Investor Relations - B&W

Babcock & Wilcox Announces Third Quarter 2012 Results, Initiates Dividend and Announces Share Repurchase Program

Earnings per share of $0.34, non-GAAP earnings per share of $0.37
Revenues of $807.6 million increased 14.1%
Initiation of an $0.08 quarterly dividend
Authorization of a $250 million share repurchase program
Announces adoption of mark-to-market pension accounting

CHARLOTTE, N.C.--(BUSINESS WIRE)--Nov. 7, 2012-- The Babcock & Wilcox Company (NYSE: BWC) (“B&W” or the “Company”) today reported third quarter 2012 revenues of $807.6 million, an increase of $100.0 million, or 14.1% from the third quarter of 2011. Earnings per share for the third quarter of 2012 were $0.34. Earnings per share for the third quarter 2012 include the recognition of $25.3 million of previously unrecognized tax benefits and $28.6 million of non-cash impairment charges, net of tax. Before the impact of these items, earnings per share for the third quarter of 2012 were $0.37, a decrease of 5.1% from the $0.39 reported in the third quarter of 2011.

B&W’s Board of Directors declared an $0.08 per share quarterly dividend, payable on December 17, 2012 to shareholders of record as of November 19, 2012. On an annualized basis, the initial cash dividend is expected to be $0.32 per share. The Board also authorized the repurchase of up to $250 million of the Company’s outstanding common stock during a two-year period.

Recent Highlights

Awarded $170 Million Boiler and Environmental Contract for Denmark Waste-to-Energy Plant
B&W Joint Venture Awarded $290 Million Engineering, Procurement and Construction Environmental Contract for Iowa Power Plant
B&W China Joint Venture Awarded Contract in Excess of $300 Million for Boiler and Environmental Project in Vietnam
Awarded $60 Million Coal-Fired Boiler Contract in Colombia, South America
Awarded $28 Million Biomass Boiler Contract in Canada
Ribbon Cutting Event Held at B&W mPower^TM Fuel Technology Center

Results of Operations

Consolidated revenues for the third quarter of 2012 were $807.6 million, an increase of $100.0 million, or 14.1%, from the third quarter of 2011. The Power Generation segment revenues increased $41.1 million, or 10.7%, primarily due to an increase in environmental equipment sales. Nuclear Operations segment revenues increased $30.1 million, or 11.8%, primarily due to increased manufacturing activity. Nuclear Energy segment revenues increased $13.5 million, or 22.0%, primarily due to increased project scope completion of nuclear equipment contracts. Technical Services revenues declined $2.6 million, or 9.1%.

Operating income for the third quarter of 2012 was $67.3 million, an increase of $9.7 million, or 16.8%, compared to $57.6 million in the third quarter of 2011. The increase in operating income was primarily due to improved revenues and productivity in our Nuclear Operations and Nuclear Energy segments and reduced research and development costs related to the Company’s modular reactor program, partially offset by lower operating income in our Power Generation and Technical Services segments. Power Generation segment operating income was $30.4 million in the third quarter of 2012, a decrease of $8.5 million from the prior year period, primarily due to charges associated with project performance and decreases in equity income from its China joint venture. Technical Services segment operating income for the third quarter of 2012 was $11.3 million, a $9.4 million decrease from the third quarter of 2011, primarily due to higher bid and proposal activity and reduced equity income related to expected lower fee income at Y-12.

“In the third quarter, the Company achieved its eighth consecutive quarter of year-over-year consolidated revenue growth,” said E. James Ferland, President and Chief Executive Officer of B&W. “The Nuclear Operations Group reported record quarterly revenue as it continues to execute its mission of powering our nuclear Navy. Also during the quarter, progress was made on several initiatives that will focus our strategic vision, improve our profitability, and drive shareholder value for the long-term. We made three significant decisions regarding our pension plans: announced a plan freeze after 2015 for salaried participants; elected the liability valuation option permitted by the MAP-21 legislation which will result in significantly reduced pension contributions over the next couple of years; and made a decision to adopt mark-to-market accounting effective December 31, 2012. Finally, we are pleased to initiate a quarterly dividend and a $250 million share repurchase program that reflect both our confidence in B&W’s long-term financial strength and our commitment to deploying capital to maximize shareholder value.”

Impairment Charges

The Company has determined that its investment in USEC, Inc. preferred stock has been impaired. Consequently, a non-cash impairment charge of $27.0 million was recorded in the third quarter of 2012 to reduce the book value of this investment to its estimated fair value of $19.1 million. The gross unrealized loss is reflected in Other – net on the condensed consolidated statements of income. The revaluation of this investment in no way reduces B&W’s commitment to the American Centrifuge Program or our efforts to recover the full value of our investment. Also in the third quarter of 2012, the Company recorded a non-cash impairment charge of $2.6 million related to the cancelation of an operations and maintenance contract in the Power Generation segment.

Tax Benefit

During the third quarter of 2012, the Company recognized $25.3 million of previously unrecognized tax benefits primarily related to transfer pricing issues and the deductibility of a loss on bond redemption premiums recorded prior to the July 2010 spin-off. These benefits became recognizable during the third quarter of 2012 upon the expiration of the statute of limitations in certain jurisdictions. As a result, the effective tax rate for the third quarter of 2012 was approximately 2.7% as compared to 33.2% for the third quarter of 2011.

Pension Mark-to-Market Accounting

The Company has determined that, effective December 31, 2012, it will change the accounting for its pension and postretirement plans to employ mark-to-market accounting. The effect of this change will be to reduce our annual estimated 2013 net periodic pension expense by approximately $70 million to $80 million, subject to fourth quarter gains or losses resulting from differences in actual plan performance, changes in discount rates, and other actuarial assumptions compared to the beginning of year plan assumptions. This change in accounting will have no impact on expected pension plan funding or the Company’s cash flow.

Liquidity

The Company’s cash and investments position, net of debt, was $402.2 million at the end of the third quarter of 2012, a decrease of $15.7 million compared to $417.9 million at the end of the second quarter of 2012. The use of cash was primarily due to changes in net contracts in progress and advance billings, timing of raw material purchases, and higher cash tax payments. In addition to net cash, the Company maintains a $700.0 million revolving credit agreement with $501.7 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 to fund internal growth, R&D programs, capital distribution programs, and product and geographic expansion opportunities.

Reconciliation of Non-GAAP Operating Income and Earnings Per Share

(in $ millions, except per share amounts)

		Q3 2012 GAAP			Impairment Charges			Tax Benefit Recognized			Q3 2012 Non-GAAP
	Operating Income	$	67.3		$	2.6		$	-		$	69.9
	Total Other Income (Expense)		(27.9	)		27.0			-			(0.9	)
	Provision for Income Taxes		(1.1	)		(1.0	)		(25.3	)		(27.4	)
	Net Income		38.3			28.6			(25.3	)		41.6
	Net Income Attributable to Noncontrolling Interest		2.2			-			-			2.2
	Net Income Attributable to The Babcock & Wilcox Company	$	40.5		$	28.6		$	(25.3	)	$	43.8

	Diluted Earnings per Common Share	$	0.34		$	0.24		$	(0.21	)	$	0.37
	Effective Tax Rate		2.7	%								39.7	%


		Q3 2011 GAAP*			Impairment Charges			Tax Benefit Recognized			Q3 2011 Non-GAAP*
	Operating Income	$	57.6		$	-		$	-		$	57.6
	Total Other Income (Expense)		2.2			-			-			2.2
	Provision for Income Taxes		(19.8	)		-			-			(19.8	)
	Net Income		39.9			-			-			39.9
	Net Income Attributable to Noncontrolling Interest		5.8			-			-			5.8
	Net Income Attributable to The Babcock & Wilcox Company	$	45.7		$	-		$	-		$	45.7

	Diluted Earnings per Common Share	$	0.39		$	-		$	-		$	0.39
	Effective Tax Rate		33.2	%								33.2	%


	* 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 2012 Results

						Date:			Thursday, November 8, 2012, 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 annual divided, the results expected from current initiatives, changes to pension plans and our expectations regarding future pension funding and expense. 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 to our liquidity position, changes in management plans and commitments, our inability to execute on contracts in backlog and the failure to obtain a letter from our independent registered public accounting firm regarding the preferability of the change to mark-to-market accounting for our pension and postretirement plans. 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, 2011 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 12,700 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.



THE BABCOCK & WILCOX COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS

ASSETS

	September 30,		December 31,
	2012		2011
	(Unaudited)
	(In thousands)

Current Assets:
Cash and cash equivalents	$	200,299	$	415,209
Restricted cash and cash equivalents		61,942		61,190
Investments		139,156		68,805
Accounts receivable – trade, net		371,186		305,832
Accounts receivable – other		64,780		77,505
Contracts in progress		387,113		315,286
Inventories		131,799		107,298
Deferred income taxes		104,269		102,022
Other current assets		28,281		33,929

Total Current Assets		1,488,825		1,487,076

Property, Plant and Equipment		1,070,944		1,017,422
Less accumulated depreciation		639,422		595,131

Net Property, Plant and Equipment		431,522		422,291

Investments		4,058		3,775

Goodwill		280,165		276,180

Deferred Income Taxes		226,015		241,739

Investments in Unconsolidated Affiliates		198,503		163,568

Other Assets		174,684		194,482

TOTAL	$	2,803,772	$	2,789,111



THE BABCOCK & WILCOX COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS

LIABILITIES AND STOCKHOLDERS’ EQUITY

	September 30,			December 31,
	2012			2011
	(Unaudited)
	(In thousands)

Current Liabilities:
Notes payable and current maturities of long-term debt	$	2,748		$	4,653
Accounts payable		269,480			237,494
Accrued employee benefits		176,415			303,803
Accrued liabilities – other		61,415			71,079
Advance billings on contracts		404,613			438,753
Accrued warranty expense		91,556			97,209
Income taxes payable		9,829			1,816

Total Current Liabilities		1,016,056			1,154,807

Long-Term Debt		475			633

Accumulated Postretirement Benefit Obligation		75,709			80,663

Environmental Liabilities		45,489			44,069

Pension Liability		541,725			586,045

Other Liabilities		66,340			87,921

Commitments and Contingencies

Stockholders’ Equity:
Common stock, par value $0.01 per share, authorized 325,000,000 shares; issued 119,408,084 and 118,458,911 shares at September 30, 2012 and December 31, 2011, respectively		1,194			1,185
Preferred stock, par value $0.01 per share, authorized 75,000,000 shares; No shares issued		-			-
Capital in excess of par value		1,134,324			1,106,971
Retained earnings		417,614			266,325
Treasury stock at cost, 462,577 and 351,876 shares at September 30, 2012 and December 31, 2011, respectively		(13,013	)		(10,059	)
Accumulated other comprehensive loss		(496,443	)		(538,628	)
Stockholders’ Equity – The Babcock & Wilcox Company		1,043,676			825,794
Noncontrolling interest		14,302			9,179
Total Stockholders’ Equity		1,057,978			834,973

TOTAL	$	2,803,772		$	2,789,111



THE BABCOCK & WILCOX COMPANY CONDENSED CONSOLIDATED STATEMENTS OF INCOME

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2012			2011			2012			2011
	(Unaudited)
	(In thousands, except share and per share amounts)

Revenues	$	807,586		$	707,622		$	2,426,063		$	2,151,251

Costs and Expenses:
Cost of operations		619,104			535,662			1,840,243			1,688,209
Research and development costs		27,893			34,642			91,079			74,518
Losses on asset disposals and impairments – net		2,620			547			1,738			626
Selling, general and administrative expenses		105,208			102,002			319,216			301,713
Total Costs and Expenses		754,825			672,853			2,252,276			2,065,066

Equity in Income of Investees		14,546			22,782			48,590			56,524

Operating Income		67,307			57,551			222,377			142,709

Other Income (Expense):
Interest income		417			247			1,154			1,011
Interest expense		(996	)		(770	)		(2,771	)		(2,522	)
Other – net		(27,343	)		2,708			(24,117	)		4,139
Total Other Income (Expense)		(27,922	)		2,185			(25,734	)		2,628

Income before Provision for Income Taxes		39,385			59,736			196,643			145,337

Provision for Income Taxes		1,051			19,831			53,317			45,424

Net Income		38,334			39,905			143,326			99,913

Net Income Attributable to Noncontrolling Interest		2,187			5,758			7,963			5,469

Net Income Attributable to The Babcock & Wilcox Company	$	40,521		$	45,663		$	151,289		$	105,382

Earnings per Common Share:
Basic:
Net Income Attributable to The Babcock & Wilcox Company	$	0.34		$	0.39		$	1.28		$	0.90
Diluted:
Net Income Attributable to The Babcock & Wilcox Company	$	0.34		$	0.39		$	1.27		$	0.89

Shares used in the computation of earnings per share:
Basic		118,843,829			117,773,223			118,582,544			117,414,702
Diluted		119,452,881			118,590,285			119,189,977			118,300,489



THE BABCOCK & WILCOX COMPANY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	Nine Months Ended
	September 30,
	2012			2011
	(Unaudited)
	(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income	$	143,326		$	99,913
Non-cash items included in net income:
Depreciation and amortization		52,818			55,493
Income of investees, net of dividends		(26,455	)		(31,028	)
Loss on asset disposals and impairments – net		1,738			626
Impairment of USEC investment		27,000			-
Recognition of uncertain tax positions		(25,305	)		-
In-kind research and development costs		13,477			10,595
Amortization of pension and postretirement costs		61,160			59,376
Stock-based compensation expense		13,555			12,971
Excess tax benefits from stock-based compensation		(1,441	)		(4,169	)
Other, net		(12,701	)		(9,100	)
Changes in assets and liabilities, net of effects of acquisitions:
Accounts receivable		(61,828	)		(64,037	)
Net contracts in progress and advance billings on contracts		(104,832	)		(27,155	)
Accounts payable		37,631			33,614
Inventories		(24,727	)		(7,908	)
Current and deferred income taxes		22,805			50,631
Accrued warranty and other current liabilities		(19,024	)		(24,765	)
Pension liability, accumulated postretirement benefit obligation and accrued employee benefits		(178,953	)		(169,381	)
Prepaid expenses		5,683			(19,424	)
Other, net		(3,164	)		(11,920	)
NET CASH USED IN OPERATING ACTIVITIES		(79,237	)		(45,668	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in restricted cash and cash equivalents		(752	)		(32,452	)
Purchases of property, plant and equipment		(58,780	)		(43,997	)
Purchases of available-for-sale securities		(234,577	)		(101,369	)
Sales and maturities of available-for-sale securities		163,203			120,065
Proceeds from sale of unconsolidated affiliate		2,091			-
Investments, net of return, in equity and cost method investees		(6,437	)		(31,761	)
Proceeds from asset disposals		149			562
NET CASH USED IN INVESTING ACTIVITIES		(135,103	)		(88,952	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of short-term borrowing and long-term debt		(4,592	)		(1,693	)
Increase in short-term borrowing		2,532			1,254
Payment of debt issuance costs		(4,850	)		(82	)
Excess tax benefits from stock-based compensation		1,441			4,169
Exercise of stock options		2,474			4,332
Other		(395	)		(305	)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES		(3,390	)		7,675
EFFECTS OF EXCHANGE RATE CHANGES ON CASH		2,820			(2,614	)
NET DECREASE IN CASH AND CASH EQUIVALENTS		(214,910	)		(129,559	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		415,209			391,142
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	200,299		$	261,583



The Babcock & Wilcox Company
Business Segment Information
For the Periods Ended September 30, 2012 and 2011
(In thousands of U.S. dollars)

	THREE MONTHS ENDED						NINE MONTHS ENDED
	9/30/12			9/30/11			9/30/12			9/30/11
REVENUES:
Power Generation	$	426,363		$	385,262		$	1,337,673		$	1,130,089
Nuclear Operations		284,450			254,402			800,026			777,482
Technical Services		26,023			28,570			79,265			87,598
Nuclear Energy		75,016			61,531			228,994			220,670
Adjustments and Eliminations		(4,266	)		(22,143	)		(19,895	)		(64,588	)

TOTAL	$	807,586		$	707,622		$	2,426,063		$	2,151,251

SEGMENT INCOME:
Power Generation	$	30,390		$	38,926		$	104,827		$	93,657
Nuclear Operations		51,946			38,113			148,489			127,852
Technical Services		11,332			20,747			44,361			47,355
Nuclear Energy		(18,643	)		(37,521	)		(48,405	)		(108,341	)
SUBTOTAL		75,025			60,265			249,272			160,523
Corporate		(7,718	)		(2,714	)		(26,895	)		(17,814	)
TOTAL	$	67,307		$	57,551		$	222,377		$	142,709

EQUITY IN INCOME (LOSS) OF INVESTEES:
Power Generation	$	4,214		$	7,872		$	11,090		$	19,912
Nuclear Operations		0			0			0			0
Technical Services		10,332			14,910			37,500			36,612
Nuclear Energy		0			0			0			0

TOTAL	$	14,546		$	22,782		$	48,590		$	56,524

PENSION EXPENSE:
Power Generation	$	13,116		$	13,742		$	46,223		$	45,809
Nuclear Operations		7,683			8,252			28,426			26,144
Technical Services		503			584			1,899			1,851
Nuclear Energy		1,074			1,065			3,312			3,344
Corporate		1,621			1,727			5,513			5,151

TOTAL	$	23,997		$	25,370		$	85,373		$	82,299

DEPRECIATION AND AMORTIZATION:
Power Generation	$	4,821		$	4,253		$	14,312		$	13,372
Nuclear Operations		7,776			8,932			24,679			29,066
Technical Services		61			65			189			197
Nuclear Energy		1,554			1,449			4,562			3,953
Corporate		3,076			3,019			9,076			8,905

TOTAL	$	17,288		$	17,718		$	52,818		$	55,493

RESEARCH AND DEVELOPMENT, NET:
Power Generation	$	5,611		$	5,638		$	16,260		$	14,418
Nuclear Operations		0			22			119			56
Technical Services		14			0			339			646
Nuclear Energy		22,268			28,982			74,361			59,398

TOTAL	$	27,893		$	34,642		$	91,079		$	74,518

CAPITAL EXPENDITURES:
Power Generation	$	5,874		$	2,581		$	16,121		$	10,615
Nuclear Operations		7,146			6,017			30,502			21,767
Technical Services		0			0			0			0
Nuclear Energy		1,734			2,546			4,334			6,329
Corporate		2,478			658			7,823			5,286

TOTAL	$	17,232		$	11,802		$	58,780		$	43,997

BACKLOG:
Power Generation	$	2,487,823		$	1,722,358		$	2,487,823		$	1,722,358
Nuclear Operations		2,630,208			2,482,394			2,630,208			2,482,394
Technical Services		4,119			15,585			4,119			15,585
Nuclear Energy		321,771			428,042			321,771			428,042

TOTAL	$	5,443,921		$	4,648,379		$	5,443,921		$	4,648,379

Source: The Babcock & Wilcox Company

The Babcock & Wilcox Company
Investor Contact:
Jenny L. Apker, 704-625-4944
Vice President, Treasurer and Investor Relations
investors@babcock.com
or
Media Contact:
Jud Simmons, 434-522-6462
Public Relations Manager
hjsimmons@babcock.com

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