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SUMMARY RISK FACTORS
Our business is subject to varying degrees of risk and uncertainty.Investors should consider the risks and uncertainties summarized below, as well as the risks and uncertainties discussed in Part I, Item 1A, “Risk Factors” of this Annual Report on Form 10-K. The summary below is provided for ease of reference, is not intended to reflect a complete explanation of relevant risks and uncertainties and should be read together with the more detailed description of these risks and uncertainties in Part I, Item 1A, “Risk Factors” of this Annual Report on Form 10-K. Additional risks not presently known to us or that we currently deem immaterial may also affect us.If any of these risks occur, our business, financial condition, results of operations or cash flows could be materially and adversely affected, and, as a result, the trading price for our common stock could decline.
Our business is subject to the following principal risks and uncertainties:
•Our business, financial condition and results of operations, and those of our customers, suppliers and vendors, have been, and could continue to be, adversely affected by COVID-19 outbreak and may be adversely affected by public health concerns and other similar outbreaks;
•We are subject to risks associated with contractual pricing in our industry, including the risk that, if our actual costs exceed the costs we estimate on our fixed-price contracts, our profitability will decline, and we may suffer losses;
•Disputes with customers with long-term contracts could adversely affect our financial condition;
•Our contractual performance may be affected by third parties' and subcontractors' failure to meet schedule, quality and other requirements in our contracts, which could increase our costs, scope or, technical difficulty or in extreme cases, impede our ability to meet contractual requirements;
•A material disruption at one of our manufacturing facilities or a third-party manufacturing facility that we have engaged could adversely affect our ability to generate sales and result in increased costs;
•If our co-venturers fail to perform their contractual obligations on a contract or if we fail to coordinate effectively with our co-venturers, we could be exposed to legal liability, damage to reputation, reduced profit, or liquidity challenges;
•Our growth strategy includes strategic acquisitions, which we may not be able to consummate or successfully integrate;
•Our backlog is subject to unexpected adjustments and cancellations and may not be a reliable indicator of future revenues or earnings;
•Our inability to deliver our backlog on time could affect our future sales and profitability, and our relationships with our customers;
•Our operations are subject to operating risks, which could expose us to potentially significant professional liability, product liability, warranty and other claims. Our insurance coverage may be inadequate to cover all of our significant risks, our insurers may deny coverage of material losses we incur, or we may be unable to obtain additional insurance coverage in the future, any of which could adversely affect our profitability and overall financial condition;
•We may not be able to compete successfully against current and future competitors;
•If we fail to develop new products, or customers do not accept our new products, our business could be adversely affected;
•We derive substantial revenues from electric power generating companies and other steam-using industries, including coal-fired power plants in particular. Demand for our products and services depends on spending in these historically cyclical industries. Additionally, legislative and regulatory developments relating to clean air legislation are affecting industry plans for spending on coal-fired power plants within the United States and elsewhere;
•Demand for our products and services is vulnerable to macroeconomic downturns and industry conditions;
•Supply chain issues, including shortages of adequate component supply that increase our costs or cause delays in our ability to fulfill orders, and our failure to estimate customer demand properly could have an adverse impact on our business and operating results and our relationships with customers;
•Our ability to maintain adequate bonding and letter of credit capacity is necessary for us to successfully complete, bid on and win various contracts;
•Our evaluation of strategic alternatives for certain businesses and non-core assets may not be successful;
•Our total assets include goodwill and other indefinite-lived intangible assets. If we determine these have become impaired, our business, financial condition and results of operations could be materially adversely affected;
•We are exposed to credit risk and may incur losses as a result of such exposure;
•The transition away from LIBOR may negatively impact our operating results;
•The financial and other covenants in our debt agreements may adversely affect us;
•We must refinance our 8.125% Notes due 2026 and 6.50% Notes due 2026 prior to their maturity;
•A disruption in, or failure of Contentsour information technology systems, including those related to cybersecurity, could adversely affect our business operations and financial performance;
•Privacy and information security laws are complex, and if we fail to comply with applicable laws, regulations and standards, or if we fail to properly maintain the integrity of our data, protect our proprietary rights to our systems or defend against cybersecurity attacks, we may be subject to government or private actions due to privacy and security breaches, any of which could have a material adverse effect on our business, financial condition and results of operations or materially harm our reputation;
•We rely on intellectual property law and confidentiality agreements to protect our intellectual property. We also rely on intellectual property we license from third parties. Our failure to protect our intellectual property rights, or our inability to obtain or renew licenses to use intellectual property of third parties, could adversely affect our business;
•We are subject to current and future government regulations that may adversely affect our future operations;
•Our business and our customers' businesses are required to obtain, and to comply with, national, state and local government permits and approvals;
•Our operations are subject to various environmental laws and legislation that may become more stringent in the future;
•Our operations involve the handling, transportation and disposal of hazardous materials, and environmental laws and regulations and civil liability for contamination of the environment or related personal injuries may result in increases in our operating costs and capital expenditures and decreases in our earnings and cash flows;
•Our business may be affected by new sanctions and export controls targeting Russia and other responses to Russia's invasion of Ukraine;
•We could be adversely affected by violations of the United States Foreign Corrupt Practices Act, the UK Anti-Bribery Act or other anti-bribery laws;
•Our international operations are subject to political, economic and other uncertainties not generally encountered in our domestic operations;
•International uncertainties and fluctuations in the value of foreign currencies could harm our profitability;
•Uncertainty over global tariffs, or the financial impact of tariffs, may negatively affect our results;
•The market price and trading volume of our common stock may be volatile;
•Substantial sales, or the perception of sales, of our common stock by us or certain of our existing shareholders could cause our stock price to decline and future issuances may dilute our common shareholders' ownership in the Company;
•B. Riley has significant influence over us;
•We do not currently pay regular dividends on our common stock, so holders of our common stock may not receive funds without selling their shares of our common stock;
•We may issue preferred stock that could dilute the voting power or reduce the value of our common stock;
•Provisions in our corporate documents and Delaware law could delay or prevent a change in control of the Company, even if that change may be considered beneficial by some shareholders;
•We are subject to continuing contingent liabilities of BWXT following the spin-off that occurred in 2015;
•We could be subject to changes in tax rates or tax law, adoption of new regulations, changing interpretations of existing law or exposure to additional tax liabilities in excess of accrued amounts that could adversely affect our financial position;
•Our ability to use net operating losses (“NOLs”) and certain tax credits to reduce future tax payments could be further limited if we experience an additional “ownership change”;
•The loss of the services of one or more of our key personnel, or our failure to attract, recruit, motivate, and retain qualified personnel in the future, could disrupt our business and harm our results of operations;
•We outsource certain business processes to third-party vendors and have certain business relationships that subject us to risks, including disruptions in business which could increase our costs;
•Negotiations with labor unions and possible work stoppages and other labor problems could divert management's attention and disrupt operations. In addition, new collective bargaining agreements or amendments to existing agreements could increase our labor costs and operating expenses;
•Pension and medical expenses associated with our retirement benefit plans may fluctuate significantly depending on a number of factors, and we may be required to contribute cash to meet underfunded pension obligations; and,
•Natural disasters or other events beyond our control, such as war, armed conflicts or terrorist attacks could adversely affect our business.
WEBSITE REFERENCES
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In this Annual Report on Form 10-K, we make references to our website at www.babcock.com.References to our website through this Form 10-K are provided for convenience only and the content on our website does not constitute a part of, and shall not be deemed incorporated by reference into, this Annual Report on Form 10-K.
ITEM 1. Business
In this annual reportAnnual Report on Form 10-K, or this “Annual Report”, unless the context otherwise indicates, "B“B&W," "we," "us,"” “we,” “us,” “our” or the "Company" and "our"“Company” mean Babcock & Wilcox Enterprises, Inc. and its consolidated subsidiaries.
B&W is a leading technology-basedgrowing, globally-focused renewable, environmental and thermal technologies provider with over 150 years of advanced fossilexperience providing diversified energy and renewable power generation and environmental equipment that includesemissions control solutions to a broad suiterange of boilerindustrial, electrical utility, municipal and other customers. B&W’s innovative products environmental systems, and services are organized into three market-facing segments. Our reportable segments are:
•Babcock & Wilcox Renewable: Cost-effective technologies for efficient and environmentally sustainable power and industrial uses. We specialize in technologyheat generation, including waste-to-energy, solar construction and engineeringinstallation, biomass energy and black liquor systems for the pulp and paper industry. B&W’s leading technologies support a circular economy, diverting waste from landfills to use for power generation and various other industries, including the procurement, erectionreplacement of fossil fuels, while recovering metals and specialty manufacturing of related equipment,reducing emissions. To date, we have installed over 500 waste-to-energy and services, including:
•Babcock & Wilcox Environmental: A full suite of best-in-class emissions control and upgrade capabilities, field engineering, construction, inspection, operationsenvironmental technology solutions for utility, waste to energy, biomass, carbon black, and maintenance, condition assessment and other technical support;
•Babcock & Wilcox Thermal: Steam generation equipment, suchaftermarket parts, construction, maintenance and field services for plants in the power generation, oil and gas, and industrial sectors. B&W has an extensive global base of installed equipment for utilities and general industrial applications including refining, petrochemical, food processing, metals and others.
On February 1, 2022, we acquired 100% ownership of Fossil Power Systems, Inc. for approximately $59.2 million. Fossil Power Systems, Inc., is a leading designer and manufacturer of hydrogen, natural gas and renewable pulp and paper combustion equipment including ignitors, plant controls and safety systems based in Dartmouth, Nova Scotia, Canada. Fossil Power Systems, Inc. is reported as burners, pulverizers, soot blowerspart of our B&W Thermal segment.
On February 28, 2022, we acquired 100% ownership of Optimus Industries, LLC for approximately $19.2 million. Optimus Industries, LLC designs and ashmanufactures waste heat recovery products for use in power generation, petrochemical, and material handling systems.process industries, including package boilers, watertube and firetube waste heat boilers, economizers, superheaters, waste heat recovery equipment and units for sulfuric acid plants and is based in Tulsa, Oklahoma and Chanute, Kansas. Optimus Industries, LLC is reported as part of our B&W Thermal segment.
Our overall activitybusiness depends significantly on the capital, expenditures and operations and maintenance expenditures of global electric power generating companies, other steam-usingincluding renewable and thermal powered heat generation industries and industrial facilities with environmental compliance and noise abatement needs.policy requirements. Several factors may influence these expenditures, including:
•climate change initiatives promoting environmental policies including renewable energy options utilizing waste-to-energy or biomass to meet legislative requirements and clean energy portfolio standards in the United States, European, Middle East and Asian markets;
•regulations requiring environmental improvements in various global markets;
•expectations regarding future governmental requirements to further limit or reduce greenhouse gas and other emissions in the United States, Europe and other international climate change sensitive countries;
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•prices for electricity, along with the cost of production and distribution including the cost of fuelfuels within the United States, or internationally;Europe, Middle East and Asian countries;
•demand for electricity and other end products of steam-generating facilities;
•level of capacity utilization at operating power plants and other industrial uses of steam production;
•overall strength of the industrial industry; and
•ability of electric power generating companies and other steam users to raise capital.
Customer demand is heavily affected by the variations in our customers'customers’ business cycles and by the overall economies and energy, environmental and noise abatement needs of the countries in which they operate.
Market Update
The Babcock & Wilcox Company (now knownCOVID-19 pandemic has continued to create challenges for us in countries that have significant outbreak mitigation strategies, namely, countries in our Asia-Pacific region, which led to temporary project postponements and has continued to impact results in this region. Additionally, we experienced negative impacts to our global supply chains as BWX Technologies, Inc.) ("BWC" or the "former Parent") approved the spin-off of B&W through the distribution of shares of B&W common stock to holders of BWC common stock. The distribution of B&W common stock was made on June 30, 2015, and consisted of one share of B&W common stock for every two shares of BWC common stock to holders of BWC common stock as of 5:00 p.m. New York City time on the record date, June 18, 2015. Cash was paid in lieu of any fractional shares of B&W common stock. On June 30, 2015, B&W became a separate publicly traded company, and BWC did not retain any ownership interest in B&W. We filed our Form 10 describing the spin-off with the Securities and Exchange Commission, which was declared effective on June 16, 2015. The spin-off is further described in Note 1 to the consolidated financial statements included in Item 8.
Equity Capital Activities
For information regarding our equity activities, see opportunities for growth in revenues in the Industrial segment relating to a variety of factors. Our new equipment customers make purchases as part of major capacity expansions, to replace existing equipment, or in response to regulatory initiatives. Additionally, our significant installed base provides a consistentNotes 17 and recurring aftermarket stream of parts, retrofits and services. Major investments in global industrial markets have strengthened demand for our industrial equipment, while tightening global environmental and noise abatement regulations are creating new opportunities. We foresee long-term trends toward increased environmental and noise abatement controls for industrial manufacturers around the world. Together, the companies that comprise the Industrial segment are well-positioned to capitalize on opportunities in these markets.
Debt Capital Activities
For information regarding our investmentdebt activities, see Note 14 to the Consolidated Financial Statements included in TBWES in the second quarter of 2017. At December 31, 2017, our remaining investment in TBWES was $26.0 million.
Contracts
We execute our contracts through a variety of methods, including fixed-price, cost-plus, target price cost incentive, cost-reimbursable or some combination of these methods. Contracts are usually awarded through a competitive bid process. Factors that customers may consider include price, technical capabilities of equipment and personnel, plant or equipment availability, efficiency, safety record and reputation.
Fixed-price contracts are for a fixed amountselling price to cover all costs and any profit element for a defined scope of work. Fixed-price contracts entail more risk to us because they require us to predetermine both the quantities of work to be performed and the costs associated with executing the work. For further specification see "Risk Factors Related to Our Business – We are subject to risks associated with contractual pricing in our industry, including the risk that, if our actual costs exceed the costs we estimate on our fixed-price contracts, our profitability will decline, and we may suffer losses" as detailed in Item 1A of this report.
We have contracts that extend beyond one year. Most of our long-term contracts have provisions for progress payments. We attempt to cover anticipated increases in labor, material and service costs of our long-term contracts either through an estimate of such changes, which is reflected in the original price, or through risk-sharing mechanisms, such as escalation or price adjustments for items such as labor and commodity prices.
In the event of a contract deferral or cancellation without cause, we generally would be entitled to recover costs incurred, settlement expenses and profit on work completed prior to deferral or termination. Significant or numerous cancellations could adversely affect our business, financial condition, results of operations and cash flows.
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From time to time, we partner with other companies to meet the needs of our customers, which can result in project-related joint venture entities or other contractual arrangements. While we carefully select our partners in these arrangements, they can subject us to risks that we may not be able to fully control and may include joint and several liability.
We generally recognize our contract revenues and related costs 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. Accordingly, we review contractual sales price and cost estimates regularly as the work progresses and reflect adjustments in profit proportionate to the percentage-of-completion in the period when we revise those estimates. To the extent that these adjustments result in a reduction or an elimination of previously reported profits with respect to a contract, we would recognize a charge against current earnings, which could be material.
See further description of risks related to our contracting in Risks Related to Our Operations in Part I, Item 1A of this Annual Report.
Our arrangements with customers frequently require us to provide letters of credit, bid and performance bonds or guarantees to secure bids or performance under contracts, which may involve providing cash collateral or other contract security that we may not be able to provide.
Other sales, such as parts and certain aftermarket service activities, are not in the form of long-term contracts, and we recognize revenues as goods are delivered and work is performed.
| (In millions) | 2017 | 2016 | ||||
| Power | $ | 656 | $ | 790 | ||
| Renewable | 115 | 135 | ||||
| Industrial | 416 | 222 | ||||
| Other/eliminations | (48 | ) | (6 | ) | ||
| Bookings | $ | 1,139 | $ | 1,141 | ||
| (in approximate millions) | December 31, 2017 | December 31, 2016 | ||||
| Power segment | $ | 453 | $ | 618 | ||
| Renewable segment | 1,008 | 1,241 | ||||
| Industrial segment | 258 | 216 | ||||
| Other/eliminations | (43 | ) | (3 | ) | ||
| Backlog | $ | 1,676 | $ | 2,072 | ||
| (in approximate millions) | 2018 | 2019 | Thereafter | Total | ||||||||
| Power segment | $ | 335 | $ | 81 | $ | 37 | $ | 453 | ||||
| Renewable segment | 293 | 111 | 604 | 1,008 | ||||||||
| Industrial segment | 258 | — | — | 258 | ||||||||
| Other/eliminations | (3 | ) | — | (40 | ) | (43 | ) | |||||
| Backlog | $ | 883 | $ | 192 | $ | 601 | $ | 1,676 | ||||
Foreign Operations
Our operations in Denmark, including through our recent acquisition of Babcock & Wilcox Renewable Service A/S, provide comprehensive services to companies in the waste-to-energy and biomass to energy sector of the power generation market, currently primarily in Europe. Our operations in Italy provide custom-engineered comprehensive drywet and wetdry cooling solutions and aftermarket parts and services to the power generation industry including natural gas-fired and renewable energy power plants, as well as downstream oil and gas, petrochemical and other industrial end markets.markets in Europe, the Middle East and the Americas. Our operations in Scotland primarily provideboiler cleaning technologies and systems (such as sootblowers). Our operations in Germany provide a variety of ash and material handling solutions, from completely dry bottom ash handlingprimarily to fly ash and petroleum coke processing.Europe.Our Canadian operations serve the Canadian industrial power, oil production and electric utility markets. We also have manufacturing facilities in Mexico to serve global markets.
The functional currency of our foreign operating entities is not the United States dollar ("USD"), and as a result, we are subject to exchange rate fluctuations that impact our financial position, results of operations and cash flows. Although we do not currently engage in currency hedging activities to limit the risks of currency fluctuations, we evaluate opportunities to engage in hedging in order to limit the risks of currency fluctuations.
For additional information on the geographic distribution of our revenues, see Note 4 to our consolidated financial statementsthe Consolidated Financial Statements included in Part II, Item 8 of this annual report.Annual Report.
Competition
With over 150 years of experience, we have supplied highly engineered energy and environmental equipment in over 90 countries. We have a competitive advantage in our experience and technical capability to reliably convert a wide range of fuels to steam. We have supplied highly-engineered energy and environmental equipment in more than 90 countries. Our strong, installed base around the globe also yields competitive advantages, although our markets are highly competitive and price sensitive. We compete with a number of domestic and foreign companies specializing in power generation, environmental control equipment, and cooling systems and services. Each segment'ssegment’s primary competitors are summarized as follows:
| B&W Renewable segment | B&W Thermal segment | ||||||||
| CNIM Group | Hamon Research-Cottrell, Inc. (1) | GE(2) | |||||||
| Hitachi Zosen | |||||||||
MH Power Systems | |||||||||
| Martin | Seagull | Babcock Power(2) | |||||||
| Keppel Seghers | Paharpur | Doosan(2) | |||||||
| Valmet | Evapco | Clyde Bergemann | |||||||
| Andritz | SPG Dry | Enerfab | |||||||
| Steinmuller | Radscan AB | TEI Construction | |||||||
| LAB | APComPower | ||||||||
| Azco, Inc. | |||||||||
(1) On July 28, 2022, the Company acquired certain assets of Hamon Holdings Corporation ("Hamon"), a subsidiary of Hamon Research-Cottrell, Inc. The remaining subsidiaries of Hamon-Research-Cottrell continue to be considered competition of this B&W Environmental Segment.
(2) GE, MH Power Systems, Babcock Power & Doosan are also considered primary competitors of the B&W Environmental Segment.
Across each of our segments, we also compete with a variety of engineering and construction companies related to installation of steam generating systems and environmental control equipment; specialized industrial equipment; and other suppliers of replacement parts, repair and alteration services and other services required to retrofit and maintain existing steam generating systems. The primary bases of competition are price, technical capabilities, quality, timeliness of performance, breadth of products and services and willingness to accept contract risks.
Raw Materials and Suppliers
Our operations use raw materials such as carbon and alloy steels in various forms and components and accessories for assembly, which are available from numerous sources. We generally purchase these raw materials and components as needed for individual contracts. We do not depend on a single source of supply for any significant raw materials. Although shortages of some raw materials have existed from time to time, no serious shortage exists at the present time.
Human Capital Management
At December 31, 2017,2022, we had approximately 4,8002,163 employees worldwide, not including 2,200 joint venture employees. Ofof which approximately 2,100 were full-time. Approximately 491 of our hourly employees approximately 1,300 are union-affiliated, covered by tenfour union agreements related to active facilities in Canada, China, Denmark, Great Britain, Mexico, the United States, the United Kingdom, and United States. Most of ourCanada. We successfully renegotiated two union agreementscontracts in 2021 and have one that will expire in 2018 or 2019,early 2023 and we are actively negotiating new agreements.one that will expire in 2024. We consider our relationships with our employees and unions to be in good standing.
Workforce Engagement
We believe an engaged global workforce is critical to our success as we work to profitably grow our business as a leading supplier of clean and sustainable energy solutions.
B&W is known for having a dedicated, long-tenured workforce and for having some of the best, most experienced employees in the industries we serve. Our ability to attract and retain this exceptional talent requires a commitment to open communication about the company’s business, strategy and results with our employees and a globally diverse, inclusive and
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supportive workplace that provides opportunities for growth and career development. It also requires programs that enhance employees’ overall work experience. We have implemented the Responsible and Flexible Workplace Program (“ReFlex”) in the U.S. that provides employees with flexibility in where they work and various work-from-home policies across many of our global operations. While COVID-19 has continued to impact life throughout the world, our employees have remained diligent, customer focused and resilient, and progressive employment programs like ReFlex have provided us with an important competitive advantage. They allow us to keep our facilities running, deliver on our projects and ensure our customers’ needs are met, while also safeguarding the safety and health of our employees. Through ReFlex, our employees have needed flexibility and autonomy in how they work, particularly during these unprecedented times.
Compensation and Benefits
We also believe it is important to provide competitive compensation and benefits programs for our employees. In addition to salaries, we offer the following benefits, among others, which vary by employee level and by the country where the employees are located:
•contributory healthcare, dental and vision benefits
•bonuses,
•stock awards,
•retirement programs (including pension and savings plans),
•health savings and flexible spending accounts,
•paid time off,
•paid parental leave,
•disability programs,
•and employee assistance programs.
Core Values
At B&W, our values of safety, ethics, quality, integrity, respect and agility are at the foundation of our business, and we are focused on efficiently ingraining new employees into that culture, whether they join through the normal recruiting and hiring process, or as we have grown our company through strategic acquisitions. We also believe in the importance of being a good corporate citizen, providing and supporting opportunities for our employees to make a positive impact in the communities where they live and work.
Our Board is actively engaged with our workforce practices and policies, and regularly receives updates and provides input on key culture topics, including employee engagement, employee development and succession planning.
Patents and Patent Licenses
We currently hold a large number of United States and foreign patents and have patent applications pending. We have acquired patents and technology licenses and granted technology licenses to others when we have considered it advantageous for us to do so. Although in the aggregate our patents and licenses are important to us, we do not regard any single patent or license or group of related patents or licenses as critical or essential to our business as a whole. In general, we depend on our technological capabilities and the application of know-how,thereof, rather than patents and licenses, in the conduct of our various businesses.
Research and Development Activities
Our research and development activities are related to the development and improvement of new and existing products and equipment, as well as conceptual and engineering evaluation for translation into practical applications. Historically, we focused our research dollars on improvingimprove our products forthrough innovations to reduce the markets we serve through: (i) cost reductions resulting in more competitive products in a highly competitive global market and margin improvement; (ii) reduced performance risk assuring our products meet our and our customers' expectations; and (iii) standards development and updates, which results in lower engineering hours consumed on projects and enable us to sublet engineering to low cost engineering centers of excellence. In the future, our research and development activities will be focused primarily on improvements in the reliability and efficiency of our products to make them more competitive and through innovations to reduce performance risk of our products to better meet our customers' needs and enhance our market opportunities and profitability. customer expectations.Research and development costs unrelated to specific contracts are expensed as incurred. Research and development expenses totaled $9.4 million, $10.4 million and $16.5 million in the years ended December 31, 2017, 2016 and 2015, respectively.
Permits and Licenses
We are required by various governmental and quasi-governmental agencies to obtain certain permits, licenses and certificates with respect to our operations. The kinds of permits, licenses and certificates required in our operations depend upon a number of factors. We are not aware of any material noncompliance and believe our operations and certifications are currently in compliance with all relevant permits, licenses and certifications.
Environmental
We have been identified as a potentially responsible party at various cleanup sites under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA"(“CERCLA”). CERCLA and other environmental laws can impose liability for the entire cost of cleanup on any of the potentially responsible parties, regardless of fault or the lawfulness of the original conduct. Generally, however, where there are multiple responsible parties, a final allocation of costs is made based on the amount and type of wastes disposed of by each party and the number of financially viable parties, although this may not be the case with respect to any particular site. We have not been determined to be a major contributor of wastes to any of these sites. On the basis of our relative contribution of waste to each site, we expect our share of the ultimate liability for the various sites will not have a material adverse effect on our consolidated financial condition, results of operations or cash flows in any given year.
We are subject to a variety of Registrant
•the construction and industry in general. There are or will be important factors that could cause our actual results to differ materially from those indicated in these statements. If one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what we anticipate. Differences between actual resultsmanufacture of renewable, environmental and any future performance suggested in our forward-looking statements could result from a variety of factors, including the following: our ability to continue as a going concern; our ability to obtain and maintain sufficient financing to provide liquidity to meet our business objectives, surety bonds, letters of credit and similar financing, and to refinance our Second Lien through the Rights Offering, or otherwise; the highly competitive nature of our businesses; general economic and business conditions, including changes in interest rates and currency exchange rates; general developments in the industries in which we are involved; 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 or suppliers to perform their obligations on time and as specified; our ability to realize anticipated savings and operational benefits from our restructuring plans,thermal products;
•clean air and other cost-savings initiatives; our ability to successfully integrateenvironmental protection legislation;
•taxation of domestic and realize the expected synergies from acquisitions; our ability to successfully address productivityforeign earnings;
•tariffs, duties, or trade sanctions and schedule issuesother trade barriers imposed by foreign countries that restrict or prohibit business transactions in our Renewable segment; willingness of customers to waive liquidated damagescertain markets;
•user privacy, security, data protection, content, and online-payment services;
•intellectual property;
•transactions in or agree to bonus opportunities; our ability to successfully partner with third parties to winforeign countries or officials; and execute renewable projects; changes in our effective tax rate and tax positions; 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; the risks associated with integrating businesses we acquire; our ability to successfully manage researchlocal employees 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;suppliers.
Available Information
Our website address is www.babcock.com. We make available through the Investor Relations section of this website under "SEC Filings,"“Financial Information,” free of charge, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, our proxy statement, statements of beneficial ownership of securities on Forms 3, 4 and 5 and amendments to those reports as soon as reasonably practicable after we electronically file those materials with, or furnish those materials to, the Securities and Exchange Commission (the "SEC"“SEC”). You may read and copy any materials we file with the SEC at the SEC's Public Reference Room at 100 F Street, NE, Washington, DC 20549. You may obtain information regarding the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains a website at www.sec.gov that contains reports, proxy and annual reports, and other information regarding issuers that file electronically with the SEC. We have also posted on our website our: Corporate Governance Principles; Code of Business Conduct; Code of Ethics for our Chief Executive Officer and Senior Financial Officers; Board of Directors Conflicts of Interest Policies and Procedures;Related Party Transactions Policy; Management, Board Members and Independent Director Contact Information; Amended and Restated By-laws; charters for the Audit & Finance, Governance, Compensation and Safety & SecurityCompensation Committees of our Board; and our Modern Slavery Transparency Statement. We are not including the information contained in our website as part of or incorporating it by reference into this Annual Report.
Item 1A. Risk Factors
You should carefully consider each of the following risks and all of the other information contained in this annual report. Some of these risks relate principally to our spin-off from our former Parent, while others relate principally to our business and the industry in which we operate or to the securities markets generally and ownership of our common stock.Annual Report. If any of these risks develop into actual or expected events, our business, financial condition, results of operations or cash flows could be materially and adversely affected, by any of these risks, and, as a result, the trading price of our common stock could decline.
The risks discussed below are not the only ones facing our business but do represent those risks that we believe are material to us. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also harm our business. Please read the cautionary notice regarding forward-looking statements under the heading “Cautionary Statement Concerning Forward-Looking Information.”
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Risks RelatingRelated to Our IndustryOperations
We are subject to risks associated with contractual pricing in our industry, including the risk that, if our actual costs exceed the costs we estimate on our fixed-price contracts, our profitability will decline, and we may suffer losses.
We are engaged in a highly competitive industry, and we have priced a number of our contracts on a fixed-price basis. Our Businessactual costs could exceed our projections. We attempt to cover the increased costs of anticipated changes in labor, material and service costs of long-term contracts, either through estimates of cost increases, which are reflected in the original contract price, or through price escalation clauses. Despite these attempts, the cost and gross profit we realize on a fixed-price contract could vary materially from the estimated amounts because of supplier, contractor and subcontractor performance, changes in job conditions, variations in labor and equipment productivity and increases in the cost of labor and raw materials, particularly steel, over the term of the contract. These variations and the risks generally inherent in our industry may result in actual revenues or costs being different from those we originally estimated and may result in reduced profitability or losses on contracts. Some of these risks include:
•difficulties encountered on our large-scale contracts related to the procurement of materials or due to schedule disruptions, equipment performance failures, engineering and design complexity, unforeseen site conditions, rejection clauses in customer contracts or other factors that may result in additional costs to us, reductions in revenue, claims or disputes;
•requirements to pay liquidated damages upon our failure to meet schedule or performance requirements of our indebtednesscontracts; and
•difficulties in engaging third-party subcontractors, equipment manufacturers or materials suppliers or failures by third-party subcontractors, equipment manufacturers or materials suppliers to become immediately dueperform could result in contract delays and payable (after the expiration of any applicable grace period),cause us to incur additional costs.
In prior years, we may not have sufficientexperienced these risks with several large loss contracts in our B&W Renewable and B&W Environmental segments, which resulted in significant losses for our operations, impaired our liquidity to sustain operationsposition and had previously resulted in substantial doubt regarding whether we would be able to continue to operate as a going concern. If we were to experience these risks again in the future, our business, results of operations, financial condition and liquidity may be materially and adversely affected.
Disputes with customers with long-term contracts could adversely affect our financial condition.
We have experienced losses from operations in eachroutinely enter into long-term contracts with customers. Under long-term contracts, we may incur capital expenditures or other costs at the beginning of the past two years, have negative operating cash flowscontract that we expect to recoup through the life of the contract. Some of these contracts provide for advance payments to assist us in covering these costs and expenses. A dispute with a customer during the year ended December 31, 2017 and are dependent onlife of a long-term contract could impact our ability to raise capitalreceive payments or otherwise recoup incurred costs and expenses.
Our contractual performance may be affected by third parties’ and subcontractors’ failure to meet schedule, quality and other requirements on our contracts, which could increase our costs, scope, or technical difficulty or in extreme cases, limit our ability to meet contractual requirements.
We conduct significant portions of our business by engaging in long-term contracts related to highly complex, customized equipment or facilities for electrical generation, industrial processes, and/or environmental compliance. The complexity of these contracts generally necessitates the participation of others, including third-party suppliers, subcontractors, equipment or part manufacturers, partner companies, other companies with whom we do not have contractual relationships, customers, financing organizations, regulators and others. Our reliance on these parties subjects us to the risk of customer dissatisfaction with the quality or performance of the products or services we sell due to supplier or subcontractor failure. Third-party supplier and subcontractor business interruptions could include but are not limited to, interruptions to business operations due to COVID-19 or other health crises, work stoppages, union negotiations, other labor disputes and payment disputes. Current or future economic conditions could also impact the ability of suppliers and subcontractors to access credit and, thus, impair their ability to provide us quality products, materials, or services in a timely manner, or at all.
While we endeavor to limit our liability to matters within our control, not all scenarios can be foreseen, and we may become subject to the risk of others’ performance that may or may not be within our control or influence. Delays, changes or failures
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of others, including third-party suppliers and subcontractors, could subject us to additional costs, delays, technical specification changes, contractual penalties or other matters for which we may be unable to obtain compensation, or compensation may not be sufficient. In extreme cases, the direct or indirect effects of such matters may cause us to be unable to fulfill our contractual requirements.
A material disruption at one of our manufacturing facilities or a third-party manufacturing facility that we have engaged could adversely affect our ability to generate sales and result in increased costs.
Our financial performance could be adversely affected due to our inability to meet customer demand for our products or services in the time frameevent of a material disruption at one of our significant manufacturing or services facilities. Equipment failures, natural disasters, power outages, fires, explosions, terrorism, adverse weather conditions, labor disputes or other influences could create a material disruption. Interruptions to production could increase our cost of sales, harm our reputation and adversely affect our ability to attract or retain our customers. Our business continuity plans may not be sufficient to address disruptions attributable to such risks. Any interruption in production capability could require us to make substantial capital expenditures to remedy the situation, which could adversely affect our financial condition and results of operations.
If our co-venturers fail to perform their contractual obligations on a contract or if we fail to coordinate effectively with our co-venturers, we could be exposed to legal liability, loss of reputation, reduced profit, or liquidity challenges.
We often perform contracts jointly with third parties or execute contracts with partners through joint ventures or other contractual arrangements. For example, we enter into contracting consortia and other contractual arrangements to bid for and perform jointly on large contracts. We may not be able to control the actions of our partners in these arrangements, and influence over the actions of our partners and the contractual outcomes may be limited. Success on these joint contracts depends in part on whether our co-venturers fulfill their contractual obligations satisfactorily. If any one or more of these third parties fail to perform their contractual obligations satisfactorily, we may be required in our United States Revolving Credit Facility ("Revolver")to make additional investments and provide added services in order to avoid an event of default under our lending agreements. Ascompensate for that failure. If we are unable to adequately address any performance issues when and if required, customers may exercise their rights to terminate a result of additional losses we recognized in the fourth quarter of 2017 relatedjoint contract, exposing us to an increase in structural steel repair costs on one of our European renewable energy contracts, we were not in compliance with certain financial covenants under our Revolver and our Second Lien Term Loan Facility ("Second Lien") as of December 31, 2017. On March 1, 2018, we obtained an agreement (the “March 1, 2018 Amendment”) to amend our Revolver. The March 1, 2018 Amendment waived the financial covenant defaults that existed at December 31, 2017 under the Revolver, consentedlegal liability, damage to our planned Rights Offeringreputation, reduced profit or liquidity challenges.
Our collaborative arrangements also involve risks that participating parties may disagree on business decisions and madestrategies. These disagreements could result in delays, additional costs and risks of litigation. In these arrangements, we sometimes have joint and several liabilities with our partners, and we cannot be certain other modifications. The Second Lien contains a 180 day standstill period beginning on March 1, 2018 to resolve the event of default or repay the loan.
Our growth strategy includes strategic acquisitions, which we may not be able to consummate or successfully integrate.
We have made acquisitions to grow our business, enhance our global market position and broaden our industrial tools product offerings and intend to continue as a going concern. The accompanying consolidatedto make these acquisitions. Our ability to successfully execute acquisitions will be impacted by factors including the availability of financing on terms acceptable to us, the potential reduction of our ability or willingness to incur debt to fund acquisitions due to macroeconomic conditions, our financial statements are prepared on a going concern basis and do not include any adjustments that might result from uncertainty aboutresults, the reluctance of target companies to sell in current markets, our ability to continue as a going concern, other than the reclassificationidentify acquisition candidates that meet our valuation parameters and increased competition for acquisitions. The process of certain long-term debt to current liabilities. The reportintegrating acquired businesses into our existing operations also may result in unforeseen operating difficulties and may require additional financial resources and attention from our independent registered public accounting firm on our consolidated financial statementsmanagement that would otherwise be available for the year ended December 31, 2017 includes a paragraph that summarizes the salient facts and conditions that raise substantial doubt aboutongoing development or expansion of our ability to continue as a going concern.
On February 1, 2022, we acquired 100% ownership of potentially harmful pollutants.Fossil Power Systems, Inc. On February 28, 2022, we acquired 100% ownership of Optimus Industries, LLC. The recent economic environment and uncertainty concerning new environmental legislationsuccess of each of these, or replacement rules or regulations in the United States and elsewhere has caused many of our major customers, principally electric utilities, to delay making substantial expenditures for new plants,any future, acquisitions, as well as upgradesour ability to existing power plants.
realize their anticipated benefits, depends in large part on our ability to successfully integrate each business. This integration is complex and time consuming, and failure to successfully integrate either business may prevent us from achieving the anticipated benefits of the acquisitions. Potential difficulties we may encounter as part of the integration process include (i) the inability to successfully integrate transportation networks; (ii) complexities and unanticipated issues associated with integrating the businesses’ complex systems, technologies and operating procedures; (iii) integrating workforces while
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maintaining focus on achieving strategic initiatives; (iv) potential unknown liabilities and unforeseen increased or new expenses; (v) the possibility of Contents
Our backlog is subject to unexpected adjustments and cancellations and may not be a reliable indicator of future revenues or earnings.
There can be no assurance that the revenues projected in our backlog will be realized or, if realized, will result in profits. Because of contract cancellations or changes in scope and schedule, we cannot predict with certainty when or if backlog will be performed. In addition, even where a contract proceeds as scheduled, it is possible that contracted parties may default and fail to pay amounts owed to us or poor contract performance could increase the cost associated with a contract. Delays, suspensions, cancellations, payment defaults, scope changes and poor contract execution could materially reduce or eliminate the revenues and profits that we actually realize from contracts in backlog.
Reductions in our backlog due to cancellation or modification by a customer or for other reasons may adversely affect, potentially to a material extent, the revenues and earnings we actually receive from contracts included in our backlog. Many of the contracts in our backlog provide for cancellation fees in the event customers cancel contracts. These cancellation fees usually provide for reimbursement of our out-of-pocket costs, revenues for work performed prior to cancellation and a varying percentage of the profits we would have realized had the contract been completed. However, we typically have no contractual right upon cancellation to the total revenues reflected in our backlog. Contracts may remain in our backlog for extended periods of time. If we experience significant contract terminations, suspensions or scope adjustments to contracts reflected in our backlog, our financial condition, results of operations and cash flows may be adversely impacted.
Our backlog was $704 million at December 31, 2022 and $639 million at December 31, 2021. Our ability to meet customer delivery schedules for our actual costs exceed the costs we estimatebacklog is dependent on our fixed-price contracts, our profitability will decline, and we may suffer losses.
Our operations are subject to operating risks, which could expose us to potentially significant professional liability, product liability, warranty and other claims. Our insurance coverage may not be inadequate to cover all of our significant risks, or our insurers may deny coverage of material losses we incur, or we may be unable to obtain additional insurance coverage in the future, any of which could adversely affect our profitability and overall financial condition.
We engineer, construct and perform services in, and provide products for, large industrial facilities where accidents or system failures can have significant consequences. Risks inherent in our operations include:
•accidents resulting in injury or the loss of life or property;
•environmental or toxic tort claims, including delayed manifestation claims for personal injury or loss of life;
•pollution or other environmental mishaps;
•adverse weather conditions;
•mechanical failures;
•property losses;
•business interruption due to political action or other reasons; and
•labor stoppages.
Any accident or failure at a site where we have provided products or services could result in significant professional liability, product liability, warranty and other claims against us, regardless of whether our products or services caused the incident. We have been, and in the future, we may be, named as defendants in lawsuits asserting large claims as a result of litigation arising from events such as those listed above. Such claims may damage our reputation, regardless of whether we are ultimately deemed responsible.
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We endeavor to identify and obtain in established markets insurance agreements to cover significant risks and liabilities. Insurance against some of the risks inherent in our operations is either unavailable or available only at rates or on terms that we consider uneconomical. Also, catastrophic events customarily result in decreased coverage limits, more limited coverage, additional exclusions in coverage, increased premium costs and increased deductibles and self-insured retentions. Risks that we have frequently found difficult to cost-effectively insure against include, but are not limited to, business interruption, including interruptions related to the COVID-19 pandemic, property losses from wind, flood and earthquake events, war and confiscation or seizure of property in some areas of the
world, pollution liability, liabilities related to occupational health exposures (including asbestos), the failure, misuse or unavailability of our information systems, the failure of security measures designed to protect our information systems from security breaches,cybersecurity threats, and liability related to risk of loss of our work in progress and customer-owned materials in our care, custody and control. Depending on competitive conditions and other factors, we endeavor to obtain contractual protection against uninsured risks from our customers. When obtained, such contractual indemnification protection may not be as broad as we desire or may not be supported by adequate insurance maintained by the customer. Such insurance or contractual indemnity protection may not be sufficient or effective under all circumstances or against all hazards to which we may be subject. A successful claim for which we are not insured or for which we are underinsured could have a material adverse effect on us. Additionally, disputes with insurance carriers over coverage may affect the timing of cash flows and, if litigation with the carrier becomes necessary, an outcome unfavorable to us may have a material adverse effect on our results of operations. Moreover, certain accidents or failures, including accidents resulting in bodily injury or harm, could disqualify us from continuing business with customers, and any losses arising thereby may not be covered by insurance or other indemnification.
Our wholly ownedwholly-owned captive insurance subsidiary provides workers' compensation, employer's liability, commercial general liability, professional liability and automotive liability insurance to support our operations. We may also have business reasons in the future to have our insurance subsidiary accept other risks which we cannot or do not wish to transfer to outside insurance companies. These risks may be considerable in any given year or cumulatively. Our insurance subsidiary has not provided significant amounts of insurance to unrelated parties. Claims as a result of our operations could adversely impact the ability of our insurance subsidiary to respond to all claims presented.
Additionally, upon the February 22, 2006 effectiveness of the settlement relating to the Chapter 11 proceedings involving several of our subsidiaries, most of our subsidiaries contributed substantial insurance rights to the asbestos personal injury trust, including rights to (1) certain pre-1979 primary and excess insurance coverages and (2) certain of our 1979-1986 excess insurance coverage. These insurance rights provided coverage for, among other things, asbestos and other personal injury claims, subject to the terms and conditions of the policies. The contribution of these insurance rights was made in exchange for the agreement on the part of the representatives of the asbestos claimants, including the representative of future claimants, to the entry of a permanent injunction, pursuant to Section 524(g) of the United States Bankruptcy Code, to channel to the asbestos trust all asbestos-related claims against our subsidiaries and former subsidiaries arising out of, resulting from or attributable to their operations, and the implementation of related releases and indemnification provisions protecting those subsidiaries and their affiliates from future liability for such claims. Although we are not aware of any significant, unresolved claims against our subsidiaries and former subsidiaries that are not subject to the channeling injunction and that relate to the periods during which such excess insurance coverage related, with the contribution of these insurance rights to the asbestos personal injury trust, it is possible that we could have underinsured or uninsured exposure for non-derivative asbestos claims or other personal injury or other claims that would have been insured under these coverages had the insurance rights not been contributed to the asbestos personal injury trust.
We may not be able to compete successfully against current and future competitors.
Some of our competitors or potential competitors have greater financial or other resources than we have and in some cases are government supported. Our operations may be adversely affected if our current competitors or new market entrants introduce new products or services with better features, performance, prices or other characteristics than those of our products and services. Furthermore, we operate in industries where capital investment is critical. We may not be able to obtain as much purchasing and borrowing leverage and access to capital for investment as other companies, which may impair our ability to compete against competitors or potential competitors.
If we fail to develop new products, or customers do not accept our new products, our business could be adversely affected.
Our ability to develop innovative new products can affect our competitive position and often requires the investment of significant resources. Difficulties or delays in research, development, production or commercialization of new products, or failure to gain market acceptance of new products and technologies, may reduce future sales and adversely affect our competitive position. There can be no assurance that we will have sufficient resources to make such investments, that we will
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be able to make the technological advances necessary to maintain competitive advantages or that we can recover major research and development expenses. If we fail to make innovations, launch products with quality problems, experience development cost overruns, or the market does not accept our new products, then our financial condition, results of operations, cash flows and liquidity could be adversely affected.
Our business, financial condition and results of operations, suppliers and vendors, have been, and could continue to be, adversely affected by public health crises, including the COVID-19 pandemic.
Our business has been, and could in the future be, adversely impacted by public health crises, including viral outbreaks such as the COVID-19 pandemic. Measures taken to control the spread of COVID-19 or other future outbreaks of infectious disease, including mandatory closures, work-from-home orders and social distancing protocols have varied widely and have been subject to significant changes from time to time depending on circumstances outside of our control, including changes in the severity of outbreaks in impacted countries and localities. These restrictions, including limitations on travel and curtailment of other activity, negatively impacted our ability to conduct business, to varying degrees, throughout the COVID-19 pandemic, and similar future restrictions in response to other public health crises could have a similar impact. Furthermore, COVID-19 has contributed to significant disruptions in the global supply chain, which negatively impacted our ability to secure raw materials and supplies and resulted in increased costs and the loss of sales and customers. Future public health crises could have a similar impact. The duration and scope of the COVID-19 pandemic or any other future public health crises cannot be predicted, and therefore, any anticipated negative financial impact to the Company’s operating results cannot be reasonably estimated.
Risks Related to Our Industry
We derive substantial revenues from electric power generating companies and other steam-using industries, including coal-fired power plants in particular. Demand for our products and services depends on spending in these historically cyclical industries. Additionally, recent legislative and regulatory developments relating to clean air legislation are affecting industry plans for spending on coal-fired power plants within the United States and elsewhere.
The demand for power generation products and services depends primarily on the spending of electric power generating companies and other steam-using industries and expenditures by original equipment manufacturers. These expenditures are influenced by such factors including, but not limited to:
•prices for electricity, along with the cost of production and distribution;
•prices for natural resources such as coal and natural gas;
•demand for electricity and other end products of steam-generating facilities;
•availability of other sources of electricity or other end products;
•requirements of environmental legislation and regulations, including potential requirements applicable to carbon dioxide emissions;
•investments in renewable energy sources and technology;
•impact of potential regional, state, national and/or global requirements to significantly limit or reduce greenhouse gas emissions in the future;
•level of capacity utilization and associated operations and maintenance expenditures of power generating companies and other steam-using facilities;
•requirements for maintenance and upkeep at operating power plants and other steam-using facilities to combat the accumulated effects of wear and tear;
•ability of electric generating companies and other steam users to raise capital; and
•relative prices of fuels used in boilers, compared to prices for fuels used in gas turbines and other alternative forms of generation.
We estimate that 38%, 47% and 43% of our consolidated revenues in 2022, 2021 and 2020, respectively, were related to coal-fired power plants. The availability of natural gas in great supply has caused, in part, low prices for natural gas in the United States, which has led to more demand for natural gas relative to energy derived from coal. A material decline in spending by electric power generating companies and other steam-using industries on coal-fired power plants over a sustained period of time could materially and adversely affect the demand for our power generation products and services and, therefore, our financial condition, results of operations and cash flows. Coal-fired power plants have been scrutinized by environmental groups and government regulators over the emissions of potentially harmful pollutants and the disposal of waste ash from the combustion process. This scrutiny and economic incentives including tax advantages, have promoted the growth of nuclear,
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wind and solar power, among others, and a decline in cost of renewable power plant components and power storage. The recent economic environment and uncertainty concerning new environmental legislation or replacement rules or regulations in the United States and elsewhere has caused many of our major customers, principally electric utilities, to delay making substantial expenditures for new plants, and delay upgrades to existing power plants.
Demand for our products and services is vulnerable to macroeconomic downturns and industry conditions.
Demand for our products and services has been, and we expect that demand will continue to be, subject to significant fluctuations due to macroeconomic and industry conditions, including but not limited to, the cyclical nature of the industries we serve, inflation, geopolitical issues, the availability and cost of credit, volatile oil and natural gas prices, low business and consumer confidence, high unemployment and energy conservation measures.
Unfavorable macroeconomic conditions may lead customers to delay, curtail or cancel proposed or existing contracts, which may decrease the overall demand for our products and services and adversely affect our results of operations.
In addition, our customers may find it more difficult to raise capital in the future due to limitations on the availability of credit, increases in interest rates and other factors affecting the federal, municipal and corporate credit markets. Also, our customers may demand more favorable pricing terms and find it increasingly difficult to timely pay invoices for our products and services, which would impact our future cash flows and liquidity. Inflation or significant changes in interest rates could reduce the demand for our products and services. Any inability to timely collect our invoices may lead to an increase in our borrowing requirements, our accounts receivable and potentially to increased write-offs of uncollectible invoices. If the economy weakens, or customer spending declines, then our backlog, revenues, net income and overall financial condition could deteriorate.
Supply chain issues, including shortages of adequate component supply that increase our costs or cause delays in our ability to fulfill orders, and our failure to estimate customer demand properly may result could have an adverse impact on our business and operating results and our relationships with customers.
We are reliant on our supply chain for components and raw materials to manufacture our products and provide services to our customers, and this reliance could have an adverse impact on our business and operating results. A reduction or interruption in supply, including disruptions due to the COVID-19 pandemic, the ongoing conflict in Ukraine, a significant natural disaster, shortages in global freight capacity, significant increases in the price of critical components and raw materials, a failure to appropriately forecast or adjust our requirements for components or raw materials based on our business needs, or volatility in demand for our products could materially adversely affect our business, operating results, and financial condition and could materially damage customer relationships. Our vendors also may be unable to meet our demand, significantly increase lead times for deliveries or impose significant price increases we are unable to offset through alternate sources of supply, price increases to our customers or increased productivity in our operations.
Our operations use raw materials in various forms and components and accessories for assembly, which are available from numerous sources. We generally purchase these raw materials and components as-needed for individual contracts. We do not depend on a single source of supply for any significant raw materials. Although no serious shortage exists at this time, growth or volatility in the global economy may exacerbate pressures on us and our suppliers, which could affect our operating and financial results.
Risks Related to Our Liquidity and Capital Resources
The financial and other covenants in our debt agreements may adversely affect us.
Our Debt Facilities contain financial and other restrictive covenants. These covenants could limit our financial and operating flexibility as well as our ability to plan for and react to market conditions, meet our capital needs and support our strategic priorities and initiatives should we take on additional indebtedness for acquisition or other strategic objectives. Our failure to comply with these covenants also could result in events of default which, if not cured or waived, could require us to repay indebtedness before its due date, and we may not have the financial resources or otherwise be able to arrange alternative financing to do so. Our compliance with the covenants of our Debt Facilities may be adversely affected by severe market contractions or disruptions to the extent they reduce our earnings for a prolonged period and we are not able to reduce our debt levels or cost structure accordingly. Any event that requires us to repay any of our debt before it is due could require us to borrow additional amounts at unfavorable borrowing terms, cause a significant reduction in our liquidity and impair our
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ability to pay amounts due on our indebtedness. Moreover, if we are required to repay any of our debt before it becomes due, we may be unable to borrow additional amounts or otherwise obtain the cash necessary to repay that debt, when due, which could have a material adverse effect on our business, financial condition and liquidity.
We must refinance our 8.125% Notes due 2026 and 6.50% Notes due 2026 prior to their maturity.
As described in Note 14 to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report, during 2021, we completed offerings of $151.2 million aggregate principal amount of our 8.125% senior notes due 2026 (“8.125% Senior Notes”) and $151.4 million aggregate principal amount of our 6.50% senior notes due in 2026 (the “6.50% Senior Notes” and, together with the 8.125% Senior Notes, the “Notes Due 2026”). Depending on our future financial condition and results of operations for 2023, we may be unable to refinance our Notes Due 2026 on or prior to their maturity or at all.
There can be no assurance that our efforts to improve our financial position will be successful or that we will be able to obtain additional capital in the future on commercially reasonable terms or at all. If we are unable to refinance our Notes Due 2026 on commercially reasonable terms or at all, it may materially and adversely affect our reputation, liquidity, business, financial condition or results of operations, we may breach our obligations under either of the Notes Due 2026 and it may be necessary for us to reorganize our company in its entirety, including through bankruptcy proceedings.
Maintaining adequate bonding and letter of credit capacity is necessary for us to successfully complete, bid on and win various contracts.
In line with industry practice, we are often required to post standby letters of credit and surety bonds to support contractual obligations to customers as well as other obligations. These letters of credit and bonds generally indemnify customers should we fail to perform our obligations under the applicable contracts. If a letter of credit or bond is required for a particular contract and we are unable to obtain it due to insufficient liquidity or other reasons, we will not be able to pursue that contract, or we could default on contracts that are underway or that have been awarded. We utilize bonding facilities, but, as is typically the case, the issuance of bonds under each of those facilities is at the surety’s sole discretion. Moreover, due to events that affect the insurance and bonding and credit markets generally, bonding and letters of credit may be more difficult to obtain in the future or may only be available at significant additional cost. Our inability to obtain or maintain adequate letters of credit and bonding and, as a result, to bid on new work could have a material adverse effect on our business, financial condition and results of operations. The aggregate value of all such letters of credit and bank guarantees outside of our Letter of Credit Agreement as of December 31, 2022 was $60.3 million. The aggregate value of the outstanding letters of credit provided under the Letter of Credit Agreement backstopping letters of credit or bank guarantees was $37.8 million as of December 31, 2022. Of the outstanding letters of credit issued under the Letter of Credit Agreement, $67.5 million are subject to foreign currency revaluation.
We have also posted surety bonds to support contractual obligations to customers relating to certain contracts. We utilize bonding facilities to support such obligations, but the issuance of bonds under those facilities is typically at the surety's discretion. These bonds generally indemnify customers should we fail to perform our obligations under the applicable contracts. We, and certain of our subsidiaries, have jointly executed general agreements of indemnity in favor of surety underwriters relating to surety bonds those underwriters issue in support of some of our contracting activity. As of December 31, 2022, bonds issued and outstanding under these arrangements in support of contracts totaled approximately $320.6 million. The aggregate value of the letters of credit backstopping surety bonds was $14.1 million.
Our ability to obtain and maintain sufficient capacity under our debt facilities is essential to allow us to support the issuance of letters of credit, bank guarantees and surety bonds. Without sufficient capacity, our ability to support contract security requirements in the future will be diminished.
Our evaluation of strategic alternatives for certain businesses and non-core assets may not result in a successful transaction.
We continue to evaluate strategic alternatives for our business lines and assets to improve the Company's capital structure. There can be no assurance that these ongoing strategic evaluations will result in the identification or consummation of any transaction. We may incur substantial expenses associated with identifying and evaluating potential strategic alternatives. The process of exploring strategic alternatives may be time consuming and disruptive to our business operations, and if we are unable to effectively manage the process, our business, financial condition and results of operations could be adversely affected. We cannot assure that any potential transaction or other strategic alternative, if identified, evaluated and
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consummated, will prove to be beneficial to shareholders and that the process of identifying, evaluating and consummating any potential transaction or other strategic alternative will not adversely impact our business, financial condition or results of operations. Any potential transaction would be dependent upon a number of factors that may be beyond our control, including, among other factors, market conditions, industry trends, the interest of third parties in our business, the availability of financing to potential buyers on reasonable terms, and the consent of our lenders.
In addition, while this strategic evaluation continues, we are exposed to risks and uncertainties, including potential difficulties in retaining and attracting key employees, distraction of our management from other important business activities, and potential difficulties in establishing and maintaining relationships with customers, suppliers, lenders, sureties and other third parties, all of which could harm our business.
Our total assets include goodwill and other indefinite-lived intangible assets. If we determine these have become impaired, our business, financial condition and results of operations could be materially adversely affected.
Goodwill represents the excess of cost over the fair market value of net assets acquired in business combinations. Indefinite-lived intangibles are comprised of certain trademarks and tradenames. At December 31, 2022, goodwill and other indefinite-lived intangible assets totaled $217.3 million. We review goodwill and other intangible assets at least annually for impairment and any excess in carrying value over the estimated fair value is charged to the Consolidated Statement of Operations. During the quarter ended September 30, 2022, the Company recorded impairment losses related to the Babcock & Wilcox Solar reporting unit of $7.2 million. No indicators of goodwill impairment were identified for the Company's other reporting units at the measurement date. Future impairment may result from, among other things, deterioration in the performance of an acquired business or product line, adverse market conditions and changes in the competitive landscape, adverse changes in applicable laws or regulations, including changes that restrict the activities of an acquired business or product line, and a variety of other circumstances. If the value of our business were to decline, or if we were to determine that we were unable to recognize an amount in connection with any proposed disposition in excess of the carrying value of any disposed asset, we may be required to recognize impairments for one or more of our assets that may adversely impact our business, financial condition and results of operations.
We are exposed to credit risk and may incur losses as a result of such exposure.
We conduct our business by obtaining orders that generate cash flows in the form of advances, contract progress payments and final balances in accordance with the underlying contractual terms. We are thus exposed to potential losses resulting from contractual counterparties' failure to meet their obligations. As a result, the failure by customers to meet their payment obligations, or a mere delay in making those payments, could reduce our liquidity and increase the need to resort to other sources of financing, with possible adverse effects on our business, financial condition, results of operations and cash flows. In some cases, we have joint and several liability with consortium partners in our projects and we may be subject to additional losses if our partners are unable to meet their contractual obligations.
In addition, the deterioration of macroeconomic conditions or negative trends in the global credit markets could have a negative impact on relationships with customers and our ability to collect on trade receivables, with possible adverse effects on our business, financial condition, results of operations and cash flows.
The transition away from LIBOR may negatively impact our operating results.
The London interbank offered rate ("LIBOR"), is the interest rate benchmark previously used as a reference rate on our variable rate debt. The use of LIBOR is expected to be phased out by June 2023. The Financial Accounting Standards Board (“FASB”) has provided for entities to elect certain optional expedients and exceptions when accounting for certain instruments affected by changes in the interest rates through December 31, 2024.
On March 15, 2022, the Adjustable Interest Rate (LIBOR) Act (the “LIBOR ACT”) was signed into law. Under the LIBOR Act, the Board of Governors of the Federal Reserve System is directed to select the Secured Overnight Financing Rate (“SOFR”), published by the Federal Reserve Bank of New York, as the replacement rate for contracts that reference LIBOR as a benchmark rate and that do not contain either a specified replacement rate or a replacement mechanism after USD LIBOR ceases publication. In addition, recent New York state legislation effectively codified the use of SOFR as the alternative to LIBOR in the absence of another chosen replacement rate, which may affect contracts governed by New York state law, including our Revolving Credit Agreement. SOFR is calculated differently from LIBOR and the inherent differences between LIBOR and SOFR or any other alternative benchmark rate gives rise to many uncertainties, including the
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need to amend existing debt instruments and the need to choose alternative reference rates in new contracts. The consequences of these developments with respect to LIBOR cannot be entirely predicted and span multiple future periods but could result in an increase in the cost of our variable rate debt which may be detrimental to our financial position or operating results.
As of December 31, 2022, no borrowings have occurred under the Revolving Credit Agreement that are currently subject to changes in LIBOR. Our senior notes have fixed interest rates and are not subject to changes in other benchmark borrowing rates.
Any period of interest rate increases may adversely affect the Company’s profitability. As of December 31, 2022, less than 1% of the Company's indebtedness bears interest at rates that float with the market. A higher level of floating rate debt would increase the exposure to changes in interest rates.
Risks Related to Intellectual Property and Information Security
A disruption in, or failure of our information technology systems, including those related to cybersecurity, could adversely affect our business operations and financial performance.
We rely on information technology systems, including the Internet, to process, transmit and store electronic sensitive and confidential information, to manage and support a variety of business processes and activities and to comply with regulatory, legal and tax requirements. While we maintain some of our critical information technology systems, we are also dependent on third parties to provide important information technology services relating to, among other things, human resources, electronic communications and certain finance functions.
We face various threats to our information technology systems, including cyber threats, threats to the physical security of our facilities and infrastructure from natural or man-made incidents or disasters, threats from insider and terrorist acts, as well as the potential for business disruptions associated with these threats. We have been, and will likely continue to be, subject to cyber-based attacks and other attempts to threaten our information technology systems and the software we sell. A cyber-based attack could include attempts to gain unauthorized access to our proprietary information and attacks from malicious third parties using sophisticated, targeted methods to circumvent firewalls, encryption and other security defenses, including hacking, fraud, phishing scams or other forms of deception. Although we utilize a combination of tailored and industry standard security measures and technology to monitor and mitigate these threats, we cannot guarantee that these measures and technology will be sufficient to prevent current and future threats to our information technology networks and systems from materializing. Furthermore, we may have little or no in into security measures employed by third-party service providers, which could ultimately prove to be a vector of a cyber threat.
If these systems are damaged, intruded upon, attacked, shutdown or cease to function properly, whether by misconfiguration, planned upgrades, force majeure events, telecommunication failures, malware or viruses, or other cybersecurity incidents and our business continuity plans do not mitigate the issues in a timely manner, the services we provide to customers, the value of our investment in research and development efforts and other intellectual property, our product sales, our ability to comply with regulations related to information contained on our information technology systems, our financial condition, results of operations and stock price may be materially and adversely affected, and we could experience delays in reporting our financial results. In addition, there is a risk of business interruption, litigation with third parties, reputational damage from loss of confidential information or the software we sell being compromised, and increased cybersecurity protection and remediation costs due to the increasing sophistication and proliferation of threats. The costs related to cyber or other security threats or disruptions may not be fully insured or indemnified by other means.
To address risks to our information technology systems, we continue to invest in our systems and training of company personnel. As necessary, we replace and/or upgrade financial, human resources and other information technology systems. These activities subject us to inherent costs and risks associated with replacing and updating these systems, including potential disruption of our internal control structure, substantial capital expenditures, demands on management time and other risks of delays or difficulties in transitioning to new systems or of integrating new systems into our current systems. Our systems implementations and upgrades may not result in productivity improvements at the levels anticipated, or at all. In addition, the implementation of new technology systems may cause disruptions in our business operations. Such disruption and any other information technology system disruptions, and our ability to mitigate those disruptions, if not anticipated and appropriately mitigated, could have a material adverse effect on our financial condition, results of operations and stock price.
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Privacy and information security laws are complex, and if we fail to comply with applicable laws, regulations and standards, or if we fail to properly maintain the integrity of our data, protect our proprietary rights to our systems or defend against cybersecurity attacks, we may be subject to government or private actions due to privacy and security breaches, any of which could have a material adverse effect on our business, financial condition and results of operations or materially harm our reputation.
We are subject to a variety of laws and regulations in the United States and other countries that involve matters central to our business, including user privacy, security, rights of publicity, data protection, content, intellectual property, distribution, electronic contracts and other communications, competition, protection of minors, consumer protection, taxation, and online-payment services. These laws can be particularly restrictive in countries outside the United States. Both in the United States and abroad, these laws and regulations constantly evolve. In addition, the application and interpretation of these laws and regulations are often uncertain, particularly in the new and rapidly evolving industry in which we operate. Because we store, process, and use data, some of which contains personal information, we are subject to complex and evolving federal, state, and foreign laws and regulations regarding privacy, data protection, content, and other matters. Many of these laws and regulations are subject to change and uncertain interpretation, and could result in investigations, claims, changes to our business practices, increased cost of operations, and declines in user growth, retention, or engagement, any of which could seriously harm our business.
Several proposals have been adopted or are currently pending before federal, state, and foreign legislative and regulatory bodies that could significantly affect our business. The General Data Protection Regulation, or GDPR, in the European Union, which went into effect on May 25, 2018, placed new data protection obligations and restrictions on organizations. If we are not compliant with GDPR requirements, we may be subject to significant fines and our business may be seriously harmed. In addition, the California Consumer Privacy Act and its significant modifications that are effective in 2023 placed additional requirements on the handling of personal data.
We rely on intellectual property law and confidentiality agreements to protect our intellectual property. We also rely on intellectual property we license from third parties. Our failure to protect our intellectual property rights, or our inability to obtain or renew licenses to use intellectual property of third parties, could adversely affect our business.
Our success depends, in part, on our ability to protect our proprietary information and other intellectual property. Our intellectual property could be stolen, challenged, invalidated, circumvented or rendered unenforceable. In addition, effective intellectual property protection may be limited or unavailable in some foreign countries where we operate.
Our failure to protect our intellectual property rights may result in the loss of valuable technologies or adversely affect our competitive business position. We rely significantly on proprietary technology, information, processes and know-how that are not subject to patent or copyright protection. We seek to protect this information through trade secret or confidentiality agreements with our employees, consultants, subcontractors or other parties, as well as through other security measures. These agreements and security measures may be inadequate to deter or prevent misappropriation of our confidential information. In the event of an infringement of our intellectual property rights, a breach of a confidentiality agreement or divulgence of proprietary information, we may not have adequate legal remedies to protect our intellectual property. Litigation to determine the scope of intellectual property rights, even if ultimately successful, could be costly and could divert management's attention away from other aspects of our business. In addition, our trade secrets may otherwise become known or be independently developed by competitors.
In some instances, we have augmented our technology base by licensing the proprietary intellectual property of third parties. In the future, we may not be able to obtain necessary licenses on commercially reasonable terms, which could have a material adverse effect on our operations.
Risks Related to Government Regulation
We are subject to government regulations that may adversely affect our future operations.
Many aspects of our operations and properties are affected by political developments and are subject to both domestic and foreign governmental regulations, including those relating to:
•the construction and manufacture of renewable, environmental and thermal products;
•clean air and other environmental protection legislation;
•taxation of domestic and foreign earnings;
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•tariffs, duties, or trade sanctions and other trade barriers imposed by foreign countries that restrict or prohibit business transactions in certain markets or in certain goods;
•user privacy, security, data protection, content, and online-payment services;
•intellectual property;
•transactions in or with foreign countries or officials; and
•use of local employees and suppliers.
In addition, a substantial portion of the demand for our products and services is from electric power generating companies and other steam-using customers. The demand for power generation products and services can be influenced by governmental legislation setting requirements for utilities related to operations, emissions and environmental impacts. The legislative process is unpredictable and includes a platform that continuously seeks to increase the restrictions on power producers. Potential legislation limiting emissions from power plants, including carbon dioxide, could affect our markets and the demand for our products and services related to power generation.
We cannot determine the extent to which our future operations and earnings may be affected by new legislation, new regulations or changes in existing regulations.
Our business and our customers'customers’ businesses are required to obtain, and to comply with, national, state and local government permits and approvals.
Our business and our customers'customers’ businesses are required to obtain, and to comply with, national, state and local government permits and approvals. Any of these permits or approvals may be subject to denial, revocation or modification under various circumstances. Failure to obtain or comply with the conditions of permits or approvals may adversely affect our operations by temporarily suspending our activities or curtailing our work and may subject us to penalties and other sanctions. Although existing licenses are routinely renewed by various regulators, renewal could be denied or jeopardized by various factors, including:including, but not limited to:
•failure to comply with environmental and safety laws and regulations or permit conditions;
•local community, political or other opposition;
•executive action; and
•legislative action.
In addition, if new environmental legislation or regulations are enacted or implemented, or existing laws or regulations are amended or are interpreted or enforced differently, we or our customers may be required to obtain additional operating permits or approvals. Our inability or our customers' inability to obtain, and to comply with, the permits and approvals required for our business could have a material adverse effect on us.
Risks Related to Environmental Regulation
Our operations are subject to various environmental laws and legislation that may become more stringent in the future.
Our operations and properties are subject to a wide variety of increasingly complex and stringent foreign, federal, state and local environmental laws and regulations, including those governing discharges into the air and water, the handling and disposal of solid and hazardous wastes, the remediation of soil and groundwater contaminated by hazardous substances and the health and safety of employees. Sanctions for noncompliance may include revocation of permits, corrective action orders, administrative or civil penalties and criminal prosecution. Some environmental laws provide for strict, joint and several liability for remediation of spills and other releases of hazardous substances, as well as damage to natural resources. In addition, companies may be subject to claims alleging personal injury or property damage as a result of alleged exposure to hazardous substances. Such laws and regulations may also expose us to liability for the conduct of or conditions caused by others or for our acts that were in compliance with all applicable laws at the time such acts were performed.
We cannot predict all of the environmental requirements or circumstances that will exist in the future but anticipate that environmental control and protection standards will become increasingly stringent and costly. Based on our experience to date, we do not currently anticipate any material adverse effect on our business or financial condition as a result of future compliance with existing environmental laws and regulations. However, future events, such as changes in existing laws and regulations or their interpretation, more vigorous enforcement policies of regulatory agencies or stricter or different interpretations of existing laws and regulations, may require additional expenditures by us, which may be material. Accordingly, we can provide no assurance that we will not incur significant environmental compliance costs in the future.
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Our operations involve the handling, transportation and disposal of hazardous materials, and environmental laws and regulations and civil liability for contamination of the environment or related personal injuries may result in increases in our operating costs and capital expenditures and decreases in our earnings and cash flows.
Our operations involve the handling, transportation and disposal of hazardous materials. Failure to properly handle these materials could pose a health risk to humans or wildlife and could cause personal injury and property damage (including environmental contamination). If an accident were to occur, its severity could be significantly affected by the volume of the materials and the speed of corrective action taken by emergency response personnel, as well as other factors beyond our control, such as weather and wind conditions. Actions taken in response to an accident could result in significant costs.
Governmental requirements relating to the protection of the environment, including solid waste management, air quality, water quality and cleanup of contaminated sites, have in the past had a substantial impact on our operations. These requirements are complex and subject to frequent change. In some cases, they can impose liability for the entire cost of cleanup on any responsible party without regard to negligence or fault and impose liability on us for the conduct of others or conditions others have caused, or for our acts that complied with all applicable requirements when we performed them. Our compliance with amended, new or more stringent requirements, stricter interpretations of existing requirements or the future discovery of contamination may require us to make material expenditures or subject us to liabilities that we currently do not
anticipate. Such expenditures and liabilities may adversely affect our business, financial condition, results of operations and cash flows. In addition, some of our operations and the operations of predecessor owners of some of our properties have exposed us to civil claims by third parties for liability resulting from alleged contamination of the environment or personal injuries caused by releases of hazardous substances into the environment.
In our contracts, we seek to protect ourselves from liability associated with accidents, but there can be no assurance that such contractual limitations on liability will be effective in all cases or that our or our customers' insurance will cover all the liabilities we have assumed under those contracts. The costs of defending against a claim arising out of a contamination incident or precautionary evacuation, and any damages awarded as a result of such a claim, could adversely affect our results of operations and financial condition.
We maintain insurance coverage as part of our overall risk management strategy and due to requirements to maintain specific coverage in our financing agreements and in many of our contracts. These policies do not protect us against all liabilities associated with accidents or for unrelated claims. In addition, comparable insurance may not continue to be available to us in the future at acceptable prices, or at all.
Risks Related to Our International Operations
Our business may also be affected by new sanctions and export controls targeting Russia and other responses to Russia's invasion of Ukraine.
As a result of Russia's invasion of Ukraine, the United States, the United Kingdom and the European Union governments, among others, have developed coordinated sanctions and export control measure packages.
Based on the public statements to date, these packages may include:
•comprehensive financial sanctions against Russian banks (including SWIFT cut off);
•additional designations of Russian individuals with significant business interests and government connections;
•designations of individuals and entities involved in Russian military activities;
•enhanced export controls and trade sanctions targeting Russia's import of certain goods;
•closure of airspace to Russian aircraft.
Moreover, as the Russian invasion of Ukraine continues, there can be no certainty regarding whether such governments or other governments will impose additional sanctions, export controls or other economic or military measures against Russia.
We do not currently have contracts directly with Russian entities or businesses and we currently do not do business in Russia directly. We believe the Company’s only involvement with Russia or Russian-entities, involves sales of our products by a wholly-owned Italian subsidiary of the Company to non-Russian counterparties who may resell our products to Russian entities or perform services in Russia using our products. The economic sanctions and export-control measures and the
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ongoing invasion of Ukraine could impact our subsidiary’s rights and responsibilities under the contracts and could result in potential losses to the Company.
The impact of the invasion of Ukraine, including economic sanctions and export controls or additional war or military conflict, as well as potential responses to them by Russia, is currently unknown and they could adversely affect our business, supply chain, partners or customers. In addition, the continuation of the invasion of Ukraine by Russia could lead to other disruptions, instability and volatility in global markets and industries that could negatively impact our operations.
We could be adversely affected by violations of the United States Foreign Corrupt Practices Act, the UK Anti-Bribery Act or other anti-bribery laws.
The United States Foreign Corrupt Practices Act (the "FCPA"“FCPA”) generally prohibits companies and their intermediaries from making improper payments to non-United States government officials. Our training program, audit process and policies mandate compliance with the FCPA, the UK Anti-Bribery Act (the "UK Act"“UK Act”) and other anti-bribery laws. We operate in some parts of the world that have experienced governmental corruption to some degree, and, in some circumstances, strict compliance with anti-bribery laws may conflict with local customs and practices. If we are found to be liable for violations of the FCPA, the UK Act or other anti-bribery laws (either due to our own acts or our inadvertence, or due to the acts or inadvertence of others, including agents, promoters or employees of our joint ventures), we could suffer from civil and criminal penalties or other sanctions.
Our international operations are subject to political, economic and other uncertainties not generally encountered in our domestic operations.
We derive a substantial portion of our revenues and equity in income of investees from international operations, and we intend to continue to expand our international operationspresence and customer base as part of our growth strategy. Our revenues from sales to customers located outside of the United States represented approximately 51%44%, 46%40% and 41% 45%of total revenues for the years ended December 31, 2017, 20162022, 2021 and 2015,2020, respectively. Operating in international markets requires significant resources and management attention and subjects us to political, economic and regulatory risks that are not generally encountered in our United States operations. These include:include, but are not limited to:
•risks of war, terrorism and civil unrest;
•expropriation, confiscation or nationalization of our assets;
•renegotiation or nullification of our existing contracts;
•changing political conditions and changing laws and policies affecting trade and investment;
•overlap of different tax structures; and
•risk of changes in foreign currency exchange rates.rates; and
•tariffs, price controls and trade agreements and disputes.
Various foreign jurisdictions have laws limiting the right and ability of foreign subsidiaries and joint ventures to pay dividends and remit earnings to affiliated companies. Our international operations sometimes face the additional risks of fluctuating currency values, hard currency shortages and controls of foreign currency exchange. If we continue to expand our business globally, our success will depend, in part, on our ability to anticipate and effectively manage these and other risks. These and other factors may have a material impact on our international operations or our business as a whole.
International uncertainties and fluctuations in the value of foreign currencies could harm our profitability.
We have international operations primarily in Europe, Canada, and Canada.Mexico. For the year ended December 31, 2017,2022, international operations accounted for approximately 51%44% of our total revenues. Our significant international subsidiaries may have sales and cost of sales in different currencies as well as other transactions that are denominated in currencies other than their functional currency. WeAlthough we do not currently engage in currency hedging activities, we evaluate opportunities to engage in hedging in order to limit the risks of currency fluctuations. Consequently, fluctuations in foreign currencies could have a negative impact on the profitability of our global operations, which would harm our financial results and cash flows.
Changes in U.S. domestic and resultsglobal tariff frameworks have increased our costs of operations in the future.
our supply chain. We have
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Risks RelatingRelated to Ownership of Our Common Stock
The market price and trading volume of our common stock may be volatile.
The market price of our common stock could fluctuate significantly in future periods due to a number of factors, many of which are beyond our control, including:including, but not limited to:
•fluctuations in our quarterly or annual earnings or those of other companies in our industry;
•failures of our operating results to meet the estimates of securities analysts or the expectations of our stockholdersshareholders or changes by securities analysts in their estimates of our future earnings;
•announcements by us or our customers, suppliers or competitors;
•the depth and liquidity of the market for B&Wour common stock;
•changes in laws or regulations that adversely affect our industry or us;
•changes in accounting standards, policies, guidance, interpretations or principles;
•general economic, industry and stock market conditions;
•future sales of our common stock by our stockholders;shareholders;
•the concentration of ownership of our common stock;
•future issuances of our common stock by us;
•our ability to pay dividends in the future; and
•the other risk factors described in these "Risk Factors"set forth under Part I, Item 1A and other parts of this annual report.Annual Report.
Substantial sales, or the perception of sales, of our common stock by us or certain of our existing shareholders could cause our stock price to decline and future issuances by us may dilute our common stockholders'shareholders' ownership in B&W.the Company.
Sales of a substantial number of shares of our common stock in the public market, or the perception that these sales might occur, could depress the market price of our common stock and could impair our ability to raise capital through the sale of additional equity securities. As of December 31, 2017,2022, we havehad an aggregate of approximately 44.188.7 million shares of common stock outstanding. outstanding, approximately 27.3 million shares of which were held by B. Riley. We entered into a registration rights agreement with B. Riley and other shareholder on April 30, 2019, pursuant to which B. Riley has customary demand and piggyback registration rights for all shares of our common stock they beneficially own. We filed a resale shelf registration statement on behalf of the shareholders party to the registration rights agreement permitting the resale of approximately 25.6 million shares of our common stock that were issued to B. Riley and the other shareholders party thereto. We are also required to register for resale any additional shares of our common stock that B. Riley may acquire in the future.
Any sales of substantial amounts of our common stock, or the perception that these sales might occur, could lower the market price of our common stock and impede our ability to raise capital through the issuance of equity securities. Any sales, or perception of sales, by our existing shareholders could also impact the perception of shareholder support for us. which could in turn negatively affect our customer and supplier relationships. Further, if we were to issue additional equity securities (or securities convertible into or exchangeable or exercisable for equity securities) to raise
additional capital, our stockholders'shareholders' ownership interests in B&Wthe Company will be diluted and the value of our common stock may be reduced.
B. Riley has significant influence over us.
As of December 31, 2022, B. Riley controls approximately 30.8% of the voting power represented by our common stock. B. Riley currently has the right to nominate one member of our board of directors pursuant to the investor rights agreement we entered into with them on April 30, 2019. The investor rights agreement also provides pre-emptive rights to B. Riley with respect to certain future issuances of our equity securities. The services of our Chief Executive Officer are provided to us by B. Riley pursuant to a consulting agreement. In addition, our Chief Executive Officer also serves as our Chairman of the Board. As a result of these arrangements, B. Riley has significant influence over our management and policies and over all matters requiring shareholder approval, including the election of directors, amendment of our certificate of incorporation and approval of significant corporate transactions. If B. Riley were to act together with other shareholders on any matter presented for shareholder approval, they could have the ability to control the outcome of that matter. B. Riley can take actions that have the effect of delaying or preventing a change of control of us or discouraging others from making tender offers for our shares, which could prevent shareholders from receiving a premium for their shares. These actions may be taken even if other shareholders oppose them. In addition, the concentration of voting power with B. Riley may have an adverse effect on
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the price of our common stock, and the interests of B. Riley may not be consistent with the interests of our other shareholders.
We do not currently pay regular dividends on our common stock, so holders of our common stock may not receive funds without selling their shares of our common stock.
We have no current intent to pay a regular dividend and dividend payments are restricted byon our lending agreements.common stock. Our board of directors will determine the payment of future dividends on our common stock, if any, and the amount of any dividends in light of applicable law, contractual restrictions limiting our ability to pay dividends, our earnings and cash flows, our capital requirements, our financial condition, and other factors our board of directors deems relevant. Accordingly, our stockholdersshareholders may have to sell some or all of their shares of our common stock in order to generate cash flow from their investment.
We may issue preferred stock that could dilute the voting power or reduce the value of our common stock.
Our certificate of incorporation authorizes us to issue, without the approval of our stockholders,shareholders, one or more classes or series of preferred stock having such designation, powers, preferences and relative, participating, optional and other special rights, including preferences over our common stock respecting dividends and distributions, as our board of directors generally may determine. The terms of one or more classes or series of preferred stock could dilute the voting power or reduce the value of our common stock. For example, we could grant holders of preferred stock the right to elect some number of our directors in all events or on the happening of specified events or the right to veto specified transactions. Similarly, the repurchase or redemption rights or liquidation preferences we could assign to holders of preferred stock could affect the residual value of the common stock.
In the year ended December 31, 2021, we issued 7.7 million shares of our 7.75% Series A Cumulative Perpetual Preferred Stock. The Company sold no additional Preferred Stock pursuant to the sales agreement in the year ended December 31, 2022.
Provisions in our corporate documents and Delaware law could delay or prevent a change in control of the Company, even if that change may be considered beneficial by some shareholders.
The existence of some provisions of our certificate of incorporation and bylaws and Delaware law could discourage, delay or prevent a change in control of the Company that a shareholder may consider favorable.
In addition, we are subject to Section 203 of the Delaware General Corporation Law, which may have an anti-takeover effect with respect to transactions not approved in advance by our board of directors, including discouraging takeover attempts that might result in a premium over the market price for shares of our common stock.
We believe these provisions protect our shareholders from coercive or otherwise unfair takeover tactics by requiring potential acquirers to negotiate with our board of directors and by providing our board of directors with more time to assess any acquisition proposal and are not intended to make the Company immune from takeovers. However, these provisions apply even if the offer may be considered beneficial by some shareholders and could delay or prevent an acquisition that our board of directors determines is in the best interests of the Company and our shareholders.
Risks Relating to our 2015 Spin-Off from our Former Parent
We are subject to continuing contingent liabilities of BWXT following the spin-off.
We completed a spin-off from The Babcock & Wilcox Company (now known as BWX Technologies, Inc., or “BWXT”), on June 30, 2015 to become a separate publicly traded company, and BWXT did not retain any ownership interest in the Company. As a result of the spin-off, there are several significant areas where the liabilities of BWXT may become our obligations. For example, under the Internal Revenue Code ("Code") and the related rules and regulations, each corporation that was a member of BWXT consolidated tax reporting group during any taxable period or portion of any taxable period ending on or before the completion of the spin-off is jointly and severally liable for the federal income tax liability of the entire consolidated tax reporting group for that taxable period. We entered into a tax sharing agreement with BWXT in connection with the spin-off that allocates the responsibility for prior period taxes of BWXT consolidated tax reporting group between us and BWXT and its subsidiaries. However, if BWXT were unable to pay, we could be required to pay the entire amount of such taxes. Other provisions of law establish similar liability for other matters, including laws governing tax-
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qualified pension plans as well as other contingent liabilities. The other contingent liabilities include personal injury claims or environmental liabilities related to BWXT's historical nuclear operations. For example, BWXT has agreed to indemnify us for personal injury claims and environmental liabilities associated with radioactive materials related to the operation, remediation, and/or decommissioning of two former nuclear fuel processing facilities located in the Borough of Apollo and Parks Township, Pennsylvania. To the extent insurance providers and third-party indemnitors do not cover those liabilities, and BWXT was unable to pay, we could be required to pay for them.
The spin-off could result in substantial tax liability.
The spin-off was conditioned on BWXT's receipt of an opinion of counsel, in form and substance satisfactory to BWXT, substantially to the effect that, for United States federal income tax purposes, the spin-off qualifies under Section 355 of the Code, and certain transactions related to the spin-off qualify under Sections 355 and/or 368 of the Code. The opinion relied on, among other things, various assumptions and representations as to factual matters made by BWXT and us which, if inaccurate or incomplete in any material respect, would jeopardize the conclusions reached by such counsel in its opinion. The opinion is not binding on the IRS or the courts, and there can be no assurance that the IRS or the courts will not challenge the conclusions stated in the opinion or that any such challenge would not prevail.
We are not aware of any facts or circumstances that would cause the assumptions or representations that were relied on in the opinion to be inaccurate or incomplete in any material respect. If, notwithstanding receipt of the opinion, the spin-off was determined not to qualify under Section 355 of the Code, each United States holder of BWXT common stock who received shares of our common stock in the spin-off would generally be treated as receiving a taxable distribution of property in an amount equal to the fair market value of the shares of our common stock received. In addition, if certain related preparatory transactions were to fail to qualify for tax-free treatment, they would be treated as taxable asset sales and/or distributions.
Under the terms of the tax sharing agreement we entered into in connection with the spin-off, we are generally responsible for all taxes attributable to us or any of our subsidiaries, whether accruing before, on or after the date of the spin-off. We and BWXT generally share responsibility for all taxes imposed on us or BWXT and its subsidiaries in the event the spin-off and/or certain related preparatory transactions were to fail to qualify for tax-free treatment. However, if the spin-off and/or certain related preparatory transactions were to fail to qualify for tax-free treatment because of actions or failures to act by us or BWXT, we or BWXT, respectively would be responsible for all such taxes. Our liabilities under the tax sharing agreement could have a material adverse effect on us. At this time, we cannot precisely quantify the amount of liabilities we may have under the tax sharing agreement and there can be no assurances as to their final amounts.
Under some circumstances, we could be liable for any resulting adverse tax consequences from engaging in certain significant strategic or capital raising transactions.
Even if the spin-off otherwise qualifies as a tax-free distribution under Section 355 of the Code, the spin-off and certain related transactions may result in significant United States federal income tax liabilities to us under Section 355(e) and other applicable provisions of the Code if 50% or more of BWXT's stock or our stock (in each case, by vote or value) is treated as having been acquired, directly or indirectly, by one or more persons as part of a plan (or series of related transactions) that includes the spin-off. The process for determining whether an acquisition triggering those provisions has occurred is complex, inherently factual and subject to interpretation of the facts and circumstances of a particular case.
Under the terms of the tax sharing agreement we entered into in connection with the spin-off, BWXT generally is liable for any such tax liabilities. However, we are required to indemnify BWXT against any such tax liabilities that result from actions taken or failures to act by us. As a result of these rules and contractual provisions, we may be unable to engage in certain strategic or capital raising transactions that our shareholders might consider favorable, or to structure potential transactions in the manner most favorable to us, without certain adverse tax consequences.
Potential indemnification liabilities to BWXT pursuant to the master separation agreement could materially adversely affect the Company.
The master separation agreement with BWXT provides for, among other things, the principal corporate transactions required to effect the spin-off, certain conditions to the spin-off and provisions governing the relationship between us and BWXT with respect to and resulting from the spin-off. Among other things, the master separation agreement provides for indemnification obligations designed to make us financially responsible for substantially all liabilities that may exist relating to our business activities, whether incurred prior to or after the spin-off, as well as those obligations of BWXT assumed by us pursuant to the
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master separation agreement. If we are required to indemnify BWXT under the circumstances set forth in the master separation agreement, we may be subject to substantial liabilities.
In connection with our separation from BWXT, BWXT has agreed to indemnify us for certain liabilities. However, there can be no assurance that the indemnity will be sufficient to insure us against the full amount of such liabilities, or that BWXT's ability to satisfy its indemnification obligation will not be impaired in the future.
Pursuant to the master separation agreement, BWXT has agreed to indemnify us for certain liabilities. However, third parties could seek to hold us responsible for any of the liabilities that BWXT agreed to retain, and there can be no assurance that the indemnity from BWXT will be sufficient to protect us against the full amount of such liabilities, or that BWXT will be able to fully satisfy its indemnification obligations. Moreover, even if we ultimately succeed in recovering from BWXT any amounts for which we are held liable, we may be temporarily required to bear these losses.
General Risk Factors
Our reported financial results may be adversely affected by new accounting pronouncements or changes in existing accounting standards and practices, which could result in volatility in our results of operations.
We prepare our financial statements in conformity with accounting principles generally accepted in the U.S. These accounting principles are subject to interpretation or changes by the FASB and the SEC. New accounting pronouncements and varying interpretations of accounting standards and practices have occurred in the past and are expected to occur in the future. New accounting pronouncements or a change in the interpretation of existing accounting standards or practices may have a significant effect on our reported financial results and may even affect our reporting of transactions completed before the change is announced or effective.
Any difficulties in adopting or implementing any new accounting standard could result in our failure to meet our financial reporting obligations, which could result in regulatory discipline and harm investors’ confidence in us. Finally, if we were to change our critical accounting estimates, our operating results could be significantly affected.
We could be subject to changes in tax rates or tax law, adoption of new regulations, changing interpretations of existing law or exposure to additional tax liabilities in excess of accrued amounts that could adversely affect our financial position.
We are subject to income taxes in the United States and numerous foreign jurisdictions. A change in tax laws, treaties or regulations, or in their interpretation, in any country in which we operate could result in a higher tax rate on our earnings, which could have a material impact on our earnings and cash flows from operations. Tax reform legislation enacted in December of 2017 has made substantial changes to United States tax law, including a reduction in the corporate tax rate, a limitation on deductibility of interest expense, a limitation on the use of net operating losses to offset future taxable income, the allowance of immediate expensing of capital expenditures and the transition of U.S. international taxation from a worldwide tax system to a more generally territorial system, and a one-time transition tax on the mandatory deemed repatriation of foreign earnings. Generally, future changes in applicable U.S. or foreign tax laws and regulations, or their interpretation and application could have an adverse effect on our business, financial conditions and results of operations.
Significant judgment is required in determining our worldwide provision for income taxes. In the ordinary course of our business, there are many transactions and calculations where the ultimate tax determination is uncertain, and we are regularly subject to audit by tax authorities. Although we believe that our tax estimates and tax positions are reasonable, they could be materially affected by many factors including the final outcome of tax audits and related litigation, the introduction of new tax accounting standards, legislation, regulations and related interpretations, our global mix of earnings, the ability to realize deferred tax assets and changes in uncertain tax positions. A significant increase in our tax rate could have a material adverse effect on our profitability and liquidity.
Our ability to use net operating losses (“NOLs”) and certain tax credits to reduce future tax payments could be further limited if we experience an additional “ownership change”.
Some or all of the Company's deferred tax assets, consisting primarily of NOLs and interest carryforwards that are not currently deductible for tax purposes, could expire unused if we are unable to generate sufficient taxable income in the future to take advantage of them or if we enter into transactions that limit our right to use them, which includes transactions that result in an “ownership change” under Section 382 of the Code.
28
Sections 382 and 383 of the Code limits for U.S. federal income tax purposes, the annual use of NOL carryforwards, disallowed interest carryforwards and tax credit carryforwards, respectively, following an ownership change. Under Section 382 of the Code, a company has undergone an ownership change if shareholders owning at least 5% of the company have increased their collective holdings by more than 50% during the prior three-year period. Based on information that is publicly available, the Company determined that a Section 382 ownership change occurred on July 23, 2019 as a result of the Equitization Transactions. If the Company experiences subsequent ownership changes, certain NOL carryforwards (including previously disallowed interest carryforwards) may be subject to more than one section 382 limitation.
The loss of the services of one or more of our key personnel, or our failure to attract, recruit, motivate, and retain qualified personnel in the future, could disrupt our business and harm our results of operations.
We depend on the skills, working relationships, and continued services of key personnel, including our management team and others throughout our organization. We are also dependent on our ability to attract and retain qualified personnel, for whom we compete with other companies both inside and outside our industry. Our business, financial condition or results of operations may be adversely impacted by the unexpected loss of any of our management team or other key personnel, or more generally if we fail to attract, recruit, motivate and retain qualified personnel.
We outsource certain business processes to third-party vendors and have certain business relationships that subject us to risks, including disruptions in business which could increase our costs.
We outsource some of our business processes to third-party vendors. We make a diligent effort to ensure that all providers of these outsourced services are observing proper internal control practices; however, there are no guarantees that failures will not occur. Failure of third parties to provide adequate services or our inability to arrange for alternative providers on favorable terms in a timely manner could disrupt our business, increase our costs or otherwise adversely affect our business and our financial results.
Negotiations with labor unions and possible work stoppages and other labor problems could divert management's attention and disrupt operations. In addition, new collective bargaining agreements or amendments to existing agreements could increase our labor costs and operating expenses.
A significant number of our employees are members of labor unions. If we are unable to negotiate acceptable new contracts with our unions from time to time, we could experience strikes or other work stoppages by the affected employees. If any such strikes, protests or other work stoppages were to occur, we could experience a significant disruption of operations. In addition, negotiations with unions could divert management's attention. New union contracts could result in increased operating costs, as a result of higher wages or benefit expenses, for both union and nonunion employees. If nonunion employees were to unionize, we could experience higher ongoing labor costs.
Pension and medical expenses associated with our retirement benefit plans may fluctuate significantly depending on a number of factors, and we may be required to contribute cash to meet underfunded pension obligations.
A substantial portion of our current and retired employee population is covered by pension and postretirement benefit plans, the costs and funding requirements of which 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 mark to market 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.
As of December 31, 2022, our defined benefit pension and postretirement benefit plans were underfunded by approximately $130.1 million. In addition, certain of these postretirement benefit plans were collectively bargained, and our ability to curtail or change the benefits provided may be impacted by contractual provisions set forth in the relevant union agreements and other plan documents. We also participate in various multi-employer pension plans in the United States and Canada under union and industry agreements that generally provide defined benefits to employees covered by collective bargaining agreements. Absent an applicable exemption, a contributor to a United States multi-employer plan is liable, upon termination
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or withdrawal from a plan, for its proportionate share of the plan's underfunded vested liability. Funding requirements for benefit obligations of these multi-employer pension plans are subject to certain regulatory requirements, and we may be required to make cash contributions which may be material to one or more of these plans to satisfy certain underfunded benefit obligations. See Note 13 to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report for additional information regarding our pension and postretirement benefit plan obligations.
Natural disasters or other events beyond our control, such as war, armed conflicts or terrorist attacks could adversely affect our business.
Matters outside of our control could adversely affect demand for or supply of our products or disrupt our facilities, systems or projects, which could interrupt operational processes and performance on our contracts and adversely impact our ability to manufacture our products and provide services and support to our customers. Insurance for such matters may be unavailable or insufficient. Such matters could include natural disasters, such as earthquakes, tsunamis, hurricanes, floods, tornadoes, war, armed conflicts, or terrorist attacks, among others. We operate facilities in areas of the world that are exposed to such risks, which could be general in nature or targeted at us or our markets.
Item 1B. Unresolved Staff Comments
None
Item 2. Properties
The following table provides the primary segment, location and general use of each of our principal properties that we own or lease at December 31, 2017.
2022.
| Business Segment and Location | Principal Use | Owned/Leased (Lease Expiration) | ||||||
| Administrative office | ||||||||
| Esbjerg, Denmark | Manufacturing facility / administrative office | Owned | ||||||
| Leased | ||||||||
| Administrative office | Leased (2026) | |||||||
| Administrative | ||||||||
| Ding Xiang, Xin Zhou, Shan Xi, China | Manufacturing facility | Leased | ||||||
| Manufacturing facility | ||||||||
| Warehouse / service center | Leased (2033) | |||||||
| Manufacturing facility | Owned | |||||||
| Guadalupe, NL, Mexico | Manufacturing facility | Leased (2024) | ||||||
| Cambridge, Ontario, Canada | Administrative office / warehouse | Leased | ||||||
| Dartmouth, Nova Scotia, Canada | Manufacturing facility | Leased (2024) | ||||||
| Port Coquitlam, BC | Administrative office | Leased (2023) | ||||||
| Tulsa, Oklahoma | Administrative office | Leased (2023) | ||||||
Chanute, Kansas(1) | Manufacturing facility | Owned | ||||||
| Chanute, Kansas | Administrative office | Leased (2023) | ||||||
We believe that our major properties are adequate for our present needs and, as supplemented by planned improvements and construction, expect them to remain adequate for the foreseeable future.
Item 3. Legal Proceedings
For information regarding ongoing investigations and litigation, see Note 2122 to the consolidated financial statementsConsolidated Financial Statements included in Part II, Item 8 of this annual report,Annual Report, which we incorporate by reference into this Item.
Item 4. Mine Safety Disclosures.
Not Applicable.
PART II
Item 5. Market for Registrant's Common Equity Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock is traded on the New York Stock Exchange under the symbol BW. High and low common stock prices in the quarterly periods after our spin-off transaction through December 31, 2017 were as follows:
| Share Price | Dividends | ||||||||
| Quarter ended | High | Low | Per Share | ||||||
| June 30, 2015 | $ | 22.31 | $ | 17.12 | $ | — | |||
| September 30, 2015 | $ | 21.95 | $ | 16.40 | $ | — | |||
| December 31, 2015 | $ | 21.67 | $ | 15.86 | $ | — | |||
| March 31, 2016 | $ | 22.17 | $ | 17.95 | $ | — | |||
| June 30, 2016 | $ | 23.99 | $ | 14.32 | $ | — | |||
| September 30, 2016 | $ | 17.30 | $ | 14.27 | $ | — | |||
| December 31, 2016 | $ | 17.72 | $ | 12.90 | $ | — | |||
| March 31, 2017 | $ | 17.50 | $ | 8.54 | $ | — | |||
| June 30, 2017 | $ | 11.88 | $ | 8.58 | $ | — | |||
| September 30, 2017 | $ | 12.06 | $ | 1.61 | $ | — | |||
| December 31, 2017 | $ | 6.14 | $ | 3.28 | $ | — | |||
As of January 31, 2018,2023, there were approximately 1,800890 record holders of our common stock.
In August 2015,accordance with the provisions of the employee benefit plans, the we announcedcan acquire shares in connection with the vesting of employee restricted stock that our Boardrequire us to withhold shares to satisfy employee statutory income tax withholding obligations. We did not repurchase any of Directors authorized a share repurchase program. The following table provides information on our purchases of equity securities during the quarter ended December 31, 2017. Any shares purchased that were2022. The Company does not part ofhave a publicly announced plan orgeneral share repurchase program are related to repurchases of common stock pursuant to the provisions of employee benefit plans that permit the repurchase of shares to satisfy statutory tax withholding obligations.at this time.
(
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| Period | Total number of shares purchased (1) | Average price paid per share | Total number of shares purchased as part of publicly announced plans or programs | Approximate dollar value of shares that may yet be purchased under the plans or programs (in thousands) (2) | ||||||
| October 1, 2017 - October 31, 2017 | — | $— | — | $100,000 | ||||||
| November 1, 2017 - November 30, 2017 | 2,345 | $— | — | $100,000 | ||||||
| December 1, 2017 - December 31, 2017 | 6,544 | $— | — | $100,000 | ||||||
| Total | 8,889 | — | ||||||||
The following graph provides a comparison of our cumulative total shareholder return over five years through December 31, 20172022 to the return of the S&P 500, the Russell 2000 and our custom peer group.
Assumes initial investment of $100 on December 31, 2017.
The peer group used for the comparison above is comprised of the following companies:
| Curtiss-Wright Corp. | |||||||||
| Dycom Industries Inc. | |||||||||
| Chart Industries Inc. | Enerpac Tool Group Corp. | Primoris Services Corp. | |||||||
| Flowserve Corp. | SPX Corp. | ||||||||
| Tetra Tech, Inc. | |||||||||
Item 6. Selected Financial Data[Reserved]
| For the Years Ended | |||||||||||||||||||
| (in thousands, except for per share amounts) | 2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||
| Revenues | $ | 1,557,735 | $ | 1,578,263 | $ | 1,757,295 | $ | 1,486,029 | $ | 1,767,651 | |||||||||
| Income (loss) from continuing operations | (379,015 | ) | (115,082 | ) | 16,534 | (11,890 | ) | 140,478 | |||||||||||
| Net income attributable to Babcock & Wilcox Enterprises, Inc. | (379,824 | ) | (115,649 | ) | 19,141 | (26,528 | ) | 174,527 | |||||||||||
| Basic earnings per common share: | |||||||||||||||||||
| Income (loss) from continuing operations per common share | (8.09 | ) | (2.31 | ) | 0.30 | (0.23 | ) | 2.49 | |||||||||||
| Net income attributable to Babcock & Wilcox Enterprises, Inc. | (8.09 | ) | (2.31 | ) | 0.36 | (0.49 | ) | 3.10 | |||||||||||
| Total assets (as of year end) | $ | 1,322,229 | $ | 1,529,143 | $ | 1,663,045 | $ | 1,516,554 | $ | 1,290,228 | |||||||||
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
BUSINESS OVERVIEW
Management continues to adapt to macroeconomic conditions, including rising inflation, higher interest rates, foreign exchange rate fluctuations and the impact of the ongoing conflict in Ukraine and the COVID-19 pandemic, all of which impacted the Company during 2022. The COVID-19 pandemic has continued to create challenges for us in countries that at times throughout the year have had significant outbreak mitigation strategies, namely, countries in our Asia-Pacific region, which led to temporary project postponements and has continued to impact results in this region. Additionally, the Company has experienced negative impacts to its global supply chains as a result of COVID-19, the war in Ukraine, Russia-related supply chain shortages and other factors, including disruptions to the manufacturing, supply, distribution, transportation and delivery of its products. The Company has also observed significant delays and disruptions of its service providers and negative impacts to pricing of certain of its products. These delays and disruptions have had, and could continue to have, an adverse impact on the Company’s ability to meet customers’ demands. We are continuing to actively monitor the impact of these market conditions on current and future periods and actively manage costs and our liquidity position to provide additional flexibility while still supporting our customers and their specific needs. The duration and scope of these conditions cannot be predicted, and therefore, any anticipated negative financial impact to the Company’s operating results cannot be reasonably estimated.
B&W is a growing, globally-focused renewable, environmental and thermal technologies provider with over 150 years of experience providing diversified energy and emissions control solutions to a broad range of industrial, electrical utility, municipal and other customers. B&W’s innovative products and services are organized into three market-facing segments. Our reportable segments are as follows:
•Babcock & Wilcox Renewable: Cost-effective technologies for efficient and environmentally sustainable power and heat generation, including waste-to-energy, solar construction and installation, biomass energy and black liquor systems for the pulp and paper industry. B&W’s leading technologies support a circular economy, diverting waste from landfills to use for power generation and replacement of fossil fuels, while recovering metals and reducing emissions. To date, we have installed over 500 waste-to-energy and biomass-to-energy units at more than 300 facilities in approximately 30 countries which serve a wide variety of utility, waste management, municipality and investment firm customers. Additionally, we have installed more than 100MW of clean solar production.
•Babcock & Wilcox Environmental: A full suite of best-in-class emissions control and environmental technology solutions for utility, waste to energy, biomass, carbon black, and industrial steam generation applications around the world. B&W’s broad experience includes systems for cooling, ash handling, particulate control, nitrogen oxides and sulfur dioxides removal, chemical looping for carbon control, and mercury control. The Company's ClimateBright family of products including SolveBright, OxyBright, BrightLoop and BrightGen, places us at the forefront of carbon dioxide capturing technologies and development with many of the aforementioned products ready for commercial demonstration.
•Babcock & Wilcox Thermal: Steam generation equipment, aftermarket parts, construction, maintenance and field services for plants in the power generation, oil and gas, and industrial sectors. B&W has an extensive global base of installed equipment for utilities and general industrial applications including refining, petrochemical, food processing, metals and others.
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On February 1, 2022, we acquired 100% ownership of Fossil Power Systems, Inc. for approximately $59.2 million. Fossil Power Systems, Inc., is a leading designer and manufacturer of hydrogen, natural gas and renewable pulp and paper combustion equipment including ignitors, plant controls and safety systems based in Dartmouth, Nova Scotia, Canada. Fossil Power Systems, Inc. is reported as part of our B&W Thermal segment.
On February 28, 2022, we acquired 100% ownership of Optimus Industries, LLC for approximately $19.2 million. Optimus Industries, LLC designs and manufactures waste heat recovery products for use in power generation, petrochemical, and process industries, including package boilers, watertube and firetube waste heat boilers, economizers, superheaters, waste heat recovery equipment and units for sulfuric acid plants and is based in Tulsa, Oklahoma and Chanute, Kansas. Optimus Industries, LLC is reported as part of our B&W Thermal segment.
On October 14, 2022, the Company changed the name of Fosler Construction Company, Inc. ("Fosler") to Babcock & Wilcox Solar Energy, Inc ("Babcock & Wilcox Solar").
Our business depends significantly on the capital, operations and maintenance expenditures of global electric power generating companies, including renewable and thermal powered heat generation industries and industrial facilities with environmental compliance policy requirements. Several factors may influence these expenditures, including:
•climate change initiatives promoting environmental policies which include renewable energy options utilizing waste-to-energy or biomass to meet legislative requirements and clean energy portfolio standards in the United States, European, Middle East and Asian markets;
•requirements for environmental improvements in various global markets;
•expectation of future governmental requirements to further limit or reduce greenhouse gas and other emissions in the United States, Europe and other international climate change sensitive countries;
•prices for electricity, along with the cost of production and distribution including the cost of fuels within the United States, Europe, Middle East and Asian based countries;
•demand for electricity and other end products of steam-generating facilities;
•level of capacity utilization at operating power plants and other industrial uses of steam production;
•requirements for maintenance and upkeep at operating power plants to combat the accumulated effects of usage;
•prices of and access to materials, particularly as a result of rising inflation and the continued impact of the Russian invasion of Ukraine;
•overall strength of the industrial industry; and
•ability of electric power generating companies and other steam users to raise capital.
Customer demand is heavily affected by the variations in our customers' business cycles, by the overall economies and energy, environmental and noise abatement needs of the countries in which they operate.
We have manufacturing facilities in Mexico, the United States, Denmark, the United Kingdom and China. Many aspects of our operations and properties could be affected by political developments, including the ongoing Russian-Ukrainian conflict, environmental regulations and operating risks. These and other factors may have a material impact on our international and domestic operations or our business as a whole.
Through our restructuring efforts, we continue to make significant progress to make our cost structure more variable and to reduce costs. We expect our cost saving measures to continue to translate to bottom-line results, with top-line growth driven by opportunities for our core technologies and support services across the B&W Renewable, B&W Environmental and B&W Thermal segments globally.
We expect to continue to explore other cost saving initiatives to improve cash generation and evaluate additional non-core asset sales to continue to strengthen our liquidity. There are or will be important factors that could cause our actual results to differ materially from those indicated in these statements. If one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what we anticipate.
In addition, we continue to evaluate further dispositions, opportunities for additional cost savings and opportunities for subcontractor recoveries and other claims where appropriate and available. If the value of our business was to decline, or if we were to determine that we were unable to recognize an amount in connection with any proposed disposition in excess of
34
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–YEARS ENDED DECEMBER 31, 2022 AND 2021
Components of Our Results of Operations
Revenue
Our revenue is the total amount of income generated by our business and consists primarily of income from our renewable, environmental and thermal technology solutions we provide to a broad range of industrial electric utility and other customers. Revenue from our operations is assessed based on our three market-facing segments, Babcock & Wilcox Renewable, Babcock & Wilcox Environmental and Babcock & Wilcox Thermal.
Operating (Loss) Income
Operating (loss) income consists primarily of our revenue minus costs and expenses, including cost of operations, SG&A, and advisory fees and settlement costs.
Net Income
Net income consists primarily of operating income minus other income and expenses, including interest income, foreign exchange and expense related to our benefit plans.
Consolidated Results of Operations
The following discussion of our business segment results of operations includes a discussion of adjusted EBITDA, which when used on a consolidated basis is a non-GAAP financial measure. Adjusted EBITDA differs from the most directly comparable measure calculated in accordance with generally accepted accounting principles (“GAAP”). A reconciliation of net income (loss), the most directly comparable GAAP measure, to adjusted EBITDA is included in “Non-GAAP Financial Measures” below. Management believes that this financial measure is useful to investors because it excludes certain expenses, allowing investors to more easily compare our financial performance period to period.
| Year ended December 31, | ||||||||||||||||||||||||||||||||||||||
| (in thousands) | 2022 | 2021 | ||||||||||||||||||||||||||||||||||||
| Revenues: | ||||||||||||||||||||||||||||||||||||||
| B&W Renewable segment | $ | 330,570 | $ | 156,800 | ||||||||||||||||||||||||||||||||||
| B&W Environmental segment | 154,393 | 133,826 | ||||||||||||||||||||||||||||||||||||
| B&W Thermal segment | 415,104 | 433,329 | ||||||||||||||||||||||||||||||||||||
| Eliminations | (10,252) | (592) | ||||||||||||||||||||||||||||||||||||
| $ | 889,815 | $ | 723,363 | |||||||||||||||||||||||||||||||||||
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| Year ended December 31, | ||||||||||||||||||||||||||||||||||||||
| (in thousands) | 2022 | 2021 | ||||||||||||||||||||||||||||||||||||
| Adjusted EBITDA | ||||||||||||||||||||||||||||||||||||||
B&W Renewable segment (1) (2) | $ | 26,069 | $ | 23,219 | ||||||||||||||||||||||||||||||||||
| B&W Environmental segment | 9,787 | 11,773 | ||||||||||||||||||||||||||||||||||||
| B&W Thermal segment | 56,291 | 49,143 | ||||||||||||||||||||||||||||||||||||
| Corporate | (16,477) | (12,467) | ||||||||||||||||||||||||||||||||||||
| Research and development costs | (3,319) | (1,093) | ||||||||||||||||||||||||||||||||||||
| $ | 72,351 | $ | 70,575 | |||||||||||||||||||||||||||||||||||
(1) Adjusted EBITDA in our B&W Renewable segment for 2022 includes a $6.2 million non-recurring gain on sale related to development rights of a future solar project that was sold as well as the reduction to Selling, General and Administrative Costs of $9.6 million that resulted from the reversal of the contingent consideration related to an acquisition.
2022 vs 2021 Consolidated Results
Revenues increased by$166.5 millionto $889.8 million in 2022 as compared to $723.4 million in 2021, primarily attributable to a higher level of activity in our Renewable and Environmental segments which were both adversely impacted by COVID-19 in the prior year and the acquisitions of Babcock & Wilcox Solar and Babcock & Wilcox Renewable Service A/S in our Renewable segment. Incremental revenue from current year acquisitions of FPS and Optimus also contributed to the favorable year-over-year change. Segment specific changes are discussed in further detail in the sections below.
Net (loss) income unfavorably changed by $58.1 million to a loss of $26.6 million in 2022 as compared to income of $31.5 million in 2021. Operating (loss) income unfavorably changed by $25.0 million to loss of $4.2 million in 2022 as compared to income of $20.8 million in 2021. The year-over-year change is primarily related to overall increases in costs and expenses, higher interest expense, an increase in foreign exchange losses and goodwill impairment expense. The aforementioned expense increases were partially offset by positive contributions from the current year acquisitions, and as described above, partially offset by a lower level of construction activity in our Thermal segment.Restructuring activities, advisory fees, research and development, depreciation and amortization expense, pension and other postretirement benefit plans, foreign exchange, and income taxes are discussed in further detail in the sections below.
Year-over-year comparisons of our results from net income (loss) were also impacted by:
•$0.6 million and $4.9 million of restructuring costs were recognized in 2022 and 2021, respectively, and are more fully described in Note 12 to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report.
•$1.4 million and $2.7 million of financial advisory service fees were recognized in 2022 and 2021, respectively. Financial advisory service fees are included in Advisory fees and settlement costs in our Consolidated Statement of Operations.
•$1.5 million and $5.5 million of legal and other advisory fees were recognized in 2022 and 2021, respectively. These fees are related to the contract settlement and liquidity planning and are included in Advisory fees and settlement costsin our Consolidated Statement of Operations.
•$6.5 million of gain on debt extinguishment in 2021 that did not recur in 2022.
•$1.8 million of loss on sale of business that was recorded in 2021.
•$7.7 million and $15.5 million of actuarially determined mark to market (“MTM”) gains (losses) on our pension and other post-retirement benefits in 2022 and 2021, respectively. MTM losses are further described in Note 13 to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report.
•$5.6 million and $4.9 million of litigation legal costs were recognized in 2022 and 2021, respectively. These fees are included in Advisory fees and settlement costs in our Consolidated Statement of Operations.
•$7.2 million goodwill impairment charge recorded in 2022 related to our Babcock & Wilcox Solar reporting unit.
•$5.5 million of costs related to completed and potential acquisitions were recognized in 2022. These costs are included in Selling, general and administrative expenses in our Consolidated Statement of Operations.
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Bookings and Backlog
Bookings and backlog are our measure of remaining performance obligations under our sales contracts. It is possible that our methodology for determining bookings and backlog may not be comparable to methods used by other companies.
We generally include expected revenue from contracts in our backlog when we receive written confirmation from our customers authorizing the performance of work and committing the customers to payment for work performed. Backlog may not be indicative of future operating results, and contracts in our backlog may be canceled, modified or otherwise altered by customers. Backlog can vary significantly from period to period, particularly when large new build projects or operations and maintenance contracts are booked because they may be fulfilled over multiple years. Because we operate globally, our backlog is also affected by changes in foreign currencies each period.
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.
| Year ended December 31, | |||||||||||||||||||||||
| (In approximate millions) | 2022 | 2021 | |||||||||||||||||||||
B&W Renewable(1) | $ | 216 | $ | 294 | |||||||||||||||||||
| B&W Environmental | 176 | 148 | |||||||||||||||||||||
| B&W Thermal | 516 | 337 | |||||||||||||||||||||
| Other/eliminations | — | — | |||||||||||||||||||||
| Bookings | $ | 908 | $ | 779 | |||||||||||||||||||
(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 years ended December 31, 2022 and 2021 was $(8.9) million and $15.0 million, respectively.
(2) B&W Renewable bookings include a reduction of approximately $67.5 million related to the disposal of future unprofitable contracts.
Our backlog as of December 31, 2022 and 2021 was as follows:
| As of December 31, | |||||||||||
| (In approximate millions) | 2022 | 2021 | |||||||||
B&W Renewable(1) | $ | 284 | $ | 394 | |||||||
| B&W Environmental | 148 | 123 | |||||||||
| B&W Thermal | 265 | 126 | |||||||||
| Other/eliminations | 7 | (4) | |||||||||
| Backlog | $ | 704 | $ | 639 | |||||||
(1) B&W Renewable backlog at December 31, 2022, includes $55.6 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 December 31, 2022, we expect to recognize revenues as follows:
| (In approximate millions) | 2023 | 2024 | Thereafter | Total | ||||||||||
| B&W Renewable | $ | 207 | $ | 28 | $ | 49 | $ | 284 | ||||||
| B&W Environmental | 114 | 14 | 20 | 148 | ||||||||||
| B&W Thermal | 238 | 20 | 7 | 265 | ||||||||||
| Other/eliminations | 6 | — | 1 | 7 | ||||||||||
| Expected revenue from backlog | $ | 565 | $ | 62 | $ | 77 | $ | 704 | ||||||
Non-GAAP Financial Measures
Adjusted EBITDA on a consolidated basis is a non-GAAP metric defined as the sum of the adjusted EBITDA for each of the segments, further adjusted for corporate allocations and research and development costs. At a segment level, the adjusted
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EBITDA presented below is consistent with the way ourthe Company's chief operating decision maker reviews the results of operations and makes strategic decisions about the business.
| Year ended December 31, | |||||||||||||||||||||||||||||
| (in thousands) | 2022 | 2021 | |||||||||||||||||||||||||||
| (Loss) income from continuing operations | $ | (26,584) | $ | 31,538 | |||||||||||||||||||||||||
| Interest expense, net | 50,766 | 41,359 | |||||||||||||||||||||||||||
| Income tax expense (benefit) | 11,063 | (2,224) | |||||||||||||||||||||||||||
| Depreciation & amortization | 23,992 | 18,337 | |||||||||||||||||||||||||||
| EBITDA | 59,237 | 59,237 | 89,010 | ||||||||||||||||||||||||||
| Benefit plans, net | (37,528) | (48,142) | |||||||||||||||||||||||||||
| Gain on sales, net | (2,598) | (13,984) | |||||||||||||||||||||||||||
| Gain on debt extinguishment | — | (6,530) | |||||||||||||||||||||||||||
| Stock compensation | 8,654 | 10,476 | |||||||||||||||||||||||||||
| Restructuring activities and business services transition costs | 8,474 | 10,726 | |||||||||||||||||||||||||||
| Advisory fees for settlement costs and liquidity planning | 1,509 | 5,480 | |||||||||||||||||||||||||||
| Settlement and related legal costs | 10,734 | 4,894 | |||||||||||||||||||||||||||
| Acquisition pursuit and related costs | 5,504 | 4,841 | |||||||||||||||||||||||||||
Product development (1) | 4,100 | 4,713 | |||||||||||||||||||||||||||
| Foreign exchange | 582 | 4,294 | |||||||||||||||||||||||||||
| Financial advisory services | 1,424 | 2,709 | |||||||||||||||||||||||||||
| Contract step-up purchase price adjustment | 1,745 | — | |||||||||||||||||||||||||||
| Loss from business held for sale | — | 483 | |||||||||||||||||||||||||||
| Loss from a non-strategic business | — | 116 | |||||||||||||||||||||||||||
| Goodwill impairment | 7,224 | — | |||||||||||||||||||||||||||
| Contract disposal | 2,976 | — | |||||||||||||||||||||||||||
| Other - net | 314 | 1,489 | |||||||||||||||||||||||||||
Adjusted EBITDA (2) | $ | 72,351 | 72,351 | $ | 70,575 | ||||||||||||||||||||||||
(1) Costs associated with development of commercially viable products that are ready to go to market.
(2) Adjusted EBITDA for the associated borrowing agreement. Our plan is designedyear ended December 31, 2022 includes a $6.2 million non-recurring gain on sale related to provide us with adequate liquiditydevelopment rights of a future solar project that was sold as well as the reduction to meet our obligations for at leastSelling, General and Administrative Costs of $9.6 million that resulted from the twelve month period following March 1, 2018; however, our remediation plan includes raising additional capital through the Rights Offering and other sources before the endreversal of the standstill period, which will depend on conditions in the capital markets and, with respectcontingent consideration related to the Rights Offering, an amendment to our existing shelf registration statement that we plan to file in early March 2018 being declared effective by the Securities and Exchange Commission (“SEC”), which are matters that are outside of our control. Accordingly, we cannot be certain of our ability to raise additional capital on terms acceptable to us which raises substantial doubt about our ability to continue as a going concern. Additionally, our ability to meet the amended covenants associated with our Revolver is dependent on our future financial operating results. While we believe that the actions summarized above and in Note 1 to our consolidated financial statements included in Item 8 are more likely than not to address the substantial doubt about the Company’s ability to continue as a going concern, we cannot assert that it is probable that our plans will fully mitigate the conditions identified. If we cannot continue as a going concern, material adjustments to the carrying values and classifications of our assets and liabilities and the reported amounts of income and expense could be required.acquisition.
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| Year ended December 31, | |||||||||||||||||||||||||||||
| (in thousands) | 2022 | 2021 | |||||||||||||||||||||||||||
| Adjusted EBITDA | |||||||||||||||||||||||||||||
B&W Renewable segment (1) (2) | $ | 26,069 | $ | 23,219 | |||||||||||||||||||||||||
| B&W Environmental segment | 9,787 | 11,773 | |||||||||||||||||||||||||||
| B&W Thermal segment | 56,291 | 49,143 | |||||||||||||||||||||||||||
| Corporate | (16,477) | (12,467) | |||||||||||||||||||||||||||
| Research and development benefit (costs) | (3,319) | (1,093) | |||||||||||||||||||||||||||
| $ | 72,351 | $ | 70,575 | ||||||||||||||||||||||||||
B&W Renewable Segment Results
| Year ended December 31, | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| (in thousands) | 2022 | 2021 | $ Change | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Revenues | $ | 330,570 | $ | 156,800 | $ | 173,770 | |||||||||||||||||||||||||||||||||||||||||||||||
| Adjusted EBITDA | $ | 26,069 | $ | 23,219 | $ | 2,850 | |||||||||||||||||||||||||||||||||||||||||||||||
2022 vs 2021 results
Revenues in the coal power generation markets and proactively responded by restructuring theB&W Renewable segment increased $173.8 million, to help us maintain gross margins. Our restructuring activities$330.6 million in each of the past two years has been effective, and the Power segment's gross margin percentage has not significantly changed despite the 16.4% decline in revenues in 2017 compared 2016. The Power segment also continues to benefit from consistent, effective contract execution.
Adjusted EBITDA in the $69.1B&W Renewable segment increased $2.9 million, contribution from Universal Acoustic & Emissions Technology, Inc. ("Universal"), which we acquired on January 11, 2017, and the $181.5to $26.1 million increase from the full year contribution of SPIG S.p.A. ("SPIG"), which we acquired on July 1, 2016. The acquisitions benefited the Industrial segment's gross profit in 2017 by $6.82022 compared to $23.2 million which was lower than our expectationsin 2021. This is primarily due to a change in the product mix and challenges related to completing several of the segment's cooling systems contracts. We expect the Industrial segment to benefithigher revenue volume from improvements in international growth, increased capital spending in the United States, and the change in strategy in the SPIG business announced in the third quarter of 2017.
B&W Environmental Segment Results
| Year ended December 31, | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| (In thousands) | 2022 | 2021 | $ Change | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Revenues | $ | 154,393 | $ | 133,826 | $ | 20,567 | |||||||||||||||||||||||||||||||||||||||||||||||
| Adjusted EBITDA | $ | 9,787 | $ | 11,773 | $ | (1,986) | |||||||||||||||||||||||||||||||||||||||||||||||
2022 vs 2021 results
Revenues in the Industrial segment.
Adjusted EBITDA in the full year 2018.
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B&W Thermal Segment Results
| Year ended December 31, | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| (In thousands) | 2022 | 2021 | $ Change | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Revenues | $ | 415,104 | $ | 433,329 | $ | (18,225) | |||||||||||||||||||||||||||||||||||||||||||||||
| Adjusted EBITDA | $ | 56,291 | $ | 49,143 | $ | 7,148 | |||||||||||||||||||||||||||||||||||||||||||||||
2022 vs 2021 results
Revenues in force, consulting and other costs. In additionthe B&W Thermal segment decreased 4%, or $18.2 million, to savings already realized, we expect to realize savings of approximately $45.0$415.1 million in 2018.
| Years ended December 31, | |||||||||
| (In thousands) | 2017 | 2016 | 2015 | ||||||
| Revenues: | |||||||||
| Power segment | $ | 821,062 | $ | 981,978 | $ | 1,234,997 | |||
| Renewable segment | 347,198 | 349,172 | 338,603 | ||||||
| Industrial segment | 397,791 | 253,613 | 183,695 | ||||||
| Eliminations | (8,316 | ) | (6,500 | ) | — | ||||
| 1,557,735 | 1,578,263 | 1,757,295 | |||||||
| Gross profit (loss): | |||||||||
| Power segment | 191,999 | 233,550 | 247,632 | ||||||
| Renewable segment | (128,204 | ) | (68,109 | ) | 57,682 | ||||
| Industrial segment | 41,383 | 50,726 | 54,826 | ||||||
| Intangible amortization expense included in cost of operations | (14,272 | ) | (15,842 | ) | (7,676 | ) | |||
| Mark to market gain (loss) included in cost of operations | 8,972 | (21,208 | ) | (44,307 | ) | ||||
| 99,878 | 179,117 | 308,157 | |||||||
| SG&A expenses | (255,545 | ) | (240,166 | ) | (240,296 | ) | |||
| Goodwill impairment charges | (86,903 | ) | — | — | |||||
| Restructuring activities and spin-off transaction costs | (15,447 | ) | (40,807 | ) | (14,946 | ) | |||
| Research and development costs | (9,412 | ) | (10,406 | ) | (16,543 | ) | |||
| Intangible amortization expense included in SG&A | (3,980 | ) | (4,081 | ) | (3,769 | ) | |||
| Mark to market gain (loss) included in SG&A | (274 | ) | (2,902 | ) | 4,097 | ||||
| Equity in income of investees | 8,326 | 16,440 | (242 | ) | |||||
| Impairment of equity method investment | (18,193 | ) | — | — | |||||
| Gains (losses) on asset disposals, net | (15 | ) | 32 | (14,597 | ) | ||||
| Operating income (loss) | $ | (281,565 | ) | $ | (102,773 | ) | $ | 21,861 | |
Adjusted EBITDA in the B&W Thermal segment increased $7.1 million decline in revenues in our Power segment. Partially offsetting the decline in Power segment revenues were increases in revenues of $144.2to $56.3 million in the Industrial segment resulting from the acquisitions of Universal on January 11, 2017 and SPIG on July 1, 2016.
Corporate
Corporate costs in adjusted EBITDA include SG&A expenses that are not allocated to the Universal acquisition.
Advisory Fees and Settlement Costs
Advisory fees and settlement costs decreased $124.6by $4.6 million to a consolidated operating loss of $102.8 million in 2016 compared to consolidated operating income of $21.9 million in 2015. In addition to the gross profit decrease discussed above, the primary drivers of the decrease in our consolidated operating income in 2016 were a $25.9 million increase in restructuring charges primarily related to our Power segment restructuring in June 2016, partially offset by a $14.6 million decrease in loss on asset disposals and impairments compared to 2015, $16.1 million lower mark to market charges compared to 2015 and a $8.3 million gain from the sale of all of our interest in our Australian joint venture in 2016.
| Year Ended December 31, | Year Ended December 31, | ||||||||||||||||||
| (In thousands) | 2017 | 2016 | $ Change | 2016 | 2015 | $ Change | |||||||||||||
| Revenues | $ | 821,062 | $ | 981,978 | $ | (160,916 | ) | $ | 981,978 | $ | 1,234,997 | $ | (253,019 | ) | |||||
| Gross profit | $ | 191,999 | $ | 233,550 | $ | (41,551 | ) | $ | 233,550 | $ | 247,632 | $ | (14,082 | ) | |||||
| Gross margin % | 23 | % | 24 | % | 24 | % | 20 | % | |||||||||||
| Year Ended December 31, | Year Ended December 31, | ||||||||||||||||||
| (in thousands, except percentages) | 2017 | 2016 | $ Change | 2016 | 2015 | $ Change | |||||||||||||
| Revenues | $ | 347,198 | $ | 349,172 | $ | (1,974 | ) | $ | 349,172 | $ | 338,603 | $ | 10,569 | ||||||
| Gross profit (loss) | $ | (128,204 | ) | $ | (68,109 | ) | $ | (60,095 | ) | $ | (68,109 | ) | $ | 57,682 | $ | (125,791 | ) | ||
| % of revenues | (37 | )% | (20 | )% | (20 | )% | 17 | % | |||||||||||
| Year Ended December 31, | Year Ended December 31, | ||||||||||||||||||
| (In thousands) | 2017 | 2016 | $ Change | 2016 | 2015 | $ Change | |||||||||||||
| Revenues | $ | 397,791 | $ | 253,613 | $ | 144,178 | $ | 253,613 | $ | 183,695 | $ | 69,918 | |||||||
| Gross profit | $ | 41,383 | $ | 50,726 | $ | (9,343 | ) | $ | 50,726 | $ | 54,826 | $ | (4,100 | ) | |||||
| Gross margin % | 10 | % | 20 | % | 20 | % | 30 | % | |||||||||||
Research and Development
Our research and development activities are focused on improving our products through innovations to reduce their cost and improve competitiveness, reduce performance risk of our products to better meet our and our customers’ expectations and to further develop our ClimateBright portfolio.Research and development expenses totaled $3.8 million and $1.6 million in the years ended 2022 and, 2021, respectively. The increase resulted primarily from timing of specific research and increased development efforts and the non-recurring 2021 recognition of approximately $0.9 million in certain credits. These expenses do not include our activities related to our BrightLoop commercialization plant.
Restructuring
Restructuring actions across our business units and corporate functions resulted in $0.6 million and $4.9 million of gross profit.expense in the years ended December 31, 2022 and 2021, respectively. The net decreasecharges primarily consist of severance related to actions taken, including as part of the Company’s strategic, market-focused organizational and re-branding initiatives.
Transition Costs
Transition costs across our corporate and business functions resulted in gross profit$7.9 million and $5.9 million of expense in the gross margin percentage reflects decreased revenuesyears ended December 31, 2022 and 2021, respectively. These charges primarily result from non-recurring actions taken to outsource certain tasks to offshore service providers or to transfer administrative and compliance tasks to global service providers as part of our strategic efforts to reduce future selling, general and administrative costs. Transition costs are included in selling, general and administrative expenses in our Consolidated Statement of Operations,
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Depreciation and Amortization
Depreciation expense was $11.0 million and $9.7 million in the years ended December 31, 2022 and 2021, respectively.
Amortization expense was $13.0 million and $8.6 million for the years ended December 31, 2022 and 2021, respectively.
Pension and Other Postretirement Benefit Plans
We recognize benefits from our MEGTEC businessdefined benefit and other postretirement benefit plans based on actuarial calculations primarily because our expected return on assets is greater than our service cost. Service cost is low because our plan benefits are frozen except for a small number of hourly participants. Pension benefits before MTM were $29.8 million and $32.7 million in the years ended December 31, 2022 and 2021, respectively.
Our pension costs include MTM adjustments from time to time and are primarily a result of changes in product mix, particularly at our SPIG businessthe discount rate, curtailments and settlements. Any MTM charge or gain should not be considered to be representative of future MTM adjustments as new build cooling systems generally have lower margins than other productssuch events are not currently predicted and servicesare in each case subject to market conditions and actuarial assumptions as of the segment. In addition,date of the gross profit in 2017 was negatively affected by productivity issues on new build cooling system contracts. The productivity issues increased estimated costs and resulted in deployment of additional resources to complete the contracts on time. We expect the Industrial segment's gross profit will normalize over the course of 2018 as these legacy new build cooling system contracts are completed and both our productivity and profitability increase.
The SPIG business contributed gross profit of $7.8 million in 2016, which was partially offset by lower gross profit from MEGTEC in-line with the decrease in revenues during 2016. MEGTEC was able to improve its gross margin percentage in 2016 due to its mix of product revenues despite the overall decline in revenues and gross profit for the business. In addition, SPIG's gross margins have been historically lower than MEGTEC's, resulting in a decline in the 2016 gross margin percentage in the segment.
| (In millions) | 0.25% increase | 0.25% decrease | ||||||
Discount rate: | ||||||||
Effect on ongoing net periodic benefit cost (1) | $ | (16.2) | $ | 16.7 | ||||
| Effect on projected benefit obligation | (18.5) | 19.3 | ||||||
| Return on assets: | ||||||||
| Effect on ongoing net periodic benefit cost | (2.4) | 2.4 | ||||||
(1) Excludes effect of annual MTM adjustment.
A 25 basis point change in the assumed discount rate and 2016, respectively. We do not expect additional restructuring charges related to these activities in 2018.
| Year Ended December 31, | |||||||||
| 2017 | 2016 | 2015 | |||||||
| B&W's share of income from equity method investees | $ | 8,326 | $ | 8,116 | $ | (242 | ) | ||
| Gain on sale of HMA | — | 8,324 | — | ||||||
| Other than temporary impairment of TBWES | (18,193 | ) | — | — | |||||
| $ | (9,867 | ) | $ | 16,440 | $ | (242 | ) | ||
Foreign Exchange
We translate assets and liabilities of our foreign operations into earningsUnited 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 net periodic benefit cost, which affect both our cost of operationsaccumulated other comprehensive income (loss). We report foreign currency transaction gains and SG&A. These mark to market ("MTM") adjustments for our pension and other postretirement plans resulted in net gains (losses) of $8.7 million, $(24.1) million, and $(40.2)
Foreign exchange was partially offset by lump sum payments from our Canadian pension plan in the first quarter of 2017, which resulted in a plan settlement of $0.4 million and an interim mark to market remeasurement for the Canadian pension plan. The mark to market adjustment in the first quarter of 2017 was $0.7 million.
| Year Ended December 31, | |||||||||
| (In thousands, except for percentages) | 2017 | 2016 | 2015 | ||||||
| Income (loss) before income taxes | $ | (314,199 | ) | $ | (108,139 | ) | $ | 20,205 | |
| Income tax expense (benefit) | $ | 64,816 | $ | 6,943 | $ | 3,671 | |||
| Effective tax rate | (20.6 | )% | (6.4 | )% | 18.2 | % | |||
Income Taxes
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| Year Ended December 31, | |||||||||
| (in thousands) | 2017 | 2016 | 2015 | ||||||
| United States | $ | (44,835 | ) | $ | 1,280 | $ | (20,748 | ) | |
| Other than the United States | (269,364 | ) | (109,419 | ) | 40,953 | ||||
| Income (loss) before provision for (benefit from) income taxes | (314,199 | ) | (108,139 | ) | 20,205 | ||||
| Year ended December 31, | |||||||||||||||||||||||||||||||||||
| (In thousands, except for percentages) | 2022 | 2021 | |||||||||||||||||||||||||||||||||
| Income (loss) before income taxes | $ | (15,521) | $ | 29,314 | |||||||||||||||||||||||||||||||
| Income tax expense (benefit) | 11,063 | (2,224) | |||||||||||||||||||||||||||||||||
| Effective tax rate | (71.3) | % | (7.6) | % | |||||||||||||||||||||||||||||||
The increase in our income tax expense in 2022 compared to 2021 is primarily attributable to a prior year reduction in the
valuation allowance of $8.7 million related to one of our foreign businesses that incurred pretaxnet operating losses and temporary deductible benefits in the current year, a $10.8 million increase in the valuation allowance against the deferred tax asset related to our equity investment in a foreign joint venture and a $5.1 million charge related to changes in state deferred taxes due to changes in tax rates and an increase in valuation allowances.certain states.
Liquidity and Capital Resources
Liquidity
Our primary liquidity requirements include debt service, funding dividends on preferred stock and working capital resources
During 2022, we executed the following actions:
•on February 1, 2022, we acquired 100% ownership of Fossil Power Systems, Inc. for approximately $59.2 million, excluding working capital adjustments;
•on February 28, 2022, we acquired 100% ownership of Optimus Industries, LLC ("Optimus") for approximately $19.0 million, excluding working capital adjustments;
•we sold $6.8 million aggregate principal of 8.125% Senior Notes and received $6.7 million of net proceeds;
•we sold development rights of a future solar project for $8.0 million and recorded a $6.2 million non-recurring gain;
•on July 28, 2022, we participated in structural steel repair costs onthe sale process of Hamon Holdings Corporation and acquired certain assets of one of our European renewable energy contracts led to us seeking amendmentits subsidiaries for approximately $2.9 million;
•on September 24, 2022, we acquired the remaining 40% ownership stake in Babcock & Wilcox Solar for $12.7 million and will make payments of our lending arrangement. The additional losses we recognized in the fourth quarter$3.0 million, $5.0 million, and $4.7 million on January 16, 2023, June 30, 2023, and January 15, 2024, respectively, for a present value of 2017 caused us to be out of compliance with certain financial covenants in our lending arrangements$12.1 million at December 31, 2017. We obtained an amendment2022;
•on October 14, 2022, we changed the name of the company formerly known as Fosler Construction Company, Inc. to our United States Revolving Credit Facility on March 1, 2018 that temporarily waivedBabcock & Wilcox Solar Energy, Inc. ("Babcock & Wilcox Solar"); and
•during the financial covenant defaults that existed atyear ended December 31, 2017. We face liquidity challenges related to our non-compliance with2022, the financial covenants associated with our second lien term loan facility at December 31, 2017, which may be difficult to resolve in a timely manner. Our second lien term loan agreement contains a 180-day standstill period beginning on March 1, 2018 to resolveCompany sold certain real property and then entered into sale lease-back agreements for each sale property. The Company accounted for the event of default or repay the loansale-leasebacks as described in Note 20. Ourthree individual financing plan includes raising additional capital through a rights offeringtransactions aggregating $13.4 million.
See Notes 10, 14, 15, 16, 17, 18 and other sources before the end of the standstill period, which will depend on conditions in the capital markets and, with respect26 to the rights offering, an amendment to our existing shelf registration statement that we plan to fileConsolidated Financial Statements included in early March 2018 being declared effective by the Securities and Exchange Commission ("SEC"), which are matters that are outsidePart II, Item 8 of our control.
Cash and surety bonds);Cash Flows
At December 31, 2017,2022, our cash and cash equivalents, current restricted cash and long-term restricted cash totaled $56.7$113.5 million and we had $263.6total debt of $353.0 million as well as $191.7 million of gross preferred stock outstanding. Our foreign business locations held $46.6 million of our total borrowings ($299.3 million face value before debt discounts).cash and cash equivalents, current restricted cash and long-term restricted cash at December 31, 2022. In general, our foreign cash balances are not available to fund our United StatesU.S. operations unless the funds are repatriated or used to repay intercompany loans made from the United StatesU.S. to foreign entities, which could expose us to
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taxes we presently have not made a provision for in our results of operations. Our foreign business locations held $54.3 million of our $56.7 million of unrestricted cash and cash equivalents at December 31, 2017. We presently have no plans to repatriate these funds to the United States asU.S. In addition, we believe that our United States liquidity is sufficient to meet the anticipated cash requirements of our United States operations.
Cash flows used in financing activities of $11.2 million during the year ended December 31, 2022, primarily related to repayments of debt of $16.9 million and payments of preferred stock dividends of $14.9 million, partially offset by combined borrowings on loans payable, issuance of senior notes and proceeds from sale-leaseback transactions of $27.4 million. Cash flows from financing activities provided net cash of $302.8 million in 2016 isthe year ended December 31, 2021 primarily attributablerelated to repurchasesthe issuance of $78.4common stock, senior notes and preferred stock offset by $75.4 million of our common stock.
As described in the Notes to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report, on June 30, 2021, we entered into a credit agreement with a syndicate of lenders ("Credit Agreement") in connection with our spin-off from The Babcock & Wilcox Company. Thethe Reimbursement Agreement, Revolving Credit Agreement which is scheduledand Letter of Credit Agreement (collectively, the “Debt Documents” and the facilities thereunder, the “Debt Facilities”). The obligations of the Company under each of the Debt Facilities are guaranteed by certain existing and future domestic and foreign subsidiaries of the Company. B. Riley, a related party, has provided a guaranty of payment with regard to maturethe Company’s obligations under the Reimbursement Agreement. The Company expects to use the proceeds and letter of credit availability under the Debt Facilities for working capital and general corporate purposes. The Revolving Credit Agreement matures on June 30, 2020, provides for a senior secured revolving credit facility, initially in an aggregate amount2025. As of up to $600 million. The proceeds of loansDecember 31, 2022, no borrowings have occurred under the Credit Agreement are available for working capital needs and other general corporate purposes, and the full amount is available to support the issuance of letters of credit.
Certain of our control. Such factors include, but are not limited to: our ability to access capital markets and complete asset dispositions, delay or cancellation of contracts, decreased profitability on our contracts due to matters not reasonably forecasted, changes in the timing of cash flows on our contracts due to the timing of receipts and required payments of liabilities and funding of our loss projects, the timing of approval or settlement of change orders and claims, changes in foreign currency exchange or interest rates, performance of pension plan assets or changes in actuarially determined liabilities. In addition, we could be impacted if our customers experience a material change in their ability to pay us or if the banks associated with our lending facilities were to cease or reduce operations. Also, we have what we believe is adequate capacity to provide letters of credit and secure surety bonds in support of current and future contracts, but there can be no assurance that these will be renewed or available at reasonable commercial terms in the future.
We have also posted surety bonds to support contractual obligations to customers relating to certain contracts. We utilize bonding facilities to support such obligations, but the issuance of bonds under those facilities is typically at the surety's discretion. Although there can be no assurance that we will maintain our surety bonding capacity, we believe our current capacity is more than adequate to support our existing contract requirements for the next twelve months. In addition, theseThese 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 December 31, 2017,2022, bonds issued and outstanding under these arrangements in support of contracts totaled approximately $378.8$320.6 million. The aggregate value of the letters of credit backstopping surety bonds was $14.1 million.
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Our unfunded pensionability to obtain and postretirement benefit obligations totaled $258.8 million at December 31, 2017. Formaintain sufficient capacity under our new Debt Facilities is essential to allow us to support the year ended December 31, 2017, we made required contributions to our pension plans totaling $17.3 million and to our postretirement plansissuance of $1.2 million. In 2018, we expect to make $21 million to $23 million of contributions to our benefit plans. See additional information on our long-term benefit obligations in Note 18 to our consolidated financial statements included in Item 8 of this annual report.
| (in thousands) | Total | Less than 1 Year | 1-3 Years | 3-5 Years | After 5 Years | ||||||||||
| Operating lease payments | $ | 23,803 | $ | 6,814 | $ | 8,653 | $ | 4,999 | $ | 3,337 | |||||
| United States revolving credit facility | $ | 94,300 | $ | — | $ | 94,300 | $ | — | $ | — | |||||
| Second lien notes facility | $ | 195,884 | $ | — | $ | 195,884 | $ | — | $ | — | |||||
| Foreign revolving credit facility | $ | 9,173 | $ | 9,173 | $ | — | $ | — | $ | — | |||||
| ARPA litigation settlement | $ | 7,000 | $ | 2,500 | $ | 4,500 | $ | — | $ | — | |||||
Other Indebtedness - Loans Payable
As of December 31, 2022, our Denmark subsidiary has an unsecured interest-free loan of $0.8 million under a local government loan program related to COVID-19 that is payable May 2023. In addition, we recorded a $2.9 million loan payable related to financed insurance premiums payable April 2023, which is included in Current loans payable on our Consolidated Balance Sheets.
B&W Solar has loans, primarily for vehicles and equipment, totaling $0.5 million at December 31, 2017 expire2022. In addition, as follows (in thousands):
| Total | Less than 1 Year | 1-3 Years | 3-5 Years | Thereafter |
| $779,082 | $368,357 | $374,566 | $35,072 | $1,088 |
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The consolidated financial statementsConsolidated Financial Statements included in Part II, Item 8 of this Annual Report are prepared in accordance with accounting principles generally accepted in the United States. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. These estimates and assumptions are affected by management'smanagement’s application of accounting policies. We believe the following are our most critical accounting policies that we apply in the preparation of our consolidated financial statements. These policies require our most difficult, subjective and complex judgments, often as a result of the need to make estimates of matters that are inherently uncertain.
Contracts and revenue recognition
A significant portion of our revenue is recognized over time using the cost-to-cost input method, which involves significant estimates. This method of revenue recognition 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 warranty expenses. Variable consideration in these contracts includes estimates of liquidated damages, contractual bonuses and penalties, and contract modifications.
We determinereview contract price and cost estimates each reporting period as the appropriate accounting method for each of our long-term contracts before work begins. We generally recognize contract revenuesprogresses and related costs on a percentage-of-completion ("POC") method for individual contracts or combinations of contracts based on a cost-to-cost method, as applicablereflect adjustments proportionate to the product or activity involved. We recognize estimated contract revenues and resulting income based on costs incurredincurred-to-date relative to date as a percentage of total estimated costs.costs at completion in income in the period when those estimates are revised. These changes in estimates can be material. For all contracts, if a current estimate of total contract cost indicates a loss on a contract, the projected contract loss is recognized in full when determined. Itthrough the statement of operations and an accrual for the estimated loss on the uncompleted contract is possible that current estimates could materially change for various reasons, including, but not limited to, fluctuationsincluded in forecasted labor productivity or steel and other raw material prices. We routinely review estimates related to our contracts, and revisions to profitability are reflectedOther accrued liabilities in the quarterlyConsolidated Balance Sheets. In addition, when we determine that an uncompleted contract will not be completed on-time and annual earnings we report. For parts orders and certain aftermarket services activities,the contract has liquidated damages provisions, we recognize revenuesthe estimated liquidated damages we will incur and record them as goodsa reduction of the estimated selling price in the period the change in estimate occurs. Losses accrued in advance of the completion of a contract are delivered and work is performed.included in Other accrued liabilities in our Consolidated Balance Sheets.
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We recognize income from contract change orders or claims when agreed with the customer. We regularly assess the collectability of contract revenues and receivables from customers. We recognize accrued claimsreceivable 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 following accountingmodification or claim and the amount can be estimated reliably, and its realization is probable. In evaluating these criteria, have been met:
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. In our consolidated balance sheets, we had no accruedConsolidated Balance Sheets, claims receivable at December 31, 20172022 and at December 31, 2016.2021 were not significant.
Our revenue recognition policies, assumptions, changes in estimates and significant loss contracts are described in greater detail in Note 2 to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report.
Business combinationsCombinations
Assets acquired and liabilities assumed in a business combination are recognized and measured based on their estimated fair values at the acquisition date, while the acquisition-related costs are expensed as incurred. Any excess of the purchase consideration when compared to the fair value of the net tangible and intangible assets acquired, if any, is recorded as goodwill. We account for acquisitions in accordanceengaged valuation specialists to assist with Financial Accounting Standards Board ("FASB") Topic Business Combinations. This topic requires us to estimatethe determination of the fair value of assets acquired, liabilities assumed, non-controlling interest, and interests transferredgoodwill, for the acquisitions. If the initial accounting for the business combination is incomplete by the end of the reporting period in which the acquisition occurs, an estimate will be recorded. Subsequent to the acquisition date, and not later than one year from the acquisition date, we will record any material adjustments to the initial estimate based on new information obtained that would have existed as of the date of the acquisition. Any adjustment that arises from information obtained that did not exist as of the date of the acquisition will be recorded in the period the adjustment arises. See Note 26 to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report for further discussion.
Goodwill
Goodwill is generally recorded as a result of a business combinations. It also provides disclosure requirements to assist userscombination and represents the excess of the financial statements in evaluating the nature and financial effects of business combinations.
| (In millions) | 0.25% increase | 0.25% decrease | |||||
Discount rate: | |||||||
Effect on ongoing net periodic benefit cost(1) | $ | (31.1 | ) | $ | 32.4 | ||
| Effect on projected benefit obligation | (32.7 | ) | 34.2 | ||||
| Return on assets: | |||||||
| Effect on ongoing net periodic benefit cost | $ | (2.2 | ) | $ | 2.2 | ||
We accrue estimated expense included in costCost of operations on our consolidated statementsConsolidated Statements of operationsOperations to satisfy contractual warranty requirements when we recognize the associated revenues on the related contracts. In addition, we record specific provisions or reductions when we expect the actual warranty costs to significantly differ from the accrued estimates. Factors that impact our estimate of warranty costs include prior history of warranty claims and our estimates of future costs of materials and labor. Such changes could have a material effect on our consolidated financial condition, results of operations and cash flows. See Note 11 to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report for further discussion.
Loss contingencies
We estimate liabilities for loss contingencies when it is probable that a liability has been incurred and the amount of loss is reasonably estimable. We provide disclosure when there is a reasonable possibility that the ultimate loss will exceed the recorded provision or if such probable loss is not reasonably estimable. We are currently involved in some significant litigation. See Note 22 to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report for a discussion of this litigation. As disclosed, we have accrued estimates of the probable losses associated with these matters;
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however, these matters are typically resolved over long periods of time and are often difficult to estimate due to the possibility of multiple actions by third parties. Therefore, it is possible that future earnings could be affected by changes in our estimates related to these matters.
Income taxes
Income tax expense for federal, foreign, state, and local income taxes are calculated on taxable income based on the income tax law in effect at the latest balance sheet date and includes the cumulative effect of any changes in tax rates from those used previously in determining deferred tax assets and liabilities. We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. We assess the need for valuation allowances on a quarterly basis. In determining the need for a valuation allowance, we consider relevant positive and negative evidence, including carryback potential, reversals of taxable temporary differences, future taxable income, and tax-planning strategies. As of December 31, 2022, we have a valuation allowance on our deferred tax assets in substantially all jurisdictions, as we do not believe it is more likely than not that the deferred tax assets will be realized.
For those tax positions where it is more likely than not that a tax benefit will be sustained, we have recorded the largest amount of tax benefit with a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. For those income tax positions where it is not more likely than not that a tax benefit will be sustained, no tax benefit has been recognized in our consolidated financial statements. We record interest and penalties (net of any applicable tax benefit) related to income taxes as a component of provision for income taxes on our Consolidated Statements of Operations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We have operations in many foreign locations, and, as a result, our financial results could be significantly affected by factors such as changes in foreign currency exchange ("FX"(“FX”) rates or weak economic conditions in those foreign markets. Foreign currency transaction gains and losses on intercompany loans that are not designated as permanent loans are recorded in earnings. Our primary foreign currency exposures are Danish kroner, Greatkrone, British pound, Euro, Canadian dollar, Mexican peso, and Chinese yuan. In orderIf the balances of these intercompany loans at December 31, 2022 were to manage the risks associated withremain constant, a 100 basis point change in FX rate fluctuations, we attempt to hedge those risks with FX derivative instruments, but there can be no assurance that such instruments will be available to us on reasonable terms. Historically, we have hedged those risks with FX forward contracts. We do not enter into speculative derivative positions. During the third quarter of 2017,rates would impact our hedge counterparties removed the lines of credit supporting new FX forward contracts. Subsequently, we have not entered into any new FX forward contracts.earnings by an estimated $0.2 million per year.
ITEM 8. Consolidated Financial Statements and Supplemental Data
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of Babcock & Wilcox Enterprises, Inc.:
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Babcock & Wilcox Enterprises, Inc. and subsidiaries (the “Company”"Company") as of December 31, 20172022 and 2016,2021, the related consolidated and combined statements of operations, comprehensive (loss) income, (loss), stockholders' equity, and cash flows, for each of the three years in the period ended December 31, 2017,2022, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the “financial statements”"financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20172022 and 2016,2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017,2022, in conformity with accounting principles generally accepted in the United States.States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”)(PCAOB), the Company's internal control over financial reporting as of December 31, 2017,2022, based on the criteria established in Internal Control -— Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 1, 2018,16, 2023, expressed an unqualified opinion on the Company's internal control over financial reporting.
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Basis for Opinion
These financial statements are the responsibility of the Company’sCompany's management. Our responsibility is to express an opinion on the Company’sCompany's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate to.
Revenue Recognition and Contracts – Refer to Notes 2 and 5 to the financial statements
Critical Audit Matter Description
The Company recognizes fixed price long-term contract revenue over the contract term (“over time”) as the work progresses, either as products are produced or as services are rendered, because transfer of control to the customer over time. Substantially all of the Company’s fixed price long-term contracts represent a single performance obligation as the interdependent nature of the goods and services provided prevents them from being separately identifiable within the contract. Revenue recognized over time primarily relates to customized, engineered solutions and construction services from all three of the Company’s 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 the Company’s performance obligations. The accounting for these contracts involves judgment, particularly as it relates to the process of estimating total costs and profit for the performance obligation. Revenue from fixed price long term contracts for products and services transferred to customer over time accounted for 80% of Company revenue for the year ended December 31, 2022.
We identified revenue on certain fixed price long-term contracts as a critical audit matter because of the judgments necessary for management to estimate total costs and profit for the performance obligations used to recognize revenue for fixed price long-term contracts. This required extensive audit effort due to the volume and complexity of fixed price long-term contracts and required a high degree of auditor judgment when performing audit procedures to audit management’s estimates of total costs and profit and evaluating the results of those procedures.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to management’s estimates of total costs and profit for the performance obligations used to recognize revenue for certain fixed price long-term contracts included the following, among others:
•We tested the effectiveness of controls over management’s project contract review evaluation, including those over the review of each significant project’s current financial position and overall job performance and review of contract changes.
•We selected a sample of fixed price long-term contracts performed over time and performed the following:
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–Evaluated whether the fixed price contracts were properly included in management’s calculation of fixed price long-term contract revenue based on the terms and conditions of each contract, including whether continuous transfer of control to the customer occurred as progress was made toward fulfilling the performance obligation.
–Compared the transaction prices to the consideration expected to be received based on current rights and obligations under the contracts and any modifications that were agreed upon with the customers.
–Tested management’s identification of distinct performance obligations by evaluating whether the underlying goods, services, or both were highly interdependent and interrelated.
–Tested the accuracy and completeness of the costs incurred to date for the performance obligation.
–With the assistance of our capital projects specialists we evaluated the estimates of total cost and profit for the performance obligation by:
–Comparing costs incurred to date to the costs which management estimated to be incurred to date.
–Evaluating management’s ability to achieve the estimates of total cost and profit by performing corroborating inquiries with the Company’s project managers and engineers, and comparing the estimates to management’s work plans, engineering specifications, and supplier contracts.
–Comparing management’s estimates for the selected contracts to costs and profits of similar performance obligations, when applicable.
–Performing multiple live and virtual project site visits.
–Tested the mathematical accuracy of management’s calculation of revenue for the performance obligation.
–Tested management’s retrospective review of each contract’s revenue to determine whether revenue is accurately recognized during the period under audit.
•Evaluated the Company’s disclosures related to revenue recognition and contracts to assess their conformity with the applicable accounting standards.
Goodwill – Babcock & Wilcox Solar Reporting Unit - Refer to Notes 2 and 8 to the financial statements
Critical Audit Matter Description
The Company’s evaluation of goodwill for impairment involves the comparison of the fair value of each reporting unit to its carrying value. As described in Note 8 to the consolidated financial statements, the Company's consolidated goodwill balance was $157 million as of December 31, 2022, of which $56.6 million was allocated to the Babcock & Wilcox Solar reporting unit. The Company’s goodwill is tested annually on October 1st or more frequently if events or changes in circumstances indicate that the assets might be impaired. The Company’s evaluation of goodwill for impairment involves the comparison of the fair value of Babcock & Wilcox Solar reporting unit to its carrying value.
As disclosed further within Note 8, the Company identified certain factors, including but not limited to, the acquisition of the remaining 40% ownership stake in Babcock & Wilcox Solar for an amount less than the remaining balance of the non-controlling interest, significant deterioration in operating results from those originally forecast at the date of acquisition primarily as a result of supply chain issues on certain solar product inputs, the recognition of additional contract losses in the third quarter of $8.6 million beyond amounts previously accounted for as measurement period adjustments during the year, the determination that the contingent consideration would not be payable, all of which contributed to the identification of a triggering event, requiring an interim quantitative goodwill impairment assessment of its Babcock & Wilcox Solar reporting unit during the quarter ended September 30, 2022. The Company performed a quantitative analysis and compared the fair value of the Babcock & Wilcox Solar reporting unit to its carrying value and determined that the carrying value of the reporting unit exceeded the fair value as of September 30, 2022. As such, the Company recorded a goodwill impairment loss
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related to the Babcock & Wilcox Solar reporting unit of $7.2 million in the third quarter of fiscal 2022 which is recognized on the consolidated statements of operations for the twelve months ended December 31, 2022.
The quantitative analysis performed as of September 30, 2022 was updated as of October 1, 2022, the Company’s annual impairment test date, utilizing a qualitative assessment, and the analysis noted that the fair value of the Babcock & Wilcox Solar reporting unit exceeded the carrying value as of the annual impairment test date. Management re-evaluated its Babcock & Wilcox Solar reporting unit at December 31, 2022 and no additional indicators of goodwill impairment were identified.
In the performance of the interim goodwill impairment assessment as of September 30, 2022, the Company determined the fair value of its Babcock & Wilcox Solar reporting unit using a combination of the income approach (discounted cash flows), and the market approach (guideline public company method and the guideline transaction method). The determination of the fair value using the income approach required management to make significant estimates and assumptions related to the Babcock & Wilcox Solar reporting unit’s forecasted future revenues, earnings before interest, taxes, depreciation, and amortization (EBITDA) margins, and discount rate. Changes in these assumptions could have significant impacts on either the fair value, the amount of any goodwill impairment charge, or both.
Given the significant judgments made by management to estimate the fair value of the Babcock & Wilcox Solar reporting unit and the difference between its fair value and carrying value, we identified the goodwill evaluation of the Babcock & Wilcox Solar reporting unit as a critical audit matter. This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists, when performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to selection of the discount rate and forecasts of future revenue and EBITDA margins.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the goodwill evaluation of the Babcock & Wilcox Solar reporting unit included the following, amongst others:
•We tested the effectiveness of controls over management’s goodwill impairment evaluation, including those over the determination of the fair value of the Babcock & Wilcox Solar reporting unit.
•We evaluated management’s determination and evaluation of triggering events at each of the quarterly and year and reporting periods.
•We evaluated management’s ability to accurately forecast future revenues, and EBITDA margins by comparing actual results to management’s historical forecasts.
•We evaluated the reasonableness of management’s revenue and EBITDA margin forecasts by comparing the forecasts to (1) historical revenues, and EBITDA margins, (2) internal communications to management and the Board of Directors, (3) inquiry with non-management personnel and (4) forecasted information included in analyst and industry reports for the Company and certain of its peer companies.
•With the assistance of our internal fair value specialists, we evaluated the reasonableness of the valuation methods.
•With the assistance of our internal fair value specialists, we evaluated the reasonableness of the valuation assumptions, including the discount rate by (1) testing the source information underlying the determination of the discount rate and the mathematical accuracy of the calculation and (2) developing a range of independent estimates and comparing those to the discount rate selected by management.
•We evaluated the impact of changes in management’s goodwill assessment from the September 30, 2022 interim quantitative evaluation of goodwill for the Babcock & Wilcox Solar reporting unit to the October 1, 2022 annual measurement date, as well as to December 31, 2022, inclusive of macroeconomic factors.
Acquisition of Babcock & Wilcox Solar - Contingent Consideration Liability and Acquisition of Remaining Ownership Interest – Refer to Note 26 to the financial statements
Critical Audit Matter Description
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On September 30, 2021, the Company acquired a 60% controlling ownership interest in Illinois-based solar energy contractor Babcock & Wilcox Solar Energy, Inc. (“Babcock & Wilcox Solar”) in a business combination with a total fair value of consideration for the acquisition of $36.0 million, including $27.2 million in cash plus $8.8 million in estimated fair value of the contingent consideration arrangement. In connection with the acquisition, the Company agreed to pay contingent consideration based on the achievement of targeted revenue thresholds for the year ended December 31, 2022. The range of undiscounted amounts the Company could be required to pay under the contingent consideration arrangement was between $0.0 million and $10.0 million. Accordingly, the total purchase price was allocated to the assets acquired and liabilities assumed based on their respective fair values. The Company estimated fair values primarily using the discounted cash flow method at September 30, 2021 for the preliminary allocation of consideration to the assets acquired and liabilities assumed during the measurement period and up to September 30, 2022 when the purchase price allocation was finalized.
Prior to the finalization of the measurement period, on September 24, 2022, the Company acquired the remaining 40% ownership interest in Babcock & Wilcox Solar for $12.7 million. In addition to the transfer of the remaining ownership interest, the settlement and share transfer agreement released all parties from the contingent consideration arrangement, as well as other claims known as of the effective date of the agreement, resulting in the fair value of the contingent consideration to be $0 and the removal of the remaining non-controlling interest balance of $20.7 million.
Given the significant judgments made by management to estimate the fair value of the contingent consideration liability and the fair value of the non-controlling interest as of the settlement date, we identified the accounting and valuation for the buyout of the remaining 40% of Babcock & Wilcox Solar as a critical audit matter. There was a high degree of auditor judgment and an increased extent of effort, including the need to involve our National Office – Accounting and Reporting Services (NOARS) group and internal fair value specialists, to audit the accounting treatment of the settlement agreement and the reasonableness of the inputs used in the fair value measurement of the contingent consideration liability and non-controlling interest, including the selection of the discount rate and forecasts of future revenues and EBITDA margins.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the accounting treatment of the settlement agreement and the fair value of the contingent consideration liability and non-controlling interest included the following, among others:
•We tested the effectiveness of controls over management’s valuation of the contingent consideration liability and non-controlling interest, such as controls related to management’s selection of the significant valuation assumption (discount rate) and significant business assumptions (forecasts of future revenue and EBITDA margins).
•We tested the effectiveness of controls over management’s identification and assessment of significant unusual transactions.
•We tested the fair value of the non-controlling interest by evaluating the reasonableness of management’s revenue and EBITDA margin forecasts by comparing the forecasts to (1) historical revenues, and EBITDA margins, (2) internal communications to management and the Board of Directors, (3) inquiry with non-management personnel and (4) forecasted information included in analyst and industry reports for the Company and certain of its peer companies.
•With the assistance of our internal fair value specialists, we evaluated the reasonableness of the valuation methods.
•With the assistance of our internal fair value specialists, we evaluated the reasonableness of the valuation assumptions, including the discount rate by (1) testing the source information underlying the determination of the discount rate and the mathematical accuracy of the calculation and (2) developing a range of independent estimates and comparing those to the discount rate selected by management.
•We analyzed the executed settlement agreement to understand the provisions of the buyout of the remaining 40% interest of the shares in Babcock & Wilcox Solar and the contingent consideration liability provision.
•With the assistance of our National Office – Accounting and Reporting Services (NOARS) group, we evaluated the accounting treatment of the agreement.
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•We evaluated the fair value of the non-controlling interest and the contingent consideration liability and the allocation of the consideration transferred to the components of the settlement based upon the relative fair values of the share purchase.
•We evaluated the accounting treatment relating to the reduction of the fair value of the contingent consideration liability to $0 as a reduction to selling, general and administrative costs.
•We evaluated the accounting treatment of the gain associated with the purchase of the non-controlling interest as an adjustment to capital in excess of par.
•Evaluated the Company’s disclosures related to the settlement agreement to assess their conformity with the applicable accounting standards.
/S/s/ DELOITTE & TOUCHE LLP
March 1, 201816, 2023
We have served as the Company’sCompany's auditor since 2014.
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BABCOCK & WILCOX ENTERPRISES, INC.
CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
| Year Ended December 31, | |||||||||
| (in thousands, except per share amounts) | 2017 | 2016 | 2015 | ||||||
| Revenues | $ | 1,557,735 | $ | 1,578,263 | $ | 1,757,295 | |||
| Costs and expenses: | |||||||||
| Cost of operations | 1,457,857 | 1,399,146 | 1,449,138 | ||||||
| Selling, general and administrative expenses | 259,799 | 247,149 | 239,968 | ||||||
| Goodwill impairment charges | 86,903 | — | — | ||||||
| Restructuring activities and spin-off transaction costs | 15,447 | 40,807 | 14,946 | ||||||
| Research and development costs | 9,412 | 10,406 | 16,543 | ||||||
| Losses (gains) on asset disposals, net | 15 | (32 | ) | 14,597 | |||||
| Total costs and expenses | 1,829,433 | 1,697,476 | 1,735,192 | ||||||
| Equity in income (loss) and impairment of investees | (9,867 | ) | 16,440 | (242 | ) | ||||
| Operating income (loss) | (281,565 | ) | (102,773 | ) | 21,861 | ||||
| Other income (expense): | |||||||||
| Interest income | 510 | 810 | 618 | ||||||
| Interest expense | (26,305 | ) | (3,796 | ) | (2,338 | ) | |||
| Other – net | (6,839 | ) | (2,380 | ) | 64 | ||||
| Total other income (expense) | (32,634 | ) | (5,366 | ) | (1,656 | ) | |||
| Income (loss) before income tax expense | (314,199 | ) | (108,139 | ) | 20,205 | ||||
| Income tax expense | 64,816 | 6,943 | 3,671 | ||||||
| Income (loss) from continuing operations | (379,015 | ) | (115,082 | ) | 16,534 | ||||
| Income (loss) from discontinued operations, net of tax | — | — | 2,803 | ||||||
| Net income (loss) | (379,015 | ) | (115,082 | ) | 19,337 | ||||
| Net income attributable to noncontrolling interest | (809 | ) | (567 | ) | (196 | ) | |||
| Net income (loss) attributable to stockholders | $ | (379,824 | ) | $ | (115,649 | ) | $ | 19,141 | |
| Basic earnings (loss) per share - continuing operations | $ | (8.09 | ) | $ | (2.31 | ) | $ | 0.31 | |
| Basic earnings (loss) per share - discontinued operations | — | — | 0.05 | ||||||
| Basic earnings (loss) per share | $ | (8.09 | ) | $ | (2.31 | ) | $ | 0.36 | |
| Diluted earnings (loss) per share - continuing operations | $ | (8.09 | ) | $ | (2.31 | ) | $ | 0.30 | |
| Diluted earnings per share - discontinued operations | — | — | 0.06 | ||||||
| Diluted earnings (loss) per share | $ | (8.09 | ) | $ | (2.31 | ) | $ | 0.36 | |
| Shares used in the computation of earnings per share: | |||||||||
| Basic | 46,935 | 50,129 | 53,487 | ||||||
| Diluted | 46,935 | 50,129 | 53,709 | ||||||
| Year ended December 31, | |||||||||||||||||||||||||||||
| (in thousands, except per share amounts) | 2022 | 2021 | 2020 | ||||||||||||||||||||||||||
| Revenues | $ | 889,815 | $ | 723,363 | $ | 566,317 | |||||||||||||||||||||||
| Costs and expenses: | |||||||||||||||||||||||||||||
| Cost of operations | 704,192 | 543,835 | 400,465 | ||||||||||||||||||||||||||
| Selling, general and administrative expenses | 178,519 | 154,897 | 141,746 | ||||||||||||||||||||||||||
| Goodwill impairment | 7,224 | — | — | ||||||||||||||||||||||||||
| Advisory fees and settlement costs | 8,532 | 13,083 | 12,878 | ||||||||||||||||||||||||||
| Restructuring activities | 560 | 4,869 | 11,849 | ||||||||||||||||||||||||||
| Research and development costs | 3,805 | 1,595 | 4,379 | ||||||||||||||||||||||||||
| Gain on asset disposals, net | (8,836) | (15,737) | (3,263) | ||||||||||||||||||||||||||
| Total costs and expenses | 893,996 | 702,542 | 568,054 | ||||||||||||||||||||||||||
| Operating (loss) income | (4,181) | 20,821 | (1,737) | ||||||||||||||||||||||||||
| Other (expense) income: | |||||||||||||||||||||||||||||
| Interest expense | (44,983) | (39,393) | (59,796) | ||||||||||||||||||||||||||
| Interest income | 641 | 531 | 646 | ||||||||||||||||||||||||||
| Gain (loss) on debt extinguishment | — | 6,530 | (6,194) | ||||||||||||||||||||||||||
| Loss on sale of business | — | (1,753) | (108) | ||||||||||||||||||||||||||
| Benefit plans, net | 37,528 | 48,142 | 5,600 | ||||||||||||||||||||||||||
| Foreign exchange | (582) | (4,294) | 58,799 | ||||||||||||||||||||||||||
| Other – net | (3,944) | (1,270) | (1,128) | ||||||||||||||||||||||||||
| Total other (expense) income | (11,340) | 8,493 | (2,181) | ||||||||||||||||||||||||||
| (Loss) income before income tax expense | (15,521) | 29,314 | (3,918) | ||||||||||||||||||||||||||
| Income tax expense (benefit) | 11,063 | (2,224) | 8,179 | ||||||||||||||||||||||||||
| (Loss) income from continuing operations | (26,584) | 31,538 | (12,097) | ||||||||||||||||||||||||||
| Income from discontinued operations, net of tax | — | — | 1,800 | ||||||||||||||||||||||||||
| Net (loss) income | (26,584) | 31,538 | (10,297) | ||||||||||||||||||||||||||
| Net loss (income) attributable to non-controlling interest | 3,723 | (644) | (21) | ||||||||||||||||||||||||||
| Net (loss) income attributable to stockholders | (22,861) | 30,894 | (10,318) | ||||||||||||||||||||||||||
| Less: Dividends on Series A preferred stock | 14,860 | 9,127 | — | ||||||||||||||||||||||||||
| Net (loss) income attributable to stockholders of common stock | $ | (37,721) | $ | 21,767 | $ | (10,318) | |||||||||||||||||||||||
| Basic (loss) income per share | |||||||||||||||||||||||||||||
| Continuing operations | $ | (0.43) | $ | 0.26 | $ | (0.25) | |||||||||||||||||||||||
| Discontinued operations | — | — | 0.04 | ||||||||||||||||||||||||||
| Basic (loss) income per share | $ | (0.43) | $ | 0.26 | $ | (0.21) | |||||||||||||||||||||||
| Diluted (loss) income per share | |||||||||||||||||||||||||||||
| Continuing operations | $ | (0.43) | $ | 0.26 | $ | (0.25) | |||||||||||||||||||||||
| Discontinued operations | — | — | 0.04 | ||||||||||||||||||||||||||
| Diluted (loss) income per share | $ | (0.43) | $ | 0.26 | $ | (0.21) | |||||||||||||||||||||||
| Shares used in the computation of (loss) income per share: | |||||||||||||||||||||||||||||
| Basic | 88,256 | 82,391 | 48,710 | ||||||||||||||||||||||||||
| Diluted | 88,256 | 83,580 | 48,710 | ||||||||||||||||||||||||||
See accompanying notes to consolidated financial statements.
Consolidated Financial Statements.
52
BABCOCK & WILCOX ENTERPRISES, INC.
CONSOLIDATED AND COMBINED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (LOSS)
| Year Ended December 31, | |||||||||
| (in thousands) | 2017 | 2016 | 2015 | ||||||
| Net income (loss) | $ | (379,015 | ) | $ | (115,082 | ) | $ | 19,337 | |
| Other comprehensive income (loss): | |||||||||
| Currency translation adjustments, net of taxes | 16,150 | (24,494 | ) | (19,459 | ) | ||||
| Derivative financial instruments: | |||||||||
| Unrealized gains on derivative financial instruments | 3,346 | 2,208 | 282 | ||||||
| Income taxes | 142 | 162 | (57 | ) | |||||
| Unrealized gains on derivative financial instruments, net of taxes | 3,204 | 2,046 | 339 | ||||||
| Derivative financial instrument (gains) losses reclassified into net income | (2,503 | ) | (3,598 | ) | 1,557 | ||||
| Income taxes | (234 | ) | (568 | ) | 424 | ||||
| Reclassification adjustment for (gains) losses included in net income, net of taxes | (2,269 | ) | (3,030 | ) | 1,133 | ||||
| Benefit obligations: | |||||||||
| Unrealized gains (losses) on benefit obligations | (152 | ) | 12,202 | 462 | |||||
| Income taxes | — | 4,510 | (57 | ) | |||||
| Unrealized gains (losses) on benefit obligations, net of taxes | (152 | ) | 7,692 | 519 | |||||
| Amortization of benefit plan costs (benefits) | (2,912 | ) | (254 | ) | 1,042 | ||||
| Income taxes | 43 | (404 | ) | 1,237 | |||||
| Amortization of benefit plan costs (benefits), net of taxes | (2,955 | ) | 150 | (195 | ) | ||||
| Other: | 75 | 7 | (22 | ) | |||||
| Other comprehensive income (loss) | 14,053 | (17,629 | ) | (17,685 | ) | ||||
| Total comprehensive income (loss) | (364,962 | ) | (132,711 | ) | 1,652 | ||||
| Comprehensive loss attributable to noncontrolling interest | (778 | ) | (575 | ) | (183 | ) | |||
| Comprehensive income (loss) attributable to stockholders | $ | (365,740 | ) | $ | (133,286 | ) | $ | 1,469 | |
| Year ended December 31, | |||||||||||||||||||||||||||||
| (in thousands) | 2022 | 2021 | 2020 | ||||||||||||||||||||||||||
| Net (loss) income | $ | (26,584) | $ | 31,538 | $ | (10,297) | |||||||||||||||||||||||
| Other comprehensive (loss) income: | |||||||||||||||||||||||||||||
| Currency translation adjustments (CTA) | (14,834) | $ | (3,412) | (53,318) | |||||||||||||||||||||||||
| Reclassification of CTA to net loss | — | (4,512) | — | ||||||||||||||||||||||||||
| Benefit obligations: | |||||||||||||||||||||||||||||
| Pension and post retirement adjustments, net of tax | 870 | 1,492 | (998) | ||||||||||||||||||||||||||
| Other comprehensive loss | (13,964) | (6,432) | (54,316) | ||||||||||||||||||||||||||
| Total comprehensive (loss) income | (40,548) | 25,106 | (64,613) | ||||||||||||||||||||||||||
| Comprehensive income (loss) attributable to non-controlling interest | 3,852 | (595) | (29) | ||||||||||||||||||||||||||
| Comprehensive (loss) income attributable to stockholders | $ | (36,696) | $ | 24,511 | $ | (64,642) | |||||||||||||||||||||||
See accompanying notes to consolidated financial statements.
Consolidated Financial Statements.
53
BABCOCK & WILCOX ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
| (in thousands, except per share amount) | December 31, 2017 | December 31, 2016 | (in thousands, except per share amount) | December 31, 2022 | December 31, 2021 | ||||||||||||
| Cash and cash equivalents | $ | 56,667 | $ | 95,887 | Cash and cash equivalents | $ | 76,728 | $ | 224,874 | ||||||||
| Restricted cash and cash equivalents | 25,980 | 27,770 | |||||||||||||||
| Current restricted cash and cash equivalents | Current restricted cash and cash equivalents | 15,335 | 1,841 | ||||||||||||||
| Accounts receivable – trade, net | 291,704 | 282,347 | Accounts receivable – trade, net | 162,461 | 132,068 | ||||||||||||
| Accounts receivable – other | 78,970 | 73,756 | Accounts receivable – other | 38,510 | 34,553 | ||||||||||||
| Contracts in progress | 161,220 | 166,010 | Contracts in progress | 134,939 | 80,176 | ||||||||||||
| Inventories | 82,162 | 85,807 | |||||||||||||||
| Inventories, net | Inventories, net | 102,637 | 79,527 | ||||||||||||||
| Other current assets | 35,554 | 45,957 | Other current assets | 27,002 | 29,395 | ||||||||||||
| Total current assets | 732,257 | 777,534 | Total current assets | 557,612 | 582,434 | ||||||||||||
| Net property, plant and equipment | 141,931 | 133,637 | |||||||||||||||
| Net property, plant and equipment and finance leases | Net property, plant and equipment and finance leases | 86,363 | 85,627 | ||||||||||||||
| Goodwill | 204,398 | 267,395 | Goodwill | 156,993 | 116,462 | ||||||||||||
| Deferred income taxes | 97,826 | 163,388 | |||||||||||||||
| Investments in unconsolidated affiliates | 43,278 | 98,682 | |||||||||||||||
| Intangible assets | 76,780 | 71,039 | |||||||||||||||
| Intangible assets, net | Intangible assets, net | 60,293 | 43,795 | ||||||||||||||
| Right-of-use assets | Right-of-use assets | 29,438 | 30,163 | ||||||||||||||
| Long-term restricted cash | Long-term restricted cash | 21,397 | — | ||||||||||||||
| Other assets | 25,759 | 17,468 | Other assets | 30,559 | 54,784 | ||||||||||||
| Total assets | $ | 1,322,229 | $ | 1,529,143 | Total assets | 942,655 | 913,265 | ||||||||||
| Foreign revolving credit facilities | $ | 9,173 | $ | 14,241 | |||||||||||||
| Second lien term loan facility | 160,141 | — | |||||||||||||||
| Accounts payable | 225,234 | 220,737 | Accounts payable | $ | 139,159 | $ | 85,929 | ||||||||||
| Accrued employee benefits | 30,153 | 35,497 | Accrued employee benefits | 12,533 | 12,989 | ||||||||||||
| Advance billings on contracts | 181,070 | 210,642 | Advance billings on contracts | 133,429 | 68,380 | ||||||||||||
| Accrued warranty expense | 39,020 | 40,467 | Accrued warranty expense | 9,568 | 12,925 | ||||||||||||
| Financing lease liabilities | Financing lease liabilities | 1,180 | 2,445 | ||||||||||||||
| Operating lease liabilities | Operating lease liabilities | 3,595 | 3,950 | ||||||||||||||
| Other accrued liabilities | 99,536 | 95,954 | Other accrued liabilities | 68,244 | 54,385 | ||||||||||||
| Loans payable | Loans payable | 4,291 | 12,380 | ||||||||||||||
| Total current liabilities | 744,327 | 617,538 | Total current liabilities | 371,999 | 253,383 | ||||||||||||
| United States revolving credit facility | 94,300 | 9,800 | |||||||||||||||
| Senior notes | Senior notes | 335,498 | 326,366 | ||||||||||||||
| Long term loans payable | Long term loans payable | 13,197 | 1,543 | ||||||||||||||
| Pension and other accumulated postretirement benefit liabilities | 256,390 | 301,259 | Pension and other accumulated postretirement benefit liabilities | 136,176 | 182,730 | ||||||||||||
| Other noncurrent liabilities | 36,509 | 39,595 | |||||||||||||||
| Non-current finance lease liabilities | Non-current finance lease liabilities | 27,482 | 29,369 | ||||||||||||||
| Non-current operating lease liabilities | Non-current operating lease liabilities | 26,583 | 26,685 | ||||||||||||||
| Deferred tax liabilities | Deferred tax liabilities | 10,054 | 1,399 | ||||||||||||||
| Other non-current liabilities | Other non-current liabilities | 23,755 | 33,168 | ||||||||||||||
| Total liabilities | 1,131,526 | 968,192 | Total liabilities | 944,744 | 854,643 | ||||||||||||
| Commitments and contingencies | Commitments and contingencies | ||||||||||||||||
| Stockholders' equity: | |||||||||||||||||
| Common stock, par value $0.01 per share, authorized 200,000 shares; issued and outstanding 44,065 and 48,688 shares at December 31, 2017 and 2016, respectively | 499 | 544 | |||||||||||||||
| Stockholders' (deficit) equity: | Stockholders' (deficit) equity: | ||||||||||||||||
| Preferred stock, par value $0.01 per share, authorized shares of 20,000; issued and outstanding shares of 7,669 at both at December 31, 2022 and 2021 | Preferred stock, par value $0.01 per share, authorized shares of 20,000; issued and outstanding shares of 7,669 at both at December 31, 2022 and 2021 | 77 | 77 | ||||||||||||||
| Common stock, par value $0.01 per share, authorized shares of 500,000; issued and outstanding shares of 88,700 and 86,286 at December 31, 2022 and 2021, respectively | Common stock, par value $0.01 per share, authorized shares of 500,000; issued and outstanding shares of 88,700 and 86,286 at December 31, 2022 and 2021, respectively | 5,138 | 5,110 | ||||||||||||||
| Capital in excess of par value | 800,968 | 806,589 | Capital in excess of par value | 1,537,625 | 1,518,872 | ||||||||||||
| Treasury stock at cost, 5,681 and 5,592 shares at December 31, 2017 and December 31, 2016, respectively | (104,785 | ) | (103,818 | ) | |||||||||||||
| Retained deficit | (492,150 | ) | (114,684 | ) | |||||||||||||
| Treasury stock at cost, 1,868 and 1,525 shares at December 31, 2022 and 2021, respectively | Treasury stock at cost, 1,868 and 1,525 shares at December 31, 2022 and 2021, respectively | (113,753) | (110,934) | ||||||||||||||
| Accumulated deficit | Accumulated deficit | (1,358,875) | (1,321,154) | ||||||||||||||
| Accumulated other comprehensive loss | (22,429 | ) | (36,482 | ) | Accumulated other comprehensive loss | (72,786) | (58,822) | ||||||||||
| Stockholders' equity attributable to shareholders | 182,103 | 552,149 | Stockholders' equity attributable to shareholders | (2,574) | 33,149 | ||||||||||||
| Noncontrolling interest | 8,600 | 8,802 | |||||||||||||||
| Total stockholders' equity | 190,703 | 560,951 | |||||||||||||||
| Non-controlling interest | Non-controlling interest | 485 | 25,473 | ||||||||||||||
| Total stockholders' (deficit) equity | Total stockholders' (deficit) equity | (2,089) | 58,622 | ||||||||||||||
| Total liabilities and stockholders' equity | $ | 1,322,229 | $ | 1,529,143 | Total liabilities and stockholders' equity | $ | 942,655 | $ | 913,265 | ||||||||
See accompanying notes to consolidated financial statements.
Consolidated Financial Statements.
54
BABCOCK & WILCOX ENTERPRISES, INC.
CONSOLIDATED AND COMBINED STATEMENT OF STOCKHOLDERS' EQUITY
| Common Stock | Capital In Excess of Par Value | Treasury Stock | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Former Parent Investment | Noncontrolling Interest | Total Stockholders’ Equity | |||||||||||||||||||
| Shares | Par Value | |||||||||||||||||||||||||
| (in thousands, except share and per share amounts) | ||||||||||||||||||||||||||
| December 31, 2014 Balance | — | $ | — | $ | — | $ | — | $ | — | $ | 10,374 | $ | 676,036 | $ | 1,027 | $ | 687,437 | |||||||||
| Net income | — | — | — | — | 965 | — | 18,176 | 196 | 19,337 | |||||||||||||||||
| Currency translation adjustments | — | — | — | — | — | (19,446 | ) | — | (13 | ) | (19,459 | ) | ||||||||||||||
| Derivative financial instruments | — | — | — | — | — | 1,472 | — | — | 1,472 | |||||||||||||||||
| Defined benefit obligations | — | — | — | — | — | 324 | — | — | 324 | |||||||||||||||||
| Available-for-sale investments | — | — | — | — | — | (22 | ) | — | — | (22 | ) | |||||||||||||||
| Stock-based compensation | 137 | 17 | 7,772 | (1,143 | ) | — | — | 6 | — | 6,652 | ||||||||||||||||
| Repurchased shares | (1,376 | ) | (14 | ) | (24,265 | ) | — | — | — | — | (24,279 | ) | ||||||||||||||
| Dividends to noncontrolling interests | — | — | — | — | — | — | — | (491 | ) | (491 | ) | |||||||||||||||
| Net transfers from Parent | — | — | — | — | — | — | 125,295 | — | 125,295 | |||||||||||||||||
| Distribution of Nuclear Energy segment to former Parent | — | — | — | — | — | (11,555 | ) | (36,284 | ) | — | (47,839 | ) | ||||||||||||||
| Reclassification of former Parent investment to capital in excess of par value and common stock | 53,720 | 537 | 782,692 | — | — | — | (783,229 | ) | — | — | ||||||||||||||||
| December 31, 2015 Balance | 52,481 | $ | 540 | $ | 790,464 | $ | (25,408 | ) | $ | 965 | $ | (18,853 | ) | $ | — | $ | 719 | $ | 748,427 | |||||||
| Net income | — | $ | — | $ | — | $ | — | $ | (115,649 | ) | $ | — | $ | — | $ | 567 | $ | (115,082 | ) | |||||||
| Currency translation adjustments | — | — | — | — | — | (24,494 | ) | — | 8 | (24,486 | ) | |||||||||||||||
| Derivative financial instruments | — | — | — | — | — | (984 | ) | — | — | (984 | ) | |||||||||||||||
| Defined benefit obligations | — | — | — | — | — | 7,842 | — | — | 7,842 | |||||||||||||||||
| SPIG Acquisition | — | — | — | — | — | — | — | 7,754 | 7,754 | |||||||||||||||||
| Available-for-sale investments | — | — | — | — | — | 7 | — | — | 7 | |||||||||||||||||
| Stock-based compensation charges | 423 | 46 | 16,125 | (2,731 | ) | — | — | — | — | 13,440 | ||||||||||||||||
| Repurchased shares | (4,216 | ) | (42 | ) | — | (75,679 | ) | — | — | — | — | (75,721 | ) | |||||||||||||
| Dividends to noncontrolling interests | — | — | — | — | — | — | — | (246 | ) | (246 | ) | |||||||||||||||
| December 31, 2016 Balance | 48,688 | $ | 544 | $ | 806,589 | $ | (103,818 | ) | $ | (114,684 | ) | $ | (36,482 | ) | $ | — | $ | 8,802 | $ | 560,951 | ||||||
| Net income | — | $ | — | $ | — | $ | — | $ | (379,824 | ) | $ | — | $ | — | $ | 809 | $ | (379,015 | ) | |||||||
| Currency translation adjustments | — | — | — | — | — | 16,150 | — | (31 | ) | 16,119 | ||||||||||||||||
| Derivative financial instruments | — | — | — | — | — | 935 | — | — | 935 | |||||||||||||||||
| Defined benefit obligations | — | — | — | — | — | (3,107 | ) | — | — | (3,107 | ) | |||||||||||||||
| Available-for-sale investments | — | — | — | — | — | 75 | — | — | 75 | |||||||||||||||||
| Stock-based compensation charges | 212 | 3 | 11,005 | (967 | ) | 2,358 | — | — | — | 12,399 | ||||||||||||||||
| Common stock retirement | (4,835 | ) | (48 | ) | (16,626 | ) | — | — | — | — | — | (16,674 | ) | |||||||||||||
| Dividends to noncontrolling interests | — | — | — | — | — | — | — | (980 | ) | (980 | ) | |||||||||||||||
| December 31, 2017 Balance | 44,065 | $ | 499 | $ | 800,968 | $ | (104,785 | ) | $ | (492,150 | ) | $ | (22,429 | ) | $ | — | $ | 8,600 | $ | 190,703 | ||||||
| Common Stock | Preferred Stock | Capital In Excess of Par Value | Treasury Stock | Accumulated Deficit | Accumulated Other Comprehensive Loss | Non-controlling Interest | Total Stockholders’ Equity (Deficit) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| (in thousands, except share and per share amounts) | Shares | Par Value | Shares | Par Value | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2019 | 46,374 | $ | 4,699 | — | $ | — | $ | 1,142,614 | $ | (105,707) | $ | (1,332,603) | $ | 1,926 | $ | 1,417 | $ | (287,654) | |||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | (10,318) | — | 21 | (10,297) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Currency translation adjustments | — | — | — | — | — | — | — | (53,318) | 8 | (53,310) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Pension and post retirement adjustments, net of tax | — | — | — | — | — | — | — | (998) | — | (998) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation charges | 460 | 9 | — | — | 4,548 | (283) | — | — | — | 4,274 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Equitized guarantee fee payment | 1,713 | 17 | — | — | 3,883 | — | — | — | — | 3,900 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Equitized Last Out Term Loan principal payment | 5,905 | 59 | — | — | 13,391 | — | — | — | — | 13,450 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends to non-controlling interest | — | — | — | — | — | — | — | — | (342) | (342) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2020 | 54,452 | 4,784 | — | — | 1,164,436 | (105,990) | (1,342,921) | (52,390) | 1,104 | (330,977) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | 30,894 | — | 644 | 31,538 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Currency translation adjustments | — | — | — | — | — | — | — | (7,924) | (49) | (7,973) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Pension and post retirement adjustments, net of tax | — | — | — | — | — | — | — | 1,492 | — | 1,492 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation charges | 2,347 | 31 | — | — | 7,770 | (4,944) | — | — | — | 2,857 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock offering | 29,487 | 295 | — | — | 160,546 | — | — | — | — | 160,841 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred stock offering, net | — | — | 4,752 | 48 | 113,227 | — | — | — | — | 113,275 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Equitized Last Out Term Loan principal payment | — | — | 2,917 | 29 | 72,893 | — | — | — | — | 72,922 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends to preferred stockholders | — | — | — | — | — | — | (9,127) | — | — | (9,127) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Non-controlling interest from acquisition | — | — | — | — | — | — | — | — | 23,996 | 23,996 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends to non-controlling interest | — | — | — | — | — | — | — | — | (222) | (222) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | 86,286 | $ | 5,110 | 7,669 | $ | 77 | $ | 1,518,872 | $ | (110,934) | $ | (1,321,154) | $ | (58,822) | $ | 25,473 | $ | 58,622 | |||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | (22,861) | — | (3,723) | (26,584) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Currency translation adjustments | — | — | — | — | — | — | — | (14,834) | (129) | (14,963) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Pension and post retirement adjustments, net of tax | — | — | — | — | — | — | — | 870 | — | 870 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation charges | 2,414 | 28 | — | — | 9,949 | (2,819) | — | — | — | 7,158 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Purchase of Babcock & Wilcox Solar and SPIG non-controlling interest | — | — | — | — | 8,804 | — | — | — | (20,735) | (11,931) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends to preferred stockholders | — | — | — | — | — | — | (14,860) | — | 0 | (14,860) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends to non-controlling interest | — | — | — | — | — | — | — | — | (401) | (401) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2022 | 88,700 | 5,138 | 7,669 | 77 | 1,537,625 | (113,753) | (1,358,875) | (72,786) | 485 | (2,089) | |||||||||||||||||||||||||||||||||||||||||||||||||
See accompanying notes to consolidated financial statements.
Consolidated Financial Statements.
55
BABCOCK & WILCOX ENTERPRISES, INC.
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
| Year Ended December 31, | |||||||||
| (in thousands) | 2017 | 2016 | 2015 | ||||||
| Cash flows from operating activities: | |||||||||
| Net income (loss) | $ | (379,015 | ) | $ | (115,082 | ) | $ | 19,337 | |
| Non-cash items included in net income (loss): | |||||||||
| Depreciation and amortization of long-lived assets | 40,138 | 39,583 | 34,932 | ||||||
| Amortization of debt issuance costs and debt discount | 6,407 | 1,244 | 622 | ||||||
| (Income) loss from equity method investees | (8,326 | ) | (16,440 | ) | 242 | ||||
| Goodwill impairment charges | 86,903 | — | — | ||||||
| Other than temporary impairment of equity method investment in TBWES | 18,193 | — | — | ||||||
| Losses on asset disposals and impairments | 807 | 14,938 | 16,881 | ||||||
| Write-off of accrued claims receivable, net | — | — | 7,832 | ||||||
| Provision for (benefit from) deferred income taxes | 50,304 | (9,000 | ) | (32,121 | ) | ||||
| Mark to market losses (gains) and prior service cost amortization for pension and postretirement plans | (11,608 | ) | 36,346 | 40,611 | |||||
| Stock-based compensation, net of associated income taxes | 11,813 | 16,129 | 7,773 | ||||||
| Changes in assets and liabilities, net of effects of acquisitions: | |||||||||
| Accounts receivable | 9,414 | 46,755 | (54,807 | ) | |||||
| Dividends from equity method investees | 50,134 | 12,160 | 20,830 | ||||||
| Accrued insurance receivable | — | (15,000 | ) | — | |||||
| Contracts in progress and advance billings on contracts | (24,001 | ) | (13,259 | ) | 62,971 | ||||
| Inventories | 11,874 | 2,869 | 6,060 | ||||||
| Income taxes | 26,618 | 22,593 | 9,275 | ||||||
| Accounts payable | (14,664 | ) | 4,542 | 17,863 | |||||
| Accrued and other current liabilities | (12,450 | ) | 25,110 | 11,464 | |||||
| Pension liabilities, accrued postretirement benefits and employee benefits | (44,584 | ) | (46,973 | ) | (2,336 | ) | |||
| Other, net | (7,790 | ) | (4,242 | ) | 2,970 | ||||
| Net cash from operating activities | (189,833 | ) | 2,273 | 170,399 | |||||
| Cash flows from investing activities: | |||||||||
| Decrease in restricted cash and cash equivalents | (2,259 | ) | 9,374 | 6,298 | |||||
| Investment in equity method investees | — | (26,256 | ) | (7,424 | ) | ||||
| Purchase of property, plant and equipment | (14,278 | ) | (22,450 | ) | (35,397 | ) | |||
| Acquisition of business, net of cash acquired | (52,547 | ) | (144,780 | ) | — | ||||
| Proceeds from sale of equity method investment in a joint venture | — | 17,995 | — | ||||||
| Purchases of available-for-sale securities | (29,252 | ) | (45,217 | ) | (14,008 | ) | |||
| Sales and maturities of available-for-sale securities | 35,484 | 29,846 | 5,266 | ||||||
| Other, net | 708 | 646 | (587 | ) | |||||
| Net cash from investing activities | $ | (62,144 | ) | $ | (180,842 | ) | $ | (45,852 | ) |
| Year ended December 31, | |||||||||||||||||
| (in thousands) | 2022 | 2021 | 2020 | ||||||||||||||
| Cash flows from operating activities: | |||||||||||||||||
| Net (loss) income | $ | (26,584) | $ | 31,538 | $ | (10,297) | |||||||||||
| Adjustments to reconcile net loss to net cash used in operating activities: | |||||||||||||||||
| Depreciation and amortization of long-lived assets | 23,992 | 18,337 | 16,805 | ||||||||||||||
| Goodwill impairment | 7,224 | — | — | ||||||||||||||
| Change in fair value of contingent consideration | (9,567) | — | — | ||||||||||||||
| Amortization of deferred financing costs and debt discount | 5,225 | 7,918 | 16,743 | ||||||||||||||
| Amortization of guaranty fee | 856 | 1,832 | 1,159 | ||||||||||||||
| Non-cash operating lease expense | 7,277 | 4,154 | 4,765 | ||||||||||||||
| Loss on sale of business | — | 1,753 | 108 | ||||||||||||||
| (Gain) loss on debt extinguishment | — | (6,530) | 6,194 | ||||||||||||||
| Gain on asset disposals | (8,836) | (15,737) | (3,262) | ||||||||||||||
| Provision for (benefit from) deferred income taxes, including valuation allowances | 5,897 | (7,745) | 1,791 | ||||||||||||||
| Mark to market, prior service cost amortization for pension and postretirement plans | (6,848) | (15,512) | 22,156 | ||||||||||||||
| Stock-based compensation, net of associated income taxes | 9,977 | 7,801 | 4,557 | ||||||||||||||
| Equitized non-cash interest expense | — | — | 13,450 | ||||||||||||||
| Foreign exchange | 582 | 4,294 | (58,799) | ||||||||||||||
| Changes in assets and liabilities: | |||||||||||||||||
| Accounts receivable | (28,217) | 225 | 21,673 | ||||||||||||||
| Contracts in progress | (54,108) | (20,099) | 35,850 | ||||||||||||||
| Advance billings on contracts | 62,330 | 1,641 | (13,057) | ||||||||||||||
| Inventories | (19,002) | (3,047) | (4,084) | ||||||||||||||
| Income taxes | (248) | (2,142) | (2,425) | ||||||||||||||
| Accounts payable | 52,680 | 7,080 | (42,001) | ||||||||||||||
| Accrued and other current liabilities | (18,921) | (47,768) | 9,146 | ||||||||||||||
| Accrued contract loss | 6,402 | (204) | (5,557) | ||||||||||||||
| Pension liabilities, accrued postretirement benefits and employee benefits | (36,543) | (60,760) | (37,223) | ||||||||||||||
| Other, net | (4,205) | (18,225) | (18,498) | ||||||||||||||
| Net cash used in operating activities | (30,637) | (111,196) | (40,806) | ||||||||||||||
| Cash flows from investing activities: | |||||||||||||||||
| Purchase of property, plant and equipment | (13,238) | (6,679) | (8,230) | ||||||||||||||
| Acquisition of business, net of cash acquired | (64,914) | (55,341) | — | ||||||||||||||
| Proceeds from sale of business and assets, net | 5,498 | 25,390 | 8,000 | ||||||||||||||
| Purchases of available-for-sale securities | (6,427) | (12,605) | (29,068) | ||||||||||||||
| Sales and maturities of available-for-sale securities | 9,815 | 15,694 | 26,563 | ||||||||||||||
| Other, net | 466 | — | 4,954 | ||||||||||||||
| Net cash (used in) from investing activities | (68,800) | (33,541) | 2,219 | ||||||||||||||
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BABCOCK & WILCOX ENTERPRISES, INC. CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS (CONTINUED) | ||||||||||
| Year Ended December 31, | ||||||||||
| (in thousands) | 2017 | 2016 | 2015 | |||||||
| Cash flows from financing activities: | ||||||||||
| Borrowings under our United States revolving credit facility | $ | 629,722 | $ | 205,600 | $ | — | ||||
| Repayments of our United States revolving credit facility | (545,222 | ) | (195,800 | ) | — | |||||
| Proceeds from our second lien term loan facility, net of $34.2 million discount | 161,674 | — | — | |||||||
| Borrowings under our foreign revolving credit facilities | 273 | 5,674 | — | |||||||
| Repayments of our foreign revolving credit facilities | (6,597 | ) | (20,248 | ) | (1,080 | ) | ||||
| Common stock repurchase from related party | (16,674 | ) | — | — | ||||||
| Net transfers from our former Parent | — | — | 80,589 | |||||||
| Shares of our common stock returned to treasury stock | (967 | ) | (78,410 | ) | (25,408 | ) | ||||
| Debt issuance costs | (15,002 | ) | — | — | ||||||
| Other | (1,082 | ) | (246 | ) | (491 | ) | ||||
| Net cash from financing activities | 206,125 | (83,430 | ) | 53,610 | ||||||
| Effects of exchange rate changes on cash | 6,632 | (7,306 | ) | (6,407 | ) | |||||
| Cash flow from continuing operations | (39,220 | ) | (269,305 | ) | 171,750 | |||||
| Cash flows from discontinued operations: | ||||||||||
| Operating cash flows from discontinued operations, net | — | — | (25,194 | ) | ||||||
| Investing cash flows from discontinued operations, net | — | — | (23 | ) | ||||||
| Net cash flows from discontinued operations | — | — | (25,217 | ) | ||||||
| Net increase (decrease) in cash and equivalents | (39,220 | ) | (269,305 | ) | 146,533 | |||||
| Cash and equivalents, beginning of period | 95,887 | 365,192 | 218,659 | |||||||
| Cash and equivalents, end of period | $ | 56,667 | $ | 95,887 | $ | 365,192 | ||||
| Year ended December 31, | |||||||||||||||||
| (in thousands) | 2022 | 2021 | 2020 | ||||||||||||||
| Cash flows from financing activities: | |||||||||||||||||
| Issuance of senior notes | 6,828 | 303,324 | — | ||||||||||||||
| Borrowings on loan payable | 7,192 | 7,145 | — | ||||||||||||||
| Repayments on loan payable | (16,915) | (846) | — | ||||||||||||||
| Proceeds from sale-leaseback financing transactions | 13,339 | — | — | ||||||||||||||
| Finance lease payments | (2,435) | (2,366) | 13 | ||||||||||||||
| Borrowings under last out term loans | — | — | 70,000 | ||||||||||||||
| Repayments under last out term loans | — | (75,408) | — | ||||||||||||||
| Borrowings under U.S. revolving credit facility | — | 14,500 | 158,900 | ||||||||||||||
| Repayments of U.S. revolving credit facility | — | (178,800) | (173,600) | ||||||||||||||
| Issuance of preferred stock, net | — | 113,275 | — | ||||||||||||||
| Payment of preferred stock dividends | (14,860) | (9,127) | — | ||||||||||||||
| Shares of common stock returned to treasury stock | (2,819) | (4,944) | (283) | ||||||||||||||
| Issuance of common stock, net | — | 160,841 | — | ||||||||||||||
| Debt issuance costs | (1,447) | (24,560) | (10,590) | ||||||||||||||
| Other, net | (48) | (222) | (342) | ||||||||||||||
| Net cash (used in) from financing activities | (11,165) | 302,812 | 44,098 | ||||||||||||||
| Effects of exchange rate changes on cash | (2,653) | 1,217 | 4,971 | ||||||||||||||
| Net (decrease) increase in cash, cash equivalents and restricted cash | (113,255) | 159,292 | 10,482 | ||||||||||||||
| Cash, cash equivalents and restricted cash, beginning of period | 226,715 | 67,423 | 56,941 | ||||||||||||||
| Cash, cash equivalents and restricted cash, end of period | $ | 113,460 | $ | 226,715 | $ | 67,423 | |||||||||||
| Schedule of cash, cash equivalents and restricted cash: | |||||||||||||||||
| Cash and cash equivalents | $ | 76,728 | $ | 224,874 | $ | 57,338 | |||||||||||
| Current restricted cash | 15,335 | 1,841 | 10,085 | ||||||||||||||
| Long-term restricted cash | 21,397 | $ | — | — | |||||||||||||
| Cash, cash equivalents and restricted cash at end of period | $ | 113,460 | $ | 226,715 | $ | 67,423 | |||||||||||
| Income taxes paid, net | $ | 7,950 | $ | 4,991 | $ | 6,960 | |||||||||||
| Interest paid | $ | 25,673 | $ | 20,234 | $ | 17,815 | |||||||||||
See accompanying notes to consolidated financial statements.
Consolidated Financial Statements.
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BABCOCK & WILCOX ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 20172022
NOTE 1 – BASIS OF PRESENTATION AND GOING CONCERN CONSIDERATIONS
Babcock & Wilcox Enterprises, Inc. ("(“B&W", "we", "us" or "our") operates in three business segments and was wholly owned by The Babcock & Wilcox Company ("BWC"&W,” “management,” “we,” “us,” “our” or the "former Parent"“Company”) until June 30, 2015 when BWC distributed 100% of our outstanding common stock to the BWC shareholders through a tax-free spin-off transaction (the "spin-off"). BWC is now known as BWX Technologies, Inc.
Market Update
The COVID-19 pandemic has continued to create challenges for the Company in B&W. Oncountries that have significant outbreak mitigation strategies, namely, countries in our Asia-Pacific region, which led to temporary project postponements and priorhas continued to June 30, 2015 our operatingimpact results and cash flows consisted of The Power Generation Operations of BWC ("BW PGG"), which represented a combined reporting entity comprised ofin this region. Additionally, the assets and liabilities in managing and operating the Power Generation segment of BWC, combined with related captive insurance operations that were contributed in connection with the spin-off by BWCCompany has experienced negative impacts to B&W. In addition, BW PGG also included certain assets and liabilities of BWC's Nuclear Energy ("NE") segment that were transferred to BWC. We have treated the assets, liabilities, operating results and cash flows of the NE businessits global supply chains as a discontinued operationresult of COVID-19, the war in our consolidated financial statements. See Note 26 for further information.
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
Reportable segments
•Babcock & Wilcox Environmental: A full suite of best-in-class emissions control and environmental technology solutions for utility, waste to energy, biomass, carbon black, and industrial applications.
steam generation applications around the world. B&W’s broad experience includes systems for cooling, ash handling, particulate control, nitrogen oxides and sulfur dioxides removal, chemical looping for carbon control, and mercury control.For financial information about ourthe Company's segments see Note 4 to our consolidated financial statements.the Consolidated Financial Statements.
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Use of estimates
Earnings per share
compensation, including incentive and non-qualified stock options, restricted stock, restricted stock units, performance shares, and performance units, subject to satisfaction of specific performance goals. We includeThe Company includes the shares applicable to these plans in dilutive earnings per share when related performance criteria have been met. The computation of basic and diluted earnings per share is included in Note 3.
Investments
Foreign currency translation
Revenue from goods and services transferred to customers at a point in time, which includes certain aftermarket parts and services, accounted for 20%, 19% and 29% of our revenue for the years ended December 31, 2022, 2021, and 2020, respectively. Revenue on these contracts is recognized when the customer obtains control of the asset, which is generally recognize contract revenuesupon shipment or delivery and relatedacceptance by the customer. Standard commercial payment terms generally apply to these sales.
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Revenue from products and services transferred to customers over time accounted for 80%, 81% and 71% of our revenue for the years ended years ended December 31, 2022, 2021, and 2020, respectively. Revenue recognized over time primarily relates to customized, engineered solutions and construction services. Typically, revenue is recognized over time using the cost-to-cost input method that uses costs on a percentage-of-completion method for individual contracts or combinations of contracts based onincurred to date relative to total estimated costs at completion to measure progress toward satisfying our performance obligations. Incurred cost represents work performed, man hours or a cost-to-cost method, as applicablewhich corresponds with, and thereby best depicts, the transfer of control to the product or activity involved. We recognize estimatedcustomer. 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 and resulting income based onrecognized over time under the measurementcost-to-cost input method contains a single performance obligation as the interdependent nature of the extent of progress completion as a percentagegoods and services provided prevents them from being separately identifiable within the contract. Generally, the Company tries to structure contract milestones to mirror its expected cash outflows over the course of the total contract. We include revenues and related costs so recorded, plus accumulated contract costs that exceed amounts invoicedcontract; however, the timing of milestone receipts can greatly affect the overall cash position. Refer to customers under the termsNote 4 for details of the contracts, in contracts in progress. We include in advance billings on contracts invoices that exceed accumulated contract costs and revenues and costs recognized under the percentage-of-completion method. Contracts in progress and advance billings on contracts balances are classified as current assets and liabilities, respectively, in our consolidated balance sheets based on the life cycle of the associated contracts. Most long-term contracts contain provisions for progress payments. Our unbilled receivables do not contain an allowance for credit losses as we expect to invoice customers and collect all amounts for unbilled revenues. We review contract price and cost estimates periodically as the work progresses and reflect adjustments proportionate to the percentage-of-completion in income in the period when those estimates are revised. For all contracts, if a current estimate of total contract cost indicates a loss on a contract, the projected contract loss is recognized in full in the statement of operations and an accrual for the estimated loss on the uncompleted contract is included in other current liabilities in the balance sheet. In addition, when we determine that an uncompleted contract will not be completed on-time and the contract has liquidated damages provisions, we recognize the estimated liquidated damages we will incur and record them as a reduction of the estimated selling price in the period the change in estimate occurs.
As of December 31, 2017, we have2022, the Company has estimated the costs to complete all of ourall in-process contracts in order to estimate revenues in accordance with the percentage-of-completion method of accounting.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 ourthe Company's consolidated financial condition, results of operations
and cash flows. Alternatively, reductions in overall contract costs at completion could materially improve ourthe Company's 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.
The Company recognizes accrued claims in contract revenues for extra work or changes in scope of work to the extent of costs incurred when we believeit believes it has an enforceable right to the following accountingmodification or claim and the amount can be estimated reliably, and its realization is probable. In evaluating these criteria, havethe Company considers 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 the relevant history with the counter-party that supports expectations about their willingness and ability to pay for the additional cost along with a reasonable margin.
The Company generally recognizes sales commissions in equal proportion as revenue is recognized. The Company's sales agreements are structured such that commissions are only payable upon receipt of payment, thus a capitalized asset at contract inception has not been met:recorded for sales commission as a liability has not been incurred at that point.
Contract balances
Contracts in progress, a current asset in the Company's Consolidated Balance Sheets, includes revenues and related costs so recorded, plus accumulated contract costs that exceed amounts invoiced to customers under the terms of the contracts. Advance billings, a current liability in the Company's Consolidated Balance Sheets, includes advance billings on contracts invoices that exceed accumulated contract costs and revenues and costs recognized under the cost-to-cost input method. Those balances are classified as current based on the life cycle of the associated contracts. Most long-term contracts contain provisions for progress payments. The Company's unbilled receivables do not contain an allowance for credit losses as the expectation to invoice customers and the collection of all amounts for unbilled revenues is deemed probable. The Company reviews contract price and cost estimates each reporting period as the work progresses and reflect adjustments proportionate to the costs incurred to date relative to total estimated costs at completion in income in the period when those estimates are revised. For all contracts, if a current estimate of total contract cost indicates a loss on a contract, the projected contract loss is recognized in full through the statement of operations and an accrual for the estimated loss on the uncompleted contract is included in Other accrued liabilities in the Company's Consolidated Balance Sheets. In addition, when the Company determines that an uncompleted contract will not be completed on-time and the contract has liquidated damages provisions, it recognizes the estimated liquidated damages at the most likely amount it will incur and record them as a reduction of the
60
estimated selling price in the period the change in estimate occurs. Losses accrued in advance of the completion of a contract are included in Other accrued liabilities in the Company's Consolidated Balance Sheets.
Warranty expense
Research and development
Pension plans and postretirement benefits
The components of benefit cost related to service cost, interest cost, expected return on plan assets and prior service cost amortization are recorded on a quarterly basis based on actuarial assumptions. In the fourth quarter of each year, or as interim remeasurements are required, we recognizethe Company recognizes net actuarial gains andor losses into earnings as a component of net periodic benefit cost (mark to market (“MTM”) pension adjustment). Recognized net actuarial gains and losses consist primarily of ourthe Company's reported actuarial gains and losses and the difference between the actual return on plan assets and the expected return on plan assets.
Income taxes
Income tax expense for federal, foreign, state and local income taxes are calculated on pre-taxtaxable income based on the income tax law in effect at the latest balance sheet date and includes the cumulative effect of any changes in tax rates from those used previously in determining deferred tax assets and liabilities. We recordThe Company records a valuation allowance to reduce ourits deferred tax assets to the amount that is more likely than not to be realized. We assess deferred taxes and the adequacy of the valuation allowance on a quarterly basis. In the ordinary course of business there is inherent uncertainty in quantifying our income tax positions. We assess our income tax positions and record tax benefits for all years subject to examination based upon management's evaluation of the facts, circumstances and information available at the reporting date. For those tax positions where it is more likely than not that a tax benefit will be sustained, we havethe Company has recorded the largest amount of tax benefit with a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. For those income tax positions where it is not more likely than not that a tax benefit will be sustained, no tax benefit has been recognized in our consolidated financial statements. We recordConsolidated Financial Statements. The Company records interest and penalties (net of any applicable tax benefit) related to income taxes as a component of provision for income taxesIncome tax expense on our consolidated statementsthe Company's Consolidated Statements of operations.Operations.
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Cash and cash equivalents and restricted cash
Trade accounts receivable and allowance for doubtful accounts
Inventories
Property, plant and equipment
Investments in consolidated entities
SPIG maintained a change60% ownership interest in the strategic reasons that were important when we originally entered into the joint venture. If an other-than-temporary-impairment were to occur, we would measure our investment in the unconsolidateda joint venture at fair value.entity, which is consolidated within the B&W Environmental segment results. The remaining 40% was purchased for a nominal amount in December 2022.
Goodwill
Goodwill is generally recorded as a result of a business combination and represents the excess of the cost of our acquired businessespurchase price over the fair value of the tangible and identifiable net assets acquired. We performThe Company performs testing of goodwill for impairment annually. We may elect to performannually on October 1st or if the Company determines that impairment indicators are present. In assessing goodwill for impairment, the Company follows ASC 350, Intangibles – Goodwill and Other, which permits a qualitative test when we believeassessment of whether it is
62
more likely than not that there is sufficient excessthe fair value overof the reporting unit is less than its carrying value based on our most recent quantitativeincluding goodwill. If the qualitative assessment adjusted for relevant events and circumstancesdetermines that could affectit is not more likely than not that the fair value duringof a reporting unit is less than its carrying value, including goodwill, then no impairment is determined to exist for the current year. If we conclude based on thisreporting unit. However, if the qualitative assessment determines that it is more likely than not that the fair value of the reporting unit is less than its carrying value, including goodwill, or the Company chooses not impaired, we do notto perform a quantitative impairment test. In all other circumstances, we utilize a two-step quantitative impairment test to identify potential goodwill impairment and measure the amount of any goodwill impairment. The first step ofqualitative assessment, then the test comparesCompany will compare the fair value of athat reporting unit with its carrying amount,value, including goodwill.goodwill, in a quantitative assessment. If the carrying amountvalue of a reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to measure the amount ofconsidered impaired with the impairment loss if any.measured as the excess of the reporting unit’s carrying value, including goodwill, over its fair value. The second step compares the impliedestimated fair value of the reporting unit's goodwill withunit is derived based on valuation techniques the carrying amountCompany believes market participants would use for each of that goodwill.the reporting units.
Intangible assets
Intangible assets are recognized at fair value when acquired.acquired, generally as a result of a business combination. Intangible assets with definite lives are amortized to operating expense using the straight-line method over their estimated useful lives and tested for impairment when events or changes in circumstances indicate that their carrying amounts may not be recoverable. Intangible assets with indefinite lives are not amortized and are subject to annual impairment testing. Wetesting at least annually or in interim periods when impairment indicators are present. The Company may elect to perform a qualitative assessment when testing indefinite lived intangible assets for impairment to determine whether events or circumstances affecting significant inputs related to the most recent quantitative evaluation have occurred, indicating that it is more likely than not that the indefinite lived intangible asset is impaired. Otherwise, we testthe Company tests indefinite lived intangible assets for impairment by quantitatively determining the fair value of the indefinite lived intangible asset and comparing the fair value of the intangible asset to its carrying amount. If the carrying amount of the intangible asset exceeds its fair value, we recognizean impairment is recognized for the amount of the difference.
Self-insurance
Loss contingencies
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some significant litigation, as discussed in Note 21. Our22. The Company's losses are typically resolved over long periods of time and are often difficult to assess and estimate due to, among other reasons, the possibility of multiple actions by third parties; the attribution of damages, if any, among multiple defendants; plaintiffs, in most cases involving personal injury claims, do not specify the amount of damages claimed; the discovery process may take multiple years to complete; during the litigation process, it is common to have multiple complex unresolved procedural and substantive issues; the potential availability of insurance and indemnity coverages; the wide-ranging outcomes reached in similar cases, including the variety of damages awarded; the likelihood of settlements for de minimusminimis amounts prior to trial; the likelihood of success at trial; and the likelihood of success on appeal. Consequently, it is possible future earnings could be affected by changes in ourthe Company's assessments of the probability that a loss has been incurred in a material pending litigation against usthe Company and/or changes in ourits estimates related to such matters.
Loss recoveries
The Company recognizes loss recoveries and provide disclosures only when receipt of the recovery is probable and it is able to reasonably estimate the amount of the recovery. The Company's loss recoveries are typically resolved over long periods of time and are often difficult to assess and estimate due to, among other reasons, the possibility of multiple actions by third parties, multiple complex unresolved procedural and substantive issues; the wide-ranging outcomes reached in similar cases, including the variety of losses incurred. Consequently, it is possible future earnings could be affected by changes in our assessments of the probability that a loss recovery has been recognized and/or changes in the Company's estimates related to such matters. See Note 5 for discussions regarding the project contract cost recovery recognized in 2022 and 2021.
Contingent consideration
The fair values of earn-out arrangements are included as part of the purchase price of the acquired companies on their respective acquisition dates. For each transaction, the Company estimates the fair value of contingent earn-out payments as part of the initial purchase price and records the estimated fair value of contingent consideration as a liability in Other non-current liabilities on its Consolidated Balance Sheets.
The Company reviews and re-assesses the estimated fair value of contingent consideration on a quarterly basis, and the updated fair value could differ materially from the initial estimates. Changes in the estimated fair value of the Company's contingent earn-out liabilities related to the time component of the present value calculation are reported in Interest expense on its Consolidated Statements of Operations. Adjustments to the estimated fair value related to changes in all other unobservable inputs are reported in Other - net on its Consolidated Statements of Operations.
Stock-based compensation
See Note 920 for a further discussion of stock-based compensation.
Recently adopted accounting standards
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In August 2020, the Company adoptedFASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-based Payment Accounting2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815 – 40). This newThe amendments in this update simplify the accounting standard has affected how we account for share-based payments,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 most significant impact being theconsistency of diluted earnings per share calculations. The impact of income taxes associatedthis standard had no impact on the Company's Consolidated Financial Statements.
The Company considers the applicability and impact of all issued ASUs. Recently issued ASUs that are not adopted were assessed and determined to be not applicable in the current reporting period. New accounting standards not yet adopted that could affect the Company's Consolidated Financial Statements in the future are summarized as follows:
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with share-based compensation. SubsequentCustomers. The amendment in this update provides an exception to adoption, the income tax effects related to share-based paymentsfair value measurement for contract assets and contract liabilities (i.e., deferred revenue) acquired in a business combination. As a result, contract assets and contract liabilities will be recorded as a component of income tax expense (or benefit) as they occur, rather than being classified as a component of additional paid-in capital. In addition,recognized and measured by the effect of excess tax benefits will now be presentedacquirer in accordance with ASC 606, Revenue from Contracts with Customers. The amendment also improves consistency in revenue recognition in the cash flow statementpost-acquisition period for acquired contracts as compared to contracts entered into after the business combination. The amendment in this update is effective for public business entities in January 2023; all other entities have an operating activity. We prospectively adoptedadditional year to adopt. Early adoption is permitted; however, if the new accounting standard. See Note 10 for the effect on the statement of operations for the twelve months ended December 31, 2017.
In November 2018, the FASB issued ASU 2018-19, Codification Improvements to Topic 326: Financial Instruments - Credit Losses. This update is an amendment to the new credit losses standard, ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, that was issued in June 2016 and clarifies that operating lease receivables are not within the scope of Topic 326. The new credit losses standard changes the accounting for credit losses for certain instruments. The new measurement approach is based on expected losses, commonly referred to as the current expected credit loss ("CECL") model, and applies to financial assets measured at amortized cost, including loans, held-to-maturity debt securities, net investment in leases, and reinsurance and trade receivables, as well as certain off-balance sheet credit exposures, such as loan commitments. The standard also changes the impairment model for available-for-sale debt securities. The provisions of this standard will primarily impact the allowance for doubtful accounts on the Company's trade receivables, contracts in progress, and potentially its impairment model for available-for-sale debt securities (to the extent we have any upon adoptionadoption). For public, smaller reporting companies, this standard is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is currently evaluating the impact of both standards on its Consolidated Financial Statements and we dodoes not expect it will significantly impact our operating results in future periods because we have not had significant inventory charges in the past.
a material impact.
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NOTE 3 – EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted (loss) earnings per share of ourthe Company's common stock, net of noncontrolling interest:non-controlling interest and dividends on preferred stock:
| Year ended December 31, | |||||||||||||||||||||||||||||
| (in thousands, except per share amounts) | 2022 | 2021 | 2020 | ||||||||||||||||||||||||||
| (Loss) income from continuing operations attributable to stockholders of common stock | $ | (37,721) | $ | 21,767 | $ | (12,118) | |||||||||||||||||||||||
| (Loss) income from discontinued operations attributable to stockholders of common stock, net of tax | — | — | 1,800 | ||||||||||||||||||||||||||
| Net (loss) income attributable to stockholders of common stock | $ | (37,721) | $ | 21,767 | $ | (10,318) | |||||||||||||||||||||||
| Weighted average shares used to calculate basic (loss) income per share | 88,256 | 82,391 | 48,710 | ||||||||||||||||||||||||||
| Dilutive effect of stock options, restricted stock and performance units | — | 1,189 | — | ||||||||||||||||||||||||||
| Weighted average shares used to calculate diluted (loss) income per share | 88,256 | 83,580 | 48,710 | ||||||||||||||||||||||||||
| Basic (loss) income per share | |||||||||||||||||||||||||||||
| Continuing operations | $ | (0.43) | $ | 0.26 | $ | (0.25) | |||||||||||||||||||||||
| Discontinued operations | — | — | 0.04 | ||||||||||||||||||||||||||
| Basic (loss) income per share | $ | (0.43) | $ | 0.26 | $ | (0.21) | |||||||||||||||||||||||
| Diluted (loss) income per share | |||||||||||||||||||||||||||||
| Continuing operations | $ | (0.43) | $ | 0.26 | $ | (0.25) | |||||||||||||||||||||||
| Discontinued operations | — | — | 0.04 | ||||||||||||||||||||||||||
| Diluted (loss) income per share | $ | (0.43) | $ | 0.26 | $ | (0.21) | |||||||||||||||||||||||
| Year Ended December 31, | |||||||||
| (in thousands, except per share amounts) | 2017 | 2016 | 2015 | ||||||
| Income (loss) from continuing operations | $ | (379,824 | ) | (115,649 | ) | $ | 16,338 | ||
| Income (loss) from discontinued operations, net of tax | — | — | 2,803 | ||||||
| Net income (loss) attributable to shareholders | $ | (379,824 | ) | $ | (115,649 | ) | $ | 19,141 | |
| Weighted average shares used to calculate basic earnings per share | 46,935 | 50,129 | 53,487 | ||||||
| Dilutive effect of stock options, restricted stock and performance shares | — | — | 222 | ||||||
| Weighted average shares used to calculate diluted earnings per share | 46,935 | 50,129 | 53,709 | ||||||
| Basic earnings (loss) per share: | |||||||||
| Continuing operations | $ | (8.09 | ) | $ | (2.31 | ) | $ | 0.31 | |
| Discontinued operations | — | — | 0.05 | ||||||
| Basic earnings (loss) per share: | $ | (8.09 | ) | $ | (2.31 | ) | $ | 0.36 | |
| Diluted earnings (loss) per share: | |||||||||
| Continuing operations | (8.09 | ) | (2.31 | ) | 0.30 | ||||
| Discontinued operations | — | — | 0.06 | ||||||
| Diluted earnings (loss) per share: | $ | (8.09 | ) | $ | (2.31 | ) | $ | 0.36 | |
Because wethe Company incurred a net loss in the years ended December 31, 20172022 and 2016,2020 basic and diluted shares are the same.same.
If wethe Company had net income in the years ended December 31, 20172022 and 2016,2020 diluted shares would include an additional 0.4 million717.6 thousand and 0.5 million610.9 thousand shares, respectively.
66
NOTE 4 – SEGMENT REPORTING
described in Note 2. An analysis of ourthe Company's operations by segment is as follows:
| Year ended December 31, | |||||||||||||||||||||||||||||
| (in thousands) | 2022 | 2021 | 2020 | ||||||||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||||||||
| B&W Renewable segment | |||||||||||||||||||||||||||||
| B&W Renewable | $ | 136,376 | $ | 83,639 | $ | 89,790 | |||||||||||||||||||||||
B&W Renewable Services (1) | 78,960 | 25,852 | 23,835 | ||||||||||||||||||||||||||
| Vølund | 73,337 | 34,819 | 42,562 | ||||||||||||||||||||||||||
| B&W Solar | 41,897 | 12,490 | — | ||||||||||||||||||||||||||
| 330,570 | 156,800 | 156,187 | |||||||||||||||||||||||||||
| B&W Environmental segment | |||||||||||||||||||||||||||||
| B&W Environmental | 77,863 | 58,262 | 45,186 | ||||||||||||||||||||||||||
| SPIG | 61,017 | 55,615 | 52,341 | ||||||||||||||||||||||||||
| GMAB | 15,513 | 19,949 | 10,441 | ||||||||||||||||||||||||||
| 154,393 | 133,826 | 107,968 | |||||||||||||||||||||||||||
| B&W Thermal segment | |||||||||||||||||||||||||||||
| B&W Thermal | 415,104 | 433,329 | 304,968 | ||||||||||||||||||||||||||
| 415,104 | 433,329 | 304,968 | |||||||||||||||||||||||||||
| Eliminations | (10,252) | (592) | (2,806) | ||||||||||||||||||||||||||
| Total Revenues | $ | 889,815 | $ | 723,363 | $ | 566,317 | |||||||||||||||||||||||
| Year Ended December 31, | |||||||||
| (in thousands) | 2017 | 2016 | 2015 | ||||||
| REVENUES | |||||||||
| Power segment | |||||||||
| Retrofits & continuous emissions monitoring systems | $ | 306,758 | $ | 392,854 | $ | 427,378 | |||
| New build utility and environmental | 155,886 | 292,302 | 403,981 | ||||||
| Aftermarket parts and field engineering services | 277,129 | 292,535 | 304,923 | ||||||
| Industrial steam generation | 123,127 | 107,267 | 219,379 | ||||||
| Eliminations | (41,838 | ) | (102,980 | ) | (120,664 | ) | |||
| 821,062 | 981,978 | 1,234,997 | |||||||
| Renewable segment | |||||||||
| Renewable new build and services | 282,228 | 284,684 | 277,326 | ||||||
| Operations and maintenance | 64,970 | 65,814 | 63,437 | ||||||
| Eliminations | — | (1,326 | ) | (2,160 | ) | ||||
| 347,198 | 349,172 | 338,603 | |||||||
| Industrial segment | |||||||||
| Aftermarket parts and services | 117,970 | 81,690 | 61,350 | ||||||
| Environmental solutions | 138,722 | 74,726 | 90,343 | ||||||
| Cooling systems | 126,683 | 73,797 | — | ||||||
| Engineered products | 14,416 | 23,400 | 32,002 | ||||||
| 397,791 | 253,613 | 183,695 | |||||||
| Eliminations | (8,316 | ) | (6,500 | ) | — | ||||
| $ | 1,557,735 | $ | 1,578,263 | $ | 1,757,295 | ||||
At a segment level, the adjusted EBITDA presented below is consistent with the manner in which the Company's chief operating decision maker ("CODM") reviews the results of operations and makes strategic decisions about the business and is calculated as earnings before interest, tax, depreciation and amortization adjusted for items such as gains or losses arising from the sale of non-income producing assets, net pension benefits, restructuring activities, impairments, gains and losses on debt extinguishment, costs related to financial consulting, research and development costs and other costs that may not be directly controllable by segment management and are not allocated to the segment.
| Year ended December 31, | |||||||||||||||||||||||||||||
| (in thousands) | 2022 | 2021 | 2020 | ||||||||||||||||||||||||||
| Adjusted EBITDA | |||||||||||||||||||||||||||||
B&W Renewable segment (1) (2) | $ | 26,069 | $ | 23,219 | $ | 24,957 | |||||||||||||||||||||||
| B&W Environmental segment | 9,787 | 11,773 | 3,503 | ||||||||||||||||||||||||||
| B&W Thermal segment | 56,291 | 49,143 | 36,052 | ||||||||||||||||||||||||||
(1)Adjusted EBITDA in our Renewable segment for the year ended December 31, 2022 includes a $6.2 million non-recurring gain on sale related to development rights of a future solar project that was sold as well as $9.6 million that resulted from the reversal of the contingent consideration related to an acquisition.
(2)Adjusted EBITDA in our Renewable segment for the year ended December 31, 2020 includes a $26.0 million non-recurring loss recovery related to certain historical EPC loss contracts.
The segment information presented in the table above reflects the product line revenues that are reviewed by each segment's manager. These gross product line revenues exclude eliminations of revenues generated from sales to other segments or to other product lines within the segment. The primary component of the Power segment elimination is revenue associated with construction services.
| Year Ended December 31, | |||||||||
| (in thousands) | 2017 | 2016 | 2015 | ||||||
| GROSS PROFIT (LOSS) | |||||||||
| Power segment | $ | 191,999 | $ | 233,550 | $ | 247,632 | |||
| Renewable segment | (128,204 | ) | (68,109 | ) | 57,682 | ||||
| Industrial segment | 41,383 | 50,726 | 54,826 | ||||||
| Intangible amortization expense included in cost of operations | (14,272 | ) | (15,842 | ) | (7,676 | ) | |||
| Mark to market gain (loss) included in cost of operations | 8,972 | (21,208 | ) | (44,307 | ) | ||||
| 99,878 | 179,117 | 308,157 | |||||||
| Selling, general and administrative ("SG&A") expenses | (255,545 | ) | (240,166 | ) | (240,296 | ) | |||
| Goodwill impairment charges | (86,903 | ) | — | — | |||||
| Restructuring activities and spin-off transaction costs | (15,447 | ) | (40,807 | ) | (14,946 | ) | |||
| Research and development costs | (9,412 | ) | (10,406 | ) | (16,543 | ) | |||
| Intangible amortization expense included in SG&A | (3,980 | ) | (4,081 | ) | (3,769 | ) | |||
| Mark to market gain (loss) included in SG&A | (274 | ) | (2,902 | ) | 4,097 | ||||
| Equity in income of investees | 8,326 | 16,440 | (242 | ) | |||||
| Impairment of equity method investment | (18,193 | ) | — | — | |||||
| Gains (losses) on asset disposals, net | (15 | ) | 32 | (14,597 | ) | ||||
| Operating income (loss) | $ | (281,565 | ) | $ | (102,773 | ) | $ | 21,861 | |
| Year Ended December 31, | |||||||||
| (in thousands) | 2017 | 2016 | 2015 | ||||||
| DEPRECIATION AND AMORTIZATION | |||||||||
| Power segment | $ | 9,222 | $ | 11,231 | $ | 18,532 | |||
| Renewable segment | 3,208 | 2,711 | 2,567 | ||||||
| Industrial segment | 20,293 | 19,073 | 10,345 | ||||||
| Segment depreciation and amortization | 32,723 | 33,015 | 31,444 | ||||||
| Corporate | 7,415 | 6,568 | 3,488 | ||||||
| Total depreciation and amortization | $ | 40,138 | $ | 39,583 | $ | 34,932 | |||
The Company estimates that 38%, 47% and 43% of its consolidated revenues in 2022, 2021, and 2020, respectively, were related to coal-fired power plants. The availability of natural gas in great supply has caused, in part, low prices for natural gas in the United States, which has led to more demand for natural gas relative to energy derived from coal. A material decline in spending by electric power generating companies and other steam-using industries on coal-fired power plants over a
67
sustained period of Contentstime could materially and adversely affect the demand for our power generation products and services and, therefore, our financial condition, results of operations and cash flows. Coal-fired power plants have been scrutinized by environmental groups and government regulators over the emissions of potentially harmful pollutants. This scrutiny and other economic incentives including tax advantages, have promoted the growth of nuclear, wind and solar power, among others, and a decline in cost of renewable power plant components and power storage. The recent economic environment and uncertainty concerning new environmental legislation or replacement rules or regulations in the United States and elsewhere has caused many of the Company's major customers, principally electric utilities, to delay making substantial expenditures for new plants, and to delay upgrades to existing power plants.
Information about our consolidated operations in different geographic areasareas:
| Year Ended December 31, | |||||||||
| (in thousands) | 2017 | 2016 | 2015 | ||||||
REVENUES(1) | |||||||||
| United States | $ | 757,159 | $ | 851,955 | $ | 1,034,653 | |||
| United Kingdom | 194,456 | 201,221 | 126,285 | ||||||
| Canada | 108,045 | 74,629 | 134,276 | ||||||
| Denmark | 82,843 | 54,722 | 116,064 | ||||||
| China | 54,883 | 33,898 | 41,921 | ||||||
| Egypt | 43,148 | 35,878 | — | ||||||
| South Korea | 41,217 | 44,660 | 4,358 | ||||||
| Sweden | 39,891 | 24,809 | 18,302 | ||||||
| Germany | 28,333 | 29,559 | 19,233 | ||||||
| Vietnam | 15,771 | 55,265 | 46,803 | ||||||
| Dominican Republic | 15,144 | 21,366 | 82,916 | ||||||
| Saudi Arabia | 13,978 | 2,408 | 4,220 | ||||||
| South Africa | 12,453 | 4,097 | 4,486 | ||||||
| Italy | 11,663 | 7,862 | 4,671 | ||||||
| Netherlands | 8,989 | 3,348 | 4,651 | ||||||
| Finland | 8,713 | 5,756 | 6,113 | ||||||
| Bolivia | 8,694 | — | — | ||||||
| Oman | 7,683 | — | — | ||||||
| Indonesia | 6,909 | 6,723 | 1,730 | ||||||
| Nigeria | 6,766 | — | — | ||||||
| India | 6,441 | 6,856 | 13,108 | ||||||
Aggregate of all other countries, each with less than $5 million in revenues | 84,556 | 113,251 | 93,505 | ||||||
| $ | 1,557,735 | $ | 1,578,263 | $ | 1,757,295 | ||||
| Year ended December 31, | |||||||||||||||||
| (in thousands) | 2022 | 2021 | 2020 | ||||||||||||||
REVENUES (1) | |||||||||||||||||
| United States | $ | 498,431 | $ | 431,540 | $ | 310,958 | |||||||||||
| Canada | 83,727 | 48,206 | 43,936 | ||||||||||||||
| Denmark | 50,857 | 30,310 | 28,590 | ||||||||||||||
| Sweden | 35,303 | 22,391 | 11,430 | ||||||||||||||
| United Kingdom | 30,223 | 26,722 | 25,811 | ||||||||||||||
| China | 25,890 | 10,028 | 8,461 | ||||||||||||||
| Saudi Arabia | 21,428 | 12,529 | 9,545 | ||||||||||||||
| Brazil | 15,049 | 3,946 | 5,540 | ||||||||||||||
| France | 12,555 | 4,539 | 1,776 | ||||||||||||||
| Taiwan | 12,433 | 5,776 | 1,871 | ||||||||||||||
| Indonesia | 11,724 | 1,853 | 19,644 | ||||||||||||||
| Israel | 3,082 | 14,110 | 1,635 | ||||||||||||||
| Hong Kong | 896 | 11,056 | 4,490 | ||||||||||||||
| Aggregate of all other countries, each with less than $10 million in revenues | 88,217 | 100,357 | 92,630 | ||||||||||||||
| $ | 889,815 | $ | 723,363 | $ | 566,317 | ||||||||||||
(1) We allocate The Company allocates geographic revenues based on the location of the customer's operations.
| (in thousands) | December 31, 2022 | December 31, 2021 | |||||||||||||||
| NET PROPERTY, PLANT AND EQUIPMENT, AND FINANCE LEASE | |||||||||||||||||
| United States | $ | 54,408 | $ | 52,516 | |||||||||||||
| Mexico | 16,925 | 17,071 | |||||||||||||||
| Denmark | 6,672 | 6,573 | |||||||||||||||
| United Kingdom | 4,729 | 5,722 | |||||||||||||||
| Italy | 1,545 | 1,565 | |||||||||||||||
| Aggregate of all other countries | 2,084 | 2,180 | |||||||||||||||
| $ | 86,363 | $ | 85,627 | ||||||||||||||
| Year Ended December 31, | |||||||||
| (in thousands) | 2017 | 2016 | 2015 | ||||||
| NET PROPERTY, PLANT AND EQUIPMENT | |||||||||
| United States | $ | 79,681 | $ | 75,368 | $ | 88,840 | |||
| Mexico | 26,503 | 22,594 | 24,643 | ||||||
| China | 13,373 | 13,460 | 13,956 | ||||||
| United Kingdom | 6,604 | 6,337 | 8,070 | ||||||
| Denmark | 7,953 | 6,749 | 6,265 | ||||||
Aggregate of all other countries, each with less than $5 million of net property, plant and equipment | 7,817 | 9,129 | 3,943 | ||||||
| $ | 141,931 | $ | 133,637 | $ | 145,717 | ||||
NOTE 5 – ACQUISITIONSREVENUE RECOGNITION AND CONTRACTS
68
systems for steam applications along with related aftermarket services. The Company's revenue recognition accounting policy is described in cash, funded primarily by borrowings under our United States revolving credit facility, netmore detail in Note 2.
Contract Balances
The following represents the components of $4.4 million cash acquiredContracts in the business combination. Transaction costsprogress and advance billings on contracts included in the purchase price were approximately $0.2 million. We accounted for the Universal acquisition using the acquisition method, whereby all of the assets acquired and liabilities assumed were recognized at their fair value on the acquisition date, with any excess of the purchase price over the estimated fair value recorded as goodwill. In order to purchase Universal on January 11, 2017, we borrowed approximately $55.0 million under the United States revolving credit facility in 2017.Company's Consolidated Balance Sheets:
| (in thousands) | December 31, 2022 | December 31, 2021 | $ Change | % Change | |||||||||||||||||||
| Contract assets - included in contracts in progress: | |||||||||||||||||||||||
| Costs incurred less costs of revenue recognized | $ | 79,421 | $ | 35,939 | $ | 43,482 | 121 | % | |||||||||||||||
| Revenues recognized less billings to customers | 55,518 | 44,237 | 11,281 | 26 | % | ||||||||||||||||||
| Contracts in progress | $ | 134,939 | $ | 80,176 | $ | 54,763 | 68 | % | |||||||||||||||
| Contract liabilities - included in advance billings on contracts: | |||||||||||||||||||||||
| Billings to customers less revenues recognized | $ | 113,643 | $ | 68,615 | $ | 45,028 | 66 | % | |||||||||||||||
| Costs of revenue recognized less cost incurred | 19,786 | (235) | 20,021 | (8,520) | % | ||||||||||||||||||
| Advance billings on contracts | $ | 133,429 | $ | 68,380 | $ | 65,049 | 95 | % | |||||||||||||||
| Net contract balance | $ | 1,510 | $ | 11,796 | $ | (10,286) | (87) | % | |||||||||||||||
| Accrued contract losses | $ | 3,032 | $ | 378 | $ | 2,654 | 702 | % | |||||||||||||||
The allocation offollowing amounts represent retainage on contracts:
| (in thousands) | December 31, 2022 | December 31, 2021 | $ Change | % Change | |||||||||||||||||||
| Retainage expected to be collected within one year | $ | 3,198 | $ | 2,575 | $ | 623 | 24 | % | |||||||||||||||
| Retainage expected to be collected after one year | 786 | 1,591 | (805) | (51) | % | ||||||||||||||||||
| Total retainage | $ | 3,984 | $ | 4,166 | $ | (182) | (4) | % | |||||||||||||||
The Company has included retainage expected to be collected in 2023 in Accounts receivable – trade, net in its Consolidated Balance Sheets. Retainage expected to be collected after one year are included in Other assets in The Company's Consolidated Balance Sheets. Of the purchase price based on the fair value of assets acquired and liabilities assumed is set forth below. We finalized the purchase price allocation associated with the valuation of certain intangible assets and deferred tax balanceslong-term retainage at December 31, 2017;2022, collection of $0.8 million is anticipated in 2024.
Backlog
On December 31, 2022 the Company had $704.0 million of remaining performance obligations, which are also referred to as a result, the provisional measurementstotal backlog. The Company expects to recognize approximately 80.3%, 8.8% and 10.9% of intangible assets, goodwill its remaining performance obligations as revenue in 2023, 2024 and deferred income tax balances did not change.thereafter, respectively.
69
| (in thousands) | Acquisition date fair values | ||
| Cash | $ | 4,379 | |
| Accounts receivable | 11,270 | ||
| Contracts in progress | 3,167 | ||
| Inventories | 4,585 | ||
| Other assets | 579 | ||
| Property, plant and equipment | 16,692 | ||
| Goodwill | 14,413 | ||
| Identifiable intangible assets | 19,500 | ||
| Deferred income tax assets | 935 | ||
| Current liabilities | (10,833 | ) | |
| Other noncurrent liabilities | (1,423 | ) | |
| Deferred income tax liabilities | (6,338 | ) | |
| Net acquisition cost | $ | 56,926 | |
| Fair value (in thousands) | Weighted average estimated useful life (in years) | |||
| Customer relationships | $ | 10,800 | 15 | |
| Backlog | 1,700 | 1 | ||
| Trade names / trademarks | 3,000 | 20 | ||
| Technology | 4,000 | 7 | ||
| Total amortizable intangible assets | $ | 19,500 | ||
| Year Ended | |||
| (in thousands) | December 31, 2016 | ||
| Revenues | $ | 1,660,986 | |
| Net income (loss) attributable to B&W | (113,940 | ) | |
| Basic earnings per common share | (2.27 | ) | |
| Diluted earnings per common share | (2.27 | ) | |
| (in thousands) | Acquisition date fair values | ||
| Cash | $ | 25,994 | |
| Accounts receivable | 58,843 | ||
| Contracts in progress | 61,155 | ||
| Inventories | 2,554 | ||
| Other assets | 7,341 | ||
| Property, plant and equipment | 6,104 | ||
| Goodwill | 72,401 | ||
| Identifiable intangible assets | 55,164 | ||
| Deferred income tax assets | 5,550 | ||
| Revolving debt | (27,530 | ) | |
| Current liabilities | (56,323 | ) | |
| Advance billings on contracts | (15,226 | ) | |
| Other noncurrent liabilities | (379 | ) | |
| Deferred income tax liabilities | (17,120 | ) | |
| Noncontrolling interest in joint venture | (7,754 | ) | |
| Net acquisition cost | $ | 170,774 | |
| (in thousands) | Fair value (in thousands) | Weighted average estimated useful life (in years) | |||
| Customer relationships | $ | 12,217 | 9 | ||
| Backlog | 17,769 | 2 | |||
| Trade names / trademarks | 8,885 | 20 | |||
| Technology | 14,438 | 10 | |||
| Non-compete agreements | 1,666 | 3 | |||
| Internally-developed software | 189 | 3 | |||
| Total amortizable intangible assets | $ | 55,164 | |||
| Year Ended December 31, | ||||||||
| (in thousands) | 2016 | 2015 | ||||||
| Revenues | $ | 1,663,126 | $ | 1,941,987 | ||||
| Net income (loss) attributable to B&W | (111,500 | ) | 12,047 | |||||
| Basic earnings per common share | (2.22 | ) | 0.23 | |||||
| Diluted earnings per common share | (2.22 | ) | 0.22 | |||||
In the years ended December 31, 20172022, 2021 and 2016 and 2015, we2020 the Company recognized changes in estimated gross profit related to long-term contracts accounted for on the percentage-of-completionover time basis, which are summarized as follows:
| Year ended December 31, | |||||||||||||||||||||||||||||
| (in thousands) | 2022 | 2021 | 2020 | ||||||||||||||||||||||||||
Increases in gross profit for changes in estimates for over time contracts (1) | $ | 15,067 | $ | 16,042 | $ | 43,597 | |||||||||||||||||||||||
| Decreases in gross profit for changes in estimates for over time contracts | (21,740) | (6,531) | (17,480) | ||||||||||||||||||||||||||
| Net changes in gross profit for changes in estimates for over time contracts | $ | (6,673) | $ | 9,511 | $ | 26,117 | |||||||||||||||||||||||
| Year Ended December 31, | |||||||||
| (in thousands) | 2017 | 2016 | 2015 | ||||||
| Increases in estimates for percentage-of-completion contracts | $ | 21,638 | $ | 42,368 | $ | 36,653 | |||
| Decreases in estimates for percentage-of-completion contracts | (174,906 | ) | (149,169 | ) | (36,235 | ) | |||
| Net changes in estimates for percentage-of-completion contracts | $ | (153,268 | ) | $ | (106,801 | ) | $ | 418 | |
B&W Renewable Contracts
During 2022, the Company determined that its Babcock & Wilcox Solar reporting unit had nine projects located in the estimated revenues and costs to complete certain European renewable energy contracts, ofUnited States that existed at the time Babcock & Wilcox Solar was acquired on September 30, 2021 which $34.7 million and $98.1 million were recorded in the three months ended December 31, 2017 and 2016, respectively. These changes in estimates in the years ended December 31, 2017 and December 31, 2016 included an increase in our estimate of anticipated liquidated damagesgenerated losses that reduced revenue associated with these six projects of $41.3 million and $35.8 million, respectively, of which $14.3 million and $35.8 million were recorded in the three months ended December 31, 2017 and December 31, 2016, respectively. The total anticipated liquidated damages associated with these six projects was $77.1 million and $35.8 million at December 31, 2017 and December 31, 2016, respectively.
As a normal part of its ongoing business operations, the Company is continuing to pursue other additional potential claims and recoveries from subcontractors and others where appropriate and available.
NOTE 6 – INVENTORIES
The components of inventories are as follows:
| (in thousands) | December 31, 2022 | December 31, 2021 | |||||||||
| Raw materials and supplies | $ | 87,554 | $ | 56,352 | |||||||
| Work in progress | 2,518 | 5,723 | |||||||||
| Finished goods | 12,565 | 17,452 | |||||||||
| Total inventories, net | $ | 102,637 | $ | 79,527 | |||||||
70
NOTE 7 – PROPERTY, PLANT & EQUIPMENT, & FINANCE LEASES
Property, plant and equipment less accumulated depreciation is as follows:
| (in thousands) | December 31, 2022 | December 31, 2021 | |||||||||
| Land | $ | 2,481 | $ | 1,489 | |||||||
| Buildings | 35,326 | 31,895 | |||||||||
| Machinery and equipment | 153,939 | 144,325 | |||||||||
| Property under construction | 11,410 | 12,480 | |||||||||
| 203,156 | 190,189 | ||||||||||
| Less accumulated depreciation | 141,145 | 133,137 | |||||||||
| Net property, plant and equipment | 62,011 | 57,052 | |||||||||
| Finance lease | 30,549 | 34,159 | |||||||||
| Less finance lease accumulated amortization | 6,197 | 5,584 | |||||||||
| Net property, plant and equipment, and finance leases | $ | 86,363 | $ | 85,627 | |||||||
NOTE 8 - GOODWILL
The following summarizes the changes in the net carrying amount of goodwill as of December 31, 2022:
| (in thousands) | B&W Renewable | B&W Environmental | B&W Thermal | Total | |||||||||||||||||||
| Goodwill | $ | 129,322 | $ | 80,145 | $ | 31,438 | $ | 240,905 | |||||||||||||||
| Accumulated impairment losses | (49,965) | (74,478) | — | (124,443) | |||||||||||||||||||
| Balance at December 31, 2021 | 79,357 | 5,667 | 31,438 | 116,462 | |||||||||||||||||||
Addition - Fossil Power(1) | — | — | 35,392 | 35,392 | |||||||||||||||||||
Addition - Optimus Industries(1) | — | — | 11,081 | 11,081 | |||||||||||||||||||
Measurement period adjustments - Babcock & Wilcox Solar(2) | 10,697 | — | — | 10,697 | |||||||||||||||||||
Measurement period adjustments - Babcock & Wilcox Renewable Service A/S(2) | (61) | — | — | (61) | |||||||||||||||||||
Measurement period adjustments - Fossil Power(1)(2) | — | — | 270 | 270 | |||||||||||||||||||
Measurement period adjustments - Optimus Industries(1)(2) | — | — | (7,273) | (7,273) | |||||||||||||||||||
| Goodwill impairment - Babcock & Wilcox Solar | (7,224) | — | — | (7,224) | |||||||||||||||||||
| Currency translation adjustments | (710) | (320) | (1,321) | (2,351) | |||||||||||||||||||
| Balance at December 31, 2022 | $ | 82,059 | $ | 5,347 | $ | 69,587 | $ | 156,993 | |||||||||||||||
(1) As described in Note 26, the Company is in the process of completing the purchase price allocation associated with the Fossil Power and Optimus Industries acquisitions and, as a result, the provisional measurements of goodwill associated with these acquisitions are subject to change.
(2) The Company's preliminary and final purchase price allocation changed due to additional information and further analysis.
Goodwill represents the excess of the consideration transferred over the fair value of net assets, including identifiable intangible assets, at the acquisition date. Goodwill is assessed for impairment annually on October 1 or more frequently if events or changes in circumstances indicate a potential impairment exists.
In assessing goodwill for impairment, the Company follows ASC 350, Intangibles – Goodwill and Other, which permits a qualitative assessment of whether it is more likely than not that the fair value of the reporting unit is less than its carrying value including goodwill. If the qualitative assessment determines that it is not more likely than not that the fair value of a reporting unit is less than its carrying value, including goodwill, then no impairment is determined to exist for the reporting unit. However, if the qualitative assessment determines that it is more likely than not that the fair value of the reporting unit is less than its carrying value, including goodwill, or we recognized contract losseschoose not to perform the qualitative assessment, then we compare the fair value of $47.8 millionthat reporting unit with its carrying value, including goodwill, in a quantitative assessment. If the carrying value
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of a reporting unit exceeds its fair value, goodwill is considered impaired with the impairment loss measured as the excess of the reporting unit’s carrying value, including goodwill, over its fair value. The estimated fair value of the reporting unit is derived based on this projectvaluation techniques the Company believes market participants would use for each of the reporting units.
During the quarter ended September 30, 2022, the Company identified certain factors, including but not limited to, the acquisition of the remaining 40% ownership stake in Babcock & Wilcox Solar for an amount less than the remaining balance of the non-controlling interest, significant deterioration in operating results from those originally forecast at the date of acquisition primarily as a result of supply chain issues on certain solar product inputs, the recognition of additional contract losses in the third quarter of $8.6 million beyond amounts previously accounted for as measurement period adjustments during the year, the determination that the contingent consideration would not be payable, all of which contributed to the identification of a triggering event, requiring an interim quantitative goodwill impairment assessment of its Babcock & Wilcox Solar reporting unit. In addition, in conjunction with the interim goodwill impairment test, the Company performed an impairment analysis of the Babcock & Wilcox Solar asset group's long-lived and intangible assets and noted no impairment.
The quantitative assessment was performed using a combination of the income approach (discounted cash flows), the market approach and the guideline transaction method. The income approach uses the reporting unit’s estimated future cash flows, discounted at the weighted-average cost of capital of a hypothetical third-party buyer to account for uncertainties within the projections. The income approach uses assumptions based on the reporting unit’s estimated revenue growth, operating margin, and working capital turnover. The market approach estimates fair value by applying cash flow multiples to the reporting unit’s operating performance. The multiples are derived from comparable publicly traded companies with similar characteristics to the reporting unit. The guideline transaction method estimates fair value by applying recent observed transaction multiples from transactions involving companies with similar characteristics to the reporting unit’s business.
The Company compared the fair value of the Babcock & Wilcox Solar reporting unit to its carrying value and determined that the carrying value of the reporting unit exceeded the fair value by approximately $7.2 million. As such, the Company recorded goodwill impairment losses related to the Babcock & Wilcox Solar reporting unit of $7.2 million.
The Company re-evaluated its Babcock & Wilcox Solar reporting unit at December 31, 2022 and no additional indicators of goodwill impairment were identified for this or any of the Company's other reporting units at the measurement date of October 1, 2022. The quantitative goodwill impairment test approach was used on the Company's remaining reporting units and there was no evidence that the fair value of each reporting unit would not exceed its carrying value at the October 1, 2021 measurement date.
The Company will continue to evaluate the results of its Babcock & Wilcox Solar reporting unit and conduct interim testing if additional impairment indicators are present in future quarters.
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NOTE 9– INTANGIBLE ASSETS
The Company's intangible assets are as follows:
| (in thousands) | December 31, 2022 | December 31, 2021 | |||||||||
Definite-lived intangible assets(1) | |||||||||||
| Customer relationships | $ | 68,164 | $ | 46,903 | |||||||
| Unpatented technology | 18,208 | 15,410 | |||||||||
| Patented technology | 3,635 | 3,103 | |||||||||
| Tradename | 13,441 | 12,747 | |||||||||
| Acquired backlog | 3,100 | 3,100 | |||||||||
| All other | 9,653 | 9,319 | |||||||||
| Gross value of definite-lived intangible assets | 116,201 | 90,582 | |||||||||
| Customer relationships amortization | (26,198) | (20,800) | |||||||||
| Unpatented technology amortization | (10,013) | (8,313) | |||||||||
| Patented technology amortization | (2,891) | (2,729) | |||||||||
| Tradename amortization | (6,154) | (5,425) | |||||||||
| Acquired backlog | (3,100) | (1,620) | |||||||||
| All other amortization | (9,082) | (9,205) | |||||||||
| Accumulated amortization | (57,438) | (48,092) | |||||||||
| Net definite-lived intangible assets | $ | 58,763 | $ | 42,490 | |||||||
| Indefinite-lived intangible assets | |||||||||||
| Trademarks and trade names | $ | 1,530 | $ | 1,305 | |||||||
Total intangible assets, net(2) | $ | 60,293 | $ | 43,795 | |||||||
(1) As described in Note 26, we are in the process of completing the purchase price allocation associated with the Fossil Power and Optimus Industries acquisitions and as a result the intangible assets associated with these acquisitions are subject to change.
(2) The Company finalized the purchase price allocation for the Babcock & Wilcox Solar acquisition on September 30, 2022 which resulted in several measurement period adjustments. On November 30, 2022, the Company also finalized the purchase price allocation for the Babcock & Wilcox Renewable Service A/S acquisition with no measurement period adjustments to their intangible assets, excluding goodwill.
The following summarizes the changes in construction cost estimates and schedule delays, $12.4 millionthe carrying amount of which was recordedintangible assets:
| Year ended December 31, | |||||||||||
| (in thousands) | 2022 | 2021 | |||||||||
| Balance at beginning of period | $ | 43,795 | $ | 23,908 | |||||||
Business acquisitions and adjustments(1) | 27,412 | 26,583 | |||||||||
| Amortization expense | (9,199) | (5,128) | |||||||||
| Currency translation adjustments | (1,715) | (1,568) | |||||||||
Balance at end of the period(2) | $ | 60,293 | $ | 43,795 | |||||||
(1) As described in Note 26, we are in the three months ended December 31, 2017. Our estimate at completionprocess of completing the purchase price allocation associated with the Fossil Power and Optimus Industries acquisitions and as a result, the increase in intangible assets associated with these acquisitions are subject to change.
(2) The Company finalized the purchase price allocation for the Babcock & Wilcox Solar acquisition on September 30, 2022 which resulted in several measurement period adjustments. On November 30, 2022, the Company also finalized the purchase price allocation for the Babcock & Wilcox Renewable Service A/S with no measurement period adjustments to their intangible assets, excluding goodwill.
Amortization of December 31, 2017 includes $20.1 millionintangible assets is included in Cost of total expected liquidated damages dueoperations and SG&A in the Company's Consolidated Statement of Operations but is not allocated to schedule delays. Our estimate at completion as of December 31, 2017 also includes contractual bonus opportunitiessegment results.
Definite-lived intangible assets are assessed for guaranteed higher power output (discussed further below). As of December 31, 2017,impairment on an interim basis when impairment indicators exist. See Note 8 regarding the reserveCompany's interim impairment testing process for estimated contract losses recorded in "other accrued liabilities" in our consolidated balance sheet was $12.8 million. In the year ended December 31, 2016, we recognized charges2022.
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Estimated future intangible asset amortization expense, including the preliminary amortization expense resulting from the acquisitions of $28.1Fossil Power and Optimus, during the year ended December 31, 2022 is as follows (in thousands):
Amortization Expense(1) | |||||
| Twelve months ending December 31, 2023 | $ | 7,959 | |||
| Twelve months ending December 31, 2024 | 7,887 | ||||
| Twelve months ending December 31, 2025 | 7,082 | ||||
| Twelve months ending December 31, 2026 | 5,951 | ||||
| Twelve months ending December 31, 2027 | 5,308 | ||||
| Thereafter | 24,576 | ||||
(1) As described in Note 26, the Company is in the process of completing the purchase price allocation associated with the Fossil Power and Optimus Industries acquisitions and, as a result, the estimated future intangible asset amortization expense associated with these acquisitions are subject to change.
See Note 26 for intangible assets identified in conjunction with the acquisitions of Fossil Power and Optimus, which are subject to change pending the finalization of the purchase price allocation associated with these acquisitions.
NOTE 10– LEASES
Certain real property assets for the Company's Copley, Ohio location were sold on March 15, 2021. In conjunction with the sale, the Company executed a leaseback agreement commencing March 16, 2021 which will expire on March 31, 2033. The lease is classified as an operating lease with total future minimum payments during the initial term of the lease of approximately $5.0 million and as of December 31, 2016, this project had $5.12022. At December 31, 2022, a $3.3 million ROU asset is recorded in Right of use assetswith corresponding liabilities of $3.5 million recorded in Other accrued lossesliabilities and was 67% complete.
Certain real property assets the Company's Lancaster, Ohio location were sold on August 13, 2021. In conjunction with the sale, the Company executed a leaseback agreement commencing August 13, 2021 and expiring on August 31, 2041. The lease is classified as an operating lease with total future minimum payments during the initial term of 2016.the lease of approximately $36.6 million as of December 31, 2021. At December 31, 2022, a $16.6 million ROU asset is recorded in Right of use assetsand corresponding liabilities of $17.0 million recorded in Other accrued liabilities and Non-current operating lease liabilities.
In conjunction with the acquisition of Babcock & Wilcox Solar, the Company assumed two leases classified as operating leases with total future minimum payments during the remaining term of the leases of approximately $0.7 million. As of December 31, 2017, this contract was approximately 98% complete2022, a $1.1 million ROU asset is recorded in Right-of-use assets with corresponding liabilities of $1.1 million in Operating lease liabilities and construction activities are complete as ofNon-current operating lease liabilities in the date of this report. The unit became operational during the second quarter of 2017, and turnover activities linked to the customer's operation of the facility are expected to be completed during the first quarter of 2018. Company's Consolidated Balance Sheets.
During the year ended December 31, 2017, we recognized additional contract losses2022, the Company sold certain real property and then entered into sale lease-back agreements with the buyers for each sale transaction. The Company accounted for these sale-leasebacks as financing transactions with the purchasers of $10.2 millionthe assets in accordance with ASC 842 as a result of changes in the estimated costs at completion, $3.0 million of which was recorded in the three months ended December 31, 2017. Our estimate at completion as of December 31, 2017 includes $7.1 million of total expected liquidated damages due to schedule delays. As of December 31, 2017, the reserve for estimated contract losses recorded in "other accrued liabilities" in our consolidated balance sheet was $0.7 million. In the year ended December 31, 2016, we recognized charges of $30.1 million, and as of December 31, 2016, this project had $3.9 million of accrued losses and was 82% complete.
| December 31, | ||||||
| (in thousands) | 2017 | 2016 | ||||
| Included in contracts in progress: | ||||||
| Costs incurred less costs of revenue recognized | $ | 80,645 | $ | 96,210 | ||
| Revenues recognized less billings to customers | 80,575 | 69,800 | ||||
| Contracts in progress | $ | 161,220 | $ | 166,010 | ||
| Included in advance billings on contracts: | ||||||
| Billings to customers less revenues recognized | $ | 177,953 | $ | 199,480 | ||
| Costs of revenue recognized less cost incurred | 3,117 | 11,162 | ||||
| Advance billings on contracts | $ | 181,070 | $ | 210,642 | ||
| December 31, | ||||||
| (in thousands) | 2017 | 2016 | ||||
| Retainage expected to be collected within one year | $ | 14,572 | $ | 18,843 | ||
| Retainage expected to be collected after one year | 6,112 | 4,583 | ||||
| Total retainage | $ | 20,684 | $ | 23,426 | ||
The presence of a finance lease indicates that control of the property has not transferred to the buyer/lessors, and as such, these transactions were deemed to be failed sale-leasebacks and were accounted for as financing arrangements. As a result of this strategic change, we recognized a $18.2 million other-than-temporary-impairment of our investment in TBWESdetermination, the Company is viewed as having received the proceeds from the buyer/lessors in the second quarterform of 2017, which was classifiedhypothetical loans with its leased property considered to be collateral. The hypothetical loans are payable as principal and interest in in equity incomethe form of investees. The impairment charge was based“lease payments” to the buyer/lessors. As such, the property will remain on the differenceCompany's Consolidated Balance Sheets as Net property, plant, equipment and finance leases until the leases end. The Company will depreciate the assets to zero over the shorter of their respective economic lives or lease term.
No gains or losses were recognized related to the Sale-Leasebacks under U.S. GAAP for the fiscal year ended December 31, 2022 for the following transactions:
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On October 5, 2022, the Company sold its corporate aircraft for $3.4 million in proceeds and then simultaneously entered into a lease agreement with the buyer of the property resulting in a sale lease-back. The sale-leaseback is repayable over a 2 year term with payments of approximately $62 thousand per month through July 2024 with a final payment of $2.3 million in August 2024 at the expiration of the lease. The Company concluded the lease agreement met the qualifications to be classified as a finance lease due to the significance of the present value of the lease payments, using a discount rate that reflects the Company’s incremental borrowing rate, compared to the fair value of the leased property as of the lease commencement date.
At December 31, 2022, the carrying value of the financing liability was $3.3 million, of which $0.6 million is classified as current. The current portion is recorded in Loans payable with the remainder recorded in Long-term loans payable on the Company's Consolidated Balance Sheets. The monthly lease payments are split between a reduction of principal and interest expense using the effective interest rate method.
On November 1, 2022, the Company sold certain real property assets at its Monterey, Mexico location for $1.4 million in proceeds and then simultaneously entered into a lease agreement with the buyer of the property resulting in a sale lease-back. The sale-leaseback is repayable over a 4 year term with payments of approximately $0.4 million per year. The Company concluded the lease agreement met the qualifications to be classified as a finance lease due to the significance of the present value of the lease payments, using a discount rate that reflects the Company’s incremental borrowing rate, compared to the fair value of the leased property as of the lease commencement date.
At December 31, 2022, the carrying value of the financing liability was $1.4 million in Long-term loans payable on the Company's Consolidated Balance Sheets. The monthly lease payments are split between a reduction of principal and interest expense using the effective interest rate method.
On December 16, 2022, the Company sold certain real property assets at its Chanute, Kansas location for $8.4 million in proceeds and then simultaneously entered into a lease agreement with the buyer of the property resulting in a sale lease-back. The sale-leaseback is repayable over a 20 year term, with two renewal options of ten years each. Under the terms of the lease agreement, the Company's initial basic rent is of approximately $0.7 million per year with annual increases of 2.25% throughout the life of the agreement. The Company concluded the lease agreement met the qualifications to be classified as a finance lease due to the significance of the present value of the lease payments, using a discount rate that reflects the Company’s incremental borrowing rate, compared to the fair value of the leased property as of the lease commencement date.
At December 31, 2022, the carrying value of the financing liability was $8.7 million, which is net of debt issuance costs of $0.6 million and is recorded in Long-term loans payable on the Company's Consolidated Balance Sheets. The monthly lease payments are split between a reduction of principal and interest expense using the effective interest rate method.
The remaining future cash payments related to the aggregate financing liabilities for the fiscal years ending December 31 are as follows:
| 2023 | $ | 1,844 | |||
| 2024 | 3,800 | ||||
| 2025 | 1,137 | ||||
| 2026 | 1,153 | ||||
| 2027 | 781 | ||||
| Thereafter | 14,149 | ||||
| Total minimum liability requirements | 22,864 | ||||
| Imputed interest | (8,954) | ||||
| Total | $ | 13,910 | |||
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The components of lease expense included on our investmentConsolidated Statements of Operations were as follows:
| Year ended December 31, | ||||||||||||||||||||||||||||||||
| (in thousands) | Classification | 2022 | 2021 | 2020 | ||||||||||||||||||||||||||||
| Operating lease expense: | ||||||||||||||||||||||||||||||||
| Operating lease expense | Selling, general and administrative expenses | $ | 7,277 | $ | 4,974 | $ | 5,736 | |||||||||||||||||||||||||
| Operating lease expense | Cost of operations | — | 1,077 | — | ||||||||||||||||||||||||||||
| Short-term lease expense | Selling, general and administrative expenses | 3,516 | 3,541 | 1,960 | ||||||||||||||||||||||||||||
Variable lease expense (1) | Selling, general and administrative expenses | 484 | 385 | 1,973 | ||||||||||||||||||||||||||||
| Total operating lease expense | $ | 11,277 | $ | 9,977 | $ | 9,669 | ||||||||||||||||||||||||||
| Finance lease expense: | ||||||||||||||||||||||||||||||||
| Amortization of right-of-use assets | Cost of operations | $ | 3,527 | $ | 3,510 | $ | 2,061 | |||||||||||||||||||||||||
| Interest on lease liabilities | Interest expense | 2,372 | 2,502 | 2,452 | ||||||||||||||||||||||||||||
| Total finance lease expense | $ | 5,899 | $ | 6,012 | $ | 4,513 | ||||||||||||||||||||||||||
Sublease income (2) | Other – net | $ | (72) | $ | (86) | $ | (86) | |||||||||||||||||||||||||
| Net lease cost | $ | 17,104 | $ | 15,903 | $ | 14,096 | ||||||||||||||||||||||||||
(1) Variable lease expense primarily consists of common area maintenance expenses paid directly to lessors of real estate leases.
(2) Sublease income excludes rental income from owned properties, which is not material.
Other information related to leases is as follows:
| Year ended December 31, | |||||||||||||||||
| (in thousands) | 2022 | 2021 | 2020 | ||||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | |||||||||||||||||
| Operating cash flows from operating leases | $ | 6,886 | $ | 5,614 | $ | 5,603 | |||||||||||
| Operating cash flows from finance leases | 2,371 | 2,502 | 2,452 | ||||||||||||||
| Financing cash flows from finance leases | 2,435 | 2,366 | (13) | ||||||||||||||
| (in thousands) | December 31, 2022 | December 31, 2021 | |||||||||
| Right-of-use assets obtained in exchange for lease liabilities: | |||||||||||
| Operating leases | $ | 3,256 | $ | 24,886 | |||||||
| Finance leases | $ | — | $ | 3,608 | |||||||
| Weighted-average remaining lease term: | |||||||||||
| Operating leases (in years) | 13.0 | 13.6 | |||||||||
| Finance leases (in years) | 12.0 | 12.7 | |||||||||
| Weighted-average discount rate: | |||||||||||
| Operating leases | 8.22 | % | 8.24 | % | |||||||
| Finance leases | 8.00 | % | 7.93 | % | |||||||
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Amounts relating to leases were presented on our Consolidated Balance Sheets in TBWESthe following line items:
| (in thousands) | ||||||||||||||
| Assets: | Classification | December 31, 2022 | December 31, 2021 | |||||||||||
| Operating lease assets | Right-of-use assets | $ | 29,438 | $ | 30,163 | |||||||||
| Finance lease assets | Net property, plant and equipment and finance leases | 24,352 | 28,575 | |||||||||||
| Total non-current lease assets | $ | 53,790 | $ | 58,738 | ||||||||||
| Liabilities: | ||||||||||||||
| Current | ||||||||||||||
| Operating lease liabilities | Operating lease liabilities | $ | 3,595 | $ | 3,950 | |||||||||
| Finance lease liabilities | Financing lease liabilities | 1,180 | 2,445 | |||||||||||
| Non-current | ||||||||||||||
| Operating lease liabilities | Non-current operating lease liabilities | 26,583 | 26,685 | |||||||||||
| Finance lease liabilities | Non-current finance lease liabilities | 27,482 | 29,369 | |||||||||||
| Total lease liabilities | $ | 58,840 | $ | 62,449 | ||||||||||
Future minimum lease payments required under non-cancellable leases as of December 31, 2022 were as follows:
| (in thousands) | Operating Leases | Finance Leases | Total | ||||||||||||||
| 2023 | $ | 5,872 | $ | 3,408 | $ | 9,280 | |||||||||||
| 2024 | 4,831 | 3,472 | 8,303 | ||||||||||||||
| 2025 | 3,740 | 3,499 | 7,239 | ||||||||||||||
| 2026 | 3,232 | 3,568 | 6,800 | ||||||||||||||
| 2027 | 2,892 | 3,640 | 6,532 | ||||||||||||||
| Thereafter | 30,296 | 27,578 | 57,874 | ||||||||||||||
| Total | $ | 50,863 | $ | 45,165 | $ | 96,028 | |||||||||||
| Less imputed interest | (20,684) | (16,504) | (37,188) | ||||||||||||||
| Lease liability | $ | 30,179 | $ | 28,661 | $ | 58,840 | |||||||||||
NOTE 11 – ACCRUED WARRANTY EXPENSE
The Company may offer assurance type warranties on products and our shareservices in which it sells. Changes in the carrying amount of the Company's accrued warranty expense are as follows:
| Year ended December 31, | |||||||||||
| (in thousands) | 2022 | 2021 | |||||||||
| Balance at beginning of period | $ | 12,925 | $ | 25,399 | |||||||
| Additions | 7,294 | 7,470 | |||||||||
| Expirations and other changes | 150 | (7,808) | |||||||||
| Payments | (10,634) | (12,206) | |||||||||
| Translation and other | (167) | 70 | |||||||||
| Balance at end of period | $ | 9,568 | $ | 12,925 | |||||||
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The Company accrues estimated expense included in Cost of operations on its Consolidated Statements of Operations to satisfy contractual warranty requirements when it recognizes the associated revenues on the related contracts, or in the case of a loss contract, the full amount of the estimated fair value of TBWES's net assets. Our investment in TBWES at December 31, 2017 and 2016 was $26.0 million and $40.6 million, respectively. The TBWES joint venturewarranty costs is now idle as we and our joint venture partner explore strategic alternatives for its assets.
| December 31, | ||||||
| (in thousands) | 2017 | 2016 | ||||
| Current assets | $ | 322,956 | $ | 335,577 | ||
| Noncurrent assets | 137,081 | 126,958 | ||||
| Total assets | 460,037 | 462,535 | ||||
| Current liabilities | 342,178 | 231,150 | ||||
| Noncurrent liabilities | 24,474 | 40,537 | ||||
| Owners' equity | 93,385 | 190,848 | ||||
| Total liabilities and equity | $ | 460,037 | $ | 462,535 | ||
| Year Ended December 31, | |||||||||
| (in thousands) | 2017 | 2016 | 2015 | ||||||
| Revenues | $ | 346,459 | $ | 488,101 | $ | 475,459 | |||
| Gross profit | 32,682 | 76,986 | 69,021 | ||||||
| Income before provision for income taxes | (10,626 | ) | 19,529 | 3,072 | |||||
| Provision for income taxes | 1,907 | 3,715 | 4,500 | ||||||
| Net income | $ | (12,533 | ) | $ | 15,814 | $ | (1,428 | ) | |
| Year Ended December 31, | |||||||||
| (in thousands) | 2017 | 2016 | 2015 | ||||||
| Equity income based on stated ownership percentages | $ | 7,530 | $ | 7,898 | $ | (542 | ) | ||
| TBWES other than temporary impairment | (18,193 | ) | — | — | |||||
| Gain on sale of our interest in HMA | — | 8,324 | — | ||||||
All other adjustments due to amortization of basis differences, timing of GAAP adjustments and other adjustments | 796 | 218 | 300 | ||||||
| Equity in income of investees | $ | (9,867 | ) | $ | 16,440 | $ | (242 | ) | |
| Year Ended December 31, | |||||||||
| (in thousands) | 2017 | 2016 | 2015 | ||||||
| Sales to | $ | 7,143 | $ | 17,220 | $ | 18,014 | |||
| Purchases from | 12,470 | 32,490 | 45,397 | ||||||
Dividends received (1) | 50,134 | 12,160 | 20,830 | ||||||
Capital contributions (2) | — | 26,256 | 7,424 | ||||||
NOTE 812 – RESTRUCTURING ACTIVITIES AND SPIN-OFF TRANSACTION COSTS
The following tables summarizes the restructuring activity incurred by segment:
| Year ended December 31, | |||||||||||
| 2022 | |||||||||||
| (in thousands) | Total | Severance and related costs | Other (1) | ||||||||
| B&W Renewable segment | $ | 900 | $ | 719 | $ | 181 | |||||
| B&W Environmental segment | 228 | 28 | 200 | ||||||||
| B&W Thermal segment | 589 | 128 | 461 | ||||||||
| Corporate | (1,157) | (1,228) | 71 | ||||||||
| $ | 560 | $ | (353) | $ | 913 | ||||||
| Cumulative costs to date | $ | 45,743 | 36,898 | 8,845 | |||||||
(1) Other amounts consist primarily of exit, relocation and other costs.
| Year ended December 31, | |||||||||||
| 2021 | |||||||||||
| (in thousands) | Total | Severance and related costs | Other (1) | ||||||||
| B&W Renewable segment | $ | 1,876 | $ | 1,732 | $ | 144 | |||||
| B&W Environmental segment | 430 | 360 | 70 | ||||||||
| B&W Thermal segment | 2,207 | 1,734 | 473 | ||||||||
| Corporate | 356 | 213 | 143 | ||||||||
| $ | 4,869 | $ | 4,039 | $ | 830 | ||||||
(1) Other amounts consist primarily of exit, relocation, COVID-19 related and other costs.
| Year ended December 31, | |||||||||||
| 2020 | |||||||||||
| (in thousands) | Total | Severance and related costs | Other (1) | ||||||||
| B&W Renewable segment | $ | 5,926 | $ | 4,537 | $ | 1,389 | |||||
| B&W Environmental segment | 745 | 293 | 452 | ||||||||
| B&W Thermal segment | 4,725 | 1,962 | 2,763 | ||||||||
| Corporate | 453 | (52) | 505 | ||||||||
| $ | 11,849 | $ | 6,740 | $ | 5,109 | ||||||
(1) Other amounts consist primarily of exit, relocation, COVID-19 related and other costs
Restructuring liabilities are included in otherOther accrued liabilitieson our consolidated balance sheets.the Company's Consolidated Balance Sheets. Activity related to the restructuring liabilities is as follows:
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| Year ended December 31, | Year ended December 31, | ||||||||||||||||||||||||||||||||||
| (in thousands) | 2017 | 2016 | (in thousands) | 2022 | 2021 | ||||||||||||||||||||||||||||||
Balance at beginning of period | $ | 2,253 | $ | 740 | Balance at beginning of period | $ | 6,561 | $ | 8,146 | ||||||||||||||||||||||||||
| Restructuring expense | 13,923 | 21,939 | Restructuring expense | 560 | 4,869 | ||||||||||||||||||||||||||||||
| Payments | (13,857 | ) | (20,426 | ) | Payments | (5,506) | (6,454) | ||||||||||||||||||||||||||||
| Balance at December 31 | $ | 2,319 | $ | 2,253 | |||||||||||||||||||||||||||||||
| Balance at end of period | Balance at end of period | $ | 1,615 | $ | 6,561 | ||||||||||||||||||||||||||||||
The payments shown above for the years ended December 31, 2022 and 2021 relate primarily to severance. Accrued restructuring liabilities at December 31, 20172022 and 20162021 relate primarily to employee termination benefits.
| Year Ended December 31, | ||||
| 2016 | 2015 | |||
| Risk-free interest rate | 1.14 | % | 1.38 | % |
| Expected volatility | 25 | % | 28 | % |
| Expected life of the option in years | 3.95 | 3.96 | ||
| Expected dividend yield | — | % | — | % |
| (share data in thousands) | Number of Shares | Weighted-Average Exercise Price | Weighted-Average Remaining Contractual Term (in years) | Aggregate Intrinsic Value (in thousands) | ||||||
| Outstanding at beginning of period | 2,652 | $ | 18.27 | |||||||
| Granted | — | — | ||||||||
| Exercised | (24 | ) | 15.04 | |||||||
| Cancelled/expired/forfeited | (150 | ) | 18.50 | |||||||
| Outstanding at end of period | 2,478 | $ | 18.28 | 5.46 | $ | — | ||||
| Exercisable at end of period | 1,844 | $ | 18.14 | 4.69 | $ | — | ||||
| (share data in thousands) | Number of Shares | Weighted-Average Grant Date Fair Value | |||
| Nonvested at beginning of period | 712 | $ | 19.14 | ||
| Granted | 1,902 | 5.35 | |||
| Vested | (282 | ) | 18.48 | ||
| Cancelled/forfeited | (105 | ) | 15.00 | ||
| Nonvested at end of period | 2,227 | $ | 7.63 | ||
| Year Ended December 31, | Year Ended December 31, | |||
| 2017 | 2016 | |||
| Risk-free interest rate | 1.54 | % | 0.96 | % |
| Expected volatility | 42 | % | 25 | % |
| Expected life of the option in years | 2.83 | 2.83 | ||
| Expected dividend yield | — | % | — | % |
| (share data in thousands) | Number of Shares | Weighted-Average Grant Date Fair Value | |||
| Nonvested at beginning of period | 451 | $ | 19.29 | ||
| Granted | 828 | 9.74 | |||
| Vested | (3 | ) | 9.67 | ||
| Cancelled/forfeited | (141 | ) | 14.07 | ||
| Nonvested at end of period | 1,135 | $ | 12.75 | ||
| (share data in thousands) | Number of Shares | Weighted-Average Grant Date Fair Value | |||
| Nonvested at beginning of period | 32 | $ | 18.53 | ||
| Granted | 1,908 | 2.90 | |||
| Vested | (7 | ) | — | ||
| Cancelled/forfeited | (134 | ) | 3.93 | ||
| Nonvested at end of period | 1,799 | $ | 4.53 | ||
NOTE 1013 – PROVISION FOR INCOME TAXESPENSION PLANS AND OTHER POSTRETIREMENT BENEFITS
Effective January 1, 2012, a defined contribution component was adopted applicable to Babcock & Wilcox Canada, Ltd. (the “Canadian Plans”). Any employee with less than two years of continuous service as of December 31, 2011 was required to enroll in the defined contribution component of the Canadian Plans as of January 1, 2012 or upon the completion of 6 months of continuous service, whichever is later. These and future employees will not be eligible to enroll in the defined benefit component of the Canadian Plans. In 2014, benefit accruals under certain hourly Canadian pension plans were ceased with an effective date of January 1, 2015. As part of the spin-off transaction, the Company split the Canadian defined benefit plans from BWXT, which was completed in 2017. The Company did not present these plans as multi-employer plans because its portion was separately identifiable, and the Company was able to assess the assets, liabilities and periodic expense in the same manner as if it were a separate plan in each period.
The Company also sponsors the Diamond Power Specialty Limited Retirement Benefits Plan (the “U.K. Plan”) through its subsidiary. Benefit accruals under this plan ceased to be effective November 30, 2015. The Company has accounted for the GMP equalization following the U.K. High Court ruling during the fourth quarter of 2018 by recording prior service cost in accumulated other comprehensive income that will be amortized through net periodic pension cost over 15 years, ending December 31, 2033.
The Company does not provide retirement benefits to certain non-resident alien employees of foreign subsidiaries. Retirement benefits for salaried employees who accrue benefits in a defined benefit plan are based on final average compensation and years of service, while benefits for hourly paid employees are based on a flat benefit rate and years of service. The Company's funding policy is to fund the plans as recommended by the respective plan actuaries and in accordance with the Employee Retirement Income Security Act of 1974, as amended, or other applicable law. Funding provisions under the Pension Protection Act accelerate funding requirements to ensure full funding of benefits accrued.
The Company makes available other benefits which include postretirement health care and life insurance benefits to certain salaried and union retirees based on their union contracts, and on a limited basis, to future retirees.
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Obligations and funded status
| Pension Benefits Year Ended December 31, | Other Benefits Year Ended December 31, | |||||||||||||
| (in thousands) | 2022 | 2021 | 2022 | 2021 | ||||||||||
| Change in benefit obligation: | ||||||||||||||
| Benefit obligation at beginning of period | $ | 1,199,845 | $ | 1,284,019 | $ | 10,372 | $ | 11,802 | ||||||
| Service cost | 699 | 781 | 20 | 22 | ||||||||||
| Interest cost | 26,676 | 22,559 | 182 | 145 | ||||||||||
| Plan participants’ contributions | — | — | 125 | 155 | ||||||||||
| Amendments | — | 676 | — | — | ||||||||||
| Actuarial gain | (249,945) | (28,815) | (1,353) | (153) | ||||||||||
| Foreign currency exchange rate changes | (4,413) | 165 | (82) | 3 | ||||||||||
| Benefits paid | (79,547) | (79,540) | (1,588) | (1,602) | ||||||||||
| Benefit obligation at end of period | $ | 893,315 | $ | 1,199,845 | $ | 7,676 | $ | 10,372 | ||||||
| Change in plan assets: | ||||||||||||||
| Fair value of plan assets at beginning of period | $ | 1,037,235 | $ | 1,047,646 | $ | — | $ | — | ||||||
| Actual return on plan assets | (184,570) | 42,954 | — | — | ||||||||||
| Employer contribution | 3,713 | 26,158 | 1,463 | 1,447 | ||||||||||
| Plan participants' contributions | — | — | 125 | 155 | ||||||||||
| Foreign currency exchange rate changes | (5,908) | 17 | — | — | ||||||||||
| Benefits paid | (79,547) | (79,540) | (1,588) | (1,602) | ||||||||||
| Fair value of plan assets at the end of period | 770,923 | 1,037,235 | — | — | ||||||||||
| Funded status | $ | (122,392) | $ | (162,610) | $ | (7,676) | $ | (10,372) | ||||||
| Amounts recognized in the balance sheet consist of: | ||||||||||||||
| Accrued employee benefits | $ | (1,118) | $ | (1,162) | $ | (1,162) | $ | (1,297) | ||||||
| Accumulated postretirement benefit obligation | — | — | (6,514) | (9,075) | ||||||||||
| Pension liability | (129,662) | (173,655) | — | — | ||||||||||
| Prepaid pension | 8,388 | 12,207 | — | — | ||||||||||
| Accrued benefit liability, net | $ | (122,392) | $ | (162,610) | $ | (7,676) | $ | (10,372) | ||||||
| Amount recognized in accumulated comprehensive income (before taxes): | ||||||||||||||
| Prior service cost | $ | 966 | $ | 1,146 | $ | 1,665 | $ | 2,355 | ||||||
| Supplemental information: | ||||||||||||||
| Plans with accumulated benefit obligation in excess of plan assets | ||||||||||||||
| Projected benefit obligation | 856,546 | 1,141,706 | — | — | ||||||||||
| Accumulated benefit obligation | 856,546 | 1,141,706 | 7,676 | 10,372 | ||||||||||
| Fair value of plan assets | 725,767 | 966,889 | — | — | ||||||||||
| Plans with plan assets in excess of accumulated benefit obligation | ||||||||||||||
| Projected benefit obligation | 36,770 | 58,139 | — | — | ||||||||||
| Accumulated benefit obligation | 36,770 | 58,139 | — | — | ||||||||||
| Fair value of plan assets | 45,158 | 70,346 | — | — | ||||||||||
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Components of net periodic benefit cost (benefit) included in net income (loss) are as follows:
| Pension Benefits | Other Benefits | ||||||||||||||||||||||||||||||||||
| Year ended December 31, | Year ended December 31, | ||||||||||||||||||||||||||||||||||
| (in thousands) | 2022 | 2021 | 2020 | 2022 | 2021 | 2020 | |||||||||||||||||||||||||||||
| Interest cost | $ | 26,676 | $ | 22,559 | $ | 33,267 | $ | 182 | $ | 145 | $ | 288 | |||||||||||||||||||||||
| Expected return on plan assets | (57,547) | (56,154) | (61,322) | — | — | — | |||||||||||||||||||||||||||||
| Amortization of prior service cost (credit) | 189 | 97 | 97 | 691 | 691 | (1,084) | |||||||||||||||||||||||||||||
| Recognized net actuarial (gain) loss | (6,365) | (15,327) | 22,676 | (1,354) | (153) | 478 | |||||||||||||||||||||||||||||
Benefit plans, net (1) | (37,047) | (48,825) | (5,282) | (481) | 683 | (318) | |||||||||||||||||||||||||||||
Service cost included in COS (2) | 699 | 781 | 792 | 20 | 22 | 19 | |||||||||||||||||||||||||||||
| Net periodic benefit cost (benefit) | $ | (36,348) | $ | (48,044) | $ | (4,490) | $ | (461) | $ | 705 | $ | (299) | |||||||||||||||||||||||
(1) Benefit plans, net, which is presented separately in our 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 our Consolidated Statement of Operations and is allocated to the B&W Thermal segment.
Recognized net actuarial gain consists primarily of the Company's reported actuarial gain and the difference between the actual return on plan assets and the expected return on plan assets. Total net mark to market (“MTM”) adjustments for the Company's pension and other postretirement benefit plans were (gains) losses of $(7.7) million, $(15.5) million and $23.2 million in the years ended, December 31, 2022, 2021 and 2020, respectively. The recognized net actuarial (gain) loss was recorded in Benefit plans, net in the Company's Consolidated Statements of Operations.
Assumptions
| Pension Benefits | Other Benefits | ||||||||||||||||||||||
| Year ended December 31, | Year ended December 31, | ||||||||||||||||||||||
| 2022 | 2021 | 2020 | 2022 | 2021 | 2020 | ||||||||||||||||||
| Weighted average assumptions used to determine net periodic benefit obligations: | |||||||||||||||||||||||
| Comparative single equivalent discount rate | 5.35% | 2.81% | 2.50% | 5.28% | 2.50% | 1.97% | |||||||||||||||||
| Rate of compensation increase | 0.06% | 0.07% | 0.08% | — | — | — | |||||||||||||||||
| Weighted average assumptions used to determine net periodic benefit cost: | |||||||||||||||||||||||
| Comparative single equivalent discount rate | 2.88% | 2.52% | 3.23% | 5.28% | 2.50% | 1.97% | |||||||||||||||||
| Expected return on plan assets | 5.90% | 5.76% | 6.63% | — | — | — | |||||||||||||||||
| Rate of compensation increase | 0.06% | 0.07% | 0.08% | — | — | — | |||||||||||||||||
The expected rate of return on plan assets is based on the long-term expected returns for the investment mix of assets currently in the portfolio. In setting this rate, the Company uses a building-block approach. Historic real return trends for the various asset classes in the plan's portfolio are combined with anticipated future market conditions to estimate the real rate of return for each asset class. These rates are then adjusted for anticipated future inflation to determine estimated nominal rates of return for each asset class. The expected rate of return on plan assets is determined to be the weighted average of the nominal returns based on the weightings of the asset classes within the total asset portfolio. The Company uses an expected return on plan assets assumption of 6% for the majority of our pension plan assets (approximately 94% of our total pension assets at December 31, 2022).
Investment goals
The overall investment strategy of the pension trusts is to achieve long-term growth of principal, while avoiding excessive risk and to minimize the probability of loss of principal over the long term. The specific investment goals that have been set
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for the pension trusts in the aggregate are (1) to ensure that plan liabilities are met when due and (2) to achieve an investment return on trust assets consistent with a reasonable level of risk.
Allocations to each asset class for both domestic and foreign plans are reviewed periodically and rebalanced, if appropriate, to assure the continued relevance of the goals, objectives and strategies. The pension trusts for both domestic and foreign plans employ a professional investment advisor and a number of professional investment managers whose individual benchmarks are, in the aggregate, consistent with the plans' overall investment objectives. The goals of each investment manager are (1) to meet (in the case of passive accounts) or exceed (for actively managed accounts) the benchmark selected and agreed upon by the manager and the trust and (2) to display an overall level of risk in its portfolio that is consistent with the risk associated with the agreed upon benchmark.
The investment performance of total portfolios, as well as asset class components, is periodically measured against commonly accepted benchmarks, including the individual investment manager benchmarks. In evaluating investment manager performance, consideration is also given to personnel, strategy, research capabilities, organizational and business matters, adherence to discipline and other qualitative factors that may impact the ability to achieve desired investment results.
Domestic plans: The Company sponsors the U.S. Plan, which is a domestic defined benefit plan. The assets of this plan are held by the Trustee in The Babcock & Wilcox Company Master Trust (the “Master Trust”). For the years ended December 31, 2022 and 2021, the investment return on domestic plan assets of the Master Trust (net of deductions for management fees) was approximately (17.49)% and 4.25%, respectively.
The following is a summary of the asset allocations for the Master Trust by asset category:
| Year ended December 31, | ||||||||
| 2022 | 2021 | |||||||
| Asset category: | ||||||||
| United States government securities | 12 | % | 17 | % | ||||
| Corporate stocks | 6 | % | 8 | % | ||||
| Venture capital | 42 | % | 40 | % | ||||
| Hedge funds | 27 | % | 30 | % | ||||
| Cash and accrued items | 13 | % | 5 | % | ||||
The target asset allocation for the Master Trust as of December 31, 2022 was 50% of alternative, liquid credit and direct lending funds, 20% of fixed income securities, and 30% of equity and other investments. As of December 31, 2021, the target allocation was 50% of alternative, liquid credit and direct lending funds, 20% of fixed income securities, and 30% of equity and other investments. The Company routinely reassesses the target asset allocation with a goal of better aligning the timing of expected cash flows from those assets to the anticipated timing of benefit payments.
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Foreign plans: The Company sponsors various plans through certain of its foreign subsidiaries. These plans are the Canadian Plans and the U.K. Plan. The combined weighted average asset allocations of these plans by asset category were as follows:
| Year ended December 31, | ||||||||
| 2022 | 2021 | |||||||
| Asset category: | ||||||||
| Commingled and mutual funds | 24 | % | 30 | % | ||||
| Fixed income | 72 | % | 67 | % | ||||
| Other | 4 | % | 3 | % | ||||
The target allocation for 2022 for the foreign plans, by asset class, is as follows:
| Canadian Plans | U.K. Plan | |||||||
| Asset class: | ||||||||
| United States equity | 24 | % | 3 | % | ||||
| Global equity | 26 | % | 4 | % | ||||
| Fixed income and other | 50 | % | 93 | % | ||||
Fair value of plan assets
See Note 24 for a detailed description of fair value measurements and the hierarchy established for valuation inputs. In accordance with Subtopic 820-10, Fair Value Measurement and Disclosures, certain investments that are measured at fair value using the net asset value ("NAV") per share practical expedient have not been classified in the fair value hierarchy. The investments that are measured at fair value using NAV per share included in the tables below are intended to permit reconciliation of the fair value hierarchy to the fair value of plan assets at the end of each period, which is presented in the first table above titled “obligations and funded status”. The following is a summary of total investments of the Company's plans measured at fair value:
| (in thousands) | Year ended December 31, 2022 | Level 1 | Level 2 | Level 3 | ||||||||||
| Commingled and mutual funds | $ | 12,020 | $ | — | $ | 12,020 | $ | — | ||||||
| United States government securities | 83,948 | 83,948 | — | — | ||||||||||
| Fixed income | 53,258 | 13,191 | 32,548 | 7,519 | ||||||||||
| Equity | 41,313 | 41,137 | — | 176 | ||||||||||
| Venture capital | 250,344 | — | — | 250,344 | ||||||||||
| Hedge fund | 83,439 | — | — | 83,439 | ||||||||||
| Cash and accrued items | $ | 76,257 | 76,257 | — | — | |||||||||
| Investments measured at fair value | $ | 600,579 | $ | 214,533 | $ | 44,568 | $ | 341,478 | ||||||
| Investments measured at net asset value | 171,441 | |||||||||||||
| Pending trades | (1,096) | |||||||||||||
| Total pension and other postretirement benefit assets | $ | 770,924 | ||||||||||||
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| (in thousands) | Year ended December 31, 2021 | Level 1 | Level 2 | Level 3 | ||||||||||
| Commingled and mutual funds | $ | 22,261 | $ | — | $ | 22,261 | $ | — | ||||||
| United States government securities | 167,328 | 167,328 | — | — | ||||||||||
| Fixed income | 65,370 | 15,196 | 47,309 | 2,865 | ||||||||||
| Equity | 80,299 | 74,888 | 5,243 | 168 | ||||||||||
| Venture capital | 236,730 | — | — | 236,730 | ||||||||||
| Hedge fund | 80,711 | — | — | 80,711 | ||||||||||
| Cash and accrued items | 30,130 | 30,130 | — | — | ||||||||||
| Investments measured at fair value | $ | 682,829 | $ | 287,542 | $ | 74,813 | $ | 320,474 | ||||||
| Investments measured at net asset value | 349,798 | |||||||||||||
| Pending trades | 4,608 | |||||||||||||
| Total pension and other postretirement benefit assets | $ | 1,037,235 | ||||||||||||
Expected cash flows
(1Pension benefit payments are made from their respective plan's trust.
| Domestic Plans | Foreign Plans | ||||||||||||||||
| (in thousands) | Pension Benefits | Other Benefits | Pension Benefits | Other Benefits | |||||||||||||
| Expected employer contributions to trusts of defined benefit plans: | |||||||||||||||||
| 2023 | $ | 1,146 | $ | 1,033 | $ | 277 | $ | 152 | |||||||||
Expected benefit payments (1): | |||||||||||||||||
| 2023 | 74,703 | 1,033 | 2,495 | 152 | |||||||||||||
| 2024 | 73,971 | 932 | 2,504 | 141 | |||||||||||||
| 2025 | 72,861 | 847 | 2,608 | 127 | |||||||||||||
| 2026 | 71,658 | 767 | 2,674 | 120 | |||||||||||||
| 2027 | 70,197 | 692 | 2,679 | 107 | |||||||||||||
| 2028-2032 | 324,874 | 2,509 | 13,989 | 384 | |||||||||||||
The Company made contributions to its pension and other postretirement benefit plans totaling $5.2 million and $27.6 million during the years ended December 31, 2022 and 2021.
In accordance with the American Rescue Plan Act of 2021, the Company elected to defer $20.9 million of the estimated Pension Plan contribution payments of $45.6 million that would have been due during 2021. Contributions made during the year ended December 31, 2021 include $0.4 million of interest as required per the CARES Act that was signed into law on March 27, 2020.
Defined contribution plans
The Company provides benefits under The B&W Thrift Plan (the “Thrift Plan”). The Thrift Plan generally provides for matching employer contributions. Beginning in April 2020 and continuing through December 31, 2022, as part of the Company's response to the impact of the COVID-19 pandemic on its business, the Company suspended its 401(k) company match for U.S. employees. The Company resumed its employer contributions beginning in 2022 inclusive of a one-time profit sharing contribution for the 2021 plan year equal to 0.75% of eligible employees' base pay. Employer matching contributions are typically made in cash. Amounts charged to expense for employer contributions under the Thrift Plan totaled approximately $3.1 million, $0.0 million and $1.0 million in the years ended December 31, 2022, 2021 and 2020, respectively.
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Also, the Company's salaried Canadian employees are provided with a defined contribution plan. The amount charged to expense for employer contributions was approximately $0.3 million, $0.3 million and $0.3 million in the years ended December 31, 2022, 2021 and 2020, respectively.
Multi-employer plans
One of the Company's subsidiaries in the B&W Thermal segment contributes to various multi-employer plans. The plans generally provide defined benefits to substantially all unionized workers in this subsidiary. The following table summarizes the Company's contributions to multi-employer plans for the years covered by this report:
| Pension Fund | EIN/PIN | Pension Protection Act Zone Status | FIP/RP Status Pending/ Implemented | Contributions | Surcharge Imposed | Expiration Date of Collective Bargaining Agreement | |||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | 2020 | (in millions) | ||||||||||||||||||||||||||||||||||||||||||||
| Boilermaker-Blacksmith National Pension Trust | 48-6168020/ 001 | Yellow | Yellow | Yellow | Yes | $ | 8.0 | $ | 16.6 | $ | 4.0 | No | Described Below | ||||||||||||||||||||||||||||||||||
| All other | 1.0 | 2.2 | 0.9 | ||||||||||||||||||||||||||||||||||||||||||||
| $ | 9.0 | $ | 18.8 | $ | 4.9 | ||||||||||||||||||||||||||||||||||||||||||
The Company's collective bargaining agreements with the Boilermaker-Blacksmith National Pension Trust (the “Boilermaker Plan”) is under a National Maintenance Agreement platform which is evergreen in terms of expiration. However, the agreement allows for termination by either party with a 90-day written notice. The Company's contributions to the Boilermaker Plan constitute less than 5% of total contributions to the Boilermaker Plan. All other contributions expense for all periods included in this report represents multiple amounts to various plans that, individually, are deemed to be insignificant.
NOTE 14 – 2021 SENIOR NOTES OFFERINGS
8.125% Senior Notes
During 2021, the Company completed sales of $151.2 million aggregate principal amount of its 8.125% senior notes due 2026 (“8.125% Senior Notes”) for net proceeds of approximately $146.6 million. In addition to the completed sales, the Company issued $35.0 million of Senior Notes bearing a per annum interest rate of 8.125% to B. Riley Financial, Inc., a related party, in exchange for a deemed prepayment of its then existing Last Out Term Loan Tranche A-3. The interest is payable quarterly, in arrears, on January 31, April 30, July 31 and October 31 of each year, commencing on April 30, 2021. The 8.125% Senior Notes mature on February 28, 2026.
On March 31, 2021, the Company entered into a sales agreement with B. Riley Securities, Inc., a related party, in which it may sell to or through B. Riley Securities, Inc., from time to time, additional 8.125% Senior Notes up to an aggregate principal amount of $150.0 million. The 8.125% Senior Notes have the same terms as (other than date of issuance), form a single series of debt securities with, have the same CUSIP number and are fungible with the initial 8.125% Senior Notes issuance in 2021.
During the year ended December 31, 2022, the Company sold $6.8 million aggregate principal of 8.125% per annum Senior Notes under the sales agreement described above for $6.7 million of net proceeds.
The 8.125% Senior Notes are senior unsecured obligations of the Company and rank equally in right of payment with all of the Company’s other existing and future senior unsecured and unsubordinated indebtedness.
6.50% Senior Notes.
During 2021, the Company completed sales of $151.4 million aggregate principal amount of its 6.50% senior notes due in 2026 (the “6.50% Senior Notes”) for net proceeds of approximately $145.8 million with an interest rate of 6.50% per annum. Interest on the 6.50% Senior Notes is payable quarterly in arrears on March 31, June 30, September 30 and December 31 of each year and carry a maturity date of December 31, 2026.
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The public offering of our 6.50% Senior Notes was conducted pursuant to an underwriting agreement dated December 8, 2021, between the Company and B. Riley Securities, Inc., an affiliate of B. Riley, a related party, as representative of several underwriters.
The 6.50% Senior Notes are senior unsecured obligations of the Company and rank equally in right of payment with all of the Company’s other existing and future senior unsecured and unsubordinated indebtedness. The 6.50% Senior Notes are effectively subordinated in right of payment to all of the Company’s existing and future secured indebtedness and structurally subordinated to all existing and future indebtedness of the Company’s subsidiaries, including trade payables.
The components of the Company's senior notes at December 31, 2022 are as follows:
| Senior Notes | |||||||||||||||||
| (in thousands) | 8.125% | 6.50% | Total | ||||||||||||||
| Senior notes due 2026 | $ | 193,026 | $ | 151,440 | $ | 344,466 | |||||||||||
| Unamortized deferred financing costs | (4,126) | (5,299) | (9,425) | ||||||||||||||
| Unamortized premium | 457 | — | 457 | ||||||||||||||
| Net debt balance | $ | 189,357 | $ | 146,141 | $ | 335,498 | |||||||||||
NOTE 15– LAST OUT TERM LOANS
Effective with the new debt facilities the Company entered into on June 30, 2021, as described in Note 16 below, the Company has no remaining Last Out Term Loans and no further borrowings thereunder are available.
NOTE 16 – REVOLVING DEBT
Debt Facilities
On June 30, 2021, the Company entered into a Revolving Credit Agreement (the “Revolving Credit Agreement”) with PNC Bank, National Association ("PNC"), as administrative agent and a letter of credit agreement (the “Letter of Credit Agreement”) with PNC, pursuant to which PNC agreed to issue up to $110.0 million in letters of credit that is secured in part by cash collateral provided by an affiliate of MSD Partners, MSD PCOF Partners XLV, LLC (“MSD”), as well as a reimbursement, guaranty and security agreement with MSD, as administrative agent, and the cash collateral providers from time to time party thereto, along with certain of the Company's subsidiaries as guarantors, pursuant to which it is obligated to reimburse MSD and any other cash collateral provider to the extent the cash collateral provided by MSD and any other cash collateral provider to secure the Letter of Credit Agreement is drawn to satisfy draws on letters of credit (the “Reimbursement Agreement” and collectively with the Revolving Credit Agreement and Letter of Credit Agreement, the “Debt Documents” and the facilities thereunder, the “Debt Facilities”). In December 2022, the Company deposited $10.0 million with PNC for Letter of Credit collateral to enable MSD to reduce their collateral requirement by $10.0 million. The obligations of the Company under each of the Debt Facilities are guaranteed by certain existing and future domestic and foreign subsidiaries of the Company. B. Riley Financial, Inc. (“B. Riley”), a related party, has provided a guaranty of payment with regard to the Company’s obligations under the Reimbursement Agreement, as described below. The Company expects to use the proceeds and letter of credit availability under the Debt Facilities for working capital purposes and general corporate purposes, including to backstop or replace certain letters of credit issued under our previous A&R Credit Agreement, dated as of May 14, 2020 (as amended, restated or otherwise modified from time to time), by and among the Company, as borrower, Bank of America, N.A., as administrative agent, the lenders and the other parties from time to time party thereto, which was repaid and commitments thereunder terminated as of June 30, 2021. The Revolving Credit Agreement matures on June 30, 2025. As of December 31, 2022, no borrowings have occurred under the Revolving Credit Agreement and under the Letter of Credit Agreement, usage consisted of $13.6 million of financial letters of credit and $100.8 million of performance letters of credit.
Each of the Debt Facilities has a maturity date of June 30, 2025. The interest rates applicable under the Revolving Credit Agreement float at a rate per annum equal to either (i) a base rate plus 2.0% or (ii) 1 or 3-month reserve-adjusted LIBOR rate plus 3.0%. The interest rates applicable to the Reimbursement Agreement float at a rate per annum equal to either (i) a base rate plus 6.50% or (ii) 1 or 3-month reserve-adjusted LIBOR plus 7.50%. Under the Letter of Credit Agreement, the
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Company is required to pay letter of credit fees on outstanding letters of credit equal to (i) administrative fees of 0.75% and (ii) fronting fees of 0.25%. Under the Revolving Credit Agreement, the Company is required to pay letter of credit fees on outstanding letters of credit equal to (i) letter of credit commitment fees of 3.0% and (ii) letter of credit fronting fees of 0.25%. Under each of the Revolving Credit Agreement and the Letter of Credit Agreement, the Company is required to pay a facility fee equal to 0.375% per annum of the unused portion of the Revolving Credit Agreement or the Letter of Credit Agreement, respectively. The Company is permitted to prepay all or any portion of the loans under the Revolving Credit Agreement prior to maturity without premium or penalty. Prepayments under the Reimbursement Agreement shall be subject to a prepayment fee of 2.25% in the first year after closing, 2.0% in the second year after closing and 1.25% in the third year after closing, with no prepayment fee payable thereafter.
The Company has mandatory prepayment obligations under the Reimbursement Agreement upon the receipt of proceeds from certain dispositions or casualty or condemnation events. The Revolving Credit Agreement and Letter of Credit Agreement require mandatory prepayments to the extent of an over-advance.
The obligations under the Debt Facilities are secured by substantially all assets of the Company and each of the guarantors, in each case subject to inter-creditor arrangements. As noted above, the obligations under the Letter of Credit Facility are also secured by the cash collateral provided by MSD and any other cash collateral provider thereunder.
The Debt Documents contain certain representations and warranties, affirmative covenants, negative covenants and conditions that are customarily required for similar financings. The Debt Documents require the Company to comply with certain financial maintenance covenants, including a quarterly fixed charge coverage test of not less than 1.00 to 1.00, a quarterly senior net leverage ratio test of not greater than 2.50 to 1.00, a non-guarantor cash repatriation covenant not to exceed $35 million at any one time, a minimum liquidity covenant of at least $30.0 million at all times, and an annual cap on maintenance capital expenditures of $7.5 million. The Debt Documents also contain customary events of default (subject, in certain instances, to specified grace periods) including, but not limited to, the failure to make payments of interest or premium, if any, on, or principal under the respective facility, the failure to comply with certain covenants and agreements specified in the applicable Debt Agreement, defaults in respect of certain other indebtedness, and certain events of insolvency. If any event of default occurs, the principal, premium, if any, interest and any other monetary obligations on all the then outstanding amounts under the Debt Documents may become due and payable immediately.
In connection with the Company’s entry into the Debt Documents, on June 30, 2021, B. Riley, a related party, entered into a Guaranty Agreement in favor of MSD, in its capacity as administrative agent under the Reimbursement Agreement, for the ratable benefit of MSD, the cash collateral providers and each co-agent or sub-agent appointed by MSD from time to time (the “B. Riley Guaranty”). The B. Riley Guaranty provides for the guarantee of all of the Company’s obligations under the Reimbursement Agreement. The B. Riley Guaranty is enforceable in certain circumstances, including, among others, certain events of default and the acceleration of the Company’s obligations under the Reimbursement Agreement. Under a fee letter with B. Riley, the Company agreed to pay B. Riley $0.9 million per annum in connection with the B. Riley Guaranty. The Company entered into a reimbursement agreement with B. Riley governing the Company’s obligation to reimburse B. Riley to the extent the B. Riley Guaranty is called upon by the agent or lenders under the Reimbursement Agreement.
On November 7, 2022 the Company executed an amendment to its Debt Documents with MSD which modified certain financial maintenance covenants for future periods beginning with fiscal quarters ending on December 31, 2022. The Fixed Charge Coverage Ratio was amended to 0.55:1.0 for the fiscal quarter ending December 31, 2022, 0.65 to 1.00 for the fiscal quarter ending March 31, 2023, 0.80 to 1.00 for the fiscal quarter ending June 30, 2023, 1.15 to 1.00 for the fiscal quarter ending September 30, 2023 and 1.25 to 1.00 for the fiscal quarter ending December 31, 2023 and thereafter. The Senior Net Leverage Ratio was amended to 2.00 to 1.00 for the fiscal quarter ending December 31, 2022, 1.75 to 1.00 for the fiscal quarter ending March 31, 2023, 1.60 to 1.00 for the fiscal quarter ending June 30, 2023, and 1.50 to 1.00 for the fiscal quarter ending September 30, 2023 and thereafter. The amendment also establishes minimum cash flow covenants, as defined, for the fiscal quarter ending December 31, 2022 of $20.0 million and $25.0 million for the fiscal year 2023 and each fiscal year thereafter. In addition, the Company also executed an amendment to its Debt Documents with PNC which modified the calculation of the Fixed Charge Coverage Ratio for the fiscal quarters ending December 31, 2022, March 31, 2023 and June 30, 2023. The calculation of the Fixed Charge Coverage ratio for the fiscal quarter ending September 30, 2023 and thereafter will revert to the original calculation as stated in the original Debt Documents. In addition, the interest rates applicable to the Reimbursement Agreement float at a rate per annum are equal to either (i) a base rate plus 9.0% or (ii) 1 or 3-month reserve-adjusted SOFR plus 10.0%.
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Letters of Credit, Bank Guarantees and Surety Bonds
Certain of the Company's subsidiaries, primarily outside of the United States, have credit arrangements with various commercial banks and other financial institutions for the issuance of letters of credit and bank guarantees in association with contracting activity. The aggregate value of all such letters of credit and bank guarantees outside of the Letter of Credit Agreement as of December 31, 2022 was $60.3 million. The aggregate value of the outstanding letters of credit provided under the Letter of Credit Agreement backstopping letters of credit or bank guarantees was $37.8 million as of December 31, 2022. Of the outstanding letters of credit issued under the Letter of Credit Agreement, $67.5 million are subject to federal income taxforeign currency revaluation.
The Company has also posted surety bonds to support contractual obligations to customers relating to certain contracts. The Company utilizes bonding facilities to support such obligations, but the issuance of bonds under those facilities is typically at the surety's discretion. These bonds generally indemnify customers should the Company fail to perform its obligations under the applicable contracts. The Company, and certain of its 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 its contracting activity. As of December 31, 2022, bonds issued and outstanding under these arrangements in support of contracts totaled approximately $320.6 million. The aggregate value of the letters of credit backstopping surety bonds was $14.1 million.
The Company's ability to obtain and maintain sufficient capacity under its new Debt Facilities is essential to enable it to support the issuance of letters of credit, bank guarantees and surety bonds. Without sufficient capacity, the Company's ability to support contract security requirements in the United States and income taxfuture will be diminished.
Other Indebtedness - Loans Payable
As of multiple state and international jurisdictions. We provide for income taxes based onDecember 31, 2022, the tax laws and ratesCompany's Denmark subsidiary has an unsecured interest-free loan of $0.8 million under a local government loan program related to COVID-19 that is payable May 2023. In addition, the Company had a $2.9 million loan payable related to financed insurance premiums payable April 2023 which is included in Current loans payable in the jurisdictions in which we conduct our operations. These jurisdictions may have regimes of taxation that vary with respect to both nominal ratesCompany's Consolidated Balance Sheets.
B&W Solar has loans, primarily for vehicles and the basis on which these rates are applied. Our consolidated effective income tax rate can vary significantly from period to period due to these variations, changes in jurisdictional mix of our income and valuation allowances in certain jurisdictions that can offset income tax expense or benefit.
| (in thousands) | 2017 | 2016 | 2015 | ||||||
| Balance at beginning of period | $ | 884 | $ | 1,141 | $ | 3,321 | |||
| Increases based on tax positions taken in the current year | 277 | 178 | 88 | ||||||
| Increases based on tax positions taken in the prior years | 56 | 230 | 248 | ||||||
| Decreases based on tax positions taken in the prior years | (13 | ) | — | (1,161 | ) | ||||
| Decreases due to settlements with tax authorities | — | (665 | ) | (1,355 | ) | ||||
| Decreases due to lapse of applicable statute of limitation | — | — | — | ||||||
| Balance at end of period | $ | 1,204 | $ | 884 | $ | 1,141 | |||
NOTE 17 – PREFERRED STOCK
In May 2021, the Company completed a public offering of our 7.75% Series A Cumulative Perpetual Preferred Stock (the "Preferred Stock") pursuant to an underwriting agreement (the “Underwriting Agreement”) between the Company and B. Riley Securities, Inc.. At the closing, the Company issued to the public 4,444,700 shares of its Preferred Stock, at an offering price of $25.00 per share for net proceeds of approximately $106.4 million after deducting underwriting discounts, commissions but before expenses. The Preferred Stock has a par value of $0.01 per share and is perpetual and has no maturity date. The Preferred Stock has a cumulative cash dividend, when and as follows:if declared by the Company's Board of Directors, at a rate of 7.75% per year on the liquidation preference amount of $25.00 per share and payable quarterly in arrears.
| December 31, | ||||||
| (in thousands) | 2017 | 2016 | ||||
| Deferred tax assets: | ||||||
| Pension liability | $ | 58,810 | $ | 105,426 | ||
| Accrued warranty expense | 5,262 | 11,628 | ||||
| Accrued vacation pay | 996 | 4,792 | ||||
| Accrued liabilities for self-insurance (including postretirement health care benefits) | 3,910 | 6,596 | ||||
| Accrued liabilities for executive and employee incentive compensation | 4,950 | 8,334 | ||||
| Investments in joint ventures and affiliated companies | 10,422 | 10,742 | ||||
| Long-term contracts | 6,801 | 10,318 | ||||
| Accrued Legal Fees | 1,579 | 2,110 | ||||
| Inventory Reserve | 1,842 | 2,445 | ||||
| Property, plant and equipment | — | 1,587 | ||||
| Net operating loss carryforward | 95,715 | 33,187 | ||||
| State tax net operating loss carryforward | 21,658 | 15,372 | ||||
| Foreign tax credit carryforward | 7,150 | 3,870 | ||||
| Other tax credits | 5,678 | 737 | ||||
| Other | 4,980 | 7,852 | ||||
| Total deferred tax assets | 229,753 | 224,996 | ||||
| Valuation allowance for deferred tax assets | (108,105 | ) | (40,484 | ) | ||
| Net, total deferred tax assets | 121,648 | 184,512 | ||||
| Deferred tax liabilities: | ||||||
| Long-term contracts | 569 | 3,601 | ||||
| Intangibles | 21,215 | 21,892 | ||||
| Property, plant and equipment | 2,835 | — | ||||
| Undistributed foreign earnings | 1,314 | 500 | ||||
| Goodwill | — | 1,125 | ||||
| Other | 2,445 | 2,885 | ||||
| Total deferred tax liabilities | 28,378 | 30,003 | ||||
| Net deferred tax assets | $ | 93,270 | $ | 154,509 | ||
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The Preferred Stock ranks, as to dividend rights and rights as to the distribution of assets upon the Company's liquidation, dissolution or winding-up: (1) senior to all classes or series of the Company's common stock and to all other capital stock issued by the Company expressly designated as ranking junior to the Preferred Stock; (2) on parity with any future class or series of the Company's capital stock expressly designated as ranking on parity with the Preferred Stock; (3) junior to any future class or series of the Company's capital stock expressly designated as ranking senior to the Preferred Stock; and (4) junior to all of the Company's existing and future indebtedness.
The Preferred Stock has no stated maturity and is not subject to mandatory redemption or any sinking fund. The Company will pay cumulative cash dividends on the Preferred Stock when, as and if declared by its Board of Directors, only out of funds legally available for payment of dividends. Dividends on the Preferred Stock will accrue on the stated amount of $25.00 per share of the Preferred Stock at a valuation allowancerate per annum equal to 7.75% (equivalent to $1.9375 per year), payable quarterly in arrears. Dividends on the Preferred Stock declared by the Company's Board of $108.1Directors will be payable quarterly in arrears on March 31, June 30, September 30 and December 31 of each year.
During 2022 and 2021, the Company's Board of Directors approved and paid dividends totaling $14.9 million and $9.1 million, respectively. There are no cumulative undeclared dividends of the Preferred Stock at December 31, 2022 and 2021.
NOTE 18 – COMMON STOCK
On February 12, 2021, the Company completed a public offering of its common stock pursuant to an underwriting agreement dated February 9, 2021, between the Company and B. Riley Securities, Inc., as representative of the several underwriters. At the closing, the Company issued to the public 29,487,180 shares of our common stock and received net proceeds of approximately $163.0 million after deducting underwriting discounts and commissions, but before expenses. The net proceeds of the offering were used to make a prepayment toward the balance outstanding under the Company's U.S. Revolving Credit Facility and to permanently reduce the commitments under our senior secured credit facilities.
On May 19, 2022, at the 2022 annual meeting of stockholders of the Company, the stockholders of the Company, upon the recommendation of the Company’s Board of Directors, approved an amendment to the Babcock & Wilcox Enterprises, Inc. 2021 Long-Term Incentive Plan. The Plan Amendment became effective upon such stockholder approval. The Plan Amendment increased the total number of shares of the Company’s common stock authorized for deferred tax assets, which we expect may notaward grants under the 2021 Plan from 1,250,000 shares to 5,250,000 shares. The 2021 Plan replaced the Company’s Amended and Restated 2015 Long-Term Incentive Plan. In addition to the 5,250,000 shares available for award grant purposes under the 2021 Plan as described above, any shares of Company common stock underlying any outstanding award granted under the 2015 Plan that, following May 20, 2021, expires, or is terminated, surrendered, or forfeited for any reason without issuance of such shares shall also be realized through carrybacks, future reversalsavailable for the grant of existing taxable temporary differences and estimates of future taxable income. We believe that our remaining deferred tax assets are more likely than not realizable through carrybacks, future reversals of existing taxable temporary differences and estimates of future taxable income. Should we concludenew awards under the 2021 Plan.
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NOTE 19 –INTEREST EXPENSE AND SUPPLEMENTAL CASH FLOW INFORMATION
Interest expense in the future that any or all of our deferred tax assets are not more likely than not to be realized, we would establish additional valuation allowances and any changes to our estimated valuation allowance could be material to our consolidated financial statements. The following is an analysis of our valuation allowance for deferred tax assets:
| (in thousands) | Beginning balance | Charges to costs and expenses | Charged to other accounts | Ending balance | ||||||||
| Year Ended December 31, 2017 | $ | (40,484 | ) | $ | (61,021 | ) | $ | (6,600 | ) | $ | (108,105 | ) |
| Year Ended December 31, 2016 | (10,077 | ) | (29,307 | ) | (1,100 | ) | (40,484 | ) | ||||
| Year Ended December 31, 2015 | (9,216 | ) | (861 | ) | — | (10,077 | ) | |||||
| Year Ended December 31, | |||||||||
| (in thousands) | 2017 | 2016 | 2015 | ||||||
| United States | $ | (44,835 | ) | $ | 1,280 | $ | (20,748 | ) | |
| Other than the United States | (269,364 | ) | (109,419 | ) | 40,953 | ||||
| Income before provision for income taxes | $ | (314,199 | ) | $ | (108,139 | ) | $ | 20,205 | |
| Year ended December 31, | |||||||||||||||||||||||||||||
| (in thousands) | 2022 | 2021 | 2020 | ||||||||||||||||||||||||||
| Components associated with borrowings from: | |||||||||||||||||||||||||||||
| Senior notes | $ | 24,962 | $ | 13,273 | $ | — | |||||||||||||||||||||||
| Last Out Term Loans - cash interest | — | 4,349 | 6,140 | ||||||||||||||||||||||||||
| Last Out Term Loans - equitized interest | — | — | 13,450 | ||||||||||||||||||||||||||
| U.S. Revolving Credit Facility | — | 1,416 | 13,988 | ||||||||||||||||||||||||||
| 24,962 | 19,038 | 33,578 | |||||||||||||||||||||||||||
| Components associated with amortization or accretion of: | |||||||||||||||||||||||||||||
| Revolving Credit Agreement | 4,400 | 2,735 | — | ||||||||||||||||||||||||||
| Senior notes | 2,612 | 2,510 | — | ||||||||||||||||||||||||||
| Last Out Term Loans - discount and financing fees | — | — | 3,183 | ||||||||||||||||||||||||||
| U.S. Revolving Credit Facility - deferred financing fees and commitment fees | — | 5,995 | 14,811 | ||||||||||||||||||||||||||
| U.S. Revolving Credit Facility - deferred ticking fee for Amendment 16 | — | — | 1,660 | ||||||||||||||||||||||||||
| 7,012 | 11,240 | 19,654 | |||||||||||||||||||||||||||
| Components associated with interest from: | |||||||||||||||||||||||||||||
| Lease liabilities | 2,372 | 2,502 | 2,452 | ||||||||||||||||||||||||||
| Other interest expense | 10,637 | 6,613 | 4,112 | ||||||||||||||||||||||||||
| 13,009 | 9,115 | 6,564 | |||||||||||||||||||||||||||
| Total interest expense | $ | 44,983 | $ | 39,393 | $ | 59,796 | |||||||||||||||||||||||
| Year Ended December 31, | |||||||||
| (in thousands) | 2017 | 2016 | 2015 | ||||||
| Current: | |||||||||
| United States – federal | $ | 100 | $ | 284 | $ | 24,084 | |||
| United States – state and local | 397 | (415 | ) | 3,458 | |||||
| Other than in the United States | 8,612 | 4,504 | 8,250 | ||||||
| Total current | 9,109 | 4,373 | 35,792 | ||||||
| Deferred: | |||||||||
| United States – Federal | 58,203 | 11,512 | (35,888 | ) | |||||
| United States – state and local | 2,546 | 6,365 | (111 | ) | |||||
| Other than in the United States | (5,042 | ) | (15,307 | ) | 3,878 | ||||
| Total deferred (benefit) provision | 55,707 | 2,570 | (32,121 | ) | |||||
| Provision for income taxes | $ | 64,816 | $ | 6,943 | $ | 3,671 | |||
The following istable provides a reconciliation of the United States statutory federal tax rate (35%) to the consolidated effective tax rate:
| Year Ended December 31, | ||||||
| 2017 | 2016 | 2015 | ||||
| United States federal statutory rate | 35.0 | % | 35.0 | % | 35.0 | % |
| State and local income taxes | 0.2 | (3.5 | ) | 13.8 | ||
| Foreign rate differential | (9.5 | ) | (12.8 | ) | (13.1 | ) |
| Deferred Taxes - Change in Tax Rate | (19.9 | ) | — | — | ||
| Tax credits | 0.9 | 3.0 | (14.7 | ) | ||
| Dividends and deemed dividends from affiliates | (1.8 | ) | (0.2 | ) | 1.7 | |
| Valuation allowances | (17.9 | ) | (28.1 | ) | 4.3 | |
| Goodwill impairment | (7.0 | ) | — | — | ||
| Uncertain tax positions | — | 0.3 | (6.6 | ) | ||
| Non-deductible expenses | 0.2 | (1.8 | ) | 2.4 | ||
| Manufacturing deduction | — | — | (2.5 | ) | ||
| Other | (0.8 | ) | 1.7 | (2.1 | ) | |
| Effective tax rate | (20.6 | )% | (6.4 | )% | 18.2 | % |
| (in thousands) | Currency translation gain (loss) (net of tax) | Net unrealized gain (loss) on investments (net of tax) | Net unrealized gain (loss) on derivative instruments (net of tax) | Net unrecognized gain (loss) related to benefit plans (net of tax) | Total | ||||||||||
| Balance at December 31, 2014 | $ | 11,551 | $ | (22 | ) | $ | (123 | ) | $ | (1,032 | ) | $ | 10,374 | ||
| Other comprehensive income (loss) before reclassifications | (19,459 | ) | (49 | ) | 339 | 519 | (18,650 | ) | |||||||
| Amounts reclassified from AOCI to net income (loss) | — | 27 | 1,133 | (195 | ) | 965 | |||||||||
| Net transfers from Parent | (11,585 | ) | — | 437 | (394 | ) | (11,542 | ) | |||||||
| Net current-period other comprehensive income (loss) | (31,044 | ) | (22 | ) | 1,909 | (70 | ) | (29,227 | ) | ||||||
| Balance at December 31, 2015 | $ | (19,493 | ) | $ | (44 | ) | $ | 1,786 | $ | (1,102 | ) | $ | (18,853 | ) | |
| Other comprehensive income (loss) before reclassifications | (24,494 | ) | 7 | 2,046 | 7,692 | (14,749 | ) | ||||||||
| Amounts reclassified from AOCI to net income (loss) | — | — | (3,030 | ) | 150 | (2,880 | ) | ||||||||
| Net current-period other comprehensive income (loss) | (24,494 | ) | 7 | (984 | ) | 7,842 | (17,629 | ) | |||||||
| Balance at December 31, 2016 | (43,987 | ) | (37 | ) | 802 | 6,740 | (36,482 | ) | |||||||
| Other comprehensive income (loss) before reclassifications | 16,150 | 99 | 3,204 | (152 | ) | 19,301 | |||||||||
| Amounts reclassified from AOCI to net income (loss) | — | (24 | ) | (2,269 | ) | (2,955 | ) | (5,248 | ) | ||||||
| Net current-period other comprehensive income (loss) | 16,150 | 75 | 935 | (3,107 | ) | 14,053 | |||||||||
| Balance at December 31, 2017 | $ | (27,837 | ) | $ | 38 | $ | 1,737 | $ | 3,633 | $ | (22,429 | ) | |||
| AOCI component | Line items in the Consolidated Statements of Operations affected by reclassifications from AOCI | Year Ended December 31, | ||||||||
| 2017 | 2016 | 2015 | ||||||||
| Derivative financial instruments | Revenues | $ | 10,059 | $ | 4,624 | $ | 546 | |||
| Cost of operations | (118 | ) | 195 | 155 | ||||||
| Other-net | (7,438 | ) | (1,221 | ) | (24 | ) | ||||
| Total before tax | 2,503 | 3,598 | 677 | |||||||
| Provision for income taxes | 234 | 568 | 149 | |||||||
| Net income | $ | 2,269 | $ | 3,030 | $ | 528 | ||||
| Amortization of prior service cost on benefit obligations | Cost of operations | $ | 2,912 | $ | 254 | $ | (1,475 | ) | ||
| Provision for income taxes | (43 | ) | 404 | (1,168 | ) | |||||
| Net income (loss) | $ | 2,955 | $ | (150 | ) | $ | (307 | ) | ||
| Realized gain on investments | Other-net | $ | 38 | $ | — | $ | (42 | ) | ||
| Provision for income taxes | 14 | — | (15 | ) | ||||||
| Net income (loss) | $ | 24 | $ | — | $ | (27 | ) | |||
| (in thousands) | December 31, 2022 | December 31, 2021 | December 31, 2020 | ||||||||||||||
| Held by foreign entities | $ | 46,640 | $ | 42,070 | $ | 38,726 | |||||||||||
| Held by U.S. entities | 30,088 | 182,804 | 18,612 | ||||||||||||||
| Cash and cash equivalents | 76,728 | 224,874 | 57,338 | ||||||||||||||
| Reinsurance reserve requirements | 447 | 443 | 4,551 | ||||||||||||||
| Restricted foreign accounts | — | — | 2,869 | ||||||||||||||
Project indemnity collateral (1) | 5,723 | ||||||||||||||||
| Bank guarantee collateral | 2,072 | 997 | 2,665 | ||||||||||||||
Letters of credit collateral (2) | 11,193 | 401 | — | ||||||||||||||
Hold-back for acquisition purchase price (3) | 5,900 | — | — | ||||||||||||||
Escrow for long-term project (4) | 11,397 | — | — | ||||||||||||||
| Restricted cash and cash equivalents | 36,732 | 1,841 | 10,085 | ||||||||||||||
| Total cash, cash equivalents and restricted cash shown in the Consolidated Statements of Cash Flows | $ | 113,460 | $ | 226,715 | $ | 67,423 | |||||||||||
(1) The Company paid an additional $5.7 million in January, 2022 for project indemnity collateral which is reflected in Current restricted cash on the Company's Consolidated Balance Sheets. The remainder of the letters of credit are reflected within Restricted cash and cash equivalents.
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(2) The Company paid an additional $10.0 million in December, 2022 for letter of credit collateral which is reflected in Long-term restricted cash on the Company's Consolidated Balance Sheets. The remainder of the letters of credit are reflected within Restricted cash and cash equivalents.
(3)The purchase price for Fossil Power Systems ("FPS") was $59.2 million, including a hold-back of $5.9 million which is included in Current restricted cash and cash equivalents and Other accrued liabilities on the Company's Condensed Consolidated Balance Sheets. The hold-back is being held in escrow for potential payment of up to the maximum amount twelve months from the February 1, 2022 date of acquisition if the conditions are met.
(4) On December 15, 2021, the Company entered into an agreement to place $11.4 million in an escrow account as security to ensure project performance. On April 30, 2023, $2.5 million of the total amount held in escrow will be reclassified from Long-Term restricted cash to Current restricted cash in anticipation of the initial payment on April 20, 2024. The remaining amount of $8.9 million will be reclassified from Long-term restricted cash to Current restricted cash on September 30, 2024, with a scheduled final settlement on September 30, 2025.
The following cash activity is presented as a supplement to the Company's Consolidated Statements of Cash Flows and is included in Net cash used in activities:
| Year ended December 31, | |||||||||||||||||
| (in thousands) | 2022 | 2021 | 2020 | ||||||||||||||
| Income tax payments, net | $ | 7,950 | $ | 4,991 | $ | 6,960 | |||||||||||
| Interest payments - 8.125% Senior Notes due 2026 | 15,365 | 10,451 | — | ||||||||||||||
| Interest payments - 6.50% Senior Notes due 2026 | 10,308 | — | — | ||||||||||||||
| Interest payments on our U.S. Revolving Credit Facility | — | 5,979 | 11,675 | ||||||||||||||
| Interest payments on our Last Out Term Loans | — | 3,804 | 6,140 | ||||||||||||||
| Total cash paid for interest | $ | 25,673 | $ | 20,234 | $ | 17,815 | |||||||||||
NOTE 20– STOCK-BASED COMPENSATION
Stock options
There were no stock options awarded in 2022. The following table summarizes activity for outstanding stock options for the year ended December 31, 2022:
| (share data in thousands) | Number of shares | Weighted-average exercise price | Weighted-average remaining contractual term (in years) | Aggregate intrinsic value (in thousands) | ||||||||||
| Outstanding at beginning of period | 288 | $ | 121.59 | |||||||||||
| Granted | — | — | ||||||||||||
| Exercised | — | — | ||||||||||||
| Cancelled/expired/forfeited | (1) | 41.70 | ||||||||||||
| Outstanding at end of period | 287 | $ | 121.70 | 3.34 | $ | 103.0 | ||||||||
| Exercisable at end of period | 287 | $ | 121.70 | 3.34 | $ | 103.0 | ||||||||
The aggregate intrinsic value included in the table above represents the total pretax intrinsic value that would have been received by the option holders had all option holders exercised their options on December 31, 2022. The intrinsic value is calculated as the total number of option shares multiplied by the difference between the closing price of the Company's common stock on the last trading day of the period and the exercise price of the options. This amount changes based on the price of the Company's common stock.
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Restricted stock units
Non-vested restricted stock units activity for the year ended December 31, 2022 was as follows:
| (share data in thousands) | Number of shares | Weighted-average grant date fair value | ||||||
| Non-vested at beginning of period | 1,804 | $ | 5.79 | |||||
| Granted | 1,248 | 7.71 | ||||||
| Vested | (1,027) | 7.74 | ||||||
| Cancelled/forfeited | (131) | 5.94 | ||||||
| Non-vested at end of period | 1,894 | $ | 7.15 | |||||
| (in thousands) | December 31, 2017 | December 31, 2016 | ||||
| Held by foreign entities | $ | 54,274 | $ | 94,415 | ||
| Held by United States entities | 2,393 | 1,472 | ||||
| Cash and cash equivalents | $ | 56,667 | $ | 95,887 | ||
| Reinsurance reserve requirements | $ | 21,061 | $ | 21,189 | ||
| Restricted foreign accounts | 4,919 | 6,581 | ||||
| Restricted cash and cash equivalents | $ | 25,980 | $ | 27,770 | ||
In July 2022, the Company granted market-based RSUs to certain members of management. The target number of market-based RSUs granted was 960. The RSUs will vest if the Company's closing stock price, on the New York Stock Exchange (NYSE), is equal to or higher than the Stock Price Goal of $12.00 per share during the performance period, which expires on the 5th anniversary of the Grant Date. The $6.70 grant date fair value per market-based RSU was determined using a Monte Carlo simulation approach. Compensation expense for nearly immediate borrowingawards with market conditions is recognized over the derived service period using cost of available capacity to fund cash requirementsequity as the drift rate in the normal coursesimulation for estimating the dividend service period and is not reversed if the market condition is not met.
The Company used the following assumptions to determine the fair value of the restricted stock units with market conditions as of December 31, 2022:
| Year ended December 31, | |||||
| 2022 | |||||
| Risk free interest rate | 2.7 | % | |||
| Volatility | 59.0 | % | |||
| Cost of equity | 17.4 | % | |||
| Performance period | 5 years | ||||
| Derived service period | 0.78 years | ||||
Restricted stock units with market conditions activity for the year ended December 31, 2022 was as follows:
| (share data in thousands) | Number of shares | Weighted-average grant date fair value | |||||||||
| Non-vested at beginning of period | — | $ | — | ||||||||
| Granted | 960 | 6.70 | |||||||||
| Exercised | (75) | ||||||||||
| Cancelled/forfeited | (25) | — | |||||||||
| Non-vested at end of period | 860 | $ | 6.70 | ||||||||
As of December 31, 2022, the total unrecognized compensation charge related to these RSU’s is approximately $2.5 million, which is expected to be recognized in fiscal 2023.
Stock Appreciation Rights
In December 2018, the Company granted stock appreciation rights to certain employees (“Employee SARs”) and to a non-employee related party, BRPI Executive Consulting, LLC (“Non-employee SARs”). The Employee SARs and Non-employee
92
SARs both expire ten years after the grant date and primarily vest 100% upon completion after the required years of service. Upon vesting, the Employee SARs and Non-employee SARs may be exercised within 10 business meaningdays following the end of any calendar quarter during which the volume weighted average share price is greater than the share price goal. Upon exercise of the SARs, holders receive a cash-settled payment equal to the number of SARs that are being exercised multiplied by the difference between the stock price on the date of exercise minus the SARs base price. Employee SARs were issued under the Fourth Amended and Restated 2015 LTIP, and Non-employee SARs were issued under a Non-employee SARs agreement. The liability method was used to recognize the accrued compensation expense with cumulatively adjusted revaluations to the then current fair value at each reporting date through final settlement.
The Company used the following assumptions to determine the fair value of the SARs granted to employees and non-employee as of December 31, 2022 and 2021:
| Year ended December 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Risk-free interest rate | 4.00 | % | 1.44 | % | |||||||
| Expected volatility | 59 | % | 53 | % | |||||||
| Expected life in years | 5.65 | 6.49 | |||||||||
| Suboptimal exercise factor | 2.0x | 2.0x | |||||||||
In making these assumptions, the Company based estimated volatility on the historical returns of the Company's stock price and selected guideline companies. The Company based risk-free rates on the corresponding U.S. Treasury spot rates for the expected duration at the date of grant, which we convert to a continuously compounded rate. The Company relied upon a suboptimal exercise factor, representing the ratio of the base price to the stock price at the time of exercise, to account for potential early exercise prior to the expiration of the contractual term. With consideration to the executive level of the SARs holders, a suboptimal exercise multiple of 2.0x was selected. Subject to vesting conditions, should the stock price achieve a value of 2.0x above the base price, we assume the holders will exercise prior to the expiration of the contractual term of the SARs. The expected term for the SARs is an output of the Company's valuation model in estimating the time period that the minimum United States cash on handSARs are expected to remain unexercised. The Company's valuation model assumes the holders will exercise their SARs prior to the expiration of the contractual term of the SARs.
As of December 31, 2022, the SARS are fully vested and their total intrinsic value is maintained to minimize borrowing costs.$4.8 million.
| (in thousands) | December 31, 2017 | December 31, 2016 | ||||
| Raw materials and supplies | $ | 60,708 | $ | 61,630 | ||
| Work in progress | 7,867 | 6,803 | ||||
| Finished goods | 13,587 | 17,374 | ||||
| Total inventories | $ | 82,162 | $ | 85,807 | ||
NOTE 1421 – INTANGIBLE ASSETSPROVISION FOR INCOME TAXES
| Year ended December 31, | |||||||||||||||||
| (in thousands) | 2022 | 2021 | 2020 | ||||||||||||||
| United States | $ | (6,563) | $ | 30,655 | $ | (65,591) | |||||||||||
| Other than the United States | (8,958) | (1,341) | 61,673 | ||||||||||||||
| (Loss) income before income tax expense | $ | (15,521) | $ | 29,314 | $ | (3,918) | |||||||||||
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Significant components of the provision for income taxes are as follows:
| Year ended December 31, | |||||||||||||||||
| (in thousands) | 2022 | 2021 | 2020 | ||||||||||||||
| Current: | |||||||||||||||||
Federal (1) | 740 | $ | 1,760 | $ | (21) | ||||||||||||
| State | 166 | (141) | 246 | ||||||||||||||
| Foreign | 5,566 | 4,649 | 3,737 | ||||||||||||||
| Total current provision | 6,472 | 6,268 | 3,962 | ||||||||||||||
| Deferred: | |||||||||||||||||
Federal (2) | 164 | (103) | 1,084 | ||||||||||||||
State (3) (4) | 5,629 | (8,772) | — | ||||||||||||||
| Foreign | (1,202) | 383 | 3,133 | ||||||||||||||
| Total deferred provision | 4,591 | (8,492) | 4,217 | ||||||||||||||
| Provision for income taxes | $ | 11,063 | $ | (2,224) | $ | 8,179 | |||||||||||
(1) The 2020 amount reflects a benefit of $0.6 million offsetting tax expense of $0.6 million in discontinued operations pursuant to the guidance in paragraph 740-20-45-7 that requires all components, including discontinued operations, be considered when determining the tax benefit from a loss from continuing operations. The 2021 amount reflects estimated withholding taxes on the divestiture of Diamond Power Machine (Hubei) Co.
(2) The 2020 amount reflects $1.1 million of deferred tax expense as a result of the change in indefinite reinvestment assertion related to certain foreign subsidiaries.
(3) The 2021 amount reflects a $8.7 million of deferred tax benefit primarily attributable to a reduction in the valuation allowance on net operating losses and temporary deductible benefits in certain states that are now expected to be recovered.
(4) The 2022 amount is primarily attributable to deferred tax expense associated with nontaxable mark-to-market pension gains in certain states where temporary deductible benefits are expected to be recovered, changes in enacted statutory income tax rates, and changes in apportionment relating to project mix.
The provision for income taxes differs from the amount computed by applying the statutory federal income tax rate to income (loss) before the provision (benefit) for income taxes.
The sources and tax effects of the differences are as follows:
| Year ended December 31, | |||||||||||||||||
| (in thousands) | 2022 | 2021 | 2020 | ||||||||||||||
| Income tax benefit at federal statutory rate | $ | (3,259) | $ | 6,156 | $ | (823) | |||||||||||
| State and local income taxes | 985 | 1,054 | 346 | ||||||||||||||
| Foreign rate differential | 313 | 132 | 2,422 | ||||||||||||||
Intra-entity debt restructuring (1) | — | — | 2,908 | ||||||||||||||
| Deferred taxes - change in tax rate | 1,217 | (564) | 8,512 | ||||||||||||||
| Non-deductible (non-taxable) items | 330 | (122) | 1,963 | ||||||||||||||
| Tax credits | 185 | (34) | (2,939) | ||||||||||||||
| Valuation allowances | 14,131 | (13,136) | (17,498) | ||||||||||||||
| Luxembourg impairment of investments | — | — | (30,603) | ||||||||||||||
| Effect of DPMH sale | — | (1,090) | — | ||||||||||||||
| Expired credits | 1,691 | — | — | ||||||||||||||
| Unrecognized tax benefits | 10 | 150 | 37,387 | ||||||||||||||
| Withholding taxes | 1,382 | 3,881 | 1,416 | ||||||||||||||
| Change in indefinite reinvestment assertion | 163 | (15) | 1,084 | ||||||||||||||
| Disallowed interest deductions | — | 1,010 | 11,155 | ||||||||||||||
| Return to provision and prior year true-up | (7,544) | 556 | (7,855) | ||||||||||||||
| Other | (58) | (202) | 704 | ||||||||||||||
| Babcock & Wilcox Solar goodwill impairment | 1,517 | — | — | ||||||||||||||
| Income tax expense (benefit) | $ | 11,063 | $ | (2,224) | $ | 8,179 | |||||||||||
(1) The 2020 amount reflects a restructuring of intercompany debt that resulted in the reduction of certain foreign net operating loss carryforwards.
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Deferred income taxes reflect the tax effects of differences between the financial and tax bases of assets and liabilities.
Significant components of deferred tax assets and liabilities are as follows:
| Year ended December 31, | |||||||||||
| (in thousands) | 2022 | 2021 | |||||||||
| Deferred tax assets: | |||||||||||
| Pension liability | $ | 28,644 | $ | 41,520 | |||||||
| Other accruals | 8,596 | 10,683 | |||||||||
| Long-term contracts | 1,246 | — | |||||||||
| Net operating loss carryforward | 405,640 | 401,750 | |||||||||
| State net operating loss carry forward | 20,668 | 23,705 | |||||||||
| Interest limitation carryforward | 49,871 | 41,104 | |||||||||
| Foreign tax credit carryforward | 3,608 | 5,381 | |||||||||
| Other tax credits | 3,477 | 5,336 | |||||||||
| Lease liability | 14,596 | 15,455 | |||||||||
| Capitalized R&D | 845 | — | |||||||||
| Other | 7,401 | 4,810 | |||||||||
| Total deferred tax assets | $ | 544,592 | $ | 549,744 | |||||||
| Valuation allowance for deferred tax assets | (521,137) | (512,803) | |||||||||
| Total deferred tax assets, net | $ | 23,455 | $ | 36,941 | |||||||
| Deferred tax liabilities: | |||||||||||
| Property, plant and equipment | $ | 268 | $ | 1,653 | |||||||
| Right of use assets | 13,421 | 14,574 | |||||||||
| Long-term contracts | — | 7,045 | |||||||||
| Unremitted earnings | 1,232 | 1,069 | |||||||||
| Intangibles | 18,588 | 13,999 | |||||||||
| Total deferred tax liabilities | 33,509 | 38,340 | |||||||||
| Net deferred tax liabilities | $ | (10,054) | $ | (1,399) | |||||||
At December 31, 2022, the Company has foreign net operating loss ("NOL") carryforward deferred tax assets ("DTAs") of approximately $356.8 million available to offset future taxable income in certain foreign jurisdictions. Of these foreign NOL carryforwards, $184.5 million do not expire. The remaining foreign NOLs will expire between 2023 and 2039.
As December 31, 2022, the Company has U.S. federal NOL carryforward DTAs of approximately $48.9 million. Of this amount, $20.0 million will expire in 2036 and 2037. The remaining amount of U.S. NOL carryforward does not expire. A portion of the net operating loss carryforward is limited under Code Section 382. Approximately $24.7 million of our U.S. federal NOL carryforward is not subject to the Code Section 382 limitation.
At December 31, 2022, the Company has state NOL carryforward DTAs of $20.7 million available to offset future taxable income in various jurisdictions. Of this amount, $20.3 million will expire between 2023 and 2042.
At December 31, 2022, the Company has foreign tax credit carryforwards of $3.6 million. These carryforwards will expire between 2023 and 2026.
At December 31, 2022, the Company has valuation allowances of $521.1 million for deferred tax assets, which we expect will not be realized, through carry-backs, reversals of existing taxable temporary differences, estimates of future taxable income or tax-planning strategies. Deferred tax assets are as follows:evaluated for realizability under ASC 740, considering all positive and negative evidence. At December 31, 2022, our weighting of positive and negative evidence included an assessment of
95
| (in thousands) | December 31, 2017 | December 31, 2016 | ||||
| Definite-lived intangible assets | ||||||
| Customer relationships | $ | 59,794 | $ | 47,892 | ||
| Unpatented technology | 20,160 | 18,461 | ||||
| Patented technology | 6,542 | 2,499 | ||||
| Tradename | 22,951 | 18,774 | ||||
| Backlog | 30,160 | 28,170 | ||||
| All other | 7,611 | 7,430 | ||||
| Gross value of definite-lived intangible assets | 147,218 | 123,226 | ||||
| Customer relationships amortization | (23,434 | ) | (17,519 | ) | ||
| Unpatented technology amortization | (5,013 | ) | (2,864 | ) | ||
| Patented technology amortization | (2,213 | ) | (1,532 | ) | ||
| Tradename amortization | (5,097 | ) | (3,826 | ) | ||
| Acquired backlog amortization | (28,695 | ) | (21,776 | ) | ||
| All other amortization | (7,291 | ) | (5,974 | ) | ||
| Accumulated amortization | (71,743 | ) | (53,491 | ) | ||
| Net definite-lived intangible assets | $ | 75,475 | $ | 69,735 | ||
| Indefinite-lived intangible assets: | ||||||
| Trademarks and trade names | $ | 1,305 | $ | 1,305 | ||
| Total indefinite-lived intangible assets | $ | 1,305 | $ | 1,305 | ||
historical income by jurisdiction adjusted for nonrecurring items, as well as an evaluation of other qualitative factors such as the length and magnitude of pretax losses. The following summarizes the changesvaluation allowances may be reversed in the carrying amountfuture if sufficient positive evidence exists. Any reversal of intangible assets:our valuation allowance could be material to the income or loss for the period in which our assessment changes.
| Twelve months ended December 31, | ||||||
| (in thousands) | 2017 | 2016 | ||||
| Balance at beginning of period | $ | 71,039 | $ | 37,844 | ||
| Business acquisitions | 19,500 | 55,438 | ||||
| Amortization expense | (18,252 | ) | (19,923 | ) | ||
| Currency translation adjustments and other | 4,493 | (2,320 | ) | |||
| Balance at end of the period | $ | 76,780 | $ | 71,039 | ||
The January 11, 2017 acquisition of Universal resulted in an increase in our intangible asset amortization expensenet change during the year ended December 31, 2017in the total valuation allowance is as follows:
| Year ended December 31, | |||||||||||
| (in thousands) | 2022 | 2021 | |||||||||
| Balance at beginning of period | $ | (512,803) | $ | (536,251) | |||||||
| Charges to costs and expenses | (14,131) | 13,136 | |||||||||
| Charges to other accounts | 5,797 | 10,312 | |||||||||
| Balance at end of period | $ | (521,137) | $ | (512,803) | |||||||
Sections 382 and 383 of $3.1 million.
| Year ending | Amortization expense | ||
| December 31, 2018 | $ | 12,423 | |
| December 31, 2019 | $ | 10,371 | |
| December 31, 2020 | $ | 9,077 | |
| December 31, 2021 | $ | 8,817 | |
| December 31, 2022 | $ | 7,244 | |
| Thereafter | $ | 27,543 | |
| (in thousands) | Power | Renewable | Industrial | Total | ||||||||
| Balance at December 31, 2015 | $ | 47,137 | $ | 49,624 | $ | 104,308 | $ | 201,069 | ||||
| Increase resulting from SPIG acquisition | — | — | 69,862 | 69,862 | ||||||||
| Purchase price adjustment - SPIG acquisition | — | — | 2,539 | 2,539 | ||||||||
| Currency translation adjustments | (917 | ) | (1,189 | ) | (3,969 | ) | (6,075 | ) | ||||
| Balance at December 31, 2016 | 46,220 | 48,435 | 172,740 | 267,395 | ||||||||
| Increase resulting from Universal acquisition | — | — | 14,413 | 14,413 | ||||||||
Impairment charges(1) | — | (49,965 | ) | (36,938 | ) | (86,903 | ) | |||||
| Currency translation adjustments | 1,150 | 1,530 | 6,813 | 9,493 | ||||||||
| Balance at December 31, 2017 | $ | 47,370 | $ | — | $ | 157,028 | $ | 204,398 | ||||
We recognize the benefit of a triggering event for the interim assessment as of June 30, 2017, which did not indicate impairment. During the third quarter of 2017, our market capitalization significantly decreased to below our equity value, which was consideredtax position when we conclude that a tax position, based solely on its technical merits, is more-likely-than-not to be a trigger for a second interim assessment. Additionally, the forecast was reduced for our SPIG reporting unit based on a change in the market strategy implemented by the new segment management to focus on core geographies and products, which we considered to be another triggering event for an interim assessment during the third quarter of 2017. The second interim assessment as of September 30, 2017 indicated impairment for our Renewable and SPIG reporting units as described below. Our 2017 annual goodwill impairment test as of October 1, 2017 did not indicate additional impairment.
| Power Segment | Industrial Segment | ||||
| (in millions) | Power | Construction | MEGTEC | Universal | |
| Reporting unit headroom | 60% | 98% | 12% | 18% | |
| Goodwill balance | $38.5 | $8.9 | $104.3 | $14.4 | |
| (in thousands) | December 31, 2017 | December 31, 2016 | ||||
| Land | $ | 8,859 | $ | 6,348 | ||
| Buildings | 122,369 | 114,322 | ||||
| Machinery and equipment | 217,791 | 189,489 | ||||
| Property under construction | 6,486 | 22,378 | ||||
| 355,505 | 332,537 | |||||
| Less accumulated depreciation | 213,574 | 198,900 | ||||
| Net property, plant and equipment | $ | 141,931 | $ | 133,637 | ||
be realized upon settlement. Changes in the carrying amount of our accrued warranty expense are as follows:
| Year Ended December 31, | |||||||||
| (in thousands) | 2017 | 2016 | 2015 | ||||||
| Balance at beginning of period | $ | 40,467 | $ | 39,847 | $ | 37,735 | |||
| Additions | 23,161 | 22,472 | 19,310 | ||||||
| Expirations and other changes | (13,887 | ) | (10,855 | ) | (982 | ) | |||
| Increases attributable to business combinations | 1,060 | 918 | — | ||||||
| Payments | (14,110 | ) | (11,089 | ) | (15,215 | ) | |||
| Translation and other | 2,329 | (826 | ) | (1,001 | ) | ||||
| Balance at end of period | $ | 39,020 | $ | 40,467 | $ | 39,847 | |||
Pension Benefits Year Ended December 31, | Other Postretirement Benefits Year Ended December 31, | ||||||||||||
| (in thousands) | 2017 | 2016 | 2017 | 2016 | |||||||||
| Change in benefit obligation: | |||||||||||||
| Benefit obligation at beginning of period | $ | 1,211,720 | $ | 1,205,163 | $ | 11,907 | $ | 31,889 | |||||
| Service cost | 789 | 1,680 | 15 | 23 | |||||||||
| Interest cost | 41,113 | 40,875 | 319 | 897 | |||||||||
| Plan participants’ contributions | — | — | 219 | 574 | |||||||||
| Curtailments | — | 266 | — | — | |||||||||
| Settlements | 509 | 1,453 | — | — | |||||||||
| Amendments | — | 231 | — | (10,801 | ) | ||||||||
| Actuarial loss (gain) | 73,403 | 41,957 | (141 | ) | (7,162 | ) | |||||||
| Loss (gain) due to transfer | — | 3,641 | — | — | |||||||||
| Foreign currency exchange rate changes | 6,222 | (5,099 | ) | 126 | 50 | ||||||||
| Benefits paid | (78,954 | ) | (78,447 | ) | (1,416 | ) | (3,563 | ) | |||||
| Benefit obligation at end of period | $ | 1,254,802 | $ | 1,211,720 | $ | 11,029 | $ | 11,907 | |||||
| Change in plan assets: | |||||||||||||
| Fair value of plan assets at beginning of period | $ | 922,868 | $ | 923,030 | $ | — | $ | — | |||||
| Actual return on plan assets | 149,449 | 76,570 | — | — | |||||||||
| Employer contribution | 17,307 | 3,986 | 1,197 | 2,989 | |||||||||
| Plan participants' contributions | — | — | 219 | 574 | |||||||||
| Transfers | — | 2,744 | — | — | |||||||||
| Foreign currency exchange rate changes | (3,668 | ) | (5,015 | ) | — | — | |||||||
| Benefits paid | (78,954 | ) | (78,447 | ) | (1,416 | ) | (3,563 | ) | |||||
| Fair value of plan assets at the end of period | 1,007,002 | 922,868 | — | — | |||||||||
| Funded status | $ | (247,800 | ) | $ | (288,852 | ) | $ | (11,029 | ) | $ | (11,907 | ) | |
| Amounts recognized in the balance sheet consist of: | |||||||||||||
| Accrued employee benefits | $ | (1,930 | ) | $ | (1,099 | ) | $ | (1,615 | ) | $ | (1,722 | ) | |
| Accumulated postretirement benefit obligation | — | — | (9,414 | ) | (10,185 | ) | |||||||
| Pension liability | (245,870 | ) | (287,753 | ) | — | — | |||||||
| Prepaid pension | — | — | — | — | |||||||||
| Accrued benefit liability, net | $ | (247,800 | ) | $ | (288,852 | ) | $ | (11,029 | ) | $ | (11,907 | ) | |
| Amount recognized in accumulated comprehensive income (before taxes): | |||||||||||||
| Prior service cost (credit) | $ | 324 | $ | 432 | $ | (7,792 | ) | $ | (10,801 | ) | |||
| Supplemental information: | |||||||||||||
| Plans with accumulated benefit obligation in excess of plan assets | |||||||||||||
| Projected benefit obligation | $ | 1,254,802 | $ | 1,183,345 | $ | — | $ | — | |||||
| Accumulated benefit obligation | $ | 1,272,010 | $ | 1,206,056 | $ | 11,029 | $ | 11,907 | |||||
| Fair value of plan assets | $ | 1,007,002 | $ | 894,105 | $ | — | $ | — | |||||
| Plans with plan assets in excess of accumulated benefit obligation | |||||||||||||
| Projected benefit obligation | $ | — | $ | 28,375 | $ | — | $ | — | |||||
| Accumulated benefit obligation | $ | — | $ | 28,375 | $ | — | $ | — | |||||
| Fair value of plan assets | $ | — | $ | 28,763 | $ | — | $ | — | |||||
| Pension Benefits | Other Benefits | ||||||||||||||||||
| (in thousands) | 2017 | 2016 | 2015 | 2017 | 2016 | 2015 | |||||||||||||
| Service cost | $ | 789 | $ | 1,680 | $ | 13,677 | $ | 15 | $ | 23 | $ | 24 | |||||||
| Interest cost | 41,113 | 40,875 | 49,501 | 319 | 897 | 1,143 | |||||||||||||
| Expected return on plan assets | (59,409 | ) | (61,939 | ) | (68,709 | ) | — | — | — | ||||||||||
| Amortization of prior service cost | 103 | 250 | 307 | (3,009 | ) | — | — | ||||||||||||
| Recognized net actuarial loss (gain) | (8,191 | ) | 31,932 | 41,574 | (505 | ) | (7,822 | ) | (1,364 | ) | |||||||||
| Net periodic benefit cost (benefit) | $ | (25,595 | ) | $ | 12,798 | $ | 36,350 | $ | (3,180 | ) | $ | (6,902 | ) | $ | (197 | ) | |||
| Year ended December 31, | |||||||||||||||||
| (in thousands) | 2022 | 2021 | 2020 | ||||||||||||||
| Balance at beginning of period | $ | 36,448 | $ | 39,013 | $ | 1,229 | |||||||||||
| Increases based on tax positions taken in the current year | — | — | 37,900 | ||||||||||||||
| Increases based on tax positions taken in prior years | 1,829 | 242 | — | ||||||||||||||
| Decreases based on tax positions taken in prior years | — | — | (29) | ||||||||||||||
| Decreases due to settlements with tax authorities | — | — | — | ||||||||||||||
| Decreases due to lapse of applicable statute of limitation | — | — | (87) | ||||||||||||||
| CTA/Translation | (2,052) | (2,807) | — | ||||||||||||||
| Balance at end of period | $ | 36,225 | $ | 36,448 | $ | 39,013 | |||||||||||
Unrecognized tax benefits of the next three years (beginning in 2017), provided the plan participant had not yet reached their lifetime maximum under the terminated Retiree OPEB plan. Based on the number of participants who did not enroll in the new benefit plan, we recognized a settlement gain of $7.2 million on December 31, 2016. Based on the number of participants who did enroll in the new benefit plan, we recognized a curtailment gain of $10.8 million on December 31, 2016 for the actuarially determined difference in the liability for these participants in the Retiree OPEB plan and the new plan. The settlement gain is reported in the "Recognized net actuarial loss" in the table above, and the curtailment gain was deferred in accumulated other comprehensive income and $3.0 million waswould, if recognized, in 2017, and we expect to recognize the remainder during the periods of 2018 through 2020.
| (in thousands) | 2017 | 2016 | 2015 | ||||||
| Cost of operations | $ | (8,972 | ) | $ | 21,208 | $ | 44,307 | ||
| Selling, general and administrative expenses | 274 | 2,902 | (4,097 | ) | |||||
| Other | 2 | — | — | ||||||
| Total | $ | (8,696 | ) | $ | 24,110 | $ | 40,210 | ||
| Pension Benefits | Other Benefits | ||||
| 2017 | 2016 | 2017 | 2016 | ||
| Weighted average assumptions used to determine net periodic benefit obligations at December 31: | |||||
| Discount rate | 3.65% | 4.13% | 3.33% | 3.66% | |
| Rate of compensation increase | 0.10% | 2.40% | — | — | |
| Weighted average assumptions used to determine net periodic benefit cost for the years ended December 31: | |||||
| Discount rate | 4.11% | 4.25% | 3.33% | 3.66% | |
| Expected return on plan assets | 6.64% | 6.70% | —% | —% | |
| Rate of compensation increase | 0.10% | 2.40% | —% | —% | |
| 2017 | 2016 | |||
| Asset Category: | ||||
| Fixed Income (excluding United States Government Securities) | 33 | % | 32 | % |
| Commingled and Mutual Funds | 41 | % | 38 | % |
| United States Government Securities | 21 | % | 20 | % |
| Equity Securities | 3 | % | 7 | % |
| Derivatives | 1 | % | 1 | % |
| Other | 1 | % | 2 | % |
| 2017 | 2016 | ||||
| Asset Category: | |||||
| Equity Securities and Commingled Mutual Funds | 41 | % | 44 | % | |
| Fixed Income | 58 | % | 55 | % | |
| Other | 1 | % | 1 | % | |
Canadian Plans | Diamond UK Plan | ||||
| Asset Class: | |||||
| United States Equity | 27 | % | 10 | % | |
| Global Equity | 23 | % | 12 | % | |
| Fixed Income | 50 | % | 78 | % | |
| (in thousands) | 12/31/2017 | Level 1 | Level 2 | ||||||
| Fixed income | $ | 352,484 | $ | — | $ | 352,484 | |||
| Equities | 33,525 | 33,525 | — | ||||||
| Commingled and mutual funds | 413,166 | — | 413,166 | ||||||
| United States government securities | 193,249 | 193,249 | — | ||||||
| Cash and accrued items | 14,578 | 12,585 | 1,993 | ||||||
| Total pension and other postretirement benefit assets | $ | 1,007,002 | $ | 239,359 | $ | 767,643 | |||
| (in thousands) | 12/31/2016 | Level 1 | Level 2 | ||||||
| Fixed income | $ | 321,847 | $ | — | $ | 321,847 | |||
| Equities | 83,441 | 78,268 | 5,173 | ||||||
| Commingled and mutual funds | 349,348 | 4,609 | 344,739 | ||||||
| United States government securities | 156,599 | 156,599 | — | ||||||
| Cash and accrued items | 11,633 | 9,394 | 2,239 | ||||||
| Total pension and other postretirement benefit assets | $ | 922,868 | $ | 248,870 | $ | 673,998 | |||
| Domestic Plans | Foreign Plans | ||||||||||||
| (in thousands) | Pension Benefits 1 | Other Benefits | Pension Benefits 1 | Other Benefits | |||||||||
| Expected employer contributions to trusts of defined benefit plans: | |||||||||||||
| 2018 | $ | 16,798 | $ | 1,400 | $ | 3,126 | $ | 167 | |||||
| Expected benefit payments: | |||||||||||||
| 2018 | $ | 71,881 | $ | 1,463 | $ | 3,003 | $ | 167 | |||||
| 2019 | 72,537 | 1,342 | 3,095 | 167 | |||||||||
| 2020 | 73,104 | 854 | 3,175 | 169 | |||||||||
| 2021 | 73,331 | 802 | 3,252 | 163 | |||||||||
| 2022 | 73,434 | 746 | 3,318 | 146 | |||||||||
| 2023-2027 | 359,308 | 2,975 | 18,576 | 611 | |||||||||
| Pension Fund | EIN/PIN | Pension Protection Act Zone Status | FIP/RP Status Pending/ Implemented | Contributions | Surcharge Imposed | Expiration Date Of Collective Bargaining Agreement | ||||||||||||||||||
| 2017 | 2016 | 2015 | ||||||||||||||||||||||
| 2017 | 2016 | (in millions) | ||||||||||||||||||||||
| Boilermaker-Blacksmith National Pension Trust | 48-6168020/ 001 | Yellow | Yellow | Yes | $ | 7.9 | $ | 17.8 | $ | 20.3 | No | Described Below | ||||||||||||
| All Other | 2.0 | 3.2 | 4.6 | |||||||||||||||||||||
| $ | 9.9 | $ | 21.0 | $ | 24.9 | |||||||||||||||||||
| (in thousands) | December 31, 2017 | December 31, 2016 | ||||
| United States | $ | 94,300 | $ | 9,800 | ||
| Foreign | 9,173 | 14,241 | ||||
| Total revolving debt | $ | 103,473 | $ | 24,041 | ||
recognize
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interest and penalties related to unrecognized tax benefits in our provision for income taxes; however, such amounts are not significant to any period presented.
Tax years 2015 through 2021 remain open to the amount of each financial letter of credit outstanding, and a letter of credit fee of 1.50% per annum is charged with respect to the amount of each performance and commercial letter of credit outstanding. Additionally, an annual facility fee of $1.5 million is payable on the first business day of 2018 and 2019, and a pro rated amount is payable on the first business day of 2020.
The Inflation Reduction Act ("IRA") and CHIPS and Science Act ("CHIPS Act") were signed into law in August 2022. The IRA introduced new provisions, including a 15 percent corporate alternative minimum tax for certain large corporations that have at least an average of $1 billion adjusted financial statement income over a consecutive three-tax-year period and a new excise tax on corporate stock buybacks of public US companies. The CHIPS Act, introduces investment tax credits and incentives in semiconductor manufacturing. The corporate minimum tax and excise tax on stock buybacks will be effective for years beginning after December 31, 2017 and 2016 was $269.1 million and $255.2 million, respectively. The aggregate value of all such letters of credit and bank guarantees that are partially secured by the United States revolving credit facility as of December 31, 20172022. There is no impact to our financial position at this time.
NOTE 20 – SECOND LIEN TERM LOAN FACILITY
| Face value | Unamortized debt discount and direct financing costs | Net carrying value |
| $195,884 | $35,743 | $160,141 |
| (in thousands) | Coupon Interest | Accretion of debt discount and amortization of financing costs | Total Interest Expense |
| For the three months ended September 30, 2017 | $2,554 | $1,095 | $3,649 |
| For the three months ended December 31, 2017 | $4,657 | $2,131 | $6,788 |
| Forecasted for the year ending December 31, 2018 | $20,266 | $9,838 | $30,104 |
On February 28, 2014, the Arkansas River Power Authority ("ARPA")December 27, 2019, a complaint was filed suit against Babcock & Wilcox Power Generation Group, Inc. (now known as The Babcock & Wilcoxby P.H. Glatfelter Company and referred to herein as "BW PGG"(“Glatfelter”) in the United States District Court for the Middle District of Colorado (CasePennsylvania, Case No. 14-cv-00638-CMA-NYW)1:19-cv-02215-JPW, alleging breach of contract, negligence, fraud and other claims arising out of BW PGG's delivery of a circulating fluidized bed boiler and related equipment used in the Lamar Repowering Project pursuant to a 2005 contract.
On March 3, 2017 and March 13, 2017,16, 2020 the Company and certain of its officers were named as defendants in two separate but largely identical complaints alleging violations of the federal securities laws. The complaints were brought on behalf of a putative class of investors who purchased the Company's common stock between July 1, 2015 and February 28, 2017 and were filed in the United States District Court for the Western District of North Carolina (collectively, the "Stockholder Litigation"). During the second quarter of 2017, the Stockholder Litigation was consolidated into a single action and a lead
Stockholder Derivative and Class Action Litigation
On April 14, 2020, a putative B&W stockholder (the “Plaintiff”) filed a derivative and class action complaint against certain of the Company’s directors (current and former), executives and significant stockholders (collectively, “the Defendants”) and the Company (as a nominal defendant). The action was filed in the Delaware Court of Chancery (“the Court”) and is captioned Parker v. Avril, et al., C.A. No. 2020-0280-PAF (the “Stockholder Litigation”). Plaintiff alleges that Defendants, among other things, did not properly discharge their fiduciary duties in connection with the 2019 rights offering and related transactions.
On June 10, 2022, after pursuing private mediation, the parties to the Stockholder Litigation reached a settlement agreement in principle to resolve the Stockholder Litigation. That settlement agreement includes (i) certain corporate governance changes that the Company is willing to implement in the future, (ii) a total payment of $9.5 million, and (iii) other customary terms and conditions. All attorney’s fees, administration costs, and expenses associated with the settlement of this matter will be deducted from the total payment amount, other than the cost of notice, which will be borne by the Company. Of the total settlement amount, the Company will pay $4.75 million on behalf of B. Riley Financial, Inc. and Vintage Capital Management, LLC pursuant to existing contractual indemnification obligations to settle Plaintiff’s direct claims asserted against these entities. This $4.75 million, after the deduction of attorney’s fees and the customary settlement costs and expenses described above, will be paid to shareholders of the Company, excluding any Defendant in the Stockholder Litigation. The remaining $4.75 million of the total settlement amount, after the deduction of attorney’s fees and the customary settlement costs and expenses described above, will be paid to the Company from insurance coverage.proceeds and the contribution of certain other parties to the Stockholder Litigation to settle the derivative claims asserted by Plaintiff on behalf of the Company. The proposed settlement would resolve all claims that have been, could have been, could now be, or in the future could, can, or might be asserted in the Stockholder Litigation. The settlement of this matter remains subject to court approval and the amount to be paid by the Company is fully accrued and reflected in Other accrued liabilities on the Company's Consolidated Balance Sheets at December 31, 2022. The Court has scheduled a hearing on July 10, 2023 to consider final approval of the settlement.
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Russian Invasion of Ukraine
The Company does not currently have contracts directly with Russian entities or businesses and it currently does not conduct business in Russia directly. It is believed that the Company’s only involvement with Russia or Russian entities, involves sales of its products with a trade receivable in the amount of approximately $3.1 million by a wholly-owned Italian subsidiary of the Company to non-Russian counterparties who may resell the Company's products to Russian entities or perform services in Russia using its products. The Company has implemented a restricted party screening process completed by a third party to monitor compliance with trade restrictions. The economic sanctions and export-control measures and the ongoing invasion of Ukraine could impact the Company's subsidiary’s rights and responsibilities under the contracts and could result in potential losses to the Company.
Other
Due to the nature of ourB&W's business, we are,the Company is, from time to time, involved in routine litigation or subject to disputes or claims related to ourits business activities, including, among other things: performance or warranty-related matters under ourthe Company's customer and supplier contracts and other business arrangements; and workers' compensation, premises liability and other claims. Based on our prior experience, we dothe Company does not expect that any of these other litigation proceedings, disputes and claims will have a material adverse effect on ourits consolidated financial condition, results of operations or cash flows.
NOTE 2223 – DERIVATIVE FINANCIAL INSTRUMENTSCOMPREHENSIVE INCOME
| (in thousands) | Currency translation loss | Net unrecognized loss related to benefit plans (net of tax) | Total | |||||||||||
| Balance at December 31, 2019 | $ | 5,743 | $ | (3,817) | $ | 1,926 | ||||||||
| Other comprehensive income (loss) before reclassifications | (53,318) | — | (53,318) | |||||||||||
| Reclassified from AOCI to net income (loss) | — | (998) | (998) | |||||||||||
| Net other comprehensive (loss) income | (53,318) | (998) | (54,316) | |||||||||||
| Balance at December 31, 2020 | $ | (47,575) | $ | (4,815) | $ | (52,390) | ||||||||
| Other comprehensive loss before reclassifications | (3,412) | 676 | (2,736) | |||||||||||
| Reclassified from AOCI to net income (loss) | (4,512) | 816 | (3,696) | |||||||||||
| Net other comprehensive (loss) income | (7,924) | 1,492 | (6,432) | |||||||||||
| Balance at December 31, 2021 | $ | (55,499) | $ | (3,323) | $ | (58,822) | ||||||||
| Other comprehensive income (loss) before reclassifications | (14,834) | — | (14,834) | |||||||||||
| Reclassified from AOCI to net income (loss) | — | 870 | 870 | |||||||||||
| Net other comprehensive income (loss) | (14,834) | 870 | (13,964) | |||||||||||
| Balance at December 31, 2022 | $ | (70,333) | $ | (2,453) | $ | (72,786) | ||||||||
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The following tables summarize our derivative financial instruments:amounts reclassified out of AOCI by component and the affected Consolidated Statements of Operations line items are as follows (in thousands):
| AOCI component | Line items in the Consolidated Statements of Operations affected by reclassifications from AOCI | Year ended December 31, | ||||||||||||||||||||||||||||||
| 2022 | 2021 | 2020 | ||||||||||||||||||||||||||||||
| Release of currency translation adjustment with the sale of business | Loss on sale of business | $ | — | $ | 4,512 | $ | — | |||||||||||||||||||||||||
| Pension and post retirement adjustments, net of tax | Benefit plans, net | (870) | (816) | 998 | ||||||||||||||||||||||||||||
| Net (loss) income | $ | (870) | $ | 3,696 | $ | 998 | ||||||||||||||||||||||||||
| Asset and Liability Derivative | ||||||
| (in thousands) | December 31, 2017 | December 31, 2016 | ||||
| Derivatives designated as hedges: | ||||||
| Foreign exchange contracts: | ||||||
| Location of FX forward contracts designated as hedges: | ||||||
| Accounts receivable-other | $ | 1,088 | $ | 3,805 | ||
| Other assets | 312 | 665 | ||||
| Accounts payable | 105 | 1,012 | ||||
| Other liabilities | — | 213 | ||||
| Derivatives not designated as hedges: | ||||||
| Foreign exchange contracts: | ||||||
| Location of FX forward contracts not designated as hedges: | ||||||
| Accounts receivable-other | $ | 7 | $ | 105 | ||
| Accounts payable | 1,722 | 403 | ||||
| Other liabilities | 12 | 7 | ||||
| Year Ended December 31, | ||||||
| (in thousands) | 2017 | 2016 | ||||
| Derivatives designated as hedges: | ||||||
| Cash flow hedges | ||||||
| Foreign exchange contracts | ||||||
| Amount of gain (loss) recognized in other comprehensive income | $ | 3,346 | 2,208 | |||
| Effective portion of gain (loss) reclassified from AOCI into earnings by location: | ||||||
| Revenues | 10,059 | 4,624 | ||||
| Cost of operations | (118 | ) | 195 | |||
| Other-net | (7,438 | ) | (1,221 | ) | ||
| Portion of gain (loss) recognized in income that is excluded from effectiveness testing by location: | ||||||
| Other-net | (5,277 | ) | 4,518 | |||
| Derivatives not designated as hedges: | ||||||
| Forward contracts | ||||||
| Loss recognized in income by location: | ||||||
| Other-net | $ | (3,436 | ) | $ | (872 | ) |
NOTE 2324 – FAIR VALUE MEASUREMENTS
The following tables summarize our financial assets and liabilities carried at fair value, all of which were valued from readily available prices or using inputs based upon quoted prices for similar instruments in active markets (known as "Level 1" and "Level 2" inputs, respectively, in the fair value hierarchy established by the FASB Topic, Fair Value Measurements and Disclosures).
| (in thousands) | ||||||||||||||
| Available-for-sale securities | December 31, 2022 | Level 1 | Level 2 | |||||||||||
| Corporate notes and bonds | $ | 4,154 | $ | 4,154 | $ | — | ||||||||
| Mutual funds | 612 | — | 612 | |||||||||||
| United States Government and agency securities | 4,023 | 4,023 | — | |||||||||||
| Total fair value of available-for-sale securities | $ | 8,789 | $ | 8,177 | $ | 612 | ||||||||
| (in thousands) | ||||||||||||
| Available-for-sale securities | December 31, 2017 | Level 1 | Level 2 | Level 3 | ||||||||
| Commercial paper | $ | 1,895 | $ | — | $ | 1,895 | $ | — | ||||
| Certificates of deposit | 2,398 | — | 2,398 | — | ||||||||
| Mutual funds | 1,331 | — | 1,331 | — | ||||||||
| Corporate notes and bonds | 4,447 | 4,447 | — | — | ||||||||
| United States Government and agency securities | 5,738 | 5,738 | — | — | ||||||||
| Total fair value of available-for-sale securities | $ | 15,809 | $ | 10,185 | $ | 5,624 | $ | — | ||||
| (in thousands) | ||||||||||||||
| Available-for-sale securities | December 31, 2021 | Level 1 | Level 2 | |||||||||||
| Corporate notes and bonds | $ | 9,477 | $ | 9,477 | $ | — | ||||||||
| Mutual funds | 714 | — | 714 | |||||||||||
| United States Government and agency securities | 2,017 | 2,017 | — | |||||||||||
| Total fair value of available-for-sale securities | $ | 12,208 | $ | 11,494 | $ | 714 | ||||||||
| (in thousands) | ||||||||||||
| Available-for-sale securities | December 31, 2016 | Level 1 | Level 2 | Level 3 | ||||||||
| Commercial paper | $ | 6,734 | $ | — | $ | 6,734 | $ | — | ||||
| Certificates of deposit | 2,251 | — | 2,251 | — | ||||||||
| Mutual funds | 1,152 | — | 1,152 | — | ||||||||
| Corporate notes and bonds | 750 | 750 | — | — | ||||||||
| United States Government and agency securities | 7,104 | 7,104 | — | — | ||||||||
| Total fair value of available-for-sale securities | $ | 17,991 | $ | 7,854 | $ | 10,137 | $ | — | ||||
| Derivatives | December 31, 2017 | December 31, 2016 | ||||||
| Forward contracts to purchase/sell foreign currencies | $ | (432 | ) | $ | 2,940 | |||
| (in thousands) | December 31, 2022 | ||||||||||
| Senior Notes | Carrying Value | Estimated Fair Value | |||||||||
| 8.125% Senior Notes due 2026 ('"BWSN") | $ | 193,026 | $ | 185,923 | |||||||
| 6.50% Senior Notes due 2026 ("BWNB") | $ | 151,440 | $ | 125,029 | |||||||
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Other financial instrumentsFinancial Instruments
We used the following methods and assumptions in estimating our fair value disclosures for our other financial instruments:
•Cash and cash equivalents and current and long-term restricted cash and cash equivalents. The carrying amounts that we have reported in the accompanying consolidated balance sheetsConsolidated Balance Sheets for cash and cash equivalents and current and long-term restricted cash and cash equivalents approximate their fair values due to their highly liquid nature.
•Revolving debtDebt. We baseThe Company bases the fair values of debt instruments on quoted market prices. Where quoted prices are not available, we basethe Company bases 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 instrumentsthe Company's Revolving Debt approximated theirits carrying value at December 31, 2017 and December 31, 2016.
2022.| (in thousands) | 2017 | 2016 | 2015 | ||||||
| Accrued capital expenditures in accounts payable | $ | 1,383 | $ | 2,751 | $ | 568 | |||
| Accreted interest expense on our second lien term loan facility | $ | 3,226 | $ | — | $ | — | |||
| (in thousands) | 2017 | 2016 | 2015 | ||||||
| Income tax payments (refunds), net | $ | (10,889 | ) | $ | 10,781 | $ | 15,008 | ||
| Interest payments on our United States revolving credit facility | $ | 4,909 | $ | 425 | $ | — | |||
| Interest payments on our second lien term loan facility | $ | 7,044 | $ | — | $ | — | |||
| (in thousands) | 2017 | 2016 | 2015 | ||||||
| Components associated with borrowings from: | |||||||||
| United States revolving credit facility | $ | 5,051 | $ | 1,669 | $ | 1,059 | |||
| Second lien term loan facility | 7,211 | — | — | ||||||
| Foreign revolving credit facilities | 1,021 | 847 | 148 | ||||||
| 13,283 | 2,516 | 1,207 | |||||||
| Components associated with amortization or accretion of: | |||||||||
| United States revolving credit facility deferred financing fees | 6,270 | 1,244 | 1,131 | ||||||
| Second lien term loan facility deferred financing fees and discount | 3,226 | — | — | ||||||
| 9,496 | 1,244 | 1,131 | |||||||
| Other interest expense | 3,526 | 36 | — | ||||||
| Total interest expense | $ | 26,305 | $ | 3,796 | $ | 2,338 | |||
NOTE 25– RELATED PARTY TRANSACTIONS
Transactions with B. Riley
Based on its Schedule 13D filings with the SEC, B. Riley beneficially owns 30.8% of our outstanding common stock as of December 31, 2022.
B. Riley currently has the right to nominate one member of the Company’s board of directors pursuant to the investor rights agreement the Company entered into with B. Riley on April 30, 2015, we were2019. The investor rights agreement also provides pre-emptive rights to B. Riley with respect to certain future issuances of the Company’s equity securities. The services of the Company’s Chief Executive Officer are provided by B. Riley pursuant to a consulting agreement with BRPI Executive Consulting, LLC, an affiliate of B. Riley, which was entered on November 19, 2018 and amended on November 9, 2020. The agreement provides for Mr. Kenny Young to serve as the Company’s Chief Executive Officer until December 31, 2023, unless terminated by either party with thirty days written notice. Under this agreement, payments are $0.75 million per annum, paid monthly. Subject to the achievement of certain performance objectives as determined by the Compensation Committee of the Board, a bonus or bonuses may also be earned and payable to BRPI Executive Consulting, LLC.
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B. Riley was a party to transactionsthe Last Out Term Loans under our prior A&R Credit Agreement, as described in Note 15. Total fees associated with our former Parent and its subsidiaries in the normal course of operations. After the spin-off, we no longer consider the former Parent to be aB. Riley related party. Transactions with our former Parent prior to the spin-off includedLast Out Term Loans and services of Mr. Kenny Young, both as described above, were $2.0 million, $0.8 million and $7.4 million for the following:twelve months ended December 31, 2022, 2021 and 2020, respectively.
| (in thousands) | Year Ended December 31, 2015 | ||
| Sales to our former Parent | $ | 911 | |
| Corporate administrative expenses | 35,343 | ||
| (in thousands) | Year Ended December 31 2015 | ||
| Sales to former Parent | $ | 911 | |
| Corporate administrative expenses | 35,343 | ||
| Income tax allocation | 11,872 | ||
| Acquisition of business, net of cash acquired | — | ||
| Cash pooling and general financing activities | (91,015 | ) | |
| Cash contribution received at spin-off | 125,300 | ||
| Net transfer from former Parent per statement of cash flows | $ | 80,589 | |
| Non-cash items: | |||
| Net transfer of assets and liabilities | $ | 44,706 | |
| Distribution of Nuclear Energy segment | $ | (47,839 | ) |
| Net transfer from former Parent per statement of shareholders' equity | $ | 77,456 | |
The second lien term loan and related repurchase of sharespublic offering of our common stock, as described in Note 2018, was conducted pursuant to an underwriting agreement dated February 9, 2021, between the Company and B. Riley Securities, Inc., as representative of the several underwriters. Also on February 12, 2021, the Company paid B. Riley Securities, Inc. $9.5 million for underwriting fees and other transaction costs related to the offering.
On February 12, 2021, the Company and B. Riley entered into the Exchange Agreement pursuant to which we agreed to issue to B. Riley $35.0 million aggregate principal amount of 8.125% Senior Notes in exchange for a deemed prepayment of $35.0 million of our existing Tranche A term loan with B. Riley Financial in the Exchange, as described in Note 14.
On March 31, 2021, the Company entered into a sales agreement with B. Riley Securities, Inc., a related party, transaction.in which it may sell, from time to time, up to an aggregated principal amount of $150.0 million of 8.125% Senior Notes due 2026 to or through B. Riley Securities, Inc., as described in Note 14. As of December 31, 2022, we paid B. Riley Securities, Inc. $0.5 million for underwriting fees and other transaction costs related to the offering.
The public offering of our 7.75% Series A Cumulative Perpetual Preferred Stock, as described in Note 17, was conducted pursuant to an underwriting agreement dated May 4, 2021, between the Company and B. Riley Securities, Inc., as representative of several underwriters. At the closing date on May 2021, the Company paid B. Riley Securities, Inc. $4.3 million for underwriting fees and other transaction cost related to the Preferred Stock offering.
On May 26, 2021, the Company completed the additional sale of 444,700 shares of our Preferred Stock, related to the grant to the underwriters, as described in Note 17, and paid B. Riley Securities, Inc. $0.4 million for underwriting fees in conjunction with the transaction.
On June 1, 2021, the Company issued 2,916,880 shares of the Company’s 7.75% Series A Cumulative Perpetual Preferred Stock and paid $0.4 million in cash due to B. Riley, a related party, in exchange for a deemed prepayment of $73.3 million of our then existing Last Out Term Loans and paid $0.9 million in cash for accrued interest, as described in Note 17.
On June 30, 2021, the Company entered into new Debt Facilities, as described in Note 16. In connection with the Company’s entry into the Debt Facilities, B. Riley Financial, Inc., an affiliate of B. Riley, has provided a guaranty of payment with regard to the Company’s obligations under the Reimbursement Agreement, as describe in Note 16. Under a fee letter with B. Riley, the Company shall pay B. Riley $0.9 million per annum in connection with the B. Riley Guaranty.
On July 7, 2021, the Company entered into a sales agreement with B. Riley Securities, Inc., a related party, in which the Company may sell, from time to time, up to an aggregated principal amount of $76 million of Preferred Stock to or through B. Riley Securities, Inc., as described in Note 17. As of December 31, 2022, the Company paid B. Riley Securities, Inc. $0.2 million for underwriting fees and other transaction costs related to the offering.
The public offering of our 6.50% Senior Notes in December 2021, as described in Note 14, was conducted pursuant to an underwriting agreement dated December 8, 2021, between the Company and B. Riley Securities, Inc., an affiliate of B. Riley, as representative of several underwriters. At the closing date on December 13, 2021, the Company paid B. Riley Securities, Inc. $5.5 million for underwriting fees and other transaction cost related to the 6.50% Senior Notes offering.
On December 17, 2021, B. Riley Financial, Inc. entered into a General Agreement of Indemnity (the "Indemnity Agreement"), between us and AXA-XL and or its affiliated associated and subsidiary companies (collectively the “Surety”). Pursuant to the terms of the Indemnity Agreement, B. Riley will indemnify the Surety for losses the Surety may incur as a
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result of providing a payment and performance bond in an aggregate amount not to exceed €30.0 million in connection with the Company's proposed performance on a specified project. In consideration of B. Riley's execution of the Indemnity Agreement, the Company paid B. Riley a fee of $1.7 million following the issuance of the bond by the Surety, which represents approximately 5.0% of the bonded obligations, to be amortized over the term of the agreement.
On December 28, 2021, the Company received a notice that the underwriters of the 6.50% Senior Notes had elected to exercise its overallotment option for an additional $11.4 million in aggregate principal amount of the Senior Notes. At the closing date on December 30, 2021, the Company paid B. Riley Securities, Inc. $0.5 million for underwriting fees and other transaction cost related to the 6.50% Senior Notes overallotment.
On July 20, 2022, BRF Investments, LLC, an affiliate of B. Riley, a related party exercised 1,541,666.7 warrants to purchase 1,541,666 shares of the Company's common stock at a price per share of $0.01 pursuant to the terms of the warrant agreement between the Company and B. Riley dated July 23, 2019.
On July 28, 2022, the Company participated in the sale process of Hamon Holdings Corporation ("Hamon") for which B. Riley Securities, Inc., a related party to the Company, has been engaged as Hamon’s investment banker and to serve as advisor to Hamon through a Chapter 11 363 Asset Sale of Hamon’s entire United States business or potential carve-out of any of its four main subsidiaries. The Company was the successful bidder for the assets of one of those subsidiaries, Hamon Research-Cottrell, Inc., a major provider of air pollution control technology, for approximately $2.9 million.
NOTE 26 – ACQUISITIONS, ASSETS HELD FOR SALE, DIVESTITURES AND DISCONTINUED OPERATIONS
Babcock & Wilcox Solar (Formerly known as describedFosler Construction Company, Inc.)
On September 30, 2021, the Company acquired a 60% controlling ownership stake in Note 1, which totaled $2.7Illinois-based solar energy contractor Babcock & Wilcox Solar Energy, Inc. (“Babcock & Wilcox Solar”). Babcock & Wilcox Solar was formerly known as Fosler Construction, Company, Inc. ("Fosler") and on October 14, 2022, the Company changed the name of Fosler to Babcock & Wilcox Solar Energy, Inc ("Babcock & Wilcox Solar"). Babcock & Wilcox Solar provides commercial, industrial and utility-scale solar services and owns two community solar projects in Illinois that are being developed under the Illinois Solar for All program. Babcock & Wilcox Solar was founded in 1998 with a track record of successfully completing solar projects profitably with union labor while aligning its model with a growing number of renewable project incentives in the U.S. the Company believes Babcock & Wilcox Solar is positioned to capitalize on the high-growth solar market in the U.S. and that the acquisition aligns with B&W’s aggressive growth and expansion of the Company's clean and renewable energy businesses. Babcock & Wilcox Solar is reported as part of the Company's B&W Renewable segment, and operates under the name Babcock & Wilcox Solar, a Babcock & Wilcox company.
The total fair value of consideration for the acquisition was $36.0 million, including $27.2 million in cash plus $8.8 million in estimated fair value of the contingent consideration arrangement. In connection with the acquisition, the Company agreed to pay contingent consideration based on the achievement of targeted revenue thresholds for the year ended December 31, 2015. Though2022. The range of undiscounted amounts the Company could be required to pay under the contingent consideration arrangement was between $0.0 million and $10.0 million. The Company used the Monte Carlo simulation method to calculate the value of the contingent consideration and it was determined that the value of the liability should be zero at December 31, 2022. See Note 24 for more details.
The Company estimated fair values primarily using the discounted cash flow method at September 30, 2021 for the preliminary allocation of consideration to the assets acquired and liabilities assumed during the measurement period and up to September 30, 2022 when the purchase price allocation was finalized. During the first nine months of 2022, the Company recorded an increase in goodwill of $14.4 million resulting from the initial recognition of $14.1 million of accrued liabilities and $0.4 million of warranty accruals as preliminary measurement period adjustments, as described in Note 5.
During the year ended December 31, 2022, four additional Babcock & Wilcox Solar projects became loss contracts, as such, the Company recorded $13.2 million in net losses from changes in the estimated costs to complete the thirteen Babcock & Wilcox Solar loss contracts. The Company has submitted insurance claims to recover a portion of these allocations relatelosses as of December 31, 2022. See Note 5 for more details.
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On September 24, 2022, the Company acquired the remaining 40% ownership stake in Babcock & Wilcox Solar for $12.7 million. In addition to our discontinued NEthe transfer of the remaining ownership stake, the settlement and share transfer agreement released all parties from the aforementioned contingent consideration arrangement, as well as other claims known as of the effective date of the agreement. The Company will make payments of $3.0 million, $5.0 million, and $4.7 million on January 16, 2023, June 30, 2023, and January 15, 2024, respectively, for a present value of $12.1 million at December 31, 2022. The Company has recorded the payments due within one year in the Other accrued liabilities caption and the payment due during a period longer than one year within the Other non-current liabilities caption in the Company’s Consolidated Balance Sheet. As a result of the agreement, the Company removed the remaining non-controlling interest balance of $20.7 million from the Consolidated Balance Sheet and recorded an increase to Capital in Excess of Par Value for the $8.6 million difference.
During the quarter ended September 30, 2022, the Company identified certain factors, including the acquisition of the remaining 40% ownership stake in Babcock & Wilcox Solar., which contributed to the identification of a triggering event, requiring an interim quantitative goodwill impairment assessment and resulted in a goodwill impairment charge at Babcock & Wilcox Solar of $7.2 million.See Note 8 for more details.
Babcock & Wilcox Renewable Service A/S
On November 30, 2021, the Company acquired 100% ownership of Babcock & Wilcox Renewable Service A/S, formerly known as VODA A/S (“VODA”) through its wholly-owned subsidiary, B&W PGG Luxembourg Finance SARL, for approximately $32.9 million. Babcock & Wilcox Renewable Service A/S, a Denmark-based multi-brand aftermarket parts and services provider, focusing on energy-producing incineration plants including waste-to-energy, biomass-to-energy or other fuels, providing service, engineering services, spare parts as well as general outage support and management. Babcock & Wilcox Renewable Service A/S has extensive experience in incineration technology, boiler and pressure parts, SRO, automation, and performance optimization. Babcock & Wilcox Renewable Service A/S is reported as part of the Company's B&W Renewable segment theyand is included in the B&W Renewable Services product line.
The Company finalized the fair values during 2022 primarily using the discounted cash flow method for the assets acquired and liabilities assumed.
Fossil Power Systems
On February 1, 2022, the Company acquired 100% ownership of Fossil Power Systems, Inc. (“FPS”) for approximately $59.2 million. The consideration paid for FPS included a hold-back of $5.9 million, payable twelve months from the date of the acquisition if certain conditions of the purchase agreement are includedmet and is recorded on the Company's Consolidated Balance Sheets in Restricted cash and cash equivalents and other accrued liabilities.
FPS is a leading designer and manufacturer of hydrogen, natural gas and renewable pulp and paper combustion equipment including igniters, plant controls and safety systems based in Dartmouth, Nova Scotia, Canada and is reported as part of continuing operations because allocationsthe Company's B&W Thermal segment.
The Company estimated fair values primarily using the discounted cash flow method at February 1, 2022 for the preliminary allocation of consideration to the assets acquired and liabilities assumed. During the measurement period, the Company will continue to obtain information to assist in finalizing the fair value of assets acquired and liabilities assumed, which may differ materially from these preliminary estimates. Any subsequent changes in the fair values of the assets acquired and liabilities assumed during the measurement period may result in adjustments to goodwill.
Optimus Industries
On February 28, 2022, the Company acquired 100% ownership of Optimus Industries, LLC ("Optimus Industries") for approximately $19.2 million. Optimus Industries designs and manufactures waste heat recovery products for use in power generation, petrochemical, and process industries, including package boilers, watertube and firetube waste heat boilers, economizers, superheaters, waste heat recovery equipment and units for sulfuric acid plants and is based in Tulsa, Oklahoma and Chanute, Kansas. Optimus Industries is reported as part of the Company's B&W Thermal segment.
The Company estimated fair values primarily using the discounted cash flow method at February 28, 2022 for the preliminary allocation of consideration to the assets acquired and liabilities assumed. During the measurement period, the Company will continue to obtain information to assist in finalizing the fair value of assets acquired and liabilities assumed, which may differ materially from these preliminary estimates. Any subsequent changes in the fair values of the assets acquired and liabilities assumed during the measurement period may result in adjustments to goodwill.
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Hamon Holdings Corporation Industries
On July 28, 2022, the Company acquired certain assets of Hamon Holdings Corporation ("Hamon Holdings") through a competitive sale process, in connection with B. Riley Securities, Inc., a related party to the Company, had been engaged as Hamon Holdings’ investment banker and to serve as advisor to Hamon Holdings through a Chapter 11 363 Asset Sale of Hamon Holdings’ entire United States business or potential carve-out of any of its four main subsidiaries. B&W was the successful bidder for the assets of one of those subsidiaries, Hamon Research-Cottrell, Inc., ("Hamon") a major provider of air pollution control technology, for approximately $2.9 million.
Purchase Price Allocations
The purchase price allocation to assets acquired and liabilities assumed in the acquisitions are detailed in following tables. Specific to the Babcock & Wilcox Solar acquisition, the allocation of consideration to the net tangible and intangible assets acquired and liabilities assumed is based on estimated fair values at September 30, 2021, and was finalized at September 30, 2022. Specific to the Babcock & Wilcox Renewable Service A/S acquisition, the allocation of consideration to the net tangible and intangible assets acquired and liabilities assumed is based on estimated fair values at November 30, 2021, and was finalized at November 30, 2022. The following tables summarize the purchase price allocation to assets acquired and liabilities assumed:
| Babcock & Wilcox Solar | |||||||||||
| (in thousands) | Initial Allocation of Consideration | Measurement Period Adjustments(3) | Final Allocation | ||||||||
| Accounts receivable | $ | 1,904 | $ | 121 | $ | 2,025 | |||||
| Contracts in progress | 1,363 | 9,433 | 10,796 | ||||||||
| Other current assets | 1,137 | (304) | 833 | ||||||||
| Property, plant and equipment | 9,527 | (7,860) | 1,667 | ||||||||
Goodwill(1) (4) | 43,230 | 19,447 | 62,677 | ||||||||
| Investment in subsidiary | — | 8,784 | 8,784 | ||||||||
| Other assets | 17,497 | (4,600) | 12,897 | ||||||||
| Right of use assets | 1,093 | — | 1,093 | ||||||||
| Debt | (7,625) | — | (7,625) | ||||||||
Current liabilities(4) | (5,073) | (15,364) | (20,437) | ||||||||
| Advance billings on contracts | (1,557) | 238 | (1,319) | ||||||||
| Non-current lease liabilities | (1,730) | — | (1,730) | ||||||||
| Other non-current liabilities | (4,112) | (5,566) | (9,678) | ||||||||
Non-controlling interest(2)(3) | (22,262) | (1,734) | (23,996) | ||||||||
| Net acquisition cost | $ | 33,392 | $ | 2,595 | $ | 35,987 | |||||
(1) Goodwill is calculated as the excess of the purchase price over the net assets acquired. With respect to the Babcock & Wilcox Solar acquisition, goodwill represents Babcock & Wilcox Solar's ability to significantly expand EPC and O&M services among new customers across the U.S. by leveraging B&W's access to capital and geographic reach.
(2) The fair value of the non-controlling interest was derived based on the fair value of the 60% controlling interest acquired by B&W. The transaction price paid by B&W reflects a Level 2 input involving an observable transaction involving an ownership interest in Babcock & Wilcox Solar. Also, as described above, a portion of the purchase consideration relates to the contingent consideration.
(3) The Company's purchase price allocation changed due to additional information and further analysis.
(4) The Company's goodwill and current liabilities adjustments increased $14.1 million, primarily due to additional accrued liabilities recognized attributable to the Babcock & Wilcox Solar projects described in Note 5.
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| Babcock & Wilcox Renewable Service A/S | |||||||||||
(in thousands) | Initial Allocation of Consideration | Measurement Period Adjustments(2) | Final Allocation | ||||||||
| Cash | $ | 4,737 | $ | — | $ | 4,737 | |||||
| Accounts receivable | 5,654 | — | 5,654 | ||||||||
| Contracts in progress | 258 | — | 258 | ||||||||
| Other current assets | 825 | — | 825 | ||||||||
| Property, plant and equipment | 253 | — | 253 | ||||||||
Goodwill(1) | 17,176 | (61) | 17,115 | ||||||||
| Other assets | 14,321 | — | 14,321 | ||||||||
| Right of use assets | 433 | — | 433 | ||||||||
| Current liabilities | (5,181) | — | (5,181) | ||||||||
| Advance billings on contracts | (2,036) | — | (2,036) | ||||||||
| Non-current lease liabilities | (302) | — | (302) | ||||||||
| Other non-current liabilities | (3,264) | — | (3,264) | ||||||||
| Net acquisition cost | $ | 32,874 | $ | (61) | $ | 32,813 | |||||
(1) Goodwill is calculated as the excess of the purchase price over the net assets acquired. With respect to the Babcock & Wilcox Renewable Service A/S acquisition, goodwill represents Babcock & Wilcox Renewable Service A/S's ability to significantly expand within the aftermarket parts and services industries by leveraging B&W's access to capital and existing platform within the renewable service market. Goodwill is not expected to be deductible for U.S federal income tax purposes.
(2)The Company's preliminary purchase price allocation changed due to additional information and further analysis.
| Fossil Power Systems | |||||||||||
| (in thousands) | Initial Allocation of Consideration | Measurement Period Adjustments(2) | Updated Preliminary Allocation | ||||||||
| Cash | $ | 1,869 | $ | — | $ | 1,869 | |||||
| Accounts receivable | 2,624 | — | 2,624 | ||||||||
| Contracts in progress | 370 | — | 370 | ||||||||
| Other current assets | 3,228 | — | 3,228 | ||||||||
| Property, plant and equipment, net | 178 | — | 178 | ||||||||
Goodwill(1) | 35,392 | 270 | 35,662 | ||||||||
| Other assets | 25,092 | — | 25,092 | ||||||||
| Right of use assets | 1,115 | — | 1,115 | ||||||||
| Current liabilities | (1,792) | (18) | (1,810) | ||||||||
| Advance billings on contracts | (645) | — | (645) | ||||||||
| Non-current lease liabilities | (989) | — | (989) | ||||||||
| Non-current liabilities | (7,384) | (106) | (7,490) | ||||||||
| Net acquisition cost | $ | 59,058 | $ | 146 | $ | 59,204 | |||||
(1) Goodwill is calculated as the excess of the purchase price over the net assets acquired. With respect to the FPS acquisition, goodwill represents
FPS's ability to significantly expand services among new customers by leveraging cross-selling opportunities and recognizing general cost synergies.
(2)The Company's preliminarypurchase price allocation changed due to additional information and further analysis.
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| Optimus Industries | |||||||||||
| (in thousands) | Initial Allocation of Consideration | Measurement Period Adjustments(2) | Updated Preliminary Allocation | ||||||||
| Cash | $ | 5,338 | $ | — | $ | 5,338 | |||||
| Accounts receivable | 5,165 | — | 5,165 | ||||||||
| Contracts in progress | 2,598 | — | 2,598 | ||||||||
| Other current assets | 2,115 | — | 2,115 | ||||||||
| Property, plant and equipment, net | 2,441 | 5,178 | 7,619 | ||||||||
Goodwill(1) | 11,081 | (7,274) | 3,807 | ||||||||
| Other assets | 12 | 2,319 | 2,331 | ||||||||
| Right of use assets | 94 | 11 | 105 | ||||||||
| Current liabilities | (4,240) | — | (4,240) | ||||||||
| Advance billings on contracts | (3,779) | — | (3,779) | ||||||||
| non-current lease liabilities | (2) | — | (2) | ||||||||
| Non-current liabilities | (1,858) | — | (1,858) | ||||||||
| Net acquisition cost | $ | 18,965 | $ | 234 | $ | 19,199 | |||||
(1) Goodwill is calculated as the excess of the purchase price over the net assets acquired. With respect to the Optimus Industries acquisition, goodwill represents Optimus Industries ability to significantly expand future customer relationships which are not eligible for inclusion in discontinued operations.place today and recognize general cost synergies.
(2) The Company's preliminary purchase price allocation changed due to additional information and further analysis.
Intangible assets are included in other assets above and consists of the following:
Babcock & Wilcox Solar (1) | Babcock & Wilcox Renewable Service A/S (1) | ||||||||||||||||
| (in thousands) | Acquisition Date Fair Value | Weighted Average Estimated Useful Life | Acquisition Date Fair Value | Weighted Average Estimated Useful Life | |||||||||||||
| Customer Relationships | $ | 9,400 | 12 years | $ | 13,855 | 11 years | |||||||||||
| Tradename | — | — | 228 | 3 years | |||||||||||||
| Backlog | 3,100 | 5 months | — | — | |||||||||||||
Total intangible assets(1) | $ | 12,500 | $ | 14,083 | |||||||||||||
Fossil Power Systems (2) | Optimus Industries (2) | ||||||||||||||||
| Estimated Acquisition Date Fair Value | Weighted Average Estimated Useful Life | Estimated Acquisition Date Fair Value | Weighted Average Estimated Useful Life | ||||||||||||||
| Customer Relationships | $ | 20,451 | 9 years | 2,100 | 10 years | ||||||||||||
| Tradename | 787 | 14 years | 220 | 3 years | |||||||||||||
| Patented Technology | 578 | 12 years | — | — | |||||||||||||
| Unpatented Technology | 3,276 | 12 years | — | — | |||||||||||||
Total intangible assets(1) | $ | 25,092 | $ | 2,320 | |||||||||||||
(1)The following table presents selected financial information regarding the resultsCompany's preliminary purchase price allocation is final as of operations of our former NE segment through June 30, 2015, the date it was discontinued:
| Six Months Ended June 30, | |||
| (in thousands) | 2015 | ||
| Revenues | $ | 53,064 | |
| Income (loss) before income tax expense | 3,358 | ||
| Income tax expense (benefit) | 555 | ||
| Income (loss) from discontinued operations, net of tax | $ | 2,803 | |
(2) Intangible assets were valued using the income approach, which includes significant assumptions around future revenue growth, profitability, discount rates and customer attrition. Such assumptions are classified as follows (in thousands):level 3 inputs within the fair value hierarchy.
| Fiscal Year Ending December 31, | Amount | ||
| 2018 | $ | 6,814 | |
| 2019 | $ | 5,100 | |
| 2020 | $ | 3,553 | |
| 2021 | $ | 2,741 | |
| 2022 | $ | 2,258 | |
| Thereafter | $ | 3,337 | |
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| Fiscal year ending December 31, | Amount | ||
| 2018 | $ | 9,173 | |
| 2019 | $ | — | |
| 2020 | $ | 290,184 | |
| 2021 | $ | — | |
| 2022 | $ | — | |
| Thereafter | $ | — | |
Certain real property assets for the Copley, Ohio location were sold on March 15, 2021 for $4.0 million. The Company received $3.3 million of net proceeds after adjustments and 2016:recognized a gain on sale of $1.9 million. In conjunction with the sale, we executed a leaseback agreement commencing March 16, 2021, which expires on March 31, 2033.
| (in thousands, except per share amounts) | Quarter ended | ||||||||||||||
| March 31, 2017 | June 30, 2017 | Sept. 30, 2017 | Dec. 31, 2017 | ||||||||||||
| Revenues | $ | 391,104 | $ | 349,829 | $ | 408,703 | $ | 408,099 | |||||||
| Gross profit | $ | 62,900 | $ | (55,822 | ) | $ | 47,287 | $ | 45,513 | ||||||
Operating income (loss) (1) | $ | (8,798 | ) | $ | (144,646 | ) | $ | (104,748 | ) | $ | (23,373 | ) | |||
| Equity in income (loss) of investees | $ | 618 | $ | (15,232 | ) | $ | 1,234 | $ | 3,513 | ||||||
| Net income (loss) attributable to shareholders | $ | (7,045 | ) | $ | (150,999 | ) | $ | (114,302 | ) | $ | (107,478 | ) | |||
| Earnings per common share | |||||||||||||||
| Basic | $ | (0.14 | ) | $ | (3.09 | ) | $ | (2.48 | ) | $ | (2.44 | ) | |||
| Diluted | $ | (0.14 | ) | $ | (3.09 | ) | $ | (2.48 | ) | $ | (2.44 | ) | |||
Certain real property assets for the Lancaster, Ohio location were sold on August 13, 2021 for $18.9 million. The Company received $15.8 million of net proceeds after adjustments and expenses and recognized a gain on sale of $13.9 million. In conjunction with the sale, the Company executed a leaseback agreement commencing August 13, 2021, which expires on August 31, 2041.
| (in thousands, except per share amounts) | Quarter ended | ||||||||||||||
| March 31, 2016 | June 30, 2016 | Sept. 30, 2016 | Dec. 31, 2016 | ||||||||||||
| Revenues | $ | 404,116 | $ | 383,208 | $ | 410,955 | $ | 379,984 | |||||||
| Gross profit | $ | 80,156 | $ | 26,052 | $ | 73,757 | $ | (848 | ) | ||||||
Operating income (loss) (1) | $ | 17,266 | $ | (72,585 | ) | $ | 11,133 | $ | (58,587 | ) | |||||
| Equity in income (loss) of investees | $ | 2,676 | $ | (616 | ) | $ | 2,827 | $ | 11,553 | ||||||
| Net income (loss) attributable to shareholders | $ | 10,507 | $ | (63,490 | ) | $ | 8,894 | $ | (71,560 | ) | |||||
| Earnings per common share | |||||||||||||||
| Basic | $ | 0.20 | $ | (1.25 | ) | $ | 0.18 | $ | (1.47 | ) | |||||
| Diluted | $ | 0.20 | $ | (1.25 | ) | $ | 0.18 | $ | (1.47 | ) | |||||
NOTE 2927 – NEW ACCOUNTING STANDARDS
Recently adopted accounting standards:
The Company adopted the following accounting standard during the year ended December 31, 2022:
In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815 – 40). The amendments in this update simplify the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity by removing major separation models required under current U.S. GAAP. The amendments also improve the consistency of diluted earnings per share calculations. The impact of this standard on the Company's Consolidated Financial Statements was immaterial.
New accounting standards to be adopted:
The Company considers the applicability and impact of all issued ASUs. Recently issued ASUs that are not considered were assessed and determined to be not applicable in the current reporting period. New accounting standards not yet adopted that could affect our consolidated financial statementsthe Company's Consolidated Financial Statements in the future are summarized as follows:
In May 2014,October 2021, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. The new accounting standard provides a comprehensive model to use in accounting for revenue from contracts with customers and will replace most existing revenue recognition guidance when it becomes effective. In 2016, the FASB issued accounting standards updates to address implementation issues and to clarify the guidance for identifying performance obligations, licenses; determining if an entity is the principal or agent in a revenue arrangement; and technical corrections and improvements on topics including: contract costs, loss provisions on construction and production contracts and disclosures for remaining and prior-period performance obligations. The new accounting standard also requires more detailed disclosures to enable financial statement users to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The new accounting standard is effective for interim and annual reporting periods beginning after December 15, 2017, and permits retrospectively applying the guidance to each prior reporting period presented (full retrospective method) or prospectively applying the guidance and providing additional disclosures comparing results to previous guidance, with the cumulative effect of initially applying the guidance recognized in beginning retained earnings at the date of initial application (modified retrospective method). We will adopt the new accounting standard under the modified retrospective method. We have developed a cross-functional team of B&W professionals from across each of our reportable segments and an implementation plan to adopt the new accounting standard during the first quarter of 2018. We have analyzed our primary revenue streams and performed a detailed review of a sample of key contracts representative of our products and services in order to assess potential changes in our processes, systems, internal controls and the timing and method of revenue recognition and related disclosures. Our evaluation included the existing, uncompleted contracts at January 1, 2018. Based on our assessment, we do not expect the timing of revenue recognition to change significantly upon adoption of the new accounting standard, but we do expect our revenue recognition disclosures will be expanded.
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 determinedclarifies that operating lease receivables are not within the required reclassificationsscope 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
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debt securities. The provisions of this standard will primarily impact our Power segment's gross profit.the allowance for doubtful accounts on the Company's trade receivables, contracts in progress, and potentially its impairment model for available-for-sale debt securities (to the extent we have any upon adoption). For public, smaller reporting companies, this standard is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The changesCompany is currently evaluating the impact of both standards on its Consolidated Financial Statements which is not expected to be material.
Note 28 - Subsequent Events
On March 14, 2023, the Company, with certain subsidiaries of the Company as guarantors, certain lenders from time to time party to the Revolving Credit Agreement, and PNC, as administrative agent and swing loan lender to the Revolving Credit, Guaranty and Security Agreement, dated as of June 30, 2021, as amended (the “Amended Revolving Credit Agreement”), entered into the Second Amendment, Waiver and Consent to the Amended Revolving Credit Agreement (the “Second Amended Revolving Credit Agreement”). The Second Amended Revolving Credit Agreement amends the terms of the Amended Revolving Credit Agreement to (i) waive the senior net leverage ratio test for purposes of enacting a Permitted Restricted Payment on Preferred Shares (each as defined in the classificationSecond Amended Revolving Credit Agreement) to be made on March 31, 2023; and (ii) replace the use of the historical components of net periodic benefit costs are summarized in the following table:LIBOR with Term SOFR throughout.
| Pension & other postretirement benefit costs (benefits) | |||||||||||
| (in thousands) | December 31, 2017 | December 31, 2016 | December 31, 2015 | Current classification | Future classification | ||||||
| Service cost | $ | 804 | $ | 1,703 | $ | 13,701 | Cost of operations | Cost of operations | |||
| Interest cost | 41,432 | 41,772 | 50,644 | Cost of operations | Other income (expense) | ||||||
| Expected return on plan assets | (59,409 | ) | (61,939 | ) | (68,709 | ) | Cost of operations | Other income (expense) | |||
| Amortization of prior service cost | (2,906 | ) | 250 | 307 | Cost of operations | Other income (expense) | |||||
| Recognized net actuarial losses and mark to market adjustments | (8,696 | ) | 24,110 | 40,210 | Cost of operations or SG&A expense | Other income (expense) | |||||
| Net periodic benefit cost (benefit) | $ | (28,775 | ) | $ | 5,896 | $ | 36,153 | ||||
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSUREChanges in and Disagreements with Accountants on Accounting and Financial Disclosure
None
Item 9A. Controls and Procedures
Disclosure controlsControls and proceduresProcedures
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(as that term is defined in Rules 13a-15(e) and 15d-15(e) ofadopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended (the "Exchange Act")). Disclosure controls and procedures are the controls and processes that are designed to ensure 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 SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is accumulated and communicated to management, as appropriate, to allow timely decisions regarding required disclosures. Our disclosure controls and procedures, were developed through a process in which our management applied its judgment in assessing the costs and benefits of such controls and procedures, which, by their nature, can provide only reasonable assurance regarding the control objectives. TheIt 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 provide absolute assuranceassure 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, management of B&Wour Chief Executive Officer and Chief Financial Officer concluded that as of December 31, 2017 the design and operation of our disclosure controls and procedures are effective as of December 31, 2022 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 SECSecurities and Exchange Commission, and such information is accumulated and communicated to management including its principal executives and principal financial officers or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Management's Report on Internal Control Over Financial Reporting
B&W's management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended). Our internal control over financial reporting includes, among other things, policies and procedures for conducting business, information systems for processing transactions and an internal audit department. Mechanisms are in place to monitor the effectiveness of our internal control over financial reporting and actions are taken to remediate identified internal control deficiencies. Our procedures for financial reporting include the involvement of senior management, our Audit and Finance Committee and our staff of financial and legal professionals. Our financial reporting process and associated internal controls were designed to provide reasonable assurance to management and the Board of Directors regarding the reliability of financial reporting and the preparation of our consolidated financial statementsConsolidated Financial Statements for external reporting in accordance with accounting principles generally accepted in the United States of America.
On February 2, 2022, we acquired 100% controlling ownership Fossil Power Systems and on February 28, 2022, we acquired 100% ownership of Optimus Industries, as described in Note 26 of the Consolidated Financial Statements in Part I of this report. In accordance with the SEC’s general guidance that an assessment of a recently acquired business may be omitted from our internal control over financial reporting scope in the year of acquisition we excluded the acquired businesses from management’s report on internal control over financial reporting.
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Management, with the participation of our principal executive and financial officers, assessed the effectiveness of our internal control over financial reporting as of December 31, 2017.2022. Management based its assessment on criteria established in Internal Control–Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable assurance as to its effectiveness and may not prevent or detect misstatements. Further, because of changing conditions, effectiveness of internal control over financial reporting may vary over time. Based on our assessment, management has concluded that B&W's internal control over financial reporting was effective at the reasonable assurance level described above as of December 31, 2017.2022.
Attestation Report of our consolidated total assets and 4% of our consolidated revenues as of and for the year ended December 31, 2017, respectively. As permitted by the Securities and Exchange Commission, management has elected to exclude Universal from its assessment of internal control over financial reporting as of December 31, 2017.Independent Registered Public Accounting Firm
The effectiveness of our internal control over financial reporting as of December 31, 20172022 has been audited by Deloitte & Touche LLP, theour independent registered public accounting firm, who also audited our consolidated financial statementsas stated in their report, which is included in this Annual Report on Form 10-K. Deloitte & Touche LLP’s report onItem 9A below, under the heading “Report of Independent Registered Public Accounting Firm,” and is incorporated herein by reference.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting is includedduring the year ended December 31, 2022 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 this Annual Reportresponse to the COVID-19 pandemic. In addition, during 2022, the Company continued to outsource certain support functions to external service providers of which some were still in transition as of December 31, 2022. We are continually monitoring and assessing these situations on Form 10-K.our internal controls to ensure their operating effectiveness.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of Babcock & Wilcox Enterprises, Inc.:
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Babcock & Wilcox Enterprises, Inc. and subsidiaries (the “Company”) as of December 31, 2017,2022, based on criteria established in Internal Control -— Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2022, based on criteria established in Internal Control -— Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated and combined financial statements as of and for the year ended December 31, 20172022, of the Company and our report dated March 1, 2018 16, 2023, expressed an unqualified opinion on those financial statements and includes an explanatory paragraph related to the completion of the spin-off of the Company effective June 30, 2015 by The Babcock and Wilcox Company and an explanatory paragraph related to the Company’s ability to continue as a going concern.statements.
As described in Management’s Report on Internal Control Over Financial Reporting,Item 9A above, management excluded from its assessment the internal control over financial reporting at Universal Acoustic & Emission Technologies, Inc. ("Universal"),Fossil Power Systems and Optimus Industries, which waswere acquired on January 11, 2017February 2, 2022, and February 28, 2022, respectively, and whose financial statements constitute approximately 6%11% of total assets and approximately 4%7% of revenues of the consolidated financial statement amounts as of and for the year ended December 31, 2017.2022. Accordingly, our audit did not include the internal control over financial reporting at Universal.these acquired entities.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting.Item 9A. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in
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accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/S/s/ DELOITTE & TOUCHE LLP
March 1, 201816, 2023
Item 9B. OTHER INFORMATIONOther Information
The Company paid an amendment fee of $25,000 to PNC in consideration of the Second Amended Revolving Credit Agreement. Certain of the lenders, ("Credit Agreement")as well as certain of their respective affiliates, have performed and may in connection with our spin-off fromthe future perform for the Company and its subsidiaries, various commercial banking, investment banking, lending, underwriting, trust services, financial advisory and other financial services, for which they have received and may in the future receive customary fees and expenses. The Babcock & Wilcox Company. Theforegoing description is qualified in its entirety by the complete text of the Amended Revolving Credit Agreement, which is scheduledattached to maturethis Annual Report on June 30, 2020, provides for a senior secured revolving credit facility, initially in an aggregate amount of up to $600.0 million. The proceeds from loans under the Credit Agreement are available for working capital needs and other general corporate purposes, and the full amount is available to support the issuance of letters of credit.Form 10-K as Exhibit 10.78.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not Applicable
PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCEDirectors, Executive Officers and Corporate Governance
The information required by this item with respect to directors is incorporated by reference to the material appearing under the heading "Election“Election of Directors"Directors” in the Proxy Statement for our 20182022 Annual Meeting of Stockholders. The information
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required by this item with respect to compliance with section 16(a) of the Securities and Exchange Act of 1934, as amended, is incorporated by reference to the material appearing under the heading "Section“Section 16(a) Beneficial Ownership Compliance"Compliance” in the Proxy Statement for our 20182023 Annual Meeting of Stockholders. The information required by this item with respect to the Audit Committee and Audit and Finance Committee financial experts is incorporated by reference to the material appearing in the "Director Independence"“Director Independence” and "Audit“Audit and Finance Committee"Committee” sections under the heading "Corporate“Corporate Governance – Board–Board of Directors and Its Committees"Committees” in the Proxy Statement for our 20182022 Annual Meeting of Stockholders.
We have adopted a Code of Business Conduct for our employees and directors, including, specifically, our chief executive officer, our chief financial officer, our chief accounting officer, and our other executive officers. Our code satisfies the requirements for a "code“code of ethics"ethics” within the meaning of SEC rules. A copy of the code is posted on our web site, www.babcock.com under "Investor“Investor Relations – Corporate Governance – Highlights."” We intend to disclose promptly on our website any amendments to, or waivers of, the code covering our chief executive officer, chief financial officer and chief accounting officer.
EXECUTIVE OFFICERS
Our executive officers and their ages as of March 1, 2018,2023, are as follows:
| Name | Age | Position | ||||||
| Louis Salamone | 76 | Executive Vice President, Chief Financial Officer and Chief Accounting Officer | ||||||
| Jimmy B. Morgan | 54 | Executive Vice President and Chief | ||||||
| Senior Vice President, | ||||||||
| Senior Vice President, | ||||||||
Louis Salamone has served as our Executive Vice President, Chief Financial Officer and Chief Accounting Officer since August 2019. Before that, Mr. Salamone served as our Chief Financial Officer since February 2019. Prior to that, Mr. Salamone served as the Company's Executive Vice President of Finance since November 2018. Mr. Salamone also served as an advisor to MDx Diagnostics, LLC, a provider of medical devices, from December 2017 until February 2019. From April 2013 until December 2017, Mr. Salamone served as Chief Financial Officer of CityMD, an urgent care provider. Prior to joining CityMD, Mr. Salamone was Vice President and Chief Financial Officer of OpenPeak Inc., a provider of mobile cybersecurity solutions, from April 2009 until March 2013, and Executive Vice President and Chief Financial Officer of LCC, from June 2006 until April 2009.
Jimmy B. Morgan has served as Chief Operating Officer of The Babcock & Wilcox Company since August 2020 and was additionally named Executive Vice President on January 1, 2022. . He has also served as Managing Director of our Babcock & Wilcox Vølund subsidiary since March 2020. Previously, Mr. Morgan served as our Senior Vice President, and Chief Financial Officer. PriorBabcock & Wilcox from January 2019 to the spin-off, Ms. Apker served as Vice President, Treasurer and Investor Relations of BWC since August 2012 and, prior to that time, served as Vice President and Treasurer since joining BWC in June 2010. Previously, Ms. Apker served as Vice President and Treasurer with Dex One Corporation (formerly R.H. Donnelley Corporation), a marketing services company, from May 20032020. From December 2016 until June 2010.
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John J. Dziewisz served as our Senior Vice President and ChiefCorporate Secretary since February 1, 2020. He was additionally named Executive OfficerVice President on January 31, 2018. She previously1, 2022 and the Company’s General Counsel on January 27, 2022.He also serves as the Company’s Chief Compliance Officer. Previously, Mr. Dziewisz served in a varietyas the General Counsel of roles atThe Babcock & Wilcox Company from February 2020 to January 2022, as well as our Vice President, Assistant General Counsel & Chief Compliance Officer from January 2019 to February 2020. From June 2013 until January 2019, Mr. Dziewisz served as Assistant General Counsel, Operations & Intellectual Property. From June 2005 until June 2013, Mr. Dziewisz served as Managing Attorney with the Company. Mr. Dziewisz joined the Company or its predecessor, including as the Senior Vice-President of our Industrial segment from May 2017 until January 2018, Vice President of Retrofits and Continuous Emissions Monitoring for the Power segment from August 2016 to May 2017, Vice President, Investor Relations & Communications from June 2015 to August 2016, and as Vice President of Regulatory Affairs from January 2013 to June 2015. Before joining the Company, Ms. Kass held a number of engineering and project management-related positions of increasing responsibility with Westinghouse Electric Company, Entergy Corporation and Duke Energy Corporation.in 1997.
Chris Riker has served as Senior Vice President, Thermal since August 2022 with responsibility for the Company's global thermal energy business. He has also responsible for Babcock & Wilcox Construction Co., LLC. From June 2016 to December 2016, he wasserved as Senior Vice President, Global Parts and Field Engineering Services inService from 2018 to 2022, where he led the Company's Power segment.worldwide parts and services business, and Vice President, Industrial Steam Generation from 2016 to 2018 where he had responsibility over the Company's package boiler, pulp and paper and petrochemical businesses. . Prior to that, he was Vice President, Parts from January 2016 to May 2016, Generalled the B&W's Finance organization for B&W's former Global Services segment after serving as Controller for Babcock & Wilcox's Diamond Power International, Inc. subsidiary. Chris first joined Babcock & Wilcox in the role of Manager Replacement Parts from November 2012 to December 2015, and Operations/Alliance Manager, Replacement Parts from March 2002 to October 2012.of Internal Audit in 2010 after serving as a consultant with KPMG, LLP.
Item 11. EXECUTIVE COMPENSATIONExecutive Compensation
The information required by this item is incorporated by reference to the material appearing under the headings "Compensation Discussion“Compensation of Directors” and Analysis," "Compensation of Directors," "Compensation“Compensation of Executive Officers," "Compensation Committee Interlocks and Insider Participation" and "Compensation Committee Report"Officers” in the Proxy Statement for our 20182022 Annual Meeting of Stockholders.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERSSecurity Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table provides information on our equity compensation plans as of December 31, 2017:2022:
| (share data in thousands) | |||||
| Equity Compensation Plan Information | |||||
| Plan Category | Equity compensation plans approved by security holders | ||||
| Number of securities to be issued upon exercise of outstanding options and rights | 1,722 | ||||
| Weighted-average exercise price of outstanding options and rights | $6.78 | ||||
| Number of securities remaining available for future issuance | 2,642 | ||||
| Plan Category: | Equity compensation plans approved by security holders | ||
| Number of securities to be issued upon exercise of outstanding options and rights | 5,839,265 | ||
| Weighted-average exercise price of outstanding options and rights | $ | 13.15 | |
| Number of securities remaining available for future issuance | 247,310 | ||
The other information required by this item is incorporated by reference to the material appearing under the headings "Security Ownership of Directors and Executive Officers" and "Securityheading “Security Ownership of Certain Beneficial Owners"Owners and Management” in the Proxy Statement for our 20172023 Annual Meeting of Stockholders.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCECertain Relationships and Related Transactions, and Director Independence
Information required by this item is incorporated by reference to the material appearing under the headings "Corporate“Corporate Governance – Director Independence"Independence” and "Certain“Certain Relationships and Related Transactions"Transactions” in the Proxy Statement for our 2018the Company's 2023 Annual Meeting of Stockholders.
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICESPrincipal Accountant Fees and Services
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The information requiredabout aggregate fees billed to us by this item is incorporated by reference to the material appearingour principal accountant, Deloitte & Touche LLP (PCAOB ID No. 34) will be presented under the headingcaption "Ratification of Appointment of Independent Registered Public Accounting Firm for Year Ending December 31, 2018"2023” in the Proxy Statement for our 20182023 Annual Meeting of Stockholders.
PART IV
Item 15. Exhibits, Financial Statement Schedules
a) The following documents are filed as part of this Annual Report on Form 10-K:
1) Financial Statements—the consolidated financial statements of Babcock & Wilcox Enterprises, Inc. and its consolidated subsidiaries are included in Part II, Item 8 of this Annual Report on Form 10-K.
2) Exhibits—the exhibit index listed in the exhibit index below are filed with, or incorporated by reference in, this Annual Report on Form 10-K.
EXHIBIT INDEX
| Master Separation Agreement, dated as of June 8, 2015, between The Babcock & Wilcox Company and Babcock & Wilcox Enterprises, Inc. (incorporated by reference to Exhibit 2.1 to the Babcock & Wilcox Enterprises, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 (File No. 001-36876)). | ||||||||
| Certificate of Amendment of the Restated Certificate of Incorporation, as amended (incorporated by reference to Exhibit 3.1 to the Babcock & Wilcox Enterprises, Inc. Current Report on Form 8-K filed on July 24, 2019 (File No. 001-36876)). | ||||||||
| Amended and Restated Bylaws of the Babcock & Wilcox Enterprises, Inc. | ||||||||
| Certificate of Designations with respect to the 7.75% Series A Cumulative Perpetual Preferred Stock, dated May 6, 2021, filed with the Secretary of State of Delaware and effective on May 6, 2021 (incorporated by reference to Exhibit 3.4 to the Babcock & Wilcox Enterprises, Inc. Form 8-A filed on May 7, 2021 (File No. 001-36876)). | ||||||||
| Certificate of Increase in Number of Shares of 7.75% Series A Cumulative Perpetual Preferred Stock, dated June 1, 2021 (incorporated by reference to Exhibit 3.1 to the Babcock & Wilcox Enterprises, Inc. Current Report on Form 8-K filed on July 7, 2021 (File No. 001-36876)). | ||||||||
| Description of Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934 (incorporated by reference to Exhibit 4.2 of the Babcock & Wilcox Enterprises, Inc. Annual Report on Form 10-K for the year ended December 31, 2019 (File No. 001-36876)). | ||||||||
| Indenture dated February 12, 2021 (incorporated by reference to Exhibit 4.1 to the Babcock & Wilcox Enterprises, Inc. Current Report on Form 8-K filed on February 12, 2021 (File No. 001-36876)). | ||||||||
| First Supplemental Indenture dated February 12, 2021 (incorporated by reference to Exhibit 4.2 to the Babcock & Wilcox Enterprises, Inc. Current Report on Form 8-K filed on February 12, 2021 (File No. 001-36876)). | ||||||||
| Second Supplemental Indenture dated December 13, 2021 (incorporated by reference to Exhibit 4.3 to the Babcock & Wilcox Enterprises, Inc. Current Report on Form 8-K filed on December 14, 2021 (File No. 001-36876)). | ||||||||
| Form of 8.125% Senior Note Due 2026 (included in Exhibit 4.4) | ||||||||
| Form of 6.50%% Senior Note Due 2026 (included in Exhibit 4.5) | ||||||||
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| Form of Certificate representing 7.75% Series A Cumulative Perpetual Preferred Stock (incorporated by reference to Exhibit 4.1 to the Babcock & Wilcox Enterprises, Inc. Form 8-A filed on May 7, 2021 (File No. 001-36876)). | ||||||||
| Tax Sharing Agreement, dated as of June 8, 2015, by and between The Babcock & Wilcox Company and Babcock & Wilcox Enterprises, Inc. (incorporated by reference to Exhibit 10.1 to the Babcock & Wilcox Enterprises, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 (File No. 001-36876)). | ||||||||
| Employee Matters Agreement, dated as of June 8, 2015, by and between The Babcock & Wilcox Company and Babcock & Wilcox Enterprises, Inc. (incorporated by reference to Exhibit 10.2 to the Babcock & Wilcox Enterprises, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 (File No. 001-36876)). | ||||||||
| Transition Services Agreement, dated as of June 8, 2015, between The Babcock & Wilcox Company, as service provider, and Babcock & Wilcox Enterprises, Inc., as service receiver (incorporated by reference to Exhibit 10.3 to the Babcock & Wilcox Enterprises, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 (File No. 001-36876)). | ||||||||
| Transition Services Agreement, dated as of June 8, 2015, between Babcock & Wilcox Enterprises, Inc., as service provider, and The Babcock & Wilcox Company, as service receiver (incorporated by reference to Exhibit 10.4 to the Babcock & Wilcox Enterprises, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 (File No. 001-36876)). | ||||||||
| Assumption and Loss Allocation Agreement, dated as of June 19, 2015, by and among ACE American Insurance Company and the Ace Affiliates (as defined therein), Babcock & Wilcox Enterprises, Inc. and The Babcock & Wilcox Company (incorporated by reference to Exhibit 10.5 to the Babcock & Wilcox Enterprises, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 (File No. 001-36876)). | ||||||||
| Reinsurance Novation and Assumption Agreement, dated as of June 19, 2015, by and among ACE American Insurance Company and the Ace Affiliates (as defined therein), Creole Insurance Company and Dampkraft Insurance Company (incorporated by reference to Exhibit 10.6 to the Babcock & Wilcox Enterprises, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 (File No. 001-36876)). | ||||||||
| Novation and Assumption Agreement, dated as of June 19, 2015, by and among The Babcock & Wilcox Company, Babcock & Wilcox Enterprises, Inc., Dampkraft Insurance Company and Creole Insurance Company (incorporated by reference to Exhibit 10.7 to the Babcock & Wilcox Enterprises, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 (File No. 001-36876)). | ||||||||
| Babcock & Wilcox Enterprises, Inc. Amended and Restated 2015 Long-Term Incentive Plan (Amended and Restated as of June 14, 2019) (incorporated by reference to Appendix G to the Babcock & Wilcox Enterprises, Inc. Definitive Proxy Statement filed with the Securities and Exchange Commission on May 13, 2019). | ||||||||
| Babcock & Wilcox Enterprises, Inc. 2021 Long-Term Incentive Plan (incorporated by reference to the Babcock & Wilcox Enterprises, Inc. | ||||||||
| Babcock & Wilcox Enterprises, Inc. Executive Incentive Compensation Plan (incorporated by reference to Exhibit 10.9 to the Babcock & Wilcox Enterprises, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 (File No. 001-36876)). | ||||||||
| Babcock & Wilcox Enterprises, Inc. Management Incentive Compensation Plan (incorporated by reference to Exhibit 10.10 to the Babcock & Wilcox Enterprises, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 (File No. 001-36876)) | ||||||||
| . | ||||||||
| Supplemental Executive Retirement Plan of Babcock & Wilcox Enterprises, Inc. (incorporated by reference to Exhibit 10.11 to the Babcock & Wilcox Enterprises, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 (File No. 001-36876)). | ||||||||
| Babcock & Wilcox Enterprises, Inc. Defined Contribution Restoration Plan (incorporated by reference to Exhibit 10.12 to the Babcock & Wilcox Enterprises, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 (File No. 001-36876)). | ||||||||
| Intellectual Property Agreement, dated as of June 26, 2015, between Babcock & Wilcox Power Generation Group, Inc. and BWXT Foreign Holdings, LLC (incorporated by reference to Exhibit 10.13 to the Babcock & Wilcox Enterprises, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 (File No. 001-36876)). | ||||||||
| Intellectual Property Agreement, dated as of June 27, 2015, between Babcock & Wilcox Technology, Inc. and Babcock & Wilcox Investment Company (incorporated by reference to Exhibit 10.14 to the Babcock & Wilcox Enterprises, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 (File No. 001-36876)). | ||||||||
| Intellectual Property Agreement, dated as of May 29, 2015, between Babcock & Wilcox Canada Ltd. and B&W PGG Canada Corp. (incorporated by reference to Exhibit 10.15 to the Babcock & Wilcox Enterprises, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 (File No. 001-36876)). | ||||||||
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| Intellectual Property Agreement, dated as of May 29, 2015, between Babcock & Wilcox | ||||||||
| Intellectual Property Agreement, dated as of June 26, 2015, between The Babcock & Wilcox Company and Babcock & Wilcox Enterprises, Inc. (incorporated by reference to Exhibit 10.17 to the Babcock & Wilcox Enterprises, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 (File No. 001-36876)). | ||||||||
| Form of Change-in-Control Agreement, by and between Babcock & Wilcox Enterprises, Inc. and certain officers for officers elected prior to August 4, 2016 (incorporated by reference to Exhibit 10.1 to the Babcock & Wilcox Enterprises, Inc. Quarterly Report on Form 10-Q for the quarter ended September 30, 2016 (File No. 001-36876)). | ||||||||
| Form of Restricted Stock Grant Agreement (Spin-off Award) (incorporated by reference to Exhibit 10.1 to the Babcock & Wilcox Enterprises, Inc. Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 (File No. 001-36876)). | ||||||||
| Form of Restricted Stock Units Grant Agreement (incorporated by reference to Exhibit 10.2 to the Babcock & Wilcox Enterprises, Inc. Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 (File No. 001-36876)). | ||||||||
| Form of Stock Option Grant Agreement (incorporated by reference to Exhibit 10.3 to the Babcock & Wilcox Enterprises, Inc. Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 (File No. 001-36876)). | ||||||||
| Form of Performance Restricted Stock Unit Agreement (incorporated by reference to Exhibit 10.23 to the Babcock & Wilcox Enterprises, Inc. Annual Report on Form 10-K for the year ended December 31, 2015 (File No. 001-36876)). | ||||||||
| Form of Director and Officer Indemnification Agreement (incorporated by reference to Exhibit 10.24 to the Babcock & Wilcox Enterprises, Inc. Annual Report on Form 10-K for the year ended December 31, 2015 (File No. 001-36876)). | ||||||||
| Form of Change-in-Control Agreement, by and between Babcock & Wilcox Enterprises, Inc. and certain officers for officers elected on or after August 4, 2016 (incorporated by reference to Exhibit 10.2 to the Babcock & Wilcox Enterprises, Inc. Quarterly Report on Form 10-Q for the quarter ended September 30, 2016 (File No. 001-36876)). | ||||||||
| Form of Performance Unit Award Grant Agreement (Cash Settled) (incorporated by reference to Exhibit 10.1 to the Babcock & Wilcox Enterprises, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 2017 (File No. 001-36876)). | ||||||||
| Form of Special Restricted Stock Unit Award Grant Agreement (incorporated by reference to Exhibit 10.2 to the Babcock & Wilcox Enterprises, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 2017 (File No. 001-36876)). | ||||||||
| Babcock & Wilcox Enterprises, Inc., Severance Plan, as revised effective June 1, 2018 (incorporated by reference to the Babcock & Wilcox Enterprises, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 2018 (File No. 001-36876)). | ||||||||
| Consulting Agreement dated November 19, 2018 between Babcock & Wilcox Enterprises, Inc., and BRPI Executive Consulting (incorporated by reference to Exhibit 10.49 of the Babcock & Wilcox Enterprises, Inc. Annual Report on Form 10-K for the year ended December 31, 2018 (File No. 001-36876)). | ||||||||
| Executive Employment Agreement dated November 19, 2018 between Babcock & Wilcox Enterprises, Inc. and Louis Salamone (incorporated by reference to Exhibit 10.50 of the Babcock & Wilcox Enterprises, Inc. Annual Report on Form 10-K for the year ended December 31, 2018 (File No. 001-36876)). | ||||||||
| Executive Employment Agreement dated November 19, 2018 between Babcock & Wilcox Enterprises, Inc. and Henry Bartoli, as amended (incorporated by reference to Exhibit 10.30 of the Babcock & Wilcox Enterprises, Inc. Annual Report on Form 10-K for the year ended December 31, 2019 (File No. 001-36876)). | ||||||||
| Form of Stock Appreciation Right Award Grant Agreement (incorporated by reference to Exhibit 10.52 of the Babcock & Wilcox Enterprises, Inc. Annual Report on Form 10-K for the year ended December 31, 2018 (File No. 001-36876)). | ||||||||
| Credit Agreement, dated as of May 11, 2015, 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 10.18 to the Babcock & Wilcox Enterprises, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 (File No. 001-36876)) | ||||||||
| . | ||||||||
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| Amendment No. 1 dated June 10, 2016 to Credit Agreement, dated May 11, 2015, 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 to the Babcock & Wilcox Enterprises, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 2016 (File No. 001-36876)). | ||||||||
| Amendment No. 2 dated February 24, 2017 to Credit Agreement, dated May 11, 2015, among Babcock & Wilcox Enterprises, Inc., as the Borrower, Bank of America, N.A., as Administrative Agent, and the other Lenders party | ||||||||
| Amendment No. 3 dated August 9, 2017, to Credit Agreement dated May 11, 2015, among Babcock & Wilcox Enterprises, Inc., as the Borrower, Bank of America, N.A., as administrative Agent and Lender, and the other Lenders party thereto (incorporated by reference to Exhibit 10.1 to the Babcock & Wilcox Enterprises, Inc. Quarterly Report on Form 10-Q for the quarter ended September 30, 2017 (File No. 001-36876)). | ||||||||
| Amendment No. 4 dated September 30, 2017, to Credit Agreement dated May 11, 2015, among Babcock & Wilcox Enterprises, Inc., as the Borrower, Bank of America, N.A., as administrative Agent and Lender, and the other Lenders party thereto (incorporated by reference to Exhibit 10.3 to the Babcock & Wilcox Enterprises, Inc. Quarterly Report on Form 10-Q for the quarter ended September 30, 2017 (File No. 001-36876)). | ||||||||
| Amendment No. 5 dated March 1, 2018, to Credit Agreement, dated as of | ||||||||
| Amendment No. 6 dated April 10, 2018, to Credit Agreement, dated as of May 11, 2015, 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 the Babcock & Wilcox Enterprises, Inc. Current Report on Form 8-K filed April 11, 2018 (File No. 001-36876)). | ||||||||
| Consent and Amendment No. 7 dated May 31, 2018, to Credit Agreement, dated as of May 11, 2015, 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 the Babcock & Wilcox Enterprises, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 2018 (File No. 001-36876)). | ||||||||
| Amendment No. 8 dated August 9, 2018, to Credit Agreement, dated as of May 11, 2015, 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 the Babcock & Wilcox Enterprises, Inc. Current Report on Form 8-K filed August 13, 2018 (File No. 001-36876)). | ||||||||
| Amendment No. 9 dated September 14, 2018, to Credit Agreement, dated as of May 11, 2015, 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 the Babcock & Wilcox Enterprises, Inc. Quarterly Report on Form 10-Q for the quarter ended September 30, 2018 (File No. 001-36876)). | ||||||||
| Amendment No. 10 dated September 28, 2018, to Credit Agreement, dated as of May 11, 2015, 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 the Babcock & Wilcox Enterprises, Inc. Quarterly Report on Form 10-Q for the quarter ended September 30, 2018 (File No. 001-36876)). | ||||||||
| Amendment No. 11 dated October 4, 2018, to Credit Agreement, dated as of May 11, 2015, 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 the Babcock & Wilcox Enterprises, Inc. Quarterly Report on Form 10-Q for the quarter ended September 30, 2018 (File No. 001-36876)). | ||||||||
| Amendment No. 12 dated October 31, 2018, to Credit Agreement, dated as of May 11, 2015, 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 the Babcock & Wilcox Enterprises, Inc. Quarterly Report on Form 10-Q for the quarter ended September 30, 2018 (File No. 001-36876)). | ||||||||
| Amendment No. 13 dated December 31, 2018, to Credit Agreement, dated as of May 11, 2015, 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 10.47 of the Babcock & Wilcox Enterprises, Inc. Annual Report on Form 10-K for the year ended December 31, 2018 (File No. 001-36876)). | ||||||||
| Amendment No. 14 dated January 15, 2019 to Credit Agreement, dated as of May 11, 2015, 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 10.48 of the Babcock & Wilcox Enterprises, Inc. Annual Report on Form 10-K for the year ended December 31, 2018 (File No. 001-36876)). | ||||||||
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| Amendment No. 15 and Limited Waiver dated March 19, 2019 to Credit Agreement, dated as of May 11, 2015, 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 10.53 of the Babcock & Wilcox Enterprises, Inc. Annual Report on Form 10-K for the year ended December 31, 2018 (File No. 001-36876)). | ||||||||
| Amendment No. 16, dated April 5, 2019, to Credit Agreement, dated as of May 11, 2015, 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 to the Babcock & Wilcox Enterprises, Inc. Current Report on Form 8-K filed | ||||||||
| Amendment No. 17, dated August 7, 2019, to Credit Agreement, dated as of May 11, 2015, 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 10.49 of the Babcock & Wilcox Enterprises, Inc. Annual Report on Form 10-K for the year ended December 31, 2019 (File No. 001-36876)). | ||||||||
| Amendment No. 18, dated December 31, 2019, to Credit Agreement, dated as of May 11, 2015, 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 10.50 of the Babcock & Wilcox Enterprises, Inc. Annual Report on Form 10-K for the year ended December 31, 2019 (File No. 001-36876)). | ||||||||
| Amendment No. 19, dated January 17, 2020, to Credit Agreement, dated as of May 11, 2015, 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 10.51 of the Babcock & Wilcox Enterprises, Inc. Annual Report on Form 10-K for the year ended December 31, 2019 (File No. 001-36876)). | ||||||||
| Amendment No. 20, dated January 31, 2020, to Credit Agreement, dated as of May 11, 2015, 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 10.52 of the Babcock & Wilcox Enterprises, Inc. Annual Report on Form 10-K for the year ended December 31, 2019 (File No. 001-36876)). | ||||||||
| Investor Rights Agreement, dated as of April 30, 2019, by and among Babcock & Wilcox Enterprises, Inc., B. Riley FBR, Inc. and Vintage Capital Management, LLC (incorporated by reference to Exhibit 10.4 of the Babcock & Wilcox Enterprises, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 2019 (File No. 001-36876)). | ||||||||
| Registration Rights Agreement, dated as of April 30, 2019, by and among Babcock & Wilcox Enterprises, Inc., and certain investors party thereto (incorporated by reference to Exhibit 10.5 of the Babcock & Wilcox Enterprises, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 2019 (File No. 001-36876)). | ||||||||
| Form of | ||||||||
| First Amendment to the Babcock & Wilcox Enterprises, Inc. Defined Contribution Restoration Plan. (incorporated by reference to Exhibit 10.56 of the Babcock & Wilcox Enterprises, Inc. Annual Report on Form 10-K for the year ended December 31, 2019 (File No. 001-36876)). | ||||||||
| Backstop Commitment Letter, dated January 31, 2020, between Babcock & Wilcox Enterprises, Inc. and B. Riley Financial, Inc. (incorporated by reference to Exhibit 10.2 to the Babcock & Wilcox Enterprises, Inc. Current Report on Form 8-K filed | ||||||||
| Amendment and Restatement Agreement (attaching the Amended and Restated Credit Agreement), dated as of May 14, 2020, among Babcock & Wilcox Enterprises, Inc., as the borrower, Bank of America, N.A., as Administrative Agent, and the other lenders party thereto (incorporated by reference to Exhibit 10.1 of the Babcock & Wilcox Enterprises, Inc. Current Report on Form 8-K filed May 15, 2020 (File No. 001-36876)). | ||||||||
| Form of 2021 Long-Term Cash Incentive Award Grant Agreement (incorporated by reference to Exhibit 10.10 to the Babcock & Wilcox Enterprises, Inc. Quarterly Report on Form 10-Q for the quarter ended September 30, 2020 (File No. 001-36876)). | ||||||||
| 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)). | ||||||||
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| 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)). | ||||||||
| Settlement Agreement between Babcock & Wilcox Volund A/S and XL Insurance Company SE dated October 10, 2020 (incorporated by reference to Exhibit 10.65 of the Babcock & Wilcox Enterprises, Inc. Annual Report on Form 10-K for the year ended December 31, 2020 (File No. 001-36876)). | ||||||||
| Exchange Agreement by and between Babcock & Wilcox Enterprises Inc. and | ||||||||
| Amendment No. 2 to Amended and Restated Credit Agreement by and between Babcock & Wilcox Enterprises Inc. and Bank of America, N.A., as | ||||||||
| Amendment No. 4 to Amended and Restated Credit Agreement by and between Babcock & Wilcox Enterprises Inc. and Bank of America, N.A., as Administrative Agent, dated March 26, 2021 (incorporated by reference to Exhibit 10.1 to the Babcock & Wilcox Enterprises, Inc. Current Report on Form 8-K filed | ||||||||
| Amendment No. 5 to Amended and Restated Credit Agreement dated May 10, 2021 (incorporated by reference to the Babcock & Wilcox Enterprises, Inc. Current Report on Form 8-K filed on May 13, 2021 (File No. 001-36876)). | ||||||||
| Revolving Credit, Guaranty and Security Agreement, dated as of June 30, 2021, by and among Babcock & Wilcox Enterprises, Inc. and PNC Bank, National Association, as administrative agent, lender and swing loan lender (incorporated by reference to the Babcock & Wilcox Enterprises, Inc. Current Report on Form 8-K filed on July 7, 2021 (File No. 001-36876)). | ||||||||
| Letter of Credit Issuance and Reimbursement and Guaranty Agreement, dated as of June 30, 2021, by and among Babcock & Wilcox Enterprises, Inc. and PNC Bank, National Association, as issuer (incorporated by reference to the Babcock & Wilcox Enterprises, Inc. Current Report on Form 8-K filed on July 7, 2021 (File No. 001-36876)) | ||||||||
| Reimbursement, Guaranty and Security Agreement, dated as of June 30, 2021, by and among Babcock & Wilcox Enterprises, Inc. and MSD PCOF Partners XLV, LLC, as administrative agent (incorporated by reference to the Babcock & Wilcox Enterprises, Inc. Current Report on Form 8-K filed on July 7, 2021 (File No. 001-36876)). | ||||||||
| Guaranty Agreement, dated as of June 30, 2021, by B. Riley Financial, Inc. in favor of MSD PCOF Partners XLV, LLC, as administrative agent (incorporated by reference to the Babcock & Wilcox Enterprises, Inc. Current Report on Form 8-K filed on July 7, 2021 (File No. 001-36876)). | ||||||||
| Amendment No. 1 to Revolving Credit, Guaranty and Security Agreement, dated as of August 8, 2022, by and among Babcock & Wilcox Enterprises, Inc. and PNC Bank, National Association, as administrative agent, lender and swing loan lender, filed on Form 10-Q/A (File No. 001-36876). | ||||||||
| Amendment No. 1 to Reimbursement, Guaranty and Security Agreement, dated as of August 8, 2022, by and among Babcock & Wilcox Enterprises, Inc. and MSD PCOF Partners XLV, LLC, as administrative agent, filed on Form 10-Q/A (File No. 001-36876).. | ||||||||
| Amendment No. 2 to Reimbursement, Guaranty and Security Agreement, dated as of November 8, 2022, by and among Babcock & Wilcox Enterprises, Inc. and MSD PCOF Partners XLV, LLC, as administrative agent, filed on Form 10-Q/A, filed herein. | ||||||||
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| Amendment No. 2 to Revolving Credit, Guaranty and Security Agreement, dated as of March 14, 2023, by and among Babcock & Wilcox Enterprises, Inc. and PNC Bank, National Association, as administrative agent, lender and swing loan lender, filed herein. | ||||||||
| Significant Subsidiaries of the | ||||||||
| Consent of Deloitte & Touche | ||||||||
| Rule 13a-14(a)/15d-14(a) certification of Chief Executive | ||||||||
| Rule 13a-14(a)/15d-14(a) certification of Chief Financial | ||||||||
| Section 1350 certification of Chief Executive | ||||||||
| Section 1350 certification of Chief Financial Officer. | ||||||||
| 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 | ||||||||
| 104 | Cover Page Interactive Data File (embedded within the inline XBRL document) | |||||||
* Certain schedules and exhibits to this agreement have been omitted pursuant to Item 601(b)(2) of Regulation S-K. A copy of any omitted schedule and/or exhibit will be furnished to the SEC upon request.
† Management contract or compensatory plan or arrangement.
‡ The Company has omitted certain information contained in this exhibit pursuant to Rule 601(b)(10) of Regulation S-K. The omitted information is not material and, if publicly disclosed, would likely cause competitive harm to the Company.
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SCHEDULE II
BABCOCK & WILCOX ENTERPRISES, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Allowance for Doubtful Accounts
| Year ended December 31, | ||||||||
| (in thousands) | 2022 | 2021 | ||||||
| Balance at beginning of period | $ | 11,828 | $ | 17,222 | ||||
| Charges to costs and expenses | 187 | 262 | ||||||
| Deductions | (583) | (4,207) | ||||||
| Currency translation adjustments and other | (600) | (1,449) | ||||||
| Balance at end of period | $ | 10,832 | $ | 11,828 | ||||
Inventory Reserves
| Year ended December 31, | ||||||||
| (in thousands) | 2022 | 2021 | ||||||
| Balance at beginning of period | $ | 6,534 | $ | 7,078 | ||||
| Charges to costs and expenses | 533 | (655) | ||||||
| Deductions | 38 | 14 | ||||||
| Currency translation adjustments and other | 122 | 97 | ||||||
| Balance at end of period | $ | 7,227 | $ | 6,534 | ||||
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Item 16. Form 10-K Summary
None.
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) 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. | |||||||||
| March 16, 2023 | By: | /s/ | |||||||
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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated and on the datedates indicated.
| Signature | Title | |||||||
| /s/ Kenneth M. Young | Chairman and Chief Executive Officer (Principal Executive Officer) | |||||||
| Kenneth M. Young | ||||||||
| /s/ Louis Salamone | Executive Vice President, Chief Financial Officer and Chief Accounting Officer (Principal Financial and Accounting Officer and Duly Authorized Representative) | |||||||
| Louis Salamone | ||||||||
| /s/ Henry E. Bartoli | Director | |||||||
| Henry E. Bartoli | ||||||||
| /s/ | Director | |||||||
| /s/ | Director | |||||||
| /s/ | Director | |||||||
| /s/ | Director | |||||||
March 1, 201816, 2023
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