The Babcock & Wilcox Company (NYSE: BWC) (“B&W” or the “Company”) today reported earnings per share for the fourth quarter ended December 31, 2010 of $0.45, an increase of 164.7% from the fourth quarter of 2009. Revenues for the fourth quarter of 2010 were $705.2 million, an increase of $16.6 million or 2.4% from the fourth quarter of 2009, the first quarterly year-over-year increase since the fourth quarter of 2008.

Recent Highlights
  • Awarded $2.0 billion naval nuclear reactor components contract
  • Awarded $428 million Department of Energy contract for operation of depleted uranium hexafluoride conversion facilities
  • Awarded $107 million boiler retrofit contract for major Canadian utility
  • Awarded $79 million naval nuclear fuel contract
  • Awarded $35 million waste-to-energy power generation contract in Finland
  • Awarded commercial nuclear power station up-rate contract
  • Named Larry L. Weyers, former Chairman and Chief Executive Officer of Integrys Energy Group, Inc., and Anne R. Pramaggiore, President and Chief Operating Officer of ComEd, to the board of directors

Government Operations Segment

Revenues of $298.1 million increased $44.3 million or 17.5% in the fourth quarter of 2010 compared to the fourth quarter of 2009. This increase is principally the result of an increase in activity for nuclear reactor components and nuclear fuel.

Operating income of $48.3 million increased $16.8 million or 53.4% in the fourth quarter of 2010 compared to the fourth quarter of 2009. This increase is principally related to productivity and project execution improvement on the production of nuclear reactor components, an increase in fees earned due to higher funding levels and productivity at the Company’s management and operations sites. In addition, year-over-year operating earnings improvement resulted from fourth quarter 2009 charges related to the temporary shut-down of NFS, which is now in full operation except for the commercial development line.

“During the fourth quarter, the National Nuclear Security Administration (NNSA) announced site scores for fiscal 2010. The results at our two largest management sites were outstanding. Pantex Plant nuclear weapons complex achieved the highest score in the NNSA complex in 2010 and the highest ever achieved at the site, and the Y-12 National Security Complex also achieved the highest score ever at that site. We are pleased to have performed exceptionally well. Delivering high value-added services to our government customer is important to continued success in this market. Additionally, we closed out the year with solid productivity on our key naval reactor manufacturing program and successfully negotiated a $2 billion contract for components for the Virginia-Class attack submarines and Ford-Class aircraft carrier, which resulted in the highest backlog in the history of the Government Operations segment at December 31, 2010,” said Brandon C. Bethards, President and Chief Executive Officer of B&W.

Power Generation Systems Segment

Revenues of $408.6 million for the fourth quarter of 2010 declined $26.7 million or 6.1% compared to the fourth quarter of 2009. This decrease was principally related to a decline in demand for new-build environmental systems, partially offset by increasing volumes in nuclear energy components, small aftermarket parts and renewable power generation systems. Backlog at December 31, 2010 in the Power Generation Systems segment increased $28.1 million, or 1.4% from the end of the third quarter to $2.05 billion. This is the second sequential quarterly increase in backlog for the Power Generation Systems segment.

Operating income was $31.2 million in the fourth quarter of 2010, an increase of $9.5 million, or 43.9% compared to $21.7 million in the fourth quarter of 2009. The increase in operating income is principally related to reductions in manageable expenses due to the Company’s continuous improvement initiatives and higher year-over-year equity income contributions, principally from our Chinese joint venture. These increases were partially offset by under-absorption of fixed manufacturing costs in a lower volume environment as well as an increase in research and development efforts.

“Leading indicators such as power consumption and an increase in demand for small aftermarket parts would suggest that the fossil power generation business may have reached bottom over the last few quarters. While the confluence of multiple EPA regulation has created challenges for the electric utilities, we continue to experience customer interest related to planning for environmental equipment purchases and installation services. Additionally, there is a meaningful pipeline of projects that we are tracking in the market,” Bethards said.

Research and Development

During the fourth quarter, the Company incurred approximately $18.5 million of research and development (R&D) costs. In addition to the ongoing investment in R&D at our state-of-the-art environmental and fossil power research facility, the Company has ongoing research programs for small modular nuclear reactor technology and environmental equipment technology. For the full year 2010, total internal R&D expenses were $69.2 million, an increase of $15.9 million over the full year 2009.

Liquidity

The Company’s cash and investments position, net of debt, was $472.9 million at the end of the fourth quarter of 2010, an increase of $216.8 million from the end of the third quarter of 2010. During the quarter, the Company generated approximately $230.9 million of cash flow from operating activities. In addition to net cash, the Company maintains a $700 million revolving credit agreement with approximately $463.8 million of availability as of the end of the fourth quarter. The Company continues to maintain adequate liquidity to fund operations, which could include increased working capital requirements, internal growth, and R&D programs, as well as additional product and geographic expansion opportunities.

Basis of Presentation

B&W operates in two business segments: Power Generation Systems and Government Operations, and was a wholly owned subsidiary of McDermott International, Inc., a Panamanian corporation (“MII”), until July 30, 2010 when MII distributed 100% of our outstanding common stock to the MII shareholders. On and prior to July 30, 2010, our financial position, operating results and cash flows consisted of The Babcock & Wilcox Operations of McDermott International, Inc., which represented a combined reporting entity comprised of the assets and liabilities in managing and operating the Power Generation Systems and Government Operations segments of MII in addition to two captive insurance companies, which have been combined and contributed to B&W in conjunction with the spin-off of B&W by MII. Further information with regard to the basis of presentation of the financial information included here can be found in the Form 10-K on file with the SEC.

Conference Call to Discuss Fourth Quarter 2010 Results

Date: Wednesday, March, 2, 2011, at 8:30 a.m. ET Live Webcast: Investor Relations section of website at www.babcock.com

Forward-Looking Statements

B&W cautions that this release contains forward-looking statements, including, without limitation, statements relating to backlog, to the extent backlog may be viewed as an indicator of future revenues, and the expected timing of final EPA regulations and rules. These forward-looking statements are based on current management expectations and involve a number of risks and uncertainties, including, among other things, adverse changes in the industries in which we operate and our ability to execute on contracts in backlog. If one or more of these or other risks materialize, actual results may vary materially from those expected. For a more complete discussion of these and other risk factors, please see B&W’s filings with the Securities and Exchange Commission, including its annual report on Form 10-K for the year ended December 31, 2010. B&W cautions not to place undue reliance on these forward-looking statements, which speak only as of the date hereof, and undertakes no obligation to update or revise any forward-looking statement, except to the extent required by applicable law.

About B&W

The Babcock & Wilcox Company is a leader in clean energy technology and services, primarily for the nuclear, fossil and renewable power markets as well as a premier advanced technology and mission critical defense contractor. B&W has locations worldwide and employs approximately 12,000 people, in addition to approximately 10,000 joint venture employees. A company overview presentation, which will be presented at investor conferences and meetings throughout this quarter, is available on the Investor Relations section of our website. For additional information please visit our website at www.babcock.com .

TABLES TO FOLLOW

THE BABCOCK & WILCOX COMPANYCONSOLIDATED AND COMBINED BALANCE SHEETS
 
December 31,
2010   2009
(In thousands)
ASSETS
Current Assets:
Cash and cash equivalents $ 391,142 $ 469,468
Restricted cash and cash equivalents 12,267 15,305
Investments 234 14
Accounts receivable – trade, net 289,374 319,861
Accounts receivable – other 64,231 39,289
Contracts in progress 225,448 245,998
Inventories 100,932 98,644
Deferred income taxes 90,620 96,680
Other current assets     34,868     21,456
 
Total Current Assets     1,209,116     1,306,715
 
Property, Plant and Equipment 968,712 945,298
Less accumulated depreciation     550,400     515,237
 
Net Property, Plant and Equipment     418,312     430,061
 
Investments     74,863     73,540
 
Goodwill     269,424     262,866
 
Deferred Income Taxes     236,504     270,002
 
Investments in Unconsolidated Affiliates     100,811     68,327
 
Note Receivable from Affiliate     -     42,573
 
Other Assets     191,480     149,775
 

TOTAL
  $ 2,500,510   $ 2,603,859
 

THE BABCOCK & WILCOX COMPANYCONSOLIDATED AND COMBINED BALANCE SHEETS
   
December 31,
2010

2009
(In thousands)
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Notes payable and current maturities of long-term debt $ 4,790 $ 6,432
Accounts payable 185,240 178,350
Accounts payable to McDermott International, Inc. - 112,053
Accrued employee benefits 235,856 198,195
Accrued liabilities – other 71,242 74,700
Advance billings on contracts 369,644 537,448
Accrued warranty expense 109,588 115,055
Income taxes payable     5,467       12,943
 
Total Current Liabilities     981,827       1,235,176
 
Long-Term Debt     855       4,222
 
Accumulated Postretirement Benefit Obligation     84,100       105,484
 
Environmental Liabilities     40,889       47,795
 
Pension Liability     579,000       699,117
 
Notes Payable to Affiliate     -       320,568
 
Other Liabilities     100,314       70,791
 
Commitments and Contingencies
 
Stockholders’ Equity:

Common stock, par value $0.01 per share, authorized 325,000,000shares; issued 116,963,664 and 0 shares at December 31, 2010 andDecember 31, 2009, respectively
1,170 -

Preferred stock, par value $0.01 per share, authorized 75,000,000 shares;0 shares issued

-

-
Capital in excess of par value 1,067,414 -
Retained earnings 96,671 -

Treasury stock at cost, 101,649 and 0 shares at December 31, 2010 andDecember 31, 2009, respectively
(2,397 ) -
Accumulated other comprehensive loss     (449,999 )     -
Stockholders’ Equity – The Babcock & Wilcox Company 712,859 -
Noncontrolling interest     666       -
Total Stockholders’ Equity     713,525       -
 
Total Parent Equity - 120,706
         

TOTAL
  $ 2,500,510     $ 2,603,859
 

THE BABCOCK & WILCOX COMPANY
CONSOLIDATED AND COMBINED STATEMENTS OF INCOME
(in thousands, except per share amounts)
         
THREE MONTHS ENDED TWELVE MONTHS ENDED
12/31/10 12/31/09 12/31/10 12/31/09
 
 
 
Revenues   $ 705,162     $ 688,513       $ 2,688,811     $ 2,854,632  
Costs and Expenses:
Cost of operations 543,955 557,171 2,093,201 2,235,377

(Gains) Losses on Asset Disposals and Impairments - net
(50 ) 606 38 1,226

Selling, general and administrative expenses
    112,405       114,115         405,682       403,559  
 
Total Cost and Expenses     656,310       671,892         2,498,921       2,640,162  
 
Equity in income of investees     25,642       20,950         74,082       55,094  
 
Operating Income     74,494       37,571         263,972       269,564  
Other Income (Expense):
Interest income 295 565 1,187 3,439
Interest expense (1,610 ) (6,732 ) (12,939 ) (24,590 )
Other-net     (2,914 )     (3,401 )       (16,400 )     (16,112 )
 
Total Other Income (Expense)     (4,229 )     (9,568 )       (28,152 )     (37,263 )
 

Income from Continuing Operations before Provision for Income Taxes
70,265 28,003 235,820 232,301
 
Provision for Income Taxes     17,231       8,400         82,294       84,381  
 
Net Income 53,034 19,603 153,526 147,920
 
Less: Noncontrolling Interests     (142 )     (25 )       (264 )     (156 )
 
Net Income Attributable to B&W   $ 52,892     $ 19,578       $ 153,262     $ 147,764  
 
 
Earnings Per Share:
Basic
Net Income Attributable to B&W $ 0.45 $ 0.17 $ 1.32 $ 1.27
Diluted:
Net Income Attributable to B&W   $ 0.45  

 
$ 0.17       $ 1.30     $ 1.26  
 
Weighted Average Shares
Basic 116,615,156 116,067,535 116,260,425 116,067,535
Diluted     118,008,894       117,423,807         117,626,065       117,423,807  
 

THE BABCOCK & WILCOX COMPANYCONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
 
Year Ended December 31,
2010   2009   2008
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 153,526 $ 147,920 $ 323,854
Non-cash items included in net income:
Depreciation and amortization 71,633 72,712 45,985
Income of investees, net of dividends (20,449 ) (4,450 ) (2,117 )
(Gains) losses on asset disposals and impairments – net 38 1,226 (9,603 )
Provision for deferred taxes 33,457 29,535 23,730
Amortization of pension and postretirement costs 79,935 86,637 33,735
Excess tax benefits from stock-based compensation (5,276 ) 1,813 (13,381 )
Changes in assets and liabilities, net of effects from acquisitions:
Accounts receivable 101,260 71,316 (12,901 )
Income taxes receivable (18,738 ) 11,619 43,024
Accounts payable 19,882 (40,555 ) (4,076 )
Net contracts in progress and advance billings (153,933 ) (63,879 ) (234,648 )
Income taxes 9,239 10,740 25,808
Accrued and other current liabilities (9,761 ) (52,556 ) 22,503
Pension liability and accrued postretirement and employee benefits (85,371 ) (378 ) (154,743 )
Other     16,964       (18,877 )     (27,082 )
NET CASH PROVIDED BY OPERATING ACTIVITIES     192,406       252,823       60,088  
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) decrease in restricted cash and cash equivalents 3,038 (8,189 ) (2,000 )
Purchases of property, plant and equipment (63,649 ) (93,725 ) (63,014 )
Acquisition of businesses, net of cash acquired (29,962 ) (8,497 ) (190,878 )
Net (increase) decrease in available-for-sale securities - 45,230 (59,200 )
Purchases of available-for-sale securities (135,135 ) - -
Sales and maturities of available-for-sale securities 134,276 - -
Proceeds from asset disposals 753 245 9,978
Investments in unconsolidated affiliates (42,912 ) (2,700 ) -
Decrease in note receivable from affiliate 43,277 - -
Other     -       1       551  
NET CASH USED IN INVESTING ACTIVITIES     (90,314 )     (67,635 )     (304,563 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of short-term borrowings and long-term debt (29,914 ) (6,155 ) (4,768 )
Payment of debt issuance costs (9,994 ) - -
Increase in short-term borrowing 25,000 - 1,460
Dividend paid to McDermott International, Inc. (100,000 ) - -
Capital contribution from McDermott International, Inc. 12,501 - -
Distribution to McDermott International, Inc. (43,334 ) - -
(Decrease) Increase in notes payable to affiliates (43,386 ) 2,368 49,950
Excess tax benefits from stock-based compensation 5,276 (1,813 ) 13,381
Other     118       -       (1 )
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES     (183,733 )     (5,600 )     60,022  
EFFECTS OF EXCHANGE RATE CHANGES ON CASH     3,315       10,234       (9,867 )
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS     (78,326 )     189,822       (194,320 )
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD     469,468       279,646       473,966  
CASH AND CASH EQUIVALENTS AT END OF PERIOD   $ 391,142     $ 469,468     $ 279,646  
 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid (received) during the period for:
Interest (net of amount capitalized) $ 3,746 $ 24,728 $ 27,520
Income taxes (net of refunds)   $ 27,227     $ (29,663 )   $ 12,256  
 

The Babcock & Wilcox Company
Business Segment Information
For the Periods Ended December 31, 2010 and 2009
(In thousands of U.S. dollars)
         
THREE MONTHS ENDED TWELVE MONTHS ENDED

REVENUES:
12/31/10 12/31/09 12/31/10 12/31/09
 
Power Generation Systems $ 408,557 $ 435,238 $ 1,609,684 $ 1,824,450
Government Operations 298,089 253,769 1,083,605 1,032,023
Adjustments and Eliminations     (1,484 )     (494 )     (4,478 )     (1,841 )
 
  TOTAL     $ 705,162     $ 688,513     $ 2,688,811     $ 2,854,632  
 

SEGMENT INCOME:
 
Power Generation Systems $ 31,193 $ 21,670 $ 100,719 $ 157,869
Government Operations     48,340       31,519       182,914       154,542  
79,533 53,189 283,633 312,411
Corporate     (5,039 )     (15,618 )     (19,661 )     (42,847 )
  OPERATING INCOME   $ 74,494     $ 37,571     $ 263,972     $ 269,564  
 

EQUITY IN INCOME (LOSS) OF INVESTEES:
 
Power Generation Systems $ 11,665 $ 6,334 $ 30,788 $ 14,043
Government Operations     13,977       14,616       43,294       41,051  
 
  TOTAL     $ 25,642     $ 20,950     $ 74,082     $ 55,094  
 

PENSION EXPENSE:
 
Power Generation Systems $ 16,442 $ 16,179 $ 65,595 $ 63,597
Government Operations 12,175 12,553 49,685 50,217
Corporate     25       4,871       8,940       19,053  
 
  TOTAL     $ 28,642     $ 33,603     $ 124,220     $ 132,867  
 

DEPRECIATION AND AMORTIZATION:
 
Power Generation Systems $ 6,825 $ 4,461 $ 23,552 $ 17,859
Government Operations 8,553 13,171 40,912 51,588
Corporate     3,255       890       7,169       3,265  
 
  TOTAL     $ 18,633     $ 18,522     $ 71,633     $ 72,712  
 
RESEARCH AND DEVELOPMENT, NET   $ 18,458     $ 20,126     $ 69,167     $ 53,246  
 

CAPITAL EXPENDITURES:
 
Power Generation Systems $ 6,621 $ 6,947 $ 18,107 $ 32,148
Government Operations 1,184 19,355 26,622 45,062
Corporate     7,061       768       18,920       16,515  
 
  TOTAL     $ 14,866     $ 27,070     $ 63,649     $ 93,725  
 

BACKLOG:
 
Power Generation Systems $ 2,049,357 $ 1,973,615 $ 2,049,357 $ 1,973,615
Government Operations     3,152,535       2,766,445       3,152,535       2,766,445  
 
  TOTAL

 
  $ 5,201,892     $ 4,740,060     $ 5,201,892     $ 4,740,060  
 

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