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 JuneSeptember 30, 2023
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 August 4,November 3, 2023 was 89,081,158.89,371,408.
***** Cautionary Statement Concerning Forward-Looking Information *****
This 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. Forward-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 timing or nature of future operational performance or 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 global macroeconomic conditions, including inflation and volatility in the capital markets; the impact of our divestiture of Babcock & Wilcox Solar Energy, Inc.("Babcock & Wilcox Solar", "B&W Solar"); the refinancing of our senior debt; 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 recent acquisitions of Babcock & Wilcox Solar Energy, Inc. ("Babcock & Wilcox Solar", "B&W Solar"), formerly known as Fosler Construction Company Inc. and/or Fosler, Babcock & Wilcox Renewable Service A/S, formerly known as VODA A/S ("VODA"), Fossil Power Systems, Inc,Inc. ("FPS"), Optimus Industries, LLC ("Optimus") and certain assets of Hamon Research-Cottrell, Inc; 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; 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; delays initiated by our customers; 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; the impact of the ongoing conflictconflicts in Ukraine;Ukraine and the Middle East; the impact of pandemicpandemics or other similar global health crises, 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 filed on March 16, 2023.
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
ITEM 1. Condensed Consolidated Financial Statements
BABCOCK & WILCOX ENTERPRISES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
| | | Three Months Ended June 30, | | Six Months Ended June 30, | | | Three Months Ended September 30, | | Nine Months Ended September 30, | |
| (in thousands, except per share amounts) | (in thousands, except per share amounts) | 2023 | | 2022 | | 2023 | | 2022 | | (in thousands, except per share amounts) | 2023 | | 2022 | | 2023 | | 2022 | |
| Revenues | Revenues | $ | 305,187 | | | $ | 221,019 | | | $ | 562,434 | | | $ | 425,068 | | | Revenues | $ | 239,414 | | | $ | 211,669 | | | $ | 772,187 | | | $ | 611,494 | | |
| Costs and expenses: | Costs and expenses: | | | Costs and expenses: | | |
| Cost of operations | Cost of operations | 244,211 | | | 173,340 | | | 447,982 | | | 336,400 | | | Cost of operations | 186,034 | | | 164,268 | | | 603,715 | | | 478,221 | | |
| Selling, general and administrative expenses | Selling, general and administrative expenses | 52,088 | | | 44,951 | | | 104,033 | | | 87,995 | | | Selling, general and administrative expenses | 45,018 | | | 47,582 | | | 144,700 | | | 130,973 | | |
| | Advisory fees and settlement costs | Advisory fees and settlement costs | 567 | | | 5,142 | | | (1,896) | | | 9,077 | | | Advisory fees and settlement costs | 644 | | | 1,198 | | | (1,252) | | | 10,275 | | |
| Restructuring activities | Restructuring activities | 1,021 | | | (102) | | | 1,405 | | | (8) | | | Restructuring activities | 1,285 | | | 359 | | | 2,690 | | | 351 | | |
| Research and development costs | Research and development costs | 924 | | | 1,137 | | | 2,232 | | | 1,856 | | | Research and development costs | 898 | | | 994 | | | 3,130 | | | 2,850 | | |
| (Gain) loss on asset disposals, net | (602) | | | (7,117) | | | 339 | | | (7,137) | | | |
| Gain on asset disposals, net | | Gain on asset disposals, net | (8) | | | (7) | | | (26) | | | (7,106) | | |
| Total costs and expenses | Total costs and expenses | 298,209 | | | 217,351 | | | 554,095 | | | 428,183 | | | Total costs and expenses | 233,871 | | | 214,394 | | | 752,957 | | | 615,564 | | |
| Operating income (loss) | Operating income (loss) | 6,978 | | | 3,668 | | | 8,339 | | | (3,115) | | | Operating income (loss) | 5,543 | | | (2,725) | | | 19,230 | | | (4,070) | | |
| Other expense: | Other expense: | | | Other expense: | | |
| Interest expense | Interest expense | (11,176) | | | (10,662) | | | (23,838) | | | (21,929) | | | Interest expense | (13,416) | | | (11,098) | | | (37,248) | | | (32,689) | | |
| Interest income | Interest income | 478 | | | 103 | | | 591 | | | 220 | | | Interest income | 301 | | | 103 | | | 892 | | | 161 | | |
| | Benefit plans, net | Benefit plans, net | (138) | | | 7,403 | | | (247) | | | 14,855 | | | Benefit plans, net | (56) | | | 7,424 | | | (304) | | | 22,279 | | |
| Foreign exchange | Foreign exchange | 1,154 | | | (4,296) | | | 693 | | | (1,211) | | | Foreign exchange | (4,935) | | | (2,007) | | | (4,242) | | | (3,218) | | |
| Other expense – net | (447) | | | (565) | | | (674) | | | (623) | | | |
| Other income (expense) – net | | Other income (expense) – net | (43) | | | 454 | | | (675) | | | (162) | | |
| Total other expense, net | Total other expense, net | (10,129) | | | (8,017) | | | (23,475) | | | (8,688) | | | Total other expense, net | (18,149) | | | (5,124) | | | (41,577) | | | (13,629) | | |
| Loss before income tax expense | (3,151) | | | (4,349) | | | (15,136) | | | (11,803) | | | |
| Income tax expense (benefit) | 1,861 | | | (1,355) | | | 2,351 | | | (125) | | | |
| | Loss before income tax (benefit) expense | | Loss before income tax (benefit) expense | (12,606) | | | (7,849) | | | (22,347) | | | (17,699) | | |
| Income tax (benefit) expense | | Income tax (benefit) expense | (331) | | | 4,902 | | | 2,020 | | | 4,777 | | |
| Loss from continuing operations | | Loss from continuing operations | (12,275) | | | (12,751) | | | (24,367) | | | (22,476) | | |
| Loss from discontinued operations, net of tax | | Loss from discontinued operations, net of tax | (104,485) | | | (7,815) | | | (109,880) | | | (9,768) | | |
| Net loss | Net loss | (5,012) | | | (2,994) | | | (17,487) | | | (11,678) | | | Net loss | (116,760) | | | (20,566) | | | (134,247) | | | (32,244) | | |
| Net (income) loss attributable to non-controlling interest | Net (income) loss attributable to non-controlling interest | (76) | | | 427 | | | (97) | | | 847 | | | Net (income) loss attributable to non-controlling interest | (124) | | | 2,800 | | | (221) | | | 3,647 | | |
| Net loss attributable to stockholders | Net loss attributable to stockholders | (5,088) | | | (2,567) | | | (17,584) | | | (10,831) | | | Net loss attributable to stockholders | (116,884) | | | (17,766) | | | (134,468) | | | (28,597) | | |
| Less: Dividend on Series A preferred stock | Less: Dividend on Series A preferred stock | 3,715 | | | 3,715 | | | 7,430 | | | 7,430 | | | Less: Dividend on Series A preferred stock | 3,714 | | | 3,715 | | | 11,144 | | | 11,145 | | |
| Net loss attributable to stockholders of common stock | Net loss attributable to stockholders of common stock | $ | (8,803) | | | $ | (6,282) | | | $ | (25,014) | | | $ | (18,261) | | | Net loss attributable to stockholders of common stock | $ | (120,598) | | | $ | (21,481) | | | $ | (145,612) | | | $ | (39,742) | | |
| | Basic loss per share | $ | (0.10) | | | $ | (0.07) | | | $ | (0.28) | | | $ | (0.21) | | | |
| Basic and diluted loss per share | | Basic and diluted loss per share | | |
| Continuing operations | | Continuing operations | $ | (0.18) | | | $ | (0.15) | | | $ | (0.40) | | | $ | (0.34) | | |
| Discontinued operations | | Discontinued operations | (1.17) | | | (0.09) | | | (1.24) | | | (0.11) | | |
| Basic and diluted loss per share | | Basic and diluted loss per share | $ | (1.35) | | | $ | (0.24) | | | $ | (1.64) | | | $ | (0.45) | | |
| | Diluted loss per share | $ | (0.10) | | | (0.07) | | | $ | (0.28) | | | $ | (0.21) | | | |
| | Shares used in the computation of basic and diluted loss per share: | | Shares used in the computation of basic and diluted loss per share: | 89,125 | | | 88,321 | | | 88,882 | | | 88,115 | | |
| | Shares used in the computation of loss per share: | | | |
| Basic | 88,783 | | | 88,029 | | | 88,758 | | | 88,011 | | | |
| Diluted | 88,783 | | | 88,029 | | | 88,758 | | | 88,011 | | | |
See accompanying notesNotes to Condensed Consolidated Financial Statements.
BABCOCK & WILCOX ENTERPRISES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
| | | Three Months Ended June 30, | | Six Months Ended June 30, | | | Three Months Ended September 30, | | Nine Months Ended September 30, | |
| (in thousands) | (in thousands) | 2023 | | 2022 | | 2023 | | 2022 | | (in thousands) | 2023 | | 2022 | | 2023 | | 2022 | |
| Net loss | Net loss | $ | (5,012) | | | $ | (2,994) | | | $ | (17,487) | | | $ | (11,678) | | | Net loss | $ | (116,760) | | | $ | (20,566) | | | $ | (134,247) | | | $ | (32,244) | | |
| Other comprehensive loss: | Other comprehensive loss: | | | Other comprehensive loss: | | |
| Currency translation adjustments ("CTA") | Currency translation adjustments ("CTA") | 3,527 | | | (6,634) | | | 8,119 | | | (10,919) | | | Currency translation adjustments ("CTA") | (8,669) | | | (13,344) | | | (550) | | | (24,263) | | |
| | | Benefit obligations: | Benefit obligations: | | | Benefit obligations: | | |
| Pension and post retirement adjustments, net of tax | Pension and post retirement adjustments, net of tax | 222 | | | (198) | | | 445 | | | 395 | | | Pension and post retirement adjustments, net of tax | 223 | | | 198 | | | 668 | | | 593 | | |
| | Other comprehensive income (loss) | Other comprehensive income (loss) | 3,749 | | | (6,832) | | | 8,564 | | | (10,524) | | | Other comprehensive income (loss) | (8,446) | | | (13,146) | | | 118 | | | (23,670) | | |
| Total comprehensive loss | Total comprehensive loss | (1,263) | | | (9,826) | | | (8,923) | | | (22,202) | | | Total comprehensive loss | (125,206) | | | (33,712) | | | (134,129) | | | (55,914) | | |
| Comprehensive loss attributable to non-controlling interest | Comprehensive loss attributable to non-controlling interest | 27 | | | 498 | | | 41 | | | 959 | | | Comprehensive loss attributable to non-controlling interest | — | | | — | | | 41 | | | 959 | | |
| Comprehensive loss attributable to stockholders | Comprehensive loss attributable to stockholders | $ | (1,236) | | | $ | (9,328) | | | $ | (8,882) | | | $ | (21,243) | | | Comprehensive loss attributable to stockholders | $ | (125,206) | | | $ | (33,712) | | | $ | (134,088) | | | $ | (54,955) | | |
|
See accompanying notesNotes 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) | June 30, 2023 | | December 31, 2022 | (in thousands, except per share amount) | September 30, 2023 | | December 31, 2022 |
| Cash and cash equivalents | Cash and cash equivalents | $ | 55,035 | | | $ | 76,728 | | Cash and cash equivalents | $ | 48,369 | | | $ | 76,238 | |
| Current restricted cash and cash equivalents | Current restricted cash and cash equivalents | 18,338 | | | 15,335 | | Current restricted cash and cash equivalents | 6,505 | | | 15,335 | |
| Accounts receivable – trade, net | Accounts receivable – trade, net | 176,270 | | | 162,461 | | Accounts receivable – trade, net | 154,113 | | | 158,360 | |
| Accounts receivable – other | Accounts receivable – other | 47,833 | | | 38,510 | | Accounts receivable – other | 43,610 | | | 38,500 | |
| Contracts in progress | Contracts in progress | 175,511 | | | 134,939 | | Contracts in progress | 123,470 | | | 118,180 | |
| Inventories, net | Inventories, net | 118,611 | | | 102,637 | | Inventories, net | 113,505 | | | 102,636 | |
| Other current assets | Other current assets | 26,624 | | | 27,002 | | Other current assets | 22,843 | | | 27,002 | |
| | Assets held for sale | | Assets held for sale | 29,885 | | | 21,362 | |
| Total current assets | Total current assets | 618,222 | | | 557,612 | | Total current assets | 542,300 | | | 557,613 | |
| Net property, plant and equipment and finance leases | Net property, plant and equipment and finance leases | 83,595 | | | 86,363 | | Net property, plant and equipment and finance leases | 83,646 | | | 84,887 | |
| Goodwill | Goodwill | 158,153 | | | 156,993 | | Goodwill | 100,383 | | | 100,437 | |
| Intangible assets, net | Intangible assets, net | 56,803 | | | 60,293 | | Intangible assets, net | 46,086 | | | 51,564 | |
| Right-of-use assets | Right-of-use assets | 28,133 | | | 29,438 | | Right-of-use assets | 27,781 | | | 28,362 | |
| Long-term restricted cash | Long-term restricted cash | 10,506 | | | 21,397 | | Long-term restricted cash | 10,232 | | | 21,397 | |
| Deferred income taxes | | Deferred income taxes | 4,660 | | | 2,968 | |
| Other assets | Other assets | 31,468 | | | 30,559 | | Other assets | 22,191 | | | 27,414 | |
| | Noncurrent assets held for sale | | Noncurrent assets held for sale | — | | | 68,013 | |
| Total assets | Total assets | $ | 986,880 | | | $ | 942,655 | | Total assets | $ | 837,279 | | | $ | 942,655 | |
| | Accounts payable | Accounts payable | $ | 180,375 | | | $ | 139,159 | | Accounts payable | $ | 144,344 | | | $ | 131,221 | |
| Accrued employee benefits | Accrued employee benefits | 12,846 | | | 12,533 | | Accrued employee benefits | 12,165 | | | 12,509 | |
| Advance billings on contracts | Advance billings on contracts | 140,350 | | | 133,429 | | Advance billings on contracts | 95,379 | | | 130,945 | |
| Accrued warranty expense | Accrued warranty expense | 10,295 | | | 9,568 | | Accrued warranty expense | 8,527 | | | 9,568 | |
| Current Portion: | Current Portion: | | Current Portion: | |
| Financing lease liabilities | Financing lease liabilities | 1,283 | | | 1,180 | | Financing lease liabilities | 1,325 | | | 1,180 | |
| Operating lease liabilities | Operating lease liabilities | 3,795 | | | 3,595 | | Operating lease liabilities | 3,593 | | | 3,498 | |
| Other accrued liabilities | Other accrued liabilities | 72,252 | | | 68,244 | | Other accrued liabilities | 72,294 | | | 54,035 | |
| Loans payable | Loans payable | 4,443 | | | 4,291 | | Loans payable | 5,266 | | | 3,827 | |
| | Current liabilities held for sale | | Current liabilities held for sale | 50,646 | | | 24,751 | |
| Total current liabilities | Total current liabilities | 425,639 | | | 371,999 | | Total current liabilities | 393,539 | | | 371,534 | |
| Senior notes | Senior notes | 336,600 | | | 335,498 | | Senior notes | 337,241 | | | 335,498 | |
| Loans payable, net of current portion | Loans payable, net of current portion | 17,176 | | | 13,197 | | Loans payable, net of current portion | 35,082 | | | 13,197 | |
| | Pension and other postretirement benefit liabilities | Pension and other postretirement benefit liabilities | 135,077 | | | 136,176 | | Pension and other postretirement benefit liabilities | 134,517 | | | 136,176 | |
| Finance lease liabilities, net of current portion | Finance lease liabilities, net of current portion | 26,902 | | | 27,482 | | Finance lease liabilities, net of current portion | 26,555 | | | 27,482 | |
| Operating lease liabilities, net of current portion | Operating lease liabilities, net of current portion | 25,652 | | | 26,583 | | Operating lease liabilities, net of current portion | 25,183 | | | 25,588 | |
| Deferred tax liability | Deferred tax liability | 10,372 | | | 10,054 | | Deferred tax liability | 8,615 | | | 10,054 | |
| Other non-current liabilities | 22,482 | | | 23,755 | | |
| Noncurrent liabilities held for sale | | Noncurrent liabilities held for sale | — | | | 5,651 | |
| Other noncurrent liabilities | | Other noncurrent liabilities | 18,237 | | | 19,564 | |
| Total liabilities | Total liabilities | 999,900 | | | 944,744 | | Total liabilities | 978,969 | | | 944,744 | |
| Commitments and contingencies | | |
| | Stockholders' deficit: | Stockholders' deficit: | | Stockholders' deficit: | |
| Preferred stock, par value $0.01 per share, authorized shares of 20,000; issued and outstanding shares of 7,669 at both June 30, 2023 and December 31, 2022 | 77 | | | 77 | | |
| Common stock, par value $0.01 per share, authorized shares of 500,000; issued and outstanding shares of 88,828 and 88,700 at June 30, 2023 and December 31, 2022, respectively | 5,139 | | | 5,138 | | |
| Preferred stock, par value $0.01 per share, authorized shares of 20,000; issued and outstanding shares 7,669 at both September 30, 2023 and December 31, 2022 | | Preferred stock, par value $0.01 per share, authorized shares of 20,000; issued and outstanding shares 7,669 at both September 30, 2023 and December 31, 2022 | 77 | | | 77 | |
| Common stock, par value $0.01 per share, authorized shares of 500,000; issued and outstanding shares of 89,371 and 88,700 at September 30, 2023 and December 31, 2022, respectively | | Common stock, par value $0.01 per share, authorized shares of 500,000; issued and outstanding shares of 89,371 and 88,700 at September 30, 2023 and December 31, 2022, respectively | 5,147 | | | 5,138 | |
| Capital in excess of par value | Capital in excess of par value | 1,543,167 | | | 1,537,625 | | Capital in excess of par value | 1,544,766 | | | 1,537,625 | |
| Treasury stock at cost, 1,880 and 1,868 shares at June 30, 2023 and December 31, 2022, respectively | (113,818) | | | (113,753) | | |
| Treasury stock at cost, 2,135 and 1,868 shares at September 30, 2023 and December 31, 2022, respectively | | Treasury stock at cost, 2,135 and 1,868 shares at September 30, 2023 and December 31, 2022, respectively | (115,151) | | | (113,753) | |
| Accumulated deficit | Accumulated deficit | (1,383,889) | | | (1,358,875) | | Accumulated deficit | (1,504,487) | | | (1,358,875) | |
| Accumulated other comprehensive loss | Accumulated other comprehensive loss | (64,222) | | | (72,786) | | Accumulated other comprehensive loss | (72,668) | | | (72,786) | |
| Stockholders' deficit attributable to shareholders | Stockholders' deficit attributable to shareholders | (13,546) | | | (2,574) | | Stockholders' deficit attributable to shareholders | (142,316) | | | (2,574) | |
| Non-controlling interest | Non-controlling interest | 526 | | | 485 | | Non-controlling interest | 626 | | | 485 | |
| Total stockholders' deficit | Total stockholders' deficit | (13,020) | | | (2,089) | | Total stockholders' deficit | (141,690) | | | (2,089) | |
| Total liabilities and stockholders' deficit | Total liabilities and stockholders' deficit | $ | 986,880 | | | $ | 942,655 | | Total liabilities and stockholders' deficit | $ | 837,279 | | | $ | 942,655 | |
See accompanying notesNotes to Condensed Consolidated Financial Statements.
BABCOCK & WILCOX ENTERPRISES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY
| | | Common Stock | | Preferred Stock | | Capital In
Excess of
Par Value | | Treasury Stock | | Accumulated Deficit | | Accumulated
Other
Comprehensive
(Loss) | | Non-controlling
Interest | | Total
Stockholders’
(Deficit) Equity | | Common Stock | | Preferred Stock | | Capital In
Excess of
Par Value | | Treasury Stock | | Accumulated Deficit | | Accumulated
Other
Comprehensive
(Loss) | | Non-controlling
Interest | | Total
Stockholders’
(Deficit) Equity |
| (in thousands, except share amounts) | (in thousands, except share amounts) | Shares | | Par
Value | | Shares | | Par
Value | | (in thousands, except share amounts) | Shares | | Par
Value | | Shares | | Par
Value | |
| Balance at December 31, 2022 | Balance at December 31, 2022 | 88,700 | | | $ | 5,138 | | | 7,669 | | | $ | 77 | | | $ | 1,537,625 | | | $ | (113,753) | | | $ | (1,358,875) | | | $ | (72,786) | | | $ | 485 | | | $ | (2,089) | | Balance at December 31, 2022 | 88,700 | | | $ | 5,138 | | | 7,669 | | | $ | 77 | | | $ | 1,537,625 | | | $ | (113,753) | | | $ | (1,358,875) | | | $ | (72,786) | | | $ | 485 | | | $ | (2,089) | |
| Net loss | Net loss | — | | | — | | | — | | | — | | | — | | | — | | | (12,496) | | | — | | | 21 | | | (12,475) | | Net loss | — | | | — | | | — | | | — | | | — | | | — | | | (12,496) | | | — | | | 21 | | | (12,475) | |
| Currency translation adjustments | Currency translation adjustments | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 4,592 | | | (35) | | | 4,557 | | Currency translation adjustments | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 4,592 | | | (35) | | | 4,557 | |
| | Pension and post retirement adjustments, net of tax | Pension and post retirement adjustments, net of tax | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 223 | | | — | | | 223 | | Pension and post retirement adjustments, net of tax | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 223 | | | — | | | 223 | |
| Stock-based compensation charges | Stock-based compensation charges | 45 | | | 1 | | | — | | | — | | | 3,357 | | | (64) | | | — | | | — | | | — | | | 3,294 | | Stock-based compensation charges | 45 | | | 1 | | | — | | | — | | | 3,357 | | | (64) | | | — | | | — | | | — | | | 3,294 | |
| Dividends to preferred stockholders | Dividends to preferred stockholders | — | | | — | | | — | | | — | | | — | | | — | | | (3,715) | | | — | | | — | | | (3,715) | | Dividends to preferred stockholders | — | | | — | | | — | | | — | | | — | | | — | | | (3,715) | | | — | | | — | | | (3,715) | |
| | Dividends to non-controlling interest | Dividends to non-controlling interest | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (1) | | | (1) | | Dividends to non-controlling interest | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (1) | | | (1) | |
| Balance at March 31, 2023 | Balance at March 31, 2023 | 88,745 | | | $ | 5,139 | | | 7,669 | | | $ | 77 | | | $ | 1,540,982 | | | $ | (113,817) | | | $ | (1,375,086) | | | $ | (67,971) | | | $ | 470 | | | $ | (10,206) | | Balance at March 31, 2023 | 88,745 | | | $ | 5,139 | | | 7,669 | | | $ | 77 | | | $ | 1,540,982 | | | $ | (113,817) | | | $ | (1,375,086) | | | $ | (67,971) | | | $ | 470 | | | $ | (10,206) | |
| Net loss | Net loss | — | | | $ | — | | | — | | | $ | — | | | $ | — | | | $ | — | | | $ | (5,088) | | | $ | — | | | $ | 76 | | | $ | (5,012) | | Net loss | — | | | $ | — | | | — | | | $ | — | | | $ | — | | | $ | — | | | $ | (5,088) | | | $ | — | | | $ | 76 | | | $ | (5,012) | |
| Currency translation adjustments | Currency translation adjustments | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 3,527 | | | (20) | | | 3,507 | | Currency translation adjustments | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 3,527 | | | (20) | | | 3,507 | |
| | Pension and post retirement adjustments, net of tax | Pension and post retirement adjustments, net of tax | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 222 | | | — | | | 222 | | Pension and post retirement adjustments, net of tax | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 222 | | | — | | | 222 | |
| Stock-based compensation charges | Stock-based compensation charges | 83 | | | — | | | — | | | — | | | 2,185 | | | (1) | | | — | | | — | | | — | | | 2,184 | | Stock-based compensation charges | 83 | | | — | | | — | | | — | | | 2,185 | | | (1) | | | — | | | — | | | — | | | 2,184 | |
| Dividends to preferred stockholders | Dividends to preferred stockholders | — | | | — | | | — | | | — | | | — | | | — | | | (3,715) | | | — | | | — | | | (3,715) | | Dividends to preferred stockholders | — | | | — | | | — | | | — | | | — | | | — | | | (3,715) | | | — | | | — | | | (3,715) | |
| Preferred stock, net | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | |
| | | Balance at June 30, 2023 | Balance at June 30, 2023 | 88,828 | | | $ | 5,139 | | | 7,669 | | | $ | 77 | | | $ | 1,543,167 | | | $ | (113,818) | | | $ | (1,383,889) | | | $ | (64,222) | | | $ | 526 | | | $ | (13,020) | | Balance at June 30, 2023 | 88,828 | | | $ | 5,139 | | | 7,669 | | | $ | 77 | | | $ | 1,543,167 | | | $ | (113,818) | | | $ | (1,383,889) | | | $ | (64,222) | | | $ | 526 | | | $ | (13,020) | |
| Net loss | | Net loss | — | | | $ | — | | | — | | | $ | — | | | $ | — | | | $ | — | | | $ | (116,884) | | | $ | — | | | $ | 124 | | | $ | (116,760) | |
| Currency translation adjustments | | Currency translation adjustments | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (8,669) | | | (24) | | | (8,693) | |
| | Pension and post retirement adjustments, net of tax | | Pension and post retirement adjustments, net of tax | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 223 | | | — | | | 223 | |
| Stock-based compensation charges | | Stock-based compensation charges | 543 | | | 8 | | | — | | | — | | | 1,599 | | | (1,333) | | | — | | | — | | | — | | | 274 | |
| Dividends to preferred stockholders | | Dividends to preferred stockholders | — | | | — | | | — | | | — | | | — | | | — | | | (3,714) | | | — | | | (3,714) | |
| | Balance at September 30, 2023 | | Balance at September 30, 2023 | 89,371 | | | $ | 5,147 | | | 7,669 | | | $ | 77 | | | $ | 1,544,766 | | | $ | (115,151) | | | $ | (1,504,487) | | | $ | (72,668) | | | $ | 626 | | | $ | (141,690) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 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 shareholders | — | | | — | | | — | | | — | | | — | | | — | | | (3,715) | | | — | | | — | | | (3,715) | |
| | | | | | | | | | | | | | | | | | | |
| 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 income | — | | | $ | — | | | — | | | $ | — | | | $ | — | | | $ | — | | | $ | (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 | |
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| Dividends to preferred stockholders | — | | | $ | — | | | — | | | $ | — | | | $ | — | | | $ | — | | | $ | (3,715) | | | $ | — | | | $ | — | | | $ | (3,715) | |
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| 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 | |
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BABCOCK & WILCOX ENTERPRISES, INC.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 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 shareholders | — | | | — | | | — | | | — | | | — | | | — | | | (3,715) | | | — | | | — | | | (3,715) | |
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| 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 income | — | | | $ | — | | | — | | | $ | — | | | $ | — | | | $ | — | | | $ | (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 | |
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| Dividends to preferred stockholders | — | | | — | | | — | | | — | | | — | | | — | | | (3,715) | | | — | | | — | | | (3,715) | |
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| 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 | |
| Net income | — | | | $ | — | | | — | | | $ | — | | | $ | — | | | $ | — | | | $ | (17,766) | | | $ | — | | | $ | (2,800) | | | $ | (20,566) | |
| Currency translation adjustments | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (13,344) | | | (87) | | | (13,431) | |
| Defined benefit obligations | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 198 | | | — | | | 198 | |
| Stock-based compensation charges | 2,241 | | | 25 | | | — | | | — | | | 3,347 | | | (2,594) | | | — | | | — | | | — | | | 778 | |
| Purchase of Fosler Construction non-controlling interest | — | | | — | | | — | | | — | | | 8,626 | | | — | | | — | | | — | | | (20,735) | | | (12,109) | |
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| Dividends to preferred stockholders | — | | | — | | | — | | | — | | | — | | | — | | | (3,715) | | | — | | | — | | | (3,715) | |
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| Balance at September 30, 2022 | 88,633 | | | $ | 5,137 | | | 7,669 | | | $ | 77 | | | $ | 1,533,904 | | | $ | (113,749) | | | $ | (1,360,896) | | | $ | (82,492) | | | $ | 891 | | | $ | (17,128) | |
See accompanying notesNotes to Condensed Consolidated Financial Statements.
BABCOCK & WILCOX ENTERPRISES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | Six Months Ended June 30, | | Nine Months Ended September 30, | |
| (in thousands) | (in thousands) | 2023 | | 2022 | | (in thousands) | 2023 | | 2022 | |
| Cash flows from operating activities: | Cash flows from operating activities: | | | | | Cash flows from operating activities: | | | | |
| Net loss from continuing operations | | Net loss from continuing operations | $ | (24,367) | | | $ | (22,476) | | |
| Net loss from discontinued operations | | Net loss from discontinued operations | (109,880) | | | (9,768) | | |
| Net loss | Net loss | $ | (17,487) | | | $ | (11,678) | | | Net loss | $ | (134,247) | | | $ | (32,244) | | |
| | 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 | 11,259 | | | 11,938 | | | Depreciation and amortization of long-lived assets | 16,491 | | | 13,184 | | |
| | Goodwill impairment | | Goodwill impairment | 56,556 | | | 7,224 | | |
| Change in fair value of contingent consideration | | Change in fair value of contingent consideration | — | | | (9,567) | | |
| Amortization of deferred financing costs and debt discount | Amortization of deferred financing costs and debt discount | 2,806 | | | 2,328 | | | Amortization of deferred financing costs and debt discount | 3,711 | | | 3,864 | | |
| Amortization of guaranty fee | Amortization of guaranty fee | 464 | | | 387 | | | Amortization of guaranty fee | 543 | | | 543 | | |
| Non-cash operating lease expense | Non-cash operating lease expense | 3,289 | | | 3,866 | | | Non-cash operating lease expense | 4,364 | | | 5,698 | | |
| | Gain loss on sale of business | — | | | (7,000) | | | |
| Loss on asset disposals | 339 | | | — | | | |
| | Loss (gain) on asset disposals | | Loss (gain) on asset disposals | 229 | | | (7,165) | | |
| Benefit from deferred income taxes | Benefit from deferred income taxes | (1,696) | | | (3,075) | | | Benefit from deferred income taxes | (5,603) | | | (2,597) | | |
| Prior service cost amortization for pension and postretirement plans | Prior service cost amortization for pension and postretirement plans | 446 | | | 395 | | | Prior service cost amortization for pension and postretirement plans | 668 | | | 593 | | |
| Stock-based compensation | Stock-based compensation | 5,571 | | | 3,061 | | | Stock-based compensation | 7,175 | | | 6,497 | | |
| | Foreign exchange | Foreign exchange | (693) | | | 1,211 | | | Foreign exchange | 4,242 | | | 3,218 | | |
| Changes in operating assets and liabilities: | Changes in operating assets and liabilities: | | | Changes in operating assets and liabilities: | | |
| Accounts receivable - trade, net and other | Accounts receivable - trade, net and other | (10,482) | | | (13,804) | | | Accounts receivable - trade, net and other | 4,269 | | | (26,224) | | |
| Contracts in progress | Contracts in progress | (40,849) | | | (31,255) | | | Contracts in progress | 2,458 | | | (48,208) | | |
| Advance billings on contracts | Advance billings on contracts | 6,377 | | | 24,567 | | | Advance billings on contracts | (29,747) | | | 28,915 | | |
| Inventories, net | Inventories, net | (15,728) | | | (13,691) | | | Inventories, net | (10,496) | | | (15,098) | | |
| Income taxes | Income taxes | (4,297) | | | (1,992) | | | Income taxes | (159) | | | (2,133) | | |
| Accounts payable | Accounts payable | 40,541 | | | 23,669 | | | Accounts payable | 28,103 | | | 39,639 | | |
| Accrued and other current liabilities | Accrued and other current liabilities | 3,219 | | | (17,861) | | | Accrued and other current liabilities | (4,587) | | | (10,813) | | |
| Accrued contract loss | Accrued contract loss | (1,280) | | | 1,471 | | | Accrued contract loss | 13,258 | | | 3,481 | | |
| Pension liabilities, accrued postretirement benefits and employee benefits | Pension liabilities, accrued postretirement benefits and employee benefits | (4,681) | | | (17,480) | | | Pension liabilities, accrued postretirement benefits and employee benefits | (2,062) | | | (27,144) | | |
| Other, net | Other, net | 631 | | | (18,648) | | | Other, net | (5,639) | | | 957 | | |
| Net cash used in operating activities: | (22,251) | | | (63,591) | | | |
| Net cash used in operating activities | | Net cash used in operating activities | (50,473) | | | (67,380) | | |
| | 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 | (5,594) | | | (2,721) | | | Purchase of property, plant and equipment | (10,546) | | | (8,947) | | |
| Acquisition of business, net of cash acquired | Acquisition of business, net of cash acquired | — | | | (64,914) | | | 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 | — | | | 2,500 | | |
| Purchases of available-for-sale securities | Purchases of available-for-sale securities | (3,949) | | | (3,209) | | | Purchases of available-for-sale securities | (5,263) | | | (5,006) | | |
| Sales and maturities of available-for-sale securities | Sales and maturities of available-for-sale securities | 5,379 | | | 5,028 | | | Sales and maturities of available-for-sale securities | 7,368 | | | 8,498 | | |
| Other, net | Other, net | — | | | 234 | | | Other, net | (148) | | | 299 | | |
| Net cash used in investing activities | Net cash used in investing activities | (4,164) | | | (65,582) | | | Net cash used in investing activities | (8,589) | | | (67,570) | | |
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BABCOCK & WILCOX ENTERPRISES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | Nine Months Ended September 30, |
| | (in thousands) | | (in thousands) | 2023 | | 2022 | |
| Cash flows from financing activities: | Cash flows from financing activities: | | | Cash flows from financing activities: | | | | |
| Issuance of senior notes | Issuance of senior notes | — | | | 2,419 | | | Issuance of senior notes | — | | | 5,455 | | |
| Borrowings on loan payable | Borrowings on loan payable | 16,165 | | | 1,342 | | | Borrowings on loan payable | 97,140 | | | 1,342 | | |
| Repayments on loan payable | Repayments on loan payable | (12,049) | | | (13,373) | | | Repayments on loan payable | (72,502) | | | (13,863) | | |
| | Finance lease payments | (584) | | | — | | | |
| | Payment of holdback funds from acquisition | | Payment of holdback funds from acquisition | (2,798) | | | — | | |
| Payment of preferred stock dividends | Payment of preferred stock dividends | (7,431) | | | (7,430) | | | Payment of preferred stock dividends | (7,428) | | | (11,145) | | |
| Shares of common stock returned to treasury stock | Shares of common stock returned to treasury stock | (65) | | | (221) | | | Shares of common stock returned to treasury stock | (1,398) | | | (2,815) | | |
| | Debt issuance costs | | Debt issuance costs | (208) | | | 209 | | |
| Other, net | | Other, net | (874) | | | 1,736 | | |
| Net cash provided by (used in) financing activities | | Net cash provided by (used in) financing activities | 11,932 | | | (19,081) | | |
| | Other, net | (280) | | | 1,621 | | | |
| Net cash used in financing activities | (4,244) | | | (15,642) | | | |
| Effects of exchange rate changes on cash | Effects of exchange rate changes on cash | 1,078 | | | (1,712) | | | Effects of exchange rate changes on cash | (734) | | | (3,186) | | |
| Net decreased in cash, cash equivalents and restricted cash | (29,581) | | | (146,527) | | | |
| Net decrease increase in cash, cash equivalents and restricted cash | | Net decrease increase in cash, cash equivalents and restricted cash | (47,864) | | | (157,217) | | |
| Cash, cash equivalents and restricted cash at beginning of period | Cash, cash equivalents and restricted cash at beginning of period | 113,460 | | | 226,715 | | | Cash, cash equivalents and restricted cash at beginning of period | 112,970 | | | 226,715 | | |
| Cash, cash equivalents and restricted cash at end of period | Cash, cash equivalents and restricted cash at end of period | $ | 83,879 | | | $ | 80,188 | | | Cash, cash equivalents and restricted cash at end of period | $ | 65,106 | | | $ | 69,498 | | |
| | Schedule of cash, cash equivalents and restricted cash: | Schedule of cash, cash equivalents and restricted cash: | | | Schedule of cash, cash equivalents and restricted cash: | | |
| Cash and cash equivalents | Cash and cash equivalents | $ | 55,035 | | | $ | 71,524 | | | Cash and cash equivalents | $ | 48,369 | | | $ | 48,471 | | |
| Current restricted cash | Current restricted cash | 18,338 | | | 8,664 | | | Current restricted cash | 6,505 | | | 9,630 | | |
| Long-term restricted cash | Long-term restricted cash | 10,506 | | | — | | | Long-term restricted cash | 10,232 | | | 11,397 | | |
| Total cash, cash equivalents and restricted cash at end of period | Total cash, cash equivalents and restricted cash at end of period | $ | 83,879 | | | $ | 80,188 | | | Total cash, cash equivalents and restricted cash at end of period | $ | 65,106 | | | $ | 69,498 | | |
| | Supplemental Cash flow information: | Supplemental Cash flow information: | | | Supplemental Cash flow information: | | |
| Income taxes paid, net | Income taxes paid, net | 3,264 | | | 2,104 | | | Income taxes paid, net | $ | 4,642 | | | $ | 2,693 | | |
| Interest paid | Interest paid | $ | 12,764 | | | $ | 13,000 | | | Interest paid | $ | 16,685 | | | $ | 19,292 | | |
See accompanying notesNotes to Condensed Consolidated Financial Statements.
BABCOCK & WILCOX ENTERPRISES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNESEPTEMBER 30, 2023
NOTE 1 – BASIS OF PRESENTATION
These interim Condensed Consolidated Financial Statements of Babcock & Wilcox Enterprises, Inc. (“B&W,” “management,"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 on Form 10-K for the Company's Annual Report. The Company hasyear ended December 31, 2022. 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. The Company hasWe have eliminated all intercompany transactions and accounts. The Company hasWe have presented the notes to itsthe Condensed Consolidated Financial Statements on the basis of continuing operations, unless otherwise stated. Additionally, certain prior period amounts have been reclassified to conform to the current period presentation in the footnotes to the accompanying unaudited condensed consolidated financial statements.
The preparation of these consolidated financial statementsCondensed Consolidated Financial Statements requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statementsCondensed Consolidated Financial Statements and the accompanying notes. Actual results could differ from these estimates. In the opinion of management, these consolidated financial statementsCondensed Consolidated Financial Statements contain all estimates and adjustments, consisting of normal recurring accruals, required to fairly present the financial position, results of operations, and cash flows for the interim periods. Operating results for the three and sixnine months ended JuneSeptember 30, 2023 are not necessarily indicative of the results to be expected for the full-year ending December 31, 2023.
There have been no material changes to our significant accounting policies from our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
We classify assets and liabilities as held for sale ("disposal group") when our Management, with approval from our Board of Directors, commits to a plan to sell the disposal group, the sale is probable within one year, and the disposal group is available for immediate sale in its present condition. We also consider whether an active program to locate a buyer has been initiated, whether the disposal group is marketed actively for sale at a price that is reasonable in relation to its current fair value, and whether actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. When we classify a disposal group as held for sale, we test for impairment as follows. First we evaluate for impairment all assets outside those included in goodwill and other long-lived assets. Next, we evaluate goodwill, then the disposal group in its entirety to arrive at a fair value, less cost to sell. An impairment charge is recognized when the carrying value of the disposal group exceeds the estimated fair value, less costs to sell. We also cease depreciation and amortization for assets classified as held for sale. When a decision to sell represents a strategic shift impacting our operations and financial results, the disposal group and related operations are reported as discontinued operations. For further discussion see Note 3 - Assets Held for Sale and Discontinued Operations.
Non-controlling interests are presented in the Company’s consolidated financial statementsCondensed Consolidated Financial Statements as if parent company investors (controlling interests) and other minority investors (non-controlling interests) in partially-owned subsidiaries have similar economic interests in a single entity. As a result, investments in non-controlling interests are reported as equity in the Company’s consolidated financial statements.Condensed Consolidated Financial Statements. Additionally, the Company’s consolidated financial statementsour Condensed Consolidated Financial Statements include 100% of a controlled subsidiary’s earnings, rather than only itsour share. Transactions between the parent company and non-controlling interests are reported in equity as transactions between stockholders, provided that these transactions do not create a change in control.
Market Update
The Company hasWe have experienced and may continue to experience, supply chain disruptions driven by the lingering impactsany number of the pandemic in certain areas that the Company operates, as well asevents globally, including pandemics, geopolitical conflicts (including the ongoing warconflicts in Ukraine. The Company hasUkraine and the Middle East), climate change and others. We have also observed significant delays and disruptions of its service and material providers and negative impacts to pricing of certain products. These delays and disruptions have had, and could continue to have, an adverse impact on the Company’sour ability to meet customers’ demands and schedules. The Company isWe are continuing to actively monitor the impact of these market conditions on current and future periods and actively manage costs and our liquidity position to provide additional flexibility while still supplying itsour customers and their specific needs. The duration and scope of these conditions cannot be predicted, and therefore, any anticipated negative financial impact to the Company’sour operating results cannot be reasonably estimated.
NOTE 2 – EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted (loss) earningsloss per share of the Company'sour common stock, net of non-controlling interest and dividends on preferred stock:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| (in thousands, except per share amounts) | 2023 | | 2022 | | 2023 | | 2022 |
| | | | | | | |
| | | | | | | |
| Net loss attributable to stockholders of common stock | $ | (8,803) | | | $ | (6,282) | | | $ | (25,014) | | | $ | (18,261) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Weighted average shares used to calculate basic and diluted (loss) earnings per share | 88,783 | | | 88,029 | | | 88,758 | | | 88,011 | |
| | | | | | | |
| Basic and diluted (loss) earnings per share | $ | (0.10) | | | $ | (0.07) | | | $ | (0.28) | | | $ | (0.21) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Diluted (loss) earnings per share | $ | (0.10) | | | $ | (0.07) | | | $ | (0.28) | | | $ | (0.21) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| (in thousands, except per share amounts) | 2023 | | 2022 | | 2023 | | 2022 |
| Loss from continuing operations | $ | (12,275) | | | $ | (12,751) | | | $ | (24,367) | | | $ | (22,476) | |
| Net loss (income) attributable to non-controlling interest | (124) | | | 2,800 | | | (221) | | | 3,647 | |
| Less: Dividend on Series A preferred stock | 3,714 | | | 3,715 | | | 11,144 | | | 11,145 | |
| Loss from continuing operations attributable to stockholders of common stock | (16,113) | | | (13,666) | | | (35,732) | | | (29,974) | |
| Loss from discontinued operations, net of tax | (104,485) | | | (7,815) | | | (109,880) | | | (9,768) | |
| Net loss attributable to stockholders of common stock | $ | (120,598) | | | $ | (21,481) | | | $ | (145,612) | | | $ | (39,742) | |
| | | | | | | |
| Weighted average shares used to calculate basic and diluted loss per share | 89,125 | | | 88,321 | | | 88,882 | | | 88,115 | |
| | | | | | | |
| | | | | | | |
| Basic and diluted loss per share: | | | | | | | |
| Continuing operations | $ | (0.18) | | | $ | (0.15) | | | $ | (0.40) | | | $ | (0.34) | |
| Discontinued operations | $ | (1.17) | | | $ | (0.09) | | | $ | (1.24) | | | $ | (0.11) | |
| Basic and diluted loss per share | $ | (1.35) | | | $ | (0.24) | | | $ | (1.64) | | | $ | (0.45) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
The CompanyWe incurred a net loss in each of the three and sixnine month periods ended JuneSeptember 30, 2023 and 2022, therefore the basic and diluted shares are the same.
If the Companywe had net income in the three month periods ended JuneSeptember 30, 2023 and 2022, diluted sharesshares would includehave included an additional 0.50.3 million and 0.90.8 million shares, respectively. If the Companywe had net income in the sixnine month periods ended JuneSeptember 30, 2023 and 2022, diluted shares would have also included an additional 0.40.5 million and 0.9 million shares, respectively.
We excluded 1.11.9 million and 0.40.3 million shares related to stock options from the diluted share calculation for the three-monththree month periods ended JuneSeptember 30, 2023 and 2022, respectively, because their effect would have been anti-dilutive. We excluded 1.71.9 million and 0.4 million shares related to stock options from the diluted share calculation forfrom the six-month periodsnine months ended JuneSeptember 30, 2023 and 2022, respectively, because their effect would have been anti-dilutive.
NOTE 3 – ASSETS AND LIABILITIES HELD FOR SALE AND DISCONTINUED OPERATIONS
During the third quarter of 2023, we committed to a plan to sell our B&W Solar business resulting in a significant change that would impact our operations. As of September 30, 2023, we met all of the criteria for the assets and liabilities of this business, formerly part of our B&W Renewable segment, to be accounted for as held for sale. In addition, we also determined that the operations of the B&W Solar business qualified as a discontinued operation, primarily based upon its
significance to our current and historic operating losses. The decision to sell the B&W Solar business, along with the significant increase in estimated costs to complete the B&W Solar loss contracts, resulted in a triggering event as of September 30, 2023 that required us to immediately perform certain valuations. For goodwill, we performed a quantitative assessment using the income approach (discounted cash flows). The income approach uses the disposal group's estimated future cash flows, discounted at the weighted-average cost of capital of a hypothetical third-party buyer to account for uncertainties within the projections. The income approach also uses assumptions based on the disposal group's estimated revenue growth, operating margin, and working capital turnover. As a result of this impairment test, we recognized an impairment of $55.6 million, or the entire balance of goodwill associated with B&W Solar. This impairment has been included in discontinued operations in our Condensed Consolidated Statement of Operations.
The following table summarizes the operating results of the disposal group included in discontinued operations on our Condensed Consolidated Statements of Operations:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| (in thousands) | 2023 | | 2022 | | 2023 | | 2022 |
| Revenues | $ | (4,709) | | | $ | 3,201 | | | $ | 24,952 | | | $ | 28,444 | |
| Cost of operations | 35,377 | | | 11,817 | | | 65,682 | | | 34,264 | |
General and administrative expenses(1) | 7,646 | | | (8,226) | | | 11,997 | | | (3,622) | |
| Restructuring expenses | 50 | | | — | | | 50 | | | — | |
| Loss (Gain) on asset disposals, net | (98) | | | (21) | | | 255 | | | (59) | |
| Goodwill impairment | 56,556 | | | 7,224 | | | 56,556 | | | 7,224 | |
| | | | | | | |
| Total costs and expenses | 99,531 | | | 10,794 | | | 134,540 | | | 37,807 | |
| Operating loss | (104,240) | | | (7,593) | | | (109,588) | | | (9,363) | |
| | | | | | | |
| Interest expense | (61) | | | (222) | | | (67) | | | (560) | |
| Interest income | — | | | — | | | — | | | 162 | |
| Other-net | (8) | | | — | | | (49) | | | (7) | |
| Total other expense | (69) | | | (222) | | | (116) | | | (405) | |
| | | | | | | |
| Loss from discontinued operations before tax | (104,309) | | | (7,815) | | | (109,704) | | | (9,768) | |
| Income tax provision | (176) | | | — | | | (176) | | | — | |
| Loss from discontinued operations, net of tax | $ | (104,485) | | | $ | (7,815) | | | $ | (109,880) | | | $ | (9,768) | |
| | | | | | | |
(1) General and administrative expenses in 2022 includes $9.6 million related to the change in fair value of contingent consideration. |
|
During the nine months ended September 30, 2023, B&W Solar had total bookings of $46.3 million. On September 30, 2023, B&W Solar had $36.8 million of remaining performance obligations, which we also refer to as total backlog. We expect to recognize substantially all of our remaining performance obligations as revenue prior to December 31, 2024.
The following table provides the major classes of assets and liabilities of the disposal group included in assets held for sale and liabilities held for sale in our Condensed Consolidated Balance Sheets:
| | | | | | | | | | | | | | |
| (in thousands) | September 30, 2023 | | December 31, 2022 | |
| Cash | $ | 26 | | | $ | 490 | | |
| Contracts in progress | 13,408 | | | 16,759 | | |
| | | | |
| Accounts receivable - Trade | 6,052 | | | 4,111 | | |
| | | | |
| Other assets, net | 113 | | | 2 | | |
| | | | |
| | | | |
| Total Current Assets | 19,599 | | | 21,362 | | |
| | | | |
| Net Property, Plant and equipment, and finance lease | 2,453 | | | 1,476 | | |
| Intangible assets, net | 7,833 | | | 8,729 | | |
| Goodwill | — | | | 56,556 | | |
| Deferred income taxes | — | | | 176 | | |
| Right-of-use assets | — | | | $ | 1,076 | | |
| | | | |
| Total Noncurrent assets | 10,286 | | | 68,013 | | |
| Total assets of disposal group | $ | 29,885 | | | $ | 89,375 | | |
| | | | |
| Loans payable, current | $ | 484 | | | $ | — | | |
| Operating lease liabilities, current | 129 | | | 97 | | |
| Accounts payable | 22,915 | | | 7,938 | | |
| Accrued employee benefits | 219 | | | 24 | | |
| Advance billings on contracts | 8,140 | | | 2,484 | | |
| | | | |
| Other current liabilities | 17,306 | | | 14,208 | | |
| Total current liabilities | 49,193 | | | 24,751 | | |
| | | | |
| Loans payable, net of current portion | 1,314 | | | 464 | | |
| Noncurrent operating lease liabilities | 139 | | | 995 | | |
| Other noncurrent liabilities | — | | | 4,192 | | |
| Total Noncurrent liabilities | 1,453 | | | 5,651 | | |
| Total liabilities of disposal group | $ | 50,646 | | | $ | 30,402 | | |
| | | | |
| Reported as: | | | | |
| Current assets of discontinued operations | $ | 29,885 | | | $ | 21,362 | | |
| Noncurrent assets of discontinued operations | — | | | 68,013 | | |
| Total assets of discontinued operations | $ | 29,885 | | | $ | 89,375 | | |
| | | | |
| Current liabilities of discontinued operations | $ | 50,646 | | | $ | 24,751 | | |
| Noncurrent liabilities of discontinued operations | — | | | 5,651 | | |
| Total liabilities of discontinued operations | $ | 50,646 | | | $ | 30,402 | | |
| | | | |
| | | | |
| | | | |
The significant components included in our Condensed Consolidated Statements of Cash Flows for the discontinued operations are as follows:
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| (in thousands) | 2023 | | 2022 |
| Depreciation and amortization of long-lived assets | $ | 952 | | | $ | 2,167 | |
| Impairment of goodwill and assets held for sale | 56,556 | | | 7,224 | |
| Loss (gain) on asset disposals | 423 | | | (59) | |
| | | |
| Change in fair value of contingent consideration | — | | | (9,587) | |
| | | |
| Changes in operating assets and liabilities: | | | |
| Accrued contract losses | 14,659 | | | 12,111 | |
| Changes in contracts in progress | 3,969 | | | (6,019) | |
| Changes in advance billings on contracts | 5,656 | | | 1,783 | |
| Income taxes | 176 | | | — | |
| | | |
| Purchase of property, plant and equipment | (1,634) | | | (1,896) | |
Contract Balances
The loss from discontinued operations, net of tax, totaled $104.5 million and $109.9 million during the three and nine months ended September 30, 2023, respectively. Included in the loss were $44.0 million and $40.8 million in losses from changes in estimated costs to complete twenty three loss contracts during the three and nine months ended September 30, 2023, respectively. As of September 30, 2023, accrued liabilities and other included $11.8 million in accrued contract losses on B&W Solar loss contracts.
During 2022, we determined that our B&W Solar reporting unit had projects located in the United States that existed at the time B&W Solar was acquired on September 30, 2021 that generated losses that arose due to the status of certain construction activities, existing at acquisition date, not adequately disclosed in the sales agreement and not recognized in the financial records of the seller. As a result, we recorded an increase in goodwill of $14.4 million, primarily resulting from the recognition of $14.1 million of accrued liabilities and $0.4 million of warranty accruals in conjunction with the finalization of purchase accounting as measurement period adjustments, which was finalized as of September 30, 2022. We have submitted insurance claims to recover a portion of these losses as of September 30, 2023. During 2022, additional B&W Solar projects became loss contracts, as such, we recorded $13.2 million in net losses from changes in the estimated costs to complete the additional B&W Solar loss contracts. The following represents the components of B&W Solar contracts in progress and advance billings on contracts included in discontinued operations:
Changes in Contract Estimates
During each of the three- and nine-month periods ended September 30, 2023 and 2022, B&W Solar 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) | 2023 | | 2022 | | 2023 | | 2022 | | | | | | |
| Increases in gross profit for changes in estimates for over time contracts | $ | 2,917 | | | $ | — | | | $ | 5,518 | | | $ | — | | | | | | | |
| Decreases in gross profit for changes in estimates for over time contracts | (40,948) | | | (8,537) | | | (45,237) | | | (8,537) | | | | | | | |
| Net changes in gross profit for changes in estimates for over time contracts | $ | (38,031) | | | $ | (8,537) | | | $ | (39,719) | | | $ | (8,537) | | | | | | | |
Contracts in progress
Contract assets as of September 30, 2023 include approximately $2.0 million for change orders and/or claims in transaction prices for certain contracts that were in the process of being resolved in the ordinary course of business, including through negotiation and other proceedings. We believe these amounts are collectible under the applicable contracts. In addition, as of September 30, 2023, in conjunction with our normal periodic assessment relative to certain change orders previously recognized, we adjusted our estimated contract price by approximately $12.5 million due to changes in circumstances that have occurred during the three months ended September 30, 2023.
As of September 30, 2023, we included approximately $3.2 million of change orders and/or claims in transaction prices for certain contracts that were in the process of being resolved in the ordinary course of business, including through negotiation and other proceedings. For the comparable period of September 30, 2022, unapproved change orders were not material. These transaction price adjustments, when earned, are included within contract assets or accounts receivable, net of allowance, as appropriate. We actively engage with customers to complete the final approval process and generally expect these processes to be completed within one year. Amounts ultimately realized upon final agreement by customers could be higher or lower than estimated amounts.
NOTE 34 – SEGMENT REPORTING
The Company'sOur continuing operations are assessed based on three reportable market-facing segments. The Company's three reportable segments are as follows:
•Babcock & Wilcox Renewable: Cost-effectiveCost effective technologies for efficient and environmentally sustainable power and heat generation, including waste-to-energy, solar construction and installation, biomass energybiomass-to-energy, and black liquor systems for the pulp and paper industry. B&W’s&W's leading technologies support a circular economy, diverting waste from landfills to use for power generation or district heating and replacement of fossil fuels, while recovering metals and reducing emissions. To date, we have installed over 500 waste-to-energy and biomass-to-energy units at more than 300 facilities in approximately 30 countries which serve a wide variety of utility, waste management, municipality and investment firm customers. Additionally, we have installed more than 200MW of utility- and community-scale solar projects in North America.
•Babcock & Wilcox Environmental: A full suite of best-in-class emissions control and environmental technology solutions for utility, waste to energy,waste-to-energy, biomass-to-energy, carbon black, and industrial steam generation applications around the world. B&W’s&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. The Company's ClimateBright family of products including SolveBright, OxyBright, BrightLoop and BrightGen, places us at the forefront of carbon dioxide capturing technologies and development with many of the aforementioned products already commercially available and others ready for commercial demonstration.
•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 offor installed equipment for utilities and general industrial applications including refining, petrochemical, food processing, metals and others.
An analysis of the Company'sour continuing operations by segment is as follows:
| | | Three Months Ended June 30, | | Six Months Ended June 30, | | | Three Months Ended September 30, | | Nine Months Ended September 30, | |
| (in thousands) | (in thousands) | 2023 | | 2022 | | 2023 | | 2022 | | (in thousands) | 2023 | | 2022 | | 2023 | | 2022 | |
| Revenues: | Revenues: | | | | | | | | | Revenues: | | | | | | | | |
| B&W Renewable segment | B&W Renewable segment | | | B&W Renewable segment | | |
| B&W Renewable | B&W Renewable | $ | 44,166 | | | $ | 35,510 | | | $ | 93,298 | | | $ | 55,221 | | | B&W Renewable | $ | 37,581 | | | $ | 34,279 | | | $ | 130,879 | | | $ | 89,500 | | |
| B&W Renewable Services | B&W Renewable Services | 25,811 | | | 19,544 | | | 42,121 | | | 27,832 | | | B&W Renewable Services | 34,184 | | | 30,164 | | | 76,305 | | | 57,996 | | |
| Vølund | 15,242 | | | 18,557 | | | 33,923 | | | 34,893 | | | |
| B&W Solar | 13,672 | | | 1,616 | | | 29,661 | | | 25,242 | | | |
| Volund | | Volund | 15,314 | | | 14,043 | | | 49,237 | | | 48,936 | | |
| | 98,891 | | | 75,227 | | | 199,003 | | | 143,188 | | | |
| TOTAL | | TOTAL | 87,079 | | | 78,486 | | | 256,421 | | | 196,432 | | |
| B&W Environmental segment | B&W Environmental segment | | | | | | | | | B&W Environmental segment | | | | | | | | |
| B&W Environmental | B&W Environmental | 21,451 | | | 12,801 | | | 41,812 | | | 30,986 | | | B&W Environmental | 24,706 | | | 25,773 | | | 66,518 | | | 56,759 | | |
| SPIG | SPIG | 23,634 | | | 14,234 | | | 40,239 | | | 26,294 | | | SPIG | 18,907 | | | 14,521 | | | 59,146 | | | 40,815 | | |
| GMAB | GMAB | 3,605 | | | 4,577 | | | 6,079 | | | 9,280 | | | GMAB | 2,808 | | | 4,332 | | | 8,887 | | | 13,612 | | |
| 48,690 | | | 31,612 | | | 88,130 | | | 66,560 | | | |
| TOTAL | | TOTAL | 46,421 | | | 44,626 | | | 134,551 | | | 111,186 | | |
| B&W Thermal segment | B&W Thermal segment | | | | | | | | | B&W Thermal segment | | | | | | | | |
| B&W Thermal | B&W Thermal | 158,010 | | | 116,305 | | | 277,246 | | | 218,544 | | | B&W Thermal | 106,981 | | | 91,331 | | | 384,227 | | | 309,875 | | |
| 158,010 | | | 116,305 | | | 277,246 | | | 218,544 | | | |
| TOTAL | | TOTAL | 106,981 | | | 91,331 | | | 384,227 | | | 309,875 | | |
| | Eliminations | Eliminations | (404) | | | (2,125) | | | (1,945) | | | (3,224) | | | Eliminations | (1,067) | | | (2,774) | | | (3,012) | | | (5,999) | | |
| Total Revenues | Total Revenues | $ | 305,187 | | | $ | 221,019 | | | $ | 562,434 | | | $ | 425,068 | | | Total Revenues | $ | 239,414 | | | $ | 211,669 | | | $ | 772,187 | | | $ | 611,494 | | |
| |
At a segment level, the adjusted EBITDA presented below is consistent with the manner in which the Company'sour chief operating decision maker ("CODM") 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, legal and settlement costs, costs related to financial consulting, research and development costs, costs and operating income from contracts in disposal, and other costs that may not be directly controllable by segment management and are not allocated to the segment. The following table is provided to reconcile our segment performance metrics to loss before income tax expense.
| | | Three Months Ended June 30, | | Six Months Ended June 30, | | | Three Months Ended September 30, | | Nine Months Ended September 30, | |
| (in thousands) | (in thousands) | 2023 | | 2022 | | 2023 | | 2022 | | (in thousands) | 2023 | | 2022 | | 2023 | | 2022 | |
| | B&W Renewable segment - Adjusted EBITDA | B&W Renewable segment - Adjusted EBITDA | $ | 500 | | | $ | 11,151 | | | $ | 5,440 | | | $ | 13,481 | | | B&W Renewable segment - Adjusted EBITDA | $ | 10,147 | | | $ | 4,500 | | | $ | 19,190 | | | $ | 15,659 | | |
| B&W Environmental segment - Adjusted EBITDA | B&W Environmental segment - Adjusted EBITDA | 3,394 | | | 591 | | | 5,300 | | | 2,030 | | | B&W Environmental segment - Adjusted EBITDA | 5,024 | | | 3,082 | | | 10,324 | | | 5,112 | | |
| B&W Thermal segment - Adjusted EBITDA | B&W Thermal segment - Adjusted EBITDA | 24,367 | | | 16,361 | | | 38,100 | | | 30,515 | | | B&W Thermal segment - Adjusted EBITDA | 11,322 | | | 10,761 | | | 49,422 | | | 41,276 | | |
| Corporate | Corporate | (5,488) | | | (4,226) | | | (10,568) | | | (8,599) | | | Corporate | (5,630) | | | (4,419) | | | (16,198) | | | (13,018) | | |
| R&D expenses | R&D expenses | (893) | | | (987) | | | (2,200) | | | (1,642) | | | R&D expenses | (897) | | | (891) | | | (3,097) | | | (2,533) | | |
| Interest Expense | (12,497) | | | (12,058) | | | (26,926) | | | (24,382) | | | |
| Depreciation & Amortization | (5,967) | | | (5,736) | | | (11,332) | | | (11,938) | | | |
| Benefit Plans, net | (138) | | | 7,403 | | | (247) | | | 14,855 | | | |
| Interest expense | | Interest expense | (13,353) | | | (11,402) | | | (37,096) | | | (33,588) | | |
| Depreciation & amortization | | Depreciation & amortization | (4,610) | | | (4,537) | | | (14,995) | | | (14,550) | | |
| Benefit plans, net | | Benefit plans, net | (56) | | | 7,424 | | | (304) | | | 22,279 | | |
| Gain on sales, net | Gain on sales, net | 602 | | | 117 | | | (335) | | | 137 | | | Gain on sales, net | 8 | | | 7 | | | 26 | | | 106 | | |
| Settlement and related legal costs | Settlement and related legal costs | — | | | (3,911) | | | 3,009 | | | (6,439) | | | Settlement and related legal costs | — | | | (776) | | | 3,009 | | | (7,215) | | |
| Advisory fees for settlement costs and liquidity planning | Advisory fees for settlement costs and liquidity planning | — | | | (879) | | | (546) | | | (1,911) | | | Advisory fees for settlement costs and liquidity planning | — | | | (27) | | | (546) | | | (1,938) | | |
| Stock Compensation | (2,271) | | | (475) | | | (5,498) | | | (1,794) | | | |
| Stock compensation | | Stock compensation | (397) | | | (3,448) | | | (5,895) | | | (5,242) | | |
| Restructuring expense and business services transition | Restructuring expense and business services transition | (1,022) | | | (1,754) | | | (1,982) | | | (4,442) | | | Restructuring expense and business services transition | (1,285) | | | (1,746) | | | (3,267) | | | (6,188) | | |
| Acquisition pursuit and related costs | Acquisition pursuit and related costs | (105) | | | (1,350) | | | (239) | | | (2,193) | | | Acquisition pursuit and related costs | (346) | | | (2,574) | | | (585) | | | (4,768) | | |
| Product Development | (1,048) | | | (991) | | | (2,418) | | | (1,843) | | | |
| Product development | | Product development | (895) | | | (757) | | | (3,313) | | | (2,600) | | |
| Foreign exchange | Foreign exchange | 1,154 | | | (4,296) | | | 693 | | | (1,211) | | | Foreign exchange | (4,935) | | | (2,007) | | | (4,242) | | | (3,218) | | |
| | Financial advisory services | Financial advisory services | — | | | (352) | | | — | | | (727) | | | Financial advisory services | — | | | (393) | | | — | | | (1,121) | | |
| Contract Disposal | (2,693) | | | (2,282) | | | (4,080) | | | (3,157) | | | |
| Inventory step-up price adjustment | — | | | — | | | — | | | (1,745) | | | |
| Other Net | (1,046) | | | (675) | | | (1,307) | | | (798) | | | |
| Loss before income tax expense | (3,151) | | | (4,349) | | | (15,136) | | | (11,803) | | | |
| Contract disposal | | Contract disposal | (4,293) | | | 129 | | | (8,373) | | | (2,582) | | |
| | Letter of credit fees | | Letter of credit fees | (1,961) | | | (1,144) | | | (5,639) | | | (3,003) | | |
| Other-net | | Other-net | (449) | | | 369 | | | (768) | | | (567) | | |
| | Loss before income tax (benefit) expense | | Loss before income tax (benefit) expense | $ | (12,606) | | | $ | (7,849) | | | $ | (22,347) | | | $ | (17,699) | | |
|
The Company doesWe do not separately identify or report its assets by segment as itsthe CODM does not consider assets by segment to be a critical measure by which performance is measured.
NOTE 45 – REVENUE RECOGNITION AND CONTRACTS
Revenue Recognition
The Company generatesWe generate the vast majority of itsour revenues from the supply of, and aftermarket services for, steam-generating, environmental and auxiliary equipment. The CompanyWe also earnsearn revenue from solar construction and installation, and 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 20%26% and 21%25% of the Company'sour revenue for the three months ended JuneSeptember 30, 2023 and 2022, respectively, and 22%24% and 20%24% of the Company'sour revenue for the sixnine months ended JuneSeptember 30, 2023 and 2022, respectively. Revenue from products and services transferred to customers over time, which primarily relates to customized, engineered solutions and construction services, accounted for 80%74% and 79%75% of the Company'sour revenue for the three months ended JuneSeptember 30, 2023 and 2022, respectively, and 78%76% and 80%76% of the Company'sour revenue for the sixnine months ended JuneSeptember 30, 2023 and 2022, 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.
Contract assets as of June 30, 2023 include approximately $13.2 million for change orders and/or claims in transaction prices for certain contracts that were in the process of being resolved in the ordinary course of business, including through negotiation and other proceedings. The Company believes that these amounts are collectible under the applicable contracts.
Transaction prices for the Company’sour contracts may include variable consideration, which comprises items such as change orders, claims and incentives. ManagementOur management estimates variable consideration for a performance obligation utilizing estimation methods that it believes best predict the amount of consideration to which the Companywe will be entitled. Variable consideration is included in the
estimated transaction price if it is probable that when the uncertainty associated with the variable consideration is resolved, there will not be a significant reversal of the cumulative amount of revenue that has been recognized. Management’s estimates of variable consideration and the determination of whether to include estimated amounts in transaction prices are based largely on legal advice, past practices with the customer, specific discussions, correspondence or preliminary negotiations with the customer and all other relevant information that is reasonably available at the time of the estimate. The effect of variable consideration on the transaction price of a performance obligation is recognized as an adjustment to revenue, typically on a cumulative catch-up basis, as such variable consideration, which typically pertains to changed conditions and scope, is generally for services encompassed under the existing contract. To the extent unapproved change orders, claims and other variable consideration reflected in transaction prices are not resolved in the Company’sour favor, or to the extent incentives reflected in transaction prices are not earned, there could be reductions in, or reversals of, previously recognized revenue.
As of June 30, 2023, the Company included approximately $14.4 million of change orders and/or claims in transaction prices for certain contracts that were in the process of being resolved in the ordinary course of business, including through negotiation, arbitration and other proceedings. For the comparable period of June 30, 2022, the Company did not report material unapproved change orders. These transaction price adjustments, when earned, are included within contract assets or accounts receivable, net of allowance, as appropriate. As of June 30, 2023, these change orders and/or claims primarily related to certain projects in the Company’s B&W Renewable segment and include amounts related to the B&W Solar business. The Company actively engages with its customers to complete the final approval process and generally expects these processes to be completed within one year. Amounts ultimately realized upon final agreement by customers could be higher or lower than such estimated amounts.
Refer to Note 3 for the Company's disaggregation of revenue by product line.
Contract Balances
The following represents the components of the Company's Contractsour contracts in progress and Advanceadvance billings on contracts included in itsour Condensed Consolidated Balance Sheets:
| | (in thousands) | (in thousands) | June 30, 2023 | | December 31, 2022 | | $ Change | | % Change | (in thousands) | September 30, 2023 | | December 31, 2022 | | $ 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 | $ | 84,016 | | | $ | 79,421 | | | $ | 4,595 | | | 6 | % | Costs incurred less costs of revenue recognized | $ | 53,865 | | | $ | 62,662 | | | $ | (8,797) | | | (14) | % |
| Revenues recognized less billings to customers | Revenues recognized less billings to customers | 91,495 | | | 55,518 | | | 35,977 | | | 65 | % | Revenues recognized less billings to customers | 69,605 | | | 55,518 | | | 14,087 | | | 25 | % |
| Contracts in progress | Contracts in progress | $ | 175,511 | | | $ | 134,939 | | | $ | 40,572 | | | 30 | % | Contracts in progress | $ | 123,470 | | | $ | 118,180 | | | $ | 5,290 | | | 4 | % |
| 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 | $ | 82,741 | | | $ | 113,643 | | | $ | (30,902) | | | (27) | % | Billings to customers less revenues recognized | $ | 52,170 | | | $ | 111,159 | | | $ | (58,989) | | | (53) | % |
| Costs of revenue recognized less cost incurred | Costs of revenue recognized less cost incurred | 57,609 | | | 19,786 | | | 37,823 | | | 191 | % | Costs of revenue recognized less cost incurred | 43,209 | | | 19,786 | | | 23,423 | | | 118 | % |
| Advance billings on contracts | Advance billings on contracts | $ | 140,350 | | | $ | 133,429 | | | $ | 6,921 | | | 5 | % | Advance billings on contracts | $ | 95,379 | | | $ | 130,945 | | | $ | (35,566) | | | (27) | % |
| | Net contract balance | Net contract balance | $ | 35,161 | | | $ | 1,510 | | | $ | 33,651 | | | 2,229 | % | Net contract balance | $ | 28,091 | | | $ | (12,765) | | | $ | 40,856 | | | 320 | % |
| | Accrued contract losses | Accrued contract losses | $ | 1,752 | | | $ | 3,032 | | | $ | (1,280) | | | (42) | % | Accrued contract losses | $ | 1,245 | | | $ | 180 | | | $ | 1,065 | | | 592 | % |
Backlog
On JuneSeptember 30, 2023, the Companywe had $566.5$506.8 million of remaining performance obligations relating to continuing operations, which the Companywe also refersrefer to as total backlog. The Company expectsWe expect to recognize approximately 58.9%40.2%, 29.3%49.9% and 11.8%9.9% of itsour remaining performance obligations as revenue in 2023, 2024 and thereafter, respectively.
Changes in Contract Estimates
During each of the three- and six-monthnine-month periods ended JuneSeptember 30, 2023 and 2022, the Companywe 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 June 30, | | Six Months Ended June 30, | | | Three Months Ended September 30, | | Nine Months Ended September 30, | |
| (in thousands) | (in thousands) | 2023 | | 2022 | | 2023 | | 2022 | | (in thousands) | 2023 | | 2022 | | 2023 | | 2022 | |
| Increases in gross profit for changes in estimates for over time contracts | Increases in gross profit for changes in estimates for over time contracts | $ | 2,060 | | | $ | 5,348 | | | $ | 8,285 | | | $ | 8,689 | | | Increases in gross profit for changes in estimates for over time contracts | $ | 1,494 | | | $ | 1,690 | | | $ | 8,842 | | | $ | 11,343 | | |
| Decreases in gross profit for changes in estimates for over time contracts | Decreases in gross profit for changes in estimates for over time contracts | (4,994) | | | (2,612) | | | (10,747) | | | (5,474) | | | Decreases in gross profit for changes in estimates for over time contracts | (1,068) | | | (1,816) | | | (8,231) | | | (11,467) | | |
| Net changes in gross profit for changes in estimates for over time contracts | Net changes in gross profit for changes in estimates for over time contracts | $ | (2,934) | | | $ | 2,736 | | | $ | (2,462) | | | $ | 3,215 | | | Net changes in gross profit for changes in estimates for over time contracts | $ | 426 | | | $ | (126) | | | $ | 611 | | | $ | (124) | | |
B&W Loss Contracts
During 2022, the Company determined that its B&W Solar reporting unit had nine projects located in the United States that existed at the time B&W Solar was acquired on September 30, 2021 that generated losses that arose due to the status of certain construction activities, existing at acquisition date, not adequately disclosed in the sales agreement and not recognized in the financial records of the seller. As a result, the Company recorded an increase in goodwill of $14.4 million, primarily resultingLoss Contracts from the recognition of $14.1 million of accrued liabilities and $0.4 million of warranty accruals in conjunction with the finalization of purchase accounting as measurement period adjustments, which was finalized as of September 30, 2022. The Company has submitted insurance claims to recover a portion of these losses as of June 30, 2023. During 2022, four additional B&W Solar projects became loss contracts, as such, the Company recorded $13.2 million in net losses from changes in the estimated costs to complete the thirteen B&W Solar loss contracts. During the three and six months ended June 30, 2023, the Company incurred additional losses of $4.1 million and $3.3 million, respectively. The additional losses incurred in the six months ended June 30, 2023 were offset by project savings incurred on two projects in a loss position.Continuing Operations
During the sixnine months ended JuneSeptember 30, 2023, the Companywe recorded $0.7$1.1 million in net losses from changes in estimated costs to complete for oneseven B&W Thermal contractcontracts in a loss position.positions.
NOTE 56 – INVENTORIES
Inventories for continuing operations are stated at the lower of cost or net realizable value. The components of inventories are as follows:
| | (in thousands) | (in thousands) | June 30, 2023 | | December 31, 2022 | (in thousands) | September 30, 2023 | | December 31, 2022 |
| Raw materials and supplies | Raw materials and supplies | $ | 97,772 | | | $ | 87,554 | | Raw materials and supplies | $ | 94,198 | | | $ | 87,554 | |
| Work in progress | Work in progress | 4,794 | | | 2,518 | | Work in progress | 3,995 | | | 2,517 | |
| Finished goods | Finished goods | 16,045 | | | 12,565 | | Finished goods | 15,312 | | | 12,565 | |
| Total inventories | Total inventories | $ | 118,611 | | | $ | 102,637 | | Total inventories | $ | 113,505 | | | $ | 102,636 | |
NOTE 67 – PROPERTY, PLANT, & EQUIPMENT, & FINANCE LEASES
Property, plant and equipment less accumulated depreciation is as follows:
| | (in thousands) | (in thousands) | June 30, 2023 | | December 31, 2022 | (in thousands) | September 30, 2023 | | December 31, 2022 |
| Land | Land | $ | 2,505 | | | $ | 2,481 | | Land | $ | 2,508 | | | $ | 2,481 | |
| Buildings | Buildings | 34,542 | | | 35,326 | | Buildings | 33,985 | | | 35,326 | |
| Machinery and equipment | Machinery and equipment | 156,160 | | | 153,939 | | Machinery and equipment | 153,351 | | | 151,606 | |
Property under construction(1) | Property under construction(1) | 14,170 | | | 11,410 | | Property under construction(1) | 17,637 | | | 11,411 | |
| | 207,377 | | | 203,156 | | | 207,481 | | | 200,824 | |
| Less accumulated depreciation | Less accumulated depreciation | 147,202 | | | 141,145 | | Less accumulated depreciation | 146,732 | | | 140,289 | |
| Net property, plant and equipment | Net property, plant and equipment | 60,175 | | | 62,011 | | Net property, plant and equipment | 60,749 | | | 60,535 | |
| Finance leases | Finance leases | 30,656 | | | 30,549 | | Finance leases | 30,653 | | | 30,549 | |
| Less finance lease accumulated amortization | Less finance lease accumulated amortization | 7,236 | | | 6,197 | | Less finance lease accumulated amortization | 7,756 | | | 6,197 | |
| Net property, plant and equipment, and finance lease | $ | 83,595 | | | $ | 86,363 | | |
| Net property, plant and equipment, and finance leases | | Net property, plant and equipment, and finance leases | $ | 83,646 | | | $ | 84,887 | |
(1) Property under construction primarily pertains to the capitalization of costs incurred in the construction of three BrightLoopTM facilities
NOTE 78 - GOODWILL
The following summarizes the changes in the net carrying amount of goodwill as of June 30, 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands) | B&W
Renewable | | B&W Environmental | | B&W
Thermal | | Total | |
| Goodwill | $ | 139,248 | | | $ | 79,825 | | | $ | 69,587 | | | $ | 288,660 | | |
| Accumulated impairment losses | $ | (57,189) | | | (74,478) | | | — | | | (131,667) | | |
| Balance at December 31, 2022 | $ | 82,059 | | | $ | 5,347 | | | $ | 69,587 | | | $ | 156,993 | | |
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| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Currency translation adjustments | 334 | | | 138 | | | 688 | | | 1,160 | | |
| Balance at June 30, 2023 | $ | 82,393 | | | $ | 5,485 | | | $ | 70,275 | | | $ | 158,153 | | |
Goodwill represents the excess of the consideration transferred over the fair value of net assets, including identifiable intangible assets, at the acquisition date. Goodwill is assessed for impairment annually on October 1 or more frequently if events or changes in circumstances indicate a potential impairment exists.
There were no indicatorsThe following summarizes the changes in the net carrying amount of goodwill impairment identified from our triggering event assessment at Juneattributable to continuing operations as of September 30, 2023.2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands) | B&W
Renewable | | B&W Environmental | | B&W
Thermal | | Total | |
| Goodwill | $ | 75,468 | | | $ | 79,825 | | | $ | 69,587 | | | $ | 224,880 | | |
| Accumulated impairment losses | (49,965) | | | (74,478) | | | — | | | (124,443) | | |
| Balance at December 31, 2022 | $ | 25,503 | | | $ | 5,347 | | | $ | 69,587 | | | $ | 100,437 | | |
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| | | | | | | | |
| Currency translation adjustments | (16) | | | (6) | | | (32) | | | (54) | | |
| Balance at September 30, 2023 | $ | 25,487 | | | $ | 5,341 | | | $ | 69,555 | | | $ | 100,383 | | |
NOTE 89 – INTANGIBLE ASSETS
The Company's intangibleIntangible assets attributable to continuing operations are as follows:
| | (in thousands) | (in thousands) | June 30, 2023 | | December 31, 2022 | (in thousands) | September 30, 2023 | | December 31, 2022 |
Definite-lived intangible assets(1) | Definite-lived intangible assets(1) | | | | Definite-lived intangible assets(1) | | | |
| Customer relationships | Customer relationships | $ | 68,191 | | | $ | 68,164 | | Customer relationships | $ | 58,202 | | | $ | 58,764 | |
| Unpatented technology | Unpatented technology | 18,260 | | | 18,208 | | Unpatented technology | 18,260 | | | 18,208 | |
| Patented technology | Patented technology | 3,622 | | | 3,635 | | Patented technology | 3,622 | | | 3,635 | |
| Trade name | Trade name | 13,516 | | | 13,441 | | Trade name | 13,516 | | | 13,441 | |
| Acquired backlog | 3,100 | | | 3,100 | | |
| | All other | All other | 9,977 | | | 9,653 | | All other | 9,998 | | | 9,653 | |
| Gross value of definite-lived intangible assets | Gross value of definite-lived intangible assets | 116,666 | | | 116,201 | | Gross value of definite-lived intangible assets | 103,598 | | | 103,701 | |
| Customer relationships amortization | Customer relationships amortization | (28,788) | | | (26,198) | | Customer relationships amortization | (28,640) | | | (25,349) | |
| Unpatented technology amortization | Unpatented technology amortization | (10,912) | | | (10,013) | | Unpatented technology amortization | (11,362) | | | (10,013) | |
| Patented technology amortization | Patented technology amortization | (2,963) | | | (2,891) | | Patented technology amortization | (2,998) | | | (2,891) | |
| Tradename amortization | Tradename amortization | (6,531) | | | (6,154) | | Tradename amortization | (6,722) | | | (6,154) | |
| Acquired backlog | (3,100) | | | (3,100) | | |
| | All other amortization | All other amortization | (9,099) | | | (9,082) | | All other amortization | (9,320) | | | (9,260) | |
| Accumulated amortization | Accumulated amortization | (61,393) | | | (57,438) | | Accumulated amortization | (59,042) | | | (53,667) | |
| Net definite-lived intangible assets | Net definite-lived intangible assets | $ | 55,273 | | | $ | 58,763 | | Net definite-lived intangible assets | $ | 44,556 | | | $ | 50,034 | |
| Indefinite-lived intangible assets | Indefinite-lived intangible assets | | | | Indefinite-lived intangible assets | | | |
| Trademarks and trade names | Trademarks and trade names | $ | 1,530 | | | $ | 1,530 | | Trademarks and trade names | $ | 1,530 | | | $ | 1,530 | |
| Total intangible assets, net | Total intangible assets, net | $ | 56,803 | | | $ | 60,293 | | Total intangible assets, net | $ | 46,086 | | | $ | 51,564 | |
(1) The CompanyWe finalized the purchase price allocation for the B&W Solar and B&W Renewable Service A/S acquisitionacquisitions on September 30, 2022 and November 30, 2022, respectively.2022. The purchase price allocations for FPS and Optimus were finalized on of February 1, 2023 and February 28, 2023, respectively. These allocations resulted in several measurement period adjustments.
The following summarizes the changes in the carrying amount of intangible assets, net:
| | | | | Six Months Ended June 30, | | | | Nine Months Ended September 30, |
| (in thousands) | (in thousands) | | | 2023 | | 2022 | (in thousands) | | | 2023 | | 2022 |
| Balance at beginning of period | Balance at beginning of period | | | $ | 60,293 | | | $ | 43,795 | | Balance at beginning of period | | | $ | 51,564 | | | $ | 33,215 | |
Business acquisitions and adjustments(1) (2) | Business acquisitions and adjustments(1) (2) | | | — | | | 27,412 | | Business acquisitions and adjustments(1) (2) | | | — | | | 27,412 | |
| | Amortization expense | Amortization expense | | | (3,955) | | | (5,076) | | Amortization expense | | | (5,375) | | | (5,148) | |
| Currency translation adjustments | Currency translation adjustments | | | 465 | | | (2,570) | | Currency translation adjustments | | | (103) | | | (4,302) | |
| Balance at end of the period | Balance at end of the period | | | $ | 56,803 | | | $ | 63,561 | | Balance at end of the period | | | $ | 46,086 | | | $ | 51,177 | |
(1) During the sixnine months ended JuneSeptember 30, 2022 the Company waswe were still in the process of completing the purchase price allocation associated with the B&W Solar, B&W Renewable Service A/S, Fossil PowerFPS and Optimus Industries acquisitions and as a result, the provisional measurements of goodwill associated with these acquisitions were subject to change.
(2) The purchase price allocations for FPS and Optimus were finalized as of February 1, 2023 and February 28, 2023, respectively. These allocations resulted in several measurement period adjustments during the year ended December 31, 2022.2022 and nine months ended September 30, 2023.
Amortization of intangible assets is included in Cost of operations and SG&A in the Company'sour Consolidated Statement of Operations but is not allocated to our segment results.
Estimated future intangible asset amortization expense as of JuneSeptember 30, 2023 is as follows (in thousands):
| | | | | |
| Amortization Expense |
| Year ending December 31, 2023 | 4,0131,881 | |
| Year ending December 31, 2024 | 7,9557,172 | |
| Year ending December 31, 2025 | 7,1586,375 | |
| Year ending December 31, 2026 | 6,0105,226 | |
| Year ending December 31, 2027 | 5,3524,569 | |
Year ending December 31, 2028 | 5,352 | |
| Thereafter | 19,43119,333 | |
NOTE 910 – ACCRUED WARRANTY EXPENSE
The CompanyWe may offer assurance type warranties on products and services that it sells.we sell. Changes in the carrying amount of accrued warranty expense are as follows:
| | | | | Six Months Ended June 30, | | | Nine Months Ended September 30, |
| (in thousands) | (in thousands) | | | 2023 | | 2022 | (in thousands) | | 2023 | | 2022 |
| Balance at beginning of period | Balance at beginning of period | | | $ | 9,568 | | | $ | 12,925 | | Balance at beginning of period | | $ | 9,548 | | | $ | 12,925 | |
| Additions | Additions | | | 3,655 | | | 2,942 | | Additions | | 4,546 | | | 3,410 | |
| Expirations and other changes | Expirations and other changes | | | (1,582) | | | (2,028) | | Expirations and other changes | | (3,316) | | | (3,257) | |
| Payments | Payments | | | (1,360) | | | (2,144) | | Payments | | (2,190) | | | (2,159) | |
| Translation and other | Translation and other | | | 13 | | | (612) | | Translation and other | | (61) | | | (687) | |
| Balance at end of period | Balance at end of period | | | $ | 10,294 | | | $ | 11,083 | | Balance at end of period | | $ | 8,527 | | | $ | 10,232 | |
The Company accrues
We accrue estimated expense included in Cost of operations on itsour Condensed Consolidated Statements of Operations to satisfy contractual warranty requirements when it recognizeswe recognize the associated revenues on the related contracts, or in the case of a loss contract, the full amount of the estimated warranty costs is accrued when the contract becomes a loss contract. In addition, the Company recordswe record specific provisions or reductions where it expectswe expect the actual warranty costs to significantly differ from the accrued estimates. Such changes could have a material effect on the Company'sour consolidated financial condition, results of operations and cash flows.
NOTE 1011 – RESTRUCTURING ACTIVITIES
The CompanyWe incurred restructuring charges (benefits) in each of the three and sixnine months ended JuneSeptember 30, 2023 and 2022. The charges (benefits) primarily consist of costs related to actions taken as part of the Company’s ongoing strategic, market-focused organizational and re-branding initiative.initiatives.
The following tables summarize the restructuring activity incurred by segment:
| | | Three Months Ended June 30, | | Three Months Ended June 30, | | Three Months Ended September 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
| (in thousands) | (in thousands) | Total | Severance and related costs | Other (1) | | Total | Severance and related costs (benefit) | Other(1) | (in thousands) | Total | Severance and related costs | Other (1) | | Total | Severance and related costs | Other(1) |
| B&W Renewable segment | B&W Renewable segment | $ | 477 | | $ | 152 | | $ | 325 | | | $ | (20) | | $ | (34) | | $ | 14 | | B&W Renewable segment | $ | 567 | | $ | 567 | | $ | — | | | $ | 78 | | $ | 6 | | $ | 72 | |
| B&W Environmental segment | B&W Environmental segment | 164 | | — | | 164 | | | 34 | | 9 | | 25 | | B&W Environmental segment | 159 | | 116 | | 43 | | | 73 | | 8 | | 65 | |
| B&W Thermal segment | B&W Thermal segment | 830 | | — | | 830 | | | 82 | | 66 | | 16 | | B&W Thermal segment | 559 | | 572 | | (13) | | | 204 | | 14 | | 190 | |
| Corporate | Corporate | (450) | | — | | (450) | | | (198) | | (228) | | 30 | | Corporate | — | | — | | — | | | 4 | | 1 | | 3 | |
| | $ | 1,021 | | $ | 152 | | $ | 869 | | | $ | (102) | | $ | (187) | | $ | 85 | | | $ | 1,285 | | $ | 1,255 | | $ | 30 | | | $ | 359 | | $ | 29 | | $ | 330 | |
|
| | | Six Months Ended June 30, | | Six Months Ended June 30, | | Nine Months Ended September 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
| (in thousands) | (in thousands) | Total | Severance and related costs | Other (1) | | Total | Severance and related costs (benefit) | Other(1) | (in thousands) | Total | Severance and related costs | Other (1) | | Total | Severance and related costs (benefit) | Other(1) |
| B&W Renewable segment | B&W Renewable segment | $ | 388 | | $ | 63 | | $ | 325 | | | $ | (213) | | $ | (263) | | $ | 50 | | B&W Renewable segment | $ | 955 | | $ | 630 | | $ | 325 | | | $ | 865 | | $ | 743 | | $ | 122 | |
| B&W Environmental segment | B&W Environmental segment | 184 | | 1 | | 183 | | | 103 | | 19 | | 84 | | B&W Environmental segment | 343 | | 117 | | 226 | | | 176 | | 27 | | 149 | |
| B&W Thermal segment | B&W Thermal segment | 833 | | 3 | | 830 | | | 280 | | 116 | | 164 | | B&W Thermal segment | 1,392 | | 575 | | 817 | | | 484 | | 130 | | 354 | |
| Corporate | Corporate | — | | — | | — | | | (178) | | (228) | | 50 | | Corporate | — | | — | | — | | | (1,174) | | (1,227) | | 53 | |
| | $ | 1,405 | | $ | 67 | | $ | 1,338 | | | $ | (8) | | $ | (356) | | $ | 348 | | | $ | 2,690 | | $ | 1,322 | | $ | 1,368 | | | $ | 351 | | $ | (327) | | $ | 678 | |
|
(1) Other amounts consist primarily of relocation and other costs that are not considered as severance.
Restructuring liabilities are included in Other accrued liabilitieson in the Company's Condensed Consolidated Balance Sheets. Activity related to the restructuring liabilities is as follows:
| | | Three Months Ended June 30, | | Six Months Ended June 30, | | | Three Months Ended September 30, | | Nine Months Ended September 30, | |
| (in thousands) | (in thousands) | 2023 | | 2022 | | 2023 | | 2022 | | (in thousands) | 2023 | | 2022 | | 2023 | | 2022 | |
Balance at beginning of period | Balance at beginning of period | $ | 2,036 | | | $ | 5,906 | | | $ | 1,615 | | | $ | 6,561 | | | Balance at beginning of period | $ | 2,036 | | | $ | 4,136 | | | $ | 1,615 | | | $ | 6,561 | | |
| Restructuring (benefit) expense | 1,021 | | | (102) | | | 1,405 | | | (8) | | | |
| Restructuring expense | | Restructuring expense | 1,285 | | | 359 | | | 2,690 | | | 351 | | |
| Payments | Payments | (1,124) | | | (1,668) | | | (1,087) | | | (2,417) | | | Payments | (1,718) | | | (1,943) | | | (2,702) | | | (4,360) | | |
| Balance at end of period | Balance at end of period | $ | 1,933 | | | $ | 4,136 | | | $ | 1,933 | | | $ | 4,136 | | | Balance at end of period | $ | 1,603 | | | $ | 2,552 | | | $ | 1,603 | | | $ | 2,552 | | |
The payments shown above for the three and sixnine months ended JuneSeptember 30, 2023 and 2022 relate primarily to severance costs. Accrued restructuring liabilities at JuneSeptember 30, 2023 and 2022 relate primarily to employee termination benefits.
NOTE 1112 – PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS
Components of net periodic cost (benefit) included in net (loss) incomeloss are as follows:
| | | Pension Benefits | | Other Benefits | | Pension Benefits | | Other Benefits |
| | Three Months Ended June 30, | | Six Months Ended June 30, | | Three Months Ended June 30, | | Six Months Ended June 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| (in thousands) | (in thousands) | 2023 | | 2022 | | 2023 | | 2022 | | 2023 | | 2022 | | 2023 | | 2022 | (in thousands) | 2023 | | 2022 | | 2023 | | 2022 | | 2023 | | 2022 | | 2023 | | 2022 |
| Interest cost | Interest cost | $ | 11,526 | | | $ | 6,609 | | | $ | 23,015 | | | $ | 13,273 | | | $ | 92 | | | $ | 49 | | | $ | 184 | | | $ | 98 | | Interest cost | $ | 11,447 | | | $ | 6,685 | | | $ | 34,462 | | | $ | 19,958 | | | $ | 92 | | | $ | 49 | | | $ | 276 | | | $ | 147 | |
| Expected return on plan assets | Expected return on plan assets | (11,706) | | | (14,261) | | | (23,403) | | | (28,627) | | | — | | | — | | | — | | | — | | Expected return on plan assets | (11,709) | | | (14,358) | | | (35,112) | | | (42,985) | | | — | | | — | | | — | | | — | |
| Amortization of prior service cost | Amortization of prior service cost | 53 | | | 27 | | | 105 | | | 55 | | | 173 | | | 173 | | | 346 | | | 346 | | Amortization of prior service cost | 53 | | | 27 | | | 158 | | | 82 | | | 173 | | | 173 | | | 519 | | | 519 | |
Benefit plans, net (1) | Benefit plans, net (1) | (127) | | | (7,625) | | | (283) | | | (15,299) | | | 265 | | | 222 | | | 530 | | | 444 | | Benefit plans, net (1) | (209) | | | (7,646) | | | (492) | | | (22,945) | | | 265 | | | 222 | | | 795 | | | 666 | |
Service cost included in COS (2) | Service cost included in COS (2) | 145 | | | 198 | | | 289 | | | 399 | | | 4 | | | 5 | | | 184 | | | 10 | | Service cost included in COS (2) | 146 | | | 195 | | | 435 | | | 594 | | | 4 | | | 5 | | | 12 | | | 15 | |
| Net periodic benefit cost (benefit) | $ | 18 | | | $ | (7,427) | | | $ | 6 | | | $ | (14,900) | | | $ | 269 | | | $ | 227 | | | $ | 714 | | | $ | 454 | | |
| Net periodic cost (benefit) | | Net periodic cost (benefit) | $ | (63) | | | $ | (7,451) | | | $ | (57) | | | $ | (22,351) | | | $ | 269 | | | $ | 227 | | | $ | 807 | | | $ | 681 | |
(1) Benefit plans, net, which is presented separately in the Company's Condensed Consolidated Statements of Operations, is not allocated to the segments.
(2) Service cost related to a small group of active participants is presented within Cost of operations in the Company's Condensed Consolidated Statements of Operations and is recorded at the B&W Thermal segment level.
There were no mark-to-market ("MTM") adjustments for the Company'sour pension and other postretirement benefit plans during the three and sixnine months ended JuneSeptember 30, 2023 and 2022.
The CompanyWe made contributions to itsour pension and other postretirement benefit plans totaling $0.4$0.3 million and $0.7$1.0 million during the three and sixnine months ended JuneSeptember 30, 2023 as compared to $0.1$1.7 million and $0.5$2.5 million during the three and sixnine months ended JuneSeptember 30, 2022.2022 respectively.
NOTE 1213 – DEBT
8.125%Senior Notes
8.125% Senior Notes
During 2021, the Companywe completed sales of $151.2 million aggregate principal amount of itsour 8.125% senior notes due 2026 (“8.125% Senior Notes”) for net proceeds of approximately $146.6 million. In addition to the completed sales, the Companywe issued $35.0 million of 8.125% Senior Notes to B. Riley Financial, Inc., a related party, in exchange for a deemed prepayment of itsour then existing Last Out Term Loan Tranche A-3. The 8.125% Senior Notes bear interest at the rate of 8.125% per annum which is payable quarterly in arrears on January 31, April 30, July 31 and October 31 of each year, commencing on April 30, 2021.year. The 8.125% Senior Notes mature on February 28, 2026.
On March 31, 2021, the Companywe entered into a sales agreement with B. Riley Securities, Inc., a related party, in which itwe 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. 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 are fungible with the initial 8.125% Senior Notes issuance in 2021.
6.50%Senior Notes
During 2021, the Companywe completed sales of $151.4 million aggregate principal amount of itsour 6.50% senior notes due in 2026 (the “6.50% Senior Notes”) for net proceeds of approximately $145.8 million. Interest on the 6.50% Senior Notes is payable quarterly in arrears on March 31, June 30, September 30 and December 31 of each year. The 6.50% Senior Notes mature on December 31, 2026.
The components of the Company's senior notes at JuneSeptember 30, 2023 are as follows:
| | | Senior Notes | | Senior Notes |
| (in thousands) | (in thousands) | 8.125% | | 6.50% | | Total | (in thousands) | 8.125% | | 6.50% | | Total |
| Senior notes due 2026 | Senior notes due 2026 | $ | 193,034 | | | $ | 151,440 | | | $ | 344,474 | | Senior notes due 2026 | $ | 193,034 | | | $ | 151,440 | | | $ | 344,474 | |
| Unamortized deferred financing costs | Unamortized deferred financing costs | (3,565) | | | (4,694) | | | (8,259) | | Unamortized deferred financing costs | (3,226) | | | (4,356) | | | (7,582) | |
| Unamortized premium | Unamortized premium | 385 | | | — | | | 385 | | Unamortized premium | 349 | | | — | | | 349 | |
| Net debt balance | Net debt balance | $ | 189,854 | | | $ | 146,746 | | | $ | 336,600 | | Net debt balance | $ | 190,157 | | | $ | 147,084 | | | $ | 337,241 | |
Revolving Debt
On June 30, 2021, the Companywe 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 $110.0 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, guarantyReimbursement, Guaranty and security agreementSecurity Agreement with MSD, as administrative agent, and the cash collateral providers from time to time party thereto, along with certain of the Company'sour subsidiaries as guarantors, pursuant to which it iswe 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”). TheOur obligations of the Company under each of the Debt Facilities are guaranteed by certain of our existing and future domestic and foreign subsidiaries of the Company.subsidiaries. B. Riley Financial, Inc. (“B. Riley”), a related party, has provided a guaranty of payment with regard to the Company’sour obligations under the Reimbursement Agreement, as described below. The Company expectsAgreement. We expect to use the proceeds and letter of credit availability under the Debt Facilities for working capital purposes and general corporate purposes. The Revolving Credit Agreement matures on June 30, 2025. As of JuneAt September 30, 2023, the Companywe had $6.0$26.6 million outstanding in revolving debt. For the sixnine months ended JuneSeptember 30, 2023, the Company borrowed $14.0we had average daily borrowings of $9.1 million and a maximum daily amount outstanding of $30.6 million under the Revolving Credit Agreement. Under the Letter of Credit Agreement, usage consisted of $15.0$13.1 million of financial letters of credit and $88.9of $84.0 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 Secured Overnight Financing Rate ("SOFR") 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 SOFR plus 7.50%. Under the Letter of Credit Agreement, the Company iswe are 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 iswe are 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, the Company iswe 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 isWe are 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 hasWe have 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 Companyus 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$35.0 million at any one time, a minimum liquidity covenant of at least $30.0 million at all times, a current ratio of not less than
1.25 to 1.00, 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. The CompanyWe entered into an amendment to the Revolving Credit Agreement on May 9, 2023 which allowed the Companyus to exclude certain acquisition relatedacquisition-related expenses from the calculation of EBITDA under the Revolving Credit Agreement, including for purposes of determining the Company's compliance with certain financial covenants thereunder. Accordingly, as of June 30, 2023 in light of the amendment to the Revolving Credit Agreement, the Company remained in compliance with all financial covenants.
In connection with the Company’sour entry into the Debt Documents on JuneSeptember 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’sour 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’sour obligations under the Reimbursement Agreement. Under a fee letter with B. Riley, the Companywe agreed to pay B. Riley $0.9 million per annum in connection with the B. Riley Guaranty. The CompanyWe entered into a reimbursement agreement with B. Riley governing the Company’sour obligation to reimburse B. Riley to the extent the B. Riley Guaranty is called upon by the agent or lenders under the Reimbursement Agreement.
On November 7, 2022 the Companywe executed an amendment to its Debt Documentsour Reimbursement Agreement with MSD which modified certain financial maintenance covenants for future periods beginning with fiscal quarters ending on December 31, 2022. The Fixed Charge Coverage Ratio was amended to 0.55:0.55 to 1.0 for the fiscal quarter ending December 31, 2022, 0.65 to 1.00 for the fiscal quarter ending March 31, 2023, 0.80 to 1.00 for the fiscal quarter ending June 30, 2023, 1.15 to 1.00 for the fiscal quarter ending September 30, 2023 and 1.25 to 1.00 for the fiscal quarter ending December 31, 2023 and thereafter. The Senior Net Leverage Ratio was amended to 2.00 to 1.00 for the fiscal quarter ending December 31, 2022, 1.75 to 1.00 for the fiscal quarter ending March 31, 2023, 1.60 to 1.00 for the fiscal quarter ending June 30, 2023, and 1.50 to 1.00 for the fiscal quarter ending September 30, 2023 and thereafter. In addition, the interest rates applicable to the Reimbursement Agreement float at a rate per annum are equal to either (i) the base rate plus 9.0% or (ii) 1 or 3-month reserve-adjusted SOFR plus 10.0%. The amendment also establishes minimum cash flow covenants, as defined, for the fiscal quarter ending December 31, 2022 of $20.0 million and $25.0 million for the fiscal year 2023 and each fiscal year thereafter. In addition, the Company alsowe executed an amendment to its Debt Documentsour Revolving Credit Agreement with PNC which modified the calculation of the Fixed Charge Coverage Ratio for the fiscal quarters ending December 31, 2022, March 31, 2023 and June 30, 2023. The calculation of the Fixed Charge Coverage ratio for the fiscal quarter ending September 30, 2023 and thereafter will revert to the original calculation as stated in the original Debt Documents. In addition, the interest rates applicable to the Reimbursement Agreement float at a rate per annum are equal to either (i) a base rate plus 9.0% or (ii) 1 or 3-month reserve-adjusted SOFR plus 10.0%. In December 2022, the Companywe also deposited $10.0 million with PNC for Letter of Credit collateral to enable MSD to reduce their collateral requirement by $10.0 million.
On March 14, 2023, the Company,we, with certain subsidiaries of the Companyour subsidiaries as guarantors, certain lenders from time to time party to the Revolving Credit Agreement, and PNC, as administrative agent and swing loan lender to the Revolving Credit, Guaranty and Security Agreement, dated as of JuneSeptember 30, 2021, as amended (the “Amended Revolving Credit Agreement”), entered into the Second Amendment, Waiver and Consent to the Amended Revolving Credit Agreement (the “Second Amended Revolving Credit Agreement”). The Second Amended Revolving Credit Agreement amends the terms of the Amended Revolving Credit Agreement to (i) waive the senior net leverage ratio test for purposes of enacting a Permitted Restricted Payment on Preferred Shares (each as defined in the Second Amended Revolving Credit Agreement) to be made on March 31, 2023; and (ii) replace the use of LIBOR with Term SOFR throughout.
On May 9, 2023, the Companywe entered into Amendment No. 3 to the Revolving Credit Agreement which allowed the Companyus to exclude certain expenses from the calculation of EBITDA under the Revolving Credit Agreement, including for purposes of determining the Company’s compliance with certain financial covenants thereunder.
On June 26, 2023, the Companywe entered into Amendment No. 4 to the Revolving Credit Agreement, which increased the limit of the Company’s aggregate amount of all unrestricted cash and cash equivalents permitted to draw on the Amended Revolving Credit Agreement from $30$30.0 million to $40$40.0 million.
On November 9, 2023, we entered into Amendment No. 3 to the Reimbursement Agreement (the “Third Amended Reimbursement Agreement”), which modified certain financial maintenance covenants for future periods beginning with the fiscal quarter ended on September 30, 2023. The Fixed Charge Coverage Ratio was amended to 1.05 to 1.0 for the fiscal
quarters ending September 30, 2023 and December 31, 2023, 1.15 to 1.00 for the fiscal quarters ending March 31, 2024 and June 30, 2024, 1.05 to 1.00 for the fiscal quarter ending September 30, 2024, 1.10 to 1.00 for the fiscal quarter ending December 31, 2024, and 1.25 to 1.00 for the fiscal quarter ending March 31, 2025 and thereafter. The Senior Net Leverage Ratio condition to payment of dividends on preferred equity was amended to 1.46 to 1.00 for the fiscal quarter ending September 30, 2023, 1.30 to 1.00 for the fiscal quarter ending December 31, 2023 and 1.25 to 1.00 for all fiscal quarters thereafter. The Third Amended Reimbursement Agreement also imposes a leverage condition to the payment of dividends on preferred equity, which requires the Company to provide a quality of earnings report and pay a $1.0 million fee to MSD prior to paying a dividend for the fiscal quarter ending December 31, 2023. The Third Amended Reimbursement Agreement also amends the minimum cash flow covenants set forth in the Reimbursement Agreement to $10.0 million for the fiscal quarter ending December 31, 2023 and $25.0 million for the fiscal year 2024 and each fiscal year thereafter. The interest rates applicable to the Third Amended Reimbursement Agreement float at a rate per annum are equal to SOFR plus 10% through December 31, 2023, SOFR plus 11% from January 1, 2024 through June 30, 2024 and will increase by 50 basis points as of the first day of each fiscal quarter thereafter. The size of the Cash Collateral Facility under the Third Amended Reimbursement Agreement will step down to $100.0 million following the receipt of the PNC consent (as defined in the Third Amended Reimbursement Agreement), and will step down further to $90.0 million upon reduction in outstanding letters of credit to $90.0 million or less.
On November 9, 2023, we also entered into a letter agreement with a third party financial institution, pursuant to which it agreed to refinance our Debt Facilities (the "Refinance"). The Refinance is intended to reduce our interest expense in the future.
Accordingly, at September 30, 2023, we are in compliance with all financial covenants in the Debt Documents.
Letters of Credit, Bank Guarantees and Surety Bonds
Certain subsidiaries of the Companyour subsidiaries, that are 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 the Company's Letter of Credit Agreement as of JuneSeptember 30, 2023, was $52.2$52.7 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 $32.9$31.6 million as of JuneSeptember 30, 2023. Of the outstanding letters of credit issued under the Letter of Credit Agreement, $64.6$61.8 million are subject to foreign currency revaluation.
The Company hasWe have posted surety bonds to support contractual obligations to customers relating to certain contracts. The Company utilizesWe 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 the Companywe fail to perform itsour obligations under itsour applicable contracts. The Company,We, and certain of itsour subsidiaries, have jointly executed general agreements of indemnity in favor of surety underwriters relating to surety bonds the underwriters issue in support of some of itsour contracting activity. As of JuneSeptember 30, 2023, bonds issued and outstanding under these arrangements in support of itsour contracts totaled approximately $278.2$146.4 million. The aggregate value of the letters of credit backstopping surety bonds was $12.3$12.2 million.
The Company'sOur ability to obtain and maintain sufficient capacity under our current Debt Facilitiesdebt facilities is essential to allow us to support the issuance of letters of credit, bank guarantees and surety bonds. Without sufficient capacity, theour ability to support contract security requirements in the future will be diminished.
Other Indebtedness - Loans Payable
As of JuneSeptember 30, 2023, the Companywe had Loans payable of $21.6$40.4 million, net of debt issuance costs of $0.6$0.5 million, of which $4.4$5.3 million is classified as current and $17.2$35.1 million as long term loans payable on the Company'sour Consolidated Balance Sheet. Included in these amounts, the companywe had approximately $12.8$12.6 million, net of debt issuance costs of $0.6$0.5 million, related to sale-leaseback financing transactions.
NOTE 1314 – PREFERRED STOCK
In May 2021, the Companywe completed a public offering of itsour 7.75% Series A Cumulative Perpetual Preferred Stock (the "Preferred Stock") pursuant to an underwriting agreement (the “Underwriting Agreement”) between the Companyus and B. Riley Securities, Inc. At the closing, the Companywe issued to the public 4,444,700 shares of itsour Preferred Stock, at an offering price of $25.00 per share for net proceeds of approximately $106.4 million after deducting underwriting discounts and commissions but(but before expenses.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 the Company'sour 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 arreararrears.
On June 1, 2021, we entered into an agreement (the “Exchange Agreement”) and B. Riley, a related party, 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.
s.
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 have the same terms and have the same CUSIP number and be fungible with, the Preferred Stock issued during May 2021. During 2021, we sold 307,237 shares, or $7.7 million aggregate principal amount of Preferred Stock for $7.7 million net proceeds, under this sales agreement.
The Preferred Stock ranks, as to dividend rights and rights as to the distribution of assets upon the Company'sour liquidation, dissolution or winding-up: (1) senior to all classes or series of the Company'sour common stock and to all other capital stock issued by it expressly designated as ranking junior to the Preferred Stock; (2) on parity with any future class or series of the Company'sour capital stock expressly designated as ranking on parity with the Preferred Stock; (3) junior to any future class or series of the Company'sour capital stock expressly designated as ranking senior to the Preferred Stock; and (4) junior to all of the Company'sour existing and future indebtedness.
The Preferred Stock has no stated maturity and is not subject to mandatory redemption or any sinking fund. The CompanyWe will pay cumulative cash dividends on the Preferred Stock when, and if, declared by itsour 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 the Company'sour Board of Directors will be payable quarterly in arrears on March 31, June 30, September 30 and December 31 of each year.
During the sixnine months ending JuneSeptember 30, 2023, the Company'sour Board of Directors approved dividends totaling $7.4totaling $11.1 million to holders of the Preferred Stock. There were no cumulative undeclared dividends of the Preferred Stock at JuneSeptember 30, 2023, all declared dividends have been paid as of October 2, 2023.
NOTE 1415 – COMMON STOCK
On May 19, 2022, theour stockholders, of the Company, upon the recommendation of the Company’sour Board of Directors, approved an amendment to the Babcock & Wilcox Enterprises, Inc. 2021 Long-Term Incentive Plan. The Plan Amendment became effective upon such stockholder approval. The Plan Amendment increased the total number of shares of the Company’sour common stock authorized for award grants under the 2021 Plan from 1,250,000 shares to 5,250,000 shares. The 2021 Plan replaced the Company’sour 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 as described above, any shares of Companyour common stock underlying any outstanding award granted under the 2015 Plan that, following May 20, 2021, expires, or is terminated, surrendered, or forfeited for any reason without issuance of such shares shall also be available for the grant of new awards under the 2021 Plan.
On February 12, 2021, we completed a public offering of our common stock pursuant to an underwriting agreement (the “Underwriting Agreement”) dated February 9, 2021, between us and B. Riley Securities, Inc., as representative of the several underwriters (the “Underwriters”). At the closing, we issued to the public 29,487,180 shares of our common stock for gross proceeds of approximately $172.5 million. We received approximately $163.0 million in net proceeds after deducting underwriting discounts and commissions, but before expenses.
NOTE 1516 –INTEREST EXPENSE AND SUPPLEMENTAL CASH FLOW INFORMATION
Interest expense in the Company's Condensed Consolidated Financial Statements consisted of the following components:
| | | Three Months Ended June 30, | | Six Months Ended June 30, | | | Three Months Ended September 30, | | Nine Months Ended September 30, | |
| (in thousands) | (in thousands) | 2023 | | 2022 | | 2023 | | 2022 | | (in thousands) | 2023 | | 2022 | | 2023 | | 2022 | |
| Components associated with borrowings from: | Components associated with borrowings from: | | | | | | | | | Components associated with borrowings from: | | | | | | | | |
| Senior notes | Senior notes | $ | 6,425 | | | $ | 6,114 | | | $ | 12,753 | | | $ | 12,329 | | | Senior notes | $ | 6,414 | | | $ | 6,385 | | | $ | 19,167 | | | $ | 18,715 | | |
| | U.S. Revolving Credit Facility | | U.S. Revolving Credit Facility | $ | 505 | | | — | | | 505 | | | — | | |
| | | 6,919 | | | 6,385 | | | 19,672 | | | 18,715 | | |
| 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 | 1,164 | | | 1,168 | | | 2,148 | | | 2,228 | | | Revolving Credit Agreement | 1,104 | | | 1,237 | | | 3,252 | | | 3,465 | | |
| Senior notes | Senior notes | 630 | | | 650 | | | 1,249 | | | 1,292 | | | Senior notes | 638 | | | 657 | | | 1,887 | | | 1,950 | | |
| | | 1,794 | | | 1,818 | | | 3,397 | | | 3,520 | | | | 1,742 | | | 1,894 | | | 5,139 | | | 5,415 | | |
| | Components associated with interest from: | Components associated with interest from: | | | Components associated with interest from: | | |
| Lease liabilities | Lease liabilities | 597 | | | 697 | | | 1,321 | | | 1,405 | | | Lease liabilities | 914 | | | 707 | | | 2,235 | | | 2,112 | | |
| Other interest expense | Other interest expense | 2,360 | | | 2,033 | | | 6,367 | | | 4,675 | | | Other interest expense | 3,841 | | | 2,112 | | | 10,202 | | | 6,447 | | |
| | 2,957 | | | 2,730 | | | 7,688 | | | 6,080 | | | | 4,755 | | | 2,819 | | | 12,437 | | | 8,559 | | |
| | Total interest expense | Total interest expense | $ | 11,176 | | | $ | 10,662 | | | $ | 23,838 | | | $ | 21,929 | | | Total interest expense | $ | 13,416 | | | $ | 11,098 | | | $ | 37,248 | | | $ | 32,689 | | |
The following table provides a reconciliation of Cash, cash equivalents and Short-term and Long-term restricted cash reporting within the Company's Condensed Consolidated Balance Sheets and in the Condensed Consolidated Statements of Cash Flows:
| | (in thousands) | (in thousands) | June 30, 2023 | | December 31, 2022 | (in thousands) | September 30, 2023 | | December 31, 2022 |
| Held by foreign entities | Held by foreign entities | $ | 35,381 | | | $ | 46,640 | | Held by foreign entities | $ | 36,712 | | | $ | 46,640 | |
| Held by U.S. entities | Held by U.S. entities | 19,654 | | | 30,088 | | Held by U.S. entities | 11,657 | | | 29,598 | |
| Cash and cash equivalents | Cash and cash equivalents | 55,035 | | | 76,728 | | Cash and cash equivalents | 48,369 | | | 76,238 | |
| | Reinsurance reserve requirements | Reinsurance reserve requirements | 1,388 | | | 447 | | Reinsurance reserve requirements | 608 | | | 447 | |
Project indemnity collateral (1) | Project indemnity collateral (1) | — | | | 5,723 | | Project indemnity collateral (1) | — | | | 5,723 | |
| Bank guarantee collateral | Bank guarantee collateral | 1,800 | | | 2,072 | | Bank guarantee collateral | 1,743 | | | 2,072 | |
Letters of credit collateral (2) | Letters of credit collateral (2) | 11,200 | | | 11,193 | | Letters of credit collateral (2) | 11,205 | | | 11,193 | |
Hold-back for acquisition purchase price (3) | Hold-back for acquisition purchase price (3) | 2,950 | | | 5,900 | | Hold-back for acquisition purchase price (3) | 2,950 | | | 5,900 | |
Escrow for long-term project (4) | Escrow for long-term project (4) | 11,506 | | | 11,397 | | Escrow for long-term project (4) | 231 | | | 11,397 | |
| Current and Long-term restricted cash and cash equivalents | Current and Long-term restricted cash and cash equivalents | 28,844 | | | 36,732 | | Current and Long-term restricted cash and cash equivalents | 16,737 | | | 36,732 | |
| 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 | $ | 83,879 | | | $ | 113,460 | | Total cash, cash equivalents and restricted cash shown in the Condensed Consolidated Statements of Cash Flows | $ | 65,106 | | | $ | 112,970 | |
(1) The CompanyWe released $5.7 million in project indemnity restricted cash collateral for a letter of credit agreement during the first sixnine months of 2023.
(2) The CompanyWe paid an additional $10.0 million in December, 2022 for letter of credit collateral which is reflected in Long-term restricted cash on the Company'sCondensed Consolidated Balance Sheets. The remainder of the letters of credit are reflected within Restricted cash and cash equivalents.
(3) The purchase price for Fossil Power SystemsFPS was $59.2 million, and included an initial hold-back of $5.9 million which was included in Current restricted cash and cash equivalents and Other accrued liabilities on the Company's Condensed Consolidated Balance Sheets. As of JuneSeptember 30, 2023, the initial payment was made in the amount of $2.8 million and the remainder is being held in escrow for potential payment of up to the maximum amount until February 2024 if the conditions are met.
(4) On December 15, 2021, the Company entered into an agreement to place $11.4 million in an escrow account as security to ensure project performance. At June 30, 2023 the entire amount was reclassified from Long-Term to Short-Term restricted cash and cash was received on August 3, 2023.
The following cash activity is presented as a supplement to the Company's Condensed Consolidated Statements of Cash Flows and is included in Net cash used in operating activities:
| | | Six Months Ended June 30, | | | Nine Months Ended September 30, | |
| (in thousands) | (in thousands) | | 2023 | | 2022 | | (in thousands) | | 2023 | | 2022 | |
| Income tax payments, net | Income tax payments, net | | $ | 3,264 | | | $ | 2,104 | | | Income tax payments, net | | $ | 4,642 | | | $ | 2,693 | | |
| | Interest payments - 8.125% Senior Notes due 2026 | Interest payments - 8.125% Senior Notes due 2026 | | $ | 7,842 | | | $ | 7,613 | | | Interest payments - 8.125% Senior Notes due 2026 | | $ | 11,763 | | | $ | 11,444 | | |
| Interest payments - 6.50% Senior Notes due 2026 | Interest payments - 6.50% Senior Notes due 2026 | | 4,922 | | | 5,387 | | | Interest payments - 6.50% Senior Notes due 2026 | | 4,922 | | | 7,848 | | |
| | Total cash paid for interest | Total cash paid for interest | | $ | 12,764 | | | $ | 13,000 | | | Total cash paid for interest | | $ | 16,685 | | | $ | 19,292 | | |
NOTE 1617 – PROVISION FOR INCOME TAXES
In the three months ended JuneSeptember 30, 2023, income tax expensebenefit from continuing operations was $1.9$(0.3) million, resulting in an effective tax rate of (59.1)%2.6%. In the three months ended JuneSeptember 30, 2022, income tax benefitexpense from continuing operations was $(1.4)$4.9 million, resulting in an effective tax rate of 31.2%(62.5)%.
In the sixnine months ended JuneSeptember 30, 2023, income tax expense from continuing operations was $2.4$2.0 million, resulting in an effective tax rate of (15.5)(9.0)%
In the sixnine months ended JuneSeptember 30, 2022, income tax benefitexpense from continuing operations was $(0.1)$4.8 million resulting in an effective tax rate of 1.1%(27.0)%.
The Company'sOur effective tax rate for the three and sixnine months ended JuneSeptember 30, 2023 is not reflective of the U.S. statutory rate due to valuation allowances against certain net deferred tax assets and discrete items. The Company has favorableWe have unfavorable discrete items relating to continuing operations of $(0.4)$0.8 million and $(0.2)$0.5 million for the three and sixnine months ended JuneSeptember 30, 2023, which primarily represent withholding taxes and return-to-accrual adjustments. The CompanyWe had unfavorable discrete items relating to continuing operations of $0.1$0.7 million and $0.5$1.2 million for the three and sixnine months ended JuneSeptember 30, 2022, which primarily represented withholding taxes.
The Company isWe 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%. The Company providesWe provide for income taxes based on the tax laws and rates in the jurisdictions where it conductswe conduct operations. These jurisdictions may have regimes of taxation that vary in both nominal rates and the basis on which these rates are applied. The Company'sOur 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 itsour income, and valuation allowances.
NOTE 1718 – 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 the Companywe filed a motion to dismiss, and on December 14, 2020 the court issued its order dismissing the fraud and negligent misrepresentation claims. On January 11, 2021, the Companywe filed itsan answer and a counterclaim for breach of contract, seeking damages in excess of $2.9 million. On November 30, 2022, the Companywe and Glatfelter each filed cross-motions for summary judgment. On June 21, 2023, the court granted the Company’sour motion in part, dismissing Glatfelter’s promissory estoppel and unjust enrichment claims, dismissing Babcock & Wilcox Enterprises, Inc. entirely (Glatefelter's(Glatfelter's remaining claim is asserted against The Babcock & Wilcox Company), and finding that 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), and denied Glatfelter’s motion for summary judgment. The Company intendscase is set for trial in February 2024. We intend to continue to vigorously litigate the action. However, given the uncertainty inherent in the litigation, it is too early to determine if the outcome of the Glatfelter Litigation will have a material adverse impact on the Company'sour condensed consolidated financial condition, results of operations or cash flows.
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’sour directors (current and former), executives and significant stockholders (collectively, “Defendants”) and the CompanyB&W (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 (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.
On June 10, 2022, after pursuing private mediation, the parties 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 CompanyB&W 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.B&W. Of the total settlement amount, the CompanyB&W 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 our 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 CompanyB&W 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.B&W.
On July 14, 2023, the Court issued an order approving the settlement as fair and reasonable and in the best interests of the Plaintiff, the certified class, the Company,B&W, and itsour stockholders and entered the order and final judgment dismissing the case with prejudice. ThisThe settlement resolvesresolved 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 amount to be paid by the Company is fully accrued and reflected in Other accrued liabilities on the Company's Condensed Consolidated Balance Sheets at June 30, 2023. The Company has also accrued a probable loss recovery related to settlement proceeds of $4.2 million in Other Accounts Receivable on the Company's Condensed Consolidated Balance Sheets
and in Advisory fees and settlement costs in the Company's Condensed Consolidated Statements of Operations at June 30, 2023.
Russian Invasion of Ukraine
The Company doesWe do not currently have contracts directly with Russian entities or businesses and it currently doesdo not conduct business in Russia directly. It is believedWe believe that the Company’sour only involvement with Russia, or Russian entities, involves sales of its products with a trade receivable in the amount of approximately $3.1 million by a wholly-owned Italian subsidiary of the Company to non-Russian counterparties who may resell the Company'sour products to Russian entities or perform services in Russia using itsour products. The Company hasWe have implemented a restricted party screening process completed by a third party to monitor compliance with trade restrictions. The economic sanctions and export-control measures and the ongoing invasion of Ukraine could impact the Company'sour subsidiary’s rights and responsibilities under the contracts and could result in potential losses to the Company.losses.
Other
Due to the nature of B&W'sour business, the Company is, from time to time, we are involved in routine litigation or subject to disputes or claims related to itsour business activities, including, among other things: performance or warranty-related matters under the Company'sour customer and supplier contracts and other business arrangements; and workers' compensation, premises liability and other claims. Based on prior experience, the Company doesexcept as disclosed above, we do not expect that any of these other litigation proceedings, disputes and claims will have a material adverse effect on itsour condensed consolidated financial condition, results of operations or cash flows.
NOTE 1819 – COMPREHENSIVE LOSS
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, second, and secondthird quarters of 2023 and 2022 were as follows:
| | (in thousands) | (in thousands) | Currency translation loss | | Net unrecognized loss related to benefit plans (net of tax) | Total | (in thousands) | Currency translation loss | | Net unrecognized loss related to benefit plans (net of tax) | Total |
| Balance at December 31, 2022 | Balance at December 31, 2022 | $ | (70,333) | | | $ | (2,453) | | $ | (72,786) | | Balance at December 31, 2022 | $ | (70,333) | | | $ | (2,453) | | $ | (72,786) | |
| Other comprehensive income before reclassifications | Other comprehensive income before reclassifications | 4,592 | | | — | | 4,592 | | Other comprehensive income before reclassifications | 4,592 | | | — | | 4,592 | |
| Reclassification of AOCI to net (loss) income | — | | | 223 | | 223 | | |
| Reclassification of AOCI to net loss | | Reclassification of AOCI to net loss | — | | | 223 | | 223 | |
| Net other comprehensive income | Net other comprehensive income | 4,592 | | | 223 | | 4,815 | | Net other comprehensive income | 4,592 | | | 223 | | 4,815 | |
| Balance at March 31, 2023 | Balance at March 31, 2023 | $ | (65,741) | | | $ | (2,230) | | $ | (67,971) | | Balance at March 31, 2023 | $ | (65,741) | | | $ | (2,230) | | $ | (67,971) | |
| Other comprehensive income before reclassifications | Other comprehensive income before reclassifications | 3,527 | | | — | | 3,527 | | Other comprehensive income before reclassifications | 3,527 | | | — | | 3,527 | |
| Reclassification of AOCI to net (loss) income | — | | | 222 | | 222 | | |
| Reclassification of AOCI to net loss | | Reclassification of AOCI to net loss | — | | | 222 | | 222 | |
| Net other comprehensive income | Net other comprehensive income | 3,527 | | | 222 | | 3,749 | | Net other comprehensive income | 3,527 | | | 222 | | 3,749 | |
| Balance at June 30, 2023 | Balance at June 30, 2023 | $ | (62,214) | | | $ | (2,008) | | $ | (64,222) | | Balance at June 30, 2023 | $ | (62,214) | | | $ | (2,008) | | $ | (64,222) | |
| Other comprehensive loss before reclassifications | | Other comprehensive loss before reclassifications | $ | (8,669) | | | $ | — | | $ | (8,669) | |
| Amounts reclassified from AOCI to net loss | | Amounts reclassified from AOCI to net loss | | | $ | 223 | | $ | 223 | |
| Net other comprehensive loss | | Net other comprehensive loss | (8,669) | | | 223 | | (8,446) | |
| Balance at September 30, 2023 | | Balance at September 30, 2023 | $ | (70,883) | | | $ | (1,785) | | $ | (72,668) | |
| |
| | (in thousands) | (in thousands) | Currency translation
loss | | Net unrecognized loss
related to benefit plans
(net of tax) | Total | (in thousands) | Currency translation
loss | | Net unrecognized loss
related to benefit plans
(net of tax) | Total |
| Balance at December 31, 2021 | Balance at December 31, 2021 | $ | (55,499) | | | $ | (3,323) | | $ | (58,822) | | Balance at December 31, 2021 | $ | (55,499) | | | $ | (3,323) | | $ | (58,822) | |
| Other comprehensive loss before reclassifications | Other comprehensive loss before reclassifications | (4,285) | | | — | | (4,285) | | Other comprehensive loss before reclassifications | (4,285) | | | — | | (4,285) | |
| Reclassified from AOCI to net loss | Reclassified from AOCI to net loss | — | | | 593 | | 593 | | Reclassified from AOCI to net loss | — | | | 593 | | 593 | |
| Net other comprehensive (loss) income | (4,285) | | | 593 | | (3,692) | | |
| Net other comprehensive loss | | Net other comprehensive loss | (4,285) | | | 593 | | (3,692) | |
| Balance at March 31, 2022 | Balance at March 31, 2022 | $ | (59,784) | | | $ | (2,730) | | $ | (62,514) | | Balance at March 31, 2022 | $ | (59,784) | | | $ | (2,730) | | $ | (62,514) | |
| Other comprehensive loss before reclassifications | Other comprehensive loss before reclassifications | (6,634) | | | — | | (6,634) | | Other comprehensive loss before reclassifications | (6,634) | | | — | | (6,634) | |
| Reclassified from AOCI to net loss | Reclassified from AOCI to net loss | — | | | (198) | | (198) | | Reclassified from AOCI to net loss | — | | | (198) | | (198) | |
| Net other comprehensive loss | Net other comprehensive loss | (6,634) | | | (198) | | (6,832) | | Net other comprehensive loss | (6,634) | | | (198) | | (6,832) | |
| Balance at June 30, 2022 | Balance at June 30, 2022 | $ | (66,418) | | | $ | (2,928) | | $ | (69,346) | | Balance at June 30, 2022 | $ | (66,418) | | | $ | (2,928) | | $ | (69,346) | |
| Other comprehensive loss before reclassifications | | Other comprehensive loss before reclassifications | $ | (13,344) | | | $ | — | | $ | (13,344) | |
| Amounts reclassified from AOCI to net loss | | Amounts reclassified from AOCI to net loss | — | | | 198 | | 198 | |
| Net other comprehensive loss | | Net other comprehensive loss | (13,344) | | | 198 | | (13,146) | |
| Balance at September 30, 2022 | | Balance at September 30, 2022 | $ | (79,762) | | | $ | (2,730) | | $ | (82,492) | |
|
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 June 30, | | Six Months Ended June 30, | | 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, | |
| 2023 | | 2022 | | 2023 | | 2022 | | AOCI component | Line items in the Condensed Consolidated Statements of Operations affected by reclassifications from AOCI | 2023 | 2022 | | 2023 | 2022 | |
| | | Pension and post retirement adjustments, net of tax | Pension and post retirement adjustments, net of tax | Benefit plans, net | 222 | | | (198) | | | 445 | | | 395 | | | Pension and post retirement adjustments, net of tax | Benefit plans, net | 223 | | 198 | | | 668 | | 593 | | |
| | Net (loss) income | $ | 222 | | | $ | (198) | | | $ | 445 | | | $ | 395 | | | | Net (loss) income | $ | 223 | | $ | 198 | | | $ | 668 | | $ | 593 | | |
NOTE 1920 – FAIR VALUE MEASUREMENTS
The following tables summarize the Company'sour financial assets and liabilities carried at fair value, all of which were valued from readily available prices or using inputs based upon quoted prices for similar instruments in active markets (known as "Level 1" and "Level 2" inputs, respectively, in the fair value hierarchy established by the FASB Topic, Fair Value Measurements and Disclosures).
| | | | | | | | | | | | |
| (in thousands) | | | | |
| Available-for-sale securities | June 30, 2023 | Level 1 | Level 2 | |
| Corporate notes and bonds | $ | 3,306 | | $ | 3,306 | | $ | — | | |
| Mutual funds | 651 | | — | | 651 | | |
| United States Government and agency securities | 3,495 | | 3,495 | | — | | |
| Total fair value of available-for-sale securities | $ | 7,452 | | $ | 6,801 | | $ | 651 | | |
| | | | | | | | | | | | |
| (in thousands) | | | | |
| Available-for-sale securities | December 31, 2022 | Level 1 | Level 2 | |
| Corporate notes and bonds | $ | 4,154 | | $ | 4,154 | | $ | — | | |
| Mutual funds | 612 | | — | | 612 | | |
| United States Government and agency securities | 4,023 | | 4,023 | | — | | |
| Total fair value of available-for-sale securities | $ | 8,789 | | $ | 8,177 | | $ | 612 | | |
Available-For-Sale Securities
The Company's investmentsInvestments in available-for-sale securities are presented in Other assets on itsthe Condensed Consolidated Balance Sheets with contractual maturities ranging from 0-50 to 5 years.
| | | | | | | | | | | | |
| (in thousands) | | | | |
| Available-for-sale securities | September 30, 2023 | Level 1 | Level 2 | |
| Corporate notes and bonds | $ | 3,292 | | $ | 3,292 | | $ | — | | |
| Mutual funds | 2 | | — | | 2 | | |
| United States Government and agency securities | 3,614 | | 3,614 | | — | | |
| Total fair value of available-for-sale securities | $ | 6,908 | | $ | 6,906 | | $ | 2 | | |
| | | | | | | | | | | | |
| (in thousands) | | | | |
| Available-for-sale securities | December 31, 2022 | Level 1 | Level 2 | |
| Corporate notes and bonds | $ | 4,154 | | $ | 4,154 | | $ | — | | |
| Mutual funds | 612 | | — | | 612 | | |
| United States Government and agency securities | 4,023 | | 4,023 | | — | | |
| Total fair value of available-for-sale securities | $ | 8,789 | | $ | 8,177 | | $ | 612 | | |
Senior Notes
See Note 1213 above for a discussion of the Company'sour senior notes. The fair value of the senior notes is based on readily available quoted market prices as of JuneSeptember 30, 2023.
| | (in thousands) | (in thousands) | June 30, 2023 | | (in thousands) | September 30, 2023 | |
| 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') | $ | 193,034 | | $ | 187,630 | | | 8.125% Senior Notes due 2026 ('BWSN') | $ | 193,034 | | $ | 183,383 | | |
| 6.50% Senior Notes due 2026 ('BWNB') | 6.50% Senior Notes due 2026 ('BWNB') | $ | 151,440 | | $ | 129,633 | | | 6.50% Senior Notes due 2026 ('BWNB') | $ | 151,440 | | $ | 126,301 | | |
Other Financial Instruments
The CompanyWe used the following methods and assumptions in estimating itsour fair value disclosures for itsour other financial instruments:
•Cash and cash equivalents and restricted cash and cash equivalents. The carrying amounts that the Company hashave been reported in the accompanying Condensed Consolidated Balance Sheets for cash and cash equivalents and restricted cash and cash equivalents approximate their fair values due to their highly liquid nature.
•Revolving Debtdebt. The Company basesWe base the fair values of debt instruments on quoted market prices. Where quoted prices are not available, the Company baseswe 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 the Company's Revolving Debt approximated their carrying value at JuneSeptember 30, 2023.
•Warrants. The fair value of the warrants was established using the Black-Scholes option pricing model value approach.
NOTE 2021 – RELATED PARTY TRANSACTIONS
The Company believesWe believe 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 31.6%30.5% of the Company's outstanding common stock as of JuneSeptember 30, 2023.
On 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 the Company's common stock at a price per share of $0.01 pursuant to the terms of the warrant agreement between the Company and B. Riley dated July 23, 2019.
On July 28, 2022, the Company 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 potential carve-out of any of its four main subsidiaries. The Company was the successful bidder for the assets of one of those subsidiaries, Hamon Research-Cottrell, Inc. a major provider of air pollution control technology, for approximately $2.9 million.
The Company 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 its 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 services of Mr. Kenny Young were $0.2 million and $0.4 million for the three and six months ended ended June 30, 2023, respectively, and $0.2 million and $0.4 million for the three and six months ended ended June 30, 2022.
As described in Note 17,18, on June 10, 2022,July 14, 2023, after pursuing private mediation, the parties to the Stockholder Litigation reached a settlement agreement in principle to resolvewhich was approved by the Stockholder Litigation. Of the totalcourt totaling a $9.5 million settlement amount, the Company will paywe paid $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 customary settlement costs and expenses, will be paid to our shareholders, of the Company, excluding any Defendant in the Stockholder Litigation. The settlement
On 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 terms of the warrant agreement between us and B. Riley dated July 23, 2019.
On July 28, 2022, we participated in the sale process of Hamon Holdings Corporation ("Hamon") for which B. Riley Securities, Inc., a related party, 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 potential carve-out of any of its four main subsidiaries. We were a successful bidder for the assets of one of those subsidiaries, Hamon Research-Cottrell, Inc. a major provider of air pollution control technology, for approximately $2.9 million.
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 matter remains subjectagreement, payments are $0.75 million per annum, paid monthly. Subject to court approval and the amount to be paidachievement of certain performance objectives as determined by the Company is fully accrued at JuneCompensation Committee of our Board of Directors, a bonus or bonuses may also be earned and payable to BRPI Executive Consulting, LLC. Total fees associated with B. Riley related to the services of Mr. Kenny Young were $0.2 million and $0.6 million for the three and nine months ended September 30, 2023.2023 and 2022, respectively.
The public offering of the Company'sour 8.125% Senior Notes in February 2021, as described in Note 12,13, was conducted pursuant to an underwriting agreement dated February 10, 2021, between the Companyus and B. Riley Securities, Inc., an affiliate of B. Riley, as representative of several underwriters. At the closing date on February 12, 2021, the Companywe paid B. Riley Securities, Inc. $5.2 million for underwriting fees and other transaction costcosts related to the 8.125% Senior Notes offering.
The public offering of the Company'sour common stock, as described in Note 14,15, was conducted pursuant to an underwriting agreement dated February 9, 2021, between the Companyus and B. Riley Securities, Inc., as representative of the several underwriters. Also on
February 12, 2021, the Companywe paid B. Riley Securities, Inc. $9.5 million for underwriting fees and other transaction costs related to the offering.
On February 12, 2021, the Companywe and B. Riley entered into the Exchange Agreement pursuant to which the Companywe 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 itsour existing Tranche A term loan with B. Riley Financial in the Exchange, as described in Note 1213.
On March 31, 2021, the Companywe entered into a sales agreement with B. Riley Securities, Inc., a related party, inpursuant to which the Companywe may sell, from time to time, up to an aggregated principal amount of $150.0 million of 8.125% Senior Notes due
2026 to or through B. Riley Securities, Inc., as described in Note 1213. As of March 31W, 2023, the Companye paid B. Riley Securities, Inc.Inc. $0.6 million for underwriting fees and other transaction costs related to the offering.
The public offering of the Company'sour 7.75% Series A Cumulative Perpetual Preferred Stock, as described in Note 13,14, was conducted pursuant to an underwriting agreement dated May 4, 2021, between the Companyus and B. Riley Securities, Inc., as representative of several underwriters. At the closing date onin May 2021, the Companywe 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, the Companywe completed the additional sale of 444,700 shares of itsour Preferred Stock, related to the grant to the underwriters, as described in Note 13,14, and paid B. Riley Securities, Inc. $0.4 million for underwriting fees in conjunction with the transaction.
On June 1, 2021, the Companywe issued 2,916,880 shares of itsour 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 the Company'sour then existing Last Out Term Loans and paid $0.9 million in cash for accrued interest, as described in Note 13.14.
On June 30, 2021, the Companywe entered into new Debt Facilities, as described in Note 1213. In connection with the its 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’sour obligations under the Reimbursement Agreement, as describedescribed in Note 1213. Under a fee letter with B. Riley, the Company shallwe are obligated to pay B. Riley $0.9 million per annum in connection with the B. Riley Guaranty.
On July 7, 2021, the Companywe entered into a sales agreement with B. Riley Securities, Inc., a related party, inpursuant to which the Companywe may sell, from time to time, up to an aggregated principal amount of $76.0$76.0 million of Preferred Stock to or through B. Riley Securities, Inc., as described in Note 1314. The Company We paid B. Riley Securities, Inc. $0.2$0.2 million for underwriting fees and other transaction costs related to the offering.
The public offering of the Company'sour 6.50% Senior Notes in December 2021, as described in Note 12,13, was conducted pursuant to an underwriting agreement dated December 8, 2021, between the Companyus and B. Riley Securities, Inc., an affiliate of B. Riley, as representative of several underwriters. At the closing date on December 13, 2021, the Companywe paid B. Riley Securities, Inc. $5.5 million for underwriting fees and other transaction cost related to the 6.50% Senior Notes offering.
On December 17, 2021, B. Riley Financial, Inc. entered into a General Agreement of Indemnity (the "Indemnity Agreement"), between the Companyus and AXA-XL and or[and or] its affiliated associated and subsidiary companies (collectively the “Surety”). Pursuant to the terms of the Indemnity Agreement, B. Riley will 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 exceed €30.0 million in connection with the Company'sour proposed performance on a specified project. In consideration of B. Riley's execution of the Indemnity Agreement the Companywe paid B. Riley a fee of $1.7 million following the issuance of the bond by the Surety, which represents approximately 5.0% of the bonded obligations, to be amortized over the term of the agreement.
On December 28, 2021, the Companywe 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, the Companywe paid B. Riley Securities, Inc. $0.5 million for underwriting fees and other transaction costcosts related to the 6.50% Senior Notes overallotment.
NOTE 2122 – ACQUISITIONS AND DIVESTITURES
Acquisitions
Fossil Power Systems
On February 1, 2022, the Companywe acquired 100% ownership of Fossil Power Systems, Inc. (“FPS”)FPS for approximately $59.2 million. The consideration paid included a hold-back of $5.9 million, payable twenty-four months from the date of the acquisition if certain conditions of the purchase agreement are met and is recorded on the Company's Condensed Consolidated Balance Sheets in Restricted cash and cash equivalents and other accrued liabilities. Of the $5.9 million hold-back, $2.8 million was paid during the sixnine months ended JuneSeptember 30, 2023.
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 the Company's B&W Thermal segment.
The CompanyWe finalized the fair values during the first quarter primarilyof 2023 using the discounted cash flow method for the assets acquired and liabilities assumed.
Optimus Industries
On February 28, 2022, the Companywe acquired 100% ownership of Optimus Industries, LLC 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 the Company's B&W Thermal segment.
The CompanyWe finalized the fair values during the first quarter primarilyof 2023 using the discounted cash flow method for the assets acquired and liabilities assumed.
Hamon Holdings Corporation Industries
On July 28, 2022, the Companywe acquired certain assets of Hamon Holdings Corporation ("Hamon Holdings") through a competitive sale process, in connection with B. Riley Securities, Inc., a related partyparty. B. Riley Securities, Inc. to the Company, had been engaged as Hamon Holdings’ investment banker and to serve as advisor to Hamon Holdings through a Chapter 11 363 Asset Sale of Hamon Holdings’ entire United States business or potential carve-out of any of its four main subsidiaries. B&W was the successful bidder for certain assets of one of those subsidiaries, Hamon Research-Cottrell, Inc., ("Hamon") a major provider of air pollution control technology, for approximately $2.9 million.
Purchase Price Allocations
The purchase price allocation to assets acquired and liabilities assumed in the acquisitions of Fossil Power SystemsFPS and Optimus Industries are detailed in following tables.
| | | Fossil Power Systems | | FPS |
| (in thousands) | (in thousands) | Estimated Acquisition Date Fair Value | Measurement Period Adjustments | Final Allocation(2) | (in thousands) | Estimated Acquisition Date Fair Value | Measurement Period Adjustments | Final Allocation(2) |
| Cash | Cash | $ | 1,869 | | $ | — | | $ | 1,869 | | Cash | $ | 1,869 | | $ | — | | $ | 1,869 | |
| Accounts receivable | Accounts receivable | 2,624 | | — | | 2,624 | | Accounts receivable | 2,624 | | — | | 2,624 | |
| Contracts in progress | Contracts in progress | 370 | | — | | 370 | | Contracts in progress | 370 | | — | | 370 | |
| Other current assets | Other current assets | 3,228 | | — | | 3,228 | | Other current assets | 3,228 | | — | | 3,228 | |
| Property, plant and equipment, net | Property, plant and equipment, net | 178 | | — | | 178 | | Property, plant and equipment, net | 178 | | — | | 178 | |
Goodwill(1) | Goodwill(1) | 35,392 | | 270 | | 35,662 | | Goodwill(1) | 35,392 | | 270 | | 35,662 | |
| Other assets | Other assets | 25,092 | | — | | 25,092 | | Other assets | 25,092 | | — | | 25,092 | |
| Right of use assets | Right of use assets | 1,115 | | — | | 1,115 | | Right of use assets | 1,115 | | — | | 1,115 | |
| Current liabilities | Current liabilities | (1,792) | | (18) | | (1,810) | | Current liabilities | (1,792) | | (18) | | (1,810) | |
| Advance billings on contracts | Advance billings on contracts | (645) | | — | | (645) | | Advance billings on contracts | (645) | | — | | (645) | |
| Non-current lease liabilities | Non-current lease liabilities | (989) | | — | | (989) | | Non-current lease liabilities | (989) | | — | | (989) | |
| Non-current liabilities | Non-current liabilities | (7,384) | | (106) | | (7,490) | | Non-current liabilities | (7,384) | | (106) | | (7,490) | |
| Net acquisition cost | Net acquisition cost | $ | 59,058 | | $ | 146 | | $ | 59,204 | | 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) The Company's purchase price allocation was final as of March 31, 2023.
| | | Optimus Industries | | Optimus |
| (in thousands) | (in thousands) | Estimated Acquisition Date Fair Value | Measurement Period Adjustments | Final Allocation(2) | (in thousands) | Estimated Acquisition Date Fair Value | Measurement Period Adjustments | Final Allocation(2) |
| Cash | Cash | $ | 5,338 | | $ | — | | $ | 5,338 | | Cash | $ | 5,338 | | $ | — | | $ | 5,338 | |
| Accounts receivable | Accounts receivable | 5,165 | | — | | 5,165 | | Accounts receivable | 5,165 | | — | | 5,165 | |
| Contracts in progress | Contracts in progress | 2,598 | | — | | 2,598 | | Contracts in progress | 2,598 | | — | | 2,598 | |
| Other current assets | Other current assets | 2,115 | | — | | 2,115 | | Other current assets | 2,115 | | — | | 2,115 | |
| Property, plant and equipment, net | Property, plant and equipment, net | 2,441 | | 5,178 | | 7,619 | | Property, plant and equipment, net | 2,441 | | 5,178 | | 7,619 | |
Goodwill(1) | Goodwill(1) | 11,081 | | (7,274) | | 3,807 | | Goodwill(1) | 11,081 | | (7,274) | | 3,807 | |
| Other assets | Other assets | 12 | | 2,319 | | 2,331 | | Other assets | 12 | | 2,319 | | 2,331 | |
| Right of use assets | Right of use assets | 94 | | 11 | | 105 | | Right of use assets | 94 | | 11 | | 105 | |
| Current liabilities | Current liabilities | (4,240) | | — | | (4,240) | | Current liabilities | (4,240) | | — | | (4,240) | |
| Advance billings on contracts | Advance billings on contracts | (3,779) | | — | | (3,779) | | Advance billings on contracts | (3,779) | | — | | (3,779) | |
| Non-current lease liabilities | Non-current lease liabilities | (2) | | — | | (2) | | Non-current lease liabilities | (2) | | — | | (2) | |
| Non-current liabilities | Non-current liabilities | (1,858) | | — | | (1,858) | | Non-current liabilities | (1,858) | | — | | (1,858) | |
| Net acquisition cost | Net acquisition cost | $ | 18,965 | | $ | 234 | | $ | 19,199 | | 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 IndustriesOptimus' ability to significantly expand future customer relationships which are not in place today and recognize general cost synergies.
(2) The Company's purchase price allocation was final as of March 31, 2023.
Intangible assets are included in other assets above and consists of the following:
| | | Fossil Power Systems | | Optimus Industries | | FPS | | Optimus |
| | Estimated Acquisition Date Fair Value | Weighted Average Estimated Useful Life | | Estimated Acquisition Date Fair Value | Weighted Average Estimated Useful Life | | Estimated Acquisition Date Fair Value | Weighted Average Estimated Useful Life | | Estimated Acquisition Date Fair Value | Weighted Average Estimated Useful Life |
| Customer Relationships | Customer Relationships | $ | 20,451 | | 9 years | | 2,100 | | 10 years | Customer Relationships | $ | 20,451 | | 9 years | | 2,100 | | 10 years |
| Tradename | Tradename | 787 | | 14 years | | 220 | | 3 years | Tradename | 787 | | 14 years | | 220 | | 3 years |
| Patented Technology | Patented Technology | 578 | | 12 years | | — | | — | | Patented Technology | 578 | | 12 years | | — | | — | |
| Unpatented Technology | Unpatented Technology | 3,276 | | 12 years | | — | | — | | Unpatented Technology | 3,276 | | 12 years | | — | | — | |
Total intangible assets(1) | Total intangible assets(1) | $ | 25,092 | | | $ | 2,320 | | | 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.
Divestitures
On June 30, 2022, the Companywe sold development rights related to a future solarrenewable energy project for $8.0 million. In conjunction with the sale, the Companywe recognized a $6.2 million gain on sale. The CompanyWe recorded $5.1 million in outstanding receivables related to the transaction within Accountsaccounts receivable – other in the Company'sour Condensed Consolidated Balance Sheets at JuneSeptember 30, 2023.
NOTE 2223 – NEW ACCOUNTING PRONOUNCEMENTS AND STANDARDS
The CompanyWe adopted the following accounting standardstandards during the first sixnine months of 2023:
In November 2018, the FASB issued ASU 2018-19, Codification Improvements to Topic 326: Financial Instruments - Credit Losses. This update is an amendment to the new credit losses standard, ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, that was issued in June 2016 and clarifies that operating lease receivables are not within the scope of Topic 326. The new credit losses standard changes the accounting for credit losses for certain instruments. The new measurement approach is based on expected losses, commonly referred to as the current expected credit loss ("CECL") model, and applies to financial assets measured at amortized cost, including loans, held-to-maturity debt securities, net investment in leases, and reinsurance and trade receivables, as well as certain off-balance sheet credit exposures, such as loan commitments. The standard also changes the impairment model for available-for-sale debt securities. The provisions of this standard will primarily impact the allowance for doubtful accounts on the Company's trade receivables, contracts in progress, and potentially its impairment model for available-for-sale debt securities (to the extent we have any upon adoption). The impact of adopting this standard on the Company's Consolidated Financial Statements was immaterial.
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 provides 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 in January 2023; all other entities have an additional year to adopt. Early adoption is permitted; however, if the new 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, 2022, including interim periods within those fiscal years. The impact of adopting this standard on the Company's Consolidated Financial Statements was immaterial.
There were no new accounting standards adopted during the quarter ended JuneSeptember 30, 2023.
NOTE 23 – SUBSEQUENT EVENTS
As described further in Note 17 - Contingencies, Stockholder Derivative and Class Action Litigation, the Court in the Stockholder litigation approved the settlement on July 14, 2023, issuing an order approving the settlement as fair and reasonable and in the best interests of the Plaintiff, the certified class, the Company, and its stockholders and entered the order and final judgment dismissing the case with prejudice.
On June 27, 2023, the Company entered into an amendment, with a customer, the purpose of which was to amend clauses related to the Escrow Agreement. This amendment replaces the cash escrow of approximately $11.0 million with an amended bank guaranty, increasing that guaranty by approximately $8.7 million. The bank guaranty increase occurred on August 3, 2023 and the escrow was released, and the Company received the approximately $11.0 million of, now unrestricted, cash on August 3, 2023.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion of our financial condition and results of operations should be read 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 as a result of many factors, including those described in more detail under "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2022. See also "Cautionary Statement Concerning Forward-Looking Information" herein.
SecondThird Quarter 2023 Update
Management continues to adapt to macroeconomic conditions, including the impacts from inflation, higher interest rates and foreign exchange rate volatility, geopolitical conflicts (including the ongoing conflicts in Ukraine and the Middle East) and supply chain disruptions that continued to have an impact during the first sixnine months of
2023. The Company hasWe also observed significant delays and disruptions of itsour service and material providers and negative impacts to pricing of certain products. These delays and disruptions have had, and could continue to have, an adverse impact on the Company’sour ability to meet customers’ demands. The Company continuesWe continue to actively monitor the impact of these market conditions on current and future periods and actively manage costs and our liquidity position to provide additional flexibility while still supporting our customers and their specific needs. The duration and scope of these conditions cannot be predicted, and therefore, any anticipated negative financial impact to the Company’son our operating results cannot be reasonably estimated.
BUSINESS OVERVIEW
B&W is a growing, globally-focused renewable, environmental and thermal technologies provider with over 150155 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. Our reportable segments are as follows:
•Babcock & Wilcox Renewable: Cost-effectiveCost effective technologies for efficient and environmentally sustainable power and heat generation, including waste-to-energy, solar construction and installation, biomass-to-energy, and black liquor systems for the pulp and paper industry. B&W’s&W's leading technologies support a circular economy, diverting waste from landfills to use for power generation or district heating and replacement of fossil fuels, while recovering metals and reducing emissions. To date, the Company haswe have installed over 500 waste-to-energy and biomass-to-energy units at more than 300 facilities in approximately 30 countries which serve a wide variety of utility, waste management, municipality and investment firm customers. Additionally, the Company has installed more than 200MW of utility- and community-scale solar projects in North America.
•Babcock & Wilcox Environmental: A full suite of best-in-class emissions control and environmental technology solutions for utility, waste to energy, biomass,waste-to-energy, biomass-to-energy, carbon black, and industrial steam generation applications around the world. B&W’s&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. The Company'sOur ClimateBrightTM family of products including SolveBrightTM, OxyBrightTM, BrightLoopTM and BrightGenTM, places us at the forefront of carbon dioxide capturing technologies and development with many of the aforementioned products already commercially available and otherothers ready for commercial demonstration.
•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 offor installed equipment for utilities and general industrial applications including refining, petrochemical, food processing, metals and others.
On February 1, 2022, we acquired 100% ownership of Fossil Power Systems, Inc. ("FPS") for approximately $59.2 million. Fossil Power Systems, Inc.,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. Fossil Power Systems, Inc.FPS is reported as part of our B&W Thermal segment.
On February 28, 2022, we acquired 100% ownership of Optimus Industries, LLC ("Optimus") for approximately $19.2 million. Optimus Industries, LLC 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, LLC is reported as part of our B&W Thermal segment.
On July 28, 2022, the Companywe acquired certain assets of Hamon Holdings Corporation ("Hamon Holdings") through a competitive sale process, in connection with B. Riley Securities, Inc., a related partyparty. B. Riley Securities, Inc. to the Company, had been engaged as Hamon Holdings’ investment banker and to serve as advisor to Hamon Holdings through a Chapter 11 363 Asset Sale of Hamon Holdings’ entire United States business or potential carve-out of any of its four main subsidiaries. B&W wasWe were the successful bidder for certain assets of one of those subsidiaries, Hamon Research-Cottrell, Inc., ("Hamon") a major provider of air pollution control technology, for approximately $2.9 million.
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-energy to meet legislative requirements and clean energy portfolio standards in the United States, European, Middle East and Asian markets
•Governmental requirements for environmental improvements in various global markets
•expectationExpectation 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
•pricesPrices 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;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 supply chain disruptions
•Overall strength of the industrial industry
•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, power demand in their operating territory,territories, and by the overall economies and energy, environmental and noise abatement needs of the countries in which they operate.
We have manufacturing facilities in Mexico, the United States, Denmark, the United Kingdom and 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 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.
In addition, 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.
DISCONTINUED OPERATIONS
During the third quarter of 2023, we committed to a plan to sell our B&W Solar business resulting in a significant change that would impact our operations. As of September 30, 2023, we met all of the criteria for the assets and liabilities of this business, formerly part of our B&W Renewable segment, to be accounted for as held for sale. In addition, we also determined that the operations of the B&W Solar business qualified as a discontinued operation, primarily based upon its significance to our current and historic operating losses. The decision to sell the B&W Solar business, along with the significant increase in estimated costs to complete the B&W Solar loss contracts, resulted in a triggering event as of September 30, 2023 that required us to immediately perform certain valuations. For goodwill, we performed a quantitative assessment using the income approach (discounted cash flows). The income approach uses the disposal group's estimated future cash flows, discounted at the weighted-average cost of capital of a hypothetical third-party buyer to account for uncertainties within the projections. The income approach also uses assumptions based on the disposal group's estimated revenue growth, operating margin, and working capital turnover. As a result of this impairment test, we recognized an impairment of $55.6 million, or the entire balance of goodwill associated with B&W Solar. This impairment has been included in discontinued operations in our Condensed Consolidated Statement of Operations.
The impairment on the disposal group in discontinued operations in addition to operating losses on the group, net of tax, totaled $104.5 million and $109.9 million during the three and nine months ended September 30, 2023, respectively. This loss was driven by the impairment charge and additional contract losses during the three and nine months ended September 30, 2023 which totaled $55.6 million and $44.0 million, respectively. B&W Solar had accrued loss contracts totaling $15.7 million and $2.9 million at September 30, 2023 and December 31, 2022, respectively.
RESULTS OF OPERATIONS
Components of Our Results of Continuing 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 & WilcoxB&W Renewable, Babcock & WilcoxB&W Environmental and Babcock & WilcoxB&W 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 (Loss) IncomeLoss
Net (loss) Incomeloss 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 following discussion of our business segment results of operations includes a discussion of adjusted EBITDA, which when used on a consolidated basis is a non-GAAP financial measure. Adjusted EBITDA differs from the most directly comparable measure calculated in accordance with generally accepted accounting principles (“GAAP”). A reconciliation of net income (loss), the most directly comparable GAAP measure, to adjusted EBITDA is included in “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 June 30, | | Six Months Ended June 30, | | | Three Months Ended September 30, | | Nine Months Ended September 30, | |
| (in thousands) | (in thousands) | 2023 | | 2022 | | $ Change | | 2023 | | 2022 | | $ Change | | (in thousands) | 2023 | | 2022 | | $ Change | | 2023 | | 2022 | | $ Change | |
| Revenues: | Revenues: | | | | | | | | | | | | | Revenues: | | | | | | | | | | | | |
| B&W Renewable segment | B&W Renewable segment | $ | 98,891 | | | $ | 75,227 | | | $ | 23,664 | | | $ | 199,003 | | | $ | 143,188 | | | $ | 55,815 | | | B&W Renewable segment | $ | 87,079 | | | $ | 78,486 | | | $ | 8,593 | | | $ | 256,421 | | | $ | 196,432 | | | $ | 59,989 | | |
| B&W Environmental segment | B&W Environmental segment | 48,690 | | | 31,612 | | | 17,078 | | | 88,130 | | | 66,560 | | | 21,570 | | | B&W Environmental segment | 46,421 | | | 44,626 | | | 1,795 | | | 134,551 | | | 111,186 | | | $ | 23,365 | | |
| B&W Thermal segment | B&W Thermal segment | 158,010 | | | 116,305 | | | 41,705 | | | 277,246 | | | 218,544 | | | 58,702 | | | B&W Thermal segment | 106,981 | | | 91,331 | | | 15,650 | | | 384,227 | | | 309,875 | | | $ | 74,352 | | |
| Eliminations | Eliminations | (404) | | | (2,125) | | | 1,721 | | | (1,945) | | | (3,224) | | | 1,279 | | | Eliminations | (1,067) | | | (2,774) | | | 1,707 | | | (3,012) | | | (5,999) | | | $ | 2,987 | | |
| $ | 305,187 | | | $ | 221,019 | | | $ | 84,168 | | | $ | 562,434 | | | $ | 425,068 | | | $ | 137,366 | | | |
| Total revenues | | Total revenues | $ | 239,414 | | | $ | 211,669 | | | $ | 27,745 | | | $ | 772,187 | | | $ | 611,494 | | | $ | 160,693 | | |
Three Months Ended JuneSeptember 30, 2023 and 2022
Revenues increased by $84.227.7 million to $305.2$239.4 million in the three months ended JuneSeptember 30, 2023 compared to $221.0$211.7 million in the three months ended JuneSeptember 30, 2022. The increase is primarily attributable to higher volumes in our Renewable segment dueServices business and progress achieved on a significant construction project within our Thermal segment. The remainder of the increase is primarily attributable to B&W Renewable Services and our Solar based business, higher overall volumevolumes in our Environmental segmentparts and due toaftermarket services business within the Thermal segment volume increasing due to a higher level of construction and parts activity.segment. Segment specific changes are discussed in further detail in the sections below.
Net loss increasedfrom continuing operations decreased by $2.0$0.5 million to $5.0$12.3 million in the three months ended JuneSeptember 30, 2023 as compared to net loss of $3.0$12.8 million in the three months ended JuneSeptember 30, 2022. The increase in net loss recorded in 2023 is a result of a one time gain, in 2022, of $7M as well as aprimarily attributable to higher pension benefit, alsobenefits in 2022, of $7.4M.the prior year, coupled with an increase in foreign currency exchange transaction losses. Operating income increased by $3.3$8.3 million to $7.0income of $5.5 million in the comparable three-month periods ended JuneSeptember 30, 2023 and JuneSeptember 30, 2022. The increase is driven by higher sales of 13% or $27.7 million.
SixNine Months Ended JuneSeptember 30, 2023 and 2022
Revenues increased by $137.4$160.7 million to $562.4$772.2 million in the sixnine months ended JuneSeptember 30, 2023 compared to $425.1$611.5 million in the sixnine months ended JuneSeptember 30, 2022. The increase is primarily attributable to higher volumes in our Renewable segment dueServices business and progress achieved on a significant construction project within our Thermal segment. The remainder of the increase is primarily attributable to B & W Renewable services and our project-based business, higher overall volumevolumes in our Environmental segmentparts and due toaftermarket services business within the Thermal segment, volume increasing due toalong with significant progress achieved on a higher level of construction and parts activity.significant project within our Environmental segment. Segment specific changes are discussed in further detail in the sections below.
Net loss from continuing operations increased by $5.8$1.9 million to $17.5$24.4 million as compared to a net loss of $11.7$22.5 million in the sixnine months ended JuneSeptember 30, 2022. The increase in net loss recorded in 2023 is a result of a one time gain, in 2022, of $7M as well as aprimarily attributable to higher pension benefit, alsobenefits in 2022, of $7.4M.the prior year, coupled with increases in interest expense in the same period. Operating income increased by $11.5$23.3 million in the comparable six-monthnine-month periods ended JuneSeptember 30, 2023 and JuneSeptember 30, 2022 to $8.3income of $19.2 million.
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 exchange rates of 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.
The following tables include total bookings for continuing operations for the current and prior year quarter-to-date and year-to-date.
| | | Three Months Ended June 30, | | Six Months Ended June 30, | | | Three Months Ended September 30, | | Nine Months Ended September 30, | |
| (in approximate millions) | (in approximate millions) | 2023 | | 2022 | | 2023 | | 2022 | | (in approximate millions) | 2023 | | 2022 | | 2023 | | 2022 | |
| B&W Renewable | B&W Renewable | $ | 76 | | | $ | 59 | | | $ | 174 | | | $ | 160 | | | B&W Renewable | $ | 33 | | | $ | 34 | | | $ | 180 | | | $ | 190 | | |
| B&W Environmental | B&W Environmental | 35 | | | 35 | | | 100 | | | 72 | | | B&W Environmental | 54 | | | 40 | | | 154 | | | 112 | | |
| B&W Thermal | B&W Thermal | 90 | | | 151 | | | 194 | | | 252 | | | B&W Thermal | 105 | | | 130 | | | 299 | | | 382 | | |
| Other/eliminations | Other/eliminations | (10) | | | — | | | (11) | | | — | | | Other/eliminations | 6 | | | — | | | (5) | | | — | | |
| Total Bookings | Total Bookings | $ | 191 | | | $ | 245 | | | $ | 457 | | | $ | 484 | | | Total Bookings | $ | 198 | | | $ | 204 | | | $ | 628 | | | $ | 684 | | |
The following tables include total backlog for continuing operations at the end of the quarter, compared to the same period in the prior year.
| | | As of June 30, | | As of September 30, |
| (in approximate millions) | (in approximate millions) | 2023 | | 2022 | (in approximate millions) | 2023 | | 2022 |
B&W Renewable(1) | B&W Renewable(1) | $ | 216 | | | $ | 282 | | B&W Renewable(1) | $ | 133 | | | $ | 199 | |
| B&W Environmental | B&W Environmental | 162 | | | 127 | | B&W Environmental | 173 | | | 121 | |
| B&W Thermal | B&W Thermal | 191 | | | 193 | | B&W Thermal | 196 | | | 233 | |
| Other/eliminations | Other/eliminations | (3) | | | (1) | | Other/eliminations | 5 | | | 2 | |
| Total Backlog | Total Backlog | $ | 567 | | | $ | 601 | | Total Backlog | $ | 507 | | | $ | 555 | |
(1) B&W Renewable backlog has been adjusted downward $53downward $119.9 million and $129.7$117.1 million at JuneSeptember 30, 2023 and JuneSeptember 30, 2022, respectively, to remove O&M contracts that are recognized as disposed.
Of the backlog at JuneSeptember 30, 2023, we expect to recognize revenues as follows:
| | (in approximate millions) | (in approximate millions) | 2023 | 2024 | Thereafter | Total | | (in approximate millions) | 2023 | 2024 | Thereafter | Total | |
| B&W Renewable | B&W Renewable | $ | 131 | | $ | 66 | | $ | 20 | | $ | 217 | | | B&W Renewable | $ | 55 | | $ | 65 | | $ | 13 | | $ | 133 | | |
| B&W Environmental | B&W Environmental | 89 | | 45 | | 27 | | 161 | | | B&W Environmental | 68 | | 79 | | 26 | | 173 | | |
| B&W Thermal | B&W Thermal | 116 | | 55 | | 20 | | 191 | | | B&W Thermal | 76 | | 109 | | 11 | | 196 | | |
| Other/eliminations | Other/eliminations | (2) | | — | | — | | (2) | | | Other/eliminations | 5 | | — | | — | | 5 | | |
| Expected revenue from backlog | Expected revenue from backlog | $ | 334 | | $ | 166 | | $ | 67 | | $ | 567 | | | Expected revenue from backlog | $ | 204 | | $ | 253 | | $ | 50 | | $ | 507 | | |
Changes in Contract Estimates
During the three and six-monthnine-month periods ended JuneSeptember 30, 2023 and 2022, the Companywe 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 June 30, | | Six Months Ended June 30, | | | Three Months Ended September 30, | | Nine Months Ended September 30, | |
| (in thousands) | (in thousands) | 2023 | | 2022 | | 2023 | | 2022 | | (in thousands) | 2023 | | 2022 | | 2023 | | 2022 | |
| Increases in gross profit for changes in estimates for over time contracts | $ | 2,060 | | | $ | 5,348 | | | $ | 8,285 | | | $ | 8,689 | | | |
| Decreases in gross profit for changes in estimates for over time contracts | (4,994) | | | (2,612) | | | (10,747) | | | (5,474) | | | |
| Increases in gross profits for changes in estimates for over time contracts | | Increases in gross profits for changes in estimates for over time contracts | $ | 1,494 | | | $ | 1,690 | | | $ | 8,842 | | | $ | 11,343 | | |
| Decreases in gross profits for changes in estimates for over time contracts | | Decreases in gross profits for changes in estimates for over time contracts | (1,068) | | | (1,816) | | | (8,231) | | | (11,467) | | |
| Net changes in gross profit for changes in estimates for over time contracts | Net changes in gross profit for changes in estimates for over time contracts | $ | (2,934) | | | $ | 2,736 | | | $ | (2,462) | | | $ | 3,215 | | | Net changes in gross profit for changes in estimates for over time contracts | $ | 426 | | | $ | (126) | | | $ | 611 | | | $ | (124) | | |
Non-GAAP Financial Measures
The Company usesWe use non-GAAP financial measures internally to evaluate itsour performance and in making financial and operational decisions. When viewed in conjunction with GAAP results and the accompanying reconciliation, the Company believeswe believe that itsthe presentation of these measures provides investors with greater transparency and a greater understanding of factors affecting itsour financial condition and results of operations than GAAP measures alone. The presentation of non-GAAP financial measures should not be considered in isolation or as a substitute for the Company’s related financial results prepared in accordance with GAAP.
Adjusted EBITDA on a consolidated basis is a non-GAAP metric defined as the sum of the 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 in this report is consistent with the way the Company'sour 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, legal and settlement costs, costs related to financial consulting, research and development costs, costs and operating income from contracts in disposal, and other costs that may not be directly controllable by segment management and are not allocated to the segment. The Company presentedWe present consolidated Adjusted EBITDA because it believeswe believe it is useful to investors to help facilitate comparisons of the ongoing, operating performance before corporate overhead and other expenses not attributable to the operating performance of the Company'sour revenue generating segments.
The following discussion of our business segment results of operations includes a discussion of consolidated adjusted EBITDA, which is a non-GAAP financial measure. Adjusted EBITDAdiffers from the most directly comparable measure calculated in accordance with generally accepted accounting principles (“GAAP”). A reconciliation of net income (loss), the most directly comparable GAAP measure, to adjusted EBITDA is included in “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 June 30, | | Six Months Ended June 30, | | | Three Months Ended September 30, | | Nine Months Ended September 30, | |
| (in thousands) | (in thousands) | 2023 | | 2022 | | 2023 | | 2022 | | (in thousands) | 2023 | | 2022 | | 2023 | | 2022 | |
| Net loss | Net loss | (5,012) | | | $ | (2,994) | | | (17,487) | | | $ | (11,678) | | | Net loss | $ | (116,760) | | | $ | (20,566) | | | $ | (134,247) | | | $ | (32,244) | | |
| Loss from discontinued operations, net of tax | | Loss from discontinued operations, net of tax | (104,485) | | | (7,815) | | | (109,880) | | | (9,768) | | |
| Loss from continuing operations | | Loss from continuing operations | (12,275) | | | (12,751) | | | (24,367) | | | (22,476) | | |
| Interest expense | Interest expense | 12,497 | | | 12,058 | | | 26,926 | | | 24,382 | | | Interest expense | 13,353 | | | 11,402 | | | 37,096 | | | 33,588 | | |
| Income tax (benefit) expense | Income tax (benefit) expense | 1,861 | | | (1,355) | | | 2,351 | | | (125) | | | Income tax (benefit) expense | (331) | | | 4,902 | | | 2,020 | | | 4,777 | | |
| Depreciation & amortization | Depreciation & amortization | 5,967 | | | 5,736 | | | 11,332 | | | 11,938 | | | Depreciation & amortization | 4,610 | | | 4,537 | | | 14,995 | | | 14,550 | | |
| EBITDA | EBITDA | 15,313 | | | 13,445 | | | 23,122 | | | 24,517 | | | EBITDA | 5,357 | | | 8,090 | | | 29,744 | | | 30,439 | | |
| | Benefit plans, net | Benefit plans, net | 138 | | | (7,403) | | | 247 | | | (14,855) | | | Benefit plans, net | 56 | | | (7,424) | | | 304 | | | (22,279) | | |
| (Gain) loss on sales of certain assets, net | (Gain) loss on sales of certain assets, net | (602) | | | (117) | | | 335 | | | (137) | | | (Gain) loss on sales of certain assets, net | (8) | | | (7) | | | (26) | | | (106) | | |
| Stock compensation | Stock compensation | 2,271 | | | 475 | | | 5,498 | | | 1,794 | | | Stock compensation | 397 | | | 3,448 | | | 5,895 | | | 5,242 | | |
| Restructuring activities and business services transition costs | Restructuring activities and business services transition costs | 1,022 | | | 1,754 | | | 1,982 | | | 4,442 | | | Restructuring activities and business services transition costs | 1,285 | | | 1,746 | | | 3,267 | | | 6,188 | | |
| Settlement and related legal costs | Settlement and related legal costs | — | | | 3,911 | | | (3,009) | | | 6,439 | | | Settlement and related legal costs | — | | | 776 | | | (3,009) | | | 7,215 | | |
| Advisory fees for settlement costs and liquidity planning | Advisory fees for settlement costs and liquidity planning | — | | | 879 | | | 546 | | | 1,911 | | | Advisory fees for settlement costs and liquidity planning | — | | | 27 | | | 546 | | | 1,938 | | |
| | Acquisition pursuit and related costs | Acquisition pursuit and related costs | 105 | | | 1,350 | | | 239 | | | 2,193 | | | Acquisition pursuit and related costs | 346 | | | 2,574 | | | 585 | | | 4,768 | | |
Product development (1) | Product development (1) | 1,048 | | | 991 | | | 2,418 | | | 1,843 | | | Product development (1) | 895 | | | 757 | | | 3,313 | | | 2,600 | | |
| Foreign exchange | Foreign exchange | (1,154) | | | 4,296 | | | (693) | | | 1,211 | | | Foreign exchange | 4,935 | | | 2,007 | | | 4,242 | | | 3,218 | | |
| Financial advisory services | Financial advisory services | — | | | 352 | | | — | | | 727 | | | Financial advisory services | — | | | 393 | | | — | | | 1,121 | | |
| Contract Disposal | 2,693 | | | 2,282 | | | 4,080 | | | 3,157 | | | |
| Contract step-up purchase price adjustment | — | | | — | | | — | | | 1,745 | | | |
Contract disposal(2) | | Contract disposal(2) | 4,293 | | | (129) | | | 8,373 | | | 2,582 | | |
| | | Letter of credit fees | | Letter of credit fees | 1,961 | | | 1,144 | | | 5,639 | | | 3,003 | | |
| Other -net | Other -net | 1,046 | | | 675 | | | 1,307 | | | 798 | | | Other -net | 449 | | | (369) | | | 768 | | | 567 | | |
| | Adjusted EBITDA | Adjusted EBITDA | $ | 21,880 | | | $ | 22,890 | | | $ | 36,072 | | | $ | 35,785 | | | Adjusted EBITDA | $ | 19,966 | | | $ | 13,033 | | | $ | 59,641 | | | $ | 46,496 | | |
(1) Costs associated with development of commercially viable products that are ready to go to market.
(2) Impacts of the disposal of our O&M contracts has been adjusted in the prior period to ensure uniform presentation with the current periodperiod.
.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, | | |
| (in thousands) | 2023 | | 2022 | | 2023 | | 2022 | | | | | | |
| Adjusted EBITDA | | | | | | | | | | | | | |
| B&W Renewable segment - Adjusted EBITDA | $ | 500 | | | $ | 11,151 | | | $ | 5,440 | | | $ | 13,481 | | | | | | | |
| B&W Environmental segment - Adjusted EBITDA | 3,394 | | | 591 | | | 5,300 | | | 2,030 | | | | | | | |
| B&W Thermal segment - Adjusted EBITDA | 24,367 | | | 16,361 | | | 38,100 | | | 30,515 | | | | | | | |
| Corporate | (5,488) | | | (4,226) | | | (10,568) | | | (8,599) | | | | | | | |
| Research and development | (893) | | | (987) | | | (2,200) | | | (1,642) | | | | | | | |
| Total Adjusted EBITDA | $ | 21,880 | | | $ | 22,890 | | | $ | 36,072 | | | $ | 35,785 | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, | | |
| (in thousands) | 2023 | | 2022 | | 2023 | | 2022 | | | | | | |
| Adjusted EBITDA | | | | | | | | | | | | | |
| B&W Renewable segment | $ | 10,147 | | | $ | 4,500 | | | $ | 19,190 | | | $ | 15,659 | | | | | | | |
| B&W Environmental segment | 5,024 | | | 3,082 | | | 10,324 | | | 5,112 | | | | | | | |
| B&W Thermal segment | 11,322 | | | 10,761 | | | 49,422 | | | 41,276 | | | | | | | |
| Corporate | (5,630) | | | (4,419) | | | (16,198) | | | (13,018) | | | | | | | |
| Research and development | (897) | | | (891) | | | (3,097) | | | (2,533) | | | | | | | |
| Total Adjusted EBITDA | $ | 19,966 | | | $ | 13,033 | | | $ | 59,641 | | | $ | 46,496 | | | | | | | |
Items Excluded from Adjusted EBITDA
Pension and Other Postretirement Benefit Plansplans, net
The Company recognizesWe recognize benefits from defined benefit and other postretirement benefit plans based on actuarial calculations primarily because the expected return on assets is greater than the service cost. Service cost is low because plan benefits are frozen except for a small number of hourly participants.
Pension costs also include mark-to-market ("MTM") adjustments from time to time 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
current or future MTM adjustments. 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. There were no MTM adjustments for other postretirement benefit plans during either the three and sixor nine months ended JuneSeptember 30, 2023 and 2022, respectively.2022.
Refer to Note 1112 to the Condensed Consolidated Financial Statements for further information regarding the pension and other postretirement plans.
(Gain) Lossloss on sales of certain assets, net
The companyWe, at times, will sell or dispose of certain assets that are unrelated to theour current or future operations, of the Company, therefore, the Company believeswe believe it is useful to exclude these gains and losses from our non-GAAP financial measures in order to highlight the performance of the business.
(Gain) Loss on sales of certain assets, net was a loss of $0.6 million and $0.1 million in the three months ended June 30, 2023 and 2022, respectively
(Gain) Loss on sales of certain assets, net was a gain of $0.3 million and a loss of $0.1 million in the six months ended June 30, 2023 and 2022, respectively
Stock Compensationcompensation
The grant date fair value of stock compensation varies based on the derived stock price at the time of grant, varying valuation methodologies, subjective assumptions, and the variety of awardreward types. This may make the impact from this form of compensation on our current financial results difficult to compare to previous and future periods; therefore, the Company believeswe believe it is useful to exclude stock-based compensation from our non-GAAP financial measures in order to highlight the performance of the business and to be consistent with the way many investors evaluate our performance and compare our operating results to peer companies.
Expenses related to restricted stock units "("RSU's"("RSUs") are recorded at the Corporate level and are recognized on a straight-line basis over a 3-year vesting period, except for Market Based restricted stock units which are recognized over a derived service period.
Stock Compensation was $2.3$0.4 million and $0.5$3.4 million for the three months ended JuneSeptember 30, 2023 and 2022, respectively.
Stock Compensation was $5.5$5.9 million and $1.8$5.2 million for the sixnine months ended JuneSeptember 30, 2023 and 2022, respectively.
Restructuring Activitiesactivities and Business Services Transition Costsbusiness services transition costs
Restructuring and Transition costs across our business units and corporate functions resulted in $1.0$1.3 million and $1.8$1.7 million of expense in the three months ended JuneSeptember 30, 2023 and 2022, respectively. Expenses were $2.0$3.3 million and $4.4$6.2 million in the sixnine months ended JuneSeptember 30, 2023 and 2022, respectively. The costs for the three months ended JuneSeptember 30, 2023 are driven by restructuringprimarily relate to severance costs, to close one of our production facilities in our Monterrey location, while the costs in the prior year were associated with transition costs from technology implementations across the Company.B&W. The decrease in the sixnine months ended JuneSeptember 30, 2023 wererelates to a result of the previously mentioned technology implementations endingdecrease in the prior year, partially offset by the production facility closuretransition costs in the current year.
Restructuring costs primarily consist of severance and costs related costs to actions taken as part of the Company’sour strategic, market-focused organizational and re-branding initiative. Transition costs primarily result from actions taken to outsource certain tasks to offshore service providers or to transfer administrative and compliance tasks to global service providers as part of our strategic efforts to reduce future selling, general and administrative costs. Transition costs are included in selling, general and administrative expenses in our Condensed Consolidated Statements of Operations.
Settlement and Related Legal Costsrelated legal costs
Settlement costs decreased from $3.9$0.8 million in the prior year quarter to zero in the current year, and was a recovery of $3.0 million compared to expense of $6.4$7.2 million for the sixnine months ended JuneSeptember 30, 2023 when compared to the same period in the prior year. See Note 1718 for more details.
This is excluded from Adjusted EBITDA because the Company believes that they often relate to events that may have occurred in prior or multiple periods, do not occur in or reflect the ordinary course of business
Advisory fees for settlement costs and are inherently unpredictable in timing and amount.liquidity planning
Advisory Fees for Settlement Costs and Liquidity Planning
There were no advisory fees in the current year quarter, compared to $0.9 million in the prior year quarter, and decreased from $1.9 million to $0.5 million for the sixnine months ended JuneSeptember 30, 2023 when compared to the same period in the prior year.
Product Developmentdevelopment
Our product development activities are focused on improving our products through innovations to reduce their cost and improve competitiveness, reduce performance risk of our products to better meet our and our customers’ expectations and to further develop our ClimateBrightTM portfolio. Product development expenses totaled $1.0$0.9 million and $1.0$0.8 million in the three months ended JuneSeptember 30, 2023 and 2022, respectively. Expenses were $2.4$3.3 million in the sixnine months ended JuneSeptember 30, 2023 as compared to $1.8$2.6 million of expense in the comparable period of 2022. The increasedincrease resulted primarily from timing of specific development efforts. These expenses do not include our activities related to our BrightLoopTM commercialization plant. Management excludes these expenses from Adjusted EBITDA as they often may not correlate to revenue or other operations occurring in the current period.
Foreign Exchangeexchange
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). The Company reportsWe report foreign currency transaction gains and losses in the Condensed Consolidated Statements of Operations. Management excludes these expenses from Adjusted EBITDA as they do not reflect the ordinary course of business and are inherently unpredictable in timing and amount.
Foreign exchange was incomea loss of $1.2$4.9 million for the three months ended JuneSeptember 30, 2023 and a loss of $4.3$2.0 million for the same period in 2022, respectively. Foreign exchange was a gainloss of $0.7$4.2 million and $1.2a loss of $3.2 million for the sixnine months ended JuneSeptember 30, 2023 and 2022, respectively.
Contract Disposaldisposal
The Company isWe are in the process of exiting itsour only remaining fixed fee Operational and Maintenance Contract in our Renewable segment. A similar contract was exited as of December 31, 2022. For the three and sixnine months ended JuneSeptember 30, 2023 the net loss on this contract totaled $2.7$4.3 million and $4.1$8.4 million, respectively. The company believesrespectively, compared to a net gain of $0.1 million and a net loss of $2.6 million for the three and nine months ended September 30, 2022, respectively. We believe it is useful to exclude the impact of this contract on our operating results as well as our backlog in order to highlight the performance of the ongoing business. Impacts of the disposal of our O&M contracts has been adjusted in the prior period to ensure uniform presentation with the current period.
Letter of credit fees
Letter of credit fees were $2.0 million and $1.1 million for the three months ended September 30, 2023 and 2022, respectively. Letter of credit fees were $5.6 million and $3.0 million for the nine months ended September 30, 2023 and 2022, respectively. Letter of credit fees are routinely incurred in the course of executing customer contracts. A portion of the fees are included in the contract prices with our customers. These amounts represent the incremental financing costs that are not passed along to our customers and are excluded from Adjusted EBITDA as they do not reflect the performance of the business.
Segment Results
B&W Renewable Segment Results
| | | Three Months Ended June 30, | | Six Months Ended June 30, | | | Three Months Ended September 30, | | Nine Months Ended September 30, | |
| (in thousands) | (in thousands) | 2023 | | 2022 | | $ Change | | 2023 | | 2022 | | $ Change | | (in thousands) | 2023 | | 2022 | | $ Change | | 2023 | | 2022 | | $ Change | |
| Revenues | Revenues | $ | 98,891 | | | $ | 75,227 | | | $ | 23,664 | | | $ | 199,003 | | | $ | 143,188 | | | $ | 55,815 | | | Revenues | $ | 87,079 | | | $ | 78,486 | | | $ | 8,593 | | | $ | 256,421 | | | $ | 196,432 | | | $ | 59,989 | | |
| Adjusted EBITDA | Adjusted EBITDA | $ | 500 | | | $ | 11,151 | | | $ | (10,651) | | | $ | 5,440 | | | $ | 13,481 | | | $ | (8,041) | | | Adjusted EBITDA | $ | 10,147 | | | $ | 4,500 | | | $ | 5,647 | | | $ | 19,190 | | | $ | 15,659 | | | $ | 3,531 | | |
Three Months Ended JuneSeptember 30, 2023 and 2022
Revenues in the B&W Renewable segment increased 31%11% or $23.7$8.6 million, to $98.9$87.1 million in the three months endedSeptember 30, 2023 compared to $78.5 million in the three months ended June 30, 2023 compared to $75.2 million in the three months ended JuneSeptember 30, 2022. The increase in revenue is primarily due to higher volume associated with our Renewable Service and Solar businesses.Service.
Adjusted EBITDA in the B&W Renewable segment decreased $10.7increased $5.6 million, to $0.5$10.1 million in the three months ended JuneSeptember 30, 2023 compared to income of $11.2$4.5 million in the three months ended JuneSeptember 30, 2022 primarily due to a $7.0 million
gain from the sale related to development rights of a future solar project that occurredchanges in the prior year as well as contract losses associated with B&W Solar.our revenue described above.
SixNine Months Ended JuneSeptember 30, 2023 and 2022
Revenues in the B&W Renewable segment increased 39%31% from $143.2$196.4 million to $199.0$256.4 million in the sixnine months endedJuneSeptember 30, 2023 compared to the same period in 2022. The increase in revenue is primarily due to higher volume associated with our Renewable Service and New Build Waste to Energy projects and Solar business.Waste-to-Energy projects.
Adjusted EBITDA in the B&W Renewable segment decreased $8.0increased $3.5 million, to $5.4$19.2 million in the sixnine months ended JuneSeptember 30, 2023 compared to income of $13.5$15.7 million in the sixnine months ended JuneSeptember 30, 2022 primarily due to a $7.0 million gain on a sale related to the development rights of a future solar project that was soldan increased volume in the prior year.Renewable Service and New Build Waste-to-Energy projects.
B&W Environmental Segment Results
| | | Three Months Ended June 30, | | Six Months Ended June 30, | | | Three Months Ended September 30, | | Nine Months Ended September 30, | |
| (in thousands) | (in thousands) | 2023 | | 2022 | | $ Change | | 2023 | | 2022 | | $ Change | | (in thousands) | 2023 | | 2022 | | $ Change | | 2023 | | 2022 | | $ Change | |
| Revenues | Revenues | $ | 48,690 | | | $ | 31,612 | | | $ | 17,078 | | | $ | 88,130 | | | $ | 66,560 | | | $ | 21,570 | | | Revenues | $ | 46,421 | | | $ | 44,626 | | | $ | 1,795 | | | $ | 134,551 | | | $ | 111,186 | | | $ | 23,365 | | |
| Adjusted EBITDA | Adjusted EBITDA | $ | 3,394 | | | $ | 591 | | | $ | 2,803 | | | $ | 5,300 | | | $ | 2,030 | | | $ | 3,270 | | | Adjusted EBITDA | $ | 5,024 | | | $ | 3,082 | | | $ | 1,942 | | | $ | 10,324 | | | $ | 5,112 | | | $ | 5,212 | | |
Three Months Ended JuneSeptember 30, 2023 and 2022
Revenues in the B&W Environmental segment increased 54%4%, or $17.1$1.8 million to $48.7$46.4 million in the three months ended JuneSeptember 30, 2023 compared to $31.6$44.6 million in the three months ended JuneSeptember 30, 2022. The increase is primarily driven by lower volume related to flue gas treatment projects offset by higher overall volume of cooling technology projects.
Adjusted EBITDA in the B&W Environmental segment was $5.0 million in the three months endedSeptember 30, 2023 compared to $3.1 million in the three months ended September 30, 2022. The increase is primarily driven by higher overall volumeproduct mix as described above along with favorable close out of dry cooling technology projects.
Adjusted EBITDA in the B&W Environmental segment was $3.4 million in the three months endedJune 30, 2023 compared to $0.6 million in the three months ended June 30, 2022. The increase is primarily driven by higher revenue volume described above.a flue gas treatment project.
SixNine Months Ended JuneSeptember 30, 2023 and 2022
Revenues in the B&W Environmental segment increased 32%21%, or $21.6$23.4 million to $88.1$134.6 million in the sixnine months ended JuneSeptember 30, 2023 compared to $66.6$111.2 million in the sixnine months ended JuneSeptember 30, 2022. The increased is primarily driven by higher overall volume of dry cooling technology projects, as well as new build environmentalpartially offset by lower volume related to flue gas treatment projects.
Adjusted EBITDA in the B&W Environmental segment was $5.3$10.3 million in the sixnine months endedJuneSeptember 30, 2023 compared to $2.05.1 million in the sixnine months endedJuneSeptember 30, 2022. The increasedincrease is primarily driven by higher revenue volumethe changes in product mix described above offsetalong with higher levelsa favorable close out of shared overhead and SG&A allocated to the segment.a flue gas treatment project.
B&W Thermal Segment Results
| | | Three Months Ended June 30, | | Six Months Ended June 30, | | | Three Months Ended September 30, | | Nine Months Ended September 30, | |
| (In thousands) | (In thousands) | 2023 | | 2022 | | $ Change | | 2023 | | 2022 | | $ Change | | (In thousands) | 2023 | | 2022 | | $ Change | | 2023 | | 2022 | | $ Change | |
| Revenues | Revenues | $ | 158,010 | | | $ | 116,305 | | | $ | 41,705 | | | $ | 277,246 | | | $ | 218,544 | | | $ | 58,702 | | | Revenues | $ | 106,981 | | | $ | 91,331 | | | $ | 15,650 | | | $ | 384,227 | | | $ | 309,875 | | | $ | 74,352 | | |
| Adjusted EBITDA | Adjusted EBITDA | $ | 24,367 | | | $ | 16,361 | | | $ | 8,006 | | | $ | 38,100 | | | $ | 30,515 | | | $ | 7,585 | | | Adjusted EBITDA | $ | 11,322 | | | $ | 10,761 | | | $ | 561 | | | $ | 49,422 | | | $ | 41,276 | | | $ | 8,146 | | |
Three Months Ended JuneSeptember 30, 2023 and 2022
Revenues in the B&W Thermal segment increased 36%17%, or $41.7$15.7 million to $158.0$107.0 million in the three months endedJuneSeptember 30, 2023 compared to $116.3$91.3 million in the three months endedJuneSeptember 30, 2022. The revenue increase is attributable to higher level of volume in our construction project business, parts and service and our package boiler business.business, partially offset by a decline in service projects.
Adjusted EBITDA in the B&W Thermal segment increased $8.0$0.6 million to $24.4$11.3 million in the three months ended JuneSeptember 30, 2023 compared to $16.4$10.8 million in the three months ended JuneSeptember 30, 2022. The increase is primarily driven by the higher revenue volume and product mix described above as well as project performance.above.
SixNine Months Ended JuneSeptember 30, 2023 and 2022
Revenues in the B&W Thermal segment increased 27%24%, from $218.5$309.9 million to $277.2$384.2 million in the sixnine months ended JuneSeptember 30, 2023 compared to $218.5 million in the six months ended June 30, 2022.prior year. The increase is attributable to higher level of volume in our construction project business and our package boiler business.
Adjusted EBITDA in the B&W Thermal segment increased $7.6$8.1 million from $30.5$41.3 million to $38.1$49.4 million in the sixnine months ended JuneSeptember 30, 2023 compared to $30.5 million in the six months ended June 30, 2022.prior year. The increase is primarily driven byattributable to the higher revenuelevel of volume described above as well as project performance.above.
Corporate Costs in Adjusted EBITDA
This includes 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 $1.3$1.2 million to $5.5$5.6 million in three months ended JuneSeptember 30, 2023 as compared to $4.2$4.4 million incurred in the three months ended JuneSeptember 30, 2022. Corporate costs decreased $2.0increased $3.2 million to $10.6$16.2 million in the sixnine months ended JuneSeptember 30, 2023 compared to $8.6$13.0 million in the sixnine months ended JuneSeptember 30, 20222022.
Other Factors Affecting Operating Results
Interest Expense
| | | Three Months Ended June 30, | | Six Months Ended June 30, | | | Three Months Ended September 30, | | Nine Months Ended September 30, | |
| (in thousands) | (in thousands) | 2023 | | 2022 | | 2023 | | 2022 | | (in thousands) | 2023 | | 2022 | | 2023 | | 2022 | |
| Components associated with borrowings from: | Components associated with borrowings from: | | | | | | | | | Components associated with borrowings from: | | | | | | | | |
| Senior Notes | Senior Notes | $ | 6,425 | | | $ | 6,114 | | | $ | 12,753 | | | $ | 12,329 | | | Senior Notes | $ | 6,414 | | | $ | 6,385 | | | $ | 19,167 | | | $ | 18,715 | | |
| | U.S. Revolving Credit Facility | | U.S. Revolving Credit Facility | 505 | | | — | | | 505 | | | — | | |
| | | 6,919 | | | 6,385 | | | 19,672 | | | 18,715 | | |
| 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 | 1,164 | | | 1,168 | | | 2,148 | | | 2,228 | | | Revolving Credit Agreement | 1,104 | | | 1,237 | | | 3,252 | | | 3,465 | | |
| Senior Notes | Senior Notes | 630 | | | 650 | | | 1,249 | | | 1,292 | | | Senior Notes | 638 | | | 657 | | | 1,887 | | | 1,950 | | |
| | | 1,794 | | | 1,818 | | | 3,397 | | | 3,520 | | | | 1,742 | | | 1,894 | | | 5,139 | | | 5,415 | | |
| | Components associated with borrowings from: | | | |
| Components associated with interest from: | | Components associated with interest from: | | | | | | | | |
| Lease liabilities | Lease liabilities | 597 | | | 697 | | | 1,321 | | | 1,405 | | | Lease liabilities | 914 | | | 707 | | | 2,235 | | | 2,112 | | |
| Other interest expense | Other interest expense | 2,360 | | | 2,033 | | | 6,367 | | | 4,675 | | | Other interest expense | 3,841 | | | 2,112 | | | 10,202 | | | 6,447 | | |
| | 2,957 | | | 2,730 | | | 7,688 | | | 6,080 | | | | 4,755 | | | 2,819 | | | 12,437 | | | 8,559 | | |
| | Total interest expense | Total interest expense | $ | 11,176 | | | $ | 10,662 | | | $ | 23,838 | | | $ | 21,929 | | | Total interest expense | $ | 13,416 | | | $ | 11,098 | | | $ | 37,248 | | | $ | 32,689 | | |
Interest expense for the three and sixnine months ended JuneSeptember 30, 2023 is consistent withhigher due to increases in interest rates and in other loans payable during the same periods from the prior year as a result of minimal changes in the Company's mix of borrowings during that time.year.
Income Taxes
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| (In thousands, except for percentages) | 2023 | | 2022 | | $ Change | | 2023 | | 2022 | | $ Change |
| Income (loss) before income tax expense | $ | (3,151) | | | $ | (4,349) | | | $ | 1,198 | | | $ | (15,136) | | | $ | (11,803) | | | $ | (3,333) | |
| Income tax expense (benefit) | $ | 1,861 | | | $ | (1,355) | | | $ | 3,216 | | | $ | 2,351 | | | $ | (125) | | | $ | 2,476 | |
| ETR | (59.1) | % | | 31.2 | % | | | | (15.5) | % | | 1.1 | % | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| (In thousands, except for percentages) | 2023 | | 2022 | | $ Change | | 2023 | | 2022 | | $ Change |
| Loss before income tax (benefit) expense | $ | (12,606) | | | $ | (7,849) | | | $ | (4,757) | | | $ | (22,347) | | | $ | (17,699) | | | $ | (4,648) | |
| Income tax (benefit) expense | $ | (331) | | | $ | 4,902 | | | $ | (5,233) | | | $ | 2,020 | | | $ | 4,777 | | | $ | (2,757) | |
| ETR continuing operations | 2.6 | % | | (62.5) | % | | | | (9.0) | % | | (27.0) | % | | |
Our income tax expense in the first sixnine months of 2023 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 ("ASC 740").
Our effective tax rate for the first sixnine months of 2023 is not reflective of the United States statutory rate primarily due to a valuation allowance against certain net deferred tax assets and unfavorable discrete items. In certain jurisdictions (namely, Italy) where the Company anticipateswe anticipate a loss for the fiscal year or incursincur a loss for the year-to-date period for which a tax benefit cannot be realized in accordance with ASC 740, the Companywe excludes the loss in that jurisdiction from the overall computation of the estimated annual effective tax rate.
Depreciation and Amortization
Depreciation expense was $2.7$2.2 million and $2.6$2.2 million in the three months ended JuneSeptember 30, 2023 and 2022, respectively. Depreciation expense was $5.8$7.8 million and $4.8$6.9 million in the sixnine months ended JuneSeptember 30, 2023 and 2022, respectively.
Amortization expense was $3.2$2.4 million and $3.1$2.3 million in the three months ended JuneSeptember 30, 2023 and 2022, respectively.
Amortization expense was $5.6$7.2 million and $7.1$7.7 million in the sixnine months ended JuneSeptember 30, 2023 and 2022, respectively.
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 senior notes, revolving credit agreement, and equity offerings, including our Preferred Stock, and revolving credit agreement which are described in the notesNotes to our Condensed Consolidated Financial Statements included in Part I, Item I of this Quarterly Report in further detail along with other sources of liquidity.
Cash and Cash Flows
At JuneSeptember 30, 2023, our cash and cash equivalents, current restricted cash and long-term restricted cash totaled $83.9$65.1 million and we had total debt of $358.2$377.6 million as well as $191.7 million of gross preferred stock outstanding. Our foreign business locations held $35.4$36.7 million of our total unrestricted cash and cash equivalents at JuneSeptember 30, 2023. 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. In addition, we had $11.2 million of restricted cash at JuneSeptember 30, 2023 related to collateral for certain letters of credit. We believe our future operating cash flows will be more than sufficient to cover debt repayments, other contractual obligations, capital expenditures and dividends for the next 12 months and thereafter for the foreseeable future.
Cash used in operations was $22.3$50.5 million in the sixnine months ended JuneSeptember 30, 2023, which is primarily attributable to the year-to-date net loss of $17.5$134.2 million, offset by non-cash expenses for depreciation and amortization of long-lived assets of $16.5 million and goodwill impairment of $56.6 million. Cash used in operations was $63.6$67.4 million in the sixnine months ended JuneSeptember 30, 2022, which iswas primarily represented in the $17.5attributable to a net loss of $32.2 million change in postretirement and employee benefit liabilities and the remaining $26.9 million of net decrease in operating cash outflows associated with unfavorable changes in working capital.
Cash flows from investing activities used net cash of $4.2$8.6 million in the sixnine months ended JuneSeptember 30, 2023, primarily due to capital expenditures.expenditures of $10.5 million. Cash flows from investing activities used net cash of $65.6$67.6 million in the sixnine months ended JuneSeptember 30, 2022, primarily related to the acquisitions of Fossil Power SystemsFPS and Optimus Industries of $64.9 million combined with $2.7and $8.9 million of capital expenditures.
Cash flows used infrom financing activities of $4.2$11.9 million in the sixnine months ended JuneSeptember 30, 2023, primarily related to the paymentincreased borrowing on loans of the$24.6 million, partially offset by preferred stock dividend payments of $7.4 million. Cash flows from financing activities used $15.6$19.1 million in the sixnine months ended JuneSeptember 30, 2022 and were primarily due to the payment of the preferred stock dividend of $7.4$11.1 million and net loan repayments of $12.5 million, partially offset by the issuance of common stock of $2.0senior notes for $5.5 million.
Debt Facilities
As described in the Note 1213 to our Condensed Consolidated Financial Statements included in Part I, Item I of this Quarterly Report,herein, on JuneSeptember 30, 2023, we entered intoour debt facilities include the Reimbursement Agreement, Revolving Credit Agreement and Letter of Credit Agreement (collectively, the “Debt Documents” and the facilities thereunder, the “Debt Facilities”).The. Our obligations of the Company under each of the Debt Facilities are guaranteed by certain of our existing and future domestic and foreign subsidiaries of the Company.subsidiaries. B. Riley Financial, Inc. (“B. Riley”), a related party, has provided a guaranty of payment with regard to the Company’sour obligations under the Reimbursement Agreement, as described below. The Company expectsAgreement. We expect to use the proceeds and letter of credit availability under the Debt Facilities for working capital purposes and general corporate purposes. The Revolving Credit Agreement matures on June 30, 2025. As of JuneAt September 30, 2023, the Companywe had $6.0$26.6 million outstanding in revolving debt. For the sixnine months ended JuneSeptember 30, 2023 the Company has borrowed $14.0we had average daily borrowings of $9.1 million, under the Revolving Credit Agreement. and had a maximum daily amount outstanding of $30.6 million. Usage under the Letter of
Credit Agreement usage consisted of $15.0$13.1 million of financial letters of credit and $88.9$84.0 million of performance letters of credit.credit at September 30, 2023.
As discussed in Note 13 to the Consolidated Financial Statements included in this Report, on November 9, 2023, we executed an amendment to the Reimbursement Agreement which, among other things, adjusted the financial covenants therein. On November 9, 2023 we entered into a letter agreement to refinance our Debt Facilities (the "Refinance"). The Refinance is intended to reduce our interest expense in the future.
Letters of Credit, Bank Guarantees and Surety Bonds
Certain subsidiaries of the Companyour subsidiaries, that are 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 JuneSeptember 30, 2023 was $52.2$52.7 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 $32.9$31.6 million as of JuneSeptember 30, 2023. Of the outstanding letters of credit issued under the Letter of Credit Agreement, $64.6$61.8 million are subject to foreign currency revaluation.
The Company hasWe have posted surety bonds to support contractual obligations to customers relating to certain contracts. The Company utilizesWe 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 the Companywe fail to perform itsour obligations under itsour applicable contracts. The Company,We, and certain of itsour subsidiaries, have jointly executed general agreements of indemnity in favor of surety underwriters relating to surety bonds the underwriters issue in support of some of itsour contracting activity. As of JuneSeptember 30, 2023, bonds issued and outstanding under these arrangements in support of contracts totaled approximately $278.2$146.4 million. The aggregate value of the letters of credit backstopping surety bonds was $12.3$12.2 million.
The Company'sOur ability to obtain and maintain sufficient capacity under our current Debt Facilitiesdebt facilities is essential to allow us to support the issuance of letters of credit, bank guarantees and surety bonds. Without sufficient capacity, theour ability to support contract security requirements in the future will be diminished.
Other Indebtedness - Loans Payable
As of JuneSeptember 30, 2023, the Companywe had Loansloans payable of $21.6$40.4 million, net of debt issuance costs of $0.6$0.5 million, of which $4.4$5.3 million is classified as current, and $17.2$35.1 million as long termlong-term loans payable on the Company'sCondensed Consolidated Balance
Sheet. Included in these amounts, the companywe had approximately $12.8$12.6 million, net of debt issuance costs of $0.6$0.5 million, related to sale-leaseback financing transactions.
Off-Balance Sheet Arrangements
The Company doesWe did 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 JuneSeptember 30, 2023.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
For a summary of the critical accounting policies and estimates that we use in the preparation of the Company's unaudited Condensed Consolidated Financial Statements, see "Critical Accounting Policies and Estimates" in the Company'sour Annual Report for the year ended December 31, 2022. There have been no significant changes to the Company'sour policies during the sixnine months ended JuneSeptember 30, 2023.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company'sOur exposures to market risks have not changed materially from those disclosed under "Quantitative and Qualitative Disclosures About Market Risk" in the Company'sour Annual Report on Form 10-K for the year ended December 31, 2022.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
As of the end of the period covered by this report, the Company'sour management, with the participation of its Chief Executive Officer and the Chief Financial Officer, has evaluated the effectiveness of the design and operation of its 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")). The Company's disclosureDisclosure 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 cannot assure that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.
Based on the evaluation referred to above, the Company'sour Chief Executive Officer and Chief Financial Officer concluded that the design and operation of its disclosure controls and procedures are effective as of JuneSeptember 30, 2023 to provide reasonable assurance that information required to be disclosed by us in the reports that the Company fileswe file or submitssubmit 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 the Company'sour internal control over financial reporting during the three months ended JuneSeptember 30, 2023 that have materially affected, or are reasonably likely to materially affect, itsour internal control over financial reporting. The Company has not experienced any material impact to its internal controls over financial reporting. The Company is continually monitoring and assessing these situations on its internal controls to ensure their operating effectiveness.
Inherent Limitations in Effectiveness of Controls
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures, or our internal controls, will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within theour Company have been
detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of simple error or mistake or fraud. Additionally, controls can be circumvented by individuals or groups of persons or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in our control system, misstatements in our public reports due to error or fraud may occur and not be detected.
PART II
Item 5. Other Information
PART II
Item 1. Legal Proceedings
For information regarding ongoing investigations and litigation, see Note 1718 to the Condensed Consolidated Financial Statements included in Part I, Item I of this Quarterly Report, which the Companywe incorporates by reference into this Item.
Item 1A. Risk Factors
The Company isWe are subject to various risks and uncertainties in the course of itsour business. The discussion of such risks and uncertainties may be found under “Risk Factors” in the Company'sour Annual Report on Form 10-K for the fiscal year ended December 31, 2022. Other than the additional risk factor set forth below thereThere have been no material changes to the risk factors set forth in the Company'sour Annual Report on Form 10-K for the year ended December 31, 2022.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
In accordance with the provisions of the employee benefit plans, the Companywe 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 JuneSeptember 30, 2023. The Company doesWe do not have a general share repurchase program at this time.
| | (data in whole amounts) | (data in whole amounts) | | (data in whole amounts) | |
| Period | 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 | 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 2023 | — | | $ | — | | — | | $ | — | | |
| May 2023 | 156 | | $ | 5.64 | | — | | $ | — | | |
| June 2023 | — | | $ | — | | — | | $ | — | | |
| July 2023 | | July 2023 | 95,395 | | $ | 5.34 | | — | | $ | — | |
| August 2023 | | August 2023 | 159,748 | | $ | 5.16 | | — | | $ | — | |
| September 2023 | | September 2023 | — | | $ | — | | — | | $ | — | |
| Total | Total | 156 | | $ | 5.64 | | — | | $ | — | | Total | 255,143 | | $ | 5.23 | | — | | $ | — | |
(1) Acquired shares are recorded in treasury stock in the Company's Condensed Consolidated Balance Sheets.
Item 5. Other Information
As discussed in Note 13 to the Consolidated Financial Statements included in Part I, Item 1 of this Report, on November 9, 2023, we entered into Amendment No. 3 to the Reimbursement Agreement (the “Third Amended Reimbursement Agreement”), which modified certain financial maintenance covenants for future periods beginning with the fiscal quarter ended on September 30, 2023. The Fixed Charge Coverage Ratio was amended to 1.05 to 1.0 for the fiscal quarters ending September 30, 2023 and December 31, 2023, 1.15 to 1.00 for the fiscal quarters ending March 31, 2024 and June 30, 2023, 1.05 to 1.00 for the fiscal quarter ending September 30, 2024, 1.10 to 1.00 for the fiscal quarter ending December 31, 2024, and 1.25 to 1.00 for the fiscal quarter ending March 31, 2025 and thereafter. The Senior Net Leverage Ratio condition to payment of dividends on preferred equity was amended to 1.46 to 1.00 for the fiscal quarter ending September 30, 2023, 1.30 to 1.00 for the fiscal quarter ending December 31, 2024 and 1.25 to 1.00 for each fiscal quarter thereafter. The Third Amended Reimbursement Agreement also imposes a leverage condition to the payment of dividends on preferred equity, which requires the Company to provide a quality of earnings report and pay a $1.0 million fee to MSD prior to paying a dividend for the fiscal quarter ending December 31, 2023.The Third Amended Reimbursement Agreement also amends the minimum cash flow covenants set forth in the Reimbursement agreement to $10.0 million for the fiscal quarter ending December 31, 2023 and $25.0 million for the fiscal year 2024 and each fiscal year thereafter. The interest rates applicable to the Third Amended Reimbursement Agreement float at a rate per annum are equal to SOFR plus 10% through December 31, 2023, SOFR plus 11% from January 1, 2024 through June 30, 2024 and will increase by 50 basis points as of the first day of each fiscal quarter thereafter. The size of the Cash Collateral Facility under the Third Amended Reimbursement Agreement will step down to $100.0 million following the receipt of the PNC consent (as defined in the Third Amended Reimbursement Agreement), and will step down further to $90.0 million upon reduction in outstanding letters of credit to $90.0 million or less.
We paid an amendment fee of $0.5 million to MSD in consideration of the Third Amended Reimbursement Agreement. Certain of the lenders, as well as certain of their respective affiliates, have performed and may in the future perform for us and our subsidiaries, various commercial banking, investment banking, lending, underwriting, trust services, financial advisory and other financial services, for which they have received and may in the future receive customary fees and expenses.
On November 9, 2023, we entered into a letter agreement with a third-party financial institution (the "Refinance Commitment Letter"), pursuant to which the financial institution agreed to commit up to $150,000,000 to a senior secured credit facility for the purpose of refinancing our existing senior secured credit facility (the “Refinance”). The Refinance is subject to (i) completion and execution of definitive documentation satisfactory to the financial institution (including documentation with third parties, as applicable, such as an intercreditor agreement with PNC and MSD), (ii) final approval of any material deviations from its existing credit committee approvals, (iii) completion of customary due diligence, and (iv) other customary conditions. The Refinance is expected to reduce our interest expense in the future.
Item 6. Exhibits
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| | Amendment No. 4 to Revolving Credit, Guaranty and Security Agreement, dated as of June 26, 2023, by and among Babcock & Wilcox Enterprises, Inc. and PNC Bank, National Association, as administrative agent, lender and swing loan lender, (incorporated by reference to Exhibit 10.1 to the Babcock & Wilcox Enterprises, Inc. Current Report on Form 8-K filed on June 30, 2023 (File No. 001-36876)). |
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| 101.SCH | | XBRL Taxonomy Extension Schema Document. | |
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| 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document. | |
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| 101.LAB | | XBRL Taxonomy Extension Label Linkbase Document. | |
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| 101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document. | |
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| 101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document. | |
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| 104 | | Cover Page Interactive Data File (embedded within the inline XBRL document) | |
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*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.
# As permitted by Regulation S-K, Item 601(b)(10)(iv) of the Securities Exchange Act of 1934, as amended, certain confidential portions of this exhibit have been redacted from the publicly filed document.
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.
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| | BABCOCK & WILCOX ENTERPRISES, INC. |
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August 8,November 9, 2023 | 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) |
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