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

FORM 10-Q
(Mark One)
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 20182019

OR
¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                     to                     

Commission File No. 001-36876 

BABCOCK & WILCOX ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 47-2783641
(State or other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.)
 
THE HARRIS BUILDING20 SOUTH VAN BUREN AVENUE  
13024 BALLANTYNE CORPORATE PLACE, SUITE 700BARBERTON, OHIO 
CHARLOTTE, NORTH CAROLINA2827744203
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (704) 625-4900(330) 753-4511

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer x
¨
  Accelerated filer 
¨

x
    
Non-accelerated filer 
¨  (Do not check if a smaller reporting company)
  Smaller reporting company 
¨

x
       
    Emerging growth company 
¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extensionextended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    
Yes  ¨    No  x

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.01 par valueBWNew York Stock Exchange
The number of shares of the registrant's common stock outstanding at August 3, 2018July 31, 2019 was 168,675,097.46,275,057.

1





BABCOCK & WILCOX ENTERPRISES, INC.
FORM 10-Q
TABLE OF CONTENTS
  PAGE
 
 
   
 
   
 
   
 

   
 
   
 
   
 
   
 
   
 
   
 
   
 
   
 
   
 
   
 
   


2






PART I - FINANCIAL INFORMATION

ITEM 1. Condensed Consolidated Financial Statements

BABCOCK & WILCOX ENTERPRISES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended June 30, Six Months Ended June 30,Three months ended June 30,Six months ended June 30,
(in thousands, except per share amounts)20182017 201820172019201820192018
Revenues$291,337
$306,231
 $544,513
$654,303
$248,115
$291,337
$480,051
$544,513
Costs and expenses:
    
Cost of operations332,403
375,824
 609,748
674,282
203,831
332,403
404,898
609,748
Selling, general and administrative expenses52,248
57,370
 114,746
114,056
42,076
47,106
84,475
106,515
Goodwill impairment37,540

 37,540


37,540

37,540
Advisory fees and settlement costs4,778
5,142
18,388
8,231
Restructuring activities and spin-off transaction costs3,826
1,952
 10,688
4,984
936
3,826
7,015
10,688
Research and development costs1,287
2,437
 2,429
4,230
710
1,287
1,453
2,429
Loss on asset disposals, net1,384
2
 1,384
2
42
1,384
42
1,384
Total costs and expenses428,688
437,585
 776,535
797,554
252,373
428,688
516,271
776,535
Equity in income and impairment of investees
(15,232) (11,757)(14,614)
Equity in loss of investees


(11,757)
Operating loss(137,351)(146,586) (243,779)(157,865)(4,258)(137,351)(36,220)(243,779)
Other income (expense):   
Interest expense(26,837)(11,877)(37,971)(25,329)
Interest income107
125
 260
237
201
107
760
260
Interest expense(11,877)(6,283) (25,329)(7,986)
Loss on debt extinguishment(49,241)
 (49,241)
(3,969)(49,241)(3,969)(49,241)
Loss on sale of business(3,601)
(3,601)
Benefit plans, net7,086
5,249
 14,083
9,462
2,471
7,086
5,501
14,083
Foreign exchange(20,198)2,294
 (17,741)2,339
9,506
(20,198)(647)(17,741)
Other – net(131)43
 266
78
43
(131)463
266
Total other income (expense)(74,254)1,428
 (77,702)4,130
Loss before income tax expense (benefit)(211,605)(145,158) (321,481)(153,735)
Total other expense(22,186)(74,254)(39,464)(77,702)
Loss before income tax expense(26,444)(211,605)(75,684)(321,481)
Income tax expense (benefit)(1,934)3,458
 5,029
346
1,891
(1,934)2,517
5,029
Loss from continuing operations(209,671)(148,616) (326,510)(154,081)(28,335)(209,671)(78,201)(326,510)
Loss from discontinued operations, net of tax(55,932)(2,234) (59,428)(3,610)
Income (loss) from discontinued operations, net of tax694
(55,932)694
(59,428)
Net loss(265,603)(150,850) (385,938)(157,691)(27,641)(265,603)(77,507)(385,938)
Net income attributable to noncontrolling interest(165)(149) (263)(353)
Net income (loss) attributable to noncontrolling interest1
(165)102
(263)
Net loss attributable to stockholders$(265,768)$(150,999) $(386,201)$(158,044)$(27,640)$(265,768)$(77,405)$(386,201)
    
Basic and diluted loss per share - continuing operations$(1.68)$(3.05)
$(3.85)$(3.16)$(1.54)$(15.41)$(4.26)$(35.39)
Basic and diluted loss per share - discontinued operations(0.44)(0.04)
(0.70)(0.08)
Basic and diluted earnings (loss) per share - discontinued operations0.04
(4.11)0.04
(6.43)
Basic and diluted loss per share$(2.12)$(3.09)
$(4.55)$(3.24)$(1.50)$(19.52)$(4.22)$(41.82)










 



Shares used in the computation of earnings per share:   







Basic and diluted125,207
48,854
 84,921
48,797
Basic and diluted(1)
18,366
13,616
18,362
9,235
(1) Basic and diluted shares reflect the bonus element for the 2019 Rights Offering on July 23, 2019 as described in Note 2 and the one-for-ten reverse stock split on July 24, 2019 as described in Note 1.

See accompanying notes to condensed consolidated financial statements.Condensed Consolidated Financial Statements.

3





BABCOCK & WILCOX ENTERPRISES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (LOSS)
 Three Months Ended June 30, Six Months Ended June 30,
(in thousands)20182017 20182017
Net loss$(265,603)$(150,850) $(385,938)$(157,691)
Other comprehensive income (loss):     
 Currency translation adjustments (CTA), net of taxes8,517
6,757
 11,740
12,174
      
Reclassification adjustment for CTA gains included in net loss, net of taxes

 (2,044)
      
Derivative financial instruments:     
Unrealized (gains) losses on derivative financial instruments(602)(3,657) 999
2,244
Income taxes(89)(1,453) 288
(139)
Unrealized (gains) losses on derivative financial instruments, net of taxes(513)(2,204) 711
2,383
Derivative financial instrument (gains) losses reclassified into net income489
(1,550) (1,139)(6,448)
Income taxes108
(892) (248)(1,947)
Reclassification adjustment for (gains) losses included in net loss, net of taxes381
(658) (891)(4,501)
      
Benefit obligations:     
Unrealized gains (losses) on benefit obligations112
(97) 57
(141)
Unrealized gains (losses) on benefit obligations, net of taxes112
(97) 57
(141)
Amortization of benefit plan benefits(1,366)(789) (1,750)(1,662)
Income taxes1,892
11
 1,892
20
Amortization of benefit plan benefits, net of taxes(3,258)(800) (3,642)(1,682)
      
Other
(20) (38)14
      
Other comprehensive income5,239
2,978
 5,893
8,247
Total comprehensive loss(260,364)(147,872) (380,045)(149,444)
Comprehensive income (loss) attributable to noncontrolling interest(125)164
 (198)(26)
Comprehensive loss attributable to stockholders$(260,489)$(147,708) $(380,243)$(149,470)
 Three months ended June 30,Six months ended June 30,
(in thousands)2019201820192018
Net loss$(27,641)$(265,603)$(77,507)$(385,938)
Other comprehensive (loss) income:



Currency translation adjustments (CTA)(7,979)8,517
2,281
11,740





Reclassification of CTA to net loss3,176

3,176
(2,044)





Derivative financial instruments:



Unrealized (losses) gains on derivative financial instruments(189)(602)(1,367)999
Income tax (benefit) expense
(89)
288
Unrealized (losses) gains on derivative financial instruments, net of taxes(189)(513)(1,367)711
Derivative financial instrument (losses) gains reclassified into net loss(22)489
202
(1,139)
Income tax expense (benefit)
108

(248)
Reclassification adjustment for (losses) gains included in net loss, net of taxes(22)381
202
(891)





Benefit obligations:



Unrealized gains on benefit obligations, net of taxes
112

57









Amortization of benefit plan benefits(514)(1,366)(870)(1,750)
Income tax expense
1,892


1,892
Amortization of benefit plan benefits, net of taxes(514)(3,258)(870)(3,642)





Other


(38)





Other comprehensive (loss) income(5,528)5,239
3,422
5,893
Total comprehensive loss(33,169)(260,364)(74,085)(380,045)
Comprehensive income (loss) attributable to noncontrolling interest307
(125)429
(198)
Comprehensive loss attributable to stockholders$(32,862)$(260,489)$(73,656)$(380,243)
See accompanying notes to condensed consolidated financial statements.Condensed Consolidated Financial Statements.

4





BABCOCK & WILCOX ENTERPRISES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amount)June 30, 2018December 31, 2017June 30, 2019December 31, 2018
Cash and cash equivalents$28,512
$43,717
$35,190
$43,214
Restricted cash and cash equivalents32,302
25,980
9,180
17,065
Accounts receivable – trade, net236,718
252,508
200,586
197,203
Accounts receivable – other37,807
78,813
62,822
44,662
Contracts in progress149,040
135,811
150,422
144,727
Inventories67,274
72,917
63,828
61,323
Other current assets37,787
34,039
64,566
41,425
Current assets of discontinued operations83,331
88,472
Total current assets672,771
732,257
586,594
549,619
Net property, plant and equipment105,765
114,707
78,005
90,892
Goodwill47,179
85,678
47,113
47,108
Deferred income taxes99,080
97,467
Investments in unconsolidated affiliates8,421
43,278
Intangible assets36,368
42,065
28,395
30,793
Right-of-use assets13,121

Other assets28,013
25,741
18,811
27,085
Noncurrent assets of discontinued operations106,510
181,036
Total assets$1,104,107
$1,322,229
$772,039
$745,497
 



Foreign revolving credit facilities$4,124
$9,173
Second lien term loan facility
160,141
Revolving credit facilities$184,400
$145,506
Last out term loans183,056
30,649
Accounts payable191,664
205,396
167,081
199,882
Accrued employee benefits27,072
27,058
27,393
19,319
Advance billings on contracts149,768
171,997
102,284
149,367
Accrued warranty expense53,138
33,514
39,589
45,117
Lease liabilities4,229

Other accrued liabilities88,351
89,549
97,097
122,149
Current liabilities of discontinued operations57,316
47,499
Total current liabilities571,433
744,327
805,129
711,989
U.S. revolving credit facility196,300
94,300
Pension and other accumulated postretirement benefit liabilities235,369
250,002
275,136
281,647
Noncurrent lease liabilities8,816

Other noncurrent liabilities37,214
29,897
25,993
29,158
Noncurrent liabilities of discontinued operations8,236
13,000
Total liabilities1,048,552
1,131,526
1,115,074
1,022,794
Commitments and contingencies

Stockholders' equity: 
Common stock, par value $0.01 per share, authorized 200,000 shares; issued and outstanding 168,660 and 44,065 shares at June 30, 2018 and December 31, 2017, respectively1,746
499
Stockholders' deficit:
Common stock, par value $0.01 per share, authorized 500,000 shares at June 30, 2019 and 200,000 shares at December 31, 2018, respectively; issued and outstanding 16,888 and 16,879 shares at June 30, 2019 and December 31, 2018, respectively (1)
1,748
1,748
Capital in excess of par value1,045,901
800,968
1,055,759
1,047,062
Treasury stock at cost, 5,830 and 5,681 shares at June 30, 2018 and December 31, 2017, respectively(105,531)(104,785)
Retained deficit(878,823)(492,150)
Treasury stock at cost, 593 and 587 shares at June 30, 2019 and December 31, 2018, respectively (1)
(105,613)(105,590)
Accumulated deficit(1,295,319)(1,217,914)
Accumulated other comprehensive loss(16,536)(22,429)(8,010)(11,432)
Stockholders' equity attributable to shareholders46,757
182,103
Stockholders' deficit attributable to shareholders(351,435)(286,126)
Noncontrolling interest8,798
8,600
8,400
8,829
Total stockholders' equity55,555
190,703
Total liabilities and stockholders' equity$1,104,107
$1,322,229
Total stockholders' deficit(343,035)(277,297)
Total liabilities and stockholders' deficit$772,039
$745,497
(1) Issued and outstanding common shares and treasury stock shares reflect the one-for-ten reverse stock split on July 24, 2019 as described in Note 1.

See accompanying notes to condensed consolidated financial statements.Condensed Consolidated Financial Statements.

5





BABCOCK & WILCOX ENTERPRISES, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' (DEFICIT) EQUITY
 Common StockCapital In
Excess of
Par Value
Treasury StockAccumulated DeficitAccumulated
Other
Comprehensive
Loss
Noncontrolling
Interest
Total
Stockholders’
Deficit
 
 
Shares (1)
Par Value
  (in thousands, except share and per share amounts)
Balance at December 31, 201816,879
$1,748
$1,047,062
$(105,590)$(1,217,914)$(11,432)$8,829
$(277,297)
         
Net loss



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




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




(954)
(954)
Defined benefit obligations




(356)
(356)
Stock-based compensation charges7

404
(22)


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



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




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




(211)
(211)
Defined benefit obligations




(514)
(514)
Stock-based compensation charges2

205
(1)


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

2,022




2,022
Warrants

6,066




6,066
Balance at June 30, 201916,888
$1,748
$1,055,759
$(105,613)$(1,295,319)$(8,010)$8,400
$(343,035)
(1) Common stock shares reflect the one-for-ten reverse stock split on July 24, 2019 as described in Note 1.




6





 Common StockCapital In
Excess of
Par Value
Treasury StockAccumulated DeficitAccumulated
Other
Comprehensive
Loss
Noncontrolling
Interest
Total
Stockholders’
Equity (Deficit)
 
 
Shares (1)
Par Value
  (in thousands, except share and per share amounts)
Balance at December 31, 20174,407
$499
$800,968
$(104,785)$(492,150)$(22,429)$8,600
$190,703
         
Net income



(120,433)
98
(120,335)
Revenue recognition



(472)

(472)
Currency translation adjustments




1,179
(25)1,154
Derivative financial instruments




(48)
(48)
Defined benefit obligations




(439)
(439)
Available-for-sale investments



38
(38)

Stock-based compensation charges
4
149
(720)


(567)
Balance at March 31, 20184,407
$503
$801,117
$(105,505)$(613,017)$(21,775)$8,673
$69,996
Net income



(265,768)
165
(265,603)
Currency translation adjustments




8,517
(40)8,477
Derivative financial instruments




(132)
(132)
Defined benefit obligations




(3,146)
(3,146)
Available-for-sale investments



(38)

(38)
Rights offering, net12,426
1,243
243,907




245,150
Stock-based compensation charges34

877
(26)


851
Balance at June 30, 201816,867
$1,746
$1,045,901
$(105,531)$(878,823)$(16,536)$8,798
$55,555
(1) Common stock shares reflect the one-for-ten reverse stock split on July 24, 2019 as described in Note 1.

See accompanying notes to Condensed Consolidated Financial Statements.

7





BABCOCK & WILCOX ENTERPRISES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 Six Months Ended June 30,Six months ended June 30,
(in thousands) 2018201720192018
Cash flows from operating activities:  
Net loss $(385,938)$(157,691)$(77,507)$(385,938)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:  
Depreciation and amortization of long-lived assets 16,938
21,465
13,842
16,938
Amortization of debt issuance costs and debt discount 7,236
764
Amortization of deferred financing costs, debt discount and payment-in-kind interest23,115
7,236
Amortization of right of use assets2,861

Loss on sale of business3,601

Loss on debt extinguishment 49,241

3,969
49,241
Goodwill impairment of discontinued operations 72,309


72,309
Goodwill impairment 37,540


37,540
Income from equity method investees (6,605)(3,579)
(6,605)
Other than temporary impairment of equity method investment in TBWES 18,362
18,193
Other-than-temporary impairment of equity method investment in TBWES
18,362
Losses on asset disposals and impairments 1,934
114
42
1,934
Reserve for claims receivable 15,523


15,523
Provision for (benefit from) deferred income taxes (1,477)(1,326)
Mark to market gains and prior service cost amortization for pension and postretirement plans (1,149)(600)
Benefit from deferred income taxes, including valuation allowances(776)(1,477)
Mark to market losses (gains) and prior service cost amortization for pension and postretirement plans390
(1,149)
Stock-based compensation, net of associated income taxes 1,030
6,522
609
1,030
Changes in assets and liabilities  
Changes in assets and liabilities:
Accounts receivable 40,641
6,343
(5,765)40,641
Contracts in progress and advance billings on contracts (30,494)6,704
(53,571)(30,494)
Inventories 5,925
3,381
(3,951)5,925
Income taxes (4,036)(899)1,295
(4,036)
Accounts payable (15,103)25,454
(31,688)(15,103)
Accrued and other current liabilities 30,051
13,839
(15,670)20,331
Accrued contract loss(45,779)9,720
Pension liabilities, accrued postretirement benefits and employee benefits (17,579)(13,040)(110)(17,579)
Other, net 15,008
(7,331)(7,918)15,008
Net cash from operating activities (150,643)(81,687)
Net cash used operating activities(193,011)(150,643)
Cash flows from investing activities:  
Purchase of property, plant and equipment (4,350)(7,741)(434)(4,350)
Acquisition of business, net of cash acquired 
(52,547)
Proceeds from sale of business 5,105

7,445
5,105
Proceeds from sale of equity method investment in a joint venture 21,078

Proceeds from sale of equity method investments in joint venture
21,078
Purchases of available-for-sale securities (11,383)(20,328)(4,187)(11,383)
Sales and maturities of available-for-sale securities 13,578
21,840
2,880
13,578
Other, net 189
(90)(462)189
Net cash from investing activities 24,217
(58,866)5,242
24,217

68






 Six Months Ended June 30,Six months ended June 30,
(in thousands) 2018201720192018
Cash flows from financing activities:  
Borrowings under our U.S. revolving credit facility 307,300
423,823
179,700
307,300
Repayments of our U.S. revolving credit facility (205,300)(315,493)(140,200)(205,300)
Repayments of our second lien term loan facility (212,590)

(212,590)
Borrowings under our foreign revolving credit facilities 
240
Repayments of our foreign revolving credit facilities (5,022)(2,157)
Borrowings under Last Out Term Loan Tranche A-2 from related party10,000

Borrowings under Last Out Term Loan Tranche A-3 from related party141,350

Repayments under our foreign revolving credit facilities(605)(5,022)
Shares of our common stock returned to treasury stock(23)(746)
Proceeds from rights offering 248,375


248,375
Costs related to rights offering (3,225)
(682)(3,225)
Debt issuance costs (6,736)(1,422)(14,400)(6,736)
Shares of our common stock returned to treasury stock (746)(873)
Other, net 
(571)
Net cash from financing activities 122,056
103,547
175,140
122,056
Effects of exchange rate changes on cash (7,026)4,049
(3,280)(7,026)
Net decrease in cash, cash equivalents and restricted cash (11,396)(32,957)(15,909)(11,396)
Less net increase (decrease) in cash and cash equivalents of discontinued operations (2,513)167
Less net increase in cash and cash equivalents of discontinued operations
(2,513)
Net decrease in cash, cash equivalents and restricted cash of continuing operations (8,883)(33,124)(15,909)(8,883)
Cash, cash equivalents and restricted cash of continuing operations, beginning of period 69,697
115,196
60,279
69,697
Cash, cash equivalents and restricted cash of continuing operations, end of period $60,814
$82,072
$44,370
$60,814

See accompanying notes to condensed consolidated financial statements.Condensed Consolidated Financial Statements.

79





BABCOCK & WILCOX ENTERPRISES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 20182019

NOTE 1 – BASIS OF PRESENTATION

These interim financial statements of Babcock & Wilcox Enterprises, Inc. ("B&W Enterprises," "we," "us," "our" or "the Company") have been prepared in accordance with accounting principles generally accepted in the United States and Securities and Exchange Commission ("SEC") instructions for interim financial information, and should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 20172018, as amended ("Annual Report"). Accordingly, significant accounting policies and other disclosures normally provided have been omitted since such items are disclosed in our Annual Report. We have included all adjustments, in the opinion of management, consisting only of normal, recurring adjustments, necessary for a fair presentation of the interim financial statements. We have eliminated all intercompany transactions and accounts. We present the notes to our condensed consolidated financial statementsCondensed Consolidated Financial Statements on the basis of continuing operations, unless otherwise stated.

Going Concern Considerations

The accompanying condensed consolidated financial statementsCondensed Consolidated Financial Statements have been prepared on a going concern basis, which contemplates the realization of assets and the discharge of liabilities in the normal course of business for the foreseeable future. The condensed consolidated financial statementsCondensed Consolidated Financial Statements do not include any adjustments that might result from the outcome of the going concern uncertainty.

We face liquidity challenges from additional losses recognized in the fourth quarter of 2017 and the first half of 2018 on our six European renewable energyVølund EPC loss contracts described in Note 5 to the condensed consolidated financial statements,4, which caused us to be out of compliance with certain financial covenants in the agreements governing certain of our debt at December 31, 2017, March 31, 2018 and June 30, 2018. To avoid default, we obtainedhave required amendments and waivers to our U.S. revolvingmaintain compliance with the Amended Credit Agreement, inclusive of Amendments No. 16 and No. 17. Our liquidity is provided under a credit facility,agreement dated May 11, 2015, (asas amended, the "U.S.with a syndicate of lenders ("Amended Credit Agreement") that governs a revolving credit facility ("U.S. Revolving Credit Facility") that temporarily waived these financial covenant defaults, asand our last out term loan facility ("Last Out Term Loans"). The Amended Credit Agreement and the amendments and waivers are described in more detail in Note 17.13, Note 14 and Note 18.

In an effort toTo address our liquidity needs and the going concern uncertainty, we have:have taken the following actions in 2019 as follows:
raised gross proceeds of $248.4 millioncompleted equitization transactions on April 30, 2018 through a rights offeringJuly 23, 2019 as described in Note 19 (the "Rights Offering");18 and Note 17, which included an exchange of all of the outstanding balance of Tranche A-1 of the Last Out Term Loans for equity and a rights offering to raise $50.0 million that was used to fully repay Tranche A-2 of the Last Out Term Loans and to reduce a portion of the outstanding principal under Tranche A-3 of the Last Out Term Loans;
repaidexecuted a one-for-ten reverse stock split of our issued and outstanding common stock, which became effective on July 24, 2019;
completed the sale of a non-core materials handling business in Germany, Loibl GmbH ("Loibl") effective May 4, 2018 the Second Lien Term Loan Facility described31, 2019 for €10.0 million (approximately $11.4 million), subject to adjustment, resulting in Note 18, which will save approximately $25net receipt of $7.4 million;
received $150.0 million in annual interest paymentsface value from Tranche A-3 of the Last Out Term Loans before original issuance discount and $30 million of annual interest expense;
entered into an agreement on June 5, 2018 to sell our MEGTEC and Universal businesses for $130 million (subject to adjustment);
entered into an agreement on August 9, 2018 to sell a subsidiary that holds two operations and maintenance contracts for waste-to-energy facilities in West Palm Beach, Florida for $45 million (subject to adjustment),fees, as described in Note 25;
sold our equity method investments in Babcock & Wilcox Beijing Company, Ltd. ("BWBC"), a joint venture in China, and Thermax Babcock & Wilcox Energy Solutions Private Limited ("TBWES"), a joint venture in India, and settled related contractual claims, resulting in proceeds of $21.1 million in the second quarter of 2018 and $15.0 million in July 2018, respectively;
sold another non-core business for $5.1 million in the first quarter of 2018;
initiated restructuring actions and other additional cost reductions in the second quarter of 2018 that are designed to save approximately $34 million annually; and
entered into several waivers and amendments to avoid default to our U.S. Revolving Credit Facility as described in Note 17, the most recent of which is dated August 9, 2018. As part of this latest amendment, our lenders agreed to reduce the minimum liquidity required under the facility, which has the effect of increasing the amount we may borrow by up to $25 million.  Other liquidity measures that must also be completed include: a) the receipt of $30 million in net proceeds14, from the Last Out Loan, for which a binding commitment letter with Vintage Capital Management LLC, a related party, was executed on August 9, 2018, which is fully backstopped by B. Riley FBR, Inc., a related party;party, on April 5, 2019;
received $10.0 million in net proceeds from Tranche A-2 of the Last Out Term Loans, described in Note 14, from B. Riley Financial, Inc. (together with its affiliates, including B. Riley FBR, Inc., "B. Riley"), a related party, on March 20, 2019;
reduced uncertainty and b) obtaining $25 millionprovided better visibility into our future liquidity requirements by turning over five of written commitments for concessions from customers on the Renewablesix European Vølund EPC loss contracts throughto the customers by the end of second quarter of 2019, partly facilitated by a combinationsettlement related to the second and fifth loss contracts as described in Note 4, which was funded with proceeds from Tranche A-3 of cash contributions, loansthe Last Out Term Loans;
entered into an additional settlement as described in Note 4 in connection with an additional European waste-to-energy EPC contract, for which notice to proceed was not given and forgivenessthe contract was not started, whereby our obligations and our risk from acting as the prime EPC should the project move forward was eliminated;
entered into several amendments and waivers to avoid default and improve our liquidity under the terms of indebtednessour Amended Credit Agreement as described in Note 13 and performance obligations by September 30, 2018. Note 14, the most recent of which were Amendments No. 16 and No. 17, dated April 5, 2019 and August 7, 2019, respectively, which provided Tranche A-3 of the Last Out Term Loans described above and in Note 14, reset the financial and other covenants, adjusted the interest rate of the


810





Additionally, we continueLast Out Term Loans, reset the maturity date of the Last Out Term Loans to evaluate further dispositionsDecember 31, 2020, increased borrowing capacity under the U.S. Revolving Credit Facility by reducing the minimum liquidity requirement, allowed for the issuance of a limited amount of new letters of credit with respect to any future Vølund project, permitted other letters of credit to expire up to one year after the maturity of the U.S. Revolving Credit Facility, clarifies (Amendment No. 17) the definition cumulatively through Amendment No. 16 of the amounts that can be used in calculating the loss basket for certain Vølund contracts, and additional opportunitiesresets the loss basket for cost savings. We also continuecertain Vølund contracts to pursue insurance recoveries, additional relief from customers$15.0 million to align with the clarification commencing with the quarter ending March 31, 2019; and will pursue other claims where appropriate
filed and available. plan to file for waiver of required minimum contributions to the U.S. Pension Plan as described in Note 12, that if granted, would reduce cash funding requirements in 2019 by approximately $15 million and a similar or greater amount in 2020 and would increase contributions over the following five years. The waiver request for the first plan year remains under review by the IRS and the waiver request for the second plan year is expected to be filed later in 2019 or early 2020.

Management believes it has taken and is taking allcontinuing to take prudent actions to address the substantial doubt aboutregarding our ability to continue as a going concern, but we cannot assert that it is probable that our plans will fully mitigate the liquidity challenges we face.face because some matters may not fully be in our control. Amendment No. 16 to the Amended Credit Facility also created a new event of default for failure to terminate the existing U.S. Revolving Credit Facility on or prior to March 15, 2020, which is within twelve months of the date of this filing. Our plan is designedability to provide uscomply with what we believethe financial and other covenants of the Amended Credit Facility through that date are dependent upon achieving our forecasted financial results. While management believes it will be adequate liquidityable to meet our obligations for at least the twelve month period following August 9, 2018; however, our remediation plan depends on conditions and matters that may be outside of our control, including regulatory approvals that may be requiredobtain additional financing to sell certain assets, agreement to concessions from customers on the Renewable loss contracts as required under the amended terms ofreplace our U.S. Revolving Credit Facilityfacility, the ability to do so will depend on credit markets and other matters that are outside of our control.

In addition to the discussions regarding additional financing described above, we continue to evaluate further dispositions, opportunities for additional cost savings and opportunities for insurance recoveries and other claims where appropriate and available.

NYSE Continued Listing Status

On November 27, 2018, we received written notification (the "NYSE Notice"), from the New York Stock Exchange (the "NYSE"), that we were not in compliance with an NYSE continued listing standard in Rule 802.01C of the NYSE Listed Company Manual because the average closing price of our common stock fell below $1.00 over a period of 30 consecutive trading days. We can regain compliance with the minimum per share average closing price standard at any time during the six-month cure period if, on the last trading day of any calendar month during the cure period, we have (i) a closing share price of at least $1.00 and (ii) an average closing price of at least $1.00 over the 30 trading-day period ending on the last trading day of that month. We completed a reverse stock split effective as of July 24, 2019 to regain compliance, but there is no guarantee that this reverse stock split will enable us to cure this deficiency. Our common stock could also be delisted if we fail to satisfy any other continued listing standards. For example, based on our current shareholders' equity, our common stock may be subject to delisting if our average market capitalization over a consecutive 30-trading-day period is less than $50.0 million, subject to our ability to obtainregain compliance with this listing standard during an applicable cure period.

Reverse Stock Split
On July 11, 2019, the Company's board of directors approved a reverse stock split of one-for-ten on the Company's issued and maintain sufficient capacity to support contract security requirements for currentoutstanding common stock which became effective on July 24, 2019. The one-for-ten reverse stock split automatically converted every ten shares of the Company's outstanding and future business. Additionally, our ability to operate within the amended covenants and borrowing limits associated with our U.S. Revolving Credit Facility are dependent on our future financial operating results. If we cannot continue as a going concern, material adjustmentstreasury common stock prior to the carrying values and classificationseffectiveness of our assets and liabilities and the reported amountsreverse stock split into one share of income and expensecommon stock. No fractional shares were issued in the reverse stock split. Instead, stockholders who would be required.otherwise have held fractional shares received cash payments (without interest) in respect of such fractional shares. The reverse stock split did not impact any stockholder's percentage ownership of the Company, subject to the treatment of fractional shares. The reverse stock split was undertaken to increase the market price per share of the Company's common stock to allow the Company to regain compliance with the NYSE's continued listing standards relating to minimum price per share pending final approval by the NYSE.


11





NOTE 2 – EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per share of our common stock, net of noncontrolling interest:
Three months ended June 30, Six months ended June 30,Three months ended June 30,Six months ended June 30,
(in thousands, except per share amounts)20182017 201820172019201820192018
Loss from continuing operations$(209,836)$(148,765) $(326,773)$(154,434)$(28,334)$(209,836)$(78,099)$(326,773)
Loss from discontinued operations, net of tax(55,932)(2,234) (59,428)(3,610)694
(55,932)694
(59,428)
Net loss attributable to shareholders$(265,768)$(150,999) $(386,201)$(158,044)$(27,640)$(265,768)$(77,405)$(386,201)
    
Weighted average shares used to calculate basic and diluted earnings per share(1)125,207
48,854
 84,921
48,797
18,366
13,616
18,362
9,235
    
Basic and diluted loss per share - continuing operations$(1.68)$(3.05) $(3.85)$(3.16)$(1.54)$(15.41)$(4.26)$(35.39)
Basic and diluted loss per share - discontinued operations(0.44)(0.04) (0.70)(0.08)
Basic and diluted earnings (loss) per share - discontinued operations0.04
(4.11)0.04
(6.43)
Basic and diluted loss per share$(2.12)$(3.09) $(4.55)$(3.24)$(1.50)$(19.52)$(4.22)$(41.82)
(1) Weighted average shares used to calculate basic and diluted earnings per share reflect the bonus element for the 2019 Rights Offering on July 23, 2019 as described below and the one-for-ten reverse stock split on July 24, 2019 as described in Note 1.

In July 2019, the Company completed the 2019 Rights Offering, as described in Note 17, to existing common stockholders. Because the rights issuance was offered to all existing stockholders at an exercise price that was less than the fair value of the stock, the weighted average shares outstanding and basic and diluted earnings (loss) per share were adjusted retroactively to reflect the bonus element of the rights offering for all periods presented by a factor of 1.0875. Weighted average shares, prior to giving effect to the 2019 Rights Offering, in the three months ended June 30, 2019 and 2018 were 16,888 thousand and 12,521 thousand, respectively. Weighted average shares, prior to giving effect to the 2019 Rights Offering, in the six months ended June 30, 2019 and 2018 were 16,884 thousand and 8,492 thousand, respectively.

Because we incurred a net loss in the three and six months months ended June 30, 20182019 and 2017,2018, basic and diluted shares are the same.

If we had net income in the three months ended June 30, 20182019 and 2017,2018, diluted shares would include an additional 0.8 million25.7 thousand and 0.3 million84.7 thousand shares, respectively. If we had net income in the six months ended June 30, 20182019 and 2017,2018, diluted shares would include an additional 0.9 million35.8 thousand and 0.4 million93.5 thousand shares, respectively.

We excluded 3.2 million123.4 thousand and 1.9 million321.1 thousand shares related to stock options from the diluted share calculation for the three months ended June 30, 20182019 and 2017,2018, respectively, because their effect would have been anti-dilutive. We excluded 2.5 million226.6 thousand and 1.9 million248.7 thousand shares related to stock options from the diluted share calculation for the six months ended June 30, 20182019 and 2017,2018, respectively, because their effect would have been anti-dilutive.

NOTE 3DISCONTINUED OPERATIONSSEGMENT REPORTING

On June 5, 2018, we entered into a stock purchase agreement with Dürr AG and its wholly owned subsidiary, Dürr Inc., to sell our MEGTEC and Universal businesses for $130 million, subject to adjustment. As a result, the MEGTEC and Universal businesses,Our operations are assessed based on three reportable segments which were previously included in our Industrial segment, are classifiedsummarized as held for sale and as discontinued operations because the disposal represents a strategic shift that will have a major effect on our operations. Accordingly, we recorded a $72.3 million non-cash impairment charge in June 2018 to reduce the carrying value of the MEGTEC and Universal businesses to the fair value, less an amount of estimated sale costs; the non-cash impairment charge is included in Loss from discontinued operations, net of tax, and is presented below as a goodwill impairment. The sale is expected to close in third quarter 2018, subject to the satisfaction of customary closing conditions, including approval by the Committee onfollows:

9




Babcock & Wilcox segment: focused on the supply of, and aftermarket services for, steam-generating, environmental and auxiliary equipment for power generation and other industrial applications. This segment was formerly named the Power segment.

Foreign Investment inVølund & Other Renewable segment: focused on the United States. We expect to use proceeds fromsupply of steam-generating systems, environmental and auxiliary equipment and operations and maintenance services for the transaction primarily to reduce outstanding balances under our bank credit facilities.

The following table presents selected financial information regardingwaste-to-energy and biomass power generation industries. This segment was formerly named the discontinued operations included in the Condensed Consolidated Statement of Operations:Renewable segment.
 Three Months Ended June 30, Six Months Ended June 30,
(in thousands)20182017 20182017
Revenue$58,257
$43,598
 $116,439
$86,630
Cost of operations$45,521
$35,076
 $90,189
$69,097
Selling, general and administrative$7,597
$11,214
 $17,024
$21,444
Goodwill impairment$72,309
$
 $72,309
$
Restructuring charge$
$151
 $
$151
Research and development$390
$464
 $756
$933
Loss on asset disposal$
$2
 $
$2
Operating loss$(67,560)$(3,309) $(63,839)$(4,997)
Net loss$(55,932)$(2,234) $(59,428)$(3,610)

The following table presentsSPIG segment: focused on the major classessupply of assets that have been presented as assets and liabilities heldcustom-engineered cooling systems for sale in our Condensed Consolidated Balance Sheets:steam applications along with related aftermarket services. This segment was formerly part of the Industrial segment.
(in thousands)June 30, 2018 December 31, 2017
Cash and cash equivalents$10,437
 $12,950
Accounts receivable – trade, net37,821
 39,196
Accounts receivable – other(1,430) 157
Contracts in progress25,514
 25,409
Inventories8,540
 9,245
Other current assets2,449
 1,515
Current assets of discontinued operations83,331
 88,472
Net property, plant and equipment26,234
 27,224
Goodwill46,411
 118,720
Deferred income taxes1,462
 359
Intangible assets32,364
 34,715
Other assets39
 18
Noncurrent assets of discontinued operations106,510
 181,036
Total assets of discontinued operations$189,841
 $269,508
    
Accounts payable16,520
 19,838
Accrued employee benefits3,027
 3,095
Advance billings on contracts12,521
 9,073
Accrued warranty expense5,645
 5,506
Other accrued liabilities19,603
 9,987
Current liabilities of discontinued operations57,316
 47,499
Pension and other accumulated postretirement benefit liabilities6,231
 6,388
Other noncurrent liabilities2,005
 6,612
Noncurrent liabilities of discontinued operations8,236
 13,000
Total liabilities of discontinued operations$65,552
 $60,499


1012





The significant components included ingross 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 Babcock & Wilcox segment elimination is revenue associated with construction services. The primary component of total eliminations is associated with Babcock & Wilcox segment construction services provided to the SPIG segment. An analysis of our Condensed Consolidated Statements of Cash Flows for the discontinued operations areby segment is as follows:
 Six Months Ended June 30,
(in thousands)20182017
Depreciation and amortization$3,036
$5,307
Goodwill impairment$72,309
$
Provision for (benefit from) deferred income taxes$(815)$(275)
Purchase of property, plant equipment$77
$486
Acquisition of Universal, net of cash acquired$
$(52,547)
 Three months ended June 30,Six months ended June 30,
(in thousands)2019201820192018
Revenues:    
Babcock & Wilcox segment    
Retrofits$44,923
$69,344
$75,597
$131,327
New build utility and environmental55,377
42,194
124,284
55,041
Aftermarket parts and field engineering services64,308
63,299
127,395
136,372
Industrial steam generation49,357
28,464
96,367
43,370
Eliminations(13,001)(5,549)(34,121)(9,232)
 200,964
197,752
389,522
356,878
Vølund & Other Renewable segment    
Renewable new build and services31,553
40,077
61,086
84,788
Operations and maintenance services2,313
14,925
2,873
30,172
Eliminations(171)
(732)
 33,695
55,002
63,227
114,960
SPIG segment    
New build cooling systems17,385
33,699
38,391
62,744
Aftermarket cooling system services7,303
12,316
15,474
20,015
Eliminations(1,854)
(2,129)
 22,834
46,015
51,736
82,759
     
Eliminations(9,378)(7,432)(24,434)(10,084)
 $248,115
$291,337
$480,051
$544,513

Our primary measures of segment profitability are gross profit and adjusted earnings before interest, tax, depreciation and amortization ("EBITDA"). The presentation of the components of our gross profit and adjusted EBITDA in the tables below are consistent with the way our chief operating decision maker reviews the results of our operations and makes strategic decisions about our business. Items such as gains or losses on asset sales, mark to market ("MTM") pension adjustments, restructuring and spin costs, impairments, losses on debt extinguishment, costs related to financial consulting required under our U.S. Revolving Credit Facility and other costs that may not be directly controllable by segment management are not allocated to the segment. Beginning in the first quarter of 2019, pension benefit (expense), which affected only the Babcock & Wilcox segment, is also not allocated to adjusted EBITDA of the segments. Prior periods have been conformed to be comparable. Adjusted EBITDA for each segment is presented below with a reconciliation to net income. Adjusted EBITDA is not a recognized term under GAAP and should not be considered in isolation or as an alternative to net earnings (loss), operating profit (loss) or cash flows from operating activities as a measure of our liquidity. Adjusted EBITDA as presented below differs from the calculation used to compute our leverage ratio and interest coverage ratio as defined by our U.S. Revolving Credit Facility. Because all companies do not use identical calculations, the amounts presented for adjusted EBITDA may not be comparable to other similarly titled measures of other companies.

13





 Three months ended June 30,Six months ended June 30,
(in thousands)2019201820192018
Gross profit (loss)(1):
    
Babcock & Wilcox segment$37,853
$30,013
$68,959
$60,876
Vølund & Other Renewable segment5,057
(69,329)2,201
(119,778)
SPIG segment2,388
79
6,064
(2,672)
Intangible amortization expense included in cost of operations(1,014)(1,829)(2,071)(3,661)

44,284
(41,066)75,153
(65,235)
     
Selling, general and administrative ("SG&A") expenses(41,948)(46,948)(84,217)(106,120)
Advisory fees and settlement costs(4,778)(5,142)(18,388)(8,231)
Intangible amortization expense included in SG&A(128)(158)(258)(395)
Goodwill impairment
(37,540)
(37,540)
Restructuring activities and spin-off transaction costs(936)(3,826)(7,015)(10,688)
Research and development costs(710)(1,287)(1,453)(2,429)
Loss on asset disposals, net(42)(1,384)(42)(1,384)
Equity in income and impairment of investees


(11,757)
Operating loss$(4,258)$(137,351)$(36,220)$(243,779)
(1) Intangible amortization is not allocated to the segments' gross profit, but depreciation is allocated to the segments' gross profit.


14






Three months ended June 30,Six months ended June 30,
(in thousands)2019201820192018
Adjusted EBITDA  



Babcock & Wilcox segment(1) 
$19,032
$9,897
$27,996
$14,074
Vølund & Other Renewable segment(779)(78,603)(9,642)(140,357)
SPIG segment(142)(6,222)517
(13,532)
Corporate(2)
(9,367)(6,194)(14,351)(17,808)
Research and development costs(710)(1,287)(1,453)(2,429)

8,034
(82,409)3,067
(160,052)









Restructuring activities and spin-off transaction costs(936)(3,826)(7,015)(10,688)
Financial advisory services(3,197)(5,142)(7,155)(8,231)
Settlement cost to exit Vølund contract(3)


(6,575)
Advisory fees for settlement costs and liquidity planning(1,581)
(4,658)
Goodwill impairment
(37,540)
(37,540)
Impairment of equity method investment in TBWES


(18,362)
Gain on sale of equity method investment in BWBC


6,509
Depreciation & amortization(6,536)(6,921)(13,842)(13,902)
Loss on asset disposal(42)(1,513)(42)(1,513)
Operating loss(4,258)(137,351)(36,220)(243,779)
Interest expense, net(26,636)(11,770)(37,211)(25,069)
Loss on debt extinguishment(3,969)(49,241)(3,969)(49,241)
Loss on sale of business(3,601)
(3,601)
Net pension benefit before MTM3,333
6,542
6,761
13,539
MTM (gain) loss from benefit plans(862)544
(1,260)544
Foreign exchange9,506
(20,198)(647)(17,741)
Other – net43
(131)463
266
Loss before income tax expense(26,444)(211,605)(75,684)(321,481)
Income tax expense (benefit)1,891
(1,934)2,517
5,029
Loss from continuing operations(28,335)(209,671)(78,201)(326,510)
Gain (loss) from discontinued operations, net of tax694
(55,932)694
(59,428)
Net loss(27,641)(265,603)(77,507)(385,938)
Net income (loss) attributable to noncontrolling interest1
(165)102
(263)
Net loss attributable to stockholders$(27,640)$(265,768)$(77,405)$(386,201)
(1)
The Babcock & Wilcox segment adjusted EBITDA for the three and six months ended June 30, 2018 excludes $6.5 million and $13.5 million, respectively, of net benefit from pension and other postretirement benefit plans, excluding MTM adjustments, that were previously included in the segment results. Beginning in 2019, net pension benefits are no longer allocated to the segments, and prior periods have been adjusted to be presented on a comparable basis.
(2)
Allocations are excluded from discontinued operations. Accordingly, allocations previously absorbed by the MEGTEC and Universal businesses in the SPIG segment have been included with other unallocated costs in Corporate, and total $2.9 million and $5.7 million in the three months and six months ended June 30, 2018, respectively.
(3)
In March 2019, we entered into a settlement in connection with an additional European waste-to-energy EPC contract, for which notice to proceed was not given and the contract was not started. The settlement eliminates our obligations and our risk related to acting as the prime EPC should the project move forward.

We do not separately identify or report our assets by segment as our chief operating decision maker does not consider assets by segment to be a critical measure by which performance is measured.


15





NOTE 4 – SEGMENT REPORTING

Our operations are assessed based on three reportable segments, which are summarized as follows:

Power segment: focused on the supply of and aftermarket services for steam-generating, environmental and auxiliary equipment for power generation and other industrial applications.
Renewable segment: focused on the supply of steam-generating systems, environmental and auxiliary equipment for the waste-to-energy and biomass power generation industries.
Industrial segment: focused on custom-engineered cooling systems for steam applications along with related aftermarket services.

The segment information presented in the table below 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. An analysis of our operations by segment is as follows:
 Three Months Ended June 30, Six Months Ended June 30,
(in thousands)20182017 20182017
Revenues:     
Power segment     
Retrofits & continuous emissions monitoring systems$69,344
$82,070
 $131,327
$143,444
New build utility and environmental42,194
44,859
 55,041
97,550
Aftermarket parts and field engineering services63,299
62,448
 136,372
137,581
Industrial steam generation28,464
41,940
 43,370
64,813
Eliminations(5,549)(17,561) (9,232)(33,336)
 197,752
213,756
 356,878
410,052
Renewable segment     
Renewable new build and services40,077
32,130
 84,788
121,002
Operations and maintenance14,925
15,944
 30,172
32,608
 55,002
48,074
 114,960
153,610
Industrial segment     
New build cooling systems33,699
30,532
 62,744
66,906
Aftermarket cooling system services12,316
16,100
 20,015
28,911
 46,015
46,632
 82,759
95,817
      
Eliminations(7,432)(2,231) (10,084)(5,176)
 $291,337
$306,231
 $544,513
$654,303


11





Beginning in 2018, we changed our primary measure of segment profitability from gross profit to adjusted earnings before interest, tax, depreciation and amortization ("EBITDA"). The presentation of the components of our gross profit and adjusted EBITDA in the tables below are consistent with the way our chief operating decision maker reviews the results of our operations and makes strategic decisions about our business. Items such as gains or losses on asset sales, mark-to-market ("MTM") pension adjustments, restructuring and spin costs, impairments, losses on debt extinguishment, costs related to financial consulting required under Amendments 3 and 5 to our U.S. Revolving Credit Facility and other costs that may not be directly controllable by segment management are not allocated to the segment. Adjusted EBITDA for each segment is presented below with a reconciliation to net income. Adjusted EBITDA is not a recognized term under GAAP and should not be considered in isolation or as an alternative to net earnings (loss), operating profit (loss) or as an alternative to cash flows from operating activities as a measure of our liquidity. Adjusted EBITDA as presented below differs from the calculation used to compute our leverage ratio and interest coverage ratio as defined by our U.S. Revolving Credit Facility. Because all companies do not use identical calculations, the amounts presented for Adjusted EBITDA may not be comparable to other similarly titled measures of other companies.

 Three Months ended June 30, Six Months Ended June 30,
(in thousands)20182017 20182017
Gross profit (loss)(1):
     
Power segment$30,011
$43,852
 $60,876
$81,562
Renewable segment(69,329)(110,894) (119,778)(100,300)
Industrial segment79
187
 (2,672)4,886
Intangible amortization expense included in cost of operations(1,827)(2,738) (3,661)(6,127)

(41,066)(69,593) (65,235)(19,979)
Selling, general and administrative ("SG&A") expenses(52,090)(57,272) (114,351)(113,852)
Goodwill impairment(37,540)
 (37,540)
Restructuring activities and spin-off transaction costs(3,826)(1,952) (10,688)(4,984)
Research and development costs(1,287)(2,437) (2,429)(4,230)
Intangible amortization expense included in SG&A(158)(98) (395)(204)
Equity in loss of investees
(15,232) (11,757)(14,614)
Loss on asset disposals, net(1,384)(2) (1,384)(2)
Operating loss$(137,351)$(146,586) $(243,779)$(157,865)
(1) Gross profit by segment excludes intangible amortization but includes depreciation.


12






Three Months Ended June 30,
Six Months Ended June 30,
(in thousands)20182017
20182017
Adjusted EBITDA








Power segment(1)
$16,439
$27,401

$27,613
$44,810
Renewable segment(78,603)(123,302)
(140,357)(122,375)
Industrial segment(6,222)(4,880)
(13,532)(5,385)
Corporate(2)
(6,194)(9,665)
(17,808)(19,393)
Research and development costs(1,287)(2,437)
(2,429)(4,230)
Foreign exchange(20,198)2,294
 (17,741)2,339
Other – net(131)43

266
78

(96,196)(110,546)
(163,988)(104,156)










Gain on sale of equity method investment (BWBC)


6,509

Other than temporary impairment of equity method investment in TBWES
(18,193)
(18,362)(18,193)
Loss on debt extinguishment(49,241)

(49,241)
Loss on asset disposal(1,513)

(1,513)
MTM gain (loss) from benefit plans544


544
(1,062)
Financial advisory services included in SG&A(5,142)

(8,231)
Acquisition and integration costs included in SG&A
(535)

(1,432)
Goodwill impairment(37,540)
 (37,540)
Restructuring activities and spin-off transaction costs(3,826)(1,952)
(10,688)(4,984)
Depreciation & amortization(6,921)(7,774)
(13,902)(16,159)
Interest expense, net(11,770)(6,158)
(25,069)(7,749)
Loss before income tax expense(211,605)(145,158)
(321,481)(153,735)
Income tax expense (benefit)(1,934)3,458

5,029
346
Loss from continuing operations(209,671)(148,616)
(326,510)(154,081)
Loss from discontinued operations, net of tax(55,932)(2,234)
(59,428)(3,610)
Net loss(265,603)(150,850)
(385,938)(157,691)
Net income attributable to noncontrolling interest(165)(149)
(263)(353)
Net loss attributable to stockholders$(265,768)$(150,999)
$(386,201)$(158,044)
(1) Power segment adjusted EBITDA includes $6.4 million and $5.0 million of net benefit from pension and other postretirement benefit plans excluding MTM adjustments in the three months ended June 30, 2018 and 2017, respectively. Power segment adjusted EBITDA includes $13.2 million and $10.0 million of net benefit from pension and other postretirement benefit plans excluding MTM adjustments in the six months ended June 30, 2018 and 2017, respectively.
(2) Allocations are excluded from discontinued operations. Accordingly, allocations previously absorbed by the MEGTEC and Universal businesses in the Industrial segment have been included with other unallocated costs in Corporate, and total $2.9 million and $2.2 million in the three months ended June 30, 2018 and 2017, respectively, and $5.7 million and $4.4 million in the six months ended June 30, 2018 and 2017, respectively.

NOTE 5 – REVENUE RECOGNITION AND CONTRACTS

Adoption of Accounting Standards Codification ("ASC") Topic 606, Revenue from Contracts with Customers ("Topic 606")

On January 1, 2018, we adopted Topic 606 using the modified retrospective method applied to all contracts that were not completed as of January 1, 2018. Results for reporting periods beginning on or after January 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported under the accounting standards in effect for the prior period. We recorded a $0.5 million net increase to opening retained earnings as of January 1, 2018 from the cumulative effect of adopting Topic 606 that primarily related to transitioning the timing of certain sales commissions expense. The effect on revenue from adopting Topic 606 was not material for the six months ended June 30, 2018.


13





Revenue Recognition

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

Revenue from goods and services transferred to customers at a point in time, which includes certain aftermarket parts and services primarily in the PowerBabcock & Wilcox and IndustrialSPIG segments, accounted for 23%18% and 18%23% of our revenue for the three months ended June 30, 20182019 and 2017,2018, respectively, and 23%18% and 22%23% of our revenue for the six months ended June 30, 20182019 and 2017,2018, respectively. Revenue on these contracts is recognized when the customer obtains control of the asset, which is generally upon shipment or delivery and acceptance by the customer. Standard commercial payment terms generally apply to these sales.

Revenue from products and services transferred to customers over time accounted for 77%82% and 82%77% of our revenue for the three months ended June 30, 20182019 and 2017,2018, respectively, and 77%82% and 78%77% of our revenue for the six months ended June 30, 20182019 and 2017,2018, respectively. Revenue recognized over time primarily relates to customized, engineered solutions and construction services from all three of our segments. Typically, revenue is recognized over time using the percentage-of-completion method that uses costs incurred to date relative to total estimated costs at completion to measure progress toward satisfying our performance obligations. Incurred cost represents work performed, which corresponds with, and thereby best depicts, the transfer of control to the customer. Contract costs include labor, material, overhead and, when appropriate, SG&A expenses. Variable consideration in these contracts includes estimates of liquidated damages, contractual bonuses and penalties, and contract modifications. Substantially all of our revenue recognized over time under the percentage-of-completion method contain a single performance obligation as the interdependent nature of the goods and services provided prevents them from being separately identifiable within the contract. Generally, we try to structure contract milestones to mirror our expected cash outflows over the course of the contract; however, the timing of milestone receipts can greatly affect our overall cash position and have in 2018done so, particularly in our Vølund and Other Renewable segment. Refer to Note 43 for our disaggregation of revenue by product line.

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

We recognize accrued claims in contract revenues for extra work or changes in scope of work to the extent of costs incurred when we believe we have an enforceable right to the modification or claim and the amount can be estimated reliably, and its realization is probable. In evaluating these criteria, we consider the contractual/legal basis for the claim, the cause of any additional costs incurred, the reasonableness of those costs and the objective evidence available to support the claim.

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

Contract Balances

Contracts in progress, a current asset in our condensed 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 our consolidated balance sheets, includes advance billings on contracts invoices that exceed accumulated contract costs and revenues and costs recognized under the percentage-of-completion method. 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. Losses accrued in advance of the percentage-of-completion of a contract are included in other accrued liabilities, a current liability, in our consolidated balance sheets.


1416





Contract Balances

The following representrepresents the components of our contracts in progress and advance billings on contracts included in our condensed consolidated balance sheets:Condensed Consolidated Balance Sheets:
June 30,December 31,
(in thousands)20182017June 30, 2019December 31, 2018$ Change% Change
Contract assets - included in contracts in progress:    
Costs incurred less costs of revenue recognized$59,552
$69,576
$33,155
$49,910
$(16,755)(34)%
Revenues recognized less billings to customers89,488
66,235
117,267
94,817
22,450
24 %
Contracts in progress$149,040
$135,811
$150,422
$144,727
$5,695
4 %
Contract liabilities - included in advance billings on contracts:   
Billings to customers less revenues recognized$148,313
$168,880
$99,317
$140,933
$(41,616)(30)%
Costs of revenue recognized less cost incurred1,455
3,117
2,967
8,434
(5,467)(65)%
Advance billings on contracts$149,768
$171,997
$102,284
$149,367
$(47,083)(32)%
     
Net contract balance$48,138
$(4,640)$52,778
(1,137)%
   
Accrued contract losses$53,699
$40,634
$11,014
$61,651
$(50,637)(82)%

The impact of adopting Topic 606 on components of our contracts in progress and advance billings on contracts was not material at June 30,January 1, 2018.

Backlog

On June 30, 20182019 we had $1,518$585.0 million of remaining performance obligations, which we also refer to as total backlog. We expect to recognize approximately 33%37.6%, 17%20.2% and 49%42.2% of our remaining performance obligations as revenue in the remainder of 2018, 2019, 2020 and thereafter, respectively.

Changes in Contract Estimates

As of June 30, 2018, we have estimated the costs to complete all of our in-process contracts in order to estimate revenues in accordance with the percentage-of-completion method of accounting. However, it is possible that current estimates could change due to unforeseen events, which could result in adjustments to overall contract costs. The risk on fixed-priced contracts is that revenue from the customer does not cover increases in our costs. It is possible that current estimates could materially change for various reasons, including, but not limited to, fluctuations in forecasted labor productivity, transportation, fluctuations in foreign exchange rates or steel and other raw material prices. Increases in costs on our fixed-price contracts could have a material adverse impact on our consolidated financial condition, results of operations and cash flows. Alternatively, reductions in overall contract costs at completion could materially improve our consolidated financial condition, results of operations and cash flows. Variations from estimated contract performance could result in material adjustments to operating results for any fiscal quarter or year.

In the three and six months ended June 30, 20182019 and 2017,2018, we recognized changes in estimated gross profit related to long-term contracts accounted for on the percentage-of-completion basis, which are summarized as follows:
Three Months Ended June 30, Six Months Ended June 30,Three months ended June 30,Six months ended June 30,
(in thousands)20182017 201820172019201820192018
Increases in gross profits for changes in estimates for over time contracts$6,019
$4,982
 $13,946
$14,182
$8,088
$6,019
$15,894
$13,946
Decreases in gross profits for changes in estimates for over time contracts(50,327)(121,217) (110,498)(124,588)(16,051)(50,327)(23,728)(110,498)
Net changes in gross profits for changes in estimates for over time contracts$(44,308)$(116,235) $(96,552)$(110,406)$(7,963)$(44,308)$(7,834)$(96,552)

RenewableVølund EPC Loss Contracts

We had foursix Vølund contracts for renewable energy contractsfacilities in Europe that were loss contracts at December 31, 2016. During the three months ended June 30, 2017, two additional renewable energy2017. The scope of these EPC (Engineer, Procure and Construct) contracts in Europe became loss contracts. extended beyond our core technology, products and services.

In the three months ended June 30, 20182019 and June 30, 2017,2018, we recorded $57.3$3.2 million and $115.2$57.3 million in net losses, respectively, inclusive of warranty expense as described in Note 15,10, resulting from changes in the estimated revenues and costs to complete certain

15





the six European renewable energyVølund EPC loss contracts. In the three months ended June 30, 2019, we reduced our estimate of liquidated damages on these contracts by $0.4 million. These changes in estimates in the three months ended June 30, 2018 and 2017 included increases in our estimates of anticipated liquidated damages that reduced revenue associated with these six contracts by $3.1 million and $16.7 million, respectively. The total anticipated liquidated damages associated with these six contracts was $93.4 million and $49.6 million at June 30, 2018 and December 31, 2017, respectively. During the sixth months ended June 30, 2017 were corrections that reduced (increased) estimated contract losses at completion by $1.0 million, $(6.0) million and $1.1 million relating to the three months ended December 31, 2016, March 31, 2017 and June 30, 2017, respectively. Management has determined these amounts are immaterial to the consolidated financial statements in both previous periods.million.


17





In the six months ended June 30, 20182019 and June 30, 2017,2018, we recorded $110.0$7.4 million and $112.2$110.0 million in net losses, respectively, inclusive of warranty expense as described in Note 15,10, resulting from changes in the estimated revenues and costs to complete certainthe six European renewable energyVølund EPC loss contracts. In the six months ended June 30, 2019, we reduced our estimate of liquidated damages on these contracts by $0.4 million. These changes in estimates in the six months ended June 30, 2018 and 2017 included increases in our estimates of anticipated liquidated damages that reduced revenue associated with these six contracts by $16.3 million. Total anticipated liquidated damages associated with these six contracts were $88.2 million and $13.8$93.4 million at June 30, 2019 and June 30, 2018, respectively.

The charges recorded in the three and six months ended June 30, 2018 and June 30, 2017 were due to revisions in the estimated revenues and costs at completion during the period across the six loss contracts described below. Also, as described in Note 17, the August 9, 2018 amendment to the U.S. Revolving Credit Facility requires $25.0 million of concessions from customers on these Renewable loss contracts to be secured by August 31, 2018; however, these concessions have not been included in the contract estimates as of June 30, 2018 because they remained unsigned as of the filing date of these condensed consolidated financial statements. As of June 30, 2019, five of the six European Vølund EPC loss contracts had been turned over to the customer, with only punch list or agreed remediation items and performance testing remaining, some of which are expected to be performed during the customers' scheduled maintenance outages. Turnover is not applicable to the fifth loss contract under the terms of the March 29, 2019 settlement agreement with the customers of the second and fifth loss contracts, who are related parties to each other. Under that settlement agreement, we limited our remaining risk related to these contracts by paying a combined £70 million ($91.5 million) on April 5, 2019 in exchange for limiting and further defining our obligations under the second and fifth loss contracts, including waiver of the rejection and termination rights on the fifth loss contract that could have resulted in repayment of all monies paid to us and our former civil construction partner (up to approximately $144 million), and requirement to restore the property to its original state if the customer exercised this contractual rejection right. On the fifth loss contract, we agreed to continue to support construction services to complete certain key systems of the plant by May 31, 2019, for which penalty for failure to complete these systems is limited to the unspent portion of our quoted cost of the activities through that date. The settlement eliminated all historical claims and remaining liquidated damages. Upon completion of these activities in accordance with the settlement, we will have no further obligation related to the fifth loss contract other than customary warranty of core products if the plant is used as a biomass plant as designed. We estimated the portion of this settlement related to waiver of the rejection right on the fifth project was $81.1 million, which was recorded in the fourth quarter of 2018 as a reduction in the selling price. We are still pursuing insurance recoveries and claims against subcontractors. For the second loss project, the settlement limited the remaining performance obligations and settled historic claims for nonconformance and delays, and we turned over the plant in May 2019, and subsequently began the operations and maintenance contract to operate this plant.

As of June 30, 2019, the status of these six Vølund EPC loss contracts was as follows:

The first contract, a waste-to-energy plant in Denmark, became a loss contract in the second quarter of 2016. As of June 30, 2018,2019, this contract iswas approximately 97% complete and construction activities are complete as of the date of this report. The unit became operational during the second quarter of 2017, and is only pending completion of contractual trial operations and takeover activities and requirements, to which2017. A settlement was reached with the customer has not yet agreed. Our estimates atto achieve takeover on January 31, 2019, after which only punch list items and other agreed to remediation items remain, most of which are expected to be performed during the customer's scheduled maintenance outages. As of January 31, 2019, the contract is in the warranty phase. During the three and six months ended June 30, 2018 assume complete takeover by2019, we recognized additional contract losses of $2.0 million on this contract as a result of identifying additional remediation costs in the customersecond quarter of 2019. Our estimate at completion as of June 30, 2019 includes $9.1 million of total expected liquidated damages. As of June 30, 2019, the end of 2018. Duringreserve for estimated contract losses recorded in other accrued liabilities in our Condensed Consolidated Balance Sheets was $3.2 million. In the three and six months ended June 30, 2018, we recognized additional contract losses of $8.3 million and $15.3 million, respectively, on the contract as a result of differences in actual and estimated costs, schedule delays, issues encountered during trial operations and increases in expected warranty costs. Our estimate at completion as of June 30, 2018 includes $9.4 million of total expected liquidated damages. As of June 30, 2018, the reserve for estimated contract losses recorded in "other accrued liabilities" in our condensed consolidated balance sheet was $3.1 million. In the three and six months ended June 30, 2017, we recognized additional contract losses of $10.5 million as a result of differences in actual and estimated costs and schedule delays in the second quarter of 2017. As of June 30, 2017, this contract had $3.9$3.1 million of accrued losses and was 94%97% complete.

The second contract, a biomass plant in the United Kingdom, became a loss contract in the fourth quarter of 2016. As of June 30, 2018,2019, this contract was approximately 86%100% complete. Commissioning activitiesTrial operations began in the first quarter of 2018, construction activities are substantially complete, startup activities are underwayApril 2019 and takeover by the customer occurred effective May 2019. This project is subject to the March 29, 2019 settlement agreement described above. During the three and six months ended June 30, 2019, we recognized additional contract losses of $1.2 million and $1.9 million, respectively, on this contract as a result of repairs required during startup commissioning activities, additional punch list and other commissioning costs, and changes in construction cost estimates. Our estimate at completion as of June 30, 2019 includes $19.1 million of total expected earlyliquidated damages due to schedule delays. Our estimates at completion as of June 30, 2019 and 2018 also include contractual bonus opportunities for guaranteed higher power output and other performance metrics. As of June 30, 2019, the reserve for estimated contract losses recorded in the fourth quarter of 2018. Duringother accrued liabilities in our Condensed Consolidated Balance Sheets was $0.1 million. In the three and six months ended June 30, 2018, we recognized additional contract losses of $9.3 million and $13.4 million, respectively, on this contract as a result of repairs required during startup commissioning activities in the second quarter of 2018, increases in expected warranty costs, changes in construction cost estimates, subcontractor productivity being lower than previous estimates, and additional expected punch list and other commissioning costs. Our estimate at completion as of June 30, 2018 includes $19.8 million of total expected liquidated damages due to schedule delays. Our estimate at completion as of June 30, 2018 also includes contractual bonus opportunities for guaranteed higher power output (discussed further below). As of June 30, 2018, the reserve for estimated contract losses recorded in "other accrued liabilities" in our condensed consolidated balance sheet was $10.6 million. In the three and six months ended June 30, 2017, we recognized losses of $41.2 million and $37.4 million, respectively, from changes in construction cost estimates schedule delays, and as of June 30, 2017, this contract had $16.6$10.6 million of accrued losses and was 69%86% complete.

18






The third contract, a biomass plant in Denmark, became a loss contract in the fourth quarter of 2016. As of June 30, 2018,2019, this contract was approximately 99% complete and construction activities are complete as of the date of this report. The unit became operational during the second quarter of 2017, and partial takeover was achieved100% complete. Warranty began in March 2018, when we agreed to a partial takeover with the contract moved intocustomer, and we agreed to a full takeover by the warranty phase. Remaining activities relatecustomer at the end of October 2018, when we also agreed to a scheduled timeline for remaining punch list finalization and are plannedactivities to be completed in the third quarter of 2018 afteraround the customer's nextfuture planned outage.outages. During the three and six months ended June 30, 2018,2019, we recognizeddid not recognize additional contract losses of $1.6 million and $3.5 million, respectively, as a result of changes incharges on the estimated costs at completion.contract. Our estimate at completion as of June 30, 20182019 includes $7.0$6.7 million of total expected liquidated damages due to schedule delays. As of June 30, 2018,2019, the reserve for estimated contract losses recorded in "otherother accrued liabilities"liabilities in our condensed consolidated balance sheetCondensed Consolidated Balance Sheets was $0.5$0.1 million. In the three and six

16





months ended June 30, 2017,2018, we recognized charges of $2.7$1.6 million and $5.5$3.5 million, respectively, from changes in our estimate at completion, and as of June 30, 2017,2018, this contract had $1.5$0.5 million of accrued losses and was 95%99% complete.

The fourth contract, a biomass plant in the United Kingdom, became a loss contract in the fourth quarter of 2016. As of June 30, 2018,2019, this contract was approximately 88%99% complete. Commissioning activitiesTrial operations began in the first quarter ofNovember 2018 construction was substantially complete at June 30, 2018. Startup of the unit occurred in May 2018, and synchronization to the electrical grid while firing on biomass fuel occurred in July 2018. We expect takeover by the customer occurred in February 2019, after which only final performance testing, for which performance metrics have been previously demonstrated, and punch list and other agreed upon items remain, some of which are expected to be performed during the third quarter after successful completion of trial operations and resolution of punchlist items.customer's scheduled maintenance outages. During the three and six months ended June 30, 2018,2019, we revised ourrecognized additional contract charges of $4.0 million and $4.3 million, respectively, on this contract due to changes in estimated bonus revenue and costs at completion for this loss contract, which resulted in $12.8 million and $24.8 million, respectively, of additional contract losses duecost to challenges in startup commissioning activities in the second quarter of 2018, increases in expected warranty costs, subcontractor productivity being lower than previous estimates, additional expectedcomplete remaining punch list, remediation of certain performance guarantees and other commissioning cost, estimated claim settlements and estimated liquidated damages.close out items. Our estimate at completion as of June 30, 20182019 includes $19.7$20.7 million of total expected liquidated damages due to schedule delays. Our estimateestimates at completion as of June 30, 20182019 also includesinclude contractual bonus opportunities for guaranteed higher power output (discussed further below).and other performance metrics. As of June 30, 2018,2019, the reserve for estimated contract losses recorded in "otherother accrued liabilities" liabilities in our condensed consolidated balance sheetCondensed Consolidated Balance Sheets was $6.3$0.4 million. In the three and six months ended June 30, 2017,2018, we recognized additional contract losses of $23.8$12.8 million and $21.9$24.8 million, respectively, fromon this contract as a result of changes in our estimate at completion,the expected selling price, changes in construction cost estimates and schedule delays, and as of June 30, 2017,2018, this contract had $8.8$6.3 million of accrued losses and was 66%88% complete.

The fifth contract, a biomass plant in the United Kingdom, became a loss contract in the second quarter of 2017. As of June 30, 2018,2019, this contract was approximately 62% complete, and we expect construction will be substantially completed97% complete. This project is subject to the March 29, 2019 settlement agreement described above. We estimated the portion of this settlement related to waiver of the rejection right on this contract in late 2018 with takeover by the customerfifth project was $81.1 million, which was recorded in the thirdfourth quarter of 2018 as a reduction in the selling price. Under the settlement, our remaining performance obligations were limited to construction support services to complete certain key systems of the plant by May 31, 2019. The settlement also eliminates all historical claims and remaining liquidated damages. Remaining items at June 30, 2019 are primarily related to punch list and other finalization items for the key systems under the terms of the settlement and subcontract close outs. During the three andmonths ended June 30, 2019, our estimated loss on the contract improved by $4.0 million inclusive of warranty. During the six months ended June 30, 2018, we revised2019, our estimated revenue and costs at completion for this loss contract, which resulted in $21.4 million and $39.7 million, respectively, of additional contract losses. First quarter 2018 changes in estimate on this fifth contract relate primarily to taking over of the civil scope from our joint venture partner, which entered administration (similar to filing for bankruptcy in the U.S.) in late February 2018 and receiving regulatory release later than expected (March 29, 2018) to begin repairs to the failed steel beam, which further increased costs to complete remaining work streams in a compressed time frame. Full access to the site was obtained on June 6, 2018 after the steel beam repairs were completed. Second quarter 2018 changes in estimated costs to complete this contract reflect an extended schedule from greater challenges in restarting work on a site that had been idle pending repairs on the failed steel beam, including the extentcontract improved by $1.8 million inclusive of items that had been damaged from weather exposure, and increases in expected warranty costs.warranty. Our estimate at completion as of June 30, 20182019, includes $21.0$13.6 million of total expected liquidated damages due to schedule delays. As of June 30, 2018,2019, the reserve for estimated contract losses recorded in "otherother accrued liabilities"liabilities in our condensed consolidated balance sheetCondensed Consolidated Balance Sheets was $29.0$5.3 million. In the three and six months ended June 30, 2017,2018, we recognized charges of $23.3$21.4 million and $39.7 million, respectively, from changes in our estimate at completion, and as of June 30, 2017,2018, this contract had $9.4$29.0 million of accrued losses and was 57%62% complete. This fifth project also includes a rejection clause that gives the customer the option to reject the deliverable, recover all monies paid to us and our partner (up to approximately $144 million), and require us to restore the property to its original state if a certain contractual milestone is not met by September 30, 2018. As of June 30, 2018, we believe we will meet the regulatory approval requirements intended by the milestone, but do not expect to be able to meet the milestone as defined in the contract unless modified by the customer. Our June 30, 2018 estimate at completion does not assume the customer's exercise of the rejection right because management believes the customer will not exercise its rejection right; however, we cannot control whether the customer will agree to modify the contract or exercise its right to reject the contract and no assurances can be given in this regard. Additionally, meeting the regulatory approval requirements intended by the contract milestone by September 30, 2018 will require, among other things, the coordination of and cooperation from various subcontractors and the customer.  Our project plans include accelerating construction work and taking other remedial actions, if necessary. Any material productivity or timing issues relating to those subcontractors may jeopardize our ability to meet the regulatory requirements intended by the contract milestone.

The sixth contract, a waste-to-energy plant in the United Kingdom, became a loss contract in the second quarter of 2017. As of June 30, 2018,2019, this contract was approximately 87%99% complete. Commissioning activitiesTrial operations began in the first quarter of 2018, initial startup activities are underway, construction was substantially completed in JulyDecember 2018 and customer takeover byoccurred on January 25, 2019, after which only final performance testing, for which performance metrics have been previously demonstrated, and punch list and other agreed upon items remain, some of which are expected to be performed during the customercustomer's scheduled maintenance outages. The contract is expected early in the fourth quarter of 2018.warranty phase. During the three and six months ended June 30, 2018,2019, we revised our estimated revenue and costs at completion for this loss contract, which resulted in additional contract lossescharges of $3.9$0.1 million and $13.3$0.9 million, duerespectively related to additional schedule delays, inclusive of liquidated damages, estimated claim settlements, and increasesmatters encountered in expected warranty costs.completing punch list items. Our estimate at completion as of June 30, 20182019 includes $16.4$19.0 million of total expected liquidated damages due to schedule delays. The change in the status of this contract in 2018 was primarily attributable to changes in the estimated costs at completion and schedule delays. As of June 30, 2018,2019, the reserve for estimated contract losses recorded in "otherother accrued liabilities"liabilities in our condensed

17





consolidated balance sheetCondensed Consolidated Balance Sheets was $2.6$0.2 million. In the three and six months ended June 30, 2017,2018, we recognized additional contract losses of $18.5$3.9 million fromand $13.3 million, respectively, as a result of changes in our estimate at completion, and as of June 30, 2017,2018, this contract had $4.0$2.6 million of accrued losses and was 59%87% complete.

During the three and six months ended June 30, 2019, we recognized additional charges of $1.3 million and $1.5 million, respectively, on our other Vølund renewable energy projects that are not loss contracts. During the three and six months

19





ended June 30, 2018, we did not recognize additional losses on our other Vølund renewable energy projects that are not loss contracts.

In September 2017, we identified the failure of a structural steel beam on the fifth contract, which stopped work in the boiler building and other areas pending corrective actions to stabilize the structure. Provisional regulatory approval to begin structural repairs to the failed beam was obtained at the end ofon March 29, 2018 (later than previously estimated), and full approval to proceed with repairs was obtained in April 2018. Full access to the site was obtained inon June 6, 2018 after completion of the repairs to the structure. The engineering, design and manufacturing of the steel structure were the responsibility of our subcontractors. A similar design was also used on the second and fourth contracts, and although no structural failure occurred on these two other contracts, work was also stopped in certain restricted areas while we added reinforcement to the structures, which also resulted in delays that lasted until late January 2018. The total costs related to the structural steel issues on these three contracts, including contract delays, are estimated to be approximately $46$36 million, which is included in the June 30, 20182019 estimated losses at completion for these three contracts. We are continuing to aggressively pursue recovery of this cost under various applicable insurance policies and from responsible subcontractors. In June 2019, we agreed in principle to a settlement agreement under one insurance policy related to recover GBP 2.8 million ($3.5 million) of certain losses on the fifth project; we also recorded this recovery in accounts receivable - other in our Condensed Consolidated Balance Sheet as of June 30, 2019.

Also during the third quarter of 2017, we implemented a design change in three of the renewable facilities to increase the guaranteed power output, which will allow us to achieve contractual bonus opportunities for the higher output. In the fourth quarter of 2017, we obtained agreement from certain customers to increase the value of these bonus opportunities and to provide partial relief on liquidated damages. The bonus opportunities and liquidated damages relief increased the estimated selling price of the three contracts by approximately $19 million in total, and this positive change in estimated cost to complete was fully recognized in 2017 because each was a loss contract.

During the third quarter of 2016, we determined it was probable that we would receiveclaimed a $15.5DKK 100.0 million (DKK 100.0($15.5 million) insurance recovery for a portion of the losses on the first European renewable energyVølund contract discussed above. In late May 2018, our insurer disputed coverage on our insurance claim. We believe that the dispute from the insurer is without merit and continue to believe we are entitled to the full value of the claim. We intendcontinued to aggressively pursue full recovery under the policy, and we filed for arbitration in July 2018. However,On June 28, 2019, we agreed to a full settlement, under which our insurer paid DKK 37 million ($5.6 million) to us in July 2019. As of December 31, 2018 and March 31, 2019, we had net receivable of DKK 20.0 million ($3.2 million), which was increased to DKK 37 million ($5.6 million) as of June 30, 2019 in accounts receivable - other in our Condensed Consolidated Balance Sheets.

Other Vølund Contract Settlement

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

SPIG U.S. Loss Contract

At June 30, 2019, SPIG had one significant loss contract, which is a contract to engineer, procure materials and then construct a dry cooling system for a gas-fired power plant in the U.S.  At June 30, 2019, the design and procurement are substantially complete, and construction is nearing completion.  Overall, the contract is 97% complete and it is expected be fully complete in mid-2019. As of June 30, 2019, the reserve for estimated contract losses recorded in other accrued liabilities in our Condensed Consolidated Balance Sheets was $0.5 million related to this contract.  Construction is being performed by the Babcock & Wilcox segment, but the contract loss is included in the SPIG segment.

NOTE 5 – INVENTORIES

The components of inventories are as follows:
(in thousands)June 30, 2019December 31, 2018
Raw materials and supplies$45,931
$44,833
Work in progress6,142
5,348
Finished goods11,755
11,142
Total inventories$63,828
$61,323


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NOTE 6 – PROPERTY, PLANT & EQUIPMENT

Property, plant and equipment less accumulated depreciation is as follows:
(in thousands)June 30, 2019December 31, 2018
Land$3,568
$3,575
Buildings106,182
106,238
Machinery and equipment176,928
181,825
Property under construction2,381
2,290
 289,059
293,928
Less accumulated depreciation211,054
203,036
Net property, plant and equipment$78,005
$90,892

In September 2018, we relocated our corporate headquarters to Barberton, Ohio from Charlotte, North Carolina. At the same time, we announced that we would consolidate most of our Barberton and Copley, Ohio operations into new, leased office space in Akron, Ohio. The move to the new, leased office space is expected to occur during the fourth quarter of 2019.  We do not expect to incur significant relocation costs; however, we expect $7.9 million of accelerated depreciation to be recognized through mid-2019, of which $2.0 million and $4.0 million was recognized during the three and six months ended June 30, 2019, respectively, and $7.3 million has been recognized cumulatively, since the decision to relocate in the third quarter of 2018.

NOTE 7 - GOODWILL

The following summarizes the changes in the net carrying amount of goodwill as of June 30, 2019:
(in thousands)Babcock & Wilcox
Balance at December 31, 2018$47,108
Currency translation adjustments5
Balance at June 30, 2019$47,113

In January 2017, the Financial Accounting Standards Board ("FASB") issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment (ASU 2017-04). The standard simplifies the subsequent measurement of goodwill by removing the requirement to perform a hypothetical purchase price allocation to compute the implied fair value of goodwill to measure impairment. Instead, goodwill impairment is measured as the difference between the fair value of the reporting unit and the carrying value of the reporting unit. The standard also clarifies the treatment of the income tax effect of tax-deductible goodwill when measuring goodwill impairment loss. We early adopted ASU 2017-04 on April 1, 2018, effective the first day of our 2018 second quarter.

Goodwill is tested for impairment annually and when impairment indicators exist. All of our remaining goodwill is related to the Babcock & Wilcox reporting unit in the Babcock & Wilcox segment. Because the Babcock & Wilcox reporting unit had a negative carrying value, reasonable changes in the assumptions would not indicate impairment. No impairment indicators were identified during the six months ended June 30, 2019. In the three and six months ended June 30, 2018, we recognized $37.5 million impairment of all the remaining goodwill in the SPIG reporting unit resulting from a reduction in their bookings than previously forecasted.


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NOTE 8– INTANGIBLE ASSETS

Our intangible assets are as follows:
(in thousands)June 30, 2019December 31, 2018
Definite-lived intangible assets  
Customer relationships$24,544
$24,764
Unpatented technology15,098
15,098
Patented technology2,611
2,616
Tradename12,514
12,566
All other9,938
9,728
Gross value of definite-lived intangible assets64,705
64,772
Customer relationships amortization(17,968)(17,219)
Unpatented technology amortization(4,507)(3,760)
Patented technology amortization(2,412)(2,348)
Tradename amortization(3,968)(3,672)
All other amortization(8,760)(8,285)
Accumulated amortization(37,615)(35,284)
Net definite-lived intangible assets$27,090
$29,488
Indefinite-lived intangible assets  
Trademarks and trade names$1,305
$1,305
Total intangible assets, net$28,395
$30,793

The following summarizes the changes in the carrying amount of intangible assets:
 Six months ended June 30,
(in thousands)20192018
Balance at beginning of period$30,793
$42,065
Amortization expense(2,331)(4,056)
Currency translation adjustments and other(67)(1,641)
Balance at end of the period$28,395
$36,368

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

Estimated future intangible asset amortization expense is as follows (in thousands):
 Amortization Expense
Three months ending September 30, 2019$940
Three months ending December 31, 2019940
Twelve months ending December 31, 20203,487
Twelve months ending December 31, 20213,261
Twelve months ending December 31, 20223,200
Twelve months ending December 31, 20233,197
Twelve months ending December 31, 20243,085
Thereafter8,980


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NOTE 9– LEASES

Accounting for Leases

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). We adopted this new standard on January 1, 2019 and used the effective date as our date of initial application while continuing to present the comparative periods in accordance with the guidance under the lease standard in effect during those prior periods in the Condensed Consolidated Financial Statements. We recorded an immaterial cumulative-effect adjustment to the opening balance of retained earnings on the date of adoption. We elected the "package of practical expedients", which permits us not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs. However, we did not elect to adopt the hindsight practical expedient and are therefore maintaining the lease terms we previously determined under ASC 840.

We have implemented new lease accounting software and have established new processes and internal controls that are required to comply with the new lease accounting and disclosure requirements set forth by the new standard. See Note 27 for additional information about the impact of adopting ASC 842 in the Condensed Consolidated Financial Statements.

We determine if an arrangement is a lease at inception. Leases are included in Right-of-use ("ROU") assets, lease liabilities and noncurrent lease liabilities in the Condensed Consolidated Balance Sheets. ROU assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As substantially all of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at lease commencement date in determining the present value of future payments. The ROU assets also include any lease payments made and excludes lease incentives and initial direct costs incurred. Our lease terms may include options to extend or terminate the lease, which we recognize when it is reasonably certain that we will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. Leases with an initial term of 12 months or less are not recorded on the balance sheet.

For leases beginning in 2019 and later, we account for lease components (e.g., fixed payments including rent, real estate taxes and insurance costs) together with the non-lease components (e.g., common-area maintenance costs) as a single lease component for all classes of underlying assets.

In September 2018, we announced that we would consolidate most of our Barberton and Copley, Ohio operations into new, leased office space in Akron, Ohio. The move to the new, leased office space is expected to occur during the fourth quarter of 2019.  As of June 30, 2019, the operating lease agreement for the office space in Akron had not yet commenced; it will commence when it is ready for occupation. The lease has an initial term of fifteen years, with an option to extend up to two additional ten-year terms. Base rent will increase two percent annually, making the total future minimum payments during the initial term of the lease approximately $55 million. This lease, which has not yet commenced, is not included in the following tables.

Operating Leases

We have operating leases for real estate, vehicles, and certain equipment. We do not have any financing leases in our portfolio. Our leases have remaining lease terms of up to 10 years, some of which may include options to extend the leases for up to 5 years, and some of which may include options to terminate the leases within 1 year.

The components of lease expense were as follows:
(in thousands)Three months ended June 30, 2019Six months ended June 30, 2019
Operating lease expense$1,589
$3,498
Short-term lease expense2,335
5,196
Variable lease expense871
983
Sublease income (1)
(14)(24)
   Total lease expense$4,781
$9,653
(1) Sublease income excludes rental income from owned properties, which is not material.


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Other information related to leases is as follows:
(in thousands)Three months ended June 30, 2019Six months ended June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:  
Operating cash flows from leases$1,560
$3,661
Right-of-use assets obtained in exchange for lease liabilities:

 
Operating leases$812
$1,013

Amounts relating to leases were presented in the Condensed Consolidated Balance Sheets as of June 30, 2019 in the following line items:
(in thousands, except lease term and discount rate)June 30, 2019
Right-of-use assets$13,121
  
Liabilities: 
Lease liabilities$4,229
Noncurrent lease liabilities8,816
Total lease liabilities$13,045
  
Weighted-average remaining lease term: 
   Operating leases (in years)3.61
Weighted-average discount rate:

   Operating leases9.47%

Future minimum lease payments required under non-cancellable operating leases as of June 30, 2019 were as follows:
(in thousands) 
Six months ending December 31, 2019$2,702
Twelve months ending December 31, 20204,774
Twelve months ending December 31, 20213,332
Twelve months ending December 31, 20222,155
Twelve months ending December 31, 20231,417
Thereafter899
Total$15,279
Less imputed interest(2,234)
Lease liability$13,045


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NOTE 10 – ACCRUED WARRANTY EXPENSE

We may offer assurance type warranties on products and services we sell. Changes in the carrying amount of our accrued warranty expense are as follows:
 Six months ended June 30,
(in thousands)20192018
Balance at beginning of period$45,117
$33,514
Additions2,717
28,008
Expirations and other changes(4,412)(1,592)
Payments(3,641)(5,791)
Translation and other(192)(1,001)
Balance at end of period$39,589
$53,138

We accrue estimated expense included in cost of operations to satisfy contractual warranty requirements when we recognize the associated revenues on the related contracts, or in the case of a loss contract, the full amount of the estimated warranty costs is accrued when the contract becomes a loss contract. In addition, we record specific provisions or reductions where we expect the actual warranty costs to significantly differ from the accrued estimates. Such changes could have a material effect on our consolidated financial condition, results of operations and cash flows. Warranty expense in the three and six months ended June 30, 2019 includes $3.9 million of warranty reversal related to developments in the quarter stemming from the March 29, 2019 settlement agreement for the Vølund EPC contracts described in Note 4. Warranty expense for the six months ended June 30, 2018, includes a $15.1 million increase in expected warranty costs for the six European renewable energy loss contracts based on experience from the startup and commissioning activities in the second quarter of 2018 based upon the dispute by the insurer, which is considered contradictory evidenceand $5.3 million of specific provisions on certain contracts in the accounting probability assessment of this loss recovery, even if it is believed to be without merit. The insurance recovery of $0 millionBabcock & Wilcox segment for specific technical matters and $15.5 million, net of allowance is recorded in accounts receivable - other in our condensed consolidated balance sheet at June 30, 2018 and December 31, 2017, respectively.customer requirements.

NOTE 611 – RESTRUCTURING ACTIVITIES AND SPIN-OFF TRANSACTION COSTS

Restructuring LiabilitiesThe following tables summarize the restructuring activity and spin-off costs incurred by segment:
(in thousands) 
Three months ended June 30, 2019Total severance and related costs
Babcock & Wilcox segment$127
Vølund & Other Renewable segment437
SPIG segment258
Corporate114
 $936

At the end of June
(in thousands) 
Six months ended June 30, 2019Total severance and related costs
Babcock & Wilcox segment$4,075
Vølund & Other Renewable segment1,015
SPIG segment401
Corporate1,524
 $7,015


25





(in thousands)    
Three months ended June 30, 2018Severance and related costsExit costsSpin-off transaction costsTotal
Babcock & Wilcox segment$2,768
$6
$
$2,774
Vølund & Other Renewable segment(53)

(53)
SPIG segment366


366
Corporate785

(46)739
 $3,866
$6
$(46)$3,826

(in thousands)    
Six months ended June 30, 2018Severance and related costsExit costsSpin-off transaction costsTotal
Babcock & Wilcox segment$3,860
$150
$
$4,010
Vølund & Other Renewable segment441


441
SPIG segment750


750
Corporate5,157

330
5,487
 $10,208
$150
$330
$10,688

In 2018, we eliminated 74 positions,began to implement a series of cost restructuring actions, primarily in our U.S., European, Canadian and CanadianAsian operations, and corporate functions. These actions were intended to appropriately size our operations and support functions in response to the continuing decline in certain global markets for new build coal-fired power generation, the announcement of the MEGTEC and Universal sale, the level of activity in our Vølund business and our liquidity needs. These severance actions are expected to result in $18.3 million of annual savings. Severance cost associated with these actionsexpense is expected to total approximately $5.5 million, of which $3.4 million was recorded in June 2018 and the remainder will be recorded in the balance of 2018recognized over the remaining service periods. Severance payments are expectedperiods of affected employees, and as of June 30, 2019, $0.7 million of total severance expense is remaining to extendbe recognized based on actions taken through mid-2019. Additionally, we implemented other initiatives and benefit changes expected to avoid or reduce costs totaling approximately $15.8 million annually.that date.

Restructuring also includes executive severance totaling $0.2 million and $5.1 million in the three and six months ended June 30, 2018, respectively. In the first quarter of 2018, the Senior Vice President and Chief Business Development Officer was terminated and the position eliminated as our opportunities in the Power segment continue to shift more toward aftermarket parts and service and retrofit opportunities in the Americas, and away from large international new-build prospects. This action was also in-line with our strategy to optimize the Power segment and overall cost structure for the current market environment. Also in the first quarter of 2018, the Chief Executive Officer position was transitioned to Leslie C. Kass.

The remainder of the restructuring costs in the six months ended June 30, 2018 primarily relate to actions from the second half of 2017 that were intended to improve our global cost structure and increase our financial flexibility. These restructuring actions included a workforce reduction at both the business segment and corporate levels totaling approximately 9% of our global workforce, SG&A expense reductions and new cost control measures, and office closures and consolidations in non-core geographies. These actions included reduction of approximately 30% of B&W Vølund's workforce to align with a new

18





execution model focused on B&W Vølund's core boiler, grate and environmental equipment technologies, with the balance-of-plant and civil construction scope being executed by a partner.

In the three and six months ended June 30, 2017, restructuring costs relate primarily to a series of activities that took place prior to 2017 that were intended to help us maintain margins, make our costs more volume-variable and allow our business to be more flexible. These actions were primarily in the Power segment in advance of lower projected demand for power generation from coal in the United States. We made our manufacturing costs more volume-variable through the closure of manufacturing facilities and development of manufacturing arrangements with third parties. Also, we made our cost of engineering and supply chain more variable by creating a matrix organization capable of delivering products across multiple segments, and developing more volume-variable outsourcing arrangements with our joint venture partners and other third parties to meet fluctuating demand. Until the second quarter of 2018, these restructuring actions achieved the goal of maintaining gross margins in the Power segment. Quantification of cost savings, however, is significantly dependent upon volume assumptions that have changed since the restructuring actions were initiated.

Restructuring liabilities are included in other accrued liabilities on our condensed consolidated balance sheets.Condensed Consolidated Balance Sheets. Activity related to the restructuring liabilities is as follows:
Three Months Ended June 30, Six Months Ended June 30,Three months ended June 30,Six months ended June 30,
(in thousands)20182017 201820172019201820192018
Balance at beginning of period
$5,914
$558
 $2,320
$1,809
10,196
5,914
$7,359
$2,320
Restructuring expense4,276
1,887
 10,164
3,857
936
4,276
7,015
10,164
Payments(2,308)(1,607) (4,602)(4,828)(4,158)(2,308)(7,400)(4,602)
Balance at June 30,$7,882
$838
 $7,882
$838
Balance at June 30$6,974
$7,882
$6,974
$7,882

Accrued restructuring liabilities at June 30, 20182019 and 20172018 relate primarily to employee termination benefits. Excluded from restructuring expense in the table above are non-cash restructuring charges that did not impact the accrued restructuring liability. In the three months ended June 30, 2018 and 2017, we recognized $0.4 million and $0.2 million, respectively, in restructuring related to gains on disposals of long-lived assets. In the six months ended June 30, 2018, and 2017, we recognized $0.2 million and $0.3$0.4 million, respectively, in non-cash restructuring expense related to losses on the disposals of long-lived assets.

Spin-Off Transaction Costs

Spin-off costs were primarily attributable to employee retention awards directly related to the spin-off from our former parent, The Babcock & Wilcox Company (now known as BWX Technologies, Inc.). In the three months ended June 30, 2017, spin costs were $0.5 million. In the six months ended June 30, 2018 and 2017, we recognized spin-off costs of $0.3 million and $0.9 million, respectively.

NOTE 7 – PROVISION FOR INCOME TAXES

In the three months ended June 30, 2018, we recognized an income tax benefit of $1.9 million, resulting in an effective tax rate of 0.9%. Our effective tax rate for the three months ended June 30, 2018 was lower than our statutory rate primarily due to foreign losses in our Renewable segment and disallowed interest expense pursuant to the United States Tax Cuts and Jobs Act (the "Tax Act") that are subject to valuation allowances as well as the impact of the $37.5 million non-deductible goodwill impairment and other nondeductible expenses, offset by favorable discrete items of $0.4 million. The effective tax rate for the three months ended June 30, 2018 also reflects the reduced federal corporate income tax rate enacted as part of the Tax Act and the impact of a change in our mix of domestic and foreign earnings. We continue to analyze the different aspects of the Tax Act, which could potentially affect the provisional estimates that were recorded at December 31, 2017.

In the three months ended June 30, 2017, income tax expense was $3.5 million, an effective tax rate of (2.4)% that was lower than our statutory rate primarily due to foreign losses in our Renewable segment that are subject to a valuation allowance, nondeductible expenses and unfavorable discrete items of $3.2 million. The discrete items include withholding tax on a forecasted distribution outside the US, partly offset by favorable adjustments to prior year foreign tax returns and the effect of vested and exercised share-based compensation awards. The tax benefit associated with the $18.2 million impairment of our equity method investment in India was offset by a valuation allowance.


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InNOTE 12 – PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS

Components of net periodic benefit cost (benefit) included in net income (loss) are as follows:
 Pension Benefits Other Benefits
 Three months ended June 30,Six months ended June 30, Three months ended June 30,Six months ended June 30,
(in thousands)2019201820192018 2019201820192018
Interest cost$10,965
$9,741
$21,822
$19,498
 $119
$95
$239
$192
Expected return on plan assets(13,905)(16,215)(27,799)(32,445) 



Amortization of prior service cost27
25
55
50
 (539)(188)(1,078)(834)
Recognized net actuarial loss (gain)862
(544)1,260
(544) 



Benefit plans, net(1)
(2,051)(6,993)(4,662)(13,441) (420)(93)(839)(642)
Service cost included in COS(2)
150
187
300
376
 4
4
8
8
Net periodic benefit (benefit) cost$(1,901)$(6,806)$(4,362)$(13,065) $(416)$(89)$(831)$(634)
(1)
Benefit plans, net, which is presented separately in the Condensed Consolidated Statements of Operations, is not allocated to the segments.
(2)
Service cost related to a small group of active participants is presented within cost of sales in the Condensed Consolidated Statement of Operations and is allocated to the Babcock & Wilcox segment.

Settlements are triggered in a plan when the distributions exceed the sum of the service cost and interest cost of the respective plan. Lump sum payments from our Canadian Plans resulted in plan settlements during the first and second quarters of 2019. The settlements themselves were not material, but they triggered interim MTM remeasurements of the Canadian Plan's assets and liabilities that were losses of $0.9 million and $1.3 million in the three and six months ended June 30, 2019, respectively. Both the settlements and the MTM remeasurements are reflected in the Recognized net actuarial loss (gain) in the table above and are included in our Condensed Consolidated Statements of Operations in the Benefit plans, net line item.

During the second quarter of 2018, lump sum payments from our Canadian pension plan resulted in a plan settlement gain of $0.1 million, which also resulted in interim mark to market accounting for the pension plan. The mark to market adjustment in the second quarter of 2018 was a gain of $0.4 million. The effect of these charges and mark to market adjustments are reflected in the Recognized net actuarial loss (gain)in the table above. The recognized net actuarial (gain) loss was recorded in our Condensed Consolidated Statements of Operations in theBenefit plans, net line item. There were no lump sum payments from our Canadian pension plan during the first quarter of 2018.

We made contributions to our pension and other postretirement benefit plans totaling $1.4 million and $2.8 million during the three and six months ended June 30, 2019, respectively, as compared to $4.7 million and $8.5 million during the three and six months ended June 30, 2018, income tax expense was $5.0 million, an effective tax rate of (1.6)% that was lower than our statutory rate primarily duerespectively. Expected employer contributions to the reasons noted above as well as an $18.4U.S. Pension Plan assume that relief is granted under pension contribution waivers that were filed with the IRS in January 2019 and are planned to be re-filed with the IRS later in 2019 or early in 2020, which would defer minimum pension contributions for approximately one year to then be repaid over a five-year period. If the temporary hardship waivers are not fully granted, required employer contributions in 2019 could increase up to approximately $15 million impairmentin 2019 and a similar or greater amount in 2020, each plus interest and, if assessed, penalties.

NOTE 13 – REVOLVING DEBT

The components of our equity method investment in India that was offset by valuation allowances and unfavorable discrete itemsrevolving debt are comprised of $1.8 millionseparate revolving credit facilities in the first quarter. The discrete items include a valuation allowance on the net deferred tax assets of one of our foreign subsidiaries and the income tax effects of vested and exercised share-based compensation awards.following locations:
(in thousands)June 30, 2019December 31, 2018
United States$184,400
$144,900
Foreign
606
Total revolving debt$184,400
$145,506

In the six months ended June 30, 2017, income tax benefit was $0.3 million, an effective tax rate of (0.2)% that was lower than our statutory rate primarily due to the reasons noted above and nondeductible transaction costs, which were offset by the effect of vested and exercised share-based compensation awards, both of which were discrete items in the first quarter of 2017.U.S. Revolving Credit Facility

AsOn May 11, 2015, we entered into "the Amended Credit Agreement" with a resultsyndicate of accumulations oflenders in connection with our spin-off from The Babcock & Wilcox Company (now BWX Technologies, Inc. or "BWXT") which governs the Company's stock among several large shareholders and the impact of the Rights Offering that was completed on April 30, 2018 we continue to monitor for the possibility of an ownership change as defined under Internal Revenue Code ("IRC") Section 382. Under IRC Section 382, a company has undergone an ownership change if shareholders owning at least 5% of the company have increased their holdings by more than 50% during the prior three-year period.  Based on information that is publicly available, the Company does not currently believe it has experienced an ownership change. Small changes in ownership by shareholders owning at least 5% of the Company could result in an ownership change; however, if we had experienced an ownership change as of June 30, 2018, the future utilization of our federal net operating loss and credit carryforwards would be limited to approximately $9 million, annually, but quantification is dependent upon the value of the company multiplied by the long-term interest rate at the time of the ownership change.U.S. Revolving

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Credit Facility and the Last Out Term Loans. Since June 2016, we have entered into a number of waivers and amendments ("the Amendments") to the Amended Credit Agreement, including those to avoid default. As of June 30, 2019, we were in compliance with the terms of the Amended Credit Agreement inclusive of Amendments No. 16 and No. 17. On April 5, 2019, we entered into Amendment No. 16 to the Amended Credit Agreement. Amendment No. 16 provides (i) $150.0 million in additional commitments from B. Riley FBR, Inc., under Tranche A-3 of last out term loans described in Note 14 and (ii) an incremental uncommitted facility of up to $15.0 million, to be provided by B. Riley or an assignee. Amendment No. 16 provides (i) $150.0 million in additional commitments from B. Riley FBR, Inc., under Tranche A-3 of last out term loans described in Note 14 and (ii) an incremental uncommitted facility of up to $15.0 million, to be provided by B. Riley or an assignee. On August 7, 2019, we entered into Amendment No. 17 to the Amended Credit Agreement, which clarifies the definition cumulatively through Amendment No. 16 of the amounts that can be used in calculating the loss basket for certain Vølund contracts and resets the loss basket for certain Vølund contracts to $15.0 million to align with the clarification commencing with the quarter ending March 31, 2019.

Amendment No. 16 to the Amended Credit Agreement also created a new event of default for failure to terminate the existing revolving credit facility on or prior to March 15, 2020, which effectively accelerated the maturity date of the U.S. Revolving Credit Facility from June 30, 2020. The U.S. Revolving Credit Facility provides for a senior secured revolving credit facility in an aggregate amount of up to $347.0 million (reduced to $340.0 million in July 2019 as a result of the Loibl divestiture described in Note 25), as amended and adjusted for completed asset sales. The proceeds from loans under the U.S. Revolving Credit Facility are available for working capital needs, capital expenditures, permitted acquisitions and other general corporate purposes, and the full amount is available to support the issuance of letters of credit, subject to the limits specified in the amendment described below.

The Amended Credit Agreement and our cash management agreements with our lenders and their affiliates continue to be (1) guaranteed by substantially all of our wholly owned domestic subsidiaries and certain of our foreign subsidiaries, but excluding our captive insurance subsidiary, and (2) secured by first-priority liens on certain assets owned by us and the guarantors. The U.S. Revolving Credit Facility requires interest payments on revolving loans on a periodic basis until maturity. We may prepay all loans at any time without premium or penalty (other than customary LIBOR breakage costs), subject to notice requirements, with the exception to the prepayment of certain Last Out Term Loans pursuant to the Equitization Transactions described in Note 18; such Last Out Term Loan prepayments are further limited by an aggregate principal amount of $86 million plus interest. The U.S. Revolving Credit Facility requires certain prepayments on any outstanding revolving loans after receipt of cash proceeds from certain asset sales or other events, subject to certain exceptions. Such prepayments may require us to reduce the commitments under the U.S. Revolving Credit Facility by a corresponding amount of such prepayments.

After giving effect to the Amendments through June 30, 2019, revolving loans outstanding under the U.S. Revolving Credit Facility bear interest at our option at either (1) the LIBOR rate plus 6.0% per annum during 2019 and 7.0% per annum during 2020, or (2) the Base Rate plus 5.0% per annum during 2019, and 6.0% per annum during 2020. The Base Rate is the highest of the Federal Funds rate plus 0.5%, the one-month LIBOR rate plus 1.0%, or the administrative agent's prime rate. The components of our interest expense are detailed in Note 19. A commitment fee of 1.0% per annum is charged on the unused portions of the U.S. Revolving Credit Facility. Additionally, an annual facility fee of $1.5 million was paid on the first business day of 2019, and a pro-rated amount is payable on the first business day of 2020. A deferred fee reduction from 2.5% to 1.5% became effective October 10, 2018, due to achieving certain asset sales. A letter of credit fee of 2.5% per annum is charged with respect to the amount of each financial letter of credit outstanding, and a letter of credit fee of 1.5% per annum is charged with respect to the amount of each performance and commercial letter of credit outstanding. Letter of credit fees are payable on the tenth business day after the last business day of each fiscal quarter.

In connection with Amendment No. 16, a contingent consent fee of $13.9 million (4.0% of total availability) is payable on December 15, 2019, but will be waived if certain actions are undertaken to refinance the facility by that date. We recorded the contingent consent fee as part of deferred financing fees in other current assets in the Condensed Consolidated Balance Sheets because it has been earned but may be waived, and it is being amortized to interest expense. See further discussion in Note 19. Amendment No. 16 to the U.S. Revolving Credit Facility also established a deferred ticking fee of 1.0% of total availability that is payable if certain actions are not undertaken to refinance the facility by December 15, 2019, in addition to an incremental 1.0% per month after December 15, 2019.  No expense has been recognized for the deferred ticking fee because the company believes it is not probable of being earned by the lenders.

The Amended Credit Agreement includes financial covenants that are tested on a quarterly basis, based on the rolling four-quarter period that ends on the last day of each fiscal quarter. These include a maximum permitted senior debt leverage ratio

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and a minimum consolidated interest coverage ratio, each as defined in the Amended Credit Agreement. Compliance with these ratios was waived with respect to the quarter ended December 31, 2018 and new ratios were established in Amendment No. 16 commencing with the quarter ended March 31, 2019. Amendment No. 16 also, among other items, (1) modifies the definition of EBITDA in the Credit Agreement to, among other things, include addbacks related to losses in connection with the Vølund projects, fees and expenses related to the Amendment and prior waivers to the Credit Agreement and fees associated with Vølund project related settlement agreements, (2) reduces to $30 million the minimum liquidity we are required to maintain at the time of any credit extension request and at the last business day of any calendar month, (3) allows for the issuance of up to $20.0 million of new letters of credit with respect to any future Vølund project, (4) changes the consolidated interest coverage and senior leverage coverage covenant ratios, (5) decreases the relief period borrowing sublimit, (6) changes or removes certain contract completion milestones that we had been required to meet in connection with one renewable energy project, (7) permits letters of credit to expire one year after the maturity of the revolving credit facility, (8) creates a new event of default for failure to terminate the existing revolving credit facility on or prior to March 15, 2020, (9) establishes a deferred ticking fee of 1.0% if certain actions are not undertaken to refinance the facility by December 15, 2019, in addition to an incremental 1.0% per month after December 15, 2019 and (10) provides for a contingent consent fee of 4.0% if certain actions are not undertaken to refinance the facility by December 15, 2019. Amendment No. 17, among other items, (1) clarifies from Amendment No. 16 the definition of the amounts that can be used in calculating the loss basket for certain Vølund contracts, and (2) resets the loss basket for certain Vølund contracts to $15.0 million to align with the clarification commencing with the quarter ending March 31, 2019.

Effective beginning April 5, 2019 with Amendment No. 16, the remaining maximum permitted senior debt leverage ratios, as defined in the Amended Credit Agreement, are as follows:

9.25:1.00 for the quarter ending June 30, 2019
6.75:1.00 for the quarter ending September 30, 2019
6.00:1.00 for the quarter ending December 31, 2019
3.50:1.00 for the quarter ending March 31, 2020
3.25:1.00 for the quarter ending June 30, 2020
Effective beginning April 5, 2019 with Amendment No. 16, the remaining minimum consolidated interest coverage ratios, as defined in the Amended Credit Agreement, are as follows:

0.90:1.00 for the quarter ending June 30, 2019
1.10:1.00 for the quarter ending September 30, 2019
1.10:1.00 for the quarter ending December 31, 2019
1.50:1.00 for the quarter ending March 31, 2020
1.75:1.00 for the quarter ending June 30, 2020

At June 30, 2019, borrowings under the U.S. Revolving Credit Facility consisted of $184.4 million at a weighted average interest rate of 9.13%. Usage under the U.S. Revolving Credit Facility consisted of $184.4 million of borrowings, $29.2 million of financial letters of credit and $114.8 million of performance letters of credit. At June 30, 2019, we had approximately $18.6 million available for borrowings or to meet letter of credit requirements primarily based on our overall facility size and our borrowing sublimit. The closing of the Loibl sale in June 2019 increased our borrowing capacity by $8.5 million due to the release of a performance letter of credit, effective June 24, 2019. In July 2019, the U.S. Revolving Credit Facility was reduced by $7.0 million due to the sale of Loibl, in accordance with the terms of the Amended Credit Agreement.

Foreign Revolving Credit Facilities

Outside of the United States, we had revolving credit facilities in Turkey that were used to provide working capital to local operations. At December 31, 2018, we had aggregate borrowings under these facilities of $0.6 million whose weighted average interest rate was 40.0%. In 2018, our banking counterparties in Turkey began requiring the conversion of these revolving credit facilities to be denominated in Turkish liras instead of euros, resulting in correspondingly higher market interest rates. As of January 4, 2019, the foreign revolving credit facilities were paid in full and closed.


29





Letters of Credit, Bank Guarantees and Surety Bonds

Certain subsidiaries primarily outside of the United States have credit arrangements with various commercial banks and other financial institutions for the issuance of letters of credit and bank guarantees in association with contracting activity. The aggregate value of all such letters of credit and bank guarantees opened outside of the U.S. Revolving Credit Facility as of June 30, 2019 and December 31, 2018 was $129.2 million and $175.9 million, respectively. The aggregate value of the letters of credit provided by the U.S. Revolving Credit Facility backstopping letters of credit or bank guarantees was $31.3 million as of June 30, 2019. Of the letters of credit issued under the U.S. Revolving Credit Facility, $28.5 million are subject to foreign currency revaluation.

We have posted surety bonds to support contractual obligations to customers relating to certain contracts. We utilize bonding facilities to support such obligations, but the issuance of bonds under those facilities is typically at the surety's discretion. These bonds generally indemnify customers should we fail to perform our obligations under the applicable contracts. We, and certain of our subsidiaries, have jointly executed general agreements of indemnity in favor of surety underwriters relating to surety bonds those underwriters issue in support of some of our contracting activity. As of June 30, 2019, bonds issued and outstanding under these arrangements in support of contracts totaled approximately $215.1 million. The aggregate value of the letters of credit provided by the U.S. Revolving Credit facility backstopping surety bonds was $22.7 million.

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

NOTE 14– LAST OUT TERM LOANS

The components of the Last Out Term Loans by Tranche are as follows:
 June 30, 2019
(in thousands)A-1A-2A-3Total
Proceeds (1)
$37,256
$10,000
$141,350
$188,606
Discount and fees

8,650
8,650
Paid-in-kind interest696
257
2,800
3,753
Principal37,952
10,257
152,800
201,009
Unamortized discount and fees(14)
(17,939)(17,953)
Net debt balance$37,938
$10,257
$134,861
$183,056
(1) Tranche A-1 proceeds represent the estimated fair value of the tranche as of April 5, 2019, the date it was modified as discussed below.

 December 31, 2018
(in thousands)A-1A-2A-3Total
Proceeds$30,000
$
$
$30,000
Discount and fees5,111


5,111
Paid-in-kind interest132


132
Principal35,243


35,243
Unamortized discount and fees(4,594)

(4,594)
Net debt balance$30,649
$
$
$30,649

Last Out Term Loans are incurred under our Amended Credit Agreement and are pari passu with the U.S. Revolving Credit Facility except for certain payment subordination provisions. The Last Out Term Loans are subject to the same representations and warranties, covenants and events of default under the Amended Credit Agreement. In connection with Amendment No. 16, the maturity date for all Last Out Term Loans was extended to December 31, 2020. As of June 30, 2019 and December 31, 2018, the Last Out Term Loans' net carrying values are presented as a current liability in our Condensed Consolidated Balance Sheets due to the uncertainty of our ability to refinance our U.S. Revolving Credit Facility as required by the Amended Credit Agreement (as described above).


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As of June 30, 2019, after giving effect to Amendment No. 16, all outstanding Last Out Term Loans bear interest at a fixed rate per annum of 15.5% per annum. of which 7.5% is payable in cash and 8% is payable in kind. Upon completion of the 2019 Rights Offering (as defined below) on July 23, 2019, the interest rate on all outstanding Last Out Term Loans under the Amended Credit Agreement became a fixed rate per annum of 12% payable in cash. The total effective interest rate of Tranche A-1 was 15.98% and 25.38% on June 30, 2019 and December 31, 2018, respectively. Interest expense associated with the Last Out Term Loans is detailed in Note 19. Amendment No. 16 also permitted prepayment of up to $86.0 million of the Last Out Term Loans as contemplated under the Equitization Transactions described in Note 18.

Tranche A-1

We borrowed $30.0 million of net proceeds under Tranche A-1 of the Last Out Term Loans from B. Riley FBR, Inc., a related party, in three draws in September and October 2018. In November 2018, Tranche A-1 was assigned to Vintage Capital Management, LLC ("Vintage"), also a related party, who held the full amount of Tranche A-1 at June 30, 2019. The original face principal amount of Tranche A-1 is $30.0 million, which excludes a $2.0 million up-front fee that was added to the principal balance on the first funding date, transaction expenses, paid-in-kind interest, and original issue discounts of 10% for each draw under Tranche A-1.

On April 5, 2019, Amendment No. 16 and the Letter Agreement (defined in Note 18) modified Tranche A-1 by adding a substantive conversion option that required the conversion of the Tranche A-1 to common stock at $0.30 per share in connection with the Equitization Transactions described in Note 18, which was conditioned upon, among other things, the closing of the 2019 Rights Offering and shareholder approval. Under U.S. GAAP, a debt modification with the same borrower that results in substantially different terms is accounted for as an extinguishment of the existing debt and a reborrowing of new debt. An extinguishment gain or loss is then recognized based on the fair value of the new debt as compared to the carrying value of the extinguished debt. The carrying value of the Tranche A-1 was $33.3 million on April 5, 2019 before the modification. The initial fair value of the new debt was estimated to be its initial principal value of $37.3 million. We recognized a loss on debt extinguishment of $4.0 million in the quarter ended June 30, 2019, primarily representing the unamortized value of the original issuance discount and fees on the extinguished debt.

As of June 30, 2019, Tranche A-1 was payable in full on December 31, 2020, the maturity date. Tranche A-1 may be prepaid, subject to the subordination provisions, but not re-borrowed. As described in Note 18, Tranche A-1 was exchanged for shares on July 23, 2019, after which no remaining amounts were outstanding.

Tranche A-2

On March 19, 2019, we entered into an amendment and limited waiver ("Amendment No. 15") to our Amended Credit Agreement, which allowed us to borrow $10.0 million of net proceeds from B. Riley, a related party, under a Tranche A-2 of Last Out Term Loans, which were fully borrowed on March 20, 2019. Interest rates were adjusted with Amendment No. 16 as described above. The total effective interest rate of Tranche A-2 was 15.93% on June 30, 2019. As of June 30, 2019, Tranche A-2 was payable in full on December 31, 2020 and may be prepaid, subject to the subordination provisions, but not re-borrowed. Interest rates of Tranche A-2 are described above. As described in Note 18, Tranche A-2 was fully repaid on July 23, 2019 with proceeds from the 2019 Rights Offering as part of the Equitization Transactions.

Tranche A-3

Under Amendment No. 16, we borrowed $150.0 million face value from B. Riley, a related party, under a Tranche A-3 of Last Out Term Loans. The $141.4 million net proceeds from Tranche A-3 were primarily used to pay the amounts due under the settlement agreements covering certain European Vølund loss projects as described in Note 4, with the remainder used for working capital and general corporate purposes. Tranche A-3 included an original issue discount of 3.2% of the gross cash proceeds. An additional discount was recorded upon shareholder approval of the warrants and Equitization Transactions. These additional discounts totaled $8.1 million, which included $6.1 million for the estimated fair value of warrants issued to B. Riley, a related party, as described in Note 15 and Note 18 and $2.0 million for the intrinsic value of the beneficial conversion feature that allows conversion of a portion of the Tranche A-3 to equity under the Backstop Commitment described in Note 18. Both the warrants and the Backstop Commitment were contemplated in connection of the original extension of Tranche A-3.

Interest rates for Tranche A-3 are described above. The total effective interest rate of Tranche A-3 was 23.79% on June 30, 2019. Tranche A-3 may be prepaid, subject to the subordination provisions and as contemplated under the Equitization

31





Transactions as described above and in Note 18, but not re-borrowed. As part of the July 23, 2019 Equitization Transactions described in Note 18, the total prepayment of principal of Tranche A-3 of the Last Out Term Loans was $39.7 million inclusive of the $8.2 million of principal value exchanged for common shares under the Backstop Commitment.
Immediately after completion of the Equitization Transactions, the Tranches A-1 and A-2 of the Last Out Term Loans were fully extinguished, and $114.0 million including accrued paid-in-kind interest was outstanding on Tranche A-3, and it bears interest at a fixed rate of 12.0% per annum payable in cash.

NOTE 15– WARRANTS

On July 23, 2019, 16,666,667 warrants were issued to certain entities affiliated with B. Riley in connection with the Equitization Transactions described in Note 18. Each warrant was to purchase one share of our common stock at an exercise price of $0.01 per share were issued to B. Riley. The warrants were subsequently adjusted for the one-for-ten reverse stock split described in Note 1, which adjusted the number of warrants to 1,666,666 and the exercise price remained $0.01 per share.

The warrants were contemplated in the April 5, 2019 Letter Agreement (defined in Note 18) and on June 14, 2019, the issuance of the warrants was approved by stockholders in the Company's annual stockholder meeting, which established the grant date for accounting purposes. The grant date fair value of the warrants was estimated to be $6.1 million using the Black-Scholes option pricing model. The warrants may not be put back to the Company for cash, and they qualify for equity classification. The grant date value of the warrants was included as part of the original-issue discount based on the relative fair value method for Tranche A-3 of the Last Out Term Loans described in Note 14 because the value was part of the consideration required by the Tranche A-3 lender in order to extend the Tranche A-3 loans.

The Black-Scholes option pricing model key assumptions are as follows:
Stock price$0.385
Exercise price$0.010
Time to expiration3 years
Annualized volatility121.00%
Annual rate of quarterly dividends%
Discount rate - bond equivalent rate2.30%
Expiration of optionApril 5, 2022
Warrant value$0.38
NOTE 16– COMMON SHARES

On June 14, 2019, after approval of the stockholders at the Company's annual meeting of stockholders, the Company amended its Amended and Restated Certificate of Incorporation to increase the authorized number of shares of the Company's common stock from 200,000,000 shares to 500,000,000 shares to allow for the Equitization Transactions described in Note 18. The reverse stock split on July 24, 2019, described in Note 1 did not affect the number of authorized shares.

On June 14, 2019, at the Company's annual meeting of stockholders, upon the recommendation of the Company's Board of Directors, the stockholders approved the Babcock & Wilcox Enterprises, Inc. Amended and Restated 2015 Long-Term Incentive Plan (amended and restated as of June 14, 2019) (the "Fourth Amended and Restated 2015 LTIP"), which became effective upon such stockholder approval. The Fourth Amended and Restated 2015 LTIP, among other immaterial changes, increases the number of shares available for awards by 17,000,000 shares to a total of 29,271,731 shares of the Company's common stock, subject to adjustment as provided under the plan document. The increase in the maximum number of shares available for awards will allow us to establish the previously announced equity pool of 16,666,666 shares of its common stock for issuance for long-term incentive planning purposes. The shares available for award under the plan are subject to equitable adjustment for the reverse stock split described in Note 1 and other dilutive and antidilutive events.


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NOTE 17 – RIGHTS OFFERINGS

2019 Rights Offering - Subsequent Event

On June 28, 2019, we distributed to holders of our common stock one nontransferable subscription right to purchase 0.986896 common shares for each common share held as of 5:00 p.m., New York City time, on June 27, 2019 at a subscription price of $0.30 per whole share of common stock (the "2019 Rights Offering"). The 2019 Rights Offering expired at 5:00 p.m., New York City time, on July 18, 2019, and settled on July 23, 2019. The Company did not issue fractional rights or pay cash in lieu of fractional rights. The 2019 Rights Offering did not include an oversubscription privilege. Direct costs of the 2019 Rights Offering totaled $0.7 million for the three and six months ended June 30, 2019.

The 2019 Rights Offering resulted in the issuance of 139.3 million common shares (13.9 million common shares after the reverse stock split) as a result of the exercise of subscription rights in the offering. Gross proceeds from the 2019 Rights Offering were $41.8 million, $10.3 million which was used to fully repay Tranche A-2 of the Last Out Term Loans and the remaining $31.5 million was used to reduce outstanding borrowings under Tranche A-3 of the Last Out Term Loans. Concurrently with the closing of the 2019 Rights Offering, and in satisfaction of the Backstop Commitment as described in Note 18, the Company issued an aggregate of 27.4 million common shares (2.7 million common shares after the reverse stock split) in exchange for a portion of the Tranche A-3 Last Out Term Loans totaling $8.2 million, to B. Riley, a related party, as described in Note 24. The 2019 Rights Offering was pursuant to the April 5, 2019 Letter Agreement and the Equitization Transactions described in Note 18 and were approved by stockholders at the Company's annual stockholder meeting on June 14, 2019.

2018 Rights Offering

On March 19, 2018, we distributed to holders of our common stock one nontransferable subscription right to purchase 1.4 million common shares for each common share held as of 5:00 p.m., New York City time, on March 15, 2018 at a price of $3.00 per common share (the "2018 Rights Offering"). On April 10, 2018, we extended the expiration date and amended certain other terms regarding the 2018 Rights Offering. As amended, each right entitled holders to purchase 2.8 million common shares at a price of $2.00 per share. The 2018 Rights Offering expired at 5:00 p.m., New York City time, on April 30, 2018. The Company did not issue fractional rights or pay cash in lieu of fractional rights. The 2018 Rights Offering did not include an oversubscription privilege.

The 2018 Rights Offering resulted in the issuance of 124.3 million common shares (12.4 million common shares after the reverse stock split) on April 30, 2018. Gross proceeds from the 2018 Rights Offering were $248.4 million. Of the proceeds received, $214.9 million was used to fully repay the Second Lien Credit Agreement, including $2.3 million of accrued interest, and the remainder was used for working capital purposes. Direct costs of the 2018 Rights Offering totaled $3.3 million. The shares issued in the 2018 Rights Offering were then subject to the one-for-ten reverse stock split described in Note 1.

NOTE 18 – EQUITIZATION TRANSACTIONS

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

A $50.0 million rights offering ("2019 Rights Offering") as described in Note 17, for which B. Riley FBR, Inc. agreed to act as a backstop, by purchasing from us, at a price of $0.30 per share, all unsubscribed shares in the 2019 Rights Offering for cash or by exchanging an equal principal amount of outstanding Tranche A-2 or Tranche A-3 Last Out Term Loans (the "Backstop Commitment"). Under the 2019 Rights Offering, 166,666,667 shares of common stock were issued (16,666,666 shares of common stock after the reverse stock split), of which 125,891,701 shares (12,589,170 shares after the reverse stock split) were purchased through the exercise of rights in the rights offering generating $37.8 million of cash, 13,333,333 shares (1,333,333 shares after the reverse stock split) were issued through assigned portions of the Backstop Commitment generating an additional $4.0 million of cash, and the final 27,441,633 shares (2,744,163 shares after the reverse split) were exchanged for $8.2 million of principal value

33





including accrued paid-in-kind interest of Tranche A-3 Last Out Term Loans. Shares issued in the 2019 Rights Offering and under the Backstop Commitment were then subject to the one-for-ten reverse stock split described in Note 1 and Note 16.
$10.3 million of the proceeds of 2019 Rights Offering were used to fully repay Tranche A-2 of the Last Out Term Loans including accrued paid-in-kind interest.
$31.5 million of the proceeds of the 2019 Rights Offering were used to partially prepay Tranche A-3 of the Last Out Term Loans including paid-in-kind interest. The total prepayment of principal of Tranche A-3 of the Last Out Term Loans was $39.7 million inclusive of the $8.2 million of principal value exchanged for common shares under the Backstop Commitment described above.
All $38.2 million of outstanding principal of Tranche A-1 of the Last Out Term Loans including accrued paid-in-kind interest was exchanged for 127,207,856 shares (12,720,785 shares after the reverse stock split) of common stock (107,207,856 shares (10,720,785 shares after the reverse stock split) to Vintage and 20,000,000 shares (2,000,000 shares after the reverse stock split) to affiliates of B. Riley) at a price of $0.30 per share (the "Debt Exchange"). Prior to the Debt Exchange, $6.0 million of Tranche A-1 was held by affiliates of B. Riley and the remainder was held by Vintage. Shares issued under the Debt Exchange were then subject to the one-for-ten reverse stock split described in Note 1 and Note 16.
16,666,667 warrants, each to purchase one share of our common stock at an exercise price of $0.01 per share were issued to B. Riley. The warrants were subsequently adjusted for the one-for-ten reverse stock split described in Note 1, which adjusted the number of warrants to 1,666,666 and the exercise price remained $0.01.

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

NOTE 19 –INTEREST EXPENSE AND SUPPLEMENTAL CASH FLOW INFORMATION

In addition to non-cash items described in the Condensed Consolidated Statements of Cash Flows, we also recognized non-cash changes in our Condensed Consolidated Balance Sheets related to interest expense as described below:
 Six months ended June 30,
(in thousands)20192018
Accrued capital expenditures in accounts payable$
$123
Accreted interest expense on our Second Lien Term Loan Facility$
$3,202

The following cash activity is presented as a supplement to Condensed Consolidated Statements of Cash Flows and is included in Net cash used in operations:
 Six months ended June 30,
(in thousands)20192018
Income tax payments (refunds), net$32
$2,938
   
Interest payments on our U.S. Revolving Credit Facility$6,921
$4,599
Interest payments on our Last Out Term Loans1,022

Interest payments on our Second Lien Term Loan Facility
7,627
Total cash paid for interest$7,943
$12,226


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Interest expense in our Condensed Consolidated Financial Statements consisted of the following components:
 Three months ended June 30,Six months ended June 30,
(in thousands)2019201820192018
Components associated with borrowings from:    
U.S. Revolving Credit Facility$3,801
$3,434
$7,351
$5,779
Last Out Term Loans - cash interest3,606

4,119

Last Out Term Loans - paid-in-kind interest3,881

4,941

Second Lien Term Loan Facility
2,191

7,460
Foreign Revolving Credit Facilities
145

279
 11,288
5,770
16,411
13,518
Components associated with amortization or accretion of:    
U.S. Revolving Credit Facility - deferred financing fees and commitment fees8,880
5,113
14,149
8,314
U.S. Revolving Credit Facility - contingent consent fee for Amendment 16 (1)
4,674

4,674

Last Out Term Loans - discount and financing fees1,479

2,069

Second Lien Term Loan Facility - discount and financing fees
833

3,202
 15,033
5,946
20,892
11,516
     
Other interest expense516
161
668
295
     
Total interest expense$26,837
$11,877
$37,971
$25,329
(1)
As described in Note 13, in connection with Amendment No. 16, a contingent consent fee of $13.9 million (4.0% of total availability) is payable on December 15, 2019, but will be waived if certain actions are undertaken to refinance the facility by that date. We recorded the contingent consent fee as part of deferred financing fees in other current assets in the Condensed Consolidated Balance Sheets because it has been earned but may be waived, and it is being amortized to interest expense through December 15, 2019. Amendment No. 16 to the U.S. Revolving Credit Facility also established a deferred ticking fee of 1.0% of total availability that is payable if certain actions are not undertaken to refinance the facility by December 15, 2019, in addition to an incremental monthly fee of 1.0% of total availability of the U.S. Revolving Credit Facility after December 15, 2019.  No expense has been recognized for the deferred ticking fee because the company believes it is not probable of being earned by the lenders.


35





The following table provides a reconciliation of cash, cash equivalents and restricted cash reporting within the Condensed Consolidated Balance Sheets that sum to the total of the same amounts in the Condensed Consolidated Statements of Cash Flows:
(in thousands)June 30, 2019December 31, 2018June 30, 2018December 31, 2017
Held by foreign entities$30,932
$35,522
$27,955
$42,490
Held by United States entities4,258
7,692
557
1,227
Cash and cash equivalents of continuing operations35,190
43,214
28,512
43,717
     
Reinsurance reserve requirements5,350
11,768
25,269
21,061
Restricted foreign accounts3,830
5,297
6,442
4,919
Sale proceeds held in escrow

591

Restricted cash and cash equivalents9,180
17,065
32,302
25,980
Total cash, cash equivalents and restricted cash of continuing operations shown in the Condensed Consolidated Statements of Cash Flows$44,370
$60,279
$60,814
$69,697
     
Total cash and cash equivalents of discontinued operations$
$
$10,437
$12,950

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

NOTE 20 – PROVISION FOR INCOME TAXES

In the three months ended June 30, 2019, income tax expense was $1.9 million, resulting in an effective tax rate of (7.15)%. We are subject to federal income tax in the United States and numerous countries that have statutory tax rates different than the U.S. federal statutory rate of 21%. The most significant of these foreign operations are located in Canada, Denmark, Germany, Italy, Mexico, Sweden and the United Kingdom with effective tax rates ranging between 19% and approximately 30%. We provide for income taxes based on the tax laws and rates in the jurisdictions in which we conduct our operations. These jurisdictions may have regimes of taxation that vary with respect to both nominal rates and the basis on which these rates are applied. Our consolidated effective income tax rate can vary significantly from period to period due to these variations, changes in jurisdictional mix of our income and valuation allowances in certain jurisdictions that can offset income tax expense or benefit.

In the three months ended June 30, 2018, we recognized an income tax benefit of $1.9 million, resulting in an effective tax rate of 0.9%. Our effective tax rate for the three months ended June 30, 2018 was lower than our statutory rate primarily due to foreign losses in our Vølund & Other Renewable segment and disallowed interest expense pursuant to the United States Tax Cuts and Jobs Act (the "Tax Act") that are subject to valuation allowances as well as the impact of the $37.5 million non-deductible goodwill impairment and other nondeductible expenses, offset by favorable discrete items of $0.4 million. The effective tax rate for the three months ended June 30, 2018 also reflects the reduced federal corporate income tax rate enacted as part of the Tax Act and the impact of a change in our mix of domestic and foreign earnings.

In the six months ended June 30, 2019, income tax expense was $2.5 million, resulting in an effective tax rate of (3.3)%. Our effective tax rate for the six months ended June 30, 2019 is not reflective of the U.S. statutory rate primarily due to valuation allowances against our net deferred tax assets. In jurisdictions where we have available net operating loss carryforwards ("NOLs"), such as the U.S., Denmark and Italy, the existence of a full valuation allowance against deferred tax assets results in income tax benefit or expense relating primarily to discrete items. In other profitable jurisdictions, however, we may record income tax expense, even though we have established a full valuation allowance against our net deferred tax assets. We have unfavorable discrete items of $0.1 million in the six months ended June 30, 2019.

In the six months ended June 30, 2018, income tax expense was $5.0 million, an effective tax rate of (1.6)% that was lower than our statutory rate primarily due to the reasons noted above as well as an $18.4 million impairment of our equity method

36





investment in India that was offset by valuation allowances and unfavorable discrete items of $1.8 million in the first quarter. The discrete items include a valuation allowance on the net deferred tax assets of one of our foreign subsidiaries and the income tax effects of vested and exercised share-based compensation awards.

Sections 382 and 383 of the Internal Revenue Code ("IRC") limits for US federal income tax purposes, the annual use of NOL carryforwards (including previously disallowed interest carryforwards) and tax credit carryforwards, respectively, following an ownership change. Under IRC Section 382 (Section 382), 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" described in Note 18. As a result of this change in ownership, the Company estimated that the future utilization of our federal NOLs (and certain credits and previously disallowed interest deductions) will become limited to approximately $1.2 million annually ($0.3 million tax effected). The Company is currently in the process of refining and finalizing these calculations. The Company maintains a full valuation allowance on its net deferred tax assets including the deferred tax assets associated with the federal NOLs, credits and disallowed interest carryforwards.

New Tax Act

The United States Tax Cuts and Jobs Act (the “Tax Act”) was enacted on December 22, 2017 and introduced significant changes to the United States income tax law. Beginning in 2018, the Tax Act reduced the United States statutory corporate income tax rate from 35% to 21% and created a modified territorial system that will generally allow United States companies a full dividend received deduction for any future dividends from non-U.S. subsidiaries. In addition to the tax rate reduction and changes to the territorial nature of the US tax system, the Tax Act introduced a new limitation on interest deductions, a Foreign Derived Intangible Income (“FDII”) and new minimum tax on foreign sourced income, Global Low Taxed Intangible Income (“GILTI”). The Company will account for GILTI as a period cost in the year the tax is incurred. In 2019, we do not anticipate any FDII benefit or GILTI taxes but expect an interest limitation. This disallowed interest expense will be available for carryforward and is not subject to expiration but can only be used in a future year when the net interest expense for that period (including carryforward amounts) exceeds the relevant annual limitation.

NOTE 21 – CONTINGENCIES

Stockholder Class Action Litigation

On March 3, 2017 and March 13, 2017, the Company and certain of its former officers were named as defendants in two separate but largely identical complaints alleging violations of the federal securities laws. The two complaints were brought on behalf of a 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 plaintiff was selected by the Court. Through subsequent amendments, the putative class period was expanded to include investors who purchased shares between June 17, 2015 and August 9, 2017. The plaintiff in the Stockholder Litigation alleges fraud, misrepresentation and a course of conduct relating to certain projects undertaken by the Vølund & Other Renewable segment, which, according to the plaintiff, had the effect of artificially inflating the price of the Company's common stock. The plaintiff further alleges that stockholders were harmed when the Company later disclosed that it would incur losses on these projects. The plaintiff seeks an unspecified amount of damages.

On November 13, 2017, defendants filed a motion to dismiss (“MTD”) in the Stockholder Litigation, and on December 28, 2017, plaintiff filed its opposition to the MTD. The federal trial court judge denied the MTD on February 8, 2018, which allowed the case to proceed. After engaging in some discovery, the parties held a mediation on December 14, 2018 to discuss possible settlement of the Stockholder Litigation. The parties did not successfully resolve the Stockholder Litigation at the December 14, 2018 mediation. Following a period of additional discovery, the parties held a second mediation on April 16, 2019. At the second mediation, the parties reached an agreement in principle to settle the Stockholder Litigation, which is subject to court approval. The agreement requires defendants to pay or cause to be paid $19.5 million into a settlement fund. The $19.5 million payment is expected to be covered in full by certain of our insurance carriers. The parties have subsequently executed a stipulation of settlement and have and have submitted it to the Court for its preliminary approval. Within our Condensed Consolidated Balance Sheets as of March 31, 2019, the $19.5 million liability is recorded in other accrued liabilities and the $19.5 million insurance receivable is recorded in accounts receivable - other.


37





We believe the allegations in the Stockholder Litigation were without merit, and that the outcome of the Stockholder Litigation will not have a material adverse impact on our consolidated financial condition, results of operations or cash
flows, net of any insurance coverage.

Derivative Litigation

On February 16, 2018 and February 22, 2018, the Company and certain of its present and former officers and directors were named as defendants in three separate but substantially similar derivative lawsuits filed in the United States District Court for the District of Delaware (the "Federal Court Derivative Litigation"). On April 23, 2018, the United States District Court for the District of Delaware entered an order consolidating the related derivative actions and designating co-lead and co-liaison counsel. On June 1, 2018, plaintiffs filed a consolidated derivative complaint. Plaintiffs assert a variety of claims against the defendants including alleged violations of the federal securities laws, waste, breach of fiduciary duties and unjust enrichment. Plaintiffs, who purport to be current stockholders of the Company's common stock, are suing on behalf of the Company to recover costs and an unspecified amount of damages, and to force the implementation of certain corporate governance changes. On June 28, 2018, the Federal Court Derivative Litigation was transferred to the United States District Court for the Western District of North Carolina, where the Stockholder Litigation is pending. The parties filed a motion to stay the Federal Court Derivative Litigation, which was granted by the Court on August 13, 2018.

On November 14, 2018, the Company and certain of its present and former officers and directors were named as defendants in an additional shareholder derivative lawsuit filed in the North Carolina Superior Court (the "State Court Derivative Litigation"). The complaint in that action covers the same period and contains allegations substantially similar to those asserted in the pending Federal Court Derivative Litigation.

The parties to the Federal Court and State Court Derivative Litigations held a mediation on April 17, 2019 in an attempt to resolve these pending matters. At this mediation, the parties reached an agreement in principle with plaintiffs' counsel to resolve these cases based on certain corporate governance changes that the Company has already implemented or is willing to implement in the future and payment by certain of the Company's insurance carriers of $1 million in attorneys' fees and expenses to plaintiffs' counsel.  There is no other monetary payment associated with this settlement. The parties subsequently executed a stipulation of settlement and have submitted it to the Federal Court for its preliminary approval.

We believe the allegations in the Federal Court Derivative Litigation and State Court Derivative Litigation were without merit, and that the outcome of the Derivative Litigations will not have a material adverse impact on our consolidated financial condition, results of operations or cash flows, net of any insurance coverage.

Litigation Relating to the Equitization Transactions

On May 28, 2019, a putative class action complaint was filed against the Board in the Court of Chancery of the State of Delaware. The complaint is captioned Price v. Avril, et al., C.A. No. 2019-0393-JRS (Del. Ch.). The complaint asserted, among other things, that the Board breached their fiduciary duties by failing to disclose all material information necessary for a fully-informed vote on certain of the proposals presented for consideration at the annual meeting of the Company's stockholders. The plaintiff also filed a motion to preliminarily enjoin the stockholder vote on the proposals unless and until all material information regarding the proposals was disclosed to the Company’s stockholders. The plaintiff withdrew her motion to preliminarily enjoin the stockholder vote on the proposals following the Company’s issuance of a supplemental proxy statement on June 6, 2019. The Court granted the plaintiff's request to voluntarily dismiss this action with prejudice on July 31, 2019, and retained jurisdiction solely for the purpose of adjudicating an anticipated application for attorneys' fees and expenses incurred by plaintiff's counsel.

In addition, on June 3, 2019, a second putative class action complaint was filed against the Company, the Board and Mr. Young in the United States District Court for the District of Delaware. The complaint is captioned Kent v. Babcock & Wilcox Enterprises, Inc., et. al., No. 1:19-cv-01032-MN (D. Del.). The complaint asserts, among other things, claims under Sections 14(a) and 20(a) of the Exchange Act for allegedly disseminating a materially incomplete and misleading proxy statement in connection with the Equitization Transactions, which was filed with the SEC on May 13, 2019. The complaint seeks an order rescinding the Equitization Transactions or, in the alternative, awarding monetary damages as well as other relief. The plaintiff has yet to serve process on the Company, the Board or Mr. Young in this action. The Company, the Board and Mr. Young believe that the plaintiff’s allegations in the complaint lack merit and intend to vigorously defend against the action.


38





Other

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

NOTE 22 – COMPREHENSIVE INCOME

Gains and losses deferred in accumulated other comprehensive income (loss) ("AOCI") are reclassified and recognized in the condensed consolidated statementsCondensed Consolidated Statements of operationsOperations once they are realized. The changes in the components of AOCI, net of tax, for the first two quarters inof 2019 and 2018 and 2017 were as follows:
(in thousands)Currency translation gain (loss)
Net unrealized gain (loss) on investments (net of tax)1
Net unrealized gain (loss) on derivative instrumentsNet unrecognized gain (loss) related to benefit plans (net of tax)Total
Balance at December 31, 2017$(27,837)$38
$1,737
$3,633
$(22,429)
Impact of ASU 2016-1 on changes in the components of AOCI, net of tax (1)

(38)

(38)
Other comprehensive income (loss) before reclassifications3,223

1,224
(55)4,392
Amounts reclassified from AOCI to net income (loss)(2,044)
(1,272)(384)(3,700)
Net current-period other comprehensive income (loss)1,179

(48)(439)692
Balance at March 31, 2018$(26,658)$
$1,689
$3,194
$(21,775)
Other comprehensive income (loss) before reclassifications8,517

(513)112
8,116
Amounts reclassified from AOCI to net income (loss)

381
(427)(46)
Amounts reclassified from AOCI to pension, other accumulated postretirement benefit liabilities and deferred income taxes  (2)



(2,831)(2,831)
Net current-period other comprehensive income (loss)8,517

(132)(3,146)5,239
Balance at June 30, 2018$(18,141)$
$1,557
$48
$(16,536)
(in thousands)Currency translation (loss) gain
Net unrealized gain (loss) on derivative instruments (1)
Net unrecognized loss related to benefit plans (net of tax)Total
Balance at December 31, 2018$(10,834)$1,362
$(1,960)$(11,432)
Other comprehensive income (loss) before reclassifications10,260
(1,178)
9,082
Reclassified from AOCI to net income (loss)
224
(356)(132)
Net other comprehensive income (loss)10,260
(954)(356)8,950
Balance at March 31, 2019$(574)$408
$(2,316)$(2,482)
Other comprehensive loss before reclassifications(7,979)(189)
(8,168)
Reclassified from AOCI to net income (loss)3,176
(22)(514)2,640
Net other comprehensive (loss) income(4,803)(211)(514)(5,528)
Balance at June 30, 2019$(5,377)$197
$(2,830)$(8,010)
(1) The remaining unrealized FX gain is expected to be recognized over time as the related projects are completed.


39





(in thousands)Currency translation gain (loss)Net unrealized gain (loss) on investments (net of tax)Net unrealized gain (loss) on derivative instrumentsNet unrecognized gain (loss) related to benefit plans (net of tax)Total
Balance at December 31, 2016$(43,987)$(37)$802
$6,740
$(36,482)
Other comprehensive income (loss) before reclassifications5,417
61
4,587
(44)10,021
Amounts reclassified from AOCI to net income (loss)
(27)(3,843)(882)(4,752)
Net current-period other comprehensive income (loss)5,417
34
744
(926)5,269
Balance at March 31, 2017$(38,570)$(3)$1,546
$5,814
$(31,213)
Other comprehensive income (loss) before reclassifications6,757
(19)(2,204)(97)4,437
Amounts reclassified from AOCI to net income (loss)
(1)(658)(800)(1,459)
Net current-period other comprehensive income (loss)6,757
(20)(2,862)(897)2,978
Balance at June 30, 2017$(31,813)$(23)$(1,316)$4,917
$(28,235)
(in thousands)Currency translation (loss) gainNet unrealized gain (loss) on investments (net of tax)Net unrealized gain (loss) on derivative instrumentsNet unrecognized gain (loss) related to benefit plans (net of tax)Total
Balance at December 31, 2017$(27,837)$38
$1,737
$3,633
$(22,429)
ASU 2016-1 cumulative adjustment(1) 

(38)

(38)
Other comprehensive income (loss) before reclassifications3,223

1,224
(55)4,392
Reclassified from AOCI to net (loss) income(2,044)
(1,272)(384)(3,700)
Net other comprehensive income (loss)1,179
(38)(48)(439)654
Balance at March 31, 2018$(26,658)$
$1,689
$3,194
$(21,775)
Other comprehensive income (loss) before reclassifications8,517

(513)112
8,116
Reclassified from AOCI to net income (loss)

381
(427)(46)
Amounts reclassified from AOCI to pension, other accumulated postretirement benefit liabilities and deferred income taxes


(2,831)(2,831)
Net other comprehensive income (loss)8,517

(132)(3,146)5,239
Balance at June 30, 2018$(18,141)$
$1,557
$48
$(16,536)
(1) ASU 2016-1, Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities, requires investments to be measured at fair value through earnings each reporting period as opposed to changes in fair value being reported in other comprehensive income.income (loss). The standard iswas effective as of January 1, 2018 and requires application by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption.
(2)Includes the reclassification of the unamortized balance of the curtailment gain, net of tax as described in Note 16.


21





The amounts reclassified out of AOCI by component and the affected condensed consolidated statementsCondensed Consolidated Statements of operationsOperations line items are as follows (in thousands):
AOCI componentLine items in the Condensed Consolidated Statements of Operations affected by reclassifications from AOCIThree Months Ended June 30, Six Months Ended June 30,Line items in the Condensed Consolidated Statements of Operations affected by reclassifications from AOCIThree months ended June 30,Six months ended June 30,
20182017 201820172019201820192018
Release of currency translation gain with the sale of equity method investmentEquity in income and impairment of investees$
$
 $2,044
$
Release of currency translation gain with the sale of equity method investment and the sale of businessEquity in income and impairment of investees$
$
$
$2,044
Provision for income taxes

 

Loss on sale of business(3,176)
(3,176)
Net income (loss)$
$
 $2,044
$
Net (loss) income$(3,176)$
$(3,176)$2,044
      
Derivative financial instrumentsRevenues$(478)$714
 $1,138
$6,002
Revenues$
$(478)$
$1,138
Cost of operations(11)(49) 1
(46)Cost of operations
(11)
1
Other-net
885
 
492
Other22

(202)
Total before tax(489)1,550
 1,139
6,448
Total before tax22
(489)(202)1,139
Provision for income taxes(108)892
 248
1,947
(Benefit) provision for income taxes
(108)
248
Net income (loss)$(381)$658
 $891
$4,501
Net income (loss)$22
$(381)$(202)$891
      
Amortization of prior service cost on benefit obligationsBenefit plans, net$427
$789
 $811
$1,662
Benefit plans, net$514
$427
$870
$811
Provision for income taxes
(11) 
(20)Net income$514
$427
$870
$811
Net income (loss)$427
$800
 $811
$1,682
    
Realized gain on investmentsOther-net$
$1
 $
$44
Provision for income taxes

 
16
Net income (loss)$
$1
 $
$28

NOTE 9 – CASH AND CASH EQUIVALENTS

The components of cash and cash equivalents are as follows:
(in thousands)June 30, 2018December 31, 2017
Held by foreign entities$27,955
$42,490
Held by United States entities557
1,227
Cash and cash equivalents$28,512
$43,717
   
Reinsurance reserve requirements$25,269
$21,061
Sale proceeds and claim held in escrow591

Restricted foreign accounts6,442
4,919
Restricted cash and cash equivalents$32,302
$25,980
   
Total cash, cash equivalents and restricted cash$60,814
$69,697

Our U.S. Revolving Credit Facility described in Note 17 allows for nearly immediate borrowing of available capacity to fund cash requirements in the normal course of business, meaning that the minimum United States cash on hand is maintained to minimize borrowing costs.

22






NOTE 10 – INVENTORIES

The components of inventories are as follows:
(in thousands)June 30, 2018December 31, 2017
Raw materials and supplies$49,834
$54,291
Work in progress5,971
6,918
Finished goods11,469
11,708
Total inventories$67,274
$72,917

NOTE 11 – EQUITY METHOD INVESTMENTS

Joint ventures in which we have significant ownership and influence, but not control, are accounted for in our consolidated financial statements using the equity method of accounting. We assess our investments in unconsolidated affiliates for other-than-temporary-impairment when significant changes occur in the investee's business or our investment philosophy. Such changes might include a series of operating losses incurred by the investee that are deemed other than temporary, the inability of the investee to sustain an earnings capacity that would justify the carrying amount of the investment or a change in the strategic reasons that were important when we originally entered into the joint venture. As noted below, an other-than-temporary-impairment occurred for our equity method investment in TBWES and we measured our investment in the unconsolidated affiliate at fair value.

Our former equity method investment in BWBC had a manufacturing facility that designs, manufactures, produces and sells various power plant and industrial boilers primarily in China. During the first quarter of 2018, we sold our interest in BWBC to our joint venture partner in China for approximately $21.1 million, resulting in a gain of approximately $6.5 million. Proceeds from this sale, net of $1.3 million of withholding tax, was $19.8 million.

After the sale of our interest in BWBC, our primary remaining equity method investment is in TBWES. TBWES has a manufacturing facility that produces boiler parts and equipment intended primarily for new build coal boiler contracts in India. During the second quarter of 2017, both we and our joint venture partner decided to make a strategic change in the Indian joint venture due to the decline in forecasted market opportunities in India, at which time we recorded in an $18.2 million other-than-temporary-impairment to the expected recoverable value of our investment in the joint venture. During the first quarter of 2018, based on a preliminary agreement to sell our investment in TBWES, we recognized an additional $18.4 million other-than-temporary-impairment. The impairment charge was based on the difference in the carrying value of our investment in TBWES and the preliminary sale price. In July 2018, we completed the sale of our investment in TBWES together with the settlement of related contractual claims and received $15.0 million in cash, of which $7.7 million related to our investment in TBWES. The remaining carrying value of our interest in TBWES was $7.7 million at June 30, 2018 and $26.0 million at December 31, 2017. Additionally, AOCI includes $2.6 million at June 30, 2018 for AOCI related to cumulative currency translation loss from our investment in TBWES, and is expected to be recognized as a loss in connection with closing the sale in the third quarter of 2018.

NOTE 12 - GOODWILL

The following summarizes the changes in the carrying amount of goodwill:
(in thousands)Power Renewable 
Industrial(1)
 Total
Balance at December 31, 2017 (2)
$47,370
 $
 $38,308
 $85,678
Currency translation adjustments(191) 
 (768) (959)
Second quarter 2018 impairment charges
 
 (37,540) (37,540)
Balance at June 30, 2018 (2)
$47,179
 $
 $
 $47,179
(1) Goodwill for MEGTEC and Universal are shown as part of noncurrent assets of discontinued operations. See Note 3 for a further description of discontinued operations.
(2) Accumulated goodwill impairments were $50.0 million for the Renewable segment as of December 31, 2017 and $74.4 million and $36.9 for the Industrial segment as of June 30, 2018 and December 31, 2017, respectively.


2340





In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment (ASU 2017-04). The standard simplifies the subsequent measurement of goodwill by removing the requirement to perform a hypothetical purchase price allocation to compute the implied fair value of goodwill to measure impairment. Instead, goodwill impairment is measured as the difference between the fair value of the reporting unit and the carrying value of the reporting unit. The standard also clarifies the treatment of the income tax effect of tax-deductible goodwill when measuring goodwill impairment loss. This standard is effective for annual or any interim goodwill impairment test in fiscal years beginning after December 15, 2019, with early adoption permitted for impairment tests performed after January 1, 2017. We early adopted ASU 2017-04 on April 1, 2018, effective the first day of our 2018 second quarter.

ASC 350-30, Goodwill and Other Intangible Assets, requires that goodwill and other unamortizable intangible assets be tested for impairment at least annually or earlier if there are impairment indicators. Interim impairment testing as of June 30, 2018 was performed at SPIG due to lower bookings in the second quarter of 2018 than previously forecasted, which resulted in a reduction in the forecast for the reporting unit.

We compared the fair value of the reporting unit and the carrying value of the reporting unit to measure goodwill impairment loss as required by ASU 2017-04. Fair value was determined using the combination of a discounted cash flow method (income approach) and the guideline public company method (market comparable approach), weighted equally in determining the fair value. The market comparable approach estimates fair value using market multiples of various financial measures compared to a set of comparable public companies. In performing the valuations, significant assumptions utilized include unobservable Level 3 inputs including cash flows and long-term growth rates reflective of management’s forecasted outlook, and discount rates inclusive of risk adjustments consistent with current market conditions. A discount rate of 14.5% was used, which is based on the weighted average cost of capital using guideline public company data, factoring in current market data and company specific risk factors. As a result of the impairment test, we recognized a $37.5 million impairment of goodwill in the SPIG reporting unit. After the impairment, the SPIG reporting unit did not have any remaining goodwill.

NOTE 13– INTANGIBLE ASSETS

Our intangible assets are as follows:
(in thousands)June 30, 2018December 31, 2017
Definite-lived intangible assets  
Customer relationships$24,876
$25,494
Unpatented technology12,454
12,910
Patented technology6,546
6,542
Tradename12,650
13,951
Backlog17,760
18,060
All other8,641
7,611
Gross value of definite-lived intangible assets82,927
84,568
Customer relationships amortization(13,643)(12,455)
Unpatented technology amortization(3,002)(2,184)
Patented technology amortization(2,309)(2,213)
Tradename amortization(3,372)(3,042)
Acquired backlog amortization(17,760)(16,622)
All other amortization(7,778)(7,292)
Accumulated amortization(47,864)(43,808)
Net definite-lived intangible assets$35,063
$40,760
   
Indefinite-lived intangible assets:  
Trademarks and trade names$1,305
$1,305
Total indefinite-lived intangible assets$1,305
$1,305


24





The following summarizes the changes in the carrying amount of intangible assets:
 Six months ended June 30,
(in thousands)20182017
Balance at beginning of period$42,065
$65,496
Amortization expense(4,056)(6,334)
Currency translation adjustments and other(1,641)(14,088)
Balance at end of the period$36,368
$45,074

Amortization of intangible assets is included in cost of operations and SG&A in our condensed consolidated statement of operations but it is not allocated to segment results.

Estimated future intangible asset amortization expense is as follows (in thousands):
Year endingAmortization expense
Three months ending September 30, 2018$1,311
Three months ending December 31, 2018$1,311
Twelve months ending December 31, 2019$4,763
Twelve months ending December 31, 2020$4,002
Twelve months ending December 31, 2021$3,772
Twelve months ending December 31, 2022$3,685
Twelve months ending December 31, 2023$3,677
Thereafter$12,542

NOTE 14 – PROPERTY, PLANT & EQUIPMENT

Property, plant and equipment is stated at cost. The composition of our property, plant and equipment less accumulated depreciation is set forth below:
(in thousands)June 30, 2018December 31, 2017
Land$3,590
$3,631
Buildings107,100
107,944
Machinery and equipment195,276
205,331
Property under construction2,249
5,979
 308,215
322,885
Less accumulated depreciation202,450
208,178
Net property, plant and equipment$105,765
$114,707

NOTE 15 – WARRANTY EXPENSE

We may offer assurance type warranties on products and services we sell. Changes in the carrying amount of our accrued warranty expense are as follows: 
 Six Months Ended June 30,
(in thousands)20182017
Balance at beginning of period$33,514
$36,520
Additions28,008
12,093
Expirations and other changes(1,592)(3,244)
Payments(5,791)(6,089)
Translation and other(1,001)1,193
Balance at end of period$53,138
$40,473

25





We accrue estimated expense included in cost of operations to satisfy contractual warranty requirements when we recognize the associated revenues on the related contracts, or in the case of a loss contract, the full amount of the estimated warranty costs is accrued when the contract becomes a loss contract. In addition, we record specific provisions or reductions where we expect the actual warranty costs to significantly differ from the accrued estimates. Such changes could have a material effect on our consolidated financial condition, results of operations and cash flows. Warranty expense in the three months ended June 30, 2018 includes a $15.1 million increase in expected warranty costs for the six European renewable energy loss contracts based on experience from the startup and commissioning activities in the second quarter of 2018 and $5.3 million of specific provisions on certain contracts in the Power segment for specific technical matters and customer requirements.

NOTE 16 – PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS

Components of net periodic benefit cost (benefit) included in net income (loss) are as follows:
 Pension Benefits Other Benefits
 Three Months Ended June 30,Six Months Ended June 30, Three Months Ended June 30,Six Months Ended June 30,
(in thousands)2018201720182017 2018201720182017
Interest cost9,741
10,255
19,498
20,490
 95
140
192
361
Expected return on plan assets(16,215)(14,854)(32,445)(29,710) 



Amortization of prior service cost25
26
50
51
 (188)(816)(834)(1,716)
Recognized net actuarial loss (gain)(544)
(544)1,062
 



Benefit plans, net(6,993)(4,573)(13,441)(8,107) (93)(676)(642)(1,355)
Service cost included in COS$187
$231
$376
$482
 $4
$4
$8
$8
Net periodic benefit cost (benefit)$(6,806)$(4,342)$(13,065)$(7,625) $(89)$(672)$(634)$(1,347)

During the second quarter of 2018, lump sum payments from our Canadian pension plan resulted in a plan settlement gain of $0.1 million, which also resulted in interim mark to market accounting for the pension plan. The mark to market adjustment in the second quarter of 2018 was a gain of $0.4 million. The effect of these charges and mark to market adjustments are reflected in the "Recognized net actuarial loss (gain)" in the table above. The recognized net actuarial (gain) loss was recorded in our condensed consolidated statements of operations in the "Benefit plans, net" line item. There were no lump sum payments from our Canadian pension plan during the first quarter of 2018.

During the first quarter of 2017, lump sum payments from our Canadian pension plan resulted in a plan settlement loss of $0.4 million, which also resulted in interim mark to market accounting for the pension plan. The mark to market adjustment in the first quarter of 2017 was a loss of $0.7 million. The effect of these charges and mark to market adjustments are reflected in the "Recognized net actuarial loss (gain)" in the table above. The recognized net actuarial (gain) loss was recorded in our condensed consolidated statements of operations in the "Benefit plans, net" line item. There were no lump sum payments from our Canadian pension plan during the second quarter of 2017.

We terminated the Babcock & Wilcox Retiree Medical Plan (the "Retiree OPEB plan") effective December 31, 2016. The Retiree OPEB plan was originally established to provide secondary medical insurance coverage for retirees that had reached the age of 65, up to a lifetime maximum cost. In exchange for terminating the Retiree OPEB plan, the participants had the option to enroll in a third-party health care exchange, to which B&W agreed to contribute up to $750 a year for each of the next three years (beginning in 2017) to a health reimbursement account (“HRA”), provided the plan participant had not yet reached their lifetime maximum under the terminated Retiree OPEB plan. Based on the number of participants who enrolled 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 curtailment gain was deferred in accumulated other comprehensive income and was being recognized as income through 2020. Participants in the Retiree OPEB plan filed a class action lawsuit against B&W in 2017 asserting that the change in health care coverage breached B&W’s obligations under collective bargaining agreements. In April 2018, the court approved a settlement whereby B&W will contribute $1,000 a year for 2018 and 2019, and $1,100 a year thereafter for the life of a participant to an HRA. As a result of the settlement, the revised Retiree OPEB plan was actuarially remeasured as of April 1, 2018. The unamortized balance of the curtailment gain of $5.2 million and the related deferred tax of $1.3 million was reversed from AOCI and we recorded $5.2 million in other accumulated postretirement benefit liabilities for the actuarial value of the Retiree OPEB plan.

26






We made contributions to our pension and other postretirement benefit plans totaling $4.7 million and $8.5 million during the three and six months ended June 30, 2018, respectively, as compared to $5.0 million and $6.4 million during the three and six months ended June 30, 2017, respectively.

NOTE 17 – REVOLVING DEBT

The components of our revolving debt are comprised of separate revolving credit facilities in the following locations:
(in thousands)June 30, 2018December 31, 2017
United States$196,300
$94,300
Foreign4,124
9,173
Total revolving debt$200,424
$103,473

U.S. Revolving Credit Facility

On May 11, 2015, we entered into a credit agreement with a syndicate of lenders ("Credit Agreement") in connection with our spin-off from The Babcock & Wilcox Company which governs the U.S. Revolving Credit Facility. The Credit Agreement, which is scheduled to mature 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, subject to the limits specified in the amendment described below.

Since June 2016, we have entered into a number of amendments to the Credit Agreement (the "Amendments" and the Credit Agreement, as amended to date, the "Amended Credit Agreement"). The most recent Amendment, which we entered into on August 9, 2018, among other things, provided for the following modifications: (1) modifies the definition of adjusted EBITDA in the Amended Credit Agreement to exclude up to an additional $72.8 million of charges for certain Renewable segment contracts for periods including the quarter ended June 30, 2018 and allow further add backs to EBITDA for restructuring and other similar expenses; (2) modifies the financial covenants as described below; (3) modifies the amount of liquidity (as defined in the Amended Credit Agreement) we are required to maintain from at least $65.0 million as of the last business day of any calendar month to at least $50.0 million (or $40.0 million upon the consummation of certain asset sales and the receipt of at least $10.0 million of proceeds from the Last Out Loan described below) as of the last business day of any calendar month and on any day that a borrowing is made; (4) lowers the amount of outstanding borrowings under the U.S. Revolving Credit Facility that we are required to repay (without any reduction in commitments) with certain excess cash from $60.0 million to $50.0 million; (5) modifies the Company's ability to reinvest net cash proceeds from asset sales that trigger prepayment requirements to allow for the ability to retain up to $25.0 million of asset sale proceeds after receipt of the initial Last Out Loan funding described below; (6) permits an additional $15.0 million of cumulative net income losses attributable to eight specified Vølund contracts for the fiscal quarter ending September 30, 2018; (7) modifies certain contract completion milestones that we are required to meet in connection with six European Renewable loss contracts; (8) modifies the date by which we are required to sell at least $100 million of assets from March 31, 2019 to October 31, 2018; (9) requires us to achieve certain concessions from our renewable contract customers by September 30, 2018 that will generate at least $25.0 million of incremental benefits to us, (10) adds additional events of default related to the termination or rejection of certain contracts related to our Renewables segment; (11) permits and requires us to raise up to an additional net $30.0 million of last-out loans under the Amended Credit Agreement in connection with the Vintage Commitment described below; 12) consents to the sale of our Palm Beach Resource Recovery Corporation; and (13) eliminates a requirement to adjust on a pro forma basis our EBITDA after the sales of Megtec and Universal, and
Palm Beach Resource Recovery Corporation.

The Amended Credit Agreement and our obligations under certain hedging agreements and cash management agreements with our lenders and their affiliates continue to be (1) guaranteed by substantially all of our wholly owned domestic subsidiaries and certain of our foreign subsidiaries, but excluding our captive insurance subsidiary, and (2) secured by first-priority liens on certain assets owned by us and the guarantors. The Amended Credit Agreement requires interest payments on revolving loans on a periodic basis until maturity. We may prepay all loans at any time without premium or penalty (other than customary LIBOR breakage costs), subject to notice requirements. The Amended Credit Agreement requires us to make certain prepayments on any outstanding revolving loans after receipt of cash proceeds from certain asset sales or other events, subject to certain exceptions. Such prepayments may require us to reduce the commitments under the Amended Credit Agreement by a corresponding amount of such prepayments. Following the covenant relief period, such prepayments will not require us to reduce the commitments under the Amended Credit Agreement.


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After giving effect to the Amendments, loans outstanding under the Amended Credit Agreement bear interest at our option at either (1) the LIBOR rate plus 5.0% per annum during 2018, 6.0% per annum during 2019 and 7.0% per annum during 2020, or (2) the Base Rate plus 4.0% per annum during 2018, 5.0% per annum during 2019, and 6.0% per annum during 2020. The Base Rate is the highest of the Federal Funds rate plus 0.5%, the one month LIBOR rate plus 1.0%, or the administrative agent's prime rate. Interest expense associated with our U.S. Revolving Credit Facility loans for the six months ended June 30, 2018 was $14.1 million. Included in interest expense was $7.5 million of non-cash amortization of direct financing costs for the six months ended June 30, 2018. A commitment fee of 1.0% per annum is charged on the unused portions of the U.S. Revolving Credit Facility. A letter of credit fee of 2.5% per annum is charged with respect to the amount of each financial letter of credit outstanding, and a letter of credit fee of 1.5% 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. A deferred fee of 2.5% is charged, but may be reduced by up to 1.5% if the Company achieves certain asset sales.

The Amended Credit Agreement includes financial covenants that are tested on a quarterly basis, based on the rolling four-quarter period that ends on the last day of each fiscal quarter. The maximum permitted senior debt leverage ratio as defined in the Amended Credit Agreement is:
9.75:1.0 for the quarters ending June 30, 2018 and September 30, 2018,
4.00:1.0 for the quarter ending December 31, 2018,
3.50:1.0 for the quarter ending March 31, 2019, and
2.25:1.0 for the quarters ending June 30, 2019 and each quarter thereafter.

The minimum consolidated interest coverage ratio as defined in the Amended Credit Agreement is:
1.00:1.0 for the quarter ending June 30, 2018,
1.25:1.0 for the quarter ending September 30, 2018,
2.00:1.0 for the quarter ending December 31, 2018,
2.50:1.0 for the quarter ending March 31, 2019, and
3.50:1.0 for the quarters ending June 30, 2019 and each quarter thereafter.

Consolidated capital expenditures in each fiscal year are limited to $27.5 million.

At June 30, 2018, borrowings under the Amended Credit Agreement and foreign facilities consisted of $200.4 million at an effective interest rate of 7.22%. Usage under the Amended Credit Agreement consisted of $196.3 million of borrowings, $20.4 million of financial letters of credit and $157.0 million of performance letters of credit. After giving effect to the Amendments, at June 30, 2018, we had approximately $28.6 million available for borrowings or to meet letter of credit requirements primarily based on our borrowing sublimit, our trailing 12 month adjusted EBITDA (as defined in the Amended Credit Agreement), and our leverage and interest coverage ratios (as defined in the Amended Credit Agreement) which were 7.51 and 1.94, respectively. As a result of the sale of our interest in TBWES, as discussed in Note 11, the U.S. Revolving Credit Facility was reduced from $450.0 million to $440.4 million in July 2018.

As referenced above, our Amended Credit Agreement allows for us to incur up to $30.0 million of net proceeds of last-out loans. On August 9, 2018 we entered into a commitment letter (the “Vintage Commitment Letter”) with Vintage Capital Management LLC (the “Last Out Lender”), a related party, which provides a commitment for an aggregate principal amount of last-out loans (the “Last Out Loans”) that, when borrowed, will result in us receiving $30.0 million of aggregate net proceeds. The face principal amount of Last Out Loans is expected to be approximately $36.0 million, which includes the payment of a $2.0 million up-front fee that will be payable to the Last Out Lender on the date of the first funding of the Last Out Loans and to reflect original issue discount of 10%. The Last Out Loans will be incurred under our Amended Credit Agreement and will share on a pari passu basis with the guaranties and collateral provided thereunder to the existing lenders; provided, that the Last Out Loans will be subordinated in right of payment to the prior payment in full of all amounts owing to the existing lenders. The Last Out Loans will mature and be due in payable in full the day after the current maturity date of the U.S. Revolving Credit Facility. The Last Out Loans will be implemented by way of a further amendment to our Amended Credit Agreement prior to September 30, 2018 and, once implemented, will be available in multiple advances subject to the same conditions to borrowing as our existing U.S. Revolving Credit Facility. The first $10.0 million of Last Out Loans will be made available on the date of consummation of the sale of all of the issued and outstanding capital stock of Palm Beach Resource Recovery Corporation, as further described in Note 25. Advances of Last Out Loans thereafter will be made upon our borrowing request but in formula that results in the aggregate amount of all loans requested being funded on a 50/50 basis between the Last Out Lender and the existing lenders under our U.S. Revolving Credit Facility. Once made, Last Out Loans may be prepaid, subject to the subordination provisions, but not re-borrowed. Last Out Loans will bear interest at

28





a rate per annum equal to the then applicable LIBOR rate plus 14.00%, with 5.50% of such interest rate to be paid in cash and the remaining 8.50% payable in kind by adding such accrued interest to the principal amount of the Last Out Loans. Subject to the subordination provisions, the Last Out Loans shall be subject to all of the other same representations and warranties, covenants and events of default under the Amended Credit Agreement. The commitment evidenced by the Vintage Commitment Letter is fully backstopped by B. Riley FBR, Inc., a related party, pursuant to a backstop commitment letter between B. Riley FBR, Inc. and the Last Out Lender.  In the event that the Last Out Lender is unable to, or fails to, fund any of its commitments under the Vintage Commitment Letter, then B. Riley FBR, Inc. will be required to do so.

Foreign Revolving Credit Facilities

Outside of the United States, we have revolving credit facilities in Turkey that are used to provide working capital to our operations in that country. These foreign revolving credit facilities allow us to borrow up to $4.1 million in aggregate and each have less than a year remaining to maturity. At June 30, 2018, we had $4.1 million in borrowings outstanding under these foreign revolving credit facilities at an effective weighted-average interest rate of 9.57%.

Letters of Credit, Bank Guarantees and Surety Bonds

Certain subsidiaries primarily outside of the United States have credit arrangements with various commercial banks and other financial institutions for the issuance of letters of credit and bank guarantees in association with contracting activity. The aggregate value of all such letters of credit and bank guarantees opened outside of the U.S. Revolving Credit Facility as of June 30, 2018 and December 31, 2017 was $195.4 million and $269.1 million, respectively. The aggregate value of all such letters of credit and bank guarantees that are partially secured by the U.S. Revolving Credit Facility as of June 30, 2018 was $67.2 million. The aggregate value of the letters of credit provided by the U.S. Revolving Credit Facility in support of letters of credit outside of the United States was $38.8 million as of June 30, 2018.

We have posted surety bonds to support contractual obligations to customers relating to certain contracts. We utilize bonding facilities to support such obligations, but the issuance of bonds under those facilities is typically at the surety's discretion. Although there can be no assurance that we will maintain our surety bonding capacity, we believe our current capacity is adequate to support our existing contract requirements for the next 12 months. In addition, 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 June 30, 2018, bonds issued and outstanding under these arrangements in support of contracts totaled approximately $426.1 million.

NOTE 18 – SECOND LIEN TERM LOAN FACILITY

Extinguishment of the Second Lien Term Loan Facility

Using $212.6 million of the proceeds from the Rights Offering, we fully repaid the Second Lien Term Loan Facility (described below) on May 4, 2018, plus accrued interest of $2.3 million. A loss on extinguishment of this debt of approximately $49.2 million was recognized in the second quarter of 2018 as a result of the remaining $32.5 million unamortized debt discount on the date of the repayment, $16.2 million of make-whole interest, and $0.5 million of fees associated with the extinguishment.

Terms of the Second Lien Term Loan Facility

On August 9, 2017, we entered into a second lien credit agreement (the "Second Lien Credit Agreement") with an affiliate of AIP, governing the Second Lien Term Loan Facility. The Second Lien Term Loan Facility consisted of a second lien term loan in the principal amount of $175.9 million, all of which was borrowed on August 9, 2017, and a delayed draw term loan facility in the principal amount of up to $20.0 million, which was drawn in a single draw on December 13, 2017.

Borrowings under the second lien term loan, other than the delayed draw term loan, had a coupon interest rate of 10% per annum, and borrowings under the delayed draw term loan had a coupon interest rate of 12% per annum, in each case payable quarterly. As of March 7, 2018, the interest rates increased to 12% and 14% per annum, respectively, due to the covenant

29





default. Undrawn amounts under the delayed draw term loan accrued a commitment fee at a rate of 0.50%, which was paid at closing. The second lien term loan and the delayed draw term loan had a scheduled maturity of December 30, 2020.

In connection with our entry into the Second Lien Term Loan Facility, we used $50.9 million of the proceeds to repurchase and retire approximately 4.8 million shares of our common stock (approximately 10% of our shares outstanding) held by an affiliate of AIP, which was one of the conditions precedent for the Second Lien Term Loan Facility. Based on observable and unobservable market data, we determined the fair value of the shares we repurchased from the related party on August 9, 2017 was $16.7 million. We utilized a discounted cash flow model and estimates of our weighted average cost of capital on the transaction date to derive the estimated fair value of the share repurchase. The $34.2 million difference between the share repurchase price and the fair value of the repurchased shares was recorded as a discount on the Second Lien Term Loan Facility borrowing. Non-cash amortization of the debt discount and direct financing costs were being accreted to the carrying value of the loan through interest expense utilizing the effective interest method and an effective interest rate of 20.08%.

Interest expense associated with our Second Lien Credit Agreement was comprised of the following:
(in thousands)
Coupon
Interest
Accretion of debt discount and amortization of financing costs
Total
Interest
Expense
For the three months ended June 30, 2018$2,191$833$3,024
For the six months ended June 30, 2018$7,460$3,202$10,662

The Second Lien Credit Agreement contained representations and warranties, affirmative and restrictive covenants, financial covenants and events of default substantially similar to those contained in the Amended Credit Agreement, subject to certain cushions. At March 31, 2018 and December 31, 2017, we were in default of several financial covenants associated with the Second Lien Credit Agreement, which resulted in our classification of all of the net carrying value as a current liability in our condensed consolidated balance sheet. Under the terms of the intercreditor agreement among the lenders under the Amended Credit Agreement and the Second Lien Credit Agreement, the lenders under the Second Lien Credit Agreement cannot enforce remedies against the collateral until after they provide notice of enforcement and after the expiration of a 180-day standstill period. The lenders under the Second Lien Credit Agreement did not provide such notice. The March 1, 2018 and April 10, 2018 Amended Credit Agreement amendments temporarily waived all events of default, including cross-default provisions.

NOTE 19 – RIGHTS OFFERING

On March 19, 2018, we distributed to holders of our common stock one nontransferable subscription right to purchase 1.4 common shares for each common share held as of 5:00 p.m., New York City time, on March 15, 2018 at a price of $3.00 per common share. On April 10, 2018, we extended the expiration date and amended certain other terms regarding the Rights Offering. As amended, each right entitled holders to purchase 2.8 common shares at a price of $2.00 per share. The Rights Offering expired at 5:00 p.m., New York City time, on April 30, 2018. The Company did not issue fractional rights, or pay cash in lieu of fractional rights. The Rights Offering did not include an oversubscription privilege.

The Rights Offering concluded on April 30, 2018, resulting in the issuance of 124.3 million common shares on April 30, 2018. Gross proceeds from the Rights Offering were $248.4 million. Of the proceeds received, $214.9 million were used to fully repay the Second Lien Credit Agreement, including $2.3 million of accrued interest, and the remainder were used for working capital purposes. Direct costs of the Rights Offering totaled $3.2 million.

NOTE 20 – CONTINGENCIES

Stockholder Litigation

On March 3, 2017 and March 13, 2017, 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 plaintiff was selected by the Court. Through subsequent amendments, the putative class period was expanded to include

30





investors who purchased shares between June 17, 2015 and August 9, 2017. We filed a motion to dismiss in late 2017; the court denied the motion in early 2018.

The plaintiff in the Stockholder Litigation alleges fraud, misrepresentation and a course of conduct relating to the facts surrounding certain projects underway in the Company's Renewable segment, which, according to the plaintiff, had the effect of artificially inflating the price of the Company's common stock. The plaintiff further alleges that stockholders were harmed when the Company later disclosed that it would incur losses on these projects. The plaintiff seeks an unspecified amount of damages.

On February 16, 2018 and February 22, 2018, the Company and certain of its present and former officers and directors were named as defendants in three separate but substantially similar derivative lawsuits filed in the United States District Court for the District of Delaware (the “Derivative Litigation”). On April 23 2018, the United States District Court for the District of Delaware entered an order consolidating the related derivative actions and designating co-lead and co-liaison counsel. On June 1, 2018, plaintiffs filed a consolidated derivative complaint. Plaintiffs assert a variety of claims against defendants including alleged violations of the federal securities laws, waste, breach of fiduciary duties and unjust enrichment. Plaintiffs, who all purport to be current shareholders of the Company's common stock, are suing on behalf of the Company to recover costs and an unspecified amount of damages, and force implementation of corporate governance changes.

On June 28, 2018, the Derivative Litigation was transferred to the United States District Court for the Western District of North Carolina, where the Stockholder Litigation is pending. The parties have filed a motion asking the Court to stay the Derivative Litigation.

We believe the allegations in the Stockholder Litigation and the Derivative Litigation are without merit, and that the respective outcomes of the Stockholder Litigation and the Derivative Litigation will not have a material adverse impact on our consolidated financial condition, results of operations or cash flows, net of any insurance coverage.

Other

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

NOTE 21 – DERIVATIVE FINANCIAL INSTRUMENTS

Our foreign currency exchange ("FX") forward contracts that qualify for hedge accounting are designated as cash flow hedges. The hedged risk is the risk of changes in functional-currency-equivalent cash flows attributable to changes in FX spot rates of forecasted transactions related to long-term contracts. We exclude from our assessment of effectiveness the portion of the fair value of the FX forward contracts attributable to the difference between FX spot rates and FX forward rates. At June 30, 2018 and 2017, we had deferred approximately $1.6 million and $(1.3) million, respectively, of net gains (losses) on these derivative financial instruments in AOCI.

At June 30, 2018, our derivative financial instruments consisted solely of FX forward contracts. The notional value of our FX forward contracts totaled $23.0 million at June 30, 2018 with maturities extending to November 2019. These instruments consist primarily of contracts to purchase or sell euros and British pounds sterling. We are exposed to credit-related losses in the event of nonperformance by counterparties to derivative financial instruments. We attempt to mitigate this risk by using major financial institutions with high credit ratings. The counterparties to all of our FX forward contracts are financial institutions party to our U.S. Revolving Credit Facility. Our hedge counterparties have the benefit of the same collateral arrangements and covenants as described under our U.S. Revolving Credit Facility. During the third quarter of 2017, our hedge counterparties removed the lines of credit supporting new FX forward contracts. Subsequently, we have not entered into any new FX forward contracts.

31






The following tables summarize our derivative financial instruments:
 Asset and Liability Derivative
(in thousands)June 30, 2018December 31, 2017
Derivatives designated as hedges:  
Foreign exchange contracts:  
Location of FX forward contracts designated as hedges:  
Accounts receivable-other$731
$1,088
Other assets1,631
312
Accounts payable1
105
   
Derivatives not designated as hedges:  
Foreign exchange contracts:  
Location of FX forward contracts not designated as hedges:  
Accounts receivable-other$
$7
Accounts payable3
1,722
Other liabilities
12

The effects of derivatives on our financial statements are outlined below:
 Three Months Ended June 30, Six Months Ended June 30,
(in thousands)20182017 20182017
Derivatives designated as hedges:     
Cash flow hedges     
Foreign exchange contracts     
Amount of gain (loss) recognized in other comprehensive income$(602)$(3,657) $999
$2,244
Effective portion of gain (loss) reclassified from AOCI into earnings by location:     
Revenues(478)714
 1,138
6,002
Cost of operations(11)(49) 1
(46)
Other-net
885
 
492
Portion of gain (loss) recognized in income that is excluded from effectiveness testing by location:     
Other-net(412)(113) (499)(3,519)
      
Derivatives not designated as hedges:     
Forward contracts     
Loss recognized in income by location:     
Other-net$(3)$(36) $(28)$(345)

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NOTE 22 – 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 Financial Accounting Standards Board ("FASB")FASB Topic, Fair Value Measurements and Disclosures).
(in thousands)  
Available-for-sale securitiesJune 30, 2018Level 1Level 2Level 3June 30, 2019Level 1Level 2Level 3
Commercial paper$1,989
$
$1,989
$
Certificates of deposit2,999

2,999

Corporate notes and bonds$12,844
$12,844
$
$
Mutual funds1,351

1,351

593

593

Corporate notes and bonds1,594
1,594


United States Government and agency securities5,680
5,680


3,296
3,296


Total fair value of available-for-sale securities$13,614
$7,274
$6,340
$
$16,733
$16,140
$593
$

(in thousands)  
Available-for-sale securitiesDecember 31, 2017Level 1Level 2Level 3December 31, 2018Level 1Level 2Level 3
Commercial paper$1,895
$
$1,895
$
Certificates of deposit2,398

2,398

Corporate notes and bonds$13,028
$13,028


$
Mutual funds1,331

1,331

1,283

1,283

Corporate notes and bonds4,447
4,447


United States Government and agency securities5,738
5,738


1,437
1,437


Total fair value of available-for-sale securities$15,809
$10,185
$5,624
$
$15,748
$14,465
$1,283
$

(in thousands) 
DerivativesJune 30, 2018December 31, 2017June 30, 2019December 31, 2018
Forward contracts to purchase/sell foreign currencies$2,358 $(432)$
$546

Available-For-Sale Securities

We estimate the fair value of available-for-sale securities based on quoted market prices. Our investments in available-for-sale securities are presented in "other assets"other assets on our condensed consolidated balance sheets.Condensed Consolidated Balance Sheets with contractual maturities ranging from 0-6 years.

Derivatives

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

Other Financial Instruments

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

Cash and cash equivalents and restricted cash and cash equivalents. The carrying amounts that we have reported in the accompanying condensed consolidated balance sheetsCondensed Consolidated Balance Sheets for cash and cash equivalents and restricted cash and cash equivalents approximate their fair values due to their highly liquid nature.
Revolving debt and Last Out Term Loans. We base the fair values of debt instruments on quoted market prices. Where quoted prices are not available, we base the fair values on Level 2 inputs such as the present value of future cash flows discounted at estimated borrowing rates for

33





similar debt instruments or on estimated prices based on current yields for debt issues of similar quality and terms. The fair value of our debt instruments approximated their carrying value at June 30, 20182019 and December 31, 2017.2018.
Warrants.The fair value of the warrants was established using the Black-Scholes option pricing model value approach.


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Non-Recurring Fair Value Measurements

The measurement of the net actuarial gain or loss associated with our pension and other postretirement plans was determined using unobservable inputs (see Note 16)12). These inputs included the estimated discount rate, expected return on plan assets and other actuarial inputs associated with the plan participants.

Our interim goodwillProperty, plant and equipment amounts are reviewed for impairment tests and second quarter 2018whenever events or changes in circumstances indicate that the carrying amount of an asset, or asset group, may not be recoverable. An impairment charges required significant fair value measurements using unobservable inputs (see Note 12). The fair valueloss would be recognized when the carrying amount of an asset exceeds the estimated undiscounted future cash flows expected to result from the use of the reporting unit wasasset and its eventual disposition. The amount of the impairment loss to be recorded is calculated by the excess of the asset carrying value over its fair value. Fair value is generally determined based on an income approach using a discounted cash flow analysis a market approach using multiples of revenue and EBITDA of guideline companies, and a market approach using multiples of revenue and EBITDA from recent, similar business combinations.

Our second quarter 2018 impairment chargesor based on the price that the Company expects to assets held forreceive upon the sale of discontinued operations required significant fair value measurements usingthese assets. Both of those approaches utilize unobservable inputs (see Note 3). The fair value of the net assets held for sale were based on the expected net proceeds for the sale of MEGTEC11 and Universal.Note 6).

NOTE 23 24SUPPLEMENTAL INFORMATIONRELATED PARTY TRANSACTIONS

DuringThe Letter Agreement described in Note 18 between B. Riley Financial, Inc. (together with its affiliates, "B. Riley"), Vintage Capital Management, LLC ("Vintage") and the six months endedCompany included agreement to negotiate one or more agreements that provide B. Riley and Vintage with certain governance rights, including (i) the right for B. Riley and Vintage to each nominate up to three individuals to serve on our board of directors, subject to certain continued lending and equity ownership thresholds and (ii) pre-emptive rights permitting B. Riley to participate in future issuances of our equity securities. The size of our board of directors is currently expected to remain at seven directors. On April 30, 2019, the Company entered into an Investor Rights Agreement with B. Riley Financial, Inc. and Vintage providing the governance rights contemplated by the Letter Agreement. The Company also entered into a Registration Rights Agreement with B. Riley Financial, Inc. and Vintage on April 30, 2019 providing each of B. Riley Financial, Inc. and Vintage with certain customary registration rights for the shares of our common stock that they hold.

Transactions with B. Riley and its Affiliates

B. Riley Financial, Inc. and its affiliates became the beneficial owner of greater than five percent of our common stock in May 2018, upon completion of the 2018 Rights Offering described in Note 17. Based on its Schedule 13D filing made on May 7, 2019, B. Riley beneficially owned 6.6% of our outstanding common stock as of June 30, 2018 and 2017, we recognized2019. Based on its Schedule 13D filings following the following non-cash activitycompletion of the Equitization Transactions described in Note 18, B. Riley beneficially owns 18.4% of our condensed consolidated financial statements:
(in thousands)20182017
Accrued capital expenditures in accounts payable$123
$703
Accreted interest expense on our second lien term loan facility$3,202
$
outstanding common stock, inclusive of the warrants further described in Note 15, as of July 23, 2019.

DuringB. Riley is party to the six months endedLast Out Term Loans as described in Note 14 and Note 18 and was a party to the Equitization Transactions described in Note 18, which included providing the Backstop Commitment to the 2019 Rights Offering described in Note 17 and Note 18 and receiving warrants as described in Note 15 and Note 18.

We entered an agreement with BPRI Executive Consulting, LLC on November 19, 2018 for the services of Mr. Kenny Young, to serve as our Chief Executive Officer until November 30, 2020, unless terminated by either party with thirty days written notice. Under this agreement, payments are $0.75 million per annum, paid monthly. Subject to the achievement of certain performance objectives as determined by the Compensation Committee of the Board, a bonus or bonuses may also be earned and payable to BPRI Executive Consulting, LLC. In June 30,2019, we granted a total of $2.0 million in cash bonuses to BRPI Executive Consulting LLC, an affiliate of B. Riley, for Mr. Young's performance and services. In December 2018, we granted a total of 8.4 million stock appreciation rights to BRPI Executive Consulting, LLC, ("Non-employee SARs"). The Non-employee SARs expire ten years after the grant date and 2017, we recognizedvest 100% upon completion after the required years of service. Upon vesting, the Non-employee SARs may be exercised within ten business days following cash activitythe end of any calendar quarter during which the volume weighted average share price is greater than the per share price goal of $2.25 for 5.1 million of the Non-employee SARS and $2.50 for the remaining 3.3 million of Non-employee SARS. Upon exercise of the Non-employee SARs, the holder receives a cash-settled payment equal to the number of Non-employee SARs that are being exercised multiplied by the difference between the stock price on the date of exercise minus the Non-employee SARs base price of $2.00 per stock appreciation right. Non-employee SARs are issued under a Non-employee SARs agreement. The Non-employee SARs are subject equitable adjustment for the one-for-ten reverse stock split described in our condensed consolidated financial statements:
(in thousands)20182017
Income tax payments$2,938
$2,657
Interest payments on our U.S. revolving credit facility$4,599
$1,389
Interest payments on our second lien term loan facility$7,627
$
Note 1.


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Transactions with Vintage Capital Management, LLC
Based on its Schedule 13D filing on May 2, 2019, Vintage beneficially owned 14.9% of our outstanding common stock as of June 30, 2019. Based on its Schedule 13D filings following the completion of the Equitization Transactions described in Note 18, Vintage beneficially owns 32.8% of our outstanding common stock as of July 23, 2019.

Vintage was a party to Tranche A-1 of the Last Out Term Loans as described in Note 14 and Note 18 and was a party to the Equitization Transactions described in Note 18, which included participation in the 2019 Rights Offering described in Note 17 and Note 18 and conversion of Tranche A-1 of the Last Out Term Loans in the Debt Exchange as described in Note 14 and Note 18. Prior to Debt Exchange, $6.0 million of Tranche A-1 had been transferred or sold to affiliates of B. Riley and the remainder was held by Vintage.

On April 10, 2018, the Company and Vintage entered into an equity commitment agreement (the "Equity Commitment Agreement"), which Equity Commitment Agreement amended and restated in its entirety the prior letter agreement, dated as of March 1, 2018, between the Company and Vintage, pursuant to which Vintage agreed to backstop the 2018 Rights Offering for the purpose of providing at least $245 million of new capital.

On July 23, 2019, concurrent with the completion of the 2019 Rights Offering, described in Note 17, the Tranche A-1 principal and paid-in-kind interest totaling $38.2 million was exchanged for 127.2 million of our common shares of which 107.2 million of common shares were issued to Vintage, a related party, and the remainder were issued to B.Riley, also a related party, described above.

NOTE 25 – DIVESTITURE

Effective May 31, 2019, we sold all of the issued and outstanding capital stock of Loibl, a material handling business in Germany, to Lynx Holding GmbH for €10.0 million (approximately $11.4 million), subject to adjustment. We received $7.4 million in cash and recognized a $3.6 million pre-tax loss on sale of this business in the quarter ended June 30, 2019, net of $0.7 million in transaction costs. Proceeds from the transaction were primarily used to reduce outstanding balances under our U.S. Revolving Credit Facility. Through the sale, we were also able to release performance letters of credit totaling $8.5 million, which improved our borrowing capacity as described in Note 13. Prior to the divestiture, Loibl was part of the Vølund & Other Renewable segment and had revenues of approximately $30 million for the year ended December 31, 2018.

NOTE 26– DISCONTINUED OPERATIONS

On October 5, 2018, we sold all of the capital stock of our MEGTEC and Universal businesses to Dürr Inc., a wholly owned subsidiary of Dürr AG ("Dürr"), pursuant to a stock purchase agreement executed on June 5, 2018 for $130.0 million, subject to adjustment. We received $112.0 million in cash, net of $22.5 million in cash sold with the businesses, and $7.7 million, which was deposited in escrow pending final settlement of working capital and other customary matters. We primarily used proceeds from the transaction to reduce outstanding balances under our U.S. Revolving Credit Facility and for working capital purposes. During the quarter ended June 30, 2019, we received $1.5 million that was released from escrow. For the three and six months ended JuneJun 30, 20182019, $0.7 million of pretax income from discontinued operations was recognized primarily for the release of an accrued liability. On July 1, 2019, $2.7 million was released from escrow to Dürr. The remaining escrow matters are expected to be resolved within 18 months from the closing date.


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The following table presents selected financial information regarding the discontinued operations of our former MEGTEC and 2017, interest expenseUniversal businesses included in our condensed consolidated financial statements consistedthe Condensed Consolidated Statements of the following components:Operations:
 Three months ended June 30, Six months ended June 30,
(in thousands)20182017 20182017
Components associated with borrowings from:     
U.S. Revolving Credit Facility$3,434
$1,428
 $5,779
$2,128
Second Lien Term Loan Facility2,191

 7,460

Foreign revolving credit facilities145
233
 279
474
 5,770
1,661
 13,518
2,602
Components associated with amortization or accretion of:     
U.S. Revolving Credit Facility deferred financing fees and commitment fees5,113
872
 8,314
1,588
Second Lien Term Loan Facility deferred financing fees and discount833

 3,202

 5,946
872
 11,516
1,588
      
Other interest expense161
3,750
 295
3,796
      
Total interest expense$11,877
$6,283
 $25,329
$7,986
(in thousands)Three months ended June 30, 2018Six months ended June 30, 2018
Revenue$58,257
$116,439
Cost of operations45,521
90,189
Selling, general and administrative7,597
17,024
Goodwill impairment72,309
72,309
Research and development390
756
Operating income (loss)(67,560)(63,839)
Net loss(55,932)(59,428)

The following table provides a reconciliation of cash, cash equivalents and restricted cash reporting within the consolidated balance sheets that sum to the total of the same amounts in the consolidated statements of cash flows:
(in thousands)June 30, 2018December 31, 2017June 30, 2017December 31, 2016
Cash and cash equivalents of continuing operations (1)
$28,512
$43,717
$59,239
$87,426
Restricted cash and cash equivalents32,302
25,980
22,833
27,770
Total cash, cash equivalents and restricted cash shown in the consolidated statements of cash flows$60,814
$69,697
$82,072
$115,196
(1)Cash and cash equivalentssignificant components of discontinued operations isof our former MEGTEC and Universal businesses included in current assetsour Condensed Consolidated Statements of discontinued operations in the consolidated balance sheet. See Note 3 for further information.Cash Flows are as follows:
(in thousands)Six months ended June 30, 2018
Depreciation and amortization$3,036
Goodwill impairment72,309
Provision for deferred income taxes(815)
Purchase of property, plant equipment77

NOTE 2427 – NEW ACCOUNTING STANDARDS

New accounting standards that could affect our consolidated financial statements in the futureadopted are summarized as follows:

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). With adoptionWe adopted the new standard on January 1, 2019 and used the effective date as our date of thisinitial application and continued applying the guidance under the lease standard lessees willin effect at that time to the comparative periods presented in the Condensed Consolidated Financial Statements. We recorded an immaterial cumulative-effect adjustment to the opening balance of retained earnings on the date of adoption. We also elected the "package of practical expedients", which permits us not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs. However, we are not electing to adopt the hindsight practical expedient and are therefore maintaining the lease terms we previously determined under ASC 840.

We have implemented new leasing software and established new processes and internal controls designed to recognize long-term leases as a right-of-use asset and a lease liability on their balance sheet. For income statement purposes,comply with the FASB retained a dual model, requiring leases to be classified as either operating or finance. Classification will be based on criteria that are similar to those applied in currentnew lease accounting but without explicit bright lines. The new accounting standard is effective for us beginning in 2019. We do not expectand disclosure requirements set by the new accountingstandard. The impact of the standard to have a significantupon adoption increased our assets and liabilities within our Condensed Consolidated Balance Sheets by approximately $16 million but did not materially impact on our financial results when adopted, but will result in new balances in the consolidated balance sheets and new disclosures in the Notes.of operations or cash flows.

In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The new guidance provides companies with the electionoption to reclassify stranded tax effects resulting from the Tax Act from accumulated other comprehensive income to retained earnings. Existing guidance requiring the effect of a change in tax law or rates to be recorded in continuing operations is not affected. This standard is effective for all public business entities for fiscal years beginning after December 15, 2018, and any interim periods within those fiscal years. We did not elect to reclassify the income tax effects of the Tax Act from accumulated other comprehensive income to retained earnings.

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

In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The new guidance requires companies acting as the customer in a cloud hosting service arrangement to follow the requirements of ASC 350-40 for capitalizing implementation costs for internal-use software and requires the amortization of

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these costs over the life of the related service contract. This standard is effective for all public business entities for fiscal years beginning after December 15, 2019, and any interim periods within those fiscal years. Early adoption is permitted in any interim period. We expectare currently evaluating the impact of this standard on our financial statements would be immaterial, but we do not plan on early adopting this standard and have not determined whether we will exercise the election upon adoption.


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New accounting standards that were adopted during the six months ended June 30, 2018 are summarized as follows:

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. The new accountingelect to adopt this standard provides a comprehensive model to use in accounting for revenue from contracts with customers and replaces most existing revenue recognition guidance. In 2016, the FASB issued accounting standards updates to address implementation issues and to clarify the guidance for identifying performance obligations for licenses, for determining if an entity is the principal or agent in a revenue arrangement, and for 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 adopted the new accounting standard as of January 1, 2018 under the modified retrospective method. See Note 5 for additional accounting policy and transition disclosures.

In January 2016, the FASB issued ASU 2016-1, Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities. The new accounting standard is effective for us beginning in 2018, but early adoption is permitted. The new accounting standard requires investments such as available-for-sale securities to be measured at fair value through earnings each reporting period as opposed to changes in fair value being reported in other comprehensive income. We adopted the new accounting standard prospectively as of January 1, 2018, which resulted in an immaterial impact on our financial results.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The new guidance is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. Of the eight classification-related changes this new standard will require in the statement of cash flows, only two of the classification requirements are relevant to our historical cash flow statement presentation (presentation of debt prepayments and presentation of distributions from equity method investees). However, the new classification requirements did not change our historical statement of cash flows. We adopted the new accounting standard as of January 1, 2018, which resulted in an immaterial impact on our financial results.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. The new guidance requires the changes in the total of cash, cash equivalents and restricted cash to be shown together in the statement of cash flows and no longer presenting transfers between cash and cash equivalents and restricted cash in the statement of cash flows. Historically, we have presented the transfer of cash to restricted cash and cash equivalents in the investing section of the statement of cash flows. With the adoption of ASU 2016-18, changes in restricted cash are also included in statement of cash flows based on the nature of the change together with unrestricted cash flows. We retrospectively adopted the new accounting standard as of January 1, 2018. The only meaningful effect on our financial statements is related to the restricted cash received from the sale of BWBC as described in Note 11, which is reflected as investing cash flow. The detail of cash, cash equivalents, and restricted cash is included in Note 23.

In March 2017, the FASB issued ASU 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Benefit Cost and Net Periodic Postretirement Benefit Cost. The new guidance classifies service cost as the only component of net periodic benefit cost presented in cost of operations, whereas the other components will be presented in other income. Upon adoption, this affected not only how we present net periodic benefit cost, but also Power segment gross profit. We adopted the new accounting standard retrospectively as of January 1, 2018. The changes in the classification of the historical components of net periodic benefit costs from operating expense to other expense for the three and six months ended June 30, 2017 amounted to $5.2 million and $9.5 million, respectively, and are reflected in our condensed consolidated statements of operations.

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The standard simplifies the subsequent measurement of goodwill by removing the requirement to perform a hypothetical purchase price allocation to compute the implied fair value of goodwill to measure impairment. Instead, goodwill impairment is measured as the difference between the fair value of the reporting unit and the carrying value of the reporting unit. The standard also clarifies the treatment of the income tax effect of tax-deductible goodwill when measuring goodwill impairment loss. This standard is effective for annual or any interim goodwill impairment test in fiscal

36





years beginning after December 15, 2019, with early adoption permitted for impairment tests performed after January 1, 2017. We early adopted ASU 2017-04 on April 1, 2018, effective the first day of our 2018 second quarter. See Note 12 for further discussion of the goodwill impairment we recognized in the second quarter of 2018.early.

NOTE 25– SUBSEQUENT EVENT

On August 9, 2018, the Company entered into a definitive agreement to sell all of the issued and outstanding capital stock of Palm Beach Resource Recovery Corporation, a B&W subsidiary that holds two operations and maintenance contracts for waste-to-energy facilities in West Palm Beach, Florida, to Covanta Pasco, Inc., a wholly owned subsidiary of Covanta Holding Company, for $45 million.  The purchase price is subject to adjustment for net working capital at closing and other adjustments as set forth in the definitive purchase agreement.  The sale is expected to close in the third quarter of 2018, subject to the satisfaction of customary closing conditions, including approval by the Solid Waste Authority of West Palm Beach.  We expect to use proceeds from the transaction primarily to reduce outstanding balances under our bank credit facilities. Total assets of the subsidiary as of June 30, 2018 were $11.3 million and revenues for the six months ended June 30, 2018 were $30.2 million.

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

FORWARD-LOOKING STATEMENTS***** Cautionary Statement Concerning Forward-Looking Information *****

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

These forward-looking statements address matters that involve risks and uncertainties and include statements that reflect the current views of our senior management with respect to our financial performance and future events with respect to our business 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 results 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; our ability to satisfy the liquidity and other requirements under U.S. revolving credit facility as recently amended, including our ability to successfully enter into and borrow under a new term loan and receive concessions from customers on our Renewable energy loss contracts;the Amended Credit Agreement; 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, partners or suppliers to perform their obligations on time and as specified; our ability to realize anticipated savings and operational benefits from our restructuring plans, and other cost-savings initiatives; our ability to successfully integrateaddress remaining items and realize the expected synergies from acquisitions;any warranty obligations within our ability to successfully address productivity and schedule issues inaccrued estimated costs for our Vølund & Other Renewable segment, including the ability to complete our Renewable energy contracts within the expected time frame and the estimated costs; willingness of customers to waive liquidated damages or agree to bonus opportunities;segment; our ability to successfully partner with third parties to win and execute renewable contracts;contracts within the Vølund & Other Renewable segment; changes in our effective tax rate and tax positions;positions, including any limitation on our ability to use our net operating loss carryforwards and other tax assets as a result of an "ownership change" under Section 382 of the Internal Revenue Code; 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 to recognize revenue over time; our ability to successfully manage research and development projects and costs, including our efforts to successfully develop and commercialize new technologies and products; the operating risks normally incident to our lines of business, including professional liability, product liability, warranty and other claims against us; changes in, or our failure or inability to comply with, laws and government regulations; actual of anticipated changes in governmental regulation, including trade and tariff policies; difficulties we may encounter in obtaining regulatory or other necessary permits or approvals; changes in, and liabilities relating to, existing or future environmental regulatory matters; changes in actuarial assumptions and market fluctuations that affect our net pension liabilities and income; potential violations of the Foreign Corrupt Practices Act; our ability to successfully compete with current and future competitors; the loss of key personnel and the continued availability

37





of qualified personnel; our ability to negotiate and maintain good relationships with labor unions; changes in pension and medical expenses associated with our retirement benefit programs; social, political, competitive and economic situations in foreign countries where we do business or seek new business; the possibilities of war, other armed conflicts or terrorist attacks; the willingness of customers and suppliers to continue to do business with us on reasonable terms and conditions; our ability to successfully consummate the sale of our MEGTEC and Universal businesses and the sale of our subsidiary that holds two operations and maintenance contracts for waste-to-energy facilities in West Palm Beach, Florida,conditions as well as our ability to successfully consummate strategic alternatives for othernon-core assets, if we determine to pursue them.them; and our ability to maintain the listing of our common stock on the NYSE. These factors include the cautionary statements included in this report and the factors set forth under Part I, Item 1A "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 20172018, as amended ("Annual Report") filed with the Securities and Exchange Commission.

These factors are not necessarily all the factors that could affect us. We assume no obligation to revise or update any forward-looking statement included in this quarterly report or the Annual Reportreport for any reason, except as required by law.

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OVERVIEW OF RESULTS

In this report, unless the context otherwise indicates, "B&W,"BW," "we," "us," "our" and "the Company" mean Babcock & Wilcox Enterprises, Inc. and its consolidated subsidiaries. The presentation of the components of our revenues, gross profit and earnings before interest, taxes, depreciation and amortization ("EBITDA"), as reconciled in the table on the following pages of this Management's Discussion and Analysis of Financial Condition and Results of Operations is consistent with the way our chief operating decision maker reviews the results of operations and makes strategic decisions about the business.

In the three and six months ended June 30, 2018, weWe recorded operating losses of $137.4$4.3 million and $243.8 million compared to $146.6 million and $157.9$36.2 million in the three and six months ended June 30, 2017. Our consolidated results and the results2019, respectively, compared to losses of the Renewable segment are primarily driven by changes in estimated revenues and costs to complete the six European loss contracts described in more detail in Note 5 to the condensed consolidated financial statements. We intend to seek insurance recoveries and additional relief from customers and will pursue other claims where appropriate and available. There can be no assurance as to recovery amounts that we may realize. Renewable loss contract positions at June 30, 2018 do not take into account any of these potential recoveries to mitigate these losses.

In the three and six months ended June 30, 2018, we recorded $57.3$137.4 million and $110.0 million increases in estimated losses on these six contracts, even as we continue to make considerable progress on each. The largest portion of these charges, $21.4 million and $39.7 million, respectively, relate to the fifth contract, where the structural steel beam failed in the third quarter of 2017 and work was stopped for an extended period until the structure could be stabilized. In the first quarter of 2018, increases in estimated losses on this fifth loss contract relate primarily to assumption of the civil scope from our joint venture partner, which entered administration (similar to filing for bankruptcy in the U.S.) in late February 2018, and to receiving regulatory approval approximately one month later than previously expected to begin repairs to the failed steel beam, which further increased costs to complete remaining work streams in a compressed time frame. Costs increase when construction activities accelerate because productivity of subcontractors decreases and risk of rework increases. In the second quarter 2018, further increases in estimated losses on this fifth contract reflect greater challenges in restarting work on a site that had been idle for an extended period, including the extent of items that had been damaged from weather exposure, and increases in expected warranty costs. Increases in estimated losses on the second and fourth Renewable loss contracts totaled $22.1 million and $38.2$243.8 million in the three and six months ended June 30, 2018, respectively, primarily as a resultand we showed improved results from each of repairs required from startup commissioning activities inour operating segments. Prior to 2019, the second quartermost significant driver of 2018, subcontractor productivity being lower than previous estimates, additional expected punch list and other commissioning cost, estimated claim settlements and estimated liquidated damages from extending estimated construction time lines. Experience fromour operating losses was the startup and commissioning activities in the second quarter of 2018 also resulted in increased estimated warranty costs acrosscharges for the six European Vølund EPC loss contracts. Additionally, in late May 2018,The scope of these EPC (Engineer, Procure and Construct) contracts extended beyond our insurer disputed our $15.5 million (DKK 100.0 million) insurance claim to recover a portion of the losses on the first project. We believe that the dispute from the insurer is without meritcore technology, products and continue to believe we are entitled to the full value of the claim. We intend to aggressively pursue full recovery under the policy, and filed for arbitration in July 2018. However, an allowance for the entire receivable was recorded in the second quarter of 2018 based upon the dispute by the insurer, which is considered contradictory evidence in the accounting probability assessment of this loss recovery, even if it is believed to be without merit.

services. In the three and six months ended June 30, 2017,2019, we recorded a total of $115.2$3.2 million and $112.2$7.4 million, respectively, in net losses compared to losses of $57.3 million and $110.0 million in lossesthe three and six months ended June 30, 2018, respectively, from changes in the estimated revenues and costs to complete the six European Vølund EPC loss contracts. Aside from these loss projects, we have one remaining extended scope contract in our Vølund business, for which we continue to expect a small profit; this contract is expected to be turned over to our customer in the third quarter of 2019.

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

The SPIG segment contributed to our operating results with $(0.1) million and $0.5 million of adjusted EBITDA in the three and six months ended June 30, 2019, respectively, compared to $(6.2) million and $(13.5) million in the three and six months ended June 30, 2018, respectively. The improvement begins to reflect the effects of a 2017 change in strategy to improve profitability by focusing on more selective bidding in core geographies and products. SPIG's adjusted EBITDA loss in the first half of 2018 was primarily driven by increases in estimated costs to complete new build cooling systems contracts sold under a previous strategy and lower volumes of aftermarket cooling system services. SPIG's new build cooling systems contracts that were sold under the previous strategy were mostly complete as of December 31, 2018; however, included in these few remaining contracts is a loss contract to engineer, procure materials and then construct a dry cooling system for a gas-fired power plant in the U.S., which continued through the first half of 2019 and is expected to be complete in mid-2019.

Our Babcock & Wilcox segment generated adjusted EBITDA of $19.0 million and $28.0 million in the three and six months ended June 30, 2019, respectively, compared to $9.9 million and $14.1 million in the three and six months ended June 30, 2018, respectively. The increase is primarily attributable to higher volume of large construction new build projects, including industrial projects, and lower warranty expenses partly offset by a decrease in volume of parts and retrofits.

Through our restructuring efforts, we made significant strides to make our cost structure more variable and to reduce costs. We have identified additional initiatives that are underway as of the date of this filing that are expected to further reduce

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delayscosts, and shortcomings inwe expect to continue to explore other cost saving initiatives to improve cash generation and to evaluate additional non-core asset sales to reduce our subcontractors estimated productivity. Two of the six became loss contracts in the second quarter of 2017.debt.

InComparisons of our results from continuing operations for the Power segment, 2018 revenues are belowthree and six months ended June 30, 2019 to the corresponding periods due to anticipated lower demand in the global market for new build coal-fired power generation and from lower demand for retrofit projects driven by the Coal Combustion Residue regulations in the U.S. Restructuring occurred in 2017 to maintain margins by reducing costs associated with the projected declines in demand, and further restructuring occurred in June 2018. Comparisons are further affected by increases in estimated warranty costs on certain projects in the second quarter of 2018 favorable results in closing out contracts in the second quarter of 2017 and a reduction of employee benefit expenses that benefited the second quarter of 2017.

The Industrial segment now represents our cooling systems business. While our second quarter 2018 results of the Industrial segment are consistent with the second quarter of the prior year, profitability in this business has been affected by increases in costs to complete new build cooling systems. In 2017, we implemented strategy changes to focus on core geographies and products, and we expect margins to begin to normalize in late 2018 as legacy new build cooling system contracts are completed and both our productivity and profitability increase. On June 5, 2018, we entered into a stock purchase agreement with Dürr AG and its wholly owned subsidiary, Dürr Inc., to sell our MEGTEC and Universal businesses for $130 million, subject to adjustment. We expect the sale to close in the third quarter of 2018, subject to the satisfaction of customary closing conditions, and expect use the proceeds from the transaction primarily to reduce outstanding balances under our bank credit facilities, improving our balance sheet and financial flexibility. As a result, the MEGTEC and Universal businesses, which were previously included in our Industrial segment, are classified as discontinued operations because the disposal represents a strategic shift that will have a major effect on our operations. Accordingly, we recorded a $72.3 million non-cash impairment charge in June 2018 to reduce the carrying value of the MEGTEC and Universal businesses to the fair value, less an amount of estimated sale costs; the non-cash impairment charge is included in Loss from discontinued operations, net of tax.

On April 30, 2018, we raised $248.4 million in a rights offering ("Rights Offering"), resulting in the issuance of 124.3 million shares of common stock. On May 4, 2018, we used $214.9 million of the proceeds from the Rights Offering to fully repay and terminate our second lien term loan facility, dated August 9, 2017 (the "Second Lien Term Loan Facility"), including $2.3 million of accrued interest, resulting in an extinguishment loss of approximately $49.2 million due to the remaining unamortized debt discount and the make-whole interest required from its early repayment. Repayment of the Second Lien Term Loan Facility, which had been in default beginning March 1, 2018, is expected to save approximately $25 million in annual interest payments and $30 million of annual interest expense. We used the remaining net proceeds from the Rights Offering for working capital purposes. The repayment of the Second Lien Term Loan Facility and the Rights Offering are described more fully in Note 18 and Note 19, respectively, to the condensed consolidated financial statements.

Year-over-year comparisons of our results were also affected by:by the following:
$3.6 million of loss on sale of business was recognized in the three months ended June 30, 2019 for a non-core materials handling business in Germany, Loibl GmbH, as described in Note 25.
$0.9 million and $7.0 million of restructuring and spin-off costs were recognized in the three and six months ended June 30, 2019, respectively, compared to $3.8 million and $10.7 million of restructuring and spin-off costs recognized in the three and six months ended June 30, 2018. The actions in the first six months of 2019 primarily related to severance. In the first six months of 2018 restructuring costs related primarily to executive severance and the remaining severance costs of prior restructuring initiatives.
$3.2 million and $7.2 million of financial advisory services were recorded in the three and six months ended June 30, 2019, respectively, as compared to $5.1 million and $8.2 million in the corresponding periods of 2018. These services are requirements of the U.S. Revolving Credit Facility.
$6.6 million of cost was recognized in the six months ended June 30, 2019 for costs of a settlement in connection with an additional European waste-to-energy EPC contract, for which notice to proceed was not given and the contract was not started. The settlement limits our obligations to our core scope activities and eliminates risk related to acting as the prime EPC should the project have moved forward.
$1.6 million and $4.7 million of legal and other advisory fees were recognized in the three and six months ended June 30, 2019, respectively, related to the contract settlements described above and in Note 4 and for liquidity planning.
$2.0 million and $4.0 million of accelerated depreciation expense in the three and six months ended June 30, 2019, respectively, for fixed assets affected by our September 2018 announcement to consolidate office space and relocate our global headquarters to Akron, Ohio expected in the fourth quarter 2019.
$0.9 million and $1.3 million of actuarially determined mark to market ("MTM") losses from our Canadian pension plan was recognized in the three and six months ended June 30, 2019, respectively, compared to $0.5 million of MTM gains from our Canadian pension plan in the three months ended June 30, 2018. MTM losses are further described in Note 12.
$37.5 million to fully impair goodwill related to our SPIG reporting unit in the second quarter of 2018 due to lower bookings than previously forecasted, which resulted in a reduction in the forecast for the reporting unit. See further discussion in Note 12 to the condensed consolidated financial statements.2018. 
$5.1 million and $8.218.4 million of financial advisory services are includedother-than-temporary impairment was recognized in selling, general and administrative expenses ("SG&A") in the three and six months ended June 30, 2018 respectively. These services are requirements of Amendments 3 and 5for our interest in TWBES, an equity method investment in India based on an agreement to the U.S. Revolving Credit Facility, as described more fully in Note 17 to the condensed consolidated financial statements.
$3.8 million and $10.7 million of restructuring and spin-off costs were recognized in the three and six months ended June 30, 2018, respectively, compared to $2.0 million and $5.0 million of restructuring and spin-off costs in the three and six months ended June 30, 2017, respectively. The actions in the first six months of 2018 are primarily related to executive severance, workforce reductions and the remaining severance costs of other restructuring initiatives. In the first six months of 2017, restructuring cost related to severance costs from prior initiatives to restructure the business serving the power generation market in advance of lower demand for power generation from coal in the United States.sell our ownership interest.
$6.5 million of gain on sale was recognized during the sale of anfirst quarter 2018 for our equity method investment in China was recognized in the first quarter of 2018 and is included in Equity in income and impairment of investees.

We face liquidity challenges from losses recognized on our six European Vølund EPC loss contracts described in Note 4, which have required amendments and waivers to maintain compliance with the Amended Credit Agreement, inclusive of Amendments No. 16 and No. 17. Our liquidity is provided under a credit agreement dated May 11, 2015, as amended, with a syndicate of lenders ("Amended Credit Agreement") that governs a revolving credit facility ("U.S. Revolving Credit Facility") and our last out term loan facility ("Last Out Term Loans"). The saleAmended Credit Agreement and the amendments and waivers are described in more detail in Note 13, Note 14 and Note 18.

To address our liquidity needs and the going concern uncertainty, we have taken the following actions in 2019 as follows:
completed equitization transactions on July 23, 2019 as described in Note 18 and Note 17, which included an exchange of all of the outstanding balance of Tranche A-1 of the Last Out Term Loans for equity and a rights offering to raise $50.0 million that was completed in early 2018 with proceeds, netused to fully repay Tranche A-2 of withholding taxthe Last Out Term Loans and to reduce a portion of $19.8 million.the outstanding principal under Tranche A-3 of the Last Out Term Loans;
$18.4 million and $18.2 million of other-than-temporary impairmentexecuted a one-for-ten reverse stock split of our equity method investmentissued and outstanding common stock, which became effective on July 24, 2019;
completed the sale of a non-core materials handling business in IndiaGermany, Loibl GmbH ("Loibl") effective May 31, 2019 for €10.0 million (approximately $11.4 million), subject to adjustment, resulting in net receipt of $7.4 million;
received $150.0 million in face value from Tranche A-3 of the first quarter of 2018Last Out Term Loans before original issuance discount and the second quarter of 2017, respectively, based on a change in strategy and then an agreement to sell it, which was completed in July 2018. The impairments are included in Equity in income and impairment of investees. See further discussionfees, as described in Note 11 to the condensed consolidated financial statements.14, from B. Riley FBR, Inc., a related party, on April 5, 2019;

3947





$1.5received $10.0 million in net proceeds from Tranche A-2 of the Last Out Term Loans, described in Note 14, from B. Riley Financial, Inc. (together with its affiliates, including B. Riley FBR, Inc., "B. Riley"), a related party, on March 20, 2019;
reduced uncertainty and provided better visibility into our future liquidity requirements by turning over five of the six European Vølund EPC loss contracts to dispose and write off unused IT equipment and cancel in-process IT projects in the customers by the end of second quarter of 2018.
$0.5 million and $1.1 million of actuarially determined mark-to-market ("MTM") losses caused2019, partly facilitated by lump suma settlement payments from our Canadian pension plan in the second quarter 2018 and the first quarter of 2017, respectively.
$0.5 million and $1.4 million of acquisition and integration costs in the three and six months ended June 30, 2017, respectively, related to the acquisitions of SPIGsecond and Universal.

In an effort to address our liquidity needs from the accrued losses on the six Europeanfifth loss contracts as described in Note 4, which was funded with proceeds from Tranche A-3 of the Renewable segment, we have:
raised $248.4 million of equity on April 30, 2018 through the Rights Offering;
repaid on May 4, 2018 the Second LienLast Out Term Loan Facility, which will save approximately $25 million in annual interest payments and $30 million of annual interest expense;Loans;
entered into an agreement on June 5, 2018 to sell our MEGTEC and Universal businesses for $130 million (subject to adjustment);
entered into an agreement on August 9, 2018 to sell a subsidiary that holds two operations and maintenance contracts for waste-to-energy facilities in West Palm Beach, Florida for $45 million (subject to adjustment);
sold our equity method investments in Babcock & Wilcox Beijing Company, Ltd. ("BWBC"), our former joint venture in China, and Thermax Babcock & Wilcox Energy Solutions Private Limited ("TBWES"), our former joint venture in India, resulting in proceeds of $21.1 million in the second quarter of 2018 and $15.0 million in July 2018, respectively;
sold another non-core business for $5.1 million in the first quarter of 2018;
initiated restructuring actions and other additional cost reductions in the second quarter of 2018 that are designed to save approximately $34 million annually; and
entered into several waivers and amendments to avoid default to our U.S. Revolving Credit Facilitysettlement as described in Note 17,4 in connection with an additional European waste-to-energy EPC contract, for which notice to proceed was not given and the contract was not started, whereby our obligations and our risk from acting as the prime EPC should the project move forward was eliminated;
entered into several amendments and waivers to avoid default and improve our liquidity under the terms of our Amended Credit Agreement as described in Note 13 and Note 14, the most recent of which iswere Amendments No. 16 and No. 17, dated April 5, 2019 and August 9, 2018. As part7, 2019, respectively, which provided Tranche A-3 of this latest amendment, our lenders agreedthe Last Out Term Loans described above and in Note 14, reset the financial and other covenants, adjusted the interest rate of the Last Out Term Loans, reset the maturity date of the Last Out Term Loans to reduceDecember 31, 2020, increased borrowing capacity under the U.S. Revolving Credit Facility by reducing the minimum liquidity required underrequirement, allowed for the facility, which has the effectissuance of increasing thea limited amount we may borrow byof new letters of credit with respect to any future Vølund project, permitted other letters of credit to expire up to $25 million.  Other liquidity measuresone year after the maturity of the U.S. Revolving Credit Facility, clarifies (Amendment No. 17) the definition cumulatively through Amendment No. 16 of the amounts that must alsocan be completed include: a)used in calculating the receiptloss basket for certain Vølund contracts, and resets the loss basket for certain Vølund contracts to $15.0 million to align with the clarification commencing with the quarter ending March 31, 2019; and
filed and plan to file for waiver of $30required minimum contributions to the U.S. Pension Plan as described in Note 12, that if granted, would reduce cash funding requirements in 2019 by approximately $15 million and a similar or greater amount in net proceeds from2020 and would increase contributions over the Last Out Loan,following five years. The waiver request for which a binding commitment letter with Vintage Capital Management LLC, a related party, was executed on August 9, 2018, whichthe first plan year remains under review by the IRS and the waiver request for the second plan year is fully backstopped by B. Riley FBR, Inc., a related party; and b) obtaining $25 million of written commitments for concessions from customers on the Renewable loss contracts through a combination of cash contributions, loans and forgiveness of indebtedness and performance obligations by September 30, 2018.expected to be filed later in 2019 or early 2020.

Additionally, we continue to evaluate further dispositions and additional opportunities for cost savings. We also continue to pursue insurance recoveries, additional relief from customers and will pursue other claims where appropriate and available. Management believes it has taken and is taking allcontinuing to take prudent actions to address the substantial doubt aboutregarding our ability to continue as a going concern, but we cannot assert that it is probable that our plans will fully mitigate the liquidity challenges we face.face because some matters may not fully be in our control. Amendment No. 16 to the Amended Credit Facility also created a new event of default for failure to terminate the existing U.S. Revolving Credit Facility on or prior to March 15, 2020, which is within twelve months of the date of this filing. Our plan is designedability to provide uscomply with what we believethe financial and other covenants of the Amended Credit Facility through that date are dependent upon achieving our forecasted financial results. While management believes it will be adequate liquidityable to meet our obligations for at least the twelve month period following August 9, 2018; however, our remediation plan depends on conditions and matters that may be outside of our control, including regulatory approvals that may be requiredobtain additional financing to sell certain assets, agreement to concessions from customers on the Renewable loss contracts as required under the amended terms ofreplace our U.S. Revolving Credit Facility and ourfacility, the ability to obtaindo so will depend on credit markets and maintain sufficient capacity to support contract security requirements for current and future business. Additionally,other matters that are outside of our ability to operate within the amended covenants and borrowing limits associated with our U.S. Revolving Credit Facility are dependent on our future financial operating results. If we cannot continue as a going concern, material adjustmentscontrol.

In addition to the carrying valuesdiscussions regarding additional financing described above, we continue to evaluate further dispositions, opportunities for additional cost savings and classifications of our assetsopportunities for insurance recoveries and liabilitiesother claims where appropriate and the reported amounts of income and expense would be required.available.

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RESULTS OF OPERATIONS

Beginning in 2018, we changed ourConsolidated Results of Operations

Our primary measuremeasures of segment profitability fromare gross profit toand adjusted EBITDA.earnings before interest, tax, depreciation and amortization ("EBITDA"). The presentation of the components of our gross profit and adjusted EBITDA in the tables below are consistent with the way our chief operating decision maker reviews the results of our operations and makes strategic decisions about our business. Items such as gains or losses on asset sales, mark-to-marketmark to market ("MTM") pension adjustments, restructuring and spin costs, impairments, losses on debt extinguishment, costs related to financial consulting required under Amendments 3 and 5 to our U.S. Revolving Credit Facility and other costs that may not be directly controllable by segment management are not allocated to the segment. Beginning in the first quarter of 2019, pension benefit (expense), which affected only the Babcock & Wilcox segment, is also not allocated to adjusted EBITDA of the segments. Prior periods have been conformed to be comparable. Adjusted EBITDA for each segment is presented below with a reconciliation to net income. Adjusted EBITDA is not a recognized term under GAAP and should not be considered in isolation or as an alternative to net earnings (loss), operating profit (loss) or as an alternative to cash flows from operating activities as a measure of our liquidity. Adjusted EBITDA as presented below differs from the calculation used to compute our leverage ratio and interest coverage ratio as defined by our U.S.

48





Revolving Credit Facility. Because all companies do not use identical calculations, the amounts presented for Adjustedadjusted EBITDA may not be comparable to other similarly titled measures of other companies.

Three Months Ended June 30, Six Months Ended June 30,Three months ended June 30,Six months ended June 30,
(In thousands)20182017$ Change 20182017$ Change20192018$ Change20192018$ Change
Revenues:    
Power segment$197,752
$213,756
$(16,004) $356,878
410,052
$(53,174)
Renewable segment55,002
48,074
6,928
 114,960
153,610
(38,650)
Industrial segment46,015
46,632
(617) 82,759
95,817
(13,058)
Babcock & Wilcox segment$200,964
$197,752
$3,212
$389,522
$356,878
$32,644
Vølund & Other Renewable segment33,695
55,002
(21,307)63,227
114,960
(51,733)
SPIG segment22,834
46,015
(23,181)51,736
82,759
(31,023)
Eliminations(7,432)(2,231)(5,201) (10,084)(5,176)(4,908)(9,378)(7,432)(1,946)(24,434)(10,084)(14,350)
291,337
306,231
(14,894) 544,513
654,303
(109,790)248,115
291,337
(43,222)480,051
544,513
(64,462)
Gross profit (loss)(1):
    

 
Power segment30,011
43,852
(13,841) 60,876
81,562
(20,686)
Renewable segment(69,329)(110,894)41,565
 (119,778)(100,300)(19,478)
Industrial segment79
187
(108) (2,672)4,886
(7,558)
Babcock & Wilcox segment37,853
30,013
7,840
68,959
60,876
8,083
Vølund & Other Renewable segment5,057
(69,329)74,386
2,201
(119,778)121,979
SPIG segment2,388
79
2,309
6,064
(2,672)8,736
Intangible amortization expense included in cost of operations(1,827)(2,738)911
 (3,661)(6,127)2,466
(1,014)(1,829)815
(2,071)(3,661)1,590
(41,066)(69,593)28,527
 (65,235)(19,979)(45,256)44,284
(41,066)85,350
75,153
(65,235)140,388
Selling, general and administrative ("SG&A") expenses(52,090)(57,272)5,182
 (114,351)(113,852)(499)(41,948)(46,948)5,000
(84,217)(106,120)21,903
Advisory fees and settlement costs(4,778)(5,142)364
(18,388)(8,231)(10,157)
Intangible amortization expense included in SG&A(128)(158)30
(258)(395)137
Goodwill impairment(37,540)
(37,540) (37,540)
(37,540)
(37,540)37,540

(37,540)37,540
Restructuring activities and spin-off transaction costs(3,826)(1,952)(1,874) (10,688)(4,984)(5,704)(936)(3,826)2,890
(7,015)(10,688)3,673
Research and development costs(1,287)(2,437)1,150
 (2,429)(4,230)1,801
(710)(1,287)577
(1,453)(2,429)976
Intangible amortization expense included in SG&A(158)(98)(60) (395)(204)(191)
Equity in loss of investees
(15,232)15,232
 (11,757)(14,614)2,857
Loss on asset disposals, net(1,384)(2)(1,382) (1,384)(2)(1,382)(42)(1,384)1,342
(42)(1,384)1,342
Equity in income and impairment of investees



(11,757)11,757
Operating loss$(137,351)$(146,586)$9,235
 $(243,779)$(157,865)$(85,914)$(4,258)$(137,351)$133,093
$(36,220)$(243,779)$207,559
(1) GrossIntangible amortization is not allocated to the segments' gross profit, excludes intangible amortization but includes depreciation.depreciation is allocated to the segments' gross profit.


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Three Months Ended June 30, Six Months Ended June 30,Three months ended June 30,Six months ended June 30,
(in thousands)20182017$ Change 20182017$ Change20192018$ Change20192018$ Change
Adjusted EBITDA



  



  
Power segment(1)
$16,439
$27,401
$(10,962) $27,613
$44,810
$(17,197)
Renewable segment(78,603)(123,302)44,699
 (140,357)(122,375)(17,982)
Industrial segment(6,222)(4,880)(1,342) (13,532)(5,385)(8,147)
Babcock & Wilcox segment(1)
$19,032
$9,897
$9,135
$27,996
$14,074
$13,922
Vølund & Other Renewable segment(779)(78,603)77,824
(9,642)(140,357)130,715
SPIG segment(142)(6,222)6,080
517
(13,532)14,049
Corporate(2)
(6,194)(9,665)3,471
 (17,808)(19,393)1,585
(9,367)(6,194)(3,173)(14,351)(17,808)3,457
Research and development costs(1,287)(2,437)1,150
 (2,429)(4,230)1,801
(710)(1,287)577
(1,453)(2,429)976

8,034
(82,409)90,443
3,067
(160,052)163,119











 
Restructuring activities and spin-off transaction costs(936)(3,826)2,890
(7,015)(10,688)3,673
Financial advisory services(3,197)(5,142)1,945
(7,155)(8,231)1,076
Settlement cost to exit Vølund contract(3)



(6,575)
(6,575)
Advisory fees for settlement costs and liquidity planning(1,581)
(1,581)(4,658)
(4,658)
Goodwill impairment
(37,540)37,540

(37,540)37,540
Impairment of equity method investment in TBWES



(18,362)18,362
Gain on sale of equity method investment in BWBC



6,509
(6,509)
Depreciation & amortization(6,536)(6,921)385
(13,842)(13,902)60
Loss on asset disposal(42)(1,513)1,471
(42)(1,513)1,471
Operating loss(4,258)(137,351)133,093
(36,220)(243,779)207,559
Interest expense, net(26,636)(11,770)(14,866)(37,211)(25,069)(12,142)
Loss on debt extinguishment(3,969)(49,241)45,272
(3,969)(49,241)45,272
Loss on sale of business(3,601)
(3,601)(3,601)
(3,601)
Net pension benefit before MTM3,333
6,542
(3,209)6,761
13,539
(6,778)
MTM (gain) loss from benefit plans(862)544
(1,406)(1,260)544
(1,804)
Foreign exchange(20,198)2,294
(22,492) (17,741)2,339
(20,080)9,506
(20,198)29,704
(647)(17,741)17,094
Other – net(131)43
(174) 266
78
188
43
(131)174
463
266
197
   
Gain on sale of equity method investment (BWBC)


 6,509

6,509
Other than temporary impairment of equity method investment in TBWES
(18,193)18,193
 (18,362)(18,193)(169)
Loss on debt extinguishment(49,241)
(49,241) (49,241)
(49,241)
Loss on asset disposal(1,513)
(1,513) (1,513)
(1,513)
MTM loss from benefit plans544

544
 544
(1,062)1,606
Financial advisory services included in SG&A(5,142)
(5,142) (8,231)
(8,231)
Acquisition and integration costs included in SG&A
(535)535
 
(1,432)1,432
Goodwill impairment(37,540)
(37,540) (37,540)
(37,540)
Restructuring activities and spin-off transaction costs(3,826)(1,952)(1,874) (10,688)(4,984)(5,704)
Depreciation & amortization(6,921)(7,774)853
 (13,902)(16,159)2,257
Interest expense, net(11,770)(6,158)(5,612) (25,069)(7,749)(17,320)
Loss before income tax expense(211,605)(145,158)(66,447) (321,481)(153,735)(167,746)(26,444)(211,605)185,161
(75,684)(321,481)245,797
Income tax expense (benefit)(1,934)3,458
(5,392) 5,029
346
4,683
1,891
(1,934)3,825
2,517
5,029
(2,512)
Income (loss) from continuing operations(209,671)(148,616)(61,055) (326,510)(154,081)(172,429)
Income (loss) from discontinued operations, net of tax(55,932)(2,234)(53,698) (59,428)(3,610)(55,818)
Net income (loss)(265,603)(150,850)(114,753) (385,938)(157,691)(228,247)
Net income attributable to noncontrolling interest(165)(149)(16) (263)(353)90
Loss from continuing operations(28,335)(209,671)181,336
(78,201)(326,510)248,309
Gain (loss) from discontinued operations, net of tax694
(55,932)56,626
694
(59,428)60,122
Net loss(27,641)(265,603)237,962
(77,507)(385,938)308,431
Net income (loss) attributable to noncontrolling interest1
(165)166
102
(263)365
Net loss attributable to stockholders$(265,768)$(150,999)$(114,769) $(386,201)$(158,044)$(228,157)$(27,640)$(265,768)$238,128
$(77,405)$(386,201)$308,796
(1)
The Babcock & Wilcox segment adjusted EBITDA for the three and six months ended June 30, 2018 excludes $6.5 million and $13.5 million, respectively, of net benefit from pension and other postretirement benefit plans, excluding MTM adjustments, that were previously included in the segment results. Beginning in 2019, net pension benefits are no longer allocated to the segments, and prior periods have been adjusted to be presented on a comparable basis.
(2)
Allocations are excluded from discontinued operations. Accordingly, allocations previously absorbed by the MEGTEC and Universal businesses in the SPIG segment have been included with other unallocated costs in Corporate, and total $2.9 million and $5.7 million in the three months and six months ended June 30, 2018, respectively.
(3)
In March 2019, we entered into a settlement in connection with an additional European waste-to-energy EPC contract, for which notice to proceed was not given and the contract was not started. The settlement eliminates our obligations and our risk related to acting as the prime EPC should the project move forward.

50





(1) Power segment adjusted EBITDA includes $6.4 million and $5.0 million of net benefit from pension and other postretirement benefit plans excluding MTM adjustments in the three months ended June 30, 2018 and 2017, respectively. Power segment adjusted EBITDA includes $13.2 million and $10.0 million of net benefit from pension and other postretirement benefit plans excluding MTM adjustments in the six months ended June 30, 2018 and 2017, respectively.
(2) Allocations are excluded from discontinued operations. Accordingly, allocations previously absorbed by the MEGTEC and Universal businesses in the Industrial segment have been included with other unallocated costs in Corporate, and total $2.9 million and $2.2 million in the three months ended June 30, 2018 and 2017, respectively, and $5.7 million and $4.4 million in the six months ended June 30, 2018 and 2017, respectively.

Condensed and Consolidated Results of Operations

Three Months Ended June 30, 2019 and 2018 vs. 2017

Revenues decreased by $14.9$43.2 million to $248.1 million in the second quarter of 2019 as compared to $291.3 million in the second quarter of 2018. Revenue in the Babcock & Wilcox segment increased by $3.2 million primarily due to higher volume of large construction new build projects, including industrial projects, which were partly offset by a decrease in volume of parts and retrofits. Revenue in the Vølund & Other Renewable segment revenues decreased by $21.3 million primarily due to the sale of our Palm Beach Resources Recovery Corporation ("PBRRC") operations and maintenance contracts in the third quarter of 2018 and the level of activity and changes in estimates in the EPC loss contracts, as compareddescribed in Note 4, which was partially offset by the startup of two operations and maintenance contracts in the U.K. that followed turnover of the EPC contracts to $306.2the customers. SPIG segment revenue declined $23.2 million due to lower volume of new build cooling systems services following a 2017 change in strategy to improve profitability by focusing on more selective bidding in core geographies and products and a lower volume of aftermarket cooling system services.

Gross profit increased by $85.4 million, to $44.3 million in the second quarter of 2017 primarily from anticipated lower demand2019 as compared to $(41.1) million in the Powersecond quarter of 2018. The Babcock & Wilcox segment for retrofit projects driven by the Coal Combustion Residue regulationsgross profit increased $7.8 million to $37.9 million in the U.S. In the Renewable segment, changes in estimated contract progress and estimated liquidated damages ("LDs")second quarter of 2019 compared to $30.0 million in the second quarter of 2018 reduced revenue less thanprimarily due to higher construction volume and lower warranty costs. In the Vølund & Other Renewable segment, gross profit increased $74.4 million to $5.1 million recorded in the second quarter of 2017.2019 compared to $(69.3) million in the second quarter of 2018, primarily due to a lower level of losses on the six European Vølund EPC loss contracts as described in Note 4. The SPIG segment gross profit increased $2.3 million to $2.4 million in the second quarter of 2019 compared to $0.1 million in the second quarter of 2018, which begins to reflect the effects of a 2017 change in strategy to improve profitability by focusing on more selective bidding in core geographies and products. SPIG's gross profit in the second quarter of 2018 was primarily driven by increases in estimated costs to complete new build cooling systems contracts sold under a previous strategy and lower volumes of aftermarket cooling system services. SPIG's new build cooling systems contracts that were sold under the previous strategy were mostly complete as of December 31, 2018; however, included in these few remaining contracts is a loss contract to engineer, procure materials and then construct a dry cooling system for a gas-fired power plant in the U.S., which continued through the second quarter of 2019.

Operating losses improved $133.1 million to $(4.3) million in the second quarter of 2019 from $(137.4) million in the second quarter of 2018, primarily due to the increase in gross profit described above, the absence of goodwill impairment charges and SG&A benefiting from restructuring and cost control initiatives implemented during 2018 and continuing through the second quarter of 2019. Restructuring expenses, advisory fees, intangible asset amortization expense and gains (losses) on dispositions of equity method investees, and impairments are discussed in further detail in the sections below. Additionally, the second quarter of 2018 included settlement and advisory costs as described above.

Six Months Ended June 30, 2019 and 2018

Revenues decreased by $64.5 million to $480.1 million in the first six months of 2019 as compared to $544.5 million in the first six months of 2018. Revenue in the Babcock & Wilcox segment increased by $32.6 million primarily due to higher volume of large construction new build projects, including inter-segment projects, and industrial projects, which were partly offset by a decrease in retrofit volume. Revenue in the Vølund & Other Renewable segment revenues decreased by $51.7 million primarily due to the sale of our Palm Beach Resources Recovery Corporation ("PBRRC") operations and maintenance contracts in the third quarter of 2018 and the lower level of activity and changes in estimates, including the effect of the settlements, on the EPC loss contracts as described above and in Note 4, which was partially offset by the startup of two operations and maintenance contracts in the U.K. SPIG segment revenue declined $31.0 million due to lower volume of new build cooling systems services following a 2017 change in strategy to improve profitability by focusing on more selective bidding in core geographies and products and a lower volume of aftermarket cooling system services.

Gross profit increased by $140.4 million, to $75.2 million in the first six months of 2019 as compared to $(65.2) million in the first six months of 2018. The Babcock & Wilcox segment gross profit increased $8.1 million to $69.0 million in the first six months of 2019 compared to $60.9 million in the first six months of 2018 primarily due to the increase in, and mix of, revenue above as well as lower warranty expense. In the Vølund & Other Renewable segment, gross profit increased $122.0 million to $2.2 million recorded in the first six months of 2019 compared to $(119.8) million in the first six months of 2018, primarily due to a lower level of losses on the six European Vølund EPC loss contracts as described in Note 4. The SPIG

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Grosssegment gross profit improved by $28.5increased $8.7 million to $6.1 million in the first six months of 2019 compared to a loss of $41.1$(2.7) million in the first six months of 2018, which begins to reflect the effects of a 2017 change in strategy to improve profitability by focusing on more selective bidding in core geographies and products. SPIG's gross profit (loss) in the first six months of 2018 was primarily driven by increases in estimated costs to complete new build cooling systems contracts sold under a previous strategy and lower volumes of aftermarket cooling system services. SPIG's new build cooling systems contracts that were sold under the previous strategy were mostly complete as of December 31, 2018; however, included in these few remaining contracts is a loss contract to engineer, procure materials and then construct a dry cooling system for a gas-fired power plant in the U.S., which continued through the first six months of 2019.

Operating losses improved $207.6 million to $(36.2) million in the first six months of 2019 from $(243.8) million in the first six months of 2018, primarily due to the increase in gross profit described above, SG&A benefiting from restructuring and cost control initiatives implemented during 2018 and continuing through the first six months of 2019 and the absence of impairments. Restructuring expenses, intangible asset amortization expense and gains (losses) on dispositions of equity method investees, financial advisory fees, settlement costs and impairments are discussed in further detail in the sections below.

Babcock & Wilcox Segment Results
 Three months ended June 30,Six months ended June 30,
(In thousands)20192018$ Change20192018$ Change
Revenues$200,964
$197,752
$3,212
$389,522
$356,878
$32,644
Gross profit$37,853
$30,013
$7,840
$68,959
$60,876
$8,083
Adjusted EBITDA$19,032
$9,897
$9,135
$27,996
$14,074
$13,922
Gross profit %18.8%15.2% 17.7%17.1% 

Three Months Ended June 30, 2019 and 2018

Revenues in the Babcock & Wilcox segment increased 2%, or $3.2 million, to $201.0 million in the second quarter of 2019 compared to $197.8 million in the second quarter of 2018. The revenue increase is primarily attributable to a higher volume of large construction new build projects, including industrial projects, which were partly offset by a decrease in volume of parts and retrofits.

Gross profit in the Babcock & Wilcox increased $7.8 million to $37.9 million in the second quarter of 2019 compared to $30.0 million in the second quarter of 2018, primarily related to higher construction volume as compareddescribed above and lower warranty expense. Warranty expense in the second quarter of 2018 included $5.3 million of specific provisions on certain contracts in the B&W segment for specific technical matters and customer requirements.

Adjusted EBITDA in the Babcock & Wilcox segment increased 92%, or $9.1 million, to a loss of $69.6$19.0 million in the second quarter of 2017.2019 compared to $9.9 million in the second quarter of 2018, which is mainly attributable to the improvement in gross profit described above.

Six Months Ended June 30, 2019 and 2018

Revenues in the Babcock & Wilcox segment increased 9%, or $32.6 million, to $389.5 million in the six months ended June 30, 2019 compared to $356.9 million in the corresponding period in 2018. The revenue increase is attributable to a higher volume of large construction new build projects, including inter-segment projects, and industrial projects, which were partly offset by a decrease in retrofit volume.

Gross profit in the Babcock & Wilcox segment increased $8.1 million to $69.0 million in the six months ended June 30, 2019 compared to $60.9 million in the corresponding period in 2018, which reflects the increase in, and mix of, revenue above as well as lower warranty expense. Construction services generally carry a lower margin than aftermarket parts, and the first half of 2019 also includes more inter-segment construction services performed for the SPIG U.S. loss contract described in Note 4, which carries no margin because the contract is in a loss position. Warranty expense in the second quarter of 2018 included $5.3 million of specific provisions on certain contracts in the B&W segment for specific technical matters and customer requirements.


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Adjusted EBITDA in the Babcock & Wilcox segment increased 99%, or $13.9 million, to $28.0 million in the six months ended June 30, 2019 compared to $14.1 million in the corresponding period in 2018, which is mainly attributable to the improvement in gross profit described above and results of cost savings and restructuring initiatives results partly offset by increases in overhead being absorbed by the segment that were previously absorbed by other segments.

Vølund & Other Renewable Segment Results
 Three months ended June 30,Six months ended June 30,
(in thousands)20192018$ Change20192018$ Change
Revenues$33,695
$55,002
$(21,307)$63,227
$114,960
$(51,733)
Gross profit (loss)$5,057
$(69,329)$74,386
$2,201
$(119,778)$121,979
Adjusted EBITDA$(779)$(78,603)$77,824
$(9,642)$(140,357)$130,715
Gross profit %15.0%(126.0)% 3.5%(104.2)% 

Three Months Ended June 30, 2019 and 2018

Revenues in the Vølund & Other Renewable segment decreased 39%, or $21.3 million to $33.7 million in the second quarter of 2019 compared to $55.0 million in the second quarter of 2018. The reduction in revenue primarily relates to the September 17, 2018 divestiture of PBRRC, a subsidiary that held two operations and maintenance contracts for waste-to-energy facilities in West Palm Beach, Florida, that had previously generated annual revenues of approximately $60 million. Revenue was also lower due to the level of activity and changes in estimates in the Engineer, Procure and Construct ("EPC") loss contracts, as described in Note 4, which was partially offset by the startup of two operations and maintenance contracts in the U.K. that followed turnover of the EPC contracts to the customers. Our revenue in 2019 was also affected by a previous change in strategy for the Vølund business. In 2017, we redefined our approach to bidding on and executing renewable energy contracts, under which we are focusing on engineering and supplying our core waste-to-energy and renewable energy technologies - steam generation, combustion grate, environmental equipment, material handling and cooling condensers - while partnering with other firms to execute the balance of plant and civil construction scope on contracts we pursue. We expect this lower, more focused scope to result in lower levels of revenue, but better execution on future work. Additionally, we previously made the decision to limit bidding on Vølund renewable energy contracts while we focused on progressing the EPC loss contracts, and that previous limit on bidding has resulted in lower revenue in 2019. Future year-over-year comparisons will also be affected by the sale of Loibl, a materials handling business in Germany, effective May 31, 2019 as described in Note 25. Prior to the divestiture, Loibl was part of the Vølund & Other Renewable segment and had revenues of approximately $30 million for the year ended December 31, 2018.

Gross profit in the Vølund & Other Renewable segment increased $74.4 million to $5.1 million in the second quarter of 2019 compared to $(69.3) million in the second quarter of 2018. In the second quarter of 2018, and 2017, we recorded $57.3 million in net losses including warranty resulting from changes in the estimated revenues and $115.2costs to complete the six European Vølund EPC loss contracts. Only $3.2 million of equivalent losses were recorded in the second quarter of 2019 inclusive of warranty, which were partially offset by $5.9 million for additional insurance recovery settlements that were collected and are expected to be collected in the third quarter 2019. Beyond the effect of the loss contracts, the second quarter 2019 gross profit included lower levels of direct overhead support and warranty expense, offset by the absence of gross profit from PBRRC as a result of its September 2018 sale as described above. Changes in estimated costs to complete the six European Vølund EPC loss contracts includes changes in estimated warranty costs, which was a reduction of $3.9 million in the second quarter of 2019 related to developments in the quarter stemming from the March 29, 2019 settlement agreement compared to a $15.1 million increase in the second quarter of 2018 based on experience from the startup and commissioning activities in that period.

Adjusted EBITDA in the Vølund & Other Renewable segment improved $77.8 million to $(0.8) million in the second quarter of 2019 compared to $(78.6) million in the second quarter of 2018. The improvement was primarily due to gross profit, as described above. Additionally, SG&A was lower, reflecting the benefits of restructuring, lower indirect support cost of the EPC loss contracts, lower proposal costs and active reductions in discretionary spend.

Additional information about the changes in the estimated revenue and costs to complete these European Vølund EPC loss contracts, the March 29, 2019 settlement of the second and fifth loss contracts, changes in the warranty accruals and the insurance receivable is included in Note 4.


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Six Months Ended June 30, 2019 and 2018

Revenues in the Vølund & Other Renewable segment decreased 45%, or $51.7 million to $63.2 million in the six months ended June 30, 2019 compared to $115.0 million in the corresponding period in 2018. The reduction primarily relates to the September 17, 2018 divestiture of PBRRC, a subsidiary that held two operations and maintenance contracts for waste-to-energy facilities in West Palm Beach, Florida, that had previously generated annual revenues of approximately $60 million. Revenue was also lower due to the lower level of activity and changes in estimates, including the effect of the settlements, on the EPC loss contracts as described above and in Note 4, which was partially offset by the startup of two operations and maintenance contracts in the U.K. that followed turnover of the EPC contracts to the customers. Our revenue in 2019 was also affected by a previous change in strategy for the Vølund business and a previous decision to limit bidding on Vølund renewable energy contracts while we focused on progressing the EPC loss contracts, both of which are described above. Future year-over-year comparisons will also be affected by the sale of Loibl, a materials handling business in Germany, effective May 31, 2019 as described in Note 25. Loibl had revenue of approximately $30 million in the year ended December 31, 2018.

Gross profit in the Vølund & Other Renewable segment increased $122.0 million to $2.2 million in the six months ended June 30, 2019 compared to $(119.8) million in the corresponding period in 2018. In the six months ended June 30, 2019 and June 30, 2018, we recorded $7.4 million and $110.0 million in net losses including warranty, respectively, resulting from changes in the estimated revenues and costs to complete the six European Vølund EPC loss contracts, which were partially offset by $5.9 million for additional insurance recovery settlements that were collected and are expected to be collected in the third quarter 2019. Beyond the effect of the loss contracts, gross profit for the six months ended June 30, 2019 included lower levels of direct overhead support and warranty expense, offset by the absence of gross profit from PBRRC as a result of its September 2018 sale as described above. Changes in greater detail in Note 5estimated costs to complete the condensed consolidated financial statements. The lower level of losses recorded in the Renewable segment were partly offset by a decrease in the Power segment from the lower volume of revenue, increasessix European Vølund EPC loss contracts includes changes in estimated warranty costs, on certain projects, favorable results in closing out contractswhich was a reduction of $3.9 million in the second quarter of 2017 and a reduction of employee benefits that occurred2019 related to developments in the second quarter of 2017.

SG&A expenses were $5.2stemming from the March 29, 2019 settlement agreement compared to a $15.1 million lowerincrease in the second quarter of 2018 based on experience from the startup and commissioning activities in that period.

Adjusted EBITDA in the Vølund & Other Renewable segment improved $130.7 million to $(9.6) million in the six months ended June 30, 2019 compared to $(140.4) million in the corresponding period of 2018. The improvement was primarily due to the gross profit variance, as described above. Additionally, SG&A was lower, reflecting the benefits of prior restructuring, initiatives and conscious reductionlower indirect support cost of discretionary costs, which more than offset increases in financial advisory fees, litigationthe EPC loss contracts, lower proposal costs and support costsactive reductions in discretionary spend.

Additional information about the changes in the Renewable segment.estimated revenue and costs to complete these European Vølund EPC loss contracts, the March 29, 2019 settlement of the second and fifth loss contracts, changes in the warranty accruals and the insurance receivable is included in Note 4.
Equity
SPIG Segment Results
 Three months ended June 30,Six months ended June 30,
(In thousands)20192018$ Change20192018$ Change
Revenues$22,834
$46,015
$(23,181)$51,736
$82,759
$(31,023)
Gross profit (loss)$2,388
$79
$2,309
$6,064
$(2,672)$8,736
Adjusted EBITDA$(142)$(6,222)$6,080
$517
$(13,532)$14,049
Gross profit %10.5%0.2% 11.7%(3.2)% 

Three Months Ended June 30, 2019 and 2018

Revenues in income of investees was a loss of $15.2the SPIG segment decreased 50%, or $23.2 million, to $22.8 million in the second quarter of 2017, which included an $18.2 million other-than-temporary-impairment of our investment in TBWES, which was partly offset by $3.0 million of equity in income of BWBC. Our former joint ventures and the related equity in income of investees is described more fully below and in Note 11 to the condensed consolidated financial statements.

Six Months Ended June 30, 2018 vs. 2017

Revenues decreased by $109.8 million to $544.52019 from $46.0 million in the first six monthssecond quarter of 2018 as compared to $654.3 million in the first six months of 2017. Revenue in the Power segment decreased by $53.2 million2018. The decrease is primarily due to lower demand in the global market forvolume of new build coal-fired power generationcooling systems services following a 2017 change in strategy to improve profitability by focusing on more selective bidding in core geographies and from lower demand for retrofit projects driven by the Coal Combustion Residue regulations in the U.S. Revenue in the Renewable segment decreased by $38.7 million primarily due to the changes in the estimated contract progressproducts and increases in estimated LDs on the six European loss contracts in our Renewable segment and from lower levels of activity as progress is made on these loss projects. Revenue in the Industrial segment declined $13.1 million primarily due toa lower volume of aftermarket cooling system services.

Gross profit decreased by $45.3in the SPIG segment increased $2.3 million, to a loss of $65.2$2.4 million in the first six months of 2018 as compared to a loss of $20.0 million in the first six months of 2017. Gross profit in the Renewable segment decreased $19.5 million primarily from changes in the estimated revenues and costs to complete the six European loss contracts, as described in greater detail in Note 5 to the condensed consolidated financial statements. Gross profit in the Power segment decreased $20.7 million primarily from the lower volume of revenue, increases in estimated warranty costs on certain projects, favorable results in closing out contracts in the second quarter of 2017 and a reduction of employee benefits that occurred2019, compared to $0.1 million in the second quarter of 2017. Gross profit2018. The improvement begins to reflect the effects of a 2017 change in the Industrial segment decreased primarily from increasesstrategy to improve profitability by focusing on more selective bidding in estimated costs to complete new build cooling contracts.

SG&A expenses were $0.5 million lower in the first six months of 2018, primarily due to the benefits of prior restructuring initiativescore geographies and conscious reduction of discretionary costs, which more than offset increases in financial advisory fees, litigation costs and support costs in the Renewable segment.
Equity in income of investees were losses of $11.8 million and $14.6 million in the first six months of 2018 and 2017, respectively. In the first six months of 2018, we recognized a $18.4 million other-than-temporary impairment in our investment in TBWES, which was partly offset by a gain on sale of our investment in BWBC of approximately $6.5 million. In the first six months of 2017, we recognized a $18.2 million other-than-temporary impairment in our investment in TBWES, which was partly offset by $3.6 million of equity in earnings of our investment in BWBC. Our former joint ventures and the related equity in income of investees is described more fully below and in Note 11 to the condensed consolidated financial statements.


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Power Segment Results
 Three Months Ended June 30, Six Months Ended June 30,
(In thousands)20182017$ Change 20182017$ Change
Revenues$197,752
$213,756
$(16,004) $356,878
$410,052
$(53,174)
Gross profit (loss)$30,011
$43,852
$(13,841) $60,876
$81,562
$(20,686)
Adjusted EBITDA$16,439
$27,401
$(10,962) $27,613
$44,810
$(17,197)
Gross profit %15.2%20.5%  17.1%19.9% 

Three Months Ended June 30, 2018 vs. 2017

Revenues in the Power segment decreased 7%, or $16.0 million, to $197.8 million in the quarter ended June 30, 2018, compared to $213.8 million in the corresponding quarter in 2017. The revenue decrease is attributable to the the anticipated continued decline in the global new build market for coal-fired power generation and the anticipated lower demand in the Power segment for retrofit projects driven by the Coal Combustion Residue regulations in the U.S., which have been delayed or suspended along with other U.S. environmental regulations.

Gross profit in the Power segment decreased 32%, or $13.8 million, to $30.0 million in the quarter ended June 30, 2018, compared to $43.9 million in the corresponding quarter in 2017 due to lower volume of revenue, increases in estimated warranty costs on certain projects, favorable results in closing out contracts in the second quarter of 2017 and a reduction of employee benefits that occurred in the second quarter of 2017.

Adjusted EBITDA in the Power segment decreased 40%, or $11.0 million, to $16.4 million in the quarter ended June 30, 2018, compared to $27.4 million in the corresponding quarter in 2017. The adjusted EBITDA decrease is attributable to lowerproducts. SPIG gross profit discussed above. Power segment SG&A also decreased year-over-year(loss) in the second quarter of 2018 but it did not reduce at the same rate as revenue.

As a result of a new accounting standard that became effective in 2018, Power segment gross profit has been adjusted retrospectively. Net benefit from pension and other postretirement benefit plans excluding MTM adjustments totaling $6.4 million and $5.0 million in the three months ended June 30, 2018 and 2017, respectively, are excluded from Power segment gross profit, but are included in Power segment adjusted EBITDA.

Six Months Ended June 30, 2018 vs. 2017

Revenues in the Power segment decreased 13%, or $53.2 million, to $356.9 million in the six months ended June 30, 2018, compared to $410.1 million in the corresponding period in 2017. The revenue decrease is attributable to the the anticipated continued decline in the global new build market for coal-fired power generation and the anticipated lower demand in the Power segment for retrofit projects driven by the Coal Combustion Residue regulations in the U.S., which have been delayed or suspended along with other U.S. environmental regulations.

Gross profit in the Power segment decreased 25%, or $20.7 million, to $60.9 million in the six months ended June 30, 2018, compared to $81.6 million in the corresponding period in 2017. The decrease in gross profit is related to lower volume of revenue, increases in estimated warranty costs on certain projects, favorable results in closing out contracts in the second quarter of 2017 and a reduction of employee benefits that occurred in the second quarter of 2017.

Adjusted EBITDA in the Power segment decreased 38%, or $17.2 million, to $27.6 million in the six months ended June 30, 2018, compared to $44.8 million in the corresponding period in 2017. The adjusted EBITDA decrease is attributable to lower gross profit discussed above. Power segment SG&A also decreased year-over-year in the first six months, but it did not reduce at the same rate as revenue.

As a result of a new accounting standard that became effective in 2018, Power segment gross profit has been adjusted retrospectively. Net benefit from pension and other postretirement benefit plans excluding MTM adjustments totaling $13.2 million and $10.0 million in the six months ended June 30, 2018 and 2017, respectively, are excluded from Power segment gross profit, but are included in Power segment adjusted EBITDA.



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Renewable Segment Results
 Three Months Ended June 30, Six Months Ended June 30,
(in thousands)20182017$ Change 20182017$ Change
Revenues$55,002
$48,074
$6,928
 $114,960
$153,610
$(38,650)
Gross profit (loss)$(69,329)$(110,894)$41,565
 $(119,778)$(100,300)$(19,478)
Adjusted EBITDA$(78,603)$(123,302)$44,699
 $(140,357)$(122,375)$(17,982)
Gross profit %(126.0)%(230.7)%  (104.2)%(65.3)% 

The results of the Renewable segment arewas primarily driven by changes in estimated revenues and costs to complete the six European loss contracts described in more detail in the Overview of Results above and in Note 5 to the condensed consolidated financial statements. The August 9, 2018 amendment to the U.S. Revolving Credit Facility requires $25.0 million of concessions from customers on these Renewable loss contracts to be secured by August 31, 2018; however, these concessions have not been included in the contract estimates as of June 30, 2018 because they remained unsigned as of the filing date of these condensed consolidated financial statements.

Three Months Ended June 30, 2018 vs. 2017

Revenues in the Renewable segment increased 14%, or $6.9 million to $55.0 million in the quarter ended June 30, 2018 from $48.1 million in the corresponding quarter in 2017. Changes in estimated contract progress and estimated LDs in the second quarter of 2018 reduced revenue less than the second quarter of 2017.

Gross profit in the Renewable segment was a loss of $69.3 million in the quarter ended June 30, 2018 compared to a $110.9 million loss in the corresponding quarter in 2017. In the second quarter of 2018 and 2017, we recorded $57.3 million and $115.2 million in net losses, respectively, resulting from changes in the estimated revenues and costs to complete the six European loss contracts. Additionally, in late May 2018, our insurer disputed our $15.5 million (DKK 100.0 million) insurance claim to recover a portion of the losses on the first project. We believe that the dispute from the insurer is without merit and continue to believe we are entitled to the full value of the claim. We intend to aggressively pursue full recovery under the policy, and filed for arbitration in July 2018. However, an allowance for the entire receivable was recorded in the second quarter of 2018 based upon the dispute by the insurer, which is considered contradictory evidence in the accounting probability assessment of this loss recovery, even if it is believed to be without merit.

Adjusted EBITDA in the Renewable segment improved $44.7 million to a loss of $78.6 million in the quarter ended June 30, 2018, compared to $123.3 million the corresponding quarter in 2017. The improvement is primarily due to the changes in gross profit described above, partly offset by lower SG&A, which reflects benefits of restructuring, lower proposal costs and active reductions in discretionary spend.

Six Months Ended June 30, 2018 vs. 2017

Revenues in the Renewable segment decreased 25%, or $38.7 million to $115.0 million in the six months ended June 30, 2018 from $153.6 million in the corresponding period in 2017. The decrease in revenue was primarily due to the effect on the percentage of completion of the increases in estimated costs to complete and increases in estimated LDs on the six European loss contracts and from lower levels of activity as progress is made on these loss projects.

Gross profit in the Renewable segment worsened $19.5 million to a loss of $119.8 million in the six months ended June 30, 2018, compared to a loss of $100.3 million in the corresponding period in 2017. In the six months ended June 30, 2018 and June 30, 2017, we recorded $110.0 million and $112.2 million in net losses, respectively, resulting from changes in the estimated revenues and costs to complete the six European loss contracts.

Adjusted EBITDA in the Renewable segment worsened $18.0 million to a loss of $140.4 million in the six months ended June 30, 2018, compared to a loss of $122.4 million in the corresponding period of 2017. The decrease in adjusted EBITDA was primarily due to the changes in gross profit described above, partly offset by lower SG&A, which reflects benefits of restructuring, lower proposal costs and active reductions in discretionary spend.

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Industrial Segment Results
 Three Months Ended June 30, Six Months Ended June 30,
(In thousands)20182017$ Change 20182017$ Change
Revenues$46,015
$46,632
$(617) $82,759
$95,817
$(13,058)
Gross profit (loss)$79
$187
$(108) $(2,672)$4,886
$(7,558)
Adjusted EBITDA$(6,222)$(4,880)$(1,342) $(13,532)$(5,385)$(8,147)
Gross profit %0.2%0.4%  (3.2)%5.1%


Three Months Ended June 30, 2018 vs. 2017

Revenues in the Industrial segment decreased $0.6 million, to $46.0 million in the quarter ended June 30, 2018 from $46.6 million in the corresponding quarter in 2017. The slight decrease in revenues in the Industrial segment is primarily due to lower volume of aftermarket cooling systems services, mostly offset by increases in new build cooling systems activity.

Gross profit in the Industrial segment decreased $0.1 million, to $0.1 million in the quarter ended June 30, 2018, compared to $0.2 million in the corresponding quarter in 2017. Gross profit remained relatively unchanged due to the continued effort in closing out legacy new build cooling system projects that were in low margin or loss positions. Remaining legacy new build cooling system contracts are generally expected to be completed in the second half of 2018, and at June 30, 2018, accrued Industrial contract losses totaled $2.2 million.

Adjusted EBITDA in the Industrial segment decreased by $1.3 million to a loss of $6.2 million in the quarter ended June 30, 2018, compared to a loss of $4.9 million in the quarter ended June 30, 2017. The decrease primarily reflects legal expenses related to legacy litigation.

Six Months Ended June 30, 2018 vs. 2017

Revenues in the Industrial segment decreased 14%, or $13.1 million, to $82.8 million in the six months ended June 30, 2018 from $95.8 million in the corresponding six months in 2017. The decrease is primarily due to lower volume of aftermarket cooling systems services.

Gross profit in the Industrial segment decreased $7.6 million, to a loss of $2.7 million in the six months ended June 30, 2018, compared to $4.9 million of gross profit in the corresponding six months in 2017. The decrease primarily reflects increases in estimated costs to complete new build cooling systems contracts.contracts sold

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under a previous strategy and lower volumes of aftermarket cooling system services. SPIG's new build cooling systems contracts that were sold under the previous strategy were mostly complete as of December 31, 2018; however, included in these few remaining contracts is a loss contract to engineer, procure materials and then construct a dry cooling system for a gas-fired power plant in the U.S., which is expected to be compete in the third quarter of 2019.

Adjusted EBITDA in the IndustrialSPIG segment improved $6.1 million to $(0.1) million in the second quarter of 2019 compared to $(6.2) million in the second quarter of 2018, driven by the improvement to gross profit and the benefits of cost savings and restructuring initiatives.

Six Months Ended June 30, 2019 and 2018

Revenues in the SPIG segment decreased by $8.137%, or $31.0 million, to a loss of $13.5$51.7 million in the six months ended June 30, 2018, compared2019 from $82.8 million in the corresponding period in 2018. The decrease is primarily due to lower volume of new build cooling systems services following a 2017 change in strategy to improve profitability by focusing on more selective bidding in core geographies and products and a lower volume of aftermarket cooling system services.

Gross profit in the SPIG segment increased $8.7 million, to $6.1 million in the six months ended June 30, 2017.2019, compared to $(2.7) million in the corresponding period in 2018. The decreaseimprovement begins to reflect the effects of a 2017 change in strategy to improve profitability by focusing on more selective bidding in core geographies and products. SPIG gross profit (loss) in the six months ended June 30, 2018 was primarily reflectsdriven by increases in estimated costs to complete legacy new build cooling systems contracts sold under a previous strategy and legal expenses relatedlower volumes of aftermarket cooling system services. SPIG's new build cooling systems contracts that were sold under the previous strategy were mostly complete as of December 31, 2018; however, included in these few remaining contracts is a loss contract to legacy litigation.engineer, procure materials and then construct a dry cooling system for a gas-fired power plant in the U.S., which is expected to be compete in the third quarter of 2019.

Adjusted EBITDA in the SPIG segment improved $14.0 million to $0.5 million of adjusted EBITDA income in the six months ended June 30, 2019 compared to $(13.5) million in the corresponding period in 2018, driven by the improvement to gross profit and the benefits of cost savings and restructuring initiatives.

Bookings and Backlog

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

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


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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 termshorter-term changes in bookings may not necessarily indicate a material trend.

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Three months ended June 30, Six months ended June 30,Three months ended June 30,Six months ended June 30,
(In millions)20182017 201820172019201820192018
Power$132
$177
 $403
$354
Renewable(1)
(23)15
 23
50
Industrial18
79
 45
144
Babcock & Wilcox$140
$132
$327
$403
Vølund & Other Renewable(1)(2)
(78)(23)(59)23
SPIG18
18
30
45
Other/eliminations(1)(37) (2)(38)(13)(1)(15)(2)
Bookings$126
$234
 $469
$510
$67
$126
$283
$469
(1 ) Renewable bookings primarily represents
(1)
Vølund & Other Renewable bookings includes the revaluation of backlog denominated in currency other than U.S. dollars. The foreign exchange impact on Renewable bookings in the three months ended June 30, 2018 and 2017 was $(30.3) million and $30.3 million, respectively, and the foreign exchange impact on Vølund & Other Renewable bookings in the three months ended June 30, 2019 and 2018 was $(4.0) million and $(30.3) million, respectively, and the foreign exchange impact on Vølund & Other Renewable bookings in the six months ended June 30, 2019 and 2018 was $(0.5) million and $(12.3) million, respectively.
(2) In the three and six months ended June 30, 20182019, Vølund & Other Renewable includes debookings of $19 million related to the sale of Loibl and 2017$72 million related to a 15-year operations and maintenance contract previously expected to follow completion of the fifth European Vølund EPC loss contract, which was $(12.3) million and $43.3 million, respectively.cancelled following the settlement agreement described in Note 4 .

Six months ended June 30,
(In approximate millions)June 30, 2018December 31, 2017June 30, 201720192018
Power$500
$453
$562
Renewable(1)
916
1,008
1,137
Industrial137
175
221
Babcock & Wilcox$323
$500
Vølund & Other Renewable(1)
205
916
SPIG65
137
Other/eliminations(35)(43)(36)(8)(35)
Backlog$1,518
$1,593
$1,884
$585
$1,518
(1 ) Renewable backlog at June 30, 2018 includes $714 million related to long-term operation and maintenance contracts for renewable energy plants, with remaining durations ranging to between 2019 and 2035. Generally such contracts have a duration of 10-20 years and include options to extend.
(1)
Vølund & Other Renewable backlog at June 30, 2019, includes $169 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 June 30, 2018,2019, we expect to recognize revenues as follows:
(In approximate millions)20182019ThereafterTotal20192020ThereafterTotal
Power$283
$123
$94
$500
Renewable152
130
634
$916
Industrial91
25
21
$137
Babcock & Wilcox$173
$82
$68
$323
Vølund & Other Renewable28
22
155
205
SPIG21
14
30
65
Other/eliminations(19)(15)(1)$(35)(2)
(6)(8)
Expected revenue from backlog$507
$263
$748
$1,518
$220
$118
$247
$585

Corporate

Corporate costs include SG&A expenses that are not allocated to the reportable segments. These costs include certain executive, compliance, strategic, reporting and legal expenses associated with governance of the total organization and being an SEC registrant. Corporate costs decreased $3.5increased $3.2 million to $9.4 million in the second quarter of 2019 as compared to $6.2 million in the second quarter of 2018, from $9.7 millionprimarily due to incentive compensation, partly offset by the benefits of restructuring and discretionary spend reductions. In the second quarter of 2018, incentive compensation accruals were reduced based on the company's performance, and in the second quarter of 2017. 2019 additional incentive compensation was awarded related to achieving the EPC contract settlements and financing arrangements.

Corporate costs decreased $1.6$3.5 million to $14.4 million in the six months ended June 30, 2019 as compared to $17.8 million in the six months ended June 30, 2018, primarily due to the benefits of restructuring, discretionary spend reductions, partly offset by incentive compensation awards in the second quarter of 2019.


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Allocations are excluded from $19.4discontinued operations, and accordingly, $2.9 million and $5.7 million of indirect costs that were previously absorbed by the MEGTEC and Universal businesses were included as other unallocated costs in Corporate for the three and six months ended June 30, 2018, respectively.

Advisory Fees and Settlement Costs

Advisory fees and settlement costs decreased by $0.4 million to $4.8 million in the second quarter of 2019 as compared to $5.1 million in the second quarter of 2018, primarily due to a decrease in financial advisory fees, partly offset by an increase in legal fees related to pursuit of insurance recoveries.

Advisory fees and settlement costs increased by $10.2 million to $18.4 million in the six months ended June 30, 2107. The decrease primarily reflects benefits of restructuring, lower incentive and stock-based compensation and reductions in discretionary spend.

Allocations are excluded from discontinued operations. Accordingly, allocations previously absorbed by the MEGTEC and Universal businesses in the Industrial segment have been included with other unallocated costs in Corporate, and total $2.9 million and $2.2 million in the three months ended June 30, 2018 and 2017, respectively, and $5.7 million and $4.42019 as compared to $8.2 million in the six months ended June 30, 2018, primarily due to settlement cost to exit a certain Vølund contract as described in Note 4, an increase in legal fees related to liquidity planning and 2017, respectively.pursuit of insurance recoveries, partly offset by a decrease in financial advisory fees.

Research and Development

Our research and development activities are related to improving our products through innovations to reduce the cost of our products to make them more competitive and through innovations to reduce performance risk of our products to better meet our and our customers' expectations.Research and development costs unrelated to specific contracts are expensed as incurred. Research and development expenses relate to the development and improvement of new and existing products and equipment, as well as conceptual and engineering evaluation for translation into practical applications. These expenses were $1.3totaled $0.7 million and $2.4$1.3 million for the quarterthree months ended June 30, 2019 and 2018, respectively. Research and 2017, respectively,development expenses totaled $1.5 million and $2.4 million and $4.2 million for the six months ended June 30, 2019 and 2018, and 2017, respectively. We continuously evaluate each research and development project and collaborate with our business teams to ensure that we believe we are developing technology and products that are currently desired by the market and will result in future sales.

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Restructuring

Restructuring costs totaled $3.8 million and $10.7 million inThe reductions for the three and six months ended June 30, 2018, respectively,2019 resulted primarily from restructuring and $2.0 million and $5.0 million in the three and six months ended June 30, 2017, respectively. At the end of Junecost-control initiatives.
Restructuring

In 2018, we eliminated 74 positions,began to implement a series of cost restructuring actions, primarily in our U.S., CanadaEuropean, Canadian and Asian operations, and corporate functions. These actions were intended to appropriately size our operations and support functions in response to the continuing decline in certain global markets for new build coal-fired power generation, the announcement of the MEGTEC and Universal sale, the level of activity in our Vølund business and our liquidity needs. These severanceSeverance actions are expected to resultacross our business units, including executive severances, resulted in $18.3$0.9 million and $3.8 million of annual savings. Severance cost associated with these actions is expected to total approximately $5.5 million, of which $3.4 million was recorded in June 2018 and the remainder will be recordedexpense in the balance of 2018 over the remaining service periods. Executive severance totaling $0.2 million and $5.1 million in the three and six months ended June 30, 2019 and 2018, respectively, related to the elimination of the SVP and Chief Business Development Officer role and the transition of the CEO.respectively. Severance payments are expected to extend through mid-2019. Additionally, we implemented other initiatives and benefit changes to avoid or reduce costs totaling approximately $15.8 million annually.

As described further in Note 6 to the condensed consolidated financial statements, other restructuring costs in 2018 relate to executive severance and actions from the second half of 2017 that were intended to improve our global cost structure and increase our financial flexibility. These restructuring actions included a workforce reduction at both the business segment and corporate levels totaling approximately 9% of our global workforce, SG&A expense reductions and new cost control measures, and office closures and consolidations in non-core geographies. These actions included reduction of approximately 30% of B&W Vølund's workforce to align with a new execution model focused on B&W Vølund's core boiler, grate and environmental equipment technologies, with the balance-of-plant and civil construction scope being executed by a partner.

In the three and six months ended June 30, 2017, restructuring costs relate primarily to a series of activities that took place prior to 2017 that were intended to help us maintain margins, make our costs more volume-variable and allowacross our business to be more flexible. These actions were primarilyunits, including executive severances, resulted in the Power segment$7.0 million and $10.7 million of expense in advance of lower projected demand for power generation from coal in the United States. We made our manufacturing costs more volume-variable through the closure of manufacturing facilities and development of manufacturing arrangements with third parties. Also, we made our cost of engineering and supply chain more variable by creating a matrix organization capable of delivering products across multiple segments, and developing more volume-variable outsourcing arrangements with our joint venture partners and other third parties to meet fluctuating demand. Until the second quarter of 2018, these restructuring actions achieved the goal of maintaining gross margins in the Power segment. Quantification of cost savings, however, is significantly dependent upon volume assumptions that have changed since the restructuring actions were initiated.

Spin-off transaction costs

Spin-off costs were primarily attributable to employee retention awards directly related to the spin-off from our former parent, The Babcock & Wilcox Company (now known as BWX Technologies, Inc.). In the six months ended June 30, 2019 and 2018, respectively. Severance expense is recognized over the remaining service periods of affected employees, and 2017, weas of June 30, 2019, $0.7 million of total severance expense is remaining to be recognized spin-off costs of $0.3 millionbased on actions taken through that date.

Our restructuring actions and $0.9 million, respectively. We do not expectother additional costs related to the spin-off transaction incost reductions since the second halfquarter of 2018.2018 are targeting to save approximately $100 million annually once fully implemented.

Goodwill Impairment

ASC 350-30, Goodwill and Other Intangible Assets, requires that goodwill and other unamortizable intangible assets are required to be tested for impairment at least annually or earlier if there are impairment indicators. Interim impairment testing as of June 30, 2018 was performed at SPIG due to lower bookings in the second quarter of 2018 than previously forecasted, which resulted in a reduction in the forecast for the reporting unit.

As described further in Note 12 to the condensed consolidated financial statements, we compared the fair value of the reporting unit and the carrying value of the reporting unit to measure goodwill impairment loss as required by ASU 2017-04. As a result of the impairment test, we recognized a $37.5 million impairment of goodwill in the SPIG reporting unit, of our Industrial segment. After the impairment, the SPIG reporting unitafter which it did notno have any remaining goodwill.

At Since June 30, 2018, all of our remaining goodwill is related to the Power segment.Babcock & Wilcox segment as described in Note 7.

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Equity in Income (Loss) of Investees

InAt June 30, 2019, we do not have any remaining investments in equity method investees. During the first quarter of 2018, we sold all of our interest in BWBC to our joint venture partner in China for approximately $21.1 million, which resultedresulting in a gain of approximately $6.5 million, duringwhich was classified in equity income of investees in the first quarterCondensed Consolidated Statement of 2018. TheOperations. Proceeds from this sale, net of our interest$1.3 million of withholding tax, were $19.8 million. Our former equity method investment in BWBC joint venture in China is further described in Note 11 to the condensed consolidated financial statements. We recognized $3.0 million and $3.6 million of equity in earnings of BWBC in the three and six months ended June 30, 2017, respectively.

At June 30, 2018, our total investment in equity method investees is $8.4 million, which included a $7.7 million investment in TBWES, which hashad a manufacturing facility intendedthat designed, manufactured, produced and sold various power plant and industrial boilers, primarily for new build coal boiler projects in India. In the second quarter of 2017, we recognized an $18.2 million other-than-temporary impairment charge of our investment in TBWES as a result of a strategic change we and our joint venture partner made due to the decline in forecasted market opportunities in India. In the first quarter of 2018, we recognized an additional $18.4 million other-than-temporary-impairment charge of our investment in TBWES based on a preliminary agreement to sell our investment in TBWES. The additional impairment charge was based on the difference in the carrying value of our investment in TBWES and the preliminary sale price. China.

57






In July 2018, we completed the sale of our investment in TBWES together with the settlement of related contractual claims and received $15.0 million in cash, of which $7.7 million related to our investment in TBWES. Additionally, AOCI includes $2.6TBWES and $7.3 million at June 30,of proceeds were used to pay outstanding claims. In July 2018, forthe AOCI related to cumulative currency translation loss from our investment in TBWES and is expected to beof $2.6 million was also recognized as a loss and is included in connection with closingforeign exchange in our Condensed Consolidated Statement of Operations. TBWES had a manufacturing facility that produced boiler parts and equipment intended primarily for new build coal boiler contracts in India. During the salefirst quarter of 2018, based on a preliminary agreement to sell our investment in TBWES, we recognized an additional $18.4 million other-than-temporary-impairment. The impairment charge was based on the difference in the third quartercarrying value of 2018.

Equityour investment in TBWES and the preliminary sale price. These other-than-temporary-impairment losses were classified in equity income of investees is described more fully below and in Note 11 to the condensed consolidated financial statements.Condensed Consolidated Statements of Operations.

Depreciation and Intangible Asset Amortization

Depreciation expense was $5.4 million and $4.9 million in each of the quartersthree months ended June 30, 2019 and 2018, and 2017respectively. Depreciation expense was $11.5 million and $9.8 million in each of the six months ended June 30, 2019 and 2018, and 2017.respectively.

We recorded $2.0 million and $2.8 million of intangible asset amortization expense duringof $1.1 million and $2.0 million in the quartersthree months ended June 30, 2019 and 2018, respectively, and 2017, respectively$2.3 million and $4.1 million and $6.3 million forin the six months ended June 30, 2019 and 2018, respectively.

In September 2018, we relocated our corporate headquarters to Barberton, Ohio from Charlotte, North Carolina. At the same time, we announced that we would consolidate most of our Barberton and 2017, respectively.Copley, Ohio operations into new, leased office space in Akron, Ohio. The move to the new, leased office space is expected to occur during the fourth quarter of 2019. We do not expect intangible asset amortization expense willto incur significant relocation costs; however, we expect $7.9 million of accelerated depreciation to be approximately $2.6recognized through mid-2019, of which $2.0 million forand $4.0 million was recognized during the remainderthree and six months ended June 30, 2019, respectively, and $7.3 million has been recognized cumulatively, since the decision to relocate in the third quarter of 2018.

Mark to Market Adjustments of Pension and RetirementOther Postretirement Benefit Plans

DuringWe recognize pension benefit from our defined benefit and other postretirement benefit plans, which are based on actuarial calculations. We recognize benefit primarily because our expected return on assets is greater than our service costs. Service cost is low because our plan benefits are frozen except for a small number of hourly participants. Pension benefits, excluding MTM adjustments were $3.3 million and $6.5 million in the firstthree months ended June 30, 2019 and 2018, respectively, and $6.8 million and $13.5 million in the six months ended June 30, 2019 and 2018, respectively.

Our pension costs also include MTM adjustments from time to time, as described further in Note 12. Interim MTM charges are a result of 2018, lump sum payments from our Canadian pension plan resulted in a plan settlementcurtailments or settlements. Any MTM charge or gain of $0.1 million and an interim markshould not be considered to market gain of $0.4 million. Lump sum payments from our Canadian pension plan resulted in a plan settlement loss of $0.4 million and an interim mark to market loss of $0.7 million during the first six months of 2017. These charges during the first six month of 2018 and 2017 are not necessarilybe representative of future interim accountingMTM adjustments as such events are not currently predicted and interim measurement of markare in each case subject to market conditions and actuarial assumptions as of the date of the even giving rise to the MTM adjustment.

Lump sum payments from our Canadian Plans resulted plan settlements during the first and second quarters of 2019. The settlements themselves were not material, but they triggered interim MTM remeasurements of the Canadian Plan's assets and liabilities that were losses of $0.9 million and $1.3 million in the three and six months ended June 30, 2019, respectively.

Refer to Note 12 for further information regarding our pension and other postretirement plans. Other than service cost of $0.2 million and $0.2 million in the three months ended June 30, 2019 and 2018, respectively, and $0.3 million and $0.4 million in the six months ended June 30, 2019 and 2018, respectively, which are related to the small number of hourly participants still accruing benefits within the Babcock & Wilcox segment, pension benefit and MTM adjustments are subject toexcluded from the current actuarial assumptions.results of our segments.

Foreign Exchange

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

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Foreign exchange was a gain (loss) was $(20.2)of $9.5 million and $2.3a loss of $0.6 million infor the three months ended June 30, 2018 and 2017, respectively, and $(17.7) million and $2.3 million in the six months ended June 30, 20182019, respectively, and 2017,was a loss of $20.2 million and $17.7 million for the three and six months ended June 30, 2018, respectively. Foreign exchange gains and losses are primarily related to unhedged intercompany loans denominated in European currencies to fund foreign operations. Foreign exchange losses in the three and six months ended June 30, 20182019 were driven primarily by a strengthening U.S. dollar compared to the underlying European currencies.

49






Income Taxes
Three months ended June 30, Six months ended June 30,Three months ended June 30,Six months ended June 30,
(In thousands, except for percentages)20182017$ Change 20182017$ Change20192018$ Change20192018$ Change
Loss before income taxes(211,605)(145,158)$(66,447) (321,481)(153,735)$(167,746)(26,444)(211,605)$185,161
$(75,684)(321,481)$245,797
Income tax expense (benefit)(1,934)3,458
$(5,392) 5,029
346
$4,683
1,891
(1,934)$3,825
$2,517
5,029
$(2,512)
Effective tax rate0.9%(2.4)%  (1.6)%(0.2)% (7.2)%0.9% (3.3)%(1.6)% 

Our effectiveincome tax rate canexpense in the second quarter of 2019 reflects a full valuation allowance against our net deferred tax assets. Deferred tax assets are evaluated each period to determine whether it is more likely than not that those deferred tax assets will be significantly impacted byrealized in the future, and valuation allowances related to losses incurred in certain jurisdictions whereare recorded when the ability to utilize those lossesdeferred tax assets to reduce taxable income in the foreseeable future is less than more likely than not. Valuation allowances do not limit our ability to use deferred tax assets in the future. Valuation allowances may be reversed in the future if sufficient positive evidence exists to outweigh the negative evidence under the framework of ASC 740, Income Taxes.

Our effective tax rate for the second quarter of 2019 is not reflective of the U.S. statutory rate primarily due to a full valuation allowance against net deferred tax assets. In jurisdictions where we have available net operating loss carryforwards ("NOLs"), such as the U.S., Denmark and Italy, the existence of a full valuation allowance against deferred tax assets results in income tax benefit or expense relating primarily to discrete items. In other profitable jurisdictions, however, we may record income tax expense, even though we have established a full valuation allowance against our net deferred tax assets. Our income tax expense (benefit) also reflects changes in the jurisdictional mix of income and losses.

In the second quarter of 2018, our effective tax rate was also affected by valuation allowances related to losses incurred in certain jurisdictions. Additionally, we operateoperated in numerous countries that have statutory tax rates that differ from that of the United States federal statutory rate of 21%. The most significant of these foreign operations are located in Canada, Denmark, Germany, Italy, Mexico, Sweden and the United Kingdom with effective tax rates ranging between 20%19% and approximately 30%. In addition to statutory rate differences, the jurisdictional mix of our income (loss) before tax can be significantly affected by mark to market adjustments related to our pension and postretirement plans, which have been primarily in the United States, and the impact of discrete items and other nondeductible expenses.

Loss before provision for income taxes generated in the United States and foreign locations for the three and six months ended June 30, 20182019 and 20172018 is presented in the table below.
Three months ended June 30, Six months ended June 30,Three months ended June 30,Six months ended June 30,
(in thousands)20182017 201820172019201820192018
United States$(66,146)$(27,192) $(91,170)$(33,486)$(25,281)$(66,146)$(37,505)$(91,170)
Other than the United States(145,459)(117,966) (230,311)(120,249)(1,163)(145,459)(38,179)(230,311)
Income (loss) before provision for (benefit from) income taxes$(211,605)$(145,158) $(321,481)$(153,735)
Loss before provision for (benefit from) income taxes$(26,444)$(211,605)$(75,684)$(321,481)

See Note 720 of the condensed consolidated financial statements for explanation of differences between our effective income tax rate and our statutory rate.Note 20 also describes the impact of an "ownership change" under Section 382 of the Internal Revenue Code ("IRC"). The Equitization Transactions described in Note 18 have resulted in an "ownership change" under IRC Section 382.


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Liquidity and Capital Resources

We face liquidity challenges from additional losses recognized in the fourth quarter of 2017 and the first half of 2018 on our European renewable energy contracts described in Note 5 to the condensed consolidated financial statements, which caused us to be out of compliance with certain financial covenants in the agreements governing certain of our debt at December 31, 2017, March 31, 2018 and June 30, 2018. To avoid default, we obtained amendments and waivers to our U.S. revolving credit facility, dated May 11, 2015 (as amended, the "U.S. Revolving Credit Facility") that temporarily waived these financial covenant defaults, as described in Note 17 to the condensed consolidated financial statements.Liquidity

In an effort toTo address our liquidity needs and the going concern uncertainty, we have:have taken the following actions in 2019 as follows:
raised gross proceeds of $248.4 millioncompleted equitization transactions on April 30, 2018 through a rights offering as described in Note 19 to the condensed consolidated financial statements;
repaid on May 4, 2018 the Second Lien Term Loan FacilityJuly 23, 2019 as described in Note 18 and Note 17, which included an exchange of all of the outstanding balance of Tranche A-1 of the Last Out Term Loans for equity and a rights offering to raise $50.0 million that was used to fully repay Tranche A-2 of the condensed consolidated financial statements,Last Out Term Loans and to reduce a portion of the outstanding principal under Tranche A-3 of the Last Out Term Loans;
executed a one-for-ten reverse stock split of our issued and outstanding common stock, which will save approximately $25became effective on July 24, 2019;
completed the sale of a non-core materials handling business in Germany, Loibl GmbH ("Loibl") effective May 31, 2019 for €10.0 million (approximately $11.4 million), subject to adjustment, resulting in net receipt of $7.4 million;
received $150.0 million in annual interest paymentsface value from Tranche A-3 of the Last Out Term Loans before original issuance discount and $30 million of annual interest expense;
entered into an agreement on June 5, 2018 to sell our MEGTEC and Universal businesses for $130 million (subject to adjustment);
entered into an agreement on August 9, 2018 to sell a subsidiary that holds two operations and maintenance contracts for waste-to-energy facilities in West Palm Beach, Florida for $45 million (subject to adjustment);
sold our equity method investments in BWBC and TBWES and settled related contractual claims, resulting in proceeds of $21.1 million in the second quarter of 2018 and $15.0 million in July 2018, respectively;
sold another non-core business for $5.1 million in the first quarter of 2018;
initiated restructuring actions and other additional cost reductions in the second quarter of 2018 that are designed to save approximately $34 million annually; and

50





entered into several waivers and amendments to avoid default to our U.S. Revolving Credit Facilityfees, as described in Note 17, the most recent of which is dated August 9, 2018. As part of this latest amendment, our lenders agreed to reduce the minimum liquidity required under the facility, which has the effect of increasing the amount we may borrow by up to $25 million.  Other liquidity measures that must also be completed include: a) the receipt of $30 million in net proceeds14, from the Last Out Loan, for which a binding commitment letter with Vintage Capital Management LLC, a related party, was executed on August 9, 2018, which is fully backstopped by B. Riley FBR, Inc., a related party;party, on April 5, 2019;
received $10.0 million in net proceeds from Tranche A-2 of the Last Out Term Loans, described in Note 14, from B. Riley Financial, Inc. (together with its affiliates, including B. Riley FBR, Inc., "B. Riley"), a related party, on March 20, 2019;
reduced uncertainty and b) obtaining $25 millionprovided better visibility into our future liquidity requirements by turning over five of written commitments for concessions from customers on the Renewablesix European Vølund EPC loss contracts to the customers by the end of second quarter of 2019, partly facilitated by a settlement related to the second and fifth loss contracts as described in Note 4, which was funded with proceeds from Tranche A-3 of the Last Out Term Loans;
entered into an additional settlement as described in Note 4 in connection with an additional European waste-to-energy EPC contract, for which notice to proceed was not given and the contract was not started, whereby our obligations and our risk from acting as the prime EPC should the project move forward was eliminated;
entered into several amendments and waivers to avoid default and improve our liquidity under the terms of our Amended Credit Agreement as described in Note 13 and Note 14, the most recent of which were Amendments No. 16 and No. 17, dated April 5, 2019 and August 7, 2019, respectively, which provided Tranche A-3 of the Last Out Term Loans described above and in Note 14, reset the financial and other covenants, adjusted the interest rate of the Last Out Term Loans, reset the maturity date of the Last Out Term Loans to December 31, 2020, increased borrowing capacity under the U.S. Revolving Credit Facility by reducing the minimum liquidity requirement, allowed for the issuance of a limited amount of new letters of credit with respect to any future Vølund project, permitted other letters of credit to expire up to one year after the maturity of the U.S. Revolving Credit Facility, clarifies (Amendment No. 17) the definition cumulatively through Amendment No. 16 of the amounts that can be used in calculating the loss basket for certain Vølund contracts, and resets the loss basket for certain Vølund contracts to $15.0 million to align with the clarification commencing with the quarter ending March 31, 2019; and
filed and plan to file for waiver of required minimum contributions to the U.S. Pension Plan as described in Note 12, that if granted, would reduce cash funding requirements in 2019 by approximately $15 million and a combination of cashsimilar or greater amount in 2020 and would increase contributions loansover the following five years. The waiver request for the first plan year remains under review by the IRS and forgiveness of indebtedness and performance obligations by September 30, 2018.the waiver request for the second plan year is expected to be filed later in 2019 or early 2020.

Additionally, we continue to evaluate further dispositions and additional opportunities for cost savings. We also continue to pursue insurance recoveries, additional relief from customers and will pursue other claims where appropriate and available. Management believes it has taken and is taking allcontinuing to take prudent actions to address the substantial doubt aboutregarding our ability to continue as a going concern, but we cannot assert that it is probable that our plans will fully mitigate the liquidity challenges we face.face because some matters may not fully be in our control. Amendment No. 16 to the Amended Credit Facility also created a new event of default for failure to terminate the existing U.S. Revolving Credit Facility on or prior to March 15, 2020, which is within twelve months of the date of this filing. Our plan is designedability to provide uscomply with what we believethe financial and other covenants of the Amended Credit Facility through that date are dependent upon achieving our forecasted financial results. While management believes it will be adequate liquidityable to meet our obligations for at least the twelve month period following August 9, 2018; however, our remediation plan depends on conditions and matters that may be outside of our control, including regulatory approvals that may be requiredobtain additional financing to sell certain assets, agreement to concessions from customers on the Renewable loss contracts as required under the amended terms ofreplace our U.S. Revolving Credit Facilityfacility, the ability to do so will depend on credit markets and other matters that are outside of our control.

In addition to the discussions regarding additional financing described above, we continue to evaluate further dispositions, opportunities for additional cost savings and opportunities for insurance recoveries and other claims where appropriate and available.


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On November 27, 2018, we received written notification (the "NYSE Notice"), from the New York Stock Exchange (the "NYSE"), that we were not in compliance with an NYSE continued listing standard in Rule 802.01C of the NYSE Listed Company Manual because the average closing price of our common stock fell below $1.00 over a period of 30 consecutive trading days. We can regain compliance with the minimum per share average closing price standard at any time during the six-month cure period if, on the last trading day of any calendar month during the cure period, we have (i) a closing share price of at least $1.00 and (ii) an average closing price of at least $1.00 over the 30 trading-day period ending on the last trading day of that month. We completed a reverse stock split effective as of July 24, 2019 to regain compliance, but there is no guarantee that this reverse stock split will enable us to cure this deficiency. Our common stock could also be delisted if we fail to satisfy any other continued listing standards. For example, based on our current shareholders' equity, our common stock may be subject to delisting if our average market capitalization over a consecutive 30-trading-day period is less than $50.0 million, subject to our ability to obtainregain compliance with this listing standard during an applicable cure period.

On July 11, 2019, the Company's board of directors approved a reverse stock split of one-for-ten on the Company's issued and maintain sufficient capacity to support contract security requirements for currentoutstanding common stock which became effective on July 24, 2019. The one-for-ten reverse stock split automatically converted every ten shares of the Company's outstanding and future business. Additionally, our ability to operate within the amended covenants and borrowing limits associated with our U.S. Revolving Credit Facility are dependent on our future financial operating results. If we cannot continue as a going concern, material adjustmentstreasury common stock prior to the carrying valueseffectiveness of the reverse stock split into one share of common stock. No fractional shares were issued in the reverse stock split. Instead, stockholders who would otherwise have held fractional shares received cash payments (without interest) in respect of such fractional shares. The reverse stock split did not impact any stockholder's percentage ownership of the Company, subject to the treatment of fractional shares. The reverse stock split was undertaken to increase the market price per share of the Company's common stock to allow the Company to regain compliance with the NYSE's continued listing standards relating to minimum price per share pending final approval by the NYSE.

Cash as of June 30, 2019 and classifications of our assetsCash Flows for the six months ended June 30, 2019 and liabilities and the reported amounts of income and expense would be required.2018

At June 30, 2018,2019, our unrestricted cash and cash equivalents of continuing operations totaled $28.5$35.2 million and we had $200.4 milliontotal debt of total borrowings.$367.5 million. Our foreign business locations held $28.0$30.9 million of our $28.5 million oftotal unrestricted cash and cash equivalents of continuing operations at June 30, 2018.2019. Our U.S. Revolving Credit Facility allows for nearly immediate borrowing of available capacity to fund cash requirements in the normal course of business, meaning that U.S. cash on hand is minimized to reduce borrowing costs. In general, our foreign cash balances are not available to fund our U.S. operations unless the funds are repatriated or used to repay intercompany loans made from the U.S. to foreign entities, which could expose us to taxes we presently have not made a provision for in our results of operations. We presently have no plans to repatriate these funds to the U.S.

After giving effect to the amendments to our U.S. Revolving Credit Facility, At June 30, 2019, we had approximately $28.6$18.6 million of availability as of June 30, 2018. Based on our forecasted results of operationsavailable for twelve months after the filing of this document, availabilityborrowings under the U.S. Revolving Credit Facility, proceeds from required asset sales, backlog, cash on-hand and our ability to manage future discretionary cash outflows will provide adequate liquidity until our operations begin to generate cash, which we expect to be in the second half of 2019. Our forecasted use of cash during 2018 will primarily be in the Renewable segment as we fund accrued contract losses and work down advanced bill positions. After required asset sales are completed, we expect to have sufficient borrowing capacity under the U.S. Revolving Credit Facility to meet our liquidity needs. However, there can be no assurance that we will be able to complete such required asset sales on favorable terms, or at all.Facility.

Net operating cash flowCash used in operations was a use of $150.6$193.0 million in the six months ended June 30, 2018,2019, which was primarily due to funding settlements related to European Vølund EPC contracts as described in Note 4, progress against accrued losses on the six European Vølund EPC loss contracts and working capital build within the Babcock & Wilcox segment related to the timing and mix of work. In the six months ended June 30, 2018, cash used in operations was $150.6 million and primarily related to funding progress on the six European renewable energyVølund EPC loss contracts in the Vølund & Other Renewable segment, corporate overhead (inclusive of interest, pension and other postretirement benefits, financial advisory services, restructuring and spin costs, and research and development) and working capital build within the PowerBabcock & Wilcox segment related to the timing and mix of work. These cash flows are primarily represented in the $243.8 million operating loss. In the six months ended June 30, 2017, cash used in operations was $81.7 million and related to the operating loss of continuing operations of $157.9 million, offset primarily by changes in advance billings.

Cash flows from investing activities provided net cash of $24.2$5.2 million in the six months ended June 30, 2018,2019, primarily from proceeds received from the sale of Loibl for $7.4 million. In the six months ended June 30, 2018, net cash provided by investing activities was $24.2 million, primarily related to the sale of our equity method investment in BWBC for $21.1 million and the sale of a small emissions monitoring business for $5.1 million which were offset by $4.4 million of capital expenditures. In the six months ended June 30, 2017, net cash used by investing activities was $58.9 million, primarily related to $52.5 million for the Universal acquisition and $7.7 million of capital expenditures.


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Cash flows from financing activities provided net cash of $122.1$175.1 million in the six months ended June 30, 2018,2019, primarily related to $151.4 million of proceeds from the $102.0Last Out Term Loans and $39.5 million of net borrowings from the U.S. Revolving Credit Facility, for working capital purposes. Grosspartly offset by $14.4 million of financing fees. Net cash provided by financing activities in the six months ended June 30, 2018 was $122.1 million and included gross proceeds received from the rights offering wereof $248.4 million, of which $212.6 million werewas used to repay the Second Lien Term Loan of and the remainder was also used to fund operations. Cost associated with the financing activity in the six months ended June 30, 2018 totaled $10.0 million. Net cash provided by financing activities in the six months ended June 30, 2017 was $103.5 million primarily related to $108.3 million of net borrowings under the U.S. Revolving Credit Facility used for working capital purposes.

Rights Offering
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On March 19, 2018, we distributed to holders of our common stock one nontransferable subscription right to purchase 1.4 common shares for each common share held as of 5:00 p.m., New York City time, on March 15, 2018 at a price of $3.00 per common share. On April 10, 2018, we extended the expiration date and amended certain other terms regarding the Rights Offering. As amended, each right entitled holders to purchase 2.8 common shares at a price of $2.00 per share. The Rights Offering expired at 5:00 p.m., New York City time, on April 30, 2018. The Company did not issue fractional rights, or pay cash in lieu of fractional rights. The Rights Offering did not include an oversubscription privilege.


The Rights Offering concluded on April 30, 2018, resulting in the issuance of 124.3 million common shares on April 30, 2018. Gross proceeds from the Rights Offering were $248.4 million. Of the proceeds received, $214.9 million were used to fully repay the Second Lien Credit Agreement, including $2.3 million of accrued interest, and the remainder will be used for working capital purposes. Direct costs of the Rights Offering totaled $3.2 million.

U.S. Revolving Credit Facility

On May 11, 2015, we entered into a credit agreement"the Amended Credit Agreement" with a syndicate of lenders ("Credit Agreement") in connection with our spin-off from The Babcock & Wilcox Company (now BWX Technologies, Inc. or "BWXT") which governs the U.S. Revolving Credit Facility. TheFacility and the Last Out Term Loans. Since June 2016, we have entered into a number of waivers and amendments ("the Amendments") to the Amended Credit Agreement, including those to avoid default. As of June 30, 2019, we were in compliance with the terms of the Amended Credit Agreement inclusive of Amendments No. 16 and No. 17. On April 5, 2019, we entered into Amendment No. 16 to the Amended Credit Agreement. Amendment No. 16 provides (i) $150.0 million in additional commitments from B. Riley FBR, Inc., under Tranche A-3 of last out term loans described in Note 14 and (ii) an incremental uncommitted facility of up to $15.0 million, to be provided by B. Riley or an assignee. Amendment No. 16 provides (i) $150.0 million in additional commitments from B. Riley FBR, Inc., under Tranche A-3 of last out term loans described in Note 14 and (ii) an incremental uncommitted facility of up to $15.0 million, to be provided by B. Riley or an assignee. On August 7, 2019, we entered into Amendment No. 17 to the Amended Credit Agreement, which is scheduledclarifies the definition cumulatively through Amendment No. 16 of the amounts that can be used in calculating the loss basket for certain Vølund contracts and resets the loss basket for certain Vølund contracts to mature$15.0 million commencing with the quarter ending March 31, 2019.

Amendment No. 16 to the Amended Credit Agreement also created a new event of default for failure to terminate the existing revolving credit facility on or prior to March 15, 2020, which effectively accelerated the maturity date of the U.S. Revolving Credit Facility from June 30, 2020,2020. The U.S. Revolving Credit Facility provides for a senior secured revolving credit facility initially in an aggregate amount of up to $600.0 million.$347.0 million (reduced to $340.0 million in July 2019 as a result of the Loibl divestiture described in Note 25), as amended and adjusted for completed asset sales. The proceeds from loans under the U.S. Revolving Credit AgreementFacility are available for working capital needs, capital expenditures, permitted acquisitions and other general corporate purposes, and the full amount is available to support the issuance of letters of credit, subject to the limits specified in the amendmentsamendment described below.

Since June 2016, we have entered into a number of amendments to the Credit Agreement (the "Amendments" and the Credit Agreement, as amended to date, the "Amended Credit Agreement"). The most recent Amendment, which we entered into on August 9, 2018, among other things, provided for the following modifications: (1) modifies the definition of adjusted EBITDA in the Amended Credit Agreement to exclude up to an additional $72.8 million of charges for certain Renewable segment contracts for periods including the quarter ended June 30, 2018 and allow further add backs to EBITDA for restructuring and other similar expenses; (2) modifies the financial covenants as described below; (3) modifies the amount of liquidity (as defined in the Amended Credit Agreement) we are required to maintain from at least $65.0 million as of the last business day of any calendar month to at least $50.0 million (or $40.0 million upon the consummation of certain asset sales and the receipt of at least $10.0 million of proceeds from the Last Out Loan described below) as of the last business day of any calendar month and on any day that a borrowing is made; (4) lowers the amount of outstanding borrowings under the U.S. Revolving Credit Facility that we are required to repay (without any reduction in commitments) with certain excess cash from $60.0 million to $50.0 million; (5) modifies the Company's ability to reinvest net cash proceeds from asset sales that trigger prepayment requirements to allow for the ability to retain up to $25.0 million of asset sale proceeds after receipt of the initial Last Out Loan funding described below; (6) permits an additional $15.0 million of cumulative net income losses attributable to eight specified Vølund contracts for the fiscal quarter ending September 30, 2018; (7) modifies certain contract completion milestones that we are required to meet in connection with six European Renewable loss contracts; (8) modifies the date by which we are required to sell at least $100 million of assets from March 31, 2019 to October 31, 2018; (9) requires us to achieve certain concessions from our renewable contract customers by September 30, 2018 that will generate at least $25.0 million of incremental benefits to us, (10) adds additional events of default related to the termination or rejection of certain contracts related to our Renewables segment; (11) permits and requires us to raise up to an additional net $30.0 million of last-out loans under the Amended Credit Agreement in connection with the Vintage Commitment described below; 12) consents to the sale of our Palm Beach Resource Recovery business; and (13) eliminates a requirement to adjust on a pro forma basis our EBITDA after the sales of Megtec and Universal, and Palm Beach Resource Recovery Corporation.

The Amended Credit Agreement and our obligations under certain hedging agreements and cash management agreements with our lenders and their affiliates continue to be (1) guaranteed by substantially all of our wholly owned domestic

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subsidiaries and certain of our foreign subsidiaries, but excluding our captive insurance subsidiary, and (2) secured by first-priority liens on certain assets owned by us and the guarantors. The AmendedU.S. Revolving Credit AgreementFacility requires interest payments on revolving loans on a periodic basis until maturity. We may prepay all loans at any time without premium or penalty (other than customary LIBOR breakage costs), subject to notice requirements.requirements, with the exception to the prepayment of certain Last Out Term Loans pursuant to the Equitization Transactions described in Note 18; such Last Out Term Loan prepayments are further limited by an aggregate principal amount of $86 million plus interest. The AmendedU.S. Revolving Credit AgreementFacility requires us to make certain prepayments on any outstanding revolving loans after receipt of cash proceeds from certain asset sales or other events, subject to certain exceptions. Such prepayments may require us to reduce the commitments under the AmendedU.S. Revolving Credit AgreementFacility by a corresponding amount of such prepayments. Following the covenant relief period, such prepayments will not require us to reduce the commitments under the Amended Credit Agreement.

After giving effect to the Amendments through June 30, 2019, revolving loans outstanding under the AmendedU.S. Revolving Credit AgreementFacility bear interest at our option at either LIBOR rate plus 7.0% per annum or the Base Rate plus 6.0% per annum until we complete the Rights Offering and prepay the Second Lien Term Loan facility and thereafter at our option at either (1) the LIBOR rate plus 5.0% per annum during 2018, 6.0% per annum during 2019 and 7.0% per annum during 2020, or (2) the Base Rate plus 4.0% per annum during 2018, 5.0% per annum during 2019, and 6.0% per annum during 2020. The Base Rate is the highest of the Federal Funds rate plus 0.5%, the one monthone-month LIBOR rate plus 1.0%, or the administrative agent's prime rate. Interest expense associated withThe components of our U.S. Revolving Credit Facility loans for the three months ended March 31, 2018 was $14.1 million. Included in interest expense was $7.5 million of non-cash amortization of direct financing costs for the three months ended March 31, 2018.are detailed in Note 19. A commitment fee of 1.0% per annum is charged on the unused portions of the U.S. Revolving Credit Facility. Additionally, an annual facility fee of $1.5 million was paid on the first business day of 2019, and a pro-rated amount is payable on the first business day of 2020. A deferred fee reduction from 2.5% to 1.5% became effective October 10, 2018, due to achieving certain asset sales. A letter of credit fee of 2.5% per annum is charged with respect to the amount of each financial letter of credit outstanding, and a letter of credit fee of 1.5% per annum is charged with respect to the amount of each performance and commercial letter of credit outstanding. Additionally, an annual facilityLetter of credit fees are payable on the tenth business day after the last business day of each fiscal quarter.

In connection with Amendment No. 16, a contingent consent fee of $1.5$13.9 million (4.0% of total availability) is payable on December 15, 2019, but will be waived if certain actions are undertaken to refinance the first business dayfacility by that date. We recorded the contingent consent fee as part of 2018 and 2019, and a pro rated amount is payable ondeferred financing fees in other current assets in the first business day of 2020. A deferred fee of 2.5% is charged,Condensed Consolidated Balance Sheets because it has been earned but may be reducedwaived, and it is being amortized to interest expense. See further discussion in Note 19. Amendment No. 16 to the U.S. Revolving Credit Facility also established a deferred ticking fee of 1.0% of total availability that is payable if certain actions are not undertaken to refinance the facility by upDecember 15, 2019, in addition to 1.5% if

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an incremental 1.0% per month after December 15, 2019.  No expense has been recognized for the Company achieves certain asset sales.deferred ticking fee because the company believes it is not probable of being earned by the lenders.

The Amended Credit Agreement includes financial covenants that are tested on a quarterly basis, based on the rolling four-quarter period that ends on the last day of each fiscal quarter. After completion of the Rights Offering and the repayment of the outstanding balance of our Second Lien Term Loan Facility, theThese include a maximum permitted senior debt leverage ratio and a minimum consolidated interest coverage ratio, each as defined in the Amended Credit Agreement. Compliance with these ratios was waived with respect to the quarter ended December 31, 2018 and new ratios were established in Amendment No. 16 commencing with the quarter ended March 31, 2019. Amendment No. 16 also, among other items, (1) modifies the definition of EBITDA in the Credit Agreement to, among other things, include addbacks related to losses in connection with the Vølund projects, fees and expenses related to the Amendment and prior waivers to the Credit Agreement and fees associated with Vølund project related settlement agreements, (2) reduces to $30 million the minimum liquidity we are required to maintain at the time of any credit extension request and at the last business day of any calendar month, (3) allows for the issuance of up to $20.0 million of new letters of credit with respect to any future Vølund project, (4) changes the consolidated interest coverage and senior leverage coverage covenant ratios, (5) decreases the relief period borrowing sublimit, (6) changes or removes certain contract completion milestones that we had been required to meet in connection with one renewable energy project, (7) permits letters of credit to expire one year after the maturity of the revolving credit facility, (8) creates a new event of default for failure to terminate the existing revolving credit facility on or prior to March 15, 2020, (9) establishes a deferred ticking fee of 1.0% if certain actions are not undertaken to refinance the facility by December 15, 2019, in addition to an incremental 1.0% per month after December 15, 2019 and (10) provides for a contingent consent fee of 4.0% if certain actions are not undertaken to refinance the facility by December 15, 2019. Amendment No. 17, among other items, (1) clarifies from Amendment No. 16 the definition of the amounts that can be used in calculating the loss basket for certain Vølund contracts, and (2) resets the loss basket for certain Vølund contracts to $15.0 million to align with the clarification commencing with the quarter ending March 31, 2019.

Effective beginning April 5, 2019 with Amendment No. 16, the remaining maximum permitted senior debt leverage ratios, as defined in the Amended Credit Agreement, is:are as follows:
9.75:1.0
9.25:1.00 for the quartersquarter ending June 30, 2018 and2019
6.75:1.00 for the quarter ending September 30, 2018,2019
4.00:1.06.00:1.00 for the quarter ending December 31, 2018,2019
3.50:1.01.00 for the quarter ending March 31, 2019, and2020
2.25:1.03.25:1.00 for the quartersquarter ending June 30, 2020
Effective beginning April 5, 2019 and each quarter thereafter.

After completion ofwith Amendment No. 16, the Rights Offering and the repayment of the outstanding balance of our Second Lien Term Loan Facility, theremaining minimum consolidated interest coverage ratioratios, as defined in the Amended Credit Agreement, is:are as follows:
1.00:1.0
0.90:1.00 for the quarter ending June 30, 2018,2019
1.25:1.01.10:1.00 for the quarter ending September 30, 2018,2019
2.00:1.01.10:1.00 for the quarter ending December 31, 2018,2019
2.50:1.01.50:1.00 for the quarter ending March 31, 2019, and2020
3.50:1.01.75:1.00 for the quartersquarter ending June 30, 2019 and each quarter thereafter.

Consolidated capital expenditures in each fiscal year are limited to $27.5 million.2020

At June 30, 2018,2019, borrowings under the AmendedU.S. Revolving Credit Agreement and foreign facilitiesFacility consisted of $200.4$184.4 million at an effectivea weighted average interest rate of 7.22%9.13%. Usage under the AmendedU.S. Revolving Credit AgreementFacility consisted of $196.3$184.4 million of borrowings, $20.4$29.2 million of financial letters of credit and $157.0$114.8 million of performance letters of credit. After giving effect to the Amendments, atAt June 30, 2018,2019, we had approximately $28.6$18.6 million available for borrowings or to meet letter of credit requirements primarily based on our overall facility size and our borrowing sublimit,sublimit. The closing of the Loibl sale in June 2019 increased our trailing 12 month adjusted EBITDA (as definedborrowing capacity by $8.5 million due to the release of a performance letter of credit, effective June 24, 2019. In July 2019, the U.S. Revolving Credit Facility was reduced by $7.0 million due to the sale of Loibl, in accordance with the terms of the Amended Credit Agreement), and our leverage and interest coverage ratios (as defined in the Amended Credit Agreement) which were 7.51 and 1.94, respectively.Agreement.

As referenced above, our AmendedForeign Revolving Credit Agreement allows for usFacilities

Outside of the United States, we had revolving credit facilities in Turkey that were used to incur upprovide working capital to $30.0 million of net proceeds of last-out loans. On August 9,local operations. At December 31, 2018, we entered into a commitment letter (the “Vintage Commitment Letter”) with Vintage Capital Management LLC (the “Last Out Lender”), a related party, which provides a commitment for anhad aggregate principal amountborrowings under these facilities of last-out loans (the “Last Out Loans”) that, when borrowed, will result$0.6 million whose weighted average interest rate was 40.0%. In 2018, our banking counterparties in us receiving $30.0 millionTurkey began requiring the conversion of aggregate net proceeds. The face principal amount of Last Out Loans is expected to be approximately $36.0 million, which includes the payment of a $2.0 million up-front fee that will be payable to the Last Out Lender on the date of the first funding of the Lastthese

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Out Loansrevolving credit facilities to be denominated in Turkish liras instead of euros, resulting in correspondingly higher market interest rates. As of January 4, 2019, the foreign revolving credit facilities were paid in full and to reflect original issue discount of 10%. The closed.

Last Out Term Loans

Last Out Term Loans will beare incurred under our Amended Credit Agreement and will share on aare pari passu basis with the guaranties and collateral provided thereunder to the existing lenders; provided, that the Last Out Loans will be subordinated in right of payment to the prior payment in full of all amounts owing to the existing lenders. The Last Out Loans will mature and be due and payable in full the day after the current maturity date of the U.S. Revolving Credit Facility.Facility except for certain payment subordination provisions. The Last Out Term Loans will be implemented by way of a further amendment to our Amended Credit Agreement prior to September 30, 2018 and, once implemented, will be available in multiple advancesare subject to the same conditions to borrowing as our existing U.S. Revolving Credit Facility. The first $10.0 million of Last Out Loans will be made available on the date of consummation of the sale of all of the issued and outstanding capital stock of Palm Beach Resource Recovery Corporation, as further described in Note 25. Advances of Last Out Loans thereafter will be made upon our borrowing request but in a formula that results in the aggregate amount of all loans requested being funded on a 50/50 basis between the Last Out Lender and the existing lenders under our U.S. Revolving Credit Facility. Once made, Last Out Loans may be prepaid, subject to the subordination provisions, but not re-borrowed. Last Out Loans will bear interest at a rate per annum equal the then applicable LIBOR rate plus 14.00%, with 5.50% of such interest rate to be paid in cash and the remaining 8.50% payable in kind by adding such accrued interest to the principal amount of the Last Out Loans. Subject to the subordination provisions, the Last Out Loans shall be subject to all of the other same representations and warranties, covenants and events of default under the Amended Credit Agreement. The commitment evidencedIn connection with Amendment No. 16, the maturity date for all Last Out Term Loans was extended to December 31, 2020. As of June 30, 2019 and December 31, 2018, the Last Out Term Loans' net carrying values are presented as a current liability in our Condensed Consolidated Balance Sheets due to the uncertainty of our ability to refinance our U.S. Revolving Credit Facility as required by the Vintage Commitment LetterAmended Credit Agreement (as described above).

As of June 30, 2019, after giving effect to Amendment No. 16, all outstanding Last Out Term Loans bear interest at a fixed rate per annum of 15.5% per annum. of which 7.5% is fully backstopped bypayable in cash and 8% is payable in kind. Upon completion of the 2019 Rights Offering (as defined below) on July 23, 2019, the interest rate on all outstanding Last Out Term Loans under the Amended Credit Agreement became a fixed rate per annum of 12% payable in cash. The total effective interest rate of Tranche A-1 was 15.98% and 25.38% on June 30, 2019 and December 31, 2018, respectively. Interest expense associated with the Last Out Term Loans is detailed in Note 19. Amendment No. 16 also permitted prepayment of up to $86.0 million of the Last Out Term Loans as contemplated under the Equitization Transactions described in Note 18.

Tranche A-1

We borrowed $30.0 million of net proceeds under Tranche A-1 of the Last Out Term Loans from B. Riley FBR, Inc., a related party, in three draws in September and October 2018. In November 2018, Tranche A-1 was assigned to Vintage Capital Management, LLC ("Vintage"), also a related party, who held the full amount of Tranche A-1 at June 30, 2019. The original face principal amount of Tranche A-1 is $30.0 million, which excludes a $2.0 million up-front fee that was added to the principal balance on the first funding date, transaction expenses, paid-in-kind interest, and original issue discounts of 10% for each draw under Tranche A-1.

On April 5, 2019, Amendment No. 16 and the Letter Agreement (defined in Note 18) modified Tranche A-1 by adding a substantive conversion option that required the conversion of the Tranche A-1 to common stock at $0.30 per share in connection with the Equitization Transactions described in Note 18, which was conditioned upon, among other things, the closing of the 2019 Rights Offering and shareholder approval. Under U.S. GAAP, a debt modification with the same borrower that results in substantially different terms is accounted for as an extinguishment of the existing debt and a reborrowing of new debt. An extinguishment gain or loss is then recognized based on the fair value of the new debt as compared to the carrying value of the extinguished debt. The carrying value of the Tranche A-1 was $33.3 million on April 5, 2019 before the modification. The initial fair value of the new debt was estimated to be its initial principal value of $37.3 million. We recognized a loss on debt extinguishment of $4.0 million in the quarter ended June 30, 2019, primarily representing the unamortized value of the original issuance discount and fees on the extinguished debt.

As of June 30, 2019, Tranche A-1 was payable in full on December 31, 2020, the maturity date. Tranche A-1 may be prepaid, subject to the subordination provisions, but not re-borrowed. As described in Note 18, Tranche A-1 was exchanged for shares on July 23, 2019, after which no remaining amounts were outstanding.

Tranche A-2

On March 19, 2019, we entered into an amendment and limited waiver ("Amendment No. 15") to our Amended Credit Agreement, which allowed us to borrow $10.0 million of net proceeds from B. Riley, a related party, under a Tranche A-2 of Last Out Term Loans, which were fully borrowed on March 20, 2019. Interest rates were adjusted with Amendment No. 16 as described above. The total effective interest rate of Tranche A-2 was 15.93% on June 30, 2019. As of June 30, 2019, Tranche A-2 was payable in full on December 31, 2020 and may be prepaid, subject to the subordination provisions, but not re-borrowed. Interest rates of Tranche A-2 are described above. As described in Note 18, Tranche A-2 was fully repaid on July 23, 2019 with proceeds from the 2019 Rights Offering as part of the Equitization Transactions.


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Tranche A-3

Under Amendment No. 16, we borrowed $150.0 million face value from B. Riley, a related party, under a Tranche A-3 of Last Out Term Loans. The $141.4 million net proceeds from Tranche A-3 were primarily used to pay the amounts due under the settlement agreements covering certain European Vølund loss projects as described in Note 4, with the remainder used for working capital and general corporate purposes. Tranche A-3 included an original issue discount of 3.2% of the gross cash proceeds. An additional discount was recorded upon shareholder approval of the warrants and Equitization Transactions. These additional discounts totaled $8.1 million, which included $6.1 million for the estimated fair value of warrants issued to B. Riley, a related party, as described in Note 15 and Note 18 and $2.0 million for the intrinsic value of the beneficial conversion feature that allows conversion of a portion of the Tranche A-3 to equity under the Backstop Commitment described in Note 18. Both the warrants and the Backstop Commitment were contemplated in connection of the original extension of Tranche A-3.

Interest rates for Tranche A-3 are described above. The total effective interest rate of Tranche A-3 was 23.79% on June 30, 2019. Tranche A-3 may be prepaid, subject to the subordination provisions and as contemplated under the Equitization Transactions as described above and in Note 18, but not re-borrowed. As part of the July 23, 2019 Equitization Transactions described in Note 18, the total prepayment of principal of Tranche A-3 of the Last Out Term Loans was $39.7 million inclusive of the $8.2 million of principal value exchanged for common shares under the Backstop Commitment.
Immediately after completion of the Equitization Transactions, the Tranches A-1 and A-2 of the Last Out Term Loans were fully extinguished, and $114.0 million including accrued paid-in-kind interest was outstanding on Tranche A-3, and it bears interest at a fixed rate of 12.0% per annum payable in cash.

Equitization Transactions

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

A $50.0 million rights offering ("2019 Rights Offering") as described in Note 17, for which B. Riley FBR, Inc. andagreed to act as a backstop, by purchasing from us, at a price of $0.30 per share, all unsubscribed shares in the Last Out Lender.  In the event that the Last Out Lender is unable to,2019 Rights Offering for cash or fails to, fund any of its commitments under the Vintage Commitment Letter, then B. Riley FBR, Inc. will be required to do so.

Second Lien Term Loan

On August 9, 2017, we entered into the Second Lien Term Loan Facility withby exchanging an affiliate of AIP. The Second Lien Term Loan Facility consisted of a second lien term loan in theequal principal amount of $175.9 million, alloutstanding Tranche A-2 or Tranche A-3 Last Out Term Loans (the "Backstop Commitment"). Under the 2019 Rights Offering, 166,666,667 shares of common stock were issued (16,666,666 shares of common stock after the reverse stock split), of which we borrowed on August 9, 2017, and a delayed draw term loan125,891,701 shares (12,589,170 shares after the reverse stock split) were purchased through the exercise of rights in the rights offering generating $37.8 million of cash, 13,333,333 shares (1,333,333 shares after the reverse stock split) were issued through assigned portions of the Backstop Commitment generating an additional $4.0 million of cash, and the final 27,441,633 shares (2,744,163 shares after the reverse split) were exchanged for $8.2 million of principal amountvalue including accrued paid-in-kind interest of up to $20.0 million, which was drawnTranche A-3 Last Out Term Loans. Shares issued in a single draw on December 13, 2017. Through March 7, 2018, the interest rates were 10%2019 Rights Offering and 12% per annum under the second lien term loanBackstop Commitment were then subject to the one-for-ten reverse stock split described in Note 1 and the delayed draw term loan, respectively; each increased by 200 basis points to 12% and 14% per annum, respectively, beginning March 7, 2018, and in each case interest was payable quarterly.Note 16.

Using $214.9$10.3 million of the proceeds from theof 2019 Rights Offering described above, wewere used to fully repaidrepay Tranche A-2 of the Second LienLast Out Term Loan Facility (described below),Loans including $2.3accrued paid-in-kind interest.
$31.5 million of the proceeds of the 2019 Rights Offering were used to partially prepay Tranche A-3 of the Last Out Term Loans including paid-in-kind interest. The total prepayment of principal of Tranche A-3 of the Last Out Term Loans was $39.7 million inclusive of the $8.2 million of principal value exchanged for common shares under the Backstop Commitment described above.
All $38.2 million of outstanding principal of Tranche A-1 of the Last Out Term Loans including accrued paid-in-kind interest was exchanged for 127,207,856 shares (12,720,785 shares after the reverse stock split) of common stock (107,207,856 shares (10,720,785 shares after the reverse stock split) to Vintage and 20,000,000 shares (2,000,000 shares after the reverse stock split) to affiliates of B. Riley) at a price of $0.30 per share (the "Debt Exchange"). Prior to the Debt Exchange, $6.0 million of Tranche A-1 was held by affiliates of B. Riley and the remainder was held by Vintage. Shares issued under the Debt Exchange were then subject to the one-for-ten reverse stock split described in Note 1 and Note 16.

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16,666,667 warrants, each to purchase one share of our common stock at an exercise price of $0.01 per share were issued to B. Riley. The warrants were subsequently adjusted for the one-for-ten reverse stock split described in Note 1, which adjusted the number of warrants to 1,666,666 and the exercise price remained $0.01.

Immediately after completion of the Equitization Transactions, Tranches A-1 and A-2 of the Last Out Term Loans were fully extinguished, and Tranche A-3 of the Last Out Term Loans had a balance of $114.0 million, including accrued paid-in-kind interest, which bears interest at a fixed rate of 12.0% per annum payable in cash and continues to bear the other terms described in Note 14. Based on May 4, 2018. A loss on extinguishment of this debt of approximately $49.2 million was recognized in the second quarter of 2018Schedule 13D filings made by B. Riley and Vintage, as a result of the $32.5 million unamortized debt discount on the dateEquitization Transactions, Vintage increased its beneficial ownership in us to 32.8% and B. Riley increased its beneficial ownership in us to 18.4% inclusive of the repayment, $16.2 million of make whole interest, and $0.5 million of fees associated with the extinguishment.

Foreign Revolving Credit Facilities

Outside of the United States, we have revolving credit facilities in Turkey that are used to provide working capital to our operations in that country. These foreign revolving credit facilities allow us to borrow up to $4.1 million in aggregate and each have less than a year remaining to maturity. At June 30, 2018, we had $4.1 million in borrowings outstanding under these foreign revolving credit facilities at an effective weighted-average interest rate of 9.57%.warrants held by B. Riley.

Letters of Credit, Bank Guarantees and Surety Bonds

Certain subsidiaries primarily outside of the United States have credit arrangements with various commercial banks and other financial institutions for the issuance of letters of credit and bank guarantees in association with contracting activity. The aggregate value of all such letters of credit and bank guarantees opened outside of the U.S. Revolving Credit Facility as of June 30, 20182019 and December 31, 20172018 was $195.4$129.2 million and $269.1$175.9 million, respectively. The aggregate value of all such letters of credit and bank guarantees that are partially secured by the U.S. Revolving Credit Facility as of June 30, 2018 was $67.2 million. The aggregate value of the letters of credit provided by the U.S. Revolving Credit Facility in support ofbackstopping letters of credit outside of the United Statesor bank guarantees was $38.8$31.3 million as of June 30, 2018.2019. Of the letters of credit issued under the U.S. Revolving Credit Facility, $28.5 million are subject to foreign currency revaluation.

We have posted surety bonds to support contractual obligations to customers relating to certain contracts. We utilize bonding facilities to support such obligations, but the issuance of bonds under those facilities is typically at the surety's discretion. Although there can be no assurance that we will maintain our surety bonding capacity, we believe our current capacity is adequate to support our existing contract requirements for the next 12 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

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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 June 30, 2018,2019, bonds issued and outstanding under these arrangements in support of contracts totaled approximately $426.1$215.1 million. The aggregate value of the letters of credit provided by the U.S. Revolving Credit facility backstopping surety bonds was $22.7 million.

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

2019 Rights Offering - Subsequent Event

On June 28, 2019, we distributed to holders of our common stock one nontransferable subscription right to purchase 0.986896 common shares for each common share held as of 5:00 p.m., New York City time, on June 27, 2019 at a subscription price of $0.30 per whole share of common stock (the "2019 Rights Offering"). The 2019 Rights Offering expired at 5:00 p.m., New York City time, on July 18, 2019, and settled on July 23, 2019. The Company did not issue fractional rights or pay cash in lieu of fractional rights. The 2019 Rights Offering did not include an oversubscription privilege. Direct costs of the 2019 Rights Offering totaled $0.7 million for the three and six months ended June 30, 2019.

The 2019 Rights Offering resulted in the issuance of 139.3 million common shares (13.9 million common shares after the reverse stock split) as a result of the exercise of subscription rights in the offering. Gross proceeds from the 2019 Rights Offering were $41.8 million, $10.3 million which was used to fully repay Tranche A-2 of the Last Out Term Loans and the remaining $31.5 million was used to reduce outstanding borrowings under Tranche A-3 of the Last Out Term Loans. Concurrently with the closing of the 2019 Rights Offering, and in satisfaction of the Backstop Commitment as described in Note 18, the Company issued an aggregate of 27.4 million common shares (2.7 million common shares after the reverse stock split) in exchange for a portion of the Tranche A-3 Last Out Term Loans totaling $8.2 million, to B. Riley, a related party, as described in Note 24. The 2019 Rights Offering was pursuant to the April 5, 2019 Letter Agreement and the Equitization Transactions described in Note 18 and were approved by stockholders at the Company's annual stockholder meeting on June 14, 2019.

2018 Rights Offering

On March 19, 2018, we distributed to holders of our common stock one nontransferable subscription right to purchase 1.4 million common shares for each common share held as of 5:00 p.m., New York City time, on March 15, 2018 at a price of

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$3.00 per common share (the "2018 Rights Offering"). On April 10, 2018, we extended the expiration date and amended certain other terms regarding the 2018 Rights Offering. As amended, each right entitled holders to purchase 2.8 million common shares at a price of $2.00 per share. The 2018 Rights Offering expired at 5:00 p.m., New York City time, on April 30, 2018. The Company did not issue fractional rights or pay cash in lieu of fractional rights. The 2018 Rights Offering did not include an oversubscription privilege.

The 2018 Rights Offering resulted in the issuance of 124.3 million common shares (12.4 million common shares after the reverse stock split) on April 30, 2018. Gross proceeds from the 2018 Rights Offering were $248.4 million. Of the proceeds received, $214.9 million was used to fully repay the Second Lien Credit Agreement, including $2.3 million of accrued interest, and the remainder was used for working capital purposes. Direct costs of the 2018 Rights Offering totaled $3.3 million. The shares issued in the 2018 Rights Offering were then subject to the one-for-ten reverse stock split described in Note 1.

Warrants

On July 23, 2019, 16,666,667 warrants were issued to certain entities affiliated with B. Riley in connection with the Equitization Transactions described in Note 18. Each warrant was to purchase one share of our common stock at an exercise price of $0.01 per share were issued to B. Riley. The warrants were subsequently adjusted for the one-for-ten reverse stock split described in Note 1, which adjusted the number of warrants to 1,666,666 and the exercise price remained $0.01 per share.

The warrants were contemplated in the April 5, 2019 Letter Agreement (defined in Note 18) and on June 14, 2019, the issuance of the warrants was approved by stockholders in the Company's annual stockholder meeting, which established the grant date for accounting purposes. The grant date fair value of the warrants was estimated to be $6.1 million using the Black-Scholes option pricing model. The warrants may not be put back to the Company for cash, and they qualify for equity classification. The grant date value of the warrants was included as part of the original-issue discount based on the relative fair value method for Tranche A-3 of the Last Out Term Loans described in Note 14 because the value was part of the consideration required by the Tranche A-3 lender in order to extend the Tranche A-3 loans.

Common Shares

On June 14, 2019, after approval of the stockholders at the Company's annual meeting of stockholders, the Company amended its Amended and Restated Certificate of Incorporation to increase the authorized number of shares of the Company's common stock from 200,000,000 shares to 500,000,000 shares to allow for the Equitization Transactions described in Note 18. The reverse stock split on July 24, 2019, described in Note 1 did not affect the number of authorized shares.

On June 14, 2019, at the Company's annual meeting of stockholders, upon the recommendation of the Company's Board of Directors, the stockholders approved the Babcock & Wilcox Enterprises, Inc. Amended and Restated 2015 Long-Term Incentive Plan (amended and restated as of June 14, 2019) (the "Fourth Amended and Restated 2015 LTIP"), which became effective upon such stockholder approval. The Fourth Amended and Restated 2015 LTIP, among other immaterial changes, increases the number of shares available for awards by 17,000,000 shares to a total of 29,271,731 shares of the Company's common stock, subject to adjustment as provided under the plan document. The increase in the maximum number of shares available for awards will allow us to establish the previously announced equity pool of 16,666,666 shares of its common stock for issuance for long-term incentive planning purposes.

Second Lien Term Loan Extinguished in 2018

On August 9, 2017, we entered into a second lien credit agreement (the "Second Lien Credit Agreement") with an affiliate of AIP, governing the Second Lien Term Loan Facility. The Second Lien Term Loan Facility consisted of a second lien term loan in the principal amount of $175.9 million, all of which was borrowed on August 9, 2017, and a delayed draw term loan facility in the principal amount of up to $20.0 million, which was drawn in a single draw on December 13, 2017.

On May 4, 2018, we fully repaid the Second Lien Term Loan Facility using $212.6 million of the proceeds from the 2018 Rights Offering, plus accrued interest of $2.3 million. A loss on extinguishment of this debt of approximately $49.2 million was recognized in the second quarter of 2018 as a result of the remaining $32.5 million unamortized debt discount on the date

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of the repayment, $16.2 million of make-whole interest, and $0.5 million of fees associated with the extinguishment. See Note 19 for the Second Lien Term Loan Facility's interest expense.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

For a summary of the critical accounting policies and estimates that we use in the preparation of our unaudited condensed consolidated financial statements,Condensed Consolidated Financial Statements, see "Critical Accounting Policies and Estimates" in our Annual Report. There have been no significant changes to our policies during the quartersix months ended June 30, 2018.2019.

Adoption of ASC Topic 606, "Revenue from Contracts with Customers,"ASU 2016-02, Leases (Topic 842), did not have a significantmaterial effect on our critical accounting policies and estimates. See Note 5to the condensed and consolidated financial statements9 for further discussion.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Our exposures to market risks have not changed materially from those disclosed under "Quantitative and Qualitative Disclosures About Market Risk" in our Annual Report.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

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

Based on the evaluation referred to above, our Chief Executive Officer and Chief Financial Officer concluded that the design and operation of our disclosure controls and procedures are effective as of June 30, 20182019 to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and such information is accumulated and communicated to management as appropriate to allow timely decisions regarding disclosure.


Changes in Internal Control Over Financial Reporting

Beginning January 1, 2018,2019, we implemented ASC 606, "Revenue from Contracts with Customers." ASU 2016-02, Leases (Topic 842). Although adoption of the new revenue-lease standard is expected to havehad an immaterial impact on our ongoing net income,results of operations, it materially impacted our Condensed Consolidated Balance Sheets. Therefore, we did implementimplemented changes to our processes related to revenue recognitionour accounting for leases and the related control activities within them.activities. These changes included the development ofimplementing new policies based on the five-step model provided in the new revenue standard, new training, ongoing contract review requirements,lease software and gathering of information provided for disclosures.training.

Other than the process changes described above, thereThere were no other changes in our internal control over financial reporting during the quartersix months ended June 30, 20182019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



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PART II - OTHER INFORMATION

Item 1. Legal Proceedings

For information regarding ongoing investigations and litigation, see Note 2021 to the unaudited condensed consolidated financial statementsCondensed Consolidated Financial Statements in Part I of this report, which we incorporate by reference into this Item.

Additionally, the Company has received subpoenas from the staff of the SEC in connection with an investigation into the accounting charges and related matters involving its Vølund & Other Renewable segment in 2016, 2017 and 2018. We are cooperating with the staff of the SEC related to the subpoenas and investigation. We cannot predict the length, scope or results of the investigation, or the impact, if any, of the investigation on our results of operations.

Item 1A. Risk Factors

We are subject to various risks and uncertainties in the course of our business. The discussion of such risks and uncertainties may be found under "Risk Factors' in our Annual Report. ThereOther than the risk factors below, there have been no other material changes to such risk factors.

A small number of our stockholders could significantly influence our business and affairs.
As of July 23, 2019, Steel Partners Holdings, L.P., Vintage Capital Management, LLC ("Vintage"), and B. Riley FBR, Inc. ("B. Riley") beneficially owned approximately 12.4%, 32.8%% and 18.4% of our outstanding common stock and warrants, respectively (based on each entity's holdings reported on its most recent Schedule 13D filed with the SEC). Accordingly, a small number of our stockholders could be able to control matters requiring approval by our stockholders, including the election of directors and the approval of mergers or other business combination transactions. These stockholders can also take actions that have the effect of delaying or preventing a change of control of our company or discouraging others from making tender offers for our common stock, which could prevent other stockholders from receiving a premium for their shares. Further, these stockholders may also choose to sell a controlling position in our company in a privately negotiated transaction where they (but not our other stockholders) realize a control premium in connection with the sale. Any of these actions may be taken even if other stockholders oppose them.

B. Riley and Vintage are each significant stockholders of, and lenders to, the Company. A total of six of our seven directors on the Board have been designated by either Vintage or B. Riley pursuant to the Investor Rights Agreement. In addition, we are party to a consulting agreement with B. Riley for the services of our Chief Executive Officer. We are also party to a registration rights agreement with each of B. Riley and Vintage regarding the shares of common stock they hold. These various agreements and relationships may result in B. Riley and Vintage, and any associated directors and officers of the Company, having interests that may be different from those of our stockholders generally. B. Riley and Vintage are financial firms that invest in other companies and securities, including companies that may be our competitors.

We may become a "controlled company" within the meaning of NYSE listing standards. Consequently, our stockholders may not have the same protections afforded to stockholders of companies that are subject to all of the NYSE corporate governance rules and requirements.

B. Riley and Vintage, together, own more than 50% of our common stock, and, as a result, we may at some point in the future seek to be treated as a controlled company within the meaning of the NYSE listing standards. Under the NYSE listing standards, a controlled company may elect to not comply with certain NYSE corporate governance standards, including the requirements that (i) a majority of the Board of Directors consist of independent directors, (ii) it maintain a nominating and corporate governance committee that is composed entirely of independent directors with a written charter addressing the committee's purpose and responsibilities, (iii) it have a compensation committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities, and (iv) the requirement for an annual performance evaluation of the nominating and corporate governance and compensation committees. We may in the future utilize any of these exemptions and others afforded to controlled companies, subject to the terms of any settlement agreement we may enter into in connection with the Federal Court Derivative Litigation and State Court Derivative Litigation described in Note 21 to the unaudited Condensed Consolidated Financial Statements in Part I of this report. Consequently, you may not have the same protections afforded to stockholders of companies that are subject to all of the NYSE corporate

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governance rules and requirements. Our status as a controlled company could make our common stock less attractive to some investors or otherwise harm our stock price.

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

In August 2015, we announcedaccordance with the provisions of the employee benefit plans, the Company acquired the following shares in connection with the vesting of employee restricted stock that our Board of Directors authorized a sharerequire us to repurchase program.shares to satisfy employee statutory income tax withholding obligations. The following table provides information on our purchasesidentifies the number of equity securitiescommon shares and average purchase price paid by the Company, for each month during the quarter ended June 30, 2018. Any shares purchased that were not part of a publicly announced plan or 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.2019.

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)
April 1, 2018 - April 30, 2018 196 $— $100,000
May 1, 2018 - May 31, 2018 3,410 $— $100,000
June 1, 2018 - June 30, 2018 7,140 $— $100,000
Total 10,746    
Period
Total number of shares purchased (1) (2)
Average price paid per share (2)
Total number of shares purchased as part of publicly announced plans or programsApproximate dollar value of shares that may yet be purchased under the plans or programs
April 201959
$4.40

$
May 2019126
$3.10

$
June 2019
$

$
Total185
$3.52

$
(1) Repurchased shares are recorded in treasury stock in our Condensed Consolidated Balance Sheets.
(1)Includes 196, 3,410 and 7,140 shares repurchased in April, May and June, respectively, pursuant to the provisions of employee benefit plans that require us to repurchase shares to satisfy employee statutory income tax withholding obligations.
(2)On August 4, 2016, we announced that our board of directors authorized the repurchase of an indeterminate number of our shares of common stock in the open market at an aggregate market value of up to $100 million over the next twenty-four months. As of August 7, 2018, we have not made any share repurchases under the August 4, 2016 share repurchase authorization.
(2) Total number of shares purchased and average price paid per share reflect the one-for-ten reverse stock split on July 24, 2019 as described in Note 1.


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Item 6. Exhibits
 Stock Purchase Agreement, dated asRestated Certificate of June 5, 2018, among B&W Equity Investments, LLC, Babcock & Wilcox MEGTEC Holdings, Inc., Babcock & Wilcox MEGTEC, LLC, The Babcock & Wilcox Company,Incorporation (incorporated by reference to Exhibit 3.1 to the Babcock & Wilcox Enterprises, Inc., DURR, Inc., and DURR Aktiengesellschaft Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 (File No. 001-36876))
   
 Equity Commitment agreement, dated April 10, 2018, byCertificate of Amendment of the Amended and betweenRestated Certificate of Incorporation of Babcock & Wilcox Enterprises, Inc. and Vintage Capital Management, LLC, as filed with the Secretary of State of the State of Delaware on June 14, 2019 (incorporated by reference to the Babcock & Wilcox Enterprises, Inc. Current Report on Form 8-K filed April 11, 2018on June 17, 2019 (File No. 001-36786)001-36876))
  
 Certificate of Amendment of the Restated Certificate of Incorporation, as amended, of Babcock & Wilcox Enterprises, Inc. Amended and Restated 2015 Long-Term Incentive Plan (Amended and Restated, as filed with the Secretary of May 16, 2018)State of the State of Delaware on July 23, 2019 (incorporated by reference to the Babcock & Wilcox Enterprises, Inc. Current Report on Form 8-K filed May 21, 2018on July 24, 2019 (File No. 001-36876))
   
 Amendment No. 6,16, dated April 10, 2018,5, 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 the Babcock & Wilcox Enterprises, Inc. Current Report on Form 8-K filed on April 11, 20185, 2019 (File No. 001-36876))
Letter Agreement, dated April 5, 2019, among Babcock & Wilcox Enterprises, Inc., B. Riley FBR, Inc. and Vintage Capital Management, LLC (incorporated by reference to the Babcock & Wilcox Enterprises, Inc. Current Report on Form 8-K filed on April 5, 2019 (File No. 001-36876))
Backstop Exchange Agreement, dated as of April 30, 2019, by and among Babcock & Wilcox Enterprises, Inc. and B. Riley FBR, Inc. (incorporated by reference to the Babcock & Wilcox Enterprises, Inc. Current Report on Form 8-K filed on April 30, 2019 (File No. 001-36876))
   
 Amendment No. 7, dated May 31, 2018, to CreditInvestor Rights Agreement, dated as of May 11, 2015,April 30, 2019, by and among Babcock & Wilcox Enterprises, Inc., asB. Riley FBR, Inc. and Vintage Capital Management, LLC (incorporated by reference to the borrower, Bank of America, N.A., as Administrative Agent, and the other lenders party theretoBabcock & Wilcox Enterprises, Inc. Current Report on Form 8-K filed on April 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 the Babcock & Wilcox Enterprises, Inc. Executive SeveranceCurrent Report on Form 8-K filed on April 30, 2019 (File No. 001-36876))
Form of Warrant (incorporated by reference to the Babcock & Wilcox Enterprises, Inc. Current Report on Form 8-K filed on July 24, 2019 (File No. 001-36876))
Babcock & Wilcox Enterprises, Inc. Amended and Restated 2015 Long-Term Incentive Plan (Amended and Restated as revised effectiveof June 1, 201814, 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).
   
  Rule 13a-14(a)/15d-14(a) certification of Chief Executive Officer
  
  Rule 13a-14(a)/15d-14(a) certification of Chief Financial Officer
  
  Section 1350 certification of Chief Executive Officer
  
  Section 1350 certification of Chief Financial Officer
  
101.INS  XBRL Instance Document
  
101.SCH  XBRL Taxonomy Extension Schema Document
  
101.CAL  XBRL Taxonomy Extension Calculation Linkbase Document
  
101.LAB  XBRL Taxonomy Extension Label Linkbase Document
  
101.PRE  XBRL Taxonomy Extension Presentation Linkbase Document
  
101.DEF  XBRL Taxonomy Extension Definition Linkbase Document
*
Certain schedules and exhibits toThe Company has omitted certain information contained in this agreement have been omittedexhibit pursuant to ItemRule 601(b)(2)(10) of Regulation S-K. A copy of anyThe omitted schedule and/or exhibit will be furnishedinformation is not material and, if publicly disclosed, would likely cause competitive harm to the SEC upon request.

Company.


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SIGNATURES

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

August 9, 2018  BABCOCK & WILCOX ENTERPRISES, INC.
   
August 8, 2019By:/s/ Daniel W. HoehnLouis Salamone
  Daniel W. HoehnLouis Salamone
  
Executive Vice President, Controller &Chief Financial Officer and Chief Accounting Officer
(Principal Financial and Accounting Officer and Duly Authorized Representative)


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