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.--()--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 mPowerTM 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  
 

Contacts

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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Contacts

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