The Babcock & Wilcox Company (NYSE: BWC) (“B&W” or the “Company”) today reported third quarter 2011 revenues of $707.6 million, an increase of $74.8 million, or 11.8%, from the third quarter of 2010. Earnings per share for the third quarter of 2011 were $0.39. Included in earnings per share for the third quarter of 2011 are the impact of accounting for non-cash, non-deductible in-kind research and development costs received by Generation mPower LLC (GmP), discussed below, and the finalization of a Nuclear Energy segment loss contract. Before the impact of these items, earnings per share for the third quarter ended September 30, 2011 were $0.44, an increase of 41.9% from the $0.31 reported in the third quarter of 2010.

Recent Highlights
  • Awarded $205 Million Renewable Energy Power Plant EPC and O&M Contracts
  • Awarded $115 Million Naval Nuclear Fuel and Support Contract (Q4)
  • Awarded Contract to Supply Modular Boilers to Kearl Oil Sands Project
  • Awarded Fleet-wide Nuclear Maintenance and Project Support Contract for a Large Mid-Atlantic Utility
  • Awarded $40 Million Nuclear Reactor Maintenance Contract for Bruce Power
  • Awarded $37 Million Environmental Construction Contract at Consumers Energy
  • Awarded Preliminary Design Contract for Ohio Class Replacement Nuclear Propulsion System Components (Q4)
  • Dedicated Small Modular Reactor Integrated System Test Facility

Results of Operations

Consolidated revenues for the third quarter of 2011 were $707.6 million, an increase of $74.8 million, or 11.8%, from the third quarter of 2010. For the third quarter in a row, this increase was across all business segments. Nuclear Energy segment revenues increased $26.8 million, or 77.2%, primarily due to incremental replacement steam generator component manufacturing and nuclear services and projects. Nuclear Operations segment revenues increased $10.8 million, or 4.4%, primarily as a result of higher sales of naval nuclear fuel. Power Generation segment revenues increased $49.2 million, or 14.6%, primarily due to increased activity in waste-to-energy and biomass new-build steam generation systems and aftermarket services. Technical Services segment revenues increased $6.5 million, or 29.4%, principally due to initiating environmental remediation, decontamination and decommissioning contracts, primarily for the Department of Energy (DOE), awarded over the last 12 months.

Operating income for the third quarter of 2011 was $57.6 million compared to $65.1 million in the third quarter of 2010. Included in the third quarter 2011 operating income was approximately $10.6 million related to the accounting for non-cash, non-deductible in-kind research and development costs received by GmP and $3.1 million related to the finalization of a Nuclear Energy segment loss contract. Without the impact of these items, operating income was $71.3 million, an increase of $6.2 million from the third quarter of 2010. The increase in operating income before these items was primarily due to improvements in revenues and operating income in the Power Generation and Technical Services segments, partially offset by lower operating income in the Nuclear Operations segment and an increase in research and development expenses related to the Company’s modular reactor program.

“Recently, several of the Company’s growth initiatives have taken important steps forward,” said Brandon C. Bethards, President and Chief Executive Officer of B&W. “First, bidding activity for environmental equipment and projects is strong with the early bidding activity beginning to move through the awards stage. We have been awarded a number of environmental projects recently, some of which we have announced publicly, and others are in the late stages of negotiations. Secondly, we were awarded a contract to design certain components of the nuclear propulsion system of the next class of ballistic missile submarine, or the Ohio Class replacement submarine program. This contract is the first in a series that we expect to receive under the current program schedule. Under this schedule, we expect to begin ordering long-lead materials at the end of 2012 and begin component manufacturing in 2014. Lastly, we continue to work with TVA to assist in the construction permit application preparation for submission to the U.S. Nuclear Regulatory Commission (NRC) in 2013. The B&W mPower TM small modular reactor program continues to move forward towards a goal to complete a power generation facility based on B&W mPower TM technology by 2020.”

Accounting for In-Kind R&D Received by Generation mPower, LLC

During the third quarter, the Company recognized $10.6 million of additional research and development costs related to the consolidation of GmP, our majority-owned subsidiary overseeing the program to develop and market the small modular nuclear power plant based on B&W mPower TM technology. The additional costs represent non-cash, non-deductible expenses related to the value of the in-kind research and development services contributed to GmP by its minority partner. For any period, the impact to net income of these in-kind services will depend on the value of the services performed by a minority partner relative to a minority partner’s proportional share of development costs. In this period, the value of in-kind services exceeded the amount of research and development costs allocated to a minority partner. As a result, our net income, after taking into account the non-controlling interest, was negatively impacted in the quarter by $4.7 million. The Company expects to recognize a positive impact to net income in future periods when the value of the in-kind services received is less than the minority partner’s proportional share of development costs for the period. Over the course of the program, the Company expects the cumulative net income impact related to the accounting for these in-kind services will be $0. Based on GmP’s current research and development program, we expect the recognition of this non-cash item will not impact net income by more than $9 million in any future annual periods.

Liquidity

The Company’s cash and investments position, net of debt, was $357.1 million at the end of the third quarter of 2011 compared to $368.7 million at the end of the second quarter of 2011. During the third quarter, the Company contributed $94.5 million to its pension plans. In addition to net cash, the Company maintains a $700.0 million revolving credit agreement with approximately $478.6 million of availability as of the end of the third quarter. The Company believes it maintains 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*)
 
  Q3 2011   Q3 2010   YTD 2011   YTD 2010

GAAP operating income

$57.6

$65.1

$142.7

$189.5

NFS acquisition settlement

-

-

(10.9

)

-

NFS material processing loss contracts

-

-

11.1

-

Nuclear Energy loss contract

3.1

-

50.7

-

GmP in-kind R&D

10.6

-

10.6
 

-
 

Non-GAAP operating income

$71.3

$65.1

$204.2
 

$189.5
 

GAAP earnings per share

$0.39

$0.31

$0.89

$0.85

NFS acquisition settlement

-

-

(0.06

)

-

NFS material processing loss contracts

-

-

0.06

-

Nuclear Energy loss contract

0.02

-

0.26

-

GmP in-kind R&D

0.04

-

0.04
 

-
 

Non-GAAP earnings per share

$0.44

$0.31

$1.19
 

$0.85

* 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 Third Quarter 2011 Results
 

Date:
  Tuesday, November 8, 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 our expectation as to future Ohio Class replacement program contract awards and activities, our plans for a submission of a construction permit to the NRC in 2013 and power generation facility based on B&W mPower TM by 2020 and the expected impact that the value of in-kind services will have on our net income in future periods. 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 demand or competitiveness of nuclear power, government funding for the defense or energy programs in which we are involved and the relationship with our minority partner in GmP. If one or more of these risks 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 COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
 
ASSETS
 
  September 30,   December 31,
2011 2010
(Unaudited)
(In thousands)
 
Current Assets:
Cash and cash equivalents $ 261,583 $ 391,142
Restricted cash and cash equivalents 44,719 12,267
Investments 39,774 234
Accounts receivable – trade, net 345,013 289,374
Accounts receivable – other 71,904 64,231
Contracts in progress 294,677 225,448
Inventories 108,271 100,932
Deferred income taxes 109,190 90,620
Other current assets     54,325     34,868
 
Total Current Assets     1,329,456     1,209,116
 
Property, Plant and Equipment 994,625 968,712
Less accumulated depreciation     586,404     550,400
 
Net Property, Plant and Equipment     408,221     418,312
 
Investments     16,325     74,863
 
Goodwill     269,892     269,424
 
Deferred Income Taxes     169,492     236,504
 
Investments in Unconsolidated Affiliates     166,443     100,811
 
Other Assets     185,388     191,480
 
TOTAL   $ 2,545,217   $ 2,500,510
 

 
THE BABCOCK & WILCOX COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
  September 30,   December 31,
2011 2010
(Unaudited)
(In thousands)
 
Current Liabilities:
Notes payable and current maturities of long-term debt $ 4,631 $ 4,790
Accounts payable 213,462 185,240
Accrued employee benefits 235,063 235,856
Accrued liabilities – other 67,646 71,242
Advance billings on contracts 410,144 369,644
Accrued warranty expense 94,541 109,588
Income taxes payable     3,212       5,467  
 
Total Current Liabilities     1,028,699       981,827  
 
Long-Term Debt     708       855  
 
Accumulated Postretirement Benefit Obligation     78,848       84,100  
 
Environmental Liabilities     45,953       40,889  
 
Pension Liability     414,776       579,000  
 
Other Liabilities     91,194       100,314  
 
 
 
Stockholders’ Equity:        

Common stock, par value $0.01 per share, authorized 325,000,000 shares; issued 118,196,600 and 116,963,664 shares at September 30, 2011 and December 31, 2010, respectively
1,182 1,170

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

-

-
Capital in excess of par value 1,098,195 1,067,414
Retained earnings 202,053 96,671
Treasury stock at cost, 317,456 and 101,649 shares at September 30, 2011 and December 31, 2010, respectively (9,367 ) (2,397 )
Accumulated other comprehensive loss     (412,562 )     (449,999 )
Stockholders’ Equity – The Babcock & Wilcox Company 879,501 712,859
Noncontrolling interest     5,538       666  
Total Stockholders’ Equity     885,039       713,525  
 
TOTAL   $ 2,545,217     $ 2,500,510  
 

 
THE BABCOCK & WILCOX COMPANY
CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF INCOME
 
  Three Months Ended   Nine Months Ended
September 30, September 30,
2011   2010 2011   2010
(Unaudited)
(In thousands, except share and per share amounts)
 
Revenues   $ 707,622     $ 632,765     $ 2,151,251     $ 1,983,649  
 
Costs and Expenses:
Cost of operations 535,662 468,502 1,688,209 1,498,537
Research and development costs 34,642 17,424 74,518 50,709
Losses on asset disposals and impairments – net 547 40 626 88
Selling, general and administrative expenses     102,002       98,708       301,713       293,277  
Total Costs and Expenses     672,853       584,674       2,065,066       1,842,611  
 
Equity in Income of Investees     22,782       16,986       56,524       48,440  
 
Operating Income     57,551       65,077       142,709       189,478  
 
Other Income (Expense):
Interest income 247 182 1,011 892
Interest expense (770 ) (660 ) (2,522 ) (11,329 )
Other – net     2,708       (6,451 )     4,139       (13,486 )
Total Other Income (Expense)     2,185       (6,929 )     2,628       (23,923 )
 
Income before Provision for Income Taxes 59,736 58,148 145,337 165,555
 
Provision for Income Taxes     19,831       22,224       45,424       65,063  
 
Net Income     39,905       35,924       99,913       100,492  
 
Net Loss (Income) Attributable to Noncontrolling Interest     5,758       (37 )     5,469       (122 )
 
Net Income Attributable to The Babcock & Wilcox Company   $ 45,663     $ 35,887     $ 105,382     $ 100,370  
 
Earnings per Common Share:
Basic:

Net Income Attributable to The Babcock & Wilcox Company

$

0.39

$

0.31

$

0.90

$

0.86
Diluted:

Net Income Attributable to The Babcock & Wilcox Company
 

$

0.39
   

$

0.31
   

$

0.89
   

$

0.85
 
 

Shares used in the computation of earnings per share (Note 8):
Basic 117,773,223 116,291,477 117,414,702 116,142,182
Diluted     118,590,285       117,647,749       118,300,489       117,498,454  
 

 
THE BABCOCK & WILCOX COMPANY
CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
 
  Nine Months Ended
September 30,
2011   2010
(Unaudited)
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 99,913 $ 100,492
Non-cash items included in net income:
Depreciation and amortization 55,493 53,000
Income of investees, net of dividends (31,028 ) (27,104 )
Loss on asset disposals and impairments – net 626 88
Amortization of pension and postretirement costs 59,376 62,553
Excess tax benefits from stock-based compensation (4,169 ) (2,653 )
Other, net 3,871 (17,513 )
Changes in assets and liabilities, net of effects of acquisitions:
Accounts receivable (64,037 ) 48,832
Net contracts in progress and advance billings on contracts (27,155 ) (209,171 )
Accounts payable 33,614 2,502
Inventories (7,908 ) 5,543
Current and deferred income taxes 50,631 11,339
Accrued and other current liabilities (24,765 ) 34
Pension liability, accumulated postretirement benefit obligation and accrued employee benefits (169,381 ) (104,698 )
Other, net     (20,749 )     38,242  
NET CASH USED IN OPERATING ACTIVITIES     (45,668 )     (38,514 )
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) decrease in restricted cash and cash equivalents (32,452 ) 4,062
Purchases of property, plant and equipment (43,997 ) (48,783 )
Acquisition of businesses, net of cash acquired - (30,177 )
Purchases of available-for-sale securities (101,369 ) (112,253 )
Sales and maturities of available-for-sale securities 120,065 110,874
Decrease in note receivable from affiliate - 43,277
Investments, net of return, in equity and cost method investees (31,761 ) (37,844 )
Proceeds from asset disposals     562       1,016  
NET CASH USED IN INVESTING ACTIVITIES     (88,952 )     (69,828 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of short-term borrowing and long-term debt (1,693 ) (2,313 )
Increase in short-term borrowing 1,254 -
Payment of debt issuance costs (82 ) (9,865 )
Dividend paid to McDermott International, Inc. - (100,000 )
Capital contribution from McDermott International, Inc. - 12,501
Distribution to McDermott International, Inc. - (43,334 )
Increase in notes payable to affiliates - (43,386 )
Excess tax benefits from stock-based compensation 4,169 2,653
Exercise of stock options 4,332 211
Other, net     (305 )     (95 )
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES     7,675       (183,628 )
EFFECTS OF EXCHANGE RATE CHANGES ON CASH     (2,614 )     158  
NET DECREASE IN CASH AND CASH EQUIVALENTS (129,559 ) (291,812 )
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD     391,142       469,468  
CASH AND CASH EQUIVALENTS AT END OF PERIOD   $ 261,583     $ 177,656  
 

The Babcock & Wilcox Company
Business Segment Information
For the Periods Ended September 30, 2011 and 2010
(In thousands of U.S. dollars)
(Unaudited)
 
  THREE MONTHS ENDED   NINE MONTHS ENDED

9/30/11

9/30/10

9/30/11

9/30/10

REVENUES:
Power Generation $ 385,262 $ 336,107 $ 1,130,089 $ 1,061,371
Nuclear Operations 254,402 243,592 777,482 724,810
Technical Services 28,570 22,077 87,598 62,626
Nuclear Energy 61,531 34,715 220,670 148,427
Adjustments and Eliminations   (22,143 )   (3,726 )     (64,588 )   (13,585 )
 
  TOTAL   $ 707,622   $ 632,765     $ 2,151,251   $ 1,983,649  
 

SEGMENT INCOME:
Power Generation $ 38,926 $ 31,591 $ 93,657 $ 94,409
Nuclear Operations 38,113 43,869 127,852 109,049
Technical Services 20,747 9,833 47,355 33,149
Nuclear Energy     (37,521 )   (11,200 )     (108,341 )   (24,883 )
60,265 74,093 160,523 211,724
Corporate     (2,714 )   (9,016 )     (17,814 )   (22,246 )
  OPERATING INCOME $ 57,551   $ 65,077     $ 142,709   $ 189,478  
 

EQUITY IN INCOME (LOSS) OF INVESTEES:
Power Generation $ 7,872 $ 7,123 $ 19,912 $ 19,123
Nuclear Operations 0 0 0 0
Technical Services 14,910 9,863 36,612 29,317
Nuclear Energy     0     0       0     0  
 
  TOTAL   $ 22,782   $ 16,986     $ 56,524   $ 48,440  
 

PENSION EXPENSE:
Power Generation $ 13,742 $ 16,366 $ 45,809 $ 46,530
Nuclear Operations 8,252 11,566 26,144 31,015
Technical Services 584 741 1,851 1,960
Nuclear Energy 1,065 814 3,344 2,623
Corporate     1,727     1,353       5,151     13,450  
 
  TOTAL   $ 25,370   $ 30,840     $ 82,299   $ 95,578  
 

DEPRECIATION AND AMORTIZATION:
Power Generation $ 4,253 $ 5,350 $ 13,372 $ 12,985
Nuclear Operations 8,932 10,602 29,066 28,555
Technical Services 65 66 197 198
Nuclear Energy 1,449 1,237 3,953 3,742
Corporate     3,019     2,348       8,905     7,520  
 
  TOTAL   $ 17,718   $ 19,603     $ 55,493   $ 53,000  
 

RESEARCH AND DEVELOPMENT, NET:
Power Generation $ 5,638 $ 5,944 $ 14,418 $ 19,812
Nuclear Operations 22 6 56 24
Technical Services 0 1,674 646 1,838
Nuclear Energy     28,982     9,800       59,398     29,035  
 
  TOTAL   $ 34,642   $ 17,424     $ 74,518   $ 50,709  
 

CAPITAL EXPENDITURES:
Power Generation $ 2,581 $ 3,267 $ 10,615 $ 10,038
Nuclear Operations 6,017 8,493 21,767 17,230
Technical Services 0 0 0 0
Nuclear Energy 2,546 247 6,329 1,448
Corporate   $ 658   $ 5,090     $ 5,286   $ 20,067  
 
  TOTAL  

$
11,802  

$
17,097    

$
43,997  

$
48,783  
 

BACKLOG:
Power Generation $ 1,722,358 $ 1,547,184 $ 1,722,358 $ 1,547,184
Nuclear Operations 2,482,394 2,335,434 2,482,394 2,335,434
Technical Services 15,585 2,683 15,585 2,683
Nuclear Energy     428,042     474,132       428,042     474,132  
 
  TOTAL   $ 4,648,379   $ 4,359,433     $ 4,648,379   $ 4,359,433  

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