Babcock & Wilcox(BW) - 2021 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION This section provides a comprehensive overview of the company's financial performance and position, including detailed statements, notes, and management's analysis for the reported periods Item 1. Condensed Consolidated Financial Statements This section presents the unaudited condensed consolidated financial statements, including statements of operations, comprehensive income (loss), balance sheets, stockholders' equity (deficit), and cash flows, along with detailed notes explaining the accounting policies and significant financial events for the periods ended September 30, 2021 and 2020 Condensed Consolidated Statements of Operations Revenues | Period | 2021 (in thousands) | 2020 (in thousands) | Change (YoY) | | :----- | :------------------ | :------------------ | :----------- | | 3 months ended Sep 30 | $159,960 | $132,513 | +$27,447 (+20.7%) | | 9 months ended Sep 30 | $531,068 | $416,464 | +$114,604 (+27.5%) | Operating Income (Loss) | Period | 2021 (in thousands) | 2020 (in thousands) | Change (YoY) | | :----- | :------------------ | :------------------ | :----------- | | 3 months ended Sep 30 | $14,761 | $14,074 | +$687 (+4.9%) | | 9 months ended Sep 30 | $11,083 | $(3,927) | +$15,010 | Net Income (Loss) Attributable to Stockholders of Common Stock | Period | 2021 (in thousands) | 2020 (in thousands) | Change (YoY) | | :----- | :------------------ | :------------------ | :----------- | | 3 months ended Sep 30 | $9,962 | $34,724 | -$24,762 (-71.3%) | | 9 months ended Sep 30 | $(4,107) | $(14,906) | +$10,799 | Diluted Earnings (Loss) Per Share (Continuing Operations) | Period | 2021 | 2020 | Change (YoY) | | :----- | :--- | :--- | :----------- | | 3 months ended Sep 30 | $0.11 | $0.69 | -$0.58 (-84.1%) | | 9 months ended Sep 30 | $(0.05) | $(0.35) | +$0.30 | Condensed Consolidated Statements of Comprehensive Income (Loss) Net Income (Loss) | Period | 2021 (in thousands) | 2020 (in thousands) | Change (YoY) | | :----- | :------------------ | :------------------ | :----------- | | 3 months ended Sep 30 | $13,648 | $34,555 | -$20,907 (-60.5%) | | 9 months ended Sep 30 | $1,346 | $(15,313) | +$16,659 | Total Comprehensive Income (Loss) | Period | 2021 (in thousands) | 2020 (in thousands) | Change (YoY) | | :----- | :------------------ | :------------------ | :----------- | | 3 months ended Sep 30 | $12,553 | $11,393 | +$1,160 (+10.2%) | | 9 months ended Sep 30 | $(5,413) | $(40,682) | +$35,269 | Condensed Consolidated Balance Sheets Total Assets | Date | Amount (in thousands) | | :--- | :-------------------- | | Sep 30, 2021 | $729,358 | | Dec 31, 2020 | $591,792 | Total Liabilities | Date | Amount (in thousands) | | :--- | :-------------------- | | Sep 30, 2021 | $708,958 | | Dec 31, 2020 | $930,054 | Total Stockholders' Equity (Deficit) | Date | Amount (in thousands) | | :--- | :-------------------- | | Sep 30, 2021 | $20,400 | | Dec 31, 2020 | $(338,262) | Cash, cash equivalents and restricted cash | Date | Amount (in thousands) | | :--- | :-------------------- | | Sep 30, 2021 | $115,747 | | Dec 31, 2020 | $67,423 | Condensed Consolidated Statement of Stockholders' Equity (Deficit) - The balance of stockholders' equity (deficit) significantly improved from $(338,262) thousand at December 31, 2020, to $20,400 thousand at September 30, 2021[24] - Key changes in stockholders' equity for the nine months ended September 30, 2021, included a common stock offering (net) of $161,513 thousand, a preferred stock offering (net) of $106,043 thousand, and an equitized Last Out Term Loan principal payment of $72,922 thousand[24] - The acquisition of Fosler Construction contributed $22,262 thousand to non-controlling interest[24] Condensed Consolidated Statements of Cash Flows Net Cash Used in Operating Activities | Period | 2021 (in thousands) | 2020 (in thousands) | Change (YoY) | | :----- | :------------------ | :------------------ | :----------- | | 9 months ended Sep 30 | $(107,834) | $(67,296) | -$40,538 (-60.2%) | Net Cash (Used in) From Investing Activities | Period | 2021 (in thousands) | 2020 (in thousands) | Change (YoY) | | :----- | :------------------ | :------------------ | :----------- | | 9 months ended Sep 30 | $(5,878) | $1,958 | -$7,836 | Net Cash From Financing Activities | Period | 2021 (in thousands) | 2020 (in thousands) | Change (YoY) | | :----- | :------------------ | :------------------ | :----------- | | 9 months ended Sep 30 | $159,218 | $52,377 | +$106,841 (+204.0%) | Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash | Period | 2021 (in thousands) | 2020 (in thousands) | Change (YoY) | | :----- | :------------------ | :------------------ | :----------- | | 9 months ended Sep 30 | $48,324 | $(8,572) | +$56,896 | Notes to Condensed Consolidated Financial Statements NOTE 1 – BASIS OF PRESENTATION - The COVID-19 pandemic has significantly disrupted global business operations, supply chains, and project timelines, leading to delays in anticipated projects from 2020 into late 2021 and beyond[35][36][37] - The company incurred additional costs to protect employees and advised remote work, contributing to uncertainty regarding the virus's full impact on operational and financial performance[37] NOTE 2 – EARNINGS PER SHARE Basic Earnings (Loss) Per Share (Continuing Operations) | Period | 2021 | 2020 | | :----- | :--- | :--- | | 3 months ended Sep 30 | $0.12 | $0.70 | | 9 months ended Sep 30 | $(0.05) | $(0.35) | Diluted Earnings (Loss) Per Share (Continuing Operations) | Period | 2021 | 2020 | | :----- | :--- | :--- | | 3 months ended Sep 30 | $0.11 | $0.69 | | 9 months ended Sep 30 | $(0.05) | $(0.35) | - Due to net losses in the nine months ended September 30, 2021 and 2020, basic and diluted shares were the same, and anti-dilutive stock options were excluded from diluted share calculations[39][41] NOTE 3 – SEGMENT REPORTING - B&W operates through three market-facing segments: Babcock & Wilcox Renewable (waste-to-energy, biomass), Babcock & Wilcox Environmental (emissions control, environmental technology), and Babcock & Wilcox Thermal (steam generation equipment, aftermarket services)[42][44] Segment Revenues (in thousands) | Segment | 3 months ended Sep 30, 2021 | 3 months ended Sep 30, 2020 | 9 months ended Sep 30, 2021 | 9 months ended Sep 30, 2020 | | :------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | B&W Renewable | $38,000 | $39,062 | $105,155 | $118,570 | | B&W Environmental | $38,249 | $25,262 | $97,767 | $76,354 | | B&W Thermal | $83,819 | $70,025 | $328,416 | $223,920 | | Total Revenues | $159,960 | $132,513 | $531,068 | $416,464 | Segment Adjusted EBITDA (in thousands) | Segment | 3 months ended Sep 30, 2021 | 3 months ended Sep 30, 2020 | 9 months ended Sep 30, 2021 | 9 months ended Sep 30, 2020 | | :------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | B&W Renewable | $11,399 | $23,575 | $15,030 | $22,003 | | B&W Environmental | $3,471 | $2,177 | $7,270 | $1,408 | | B&W Thermal | $9,205 | $7,287 | $32,066 | $22,879 | NOTE 4 – REVENUE RECOGNITION AND CONTRACTS - Revenue from customized, engineered solutions and construction services (transferred over time) accounted for 79% and 80% of total revenue for the three and nine months ended September 30, 2021, respectively[53] - Total backlog (remaining performance obligations) was $540.0 million as of September 30, 2021, with approximately 29.1% expected to be recognized in the remainder of 2021, 32.6% in 2022, and 38.3% thereafter[56] - A non-recurring loss recovery of $26.0 million was recognized in Q3 2020 from an insurer for European B&W Renewable EPC loss contracts, and a reduction of cost of operations was recognized in Q3 2021 due to a subcontractor offer related to these contracts[61][62] Net Contract Balance (in thousands) | Date | Amount | | :--- | :----- | | Sep 30, 2021 | $23,827 | | Sep 30, 2020 | $(4,694) | | Change | +$28,521 (+608%) | NOTE 5 – INVENTORIES Total Inventories (in thousands) | Date | Amount | | :--- | :----- | | Sep 30, 2021 | $72,999 | | Dec 31, 2020 | $67,161 | - Raw materials and supplies increased from $46,659 thousand at December 31, 2020, to $49,356 thousand at September 30, 2021[67] - Finished goods increased from $12,307 thousand at December 31, 2020, to $17,072 thousand at September 30, 2021[67] NOTE 6 – PROPERTY, PLANT & EQUIPMENT, & FINANCE LEASE Net Property, Plant and Equipment, and Finance Lease (in thousands) | Date | Amount | | :--- | :----- | | Sep 30, 2021 | $109,918 | | Dec 31, 2020 | $85,078 | - Property under construction significantly increased from $5,336 thousand at December 31, 2020, to $11,224 thousand at September 30, 2021[68] - Finance lease assets increased from $30,551 thousand at December 31, 2020, to $57,393 thousand at September 30, 2021[68] NOTE 7 - GOODWILL Goodwill Balance (in thousands) | Date | Amount | | :--- | :----- | | Sep 30, 2021 | $90,548 | | Dec 31, 2020 | $47,363 | - Goodwill increased by $43,230 thousand primarily due to the acquisition of Fosler Construction Company Inc. on September 30, 2021[69] - No impairment indicators were identified during the three months ended September 30, 2021, and goodwill is tested for impairment annually[69] NOTE 8 – INTANGIBLE ASSETS Total Intangible Assets, Net (in thousands) | Date | Amount | | :--- | :----- | | Sep 30, 2021 | $37,528 | | Dec 31, 2020 | $23,908 | - Business acquisitions and adjustments contributed $17,100 thousand to intangible assets in the nine months ended September 30, 2021[71] - Estimated future intangible asset amortization expense for the year ending December 31, 2022, is $5,633 thousand[73] NOTE 9 – LEASES - The company executed leaseback agreements for its Copley, Ohio, and Lancaster, Ohio, locations after their sales, classifying them as finance leases with total future minimum payments of approximately $5.6 million and $36.6 million, respectively[74][75] - The acquisition of Fosler Construction included two operating leases and one finance lease, with total future minimum payments of approximately $1.5 million for each type[76] Total Lease Liabilities (in thousands) | Date | Amount | | :--- | :----- | | Sep 30, 2021 | $65,777 | | Dec 31, 2020 | $41,602 | - Weighted-average remaining lease terms as of September 30, 2021, were 3.7 years for operating leases and 15.3 years for finance leases[79] NOTE 10 – ACCRUED WARRANTY EXPENSE Accrued Warranty Expense Balance (in thousands) | Date | Amount | | :--- | :----- | | Sep 30, 2021 | $15,210 | | Dec 31, 2020 | $25,399 | - Additions to accrued warranty expense were $5,155 thousand for the nine months ended September 30, 2021, compared to $4,508 thousand in the prior year[82] - Payments for warranty claims totaled $10,212 thousand for the nine months ended September 30, 2021, compared to $8,410 thousand in the prior year[82] NOTE 11 – RESTRUCTURING ACTIVITIES Restructuring Expense (in thousands) | Period | 2021 | 2020 | | :----- | :--- | :--- | | 3 months ended Sep 30 | $4,575 | $2,396 | | 9 months ended Sep 30 | $7,968 | $6,739 | - Restructuring charges primarily consisted of severance and business service transition costs related to strategic initiatives and actions taken to address the impact of COVID-19[85][87] - Cumulative restructuring costs to date reached $48,282 thousand, with accrued restructuring liabilities at $7,038 thousand as of September 30, 2021[86] NOTE 12 – PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS - Total mark-to-market (MTM) adjustments for pension benefit plans resulted in gains of $2.3 million for both the three and nine months ended September 30, 2021[88] - Contributions to pension and other postretirement benefit plans totaled $24.7 million for the nine months ended September 30, 2021, a significant increase from $1.6 million in the prior year[89] - The company elected to defer $20.9 million of estimated 2021 Pension Plan contribution payments under the American Rescue Plan Act of 2021[90] NOTE 13 – 2021 SENIOR NOTES OFFERING - Completed a public offering of $125.0 million aggregate principal amount of 8.125% senior notes due 2026 in February 2021, yielding approximately $120.0 million in net proceeds[91] - Issued an additional $35.0 million of Senior Notes to B. Riley Financial, Inc. in exchange for a deemed prepayment of an existing Last Out Term Loan[92] - Sold an additional $25.6 million aggregate principal amount of Senior Notes under a sales agreement, generating $26.0 million in net proceeds, with the notes bearing 8.125% interest per annum, payable quarterly, and maturing on February 28, 2026[93][95] NOTE 14 – LAST OUT TERM LOANS - As of June 30, 2021, the company has no remaining Last Out Term Loans, and no further borrowings are available under these facilities[96] - Payments in cash for Last Out Term Loans totaled $75,408 thousand for the nine months ended September 30, 2021[96] - An equitized deemed prepayment from preferred stock issuance accounted for $72,922 thousand of the reduction in Last Out Term Loans[96] NOTE 15 – REVOLVING DEBT - On June 30, 2021, the company entered into a new Revolving Credit Agreement for up to $50.0 million and a Letter of Credit Agreement for up to $110 million, both maturing on June 30, 2025[97][98] - B. Riley Financial, Inc., a related party, provided a guaranty of payment for the company's obligations under the Reimbursement Agreement, for which the company pays B. Riley $0.9 million per annum[103] - The previous A&R Credit Agreement was terminated on June 30, 2021, resulting in a $6.5 million gain on debt extinguishment[104] - Aggregate value of letters of credit and bank guarantees was $53.1 million, and surety bonds totaled $157.6 million as of September 30, 2021[105][107] NOTE 16 – PREFERRED STOCK - Completed a public offering of 4,000,000 shares of 7.75% Series A Cumulative Perpetual Preferred Stock in May 2021, generating approximately $95.7 million in net proceeds, with an additional 444,700 shares sold for $10.7 million net proceeds[110][111] - The Preferred Stock has a cumulative cash dividend of 7.75% per year ($1.9375 per share), payable quarterly, with dividends of $1.7 million and $3.7 million paid in June and September 2021, respectively[113][115][116] - Issued 2,916,880 shares of Preferred Stock to B. Riley in exchange for a deemed prepayment of $73.3 million of existing term loans[117] NOTE 17 – COMMON STOCK - Completed a public offering of 29,487,180 shares of common stock in February 2021, generating approximately $163.0 million in net proceeds, which were used to prepay the U.S. Revolving Credit Facility and reduce commitments[120][121] - Stockholders approved the 2021 Long-Term Incentive Plan, authorizing 1,250,000 new shares plus certain unissued shares from the prior 2015 Plan[122] NOTE 18 –INTEREST EXPENSE AND SUPPLEMENTAL CASH FLOW INFORMATION Total Interest Expense (in thousands) | Period | 2021 | 2020 | | :----- | :--- | :--- | | 3 months ended Sep 30 | $8,330 | $12,203 | | 9 months ended Sep 30 | $30,574 | $49,776 | - Cash, cash equivalents, and restricted cash increased from $67,423 thousand at December 31, 2020, to $115,747 thousand at September 30, 2021[126] - Total cash paid for interest was $18,800 thousand for the nine months ended September 30, 2021, compared to $14,420 thousand in the prior year[128] NOTE 19 – PROVISION FOR INCOME TAXES Income Tax Expense (Benefit) and Effective Tax Rate | Period | Income Tax Expense (Benefit) (in thousands) | Effective Tax Rate | | :----- | :---------------------------------------- | :----------------- | | 3 months ended Sep 30, 2021 | $301 | 2.2% | | 3 months ended Sep 30, 2020 | $(502) | (1.5)% | | 9 months ended Sep 30, 2021 | $6,683 | 83.2% | | 9 months ended Sep 30, 2020 | $(467) | 2.7% | - The effective tax rates are not reflective of the U.S. statutory rate primarily due to valuation allowances against certain net deferred tax assets and discrete items[131][262] - The company adopted ASU 2019-12, Simplifying the Accounting for Income Taxes, on January 1, 2021, with an immaterial impact on its interim consolidated financial statements[181][183][264] NOTE 20 – CONTINGENCIES - In the Glatfelter Litigation, the court dismissed fraud and negligent misrepresentation claims and limited potential damages to a contractual cap of $11.7 million, with the company intending to vigorously litigate its counterclaim[133] - The SEC investigation into the company's B&W Renewable segment accounting charges from 2015-2019 has concluded, with the staff not intending to recommend any enforcement action[136] - In the Stockholder Derivative and Class Action Litigation, the company believes the outcome will not have a material adverse impact on its financial condition, results of operations, or cash flows, net of any insurance coverage[137] NOTE 21 – COMPREHENSIVE INCOME - The balance of Accumulated Other Comprehensive Income (Loss) (AOCI) was $(59,149) thousand at September 30, 2021, compared to $(52,390) thousand at December 31, 2020[139] - Net other comprehensive loss for the nine months ended September 30, 2021, was $(4,384) thousand[139] - A reclassification of currency translation adjustment of $4,512 thousand was made to net income (loss) with the sale of a business for the nine months ended September 30, 2021[141] NOTE 22 – FAIR VALUE MEASUREMENTS - The total fair value of available-for-sale securities was $13,551 thousand at September 30, 2021, primarily comprising corporate notes and bonds ($8,719 thousand) and United States Government and agency securities ($4,131 thousand)[142] - The fair value of the 8.125% Senior Notes due 2026 was estimated at $194,211 thousand, compared to a carrying value of $185,599 thousand, as of September 30, 2021[147] - The fair value of warrants was established using the Black-Scholes option pricing model, and the Fosler Construction acquisition involved significant fair value measurements using unobservable (Level 3) inputs[148][149] NOTE 23 – RELATED PARTY TRANSACTIONS - B. Riley beneficially owns 30.3% of the company's outstanding common stock as of September 30, 2021, and is involved in various transactions[150] - The company paid B. Riley Securities, Inc. $5.2 million and $9.5 million for underwriting fees related to Senior Notes and common stock offerings, respectively, in February 2021[156][157] - The company issued $35.0 million of Senior Notes to B. Riley in exchange for a deemed prepayment of an existing term loan and issued 2,916,880 shares of Preferred Stock to B. Riley for a deemed prepayment of $73.3 million of Last Out Term Loans[158][162] - The company pays B. Riley $0.9 million per annum for a guaranty of payment related to the Reimbursement Agreement[163] NOTE 24 – ACQUISITIONS, ASSETS HELD FOR SALE, DIVESTITURES AND DISCONTINUED OPERATIONS - On September 30, 2021, the company acquired a 60% controlling ownership stake in Fosler Construction Company Inc., a solar energy contractor, for approximately $27.2 million in cash plus contingent consideration (preliminarily valued at $6.2 million, maximum $10.0 million)[168][169] - The company sold real property assets in Copley, Ohio, for $4.0 million (net proceeds $3.3 million, gain $1.9 million) and Lancaster, Ohio, for $18.9 million (net proceeds $15.8 million, gain $13.9 million), both with leaseback agreements[173][174] - The company sold Diamond Power Machine (Hubei) Co., Inc. for $2.8 million, recognizing a $2.2 million pre-tax loss, which included a $4.5 million currency translation adjustment[178] NOTE 25 – NEW ACCOUNTING STANDARDS - The company adopted ASU 2019-12, Simplifying the Accounting for Income Taxes, on January 1, 2021, with an immaterial impact on its financial statements[181][183] - The company is currently evaluating the impact of ASU 2021-04 (Earnings Per Share), ASU 2021-01 (Reference Rate Reform), and ASU 2020-06 (Debt with Conversion and Other Options) on its condensed consolidated financial statements, with effective dates ranging from fiscal years beginning after December 15, 2021, to December 15, 2023[184][185][186] - The company is also evaluating ASU 2018-19 (Credit Losses), effective for smaller reporting companies after December 15, 2022, which will primarily impact the allowance for doubtful accounts and impairment model for available-for-sale debt securities[189] NOTE 26 – PROPOSED ACQUISITION - The company announced its intention to acquire 100% of VODA A/S, a leading multi-brand aftermarket parts and service provider for waste-to-energy and biomass-to-energy markets in Denmark, for approximately $30.0 million[190] - The planned acquisition of VODA A/S aligns with B&W's aggressive growth and expansion of its clean and renewable energy businesses[191] - The acquisition is expected to close by the end of December 2021, subject to customary closing conditions, including Foreign Direct Investment clearance in Denmark[192] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation This section provides management's perspective on the company's financial condition and results of operations, discussing overall performance, segment-specific results, liquidity, capital resources, and critical accounting policies. It highlights revenue growth, improved operating income, and strategic initiatives like acquisitions and cost reductions OVERVIEW OF RESULTS - B&W is a growing, globally-focused provider of renewable, environmental, and thermal technologies, with its business significantly dependent on capital and O&M expenditures in global electric power generation and industrial facilities[193][196] - The company acquired a 60% controlling ownership stake in Fosler Construction Company Inc., a solar energy contractor, on September 30, 2021, to expand its clean and renewable energy businesses[194] - Operating income increased to $14.8 million and $11.1 million for the three and nine months ended September 30, 2021, respectively, showing improved results in the Environmental and Thermal segments[198] - Ongoing restructuring efforts aim to make the cost structure more variable and reduce costs, with additional initiatives underway to improve cash generation and evaluate non-core asset sales[202][203] RESULTS OF OPERATIONS Condensed Consolidated Results of Operations Consolidated Revenues (in thousands) | Period | 2021 | 2020 | $ Change | | :----- | :--- | :--- | :------- | | 3 months ended Sep 30 | $159,960 | $132,513 | $27,447 | | 9 months ended Sep 30 | $531,068 | $416,464 | $114,604 | - Consolidated revenues increased by $27.4 million (20.7%) for the three months and $114.6 million (27.5%) for the nine months ended September 30, 2021, primarily due to higher activity in the Thermal and Environmental segments[212][214] - Operating income increased by $0.7 million for the three months and $15.0 million for the nine months ended September 30, 2021, partially offset by a non-recurring $26.0 million loss recovery recognized in Q3 2020[213][215] Adjusted Gross Profit (in thousands) | Period | 2021 | 2020 | $ Change | | :----- | :--- | :--- | :------- | | 3 months ended Sep 30 | $46,558 | $59,589 | $(13,031) | | 9 months ended Sep 30 | $130,537 | $128,817 | $1,720 | B&W Renewable Segment Results B&W Renewable Segment Revenues (in thousands) | Period | 2021 | 2020 | $ Change | | :----- | :--- | :--- | :------- | | 3 months ended Sep 30 | $38,000 | $39,062 | $(1,062) | | 9 months ended Sep 30 | $105,155 | $118,570 | $(13,415) | B&W Renewable Segment Adjusted EBITDA (in thousands) | Period | 2021 | 2020 | $ Change | | :----- | :--- | :--- | :------- | | 3 months ended Sep 30 | $11,399 | $23,575 | $(12,176) | | 9 months ended Sep 30 | $15,030 | $22,003 | $(6,973) | - The decrease in revenues, Adjusted EBITDA, and Adjusted Gross Profit was primarily due to the completion of large service and licensing projects in the prior year and the non-recurring $26.0 million loss recovery recognized in Q3 2020[221][222][224][225][226][227] B&W Environmental Segment Results B&W Environmental Segment Revenues (in thousands) | Period | 2021 | 2020 | $ Change | | :----- | :--- | :--- | :------- | | 3 months ended Sep 30 | $38,249 | $25,262 | $12,987 | | 9 months ended Sep 30 | $97,767 | $76,354 | $21,413 | B&W Environmental Segment Adjusted EBITDA (in thousands) | Period | 2021 | 2020 | $ Change | | :----- | :--- | :--- | :------- | | 3 months ended Sep 30 | $3,471 | $2,177 | $1,294 | | 9 months ended Sep 30 | $7,270 | $1,408 | $5,862 | - Revenue and Adjusted EBITDA increases were primarily driven by higher volume in the ASH project business and the release of projects previously postponed due to COVID-19[229][231] - Adjusted EBITDA for the nine months ended September 30, 2021, benefited from a $0.4 million improvement on loss contracts, compared to a $1.3 million charge in the prior period[233] B&W Thermal Segment Results B&W Thermal Segment Revenues (in thousands) | Period | 2021 | 2020 | $ Change | | :----- | :--- | :--- | :------- | | 3 months ended Sep 30 | $83,819 | $70,025 | $13,794 | | 9 months ended Sep 30 | $328,416 | $223,920 | $104,496 | B&W Thermal Segment Adjusted EBITDA (in thousands) | Period | 2021 | 2020 | $ Change | | :----- | :--- | :--- | :------- | | 3 months ended Sep 30 | $9,205 | $7,287 | $1,918 | | 9 months ended Sep 30 | $32,066 | $22,879 | $9,187 | - Revenue increases were attributable to a higher level of activity in project business, parts, construction, package boilers, and international service orders, which were negatively impacted by COVID-19 in the comparable prior year period[238] - Adjusted EBITDA increase was mainly due to higher volume, partially offset by product mix, increased expenses from growth in Asia and the Middle East, and higher shared resources[239] Bookings and Backlog Total Bookings (in approximate millions) | Period | 2021 | 2020 | Change (YoY) | | :----- | :--- | :--- | :----------- | | 3 months ended Sep 30 | $173 | $177 | -$4 (-2.3%) | | 9 months ended Sep 30 | $510 | $478 | +$32 (+6.7%) | Total Backlog (in approximate millions) | Date | Amount | | :--- | :----- | | Sep 30, 2021 | $540 | | Sep 30, 2020 | $509 | - B&W Renewable backlog at September 30, 2021, included $152.8 million related to long-term operation and maintenance contracts for renewable energy plants[245] - Expected revenue from backlog is $157 million for the remainder of 2021, $176 million for 2022, and $207 million thereafter[246] Corporate - Corporate costs in Adjusted EBITDA increased by $1.0 million to $5.9 million for the three months ended September 30, 2021, primarily due to higher incentive compensation costs[248] - Corporate costs decreased by $1.3 million to $11.5 million for the nine months ended September 30, 2021, primarily due to lower audit fees, personnel, director fees, and insurance costs, offset by higher incentive compensation[249] Advisory Fees and Settlement Costs - Advisory fees and settlement costs decreased by $2.0 million to $1.8 million for the three months ended September 30, 2021, and by $0.4 million to $9.7 million for the nine months ended September 30, 2021[250] - The decrease is primarily attributed to reduced use of external consultants during the periods[250] Research and Development - Research and development (benefit) expenses totaled $(0.2) million for the three months ended September 30, 2021, due to a $0.8 million foreign refundable credit from the 2020 tax year[251] - Research and development expenses totaled $1.0 million for the nine months ended September 30, 2021, a decrease from $3.9 million in the prior year, primarily due to the timing of specific R&D efforts[251] - R&D activities are focused on improving products, reducing costs, and mitigating performance risk[251] Restructuring - Restructuring charges amounted to $4.6 million for the three months and $8.0 million for the nine months ended September 30, 2021[252] - These charges primarily consist of severance and business service transition costs, incurred as part of the company's strategic, market-focused organizational and re-branding initiative[252] Depreciation and Amortization - Depreciation expense was $2.3 million for the three months and $7.4 million for the nine months ended September 30, 2021[253] - Amortization expense was $2.1 million for the three months and $5.5 million for the nine months ended September 30, 2021[253] Pension and Other Postretirement Benefit Plans - Pension benefits before MTM were $7.6 million for the three months and $22.6 million for the nine months ended September 30, 2021[254] - Total MTM adjustments for pension benefit plans resulted in gains of $2.3 million for both the three and nine months ended September 30, 2021[256] - Pension costs and funding requirements are highly dependent on financial market performance (equity markets, interest rates) and actuarial assumptions, with potential for volatility in results of operations[258] Foreign Exchange - Foreign exchange resulted in a loss of $(1.7) million for the three months and $(1.1) million for the nine months ended September 30, 2021[260] - These foreign exchange gains and losses are primarily related to unhedged intercompany loans denominated in European currencies used to fund foreign operations[260] Income Taxes Income Tax Expense (Benefit) and Effective Tax Rate | Period | Income Tax Expense (Benefit) (in thousands) | Effective Tax Rate | | :----- | :---------------------------------------- | :----------------- | | 3 months ended Sep 30, 2021 | $301 | 2.2% | | 3 months ended Sep 30, 2020 | $(502) | (1.5)% | | 9 months ended Sep 30, 2021 | $6,683 | 83.2% | | 9 months ended Sep 30, 2020 | $(467) | 2.7% | - The effective tax rate for the third quarter of 2021 is not reflective of the United States statutory rate primarily due to a valuation allowance against certain net deferred tax assets and favorable discrete items[262] - The U.S. was considered a non-loss jurisdiction and included in the estimated annual effective tax rate for the period ended September 30, 2021[262] Liquidity and Capital Resources Liquidity - Primary liquidity requirements include debt service, funding dividends on preferred stock, and working capital needs, funded by cash from operations, external financing (Revolving Credit Agreement, Senior Notes, equity offerings), and asset sales[265][266] - The company implemented cash conservation measures, including suspending its 401(k) company match (reinstating January 1, 2022), utilizing government loans, and deferring $20.9 million of estimated Pension Plan contribution payments[268] Cash and Cash Flows - Unrestricted cash and cash equivalents totaled $107.1 million at September 30, 2021, with $39.2 million held by foreign entities, and total debt was $193.1 million[269] - Cash used in operations was $107.8 million for the nine months ended September 30, 2021, primarily due to changes in pension, postretirement, and employee benefit liabilities and a net decrease in operating cash outflows associated with working capital[270] - Cash flows from investing activities used $5.9 million, mainly for the Fosler Construction acquisition and capital expenditures, offset by proceeds from asset sales[271] - Cash flows from financing activities provided $159.2 million, primarily from the issuance of common stock, Senior Notes, and Preferred Stock, offset by Last Out Term Loans repayments and a net reduction on the prior U.S. Revolving Credit Facility[272] Debt Facilities - The company entered into new Debt Facilities on June 30, 2021, including a Revolving Credit Agreement and a Letter of Credit Agreement, guaranteed by certain subsidiaries and B. Riley, for working capital and general corporate purposes[273] - The new facilities replaced the previous A&R Credit Agreement, which was terminated, with all loans repaid and outstanding letters of credit collateralized on June 30, 2021[275] Last Out Term Loans - As of June 30, 2021, the company has no remaining Last Out Term Loans, and no further borrowings are available under these facilities[276] - A $6.2 million loss on debt extinguishment was recognized 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[277] A&R Credit Agreement - The A&R Credit Agreement commitments were terminated, all loans were repaid, and all outstanding and undrawn letters of credit were collateralized on June 30, 2021[278] - The company recognized a $6.5 million gain on debt extinguishment in the quarter ended June 30, 2021, primarily from the write-off of accrued revolver fees offset by unamortized deferred financing fees[278] Letters of Credit, Bank Guarantees and Surety Bonds - The aggregate value of letters of credit and bank guarantees was $53.1 million as of September 30, 2021[279] - Surety bonds supporting contractual obligations totaled approximately $157.6 million as of September 30, 2021[280] - Maintaining sufficient capacity under new Debt Facilities is essential to support future contract security requirements[281] Other Indebtedness - Loans Payable - The Denmark subsidiary received three unsecured interest-free loans totaling $3.4 million under a local government COVID-19 loan program, payable in April 2022, May 2022, and May 2023[282] - Fosler Construction, a recent acquisition, has two loans totaling $7.6 million (variable interest, minimum 6%, payable January 1, 2022) and $0.9 million in vehicle and equipment loans[283] Off-Balance Sheet Arrangements - The company does not have any off-balance sheet arrangements that are reasonably expected to have a material current or future effect on its financial condition, results of operations, liquidity, capital expenditures, or capital resources as of September 30, 2021[285] Critical Accounting Policies and Estimates - There have been no significant changes to the company's critical accounting policies and estimates during the nine months ended September 30, 2021, as detailed in its Annual Report[286] Item 3. Quantitative and Qualitative Disclosures about Market Risk This section states that the company's exposures to market risks have not materially changed from those disclosed in its Annual Report on Form 10-K for the year ended December 31, 2020 - The company's exposures to market risks have not materially changed from those disclosed in its Annual Report on Form 10-K for the year ended December 31, 2020[287] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of September 30, 2021, to provide reasonable assurance for financial reporting. The assessment excluded the recently acquired Fosler Construction, and no material changes to internal control over financial reporting were reported - The company's management, including the CEO and CFO, concluded that the design and operation of its disclosure controls and procedures are effective as of September 30, 2021[290] - The assessment of disclosure controls and procedures excluded internal control over financial reporting related to the recently acquired Fosler Construction, in accordance with SEC guidance[289] - There were no material changes in internal control over financial reporting during the nine months ended September 30, 2021, despite the impact of the COVID-19 pandemic on remote work[291] PART II - OTHER INFORMATION This section covers legal proceedings, risk factors, equity security sales, and a list of exhibits, providing additional context to the company's financial disclosures Item 1. Legal Proceedings This section incorporates by reference the information regarding ongoing investigations and litigation from Note 20 to the unaudited Condensed Consolidated Financial Statements - Information regarding ongoing investigations and litigation is incorporated by reference from Note 20 of the Condensed Consolidated Financial Statements[293] Item 1A. Risk Factors This section states that there have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended December 31, 2020, and subsequent Quarterly Reports on Form 10-Q - There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended December 31, 2020, and subsequent Quarterly Reports on Form 10-Q[294] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section reports the acquisition of common shares in connection with the vesting of employee restricted stock to satisfy statutory income tax withholding obligations, clarifying that the company does not have a general share repurchase program - The company acquired 198,609 shares of common stock at an average price of $7.82 per share during the quarter ended September 30, 2021, to satisfy employee statutory income tax withholding obligations related to restricted stock vesting[297] - The company does not have a general share repurchase program at this time[295] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications from the Chief Executive Officer and Chief Financial Officer, as well as XBRL Taxonomy Extension documents - The exhibits include Rule 13a-14(a)/15d-14(a) and Section 1350 certifications from the Chief Executive Officer and Chief Financial Officer[296] - XBRL Taxonomy Extension Schema, Calculation, Label, Presentation, and Definition Linkbase Documents, along with the Cover Page Interactive Data File, are also included as exhibits[296] SIGNATURES This section confirms the official signing of the report by the designated financial officer on behalf of the company - The report was duly signed on behalf of Babcock & Wilcox Enterprises, Inc. by Louis Salamone, Executive Vice President, Chief Financial Officer, and Chief Accounting Officer, on November 10, 2021[302]