Babcock & Wilcox Announces Second Quarter 2014 Results

The Babcock & Wilcox Company (NYSE: BWC) (“B&W” or the “Company”) today reported second quarter 2014 revenues of $686.0 million, a decrease of $200.1 million, or 22.6%, from the second quarter of 2013. GAAP earnings per share for the second quarter of 2014 were $0.24 compared to $0.65 in the second quarter of 2013. Adjusted earnings per share, which excludes a $0.20 per share impact of restructuring and acquisition-related transaction costs for the quarter, were $0.44 compared to $0.72 in the second quarter of 2013.

“Our Nuclear Operations segment continues to produce strong and steady operating performance. In addition, we delivered significantly improved bookings this quarter in our Power Generation segment, particularly in international and renewables projects, which has been an area of strategic focus. Looking forward, we have a number of solid opportunities in the pipeline and expect to be able to announce additional major contract awards in the coming months. Our success in the international marketplace together with completion of the MEGTEC acquisition are important elements of Power Generation’s strategy to expand geographically and provide diversification from our historic reliance on the U.S. coal market,” said E. James Ferland, President and Chief Executive Officer. “Further, as promised, mPower development spending has been reduced to an annual rate of $15 million giving us the ability to develop the core technology while continuing to pursue strategic investors.”

During the second quarter of 2014, the Company repurchased 2.6 million shares of its common stock at a total cost of $84.0 million. During the first six months of 2014, the Company repurchased 3.1 million shares of its common stock at a total cost of $99.7 million. Through June 30, 2014, the Company had repurchased a total of 12.6 million shares at a cost of $353.4 million leaving $396.6 million of capacity remaining under its previously announced $750 million share repurchase authorizations.

Results of Operations

Consolidated revenues for the second quarter of 2014 were $686.0 million, a decrease of $200.1 million, or 22.6%, from the second quarter of 2013. Revenues in the Power Generation segment decreased 30.5%, or $143.8 million, to $327.4 million in the three months ended June 30, 2014, compared to $471.2 million in the second quarter of 2013. The decrease reflects a $70.5 million decline in new build environmental equipment revenue driven by the completion of scrubber projects underway last year and reduced utility spending in 2014, a $49.5 million decrease in aftermarket services revenue principally due to a large boiler retrofit project that was completed last year and reduced utility spending, and a $27.5 million decrease in new build steam generation systems revenue largely attributable to the timing of renewable energy projects. The Nuclear Operations segment revenues decreased 11.4%, or $37.6 million, to $293.4 million, compared to the corresponding period in 2013, primarily due to the timing of long lead time material purchases related to the manufacturing of nuclear components for U.S. Government programs that led to higher revenues in the prior period. Revenues from the Nuclear Energy segment were $44.9 million compared to $63.2 million in the second quarter of 2013, a decrease of $18.3 million, primarily attributable to the completion and delivery of two large steam generators that were ongoing in the prior year period.

GAAP operating income for the second quarter of 2014 was $35.1 million, a decrease of $63.6 million compared to $98.7 million in the same period of 2013. The mPower segment reported a $31.9 million operating loss in the second quarter of 2014 compared to a $1.1 million loss in the corresponding period in 2013, primarily due to a cost-share catch-up payment in the second quarter of 2013 in combination with cost-share expenditures incurred during the mPower slow-down that have not been reimbursed. For the three months ended June 30, 2014, operating income in each of the Power Generation, Nuclear Operations and Nuclear Energy segments was lower than in the prior year quarter, primarily attributable to lower revenue as discussed above.

Operating income for the second quarter of 2014 includes $10.4 million of special charges for restructuring activities related to the continued execution of our cost reduction efforts primarily in the Power Generation and Nuclear Energy segments, $21.3 million of costs related to the restructuring of the mPower program, and $1.5 million of transaction costs attributable to the MEGTEC acquisition. Excluding these charges, adjusted operating income for the second quarter of 2014 was $68.3 million compared to adjusted operating income of $110.9 million in the second quarter of 2013.

“2014 is a transitional year for B&W. We remain focused on addressing the near-term challenges while growing and strengthening the Company for the future,” said Ferland. “The decline in Power Generation revenue this quarter and this year is primarily the result of a reduction in coal-related environmental and service projects due to continuing regulatory uncertainty and lower capital spending by our utility customers. Our cost reduction programs are on track and the momentum we have in the international and renewable markets positions us well for 2015 and beyond. While we expect to realize sequential improvement in Power Generation sales and earnings, the sharp reduction we’ve seen in utility spending on U.S. environmental and service projects will be difficult to overcome for the balance of the year. As a result we are revising 2014 guidance, but are confident we will produce significantly improved results in 2015. ”

Revised Outlook

The Company is narrowing its guidance for 2014 consolidated revenues to between $2.9 billion and $3.0 billion from the previous range of $2.9 billion to $3.1 billion. Guidance for adjusted earnings per share for the full year 2014 is being lowered to between $1.70 and $1.85 from the previous range of $2.00 and $2.20. Adjusted earnings per share exclude any mark-to-market adjustment for pension and post-retirement benefits, acquisition-related transaction costs, and restructuring charges.

Liquidity and Debt

The Company’s cash and investments position, net of restricted cash, was $224.7 million at the end of the second quarter of 2014, a decrease of $136.6 million compared to $361.3 million as of December 31, 2013. Second quarter 2014 cash flow included a net use of cash from investing activities of $146.3 million, primarily attributable to the acquisition of MEGTEC. During the quarter, the Company repurchased common shares totaling $84.0 million, paid dividends of $11.1 million, and contributed $19.5 million to its pension plans.

On June 24, 2014, the Company announced it had entered into a Second Amended and Restated Credit Agreement (the “New Credit Agreement”) that provides for revolving credit borrowings and issuances of letters of credit in an aggregate amount of $1.0 billion and a term loan facility of up to $300 million, $150 million of which was drawn on the closing date to fund the MEGTEC acquisition. The remaining $150 million commitment for the term loan remains available until December 31, 2014 if it is not drawn before then. As of June 30, 2014, outstanding balances under the New Credit Agreement included the $150.0 million term loan, $113.8 million borrowed under the revolving credit facility, and letters of credit issued under the revolving credit facility totaling $173.0 million, resulting in $863.2 million of availability as of the end of the second quarter.

Quarterly Dividend

On August 5, 2014, the Company declared a quarterly cash dividend of $0.10 per common share. The dividend will be payable on September 10, 2014 to shareholders of record on August 20, 2014.

Conference Call to Discuss Second Quarter 2014 Results

Forward-Looking Statements

B&W cautions that this release contains forward-looking statements, including, without limitation, statements relating to additional contract awards, expected Power Generation sales and earnings, our 2014 outlook and 2015 results. These forward-looking statements are based on management’s current expectations and involve a number of risks and uncertainties, including, among other things, our ability to achieve bookings in our business segments, adverse changes in the industries in which we operate and delays, changes or termination of contracts in backlog. 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 our annual report on Form 10-K for the year ended December 31, 2013 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 11,000 people, in addition to joint venture employees throughout the world. 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.

EXHIBITS TO FOLLOW

*Totals may not foot due to rounding.

B&W is providing non-GAAP information regarding certain of its historical results and guidance on future earnings per share 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.