Babcock & Wilcox Enterprises, Inc 10-Q for FY2024 Q2
Babcock & Wilcox Enterprises, Inc. (BW)
10-Q
2024-08-08
For: 2024-06-30
View Original
Added on
April 04, 2026
About this 10-Q
Babcock & Wilcox Enterprises, Inc filed this 10-Q on August 8, 2024, covering the quarter ended June 30, 2024 (FY2024 Q2).
Headline figures
Quarter ended June 30, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $233.64M
- down 19.9% from $291.52M a year earlier
- Net income
- $25.32M
- compared with a net loss of $5.09M a year earlier
- Diluted EPS
- $0.24
- compared with -$0.10 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
Commission File No. 001-36876
(Exact name of registrant as specified in its charter)
| (State or other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | |||||||
| (Address of Principal Executive Offices) | (Zip Code) | |||||||
Registrant's Telephone Number, Including Area Code: (330) 753-4511
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
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.
| Large accelerated filer | ☐ | ☒ | ||||||||||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ||||||||||||||||||
| 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 ☒
1
The number of shares of the registrant's common stock outstanding at August 2, 2024 was 92,195,934 .
2
TABLE OF CONTENTS
| PAGE | ||||||||
Item 1. | ||||||||
2
Definitions
In this Quarterly Report on Form 10-Q, or this “Quarterly Report”, unless the context otherwise indicates, “B&W,” “we,” “us,” “our” or the “Company” mean Babcock & Wilcox Enterprises, Inc. and its consolidated subsidiaries. Unless otherwise noted, discussion of our business and results of operations in this Quarterly Report on Form 10-Q refers to our continuing operations.
| Abbreviation or acronym | Term | |||||||
| 6.50% Senior Notes | 6.50% Senior Notes due December 31, 2026 issued by Babcock & Wilcox Enterprises, Inc. in 2021 | |||||||
| 8.125% Senior Notes | 8.125% Senior Notes due February 28, 2026 issued by Babcock & Wilcox Enterprises, Inc. in 2021 | |||||||
| Amended Revolving Credit Agreement | Amended Revolving Credit Agreement with PNC | |||||||
| AOCI | Accumulated Other Comprehensive Income (loss) | |||||||
| ASC | Accounting Standards Codification | |||||||
| ASU | Accounting Standards Update | |||||||
| Axos | Axos Bank, an affiliate of Axos Financial, Inc. | |||||||
| B&W Solar | Babcock & Wilcox Solar Energy, Inc., formerly known as Fosler Construction Company, Inc. | |||||||
| B. Riley | B. Riley Financial, Inc and its affiliates, a related party | |||||||
| Credit Agreement | Credit Agreement between us, with certain of our subsidiaries as guarantors, the lenders party thereto from time to time and Axos Bank, as administrative agent, swingline lender and letter of credit issuer on January, 18, 2024 (as amended from time to time). | |||||||
| CTA | Currency Translation Adjustment | |||||||
| Debt Documents | Collectively, the Revolving Credit Agreement, Letter of Credit Agreement and Reimbursement Agreement | |||||||
| Debt Facilities | The facilities available under the Debt Documents | |||||||
| EBITDA | Earnings before interest, taxes, depreciation and amortization | |||||||
| Exchange Act | The Securities Exchange Act of 1934, as amended | |||||||
| FASB | Financial Accounting Standards Board | |||||||
| GAAP | Generally Accepted Accounting Principles in the United States of America | |||||||
| IRC | U.S. Internal Revenue Code of 1986, as amended | |||||||
| Letter of Credit Agreement | Letter of Credit agreement with PNC | |||||||
| MSD | MSD Partners and affiliates, including MSD PCOF Partners XLV, LLC | |||||||
| MTM | Mark-to-Market | |||||||
| NOL | Net operating losses | |||||||
| Notes Due 2026 | Collectively, the 8.125% Senior Notes due February 28, 2026 and the 6.50% Senior Notes due December 31, 2026 | |||||||
| PNC | PNC Bank, National Association | |||||||
| Preferred Stock | 7.75% Series A Cumulative Perpetual Preferred Stock | |||||||
| Revolving Credit Agreement | Revolving Credit Agreement with PNC | |||||||
| SEC | United States Securities and Exchange Commission | |||||||
| SOFR | The Secured Overnight Financing Rate | |||||||
***** 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,”
3
“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.
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. These forward-looking statements are based on management’s current expectations and involve a number of risks and uncertainties, including, but not limited to: our financial condition and ability to continue as a going concern; risks associated with contractual pricing in our industry; our relationships with customers, subcontractors and other third parties; our ability to comply with our contractual obligations; disruptions at our manufacturing facilities or a third-party manufacturing facility that we have engaged; the actions or failures of our co-venturers; our ability to implement our growth strategy, including through strategic acquisitions, which we may not successfully consummate or integrate; our evaluation of strategic alternatives for certain businesses and non-core assets may not result in a successful transaction; the risks of unexpected adjustments and cancellations in our backlog; professional liability, product liability, warranty and other claims; our ability to compete successfully against current and future competitors; our ability to develop and successfully market new products; the impacts of macroeconomic downturns, industry conditions and public health crises; the cyclical nature of the industries in which we operate; changes in the legislative and regulatory environment in which we operate; supply chain issues, including shortages of adequate components; failure to properly estimate customer demand; our ability to comply with the covenants in our debt agreements; our ability to refinance our 8.125% Notes due 2026 and 6.50% Notes due 2026 prior to their maturity; our ability to maintain adequate bonding and letter of credit capacity; impairment of goodwill or other indefinite-lived intangible assets; credit risk; disruptions in, or failures of, our information systems; our ability to comply with privacy and information security laws; our ability to protect our intellectual property and use the intellectual property that we license from third parties; risks related to our international operations, including fluctuations in the value of foreign currencies, global tariffs, sanctions and export controls could harm our profitability; volatility in the price of our common stock; B. Riley’s significant influence over us; changes in tax rates or tax law; our ability to use net operating loss and certain tax credits; our ability to maintain effective internal control over financial reporting; our ability to attract and retain skilled personnel and senior management; labor problems, including negotiations with labor unions and possible work stoppages; risks associated with our retirement benefit plans; natural disasters or other events beyond our control, such as war, armed conflicts or terrorist attacks; and the risks and uncertainties described under the heading "Risk Factors" in Part I, Item 1A of our Annual Report, as such risk factors may be amended, supplemented or superseded from time to time by other reports we file with the SEC.
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, forward-looking statements are subject to uncertainties and factors relating to our operations and business environment that are difficult to predict and may be beyond our control. Such uncertainties and factors may cause actual results to differ materially from those expressed or implied by the forward-looking statements.
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
4
BABCOCK & WILCOX ENTERPRISES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||||||||
| (in thousands, except per share amounts) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||||||||||||||||
| Revenues | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||
| Costs and expenses: | |||||||||||||||||||||||||||||||||||||||||
| Cost of operations | |||||||||||||||||||||||||||||||||||||||||
| Selling, general and administrative expenses | |||||||||||||||||||||||||||||||||||||||||
| Restructuring activities | |||||||||||||||||||||||||||||||||||||||||
Research and development costs | |||||||||||||||||||||||||||||||||||||||||
| Gain on sale of business | ( | ( | |||||||||||||||||||||||||||||||||||||||
(Gain) loss on asset disposals, net | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||
| Total costs and expenses | |||||||||||||||||||||||||||||||||||||||||
Operating income | |||||||||||||||||||||||||||||||||||||||||
| Other (expense) income: | |||||||||||||||||||||||||||||||||||||||||
| Interest expense | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||
| Interest income | |||||||||||||||||||||||||||||||||||||||||
| Loss on debt extinguishment | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Benefit plans, net | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Foreign exchange | ( | ||||||||||||||||||||||||||||||||||||||||
| Other income (expense) – net | ( | ( | |||||||||||||||||||||||||||||||||||||||
Total other expense, net | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||
Income (loss) before income tax expense | ( | ||||||||||||||||||||||||||||||||||||||||
Income tax expense | |||||||||||||||||||||||||||||||||||||||||
Income (loss) from continuing operations | ( | ||||||||||||||||||||||||||||||||||||||||
Income (loss) from discontinued operations, net of tax | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||
| Net income (loss) | ( | ( | |||||||||||||||||||||||||||||||||||||||
Net income attributable to non-controlling interest | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||
Net income (loss) attributable to stockholders | ( | ( | |||||||||||||||||||||||||||||||||||||||
Less: Dividend on Series A preferred stock | |||||||||||||||||||||||||||||||||||||||||
| Net income (loss) attributable to stockholders of common stock | $ | $ | ( | $ | $ | ( | |||||||||||||||||||||||||||||||||||
| Basic earnings (loss) per share: | |||||||||||||||||||||||||||||||||||||||||
| Continuing operations | $ | $ | ( | $ | $ | ( | |||||||||||||||||||||||||||||||||||
| Discontinued operations | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||
| Basic earnings (loss) per share | $ | $ | ( | $ | $ | ( | |||||||||||||||||||||||||||||||||||
| Diluted earnings (loss) per share: | |||||||||||||||||||||||||||||||||||||||||
| Continuing operations | $ | $ | ( | $ | $ | ( | |||||||||||||||||||||||||||||||||||
| Discontinued operations | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||
Diluted earnings (loss) per share | $ | $ | ( | $ | $ | ( | |||||||||||||||||||||||||||||||||||
Shares used in the computation of basic earnings (loss) per share | |||||||||||||||||||||||||||||||||||||||||
| Shares used in the computation of diluted earnings (loss) per share | |||||||||||||||||||||||||||||||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
5
BABCOCK & WILCOX ENTERPRISES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||||||||
| (in thousands) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||||||||||||||||
| Net income (loss) | $ | $ | ( | $ | $ | ( | |||||||||||||||||||||||||||||||||||
| Other comprehensive loss: | |||||||||||||||||||||||||||||||||||||||||
| Currency translation adjustments ("CTA") | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Reclassification of CTA to net income (loss) | |||||||||||||||||||||||||||||||||||||||||
| Benefit obligations: | |||||||||||||||||||||||||||||||||||||||||
| Pension and post retirement adjustments, net of tax | |||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Total comprehensive income (loss) | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Comprehensive (income) loss attributable to non-controlling interest | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Comprehensive income (loss) attributable to stockholders | $ | $ | ( | $ | $ | ( | |||||||||||||||||||||||||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
6
BABCOCK & WILCOX ENTERPRISES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| (in thousands, except per share amount) | June 30, 2024 | December 31, 2023 | |||||||||
| Cash and cash equivalents | $ | $ | |||||||||
Current restricted cash | |||||||||||
| Accounts receivable – trade, net | |||||||||||
| Accounts receivable – other | |||||||||||
| Contracts in progress | |||||||||||
| Inventories, net | |||||||||||
| Other current assets | |||||||||||
| Current assets held for sale | |||||||||||
| Total current assets | |||||||||||
| Net property, plant and equipment and finance leases | |||||||||||
| Goodwill | |||||||||||
| Intangible assets, net | |||||||||||
| Right-of-use assets | |||||||||||
| Long-term restricted cash | |||||||||||
| Deferred tax assets | |||||||||||
| Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| Accounts payable | $ | $ | |||||||||
| Accrued employee benefits | |||||||||||
| Advance billings on contracts | |||||||||||
| Accrued warranty expense | |||||||||||
| Financing lease liabilities | |||||||||||
| Operating lease liabilities | |||||||||||
| Other accrued liabilities | |||||||||||
| Loans payable | |||||||||||
| Current liabilities held for sale | |||||||||||
| Total current liabilities | |||||||||||
| Senior notes | |||||||||||
| Loans payable, net of current portion | |||||||||||
| Pension and other postretirement benefit liabilities | |||||||||||
| Finance lease liabilities, net of current portion | |||||||||||
| Operating lease liabilities, net of current portion | |||||||||||
| Deferred tax liability | |||||||||||
| Other noncurrent liabilities | |||||||||||
| Total liabilities | |||||||||||
Stockholders' deficit: | |||||||||||
Preferred stock, par value $ | |||||||||||
Common stock, par value $ | |||||||||||
| Capital in excess of par value | |||||||||||
Treasury stock at cost, | ( | ( | |||||||||
| Accumulated deficit | ( | ( | |||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Stockholders' deficit attributable to shareholders | ( | ( | |||||||||
| Non-controlling interest | |||||||||||
Total stockholders' deficit | ( | ( | |||||||||
Total liabilities and stockholders' deficit | $ | $ | |||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
7
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 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| (in thousands, except share amounts) | Shares | Par Value | Shares | Par Value | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2023 | $ | $ | $ | $ | ( | $ | ( | $ | ( | $ | $ | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Currency translation adjustments | — | — | — | — | — | — | — | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Pension and post retirement adjustments, net of tax | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation charges | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends to preferred stockholders | — | — | — | — | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2024 | $ | $ | $ | $ | ( | $ | ( | $ | ( | $ | $ | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | $ | — | — | $ | — | $ | — | $ | — | $ | $ | — | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
Currency translation adjustments | — | — | — | — | — | — | — | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Pension and post retirement adjustments, net of tax | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation charges | — | — | ( | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends to preferred stockholders | — | — | — | — | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock offering, net | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2024 | $ | $ | $ | $ | ( | $ | ( | $ | ( | $ | $ | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| 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, 2022 | $ | $ | $ | $ | ( | $ | ( | $ | ( | $ | $ | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Currency translation adjustments | — | — | — | — | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Pension and post retirement adjustments, net of tax | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation charges | — | — | ( | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends to preferred shareholders | — | — | — | — | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends to non-controlling interest | — | — | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2023 | $ | $ | $ | $ | ( | $ | ( | $ | ( | $ | $ | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | $ | — | — | $ | — | $ | — | $ | — | $ | ( | $ | — | $ | $ | ( | ||||||||||||||||||||||||||||||||||||||||||
| Currency translation adjustments | — | — | — | — | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Pension and post retirement adjustments, net of tax | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation charges | — | — | — | ( | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends to preferred stockholders | — | — | — | — | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2023 | $ | $ | $ | $ | ( | $ | ( | $ | ( | $ | $ | ( | |||||||||||||||||||||||||||||||||||||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
8
BABCOCK & WILCOX ENTERPRISES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| Six Months Ended June 30, | |||||||||||||||||||||||
| (in thousands) | 2024 | 2023 | |||||||||||||||||||||
| Cash flows from operating activities: | |||||||||||||||||||||||
| Net income (loss) from continuing operations | $ | $ | ( | ||||||||||||||||||||
| Net loss from discontinued operations | ( | ( | |||||||||||||||||||||
| Net income (loss) | $ | $ | ( | ||||||||||||||||||||
| Adjustments to reconcile net income (loss) to net cash used in operating activities: | |||||||||||||||||||||||
| Depreciation and amortization of long-lived assets | |||||||||||||||||||||||
| Amortization of deferred financing costs and debt discount | |||||||||||||||||||||||
| Amortization of guaranty fee | |||||||||||||||||||||||
| Non-cash operating lease expense | |||||||||||||||||||||||
| Loss on debt extinguishment | |||||||||||||||||||||||
Gain on sale of business | ( | ||||||||||||||||||||||
| Loss on asset disposals | |||||||||||||||||||||||
Provision for (benefit from) deferred income taxes | ( | ||||||||||||||||||||||
| Prior service cost amortization for pension and postretirement plans | |||||||||||||||||||||||
| Stock-based compensation | |||||||||||||||||||||||
| Foreign exchange | ( | ||||||||||||||||||||||
| Changes in operating assets and liabilities: | |||||||||||||||||||||||
| Accounts receivable - trade, net and other | ( | ( | |||||||||||||||||||||
| Contracts in progress | ( | ( | |||||||||||||||||||||
| Advance billings on contracts | ( | ||||||||||||||||||||||
| Inventories, net | ( | ||||||||||||||||||||||
| Income taxes | ( | ||||||||||||||||||||||
| Accounts payable | |||||||||||||||||||||||
| Accrued and other current liabilities | ( | ||||||||||||||||||||||
| Accrued contract loss | ( | ( | |||||||||||||||||||||
| Pension liabilities, accrued postretirement benefits and employee benefits | ( | ( | |||||||||||||||||||||
| Other, net | ( | ||||||||||||||||||||||
Net cash used in operating activities | ( | ( | |||||||||||||||||||||
| Cash flows from investing activities: | |||||||||||||||||||||||
| Purchase of property, plant and equipment | ( | ( | |||||||||||||||||||||
| Purchases of available-for-sale securities | ( | ( | |||||||||||||||||||||
| Sales and maturities of available-for-sale securities | |||||||||||||||||||||||
| Proceeds from sale of business and assets, net | |||||||||||||||||||||||
| Other, net | ( | ||||||||||||||||||||||
Net cash provided by (used in) investing activities | ( | ||||||||||||||||||||||
9
BABCOCK & WILCOX ENTERPRISES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| Six Months Ended June 30, | |||||||||||||||||
| (in thousands) | 2024 | 2023 | |||||||||||||||
| Cash flows from financing activities: | |||||||||||||||||
| Borrowings on loan payable | |||||||||||||||||
| Repayments on loan payable | ( | ( | |||||||||||||||
Finance lease payments | ( | ( | |||||||||||||||
| Payment of holdback funds from acquisition | ( | ||||||||||||||||
| Payment of preferred stock dividends | ( | ( | |||||||||||||||
| Shares of common stock returned to treasury stock | ( | ( | |||||||||||||||
| Issuance of common stock, net | |||||||||||||||||
| Debt issuance costs | ( | ||||||||||||||||
| Other, net | ( | ( | |||||||||||||||
Net cash provided by (used in) financing activities | ( | ||||||||||||||||
| Effects of exchange rate changes on cash | ( | ||||||||||||||||
Net increase (decrease) in cash, cash equivalents and restricted cash | ( | ||||||||||||||||
| Cash, cash equivalents and restricted cash at beginning of period | |||||||||||||||||
| Cash, cash equivalents and restricted cash at end of period | $ | $ | |||||||||||||||
| Schedule of cash, cash equivalents and restricted cash: | |||||||||||||||||
| Cash and cash equivalents | $ | $ | |||||||||||||||
| Current restricted cash | |||||||||||||||||
| Long-term restricted cash | |||||||||||||||||
| Total cash, cash equivalents and restricted cash at end of period | $ | $ | |||||||||||||||
| Supplemental Cash flow information: | |||||||||||||||||
| Income taxes paid, net | $ | $ | |||||||||||||||
| Interest paid | $ | $ | |||||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
10
BABCOCK & WILCOX ENTERPRISES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2024
NOTE 1 – BASIS OF PRESENTATION
These interim Condensed Consolidated Financial Statements of Babcock & Wilcox Enterprises, Inc. (“B&W,” “management,” “we,” “us,” “our” or the “Company”) have been prepared in accordance with GAAP and SEC instructions for interim financial information, and should be read in conjunction with the Annual Report on Form 10-K for the year ended December 31, 2023. The Notes to Condensed Consolidated Financial Statements are presented on the basis of continuing operations, unless otherwise stated.
The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from these estimates. In the opinion of management, these Condensed Consolidated Financial Statements contain all estimates and adjustments, consisting of normal recurring adjustments, required to fairly present the financial position, results of operations, and cash flows for the periods presented. Operating results for the six months ended June 30, 2024 are not necessarily indicative of the results to be expected for the year ending December 31, 2024.
There have been no material changes to our significant accounting policies included in the Annual Report on Form 10-K for the year ended December 31, 2023.
Non-controlling interests are presented in the Condensed 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 Condensed Consolidated Financial Statements. Additionally, the Condensed Consolidated Financial Statements include 100% of a controlled subsidiary’s earnings, rather than only our 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.
Liquidity
The accompanying Condensed Consolidated Financial Statements have been prepared in accordance with GAAP applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.
We have historically incurred operating losses, primarily due to losses recognized on our B&W Solar business as well as higher debt service costs and recurring cash deficits from operating activities. Our assessment of our ability to fund future operations is inherently subjective, judgment-based and susceptible to change based on future events. Currently, with existing cash on hand and available liquidity, we are projecting insufficient liquidity to fund operations through one year following the date that this Quarterly Report is issued. These conditions and events raise substantial doubt about our ability to continue as a going concern. As described below, it is probable that our alternative measures contemplated, cost savings plans and anticipated proceeds from the sale of non-strategic assets alleviate the substantial doubt about our ability to continue as a going concern.
In response to the conditions, we are implementing several strategies to obtain the required funding for future operations and are considering other alternative measures to improve cash flow, including suspension of the dividend on our Preferred Stock and delaying development of new products, which together we expect would reduce our annual cash spending by approximately $25 million. The following actions were completed through the issuance date of this Quarterly Report:
•sold our B&W Renewable Service A/S business for net proceeds of $83.5 million on June 28, 2024 (described in Note 3 to the Condensed Consolidated Financial Statements);
•completed the sale of a non-core facility for net proceeds of $4.2 million;
•sold 2.4 million common shares pursuant to our At-The-Market Offering (described in Note 15 to the Condensed Consolidated Financial Statements) for net proceeds of $2.0 million;
•negotiated the settlement of a liability to the former owner of B&W Solar at a discount, resulting in future cash savings of $7.2 million; and,
11
•initiated a company-wide cost savings plan with targeted annual savings of $30.0 million, $25.0 million of which has been achieved to date.
The following strategies are ongoing to further increase available liquidity:
•continued advanced negotiations related to the sale of three additional non-strategic businesses, which are expected to generate significant proceeds that will be used to meaningfully reduce outstanding debt; and,
•filed for a waiver of required minimum contributions to the Retirement Plan for Employees of Babcock & Wilcox Commercial Operations (the "U.S. Plan"), that if granted, would reduce cash funding requirements in 2024 and would increase contributions annually over the subsequent five-year period. We cannot provide any assurances that such waiver will be granted.
Operations
Our operations are assessed based on three reportable market-facing segments consistent with our strategic initiative to accelerate growth and provide stakeholders improved visibility into our renewable and environmental growth platforms. Our reportable segments are as follows:
•Babcock & Wilcox Renewable: Technologies for efficient and environmentally sustainable power and heat generation, including waste-to-energy, biomass-to-energy and black liquor systems for the pulp and paper industry. Our technologies support a circular economy, diverting waste from landfills to use for power generation and replacing fossil fuels, while recovering metals and reducing emissions.
•Babcock & Wilcox Environmental: A full suite of emissions control and environmental technology solutions for utility, waste-to-energy, biomass-to-energy, carbon black, and industrial steam generation applications around the world. Our broad experience includes systems for cooling, ash handling, particulate control, nitrogen oxides and sulfur dioxides removal, chemical looping for carbon control, and mercury control.
•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. We have an extensive global base of installed equipment for utilities and general industrial applications including refining, petrochemical, food processing, metals and others.
For financial information about our segments see Note 5 to the Condensed Consolidated Financial Statements.
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NOTE 2 – EARNINGS (LOSS) PER SHARE
The following table sets forth the computation of basic and diluted loss per share of our common stock, net of non-controlling interest and dividends on preferred stock:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| (in thousands, except per share amounts) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Net income (loss) from continuing operations | $ | $ | $ | $ | ( | ||||||||||||||||||
| Net income attributable to non-controlling interest | ( | ( | ( | ( | |||||||||||||||||||
| Less: Dividend on Series A preferred stock | |||||||||||||||||||||||
| Income (loss) from continuing operations attributable to stockholders of common stock | ( | ( | |||||||||||||||||||||
| Income (loss) from discontinued operations, net of tax | ( | ( | ( | ||||||||||||||||||||
| Net income (loss) attributable to stockholders of common stock | $ | $ | ( | $ | $ | ( | |||||||||||||||||
| Weighted average shares used to calculate basic earnings (loss) per share | |||||||||||||||||||||||
| Dilutive effect of stock options, restricted stock and performance units | |||||||||||||||||||||||
| Weighted average shares used to calculate diluted earnings (loss) per share | |||||||||||||||||||||||
| Basic earnings (loss) per common share: | |||||||||||||||||||||||
| Continuing operations | $ | $ | ( | $ | $ | ( | |||||||||||||||||
| Discontinued operations | $ | $ | ( | $ | ( | $ | ( | ||||||||||||||||
| Basic earnings (loss) per common share | $ | $ | ( | $ | $ | ( | |||||||||||||||||
| Diluted earnings (loss) per share: | |||||||||||||||||||||||
| Continuing operations | $ | $ | ( | $ | $ | ( | |||||||||||||||||
| Discontinued operations | ( | ( | ( | ||||||||||||||||||||
Diluted earnings (loss) per share | $ | $ | ( | $ | $ | ( | |||||||||||||||||
We incurred a net loss in the three- and six-month periods ended June 30, 2023, therefore the basic and diluted shares are the same for those periods.
If we had net income attributable to stockholders of common stock in the three months ended June 30, 2023, diluted shares would have included an additional 0.5 million shares, respectively. If we had net income in the six months ended June 30, 2023, diluted shares would have included an additional 0.4 million shares.
We excluded 2.0 million and 1.1 million shares related to stock options from the diluted share calculation for the three months ended June 30, 2024 and 2023, respectively, because their effect would have been anti-dilutive. We excluded 2.2 million and 1.7 million shares related to stock options from the diluted share calculation from the six months ended June 30, 2024 and 2023, respectively, because their effect would have been anti-dilutive.
NOTE 3 - DIVESTITURE
13
NOTE 4 – ASSETS AND LIABILITIES HELD FOR SALE AND DISCONTINUED OPERATIONS
During the third quarter of 2023, we committed to a plan to sell our B&W Solar business resulting in a significant change that would impact our operations. As of September 30, 2023, we met all of the criteria for the assets and liabilities of this business, formerly part of our B&W Renewable segment, to be accounted for as held for sale. In addition, we also determined that the operations of the B&W Solar business qualified as a discontinued operation, primarily based upon its significance to our current and historic operating losses.
We continued to meet the criteria to account for the B&W Solar business as held for sale and discontinued operations as of June 30, 2024.
The following table summarizes the operating results of the disposal group included in discontinued operations in the Condensed Consolidated Statements of Operations:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| (in thousands) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Revenues | $ | $ | $ | $ | |||||||||||||||||||
| Cost of operations | |||||||||||||||||||||||
| General and administrative expenses | |||||||||||||||||||||||
| Restructuring expenses | |||||||||||||||||||||||
| Loss on asset disposals, net | |||||||||||||||||||||||
| Total costs and expenses | |||||||||||||||||||||||
| Operating income (loss) | ( | ( | ( | ||||||||||||||||||||
| Other expense | ( | ( | ( | ( | |||||||||||||||||||
| Income (loss) from discontinued operations before tax | ( | ( | ( | ||||||||||||||||||||
| Benefit from income taxes | |||||||||||||||||||||||
| Income (loss) from discontinued operations, net of tax | $ | $ | ( | $ | ( | $ | ( | ||||||||||||||||
14
The following table provides the major classes of assets and liabilities of the disposal group included in assets held for sale and liabilities held for sale in the Condensed Consolidated Balance Sheets:
| (in thousands) | June 30, 2024 | December 31, 2023 | ||||||||||||
| Cash | $ | $ | ||||||||||||
| Contracts in progress | ||||||||||||||
| Accounts receivable - trade | ||||||||||||||
| Other assets, net | ||||||||||||||
| Total current assets | ||||||||||||||
| Net property, plant and equipment and finance leases | ||||||||||||||
| Intangible assets, net | ||||||||||||||
| Right-of-use assets | ||||||||||||||
| Total non-current assets | ||||||||||||||
| Total assets of disposal group | $ | $ | ||||||||||||
| Loans payable, current | $ | $ | ||||||||||||
| Operating lease liabilities, current | ||||||||||||||
| Accounts payable | ||||||||||||||
| Accrued employee benefits | ||||||||||||||
| Advance billings on contracts | ||||||||||||||
| Accrued warranty expense | ||||||||||||||
| Other current liabilities | ||||||||||||||
| Total current liabilities | ||||||||||||||
| Loans payable, net of current portion | ||||||||||||||
| Non-current operating lease liabilities | ||||||||||||||
| Other non-current liabilities | ||||||||||||||
| Total non-current liabilities | ||||||||||||||
| Total liabilities of disposal group | $ | $ | ||||||||||||
| Reported as: | ||||||||||||||
| Current assets of discontinued operations | $ | $ | ||||||||||||
| Current liabilities of discontinued operations | $ | $ | ||||||||||||
15
The significant components included in the Condensed Consolidated Statements of Cash Flows for the discontinued operations are as follows:
| Six Months Ended June 30, | |||||||||||
| (in thousands) | 2024 | 2023 | |||||||||
| Depreciation and amortization of long-lived assets | $ | $ | |||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts receivable | ( | ( | |||||||||
| Contracts in progress | ( | ( | |||||||||
| Accounts payable | |||||||||||
| Purchase of property, plant and equipment | ( | ( | |||||||||
Contracts
During the six months ended June 30, 2024, seven contracts were terminated, resulting in gross profit of $1.2 million. There were no new loss contracts during the six months ended June 30, 2024.
Changes in Contract Estimates
During each of the three- and six-month periods ended June 30, 2024 and 2023, B&W Solar 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 June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||||||||
| (in thousands) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||||||||||||||||
| Increases in gross profit for changes in estimates for over time contracts | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||
| Decreases in gross profit for changes in estimates for over time contracts | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||
| Net changes in gross profit for changes in estimates for over time contracts | $ | $ | ( | $ | $ | ( | |||||||||||||||||||||||||||||||||||
Backlog
B&W Solar backlog was $49.3 million and $99.0 million at June 30, 2024 and December 31, 2023, respectively. The decrease was primarily driven by contract terminations of $17.0 million and revenue recognized of $33.8 million, partially offset by increases to existing contracts during the first six months of 2024. We expect to recognize substantially all of the remaining performance obligations as revenue during the year ended December 31, 2024.
16
NOTE 5 – SEGMENT REPORTING
We assess our operations based on three reportable segments as described in Note 1 to the Condensed Consolidated Financial Statements. An analysis of our operations by segment is as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||||||||
| (in thousands) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||||||||||||||||||||
B&W Renewable segment | |||||||||||||||||||||||||||||||||||||||||
| B&W Renewable | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||
| B&W Renewable Services | |||||||||||||||||||||||||||||||||||||||||
| Vølund | |||||||||||||||||||||||||||||||||||||||||
| TOTAL | |||||||||||||||||||||||||||||||||||||||||
B&W Environmental segment | |||||||||||||||||||||||||||||||||||||||||
| B&W Environmental | |||||||||||||||||||||||||||||||||||||||||
| SPIG | |||||||||||||||||||||||||||||||||||||||||
| GMAB | |||||||||||||||||||||||||||||||||||||||||
| TOTAL | |||||||||||||||||||||||||||||||||||||||||
B&W Thermal segment | |||||||||||||||||||||||||||||||||||||||||
| B&W Thermal | |||||||||||||||||||||||||||||||||||||||||
| TOTAL | |||||||||||||||||||||||||||||||||||||||||
Eliminations | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||
| Total Revenues | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||
At a segment level, the adjusted EBITDA presented below is consistent with the manner in which our 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, legal and settlement costs, costs related to financial consulting, research and development costs, costs and operating income from contracts being disposed, 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.
17
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||||||||
| (in thousands) | 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||||||||||||||||
| Adjusted EBITDA | ||||||||||||||||||||||||||||||||||||||
| B&W Renewable segment - Adjusted EBITDA | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| B&W Environmental segment - Adjusted EBITDA | ||||||||||||||||||||||||||||||||||||||
| B&W Thermal segment - Adjusted EBITDA | ||||||||||||||||||||||||||||||||||||||
| Corporate | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||
| R&D expenses | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||
| Interest expense | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||
| Depreciation & amortization | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||
| Gain on sale of business | ||||||||||||||||||||||||||||||||||||||
| Benefit plans, net | ( | ( | ||||||||||||||||||||||||||||||||||||
| Gain (loss) on asset sales, net | ( | |||||||||||||||||||||||||||||||||||||
| Settlement and related legal costs | ( | ( | ||||||||||||||||||||||||||||||||||||
| Loss on debt extinguishment | ( | ( | ||||||||||||||||||||||||||||||||||||
| Stock compensation | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||
| Restructuring expense and business services transition | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||
| Product development | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||
| Foreign exchange | ( | |||||||||||||||||||||||||||||||||||||
| Contract disposal | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||
| Letter of credit fees | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||
| Other-net | ( | ( | ||||||||||||||||||||||||||||||||||||
| Income (loss) before income tax expense | $ | $ | $ | $ | ( | |||||||||||||||||||||||||||||||||
We do not separately identify or report assets by segment as the CODM does not consider assets by segment to be a critical measure by which performance is measured.
NOTE 6 – REVENUE RECOGNITION AND CONTRACTS
Revenue Recognition
We generate the vast majority of our revenues from the supply of, and aftermarket services for, steam-generating, environmental and auxiliary equipment. We also earn revenue from the supply of custom-engineered cooling systems for steam applications along with related aftermarket services.
A performance obligation is a contractual promise to transfer a distinct good or service to the customer. A contract's transaction price is allocated to each distinct performance obligation and is recognized as revenue when (point in time) or as (over time) the performance obligation is satisfied.
Revenue from products and services transferred to customers at a point in time, which includes certain aftermarket parts and services, accounted for 19 % and 21 % of our revenue for the three months ended June 30, 2024 and 2023, and 20 % and 24 % of our revenue for the six months ended June 30, 2024 and 2023, respectively. Revenue from products and services transferred to customers over time, which primarily relates to customized, engineered solutions and construction services, accounted for 81 % and 79 % of our revenue for the three months ended June 30, 2024 and 2023, respectively, and 80 % and 76 % of our revenue for the six months ended June 30, 2024 and 2023, respectively.
Refer to Note 5 to the Condensed Consolidated Financial Statements for further disaggregation of revenue.
18
Contract Balances
The following represents the components of our contracts in progress and advance billings on contracts included in the Condensed Consolidated Balance Sheets:
| (in thousands) | June 30, 2024 | December 31, 2023 | $ Change | % Change | |||||||||||||||||||
| Contract assets - included in contracts in progress: | |||||||||||||||||||||||
| Costs incurred less costs of revenue recognized | $ | $ | $ | % | |||||||||||||||||||
| Revenues recognized less billings to customers | ( | ( | % | ||||||||||||||||||||
| Contracts in progress | $ | $ | $ | ( | ( | % | |||||||||||||||||
| Contract liabilities - included in advance billings on contracts: | |||||||||||||||||||||||
| Billings to customers less revenues recognized | $ | $ | $ | ( | ( | % | |||||||||||||||||
| Costs of revenue recognized less cost incurred | % | ||||||||||||||||||||||
| Advance billings on contracts | $ | $ | $ | ( | ( | % | |||||||||||||||||
| Net contract balance | $ | $ | $ | % | |||||||||||||||||||
| Accrued contract losses | $ | $ | $ | ( | ( | % | |||||||||||||||||
Backlog
On June 30, 2024, we had $472.4 million of remaining performance obligations, which we also refer to as total backlog. We expect to recognize approximately 53.0 %, 25.0 % and 22.0 % of our remaining performance obligations as revenue in 2024, 2025 and thereafter, respectively.
Changes in Contract Estimates
During each of the three- and six-month periods ended June 30, 2024 and 2023, we recognized changes in estimated gross profit related to long-term contracts accounted for on the over time basis, which are summarized as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||||||||
| (in thousands) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||||||||||||||||
| Increases in gross profit for changes in estimates for over time contracts | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||
| Decreases in gross profit for changes in estimates for over time contracts | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||
| Net changes in gross profit for changes in estimates for over time contracts | $ | ( | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||
NOTE 7 – INVENTORIES
Inventories are stated at the lower of cost or net realizable value. Certain raw material inventory is sold to our customers directly and without further processing. The components of inventories are as follows:
| (in thousands) | June 30, 2024 | December 31, 2023 | |||||||||
| Raw materials and supplies | $ | $ | |||||||||
| Work in progress | |||||||||||
| Finished goods | |||||||||||
| Total inventories | $ | $ | |||||||||
19
NOTE 8 – PROPERTY, PLANT, EQUIPMENT & FINANCE LEASES
Property, plant and equipment less accumulated depreciation is as follows:
| (in thousands) | June 30, 2024 | December 31, 2023 | |||||||||
| Land | $ | $ | |||||||||
| Buildings | |||||||||||
| Machinery and equipment | |||||||||||
| Property under construction | |||||||||||
| Less accumulated depreciation | |||||||||||
| Net property, plant and equipment | |||||||||||
| Finance leases | |||||||||||
| Less finance lease accumulated amortization | |||||||||||
| Net property, plant and equipment, and finance leases | $ | $ | |||||||||
NOTE 9 - GOODWILL
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.
There were no
The following summarizes the changes in the net carrying amount of goodwill as of June 30, 2024:
| (in thousands) | B&W Renewable | B&W Environmental | B&W Thermal | Total | ||||||||||||||||||||||
| Balance at December 31, 2023 | $ | $ | $ | $ | ||||||||||||||||||||||
| Divestiture of BWRS | ( | ( | ||||||||||||||||||||||||
| Currency translation adjustments | ( | ( | ( | ( | ||||||||||||||||||||||
| Balance at June 30, 2024 | $ | $ | $ | $ | ||||||||||||||||||||||
20
NOTE 10 – INTANGIBLE ASSETS
Intangible assets are as follows:
| (in thousands) | June 30, 2024 | December 31, 2023 | |||||||||
| Definite-lived intangible assets | |||||||||||
| Customer relationships | $ | $ | |||||||||
| Unpatented technology | |||||||||||
| Patented technology | |||||||||||
| Trade name | |||||||||||
| All other | |||||||||||
| Gross value of definite-lived intangible assets | |||||||||||
| Customer relationships amortization | ( | ( | |||||||||
| Unpatented technology amortization | ( | ( | |||||||||
| Patented technology amortization | ( | ( | |||||||||
| Tradename amortization | ( | ( | |||||||||
| All other amortization | ( | ( | |||||||||
| Accumulated amortization | ( | ( | |||||||||
| Net definite-lived intangible assets | $ | $ | |||||||||
| Indefinite-lived intangible assets | |||||||||||
| Trademarks and trade names | $ | $ | |||||||||
| Total intangible assets, net | $ | $ | |||||||||
The following summarizes the changes in the carrying amount of intangible assets, net:
| Six Months Ended June 30, | |||||||||||||||||||||||
| (in thousands) | 2024 | 2023 | |||||||||||||||||||||
| Balance at beginning of period | $ | $ | |||||||||||||||||||||
| Divestiture of BWRS | ( | ||||||||||||||||||||||
| Amortization expense | ( | ( | |||||||||||||||||||||
| Currency translation adjustments | ( | ||||||||||||||||||||||
| Balance at end of the period | $ | $ | |||||||||||||||||||||
Amortization of intangible assets is included in Cost of operations and SG&A in the Condensed Consolidated Statements of Operations but is not allocated to segment results.
Estimated future intangible asset amortization expense as of June 30, 2024 is as follows (in thousands):
| Amortization Expense | |||||
| Year ending December 31, 2024 | |||||
| Year ending December 31, 2025 | |||||
| Year ending December 31, 2026 | |||||
| Year ending December 31, 2027 | |||||
| Year ending December 31, 2028 | |||||
| Thereafter | |||||
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NOTE 11 – ACCRUED WARRANTY EXPENSE
We may offer assurance type warranties on products and services that we sell. Changes in the carrying amount of accrued warranty expense are as follows:
| Six Months Ended June 30, | ||||||||||||||||||||
| (in thousands) | 2024 | 2023 | ||||||||||||||||||
| Balance at beginning of period | $ | $ | ||||||||||||||||||
| Additions | ||||||||||||||||||||
| Expirations and other changes | ( | ( | ||||||||||||||||||
| Payments | ( | ( | ||||||||||||||||||
| Translation and other | ( | |||||||||||||||||||
| Balance at end of period | $ | $ | ||||||||||||||||||
NOTE 12 – RESTRUCTURING ACTIVITIES
We incurred restructuring charges (benefits) in each of the three and six months ended June 30, 2024 and 2023. The charges (benefits) primarily consist of costs related to actions taken as part of ongoing strategic, market-focused organizational and re-branding initiatives.
The following tables summarize the restructuring activity incurred by segment:
| Three Months Ended June 30, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| (in thousands) | Total | Severance and related costs | Other(1) | Total | Severance and related costs | Other(1) | |||||||||||||||||
| B&W Renewable segment | $ | $ | $ | $ | $ | $ | |||||||||||||||||
| B&W Environmental segment | |||||||||||||||||||||||
| B&W Thermal segment | |||||||||||||||||||||||
| Corporate | ( | ( | |||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Six Months Ended June 30, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| (in thousands) | Total | Severance and related costs | Other(1) | Total | Severance and related costs | Other(1) | |||||||||||||||||
| B&W Renewable segment | $ | $ | $ | $ | $ | $ | |||||||||||||||||
| B&W Environmental segment | |||||||||||||||||||||||
| B&W Thermal segment | |||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Restructuring liabilities are included in Other accrued liabilities in the Condensed Consolidated Balance Sheets. Activity related to the restructuring liabilities is as follows:
22
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| (in thousands) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
Balance at beginning of period | $ | $ | $ | $ | |||||||||||||||||||
| Restructuring expense | |||||||||||||||||||||||
| Payments | ( | ( | ( | ( | |||||||||||||||||||
| Balance at end of period | $ | $ | $ | $ | |||||||||||||||||||
The payments shown above for the three and six months ended June 30, 2024 and 2023 relate primarily to severance costs. Accrued restructuring liabilities at June 30, 2024 and 2023 relate primarily to employee termination benefits.
NOTE 13 – PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS
Components of net periodic cost (benefit) included in net loss are as follows:
| Pension Benefits | Other Benefits | ||||||||||||||||||||||||||||||||||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||||||||||||
| (in thousands) | 2024 | 2023 | 2024 | 2023 | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||||||||||||||||||
| Interest cost | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Expected return on plan assets | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||
| Amortization of prior service cost | |||||||||||||||||||||||||||||||||||||||||||||||
Benefit plans, net (1) | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||
Service cost included in COS (2) | |||||||||||||||||||||||||||||||||||||||||||||||
| Net periodic cost (benefit) | $ | ( | $ | $ | ( | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||
(1) Benefit plans, net, which is presented separately in the Condensed Consolidated Statements of Operations, is not allocated to the segments.
(2) Service cost related to a small group of active participants is presented within Cost of operations in the Condensed Consolidated Statements of Operations and is recorded at the B&W Thermal segment level.
There were no MTM adjustments for our pension and other postretirement benefit plans during the three and six months ended June 30, 2024 and 2023.
NOTE 14 – DEBT AND CREDIT FACILITIES
Senior Notes
The components of the Company's senior notes outstanding at June 30, 2024 are as follows:
| Senior Notes | |||||||||||||||||
| (in thousands) | Total | ||||||||||||||||
Senior notes due 2026 | $ | $ | $ | ||||||||||||||
| Unamortized deferred financing costs | ( | ( | ( | ||||||||||||||
| Unamortized premium | |||||||||||||||||
| Net debt balance | $ | $ | $ | ||||||||||||||
The components of senior notes outstanding at December 31, 2023 are as follows:
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| Senior Notes | |||||||||||||||||
| (in thousands) | Total | ||||||||||||||||
Senior notes due 2026 | $ | $ | $ | ||||||||||||||
| Unamortized deferred financing costs | ( | ( | ( | ||||||||||||||
| Unamortized premium | |||||||||||||||||
| Net debt balance | $ | $ | $ | ||||||||||||||
Revolving and Letter of Credit Agreements with Axos
We entered into the Credit Agreement in January 2024, with certain of our subsidiaries as guarantors, the lenders party thereto from time to time and Axos, as administrative agent, swingline lender and letter of credit issuer.
The Credit Agreement provides for an up to $150.0 million asset-based revolving credit facility (with availability subject to a borrowing base calculation) ("Credit Facility"), including a $100.0 million letter of credit sublimit. Our obligations under the Credit Agreement are guaranteed by certain of our domestic and foreign subsidiaries. B. Riley has provided a guaranty of payment with regard to our obligations under the Credit Agreement, as further described below. We used and expect to use the proceeds and letter of credit availability under the Credit Agreement to (i) pay off our prior revolving credit facility with PNC, (ii) provide for working capital needs, (iii) provide cash collateral to secure letters of credit to be issued under the Credit Agreement, and (iv) provide for general corporate purposes.
The Credit Agreement has a maturity date of January 18, 2027, provided that if as of October 31, 2025, as amended by the Second Amendment to Credit Agreement ("Second Amendment"), the 8.125 % Senior Notes and 6.50 % Senior Notes have not been refinanced pursuant to a Permitted Refinancing, as defined in the Credit Agreement, or the maturity date has not otherwise been extended to a date on or after July 18, 2027, then the maturity date of the Credit Agreement is October 31, 2025. See Note 23 to the Condensed Consolidated Financial Statements for further discussion of the Second Amendment.
The interest rates applicable under the Credit Agreement are: (i) with respect to SOFR Loans, (a) SOFR plus 5.25 % if the outstanding principal amount of loans is equal to or less than $100.0 million or (b) SOFR plus 4.00 % if the outstanding principal amount of loans is equal to or greater than $100.0 million; (ii) with respect to Base Rate Loans, the greater of (a) the Federal Funds Rate plus 2.00 % plus the Applicable Margin, (b) the prime rate as designated by Axos plus the Applicable Margin, and (c) Daily Simple SOFR plus 1.00 % plus the Applicable Margin; and (iii) with respect to the default rate under the Credit Agreement, the then-existing interest rate plus 2.00 %.
In connection with the Credit Agreement, we are required to pay (i) an origination fee of $1.5 million, (ii) a commitment fee equal to 0.50 % per annum multiplied by the positive difference by which the Aggregate Revolving Commitments exceed the Total Revolvings Outstanding (as defined in the Credit Agreement), subject to adjustment, (iii) a facility fee equal to the Applicable Margin for SOFR Loans multiplied by the positive difference by which the actual daily amount of L/C Obligations the Administrative Agent is then holding Specified Cash Collateral exceeds the actual daily Outstanding Amount of Revolving Loans, and (iv) a collateral monitoring fee of $1,000 per month. We are permitted to prepay all or any portion of the loans under the Credit Agreement prior to maturity subject to the payment of an early termination fee. The Credit Agreement requires mandatory prepayments under certain circumstances, including in the event of an overadvance.
The obligations under the Credit Agreement are secured by substantially all assets of B&W and each of the guarantors, in each case subject to intercreditor arrangements. The Credit Agreement contains certain representations and warranties, affirmative covenants, negative covenants and conditions that are customarily required for similar financings. The Credit Agreement requires us to comply with certain financial maintenance covenants, including a quarterly fixed charge coverage test, a quarterly total net leverage ratio test, a cash repatriation covenant, a minimum liquidity covenant, an annual cap on maintenance capital expenditures and a limit on unrestricted cash.
The Credit Agreement also contains 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 Credit Agreement, the failure to comply with certain covenants and agreements specified in the Credit Agreement, defaults in respect of certain other indebtedness, and certain events of insolvency. If any event of default occurs, Axos may declare the principal, premium, if any, interest and any other monetary obligations on all the then outstanding amounts under the Credit Agreement may become due and payable immediately. At June 30, 2024, after giving consideration to the Third Amendment discussed below, we are in compliance with all financial and other covenants contained in the Credit Agreement.
24
In connection with our entry into the Credit Agreement, we entered into with B. Riley (i) a guaranty agreement in favor of (a) Axos, in its capacity as administrative agent under the Credit Agreement, for the ratable benefit of the Secured Parties and (b) such Secured Parties (the “B. Riley Guaranty”) and (ii) a fee and reimbursement agreement, made by B. Riley and accepted and agreed to by us (the “B. Riley Fee Agreement”). The B. Riley Guaranty provides for the guarantee of all of our obligations under the Credit Agreement. The B. Riley Guaranty is enforceable in certain circumstances, including, among others, certain events of default and the acceleration of our obligations under the Credit Agreement. The B. Riley Fee Agreement provides, among other things, for an annual fee to be paid to B. Riley by us in an annual amount equal to 2.00 % of Aggregate Revolving Commitments under the Credit Agreement (or approximately $3 million) as consideration for B. Riley’s agreements and commitments under the B. Riley Guaranty. The B. Riley Fee Agreement also requires us to reimburse B. Riley to the extent the B. Riley Guaranty is called upon by the agent or lenders under the Credit Agreement and requires us to execute a junior secured promissory note with respect to the same within 60 days after the execution of the B. Riley Fee Agreement (or such other date as B. Riley may agree to).
On April 30, 2024, we, along with certain subsidiaries as guarantors, the lenders party to the Credit Agreement, and Axos, as administrative agent, entered into the First Amendment to Credit Agreement (the “First Amendment”). The First Amendment, among other things, amends the terms of the Credit Agreement to increase the amounts available to be borrowed based on inventory in the borrowing base under the Credit Agreement (the "Increased Inventory Period"). In 2024, the Increased Inventory Period commences on April 30 and ends on July 31 and would provide approximately $6.0 million additional available borrowings under the Credit Agreement. The Increased Inventory Period is available to us upon our election in subsequent years (subject to a $75,000 fee if we make such an election) and commences on March 1 and ends on July 31.
On July 3, 2024, we, with certain of our subsidiaries as guarantors, the lenders party to the Credit Agreement, and Axos, as administrative agent, entered into the Second Amendment. Pursuant to the Second Amendment, Axos and the Lenders party to the Credit Agreement consented to the Company’s engagement in certain specified sales of the assets of specified subsidiaries of the Company (such sales, the “Specified Transactions”), and agreed that the consummation of any Specified Transaction would not result in an event of default under the Credit Agreement. As a condition to the forgoing consent and agreements, we agreed to a usage structure for the net cash proceeds from the Specified Transactions. The Second Amendment also sunsets the option to increase the amounts available to be borrowed based on inventory in the borrowing base provided in the First Amendment and extended the maturity date under the agreement from August 30, 2025 to October 31, 2025 in the event that the Indebtedness under any of the Company’s unsecured notes has not been refinanced pursuant to a permitted refinancing under the agreement. The maturity date of the Credit Agreement otherwise remains January 18, 2027. See Note 23 to the Condensed Consolidated Financial Statements for further discussion of the Second Amendment.
25
On August 7, 2024, we, with certain of our subsidiaries as guarantors, the lenders party to the Credit Agreement, and Axos, as administrative agent, entered into the Third Amendment to Credit Agreement ("Third Amendment"). The Third Amendment amended the definition of Consolidated Adjusted EBITDA to (i) exclude certain costs incurred in connection with the settlement of the Glatfelter Litigation; and (ii) add back certain contributions currently required to be made by us or our Subsidiaries to the U.S. Plan, up to an aggregate maximum of $15 million.
At June 30, 2024, we had a total of $125.8 million outstanding on the Axos Credit Agreement, which includes $46.6 million drawn on the revolving credit portion of the facility and $79.2 million drawn on the letter of credit portion. At June 30, 2024, cash collateralizing the letters of credit totaling $79.2 million is classified as Restricted cash, of which $48.2 million is classified as current and $31.0 million as long-term.
As of June 30, 2024, Loans payable in the Condensed Consolidated Balance Sheets totaled $137.8 million, net of debt issuance costs of $0.5 million, of which $3.5 million is classified as current and $134.3 million as long-term loans payable in the Consolidated Balance Sheets. In addition to the amounts outstanding on our revolving debt facilities, Loans payable also includes $11.8 million, net of debt issuance costs of $0.5 million, related to sale-leaseback financing transactions.
As of December 31, 2023, we had Loans payable of $41.6 million, net of debt issuance costs of $0.5 million, of which $6.2 million is classified as current and $35.4 million as long-term loans payable in the Consolidated Balance Sheets. Included in these amounts was approximately $12.3 million, net of debt issuance costs of $0.5 million, related to sale-leaseback financing transactions.
Revolving and Letter of Credit Agreements with PNC and MSD
In June 2021, we entered into a Revolving Credit Agreement (the “Revolving Credit Agreement”) with PNC, as administrative agent and a letter of credit agreement (the “Letter of Credit Agreement”) with PNC, pursuant to which PNC agreed to issue up to $110.0 million in letters of credit that is secured in part by cash collateral provided by 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 our subsidiaries as guarantors, pursuant to which we are 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 Facilities”). Our obligations under the Debt Facilities were guaranteed by certain of our existing and future domestic and foreign subsidiaries. B. Riley, a related party, provided a guaranty of payment with regard to our obligations under the Reimbursement Agreement. The Debt Facilities were effectively replaced by the Credit Agreement in January 2024. The Revolving Credit Agreement was terminated in connection with our entry into the Credit Agreement and we are transitioning letters of credit outstanding under the Letter of Credit Agreement and Reimbursement Agreement to the Credit Agreement. At June 30, 2024, there was approximately $1.6 million in remaining outstanding letters of credit under the Letter of Credit Agreement. We believe all outstanding letters of credit will be transitioned to the Credit Agreement by September 30, 2024, at which time the Letter of Credit Agreement and Reimbursement Agreement is expected to be terminated. We recognized a Loss on debt extinguishment of $1.1 million and $6.1 million in the three and six months ended June 30, 2024, related to the write-off of unamortized deferred financing fees and other costs incurred to exit the Debt Facilities.
The Letter of Credit Agreement requires fees on outstanding letters of credit equal to (i) administrative fees of 0.75 % and (ii) fronting fees of 0.25 %. Prepayments under the Reimbursement Agreement are 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. We have mandatory prepayment obligations under the Reimbursement Agreement upon the receipt of proceeds from certain dispositions or casualty or condemnation events.
The obligations under the Debt Facilities are secured by substantially all of our assets 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 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.
26
If any event of default occurs, the principal, premium, if any, interest and any other monetary obligations on all then-outstanding amounts under the Debt Facilities may become due and payable immediately.
In November 2023, we entered into Amendment No. 3 to the Reimbursement Agreement (the “Third Amended Reimbursement Agreement”), which modified certain financial maintenance covenants for future periods beginning with the fiscal quarter ended on September 30, 2023. The Third Amended Reimbursement Agreement also imposed a leverage condition to the payment of dividends on preferred equity, which required us to provide a quality of earnings report and pay a $1.0 million fee to MSD prior to paying a dividend for the fiscal quarter ending December 31, 2023. The interest rates applicable to the Third Amended Reimbursement Agreement float at a rate per annum equal to plus 10 % through December 31, 2023, plus 11 % from January 1, 2024 through June 30, 2024 and will increase by 50 basis points as of the first day of each fiscal quarter thereafter.
In March 2024, we entered into Amendment No. 4 to the Reimbursement Agreement (the "Fourth Amended Reimbursement Agreement"), which modified certain financial maintenance covenants for periods beginning with the fiscal quarter ended on December 31, 2023. The Fixed Charge Coverage Ratio was amended to 0.93 to 1.0 for the fiscal quarter ending December 31, 2023, 0.82 to 1.0 for the fiscal quarter ending March 31, 2024, 0.90 to 1.0 for the fiscal quarter ending June 30, 2024, 0.95 to 1.0 for the fiscal quarter ending September 30, 2024, 1.1 to 1.0 for the fiscal quarter ending December 31, 2024, and 1.25 to 1.0 for the fiscal quarter ending March 31, 2025 and thereafter. The Senior Net Leverage Ratio condition to payment of any Permitted Restricted Payments, as defined in the Fourth Amended Reimbursement Agreement, was amended to 1.45 to 1.0 for the four quarter fiscal measurement period ending as of December 31, 2023 and 1.25 to 1.0 thereafter. The Fourth Amended Reimbursement Agreement also amends the minimum cash flow covenants set forth in the Reimbursement Agreement to no less than $10.0 million as of December 31, 2023 (for the preceding fiscal quarter), no less than $15.0 million as of December 31, 2024 (for the preceding fiscal year), and no less than $25.0 million as of December 31 of each fiscal year thereafter. The Applicable Margin with respect to Delayed Draw Term Loans and Cash Collateral Commitment Fees will increase by an additional 0.50 15 million on the applicable date. At March 31, 2024, we are in compliance with all financial and other covenants contained in the Letter of Credit Agreement and Reimbursement Agreement.
A summary of usage of letters of credit under the domestic facilities is as follows. Due to the timing of the transition of our Letter of Credit Arrangements from PNC and MSD to Axos, balances as of June 30, 2024 are primarily with Axos and balances as of June 30, 2023 are with PNC and MSD.
| June 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| Letters of credit under domestic facilities: | |||||||||||
| Performance letters of credit | $ | $ | |||||||||
| Financial letters of credit | |||||||||||
| Total outstanding | $ | $ | |||||||||
| Backstopped letters of credit | $ | $ | |||||||||
| Surety backstopped letters of credit | $ | $ | |||||||||
| Letters of credit subject to currency revaluation | $ | $ | |||||||||
Other Letters of credit, bank guarantees and surety bonds
Certain of our subsidiaries, that are 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.
We have posted surety bonds to support contractual obligations to customers relating to certain contracts. We utilize bonding facilities to support such obligations, but the issuance of bonds under those facilities is typically at the surety's discretion. These bonds generally indemnify customers should we fail to perform our obligations under our applicable contracts. We, and certain of our 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 our contracting activity.
27
The following table provides a summary of outstanding letters of credit issued outside of the domestic facilities, and outstanding surety bonds:
| June 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| Letters of credit under non-domestic facilities | |||||||||||
| Surety Bonds | $ | $ | |||||||||
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.
NOTE 15 – CAPITAL STOCK
Preferred Stock
During the six months ended June 30, 2024, our Board of Directors approved dividends totaling $7.4 million to holders of the Preferred Stock. There were no cumulative undeclared dividends of the Preferred Stock at June 30, 2024, and all declared dividends have been paid as of July 1, 2024.
Common Stock
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NOTE 16 –INTEREST EXPENSE
Interest expense in the Condensed Consolidated Financial Statements consisted of the following components:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||||||||
| (in thousands) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||||||||||||||||
| Components associated with borrowings from: | |||||||||||||||||||||||||||||||||||||||||
| Senior notes | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||
| Revolving Credit Facility | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||
| Components associated with amortization or accretion of: | |||||||||||||||||||||||||||||||||||||||||
| Revolving Credit Agreement | |||||||||||||||||||||||||||||||||||||||||
| Senior notes | |||||||||||||||||||||||||||||||||||||||||
| Components associated with interest from: | |||||||||||||||||||||||||||||||||||||||||
| Lease liabilities | |||||||||||||||||||||||||||||||||||||||||
| Letter of Credit interest and fees | |||||||||||||||||||||||||||||||||||||||||
| Other interest expense | |||||||||||||||||||||||||||||||||||||||||
| Total interest expense | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||
The following table provides a reconciliation of Cash, cash equivalents and Short-term and Long-term restricted cash reporting within the Condensed Consolidated Balance Sheets and in the Condensed Consolidated Statements of Cash Flows:
| (in thousands) | June 30, 2024 | December 31, 2023 | |||||||||
| Held by foreign entities | $ | $ | |||||||||
| Held by U.S. entities | |||||||||||
| Cash and cash equivalents | |||||||||||
| Reinsurance reserve requirements | |||||||||||
Project indemnity collateral | |||||||||||
| Bank guarantee collateral | |||||||||||
Letters of credit collateral (1) | |||||||||||
| Pension obligations | |||||||||||
Hold-back for acquisition purchase price (2) | |||||||||||
Escrow for long-term project (3) | |||||||||||
Current and Long-term restricted cash | |||||||||||
| Total cash, cash equivalents and restricted cash shown in the Condensed Consolidated Statements of Cash Flows | $ | $ | |||||||||
(1) Beginning in January 2024, we drew $79.2 million on the Axos Credit Agreement for letter of credit collateral, which is reflected in Current and Long-term restricted cash in the Condensed Consolidated Balance Sheets.
(2) The purchase price for FPS was $59.2 million, and included an initial hold-back of $5.9 million which was included in Current restricted cash and cash equivalents and Other accrued liabilities in the Condensed Consolidated Balance Sheets. The final payment was made in the amount of $3.0 million during the first quarter of 2024.
29
NOTE 17 – PROVISION FOR INCOME TAXES
In the three months ended June 30, 2024, income tax expense from continuing operations was $4.7 million, resulting in an effective tax rate of 15.7 %. In the three months ended June 30, 2023, income tax expense from continuing operations was $1.9 million, resulting in an effective tax rate of 75.8 %.
In the six months ended June 30, 2024, income tax expense from continuing operations was $6.0 million, resulting in an effective tax rate of 38.8 %. In the six months ended June 30, 2023, income tax expense from continuing operations was $2.4 million, resulting in an effective tax rate of (24.1 )%.
Our effective tax rate for the three and six months ended June 30, 2024 is not reflective of the U.S. statutory rate due to valuation allowances against certain net deferred tax assets and discrete items. We have unfavorable discrete items relating to continuing operations of $1.1 million and $1.6 million for the three and six months ended June 30, 2024, which primarily represent withholding taxes and the tax consequences associated with the sale of BWRS. We had discrete items relating to continuing operations of $(0.4 ) million and $(0.2 ) million for the three and six months ended June 30, 2023, which primarily represented withholding taxes and return-to-accrual adjustments.
We are subject to federal income tax in the United States and numerous countries that have statutory tax rates different than the United States federal statutory rate of 21%. The most significant of these foreign operations are located in Canada, Denmark, Germany, Italy, Mexico, Sweden, and the United Kingdom, with effective tax rates ranging between approximately 19 % and 30 % We provide for income taxes based on the tax laws and rates in the jurisdictions where we conduct operations. These jurisdictions may have regimes of taxation that vary in both nominal rates and the basis on which these rates are applied. Our consolidated effective income tax rate can vary from period to period due to these foreign income tax rate variations, changes in the jurisdictional mix of our income, and valuation allowances.
NOTE 18 – 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 we filed a motion to dismiss, and on December 14, 2020 the court issued its order dismissing the fraud and negligent misrepresentation claims. On January 11, 2021, we filed an answer and a counterclaim for breach of contract, seeking damages in excess of $2.9 million. On November 30, 2022, we and Glatfelter each filed cross-motions for summary judgment. On June 21, 2023, the court granted our motion in part, dismissing Glatfelter’s promissory estoppel and unjust enrichment claims, dismissing Babcock & Wilcox Enterprises, Inc. entirely (Glatfelter's remaining claim is asserted against The Babcock & Wilcox Company), and finding that Plaintiffs’ claims for damages will be subject to the contractual cap on liability, and denied Glatfelter’s motion for summary judgment.
On August 3, 2024, we and Glatfelter agreed in principle to resolve the Glatfelter Litigation (the “Proposed Glatfelter Settlement Agreement”). Pursuant to the Proposed Glatfelter Settlement Agreement, we would pay Glatfelter a total sum of $6.5 million (the “Proposed Settlement Amount”), to be paid in six consecutive monthly installments beginning on or about September 1, 2024. The Proposed Settlement Amount will be subject to a letter of credit backstopping the payments, and the final settlement agreement is expected to contain customary confidentiality and non-disparagement provisions. The amount to be paid is fully accrued and reflected in Other accrued liabilities in the Condensed Consolidated Balance Sheets at June 30, 2024.
Other
Due to the nature of our business, from time to time, we are involved in routine litigation or subject to disputes or claims related to our business activities, including, among other things: performance or warranty-related matters under our customer and supplier contracts and other business arrangements; and workers' compensation, premises liability and other claims. Based on prior experience, except as disclosed above, we do not expect that any of these other litigation proceedings, disputes and claims will have a material adverse effect on our condensed consolidated financial condition, results of operations or cash flows.
30
NOTE 19 – ACCUMULATED OTHER COMPREHENSIVE LOSS
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 currency translation loss reclassification of AOCI to net loss is a result of the sale of BWRS in the current year quarter. The changes in the components of AOCI, net of tax, for six months ended June 30, 2024 and 2023 were as follows:
| (in thousands) | Currency translation loss | Net unrecognized loss related to benefit plans (net of tax) | Total | |||||||||||
Balance at December 31, 2023 | $ | ( | $ | ( | $ | ( | ||||||||
| Other comprehensive income (loss) before reclassifications | ( | ( | ||||||||||||
| Reclassification of AOCI to net loss | ||||||||||||||
| Net other comprehensive income (loss) | ( | ( | ||||||||||||
| Balance at March 31, 2024 | $ | ( | $ | ( | $ | ( | ||||||||
| Other comprehensive income (loss) before reclassifications | ( | ( | ||||||||||||
| Reclassification of AOCI to net income (loss) | ||||||||||||||
| Net other comprehensive income (loss) | ( | ( | ||||||||||||
| Balance at June 30, 2024 | $ | ( | $ | ( | $ | ( | ||||||||
| (in thousands) | Currency translation loss | Net unrecognized loss related to benefit plans (net of tax) | Total | |||||||||||
| Balance at December 31, 2022 | $ | ( | $ | ( | $ | ( | ||||||||
| Other comprehensive income before reclassifications | ||||||||||||||
| Reclassification of AOCI to net loss | ||||||||||||||
| Net other comprehensive income | ||||||||||||||
| Balance at March 31, 2023 | $ | ( | $ | ( | $ | ( | ||||||||
| Other comprehensive income before reclassifications | ||||||||||||||
| Reclassification of AOCI to net income (loss) | ||||||||||||||
| Net other comprehensive income | ||||||||||||||
| Balance at June 30, 2023 | $ | ( | $ | ( | $ | ( | ||||||||
The amounts reclassified out of AOCI by component and the affected Condensed Consolidated Statements of Operations line items are as follows:
| AOCI component | Line items in the Condensed Consolidated Statements of Operations affected by reclassifications from AOCI | Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||
| Release of currency translation adjustment with the sale of business | Gain on sale of business | $ | $ | $ | $ | |||||||||||||||||||||
| Pension and post retirement adjustments, net of tax | Benefit plans, net | |||||||||||||||||||||||||
| Net (loss) income | $ | $ | $ | $ | ||||||||||||||||||||||
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NOTE 20 – FAIR VALUE MEASUREMENTS
The following tables summarize our financial assets and liabilities carried at fair value, all of which were valued from readily available prices or using inputs based upon quoted prices for similar instruments in active markets (known as "Level 1" and "Level 2" inputs, respectively, in the fair value hierarchy established by the FASB Topic, Fair Value Measurements and Disclosures). As of June 30, 2024 and December 31, 2023 we had no "Level 3" inputs.
Available-For-Sale Securities
Investments in available-for-sale securities are presented in Other assets in the Condensed Consolidated Balance Sheets with contractual maturities ranging from 0 to 5 years.
| (in thousands) | ||||||||||||||
| Available-for-sale securities | June 30, 2024 | Level 1 | Level 2 | |||||||||||
| Corporate notes and bonds | $ | $ | $ | |||||||||||
| Mutual funds | ||||||||||||||
| United States Government and agency securities | ||||||||||||||
| Total fair value of available-for-sale securities | $ | $ | $ | |||||||||||
| (in thousands) | ||||||||||||||
| Available-for-sale securities | December 31, 2023 | Level 1 | Level 2 | |||||||||||
| Corporate notes and bonds | $ | $ | $ | |||||||||||
| Mutual funds | ||||||||||||||
| United States Government and agency securities | ||||||||||||||
| Total fair value of available-for-sale securities | $ | $ | $ | |||||||||||
Senior Notes
See Note 14 to the Condensed Consolidated Financial Statements for a discussion of the Senior Notes. The fair value of the Senior Notes is based on readily available quoted market prices as of June 30, 2024.
| (in thousands) | June 30, 2024 | ||||||||||
| Senior Notes | Carrying Value | Estimated Fair Value | |||||||||
| $ | $ | ||||||||||
| $ | $ | ||||||||||
Other Financial Instruments
We used the following methods and assumptions in estimating our fair value disclosures for our other financial instruments:
•Cash and cash equivalents and restricted cash. The carrying amounts that have been 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.
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NOTE 21 – RELATED PARTY TRANSACTIONS
We believe transactions with related parties were conducted on terms equivalent to those prevailing in an arm's length transaction.
Transactions with B. Riley
To our knowledge, B. Riley beneficially owns approximately 31.3 % of the Company's outstanding common stock as of June 30, 2024. B. Riley currently has the right to nominate one member of our Board of Directors pursuant to the investor rights agreement we entered into with B. Riley in April 2019. The investor rights agreement also provides pre-emptive rights to B. Riley with respect to certain future issuances of our equity securities.
As described in Note 15 to the Condensed Consolidated Financial Statements, in April 2024, we entered into a sales agreement with B. Riley Securities, Inc., among others, in connection with the offer and sale from time to time of shares of our common stock. B. Riley is entitled to compensation equal to 3.0 % of the gross proceeds from each sale of the shares sold through it as the designated Agent.
As described in Note 14 to the Condensed Consolidated Financial Statements, in connection with our entry into the Axos Credit Agreement in January 2024, we entered into a guaranty agreement and a fee and reimbursement agreement with B. Riley. The B. Riley Guaranty provides for the guarantee of all of our obligations under the Credit Agreement. The B. Riley Guaranty is enforceable in certain circumstances, including, among others, certain events of default and the acceleration of our obligations under the Credit Agreement. The B. Riley Fee Agreement provides, among other things, for us to pay an annual fee to B. Riley equal to 2.00 % of Aggregate Revolving Commitments under the Credit Agreement (or approximately $3 million) as consideration for B. Riley’s agreements and commitments under the B. Riley Guaranty. The B. Riley Fee Agreement also requires us to reimburse B. Riley to the extent the B. Riley Guaranty is called upon by the agent or lenders under the Credit Agreement and requires us to execute a junior secured promissory note with respect to the same within 60 days after the execution of the B. Riley Fee Agreement (or such other date as B. Riley may agree to).
We entered into an agreement with BRPI Executive Consulting, LLC, an affiliate of B. Riley, in November 2018 and amended the agreement in November 2020 and December 2023 to retain the services of Mr. Kenneth Young, to serve as our Chief Executive Officer until December 31, 2028, 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 of Directors, a bonus or bonuses may also be earned and payable to BRPI Executive Consulting, LLC.
See Note 23 to the Condensed Consolidated Financial Statements for information regarding a Registration Rights Agreement entered into with B. Riley in July 2024.
NOTE 22 – NEW ACCOUNTING PRONOUNCEMENTS AND STANDARDS
New accounting standards to be adopted
We consider the applicability and impact of all issued ASUs. Certain recently issued ASUs were assessed and determined to be not applicable. New accounting standards not yet adopted that could affect the Condensed Consolidated Financial Statements in the future are summarized as follows:
In October 2023, the FASB issued ASU 2023-06, Disclosure Improvements: Codification Amendments in Response to the SEC's Disclosure Update and Simplification Initiative. The new guidance is intended to align U.S. GAAP and SEC requirements while facilitating the application of U.S. GAAP for all entities. The effective date of ASU 2023-06 depends on (1) whether an entity is already subject to the SEC's current disclosure requirements and (2) whether and, if so, when the SEC removed related requirements from its regulations. For entities that are already subject to the SEC's current disclosure requirements, the effective date for each amendment will be the date on which the SEC's removal of that related disclosure requirement from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited. If the SEC has not removed the related requirements from its regulations by June 30, 2027, the amendments made by ASU 2023-06 will be removed from the Codification and will not become effective for any entity. We are currently evaluating the impact of this standard on the Condensed Consolidated Financial Statements.
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires a public entity to disclose significant segment expenses and other segment items in interim and
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annual periods and expands the ASC 280 disclosure requirements for interim periods. The ASU also explicitly requires public entities with a single reportable segment to provide all segment disclosures under ASC 280, including the new disclosures under the ASU. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. We are currently evaluating the impact of this standard on the Condensed Consolidated Financial Statements.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires disclosure of specific categories in the effective tax rate reconciliation and additional information for reconciling items that meet a quantitative threshold. The standard is intended to benefit investors by providing more detailed income tax disclosures to assess how an entity's operations and related tax risks and tax planning and operational opportunities affect its tax rate and prospects for future cash flows. ASU 2023-09 is effective for annual periods beginning after December 15, 2024. Early adoption is permitted. Adoption of the standard will only impact the income tax disclosures and is not expected to be material to the Condensed Consolidated Financial Statements.
NOTE 23– SUBSEQUENT EVENTS
Second Amendment to Credit Agreement
On July 3, 2024, we, with certain of our subsidiaries as guarantors, the lenders party to the Credit Agreement, and Axos, as administrative agent, entered into the Second Amendment. Pursuant to the Second Amendment, Axos and the Lenders party to the Credit Agreement consented to the Company’s engagement in the Specified Transactions, and agreed that the consummation of any Specified Transaction would not result in an event of default under the Credit Agreement. As a condition to the forgoing consent and agreements, the Company agreed to apply the net cash proceeds from the Specified Transactions in the following order, irrespective of the order of consummation of the Specified Transactions: (i) to the repayment of revolving loans under the Credit Agreement, in an aggregate amount equal to $10,000,000 (the “Specified Revolver Paydown”); (ii) to the repayment of liabilities in respect of the certain pension plans of the Company and its subsidiaries, in an aggregate amount equal to $15,000,000 ; (iii) to the repayment of letter of credit borrowings or advances, or if no such amounts are outstanding, to the cash collateralization of existing letter of credit obligations, in an aggregate amount equal to $10,000,000 ; (iv) to PNC in an amount not exceeding $1,600,000 in connection with the repayment and/or cash collateralization of certain existing facilities; (v) to the repayment of revolving loans under the Credit Agreement, in an aggregate amount equal to $54,000,000 (which amounts may be reborrowed in whole or in part to the extent permitted under the Credit Agreement at such time and may be used for purposes permitted under the Credit Agreement, including for working capital needs); (vi) to the repayment of the Senior Notes due 2026 or any additional unsecured senior notes issued under the Company’s unsecured notes indenture, in an aggregate amount equal to $193,000,000 ; and (vii) the remainder to be retained by the Company to finance working capital, capital expenditures and acquisitions and for general corporate purposes (including the payment of fees and expenses).
The Second Amendment further amended the Credit Agreement by sunsetting the option to increase the amounts available to be borrowed based on inventory in the borrowing base under the Credit Agreement following the Specified Revolver Paydown, and extended the maturity date under the agreement from August 30, 2025 to October 31, 2025 in the event that the Indebtedness under any of the Company’s unsecured notes has not been refinanced pursuant to a permitted refinancing under the agreement. The maturity date of the Credit Agreement otherwise remains January 18, 2027.
Registration Rights Agreement
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
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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 Condensed Consolidated Financial Statements under Item 1 of 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, 2023. See also "Cautionary Statement Concerning Forward-Looking Information" herein. All amounts referred to in this discussion and analysis are on a continuing operations basis, unless otherwise noted.
BUSINESS OVERVIEW
We are a globally-focused renewable, environmental and thermal technologies provider with over 155 years of experience providing diversified energy and emissions control solutions to a broad range of industrial, electrical utility, municipal and other customers. Our innovative products and services are organized into three market-facing segments. Our reportable segments are as follows:
•Babcock & Wilcox Renewable: Our innovative hydrogen generation technology (BrightLoopTM) supports global climate goals including the decarbonization of industrial and utility steam and power producers. BrightLoopTM offers significant advantages over other hydrogen generation technologies as it generates competitively priced hydrogen from a wide range of fuels (including solid fuels such as biomass and coal) with a high rate of carbon captured resulting in low (or even negative) carbon intensity hydrogen. We also offer best-in-class technologies for efficient and environmentally sustainable power and heat generation, including waste-to-energy, oxygen-fired biomass-to-energy (OxyBrightTM), and black liquor systems for the pulp and paper industry. Our leading waste-to-energy technologies support a circular economy, diverting waste from landfills to use for power generation or district heating, while recovering metals and reducing emissions. To date, we have installed approximately 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.
•Babcock & Wilcox Environmental: Our full suite of best-in-class emissions control and environmental technology solutions for utility, waste-to-energy, biomass-to-energy, carbon black, and industrial steam generation applications supports environmental stewardship around the world. Our broad experience includes systems for cooling, ash handling, particulate control, nitrogen oxide and sulfur dioxide removal, dioxin and furan control, carbon dioxide capture, mercury control as well as other acid gas and pollutant control. Our ClimateBrightTM family of products including SolveBrightTM, OxyBrightTM, BrightLoopTM and BrightGenTM, places us at the forefront of hydrogen production and carbon dioxide capturing technologies and development with many of the aforementioned products already commercially available and others ready for commercial deployment. We believe these technologies position us to compete in the bioenergy with carbon capture and sequestration market. Our portfolio of clean power production solutions continues to evolve to reach customers at all stages of their energy transition.
•Babcock & Wilcox Thermal: Our vast installed base of steam generation equipment and related auxiliaries spans the globe and includes customers in a variety of end markets including power generation, oil and gas, petrochemical, food and beverage, metals and mining, and others. We provide aftermarket parts, construction, maintenance, engineered upgrades and field services for our installed base as well as the installed base of other OEMs; the substantial and stable cash flows generated from these businesses helps to fund our investments in new clean energy initiatives. In addition to our aftermarket offerings, we also provide complete steam generation systems including package boilers, watertube and firetube waste heat boilers, and other boilers to medium and heavy industrial customers. Our unique range of offerings, coupled with the strength of our brand, provides a competitive advantage in existing and emerging markets.
Second Quarter 2024 Update
Management continues to adapt to macroeconomic conditions, including the impacts from inflation, higher interest rates and foreign exchange rate volatility, geopolitical conflicts (including the ongoing conflicts in Ukraine and the Middle East) and global shipping and supply chain disruptions that continued to have an impact during the first six months of 2024. In certain instances, these situations have resulted in cost increases and delays or disruptions that have had, and could continue to have, an adverse impact on our ability to meet customers’ demands. We continue 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
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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 on our operating results cannot be reasonably estimated.
On June 28, 2024, we, through our B&W PGG Luxembourg Finance Sárl subsidiary, entered into an agreement to sell the entire issued and outstanding share capital of our subsidiary, Babcock & Wilcox Renewable Service A/S (“BWRS”), to Hitachi Zosen Inova AG (the “Buyer”). The sale of BWRS to the Buyer was completed the same day. From the sale, we received net cash proceeds of $83.5 million and recorded a gain on the sale of the business of $40.2 million.
Discontinued Operations
During the third quarter of 2023, we committed to a plan to sell our B&W Solar business resulting in a significant change that would impact our operations. As of September 30, 2023, we met all of the criteria for the assets and liabilities of this business, formerly part of our B&W Renewable segment, to be accounted for as held for sale. In addition, we also determined that the operations of the B&W Solar business qualified as a discontinued operation, primarily based upon its significance to our current and historic operating losses.
We continued to meet the criteria to account for the B&W Solar business as held for sale and discontinued operations as of June 30, 2024.
RESULTS OF OPERATIONS
Components of Our Results of Continuing 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, B&W Renewable, B&W Environmental and B&W Thermal.
Operating income (loss)
Operating income (loss) consists primarily of our revenue minus costs and expenses, including cost of operations, SG&A, and advisory fees and settlement costs.
Net income (loss)
Net income (loss) consists primarily of operating income minus other income and expenses, including interest income, foreign exchange and expense related to our benefit plans.
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Condensed Consolidated Results of Operations
The following discussion of our consolidated and 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 net loss, the most directly comparable measure calculated in accordance with GAAP. Management believes that this financial measure is useful to investors because it excludes certain expenses, allowing investors to more easily compare our operating performance period to period. A reconciliation of net loss to adjusted EBITDA is included in “Non-GAAP Financial Measures” below.
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||||||||||||||
| (in thousands) | 2024 | 2023 | $ Change | 2024 | 2023 | $ Change | ||||||||||||||||||||||||||||||||||||||
| Revenues: | ||||||||||||||||||||||||||||||||||||||||||||
| B&W Renewable segment | $ | 60,953 | $ | 85,219 | $ | (24,266) | $ | 113,234 | $ | 169,342 | $ | (56,108) | ||||||||||||||||||||||||||||||||
| B&W Environmental segment | 56,229 | 48,690 | 7,539 | 104,583 | 88,130 | $ | 16,453 | |||||||||||||||||||||||||||||||||||||
| B&W Thermal segment | 120,189 | 158,010 | (37,821) | 230,376 | 277,246 | $ | (46,870) | |||||||||||||||||||||||||||||||||||||
| Eliminations | (3,729) | (404) | (3,325) | (6,995) | (1,945) | $ | (5,050) | |||||||||||||||||||||||||||||||||||||
| Total revenues | $ | 233,642 | $ | 291,515 | $ | (57,873) | $ | 441,198 | $ | 532,773 | $ | (91,575) | ||||||||||||||||||||||||||||||||
Three Months Ended June 30, 2024 and 2023
Revenues decreased by $57.9 million to $233.6 million in the three months ended June 30, 2024 compared to $291.5 million in the three months ended June 30, 2023. The decrease is driven by a $36.6 million decrease in revenue as a large project in our U.S. construction business was completed in 2023 and not fully replaced in 2024 in the B&W Thermal segment and an $18.9 million decrease in B&W Renewable segment revenue because, consistent with our stated strategy, we performed fewer waste-to-energy projects in the current year.
Operating income increased by $29.8 million to $42.2 million in the three months ended June 30, 2024, compared to $12.4 million in the three months ended June 30, 2023. The increase is primarily attributable to the $40.2 million gain on sale of BWRS and a decrease of $4.4 million in Selling, general and administrative expenses, offset by $8.3 million lower gross margin due to the lower revenue in 2024 and a $6.5 million charge in the three months ended June 30, 2024 related to the settlement of a legal matter.
Income from continuing operations increased by $24.6 million to $25.2 million in the three months ended June 30, 2024 as compared to income of $0.6 million in the three months ended June 30, 2023, driven by increased Operating income and offset by a $1.4 million increase in interest expense.
Six Months Ended June 30, 2024 and 2023
Revenues decreased by $91.6 million to $441.2 million in the six months ended June 30, 2024 compared to $532.8 million in the six months ended June 30, 2023. The decrease is driven by a $42.9 million decrease in revenue as a large project in our U.S. construction business was completed in 2023 and not fully replaced in 2024 in the B&W Thermal segment and a $45.9 million decrease in the B&W Renewable segment revenue because, consistent with our stated strategy, we performed fewer waste-to-energy projects in the current year.
Operating income increased by $32.8 million in the comparable six-month periods ended June 30, 2024 and June 30, 2023 to income of $46.5 million, primarily due to the gain of $40.2 million on the sale of BWRS and a decrease of $12.3 million in Selling, general and administrative expenses, offset by $11.8 million lower gross margin attributable to the lower revenue in 2024 and a $6.5 million charge in 2024 related to the settlement of a legal matter.
Income from continuing operations increased by $21.5 million to $9.4 million as compared to a loss of $12.1 million in the six months ended June 30, 2023, driven by increased Operating income and offset by a loss on debt extinguishment of $6.1 million attributable to terminating the Revolving and Letter of Credit Agreements with PNC and MSD and a $1.5 million increase in interest expense.
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Bookings and Backlog
Bookings and backlog are our measures of remaining performance obligations under sales contracts. In addition, we monitor Implied Bookings and Backlog, which are bookings (backlog) plus amounts related to projects that have been awarded to us but are not fully under contract and/or projects under contract that are not yet fully released for performance. We believe these metrics provide investors, lenders and other users of our financial statements with a leading indicator of future revenues. 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 exchange rates of foreign currencies each period.
Bookings represent changes to the backlog. Bookings include additions related to new business or increases in project scope, subtractions due to customer cancellations or reductions in scope, changes in estimates 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.
The following tables include total bookings for the current and prior year quarter-to-date and year-to-date. Bookings, implied bookings, backlog and implied backlog exclude BWRS from all periods presented.
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| (in approximate millions) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| B&W Renewable | $ | 31.9 | $ | 40.4 | $ | 66.9 | $ | 99.4 | |||||||||||||||
| B&W Environmental | 58.0 | 35.4 | 101.2 | 100.2 | |||||||||||||||||||
| B&W Thermal | 111.7 | 89.8 | 218.2 | 193.8 | |||||||||||||||||||
| Other/eliminations | (0.4) | (10.2) | (3.2) | (10.9) | |||||||||||||||||||
| Total Bookings | $ | 201.2 | $ | 155.4 | $ | 383.1 | $ | 382.5 | |||||||||||||||
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Implied bookings(1) as of June 30, 2024 and 2023 were as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| (in approximate millions) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| B&W Renewable | $ | 21.8 | $ | 40.4 | $ | 66.9 | $ | 99.4 | |||||||||||||||
| B&W Environmental | 50.4 | 43.4 | 120.2 | 108.2 | |||||||||||||||||||
| B&W Thermal | 121.2 | 89.8 | 484.6 | 193.8 | |||||||||||||||||||
| Other/eliminations | (0.4) | (10.2) | (3.2) | (10.9) | |||||||||||||||||||
| Total implied bookings | $ | 193.0 | $ | 163.4 | $ | 668.5 | $ | 390.5 | |||||||||||||||
(1) Implied bookings are bookings plus projects that are awarded but not contracted or are under contract but not fully released for performance. B&W Environmental included $19.0 million and $8.0 million in implied bookings for the six months ended June 30, 2024 and 2023, respectively. B&W Thermal included $266.4 million in implied bookings for the six months ended June 30, 2024.
The following tables include total backlog at the end of the quarter, compared to the same period in the prior year.
| As of June 30, | |||||||||||
| (in approximate millions) | 2024 | 2023 | |||||||||
B&W Renewable(1) | $ | 90.0 | $ | 142.7 | |||||||
| B&W Environmental | 162.5 | 161.7 | |||||||||
| B&W Thermal | 204.8 | 191.0 | |||||||||
| Other/eliminations | 15.1 | (2.5) | |||||||||
| Total Backlog | $ | 472.4 | $ | 492.9 | |||||||
(1) B&W Renewable backlog has been adjusted downward $116.0 million and $53.0 million at June 30, 2024 and 2023, respectively, to remove O&M contracts that are recognized as disposed.
Implied backlog(1) as of June 30, 2024 and 2023 was as follows:
| As of June 30, | |||||||||||
| (in approximate millions) | 2024 | 2023 | |||||||||
B&W Renewable(2) | $ | 90.0 | $ | 142.7 | |||||||
| B&W Environmental | 181.5 | 169.7 | |||||||||
| B&W Thermal | 471.2 | 191.0 | |||||||||
| Other/eliminations | 15.1 | (2.5) | |||||||||
| Total Implied Backlog | $ | 757.8 | $ | 500.9 | |||||||
(1) Implied backlog is backlog plus projects that are awarded but not contracted or are under contract but not fully released for performance. B&W Environmental included $19.0 million and $8.0 million in implied backlog for the six months ended June 30, 2024 and 2023, respectively. B&W Thermal included $266.4 million in implied backlog for the six months ended June 30, 2024.
(2) B&W Renewable backlog has been adjusted downward $116.0 million and $53.0 million at June 30, 2024 and 2023, respectively, to remove O&M contracts that are recognized as disposed.
Of the backlog at June 30, 2024, we expect to recognize revenues as follows:
| (in approximate millions) | 2024 | 2025 | Thereafter | Total | |||||||||||||
| B&W Renewable | $ | 61.0 | $ | 24.0 | $ | 5.0 | $ | 90.0 | |||||||||
| B&W Environmental | 87.1 | 58.4 | 17.0 | 162.5 | |||||||||||||
| B&W Thermal | 142.4 | 56.5 | 5.9 | 204.8 | |||||||||||||
| Other/eliminations | 15.1 | — | — | 15.1 | |||||||||||||
| Expected revenue from backlog | $ | 305.6 | $ | 138.9 | $ | 27.9 | $ | 472.4 | |||||||||
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Changes in Contract Estimates
During the three and six-month periods ended June 30, 2024 and 2023, we recognized changes in estimated gross profit related to long-term contracts accounted for on the over time basis, which are summarized as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||||||||
| (in thousands) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||||||||||||||||
| Increases in gross profits for changes in estimates for over time contracts | $ | 2,995 | $ | 1,947 | $ | 9,959 | $ | 7,348 | |||||||||||||||||||||||||||||||||
| Decreases in gross profits for changes in estimates for over time contracts | (4,730) | (2,920) | (8,621) | (7,163) | |||||||||||||||||||||||||||||||||||||
| Net changes in gross profit for changes in estimates for over time contracts | $ | (1,735) | $ | (973) | $ | 1,338 | $ | 185 | |||||||||||||||||||||||||||||||||
Non-GAAP Financial Measures
We use non-GAAP financial measures internally to evaluate our performance and in making financial and operational decisions. When viewed in conjunction with GAAP results and the accompanying reconciliation, we believe that the presentation of these measures provides investors with greater transparency and a greater understanding of factors affecting our financial condition and results of operations than GAAP measures alone. The presentation of non-GAAP financial measures should not be considered in isolation or as a substitute for the related financial results prepared in accordance with GAAP.
The following discussion of our business segment results of operations includes a discussion of Adjusted EBITDA on a consolidated basis, which is a non-GAAP metric and differs from the most directly comparable GAAP measure. Adjusted EBITDA on a consolidated basis is 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 our 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. We present consolidated adjusted EBITDA because we believe it is useful to investors to facilitate comparisons of the ongoing, operating performance before corporate overhead and other expenses not attributable to the operating performance of our revenue-generating segments.
The following discussion of our business segment results of operations includes a discussion of Adjusted EBITDA on a consolidated basis, which is a non-GAAP metric and differs from the most directly comparable GAAP measure. Adjusted EBITDA on a consolidated basis is 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 our 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. We present consolidated adjusted EBITDA because we believe it is useful to investors to facilitate comparisons of the ongoing, operating performance before corporate overhead and other expenses not attributable to the operating performance of our revenue-generating segments.
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| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| (in thousands) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
Net income (loss) | $ | 25,364 | $ | (5,012) | $ | 8,573 | $ | (17,487) | |||||||||||||||
| Income (loss) from discontinued operations, net of tax | 142 | (5,606) | (850) | (5,395) | |||||||||||||||||||
| Income (loss) from continuing operations | 25,222 | 594 | 9,423 | (12,092) | |||||||||||||||||||
Interest expense, net | 12,249 | 10,698 | 24,776 | 23,241 | |||||||||||||||||||
| Income tax expense | 4,692 | 1,861 | 5,985 | 2,351 | |||||||||||||||||||
| Depreciation & amortization | 4,595 | 5,116 | 9,004 | 10,385 | |||||||||||||||||||
| EBITDA | 46,758 | 18,269 | 49,188 | 23,885 | |||||||||||||||||||
| Gain on sale of business | (40,174) | — | (40,174) | — | |||||||||||||||||||
| Benefit plans, net | (92) | 138 | (188) | 247 | |||||||||||||||||||
| (Gain) loss on asset sales, net | (7) | (955) | 46 | (18) | |||||||||||||||||||
| Stock compensation | 1,310 | 2,271 | 2,660 | 5,498 | |||||||||||||||||||
| Restructuring activities and business services transition costs | 767 | 1,022 | 2,347 | 1,982 | |||||||||||||||||||
| Settlement and related legal costs | 7,354 | — | 3,267 | (2,463) | |||||||||||||||||||
| Loss on debt extinguishment | 1,053 | — | 6,124 | — | |||||||||||||||||||
Product development (1) | 1,440 | 1,048 | 3,059 | 2,418 | |||||||||||||||||||
| Foreign exchange | (499) | (1,154) | 834 | (693) | |||||||||||||||||||
Contract disposal(2) | 3,473 | 2,693 | 4,058 | 4,080 | |||||||||||||||||||
| Letter of credit fees | 2,251 | 2,035 | 4,639 | 3,678 | |||||||||||||||||||
| Other -net | (373) | 736 | (64) | 1,061 | |||||||||||||||||||
| Adjusted EBITDA | $ | 23,261 | $ | 26,103 | $ | 35,796 | $ | 39,675 | |||||||||||||||
(1) Costs associated with development of commercially viable products that are ready to go to market.
(2) Impacts of the exit of our O&M contracts has been adjusted in the prior period to ensure uniform presentation with the current period.
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| (in thousands) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Adjusted EBITDA | |||||||||||||||||||||||
| B&W Renewable segment | $ | 7,691 | $ | 4,721 | $ | 9,349 | $ | 9,043 | |||||||||||||||
| B&W Environmental segment | 6,749 | 3,394 | 10,075 | 5,300 | |||||||||||||||||||
| B&W Thermal segment | 13,006 | 24,367 | 26,678 | 38,100 | |||||||||||||||||||
| Corporate | (3,974) | (5,486) | (9,979) | (10,568) | |||||||||||||||||||
| Research and development | (211) | (893) | (327) | (2,200) | |||||||||||||||||||
| Total Adjusted EBITDA | $ | 23,261 | $ | 26,103 | $ | 35,796 | $ | 39,675 | |||||||||||||||
Items Excluded from Adjusted EBITDA
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 organization and being an SEC registrant. Corporate expenses not allocated to the reportable segments totaled $4.0 million and $5.5 million in the three months ended June 30, 2024 and 2023, respectively. Corporate expenses not allocated to the reportable segments totaled $10.0 million and $10.6 million in the six months ended June 30, 2024 and 2023, respectively. The decrease is primarily due to cost savings initiatives implemented late in 2023.
Research and development
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Our research and development activities are focused on improving our products through innovations to reduce their cost and improve competitiveness and/or reduce performance risk of our products to better meet our and our customers’ expectations. Research and development expenses totaled $0.2 million and $0.9 million in the three months ended June 30, 2024 and 2023, respectively. Research and development expenses totaled $0.3 million and $2.2 million in the six months ended June 30, 2024 and 2023, respectively. In 2024, the focus of our development activities shifted to our BrightLoopTM and ClimateBrightTM portfolio, which is captured in the Product development category.
Gain on sale of business
Gain on sale of business of $40.2 million in the three and six months ended June 30, 2024 is a result of the sale of BWRS. This is excluded from adjusted EBITDA as it does not reflect the performance of the continuing businesses. We had an immaterial loss for the six months ended June 30, 2024 and an immaterial gain for the six months ended June 30, 2023.
Benefit plans, net
We recognize benefits from our defined benefit and other postretirement benefit plans based on actuarial calculations primarily because expected return on assets is greater than service cost. Service cost is low because our plan benefits are frozen except for a small number of hourly participants. Pension benefits for defined benefit and other postretirement benefits plans before MTM were a benefit of $0.1 million for the three months ended June 30, 2024 and expense of $0.1 million for the three months ended June 30, 2023, respectively. Pension benefits for defined benefit and other postretirement benefits plans before MTM were a benefit of $0.2 million for the six months ended June 30, 2024 and expense of $0.2 million for the six months ended June 30, 2023.
Our pension costs include MTM adjustments 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 the three or six months ended June 30, 2024 or 2023.
Refer to Note 13 to the Condensed Consolidated Financial Statements for further information regarding our pension and other postretirement plans.
(Gain) loss on asset sales, net
We, at times, will sell or dispose of certain assets that are unrelated to our operations. Therefore, we believe it is useful to exclude these gains and losses from our non-GAAP financial measures in order to highlight the performance of the business. We had an immaterial gain on asset sales in the three months ended June 30, 2024. We had $1.0 million gain on asset sales in the three months ended June 30, 2023.
Stock compensation
The grant date fair value of stock compensation varies based on the derived stock price at the time of grant, valuation methodologies, subjective assumptions, and reward types. This may make the impact of this form of compensation on our current financial results difficult to compare to previous and future periods. Therefore, we believe 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.
Expenses related to restricted stock units are recorded at the Corporate level and 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.
Stock compensation was $1.3 million and $2.3 million for the three months ended June 30, 2024 and 2023, respectively. Stock compensation was $2.7 million and $5.5 million for the six months ended June 30, 2024 and 2023, respectively.
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Restructuring activities and business service transition costs
Restructuring activities and business services transition actions across our business units and corporate functions resulted in an expense of $0.8 million and $1.0 million in the three months ended June 30, 2024 and 2023, respectively. Restructuring activities and business services transition actions across our business units and corporate functions resulted in an expense of $2.3 million and $2.0 million in the six months ended June 30, 2024 and 2023, respectively. The restructuring charges primarily consist of severance and related costs associated with non-recurring actions taken to transform our operations with impacts on employees and facilities used in our businesses. Business services transition costs relate to new technology implementation, expected to provide future benefit and are included in Selling, general and administrative expenses in the Condensed Consolidated Statement of Operations. The expense in 2024 is entirely related to restructuring activities.
Settlements and related legal costs
Settlements and related legal costs were $7.4 million in the three months ended June 30, 2024; there were no Settlements and related legal costs in the three months ended June 30, 2023. The current year is driven by the $6.5 million settlement of a legal matter. Settlements and related legal costs were an expense of $3.3 million and a net benefit of $2.5 million in the six months ended June 30, 2024 and 2023, respectively. The current year expense is driven by the $6.5 million settlement of a legal matter and expenses related to other litigation matters, offset by the favorable final settlement of amounts owed to the former owner of B&W Solar. The benefit in the prior year was driven by a favorable $2.5 million litigation settlement.
Loss on debt extinguishment
Losses on debt extinguishment were $1.1 million in the three months ended June 30, 2024 and $6.1 million in the six months ended June 30, 2024. The losses were due to the write-off of deferred financing fees and certain other exit costs associated with our extinguishment of the Debt Facilities. We had no losses on debt extinguishments in the three or six months ended June 30, 2023.
Product development
Our product development activities include sales, marketing, and other business development expenses for products and services still under development and not yet widely available. Product development expenses totaled $1.4 million and $1.0 million in the three months ended June 30, 2024 and 2023, respectively. Expenses were $3.1 million in the six months ended June 30, 2024 as compared to $2.4 million in the comparable period of 2023. The increase resulted primarily from timing of specific research projects and increased development activities related to our BrightLoopTM commercialization efforts and to further develop our ClimateBrightTM portfolio. Management excludes these expenses from adjusted EBITDA as they often may not correlate to revenue or other operations occurring in the current period.
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. Management excludes these expenses from Adjusted EBITDA as they do not reflect the ordinary course of business and are inherently unpredictable in timing and amount.
Foreign exchange was a gain of $0.5 million and $1.2 million for the three months ended June 30, 2024 and June 30, 2023, respectively. Foreign exchange was a loss of $0.8 million and a gain of $0.7 million for the six months ended June 30, 2024 and 2023, respectively.
Contract disposal
We are in the process of exiting our only remaining fixed fee Operational and Maintenance contract in our Renewable segment. A similar contract was exited as of December 31, 2022. For the three months ended June 30, 2024 and 2023, we had a net loss on contract disposals totaling $3.5 million and $2.7 million, respectively. We had a net loss of $4.1 million in the six months ended June 30, 2024, and $4.1 million in six months ended June 30, 2023. We believe 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 ongoing business.
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Letter of credit fees
Letter of credit fees are routinely incurred in the course of executing customer contracts. A portion of the fees are included in the contract prices with our customers. Certain letter of credit amounts represent performance guarantees akin to insurance that are not passed along to our customers and are excluded from adjusted EBITDA as they do not reflect the performance of the business. Letter of credit fees not passed along to customers and included in Cost of operations were $2.3 million and $2.0 million for the three months ended June 30, 2024 and 2023, respectively. Letter of credit fees were $4.6 million and $3.7 million for the six months ended June 30, 2024 and 2023, respectively.
Segment Results
B&W Renewable Segment Results
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||
| (in thousands) | 2024 | 2023 | $ Change | 2024 | 2023 | $ Change | |||||||||||||||||||||||||||||
| Revenues | $ | 60,953 | $ | 85,219 | $ | (24,266) | $ | 113,234 | $ | 169,342 | $ | (56,108) | |||||||||||||||||||||||
| Adjusted EBITDA | $ | 7,691 | $ | 4,721 | $ | 2,970 | $ | 9,349 | $ | 9,043 | $ | 306 | |||||||||||||||||||||||
Three Months Ended June 30, 2024 and 2023
Revenues in the B&W Renewable segment decreased 28%, or $24.3 million, to $61.0 million in the three months ended June 30, 2024 from $85.2 million in the three months ended June 30, 2023. Consistent with our stated strategy, fewer waste-to-energy projects were performed in the current year, which accounted for $18.9 million of the revenue decrease between years.
Adjusted EBITDA in the B&W Renewable segment increased $3.0 million, to $7.7 million in the three months ended June 30, 2024 from $4.7 million in the three months ended June 30, 2023 due to selling, general and administrative cost savings initiatives related to the shift away from waste-to-energy projects and higher margins from the BWRS business prior to the sale of the business.
Six Months Ended June 30, 2024 and 2023
Revenues in the B&W Renewable segment decreased 33%, or $56.1 million, from $169.3 million to $113.2 million in the six months ended June 30, 2024 compared to the same period in 2023. This is primarily attributable to performing fewer waste-to-energy projects, which accounted for $45.9 million of the revenue decrease.
Adjusted EBITDA in the B&W Renewable segment increased $0.3 million, to $9.3 million in the six months ended June 30, 2024 compared to $9.0 million in the six months ended June 30, 2023.
B&W Environmental Segment Results
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| (in thousands) | 2024 | 2023 | $ Change | 2024 | 2023 | $ Change | |||||||||||||||||||||||||||||||||||||||||
| Revenues | $ | 56,229 | $ | 48,690 | $ | 7,539 | $ | 104,583 | $ | 88,130 | $ | 16,453 | |||||||||||||||||||||||||||||||||||
| Adjusted EBITDA | $ | 6,749 | $ | 3,394 | $ | 3,355 | $ | 10,075 | $ | 5,300 | $ | 4,775 | |||||||||||||||||||||||||||||||||||
Three Months Ended June 30, 2024 and 2023
Revenues in the B&W Environmental segment increased 15%, or $7.5 million, to $56.2 million in the three months ended June 30, 2024 from $48.7 million in the three months ended June 30, 2023. Approximately $3.6 million of the increase is attributable to growth in our domestic industrial and electrostatic precipitator business and $2.8 million of the increase is due to growth in our European environmental business.
Adjusted EBITDA in the B&W Environmental segment was $6.7 million in the three months ended June 30, 2024 compared to $3.4 million in the three months ended June 30, 2023. The increase is primarily driven by the revenue growth described above as well as lower selling, general and administrative expenses.
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Six Months Ended June 30, 2024 and 2023
Revenues in the B&W Environmental segment increased 19%, or $16.5 million, to $104.6 million in the six months ended June 30, 2024 from $88.1 million in the six months ended June 30, 2023. Approximately $11.4 million of the increase is attributable to growth in our domestic industrial and electrostatic precipitator business and $3.4 million of the increase is due to growth in our European environmental business.
Adjusted EBITDA in the B&W Environmental segment was $10.1 million in the six months ended June 30, 2024 compared to $5.3 million in the six months ended June 30, 2023. The increase is primarily driven by the increased revenue described above as well as reductions in selling, general and administrative expenses.
B&W Thermal Segment Results
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||
| (In thousands) | 2024 | 2023 | $ Change | 2024 | 2023 | $ Change | |||||||||||||||||||||||||||||
| Revenues | $ | 120,189 | $ | 158,010 | $ | (37,821) | $ | 230,376 | $ | 277,246 | $ | (46,870) | |||||||||||||||||||||||
| Adjusted EBITDA | $ | 13,006 | $ | 24,367 | $ | (11,361) | $ | 26,678 | $ | 38,100 | $ | (11,422) | |||||||||||||||||||||||
Three Months Ended June 30, 2024 and 2023
Revenues in the B&W Thermal segment decreased 24%, or $37.8 million to $120.2 million in the three months ended June 30, 2024 from $158.0 million in the three months ended June 30, 2023. A large project in our U.S. construction business was not fully replaced in 2024, resulting in a $36.6 million revenue decrease.
Adjusted EBITDA in the B&W Thermal segment decreased $11.4 million to $13.0 million in the three months ended June 30, 2024 from $24.4 million in the three months ended June 30, 2023. The revenue drivers above resulted in a decrease in Adjusted EBITDA of $11.9 million.
Six Months Ended June 30, 2024 and 2023
Revenues in the B&W Thermal segment decreased 17%, or $46.8 million, from $277.2 million to $230.4 million in the six months ended June 30, 2024 compared to the prior year, primarily driven by a $42.9 million decrease in the U.S. construction business.
Adjusted EBITDA in the B&W Thermal segment decreased $11.4 million from $38.1 million to $26.7 million in the six months ended June 30, 2024 compared to the prior year. The lower revenue in the U.S. construction business accounted for $9.6 million of the decrease.
Corporate Costs in Adjusted EBITDA
Corporate costs in Adjusted EBITDA are 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 $1.5 million to $4.0 million in three months ended June 30, 2024 as compared to $5.5 million incurred in the three months ended June 30, 2023. Corporate costs decreased $0.6 million to $10.0 million in the six months ended June 30, 2024 compared to $10.6 million in the six months ended June 30, 2023. The decreases are attributable to cost savings initiatives implemented beginning in the second half of 2023.
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Other Factors Affecting Operating Results
Interest Expense
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| (in thousands) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Components associated with borrowings from: | |||||||||||||||||||||||
| Senior Notes | $ | 6,420 | $ | 6,425 | $ | 12,691 | $ | 12,753 | |||||||||||||||
| Revolving Credit Facility | 1,429 | — | 2,961 | — | |||||||||||||||||||
| 7,849 | 6,425 | 15,652 | 12,753 | ||||||||||||||||||||
| Components associated with amortization or accretion of: | |||||||||||||||||||||||
| Revolving Credit Agreement | 1,476 | 1,164 | 2,625 | 2,148 | |||||||||||||||||||
| Senior Notes | 650 | 630 | 1,294 | 1,249 | |||||||||||||||||||
| 2,126 | 1,794 | 3,919 | 3,397 | ||||||||||||||||||||
| Components associated with interest from: | |||||||||||||||||||||||
| Lease liabilities | 555 | 597 | 1,103 | 1,321 | |||||||||||||||||||
| Letter of credit interest and fees | 1,823 | 2,360 | 4,012 | 5,176 | |||||||||||||||||||
| Other interest expense | 181 | — | 682 | 1,185 | |||||||||||||||||||
| 2,559 | 2,957 | 5,797 | 7,682 | ||||||||||||||||||||
| Total interest expense | $ | 12,534 | $ | 11,176 | $ | 25,368 | $ | 23,832 | |||||||||||||||
Interest expense for the three and six months ended June 30, 2024 is higher due to increases in interest rates and in other loans payable during the year.
Income Taxes
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||
| (In thousands, except for percentages) | 2024 | 2023 | $ Change | 2024 | 2023 | $ Change | |||||||||||||||||||||||||||||
| (Loss) income before income tax expense | $ | 29,914 | $ | 2,455 | $ | 27,459 | $ | 15,408 | $ | (9,741) | $ | 25,149 | |||||||||||||||||||||||
| Income tax (benefit) expense | $ | 4,692 | $ | 1,861 | $ | 2,831 | $ | 5,985 | $ | 2,351 | $ | 3,634 | |||||||||||||||||||||||
| ETR continuing operations | 15.7 | % | 75.8 | % | 38.8 | % | (24.1) | % | |||||||||||||||||||||||||||
Our income tax expense in the first six months of 2024 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 first six months of 2024 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 where we anticipate a loss for the fiscal year or incur a loss for the year-to-date period for which a tax benefit cannot be realized in accordance with ASC 740, we exclude the loss in that jurisdiction from the overall computation of the estimated annual effective tax rate.
Depreciation and Amortization
Depreciation expense was $2.3 million and $2.7 million in the three months ended June 30, 2024 and 2023, respectively. Depreciation expense was $4.3 million and $5.6 million in the six months ended June 30, 2024 and 2023, respectively.
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Amortization expense was $2.3 million and $2.4 million in the three months ended June 30, 2024 and 2023, respectively. Amortization expense was $4.7 million and $4.8 million in the six months ended June 30, 2024 and 2023, respectively.
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 the Credit Agreement and Senior Notes, and equity offerings, including the Sales Agreement (as defined below) and our Preferred Stock, each of which are described in the Notes to Condensed Consolidated Financial Statements included in Part I, Item I of this Quarterly Report in further detail.
On April 10, 2024, we entered into a sales agreement (the "Sales Agreement") with B. Riley Securities, Inc., Seaport Global Securities LLC, Craig-Hallum Capital Group LLC and Lake Street Capital Markets, LLC (together, the "Agents"), in connection with the offer and sale from time to time of shares of our common stock, having an aggregate offering price of up to $50.0 million, through the Agents. As of June 30, 2024, 2.4 million shares have been sold pursuant to the Sales Agreement. Refer to Note 15 to the Condensed Consolidated Financial Statements for additional discussion of the Sales Agreement.
We have historically incurred losses from operations, primarily due to losses recognized on our B&W Solar business as well as higher debt service costs and recurring cash deficits from operating activities. Our assessment of our ability to fund future operations is inherently subjective, judgment-based and susceptible to change based on future events. Currently, with existing cash on hand and available liquidity, we are projecting insufficient liquidity to fund operations through one year from the date this Quarterly Report is issued. These conditions and events raise substantial doubt about our ability to continue as a going concern. As described below, it is probable that our alternative measures contemplated, cost savings plans and anticipated proceeds from the sale of non-strategic assets alleviate the substantial doubt about our ability to continue as a going concern.
In response to the conditions, we are implementing several strategies to obtain the required funding for future operations and are considering other alternative measures to improve cash flow, including suspension of the dividend on our Preferred Stock and delaying development of new products, which together we expect would reduce our annual cash spending by approximately $25 million. The following actions were completed through the issuance date of this Quarterly Report:
•sold our B&W Renewable Service A/S business for net proceeds of $83.5 million on June 28, 2024 (described in Note 3 to the Condensed Consolidated Financial Statements);
•completed the sale of a non-core facility for net proceeds of $4.2 million;
•sold 2.4 million common shares pursuant to our At-The-Market Offering for net proceeds of $2.0 million (described in Note 15 to the Condensed Consolidated Financial Statements);
•negotiated the settlement of a liability to the former owner of B&W Solar at a discount, resulting in future cash savings of $7.2 million; and,
•initiated a company-wide cost savings plan with targeted annual savings of $30.0 million, $25.0 million of which has been achieved to date.
The following strategies are ongoing to further increase available liquidity:
•continued advanced negotiations related to the sale of three additional non-strategic businesses, which are expected to generate significant proceeds that will be used to meaningfully reduce outstanding debt; and,
•filed for a waiver of required minimum contributions to the Retirement Plan for Employees of Babcock & Wilcox Commercial Operations (the "U.S. Plan"), that if granted, would reduce cash funding requirements in 2024 and would increase contributions annually over the subsequent five-year period. We cannot provide any assurances that such waiver will be granted.
Based on our ability to raise funds through the actions noted above and our Cash and cash equivalents as of June 30, 2024, we have concluded it is probable that such actions would provide sufficient liquidity to fund operations for the next twelve months following the date of this Quarterly Report.
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Cash and Cash Flows
At June 30, 2024, our cash and cash equivalents, current restricted cash and long-term restricted cash totaled $202.1 million and we had total debt of $476.8 million as well as $191.7 million of gross preferred stock outstanding. Our foreign business locations held $50.7 million of our total unrestricted cash and cash equivalents at June 30, 2024. 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 have not made a provision for in our results of operations. We have no plans to repatriate these funds to the U.S. Included in our total cash amount is $106.6 million of restricted cash at June 30, 2024, which is primarily related to collateral for certain letters of credit. We believe our future cash flows will be sufficient to cover debt repayments, other contractual obligations, capital expenditures and dividends for the next 12 months.
Cash used in operations was $26.6 million in the six months ended June 30, 2024, which is primarily attributable to the year-to-date net income of $8.6 million and offset by the gain on sale of BWRS of $40.2 million. Cash used in operations was $22.3 million in the six months ended June 30, 2023, which was primarily attributable to a net loss of $17.5 million.
Cash provided by investing activities was $75.9 million in the six months ended June 30, 2024, primarily due to proceeds from the sale of BWRS business, offset by purchases of fixed assets. Cash flows from investing activities used net cash of $4.2 million in the six months ended June 30, 2023, primarily related to capital expenditures.
Cash provided by financing activities of $81.6 million in the six months ended June 30, 2024, primarily related to the increased borrowing on loans of $95.8 million, partially offset by preferred stock dividend payments of $7.4 million and costs associated with the new Axos Credit Agreement. Cash used in financing activities was $4.2 million in the six months ended June 30, 2023 and was primarily due to the payment of the preferred stock dividend of $7.4 million.
Debt Facilities
As discussed in Note 14 to the Condensed Consolidated Financial Statements included in Item 1 of this Quarterly Report, we entered into a new Credit Agreement with Axos in January 2024. B. Riley, a related party, has provided a guaranty of payment with regard to our obligations under the Credit Agreement. This agreement substantially replaces the existing Reimbursement Agreement, Revolving Credit Agreement and Letter of Credit Agreement. We are transitioning letters of credit outstanding under the Letter of Credit Agreement and Reimbursement Agreement to the Credit Agreement. At June 30, 2024, there was approximately $1.6 million in remaining outstanding letters of credit under the Letter of Credit Agreement. We believe all outstanding letters of credit will be transitioned to the Credit Agreement by September 30, 2024, at which time the Letter of Credit Agreement and Reimbursement Agreement is expected to be terminated.
On April 30, 2024, we, along with certain subsidiaries as guarantors, the lenders party to the Credit Agreement , and Axos, as administrative agent, entered into the First Amendment to Credit Agreement (the “First Amendment”). The First Amendment, among other things, amends the terms of the Credit Agreement to increase the amounts available to be borrowed based on inventory in the borrowing base under the Credit Agreement (the "Increased Inventory Period"). In 2024, the Increased Inventory Period commences on April 30 and ends on July 31 and would provide approximately $6.0 million additional available borrowings under the Credit Agreement. The Increased Inventory Period is available to us upon our election in subsequent years (subject to a $75,000 fee if we make such an election), and commences on March 1 and ends on July 31.
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On July 3, 2024, we, with certain of our subsidiaries as guarantors, the lenders party to the Credit Agreement, and Axos, as administrative agent, entered into the Second Amendment to Credit Agreement (the “Second Amendment”). Pursuant to the Second Amendment, Axos and the Lenders party to the Credit Agreement consented to the Company’s engagement in certain specified sales of the assets of specified subsidiaries of the Company (such sales, the “Specified Transactions”), and agreed that the consummation of any Specified Transaction would not result in an event of default under the Credit Agreement. As a condition to the forgoing consent and agreements, the Company agreed to apply the net cash proceeds from all of the Specified Transactions in the following order, irrespective of the order of consummation of the Specified Transactions: (i) to the repayment of revolving loans under the Credit Agreement, in an aggregate amount equal to $10,000,000 (the “Specified Revolver Paydown”); (ii) to the repayment of liabilities in respect of the certain pension plans of the Company and its subsidiaries, in an aggregate amount equal to $15,000,000; (iii) to the repayment of letter of credit borrowings or advances, or if no such amounts are outstanding, to the cash collateralization of existing letter of credit obligations, in an aggregate amount equal to $10,000,000; (iv) to PNC in an amount not exceeding $1,600,000 in connection with the repayment and/or cash collateralization of certain existing facilities; (v) to the repayment of revolving loans under the Credit Agreement, in an aggregate amount equal to $54,000,000 (which amounts may be reborrowed in whole or in part to the extent permitted under the Credit Agreement at such time and may be used for purposes permitted under the Credit Agreement, including for working capital needs); (vi) to the repayment of the Senior Notes due 2026 or any additional unsecured senior notes issued under the Company’s unsecured notes indenture, in an aggregate amount equal to $193,000,000; and (vii) the remainder to be retained by the Company to finance working capital, capital expenditures and acquisitions and for general corporate purposes (including the payment of fees and expenses).
The Second Amendment further amended the Credit Agreement by sunsetting the option to increase the amounts available to be borrowed based on inventory in the borrowing base under the Credit Agreement following the Specified Revolver Paydown, and extended the maturity date under the agreement from August 30, 2025 to October 31, 2025 in the event that the Indebtedness under any of the Company’s unsecured notes has not been refinanced pursuant to a permitted refinancing under the agreement. The maturity date otherwise remains January 18, 2027.
On August 7, 2024, we, with certain of our subsidiaries as guarantors, the lenders party to the Credit Agreement, and Axos, as administrative agent, entered into the Third Amendment to Credit Agreement ("Third Amendment"). The Third Amendment amended the definition of Consolidated Adjusted EBITDA to (i) exclude certain costs incurred in connection with the settlement of the Glatfelter Litigation; and (ii) add back certain contributions currently required to be made by us or our Subsidiaries to the U.S. Plan, up to an aggregate maximum of $15 million.
Usage under the Letter of Credit Agreement consisted of $13.2 million of financial letters of credit and $63.5 million of performance letters of credit at June 30, 2024.
Letters of Credit, Bank Guarantees and Surety Bonds
Certain of our subsidiaries, that are 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 June 30, 2024 was $36.5 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 $17.0 million as of June 30, 2024. Of the outstanding letters of credit issued under the Letter of Credit Agreement, $40.8 million are subject to foreign currency revaluation.
We have posted surety bonds to support contractual obligations to customers relating to certain contracts. We utilize bonding facilities to support such obligations, but the issuance of bonds under those facilities is typically at the surety's discretion. These bonds generally indemnify customers should we fail to perform our obligations under our applicable contracts. We, and certain of our 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 our contracting activity. As of June 30, 2024, bonds issued and outstanding under these arrangements in support of contracts totaled approximately $146.8 million. The aggregate value of the letters of credit backstopping surety bonds was $15.3 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
49
As of June 30, 2024, we had loans payable of $137.8 million, net of debt issuance costs of $0.5 million, of which $3.5 million is classified as current, and $134.3 million as long-term loans payable on the Condensed Consolidated Balance Sheet. This includes $125.8 million drawn on the Credit Agreement, which is comprised of $46.6 million drawn on the revolving credit portion of the facility and $79.2 million drawn on the letter of credit portion, and $11.8 million, net of debt issuance costs of $0.5 million, related to sale-leaseback financing transactions.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
For a summary of the critical accounting policies and estimates that we use in the preparation of the unaudited Condensed Consolidated Financial Statements, see "Critical Accounting Policies and Estimates" in our Annual Report for the year ended December 31, 2023. There have been no significant changes to our policies during the six months ended June 30, 2024 from those disclosed in the Annual Report on Form 10-K for the year ended December 31, 2023.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Our exposures to market risks have not changed materially from those disclosed under "Quantitative and Qualitative Disclosures About Market Risk" in our Annual Report on Form 10-K for the year ended December 31, 2023.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
As of the end of the period covered by this report, our management, with the participation of our Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) adopted by the Securities and Exchange Commission under the Securities Exchange Act, as amended (the "Exchange Act")).
Based on this evaluation and because of the previously-reported material weaknesses in internal control over financial reporting, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of June 30, 2024.
Notwithstanding the conclusion by our Chief Executive Officer and Chief Financial Officer that our disclosure controls and procedures as of June 30, 2024 were not effective, our management, including our Chief Executive Officer and Chief Financial Officer, has concluded that the Condensed Consolidated Financial Statements as of and for the three and six months ended June 30, 2024 and 2023 present fairly, in all material respects, our financial position, results of operations and cash flows in conformity with GAAP.
Remediation Plan and Status
As of June 30, 2024, the material weaknesses previously disclosed have not yet been remediated. In response to the material weaknesses in our internal control over financial reporting, management has several remediation efforts in process, including:
•continuing to hire qualified accounting professionals;
•developing and providing additional training to the accounting and financial reporting team;
•designing and implementing additional and/or enhanced controls in the areas of account reconciliations, contract accounting, financial statement analysis and complex and/or non-routine transactions;
•enhancing controls over IT user access and segregation of duties; and,
•developing and implementing a monitoring program to evaluate and assess whether controls are present and functioning appropriately.
We will continue to work towards full remediation of the material weaknesses to improve our internal control over financial reporting. The material weaknesses will not be considered remediated until the new and redesigned controls operate for a sufficient period of time and management has concluded, through testing, that these controls are designed and operating effectively. Accordingly, we will continue to monitor and evaluate the effectiveness of our internal control over financial reporting in the areas affected by the material weaknesses.
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Changes in Internal Control Over Financial Reporting
There were no changes in internal control over financial reporting (as defined by Rule 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended June 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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 errors 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, 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.
PART II
Item 1. Legal Proceedings
For information regarding ongoing investigations and litigation, see Note 18 to the Condensed Consolidated Financial Statements included in Part I, Item I of this Quarterly Report, which is incorporated by reference into this Item.
Item 1A. Risk Factors
We are subject to various risks and uncertainties in the course of our business. The discussion of such risks and uncertainties may be found under “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023. There have been no material changes to the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2023.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
In accordance with the provisions of the employee benefit plans, we acquire shares in connection with the vesting of employee restricted stock units that require us to withhold shares to satisfy employee statutory income tax withholding obligations. We do not have a general share repurchase program at this time.
Item 5. Other Information
On August 7, 2024, we, with certain of our subsidiaries as guarantors, the lenders party to the Credit Agreement, and Axos, as administrative agent, entered into the Third Amendment to Credit Agreement (the "Third Amendment"). The Third Amendment amended the definition of Consolidated Adjusted EBITDA to (i) exclude certain costs incurred in connection with the settlement of the Glatfelter Litigation; and (ii) add back certain contributions currently required to be made by us or our Subsidiaries to the U.S. Plan, up to an aggregate maximum of $15 million.
We paid an amendment fee of $75,000 to Axos in consideration of the Third Amendment. Certain of the lenders under the Credit Agreement, as well as certain of their respective affiliates, may perform for us and our subsidiaries, various commercial banking, investment banking, lending, underwriting, trust services, financial advisory and other financial services, for which they may receive customary fees and expenses.
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Item 6. Exhibits
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Master Separation Agreement, dated as of June 8, 2015, between The Babcock & Wilcox Company and Babcock & Wilcox Enterprises, Inc. (incorporated by reference to Exhibit 2.1 to the Babcock & Wilcox Enterprises, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 (File No. 001-36876)). | ||||||||
Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Babcock & Wilcox Enterprises, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 (File No. 001-36876)). | ||||||||
Certificate of Amendment of the Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Babcock & Wilcox Enterprises, Inc. Current Report on Form 8-K filed on June 17, 2019 (File No. 001-36876)). | ||||||||
Certificate of Amendment of the Restated Certificate of Incorporation, as amended (incorporated by reference to Exhibit 3.1 to the Babcock & Wilcox Enterprises, Inc. Current Report on Form 8-K filed on July 24, 2019 (File No. 001-36876)). | ||||||||
| Certificate of Amendment of Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Babcock & Wilcox Enterprises, Inc. Current Report on Form 8-K filed on May 23, 2023 (File No. 001-36876)). | ||||||||
Amended and Restated Bylaws of the Babcock & Wilcox Enterprises, Inc. (incorporated by reference to Exhibit 3.4 to the Babcock & Wilcox Enterprises, Inc. Annual Report on Form 10-K for the year ended December 31, 2021 (File No. 001-36876)). | ||||||||
| Certificate of Designations with respect to the 7.75% Series A Cumulative Perpetual Preferred Stock, dated May 6, 2021, filed with the Secretary of State of Delaware and effective on May 6, 2021 (incorporated by reference to Exhibit 3.4 to the Babcock & Wilcox Enterprises, Inc. Form 8-A filed on May 7, 2021 (File No. 001-36876)). | ||||||||
| Certificate of Increase in Number of Shares of 7.75% Series A Cumulative Perpetual Preferred Stock, dated June 1, 2021 (incorporated by reference to Exhibit 3.1 to the Babcock & Wilcox Enterprises, Inc. Current Report on Form 8-K filed on July 7, 2021 (File No. 001-36876)). | ||||||||
| Sales Agreement, among Babcock & Wilcox Enterprises, Inc., B. Riley Securities, Inc., Seaport Global Securities LLC, Craig-Hallum Capital Group LLC and Lake Street Capital Markets, LLC (incorporated by reference to Exhibit 1.1 of the Babcock & Wilcox Enterprises, Inc. Current Report on Form 8-K filed April 10, 2024 (File No. 001-36876)). | ||||||||
| First Amendment to Credit Agreement among Babcock & Wilcox Enterprises, Inc. and Axos Bank, dated April 30, 2024 (incorporated by reference to Exhibit 10.8 of the Babcock & Wilcox Enterprises, Inc Quarterly Report on Form 10-Q filed May 9, 2024 (File No. 001-36876)). | ||||||||
| First Amendment to Fee Letter among Babcock & Wilcox Enterprises, Inc. and Axos Bank, dated April 30, 2024 (incorporated by reference to Exhibit 10.9 of the Babcock & Wilcox Enterprises, Inc. Quarterly Report on Form 10-Q filed May 9, 2024 (File No. 001-36876)). | ||||||||
| Babcock & Wilcox Enterprises, Inc. Long-Term Cash Incentive Program, filed herewith. | ||||||||
| Share Purchase Agreement by and between B&W PGG Luxembourg Finance Sárl and Hitachi Zosen Inova AG, filed herewith. | ||||||||
| Rule 13a-14(a)/15d-14(a) certification of Chief Executive Officer. | ||||||||
| Rule 13a-14(a)/15d-14(a) certification of Chief Financial Officer. | ||||||||
| Section 1350 certification of Chief Executive Officer. | ||||||||
| Section 1350 certification of Chief Financial Officer. | ||||||||
| 101.SCH | XBRL Taxonomy Extension Schema Document. | |||||||
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document. | |||||||
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document. | |||||||
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document. | |||||||
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document. | |||||||
| 104 | Cover Page Interactive Data File (embedded within the inline XBRL 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.
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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.
| BABCOCK & WILCOX ENTERPRISES, INC. | ||||||||
| August 8, 2024 | By: | /s/ Louis Salamone | ||||||
| Louis Salamone | ||||||||
| Executive Vice President, Chief Financial Officer (Principal Financial and Accounting Officer and Duly Authorized Representative) | ||||||||
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Babcock & Wilcox Enterprises, Inc.
Long-Term Cash Incentive Plan (“LTCIP”)
Summary Guide (2024)
Effective January 1, 2024
This Guide provides only a summary of key elements and the administration of The Babcock & Wilcox Long Term Cash Incentive Plan. Please be advised that this document and the financial goals set forth in this guide are strictly confidential and should not be disclosed outside of the company.
Participation
Participation is limited to identified employees of Babcock & Wilcox Enterprises, Inc. (“B&W”) and its subsidiaries. Eligibility in the Long-Term Cash Incentive Plan is determined in the sole discretion of the B&W CEO or the Compensation Committee of the Board of Directors and the participant’s target bonus under the plan is determined based on a function of their January 1, 2024 salary (Please see LTCIP letter of eligibility for specific target bonus amount). Any changes in the participants role or job function which may impact eligibility for participation in the LTCIP will be addressed on an individual basis and communicated by management at the time of the role change. The Compensation Committee of the Board of Directors reserves full discretion over eligibility and payout. Your participation in the LTCIP does not confer any contractual right, either express or implied, to continued employment with the company.
Performance Targets (“Targets”):
The LTCIP Targets are listed below with the first two years equally weighted and the third criteria representing the vesting requirement:
2024 Adjusted EBITDA Target – $100,000,000
2025 Adjusted EBITDA Target – $100,000,000
Participant retention through December 31, 2026
Performance Metric Breakdown:
| Performance Target | Performance Period | Metric Weighting | ||||||
| $100M Adjusted EBITDA | Fiscal Year ended December 31, 2024 | 50% | ||||||
| $100M Adjusted EBITDA | Fiscal Year ended December 31, 2025 | 50% | ||||||
| Continued Employment | January 1, 2024 – December 31, 2026 | - | ||||||
Administrative Matters
LTCIP performance period is January 1, 2024 to December 31, 2026.
LTCIP vests on December 31, 2026 assuming participant remains actively employed with the company. Partial payouts may occur in 2025 and 2026 if 2024 and 2025 Targets are met, respectively.
Clawback Provision – If the participant’s employment is terminated prior to January 1, 2026 and the participant has received partial payment or payments as described above, the participant will owe all
payments received under the LTCIP back to B&W within 10 days of the date of termination. This does not apply if termination is due to death or disability, or reduction in force as described below.
In addition, notwithstanding anything in this Plan to the contrary, any Award Agreement is subject to the B&W Dodd-Frank Clawback Policy adopted November 7, 2023 which provides for the cancellation or forfeiture of a payout or the forfeiture and repayment to the Company of any amount issued under and/or any other benefit related to an Award, or other provisions intended to have similar effect, upon such terms and conditions as may be required by the Compensation Committee of the Board of Directors or under Section 10D of the Exchange Act and any applicable listing standards (collectively, the “Dodd-Frank Rules”).
Participant must be employed by B&W or a subsidiary on the date of payment to receive LTCIP payment. LTCIP eligibility is terminated with any of the following events:
-Death
-Disability
-Job/ role change to a role not considered eligible in the sole discretion of management
-Voluntary termination
-Retirement at age 65 or older or under a qualified defined benefit pension plan (as determined by B&W)
Reduction in Force (RIF) – Participants whose employment is terminated due to a RIF may be eligible for prorated payout and exempted from the claw back provision based on term date and achievement of goals at sole discretion of management.
CERTAIN IDENTIFIED INFORMATION HAS BEEN EXCLUDED FROM THIS EXHIBIT BECAUSE IT IS BOTH (I) NOT MATERIAL AND (II) IS THE TYPE THAT THE REGISTRANT TREATS AS PRIVATE OR CONFIDENTIAL. SUCH EXCLUDED INFORMATION HAS BEEN MARKED WITH “[***]”.
Project Seed │Privileged and confidential | 28 June 2024
Share Purchase Agreement
Babcock & Wilcox Renewable Service A/S
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Contents
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Schedules
Schedule A Interpretation
Schedule 1.1(a) Legacy Contract Service Agreement
Schedule 1.1(b) License Agreement
Schedule 1.1(c) W&I Insurance Policy
Schedule 3.1.2 Purchase Price Calculation Principles
Schedule 5.2(f) Form of resignation letter
Schedule 6.3.1 MT 760 Guarantee
Schedule 6.5.1 IT services and access
Schedule 7.2 List of Data Room Documentation
Schedule 8.1 Seller’s Warranties
Schedule 14.2 Cessation of joint taxation
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This share purchase agreement (the “Agreement”) has been made on 28 June 2024 by and between
B&W PGG Luxembourg Finance Sárl
Company reg. no. RCS B164684
12E, Rue Guillaume Kroll
LU-1882 Luxembourg
Luxembourg
(the “Seller”)
and
Hitachi Zosen Inova AG
Company reg. No. CHE-105.894.972
Hardturmstrasse 127
8005 Zurich, Switzerland
(the “Buyer”)
(the Seller and the Buyer collectively referred to as the “Parties” and each a “Party”)
WHEREAS
A.The Seller owns the entire issued and registered share capital in Babcock & Wilcox Renewable Service A/S, company reg. (CVR) no. 39134268, a public limited company (in Danish: “aktieselskab”) incorporated and registered under the laws of Denmark and having its registered address at Energivej 16, 6670 Holsted (the “Company”);
B.The Seller has agreed to sell and the Buyer has agreed to purchase the Shares (as defined below) in each case on the terms and subject to the conditions set forth in this Agreement (the “Transaction”);
C.With a view to facilitate an efficient process and coverage in the event of breach of the Seller’s Warranties (as defined bellow) as well as to ensure a clean exit for the Seller subject to the terms of this Agreement, the Seller and the Buyer have agreed that the Buyer simultaneously with Closing (as defined below) will arrange for a buy-side warranty and indemnity insurance to be taken out in the name of the Buyer on the terms and conditions set out in the W&I Insurance Policy (as defined below) and this Agreement;
NOW, it is hereby agreed as follows:
1Definitions and interpretation
1.1In this Agreement, including the Schedules:
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| “Accounting Principles” | means the accounting policies, practices and procedures set out in the relevant Accounts for the financial years 2022 and 2023 to the extent not contrary to Danish GAAP; | ||||
| “Accounts” | means the audited financial statements of each of the Group Companies for the financial years ending on the 31 December 2022 and 31 December 2023, respectively; | ||||
| “Accounts Date” | means 31 December 2023; | ||||
| “Adjustment Amount” | has the meaning set out in Clause 3.3.1; | ||||
| “Affiliates” | means with respect to any Person, any other Person directly or indirectly, through one or more intermediaries, controlling, controlled by or under common control with such Person. For the purposes of this definition, “control”, when used in respect of any Person means the ownership of more than 50% of the outstanding voting securities or the possession, directly or indirectly, of the power to direct or cause the direction of the management of such Person, whether through ownership of voting securities, by contract or otherwise and the terms “controlling” and “controlled” shall have meanings correlative to the foregoing; | ||||
| “Agreement” | has the meaning set out in the preamble; | ||||
| “Basket Amount” | has the meaning set out in Clause 9.6.2(b); | ||||
| “Business Day” | means a day other than a Saturday or Sunday or a public holiday where banks are open for banking business in Denmark, Switzerland and the United States of America, except banking business conducted exclusively through the internet; | ||||
| “Buyer” | has the meaning set out in the preamble; | ||||
| “Buyer’s Group” | means the Buyer and its Affiliates at the relevant time, including the Group after Closing, and "member of the Buyer's Group" means any of them; | ||||
| “Buyer’s Knowledge” | means the actual knowledge of [***] and [***]; | ||||
| “Buyer’s Warranties” | has the meaning set out in Clause 11.111.1; | ||||
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| “Cash” | has the meaning set out in Schedule 3.1.2; | ||||
| “Claim” | means any claim by the Buyer against the Seller in respect of a Loss arising from a Seller’s Breach, an alleged Seller’s Breach or otherwise pursuant to this Agreement; | ||||
| “Claim Notice” | has the meaning set out in Clause 9.3.1; | ||||
| “Clause” | means a clause of this Agreement; | ||||
| “Closing” | means the completion of the transactions contemplated by this Agreement in the manner set out in Clause 5; | ||||
| “Closing Date” | means the date on which Closing occurs; | ||||
| “Company” | has the meaning set out in the preamble; | ||||
| “Competent Authorities” | means any (i) national, supra-national, state, municipal or local government (including any sub-division, court, administrative agency or commission or other authority of any supra-national, national, state, municipal or local government) or any governmental or quasi-governmental or private body exercising any regulatory, taxing, importing or other governmental or quasi-governmental authority (including any tribunal, securities exchange, competition or antitrust authority, or supervisory body); | ||||
| “Confidential Information” | has the meaning set out in Clause 16.1; | ||||
| “Consent” | means any consent, permission, assignment, renewal, extension, approval, clearance or authorisation; | ||||
| “Covered Person” | has the meaning set out in Clause 6.1.3; | ||||
| “Data Room” | has the meaning set out in Clause 7.1; | ||||
| “Data Room Documentation” | has the meaning set out in Clause 7.1; | ||||
| “Debt” | has the meaning set out in Schedule 3.1.2; | ||||
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| “Disclosed” | means any information or matter disclosed by or on behalf of the Seller in the Data Room Documentation, including disclosure under the Q&A module in the Data Room and recorded management presentations and due diligence expert session Disclosed in the Data Room Documentation, in each case in a manner and relevant context that would allow a professional buyer, who has been assisted and advised by professional advisers, to reasonably discern the relevance of such information or matter based on reading and analysing the information provided, in each case without the need to draw conclusions from several unrelated documents and materials; | ||||
| “Encumbrance” | means any actual, deferred, contingent or potential security interest, equity arrangement, security interest, lien, encumbrance, pledge, mortgage, deed of trust, hypothecation, conditional sale or similar restriction of any kind; | ||||
| “Enterprise Value” | has the meaning set out in Clause 3.1.1; | ||||
| “Estimated Claim” | has the meaning set out in Clause 9.3.1; | ||||
| “Estimated Net Debt” | means the estimated Net Debt as at Closing, to be estimated by the Seller and presented to the Buyer in accordance with Clause 3.1.4; | ||||
| “Estimated Working Capital Difference” | means the estimated Working Capital Difference as at Closing, to be estimated by the Seller and presented to the Buyer in accordance with Clause 3.1.4; | ||||
| “Exchange Rate” | has the meaning set out in Clause 3.4.2; | ||||
| “Expert” | has the meaning set out in Clause 3.2.4; | ||||
| “External Claim” | has the meaning set out in Clause 9.4.1; | ||||
| “Final Purchase Price Calculation” | has the meaning set out in Clause 3.2.1; | ||||
| “Final Net Debt” | means the Net Debt at Closing as agreed or determined in accordance with Clause 3.2; | ||||
| “Final Working Capital” | means the Working Capital at Closing as agreed or determined in accordance with Clause 3.2; | ||||
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| “Fundamental Warranties” | means the warranties set out in paragraphs 1-2 an 19 in Schedule 8.1; | ||||
| “Group” | means the Company and the Subsidiaries, and “Group Company” means any one of them; | ||||
| “Initial Purchase Price” | has the meaning set out in Clause 3.1.4; | ||||
| “Intra-Group Indebtedness” | has the meaning set out in Clause 4.1.1; | ||||
| “Key Employees” | means [***] and [***]; | ||||
| “Law(s)” | means any national, supranational, state, municipal or local, or other law (including case law, statute, administrative practice and applicable legal principles) or regulation in any country or jurisdiction and the regulations and orders issued thereunder; | ||||
| “Legacy Contract Service Agreement” | means the legacy contract service agreement between the Company as provider and a member of the Seller’s Group as recipient attached hereto as Schedule 1.1(a): | ||||
| “Liabilities” | means all liabilities, duties and obligations of every description, whether deriving from contract, Law or otherwise, whether present or future, actual or contingent or ascertained or unascertained and whether owed or incurred severally or jointly or as principal or surety; | ||||
| “License Agreement” | means the license agreement between the Company as licensee and a member of the Seller’s Group as licensor attached hereto as Schedule 1.1(b): | ||||
| “Loss” | means any and all direct and reasonably foreseeable (in Danish “advækvate”) losses, damages, penalties, fines, interests, costs (including reasonable legal costs) and expenses (including Taxation), in each case of any nature whatsoever as determined in accordance with general principles of Danish law and as otherwise set out in this Agreement; | ||||
| “Lower Threshold” | has the meaning set out in Clause 9.6.2(a); | ||||
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| “MT 760 Guarantee” | has the meaning set out in Clause 6.3.1; | ||||
| “Net Debt” | means Debt minus Cash; | ||||
| “Party” | has the meaning set out in the preamble; | ||||
| “Person” | means any individual, firm, corporate body, unincorporated association, government, state or agency of state, association, joint venture or partnership, in each case whether or not having a separate legal personality as well as any company, corporation or other corporate body wherever and however incorporated or established; | ||||
| “Purchase Price” | has the meaning set out in Clause 3.1.1; | ||||
| “Reference Working Capital” | means EUR [***]; | ||||
| “Schedule” | means any schedule to this Agreement; | ||||
| “Seller” | has the meaning set out in the preamble; | ||||
| “Seller’s Advisor Account” | means Seller’s client account with [***]; | ||||
| “Seller’s Advisor Account Amount” | means EUR [***]; | ||||
| “Seller’s Bank Account” | means Seller’s bank account with [***]; | ||||
| “Seller’s Breach” | means any breach of any of the Seller’s Warranties or any covenant or agreement made in this Agreement by the Seller; | ||||
| “Seller’s Group” | means the Seller and the Seller’s Affiliates controlled from time to time by the Seller, excluding after Closing the Group, and "member of the Seller's Group" means any of them; | ||||
| “Seller’s Knowledge” | means the actual knowledge of [***] and [***] after having made due enquiries with the Key Employees; | ||||
| “Seller’s Trademarks” | has the meaning set out in Clause 6.4.1; | ||||
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| “Seller’s Warranties” | means the warranties of the Seller set out in Schedule 8.1; | ||||
| “Shares” | means the entire issued and outstanding share capital of the Company; | ||||
| “Signing” | means the signing of this Agreement by the Parties; | ||||
| “Specific Indemnities” | has the meaning set out in Clause 10.1; | ||||
| “Subsidiaries” | means each of (i) Babcock & Wilcox Renewable Service AB, org. no. 559244-4656 and (ii) Babcock & Wilcox Services France SAS, reg. no. 927 763 789; | ||||
| “Tax” or “Taxation” | means any form of taxes (direct as indirect) of whatever nature, including without limitation income taxes, corporate taxes, joint taxation remuneration (in Danish “sambeskatningsbidrag”) or similar remuneration for non-Danish jurisdictions, capital gains taxes, payroll taxes, VAT, labour market and other social contribution taxes and duties, including withholding taxes, real estate taxes, energy and environmental taxes and duties, excise duties, customs, duties on salaries, contribution to any labour market funds and/or special pension funds, and any interest, surcharges, fees, and any form of penalties or payments related hereto; | ||||
| “Tax Warranties” | means the Seller’s Warranties set out in paragraph 19 of Schedule 8.1; | ||||
| “Transaction” | has the meaning set out in the preamble; | ||||
| “VAT” | means (i) within the European Union, any Tax imposed by any Member State in conformity with the Directive of the Council of the European Union on the common system of value added tax (2006/112/EC) together with any supplemental legislation; and (ii) outside the European Union, any Tax corresponding to, or similar to, the common system of value added tax referred to in paragraph (i) of this definition; | ||||
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| “W&I Insurance Policy” | means the buy-side warranty and indemnity insurance policy issued as per the Closing Date by the W&I Insurer attached hereto as Schedule 1.1(c); | ||||
| “W&I Insurer” | means Euclid Transactional UK Limited; | ||||
| “Working Capital” | has the meaning set out in Schedule 3.1.2; | ||||
| “Working Capital Difference” | means any difference between the Reference Working Capital and the Final Working Capital, calculated by subtracting the Reference Working Capital from the Final Working Capital. | ||||
1.2Each Party has participated jointly in the negotiation and drafting of this Agreement and agree that in the event of any ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly and no burden of proof shall arise favouring or disfavouring any Party by virtue of the authorship of any provisions of this Agreement.
1.3For the purposes of this Agreement, the provisions on interpretation as set out in Schedule A shall apply.
2Sale and purchase of the Shares
2.1At Closing, the Seller shall transfer the Shares to the Buyer and the Buyer shall purchase the Shares from the Seller on the terms and subject to the conditions in this Agreement, in each case with all rights attached thereto as of Closing.
2.2Title to the Shares shall pass from the Seller to the Buyer at Closing free from all Encumbrances and with all rights accruing to them as from the Closing Date.
3Purchase Price
3.1Purchase Price and Initial Purchase Price
3.1.1The purchase price for the Shares is:
(a)EUR 81,400,000 (the “Enterprise Value”) minus
(b)the Final Net Debt plus (or minus, if it is a negative number)
(c)the Working Capital Difference
(the “Purchase Price”).
3.1.2The principles for calculating the Purchase Price, including Final Net Debt and Working Capital Difference, are set out in Schedule 3.1.2. The Final Purchase Price
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Calculation in accordance with Schedule 3.1.2 shall be determined as set out in Clause 3.2.
3.1.3For illustrative purposes, included in Schedule 3.1.2 are calculations of the Net Debt, the Working Capital and the Working Capital Difference as per 30 June 2024, each calculated on the basis of the principles set out in Schedule 3.1.2.
3.1.4The Seller has delivered to the Buyer a calculation of the Enterprise Value less the Estimated Net Debt and plus the Estimated Working Capital Difference, in each case as set out in Schedule 3.1.2 and as determined in accordance with the principles set out in Schedule 3.1.2 (the “Initial Purchase Price”). The Initial Purchase Price is calculated as EUR 80,710,093.02.
3.2Final Purchase Price Calculation
3.2.1The Buyer shall prepare a draft calculation of the Final Net Debt, the Final Working Capital and the Working Capital Difference, in each case in accordance with Schedule 3.1.2 (the “Final Purchase Price Calculation”) for submission to the Seller no later than sixty (60) Business Days after Closing. The Final Purchase Price Calculation must be in the format set out in Schedule 3.1.2.
3.2.2The Seller shall have forty-five (45) Business Days from the date of submission by the Buyer of the Final Purchase Price Calculation to provide notice to the Buyer if the Seller has objections to any matter or item in the Final Purchase Price Calculation. Such notice shall be in writing, specify the nature of the objections and include proposals for adjustment of each disputed matter or item in the Final Purchase Price Calculation. For the purpose of preparing such notice, the Buyer shall ensure that the Seller and its advisers are granted reasonable access to all relevant material regarding the Group and reasonable access to interview individuals within normal working hours with knowledge of matters of relevance to the Final Purchase Price Calculation. Further, the Seller and its advisers shall be granted reasonable access to the working papers and records of the auditors having reviewed the Final Purchase Price Calculation.
3.2.3If the Seller agrees to the Final Purchase Price Calculation or if the Seller does not notify the Buyer within the time limit set out in Clause 3.2.2 of any objections to the Final Purchase Price Calculation, the Final Purchase Price Calculation shall be deemed final and binding on the Parties, and the Initial Purchase Price shall be adjusted on the basis thereof as provided for in Clause 3.3.
3.2.4If the Seller notifies the Buyer in accordance with and within the time limit set out in Clause 3.2.2 of any objections to the Final Purchase Price Calculation, the Parties shall attempt to resolve their differences and reach agreement within 20 Business Days after the Seller’s objection notice. If the Parties fail to reach a full agreement, then
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adjustment of the Initial Purchase Price shall be made as provided for in Clause 3.3 with respect to any undisputed amounts. Further, if the subject matter of a disputed item relates to the accounting aspects of the Final Purchase Price Calculation, including the application of the Accounting Principles, either of the Parties may request that an accountant who is a partner of an internationally recognised audit firm with offices in Denmark which does not at the time of appointment have a substantial ongoing engagement with any of the Parties or their respective Affiliates (the “Expert”) be appointed to decide in the disputed items. If the Parties cannot agree on the Expert to be appointed within ten (10) Business Days after the relevant Party’s request for such appointment, either Party may ask FSR – Danish Auditors (in Danish “FSR – Danske Revisorer”) to nominate an Expert, who shall then be appointed by the Parties as Expert.
3.2.5The Expert shall act as an expert and not as an arbitrator and shall not decide on legal issues. The Buyer shall ensure that the Expert is granted access to the Group’s books and records and has reasonable access to interview relevant employees of the Buyer’s Group. Further, the Expert shall be granted access to the working papers and records of the auditors having reviewed the Final Purchase Price Calculation, subject only to the Expert signing and delivering a customary auditor’s release letter.
3.2.6The Expert shall review the objections made by the Buyer and amendments, if any, proposed by the Buyer and the Seller and shall decide on the disputed items and determine the Final Purchase Price Calculation, provided that the Expert cannot deviate from the Parties’ positions, including to make an increase in the Purchase Price greater than as proposed by the Seller or a decrease in the Purchase Price greater than as proposed by the Buyer. The Expert shall apply the principles set out in Schedule 3.1.2 and shall not have any discretion to deviate from these principles. The Final Purchase Price Calculation determined by the Expert shall be final and binding on the Parties, and the Initial Purchase Price shall be adjusted on the basis thereof as provided for in Clause 3.3, save in case of fraud or manifest error, or if the dispute concerns a legal issue. In the event of fraud or manifest error, the relevant part of the determination shall be void and the matter remitted to the Expert. In the event the dispute concerns a legal issue, the dispute shall be resolved by arbitration in accordance with Clause 20. The Expert shall to the extent possible (and provided the Parties have fulfilled their duties to provide access and information in accordance with Clause 3.2.5) deliver his/her decision to the Parties no later than twenty (20) Business Days after having been appointed.
3.2.7Each Party shall bear its own costs relating to the calculation of the Purchase Price. The Parties shall bear the expenses of the Expert in accordance with the Expert’s determination, taking into account whether a Party has prevailed in its argumentation, or, if there is no determination, 50% by the Seller and 50% by the Buyer.
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3.3Adjustment of the Initial Purchase Price
3.3.1As soon as the Final Purchase Price Calculation has been agreed or finally determined as provided for in Clause 3.2 (or by arbitration in accordance with Clause 20 if the dispute concerns a legal issue), it shall be final and binding on the Parties and the Initial Purchase Price shall be adjusted on a EUR for EUR basis on the basis thereof (such adjustment amount being the “Adjustment Amount”). For illustrative purposes, included in Schedule 3.1.2 are formulas for the calculations of the Adjustment Amount.
3.3.2Subject to Clause 9.8.1, the Purchase Price as adjusted in accordance with the foregoing is fixed and not subject to further adjustment.
3.4Currency
3.4.1The Initial Purchase Price, the Final Purchase Price Calculation, and the Adjustment Amount shall be calculated in EUR.
3.4.2Whenever conversion of values to or from any foreign currency for a particular date or period shall be required for purpose of the Final Purchase Price Calculation, including calculation of the Adjustment Amount, such conversion shall be made using the closing mid-point rate for exchanges between those currencies quoted on the website of Danish National Bank for the Closing Date (the “Exchange Rate”).
3.5Payment of the Initial Purchase Price and any Adjustment Amount
3.5.1At Closing, the Buyer shall pay i) the Seller’s Advisor Account Amount in cash to the Seller’s Advisor Account and ii) the Initial Purchase Price less the Seller’s Advisor Account Amount in cash to the Seller’s Bank Account. The payment shall be made by wire transfer of immediately available and freely transferable funds (same day interest), it being agreed that any transfer costs, deductions and charges shall be borne by the Buyer.
3.5.2Payment of the Adjustment Amount, either by the Buyer to the Seller or by the Seller to the Buyer (as the case may be), shall be made within ten (10) Business Days after the Final Purchase Price Calculation has been agreed or finally determined, as provided for in Clause 3.2 (or by arbitration in accordance with Clause 20 if there has been a dispute concerning a legal issue), by wire transfer of immediately available and freely transferable funds (same day interest) to an account designated in writing by the Buyer or the Seller, as applicable, it being agreed that any transfer costs, deductions and charges shall be borne by the paying Party.
4Pre-Closing covenants and actions
4.1Settlement of cash pool arrangement
4.1.1The Parties agree that
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(a)the Group Companies’ participation in the Seller’s Group’s (excluding the Group Companies) cash pool arrangement and
(b)any other intra-group financing or loan arrangements between any member of the Seller’s Group (excluding the Group Companies) and the Group Companies, excluding any excluding any intra-group agreement or arrangement pursuant to which any amount is or shall be owed, outstanding or accrued in the ordinary course (including any VAT arising on such amount) as between any member of Seller’s Group (excluding the Group Companies) and any member of the Group in respect of intercompany trading activity and the provision of services, facilities and benefits between them;
(the “Intra-Group Indebtedness”)
shall be terminated with effect from no later than the Closing Date in a manner to be determined by the Seller and that all amounts owed to or by any member of the Group and any member of Seller’s Group under the Intra-Group Indebtedness shall be settled no later than the Closing Date.
4.2Resignations at Closing
4.2.1The Buyer has instructed that the following members of the board of directors should resign from their current positions with effect from Closing: [***] (as chairman of the Company and the Subsidiaries) and [***] (as board member for the Company and Babcock & Wilcox Services France SAS).
4.3Preparation of Closing
4.3.1The Seller has prior to the Closing Date delivered a statement of the Initial Purchase Price, cf. Clause 3.1.4, and an overview of the Intra-Group Indebtedness and the method for terminating such Intra-Group Indebtedness.
5Closing
5.1Signing of this Agreement and Closing will take place simultaneously and will be completed by electronic exchanges of actions and documents on 28 June 2024.
5.2At Closing, subject to the Buyer’s performance of its obligations pursuant to Clause 5.3, the Seller shall do, deliver or procure the delivery of the following to the Buyer:
(a)deliver documentary evidence that all relevant corporate bodies of the Seller have authorised the execution, delivery and Closing of this Agreement and the consummation by the Seller of its obligations hereunder;
(b)deliver documentary evidence that the Person(s) executing this Agreement on behalf of the Seller is/are duly authorised to do so;
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(c)deliver the License Agreement and Legacy Contract Service Agreement, each duly executed by the parties (other than the member of the Buyer’s Group) thereto, including the Company;
(d)deliver the share register of the Company, updated to reflect that the Shares in the Company have, subject to Closing, been transferred to the Buyer free from any Encumbrances;
(e)confirm that there are no share certificates relating to the French Subsidiary and that the original share certifications relating to the Swedish Subsidiary is in the possession of the Company;
(f)cause the members of the board of directors and/or auditors of the Group Companies who shall resign from their current positions as of Closing, cf. Clause 4.1, to resign from their positions with effect from Closing and to sign a letter of resignation, substantially in the form set out in Schedule 5.2(f);
(g)deliver to the Buyer two (2) electronic copies of the Data Room Documentation;
(h)deliver evidence of settlement by Seller’s Group on the one side and the Group on the other side of any Intra-Group Indebtedness;
(i)deliver the Company’s general meeting’s consent to completion of the Transaction, cf. the Company’s articles of association;
(j)deliver a signed assignment declaration whereby CEO, [***], retroactively and free-of-charge assigns to the Company any and all IP rights pertaining to IP assets developed, created and modified by him during his employment with the Company;
(k)present such other documents and perform such other actions as the Buyer may reasonably require in order to properly perfect its rights under this Agreement.
5.3At Closing, subject to the Seller’s performance of its obligations pursuant to Clause 5.2, the Buyer shall do, deliver or procure the delivery of the following to the Seller:
(a)deliver documentary evidence that all relevant corporate bodies of the Buyer have authorised the execution, delivery and Closing of this Agreement and the consummation by the Buyer of its obligations hereunder;
(b)deliver documentary evidence that the Person(s) executing this Agreement on behalf of the Buyer is/are duly authorised to do so;
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(c)deliver a copy of the Inception No Claims Declaration (as defined in the W&I Insurance Policy) duly executed by the Buyer and delivered by the Buyer to the W&I Insurer on the Closing Date; and
(d)deliver a copy of the W&I Insurance Policy duly issued by the W&I Insurer to the Buyer (for the avoidance of doubt, presenting an agreed form version with confirmation that the broker holds an executed copy of the W&I Insurance Policy in escrow shall suffice for the purposes of fulfilling this deliverable).
(e)pay the Seller’s Advisor Account Amount to, and which at Closing shall be received by, Gorrissen Federspiel in accordance with Clause 3.5, and deliver documentation evidencing that the Seller’s Advisor Account Amount has been transferred to the Seller’s Advisor Account in immediately available funds with value as of the Closing Date;
(f)pay the Initial Purchase Price less the Seller’s Advisor Account Amount to, and which at Closing shall be received by, the Seller in accordance with Clause 3.5, and deliver documentation evidencing that the Initial Purchase Price less the Seller’s Advisor Account Amount has been transferred to the Seller’s Bank Account in immediately available funds with value as of the Closing Date;
(g)pay the insurance premium to the W&I Insurer and any other payment required under the W&I Insurance Policy in accordance with the W&I Insurance Policy; and
(h)present such other documents and perform such other actions as the Seller may reasonably require in order to properly perfect its rights under this Agreement.
5.4Subject to Clause 5.5, all of the actions required to be performed at Closing pursuant to this Clause 5 shall be deemed to have occurred simultaneously, and none of such actions shall be considered performed, until and unless all such actions have been performed or the requirement thereof waived by the relevant Party.
5.5The Buyer shall not be obligated to complete the sale and purchase of the Shares unless the Seller fully comply with its obligations under Clause 5.2 and the Seller shall not be obligated to complete the sale and purchase of the Shares unless the Buyer fully complies with its obligations under Clause 5.3. Notwithstanding the foregoing, neither the Buyer nor the Seller shall be entitled to refuse to proceed to Closing if any of the actions or deliverables required to be carried out or delivered by the other Party in accordance with Clause 5.2 or Clause 5.3 have not been completed if such action or deliverable is immaterial or does not affect the ability to consummate the transactions envisaged by this Agreement in all material respects (in which case, such immaterial
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deliverable or action shall be undertaken by the relevant Party as soon as possible following Closing).
5.6Subject to Clause 5.5, if the Seller’s obligations under Clause 5.2 are not complied with on the Closing Date, the Buyer may, and/or if the Buyer’s obligations under Clause 5.3 are not complied with on the Closing Date, then the Seller may:
(a)waive any deliverable by the non-complying Party, with the effect that Closing may occur; or
(b)defer Closing ten (10) Business Days (so that the provisions of this Clause 5 will apply to the deferred Closing); or
(c)proceed to Closing as far as practicable (without limiting its rights under this Agreement as a consequence thereof, including, on the part of the Seller, requesting specific performance of the Buyer’s obligations under Clause 5.3(a)); or
(d)provided the breach is material or cannot be cured by deferring Closing, submit a written notice of immediate termination of this Agreement to the non-complying Party, in which case all obligations of the Parties under this Agreement will immediately terminate, except for those expressly stated to remain in force notwithstanding termination.
6Post-Closing tasks
6.1Corporate changes and discharge from Liability
6.1.1The Buyer shall as soon as reasonably practicable after the Closing Date, and (to the extent possible) no later than one (1) Business Day thereafter, provide the Seller with documentation confirming that the necessary filings have been made with the Competent Authorities (i) to reflect the change of new legal and beneficial owners of the Group Company, where required and (ii) to de-register the relevant members of the board of directors of the Group Companies having resigned at Closing.
6.1.2The Buyer undertakes promptly to provide the Seller with evidence of such completed de-registrations referred to in Clause 6.1.1 and of the appointment of new members to the board of directors of the Group Companies to comply with any statutory requirements after having received confirmation of completion of such registrations from a Competent Authority. For the avoidance of doubt, the new members to the board of directors shall be authorised to act as board members instead of the resigning members to the furthest extend possible under applicable Law, and subject to the indemnification set out in Clause 6.1.3.
6.1.3Subject to Closing, the Buyer:
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(a)hereby irrevocably waives, and agrees to procure that the Group Companies waive, any claim against Persons having served as members of the board of directors or executive officers of the Group Company (the “Covered Persons”) at any time prior to Closing based on such Covered Persons’ acts or omissions as board members or executive officers in the Group Companies prior to Closing, except in case of fraud (in Danish “bedrageri”) or wilful misconduct (in Danish “forsæt”), as the Buyer shall seek its remedy against the Seller only in accordance with the terms of this Agreement; and
(b)procure that the Group Companies will discharge each of the Covered Persons that resigned or were removed from the relevant Group Company on Closing from Liability for the period prior to Closing at the next annual general meeting in the relevant Group Company in accordance with the general principles of such resolutions under applicable Law. Immediately after passing such resolution, the Buyer shall deliver the relevant extract of such resolution to the Seller, evidencing such discharge.
6.1.4The Covered Persons shall be entitled to rely on and enforce Clause 6.1.3 as third-party beneficiaries (in Danish “egentligt tredjemandsløfte”).
6.1.5Notwithstanding anything to the contrary in this Agreement, the Buyer shall indemnify and hold harmless the Seller as well as the resigning members of the board of directors of the Group Companies from all costs and damages arising out of or related to the Buyer’s breach of its obligations under Clause 6.1.
6.2Insurance arrangements
6.2.1The Buyer acknowledges that all insurance cover arranged in relation to the Group by the Seller or any of its Affiliates (other than the Group) shall be terminated for the Group with effect from Closing, and the Buyer undertakes (i) not to make any claim (and to procure that the Group does not make any claim) under any such policies in relation to insured events arising after the Closing Date; and (ii)to ensure that the Group is covered by insurance arranged by the Buyer with effect from Closing. The Seller shall cooperate in good faith with the Buyer, including take such steps as the Buyer may reasonably request (at no cost of the Seller), to reasonably assist the Buyer in being able to take out insurance covering the Group, provided that the Buyer shall be the sole responsible for taking out any and all insurances to cover the Group after Closing.
6.2.2The Seller or its Affiliate that has taken out insurance covering the Group shall provide reasonable assistance to the Group and the Buyer in respect of insurance claims that have been made by the Group prior to Closing under an insurance policy covering the Group, but held or maintained by the Seller or its Affiliate.
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6.3Release of guarantees etc.
6.3.1Babcock & Wilcox Enterprises, Inc. has issued the [***], attached hereto as Schedule 6.3.1 (the “[***]”). The Buyer shall procure the release of Babcock & Wilcox Enterprises, Inc. from the [***] as soon as reasonably practicable and in no event later than ninety (90) calendar days following the Closing Date. The Seller shall upon the request by the Buyer procure that Babcock & Wilcox Enterprises, Inc. provides the necessary information and such other reasonable assistance as reasonably requested by the Buyer to enable the Buyer to procure such release.
6.3.2In the event that the Buyer fails to procure the release of Babcock & Wilcox Enterprises, Inc. from the [***] within the aforementioned deadline, the Buyer shall pay to the Seller liquidated damages in an amount equal to the actual bank costs incurred by Babcock & Wilcox Enterprises, Inc., as evidenced by bank statements or invoices, in maintaining the [***] for the period from the day that is ninety (90) calendar days after the Closing Date and until Babcock & Wilcox Enterprises, Inc. is so released. The liquidated damages shall be paid by the Buyer to the Seller at the end of each calendar month in which the Buyer fails to procure the release.
6.3.3If, within one (1) calendar year subsequent to Closing, the Seller provides written notice to the Buyer or the Buyer becomes aware that any member of the Seller’s Group remains obligated – whether actually or potentially – under any guarantee, (other than the [***]), which relates to the Liabilities of, or is for the benefit of any of the Group Companies, then the Buyer shall procure the release of such member of the Seller’s Group from any such obligation as soon as reasonably practicable and in no event later than ninety (90) calendar days following the identification thereof. The liquidated damages provisions set out in Clause 6.3.2 do not apply to any failure by the Buyer to secure a release under this Clause 6.3.3.
6.3.4In addition to Clauses 6.3.2 and 6.3.3, the Buyer undertakes to indemnify the members of the Seller’s Group against any claim made against the Seller pursuant to the [***] or any such guarantee identified and notified to the Buyer within one (1) calendar year from the Closing Date to the extent that such claim arises due to the Buyer’s failure to release the concerned guarantee and the Group’s failure to perform as warranted in relation to the guarantee.
6.4Use of Seller’s Trademarks
6.4.1Unless specifically permitted by the Seller, the Buyer shall:
(a)procure that as soon as practically possible and no later than three (3) months after Closing the Group Companies and the Buyer’s Group ceases any and all use of any trademark, business name, designation or domain name used or held by any member of the Seller’s Group, including “Babcock & Wilcox”, “Babcock”, “Wilcox”, “B&W” (the “Seller’s Trademarks”) or any other trademark,
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business name, designation or domain name which, in the reasonable opinion of the Seller, is substantially or confusingly similar to any of the Seller’s Trademarks, including in each Group Company’s corporate name;
(b)as soon as practically possible and no later than three (3) months after Closing cause the Group Companies to remove any display of Seller’s Trademarks, from all sites, buildings, websites, online, business documents, products, uniforms etc. of the Group Companies, and at the Seller’s instructions, and to the extent possible, either return to the Seller or destroy such displays.
6.4.2The Buyer acknowledges and agrees that all rights in and to the Seller’s Trademarks and to all the reputation and goodwill associated with the Seller’s Trademarks throughout the world, including any reputation that may accrue as a result of the use of the Seller’s Trademarks, are reserved to and shall belong absolutely to the Seller.
6.5Certain assistance undertaking
6.5.1The Parties have agreed on the IT services, including IT accesses, for the Company as set out in Schedule 6.5.1.
6.6Transfer of UK employees
6.6.1The Parties agree, at their own cost, to complete the transfer of the employment of [***] and [***] from B&W Volund Ltd to an Affiliate of the Buyer (by offering such employees substantially similar terms to ensure such transfer) within four (4) weeks following the Closing Date and perform, execute and deliver, and to cause their respective Affiliates to perform, execute and deliver, such further acts, documents, notifications, certificates, agreements and other documentation as may be required by applicable Law or as may be reasonably required by the Parties, in order to complete the transfer.
6.7Further assurances
6.7.1The Parties agree, at their own cost, to perform, execute and deliver, and to cause their respective Affiliates to perform, execute and deliver, such further acts, documents, certificates, agreements and other documentation as may be required by applicable Law or as may be reasonably required by the Parties, whether on or after Closing, in order to consummate and implement the transactions contemplated by this Agreement.
6.8Information, records and assistance post-Closing
6.8.1The Buyer shall ensure that the Group will keep such books and other business records that relate to the period prior to Closing at least to the extent and for the period prescribed by applicable Law. The Buyer shall further ensure that for such period the Group Companies will allow the Seller and its advisers access, upon reasonable prior written notice, to review and copy such books and other business records at no charge.
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Without limiting the generality of the foregoing, the Buyer shall procure that for a period following Closing and until 31 August 2024, the Company shall make available and give the Seller’s Group reasonable access free of charge to [***] and [***] (being employees of the Company) who shall be obliged to provide reasonable information and assistance to Seller’s Group for the purpose of rendering the Seller’s Group able to finalise and submit the financial reporting under applicable Law.
6.8.2The obligations set out in this Clause 6.8 are subject to the provisions of Clause 16.
7Due diligence
7.1During the period from 1 April 2024 to the Signing Date, the Buyer and the Buyer’s advisers have conducted an independent due diligence of the Group, including having (a) had access to documentation concerning or relevant for the Group (the “Data Room Documentation”) provided in a virtual data room on the data site HighQ under the project name “Seed” (the “Data Room”), (b) had access to submit questions and inquiries regarding the Group and the Data Room Documentation, and (c) participated in the management presentation held on 11 April 2024 and the Q&A sessions held on 2 May 2024 (Legal), 3 May 2024 (Financial) and 8 May 2024 (Tax).
7.2A list of the Data Room Documentation is attached as Schedule 7.2.
8Seller’s Warranties
8.1By executing this Agreement, the Seller has made the warranties set out in Schedule 8.1 (the “Seller’s Warranties”) to the Buyer as of the Signing Date.
8.2The Seller’s Warranties, except for the Fundamental Warranties, are in each case made subject to and qualified by (and, accordingly, the Buyer shall not be entitled to any Claim of indemnification for a Seller’s Breach of the Seller’s Warranties, except the Fundamental Warranties, to the extent that the Buyer’s Loss is attributable to) any and all matters, facts or circumstances matters, facts or circumstances Disclosed and/ or within the Buyer’s Knowledge in each case prior to Closing.
8.3The Seller’s Warranties are the Seller’s complete representations and warranties regarding the Seller, the Shares and the Group and, consequently, the Buyer cannot rely on any implied warranties, representations, assumptions, etc., including based on any information provided or answer given to any request during the due diligence process. Notwithstanding anything to the contrary in this Agreement, the Seller gives no representation or warranty and accept no Liability whatsoever with respect to any matter which is, or may amount to, an opinion, budget, forecast, assessment or projection as to the future operation or profitability of the Group, nor does the Seller give any representation or warranty with respect to any opinion, budget, forecast, assessment or projection with regard to any information provided to the Buyer during the due diligence or otherwise.
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9Seller’s Liability
9.1No liability for Seller’s Breaches of the Seller’s Warranties
9.1.1The Parties acknowledge and agree that the W&I Insurance Policy has been put in place by the Buyer in order for the Buyer to obtain protection in the event of any Seller’s Breach of the Seller’s Warranties and for the Seller to not incur any Liability in respect of such Seller’s Breach, except in case of fraud (“bedrageri”) or wilful misconduct (“forsæt”) by the Seller.
9.1.2The Parties acknowledge and agree that notwithstanding anything in this Agreement to the contrary, the Seller shall not have any Liability towards the Buyer and the Buyer shall not be entitled to take any actions or have any recourse against the Seller in respect of any Seller’s Breach of the Seller’s Warranties, and that the Buyer’s sole remedy for a Seller’s Breach of the Seller’s Warranties shall be to raise claims under the W&I Insurance Policy, irrespective of whether (a) a Loss is covered by the W&I Insurance Policy or not (including for the avoidance of doubt as a result of the lapse, expiration, termination or failure to take out the W&I Insurance Policy, in each case for whatever reason) and/or (b) one or more of the Seller’s Warranties are excluded from the coverage under the W&I Insurance Policy due to the terms of the W&I Insurance Policy, in each case except in cases where such Claim is based on or the result of fraud (“bedrageri”) or wilful misconduct (“forsæt”) by the Seller, in which case Clause 9.1.4 shall apply. For the avoidance of doubt, Seller may be liable towards the Buyer and/ or the Group in respect of the Specific Indemnities.
9.1.3The W&I Insurer has accepted (and the Buyer undertakes that the terms of the W&I Insurance Policy provides) that the W&I Insurer will have no claims, rights of subrogation, or any recourse against the Seller or any member of the Seller’s Group in respect of a Seller’s Breach of the Seller's Warranties, except in case of fraud (“bedrageri”) or wilful misconduct (“forsæt”) by the Seller, and in such case only against the Seller. The Buyer undertakes to the Seller that at the Closing Date the W&I Insurance Policy shall provide for, and it shall at no time be amended to omit or otherwise prevent, the express waiver and release of all of the W&I Insurer's rights of subrogation, contribution and rights acquired by assignment (and any similar or equivalent rights) against the Seller and any members of the Seller’s Group, save in case of fraud (“bedrageri”) or wilful misconduct (“forsæt”) by the Seller. The Buyer further undertakes that the W&I Insurance Policy contains a "third-party rights" clause that may be relied on, and enforced by, the Seller, to defend against any attempted claim, recourse, or subrogation by the W&I Insurer, notwithstanding that the Seller is not a party to the W&I Insurance Policy, and that the W&I Insurance Policy shall at no time be amended to omit such right of the Seller.
9.1.4In case of a Seller’s Breach of any of the Seller’s Warranties arising out of or as a result of fraud (“bedrageri”) or wilful misconduct (“forsæt”) by the Seller, the Buyer or the W&I Insurer (as they may decide) shall in accordance with the terms of the W&I
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Insurance Policy be entitled to direct a Claim for such Seller’s Breach directly against the Seller only, in which case the Seller shall indemnify the Buyer in accordance with the general principles of Danish Law.
9.1.5The Buyer irrevocably and unconditionally agrees and acknowledges that the Liability of the Seller pursuant to this Agreement in no way shall be affected to the detriment of the Seller by:
(a)the Buyer taking or omitting to take any action, which has the effect of invalidating, waiving or limiting the coverage of the W&I Insurance Policy (or any Claim to which the W&I Insurance Policy relates), including failing to pay the premium when due;
(b)the expiration or termination of the W&I Insurance Policy or insolvency of the underwriters or revocation, cancellation or modification of the W&I Insurance Policy;
(c)the inability of, or any denial by, the W&I Insurer to pay any amounts contemplated by the W&I Insurance Policy; or
(d)any amendment, variation or termination of the W&I Insurance Policy, without the prior written Consent of the Seller.
9.2Seller’s liability for other Seller’s Breaches
9.2.1Without limiting the generality of Clause 9.1, to the extent that Seller has any liability towards the Buyer for any Seller’s Breach, the Seller shall indemnify the Buyer for any and all Losses incurred by the Buyer as a result of such Seller’s Breach in accordance with this Clause 9 and subject to the limitations set out herein.
9.2.2Only Losses which have been actually incurred by the Buyer are subject to indemnification, subject to the remaining limitations of this Clause 9.
9.2.3The provisions set out in this Clause 9.2 and Clauses 9.3-9.8 shall in no event result in any Liability in respect of any Seller’s Breach of the Seller’s Warranties to the extent not explicitly set out in Clause 9.1.
9.3Claim Notice
9.3.1In order for a Claim to be valid, the Buyer must promptly give notice (the “Claim Notice”) to the Seller stating in detail (with copies of relevant supporting documents attached) (i) the specific grounds giving rise to such Claim; (ii) the Seller’s Breach; and (iii) the amount of the Loss resulting from such Seller’s Breach or a reasonable estimated amount of the Loss if it is not possible to state the actual amount of the Loss in the Claim Notice (the “Estimated Claim”). The Buyer shall as soon as practically
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possible provide any such other supporting evidence for the Claim as may be reasonably required by the Seller to assess the merits of the Claim and the calculation of the Loss (to the extent such documentation is reasonably available or obtainable by the Buyer).
9.3.2The Buyer shall provide the Seller with a Claim Notice in compliance with Clause 9.3.1 as soon as possible and in no event later than 60 Business Days after the date on which the Buyer became, or ought to have become, aware of the circumstances giving rise to the Claim, failing which the Buyer’s right to indemnification shall expire (and the Seller shall be released from any Liability towards such indemnification) to the extent of i) any increase in the Buyer’s Loss and ii) any Loss that could have been mitigated or otherwise reduced in the absence of such failure. The Seller shall have no Liability for any Seller’s Breach to the extent the Buyer has not provided a Claim Notice in compliance with Clause 9.3.1 in respect of such Seller’s Breach within 90 Business Days after the date on which the Buyer became, or ought to have become, aware of the circumstances giving rise to the Claim.
9.4External Claims
9.4.1Within 40 Business Days from the receipt by a Group Company or the Buyer of notice from a third-party of any claim which may entitle the Buyer to make a Claim against the Seller (and, for the avoidance of doubt not the W&I Insurer) under the terms of this Agreement (an “External Claim”), the Buyer shall notify the Seller in writing, and the Buyer shall thereafter consult in good faith with the Seller in respect of the External Claim and permit the Seller and its advisers reasonable access to the relevant employees of the Buyer’s Group and, as applicable, documents, information and records for the purpose of investigating the matter and enabling the Seller to take any action permitted by this Clause 9.4.
9.4.2The Seller shall, at any time after receiving notice of an External Claim, be entitled, in its sole discretion, by notice in writing to the Buyer, to assume control of the defence of any External Claim on behalf of the Buyer, using counsel of its own choice. If the Seller assumes control of the defence, the Buyer shall cooperate with the Seller and its advisers, at the Seller’s costs, in the defence of the External Claim, including gathering reasonable information, documentation and evidence, ensuring reasonable access to employees of the Buyer’s Group, as applicable, for reasonable interviews and presence at trial and taking all such action which the Seller may reasonably request. The Seller shall in reasonable consultation of the Buyer defend, settle or otherwise make arrangements regarding the External Claim in respect of which the Seller has assumed control of the defence, provided that before entering into any settlement of such External Claim, the Seller shall consult and seek the Buyer’s Consent (not to be unreasonably withheld, conditioned or delayed) unless the Seller commit to fully indemnifying the Buyer for any and all Losses with respect to such External Claim subject to the monetary and other limitations of this Agreement.
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9.4.3Irrespective of whether the Seller has assumed control of the defence of an External Claim, the Buyer must not admit any Liability with respect to, or settle, compromise or discharge such third-party claim, without the prior written Consent of the Seller (not to be unreasonably withheld, conditioned or delayed).
9.4.4If the Seller does not, or until the Seller does, assume control of the defence, the Buyer shall keep the Seller informed of all material developments in relation to the External Claim, including by providing such information as the Seller may reasonably require. The Buyer’s failure to cooperate as set forth above will relieve the Seller of its obligation to the extent that the Buyer’s failure to cooperate has had a negative impact on the External Claim, if any, to indemnify the Buyer with respect to any Losses arising from or in connection with the External Claim to the extent the Seller has been prejudiced, or the Losses have been increased, by such failure by the Buyer.
9.5Losses
9.5.1The Seller shall only be liable for indirect Losses to the extent reasonably foreseeable (in Danish “adækvate”) and shall not be liable for any other contingent, punitive, indirect or consequential Losses.
9.5.2Any Loss in respect of which a Claim is notified to the Seller shall be calculated in EUR subject to the following principles and otherwise in accordance with Danish Law:
(a)the amount of Loss shall be calculated on a EUR for EUR basis without taking into account any multiple or other method used for the calculation of the Purchase Price;
(b)the amount of any Tax benefit or saving obtained or available to the Buyer and/or the Buyer’s Group, including the Group, as a result of the Loss in respect of which a Claim is made, shall be deducted when calculating the Loss;
(c)the amount of any compensation or other recovery (including without limitation insurance proceeds) obtained or available to the Buyer and/or the Buyer’s Group, including the Group, under the W&I Insurance Policy or any other insurance shall be deducted when calculating the Loss;
(d)any occurrence of, or increase of, a Loss attributable to any change in the applicable Law, or any change in Tax rates, after the Closing Date shall be disregarded when calculating the Loss;
(e)any occurrence of, or increase of, a Loss as a result of any act or omission on the part of the Buyer or the Buyer’s Group, including the Group following the Closing Date, or any of their directors, officers, employees or agents shall be disregarded when calculating the Loss;
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(f)any occurrence of, or increase of, a Loss as a result of a change in the Accounting Principles following Closing to conform to those used by the Buyer or the Buyer’s Group shall be disregarded when calculating the Loss;
(g)no Loss shall be deemed to have been suffered to the extent that the matter giving rise to such Loss was taken into account in the calculation of the Purchase Price;
(h)the Buyer shall not be entitled to indemnification or other restitution (i) more than once in respect of the same Loss (no double counting) or (ii) to the extent that a write-down, revaluation of value, impairment, allowance, provision or reserve for or of such Loss or category of Losses has been made in the Accounts; and
(i)when calculating whether or not a Loss exceeds the thresholds in Clause 9.6.2 (i.e. the Lower Threshold and the Basket Amount), Losses sustained in foreign currencies shall be converted into DKK or EUR, as relevant, by applying the Exchange Rate at the time when the Claim Notice is delivered to the Seller.
9.5.3In the event that the amount of any deduction to be made, or amount to be disregarded, for the purposes of calculating the Loss due with respect to a Claim (in each case as referred to in this Clause 9.5) is determined or assessed only after the payment by the Seller to the Buyer of an amount with respect to a Loss, the Buyer shall repay (subject to any withholding taxes or other relevant deductions) to the Seller promptly after such determination or assessment, an amount by which the Loss paid to the Buyer should have been reduced, had such determination or assessment been taken into account in the original calculation of Loss.
9.5.4The Buyer is under an obligation to mitigate the Losses (in Danish “tabsbegrænsningsforpligtelse”) in accordance with Danish Law and the Buyer shall procure that each member of the Buyer’s Group, including the Group, shall do the same.
9.6Monetary limitations
9.6.1Without limiting the generality of Clause 9.1, the Seller’s Liability under the Agreement shall be limited to the amounts set out in this Clause 9.6.
9.6.2The Seller shall not be liable in respect of any Claim for breach of the Seller’s Warranties unless:
(a)the Liability of the Seller in respect of such Claim, as finally determined, exceeds an amount equal to the De Minimis (as defined in the W&I Insurance Policy) for the applicable Seller’s Warranties (the “Lower Threshold”); and
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(b)the aggregate amount of all Claims (excluding those Claims that do not reach the Lower Threshold), as finally determined, exceeds an amount equal to the Retention “as defined in the W&I Insurance Policy) (the “Basket Amount”), and the Seller shall in such event be liable for the full amount of Losses and not only Losses exceeding the Basket Amount (tipping basket).
9.6.3The maximum aggregate Liability of the Seller for any and all Claims for breach of the Seller’s Warranties shall in no event exceed EUR 20,000,000.
9.6.4The limitations in Clauses 9.6.2 and 9.6.3 shall not apply in case of fraud (in Danish: “bedrageri”) or wilful misconduct (in Danish: “forsæt”) by the Seller or a breach of the Fundamental Warranties.
9.6.5Notwithstanding anything to the contrary in this Agreement, the maximum aggregate Liability of the Seller for any and all Claims under this Agreement shall be limited to the Purchase Price.
9.7Time limitations
9.7.1The Seller shall not be liable in respect of any Claim unless a Claim Notice has been submitted by the Buyer to the Seller:
(a)in respect of a Claim resulting from a breach of the Fundamental Warranties, by no later than the date falling 60 months from the Closing Date;
(b)in respect of a Claim resulting from a breach of the Tax Warranties, by no later than the date falling 60 months from the Closing Date; and
(c)in respect of any Claim resulting from any other Seller Breaches (other than those referred to in Clause 9.7.1(a) and (b)), by no later than the date falling 36 months from the Closing Date.
9.7.2The limitations in this Clause 9.7 shall not apply in case of fraud (in Danish: “bedrageri”) or wilful misconduct (in Danish: “forsæt”) by the Seller.
9.8Miscellaneous
9.8.1Any payment by the Seller to the Buyer pursuant to any Claim shall be deemed an adjustment to the Purchase Price.
9.8.2The Buyer has not relied on or been induced to enter into this Agreement by any representation, warranty or assumption save as specifically and explicitly set forth in this Agreement.
9.8.3The remedies provided for in this Clause 9 shall be the exclusive remedies available to the Buyer with respect to any and all Seller’s Breaches and Claims. Subject to
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termination in accordance with the terms of this Agreement, the Buyer is not entitled to and hereby waive any right under applicable Law to rescind this Agreement (in Danish “hæve aftalen”), claim for a proportionate reduction of the Purchase Price (in Danish “forholdsmæssigt afslag”) or claim for any breach of any implied condition (in Danish “bristede forudsætninger”).
10Specific indemnities
10.1Notwithstanding anything to the contrary in this Agreement, the Seller undertakes to indemnify and hold harmless the Buyer, on a EUR for EUR basis, from and against any Losses incurred by the Group or the Buyer relating to the period prior to the Closing Date as a result of or in connection with:
10.1.1[***];
10.1.2[***];
10.1.3[***];
10.1.4[***]; and
10.1.5[***];
(all indemnities set out in this Clause 10.1 being the (“Specific Indemnities”)).
10.2For the avoidance of doubt, the limitations and requirements set out in Clauses 9.6, 9.6.4 and 9.7 shall not apply to any Specific Indemnities provided under Clause 10.
10.3If the Buyer has a right to be indemnified by the Seller under Clause 10.1.1 and/or Clause 10.1.5, the Seller shall be entitled, in its sole discretion, to assume control of the defence of any such claims and the Buyer shall cooperate with the Seller and its advisers, at the Seller’s costs, in the defence of such claims, including gathering reasonable information, documentation and evidence, ensuring reasonable access to employees of the Buyer’s Group, as applicable, for reasonable interviews and presence at trial and taking all such action which the Seller may reasonably request as further set out in Clause 9.4.
10.4The Buyer shall not be entitled to indemnification under Clause 10.1.1 more than once in respect of the same Loss (no double counting). The Buyer shall not be entitled to indemnification under Clause 10.1.1 to the extent any provision or reserve for such Loss was made in the Accounts, it being under stood that the Seller shall only indemnify the Group or the Buyer for any Loss related to the indemnification under Clause 10.1.1 exceeding EUR [***].
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10.5The Buyer shall not be entitled to any indemnification under Clause 10.1.1 to the extent that a Claim for such indemnification has been made later than the 5th anniversary of the Closing Date.
11Buyer’s Warranties
11.1By executing this Agreement, the Buyer has made the following representations and warranties (the “Buyer’s Warranties”) to the Seller as of the date hereof. The Buyer’s Warranties shall be deemed to be repeated at Closing:
11.1.1The Buyer has the corporate power and authority to enter into and perform its obligations under this Agreement and any ancillary documents referred to herein. This Agreement and any other documents executed by the Buyer, which are to be delivered at Closing, have been approved by all relevant corporate bodies of such entity and will, when executed, constitute binding obligations on the Buyer and will be enforceable against the Buyer in accordance with their respective terms.
11.1.2The execution of, entering into, performance of, and compliance with this Agreement and the consummation of the transactions contemplated hereby will not violate, conflict with, result in a breach of, or constitute a default under, any order, judgment, injunction award, or decree of any court or arbitrator or governmental board against or binding on the Buyer or violate any statute, Law, or regulation applicable to the Buyer.
11.1.3There are no actions, claims, other proceedings or investigations pending or threatened against or involving the Buyer or any of its Affiliates which, individually or in the aggregate, may affect the validity or enforcement of this Agreement or prevent the Buyer from consummating the transactions contemplated hereby.
11.1.4The Buyer is entering into this Agreement on its own behalf and not as agent, intermediary, representative of, or otherwise on behalf of, any other third-party.
11.1.5To the Buyer’s Knowledge on the Closing Date, no matters, facts or circumstances exist, which render any of the Sellers’ Warranties untrue or incorrect.
11.1.6The Buyer has obtained sufficient financing for payment of the Purchase Price when due.
11.2The Buyer’s Warranties are given by the Buyer and shall in no event be construed as having been given by or on behalf of any of other member of the Buyer's Group.
12Buyer’s Liability
12.1The Buyer shall indemnify the Seller for any and all Losses incurred by the Seller or any member of the Seller's Group arising out of or resulting from any breach by the
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Buyer or its Affiliates of this Agreement, including the Buyer’s Warranties, in accordance with the general principles of Danish Law.
12.2Any claim to be made under this Agreement by any member of the Seller's Group may only be brought by the Seller against the Buyer, irrespective of whether the Loss or Liability was suffered by the Seller or any other member of Seller's Group. Under no circumstances may the Seller direct (and shall procure that no member of the Seller's Group directs) any claim for any Loss or Liability or any other claims against any member of the Buyer’s group except the Buyer. Any Loss, whether suffered by the Seller or any member of the Seller's Group, shall be directed by the Seller to the Buyer, and the Seller shall not be concerned with the subsequent allocation of Liability within the Buyer’s Group, and the Buyer shall not be concerned with the subsequent distribution or allocation of any compensation for such Liability within the Seller’s Group.
13Restrictive covenants
13.1For two (2) years after the Closing Date, the Seller undertakes to neither directly operate or have a financial interest in any business competing with the business of the Group, provided that nothing shall prohibit the Seller in fulfilling any obligation existing as of Closing under any new build agreement, including in relation to warranty or spare parts. The business of the Group shall for the purpose of this Clause 13 be understood as the business conducted by the Group as at Closing and geographically limited to the jurisdictions in which such business was conducted. The Buyer agrees that the restrictive covenant in this Clause 13 does not apply to any ownership of shares or other ownership rights in any company which competes with the Group’s business, provided that either (a) the revenue derived from such competing business during the immediately preceding calendar year represent no more than 5% of the total revenue of such company during that time period; or (b) such ownership does not exceed 5% of such company.
13.2The Seller hereby covenants and undertakes to refrain, and to procure that all of its Affiliates (from time to time) refrain, within 24 months of the Closing Date, from soliciting, engaging or enticing away or attempting to solicit, engage or entice away from the Group any employee of the Group Companies as per the Closing Date, provided, however, that the period shall be six (6) months from the Closing Date for such employees who are considered salaried employees (in Danish “lønmodtager”) under the Danish Act on Restrictive Covenants (in Danish “jobklausulloven”). This Clause 13.1 shall not apply to (i) general advertisements for employment conducted by the Seller, any of its Affiliates or Persons acting on behalf thereof (including any such recruitment efforts by any recruitment agency) and the hiring of any Persons responding thereto, provided that the aforementioned have not specifically targeted the relevant employee(s), (ii) the hiring of Persons who on an unsolicited basis
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approaches the Seller or its Affiliates or (iii) any Person who has been terminated by the Group Companies.
13.3In addition to the other rights and remedies of the Buyer under this Agreement, in case of any Seller’s Breach of Clause 13.1, the Buyer is entitled to seek an injunction (in Danish “fogedforbud”) before the ordinary courts against the Seller or the relevant Affiliate without having to put up any security.
13.4In case of a breach of the restrictive covenants set out in Clauses 13.1 and/or 13.2, the Seller shall pay liquidated damages to the Buyer in the amount of DKK 700,000 for each violation if the breach is not remedied within ten (10) Business Days of notice from the Buyer alleging that a breach has occurred. Where the violation consists of the setting up and maintenance of a certain state of affairs, a violation shall be deemed to exist for each month such violation persists and shall make the Seller liable to pay further damages calculated as DKK 700,000 per calendar month within which the violation persists.
14Tax and exit from joint taxation
14.1The Company is subject to mandatory joint taxation under Danish Law with Babcock & Wilcox A/S, company reg. (CVR) no. 25 05 36 64, as the administration company.
14.2The Parties have agreed that the provisions set out in Schedule 14.2 shall apply in relation to Tax and the Company’s exit from the joint taxation with Babcock & Wilcox A/S.
15Announcements
15.1The Seller has prepared (and the Buyer has had reasonable opportunity to comment on) the company announcements and/or press releases concerning this Agreement and the transactions contemplated hereby to be released at the Closing Date.
15.2Subject to Clause 15.1, no disclosure or announcement relating to the existence or subject matter of this Agreement shall be made or issued by or on behalf of the Seller (or any member of the Seller’s Group) or the Buyer (or any member of the Buyer’s Group) without the prior written Consent approval of the other Party (which Consent may be subject to reasonable conditions, but shall otherwise not be unreasonably withheld or delayed).
16Confidentiality
16.1The Parties shall treat as confidential all information obtained as a result of entering into or performing this Agreement and which relates to:
(a)the provisions of this Agreement and any other document referred to herein or drawn up to carry out the transactions contemplated hereby;
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(b)the negotiations relating to the Transaction;
(c)the subject-matter of this Agreement;
(d)the existence, or subject matter of, or rulings delivered in, any arbitration or other dispute in relation to this Agreement;
(e)the other Parties and such Parties’ businesses, financials or other affairs; and
(f)in respect of the Buyer until Closing, the business, financial or other affairs of or relating to the Group
(the “Confidential Information”) and shall abstain from using and from disclosing any such Confidential Information to any third-party.
16.2Notwithstanding Clause 16.1, each Party may disclose Confidential Information:
(a)if and to the extent required by Law or for the purpose of any judicial proceedings between the Parties, including arbitration pursuant to Clause 20;
(b)if and to the extent required by any securities exchange, regulatory or governmental body to which that Party is subject or submits, wherever situated, whether or not the requirement for information has the force of Law;
(c)to its professional advisers, auditors, and bankers or prospective financing sources, its direct or indirect investors, together with their directors, officers, advisers or agents who are, in each case, subject to a duty of confidentiality to the disclosing party and who are made aware of the confidential nature of the information disclosed;
(d)if and to the extent the Confidential Information has come into the public domain through no fault of that Party or the Party’s Affiliates;
(e)if and to the extent the Party to whom the Confidential Information relates gives prior written Consent to the disclosure; or
(f)to its Affiliates on a need to know basis, subject to such Affiliates observing the duty of confidentiality set out herein.
16.3Any Confidential Information to be disclosed pursuant to Clauses 16.2(a) or 16.2(b) must be disclosed only after notice to the other Party and only to the extent required or necessary.
17Miscellaneous
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17.1This Agreement, including all Schedules, as amended from time to time, constitute the whole and only agreement between the Parties relating to the transactions contemplated hereby.
17.2This Agreement may only be amended in writing signed by each of the Parties.
17.3No waiver of any provision or condition of this Agreement shall be effective unless it is in writing and signed by or on behalf of the Party/ies waiving compliance.
17.4No delay or omission by any Party to this Agreement in exercising any right, power, or remedy provided by Law or under this Agreement or any other documents referred to in it shall affect that right, power, or remedy, or operate as a waiver thereof, except as specifically set out in this Agreement. The single or partial exercise of any right, power, or remedy provided by Law or under this Agreement does not preclude any other or further exercise of it or the exercise of any other right, power, or remedy, except as specifically set out in this Agreement. The rights, powers and remedies provided under this Agreement are cumulative and do not exclude any rights, powers, and remedies provided by Law, unless otherwise provided for in this Agreement.
17.5Neither this Agreement nor any rights according to this Agreement are assignable by any of the Parties wholly or partly, except that the Buyer may assign its rights under this Agreement to the W&I Insurer. Further, notwithstanding the foregoing, the Buyer may assign the benefit of this Agreement to any bank or financial institution by way of security for the purposes of or in connection with the financing or refinancing (whether in whole or in part) by the Buyer of the acquisition of the Shares; provided that any such assignee shall not be entitled to receive under this Agreement any greater amount than that to which the assignor would have been entitled and neither the Buyer nor the Seller, as applicable, shall be under any greater obligation or Liability than if such assignment had never occurred.
17.6The provisions of this Agreement are independent and separable from each other, and no provision shall be affected or rendered invalid or unenforceable by virtue of the fact that for any reason, any other provision may be invalid or unenforceable in whole or in part. If one or more provisions of this Agreement are held to be contrary to applicable Laws, the Parties agree that the offending provision(s) shall be amended to the extent necessary to make it enforceable and so that original commercial intent of such Clauses are maintained to the extent possible.
18Costs and expenses
18.1Except as otherwise specifically set out in this Agreement, each Party shall pay its own legal, accountancy and other costs, charges and expenses in relation to the negotiation, preparation and implementation of the Transaction.
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18.2Insurance premium, broker fees and any other insurance or underwriting fees or expenses in connection with the W&I Insurance Policy shall be borne by the Buyer.
19Notices
19.1Every communication and notice to be made under this Agreement must be made in English in writing and sent by hand, registered or couriered mail or by email to a Party at the address or email address and for the attention of the individual as set out below:
to the Seller:
B&W PGG Luxembourg Finance SARL
c/o Babcock & Wilcox Enterprises, Inc.
1200 E. Market Street, Suite 650
Akron, OH 44305 U.S.A.
For the attention of
with a copy to:
Gorrissen Federspiel Advokatpartnerselskab
Axeltrov 2, 1609 Copenhagen W
Denmark
For the attention of
to the Buyer:
Hitachi Zosen Inova AG
Hardturmstrasse 127, 8005 Zurich, Switzerland
For the attention of
with a copy to:
Lundgrens Advokatpartnerselskab
Tuborg Boulevard 12, 4. sal, 2900 Hellerup
Denmark
For the attention of
or to such other Person, address or email address which a Party may in writing notify to the other Parties.
19.2Any notice given under this Agreement shall be effective upon receipt and shall be deemed to have been received (i) at the time of delivery, if delivered by hand, registered post or courier; or (ii) at the time of transmission if delivered by email.
20Governing Law and arbitration
20.1This Agreement, and any dispute or claim arising out of or in connection with this Agreement, is governed by and construed in accordance with the Laws of Denmark, excluding any provision on applicable Law (conflict of Laws rules).
13787420.1Page: 35 of #NUM_PAGES# | ||
20.2Any dispute or claim arising out of or in connection with this Agreement, including any dispute concerning the existence, breach, termination or invalidity thereof, must be settled exclusively by arbitration in accordance with the Rules of Procedure of the Danish Institute of Arbitration (Danish Arbitration) as applicable and adopted by the Danish Institute of Arbitration at the time when such arbitration proceedings are commenced.
20.3The arbitration tribunal will be composed of three (3) arbitrators.
20.4The Seller shall appoint one (1) arbitrator, the Buyer shall appoint one (1) arbitrator and the Institute shall appoint a third arbitrator who shall be the Chairman of the arbitration tribunal. If a Party has not appointed an arbitrator within thirty (30) calendar days of having requested or received notice of the arbitration, such arbitrator shall be appointed by the Institute.
20.5The place of arbitration will be Copenhagen, Denmark, and the language of the arbitration will be English.
20.6The Parties are not entitled to disclose any information relating to the arbitration proceedings to any third-party, including information on any decision or arbitration award, unless the other Parties have Consented in writing to such disclosure. However, each Party is entitled to disclose information relating to the arbitration proceedings to (a) its legal advisers, auditors and direct and indirect investors, together with their directors, officers, advisers or agents who are, in each case, subject to a duty of confidentiality to the disclosing party and who are made aware of the confidential nature of the information disclosed; and (b) a third-party if such disclosure is made to comply with current Law or decisions from Competent Authorities.
---oOo---
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Signature page – Share Sale and Purchase Agreement – Babcock & Wilcox Renewable Service A/S
For and on behalf of the Seller:
__________________________ __________________________
Name: [***] Name:
Title: Category A Manager Title:
For and on behalf of the Buyer:
__________________________ __________________________
Name: [***] Name: [***]
Title: CEO Title: EVP Systems & Service Solutions
13787420.1Page: 37 of #NUM_PAGES# | ||
Schedule A – Interpretation
1All references to statutes, statutory provisions, enactments, EU Directives or EU Regulations shall include references to any consolidation, re-enactment, modification or replacement of the same, any statute, statutory provision, enactment, EU Directive or EU Regulation of which it is a consolidation, re-enactment, modification or replacement and any subordinate legislation in force under any of the same from time to time except to the extent that any consolidation, re-enactment, modification or replacement enacted after the Closing Date would extend or increase the Liability of either Party to the other under this Agreement.
2Any reference to a document in the "agreed form" is to the form of the relevant document in the terms agreed between the Seller and the Buyer prior to the execution of this Agreement and signed or initialled for identification purposes only by or on behalf of the Seller and the Buyer (in each case with such amendments as may be agreed by or on behalf of the Seller and the Buyer).
3References to this Agreement include the recitals and Schedules which form part of this Agreement for all purposes. References in this Agreement to the Parties, the recitals, Schedules and Clauses are references respectively to the Parties and their legal personal representatives, successors and permitted assigns, the recitals and Schedules to and Clauses of this Agreement.
4Save where specifically required or indicated otherwise;
4.1words importing one gender shall be treated as importing any gender, words importing individuals shall be treated as importing corporations and vice versa, words importing the singular shall be treated as importing the plural and vice versa, and words importing the whole shall be treated as including a reference to any part thereof;
4.2references to the word "include" or "including" (or any similar term) are not to be construed as implying any limitation and general words introduced by the word "other" (or any similar term) shall not be given a restrictive meaning by reason of the fact that they are preceded by words indicating a particular class of acts, matters or things;
4.3any reference to "writing" or "written" includes any method of reproducing words or text in a legible and non-transitory form which, for the avoidance of doubt, shall include email; and
4.4references to times of the day are to that time in Denmark and references to a day are to a period of twenty-four (24) hours running from midnight to midnight.
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5Clause and paragraph headings and the table of contents are inserted for ease of reference only and shall not affect construction.
13787420.1EXHIBIT 31.1
CERTIFICATION
I, Kenneth M. Young, certify that:
1.I have reviewed this quarterly report on Form 10-Q of Babcock & Wilcox Enterprises, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a.designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal year that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Dated: August 8, 2024 | /s/ Kenneth M. Young | ||||
| Kenneth M. Young | |||||
| Chairman and Chief Executive Officer | |||||
EXHIBIT 31.2
CERTIFICATION
I, Louis Salamone, certify that:
1.I have reviewed this quarterly report on Form 10-Q of Babcock & Wilcox Enterprises, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a.designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal year that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Dated: August 8, 2024 | /s/ Louis Salamone | ||||
| Louis Salamone | |||||
| Executive Vice President and Chief Financial Officer (Principal Accounting Officer and Duly Authorized Representative) | |||||
EXHIBIT 32.1
BABCOCK & WILCOX ENTERPRISES, INC.
Certification Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), I, Kenneth M. Young, President and Chief Executive Officer of Babcock & Wilcox Enterprises, Inc., a Delaware corporation (the “Company”), hereby certify, to my knowledge, that:
(1)the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2024 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of B&W as of the dates and for the periods expressed in the Report.
| Dated: August 8, 2024 | /s/ Kenneth M. Young | ||||
| Kenneth M. Young | |||||
| Chairman and Chief Executive Officer | |||||
EXHIBIT 32.2
BABCOCK & WILCOX ENTERPRISES, INC.
Certification Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), I, Louis Salamone, Chief Financial Officer of Babcock & Wilcox Enterprises, Inc., a Delaware corporation (the “Company”), hereby certify, to my knowledge, that:
(1)the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2024 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of B&W as of the dates and for the periods expressed in the Report.
| Dated: August 8, 2024 | /s/ Louis Salamone | ||||
| Louis Salamone | |||||
| Executive Vice President and Chief Financial Officer (Principal Accounting Officer and Duly Authorized Representative) | |||||