million of net proceeds after commissions and fees.proceeds.
The components of the6.50% Senior Notes are as follows:
| | | | | |
(in thousands)
| September 30, 2021 |
8.125% Senior Notes due 2026 | $ | 185,599 | |
Unamortized deferred financing costs | (5,039) | |
Unamortized premium | 590 | |
Net debt balance | $ | 181,150 | |
TheDuring 2021, we completed sales of $151.4 million aggregate principal amount of our 6.50% senior notes due in 2026 (the “6.50% Senior Notes are senior unsecured obligationsNotes”) for net proceeds of the Company and rank equally in right of payment with all of the Company’s other existing and future senior unsecured and unsubordinated indebtedness. The Senior Notes bear interest at the rate of 8.125% per annum.approximately $145.8 million. Interest on the 6.50% Senior Notes is payable quarterly in arrears on JanuaryMarch 31, AprilJune 30, July 31September 30 and OctoberDecember 31 of each year, commencing on April 30, 2021.year. The 6.50% Senior Notes mature on February 28,December 31, 2026.
NOTE 14
– LAST OUT TERM LOANS
The components of the Company's senior notes at June 30, 2022 are as follows:
| | | | | | | | | | | | | | | | | |
| Senior Notes |
(in thousands) | 8.125% | | 6.50% | | Total |
Senior notes due 2026 | $ | 188,595 | | | $ | 151,440 | | | $ | 340,035 | |
Unamortized deferred financing costs | (4,641) | | | (5,967) | | | (10,608) | |
Unamortized premium | 541 | | | — | | | 541 | |
Net debt balance | $ | 184,495 | | | $ | 145,473 | | | $ | 329,968 | |
Effective with the new debt facilities the Company entered into on June 30, 2021, as described in Note 15 below, the Company has no remaining Last Out Term Loans and no further borrowings thereunder are available. The Last our Term Loan activity is described as follows:
| | | | | | | | | | | | | | |
| Last Out Term Loan Tranche |
(in thousands) | A-3 | A-4 | A-6 | Total |
Balance at December 31, 2020 | $ | 113,330 | | $ | 30,000 | | $ | 40,000 | | $ | 183,330 | |
Payments in cash | (40,408) | | (30,000) | | (5,000) | | (75,408) | |
Equitized deemed prepayment - preferred stock issuance | (72,922) | | — | | — | | (72,922) | |
Deemed prepayment - senior notes issuance | — | | — | | (35,000) | | (35,000) | |
Balance at September 30, 2021 | $ | — | | $ | — | | $ | — | | $ | — | |
NOTE 15 – REVOLVING DEBT
Revolving Debt Facilities
On June 30, 2021, we entered into a Revolving Credit Agreement (the “Revolving Credit Agreement”) with PNC Bank, National Association, as administrative agent (“PNC”) and a letter of credit agreement (the “Letter of Credit Agreement”) with PNC, pursuant to which PNC agreed to issue up to $110 million in letters of credit that is secured in part by cash collateral provided by an affiliate of MSD Partners, MSD PCOF Partners XLV, LLC (“MSD”), as well as a reimbursement, guaranty and security agreement with MSD, as administrative agent, and the cash collateral providers from time to time party thereto, along with certain of our subsidiaries as guarantors, pursuant to which we are obligated to reimburse MSD and any other cash collateral provider to the extent the cash collateral provided by MSD and any other cash collateral provider to secure the Letter of Credit Agreement is drawn to satisfy draws on letters of credit (the “Reimbursement Agreement”) and collectively with the Revolving Credit Agreement and Letter of Credit Agreement, the “Debt Documents” and the facilities thereunder, the “Debt Facilities”). The obligations of the Company under each of the Debt Facilities are guaranteed by certain existing and future domestic and foreign subsidiaries of the Company. B. Riley Financial, Inc. (“B. Riley”), a related party, has provided a guaranty of payment with regard to the Company’s obligations under the Reimbursement Agreement, as described below. The Company expects to use the proceeds and letter of credit availability under the Debt Facilities for working capital purposes and general corporate purposes, including to backstop certain letters of credit issued under our previous A&R Credit Agreement, dated as of May 14, 2020 (as amended, restated or otherwise modified from time to time), by and among the Company, as borrower, Bank of America, N.A., as administrative agent, the lenders and the other parties from time to time party thereto, which was repaid and commitments thereunder terminated as of June 30, 2021.purposes. The Revolving Credit Agreement matures on June 30, 2025. As of SeptemberJune 30, 2021,2022, no borrowings have occurred under the Revolving Credit Agreement and under the Letter of Credit Agreement, usage consisted of $19.5$16.1 million of financial letters of credit and $69.0$96.2 million of performance letters of credit.
Each of the Debt Facilities has a maturity date of June 30, 2025. The interest rates applicable under the Revolving Credit Agreement float at a rate per annum equal to either (i) a base rate plus 2.0% or (ii) 1 or 3 month reserve-adjusted LIBOR rate
plus 3.0%. The interest rates applicable to the Reimbursement Agreement float at a rate per annum equal to either (i) a base rate plus 6.50% or (ii) 1 or 3 month reserve-adjusted LIBOR plus 7.50%. Under the Letter of Credit Agreement, the Company is required to pay letter of credit fees on outstanding letters of credit equal to (i) administrative fees of 0.75% and (ii) fronting fees of 0.25%. Under the Revolving Credit Agreement, the Company is required to pay letter of credit fees on outstanding letters of credit equal to (i) letter of credit commitment fees of 3.0% and (ii) letter of credit fronting fees of 0.25%. Under each of the Revolving Credit Agreement and the Letter of Credit Agreement, we are required to pay a facility fee equal to 0.375% per annum of the unused portion of the Revolving Credit Agreement or the Letter of Credit Agreement, respectively. The Company is permitted to prepay all or any portion of the loans under the Revolving Credit Agreement prior to maturity without premium or penalty. Prepayments under the Reimbursement Agreement shall be subject to a prepayment fee of 2.25% in the first year after closing, 2.0% in the second year after closing and 1.25% in the third year after closing with no prepayment fee payable thereafter.
The Company has mandatory prepayment obligations under the Reimbursement Agreement upon the receipt of proceeds from certain dispositions or casualty or condemnation events. The Revolving Credit Agreement and Letter of Credit Agreement require mandatory prepayments to the extent of an over-advance.
The obligations under the Debt Facilities are secured by substantially all assets of the Company and each of the guarantors, in each case subject to inter-creditor arrangements. As noted above, the obligations under the Letter of Credit Facility are also secured by the cash collateral provided by MSD and any other cash collateral provider thereunder.
The Debt Documents contain certain representations and warranties, affirmative covenants, negative covenants and conditions that are customarily required for similar financings. The Debt Documents require the Company to comply with certain financial maintenance covenants, including a quarterly fixed charge coverage test of not less than 1.00 to 1.00, a quarterly senior net leverage ratio test of not greater than 2.50 to 1.00, a non-guarantor cash repatriation covenant not to exceed $35 million at any one time, a minimum liquidity covenant of at least $30.0 million at all times, and an annual cap on maintenance capital expenditures of $7.5 million. The Debt Documents also contain customary events of default (subject, in
certain instances, to specified grace periods) including, but not limited to, the failure to make payments of interest or premium, if any, on, or principal under the respective facility, the failure to comply with certain covenants and agreements specified in the applicable Debt Agreement, defaults in respect of certain other indebtedness and certain events of insolvency. If any event of default occurs, the principal, premium, if any, interest and any other monetary obligations on all the then outstanding amounts under the Debt Documents may become due and payable immediately.
In connection with the Company’s entry into the Debt Documents on June 30, 2021, B. Riley, a related party, entered into a Guaranty Agreement in favor of MSD, in its capacity as administrative agent under the Reimbursement Agreement, for the ratable benefit of MSD, the cash collateral providers and each co-agent or sub-agent appointed by MSD from time to time (the “B. Riley Guaranty”). The B. Riley Guaranty provides for the guarantee of all of the Company’s obligations under the Reimbursement Agreement. The B. Riley Guaranty is enforceable in certain circumstances, including, among others, certain events of default and the acceleration of the Company’s obligations under the Reimbursement Agreement. Under a fee letter with B. Riley, the Company agreed to pay B. Riley $0.9 million per annum in connection with the B. Riley Guaranty. The Company entered into a reimbursement agreement with B. Riley governing the Company’s obligation to reimburse B. Riley to the extent the B. Riley Guaranty is called upon by the agent or lenders under the Reimbursement Agreement.
A&R Credit Agreement
As described above, the A&R Credit Agreement commitments were terminated, all loans were repaid and all outstanding and undrawn letters of credit were collateralized on June 30, 2021. The Company recognized a gain on debt extinguishment of $6.5 million in the quarter ended June 30, 2021, primarily representing the write-off of accrued revolver fees of $11.3 million offset by the unamortized deferred financing fees of $4.8 million related to the prior A&R Credit Agreement.
Letters of Credit, Bank Guarantees and Surety Bonds
Certain of our 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 outside of our Letter of Credit Agreement as of SeptemberJune 30, 20212022 was $53.1$50.5 million. The aggregate value of the outstanding letters of credit provided under the Letter of Credit Agreement backstopping letters of credit or bank guarantees was $21.7$38.5 million as of SeptemberJune 30, 2021.2022. Of the outstanding letters of credit issued under the Letter of Credit Agreement, $29.8$58.5 million are subject to foreign currency revaluation.
We have also 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 thosethe underwriters issue in support of some of our contracting activity. As of SeptemberJune 30, 2021,2022, bonds issued and outstanding under these arrangements in support of our contracts totaled approximately $157.6$293.3 million. The aggregate value of the letters of credit backstopping surety bonds was $13.1$9.7 million.
Our ability to obtain and maintain sufficient capacity under our newcurrent Debt Facilities 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.
Other Indebtedness - Loans Payable
During the nine months ended SeptemberAs of June 30, 2021,2022, our Denmark subsidiary received 3has an unsecured interest free loans totaling $3.4interest-free loan of $0.8 million under a local government loan program related to COVID-19. The loans of $0.8COVID-19 that is payable May 2023. In addition, the Company had $2.5 million $1.7 million and $0.9 million are payable in April 2022, May 2022 and May 2023, respectively. Thea loan payable in Mayrelated to financed insurance premiums payable April 2023 isand a $0.4 million loan payable related to a recent acquisition. These loan payables are included in current long term loans payablespayable in our Condensed Consolidated Balance Sheets.
As of September 30, 2021, as a result of our recent acquisition of a 60% controlling ownership stake in Fosler Construction Company Inc. (“Fosler Construction”) as described in Note 24, Fosler Construction has 2 loans totaling $7.6 million. Both loans have a variable interest rate with a minimum rate of 6% and are payable January 1, 2022. Fosler Construction also has loans, primarily for vehicles and equipment, totaling $0.9$0.6 million at SeptemberJune 30, 2021.2022. The vehicle and equipment loans are included in long term loans payables in our Condensed Consolidated Balance Sheets.
NOTE 1613 – PREFERRED STOCK
OnIn May 7, 2021, we completed a public offering of our 7.75% Series A Cumulative Perpetual Preferred Stock (the "Preferred Stock") pursuant to an underwriting agreement (the “Underwriting Agreement”) dated May 4, 2021, between us and B. Riley Securities, Inc., as representative of several underwriters (the “Underwriters”). At the closing, we issued to the public 4,000,0004,444,700 shares of our Preferred Stock, at an offering price of $25.00 per share for net proceeds of approximately $95.7$106.4 million after deducting underwriting discounts, commissions but before expenses. The Preferred Stock has a par value of $0.01 per share and is perpetual and has no maturity date. The Preferred Stock has a cumulative cash dividend, when and as if declared by our Board of Directors, at a rate of 7.75% per year on the liquidation preference amount of $25.00 per share and payable quarterly in arrears.
On May 26, 2021, we completed the additional sale of 444,700 shares of our Preferred Stock, related to the grant to the underwriters described above, at an offering price of $25.00 per share for net proceeds of approximately $10.7 million after deducting underwriting fees and commissions.
The Preferred Stock ranks, as to dividend rights and rights as to the distribution of assets upon our liquidation, dissolution or winding-up: (1) senior to all classes or series of our common stock and to all other capital stock issued by us expressly designated as ranking junior to the Preferred Stock; (2) on parity with any future class or series of our capital stock expressly designated as ranking on parity with the Preferred Stock; (3) junior to any future class or series of our capital stock expressly designated as ranking senior to the Preferred Stock; and (4) junior to all our existing and future indebtedness.
The Preferred Stock has no stated maturity and is not subject to mandatory redemption or any sinking fund. We will pay cumulative cash dividends on the Preferred Stock when, as and if declared by our Board of Directors, (or a duly authorized committee of our Board of Directors), only out of funds legally available for payment of dividends. Dividends on the Preferred Stock will accrue on the stated amount of $25.00 per share of the Preferred Stock at a rate per annum equal to 7.75% (equivalent to $1.9375 per year), payable quarterly in arrears. Dividends on the Preferred Stock declared by our Board of Directors (or a duly authorized committee of our Board of Directors) will be payable quarterly in arrears on March 31, June 30, September 30 and December 31 of each year.
OnDuring the six months ending June 8, 2021,30, 2022, the Company's Board of Directors approved a dividend of $0.290625 per share of the Company's outstanding Preferred Stock, with a record date for the dividend of June 18, 2021 and a payment date of June 30, 2021. On June 30, 2021, the Company paid dividends totaling $1.7$7.4 million.
On September 2, 2021, the Company's Board of Directors approved a dividend of $0.484375 per share of the Company's outstanding Preferred Stock, with a record date for the dividend of September 15, 2021 and a payment date of September 30, 2021. On September 30, 2021, the Company paid dividends totaling $3.7 million. After the Company paid the dividends on September 30, 2021, thereThere are no cumulative undeclared dividends of the Preferred Stock at SeptemberJune 30, 2021.2022.
On June 1, 2021, the Company and B. Riley, a related party, entered into an agreement (the “Exchange Agreement”) pursuant to which we (i) issued B. Riley 2,916,880 shares of our Preferred Stock, representing an exchange price of $25.00 per share and paid $0.4 million in cash, and (ii) paid $0.9 million in cash to B. Riley for accrued interest due, in exchange for a deemed prepayment of $73.3 million of our then existing term loans with B. Riley under the Company’s prior A&R Credit Agreement.
On July 7, 2021, we entered into a sales agreement with B. Riley Securities, Inc., a related party, in connection with the offer and to or through B. Riley Securities, Inc., from time to time, additional shares of Preferred Stock up to an aggregate amount of $76.0 million of Preferred Stock. The Preferred Stock will havehas the same terms as (other than date of issuance and first dividend) with and have the same CUSIP number and beis fungible with, the Preferred Stock issued during May 2021. The first dividend forFor the six months ending June 30, 2022, the Company has sold no additional Preferred Stock issued thereunder, when, as and if declared, will accumulate and be cumulative from the dividend payment date (March 31, June 30, September 30 and December 31 of each year) for which full cumulative dividends have been paid immediately priorpursuant to the original issue date for each such share.
sales agreement. As of September 30,December 31, 2021, the Company sold $5.9$7.7 million aggregate principal amount of Preferred Stock for $5.9$7.7 million of net proceeds after commission and fees related to the July 7, 2021 sales agreement disclosed above.proceeds.
The net proceeds of the offerings are intended to be used for general corporate purposes, including clean energy growth initiatives, potential future acquisitions and reduction of net leverage.
NOTE 1714 – COMMON STOCK
On February 12, 2021, we completed a public offering of our common stock pursuant to an underwriting agreement dated February 9, 2021, between us and B. Riley Securities, Inc., as representative of the several underwriters. At the time of closing, we issued to the public 29,487,180 shares of our common stock and received net proceeds of approximately $163.0 million after deducting underwriting discounts and commissions, but before expenses.
The net proceeds of the offering were used to make a prepayment toward the balance outstanding under our then existing U.S. Revolving Credit Facility and permanently reducereduced the commitments under our senior secured credit facilities.
On May 20, 2021,19, 2022, at the 20212022 annual meeting of stockholders of the Company, the stockholders of the Company, upon the recommendation of the Company’s Board of Directors, approved an amendment to the Babcock & Wilcox Enterprises, Inc. 2021 Long-Term Incentive Plan. The 2021 Plan Amendment became effective upon such stockholder approval. The maximumPlan Amendment increased the total number of shares of the Company’s common stock that may be issued or transferred pursuant to awardsauthorized for award grants under the 2021 Plan equals: (1)from 1,250,000 shares plus (2) the number of any shares subject to awards granted under5,250,000 shares. The 2021 Plan replaced the Company’s Amended and Restated 2015 Long-Term Incentive Plan. In addition to the 5,250,000 shares available for award grant purposes under the 2021 Plan (the “2015 Plan”) andas described above, any shares of Company common stock underlying any outstanding as ofaward granted under the 2015 Plan that, following May 20, 2021, which expire,expires, or areis terminated, surrendered, or forfeited for any reason without issuance of such shares (includingshall also be available for outstanding performance share awards to the extent they are earned at less than maximum). Nogrant of new awards may be granted under the 20152021 Plan. As of May 20, 2021 (immediately prior to the stockholder approval of the 2021 Plan), the total number of shares of our common stock subject to outstanding awards granted under the 2015 Plan was 2,007,152 shares.
NOTE 1815 –INTEREST EXPENSE AND SUPPLEMENTAL CASH FLOW INFORMATION
Interest expense in our Condensed Consolidated Financial Statements consisted of the following components:
| | | Three months ended September 30, | | Nine months ended September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
(in thousands) | (in thousands) | 2021 | | 2020 | | 2021 | | 2020 | (in thousands) | 2022 | | 2021 | | 2022 | | 2021 | |
Components associated with borrowings from: | Components associated with borrowings from: | | | | | | | | Components associated with borrowings from: | | | | | | | | |
Senior Notes | $ | 3,801 | | | $ | — | | | $ | 8,993 | | | $ | — | | |
Senior notes | | Senior notes | $ | 6,114 | | | $ | 3,459 | | | $ | 12,329 | | | $ | 5,192 | | |
Last Out Term Loans - cash interest | Last Out Term Loans - cash interest | — | | | — | | | 4,349 | | | 6,140 | | Last Out Term Loans - cash interest | — | | | 837 | | | — | | | 4,349 | | |
Last Out Term Loans - equitized interest | — | | | 5,315 | | | — | | | 8,031 | | |
U.S. Revolving Credit Facility | U.S. Revolving Credit Facility | — | | | 3,382 | | | 1,416 | | | 10,830 | | U.S. Revolving Credit Facility | — | | | — | | | — | | | 1,416 | | |
| | 3,801 | | | 8,697 | | | 14,758 | | | 25,001 | | | 6,114 | | | 4,296 | | | 12,329 | | | 10,957 | | |
Components associated with amortization or accretion of: | Components associated with amortization or accretion of: | | Components associated with amortization or accretion of: | | |
Revolving Credit Agreement | Revolving Credit Agreement | 1,057 | | | — | | | 1,057 | | | — | | Revolving Credit Agreement | 1,168 | | | — | | | 2,228 | | | — | | |
Senior Notes | 335 | | | — | | | 2,101 | | | — | | |
Last Out Term Loans - discount and financing fees | — | | | (545) | | | — | | | 3,183 | | |
U.S. Revolving Credit Facility - deferred financing fees and commitment fees | — | | | 1,711 | | | 5,995 | | | 14,376 | | |
U.S. Revolving Credit Facility - deferred ticking fee for Amendment 16 | — | | | — | | | — | | | 1,660 | | |
Senior notes | | Senior notes | 650 | | | 298 | | | 1,292 | | | 1,766 | | |
U.S. Revolving Credit Facility | | U.S. Revolving Credit Facility | — | | | 1,595 | | | — | | | 5,995 | | |
| | 1,392 | | | 1,166 | | | 9,153 | | | 19,219 | | | 1,818 | | | 1,893 | | | 3,520 | | | 7,761 | | |
| Components associated with interest from: | Components associated with interest from: | | Components associated with interest from: | | |
Lease liabilities | Lease liabilities | 870 | | | 612 | | | 2,194 | | | 1,843 | | Lease liabilities | 697 | | | 708 | | | 1,405 | | | 1,324 | | |
Other interest expense | Other interest expense | 2,267 | | | 1,728 | | | 4,469 | | | 3,713 | | Other interest expense | 2,033 | | | 1,124 | | | 4,675 | | | 2,202 | | |
| | 3,137 | | | 2,340 | | | 6,663 | | | 5,556 | | | 2,730 | | | 1,832 | | | 6,080 | | | 3,526 | | |
| Total interest expense | Total interest expense | $ | 8,330 | | | $ | 12,203 | | | $ | 30,574 | | | $ | 49,776 | | Total interest expense | $ | 10,662 | | | $ | 8,021 | | | $ | 21,929 | | | $ | 22,244 | | |
The following table provides a reconciliation of Cash and cash equivalents and Restricted cash and cash equivalents and restricted cash reporting that sum to the total cash amount inwithin the Condensed Consolidated Balance Sheets and in the Condensed Consolidated Statements of Cash Flows:
| (in thousands) | (in thousands) | September 30, 2021 | | December 31, 2020 | | September 30, 2020 | (in thousands) | June 30, 2022 | | December 31, 2021 | | June 30, 2021 |
Held by foreign entities | Held by foreign entities | $ | 39,238 | | | $ | 38,726 | | | $ | 36,848 | | Held by foreign entities | $ | 33,216 | | | $ | 42,070 | | | $ | 27,822 | |
Held by U.S. entities | Held by U.S. entities | 67,817 | | | 18,612 | | | 2,086 | | Held by U.S. entities | 38,308 | | | 182,804 | | | 2,238 | |
Cash and cash equivalents | Cash and cash equivalents | 107,055 | | | 57,338 | | | 38,934 | | Cash and cash equivalents | 71,524 | | | 224,874 | | | 30,060 | |
| Reinsurance reserve requirements | Reinsurance reserve requirements | 774 | | | 4,551 | | | 3,443 | | Reinsurance reserve requirements | 1,108 | | | 443 | | | 590 | |
Restricted foreign accounts | — | | | 2,869 | | | 2,752 | | |
Bank guarantee collateral | Bank guarantee collateral | 1,026 | | | 2,665 | | | 3,240 | | Bank guarantee collateral | 467 | | | 997 | | | 2,240 | |
Letters of credit collateral | Letters of credit collateral | 6,892 | | | — | | | — | | Letters of credit collateral | 1,190 | | | 401 | | | 110,708 | |
Hold-back for acquisition purchase price (1) | | Hold-back for acquisition purchase price (1) | 5,899 | | | — | | | — | |
Restricted cash and cash equivalents | Restricted cash and cash equivalents | 8,692 | | | 10,085 | | | 9,435 | | Restricted cash and cash equivalents | 8,664 | | | 1,841 | | | 113,538 | |
Total cash, cash equivalents and restricted cash shown in the Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Cash Flows | $ | 115,747 | | | $ | 67,423 | | | $ | 48,369 | | |
Total cash, cash equivalents and restricted cash shown in the Condensed Consolidated Statements of Cash Flows | | Total cash, cash equivalents and restricted cash shown in the Condensed Consolidated Statements of Cash Flows | $ | 80,188 | | | $ | 226,715 | | | $ | 143,598 | |
(1) The purchase price for Fossil Power Systems ("FPS") was $59.2 million, including a hold-back of $5.9 million as reflected above. The hold-back is being held in escrow for potential payment of up to the maximum amount twelve months from the February 1, 2022 date of acquisition if the conditions are met. The hold-back amount is included in Restricted cash and cash equivalents and Other accrued liabilities on our Condensed Consolidated Balance Sheets.
As disclosed above, letters of credit collateral of $6.9 million as of September 30, 2021 represents cash pledged to secure the outstanding and undrawn letters of credit issued under our prior A&R Credit Agreement, most of which are expected to be
cancelled and replaced by new letters of credit issued by PNC, as described in Note 15 – Revolving Debt. We expect the completion of the issuance of new letters of credit to cover the remaining collateral balance by December 31, 2021.
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 operating activities:
| | | Nine months ended September 30, | | Six Months Ended June 30, |
(in thousands) | (in thousands) | 2021 | | 2020 | (in thousands) | 2022 | | 2021 | |
Income tax payments, net | Income tax payments, net | $ | 6,094 | | | $ | 3,967 | | Income tax payments, net | $ | 2,104 | | | $ | 3,331 | | |
| Interest payments on our 8.125% Senior Notes due 2026 | $ | 6,681 | | | $ | — | | |
Interest payments - 8.125% Senior Notes due 2026 | | Interest payments - 8.125% Senior Notes due 2026 | $ | 7,613 | | | $ | 2,911 | | |
Interest payments - 6.50% Senior Notes due 2026 | | Interest payments - 6.50% Senior Notes due 2026 | 5,387 | | | — | | |
Interest payments on our U.S. Revolving Credit Facility | Interest payments on our U.S. Revolving Credit Facility | 5,979 | | | 8,280 | | Interest payments on our U.S. Revolving Credit Facility | — | | | 5,979 | | |
Interest payments on our Last Out Term Loans | Interest payments on our Last Out Term Loans | 6,140 | | | 6,140 | | Interest payments on our Last Out Term Loans | — | | | 4,397 | | |
Total cash paid for interest | Total cash paid for interest | $ | 18,800 | | | $ | 14,420 | | Total cash paid for interest | $ | 13,000 | | | $ | 13,287 | | |
NOTE 1916 – PROVISION FOR INCOME TAXES
In the three months ended SeptemberJune 30, 2021,2022, income tax expensebenefit was $0.3$(1.4) million, resulting in an effective tax rate of 2.2%31.2%. In the three months ended SeptemberJune 30, 2020,2021, income tax benefitexpense was $0.5$3.5 million, resulting in an effective tax rate of (1.5)%53.0%.
In the ninesix months ended SeptemberJune 30, 2021,2022, income tax expensebenefit was $6.7$(0.1) million, resulting in an effective tax rate of 83.2%1.1%. In the ninesix months ended SeptemberJune 30, 2020,2021, income tax benefitexpense was $0.5$6.4 million, resulting in an effective tax rate of 2.7%(107.8)%.
Our effective tax rate for the three and ninesix months ended SeptemberJune 30, 20212022 and 20202021 is not reflective of the U.S. statutory rate due to valuation allowances against certain net deferred tax assets and discrete items. We have favorable discrete items of $0.6 million and unfavorable discrete items of $2.9$0.1 million and $0.5 million for the three and ninesix months ended SeptemberJune 30, 2021, respectively,2022, which primarily represent withholding taxes. We had unfavorable discrete items of $0.9 million and $3.5 million for the three and six months ended June 30, 2021, which primarily represented withholding taxes ($3.0 million expense), adjustment to our United Kingdomand deferred tax liabilitiesliability remeasurement due to an enacted change in tax rate ($0.6 million expense), return to provision adjustments ($0.4 million benefit), and miscellaneous items ($0.3 million benefit) for the nine months ended September 30, 2021. We had unfavorable discrete items of $0.1 million and favorable discrete items of $1.2 million for the three and nine months ended September 30, 2020, respectively.law.
We are subject to federal income tax in the United States and numerous countries that have statutory tax rates different than 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 the United Kingdom, with effective tax rates ranging between approximately 19% 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 from period to period due to these foreign income tax rate variations, changes in the jurisdictional mix of our income, and valuation allowances.
NOTE 2017 – CONTINGENCIES
Litigation Relating to Boiler Installation and Supply Contract
On December 27, 2019, a complaint was filed against Babcock & Wilcox by P.H. Glatfelter Company (“Glatfelter”) in the United States District Court for the Middle District of 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. On March 16, 2020 we filed a motion to dismiss, and on December 14, 2020 the court issued its order dismissing the fraud and negligent misrepresentation claims and finding that, in the event that parties’ contract is found to be valid, Plaintiffs’ claims for damages will be subject to the contractual cap on liability (defined as the $11.7 million purchase price subject to certain adjustments). On January 11, 2021, we filed our answer and a counterclaim for breach of contract, seeking damages in excess of $2.9 million. We intend to continue to vigorously litigate the action. However, given the preliminary stage of the litigation, it is too early to determine if the outcome of the Glatfelter
Litigation will have a material adverse impact on our condensed consolidated financial condition, results of operations or cash flows.
SEC Investigation
The staff of the SEC has informed the Company that its investigation is now concluded and that the staff does not intend to recommend any enforcement action against the Company. As the Company previously disclosed, the U.S. SEC had been conducting a formal investigation of the Company, focusing on the accounting charges and related matters involving the Company's B&W Renewable segment from 2015-2019.
Stockholder Derivative and Class Action Litigation
On 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”(collectively, “Defendants”) and the Company (as a nominal defendant). The action was filed in the Delaware Court of Chancery and is captioned Parker v. Avril,
et al., C.A. No. 2020-0280-PAF ("Stockholder Litigation"(the “Stockholder Litigation”). Plaintiff alleges that Defendants, among other things, did not properly discharge their fiduciary duties in connection with the 2019 rights offering and related transactions. The case is currently in discovery. We believe that
On June 10, 2022, after pursuing private mediation, the outcome ofparties to the Stockholder Litigation reached a settlement agreement in principle to resolve the Stockholder Litigation. That settlement agreement includes (i) certain corporate governance changes that the Company is willing to implement in the future, (ii) a total payment of $9.5 million, and (iii) other customary terms and conditions. All attorney’s fees, administration costs, and expenses associated with the settlement of this matter will be deducted from the total payment amount, other than the cost of notice, which will be borne by the Company. Of the total settlement amount, the Company will pay $4.75 million on behalf of B. Riley Financial, Inc. and Vintage Capital Management, LLC pursuant to existing contractual indemnification obligations to settle Plaintiff’s direct claims asserted against these entities. This $4.75 million, after the deduction of attorney’s fees and the customary settlement costs and expenses described above, will be paid to shareholders of the Company, excluding any Defendant in the Stockholder Litigation. The remaining $4.75 million of the total settlement amount, after the deduction of attorney’s fees and the customary settlement costs and expenses described above, will be paid to the Company from insurance proceeds and the contribution of certain other parties to the Stockholder Litigation to settle the derivative claims asserted by Plaintiff on behalf of the Company. The proposed settlement, which remains subject to court approval, would resolve all claims that have been, could have been, could now be, or in the future could, can, or might be asserted in the Stockholder Litigation. The settlement of this matter remains subject to court approval and the full amount is accrued by the Company at June 30, 2022..
Russian Invasion of Ukraine
We do not currently have contracts directly with Russian entities or businesses and we currently do not do business in Russia directly. We believe the Company’s only involvement with Russia or Russian-entities, involves sales of our products in the amount of approximately $3.1 million by a material adversewholly-owned Italian subsidiary of the Company to non-Russian counterparties who may resell our products to Russian entities or perform services in Russia using our products. The economic sanctions and export-control measures and the ongoing invasion of Ukraine could impact on our condensed consolidated financial condition, results of operations or cash flows, net of any insurance coverage.subsidiary’s rights and responsibilities under the contracts and could result in potential losses to the Company.
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 2118 – 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 three quartersquarter of 20212022 and 20202021 were as follows:
| | | | | | | | | | | |
(in thousands) | Currency translation loss | Net unrecognized loss related to benefit plans (net of tax) | Total |
Balance at December 31, 2020 | $ | (47,575) | | $ | (4,815) | | $ | (52,390) | |
Other comprehensive loss before reclassifications | (70) | | — | | (70) | |
Reclassified from AOCI to net income (loss) | (4,512) | | 198 | | (4,314) | |
Net other comprehensive (loss) income | (4,582) | | 198 | | (4,384) | |
Balance at March 31, 2021 | $ | (52,157) | | $ | (4,617) | | $ | (56,774) | |
Other comprehensive loss before reclassifications | (1,478) | | — | | (1,478) | |
Reclassified from AOCI to net income | — | | 198 | | 198 | |
Net other comprehensive (loss) income | (1,478) | | 198 | | (1,280) | |
Balance at June 30, 2021 | $ | (53,635) | | $ | (4,419) | | $ | (58,054) | |
Other comprehensive income (loss) before reclassifications | (1,292) | | — | | (1,292) | |
Reclassified from AOCI to net income (loss) | — | | 197 | | 197 | |
Net other comprehensive income (loss) | (1,292) | | 197 | | (1,095) | |
Balance at September 30, 2021 | $ | (54,927) | | $ | (4,222) | | $ | (59,149) | |
| | | | | | | | | | | | |
(in thousands) | Currency translation loss | | Net unrecognized loss related to benefit plans (net of tax) | Total |
Balance at December 31, 2021 | $ | (55,499) | | | $ | (3,323) | | $ | (58,822) | |
Other comprehensive loss before reclassifications | (4,285) | | | — | | (4,285) | |
Reclassified from AOCI to net loss | — | | | 593 | | 593 | |
Net other comprehensive (loss) income | (4,285) | | | 593 | | (3,692) | |
Balance at March 31, 2022 | $ | (59,784) | | | $ | (2,730) | | $ | (62,514) | |
Other comprehensive loss before reclassifications | (6,634) | | | — | | (6,634) | |
Reclassified from AOCI to net loss | — | | | (198) | | (198) | |
Net other comprehensive loss | (6,634) | | | (198) | | (6,832) | |
Balance at June 30, 2022 | $ | (66,418) | | | $ | (2,928) | | $ | (69,346) | |
| | | | | | | | | | | |
(in thousands) | Currency translation gain (loss) | 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 before reclassifications | 2,380 | | — | | 2,380 | |
Reclassified from AOCI to net 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 loss before reclassifications | (4,095) | | — | | (4,095) | |
Reclassified from AOCI to net loss | — | | (246) | | (246) | |
Net other comprehensive loss | (4,095) | | (246) | | (4,341) | |
Balance at June 30, 2020 | $ | 4,028 | | $ | (4,309) | | $ | (281) | |
Other comprehensive loss before reclassifications | (22,916) | | $ | — | | (22,916) | |
Reclassified from AOCI to net income (loss) | — | | $ | (246) | | (246) | |
Net other comprehensive (loss) income | (22,916) | | (246) | | (23,162) | |
Balance at September 30, 2020 | $ | (18,888) | | $ | (4,555) | | $ | (23,443) | |
| | | | | | | | | | | | |
(in thousands) | Currency translation loss | | Net unrecognized loss related to benefit plans (net of tax) | Total |
Balance at December 31, 2020 | $ | (47,575) | | | $ | (4,815) | | $ | (52,390) | |
Other comprehensive loss before reclassifications | (70) | | | — | | (70) | |
Reclassified from AOCI to net (loss) income | (4,512) | | | 198 | | (4,314) | |
Net other comprehensive (loss) income | (4,582) | | | 198 | | (4,384) | |
Balance at March 31, 2021 | $ | (52,157) | | | $ | (4,617) | | $ | (56,774) | |
Other comprehensive loss before reclassifications | (1,478) | | | — | | (1,478) | |
Reclassified from AOCI to net income | — | | | 198 | | 198 | |
Net other comprehensive (loss) income | (1,478) | | | 198 | | (1,280) | |
Balance at June 30, 2021 | $ | (53,635) | | | $ | (4,419) | | $ | (58,054) | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
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 | 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, | | AOCI component | Line items in the Condensed Consolidated Statements of Operations affected by reclassifications from AOCI | Three Months Ended June 30, | | Six Months Ended June 30, |
2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 | |
Release of currency translation adjustment with the sale of business | Release of currency translation adjustment with the sale of business | Loss on sale of business | $ | — | | | $ | — | | | $ | 4,512 | | | $ | — | | | Release of currency translation adjustment with the sale of business | Loss on sale of business | $ | — | | | $ | — | | | $ | — | | | $ | 4,512 | | |
Amortization of prior service cost on benefit obligations | Benefit plans, net | (197) | | | 246 | | | (593) | | | 738 | | | |
| | Net (loss) income | $ | (197) | | | $ | 246 | | | $ | 3,919 | | | $ | 738 | | | |
Pension and post retirement adjustments, net of tax | | Pension and post retirement adjustments, net of tax | Benefit plans, net | 198 | | | (198) | | | 395 | | | (396) | | |
| | | Net (loss) income | $ | 198 | | | $ | (198) | | | $ | 395 | | | $ | 4,116 | | |
NOTE 2219 – 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) | (in thousands) | | | (in thousands) | | |
Available-for-sale securities | Available-for-sale securities | September 30, 2021 | Level 1 | Level 2 | | Available-for-sale securities | June 30, 2022 | Level 1 | Level 2 | |
Corporate notes and bonds | Corporate notes and bonds | $ | 8,719 | | $ | 8,719 | | $ | — | | | Corporate notes and bonds | $ | 6,900 | | $ | 6,900 | | $ | — | | |
Mutual funds | Mutual funds | 701 | | — | | 701 | | | Mutual funds | 640 | | — | | 640 | | |
United States Government and agency securities | United States Government and agency securities | 4,131 | | 4,131 | | — | | | United States Government and agency securities | 3,016 | | 3,016 | | — | | |
Total fair value of available-for-sale securities | Total fair value of available-for-sale securities | $ | 13,551 | | $ | 12,850 | | $ | 701 | | | Total fair value of available-for-sale securities | $ | 10,556 | | $ | 9,916 | | $ | 640 | | |
| (in thousands) | (in thousands) | | | (in thousands) | | |
Available-for-sale securities | Available-for-sale securities | December 31, 2020 | Level 1 | Level 2 | | Available-for-sale securities | December 31, 2021 | Level 1 | Level 2 | |
Corporate notes and bonds | Corporate notes and bonds | $ | 6,139 | | $ | 6,139 | | $ | — | | | Corporate notes and bonds | $ | 9,477 | | $ | 9,477 | | $ | — | | |
Mutual funds | Mutual funds | 636 | | — | | 636 | | | Mutual funds | 714 | | — | | 714 | | |
Corporate Stocks | 4,168 | | 4,168 | | — | | | |
United States Government and agency securities | United States Government and agency securities | 4,365 | | 4,365 | | ��� | | | United States Government and agency securities | 2,017 | | 2,017 | | — | | |
Total fair value of available-for-sale securities | Total fair value of available-for-sale securities | $ | 15,308 | | $ | 14,672 | | $ | 636 | | | Total fair value of available-for-sale securities | $ | 12,208 | | $ | 11,494 | | $ | 714 | | |
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 0-5 years.
Senior Notes
See Note 1312 above for a discussion of our recent offerings of Senior Notes.senior notes. The fair value of the Senior Notessenior notes is based on readily available quoted market prices as of SeptemberJune 30, 2021.2022.
| (in thousands) | (in thousands) | September 30, 2021 | | (in thousands) | June 30, 2022 | |
Senior Notes | Senior Notes | Carrying Value | Estimated Fair Value | | Senior Notes | Carrying Value | Estimated Fair Value | |
8.125% Senior Notes due 2026 ('BWSN') | 8.125% Senior Notes due 2026 ('BWSN') | $ | 185,599 | | $ | 194,211 | | | 8.125% Senior Notes due 2026 ('BWSN') | $ | 188,595 | | $ | 179,216 | | |
6.50% Senior Notes due 2026 ('BWNB') | | 6.50% Senior Notes due 2026 ('BWNB') | $ | 151,440 | | $ | 131,026 | | |
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.
•Last Out Term Loans and Revolving Debt. 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 Last Out Term Loans and Revolving Debt approximated their carrying value at December 31, 2020.June 30, 2022.
•Warrants. The fair value of the warrants was established using the Black-Scholes option pricing model value approach.
Non-recurring fair value measurements
The purchase price allocation associated•Contingent consideration: In connection with the September 30, 2021 acquisition of controlling ownership of Fosler Construction Company Inc. ("Fosler Construction")acquisition, the Company agreed to pay contingent consideration based on the achievement of targeted revenue thresholds for the year ended December 31, 2022. The range of undiscounted amounts the Company could be required significant fair value measurements using unobservable inputs ("Level 3" inputs as defined into pay under the contingent consideration arrangement is between $0.0 million and $10.0 million. As of June 30, 2022, the fair value hierarchy established by FASB Topic Fair Value Measurementsof the contingent consideration liability is $9.6 million and Disclosures). See Note 24 for additional information regardingis classified as a component of other current liabilities in the Company's Condensed Consolidated Balance Sheets. The fair value measurement of the contingent consideration related to the Fosler Construction acquisition.Company acquisition was categorized as a Level 3 liability, as the measurement amount is based primarily on significant inputs not observable in the markets. The Company evaluates the fair value of contingent consideration and the corresponding liability each reporting period using an option pricing framework. The Company estimates projections during the earn-out period and volatility within the option pricing model captures variability in the potential pay-out. The analysis considers a discount rate applicable to the underlying projections and the risk of the Company paying the future liability.
NOTE 2320 – RELATED PARTY TRANSACTIONS
The Company believes transactions with related parties were conducted on terms equivalent to those prevailing in an arm's length transaction.
Transactions with B. Riley
Based on its Schedule 13D filings with the SEC, B. Riley beneficially owns approximately 30.3%30.5% of our outstanding common stock as of SeptemberJune 30, 2021.2022.
B. Riley was party to the Last Out Term Loans under our A&R Credit Agreement, as described in Note 14.
We entered into an agreement with BRPI Executive Consulting, LLC, an affiliate of B. Riley, on November 19, 2018 and amended the agreement on November 9, 2020 to retain the services of Mr. Kenny Young, to serve as our Chief Executive Officer until December 31, 2023, 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 BRPI Executive Consulting, LLC.
Total fees associated with B. Riley related to the Last Out Term Loans and services of Mr. Kenny Young both as described above, were $0.2 million and $0.6$0.4 million for the three and ninesix months ended SeptemberJune 30, 2021,2022, respectively, and were $0.1$0.2 million and $7.6$0.4 million for the three and ninesix months ended SeptemberJune 30, 2020, respectively.
On November 13, 2020 we entered into an agreement with B. Riley Principal Merger Corp. II, an affiliate of B. Riley, to purchase 200,000 shares of Class A common stock of Eos Energy Storage LLC for an aggregate purchase price of $2.0 million. The shares were sold in January 2021, for which the Company recognized net proceeds of $4.5 million.respectively.
The public offering of our 8.125% Senior Notes in February 2021, as described in Note 13,12, was conducted pursuant to an underwriting agreement dated February 10, 2021, between us and B. Riley Securities, Inc., an affiliate of B. Riley, as representative of several underwriters. At the closing date on February 12, 2021, we paid B. Riley Securities, Inc. $5.2 million for underwriting fees and other transaction cost related to the 8.125% Senior Notes offering.
The public offering of our common stock, as described in Note 17,14, was conducted pursuant to an underwriting agreement dated February 9, 2021, between us and B. Riley Securities, Inc., as representative of the several underwriters. Also on February 12, 2021, we paid B. Riley Securities, Inc. $9.5 million for underwriting fees and other transaction costs related to the offering.
On February 12, 2021, the Company and B. Riley entered into the Exchange Agreement pursuant to which we agreed to issue to B. Riley $35.0 million aggregate principal amount of 8.125% Senior Notes in exchange for a deemed prepayment of $35.0 million of our existing Tranche A term loan with B. Riley Financial in the Exchange, as described in Note 1312.
On March 31, 2021, we entered into a sales agreement with B. Riley Securities, Inc., a related party, in which we may sell, from time to time, up to an aggregated principal amount of $150.0 million of 8.125% senior Senior Nnotesotes due 2026 to or through B. Riley Securities, Inc., as described in Note 1312. As of SeptemberJune 30, 2021,2022, we paid B. Riley Securities, Inc. In$0.5c. $0.6 million for for underwriting fees and other transaction costs related to the offering.offering of which $0.1 million has been paid for the six months ended June 30, 2022.
The public offering of our 7.75% Series A Cumulative Perpetual Preferred Stock, as described in Note 16,13, was conducted pursuant to an underwriting agreement dated May 4, 2021, between us and B. Riley Securities, Inc., as representative of several underwriters. At the closing date on May 7, 2021, we paid B. Riley Securities, Inc. $4.3 million for underwriting fees and other transaction cost related to the Preferred Stock offering.
On May 26, 2021, we completed the additional sale of 444,700 shares of our Preferred Stock, related to the grant to the underwriters, as described in Note 16,13, and paid B. Riley Securities, Inc. $0.4 million for underwriting fees in conjunction with the transaction.
On June 1, 2021, we issued 2,916,880 shares of the Company’s 7.75% Series A Cumulative Perpetual Preferred Stock and paid $0.4 million in cash due to B. Riley, a related party, in exchange for a deemed prepayment of $73.3 million of our then existing Last Out Term Loans and paid $0.9 million in cash for accrued interest, as described in Note 16.13.
On June 30, 2021, we entered into new Debt Facilities, as described in Note 1512. In connection with the Company’s entry into the Debt Facilities, B. Riley Financial, Inc., an affiliate of B. Riley, has provided a guaranty of payment with regard to the Company’s obligations under the Reimbursement Agreement, as describe in Note 1512. Under a fee letter with B. Riley, the Company shall pay B. Riley $0.9 million per annum in connection with the B. Riley Guaranty.
On July 7, 2021, we entered into a sales agreement with B. Riley Securities, Inc., a related party, in which we may sell, from time to time, up to an aggregated principal amount of $7676.0 million of Preferred Stock to or through B. Riley Securities, Inc., as described in Note 1613. As of SeptemberJune 30, 2021,2022, we paid B. Riley Securities, Inc. $0.10.2 million for underwriting fees and other transaction costs related to the offering.
Transactions with Vintage Capital Management, LLCThe public offering of our 6.50% Senior Notes in December 2021, as described in Note 12, was conducted pursuant to an underwriting agreement dated December 8, 2021, between us and B. Riley Securities, Inc., an affiliate of B. Riley, as representative of several underwriters. At the closing date on December 13, 2021, we paid B. Riley Securities, Inc. $5.5 million for underwriting fees and other transaction cost related to the 6.50% Senior Notes offering.
On March 26,December 17, 2021, Vintage and B. Riley completedFinancial, Inc. entered into a transaction pursuantGeneral Agreement of Indemnity (the "Indemnity Agreement"), between us and AXA-XL and or its affiliated associated and subsidiary companies (collectively the “Surety”). Pursuant to whichthe terms of the Indemnity Agreement, B. Riley agreedwill indemnify the Surety for losses the Surety may incur as a result of providing a payment and performance bond in an aggregate amount not to purchase from Vintage, and Vintage agreed to sell toexceed €30.0 million in connection with our proposed performance on a specified project. In consideration of B. Riley's execution of the Indemnity Agreement, we paid B. Riley all 10,720,785 sharesa fee of our common stock owned$1.7 million following the issuance of the bond by Vintage.the Surety, which represents approximately 5.0% of the bonded obligations, to be amortized over the term of the agreement.
BasedOn December 28, 2021, we received a notice that the underwriters of the 6.50% Senior Notes had elected to exercise their overallotment option for an additional $11.4 million in aggregate principal amount of the Senior Notes. At the closing date on December 30, 2021, we paid B. Riley Securities, Inc. $0.5 million for underwriting fees and other transaction cost related to the 6.50% Senior Notes overallotment.
Refer to Note 23 for additional related party transactions with B. Riley and its Schedule 13D filings, Vintage beneficially owns 0% of our outstanding common stock as of September 30, 2021.affiliates regarding subsequent events.
NOTE 2421 – ACQUISITIONS ASSETS HELD FOR SALE,AND DIVESTITURES AND DISCONTINUED OPERATIONS
Acquisitions
Fosler Construction
On September 30, 2021, we acquired a 60% controlling ownership stake in Illinois-based solar energy contractor Fosler Construction Company Inc. (“Fosler Construction”) for approximately $27.2 million in cash plus a contingent consideration arrangement. The acquisition was accounted for under the acquisition method of accounting for business combinations. We are in the process of completing the purchase price allocation associated with the Fosler Construction business combination and as a result, the provisional measurements of goodwill and any other assets and liabilities acquired are subject to change.. Fosler Construction provides commercial, industrial and utility-scale solar services and owns 2 community solar projects in Illinois that are being developed under the Illinois Solar for All program. Fosler Construction was founded in 1998 and employs approximately 120 people with a track record of successfully completing solar projects profitably with union labor andwhile aligning its model with a growing number of renewable project incentives in the U.S. We believe Fosler Construction is positioned to capitalize on the high-growth solar market in the U.S. and that the acquisition aligns with B&W’s aggressive growth and expansion of our clean and renewable energy businesses. Fosler Construction will beis reported as part of our B&W Renewable segment, and it will operateoperates under the name Fosler Solar, a Babcock and Wilcox company.
The total fair value of consideration for the acquisition is $33.4$36.0 million, including $6.2$27.2 million in cash plus $8.8 million in estimated fair value of the contingent consideration arrangement. In connection with the acquisition, the Company agreed to pay contingent consideration based on the achievement of specified objectives, including reaching targeted revenue thresholds.thresholds for the year ended December 31, 2022. The range of undiscounted amounts the Company could be required to pay under the contingent consideration arrangement is between $0.0 million and $10.0 million.
We estimated fair values primarily using the discounted cash flow method at September 30, 2021 for the preliminary allocation of consideration to the assets acquired and liabilities assumed. During the measurement period, we will continue to obtain information to assist in finalizing the fair value of assets acquired and liabilities assumed, which may differ materially from these preliminary estimates. IfAny subsequent changes in the fair values of the assets acquired and liabilities assumed during the measurement period may result in adjustments to goodwill.
During the first half of 2022, we determine anyrecorded an increase in goodwill of $14.4 million resulting from the initial recognition of $14.1 million of accrued liabilities and $0.4 million of warranty accruals as preliminary measurement period adjustments, are material,as described in Note 4.
VODA
On November 30, 2021, we acquired 100% ownership of VODA A/S (“VODA”) through our wholly-owned subsidiary, B&W PGG Luxembourg Finance SARL, for approximately $32.9 million. VODA is a Denmark-based multi-brand aftermarket parts and services provider, focusing on energy-producing incineration plants including waste-to-energy, biomass-to-energy or other fuels, providing service, engineering services, spare parts as well as general outage support and management. VODA has extensive experience in incineration technology, boiler and pressure parts, SRO, automation, and performance optimization. VODA is reported as part of our B&W Renewable segment and is included in the B&W Renewable Services product line.
We estimated fair values primarily using the discounted cash flow method at November 30, 2021 for the preliminary allocation of consideration to the assets acquired and liabilities assumed. During the measurement period, we will apply those adjustments, including any related impactscontinue to net income,obtain information to assist in finalizing the fair value of assets acquired and liabilities assumed, which may differ materially from these preliminary estimates. Any subsequent changes in the reportingfair values of the assets acquired and liabilities assumed during the measurement period may result in adjustments to goodwill.
Fossil Power Systems
On February 1, 2022, we acquired 100% ownership of Fossil Power Systems, Inc. (“FPS”) for approximately $59.2 million. The consideration paid for FPS included a hold-back of $5.9 million, payable twelve months from the date of the acquisition if certain conditions of the purchase agreement are met and is recorded on our Condensed Consolidated Balance Sheets in restricted cash and cash equivalents and other accrued liabilities.
FPS is a leading designer and manufacturer of hydrogen, natural gas and renewable pulp and paper combustion equipment including ignitors, plant controls and safety systems based in Dartmouth, Nova Scotia, Canada and is reported as part of our B&W Thermal segment.
We estimated fair values primarily using the discounted cash flow method at February 1, 2022 for the preliminary allocation of consideration to the assets acquired and liabilities assumed. During the measurement period, we will continue to obtain information to assist in finalizing the fair value of assets acquired and liabilities assumed, which may differ materially from these preliminary estimates. Any subsequent changes in the fair values of the assets acquired and liabilities assumed during the measurement period may result in adjustments are determined.to goodwill.
Optimus Industries
On February 28, 2022, we acquired 100% ownership of Optimus Industries, LLC ("Optimus Industries") for approximately $19.2 million. Optimus Industries designs and manufactures waste heat recovery products for use in power generation, petrochemical, and process industries, including package boilers, watertube and firetube waste heat boilers, economizers, superheaters, waste heat recovery equipment and units for sulfuric acid plants and is based in Tulsa, Oklahoma and Chanute, Kansas. Optimus Industries is reported as part of our B&W Thermal segment.
We estimated fair values primarily using the discounted cash flow method at February 28, 2022 for the preliminary allocation of consideration to the assets acquired and liabilities assumed. During the measurement period, we will continue to obtain information to assist in finalizing the fair value of assets acquired and liabilities assumed, which may differ materially from these preliminary estimates. Any subsequent changes in the fair values of the assets acquired and liabilities assumed during the measurement period may result in adjustments to goodwill.
Purchase Price Allocations
The provisional measurements noted in the tabletables below are preliminary and subject to modification in the future. The preliminary purchase price allocation to assets acquired and liabilities assumed in the acquisition was:acquisitions were:
| | | | | |
(in thousands) | Estimated Acquisition Date Fair Value |
Accounts receivable | 1,904 | |
Contracts in progress | 1,363 | |
Other current assets | 1,137 | |
Property, plant and equipment | 9,527 | |
Goodwill(1)
| 43,230 | |
Other assets | 17,497 | |
Right of use assets | 1,093 | |
Debt | (7,625) | |
Current liabilities | (6,630) | |
Non-current lease liabilities | (1,730) | |
Other non-current liabilities | (4,112) | |
Non-controlling interest(2)
| (22,262) | |
Net acquisition cost | $ | 33,392 | |
| | | | | | | | | | | |
| Fosler Construction |
(in thousands) | Initial Allocation of Consideration | Measurement Period Adjustments(3) | Updated Preliminary Allocation |
| | | |
Accounts receivable | $ | 1,904 | | $ | 121 | | $ | 2,025 | |
Contracts in progress | 1,363 | | 9,433 | | 10,796 | |
Other current assets | 1,137 | | (304) | | 833 | |
Property, plant and equipment | 9,527 | | (7,860) | | 1,667 | |
Goodwill(1) (4) | 43,230 | | 19,447 | | 62,677 | |
Other assets | 17,497 | | (4,600) | | 12,897 | |
Right of use assets | 1,093 | | — | | 1,093 | |
Debt | (7,625) | | — | | (7,625) | |
Current liabilities(4) | (5,073) | | (15,364) | | (20,437) | |
Advance billings on contracts | (1,557) | | 238 | | (1,319) | |
Non-current lease liabilities | (1,730) | | — | | (1,730) | |
Other non-current liabilities | (4,112) | | 3,218 | | (894) | |
Non-controlling interest(2) | (22,262) | | (1,734) | | (23,996) | |
Net acquisition cost | $ | 33,392 | | $ | 2,595 | | $ | 35,987 | |
(1) Goodwill is calculated as the excess of the purchase price over the net assets acquired. With respect to the Fosler Construction acquisition, goodwill represents Fosler's ability to significantly expand EPC and O&M services among new customers across the U.S. by leveraging B&W's access to capital and geographic reach. Goodwill is not expected to be deductible for U.S federal income tax purposes.
(2) The fair value of the non-controlling interest was derived based on the fair value of the 60% controlling interest acquired by B&W. The transaction price paid by B&W reflects a Level 2 input involving an observable transaction involving an ownership interest in Fosler Construction. Also, as described above, a portion of the purchase consideration relates to the contingent consideration.
(3) Our preliminary purchase price allocation changed due to additional information and further analysis.
(4) Our preliminary goodwill and current liabilities adjustments increased $14.1 million, primarily due to additional accrued liabilities recognized attributable to the Fosler projects described in Note 4.
| | | | | | | | | | | |
| VODA |
(in thousands) | Initial Allocation of Consideration | Measurement Period Adjustments(2) | Updated Preliminary Allocation |
Cash | $ | 4,737 | | $ | — | | $ | 4,737 | |
Accounts receivable | 5,654 | | — | | 5,654 | |
Contracts in progress | 258 | | — | | 258 | |
Other current assets | 825 | | — | | 825 | |
Property, plant and equipment | 253 | | — | | 253 | |
Goodwill(1) | 17,176 | | (61) | | 17,115 | |
Other assets | 14,321 | | — | | 14,321 | |
Right of use assets | 433 | | — | | 433 | |
Current liabilities | (5,181) | | — | | (5,181) | |
Advance billings on contracts | (2,036) | | — | | (2,036) | |
Non-current lease liabilities | (302) | | — | | (302) | |
Other non-current liabilities | (3,264) | | — | | (3,264) | |
Net acquisition cost | $ | 32,874 | | $ | (61) | | $ | 32,813 | |
(1) Goodwill is calculated as the excess of the purchase price over the net assets acquired. With respect to the VODA acquisition, goodwill represents VODA's ability to significantly expand within the aftermarket parts and services industries by leveraging B&W's access to capital and existing platform within the renewable service market. Goodwill is not expected to be deductible for U.S federal income tax purposes.
(2)Our preliminary purchase price allocation changed due to additional information and further analysis.
| | | | | | | | | | | |
| Fossil Power Systems |
(in thousands) | Estimated Acquisition Date Fair Value | Measurement Period Adjustments(2) | Updated Preliminary Allocation |
Cash | $ | 1,869 | | $ | — | | $ | 1,869 | |
Accounts receivable | 2,624 | | — | | 2,624 | |
Contracts in progress | 370 | | — | | 370 | |
Other current assets | 3,228 | | — | | 3,228 | |
Property, plant and equipment, net | 178 | | — | | 178 | |
Goodwill(1) | 35,392 | | 270 | | 35,662 | |
Other assets | 25,092 | | — | | 25,092 | |
Right of use assets | 1,115 | | — | | 1,115 | |
Current liabilities | (1,792) | | (18) | | (1,810) | |
Advance billings on contracts | (645) | | — | | (645) | |
Non-current lease liabilities | (989) | | — | | (989) | |
Non-current liabilities | (7,384) | | (106) | | (7,490) | |
Net acquisition cost | $ | 59,058 | | $ | 146 | | $ | 59,204 | |
(1) Goodwill is calculated as the excess of the purchase price over the net assets acquired. With respect to the FPS acquisition, goodwill represents FPS's
ability to significantly expand services among new customers by leveraging cross-selling opportunities and recognizing general cost synergies.
(2)Our preliminary purchase price allocation changed due to additional information and further analysis.
| | | | | | | | | | | |
| Optimus Industries |
(in thousands) | Estimated Acquisition Date Fair Value | Measurement Period Adjustments(2) | Updated Preliminary Allocation |
Cash | $ | 5,338 | | $ | — | | $ | 5,338 | |
Accounts receivable | 5,165 | | — | | 5,165 | |
Contracts in progress | 2,598 | | — | | 2,598 | |
Other current assets | 2,115 | | — | | 2,115 | |
Property, plant and equipment, net | 2,441 | | 5,178 | | 7,619 | |
Goodwill(1) | 11,081 | | (7,274) | | 3,807 | |
Other assets | 12 | | 2,319 | | 2,331 | |
Right of use assets | 94 | | 11 | | 105 | |
Current liabilities | (4,240) | | — | | (4,240) | |
Advance billings on contracts | (3,779) | | — | | (3,779) | |
non-current lease liabilities | (2) | | — | | (2) | |
Non-current liabilities | (1,858) | | — | | (1,858) | |
Net acquisition cost | $ | 18,965 | | $ | 234 | | $ | 19,199 | |
(1) Goodwill is calculated as the excess of the purchase price over the net assets acquired. With respect to the Optimus Industries acquisition, goodwill represents Optimus Industries ability to significantly expand future customer relationships which are not in place today and recognize general cost synergies.
(2) Our preliminary purchase price allocation changed due to additional information and further analysis.
Intangible assets isare included in other assets above and consists of the following:
| | | | | | | | |
(in thousands) | Estimated Acquisition Date Fair Value | Weighted Average Estimated Useful Life |
Customer Relationships | 14,400 | | 12 years |
Backlog | 2,700 | | 5 months |
Total intangible assets(1)
| $ | 17,100 | | |
| | | | | | | | | | | | | | | | | |
| Fosler Construction | | VODA |
(in thousands) | Estimated Acquisition Date Fair Value | Weighted Average Estimated Useful Life | | Estimated Acquisition Date Fair Value | Weighted Average Estimated Useful Life |
Customer Relationships | $ | 9,400 | | 12 years | | $ | 13,855 | | 11 years |
Tradename | — | | — | | | 228 | | 3 years |
Backlog | 3,100 | | 5 months | | — | | — | |
Total intangible assets(1) | $ | 12,500 | | | | $ | 14,083 | | |
| | | | | |
| Fossil Power Systems | | Optimus Industries |
| Estimated Acquisition Date Fair Value | Weighted Average Estimated Useful Life | | Estimated Acquisition Date Fair Value | Weighted Average Estimated Useful Life |
Customer Relationships | $ | 20,451 | | 9 years | | 2,100 | | 10 years |
Tradename | 787 | | 14 years | | 220 | | 3 years |
Patented Technology | 578 | | 12 years | | — | | — | |
Unpatented Technology | 3,276 | | 12 years | | — | | — | |
Total intangible assets(1) | $ | 25,092 | | | | $ | 2,320 | | |
(1) Intangible assets were valued using the income approach, which includes significant assumptions around future revenue growth, profitability, discount rates and customer attrition. Such assumptions are classified as level 3 inputs within the fair value hierarchy.
The Company incurred approximately
For the three and six-month periods ended June 30, 2022, costs of $0.0 million and $0.4 million of costs related to the acquisitionour acquisitions of Fosler, Construction whichVODA, Fossil Power Systems, and Optimus Industries were recorded as a component of our operating expenses in our Condensed Consolidated StatementStatements of Operations for the three and nine months ended September 30, 2021.Operations.
Assets Held for SaleDivestitures
On June 30, 2022 the Company sold development rights related to a future solar project for $8.0 million. In conjunction with the sale, the Company recognized a $7.0 million gain on sale and recorded an $8.0 million receivable within accounts receivable – other in the Condensed Consolidated Balance Sheet.
Certain real property assets for the Copley, Ohio location were sold on March 15, 2021 for $4.0 million. We received $3.3 million of net proceeds after adjustments and recognized a gain on sale of $1.9 million. In conjunction with the sale, we executed a leaseback agreement commencing March 16, 2021, and expiringwhich expires on March 31, 2033. These assets were treated as assets held for sale on our Condensed Consolidated Balance Sheets as of December 31, 2020.
Certain real property assets for the Lancaster, Ohio location were sold on August 13, 2021 for $18.9 million. We received $15.8 million of net proceeds after adjustments and expenses and recognized a gain on sale of $13.9 million. In conjunction with the sale, we executed a leaseback agreement commencing August 13, 2021, and expiringwhich expires on August 31, 2041. These assets were treated as assets held for sale on our Condensed Consolidated Balance Sheets as of December 31, 2020.
In December 2019, we determined that a small business within the B&W Thermal segment met the criteria to be classified as held for sale. At December 31, 2020, the carrying value of the net assets planned to be sold approximated the estimated fair value less costs to sell. Refer to Divestitures below as this sale closed March 5, 2021.
The following table summarizes the carrying value of the assets and liabilities held for sale at December 31, 2020:
| | | | | | |
(in thousands) | | December 31, 2020 |
Accounts receivable – trade, net | | $ | 2,103 | |
Accounts receivable – other | | 86 | |
Contracts in progress | | 458 | |
Inventories | | 1,676 | |
Other current assets | | 405 | |
Current assets held for sale | | 4,728 | |
| | |
Net property, plant and equipment | | 10,365 | |
Intangible assets | | 759 | |
Right-of-use-asset | | 32 | |
Non-current assets held for sale | | 11,156 | |
| | |
Total assets held for sale | | $ | 15,884 | |
| | |
Accounts payable | | $ | 5,211 | |
Accrued employee benefits | | 178 | |
Advance billings on contracts | | 370 | |
Accrued warranty expense | | 466 | |
Operating lease liabilities | | 32 | |
Other accrued liabilities | | 2,048 | |
Current liabilities held for sale | | 8,305 | |
| | |
Total liabilities held for sale | | $ | 8,305 | |
Divestitures
Effective March 5, 2021, we sold all of the issued and outstanding capital stock of Diamond Power Machine (Hubei) Co., Inc, for $2.8 million. We received $2.0 million in gross proceeds before expenses and recorded an $0.8 million favorable contract asset for the amortization period from March 8, 2021 through December 31, 2023. For the nine months ended September 30, 2021, we recognized a $2.2 million pre-tax loss, inclusive of the recognition of $4.5 million of currency translation adjustment, on the sale of the business and after consideration of certain working capital adjustments that are in dispute. Additional adjustments may be necessary as this is finalized.
On March 17, 2020, we fully settled the remaining escrow associated with the sale of PBRRC and received $4.5 million in cash.
Discontinued Operations
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.
NOTE 2522 – NEW ACCOUNTING STANDARDS
We adopted the following accounting standard during the ninefirst six months of 2021:
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. 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 May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Equity's Own Equity (Subtopic 815-40): Issuer's Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (a consensus of the FASB Emerging Issues Task Force). The amendments in this update affect all entities that issue freestanding written call options that are classified in equity. Specifically, the amendments affect those entities when a freestanding equity-classified written call option is modified or exchanged and remains equity classified after the modification or exchange. The amendments that relate to the recognition and measurement of EPS for certain modifications or exchanges of freestanding equity-classified written call options affect entities that present EPS in accordance with the guidance in Earnings Per Share (Topic 260). The amendments in this update do not apply to modifications or exchanges of financial instruments that are within the scope of another Topic. That is, accounting for those instruments continues to be subject to the requirements in other Topics. The amendments in this update do not affect a holder’s accounting for freestanding call options. The update is applicable to B&W as we have previously issued freestanding written call options however those options remain unexercised as of September 30, 2021 and they have not been modified or exchanged to date. The amendments are effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. We are currently evaluating the impact of the standards on our condensed consolidated financial statements.
In March 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope. The amendments in this update clarify that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. This update is an amendment to ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform of Financial Reporting, which was issued in March 2020 and provides 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 the updates 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 updates 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 both updates 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 standards on our condensed consolidated financial statements.2022:
In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815 – 40). The amendments in this update simplify the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity by removing major separation models required under current U.S. GAAP. The
amendments also improve the consistency of diluted earnings per share calculations. The amendmentsimpact 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 October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The amendment in this update areprovides an exception to fair value measurement for contract assets and contract liabilities (i.e., deferred revenue) acquired in a business combination. As a result, contract assets and contract liabilities will be recognized and measured by the acquirer in accordance with ASC 606, Revenue from Contracts with Customers. The amendment also improves consistency in revenue recognition in the post-acquisition period for acquired contracts as compared to contracts entered into after the business combination. The amendment in this update is effective for public business entities that meet the definition of an SEC filer, excluding entities eligible to be smaller reporting companies as defined by the SEC, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Forin January 2023; all other entities have an additional year to adopt. Early adoption is permitted; however, if the amendments arenew guidance is adopted in an interim period, it is required to be applied retrospectively to all business combinations within the year of adoption. This amendment is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020,2022, including interim periods within those fiscal years. 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)("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 public, smaller reporting companies, this standard is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. We are currently evaluating the impact of both standards on our condensed consolidated financial statements.Condensed Consolidated Financial Statements.
NOTE 2623 – PROPOSED ACQUISITIONSUBSEQUENT EVENTS
DuringOn July 20, 2022, BRF Investments, LLC, an affiliate of B. Riley, a related party exercised 1,541,666.7 warrants to purchase 1,541,666 shares of our common stock at a price per share of $0.01 pursuant to the third quarter, we announced our intention to acquire 100%terms of the equity interests of VODA A/S, a leading multi-brand aftermarket partswarrant agreement between the Company and service provider for the waste-to-energy and biomass-to-energy markets based in Vejen, Denmark, for approximately $30.0 million.B. Riley dated July 23, 2019.
VODA focuses on energy producing incineration plants including waste-to-energy, biomass-to-energyOn July 28, 2022, B&W participated in the sale process of Hamon Holdings Corporation ("Hamon") for which B. Riley Securities, Inc., a related party to the Company, has been engaged as Hamon’s investment banker and to serve as advisor to Hamon through a Chapter 11 363 Asset Sale of Hamon’s entire United States business or other fuels, providing service, engineering services, spare parts as well as general outage support and management. VODA has extensive experience within incinerationpotential carve-out of any of its 4 main subsidiaries. B&W was the successful bidder for the assets of one of those subsidiaries, Hamon Research-Cottrell, Inc., a major provider of air pollution control technology, boiler / pressure parts, SRO, automation, and performance optimization.They employ people mainly in Denmark and Sweden. The planned acquisition of VODA aligns with B&W’s aggressive growth and expansion of our clean and renewable energy businesses.for approximately $2.9 million.
The foregoing planned acquisition is expected to close by the end of December 2021 and remains subject to the satisfaction or waiver of certain customary closing conditions specified in the share purchase agreement, including the receipt of Foreign Direct Investment clearance in Denmark by December 31, 2021.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion of our financial condition and results of operations in conjunction with the financial statements and the notes thereto included in Financial Statements under Item 1 within this Quarterly Report. The following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. See Cautionary Statement Concerning Forward-Looking Information.
BUSINESS OVERVIEW OF RESULTS
B&W is a growing, globally-focused renewable, environmental and thermal technologies provider with decadesover 150 years of experience providing diversified energy and emissions control solutions to a broad range of industrial, electrical utility,
municipal and other customers. B&W’s innovative products and services are organized into three market-facing segments:segments. Our reportable segments are as follows:
•Babcock & Wilcox Renewable: Cost-effective technologies for efficient and environmentally sustainable power and heat generation, including waste-to-energy, solar construction and installation, biomass energy and black liquor systems for the pulp and paper industry. B&W’s leading technologies support a circular economy, diverting waste from landfills to use for power generation and replacing fossil fuels, while recovering metals and reducing emissions.
•Babcock & Wilcox Environmental: A full suite of best-in-class emissions control and environmental technology solutions for utility, waste to energy, biomass, carbon black, and industrial steam generation applications around the world. B&W’s broad experience includes systems for cooling, ash handling, particulate control, nitrogen oxides and sulfur dioxides removal, chemical looping for carbon control, and mercury control.
•Babcock & Wilcox Thermal: Steam generation equipment, aftermarket parts, construction, maintenance and field services for plants in the power generation, oil and gas, and industrial sectors. B&W has an extensive global base of installed equipment for utilities and general industrial applications including refining, petrochemical, food processing, metals and others.
On September 30, 2021,February 1, 2022, we acquired a 60% controlling100% ownership stake in Illinois-based solar energy contractor Fosler Construction Companyof Fossil Power Systems, Inc. (“Fosler Construction”) for approximately $27.2 million in cash plus$59.2 million. Fossil Power Systems, Inc., is a contingent consideration arrangement. Fosler Construction provides commercial, industrialleading designer and utility-scale solar services and owns two community solar projects in Illinois being developed under the Illinois Solar for All program. Fosler Construction was founded in 1998 and employs approximately 120 people with a track recordmanufacturer of successfully completing solar projects profitably with union labor and aligning its model with a growing number of renewable project incentives in the U.S. We believe Fosler Construction is positioned to capitalize on the high-growth solar market in the U.S. and that the acquisition aligns with B&W’s aggressive growth and expansion of our cleanhydrogen, natural gas and renewable energy businesses. Fosler Construction will bepulp and paper combustion equipment including ignitors, plant controls and safety systems based in Dartmouth, Nova Scotia, Canada. Fossil Power Systems, Inc. is reported as part of our B&W Renewable segment,Thermal segment.
On February 28, 2022, we acquired 100% ownership of Optimus Industries, LLC for approximately $19.2 million. Optimus Industries, LLC designs and it will operate under the name Fosler Solar, a Babcockmanufactures waste heat recovery products for use in power generation, petrochemical, and Wilcox company.
Our business depends significantly on the capital, operations and maintenance expenditures of global electric power generating companies, including renewable and thermal powered heat generation industries and industrial facilities with environmental compliance policy requirements. Several factors may influence these expenditures, including:
•climate change initiatives promoting environmental policies which include renewable energy options utilizing waste-to-energy or biomass to meet legislative requirements and clean energy portfolio standards in the United States, European, Middle East and Asian markets;
•requirements for environmental improvements in various global markets;
•expectation of future governmental requirements to further limit or reduce greenhouse gas and other emissions in the United States, Europe and other international climate change sensitive countries;
•prices for electricity, along with the cost of production and distribution including the cost of fuels within the United States, Europe, Middle East and Asian based countries;
•demand for electricity and other end products of steam-generating facilities;
•level of capacity utilization at operating power plants and other industrial uses of steam production;
•requirements for maintenance and upkeep at operating power plants to combat the accumulated effects of usage;
•prices of and access to materials, particularly as a result of rising inflation and the impact of the Russian invasion of Ukraine;
•overall strength of the industrial industry; and
•ability of electric power generating companies and other steam users to raise capital.
Customer demand is heavily affected by the variations in our customers' business cycles and by the overall economies and energy, environmental and noise abatement needs of the countries in which they operate.
We recorded operating income of $14.8 million and $11.1 million in the three and nine months ended September 30, 2021, respectively, compared to operating income of $14.1 million and an operating loss of $3.9 million in the three and nine months ended September 30, 2020, respectively, and we showed improved results in our Environmental and Thermal segments as described below.
Adjusted EBITDA in the B&W Renewable segment was $11.4 million and $15.0 million in the three and nine months ended September 30, 2021, respectively, compared to $23.6 million and $22.0 million in the three and nine months ended September 30, 2020, respectively. The decline is primarily attributable to the non-recurring loss recovery of $26.0 million recognized in third quarter of 2020 under an October 10, 2020 settlement agreement with an insurer in connection with five of the six European B&W Renewable EPC loss contracts, as described in Note 4.
Adjusted EBITDA in the B&W Environmental segment was $3.5 million and $7.3 million in the three and nine months ended September 30, 2021, respectively, compared to $2.2 million and $1.4 million in the three and nine months ended September 30, 2020, respectively. The increase is driven primarily by the higher volume partially offset by an increase in shared resources.
Adjusted EBITDA in the B&W Thermal segment was $9.2 million and $32.1 million in the three and nine months ended September 30, 2021, respectively, compared to $7.3 million and $22.9 million in the three and nine months ended September 30, 2020, respectively. This increase is primarily attributable to the increase in volume offset partially by product mix, an increase in expenses due to growth in Asia and Middle East, and an increase in shared resources due to higher volume.
We have manufacturing facilities in Mexico, the United States, Denmark, the United Kingdom and Scotland.China. Many aspects of our operations and properties could be affected by political developments, including the ongoing Russian-Ukrainian conflict, environmental regulations and operating risks. These and other factors may have a material impact on our international and domestic operations or our business as a whole.
Through our restructuring efforts, we continue to make significant progress to make our cost structure more variable and to reduce costs. We expect our cost saving 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 B&W Renewable, B&W Environmental and B&W Thermal 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 evaluate additional non-core asset sales to continue to strengthen our 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.
Year-over-year comparisons of our results from continuing operations were also impacted by:
•$4.6 million and $8.0 million of restructuring costs were recognized in the three and nine months ended September 30, 2021, respectively, compared to $2.4 million and $6.7 million of restructuring costs recognized in the three and nine months ended September 30, 2020, respectively. The restructuring costs primarily related to severance and business service transition costs.
•$0.3 million and $2.6 million of financial advisory service fees were recognized in the three and nine months ended September 30, 2021, respectively, as compared to $1.7 million and $3.2 million in the corresponding periods of 2020. Financial advisory service fees are included in advisory fees and settlement costs in our Condensed Consolidated Statement of Operations.
•$1.0 million and $5.0 million of legal and other advisory fees were recognized in the three and nine months ended September 30, 2021, respectively, as compared to $1.4 million and $5.2 million in the corresponding periods of 2020 These fees are related to the contract settlement and liquidity planning and are included in advisory fees and settlement costs in our Condensed Consolidated Statement of Operations.
•$0.6 million and $2.1 million of litigation legal costs were recognized in the three and nine months ended September 30, 2021, respectively, as compared to $0.8 million and $1.8 million in the corresponding periods of 2020. These fees are included in advisory fees and settlement costs in our Condensed Consolidated Statement of Operations.
•$4.0 million of costs related to actual or potential acquisitions were recognized in the three and nine months ended September 30, 2021. These costs are included in selling, general and administrative costs in our Condensed Consolidated Statement of Operations.
In addition, to the discussions described above, we continue to evaluate further dispositions, opportunities for additional cost savings and opportunities for subcontractor recoveries and other claims where appropriate and available. If the value of our business was 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
Components of Our Results of Operations
Revenue
Our revenue is the total amount of income generated by our business and consists primarily of income from our renewable, environmental and thermal technology solutions that we provide to a broad range of industrial electric utility and other customers. Revenue from our operations is assessed based on our three market-facing segments, Babcock & Wilcox Renewable, Babcock & Wilcox Environmental and Babcock & Wilcox Thermal.
Operating Income (Loss)
Operating income (loss) consists primarily of our revenue minus costs and expenses, including cost of operations, SG&A, and advisory fees and settlement costs.
Net Income (Loss)
Net income (loss) consists primarily of operating income minus other income and expenses, including interest income, foreign exchange and expense related to our benefit plans.
Condensed Consolidated Results of Operations
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, net pension benefits, restructuring costs, impairments, gains and losses on debt extinguishment, costs related to financial consulting, research and development costs and other costs that may not be directly controllable by segment management are not allocated to the segments.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
(in thousands) | 2021 | | 2020 | | $ Change | | 2021 | | 2020 | | $ Change |
Revenues: | | | | | | | | | | | |
B&W Renewable segment | $ | 38,000 | | | $ | 39,062 | | | $ | (1,062) | | | $ | 105,155 | | | $ | 118,570 | | | $ | (13,415) | |
B&W Environmental segment | 38,249 | | | 25,262 | | | 12,987 | | | 97,767 | | | 76,354 | | | 21,413 | |
B&W Thermal segment | 83,819 | | | 70,025 | | | 13,794 | | | 328,416 | | | 223,920 | | | 104,496 | |
Other | (108) | | | (1,836) | | | 1,728 | | | (270) | | | (2,380) | | | 2,110 | |
| $ | 159,960 | | | $ | 132,513 | | | $ | 27,447 | | | $ | 531,068 | | | $ | 416,464 | | | $ | 114,604 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
(in thousands) | 2021 | | 2020 | | $ Change | | 2021 | | 2020 | | $ Change |
Adjusted EBITDA (1) | | | | | | | | | | | |
B&W Renewable segment (2) | $ | 11,399 | | | $ | 23,575 | | | $ | (12,176) | | | $ | 15,030 | | | $ | 22,003 | | | $ | (6,973) | |
B&W Environmental segment | 3,471 | | | 2,177 | | | 1,294 | | | 7,270 | | | 1,408 | | | 5,862 | |
B&W Thermal segment | 9,205 | | | 7,287 | | | 1,918 | | | 32,066 | | | 22,879 | | | 9,187 | |
Corporate | (5,866) | | | (4,916) | | | (950) | | | (11,548) | | | (12,864) | | | 1,316 | |
Research and development costs | 513 | | | (1,355) | | | 1,868 | | | (560) | | | (3,927) | | | 3,367 | |
| $ | 18,722 | | | $ | 26,768 | | | $ | (8,046) | | | $ | 42,258 | | | $ | 29,499 | | | $ | 12,759 | |
(1) Adjusted EBITDA for the three and nine months ended September 30, 2020, excludes losses related to a non-strategic business and interest on letters of credit included in cost of operations that were previously included in Adjusted EBITDA and total $0.9 million and $0.2 million, respectively, and $1.2 million and $0.6 million, respectively.
(2)Adjusted EBITDA for the three and nine months ended September 30, 2020 includes a $26 million non-recurring loss recovery related to claims in connection with multiple Renewable EPC loss contracts.
Three Months Ended September 30, 2021 and 2020
Revenues increased by$27.4 millionto $160.0 million in the third quarter of 2021 compared to $132.5 million in the corresponding period of 2020, primarily due to a higher level of activity in our project business within our Thermal segment as well as increased volume and higher overall project activity in our Environmental segment being partially offset by project timing in our Renewable segment. Segment specific changes are discussed in further detail in the sections below.
Operating income increased $0.7 million to $14.8 million in the third quarter of 2021 compared to $14.1 million in the corresponding period of 2020. The increase is primarily due to the revenue increase described above partially offset by the non-recurring loss recovery of $26.0 million recognized in third quarter of 2020 under an October 10, 2020 settlement agreement with an insurer in connection with five of the six European B&W Renewable EPC loss contracts, as described in Note 4. Restructuring expenses, advisory fees, research and development, depreciation and amortization expense and gains on dispositions are discussed in further detail in the sections below.
Nine Months Ended September 30, 2021 and 2020
Revenues increased by$114.6 millionto $531.1 million in the nine months ended September 30, 2021 compared to $416.5 million in the corresponding period of 2020, primarily attributable to a higher level of activity in our Thermal and Environmental segments being partially offset by project timing and delays of large orders in our Renewable segment. Segment specific changes which are discussed in further detail in the sections below.
Operating income increased $15.0 million to $11.1 million in the nine months ended September 30, 2021 compared to an operating loss of $(3.9) million in the corresponding period of 2020. The increase is primarily due to higher overall revenue volume and is partially offset by the non-recurring loss recovery of $26.0 million recognized in the nine months ended September 30, 2020 under an October 10, 2020 settlement agreement with an insurer in connection with five of the six European B&W Renewable EPC loss contracts, as described in Note 4. Restructuring expenses, advisory fees, research and development, depreciation and amortization expense and gains on dispositions are discussed in further detail in the sections below.
Non-GAAP Financial Measures
The following discussion of our business segment results of operations includes a discussion of adjusted gross profit,EBITDA, which when used on a consolidated basis is a non-GAAP financial measure. Adjusted gross profitEBITDA differs from the most directly comparable measure calculated in accordance with generally accepted accounting principles (“(“GAAP”). Amortization expense is not allocated to the segments’ adjusted gross profit. A reconciliation of operatingnet income (loss), the most directly comparable GAAP measure, to adjusted gross
profitEBITDA is included in the table“Non-GAAP Financial Measures” 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) | 2021 | | 2020 | | $ Change | | 2021 | | 2020 | | $ Change |
Adjusted gross profit (1)(2) | | | | | | | | | | | |
Operating income (loss) | $ | 14,761 | | | $ | 14,074 | | | $ | 687 | | | $ | 11,083 | | | $ | (3,927) | | | $ | 15,010 | |
Selling, general and administrative ("SG&A") expenses | 37,528 | | | 35,611 | | | 1,917 | | | 111,081 | | | 107,647 | | | 3,434 | |
Advisory fees and settlement costs | 1,841 | | | 3,846 | | | (2,005) | | | 9,658 | | | 10,074 | | | (416) | |
Amortization expense | 2,030 | | | 1,365 | | | 665 | | | 5,333 | | | 4,110 | | | 1,223 | |
Contract asset amortization expense | 73 | | | — | | | 73 | | | 146 | | | — | | | 146 | |
Restructuring activities | 4,575 | | | 2,396 | | | 2,179 | | | 7,968 | | | 6,739 | | | 1,229 | |
Research and development costs | (228) | | | 1,355 | | | (1,583) | | | 969 | | | 3,927 | | | (2,958) | |
Losses from a non-strategic business | (184) | | | 945 | | | (1,129) | | | 103 | | | 1,163 | | | (1,060) | |
Gain on asset disposals, net | (13,838) | | | (3) | | | (13,835) | | | (15,804) | | | (916) | | | (14,888) | |
| $ | 46,558 | | | $ | 59,589 | | | $ | (13,031) | | | $ | 130,537 | | | $ | 128,817 | | | $ | 1,720 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
(in thousands) | 2022 | | 2021 | | $ Change | | 2022 | | 2021 | | | $ Change |
Revenues: | | | | | | | | | | | | |
B&W Renewable segment | $ | 75,227 | | | $ | 38,344 | | | $ | 36,883 | | | $ | 143,188 | | | $ | 67,155 | | | | $ | 76,033 | |
B&W Environmental segment | 31,612 | | | 28,358 | | | 3,254 | | | 66,560 | | | 59,518 | | | | 7,042 | |
B&W Thermal segment | 116,305 | | | 136,316 | | | (20,011) | | | 218,544 | | | 244,597 | | | | (26,053) | |
Eliminations | (2,125) | | | (158) | | | (1,967) | | | (3,224) | | | (162) | | | | (3,062) | |
| $ | 221,019 | | | $ | 202,860 | | | $ | 18,159 | | | $ | 425,068 | | | $ | 371,108 | | | | $ | 53,960 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
(in thousands) | 2022 | | 2021 | | $ Change | | 2022 | | 2021 | | | $ Change |
Adjusted EBITDA | | | | | | | | | | | | |
B&W Renewable segment(1) | $ | 8,869 | | | $ | 3,427 | | | $ | 5,442 | | | $ | 10,324 | | | $ | 3,631 | | | | $ | 6,693 | |
B&W Environmental segment | 591 | | | 2,705 | | | (2,114) | | | 2,030 | | | 3,810 | | | | (1,780) | |
B&W Thermal segment | 16,361 | | | 12,572 | | | 3,789 | | | 30,515 | | | 23,107 | | | | 7,408 | |
Corporate | (4,226) | | | (2,997) | | | (1,229) | | | (8,599) | | | (5,682) | | | | (2,917) | |
Research and development costs | (987) | | | (485) | | | (502) | | | (1,642) | | | (1,073) | | | | (569) | |
| $ | 20,608 | | | $ | 15,222 | | | $ | 5,386 | | | $ | 32,628 | | | $ | 23,793 | | | | $ | 8,835 | |
(1) Amortization is not allocated to the segments' adjusted gross profit, but depreciation is allocated to the segments' adjusted gross profit.
(2)Adjusted gross profitEBITDA for the three and ninesix months ended SeptemberJune 30, 2020, excludes losses2022 includes a $7.0 million non-recurring gain on sale related to development rights of a non-strategic businessfuture solar project that was previously included in Adjusted gross profit and totals $0.9 million and $1.2 million, respectivelysold.
Adjusted gross profit by segment is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
(in thousands) | 2021 | | 2020 | | $ Change | | 2021 | | 2020 | | $ Change |
Adjusted gross profit | | | | | | | | | | | |
B&W Renewable segment | $ | 17,381 | | | $ | 32,092 | | | $ | (14,711) | | | $ | 34,106 | | | $ | 48,401 | | | $ | (14,295) | |
B&W Environmental segment | 7,870 | | | 6,874 | | | 996 | | | 20,483 | | | 16,628 | | | 3,855 | |
B&W Thermal segment | 21,307 | | | 20,623 | | | 684 | | | 75,948 | | | 63,788 | | | 12,160 | |
| $ | 46,558 | | | $ | 59,589 | | | $ | (13,031) | | | $ | 130,537 | | | $ | 128,817 | | | $ | 1,720 | |
B&W Renewable Segment Results
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
(in thousands) | 2021 | | 2020 | | $ Change | | 2021 | | 2020 | | $ Change |
Revenues | $ | 38,000 | | | $ | 39,062 | | | $ | (1,062) | | | $ | 105,155 | | | $ | 118,570 | | | $ | (13,415) | |
Adjusted EBITDA | $ | 11,399 | | | $ | 23,575 | | | $ | (12,176) | | | $ | 15,030 | | | $ | 22,003 | | | $ | (6,973) | |
Adjusted gross profit | $ | 17,381 | | | $ | 32,092 | | | $ | (14,711) | | | $ | 34,106 | | | $ | 48,401 | | | $ | (14,295) | |
Adjusted gross profit % | 45.7 | % | | 82.2 | % | | | | 32.4 | % | | 40.8 | % | | |
Three Months Ended SeptemberJune 30, 20212022 and 20202021
Revenues in the B&W Renewable segment decreased 3%, or $1.1increased by$18.2 millionto $38.0$221.0 million in the third quarter of 2021three months ended June 30, 2022 as compared to $39.1$202.9 million in the corresponding period of 2020.three months ended June 30, 2021. The reduction in revenue increase is primarily dueattributable to the completionacquisitions of large serviceFosler Construction and licensing projects in the third quarter of 2020 compared to current volume in the third quarter of 2021.
Adjusted EBITDA in the B&WVODA within our Renewable segment, decreased $12.2 million, to $11.4 million in the third quarter of 2021 compared to $23.6 million in the corresponding period of 2020. The decrease is primarily due to the non-recurring loss recovery of $26.0 million recognized in third quarter of 2020 under an October 10, 2020 settlement agreement with an insurer in connection with five of the six European B&W Renewable EPC loss contracts, as described in Note 4.
Adjusted gross profit in the B&W Renewable segment decreased $14.7 million, to $17.4 million in the third quarter of 2021 compared to $32.1 million in the corresponding period of 2020. The decrease is primarily due to the non-recurring loss recovery of $26.0 million recognized in third quarter of 2020 under an October 10, 2020 settlement agreement with an insurer in connection with five of the six European B&W Renewable EPC loss contracts, as described in Note 4.
Nine Months Ended September 30, 2021 and 2020
Revenues in the B&W Renewable segment decreased 11%, or $13.4 million to $105.2 million in the nine months ended September 30, 2021 compared to $118.6 million in the corresponding period of 2020. The reduction in revenue is primarily due to lower volume in the first nine months of 2021 coupled with the completion of prior year large service and licensing projects that have not been replaced.
Adjusted EBITDA in the B&W Renewable segment decreased $7.0 million, to $15.0 million in the nine months ended September 30, 2021 compared to $22.0 million in the corresponding period of 2020. The decrease is primarily due to lower volume and the non-recurring loss recovery of $26.0 million recognized in third quarter of 2020 under an October 10, 2020 settlement agreement with an insurer in connection with five of the six European B&W Renewable EPC loss contracts, as described in Note 4.
Adjusted gross profit in the B&W Renewable segment decreased $14.3 million, to $34.1 million in the third quarter of 2021 compared to $48.4 million in the corresponding period of 2020. The decrease is primarily due to lower volume and the non-recurring loss recovery of $26.0 million recognized in third quarter of 2020 under an October 10, 2020 settlement agreement with an insurer in connection with five of the six European B&W Renewable EPC loss contracts, as described in Note 4.
B&W Environmental Segment Results
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
(In thousands) | 2021 | | 2020 | | $ Change | | 2021 | | 2020 | | $ Change |
Revenues | $ | 38,249 | | | $ | 25,262 | | | $ | 12,987 | | | $ | 97,767 | | | $ | 76,354 | | | $ | 21,413 | |
Adjusted EBITDA | $ | 3,471 | | | $ | 2,177 | | | $ | 1,294 | | | $ | 7,270 | | | $ | 1,408 | | | $ | 5,862 | |
Adjusted gross profit | $ | 7,870 | | | $ | 6,874 | | | $ | 996 | | | $ | 20,483 | | | $ | 16,628 | | | $ | 3,855 | |
Adjusted gross profit % | 20.6 | % | | 27.2 | % | | | | 21.0 | % | | 21.8 | % | | |
Three Months Ended September 30, 2021 and 2020
Revenues in the B&W Environmental segment increased 51%, or $13.0 million to $38.2 million in the third quarter of 2021 compared to $25.3 million in the corresponding period of 2020. The increase is primarily driven by increasedhigher overall volume in our ASH project business as well as higher overall projectEnvironmental segment and the acquisitions of Fossil Power Systems and Optimus Industries within our Thermal segment being partially offset by a lower level of construction activity in our Thermal segment. The negative impacts on the current quarter as compared to the prior quarter which was impacted due to the postponement of new projectsglobal economy as a result of COVID-19.the ongoing Russia-Ukraine military conflict adversely impacted each of our segments causing shortages of supplies and materials and affecting the timing of revenue on several projects. Segment specific changes are discussed in further detail in the sections below.
Adjusted EBITDA in the B&W Environmental segment was $3.5Net loss increased by $6.1 million to a net loss of $3.0 million in the third quarterthree months ended June 30, 2022 from net income of 2021 compared to $2.2$3.1 million in the correspondingthree months ended June 30, 2021. Operating income increased $0.9 million to $3.7 million in the three months ended June 30, 2022 as compared to $2.8 million in the three months ended June 30, 2021. The higher net loss is primarily related to higher interest expense and foreign exchange losses in the current period of 2020. The increase is driven primarily by. Restructuring activities, advisory fees, research and development, depreciation and amortization expense, pension and other postretirement benefit plans, foreign exchange, and income taxes are discussed in further detail in the higher volume, as described above partially offset by an increase in shared resources.sections below.
Adjusted gross profit in the B&W Environmental segmentSix Months Ended June 30, 2022 and 2021
Revenues increased $1.0by$54.0 millionto $7.9$425.1 million in the third quarter of 2021six months ended June 30, 2022 as compared to $6.9$371.1 million in the corresponding period of 2020.six months ended June 30, 2021. The increase is primarily attributable to the increaseacquisitions of Fosler Construction and VODA within our Renewable segment, higher overall volume in volume, as described aboveour Environmental segment and the acquisitions of Fossil Power Systems and Optimus Industries within our Thermal segment being partially offset by an increasea lower level of construction activity in shared resources.our Thermal segment.The negative impacts on the global economy as a result of the ongoing Russia-Ukraine military conflict adversely impacted each of our segments causing shortages of supplies and materials and affecting the timing of revenue on several projects. Segment specific changes are discussed in further detail in the sections below.
Nine Months Ended September 30, 2021 and 2020
Revenues in the B&W Environmental segment increased 28%, or $21.4Net loss improved by $0.6 million to $97.8a net loss of $11.7 million in the ninesix months ended SeptemberJune 30, 2021 compared to $76.4 million in the corresponding prior year period of 2020. The increase is primarily driven by increased volume in our ASH project business as well as projects which were previously postponed due to COVID-19 in the prior periods being released in the current period.
Adjusted EBITDA in the B&W Environmental segment was $7.3 million in the nine months ended September 30, 2021 compared to $1.4 million in the corresponding prior year period of 2020. The increase is driven primarily by the higher volume, as described above, and a $1.3 million charge recognized in the prior period related to completion of two B&W Environmental Loss Contracts2022 as compared to a $0.4 million improvement recognized in the current period on those same projects, as described in Note 4.
Adjusted gross profit in the B&W Environmental segment increased $3.9 million to $20.5net loss of $12.3 million in the ninesix months ended SeptemberJune 30, 2021 compared2021. Operating loss improved $0.6 million to $16.6an operating loss of $3.1 million in the corresponding prior year period of 2020. The increase is primarily attributable to the increase in volume and a $1.3 million charge recognized in the prior period related to completion of two B&W Environmental Loss Contractssix months ended June 30, 2022 as compared to a $0.4 million improvement recognized in the current period on those same projects, as described in Note 4.
B&W Thermal Segment Results
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
(In thousands) | 2021 | | 2020 | | $ Change | | 2021 | | 2020 | | $ Change |
Revenues | $ | 83,819 | | | $ | 70,025 | | | $ | 13,794 | | | $ | 328,416 | | | $ | 223,920 | | | $ | 104,496 | |
Adjusted EBITDA | $ | 9,205 | | | $ | 7,287 | | | $ | 1,918 | | | $ | 32,066 | | | $ | 22,879 | | | $ | 9,187 | |
Adjusted gross profit | $ | 21,307 | | | $ | 20,623 | | | $ | 684 | | | $ | 75,948 | | | $ | 63,788 | | | $ | 12,160 | |
Adjusted gross profit % | 25.4 | % | | 29.5 | % | | | | 23.1 | % | | 28.5 | % | | |
Three Months Ended September 31, 2021 and 2020
Revenues in the B&W Thermal segment increased 20%, or $13.8 million, to $83.8an operating loss of $3.7 million in the third quartersix months ended June 30, 2021. The lower net loss is primarily related to positive contributions from the acquisitions, as described above
offset partially by a lower level of 2021 compared to $70.0 million generated in the corresponding period of 2020. The revenue increase is attributable to a higher level ofconstruction activity in our project business thanThermal segment.Restructuring activities, advisory fees, research and development, depreciation and amortization expense, pension and other postretirement benefit plans, foreign exchange, and income taxes are discussed in further detail in the comparable prior year quarter which was negatively impacted by COVID-19.
sections below.
Adjusted EBITDA in the B&W Thermal segment increased $1.9 million to $9.2 million in the third quarter of 2021 compared to $7.3 million in the corresponding period of 2020. The increase is due to higher volume as described above offset partially by product mix and an increase in shared resources due to higher volume.
Adjusted gross profit in the B&W Thermal segment increased $0.7 million, to $21.3 million in the third quarter of 2021, compared to $20.6 million in the corresponding period of 2020, which is mainly attributable to the increase in revenue as described above offset partially by product mix and an increase in shared resources due to higher volume.
Nine Months Ended September 31, 2021 and 2020
Revenues in the B&W Thermal segment increased 47%, or $104.5 million, to $328.4 million in the nine months ended September 30, 2021 compared to $223.9 million generated in the corresponding prior year period of 2020. The revenue increase is attributable to a higher level of activity on parts, construction, package boilers and international service orders which were all negatively impacted in the comparable prior year period due to COVID-19.
Adjusted EBITDA in the B&W Thermal segment increased $9.2 million to $32.1 million in the nine months ended September 30, 2021 compared to $22.9 million in the corresponding prior year period of 2020, which is mainly attributable to the increase in volume as described above offset partially by product mix, an increase in expenses due to growth in Asia and Middle East, and an increase in shared resources due to higher volume.
Adjusted gross profit in the B&W Thermal segment increased $12.2 million, to $75.9 million in the nine months ended September 30, 2021, compared to $63.8 million in the corresponding prior year period of 2020, which is consistent with the increase in revenue as described above offset partially by product mix, and an increase in shared resources due to higher 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. 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) | 2021 | | 2020 | | 2021 | | 2020 | |
(in approximate millions) | | (in approximate millions) | 2022 | | 2021 | | 2022 | | 2021 | |
B&W Renewable(1) | B&W Renewable(1) | $ | 103 | | | $ | 26 | | | $ | 184 | | | $ | 91 | | B&W Renewable(1) | $ | 59 | | | $ | 44 | | | $ | 160 | | | $ | 81 | | |
B&W Environmental | B&W Environmental | 22 | | | 41 | | | 90 | | | 98 | | B&W Environmental | 35 | | | 27 | | | 72 | | | 68 | | |
B&W Thermal | B&W Thermal | 48 | | | 114 | | | 236 | | | 294 | | B&W Thermal | 151 | | | 97 | | | 252 | | | 188 | | |
Other/eliminations | — | | | (4) | | | — | | | (5) | | |
| Bookings | Bookings | $ | 173 | | | $ | 177 | | | $ | 510 | | | $ | 478 | | Bookings | $ | 245 | | | $ | 168 | | | $ | 484 | | | $ | 337 | | |
(1) B&W Renewable bookings includes the revaluation of backlog denominated in currency other than U.S. dollars. The foreign exchange impact on B&W Renewable bookings in the thirdsecond quarter of 2022 and 2021 and 2020 was $3.6$(12.4) million and $(6.4)$(2.6) million, respectively. The foreign exchange impact on B&W Renewable bookings in the ninesix months ended SeptemberJune 30, 2022 and 2021 and 2020 was $8.1$(6.4) million and $(7.0)$4.5 million, respectively.
Our backlog as of SeptemberJune 30, 20212022 and 20202021 was as follows:
| | | As of September 30, | | As of June 30, |
(In approximate millions) | 2021 | | 2020 | |
(in approximate millions) | | (in approximate millions) | 2022 | | 2021 |
B&W Renewable(1) | B&W Renewable(1) | $ | 313 | | | $ | 196 | | B&W Renewable(1) | $ | 412 | | | $ | 221 | |
B&W Environmental | B&W Environmental | 101 | | | 107 | | B&W Environmental | 127 | | | 117 | |
B&W Thermal | B&W Thermal | 130 | | | 208 | | B&W Thermal | 193 | | | 166 | |
Other/eliminations | Other/eliminations | (4) | | | (2) | | Other/eliminations | (1) | | | (4) | |
Backlog | Backlog | $ | 540 | | | $ | 509 | | Backlog | $ | 731 | | | $ | 500 | |
(1) B&W Renewable backlog at SeptemberJune 30, 2021,2022, includes $152.8$129.7 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, 2021,2022, we expect to recognize revenues as follows:
| (In approximate millions) | 2021 | 2022 | Thereafter | Total | |
(in approximate millions) | | (in approximate millions) | 2022 | 2023 | Thereafter | Total |
B&W Renewable | B&W Renewable | $ | 60 | | $ | 76 | | $ | 177 | | $ | 313 | | B&W Renewable | $ | 178 | | $ | 111 | | $ | 123 | | $ | 412 | |
B&W Environmental | B&W Environmental | 32 | | 42 | | 27 | | 101 | | B&W Environmental | 59 | | 25 | | 43 | | 127 | |
B&W Thermal | B&W Thermal | 69 | | 58 | | 3 | | 130 | | B&W Thermal | 118 | | 70 | | 5 | | 193 | |
Other/eliminations | Other/eliminations | (4) | | — | | — | | (4) | | Other/eliminations | (1) | | — | | — | | (1) | |
Expected revenue from backlog | Expected revenue from backlog | $ | 157 | | $ | 176 | | $ | 207 | | $ | 540 | | Expected revenue from backlog | $ | 354 | | $ | 206 | | $ | 171 | | $ | 731 | |
Non-GAAP Financial Measures
Adjusted EBITDA on able consolidated basis is a non-GAAP metric defined as the sum of Contentsthe adjusted EBITDA for each of the segments, further adjusted for corporate allocations and research and development costs. At a segment level, the adjusted EBITDA presented below is consistent with the way the Company's chief operating decision maker reviews the results of operations and makes strategic decisions about the business and is calculated as earnings before interest, tax, depreciation and amortization adjusted for items such as gains or losses arising from the sale of non-income producing assets, net pension benefits, restructuring activities, impairments, gains and losses on debt extinguishment, costs related to financial consulting, research and development costs and other costs that may not be directly controllable by segment management and are not allocated to the segment.The Company uses adjusted EBITDA internally to evaluate its performance and in making financial and operational decisions. When viewed in conjunction with GAAP results, the Company believes that its presentation of adjusted EBITDA provides investors with greater transparency and a greater understanding of factors affecting its financial condition and results of operations than GAAP measures alone. Prior period results have been revised to conform with the revised definition and present separate reconciling items in our reconciliation, including business transition costs.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
(in thousands) | 2022 | | 2021 | | 2022 | | 2021 |
Net (loss) income | $ | (2,994) | | | $ | 3,141 | | | $ | (11,678) | | | $ | (12,302) | |
Interest expense | 12,058 | | | 8,341 | | | 24,382 | | | 22,850 | |
Income tax (benefit) expense | (1,355) | | | 3,546 | | | (125) | | | 6,382 | |
Depreciation & amortization | 5,736 | | | 4,321 | | | 11,938 | | | 8,379 | |
EBITDA | 13,445 | | | 19,349 | | | 24,517 | | | 25,309 | |
| | | | | | | |
Benefit plans, net | (7,403) | | | (5,924) | | | (14,855) | | | (15,022) | |
(Gain) loss on sales, net | (117) | | | 2,636 | | | (137) | | | 274 | |
Stock compensation | 475 | | | 51 | | | 1,794 | | | 7,880 | |
Restructuring activities and business services transition costs | 1,754 | | | 2,400 | | | 4,442 | | | 3,393 | |
Advisory fees for settlement costs and liquidity planning | 879 | | | 2,059 | | | 1,911 | | | 4,037 | |
Litigation costs | 3,911 | | | 1,167 | | | 6,439 | | | 1,547 | |
Gain on debt extinguishment | — | | | (6,530) | | | — | | | (6,530) | |
Acquisition pursuit and related costs | 1,350 | | | — | | | 2,193 | | | — | |
Product development (1) | 991 | | | 263 | | | 1,843 | | | 263 | |
Foreign exchange | 4,296 | | | (1,826) | | | 1,211 | | | (617) | |
Financial advisory services | 352 | | | 1,299 | | | 727 | | | 2,232 | |
Contract step-up purchase price adjustment | — | | | — | | | 1,745 | | | — | |
Loss from business held for sale | — | | | — | | | — | | | 483 | |
Other - net | 675 | | | 278 | | | 798 | | | 544 | |
Adjusted EBITDA(2) | $ | 20,608 | | | $ | 15,222 | | | $ | 32,628 | | | $ | 23,793 | |
(1) Costs associated with development of commercially viable products that are ready to go to market.
(2) Adjusted EBITDA for the three and six months ended June 30, 2022 includes a $7.0 million non-recurring gain on sale related to development rights of a future solar project that was sold.
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
(in thousands) | 2022 | | 2021 | | 2022 | | 2021 | | |
Adjusted EBITDA | | | | | | | | | |
B&W Renewable segment(1) | $ | 8,869 | | | $ | 3,427 | | | $ | 10,324 | | | $ | 3,631 | | | |
B&W Environmental segment | 591 | | | 2,705 | | | 2,030 | | | 3,810 | | | |
B&W Thermal segment | 16,361 | | | 12,572 | | | 30,515 | | | 23,107 | | | |
Corporate | (4,226) | | | (2,997) | | | (8,599) | | | (5,682) | | | |
Research and development costs | (987) | | | (485) | | | (1,642) | | | (1,073) | | | |
| $ | 20,608 | | | $ | 15,222 | | | $ | 32,628 | | | $ | 23,793 | | | |
(1) Adjusted EBITDA for the three and six months ended June 30, 2022 includes a $7.0 million non-recurring gain on sale related to development rights of a future solar project that was sold.
B&W Renewable Segment Results
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, | | |
(in thousands) | 2022 | | 2021 | | $ Change | | 2022 | | 2021 | | $ Change | | | | | | |
Revenues | $ | 75,227 | | | $ | 38,344 | | | $ | 36,883 | | | $ | 143,188 | | | $ | 67,155 | | | $ | 76,033 | | | | | | | |
Adjusted EBITDA | $ | 8,869 | | | $ | 3,427 | | | $ | 5,442 | | | $ | 10,324 | | | $ | 3,631 | | | $ | 6,693 | | | | | | | |
Three Months Ended June 30, 2022 and 2021
Revenues in the B&W Renewable segment increased 96% or $36.9 million, to $75.2 million in the three months ended June 30, 2022 compared to $38.3 million in the three months ended June 30, 2021. The increase in revenue is primarily due to the acquisitions of Fosler Construction and VODA and higher volume of new-build projects.
Adjusted EBITDA in the B&W Renewable segment increased $5.4 million, to $8.9 million in the three months ended June 30, 2022 compared to $3.4 million in the three months ended June 30, 2021. The increase is primarily due to the higher revenue volume of new-build projects, as discussed above in addition to a $7.0 million non-recurring gain on sale related to development rights of a future solar project that was sold partially offset by higher levels of shared overhead and SG&A allocated to the segment.
Six Months Ended June 30, 2022 and 2021
Revenues in the B&W Renewable segment increased 113% or $76.0 million, to $143.2 million in the six months ended June 30, 2022 compared to $67.2 million in the six months ended June 30, 2021. The increase in revenue is primarily due to the acquisitions of Fosler Construction and VODA and higher volume of new-build projects.
Adjusted EBITDA in the B&W Renewable segment increased $6.7 million, to $10.3 million in the six months ended June 30, 2022 compared to $3.6 million in the six months ended June 30, 2021. The increase is primarily due to the higher revenue volume of new-build projects, as discussed above in addition to a $7.0 million non-recurring gain on sale related to development rights of a future solar project that was sold partially offset by higher levels of shared overhead and SG&A allocated to the segment.
B&W Environmental Segment Results
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, | | |
(in thousands) | 2022 | | 2021 | | $ Change | | 2022 | | 2021 | | $ Change | | | | | | |
Revenues | $ | 31,612 | | | $ | 28,358 | | | $ | 3,254 | | | $ | 66,560 | | | $ | 59,518 | | | $ | 7,042 | | | | | | | |
Adjusted EBITDA | $ | 591 | | | $ | 2,705 | | | $ | (2,114) | | | $ | 2,030 | | | $ | 3,810 | | | $ | (1,780) | | | | | | | |
Three Months Ended June 30, 2022 and 2021
Revenues in the B&W Environmental segment increased 11%, or $3.3 million to $31.6 million in the three months ended June 30, 2022 compared to $28.4 million in the three months ended June 30, 2021. The increase is primarily driven by higher overall volume in our system product lines offset partially by lower service volume in the current quarter.
Adjusted EBITDA in the B&W Environmental segment was $0.6 million in the three months ended June 30, 2022 compared to $2.7 million in the three months ended June 30, 2021. The decrease is driven primarily by the completion of higher margin projects in the prior period being partially offset by higher revenue volume, as described above.
Six Months Ended June 30, 2022 and 2021
Revenues in the B&W Environmental segment increased 12%, or $7.0 million to $66.6 million in the six months ended June 30, 2022 compared to $59.5 million in the six months ended June 30, 2021. The increase is primarily driven by higher overall volume in ash handling systems, scrubbers, precipitators and cooling systems.
Adjusted EBITDA in the B&W Environmental segment was $2.0 million in the six months ended June 30, 2022 compared to $3.8 million in the six months ended June 30, 2021. The decrease is driven primarily by the completion of higher margin projects in the prior period being partially offset by the higher revenue volume, as described above.
B&W Thermal Segment Results
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, | | |
(In thousands) | 2022 | | 2021 | | $ Change | | 2022 | | 2021 | | $ Change | | | | | | |
Revenues | $ | 116,305 | | | $ | 136,316 | | | $ | (20,011) | | | $ | 218,544 | | | $ | 244,597 | | | $ | (26,053) | | | | | | | |
Adjusted EBITDA | $ | 16,361 | | | $ | 12,572 | | | $ | 3,789 | | | $ | 30,515 | | | $ | 23,107 | | | $ | 7,408 | | | | | | | |
Three Months Ended June 30, 2022 and 2021
Revenues in the B&W Thermal segment decreased 15%, or $20.0 million to $116.3 million in the three months ended June 30, 2022 compared to $136.3 million in the three months ended June 30, 2021. The revenue decrease is attributable to a lower level of activity on construction projects, partially offset by the acquisitions of Fossil Power Systems and Optimus Industries.
Adjusted EBITDA in the B&W Thermal segment increased $3.8 million to $16.4 million in the three months ended June 30, 2022 compared to $12.6 million in the three months ended June 30, 2021, which is mainly attributable to favorable product mix and the acquisitions of Fossil Power Systems and Optimus Industries which more than offset the overall decrease in volume, as described above.
Six Months Ended June 30, 2022 and 2021
Revenues in the B&W Thermal segment decreased 11%, or $26.1 million, to $218.5 million in the six months ended June 30, 2022 compared to $244.6 million in the six months ended June 30, 2021. The revenue decrease is attributable to a lower level of activity on construction projects, partially offset by the acquisitions of Fossil Power Systems and Optimus Industries.
Adjusted EBITDA in the B&W Thermal segment increased $7.4 million to $30.5 million in the six months ended June 30, 2022 compared to $23.1 million in the six months ended June 30, 2021, which is mainly attributable to favorable product mix and the acquisitions of Fossil Power Systems and Optimus Industries which more than offset the overall decrease in volume, as described above.
Corporate
Corporate costs in adjusted EBITDA include SG&A expenses that are not allocated to the reportable segments. These costs include, among others, certain executive, compliance, strategic, reporting and legal expenses associated with governance of the total organization and being an SEC registrant. Corporate costs increased $1.0$1.2 million to $5.9$4.2 million in three months ended June 30, 2022 as compared to $4.9$3.0 million incurred forin the three months ended SeptemberJune 30, 2021 and 2020, respectively.2021. The increase is primarily due to higher incentive compensation costs recognized for the third quarter ended September 30, 2021.increased tax and accounting services.
Corporate costs decreased $1.3increased $2.9 million to $11.5$8.6 million in six months ended June 30, 2022 as compared to $12.9$5.7 million incurred forin the ninesix months ended SeptemberJune 30, 2021 and 2020, respectively.2021. The decreaseincrease is primarily due to lower audit fees, personnel, director feesincreased tax and insurance costs, offset by higher incentive compensation costs recognized in the first nine months of 2021.accounting services.
Advisory Fees and Settlement Costs
Advisory fees and settlement costs decreased by $2.0costs increased $0.6 million to $1.8$5.1 million in the third quarter of 2021three months ended June 30, 2022 as compared to $3.8$4.5 million in the correspondingcomparable period of 20202021 and advisory fees and settlement costs decreased $0.4increased $1.3 million to $9.7$9.1 million in the ninesix months ended SeptemberJune 30, 20212022 as compared to $10.1$7.8 million in the correspondingcomparable period of 2020.2021. The changeincrease is primarily duerelated to decreased use of external consultantshigher legal fees and other costs incurred in the third quarter of 2021.current quarter.
Research and Development
Our research and development activities are focused on improving our products through innovations to reduce thetheir cost of our products and make them more competitive, as well as to reduce performance risk of our products to better meet our and our customers'customers’ expectations. Research and development (benefit) expenses totaled $(0.2)$1.1 million and $1.4$0.6 million in the third quarter ofthree months ended June 30, 2022 and 2021, and 2020, respectively, and totaled $1.0$1.9 million and $3.9$1.2 million in the ninesix months ended SeptemberJune 30, 2022 and 2021, and 2020, respectively. The $(0.2) million benefit in the third quarter of 2021 resulted from the recognition of a foreign research and development refundable credit of $0.8 million from the 2020 tax year. Excluding the effects of the refundable credit, the decreases for the three and nine months ending September 30, 2021 resulted primarily from timing of specific research and development efforts.
Restructuring
Restructuring actions across our business units and corporate functions resulted in $4.6$(0.1) million and $2.4 million of (benefit) expense in the third quarter ofthree months ended June 30, 2022 and 2021, and 2020, respectively, and totaled $8.0$0.0 million and $6.7$3.4 million of expense in the ninesix months ended SeptemberJune 30, 20212022 and 2020,2021, respectively. The decreases for the three and six months ended June 30, 2022 compared to the prior year comparable periods is due to lower level of restructuring actions.
Transition Costs
Transition costs across our corporate and business functions resulted in $1.9 million and $4.5 million of expense in the three and six months ended June 30, 2022, respectively. These charges primarily consist of severance and business service transition costs related toresult from actions taken includingto outsource certain tasks to offshore service providers or to transfer administrative and compliance tasks to global service providers as part of the Company’sour strategic market-focused organizationalefforts to reduce future selling, general and re-branding initiativeadministrative costs. Transition costs are included in selling, general and administrative expenses in our Condensed Consolidated Statements of Operations.
Depreciation and Amortization
Depreciation expense was $2.3$2.6 million and $2.7$2.4 million in the third quarter ofthree months ended June 30, 2022 and 2021, and 2020, respectively, and depreciation expense was $7.4$4.8 million and $8.2$5.1 million in the ninesix months ended SeptemberJune 30, 20212022 and 2020, respectively.2021.
Amortization expense was $2.1$3.1 million and $1.4$1.9 million in the third quarter ofthree months ended June 30, 2022 and 2021, and 2020, respectively, and amortization expense was $5.5$7.1 million and $4.1$3.3 million in the ninesix months ended SeptemberJune 30, 2022 and 2021, and 2020, respectively.respectively
Pension and Other Postretirement Benefit Plans
We recognize benefits from our defined benefit and other postretirement benefit plans based on actuarial calculations primarily because our expected return on assets is greater than our service cost. Service cost is low because our plan benefits are frozen except for a small number of hourly participants. Pension benefits before MTM were $7.6 million and $7.3 million in the third quarter of 2021 and 2020, respectively. Pension benefits before MTM were $22.6 million and $22.3 million in the nine months ended September 30, 2021 and 2020, respectively.
Our pension costs also include MTMmark-to-market ("MTM") adjustments from time to time. Interim MTM chargestime and are primarily a result of changes in the discount rate, curtailments and 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 event giving rise to the MTM adjustment. Total MTM adjustments for our pension benefit plans were gains of $2.3 million for the three and nine months ended September 30, 2021. There were no MTM adjustments for our other postretirement benefit plans during the three and ninesix months ended SeptemberJune 30, 2021. There were no MTM adjustments for our pension2022 and other postretirement benefit plans during the three and nine months ended September 30, 2020.2021, respectively.
Other than service cost of $0.2 million and $0.2 million in the third quarter of 2021 and 2020, respectively, and $0.7 million and $0.6 million in the nine months ended September 30, 2021 and 2020, respectively, which are related to the small number of hourly participants still accruing benefits within the Babcock & Wilcox Thermal segment, pension benefit and MTM adjustments are excluded from the results of our segments.
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. Refer to Note 1211 to the Condensed Consolidated Financial Statements for further information regarding our pension and other postretirement plans.
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 the Condensed Consolidated Statements of Operations.
Foreign exchange was a gain/gain (loss) of $(1.7)$(4.3) million and $25.0$1.8 million for the third quarter ofthree months ended June 30, 2022 and 2021, and 2020, respectively, and a gain/gain (loss) of $(1.1)$(1.2) million and $22.7$0.6 million for the ninesix months ended SeptemberJune 30, 20212022 and 2020,2021, respectively. Foreign exchange gains and losses are primarily related to unhedged intercompany loans denominated in European currencies to fund foreign operations.
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) | (In thousands, except for percentages) | 2021 | | 2020 | | $ Change | | 2021 | | 2020 | | $ Change | (In thousands, except for percentages) | 2022 | | 2021 | | $ Change | | 2022 | | 2021 | | $ Change |
Income (loss) before income taxes | $ | 13,949 | | | $ | 34,053 | | | $ | (20,104) | | | $ | 8,029 | | | $ | (17,580) | | | $ | 25,609 | | |
Income tax expense (benefit) | $ | 301 | | | $ | (502) | | | $ | 803 | | | $ | 6,683 | | | $ | (467) | | | $ | 7,150 | | |
(Loss) income before income taxes | | (Loss) income before income taxes | $ | (4,349) | | | $ | 6,687 | | | $ | (11,036) | | | $ | (11,803) | | | $ | (5,920) | | | $ | (5,883) | |
Income tax (benefit) expense | | Income tax (benefit) expense | $ | (1,355) | | | $ | 3,546 | | | $ | (4,901) | | | $ | (125) | | | $ | 6,382 | | | $ | (6,507) | |
Effective tax rate | Effective tax rate | 2.2 | % | | (1.5) | % | | 83.2 | % | | 2.7 | % | | Effective tax rate | 31.2 | % | | 53.0 | % | | 1.1 | % | | (107.8) | % | |
Our income tax expense in the thirdsecond quarter of 20212022 reflects a full valuation allowance against our net deferred tax assets, except in Mexico, Canada, the United Kingdom, Brazil, Finland, Germany, Thailand, the Philippines, Indonesia, and Sweden. Deferred tax assets are evaluated each period to determine whether realization is more likely than not. Valuation allowances are established when management determines it is more likely than not that some portion, or all, of the deferred tax assets will not be realized. Valuation allowances may be removed 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 thirdsecond quarter of 20212022 is not reflective of the United States statutory rate primarily due to a valuation allowance against certain net deferred tax assets and favorableunfavorable discrete items,items. including return to provision adjustments. In certain jurisdictions (namely, Denmark and Italy) where the Company anticipates a loss for the fiscal year or incurs a loss for the year-to-date period for which a tax benefit cannot be realized in accordance with ASC 740, the Company excludes the loss in that jurisdiction from the overall computation of the estimated annual effective tax rate. For the period ended September 30, 2021, the United States was not considered a loss jurisdiction and was included in the estimated annual effective tax rate.
In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes. ASU No. 2019-12 removes certain exceptions to the general principles in Topic 740, primarily related to intraperiod tax allocation, recognizing deferred tax liabilities for changes in ownership of foreign equity method investments or foreign subsidiaries, and exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. The Company adopted ASU No. 2019-12 on January 1, 2021, on a prospective basis. The adoption did not have a material impact on our interim consolidated financial statements, estimated income for the full fiscal year 2021, or to the trend of earnings.
Liquidity and Capital Resources
Liquidity
Our primary liquidity requirements include debt service, funding of dividends on preferred stock and working capital needs. We fund our liquidity requirements primarily through cash generated from operations, external sources of financing, including our, recent Revolving Credit Agreement, Senior Notes, andsenior notes, equity offerings, including our Preferred Stock, each ofand revolving credit agreement which are described below and in the Notes to our Condensed Consolidated Financial Statements included in Part I, Item 1I of this Quarterly Report in further detail along with other sources of liquidity.
We recentlyDuring the first six months of 2022, we executed the following actions:
•in June 2021,on February 1, 2022, we issued 2,916,880 sharesacquired 100% ownership of our Preferred Stock and paid $0.4Fossil Power Systems, Inc. for approximately $59.2 million, in cash to B. Riley, a related party, in exchange for a deemed prepayment of $73.3 million of our then existing Tranche A-3 term loan and paid $0.9 million in cash for accrued interest due to B. Riley,excluding working capital adjustments as described in Note 1421 to the Condensed Consolidated Financial Statements included in Part I, Item 1I of this Quarterly Report. As a result of such deemed prepayment, the total amount outstanding under our Last Out Term Loans was reduced to zero;Report;
•on June 30, 2021 and September 30, 2021,February 28, 2022, we paid dividends on our outstanding Preferred Stock totaling $1.7acquired 100% ownership of Optimus Industries, LLC for approximately $19.0 million, and $3.7 million, respectively,excluding working capital adjustments as described in Note 1621 to the Condensed Consolidated Financial Statements included in Part I, Item 1I of this Quarterly Report; and
•on June 30, 2021, we entered into the Revolving Credit Agreement with PNC, as administrative agentCompany sold $2.4 million aggregate principal of 8.125% Senior Notes and swing loan lender which provides for an up to $50.0 million asset-based revolving credit facility, including a $15 million letter of credit sublimit and a $5 million swingline sublimit. In addition, we entered into the Letter of Credit Agreement with PNC, pursuant to which PNC has agreed to issue up to $110 million in letters of credit secured in part by cash collateral provided by an affiliate of MSD. Lastly, we entered into the Reimbursement Agreement with MSD, as administrative agent, and the cash collateral providers from time to time party thereto, pursuant to which we shall reimburse MSD and any other cash collateral provider to the extent the up to $110received $2.4 million of cash collateral provided by MSD and any other cash collateral provider to secure the Letter of Credit Agreement is drawn to satisfy draws on letters of credit,net proceeds as described in Note 1512 to the Condensed Consolidated Financial Statements included in Part I, Item 1I of this Quarterly Report;Report.
•
in August 2021, we completed the sale of certain real property assets at our Lancaster, Ohio location for $18.9 million. We received $15.8 million of net proceeds after adjustments
See Note 12, Note 13, Note 14 and expenses and recognized a gain on sale of $13.9 million. In conjunction with the sale, we executed a leaseback agreement commencing August 13, 2021 and expiring on August 31, 2041;
•as of September 30, 2021, we issued an additional $25.6 million aggregate principal amount of Senior Notes for $26.0 million net proceeds under the March 31, 2021 sales agreement as described in Note 1321 to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report;
•as of September 30, 2021, we issued additional shares of our Preferred Stock for $5.9 million net proceeds under the sales agreement as described in Note 16 to the Condensed Consolidated Financial Statements included in Part I Item 1 of this Quarterly Report; and
•on September 30, 2021, we acquired a 60% controlling ownership stake in Illinois-based solar energy contractor Fosler Construction Company Inc. (“Fosler Construction”) for approximately $27.2 million in cash plus a contingent consideration arrangement, preliminarily valued at $6.2 million, with a maximum value up to $10.0 million if a certain revenue target is achieved in 2022.
See Note 13, Note 14, Note 15, Note 16, Note 17 and Note 24 to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report for additional information on our external sources of financing and equity offerings.
Beginning in April 2020 and continuing as of November 10, 2021, as part of the Company’s response to the impact of the COVID-19 pandemic on its business, the Company continues to take a number of cash conservation and cost reduction measures which include:
•suspension of our 401(k) company match for U.S. employees, however, the Company is implementing a new 401(k) company match for U.S. employees starting January 1, 2022;
•utilizing options for government loans and programs in the U.S. and abroad that are appropriate and available; and
•deferring the remaining $20.9 million of the estimated Pension Plan contribution payments of $45.6 million that would have been due during 2021, in accordance with the American Rescue Plan Act of 2021 (the “ARPA relief plan”) signed into law in March 2021. In January 2021, we made Pension Plan contributions of $23.1 million, excluding interest.
Cash and Cash Flows
At SeptemberJune 30, 2021,2022, our unrestricted cash and cash equivalents totaled $107.1$71.5 million and we had total debt of $193.1 million.$334.3 million as well as $191.7 million of gross preferred stock outstanding. Our foreign business locations held $39.2$33.2 million of our total unrestricted cash and cash equivalents at SeptemberJune 30, 2021.2022. 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..U.S. In addition, we had $6.9$1.2 million of restricted cash at SeptemberJune 30, 20212022 related to collateral for certain letters of credit.
Cash used in operations was $107.8$63.6 million in the ninesix months ended SeptemberJune 30, 2021,2022, which is primarily represented inattributable to the $47.1net loss, $17.5 million changereduction in pension, postretirement and employee benefit liabilities and a $70.9$26.9 million net decrease in operating cash outflows associated with changes in working capital. In the nine months ended September 30, 2020, cashCash used in operations was $67.3$86.1 million in the six months ended June 30, 2021, which is primarily represented in the net loss of continuing operations, the increase in accounts receivable - other from recognizing the non-recurring loss recovery insurance settlement of $26.0$40.3 million described in Note 4, the change in pension, postretirement and employee benefit liabilities and the impact of fluctuating foreign currency exchange rates. There also was a $2.8$45.7 million net increasedecrease in operating cash outflows associated with changes in working capital.
Cash flows from investing activities used net cash of $5.9$65.6 million in the ninesix months ended SeptemberJune 30, 2021,2022, primarily due to the acquisitionacquisitions of Fosler Constructionbusiness of $27.2$64.9 million and $4.2$2.7 million of capital expenditures, offset byexpenditures. Cash flows from investing activities provided net cash of $6.6 million in the six months ended June 30, 2021, primarily related to proceeds from the sale of business and assets of $23.8 million. In the nine months ended September 30, 2020, cash flows from investing activities provided net cash of $2.0 million, 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, offset by the net change in available-for-sale securities, and $2.3offset by $2.2 million of capital expenditures.
Cash flows from financing activities used net cash of $15.6 million in the six months ended June 30, 2022, primarily related to the payment of the preferred stock dividend of $7.5 million offset by the senior note proceeds of $2.0 million. Cash flows from financing activities provided net cash of $159.2$151.3 million in the ninesix months ended SeptemberJune 30, 2021, primarily related to the issuance of common stock, Senior Notes, and Preferred Stock and common stock offset by $75.4 million Last Out Term Loans repayments, a $164.3 million net reduction on the prior U.S. Revolving Credit Facility and $16.7 million of financing fees. Cash flows from financing activities provided net cash of $52.4 million in the nine months ended September 30, 2020, primarily related to $60.0 million face value borrowings from the Last Out Term Loans offset by $2.9 million of net borrowings from the prior U.S. Revolving Credit Facility and $10.3$10.9 million of financing fees.
Debt Facilities
As described above and in the NotesNote 12 to our Condensed Consolidated Financial Statements included in Part I, Item 1I of this Quarterly Report, on June 30, 2021, we entered into the Debt Facilities, including theReimbursement Agreement, Revolving Credit Agreement.Agreement and Letter of Credit Agreement (collectively, the “Debt Documents” and the facilities thereunder, the “Debt Facilities”). The obligations of the Company under each of the Debt Facilities are guaranteed by certain existing and future domestic and foreign subsidiaries of the Company. B. Riley, a related party, has provided a guaranty of payment with regard to the Company’s obligations under the Reimbursement Agreement, as described below.Agreement. The Company expects to use the proceeds and letter of credit availability under the Debt Facilities for working capital purposes and general corporate purposes,
including to backstop certainJune 30, 2022, no borrowings have occurred under the Revolving Credit Agreement and under the Letter of Credit Agreement, usage consisted of $16.1 million of financial letters of credit issued under our previous A&R Credit Agreement, for which commitments were terminated, all loans were repaid and all outstanding and undrawn$96.2 million of performance letters of credit were collateralized on June 30, 2021.
Last Out Term Loans
Effective with the new debt facilities the Company entered into on June 30, 2021, as described in Note 15 to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report, the Company has no remaining Last Out Term Loans and no further borrowings thereunder are available.
The Company recognized a loss on debt extinguishment of $6.2 million in the quarter ended June 30, 2020, primarily representing the unamortized value of the original issuance discount and fees on the Tranche A-3 Last Out Term Loan.
See Note 14 to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report for additional information on our Last Out Term Loans.
A&R Credit Agreement
As described above, the A&R Credit Agreement commitments were terminated, all loans were repaid and all outstanding and undrawn letters of credit were collateralized on June 30, 2021. The Company recognized a gain on debt extinguishment of $6.5 million in the quarter ended June 30, 2021, primarily representing the write-off of accrued revolver fees of $11.3 million offset by the unamortized deferred financing fees of $4.8 million related to the prior A&R Credit Agreement.credit.
Letters of Credit, Bank Guarantees and Surety Bonds
Certain of our 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 outside of our Letter of Credit Agreement as of SeptemberJune 30, 20212022 was $53.1$50.5 million. The aggregate value of the outstanding letters of credit provided under the Letter of Credit Agreement backstopping letters of credit or bank guarantees was $21.7$38.5 million as of SeptemberJune 30, 2021.2022. Of the outstanding letters of credit issued under the Letter of Credit Agreement, $29.8$58.5 million are subject to foreign currency revaluation.
We have also 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, 2021,
2022, bonds issued and outstanding under these arrangements in support of contracts totaled approximately $157.6$293.3 million. The aggregate value of the letters of credit backstopping surety bonds was $13.1$9.7 million.
Our ability to obtain and maintain sufficient capacity under our newcurrent Debt Facilities 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.
Other Indebtedness - Loans Payable
During the nine months ended SeptemberAs of June 30, 2021,2022, our Denmark subsidiary received threehas an unsecured interest free loans totaling $3.4interest-free loan of $0.8 million under a local government loan program related to COVID-19. The loans of $0.8 million, $1.7 millionCOVID-19 and $0.9 million areis payable in April 2022, May 2022 and May 2023, respectively.2023. The loan payable in May 2023 is included in current long term loans payablespayable in our Condensed Consolidated Balance Sheets.
As of September 30, 2021, for our recent acquisition of a 60% controlling ownership stake in Fosler Construction Company Inc. (“Fosler Construction”) as described in Note 24, Fosler Construction has two loans totaling $7.6 million. Both loans have a variable interest rate with a minimum rate of 6% and are payable January 1, 2022. In addition, Fosler Construction also has loans, primarily for vehicles and equipment, totaling $0.9$0.6 million at SeptemberJune 30, 2021.2022. The vehicle and equipment loans are included in long term loans payablespayable in our Condensed Consolidated Balance Sheets.
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements that have, or are reasonably expected to have, a material current or future effect on its financial condition, results of operations, liquidity, capital expenditures or capital resources at SeptemberJune 30, 2021.2022.
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"Critical Accounting Policies and Estimates”Estimates" in our Annual Report.Report for the year ended December 31, 2021. There have been no significant changes to our policies during the ninesix months ended SeptemberJune 30, 2021.2022.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Our exposures to market risks have not changed materially from those disclosed under “Quantitative"Quantitative and Qualitative Disclosures About Market Risk”Risk" in our Annual Report on Form 10-K for the year ended December 31, 2020.2021.
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. It should be 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 that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.
On September 30, 2021, we acquired a 60% controlling ownership in Fosler Construction, as described in Note 24 of the unaudited condensed consolidated financial statements in Part I of this report. As the acquisition occurred during the last 12 months, the scope of our assessment of the effectiveness of disclosure controls and procedures does not include internal control over financial reporting related to the Fosler Construction acquisition. This exclusion is in accordance with the SEC's general guidance that an assessment of a recently acquired business may be omitted from our internal control over financial reporting scope in the year of acquisition.
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, 20212022 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
There were no changes in our internal control over financial reporting during the ninethree months ended SeptemberJune 30, 20212022 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 situationthese situations 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 2017 to the unaudited Condensed Consolidated Financial Statements included in Part I, Item 1I of this Quarterly Report, which we incorporate by reference into this Item.
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” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 and
in our Quarterly Report on Form 10-Q for2021. Other than the quarter ended March 31, 2021 and June 30, 2021 and other filings with the SEC since the date of the Form 10-K. Thereadditional risk factor set forth below there have been no material changes to the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2021.
The ongoing invasion of Ukraine by Russia may continue to adversely affect our business and results of operations.
The ongoing invasion of Ukraine by Russia, and the global response to it, may continue to adversely affect our business and results of operations. The military conflict between Russia and Ukraine has caused significant volatility and disruptions to the global markets, including shortages of supplies and materials necessary for our business. For example, the conflict can impact our ability to place orders for materials, such risk factors.as steel, in Europe, and may more broadly impact lead times for materials globally. It is not possible to predict the short-term and long-term implications of this conflict, which could include but are not limited to further uncertainty about economic and political stability, delays in access to supplies and materials, increases in inflation rate and energy prices and adverse effects on currency exchange rates and financial markets. As described in our Business Overview and Results of Operations included in Part I, Item II and Note 17 to the Condensed Consolidated Financial Statements included in Part I, Item I of this Quarterly Report, the conflict has resulted in shortages of supplies and materials and delays in the timing of revenue. We continue to monitor the situation closely and are proactively assessing and evaluating alternative sources to bolster our sources of supplies and materials moving forward.
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 withhold shares to satisfy employee statutory income tax withholding obligations. The following table identifies the number of common shares and average price per share for each month during the quarter ended SeptemberJune 30, 2021.2022. The Company does not have a general share repurchase program at this time. | | | | | | | | | | | | | | |
(data in whole amounts) | | | | |
Period | Total number of shares acquired (1) | Average price 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 |
July 2021 | — | | $ | — | | — | | $ | — | |
August 2021 | 198,609 | | $ | 7.82 | | — | | $ | — | |
September 2021 | — | | $ | — | | — | | $ | — | |
Total | 198,609 | | $ | 7.82 | | — | | $ | — | |
| | | | | | | | | | | | | | |
(data in whole amounts) | | | | |
Period | Total number of shares acquired (1) | Average price 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 2022 | — | | $ | — | | — | | $ | — | |
May 2022 | — | | $ | — | | — | | $ | — | |
June 2022 | — | | $ | — | | — | | $ | — | |
Total | — | | $ | — | | — | | $ | — | |
(1) Acquired shares are recorded in treasury stock in our Condensed Consolidated Balance Sheets.
Item 6. Exhibits
| | | | | | | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| | |
| |
| | |
| |
| | |
| |
101.SCH | | XBRL Taxonomy Extension Schema Document. |
| |
101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document. |
| |
101.LAB | | XBRL Taxonomy Extension Label Linkbase Document. |
| |
101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document. |
| | |
101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document. |
| | |
104 | | Cover Page Interactive Data File (embedded within the inline XBRL document) |
*Certain schedules and exhibits to this agreement have been omitted pursuant to Item 601(b)(2) of Regulation S-K. A copy of any omitted schedule and/or exhibit will be furnished to the SEC upon request.
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) of 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 10, 2021August 8, 2022 | 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) |
| | |