Babcock & Wilcox Announces Second Quarter 2013 Results

The Babcock & Wilcox Company (NYSE: BWC) (“B&W” or the “Company”) today reported second quarter 2013 revenues of $886.1 million, an increase of $33.5 million, or 3.9%, from the second quarter of 2012. GAAP earnings per share for the second quarter of 2013 were $0.65 compared to $0.65 in the second quarter of 2012. Adjusted earnings per share for the second quarter of 2013, which excludes the impact of $12.2 million of restructuring charges, were $0.72, an increase of $0.07, or 10.8%, versus the second quarter of 2012.

During the second quarter of 2013, the Company repurchased 2.5 million shares of its common stock at a cost of $68.8 million. Through June 30, 2013, the Company has repurchased a total of 8.5 million shares at a cost of $222.4 leaving approximately $277.6 million of capacity remaining under its previously announced $500 million share repurchase authorization.

Recent Highlights
  • Announced $366 Million Contract for Naval Reactors Materials Procurement
  • Awarded Contract for 2nd Virginia Class Submarine in 2013
  • Awarded $154 Million Contract for an Environmental Systems Project for a Western U.S. Utility
  • Project Joint Venture Awarded $110 Million Contract to Replace Equipment at Iowa Power Plant
  • Awarded $40 Million Contract for Denmark Waste-to-Energy Plant

Results of Operations

Consolidated revenues for the second quarter of 2013 were $886.1 million, an increase of $33.5 million, or 3.9%, from the second quarter of 2012. Revenues in the Nuclear Operations segment increased by $65.6 million compared to the prior year period, primarily driven by the timing of activity in the manufacturing of nuclear components for US government programs. Second quarter 2013 revenues of the Power Generation segment decreased by $25.8 million versus the same period in 2012, largely as a result of revised percentage-of-completion estimates for a project on which we recognized contract losses during the quarter. Bookings for the 2013 second quarter totaled $766.2 million, an increase of 25.4% compared to $610.8 million booked in the prior year period.

Operating income for the second quarter of 2013 was $98.7 million, a decrease of $11.4 million from the second quarter of 2012. Compared to the prior year, the mPower and Nuclear Operations segments reported increases in operating income of $31.6 million and $10.3 million, respectively, which were offset by decreases in the operating income of the Power Generation, Nuclear Energy and Technical Services segments of $27.6 million, $12.4 million and $3.7 million, respectively. The mPower segment improvement was attributable to the recognition of the cost-sharing award from the Department of Energy (DOE) under the Cooperative Agreement. The decrease in the Power Generation segment operating income was driven by the recognition of $30.2 million of additional contract losses related to revised estimated costs to complete a biomass boiler project largely due to unforeseen worksite conditions, for which losses previously were recorded in the fourth quarter of 2012. The decrease in operating income of the Nuclear Energy segment was primarily attributable to an $18.1 million gain from a contract settlement agreement recognized in the prior year quarter.

Included in operating income for the second quarter 2013 were $12.2 million of special charges for restructuring activities related to our Global Competitiveness Initiative (GCI). Excluding the restructuring charges, adjusted operating income for the second quarter of 2013 was $110.9 million, an increase of $0.8 million compared to the same period in 2012.

“Overall, B&W’s second quarter results reflect solid performances across our business units, highlighted by improved bookings and revenue, as well as the benefit of the DOE grant,” said E. James Ferland, President and Chief Executive Officer of B&W. “What would have been an exceptionally strong quarter for operating income and margin was impacted by the recognition of significant losses on a single project. Claims against the customer are substantial in value and any recovery of these additional losses will be realized in future periods.”

“In addition, we have made outstanding progress on our GCI initiatives and now believe this program will exceed our initial expectations of $40 million to $50 million in total annual cost savings as we continue to identify opportunities to streamline operations and reduce overhead expenses,” Ferland concluded.

Quarterly Dividend

On August 6, 2013, the Company declared a quarterly cash dividend of $0.08 per common share. The dividend will be payable on September 10, 2013 to shareholders of record on August 20, 2013.

Liquidity

The Company’s cash and investments position, net of debt, was $358.7 million at the end of the second quarter of 2013, a decrease of $56.2 million compared to $414.9 million at the end of the first quarter of 2013. During the quarter, the Company repurchased common shares totaling $68.8 million, contributed $15.0 million to its pension plans and paid dividends of $9.0 million. In addition to net cash, the Company maintains a $700.0 million revolving credit agreement with $552.2 million of availability as of the end of the second quarter.

Outlook for the Remainder of 2013

The Company now expects 2013 consolidated revenues to be between $3.4 billion and $3.5 billion. The Company reaffirms its expectation that adjusted earnings per share for the full year 2013 will be between $2.25 and $2.45. Adjusted earnings per share exclude GCI restructuring charges and the year-end mark-to-market adjustment for pension and post-retirement benefits.
   

Reconciliation of Non-GAAP Earnings Per Share and Operating Income

(in $ millions, except per share amounts)
 
Three Months Ended June 30, 2013 Six Months Ended June 30, 2013
GAAP   GCI Impact   Non-GAAP GAAP   GCI Impact   Non-GAAP
Operating Income $ 98.7   $ 12.2   $ 110.9 $ 158.9   $ 20.7   $ 179.6
Other Income / (Expense) 0.5 - 0.5 1.5 - 1.5
Provision for Income Taxes     (29.5 )     (4.1 )     (33.6 )   (45.8 )     (7.0 )     (52.8 )
Net Income 69.7 8.1 77.8 114.6 13.7 128.3
Net Loss (Income) Attributable to Non-Controlling Interest     3.2       -       3.2     5.5       -       5.5  
Net Income Attributable to The Babcock & Wilcox Company   $ 72.9     $ 8.1     $ 81.0   $ 120.0     $ 13.7     $ 133.7  
 
Diluted Earnings per Common Share $ 0.65 $ 0.07 $ 0.72 $ 1.06 $ 0.12 $ 1.18
Effective Tax Rate 29.8 % 34.0 %   30.2 %   28.6 %     34.0 %     29.2 %
 
   
Three Months Ended June 30, 2012 Six Months Ended June 30, 2012
GAAP   GCI Impact   Non-GAAP GAAP   GCI Impact   Non-GAAP

Operating Income

$

110.1
 

$

-
 

$ 110.1

$

196.5
 

$

-
 

$

196.5

Other Income / (Expense)

3.7

-

3.7

2.3
-

2.3

Provision for Income Taxes
   

(39.5

)
   

-
 

(39.5

)
 

(67.4

)
   

-
   

(67.4

)

Net Income

74.3

-

74.3

131.4

-

131.4

Net Loss (Income) Attributable to Non-Controlling Interest
   

2.9
     

-
 

2.9
   

5.8
     

-
   

5.8
 

Net Income Attributable to The Babcock & Wilcox Company
 

$

77.2
   

$

-
 

$ 77.2
 

$

137.2
   

$

-
 

$

137.2
 
 

Diluted Earnings per Common Share

$

0.65

$

-

$ 0.65

$

1.15

$

-

$

1.15

Effective Tax Rate

34.7

%

34.7

%
 

33.9

%
       

33.9

%
 

B&W is providing non-GAAP information regarding certain of its historical results and guidance on future earnings per share to supplement the financial information 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 2013 Results

Date: Thursday, August 8, 2013, at 8:30 a.m. ET

Live Webcast: Investor Relations section of website at www.babcock.com

Forward-Looking Statements

The Company cautions that this release contains forward-looking statements, including, without limitation, statements relating to our quarterly dividend; expected revenues and adjusted earnings per share for full-year 2013; our expectations with respect to the savings and benefits associated with our Global Competitiveness Initiative; and claims for project losses, to the extent such claims may be viewed as an indicator of future earnings. These forward-looking statements are based on management’s current expectations and involve a number of risks and uncertainties, including, among other things, adverse changes in our liquidity position or the industries in which we operate, our inability to execute on contracts in backlog, delays or other difficulties implementing our Global Competitiveness Initiative and our inability to obtain recovery on our project claims. If one or more of these risks or other risks materialize, actual results may vary materially from those expressed. 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, 2012 and subsequent 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 of this release, 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 10,400 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
 
June 30, December 31,
2013 2012
(Unaudited)
(In thousands)
 
 
Current Assets:
Cash and cash equivalents $ 242,205 $ 383,547
Restricted cash and cash equivalents 48,281 60,961
Investments 69,118 88,769
Accounts receivable – trade, net 407,323 364,960
Accounts receivable – other 61,772 61,682
Contracts in progress 344,938 316,518
Inventories 111,583 124,218
Deferred income taxes 81,826 78,573
Other current assets     50,056     41,858
 
Total Current Assets     1,417,102     1,521,086
 
Property, Plant and Equipment 1,114,500 1,099,040
Less accumulated depreciation     670,923     652,019
 
Net Property, Plant and Equipment     443,577     447,021
 
Investments     4,196     4,090
 
Goodwill     280,239     280,780
 
Deferred Income Taxes     209,803     227,215
 
Investments in Unconsolidated Affiliates     201,121     186,354
 
Intangible Assets     85,441     87,686
 
Other Assets     83,830     86,123
 
TOTAL   $ 2,725,309   $ 2,840,355
 

   
THE BABCOCK & WILCOX COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
June 30, December 31,
2013 2012
(Unaudited)
(In thousands, except share and per share amounts)
 
 
Current Liabilities:
Notes payable and current maturities of long-term debt $ 4,764 $ 4,062
Accounts payable 265,391 264,798
Accrued employee benefits 172,809 186,495
Accrued liabilities – other 77,196 57,991
Advance billings on contracts 419,013 472,287
Accrued warranty expense 74,487 83,682
Income taxes payable     963       9,973  
 
Total Current Liabilities     1,014,623       1,079,288  
 
Long-Term Debt     319       430  
 
Accumulated Postretirement Benefit Obligation     67,491       71,208  
 
Environmental Liabilities     47,536       46,497  
 
Pension Liability     548,631       579,165  
 
Other Liabilities     59,358       60,851  
 
Commitments and Contingencies
 
Stockholders’ Equity:        
Common stock, par value $0.01 per share, authorized 325,000,000 shares;
issued 120,160,512 and 119,608,026 shares at June 30, 2013 and
December 31, 2012, respectively 1,202 1,196
Preferred stock, par value $0.01 per share, authorized 75,000,000 shares;
No shares issued - -
Capital in excess of par value 730,733 713,257
Retained earnings 450,960 349,063
Treasury stock at cost, 9,075,764 and 4,372,143 shares at June 30, 2013
and December 31, 2012, respectively (237,582 ) (109,809 )
Accumulated other comprehensive income     23,985       32,728  
Stockholders’ Equity – The Babcock & Wilcox Company 969,298 986,435
Noncontrolling interest     18,053       16,481  
Total Stockholders’Equity     987,351       1,002,916  
 
TOTAL   $ 2,725,309     $ 2,840,355  
 

   
THE BABCOCK & WILCOX COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 
Three Months Ended Six Months Ended
June 30, June 30,
2013   2012 2013   2012
(Unaudited)
(In thousands, except share and per share amounts)
 
Revenues   $ 886,136     $ 852,585     $ 1,691,559     $ 1,618,477  
 
Costs and Expenses:
Cost of operations 686,043 619,547 1,305,740 1,183,435
Research and development costs 837 34,150 29,183 63,186
(Gains) Losses on asset disposals and impairments – net 156 (622 ) 87 (882 )
Selling, general and administrative expenses 106,937 106,121 210,537 210,286
Special charges for restructuring activities     12,232       -       20,655       -  
Total Costs and Expenses     806,205       759,196       1,566,202       1,456,025  
 
Equity in Income of Investees     18,775       16,687       33,562       34,044  
 
Operating Income     98,706       110,076       158,919       196,496  
 
Other Income (Expense):
Interest income 323 504 655 737
Interest expense (789 ) (1,152 ) (1,607 ) (1,775 )
Other – net     1,005       4,365       2,411       3,299  
Total Other Income     539       3,717       1,459       2,261  
 
Income before Provision for Income Taxes 99,245 113,793 160,378 198,757
 
Provision for Income Taxes     29,544       39,457       45,801       67,352  
 
Net Income     69,701       74,336       114,577       131,405  
 
Net Loss Attributable to Noncontrolling Interest     3,169       2,894       5,467       5,776  
 

Net Income Attributable to The Babcock & Wilcox Company
  $ 72,870     $ 77,230     $ 120,044     $ 137,181  
 
Earnings per Common Share:
Basic:

Net Income Attributable to The Babcock & Wilcox Company

 

$

0.65

$

0.65

$

1.06

$

1.16
Diluted:

Net Income Attributable to The Babcock & Wilcox Company
 

$

0.65
   

$

0.65
   

$

1.06
   

$

1.15
 
 
Shares used in the computation of earnings per share:
Basic 111,898,819 118,648,459 112,998,066 118,451,903
Diluted     112,662,563       119,257,911       113,699,859       119,058,527  
 

 
THE BABCOCK & WILCOX COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
Six Months Ended
June 30,
2013   2012
(Unaudited)
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 114,577 $ 131,405
Non-cash items included in net income:
Depreciation and amortization 33,856 35,530
Income of investees, net of dividends (18,824 ) (17,757 )
(Gains) Losses on asset disposals and impairments – net 87 (882 )
In-kind research and development costs 7,369 8,740
Amortization of pension and postretirement costs 1,511 1,557
Stock-based compensation expense 9,076 9,048
Excess tax benefits from stock-based compensation (3 ) (1,436 )
Changes in assets and liabilities, net of effects of acquisitions:
Accounts receivable (37,429 ) (42,582 )
Contracts in progress and advance billings on contracts (81,571 ) (45,882 )
Accounts payable 5,972 18,360
Inventories 11,608 (10,031 )
Current and deferred income taxes 4,067 58,620
Accrued and other current liabilities 9,541 (11,404 )
Pension liability, accumulated postretirement benefit obligation and accrued employee benefits (44,056 ) (189,882 )
Other, net     (4,005 )     (18,086 )
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES     11,776       (74,682 )
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in restricted cash and cash equivalents 12,680 4,428
Purchases of property, plant and equipment (33,433 ) (41,548 )
Proceeds from sale of unconsolidated affiliate - 2,091
Purchase of intangible assets (2,200 ) -
Purchases of available-for-sale securities (72,156 ) (155,979 )
Sales and maturities of available-for-sale securities 91,749 68,532
Investment in equity and cost method investees (2,913 ) (6,572 )
Proceeds from asset disposals     454       132  
NET CASH USED IN INVESTING ACTIVITIES     (5,819 )     (128,916 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of short-term borrowing and long-term debt (104 ) (101 )
Increase in short-term borrowing 651 -
Payment of debt issuance costs - (4,747 )
Repurchase of common shares (125,829 ) -
Dividends paid to common shareholders (18,142 ) -
Excess tax benefits from stock-based compensation 3 1,436
Exercise of stock options 1,888 1,424
Other     (326 )     (284 )
NET CASH USED IN FINANCING ACTIVITIES     (141,859 )     (2,272 )
EFFECTS OF EXCHANGE RATE CHANGES ON CASH     (5,440 )     (2,569 )
NET DECREASE IN CASH AND CASH EQUIVALENTS (141,342 ) (208,439 )
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD     383,547       415,209  
CASH AND CASH EQUIVALENTS AT END OF PERIOD   $ 242,205     $ 206,770  
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amount capitalized) $ 1,597 $ 2,153
Income taxes (net of refunds) $ 38,851 $ 17,440
SCHEDULE OF NONCASH INVESTING ACTIVITY:
Accrued capital expenditures included in accounts payable $ 3,445 $ 4,760
 

   
THE BABCOCK & WILCOX COMPANY
BUSINESS SEGMENT INFORMATION
 
Three Months Ended Six Months Ended
June 30, June 30,

2013
 

2012

2013
 

2012

(Unaudited)

(In thousands)

REVENUES:
Power Generation $ 471,191 $497,037 $932,654 $911,310
Nuclear Operations 330,986 265,398 592,125 515,576
Technical Services 27,432 28,269 52,661 53,242
Nuclear Energy 63,185 67,353 126,701 153,910
mPower 333 39 637 68
Adjustments and Eliminations     (6,991 )   (5,511 )   (13,219 )   (15,629 )
 
TOTAL   $ 886,136     $852,585     $1,691,559     $1,618,477  
 

SEGMENT INCOME:
Power Generation $ 30,535 $58,105 $63,865 $97,610
Nuclear Operations 65,737 55,366 120,461 110,193
Technical Services 15,235 18,875 29,414 33,957
Nuclear Energy 7,922 20,276 10,180 32,011
mPower     (1,104 )   (32,686 )   (28,051 )   (60,612 )
SUBTOTAL 118,325 119,936 195,869 213,159
Corporate (7,387 ) (9,860 ) (16,295 ) (16,663 )
Special Charges for Restructuring Activities     (12,232 )   0     (20,655 )   0  
TOTAL   $ 98,706     $110,076     $158,919     $196,496  
 

EQUITY IN INCOME (LOSS) OF INVESTEES:
Power Generation $ 5,202 $3,054 $7,309 $6,876
Nuclear Operations 0 0 0 0
Technical Services 13,699 13,633 26,532 27,168
Nuclear Energy (126 ) 0 (279 ) 0
mPower     0     0     0     0  
 
TOTAL   $ 18,775     $16,687     $33,562     $34,044  
 

PENSION EXPENSE:
Power Generation $ 775 $4,933 $1,490 $9,756
Nuclear Operations 1,133 3,671 2,266 7,340
Technical Services 72 234 144 468
Nuclear Energy 1,076 488 2,139 1,077
mPower 0 0 0 0
Corporate     505     707     1,010     1,416  
 
TOTAL   $ 3,561     $10,033     $7,049     $20,057  
     

DEPRECIATION AND AMORTIZATION:
Power Generation $4,945 $4,903 $10,799 $ 9,491
Nuclear Operations 6,724 8,414 13,413 16,903
Technical Services 48 54 96 128
Nuclear Energy 1,617 1,463 3,184 3,008
mPower 121 0 243 0
Corporate   3,043     2,981   6,121     6,000  
 
TOTAL   $16,498     $17,815   $33,856   $ 35,530  
 

RESEARCH AND DEVELOPMENT, NET:
Power Generation $5,872 $5,810 $11,543 $ 10,649
Nuclear Operations 13 0 13 119
Technical Services 13 110 39 325
Nuclear Energy 1,029 858 2,200 1,678
mPower   (6,090 )   27,372   15,388     50,415  
 
TOTAL   $837     $34,150   $29,183   $ 63,186  
 

CAPITAL EXPENDITURES:
Power Generation $6,091 $4,516 $11,850 $ 10,247
Nuclear Operations 5,696 10,582 13,412 23,356
Technical Services 0 0 0 0
Nuclear Energy 1,556 1,068 2,978 1,933
mPower 478 667 1,414 667
Corporate   813     3,274   3,779     5,345  
 
TOTAL   $14,634     $20,107   $33,433   $ 41,548  
 

BACKLOG:
Power Generation $2,320,515 $2,528,575 $2,320,515 $ 2,528,575
Nuclear Operations 2,831,270 2,859,748 2,831,270 2,859,748
Technical Services 8,856 14,070 8,856 14,070
Nuclear Energy 202,723 309,158 202,723 309,158
mPower   2,564     1,102   2,564     1,102  
 
TOTAL   $5,365,928     $5,712,653   $5,365,928   $ 5,712,653  
 

Copyright Business Wire 2010

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