Table of Contents


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2017

OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     

Commission File No. 001-36876  

BABCOCK & WILCOX ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
 
47-2783641
(State or other Jurisdiction of Incorporation or Organization)
 
(I.R.S. Employer Identification No.)
 
THE HARRIS BUILDING
 
 
13024 BALLANTYNE CORPORATE PLACE, SUITE 700
 
 
CHARLOTTE, NORTH CAROLINA
 
28277
(Address of Principal Executive Offices)
 
(Zip Code)
Registrant's Telephone Number, Including Area Code: (704) 625-4900

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   x     No   ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   x     No   ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
x
  
Accelerated filer
 
¨
 
 
 
 
Non-accelerated filer
 
¨   (Do not check if a smaller reporting company)
  
Smaller reporting company
 
¨
 
 
 
 
 
 
 
 
 
 
 
Emerging growth company
 
¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extension transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    
Yes   ¨     No   x

The number of shares of the registrant's common stock outstanding at October 31, 2017 was 44,049,127 .

1

Table of Contents



BABCOCK & WILCOX ENTERPRISES, INC.
FORM 10-Q
TABLE OF CONTENTS
 
 
PAGE
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2

Table of Contents



PART I - FINANCIAL INFORMATION

ITEM 1. Condensed Consolidated Financial Statements
  
BABCOCK & WILCOX ENTERPRISES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
Three months ended September 30,
 
Nine months ended September 30,
(in thousands, except per share amounts)
2017
2016
 
2017
2016
Revenues
$
408,703

$
410,955

 
$
1,149,636

$
1,198,279

Costs and expenses:
 
 
 
 
 
Cost of operations
361,416

337,198

 
1,095,271

1,018,314

Selling, general and administrative expenses
60,241

60,697

 
195,847

182,761

Goodwill impairment charges
86,903

—

 
86,903

—

Restructuring activities and spin-off transaction costs
3,775

2,395

 
8,910

38,021

Research and development costs
2,291

2,361

 
7,454

8,273

Losses (gains) on asset disposals, net
59

(2
)
 
63

(17
)
Total costs and expenses
514,685

402,649

 
1,394,448

1,247,352

Equity in income (loss) and impairment of investees
1,234

2,827

 
(13,380
)
4,887

Operating income (loss)
(104,748
)
11,133

 
(258,192
)
(44,186
)
Other income (expense):
 
 
 
 
 
Interest income
121

115

 
359

656

Interest expense
(7,468
)
(379
)
 
(15,567
)
(1,169
)
Other – net
(7,633
)
(241
)
 
(6,024
)
113

Total other income (expense)
(14,980
)
(505
)
 
(21,232
)
(400
)
Income (loss) before income tax expense
(119,728
)
10,628

 
(279,424
)
(44,586
)
Income tax expense (benefit)
(5,639
)
1,617

 
(7,644
)
(790
)
Net income (loss)
(114,089
)
9,011

 
(271,780
)
(43,796
)
Net income attributable to noncontrolling interest
(213
)
(117
)
 
(566
)
(293
)
Net income (loss) attributable to shareholders
$
(114,302
)
$
8,894

 
$
(272,346
)
$
(44,089
)
 
 
 
 
 
 
Basic income (loss) per share
$
(2.48
)
$
0.18

 
$
(5.69
)
$
(0.87
)
 
 
 
 
 
 
Diluted income (loss) per share
$
(2.48
)
$
0.18

 
$
(5.69
)
$
(0.87
)
 
 
 
 
 
 
Shares used in the computation of earnings per share:
 
 
 
 
 
Basic
46,149

49,621

 
47,905

50,613

Diluted
46,149

49,857

 
47,905

50,613

See accompanying notes to condensed consolidated financial statements.

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Table of Contents


BABCOCK & WILCOX ENTERPRISES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
 
Three months ended September 30,
 
Nine months ended September 30,
(in thousands)
2017
2016
 
2017
2016
Net income (loss)
$
(114,089
)
$
9,011

 
$
(271,780
)
$
(43,796
)
Other comprehensive income (loss):
 
 
 
 
 
Currency translation adjustments, net of taxes
2,591

2,811

 
14,765

(7,015
)
 
 
 
 
 
 
Derivative financial instruments:
 
 
 
 
 
Unrealized gains (losses) on derivative financial instruments
398

1,419

 
2,642

5,476

Income taxes
130

287

 
(9
)
990

Unrealized gains (losses) on derivative financial instruments, net of taxes
268

1,132

 
2,651

4,486

Derivative financial instrument (gains) losses reclassified into net income
5,679

(1,519
)
 
(769
)
(3,516
)
Income taxes
2,112

(272
)
 
165

(615
)
Reclassification adjustment for (gains) losses included in net income, net of taxes
3,567

(1,247
)
 
(934
)
(2,901
)
 
 
 
 
 
 
Benefit obligations:
 
 
 
 
 
Unrealized gains (losses) on benefit obligations
(66
)
(25
)
 
(207
)
(49
)
Income taxes
—

—

 
—

—

Unrealized gains (losses) on benefit obligations, net of taxes
(66
)
(25
)
 
(207
)
(49
)
Amortization of benefit plan costs (benefits)
(619
)
15

 
(2,281
)
(294
)
Income taxes
11

7

 
31

(421
)
Amortization of benefit plan costs (benefits), net of taxes
(630
)
8

 
(2,312
)
127

 
 
 
 
 
 
Investments:
 
 
 
 
 
Unrealized gains (losses) on investments
84

18

 
171

53

Income taxes
15

—

 
60

24

Unrealized gains (losses) on investments, net of taxes
69

18

 
111

29

Investment (gains) losses reclassified into net income
(6
)
—

 
(50
)
1

Income taxes
(2
)
—

 
(18
)
—

Reclassification adjustments for (gains) losses included in net income, net of taxes
(4
)
—

 
(32
)
1

 
 
 
 
 
 
Other comprehensive income (loss)
5,795

2,697

 
14,042

(5,322
)
Total comprehensive income (loss)
(108,294
)
11,708

 
(257,738
)
(49,118
)
Comprehensive income (loss) attributable to noncontrolling interest
(59
)
(218
)
 
(85
)
(370
)
Comprehensive income (loss) attributable to shareholders
$
(108,353
)
$
11,490

 
$
(257,823
)
$
(49,488
)
See accompanying notes to condensed consolidated financial statements.

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Table of Contents


BABCOCK & WILCOX ENTERPRISES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amount)
September 30, 2017
 
December 31, 2016
Cash and cash equivalents
$
48,137

 
$
95,887

Restricted cash and cash equivalents
26,648

 
27,770

Accounts receivable – trade, net
320,202

 
282,347

Accounts receivable – other
67,421

 
73,756

Contracts in progress
169,182

 
166,010

Inventories
91,099

 
85,807

Other current assets
37,339

 
45,957

Total current assets
760,028

 
777,534

Net property, plant and equipment
143,107

 
133,637

Goodwill
204,105

 
267,395

Deferred income taxes
163,013

 
163,388

Investments in unconsolidated affiliates
87,417

 
98,682

Intangible assets
80,000

 
71,039

Other assets
22,227

 
17,468

Total assets
$
1,459,897

 
$
1,529,143

 
 
 
 
Foreign revolving credit facilities
$
12,398

 
$
14,241

Accounts payable
243,565

 
220,737

Accrued employee benefits
38,009

 
35,497

Advance billings on contracts
219,822

 
210,642

Accrued warranty expense
41,230

 
40,467

Other accrued liabilities
92,491

 
95,954

Total current liabilities
647,515

 
617,538

United States revolving credit facility
58,900

 
9,800

Second lien term loan facility
138,384

 
—

Pension and other accumulated postretirement benefit liabilities
275,269

 
301,259

Other noncurrent liabilities
45,046

 
39,595

Total liabilities
1,165,114

 
968,192

Commitments and contingencies
 
 
 
Stockholders' equity:
 
 
 
Common stock, par value $0.01 per share, authorized 200,000 shares; issued and outstanding 44,049 and 48,688 shares at September 30, 2017 and December 31, 2016, respectively
499

 
544

Capital in excess of par value
800,183

 
806,589

Treasury stock at cost, 5,681 and 5,592 shares at September 30, 2017 and
December 31, 2016, respectively
(104,745
)
 
(103,818
)
Retained deficit
(387,030
)
 
(114,684
)
Accumulated other comprehensive loss
(22,440
)
 
(36,482
)
Stockholders' equity attributable to shareholders
286,467

 
552,149

Noncontrolling interest
8,316

 
8,802

Total stockholders' equity
294,783

 
560,951

Total liabilities and stockholders' equity
$
1,459,897

 
$
1,529,143

See accompanying notes to condensed consolidated financial statements.

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Table of Contents


BABCOCK & WILCOX ENTERPRISES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
Nine months ended September 30,
(in thousands)
2017
 
2016
Cash flows from operating activities:
 
Net income (loss)
$
(271,780
)
 
$
(43,796
)
Non-cash items included in net income (loss):
 
 
 
Depreciation and amortization of long-lived assets
31,037

 
27,413

Amortization of debt issuance costs and debt discount
3,190

 
—

Income of equity method investees
(4,813
)
 
(4,887
)
Goodwill impairment charges
86,903

 
—

Other than temporary impairment of equity method investment in TBWES
18,193

 
—

Losses on asset disposals and impairments, net
543

 
14,906

Provision for (benefit from) deferred income taxes
(2,100
)
 
(7,613
)
Recognition of losses (gains) for pension and postretirement plans
(1,219
)
 
30,646

Stock-based compensation, net of associated income taxes
8,523

 
13,899

Changes in assets and liabilities, net of effects of acquisitions:
 
 
 
Accounts receivable
1,375

 
49,082

Accrued insurance receivable
—

 
(15,000
)
Contracts in progress and advance billings on contracts
6,682

 
(53,983
)
Inventories
2,717

 
(7,990
)
Income taxes
9,196

 
6,296

Accounts payable
5,514

 
(32,390
)
Accrued and other current liabilities
(16,011
)
 
(3,733
)
Pension liabilities, accrued postretirement benefits and employee benefits
(27,960
)
 
(21,206
)
Other, net
(781
)
 
8,601

Net cash from operating activities
(150,791
)
 
(39,755
)
Cash flows from investing activities:
 
 
 
Decrease in restricted cash and cash equivalents
(2,934
)
 
8,270

Investment in equity method investees
—

 
(26,220
)
Purchase of property, plant and equipment
(10,666
)
 
(20,376
)
Acquisition of business, net of cash acquired
(52,547
)
 
(142,980
)
Purchases of available-for-sale securities
(22,900
)
 
(30,738
)
Sales and maturities of available-for-sale securities
31,077

 
20,986

Other
61

 
(556
)
Net cash from investing activities
(57,909
)
 
(191,614
)
Cash flows from financing activities:
 
 
 
Borrowings under our United States revolving credit facility
511,423

 
75,465

Repayments of our United States revolving credit facility
(462,323
)
 
(42,248
)
Proceeds from our second lien term loan facility, net of $34.2 million discount
141,674

 
—

Repayments of our foreign revolving credit facilities
(3,313
)
 
(18,289
)
Common stock repurchase from related party
(16,674
)
 
—

Shares of our common stock returned to treasury stock
(927
)
 
(78,391
)
Debt issuance costs
(14,025
)
 
—

Other
(298
)
 
(1,166
)
Net cash from financing activities
155,537

 
(64,629
)
Effects of exchange rate changes on cash
5,413

 
(4,126
)
Net increase (decrease) in cash and equivalents
(47,750
)
 
(300,124
)
Cash and equivalents, beginning of period
95,887

 
365,192

Cash and equivalents, end of period
$
48,137

 
$
65,068


See accompanying notes to condensed consolidated financial statements.

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Table of Contents


BABCOCK & WILCOX ENTERPRISES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2017


NOTE 1 – BASIS OF PRESENTATION

These interim financial statements of Babcock & Wilcox Enterprises, Inc. ("B&W," "we," "us," "our" or "the Company") have been prepared in accordance with accounting principles generally accepted in the United States and Securities and Exchange Commission instructions for interim financial information, and should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2016 (“Annual Report”). Accordingly, significant accounting policies and other disclosures normally provided have been omitted since such items are disclosed in our Annual Report. We have included all adjustments, in the opinion of management, consisting only of normal, recurring adjustments, necessary for a fair presentation of the interim financial statements. We have eliminated all intercompany transactions and accounts. We present the notes to our condensed consolidated financial statements on the basis of continuing operations, unless otherwise stated.

NOTE 2 – EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per share of our common stock:
 
Three months ended September 30,
 
Nine months ended September 30,
(in thousands, except per share amounts)
2017
2016
 
2017
2016
Net income (loss) attributable to shareholders
$
(114,302
)
$
8,894

 
$
(272,346
)
$
(44,089
)
 
 
 
 
 
 
Weighted average shares used to calculate basic earnings per share
46,149

49,621

 
47,905

50,613

Dilutive effect of stock options, restricted stock and performance shares
—

236

 
—

—

Weighted average shares used to calculate diluted earnings per share
46,149

49,857

 
47,905

50,613

 
 
 
 
 
 
Basic income (loss) per share:
$
(2.48
)
$
0.18

 
$
(5.69
)
$
(0.87
)
 
 
 
 
 
 
Diluted income (loss) per share:
$
(2.48
)
$
0.18

 
$
(5.69
)
$
(0.87
)

Because we incurred a net loss in the quarter and nine months ended September 30, 2017 and the nine months ended September 30, 2016 , basic and diluted shares are the same.

If we had net income in the nine months ended September 30, 2017 and 2016 , diluted shares would include an additional 0.4 million and 0.5 million shares, respectively. If we had net income in the quarter ended September 30, 2017 , diluted shares would include an additional 0.5 million shares.

We excluded 2.0 million and 0.6 million shares related to stock options from the diluted share calculation for the nine months ended September 30, 2017 and 2016 , respectively, because their effect would have been anti-dilutive. For the quarter ended September 30, 2017 , we excluded 2.3 million shares related to stock options because their effect would have been anti-dilutive.

NOTE 3 – SEGMENT REPORTING

Our operations are assessed based on three reportable segments, which are summarized as follows:

•
Power segment : focused on the supply of and aftermarket services for steam-generating, environmental and auxiliary equipment for power generation and other industrial applications.
•
Renewable segment : focused on the supply of steam-generating systems, environmental and auxiliary equipment for the waste-to-energy and biomass power generation industries.
•
Industrial segment : focused on custom-engineered cooling, environmental and other industrial equipment along with related aftermarket services.

7




An analysis of our operations by segment is as follows:
 
Three months ended September 30,
 
Nine months ended 
 September 30,
(in thousands)
2017
2016
 
2017
2016
Revenues:
 
 
 
 
 
Power segment
$
202,222

$
211,749

 
$
612,274

$
762,293

Renewable segment
108,557

124,344

 
262,168

293,593

Industrial segment
99,288

76,809

 
281,734

147,275

Eliminations
(1,364
)
(1,947
)
 
(6,540
)
(4,882
)
 
408,703

410,955

 
1,149,636

1,198,279

Gross profit:
 
 
 
 
 
Power segment
40,629

48,896

 
132,653

170,903

Renewable segment
181

18,592

 
(100,119
)
14,468

Industrial segment
9,461

14,601

 
34,240

33,506

Intangible amortization expense included in cost of operations
(2,984
)
(7,752
)
 
(11,455
)
(8,833
)
Mark to market loss included in cost of operations
—

(580
)
 
(954
)
(30,079
)
 
47,287

73,757

 
54,365

179,965

Selling, general and administrative ("SG&A") expenses
(59,225
)
(59,615
)
 
(192,742
)
(179,225
)
Goodwill impairment charges
(86,903
)
—

 
(86,903
)
—

Restructuring activities and spin-off transaction costs
(3,775
)
(2,395
)
 
(8,910
)
(38,021
)
Research and development costs
(2,291
)
(2,361
)
 
(7,454
)
(8,273
)
Intangible amortization expense included in SG&A
(1,016
)
(1,018
)
 
(2,999
)
(3,071
)
Mark to market loss included in SG&A
—

(64
)
 
(106
)
(465
)
Equity in income of investees
1,234

2,827

 
4,813

4,887

Impairment of equity method investment
—

—

 
(18,193
)
—

Gains (losses) on asset disposals, net
(59
)
2

 
(63
)
17

Operating income (loss)
$
(104,748
)
$
11,133

 
$
(258,192
)
$
(44,186
)

During the first half of 2017, we announced our plan to reclassify the Industrial Steam product line currently included in our Power segment to the Industrial segment beginning with the quarter ended September 30, 2017. We have indefinitely postponed that reorganization. As of September 30, 2017, the Industrial Steam product line remains in the Power segment for all periods presented.

NOTE 4 – UNIVERSAL ACQUISITION

On January 11, 2017, we acquired Universal Acoustic & Emission Technologies, Inc. ("Universal") for approximately  $52.5 million in cash, funded primarily by borrowings under our United States revolving credit facility, net of $4.4 million cash acquired in the business combination. Transaction costs included in the purchase price were approximately $0.2 million . We accounted for the Universal acquisition using the acquisition method, whereby all of the assets acquired and liabilities assumed were recognized at their fair value on the acquisition date, with any excess of the purchase price over the estimated fair value recorded as goodwill. In order to purchase Universal on January 11, 2017, we borrowed approximately $55.0 million under the United States revolving credit facility in 2017.

Universal provides custom-engineered acoustic, emission and filtration solutions to the natural gas power generation, mid-stream natural gas pipeline, locomotive and general industrial end-markets. Universal's product offering includes gas turbine inlet and exhaust systems, silencers, filters and enclosures. At the acquisition date, Universal employed approximately 460 people, mainly in the United States and Mexico. During 2017 , we integrated Universal with our Industrial segment. Universal contributed $16.0 million and $49.8 million of revenue to our operating results during the three and nine months ended September 30, 2017 , respectively. Universal contributed $3.2 million and $10.0 million of gross profit (excluding intangible asset amortization expense of $0.5 million and $2.6 million ) to our operating results in the three and nine months ended

8



September 30, 2017 , respectively. We expect Universal to contribute over $70.0 million of revenue and be accretive to the Industrial segment's gross profit during 2017.

The allocation of the purchase price based on the estimated fair value of assets acquired and liabilities assumed is set forth below. We are in the process of finalizing the purchase price allocation associated with the valuation of certain intangible assets and deferred tax balances; as a result, the provisional measurements of intangible assets, goodwill and deferred income tax balances are subject to change. Purchase price adjustments are expected to be finalized by December 31, 2017.
(in thousands)
Estimated acquisition
date fair value
Cash
$
4,379

Accounts receivable
11,270

Contracts in progress
3,167

Inventories
4,585

Other assets
579

Property, plant and equipment
16,692

Goodwill
14,413

Identifiable intangible assets
19,500

Deferred income tax assets
935

Current liabilities
(10,833
)
Other noncurrent liabilities
(1,423
)
Deferred income tax liabilities
(6,338
)
Net acquisition cost
$
56,926


The intangible assets included above consist of the following:
 
Estimated
fair value (in thousands)
 
Weighted average
estimated useful life
(in years)
Customer relationships
$
10,800

 
15
Backlog
1,700

 
1
Trade names / trademarks
3,000

 
20
Technology
4,000

 
7
Total amortizable intangible assets
$
19,500

 
 

The acquisition of Universal resulted in an increase in our intangible asset amortization expense during the three and nine months ended September 30, 2017 of $0.5 million and $2.6 million , respectively, which is included in cost of operations in our condensed consolidated statement of operations. Amortization of intangible assets is not allocated to segment results.

Approximately $0.1 million and $1.5 million of acquisition and integration related costs of Universal was recorded as a component of our operating expenses in the condensed consolidated statement of operations in the three and nine months ended September 30, 2017 , respectively.


9



The following unaudited pro forma financial information below represents our results of operations for the three and nine months ended September 30, 2016 and 12 months ended December 31, 2016 had the Universal acquisition occurred on January 1, 2016. The unaudited pro forma financial information below is not intended to represent or be indicative of our actual consolidated results had we completed the acquisition at January 1, 2016. This information should not be taken as representative of our future consolidated results of operations.
 
Three months ended
Nine months ended
Twelve months ended
(in thousands)
September 30, 2016
September 30, 2016
December 31, 2016
Revenues
$
431,412

$
1,259,905

$
1,660,986

Net income (loss) attributable to B&W
8,903

(43,458
)
(113,940
)
Basic earnings per common share
0.18

(0.86
)
(2.27
)
Diluted earnings per common share
0.18

(0.86
)
(2.27
)

The unaudited pro forma results included in the table above reflect the following pre-tax adjustments to our historical results:

•
A net increase in amortization expense related to timing of amortization of the fair value of identifiable intangible assets acquired of $0.5 million , $2.4 million and $2.8 million in the three and nine months ended September 30, 2016 and the 12 months ended December 31, 2016 , respectively.

•
Elimination of the historical interest expense recognized by Universal of $0.1 million , $0.3 million and $0.4 million in the three and nine months ended September 30, 2016 and the 12 months ended December 31, 2016 , respectively.

•
Elimination of $2.1 million in transaction related costs recognized in the 12 months ended December 31, 2016 .

NOTE 5 – CONTRACTS AND REVENUE RECOGNITION

We generally recognize revenues and related costs from long-term contracts on a percentage-of-completion basis. Accordingly, we review contract price and cost estimates regularly as work progresses and reflect adjustments in profit proportionate to the percentage of completion in the periods in which we revise estimates to complete the contract. To the extent that these adjustments result in a reduction of previously reported profits from a project, we recognize a charge against current earnings. If a contract is estimated to result in a loss, that loss is recognized in the current period as a charge to earnings and the full loss is accrued on our balance sheet, which results in no expected gross profit from the loss contract in the future unless there are revisions to our estimated revenues or costs at completion in periods following the accrual of the contract loss. Changes in the estimated results of our percentage-of-completion contracts are necessarily based on information available at the time that the estimates are made and are based on judgments that are inherently uncertain as they are predictive in nature. As with all estimates to complete used to measure contract revenue and costs, actual results can and do differ from our estimates made over time.

In the three and nine months ended September 30, 2017 and 2016 , we recognized changes in estimated gross profit related to long-term contracts accounted for on the percentage-of-completion basis, which are summarized as follows:
 
Three months ended September 30,
 
Nine months ended September 30,
(in thousands)
2017
2016
 
2017
2016
Increases in estimates for percentage-of-completion contracts
$
3,040

$
7,996

 
$
15,777

$
33,056

Decreases in estimates for percentage-of-completion contracts
(12,312
)
(22,126
)
 
(135,445
)
(65,805
)
Net changes in estimates for percentage-of-completion contracts
$
(9,272
)
$
(14,130
)
 
$
(119,668
)
$
(32,749
)

As disclosed in our December 31, 2016 consolidated financial statements, we had four renewable energy projects in Europe that were loss contracts at December 31, 2016 . During the three months ended June 30, 2017, two additional renewable energy projects in Europe became loss contracts. During the three and nine months ended September 30, 2017 , we recorded a total of $11.6 million and $123.8 million , respectively, in net losses resulting from changes in the estimated revenues and costs to complete these six European renewable energy loss contracts. These changes in estimates include an increase in our estimate of liquidated damages associated with these six projects of $13.2 million and $22.6 million in the three and nine months ended September 30, 2017 , respectively, to a total of $62.8 million at September 30, 2017 . The charges recorded in the nine months

10



ended September 30, 2017 were due to revisions in the estimated revenues and costs at completion during the period, primarily as a result of structural steel design issues including the anticipated schedule impact, scheduling delays and shortcomings in our subcontractors' estimated productivity. Also included in the charges recorded in the nine months ended September 30, 2017 were corrections that reduced (increased) estimated contract losses at completion by $1.0 million , $(6.0) million and $1.1 million relating to the three months ended December 31, 2016, March 31, 2017 and June 30, 2017, respectively. Management has determined these amounts are immaterial to the consolidated financial statements in these previous periods. As of September 30, 2017 , the status of these six loss contracts was as follows:

The first project became a loss contract in the second quarter of 2016. As of September 30, 2017 , this project is approximately 97%  complete and construction activities are complete as of the date of this report. The unit became operational during the second quarter of 2017, and turnover activities linked to the customer's operation of the facility are expected to be completed during the first quarter of 2018. During the three and nine months ended September 30, 2017 , we recognized additional contract losses of $4.6 million and $15.1 million , respectively, on the project as a result of differences in actual and estimated costs and schedule delays. Our estimate at completion as of September 30, 2017 includes $9.4 million of total expected liquidated damages. As of September 30, 2017 , the reserve for estimated contract losses recorded in "other accrued liabilities" in our consolidated balance sheet was $2.3 million . In the three and nine months ended September 30, 2016 , we recognized charges of $14.0 million and $45.7 million , respectively, and as of September 30, 2016 , this project had $7.8 million of accrued losses and was 79% complete.

The second project became a loss contract in the fourth quarter of 2016. As of September 30, 2017 , this contract was approximately 75% complete, and we expect this project to be completed in early 2018. During the three and nine months ended September 30, 2017 , we recognized contract gains of $2.0 million and contract losses of $35.4 million , respectively, on this project as a result of changes in construction cost estimates and schedule delays. Our estimate at completion as of September 30, 2017 includes $15.5 million of total expected liquidated damages. As of September 30, 2017 , the reserve for estimated contract losses recorded in "other accrued liabilities" in our consolidated balance sheet was $13.6 million .

The third project became a loss contract in the fourth quarter of 2016. As of September 30, 2017 , this contract was approximately 95% complete and construction activities are complete as of the date of this report. The unit became operational during the second quarter of 2017, and turnover activities linked to the customer's operation of the facility are expected to be completed during the fourth quarter of 2017. During the three and nine months ended September 30, 2017 , we recognized additional contract losses of $1.6 million and $7.1 million , respectively, as a result of changes in the estimated costs at completion. Our estimate at completion as of September 30, 2017 includes $6.7 million of total expected liquidated damages for schedule delays. As of September 30, 2017 , the reserve for estimated contract losses recorded in "other accrued liabilities" in our consolidated balance sheet was $1.7 million .

The fourth project became a loss contract in the fourth quarter of 2016. As of September 30, 2017 , this contract was approximately 77% complete, and we expect this project to be completed in early 2018. During the three and nine months ended September 30, 2017 , we revised our estimated revenue and costs at completion for this loss contract, which resulted in contract gains of $4.5 million and contract losses of $17.4 million , respectively. Our estimate at completion as of September 30, 2017 includes $8.9 million of total expected liquidated damages due to schedule delays. The changes in the status of this project were primarily attributable to changes in the estimated costs at completion, offset by a $4.8 million reduction in estimated liquidated damages we recognized during the three months ended March 31, 2017. As of September 30, 2017 , the reserve for estimated contract losses recorded in "other accrued liabilities" in our consolidated balance sheet was $5.2 million .

The fifth project became a loss contract in the second quarter of 2017. As of September 30, 2017 , this contract was approximately 60% complete, and we expect this project to be completed in the second half of 2018. During the three and nine months ended September 30, 2017 , we revised our estimated revenue and costs at completion for this loss contract, which resulted in additional contract losses of $12.0 million and $35.3 million , respectively. Our estimate at completion as of September 30, 2017 includes $17.9 million of total expected liquidated damages due to schedule delays. The change in the status of this project was primarily attributable to changes in the estimated costs at completion and schedule delays. As of September 30, 2017 , the reserve for estimated contract losses recorded in "other accrued liabilities" in our consolidated balance sheet was $14.3 million .

The sixth project became a loss contract in the second quarter of 2017. As of September 30, 2017 , this contract was approximately 68% complete, and we expect this project to be completed in the first half of 2018. During the nine months ended September 30, 2017 , we revised our estimated revenue and costs at completion for this loss contract, which resulted in additional contract losses of $18.5 million . We had no significant change in estimate on this loss contract during the

11



three months ended September 30, 2017 . Our estimate at completion as of September 30, 2017 includes $4.3 million of total expected liquidated damages due to schedule delays. The change in the status of this project was primarily attributable to changes in the estimated costs at completion and schedule delays. As of September 30, 2017 , the reserve for estimated contract losses recorded in "other accrued liabilities" in our consolidated balance sheet was $3.3 million .

In September 2017, we identified the failure of a structural steel beam on the fifth project, which temporarily stopped work in the boiler building pending corrective actions to stabilize the structure that are expected to be complete in the fourth quarter of 2017. The engineering, design and manufacturing of the steel structure were the responsibility of our subcontractors. A similar design was also used on the second and fourth projects, and although no structural failure occurred on these two other projects, work was also stopped for a short period of time, and reinforcement of the structure is underway. The costs related to these structural steel issues are estimated to be approximately $20 million , which include the impact of project delays, and is included in the September 30, 2017 estimated losses at completion for these three projects as disclosed in the preceding paragraphs.

Also in the three months ended September 30, 2017, we adjusted the design of three of these renewable facilities to increase the guaranteed power output, which will allow us to achieve contractual bonus opportunities for the higher output. The bonus opportunities increased the estimated selling price of the three contracts by approximately $15 million in total, and this positive change in estimated cost to complete was fully recognized in the third quarter of 2017 because each of these three were loss projects.

During the three and nine months ended September 30, 2017, we recognized a net loss of $2.3 million on our other renewable energy projects that are not loss contracts, and we expect them to remain profitable at completion.

During the third quarter of 2016, we determined it was probable that we would receive a $15.0 million insurance recovery for a portion of the losses on the first European renewable energy project discussed above. There was no change in the accrued probable insurance recovery at September 30, 2017 . The insurance recovery represents the full amount available under the insurance policy, and is recorded in accounts receivable - other in our condensed consolidated balance sheet at September 30, 2017 .

NOTE 6 – RESTRUCTURING ACTIVITIES AND SPIN-OFF TRANSACTION COSTS

Restructuring liabilities

Restructuring liabilities are included in other accrued liabilities on our condensed consolidated balance sheets. Activity related to the restructuring liabilities is as follows:
 
Three months ended September 30,
 
Nine months ended September 30,
(in thousands)
2017
2016
 
2017
2016
Balance at beginning of period  (1)
$
967

$
11,984

 
$
2,254

$
740

Restructuring expense
3,428

1,792

 
7,285

19,816

Payments
(2,399
)
(10,422
)
 
(7,543
)
(17,202
)
Balance at September 30
$
1,996

$
3,354

 
$
1,996

$
3,354


(1) For the three month periods ended September 30, 2017 and 2016, the balance at the beginning of the period is as of June 30, 2017 and 2016, respectively. For the nine month periods ended September 30, 2017 and 2016, the balance at the beginning of the period is as of December 31, 2016 and 2015, respectively.

Accrued restructuring liabilities at September 30, 2017 and 2016 relate primarily to employee termination benefits.

Excluded from restructuring expense in the table above are non-cash restructuring charges that did not impact the accrued restructuring liability. In the three and nine months ended September 30, 2017 , we recognized $0.2 million and $0.6 million , respectively, in non-cash restructuring expense related to losses (gains) on the disposals of long-lived assets. In the three and nine months ended September 30, 2016 , we recognized non-cash charges of $0.2 million and $14.8 million , respectively, related to impairments of long-lived assets.


12



Spin-off transaction costs

Spin-off costs were primarily attributable to employee retention awards directly related to the spin-off from our former parent, The Babcock & Wilcox Company (now known as BWX Technologies, Inc.). In the three and nine months ended September 30, 2017 , we recognized spin-off costs of $0.2 million and $1.0 million , respectively. In the three and nine months ended September 30, 2016, we recognized spin-off costs of $0.4 million and $3.4 million , respectively. In the nine months ended September 30, 2017 , we disbursed $1.9 million of the accrued retention awards.

NOTE 7 – PROVISION FOR INCOME TAXES

We had an income tax benefit of $5.6 million in the three months ended September 30, 2017 , which resulted in a 4.7% effective tax rate as compared to $1.6 million of income tax expense in the three months ended September 30, 2016 , which resulted in a 15.2% effective tax rate. Our effective tax rate for the three months ended September 30, 2017 was lower than our statutory rate primarily due to nondeductible goodwill impairment charges, foreign losses in our Renewable segment that are subject to a valuation allowance and nondeductible expenses, offset by favorable discrete items of $0.4 million . The discrete items include favorable adjustments to prior year U.S. tax returns and the effect of vested and exercised share-based compensation awards. Our effective tax rate for the three months ended September 30, 2016 was lower than our statutory rate primarily due to changes in the jurisdictional mix of our forecasted full year income and losses and favorable impacts from adjustments related to prior years' tax returns in the United States and foreign jurisdictions.

We had an income tax benefit of $7.6 million in the nine months ended September 30, 2017 , which resulted in a 2.7% effective tax rate as compared to an income tax benefit of $0.8 million in the nine months ended September 30, 2016, which resulted in a 1.8% effective tax rate for the nine months ended September 30, 2016 . Our effective tax rate for the nine months ended September 30, 2017 was lower than our statutory rate primarily due to the reasons noted above, as well as the second quarter tax benefit associated with the impairment of our equity method investment in India, which was offset by a valuation allowance, second quarter discrete items including withholding tax on a forecasted distribution outside the United States, partly offset by first quarter favorable discrete adjustments to prior year foreign tax returns and nondeductible transaction costs. Our effective tax rate for the nine months ended September 30, 2016 was lower than our statutory rate primarily due to a $13.1 million increase in valuation allowances associated with deferred tax assets related to our equity investment in a foreign joint venture and state net operating losses, and to the jurisdictional mix of our forecasted full year income and losses, as described above.

During the nine months ended September 30, 2017 , we prospectively adopted Financial Accounting Standards Board ("FASB") Accounting Standards Update ("ASU") 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-based Payment Accounting . Adopting the new accounting standard resulted in a net $0.2 million and $1.7 million income tax benefit in the three and nine months ended September 30, 2017 , respectively, associated with the income tax effects of vested and exercised share-based compensation awards.

13



  
NOTE 8 – COMPREHENSIVE INCOME

Gains and losses deferred in accumulated other comprehensive income (loss) ("AOCI") are reclassified and recognized in the condensed consolidated statements of operations once they are realized. The changes in the components of AOCI, net of tax, for the first three quarters in 2017 and 2016 were as follows:
(in thousands)
Currency translation gain (loss) (net of tax)
Net unrealized gain (loss) on investments (net of tax)
Net unrealized gain (loss) on derivative instruments (net of tax)
Net unrecognized gain (loss) related to benefit plans (net of tax)
Total
Balance at December 31, 2016
$
(43,987
)
$
(37
)
$
802

$
6,740

$
(36,482
)
Other comprehensive income (loss) before reclassifications
5,417

61

4,587

(44
)
10,021

Amounts reclassified from AOCI to net income (loss)
—

(27
)
(3,843
)
(882
)
(4,752
)
Net current-period other comprehensive income (loss)
5,417

34

744

(926
)
5,269

Balance at March 31, 2017
$
(38,570
)
$
(3
)
$
1,546

$
5,814

$
(31,213
)
Other comprehensive income (loss) before reclassifications
6,757

(19
)
(2,204
)
(97
)
4,437

Amounts reclassified from AOCI to net income (loss)
—

(1
)
(658
)
(800
)
(1,459
)
Net current-period other comprehensive income (loss)
6,757

(20
)
(2,862
)
(897
)
2,978

Balance at June 30, 2017
(31,813
)
(23
)
(1,316
)
4,917

(28,235
)
Other comprehensive income (loss) before reclassifications
2,591

69

268

(66
)
2,862

Amounts reclassified from AOCI to net income (loss)
—

(4
)
3,567

(630
)
2,933

Net current-period other comprehensive income (loss)
2,591

65

3,835

(696
)
5,795

Balance at September 30, 2017
$
(29,222
)
$
42

$
2,519

$
4,221

$
(22,440
)

14



(in thousands)
Currency translation gain (loss) (net of tax)
Net unrealized gain (loss) on investments (net of tax)
Net unrealized gain (loss) on derivative instruments (net of tax)
Net unrecognized gain (loss) related to benefit plans (net of tax)
Total
Balance at December 31, 2015
$
(19,493
)
$
(44
)
$
1,786

$
(1,102
)
$
(18,853
)
Other comprehensive income (loss) before reclassifications
1,740

18

2,576

(61
)
4,273

Amounts reclassified from AOCI to net income (loss)
—

1

(1,003
)
61

(941
)
Net current-period other comprehensive income
1,740

19

1,573

—

3,332

Balance at March 31, 2016
$
(17,753
)
$
(25
)
$
3,359

$
(1,102
)
$
(15,521
)
Other comprehensive income (loss) before reclassifications
(11,566
)
(7
)
778

37

(10,758
)
Amounts reclassified from AOCI to net income (loss)
—

—

(651
)
58

(593
)
Net current-period other comprehensive income (loss)
(11,566
)
(7
)
127

95

(11,351
)
Balance at June 30, 2016
(29,319
)
(32
)
3,486

(1,007
)
(26,872
)
Other comprehensive income (loss) before reclassifications
2,811

18

1,132

(25
)
3,936

Amounts reclassified from AOCI to net income (loss)
—

—

(1,247
)
8

(1,239
)
Net current-period other comprehensive income (loss)
2,811

18

(115
)
(17
)
2,697

Balance at September 30, 2016
$
(26,508
)
$
(14
)
$
3,371

$
(1,024
)
$
(24,175
)

The amounts reclassified out of AOCI by component and the affected condensed consolidated statements of operations line items are as follows (in thousands):
AOCI component
Line items in the Condensed Consolidated Statements of Operations affected by reclassifications from AOCI
Three months ended September 30,
 
Nine months ended September 30,
2017
2016
 
2017
2016
Derivative financial instruments
Revenues
$
2,092

$
1,940

 
$
8,094

$
4,524

 
Cost of operations
159

24

 
113

57

 
Other-net
(7,930
)
(445
)
 
(7,438
)
(1,065
)
 
Total before tax
(5,679
)
1,519

 
769

3,516

 
Provision for income taxes
(2,112
)
272

 
(165
)
615

 
Net income
$
(3,567
)
$
1,247

 
$
934

$
2,901

 
 
 
 
 
 
 
Amortization of prior service cost on benefit obligations
Cost of operations
$
619

$
(15
)
 
$
2,281

$
294

 
Provision for income taxes
(11
)
(7
)
 
(31
)
421

 
Net income (loss)
$
630

$
(8
)
 
$
2,312

$
(127
)
 
 
 
 
 
 
 
Realized gain on investments
Other-net
$
6

$
—

 
$
50

$
(1
)
 
Provision for income taxes
2

—

 
18

—

 
Net income (loss)
$
4

$
—

 
$
32

$
(1
)

15




NOTE 9 – CASH AND CASH EQUIVALENTS

The components of cash and cash equivalents are as follows:
(in thousands)
September 30, 2017
December 31, 2016
Held by foreign entities
$
44,778

$
94,415

Held by United States entities
3,359

1,472

Cash and cash equivalents
$
48,137

$
95,887

 
 
 
Reinsurance reserve requirements
$
21,456

$
21,189

Restricted foreign accounts
5,192

6,581

Restricted cash and cash equivalents
$
26,648

$
27,770


Our United States revolving credit facility described in Note 17 allows for nearly immediate borrowing of available capacity to fund cash requirements in the normal course of business, meaning that the minimum United States cash on hand is maintained to minimize borrowing costs.

NOTE 10 – INVENTORIES

The components of inventories are as follows:
(in thousands)
September 30, 2017
December 31, 2016
Raw materials and supplies
$
66,995

$
61,630

Work in progress
9,518

6,803

Finished goods
14,586

17,374

Total inventories
$
91,099

$
85,807


NOTE 11 – EQUITY METHOD INVESTMENTS

Joint ventures in which we have significant ownership and influence, but not control, are accounted for in our consolidated financial statements using the equity method of accounting. We assess our investments in unconsolidated affiliates for other-than-temporary-impairment when significant changes occur in the investee's business or our investment philosophy. Such changes might include a series of operating losses incurred by the investee that are deemed other than temporary, the inability of the investee to sustain an earnings capacity that would justify the carrying amount of the investment or a change in the strategic reasons that were important when we originally entered into the joint venture. If an other-than-temporary-impairment were to occur, we would measure our investment in the unconsolidated affiliate at fair value.

Our primary equity method investees include joint ventures in China and India, each of which manufactures boiler parts and equipment. At September 30, 2017 and December 31, 2016 , our total investment in these joint ventures was $87.4 million and $98.7 million , respectively.

During the third quarter of 2017, both we and our joint venture partner began the process of scaling back the operations at Thermax Babcock & Wilcox Energy Solutions Private Limited ("TBWES"), our joint venture in India, due to the decline in forecasted market opportunities in India. Currently, the manufacturing facility in India has been reduced to essential personnel only while engineering services are expected to continue in our engineering office through the end of 2017. These actions are in line with our change in strategy for the joint venture announced in the second quarter of 2017, which reduced the expected recoverable value of our investment in TBWES. We recognized an $18.2 million other-than-temporary-impairment of our investment in TBWES during the nine months ended September 30, 2017 . The impairment charge was based on the difference in the carrying value of our investment in TBWES and our share of the estimated fair value of TBWES's net assets.

16




NOTE 12 – INTANGIBLE ASSETS

Our intangible assets are as follows:
(in thousands)
September 30, 2017
December 31, 2016
Definite-lived intangible assets
 
 
Customer relationships
$
59,683

$
47,892

Unpatented technology
19,941

18,461

Patented technology
6,560

2,499

Tradename
22,818

18,774

Backlog
30,088

28,170

All other
7,550

7,429

Gross value of definite-lived intangible assets
146,640

123,225

Customer relationships amortization
(21,931
)
(17,519
)
Unpatented technology amortization
(4,443
)
(2,864
)
Patented technology amortization
(2,043
)
(1,532
)
Tradename amortization
(4,749
)
(3,826
)
Acquired backlog amortization
(27,814
)
(21,776
)
All other amortization
(6,965
)
(5,974
)
Accumulated amortization
(67,945
)
(53,491
)
Net definite-lived intangible assets
$
78,695

$
69,734

 
 
 
Indefinite-lived intangible assets:
 
 
Trademarks and trade names
$
1,305

$
1,305

Total indefinite-lived intangible assets
$
1,305

$
1,305


The following summarizes the changes in the carrying amount of intangible assets:
 
Nine months ended September 30,
(in thousands)
2017
2016
Balance at beginning of period
$
71,039

$
37,844

Business acquisitions
19,500

55,438

Amortization expense
(14,455
)
(11,904
)
Currency translation adjustments and other
3,916

647

Balance at end of the period
$
80,000

$
82,025


The January 11, 2017 acquisition of Universal resulted in an increase in our intangible asset amortization expense during the three and nine months ended September 30, 2017 of $0.5 million and $2.6 million , respectively.

The July 1, 2016 acquisition of SPIG, S.p.A. resulted in an increase in our intangible asset amortization expense during the three and nine months ended September 30, 2017 of $1.9 million and $7.3 million , respectively, and $7.1 million of intangible asset amortization expense during the three months ended September 30, 2016.

Amortization of intangible assets is included in cost of operations in our condensed consolidated statement of operations, but it is not allocated to segment results.


17



Estimated future intangible asset amortization expense, including the increase in amortization expense resulting from the January 11, 2017 acquisition of Universal, is as follows (in thousands):
Period ending
Amortization expense
Three months ending December 31, 2017
$
3,582

Twelve months ending December 31, 2018
$
12,444

Twelve months ending December 31, 2019
$
10,342

Twelve months ending December 31, 2020
$
9,042

Twelve months ending December 31, 2021
$
8,782

Twelve months ending December 31, 2022
$
7,205

Thereafter
$
27,298


NOTE 13 – GOODWILL

The following summarizes the changes in the carrying amount of goodwill:
(in thousands)
Power
Renewable
Industrial
Total
Balance at December 31, 2016
$
46,220

$
48,435

$
172,740

$
267,395

Increase resulting from Universal acquisition
—

—

14,413

14,413

Third quarter 2017 impairment charges *
—

(49,965
)
(36,938
)
(86,903
)
Currency translation adjustments
1,180

1,530

6,490

9,200

Balance at September 30, 2017
$
47,400

$
—

$
156,705

$
204,105


* Prior to September 30, 2017, we had not recorded any goodwill impairment charges.

Our annual goodwill impairment assessment is performed on October 1 of each year (the "annual assessment" date); however, events during 2017 have required two interim assessments of all six of our reporting units. In the second quarter of 2017, significant charges in our Renewable segment was considered to be a triggering event for the interim assessment as of June 30, 2017, which did not indicate impairment. In the third quarter of 2017, our market capitalization significantly decreased to below our equity value, which was considered to be a trigger for a second interim assessment. Additionally, the forecast was reduced for our SPIG reporting unit based on a change in the market strategy implemented by the new segment management to focus on core geographies and products.

Assessing goodwill for impairment involves a two step test. Step 1 of the test compares the fair value of a reporting unit with its carrying amount, including goodwill. If the carrying amount of a reporting unit exceeds its fair value, the second step of the test is performed to measure the amount of the impairment loss, if any. Step 2 of the test compares the implied fair value of the reporting unit's goodwill with the carrying amount of that goodwill, and impairment is measured as the excess of the carrying value over the implied value of goodwill. Estimating the fair value of a reporting unit requires significant judgment. The fair value of each reporting unit determined under Step 1 of the goodwill impairment test was based on a 50% weighting of an income approach using a discounted cash flow analysis based on forward-looking projections of future operating results, a 30% to 40% weighting of a market approach using multiples of revenue and earnings before interest, taxes, depreciation and amortization ("EBITDA") of guideline companies and a 20% to 10% weighting of a market approach using multiples of revenue and EBITDA from recent, similar business combinations.

We primarily attributed the significant decline in our market capitalization in the third quarter of 2017 to the announcement of significant charges in the Renewable reporting unit. Accordingly, we increased the discount rate applied to future projected cash flows from 15.0% at June 30, 2017 to 23.5% at September 30, 2017. As a result of the increase in the discount rate and an increase in the carrying value of the reporting unit, impairment was indicated at September 30, 2017, which measured $50.0 million ( $48.9 million net of tax), the full carrying value. Other long-lived assets in the reporting unit were not impaired.

For our SPIG reporting unit, which is included in our Industrial segment, the Step 1 also indicated impairment. At June 30, 2017 and October 1, 2016, the fair value exceeded the carrying value by less than 1% and 5% , respectively. At September 30, 2017, the independently obtained fair value estimates decreased under both the income and market valuation approaches due

18



to a short-term decrease in profitability attributable to specific current contracts and changes in SPIG's market strategy introduced by segment management during the third quarter. The discount rate applied to future projected cash flows was 14.0% and 12.5% at each of the September 30, 2017 and June 30, 2017 interim tests, respectively. Step 2 of the impairment test at September 30, 2017 measured $36.9 million of impairment (with no income tax impact). The SPIG reporting unit has $38.0 million of goodwill remaining after the impairment charge. Other long-lived assets in the reporting unit were not impaired.

For the remaining four reporting units where impairment was not indicated at September 30, 2017, the goodwill balances at September 30, 2017 and the Step 1 goodwill impairment test headroom (the estimated fair value less the carrying value) are as follows:
 
Power Segment
 
Industrial Segment
(in millions)
Power
Construction
 
MEGTEC
Universal
Reporting unit headroom
60%
98%
 
12%
18%
Goodwill balance
$38.5
$8.9
 
$104.3
$14.4

Step 1 of the impairment test for our MEGTEC reporting unit, which is included in our Industrial segment, did not indicate impairment, and the fair value exceeded the carrying value by 12% at September 30, 2017 compared to 3.0% at June 30, 2017 and 22% at October 1, 2016. Under both the income and market valuation approaches, the fair value estimates at the interim assessment data and the second interim assessment date decreased compared to the annual assessment date due to lower projected net sales and EBITDA. Similar to many industrial businesses, the reduction in MEGTEC reporting unit revenues has been the result of a decline in new equipment demand, primarily in the Americas; however, bookings trends have recently improved and backlog at September 30, 2017 is 67% higher than at the same date a year ago. The MEGTEC reporting unit recorded a 15% increase in revenues and a 16% increase in gross profit during the third quarter of 2017. The estimate of fair value of the MEGTEC reporting unit is sensitive to changes in assumptions, particularly assumed discount rates and projections of future operating results under the income approach. The discount rate applied to future projected cash flows was 12.5% and 11.0% at each of the September 30, 2017 and June 30, 2017 interim tests, respectively. Absent any other changes, an increase in the discount rate could result in future impairment of goodwill. Decreases in future projected operating results could also result in future impairment of goodwill.

NOTE 14 – PROPERTY, PLANT & EQUIPMENT

Property, plant and equipment is stated at cost. The composition of our property, plant and equipment less accumulated depreciation is set forth below:
(in thousands)
September 30, 2017
December 31, 2016
Land
$
8,802

$
6,348

Buildings
121,952

114,322

Machinery and equipment
206,437

189,489

Property under construction
14,218

22,378

 
351,409

332,537

Less accumulated depreciation
208,302

198,900

Net property, plant and equipment
$
143,107

$
133,637


19




NOTE 15 – WARRANTY EXPENSE

Changes in the carrying amount of our accrued warranty expense are as follows:  
 
Nine months ended September 30,
(in thousands)
2017
2016
Balance at beginning of period
$
40,467

$
39,847

Additions
17,818

18,300

Expirations and other changes
(9,053
)
(2,945
)
Increases attributable to business combinations
1,060

901

Payments
(11,126
)
(10,922
)
Translation and other
2,064

(217
)
Balance at end of period
$
41,230

$
44,964


During the nine months ended September 30, 2017 and 2016, our Power segment reduced its accrued warranty expense by $4.7 million and $2.2 million , respectively, to reflect the expiration of warranties, and updated its estimated warranty accrual rate to reflect its warranty claims experience and current contractual warranty obligations, which reduced the accrued warranty expense by $4.1 million in the nine months ended September 30, 2017. Additions to the warranty accrual include specific provisions on industrial steam projects totaling $7.1 million and $2.1 million during the nine months ended September 30, 2017 and 2016, respectively.

NOTE 16 – PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS

Components of net periodic benefit cost (benefit) included in net income (loss) are as follows:
 
Pension benefits
 
Other benefits
 
Three months ended September 30,
 
Nine months ended September 30,
 
Three months ended September 30,
 
Nine months ended September 30,
(in thousands)
2017
2016
 
2017
2016
 
2017
2016
 
2017
2016
Service cost
$
227

$
548

 
$
756

$
1,137

 
$
3

$
6

 
$
11

$
18

Interest cost
10,369

10,086

 
30,905

30,890

 
(106
)
206

 
255

629

Expected return on plan assets
(14,936
)
(15,925
)
 
(44,646
)
(46,107
)
 
—

—

 
—

—

Amortization of prior service cost
29

81

 
80

335

 
(561
)
—

 
(2,277
)
—

Recognized net actuarial loss
—

645

 
1,062

30,545

 
—

—

 
—

—

Net periodic benefit cost (benefit)
$
(4,311
)
$
(4,565
)
 
$
(11,843
)
$
16,800

 
$
(664
)
$
212

 
$
(2,011
)
$
647


During the first quarter of 2017, lump sum payments from our Canadian pension plan resulted in a plan settlement of $0.4 million , which also resulted in interim mark to market accounting for the pension plan. The mark to market adjustment in the first quarter of 2017 was $0.7 million . The effect of these charges and mark to market adjustments are reflected in the $1.1 million " Recognized net actuarial loss" for the nine months ended September 30, 2017 in the table above. There were no significant plan settlements or interim mark to market adjustments during the second or third quarters of 2017.

During the second and third quarters of 2016, we recorded adjustments to our benefit plan liabilities resulting from certain curtailment and settlement events. In September 2016, lump sum payments from our Canadian pension plan resulted in a $0.1 million pension plan settlement charge. In May 2016, the closure of our West Point, Mississippi manufacturing facility resulted in a $1.8 million curtailment charge in our United States pension plan. In April 2016, lump sum payments from our Canadian pension plan resulted in a $1.1 million plan settlement charge. These events resulted in interim mark to market accounting for the respective benefit plans in 2016. Mark to market charges in the three months ended September 30, 2016 were $0.5 million in our Canadian pension plan. Mark to market charges for our United States and Canadian pension plans were $27.5 million in the nine months ended September 30, 2016. The pension mark to market charges were impacted by higher than expected returns on pension plan assets. The weighted-average discount rate used to remeasure the benefit plan liabilities at September 30, 2016 was 3.88% . The effect of these charges and mark to market adjustments are reflected in the 2016 "Recognized net actuarial loss" in the table above.

20




We have excluded the recognized net actuarial loss from our reportable segments and such amount has been reflected in Note 3 as the mark to market adjustment in the reconciliation of reportable segment income (loss) to consolidated operating losses. The recognized net actuarial loss during the three and nine months ended September 30, 2017 and 2016 was recorded in our condensed consolidated statements of operations in the following line items:
 
Pension benefits
 
Three months ended September 30,
 
Nine months ended September 30,
(in thousands)
2017
2016
 
2017
2016
Cost of operations
$
—

$
580

 
$
954

$
30,079

Selling, general and administrative expenses
—

64

 
106

465

Other
—

—

 
2

—

Total
$
—

$
644

 
$
1,062

$
30,544


We made contributions to our pension and other postretirement benefit plans totaling $9.8 million and $16.2 million during the three and nine months ended September 30, 2017 , respectively, as compared to $1.8 million and $4.4 million during the three and nine months ended September 30, 2016 , respectively.

See Note 23 for the future expected effect of FASB ASU 2017-07 on the presentation of benefit and expense related to our pension and post retirement plans.
 
NOTE 17 – REVOLVING DEBT

The components of our revolving debt are comprised of separate revolving credit facilities in the following locations:
(in thousands)
September 30, 2017
December 31, 2016
United States
$
58,900

$
9,800

Foreign
12,398

14,241

Total revolving debt
$
71,298

$
24,041


United States revolving credit facility

On May 11, 2015, we entered into a credit agreement with a syndicate of lenders ("Credit Agreement") in connection with our spin-off from The Babcock & Wilcox Company. The Credit Agreement, which is scheduled to mature on June 30, 2020, provides for a senior secured revolving credit facility, initially in an aggregate amount of up to $600.0 million . The proceeds from loans under the Credit Agreement are available for working capital needs and other general corporate purposes, and the full amount is available to support the issuance of letters of credit.

On February 24, 2017 and August 9, 2017, we entered into amendments to the Credit Agreement (the “Amendments” and the Credit Agreement, as amended to date, the “Amended Credit Agreement”) to, among other things: (1) permit us to incur the debt under the second lien term loan facility (discussed further in Note 18 ), (2) modify the definition of EBITDA in the Amended Credit Agreement to exclude: up to $98.1 million of charges for certain Renewable segment contracts for periods including the quarter ended December 31, 2016, up to $115.2 million of charges for certain Renewable segment contracts for periods including the quarter ended June 30, 2017, up to $4.0 million of aggregate restructuring expenses incurred during the period from July 1, 2017 through September 30, 2018 measured on a consecutive four-quarter basis, realized and unrealized foreign exchange losses resulting from the impact of foreign currency changes on the valuation of assets and liabilities, and fees and expenses incurred in connection with the August 9, 2017 amendment, (3) replace the maximum leverage ratio with a maximum senior debt leverage ratio, (4) decrease the minimum consolidated interest coverage ratio, (5) limit our ability to borrow under the Amended Credit Agreement during the covenant relief period to $250.0 million in the aggregate, (6) reduce commitments under the revolving credit facility from $600.0 million to $500.0 million , (7) require us to maintain liquidity (as defined in the Amended Credit Agreement) of at least $75.0 million as of the last business day of any calendar month, (8) require us to repay outstanding borrowings under the revolving credit facility (without any reduction in commitments) with certain excess cash, (9) increase the pricing for borrowings and commitment fees under the Amended Credit Agreement, (10) limit our ability to incur debt and liens during the covenant relief period, (11) limit our ability to make acquisitions and investments in third parties during the covenant relief period, (12) prohibit us from paying dividends and undertaking stock

21



repurchases during the covenant relief period (other than our share repurchase from an affiliate of AIP (discussed further in Note 18 )), (13) prohibit us from exercising the accordion described below during the covenant relief period, (14) limit our financial and commercial letters of credit outstanding under the Amended Credit Agreement to $30.0 million during the covenant relief period, (15) require us to reduce commitments under the Amended Credit Agreement with the proceeds of certain debt issuances and asset sales, (16) beginning with the quarter ended September 30, 2017, limit to no more than $25.0 million any cumulative net income losses attributable to certain Vølund projects, and (17) increase reporting obligations and require us to hire a third-party consultant. The covenant relief period will end, at our election, when the conditions set forth in the Amended Credit Agreement are satisfied, but in no event earlier than the date on which we provide the compliance certificate for our fiscal quarter ending December 31, 2018.

Other than during the covenant relief period, the Amended Credit Agreement contains an accordion feature that allows us, subject to the satisfaction of certain conditions, including the receipt of increased commitments from existing lenders or new commitments from new lenders, to increase the amount of the commitments under the revolving credit facility in an aggregate amount not to exceed the sum of (1) $200.0 million plus (2) an unlimited amount, so long as for any commitment increase under this subclause (2) our senior leverage ratio (assuming the full amount of any commitment increase under this subclause (2) is drawn) is equal to or less than 2.00 :1.0 after giving pro forma effect thereto. During the covenant relief period, our ability to exercise the accordion feature will be prohibited.

The Amended Credit Agreement and our obligations under certain hedging agreements and cash management agreements with our lenders and their affiliates are (1) guaranteed by substantially all of our wholly owned domestic subsidiaries, but excluding our captive insurance subsidiary, and (2) secured by first-priority liens on certain assets owned by us and the guarantors. The Amended Credit Agreement requires interest payments on revolving loans on a periodic basis until maturity. We may prepay all loans at any time without premium or penalty (other than customary LIBOR breakage costs), subject to notice requirements. The Amended Credit Agreement requires us to make certain prepayments on any outstanding revolving loans after receipt of cash proceeds from certain asset sales or other events, subject to certain exceptions and a right to reinvest such proceeds in certain circumstances. During the covenant relief period, such prepayments may require us to reduce the commitments under the Amended Credit Agreement by a corresponding amount of such prepayments. Following the covenant relief period, such prepayments will not require us to reduce the commitments under the Amended Credit Agreement.

After giving effect to Amendments, loans outstanding under the Amended Credit Agreement bear interest at our option at either (1) the LIBOR rate plus 5.0% per annum or (2) the base rate (the highest of the Federal Funds rate plus 0.5% , the one month LIBOR rate plus 1.0% , or the administrative agent's prime rate) plus 4.0% per annum. Interest expense associated with our United States revolving credit facility loans for the three and nine months ended September 30, 2017 was $3.3 million and $7.0 million , respectively. Included in interest expense was $1.3 million and $2.1 million of non-cash amortization of direct financing costs for the three and nine months ended September 30, 2017, respectively. A commitment fee of 1.0% per annum is charged on the unused portions of the revolving credit facility. A letter of credit fee of 2.50% per annum is charged with respect to the amount of each financial letter of credit outstanding, and a letter of credit fee of 1.50% per annum is charged with respect to the amount of each performance and commercial letter of credit outstanding. Additionally, an annual facility fee of $1.5 million is payable on the first business day of 2018 and 2019, and a pro rated amount is payable on the first business day of 2020.

The Amended Credit Agreement includes financial covenants that are tested on a quarterly basis, based on the rolling four-quarter period that ends on the last day of each fiscal quarter. The maximum permitted senior debt leverage ratio as defined in the Amended Credit Agreement is:
•
6.00 :1.0 for the quarter ended September 30, 2017,
•
8.50 :1.0 for each of the quarters ending December 31, 2017 and March 31, 2018,
•
6.25 :1.0 for the quarter ending June 30, 2018,
•
4.00 :1.0 for the quarter ending September 30, 2018,
•
3.75 :1.0 for the quarter ending December 31, 2018,
•
3.25 :1.0 for each of the quarters ending March 31, 2019 and June 30, 2019, and
•
3.00 :1.0 for each of the quarters ending September 30, 2019 and each quarter thereafter.

The minimum consolidated interest coverage ratio as defined in the Credit Agreement is:
•
1.50 :1.0 for the quarter ended September 30, 2017,
•
1.00 :1.0 for each of the quarters ending December 31, 2017 and March 31, 2018,
•
1.25 :1.0 for the quarter ending June 30, 2018,

22



•
1.50 :1.0 for each of the quarters ending September 30, 2018 and December 31, 2018,
•
1.75 :1.0 for each of the quarters ending March 31, 2019 and June 30, 2019, and
•
2.00 :1.0 for each of the quarters ending September 30, 2019 and each quarter thereafter.

Beginning with September 30, 2017, consolidated capital expenditures in each fiscal year are limited to $27.5 million .

At September 30, 2017 , usage under the Amended Credit Agreement consisted of $58.9 million in borrowings at an effective interest rate of 6.88% , $7.7 million of financial letters of credit and $87.2 million of performance letters of credit. At September 30, 2017 , we had $94.7 million available for borrowings or to meet letter of credit requirements primarily based on trailing 12 month EBITDA, and our leverage (as defined in the Amended Credit Agreement) ratio was 3.00 and our interest coverage ratio was 2.59 . In addition, through September 30, 2017, we have used $11.6 million of the $25.0 million of permitted net income losses attributable to our Vølund projects. At September 30, 2017 , we were in compliance with all of the covenants set forth in the Amended Credit Agreement.

Foreign revolving credit facilities

Outside of the United States, we have revolving credit facilities in Turkey, China and India that are used to provide working capital to our operations in each country. These three foreign revolving credit facilities allow us to borrow up to $14.8 million in aggregate and each have a one year term. At September 30, 2017 , we had $12.4 million in borrowings outstanding under these foreign revolving credit facilities at an effective weighted-average interest rate of 5.17% .

Other credit arrangements

Certain subsidiaries have credit arrangements with various commercial banks and other financial institutions for the issuance of letters of credit and bank guarantees in associated with contracting activity. The aggregate value of all such letters of credit and bank guarantees not secured by the United States revolving credit facility as of September 30, 2017 and December 31, 2016 was $279.1 million and $255.2 million , respectively.

We have posted surety bonds to support contractual obligations to customers relating to certain projects. We utilize bonding facilities to support such obligations, but the issuance of bonds under those facilities is typically at the surety's discretion. Although there can be no assurance that we will maintain our surety bonding capacity, we believe our current capacity is adequate to support our existing project requirements for the next 12 months. In addition, these bonds generally indemnify customers should we fail to perform our obligations under the applicable contracts. We, and certain of our subsidiaries, have jointly executed general agreements of indemnity in favor of surety underwriters relating to surety bonds those underwriters issue in support of some of our contracting activity. As of September 30, 2017 , bonds issued and outstanding under these arrangements in support of contracts totaled approximately $472.3 million .

NOTE 18 – SECOND LIEN TERM LOAN FACILITY

On August 9, 2017 , we entered into a second lien credit agreement (the "Second Lien Credit Agreement") with an affiliate of American Industrial Partners ("AIP"), governing a second lien term loan facility. The second lien term loan facility consists of a second lien term loan in the principal amount of $175.9 million , all of which was borrowed on August 9, 2017 , and a delayed draw term loan facility in the principal amount of up to $20.0 million , which may be drawn in a single draw prior to June 30, 2020, subject to certain conditions. Through September 30, 2017 , we have not utilized the delayed draw term loan facility.

Borrowings under the second lien term loan, other than the delayed draw term loan, have a coupon interest rate of 10% per annum, and borrowings under the delayed draw term loan have a coupon interest rate of 12% per annum, in each case payable quarterly. Undrawn amounts under the delayed draw term loan accrue a commitment fee at a rate of 0.50% , which was paid at closing. The second lien term loan and any borrowings we may make under the delayed draw term loan have a scheduled maturity of December 30, 2020.

In connection with our entry into the second lien term loan facility, we used $50.9 million of the proceeds to repurchase approximately 4.8 million shares of our common stock (approximately 10% of our shares outstanding) held by an affiliate of AIP, which was one of the conditions precedent for the second lien term loan facility. Based on observable and unobservable market data, we determined the fair value of the shares we repurchased from the related party on August 9, 2017 was $16.7 million . We utilized a discounted cash flow model and estimates of our weighted average cost of capital on the transaction

23



date to derive the estimated fair value of the share repurchase. The $34.2 million difference between the share repurchase price and the fair value of the repurchased shares was recorded as a discount on the second lien term facility borrowing. Non-cash amortization of the debt discount and direct financing costs will be accreted to the carrying value of the loan through interest expense over the term of the second lien term loan facility utilizing the effective interest method and an effective interest rate of 18.64% .

The carrying value of the second lien term loan facility at September 30, 2017 was as follows (in thousands):
Face value
Unamortized debt discount
and direct financing costs
Net carrying value
$175,884
$37,500
$138,384

Interest expense associated with our second lien credit agreement is comprised of the following:
(in thousands)
Actual for the period
August 9, 2017 through
September 30, 2017
 
Forecasted for the period
October 1, 2017 through
December 31, 2017
Forecasted for the period
January 1, 2018 through
December 31, 2018
Coupon interest (10%)
$2,554
 
$4,433
$17,588
Amortization of financing costs and discount
$1,095
 
$2,119
$9,678
Total interest expense
$3,649
 
$6,552
$27,266

Borrowings under the Second Lien Credit Agreement are (1) guaranteed by substantially all of our wholly owned domestic subsidiaries, but excluding our captive insurance subsidiary, and (2) secured by second-priority liens on certain assets owned by us and the guarantors. The Second Lien Credit Agreement requires interest payments on loans on a quarterly basis until maturity. Voluntary prepayments made during the first year after closing are subject to a make-whole premium, voluntary prepayments made during the second year after closing are subject to a 3.0% premium and voluntary prepayments made during the third year after closing are subject to a 2.0% premium. The Second Lien Credit Agreement requires us to make certain prepayments on any outstanding loans after receipt of cash proceeds from certain asset sales or other events, subject to certain exceptions and a right to reinvest such proceeds in certain circumstances, and subject to certain restrictions contained in an intercreditor agreement among the lenders under the Amended Credit Agreement and the Second Lien Credit Agreement.

The Second Lien Credit Agreement contains representations and warranties, affirmative and restrictive covenants, financial covenants and events of default substantially similar to those contained in the Amended Credit Agreement, subject to appropriate cushions. The Second Lien Credit Agreement is generally less restrictive than the Amended Credit Agreement.

NOTE 19 – CONTINGENCIES

ARPA litigation

On February 28, 2014, the Arkansas River Power Authority ("ARPA") filed suit against Babcock & Wilcox Power Generation Group, Inc. (now known as The Babcock & Wilcox Company and referred to herein as “BW PGG”) in the United States District Court for the District of Colorado (Case No. 14-cv-00638-CMA-NYW) alleging breach of contract, negligence, fraud and other claims arising out of BW PGG's delivery of a circulating fluidized bed boiler and related equipment used in the Lamar Repowering Project pursuant to a 2005 contract.

A jury trial took place in mid-November 2016. Some of ARPA’s claims were dismissed by the judge during the trial. The jury’s verdict on the remaining claims was rendered on November 21, 2016. The jury found in favor of B&W with respect to ARPA’s claims of fraudulent concealment and negligent misrepresentation and on one of ARPA’s claims of breach of contract. The jury found in favor of ARPA on the three remaining claims for breach of contract and awarded damages totaling $4.2 million , which exceeded the previous $2.3 million accrual we established in 2012 by $1.9 million . We increased our accrual by $1.9 million in the fourth quarter of 2016. At September 30, 2017 and December 31, 2016 , $4.2 million was included in other accrued liabilities in our consolidated balance sheet, and we have posted a bond pending resolution of post-trial matters.

ARPA also requested that pre-judgment interest of $4.1 million plus post-judgment interest at a rate of 0.77% compounded annually be added to the judgment, together with certain litigation costs. The court granted ARPA $3.7 million of pre-

24



judgment interest on July 21, 2017, which we recorded in our June 30, 2017 condensed consolidated financial statements in other accrued liabilities and interest expense. B&W commenced an appeal of the judgment on August 18, 2017, and ARPA filed a notice of cross appeal on August 31, 2017.

Stockholder litigation

On March 3, 2017 and March 13, 2017, the Company and certain of its officers were named as defendants in two separate but largely identical complaints alleging violations of the federal securities laws. The complaints were brought on behalf of a putative class of investors who purchased the Company's common stock between July 1, 2015 and February 28, 2017 and were filed in the United States District Court for the Western District of North Carolina (collectively, the "Stockholder Litigation"). During the second quarter of 2017, the Stockholder Litigation was consolidated into a single action and a lead plaintiff was selected by the Court. During the third quarter of 2017, the plaintiff further amended its complaint. As amended, the complaint now purports to cover investors who purchased shares between June 17, 2015 and August 9, 2017.

The plaintiff in the Stockholder Litigation alleges fraud, misrepresentation and a course of conduct relating to the facts surrounding certain projects underway in the Company's Renewable segment, which, according to the plaintiff, had the effect of artificially inflating the price of the Company's common stock. The plaintiff further alleges that stockholders were harmed when the Company disclosed on February 28, 2017 and August 9, 2017 that it would incur losses on these projects. The plaintiff seeks an unspecified amount of damages.

We believe the allegations in the Stockholder Litigation are without merit, and that the outcome of the Stockholder Litigation will not have a material adverse impact on our consolidated financial condition, results of operations or cash flows, net of any insurance coverage.

Other

Due to the nature of our business, we are, from time to time, involved in routine litigation or subject to disputes or claims related to our business activities, including, among other things: performance or warranty-related matters under our customer and supplier contracts and other business arrangements; and workers' compensation, premises liability and other claims. Based on our prior experience, we do not expect that any of these other litigation proceedings, disputes and claims will have a material adverse effect on our consolidated financial condition, results of operations or cash flows.

NOTE 20 – DERIVATIVE FINANCIAL INSTRUMENTS

Our foreign currency exchange ("FX") forward contracts that qualify for hedge accounting are designated as cash flow hedges. The hedged risk is the risk of changes in functional-currency-equivalent cash flows attributable to changes in FX spot rates of forecasted transactions related to long-term contracts. We exclude from our assessment of effectiveness the portion of the fair value of the FX forward contracts attributable to the difference between FX spot rates and FX forward rates. At September 30, 2017 and 2016 , we had deferred approximately $2.5 million and $3.4 million , respectively, of net gains on these derivative financial instruments in accumulated other comprehensive income ("AOCI").

At September 30, 2017 , our derivative financial instruments consisted solely of FX forward contracts. The notional value of our FX forward contracts totaled $121.2 million at September 30, 2017 with maturities extending to November 2019. These instruments consist primarily of contracts to purchase or sell euros and British pounds sterling. We are exposed to credit-related losses in the event of nonperformance by counterparties to derivative financial instruments. We attempt to mitigate this risk by using major financial institutions with high credit ratings. The counterparties to all of our FX forward contracts are financial institutions party to our United States revolving credit facility. Our hedge counterparties have the benefit of the same collateral arrangements and covenants as described under our United States revolving credit facility. During the third quarter of 2017, our hedge counterparties removed the lines of credit supporting new FX forward contracts. Subsequently, we have not entered into any new FX forward contracts.

25




The following tables summarize our derivative financial instruments:
 
Asset and Liability Derivative
(in thousands)
September 30, 2017
December 31, 2016
Derivatives designated as hedges:
 
 
Foreign exchange contracts:
 
 
Location of FX forward contracts designated as hedges:
 
 
Accounts receivable-other
$
1,694

$
3,805

Other assets
750

665

Accounts payable
542

1,012

Other liabilities
183

213

 
 
 
Derivatives not designated as hedges:
 
 
Foreign exchange contracts:
 
 
Location of FX forward contracts not designated as hedges:
 
 
Accounts receivable-other
$
1,238

$
105

Accounts payable
2,594

403

Other liabilities
8

7


The effects of derivatives on our financial statements are outlined below:
 
Three months ended September 30,
 
Nine months ended September 30,
(in thousands)
2017
2016
 
2017
2016
Derivatives designated as hedges:
 
 
 
 
 
Cash flow hedges
 
 
 
 
 
Foreign exchange contracts
 
 
 
 
 
Amount of gain (loss) recognized in other comprehensive income
$
398

$
1,419

 
$
2,642

5,476

Effective portion of gain (loss) reclassified from AOCI into earnings by location:
 
 
 
 
 
Revenues
2,092

1,940

 
8,094

4,524

Cost of operations
159

24

 
113

57

Other-net
(7,930
)
(445
)
 
(7,438
)
(1,065
)
Portion of gain (loss) recognized in income that is excluded from effectiveness testing by location:
 
 
 
 
 
Other-net
(7,005
)
1,607

 
(10,524
)
3.408

 
 
 
 
 
 
Derivatives not designated as hedges:
 
 
 
 
 
Forward contracts
 
 
 
 
 
Loss recognized in income by location:
 
 
 
 
 
Other-net
$
(1,364
)
$
(154
)
 
$
(1,709
)
$
(567
)

26




NOTE 21 – FAIR VALUE MEASUREMENTS

The following tables summarize our financial assets and liabilities carried at fair value, all of which were valued from readily available prices or using inputs based upon quoted prices for similar instruments in active markets (known as "Level 1" and "Level 2" inputs, respectively, in the fair value hierarchy established by the FASB Topic Fair Value Measurements and Disclosures ).
(in thousands)
 
 
 
 
 
Available-for-sale securities
September 30, 2017
 
Level 1
Level 2
Level 3
Commercial paper
$
5,394

 
$
—

$
5,394

$
—

Mutual funds
1,286

 
—

1,286

—

U.S. Government and agency securities
7,243

 
7,243

—

—

Total fair value of available-for-sale securities
$
13,923

 
$
7,243

$
6,680

$
—


(in thousands)
 
 
 
 
 
Available-for-sale securities
December 31, 2016
 
Level 1
Level 2
Level 3
Commercial paper
$
6,734

 
$
—

$
6,734

$
—

Certificates of deposit
2,251

 
—

2,251

—

Mutual funds
1,152

 
—

1,152

—

Corporate bonds
750

 
750

—

—

U.S. Government and agency securities
7,104

 
7,104

—

—

Total fair value of available-for-sale securities
$
17,991

 
$
7,854

$
10,137

$
—


Derivatives
September 30, 2017
 
December 31, 2016
Forward contracts to purchase/sell foreign currencies
$
355
 
 
$
2,940
 

Available-for-sale securities

We estimate the fair value of available-for-sale securities based on quoted market prices. Our investments in available-for-sale securities are presented in "other assets" on our condensed consolidated balance sheets.

Derivatives

Derivative assets and liabilities currently consist of FX forward contracts. Where applicable, the value of these derivative assets and liabilities is computed by discounting the projected future cash flow amounts to present value using market-based observable inputs, including FX forward and spot rates, interest rates and counterparty performance risk adjustments.

Other financial instruments

We used the following methods and assumptions in estimating our fair value disclosures for our other financial instruments:
•
Cash and cash equivalents and restricted cash and cash equivalents . The carrying amounts that we have reported in the accompanying condensed consolidated balance sheets for cash and cash equivalents and restricted cash and cash equivalents approximate their fair values due to their highly liquid nature.
•
Revolving debt . We base the fair values of debt instruments on quoted market prices. Where quoted prices are not available, we base the fair values on the present value of future cash flows discounted at estimated borrowing rates for similar debt instruments or on estimated prices based on current yields for debt issues of similar quality and terms. The fair value of our debt instruments approximated their carrying value at September 30, 2017 and December 31, 2016 .


27



Non-recurring fair value measurements

The purchase price allocation associated with the January 11, 2017 acquisition of Universal required significant fair value measurements using unobservable inputs. The fair value of the acquired intangible assets was determined using the income approach (see Note 4 ).

The other-than-temporary impairment of our equity method investment in TBWES (see Note 11 ) required significant fair value measurements using unobservable inputs ("Level 3" inputs as defined in the fair value hierarchy established by FASB Topic Fair Value Measurements and Disclosures ). We determined the impairment charge by first determining an estimate of the price that could be received to sell the assets and transfer the liabilities held by TBWES in an orderly transaction between market participants at June 30, 2017. The fair value of TBWES's net assets was determined through a combination of the cost approach, a market approach and an income approach.

Our interim goodwill impairment test and third quarter impairment charge required significant fair value measurements using unobservable inputs (see Note 13 ). The fair value of each reporting unit determined under Step 1 of the goodwill impairment test was based on an income approach using a discounted cash flow analysis, a market approach using multiples of revenue and EBITDA of guideline companies, and a market approach using multiples of revenue and EBITDA from recent, similar business combinations. The fair value of the assets and liabilities for the Renewable and SPIG reporting units determined under Step 2 of the goodwill impairment test were based on either an income or market approach.

The measurement of the net actuarial loss associated with our Canadian pension plan was determined using unobservable inputs (see Note 16 ). These inputs included the estimated discount rate, expected return on plan assets and other actuarial inputs associated with the plan participants.

The determination of the estimated fair value of the related party share repurchase required significant fair value measurements using unobservable inputs (see Note 18 ). We utilized a discounted cash flow model and estimates of our weighted average cost of capital on the transaction date to derive the estimated fair value of the share repurchase.

NOTE 22 – SUPPLEMENTAL CASH FLOW INFORMATION

During the nine months ended September 30, 2017 and 2016 , we recognized the following non-cash activity in our condensed consolidated financial statements:
(in thousands)
2017
2016
Accrued capital expenditures in accounts payable
$
1,118

$
2,543


During the nine months ended September 30, 2017 and 2016 , we recognized the following cash activity in our condensed consolidated financial statements:
(in thousands)
2017
2016
Income tax payments (refunds), net
$
(11,190
)
$
11,289

Interest payments on our United States revolving credit facility
$
2,876

$
40

Interest payments on our second lien term loan facility
$
2,492

$
—


NOTE 23 – NEW ACCOUNTING STANDARDS

New accounting standards that could affect our consolidated financial statements in the future are summarized as follows:

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers . The new accounting standard provides a comprehensive model to use in accounting for revenue from contracts with customers and will replace most existing revenue recognition guidance when it becomes effective. In 2016, the FASB issued accounting standards updates to address implementation issues and to clarify the guidance for identifying performance obligations, licenses; determining if an entity is the principal or agent in a revenue arrangement; and technical corrections and improvements on topics including: contract costs, loss provisions on construction and production contracts and disclosures for remaining and prior-period performance obligations. The new accounting standard also requires more detailed disclosures to enable financial statement users to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with

28



customers. The new accounting standard is effective for interim and annual reporting periods beginning after December 15, 2017, and permits retrospectively applying the guidance to each prior reporting period presented (full retrospective method) or prospectively applying the guidance and providing additional disclosures comparing results to previous guidance, with the cumulative effect of initially applying the guidance recognized in beginning retained earnings at the date of initial application (modified retrospective method). We have developed a cross-functional team of B&W professionals from across each of our reportable segments and an implementation plan to adopt the new accounting standard. To date, we have analyzed our primary revenue streams and performed a detailed review of a sample of key contracts representative of our products and services in order to assess potential changes in our processes, systems, internal controls and the timing and method of revenue recognition and related disclosures. Based on our preliminary assessment, we do not expect the timing of revenue recognition to change significantly upon adoption of the new accounting standard; however, we are still assessing the impact to process, systems, internal controls and disclosures. We plan to adopt the new accounting standard on January 1, 2018 under the modified retrospective method. The FASB has issued, and may issue in the future, interpretative guidance, which may cause our evaluation to change. Our evaluation will include the existing, uncompleted contracts at that time the new accounting standard is adopted, and as a result, we will not be able to make a final determination about the impact of adopting the new accounting standard until the first quarter of 2018.

In January 2016, the FASB issued ASU 2016-1, Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities . The new accounting standard is effective for us beginning in 2018, but early adoption is permitted. The new accounting standard requires investments such as available-for-sale securities to be measured at fair value through earnings each reporting period as opposed to changes in fair value being reported in other comprehensive income. We do not expect the new accounting standard to have a significant impact on our financial results when adopted.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) . With adoption of this standard, lessees will have to recognize almost all leases as a right-of-use asset and a lease liability on their balance sheet. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance. Classification will be based on criteria that are similar to those applied in current lease accounting, but without explicit bright lines. The new accounting standard is effective for us beginning in 2019. We do not expect the new accounting standard to have a significant impact on our financial results when adopted.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments . The new guidance is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. Of the eight classification-related changes this new standard will require in the statement of cash flows, only two of the classification requirements are relevant to our historical cash flow statement presentation (presentation of debt prepayments and presentation of distributions from equity method investees). However, the new classification requirements would not have changed our historical statement of cash flows. The new standard is effective for us beginning in 2018. We do not plan to early adopt the new accounting standard because the impact is not expected to be material to our consolidated statement of cash flows when adopted.

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. The new guidance clarifies the definition of a business in an effort to make the guidance more consistent. The guidance provides a test for determining when a group of assets and business activities is not a business, specifically, when substantially all of the fair value of the gross assets acquired or disposed of are concentrated in a single identifiable asset or group of assets, and if inputs and substantive processes that significantly contribute to the ability to create outputs is not present. The new accounting standard is effective for us beginning in 2018. We do not expect the new accounting standard to have a significant impact on our financial results when adopted.

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The new guidance removes the requirement to compare implied fair value of goodwill with the carrying amount, therefore impairment charges would be recognized immediately by the amount which carrying value exceeds fair value. The new accounting standard is effective beginning in 2020. We are currently assessing the impact that adopting this new accounting standard will have on our financial statements.

In March 2017, the FASB issued ASU 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Benefit Cost and Net Periodic Postretirement Benefit Cost . The new guidance classifies service cost as the only component of net periodic benefit cost presented in cost of operations, whereas the other components will be presented in other income. This will affect not only how we present net periodic benefit cost, but also how we present segment gross profit and operating income upon adoption. The new accounting standard is effective for us beginning in 2018. We have

29



assessed the impact of adopting the new standard on our consolidated statement of operations and determined the required reclassifications will primarily impact our Power segment's gross profit. The changes in the classification of the historical components of net periodic benefit costs are summarized in the following table:
Pension & other postretirement benefit costs (benefits)
(in thousands)
December 31,
2016
December 31,
2015
Current
classification
Future
classification
Service cost
$
1,703

$
13,701

Cost of operations
Cost of operations
Interest cost
41,772

50,644

Cost of operations
Other income (expense)
Expected return on plan assets
(61,939
)
(68,709
)
Cost of operations
Other income (expense)
Amortization of prior service cost
250

307

Cost of operations
Other income (expense)
Recognized net actuarial losses -
mark to market adjustments
24,110

40,210

Cost of operations or SG&A expenses
Other income (expense)
Net periodic benefit cost (benefit)
$
5,896

$
36,153

 
 

New accounting standards that were adopted during the nine months ended September 30, 2017 are summarized as follows:

In the nine months ended September 30, 2017 , the Company adopted ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-based Payment Accounting . This new accounting standard has affected how we account for share-based payments, with the most significant impact being the impact of income taxes associated with share-based compensation. Subsequent to adoption, the income tax effects related to share-based payments will be recorded as a component of income tax expense (or benefit) as they occur, rather than being classified as a component of additional paid-in capital. In addition, the effect of excess tax benefits will now be presented in the cash flow statement as an operating activity. We prospectively adopted the new accounting standard. See Note 7 for the effect on the statement of operations for the three and nine months ended September 30, 2017 .

In the nine months ended September 30, 2017 , the Company adopted ASU 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory . This new accounting standard requires that first-in, first-out inventory be measured at the lower of cost or net realizable value. Under GAAP prior to the adoption of this new accounting standard, inventory was measured at the lower of cost or market, where market was defined as replacement cost, with a ceiling of net realizable value and a floor of net realizable value minus a normal profit margin. Although this new accounting standard raises the threshold on when charges against inventory can occur, we do not expect a significant impact because we have not had significant inventory charges in the past. We prospectively adopted the new accounting standard and it had no impact on our condensed consolidated financial statements for the three or nine months ended September 30, 2017 .

NOTE 24 – SUBSEQUENT EVENT

In the third quarter of 2017 and through the date of this report, we have announced plans to implement restructuring actions to improve our global cost structure and increase our financial flexibility. The restructuring actions include a workforce reduction at both the business segment and corporate levels totaling approximately 9% of our global workforce, SG&A expense reductions and new cost control measures, and office closures and consolidations in non-core geographies. These actions include reduction of approximately 30% of B&W Vølund's workforce, which will right-size its workforce to operate under a new execution model focused on B&W's core boiler, grate and environmental equipment technologies, with the balance of plant and civil construction scope being executed by a partner. We believe the new B&W Vølund business model provides the Company with a lower risk profile and aligns with B&W's strategy of being an industrial and power equipment technology and solutions provider. Other actions are focused on productivity and efficiency gains to enhance profitability and cash flows, and to mitigate the impact of lower demand in the global coal-fired power market. Total estimated costs associated with these restructuring actions are anticipated to be approximately $20 million , most of which will be recognized in the fourth quarter of 2017, and the estimated annual savings are expected to be approximately $45 million in 2018.


30


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and 21E of the Securities Exchange Act of 1934. You should not place undue reliance on these statements. These forward-looking statements include statements that reflect the current views of our senior management with respect to our financial performance and future events with respect to our business and industry in general. Statements that include the words "expect," "intend," "plan," "believe," "project," "forecast," "estimate," "may," "should," "anticipate" and similar statements of a future or forward-looking nature identify forward-looking statements. Forward-looking statements address matters that involve risks and uncertainties. Accordingly, there are or will be important factors that could cause our actual results to differ materially from those indicated in these statements. These factors include the cautionary statements included in this report and the factors set forth under "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2016 ("Annual Report") filed with the Securities and Exchange Commission. If one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what we anticipate. We assume no obligation to revise or update any forward-looking statement included in this report for any reason, except as required by law.

OVERVIEW OF RESULTS

In this report, unless the context otherwise indicates, "B&W," "we," "us," "our" and "the Company" mean Babcock & Wilcox Enterprises, Inc. and its consolidated subsidiaries. The presentation of the components of our revenues, gross profit and operating income on the following pages of this Management's Discussion and Analysis of Financial Condition and Results of Operations is consistent with the way our chief operating decision maker reviews the results of operations and makes strategic decisions about the business.

We generally recognize revenues and related costs from long-term contracts on a percentage-of-completion basis. Accordingly, we review contract price and cost estimates regularly as work progresses and reflect adjustments in profit proportionate to the percentage of completion in the periods in which we revise estimates to complete the contract. To the extent that these adjustments result in a reduction of previously reported profits from a project, we recognize a charge against current earnings. Changes in the estimated results of our percentage of completion contracts are necessarily based on information available at the time that the estimates are made and are based on judgments that are inherently uncertain as they are predictive in nature. As with all estimates to complete used to measure contract revenue and costs, actual results can and do differ from our estimates made over time.

Our Renewable segment continued to make progress towards completing its portfolio of European renewable energy projects in the third quarter of 2017, represented by a $60.4 million increase in revenue compared to the second quarter of 2017. Our near break-even gross profit in the Renewable segment in the third quarter of 2017 is a result of recognizing gross profit on our loss contracts only to the extent there are current changes in estimated losses at completion. In September 2017, we identified the failure of a structural steel beam on one of these projects, which temporarily stopped work in the boiler building pending corrective actions to stabilize the structure that are expected to be complete in the fourth quarter of 2017. The engineering, design and manufacturing of the steel structure were the responsibility of subcontractors. A similar design was also used on two of the other projects, and although no structural failure occurred on these other two projects, work was stopped for a short period of time while reinforcement of the structures is completed. The costs related to these structural steel issues is estimated to be approximately $20 million, primarily related to project delays, and is included as a current charge in the third quarter of 2017. Also in the third quarter of 2017, we adjusted the design of three of these renewable facilities to increase the guaranteed power output, which will allow us to achieve contractual bonus opportunities for the higher output. The bonus opportunities increased the estimated selling price of the three contracts by approximately $15 million in total, and this positive change in estimated cost to complete was fully recognized in the third quarter of 2017 because each of these three were loss projects.

Our Power segment continued to deliver gross margins consistent with our expectations in the third quarter of 2017. As previously disclosed, we anticipated a future decline in the coal power generation markets and proactively responded by restructuring our Power segment to help us hold gross margins. Our 2016 restructuring has been effective, and the Power segment's gross margin percentage has not significantly changed despite the 4.5% decline in revenues in the third quarter of 2017 compared to the same quarter in 2016 and the 19.7% decline in revenues in the nine months ended September 30, 2017

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compared to the nine months ended September 30, 2016. The Power segment also continues to benefit from consistent, effective contract execution.

The primary driver of the increase in Industrial segment revenues in the third quarter of 2017 was the $16.0 million contribution from Universal Acoustic & Emissions Technology, Inc. ("Universal"), which was acquired on January 11, 2017. The acquisition benefited the Industrial segment's gross profit in the third quarter of 2017, which helped offset the impact of a change in the product mix and challenges related to completing several cooling systems projects. Our MEGTEC business unit recorded sequential increases in quarterly bookings in 2017, which added to strong 2017 bookings at our SPIG business unit, and we expect continued improvement in the Industrial markets to benefit this segment.

We recorded goodwill impairment charges of $86.9 million in the third quarter of 2017. In the quarter, our market capitalization significantly decreased to below our stockholders' equity, which we attributed to the announcement of our second quarter 2017 results that included significant charges in the Renewable reporting unit. Accordingly, we increased the discount rate applied to future projected cash flows, which resulted in a $50.0 million goodwill impairment charge in our Renewable segment. Additionally in the third quarter of 2017, the forecast was reduced for our SPIG reporting unit based on a change in the market strategy implemented by the new segment management to focus on core geographies and products. The forecast reduction in combination with a short-term decrease in profitability attributable to specific current contracts and an increase in the discount rate applied to future projected cash flows resulted in a $36.9 million impairment charge to the SPIG reporting unit within the Industrial segment.

In the third quarter of 2017 and through the date of this report, we have announced plans to implement restructuring actions to improve our global cost structure and increase our financial flexibility. The restructuring actions include a workforce reduction at both the business segment and corporate levels totaling approximately 9% of our global workforce, selling, general and administrative ("SG&A") expense reductions and new cost control measures, and office closures and consolidations in non-core geographies. These actions include reduction of approximately 30% of B&W Vølund's workforce, which will right-size its workforce to operate under a new execution model focused on B&W's core boiler, grate and environmental equipment technologies, with the balance-of-plant and civil construction scope being executed by a partner. We believe the new B&W Vølund business model provides us with a lower risk profile and aligns with our strategy of being an industrial and power equipment technology and solutions provider. Other actions are focused on productivity and efficiency gains to enhance profitability and cash flows, and to mitigate the impact of lower demand in the global coal-fired power market. Total estimated costs associated with these restructuring actions are anticipated to be less than $20 million, most of which will be recognized in the fourth quarter of 2017, and the estimated annual savings are expected to be at least $45 million in 2018.

We used $19.7 million of cash in the third quarter of 2017. Net borrowings on our United States revolving credit facility were $59.2 million , which included the repayment of $115.5 million of the revolving credit facility balance with net proceeds from the issuance of our second lien term loan on August 9, 2017. Our use of cash was primarily to fund progress on our Renewable segment contracts. We expect our operations to use cash through the fourth quarter of 2017 and first part of 2018, particularly in the Renewable segment, as we fund contract losses and work down advanced bill positions. Our forecasted use of cash is expected to be funded in part through borrowings from our United States revolving credit facility.

Year-over-year comparisons of our results were also affected by:

•
$4.0 million and $8.8 million of intangible amortization expense in the third quarters of 2017 and 2016, respectively, and $14.5 million and $11.9 million of expense in the nine months ended September 30, 2017 and 2016, respectively. We expect $18.0 million of amortization expense in the full year 2017 compared to $19.9 million of amortization in the full year 2016.
•
$3.6 million and $7.9 million of restructuring expense was recognized in the third quarter and nine months ended September 30, 2017, respectively, compared to $2.0 million and $34.6 million of restructuring expense in the third quarter and nine months ended September 30, 2016, respectively. The pre-2017 actions restructured our business that serves the power generation market in advance of lower demand projected for power generation from coal in the United States. The 2017 restructuring actions were implemented to help the Power segment continue to manage its fixed costs, align our Renewable segment with the changing business model and achieve SG&A cost savings.
•
$0.2 million and $1.0 million  and of expense related to the spin-off from our former Parent was recognized in the third quarter and nine months ended September 30, 2017 , respectively, compared to $0.4 million and $3.4 million in the third quarter and nine months ended September 30, 2016, respectively. The costs were primarily attributable to employee retention awards.

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•
$3.7 million of interest payable was awarded by the court based on the outcome of our appeal of the November 21, 2016 Arkansas River Power Authority ("ARPA") trial verdict, which was recorded as an increase in interest expense during the nine months ended September 30, 2017.
•
$0.3 million and $0.8 million of SG&A expenses in the third quarters of 2017 and 2016 associated with acquisition and integration costs related to SPIG and Universal, respectively, and $3.1 million and $1.9 million of acquisition and integration costs in the nine months ended September 30, 2017 and 2016, respectively.
•
$1.1 million of actuarially determined mark to market losses were recognized in the nine months ended September 30, 2017 , which relate to lump sum settlement payments from our Canadian pension plan in the first quarter of 2017.
•
$0.6 million and $30.5 million of actuarially determined mark to market pension losses in the quarter and nine months ended September 30, 2016, respectively, were triggered by the closure of our West Point, Mississippi manufacturing facility in May 2016 that resulted in a curtailment in our United States pension plan and lump sum payments from our Canadian pension plan in April 2016 that resulted in plan settlements.

Our third quarter and year to date segment and other operating results are described in more detail below.

RESULTS OF OPERATIONS

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2017 VS. 2016

Selected financial highlights are presented in the table below:
 
Three months ended September 30,
 
Nine months ended September 30,
(In thousands)
2017
2016
$ Change
 
2017
2016
$ Change
Revenues:
 
 
 
 
 
 
 
Power segment
$
202,222

$
211,749

$
(9,527
)
 
$
612,274

$
762,293

$
(150,019
)
Renewable segment
108,557

124,344

(15,787
)
 
262,168

293,593

(31,425
)
Industrial segment
99,288

76,809

22,479

 
281,734

147,275

134,459

Eliminations
(1,364
)
(1,947
)
583

 
(6,540
)
(4,882
)
(1,658
)
 
408,703

410,955

(2,252
)
 
1,149,636

1,198,279

(48,643
)
Gross profit (loss):
 
 
 
 
 
 
 
Power segment
40,629

48,896

(8,267
)
 
132,653

170,903

(38,250
)
Renewable segment
181

18,592

(18,411
)
 
(100,119
)
14,468

(114,587
)
Industrial segment
9,461

14,601

(5,140
)
 
34,240

33,506

734

Intangible amortization expense included in cost of operations
(2,984
)
(7,752
)
4,768

 
(11,455
)
(8,833
)
(2,622
)
Mark to market adjustments included in cost of operations
—

(580
)
580

 
(954
)
(30,079
)
29,125

 
47,287

73,757

(26,470
)
 
54,365

179,965

(125,600
)
Goodwill impairment charges
(86,903
)
—

(86,903
)
 
(86,903
)
—

(86,903
)
SG&A expenses
(59,225
)
(59,615
)
390

 
(192,742
)
(179,225
)
(13,517
)
Restructuring activities and spin-off transaction costs
(3,775
)
(2,395
)
(1,380
)
 
(8,910
)
(38,021
)
29,111

Research and development costs
(2,291
)
(2,361
)
70

 
(7,454
)
(8,273
)
819

Intangible amortization expense included in SG&A
(1,016
)
(1,018
)
2

 
(2,999
)
(3,071
)
72

Mark to market adjustments included in SG&A
—

(64
)
64

 
(106
)
(465
)
359

Equity in income of investees
1,234

2,827

(1,593
)
 
4,813

4,887

(74
)
Impairment of equity method investment
—

—

—

 
(18,193
)
—

(18,193
)
Gains (losses) on asset disposals, net
(59
)
2

(61
)
 
(63
)
17

(80
)
Operating income (loss)
$
(104,748
)
$
11,133

$
(115,881
)
 
$
(258,192
)
$
(44,186
)
$
(214,006
)

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Condensed and consolidated results of operations

Three months ended September 30, 2017 vs. 2016

Revenues decreased by $2.3 million to $408.7 million in the third quarter of 2017 as compared to $411.0 million in the third quarter of 2016. Anticipated decreases in construction activities associated with new build and retrofit projects in the Power segment and a decrease in the revenue recognized in the Renewable segment resulting from ongoing performance challenges on our renewable energy contracts were partially offset by the increase in revenue in the Industrial segment resulting from the acquisition of Universal on January 11, 2017.

In the third quarter of 2017, we had consolidated gross profit of $47.3 million , which compares to gross profit of $73.8 million in the third quarter of 2016, a decrease of $26.5 million . The primary drivers of the decrease were the six uncompleted European loss contracts in the Renewable segment (see Note 5 in the condensed consolidated financial statements), productivity issues on new build cooling system projects in the Industrial segment and the volume impact of the decline in the Power segment's revenues, which were partially offset by the gross profit contribution from the Universal acquisition. Intangible asset amortization expense is discussed in further detail in the sections below.

Our goodwill impairment charges, restructuring expense and equity in income of investees are discussed in further detail in the sections below.

Nine months ended September 30, 2017 vs. 2016

Revenues decreased by $48.6 million to $1.15 billion in the nine months ended September 30, 2017 as compared to $1.20 billion for the corresponding nine month period in 2016. The primary decreases were in construction activities associated with new build and retrofit projects in the Power segment and a decrease in the revenue recognized in the Renewable segment resulting from ongoing performance challenges on six of our renewable energy contracts. These declines were partially offset by the increase in revenue in the Industrial segment resulting from the acquisitions of SPIG and Universal.

Gross profit decreased by $125.6 million to $54.4 million in the nine months ended September 30, 2017 as compared to $180.0 million in the corresponding period in 2016. The primary drivers of the decrease were the six uncompleted European loss contracts in the Renewable segment (see Note 5 in the condensed consolidated financial statements) and the impact of the decline in the Power segment's revenues, which were partially offset by gross profit contributions from the SPIG and Universal acquisitions. Intangible asset amortization expense is discussed in further detail in the sections below.

Excluding amortization of intangible assets and pension mark to market adjustments, SG&A expenses increased by $13.5 million in the nine months ended September 30, 2017 to $192.7 million as compared to $179.2 million in the corresponding nine month period in 2016, primarily related to adding the SPIG and Universal businesses and ongoing project support activities in the Renewable segment, partially offset by savings from our 2016 restructuring actions. Intangible asset amortization expense and pension mark to market adjustments are discussed in further detail in the sections below.

Equity in income of investees during the nine months ended September 30, 2017 includes a $18.2 million other-than-temporary-impairment of our investment in Thermax Babcock & Wilcox Energy Solutions Private Limited ("TBWES") that we recorded in the second quarter of 2017. The impairment charge was a result of the strategic change we and our joint venture partner have made due to the decline in forecasted market opportunities in India.

Our goodwill impairment charges and restructuring expense are discussed in further detail in the sections below.


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Power
 
Three months ended September 30,
 
Nine months ended September 30,
(In thousands)
2017
2016
$ Change
 
2017
2016
$ Change
Revenues
$
202,222

$
211,749

$
(9,527
)
 
$
612,274

$
762,293

$
(150,019
)
Gross profit
$
40,629

$
48,896

$
(8,267
)
 
$
132,653

$
170,903

$
(38,250
)
Gross margin %
20
%
23
%
 
 
22
%
22
%
 

Three months ended September 30, 2017 vs. 2016

Revenues decreased 4% , or $9.5 million , to $202.2 million in the third quarter of 2017, compared to $211.7 million in the corresponding quarter in 2016. The revenue decrease is attributable to the anticipated decline in the coal power generation market, and primarily impacted our new build utility and environmental product and service line due to a decrease in construction activity. We resized our business in anticipation of these declines with our 2016 restructuring actions. Partially offsetting the revenue decrease was an increase in revenues associated with our retrofits product and service line in the third quarter of 2017 compared to the corresponding quarter in 2016.

Gross profit decreased 17% , or $8.3 million , to $40.6 million in the quarter ended September 30, 2017 , compared to gross profit of $48.9 million in the corresponding quarter in 2016. We were able to largely maintain our gross margin percentage as a result of the 2016 restructuring actions, which partially offset the gross profit effect of lower sales volumes. Compared to the third quarter of 2016, the primary decrease in gross profit in the third quarter of 2017 was attributable to the decrease in gross profit from a lower volume of construction activity associated with our new build utility and environmental equipment product and service line. Also contributing to the decrease were fewer net improvements on projects that were completed this year versus last year.

Nine months ended September 30, 2017 vs. 2016

Revenues decreased 20% , or $150.0 million , to $612.3 million in the nine months ended September 30, 2017 , compared to $762.3 million in the corresponding nine month period in 2016. The revenue decrease is attributable to the anticipated decline in the coal power generation market discussed above. Compared to the nine months ended September 30, 2016, the primary decrease in revenues in the nine months ended September 30, 2017 was attributable to a decline new build utility and environmental equipment and retrofit projects primarily due to a decrease in construction activity. Partially offsetting those declines in revenues was an increase in industrial steam generation revenues in the nine months ended September 30, 2017 compared to the corresponding nine month period in 2016.

Gross profit decreased 22% , or $38.3 million , to $132.7 million in the nine months ended September 30, 2017 , compared to $170.9 million in the corresponding nine month period in 2016. We were able to maintain our gross margin percentage as a result of the 2016 restructuring actions, which partially offset the gross profit effect of lower sales volumes. Compared to the nine months ended September 30, 2016, the decrease in gross margins are attributable to the same reasons discussed in the three month explanations above.

Renewable
 
Three months ended September 30,
 
Nine months ended September 30,
(In thousands)
2017
2016
$ Change
 
2017
2016
$ Change
Revenues
$
108,557

$
124,344

$
(15,787
)
 
$
262,168

$
293,593

$
(31,425
)
Gross profit (loss)
$
181

$
18,592

$
(18,411
)
 
$
(100,119
)
$
14,468

$
(114,587
)
Gross margin %
—
%
15
%

 
(38
)%
5
%


Three months ended September 30, 2017 vs. 2016

Revenues decreased 13% , or $15.8 million , to $108.6 million in the third quarter of 2017, compared to $124.3 million in the corresponding quarter in 2016. The number of contracts and level of activity in the segment during the third quarter of 2017 and 2016 were comparable. The $15.8 million decrease in revenue in the third quarter of 2017 was primarily attributable to revisions in our estimates of progress and estimated liquidated damages on six of our renewable energy contracts.

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Gross profit decreased $18.4 million in the third quarter of 2017 to $0.2 million , compared to $18.6 million in the corresponding quarter in 2016. The decrease was primarily a result of six renewable energy loss contracts that remained uncompleted as of September 30, 2017 .The loss contracts are not expected to contribute any gross profit to the Renewable segment throughout 2017 unless there are revisions to our estimated revenues or costs at completion in future periods.

Nine months ended September 30, 2017 vs. 2016

Revenues decreased 11% in the nine months ended September 30, 2017 to $262.2 million , compared to $293.6 million in the corresponding nine month period in 2016. The number of contracts and level of activity in the segment during the nine months ended September 30, 2017 and 2016 were comparable. The decrease in revenues in the nine months ended September 30, 2017 is due to the same reasons noted in the three month explanations above.

Gross profit decreased in the nine months ended September 30, 2017 to a loss of $100.1 million , compared to gross profit of $14.5 million in the corresponding nine month period in 2016. Changes in estimates to complete our renewable energy contracts resulted in $123.8 million in charges during the nine months ended September 30, 2017.

See Note 5 in the condensed consolidated financial statements for additional information on the impact of the segment's renewable energy contracts on our results of operations in the third quarters and nine months ended September 30, 2017 and 2016.

Industrial
 
Three months ended September 30,
 
Nine months ended September 30,
(In thousands)
2017
2016
$ Change
 
2017
2016
$ Change
Revenues
$
99,288

$
76,809

$
22,479

 
$
281,734

$
147,275

$
134,459

Gross profit
$
9,461

$
14,601

$
(5,140
)
 
$
34,240

$
33,506

$
734

Gross margin %
10
%
19
%


 
12
%
23
%



Three months ended September 30, 2017 vs. 2016

Revenues increased 29% , or $22.5 million , to $99.3 million in the third quarter of 2017, compared to $76.8 million in the corresponding quarter in 2016. The increase in revenues in the Industrial segment is attributable to organic growth from new build cooling systems projects, complemented by the acquisition of Universal on January 11, 2017, which added $16.0 million of revenue in the third quarter of 2017.

Gross profit decreased 35% , or $5.1 million , to $9.5 million in the third quarter of 2017, compared to $14.6 million in the corresponding quarter in 2016. The acquisition of Universal contributed $3.3 million of gross profit in the third quarter of 2017. The year-over-year net decrease in gross margin percentage reflects product mix, as new build cooling system projects generally have lower margins than other products and services in the segment. In addition, the Industrial segment's gross profit in the third quarter of 2017 also was affected by productivity issues on new build cooling system projects. The productivity issues caused us to increase project cost estimates and deploy additional resources to complete the projects on time.

Nine months ended September 30, 2017 vs. 2016

Revenues increased 91% , or $134.5 million , to $281.7 million in the nine months ended September 30, 2017 , compared to $147.3 million in the corresponding nine month period in 2016. The increase in revenues in the Industrial segment is primarily attributable to the July 1, 2016 acquisition of SPIG and the January 11, 2017 acquisition of Universal, which together added $193.1 million of revenue in the nine months ended September 30, 2017. Partially offsetting the increase is a $20.4 million decline in revenues attributable to environmental solutions sales in the United States, primarily in the first half of 2017.

Gross profit increased 2% , or $0.7 million , to $34.2 million in the nine months ended September 30, 2017 , compared to $33.5 million in the corresponding nine month period in 2016. The acquisitions of SPIG and Universal contributed $12.6 million of

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gross profit in the nine months ended September 30, 2017 . The year-over-year decrease in gross margins are attributable to the same reasons discussed in the three month explanations above.

Bookings and backlog

Bookings and backlog are not measures recognized by generally accepted accounting principles. It is possible that our methodology for determining bookings and backlog may not be comparable to methods used by other companies.

We generally include expected revenue from contracts in our backlog when we receive written confirmation from our customers authorizing the performance of work and committing the customers to payment for work performed. Backlog may not be indicative of future operating results, and projects in our backlog may be canceled, modified or otherwise altered by customers. Additionally, because we operate globally, our backlog is also affected by changes in foreign currencies each period. We do not include orders of our unconsolidated joint ventures in backlog.

Bookings represent additions to our backlog. We believe comparing bookings on a quarterly basis or for periods less than one year is less meaningful than for longer periods, and that shorter term changes in bookings may not necessarily indicate a material trend.
 
Three months ended September 30,
Nine months ended September 30,
(In millions)
2017
2016
2017
2016
Power
$122
$198
$476
$623
Renewable
35
(2)
86
124
Industrial
100
70
360
133
Other/eliminations
(2)
—
(40)
—
Bookings
$255
$266
$881
$880

(In approximate millions)
September 30, 2017
December 31, 2016
September 30, 2016
Power
$482
$618
$668
Renewable
1,064
1,241
1,289
Industrial
317
216
233
Other/eliminations
(37)
(3)
—
Backlog
$1,826
$2,072
$2,190

Of the backlog at September 30, 2017 , we expect to recognize revenues as follows:
(In approximate millions)
2017
2018
Thereafter
Total
Power
$155
$157
$170
$482
Renewable
129
232
703
1,064
Industrial
71
246
—
317
Other/eliminations
—
6
(43)
(37)
Backlog
$355
$641
$830
$1,826

Goodwill impairment

We recorded goodwill impairment charges of $86.9 million ($85.8 million net of tax) in the third quarter of 2017, which included a $50.0 million charge in the Renewable reporting unit and a $36.9 million charge in the SPIG reporting unit. The reasons for the charges and related assumptions made by management are described in Note 13 to the condensed consolidated financial statements. The third quarter 2017 impairment charges eliminated all of the Renewable reporting unit's goodwill balance at September 30, 2017 , and $38.0 million of the SPIG reporting unit's goodwill balance remains after the impairment charge; long-lived assets in the two reporting units were not impaired.

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SG&A expenses

SG&A expenses, excluding intangible asset amortization expense and pension mark to market adjustments, decreased by $0.4 million to $59.2 million in the third quarter of 2017, as compared to $59.6 million in the third quarter of 2016. The primary reasons for the decrease are the $8.7 million of SG&A savings from our 2016 restructuring focused on the Power segment and $0.5 million lower acquisition and integration costs, partially offset by $4.1 million of increased costs to support ongoing Renewable projects and a $4.7 million increase resulting from the Universal acquisition and other support activities in the Industrial segment.

SG&A expenses, excluding intangible asset amortization expense and pension mark to market adjustments, increased by $13.5 million in the nine months ended September 30, 2017 to $192.7 million , as compared to $179.2 million in the nine months ended September 30, 2016. SG&A increased by $20.2 million from the SPIG and Universal acquisitions, and $13.3 million to support ongoing Renewable projects, partially offset by $21.9 million of savings from our 2016 restructuring actions focused on the Power segment.

Research and development expenses

Research and development expenses relate to the development and improvement of new and existing products and equipment, as well as conceptual and engineering evaluation for translation into practical applications. These expenses were $2.3 million and $2.4 million for the quarter ended September 30, 2017 and 2016 , respectively, and $7.5 million and $8.3 million for the nine months ended September 30, 2017 and 2016 , respectively. We continuously evaluate each research and development project and collaborate with our business teams to ensure that we believe we are developing technology and products that are currently desired by the market and will result in future sales.

Restructuring

2017 Restructuring activities

In the third quarter of 2017 and through the date of this report, we have announced plans to implement restructuring actions to improve our global cost structure and increase our financial flexibility. The restructuring actions include a workforce reduction at both the business segment and corporate levels totaling approximately 9% of our global workforce, SG&A expense reductions and new cost control measures, and office closures and consolidations in non-core geographies. These actions include reduction of approximately 30% of B&W Vølund's workforce, which will right-size its workforce to operate under a new execution model focused on B&W's core boiler, grate and environmental equipment technologies, with the balance-of-plant and civil construction scope being executed by a partner. We believe the new B&W Vølund business model provides us with a lower risk profile and aligns with our strategy of being an industrial and power equipment technology and solutions provider. Other actions are focused on productivity and efficiency gains to enhance profitability and cash flows, and to mitigate the impact of lower demand in the global coal-fired power market. Total estimated costs associated with these restructuring actions are anticipated to be approximately $20 million, most of which will be recognized in the fourth quarter of 2017, and the estimated annual savings are expected to be approximately $45 million in 2018.

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Pre-2017 Restructuring activities

Our series of restructuring activities prior to 2017 were intended to help us maintain margins, make our costs more variable and allow our business to be more flexible. We made our manufacturing costs more volume-variable through the closure of manufacturing facilities and development of manufacturing arrangements with third parties. Also, we made our cost of engineering and supply chain more variable by creating a matrix organization capable of delivering products across multiple segments, and developing more volume-variable outsourcing arrangements with our joint venture partners and other third parties to meet fluctuating demand. This new matrix organization and operating model required different competencies and, in some cases, changes in leadership. While primarily applicable to our Power segment, our restructuring actions also benefit the Renewable and Industrial segments to a lesser degree. As demonstrated in our segment gross margin percentages, notwithstanding the challenges in our Renewable segment, we have achieved our objective of maintaining gross margins in the Power segment. Quantification of cost savings, however, is significantly dependent upon volume assumptions that have changed since the restructuring actions were initiated.

On June 28, 2016, we announced actions to restructure our power business in advance of lower projected demand for power generation from coal in the United States. These restructuring actions were primarily in the Power segment. Additionally, we announced leadership changes on December 6, 2016, which included the departure of members of management in our Renewable segment. The costs associated with these restructuring activities totaled $0.4 million and $4.0 million in the third quarter and nine months ended September 30, 2017, respectively, and were primarily related to $0.4 million and $2.4 million of employee severance in the third quarter and nine months ended September 30, 2017, respectively. This compares to the $1.4 million of charges in the third quarter and nine months ended September 30, 2016, respectively, which consisted of $0.5 million of employee severance costs, a $0.1 million non-cash impairment of the long-lived assets at B&W's one coal power plant and $0.8 million of costs related to organizational realignment of personnel and processes. We expect additional restructuring charges of up to $0.1 million , primarily related to additional manufacturing facility consolidation initiatives that will extend through the fourth quarter of 2017.

The restructuring initiatives announced prior to 2016 were intended to better position us for growth and profitability. They have primarily been related to facility consolidation and organizational efficiency initiatives. Theses costs were $0.5 million and $0.6 million in the third quarter of 2017 and 2016, respectively. These costs were $1.0 million and $3.8 million in the nine months ended September 30, 2017 and 2016, respectively. We expect nominal additional restructuring charges during the fourth quarter of 2017, primarily related to facility demolition and consolidation activities.

Spin-off transaction costs

Spin-off costs were primarily attributable to employee retention awards directly related to the spin-off from our former parent, The Babcock & Wilcox Company (now known as BWX Technologies, Inc.). In the third quarter and nine months ended September 30, 2017, we recognized spin-off costs of $0.2 million and $1.0 million , respectively. In the third quarter and nine months ended September 30, 2016, we recognized spin-off costs of $0.4 million and $3.4 million , respectively. In the second quarter of 2017, we disbursed $1.9 million of the accrued retention awards. Approximately $ 0.5 million of such costs remain, which we expect to be recognized through June 30, 2018.

Equity in income (loss) of investees

Our primary equity method investees included joint ventures in China and India, each of which manufactures boiler parts and equipment. Excluding the impairment described below, Equity in income of investees in the third quarter of 2017 decreased $1.6 million to $1.2 million from $2.8 million in the third quarter of 2016. The decrease in equity income of investees in the third quarter of 2017 is primarily attributable to winding down the joint venture in India as described in Note 11 to the condensed consolidated financial statements and to the December 22, 2016 sale of all of our interest in our former Australian joint venture, Halley & Mellowes Pty. Ltd. ("HMA"). HMA contributed $0.6 million and $1.5 million to our equity in income of investees in the third quarter of 2016 and the nine months ended September 30, 2016, respectively.

At September 30, 2017, our total investment in equity method investees was $87.4 million , which included a $58.7 million investment in Babcock & Wilcox Beijing Company, Ltd. ("BWBC"). Based in China, BWBC designs, manufactures and sells various power plant boilers and related aftermarket equipment. BWBC has been profitable historically, and we have determined that no other-than-temporary-impairment has occurred based on the value of its cash on hand, long-lived assets and expected future cash flows.

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Our investment in equity method investees also included a investment in TBWES, which has a manufacturing facility intended primarily for new build coal boiler projects in India. During the second quarter of 2017, both we and our joint venture partner decided to make a strategic change in the Indian joint venture due to the decline in forecasted market opportunities in India, which reduced the expected recoverable value of our investment in the joint venture. As a result of this strategic change, we recognized a $18.2 million other-than-temporary-impairment of our investment in TBWES in the second quarter of 2017. The impairment charge was based on the difference in the carrying value of our investment in TBWES and our share of the estimated fair value of TBWES's net assets. After recording the impairment charge, our remaining investment in TBWES at September 30, 2017 was $26.0 million .

We assess our investments in unconsolidated affiliates for other-than-temporary-impairment when significant changes occur in the investee's business or our investment philosophy. Such changes might include a series of operating losses incurred by the investee that are deemed other than temporary, the inability of the investee to sustain an earnings capacity that would justify the carrying amount of the investment or a change in the strategic reasons that were important when we originally entered into the joint venture. If an other-than-temporary-impairment were to occur, we would measure our investment in the unconsolidated affiliate at fair value.

Intangible asset amortization expense

We recorded $4.0 million and $8.8 million of intangible amortization expense during the third quarters of 2017 and 2016, respectively, and $14.5 million and $11.9 million of expense during the nine months ended September 30, 2017 and 2016, respectively. The increase in amortization expense is attributable to our last two business combinations, which increased our intangible assets by $74.7 million.

We acquired $55.2 million of intangible assets in the July 1, 2016 acquisition of SPIG. Amortization of the SPIG intangible assets resulted in $1.9 million and $7.1 million of expense during the third quarter of 2017 and 2016, respectively, and $7.3 million and $7.1 million of expense during the nine months ended September 30, 2017 and 2016, respectively.

We acquired $19.5 million of intangible assets in the January 11, 2017 acquisition of Universal. Amortization of the Universal intangible assets resulted in $0.5 million in the third quarter of 2017 and $2.6 million of expense during the nine months ended September 30, 2017 .

We expect total intangible amortization expense of $3.6 million in the fourth quarter of 2017.

Market to market adjustments

During the first quarter of 2017, lump sum payments from our Canadian pension plan resulted in a plan settlement of $0.4 million , which also resulted in interim mark to market accounting for the pension plan. The mark to market adjustment in the first quarter of 2017 was $0.7 million . The effect of these charges and mark to market adjustments are reflected in the $1.1 million " Recognized net actuarial loss." There were no significant plan settlements or interim mark to market adjustments during the second or third quarters of 2017.

During the second and third quarters of 2016, we recorded adjustments to our benefit plan liabilities resulting from certain curtailment and settlement events. In September 2016, lump sum payments from our Canadian pension plan resulted in a $0.1 million pension plan settlement charge. In May 2016, the closure of our West Point, Mississippi manufacturing facility resulted in a $1.8 million curtailment charge in our United States pension plan. In April 2016, lump sum payments from our Canadian pension plan resulted in a $1.1 million plan settlement charge. These events resulted in interim mark to market accounting for the respective benefit plans in 2016. Mark to market charges in the three months ended September 30, 2016 were $0.5 million in our Canadian pension plan. Mark to market charges for our United States and Canadian pension plans were $27.5 million in the nine months ended September 30, 2016. The pension mark to market charges were impacted by higher than expected returns on pension plan assets. The weighted-average discount rate used to remeasure the benefit plan liabilities at September 30, 2016 was 3.88% . The effect of these charges and mark to market adjustments are reflected in the "Recognized net actuarial loss."

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Provision for income taxes
 
Three months ended September 30,
 
Nine months ended September 30,
(In thousands)
2017
2016
$ Change
 
2017
2016
$ Change
Income (loss) before income taxes
$
(119,728
)
$
10,628

$
(130,356
)
 
$
(279,424
)
$
(44,586
)
$
(234,838
)
Income tax expense (benefit)
$
(5,639
)
$
1,617

$
(7,256
)
 
$
(7,644
)
$
(790
)
$
(6,854
)
Effective tax rate
4.7
%
15.2
%
 
 
2.7
%
1.8
%
 

We operate in numerous countries that have statutory tax rates below that of the United States federal statutory rate of 35%. The most significant of these foreign operations are located in Canada, Denmark, Germany, Italy, Mexico, Sweden and the United Kingdom with effective tax rates ranging between 19% and approximately 30%. In addition, the jurisdictional mix of our income (loss) before tax can be significantly affected by mark to market adjustments related to our pension and postretirement plans, which have been primarily in the United States, and the impact of discrete items.

Income (loss) before the provision for income taxes generated in the United States and foreign locations for the quarters ended September 30, 2017 and 2016 is presented in the table below.
 
Three months ended September 30,
 
Nine months ended September 30,
(In thousands)
2017
2016
 
2017
2016
United States
$
(3,653
)
$
8,831

 
$
(41,070
)
$
(20,611
)
Other than United States
(116,075
)
1,797

 
(238,354
)
(23,975
)
Income (loss) before income taxes
$
(119,728
)
$
10,628

 
$
(279,424
)
$
(44,586
)

See Note 7 to the condensed consolidated financial statements for explanation of differences between our effective income tax rate and our statutory rate.

Liquidity and capital resources

At September 30, 2017 , our cash and cash equivalents totaled $48.1 million and we had $209.7 million of total borrowings ( $247.2 million face value before debt discounts). In general, our foreign cash balances are not available to fund our United States operations unless the funds are repatriated or used to repay intercompany loans made from the United States to foreign entities, which could expose us to taxes we presently have not made a provision for in our results of operations. $44.8 million of our $48.1 million of unrestricted cash and cash equivalents at September 30, 2017 was held by foreign entities. We presently have no plans to repatriate these funds to the United States as we believe that our United States liquidity is sufficient to meet the anticipated cash requirements of our United States operations.

Historically, our primary sources of liquidity have been cash from operations, borrowings under our United States revolving credit facility and borrowings under foreign revolving credit facilities. Our borrowing capacity under our United States revolving credit facility is primarily limited by the financial covenants, which are most significantly affected by our trailing 12 months EBITDA (as defined in the credit agreement governing the facility). The significant loss accruals we recorded in the second quarter of 2017 and the fourth quarter of 2016 reduced our trailing 12 months EBITDA and, in turn, our ability to comply with our financial covenants. Accordingly, we amended our credit agreement in February 2017 and August 2017 to, among other things, provide covenant relief.

To provide additional liquidity, we entered into a second lien term loan facility on August 9, 2017 with an affiliate of American Industrial Partners ("AIP"). The second lien term loan facility consists of a second lien term loan in the principal amount of $175.9 million , all of which we borrowed on August 9, 2017 , and a delayed draw term loan in the principal amount of $20.0 million, which may be drawn in a single draw prior to June 30, 2020, subject to certain conditions. On August 9, 2017 , we used $125.0 million of the second lien term loan proceeds to repay borrowings outstanding under our United States revolving credit facility and pay fees and expenses related to the second lien term loan facility and the amendment of our United States revolving credit facility. The balance of the second lien term loan proceeds were used to repurchase approximately 4.8 million shares of our common stock held by an affiliate of AIP for approximately $50.9 million , which was one of the conditions precedent for the second lien term loan facility. As described in Note 18 to the

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condensed consolidated financial statements, the difference between the price paid for the shares and the estimated fair value of the shares repurchased was treated as a debt discount together with the direct financing costs.

We had approximately $94.7 million of availability under our United States revolving credit facility as of September 30, 2017 . Based on the amended United States revolving credit and second lien term loan facilities, we believe we have adequate sources of liquidity at September 30, 2017 to meet our cash requirements. Our assessment is based on our operating forecast, backlog, cash on-hand, borrowing capacity, planned capital investments and ability to manage future discretionary cash outflows during the next 12 month period. We expect our operations to use cash over the full year of 2017 and into the first half of 2018, particularly in the Renewable segment, as we fund contract losses and work down advanced bill positions. Our forecasted use of cash over the next 12 months is expected to be funded in part through borrowings from our United States revolving credit facility. Our United States revolving credit facility allows for nearly immediate borrowing of available capacity to fund cash requirements in the normal course of business, meaning that the minimum United States cash on hand is maintained to minimize borrowing costs. After giving effect to the $50.0 million of unrestricted cash on hand required under our financial covenants, we expect to have between $73.0 million and $173.0 million of available borrowing capacity from our United States revolving credit facility during the next 12 months based on our forecast of the trailing 12 month EBITDA calculation and forecasted borrowings. We expect cash and cash equivalents, cash flows from operations, and our borrowing capacity under our United States revolving credit facility and second lien term loan facility to be sufficient to meet our liquidity needs for at least 12 months from the date of this filing.

Our net cash used in operations was $150.8 million in the nine months ended September 30, 2017, compared to cash used in operations of $39.8 million in the nine months ended September 30, 2016. The change is partially attributable to the $228.3 million increase in our net loss in the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. Also, a $13.0 million net decrease in cash outflows associated with changes in accounts receivable, contracts in progress and advanced billings in the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 resulted primarily from the timing of billings and stage of completion of large, ongoing contracts in our Renewable segment. Generally, we try to structure contract milestones to mirror our expected cash outflows over the course of the contract; however, the timing of milestone receipts can greatly affect our overall cash position. Our portfolio of Renewable energy contracts at both September 30, 2017 and December 31, 2016 included milestone payments from our customers in advance of incurring the contract expenses, and as a result we are in an advance bill position on most of these contracts at both dates. Because of the advanced bill positions, combined with the increase in expected costs to complete the Renewable loss contracts, we expect the use of cash by the Renewable segment to continue during 2017 and into the first half of 2018 until these contracts are completed. Partially offsetting these operating cash outflows was a $25.6 million decrease in operating cash outflows associated with changes in contract related accounts payable and accrued liabilities in the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016.

Our net cash used in investing activities was $57.9 million in the nine months ended September 30, 2017 and $191.6 million in the nine months ended September 30, 2016. The net cash used in investing activities was primarily attributable to the $52.5 million acquisition of Universal on January 11, 2017, net of $4.4 million cash acquired in the business combination (see Note 4 to the condensed consolidated financial statements). The net cash used in investing activities in the nine months ended September 30, 2016 included $143.0 million acquisition of SPIG, net of $26.0 million cash acquired, and a $26.2 million contribution to increase our interest in TBWES, our joint venture in India. Capital expenditures were $10.7 million and $20.4 million in the nine months ended September 30, 2017 and 2016, respectively.

Our net cash provided by financing activities was $155.5 million in the nine months ended September 30, 2017 , compared to $64.6 million of cash used in the nine months ended September 30, 2016. The cash provided by financing activities in the nine months ended September 30, 2017 was a result of net borrowings from our United States revolving credit facility of $49.1 million , which were used to fund our working capital needs and the Universal acquisition. In addition, cash provided by financing activities in the nine months ended September 30, 2017 included proceeds from the issuance of the second lien term loan of $141.7 million , which were used to repurchase $16.7 million of shares from a related party, fund debt issuance costs and repay a portion of our United States revolving credit facility. The net cash used in financing activities in the nine months ended September 30, 2016 is primarily attributable to repurchases of $78.4 million of our common stock.


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United States revolving credit facility

On May 11, 2015, we entered into a credit agreement with a syndicate of lenders ("Credit Agreement") in connection with our spin-off from The Babcock & Wilcox Company. The Credit Agreement, which is scheduled to mature on June 30, 2020, provides for a senior secured revolving credit facility, initially in an aggregate amount of up to $600 million . The proceeds of loans under the Credit Agreement are available for working capital needs and other general corporate purposes, and the full amount is available to support the issuance of letters of credit.

On February 24, 2017 and August 9, 2017, we entered into amendments to the Credit Agreement (the “Amendments” and the Credit Agreement, as amended to date, the “Amended Credit Agreement”) to, among other things: (1) permit us to incur the debt under the second lien term loan facility, (2) modify the definition of EBITDA in the Amended Credit Agreement to exclude: up to $98.1 million of charges for certain Renewable segment contracts for periods including the quarter ended December 31, 2016, up to $115.2 million of charges for certain Renewable segment contracts for periods including the quarter ended June 30, 2017, up to $4.0 million of aggregate restructuring expenses incurred during the period from July 1, 2017 through September 30, 2018 measured on a consecutive four-quarter basis, realized and unrealized foreign exchange losses resulting from the impact of foreign currency changes on the valuation of assets and liabilities, and fees and expenses incurred in connection with the August 9, 2017 amendment, (3) replace the maximum leverage ratio with a maximum senior debt leverage ratio, (4) decrease the minimum consolidated interest coverage ratio, (5) limit our ability to borrow under the Amended Credit Agreement during the covenant relief period to $250.0 million in the aggregate, (6) reduce commitments under the revolving credit facility from $600.0 million to $500.0 million , (7) require us to maintain liquidity (as defined in the Amended Credit Agreement) of at least $75.0 million as of the last business day of any calendar month, (8) require us to repay outstanding borrowings under the revolving credit facility (without any reduction in commitments) with certain excess cash, (9) increase the pricing for borrowings and commitment fees under the Amended Credit Agreement, (10) limit our ability to incur debt and liens during the covenant relief period, (11) limit our ability to make acquisitions and investments in third parties during the covenant relief period, (12) prohibit us from paying dividends and undertaking stock repurchases during the covenant relief period (other than our share repurchase from an affiliate of AIP), (13) prohibit us from exercising the accordion described below during the covenant relief period, (14) limit our financial and commercial letters of credit outstanding under the Amended Credit Agreement to $30.0 million during the covenant relief period, (15) require us to reduce commitments under the Amended Credit Agreement with the proceeds of certain debt issuances and asset sales, (16) beginning with the quarter ended September 30, 2017, limit to no more than $25.0 million any cumulative net income losses attributable to certain Vølund projects, and (17) increase reporting obligations and require us to hire a third-party consultant. The covenant relief period will end, at our election, when the conditions set forth in the Amended Credit Agreement are satisfied, but in no event earlier than the date on which we provide the compliance certificate for our fiscal quarter ended December 31, 2018.

Other than during the covenant relief period, the Amended Credit Agreement contains an accordion feature that allows us, subject to the satisfaction of certain conditions, including the receipt of increased commitments from existing lenders or new commitments from new lenders, to increase the amount of the commitments under the revolving credit facility in an aggregate amount not to exceed the sum of (1) $200.0 million plus (2) an unlimited amount, so long as for any commitment increase under this subclause (2) our senior leverage ratio (assuming the full amount of any commitment increase under this subclause (2) is drawn) is equal to or less than 2.0 :1.0 after giving pro forma effect thereto. During the covenant relief period, our ability to exercise the accordion feature will be prohibited.

After giving effect to Amendments, loans outstanding under the Amended Credit Agreement bear interest at our option at either (1) the LIBOR rate plus 5.0% per annum or (2) the base rate (the highest of the Federal Funds rate plus 0.5%, the one month LIBOR rate plus 1.0%, or the administrative agent's prime rate) plus 4.0% per annum. A commitment fee of 1.0% per annum is charged on the unused portions of the revolving credit facility. A letter of credit fee of 2.50% per annum is charged with respect to the amount of each financial letter of credit outstanding, and a letter of credit fee of 1.50% per annum is charged with respect to the amount of each performance and commercial letter of credit outstanding. Additionally, an annual facility fee of $1.5 million is payable on the first business day of 2018 and 2019, and a pro rated amount is payable on the first business day of 2020.

The Amended Credit Agreement includes financial covenants that are tested on a quarterly basis, based on the rolling four-quarter period that ends on the last day of each fiscal quarter. The maximum permitted senior debt leverage ratio as defined in the Amended Credit Agreement is:
•
6.00 :1.0 for the quarter ended September 30, 2017,
•
8.50 :1.0 for each of the quarters ending December 31, 2017 and March 31, 2018,

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•
6.25 :1.0 for the quarter ending June 30, 2018,
•
4.00 :1.0 for the quarter ending September 30, 2018,
•
3.75 :1.0 for the quarter ending December 31, 2018,
•
3.25 :1.0 for each of the quarters ending March 31, 2019 and June 30, 2019, and
•
3.00 :1.0 for each of the quarters ending September 30, 2019 and each quarter thereafter.

The minimum consolidated interest coverage ratio as defined in the Credit Agreement is:
•
1.50 :1.0 for the quarter ended September 30, 2017,
•
1.00 :1.0 for each of the quarters ending December 31, 2017 and March 31, 2018,
•
1.25 :1.0 for the quarter ending June 30, 2018,
•
1.50 :1.0 for each of the quarters ending September 30, 2018 and December 31, 2018,
•
1.75 :1.0 for each of the quarters ending March 31, 2019 and June 30, 2019, and
•
2.00 :1.0 for each of the quarters ending September 30, 2019 and each quarter thereafter.

Beginning with September 30, 2017, consolidated capital expenditures in each fiscal year are limited to $27.5 million.

At September 30, 2017 , usage under the Amended Credit Agreement consisted of $58.9 million in borrowings at an effective interest rate of 6.88% , $7.7 million of financial letters of credit and $87.2 million of performance letters of credit. At September 30, 2017 , we had approximately $94.7 million available for borrowings or to meet letter of credit requirements primarily based on trailing 12 month EBITDA, and our leverage (as defined in the Amended Credit Agreement) ratio was 3.00 and our interest coverage ratio was 2.59 . In addition, through September 30, 2017 , we have used $11.6 million of the $25.0 million of permitted net income loss attributable to Vølund projects. At September 30, 2017 , we were in compliance with all of the covenants set forth in the Amended Credit Agreement, and we forecast our compliance with the financial covenants to be closest to the minimum thresholds at March 31, 2018.

We plan to execute the actions necessary to enable us to maintain compliance with the financial and other covenants described above. We believe we will accomplish our plans to maintain compliance with our financial and other covenants, and believe our cash on hand, proceeds from potential future asset sales, cash flows from operations and amounts available under our United States revolving credit facility will be adequate to enable us to fund our operations. However, there can be no assurance that we will be successful. Our ability to generate cash flows from operations, access funding under reasonable terms, contract business with reasonable terms and conditions and comply with our financial and other covenants may be impacted by a variety of business, economic, regulatory and other factors, which may be outside of our control. Such factors include, but are not limited to: our ability to access capital markets and complete asset dispositions, delay or cancellation of projects, decreased profitability on our projects due to matters not reasonably forecasted, changes in the timing of cash flows on our projects due to the timing of receipts and required payments of liabilities and funding of our loss projects, the timing of approval or settlement of change orders and claims, changes in foreign currency exchange or interest rates, performance of pension plan assets or changes in actuarially determined liabilities. In addition, we could be impacted if our customers experience a material change in their ability to pay us or if the banks associated with our lending facilities were to cease or reduce operations. Also, we have what we believe is adequate capacity to provide letters of credit and secure surety bonds in support of current and future projects, but there can be no assurance that these will be renewed or available at reasonable commercial terms in the future.

Second lien term loan

On August 9, 2017 , we entered into a second lien credit agreement (the "Second Lien Credit Agreement") with an affiliate of AIP governing a second lien term loan facility. The second lien term loan facility consists of a second lien term loan in the principal amount of $175.9 million , all of which we borrowed on August 9, 2017, and a delayed draw term loan facility in the principal amount of up to $20.0 million , which may be drawn in a single draw prior to June 30, 2020, subject to certain conditions. Borrowings under the second lien term loan, other than the delayed draw term loan, bear interest at 10% per annum, and borrowings under the delayed draw term loan bear interest at 12% per annum, in each case payable quarterly. Undrawn amounts under the delayed draw term loan accrue a commitment fee at a rate of 0.50% per annum. The second lien term loan has a scheduled maturity of December 30, 2020. Any delayed draw borrowings would also have a scheduled maturity of December 30, 2020. In connection with our entry into the second lien term loan facility, we used a portion of the proceeds from the second lien term loan to repurchase approximately 4.8 million shares of our common stock (approximately 10% of our shares outstanding) held by an affiliate of AIP for approximately $50.9 million , which was one of the conditions precedent for the second lien term loan facility.


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Borrowings under the Second Lien Credit Agreement are (1) guaranteed by substantially all of our wholly owned domestic subsidiaries, but excluding our captive insurance subsidiary, and (2) secured by second-priority liens on certain assets owned by us and the guarantors. The Second Lien Credit Agreement requires interest payments on loans on a periodic basis until maturity. Voluntary prepayments made during the first year after closing are subject to a make-whole premium, voluntary prepayments made during the second year after closing are subject to a a 3.0% premium and voluntary prepayments made during the third year after closing are subject to a 2.0% premium. The Second Lien Credit Agreement requires us to make certain prepayments on any outstanding loans after receipt of cash proceeds from certain asset sales or other events, subject to certain exceptions and a right to reinvest such proceeds in certain circumstances, and subject to certain restrictions contained in an intercreditor agreement among the lenders under the Amended Credit Agreement and the Second Lien Credit Agreement.

The Second Lien Credit Agreement contains representations and warranties, affirmative and restrictive covenants, financial covenants and events of default substantially similar to those contained in the Amended Credit Agreement, subject to appropriate cushions. The Second Lien Credit Agreement is generally less restrictive than the Amended Credit Agreement.

Foreign revolving credit facilities

Outside of the United States, we have revolving credit facilities in Turkey, China and India that are used to provide working capital to our operations in each country. These three foreign revolving credit facilities allow us to borrow up to $14.8 million in aggregate and each have a one year term. At September 30, 2017 , we had $12.4 million in borrowings outstanding under these foreign revolving credit facilities at an effective weighted-average interest rate of 5.17% .

Other credit arrangements

Certain subsidiaries have credit arrangements with various commercial banks and other financial institutions for the issuance of letters of credit and bank guarantees in associated with contracting activity. The aggregate value of all such letters of credit and bank guarantees not secured by the United States revolving credit facility as of September 30, 2017 and December 31, 2016 was $279.1 million and $255.2 million , respectively.

We have posted surety bonds to support contractual obligations to customers relating to certain projects. We utilize bonding facilities to support such obligations, but the issuance of bonds under those facilities is typically at the surety's discretion. Although there can be no assurance that we will maintain our surety bonding capacity, we believe our current capacity is more than adequate to support our existing project requirements for the next 12 months. In addition, these bonds generally indemnify customers should we fail to perform our obligations under the applicable contracts. We, and certain of our subsidiaries, have jointly executed general agreements of indemnity in favor of surety underwriters relating to surety bonds those underwriters issue in support of some of our contracting activity. As of September 30, 2017 , bonds issued and outstanding under these arrangements in support of contracts totaled approximately $472.3 million .

CRITICAL ACCOUNTING POLICIES

For a summary of the critical accounting policies and estimates that we use in the preparation of our unaudited condensed consolidated financial statements, see "Critical Accounting Policies" in our Annual Report. There have been no significant changes to our policies during the quarter ended September 30, 2017 .

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Our exposures to market risks could change materially from those disclosed under "Quantitative and Qualitative Disclosures About Market Risk" in our Annual Report. Our exposure to market risk from changes in interest rates relates primarily to our cash equivalents and our investment portfolio, which primarily consists of investments in United States Government obligations and highly liquid money market instruments denominated in United States dollars. We are averse to principal loss and seek to ensure the safety and preservation of our invested funds by limiting default risk, market risk and reinvestment risk. Our investments are classified as available-for-sale.

Although the condensed and consolidated balance sheets do not present debt at fair value, our second lien term loan facility is fixed-rate debt, the fair value of which could fluctuate as a result of changes in prevailing market rates. On September 30, 2017 , its principal balance was $175.9 million . Our United States revolving credit facility is variable-rate debt, so its fair

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value would not be significantly affected by changes in prevailing market rates. On September 30, 2017 , its principal balance was $58.9 million .
 
We have operations in many foreign locations, and, as a result, our financial results could be significantly affected by factors such as changes in foreign currency exchange ("FX") rates or weak economic conditions in those foreign markets. Our primary foreign currency exposures are Danish kroner, Great British pound, Euro, Canadian dollar, and Chinese yuan. In order to manage the risks associated with FX rate fluctuations, we attempt to hedge those risks with FX derivative instruments, but there can be no assurance that such instruments will be available to us on reasonable terms. Historically, we have hedged those risks with FX forward contracts. We do not enter into speculative derivative positions. During the third quarter of 2017, our hedge counterparties removed the lines of credit supporting new FX forward contracts. Subsequently, we have not entered into any new FX forward contracts.

Item 4. Controls and Procedures

Disclosure controls and procedures

As of the end of the period covered by this report, the Company's management, with the participation of our Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Disclosure controls and procedures are the controls and processes that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is accumulated and communicated to management, as appropriate, to allow timely decisions regarding required disclosures. Our disclosure controls and procedures were developed through a process in which our management applied its judgment in assessing the costs and benefits of such controls and procedures, which, by their nature, can provide only reasonable assurance regarding the control objectives. The design of any system of disclosure controls and procedures is based in part upon various assumptions about the likelihood of future events, and we cannot provide absolute assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

On January 11, 2017, we acquired Universal, which would have represented approximately 3% of our total consolidated assets and consolidated revenues as of and for the year ended December 31, 2016, respectively. As the acquisition occurred during the last 12 months, the scope of our assessment of the effectiveness of disclosure controls and procedures does not include internal control over financial reporting related to Universal. This exclusion is in accordance with the SEC's general guidance that an assessment of a recently acquired business may be omitted from our internal control over financial reporting scope in the year of acquisition.

Based on the evaluation referred to above, our Chief Executive Officer and Chief Financial Officer concluded the disclosure controls and procedures were not effective due to the material weakness in internal control over financial reporting that we reported for the quarter ended June 30, 2017 at Vølund, a business unit within our Renewable segment, which remains unremediated as of September 30, 2017 . Our management has completed all steps designed to remediate the material weakness at September 30, 2017; however, the material weakness at Vølund cannot be remediated until the new processes and procedures have been in place for a sufficient period of time and management has determined through testing that the controls are effective. Management expects the material weakness at Vølund will be remediated at December 31, 2017; however, our remediation plans cannot guarantee the material weakness will be remediated by a specific future date or at all.

We are committed to continuing to improve our internal control over financial reporting and will continue to review our financial reporting processes and internal controls at Vølund. As we continue to evaluate and work to improve our internal control over financial reporting, we may identify additional measures to address the material weakness at Vølund. Our management, with the oversight of the audit and finance committee of our board of directors, will continue to assess and take steps to enhance the overall design and capability of our control environment in the future.


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Changes in internal control over financial reporting

During the three months ended September 30, 2017 , we finalized the implementation of a new financial consolidation, planning and reporting system. The new system replaces the legacy system we used under a service agreement with our former Parent. In connection with the implementation, we updated the processes that constitute our internal control over financial reporting, as necessary, to accommodate related changes to our accounting procedures and business processes. Although the processes that constitute our internal control over financial reporting have been affected by the system implementation, we do not believe the implementation of the financial consolidation, planning and reporting system has had or will have a material adverse effect on our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Management has taken steps to ensure that appropriate internal controls are designed and implemented. The new system and associated internal controls were subject to testing and data reconciliation during implementation.

Other than the system change described above, there were no changes in our internal control over financial reporting during the quarter ended September 30, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

For information regarding ongoing investigations and litigation, see Note 19 to the unaudited condensed consolidated financial statements in Part I of this report, which we incorporate by reference into this Item.

Item 1A. Risk Factors

We are subject to various risks and uncertainties in the course of our business. The discussion of such risks and uncertainties may be found under "Risk Factors" in our Annual Report. There have been no material changes to such risk factors.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

In August 2015, we announced that our Board of Directors authorized a share repurchase program. The following table provides information on our purchases of equity securities during the quarter ended September 30, 2017 . Any shares purchased that were not part of a publicly announced plan or program are related to repurchases of common stock pursuant to the provisions of employee benefit plans that permit the repurchase of shares to satisfy statutory tax withholding obligations.
Period
  
Total number of shares purchased (1) (2)
Average
price paid
per share
Total number of
shares purchased as
part of publicly
announced plans  or
programs
Approximate dollar value of shares that may 
yet be purchased under 
the plans or programs
(in thousands)  (3)
July 1, 2017 - July 31, 2017
 
3,620
 
$—
—
 
$100,000
August 1, 2017 - August 31, 2017
 
4,835,775
 
$10.52
—
 
$100,000
September 1, 2017 - September 30, 2017
 
944
 
$—
—
 
$100,000
Total
 
4,840,339
 
 
—
 
 
(1)
Includes 3,620, 953 and 944 shares repurchased in July, August and September, respectively, pursuant to the provisions of employee benefit plans that require us to repurchase shares to satisfy employee statutory income tax withholding obligations.
(2)
Includes 4,834,822 shares repurchased for $50,883,635 on August 9, 2017 from an affiliate of AIP in conjunction with the issuance of our second lien term loan facility.
(3)
On August 4, 2016, we announced that our board of directors authorized the repurchase of an indeterminate number of our shares of common stock in the open market at an aggregate market value of up to $100 million over the next twenty-four months. As of November 8, 2017, we have not made any share repurchases under the August 4, 2016 share repurchase authorization.

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Item 6. Exhibits
 
Amendment No. 3 dated August 9, 2017, to Credit Agreement, dated May 11, 2015, among Babcock & Wilcox Enterprises, Inc., as the Borrower, Bank of America, N.A., as administrative Agent and Lender, and the other Lenders party thereto (incorporated by reference to the Babcock & Wilcox Enterprises, Inc. Current Report on Form 8-K filed August 15, 2017 (File No. 001-36876))
 
 
 
 
Second Lien Credit Agreement, dated August 9, 2017, among Babcock & Wilcox Enterprises, Inc., as the Borrower, Lightship Capital LLC, as administrative Agent and Lender, and the other Lenders party thereto (incorporated by reference to the Babcock & Wilcox, Enterprises, Inc. Current Report on Form 8-K filed August 15, 2017 (File No.001-36876))
 
 
 
 
Amendment No. 4 dated September 20, 2017 to Credit Agreement, dated May 11, 2015, among Babcock & Wilcox Enterprises, Inc., as the borrower, Bank of America, N.A. as Administrative Agent, and the other Lenders party thereto
 
 
 
  
Rule 13a-14(a)/15d-14(a) certification of Chief Executive Officer
 
 
  
Rule 13a-14(a)/15d-14(a) certification of Chief Financial Officer
 
 
  
Section 1350 certification of Chief Executive Officer
 
 
  
Section 1350 certification of Chief Financial Officer
 
 
101.INS
  
XBRL Instance Document
 
 
101.SCH
  
XBRL Taxonomy Extension Schema Document
 
 
101.CAL
  
XBRL Taxonomy Extension Calculation Linkbase Document
 
 
101.LAB
  
XBRL Taxonomy Extension Label Linkbase Document
 
 
101.PRE
  
XBRL Taxonomy Extension Presentation Linkbase Document
 
 
101.DEF
  
XBRL Taxonomy Extension Definition Linkbase Document

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

November 8, 2017
 
 
BABCOCK & WILCOX ENTERPRISES, INC.
 
 
 
 
 
By:
/s/ Daniel W. Hoehn
 
 
 
Daniel W. Hoehn
 
 
 
Vice President, Controller & Chief Accounting Officer
 
 
 
(Principal Accounting Officer and Duly Authorized Representative)

48


Exhibit 10.3


AMENDMENT NO. 4 TO CREDIT AGREEMENT
This AMENDMENT NO. 4 TO CREDIT AGREEMENT (this “ Amendment ”), dated as of September 20, 2017, is among BABCOCK & WILCOX ENTERPRISES, INC. , a Delaware corporation (the “ Borrower ”), BANK OF AMERICA, N.A. , in its capacity as administrative agent for the Lenders (as defined in the Credit Agreement described below) (in such capacity, the “ Administrative Agent ”), and each of the Lenders party hereto, and, for purposes of Sections 5, 6 and 8 hereof, acknowledged and agreed by certain Subsidiaries of the Borrower, as Guarantors.
W I T N E S S E T H:
WHEREAS , the Borrower, the Administrative Agent and the Lenders have entered into that certain Credit Agreement, dated as of May 11, 2015 (as amended by Amendment No. 1 to Credit Agreement, dated as of June 10, 2016, and as further amended by Amendment No. 2 to Credit Agreement, dated as of February 24, 2017 and by Amendment No. 3 to Credit Agreement, dated as of August 9, 2017, and from time to time as further amended, supplemented, restated, amended and restated or otherwise modified, the “ Credit Agreement ”; capitalized terms used in this Amendment not otherwise defined herein shall have the respective meanings given thereto in the Credit Agreement), pursuant to which the Lenders have provided a revolving credit facility to the Borrower; and
WHEREAS , the Borrower has requested that the Administrative Agent and the Lenders agree to certain amendments to the Credit Agreement as set forth herein, and the Administrative Agent and the Lenders signatory hereto are willing to effect such amendments on the terms and conditions contained in this Amendment.
NOW, THEREFORE , in consideration of the premises and further valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:
1.
Amendments to the Credit Agreement .
The Credit Agreement is, effective as of the Amendment No. 4 Effective Date (as defined below), hereby amended as follows:
(a)
The definition of “Anti-Corruption Laws” in Section 1.01 ( Defined Terms ) of the Credit Agreement shall be amended by inserting the text underlined below to read in its entirety as follows:
“ Anti-Corruption Laws ” means all laws, rules and regulations of any jurisdiction applicable to the Borrower or any of its Subsidiaries from time to time concerning or relating to bribery or corruption, including, without limitation, the United States Foreign Corrupt Practices Act of 1977 and the UK Bribery Act 2010 , each as amended .

1


(b)
The definition of “ERISA Event” in Section 1.01 ( Defined Terms ) of the Credit Agreement shall be amended by inserting the text underlined below and deleting the text stricken below to read in its entirety as follows:

“ ERISA Event ” means (a) a reportable event described in Section 4043(b) or 4043(c) of ERISA with respect to a Title IV Plan for which notice has not been waived , (b) the withdrawal of the Borrower, any of its Subsidiaries, any Guarantor or any ERISA Affiliate from a Title IV Plan subject to Section 4063 or Section 4064 of ERISA during a plan year in which any such entity was a “substantial employer” (as defined in Section 4001(a)(2) of ERISA) or the termination of any such Title IV Plan resulting, in either case, in a material liability to any such entity, (c) the “complete or partial withdrawal” (within the meaning of Sections 4203 and 4205 of ERISA) of the Borrower, any of its Subsidiaries, any Guarantor or any ERISA Affiliate from any Multiemployer Plan where the Withdrawal Liability is reasonably expected to exceed $1,000,000 (individually or in the aggregate), (d) notice of reorganization, insolvency, intent to terminate or termination of a Multiemployer Plan is received by the Borrower, any of its Subsidiaries, any Guarantor or any ERISA Affiliate, (e) the filing of a notice of intent to terminate a Title IV Plan under Section 4041(c) of ERISA or the treatment of a plan amendment as a termination under Section 4041(e) of ERISA, where such termination constitutes a “distress termination” under Section 4041(c) of ERISA, (f) the institution of proceedings to terminate a Title IV Plan by the PBGC, (g) the failure to make any required contribution to a Title IV Plan or Multiemployer Plan or to meet the minimum funding standard of Sections 430 and 431 of the Code (in either case, whether or not waived), (h) the imposition of a Lien with respect to any employee pension plan under the provisions of the Code that relate to such plans or ERISA on the Borrower, any of its Subsidiaries, any Guarantor or any ERISA Affiliate, (i) any other event or condition that might reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Title IV Plan or Multiemployer Plan or the imposition of any liability under Title IV of ERISA, other than for PBGC premiums due but not delinquent under Section 4007 of ERISA, (j) any Multiemployer Plan entering endangered status for purposes of Section 305 of ERISA, (k) the imposition of liability on the Borrower, any of its Subsidiaries, any Guarantor or any of their respective ERISA Affiliates pursuant to Section 4062(e) or 4069 of ERISA or by reason of the application of Section 4212(c) of ERISA, (k) (l) the occurrence of an act or omission which would reasonably be expected to give rise to the imposition on the Borrower, any of its Subsidiaries, any Guarantor or any of their respective ERISA Affiliates of fines, penalties, taxes or related charges under Chapter 43 of the Code or under Section 409, Section 502(c), (i) or (l), or Section 4071 of ERISA in respect of any “employee pension plan” (within the meaning of Section 3(2) of ERISA), or (l) (m) receipt from the IRS of notice of the failure of any employee pension plan that is intended to be qualified under Section 401(a) of the Code so to qualify under Section 401(a) of the Code, or the failure of any trust forming part of any such employee pension plan to qualify for exemption from taxation under Section 501(a) of the Code or (n) the occurrence of any non-exempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code involving the Borrower, any of its Subsidiaries, any Guarantor or any of their respective ERISA Affiliates .
(c)
The definition of “Sanction(s)” in Section 1.01 ( Defined Terms ) of the Credit Agreement shall be amended by inserting the text underlined below to read in its entirety as follows:

“ Sanction(s) ” means any sanction or trade embargo imposed, administered or enforced at the time of determination by the United States Government (including without limitation, OFAC), the United Nations Security Council, the European Union, Her Majesty’s Treasury or other relevant sanctions authority exercising jurisdiction over the Borrower or its Subsidiaries from

2


time to time , the violation of which constitutes a violation of the law of the United States or, as to any Subsidiary that is organized under the laws of any non-United States jurisdiction, the law of that jurisdiction.
(d)
The definition of “Title IV Plan” in Section 1.01 ( Defined Terms ) of the Credit Agreement shall be amended by inserting the text underlined below to read in its entirety as follows:
“ Title IV Plan ” means an “employee pension benefit plan” (as defined by Section 3(2) of ERISA), other than a Multiemployer Plan, covered by Title IV of ERISA or Section 412 of the Code and to which the Borrower, any of its Subsidiaries, any Guarantor or any ERISA Affiliate has any obligation or liability (contingent or otherwise).

(e)
Section 5.16 ( ERISA ) of the Credit Agreement shall be amended by inserting the text underlined below and deleting the text stricken below to read in its entirety as follows:

5.16    ERISA.

(a)    Each Employee Benefit Plan that is intended to qualify under Section 401 of the Code (i) (x) has received a favorable determination letter, or is subject to a favorable opinion letter, from the IRS indicating that such Employee Benefit Plan is so qualified and any trust created under any Employee Benefit Plan is exempt from tax under the provisions of Section 501 of the Code, (y) is substantially similar to an “employee benefit plan” as defined in Section 3(3) of ERISA that is, or was, sponsored, maintained, or contributed to by a former ERISA Affiliate that received such a favorable determination letter or opinion letter prior to the Spinoff, or (z) is the subject of an application for such a favorable determination letter or opinion letter that is currently being processed by the IRS, and (ii) to the knowledge of the Borrower, nothing has occurred subsequent to the issuance of such determination or opinion letter, as applicable, which would cause such Employee Benefit Plan to lose its qualified status or that would cause such trust to become subject to tax, except where such failures could not reasonably be expected to have a Material Adverse Effect.

(b)    The Borrower, each of its Subsidiaries, each Guarantor and each of their respective ERISA Affiliates is in material compliance with all applicable provisions and requirements of ERISA, the Code and applicable Employee Benefit Plan provisions with respect to each Employee Benefit Plan except for non-compliances that would not reasonably be expected to have a Material Adverse Effect.

(c)    There are no pending or, to the best knowledge of the Company, threatened claims, actions or lawsuits, or action by any Governmental Authority, with respect to any Employee Benefit Plan that could reasonably be expected to have a Material Adverse Effect.

(c) (d)     There has been no, nor is there reasonably expected to occur, any ERISA Event other than those that, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect.

(d) (e)     Except (i) to the extent required under Section 4980B of the Code or similar state laws, and (ii) with respect to which the aggregate liability, calculated on a FAS 106 basis as of December 31, 2014, does not exceed $150,000,000, no Employee Benefit Plan provides health

3


or welfare benefits (through the purchase of insurance or otherwise) to any retired or former employees, consultants or directors (or their dependents) of the Borrower, any of its Subsidiaries, any Guarantor or any of their respective ERISA Affiliates.

(f)    With respect to each retirement savings scheme or arrangement mandated by a government other than the United States (a “Foreign Government Scheme or Arrangement”) and with respect to each employee benefit plan maintained or contributed to by the Borrower or any of its Subsidiaries, that is not subject to United States law (a “Foreign Plan”), except as could not, either individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect:

(i) Any employer contributions required by law or the terms of any Foreign Government Scheme or Arrangement or any Foreign Plan have been made, or if applicable, accrued, in accordance with normal accounting practices of the jurisdiction in which such plan is maintained;

(ii) The Fair Market Value of the assets of each funded Foreign Plan that is required to be funded, or the liability of each insurer for any Foreign Plan funded through insurance or the book reserve established for any Foreign Plan, together with any accrued contributions, is sufficient to procure or provide for the accrued benefit obligations, as of the date hereof, with respect to all current and former participants in such Foreign Plan according to the actuarial assumptions and valuations most recently used to account for such obligations in accordance with applicable generally accepted accounting principles of the jurisdiction in which such plan is maintained; and

(iii) Each Foreign Plan required to be registered has been registered and has been maintained in good standing with applicable regulatory authorities.

(f)
Section 6.08 ( ERISA Matters ) of the Credit Agreement shall be amended by inserting the text below as a new, unnumbered, paragraph at the end of such Section to read in its entirety as follows:

Notwithstanding the foregoing, promptly, and in any event within 60 days after a Multiemployer Plan is certified to be in “endangered” or “critical” status within the meaning of Code Section 432 or Section 305 of ERISA, notice of such Multiemployer Plan’s status and a copy of such Multiemployer Plan’s most recent funding improvement plan or rehabilitation plan, as required to be adopted under ERISA.

(g)
Section 7.17 ( Sanctions ) of the Credit Agreement shall be amended by inserting the text underlined below and deleting the text stricken below to read in its entirety as follows:

7.17    Sanctions. The Borrower shall not, and shall not permit any of its Subsidiaries to use the proceeds of any Credit Extension, or make available such proceeds to any Subsidiary, joint venture Joint Venture partner or other individual or entity, to fund, finance or facilitate any activities of or business with any individual or entity, or in any Designated Jurisdiction, that, in each case at the time of such funding, is the subject of Sanctions, or in any other manner that, to the Borrower’s knowledge, would result in a violation by any Lender, Arranger, Administrative Agent, L/C Issuer or Swing Line Lender of Sanctions.

4



(h)
Clause (d) of Section 8.01 ( Events of Default ) of the Credit Agreement shall be amended to read in its entirety as follows:

(d)      Failure to Perform Covenants . any Loan Party shall fail to perform or observe (i) any term, covenant or agreement contained in Sections 6.03(a) , 6.08 , 6 .12 (with respect to the existence of the Borrower), 6.17 , 6.25, 6.26 or Article VII or (ii) any other term, covenant or agreement contained in this Agreement or in any other Loan Document if such failure under this clause (ii) shall remain unremedied for 30 days after the earlier of (A) the date on which a Responsible Officer of the Borrower obtains actual knowledge of such failure and (B) the date on which written notice thereof shall have been given to the Borrower by the Administrative Agent, any Lender or any L/C Issuer; or

(i)
The Borrower’s notice details set forth in Schedule 10.02 ( Administrative Agent’s Office; Certain Addresses for Notices ) of the Credit Agreement shall be amended to read in its entirety as follows:

Babcock & Wilcox Enterprises, Inc
The Harris Building
13024 Ballantyne Corporate Place, Suite 700
Charlotte, North Carolina 28277
Attention: Treasurer (with copy to General Counsel)
Telephone: 980-365-4652
Telecopier: 704-625-4910
Electronic Mail: olunking@babcock.com
Website Address: www.babcock.com
U.S. Taxpayer Identification Number: 47-2783641
2.
[ Reserved. ]
3.
Effectiveness; Conditions Precedent .
The amendments contained herein shall only be effective upon the satisfaction or waiver of each of the following conditions precedent (the date of satisfaction or waiver, the “ Amendment No. 4 Effective Date ”):
(a)
the Administrative Agent shall have received counterparts of this Amendment executed by the Loan Parties and the Required Lenders.

(b)
without prejudice to, or limiting the Borrower’s obligations under, Section 10.04 ( Expenses; Indemnity; Damage Waiver ) of the Credit Agreement, all outstanding fees, costs and expenses due to the Administrative Agent and the Lenders, including on account of
Freshfields Bruckhaus Deringer US LLP and FTI Consulting, Inc., shall have been paid in full to the extent that the Borrower has received an invoice therefor (with reasonable and customary supporting documentation) at least two Business Days prior to the Amendment No. 4 Effective Date (without prejudice to any post-closing settlement of such fees, costs and expenses to the extent not so invoiced); and

5


(c)
each of the representations and warranties made by the Borrower in Section 4 hereof shall be true and correct.
The Administrative Agent agrees that it will, upon the satisfaction or waiver of the conditions contained in this Section 3, promptly provide written notice to the Borrower and the Lenders of the effectiveness of this Amendment.
4.
Representations and Warranties .
In order to induce the Administrative Agent and the Lenders to enter into this Amendment, the Borrower represents and warrants to the Administrative Agent and the Lenders, for itself and for each other Loan Party, as follows:
(a)
that both immediately prior to and immediately after giving effect to this Amendment,
no Default exists;
(b)
the representations and warranties contained in the Credit Agreement (as amended
hereby) are true and correct in all material respects on and as of the date hereof (except to the extent that such representations and warranties (i) specifically refer to an earlier date, in which case they shall be true and correct in all material respects as of such earlier date and (ii) contain a materiality or Material Adverse Effect qualifier, in which case such representations and warranties shall be true and correct in all respects);
(c)
the execution, delivery and performance by the Borrower and the other Loan Parties
of this Amendment has been duly authorized by all necessary corporate, limited liability company or partnership action, including the consent of shareholders, partners and members where required, does not contravene any Loan Party or any of its Subsidiaries’ respective Constituent Documents, does not violate any Requirement of Law applicable to any Loan Party or any order or decree of any Governmental Authority or arbiter applicable to any Loan Party and does not require the consent of, authorization by, approval of, notice to, or filing or registration with, any Governmental Authority or any other Person in order to be effective and enforceable;
(d)
this Amendment has been duly executed and delivered on behalf of the Borrower and
the other Loan Parties;
(e)
this Amendment constitutes a legal, valid and binding obligation of the Borrower and
the other Loan Parties enforceable against the Borrower and the other Loan Parties in accordance with its terms, except as may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, Debtor Relief Laws or similar laws affecting the enforcement of creditors’ rights generally and by general principles of equity; and
(f)
as of the date hereof, all Liens, security interests, assignments and pledges encumbering the Collateral, created pursuant to and/or referred to in the Credit Agreement or the other Loan Documents, are valid, enforceable, duly perfected to the extent required by the Loan Documents, non-avoidable, first priority liens, security interests, assignments and pledges (subject to Liens permitted by Section 7.02 of the Credit Agreement), continue unimpaired, are in full force and effect and secure and shall continue to secure all of the obligations purported to be secured in the respective Security Instruments pursuant to which such Liens were granted.

6


5.
Consent, Acknowledgement and Reaffirmation of Indebtedness and Liens .
By its execution hereof, each Loan Party, in its capacity under each of the Loan Documents to which it is a party (including the capacities of debtor, guarantor, grantor and pledgor, as applicable, and each other similar capacity, if any, in which such party has granted Liens on all or any part of its properties or assets, or otherwise acts as an accommodation party, guarantor, indemnitor or surety with respect to all or any part of the Obligations), hereby:
(a)
expressly consents to the amendments and modifications to the Credit Agreement effected hereby;
(b)
expressly confirms and agrees that, notwithstanding the effectiveness of this Amendment, each Loan Document to which it is a party is, and all of the obligations and liabilities of such Loan Party (including, without limitation, with respect to all Loans and all Letters of Credit) to the Administrative Agent, the Lenders and each other Secured Party contained in the Loan Documents to which it is a party (in each case, as amended and modified by this Amendment), are and shall continue to be, in full force and effect and are hereby reaffirmed, ratified and confirmed in all respects and, without limiting the foregoing, agrees to be bound by and abide by and operate and perform under and pursuant to and comply fully with all of the terms, conditions, provisions, agreements, representations, undertakings, warranties, indemnities, guaranties, grants of security interests and covenants contained in the Loan Documents;
(c)
to the extent such party has granted Liens or security interests on any of its properties or assets pursuant to any of the Loan Documents to secure the prompt and complete payment, performance and/or observance of all or any part of its Obligations to the Administrative Agent, the Lenders, and/or any other Secured Party, acknowledges, ratifies, remakes, regrants, confirms and reaffirms without condition, all Liens and security interests granted by such Loan Party to the Administrative Agent for their benefit and the benefit of the Lenders, pursuant to the Credit Agreement and the other Loan Documents, and acknowledges and agrees that all of such Liens and security interests are intended and shall be deemed and construed to continue to secure the Obligations under the Loan Documents, as amended, restated, supplemented or otherwise modified and in effect from time to time, including but not limited to, the Loans made by, and Letters of Credit provided by, the Administrative Agent and the Lenders to the Borrower and/or the other Loan Parties under the Credit Agreement, and all extensions renewals, refinancings, amendments or modifications of any of the foregoing; and
(d)
agrees that this Amendment shall in no manner impair or otherwise adversely affect any of the Liens and security interests granted in or pursuant to the Loan Documents.
6.
Releases; Waivers .
(a)
By its execution hereof, each Loan Party (on behalf of itself and its Affiliates) and its successors-in-title, legal representatives and assignees and, to the extent the same is claimed by right of, through or under any Loan Party, for its past, present and future employees, agents, representatives, officers, directors, shareholders, and trustees (each, a “ Releasing Party ” and collectively, the “ Releasing Parties ”), does hereby remise, release and discharge, and shall be deemed to have forever remised, released and discharged, the Administrative Agent, the Lenders and each of the other Secured Parties, and the Administrative Agent’s, each Lenders’ and each

7


other Secured Party’s respective successors-in-title, legal representatives and assignees, past, present and future officers, directors, affiliates, shareholders, trustees, agents, employees, consultants, experts, advisors, attorneys and other professionals and all other persons and entities to whom any of the foregoing would be liable if such persons or entities were found to be liable to any Releasing Party, or any of them (collectively hereinafter the “ Lender Parties ”), from any and all manner of action and actions, cause and causes of action, claims, charges, demands, counterclaims, suits, covenants, controversies, damages, judgments, expenses, liens, claims of liens, claims of costs, penalties, attorneys’ fees, or any other compensation, recovery or relief on account of any liability, obligation, demand or cause of action of whatever nature, whether in law, equity or otherwise (including, without limitation, any so called “lender liability” claims, claims for subordination (whether equitable or otherwise), interest or other carrying costs, penalties, legal, accounting and other professional fees and expenses and incidental, consequential and punitive damages payable to third parties, or any claims arising under 11 U.S.C. §§ 541-550 or any claims for avoidance or recovery under any other federal, state or foreign law equivalent), whether known or unknown, fixed or contingent, joint and/or several, secured or unsecured, due or not due, primary or secondary, liquidated or unliquidated, contractual or tortious, direct, indirect, or derivative, asserted or unasserted, foreseen or unforeseen, suspected or unsuspected, now existing, heretofore existing or which may heretofore have accrued against any of the Lender Parties under the Credit Agreement or any of the other Loan Documents, whether held in a personal or representative capacity, and which are based on any act, fact, event or omission or other matter, cause or thing occurring at or from any time prior to and including the date hereof, in all cases of the foregoing in any way, directly or indirectly arising out of, connected with or relating to the Credit Agreement or any other Loan Document and the transactions contemplated thereby, and all other agreements, certificates, instruments and other documents and statements (whether written or oral) related to any of the foregoing (each, a “ Claim ” and collectively, the “ Claims ”), in each case, other than Claims arising from Lender Parties’ gross negligence, fraud, or willful misconduct. Each Releasing Party further stipulates and agrees with respect to all Claims, that it hereby waives, to the fullest extent permitted by applicable law, any and all provisions, rights, and benefits conferred by any applicable U.S. federal or state law, or any principle of common law, that would otherwise limit a release or discharge of any unknown Claims pursuant to this Section 6.
(b)
By its execution hereof, each Loan Party hereby (i) acknowledges and confirms that there are no existing defenses, claims, subordinations (whether equitable or otherwise), counterclaims or rights of recoupment or setoff against the Administrative Agent, the Lenders or any other Secured Parties in connection with the Obligations or in connection with the negotiation, preparation, execution, performance or any other matters relating to the Credit Agreement, the other Loan Documents or this Amendment and (ii) expressly waives any setoff, counterclaim, recoupment, defense or other right that such Loan Party now has against the Administrative Agent, any Lender or any of their respective affiliates, whether in connection with this Amendment, the Credit Agreement and the other Loan Documents, the transactions contemplated by this Amendment or the Credit Agreement and the Loan Documents, or any agreement or instrument relating thereto.
7.
Entire Agreement .

8


This Amendment, the Credit Agreement (including giving effect to the amendments set forth in Section 1 above) and the other Loan Documents (collectively, the “ Relevant Documents ”), set forth the entire understanding and agreement of the parties hereto in relation to the subject matter hereof and supersedes any prior negotiations and agreements among the parties relating to such subject matter. No promise, condition, representation or warranty, express or implied, not set forth in the Relevant Documents shall bind any party hereto, and no such party has relied on any such promise, condition, representation or warranty. Each of the parties hereto acknowledges that, except as otherwise expressly stated in the Relevant Documents, no representations, warranties or commitments, express or implied, have been made by any party to any other party in relation to the subject matter hereof or thereof. None of the terms or conditions of this Amendment may be changed, modified, waived or canceled orally or otherwise, except in writing and in accordance with Section 10.01 of the Credit Agreement.
8.
Full Force and Effect of Credit Agreement .
This Amendment is a Loan Document (and the Borrower and the other Loan Parties agree that the “Obligations” secured by the Collateral shall include any and all obligations of the Loan Parties under this Amendment). Except as expressly modified hereby, all terms and provisions of the Credit Agreement and all other Loan Documents remain in full force and effect and nothing contained in this Amendment shall in any way impair the validity or enforceability of the Credit Agreement or the Loan Documents, or alter, waive, annul, vary, affect, or impair any provisions, conditions, or covenants contained therein or any rights, powers, or remedies granted therein. This Amendment shall not constitute a modification of the Credit Agreement or any of the other Loan Documents or a course of dealing with Administrative Agent or the Lenders at variance with the Credit Agreement or the other Loan Documents such as to require further notice by Administrative Agent or any Lender to require strict compliance with the terms of the Credit Agreement and the other Loan Documents in the future, except in each case as expressly set forth herein. The Borrower acknowledges and expressly agrees that Administrative Agent and the Lenders reserve the right to, and do in fact, require strict compliance with all terms and provisions of the Credit Agreement and the other Loan Documents (subject to any qualifications set forth therein), as amended herein.
9.
Counterparts; Effectiveness.
This Amendment may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. Except as provided in Section 3 above, this Amendment shall become effective when it shall have been executed by the Administrative Agent and when the Administrative Agent shall have received counterparts hereof that, when taken together, bear the signatures of each of the other parties hereto. Delivery of an executed counterpart of a signature page of this Amendment by facsimile, electronic email or other electronic imaging means ( e.g ., “pdf” or “tif”) shall be effective as delivery of a manually executed counterpart of this Amendment.
10.
Governing Law; Jurisdiction; Waiver of Jury Trial .
THIS AMENDMENT AND ANY CLAIMS, CONTROVERSY, DISPUTE OR CAUSE OF ACTION (WHETHER IN CONTRACT OR TORT OR OTHERWISE) BASED UPON, ARISING OUT OF OR RELATING TO THIS AMENDMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE

9


STATE OF NEW YORK. Sections 10.04, 10.14 and 10.15 of the Credit Agreement are hereby incorporated by herein by this reference.
11.
Severability .
If any provision of this Amendment is held to be illegal, invalid or unenforceable, (a) the legality, validity and enforceability of the remaining provisions of this Amendment shall not be affected or impaired thereby and (b) the parties shall endeavor in good faith negotiations to replace the illegal, invalid or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the illegal, invalid or unenforceable provisions. The invalidity of a provision in a particular jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.
12.
References .
All references in the Credit Agreement to “this Agreement”, “hereunder”, “hereof” or words of like import referring to the Credit Agreement and each reference to the “Credit Agreement”, (or the defined term “Agreement”, “thereunder”, “thereof” of words of like import referring to the Credit Agreement) in the other Loan Documents shall mean and be a reference to the Credit Agreement as amended hereby and giving effect to the amendments contained in this Amendment.
13.
Successors and Assigns .
This Amendment shall be binding upon the Borrower, the Lenders and the Administrative Agent and their respective successors and assigns, and shall inure to the benefit of the Borrower, the Lenders and the Administrative Agent and the respective successors and assigns of the Borrower, the Lenders and the Administrative Agent.
14.
Lender Acknowledgment .
Each Lender that has signed this Amendment shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter required hereunder to be consented to or approved by or acceptable or satisfactory to a Lender, unless the Administrative Agent shall have received notice from such Lender prior to the proposed Effective Date specifying its objection thereto.

[ Signature pages follow ]

10


IN WITNESS WHEREOF, the parties hereto have caused this instrument to be made, executed and delivered by their duly authorized officers as of the day and year first above written.

BABCOCK & WILCOX ENTERPRISES, INC.


By: s/ Orville Lunking________
Name: Orville Lunking
Title:    Vice President & Treasurer


[Babcock & Wilcox Enterprises, Inc.
Amendment No. 4 to Credit Agreement
Signature Page]



Acknowledged and Agreed for purposes of Sections 5, 6 and 8 of the Amendment:

AMERICON EQUIPMENT SERVICES, INC.
AMERICON, LLC
BABCOCK & WILCOX CONSTRUCTION CO., LLC
BABCOCK & WILCOX EBENSBURG POWER, LLC
BABCOCK & WILCOX EQUITY INVESTMENTS, LLC
BABCOCK & WILCOX HOLDINGS, INC.
BABCOCK & WILCOX INDIA HOLDINGS, INC.
BABCOCK & WILCOX INTERNATIONAL SALES AND SERVICE CORPORATION
BABCOCK & WILCOX INTERNATIONAL, INC.
BABCOCK & WILCOX MEGTEC HOLDINGS, INC.
BABCOCK & WILCOX MEGTEC, LLC
BABCOCK & WILCOX SPIG, INC.
BABCOCK & WILCOX TECHNOLOGY, LLC
BABCOCK & WILCOX UNIVERSAL, INC.
DELTA POWER SERVICES, LLC
DIAMOND OPERATING CO., INC.
DIAMOND POWER AUSTRALIA HOLDINGS, INC.
DIAMOND POWER CHINA HOLDINGS, INC.
DIAMOND POWER EQUITY INVESTMENTS, INC.
DIAMOND POWER INTERNATIONAL, LLC
DPS ANSON, LLC
DPS BERLIN, LLC
DPS CADILLAC, LLC
DPS FLORIDA, LLC
DPS GREGORY, LLC
DPS MECKLENBURG, LLC
DPS PIEDMONT, LLC


By: s/ Robert P. McKinney______
Name: Robert P. McKinney
Title:    Assistant Secretary

[Babcock & Wilcox Enterprises, Inc.
Amendment No. 4 to Credit Agreement
Signature Page]



EBENSBURG ENERGY, LLC
MEGTEC ENERGY & ENVIRONMENTAL LLC
MEGTEC INDIA HOLDINGS, LLC
MEGTEC SYSTEMS AUSTRALIA INC.
MEGTEC TURBOSONIC TECHNOLOGIES, INC.
MTS ASIA, INC.
O&M HOLDING COMPANY
PALM BEACH RESOURCE RECOVERY CORPORATION
POWER SYSTEMS OPERATIONS, INC.
SOFCO EFS HOLDINGS LLC
THE BABCOCK & WILCOX COMPANY
UNIVERSAL AET HOLDINGS, LLC
UNIVERSAL SILENCER MEXICO II, LLC
UNIVERSAL SILENCER MEXICO, LLC
UNIVERSAL SILENCER PROPERTIES I, LLC
UNIVERSAL SILENCER PROPERTIES II, LLC
UNIVERSAL SILENCER PROPERTIES III, LLC

By: s/ Robert P. McKinney______
Name: Robert P. McKinney
Title:    Assistant Secretary

EBENSBURG INVESTORS LIMITED PARTNERSHIP

By: BABCOCK & WILCOX EBENSBURG POWER,             LLC, as General Partner

By: s/ Robert P. McKinney______
Name: Robert P. McKinney
Title:    Assistant Secretary

[Babcock & Wilcox Enterprises, Inc.
Amendment No. 4 to Credit Agreement
Signature Page]




Administrative Agent:

BANK OF AMERICA, N.A., as Administrative Agent
By: s/ Bridgett J. Manduk Mowry____
Name: Bridgett J. Manduk Mowry
Title: Vice President

[Babcock & Wilcox Enterprises, Inc.
Amendment No. 4 to Credit Agreement
Signature Page]


Lenders:

BANK OF AMERICA, N.A., As Lender and Swing Line Lender
By: s/ Stephanie Tanwar ____
Name: Stephanie Tanwar
Title: Vice President




















[Babcock & Wilcox Enterprises, Inc.
Amendment No. 4 to Credit Agreement
Signature Page]


BNP Pariba , as Lender

By: s/ Todd Rodgers ________
Name: Todd Rodgers
Title: Director
By: s/ Mary-Ann Wong ______
Name: Mary-Ann Wong
Title: Vice President

[Babcock & Wilcox Enterprises, Inc.
Amendment No. 4 to Credit Agreement
Signature Page]


JPMorgan Chase Bank, N.A. , as Lender

By: s/ Antje Focke ________
Name: Antje Focke
Title: Executive Director

[Babcock & Wilcox Enterprises, Inc.
Amendment No. 4 to Credit Agreement
Signature Page]


UniCredit Bank AG, as Lender

By: s/ Jonathan Rivera _______
Name: Jonathan Rivera
Title: Associate

By: s/ Michael D. Novellino ____
Name: Michael D. Novellino
Title: Director

[Babcock & Wilcox Enterprises, Inc.
Amendment No. 4 to Credit Agreement
Signature Page]


TD Bank, N.A., as Lender

By: s/ Craig Welch ________
Name: Craig Welch
Title: Senior Vice President

[Babcock & Wilcox Enterprises, Inc.
Amendment No. 4 to Credit Agreement
Signature Page]


COMPASS BANK dba BBVA COMPASS, as Lender

By: s/ Bruce Bingham ________
Name: Bruce Bingham
Title: Vice President

[Babcock & Wilcox Enterprises, Inc.
Amendment No. 4 to Credit Agreement
Signature Page]


U.S. Bank NA, as Lender

By: s/ Matthew Karki ________
Name: Matthew Karki
Title: Vice President

[Babcock & Wilcox Enterprises, Inc.
Amendment No. 4 to Credit Agreement
Signature Page]


THE BANK OF TOKYO-MITSUBISHI UFJ, LTD., as Lender

By: s/ Lauren Hom ________
Name: Lauren Hom
Title: Director

[Babcock & Wilcox Enterprises, Inc.
Amendment No. 4 to Credit Agreement
Signature Page]


Branch Banking and Trust Company, as Lender


By: s/ Ian Phillips ________
Name: Ian Phillips
Title: Senior Vice President

[Babcock & Wilcox Enterprises, Inc.
Amendment No. 4 to Credit Agreement
Signature Page]


The Bank of Nova Scotia, as Lender

By: s/ John Pagazani ________
Name: John Pagazani
Title: Director

By: s/ Justin Mitges ________
Name: Justin Mitges
Title: Senior Manager


[Babcock & Wilcox Enterprises, Inc.
Amendment No. 4 to Credit Agreement
Signature Page]


CREDIT AGRICOLE CORPORATE AND
INVESTMENT BANK, as Lender

By: s/ Yurly A. Tsyganov ________
Name: Yurly A. Tsyganov
Title: Director

By: s/ Kathleen Sweeney ________
Name: Kathleen Sweeney
Title: Managing Direct

[Babcock & Wilcox Enterprises, Inc.
Amendment No. 4 to Credit Agreement
Signature Page]



EXHIBIT 31.1
CERTIFICATION
I, E. James Ferland, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of Babcock & Wilcox Enterprises, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a.
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
November 8, 2017
/s/ E. James Ferland
 
E. James Ferland
 
Chairman and Chief Executive Officer




EXHIBIT 31.2
CERTIFICATION
I, Jenny L. Apker, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of Babcock & Wilcox Enterprises, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a.
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
November 8, 2017
/s/ Jenny L. Apker
 
Jenny L. Apker
 
Senior Vice President and Chief Financial Officer




EXHIBIT 32.1
BABCOCK & WILCOX ENTERPRISES, INC.
Certification Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), I, E. James Ferland, Chairman and Chief Executive Officer of Babcock & Wilcox Enterprises, Inc., a Delaware corporation (the “Company”), hereby certify, to my knowledge, that:
(1)
the Company’s Quarterly Report on Form 10-Q for the quarter and nine months ended September 30, 2017 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of B&W as of the dates and for the periods expressed in the Report.
Dated: November 8, 2017
/s/ E. James Ferland
 
E. James Ferland
 
Chairman and Chief Executive Officer





EXHIBIT 32.2
BABCOCK & WILCOX ENTERPRISES, INC.
Certification Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), I, Jenny L. Apker, Senior Vice President and Chief Financial Officer of Babcock & Wilcox Enterprises, Inc., a Delaware corporation (the “Company”), hereby certify, to my knowledge, that:
(1)
the Company’s Quarterly Report on Form 10-Q for the quarter and nine months ended September 30, 2017 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of B&W as of the dates and for the periods expressed in the Report.
Dated: November 8, 2017
/s/ Jenny L. Apker
 
Jenny L. Apker
 
Senior Vice President and Chief Financial Officer