UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2022March 31, 2023
OR
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☐ | 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)
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Delaware | | 47-2783641 |
(State or other Jurisdiction of Incorporation or Organization) | | (I.R.S. Employer Identification No.) |
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1200 East Market Street, Suite 650 | | |
Akron, Ohio | | 44305 |
(Address of Principal Executive Offices) | | (Zip Code) |
Registrant's Telephone Number, Including Area Code: (330) 753-4511
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, $0.01 par value | BW | New York Stock Exchange |
8.125% Senior Notes due 2026 | BWSN | New York Stock Exchange |
6.50% Senior Notes due 2026 | BWNB | New York Stock Exchange |
7.75% Series A Cumulative Perpetual Preferred Stock | BW PRA | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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Large accelerated filer | | ☐ | | Accelerated filer | | ☒ |
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Non-accelerated filer | | ☐ | | Smaller reporting company | | ☐ |
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| | | | Emerging growth company | | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
The number of shares of the registrant's common stock outstanding at October 31, 2022May 8, 2023 was 88,633,634.88,752,057.
***** Cautionary Statement Concerning Forward-Looking Information *****
This Quarterly Report on Form 10-Q, including Management's Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical or current fact included in this Quarterly Report are forward-looking statements. You should not place undue reliance on these statements. Forward-looking statements include words such as “expect,” “intend,” “plan,” “likely,” “seek,” “believe,” “project,” “forecast,” “target,” “goal,” “potential,” “estimate,” “may,” “might,” “will,” “would,” “should,” “could,” “can,” “have,” “due,” “anticipate,” “assume,” “contemplate,” “continue” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operational performance or other events.
These forward-looking statements are based on management’s current expectations and involve a number of risks and uncertainties, including, among other things, the impact of COVID-19 or other similar global health crises, the impact of the ongoing conflict in Ukraine, the impact of global macroeconomic conditions, including inflation and volatility in the capital markets; the impact of the ongoing conflict in Ukraine; our ability to integrate acquired businesses and the impact of those acquired businesses on our cash flows, results of operations and financial condition, including our recent acquisitions of Babcock & Wilcox Solar Energy, Inc. ("Babcock & Wilcox Solar", "B&W Solar"), formerly known as Fosler Construction Company Inc. (also referred toand/or Fosler, Babcock & Wilcox Renewable Service A/S, formerly known as Fosler Solar and Fosler, herein), VODA A/S ("VODA"), Fossil Power Systems, Inc. ("FPS"), and Optimus Industries, LLC;LLC ("Optimus") and certain assets of Hamon Research-Cottrell, Inc. ("Hamon"); our recognition of any asset impairments as a result of any decline in the value of our assets or our efforts to dispose of any assets in the future; our ability to obtain and maintain sufficient financing to provide liquidity to meet our business objectives, surety bonds, letters of credit and similar financing; our ability to comply with the requirements of, and to service the indebtedness under, our debt facility agreements; our ability to pay dividends on our 7.75% Series A Cumulative Perpetual Preferred Stock; our ability to make interest payments on our 8.125% senior notes due 2026 and our 6.50% notes due 2026; the highly competitive nature of our businesses and our ability to win work, including identified project opportunities in our pipeline; general economic and business conditions, including changes in interest rates and currency exchange rates; cancellations of and adjustments to backlog and the resulting impact from using backlog as an indicator of future earnings; our ability to perform contracts on time and on budget, in accordance with the schedules and terms established by the applicable contracts with customers; failure by third-party subcontractors, partners or suppliers to perform their obligations on time and as specified; delays initiated by our customers; our ability to successfully resolve claims by vendors for goods and services provided and claims by customers for items under warranty; our ability to realize anticipated savings and operational benefits from our restructuring plans, and other cost savings initiatives; our ability to successfully address productivity and schedule issues in our B&W Renewable, B&W Environmental and B&W Thermal segments; our ability to successfully partner with third parties to win and execute contracts within our B&W Environmental, B&W Renewable and B&W Thermal segments; changes in our effective tax rate and tax positions, including any limitation on our ability to use our net operating loss carryforwards and other tax assets; our ability to successfully manage research and development projects and costs, including our efforts to successfully develop and commercialize new technologies and products; the operating risks normally incident to our lines of business, including professional liability, product liability, warranty and other claims against us; difficulties we may encounter in obtaining regulatory or other necessary permits or approvals; changes in actuarial assumptions and market fluctuations that affect our net pension liabilities and income; our ability to successfully compete with current and future competitors; our ability to negotiate and maintain good relationships with labor unions; changes in pension and medical expenses associated with our retirement benefit programs; social, political, competitive and economic situations in foreign countries where we do business or seek new business,business; the impact of COVID-19 or other similar global health crises, and the other factors specified and set forth under "Risk Factors" in our periodic reports filed with the Securities and Exchange Commission, including our most recent annual report on Form 10-K filed on March 8, 2022.16, 2023.
These forward-looking statements are made based upon detailed assumptions and reflect management’s current expectations and beliefs. While we believe that these assumptions underlying the forward-looking statements are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect actual results.
The forward-looking statements included herein are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events, or otherwise, except as required by law.
PART I
ITEM 1. Condensed Consolidated Financial Statements
BABCOCK & WILCOX ENTERPRISES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
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| Three Months Ended September 30, | | Nine Months Ended September 30, |
(in thousands, except per share amounts) | 2022 | | 2021 | | 2022 | | 2021 | | |
Revenues | $ | 214,870 | | | $ | 159,960 | | | $ | 639,938 | | | $ | 531,068 | | | |
Costs and expenses: | | | | | | | | | |
Cost of operations | 176,085 | | | 114,643 | | | 512,485 | | | 404,827 | | | |
Selling, general and administrative expenses | 39,356 | | | 38,206 | | | 127,351 | | | 112,367 | | | |
Goodwill impairment | 7,224 | | | — | | | 7,224 | | | — | | | |
Advisory fees and settlement costs | 1,198 | | | 1,841 | | | 10,275 | | | 9,658 | | | |
Restructuring activities | 359 | | | 4,575 | | | 351 | | | 7,968 | | | |
Research and development costs (benefit) | 994 | | | (228) | | | 2,850 | | | 969 | | | |
Gain on asset disposals, net | (28) | | | (13,838) | | | (7,165) | | | (15,804) | | | |
Total costs and expenses | 225,188 | | | 145,199 | | | 653,371 | | | 519,985 | | | |
Operating (loss) income | (10,318) | | | 14,761 | | | (13,433) | | | 11,083 | | | |
Other expense: | | | | | | | | | |
Interest expense | (11,320) | | | (8,330) | | | (33,249) | | | (30,574) | | | |
Interest income | 103 | | | 130 | | | 323 | | | 385 | | | |
Gain on debt extinguishment | — | | | — | | | — | | | 6,530 | | | |
Loss on sale of business | — | | | — | | | — | | | (2,240) | | | |
Benefit plans, net | 7,424 | | | 9,867 | | | 22,279 | | | 24,889 | | | |
Foreign exchange | (2,007) | | | (1,673) | | | (3,218) | | | (1,056) | | | |
Other income (expense) – net | 454 | | | (806) | | | (169) | | | (988) | | | |
Total other expense, net | (5,346) | | | (812) | | | (14,034) | | | (3,054) | | | |
(Loss) income before income tax expense | (15,664) | | | 13,949 | | | (27,467) | | | 8,029 | | | |
Income tax expense | 4,902 | | | 301 | | | 4,777 | | | 6,683 | | | |
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Net (loss) income | (20,566) | | | 13,648 | | | (32,244) | | | 1,346 | | | |
Net loss (income) attributable to non-controlling interest | 2,800 | | | (5) | | | 3,647 | | | (41) | | | |
Net (loss) income attributable to stockholders | (17,766) | | | 13,643 | | | (28,597) | | | 1,305 | | | |
Less: Dividend on Series A preferred stock | 3,715 | | | 3,681 | | | 11,145 | | | 5,412 | | | |
Net (loss) income attributable to stockholders of common stock | $ | (21,481) | | | $ | 9,962 | | | $ | (39,742) | | | $ | (4,107) | | | |
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Basic (loss) earnings per share | $ | (0.24) | | | $ | 0.12 | | | $ | (0.45) | | | $ | (0.05) | | | |
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Diluted (loss) earnings per share | $ | (0.24) | | | 0.11 | | | $ | (0.45) | | | $ | (0.05) | | | |
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Shares used in the computation of (loss) earnings per share: | | | | | | | | | |
Basic | 88,321 | | | 86,002 | | | 88,115 | | | 81,088 | | | |
Diluted | 88,321 | | | 86,964 | | | 88,115 | | | 81,088 | | | |
See accompanying notes to Condensed Consolidated Financial Statements.
BABCOCK & WILCOX ENTERPRISES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)OPERATIONS
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| Three Months Ended September 30, | | Nine Months Ended September 30, |
(in thousands) | 2022 | | 2021 | | 2022 | | 2021 | | |
Net (loss) income | $ | (20,566) | | | $ | 13,648 | | | $ | (32,244) | | | $ | 1,346 | | | |
Other comprehensive (loss) income: | | | | | | | | | |
Currency translation adjustments ("CTA") | (13,344) | | | (1,292) | | | (24,263) | | | (2,840) | | | |
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Reclassification of CTA to net (loss) income | — | | | — | | | — | | | (4,512) | | | |
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Benefit obligations: | | | | | | | | | |
Pension and post retirement adjustments, net of tax | 198 | | | 197 | | | 593 | | | 593 | | | |
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Other comprehensive loss | (13,146) | | | (1,095) | | | (23,670) | | | (6,759) | | | |
Total comprehensive (loss) income | (33,712) | | | 12,553 | | | (55,914) | | | (5,413) | | | |
Comprehensive income attributable to non-controlling interest | — | | | 25 | | | 959 | | | 18 | | | |
Comprehensive (loss) income attributable to stockholders | $ | (33,712) | | | $ | 12,578 | | | $ | (54,955) | | | $ | (5,395) | | | |
| | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
(in thousands, except per share amounts) | 2023 | | 2022 | | | | | | |
Revenues | $ | 257,247 | | | $ | 204,049 | | | | | | | |
Costs and expenses: | | | | | | | | | |
Cost of operations | 203,771 | | | 163,060 | | | | | | | |
Selling, general and administrative expenses | 51,945 | | | 43,044 | | | | | | | |
| | | | | | | | | |
Advisory fees and settlement costs | (2,463) | | | 3,935 | | | | | | | |
Restructuring activities | 384 | | | 94 | | | | | | | |
Research and development costs | 1,308 | | | 719 | | | | | | | |
Loss (gain) on asset disposals, net | 941 | | | (20) | | | | | | | |
Total costs and expenses | 255,886 | | | 210,832 | | | | | | | |
Operating income (loss) | 1,361 | | | (6,783) | | | | | | | |
Other (expense) income: | | | | | | | | | |
Interest expense | (12,662) | | | (11,267) | | | | | | | |
Interest income | 113 | | | 117 | | | | | | | |
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Benefit plans, net | (109) | | | 7,452 | | | | | | | |
Foreign exchange | (461) | | | 3,085 | | | | | | | |
Other expense – net | (227) | | | (58) | | | | | | | |
Total other expense, net | (13,346) | | | (671) | | | | | | | |
Loss before income tax expense | (11,985) | | | (7,454) | | | | | | | |
Income tax expense | 490 | | | 1,230 | | | | | | | |
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Net loss | (12,475) | | | (8,684) | | | | | | | |
Net (income) loss attributable to non-controlling interest | (21) | | | 420 | | | | | | | |
Net loss attributable to stockholders | (12,496) | | | (8,264) | | | | | | | |
Less: Dividend on Series A preferred stock | 3,715 | | | 3,715 | | | | | | | |
Net loss attributable to stockholders of common stock | $ | (16,211) | | | $ | (11,979) | | | | | | | |
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Basic loss per share | $ | (0.18) | | | $ | (0.14) | | | | | | | |
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Diluted loss per share | $ | (0.18) | | | (0.14) | | | | | | | |
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Shares used in the computation of loss per share: | | | | | | | | | |
Basic | 88,733 | | | 87,992 | | | | | | | |
Diluted | 88,733 | | | 87,992 | | | | | | | |
See accompanying notes to Condensed Consolidated Financial Statements.
BABCOCK & WILCOX ENTERPRISES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
| | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
(in thousands) | 2023 | | 2022 | | | | | | |
Net loss | $ | (12,475) | | | $ | (8,684) | | | | | | | |
Other comprehensive income (loss): | | | | | | | | | |
Currency translation adjustments ("CTA") | 4,592 | | | (4,285) | | | | | | | |
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Benefit obligations: | | | | | | | | | |
Pension and post retirement adjustments, net of tax | 223 | | | 593 | | | | | | | |
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Other comprehensive income ( loss) | 4,815 | | | (3,692) | | | | | | | |
Total comprehensive loss | (7,660) | | | (12,376) | | | | | | | |
Comprehensive income attributable to non-controlling interest | 14 | | | 461 | | | | | | | |
Comprehensive loss attributable to stockholders | $ | (7,646) | | | $ | (11,915) | | | | | | | |
See accompanying notes to Condensed Consolidated Financial Statements.
BABCOCK & WILCOX ENTERPRISES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| (in thousands, except per share amount) | (in thousands, except per share amount) | September 30, 2022 | | December 31, 2021 | (in thousands, except per share amount) | March 31, 2023 | | December 31, 2022 |
Cash and cash equivalents | Cash and cash equivalents | $ | 48,471 | | | $ | 224,874 | | Cash and cash equivalents | $ | 62,760 | | | $ | 76,728 | |
Current restricted cash and cash equivalents | Current restricted cash and cash equivalents | 9,630 | | | 1,841 | | Current restricted cash and cash equivalents | 6,911 | | | 15,335 | |
Accounts receivable – trade, net | Accounts receivable – trade, net | 146,491 | | | 132,068 | | Accounts receivable – trade, net | 173,763 | | | 162,461 | |
Accounts receivable – other | Accounts receivable – other | 46,534 | | | 34,553 | | Accounts receivable – other | 37,977 | | | 38,510 | |
Contracts in progress | Contracts in progress | 125,030 | | | 80,176 | | Contracts in progress | 163,916 | | | 134,939 | |
Inventories, net | Inventories, net | 97,832 | | | 79,527 | | Inventories, net | 109,739 | | | 102,637 | |
Other current assets | Other current assets | 24,605 | | | 29,395 | | Other current assets | 30,418 | | | 27,002 | |
| Total current assets | Total current assets | 498,593 | | | 582,434 | | Total current assets | 585,484 | | | 557,612 | |
Net property, plant and equipment, and finance lease | 81,737 | | | 85,627 | | |
Net property, plant and equipment, and finance leases | | Net property, plant and equipment, and finance leases | 84,412 | | | 86,363 | |
Goodwill | Goodwill | 155,229 | | | 116,462 | | Goodwill | 157,259 | | | 156,993 | |
Intangible assets, net | Intangible assets, net | 59,794 | | | 43,795 | | Intangible assets, net | 58,830 | | | 60,293 | |
Right-of-use assets | Right-of-use assets | 30,401 | | | 30,163 | | Right-of-use assets | 28,160 | | | 29,438 | |
Long-term restricted cash | Long-term restricted cash | 11,397 | | | — | | Long-term restricted cash | 21,397 | | | 21,397 | |
Other assets | Other assets | 44,416 | | | 54,784 | | Other assets | 32,878 | | | 30,559 | |
| Total assets | Total assets | $ | 881,567 | | | $ | 913,265 | | Total assets | $ | 968,420 | | | $ | 942,655 | |
| Accounts payable | Accounts payable | $ | 122,083 | | | $ | 85,929 | | Accounts payable | $ | 169,154 | | | $ | 139,159 | |
Accrued employee benefits | Accrued employee benefits | 12,110 | | | 12,989 | | Accrued employee benefits | 12,259 | | | 12,533 | |
Advance billings on contracts | Advance billings on contracts | 97,961 | | | 68,380 | | Advance billings on contracts | 137,225 | | | 133,429 | |
Accrued warranty expense | Accrued warranty expense | 10,621 | | | 12,925 | | Accrued warranty expense | 9,901 | | | 9,568 | |
Financing lease liabilities | Financing lease liabilities | 1,140 | | | 2,445 | | Financing lease liabilities | 1,221 | | | 1,180 | |
Operating lease liabilities | Operating lease liabilities | 3,786 | | | 3,950 | | Operating lease liabilities | 3,831 | | | 3,595 | |
Other accrued liabilities | Other accrued liabilities | 69,531 | | | 54,385 | | Other accrued liabilities | 72,510 | | | 68,244 | |
Loans payable | Loans payable | 2,301 | | | 12,380 | | Loans payable | 4,273 | | | 4,291 | |
| Total current liabilities | Total current liabilities | 319,533 | | | 253,383 | | Total current liabilities | 410,374 | | | 371,999 | |
Senior notes | Senior notes | 333,498 | | | 326,366 | | Senior notes | 335,986 | | | 335,498 | |
Long term loans payable | Long term loans payable | 534 | | | 1,543 | | Long term loans payable | 11,395 | | | 13,197 | |
| Pension and other postretirement benefit liabilities | Pension and other postretirement benefit liabilities | 156,519 | | | 182,730 | | Pension and other postretirement benefit liabilities | 135,641 | | | 136,176 | |
Non-current finance lease liabilities | Non-current finance lease liabilities | 27,778 | | | 29,369 | | Non-current finance lease liabilities | 27,155 | | | 27,482 | |
Non-current operating lease liabilities | Non-current operating lease liabilities | 27,328 | | | 26,685 | | Non-current operating lease liabilities | 25,678 | | | 26,583 | |
Deferred tax liability | | Deferred tax liability | 9,767 | | | 10,054 | |
Other non-current liabilities | Other non-current liabilities | 33,505 | | | 34,567 | | Other non-current liabilities | 22,630 | | | 23,755 | |
Total liabilities | Total liabilities | 898,695 | | | 854,643 | | Total liabilities | 978,626 | | | 944,744 | |
Commitments and contingencies | Commitments and contingencies | | Commitments and contingencies | |
Stockholders' (deficit) equity: | | |
Preferred stock, par value $0.01 per share, authorized shares of 20,000; issued and outstanding shares of 7,669 and 7,669 at September 30, 2022 and December 31, 2021, respectively | 77 | | | 77 | | |
Common stock, par value $0.01 per share, authorized shares of 500,000; issued and outstanding shares of 88,633 and 86,286 at September 30, 2022 and December 31, 2021, respectively | 5,137 | | | 5,110 | | |
Stockholders' deficit: | | Stockholders' deficit: | |
Preferred stock, par value $0.01 per share, authorized shares of 20,000; issued and outstanding shares of 7,669 at both March 31, 2023 and December 31, 2022 | | Preferred stock, par value $0.01 per share, authorized shares of 20,000; issued and outstanding shares of 7,669 at both March 31, 2023 and December 31, 2022 | 77 | | | 77 | |
Common stock, par value $0.01 per share, authorized shares of 500,000; issued and outstanding shares of 88,745 and 88,700 at March 31, 2023 and December 31, 2022, respectively | | Common stock, par value $0.01 per share, authorized shares of 500,000; issued and outstanding shares of 88,745 and 88,700 at March 31, 2023 and December 31, 2022, respectively | 5,139 | | | 5,138 | |
Capital in excess of par value | Capital in excess of par value | 1,533,904 | | | 1,518,872 | | Capital in excess of par value | 1,540,982 | | | 1,537,625 | |
Treasury stock at cost, 1,867 and 1,525 shares at September 30, 2022 and December 31, 2021, respectively | (113,749) | | | (110,934) | | |
Treasury stock at cost, 1,880 and 1,868 shares at March 31, 2023 and December 31, 2022, respectively | | Treasury stock at cost, 1,880 and 1,868 shares at March 31, 2023 and December 31, 2022, respectively | (113,817) | | | (113,753) | |
Accumulated deficit | Accumulated deficit | (1,360,896) | | | (1,321,154) | | Accumulated deficit | (1,375,086) | | | (1,358,875) | |
Accumulated other comprehensive loss | Accumulated other comprehensive loss | (82,492) | | | (58,822) | | Accumulated other comprehensive loss | (67,971) | | | (72,786) | |
Stockholders' (deficit) equity attributable to shareholders | (18,019) | | | 33,149 | | |
Stockholders' deficit attributable to shareholders | | Stockholders' deficit attributable to shareholders | (10,676) | | | (2,574) | |
Non-controlling interest | Non-controlling interest | 891 | | | 25,473 | | Non-controlling interest | 470 | | | 485 | |
Total stockholders' (deficit) equity | (17,128) | | | 58,622 | | |
Total liabilities and stockholders' (deficit) equity | $ | 881,567 | | | $ | 913,265 | | |
Total stockholders' deficit | | Total stockholders' deficit | (10,206) | | | (2,089) | |
Total liabilities and stockholders' deficit | | Total liabilities and stockholders' deficit | $ | 968,420 | | | $ | 942,655 | |
See accompanying notes to Condensed Consolidated Financial Statements.
BABCOCK & WILCOX ENTERPRISES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY
| | | Common Stock | | Preferred Stock | | Capital In Excess of Par Value | | Treasury Stock | | Accumulated Deficit | | Accumulated Other Comprehensive (Loss) | | Non-controlling Interest | | Total Stockholders’ (Deficit) Equity | | Common Stock | | Preferred Stock | | Capital In Excess of Par Value | | Treasury Stock | | Accumulated Deficit | | Accumulated Other Comprehensive (Loss) | | Non-controlling Interest | | Total Stockholders’ (Deficit) Equity |
(in thousands, except share amounts) | (in thousands, except share amounts) | Shares | | Par Value | | Shares | | Par Value | | (in thousands, except share amounts) | Shares | | Par Value | | Shares | | Par Value | |
Balance at December 31, 2021 | 86,286 | | | $ | 5,110 | | | 7,669 | | | $ | 77 | | | $ | 1,518,872 | | | $ | (110,934) | | | $ | (1,321,154) | | | $ | (58,822) | | | $ | 25,473 | | | $ | 58,622 | | |
Balance at December 31, 2022 | | Balance at December 31, 2022 | 88,700 | | | $ | 5,138 | | | 7,669 | | | $ | 77 | | | $ | 1,537,625 | | | $ | (113,753) | | | $ | (1,358,875) | | | $ | (72,786) | | | $ | 485 | | | $ | (2,089) | |
Net loss | Net loss | — | | | — | | | — | | | — | | | — | | | — | | | (8,264) | | | — | | | (420) | | | (8,684) | | Net loss | — | | | — | | | — | | | — | | | — | | | — | | | (12,496) | | | — | | | 21 | | | (12,475) | |
Currency translation adjustments | Currency translation adjustments | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (4,285) | | | (41) | | | (4,326) | | Currency translation adjustments | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 4,592 | | | (35) | | | 4,557 | |
| Pension and post retirement adjustments, net of tax | Pension and post retirement adjustments, net of tax | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 593 | | | — | | | 593 | | Pension and post retirement adjustments, net of tax | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 223 | | | — | | | 223 | |
Stock-based compensation charges | Stock-based compensation charges | 52 | | | 1 | | | — | | | — | | | 1,673 | | | (221) | | | — | | | — | | | — | | | 1,453 | | Stock-based compensation charges | 45 | | | 1 | | | — | | | — | | | 3,357 | | | (64) | | | — | | | — | | | — | | | 3,294 | |
Dividends to preferred stockholders | Dividends to preferred stockholders | — | | | — | | | — | | | — | | | — | | | — | | | (3,715) | | | — | | | — | | | (3,715) | | Dividends to preferred stockholders | — | | | — | | | — | | | — | | | — | | | — | | | (3,715) | | | — | | | — | | | (3,715) | |
| Dividends to non-controlling interest | Dividends to non-controlling interest | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (1) | | | (1) | | Dividends to non-controlling interest | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (1) | | | (1) | |
Balance at March 31, 2022 | 86,338 | | | $ | 5,111 | | | 7,669 | | | $ | 77 | | | $ | 1,520,545 | | | $ | (111,155) | | | $ | (1,333,133) | | | $ | (62,514) | | | $ | 25,011 | | | $ | 43,942 | | |
Net loss | — | | | — | | | — | | | — | | | — | | | — | | | (2,567) | | | — | | | (427) | | | (2,994) | | |
Currency translation adjustments | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (6,634) | | | (71) | | | (6,705) | | |
Pension and post retirement adjustments, net of tax | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (198) | | | — | | | (198) | | |
Stock-based compensation charges | 54 | | | 1 | | | — | | | — | | | 1,386 | | | — | | | — | | | — | | | — | | | 1,387 | | |
Dividends to preferred stockholders | — | | | — | | | — | | | — | | | — | | | — | | | (3,715) | | | — | | | — | | | (3,715) | | |
Balance at March 31, 2023 | | Balance at March 31, 2023 | 88,745 | | | $ | 5,139 | | | 7,669 | | | $ | 77 | | | $ | 1,540,982 | | | $ | (113,817) | | | $ | (1,375,086) | | | $ | (67,971) | | | $ | 470 | | | $ | (10,206) | |
| Balance at June 30, 2022 | 86,392 | | | $ | 5,112 | | | 7,669 | | | $ | 77 | | | $ | 1,521,931 | | | $ | (111,155) | | | $ | (1,339,415) | | | $ | (69,346) | | | $ | 24,513 | | | $ | 31,717 | | |
Net loss | — | | | — | | | — | | | — | | | — | | | — | | | (17,766) | | | — | | | (2,800) | | | (20,566) | | |
Currency translation adjustments | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (13,344) | | | (87) | | | (13,431) | | |
Pension and post retirement adjustments, net of tax | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 198 | | | — | | | 198 | | |
Stock-based compensation charges | 2,241 | | | 25 | | | — | | | — | | | 3,347 | | | (2,594) | | | — | | | — | | | — | | | 778 | | |
Purchase of Fosler Construction non-controlling interest | — | | | — | | | — | | | — | | | 8,626 | | | — | | | — | | | — | | | (20,735) | | | (12,109) | | |
Common stock offering | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | |
Preferred stock offering, net | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | |
Equitized Last Out Term Loan principal payment | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | |
Dividends to preferred stockholders | — | | | — | | | — | | | — | | | — | | | — | | | (3,715) | | | — | | | — | | | (3,715) | | |
| Dividends to non-controlling interest | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | |
Balance at September 30, 2022 | 88,633 | | | $ | 5,137 | | | 7,669 | | | $ | 77 | | | $ | 1,533,904 | | | $ | (113,749) | | | $ | (1,360,896) | | | $ | (82,492) | | | $ | 891 | | | $ | (17,128) | | |
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| Common Stock | | Preferred Stock | | Capital In Excess of Par Value | | Treasury Stock | | Accumulated Deficit | | Accumulated Other Comprehensive (Loss) | | Non-controlling Interest | | Total Stockholders’ (Deficit) Equity |
(in thousands, except share amounts) | Shares | | Par Value | | Shares | | Par Value | | | | | | |
Balance at December 31, 2020 | 54,452 | | | $ | 4,784 | | | — | | | $ | — | | | $ | 1,164,436 | | | $ | (105,990) | | | $ | (1,350,206) | | | $ | (52,390) | | | $ | 1,104 | | | $ | (338,262) | |
Net loss | — | | | — | | | — | | | — | | | — | | | — | | | (15,464) | | | — | | | 21 | | | (15,443) | |
Currency translation adjustments | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (4,582) | | | (24) | | | (4,606) | |
Pension and post retirement adjustments, net of tax | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 198 | | | — | | | 198 | |
Stock-based compensation charges | 1,725 | | | 22 | | | — | | | — | | | 4,480 | | | (3,308) | | | — | | | — | | | — | | | 1,194 | |
Common stock offering | 29,487 | | | 295 | | | — | | | — | | | 161,218 | | | — | | | — | | | — | | | — | | | 161,513 | |
Dividends to non-controlling interest | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (38) | | | (38) | |
Balance at March 31, 2021 | 85,664 | | | $ | 5,101 | | | — | | | $ | — | | | $ | 1,330,134 | | | $ | (109,298) | | | $ | (1,365,670) | | | $ | (56,774) | | | $ | 1,063 | | | $ | (195,444) | |
Net income | — | | | — | | | — | | | — | | | — | | | — | | | 3,126 | | | — | | | 15 | | | 3,141 | |
Currency translation adjustments | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (1,478) | | | (5) | | | (1,483) | |
Pension and post retirement adjustments, net of tax | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 198 | | | — | | | 198 | |
Stock-based compensation charges | 65 | | | 2 | | | — | | | — | | | 1,201 | | | (3) | | | — | | | — | | | — | | | 1,200 | |
Common stock offering, net | — | | | — | | | — | | | — | | | (529) | | | | | | | | | | | (529) | |
Preferred stock offering, net | — | | | — | | | 4,445 | | | 45 | | | 105,998 | | | — | | | — | | | — | | | — | | | 106,043 | |
Equitized Last Out Term Loan interest payment | — | | | — | | | 2,917 | | | 29 | | | 72,893 | | | — | | | — | | | — | | | — | | | 72,922 | |
Dividends to preferred stockholders | — | | | — | | | — | | | — | | | — | | | — | | | (1,731) | | | — | | | — | | | (1,731) | |
Dividends to non-controlling interest | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (36) | | | (36) | |
Balance at June 30, 2021 | 85,729 | | | $ | 5,103 | | | 7,362 | | | $ | 74 | | | $ | 1,509,697 | | | $ | (109,301) | | | $ | (1,364,275) | | | $ | (58,054) | | | $ | 1,037 | | | $ | (15,719) | |
Net income | — | | | — | | | — | | | — | | | — | | | — | | | 13,643 | | | — | | | 5 | | | 13,648 | |
Currency translation adjustments | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (1,292) | | | (30) | | | (1,322) | |
Defined benefit obligations | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 197 | | | — | | | 197 | |
Stock-based compensation charges | 515 | | | 7 | | | — | | | — | | | 916 | | | (1,552) | | | — | | | — | | | — | | | (629) | |
Common stock offering | — | | | — | | | — | | | — | | | (50) | | | — | | | — | | | — | | | — | | | (50) | |
Preferred stock offering, net | — | | | — | | | 237 | | | 2 | | | 5,805 | | | — | | | — | | | — | | | — | | | 5,807 | |
Dividends to preferred stockholders | — | | | — | | | — | | | — | | | — | | | — | | | (3,681) | | | — | | | — | | | (3,681) | |
Non-controlling interest from acquisition | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 22,262 | | | 22,262 | |
Dividends to non-controlling interest | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (113) | | | (113) | |
Balance at September 30, 2021 | 86,244 | | | $ | 5,110 | | | 7,599 | | | $ | 76 | | | $ | 1,516,368 | | | $ | (110,853) | | | $ | (1,354,313) | | | $ | (59,149) | | | $ | 23,161 | | | $ | 20,400 | |
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| Common Stock | | Preferred Stock | | Capital In Excess of Par Value | | Treasury Stock | | Accumulated Deficit | | Accumulated Other Comprehensive (Loss) | | Non-controlling Interest | | Total Stockholders’ Equity (Deficit) |
(in thousands, except share amounts) | Shares | | Par Value | | Shares | | Par Value | | | | | | |
Balance at December 31, 2021 | 86,286 | | | $ | 5,110 | | | 7,669 | | | $ | 77 | | | $ | 1,518,872 | | | $ | (110,934) | | | $ | (1,321,154) | | | $ | (58,822) | | | $ | 25,473 | | | $ | 58,622 | |
Net loss | — | | | — | | | — | | | — | | | — | | | — | | | (8,264) | | | — | | | (420) | | | (8,684) | |
Currency translation adjustments | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (4,285) | | | (41) | | | (4,326) | |
Pension and post retirement adjustments, net of tax | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 593 | | | — | | | 593 | |
Stock-based compensation charges | 52 | | | 1 | | | — | | | — | | | 1,765 | | | (221) | | | — | | | — | | | — | | | 1,545 | |
Dividends to preferred shareholders | — | | | — | | | — | | | — | | | — | | | — | | | (3,715) | | | — | | | — | | | (3,715) | |
Preferred stock, net | — | | | — | | | — | | | — | | | (92) | | | — | | | — | | | — | | | — | | | (92) | |
Dividends to non-controlling interest | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (1) | | | (1) | |
Balance at March 31, 2022 | 86,338 | | | $ | 5,111 | | | 7,669 | | | $ | 77 | | | $ | 1,520,545 | | | $ | (111,155) | | | $ | (1,333,133) | | | $ | (62,514) | | | $ | 25,011 | | | $ | 43,942 | |
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See accompanying notes to Condensed Consolidated Financial Statements.
BABCOCK & WILCOX ENTERPRISES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | Nine Months Ended September 30, | | Three Months Ended March 31, |
(in thousands) | (in thousands) | 2022 | | 2021 | | (in thousands) | 2023 | | 2022 | |
Cash flows from operating activities: | Cash flows from operating activities: | | | | | Cash flows from operating activities: | | | | |
Net (loss) income | $ | (32,244) | | | $ | 1,346 | | | |
Net loss | | Net loss | $ | (12,475) | | | $ | (8,684) | | |
Adjustments to reconcile net loss to net cash used in operating activities: | Adjustments to reconcile net loss to net cash used in operating activities: | | | Adjustments to reconcile net loss to net cash used in operating activities: | | |
Depreciation and amortization of long-lived assets | Depreciation and amortization of long-lived assets | 13,184 | | | 12,684 | | | Depreciation and amortization of long-lived assets | 5,365 | | | 6,202 | | |
Goodwill impairment | 7,224 | | | — | | | |
Change in fair value of contingent consideration | (9,567) | | | — | | | |
| Amortization of deferred financing costs and debt discount | Amortization of deferred financing costs and debt discount | 3,864 | | | 7,150 | | | Amortization of deferred financing costs and debt discount | 1,388 | | | 834 | | |
Amortization of guaranty fee | Amortization of guaranty fee | 543 | | | 1,370 | | | Amortization of guaranty fee | 231 | | | 231 | | |
Non-cash operating lease expense | Non-cash operating lease expense | 5,698 | | | 3,206 | | | Non-cash operating lease expense | 566 | | | 1,174 | | |
Loss on sale of business | — | | | 2,240 | | | |
Gain on debt extinguishment | — | | | (6,530) | | | |
Gain on asset disposals | (7,000) | | | (15,804) | | | |
(Benefit from) provision for deferred income taxes | (2,597) | | | 2,601 | | | |
| Loss on asset disposals | | Loss on asset disposals | 941 | | | — | | |
Benefit from deferred income taxes | | Benefit from deferred income taxes | (1,870) | | | (689) | | |
Prior service cost amortization for pension and postretirement plans | Prior service cost amortization for pension and postretirement plans | 593 | | | (1,660) | | | Prior service cost amortization for pension and postretirement plans | 223 | | | 593 | | |
Stock-based compensation, net of associated income taxes | 6,497 | | | 6,628 | | | |
Stock-based compensation | | Stock-based compensation | 3,357 | | | 1,766 | | |
| Foreign exchange | Foreign exchange | 3,218 | | | 1,056 | | | Foreign exchange | 461 | | | (3,085) | | |
Changes in assets and liabilities: | | | |
Accounts receivable | (26,224) | | | 1,466 | | | |
Changes in operating assets and liabilities: | | Changes in operating assets and liabilities: | | |
Accounts receivable - trade, net and other | | Accounts receivable - trade, net and other | (5,522) | | | (28,694) | | |
Contracts in progress | Contracts in progress | (48,208) | | | (9,365) | | | Contracts in progress | (29,042) | | | (13,334) | | |
Advance billings on contracts | Advance billings on contracts | 28,915 | | | (20,625) | | | Advance billings on contracts | 3,581 | | | 27,532 | | |
Inventories | (15,098) | | | (4,681) | | | |
Inventories, net | | Inventories, net | (7,594) | | | (2,996) | | |
Income taxes | Income taxes | (2,133) | | | (4,239) | | | Income taxes | 2,055 | | | (7,009) | | |
Accounts payable | Accounts payable | 39,639 | | | 7,375 | | | Accounts payable | 29,639 | | | 11,297 | | |
Accrued and other current liabilities | Accrued and other current liabilities | (10,813) | | | (44,768) | | | Accrued and other current liabilities | 2,682 | | | (11,290) | | |
Accrued contract loss | Accrued contract loss | 3,481 | | | (266) | | | Accrued contract loss | (665) | | | 4,274 | | |
Pension liabilities, accrued postretirement benefits and employee benefits | Pension liabilities, accrued postretirement benefits and employee benefits | (27,144) | | | (47,108) | | | Pension liabilities, accrued postretirement benefits and employee benefits | (4,328) | | | (10,048) | | |
Other, net | Other, net | 792 | | | 90 | | | Other, net | (1,874) | | | (10,073) | | |
Net cash used in operating activities | (67,380) | | | (107,834) | | | |
Net cash used in operating activities: | | Net cash used in operating activities: | (12,881) | | | (41,999) | | |
Cash flows from investing activities: | Cash flows from investing activities: | | | | | Cash flows from investing activities: | | | | |
Purchase of property, plant and equipment | Purchase of property, plant and equipment | (8,947) | | | (4,213) | | | Purchase of property, plant and equipment | (2,208) | | | (1,004) | | |
Acquisition of business, net of cash acquired | Acquisition of business, net of cash acquired | (64,914) | | | (27,211) | | | Acquisition of business, net of cash acquired | — | | | (64,914) | | |
Proceeds from sale of business and assets, net | 2,500 | | | 23,770 | | | |
| Purchases of available-for-sale securities | Purchases of available-for-sale securities | (5,006) | | | (9,597) | | | Purchases of available-for-sale securities | (2,021) | | | (1,125) | | |
Sales and maturities of available-for-sale securities | Sales and maturities of available-for-sale securities | 8,498 | | | 11,373 | | | Sales and maturities of available-for-sale securities | 2,072 | | | 1,674 | | |
Other, net | Other, net | 299 | | | — | | | Other, net | — | | | (15) | | |
Net cash used in investing activities | Net cash used in investing activities | (67,570) | | | (5,878) | | | Net cash used in investing activities | (2,157) | | | (65,384) | | |
| | | Nine Months Ended September 30, | | Three Months Ended March 31, |
(in thousands) | (in thousands) | 2022 | | 2021 | | (in thousands) | 2023 | | 2022 | |
Cash flows from financing activities: | Cash flows from financing activities: | | | | | Cash flows from financing activities: | | | | |
Issuance of senior notes | Issuance of senior notes | 5,455 | | | 151,239 | | | Issuance of senior notes | 8 | | | 2,016 | | |
Borrowings on loan payable | Borrowings on loan payable | 1,342 | | | 3,472 | | | Borrowings on loan payable | — | | | 1,342 | | |
Repayments on loan payable | Repayments on loan payable | (13,863) | | | — | | | Repayments on loan payable | (1,658) | | | (31) | | |
| Repayments under last out term loans | — | | | (75,408) | | | |
Borrowings under U.S. revolving credit facility | — | | | 14,500 | | | |
Repayments of U.S. revolving credit facility | — | | | (178,800) | | | |
| Issuance of preferred stock, net | (40) | | | 111,850 | | | |
| Finance lease payments | | Finance lease payments | (286) | | | (747) | | |
Payment of preferred stock dividends | Payment of preferred stock dividends | (11,145) | | | (5,412) | | | Payment of preferred stock dividends | (3,715) | | | (3,715) | | |
Shares of common stock returned to treasury stock | Shares of common stock returned to treasury stock | (2,815) | | | (4,863) | | | Shares of common stock returned to treasury stock | (64) | | | (221) | | |
| Issuance of common stock, net | — | | | 160,934 | | | |
| Debt issuance costs | Debt issuance costs | 209 | | | (16,725) | | | Debt issuance costs | (139) | | | (119) | | |
Other, net | Other, net | 1,776 | | | (1,569) | | | Other, net | | (93) | | |
Net cash (used in) provided by financing activities | (19,081) | | | 159,218 | | | |
Net cash used in financing activities | | Net cash used in financing activities | (5,854) | | | (1,568) | | |
Effects of exchange rate changes on cash | Effects of exchange rate changes on cash | (3,186) | | | 2,818 | | | Effects of exchange rate changes on cash | (1,500) | | | (794) | | |
Net (decrease) increase in cash, cash equivalents and restricted cash | (157,217) | | | 48,324 | | | |
Net decrease in cash, cash equivalents and restricted cash | | Net decrease in cash, cash equivalents and restricted cash | (22,392) | | | (109,745) | | |
Cash, cash equivalents and restricted cash at beginning of period | Cash, cash equivalents and restricted cash at beginning of period | 226,715 | | | 67,423 | | | Cash, cash equivalents and restricted cash at beginning of period | 113,460 | | | 226,715 | | |
Cash, cash equivalents and restricted cash at end of period | Cash, cash equivalents and restricted cash at end of period | $ | 69,498 | | | $ | 115,747 | | | Cash, cash equivalents and restricted cash at end of period | $ | 91,068 | | | $ | 116,970 | | |
| Schedule of cash, cash equivalents and restricted cash: | Schedule of cash, cash equivalents and restricted cash: | | | Schedule of cash, cash equivalents and restricted cash: | | |
Cash and cash equivalents | Cash and cash equivalents | $ | 48,471 | | | $ | 107,055 | | | Cash and cash equivalents | $ | 62,760 | | | $ | 108,137 | | |
Current restricted cash | Current restricted cash | 9,630 | | | 8,692 | | | Current restricted cash | 6,911 | | | 8,833 | | |
Long-term restricted cash | Long-term restricted cash | 11,397 | | | — | | | Long-term restricted cash | 21,397 | | | — | | |
Total cash, cash equivalents and restricted cash at end of period | Total cash, cash equivalents and restricted cash at end of period | $ | 69,498 | | | $ | 115,747 | | | Total cash, cash equivalents and restricted cash at end of period | $ | 91,068 | | | $ | 116,970 | | |
| Supplemental Cash flow information: | Supplemental Cash flow information: | | | Supplemental Cash flow information: | | |
Income taxes paid, net | Income taxes paid, net | 2,693 | | | 6,094 | | | Income taxes paid, net | 1,551 | | | 471 | | |
Interest paid | Interest paid | 19,292 | | | 18,800 | | | Interest paid | 6,382 | | | 6,709 | | |
See accompanying notes to Condensed Consolidated Financial Statements.
BABCOCK & WILCOX ENTERPRISES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022MARCH 31, 2023
NOTE 1 – BASIS OF PRESENTATION
These interim Condensed Consolidated Financial Statements of Babcock & Wilcox Enterprises, Inc. (“B&W,” “management,” “we,” “us,” “our” or the “Company���“Company”) have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP") and Securities and Exchange Commission (“SEC”) instructions for interim financial information, and should be read in conjunction with the Company's Annual Report. The Company has included all adjustments, in the opinion of management, consisting only of normal, recurring adjustments, necessary for a fair presentation of the interim financial statements. The Company has eliminated all intercompany transactions and accounts. The Company has presented the notes to its Condensed Consolidated Financial Statements on the basis of continuing operations, unless otherwise stated.
The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the accompanying notes. Actual results could differ from these estimates. In the opinion of management, these consolidated financial statements contain all estimates and adjustments, consisting of normal recurring accruals, required to fairly present the financial position, results of operations, and cash flows for the interim periods. Operating results for the three and nine months ended September 30, 2022March 31, 2023 are not necessarily indicative of the results to be expected for the full-year ending December 31, 2022.2023.
Non-controlling interests are presented in the Company’s consolidated financial statements as if parent company investors (controlling interests) and other minority investors (non-controlling interests) in partially-owned subsidiaries have similar economic interests in a single entity. As a result, investments in non-controlling interests are reported as equity in the Company’s consolidated financial statements. Additionally, the Company’s consolidated financial statements include 100% of a controlled subsidiary’s earnings, rather than only its share. Transactions between the parent company and non-controlling interests are reported in equity as transactions between stockholders, provided that these transactions do not create a change in control.
Risks and UncertaintiesMarket Update
Management continues to adapt to macroeconomic conditions, including rising inflation, higher interest rates, foreign exchange rate fluctuations and the impact of the ongoing conflict in Ukraine and the COVID-19 pandemic, all of which impacted the Company during the first nine months of 2022. The COVID-19 pandemic has continued to create challenges for usthe Company in countries that have significant outbreak mitigation strategies, namely, countries in our Asia-Pacific region, which led to temporary project postponements and has continued to impact results in this region. Additionally, the Company has experienced negative impacts to its global supply chains as a result of COVID-19, the war in Ukraine, Russia-related supply chain shortages and other factors, including disruptions to the manufacturing, supply, distribution, transportation and delivery of its products. The Company has also observed significant delays and disruptions of its service providers and negative impacts to pricing of certain of its products. These delays and disruptions have had, and could continue to have, an adverse impact on the Company’s ability to meet customers’ demands. We areThe Company is continuing to actively monitor the impact of these market conditions on current and future periods and actively manage costs and our liquidity position to provide additional flexibility while still supporting oursupplying its customers and their specific needs. The duration and scope of these conditions cannot be predicted, and therefore, any anticipated negative financial impact to the Company’s operating results cannot be reasonably estimated.
NOTE 2 – EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted (loss) earnings per share of the Company's common stock, net of non-controlling interest and dividends on preferred stock:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended March 31, | |
(in thousands, except per share amounts) | (in thousands, except per share amounts) | 2022 | | 2021 | | 2022 | | 2021 | | (in thousands, except per share amounts) | 2023 | | 2022 | |
| Net (loss) income attributable to stockholders of common stock | $ | (21,481) | | | $ | 9,962 | | | $ | (39,742) | | | $ | (4,107) | | | |
Net loss attributable to stockholders of common stock | | Net loss attributable to stockholders of common stock | $ | (16,211) | | | $ | (11,979) | | |
| Weighted average shares used to calculate basic and diluted (loss) earnings per share | 88,321 | | | 86,002 | | | 88,115 | | | 81,088 | | | |
Dilutive effect of stock options, restricted stock and performance units | — | | | 962 | | | — | | | — | | | |
| Weighted average shares used to calculate diluted earnings (loss) per share | Weighted average shares used to calculate diluted earnings (loss) per share | 88,321 | | | 86,964 | | | 88,115 | | | 81,088 | | | Weighted average shares used to calculate diluted earnings (loss) per share | 88,733 | | | 87,992 | | |
| Basic (loss) earnings per share | Basic (loss) earnings per share | $ | (0.24) | | | $ | 0.12 | | | $ | (0.45) | | | $ | (0.05) | | | Basic (loss) earnings per share | $ | (0.18) | | | $ | (0.14) | | |
| Diluted (loss) earnings per share | Diluted (loss) earnings per share | $ | (0.24) | | | $ | 0.11 | | | $ | (0.45) | | | $ | (0.05) | | | Diluted (loss) earnings per share | $ | (0.18) | | | $ | (0.14) | | |
|
Because the Company incurred a net loss in the three and nine-monththree-month periods ended SeptemberMarch 31, 20222023 and the nine-month period ended September 30, 2021,March 31, 2022, basic and diluted shares are the same.
If the Company had net income in the three months ended September 30,March 31, 2023 and March 31, 2022, diluted shares would include an additional 0.80.4 million shares. If the Company was in a net income position during the nine months ended September 30, 2022 and 2021, diluted shares would include an additional 0.9 million and 1.3 million shares, respectively.
The Company excluded 0.32.2 million and 0.90.4 million shares related to stock options from the diluted share calculation for the three-month periods ended September 30,March 31, 2023 and 2022, and 2021, respectively, because their effect would have been anti-dilutive. The Company excluded 0.4 million and 1.0 million shares related to stock options from the diluted share calculation for the nine-month periods ended September 30, 2022 and 2021, respectively, because their effect would have been anti-dilutive.
NOTE 3 – SEGMENT REPORTING
The Company's operations are assessed based on three reportable market-facing segments as part of its strategic, market-focused organizational and re-branding initiative to accelerate growth and provide stakeholders with improved visibility into its renewable and environmental growth platforms. The Company's three reportable segments are as follows:
•Babcock & Wilcox Renewable: Cost-effective technologies for efficient and environmentally sustainable power and heat generation, including waste-to-energy, solar construction and installation, biomass energy and black liquor systems for the pulp and paper industry. B&W’s leading technologies support a circular economy, by diverting waste from landfills to use for power generation and replacingreplacement of fossil fuels, while recovering metals and reducing emissions. To date, we have installed over 500 waste-to-energy and biomass-to-energy units at more than 300 facilities in approximately 30 countries which serve a wide variety of utility, waste management, municipality and investment firm customers. Additionally, we have installed more than 100MW of clean solar production.
•Babcock & Wilcox Environmental: A full suite of best-in-class emissions control and environmental technology solutions for utility, waste to energy, biomass, carbon black, and industrial steam generation applications around the world. B&W’s broad experience includes systems for cooling, ash handling, particulate control, nitrogen oxides and sulfur dioxides removal, chemical looping for carbon control, and mercury control. The Company's ClimateBright family of products including SolveBright, OxyBright, BrightLoop and BrightGen, places us at the forefront of carbon dioxide capturing technologies and development with many of the aforementioned products ready for commercial demonstration.
•Babcock & Wilcox Thermal: Steam generation equipment, aftermarket parts, construction, maintenance and field services for plants in the power generation, oil and gas, and industrial sectors. B&W has an extensive global base of installed equipment for utilities and general industrial applications including refining, petrochemical, food processing, metals and others.
Revenues by segment exclude inter-segment sales. An analysis of the Company's operations by segment is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(in thousands) | 2022 | | 2021 | | 2022 | | 2021 | | |
Revenues: | | | | | | | | | |
B&W Renewable segment | | | | | | | | | |
B&W Renewable | $ | 34,279 | | | $ | 20,783 | | | $ | 89,500 | | | $ | 63,481 | | | |
B&W Renewable Services (1) | 30,164 | | | 2,036 | | | 57,996 | | | 10,889 | | | |
Vølund | 14,043 | | | 15,181 | | | 48,936 | | | 30,785 | | | |
Fosler Solar | 3,201 | | | — | | | 28,443 | | | — | | | |
| 81,687 | | | 38,000 | | | 224,875 | | | 105,155 | | | |
B&W Environmental segment | | | | | | | | | |
B&W Environmental | 25,773 | | | 14,338 | | | 56,759 | | | 42,766 | | | |
SPIG | 14,521 | | | 16,514 | | | 40,815 | | | 40,892 | | | |
GMAB | 4,332 | | | 7,397 | | | 13,612 | | | 14,109 | | | |
| 44,626 | | | 38,249 | | | 111,186 | | | 97,767 | | | |
B&W Thermal segment | | | | | | | | | |
B&W Thermal | 91,331 | | | 83,819 | | | 309,875 | | | 328,416 | | | |
| 91,331 | | | 83,819 | | | 309,875 | | | 328,416 | | | |
| | | | | | | | | |
Eliminations | (2,774) | | | (108) | | | (5,998) | | | (270) | | | |
Total Revenues | $ | 214,870 | | | $ | 159,960 | | | $ | 639,938 | | | $ | 531,068 | | | |
(1) B&W Renewable Services' 2021 revenues were reclassified from Vølund's prior year reported amount for year-over-year comparability. | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
(in thousands) | 2023 | | 2022 | | | | | | |
Revenues: | | | | | | | | | |
B&W Renewable segment | | | | | | | | | |
B&W Renewable | $ | 49,132 | | | $ | 19,711 | | | | | | | |
B&W Renewable Services | 16,310 | | | 8,288 | | | | | | | |
Vølund | 18,681 | | | 16,336 | | | | | | | |
B&W Solar | 15,989 | | | 23,626 | | | | | | | |
| 100,112 | | | 67,961 | | | | | | | |
B&W Environmental segment | | | | | | | | | |
B&W Environmental | 20,361 | | | 18,185 | | | | | | | |
SPIG | 16,605 | | | 12,060 | | | | | | | |
GMAB | 2,474 | | | 4,703 | | | | | | | |
| 39,440 | | | 34,948 | | | | | | | |
B&W Thermal segment | | | | | | | | | |
B&W Thermal | 119,236 | | | 102,239 | | | | | | | |
| 119,236 | | | 102,239 | | | | | | | |
| | | | | | | | | |
Eliminations | (1,541) | | | (1,099) | | | | | | | |
Total Revenues | $ | 257,247 | | | $ | 204,049 | | | | | | | |
At a segment level, the adjusted EBITDA presented below is consistent with the manner in which the Company's chief operating decision maker ("CODM") reviews the results of operations and makes strategic decisions about the business and is calculated as earnings before interest, tax, depreciation and amortization adjusted for items such as gains or losses arising from the sale of non-income producing assets, net pension benefits, restructuring activities, impairments, gains and losses on debt extinguishment, costs related to financial consulting, research and development costs and other costs that may not be directly controllable by segment management and are not allocated to the segment. The following table is provided to reconcile our segment performance metrics to loss before income tax expense.
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(in thousands) | 2022 | | 2021 | | 2022 | | 2021 | | |
Adjusted EBITDA | | | | | | | | | |
B&W Renewable segment(1) | $ | 4,522 | | | $ | 11,399 | | | $ | 14,846 | | | $ | 15,030 | | | |
B&W Environmental segment | 3,082 | | | 3,476 | | | 5,112 | | | 7,286 | | | |
B&W Thermal segment | 10,761 | | | 9,329 | | | 41,276 | | | 32,436 | | | |
Corporate | (4,419) | | | (5,866) | | | (13,018) | | | (11,548) | | | |
Research and development costs | (891) | | | 513 | | | (2,532) | | | (560) | | | |
| $ | 13,055 | | | $ | 18,851 | | | $ | 45,684 | | | $ | 42,644 | | | |
(1) Adjusted EBITDA for the nine months ended September 30, 2022 includes a $7.0 million non-recurring gain on sale related to development rights of a future solar project that was sold as well as the reduction to Selling, General and Administrative Costs of $9.6 million for the three and nine months ended September 30, 2022 that resulted from the reversal of the contingent consideration related to an acquisition. | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
(in thousands) | 2023 | | 2022 | | | | | | |
| | | | | | | | | |
B&W Renewable segment - Adjusted EBITDA | $ | 4,940 | | | $ | 1,955 | | | | | | | |
B&W Environmental segment - Adjusted EBITDA | 1,906 | | | 1,439 | | | | | | | |
B&W Thermal segment - Adjusted EBITDA | 13,733 | | | 14,154 | | | | | | | |
Corporate | (5,080) | | | (4,373) | | | | | | | |
R&D expenses | (1,307) | | | (655) | | | | | | | |
Interest Expense | (14,429) | | | (12,324) | | | | | | | |
Depreciation & Amortization | (5,365) | | | (6,202) | | | | | | | |
Benefit Plans, net | (109) | | | 7,452 | | | | | | | |
Gain on sales, net | (937) | | | 20 | | | | | | | |
Settlement and related legal costs | 3,009 | | | (2,528) | | | | | | | |
Advisory fees for settlement costs and liquidity planning | (546) | | | (1,032) | | | | | | | |
Stock Compensation | (3,227) | | | (1,319) | | | | | | | |
Restructuring expense and business services transition | (960) | | | (2,688) | | | | | | | |
Acquisition pursuit and related costs | (134) | | | (843) | | | | | | | |
Product Development | (1,370) | | | (852) | | | | | | | |
Foreign exchange | (461) | | | 3,085 | | | | | | | |
Financial advisory services | — | | | — | | | | | | | |
Contract Disposal | (1,387) | | | (875) | | | | | | | |
Inventory step-up price adjustment | — | | | (1,745) | | | | | | | |
Other Net | (261) | | | (123) | | | | | | | |
Loss before income tax expense | (11,985) | | | (7,454) | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
The Company does not separately identify or report its assets by segment as its CODM does not consider assets by segment to be a critical measure by which performance is measured.
NOTE 4 – REVENUE RECOGNITION AND CONTRACTS
Revenue Recognition
The Company generates the vast majority of its revenues from the supply of, and aftermarket services for, steam-generating, environmental and auxiliary equipment. The Company also earns revenue from the supply of custom-engineered cooling systems for steam applications along with related aftermarket services.
Revenue from goods and services transferred to customers at a point in time, which includes certain aftermarket parts and services, accounted for 25% and 21%19% of the Company's revenue for the three months ended September 30,March 31, 2023 and 2022, and 2021, respectively, and 23% and 20% of its revenue for the nine months ended September 30, 2022 and 2021, respectively. Revenue from products and services transferred to customers over time, which primarily relates to customized, engineered solutions and construction services, accounted for 75% and 79%81% of the Company's revenue for the three months ended September 30,March 31, 2023 and 2022, and 2021, respectively, and 77% and 80% of its revenue for nine months ended September 30, 2022 and 2021, respectivelyrespectively.
A performance obligation is a contractual promise to transfer a distinct good or service to the customer. A contract's transaction price is allocated to each distinct performance obligation and is recognized as revenue when (point in time) or as (over time) the performance obligation is satisfied.
Contract assets as of March 31, 2023 include approximately $6.1 million for change orders and/or claims in transaction prices for certain contracts that were in the process of being resolved in the ordinary course of business, including through negotiation, arbitration and other proceedings. The Company believes that these amounts are collectible and recoverable under the applicable contracts.
Transaction prices for the Company’s contracts may include variable consideration, which comprises items such as change orders, claims and incentives. Management estimates variable consideration for a performance obligation utilizing estimation methods that it believes best predict the amount of consideration to which the Company will be entitled. Variable consideration is included in the estimated transaction price if it is probable that when the uncertainty associated with the variable consideration is resolved, there will not be a significant reversal of the cumulative amount of revenue that has been recognized. Management’s estimates of variable consideration and the determination of whether to include estimated amounts in transaction prices are based largely on legal advice, past practices with the customer, specific discussions, correspondence or preliminary negotiations with the customer and all other relevant information that is reasonably available at the time of the estimate. The effect of variable consideration on the transaction price of a performance obligation is recognized as an adjustment to revenue, typically on a cumulative catch-up basis, as such variable consideration, which typically pertains to changed conditions and scope, is generally for services encompassed under the existing contract. To the extent unapproved change orders, claims and other variable consideration reflected in transaction prices are not resolved in the Company’s favor, or to the extent incentives reflected in transaction prices are not earned, there could be reductions in, or reversals of, previously recognized revenue.
As of March 31, 2023, the Company included approximately $7.0 million of change orders and/or claims in transaction prices for certain contracts that were in the process of being resolved in the ordinary course of business, including through negotiation, arbitration and other proceedings. For the comparable period of March 31, 2022, the Company did not report material unapproved change orders. These transaction price adjustments, when earned, are included within contract assets or accounts receivable, net of allowance, as appropriate. As of March 31, 2023, these change orders and/or claims primarily related to certain projects in the Company’s B&W Renewable segment and include amounts related to the B&W Solar business. The Company actively engages with its customers to complete the final approval process and generally expects these processes to be completed within one year. Amounts ultimately realized upon final agreement by customers could be higher or lower than such estimated amounts.
Refer to Note 3 for the Company's disaggregation of revenue by product line.
Contract Balances
The following represents the components of the Company's Contracts in progress and Advance billings on contracts included in its Condensed Consolidated Balance Sheets:
| (in thousands) | (in thousands) | September 30, 2022 | | December 31, 2021 | | $ Change | | % Change | (in thousands) | March 31, 2023 | | December 31, 2022 | | $ Change | | % Change |
Contract assets - included in contracts in progress: | Contract assets - included in contracts in progress: | | | | | | | | Contract assets - included in contracts in progress: | | | | | | | |
Costs incurred less costs of revenue recognized | Costs incurred less costs of revenue recognized | $ | 60,182 | | | $ | 35,939 | | | $ | 24,243 | | | 67 | % | Costs incurred less costs of revenue recognized | $ | 74,112 | | | $ | 79,421 | | | $ | (5,309) | | | (7) | % |
Revenues recognized less billings to customers | Revenues recognized less billings to customers | 64,849 | | | 44,237 | | | 20,612 | | | 47 | % | Revenues recognized less billings to customers | 89,804 | | | 55,518 | | | 34,286 | | | 62 | % |
Contracts in progress | Contracts in progress | $ | 125,031 | | | $ | 80,176 | | | $ | 44,855 | | | 56 | % | Contracts in progress | $ | 163,916 | | | $ | 134,939 | | | $ | 28,977 | | | 21 | % |
Contract liabilities - included in advance billings on contracts: | Contract liabilities - included in advance billings on contracts: | | | | | | | | Contract liabilities - included in advance billings on contracts: | | | | | | | |
Billings to customers less revenues recognized | Billings to customers less revenues recognized | $ | 87,033 | | | $ | 68,615 | | | $ | 18,418 | | | 27 | % | Billings to customers less revenues recognized | $ | 94,808 | | | $ | 113,643 | | | $ | (18,835) | | | (17) | % |
Costs of revenue recognized less cost incurred | Costs of revenue recognized less cost incurred | 10,927 | | | (235) | | | 11,162 | | | (4,750) | % | Costs of revenue recognized less cost incurred | 42,417 | | | 19,786 | | | 22,631 | | | 114 | % |
Advance billings on contracts | Advance billings on contracts | $ | 97,960 | | | $ | 68,380 | | | $ | 29,580 | | | 43 | % | Advance billings on contracts | $ | 137,225 | | | $ | 133,429 | | | $ | 3,796 | | | 3 | % |
| Net contract balance | Net contract balance | $ | 27,071 | | | $ | 11,796 | | | $ | 15,275 | | | 129 | % | Net contract balance | $ | 26,691 | | | $ | 1,510 | | | $ | 25,181 | | | 1,668 | % |
| Accrued contract losses | Accrued contract losses | $ | 3,859 | | | $ | 378 | | | $ | 3,481 | | | 921 | % | Accrued contract losses | $ | 3,315 | | | $ | 3,032 | | | $ | 283 | | | 9 | % |
Backlog
On September 30, 2022 weMarch 31, 2023 the Company had $730.0$662.9 million of remaining performance obligations, which the Company also refers to as total backlog. The Company expects to recognize approximately 32.5%77.7%, 46.4%18.1% and 21.1%4.2% of its remaining performance obligations as revenue in 2022, 2023, 2024 and thereafter, respectively.
Changes in Contract Estimates
During each of the three and nine-monththree-month periods ended September 30,March 31, 2023 and 2022, and 2021, the Company recognized changes in estimated gross profit related to long-term contracts accounted for on the over time basis, which are summarized as follows:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended March 31, | |
(in thousands) | (in thousands) | 2022 | | 2021 | | 2022 | | 2021 | | (in thousands) | 2023 | | 2022 | |
Increases in gross profit for changes in estimates for over time contracts | Increases in gross profit for changes in estimates for over time contracts | $ | 1,690 | | | $ | 7,001 | | | $ | 11,343 | | | $ | 12,340 | | | Increases in gross profit for changes in estimates for over time contracts | $ | 6,225 | | | $ | 3,341 | | |
Decreases in gross profit for changes in estimates for over time contracts | Decreases in gross profit for changes in estimates for over time contracts | (10,353) | | | (1,523) | | | (20,004) | | | (6,018) | | | Decreases in gross profit for changes in estimates for over time contracts | (5,753) | | | (2,862) | | |
Net changes in gross profit for changes in estimates for over time contracts | Net changes in gross profit for changes in estimates for over time contracts | $ | (8,663) | | | $ | 5,478 | | | $ | (8,661) | | | $ | 6,322 | | | Net changes in gross profit for changes in estimates for over time contracts | $ | 472 | | | $ | 479 | | |
B&W Renewable Projects
During March 2022, the Company determined that its FoslerB&W Solar reporting unit had nine projects located in the United States that existed at the time FoslerB&W Solar (formerly Fosler) was acquired on September 30, 2021 which generated losses that arose due to the status of certain construction activities, existing at acquisition date, not adequately disclosed in the sales agreement and not recognized in the financial records of the seller. As of September 30, 2022,a result, the Company has recorded an increase in goodwill of $14.4 million, primarily resulting from the recognition of $14.1 million of accrued liabilities and $0.4 million of warranty accruals in conjunction with the finalization of purchase accounting as measurement period adjustments, which was finalized as of September 30, 2022.
During the nine months ended September 30, 2022, two additional Fosler Solar projects became loss contracts. In the three and nine months ended September 30, 2022, the Company recorded $8.6 million in net losses from changes in the estimated revenues and costs to complete the eleven Fosler Solar loss contracts. The Company has submitted insurance claims to recover a portion of these losses as of September 30, 2022.
March 31, 2023. During 2022, four additional B&W Solar projects became loss contracts, as such, the Company recorded $13.2 million in net losses from changes in the estimated costs to complete the thirteen B&W Solar loss contracts. During the three months ended March 31, 2023, one additional B&W Solar project became a loss contract. The related loss incurred during the quarter was immaterial to the Company's consolidated financial statements.
NOTE 5 – INVENTORIES
Inventories are stated at the lower of cost or net realizable value. The components of inventories are as follows:
| (in thousands) | (in thousands) | September 30, 2022 | | December 31, 2021 | (in thousands) | March 31, 2023 | | December 31, 2022 |
Raw materials and supplies | Raw materials and supplies | $ | 79,911 | | | $ | 56,352 | | Raw materials and supplies | $ | 91,668 | | | $ | 87,554 | |
Work in progress | Work in progress | 4,950 | | | 5,723 | | Work in progress | 3,917 | | | 2,518 | |
Finished goods | Finished goods | 12,971 | | | 17,452 | | Finished goods | 14,154 | | | 12,565 | |
Total inventories | Total inventories | $ | 97,832 | | | $ | 79,527 | | Total inventories | $ | 109,739 | | | $ | 102,637 | |
NOTE 6 – PROPERTY, PLANT & EQUIPMENT, & FINANCE LEASES
Property, plant and equipment less accumulated depreciation is as follows:
| (in thousands) | (in thousands) | September 30, 2022 | | December 31, 2021 | (in thousands) | March 31, 2023 | | December 31, 2022 |
Land | Land | $ | 2,378 | | | $ | 1,489 | | Land | $ | 2,498 | | | $ | 2,481 | |
Buildings | Buildings | 33,842 | | | 31,895 | | Buildings | 34,062 | | | 35,326 | |
Machinery and equipment | Machinery and equipment | 148,032 | | | 144,325 | | Machinery and equipment | 154,919 | | | 153,939 | |
Property under construction | Property under construction | 7,771 | | | 12,480 | | Property under construction | 13,133 | | | 11,410 | |
| | 192,023 | | | 190,189 | | | 204,612 | | | 203,156 | |
Less accumulated depreciation | Less accumulated depreciation | 135,158 | | | 133,137 | | Less accumulated depreciation | 144,036 | | | 141,145 | |
Net property, plant and equipment | Net property, plant and equipment | 56,865 | | | 57,052 | | Net property, plant and equipment | 60,576 | | | 62,011 | |
Finance leases | Finance leases | 30,548 | | | 34,159 | | Finance leases | 30,549 | | | 30,549 | |
Less finance lease accumulated amortization | Less finance lease accumulated amortization | 5,676 | | | 5,584 | | Less finance lease accumulated amortization | 6,713 | | | 6,197 | |
Net property, plant and equipment, and finance lease | Net property, plant and equipment, and finance lease | $ | 81,737 | | | $ | 85,627 | | Net property, plant and equipment, and finance lease | $ | 84,412 | | | $ | 86,363 | |
NOTE 7 - GOODWILL
The following summarizes the changes in the net carrying amount of goodwill as of September 30, 2022:March 31, 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | B&W Renewable | | B&W Environmental | | B&W Thermal | | Total | |
Balance at December 31, 2021 | $ | 79,357 | | | $ | 5,667 | | | $ | 31,438 | | | $ | 116,462 | | |
Addition - Fossil Power(1) | | | | | 35,392 | | | 35,392 | | |
Addition - Optimus Industries(1) | | | | | 11,081 | | | 11,081 | | |
Measurement period adjustments - Fosler(2) | 10,697 | | | | | | | 10,697 | | |
Measurement period adjustments - VODA(1)(2) | (61) | | | | | | | (61) | | |
Measurement period adjustments - Fossil Power(1)(2) | | | | | 270 | | | 270 | | |
Measurement period adjustments - Optimus Industries(1)(2) | | | | | (7,273) | | | (7,273) | | |
Goodwill impairment - Fosler | (7,224) | | | | | | | (7,224) | | |
Currency translation adjustments | (1,041) | | | (786) | | | (2,288) | | | (4,115) | | |
Balance at September 30, 2022 | $ | 81,728 | | | $ | 4,881 | | | $ | 68,622 | | | $ | 155,229 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | B&W Renewable | | B&W Environmental | | B&W Thermal | | Total | |
Goodwill | $ | 139,248 | | | $ | 79,825 | | | $ | 69,587 | | | $ | 288,660 | | |
Accumulated impairment losses | $ | (57,189) | | | (74,478) | | | — | | | (131,667) | | |
Balance at December 31, 2022 | $ | 82,059 | | | $ | 5,347 | | | $ | 69,587 | | | $ | 156,993 | | |
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Currency translation adjustments | 77 | | | 32 | | | 157 | | | 266 | | |
Balance at March 31, 2023 | $ | 82,136 | | | $ | 5,379 | | | $ | 69,744 | | | $ | 157,259 | | |
(1)
As described in Note 21, the Company is in the process of completing the purchase price allocation associated with the VODA, Fossil Power and Optimus Industries acquisitions and as a result, the provisional measurements of goodwill associated with these acquisitions are subject to change.
(2) The Company's preliminary purchase price allocation changed due to additional information and further analysis.
Goodwill represents the excess of the consideration transferred over the fair value of net assets, including identifiable intangible assets, at the acquisition date. Goodwill is assessed for impairment annually on October 1 or more frequently if events or changes in circumstances indicate a potential impairment exists.
In assessingThere were no indicators of goodwill for impairment the Company follows ASC 350, Intangibles – Goodwill and Other, which permits a qualitativeidentified during our quarterly triggering event assessment of whether it is more likely than not that the fair value of the reporting unit is less than its carrying value including goodwill. If the qualitative assessment determines that it is not more likely than not that the fair value of a reporting unit is less than its carrying value, including goodwill, then no impairment is determined to exist for the reporting unit. However, if the qualitative assessment determines that it is more likely than not that the fair value of the reporting unit is less than its carrying value, including goodwill, or we choose not to perform the qualitative assessment, then we compare the fair value of that reporting unit with its carrying value, including goodwill, in a quantitative assessment. If the carrying value of a reporting unit exceeds its fair value, goodwill is considered impaired with the impairment loss measured as the excess of the reporting unit’s carrying value, including goodwill, over its fair value. The estimated fair value of the reporting unit is derived based on valuation techniques the Company believes market participants would use for each of the reporting units.
During the quarter ended September 30, 2022, the Company identified certain factors, including but not limited to, the acquisition of the remaining 40% ownership stake in Fosler Construction Company Inc. for an amount less than the remaining balance of the non-controlling interest, significant deterioration in operating results from those originally forecastMarch 31, 2023.
at the date of acquisition primarily as a result of supply chain issues on certain solar product inputs, the recognition of additional contract losses in the third quarter of $8.6 million beyond amounts previously accounted for as measurement period adjustments during the year, the determination that the contingent consideration would not be payable, all of which contributed to the identification of a triggering event, requiring an interim quantitative goodwill impairment assessment of its Fosler Construction reporting unit. In addition, in conjunction with the interim goodwill impairment test, the Company performed an impairment analysis of the Fosler asset group's its long-lived and intangible assets and noted no impairment.
The quantitative assessment was performed using a combination of the income approach (discounted cash flows), the market approach and the guideline transaction method. The income approach uses the reporting unit’s estimated future cash flows, discounted at the weighted-average cost of capital of a hypothetical third-party buyer to account for uncertainties within the projections. The income approach uses assumptions based on the reporting unit’s estimated revenue growth, operating margin, and working capital turnover. The market approach estimates fair value by applying cash flow multiples to the reporting unit’s operating performance. The multiples are derived from comparable publicly traded companies with similar characteristics to the reporting unit. The guideline transaction method estimates fair value by applying recent observed transaction multiples from transactions involving companies with similar characteristics to the reporting unit’s business.
The Company compared the fair value of the Fosler Construction reporting unit to its carrying value and determined that the carrying value of the reporting unit exceeded the fair value. As such, the Company recorded goodwill impairment losses related to the Fosler Construction reporting unit of $7.2 million.
No indicators of goodwill impairment were identified for the Company's other reporting units.
NOTE 8 – INTANGIBLE ASSETS
The Company's intangible assets are as follows:
| (in thousands) | (in thousands) | September 30, 2022 | | December 31, 2021 | (in thousands) | March 31, 2023 | | December 31, 2022 |
Definite-lived intangible assets(1) (2) | | | | |
Definite-lived intangible assets(1) | | Definite-lived intangible assets(1) | | | |
Customer relationships | Customer relationships | $ | 67,027 | | | $ | 46,903 | | Customer relationships | $ | 68,191 | | | $ | 68,164 | |
Unpatented technology | Unpatented technology | 17,819 | | | 15,410 | | Unpatented technology | 18,260 | | | 18,208 | |
Patented technology | Patented technology | 3,646 | | | 3,103 | | Patented technology | 3,622 | | | 3,635 | |
Tradename | Tradename | 13,029 | | | 12,747 | | Tradename | 13,516 | | | 13,441 | |
Acquired backlog | Acquired backlog | 3,100 | | | 3,100 | | Acquired backlog | 3,100 | | | 3,100 | |
All other | All other | 9,138 | | | 9,319 | | All other | 9,998 | | | 9,653 | |
Gross value of definite-lived intangible assets | Gross value of definite-lived intangible assets | 113,759 | | | 90,582 | | Gross value of definite-lived intangible assets | 116,687 | | | 116,201 | |
Customer relationships amortization | Customer relationships amortization | (24,705) | | | (20,800) | | Customer relationships amortization | (27,465) | | | (26,198) | |
Unpatented technology amortization | Unpatented technology amortization | (9,584) | | | (8,313) | | Unpatented technology amortization | (10,463) | | | (10,013) | |
Patented technology amortization | Patented technology amortization | (2,845) | | | (2,729) | | Patented technology amortization | (2,927) | | | (2,891) | |
Tradename amortization | Tradename amortization | (5,962) | | | (5,425) | | Tradename amortization | (6,341) | | | (6,154) | |
Acquired backlog | Acquired backlog | (3,100) | | | (1,620) | | Acquired backlog | (3,100) | | | (3,100) | |
All other amortization | All other amortization | (9,074) | | | (9,205) | | All other amortization | (9,091) | | | (9,082) | |
Accumulated amortization | Accumulated amortization | (55,270) | | | (48,092) | | Accumulated amortization | (59,387) | | | (57,438) | |
Net definite-lived intangible assets | Net definite-lived intangible assets | $ | 58,489 | | | $ | 42,490 | | Net definite-lived intangible assets | $ | 57,300 | | | $ | 58,763 | |
Indefinite-lived intangible assets | Indefinite-lived intangible assets | | | | Indefinite-lived intangible assets | | | |
Trademarks and trade names | Trademarks and trade names | $ | 1,305 | | | $ | 1,305 | | Trademarks and trade names | $ | 1,530 | | | $ | 1,530 | |
Total intangible assets, net | Total intangible assets, net | $ | 59,794 | | | $ | 43,795 | | Total intangible assets, net | $ | 58,830 | | | $ | 60,293 | |
(1) As described in Note 21, we are in the process of completing the purchase price allocation associated with the VODA, Fossil Power and Optimus Industries acquisitions and as a result the intangible assets associated with these acquisitions are subject to change.
(2) The Company finalized the purchase price allocation for the Fosler ConstructionB & W Solar and B & W Renewable Service A/S acquisition on September 30, 2022 whichand November 30, 2022, respectively. The purchase price allocations for FPS and Optimus were finalized on of February 1, 2023 and February 28, 2023, respectively. These allocations resulted in several measurement period adjustments during the year ended December 31, 2022.
The following summarizes the changes in the carrying amount of intangible assets, net:
| | | Nine Months Ended September 30, | | Three Months Ended March 31, | |
(in thousands) | (in thousands) | 2022 | | 2021 | (in thousands) | 2023 | | 2022 | |
Balance at beginning of period | Balance at beginning of period | $ | 43,795 | | | $ | 23,908 | | Balance at beginning of period | $ | 60,293 | | | $ | 43,795 | | |
Business acquisitions and adjustments(1) (2) | Business acquisitions and adjustments(1) (2) | 27,412 | | | 17,100 | | Business acquisitions and adjustments(1) (2) | — | | | 25,092 | | |
Impairment of intangible assets | — | | | — | | |
| Amortization expense | Amortization expense | (7,111) | | | (2,531) | | Amortization expense | (1,949) | | | (2,978) | | |
Currency translation adjustments | Currency translation adjustments | (4,302) | | | (949) | | Currency translation adjustments | 486 | | | (457) | | |
Balance at end of the period | Balance at end of the period | $ | 59,794 | | | $ | 37,528 | | Balance at end of the period | $ | 58,830 | | | $ | 65,452 | | |
(1) As described in Note 21, we areDuring the quarter ended March 31, 2022 the Company was still in the process of completing the purchase price allocation associated with the Fosler Construction, VODA, Fossil Power and Optimus Industries acquisitions and as a result, the increase in intangible assetsprovisional measurements of goodwill associated with these acquisitions arewere subject to change.
(3) (2)The Company finalized the purchase price allocationallocations for the Fosler Construction acquisitionFPS and Optimus were finalized on September 30, 2022 whichof February 1, 2023 and February 28, 2023, respectively. These allocations resulted in several measurement period adjustments.adjustments during the year ended December 31, 2022.
Amortization of intangible assets is included in Cost of operations and SG&A in the Company's Condensed Consolidated Statement of Operations but is not allocated to segment results.
Intangible assets are assessed for impairment on an interim basis when impairment indicators exist. See Note 7 regarding the Company's interim impairment testing process for the nine months ended September 30, 2022.
Estimated future intangible asset amortization expense as of September 30, 2022March 31, 2023 is as follows (in thousands):
| | | | | |
| Amortization Expense |
Year ending December 31, 2022 | 1,926 | |
Year ending December 31, 2023 | 7,7016,020 | |
Year ending December 31, 2024 | 7,6297,955 | |
Year ending December 31, 2025 | 6,8327,158 | |
Year ending December 31, 2026 | 5,7576,010 | |
Year ending December 31, 2027 | 5,1565,352 | |
Year ending December 31, 2028 | 5,352 | |
Thereafter | 23,48919,453 | |
See Note 21 for more information regarding intangible assets identified in conjunction with the acquisitions of VODA, Fossil Power and Optimus Industries, which are subject to change pending the finalization of the purchase price allocation associated with these acquisitions.
NOTE 9 – ACCRUED WARRANTY EXPENSE
The Company may offer assurance type warranties on products and services that it sells. Changes in the carrying amount of accrued warranty expense are as follows:
| | | Nine Months Ended September 30, | | Three Months Ended March 31, |
(in thousands) | (in thousands) | 2022 | | 2021 | (in thousands) | 2023 | | 2022 |
Balance at beginning of period | Balance at beginning of period | $ | 12,925 | | | $ | 25,399 | | Balance at beginning of period | $ | 9,568 | | | $ | 12,925 | |
Additions | Additions | 3,799 | | | 5,155 | | Additions | 1,901 | | | 1,300 | |
Expirations and other changes | Expirations and other changes | (3,257) | | | (4,790) | | Expirations and other changes | (1,358) | | | (1,467) | |
Payments | Payments | (2,159) | | | (10,212) | | Payments | (253) | | | (193) | |
Translation and other | Translation and other | (687) | | | (342) | | Translation and other | 43 | | | (692) | |
Balance at end of period | Balance at end of period | $ | 10,621 | | | $ | 15,210 | | Balance at end of period | $ | 9,901 | | | $ | 11,873 | |
The Company accrues estimated expense included in Cost of operations on its Condensed Consolidated Statements of Operations to satisfy contractual warranty requirements when it recognizes the associated revenues on the related contracts, or in the case of a loss contract, the full amount of the estimated warranty costs is accrued when the contract becomes a loss contract. Additions at September 30, 2022 included $0.4 million related to the Fosler projects, as described in Note 4. In addition, the Company records specific provisions or reductions where it expects the actual warranty costs to significantly
differ from the accrued estimates. Such changes could have a material effect on the Company's consolidated financial condition, results of operations and cash flows.
NOTE 10 – RESTRUCTURING ACTIVITIES
The Company incurred restructuring charges (benefits) in each of the three and nine months ended September 30, 2022,March 31, 2023 and 2021.2022. The charges (benefits) primarily consist of severancelegal fees and costs related costs to actions taken as part of the Company’s ongoing strategic, market-focused organizational and re-branding initiative.
The following tables summarizes the restructuring activity incurred by segment:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Three Months Ended September 30, |
| 2022 | | 2021 |
(in thousands) | Total | Severance and related costs (benefit) | Other (1) | | Total | Severance and related costs | Other(1) |
B&W Renewable segment | $ | 78 | | $ | 6 | | $ | 72 | | | $ | 715 | | $ | 382 | | $ | 333 | |
B&W Environmental segment | 73 | | 8 | | 65 | | | 332 | | 128 | | 204 | |
B&W Thermal segment | 204 | | 14 | | 190 | | | 1,242 | | 362 | | 880 | |
Corporate | 4 | | 1 | | 3 | | | 2,286 | | 124 | | 2,162 | |
| $ | 359 | | $ | 29 | | $ | 330 | | | $ | 4,575 | | $ | 996 | | $ | 3,579 | |
| | | Nine Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended March 31, | | Three Months Ended March 31, |
| | 2022 | | 2021 | | 2023 | | 2022 |
(in thousands) | (in thousands) | Total | Severance and related costs (benefit) | Other (1) | | Total | Severance and related costs | Other(1) | (in thousands) | Total | Severance and related costs (benefit) | Other (1) | | Total | Severance and related costs (benefit) | Other(1) |
B&W Renewable segment | B&W Renewable segment | $ | 865 | | $ | 743 | | $ | 122 | | | $ | 1,781 | | $ | 1,301 | | $ | 480 | | B&W Renewable segment | $ | (89) | | $ | (89) | | $ | — | | | $ | (193) | | $ | (229) | | $ | 36 | |
B&W Environmental segment | B&W Environmental segment | 176 | | 27 | | 149 | | | 630 | | 335 | | 295 | | B&W Environmental segment | 20 | | 1 | | 19 | | | 69 | | 10 | | 59 | |
B&W Thermal segment | B&W Thermal segment | 484 | | 130 | | 354 | | | 3,132 | | 1,409 | | 1,723 | | B&W Thermal segment | 3 | | 3 | | — | | | 198 | | 50 | | 148 | |
Corporate | Corporate | (1,174) | | (1,227) | | 53 | | | 2,425 | | 132 | | 2,293 | | Corporate | 450 | | — | | 450 | | | 20 | | — | | 20 | |
| | $ | 351 | | $ | (327) | | $ | 678 | | | $ | 7,968 | | $ | 3,177 | | $ | 4,791 | | | $ | 384 | | $ | (85) | | $ | 469 | | | $ | 94 | | $ | (169) | | $ | 263 | |
Cumulative costs to date | Cumulative costs to date | $ | 45,534 | | 36,925 | | 8,609 | | | | Cumulative costs to date | $ | 46,127 | | 36,813 | | 9,314 | | | |
(1) Other amounts consist primarily of exit, relocation COVID-19 related and other costs.costs that are not considered as severance.
Restructuring liabilities are included in Other accrued liabilities on the Company's Condensed Consolidated Balance Sheets. Activity related to the restructuring liabilities is as follows:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended March 31, | |
(in thousands) | (in thousands) | 2022 | | 2021 | | 2022 | | 2021 | (in thousands) | 2023 | | 2022 | |
Balance at beginning of period | Balance at beginning of period | $ | 4,136 | | | $ | 7,945 | | | $ | 6,561 | | | $ | 8,146 | | Balance at beginning of period | $ | 1,615 | | | $ | 6,561 | | |
Restructuring (benefit) expense | Restructuring (benefit) expense | 359 | | | 4,575 | | | 351 | | | 7,968 | | Restructuring (benefit) expense | 384 | | | 94 | | |
Payments | Payments | (1,943) | | | (5,482) | | | (4,360) | | | (9,076) | | Payments | 37 | | | (749) | | |
Balance at end of period | Balance at end of period | $ | 2,552 | | | $ | 7,038 | | | $ | 2,552 | | | $ | 7,038 | | Balance at end of period | $ | 2,036 | | | $ | 5,906 | | |
The payments shown above for the three and nine months ended September 30,March 31, 2023 and 2022 and 2021 relate primarily to severance costs. Accrued restructuring liabilities at September 30,March 31, 2023 and 2022 and 2021 relate primarily to employee termination benefits.
NOTE 11 – PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS
Components of net periodic cost (benefit) included in net (loss) income are as follows:
| | | Pension Benefits | | Other Benefits | | Pension Benefits | | Other Benefits |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended March 31, | | | Three Months Ended March 31, | |
(in thousands) | (in thousands) | 2022 | | 2021 | | 2022 | | 2021 | | | 2022 | | 2021 | | 2022 | | 2021 | | (in thousands) | 2023 | | 2022 | | | 2023 | | 2022 | |
Interest cost | Interest cost | $ | 6,685 | | | $ | 5,603 | | | $ | 19,958 | | | $ | 16,883 | | | | $ | 49 | | | $ | 109 | | | $ | 147 | | | $ | 187 | | | Interest cost | $ | 11,489 | | | $ | 6,664 | | | | $ | 92 | | | $ | 49 | | |
Expected return on plan assets | Expected return on plan assets | (14,358) | | | (13,527) | | | (42,985) | | | (40,309) | | | | — | | | — | | | — | | | — | | | Expected return on plan assets | (11,697) | | | (14,366) | | | | — | | | — | | |
Amortization of prior service cost | Amortization of prior service cost | 27 | | | 28 | | | 82 | | | 84 | | | | 173 | | | 173 | | | 519 | | | 519 | | | Amortization of prior service cost | 52 | | | 28 | | | | 173 | | | 173 | | |
Recognized net actuarial gain | — | | | (2,253) | | | — | | | (2,253) | | | | — | | | — | | | — | | | — | | | |
Benefit plans, net (1) | Benefit plans, net (1) | (7,646) | | | (10,149) | | | (22,945) | | | (25,595) | | | | 222 | | | 282 | | | 666 | | | 706 | | | Benefit plans, net (1) | (156) | | | (7,674) | | | | 265 | | | 222 | | |
Service cost included in COS (2) | Service cost included in COS (2) | 195 | | | 217 | | | 594 | | | 652 | | | | 5 | | | 6 | | | 15 | | | 18 | | | Service cost included in COS (2) | 144 | | | 201 | | | | 4 | | | 5 | | |
Net periodic benefit cost (benefit) | Net periodic benefit cost (benefit) | $ | (7,451) | | | $ | (9,932) | | | $ | (22,351) | | | $ | (24,943) | | | | $ | 227 | | | $ | 288 | | | $ | 681 | | | $ | 724 | | | Net periodic benefit cost (benefit) | $ | (12) | | | $ | (7,473) | | | | $ | 269 | | | $ | 227 | | |
(1) Benefit plans, net, which is presented separately in the Company's Condensed Consolidated Statements of Operations, is not allocated to the segments.
(2) Service cost related to a small group of active participants is presented within Cost of operations in the Company's Condensed Consolidated Statements of Operations and is allocated torecorded at the B&W Thermal segment.segment level.
There were no mark-to-market ("MTM") adjustments for the Company's pension and other postretirement benefit plans during the three and nine months ended September 30, 2022March 31, 2023 and 2021.2022.
The Company made contributions to its pension and other postretirement benefit plans totaling $1.7 million and $2.5$0.3 million during the three and nine months ended September 30, 2022, respectively,March 31, 2023 as compared to $0.4 million and $24.7 million during the three and nine months ended September 30, 2021, respectively.March 31, 2022.
NOTE 12 – DEBT
Senior Notes
8.125% Senior Notes
During 2021, the Company completed sales of $151.2 million aggregate principal amount of its 8.125% senior notes due 2026 (“8.125% Senior Notes”) for net proceeds of approximately $146.6 million. In addition to the completed sales, the Company issued $35.0 million of 8.125% Senior Notes to B. Riley Financial, Inc., a related party, in exchange for a deemed prepayment of its then existing Last Out Term Loan Tranche A-3. The 8.125% Senior Notes bear interest at the rate of 8.125% per annum which is payable quarterly in arrears on January 31, April 30, July 31 and October 31 of each year, commencing on April 30, 2021. The 8.125% Senior Notes mature on February 28, 2026.
On March 31, 2021, the Company entered into a sales agreement with B. Riley Securities, Inc., a related party, in which it may sell to or through B. Riley Securities, Inc., from time to time, additional 8.125% Senior Notes up to an aggregate principal amount of $150.0 million. The 8.125% Senior Notes have the same terms as (other than date of issuance), form a single series of debt securities with and have the same CUSIP number and are fungible with the initial 8.125% Senior Notes issuance in 2021.
During the first nine months of 2022, the Company sold $5.4 million aggregate principal of 8.125% Senior Notes under the sales agreement described above for $5.4 million of net proceeds.
6.50% Senior Notes
During 2021, the Company completed sales of $151.4 million aggregate principal amount of its 6.50% senior notes due in 2026 (the “6.50% Senior Notes”) for net proceeds of approximately $145.8 million. Interest on the 6.50% Senior Notes is
payable quarterly in arrears on March 31, June 30, September 30 and December 31 of each year. The 6.50% Senior Notes mature on December 31, 2026.
The components of the Company's senior notes at September 30, 2022March 31, 2023 are as follows:
| | | Senior Notes | | Senior Notes |
(in thousands) | (in thousands) | 8.125% | | 6.50% | | Total | (in thousands) | 8.125% | | 6.50% | | Total |
Senior notes due 2026 | Senior notes due 2026 | $ | 191,640 | | | $ | 151,440 | | | $ | 343,080 | | Senior notes due 2026 | $ | 193,035 | | | $ | 151,440 | | | $ | 344,475 | |
Unamortized deferred financing costs | Unamortized deferred financing costs | (4,442) | | | (5,633) | | | (10,075) | | Unamortized deferred financing costs | (3,883) | | | (5,027) | | | (8,910) | |
Unamortized premium | Unamortized premium | 493 | | | — | | | 493 | | Unamortized premium | 421 | | | — | | | 421 | |
Net debt balance | Net debt balance | $ | 187,691 | | | $ | 145,807 | | | $ | 333,498 | | Net debt balance | $ | 189,573 | | | $ | 146,413 | | | $ | 335,986 | |
Revolving Debt
On June 30, 2021, the Company entered into a Revolving Credit Agreement (the “Revolving Credit Agreement”) with PNC Bank, National Association, as administrative agent (“PNC”) and a letter of credit agreement (the “Letter of Credit Agreement”) with PNC, pursuant to which PNC agreed to issue up to $110$110.0 million in letters of credit that is secured in part by cash collateral provided by an affiliate of MSD Partners, MSD PCOF Partners XLV, LLC (“MSD”), as well as a reimbursement, guaranty and security agreement with MSD, as administrative agent, and the cash collateral providers from time to time party thereto, along with certain of itsthe Company's subsidiaries as guarantors, pursuant to which the Companyit is obligated to reimburse MSD and any other cash collateral provider to the extent the cash collateral provided by MSD and any other cash collateral provider to secure the Letter of Credit Agreement is drawn to satisfy draws on letters of credit (the “Reimbursement Agreement”) and collectively with the Revolving Credit Agreement and Letter of Credit Agreement, the “Debt Documents” and the facilities thereunder, the “Debt Facilities”). The obligations of the Company under each of the Debt Facilities are guaranteed by certain existing and future domestic and foreign subsidiaries of the Company. B. Riley Financial, Inc. (“B. Riley”), a related party, has provided a guaranty of payment with regard to the Company’s obligations under the Reimbursement Agreement, as described below. The Company expects to use the proceeds and letter of credit availability under the Debt Facilities for working capital purposes and general corporate purposes. The Revolving Credit Agreement matures on June 30, 2025. As of September 30, 2022,March 31, 2023, no borrowings have occurred under the Revolving Credit Agreement and under the Letter of Credit Agreement, usage consisted of $15.1$13.7 million of financial letters of credit and $94.3$93.2 million of performance letters of credit.
Each of the Debt Facilities has a maturity date of June 30, 2025. The interest rates applicable under the Revolving Credit Agreement float at a rate per annum equal to either (i) a base rate plus 2.0% or (ii) 1 or 3 month reserve-adjusted LIBORSecured Overnight Financing Rate ("SOFR") rate plus 3.0%. The interest rates applicable to the Reimbursement Agreement float at a rate per annum equal to either (i) a base rate plus 6.50% or (ii) 1 or 3 month reserve-adjusted LIBORSOFR plus 7.50%. Under the Letter of Credit Agreement, the Company is required to pay letter of credit fees on outstanding letters of credit equal to (i) administrative fees of 0.75% and (ii) fronting fees of 0.25%. Under the Revolving Credit Agreement, the Company is required to pay letter of credit fees on outstanding letters of credit equal to (i) letter of credit commitment fees of 3.0% and (ii) letter of credit fronting fees of 0.25%. Under each of the Revolving Credit Agreement and the Letter of Credit Agreement, the Company is required to pay a facility fee equal to 0.375% per annum of the unused portion of the Revolving Credit Agreement or the Letter of Credit Agreement, respectively. The Company is permitted to prepay all or any portion of the loans under the Revolving Credit Agreement prior to maturity without premium or penalty. Prepayments under the Reimbursement Agreement shall be subject to a prepayment fee of 2.25% in the first year after closing, 2.0% in the second year after closing and 1.25% in the third year after closing with no prepayment fee payable thereafter.
The Company has mandatory prepayment obligations under the Reimbursement Agreement upon the receipt of proceeds from certain dispositions or casualty or condemnation events. The Revolving Credit Agreement and Letter of Credit Agreement require mandatory prepayments to the extent of an over-advance.
The obligations under the Debt Facilities are secured by substantially all assets of the Company and each of the guarantors, in each case subject to inter-creditor arrangements. As noted above, the obligations under the Letter of Credit Facility are also secured by the cash collateral provided by MSD and any other cash collateral provider thereunder.
The Debt Documents contain certain representations and warranties, affirmative covenants, negative covenants and conditions that are customarily required for similar financings. The Debt Documents require the Company to comply with
certain financial maintenance covenants, including a quarterly fixed charge coverage test of not less than 1.00 to 1.00, a quarterly senior net leverage ratio test of not greater than 2.50 to 1.00, a non-guarantor cash repatriation covenant not to exceed $35 million at any one time, a minimum liquidity covenant of at least $30.0 million at all times, a current ratio of not less than 1.25 to 1.00, and an annual cap on maintenance capital expenditures of $7.5 million. The Debt Documents also contain customary events of default (subject, in certain instances, to specified grace periods) including, but not limited to, the failure to make payments of interest or premium, if any, on, or principal under the respective facility, the failure to comply with certain covenants and agreements specified in the applicable Debt Agreement, defaults in respect of certain other indebtedness and certain events of insolvency. If any event of default occurs, the principal, premium, if any, interest and any other monetary obligations on all the then outstanding amounts under the Debt Documents may become due and payable immediately. As of September 30, 2022,The Company entered into an amendment to the Revolving Credit Agreement on May 9, 2023 which allowed the Company was notto exclude certain acquisition related expenses from the calculation of EBITDA under the Revolving Credit Agreement, including for purposes of determining the Company's compliance with certain financial covenants thereunder. Accordingly, as of March 31, 2023 in light of the amendment to the Revolving Credit Agreement, the Company remained in compliance with the aforementioned quarterly fixed charge coverage test and received a waiver from MSD and PNC for the period ended September 30, 2022.all financial covenants.
In connection with the Company’s entry into the Debt Documents on June 30, 2021, B. Riley, a related party, entered into a Guaranty Agreement in favor of MSD, in its capacity as administrative agent under the Reimbursement Agreement, for the ratable benefit of MSD, the cash collateral providers and each co-agent or sub-agent appointed by MSD from time to time (the “B. Riley Guaranty”). The B. Riley Guaranty provides for the guarantee of all of the Company’s obligations under the Reimbursement Agreement. The B. Riley Guaranty is enforceable in certain circumstances, including, among others, certain events of default and the acceleration of the Company’s obligations under the Reimbursement Agreement. Under a fee letter with B. Riley, the Company agreed to pay B. Riley $0.9 million per annum in connection with the B. Riley Guaranty. The Company entered into a reimbursement agreement with B. Riley governing the Company’s obligation to reimburse B. Riley to the extent the B. Riley Guaranty is called upon by the agent or lenders under the Reimbursement Agreement.
On November 7, 2022 the Company executed an amendment to its Debt Documents with MSD which modified certain financial maintenance covenants for future periods beginning with fiscal quarters ending on December 31, 2022. The Fixed Charge Coverage Ratio was amended to 0.55:1.0 for the fiscal quarter ending December 31, 2022, 0.65 to 1.00 for the fiscal quarter ending March 31, 2023, 0.80 to 1.00 for the fiscal quarter ending June 30, 2023, 1.15 to 1.00 for the fiscal quarter ending September 30, 2023 and 1.25 to 1.00 for the fiscal quarter ending December 31, 2023 and thereafter. The Senior Net Leverage Ratio was amended to 2.00 to 1.00 for the fiscal quarter ending December 31, 2022, 1.75 to 1.00 for the fiscal quarter ending March 31, 2023, 1.60 to 1.00 for the fiscal quarter ending June 30, 2023, and 1.50 to 1.00 for the fiscal quarter ending September 30, 2023 and thereafter. The amendment also establishes minimum cash flow covenants, as defined, for the fiscal quarter ending December 31, 2022 of $20.0 million and $25.0 million for the fiscal year 2023 and each fiscal year thereafter. In addition, the Company also executed an amendment to its Debt Documents with PNC which modified the calculation of the Fixed Charge Coverage Ratio for the fiscal quarters ending December 31, 2022, March 31, 2023 and June 30, 2023. The calculation of the Fixed Charge Coverage ratio for the fiscal quarter ending September 30, 2023 and thereafter will revert to the original calculation as stated in the original Debt Documents. In addition, the interest rates applicable to the Reimbursement Agreement float at a rate per annum are equal to either (i) a base rate plus 9.0% or (ii) 1 or 3-month reserve-adjusted SOFR plus 10.0%. In December 2022, the Company also deposited $10.0 million with PNC for Letter of Credit collateral to enable MSD to reduce their collateral requirement by $10.0 million.
On March 14, 2023, the Company, with certain subsidiaries of the Company as guarantors, certain lenders from time to time party to the Revolving Credit Agreement, and PNC, as administrative agent and swing loan lender to the Revolving Credit, Guaranty and Security Agreement, dated as of June 30, 2021, as amended (the “Amended Revolving Credit Agreement”), entered into the Second Amendment, Waiver and Consent to the Amended Revolving Credit Agreement (the “Second Amended Revolving Credit Agreement”). The Second Amended Revolving Credit Agreement amends the terms of the Amended Revolving Credit Agreement to (i) waive the senior net leverage ratio test for purposes of enacting a Permitted Restricted Payment on Preferred Shares (each as defined in the Second Amended Revolving Credit Agreement) to be made on March 31, 2023; and (ii) replace the use of LIBOR with Term SOFR throughout.
On May 9, 2023 the Company further amended the Amended Revolving Credit Agreement. See Note 23 for further details.
Letters of Credit, Bank Guarantees and Surety Bonds
Certain of the Company's subsidiaries, primarily outside of the United States, have credit arrangements with various commercial banks and other financial institutions for the issuance of letters of credit and bank guarantees in association with contracting activity. The aggregate value of all such letters of credit and bank guarantees outside of the Company's Letter of Credit Agreement as of September 30, 2022March 31, 2023 was $45.1$53.0 million. The aggregate value of the outstanding letters of credit provided under the Letter of Credit Agreement backstopping letters of credit or bank guarantees was $36.7$32.4 million as of September 30, 2022.March 31, 2023. Of the outstanding letters of credit issued under the Letter of Credit Agreement, $58.8$68.4 million are subject to foreign currency revaluation.
The Company has also posted surety bonds to support contractual obligations to customers relating to certain contracts. The Company utilizes bonding facilities to support such obligations, but the issuance of bonds under those facilities is typically at the surety's discretion. These bonds generally indemnify customers should the Company fail to perform its obligations under its applicable contracts. The Company, and certain of its subsidiaries, have jointly executed general agreements of indemnity in favor of surety underwriters relating to surety bonds the underwriters issue in support of some of its contracting activity. As of September 30, 2022,March 31, 2023, bonds issued and outstanding under these arrangements in support of its contracts totaled approximately $333.9$341.7 million. The aggregate value of the letters of credit backstopping surety bonds was $8.7$14.2 million.
The Company's ability to obtain and maintain sufficient capacity under the its current Debt Facilities is essential to allow it to support the issuance of letters of credit, bank guarantees and surety bonds. Without sufficient capacity, the Company's ability to support contract security requirements in the future will be diminished.
Other Indebtedness - Loans Payable
As of September 30, 2022, the Company's Denmark subsidiary has an unsecured interest-free loan of $0.7 million under a local government loan program related to COVID-19 that is payable May 2023. In addition,March 31, 2023, the Company had $1.6Loans payable of $15.7 million, net of debt issuance costs of $0.6 million, of which $4.3 million is classified as current and $11.4 million as long term loans payable on the Company's Consolidated Balance Sheet. Included in a loan payablethese amounts, the company had approximately $13.1 million, net of debt issuance costs of $0.6 million, related to financed insurance premiums payable April 2023. These loan payables are included in current Loans payable in the Company's Condensed Consolidated Balance Sheets.
Fosler Construction has loans, primarily for vehicles and equipment, totaling $0.5 million at September 30, 2022. The vehicle and equipment loans are included in Long-term loans payables in the Company's Condensed Consolidated Balance Sheets.
sale-leaseback financing transactions.
NOTE 13 – PREFERRED STOCK
In May 2021, the Company completed a public offering of its 7.75% Series A Cumulative Perpetual Preferred Stock (the "Preferred Stock") pursuant to an underwriting agreement (the “Underwriting Agreement”) between the Company and B. Riley Securities, Inc. At the closing, the Company issued to the public 4,444,700 shares of its Preferred Stock, at an offering price of $25.00 per share for net proceeds of approximately $106.4 million after deducting underwriting discounts, commissions but before expenses. The Preferred Stock has a par value of $0.01 per share and is perpetual and has no maturity date. The Preferred Stock has a cumulative cash dividend, when and as if declared by the Company's Board of Directors, at a rate of 7.75% per year on the liquidation preference amount of $25.00 per share and payable quarterly in arrears.arrears.
The Preferred Stock ranks, as to dividend rights and rights as to the distribution of assets upon the Company's liquidation, dissolution or winding-up: (1) senior to all classes or series of the Company's common stock and to all other capital stock issued by it expressly designated as ranking junior to the Preferred Stock; (2) on parity with any future class or series of the Company's capital stock expressly designated as ranking on parity with the Preferred Stock; (3) junior to any future class or series of the Company's capital stock expressly designated as ranking senior to the Preferred Stock; and (4) junior to all of the Company's existing and future indebtedness.
The Preferred Stock has no stated maturity and is not subject to mandatory redemption or any sinking fund. The Company will pay cumulative cash dividends on the Preferred Stock when, as and if, declared by its Board of Directors, only out of funds legally available for payment of dividends. Dividends on the Preferred Stock will accrue on the stated amount of $25.00 per share of the Preferred Stock at a rate per annum equal to 7.75% (equivalent to $1.9375 per year), payable quarterly in arrears. Dividends on the Preferred Stock declared by the Company's Board of Directors will be payable quarterly in arrears on March 31, June 30, September 30 and December 31 of each year.
During the ninethree months ending September 30, 2022,March 31, 2023, the Company's Board of Directors approved dividends totaling $11.1 million. $3.7 million for holders of the Preferred Stock. There arewere no cumulative undeclared dividends of the Preferred Stock at September 30, 2022.
On June 1, 2021, the Company and B. Riley, a related party, entered into an agreement (the “Exchange Agreement”) pursuant to which the Company (i) issued B. Riley 2,916,880 shares of its Preferred Stock, representing an exchange price of $25.00 per share and paid $0.4 million in cash, and (ii) paid $0.9 million in cash to B. Riley for accrued interest due, in exchange for a deemed prepayment of $73.3 million of the Company's then existing term loans with B. Riley under the Company’s prior A&R Credit Agreement.
On July 7, 2021, the Company entered into a sales agreement with B. Riley Securities, Inc., a related party, in connection with the offer to or through B. Riley Securities, Inc., from time to time, additional shares of Preferred Stock up to an aggregate amount of $76.0 million of Preferred Stock. The Preferred Stock has the same terms and have the same CUSIP number and is fungible with, the Preferred Stock issued during May 2021. For the nine months ending September 30, 2022, the Company has sold no additional Preferred Stock pursuant to the sales agreement. As of DecemberMarch 31, 2021, the Company sold $7.7 million aggregate principal amount of Preferred Stock for $7.7 million of net proceeds.2023.
NOTE 14 – COMMON STOCK
On February 12, 2021, the Company completed a public offering of its common stock pursuant to an underwriting agreement dated February 9, 2021, between the Company and B. Riley Securities, Inc., as representative of the several underwriters. At the time of closing, the Company issued to the public 29,487,180 shares of its common stock and received net proceeds of approximately $163.0 million after deducting underwriting discounts and commissions, but before expenses. The net proceeds of the offering were used to make a prepayment toward the balance outstanding under the Company's then existing U.S. Revolving Credit Facility and permanently reduced the commitments under its senior secured credit facilities.
On May 19, 2022, at the 2022 annual meeting of stockholders of the Company, the stockholders of the Company, upon the recommendation of the Company’s Board of Directors, approved an amendment to the Babcock & Wilcox Enterprises, Inc. 2021 Long-Term Incentive Plan. The Plan Amendment became effective upon such stockholder approval. The Plan Amendment increased the total number of shares of the Company’s common stock authorized for award grants under the 2021 Plan from 1,250,000 shares to 5,250,000 shares. The 2021 Plan replaced the Company’s Amended and Restated 2015 Long-Term Incentive Plan. In addition to the 5,250,000 shares available for award grant purposes under the 2021 Plan as described above, any shares of Company common stock underlying any outstanding award granted under the 2015 Plan that,
following May 20, 2021, expires, or is terminated, surrendered, or forfeited for any reason without issuance of such shares shall also be available for the grant of new awards under the 2021 Plan.
NOTE 15 –INTEREST EXPENSE AND SUPPLEMENTAL CASH FLOW INFORMATION
Interest expense in the Company's Condensed Consolidated Financial Statements consisted of the following components:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended March 31, | |
(in thousands) | (in thousands) | 2022 | | 2021 | | 2022 | | 2021 | | (in thousands) | 2023 | | 2022 | |
Components associated with borrowings from: | Components associated with borrowings from: | | | | | | | | | Components associated with borrowings from: | | | | |
Senior notes | Senior notes | $ | 6,385 | | | $ | 3,801 | | | $ | 18,715 | | | $ | 8,993 | | | Senior notes | $ | 6,328 | | | $ | 6,216 | | |
Last Out Term Loans - cash interest | — | | | — | | | — | | | 4,349 | | | |
U.S. Revolving Credit Facility | — | | | — | | | — | | | 1,416 | | | |
| | | 6,385 | | | 3,801 | | | 18,715 | | | 14,758 | | | |
Components associated with amortization or accretion of: | Components associated with amortization or accretion of: | | | Components associated with amortization or accretion of: | | |
Revolving Credit Agreement | Revolving Credit Agreement | 1,237 | | | 1,057 | | | 3,465 | | | 1,057 | | | Revolving Credit Agreement | 984 | | | 1,060 | | |
Senior notes | Senior notes | 657 | | | 335 | | | 1,950 | | | 2,101 | | | Senior notes | 619 | | | 643 | | |
U.S. Revolving Credit Facility | — | | | — | | | — | | | 5,995 | | | |
| | | 1,894 | | | 1,392 | | | 5,415 | | | 9,153 | | | | 1,603 | | | 1,703 | | |
| Components associated with interest from: | Components associated with interest from: | | | Components associated with interest from: | | |
Lease liabilities | Lease liabilities | 707 | | | 870 | | | 2,112 | | | 2,194 | | | Lease liabilities | 724 | | | 708 | | |
Other interest expense | Other interest expense | 2,334 | | | 2,267 | | | 7,007 | | | 4,469 | | | Other interest expense | 4,007 | | | 2,640 | | |
| | 3,041 | | | 3,137 | | | 9,119 | | | 6,663 | | | | 4,731 | | | 3,348 | | |
| Total interest expense | Total interest expense | $ | 11,320 | | | $ | 8,330 | | | $ | 33,249 | | | $ | 30,574 | | | Total interest expense | $ | 12,662 | | | $ | 11,267 | | |
The following table provides a reconciliation of Cash, cash equivalents and Short-term and Long-term restricted cash reporting within the Company's Condensed Consolidated Balance Sheets and in the Condensed Consolidated Statements of Cash Flows:
| (in thousands) | (in thousands) | September 30, 2022 | | December 31, 2021 | | September 30, 2021 | (in thousands) | March 31, 2023 | | December 31, 2022 |
Held by foreign entities | Held by foreign entities | $ | 27,435 | | | $ | 42,070 | | | $ | 39,238 | | Held by foreign entities | $ | 39,095 | | | $ | 46,640 | |
Held by U.S. entities | Held by U.S. entities | 21,036 | | | 182,804 | | | 67,817 | | Held by U.S. entities | 23,665 | | | 30,088 | |
Cash and cash equivalents | Cash and cash equivalents | 48,471 | | | 224,874 | | | 107,055 | | Cash and cash equivalents | 62,760 | | | 76,728 | |
| Reinsurance reserve requirements | Reinsurance reserve requirements | 648 | | | 443 | | | 774 | | Reinsurance reserve requirements | 506 | | | 447 | |
Project indemnity collateral (1) | | Project indemnity collateral (1) | — | | | 5,723 | |
Bank guarantee collateral | Bank guarantee collateral | 1,892 | | | 997 | | | 1,026 | | Bank guarantee collateral | 2,107 | | | 2,072 | |
Letters of credit collateral | 1,190 | | | 401 | | | 6,892 | | |
Hold-back for acquisition purchase price (1) | 5,900 | | | — | | | — | | |
Escrow for long-term project (2) | 11,397 | | | — | | | — | | |
Letters of credit collateral (2) | | Letters of credit collateral (2) | 11,196 | | | 11,193 | |
Hold-back for acquisition purchase price (3) | | Hold-back for acquisition purchase price (3) | 3,102 | | | 5,900 | |
Escrow for long-term project (4) | | Escrow for long-term project (4) | 11,397 | | | 11,397 | |
Current and Long-term restricted cash and cash equivalents | Current and Long-term restricted cash and cash equivalents | 21,027 | | | 1,841 | | | 8,692 | | Current and Long-term restricted cash and cash equivalents | 28,308 | | | 36,732 | |
Total cash, cash equivalents and restricted cash shown in the Condensed Consolidated Statements of Cash Flows | Total cash, cash equivalents and restricted cash shown in the Condensed Consolidated Statements of Cash Flows | $ | 69,498 | | | $ | 226,715 | | | $ | 115,747 | | Total cash, cash equivalents and restricted cash shown in the Condensed Consolidated Statements of Cash Flows | $ | 91,068 | | | $ | 113,460 | |
(1) The Company released $5.7 million in project indemnity restricted cash collateral for a letter of credit agreement during the first quarter of 2023.
(2) The Company paid an additional $10.0 million in December, 2022 for letter of credit collateral which is reflected in Long-term restricted cash on the Company's Consolidated Balance Sheets. The remainder of the letters of credit are reflected within Restricted cash and cash equivalents.
(3) The purchase price for Fossil Power Systems ("FPS") was $59.2 million, including aand included an initial hold-back of $5.9 million which iswas included in Current restricted cash and cash equivalents and Other accrued liabilities on the Company's Condensed Consolidated Balance Sheets. The hold-backSheets. As of March 31, 2023, the initial payment was made in the amount of $2.8 million and the remainder is being held in escrow for potential payment of up to the maximum amount twelvetwenty-four months from the February 1, 2022 date of acquisition if the conditions are met.
(2)(4) On December 15, 2021, the Company entered into an agreement to place $11.5$11.4 million in an escrow account as security to ensure project performance. On April 30, 2023, $2.5 million of the total amount held in escrow will be reclassified from Long-Term restricted cash to Current restricted cash in anticipation of the initial payment on April 20, 2024. The remaining amount of $9.0$8.9 million will be reclassified from Long-term restricted cash to Current restricted cash on September 30, 2024, with a scheduled final settlement on September 30, 2025.
The following cash activity is presented as a supplement to the Company's Condensed Consolidated Statements of Cash Flows and is included in Net cash used in operating activities:
| | | Nine Months Ended September 30, | | Three Months Ended March 31, |
(in thousands) | (in thousands) | 2022 | | 2021 | | (in thousands) | 2023 | | 2022 | |
Income tax payments, net | Income tax payments, net | $ | 2,693 | | | $ | 6,094 | | | Income tax payments, net | $ | 1,551 | | | $ | 471 | | |
| Interest payments - 8.125% Senior Notes due 2026 | Interest payments - 8.125% Senior Notes due 2026 | $ | 11,444 | | | $ | 6,681 | | | Interest payments - 8.125% Senior Notes due 2026 | $ | 3,921 | | | $ | 3,783 | | |
Interest payments - 6.50% Senior Notes due 2026 | Interest payments - 6.50% Senior Notes due 2026 | 7,848 | | | — | | | Interest payments - 6.50% Senior Notes due 2026 | 2,461 | | | 2,926 | | |
Interest payments on U.S. Revolving Credit Facility | — | | | 5,979 | | | |
Interest payments on Last Out Term Loans | — | | | 6,140 | | | |
| Total cash paid for interest | Total cash paid for interest | $ | 19,292 | | | $ | 18,800 | | | Total cash paid for interest | $ | 6,382 | | | $ | 6,709 | | |
NOTE 16 – PROVISION FOR INCOME TAXES
In the three months ended September 30, 2022,March 31, 2023, income tax expense was $4.9$0.5 million, resulting in an effective tax rate of (31.3)(4.1)%. In the three months ended September 30, 2021,March 31, 2022, income tax expense was $0.3$1.2 million, resulting in an effective tax rate of 2.2%.
In the nine months ended September 30, 2022, income tax expense was $4.8 million, resulting in an effective tax rate of (17.4)(16.5)%. In the nine months ended September 30, 2021, income tax expense was $6.7 million, resulting in an effective tax rate of 83.2%.
The Company's effective tax rate for the three and nine months ended September 30, 2022 and 2021March 31, 2023 is not reflective of the U.S. statutory rate due to valuation allowances against certain net deferred tax assets and discrete items. The Company has unfavorable discrete items of $0.7 million and $1.2$0.2 million for the three and nine months ended September 30, 2022,March 31, 2023, which primarily represent withholding taxes and deferred tax asset remeasurement due to an enacted change in tax law.taxes. The Company had favorable discrete items of $0.6 million and unfavorable discrete items of $2.9$0.4 million for the three and nine months ended September 30, 2021,March 31, 2022, which primarily represented withholding taxes and deferred tax liability remeasurement due to an enacted change in tax law.taxes.
The Company is subject to federal income tax in the United States and numerous countries that have statutory tax rates different than the United States federal statutory rate of 21%. The most significant of these foreign operations are located in Canada, Denmark, Germany, Italy, Mexico, Sweden, and the United Kingdom, with effective tax rates ranging between approximately 19% and 30%. The Company provides for income taxes based on the tax laws and rates in the jurisdictions where it conducts operations. These jurisdictions may have regimes of taxation that vary in both nominal rates and the basis on which these rates are applied. The Company's consolidated effective income tax rate can vary from period to period due to these foreign income tax rate variations, changes in the jurisdictional mix of its income, and valuation allowances.
The Inflation Reduction Act ("IRA") and CHIPS and Science Act ("CHIPS Act") were signed into law in August 2022. The IRA introduced new provisions, including a 15 percent corporate alternative minimum tax for certain large corporations that have at least an average of $1 billion adjusted financial statement income over a consecutive three-tax-year period and a new excise tax on corporate stock buybacks of public US companies. The CHIPS Act, introduces investment tax credits and incentives in semiconductor manufacturing. The corporate minimum tax and excise tax on stock buybacks will be effective for years beginning after December 31, 2022. There is no impact to our financial position at this time.
NOTE 17 – CONTINGENCIES
Litigation Relating to Boiler Installation and Supply Contract
On December 27, 2019, a complaint was filed against Babcock & Wilcox by P.H. Glatfelter Company (“Glatfelter”) in the United States District Court for the Middle District of Pennsylvania, Case No. 1:19-cv-02215-JPW, alleging claims of breach of contract, fraud, negligent misrepresentation, promissory estoppel and unjust enrichment (the “Glatfelter Litigation”). The complaint alleges damages in excess of $58.9 million. On March 16, 2020 the Company filed a motion to dismiss, and on December 14, 2020 the court issued its order dismissing the fraud and negligent misrepresentation claims and finding that, in the event that parties’ contract is found to be valid, Plaintiffs’ claims for damages will be subject to the contractual cap on liability (defined as the $11.7 million purchase price subject to certain adjustments). On January 11, 2021, the Company filed its answer and a counterclaim for breach of contract, seeking damages in excess of $2.9 million. The Company intends to continue to vigorously litigate the action. However, given the stage of the litigation, it is too early to determine if the outcome of the Glatfelter Litigation will have a material adverse impact on The Company's consolidated financial condition, results of operations or cash flows.
Stockholder Derivative and Class Action Litigation
On April 14, 2020, a putative B&W stockholder (“Plaintiff”) filed a derivative and class action complaint against certain of the Company’s directors (current and former), executives and significant stockholders (collectively, “Defendants”) and the Company (as a nominal defendant). The action was filed in the Delaware Court of Chancery and is captioned Parker v. Avril, et al., C.A. No. 2020-0280-PAF (the “Stockholder Litigation”). Plaintiff alleges that Defendants, among other things, did not properly discharge their fiduciary duties in connection with the 2019 rights offering and related transactions.
On June 10, 2022, after pursuing private mediation, the parties to the Stockholder Litigation reached a settlement agreement in principle to resolve the Stockholder Litigation. That settlement agreement includes (i) certain corporate governance changes that the Company is willing to implement in the future, (ii) a total payment of $9.5 million, and (iii) other customary terms and conditions. All attorney’s fees, administration costs, and expenses associated with the settlement of this matter will be deducted from the total payment amount, other than the cost of notice, which will be borne by the Company. Of the total settlement amount, the Company will pay $4.75 million on behalf of B. Riley Financial, Inc. and Vintage Capital Management, LLC pursuant to existing contractual indemnification obligations to settle Plaintiff’s direct claims asserted against these entities. This $4.75 million, after the deduction of attorney’s fees and the customary settlement costs and expenses described above, will be paid to shareholders of the Company, excluding any Defendant in the Stockholder Litigation. The remaining $4.75 million of the total settlement amount, after the deduction of attorney’s fees and the customary settlement costs and expenses described above, will be paid to the Company from insurance proceeds and the contribution of certain other parties to the Stockholder Litigation to settle the derivative claims asserted by Plaintiff on behalf of the Company. The proposed settlement, which remains subject to court approval, would resolve all claims that have been, could have been, could now be, or in the future could, can, or might be asserted in the Stockholder Litigation. The settlement of this matter remains subject to court approval and the amount to be paid by the Company is fully accrued and reflected in Other accrued liabilities on the Company's Condensed Consolidated Balance Sheets at September 30, 2022.
March 31, 2023. The Company has also accrued a probable loss recovery related to settlement proceeds of $3.4 million in Other Accounts Receivable on the Company's Condensed Consolidated Balance Sheets and in Advisory fees and settlement costs in the Company's Condensed Consolidated Statements of Operations at March 31, 2023. The Court has scheduled a hearing on July 10, 2023 to consider final approval of the settlement.
Russian Invasion of Ukraine
The Company does not currently have contracts directly with Russian entities or businesses and it currently does not conduct business in Russia directly. It is believed that the Company’s only involvement with Russia or Russian entities, involves sales of its products with a trade receivable in the amount of approximately $3.1 million by a wholly-owned Italian subsidiary of the Company to non-Russian counterparties who may resell the Company's products to Russian entities or perform services in Russia using its products. The Company has implemented a restricted party screening process completed by a third party to monitor compliance with trade restrictions. The economic sanctions and export-control measures and the ongoing invasion of Ukraine could impact the Company's subsidiary’s rights and responsibilities under the contracts and could result in potential losses to the Company.
Other
Due to the nature of B&W's business, the Company is, from time to time, involved in routine litigation or subject to disputes or claims related to its business activities, including, among other things: performance or warranty-related matters under the Company's customer and supplier contracts and other business arrangements; and workers' compensation, premises liability and other claims. Based on prior experience, the Company does not expect that any of these other litigation proceedings, disputes and claims will have a material adverse effect on its consolidated financial condition, results of operations or cash flows.
NOTE 18 – COMPREHENSIVE INCOME
Gains and losses deferred in accumulated other comprehensive income (loss) ("AOCI") are generally reclassified and recognized in the Condensed Consolidated Statements of Operations once they are realized. The changes in the components of AOCI, net of tax, for the first, second and third quarters of 20222023 and 20212022 were as follows:
| | | | | | | | | | | | |
(in thousands) | Currency translation loss | | Net unrecognized loss related to benefit plans (net of tax) | Total |
Balance at December 31, 2021 | $ | (55,499) | | | $ | (3,323) | | $ | (58,822) | |
Other comprehensive loss before reclassifications | (4,285) | | | — | | (4,285) | |
Reclassified from AOCI to net loss | — | | | 593 | | 593 | |
Net other comprehensive (loss) income | (4,285) | | | 593 | | (3,692) | |
Balance at March 31, 2022 | $ | (59,784) | | | $ | (2,730) | | $ | (62,514) | |
Other comprehensive loss before reclassifications | (6,634) | | | — | | (6,634) | |
Reclassified from AOCI to net loss | — | | | (198) | | (198) | |
Net other comprehensive loss | (6,634) | | | (198) | | (6,832) | |
Balance at June 30, 2022 | $ | (66,418) | | | $ | (2,928) | | $ | (69,346) | |
Other comprehensive loss before reclassifications | $ | (13,344) | | | $ | — | | (13,344) | |
Reclassified from AOCI to net loss | | | $ | 198 | | 198 | |
Net other comprehensive loss | (13,344) | | | 198 | | (13,146) | |
Balance at September 30, 2022 | $ | (79,762) | | | $ | (2,730) | | $ | (82,492) | |
| | | | | | | | | | | | |
(in thousands) | Currency translation loss | | Net unrecognized loss related to benefit plans (net of tax) | Total |
Balance at December 31, 2022 | $ | (70,333) | | | $ | (2,453) | | $ | (72,786) | |
Other comprehensive income before reclassifications | 4,592 | | | 223 | | 4,815 | |
Net other comprehensive (loss) income | 4,592 | | | 223 | | 4,815 | |
Balance at March 31, 2023 | $ | (65,741) | | | $ | (2,230) | | $ | (67,971) | |
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| | | | |
| (in thousands) | (in thousands) | Currency translation loss | | Net unrecognized loss related to benefit plans (net of tax) | Total | (in thousands) | Currency translation loss | | Net unrecognized loss related to benefit plans (net of tax) | Total |
Balance at December 31, 2020 | $ | (47,575) | | | $ | (4,815) | | $ | (52,390) | | |
Balance at December 31, 2021 | | Balance at December 31, 2021 | $ | (55,499) | | | $ | (3,323) | | $ | (58,822) | |
Other comprehensive loss before reclassifications | Other comprehensive loss before reclassifications | (70) | | | — | | (70) | | Other comprehensive loss before reclassifications | (4,285) | | | — | | (4,285) | |
Reclassified from AOCI to net (loss) income | Reclassified from AOCI to net (loss) income | (4,512) | | | 198 | | (4,314) | | Reclassified from AOCI to net (loss) income | — | | | 593 | | 593 | |
Net other comprehensive (loss) income | Net other comprehensive (loss) income | (4,582) | | | 198 | | (4,384) | | Net other comprehensive (loss) income | (4,285) | | | 593 | | (3,692) | |
Balance at March 31, 2021 | $ | (52,157) | | | $ | (4,617) | | $ | (56,774) | | |
Other comprehensive loss before reclassifications | (1,478) | | | — | | (1,478) | | |
Reclassified from AOCI to net income | — | | | 198 | | 198 | | |
Net other comprehensive (loss) income | (1,478) | | | 198 | | (1,280) | | |
Balance at June 30, 2021 | $ | (53,635) | | | $ | (4,419) | | $ | (58,054) | | |
Other comprehensive loss before reclassifications | (1,292) | | | — | | (1,292) | | |
Reclassified from AOCI to net income (loss) | — | | | 197 | | 197 | | |
Net other comprehensive (loss) income | (1,292) | | | 197 | | (1,095) | | |
Balance at September 30, 2021 | $ | (54,927) | | | $ | (4,222) | | $ | (59,149) | | |
Balance at March 31, 2022 | | Balance at March 31, 2022 | $ | (59,784) | | | $ | (2,730) | | $ | (62,514) | |
| |
The amounts reclassified out of AOCI by component and the affected Condensed Consolidated Statements of Operations line items are as follows (in thousands):
| AOCI component | AOCI component | Line items in the Condensed Consolidated Statements of Operations affected by reclassifications from AOCI | Three Months Ended September 30, | | Nine Months Ended September 30, | AOCI component | Line items in the Condensed Consolidated Statements of Operations affected by reclassifications from AOCI | Three Months Ended March 31, | |
2022 | | 2021 | | 2022 | | 2021 | | AOCI component | Line items in the Condensed Consolidated Statements of Operations affected by reclassifications from AOCI | 2023 | | 2022 | |
Release of currency translation adjustment with the sale of business | Loss on sale of business | $ | — | | | $ | — | | | $ | — | | | $ | 4,512 | | | |
| | Pension and post retirement adjustments, net of tax | Pension and post retirement adjustments, net of tax | Benefit plans, net | 198 | | | (197) | | | 593 | | | (593) | | | Pension and post retirement adjustments, net of tax | Benefit plans, net | 223 | | | 593 | | |
| | Net (loss) income | $ | 198 | | | $ | (197) | | | $ | 593 | | | $ | 3,919 | | | | Net Income (Loss) | $ | 223 | | | $ | 593 | | |
NOTE 19 – FAIR VALUE MEASUREMENTS
The following tables summarize the Company's financial assets and liabilities carried at fair value, all of which were valued from readily available prices or using inputs based upon quoted prices for similar instruments in active markets (known as "Level 1" and "Level 2" inputs, respectively, in the fair value hierarchy established by the FASB Topic, Fair Value Measurements and Disclosures).
| (in thousands) | (in thousands) | | | (in thousands) | | |
Available-for-sale securities | Available-for-sale securities | September 30, 2022 | Level 1 | Level 2 | | Available-for-sale securities | March 31, 2023 | Level 1 | Level 2 | |
Corporate notes and bonds | Corporate notes and bonds | $ | 6,147 | | $ | 6,147 | | $ | — | | | Corporate notes and bonds | $ | 4,203 | | $ | 4,203 | | $ | — | | |
Mutual funds | Mutual funds | 620 | | — | | 620 | | | Mutual funds | 633 | | — | | 633 | | |
United States Government and agency securities | United States Government and agency securities | 3,787 | | 3,787 | | — | | | United States Government and agency securities | 4,108 | | 4,108 | | — | | |
Total fair value of available-for-sale securities | Total fair value of available-for-sale securities | $ | 10,554 | | $ | 9,934 | | $ | 620 | | | Total fair value of available-for-sale securities | $ | 8,944 | | $ | 8,311 | | $ | 633 | | |
| | | | | | | | | | | | |
(in thousands) | | | | |
Available-for-sale securities | December 31, 2021 | Level 1 | Level 2 | |
Corporate notes and bonds | $ | 9,477 | | $ | 9,477 | | $ | — | | |
Mutual funds | 714 | | — | | 714 | | |
United States Government and agency securities | 2,017 | | 2,017 | | — | | |
Total fair value of available-for-sale securities | $ | 12,208 | | $ | 11,494 | | $ | 714 | | |
| | | | | | | | | | | | |
(in thousands) | | | | |
Available-for-sale securities | December 31, 2022 | Level 1 | Level 2 | |
Corporate notes and bonds | $ | 4,154 | | $ | 4,154 | | $ | — | | |
Mutual funds | 612 | | — | | 612 | | |
United States Government and agency securities | 4,023 | | 4,023 | | — | | |
Total fair value of available-for-sale securities | $ | 8,789 | | $ | 8,177 | | $ | 612 | | |
Available-For-Sale Securities
The Company's investments in available-for-sale securities are presented in Other assetsassets on its Condensed Consolidated Balance Sheets with contractual maturities ranging from 0-5 years.
Senior Notes
See Note 12 above for a discussion of the Company's senior notes. The fair value of the senior notes is based on readily available quoted market prices as of September 30, 2022.March 31, 2023.
| | | | | | | | | |
(in thousands) | September 30, 2022 | |
Senior Notes | Carrying Value | Estimated Fair Value | |
8.125% Senior Notes due 2026 ('BWSN') | $ | 191,640 | | $ | 184,800 | | |
6.50% Senior Notes due 2026 ('BWNB') | $ | 151,440 | | $ | 144,898 | | |
| | | | | | | | | |
(in thousands) | March 31, 2023 | |
Senior Notes | Carrying Value | Estimated Fair Value | |
8.125% Senior Notes due 2026 ('BWSN') | $ | 193,035 | | $ | 190,178 | | |
6.50% Senior Notes due 2026 ('BWNB') | $ | 151,440 | | $ | 131,268 | | |
Other Financial Instruments
The Company used the following methods and assumptions in estimating its fair value disclosures for its other financial instruments:
•Cash and cash equivalents and restricted cash and cash equivalents. The carrying amounts that the Company has reported in the accompanying Condensed Consolidated Balance Sheets for cash and cash equivalents and restricted cash and cash equivalents approximate their fair values due to their highly liquid nature.
•Revolving Debt. The Company bases the fair values of debt instruments on quoted market prices. Where quoted prices are not available, the Company bases the fair values on Level 2 inputs such as the present value of future cash flows discounted at estimated borrowing rates for similar debt instruments or on estimated prices based on current yields for debt issues of similar quality and terms. The fair value of the Company's Revolving Debt approximated their carrying value at September 30, 2022.March 31, 2023.
•Warrants. The fair value of the warrants was established using the Black-Scholes option pricing model value approach.
•Contingent consideration: In connection with the Fosler Construction Company acquisition, the Company agreed to pay contingent consideration based on the achievement of targeted revenue thresholds for the year ended December 31, 2022. The range of undiscounted amounts the Company could be required to pay under the contingent consideration arrangement is between $0.0 million and $10.0 million. The Company used the Monte Carlo simulation method to calculate the value of the contingent consideration and it was determined that the value of the liability should be zero at September 30, 2022. As such, the Company removed $9.6 million from Other current liabilities in the Company's Condensed Consolidated Balance Sheets and recorded a reduction of Selling, General and Administrative expense of $9.6 million on the Company's Condensed Consolidated Statements of Operations. The fair value measurement of the contingent consideration related to the Fosler Construction Company acquisition was categorized as a Level 3 liability, as the measurement amount is based primarily on significant inputs not observable in the markets. The Company evaluates the fair value of contingent consideration and the corresponding liability each reporting period using an option pricing framework. The Company estimates projections during the earn-out period and volatility within the option pricing model captures variability in the potential pay-out. The analysis considers a discount rate applicable to the underlying projections and the risk of the Company paying the future liability.
NOTE 20 – RELATED PARTY TRANSACTIONS
The Company believes transactions with related parties were conducted on terms equivalent to those prevailing in an arm's length transaction.
Transactions with B. Riley
Based on its Schedule 13D filings with the SEC, B. Riley beneficially owns approximately approxim30.5%ately 30.8% of the Company's outstanding common stock as of September 30, 2022.March 31, 2023.
On July 20, 2022, BRF Investments, LLC, an affiliate of B. Riley, a related party exercised 1,541,666.7 warrants to purchase 1,541,666 shares of the Company's common stock at a price per share of $0.01 pursuant to the terms of the warrant agreement between the Company and B. Riley dated July 23, 2019.
On July 28, 2022, the Company participated in the sale process of Hamon Holdings Corporation ("Hamon") for which B. Riley Securities, Inc., a related party to the Company, has been engaged as Hamon’s investment banker and to serve as advisor to Hamon through a Chapter 11 363 Asset Sale of Hamon’s entire United States business or potential carve-out of any of its four main subsidiaries. The Company was the successful bidder for the assets of one of those subsidiaries, Hamon Research-Cottrell, Inc. a major provider of air pollution control technology, for approximately $2.9 million.
The Company entered into an agreement with BRPI Executive Consulting, LLC, an affiliate of B. Riley, on November 19, 2018 and amended the agreement on November 9, 2020 to retain the services of Mr. Kenny Young, to serve as its Chief Executive Officer until December 31, 2023, unless terminated by either party with thirty days written notice. Under this agreement, payments are $0.75 million per annum, paid monthly. Subject to the achievement of certain performance objectives as determined by the Compensation Committee of the Board, a bonus or bonuses may also be earned and payable to BRPI Executive Consulting, LLC. Total fees associated with B. Riley related to the services of Mr. Kenny Young were $0.2 million and $0.6$0.2 million for the three and nine months ended September 30,March 31, 2023 and March 31, 2022, respectively, and $0.2 million and $0.4 million for the three and nine months ended September 30, 2021, respectively.
As described in Note 17, on June 10, 2022, after pursuing private mediation, the parties to the Stockholder Litigation reached a settlement agreement in principle to resolve the Stockholder Litigation. Of the total $9.5 million settlement amount, the Company will pay $4.75 million on behalf of B. Riley Financial, Inc. and Vintage Capital Management, LLC pursuant to existing contractual indemnification obligations to settle Plaintiff’s direct claims asserted against these entities. This $4.75 million, after the deduction of attorney’s fees and customary settlement costs and expenses, will be paid to shareholders of the Company, excluding any Defendant in the Stockholder Litigation. The settlement of this matter remains subject to court approval and the amount to be paid by the Company is fully accrued at September 30, 2022.March 31, 2023.
The public offering of the Company's 8.125% Senior Notes in February 2021, as described in Note 12, was conducted pursuant to an underwriting agreement dated February 10, 2021, between the Company and B. Riley Securities, Inc., an affiliate of B. Riley, as representative of several underwriters. At the closing date on February 12, 2021, the Company paid B. Riley Securities, Inc. $5.2 million for underwriting fees and other transaction cost related to the 8.125% Senior Notes offering.
The public offering of the Company's common stock, as described in Note 14, was conducted pursuant to an underwriting agreement dated February 9, 2021, between the Company and B. Riley Securities, Inc., as representative of the several underwriters. Also on February 12, 2021, the Company paid B. Riley Securities, Inc. $9.5 million for underwriting fees and other transaction costs related to the offering.
On February 12, 2021, the Company and B. Riley entered into the Exchange Agreement pursuant to which the Company agreed to issue to B. Riley $35.0 million aggregate principal amount of 8.125% Senior Notes in exchange for a deemed prepayment of $35.0 million of its existing Tranche A term loan with B. Riley Financial in the Exchange, as described in Note 12.
On March 31, 2021, the Company entered into a sales agreement with B. Riley Securities, Inc., a related party, in which the Company may sell, from time to time, up to an aggregated principal amount of $150.0 million of 8.125% Senior Notes due 2026 to or through B. Riley Securities, Inc., as described in Note 12. As of September 30, 2022,March 31, 2023, the Company paid B. Riley Securities, Inc. $0.6 million for underwriting fees and other transaction costs related to the offering of which $0.1 million has been paid for the ninethree months ended September 30, 2022.March 31, 2023.
The public offering of the Company's 7.75% Series A Cumulative Perpetual Preferred Stock, as described in Note 13, was conducted pursuant to an underwriting agreement dated May 4, 2021, between the Company and B. Riley Securities, Inc., as representative of several underwriters. At the closing date on May 2021, the Company paid B. Riley Securities, Inc. $4.3 million for underwriting fees and other transaction cost related to the Preferred Stock offering.
On May 26, 2021, the Company completed the additional sale of 444,700 shares of its Preferred Stock, related to the grant to the underwriters, as described in Note 13, and paid B. Riley Securities, Inc. $0.4 million for underwriting fees in conjunction with the transaction.
On June 1, 2021, the Company issued 2,916,880 shares of its 7.75% Series A Cumulative Perpetual Preferred Stock and paid $0.4 million in cash due to B. Riley, a related party, in exchange for a deemed prepayment of $73.3 million of the Company's then existing Last Out Term Loans and paid $0.9 million in cash for accrued interest, as described in Note 13.
On June 30, 2021, the Company entered into new Debt Facilities, as described in Note 12. In connection with the its entry into the Debt Facilities, B. Riley Financial, Inc., an affiliate of B. Riley, has provided a guaranty of payment with regard to the Company’s obligations under the Reimbursement Agreement, as describe in Note 12. Under a fee letter with B. Riley, the Company shall pay B. Riley $0.9 million per annum in connection with the B. Riley Guaranty.
On July 7, 2021, the Company entered into a sales agreement with B. Riley Securities, Inc., a related party, in which the Company may sell, from time to time, up to an aggregated principal amount of $76.0 million of Preferred Stock to or through B. Riley Securities, Inc., as described in Note 13. As of September 30, 2022,March 31, 2023, the Company paid B. Riley Securities, Inc. $0.2 million for underwriting fees and other transaction costs related to the offering.
The public offering of the Company's 6.50% Senior Notes in December 2021, as described in Note 12, was conducted pursuant to an underwriting agreement dated December 8, 2021, between the Company and B. Riley Securities, Inc., an affiliate of B. Riley, as representative of several underwriters. At the closing date on December 13, 2021, the Company paid B. Riley Securities, Inc. $5.5 million for underwriting fees and other transaction cost related to the 6.50% Senior Notes offering.
On December 17, 2021, B. Riley Financial, Inc. entered into a General Agreement of Indemnity (the "Indemnity Agreement"), between the Company and AXA-XL and or its affiliated associated and subsidiary companies (collectively the “Surety”). Pursuant to the terms of the Indemnity Agreement, B. Riley will indemnify the Surety for losses the Surety may incur as a result of providing a payment and performance bond in an aggregate amount not to exceed €30.0 million in connection with the Company's proposed performance on a specified project. In consideration of B. Riley's execution of the Indemnity Agreement, the Company paid B. Riley a fee of $1.7 million following the issuance of the bond by the Surety, which represents approximately 5.0% of the bonded obligations, to be amortized over the term of the agreement.
On December 28, 2021, the Company received a notice that the underwriters of the 6.50% Senior Notes had elected to exercise their overallotment option for an additional $11.4 million in aggregate principal amount of the Senior Notes. At the closing date on December 30, 2021, the Company paid B. Riley Securities, Inc. $0.5 million for underwriting fees and other transaction cost related to the 6.50% Senior Notes overallotment.
On July 20, 2022, BRF Investments, LLC, an affiliate of B. Riley, a related party exercised 1,541,666.7 warrants to purchase 1,541,666 shares of the Company's common stock at a price per share of $0.01 pursuant to the terms of the warrant agreement between the Company and B. Riley dated July 23, 2019.
On July 28, 2022, the Company participated in the sale process of Hamon Holdings Corporation ("Hamon") for which B. Riley Securities, Inc., a related party to the Company, has been engaged as Hamon’s investment banker and to serve as advisor to Hamon through a Chapter 11 363 Asset Sale of Hamon’s entire United States business or potential carve-out of any of its four main subsidiaries. The Company was the successful bidder for the assets of one of those subsidiaries, Hamon Research-Cottrell, Inc., a major provider of air pollution control technology, for approximately $2.9 million.
NOTE 21 – ACQUISITIONS AND DIVESTITURES
Acquisitions
Fosler Construction
On September 30, 2021, the Company acquired a 60% controlling ownership stake in Illinois-based solar energy contractor Fosler Construction Company Inc. (“Fosler Construction”). Fosler Construction provides commercial, industrial and utility-scale solar services and owns two community solar projects in Illinois that are being developed under the Illinois Solar for All program. Fosler Construction was founded in 1998 with a track record of successfully completing solar projects profitably with union labor while aligning its model with a growing number of renewable project incentives in the U.S. the Company believes Fosler Construction is positioned to capitalize on the high-growth solar market in the U.S. and that the acquisition aligns with B&W’s aggressive growth and expansion of the Company's clean and renewable energy businesses. Fosler Construction is reported as part of the Company's B&W Renewable segment, and operates under the name Fosler Solar, a Babcock and Wilcox company.
The total fair value of consideration for the acquisition is $36.0 million, including $27.2 million in cash plus $8.8 million in estimated fair value of the contingent consideration arrangement. In connection with the acquisition, the Company agreed to pay contingent consideration based on the achievement of targeted revenue thresholds for the year ended December 31, 2022. The range of undiscounted amounts the Company could be required to pay under the contingent consideration arrangement was between $0.0 million and $10.0 million. The Company used the Monte Carlo simulation method to calculate the value of the contingent consideration and it was determined that the value of the liability should be zero at September 30, 2022. See Note 19 for more details.
The Company estimated fair values primarily using the discounted cash flow method at September 30, 2021 for the preliminary allocation of consideration to the assets acquired and liabilities assumed during the measurement period and up to September 30, 2022 when the purchase price allocation was finalized. During the first nine months of 2022, the Company recorded an increase in goodwill of $14.4 million resulting from the initial recognition of $14.1 million of accrued liabilities and $0.4 million of warranty accruals as preliminary measurement period adjustments, as described in Note 4.
During the three and nine months ended September 30, 2022, the Company recorded $8.6 million in net losses from changes in the estimated revenues and costs to complete the eleven Fosler Solar loss contracts, as described in Note 4. The Company has submitted insurance claims to recover a portion of these losses as of September 30, 2022. See Note 4 for more details.
On September 24, 2022, the Company acquired the remaining 40% ownership stake in Fosler Construction for $12.7 million. In addition to the transfer of the remaining ownership stake, the settlement and share transfer agreement released all parties from the aforementioned contingent consideration arrangement, as well as other claims known as of the effective date of the agreement. The Company will make payments of $3.0 million, $5.0 million, and $4.7 million on January 16, 2023, June 30, 2023, and January 15, 2024, respectively, for a present value of $12.1 million at September 30, 2022. The Company has recorded the payments due within one year within the Other accrued liabilities caption and the payment due longer than one year within the Other non-current liabilities caption in the Company’s Condensed Consolidated Balance Sheet. As a result of the agreement, the Company removed the remaining non-controlling interest balance of $20.7 million from the Condensed Consolidated Balance Sheet and recorded an increase to Capital in Excess of Par Value for the $8.6 million difference.
During the quarter ended September 30, 2022, the Company identified certain factors, including the acquisition of the remaining 40% ownership stake in Fosler Construction Company Inc., which contributed to the identification of a triggering event, requiring an interim quantitative goodwill impairment assessment and resulted in a goodwill impairment charge at Fosler Construction of $7.2 million.See Note 7 for more details.
VODA
On November 30, 2021, the Company acquired 100% ownership of VODA A/S (“VODA”) through its wholly-owned subsidiary, B&W PGG Luxembourg Finance SARL, for approximately $32.9 million. VODA is a Denmark-based multi-brand aftermarket parts and services provider, focusing on energy-producing incineration plants including waste-to-energy, biomass-to-energy or other fuels, providing service, engineering services, spare parts as well as general outage support and management. VODA has extensive experience in incineration technology, boiler and pressure parts, SRO, automation, and performance optimization. VODA is reported as part of the Company's B&W Renewable segment and is included in the B&W Renewable Services product line.
The Company estimated fair values primarily using the discounted cash flow method at November 30, 2021 for the preliminary allocation of consideration to the assets acquired and liabilities assumed. During the measurement period, the Company will continue to obtain information to assist in finalizing the fair value of assets acquired and liabilities assumed, which may differ materially from these preliminary estimates. Any subsequent changes in the fair values of the assets acquired and liabilities assumed during the measurement period may result in adjustments to goodwill.
Fossil Power Systems
On February 1, 2022, the Company acquired 100% ownership of Fossil Power Systems, Inc. (“FPS”) for approximately $59.2 million. The consideration paid for FPS included a hold-back of $5.9 million, payable twelvetwenty-four months from the date of the acquisition if certain conditions of the purchase agreement are met and is recorded on the Company's Condensed Consolidated Balance Sheets in Restricted cash and cash equivalents and other accrued liabilities. Of the $5.9 million hold-back, $2.8 million was paid during the quarter ended March 31, 2023.
FPS is a leading designer and manufacturer of hydrogen, natural gas and renewable pulp and paper combustion equipment including ignitors, plant controls and safety systems based in Dartmouth, Nova Scotia, Canada and is reported as part of the Company's B&W Thermal segment.
The Company estimatedfinalized the fair values during the quarter primarily using the discounted cash flow method at February 1, 2022 for the preliminary allocation of consideration to the assets acquired and liabilities assumed. During the measurement period, the Company will continue to obtain information to assist in finalizing the fair value of assets acquired and liabilities assumed, which may differ materially from these preliminary estimates. Any subsequent changes in the fair values of the assets acquired and liabilities assumed during the measurement period may result in adjustments to goodwill.
Optimus Industries
On February 28, 2022, the Company acquired 100% ownership of Optimus Industries, LLC ("Optimus Industries") for approximately $19.2 million. Optimus Industries designs and manufactures waste heat recovery products for use in power generation, petrochemical, and process industries, including package boilers, watertube and firetube waste heat boilers, economizers, superheaters, waste heat recovery equipment and units for sulfuric acid plants and is based in Tulsa, Oklahoma and Chanute, Kansas. Optimus Industries is reported as part of the Company's B&W Thermal segment.
The Company estimatedfinalized the fair values during the quarter primarily using the discounted cash flow method at February 28, 2022 for the preliminary allocation of consideration to the assets acquired and liabilities assumed. During the measurement period, the Company will continue to obtain information to assist in finalizing the fair value of assets acquired and liabilities assumed, which may differ materially from these preliminary estimates. Any subsequent changes in the fair values of the assets acquired and liabilities assumed during the measurement period may result in adjustments to goodwill.
Hamon Holdings Corporation Industries
On July 28, 2022, the Company acquired certain assets of Hamon Holdings Corporation ("Hamon Holdings") through a competitive sale process, in connection with B. Riley Securities, Inc., a related party to the Company, had been engaged as Hamon Holdings’ investment banker and to serve as advisor to Hamon Holdings through a Chapter 11 363 Asset Sale of Hamon Holdings’ entire United States business or potential carve-out of any of its four main subsidiaries. B&W was the successful bidder for thecertain assets of one of those subsidiaries, Hamon Research-Cottrell, Inc., ("Hamon") a major provider of air pollution control technology, for approximately $2.9 million.
Purchase Price Allocations
The purchase price allocation to assets acquired and liabilities assumed in the acquisitions of Fossil Power Systems and Optimus Industries are detailed in following tables. Specific to the Fosler Construction acquisition, the allocation of consideration to the net tangible and intangible assets acquired and liabilities assumed is based on estimated fair values at September 30, 2021, and was finalized during the quarter ended September 30, 2022. The following is a summary of the purchase price allocation to assets acquired and liabilities assumed in the Fosler Construction Acquisition:
| | | | | | | | | | | |
| Fosler Construction |
(in thousands) | Initial Allocation of Consideration | Measurement Period Adjustments(3) | Final Allocation |
| | | |
Accounts receivable | $ | 1,904 | | $ | 121 | | $ | 2,025 | |
Contracts in progress | 1,363 | | 9,433 | | 10,796 | |
Other current assets | 1,137 | | (835) | | 302 | |
Property, plant and equipment | 9,527 | | (7,860) | | 1,667 | |
Goodwill(1) (4) | 43,230 | | 20,086 | | 63,316 | |
Other assets | 17,497 | | (4,600) | | 12,897 | |
Right of use assets | 1,093 | | — | | 1,093 | |
Debt | (7,625) | | — | | (7,625) | |
Current liabilities(4) | (5,073) | | (15,472) | | (20,545) | |
Advance billings on contracts | (1,557) | | 238 | | (1,319) | |
Non-current lease liabilities | (1,730) | | — | | (1,730) | |
Other non-current liabilities | (4,112) | | 3,218 | | (894) | |
Non-controlling interest(2) | (22,262) | | (1,734) | | (23,996) | |
Net acquisition cost | $ | 33,392 | | $ | 2,595 | | $ | 35,987 | |
(1) Goodwill is calculated as the excess of the purchase price over the net assets acquired. With respect to the Fosler Construction acquisition, goodwill represents Fosler's ability to significantly expand EPC and O&M services among new customers across the U.S. by leveraging B&W's access to capital and geographic reach.
(2) The fair value of the non-controlling interest was derived based on the fair value of the 60% controlling interest acquired by B&W. The transaction price paid by B&W reflects a Level 2 input involving an observable transaction involving an ownership interest in Fosler Construction. Also, as described above, a portion of the purchase consideration relates to the contingent consideration.
(3) The Company's purchase price allocation changed due to additional information and further analysis.
(4) The Company's goodwill and current liabilities adjustments increased $14.1 million, primarily due to additional accrued liabilities recognized attributable to the Fosler projects described in Note 4.
| | | | | | | | | | | |
| VODA |
(in thousands) | Initial Allocation of Consideration | Measurement Period Adjustments(2) | Updated Preliminary Allocation |
Cash | $ | 4,737 | | $ | — | | $ | 4,737 | |
Accounts receivable | 5,654 | | — | | 5,654 | |
Contracts in progress | 258 | | — | | 258 | |
Other current assets | 825 | | — | | 825 | |
Property, plant and equipment | 253 | | — | | 253 | |
Goodwill(1) | 17,176 | | (61) | | 17,115 | |
Other assets | 14,321 | | — | | 14,321 | |
Right of use assets | 433 | | — | | 433 | |
Current liabilities | (5,181) | | — | | (5,181) | |
Advance billings on contracts | (2,036) | | — | | (2,036) | |
Non-current lease liabilities | (302) | | — | | (302) | |
Other non-current liabilities | (3,264) | | — | | (3,264) | |
Net acquisition cost | $ | 32,874 | | $ | (61) | | $ | 32,813 | |
(1) Goodwill is calculated as the excess of the purchase price over the net assets acquired. With respect to the VODA acquisition, goodwill represents VODA's ability to significantly expand within the aftermarket parts and services industries by leveraging B&W's access to capital and existing platform within the renewable service market. Goodwill is not expected to be deductible for U.S federal income tax purposes.
(2)The Company's preliminary purchase price allocation changed due to additional information and further analysis.
| | | Fossil Power Systems | | Fossil Power Systems |
(in thousands) | (in thousands) | Estimated Acquisition Date Fair Value | Measurement Period Adjustments(2) | Updated Preliminary Allocation | (in thousands) | Estimated Acquisition Date Fair Value | Measurement Period Adjustments | Final Allocation(2) |
Cash | Cash | $ | 1,869 | | $ | — | | $ | 1,869 | | Cash | $ | 1,869 | | $ | — | | $ | 1,869 | |
Accounts receivable | Accounts receivable | 2,624 | | — | | 2,624 | | Accounts receivable | 2,624 | | — | | 2,624 | |
Contracts in progress | Contracts in progress | 370 | | — | | 370 | | Contracts in progress | 370 | | — | | 370 | |
Other current assets | Other current assets | 3,228 | | — | | 3,228 | | Other current assets | 3,228 | | — | | 3,228 | |
Property, plant and equipment, net | Property, plant and equipment, net | 178 | | — | | 178 | | Property, plant and equipment, net | 178 | | — | | 178 | |
Goodwill(1) | Goodwill(1) | 35,392 | | 270 | | 35,662 | | Goodwill(1) | 35,392 | | 270 | | 35,662 | |
Other assets | Other assets | 25,092 | | — | | 25,092 | | Other assets | 25,092 | | — | | 25,092 | |
Right of use assets | Right of use assets | 1,115 | | — | | 1,115 | | Right of use assets | 1,115 | | — | | 1,115 | |
Current liabilities | Current liabilities | (1,792) | | (18) | | (1,810) | | Current liabilities | (1,792) | | (18) | | (1,810) | |
Advance billings on contracts | Advance billings on contracts | (645) | | — | | (645) | | Advance billings on contracts | (645) | | — | | (645) | |
Non-current lease liabilities | Non-current lease liabilities | (989) | | — | | (989) | | Non-current lease liabilities | (989) | | — | | (989) | |
Non-current liabilities | Non-current liabilities | (7,384) | | (106) | | (7,490) | | Non-current liabilities | (7,384) | | (106) | | (7,490) | |
Net acquisition cost | Net acquisition cost | $ | 59,058 | | $ | 146 | | $ | 59,204 | | Net acquisition cost | $ | 59,058 | | $ | 146 | | $ | 59,204 | |
(1) Goodwill is calculated as the excess of the purchase price over the net assets acquired. With respect to the FPS acquisition, goodwill represents
FPS's ability to significantly expand services among new customers by leveraging cross-selling opportunities and recognizing general cost synergies.
(2) The Company's preliminary purchase price allocation changed due to additional information and further analysis.
was final as of March 31, 2023.
| | | Optimus Industries | | Optimus Industries |
(in thousands) | (in thousands) | Estimated Acquisition Date Fair Value | Measurement Period Adjustments(2) | Updated Preliminary Allocation | (in thousands) | Estimated Acquisition Date Fair Value | Measurement Period Adjustments | Final Allocation(2) |
Cash | Cash | $ | 5,338 | | $ | — | | $ | 5,338 | | Cash | $ | 5,338 | | $ | — | | $ | 5,338 | |
Accounts receivable | Accounts receivable | 5,165 | | — | | 5,165 | | Accounts receivable | 5,165 | | — | | 5,165 | |
Contracts in progress | Contracts in progress | 2,598 | | — | | 2,598 | | Contracts in progress | 2,598 | | — | | 2,598 | |
Other current assets | Other current assets | 2,115 | | — | | 2,115 | | Other current assets | 2,115 | | — | | 2,115 | |
Property, plant and equipment, net | Property, plant and equipment, net | 2,441 | | 5,178 | | 7,619 | | Property, plant and equipment, net | 2,441 | | 5,178 | | 7,619 | |
Goodwill(1) | Goodwill(1) | 11,081 | | (7,274) | | 3,807 | | Goodwill(1) | 11,081 | | (7,274) | | 3,807 | |
Other assets | Other assets | 12 | | 2,319 | | 2,331 | | Other assets | 12 | | 2,319 | | 2,331 | |
Right of use assets | Right of use assets | 94 | | 11 | | 105 | | Right of use assets | 94 | | 11 | | 105 | |
Current liabilities | Current liabilities | (4,240) | | — | | (4,240) | | Current liabilities | (4,240) | | — | | (4,240) | |
Advance billings on contracts | Advance billings on contracts | (3,779) | | — | | (3,779) | | Advance billings on contracts | (3,779) | | — | | (3,779) | |
non-current lease liabilities | (2) | | — | | (2) | | |
Non-current lease liabilities | | Non-current lease liabilities | (2) | | — | | (2) | |
Non-current liabilities | Non-current liabilities | (1,858) | | — | | (1,858) | | Non-current liabilities | (1,858) | | — | | (1,858) | |
Net acquisition cost | Net acquisition cost | $ | 18,965 | | $ | 234 | | $ | 19,199 | | Net acquisition cost | $ | 18,965 | | $ | 234 | | $ | 19,199 | |
(1) Goodwill is calculated as the excess of the purchase price over the net assets acquired. With respect to the Optimus Industries acquisition, goodwill represents Optimus Industries ability to significantly expand future customer relationships which are not in place today and recognize general cost synergies.
(2) The Company's preliminary purchase price allocation changed due to additional information and further analysis.
was final as of March 31, 2023.
Intangible assets are included in other assets above and consists of the following:
| | Fosler Construction | | VODA | |
(in thousands) | Estimated Acquisition Date Fair Value | Weighted Average Estimated Useful Life | | Estimated Acquisition Date Fair Value | Weighted Average Estimated Useful Life | |
Customer Relationships | $ | 9,400 | | 12 years | | $ | 13,855 | | 11 years | |
Tradename | — | | — | | | 228 | | 3 years | |
Backlog | 3,100 | | 5 months | | — | | — | | |
Total intangible assets(1) | $ | 12,500 | | | $ | 14,083 | | | |
| | | Fossil Power Systems | | Optimus Industries | | Fossil Power Systems | | Optimus Industries |
| | Estimated Acquisition Date Fair Value | Weighted Average Estimated Useful Life | | Estimated Acquisition Date Fair Value | Weighted Average Estimated Useful Life | | Estimated Acquisition Date Fair Value | Weighted Average Estimated Useful Life | | Estimated Acquisition Date Fair Value | Weighted Average Estimated Useful Life |
Customer Relationships | Customer Relationships | $ | 20,451 | | 9 years | | 2,100 | | 10 years | Customer Relationships | $ | 20,451 | | 9 years | | 2,100 | | 10 years |
Tradename | Tradename | 787 | | 14 years | | 220 | | 3 years | Tradename | 787 | | 14 years | | 220 | | 3 years |
Patented Technology | Patented Technology | 578 | | 12 years | | — | | — | | Patented Technology | 578 | | 12 years | | — | | — | |
Unpatented Technology | Unpatented Technology | 3,276 | | 12 years | | — | | — | | Unpatented Technology | 3,276 | | 12 years | | — | | — | |
Total intangible assets(1) | Total intangible assets(1) | $ | 25,092 | | | $ | 2,320 | | | Total intangible assets(1) | $ | 25,092 | | | $ | 2,320 | | |
(1) Intangible assets were valued using the income approach, which includes significant assumptions around future revenue growth, profitability, discount rates and customer attrition. Such assumptions are classified as level 3 inputs within the fair value hierarchy.
For the three and nine-month periods ended September 30, 2022, costs of $0.2 million and $1.0 million related to the Company's acquisitions of Fosler, VODA, Fossil Power Systems, and Optimus Industries were recorded as a component of its operating expenses in the Condensed Consolidated Statements of Operations.
Divestitures
On June 30, 2022 the Company sold development rights related to a future solar project for $8.0 million. In conjunction with the sale, the Company recognized a $7.0$6.2 million gain on sale andsale. The Company recorded an $8.0$4.7 million receivablein outstanding receivables related to the transaction within Accounts
receivable – other in the Company's Condensed Consolidated Balance Sheet. During the 3 months ended September 30, 2022, the Company received $2.5 million of proceeds from the sale.Sheets at March 31, 2023.
Certain real property assets for the Copley, Ohio location were sold on March 15, 2021 for $4.0 million. The Company received $3.3 million of net proceeds after adjustments and recognized a gain on sale of $1.9 million. In conjunction with the sale, we executed a leaseback agreement commencing March 16, 2021, which expires on March 31, 2033.
Certain real property assets for the Lancaster, Ohio location were sold on August 13, 2021 for $18.9 million. The Company received $15.8 million of net proceeds after adjustments and expenses and recognized a gain on sale of $13.9 million. In conjunction with the sale, the Company executed a leaseback agreement commencing August 13, 2021, which expires on August 31, 2041.
Effective March 5, 2021, the Company sold all of the issued and outstanding capital stock of Diamond Power Machine (Hubei) Co., Inc, for $2.8 million. the Company received $2.0 million in gross proceeds before expenses and recorded an $0.8 million favorable contract asset for the amortization period from March 8, 2021 through December 31, 2023.
NOTE 22 – NEW ACCOUNTING PRONOUNCEMENTS AND STANDARDS
The Company adopted the following accounting standard during the first ninethree months of 2022:
In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815 – 40). The amendments in this update simplify the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity by removing major separation models required under current U.S. GAAP. The amendments also improve the consistency of diluted earnings per share calculations. The impact of this standard on the Company's Condensed Consolidated Financial Statements was immaterial.
New accounting standards not yet adopted that could affect the Company's Condensed Consolidated Financial Statements in the future are summarized as follows:
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The amendment in this update provides an exception to fair value measurement for contract assets and contract liabilities (i.e., deferred revenue) acquired in a business combination. As a result, contract assets and contract liabilities will be recognized and measured by the acquirer in accordance with ASC 606, Revenue from Contracts with Customers. The amendment also improves consistency in revenue recognition in the post-acquisition period for acquired contracts as compared to contracts entered into after the business combination. The amendment in this update is effective for public business entities in January 2023; all other entities have an additional year to adopt. Early adoption is permitted; however, if the new guidance is adopted in an interim period, it is required to be applied retrospectively to all business combinations within the year of adoption. This amendment is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is currently evaluating the impact of the standard on its Condensed Consolidated Financial Statements.2023:
In November 2018, the FASB issued ASU 2018-19, Codification Improvements to Topic 326: Financial Instruments - Credit Losses. This update is an amendment to the new credit losses standard, ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, that was issued in June 2016 and clarifies that operating lease receivables are not within the scope of Topic 326. The new credit losses standard changes the accounting for credit losses for certain instruments. The new measurement approach is based on expected losses, commonly referred to as the current expected credit loss ("CECL") model, and applies to financial assets measured at amortized cost, including loans, held-to-maturity debt securities, net investment in leases, and reinsurance and trade receivables, as well as certain off-balance sheet credit exposures, such as loan commitments. The standard also changes the impairment model for available-for-sale debt securities. The provisions of this standard will primarily impact the allowance for doubtful accounts on the Company's trade receivables, contracts in progress, and potentially its impairment model for available-for-sale debt securities (to the extent we have any upon adoption). For public, smaller reporting companies, this standard is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is currently evaluating the impact of both standardsadopting this standard on its Condensedthe Company's Consolidated Financial Statements.Statements was immaterial.
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The amendment in this update provides an exception to fair value measurement for contract assets and contract liabilities (i.e., deferred revenue) acquired in a business combination. As a result, contract assets and contract liabilities will be recognized and measured by the acquirer in accordance with ASC 606, Revenue from Contracts with Customers. The amendment also improves consistency in revenue recognition in the post-acquisition period for acquired contracts as compared to contracts entered into after the business combination. The amendment in this update is effective for public business entities in January 2023; all other entities have an additional year to adopt. Early adoption is permitted; however, if the new guidance is adopted in an interim period, it is required to be applied retrospectively to all business combinations within the year of adoption. This amendment is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The impact of adopting this standard on the Company's Consolidated Financial Statements was immaterial.
There were no new accounting standards not yet adopted that during the quarter ended March 31, 2023.
NOTE 23 – SUBSEQUENT EVENTS
On October 14, 2022,May 9, 2023 the Company changedentered into Amendment No. 3 to the name of Fosler Construction to Babcock & Wilcox Solar Energy, Inc.
On October 25, 2022,Revolving Credit Agreement which allowed the Company executed a revision to the lease on its Akron, Ohio headquarters which modified the payments and extended the term of the lease through June 2038exclude certain expenses from its original expiration date of June 2034.
On November 7, 2022 the Company executed an amendment to it’s Debt Documents with MSD which modified certain financial maintenance covenants for future periods beginning with fiscal quarters ending on December 31, 2022. The Fixed Charge Coverage Ratio was amended to 0.55:1.0 for the fiscal quarter ending December 31, 2022, 0.65 to 1.00 for the fiscal quarter ending March 31, 2023, 0.80 to 1.00 for the fiscal quarter ending June 30, 2023, 1.15 to 1.00 for the fiscal quarter ending September 30, 2023 and 1.25 to 1.00 for the fiscal quarter ending December 31, 2023 and thereafter. The Senior Net Leverage Ratio was amended to 2.00 to 1.00 for the fiscal quarter ending December 31, 2022, 1.75 to 1.00 for the fiscal quarter ending March 31, 2023, 1.60 to 1.00 for the fiscal quarter ending June 30, 2023, and 1.50 to 1.00 for the fiscal quarter ending September 30, 2023 and thereafter. The amendment also establishes minimum cash flow covenants, as defined, for the fiscal quarter ending December 31, 2022 of $20.0 million and $25.0 million for the fiscal year 2023 and each fiscal year thereafter. Further, the amendment also establishes a minimum liquidity covenant of $30.0 million at all times. In addition, the Company also executed an amendment to it's Debt Documents with PNC which modified the calculation of EBITDA under the Fixed Charge Coverage RatioRevolving Credit Agreement, including for purposes of determining the fiscal quarters ending December 31, 2022, March 31, 2023 and June 30, 2023. The calculation of the Fixed Charge Coverage ratio for the fiscal quarter ending September 30, 2023 and thereafter will revert to the original calculation as stated in the original Debt Documents.Company’s compliance with certain financial covenants thereunder.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and the notes thereto included in Financial Statements under Item 1 within this Quarterly Report. The following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements as a result of many factors, including those described in more detail under "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2021. See also "Cautionary Statement Concerning Forward-Looking Information" herein.
ThirdFirst Quarter 20222023 Update
Management continues to adapt to macroeconomic conditions, including rising inflation, higher interest rates, foreign exchange rate fluctuations and the impact of the ongoing conflict in Ukraine and the COVID-19 pandemic, all of which impacted the Company during the first ninethree months of 2022.2023. The COVID-19 pandemic has continued to create challenges for us in countries that have significant outbreak mitigation strategies, namely, countries in our Asia-Pacific region, which led to temporary project postponements and has continued to impact results in this region. Additionally, the Company has experienced negative impacts to its global supply chains as a result of COVID-19, the war in Ukraine, Russia-related supply chain shortages and other factors, including disruptions to the manufacturing, supply, distribution, transportation and delivery of its products. The Company has also observed significant delays and disruptions of its service providers and negative
impacts to pricing of certain of its products. These delays and disruptions have had, and could continue to have, an adverse impact on the Company’s ability to meet customers’ demands. We are continuing to actively monitor the impact of these market conditions on current and future periods and actively manage costs and our liquidity position to provide additional flexibility while still supporting our customers and their specific needs. The duration and scope of these conditions cannot be predicted, and therefore, any anticipated negative financial impact to the Company’s operating results cannot be reasonably estimated.
BUSINESS OVERVIEW
B&W is a growing, globally-focused renewable, environmental and thermal technologies provider with over 150 years of experience providing diversified energy and emissions control solutions to a broad range of industrial, electrical utility, municipal and other customers. B&W’s innovative products and services are organized into three market-facing segments. Our reportable segments are as follows:
•Babcock & Wilcox Renewable: Cost-effective technologies for efficient and environmentally sustainable power and heat generation, including waste-to-energy, solar construction and installation, biomass energy and black liquor
systems for the pulp and paper industry. B&W’s leading technologies support a circular economy, diverting waste from landfills to use for power generation and replacingreplacement of fossil fuels, while recovering metals and reducing emissions. To date, the Company has installed over 500 waste-to-energy and biomass-to-energy units at more than 300 facilities in approximately 30 countries which serve a wide variety of utility, waste management, municipality and investment firm customers. Additionally, the Company has installed more than 100MW of clean solar production.
•Babcock & Wilcox Environmental: A full suite of best-in-class emissions control and environmental technology solutions for utility, waste to energy, biomass, carbon black, and industrial steam generation applications around the world. B&W’s broad experience includes systems for cooling, ash handling, particulate control, nitrogen oxides and sulfur dioxides removal, chemical looping for carbon control, and mercury control. The Company's ClimateBright family of products including SolveBright, OxyBright, BrightLoop and BrightGen, places us at the forefront of carbon dioxide capturing technologies and development with many of the aforementioned products ready for commercial demonstration.
•Babcock & Wilcox Thermal: Steam generation equipment, aftermarket parts, construction, maintenance and field services for plants in the power generation, oil and gas, and industrial sectors. B&W has an extensive global base of installed equipment for utilities and general industrial applications including refining, petrochemical, food processing, metals and others.
On February 1, 2022, we acquired 100% ownership of Fossil Power Systems, Inc. for approximately $59.2 million. Fossil Power Systems, Inc., is a leading designer and manufacturer of hydrogen, natural gas and renewable pulp and paper combustion equipment including ignitors, plant controls and safety systems based in Dartmouth, Nova Scotia, Canada. Fossil Power Systems, Inc. is reported as part of our B&W Thermal segment.
On February 28, 2022, we acquired 100% ownership of Optimus Industries, LLC for approximately $19.2 million. Optimus Industries, LLC designs and manufactures waste heat recovery products for use in power generation, petrochemical, and process industries, including package boilers, watertube and firetube waste heat boilers, economizers, superheaters, waste heat recovery equipment and units for sulfuric acid plants and is based in Tulsa, Oklahoma and Chanute, Kansas. Optimus Industries, LLC is reported as part of our B&W Thermal segment.
On July 28, 2022, the Company acquired certain assets of Hamon Holdings Corporation ("Hamon Holdings") through a competitive sale process, in connection with B. Riley Securities, Inc., a related party to the Company, had been engaged as Hamon Holdings’ investment banker and to serve as advisor to Hamon Holdings through a Chapter 11 363 Asset Sale of Hamon Holdings’ entire United States business or potential carve-out of any of its four main subsidiaries. B&W was the successful bidder for certain assets of one of those subsidiaries, Hamon Research-Cottrell, Inc., ("Hamon") a major provider of air pollution control technology, for approximately $2.9 million.
Our business depends significantly on the capital, operations and maintenance expenditures of global electric power generating companies, including renewable and thermal powered heat generation industries and industrial facilities with environmental compliance policy requirements. Several factors may influence these expenditures, including:
•climate change initiatives promoting environmental policies which include renewable energy options utilizing waste-to-energy or biomass to meet legislative requirements and clean energy portfolio standards in the United States, European, Middle East and Asian markets;
•requirements for environmental improvements in various global markets;
•expectation of future governmental requirements to further limit or reduce greenhouse gas and other emissions in the United States, Europe and other international climate change sensitive countries;
•prices for electricity, along with the cost of production and distribution including the cost of fuels within the United States, Europe, Middle East and Asian based countries;
•demand for electricity and other end products of steam-generating facilities;
•level of capacity utilization at operating power plants and other industrial uses of steam production;
•requirements for maintenance and upkeep at operating power plants to combat the accumulated effects of usage;
•prices of and access to materials, particularly as a result of rising inflation and the impact of the Russian invasion of Ukraine;
•overall strength of the industrial industry; and
•ability of electric power generating companies and other steam users to raise capital.
Customer demand is heavily affected by the variations in our customers' business cycles and by the overall economies and energy, environmental and noise abatement needs of the countries in which they operate.
We have manufacturing facilities in Mexico, the United States, Denmark, the United Kingdom and China. Many aspects of our operations and properties could be affected by political developments, including the ongoing Russian-Ukrainian conflict, environmental regulations and operating risks. These and other factors may have a material impact on our international and domestic operations or our business as a whole.
Through our restructuring efforts, we continue to make significant progress to make our cost structure more variable and to reduce costs. We expect our cost saving measures to continue to translate to bottom-line results, with top-line growth driven by opportunities for our core technologies and support services across the B&W Renewable, B&W Environmental and B&W Thermal segments globally.
We expect to continue to explore other cost saving initiatives to improve cash generation and evaluate additional non-core asset sales to continue to strengthen our liquidity. There are or will be important factors that could cause our actual results to differ materially from those indicated in these statements. If one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what we anticipate.
In addition, we continue to evaluate further dispositions, opportunities for additional cost savings and opportunities for subcontractor recoveries and other claims where appropriate and available. If the value of our business was to decline, or if we were to determine that we were unable to recognize an amount in connection with any proposed disposition in excess of the carrying value of any disposed asset, we may be required to recognize impairments for one or more of our assets that may adversely impact our business, financial condition and results of operations.
RESULTS OF OPERATIONS
Components of Our Results of Operations
Revenue
Our revenue is the total amount of income generated by our business and consists primarily of income from our renewable, environmental and thermal technology solutions that we provide to a broad range of industrial electric utility and other customers. Revenue from our operations is assessed based on our three market-facing segments, Babcock & Wilcox Renewable, Babcock & Wilcox Environmental and Babcock & Wilcox Thermal.
Operating Income (Loss)
Operating incomeIncome (loss) consists primarily of our revenue minus costs and expenses, including cost of operations, SG&A, and advisory fees and settlement costs.
Net (Loss) Income (Loss)
Net income (loss) Income consists primarily of operating income minus other income and expenses, including interest income, foreign exchange and expense related to our benefit plans.
Condensed Consolidated Results of Operations
The following discussion of our business segment results of operations includes a discussion of adjusted EBITDA, which when used on a consolidated basis is a non-GAAP financial measure. Adjusted EBITDA differs from the most directly comparable measure calculated in accordance with generally accepted accounting principles (“GAAP”). A reconciliation of net income (loss), the most directly comparable GAAP measure, to adjusted EBITDA is included in “Non-GAAP Financial Measures” below. Management believes that this financial measure is useful to investors because it excludes certain expenses, allowing investors to more easily compare our financial performance period to period.
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended March 31, | |
(in thousands) | (in thousands) | 2022 | | 2021 | | $ Change | | 2022 | | 2021 | | | $ Change | (in thousands) | 2023 | | 2022 | | $ Change | |
Revenues: | Revenues: | | | | | | | | | | | | | Revenues: | | | | | | |
B&W Renewable segment | B&W Renewable segment | $ | 81,687 | | | $ | 38,000 | | | $ | 43,687 | | | $ | 224,875 | | | $ | 105,155 | | | | $ | 119,720 | | B&W Renewable segment | $ | 100,112 | | | $ | 67,961 | | | $ | 32,151 | | |
B&W Environmental segment | B&W Environmental segment | 44,626 | | | 38,249 | | | 6,377 | | | 111,186 | | | 97,767 | | | | 13,419 | | B&W Environmental segment | 39,440 | | | 34,948 | | | 4,492 | | |
B&W Thermal segment | B&W Thermal segment | 91,331 | | | 83,819 | | | 7,512 | | | 309,875 | | | 328,416 | | | | (18,541) | | B&W Thermal segment | 119,236 | | | 102,239 | | | 16,997 | | |
Eliminations | Eliminations | (2,774) | | | (108) | | | (2,666) | | | (5,998) | | | (270) | | | | (5,728) | | Eliminations | (1,541) | | | (1,099) | | | (442) | | |
| | $ | 214,870 | | | $ | 159,960 | | | $ | 54,910 | | | $ | 639,938 | | | $ | 531,068 | | | | $ | 108,870 | | | $ | 257,247 | | | $ | 204,049 | | | $ | 53,198 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(in thousands) | 2022 | | 2021 | | $ Change | | 2022 | | 2021 | | | $ Change |
Adjusted EBITDA | | | | | | | | | | | | |
B&W Renewable segment(1) | $ | 4,522 | | | $ | 11,399 | | | $ | (6,877) | | | $ | 14,846 | | | $ | 15,030 | | | | $ | (184) | |
B&W Environmental segment | 3,082 | | | 3,476 | | | (394) | | | 5,112 | | | 7,286 | | | | (2,174) | |
B&W Thermal segment | 10,761 | | | 9,329 | | | 1,432 | | | 41,276 | | | 32,436 | | | | 8,840 | |
Corporate | (4,419) | | | (5,866) | | | 1,447 | | | (13,018) | | | (11,548) | | | | (1,470) | |
Research and development costs | (891) | | | 513 | | | (1,404) | | | (2,532) | | | (560) | | | | (1,972) | |
| $ | 13,055 | | | $ | 18,851 | | | $ | (5,796) | | | $ | 45,684 | | | $ | 42,644 | | | | $ | 3,040 | |
(1) Adjusted EBITDA for nine months ended September 30, 2022 includes a $7.0 million non-recurring gain on sale related to development rights of a future solar project that was sold as well as the reduction to Selling, General and Administrative Costs of $9.6 million for the three and nine months ended September 30, 2022 that resulted from the reversal of the contingent consideration related to an acquisition. | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
(in thousands) | 2023 | | 2022 | | $ Change | | | | | | | |
| | | | | | | | | | | | |
B&W Renewable segment - Adjusted EBITDA | $ | 4,940 | | | $ | 1,955 | | | $ | 2,985 | | | | | | | | |
B&W Environmental segment - Adjusted EBITDA | 1,906 | | | 1,439 | | | 467 | | | | | | | | |
B&W Thermal segment - Adjusted EBITDA | 13,733 | | | 14,154 | | | (421) | | | | | | | | |
Corporate | (5,080) | | | (4,373) | | | (707) | | | | | | | | |
Research and development costs | (1,307) | | | (655) | | | (652) | | | | | | | | |
| $ | 14,192 | | | $ | 12,520 | | | $ | 1,672 | | | | | | | | |
Three Months Ended September 30,March 31, 2023 and 2022 and 2021
Revenues increased by $54.953.2 million to $214.9$257.2 million in the three months ended September 30, 2022March 31, 2023 as compared to $160.0$204.0 million in the three months ended September 30, 2021.March 31, 2022. The increase is primarily attributable to the acquisitions of Fosler Construction and VODA withinhigher volumes in our Renewable segment due to B&W Renewable Services and our project-based business, higher overall volume in our
Environmental segment and the acquisitions of Fossil Power Sydue tostems and Thermal segment volume increasing due to Optimus Industries within our Thermal segment being partially offset byand a lowerhigher level of construction activity in our Thermal segment. The negative impacts on the global economy as a result of the ongoing Russia-Ukraine military conflict continue to adversely impacted each of our segments, causing shortages of supplies and materials and affecting the timing of revenue on several projects.activity. Segment specific changes are discussed in further detail in the sections below.
Net (loss)/income decreased by $34.2$3.8 million resulting in a net loss of $20.6to $(12.5) million in the three months ended September 30, 2022March 31, 2023 as compared to net (loss)/income of $13.6$(8.7) million in the three months ended September 30, 2021.March 31, 2022. Operating income (loss)/income decreased by $25.1$8.1 million in the comparable three-month periods ended September 30, 2022March 31, 2023 and September 30, 2021.March 31, 2022. Operating lossincome for the three-month period ended September 30, 2022March 31, 2023 was $(10.3)$1.4 million as compared to operating incomeloss of $14.8$(6.8) million in the three months ended September 30, 2021.March 31, 2022. The unfavorable variance is primarily related to overall increased costs and expenses, higher interest expense and foreign exchange losses in the current period. Restructuring activities, advisory fees, research and development, depreciation and amortization expense, pension and other postretirement benefit plans, foreign exchange, and income taxes are discussed in further detail in the sections below.
Nine Months Ended September 30, 2022 and 2021
Revenues increased by$108.9 millionto $639.9 million in the nine months ended September 30, 2022 as compared to $531.1 million in the nine months ended September 30, 2021. The increase is primarily attributable to the acquisitions of Fosler Construction and VODA within our Renewable segment, higher overall volume in our Environmental segment and the acquisitions of Fossil Power Systems and Optimus Industries within our Thermal segment being partially offset by a lower level of construction activity in our Thermal segment.The negative impacts on the global economy as a result of the ongoing Russia-Ukraine military conflict continue to adversely impacted each of our segments causing shortages of supplies and materials and affecting the timing of revenue on several projects. Segment specific changes are discussed in further detail in the sections below.
Net loss/income declined by $33.6 million. We recorded a net loss of $32.2 million in the nine months ended September 30, 2022 as compared to net income of $1.3 million in the nine months ended September 30, 2021. Operating (loss)/income negatively changed by $24.5 million resulting in an operating loss of $13.4 million in the nine months ended September 30, 2022 as compared to operating income of $11.1 million in the nine months ended September 30, 2021. The year-over-year change is primarily related to overall increases in costs and expenses, higher interest expense and an increase in foreign exchange losses. The aforementioned expense increase were partially offset by positive contributions from the acquisitions, as described above offset partially by a lower level of construction activity in our Thermal segment.Restructuring activities, advisory fees, research and development, depreciation and amortization expense, pension and other postretirement benefit plans, foreign exchange, and income taxes are discussed in further detail in the sections below.
Bookings and Backlog
Bookings and backlog are our measure of remaining performance obligations under our sales contracts. It is possible that our methodology for determining bookings and backlog may not be comparable to methods used by other companies.
We generally include expected revenue from contracts in our backlog when we receive written confirmation from our customers authorizing the performance of work and committing the customers to payment for work performed. Backlog may not be indicative of future operating results, and contracts in our backlog may be canceled, modified or otherwise altered by customers. Backlog can vary significantly from period to period, particularly when large new build projects or operations and maintenance contracts are booked because they may be fulfilled over multiple years. Because we operate globally, our backlog is also affected by changes in foreign currencies each period. We do not include orders of our unconsolidated joint ventures in backlog.
Bookings represent changes to the backlog. Bookings include additions from booking new business, subtractions from customer cancellations or modifications, changes in estimates of liquidated damages that affect selling price and revaluation of backlog denominated in foreign currency. We believe comparing bookings on a quarterly basis or for periods less than one year is less meaningful than for longer periods, and that shorter-term changes in bookings may not necessarily indicate a material trend.
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | Three Months Ended March 31, | |
(in approximate millions) | (in approximate millions) | 2022 | | 2021 | | 2022 | | 2021 | | (in approximate millions) | 2023 | | 2022 | |
B&W Renewable(1) | B&W Renewable(1) | $ | 57 | | | $ | 103 | | | $ | 217 | | | $ | 184 | | | B&W Renewable(1) | $ | 98 | | | $ | 101 | | |
B&W Environmental | B&W Environmental | 40 | | | 22 | | | 112 | | | 90 | | | B&W Environmental | 65 | | | 37 | | |
B&W Thermal | B&W Thermal | 130 | | | 48 | | | 382 | | | 236 | | | B&W Thermal | 103 | | | 101 | | |
| Bookings | Bookings | $ | 227 | | | $ | 173 | | | $ | 711 | | | $ | 510 | | | Bookings | $ | 266 | | | $ | 239 | | |
(1) B&W Renewable bookings includes the revaluation of backlog denominated in currency other than U.S. dollars. The foreign exchange impact on B&W Renewable bookings in the third quarter of 2022 and 2021 was $(17.0) million and $3.6 million, respectively. The foreign exchange impact on B&W Renewable bookings in the nine months ended September 30, 2022 and 2021 was $(23.4) million and $8.1 million, respectively.
Our backlog as of September 30,March 31, 2023 and 2022 and 2021 was as follows:
| | | As of September 30, | | As of March 31, |
(in approximate millions) | (in approximate millions) | 2022 | | 2021 | (in approximate millions) | 2023 | | 2022 |
B&W Renewable(1) | B&W Renewable(1) | $ | 374 | | | $ | 313 | | B&W Renewable(1) | $ | 231 | | | $ | 293 | |
B&W Environmental | B&W Environmental | 121 | | | 101 | | B&W Environmental | 173 | | | 126 | |
B&W Thermal | B&W Thermal | 233 | | | 130 | | B&W Thermal | 252 | | | 158 | |
Other/eliminations | Other/eliminations | 2 | | | (4) | | Other/eliminations | 7 | | | (3) | |
Backlog | Backlog | $ | 730 | | | $ | 540 | | Backlog | $ | 663 | | | $ | 574 | |
(1) B&W Renewable backlog at September 30,has been adjusted downward $53 million and $147 million as of March 31, 2023 and March 31, 2022, includes $117.2 million related respectively to long-term operation and maintenanceremove O&M 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.that are recognized as disposed.
Of the backlog at September 30, 2022,March 31, 2023, we expect to recognize revenues as follows:
| (in approximate millions) | (in approximate millions) | 2022 | 2023 | Thereafter | Total | (in approximate millions) | 2023 | 2024 | Thereafter | Total | |
B&W Renewable | B&W Renewable | $ | 118 | | $ | 141 | | $ | 115 | | $ | 374 | | B&W Renewable | $ | 184 | | $ | 41 | | $ | 7 | | $ | 232 | | |
B&W Environmental | B&W Environmental | 33 | | 65 | | 23 | | 121 | | B&W Environmental | 124 | | 31 | | 18 | | 173 | | |
B&W Thermal | B&W Thermal | 84 | | 133 | | 16 | | 233 | | B&W Thermal | 200 | | 48 | | 3 | | 251 | | |
Other/eliminations | Other/eliminations | 2 | | — | | — | | 2 | | Other/eliminations | 7 | | — | | — | | 7 | | |
Expected revenue from backlog | Expected revenue from backlog | $ | 237 | | $ | 339 | | $ | 154 | | $ | 730 | | Expected revenue from backlog | $ | 515 | | $ | 120 | | $ | 28 | | $ | 663 | | |
Changes in Contract Estimates
During the three and nine-monththree-month periods ended September 30,March 31, 2023 and 2022, and 2021, the Company recognized changes in estimated gross profit related to long-term contracts accounted for on the over time basis, which are summarized as follows:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended March 31, | |
(in thousands) | (in thousands) | 2022 | | 2021 | | 2022 | | 2021 | | (in thousands) | 2023 | | 2022 | |
Increases in gross profit for changes in estimates for over time contracts | Increases in gross profit for changes in estimates for over time contracts | $ | 1,690 | | | $ | 7,001 | | | $ | 11,343 | | | $ | 12,340 | | | Increases in gross profit for changes in estimates for over time contracts | $ | 6,225 | | | $ | 3,341 | | |
Decreases in gross profit for changes in estimates for over time contracts | Decreases in gross profit for changes in estimates for over time contracts | (10,353) | | | (1,523) | | | (20,004) | | | (6,018) | | | Decreases in gross profit for changes in estimates for over time contracts | (5,753) | | | (2,862) | | |
Net changes in gross profit for changes in estimates for over time contracts | Net changes in gross profit for changes in estimates for over time contracts | $ | (8,663) | | | $ | 5,478 | | | $ | (8,661) | | | $ | 6,322 | | | Net changes in gross profit for changes in estimates for over time contracts | $ | 472 | | | $ | 479 | | |
Non-GAAP Financial Measures
Adjusted EBITDA on a consolidated basis is a non-GAAP metric defined as the sum of the adjusted EBITDA for each of the segments, further adjusted for corporate allocations and research and development costs. At a segment level, the adjusted EBITDA presented below is consistent with the way the Company's chief operating decision maker reviews the results of operations and makes strategic decisions about the business and is calculated as earnings before interest, tax, depreciation and amortization adjusted for items such as gains or losses arising from the sale of non-income producing assets, net pension benefits, restructuring activities, impairments, gains and losses on debt extinguishment, costs related to financial consulting, research and development costs and other costs that may not be directly controllable by segment management and are not allocated to the segment. The Company uses adjusted EBITDA internally to evaluate its performance and in making financial and operational decisions. When viewed in conjunction with GAAP results, the Company believes that its presentation of adjusted EBITDA provides investors with greater transparency and a greater understanding of factors affecting its financial condition and results of operations than GAAP measures alone. Prior period results have been revised to conform with the revised definition and present separate reconciling items in our reconciliation, including business transition costs.
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended March 31, | |
(in thousands) | (in thousands) | 2022 | | 2021 | | 2022 | | 2021 | (in thousands) | 2023 | | 2022 | |
Net (loss) income | Net (loss) income | $ | (20,566) | | | $ | 13,648 | | | $ | (32,244) | | | $ | 1,346 | | Net (loss) income | (12,475) | | | $ | (8,684) | | |
Interest expense | Interest expense | 12,768 | | | 8,902 | | | 37,150 | | | 31,752 | | Interest expense | 14,429 | | | 12,324 | | |
Income tax (benefit) expense | 4,902 | | | 301 | | | 4,777 | | | 6,683�� | | |
Income tax expense | | Income tax expense | 490 | | | 1,230 | | |
Depreciation & amortization | Depreciation & amortization | 4,818 | | | 4,305 | | | 16,756 | | | 12,684 | | Depreciation & amortization | 5,365 | | | 6,202 | | |
EBITDA | EBITDA | 1,922 | | | 27,156 | | | 26,439 | | | 52,465 | | EBITDA | 7,809 | | | 11,072 | | |
| Benefit plans, net | Benefit plans, net | (7,424) | | | (9,867) | | | (22,279) | | | (24,889) | | Benefit plans, net | 109 | | | (7,452) | | |
(Gain) loss on sales, net | (Gain) loss on sales, net | (28) | | | (13,838) | | | (165) | | | (13,564) | | (Gain) loss on sales, net | 937 | | | (20) | | |
Stock compensation | Stock compensation | 3,448 | | | 152 | | | 5,242 | | | 8,032 | | Stock compensation | 3,227 | | | 1,319 | | |
Restructuring activities and business services transition costs | Restructuring activities and business services transition costs | 1,746 | | | 4,575 | | | 6,188 | | | 7,968 | | Restructuring activities and business services transition costs | 960 | | | 2,688 | | |
Settlement and related legal costs | | Settlement and related legal costs | (3,009) | | | 2,528 | | |
Advisory fees for settlement costs and liquidity planning | Advisory fees for settlement costs and liquidity planning | 27 | | | 954 | | | 1,938 | | | 4,991 | | Advisory fees for settlement costs and liquidity planning | 546 | | | 1,032 | | |
Settlement and related legal costs | 776 | | | 566 | | | 7,215 | | | 2,113 | | |
Gain on debt extinguishment | — | | | — | | | — | | | (6,530) | | |
| Acquisition pursuit and related costs | Acquisition pursuit and related costs | 2,575 | | | 4,037 | | | 4,768 | | | 4,037 | | Acquisition pursuit and related costs | 134 | | | 843 | | |
Product development (1) | Product development (1) | 757 | | | 2,427 | | | 2,600 | | | 2,690 | | Product development (1) | 1,370 | | | 852 | | |
Foreign exchange | Foreign exchange | 2,007 | | | 1,673 | | | 3,218 | | | 1,056 | | Foreign exchange | 461 | | | (3,085) | | |
Financial advisory services | 394 | | | 322 | | | 1,121 | | | 2,554 | | |
| Contract Disposal (2) | | Contract Disposal (2) | 1,387 | | | 875 | | |
Contract step-up purchase price adjustment | Contract step-up purchase price adjustment | — | | | — | | | 1,745 | | | — | | Contract step-up purchase price adjustment | — | | | 1,745 | | |
Loss from business held for sale | — | | | — | | | — | | | 483 | | |
Goodwill impairment | 7,224 | | | — | | | 7,224 | | | — | | |
| Other - net | Other - net | (369) | | | 694 | | | 430 | | | 1,238 | | Other - net | 261 | | | 123 | | |
| Adjusted EBITDA(2) | $ | 13,055 | | | $ | 18,851 | | | $ | 45,684 | | | $ | 42,644 | | |
Adjusted EBITDA | | Adjusted EBITDA | $ | 14,192 | | | $ | 12,520 | | |
(1) Costs associated with development of commercially viable products that are ready to go to market.
(2)Adjusted EBITDA for the nine months ended September 30, 2022 includes a $7.0 million non-recurring gain on sale related to development rights of a future solar project that was sold as well as the reduction to Selling, General and Administrative Costs of $9.6 million for the three and nine months ended September 30, 2022 that resulted from the reversal Impacts of the contingent consideration relateddisposal of our O&M contracts has been adjusted in the prior period to an acquisition.ensure uniform presentation with the current period
.
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| Three Months Ended September 30, | | Nine Months Ended September 30, |
(in thousands) | 2022 | | 2021 | | 2022 | | 2021 | | |
Adjusted EBITDA | | | | | | | | | |
B&W Renewable segment(1) | $ | 4,522 | | | $ | 11,399 | | | $ | 14,846 | | | $ | 15,030 | | | |
B&W Environmental segment | 3,082 | | | 3,476 | | | 5,112 | | | 7,286 | | | |
B&W Thermal segment | 10,761 | | | 9,329 | | | 41,276 | | | 32,436 | | | |
Corporate | (4,419) | | | (5,866) | | | (13,018) | | | (11,548) | | | |
Research and development costs | (891) | | | 513 | | | (2,532) | | | (560) | | | |
| $ | 13,055 | | | $ | 18,851 | | | $ | 45,684 | | | $ | 42,644 | | | |
(1) Adjusted EBITDA for the nine months ended September 30, 2022 includes a $7.0 million non-recurring gain on sale related to development rights of a future solar project that was sold as well as the reduction to Selling, General and Administrative Costs of $9.6 million for the three and nine months ended September 30, 2022 that resulted from the reversal of the contingent consideration related to an acquisition. | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
(in thousands) | 2023 | | 2022 | | | | | | |
Adjusted EBITDA | | | | | | | | | |
B&W Renewable segment - Adjusted EBITDA | $ | 4,940 | | | $ | 1,955 | | | | | | | |
B&W Environmental segment - Adjusted EBITDA | 1,906 | | | 1,439 | | | | | | | |
B&W Thermal segment - Adjusted EBITDA | 13,733 | | | 14,154 | | | | | | | |
Corporate | (5,080) | | | (4,373) | | | | | | | |
Research and development costs | (1,307) | | | (655) | | | | | | | |
| $ | 14,192 | | | $ | 12,520 | | | | | | | |
B&W Renewable Segment Results
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | Three Months Ended March 31, | |
(in thousands) | (in thousands) | 2022 | | 2021 | | $ Change | | 2022 | | 2021 | | $ Change | | (in thousands) | 2023 | | 2022 | | $ Change | |
Revenues | Revenues | $ | 81,687 | | | $ | 38,000 | | | $ | 43,687 | | | $ | 224,875 | | | $ | 105,155 | | | $ | 119,720 | | | Revenues | $ | 100,112 | | | $ | 67,961 | | | $ | 32,151 | | |
Adjusted EBITDA | Adjusted EBITDA | $ | 4,522 | | | $ | 11,399 | | | $ | (6,877) | | | $ | 14,846 | | | $ | 15,030 | | | $ | (184) | | | Adjusted EBITDA | $ | 4,940 | | | $ | 1,955 | | | $ | 2,985 | | |
Three Months Ended September 30,March 31, 2023 and 2022 and 2021
Revenues in the B&W Renewable segment increased 115%47% or $43.7$32.2 million, to $81.7$100.1 million in the three months ended September 30, 2022March 31, 2023 compared to $38.0$68.0 million in the three months ended September 30, 2021.March 31, 2022. The increase in revenue is primarily due to higher volume of new-build projects and revenues from acquisitions which closed on September 30, and November 30, 2021.associated with our Renewable Service business.
Adjusted EBITDA in the B&W Renewable segment decreased $6.9increased $3.0 million, to $4.5$4.9 million in the three months ended September 30, 2022March 31, 2023 compared to income of $11.4$2.0 million in the three months ended September 30, 2021March 31, 2022 due to a large project improvement achievedhigher volume of revenue as described above offset primarily by an increase in the prior year period and due to the negative impact of global supply chain challenges and geopolitical issues.These various challenges resulted in the delivery of parts orders and projects being delayed into future quarters as well negatively impacting gross margin due to higher costs.expenses. The higher revenue levels also increased shared overhead and SG&A allocations to the segment based on revenue. The negative impacts were partially offset by the reduction of the $9.6 million contingent consideration related to an acquisition as well higher volume of new build projects as described above.
Nine Months Ended September 30, 2022 and 2021
Revenues in the B&W Renewable segment increased 114% or $119.7 million, to $224.9 million in the nine months ended September 30, 2022 compared to $105.2 million in the nine months ended September 30, 2021. The increase in revenue is primarily due to higher volumes of new-build projects and revenues from acquisitions which closed on September 30 and November 30, 2021.
Adjusted EBITDA in the B&W Renewable segment decreased $0.2 million, to $14.8 million in the nine months ended September 30, 2022 compared to $15.0 million in the nine months ended September 30, 2021. The decrease is primarily due to a large project improvement achieved in the prior year period and due to the negative impact of global supply chain challenges and geopolitical issues. These various challenges resulted in the delivery of parts orders being delayed and projects being delayed into future quarters as well negatively impacting gross margin due to higher costs. The higher revenue levels increased shared overhead and SG&A allocations to the segment based on revenue. The negative impacts were partially offset by the reduction of the $9.6 million contingent consideration related to the Fosler acquisition as well higher volume of new build projects as described above.
B&W Environmental Segment Results
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | Three Months Ended March 31, | |
(in thousands) | (in thousands) | 2022 | | 2021 | | $ Change | | 2022 | | 2021 | | $ Change | | (in thousands) | 2023 | | 2022 | | $ Change | |
Revenues | Revenues | $ | 44,626 | | | $ | 38,249 | | | $ | 6,377 | | | $ | 111,186 | | | $ | 97,767 | | | $ | 13,419 | | | Revenues | $ | 39,440 | | | $ | 34,948 | | | $ | 4,492 | | |
Adjusted EBITDA | Adjusted EBITDA | $ | 3,082 | | | $ | 3,476 | | | $ | (394) | | | $ | 5,112 | | | $ | 7,286 | | | $ | (2,174) | | | Adjusted EBITDA | $ | 1,906 | | | $ | 1,439 | | | $ | 467 | | |
Three Months Ended September 30,March 31, 2023 and 2022 and 2021
Revenues in the B&W Environmental segment increased 17%13%, or $6.4$4.5 million to $44.6$39.4 million in the three months ended September 30, 2022March 31, 2023 compared to $38.2$34.9 million in the three months ended September 30, 2021.March 31, 2022. The increase is primarily driven by higher overall volume in our project product lines. Revenue was lower than anticipated inof dry cooling technology projects across the segment due to the negative impact of global supply chain challenges and geopolitical issues..Environmental segment.
Adjusted EBITDA in the B&W Environmental segment was $3.1$1.9 million in the three months ended September 30, 2022March 31, 2023 compared to $3.5$1.4 million in the three months ended September 30, 2021.March 31, 2022. The decreaseincrease is primarily driven by the completion of higher margin projects in the prior period alongrevenue volume described above offset with higher levels of shared overhead and SG&A allocated to the segment being partially offset by higher revenue volume, as described above. Adjusted EBITDA was lower than anticipated in thesegment.
segment due to the negative impact of global supply chain challenges and geopolitical issues. These various challenges resulted in certain projects being delayed into future quarters and higher costs all of which could not be recovered from our customers.
Nine Months Ended September 30, 2022 and 2021
Revenues in the B&W Environmental segment increased 14%, or $13.4 million to $111.2 million in the nine months ended September 30, 2022 compared to $97.8 million in the nine months ended September 30, 2021. The increase is primarily driven by higher overall volume in our project product lines. Revenue was lower than anticipated in the segment due to the negative impact of global supply chain challenges and geopolitical issues.
Adjusted EBITDA in the B&W Environmental segment was $5.1 million in the nine months ended September 30, 2022 compared to $7.3 million in the nine months ended September 30, 2021. The decrease is primarily driven by the completion of higher margin projects in the prior period along with higher levels of shared overhead and SG&A allocated to the segment being partially offset by higher revenue volume, as described above. Adjusted EBITDA was lower than anticipated in the segment due to the negative impact of global supply chain challenges and geopolitical issues. Previous tariff implications, also created challenges to solar supply chain which led to disruptions within the North American solar markets. These various challenges resulted in certain projects being delayed into future quarters and higher costs all of which could not be recovered from our customers.
B&W Thermal Segment Results
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | Three Months Ended March 31, | |
(In thousands) | (In thousands) | 2022 | | 2021 | | $ Change | | 2022 | | 2021 | | $ Change | | (In thousands) | 2023 | | 2022 | | $ Change | |
Revenues | Revenues | $ | 91,331 | | | $ | 83,819 | | | $ | 7,512 | | | $ | 309,875 | | | $ | 328,416 | | | $ | (18,541) | | | Revenues | $ | 119,236 | | | $ | 102,239 | | | $ | 16,997 | | |
Adjusted EBITDA | Adjusted EBITDA | $ | 10,761 | | | $ | 9,329 | | | $ | 1,432 | | | $ | 41,276 | | | $ | 32,436 | | | $ | 8,840 | | | Adjusted EBITDA | $ | 13,733 | | | $ | 14,154 | | | $ | (421) | | |
Three Months Ended September 30,March 31, 2023 and 2022 and 2021
Revenues in the B&W Thermal segment increased 9%17%, or $7.5$17.0 million to $91.3$119.2 million in the three months ended September 30, 2022 March 31, 2023 compared to $83.8$102.2 million in the three months ended September 30, 2021.March 31, 2022. The revenue increase is attributable to two acquisitions that closedhigher level of volume in February 2022.our construction project business and our package boiler business.
Adjusted EBITDA in the B&W Thermal segment increased $1.4decreased $0.4 million to $10.8$13.7 million in the three months ended September 30, 2022March 31, 2023 compared to $9.3$14.2 million in the three months ended September 30, 2021,March 31, 2022, primarily attributable higher expenses related to two acquisitions closed in February 2022. Revenue and adjusted EBITDA were lower than anticipated in the segment due to the negative impact of global supply chain challenges and geopolitical issues. These various challenges resulted in the delay of the delivery of parts orders and services primarily in certain international markets as anticipated.business growth offset partially by higher revenues.
Nine Months Ended September 30, 2022 and 2021
Revenues in the B&W Thermal segment decreased 6%, or $18.5 million, to $309.9 million in the nine months ended September 30, 2022 compared to $328.4 million in the nine months ended September 30, 2021. The revenue decrease is attributable to a lower level of activity on construction projects, partially offset by two acquisitions that closed in February 2022..
Adjusted EBITDA in the B&W Thermal segment increased $8.8 million to $41.3 million in the nine months ended September 30, 2022 compared to $32.4 million in the nine months ended September 30, 2021, which is mainly attributable to favorable product mix and by two acquisitions closed in February 2022 as well as lower level of shared overhead and SG&A allocated to the segment.These are partially offset by the lower volume of construction projects described above.Revenue and adjusted EBITDA were lower than anticipated in the segment due to the negative impact of global supply chain challenges and geopolitical issues. Previous tariff implications, also created challenges to solar supply chain which led to disruptions within the North American solar markets. These various challenges resulted in the delay in the delivery of parts orders and services in certain international markets as anticipated
Corporate
Corporate costs in adjusted EBITDA include SG&A expenses that are not allocated to the reportable segments. These costs include, among others, certain executive, compliance, strategic, reporting and legal expenses associated with governance of the total organization and being an SEC registrant. Corporate costs decreased $1.5increased $0.7 million to $4.4$5.1 million in three months ended September 30, 2022March 31, 2023 as compared to $5.9$4.4 million incurred in the three months ended September 30, 2021.March 31, 2022.
Corporate costs increased $1.5 millionExpenses related to $13.0 million in the nine months ended September 30, 2022 as compared to $11.5 million incurred in the nine months ended September 30, 2021. The increase is primarily due to increased tax and accounting services.
On July 28, 2022, the Company granted 860,000 restricted stock units (“RSUs”"("RSU's") with a market-based condition. The RSU’s will vest only ifare recorded at the closing price of the Company's common stock is equal to or higher than $12.00 by the fifth anniversary of the date of grant. The total fair value of the grant is $5.8 millionCorporate level and is being recognized over the derived requisite service period, determined to be 9 months, within Selling, General and Administrative expenses. As of September 30, 2022, the total unrecognized compensation charge related to the RSU’s is approximately $4.5 million. In addition, on July 28, 2022, the Company granted 924,340 RSU’s. These awards are recognized on a straight-line basis over a 3-year vesting period, except for Market Based restricted stock units which are recognized over a derived service period. As of September 30, 2022,March 31, 2023, the total aggregate unrecognized compensation chargeexpense related to the RSU’sRSUs is approximately $6.6$9.1 million, which is expected to be recognized through fiscal 2025.
(Gain) Loss on sales of certain assets
The company at times will sell or dispose of certain assets that are unrelated to the operations of the Company, therefore, the Company believes it is useful to exclude these gains and losses from our non-GAAP financial measures in order to highlight the performance of the business.
Advisory Fees and Settlement Costs
Advisory fees totaling $0.5 million and settlement costs totaling $(3.0) million together decreased $0.6$6.4 million to $1.2resulting in a benefit of $2.5 million in the three months ended September 30, 2022March 31, 2023 as compared to $1.83.9 million of expense in the comparable period of 2021. Advisory fees and settlement costs increased $0.6 million2022 primarily due to $10.3 million in the nine months ended September 30, 2022 as compared to $9.7 million inParker loss recovery that was recorded during the comparable period of 2021. The increase is primarily related to higher legal fees and other costs incurred in prior quarters.quarter. See Note 17 for more details.
Research andProduct Development
Our research andproduct development activities are focused on improving our products through innovations to reduce their cost and make them more competitive, as well as toimprove competitiveness, reduce performance risk of our products to better meet our and our customers’ expectations.expectations and to further develop our ClimateBright portfolio. Research and development expenses totaled $1.0$1.3 million and $(0.2)$0.7 million in the three months ended September 30,March 31, 2023 and 2022, respectively. The increase resulted primarily from timing of specific research and 2021, respectively, $2.9 million and $1.0 million in the nine months ended September 30, 2022 and 2021, respectively.increased development efforts. These expenses do not include our activities related to our BrightLoop commercialization plant.
Restructuring
Restructuring actions across our business units and corporate functions resulted in $0.4 million and $4.6$0.1 million of expense in the three months ended September 30,March 31, 2023 and 2022, and 2021, respectively, and $0.4 million and $8.0 million of expense inrespectively. The negligible increase for the ninethree months ended September 30, 2022 and 2021, respectively. The decrease for the nine months ended September 30, 2022March 31, 2023 compared to the prior year comparable period is duerelated to overall lower levelslegal fees and costs related to actions taken as part of restructuring actions in all three reportable segments during the current year.Company’s ongoing strategic, market-focused organizational and re-branding initiative.
Transition Costs
Transition costs across our corporate and business functions resulted in $1.5$0.1 million and $6.0$2.6 million of expense in the three and nine months ended September 30,March 31, 2023 and 2022, respectively. These charges primarily result from actions taken to outsource certain tasks to offshore service providers or to transfer administrative and compliance tasks to global service providers as part of our strategic efforts to reduce future selling, general and administrative costs. Transition costs are included in selling, general and administrative expenses in our Condensed Consolidated Statements of Operations.
Depreciation and Amortization
Depreciation expense was $2.3$3.0 million and $2.3$2.2 million in the three months ended September 30,March 31, 2023 and 2022, and 2021, respectively, and depreciation expense was $7.1 million and $7.4 million in the nine months ended September 30, 2022 and 2021.respectively.
Amortization expense was $1.4$2.4 million and $2.0$4.0 million in the three months ended September 30,March 31, 2023 and 2022, and 2021, respectively, amortization expense was $6.1 million and $5.3 million in the nine months ended September 30, 2022 and 2021, respectively.
Pension and Other Postretirement Benefit Plans
We recognize benefits from our defined benefit and other postretirement benefit plans based on actuarial calculations primarily because our expected return on assets is greater than our service cost. Service cost is low because our plan benefits are frozen except for a small number of hourly participants.
Our pension costs also include mark-to-market ("MTM") adjustments from time to time and are primarily a result of changes in the discount rate, curtailments and settlements. Any MTM charge or gain should not be considered to be representative of future MTM adjustments as such events are not currently predicted and are in each case subject to market conditions and actuarial assumptions as of the date of the event giving rise to the MTM adjustment. There were no MTM adjustments for our other postretirement benefit plans during the three and nine months ended September 30,March 31, 2023 and 2022, and 2021, respectively.
Refer to Note 11 to the Condensed Consolidated Financial Statements for further information regarding our pension and other postretirement plans.
Contract Disposal
The Company is in the process of exiting its only remaining fixed fee Operational and Maintenance Contract in our Renewable segment. A similar contract was exited as of December 31, 2022. For the period ended March 31, 2023 the net loss on this contract totaled $1.4 million. The company believes it is useful to exclude the impact of this contract on our operating results as well as our backlog in order to highlight the performance of the business. Impacts of the disposal of our O&M contracts has been adjusted in the prior period to ensure uniform presentation with the current period.
Stock Compensation
Although stock-based compensation is an important aspect of the compensation paid to our employees, the grant date fair value varies based on the derived stock price at the time of grant, varying valuation methodologies, subjective assumptions, and the variety of award types. This makes the comparison of our current financial results to previous and future periods difficult to interpret; therefore, the Company believes it is useful to exclude stock-based compensation from our non-GAAP financial measures in order to highlight the performance of the business and to be consistent with the way many investors evaluate our performance and compare our operating results to peer companies
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 the Condensed Consolidated Statements of Operations.
Foreign exchange was a loss of $(2.0)$0.5 million and $(1.7)a gain of $3.1 million for the three months ended September 30,March 31, 2023 and 2022, and 2021, respectively, and a loss of $(3.2) million and $(1.1) million for the nine months ended September 30, 2022 and 2021, respectively. Foreign exchange losses are primarily related to unhedged intercompany loans denominated in European currencies to fund foreign operations.
Income Taxes
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended March 31, | |
(In thousands, except for percentages) | (In thousands, except for percentages) | 2022 | | 2021 | | $ Change | | 2022 | | 2021 | | $ Change | (In thousands, except for percentages) | 2023 | | 2022 | | $ Change | |
(Loss) income before income taxes | (Loss) income before income taxes | $ | (15,664) | | | $ | 13,949 | | | $ | (29,613) | | | $ | (27,467) | | | $ | 8,029 | | | $ | (35,496) | | (Loss) income before income taxes | $ | (11,985) | | | $ | (7,454) | | | $ | (4,531) | | |
Income tax (benefit) expense | Income tax (benefit) expense | $ | 4,902 | | | $ | 301 | | | $ | 4,601 | | | $ | 4,777 | | | $ | 6,683 | | | $ | (1,906) | | Income tax (benefit) expense | $ | 490 | | | $ | 1,230 | | | $ | (740) | | |
Effective tax rate | Effective tax rate | (31.3) | % | | 2.2 | % | | (17.4) | % | | 83.2 | % | | Effective tax rate | (4.1) | % | | (16.5) | % | | |
Our income tax expense in the thirdfirst quarter of 20222023 reflects a full valuation allowance against our net deferred tax assets, except in Mexico, Canada, the United Kingdom, Brazil, Finland, Germany, Thailand, the Philippines, Indonesia, and Sweden. Deferred tax assets are evaluated each period to determine whether realization is more likely than not. Valuation allowances are established when management determines it is more likely than not that some portion, or all, of the deferred tax assets will not be realized. Valuation allowances may be removed in the future if sufficient positive evidence exists to outweigh the negative evidence under the framework of ASC 740, Income Taxes ("ASC 740").
Our effective tax rate for the thirdfirst quarter of 20222023 is not reflective of the United States statutory rate primarily due to a valuation allowance against certain net deferred tax assets and unfavorable discrete items.In certain jurisdictions (namely, Italy) where the Company anticipates a loss for the fiscal year or incurs a loss for the year-to-date period for which a tax benefit cannot be realized in accordance with ASC 740, the Company excludes the loss in that jurisdiction from the overall computation of the estimated annual effective tax rate.
The Inflation Reduction Act ("IRA") and CHIPS and Science Act ("CHIPS Act") were signed into law in August 2022. The IRA introduced new provisions, including a 15 percent corporate alternative minimum tax for certain large corporations that have at least an average of $1 billion adjusted financial statement income over a consecutive three-tax-year period and a new excise tax on corporate stock buybacks of public US companies. The CHIPS Act, introduces investment tax credits and incentives in semiconductor manufacturing. The corporate minimum tax and excise tax on stock buybacks will be effective for years beginning after December 31, 2022. There is no impact to our financial position at this time.
Liquidity and Capital Resources
Liquidity
Our primary liquidity requirements include debt service, funding of dividends on preferred stock and working capital needs. We fund our liquidity requirements primarily through cash generated from operations, external sources of financing, including our, senior notes, equity offerings, including our Preferred Stock, and revolving credit agreement which are
described in the Notes to our Condensed Consolidated Financial Statements included in Part I, Item I of this Quarterly Report in further detail along with other sources of liquidity.
During the first nine months of 2022, we executed the following actions:
•on February 1, 2022, we acquired 100% ownership of Fossil Power Systems, Inc. for approximately $59.2 million, excluding working capital adjustments as described in Note 21 to the Condensed Consolidated Financial Statements included in Part I, Item I of this Quarterly Report;
•on February 28, 2022, we acquired 100% ownership of Optimus Industries, LLC for approximately $19.0 million, excluding working capital adjustments as described in Note 21 to the Condensed Consolidated Financial Statements included in Part I, Item I of this Quarterly Report; and
•the Company sold $5.4 million aggregate principal of 8.125% Senior Notes and received $5.4 million of net proceeds as described in Note 12 to the Condensed Consolidated Financial Statements included in Part I, Item I of this Quarterly Report.
See Note 12, Note 13, Note 14 and Note 21 to the Condensed Consolidated Financial Statements included in Part I, Item I of this Quarterly Report for additional information on our external sources of financing and equity offerings.
Cash and Cash Flows
At September 30, 2022,March 31, 2023, our cash and cash equivalents, current restricted cash and long-term restricted cash totaled $69.5$91.1 million and we had total debt of $336.3$351.7 million as well as $191.7 million of gross preferred stock outstanding. Our foreign business locations held $27.4$39.1 million of our total unrestricted cash and cash equivalents at September 30, 2022.March 31, 2023. In general, our foreign cash balances are not available to fund our U.S. operations unless the funds are repatriated or used to repay intercompany loans made from the U.S. to foreign entities, which could expose us to taxes we presently have not made a provision for in our results of operations. We presently have no plans to repatriate these funds to the U.S. In addition, we had $1.2$11.2 million of restricted cash at September 30, 2022March 31, 2023 related to collateral for certain letters of credit. We believe our future operating cash flows will be more than sufficient to cover debt repayments, other contractual obligations, capital expenditures and dividends for the next 12 months and thereafter for the foreseeable future.
Cash used in operations was $67.4$12.9 million in the ninethree months ended September 30, 2022,March 31, 2023, which is primarily attributable to the year-to-date net loss of $32.2 million combined with $56.8 million in net unfavorable changes in working capital.$12.5 million. Cash used in operations was $107.8$42.0 million in the ninethree months ended September 30, 2021,March 31, 2022, which is primarily represented in the $47.1$10.0 million change in postretirement and employee benefit liabilities and the remaining $75.0$13.2 million of net increase in operating cash outflows associated with unfavorable changes in working capital.
Cash flows from investing activities used net cash of $67.6$2.2 million in the ninethree months ended September 30, 2022,March 31, 2023, primarily due to the acquisitions of business of $64.9 million and $8.9 million of capital expenditures. Cash flows from investing activities used net cash of $5.9$65.4 million in the ninethree months ended September 30, 2021,March 31, 2022, primarily related to the acquisitionacquisitions of Fosler ConstructionFossil Power Systems and Optimus Industries of $27.2$64.9 million combined with $4.2$1.0 million of capital expenditures, partially offset by proceeds from the sale of business and assets, net of $23.8 million.
Cash flows used in financing activities of $19.1$5.9 million in the ninethree months ended September 30, 2022,March 31, 2023, primarily related to the payment of the preferred stock dividend of $11.1$3.7 million and loan payments of $13.9$1.7 million. Cash flows from financing activities used $1.6 million in the three months ended March 31, 2022 and were primarily due to the payment of the preferred stock dividend of $3.7 million, partially offset by the senior note proceeds of $5.5 million. Cash flows provided by financing activities were $159.2 million in the nine months ended September 30, 2021. Cash generated was primarily related to the issuance of common stock Senior Notes and Preferred Stock, partially offset by $75.4 million Last Out Term Loans repayments, a $164.3 million net reduction on the prior U.S. Revolving Credit Facility and $16.7 million of incremental financing fees.$2.0 million.
Debt Facilities
As described in the Note 12 to our Condensed Consolidated Financial Statements included in Part I, Item I of this Quarterly Report, on September 30, 2021,March 31, 2023, we entered into the Reimbursement Agreement, Revolving Credit Agreement and Letter of Credit Agreement (collectively, the “Debt Documents” and the facilities thereunder, the “Debt Facilities”). The obligations of the Company under each of the Debt Facilities are guaranteed by certain existing and future domestic and foreign subsidiaries of the Company. B. Riley, a related party, has provided a guaranty of payment with regard to the Company’s obligations under the Reimbursement Agreement. The Company expects to use the proceeds and letter of credit availability under the Debt Facilities for working capital purposes and general corporate purposes. The Revolving Credit Agreement matures on June 30, 2025. As of September 30, 2022,March 31, 2023, no borrowings have occurred under the Revolving Credit Agreement and under the Letter of Credit Agreement, usage consisted of $15.1$13.7 million of financial letters of credit and $94.3$93.2 million of performance letters of credit. As of September 30, 2022, the Company was not in compliance with their Quarterly Fixed Charge Coverage financial covenant and received a waiver from MSD and PNC for the period ended September 30, 2022 as described within Note 12.
Letters of Credit, Bank Guarantees and Surety Bonds
Certain of our subsidiaries primarily outside of the United States have credit arrangements with various commercial banks and other financial institutions for the issuance of letters of credit and bank guarantees in association with contracting activity. The aggregate value of all such letters of credit and bank guarantees outside of our Letter of Credit Agreement as of September 30, 2022March 31, 2023 was $45.1$53.0 million. The aggregate value of the outstanding letters of credit provided under the Letter of Credit Agreement backstopping letters of credit or bank guarantees was $36.7$32.4 million as of September 30, 2022.March 31, 2023. Of the outstanding letters of credit issued under the Letter of Credit Agreement, $58.8$68.4 million are subject to foreign currency revaluation.
We have also posted surety bonds to support contractual obligations to customers relating to certain contracts. We utilize bonding facilities to support such obligations, but the issuance of bonds under those facilities is typically at the surety's discretion. These bonds generally indemnify customers should we fail to perform our obligations under the applicable contracts. We, and certain of our subsidiaries, have jointly executed general agreements of indemnity in favor of surety
underwriters relating to surety bonds those underwriters issue in support of some of our contracting activity. As of September 30, 2022,March 31, 2023, bonds issued and outstanding under these arrangements in support of contracts totaled approximately $333.9$341.7 million. The aggregate value of the letters of credit backstopping surety bonds was $8.7$14.2 million.
Our ability to obtain and maintain sufficient capacity under our current Debt Facilities is essential to allow us to support the issuance of letters of credit, bank guarantees and surety bonds. Without sufficient capacity, our ability to support contract security requirements in the future will be diminished.
Other Indebtedness - Loans Payable
As of September 30, 2022, our Denmark subsidiary has an unsecured interest-free loan of $0.7 million under a local government loan program related to COVID-19 that is payable May 2023. In addition,March 31, 2023, the Company had $1.6 million in a loan payable related to financed insurance premiums payable April 2023. These loans are included in currentLoans payable in our Condensed Consolidated Balance Sheets.
Fosler Construction has loans, primarily for vehiclesof $15.7 million, net of debt issuance costs of $0.6 million, of which $4.3 million is classified as current, and equipment, totaling $0.5$11.4 million at September 30, 2022. The vehicle and equipment loans are included in as long term loans payables in our Condensedpayable on the Company's Consolidated Balance Sheets.Sheet. Included in these amounts, the company had approximately $13.1 million, net of debt issuance costs of $0.6 million, related to sale-leaseback financing transactions.
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements that have, or are reasonably expected to have, a material current or future effect on its financial condition, results of operations, liquidity, capital expenditures or capital resources at September 30, 2022.March 31, 2023.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
For a summary of the critical accounting policies and estimates that we use in the preparation of the Company's unaudited Condensed Consolidated Financial Statements, see "Critical Accounting Policies and Estimates" in the Company's Annual Report for the year ended December 31, 2021.2022. There have been no significant changes to the Company's policies during the ninethree months ended September 30, 2022.March 31, 2023.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company's exposures to market risks have not changed materially from those disclosed under "Quantitative and Qualitative Disclosures About Market Risk" in the Company's Annual Report on Form 10-K for the year ended December 31, 2021.2022.
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 its Chief Executive Officer and the Chief Financial Officer, has evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended (the "Exchange Act")). The Company's disclosure controls and procedures, by their nature, can provide only reasonable assurance regarding the control objectives. It should be noted that the design of any system of disclosure controls and procedures is based in part upon various assumptions about the likelihood of future events, and cannot assure that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.
Based on the evaluation referred to above, the Company's Chief Executive Officer and Chief Financial Officer concluded that the design and operation of its disclosure controls and procedures are effective as of September 30, 2022March 31, 2023 to provide reasonable assurance that information required to be disclosed by us in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and such information is accumulated and communicated to management as appropriate to allow timely decisions regarding disclosure.
Changes in Internal Control Over Financial Reporting
There were no changes in the Company's internal control over financial reporting during the three months ended September 30, 2022March 31, 2023 that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting. The Company has not experienced any material impact to its internal controls over financial reporting, despite the fact that some of its team members are working remotely in response to the COVID-19 pandemic. The Company is continually monitoring and assessing these situations on its internal controls to ensure their operating effectiveness.
Inherent Limitations in Effectiveness of Controls
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures, or our internal controls, will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of simple error or mistake or fraud. Additionally, controls can be circumvented by individuals
or groups of persons or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in our control system, misstatements in our public reports due to error or fraud may occur and not be detected.
Item 5. Other Information
As discussed in Note 23 to the Consolidated Financial Statements included in Part I, Item 1 of this Report, the Company entered into Amendment No. 3 to the Revolving Credit Agreement (the “Third Amended Revolving Credit Agreement“) on May 9, 2023, which amended the terms of the Amended Revolving Credit Agreement to permit the exclusion of certain expenses from the calculation of EBITDA under the Revolving Credit Agreement, including for purposes of determining the Company’s compliance with certain financial covenants thereunder.
The Company paid an amendment fee of twenty-five thousand dollars to PNC in consideration of the Third Amended Revolving Credit Agreement. Certain of the lenders, as well as certain of their respective affiliates, have performed and may in the future perform for the Company and its subsidiaries, various commercial banking, investment banking, lending, underwriting, trust services, financial advisory and other financial services, for which they have received and may in the future receive customary fees and expenses. The foregoing description is qualified in its entirety by the complete text of the Third Amended Revolving Credit Agreement, which is attached to this Report as Exhibit 10.1.
PART II
Item 1. Legal Proceedings
For information regarding ongoing investigations and litigation, see Note 17 to the Condensed Consolidated Financial Statements included in Part I, Item I of this Quarterly Report, which the Company incorporates by reference into this Item.
Item 1A. Risk Factors
The Company is subject to various risks and uncertainties in the course of its business. The discussion of such risks and uncertainties may be found under “Risk Factors” in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2021.2022. Other than the additional risk factor set forth below there have been no material changes to the risk factors set forth in the Company's Annual Report on Form 10-K for the year ended December 31, 2021.
The ongoing invasion of Ukraine by Russia may continue to adversely affect the Company's business and results of operations.
The ongoing invasion of Ukraine by Russia, and the global response to it, may continue to adversely affect the Company's business and results of operations. The military conflict between Russia and Ukraine has caused significant volatility and disruptions to the global markets, including shortages of supplies and materials necessary for the Company's business. For example, the conflict can impact the Company's ability to place orders for materials, such as steel, in Europe, and may more broadly impact lead times for materials globally. It is not possible to predict the short-term and long-term implications of this conflict, which could include but are not limited to further uncertainty about economic and political stability, delays in access to supplies and materials, increases in inflation rate and energy prices and adverse effects on currency exchange rates and financial markets. As described in the Company's Business Overview and Results of Operations included in Part I, Item II and Note 17 to the Condensed Consolidated Financial Statements included in Part I, Item I of this Quarterly Report, the conflict has resulted in shortages of supplies and materials and delays in the timing of revenue. The Company continues to monitor the situation closely and is proactively assessing and evaluating alternative sources to bolster its current sources of supplies and materials moving forward.2022.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
In accordance with the provisions of the employee benefit plans, the Company acquired the following shares in connection with the vesting of employee restricted stock that require us to withhold shares to satisfy employee statutory income tax withholding obligations. The following table identifies the number of common shares and average price per share for each month during the quarter ended September 30, 2022.March 31, 2023. The Company does not have a general share repurchase program at this time. | | | | | | | | | | | | | | |
(data in whole amounts) | | | | |
Period | Total number of shares acquired (1)
| Average price per 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 |
July 2022 | — | | $ | — | | — | | $ | — | |
August 2022 | — | | $ | — | | — | | $ | — | |
September 2022 | — | | $ | — | | — | | $ | — | |
Total | — | | $ | — | | — | | $ | — | |
| | | | | | | | | | | | | | |
(data in whole amounts) | | | | |
Period | Total number of shares acquired (1) | Average price per share | Total number of shares purchased as part of publicly announced plans or programs | Approximate dollar value of shares that may yet be purchased under the plans or programs |
January 2023 | — | | $ | — | | — | | $ | — | |
February 2023 | — | | $ | — | | — | | $ | — | |
March 2023 | 11,845 | | $ | 5.58 | | — | | $ | — | |
Total | 11,845 | | $ | 5.58 | | — | | $ | — | |
(1) Acquired shares are recorded in treasury stock in the Company's Condensed Consolidated Balance Sheets.
Item 6. Exhibits
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101.SCH | | XBRL Taxonomy Extension Schema Document. |
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*Certain schedules and exhibits to this agreement have been omitted pursuant to Item 601(b)(2) of Regulation S-K. A copy of any omitted schedule and/or exhibit will be furnished to the SEC upon request.
# As permitted by Regulation S-K, Item 601(b)(10)(iv) of the Securities Exchange Act of 1934, as amended, certain confidential portions of this exhibit have been redacted from the publicly filed document.
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) of Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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| | BABCOCK & WILCOX ENTERPRISES, INC. |
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November 8, 2022May 10, 2023 | By: | /s/ Louis Salamone |
| | Louis Salamone |
| | Executive Vice President, Chief Financial Officer and Chief Accounting Officer (Principal Financial and Accounting Officer and Duly Authorized Representative) |
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