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Babcock & Wilcox Enterprises (BW)

Filed: 13 Nov 20, 6:34am



 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
(Mark One)
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2020

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 classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.01 par valueBWNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer 
¨
 
  Accelerated filer 
¨

    
Non-accelerated filer x  Smaller reporting company x
       
    Emerging growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    
Yes  ¨    No  x
The number of shares of the registrant's common stock outstanding at November 6, 2020 was 52,009,498.

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PART I - FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Financial Statements
BABCOCK & WILCOX ENTERPRISES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 Three months ended September 30,Nine months ended September 30,
(in thousands, except per share amounts)2020201920202019
Revenues$132,513
$198,644
$416,464
$678,695
Costs and expenses:    
Cost of operations75,156
158,273
292,691
563,171
Selling, general and administrative expenses35,689
35,956
107,876
120,431
Advisory fees and settlement costs3,846
4,474
10,074
22,862
Restructuring activities2,396
2,556
6,739
9,571
Research and development costs1,355
828
3,927
2,281
Gain on asset disposals, net(3)(266)(916)(224)
Total costs and expenses118,439
201,821
420,391
718,092
Operating income (loss)14,074
(3,177)(3,927)(39,397)
Other (expense) income:  

Interest expense(12,203)(29,463)(49,776)(67,434)
Interest income167
112
430
872
Loss on debt extinguishment

(6,194)(3,969)
Loss on sale of business

(108)(3,601)
Benefit plans, net7,328
3,571
22,314
9,072
Foreign exchange24,963
(26,735)22,749
(27,382)
Other – net(276)(255)(3,068)208
Total other income (expense)19,979
(52,770)(13,653)(92,234)
Income (loss) before income tax (benefit) expense34,053
(55,947)(17,580)(131,631)
Income tax (benefit) expense(502)1,043
(467)3,560
Income (loss) from continuing operations34,555
(56,990)(17,113)(135,191)
Income from discontinued operations, net of tax

1,800
694
Net income (loss)34,555
(56,990)(15,313)(134,497)
Net loss attributable to non-controlling interest169
35
407
137
Net income (loss) attributable to stockholders$34,724
$(56,955)$(14,906)$(134,360)
     
Basic earnings (loss) per share - continuing operations$0.70
$(1.39)$(0.35)$(5.21)
Basic earnings per share - discontinued operations

0.04
0.03
Basic earnings (loss) per share$0.70
$(1.39)$(0.31)$(5.18)
     
Diluted earnings (loss) per share - continuing operations$0.69
$(1.39)$(0.35)$(5.21)
Diluted earnings per share - discontinued operations

0.04
0.03
Diluted earnings (loss) per share$0.69
$(1.39)$(0.31)$(5.18)
     
Shares used in the computation of earnings (loss) per share:  



Basic49,478
40,879
47,585
25,950
Diluted50,056
40,879
47,585
25,950

See accompanying notes to Condensed Consolidated Financial Statements.

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BABCOCK & WILCOX ENTERPRISES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
 Three months ended September 30,Nine months ended September 30,
(in thousands)2020201920202019
Net income (loss)$34,555
$(56,990)$(15,313)$(134,497)
Other comprehensive income (loss):    
Currency translation adjustments (CTA)(22,916)21,433
(24,631)23,714
     
Reclassification of CTA to net loss


3,176
     
Derivative financial instruments:    
Unrealized losses on derivative financial instruments


(1,367)
Derivative financial instrument (losses) gains reclassified into net loss


202
     
Derivative financial instruments reclassified to advanced billings on contracts
(197)
(197)
     
Benefit obligations:    
Amortization of benefit plan benefits(246)(515)(738)(1,385)
     
Other comprehensive (loss) income(23,162)20,721
(25,369)24,143
Total comprehensive loss11,393
(36,269)(40,682)(110,354)
Comprehensive (loss) income attributable to non-controlling interest175
(88)434
341
Comprehensive income (loss) attributable to stockholders$11,568
$(36,357)$(40,248)$(110,013)
See accompanying notes to Condensed Consolidated Financial Statements.

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BABCOCK & WILCOX ENTERPRISES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amount)September 30, 2020December 31, 2019
Cash and cash equivalents$38,934
$43,772
Restricted cash and cash equivalents9,435
13,169
Accounts receivable – trade, net126,841
142,201
Accounts receivable – other52,137
23,263
Contracts in progress73,882
91,579
Inventories66,966
63,103
Other current assets20,554
27,044
Current assets held for sale4,816
8,089
Total current assets393,565
412,220
Net property, plant and equipment, and finance lease88,645
97,053
Goodwill47,136
47,160
Intangible assets23,691
25,300
Right-of-use assets10,272
12,498
Other assets34,902
24,966
Non-current assets held for sale7,543
7,322
Total assets$605,754
$626,519





Revolving credit facilities$
$179,000
Last out term loans
103,953
Financing lease liabilities852

Accounts payable79,983
109,913
Accrued employee benefits17,365
18,256
Advance billings on contracts54,046
75,287
Accrued warranty expense26,803
33,376
Operating lease liabilities3,968
4,323
Other accrued liabilities86,772
68,848
Current liabilities held for sale6,925
9,538
Total current liabilities276,714
602,494
Revolving credit facilities181,900

Last out term loans173,330

Pension and other accumulated postretirement benefit liabilities236,372
259,272
Non-current finance lease liabilities29,917
30,454
Non-current operating lease liabilities6,381
8,388
Other non-current liabilities21,918
20,850
Total liabilities926,532
921,458
Commitments and contingencies

Stockholders' deficit:

Common stock, par value $0.01 per share, authorized shares of 500,000; issued and outstanding shares of 52,006 and 46,374 at September 30, 2020 and December 31, 2019, respectively4,760
4,699
Capital in excess of par value1,157,811
1,142,614
Treasury stock at cost, 716 and 616 shares at September 30, 2020 and December 31, 2019, respectively(105,985)(105,707)
Accumulated deficit(1,354,794)(1,339,888)
Accumulated other comprehensive income (loss)(23,443)1,926
Stockholders' deficit attributable to shareholders(321,651)(296,356)
Non-controlling interest873
1,417
Total stockholders' deficit(320,778)(294,939)
Total liabilities and stockholders' deficit$605,754
$626,519

See accompanying notes to Condensed Consolidated Financial Statements.

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BABCOCK & WILCOX ENTERPRISES, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' (DEFICIT) EQUITY

 Common StockCapital In
Excess of
Par Value
Treasury StockAccumulated DeficitAccumulated
Other
Comprehensive
Income (Loss)
Non-controlling
Interest
Total
Stockholders’
Deficit
 
 SharesPar Value
  (in thousands, except share and per share amounts)
Balance at December 31, 201946,374
$4,699
$1,142,614
$(105,707)$(1,339,888)$1,926
$1,417
$(294,939)
         
Net loss



(31,526)
(96)(31,622)
Currency translation adjustments




2,380
(58)2,322
Defined benefit obligations




(246)
(246)
Stock-based compensation charges33
4
876
(9)


871
Dividends to non-controlling interest





(36)(36)
Balance at March 31, 202046,407
$4,703
$1,143,490
$(105,716)$(1,371,414)$4,060
$1,227
$(323,650)
Net loss



(18,104)
(142)(18,246)
Currency translation adjustments




(4,095)37
(4,058)
Defined benefit obligations




(246)
(246)
Stock-based compensation charges

923
(1)


922
Equitized guarantee fee payment1,713
17
3,883




3,900
Equitized Last Out Term Loan interest payment1,192
12
2,703




2,715
Dividends to non-controlling interest





(37)(37)
Balance at June 30, 202049,312
$4,732
$1,150,999
$(105,717)$(1,389,518)$(281)$1,085
$(338,700)
Net income



34,724

(169)34,555
Currency translation adjustments




(22,916)(6)(22,922)
Defined benefit obligations




(246)
(246)
Stock-based compensation charges360
4
1,520
(268)


1,256
Equitized Last Out Term Loan interest payment2,334
24
5,292




5,316
Dividends to non-controlling interest





(37)(37)
Balance at September 30, 202052,006
$4,760
$1,157,811
$(105,985)$(1,354,794)$(23,443)$873
$(320,778)


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 Common StockCapital In
Excess of
Par Value
Treasury StockAccumulated DeficitAccumulated
Other
Comprehensive
Loss
Non-controlling
Interest
Total
Stockholders’
Deficit
 
 
Shares (1)
Par Value
  (in thousands, except share and per share amounts)
Balance at December 31, 201816,879
$1,748
$1,047,062
$(105,590)$(1,217,914)$(11,432)$8,829
$(277,297)
         
Net loss



(49,765)
(101)(49,866)
Currency translation adjustments




10,260
(21)10,239
Derivative financial instruments




(954)
(954)
Defined benefit obligations




(356)
(356)
Stock-based compensation charges7

404
(22)


382
Balance at March 31, 201916,886
$1,748
$1,047,466
$(105,612)$(1,267,679)$(2,482)$8,707
$(317,852)
Net loss



(27,640)
(1)(27,641)
Currency translation adjustments




(4,803)(306)(5,109)
Derivative financial instruments




(211)
(211)
Defined benefit obligations




(514)
(514)
Stock-based compensation charges2

205
(1)


204
Issuance of beneficial conversion option of Last Out Term Loan Tranche A-3

2,022




2,022
Warrants

6,066




6,066
Balance at June 30, 201916,888
$1,748
$1,055,759
$(105,613)$(1,295,319)$(8,010)$8,400
$(343,035)
Net loss



(56,955)
(35)(56,990)
Currency translation adjustments




21,433
123
21,556
Derivative financial instruments




(197)
(197)
Defined benefit obligations




(515)
(515)
Stock-based compensation charges66
7
1,225
(21)


1,211
Rights Offering13,922
1,392
40,376




41,768
Last Out Term Loan principal value exchanged for common stock15,465
1,547
44,848




46,395
Dividends to noncontrolling interest





(270)(270)
Balance at September 30, 201946,341
$4,694
$1,142,208
$(105,634)$(1,352,274)$12,711
$8,218
$(290,077)
(1) Common stock shares reflect the one-for-ten reverse stock split on July 24, 2019.

See accompanying notes to Condensed Consolidated Financial Statements.


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BABCOCK & WILCOX ENTERPRISES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine months ended September 30,
(in thousands)20202019
Cash flows from operating activities: 
Net loss$(15,313)$(134,497)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:  
Depreciation and amortization of long-lived assets12,296
19,123
Amortization of deferred financing costs, debt discount and payment-in-kind interest16,013
42,185
Amortization of guaranty fee698

Non-cash operating lease expense3,600
4,134
Loss on sale of business108
3,601
Loss on debt extinguishment6,194
3,969
(Gains) losses on asset disposals and impairments(916)(224)
Benefit from deferred income taxes, including valuation allowances(788)(722)
Mark to market gains and prior service cost amortization for pension and postretirement plans(738)(107)
Stock-based compensation, net of associated income taxes3,327
1,841
Equitized non-cash interest expense8,031

Changes in assets and liabilities:  
Accounts receivable28,577
41,274
Accrued insurance receivable(26,000)
Contracts in progress21,633
23,106
Advance billings on contracts(23,161)(68,109)
Inventories(4,865)(6,571)
Income taxes(4,820)1,620
Accounts payable(33,450)(71,284)
Accrued and other current liabilities13,793
(21,097)
Accrued contract loss(5,294)(49,820)
Pension liabilities, accrued postretirement benefits and employee benefits(25,922)(5,750)
Other, net(40,299)16,211
Net cash used in operating activities(67,296)(201,117)
Cash flows from investing activities:  
Purchase of property, plant and equipment(2,274)(1,634)
Proceeds from sale of business8,000
7,445
Purchases of available-for-sale securities(19,149)(3,469)
Sales and maturities of available-for-sale securities14,597
5,132
Other, net784
(382)
Net cash from investing activities1,958
7,092


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Nine months ended September 30, 
(in thousands)20202019
Cash flows from financing activities:  
Borrowings under our U.S. revolving credit facility126,300
251,917
Repayments of our U.S. revolving credit facility(123,400)(205,117)
Borrowings under Last Out Term Loans60,000
151,350
Repayments under Last Out Term Loans
(41,766)
Repayments under our foreign revolving credit facilities
(605)
Shares of our common stock returned to treasury stock(278)(44)
Proceeds from rights offering
40,376
Costs related to rights offering
(682)
Debt issuance costs(10,343)(15,509)
Issuance of common stock
1,392
Other, net98
(270)
Net cash from financing activities52,377
181,042
Effects of exchange rate changes on cash4,389
(3,951)
Net decrease in cash, cash equivalents and restricted cash(8,572)(16,934)
Cash, cash equivalents and restricted cash, beginning of period56,941
60,279
Cash, cash equivalents and restricted cash, end of period$48,369
$43,345

See accompanying notes to Condensed Consolidated Financial Statements.

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BABCOCK & WILCOX ENTERPRISES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020

NOTE 1 – BASIS OF PRESENTATION

These interim Condensed Consolidated Financial Statements of Babcock & Wilcox Enterprises, Inc. (“B&W,” “management,” “we,” “us,” “our” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States and Securities and Exchange Commission ("SEC") instructions for interim financial information, and should be read in conjunction with our Annual Report. We have included all adjustments, in the opinion of management, consisting only of normal, recurring adjustments, necessary for a fair presentation of the interim financial statements. We have eliminated all intercompany transactions and accounts. We present the notes to our Condensed Consolidated Financial Statements on the basis of continuing operations, unless otherwise stated.

Going Concern Considerations

The accompanying Condensed Consolidated Financial Statements are prepared in accordance with generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

As of December 31, 2019 and March 30, 2020, the date we issued our 2019 Consolidated Financial Statements, we were in compliance with the terms of the agreements governing our debt and no events of default existed. However, the Company’s uncertainty regarding liquidity and the ability to refinance our credit agreement by May 11, 2020 represented conditions and events that raised substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the 2019 Consolidated Financial Statements were issued, as we were not able to assert that it was probable that our plans when fully implemented would alleviate the events and conditions. However, more fully explained in Note 13 and Note 14 below, on May 14, 2020, among other things, the Company refinanced and extended the term of its revolving credit facility (the "U.S. Revolving Credit Facility") to June 30, 2022 and our last out term loans (the "Last Out Term Loans") to December 30, 2022. Additionally, as described below, the Company took other actions all of which reduced the substantial doubt of the Company’s ability to be considered a going concern.

Since January 1, 2020 and through the issuance of our 2019 Consolidated Financial Statements on March 30, 2020, we took the following actions, among others, and have successfully implemented, or are in the process of implementing the following:
entered into several amendments and waivers to avoid default and improve our liquidity under the terms of our credit agreement as described in Note 13 and Note 14, the most recent of which were Amendments No. 19, No. 20 and No. 21 dated January 17, 2020, January 31, 2020 and March 27, 2020, respectively;
on January 31, 2020, received $30.0 million of additional gross borrowings from B. Riley Financial, Inc. (together with its affiliates, "B. Riley") under a new Tranche A-4 of Last Out Term Loans, as described in in Note 14;
on January 31, 2020, received an incremental Tranche A-5 of Last Out Term Loan commitment to be used in the event certain customer letters of credit are drawn, as described in Note 14;
on March 12, 2020, filed for waiver of required minimum contributions to the U.S. Pension Plan as described in Note 12 and subsequently on October 1, 2020 received a letter from the Internal Revenue Service (the "IRS") that the 2019 waiver request had been approved subject to certain conditions; and
on March 17, 2020, we fully settled the remaining escrow associated with the sale of Palm Beach Resource Recovery Corporation ("PBRRC") and received $4.5 million in cash.

In addition to the actions taken above, subsequent to March 30, 2020 we have taken the following actions:

on April 6, 2020, we fully settled the remaining escrow associated with the sale of the MEGTEC and Universal businesses and received $3.5 million in cash;
on May 14, 2020, the Company entered into an agreement amending and restating our credit agreement with Bank of America, N.A., as administrative agent (the "Administrative Agent") and lender, and the other lenders party thereto. These amendments to the credit agreement, as amended and restated (the “A&R Credit Agreement”), among other amendments, extend the maturity date on the U.S. Revolving Credit Facility to June 30, 2022 and the maturity date on the Last Out Term Loans to December 30, 2022. Under the A&R Credit Agreement, B. Riley has committed to provide the Company with up to $70.0 million of additional Last Out Term Loans. B. Riley has entered into a

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limited guaranty (the "B. Riley Guaranty") which provides for the guarantee of all of the Company's obligations with respect to the U.S. Revolving Credit Facility (other than with respect to letters of credit and contingent obligations thereunder), including the obligation to repay outstanding revolving credit loans and pay earned interest and fees. For more information regarding the A&R Credit Agreement and the additional Last Out Term Loans being provided by B. Riley, see Note 13 and Note 14;
on May 14, 2020, we received $30.0 million of additional gross borrowings from B. Riley under a new Tranche A- 6 of Last Out Term Loans, as described in Note 14;
on October 10, 2020, we entered into a settlement agreement with an insurer in connection with five of the six European B&W Renewable EPC loss contracts. In connection with the insured losses recognized in prior years, we recognized this non-recurring loss recovery of $26.0 million as a reduction of our Cost of operations in our Condensed Consolidated Statements of Operations and recorded the insurance receivable in Accounts receivable - other in our Condensed Consolidated Balance Sheets for the quarter ending September 30, 2020 as we determined the loss recovery was probable. On October 23, 2020, we received gross proceeds of $26.0 million for the loss recovery recognized during the third quarter ending September 30, 2020, as described in Note 4; and
on October 30, 2020, we entered into Amendment No. 1 to our Amended and Restated Credit Agreement (the “A&R Amendment No. 1”) with Bank of America, N.A. A&R Amendment No. 1, among other matters, (i) provides that, under the A&R Credit Agreement, the "Commitment Reduction Amount" shall be an amount equal to (a) for any "Prepayment Event" relating to a "Recovery Event" (each as defined under the A&R Credit Agreement), 50% of the net cash proceeds with respect to such Prepayment Event, and (b) with respect to any other Prepayment Event under the A&R Credit Agreement, the net cash proceeds with respect to such Prepayment Event, and (ii) establishes new financial covenants for (i) interest coverage ratios beginning with a ratio of 0.50:1.00 for the quarter ending December 31, 2020 and up to 1.25:1.00 for the quarter ending March 31, 2022 and the last day of each fiscal quarter ending thereafter and (ii) senior leverage ratios beginning with 7.75:1.00 for the quarter ending December 31, 2020 and down to 2.25:1.00 for the quarter ending March 31, 2022 and the last day of each fiscal quarter ending thereafter.

In December 2019, a novel strain of coronavirus, COVID-19, was identified in Wuhan, China and has subsequently spread globally. This global pandemic has disrupted business operations, trade, commerce, financial and credit markets, and daily life throughout the world. Our business has been, and continues to be, adversely impacted by the measures taken and restrictions imposed in the countries in which we operate and by local governments and others to control the spread of this virus. These measures and restrictions have varied widely and have been subject to significant changes from time to time depending on the changes in the severity of the virus in these countries and localities. These restrictions, including travel and curtailment of other activity, negatively impact our ability to conduct business. Although some of these restrictions have been lifted or scaled back, a recent resurgence of COVID-19 has resulted in the reimposition of certain restrictions and may lead to other restrictions being implemented in response to efforts to reduce the spread of the virus. These varying and changing events have caused many of the projects we anticipated to begin in 2020 to be delayed to later in 2020 and others to be delayed further into 2021 and 2022. Many customers and projects require B&W's employees to travel to customer and project worksites. Certain customers and significant projects are located in areas where travel restrictions have been imposed, certain customers have closed or reduced on-site activities, and timelines for completion of certain projects have, as noted above, been extended into next year and beyond. Additionally, out of concern for our employees, even where restrictions permit employees to return to our offices and worksites, we have advised those who are uncomfortable returning to worksites due to the pandemic that they are not required to do so for an indefinite period of time. The resulting uncertainty concerning, among other things, the spread and economic impact of the virus has also caused significant volatility and, at times, illiquidity in global equity and credit markets.

Beginning in April 2020, as part of the Company’s response to the impact of the COVID-19 pandemic on its business, the Company has taken a number of cash conservation and cost reduction measures which include:
temporary unpaid furloughs of certain employees:
temporarily deferring the monthly fee paid to BRPI Executive Consulting, LLC for the services of our Chief Executive Officer by 50%;
deferrals of the base salaries of our Chief Strategy Officer by 50%, Chief Financial Officer by 30% and our Senior Vice President of The Babcock & Wilcox Company by 30%;
suspension of our 401(k) company match for U.S. employees for the remainder of 2020;
approval by the Company’s Board for a temporary deferral of 50% of the cash compensation payable to non-employee directors under the Company’s board compensation program to be paid during the first quarter of 2021;
temporary rent payment deferrals related to leased facilities located in the U.S., Canada, Italy and Denmark;
utilizing options for government loans and programs in the U.S. and abroad that are appropriate and available; and

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deferring, in accordance with the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") signed into law in March 2020, the Pension Plan contribution payments of $5.5 million each for the 2020 Plan year that would have been made on April 15, 2020, July 15, 2020 and October 15, 2020, respectively. In addition, we elected to defer the contribution payments of $1.1 million for the 2018 Plan year and $23.7 million for the 2019 Plan year that were both due on September 15, 2020. Per the 2019 Plan year waiver received on October 1, 2020, the $23.7 million deferred for the 2019 Plan year will now be funded over the next five years.

Based upon the terms of the A&R Credit Agreement and the cash conservation and cost reduction measures taken to date, the Company is projecting sufficient liquidity to fund future operations and to meet its obligations as they become due for at least one year following the date that these Condensed Consolidated Financial Statements are issued. As a result, the Company has concluded that conditions and events, considered in the aggregate, no longer raise substantial doubt about the entity’s ability to continue as a going concern.

NOTE 2 – EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per share of our common stock, net of non-controlling interest:
 Three months ended September 30,Nine months ended September 30,
(in thousands, except per share amounts)2020201920202019
Income (loss) from continuing operations$34,724
$(56,955)$(16,706)$(135,054)
Income (loss) from discontinued operations, net of tax

1,800
694
Net income (loss) attributable to stockholders$34,724
$(56,955)$(14,906)$(134,360)
     
Weighted average shares used to calculate basic earnings (loss) per share (1)
49,478
40,879
47,585
25,950
Dilutive effect of stock options, restricted stock and performance units578



Weighted average shares used to calculate diluted earnings (loss) per share50,056
40,879
47,585
25,950
     
Basic earnings (loss) per share    
Continuing operations$0.70
$(1.39)$(0.35)$(5.21)
Discontinued operations

0.04
0.03
Basic earnings (loss) per share$0.70
$(1.39)$(0.31)$(5.18)
     
Diluted earnings (loss) per share    
Continuing operations$0.69
$(1.39)$(0.35)$(5.21)
Discontinued operations

0.04
0.03
Diluted earnings (loss) per share$0.69
$(1.39)$(0.31)$(5.18)
(1) Weighted average shares used to calculate basic and diluted earnings (loss) per share reflect the bonus element for the 2019 Rights Offering on July 23, 2019 as described below and the one-for-ten reverse stock split on July 24, 2019

In July 2019, the Company completed a rights offering to existing common stockholders (the "2019 Rights Offering"). Because the rights issuance was offered to all existing stockholders at an exercise price that was less than the fair value of our Common Stock, as of such time, the weighted average shares outstanding and basic and diluted earnings (loss) per share were adjusted retroactively to reflect the bonus element of the rights offering for all periods presented by a factor of 1.0875. Weighted average shares, prior to giving effect to the 2019 Rights Offering, in the three and nine months ended September 30, 2019 was 8,140 and 13,938, respectively.

Because we incurred a net loss in the nine months ended September 30, 2020 and in the three and nine months ended September 30, 2019, basic and diluted shares are the same.

12






If we had net income in the nine months ended September 30, 2020, diluted shares would include an additional 422.3 thousand shares. If we had net income in the three and nine months ended September 30, 2019, diluted shares would include an additional 141.3 thousand and 71.0 thousand shares, respectively.

We excluded 1.3 million and 0.3 million shares related to stock options from the diluted share calculation for the nine months ended September 30, 2020 and 2019, respectively, because their effect would have been anti-dilutive. We excluded 1.1 million and 0.3 million shares related to stock options from the diluted share calculation for the three months ended September 30, 2020 and 2019, respectively, because their effect would have been anti-dilutive.
     
NOTE 3 – SEGMENT REPORTING

Our operations are assessed based on three reportable segments which changed in 2020 as part of the Company's strategic, market-focused organizational and re-branding initiative to accelerate growth and provide stakeholders improved visibility into our renewable and environmental growth platforms. Segment results for all periods have been restated for comparative purposes.

B&W Renewable segment: cost-effective technologies for efficient and environmentally sustainable power and heat generation, including waste-to-energy, biomass energy and black liquor systems for the pulp and paper industry. The segment's leading technologies support a circular economy, diverting waste from landfills to use for power generation and replacing fossil fuels, while recovering metals and reducing emissions.
B&W Environmental segment: full suite of best-in-class emissions control and environmental technology solutions for utility and industrial steam generation applications around the world. The segment'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.
B&W Thermal segment: steam generation equipment, aftermarket parts, construction, maintenance and field services for plants in the power generation, oil and gas, and industrial sectors. The segment has an extensive global base of installed equipment for utilities and general industrial applications including refining, petrochemical, food processing, metals and others.

Revenues exclude eliminations of revenues generated from sales to other segments or to other product lines within the segment. An analysis of our operations by segment is as follows:
 Three months ended September 30,Nine months ended September 30,
(in thousands)2020201920202019
Revenues:    
B&W Renewable segment    
B&W Renewable$21,253
$22,981
$70,657
$70,487
Vølund17,809
28,311
47,913
88,414
 39,062
51,292
118,570
158,901
B&W Environmental segment    
B&W Environmental11,841
31,187
35,289
165,273
SPIG10,323
9,810
32,510
62,047
GMAB3,098
4,039
8,555
7,165
 25,262
45,036
76,354
234,485
B&W Thermal segment    
B&W Thermal70,025
108,157
223,920
315,587
 70,025
108,157
223,920
315,587
     
Eliminations(1,836)(5,841)(2,380)(30,278)
 $132,513
$198,644
$416,464
$678,695


13





The presentation of the components of our adjusted EBITDA in the table below is consistent with the way our chief operating decision maker reviews the results of our operations and makes strategic decisions about our business. Items such as gains or losses on asset sales, mark to market ("MTM") pension adjustments, restructuring and spin-off costs, impairments, losses on debt extinguishment, costs related to financial consulting required under our U.S. Revolving Credit Facility and other costs that may not be directly controllable by segment management are not allocated to the segment.

Adjusted EBITDA for each segment is presented below with a reconciliation to net income (loss) attributable to stockholders.

Three months ended September 30,Nine months ended September 30,
(in thousands)2020201920202019
Adjusted EBITDA  



B&W Renewable segment$23,575
$(615)$22,003
$(4,185)
B&W Environmental segment1,078
1,771
(137)2,453
B&W Thermal segment7,255
12,871
22,676
34,994
Corporate(4,916)(3,059)(12,864)(16,973)
Research and development costs(1,355)(828)(3,927)(2,281)

25,637
10,140
27,751
14,008

  



Restructuring activities(2,396)(2,556)(6,739)(9,571)
Financial advisory services(1,650)(1,213)(3,161)(8,368)
Settlement cost to exit B&W Renewable contract (1)



(6,575)
Advisory fees for settlement costs and liquidity planning(1,387)(2,787)(5,156)(7,445)
Litigation legal costs(809)(475)(1,757)(475)
Stock compensation(1,175)(1,271)(3,074)(2,072)
Loss from business held for sale(93)
(411)
Depreciation & amortization(4,056)(5,281)(12,296)(19,123)
Gain on asset disposals, net3
266
916
224
Operating income (loss)14,074
(3,177)(3,927)(39,397)
Interest expense, net(12,036)(29,351)(49,346)(66,562)
Loss on debt extinguishment

(6,194)(3,969)
Loss on sale of business

(108)(3,601)
Net pension benefit before MTM7,328
3,589
22,314
10,350
MTM loss from benefit plans
(18)
(1,278)
Foreign exchange24,963
(26,735)22,749
(27,382)
Other – net(276)(255)(3,068)208
Total other income (expense)19,979
(52,770)(13,653)(92,234)
Income (loss) before income tax (benefit) expense34,053
(55,947)(17,580)(131,631)
Income tax (benefit) expense(502)1,043
(467)3,560
Income (loss) from continuing operations34,555
(56,990)(17,113)(135,191)
Income from discontinued operations, net of tax

1,800
694
Net income (loss)34,555
(56,990)(15,313)(134,497)
Net loss attributable to non-controlling interest169
35
407
137
Net income (loss) attributable to stockholders$34,724
$(56,955)$(14,906)$(134,360)

(1) 
In March 2019, we entered into a settlement in connection with an additional B&W Renewable waste-to-energy EPC contract, for which notice to proceed was not given and the contract was not started. The settlement eliminated our obligations to act, and our risk related to acting, as the prime EPC should the project have moved forward.
 
We do not separately identify or report our assets by segment as our chief operating decision maker does not consider assets by segment to be a critical measure by which performance is measured.

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NOTE 4 – REVENUE RECOGNITION AND CONTRACTS

Revenue Recognition

A performance obligation is a contractual promise to transfer a distinct good or service to the customer. A contract's transaction price is allocated to each distinct performance obligation and is recognized as revenue when (point in time) or as (over time) the performance obligation is satisfied.

Revenue from goods and services transferred to customers at a point in time, which includes certain aftermarket parts and services primarily in the B&W Thermal segment, accounted for 34% and 25% for the three months ended September 30, 2020 and 2019, respectively and 32% and 20% of our revenue for the nine months ended September 30, 2020 and 2019, respectively. Revenue on these contracts is recognized when the customer obtains control of the asset, which is generally upon shipment or delivery and acceptance by the customer. Standard commercial payment terms generally apply to these sales.

Revenue from products and services transferred to customers over time accounted for 66% and 75% of our revenue for the three months ended September 30, 2020 and 2019, respectively and 68% and 80% of our revenue for the nine months ended September 30, 2020 and 2019, respectively. Revenue recognized over time primarily relates to customized, engineered solutions and construction services from all three of our segments. Typically, revenue is recognized over time using the cost-to-cost input method that uses costs incurred to date relative to total estimated costs at completion to measure progress toward satisfying our performance obligations. Incurred cost represents work performed, which corresponds with, and thereby best depicts, the transfer of control to the customer. Contract costs include labor, material, overhead and, when appropriate, SG&A expenses. Variable consideration in these contracts includes estimates of liquidated damages, contractual bonuses and penalties, and contract modifications. Substantially all of our revenue recognized over time under the cost-to-cost input method contains a single performance obligation as the interdependent nature of the goods and services provided prevents them from being separately identifiable within the contract. Generally, we try to structure contract milestones to mirror our expected cash outflows over the course of the contract; however, the timing of milestone receipts can greatly affect our overall cash position and have in our B&W Renewable segment. Refer to Note 3 for our disaggregation of revenue by product line.

As of September 30, 2020, we have estimated the costs to complete all of our in-process contracts in order to estimate revenues using a cost-to-cost input method. However, it is possible that current estimates could change due to unforeseen events, which could result in adjustments to overall contract costs. The risk on fixed-priced contracts is that revenue from the customer does not cover increases in our costs. It is possible that current estimates could materially change for various reasons, including, but not limited to, fluctuations in forecasted labor productivity, transportation, fluctuations in foreign exchange rates or steel and other raw material prices. Increases in costs on our fixed-price contracts could have a material adverse impact on our consolidated financial condition, results of operations and cash flows. Alternatively, reductions in overall contract costs at completion could materially improve our consolidated financial condition, results of operations and cash flows. Variations from estimated contract performance could result in material adjustments to operating results for any fiscal quarter or year.

Contract modifications are routine in the performance of our contracts. Contracts are often modified to account for changes in the contract specifications or requirements. In most instances, contract modifications are for goods or services that are not distinct and, therefore, are accounted for as part of the existing contract, with cumulative adjustment to revenue.

We recognize accrued claims in contract revenues for extra work or changes in scope of work to the extent of costs incurred when we believe we have an enforceable right to the modification or claim and the amount can be estimated reliably, and its realization is probable. In evaluating these criteria, we consider the contractual/legal basis for enforcing the claim, the cause of any additional costs incurred and whether those costs are identifiable or otherwise determinable, the nature and reasonableness of those costs, the objective evidence available to support the amount of the claim, and our relevant history with the counter-party that supports our expectations about their willingness and ability to pay for the additional cost along with a reasonable margin.

We generally recognize sales commissions in equal proportion as revenue is recognized. Our sales agreements are structured such that commissions are only payable upon receipt of payment, thus a capitalized asset at contract inception has not been recorded for sales commissions as a liability has not been incurred at that point.


15





Contract Balances

The following represents the components of our contracts in progress and advance billings on contracts included in our Condensed Consolidated Balance Sheets:
(in thousands)September 30, 2020December 31, 2019$ Change% Change
Contract assets - included in contracts in progress:    
Costs incurred less costs of revenue recognized$26,359
$29,877
$(3,518)(12)%
Revenues recognized less billings to customers47,523
61,702
(14,179)(23)%
Contracts in progress$73,882
$91,579
$(17,697)(19)%
Contract liabilities - included in advance billings on contracts:    
Billings to customers less revenues recognized$52,410
$76,468
$(24,058)(31)%
Costs of revenue recognized less cost incurred1,636
(1,181)2,817
(239)%
Advance billings on contracts$54,046
$75,287
$(21,241)(28)%
     
Net contract balance$19,836
$16,292
$3,544
22 %
     
Accrued contract losses$845
$6,193
$(5,348)(86)%

Backlog

On September 30, 2020 we had $509.0 million of remaining performance obligations, which we also refer to as total backlog. We expect to recognize approximately 18.3%, 34.6% and 47.1% of our remaining performance obligations as revenue in the remainder of 2020, 2021 and thereafter, respectively.

Changes in Contract Estimates

In the three and nine months ended September 30, 2020 and 2019, we recognized changes in estimated gross profit related to long-term contracts accounted for on the over time basis, which are summarized as follows:
 Three months ended September 30,Nine months ended September 30,
(in thousands)2020201920202019
Increases in gross profits for changes in estimates for over time contracts (1)
$27,237
$10,279
$34,453
$25,089
Decreases in gross profits for changes in estimates for over time contracts(8,058)(13,248)(13,003)(35,892)
Net changes in gross profits for changes in estimates for over time contracts$19,179
$(2,969)$21,450
$(10,803)
(1) Increases in gross profits for changes in estimates for over time contracts reflects a non-recurring insurance loss recovery of $26.0 million in the three and nine months ended September 30, 2020.

B&W Renewable EPC Loss Contracts

We had six B&W Renewable EPC contracts for renewable energy facilities in Europe that were loss contracts at December 31, 2017. The scope of these EPC (Engineer, Procure and Construct) contracts extended beyond our core technology, products and services. In addition to these loss contracts, we have one remaining extended scope contract in our Babcock & Wilcox Renewable segment which turned into a loss contract in the fourth quarter of 2019.

In the three months ended September 30, 2020 and 2019, we recorded $1.1 million and $0.7 million in net losses, respectively, inclusive of warranty expense as described in Note 10, resulting from changes in the estimated revenues and costs to complete the six European B&W Renewable EPC loss contracts. In the three months ended September 30, 2020 we did not change our estimate of liquidated damages on these contracts and in the three months ended September 30, 2019, we reduced our estimate of liquidated damages on these contracts by $1.8 million.

In the nine months ended September 30, 2020 and 2019, we recorded $1.4 million and $8.0 million in net losses, respectively, inclusive of warranty expense as described in Note 10, resulting from changes in the estimated revenues and costs to

16





complete the six European B&W Renewable EPC loss contracts. In the nine months ended September 30, 2020 we did not change our estimate of liquidated damages on these contracts and in the nine months ended September 30, 2019, we reduced our estimate of liquidated damages on these contracts by $2.2 million. Total anticipated liquidated damages associated with these six contracts were $92.7 million and $86.3 million at September 30, 2020 and September 30, 2019, respectively.

As of September 30, 2020, five of the six European B&W Renewable EPC loss contracts had been turned over to the customer, with only punch list or agreed remediation items and performance testing remaining, some of which are expected to be performed during the customers' scheduled maintenance outages. Turnover is not applicable to the fifth loss contract under the terms of the March 29, 2019 settlement agreement with the customers of the second and fifth loss contracts, who are related parties to each other. Under that settlement agreement, we limited our remaining risk related to these contracts by paying a combined £70 million ($91.5 million) on April 5, 2019 in exchange for limiting and further defining our obligations under the second and fifth loss contracts, including waiver of the rejection and termination rights on the fifth loss contract that could have resulted in repayment of all monies paid to us and our former civil construction partner (up to approximately $144 million), and requirement to restore the property to its original state if the customer exercised this contractual rejection right. On the fifth loss contract, we agreed to continue to support construction services to complete certain key systems of the plant by May 31, 2019, for which penalty for failure to complete these systems is limited to the unspent portion of our quoted cost of the activities through that date. The settlement eliminated all historical claims and remaining liquidated damages. In accordance with the settlement, we have no further obligation related to the fifth loss contract other than customary warranty of core products if the plant is used as a biomass plant as designed. We estimated the portion of this settlement related to waiver of the rejection right on the fifth loss contract was $81.1 million, which was recorded in the fourth quarter of 2018 as a reduction in the selling price. We are still pursuing insurance recoveries and claims against subcontractors. For the second loss contract, the settlement limited the remaining performance obligations and settled historic claims for nonconformance and delays, and we turned over the plant in May 2019, and subsequently began the operations and maintenance contract to operate this plant.

As of September 30, 2020, the status of these six B&W Renewable EPC loss contracts was as follows:

The first contract, a waste-to-energy plant in Denmark, became a loss contract in the second quarter of 2016. As of September 30, 2020, this contract was approximately 100% complete and construction activities are complete as of the date of this report. The unit became operational during the second quarter of 2017. A settlement was reached with the customer to achieve takeover on January 31, 2019, after which only punch list items and other agreed to remediation items remain, most of which are expected to be performed during the customer's scheduled maintenance outages. As of January 31, 2019, the contract is in the warranty phase. During the three and nine months ended September 30, 2020, we recognized additional contract losses of $1.1 million and $1.9 million, respectively, inclusive of warranty. Our estimate at completion as of September 30, 2020 includes $9.5 million of total estimated liquidated damages. As of September 30, 2020, we expect no future charges due to this contract and, accordingly, have no reserve for estimated contract losses. During the three and nine months ended September 30, 2019, we recognized additional contract losses of $0.3 million and $2.3 million, respectively, on the contract as a result of identifying additional remediation costs in the third quarter of 2019. As of September 30, 2019, this contract had $1.6 million of accrued losses and was approximately 98% complete.

The second contract, a biomass plant in the United Kingdom, became a loss contract in the fourth quarter of 2016. As of September 30, 2020, this contract was approximately 100% complete. Trial operations began in April 2019 and takeover by the customer occurred effective May 2019. This project is subject to the March 29, 2019 settlement agreement described above. During the three months ended September 30, 2020, we did not recognize additional contract losses and during the nine months ended September 30, 2020, we recognized additional contract losses of $0.1 million on this contract as a result of additional punch list and other commissioning costs. Our estimate at completion as of September 30, 2020 includes $20.0 million of total estimated liquidated damages due to schedule delays. Our estimates at completion as of September 30, 2020 and 2019 also include contractual bonus opportunities for guaranteed higher power output and other performance metrics. As of September 30, 2020, we expect no future charges due to this contract and, accordingly, have no reserve for estimated contract losses. In the three and nine months ended September 30, 2019, we recognized contract losses of $0.7 million and $2.6 million, respectively, on this contract as a result of repairs required during startup commissioning activities, additional expected punch list and other commissioning costs, and changes in construction cost estimates. As of September 30, 2019, this contract had $0.2 million of accrued losses and was approximately 100% complete.

The third contract, a biomass plant in Denmark, became a loss contract in the fourth quarter of 2016. As of September 30, 2020, this contract was approximately 100% complete. Warranty began in March 2018, when we agreed to a partial takeover with the customer, and we agreed to a full takeover by the customer at the end of

17





October 2018, when we also agreed to a scheduled timeline for remaining punch list activities to be completed around the customer's future planned outages. During the three and nine months ended September 30, 2020, we did not recognize additional contract losses. Our estimate at completion as of September 30, 2020 includes $7.1 million of total estimated liquidated damages due to schedule delays. As of September 30, 2020, we expect no future charges due to this contract and, accordingly, we have no reserve for estimated contract losses. In the three and nine months ended September 30, 2019, we did not recognize additional contract losses. As of September 30, 2019, this contract had no reserve for estimated contract losses and was approximately 100% complete.

The fourth contract, a biomass plant in the United Kingdom, became a loss contract in the fourth quarter of 2016. As of September 30, 2020, this contract was approximately 100% complete. Trial operations began in November 2018 and takeover by the customer occurred in February 2019, after which only final performance testing, for which performance metrics have been previously demonstrated, and punch list and other agreed upon items remain, some of which are expected to be performed during the customer's scheduled maintenance outages. During the three and nine months ended September 30, 2020, we recognized additional contract charges of $0.1 million and $0.3 million, respectively, on this contract due to changes in cost to complete remaining punch list and other close out items. Our estimate at completion as of September 30, 2020 includes $21.8 million of total estimated liquidated damages due to schedule delays. Our estimates at completion as of September 30, 2020 also include contractual bonus opportunities for guaranteed higher power output and other performance metrics. As of September 30, 2020, we expect no future charges due to this contract and, accordingly, we have no reserve for estimated contract losses. In the three and nine months ended September 30, 2019, we recognized additional contract losses of $0.4 million and $4.8 million, respectively, on this contract due to changes in estimated bonus revenue and cost to complete remaining punch list, remediation of certain performance guarantees and other close out items. Our estimates at completion as of September 30, 2019 also included contractual bonus opportunities for guaranteed higher power output and other performance metrics. As of September 30, 2019, this contract had $0.3 million of accrued losses and was approximately 99% complete.

The fifth contract, a biomass plant in the United Kingdom, became a loss contract in the second quarter of 2017. As of September 30, 2020, this contract was approximately 100% complete. This project is subject to the March 29, 2019 settlement agreement described above. We estimated the portion of this settlement related to waiver of the rejection right on the fifth loss contract was $81.1 million, which was recorded in the fourth quarter of 2018 as a reduction in the selling price. Under the settlement, our remaining performance obligations were limited to construction support services to complete certain key systems of the plant by May 31, 2019. The settlement also eliminated all historical claims and remaining liquidated damages. Remaining items at September 30, 2020 are primarily related to punch list and other finalization items for the key systems under the terms of the settlement and subcontract close outs. During the nine months ended September 30, 2020, our estimated loss on the contract improved by $0.4 million. Our estimate at completion as of September 30, 2020, includes $14.3 million of total estimated liquidated damages due to schedule delays. As of September 30, 2020, we expect no future charges due to this contract and, accordingly, we have no reserve for estimated contract losses. During the three and nine months ended September 30, 2019, our estimated loss on the contract improved by $0.9 million and $2.6 million, respectively, inclusive of warranty. As of September 30, 2019, this contract had $3.4 million of accrued losses and was approximately 98% complete.

The sixth contract, a waste-to-energy plant in the United Kingdom, became a loss contract in the second quarter of 2017. As of September 30, 2020, this contract was approximately 100% complete. Trial operations began in December 2018 and customer takeover occurred on January 25, 2019. The contract is in the warranty phase. During the three and nine months ended September 30, 2020, our estimated loss on the contract improved by $0.1 million and $0.5 million, respectively, inclusive of warranty. Our estimate at completion as of September 30, 2020 includes $20.0 million of total estimated liquidated damages due to schedule delays. As of September 30, 2020, the reserve for estimated contract losses recorded in other accrued liabilities in our Consolidated Balance Sheets was $0.1 million. In the three and nine months ended September 30, 2019, we revised our revenue and costs at completion for this contract, which resulted in additional contract losses of $0.1 million and $1.0 million, respectively, related to matters encountered in completing punch list items. As of September 30, 2019, this contract had $0.1 million of accrued losses and was approximately 100% complete.

In the fourth quarter of 2019, one of our other B&W Renewable energy contracts turned into a loss contract (estimated loss of $0.2 million) due to the extension of time and other start-up costs associated with the completion of the trial operations run and turnover to the client. This contract was turned over to the client in October 2019.  During the three and nine months ended September 30, 2020, we recognized additional contract charges of $3.0 million on this contract due to increase of

18





project close out costs. During the three and nine months ended September 30, 2019, we recognized additional charges of $1.5 million and $3.0 million, respectively, on this contract.

In September 2017, we identified the failure of a structural steel beam on the fifth contract, which stopped work in the boiler building and other areas pending corrective actions to stabilize the structure. Provisional regulatory approval to begin structural repairs to the failed beam was obtained on March 29, 2018 (later than previously estimated), and full approval to proceed with repairs was obtained in April 2018. Full access to the site was obtained on June 6, 2018 after completion of the repairs to the structure. The engineering, design and manufacturing of the steel structure were the responsibility of our subcontractors. A similar design was also used on the second and fourth contracts, and although no structural failure occurred on these two other contracts, work was also stopped in certain restricted areas while we added reinforcement to the structures, which also resulted in delays that lasted until late January 2018. The total costs related to the structural steel issues on these three contracts, including contract delays, are estimated to be approximately $36 million, which is included in the September 30, 2020 estimated losses at completion for these three contracts. We are continuing to aggressively pursue recovery of this cost from responsible subcontractors. In June 2019, we agreed in principle to a settlement agreement under one insurance policy related to recover GBP 2.8 million ($3.5 million) of certain losses on the fifth project; which our insurer paid us in September 2019.

In October 2020, we entered into a settlement agreement with an insurer under which we received a settlement of $26.0 million to settle claims in connection with five of six European B&W Renewable EPC loss contracts disclosed above. We recognized this non-recurring loss recovery of $26.0 million as a reduction of our Cost of operations in our Condensed Consolidated Statements of Operations and recorded the insurance receivable in Accounts receivable - other in our Condensed Consolidated Balance Sheets at September 30, 2020 because we determined the loss recovery was probable as of such date. On October 23, 2020, we received $26.0 million of gross proceeds under the settlement agreement. As required by the Company’s U.S. Revolving Credit Facility, 50% of the net proceeds (gross proceeds less costs) or approximately $8.0 million of the settlement received by the Company was applied as a permanent reduction of the U.S. Revolving Credit Facility in October 2020.

The Company is continuing to pursue other additional potential claims where appropriate and available.

Other B&W Renewable Contract Settlement

In March 2019, we entered into a settlement in connection with an additional European waste-to-energy EPC contract, for which notice to proceed was not given and the contract was not started. We made a payment of £5.0 million (approximately $6.6 million) on April 5, 2019 for the settlement which eliminated our obligations to act, and our risk related to acting, as the prime EPC should the project have moved forward.

B&W Environmental Loss Contracts

At September 30, 2020, the B&W Environmental segment had two significant loss contracts, each of which are contracts for a dry cooling system for a gas-fired power plant in the United States. In the three and nine months ended September 30, 2020, we recognized $1.3 million of additional charges on these contracts. In the three months ended September 30, 2019, we did not recognize additional charges on these contracts and in the nine months ended September 30, 2019, our estimated loss on the second contract improved by $0.7 million, respectively, due to recovery of tariffs.

At September 30, 2020, the design and procurement are substantially complete, and construction is nearing completion on the first loss contract.  Overall, the contract is approximately 100% complete with only performance testing remaining which is anticipated to be complete in the fourth quarter of 2020. As of September 30, 2020, we have no reserve for estimated contract losses. As of September 30, 2019, this contract had accrued losses of $0.5 million and was 97% complete. Construction is being performed by the B&W Thermal segment, but the contract loss is included in the B&W Environmental segment.

At September 30, 2020, the design and procurement are nearing completion on the second loss contract.  Overall, the contract is approximately 97% complete and final completion is expected to be in the fourth quarter of 2020.  As of September 30, 2020, the reserve for estimated contract losses recorded in other accrued liabilities in our Condensed Consolidated Balance Sheets was $0.2 million related to this contract.  As of September 30, 2019, this contract had accrued losses of $0.1 million and was 98% complete. The percent completion declined at September 30, 2020 compared to the prior year period due to an increase in additional contract charges of $3.3 million recognized in late 2019 due to issues with the seismic design and fans.


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NOTE 5 – INVENTORIES

The components of inventories are as follows:
(in thousands)September 30, 2020December 31, 2019
Raw materials and supplies$47,349
$42,685
Work in progress6,710
7,502
Finished goods12,907
12,916
Total inventories$66,966
$63,103

NOTE 6 – PROPERTY, PLANT & EQUIPMENT, & FINANCE LEASE

Property, plant and equipment less accumulated depreciation is as follows:
(in thousands)September 30, 2020December 31, 2019
Land$3,053
$2,998
Buildings84,262
84,005
Machinery and equipment153,592
154,016
Property under construction6,333
6,204
 247,240
247,223
Less accumulated depreciation187,587
180,562
Net property, plant and equipment59,653
66,661
Finance lease30,550
30,405
Less finance lease accumulated amortization1,558
13
Net property, plant and equipment, and finance lease$88,645
$97,053

NOTE 7 - GOODWILL

Goodwill is tested for impairment annually and when impairment indicators exist. During the third quarter of 2020, the Company completed an organizational and re-branding initiative, eliminating the legacy business unit structure and launching the B&W Renewable, B&W Environmental, and B&W Thermal brands, which we considered to be a triggering event and as a result, the Company reevaluated its operating segments and reporting units. Segment results for all periods have been restated for comparative purposes. Refer to Note 3 - Segment Reporting for further details on these changes.
 
Effective September 30, 2020, the previous Babcock & Wilcox and Babcock & Wilcox Construction Company reporting units became the B&W Company Thermal and B&W Construction Company reporting units, respectively, within the Babcock & Wilcox Thermal operating segment. The Company also identified the B&W Company Renewable and B&W Company Environmental reporting units related to the transfer of businesses from the former Babcock & Wilcox reporting unit to the Babcock & Wilcox Renewable and Babcock & Wilcox Environmental operating segments. Consequently, the Company re-allocated goodwill between the affected reporting units based on their relative fair values and compared the carrying value to the fair value of each impacted reporting unit.  

In conjunction with the changes mentioned above, the Company performed a goodwill impairment test of the impacted reporting units on a before and after basis and based on the assessment, as of September 30, 2020, concluded that the fair value of the impacted reporting units exceeded their carrying values. Accordingly, no impairment was indicated during the third quarter of 2020.


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The following summarizes the changes in the net carrying amount of goodwill as of December 31, 2019 and September 30, 2020 after giving consideration to the reallocation of goodwill noted above:
(in thousands)B&W RenewableB&W EnvironmentalB&W ThermalTotal
Balance at December 31, 2019$10,169
$5,652
$31,339
$47,160
Currency translation adjustments(5)(3)(16)(24)
Balance at September 30, 2020$10,164
$5,649
$31,323
$47,136

In the first quarter of 2020, our share price declined significantly, which we considered to be a triggering event for an interim goodwill assessment. We primarily attributed the significant decline in our share price to the current macroeconomic conditions and impacts COVID-19 will have on our operations. Based on the interim assessment, as of March 31, 2020, no impairment was indicated during the first quarter of 2020.

NOTE 8 – INTANGIBLE ASSETS

Our intangible assets are as follows:
(in thousands)September 30, 2020December 31, 2019
Definite-lived intangible assets  
Customer relationships$24,634
$24,440
Unpatented technology15,288
14,917
Patented technology2,625
2,598
Tradename12,706
12,372
All other9,255
9,225
Gross value of definite-lived intangible assets64,508
63,552
Customer relationships amortization(19,352)(18,616)
Unpatented technology amortization(6,358)(5,245)
Patented technology amortization(2,571)(2,476)
Tradename amortization(4,686)(4,257)
All other amortization(9,155)(8,963)
Accumulated amortization(42,122)(39,557)
Net definite-lived intangible assets$22,386
$23,995
Indefinite-lived intangible assets  
Trademarks and trade names$1,305
$1,305
Total intangible assets, net$23,691
$25,300

The following summarizes the changes in the carrying amount of intangible assets:
 Nine months ended September 30,
(in thousands)20202019
Balance at beginning of period$25,300
$30,793
Amortization expense(2,564)(3,301)
Currency translation adjustments and other955
(1,060)
Balance at end of the period$23,691
$26,432

Amortization of intangible assets is included in cost of operations and SG&A in our Condensed Consolidated Statement of Operations but is not allocated to segment results.


21





Estimated future intangible asset amortization expense is as follows (in thousands):
 Amortization Expense
Year ending December 31, 2020$827
Year ending December 31, 20213,188
Year ending December 31, 20223,159
Year ending December 31, 20233,158
Year ending December 31, 20243,086
Year ending December 31, 20252,567
Thereafter6,401

The circumstances leading to the first quarter interim goodwill assessment as described in Note 7 also triggered an evaluation for long-lived assets, including intangible assets. The company performed an analysis as required by ASC 360-10-35 to assess the recoverability of other long-lived assets in its B&W Renewable and B&W Environmental asset groups. With respect to these asset groups no impairment was indicated during the first quarter of 2020.

NOTE 9 – LEASES

The components of lease expense included on our Condensed Consolidated Statements of Operations were as follows:
  Three months ended September 30,Nine months ended September 30,
(in thousands)Classification2020201920202019
Operating lease expense:     
Operating lease expenseSelling, general and administrative expenses$1,433
$1,569
$4,329
$5,067
Short-term lease expenseSelling, general and administrative expenses866
1,193
1,346
6,153
Variable lease expense (1)
Selling, general and administrative expenses625
121
1,019
682
Total operating lease expense $2,924
$2,883
$6,694
$11,902

   

 
Finance lease expense:     
Amortization of right-of-use assetsSelling, general and administrative expenses$517
$
$1,546
$
Interest on lease liabilitiesInterest expense612

1,843

Total finance lease expense $1,129
$
$3,389
$

     
Sublease income (2)
Other – net$(22)$(22)$(65)$(46)
Net lease cost $4,031
$2,861
$10,018
$11,856
(1) Variable lease expense primarily consists of common area maintenance expenses paid directly to lessors of real estate leases.
(2) Sublease income excludes rental income from owned properties, which is not material.


22





Other information related to leases is as follows:
(in thousands)September 30, 2020December 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:  
Operating cash flows from operating leases$4,275
$6,578
Operating cash flows from finance leases1,843
14
Financing cash flows from finance leases(208)(12)
   
Right-of-use assets obtained in exchange for lease liabilities:  
Operating leases$1,525
$3,014
Finance leases$146
$30,404
   
Weighted-average remaining lease term:  
Operating leases (in years)3.1
3.4
Finance leases (in years)14.2
15.0
Weighted-average discount rate:  
Operating leases9.10%9.27%
Finance leases8.00%8.00%

Amounts relating to leases were presented on our Condensed Consolidated Balance Sheets in the following line items:
(in thousands)   
Assets:ClassificationSeptember 30, 2020December 31, 2019
Operating lease assetsRight-of-use assets$10,272
$12,498
Finance lease assetsNet property, plant and equipment, and finance lease28,992
30,392
Total non-current lease assets $39,264
$42,890
    
Liabilities:   
Current   
Operating lease liabilitiesOperating lease liabilities$3,968
$4,323
Finance lease liabilitiesFinancing lease liabilities852
(38)
Non-current   
Operating lease liabilitiesNon-current operating lease liabilities6,381
8,388
Finance lease liabilitiesNon-current finance lease liabilities29,917
30,454
Total lease liabilities $41,118
$43,127


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Future minimum lease payments required under non-cancellable leases as of September 30, 2020 were as follows:
(in thousands)Operating LeasesFinance LeasesTotal
2020 (excluding the nine months ended September 30, 2020)$1,312
$803
$2,115
20214,246
3,277
7,523
20223,003
3,342
6,345
20231,992
3,408
5,400
20241,151
3,473
4,624
Thereafter108
38,285
38,393
   Total$11,812
$52,588
$64,400
Less imputed interest(1,463)(21,819)(23,282)
Lease liability$10,349
$30,769
$41,118

In connection with the COVID-19 pandemic, the Company has received temporary rent payment deferrals related to leased facilities located in the U.S., Canada, Italy and Denmark. We have elected to account for the deferral in timing of lease payments as if there were no changes to the lease contract, including continued recognition of expense during the deferral period.

NOTE 10 – ACCRUED WARRANTY EXPENSE

We may offer assurance type warranties on products and services we sell. Changes in the carrying amount of our accrued warranty expense are as follows:
 Nine months ended September 30,
(in thousands)20202019
Balance at beginning of period$33,376
$45,117
Additions4,508
4,793
Expirations and other changes(3,523)(5,172)
Payments(8,410)(7,848)
Translation and other852
(1,292)
Balance at end of period$26,803
$35,598

We accrue estimated expense included in cost of operations on our Condensed Consolidated Statements of Operations to satisfy contractual warranty requirements when we recognize the associated revenues on the related contracts, or in the case of a loss contract, the full amount of the estimated warranty costs is accrued when the contract becomes a loss contract. In addition, we record specific provisions or reductions where we expect the actual warranty costs to significantly differ from the accrued estimates. Such changes could have a material effect on our consolidated financial condition, results of operations and cash flows. Warranty expense for the nine months ended September 30, 2019 includes $3.9 million of warranty reversal related to developments in the quarter stemming from the March 29, 2019 settlement agreement for the B&W Renewable EPC loss contracts described in Note 4.


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NOTE 11 – RESTRUCTURING ACTIVITIES

The following tables summarize the restructuring activity incurred by segment:
 Three months ended September 30, Three months ended September 30,
 2020 2019
(in thousands)TotalSeverance and related costsCOVID-19 related costs
Other (1)
 Severance and related costs
B&W Renewable segment$594
$340
$23
$231
 $414
B&W Environmental segment299
119
52
128
 193
B&W Thermal segment1,370
422
92
856
 805
Corporate133

2
131
 1,144
 $2,396
$881
$169
$1,346
 $2,556

 Nine months ended September 30, Nine months ended September 30,
 2020
2019
(in thousands)TotalSeverance and related costsCOVID-19 related costs
Other (1)
 Severance and related costs
B&W Renewable segment$2,346
$1,153
$657
$536
 $1,888
B&W Environmental segment676
330
78
268
 2,029
B&W Thermal segment3,259
1,111
282
1,866
 2,986
Corporate458

94
364
 2,668
 $6,739
$2,594
$1,111
$3,034
 $9,571
(1) Other amounts consist primarily of exit, relocation and other costs.

Restructuring liabilities are included in other accrued liabilities on our Condensed Consolidated Balance Sheets. Activity related to the restructuring liabilities is as follows:
 Three months ended September 30,Nine months ended September 30,
(in thousands)2020201920202019
Balance at beginning of period 
$5,087
$6,974
$5,359
$7,359
Restructuring expense2,396
2,557
6,739
9,572
Payments(2,307)(2,957)(6,922)(10,357)
Balance at end of period$5,176
$6,574
$5,176
$6,574

Accrued restructuring liabilities at September 30, 2020 and 2019 relate primarily to employee termination benefits. Severance payments are expected to extend through the end of 2020.

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NOTE 12 – PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS

Components of net periodic benefit cost (benefit) included in net income (loss) are as follows:
 Pension Benefits Other Benefits
 Three months ended September 30,Nine months ended September 30, Three months ended September 30,Nine months ended September 30,
(in thousands)2020201920202019 2020201920202019
Interest cost$8,263
$10,685
$24,773
$32,507
 $88
$139
$232
$378
Expected return on plan assets(15,452)(13,901)(46,636)(41,700) 



Amortization of prior service cost44
28
130
83
 (271)(540)(813)(1,618)
Recognized net actuarial (gain) loss
18

1,278
 



Benefit plans, net (1)
(7,145)(3,170)(21,733)(7,832) (183)(401)(581)(1,240)
Service cost included in COS (2)
212
346
632
646
 5
4
14
12
Net periodic benefit cost (benefit)$(6,933)$(2,824)$(21,101)$(7,186) $(178)$(397)$(567)$(1,228)
(1) 
Benefit plans, net, which is presented separately in the Condensed Consolidated Statements of Operations, is not allocated to the segments.
(2) 
Service cost related to a small group of active participants is presented within cost of operations in the Condensed Consolidated Statement of Operations and is allocated to the B&W Thermal segment.

Recognized net actuarial (gain) loss consists primarily of our reported actuarial (gain) loss, curtailments, settlements, and the difference between the actual return on plan assets and the expected return on plan assets. There were no MTM adjustments for our pension and other postretirement benefit plans during the three and nine months ended September 30, 2020 or the third quarter of 2019 and we incurred losses of $1.3 million in the nine months ended September 30, 2019. We have excluded the recognized net actuarial (gain) loss from our reportable segments and such amount has been reflected in Note 3 as the MTM loss from benefit plans in the reconciliation of Adjusted EBITDA for each segment to consolidated loss before income tax. The recognized net actuarial (gain) loss was recorded in benefit plans, net in our Condensed Consolidated Statements of Operations.

We made contributions to our pension and other postretirement benefit plans totaling $0.5 million and $1.6 million during the three and nine months ended September 30, 2020, respectively, as compared to $0.5 million and $3.3 million during the three and nine months ended September 30, 2019, respectively. Expected employer contributions to trusts of defined benefit plans assume that relief is granted under U.S. pension contribution waivers, which would defer minimum pension contributions for approximately one year to then be repaid over a five-year period. Related to the 2018 Plan year, we filed a request for waiver with the IRS in January 2019 and obtained a letter on August 27, 2019 that the waiver request had been approved subject to certain conditions.

We filed a temporary hardship waiver request with the IRS on March 12, 2020 related to our contributions for our pension and other postretirement benefit plans for the 2019 Plan year and obtained a letter on October 1, 2020 that the waiver request had been approved subject to certain conditions. Pursuant to the provisions of the waiver granted by the IRS related to the 2018 Plan year, the Company was required to resume quarterly contributions on April 15, 2020 equal to the required quarterly contributions to the Plan.

On March 27, 2020, the CARES Act was signed into law and among other things, provides deferral of certain U.S. pension plan contributions until January 1, 2021. We elected to defer the contribution payments of $5.5 million each for the 2020 Plan year that were due on April 15, 2020, July 15, 2020 and October 15, 2020, respectively. In addition, we elected to defer the contribution payments of $1.1 million for the 2018 Plan year and $23.7 million for the 2019 Plan year that were both due on September 15, 2020. Per the 2019 Plan year waiver received on October 1, 2020, the $23.7 million deferred for the 2019 Plan year will now be funded over the next five years.

The total funding contributions of approximately $46.0 million estimated for 2020 that have been deferred includes $1.1 million for the 2018 Plan year, $23.7 million for the 2019 Plan year, $16.5 million for the 2020 Plan year and $4.5 million related to other non-qualified pension plans, non-U.S. pension plans and other postretirement benefits plans.


26





NOTE 13 – REVOLVING DEBT

Our revolving debt is comprised of our U.S. Revolving Credit Facility in the U.S. with balances of $181.9 million as of September 30, 2020 and $179.0 million as of December 31, 2019.

A&R Credit Agreement

On May 11, 2015, we entered into an amended credit agreement with a syndicate of lenders in connection with our spin-off from The Babcock & Wilcox Company (now BWX Technologies, Inc. or "BWXT") which governs the U.S. Revolving Credit Facility and the Last Out Term Loans. Since June 2016, we have entered into a number of waivers and
amendments to the credit agreement, including several to avoid default under the financial and other covenants
specified in the credit agreement.

On May 14, 2020, we entered into the A&R Credit Agreement which refinances and extends the maturity of our U.S. Revolving Credit Facility and Last Out Term Loans.

Under the A&R Credit Agreement, B. Riley has committed to provide the Company with up to $70.0 million of additional Last Out Term Loans on the same terms as the term loans extended under the prior credit agreement. An aggregate $30.0 million of this new commitment was funded upon execution of the A&R Credit Agreement. Of the remaining commitments, at least $35.0 million will be funded in installments, subject to reduction for the gross proceeds from certain equity offerings conducted by the Company, and $5.0 million will be funded upon request by the Company. The proceeds from the $30.0 million of new Last Out Term Loans will be used to pay transaction fees and expenses and repay outstanding borrowings under the U.S. Revolving Credit Facility. Proceeds from the remaining $40.0 million of Last Out Term Loans will be used to repay outstanding borrowings under the U.S. Revolving Credit Facility, with any remaining amounts used for working capital, capital expenditures, permitted acquisitions and general corporate purposes.

The A&R Credit Agreement also provides that, (i) the U.S. Revolving Credit Facility continues to be available for issuances of existing and new letters of credit, subject to the L/C Sublimit (as defined below), (ii) the $205.0 million sublimit on borrowings under the U.S. Revolving Credit Facility is maintained, and (iii) interest payments on the unpaid principal amount of revolving credit loans incurred during the period from May 14, 2020 through and including August 31, 2020 of $3.8 million are deferred and will be paid in six equal installments on the last business day of each calendar month beginning on January 29, 2021 and through June 30, 2021. No swing line borrowings are permitted under the A&R Credit Agreement.

The A&R Credit Agreement also amends the following terms, among others, as compared with the prior credit agreement:
(i)the maturity date of the U.S. Revolving Credit Facility is extended to June 30, 2022, and the maturity date of all Last Out Term Loans under the A&R Credit Agreement is extended to December 30, 2022 (six months after the maturity date of the U.S. Revolving Credit Facility);

(ii)the interest rate for loans under the U.S. Revolving Credit Facility have been reduced to LIBOR plus 7.0% or base rate (as defined in the A&R Credit Agreement) plus 6.0%. These margins have been reduced by 2.0% if commitments under the U.S. Revolving Credit Facility are reduced to less than $200.0 million. The fee for letters of credit will be set at 4.0%;

(iii)the interest rate for all Last Out Term Loans is set at 12.0%;

(iv)the commitments under the U.S. Revolving Credit Facility automatically and permanently decrease in the following amounts on the following dates, which match the funding dates and amounts for the committed term loans: (x) $10.0 million on November 30, 2020; and (y) $5.0 million on each of March 31, 2021, June 30, 2021, September 30, 2021, December 31, 2021 and March 31, 2022, respectively;

(v)the amount of revolving loans and letters of credit available in currencies other than U.S. dollars has been capped at $125.0 million through April 30, 2021 and will step down to $110.0 million on May 1, 2021; and

(vi)the amount of financial letters of credit has been capped at $75.0 million, and the amount of all letters of credit will be capped at $190.0 million through April 30, 2021 and step down to $175.0 million on May 1, 2021 (the “L/C Sublimit”).

27






Affirmative and negative covenants under the A&R Credit Agreement are substantially consistent with the prior credit agreement, except that, among other changes: (i) the indebtedness covenant has been modified to permit the incurrence of any governmental assistance in the form of indebtedness in connection with COVID-19 relief in an aggregate principal amount not to exceed $10.0 million; (ii) a third-party letter of credit basket of up to $50.0 million has been added; (iii) certain liens and restricted payments are modified to permit liens and repayments of indebtedness incurred in connection with governmental assistance in connection with COVID-19 relief; and (iv) covenants related to the European B&W Renewable EPC loss projects have been removed. The minimum required liquidity condition of $30.0 million remains constant but was modified to exclude cash of non-loan parties in an amount in excess of $25.0 million. Certain financial covenant testing has been suspended through September 30, 2020, with the Company and the Administrative Agent having agreed to negotiate such covenant levels and related definitions prior to October 31, 2020. See A&R Credit Agreement subsequent event described below for a discussion of the results of the negotiation.

Events of default under the A&R Credit Agreement are substantially consistent with the prior credit agreement, except that: (i) B. Riley’s failure to fund any of its additional Last Out Term Loans committed under the A&R Credit Agreement will constitute an event of default; and (ii) the failure to negotiate and set certain financial covenant testing levels and related definitions prior to October 31, 2020 will constitute an event of default.

In connection with the A&R Credit Agreement, the Company incurred certain customary amendment and commitment fees, a portion of which were deferred pursuant to the terms of the A&R Credit Agreement along with certain previously deferred fees incurred under the amended credit agreement.

A&R Credit Agreement - subsequent event

On October 30, 2020, we entered into A&R Amendment No. 1 with Bank of America, N.A. A&R Amendment No. 1, among other matters, (i) provides that, under the A&R Credit Agreement, the "Commitment Reduction Amount" shall be an amount equal to (a) for any "Prepayment Event" relating to a "Recovery Event" (each as defined under the A&R Credit Agreement), 50% of the net cash proceeds with respect to such Prepayment Event, and (b) with respect to any other Prepayment Event under the A&R Credit Agreement, the net cash proceeds with respect to such Prepayment Event, and (ii) establishes new financial covenants for interest coverage ratios and senior leverage ratios.

Effective October 30, 2020, the minimum interest coverage ratios under our A&R Credit Agreement are as follows:
0.50:1.00 for the quarter ending December 31, 2020
0.50:1.00 for the quarter ending March 31, 2021
0.80:1.00 for the quarter ending June 30, 2021
1.00:1.00 for the quarter ending September 30, 2021
1.10:1.00 for the quarter ending December 31, 2021
1.25:1.00 for the quarter ending March 31, 2022 and the last day of each fiscal quarter ending thereafter

Effective October 30, 2020, the maximum permitted senior leverage ratios under our A&R Credit Agreement are as follows:
7.75:1.00 for the quarter ending December 31, 2020
7.75:1.00 for the quarter ending March 31, 2021
4.25:1.00 for the quarter ending June 30, 2021
3.75:1.00 for the quarter ending September 30, 2021
3.00:1.00 for the quarter ending December 31, 2021
2.25:1.00 for the quarter ending March 31, 2022 and the last day of each fiscal quarter ending thereafter

B. Riley Limited Guaranty

In connection with the Company’s entry into the A&R Credit Agreement, B. Riley entered into the B. Riley Guaranty for the benefit of the Administrative Agent and the lenders under the U.S. Revolving Credit Facility. The B. Riley Guaranty provides for the guarantee of all of the Company’s obligations with respect to the U.S. Revolving Credit Facility (other than with respect to letters of credit and contingent obligations), including the obligation to repay outstanding revolving credit loans and pay earned interest and fees. The B. Riley Guaranty is enforceable in certain circumstances, including, among others: (i) B. Riley’s failure to timely fund in full any of its additional Last Out Term Loans committed under the A&R Credit Agreement; (ii) certain events of default relating to bankruptcy or insolvency occurring with respect to B. Riley; (iii) the acceleration of the Company’s borrowings under the U.S. Revolving Credit Facility; (iv) the Company’s failure to pay any

28





amount due to the Administrative Agent or any lender under the U.S. Revolving Credit Facility; or (v) any assertion that the B. Riley Guaranty or any portion thereof is not valid, binding or enforceable.
In connection with the B. Riley Guaranty, the Company entered into a fee letter with B. Riley pursuant to which the Company agreed to pay B. Riley a fee of $3.9 million (the “B. Riley Guaranty Fee”). On June 8, 2020, the Company issued 1,712,479 unregistered shares of Common Stock, respectively, to B. Riley and certain of its affiliates in settlement of the B. Riley Guaranty Fee in connection with the Equitization Agreement discussed below.

Fee and Interest Equitization Agreement

In connection with the B. Riley Guaranty, the Company entered into a Fee and Interest Equitization Agreement (the “Equitization Agreement”) with B. Riley and, solely for certain limited purposes under the Equitization Agreement, B. Riley FBR, Inc.

The Equitization Agreement provides that, in lieu of receiving (a) $13.4 million of interest payments with respect to Last Out Term Loans under the A&R Credit Agreement between May 14, 2020 and December 31, 2020 (the “Equitized Interest Payments”) and (b) the B. Riley Guaranty Fee (the “Equitized Fee Payment” and, together with the Equitized Interest Payments, the “Equitized Fees and Interest Payments”), B. Riley will receive unregistered shares of the Company’s Common Stock, calculated as explained below.

Under the Equitization Agreement, B. Riley will receive a number of unregistered shares of common stock equal to (i) the aggregate dollar value of the Equitized Fees and Interest Payments divided by (ii) the Conversion Price. For purposes of the Equitization Agreement, the “Conversion Price” means the average volume weighted average price for the Common Stock over 15 consecutive trading days beginning on and including May 15, 2020 (the “Measurement Period”), subject to customary adjustments. For purposes of the listing requirements of the New York Stock Exchange (the "NYSE"), the Equitization Agreement sets a minimum for the Conversion Price of $1.55 per share of common stock, unless and until approval is obtained from the Company’s stockholders under the rules of the NYSE. On June 5, 2020, the conversion price was calculated at $2.2774 per share.

On September 30, 2020 and June 30, 2020, the Company issued 2,334,002 and 1,192,371 unregistered shares of Common Stock, respectively, to B. Riley and certain of its affiliates in settlement of the quarterly interest payable in connection with the Equitization Agreement discussed above.

The Company is required under the Equitization Agreement to use its reasonable best efforts to take all actions to obtain any necessary stockholder approval under the rules of the NYSE for the issuance of the Shares of Common Stock. B. Riley has agreed to cause all shares of Common Stock beneficially owned by B. Riley to be voted in favor of any proposal presented to the Company’s stockholders seeking approval of the issuance of shares pursuant to the Equitization Agreement. The required stockholder approvals were obtained at the Company’s 2020 annual meeting of stockholders held on June 16, 2020.

U.S. Revolving Credit Facility

As of September 30, 2020, the U.S. Revolving Credit Facility provides for a senior secured revolving credit facility in an aggregate amount of up to $326.9 million, as amended and adjusted for completed asset sales. The proceeds from loans under the U.S. Revolving Credit Facility are available for working capital needs, capital expenditures, permitted acquisitions and other general corporate purposes, and the full amount is available to support the issuance of letters of credit, subject to the limits specified in the agreement.

As of September 30, 2020, in connection with Amendment No. 16, we have accrued deferred ticking fee costs of $6.7 million due to certain required actions that were not completed by December 15, 2019.

At September 30, 2020, borrowings under the U.S. Revolving Credit Facility consisted of $181.9 million at a weighted average interest rate of 7.63%. Usage under the U.S. Revolving Credit Facility consisted of $181.9 million of revolving loan borrowings, $23.0 million of financial letters of credit and $89.6 million of performance letters of credit. At September 30, 2020, we had approximately $32.4 million available to meet letter of credit requirements based on our overall facility size, of which $23.1 million was available for additional borrowings under our Sublimit.


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On October 23, 2020, we received $26.0 million under the settlement agreement described in Note 4. As required by the Company’s U.S. Revolving Credit Facility, 50% of the net proceeds (gross proceeds less costs) or approximately $8.0 million of the settlement received by the Company was applied as a permanent reduction of the U.S. Revolving Credit Facility in October 2020.

Letters of Credit, Bank Guarantees and Surety Bonds

Certain of our subsidiaries primarily outside of the United States have credit arrangements with various commercial banks and other financial institutions for the issuance of letters of credit and bank guarantees in association with contracting activity. The aggregate value of all such letters of credit and bank guarantees opened outside of the U.S. Revolving Credit Facility as of September 30, 2020 and December 31, 2019 was $80.6 million and $88.5 million, respectively. The aggregate value of the letters of credit provided by the U.S. Revolving Credit Facility backstopping letters of credit or bank guarantees was $31.6 million as of September 30, 2020. Of the letters of credit issued under the U.S. Revolving Credit Facility, $37.5 million are subject to foreign currency revaluation.

We have posted surety bonds to support contractual obligations to customers relating to certain contracts. We utilize bonding facilities to support such obligations, but the issuance of bonds under those facilities is typically at the surety's discretion. These bonds generally indemnify customers should we fail to perform our obligations under the applicable contracts. We, and certain of our subsidiaries, have jointly executed general agreements of indemnity in favor of surety underwriters relating to surety bonds those underwriters issue in support of some of our contracting activity. As of September 30, 2020, bonds issued and outstanding under these arrangements in support of contracts totaled approximately $277.6 million. The aggregate value of the letters of credit provided by the U.S. Revolving Credit facility backstopping surety bonds was $34.7 million.

Our ability to obtain and maintain sufficient capacity under our U.S. Revolving Credit Facility is essential to allow us to support the issuance of letters of credit, bank guarantees and surety bonds. Without sufficient capacity, our ability to support contract security requirements in the future will be diminished.

NOTE 14 – LAST OUT TERM LOANS

The components of the Last Out Term Loans by Tranche are as follows:
 September 30, 2020
(in thousands)A-3A-4A-6Total
Proceeds (1)
$101,660
$30,000
$30,000
$161,660
Discount and fees8,650


8,650
Paid-in-kind interest3,020


3,020
Net debt balance$113,330
$30,000
$30,000
$173,330
(1) Tranche A-3 proceeds represent the net proceeds after the $39.7 million principal prepayment of the tranche as of July 23, 2019, the date of the Equitization Transactions.
 December 31, 2019
(in thousands)A-3
Proceeds (1)
$101,660
Discount and fees8,650
Paid-in-kind interest3,020
Principal113,330
Unamortized discount and fees(9,377)
Net debt balance$103,953
(1) Tranche A-3 proceeds represent the net proceeds after the $39.7 million principal prepayment of the tranche as of July 23, 2019, the date of the Equitization Transactions.

Last Out Term Loans are incurred under our A&R Credit Agreement and are pari passu with the U.S. Revolving Credit Facility except for certain payment subordination provisions. The Last Out Term Loans are subject to the same representations and warranties, covenants and events of default as the U.S. Revolving Credit Facility. Under U.S. GAAP, a debt modification with the same borrower that results in substantially different terms is accounted for as an extinguishment of the existing debt

30





and a reborrowing of new debt. An extinguishment gain or loss is then recognized based on the fair value of the new debt as compared to the carrying value of the extinguished debt. The Company recognized a loss on debt extinguishment of $6.2 million in the quarter ended June 30, 2020, primarily representing the unamortized value of the original issuance discount and fees on the Tranche A-3 Last Out Term Loan. In connection with the effectiveness of the A&R Credit Agreement, the maturity date for the Last Out Term Loans was extended to December 30, 2022.

On September 30, 2020 and June 30, 2020, the Company issued 2,334,002 and 1,192,371 unregistered shares of common stock, respectively, to B. Riley and certain of its affiliates in settlement of the quarterly interest payable in connection with the Fee and Interest Equitization Agreement discussed in Note 13.

The total effective interest rate of Tranche A-3, Tranche A-4 and Tranche A-6 was 12.0% on September 30, 2020. The interest rate on the Last Out Term Loans under the A&R Credit Agreement is a fixed rate per annum of 12.0%. Interest expense associated with the Last Out Term Loans is detailed in Note 15.

Tranche A-1

We borrowed $30.0 million of net proceeds under Tranche A-1 of the Last Out Term Loans from B. Riley, a related party, in September and October of 2018. In November 2018, Tranche A-1 was assigned to Vintage, also a related party. As part of the Equitization Transactions in July 2019, the outstanding principal of Tranche A-1 of the Last Out Term Loans including accrued paid-in-kind interest remaining as of March 31, 2019 was exchanged for shares of Common Stock.

Tranche A-2

We borrowed $10.0 million of net proceeds under Tranche A-2 of Last Out Term Loans from B. Riley, a related party in March 2019. Tranche A-2 was fully repaid on July 23, 2019 with proceeds from the 2019 Rights Offering as part of the Equitization Transactions in July 2019.

Tranche A-3

Under Amendment No. 16 to our credit agreement, we borrowed $150.0 million face value from B. Riley, a related party, under a Tranche A-3 of Last Out Term Loans. The $141.4 million net proceeds from Tranche A-3 were primarily used to pay the amounts due under the settlement agreements covering certain European B&W Renewable loss projects as described in Note 4, with the remainder used for working capital and general corporate purposes.

Interest rates for Tranche A-3 are described above. Tranche A-3 may be prepaid, subject to the subordination provisions under the amended credit agreement as described above, but not re-borrowed. As part of the Equitization Transactions, the total prepayment of principal of Tranche A-3 of the Last Out Term Loans was $39.7 million.

Tranche A-4

On January 31, 2020, we entered into Amendment No. 20 to our credit agreement ("Amendment No. 20") Amendment No. 20 provides $30.0 million of additional commitments from B. Riley, a related party, under a new Tranche A-4 of Last Out Term Loans. The proceeds from Tranche A-4 may be used under the terms of Amendment No. 20 to repay revolving credit loans, for working capital and general corporate purposes, and to reimburse certain expenses of B. Riley as specified by Amendment No. 20.  The terms of Tranche A-4 are the same as the terms for the Tranche A-3.

As of January 31, 2020, we borrowed $30.0 million face value of the Tranche A-4 and received net proceeds of $26.3 million after incurring total fees of $3.7 million related to Amendment No. 20 described above.

Tranche A-5

Amendment No. 20 also provides an incremental Tranche A-5 of Last Out Term Loans to be extended prior to maturity of the Last Out Term Loans under the A&R Credit Agreement in the event certain customer letters of credit are drawn. The terms of Tranche A-5 are the same as the terms for the Tranche A-3 under the A&R Credit Agreement. As of November 13, 2020, no borrowings occurred under Tranche A-5.

Tranche A-6


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The A&R Credit Agreement provided us with up to $70.0 million of additional funding in the form of Tranche A-6 Last Out Term Loans from B. Riley, a related party, as described in Note 13. An aggregate $30.0 million of this new commitment was funded upon execution of the A&R Credit Agreement. The $35.0 million will be funded in installments, subject to reduction for the gross proceeds from certain offerings of our Common Stock by the Company. The remaining $5.0 million will be available upon request by the Company.

On May 14, 2020, we borrowed $30.0 million face value of the Tranche A-6 and received gross proceeds of $30.0 million related to the entry into the A&R Credit Agreement.

Tranche A-7

The A&R Credit Agreement provided us with up to $50.0 million of additional funding for letters of credit in the form of Tranche A-7 Last Out Term Loans from B. Riley, a related party, as described in Note 13. The $50.0 million will be available upon request by the Company, subject to certain limitations. As of November 13, 2020, no borrowings occurred under Tranche A-7.

NOTE 15 –INTEREST EXPENSE AND SUPPLEMENTAL CASH FLOW INFORMATION

Interest expense in our Condensed Consolidated Financial Statements consisted of the following components:
 Three months ended September 30,Nine months ended September 30,
(in thousands)2020201920202019
Components associated with borrowings from:    
U.S. Revolving Credit Facility$3,382
$4,292
$10,830
$11,644
Last Out Term Loans - cash interest
3,613
6,140
7,732
Last Out Term Loans - equitized interest5,315

8,031

Last Out Term Loans - paid-in-kind interest
1,024

5,964
 8,697
8,929
25,001
25,340
Components associated with amortization or accretion of:    
U.S. Revolving Credit Facility - deferred financing fees and commitment fees1,711
8,836
14,376
22,985
U.S. Revolving Credit Facility contingent consent fee for Amendment 16
5,011

9,686
U.S. Revolving Credit Facility - deferred ticking fee for Amendment 16

1,660

Last Out Term Loans - discount and financing fees(545)6,445
3,183
8,514
 1,166
20,292
19,219
41,185
     
Other interest expense2,340
242
5,556
909
     
Total interest expense$12,203
$29,463
$49,776
$67,434


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The following table provides a reconciliation of cash, cash equivalents and restricted cash reporting within the Condensed Consolidated Balance Sheets that sum to the total of the same amounts in the Condensed Consolidated Statements of Cash Flows:
(in thousands)September 30, 2020December 31, 2019September 30, 2019December 31, 2018
Held by foreign entities$36,848
$38,921
$30,590
$35,522
Held by U.S. entities2,086
4,851
1,473
7,692
Cash and cash equivalents of continuing operations38,934
43,772
32,063
43,214
     
Reinsurance reserve requirements3,443
9,318
8,802
11,768
Restricted foreign accounts2,752
3,851
2,480
5,297
Bank guarantee collateral3,240



Restricted cash and cash equivalents9,435
13,169
11,282
17,065
Total cash, cash equivalents and restricted cash shown in the Condensed Consolidated Statements of Cash Flows$48,369
$56,941
$43,345
$60,279

Our U.S. Revolving Credit Facility described in Note 13 allows for nearly immediate borrowing of available capacity to fund cash requirements in the normal course of business, meaning that the minimum United States cash on hand is maintained to minimize borrowing costs.

The following cash activity is presented as a supplement to our Condensed Consolidated Statements of Cash Flows and is included in Net cash used in activities:
 Nine months ended September 30,
(in thousands)20202019
Income tax payments, net$3,967
$304
   
Interest payments on our U.S. Revolving Credit Facility$8,280
$9,748
Interest payments on our Last Out Term Loans6,140
4,909
Total cash paid for interest$14,420
$14,657

NOTE 16 – PROVISION FOR INCOME TAXES

In the three months ended September 30, 2020, income tax benefit was $0.5 million, resulting in an effective tax rate of (1.5)%. In the three months ended September 30, 2019, income tax expense was $1.0 million, with an effective tax rate of (1.9)%.

Our effective tax rate for the three months ended September 30, 2020 and 2019 is not reflective of the U.S. statutory rate primarily due to valuation allowances against our net deferred tax assets. We have unfavorable discrete items of $0.1 million for the three months ended September 30, 2020 and unfavorable discrete items of $0.5 million for the three months ended September 30, 2019.

In the nine months ended September 30, 2020, income tax benefit was $0.5 million, resulting in an effective tax rate of 2.7%. In the nine months ended September 30, 2019, income tax expense was $3.6 million, resulting in an effective tax rate of (2.7)%. Our effective tax rate for the nine months ended September 30, 2020 and 2019 is not reflective of the U.S. statutory rate primarily due to valuation allowances against our net deferred tax assets. We have favorable discrete items of $1.2 million and unfavorable discrete items of $0.6 million in the nine months ended September 30, 2020 and 2019, respectively.

We are subject to federal income tax in the United States and numerous countries that have statutory tax rates different than the United States federal statutory rate of 21%. The most significant of these foreign operations are located in Canada, Denmark, Germany, Italy, Mexico, Sweden, and the United Kingdom, with effective tax rates ranging between approximately 19% and 30%. We provide for income taxes based on the tax laws and rates in the jurisdictions where we conduct operations.

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These jurisdictions may have regimes of taxation that vary in both nominal rates and the basis on which these rates are applied. Our consolidated effective income tax rate can vary significantly from period to period due to these variations, changes in jurisdictional mix of our income, and valuation allowances.

CARES Act

On March 27, 2020, in response to the COVID-19 pandemic, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act” or “Act”) was signed into law. The Act contains a number of provisions designed to assist companies during the pandemic. Certain provisions may impact the Company’s income tax provision. Management has concluded the CARES Act will not have an impact on the Company’s tax attributes.

NOTE 17 – 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. We are evaluating Glatfelter’s claims as well as potential counter claims against Glatfelter and intend to vigorously defend against the action. However, given the preliminary stage of the litigation, it is too early to determine if the outcome of the Glatfelter Litigation will have a material adverse impact on our condensed consolidated financial condition, results of operations or cash flows.

SEC Investigation

The U.S. SEC is conducting a formal investigation of the Company, focusing on the accounting charges and related matters involving the Company's B&W Renewable segment from 2015-2019. The SEC has served multiple subpoenas on the Company for documents. The Company is cooperating with the SEC related to the subpoenas and investigation. The Company is still in the process of producing documents to the SEC. In addition, the SEC has taken testimony from past and current officers, directors, and present and former employees. It is reasonably possible that the SEC may bring one or more claims against the Company and certain individuals. Due to the stage of the investigation, we are unable to estimate the amount of loss or range of potential loss of any claim. However, there can be no assurance that such claims will not have a material impact on the Company.

Stockholder Derivative and Class Action Litigation

On April 14, 2020, a putative B&W stockholder (“Plaintiff”) filed a derivative and class action complaint against certain of the Company’s directors (current and former), executives and significant stockholders (“Defendants”) and the Company (as a nominal defendant). The action was filed in the Delaware Court of Chancery and is captioned Parker v. Avril, et al., C.A. No. 2020-0280-PAF. Plaintiff alleges that Defendants, among other things, did not properly discharge their fiduciary duties in connection with the 2019 rights offering and related transactions. The Company is evaluating Plaintiff’s claims and intends to vigorously defend against the action.

Other

Due to the nature of our business, we are, from time to time, involved in routine litigation or subject to disputes or claims related to our business activities, including, among other things: performance or warranty-related matters under our customer and supplier contracts and other business arrangements; and workers' compensation, premises liability and other claims. Based on our prior experience, we do not expect that any of these other litigation proceedings, disputes and claims will have a material adverse effect on our condensed consolidated financial condition, results of operations or cash flows.

34






NOTE 18 – COMPREHENSIVE INCOME

Gains and losses deferred in accumulated other comprehensive income (loss) ("AOCI") are generally reclassified and recognized in the Condensed Consolidated Statements of Operations once they are realized. The changes in the components of AOCI, net of tax, for the first two quarters of 2020 and 2019 were as follows:
(in thousands)
Currency translation
(loss) gain
Net unrecognized loss related to benefit plans
(net of tax)
Total
Balance at December 31, 2019$5,743
$(3,817)$1,926
Other comprehensive income (loss) before reclassifications2,380

2,380
Reclassified from AOCI to net income (loss)
(246)(246)
Net other comprehensive income (loss)2,380
(246)2,134
Balance at March 31, 2020$8,123
$(4,063)$4,060
Other comprehensive income (loss) before reclassifications(4,095)
(4,095)
Reclassified from AOCI to net income (loss)
(246)(246)
Net other comprehensive income (loss)(4,095)(246)(4,341)
Balance at June 30, 2020$4,028
$(4,309)$(281)
Other comprehensive income (loss) before reclassifications(22,916)
(22,916)
Reclassified from AOCI to net income (loss)
(246)(246)
Net other comprehensive income (loss)(22,916)(246)(23,162)
Balance at September 30, 2020$(18,888)$(4,555)$(23,443)

(in thousands)
Currency translation
(loss) gain
Net unrealized gain (loss)
on derivative instruments
Net unrecognized loss related to benefit plans
(net of tax)
Total
Balance at December 31, 2018$(10,834)$1,362
$(1,960)$(11,432)
Other comprehensive income (loss) before reclassifications10,260
(1,178)
9,082
Reclassified from AOCI to net income (loss)
224
(356)(132)
Net other comprehensive income (loss)10,260
(954)(356)8,950
Balance at March 31, 2019$(574)$408
$(2,316)$(2,482)
Other comprehensive loss before reclassifications(7,979)(189)
(8,168)
Reclassified from AOCI to net income (loss)3,176
(22)(514)2,640
Net other comprehensive (loss) income(4,803)(211)(514)(5,528)
Balance at June 30, 2019$(5,377)$197
$(2,830)$(8,010)
Other comprehensive loss before reclassifications21,433
$
$
21,433
Reclassified from AOCI to net income (loss)
$
$(515)(515)
Amounts reclassified from AOCI to advanced billings on contracts
(197)
(197)
Net other comprehensive (loss) income21,433
(197)(515)20,721
Balance at September 30, 2019$16,056
$
$(3,345)$12,711



35





The amounts reclassified out of AOCI by component and the affected Condensed Consolidated Statements of Operations line items are as follows (in thousands):
AOCI componentLine items in the Condensed Consolidated Statements of Operations affected by reclassifications from AOCIThree months ended September 30,Nine months ended September 30,
2020201920202019
Release of currency translation gain with the sale of equity method investment and the sale of businessLoss on sale of business$
$
$
$(3,176)
Derivative financial instrumentsOther – net


(202)
 Net loss$
$
$
$(3,378)
      
Amortization of prior service cost on benefit obligationsBenefit plans, net246
515
738
1,385
 Net income$246
$515
$738
$1,385

NOTE 19 – FAIR VALUE MEASUREMENTS

The following tables summarize our financial assets and liabilities carried at fair value, all of which were valued from readily available prices or using inputs based upon quoted prices for similar instruments in active markets (known as "Level 1" and "Level 2" inputs, respectively, in the fair value hierarchy established by the FASB Topic, Fair Value Measurements and Disclosures).
(in thousands)   
Available-for-sale securitiesSeptember 30, 2020Level 1Level 2
Corporate notes and bonds$10,612
$10,612
$
Mutual funds577

577
United States Government and agency securities6,132
6,132

Total fair value of available-for-sale securities$17,321
$16,744
$577

(in thousands)   
Available-for-sale securitiesDecember 31, 2019Level 1Level 2
Corporate notes and bonds$8,310
$8,310
$
Mutual funds587

587
United States Government and agency securities3,868
3,868

Total fair value of available-for-sale securities$12,765
$12,178
$587

Available-For-Sale Securities

Our investments in available-for-sale securities are presented in other assets on our Condensed Consolidated Balance Sheets with contractual maturities ranging from 0-6 years.

Derivatives

Derivative assets and liabilities usually consist of FX forward contracts. Where applicable, the value of these derivative assets and liabilities is computed by discounting the projected future cash flow amounts to present value using market-based observable inputs, including FX forward and spot rates, interest rates and counterparty performance risk adjustments. As of September 30, 2020, we do not hold any derivative assets or liabilities; the last of our derivative contracts were sold during the first quarter of 2019.


36





Other Financial Instruments

We used the following methods and assumptions in estimating our fair value disclosures for our other financial instruments:

Cash and cash equivalents and restricted cash and cash equivalents. The carrying amounts that we have reported in the accompanying Condensed Consolidated Balance Sheets for cash and cash equivalents and restricted cash and cash equivalents approximate their fair values due to their highly liquid nature.
Revolving debt and Last Out Term Loans. We base the fair values of debt instruments on quoted market prices. Where quoted prices are not available, we base the fair values on Level 2 inputs such as the present value of future cash flows discounted at estimated borrowing rates for similar debt instruments or on estimated prices based on current yields for debt issues of similar quality and terms. The fair value of our debt instruments approximated their carrying value at September 30, 2020 and December 31, 2019.
Warrants. The fair value of the warrants was established using the Black-Scholes option pricing model value approach.

Non-Recurring Fair Value Measurements

The measurement of the net actuarial gain or loss associated with our pension and other postretirement plans was determined using unobservable inputs (see Note 12). These inputs included the estimated discount rate, expected return on plan assets and other actuarial inputs associated with the plan participants.

Tests for impairment annually and when impairment indicators exist require significant fair value measurements using unobservable inputs (see Note 7). The fair values of the reporting units were based on an income approach using a discounted cash flow analysis, a market approach using multiples of revenue and EBITDA of guideline companies, and a market approach using multiples of revenue and EBITDA from recent, similar business combinations.

Property, plant and equipment and definite-lived intangible asset amounts are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset, or asset group, may not be recoverable. An impairment loss would be recognized when the carrying amount of an asset exceeds the estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition. The amount of the impairment loss to be recorded is calculated by the excess of the asset carrying value over its fair value. Fair value is generally determined based on an income approach using a discounted cash flow analysis or based on the price that the Company expects to receive upon the sale of these assets. Both of those approaches utilize unobservable inputs (see Note 6 and Note 8).

NOTE 20 – RELATED PARTY TRANSACTIONS

The Letter Agreement entered into on April 5, 2019, pursuant to which the parties agreed to use their reasonable best efforts to effect a series of equitization transactions for a portion of the Last Out Term Loans, between B. Riley, Vintage and the Company included agreement to negotiate one or more agreements that provide B. Riley and Vintage with certain governance rights, including (i) the right for B. Riley and Vintage to each nominate up to three individuals to serve on our board of directors, subject to certain continued lending and equity ownership thresholds and (ii) pre-emptive rights permitting B. Riley to participate in future issuances of our equity securities. The Company also entered into a Registration Rights Agreement with B. Riley and Vintage on April 30, 2019 providing each with certain customary registration rights for the shares of our common stock that they hold. On April 30, 2019, the Company entered into an Investor Rights Agreement with B. Riley and Vintage providing the governance rights contemplated by the Letter Agreement.

Transactions with B. Riley

Based on its Schedule 13D filings, B. Riley beneficially owns 29.5% of our outstanding common stock as of September 30, 2020.

B. Riley is party to the Last Out Term Loans as described in Note 14. B. Riley has also provided the B. Riley Guaranty as described in Note 13.

In connection with the B. Riley Guaranty, the Company entered into the Fee and Interest Equitization Agreement described in Note 13. Under the Equitization Agreement the Company issued 1.7 million shares of common stock on June 8, 2020, 1.2 million shares of common stock on June 30, 2020 and 2.3 million shares of common stock on September 30, 2020 to B. Riley

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in satisfaction of the B. Riley Guaranty Fee and payment of certain interest payments described in Note 13. All of these issued shares are unregistered.

We entered into an agreement with BRPI Executive Consulting, LLC, an affiliate of B. Riley, on November 19, 2018 for the services of Mr. Kenny Young, to serve as our Chief Executive Officer until November 30, 2020, unless terminated by either party with thirty days written notice. Under this agreement, payments are $0.75 million per annum, paid monthly. Subject to the achievement of certain performance objectives as determined by the Compensation Committee of the Board, a bonus or bonuses may also be earned and payable to BRPI Executive Consulting, LLC. In June 2019, we granted a total of $2.0 million in cash bonuses to BRPI Executive Consulting LLC for Mr. Young's performance and services. In April 2020, we temporarily deferred the monthly fee paid to BRPI Executive Consulting, LLC for the services of our Chief Executive Officer by 50% as described in Note 1.

Total fees associated with B. Riley related to the Last Out Term Loans and services of Mr. Kenny Young, both as described above, were $0.1 million and $7.6 million for the three and nine months ended September 30, 2020, respectively, and were $0.4 million and $11.9 million for the three and nine months ended September 30, 2019, respectively.

On August 10, 2020, B. Riley Financial, Inc. entered into a project specific indemnity rider (the “Indemnity Rider”) to the General Agreement of Indemnity, dated May 28, 2015, between us and Berkley Insurance Company (the “Surety”). Pursuant to the terms of the Indemnity Rider, 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 our proposed performance on a specified project.  In consideration of B. Riley's execution of the Indemnity Rider, we paid B. Riley a fee of $0.6 million following the issuance of the bond by the Surety, which represents approximately 2.0% of the bonded obligations. Under the A&R Credit Agreement, any draw or claim under the Indemnity Rider will convert into a Tranche A-5 Last Out Term Loan for the benefit of B. Riley.

Refer to Note 13 for additional related party transactions with B. Riley and its affiliates.

Transactions with B. Riley - subsequent event

On November 9, 2020 we entered into an agreement with BRPI Executive Consulting, LLC, an affiliate of B. Riley to extend the services of Mr. Kenny Young, to serve as our Chief Executive Officer until December 31, 2023. Other than the term extension, there are no other changes to the agreement with BRPI Executive Consulting, LLC.

Transactions with Vintage Capital Management, LLC

Based on its Schedule 13D filings, Vintage beneficially owns 20.6% of our outstanding common stock as of September 30, 2020.

NOTE 21 – ASSETS HELD FOR SALE, DIVESTITURES AND DISCONTINUED OPERATIONS

Assets Held for Sale

In December 2019, we determined that a small business within the B&W Thermal segment met the criteria to be classified as held for sale. Assets and liabilities held for sale are required to be recorded at the lower of carrying value or fair value less any costs to sell. At September 30, 2020, the carrying value of the assets held for sale approximated the estimated fair value less costs to sell, therefore an impairment charge was not required. The divestiture of the business held for sale could result in a gain or loss on sale to the extent the ultimate selling price differs from the current carrying value of the net assets recorded. The sale is expected to occur in 2020.


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The following table summarizes the carrying value of the assets and liabilities held for sale at September 30, 2020 and December 31, 2019:
(in thousands)September 30, 2020December 31, 2019
Accounts receivable – trade, net$1,527
$5,472
Accounts receivable – other77
147
Contracts in progress797
586
Inventories2,292
1,555
Other current assets123
329
     Current assets held for sale4,816
8,089
   
Net property, plant and equipment6,793
6,534
Intangible assets732
725
Right-of-use-asset57
63
Other assets(39)
     Non-current assets held for sale7,543
7,322
   
Total assets held for sale$12,359
$15,411
   
Accounts payable$5,352
$7,898
Accrued employee benefits317
430
Advance billings on contracts76
227
Accrued warranty expense517
515
Operating lease liabilities33
6
Other accrued liabilities630
462
     Current liabilities held for sale6,925
9,538
   
Total liabilities held for sale$6,925
$9,538

Divestitures

On March 17, 2020, we fully settled the remaining escrow associated with the sale of PBRRC and received $4.5 million in cash.

Effective May 31, 2019, we sold all of the issued and outstanding capital stock of Loibl, a material handling business in Germany, to Lynx Holding GmbH for €10.0 million (approximately $11.4 million), subject to adjustment. We received $7.4 million in cash and recognized a $3.6 million pre-tax loss on the sale of this business in the quarter ended September 30, 2019, net of $0.7 million in transaction costs. Proceeds from the transaction were primarily used to reduce outstanding balances under our U.S. Revolving Credit Facility.

Discontinued Operations

On April 6, 2020, we fully settled the remaining escrow associated with the sale of the MEGTEC and Universal businesses and received $3.5 million in cash.

NOTE 22 – NEW ACCOUNTING STANDARDS

We adopted the following new accounting standard during the first quarter of 2020:

In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service

39





Contract. The new guidance requires companies acting as the customer in a cloud hosting service arrangement to follow the requirements of ASC 350-40 for capitalizing implementation costs for internal-use software and requires the amortization of these costs over the life of the related service contract. The impact of this standard on our condensed consolidated financial statements was immaterial.

New accounting standards not yet adopted that could affect our Condensed Consolidated Financial Statements in the future are summarized as follows:

In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815 – 40).  The amendments in this update simplify the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity by removing major separation models required under current U.S. GAAP. The amendments also improve the consistency of diluted earnings per share calculations. The amendments in this update are effective for public business entities that meet the definition of an SEC filer, excluding entities eligible to be smaller reporting companies as defined by the SEC, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. We are currently evaluating the impact of the standard on our condensed consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform of Financial Reporting. The amendments in this update provide optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this update apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. The amendments in this update are effective for all entities upon issuance and may be adopted any date on or after March 12, 2020 up to December 31, 2022. We are currently evaluating the impact of the standard on our condensed consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in this update simplify the accounting for income taxes by removing exceptions related to the incremental approach for intra-period tax allocation, certain deferred tax liabilities, and the general methodology for calculating income taxes in an interim period. The amendment also provides simplification related to accounting for franchise (or similar) tax, evaluating the tax basis step up of goodwill, allocation of consolidated current and deferred tax expense, reflection of the impact of enacted tax law or rate changes in annual effective tax rate calculations in the interim period that includes enactment date, and other minor codification improvements. For public business entities, the amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption of the amendments is permitted, including adoption in any interim period for public business entities for periods in which financial statements have not yet been issued. We are currently evaluating the impact of the standard on our condensed consolidated financial statements.

In November 2018, the FASB issued ASU 2018-19, Codification Improvements to Topic 326: Financial Instruments - Credit Losses. This update is an amendment to the new credit losses standard, ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, that was issued in June 2016 and clarifies that operating lease receivables are not within the scope of Topic 326. The new credit losses standard changes the accounting for credit losses for certain instruments. The new measurement approach is based on expected losses, commonly referred to as the current expected credit loss (CECL) model, and applies to financial assets measured at amortized cost, including loans, held-to-maturity debt securities, net investment in leases, and reinsurance and trade receivables, as well as certain off-balance sheet credit exposures, such as loan commitments. The standard also changes the impairment model for available-for-sale debt securities. The provisions of this standard will primarily impact the allowance for doubtful accounts on our trade receivables, contracts in progress, and potentially our impairment model for available-for-sale debt securities (to the extent we have any upon adoption). For public, smaller reporting companies, this standard is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. We are currently evaluating the impact of both standards on our condensed consolidated financial statements.

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

***** Cautionary Statement Concerning Forward-Looking Information *****

This quarterly report, including Management's Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. You should not place undue reliance on these statements. Statements that include the words "expect," "intend," "plan," "believe," "project," "forecast," "estimate," "may," "should," "anticipate" and similar statements of a future or forward-looking nature identify forward-looking statements.

These forward-looking statements are based on management’s current expectations and involve a number of risks and uncertainties, including, among other things, the impact of COVID-19 on us and the capital markets and global economic climate generally; our recognition of any asset impairments as a result of any decline in the value of our assets or our efforts to dispose of any assets in the future; our ability to obtain and maintain sufficient financing to provide liquidity to meet our business objectives, surety bonds, letters of credit and similar financing; our ability to comply with the requirements of, and to service the indebtedness under, our credit agreement as amended and restated (the "A&R Credit Agreement"); our ability to obtain waivers of required pension contributions; the highly competitive nature of our businesses and our ability to win work, including identified project opportunities in our pipeline; general economic and business conditions, including changes in interest rates and currency exchange rates; cancellations of and adjustments to backlog and the resulting impact from using backlog as an indicator of future earnings; our ability to perform contracts on time and on budget, in accordance with the schedules and terms established by the applicable contracts with customers; failure by third-party subcontractors, partners or suppliers to perform their obligations on time and as specified; our ability to successfully resolve claims by vendors for goods and services provided and claims by customers for items under warranty; our ability to realize anticipated savings and operational benefits from our restructuring plans, and other cost-savings initiatives; our ability to successfully address productivity and schedule issues in our B&W Renewable and B&W Environmental segments, including the ability to complete our B&W Renewable's European EPC projects and B&W Environmental's U.S. loss projects within the expected time frame and the estimated costs; our ability to successfully partner with third parties to win and execute contracts within our B&W Environmental and B&W Renewable 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 maintain operational support for our information systems against service outages and data corruption, as well as protection against cyber-based network security breaches and theft of data; our ability to protect our intellectual property and renew licenses to use intellectual property of third parties; our use of the percentage-of-completion method of accounting to recognize revenue over time; our ability to successfully manage research and development projects and costs, including our efforts to successfully develop and commercialize new technologies and products; the operating risks normally incident to our lines of business, including professional liability, product liability, warranty and other claims against us; changes in, or our failure or inability to comply with, laws and government regulations; actual or anticipated changes in governmental regulation, including trade and tariff policies; difficulties we may encounter in obtaining regulatory or other necessary permits or approvals; changes in, and liabilities relating to, existing or future environmental regulatory matters; changes in actuarial assumptions and market fluctuations that affect our net pension liabilities and income; potential violations of the Foreign Corrupt Practices Act; our ability to successfully compete with current and future competitors; the loss of key personnel and the continued availability of qualified personnel; our ability to negotiate and maintain good relationships with labor unions; changes in pension and medical expenses associated with our retirement benefit programs; social, political, competitive and economic situations in foreign countries where we do business or seek new business; the possibilities of war, other armed conflicts or terrorist attacks; the willingness of customers and suppliers to continue to do business with us on reasonable terms and conditions; our ability to successfully consummate strategic alternatives for non-core assets, if we determine to pursue them; 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 and our quarterly report on Form 10-Q for the quarter ended September 30, 2020. The Company cautions not to place undue reliance on these forward-looking statements, which speak only as of the date of this report, and the Company undertakes no obligation to update or revise any forward-looking statement, except to the extent required by applicable law.

OVERVIEW OF RESULTS

Our assessment of operating results is based on three reportable segments, which changed in the third quarter of 2020 as part of the Company's strategic, market-focused organizational and re-branding initiative to accelerate growth and provide

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stakeholders improved visibility into our renewable and environmental growth platforms. Segment results for all periods have been restated for comparative purposes. Our reportable segments are as follows:

B&W Renewable segment: cost-effective technologies for efficient and environmentally sustainable power and heat generation, including waste-to-energy, biomass energy and black liquor systems for the pulp and paper industry. The segment's leading technologies support a circular economy, diverting waste from landfills to use for power generation and replacing fossil fuels, while recovering metals and reducing emissions.
B&W Environmental segment: full suite of best-in-class emissions control and environmental technology solutions for utility and industrial steam generation applications around the world. The segment'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.
B&W Thermal segment: steam generation equipment, aftermarket parts, construction, maintenance and field services for plants in the power generation, oil and gas, and industrial sectors. The segment has an extensive global base of installed equipment for utilities and general industrial applications including refining, petrochemical, food processing, metals and others.

In December 2019, a novel strain of coronavirus, COVID-19, was identified in Wuhan, China and has subsequently spread globally. This global pandemic has disrupted business operations, trade, commerce, financial and credit markets, and daily life throughout the world. Our business has been, and continues to be, adversely impacted by the measures taken and restrictions imposed in the countries in which we operate and by local governments and others to control the spread of this virus. These measures and restrictions have varied widely and have been subject to significant changes from time to time depending on the changes in the severity of the virus in these countries and localities. These restrictions, including travel and curtailment of other activity, negatively impact our ability to conduct business. Although some of these restrictions have been lifted or scaled back, a recent resurgence of COVID-19 has resulted in the reimposition of certain restrictions and may lead to other restrictions being implemented in response to efforts to reduce the spread of the virus. These varying and changing events have caused many of the projects we anticipated to begin in 2020 to be delayed to later in 2020 and others to be delayed further into 2021 and 2022. Many customers and projects require B&W's employees to travel to customer and project worksites. Certain customers and significant projects are located in areas where travel restrictions have been imposed, certain customers have closed or reduced on-site activities, and timelines for completion of certain projects have, as noted above, been extended into next year and beyond. Additionally, out of concern for our employees, even where restrictions permit employees to return to our offices and worksites, we have advised those who are uncomfortable returning to worksites due to the pandemic that they are not required to do so for an indefinite period of time. The resulting uncertainty concerning, among other things, the spread and economic impact of the virus has also caused significant volatility and, at times, illiquidity in global equity and credit markets.

Our operating results for the three and nine months ended September 30, 2020 have been negatively impacted by the COVID-19 pandemic. Because the majority of our revenues are driven by projects, we cannot reasonably estimate the amount of the decreases in our operating results directly caused by COVID-19. We have experienced adverse impacts on our 2020 revenues due to delays in closing new business deals, deferrals or delays in starting new projects, and other product volume decreases due to COVID-19 in 2020 caused by the following, among other reasons:
Customers’ concern regarding the duration and magnitude of COVID-19;
Customers’ hesitance to place large orders;
Certain planned 2020 projects being extended out to next year and beyond;
Field service personnel unable to get to certain site projects;
Travel restrictions impeding our ability to acquire new customers; and
International growth plans hindered by recruitment, training & deployment of new field personnel.

We recorded operating income of $14.1 million and an operating loss of $3.9 million in the three and nine months ended September 30, 2020, respectively, compared to losses of $3.2 million and $39.4 million in the three and nine months ended September 30, 2019, respectively and we showed improved results in our B&W Renewable segment.

Adjusted EBITDA in the B&W Renewable segment was $23.6 million and $22.0 million in the three and nine months ended September 30, 2020, respectively, compared to $(0.6) million and $(4.2) million in the three and nine months ended September 30, 2019, respectively. The improvement was primarily due to the recognition in the third quarter of the non-recurring loss recovery of $26.0 million under the insurance settlement agreement dated October 10, 2020 partially offset by the divestiture of Loibl, a material handling business in Germany, as well as the impacts of COVID-19, as described above.

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In the three and nine months ended September 30, 2020, we recorded $1.1 million and $1.4 million in net losses, respectively, inclusive of warranty expense related to the six European B&W Renewable EPC loss contracts as compared to $0.7 million and $8.0 million, in net losses recorded for the three and nine months ended September 30, 2019, respectively. Aside from these loss projects, we have one remaining extended scope contract in our B&W Renewable segment which turned into a loss contract in the fourth quarter of 2019 due to an increase in estimate to complete; this contract was turned over to the customer in October 2019.

As of September 30, 2020, five of the six European B&W Renewable EPC loss contracts had been turned over to the customer, with only punch list or agreed remediation items and performance testing remaining, some of which are expected to be performed during the customers' scheduled maintenance outages. Turnover is not applicable to the fifth loss contract under the terms of the March 29, 2019 settlement agreement with the customers of the second and fifth loss contracts, who are related parties to each other. Under that settlement agreement, we limited our remaining risk related to these contracts by paying a combined £70 million ($91.5 million) on April 5, 2019 in exchange for limiting and further defining our obligations under the second and fifth loss contracts, including waiver of the rejection and termination rights on the fifth loss contract that could have resulted in repayment of all monies paid to us and our former civil construction partner (up to approximately $144 million), and requirement to restore the property to its original state if the customer exercised this contractual rejection right. On the fifth loss contract, we agreed to continue to support construction services to complete certain key systems of the plant by May 31, 2019, for which penalty for failure to complete these systems is limited to the unspent portion of our quoted cost of the activities through that date. The settlement eliminated all historical claims and remaining liquidated damages. In accordance with the settlement, we have no further obligation related to the fifth loss contract other than customary warranty of core products if the plant is used as a biomass plant as designed. We estimated the portion of this settlement related to waiver of the rejection right on the fifth loss contract was $81.1 million, which was recorded in the fourth quarter of 2018 as a reduction in the selling price. We are still pursuing insurance recoveries and claims against subcontractors. For the second loss contract, the settlement limited the remaining performance obligations and settled historic claims for nonconformance and delays, and we turned over the plant in May 2019, and subsequently began the operations and maintenance contract to operate this plant. See further discussion of the loss projects in Note 4 to the Condensed Consolidated Financial Statements.

The B&W Environmental segment generated adjusted EBITDA of $1.1 million and $(0.1) million in the three and nine months ended September 30, 2020, respectively, and $1.8 million and $2.5 million in the three and nine months ended September 30, 2019, respectively. The decline is due to the impacts of COVID-19, as described above. In particular, while the segment was able to mitigate the impact of COVID-19 on project executions, the decision for new investments by several customers has been postponed impacting revenues and operating results. As of September 30, 2020, the B&W Environmental segment had two significant legacy loss contracts. The first loss contract is a contract to engineer, procure materials and then construct a dry cooling system for a gas-fired power plant in the United States, which continued through the nine months ended September 30, 2020. Final completion of the first loss contract is expected to be in the fourth quarter of 2020. The second loss contract is a contract to engineer and procure materials for a dry cooling system for a gas-fired power plant in the United States, which continued through the nine months ended September 30, 2020. Final completion of the second loss contract is expected to be in the fourth quarter of 2020. B&W Environmental's two significant loss contracts, as disclosed in Note 4 to the Condensed Consolidated Financial Statements, generated revenues of $0.4 million and $3.6 million in the three and nine months ended September 30, 2020, respectively, compared to $1.3 million and $20.6 million in the three and nine months ended September 30, 2019, respectively.

Our B&W Thermal segment generated adjusted EBITDA of $7.3 million and $22.7 million in the three and nine months ended September 30, 2020, respectively, compared to $12.9 million and $35.0 million in the three and nine months ended September 30, 2019, respectively. This decline is primarily attributable to the decrease in revenue volume including the impacts of COVID-19, as described above, partially offset by the results of costs savings and restructuring initiatives.
                                              
We have manufacturing facilities in Mexico, China, Unites States, Denmark and Scotland. Many aspects of our operations and properties could be affected by political developments, environmental regulations and operating risks. These and other factors may have a material impact on 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-savings measures to continue to translate to bottom-line results, with top-line growth driven by opportunities for our core technologies and support services across the B&W Renewable, B&W Environmental, and B&W Thermal segments globally.


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We have identified additional initiatives that are underway as of the date of this filing that are expected to further reduce costs, and we expect to continue to explore other cost saving initiatives to improve cash generation and evaluate additional non-core asset sales to continue to strengthen our liquidity. There are or will be important factors that could cause our actual results to differ materially from those indicated in these statements. If one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what we anticipate.

Year-over-year comparisons of our results from continuing operations were also impacted by:
On October 10, 2020, we entered into a settlement agreement with an insurer in connection with five of the six European B&W Renewable EPC loss contracts. In connection with the insured losses recognized in prior years, we recognized this non-recurring loss recovery of $26.0 million as a reduction of our Cost of operations in our Condensed Consolidated Statements of Operations and recorded the insurance receivable in Accounts receivable - other in our Condensed Consolidated Balance Sheets for the period ending September 30, 2020 because we determined the loss recovery was probable as of such date. On October 23, 2020, we received gross proceeds of $26.0 million, as described in Note 4.
$2.4 million and $6.7 million of restructuring costs were recognized in the three and nine months ended September 30, 2020, respectively, compared to $2.6 million and $9.6 million of restructuring costs recognized in the three and nine months ended September 30, 2019, respectively. The restructuring costs primarily related to severance and other costs in the first nine months of 2020 and was primarily related to severance in the first nine months of 2019.
$1.7 million and $3.2 million of financial advisory service fees were recorded in the three and nine months ended September 30, 2020, respectively, compared to $1.2 million and $8.4 million in the corresponding periods of 2019. These services are required under our U.S. Revolving Credit Facility. Financial advisory service fees are included in advisory fees and settlement costs in the Condensed Consolidated Statement of Operations.
$6.6 million of settlement cost was recognized in the first quarter of 2019 in connection with an additional European waste-to-energy EPC contract, for which notice to proceed was not given and the contract was not started and is included in advisory fees and settlement costs in the Condensed Consolidated Statement of Operations. The settlement limits our obligations to our core scope activities and eliminates risk related to acting as the prime EPC should the project have moved forward.
$1.4 million and $5.2 million of legal and other advisory fees were recognized in the three and nine months ended September 30, 2020, respectively, compared to $2.8 million and $7.4 million in the corresponding periods of 2019. These fees are related to the contract settlement and liquidity planning and are included in advisory fees and settlement costs in the Condensed Consolidated Statement of Operations. The contract settlement is further described above and in Note 4 to the Condensed Consolidated Financial Statements.
$2.0 million and 4.0 million of accelerated depreciation expense for the three and nine months ended September 30, 2019, respectively, for fixed assets affected by our September 2018 announcement to consolidate office space and relocate our global headquarters to Akron, Ohio in December 2019.
$1.3 million of actuarially determined mark to market ("MTM") losses on our pension and other post-retirement benefits in the nine months ended September 30, 2019. MTM losses are further described in Note 12 to the Condensed Consolidated Financial Statements.

In addition to the discussions described above, we continue to evaluate further dispositions, opportunities for additional cost savings and opportunities for insurance recoveries and other claims where appropriate and available. If the value of our business was to decline, or if we were to determine that we were unable to recognize an amount in connection with any proposed disposition in excess of the carrying value of any disposed asset, we may be required to recognize impairments for one or more of our assets that may adversely impact our business, financial condition and results of operations.

RESULTS OF OPERATIONS

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Condensed Consolidated Results of Operations

The presentation of the components of our adjusted EBITDA in the table below is consistent with the way our chief operating decision maker reviews the results of our operations and makes strategic decisions about our business. Items such as gains or losses on asset sales, mark to market ("MTM") pension adjustments, restructuring and spin-off costs, impairments, losses on debt extinguishment, costs related to financial consulting required under our U.S. Revolving Credit Facility and other costs that may not be directly controllable by segment management are not allocated to the segment.

 Three months ended September 30,Nine months ended September 30,
(in thousands)20202019$ Change20202019$ Change
Revenues:      
B&W Renewable segment$39,062
$51,292
$(12,230)$118,570
$158,901
$(40,331)
B&W Environmental segment25,262
45,036
(19,774)76,354
234,485
(158,131)
B&W Thermal segment70,025
108,157
(38,132)223,920
315,587
(91,667)
Eliminations(1,836)(5,841)4,005
(2,380)(30,278)27,898
 $132,513
$198,644
$(66,131)$416,464
$678,695
$(262,231)
 Three months ended September 30,Nine months ended September 30,
(in thousands)20202019$ Change20202019$ Change
Adjusted EBITDA      
B&W Renewable segment$23,575
$(615)$24,190
$22,003
$(4,185)$26,188
B&W Environmental segment1,078
1,771
(693)(137)2,453
(2,590)
B&W Thermal segment7,255
12,871
(5,616)22,676
34,994
(12,318)
Corporate(4,916)(3,059)(1,857)(12,864)(16,973)4,109
Research and development costs(1,355)(828)(527)(3,927)(2,281)(1,646)
 $25,637
$10,140
$15,497
$27,751
$14,008
$13,743

Three Months Ended September 30, 2020 and 2019

Revenues decreased by $66.1 million to $132.5 million in the third quarter of 2020 as compared to $198.6 million in the third quarter of 2019. Revenues for each of our segments have been adversely impacted by COVID-19. Revenue in the B&W Renewable segment decreased by $12.2 million due to a higher level of activity in the prior year related to the turnover of the EPC loss contracts in addition to new anticipated activities being deferred due to COVID-19. Revenue in the B&W Environmental segment decreased by $19.8 million due to the completion of large construction projects in the prior year in addition to the postponement of new projects by customers as a result of COVID-19. B&W Thermal segment revenue decreased $38.1 million primarily due to the adverse impacts of COVID-19 resulting in customer delays and lower parts, construction, package boilers and international service orders.

Operating income increased $17.3 million to $14.1 million in the third quarter of 2020 from $(3.2) million in the third quarter of 2019. The increase is primarily due to the non-recurring loss recovery of $26.0 million recognized in the third quarter in the B&W Renewable segment under an October 10, 2020 settlement agreement with an insurer in connection with five of the six European B&W Renewable EPC loss contracts, as described in Note 4. The increase related to the loss recovery is partially offset by lower volume in each of our segments and customer delays as a result of COVID-19. Restructuring expenses, advisory fees, amortization expense, gains (losses) on dispositions of equity method investees, and impairments are discussed in further detail in the sections below.

Nine Months Ended September 30, 2020 and 2019

Revenues decreased by $262.2 million to $416.5 million in the nine months ended September 30, 2020 as compared to $678.7 million in the nine months ended September 30, 2019. Revenues for each of our segments have been adversely impacted by COVID-19. Revenue in the B&W Renewable segment decreased by $40.3 million partially due to the

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divestiture of Loibl, a materials handling business in Germany, which contributed $14.3 million of revenue in the nine months ended September 30, 2019, the advanced completion of activities on the European B&W Renewable EPC loss contracts in the prior year and new anticipated activities being deferred due to COVID-19 all being partially offset by a higher level of activities on two operations and maintenance contracts in the U.K. B&W Environmental segment revenue declined $158.1 million partially due to the completion of large construction projects in addition to the postponement of new projects by several customers as a result of COVID-19. Revenue in the B&W Thermal segment decreased by $91.7 million primarily due to customers' concern regarding the duration and magnitude of COVID-19 resulting in lower parts, construction, package boilers and international service orders.

Operating losses improved $35.5 million to $(3.9) million in the nine months ended September 30, 2020 from $(39.4) million in the nine months ended September 30, 2019, primarily due to the non-recurring insurance loss recovery of $26.0 million, as discussed above and a lower level of losses on the EPC loss contracts being partially offset by the divestiture of Loibl and the impacts of COVID-19 in the B&W Renewable segment , as well as a decline in volume in the B&W Environmental and B&W Thermal segments as described above. Restructuring expenses, advisory fees, amortization expense, gains (losses) on dispositions of equity method investees, and impairments are discussed in further detail in the sections below.

Non-GAAP Financial Measures

The following discussion of our business segment results of operations includes a discussion of adjusted gross profit, a non-GAAP financial measure. Adjusted gross profit differs from the most directly comparable measure calculated in accordance with generally accepted accounting principles ("GAAP"). Amortization expense is not allocated to the segments’ adjusted gross profit.  A reconciliation of operating income (loss), the most directly comparable GAAP measure, to adjusted gross profit is included in the table below.  Management believes that this financial measure is useful to investors because it excludes certain expenses, allowing investors to more easily compare our financial performance period to period.

Three months ended September 30,Nine months ended September 30,
(in thousands)20202019$ Change20202019$ Change
Adjusted gross profit (loss) (1)
   

  
Operating income (loss)$14,074
$(3,177)$17,251
$(3,927)$(39,397)$35,470
Selling, general and administrative ("SG&A") expenses35,611
35,828
(217)107,647
120,045
(12,398)
Advisory fees and settlement costs3,846
4,474
(628)10,074
22,862
(12,788)
Amortization expense1,365
972
393
4,110
3,301
809
Restructuring activities2,396
2,556
(160)6,739
9,571
(2,832)
Research and development costs1,355
828
527
3,927
2,281
1,646
Losses (gains) on asset disposals, net(3)(266)263
(916)(224)(692)
 $58,644
$41,215
$17,429
$127,654
$118,439
$9,215
(1) Amortization is not allocated to the segments' adjusted gross profit, but depreciation is allocated to the segments' adjusted gross profit.

Adjusted gross profit by segment is as follows:
 Three months ended September 30,Nine months ended September 30,
(in thousands)20202019$ Change20202019$ Change
Adjusted gross profit (loss)      
B&W Renewable segment$32,092
$6,571
$25,521
$48,401
$19,297
$29,104
B&W Environmental segment5,929
9,030
(3,101)15,465
33,613
(18,148)
B&W Thermal segment20,623
25,614
(4,991)63,788
65,530
(1,742)
 $58,644
$41,215
$17,429
$127,654
$118,440
$9,214


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B&W Renewable Segment Results
 Three months ended September 30,Nine months ended September 30,
(in thousands)20202019$ Change20202019$ Change
Revenues$39,062
$51,292
$(12,230)$118,570
$158,901
$(40,331)
Adjusted EBITDA$23,575
$(615)$24,190
$22,003
$(4,185)$26,188
Adjusted gross profit$32,092
$6,571
$25,521
$48,401
$19,297
$29,104
Adjusted gross profit (loss) %82.2%12.8% 40.8%12.1% 

Three Months Ended September 30, 2020 and 2019

Revenues in the B&W Renewable segment decreased 24%, or $12.2 million to $39.1 million in the third quarter of 2020 compared to $51.3 million in the third quarter of 2019. The reduction in revenue is due to a higher level of activity in the prior year related to the turnover of the EPC loss contracts in addition to new anticipated activities being deferred due to COVID-19.

Adjusted EBITDA in the B&W Renewable segment increased 3,933%, or $24.2 million, to $23.6 million in the third quarter of 2020 compared to $(0.6) million in the third quarter of 2019, The improvement is primarily due to the non-recurring loss recovery of $26.0 million recognized in the third quarter under an October 10, 2020 settlement agreement with an insurer in connection with five of the six European B&W Renewable EPC loss contracts, as described in Note 4, partially offset by lower volume, as discussed above.

Adjusted gross profit in the B&W Renewable segment increased $25.5 million to $32.1 million in the third quarter of 2020 compared to $6.6 million in the third quarter of 2019. The improvement is primarily due to the non-recurring loss recovery of $26.0 million recognized in the third quarter under an October 10, 2020 settlement agreement with an insurer in connection with five of the six European B&W Renewable EPC loss contracts described, as in Note 4, partially offset by lower volume, as discussed above.

Nine Months Ended September 30, 2020 and 2019

Revenues in the B&W Renewable segment decreased 25%, or $40.3 million, to $118.6 million in the nine months ended September 30, 2020 compared to $158.9 million in the nine months ended September 30, 2019. The reduction in revenue is due to the advanced completion of activities on the European B&W Renewable EPC loss contracts in the prior year as well as new anticipated activities being deferred due to COVID-19 being partially offset by a higher level of activities on two operations and maintenance contracts in the U.K. which followed the turnover of the EPC loss contracts to the customers. Additionally, the reduction in revenue partially relates to the divestiture of Loibl, a materials handling business in Germany, that had previously generated annual revenues of approximately $30 million annually and contributed $14.3 million in the nine months ended September 30, 2019.

Adjusted EBITDA in the B&W Renewable segment increased 626%, or $26.2 million, to $22.0 million in the nine months ended September 30, 2020 compared to $(4.2) million in the nine months ended September 30, 2019, which is primarily due to the non-recurring loss recovery of $26.0 million recognized in the nine months ending September 30, 2020 under an October 10, 2020 settlement agreement with an insurer in connection with five of the six European B&W Renewable EPC loss contracts, as described in Note 4. Additionally, the divestiture of Loibl was more than offset by lower costs in the current year to complete the six European B&W Renewable EPC loss contracts. In the nine months ended September 30, 2020 and 2019, we recorded $1.4 million and $8.0 million in net losses, respectively.

Adjusted gross profit in the B&W Renewable segment increased $29.1 million to $48.4 million in the nine months ended September 30, 2020 compared to $19.3 million in the nine months ended September 30, 2019. The improvement primarily due to the non-recurring loss recovery of $26.0 million recognized in the nine months ending September 30, 2020 under an October 10, 2020 settlement agreement with an insurer in connection with five of the six European B&W Renewable EPC loss contracts, as described in Note 4 in addition to the impacts of Loibl and lower costs related to the six European B&W Renewable EPC loss contracts as described in the Adjusted EBITDA section above.


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B&W Environmental Segment Results
 Three months ended September 30,Nine months ended September 30,
(In thousands)20202019$ Change20202019$ Change
Revenues$25,262
$45,036
$(19,774)$76,354
$234,485
$(158,131)
Adjusted EBITDA$1,078
$1,771
$(693)$(137)$2,453
$(2,590)
Adjusted gross profit$5,929
$9,030
$(3,101)$15,465
$33,613
$(18,148)
Adjusted gross profit %23.5%20.1% 20.3%14.3% 

Three Months Ended September 30, 2020 and 2019

Revenues in the B&W Environmental segment decreased 44%, or $19.8 million to $25.3 million in the third quarter of 2020 compared to $45.0 million in the third quarter of 2019. The decrease is primarily due to the completion of large construction projects in the prior year in addition to the postponement of new projects by customers as a result of COVID-19. B&W Environmental's two significant legacy loss contracts, as disclosed in Note 4 to the Condensed Consolidated Financial Statements, generated revenues of $0.4 million and $1.3 million in the third quarter of 2020 and 2019, respectively.

Adjusted EBITDA in the B&W Environmental segment was $1.1 million in the third quarter of 2020 compared to $1.8 million in the third quarter of 2019. The decrease is driven primarily by the lower volume, as described above being partially offset by the results of cost savings and restructuring initiatives.

Adjusted gross profit in the B&W Environmental segment decreased $3.1 million to $5.9 million in the third quarter of 2020 compared to $9.0 million in the third quarter of 2019. The decline is primarily attributable to the decrease in volume being partially offset by favorable product mix and the results of cost savings and restructuring initiatives.

Nine Months Ended September 30, 2020 and 2019

Revenues in the B&W Environmental segment decreased 67%, or $158.1 million to $76.4 million in the nine months ended September 30, 2020 compared to $234.5 million in the nine months ended September 30, 2019. The decrease is primarily due to the completion of large construction projects in addition to the postponement of new projects by several customers as a result of COVID-19. B&W Environmental's two significant legacy loss contracts, as disclosed in Note 4 to the Condensed Consolidated Financial Statements, generated revenues of $3.6 million and $20.6 million in the nine months ended September 30, 2020 and 2019, respectively.

Adjusted EBITDA in the B&W Environmental segment decreased $2.6 million to $(0.1) million in the nine months ended September 30, 2020 compared to $2.5 million in the nine months ended September 30, 2019. The decline is primarily attributable to the impacts of lower volume, the effects of which were partially offset by a lower percentage of overhead being absorbed by the segment that were not previously absorbed by other segments.

Adjusted gross profit in the B&W Environmental segment decreased $18.1 million to $15.5 million in the nine months ended September 30, 2020 compared to $33.6 million in the nine months ended September 30, 2019. The decrease is primarily attributable to the decrease in volume as described above.

B&W Thermal Segment Results
 Three months ended September 30,Nine months ended September 30,
(In thousands)20202019$ Change20202019$ Change
Revenues$70,025
$108,157
$(38,132)$223,920
$315,587
$(91,667)
Adjusted EBITDA$7,255
$12,871
$(5,616)$22,676
$34,994
$(12,318)
Adjusted gross profit$20,623
$25,614
$(4,991)$63,788
$65,530
$(1,742)
Adjusted gross profit %29.5%23.7% 28.5%20.8% 

Three Months Ended September 30, 2020 and 2019

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Revenues in the B&W Thermal segment decreased 35%, or $38.1 million, to $70.0 million in the third quarter of 2020 from $108.2 million in the third quarter of 2019. The revenue decrease is attributable to the adverse impacts of COVID-19 resulting in customer delays and lower parts, construction, package boilers and international service orders.

Adjusted EBITDA in the B&W Thermal segment decreased $5.6 million to $7.3 million in the third quarter of 2020 compared to $12.9 million in the third quarter of 2019, which is mainly attributable to the decrease in volume as described above being partially offset by the results of costs savings and restructuring initiatives.

Adjusted gross profit in the B&W Thermal segment decreased $5.0 million, to $20.6 million in the third quarter of 2020, compared to $25.6 million in the third quarter of 2019, which is consistent with the decrease in revenue as described above offset partially by favorable product mix and the results of costs savings and restructuring initiatives.

Nine Months Ended September 30, 2020 and 2019

Revenues in the B&W Thermal segment decreased 29%, or $91.7 million, to $223.9 million in the nine months ended September 30, 2020 from $315.6 million in the nine months ended September 30, 2019. The revenue decrease is attributable to customers' concern regarding the duration and magnitude of COVID-19 resulting in lower parts, construction, package boilers and international service orders.

Adjusted EBITDA in the B&W Thermal segment decreased $12.3 million to $22.7 million in the nine months ended September 30, 2020 compared to $35.0 million in the nine months ended September 30, 2019, which is mainly attributable to lower volume as described above and a higher percentage of overhead being absorbed by the segment that was previously absorbed by other segments, the effects of which were partially offset by favorable product mix and a full period of cost savings and restructuring initiatives benefiting the current year.

Adjusted gross profit in the B&W Thermal segment decreased $1.7 million, to $63.8 million in the nine months ended September 30, 2020, compared to $65.5 million in the nine months ended September 30, 2019, which is mainly attributable to lower volume as described above and partially offset by favorable product mix and the effects of a full period of cost savings and restructuring initiatives benefiting the current year.

Bookings and Backlog

Bookings and backlog are our measure of remaining performance obligations under our sales contracts. It is possible that our methodology for determining bookings and backlog may not be comparable to methods used by other companies.

We generally include expected revenue from contracts in our backlog when we receive written confirmation from our customers authorizing the performance of work and committing the customers to payment for work performed. Backlog may not be indicative of future operating results, and contracts in our backlog may be canceled, modified or otherwise altered by customers. Backlog can vary significantly from period to period, particularly when large new build projects or operations and maintenance contracts are booked because they may be fulfilled over multiple years. Additionally, because we operate globally, our backlog is also affected by changes in foreign currencies each period. We do not include orders of our unconsolidated joint ventures in backlog.


49





Bookings represent changes to the backlog. Bookings include additions from booking new business, subtractions from customer cancellations or modifications, changes in estimates of liquidated damages that affect selling price and revaluation of backlog denominated in foreign currency. We believe comparing bookings on a quarterly basis or for periods less than one year is less meaningful than for longer periods, and that shorter-term changes in bookings may not necessarily indicate a material trend.
 Three months ended September 30,Nine months ended September 30,
(In approximate millions)2020201920202019
B&W Renewable(1)
$26
$27
$91
$(27)
B&W Environmental41
16
98
139
B&W Thermal114
48
294
270
Other/eliminations(4)(5)(5)(13)
Bookings$177
$86
$478
$369
(1) B&W Renewable bookings includes the revaluation of backlog denominated in currency other than U.S. dollars. The foreign exchange impact on B&W Renewable bookings in the third quarter of 2020 and 2019 was $(6.4) million and $(6.9) million, respectively. The foreign exchange impact on B&W Renewable bookings in the nine months ended September 30, 2020 and 2019 was $(7.0) million and $(7.4) million, respectively.

Our backlog as of September 30, 2020 and 2019 was as follows:
 As of September 30,
(In approximate millions)20202019
B&W Renewable(1)
$196
$207
B&W Environmental107
112
B&W Thermal208
161
Other/eliminations(2)(7)
Backlog$509
$473
(1) 
B&W Renewable backlog at September 30, 2020, includes $159.0 million related to long-term operation and maintenance contracts for renewable energy plants, with remaining durations extending until 2034. Generally, such contracts have a duration of 10-20 years and include options to extend.

Of the backlog at September 30, 2020, we expect to recognize revenues as follows:
(In approximate millions)20202021ThereafterTotal
B&W Renewable$15
$19
$162
$196
B&W Environmental25
43
39
107
B&W Thermal55
114
39
208
Other/eliminations(2)

(2)
Expected revenue from backlog$93
$176
$240
$509

Corporate

Corporate costs in adjusted EBITDA include SG&A expenses that are not allocated to the reportable segments. These costs include, among others, certain executive, compliance, strategic, reporting and legal expenses associated with governance of the total organization and being an SEC registrant. Corporate costs increased $1.9 million to $4.9 million in the third quarter of 2020 as compared to $3.1 million in the third quarter of 2019, primarily due to the accrual of management bonuses partially offset by the benefits of restructuring and discretionary spend reductions. Corporate costs decreased $4.1 million to $12.9 million in the nine months ended September 30, 2020 as compared to $17.0 million in the nine months ended September 30, 2019, primarily due to the benefits of restructuring and discretionary spend reductions.


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Advisory Fees and Settlement Costs

Advisory fees and settlement costs decreased by $0.6 million to $3.8 million in the third quarter of 2020 as compared to $4.5 million in the third quarter of 2019, primarily due to a decrease in financial advisory fees.

Advisory fees and settlement costs decreased by $12.8 million to $10.1 million in the nine months ended September 30, 2020 as compared to $22.9 million in the nine months ended September 30, 2019, primarily due to settlement costs to exit the fifth B&W Renewable EPC contract in the first quarter of 2019 as described in Note 4 to the Condensed Consolidated Financial Statements and a decrease in financial advisory fees.

Research and Development

Our research and development activities are related to improving our products through innovations to reduce the cost of our products to make them more competitive and through innovations to reduce performance risk of our products to better meet our and our customers' expectations. Research and development costs unrelated to specific contracts are expensed as incurred. Research and development expenses totaled $1.4 million and $0.8 million for the third quarter of 2020 and 2019, respectively. Research and development expenses totaled $3.9 million and $2.3 million for the nine months ended September 30, 2020 and 2019, respectively. The increase resulted primarily from timing of specific research and development efforts.

Restructuring

Restructuring actions across our business units and corporate functions, including executive severances, resulted in $2.4 million and $2.6 million of expense in the third quarter of 2020 and 2019, respectively. Restructuring actions across our business units and corporate functions, including executive severances, resulted in $6.7 million and $9.6 million of expense in the nine months ended September 30, 2020 and 2019, respectively. Severance expense is recognized over the remaining service periods of affected employees, and as of September 30, 2020, we do not expect additional severance expense to be recognized based on actions taken through that date.

Goodwill Impairment

Goodwill is tested for impairment annually and when impairment indicators exist. During the third quarter of 2020, the Company completed an organizational and re-branding initiative, eliminating the legacy business unit structure and launching the B&W Renewable, B&W Environmental, and B&W Thermal brands, which we considered to be a triggering event and as a result, the Company reevaluated its operating segments and reporting units. Segment results for all periods have been restated for comparative purposes.
 
Effective September 30, 2020, the previous Babcock & Wilcox and Babcock & Wilcox Construction Company reporting units became the B&W Company Thermal and B&W Construction Company reporting units, respectively, within the Babcock & Wilcox Thermal operating segment. The Company also identified the B&W Company Renewable and B&W Company Environmental reporting units related to the transfer of businesses from the former Babcock & Wilcox reporting unit to the Babcock & Wilcox Renewable and Babcock & Wilcox Environmental operating segments. Consequently, the Company re-allocated goodwill between the affected reporting units based on their relative fair values and compared the carrying value to the fair value of each impacted reporting unit.  

In conjunction with the changes mentioned above, the Company performed a goodwill impairment test of the impacted reporting units on a before and after basis and based on the assessment, as of September 30, 2020, concluded that the fair value of the impacted reporting units exceeded their carrying values. Accordingly, no impairment was indicated during the third quarter of 2020.

In the first quarter of 2020, our share price declined significantly, which we considered to be a triggering event for an interim goodwill assessment. We primarily attributed the significant decline in our share price to the current macroeconomic conditions and impacts COVID-19 will have on our operations. Based on the interim assessment, as of March 31, 2020, no impairment was indicated during the first quarter of 2020.

Also, as a result of the conditions associated with COVID-19, including the adverse impacts on our operations, the company performed an analysis as required by ASC 360-10-35 to assess the recoverability of other long-lived assets in its B&W

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Renewable and B&W Environmental asset groups. With respect to these asset groups no impairment was indicated during the first quarter of 2020.

Depreciation and Amortization

Depreciation expense was $2.7 million and $4.3 million in the third quarter of 2020 and 2019, respectively.
Depreciation expense was $8.2 million and $15.8 million in the nine months ended September 30, 2020 and 2019, respectively. Depreciation expense in the third quarter and nine months ended September 30, 2019 includes $0.7 million and $4.7 million, respectively, of accelerated depreciation of our prior corporate facility.

We recorded amortization expense of $1.4 million and $1.0 million in the third quarter of 2020 and 2019, respectively. We recorded amortization expense of $4.1 million and $3.3 million in the nine months ended September 30, 2020 and 2019, respectively.

Pension and Other Postretirement Benefit Plans

We recognize benefits from our defined benefit and other postretirement benefit plans based on actuarial calculations primarily because our expected return on assets is greater than our service costs. Service cost is low because our plan benefits are frozen except for a small number of hourly participants. Pension benefits were $7.3 million and $3.6 million in the third quarter of 2020 and 2019, respectively. Pension benefits were $22.3 million and $10.4 million in the nine months ended September 30, 2020 and 2019, respectively. There were no MTM adjustments for our pension and other postretirement benefit plans during the three and nine months ended September 30, 2020 or the third quarter of 2019. The pension benefits for the nine months ended September 30, 2019 exclude MTM adjustment losses of $1.3 million. Refer to Note 12 to the Condensed Consolidated Financial Statements.

Our pension costs also include MTM adjustments from time to time, as described further in Note 12 to the Condensed Consolidated Financial Statements. Interim MTM charges are a result of curtailments or settlements. Any MTM charge or gain should not be considered to be representative of future MTM adjustments as such events are not currently predicted and are in each case subject to market conditions and actuarial assumptions as of the date of the event giving rise to the MTM adjustment.

Other than service cost of $0.2 million and $0.4 million in the third quarter of 2020 and 2019, respectively, and $0.6 million and $0.7 million in the nine months ended September 30, 2020 and 2019, respectively, which are related to the small number of hourly participants still accruing benefits within the Babcock &Wilcox Thermal segment, pension benefit and MTM adjustments are excluded from the results of our segments. Refer to Note 12 to the Condensed Consolidated Financial Statements for further information regarding our pension and other postretirement plans.

The costs and funding requirements of our pension and postretirement benefit plans depend on our various assumptions, including estimates of rates of return on benefit-related assets, discount rates for future payment obligations, rates of future cost growth, mortality assumptions and trends for future costs. Variances from these estimates could have a material adverse effect on us. Our policy to recognize these variances annually through MTM accounting could result in volatility in our results of operations, which could be material. The funding obligations for the Company’s pension plans are impacted by the performance of the financial markets, particularly the equity markets, and interest rates. If the financial markets do not provide the long-term returns that are expected, or discount rates increase the present value of liabilities, the Company could be required to make larger contributions.

Foreign Exchange

We translate assets and liabilities of our foreign operations into United States dollars at current exchange rates, and we translate items in our statement of operations at average exchange rates for the periods presented. We record adjustments resulting from the translation of foreign currency financial statements as a component of accumulated other comprehensive income (loss). We report foreign currency transaction gains and losses in income.

Foreign exchange was a gain of $25.0 million and a loss of $26.7 million for the three months ended September 30, 2020 and 2019, respectively. Foreign exchange was a gain of $22.7 million and a loss of $27.4 million for the nine months ended September 30, 2020 and 2019, respectively. Foreign exchange gains and losses are primarily related to unhedged intercompany loans denominated in European currencies to fund foreign operations.

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Income Taxes
 Three months ended September 30,Nine months ended September 30,
(In thousands, except for percentages)20202019$ Change20202019$ Change
Income (loss) before income taxes$34,053
$(55,947)$90,000
$(17,580)$(131,631)$114,051
Income tax (benefit) expense$(502)$1,043
$(1,545)$(467)$3,560
$(4,027)
Effective tax rate(1.5)%(1.9)% 2.7%(2.7)% 

Our income tax expense in the third quarter of 2020 reflects a full valuation allowance against our net deferred tax assets, except in Mexico, Canada, the United Kingdom, and Sweden. Deferred tax assets are evaluated each period to determine whether realization is more likely than not. Valuation allowances are established when management determines it is more likely than not that some portion, or all, of the deferred tax assets will not be realized. Valuation allowances may be removed in the future if sufficient positive evidence exists to outweigh the negative evidence under the framework of ASC 740, Income Taxes.

Our effective tax rate for the third quarter of 2020 is not reflective of the United States statutory rate primarily due to a valuation allowance against certain net deferred tax assets. In certain jurisdictions (namely, the United States, Denmark, and Italy) where the company anticipates a loss for the fiscal year or incurs a loss for the year-to-date period for which a tax benefit cannot be realized in accordance with ASC 740, the company excludes the loss in that jurisdiction from the overall computation of the estimated annual effective tax rate.

Our effective tax rate for the third quarter of 2019 was not reflective of the United States statutory rate primarily due to a valuation allowance against certain net deferred tax assets.

Liquidity and Capital Resources

Liquidity

Our primary liquidity requirements include debt service and working capital needs. We fund our liquidity requirements primarily through cash generated from operations and external sources of financing, including our A&R Credit Agreement (as defined below) that governs the U.S. Revolving Credit Facility and the last out term loans (the "Last Out Term Loans"), each of which are described below in further detail along with other sources of liquidity.

As of December 31, 2019 and March 30, 2020, the date we issued our 2019 Consolidated Financial Statements, we were in compliance with the terms of the agreements governing our debt and no events of default existed. However, the Company’s uncertainty regarding liquidity and the ability to refinance our credit agreement by May 11, 2020 represented conditions and events that raised substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the 2019 Consolidated Financial Statements were issued, as we were not able to assert that it was probable that our plans when fully implemented would alleviate the events and conditions.

Since January 1, 2020 and through the issuance of our 2019 Consolidated Financial Statements on March 30, 2020, we took the following actions, among others, and have successfully implemented, or are in the process of implementing the following:
entered into several amendments and waivers to avoid default and improve our liquidity under the terms of our credit agreement as described in Note 13 and Note 14, the most recent of which were Amendments No. 19, No. 20 and No. 21 dated January 17, 2020, January 31, 2020 and March 27, 2020, respectively;
on January 31, 2020, received $30.0 million of additional gross borrowings from B. Riley Financial, Inc. (together with its affiliates, "B. Riley") under a new Tranche A-4 of Last Out Term Loans, as described in in Note 14;
on January 31, 2020, received an incremental Tranche A-5 of Last Out Term Loan commitment to be used in the event certain customer letters of credit are drawn, as described in Note 14;
on March 12, 2020, filed for waiver of required minimum contributions to the U.S. Pension Plan as described in Note 12 and subsequently on October 1, 2020 received a letter from the Internal Revenue Service (the "IRS") that the 2019 waiver request had been approved subject to certain conditions; and
on March 17, 2020, we fully settled the remaining escrow associated with the sale of Palm Beach Resource Recovery Corporation and received $4.5 million in cash.

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In addition to the actions taken above, subsequent to March 30, 2020 we have taken the following actions:

on April 6, 2020, we fully settled the remaining escrow associated with the sale of the MEGTEC and Universal businesses and received $3.5 million in cash;
on May 14, 2020, the Company entered into an agreement amending and restating our credit agreement with Bank of America, N.A., as administrative agent (the “Administrative Agent”) and lender, and the other lenders party thereto. These amendments to the credit agreement, as amended and restated (the "A&R Credit Agreement"), among other amendments, extends the maturity date on the U.S. Revolving Credit Facility to June 30, 2022 and the maturity date on the Last Out Term Loans to December 30, 2022. Under the A&R Credit Agreement, B. Riley has committed to provide the Company with up to $70.0 million of additional Last Out Term Loans. B. Riley entered into a limited guaranty (the "B. Riley Guaranty") which provides for the guarantee of all of the Company's obligations with respect to the U.S. Revolving Credit Facility (other than with respect to letters of credit and contingent obligations thereunder), including the obligation to repay outstanding revolving credit loans and pay earned interest and fees;
on May 14, 2020, we received $30.0 million of additional gross borrowings from B. Riley Financial, Inc. (together with its affiliates, "B. Riley") under a new Tranche A-6 of Last Out Term Loans, as described in in Note 14;
on October 10, 2020, we entered into a settlement agreement with an insurer in connection with five of the six European B&W Renewable EPC loss contracts. In connection with the insured losses recognized in prior years, we recognized this non-recurring loss recovery of $26.0 million as a reduction of our Cost of operations in our Condensed Consolidated Statements of Operations for the quarter ending September 30, 2020 because we determined the loss recovery was probable as of such date. On October 23, 2020, we received the gross proceeds of $26.0 million for the loss recovery recognized during the third quarter ending September 30, 2020, as described in Note 4; and
on October 30, 2020, we entered into Amendment No. 1 to our Amended and Restated Credit Agreement (the “A&R Amendment No. 1”) with Bank of America, N.A. A&R Amendment No. 1, among other matters, (i) provides that, under the A&R Credit Agreement, the "Commitment Reduction Amount" shall be an amount equal to (a) for any "Prepayment Event" relating to a "Recovery Event" (each as defined under the A&R Credit Agreement), 50% of the net cash proceeds with respect to such Prepayment Event, and (b) with respect to any other Prepayment Event under the A&R Credit Agreement, the net cash proceeds with respect to such Prepayment Event, and (ii) establishes new financial covenants for (i) interest coverage ratios beginning with a ratio of 0.50:1.00 for the quarter ending December 31, 2020 and up to 1.25:1.00 for the quarter ending March 31, 2022 and the last day of each fiscal quarter ending thereafter and (ii) senior leverage ratios beginning with 7.75:1.00 for the quarter ending December 31, 2020 and down to 2.25:1.00 for the quarter ending March 31, 2022 and the last day of each fiscal quarter ending thereafter.

Beginning in April 2020, as part of the Company’s response to the impact of the COVID-19 pandemic on its business, the Company has taken a number of the following cash conservation and cost reduction measures which include:
temporary unpaid furloughs of certain employees:
temporarily deferring the monthly fee paid to BRPI Executive Consulting, LLC for the services of our Chief Executive Officer by 50%;
deferrals of the base salaries of our Chief Strategy Officer by 50%, Chief Financial Officer by 30% and our Senior Vice President of The Babcock & Wilcox Company by 30%;
suspension of our 401(k) company match for U.S. employees for the remainder of 2020;
approval by the Company’s Board for a temporary deferral of 50% of the cash compensation payable to non-employee directors under the Company’s board compensation program to be paid during the first quarter of 2021;
temporary rent payment deferrals related to leased facilities located in the U.S., Canada, Italy and Denmark;
utilizing options for government loans and programs in the U.S. and abroad that are appropriate and available; and
deferring, in accordance with the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") signed into law in March 2020, the Pension Plan contribution payments of $5.5 million each for the 2020 Plan year that would have been made on April 15, 2020, July 15, 2020 and October 15, 2020, respectively. In addition, we elected to defer the contribution payments of $1.1 million for the 2018 Plan year and $23.7 million for the 2019 Plan year that were both due on September 15, 2020. Per the 2019 Plan year waiver received on October 1, 2020, the $23.7 million deferred for the 2019 Plan year will now be funded over the next five years.

Based upon the terms of the A&R Credit Agreement and the cash conservation and cost reduction measures taken to date, the Company is projecting sufficient liquidity to fund future operations and to meet its obligations as they become due for at least

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one year following the date that these Condensed Consolidated Financial Statements are issued. As a result, the Company has concluded that conditions and events, considered in the aggregate, no longer raise substantial doubt about the entity’s ability to continue as a going concern.

Cash and Cash Flows

At September 30, 2020, our unrestricted cash and cash equivalents totaled $38.9 million and we had total debt of $355.2 million. Our foreign business locations held $36.8 million of our total unrestricted cash and cash equivalents at September 30, 2020. Our U.S. Revolving Credit Facility allows for nearly immediate borrowing of available capacity to fund cash requirements in the normal course of business, meaning that U.S. cash on hand is minimized to reduce borrowing costs. In general, our foreign cash balances are not available to fund our U.S. operations unless the funds are repatriated or used to repay intercompany loans made from the U.S. to foreign entities, which could expose us to taxes we presently have not made a provision for in our results of operations. We presently have no plans to repatriate these funds to the U.S. At September 30, 2020, we had approximately $23.1 million available for borrowings under the U.S. Revolving Credit Facility.

Cash used in operations was $67.3 million in the nine months ended September 30, 2020, which is primarily represented in the net loss of continuing operations, the increase in accounts receivable - other from recognizing the non-recurring loss recovery insurance settlement of $26.0 million described in Note 4, the change in pension, postretirement and employee benefit liabilities and the impact of fluctuating foreign currency exchange rates. There was also a $2.8 million net decrease in operating cash outflows associated with changes in working capital. In the nine months ended September 30, 2019, cash used in operations was $201.1 million primarily due to funding settlements related to European B&W Renewable EPC contracts, progress against accrued losses on the six European B&W Renewable EPC loss contracts and working capital build within the B&W Thermal segment related to the timing of and mix of work.

Cash flows from investing activities provided net cash of $2.0 million in the nine months ended September 30, 2020, primarily related to $8.0 million from the settlement of remaining escrows associated with the sale of Palm Beach Resource Recovery Corporation and MEGTEC and Universal businesses, offset by the net change in available-for-sale securities and $2.3 million of capital expenditures. In the nine months ended September 30, 2019, cash flows from investing activities provided net cash of $7.1 million, primarily from proceeds received from the sale of Loibl for $7.4 million.

Cash flows from financing activities provided net cash of $52.4 million in the nine months ended September 30, 2020, primarily related to $60.0 million face value borrowings from the Tranche A-4 and Tranche A-6 of the Last Out Term Loans and a $2.9 million change on the U.S. Revolving Credit Facility primarily offset by $10.3 million of financing fees. Cash flows from financing activities provided net cash of $181.0 million in the nine months ended September 30, 2019, primarily related to $109.6 million net borrowings from the Last Out Term Loans, $46.8 million of net borrowings from the U.S. Revolving Credit Facility, and $40.4 million proceeds from the Rights Offering, partly offset by $15.5 million of financing fees.

U.S. Revolving Credit Facility

On May 11, 2015, we entered into the amended credit agreement with a syndicate of lenders in connection with our spin-off from The Babcock & Wilcox Company (now BWX Technologies, Inc. or "BWXT") which governs the U.S. Revolving Credit Facility and the Last Out Term Loans. Since June 2016, we have entered into a number of waivers and amendments to the amended credit agreement, including several to avoid default under the financial and other covenants specified in the amended credit agreement. As of September 30, 2020, the U.S. Revolving Credit Facility provides for a senior secured revolving credit facility in an aggregate amount of up to $326.9 million, as amended and adjusted for completed asset sales. The proceeds from loans under the U.S. Revolving Credit Facility are available for working capital needs, capital expenditures, permitted acquisitions and other general corporate purposes, and the full amount is available to support the issuance of letters of credit, subject to the limits specified in the agreement.

As of September 30, 2020, in connection with Amendment No. 16, we have accrued deferred ticking fee costs of $6.7 million due to certain actions required that were not completed by December 15, 2019.

At September 30, 2020, borrowings under the U.S. Revolving Credit Facility consisted of $181.9 million at a weighted average interest rate of 7.63%. Usage under the U.S. Revolving Credit Facility consisted of $181.9 million of borrowings, $23.0 million of financial letters of credit and $89.6 million of performance letters of credit. At September 30, 2020, we had

55





approximately $32.4 million available to meet letter of credit requirements based on our overall facility size, of which $23.1 million was available for additional borrowings under our sublimit.

On October 23, 2020, we received $26.0 million of gross proceeds under the settlement agreement representing the non-recurring loss recovery as described in Note 4. As required by the Company’s U.S. Revolving Credit Facility, 50% of the net proceeds (gross proceeds less costs) or approximately $8.0 million of the settlement received by the Company was applied as a permanent reduction of the U.S. Revolving Credit Facility in October 2020.

Under the A&R Credit Agreement, the interest rate for the U.S. Revolving Credit Facility will be reduced to LIBOR plus 7.0% or base rate (as defined in the A&R Credit Agreement) plus 6.0%, which margins will be reduced by 2.0% upon the commitments under such facility being reduced to less than $200.0 million. The interest payments on the unpaid principal amount of revolving credit loans incurred during the period from May 14, 2020 through and including August 31, 2020 of $3.8 million are deferred and will be paid in six equal installments on the last business day of each calendar month beginning on January 29, 2021 and through June 30, 2021. The maturity date under the U.S. Revolving Credit Facility will be extended to June 30, 2022 pursuant to the terms of the A&R Credit Agreement.

Last Out Term Loans

Last Out Term Loans are incurred under our A&R Credit Agreement and are pari passu with the U.S. Revolving Credit Facility except for certain payment subordination provisions. The Last Out Term Loans are subject to the same representations and warranties, covenants and events of default as the U.S. Revolving Credit Facility. Under U.S. GAAP, a debt modification with the same borrower that results in substantially different terms is accounted for as an extinguishment of the existing debt and a reborrowing of new debt. An extinguishment gain or loss is then recognized based on the fair value of the new debt as compared to the carrying value of the extinguished debt. The Company recognized a loss on debt extinguishment of $6.2 million in the quarter ended June 30, 2020, primarily representing the unamortized value of the original issuance discount and fees on the Tranche A-3 Last Out Term Loan. In connection with the effectiveness of the A&R Credit Agreement, the maturity date for the Last Out Term Loans was extended to December 30, 2022.

On September 30, 2020 and June 30, 2020, the Company issued 2,334,002 and 1,192,371 unregistered shares of common stock to B. Riley in settlement of the quarterly interest payable in connection with the Equitization Agreement discussed in Note 13.

The total effective interest rate of Tranche A-3, Tranche A-4 and Tranche A-6 was 12.0% on September 30, 2020. The interest rate on the Last Out Term Loans under the A&R Credit Agreement is a fixed rate per annum of 12.0%. Interest expense associated with the Last Out Term Loans is detailed in Note 15.

Tranche A-1

We borrowed $30.0 million of net proceeds under Tranche A-1 of the Last Out Term Loans from B. Riley, a related party, in September and October of 2018. In November 2018, Tranche A-1 was assigned to Vintage, also a related party. As part of the Equitization Transactions in July 2019, the outstanding principal of Tranche A-1 of the Last Out Term Loans including accrued paid-in-kind interest remaining as of March 31, 2019 was exchanged for shares of common stock.

Tranche A-2

We borrowed $10.0 million of net proceeds under Tranche A-2 of Last Out Term Loans from B. Riley, a related party in March 2019. Tranche A-2 was fully repaid on July 23, 2019 with proceeds from the 2019 Rights Offering as part of the Equitization Transactions in July 2019.

Tranche A-3

Under Amendment No. 16 to our credit agreement, we borrowed $150.0 million face value from B. Riley, a related party, under a Tranche A-3 of Last Out Term Loans. The $141.4 million net proceeds from Tranche A-3 were primarily used to pay the amounts due under the settlement agreements covering certain European B&W Renewable EPC loss projects as described in Note 4, with the remainder used for working capital and general corporate purposes.


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Interest rates for Tranche A-3 are described above. Tranche A-3 may be prepaid, subject to the subordination provisions under the Amended Credit Agreement as described above, but not re-borrowed. As part of the Equitization Transactions, the total prepayment of principal of Tranche A-3 of the Last Out Term Loans was $39.7 million.

Tranche A-4

On January 31, 2020, we entered into Amendment No. 20 to our credit agreement. Amendment No. 20 provides $30.0 million of additional commitments from B. Riley, a related party, under a new Tranche A-4 of Last Out Term Loans. The proceeds from Tranche A-4 may be used under the terms of Amendment No. 20 to repay revolving credit loans, for working capital and general corporate purposes, and to reimburse certain expenses of B. Riley as specified by Amendment No. 20.  The terms of Tranche A-4 are the same as the terms for the Tranche A-3.

As of January 31, 2020, we borrowed $30.0 million face value of the Tranche A-4 and received net proceeds of $26.3 million after incurring total fees of $3.7 million related to Amendment No, 20 described above.

Tranche A-5

Amendment No. 20 also provides an incremental Tranche A-5 of Last Out Term Loans to be extended prior to maturity of the Last Out Term Loans under the A&R Credit Agreement in the event certain customer letters of credit are drawn. The terms of Tranche A-5 are the same as the terms for the Tranche A-3 under the A&R Credit Agreement. As of November 13, 2020, no borrowings occurred under Tranche A-5.

Tranche A-6

The A&R Credit Agreement provided us with up to $70.0 million of additional funding in the form of Tranche A-6 Last Out Term Loans from B. Riley, a related party, as described in Note 13. An aggregate $30.0 million of this new commitment was funded upon execution of the A&R Credit Agreement. The $35.0 million will be funded in installments, subject to reduction for the gross proceeds from certain offerings of our Common Stock by the Company. The remaining $5.0 million will be available upon request by the Company.

On May 14, 2020, we borrowed $30.0 million face value of the Tranche A-6 and received gross proceeds of $30.0 million related to the entry into the A&R Credit Agreement.

Tranche A-7

The A&R Credit Agreement provided us with up to $50.0 million of additional funding for letters of credit in the form of Tranche A-7 Last Out Term Loans from B. Riley, a related party, as described in Note 13. The $50.0 million will be available upon request by the Company, subject to certain limitations. As of November 13, 2020, no borrowings occurred under Tranche A-7.

Letters of Credit, Bank Guarantees and Surety Bonds

Certain subsidiaries primarily outside of the United States have credit arrangements with various commercial banks and other financial institutions for the issuance of letters of credit and bank guarantees in association with contracting activity. The aggregate value of all such letters of credit and bank guarantees opened outside of the U.S. Revolving Credit Facility as of September 30, 2020 and December 31, 2019 was $80.6 million and $88.5 million, respectively. The aggregate value of the letters of credit provided by the U.S. Revolving Credit Facility backstopping letters of credit or bank guarantees was $31.6 million as of September 30, 2020. Of the letters of credit issued under the U.S. Revolving Credit Facility, $37.5 million are subject to foreign currency revaluation.

We have posted surety bonds to support contractual obligations to customers relating to certain contracts. We utilize bonding facilities to support such obligations, but the issuance of bonds under those facilities is typically at the surety's discretion. These bonds generally indemnify customers should we fail to perform our obligations under the applicable contracts. We, and certain of our subsidiaries, have jointly executed general agreements of indemnity in favor of surety underwriters relating to surety bonds those underwriters issue in support of some of our contracting activity. As of September 30, 2020, bonds issued and outstanding under these arrangements in support of contracts totaled approximately $277.6 million. The aggregate value of the letters of credit provided by the U.S. Revolving Credit facility backstopping surety bonds was $34.7 million.

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Our ability to obtain and maintain sufficient capacity under our U.S. Revolving Credit Facility is essential to allow us to support the issuance of letters of credit, bank guarantees and surety bonds. Without sufficient capacity, our ability to support contract security requirements in the future will be diminished.

A&R Credit Agreement

On May 11, 2015, we entered into the amended credit agreement with a syndicate of lenders in connection with our
spin-off from The Babcock & Wilcox Company (now BWX Technologies, Inc. or "BWXT") which governs the U.S.
Revolving Credit Facility and the Last Out Term Loans. Since June 2016, we have entered into a number of waivers and
amendments to the amended credit agreement, including several to avoid default under the financial and other covenants
specified in the amended credit agreement.

On May 14, 2020, we entered into the A&R Credit Agreement which refinances and extends the maturity of our existing U.S.
Revolving Credit Facility and Last Out Term Loans.

Under the A&R Credit Agreement, B. Riley has committed to provide the Company with up to $70.0 million of additional Last Out Term Loans on the same terms as the term loans extended under the amended credit agreement. An aggregate $30.0 million of this new commitment was funded upon execution of the A&R Credit Agreement. Of the remaining commitments, at least $35.0 million will be funded in installments, subject to reduction for the gross proceeds from certain equity offerings conducted by the Company, and $5.0 million will be funded upon request by the Company. The proceeds from the $30.0 million of new term loans will be used to pay transaction fees and expenses and repay outstanding borrowings under the U.S.
Revolving Credit Facility. Proceeds from the remaining $40.0 million of Last Out Term Loans will be used to repay outstanding borrowings under the U.S. Revolving Credit Facility, with any remaining amounts used for working capital, capital expenditures, permitted acquisitions and general corporate purposes.

The A&R Credit Agreement also provides that, (i) the U.S. Revolving Credit Facility continues to be available for issuances of existing and new letters of credit, subject to the L/C Sublimit (as defined below), (ii) the $205.0 million sublimit on borrowings under the U.S. Revolving Credit Facility is maintained, and (iii) interest payments on the unpaid principal amount of revolving credit loans incurred during the period from May 14, 2020 through and including August 31, 2020 of $3.8 million are deferred and will be paid in six equal installments on the last business day of each calendar month beginning on January 29, 2021 and through June 30, 2021. No swing line borrowings are permitted under the A&R Credit Agreement.

The A&R Credit Agreement also amends the following terms, among others, as compared with the prior credit agreement:
(i)the maturity date of the U.S. Revolving Credit Facility has been extended to June 30, 2022, and the maturity date of all Last Out Term Loans under the A&R Credit Agreement will be extended to December 30, 2022 (six months after the maturity date of the U.S. Revolving Credit Facility);

(ii)the interest rate for loans under the U.S. Revolving Credit Facility has been reduced to LIBOR plus 7.0% or base rate (as defined in the A&R Credit Agreement) plus 6.0%. These margins will be reduced by 2.0% if commitments under the U.S. Revolving Credit Facility are reduced to less than $200.0 million. The fee for letters of credit will be set at 4.0%;

(iii)the interest rate for all Last Out Term Loans has been set at 12.0%;

(iv)the commitments under the U.S. Revolving Credit Facility automatically and permanently decrease in the following amounts on the following dates, which match the funding dates and amounts for the committed term loans: (x) $10.0 million on November 30, 2020; and (y) $5.0 million on each of March 31, 2021, June 30, 2021, September 30, 2021, December 31, 2021 and March 31, 2022, respectively;

(v)the amount of revolving loans and letters of credit available in currencies other than U.S. dollars have been capped at $125.0 million through April 30, 2021 and will step down to $110.0 million on May 1, 2021; and

(vi)the amount of financial letters of credit have been capped at $75.0 million, and the amount of all letters of credit will be capped at $190.0 million through April 30, 2021 and step down to $175.0 million on May 1, 2021 (the “L/C Sublimit”).

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Affirmative and negative covenants under the A&R Credit Agreement are substantially consistent with the prior credit agreement, except that, among other changes: (i) the indebtedness covenant has been modified to permit the incurrence of any governmental assistance in the form of indebtedness in connection with COVID-19 relief in an aggregate principal amount not to exceed $10.0 million; (ii) a third-party letter of credit basket of up to $50.0 million has been added; (iii) certain liens and restricted payments are modified to permit liens and repayments of indebtedness incurred in connection with governmental assistance in connection with COVID-19 relief; and (iv) covenants related to the European B&W Renewable EPC loss projects have been removed. The minimum required liquidity condition of $30.0 million remains constant but has been modified to exclude cash of non-loan parties in an amount in excess of $25.0 million. Certain financial covenant testing has been suspended through September 30, 2020, with the Company and the Administrative Agent having agreed to negotiate such covenant levels and related definitions prior to October 31, 2020. See A&R Credit Agreement subsequent event described below for a discussion of the results of the negotiation.

Events of default under the A&R Credit Agreement are substantially consistent with the prior credit agreement, except that: (i) B. Riley’s failure to fund any of its additional Last Out Term Loans committed under the A&R Credit Agreement will constitute an event of default; and (ii) the failure to negotiate and set certain financial covenant testing levels and related definitions prior to October 31, 2020 will constitute an event of default.

In connection with the A&R Credit Agreement, the Company incurred certain customary amendment and commitment fees, a portion of which will be deferred pursuant to the terms of the A&R Credit Agreement along with certain previously deferred fees incurred under the amended credit agreement.

A&R Credit Agreement - subsequent event

On October 30, 2020, we entered into A&R Amendment No. 1 with Bank of America, N.A. A&R Amendment No. 1, among other matters, (i) provides that, under the A&R Credit Agreement, the "Commitment Reduction Amount" shall be an amount equal to (a) for any "Prepayment Event" relating to a "Recovery Event" (each as defined under the A&R Credit Agreement), 50% of the net cash proceeds with respect to such Prepayment Event, and (b) with respect to any other Prepayment Event under the A&R Credit Agreement, the net cash proceeds with respect to such Prepayment Event, and (ii) establishes new financial covenants of interest coverage ratios and senior leverage ratios, as described in Note 13.

Effective October 30, 2020, the minimum interest coverage ratios under our A&R Credit Agreement are as follows:
0.50:1.00 for the quarter ending December 31, 2020
0.50:1.00 for the quarter ending March 31, 2021
0.80:1.00 for the quarter ending June 30, 2021
1.00:1.00 for the quarter ending September 30, 2021
1.10:1.00 for the quarter ending December 31, 2021
1.25:1.00 for the quarter ending March 31, 2022 and the last day of each fiscal quarter ending thereafter

Effective October 30, 2020, the maximum permitted senior leverage ratios under our A &R Credit Agreement are as follows:
7.75:1.00 for the quarter ending December 31, 2020
7.75:1.00 for the quarter ending March 31, 2021
4.25:1.00 for the quarter ending June 30, 2021
3.75:1.00 for the quarter ending September 30, 2021
3.00:1.00 for the quarter ending December 31, 2021
2.25:1.00 for the quarter ending March 31, 2022 and the last day of each fiscal quarter ending thereafter

B. Riley Limited Guaranty

In connection with the Company’s entry into the A&R Credit Agreement, B. Riley entered into the B. Riley Guaranty for the benefit of the Administrative Agent and the lenders under the U.S. Revolving Credit Facility. The B. Riley Guaranty provides for the guarantee of all of the Company’s obligations with respect to the U.S. Revolving Credit Facility (other than with respect to letters of credit and contingent obligations), including the obligation to repay outstanding revolving credit loans and pay earned interest and fees. The B. Riley Guaranty is enforceable in certain circumstances, including, among others: (i) B. Riley’s failure to timely fund in full any of its additional Last Out Term Loans committed under the A&R Credit Agreement; (ii) certain events of default relating to bankruptcy or insolvency occurring with respect to B. Riley; (iii) the acceleration of the Company’s borrowings under the U.S. Revolving Credit Facility; (iv) the Company’s failure to pay any

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amount due to the Administrative Agent or any lender under the revolving credit facility; or (v) any assertion that the B. Riley Guaranty or any portion thereof is not valid, binding or enforceable.
In connection with the B. Riley Guaranty, the Company entered into a fee letter with B. Riley pursuant to which the Company agreed to pay B. Riley a fee of $3.9 million (the “B. Riley Guaranty Fee”). On June 8, 2020, the Company issued 1,712,479 unregistered shares of Common Stock, respectively, to B. Riley and certain of its affiliates in settlement of the B. Riley Guaranty Fee in connection with the Equitization Agreement discussed below.

Fee and Interest Equitization Agreement

In connection with the B. Riley Guaranty, the Company entered into a Fee and Interest Equitization Agreement (the “Equitization Agreement”) with B. Riley and, solely for certain limited purposes under the Equitization Agreement, B. Riley FBR, Inc.

The Equitization Agreement provides that, in lieu of receiving (a) $13.4 million of interest payments with respect to Last Out Term Loans under the A&R Credit Agreement between May 14, 2020 and December 31, 2020 (the “Equitized Interest Payments”) and (b) the B. Riley Guaranty Fee (the “Equitized Fee Payment” and, together with the Equitized Interest Payments, the “Equitized Fees and Interest Payments”), B. Riley will receive unregistered shares of the Company’s Common Stock, calculated as explained below.

Under the Equitization Agreement, B. Riley will receive a number of unregistered shares of common stock equal to (i) the aggregate dollar value of the Equitized Fees and Interest Payments divided by (ii) the Conversion Price. For purposes of the Equitization Agreement, the “Conversion Price” means the average volume weighted average price for the Common Stock over 15 consecutive trading days beginning on and including May 15, 2020 (the “Measurement Period”), subject to customary adjustments. For purposes of the listing requirements of the New York Stock Exchange (the "NYSE"), the Equitization Agreement sets a minimum for the Conversion Price of $1.55 per share of common stock, unless and until approval is obtained from the Company’s stockholders under the rules of the NYSE. On June 5, 2020, the conversion price was calculated at $2.2774 per share.

On September 30, 2020 and June 30, 2020, the Company issued 2,334,002 and 1,192,371 unregistered shares of Common Stock, respectively, to B. Riley and certain of its affiliates in settlement of the quarterly interest payable in connection with the Equitization Agreement discussed above.

The Company is required under the Equitization Agreement to use its reasonable best efforts to take all actions to obtain any necessary stockholder approval under the rules of the NYSE for the issuance of the Shares. B. Riley has agreed to cause all shares of common stock beneficially owned by B. Riley to be voted in favor of any proposal presented to the Company’s stockholders seeking approval of the issuance of shares pursuant to the Equitization Agreement. The required stockholder
approvals were obtained at the Company’s 2020 annual meeting of stockholders held on June 16, 2020.

Off-Balance Sheet Arrangements

There were no significant off-balance sheet arrangements at September 30, 2020.

Equitization Transactions

In connection with Amendment No. 16 to the amended credit agreement and the extension of Tranche A-3 of the Last Out Term Loans, the Company, B. Riley and Vintage, each related parties, entered into the "Letter Agreement" on April 5, 2019, pursuant to which the parties agreed to use their reasonable best efforts to effect a series of equitization transactions for a portion of the Last Out Term Loans, subject to, among other things, stockholder approval. Stockholder approval was received at the Company's annual stockholder meeting on June 14, 2019 and the contemplated transactions (the "Equitization Transactions") occurred on July 23, 2019. The Equitization Transactions included:

The 2019 Rights Offering, for which B. Riley agreed to act as a backstop, by purchasing from us, at a price of $0.30 per share, all unsubscribed shares in the 2019 Rights Offering for cash or by exchanging an equal principal amount of outstanding Tranche A-2 or Tranche A-3 Last Out Term Loans (the "Backstop Commitment"). Under the 2019 Rights Offering, 16,666,666 shares of common stock were issued, of which 12,589,170 shares were purchased through the exercise of rights in the rights offering generating $37.8 million of cash, 1,333,333 shares were issued

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through assigned portions of the Backstop Commitment generating an additional $4.0 million of cash, and the final 2,744,163 shares were exchanged for $8.2 million of principal value including accrued paid-in-kind interest of Tranche A-3 Last Out Term Loans.
$10.3 million of the proceeds of the 2019 Rights Offering were used to fully repay Tranche A-2 of the Last Out Term Loans, including accrued paid-in-kind interest.
$31.5 million of the proceeds of the 2019 Rights Offering were used to partially prepay Tranche A-3 of the Last Out Term Loans including paid-in-kind interest. The total prepayment of principal of Tranche A-3 of the Last Out Term Loans was $39.7 million inclusive of the $8.2 million of principal value exchanged for common shares under the Backstop Commitment described above.
All $38.2 million of outstanding principal of Tranche A-1 of the Last Out Term Loans including accrued paid-in-kind interest was exchanged for 12,720,785 shares of common stock (10,720,785 shares to Vintage and 2,000,000 shares to B. Riley) at a price of $0.30 per share (the "Debt Exchange"). Prior to the Debt Exchange, $6.0 million of Tranche A-1 was held by B. Riley and the remainder was held by Vintage.
1,666,667 warrants, each to purchase one share of our common stock at an exercise price of $0.01 per share were issued to B. Riley.

Immediately after completion of the Equitization Transactions, Tranches A-1 and A-2 of the Last Out Term Loans were fully extinguished, and Tranche A-3 of the Last Out Term Loans had a balance of $114.0 million, including accrued paid-in-kind interest, which bears interest at a fixed rate of 12.0% per annum and continues to bear the other terms described in Note 14. Based on Schedule 13D filings made by B. Riley and Vintage, after completion of the Equitization Transactions, Vintage increased its beneficial ownership in us to 32.8% and B. Riley increased its beneficial ownership in us to 18.4% inclusive of the outstanding warrants held by B. Riley.

2019 Rights Offering

On June 28, 2019, we distributed to holders of our common stock one nontransferable subscription right to purchase 0.986896 common shares for each common share held as of 5:00 p.m., New York City time, on June 27, 2019 at a subscription price of $0.30 per whole share of common stock (the "2019 Rights Offering"). The 2019 Rights Offering expired at 5:00 p.m., New York City time, on July 18, 2019, and settled on July 23, 2019. The Company did not issue fractional rights or pay cash in lieu of fractional rights. The 2019 Rights Offering did not include an oversubscription privilege.

The 2019 Rights Offering resulted in the issuance of 13.9 million common shares as a result of the exercise of subscription rights in the offering. Gross proceeds from the 2019 Rights Offering were $41.8 million, $10.3 million which was used to fully repay Tranche A-2 of the Last Out Term Loans and the remaining $31.5 million was used to reduce outstanding borrowings under Tranche A-3 of the Last Out Term Loans. Concurrently with the closing of the 2019 Rights Offering, and in satisfaction of the Backstop Commitment, the Company issued an aggregate of 2.7 million common shares in exchange for a portion of the Tranche A-3 Last Out Term Loans totaling $8.2 million, to B. Riley, a related party, as described in Note 20. The 2019 Rights Offering was pursuant to the April 5, 2019 Letter Agreement and the Equitization Transactions and was approved by stockholders at the Company's annual stockholder meeting on June 14, 2019.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

For a summary of the critical accounting policies and estimates that we use in the preparation of our unaudited Condensed Consolidated Financial Statements, see "Critical Accounting Policies and Estimates" in our Annual Report. There have been no significant changes to our policies during the nine months ended September 30, 2020.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Our exposures to market risks have not changed materially from those disclosed under "Quantitative and Qualitative Disclosures About Market Risk" in our Annual Report on Form 10-K for the year ended December 31, 2019 except for those described below.

In December 2019, a novel strain of coronavirus, COVID-19, was identified in Wuhan, China and has subsequently spread globally. This global pandemic has disrupted business operations, trade, commerce, financial and credit markets, and daily life throughout the world. Our business has been adversely impacted by the measures taken by local governments and others

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to control the spread of this virus. The resulting uncertainty concerning, among other things, the spread and economic impact of the virus has also caused significant volatility and, at times, illiquidity in global equity and credit markets.

This outbreak, and any outbreak of a contagious disease or any other adverse public health developments in countries where we operate, could have material and adverse effects on our business, financial condition and results of operations. In addition, any outbreak may result in a widespread health crisis that could adversely affect the economies and financial markets of many countries, resulting in an economic downturn or recession that could affect demand for our products or our ability to obtain financing for our business or projects.

The ultimate effect of the COVID-19 outbreak or any other outbreak on our business, financial condition and operations will depend heavily on the future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the outbreak, new information that may emerge concerning the severity of the virus and the actions taken to contain the virus or treat its impact, among others. In particular, the actual and threatened spread of the virus could have a material adverse effect on the global economy, could continue to negatively impact financial markets, including the trading price of our common stock, and could cause continued interest rate volatility and movements that could make obtaining financing or refinancing our debt obligations more challenging or more expensive. Any of these developments could have a material adverse effect on our business, liquidity, capital resources and financial results and may result in our inability to continue operating as a going concern or require us to reorganize our company in its entirety, including through bankruptcy proceedings.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

As of the end of the period covered by this report, the Company's management, with the participation of our Chief Executive Officer and the Chief Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended (the "Exchange Act")). Our disclosure controls and procedures, by their nature, can provide only reasonable assurance regarding the control objectives. It should be noted that the design of any system of disclosure controls and procedures is based in part upon various assumptions about the likelihood of future events, and we cannot assure that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

Based on the evaluation referred to above, our Chief Executive Officer and Chief Financial Officer concluded that the design and operation of our disclosure controls and procedures are effective as of September 30, 2020 to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and such information is accumulated and communicated to management as appropriate to allow timely decisions regarding disclosure.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the three months ended September 30, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We have not experienced any material impact to our internal controls over financial reporting, despite the fact that some of our team members are working remotely in response to the COVID-19 pandemic. We are continually monitoring and assessing the COVID-19 situation on our internal controls to ensure their operating effectiveness.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

For information regarding ongoing investigations and litigation, see Note 17 to the unaudited Condensed Consolidated Financial Statements in Part I of this report, which we incorporate by reference into this Item.

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Item 1A. Risk Factors

We are subject to various risks and uncertainties in the course of our business. The discussion of such risks and uncertainties may be found under "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and
in our Quarterly Report on Form 10-Q for the quarter ended September 30, 2020. There have been no material changes to such risk factors.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

In accordance with the provisions of the employee benefit plans, the Company acquired the following shares in connection with the vesting of employee restricted stock that require us to 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 September 30, 2020. The Company does not have a general share repurchase program at this time.
(data in whole amounts)    
Period
Total number of shares acquired (1)
Average price per shareTotal number of shares purchased as part of publicly announced plans or programsApproximate dollar value of shares that may yet be purchased under the plans or programs
July 2020
$

$
August 202096,718
$2.77

$
September 2020108
$4.30

$
Total96,826
$

$
(1) Acquired shares are recorded in treasury stock in our Condensed Consolidated Balance Sheets.


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Item 6. Exhibits
   
 
Form of 2021 Long-Term Cash Incentive Award Grant Agreement



   
 Amendment No. 1 to Amended and Restated Credit Agreement, dated as of October 30, 2020, among Babcock & Wilcox Enterprises, Inc., as the borrower, Bank of America, N.A., as Administrative Agent, and the other lenders party thereto (incorporated by reference to Exhibit 10.1 of the Babcock & Wilcox Enterprises, Inc. Current Report on Form 8-K filed November 5, 2020 (File No. 001-36876)).
   
 
Second Amendment to Executive Services Agreement between Babcock & Wilcox Enterprises, Inc. and BRPI Executive Consulting, LLC dated November 9, 2020 (incorporated by reference to Exhibit 10.1 of the Babcock & Wilcox Enterprises, Inc. Current Report on Form 8-K filed November 10, 2020 (File No. 001-36876)).

   
 Third Amendment to Executive Employment Agreement between Babcock & Wilcox Enterprises, Inc. and Henry Bartoli dated November 5, 2020  (incorporated by reference to Exhibit 10.2 of the Babcock & Wilcox Enterprises, Inc. Current Report on Form 8-K filed November 10, 2020 (File No. 001-36876)).
   
 
Consultant Agreement by and between The Babcock & Wilcox Company Inc. and Henry Bartoli effective as of January 1, 2021  (incorporated by reference to Exhibit 10.3 of the Babcock & Wilcox Enterprises, Inc. Current Report on Form 8-K filed November 10, 2020 (File No. 001-36876)).

   
 Rule 13a-14(a)/15d-14(a) certification of Chief Executive Officer.
  
 Rule 13a-14(a)/15d-14(a) certification of Chief Financial Officer.
  
 Section 1350 certification of Chief Executive Officer.
  
 Section 1350 certification of Chief Financial Officer.
  
101.INS XBRL Instance Document.
  
101.SCH XBRL Taxonomy Extension Schema Document.
  
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document.
  
101.LAB XBRL Taxonomy Extension Label Linkbase Document.
  
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document.
   
101.DEF XBRL Taxonomy Extension Definition Linkbase Document.
   



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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

  BABCOCK & WILCOX ENTERPRISES, INC.
   
November 13, 2020By:/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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