The Babcock & Wilcox Company (NYSE: BWC) (“B&W” or the “Company”) today reported revenues of $752.4 million, an increase of $63.9 million or 9.3% from the second quarter of 2010. Earnings per share for the second quarter of 2011 were $0.39. Included in earnings per share for the second quarter of 2011 is the impact of net unfavorable adjustments of approximately $0.08. Before the impact of these items, earnings per share for the second quarter ended June 30, 2011 were $0.47 compared to $0.41 in the second quarter of 2010.

Recent Highlights
  • Signed Letter of Intent with Tennessee Valley Authority for B&W mPower™ Reactor Project
  • Awarded $417 Million Waste Management Contract at Department of Energy (DOE) Facility
  • Awarded $333 Million West Valley Demonstration Project Cleanup Contract
  • Awarded $81 Million Design and Supply Contracts for Emissions Control Systems
  • Awarded $40 Million Nuclear Energy Maintenance Project
  • Expanded Commercial Nuclear Capabilities with N-Stamp Certification at Ohio Manufacturing Facility
  • Signed Memorandum of Understanding to Collaborate with Toshiba on Power Generation Opportunities
  • Cross-State Air Pollution Rule (CSAPR) Finalized by Environmental Protection Agency (EPA)
  • Environmental Engineering, Design and Construction Bidding Activity Accelerating

Results of Operations

Consolidated revenues for the second quarter of 2011 were $752.4 million, an increase of $63.9 million or 9.3% from the second quarter of 2010. This increase was across all business segments. Nuclear Energy segment revenues increased $36.2 million, or 62.7% primarily due to beginning a large replacement steam generator project during the second quarter. Revenues in the Nuclear Operations segment increased $25.7 million, or 10.4% primarily as a result of the continuing ramp-up in production of Virginia-class submarine components and higher nuclear fuel production. Power Generation segment revenues increased $19.3 million, or 5.2% primarily due to increased North American construction activity more than offsetting a continuing decline in new-build environmental and power generation systems. Technical Services segment revenues increased $9.8 million, or 46.9% in the second quarter of 2011 compared to the second quarter of 2010. This increase was due principally to the award of nearly $3.6 billion of environmental remediation, decontamination and decommissioning contracts, primarily for the DOE, over the last twelve months.

Operating income for the second quarter of 2011 was $63.3 million compared to $85.7 million in the second quarter of 2010. Included in the second quarter 2011 operating income was the impact of a favorable $10.9 million acquisition related settlement at Nuclear Fuel Services, Inc. (NFS) and a $26.0 million unfavorable adjustment to the estimated cost to complete on a certain Nuclear Energy project. Without the impact of these items, operating income was $78.4 million, a decrease of $7.3 million from the second quarter of 2010.

The decrease in operating income before items was primarily due to the reduction in the volume of new-build power generation and environmental projects as well as the close out of certain Power Generation segment projects in the second quarter of 2010, which had the effect of improving the operating results in that prior quarter. The decrease was partially offset by the improvement in performance and production at NFS, the increase in production of nuclear components for the submarine and aircraft carrier programs and fees earned from new management and operation awards.

Update on Loss Contracts

During the first quarter of 2011, the Company recorded a loss on material downblending contracts at NFS. The processing of the material that resulted in the majority of the first quarter charge has been completed. Additionally at NFS, the Company successfully negotiated a settlement related to the acquisition of NFS, resulting in an increase in operating income and cash during the second quarter of 2011 of approximately $10.9 million. Before the favorable impact of this item, NFS operated profitably on revenues of $48.8 million.

During the first quarter, the Company recorded a loss on a certain Nuclear Energy project. As this project shifted from the demolition phase to reconstruction late in the second quarter, the Company encountered a series of unexpected conditions resulting in further schedule extension and incremental estimated cost to complete. As of today, the remaining scope of work on this project is completion of the final structural welding, which has proceeded well. From an accounting perspective, second quarter operating results include an additional charge of $26.0 million representing the gross estimated incremental cost to complete as of the end of the second quarter of 2011. There have been no offsetting claims or equitable adjustments included in the results for the second quarter. Claims and equitable adjustments that are currently in process are significant in value and may be realized over time. “It is unfortunate that certain unknown and undisclosed conditions at this site required the Company to take extensive measures beyond the original scope of work to complete the project. The Company intends to recover all of the costs to which we are contractually entitled. Additionally, the Company has thoroughly reviewed its backlog and determined there are no other fixed-price nuclear projects,” said Brandon C. Bethards, President and Chief Executive Officer of B&W.

Update on EPA Regulation

On July 7, 2011, the EPA released its final rules for CSAPR, formerly referred to as the Clean Air Transport Rules (CATR), with a compliance period beginning January 1, 2012. Additionally, the comment period for the draft mercury and air toxics rules, or Utility Maximum Achievable Control Technology standards (Utility MACT) ended August 4, 2011. Under court order, the EPA has a deadline of November 16, 2011 to finalize the Utility MACT rules. From the Company’s perspective, EPA rules and regulations continue to move forward and are expected to result in a significant market for environmental compliance through engineering, procurement, and construction of equipment over the next several years. “With the drafting and passage of these regulations, we have seen the pace of customer inquiries and bidding activity intensifying as utilities plan for their capital requirements for compliance. We have recently announced two contracts for the design and supply of emissions control systems and we have been awarded several small environmental engineering and design contracts. We expect to continue to see projects awarded through the balance of the year and into 2012,” Bethards said.

Liquidity

The Company’s cash and investments position, net of debt, was $368.7 million at the end of the second quarter of 2011 compared to $375.3 million at the end of the first quarter of 2011. In addition to net cash, the Company maintains a $700 million revolving credit agreement with approximately $506.2 million of availability as of the end of the second 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.
               

Reconciliation of Non-GAAP Earnings Per Share and Operating Income

(in $ millions, except per share amounts*)
 
Q2 2011 Q2 2010 YTD 2011 YTD 2010
GAAP operating income $63.3 $85.7 $85.2 $124.4
NFS acquisition settlement (10.9 ) - (10.9 ) -
NFS material processing loss contracts - - 11.1 -
Nuclear Energy loss contract 26.0   - 47.6   -
 
Non-GAAP operating income $78.4   $85.7 $133.0   $124.4
 
Reported earnings per share $0.39 $0.41 $0.51 $0.55
NFS acquisition settlement (0.06 ) - (0.06 ) -
NFS material processing loss contracts - - 0.06 -
Nuclear Energy loss contract 0.13   - 0.25   -
 
Non-GAAP earnings per share $0.47   $0.41 $0.75   $0.55

*- per share amounts may not foot due to rounding

B&W is providing non-GAAP information regarding certain of its historical results to supplement the results provided in accordance with GAAP and it should not be considered superior to, or as a substitute for, the comparable GAAP measures. B&W believes the non-GAAP measures provide meaningful insight in the Company’s operational performance and provides these measures to investors to help facilitate comparisons of operating results with prior periods and to assist them in understanding B&W’s ongoing operations.

Conference Call to Discuss Second Quarter 2011 Results

Date:
  Tuesday, August 9, 2011, at 8:30 a.m. ET

Live Webcast:

Investor Relations section of website at www.babcock.com
 

The Babcock & Wilcox Company 2011 Analyst Day

Date:
  Thursday, September 15, 2011, at 9:30 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 our expectation as to further charges on our nuclear energy project, our intentions regarding seeking potential recovery of cost overruns on the nuclear energy project, our expectation that the EPA regulations may result in significant market opportunities, and our expectations regarding continued project awards into 2012 and the value of additional projects to come to market for the balance of 2011. 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, adjustments, delays and other difficulties executing on contracts in backlog, delays in finalizing the Utility MACT rules or difficulties implementing the CSAPR. 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, 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 and quarterly reports on Form 10-Q. 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 COMPANYCONDENSED CONSOLIDATED BALANCE SHEETSASSETS
  June 30,   December 31,
2011 2010
(Unaudited)
(In thousands)
 
Current Assets:
Cash and cash equivalents $ 258,371 $ 391,142
Restricted cash and cash equivalents 21,706 12,267
Investments 27,228 234
Accounts receivable – trade, net 353,796 289,374
Accounts receivable – other 75,500 64,231
Contracts in progress 273,713 225,448
Inventories 105,072 100,932
Deferred income taxes 97,175 90,620
Other current assets     77,339     34,868
 
Total Current Assets     1,289,900     1,209,116
 
Property, Plant and Equipment 996,737 968,712
Less accumulated depreciation     579,821     550,400
 
Net Property, Plant and Equipment     416,916     418,312
 
Investments     65,576     74,863
 
Goodwill     272,108     269,424
 
Deferred Income Taxes     195,988     236,504
 
Investments in Unconsolidated Affiliates     155,220     100,811
 
Other Assets     182,707     191,480
 
TOTAL   $ 2,578,415   $ 2,500,510
 

   

THE BABCOCK & WILCOX COMPANYCONDENSED CONSOLIDATED BALANCE SHEETSLIABILITIES AND STOCKHOLDERS’ EQUITY
June 30, December 31,
2011 2010
(Unaudited)
(In thousands)
 
Current Liabilities:
Notes payable and current maturities of long-term debt $ 3,376 $ 4,790
Accounts payable 199,432 185,240
Accrued employee benefits 245,798 235,856
Accrued liabilities – other 81,255 71,242
Advance billings on contracts 409,683 369,644
Accrued warranty expense 101,315 109,588
Income taxes payable     3,003       5,467  
 
Total Current Liabilities     1,043,862       981,827  
 
Long-Term Debt     810       855  
 
Accumulated Postretirement Benefit Obligation     83,562       84,100  
 
Environmental Liabilities     45,715       40,889  
 
Pension Liability     481,445       579,000  
 
Other Liabilities     91,256       100,314  
 
Commitments and Contingencies
 
Stockholders’ Equity:        

Common stock, par value $0.01 per share, authorized 325,000,000 shares; issued 117,981,315 and 116,963,664 shares at June 30, 2011 and December 31, 2010, respectively
1,180 1,170

Preferred stock, par value $0.01 per share, authorized 75,000,000 shares; No shares issued

-

-
Capital in excess of par value 1,091,485 1,067,414
Retained earnings 156,390 96,671

Treasury stock at cost, 272,895 and 101,649 shares at June 30, 2011 and December 31, 2010, respectively
(8,264 ) (2,397 )
Accumulated other comprehensive loss     (409,858 )     (449,999 )
Stockholders’ Equity – The Babcock & Wilcox Company 830,933 712,859
Noncontrolling interest     832       666  

Total Stockholders’ Equity
    831,765       713,525  
 
TOTAL   $ 2,578,415     $ 2,500,510  
 

   

THE BABCOCK & WILCOX COMPANY CONDENSED CONSOLIDATED AND COMBINED

STATEMENTS OF INCOME
 
Three Months Ended Six Months Ended
June 30, June 30,
2011   2010 2011   2010
(Unaudited)
(In thousands, except share and per share amounts)
 
Revenues   $ 752,352     $ 688,496     $ 1,443,629     $ 1,350,884  
 
Costs and Expenses:
Cost of operations 587,741 502,143 1,152,547 1,030,035
Research and development costs 22,568 16,226 39,876 33,285
Losses on asset disposals – net 89 61 79 48
Selling, general and administrative expenses     97,078       101,846       199,711       194,569  
Total Costs and Expenses     707,476       620,276       1,392,213       1,257,937  
 
Equity in Income of Investees     18,381       17,435       33,742       31,454  
 
Operating Income     63,257       85,655       85,158       124,401  
 
Other Income (Expense):
Interest income 305 261 764 710
Interest expense (1,297 ) (4,676 ) (1,752 ) (10,669 )
Other – net     4,425       (3,945 )     1,431       (7,035 )
Total Other Income (Expense)     3,433       (8,360 )     443       (16,994 )
 
Income before Provision for Income Taxes 66,690 77,295 85,601 107,407
 
Provision for Income Taxes     20,349       29,583       25,593       42,839  
 
Net Income     46,341       47,712       60,008       64,568  
 
Less: Net Income Attributable to Noncontrolling Interest     (132 )     (72 )     (289 )     (85 )
 
Net Income Attributable to The Babcock & Wilcox Company   $ 46,209     $ 47,640     $ 59,719     $ 64,483  
 
Earnings per Common Share:
Basic:

Net Income Attributable to The Babcock & Wilcox Company

$

0.39

$

0.41

$

0.51

$

0.56
Diluted:

Net Income Attributable to The Babcock & Wilcox Company
 

$

0.39
   

$

0.41
   

$

0.51
   

$

0.55
 
 
Shares used in the computation of earnings per share:
Basic 117,502,610 116,067,535 117,235,443 116,067,535
Diluted     118,353,937       117,423,807       118,155,592       117,423,807  

 

THE BABCOCK & WILCOX COMPANY

CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
 
Six Months Ended
June 30,
2011   2010
(Unaudited)
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 60,008 $ 64,568
Non-cash items included in net income:
Depreciation and amortization 37,775 33,397
Income of investees, net of dividends (16,689 ) (16,831 )
Loss on asset disposals – net 79 48
Amortization of pension and postretirement costs 41,021 42,866
Excess tax benefits from stock-based compensation (4,356 ) (2,295 )
Other, net 922 (13,405 )
Changes in assets and liabilities, net of effects of acquisitions:
Accounts receivable (72,281 ) (10,070 )
Net contracts in progress and advance billings on contracts (11,497 ) (141,405 )
Accounts payable 15,941 41,080
Inventories (2,908 ) 6,973
Current and deferred income taxes 36,605 (326 )
Accrued and other current liabilities 3,305 (280 )
Pension liability, accumulated postretirement benefit obligation and accrued employee benefits (90,249 ) (64,353 )
Prepaid expenses (42,305 ) (26,637 )
Other, net     (7,016 )     30,100  
NET CASH USED IN OPERATING ACTIVITIES     (51,645 )     (56,570 )
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in restricted cash and cash equivalents (9,439 ) (3,891 )
Purchases of property, plant and equipment (32,195 ) (31,686 )
Acquisition of businesses, net of cash acquired - (30,598 )
Purchases of available-for-sale securities (88,746 ) (123,052 )
Sales and maturities of available-for-sale securities 71,211 127,052
Decrease in note receivable from affiliate - 43,277
Investments in equity and cost method investees (35,467 ) 600
Proceeds from asset disposals     714       243  
NET CASH USED IN INVESTING ACTIVITIES     (93,922 )     (18,055 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of short-term borrowing and long-term debt (1,600 ) (1,729 )
Payment of debt issuance costs (82 ) (9,865 )
Dividend paid to McDermott International, Inc. - (100,000 )
Increase in notes payable to affiliates - (43,386 )
Excess tax benefits from stock-based compensation 4,356 2,295
Exercise of stock options 4,052 -
Distributions to noncontrolling interests     (170 )     (78 )
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES     6,556       (152,763 )
EFFECTS OF EXCHANGE RATE CHANGES ON CASH     6,240       (1,733 )
NET DECREASE IN CASH AND CASH EQUIVALENTS (132,771 ) (229,121 )
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD     391,142       469,468  
CASH AND CASH EQUIVALENTS AT END OF PERIOD   $ 258,371     $ 240,347  
 

 
The Babcock & Wilcox Company
Business Segment Information
For the Three and Six Month Periods Ended June 30, 2011 and 2010
(In thousands of U.S. dollars)
       
THREE MONTHS ENDED SIX MONTHS ENDED
6/30/11 6/30/10   6/30/11 6/30/10

REVENUES:
Power Generation Systems $ 388,643 $ 369,320 $ 744,827 $ 725,264
Nuclear Operations 272,625 246,923 523,080 481,218
Technical Services 30,668 20,920 59,028 40,549
Nuclear Energy 93,877 57,747 159,139 113,712
Adjustments and Eliminations     (33,461 )     (6,414 )     (42,445 )     (9,859 )
 
  TOTAL   $ 752,352     $ 688,496     $ 1,443,629     $ 1,350,884  
 

SEGMENT INCOME:
Power Generation Systems $ 28,098 $ 42,115 $ 54,731 $ 62,818
Nuclear Operations 59,289 40,680 89,739 65,180
Technical Services 14,466 12,604 26,608 23,316
Nuclear Energy     (33,342 )     (2,281 )     (70,820 )     (13,683 )
68,511 93,118 100,258 137,631
Corporate   (5,254 )     (7,463 )     (15,100 )     (13,230 )
  OPERATING INCOME   $ 63,257     $ 85,655     $ 85,158     $ 124,401  
 

EQUITY IN INCOME (LOSS) OF INVESTEES:
Power Generation Systems $ 6,030 $ 7,459 $ 12,040 $ 12,000
Nuclear Operations 0 0 0 0
Technical Services 12,351 9,976 21,702 19,454
Nuclear Energy     0       0       0       0  
 
  TOTAL   $ 18,381     $ 17,435     $ 33,742     $ 31,454  
 

PENSION EXPENSE:
Power Generation Systems $ 16,139 $ 15,072 $ 32,067 $ 30,164
Nuclear Operations 8,946 9,724 17,892 19,449
Technical Services 633 609 1,267 1,219
Nuclear Energy 1,098 889 2,279 1,809
Corporate     1,744       6,049       3,424       12,097  
 
  TOTAL   $ 28,560     $ 32,343     $ 56,929     $ 64,738  
 

DEPRECIATION AND AMORTIZATION:
Power Generation Systems $ 4,399 $ 3,847 $ 9,119 $ 7,635
Nuclear Operations 9,743 8,851 20,134 17,953
Technical Services 66 66 132 132
Nuclear Energy 1,323 1,243 2,504 2,505
Corporate     2,929       2,578       5,886       5,172  
 
  TOTAL   $ 18,460     $ 16,585     $ 37,775     $ 33,397  
 

RESEARCH AND DEVELOPMENT, NET:
Power Generation Systems $ 5,786 $ 6,228 $ 8,780 $ 13,868
Nuclear Operations 23 14 34 18
Technical Services 646 108 646 164
Nuclear Energy     16,113       9,876       30,416       19,235  
 
  TOTAL   $ 22,568     $ 16,226     $ 39,876     $ 33,285  
 

CAPITAL EXPENDITURES:
Power Generation Systems $ 3,895 $ 3,854 $ 8,034 $ 6,771
Nuclear Operations 3,984 838 15,750 8,737
Technical Services 0 0 0 0
Nuclear Energy 1,320 1,084 3,783 1,201
Corporate     2,243       7,147       4,628       14,977  
 
  TOTAL   $ 11,442     $ 12,923     $ 32,195     $ 31,686  
 

BACKLOG:
Power Generation Systems $ 1,455,575 $ 1,487,148 $ 1,455,575 $ 1,487,148
Nuclear Operations 2,693,961 2,546,287 2,693,961 2,546,287
Technical Services 12,820 7,565 12,820 7,565
Nuclear Energy     467,896       328,982       467,896       328,982  
 
  TOTAL   $ 4,630,252     $ 4,369,982     $ 4,630,252     $ 4,369,982  

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