EX-99.1 2 d888282dex991.htm INFORMATION STATEMENT Information Statement
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Exhibit 99.1

The Harris Building

13024 Ballantyne Corporate Place

Suite 700

Charlotte, NC 28277

                    , 2015

To Stockholders of Babcock & Wilcox Enterprises, Inc.:

I am pleased to inform you that, on June 8, 2015, the board of directors of The Babcock & Wilcox Company (the “Company”) approved the separation of its Power Generation business from its Government and Nuclear Operations business into two publicly traded companies through a spin-off. After the spin-off, the Power Generation business will be called Babcock & Wilcox Enterprises, Inc. and the Company will change its name to BWX Technologies, Inc. For ease of reference, the Power Generation business will be referred to in this letter and in the enclosed information statement as “New B&W.”

As a result of the spin-off, Company stockholders will receive one share of New B&W common stock for every two shares of the Company’s common stock held as of 5:00 p.m. New York City time on June 18, 2015, the record date. The distribution of New B&W shares is expected to occur on June 30, 2015. Stockholder approval of the spin-off is not required, and you do not need to take any action to receive your shares of New B&W common stock in the spin-off. You do not need to pay any consideration or surrender or exchange your shares of Company common stock. The shares you will receive in the spin-off, which is subject to several conditions, will be issued in book-entry form only, which means that no physical stock certificates representing interests in New B&W will be issued. A book-entry account statement reflecting your ownership of shares of New B&W common stock will be mailed to you, or your brokerage account will be credited for the shares on or about July 3, 2015.

Following the spin-off, we will continue to be a leading technology-based provider of advanced fossil and renewable power generation equipment with a broad suite of new build boiler and environmental products, and will continue to provide one of the most comprehensive platforms of aftermarket services to a large global installed base of power generation facilities. In addition, we will be a leading provider of technology and services in the growing market for industrial environmental systems. Across all our capabilities, we will continue to specialize in engineering, manufacturing, procurement, and erection of equipment and technology for a large and global customer base.

We believe that our strengths, including our leading market position and recurring aftermarket services business in the global power generation market, established platform in the global industrial environmental market, proven track record of success and innovation, global diversified client base, demonstrated success with large and complex projects and experienced management and engineering team, position us well for continued success.

Our strategy as an independent company will focus on four important areas:

 

   

enhancing our operating model and asset base to optimize our approach to profitable organic growth and enhanced free cash flow across our range of global markets;

 

   

pursuing growth opportunities in the international power generation market by expanding our market and operational presence in regions around the world where we expect continued demand growth for our traditional and new, renewable technology and services;

 

   

seeking and executing additional strategic acquisitions that focus on expanding our existing capabilities as well as entering adjacent markets; and

 

   

maintaining our commitment to safety and exceeding our customer expectations.

We are very excited about our prospects and believe that, as an independent company, we will deliver enhanced shareholder value through a more targeted and effective focus on our operations and growth strategies.

We intend to list our common stock on the New York Stock Exchange under the symbol “BW.” We thank you in advance for your support as a holder of New B&W common stock, and I invite you to learn more about New B&W by reviewing the enclosed information statement.

Sincerely,

E. James Ferland

Chairman and Chief Executive Officer


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Information contained herein is subject to completion or amendment. A Registration Statement on Form 10 relating to these securities has been filed with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended.

 

Subject to Completion, dated June 8, 2015.

INFORMATION STATEMENT

Babcock & Wilcox Enterprises, Inc.

Common Stock

(par value $0.01 per share)

This information statement is being furnished in connection with the separation of and distribution by The Babcock & Wilcox Company of its Power Generation business. The Power Generation business will be spun off through a pro rata distribution to holders of Company common stock. Concurrent with the spin-off, the Power Generation business will be called Babcock & Wilcox Enterprises, Inc. and the Company will change its name to BWX Technologies, Inc. For ease of reference, the Power Generation business will be referred to in this information statement as “New B&W.” As of the date of this information statement, the Company owns all of New B&W’s outstanding common stock.

On June 8, 2015, after consultation with financial and other advisors, the Company’s board of directors approved the distribution of 100% of the Company’s interest in New B&W. You, as a holder of Company common stock, will be entitled to receive one share of New B&W common stock for every two shares of Company common stock held as of 5:00 p.m., New York City time, on the record date, June 18, 2015. The distribution date for the spin-off will be June 30, 2015.

You will not be required to pay any cash or other consideration for the shares of New B&W common stock that will be distributed to you or to surrender or exchange your shares of Company common stock in order to receive shares of New B&W common stock in the spin-off. The distribution will not affect the number of shares of Company common stock that you hold. No approval by Company stockholders of the spin-off is required or being sought. You are not being asked for a proxy and you are requested not to send a proxy.

As discussed under “The Spin-Off—Trading of Company Common Stock After the Record Date and Prior to the Distribution,” if you sell your shares of Company common stock in the “regular way” market after the record date and on or prior to the distribution date, you also will be selling your right to receive shares of New B&W common stock in connection with the spin-off. You are encouraged to consult with your financial advisor regarding the specific implications of selling your shares of Company common stock on or prior to the distribution date.

There is no current trading market for our common stock. However, we expect that a limited market, commonly known as a “when-issued” trading market, for New B&W common stock will begin prior to the distribution date on or about June 16, 2015 and will continue up to and including the distribution date, and we expect that “regular way” trading of New B&W common stock will begin the first day of trading following the distribution date. We intend to list New B&W common stock on the New York Stock Exchange under the symbol “BW.”

In reviewing this information statement, you should carefully consider the matters described under the caption “Risk Factors” beginning on page 14.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved these securities or determined if this information statement is truthful or complete. Any representation to the contrary is a criminal offense.

This information statement does not constitute an offer to sell or the solicitation of an offer to buy any securities.

The Company first mailed this information statement to its stockholders on or about                     , 2015.

The date of this information statement is                     , 2015.


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TABLE OF CONTENTS

 

  Page

QUESTIONS AND ANSWERS ABOUT THE SPIN-OFF

  1   

SUMMARY

  6   

SUMMARY HISTORICAL AND UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

  11   

RISK FACTORS

  14   

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION

  31   

THE SPIN-OFF

  33   

CAPITALIZATION

  44   

DIVIDEND POLICY

  45   

SELECTED HISTORICAL COMBINED FINANCIAL INFORMATION

  46   

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

  48   

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

  70   

BUSINESS

  72   

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

  83   

RELATIONSHIP WITH THE COMPANY AFTER THE SPIN-OFF

  84   

MANAGEMENT

  90   

EXECUTIVE COMPENSATION

  98   

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

  137   

DESCRIPTION OF CAPITAL STOCK

  139   

INDEMNIFICATION OF DIRECTORS AND OFFICERS

  144   

WHERE YOU CAN FIND MORE INFORMATION

  146   

INDEX TO COMBINED FINANCIAL STATEMENTS

  F-1   

Unless we otherwise state or the context otherwise indicates, all references in this information statement to “New B&W,” “we,” “our,” “ours” or “us” mean Babcock & Wilcox Enterprises, Inc. and its subsidiaries as of the distribution date, and all references to the “Company” mean The Babcock & Wilcox Company and its subsidiaries for all periods prior to the spin-off and following the spin-off. In connection with the spin-off, the Company will change its name to BWX Technologies, Inc.

The transaction in which New B&W will be separated from the Company and become an independent, publicly traded company is referred to in this information statement alternatively as the “distribution” or the “spin-off.”

This information statement is being furnished solely to provide information to Company stockholders who will receive shares of New B&W common stock in connection with the spin-off. It is not provided as an inducement or encouragement to buy or sell any securities. This information statement describes our business, the relationship between the Company and us, and how the spin-off affects the Company and its stockholders, and provides other information to assist you in evaluating the benefits and risks of holding or disposing of our common stock that you will receive in the spin-off. You should be aware of the material risks relating to the spin-off, our business and ownership of our common stock, which are described under the heading “Risk Factors.” You should not assume that the information contained in this information statement is accurate as of any date other than the date set forth on the front cover. Changes to the information contained in this information statement may occur after that date, and we undertake no obligation to update the information contained in this information statement, unless we are required by applicable securities laws and regulations to do so.

 

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QUESTIONS AND ANSWERS ABOUT THE SPIN-OFF

 

Q:

What is the spin-off?

 

A:

The spin-off is the method by which New B&W will separate from the Company. The spin-off involves the Company’s pro rata distribution to its stockholders of all the shares of our common stock. Following the spin-off, we will be a separate, publicly traded company, and the Company will not retain any ownership interest in New B&W. You do not have to pay any consideration or give up any of your shares of Company common stock to receive shares of our common stock in the spin-off.

 

Q:

Why is the Company separating New B&W from the Company’s business?

 

A:

The Company’s board and management believe the benefits of the spin-off will include: (1) the flexibility to allocate resources and deploy capital internally in a manner consistent with the strategic priorities of each business, (2) increased opportunities to pursue external growth strategies as independent companies, (3) the ability to attract an investor base suited to the particular operational and financial characteristics of each company, and (4) greater management focus on the distinct businesses of power generation and government and nuclear operations.

 

Q:

What is New B&W?

 

A:

New B&W is a Delaware corporation that will consist of the Company’s Power Generation business following the spin-off. This business represents the Company’s Power Generation segment combined with related captive insurance operations. The Company’s Power Generation segment comprises the operations of Babcock & Wilcox Power Generation Group, Inc. and its subsidiaries, except for subsidiaries associated with the Company’s Nuclear Energy segment that will be transferred to the Company before the spin-off.

 

Q:

Who will manage New B&W after the spin-off?

 

A:

We will be led by E. James Ferland, who will be our Chairman and Chief Executive Officer (prior to the spin-off, the Company’s President and Chief Executive Officer). The rest of our management team includes Jenny L. Apker, our Senior Vice President and Chief Financial Officer (prior to the spin-off, the Company’s Vice President, Treasurer and Investor Relations), Mark A. Carano, Senior Vice President, Treasurer and Corporate Development (prior to the spin-off, the Company’s Senior Vice President and Chief Corporate Development Officer), Elias Gedeon, our Senior Vice President and Chief Business Development Officer (prior to the spin-off, the Company’s Senior Vice President and Chief Business Development Officer), and J. André Hall, our Senior Vice President, General Counsel and Corporate Secretary (prior to the spin-off, the Company’s Assistant General Counsel, Transactions and Compliance). We will also benefit from the knowledge, experience and skills of our board of directors. For more information regarding our management team and our board of directors following the spin-off, see “Management.”

 

Q:

What is being distributed in the spin-off?

 

A:

The Company will distribute one share of New B&W common stock for every two shares of Company common stock outstanding as of the record date for the spin-off. Approximately 53.5 million shares of our common stock will be distributed in the spin-off, based upon the number of shares of Company common stock outstanding on May 30, 2015. The shares of our common stock to be distributed by the Company and any replacement incentive awards granted in connection with the spin-off will constitute all of the issued and outstanding shares of our common stock. For more information on the shares being distributed in the spin-off, see “Description of Capital Stock.”

 

Q:

What is the record date for the spin-off, and when will the spin-off occur?

 

A:

The record date is June 18, 2015, and ownership is determined as of 5:00 p.m. New York City time on that date. Shares of New B&W common stock will be distributed on June 30, 2015, which we refer to as the distribution date.


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Q:

As a holder of shares of Company common stock as of the record date, what do I have to do to participate in the spin-off?

 

A:

Nothing, although you are urged to read this document carefully. You will receive one share of New B&W common stock for every two shares of Company common stock held as of the record date and retained through the distribution date. You may also participate in the spin-off if you purchase Company common stock in the “regular way” market after the record date and retain your Company shares through the distribution date. See “The Spin-Off—Trading of Company Common Stock After the Record Date and Prior to the Distribution.”

 

Q:

If I sell my shares of Company common stock before or on the distribution date, will I still be entitled to receive New B&W shares in the spin-off?

 

A:

If you sell your shares of Company common stock prior to or on the distribution date, you may also be selling your right to receive shares of New B&W common stock. See “The Spin-Off—Trading of Company Common Stock After the Record Date and Prior to the Distribution.” You are encouraged to consult with your financial advisor regarding the specific implications of selling your Company common stock prior to or on the distribution date.

 

Q:

How will fractional shares be treated in the spin-off?

 

A:

Any fractional share of our common stock otherwise issuable to you will be sold on your behalf, and you will receive a cash payment with respect to that fractional share. For an explanation of how the cash payments for fractional shares will be determined, see “The Spin-Off—Treatment of Fractional Shares.”

 

Q:

Will the spin-off affect the number of shares and trading price of Company common stock I currently hold?

 

A:

The number of shares of Company common stock held by a stockholder will be unchanged. The market value of each Company share, however, will decline to reflect the impact of the spin-off because the trading price will no longer reflect the value of the combined businesses. We cannot provide you with any guarantees as to the price at which shares of the Company or New B&W common stock will trade following the spin-off.

 

Q:

Will my shares of Company common stock continue to trade on a stock market?

 

A:

Yes, shares of Company common stock will continue to be listed on the New York Stock Exchange under the new ticker symbol “BWXT” following the completion of the spin-off.

 

Q:

What are the U.S. federal income tax consequences of the distribution of our shares of common stock to U.S. stockholders?

 

A:

The Company intends to obtain an opinion of counsel, substantially to the effect that, for U.S. federal income tax purposes, the spin-off will qualify under Section 355 of the Internal Revenue Code of 1986, as amended (the “Code”), and certain transactions related to the spin-off will qualify under Sections 355 and/or 368 of the Code. The tax opinion will be subject to certain qualifications and limitations.

Assuming the spin-off so qualifies, for U.S. federal income tax purposes, no gain or loss will be recognized by you, and no amount will be included in your taxable income (other than with respect to cash received in lieu of fractional shares), as a result of the spin-off. The material U.S. federal income tax consequences of the spin-off are described in more detail under “The Spin-Off—Material U.S. Federal Income Tax Consequences of the Spin-Off.”

 

Q:

How will I determine the tax basis I will have in the shares of stock I receive in the spin-off?

 

A:

Generally, your aggregate basis in the stock you hold in the Company and the shares of our common stock received in the spin-off will equal the aggregate basis of Company common stock held by you immediately before the spin-off. This aggregate basis should be allocated between your Company common stock and our common stock you receive in the spin-off in proportion to the relative fair market value of each immediately after the distribution. You should consult your tax advisor about how this allocation will work in your situation (including a situation where you have purchased Company shares at different times or for different amounts)

 

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and regarding any particular consequences of the spin-off to you, including the application of state, local, and foreign tax laws. The material U.S. federal income tax consequences of the spin-off are described in more detail under “The Spin-Off—Material U.S. Federal Income Tax Consequences of the Spin-Off.”

 

Q:

Is the spin-off tax free to non-U.S. stockholders?

 

A:

Non-U.S. stockholders will generally not be subject to U.S. tax on the spin-off. However, non-U.S. stockholders may be subject to tax on the spin-off in jurisdictions outside the U.S. The foregoing is for general information purposes and does not constitute tax advice. Stockholders should consult their own tax advisors regarding the particular consequences of the spin-off to them.

 

Q:

Will I receive a stock certificate for New B&W shares distributed as a result of the spin-off?

 

A:

Registered holders of Company common stock who are entitled to participate in the spin-off will receive a book-entry account statement reflecting their ownership of New B&W common stock. For additional information, registered stockholders in the United States should contact the Company’s transfer agent, Computershare Trust Company, N.A., at 1-800-446-2617, or through its website at www.computershare.com. Stockholders from outside the United States may call 781-575-2723. See “The Spin-Off—When and How You Will Receive New B&W Shares.”

 

Q:

What if I hold my shares through a broker, bank or other nominee?

 

A:

Company stockholders who hold their shares through a broker, bank or other nominee will have their brokerage account credited with shares of New B&W common stock. For additional information, those stockholders should contact their broker or bank directly.

 

Q:

What are the conditions to the spin-off?

 

A:

The spin-off is subject to a number of conditions, including, among others, (1) the receipt of an opinion of counsel, substantially to the effect that, for U.S. federal income tax purposes, the spin-off will qualify under Section 355 of the Code and certain transactions related to the spin-off will qualify under Sections 355 and/or 368 of the Code and (2) the SEC declaring effective the registration statement of which this information statement forms a part. However, even if all of the conditions have been satisfied, the Company may amend, modify or abandon any and all terms of the distribution and the related transactions at any time prior to the distribution date. In the event that the Company’s board of directors waives a material condition or amends, modifies or abandons the spin-off, the Company will notify its stockholders in a manner reasonably calculated to inform them of such modifications with a press release, Current Report on Form 8-K or other means. The Company is not aware of any circumstances under which the spin-off would be abandoned. For additional information regarding the conditions to the spin-off, see “The Spin-Off—Spin-Off Conditions and Termination.”

 

Q:

Will New B&W incur any debt prior to or at the time of the spin-off?

 

A:

We entered into a new credit facility on May 11, 2015. We expect that the new credit facility will close immediately prior to completion of the spin-off. We do not currently anticipate borrowing any amounts under the new revolving credit facility prior to or at the time of the spin-off, but we do expect to have outstanding letters of credit issued under this new facility at the time of the spin-off. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”

 

Q:

Are there risks to owning shares of New B&W common stock?

 

A:

Yes. New B&W’s business is subject both to general and specific business risks relating to its operations. In addition, the spin-off involves specific risks, including risks relating to New B&W being an independent, publicly traded company. See “Risk Factors.”

 

Q:

Does New B&W plan to pay cash dividends?

 

A:

No. We do not currently plan to pay a regular dividend on our common stock following the spin-off. The declaration and amount of future dividends, if any, will be determined by our board of directors and will depend on our financial condition, earnings, capital requirements, financial covenants, industry practice and other factors our board of directors deems relevant. See “Dividend Policy.”

 

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Q:

Will New B&W common stock trade on a stock market?

 

A:

Currently, there is no public market for our common stock. We intend to list our common stock on the New York Stock Exchange under the symbol “BW.” We anticipate that limited trading in shares of New B&W common stock will begin on a “when-issued” basis shortly before the record date and will continue up to and including through the distribution date and that “regular-way” trading in shares of New B&W common stock will begin on the first trading day following the distribution date. The “when-issued” trading market will be a market for shares of New B&W common stock that will be distributed to Company stockholders on the distribution date. If you owned shares of Company common stock at the close of business on the record date, you would be entitled to shares of our common stock distributed pursuant to the spin-off. You may trade this entitlement to shares of New B&W common stock, without the shares of Company common stock you own, on the “when-issued” market.

We cannot predict the trading prices for our common stock before, on or after the distribution date.

 

Q:

What will happen to Company stock options, restricted stock units, deferred stock units and performance shares?

 

A:

We currently expect that, subject to approval of the compensation committee of the Company’s board of directors, equity-based compensation awards will generally be treated as follows:

 

   

Each outstanding option to purchase shares of Company common stock that is granted during 2015 prior to the distribution date to an officer or employee of the Company who will remain an officer or employee of the Company and will not become an officer or employee of New B&W in connection with the spin-off will be replaced with an adjusted option to purchase Company common stock. Each of those adjusted options will reflect adjustments that will be generally intended to preserve the intrinsic value of the original option and the ratio of the exercise price to the fair market value of the stock subject to the option. To the extent the options being adjusted are vested, the adjusted options will also be vested.

 

   

Each outstanding option to purchase shares of Company common stock that is granted during 2015 prior to the distribution date to a person who is or will become an officer or employee of New B&W in connection with the spin-off will be replaced with substitute options to purchase shares of New B&W common stock. Each of those substitute options will have terms that will be generally intended to preserve the intrinsic value of the original option and the ratio of the exercise price to the fair market value of the stock subject to the option. To the extent the options being replaced are vested, the substitute options will also be vested.

 

   

Each outstanding option to purchase shares of Company common stock that was granted prior to 2015 will be replaced with both an adjusted Company stock option and a substitute New B&W stock option. Both options, when combined, will have terms that will be generally intended to preserve the intrinsic value of the original option and the ratio of the exercise price to the fair market value of the stock subject to the option. To the extent the options being replaced are vested, the substitute options will also be vested.

 

   

Company restricted stock unit awards granted during 2015 prior to the distribution date to officers or employees of the Company who will remain officers or employees of the Company and will not become directors, officers or employees of New B&W in connection with the spin-off will be replaced with adjusted Company awards, each of which will generally preserve the value of the original award.

 

   

Company restricted stock unit awards granted during 2015 prior to the distribution date to persons who are or will become officers or employees of New B&W in connection with the spin-off will be converted into substitute New B&W awards, each of which will generally preserve the value of the original award.

 

   

Outstanding Company restricted stock unit awards granted prior to 2015, any restricted stock unit awards granted to the Company’s directors prior to the distribution date that have been deferred by such directors, if any, and any Company restricted stock awards granted pursuant to retention agreements entered into with certain employees of the Company in contemplation of the spin-off, will be replaced with

 

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both (1) adjusted Company awards and (2) substitute New B&W awards, which, when combined, will generally preserve the value of the original award.

 

   

Outstanding Company performance share awards granted prior to 2015 will generally be converted into unvested rights to receive the value of deemed target performance in unrestricted shares of Company common stock and New B&W common stock, in each case with the same vesting terms as the original awards.

For additional information on the treatment of Company equity-based compensation awards, see “The Spin-Off—Treatment of Stock-Based Awards.”

 

Q:

What will the relationship between the Company and New B&W be following the spin-off?

 

A:

After the spin-off, the Company will not own any shares of New B&W common stock, and each of the Company and New B&W will be an independent, publicly traded company with its own management team and board of directors. However, in connection with the spin-off, we will enter into a number of agreements with the Company that will govern the spin-off and allocate responsibilities for obligations arising before and after the spin-off, including, among others, obligations relating to our employees and taxes. See “Relationship with the Company After the Spin-Off.”

 

Q:

Will I have appraisal rights in connection with the spin-off?

 

A:

No. Holders of shares of Company common stock are not entitled to appraisal rights in connection with the spin-off.

 

Q:

Who is the transfer agent for your common stock?

 

A:

Computershare Trust Company, N.A.

            250

Royall Street

            Canton,

Massachusetts 02021-1011

 

Q:

Who is the distribution agent for the spin-off?

 

A:

Computershare Trust Company, N.A.

            250

Royall Street

            Canton,

Massachusetts 02021-1011

 

Q:

Whom can I contact for more information?

 

A:

If you have questions relating to the mechanics of the distribution of New B&W shares, you should contact the distribution agent:

Computershare Trust Company, N.A.

250 Royall Street

Canton, Massachusetts 02021-1011

Telephone: 1-800-446-2617

Before the spin-off, if you have questions relating to the spin-off, you should contact the Company’s Corporate Secretary at:

The Babcock & Wilcox Company

The Harris Building

13024 Ballantyne Corporate Place, Suite 700

Charlotte, North Carolina 28277

Attention: Corporate Secretary

Telephone: 704-625-4910

 

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SUMMARY

The following is a summary of some of the information contained in this information statement. It does not contain all the details concerning us or the spin-off, including information that may be important to you. We urge you to read this entire document carefully, including the risk factors, the historical combined financial statements and the notes to those financial statements.

Unless the context requires otherwise or we specifically indicate otherwise, the terms “New B&W,” “we,” “our,” “ours” and “us” refer to Babcock & Wilcox Enterprises, Inc., a company incorporated under the laws of the state of Delaware, and its subsidiaries as of the distribution date; and the term the “Company” refers to The Babcock & Wilcox Company, a company incorporated under the laws of the State of Delaware, and its subsidiaries prior to the spin-off and following the spin-off. In connection with the spin-off, the Company will change its name to BWX Technologies, Inc.

We describe in this information statement the business to be held by us after the spin-off as if it were our business for all historical periods described. However, we are an entity that will not have independently conducted any operations before the spin-off. References in this document to our historical assets, liabilities, products, business or activities generally refer to the historical assets, liabilities, products, business or activities of the New B&W business as it was conducted as part of the Company before the spin-off and excludes the assets and liabilities of subsidiaries of Babcock & Wilcox Power Generation Group, Inc. (“PGG OpCo”) associated with the Company’s Nuclear Energy segment that will be transferred to the Company before the spin-off. The historical combined financial results as part of the Company contained in this information statement may not be indicative of our financial results in the future as an independent company or reflect what our financial results would have been had we been an independent company during the periods presented.

Except as otherwise indicated or unless the context otherwise requires, the information included in this information statement assumes the completion of the separation of New B&W from the Company and the related distribution of our common stock.

Our Company

We are currently a wholly owned subsidiary of the Company. The Company is a successor to a business founded in 1867, which was acquired by McDermott International, Inc. (“MII”) in 1978. In July 2010, MII spun-off the businesses that comprised its then Power Generation and Government Operations segments into the Company. Our assets and business will consist of those that the Company reports as its Power Generation segment in its financial statements combined with related captive insurance operations. Prior to the spin-off, PGG OpCo will transfer the assets and liabilities associated with the Company’s Nuclear Energy segment to the Company. Following the spin-off, we will be an independent, publicly traded company that operates the Company’s Power Generation business. The Company will not retain any ownership interest in us.

New B&W will be a leading technology-based provider of advanced fossil and renewable power generation equipment with a broad suite of boiler products and environmental systems. In addition, we will provide one of the most comprehensive platforms of aftermarket services to a large global installed base of power generation facilities. Finally, we will be a leading provider of technology and services in the growing market for industrial environmental systems. Across all our capabilities, we specialize in engineering, manufacturing, procurement, and erection of equipment and technology across a large and global customer base.

New B&W will operate in three reportable segments: Global Power, Global Services and Industrial Environmental. Through our Global Power segment, we engineer, manufacture, procure, construct and commission steam generating and environmental systems and other related equipment. Through our Global Services segment, we provide a comprehensive mix of aftermarket products and services to support peak efficiency and availability of steam generating and associated environmental and auxiliary equipment. Our global installed base represents more than 300,000 MW of equivalent steam-generating capacity in more than 800 facilities in over 90 countries. We also provide aftermarket services for installed units delivered by other original equipment suppliers. Through our Industrial Environmental segment, we design, engineer and manufacture products including oxidizers, solvent and distillation systems, wet and dry electrostatic precipitators, scrubbers and heat recovery systems. This segment is comprised of the operations of MEGTEC Holdings, Inc. and its subsidiaries (“MEGTEC”), which we acquired on June 20, 2014.

 

 

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We participate in the ownership of a variety of entities with third parties, primarily through corporations, limited liability companies and partnerships, which we refer to as “joint ventures.” As of March 31, 2015, we employed approximately 6,000 people worldwide, not including approximately 2,500 joint venture employees.

We have a number of competitive strengths that we believe position us for continued success in our markets. They include:

 

   

Leading Market Position in the Global Power Generation Market: We are a proven leader and brand in the design, engineering, manufacture, supply, construction and maintenance of steam generating and environmental control systems for power generation providers worldwide.

 

   

Recurring Global Aftermarket Services Revenues in the Power Generation Market: We provide a comprehensive mix of aftermarket products, services and technical solutions to a large global installed base for our and our competitors’ power generation and industrial plants globally.

 

   

Established Platform in the Global Industrial Environmental Market: We are a leading provider of technology and services in the highly fragmented and growing market for industrial environmental systems.

 

   

Proven Track Record of Success and Innovation: We have served the global power generation industry for over 145 years and have a rich legacy of advanced technology development for the power generation and industrial markets.

 

   

Global, Diversified Client Base: We have a broad customer base, consisting of a wide range of utilities, independent power producers and industrial companies globally.

 

   

Demonstrated Success with Large and Complex Projects: We have demonstrated success in executing large delivered and erected projects, both at new power plants and as retrofits at existing facilities.

 

   

Experienced Management and Engineering Team: Our senior management team has broad power and industrial market experience and is supported by a strong operating management team, which possesses extensive operational and managerial experience.

Our strategy as an independent company will focus on four important areas:

 

   

Optimize Our Business to Align with the Market Opportunity: We will continue enhancing our operating model and asset base to optimize our approach to profitable organic growth and enhanced free cash flow across our range of global markets.

 

   

Pursue Growth Opportunities in the International Power Generation Market: We will continue to pursue growth opportunities in the international power generation market by expanding our marketing and operational presence in regions around the world where we expect continued demand growth and increased need for new plant aftermarket services for both fossil and renewable (waste to energy and biomass) power generation.

 

   

Continue Disciplined Acquisition Program with Successful Integration: Our management team has demonstrated its ability to identify business acquisition opportunities, consummate acquisitions and integrate acquired businesses effectively.

 

   

Maintain our Commitment to Safety: We value the health and safety of all employees and seek to provide a workplace that is free of accidents and injuries.

In connection with the spin-off, we and the Company are entering into agreements, including a master separation agreement, a tax sharing agreement and an employee matters agreement, under which we and the Company will, among other things, indemnify each other against certain liabilities arising from our respective businesses. See “Relationship with the Company After the Spin-Off—Agreements Between the Company and Us.”

The address of our principal executive offices is The Harris Building, 13024 Ballantyne Corporate Place, Suite 700, Charlotte, NC 28277. Our main telephone number is (704) 625-4900.

 

 

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Summary of the Spin-Off

The following is a brief summary of the terms of the spin-off. Please see “The Spin-Off” for a more detailed description of the matters described below.

 

Distributing company

The Company. After the distribution, the Company will not retain any shares of our common stock.

 

Distributed company

New B&W, which is currently a wholly owned subsidiary of the Company. Prior to the distribution, PGG OpCo will transfer the assets and liabilities associated with the Company’s Nuclear Energy segment to the Company. After the distribution, New B&W will be an independent, publicly traded company that operates the Company’s Power Generation business.

 

Distribution ratio

Each holder of Company common stock will receive one share of our common stock for every two shares of Company common stock held on the record date. Approximately 53.5 million shares of our common stock will be distributed in the spin-off, based upon the number of shares of Company common stock outstanding on May 30, 2015. The shares of our common stock to be distributed by the Company, together with the replacement incentive awards granted in connection with the spin-off, will constitute all of the issued and outstanding shares of our common stock. For more information on the shares being distributed in the spin-off, see “Description of Capital Stock.”

 

Fractional shares

The transfer agent identified below will aggregate fractional shares into whole shares and sell them on behalf of stockholders in the open market at prevailing market prices and distribute the proceeds pro rata to each Company stockholder who otherwise would have been entitled to receive a fractional share in the spin-off. You will not be entitled to any interest on the amount of payment made to you in lieu of a fractional share. See “The Spin-Off—Treatment of Fractional Shares.”

 

Distribution procedures

On or about the distribution date, the distribution agent identified below will distribute the shares of our common stock to be distributed by crediting those shares to book-entry accounts established by the transfer agent for persons who were stockholders of the Company as of 5:00 p.m., New York City time, on the record date. Shares of New B&W common stock will be issued only in book-entry form. No paper stock certificates will be issued. You will not be required to make any payment or surrender or exchange your shares of Company common stock or take any other action to receive your shares of our common stock. However, as discussed below, if you sell shares of Company common stock in the “regular way” market after the record date and prior to or on the distribution date, you will be selling your right to receive the associated shares of our common stock in the spin-off. Registered stockholders will receive additional information from the transfer agent shortly after the distribution date. Beneficial stockholders will receive information from their brokerage firms.

 

Distribution agent, transfer agent

Computershare Trust Company, N.A.

and registrar for our shares of

common stock

 

Record date

5:00 p.m., New York City time, on June 18, 2015.

 

Distribution date

June 30, 2015.

 

 

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Trading prior to or on the distribution date

It is anticipated that, beginning shortly before the record date, the Company’s shares will trade in two markets on the New York Stock Exchange, a “regular way” market and an “ex-distribution” market. Investors will be able to purchase Company shares without the right to receive shares of our common stock in the “ex-distribution” market for Company common stock. Any holder of Company common stock who sells Company shares in the “regular way” market after the record date and on or before the distribution date will also be selling the right to receive shares of our common stock in the spin-off. You are encouraged to consult with your financial advisor regarding the specific implications of selling Company common stock prior to or on the distribution date.

 

Assets and liabilities of the distributed company

Before the distribution date, we and the Company will enter into a master separation agreement that will contain the key provisions relating to the separation of our business from the Company and the distribution of our shares of common stock. The master separation agreement will identify the assets to be transferred, liabilities to be assumed and contracts to be assigned either to us by the Company or by us to the Company in the spin-off and will describe when and how these transfers, assumptions and assignments will occur. See “Relationship with the Company After the Spin-Off—Agreements Between the Company and Us—Master Separation Agreement.”

 

Relationship with the Company after the spin-off

Before the distribution date, we and the Company will enter into agreements to define various continuing relationships between the Company and us in various contexts. In particular, we will enter into transition services agreements under which we and the Company will provide each other with transition services on an interim basis. We and the Company will also enter into an agreement providing for the sharing of taxes incurred before and after the distribution, various indemnification rights with respect to tax matters and restrictions to preserve the tax-free status of the distribution to the Company. See “Relationship with the Company After the Spin-Off—Agreements Between the Company and Us.”

 

Indemnities

Under the terms of the tax sharing agreement we will enter into in connection with the spin-off, the Company and we will generally share responsibility for any taxes imposed on the Company and its subsidiaries or us or our subsidiaries in the event that certain transactions related to the spin-off were to fail to qualify for tax-free treatment. However, if these transactions were to fail to qualify for tax-free treatment because of actions or failures to act by us or by the Company, we or the Company, respectively, would be responsible for all such taxes. Please see “The Spin-Off—Material U.S. Federal Income Tax Consequences of the Spin-Off.” Please see also “Relationship with the Company After the Spin-Off—Agreements Between the Company and Us—Tax Sharing Agreement.” Under the master separation agreement we will enter into in connection with the spin-off, we will also indemnify the Company and its remaining subsidiaries against various claims and liabilities relating to the past operation of our business. Please see “Relationship with the Company After the Spin-Off—Agreements Between the Company and Us—Master Separation Agreement.”

 

U.S. federal income tax consequences

The Company expects to obtain an opinion of counsel substantially to the effect that, for U.S. federal income tax purposes, the spin-off will qualify under Section 355 of the Code and certain transactions related to the spin-off will qualify under Sections 355 and/or 368 of the Code. The material

 

 

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United States federal income tax consequences of the spin-off are described in more detail under “The Spin-Off—Material U.S. Federal Income Tax Consequences of the Spin-Off.”

 

Conditions to the spin-off

We expect that the spin-off will be completed on June 30, 2015, provided that the conditions set forth under the caption “The Spin-Off—Spin-Off Conditions and Termination” have been satisfied in the Company’s sole and absolute discretion. However, even if all of the conditions have been satisfied, the Company may amend, modify or abandon any and all terms of the distribution and the related transactions at any time prior to the distribution date. The Company is not aware of any circumstances under which the spin-off would be abandoned.

 

Reasons for the spin-off

The Company’s board and management believe the benefits of the spin-off include: (1) the flexibility to allocate resources and deploy capital internally in a manner consistent with the strategic priorities of each business, (2) increased opportunities to pursue external growth strategies as independent companies, (3) the ability to attract an investor base suited to the particular operational and financial characteristics of each company, and (4) greater management focus on the distinct businesses of power generation and government and nuclear operations. For more information, see “The Spin-Off—Reasons for the Spin-Off.”

 

Stock exchange listing

Currently there is no public market for our common stock. We intend to list our common stock on the New York Stock Exchange, or the NYSE, under the symbol “BW.” We anticipate that trading will commence on a “when-issued” basis shortly before the record date. “When-issued” trading refers to a transaction made conditionally because the security has been authorized but not yet issued. On the first trading day following the distribution date, “when-issued” trading in respect of our common stock will end and “regular way” trading will begin. “Regular way” trading refers to trading after a security has been issued and typically involves a transaction that settles on the third full business day following the date of the transaction. We cannot predict the trading prices for our common stock following the spin-off. In addition, following the spin-off, Company common stock will remain outstanding and will continue to trade on the NYSE. We also cannot predict the trading prices for Company common stock following the spin-off.

 

Risk factors

You should review the risks relating to the spin-off, our industry and our business and ownership of our common stock described in “Risk Factors.”

 

 

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SUMMARY HISTORICAL AND UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

The following table presents summary historical and unaudited pro forma combined financial information. We derived the historical condensed combined statements of operations for the three months ended March 31, 2015 and 2014, and the balance sheet information as of March 31, 2015, from our unaudited condensed combined financial statements included in this information statement. We derived the statement of operations information for each of the years ended December 31, 2014, 2013 and 2012 and the balance sheet information as of December 31, 2014 and 2013 from the audited combined financial statements included in this information statement. We derived the balance sheet information as of March 31, 2014 and December 31, 2012 from the unaudited combined financial statements not included in this information statement.

The summary unaudited pro forma combined financial information for the three months ended March 31, 2015 and 2014 and for the years ended December 31, 2014, 2013 and 2012 has been prepared to reflect the transfer of the assets and liabilities associated with the Company’s Nuclear Energy segment to the Company. The unaudited pro forma combined statement of operations data presented for the three months ended March 31, 2015 and 2014 and for the years ended December 31, 2014, 2013 and 2012, assumes the transfer of the assets and liabilities associated with the Company’s Nuclear Energy segment to the Company occurred on January 1, 2012. The unaudited pro forma combined balance sheet data assumes the transfer of the assets and liabilities associated with the Company’s Nuclear Energy segment to the Company occurred on December 31, 2012. The assumptions used and pro forma adjustments derived from such assumptions are based on currently available information and we believe such assumptions are reasonable.

The unaudited pro forma combined financial information is not necessarily indicative of our results of operations or financial condition had the transfer of the assets and liabilities associated with the Company’s Nuclear Energy segment to the Company been completed on the dates assumed. They may not reflect the results of operations or financial condition that would have resulted had we been operating as an independent, publicly traded company during such periods.

You should read the summary historical and unaudited pro forma combined financial information in conjunction with the combined financial statements and the accompanying notes, the unaudited pro forma combined financial statements and the accompanying notes, “Selected Historical Combined Financial Information,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in this information statement. The financial information presented below is not necessarily indicative of our future performance or what our financial position and results of operations would have been had we operated as an independent public company during the periods presented.

 

  Pro Forma Three Months
Ended March 31,
  Three Months Ended
March 31,
 
  2015   2014   2015   2014  
  (in thousands, except per share data)  

Statement of Operations Information:

Revenues

$  397,155    $  312,078    $  419,842    $  347,892   

Costs and expenses

  376,366      308,602      398,692      339,681   

Equity in income (loss) of investees

  (2,071   2,366      (2,071   2,366   

Operating income (loss)

  18,718      5,842      19,079      10,577   

Other income (expense)

  (295   1,740      (416   1,832   

Income (loss) before provision for (benefit from) income taxes

  18,423      7,582      18,663      12,409   

Provision for (benefit from) income taxes

  6,045      (667   5,921      1,204   

Net income attributable to The Power Generation Operations of The Babcock & Wilcox Company

$ 12,326    $ 8,133    $ 12,690    $ 11,089   

Earnings Per Share Data:

Basic

$ 0.23    $ 0.15   

Diluted

$ 0.23    $ 0.15   

Weighted average common stock outstanding (1):

Basic

  53,388      55,220   

Diluted

  53,573      55,443   

Non-GAAP Data:

Adjusted net income attributable to The Power Generation Operations of The Babcock & Wilcox Company (2)

$ 13,788    $ 9,059    $ 14,220    $ 12,015   

Adjusted diluted earnings per common share (2)

$ 0.26    $ 0.16   

Other Data:

Depreciation and amortization

$ 11,505    $ 5,564    $ 13,075    $ 6,739   

Capital expenditures

  5,915      2,675      6,221      3,202   

 

 

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  Pro Forma Three Months
Ended March 31,
  Three Months Ended
March 31,
 
  2015   2014   2015   2014  
  (in thousands)  

Balance Sheet Information:

Working capital

$ 357,124    $ 291,997    $ 355,692    $ 298,941   

Total assets

    1,406,323        1,187,711        1,493,297        1,280,220   

Notes payable and current maturities of long-term debt

  3,219      5,083      3,219      5,083   

Long-term debt

  -      -      -      -   

Other Data:

Backlog

$ 2,580,829    $ 1,982,373    $ 2,786,639    $ 2,114,850   

 

  Pro Forma Year Ended
December 31,
  Year Ended
December 31,
 
2014   2013   2012   2014   2013   2012  
  (in thousands, except per share data)  

Statement of Operations Information:

Revenues

$   1,486,029    $   1,767,650    $   1,785,959    $   1,589,719    $   1,921,163    $   2,039,100   

Costs and expenses

  1,527,379      1,565,969      1,640,965      1,655,915      1,684,376      1,850,616   

Equity in income of investees

  8,681      18,387      17,402      8,681      18,387      17,402   

Operating income (loss)

  (32,669   220,068      162,396      (57,515   255,174      205,886   

Other income (expense)

  1,358      2,258      (1,143   1,823      1,847      (669

Income (loss) before provision for (benefit from) income taxes

  (31,311   222,326      161,253      (55,692   257,021      205,217   

Provision for (benefit from) income taxes

  (23,361   74,544      54,179      (29,528   82,206      64,323   

Net income (loss) attributable to The Power Generation Operations of The Babcock & Wilcox Company

$ (8,315 $ 147,493    $ 106,933    $ (26,529 $ 174,526    $ 140,753   

Earnings Per Share Data:

Basic

$ (0.15 $ 2.64    $ 1.81   

Diluted

$ (0.15 $ 2.62    $ 1.80   

Weighted average common stock outstanding (1):

Basic

  54,239      55,951      59,209   

Diluted

  54,239      56,343      59,511   

Non-GAAP Data:

Adjusted net income attributable to The Power Generation Operations of The Babcock & Wilcox Company (2)

$ 68,492    $ 99,460    $ 113,470    $ 64,851    $ 116,620    $ 149,851   

Adjusted diluted earnings per common share (2)

$ 1.26    $ 1.77    $ 1.91   

Other Data:

Depreciation and amortization

$ 32,156    $ 25,420    $ 19,877    $ 36,454    $ 29,726    $ 23,857   

Capital expenditures

  15,338      13,819      18,540      17,204      16,563      25,074   

Balance Sheet Information:

Working capital

$ 364,572    $ 235,929    $ 116,525    $ 366,604    $ 231,275    $ 115,045   

Total assets

  1,437,800      1,219,628      1,288,419      1,522,806      1,296,469      1,419,651   

Notes payable and current maturities of long-term debt

  3,215      4,671      4,062      3,215      4,671      4,062   

Long-term debt

  -      225      430      -      225      430   

Other Data:

Backlog

$   2,246,668    $   2,072,132    $   2,483,046    $   2,480,177    $   2,173,350    $   2,680,292   

 

(1) The pro forma basic weighted average shares outstanding were based on the basic weighted average of Company common shares outstanding for the three months ended March 31, 2015 and 2014 and the years ended December 31, 2014, 2013 and 2012 adjusted for an assumed distribution ratio of one share of New B&W’s common stock for every two Company common shares. The pro forma diluted weighted average shares outstanding were based on the number of shares utilized to calculate Company dilutive earnings per share for the three months ended March 31, 2015 and 2014 and the years ended December 31, 2014, 2013 and 2012 adjusted for the same distribution ratio. This calculation may not be indicative of the dilutive effect that will actually result from New B&W stock-based awards issued in connection with the adjustment of outstanding Company stock-based awards, which will not be determined until after the distribution date.

(2) Adjusted net income and adjusted diluted earnings per common share are defined as net income and diluted earnings per common share adjusted to exclude actuarial gains and losses on pension and post-retirement plans and special charges for restructuring activities. We present adjusted net income and adjusted diluted earnings per common share, which are not prepared in accordance with GAAP, because we believe they provide meaningful insight into operational performance. Additionally, we believe that when considered together with the GAAP results and the

 

 

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reconciliation to net income and diluted earnings per common share, these non-GAAP measures provide a more complete understanding of our business than could be obtained absent this disclosure. We use adjusted net income and adjusted diluted earnings per common share, together with financial measures prepared in accordance with GAAP, such as net income and diluted earnings per common share, to assess our historical and prospective operating performance and to enhance our understanding of our core operating performance. Additionally, we are presenting these measures because we believe they are useful in (a) helping investors facilitate comparisons of our operating results with prior periods and (b) assisting investors in understanding our ongoing operations and our operating performance. We are providing these non-GAAP measures to supplement the results provided in accordance with GAAP and they should not be considered superior to, or as substitutes for, the comparable GAAP results.

The following tables provide a reconciliation of net income and diluted earnings per share to adjusted net income and adjusted diluted earnings per common share:

 

  Pro Forma Three Months
Ended March 31,
  Three Months
Ended March 31,
 
      2015               2014         2015   2014  
  (in thousands, except per share data)  

Net income attributable to The Power Generation Operations of The Babcock & Wilcox Company

$     12,326    $     8,133    $     12,690    $     11,089   

Special charges for restructuring activities

  1,462      926      1,530      926   
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted net income attributable to The Power Generation Operations of The Babcock & Wilcox Company

$ 13,788    $ 9,059    $ 14,220    $ 12,015   

Diluted earnings per common share

$ 0.23   $ 0.15  

Special charges for restructuring activities

$ 0.03   $ 0.02  

Adjusted diluted earnings per common share

$ 0.26   $ 0.16  

 

  Pro Forma Year Ended
December 31,
  Year Ended
December 31,
 
2014   2013   2012   2014   2013   2012  
  (in thousands, except per share data)  

Net income attributable to The Power Generation Operations of The Babcock & Wilcox Company

$ (8,315 $     147,493    $   106,933      $  (26,529 $     174,526    $   140,753   

Actuarial (gains) losses on our pension and post-retirement plans

  63,857      (60,248   6,537      71,121      (76,064   9,098   

Special charges for restructuring activities

  12,950      12,215      -      20,259      18,158      -   

Adjusted net income attributable to The Power Generation Operations of The Babcock & Wilcox Company

$ 68,492    $ 99,460    $ 113,470    $ 64,851    $ 116,620    $ 149,851   

Diluted earnings per common share

$ (0.15 $ 2.62    $ 1.80   

Actuarial (gains) losses on our pension and postretirement plans per common share

  1.18      (1.07   0.11   

Special charges for restructuring activities per common share

  0.24      0.22      -   

Adjusted diluted earnings per common share

$ 1.26    $ 1.77    $ 1.91   

 

 

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RISK FACTORS

You should carefully consider each of the following risks and all of the other information contained in this information statement. Some of these risks relate principally to our spin-off from the Company, while others relate principally to our business and the industry in which we operate or to the securities markets generally and ownership of our common stock.

If any of these risks develop into actual events, our business, financial condition, results of operations or cash flows could be materially adversely affected by any of these risks, and, as a result, the trading price of our common stock could decline.

Risks Relating to Our Industry and Our Business

We derive substantial revenues from electric power generating companies and other steam-using industries, with demand for our products and services depending on spending in these historically cyclical industries. Additionally, recent legislative and regulatory developments relating to clean air legislation are impacting plans for spending on coal-fired power plants within the United States and elsewhere.

The demand for power generation products and services depends primarily on the spending of electric power generating companies and other steam-using industries and expenditures by original equipment manufacturers. These expenditures are influenced by such factors as:

 

   

prices for electricity, along with the cost of production and distribution;

 

   

prices for natural resources such as coal and natural gas;

 

   

demand for electricity and other end products of steam-generating facilities;

 

   

availability of other sources of electricity or other end products;

 

   

requirements of environmental legislation and regulations, including potential requirements applicable to carbon dioxide emissions;

 

   

impact of potential regional, state, national and/or global requirements to significantly limit or reduce greenhouse gas emissions in the future;

 

   

level of capacity utilization and associated operations and maintenance expenditures of power generating companies and other steam-using facilities;

 

   

requirements for maintenance and upkeep at operating power plants and other steam-using facilities to combat the accumulated effects of wear and tear;

 

   

ability of electric generating companies and other steam users to raise capital; and

 

   

relative prices of fuels used in boilers, compared to prices for fuels used in gas turbines and other alternative forms of generation.

A material decline in spending by electric power generating companies and other steam-using industries over a sustained period of time could materially and adversely affect the demand for our power generation products and services and, therefore, our financial condition, results of operations and cash flows. Coal-fired power plants have been scrutinized by environmental groups and government regulators over the emissions of potentially harmful pollutants. The recent economic environment and uncertainty concerning new environmental legislation or replacement rules or regulations in the US and elsewhere has caused many of our major customers, principally electric utilities, to delay making substantial expenditures for new plants, as well as upgrades to existing power plants.

Demand for our products and services is vulnerable to economic downturns and industry conditions.

Demand for our products and services has been, and we expect that demand will continue to be, subject to significant fluctuations due to a variety of factors beyond our control, including economic and industry conditions. These factors include, but are not limited to: the cyclical nature of our industry, inflation, geopolitical

 

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issues, the availability and cost of credit, volatile oil and natural gas prices, low business and consumer confidence, high unemployment and energy conservation measures.

Unfavorable economic conditions may lead customers to delay, curtail or cancel proposed or existing projects, which may decrease the overall demand for our products and services and adversely affect our results of operations.

In addition, our customers may find it more difficult to raise capital in the future due to limitations on the availability of credit, increases in interest rates and other factors affecting the federal, municipal and corporate credit markets. Also, our customers may demand more favorable pricing terms and find it increasingly difficult to timely pay invoices for our products and services, which would impact our future cash flows and liquidity. Inflation or significant changes in interest rates could reduce the demand for our products and services. Any inability to timely collect our invoices may lead to an increase in our accounts receivable and potentially to increased write-offs of uncollectible invoices. If the economy weakens, or customer spending declines, then our backlog, revenues, net income and overall financial condition could deteriorate.

Our backlog is subject to unexpected adjustments and cancellations and may not be a reliable indicator of future revenues or earnings.

There can be no assurance that the revenues projected in our backlog will be realized or, if realized, will result in profits. Because of project cancellations or changes in project scope and schedule, we cannot predict with certainty when or if backlog will be performed. In addition, even where a project proceeds as scheduled, it is possible that contracted parties may default and fail to pay amounts owed to us or poor project performance could increase the cost associated with a project. Delays, suspensions, cancellations, payment defaults, scope changes and poor project execution could materially reduce or eliminate the revenues and profits that we actually realize from projects in backlog.

Reductions in our backlog due to cancellation or modification by a customer or for other reasons may adversely affect, potentially to a material extent, the revenues and earnings we actually receive from contracts included in our backlog. Many of the contracts in our backlog provide for cancellation fees in the event customers cancel projects. These cancellation fees usually provide for reimbursement of our out-of-pocket costs, revenues for work performed prior to cancellation and a varying percentage of the profits we would have realized had the contract been completed. However, we typically have no contractual right upon cancellation to the total revenues reflected in our backlog. Projects may remain in our backlog for extended periods of time. If we experience significant project terminations, suspensions or scope adjustments to contracts reflected in our backlog, our financial condition, results of operations and cash flows may be adversely impacted.

We are subject to risks associated with contractual pricing in our industry, including the risk that, if our actual costs exceed the costs we estimate on our fixed-price contracts, our profitability will decline, and we may suffer losses.

We are engaged in a highly competitive industry, and we have priced a number of our projects on a fixed-price basis. Our actual costs could exceed our projections. We attempt to cover the increased costs of anticipated changes in labor, material and service costs of long-term contracts, either through estimates of cost increases, which are reflected in the original contract price, or through price escalation clauses. Despite these attempts, however, the cost and gross profit we realize on a fixed-price contract could vary materially from the estimated amounts because of supplier, contractor and subcontractor performance, changes in job conditions, variations in labor and equipment productivity and increases in the cost of labor and raw materials, particularly steel, over the term of the contract. These variations and the risks generally inherent in our industry may result in actual revenues or costs being different from those we originally estimated and may result in reduced profitability or losses on projects. Some of these risks include:

 

   

difficulties encountered on our large-scale projects related to the procurement of materials or due to schedule disruptions, equipment performance failures, unforeseen site conditions, rejection clauses in customer contracts or other factors that may result in additional costs to us, reductions in revenue, claims or disputes;

 

   

our inability to obtain compensation for additional work we perform or expenses we incur as a result of our customers providing deficient design or engineering information or equipment or materials;

 

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requirements to pay liquidated damages upon our failure to meet schedule or performance requirements of our contracts; and

 

   

difficulties in engaging third-party subcontractors, equipment manufacturers or materials suppliers or failures by third-party subcontractors, equipment manufacturers or materials suppliers to perform could result in project delays and cause us to incur additional costs.

Changes in our effective tax rate and tax positions may vary.

We are subject to income taxes in the United States and numerous foreign jurisdictions. A change in tax laws, treaties or regulations, or their interpretation, in any country in which we operate could result in a higher tax rate on our earnings, which could have a material impact on our earnings and cash flows from operations. In addition, significant judgment is required in determining our worldwide provision for income taxes. In the ordinary course of our business, there are many transactions and calculations where the ultimate tax determination is uncertain, and we are regularly subject to audit by tax authorities. Although we believe that our tax estimates and tax positions are reasonable, they could be materially affected by many factors including the final outcome of tax audits and related litigation, the introduction of new tax accounting standards, legislation, regulations and related interpretations, our global mix of earnings, the realizability of deferred tax assets and changes in uncertain tax positions. A significant increase in our tax rate could have a material adverse effect on our profitability and liquidity.

Our business could be negatively impacted by security threats, including physical and cybersecurity threats, and other disruptions.

We face various security threats, including cyber threats, threats to the physical security of our facilities and infrastructure, and threats from terrorist acts, as well as the potential for business disruptions associated with these threats. Although we utilize a combination of tailored and industry standard security measures and technology to monitor and mitigate these threats, we cannot guarantee that these measures and technology will be sufficient to prevent security threats from materializing.

We have been, and will likely continue to be, subject to cyber-based attacks and other attempts to threaten our information technology systems, including attempts to gain unauthorized access to our proprietary information and attacks from computer hackers, viruses, malicious code and other security problems. From time to time, we experience system interruptions and delays; however, prior cyber-based attacks directed at us have not had a material adverse impact on our results of operations. Due to the evolving nature of these security threats, however, the impact of any future incident cannot be predicted.

The costs related to cyber or other security threats or disruptions may not be fully insured or indemnified by other means. Occurrence of any of these events could adversely affect our internal operations, the services we provide to customers, the value of our investment in research and development efforts and other intellectual property, our future financial results, our reputation or our stock price.

In addition, from time to time we may replace and/or upgrade current financial, human resources and other information technology systems. These activities subject us to inherent costs and risks associated with replacing and updating these systems, including potential disruption of our internal control structure, substantial capital expenditures, demands on management time and other risks of delays or difficulties in transitioning to new systems or of integrating new systems into our current systems. Our systems implementations and upgrades may not result in productivity improvements at the levels anticipated, or at all. In addition, the implementation of new technology systems may cause disruptions in our business operations. Such disruption and any other information technology system disruptions, and our ability to mitigate those disruptions, if not anticipated and appropriately mitigated, could have a material adverse effect on us.

We rely on intellectual property law and confidentiality agreements to protect our intellectual property. We also rely on intellectual property we license from third parties. Our failure to protect our intellectual property rights, or our inability to obtain or renew licenses to use intellectual property of third parties, could adversely affect our business.

Our success depends, in part, on our ability to protect our proprietary information and other intellectual property. Our intellectual property could be stolen, challenged, invalidated, circumvented or rendered unenforceable. In addition, effective intellectual property protection may be limited or unavailable in some foreign countries where we operate.

 

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Our failure to protect our intellectual property rights may result in the loss of valuable technologies or adversely affect our competitive business position. We rely significantly on proprietary technology, information, processes and know-how that are not subject to patent or copyright protection. We seek to protect this information through trade secret or confidentiality agreements with our employees, consultants, subcontractors or other parties, as well as through other security measures. These agreements and security measures may be inadequate to deter or prevent misappropriation of our confidential information. In the event of an infringement of our intellectual property rights, a breach of a confidentiality agreement or divulgence of proprietary information, we may not have adequate legal remedies to protect our intellectual property. Litigation to determine the scope of intellectual property rights, even if ultimately successful, could be costly and could divert management’s attention away from other aspects of our business. In addition, our trade secrets may otherwise become known or be independently developed by competitors.

In some instances, we have augmented our technology base by licensing the proprietary intellectual property of third parties. In the future, we may not be able to obtain necessary licenses on commercially reasonable terms, which could have a material adverse effect on our operations.

Our use of the percentage-of-completion method of accounting could result in volatility in our results of operations.

We generally recognize revenues and profits under our long-term contracts on a percentage-of-completion basis. Accordingly, we review contract price and cost estimates regularly as the work progresses and reflect adjustments proportionate to the percentage of completion in income in the period when we revise those estimates. To the extent these adjustments result in a reduction or an elimination of previously reported profits with respect to a project, we would recognize a charge against current earnings, which could be material. Our current estimates of our contract costs and the profitability of our long-term projects, although reasonably reliable when made, could change as a result of the uncertainties associated with these types of contracts, and if adjustments to overall contract costs are significant, the reductions or reversals of previously recorded revenue and profits could be material in future periods.

Maintaining adequate bonding and letter of credit capacity is necessary for us to successfully bid on and win various contracts.

In line with industry practice, we are often required to post standby letters of credit and surety bonds to support contractual obligations to customers as well as other obligations. These letters of credit and bonds generally indemnify customers should we fail to perform our obligations under the applicable contracts. If a letter of credit or bond is required for a particular project and we are unable to obtain it due to insufficient liquidity or other reasons, we will not be able to pursue that project. We utilize bonding facilities, but, as is typically the case, the issuance of bonds under each of those facilities is at the surety’s sole discretion. Moreover, due to events that affect the insurance and bonding and credit markets generally, bonding and letters of credit may be more difficult to obtain in the future or may only be available at significant additional cost. There can be no assurance that letters of credit or bonds will continue to be available to us on reasonable terms. Our inability to obtain adequate letters of credit and bonding and, as a result, to bid on new work could have a material adverse effect on our business, financial condition and results of operations. As of March 31, 2015, after giving effect to the distribution, we would have had $251.3 million in letters of credit and bank guarantees and $518.9 million in surety bonds outstanding.

Our credit facility could restrict our operations.

The terms of our credit agreement impose various restrictions and covenants on us that could have adverse consequences, including:

 

   

limiting our flexibility in planning for, or reacting to, changes in our business or economic, regulatory and industry conditions;

 

   

limiting our ability to invest in joint ventures or acquire other companies;

 

   

limiting our ability to pay dividends to our stockholders; and

 

   

limiting our ability to borrow additional funds.

 

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Our business strategy includes acquisitions to support our growth. Acquisitions of other businesses can create risks and uncertainties.

We intend to pursue growth through the acquisition of businesses or assets that we believe will enable us to strengthen our existing businesses and expand into adjacent industries and regions. We may be unable to continue this growth strategy if we cannot identify suitable businesses or assets, reach agreement on potential strategic acquisitions on acceptable terms or for other reasons. Moreover, business acquisitions involve risks, including:

 

   

difficulties relating to the assimilation of personnel, services and systems of an acquired business and the assimilation of marketing and other operational capabilities;

 

   

challenges resulting from unanticipated changes in customer relationships after the acquisition;

 

   

additional financial and accounting challenges and complexities in areas such as tax planning, treasury management, financial reporting and internal controls;

 

   

assumption of liabilities of an acquired business, including liabilities that were unknown at the time the acquisition transaction was negotiated;

 

   

diversion of management’s attention from day-to-day operations;

 

   

failure to realize anticipated benefits, such as cost savings and revenue enhancements;

 

   

potentially substantial transaction costs associated with business combinations; and

 

   

potential impairment of goodwill or other intangible assets resulting from the overpayment for an acquisition.

Acquisitions may be funded by the issuance of additional equity or debt financing, which may not be available on attractive terms. Our ability to secure such financing will depend in part on prevailing capital market conditions, as well as conditions in our business and operating results. Moreover, to the extent an acquisition transaction financed by non-equity consideration results in goodwill, it will reduce our tangible net worth, which might have an adverse effect on potential credit and bonding capacity.

Additionally, an acquisition may bring us into businesses we have not previously conducted and expose us to additional business risks that are different than those we have historically experienced.

Our business strategy also includes development and commercialization of new technologies to support our growth, which requires significant investment and involves various risks and uncertainties. These new technologies may not achieve desired commercial or financial results.

Our future growth will depend on our ability to continue to innovate by developing and commercializing new product and service offerings. Investments in new technologies involve varying degrees of uncertainties and risk. Commercial success depends on many factors, including the levels of innovation, the development costs and the availability of capital resources to fund those costs, the levels of competition from others developing similar or other competing technologies, our ability to obtain or maintain government permits or certifications, the effectiveness of production, distribution and marketing efforts, and the costs to customers to deploy and provide support for the new technologies. We may not achieve significant revenue from new product and service investments for a number of years, if at all. Moreover, new products and services may not be profitable, and, even if they are profitable, our operating margins from new products and services may not be as high as the margins we have experienced historically. In addition, new technologies may not be patentable and, as a result, we may face increased competition.

 

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Our operations are subject to operating risks, which could expose us to potentially significant professional liability, product liability, warranty and other claims. Our insurance coverage may be inadequate to cover all of our significant risks or our insurers may deny coverage of material losses we incur, which could adversely affect our profitability and overall financial condition.

We engineer, construct and perform services in large industrial facilities where accidents or system failures can have significant consequences. Risks inherent in our operations include:

 

   

accidents resulting in injury or the loss of life or property;

 

   

environmental or toxic tort claims, including delayed manifestation claims for personal injury or loss of life;

 

   

pollution or other environmental mishaps;

 

   

adverse weather conditions;

 

   

mechanical failures;

 

   

property losses;

 

   

business interruption due to political action in foreign countries or other reasons; and

 

   

labor stoppages.

Any accident or failure at a site where we have provided products or services could result in significant professional liability, product liability, warranty and other claims against us, regardless of whether our products or services caused the incident. We have been, and in the future we may be, named as defendants in lawsuits asserting large claims as a result of litigation arising from events such as those listed above.

We endeavor to identify and obtain in established markets insurance agreements to cover significant risks and liabilities. Insurance against some of the risks inherent in our operations is either unavailable or available only at rates or on terms that we consider uneconomical. Also, catastrophic events customarily result in decreased coverage limits, more limited coverage, additional exclusions in coverage, increased premium costs and increased deductibles and self-insured retentions. Risks that we have frequently found difficult to cost-effectively insure against include, but are not limited to, business interruption, property losses from wind, flood and earthquake events, war and confiscation or seizure of property in some areas of the world, pollution liability, liabilities related to occupational health exposures (including asbestos), professional liability/errors and omissions coverage, the failure, misuse or unavailability of our information systems, the failure of security measures designed to protect our information systems from security breaches, and liability related to risk of loss of our work in progress and customer-owned materials in our care, custody and control. Depending on competitive conditions and other factors, we endeavor to obtain contractual protection against uninsured risks from our customers. When obtained, such contractual indemnification protection may not be as broad as we desire or may not be supported by adequate insurance maintained by the customer. Such insurance or contractual indemnity protection may not be sufficient or effective under all circumstances or against all hazards to which we may be subject. A successful claim for which we are not insured or for which we are underinsured could have a material adverse effect on us. Additionally, disputes with insurance carriers over coverage may affect the timing of cash flows and, if litigation with the carrier becomes necessary, an outcome unfavorable to us may have a material adverse effect on our results of operations.

We are subject to government regulations that may adversely affect our future operations.

Many aspects of our operations and properties are affected by political developments and are subject to both domestic and foreign governmental regulations, including those relating to:

 

   

constructing and manufacturing power generation products;

 

   

currency conversions and repatriation;

 

   

clean air and other environmental protection legislation;

 

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taxation of foreign earnings and earnings of expatriate personnel;

 

   

transactions in or with foreign countries or officials; and

 

   

use of local employees and suppliers.

In addition, a substantial portion of the demand for our products and services is from electric power generating companies and other steam-using customers. The demand for power generation products and services can be influenced by governmental legislation setting requirements for utilities related to operations, emissions and environmental impacts. The legislative process is unpredictable and includes a platform that continuously seeks to increase the restrictions on power producers. Potential legislation limiting emissions from power plants, including carbon dioxide, could affect our markets and the demand for our products and services related to power generation.

We cannot determine the extent to which our future operations and earnings may be affected by new legislation, new regulations or changes in existing regulations.

Regulations related to “conflict minerals” may force us to incur additional expenses, may make our supply chain more complex and may result in damage to our reputation with customers.

On August 22, 2012, under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”), the SEC adopted new requirements for companies that use minerals and metals, known as conflict minerals, in their products, whether or not these products are manufactured by third parties. Under these requirements, companies that are subject to the rules conduct due diligence and disclose and report whether or not such minerals originate from the Democratic Republic of Congo and adjoining countries. The implementation of these new requirements could adversely affect the sourcing, availability and pricing of minerals used in the manufacture of components incorporated in our products. In addition, we will incur additional costs to comply with the disclosure requirements, including costs related to determining the source of any of the relevant minerals and metals used in our products. Since our supply chain is complex, we may not be able to sufficiently verify the origins for these minerals and metals used in our products through the diligence procedures that we implement, which may harm our reputation. In such event, we may also face difficulties in satisfying customers who require that the components of our products either may not originate from the Democratic Republic of Congo and adjoining countries or must be certified as conflict free.

Our business requires us to obtain, and to comply with, national, state and local government permits and approvals.

Our business is required to obtain, and to comply with, national, state and local government permits and approvals. Any of these permits or approvals may be subject to denial, revocation or modification under various circumstances. Failure to obtain or comply with the conditions of permits or approvals may adversely affect our operations by temporarily suspending our activities or curtailing our work and may subject us to penalties and other sanctions. Although existing licenses are routinely renewed by various regulators, renewal could be denied or jeopardized by various factors, including:

 

   

failure to comply with environmental and safety laws and regulations or permit conditions;

 

   

local community, political or other opposition;

 

   

executive action; and

 

   

legislative action.

In addition, if new environmental legislation or regulations are enacted or implemented, or existing laws or regulations are amended or are interpreted or enforced differently, we may be required to obtain additional operating permits or approvals. Our inability to obtain, and to comply with, the permits and approvals required for our business could have a material adverse effect on us.

 

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Our operations involve the handling, transportation and disposal of hazardous materials, and environmental laws and regulations and civil liability for contamination of the environment or related personal injuries may result in increases in our operating costs and capital expenditures and decreases in our earnings and cash flows.

Our operations involve the handling, transportation and disposal of hazardous materials. Failure to properly handle these materials could pose a health risk to humans or wildlife and could cause personal injury and property damage (including environmental contamination). If an accident were to occur, its severity could be significantly affected by the volume of the materials and the speed of corrective action taken by emergency response personnel, as well as other factors beyond our control, such as weather and wind conditions. Actions taken in response to an accident could result in significant costs.

Governmental requirements relating to the protection of the environment, including solid waste management, air quality, water quality and cleanup of contaminated sites, have had a substantial impact on our operations. These requirements are complex and subject to frequent change. In some cases, they can impose liability for the entire cost of cleanup on any responsible party without regard to negligence or fault and impose liability on us for the conduct of others or conditions others have caused, or for our acts that complied with all applicable requirements when we performed them. Our compliance with amended, new or more stringent requirements, stricter interpretations of existing requirements or the future discovery of contamination may require us to make material expenditures or subject us to liabilities that we currently do not anticipate. Such expenditures and liabilities may adversely affect our business, financial condition, results of operations and cash flows. In addition, some of our operations and the operations of predecessor owners of some of our properties have exposed us to civil claims by third parties for liability resulting from alleged contamination of the environment or personal injuries caused by releases of hazardous substances into the environment.

In our contracts, we seek to protect ourselves from liability associated with accidents, but there can be no assurance that such contractual limitations on liability will be effective in all cases or that our or our customers’ insurance will cover all the liabilities we have assumed under those contracts. The costs of defending against a claim arising out of a contamination incident or precautionary evacuation, and any damages awarded as a result of such a claim, could adversely affect our results of operations and financial condition.

We maintain insurance coverage as part of our overall risk management strategy and due to requirements to maintain specific coverage in our financing agreements and in many of our contracts. These policies do not protect us against all liabilities associated with accidents or for unrelated claims. In addition, comparable insurance may not continue to be available to us in the future at acceptable prices, or at all.

We conduct a portion of our operations through joint venture entities, over which we may have limited ability to influence.

We currently have equity interests in several significant joint ventures, which contributed $(2.1) million and $2.4 million to equity in income (loss) of investees for the quarter ended March 31, 2015 and 2014, respectively, and $8.7 million, $18.4 million and $17.4 million to equity in income of investees for the years ended December 31, 2014, 2013 and 2012, respectively, and may enter into additional joint venture arrangements in the future. Our influence over some of these entities may be limited. Even in those joint ventures over which we do exercise significant influence, we are often required to consider the interests of our joint venture partners in connection with major decisions concerning the operations of the joint ventures. In any case, differences in views among the joint venture participants may result in delayed decisions or disputes. We also cannot control the actions of our joint venture participants. We sometimes have joint and several liabilities with our joint venture partners under the applicable contracts for joint venture projects and we cannot be certain that our partners will be able to satisfy any potential liability that could arise. These factors could potentially harm the business and operations of a joint venture and, in turn, our business and operations.

Operating through joint ventures in which we are minority holders results in us having limited control over many decisions made with respect to business practices, projects and internal controls relating to projects. These joint ventures may not be subject to the same requirements regarding internal controls and internal control over financial reporting that we follow. As a result, internal control problems may arise with respect to the joint ventures that could adversely affect our ability to respond to requests or contractual obligations to customers or to meet the internal control requirements to which we are otherwise subject.

 

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In addition, our arrangements involving joint ventures may restrict us from gaining access to the cash flows or assets of these entities. In some cases, our joint ventures have governmentally imposed restrictions on their abilities to transfer funds to us.

If our co-venturers fail to perform their contractual obligations on a project or if we fail to coordinate effectively with our co-venturers, we could be exposed to legal liability, loss of reputation and reduced profit on the project.

We often perform projects jointly with third parties. For example, we enter into contracting consortia and other contractual arrangements to bid for and perform jointly on large projects. Success on these joint projects depends in part on whether our co-venturers fulfill their contractual obligations satisfactorily. If any one or more of these third parties fail to perform their contractual obligations satisfactorily, we may be required to make additional investments and provide added services in order to compensate for that failure. If we are unable to adequately address any such performance issues, then our customer may exercise its right to terminate a joint project, exposing us to legal liability, loss of reputation and reduced profit.

Our collaborative arrangements also involve risks that participating parties may disagree on business decisions and strategies. These disagreements could result in delays, additional costs and risks of litigation. Our inability to successfully maintain existing collaborative relationships or enter into new collaborative arrangements could have a material adverse effect on our results of operations.

We could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act.

The U.S. Foreign Corrupt Practices Act (the “FCPA”) generally prohibits companies and their intermediaries from making improper payments to non-U.S. officials. Our training program and policies mandate compliance with the FCPA. We operate in some parts of the world that have experienced governmental corruption to some degree, and, in some circumstances, strict compliance with anti-bribery laws may conflict with local customs and practices. If we are found to be liable for violations of the FCPA (either due to our own acts or our inadvertence, or due to the acts or inadvertence of others, including employees of our joint ventures), we could suffer from civil and criminal penalties or other sanctions.

We may not be able to compete successfully against current and future competitors.

Some of our competitors or potential competitors have greater financial or other resources than we have and in some cases are government supported. Our operations may be adversely affected if our current competitors or new market entrants introduce new products or services with better features, performance, prices or other characteristics than those of our products and services. Furthermore, we operate in industries where capital investment is critical. We may not be able to obtain as much purchasing and borrowing leverage and access to capital for investment as other public companies, which may impair our ability to compete against competitors or potential competitors.

The loss of the services of one or more of our key personnel, or our failure to attract, assimilate and retain trained personnel in the future, could disrupt our operations and result in loss of revenues.

Our success depends on the continued active participation of our executive officers and key operating personnel. The unexpected loss of the services of any one of these persons could adversely affect our operations.

Our operations require the services of employees having the technical training and experience necessary to obtain the proper operational results. As such, our operations depend, to a considerable extent, on the continuing availability of such personnel. If we should suffer any material loss of personnel to competitors, retirement or other reasons, or be unable to employ additional or replacement personnel with the requisite level of training and experience to adequately operate our business, our operations could be adversely affected. While we believe our wage rates are competitive and our relationships with our employees are satisfactory, a significant increase in the wages paid by other employers could result in a reduction in our workforce, increases in wage rates, or both. Additionally, we have announced plans to freeze pension plan benefit accruals at the end of 2015 and to complete the spin-off by mid-summer 2015, which could also result in incremental turnover in our workforce. If any of these events occurred for a significant period of time, our financial condition, results of operations and cash flows could be adversely impacted.

 

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Negotiations with labor unions and possible work stoppages and other labor problems could divert management’s attention and disrupt operations. In addition, new collective bargaining agreements or amendments to agreements could increase our labor costs and operating expenses.

A significant number of our employees are members of labor unions. If we are unable to negotiate acceptable new contracts with our unions from time to time, we could experience strikes or other work stoppages by the affected employees. If any such strikes or other work stoppages were to occur, we could experience a significant disruption of operations. In addition, negotiations with unions could divert management attention. New union contracts could result in increased operating costs, as a result of higher wages or benefit expenses, for both union and nonunion employees. If nonunion employees were to unionize, we would experience higher ongoing labor costs.

Pension and medical expenses associated with our retirement benefit plans may fluctuate significantly depending on a number of factors, and we may be required to contribute cash to meet underfunded pension obligations.

A substantial portion of our current and retired employee population is covered by pension and postretirement benefit plans, the costs and funding requirements of which depend on our various assumptions, including estimates of rates of return on benefit-related assets, discount rates for future payment obligations, rates of future cost growth, mortality assumptions and trends for future costs. Variances from these estimates could have a material adverse effect on us. In addition, our policy to recognize these variances annually through mark to market accounting could result in volatility in our results of operations, which could be material. As of March 31, 2015, after giving effect to the distribution, our defined benefit pension and postretirement benefit plans would have been underfunded by approximately $283.8 million. We also participate in various multi-employer pension plans in the U.S. and Canada under union and industry agreements that generally provide defined benefits to employees covered by collective bargaining agreements. Absent an applicable exemption, a contributor to a U.S. multi-employer plan is liable, upon termination or withdrawal from a plan, for its proportionate share of the plan’s underfunded vested liability. Funding requirements for benefit obligations of these multi-employer pension plans are subject to certain regulatory requirements, and we may be required to make cash contributions which may be material to one or more of these plans to satisfy certain underfunded benefit obligations. See Note 7 to the audited combined financial statements included in this information statement for additional information regarding our pension and postretirement benefit plan obligations.

Our international operations are subject to political, economic and other uncertainties not generally encountered in our domestic operations.

We derive a substantial portion of our revenues and equity in income of investees from international operations, and we intend to continue to expand our international operations and customer base as part of our growth strategy. After giving effect to the distribution, our revenues derived from operations located outside of the United States represented 21% and 20% for the quarter ended March 31, 2015 and 2014, respectively, and, 27%, 27% and 24% of total revenues for the years ended December 31, 2014, 2013 and 2012, respectively. Operating in international markets requires significant resources and management attention and subjects us to political, economic and regulatory risks that are not generally encountered in our U.S. operations. These include:

 

   

risks of war, terrorism and civil unrest;

 

   

expropriation, confiscation or nationalization of our assets;

 

   

renegotiation or nullification of our existing contracts;

 

   

changing political conditions and changing laws and policies affecting trade and investment;

 

   

overlap of different tax structures; and

 

   

risk of changes in foreign currency exchange rates.

Various foreign jurisdictions have laws limiting the right and ability of foreign subsidiaries and joint ventures to pay dividends and remit earnings to affiliated companies. Our international operations sometimes face the additional risks of fluctuating currency values, hard currency shortages and controls of foreign currency

 

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exchange. If we continue to expand our business globally, our success will depend, in part, on our ability to anticipate and effectively manage these and other risks. These and other factors may have a material impact on our international operations or its business as a whole.

Natural disasters or other events beyond our control could adversely impact our business.

Natural disasters, such as earthquakes, tsunamis, hurricanes, floods, tornados, or other events could adversely impact demand for or supply of our products. In addition, natural disasters could also cause disruption to our facilities, systems or projects, which could interrupt operational processes and performance on our contracts and adversely impact our ability to manufacture our products and provide services and support to our customers. We operate facilities in areas of the world that are exposed to natural disasters, such as, but not limited to, hurricanes, floods and tornados.

War, other armed conflicts or terrorist attacks could have a material adverse effect on our business.

War, terrorist attacks and unrest have caused and may continue to cause instability in the world’s financial and commercial markets and have significantly increased political and economic instability in some of the geographic areas in which we operate. Threats of war or other armed conflict may cause further disruption to financial and commercial markets. In addition, continued unrest could lead to acts of terrorism in the United States or elsewhere, and acts of terrorism could be directed against companies such as ours. Also, acts of terrorism and threats of armed conflicts in or around various areas in which we operate could limit or disrupt our markets and operations, including disruptions from evacuation of personnel, cancellation of contracts or the loss of personnel or assets. Armed conflicts, terrorism and their effects on us or our markets may significantly affect our business and results of operations in the future.

Risks Relating to the Spin-Off

We may be unable to achieve some or all of the benefits that we expect to achieve from our separation from the Company.

As an independent public company, we believe that we will be able to more effectively focus on our operations and growth strategies than we could as a segment of the Company. However, by separating from the Company there is a risk that our results of operations and cash flows may be susceptible to greater volatility due to fluctuations in our business levels and other factors that may adversely affect our operating and financial performance. In addition, as a segment of the Company, we have enjoyed benefits from the Company’s financial resources. As a result of the fact that the Company’s other operations will no longer be available to offset any volatility in our results of operations and cash flows and the Company’s financial and other resources will no longer be available to us, we may not be able to achieve some or all of the benefits that we expect to achieve as an independent public company. In addition, we expect to incur one-time transaction costs of approximately $6 million of primarily non-cash stock-based compensation costs after the spin-off (the Company is expected to bear substantially all of the approximately $80 million of estimated one-time transaction costs to effectuate the spin-off) and additional ongoing annual costs of approximately $14 to $16 million related to the transition to becoming an independent public company and replacing the services provided by the Company.

Our historical audited combined financial information is not necessarily indicative of our future financial condition, future results of operations or future cash flows nor does it reflect what our financial condition, results of operations or cash flows would have been as an independent public company during the periods presented.

The historical audited combined financial information we have included in this information statement does not necessarily reflect what our financial condition, results of operations or cash flows would have been as an independent public company during the periods presented and is not necessarily indicative of our future financial condition, future results of operations or future cash flows. This is primarily a result of the following factors:

 

   

the historical audited combined financial results reflect allocations of expenses for services historically provided by the Company, and those allocations may be different than the comparable expenses we would have incurred as an independent company;

 

   

our cost of debt and other capitalization may be different from that reflected in our historical audited combined financial statements;

 

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the historical audited combined financial information does not reflect the changes that will occur in our cost structure, management, financing arrangements and business operations as a result of our separation from the Company, including the costs related to being an independent company; and

 

   

the historical audited combined financial information does not reflect the effects of some of the liabilities that will be assumed by New B&W and does reflect the effects of some of the assets that will be transferred to, and liabilities that will be assumed by, the Company, including the assets and liabilities associated with the Company’s Nuclear Energy segment that are currently part of New B&W and will be transferred to the Company prior to the spin-off.

Please refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the historical combined financial statements and the notes to those statements and the unaudited pro forma combined financial statements and the notes to those statements included in this information statement.

We have no history operating as an independent public company, we may encounter difficulties in making the changes necessary to operate as an independent public company, and we may incur greater costs as an independent public company.

We have historically used the Company’s infrastructure to support our business functions, including the following functions:

 

   

accounting and financial reporting;

 

   

information technology and communications;

 

   

legal;

 

   

human resources and employee benefits;

 

   

procurement and supply chain management;

 

   

tax administration; and

 

   

treasury and corporate finance.

Following the spin-off, we will no longer have access to the Company’s infrastructure, and we will need to establish our own. We expect to incur costs in 2015 to establish the necessary infrastructure to enable us to establish these business functions. We currently pay the Company for these services on a cost-allocation basis. Following the spin-off, the Company will continue to provide some of these services to us on a transitional basis, pursuant to transition services agreements we will enter into with the Company. For more information regarding the transition services agreements, see “Relationship with the Company After the Spin-Off—Agreements Between the Company and Us—Transition Services Agreements.” At the end of this transition period, we will need to perform these functions ourselves or hire third parties to perform these functions on our behalf. The costs associated with performing or outsourcing these functions may exceed those charged by the Company when we were part of the Company or during the transition period. A significant increase in the costs of performing or outsourcing these functions could adversely affect our business, financial condition, results of operations and cash flows.

Our accounting and other management systems and resources may not be adequately prepared to meet the financial reporting and other requirements to which we will be subject following the spin-off and may strain our resources.

Our financial results are currently included within the consolidated results of the Company, and we believe that our reporting and control systems are appropriate for those of a subsidiary of a public company. However, prior to the spin-off, we were not directly subject to reporting and other requirements of the Securities Exchange Act of 1934, which we refer to as the Exchange Act. As a result of the spin-off, we will be directly subject to reporting and other obligations under the Exchange Act, including the requirements of Section 404 of the Sarbanes-Oxley Act of 2002. These reporting and other obligations will place significant demands on our management and administrative and operational resources, including accounting resources.

 

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To comply with these requirements, we anticipate that we will need to upgrade our systems, including information technology, implement additional financial and management controls, reporting systems and procedures and hire additional accounting and finance staff. We expect to incur additional annual expenses related to these steps, and those expenses may be significant. If we are unable to upgrade our financial and management controls, reporting systems, information technology and procedures in a timely and effective fashion, our ability to comply with our financial reporting requirements and other rules that apply to reporting companies under the Exchange Act could be impaired. Any failure to achieve and maintain effective internal controls could have an adverse effect on our business, financial condition, results of operations and cash flows.

We will be subject to continuing contingent liabilities of the Company following the spin-off.

After the spin-off, there will be several significant areas where the liabilities of the Company may become our obligations. For example, under the Code and the related rules and regulations, each corporation that was a member of the Company consolidated tax reporting group during any taxable period or portion of any taxable period ending on or before the completion of the spin-off is jointly and severally liable for the federal income tax liability of the entire consolidated tax reporting group for that taxable period. We will enter into a tax sharing agreement with the Company in connection with the spin-off that allocates the responsibility for prior period taxes of the Company consolidated tax reporting group between us and the Company and its subsidiaries. See “Relationship with the Company After the Spin-Off—Agreements Between the Company and Us—Tax Sharing Agreement.” However, if the Company were unable to pay, we could be required to pay the entire amount of such taxes. Other provisions of law establish similar liability for other matters, including laws governing tax-qualified pension plans as well as other contingent liabilities. The other contingent liabilities include personal injury claims or environmental liabilities related to the Company’s historical nuclear operations. For example, the Company has agreed to indemnify us for personal injury claims and environmental liabilities associated with radioactive materials related to the operation, remediation, and/or decommissioning of two former nuclear fuel processing facilities located in the Borough of Apollo and Parks Township. To the extent insurance providers and third party indemnitors do not cover those liabilities, and the Company was unable to pay, we could be required to pay for them. See “Business—Governmental Regulations and Environmental Matters” and “Business—Legal Proceedings.”

The spin-off could result in substantial tax liability.

The spin-off is conditioned on the Company’s receipt of an opinion of counsel, in form and substance satisfactory to the Company, substantially to the effect that, for U.S. federal income tax purposes, the spin-off will qualify under Section 355 of the Code and certain transactions related to the spin-off will qualify under Sections 355 and/or 368 of the Code. The opinion will rely on, among other things, various assumptions and representations as to factual matters made by the Company and us which, if inaccurate or incomplete in any material respect, would jeopardize the conclusions reached by such counsel in its opinion. The opinion will not be binding on the IRS or the courts, and there can be no assurance that the IRS or the courts will not challenge the conclusions stated in the opinion or that any such challenge would not prevail.

Neither we nor the Company are aware of any facts or circumstances that would cause the assumptions or representations that will be relied on in the opinion to be inaccurate or incomplete in any material respect. If, notwithstanding receipt of the opinion, the spin-off were determined not to qualify under Section 355 of the Code, each U.S. holder of Company common stock who receives shares of our common stock in the spin-off would generally be treated as receiving a taxable distribution of property in an amount equal to the fair market value of the shares of our common stock received. That distribution would be taxable to each such stockholder as a dividend to the extent of the Company’s current and accumulated earnings and profits. For each such stockholder, any amount that exceeded the Company’s earnings and profits would be treated first as a non-taxable return of capital to the extent of such stockholder’s tax basis in its shares of Company common stock with any remaining amount being taxed as a capital gain. In addition, if certain related preparatory transactions were to fail to qualify for tax-free treatment, they would be treated as taxable asset sales and/or distributions. See “The Spin-Off—Material U.S. Federal Income Tax Consequences of the Spin-Off.”

Under the terms of the tax sharing agreement we will enter into in connection with the spin-off, we and the Company will generally share responsibility for any taxes imposed on us or the Company and its subsidiaries in the event that the spin-off and/or certain related preparatory transactions were to fail to qualify for tax-free

 

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treatment. However, if the spin-off and/or certain related preparatory transactions were to fail to qualify for tax-free treatment because of actions or failures to act by us or the Company, we or the Company, respectively, would be responsible for all such taxes. If we are liable for taxes under the tax sharing agreement, that liability could have a material adverse effect on us. See “Relationship with the Company After the Spin-Off—Agreements Between the Company and Us—Tax Sharing Agreement.”

Potential liabilities associated with obligations under the tax sharing agreement cannot be precisely quantified at this time.

Under the terms of the tax sharing agreement we will enter into in connection with the spin-off, we will generally be responsible for all taxes attributable to us or any of our subsidiaries, whether accruing before, on or after the date of the spin-off. We and the Company will generally share responsibility for all taxes imposed on us or the Company and its subsidiaries in the event the spin-off and/or certain related preparatory transactions were to fail to qualify for tax-free treatment. However, if the spin-off and/or certain related preparatory transactions were to fail to qualify for tax-free treatment because of actions or failures to act by us or the Company, we or the Company, respectively would be responsible for all such taxes. Our liabilities under the tax sharing agreement could have a material adverse effect on us. At this time, we cannot precisely quantify the amount of liabilities we may have under the tax sharing agreement and there can be no assurances as to their final amounts. For a more detailed discussion, see “Relationship with the Company After the Spin-Off—Agreements Between the Company and Us—Tax Sharing Agreement.”

Under some circumstances, we could be liable for any resulting adverse tax consequences from engaging in significant strategic or capital raising transactions.

Even if the spin-off otherwise qualifies as a tax-free distribution under section 355 of the Code, the spin-off and certain related transactions may result in significant U.S. federal income tax liabilities to us under Section 355(e) and other applicable provisions of the Code if 50% or more of the Company’s stock or our stock (in each case, by vote or value) is treated as having been acquired, directly or indirectly, by one or more persons as part of a plan (or series of related transactions) that includes the spin-off. Any acquisitions of Company stock or our stock (or similar acquisitions), or any understanding, arrangement or substantial negotiations regarding such an acquisition of Company stock or our stock (or similar acquisitions), within two years before or after the spin-off are subject to special scrutiny. The process for determining whether an acquisition triggering those provisions has occurred is complex, inherently factual and subject to interpretation of the facts and circumstances of a particular case.

Under the terms of the tax sharing agreement we will enter into in connection with the spin-off, the Company will generally be liable for any such tax liabilities. However, we will be required to indemnify the Company against any such tax liabilities that result from actions taken or failures to act by us. See “Relationship with the Company After the Spin-Off—Agreements Between the Company and Us—Tax Sharing Agreement.” As a result of these rules and contractual provisions, we may be unable to engage in strategic or capital raising transactions that our stockholders might consider favorable, or to structure potential transactions in the manner most favorable to us, without certain adverse tax consequences.

Potential indemnification liabilities to the Company pursuant to the master separation agreement could materially adversely affect New B&W.

The master separation agreement with the Company will provide for, among other things, the principal corporate transactions required to effect the spin-off, certain conditions to the spin-off and provisions governing the relationship between New B&W and the Company with respect to and resulting from the spin-off. For a description of the master separation agreement, see “Relationship with the Company After the Spin-Off—Agreements Between the Company and Us—Master Separation Agreement.” Among other things, the master separation agreement provides for indemnification obligations designed to make New B&W financially responsible for substantially all liabilities that may exist relating to our business activities, whether incurred prior to or after the spin-off, as well as those obligations of the Company assumed by us pursuant to the master separation agreement. If we are required to indemnify the Company under the circumstances set forth in the master separation agreement, we may be subject to substantial liabilities.

 

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In connection with our separation from the Company, the Company will indemnify us for certain liabilities. However, there can be no assurance that the indemnity will be sufficient to insure us against the full amount of such liabilities, or that the Company’s ability to satisfy its indemnification obligation will not be impaired in the future.

Pursuant to the master separation agreement, the Company will agree to indemnify us for certain liabilities. However, third parties could seek to hold us responsible for any of the liabilities that the Company will agree to retain, and there can be no assurance that the indemnity from the Company will be sufficient to protect us against the full amount of such liabilities, or that the Company will be able to fully satisfy its indemnification obligations. Moreover, even if we ultimately succeed in recovering from the Company any amounts for which we are held liable, we may be temporarily required to bear these losses.

The terms of our separation from the Company and the related agreements will be determined in the context of a related-party transaction, and thus may not be comparable to terms that would be obtained in a transaction between unaffiliated parties.

Transactions and agreements to be entered into with the Company on or before the closing of the spin-off present conflicts between our interests and those of the Company. These transactions and agreements include the following:

 

   

agreements related to the separation of our business from the Company that will provide for, among other things, the assumption by us of liabilities related to our business or subsidiaries, the assumption by the Company of liabilities unrelated to our business, our respective rights, responsibilities and obligations with respect to taxes and tax benefits and the terms of our various interim and ongoing relationships, as described under “Relationship with the Company After the Spin-Off—Agreements Between the Company and Us”; and

 

   

administrative support services provided by the Company to us, as well as by us to the Company, and other transactions with the Company, as described under “Relationship with the Company After the Spin-Off—Agreements Between the Company and Us—Transition Services Agreements.”

Because the terms of our separation from the Company and these agreements are being entered into in the context of a related-party transaction, these terms may not be comparable to terms that would be obtained in a transaction between unaffiliated parties. We may not be able to resolve potential conflicts, and even if we do, the resolutions may be less favorable than if we were dealing with an unaffiliated third party. See “Relationship with the Company After the Spin-Off—Agreements Between the Company and Us.”

Several members of our board and management may have conflicts of interest because of their ownership of shares of common stock of the Company.

Several members of our board and management own shares of common stock of the Company and/or options to purchase common stock of the Company because of their current or prior relationships with the Company. In addition, five of the current members of our board of directors were members of the Company’s board of directors. This share ownership by these five directors could create, or appear to create, potential conflicts of interest when our directors and executive officers are faced with decisions that could have different implications for New B&W and the Company. See “Management.”

Risks Relating to Ownership of Our Common Stock

Because there has not been any public market for our common stock, the market price and trading volume of our common stock may be volatile and you may not be able to resell your shares of our common stock at or above the initial market price of our common stock following the spin-off.

Prior to the spin-off, there will have been no trading market for our common stock. We cannot assure you that an active trading market will develop or be sustained for our common stock after the spin-off, nor can we predict the prices at which our common stock will trade after the spin-off. The market price of our common stock could fluctuate significantly due to a number of factors, many of which are beyond our control, including:

 

   

fluctuations in our quarterly or annual earnings results or those of other companies in our industry;

 

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failures of our operating results to meet the estimates of securities analysts or the expectations of our stockholders or changes by securities analysts in their estimates of our future earnings;

 

   

announcements by us or our customers, suppliers or competitors;

 

   

the depth and liquidity of the market for New B&W common stock;

 

   

changes in laws or regulations that adversely affect our industry or us;

 

   

changes in accounting standards, policies, guidance, interpretations or principles;

 

   

general economic, industry and stock market conditions;

 

   

future sales of our common stock by our stockholders;

 

   

future issuances of our common stock by us;

 

   

our ability to pay dividends in the future; and

 

   

the other factors described in these “Risk Factors” and other parts of this information statement.

Substantial sales of our common stock could cause our stock price to decline and issuances by us may dilute your ownership in New B&W.

Any sales of substantial amounts of our common stock in the public market after the spin-off, or the perception that these sales might occur, could lower the market price of our common stock and impede our ability to raise capital through the issuance of equity securities. It is possible that some Company stockholders, including possibly some of the Company’s largest stockholders, will sell the shares of our common stock they receive in the spin-off for various reasons. For example, such investors may not believe that our business profile or level of market capitalization as an independent company fits their investment objectives. Further, if we were to issue additional equity securities to raise additional capital, your ownership interest in New B&W will be diluted and the value of your investment may be reduced.

A large number of shares of our common stock are or will be eligible for future sale, which may cause the market price for our common stock to decline.

Upon completion of the spin-off, we will have an aggregate of approximately 53.5 million shares of common stock outstanding. Virtually all of those shares will be freely tradable without restriction or registration under the Securities Act. We are unable to predict whether large amounts of our common stock will be sold in the open market following the spin-off. We are also unable to predict whether a sufficient number of buyers would be in the market at that time. Some Company stockholders may be required to sell the shares of common stock of us that they receive in the spin-off. In addition, it is possible that other Company stockholders will sell the shares of common stock of us that they receive in the spin-off for various reasons. For example, such stockholders may not believe that our business profile, level of market capitalization or capital distribution policies as an independent company fits their investment objectives. We can provide no assurance that there will be sufficient new buying interest to offset the potential sales of our common stock. In addition, index or other funds currently holding shares of Company common stock may be required to sell the shares of our common stock they receive in the spin-off. Accordingly, our common stock could experience a high level of volatility immediately following the spin-off and, as a result, the price of our shares of common stock could be adversely affected.

We have no plans to pay regular dividends on our common stock, so you may not receive funds without selling your shares of our common stock.

We have no current intent to pay a regular dividend. Our board of directors will determine the payment of future dividends on our common stock, if any, and the amount of any dividends in light of applicable law, contractual restrictions limiting our ability to pay dividends, our earnings and cash flows, our capital requirements, our financial condition, and other factors our board of directors deems relevant. Accordingly, you may have to sell some or all of your shares of our common stock in order to generate cash flow from your investment.

 

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Provisions in our corporate documents and Delaware law could delay or prevent a change in control of New B&W, even if that change may be considered beneficial by some stockholders.

The existence of some provisions of our certificate of incorporation and bylaws and Delaware law could discourage, delay or prevent a change in control of New B&W that a stockholder may consider favorable.

In addition, following the spin-off, we will be subject to Section 203 of the Delaware General Corporation Law, which may have an anti-takeover effect with respect to transactions not approved in advance by our board of directors, including discouraging takeover attempts that might result in a premium over the market price for shares of our common stock.

We believe these provisions protect our stockholders from coercive or otherwise unfair takeover tactics by requiring potential acquirors to negotiate with our board of directors and by providing our board of directors with more time to assess any acquisition proposal, and are not intended to make New B&W immune from takeovers. However, these provisions apply even if the offer may be considered beneficial by some stockholders and could delay or prevent an acquisition that our board of directors determines is not in the best interests of New B&W and our stockholders. See “Description of Capital Stock—Anti-Takeover Effects of Provisions of our Certificate of Incorporation and Bylaws.”

We may issue preferred stock that could dilute the voting power or reduce the value of our common stock.

Upon the spin-off, our certificate of incorporation could authorize us to issue, without the approval of our stockholders, one or more classes or series of preferred stock having such designation, powers, preferences and relative, participating, optional and other special rights, including preferences over our common stock respecting dividends and distributions, as our board of directors generally may determine. The terms of one or more classes or series of preferred stock could dilute the voting power or reduce the value of our common stock. For example, we could grant holders of preferred stock the right to elect some number of our directors in all events or on the happening of specified events or the right to veto specified transactions. Similarly, the repurchase or redemption rights or liquidation preferences we could assign to holders of preferred stock could affect the residual value of the common stock. See “Description of Capital Stock—Preferred Stock.”

 

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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION

This information statement includes forward-looking statements. You can identify our forward-looking statements by words such as “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “goal,” “intend,” “plan,” “predict,” “project,” “seek,” “target,” “could,” “may,” “should” or “would” or other similar expressions that convey the uncertainty of future events or outcomes. When considering these forward-looking statements, you should keep in mind the risk factors and other cautionary statements contained in this information statement.

These forward-looking statements include, but are not limited to, statements that relate to, or statements that are subject to risks, contingencies or uncertainties that relate to:

 

   

the expected benefits of the spin-off;

 

   

our business strategy;

 

   

future levels of revenues (including our backlog and projected claims to the extent either may be viewed as an indicator of future revenues), operating margins, income from operations, net income or earnings per share;

 

   

anticipated levels of demand for our products and services;

 

   

future levels of research and development, capital, environmental or maintenance expenditures;

 

   

our beliefs regarding the timing and effects on our business of environmental and tax legislation, rules and regulations;

 

   

the success or timing of completion of ongoing or anticipated capital or maintenance projects;

 

   

expectations regarding the acquisition or divestiture of assets and businesses;

 

   

our ability to obtain appropriate insurance and indemnities;

 

   

the potential effects of judicial or other proceedings, including tax audits, on our business, financial condition, results of operations and cash flows;

 

   

the anticipated effects of actions of third parties such as competitors, or federal, foreign, state or local regulatory authorities, or plaintiffs in litigation; and

 

   

the effective date and expected impact of accounting pronouncements.

We have based our forward-looking statements on our current expectations, estimates and projections about our industry and New B&W. We caution that these statements are not guarantees of future performance and you should not rely unduly on them, as they involve risks, uncertainties and assumptions that we cannot predict. In addition, we have based many of these forward-looking statements on assumptions about future events that may prove to be inaccurate. While our management considers these assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond our control. Accordingly, our actual results may differ materially from the future performance that we have expressed or forecast in our forward-looking statements. Differences between actual results and any future performance suggested in our forward-looking statements could result from a variety of factors, including the following:

 

   

the highly competitive nature of our businesses;

 

   

general economic and business conditions, including changes in interest rates and currency exchange rates;

 

   

general developments in the industries in which we are involved;

 

   

cancellations of and adjustments to backlog and the resulting impact from using backlog as an indicator of future earnings;

 

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our ability to perform projects on time and on budget, in accordance with the schedules and terms established by the applicable contracts with customers;

 

   

changes in our effective tax rate and tax positions;

 

   

our ability to maintain operational support for our information systems against service outages and data corruption, as well as protection against cyber-based network security breaches and theft of data;

 

   

our ability to protect our intellectual property and renew licenses to use intellectual property of third parties;

 

   

our use of the percentage-of-completion method of accounting;

 

   

our ability to obtain and maintain surety bonds, letters of credit and similar financing;

 

   

the risks associated with integrating businesses we acquire;

 

   

our ability to successfully manage research and development projects and costs, including our efforts to successfully develop and commercialize new technologies and products;

 

   

the operating risks normally incident to our lines of business, including professional liability, product liability, warranty and other claims against us;

 

   

changes in, or our failure or inability to comply with, laws and government regulations;

 

   

difficulties we may encounter in obtaining regulatory or other necessary permits or approvals;

 

   

changes in, and liabilities relating to, existing or future environmental regulatory matters;

 

   

our limited ability to influence and direct the operations of our joint ventures;

 

   

potential violations of the Foreign Corrupt Practices Act;

 

   

our ability to successfully compete with current and future competitors;

 

   

the loss of key personnel and the continued availability of qualified personnel;

 

   

our ability to negotiate and maintain good relationships with labor unions;

 

   

changes in pension and medical expenses associated with our retirement benefit programs;

 

   

social, political, competitive and economic situations in foreign countries where we do business or seek new business;

 

   

the possibilities of war, other armed conflicts or terrorist attacks; and

 

   

the other risks described in this information statement.

We believe the items we have outlined above are important factors that could cause estimates in our financial statements to differ materially from actual results and those expressed in the forward-looking statements made in this information statement. We have discussed many of these factors in more detail elsewhere in this information statement. These factors are not necessarily all the factors that could affect us. Unpredictable or unanticipated factors we have not discussed in this information statement could also have material adverse effects on actual results of matters that are the subject of our forward-looking statements. Neither we nor the Company undertake any obligation to update the forward-looking statements included in this information statement to reflect events or circumstances after the date of this information statement, unless we are required by applicable securities laws and regulations to do so. We advise our security holders that they should (1) be aware that factors not referred to above could affect the accuracy of our forward-looking statements and (2) use caution and common sense when considering our forward-looking statements.

 

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THE SPIN-OFF

General

On November 5, 2014, the Company announced that it was separating its Power Generation business from its Government and Nuclear Operations business, subject to, among other things, the conditions described below under “—Spin-Off Conditions and Termination.” The separation will be accomplished through the spin-off of all of the common stock of New B&W to stockholders of the Company.

New B&W is currently a wholly owned subsidiary of the Company. Prior to the distribution, PGG OpCo will transfer the assets and liabilities associated with the Company’s Nuclear Energy segment to the Company. The Company will then distribute on a pro rata basis 100% of our outstanding common stock to the Company’s stockholders on June 30, 2015, the distribution date. As a result of the spin-off, each holder of Company common stock as of 5:00 p.m., New York City time, on June 18, 2015, the record date, will be entitled to:

 

   

receive one share of our common stock for every two shares of Company common stock owned by such holder; and

 

   

retain such holder’s shares of Company common stock.

The actual number of shares to be distributed will be determined based on the number of shares of Company common stock outstanding as of the record date and will be reduced to the extent that cash payments are to be made in lieu of the issuance of fractional shares of New B&W. The exact number of shares of New B&W common stock to be distributed will be calculated on the record date. The Company’s board of directors, with input from its financial advisor, will consider the appropriate liquidity and trading levels for New B&W when determining the distribution ratio for the spin-off. The shares of New B&W common stock to be distributed by the Company will constitute all of the issued and outstanding shares of New B&W common stock immediately prior to the distribution.

Company stockholders will not be required to pay for shares of New B&W common stock received in the spin-off or to surrender or exchange shares of Company common stock in order to receive New B&W common stock or to take any other action in connection with the spin-off. No vote of Company stockholders will be required or sought in connection with the spin-off, and Company stockholders will have no appraisal rights in connection with the spin-off.

Background of the Spin-Off

The Company’s board of directors and senior management regularly review the Company’s prospects, business plan and strategic alternatives.

As part of this process, at a regularly scheduled meeting on August 4-5, 2014, the Company’s board of directors reviewed the Company’s prospects and potential strategic alternatives, and directed Company management, with the assistance of the Company’s financial and legal advisors, to more fully evaluate the Company’s strategic alternatives for consideration by the board at its annual strategic planning meeting scheduled for September 8-9, 2014.

At its September 8-9, 2014 strategic planning meeting, the Company’s board of directors, with the input of the Company’s financial and legal advisors, engaged in a wide-ranging review of the Company’s business plan and prospects, as well as strategic alternatives that were available to the Company, including continuing the Company’s current operations under its existing capital structure; acquisitions, joint ventures and other potential inorganic growth possibilities; the return of cash to stockholders, including through a potential recapitalization; the sale of one or both of the Company’s businesses; the spin-off of or split-off of one of its businesses and a business combination or other possible strategic transaction. It was the consensus of the Company’s board that the Company’s management, with the assistance of the Company’s financial and legal advisors, should continue to focus on the Company’s strategic alternatives for further consideration at a meeting of the board of the Company scheduled for September 27, 2014.

The Company’s board of directors met on September 27, 2014 to continue its consideration of the Company’s prospects and strategic alternatives. Representatives of the Company’s financial and legal advisors

 

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participated in the meeting. While no decision was made to pursue any particular option, following a thorough review of the strategic alternatives that the Company’s management, based in part on input from the Company’s financial and legal advisors, believed to be reasonably available, it was the consensus of the Company’s board that the Company should focus its analysis on the possible separation of the Company’s Power Generation and Government and Nuclear Operations businesses into two separate publicly traded companies to enhance stockholder value.

Company management, with assistance from the Company’s financial and legal advisors continued to evaluate the possible separation of the Company’s Power Generation and Government Nuclear Operations businesses into two separate publicly traded companies over the next five weeks, focusing on possible capital structures, management, the division of assets and liabilities and tax, legal, regulatory and other issues that would be involved in a separation of the Company’s businesses.

The Company’s board of directors met on October 31, 2014 to review the possible separation and the additional analyses undertaken by the Company’s management and the Company’s financial and legal advisors since the September 27th meeting. Following extensive discussion, the Company’s board authorized the Company’s management to pursue the possible separation, subject to various conditions, including the effectiveness of SEC registration, regulatory approval and final approval by the Company’s board.

Reasons for the Spin-Off

Factors Supporting the Spin-Off: In determining to pursue a spin-off, the Company’s board of directors and management concluded that the spin-off could be reasonably expected to increase stockholder value by improving the operating performance of the two businesses based on four key factors:

 

   

increased flexibility to allocate resources and deploy capital internally in a manner consistent with the strategic priorities of each business;

 

   

increased opportunities to pursue external growth strategies as independent companies;

 

   

enhanced ability to attract an investor base suited to the particular operational and financial characteristics of each company; and

 

   

greater management focus on the distinct businesses of Power Generation and Government and Nuclear Operations.

The Company’s board and management believe these benefits will provide both companies with the following:

 

   

Improved positioning for each company to accelerate growth: Each company is expected to be better positioned to accelerate growth as a separate, publicly traded company as compared to the current consolidated company structure. New B&W believes that opportunities for growth will result from its ability to focus on and implement its distinct corporate strategy, take advantage of available market opportunities on a more timely basis, reinvest its cash flows within its business as its board of directors and management deem appropriate and develop stronger and broader relationships with its customers.

As part of a consolidated company, each company’s growth initiatives had to be evaluated in terms of available funding, resources, prioritization and time permitted for review and approval as part of the consolidated company. The businesses of the Company and New B&W have typically operated autonomously as business segments of the Company. However, due to the different characteristics of the Company and New B&W businesses, neither company has had the ability to reinvest its cash flows in internal growth as may have been desirable for its business on a stand-alone basis. Finally, so long as the Company and New B&W were consolidated, part of the strategy of the Company was to maintain a balance between its businesses and not become overly concentrated in any particular business. However, this strategy adversely affected the ability of each company to pursue its own growth initiatives to their full potential.

 

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More efficient allocation of capital: As discussed above, as part of the consolidated company, the Company’s board of directors had to evaluate the Company and New B&W together when determining the allocation of capital resources. In addition, the consolidated company maintained an appropriate level of liquidity for the operating characteristics of the combined business. As a result, the flexibility of each company to invest capital in its business in a time and manner as its separate strategy would dictate was necessarily affected. The Company believes that the separation of the Power Generation and Government and Nuclear Operations businesses will enable a more efficient allocation of capital by providing each separate company’s board of directors and management the ability to reinvest that company’s free cash flow, utilize its capital resources and access the capital markets, if needed, in a manner consistent with the needs of that specific company, rather than the needs of the consolidated company, and that this more efficient allocation of capital can be reasonably expected to provide the separated companies with greater flexibility to pursue their strategic initiatives.

 

   

Establishment of distinct publicly traded stock “currencies” to facilitate future acquisitions: As separate companies, the Company believes each company’s stock can also serve as a more attractive acquisition “currency” to potential acquisition targets than the existing Company common stock. In the case of an acquisition of a business in which part of the consideration is to be paid in stock, the Company believes that the existing investors in the acquisition target company would generally prefer to receive stock of another company in the same sector as the target, rather than stock of an integrated company that has exposure to other sectors that they may not prefer or as to which they may not have sufficient familiarity to remain as long-term investors.

 

   

Sharpened management focus and strategic vision and closer alignment of management incentives with stockholder value creation: The Company believes that each company has different business strategies and offers significantly different business opportunities for growth. The Company believes that the spin-off should therefore enable the management team of each company to improve its focus on its strategic priorities and make business and operational decisions that are in the best interest of its operations, taking into consideration the different challenges and opportunities and different financial profiles and capital needs pertinent to its business. As separate companies, each will be able to independently prioritize the allocation of resources and capital in support of its business strategies. As a consolidated company, our projects had to be evaluated together with other investment opportunities within the Company. As separate companies, each of the Company and New B&W will no longer have to compete for investment capital with the other, and each will be in a position to better pursue a growth strategy to optimize its own operations. The two businesses will also be better able to compete through quicker decision making, more efficient deployment of capital and corporate resources and enhanced responsiveness to market demands.

 

   

Finally, the Company believes that the separation of the two businesses through the spin-off will allow each company to provide incentive compensation to its key employees in the form of equity-based incentive compensation that is more closely aligned with the performance of each business. By separating the two companies, management of each company should be in an improved position to attract employees with the correct skill set, to motivate them appropriately and to retain them for the long-term.

Risks and Considerations Relating to the Spin Off: In determining whether to approve the spin-off, the Company’s board of directors also considered various risks and other considerations involved, including:

 

   

potential increased costs for each company to operate as a separate stand-alone public company, including, among others, the costs to create separate accounting, legal, senior management and tax teams and other duplicated costs that we estimate could range from $14 million to $16 million of annual incremental costs for New B&W to replace services previously provided by the Company as well as other stand-alone costs;

 

   

potential loss of joint purchasing power;

 

   

potential disruptions to management’s attention and to the business as a result of the spin-off;

 

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tax limitations placed on New B&W as a result of the spin-off;

 

   

risks of being unable to achieve the benefits expected to be achieved by the spin-off;

 

   

the risk that the spin-off might not be completed;

 

   

costs of the spin-off, including the loss of certain synergies associated with being part of a larger organization that cannot be quantified;

 

   

the risk that the trading price of a share of Company common stock after the spin-off plus the trading price of the one share of New B&W common stock distributed for every two shares of Company common stock will, in the aggregate, be less than the trading price of a share of Company common stock before the spin-off; and

 

   

potential for higher borrowing costs.

See “Risk Factors – Risks Relating to the Spin-Off” for additional information.

The factors discussed above as supporting the decision of the Company’s board of directors were determined to outweigh the countervailing risks and other considerations. The foregoing discussion of the reasons for the determination of the board to approve the spin-off is not meant to be exhaustive, but addresses the material factors considered by board. In view of the wide variety of factors considered by the board in connection with its evaluation of the spin-off and the complexity of these matters, the board did not find it practicable to, and did not, quantify or otherwise assign relative weights to the specific factors considered in reaching its determination and recommendation. Rather, the board made its determination and recommendation based on the totality of the information presented to it, and the judgment of individual members of the board may have been influenced to a greater or lesser degree by different factors.

Results of the Spin-Off

After the spin-off, we will be an independent public company. Immediately following the spin-off, we expect that approximately 53.5 million shares of our common stock will be issued and outstanding, based on the distribution of one share of our common stock for every two shares of Company common stock outstanding and the number of shares of Company common stock outstanding on May 30, 2015. The actual number of shares of our common stock to be distributed will be determined based on the number of shares of Company common stock outstanding as of the record date. We also expect to have approximately 2,200 stockholders of record, based on the number of stockholders of record of Company common stock on May 30, 2015.

We and the Company will be parties to a number of agreements that will govern the spin-off and our future relationship. For a more detailed description of these agreements, please see “Relationship with the Company After the Spin-Off—Agreements Between the Company and Us.”

You will not be required to make any payment for the shares of New B&W common stock you receive, nor will you be required to surrender or exchange your shares of Company common stock or take any other action in order to receive the shares of New B&W common stock to which you are entitled. The spin-off will not affect the number of outstanding shares of Company common stock or any rights of Company stockholders, although it will affect the market value of the outstanding Company common stock.

Manner of Effecting the Spin-Off

The general terms and conditions relating to the spin-off will be set forth in a master separation agreement between the Company and us. For a description of the terms of that agreement, see “Relationship with the Company After the Spin-Off—Agreements Between the Company and Us—Master Separation Agreement.” Under the master separation agreement, the spin-off will be completed on the distribution date. As a result of the spin-off, each Company stockholder will be entitled to receive one share of our common stock for every two shares of Company common stock owned on the record date. As discussed under “—Trading of Company Common Stock After the Record Date and Prior to the Distribution,” if a holder of record of Company common stock sells those shares in the “regular way” market after the record date and on or prior to the distribution date, that stockholder also will be selling the right to receive shares of our common stock in the distribution. The

 

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distribution will be made in book-entry form. For registered Company stockholders, our transfer agent will credit their shares of our common stock to book-entry accounts established to hold their shares of our common stock. Book-entry refers to a method of recording stock ownership in our records in which no physical certificates are issued. For stockholders who own Company common stock through a bank or brokerage firm, their shares of our common stock will be credited to their accounts by the bank or broker. See “—When and How You Will Receive New B&W Shares” below. Each share of our common stock that is distributed will be validly issued, fully paid and nonassessable. Holders of shares of our common stock will not be entitled to preemptive rights. See “Description of Capital Stock.”

When and How You Will Receive New B&W Shares

On the distribution date, the Company will release its shares of New B&W common stock for distribution by Computershare Trust Company, N.A., the distribution agent. The distribution agent will cause the shares of New B&W common stock to which you are entitled to be registered in your name or in the “street name” of your bank or brokerage firm.

Street Name” Holders. Many Company stockholders hold Company common stock through an account with a bank or brokerage firm. If this applies to you, that bank or brokerage firm is the registered holder that holds the shares on your behalf. For stockholders who hold their shares of Company common stock in an account with a bank or brokerage firm, the New B&W common stock distributed to you will be registered in the “street name” of your bank or broker, who in turn will electronically credit your account with the New B&W shares that you are entitled to receive in the distribution. We anticipate that banks and brokers will generally credit their customers’ accounts with New B&W common stock on or shortly after the distribution date. We encourage you to contact your bank or broker if you have any questions regarding the mechanics of having shares of New B&W common stock credited to your account.

Registered Holders. If you are the registered holder of shares of Company common stock and hold your shares of Company common stock either in physical form or in book-entry form, the shares of New B&W common stock distributed to you will be registered in your name and you will become the holder of record of that number of shares of New B&W common stock. Our distribution agent will send you a statement reflecting your ownership of our common stock.

Direct Registration System. As part of the spin-off, we will be adopting a direct registration system for book-entry share registration and transfer of our common stock. The shares of our common stock to be distributed in the spin-off will be distributed as uncertificated shares registered in book-entry form through the direct registration system. No certificates representing your shares will be mailed to you in connection with the spin-off. Under the direct registration system, instead of receiving stock certificates, you will receive a statement reflecting your ownership interest in our shares. Contact information for our transfer agent and registrar is provided under “Questions and Answers About the Spin-Off.” The distribution agent will begin mailing book-entry account statements reflecting your ownership of shares promptly after the distribution date. You can obtain more information regarding the direct registration system by contacting our transfer agent and registrar.

Treatment of Fractional Shares

The transfer agent will not deliver any fractional shares of our common stock in connection with the spin-off. Instead, the transfer agent will aggregate all fractional shares and sell them on behalf of those holders who otherwise would be entitled to receive a fractional share. We anticipate that these sales will occur as soon as practicable after the distribution date. Those holders will then receive a cash payment in the form of a check in an amount equal to their pro rata share of the total net proceeds of those sales. We expect that checks will generally be distributed to stockholders within one to two weeks after the distribution date. Broker selling expenses in connection with these sales will be paid by the Company.

It is expected that all fractional shares held in street name will be aggregated and sold by brokers or other nominees according to their standard procedures. You should contact your broker or other nominee for additional details.

None of the Company, New B&W or the transfer agent will guarantee any minimum sale price for the fractional shares of our common stock. Neither we nor the Company will pay any interest on the proceeds from the

 

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sale of fractional shares. The receipt of cash in lieu of fractional shares will generally be taxable to the recipient stockholders. See “—Material U.S. Federal Income Tax Consequences of the Spin-Off.”

Market for Our Common Stock

There is currently no public market for our common stock. A condition to the spin-off is the listing on the NYSE of our common stock. We intend to list our common stock on the NYSE under the symbol “BW.” We anticipate that trading of our common stock will commence on a “when-issued” basis shortly before the record date. When-issued trading refers to a sale or purchase made conditionally because the security has been authorized but not yet issued. On the first trading day following the distribution date, when-issued trading with respect to our common stock will end and “regular way” trading will begin. Regular way trading refers to trading after a security has been issued and typically involves a transaction that settles on the third full business day following the date of the transaction. Neither we nor the Company can assure you as to the trading price of our common stock after the spin-off or as to whether the trading price of a share of Company common stock after the spin-off plus the trading price of the one share of our common stock distributed for every two shares of Company common stock will not, in the aggregate, be less than the trading price of a share of Company common stock before the spin-off. The trading price of our common stock is likely to fluctuate significantly, particularly until an orderly market develops. See “Risk Factors—Risks Relating to Ownership of Our Common Stock.” In addition, we cannot predict any change that may occur in the trading price of the Company’s common stock as a result of the spin-off.

Trading of Company Common Stock After the Record Date and Prior to the Distribution

Beginning on or shortly before the record date and through the distribution date, there will be two concurrent markets in which to trade Company common stock: a “regular way” market and an “ex-distribution” market. Shares of Company common stock that trade in the “regular way” market will trade with an entitlement to shares of our common stock distributed in connection with the spin-off. Shares that trade in the “ex-distribution” market will trade without an entitlement to shares of our common stock distributed in connection with the spin-off. Therefore, if you owned shares of Company common stock at 5:00 p.m., New York City time, on the record date and sell those shares in the “regular way” market on or prior to the distribution date, you also will be selling your right to receive the shares of our common stock that would have been distributed to you in connection with the spin-off. If you sell those shares of Company common stock in the “ex-distribution” market prior to or on the distribution date, you will still receive the shares of our common stock that were to be distributed to you in connection with the spin-off as a result of your ownership of the shares of Company common stock.

We expect to have approximately 53.5 million shares of our common stock outstanding immediately after the spin-off, based upon the number of shares of Company common stock outstanding on May 30, 2015. The shares of our common stock distributed to Company stockholders will be freely transferable, except for shares received by persons who may be deemed to be our “affiliates” under the Securities Act. Persons who may be deemed to be our affiliates after the spin-off generally include individuals or entities that control, are controlled by, or are under common control with us, and may include some or all of our directors and executive officers. Our affiliates will be permitted to sell their shares of New B&W common stock only pursuant to an effective registration statement under the Securities Act or an exemption from the registration requirements of the Securities Act, such as the exemption afforded by Rule 144.

Treatment of Stock-Based Awards

In connection with the spin-off, we currently expect that, subject to the approval of the compensation committee of the Company’s board of directors, the Company’s outstanding equity-based compensation awards will generally be treated as follows:

 

   

Each outstanding option to purchase shares of Company common stock that is granted during 2015 prior to the distribution date to an officer or employee of the Company who will remain an officer or employee of the Company and will not become an officer or employee of New B&W in connection with the spin-off will be replaced with an adjusted option to purchase Company common stock. Each of those adjusted options will reflect adjustments that will be generally intended to preserve the intrinsic value of the original option and the ratio of the exercise price to the fair market value of the stock subject to the option by adjusting the number of shares purchasable and the exercise price, by

 

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reference to the volume-weighted-average trading price of the Company common stock trading “regular way” on the distribution date and the simple average of the volume-weighted-average trading price of the Company common stock on each of the first three trading days following the distribution date. The replacement options will generally be made subject to the same terms and conditions as the options being replaced. To the extent the options being replaced are vested, the replacement options will also be vested.

 

   

Each outstanding option to purchase shares of Company common stock that is granted during 2015 prior to the distribution date to a person who is or will become an officer or employee of New B&W in connection with the spin-off will be replaced with substitute options to purchase shares of New B&W common stock. Each of those substitute options will have terms that will be generally intended to preserve the intrinsic value of the original option and the ratio of the exercise price to the fair market value of the stock subject to the option by adjusting the number of shares purchasable and the exercise price, by reference to the volume-weighted-average trading price of the Company common stock trading “regular way” on the distribution date and the simple average of the volume-weighted-average trading price of the New B&W common stock on each of the first three trading days following the distribution date. The substitute options will generally be made subject to the same terms and conditions as the options being replaced. To the extent the options being replaced are vested, the substitute options will also be vested.

 

   

Each outstanding option to purchase shares of Company common stock that was granted prior to 2015 will be replaced with both an adjusted Company stock option and a substitute New B&W stock option. Both options, when combined, will have terms that will be generally intended to preserve the intrinsic value of the original option and the ratio of the exercise price to the fair market value of the stock subject to the option, by reference to the ratio of one share of New B&W common stock being distributed for every two shares of Company common stock in the spin-off, the volume-weighted-average trading price of the Company common stock trading “regular way” on the distribution date and the simple average of the volume-weighted-average trading price of the Company common stock and New B&W common stock on each of the first three trading days following the distribution date. Both the replacement and the substitute options will generally be made subject to the same terms and conditions as the original options.

 

   

Company restricted stock unit awards granted during 2015 prior to the distribution date to officers or employees of the Company who will remain officers or employees of the Company and will not become officers or employees of New B&W in connection with the spin-off will be replaced with adjusted Company awards, each of which will generally preserve the value of the original award. The adjusted awards will generally be made subject to the same terms and conditions as the awards being replaced.

 

   

Company restricted stock unit awards granted during 2015 prior to the distribution date to persons who are or will become officers or employees of New B&W in connection with the spin-off will be converted into substitute New B&W awards, each of which will generally preserve the value of the original award. The adjusted awards will generally be made subject to the same terms and conditions as the awards being replaced.

 

   

Outstanding Company restricted stock unit awards granted prior to 2015, any restricted stock unit awards granted to the Company’s directors prior to the distribution date that have been deferred by such directors, if any, and any Company restricted stock awards granted pursuant to retention agreements entered into with certain employees of the Company in contemplation of the spin-off, will be replaced with both (1) adjusted Company awards and (2) substitute New B&W awards, which will be determined by reference to the ratio of one share of New B&W common stock being distributed for every two shares of Company common stock in the spin-off and which, when combined, will generally preserve the value of the original award. The adjusted awards will generally be made subject to the same terms and conditions as the awards being replaced.

 

   

Outstanding Company performance share awards granted prior to 2015 will generally be converted into unvested rights to receive the value of deemed target performance in unrestricted shares of a

 

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combination of Company common stock and New B&W common stock, determined by reference to the ratio of one share of New B&W common stock being distributed for every two shares of Company common stock in the spin-off, in each case with the same vesting terms as the original awards.

Any former employees of the Company or New B&W who hold outstanding stock options, restricted stock units, deferred stock units or performance shares that are unvested will have their stock options, restricted stock units, deferred stock units or performance shares similarly adjusted or replaced as a result of the spin-off.

In the case of adjusting Company options or granting substitute New B&W options, the conversion formula may result in fractional shares or fractional cents. Any fractional shares subject to adjusted Company options and substitute New B&W options will be disregarded, and the number of shares subject to such options will be rounded down to the next lower whole number of shares. The exercise price for such options will be rounded up to the next higher whole cent.

Spin-Off Conditions and Termination

We expect that the spin-off will be completed on June 30, 2015, provided that, among other things:

 

   

the Company’s board of directors will not have withdrawn its authorization and approval regarding (1) any transfer of assets and assumption of liabilities contemplated by the master separation agreement and any related agreement and (2) the distribution;

 

   

the Company’s board of directors will have declared the distribution of all of our outstanding shares of common stock to Company stockholders as of the record date who did not transfer their right to receive shares of our common stock in connection with the spin-off;

 

   

the SEC has declared effective our registration statement on Form 10, of which this information statement is a part, under the Exchange Act, with no stop order in effect with respect to the Form 10, and this information statement shall have been mailed to the Company’s stockholders;

 

   

the actions and filings necessary under securities and blue sky laws of the states of the United States and any comparable laws under any foreign jurisdictions have been taken and become effective;

 

   

no order, injunction, decree or regulation issued by any court or agency of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the spin-off is in effect;

 

   

our common stock has been approved for listing on the New York Stock Exchange, subject to official notice of issuance;

 

   

regulatory review by the Nuclear Regulatory Commission has been completed;

 

   

the Company has received an opinion from its tax counsel regarding the tax treatment of the spin-off as of the distribution date (see “—Material U.S. Federal Income Tax Consequences of the Spin-Off” for more information regarding the opinion of tax counsel);

 

   

each of the ancillary agreements related to the spin-off shall have been entered into before the spin-off and shall not have been materially breached by any party thereto; and

 

   

no other events or developments have occurred that, in the judgment of the board of directors of the Company, in its sole and absolute discretion, would result in the spin-off having a material adverse effect on the Company or its stockholders.

We and the Company received written confirmation from the Nuclear Regulatory Commission on March 17, 2015 that the spin-off and related steps constitute neither a direct nor indirect transfer of control of any Nuclear Regulatory Commission License. Consequently, other than administrative matters relating to name change amendments, which do not involve any consent process by the Nuclear Regulatory Commission, the Nuclear Regulatory Commission regulatory review has been completed. The Company may waive one or more of

 

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these conditions in its sole and absolute discretion, and the determination by the Company regarding the satisfaction of these conditions will be conclusive. The fulfillment of these conditions will not create any obligation on the Company’s part to effect the distribution, and the Company has reserved the right to amend, modify or abandon any and all terms of the distribution and the related transactions at any time prior to the distribution date. The Company is not aware of any circumstances under which the spin-off would be abandoned.

Material U.S. Federal Income Tax Consequences of the Spin-Off

The following is a summary of material U.S. federal income tax consequences relating to the spin-off. This summary is based on the Code, related U.S. Treasury regulations, and interpretations of the Code and the U.S. Treasury regulations by the courts and the IRS, in effect as of the date of this information statement, and all of which are subject to change, possibly with retroactive effect. This summary does not discuss all the tax considerations that may be relevant to Company stockholders in light of their particular circumstances, nor does it address the consequences to Company stockholders subject to special treatment under the U.S. federal income tax laws (such as non-U.S. persons, insurance companies, dealers or brokers in securities or currencies, tax-exempt organizations, financial institutions, mutual funds, pass-through entities and investors in such entities, holders who hold their shares as a hedge or as part of a hedging, straddle, conversion, synthetic security, integrated investment or other risk-reduction transaction or who are subject to alternative minimum tax or holders who acquired their shares upon the exercise of employee stock options or otherwise as compensation). In addition, this summary does not address the U.S. federal income tax consequences to those Company stockholders who do not hold their Company common stock as a capital asset. Finally, this summary does not address any state, local or foreign tax consequences.

COMPANY STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS CONCERNING THE U.S. FEDERAL, STATE AND LOCAL AND FOREIGN TAX CONSEQUENCES OF THE SPIN-OFF TO THEM.

The spin-off is conditioned on the receipt of an opinion from counsel substantially to the effect that (1) the spin-off will qualify under Section 355 of the Code and certain transactions related to the spin-off will qualify under Sections 355 and/or 368 of the Code, and (2) the spin-off and certain related transactions will qualify for tax-free treatment to the Company and to us.

Assuming the spin-off and such related transactions meet the condition described above:

 

   

the spin-off and certain related transactions generally will not result in any U.S. taxable income, gain or loss to the Company or to us;

 

   

no gain or loss will be recognized by (and no amount will be included in the taxable income of) Company stockholders on their receipt of shares of our common stock in the spin-off;

 

   

the holding period of shares of our common stock received by each Company stockholder will include the holding period at the time of the spin-off for the Company common stock on which the spin-off is made;

 

   

the tax basis of the Company common stock held by each Company stockholder immediately before the spin-off will be allocated between that Company common stock and our common stock received, including any fractional share of our stock deemed received in the spin-off, in proportion to the relative fair market value of each on the date of the spin-off; and

 

   

a Company stockholder who receives cash for a fractional share of our common stock will generally recognize capital gain or loss measured by the difference between the amount of cash received and the basis of the fractional share interest in our common stock to which the stockholder would otherwise be entitled.

U.S. Treasury Regulations also generally provide that if a Company stockholder holds different blocks of Company common stock (generally shares of Company common stock purchased or acquired on different dates or at different prices), the aggregate basis for each block of Company common stock purchased or acquired on the

 

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same date and at the same price will be allocated, to the greatest extent possible, between the shares of our common stock received in the spin-off in respect of such block of Company common stock and such block of Company common stock, in proportion to their respective fair market values, and the holding period of the shares of our common stock received in the spin-off in respect of such block of Company common stock will include the holding period of such block of Company common stock. If a Company stockholder is not able to identify which particular shares of our common stock are received in the spin-off with respect to a particular block of Company common stock, for purposes of applying the rules described above, the stockholder may designate which shares of our common stock are received in the spin-off in respect of a particular block of Company common stock, provided that such designation is consistent with the terms of the spin-off. Holders of Company common stock are urged to consult their own tax advisors regarding the application of these rules to their particular circumstances.

The Company has made it a condition to the spin-off that the Company obtain an opinion of counsel substantially to the effect that (1) the spin-off will qualify under Section 355 of the Code and certain transactions related to the spin-off will qualify under Sections 355 and/or 368 of the Code, and (2) the spin-off and certain related transactions will qualify for tax-free treatment to the Company and to us. The opinion will be based on, among other things, certain assumptions and representations made by the Company and us, which if incorrect or inaccurate in any material respect would jeopardize the conclusions reached by counsel in its opinion. The opinion will not be binding on the IRS or the courts and will be subject to other qualifications and limitations.

Notwithstanding receipt by the Company of the opinion of counsel, the IRS could assert that the spin-off and/or certain related transactions do not qualify for tax-free treatment for U.S. federal income tax purposes. If the IRS were successful in making such an assertion, we and our initial public stockholders could be subject to significant U.S. federal income tax liability. In general, (1) with respect to the spin-off, our initial public stockholders could be treated as if they had received a taxable distribution from the Company in an amount equal to the fair market value of our common stock that was distributed to them and (2) certain related transactions could be treated as taxable sales and/or distributions. For example, even if the spin-off were otherwise to qualify under Section 355 of the Code, the spin-off and certain related transactions may be taxable to the Company (but not to our initial stockholders) under Section 355(e) of the Code, if the spin-off were later deemed to be part of a plan (or series of related transactions) pursuant to which one or more persons acquire, directly or indirectly, stock representing a 50% or greater interest in the Company or us. For this purpose, any acquisitions of Company common stock or of our common stock within the period beginning two years before the spin-off and ending two years after the spin-off are presumed to be part of such a plan, although we or the Company may be able to rebut that presumption.

In connection with the spin-off, we and the Company will enter into a tax sharing agreement pursuant to which we will agree to be responsible for certain liabilities and obligations following the spin-off. Under the terms of the tax sharing agreement, in the event that the spin-off or certain transactions related to the spin-off were to fail to qualify for tax-free treatment, we and the Company would generally share responsibility for all of the tax imposed on us or the Company and its subsidiaries resulting from such failure. However, if these transactions were to fail to qualify for tax-free treatment because of actions or failures to act by us or the Company, we or the Company respectively, could be responsible for all such tax. See “Relationship with the Company After the Spin-Off—Agreements Between the Company and Us—Tax Sharing Agreement.”

Under U.S. Treasury regulations, each Company stockholder who, immediately before the distribution, owns at least 5% of the total outstanding common stock of the Company must attach to such stockholder’s U.S. federal income tax return for the year in which the spin-off occurs a statement setting forth certain information relating to the spin-off. In addition, all stockholders are required to retain permanent records relating to the amount, basis and fair market value of our stock which they receive and to make those records available to the IRS on request of the IRS.

THE FOREGOING IS A SUMMARY OF MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE SPIN-OFF UNDER CURRENT LAW AND IS FOR GENERAL INFORMATION ONLY. THE FOREGOING DOES NOT PURPORT TO ADDRESS ALL U.S. FEDERAL INCOME TAX CONSEQUENCES OR TAX CONSEQUENCES THAT MAY ARISE UNDER THE TAX LAWS OF OTHER JURISDICTIONS OR THAT MAY APPLY TO PARTICULAR CATEGORIES OF STOCKHOLDERS. EACH COMPANY STOCKHOLDER SHOULD CONSULT ITS OWN TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES OF THE SPIN-OFF TO SUCH STOCKHOLDER, INCLUDING THE APPLICATION OF U.S. FEDERAL, STATE, LOCAL

 

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AND FOREIGN TAX LAWS, AND THE EFFECT OF POSSIBLE CHANGES IN TAX LAWS THAT MAY AFFECT THE TAX CONSEQUENCES DESCRIBED ABOVE.

Reason for Furnishing this Information Statement

This information statement is being furnished solely to provide information to Company stockholders who will receive shares of New B&W common stock in the spin-off. It is not to be construed as an inducement or encouragement to buy or sell any of our securities or any Company securities. We believe that the information contained in this information statement is accurate as of the date set forth on the front cover. Changes may occur after that date and neither the Company nor we undertake any obligation to update the information, except to the extent applicable securities laws or regulations require us to do so.

 

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CAPITALIZATION

The following table sets forth capitalization (1) on a historical basis as of March 31, 2015, and (2) on a pro forma basis to reflect the transfer of the assets and liabilities associated with the Company’s Nuclear Energy segment to the Company. This table should be read in conjunction with “Selected Historical Combined Financial Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the combined financial statements and corresponding notes and the unaudited pro forma combined financial statements and corresponding notes included elsewhere in this information statement.

 

  March 31, 2015
(in thousands)
 
      Historical           Pro Forma      

Long-term debt (including current portion)

  $ 3,219          $ 3,219       

Stockholders’ equity

Preferred stock, $0.01 par value; 20,000,000 shares authorized pro forma; no shares issued and outstanding pro forma

  —          —       

Common stock, $0.01 par value; 200,000,000 shares authorized pro forma; 53,470,120 shares issued and outstanding pro forma

  —          535(1)   

Capital in excess of par value

  —          644,490(2)   

Parent/stockholder equity

  672,432          —     
  

 

 

    

 

 

 

Total capitalization

  $     675,651          $     648,744       
  

 

 

    

 

 

 

 

(1)

Represents the expected distribution of approximately 53.5 million shares of our common stock to holders of Company common stock based on the number of shares of Company common stock outstanding on March 31, 2015.

(2)

Represents parent/stockholder equity excluding the Nuclear Energy segment. Prior to the distribution, the assets and liabilities associated with New B&W’s Nuclear Energy segment will be transferred to the Company. See the unaudited pro forma combined balance sheets and corresponding notes included elsewhere in this information statement for additional information regarding the assumptions and estimates used in the pro forma adjustments.

 

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DIVIDEND POLICY

We do not currently plan to pay a regular dividend on our common stock following the spin-off. The declaration of any future cash dividends and, if declared, the amount of any such dividends, will be subject to our financial condition, earnings, capital requirements, financial covenants and other contractual restrictions and to the discretion of our board of directors. Our board of directors may take into account such matters as general business conditions, industry practice, our financial condition and performance, our future prospects, our cash needs and capital investment plans, income tax consequences, applicable law and such other factors as our board of directors may deem relevant.

 

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SELECTED HISTORICAL COMBINED FINANCIAL INFORMATION

The following table presents selected historical combined financial information. We derived the historical condensed combined statements of operations for the three months ended March 31, 2015 and 2014, and the balance sheet information as of March 31, 2015, from our unaudited condensed combined financial statements included in this information statement. We derived the statement of operations information for each of the years ended December 31, 2014, 2013 and 2012 and the balance sheet information as of December 31, 2014 and 2013 from the audited combined financial statements included in this information statement and the balance sheet information as of March 31, 2014 and December 31, 2012 from the unaudited combined financial statements not included in this information statement. We derived the statement of operations and balance sheet information for the years ended December 31, 2011 and 2010 from the unaudited combined financial statements not included in this information statement. The selected historical combined financial information does not reflect the transfer of assets and liabilities associated with the Company’s Nuclear Energy segment to the Company in connection with the spin-off. See “Summary Historical and Unaudited Pro Forma Combined Financial Information.”

You should read the selected historical combined financial information in conjunction with the “Summary Historical and Unaudited Pro Forma Combined Financial Information,” the combined financial statements and the accompanying notes, the unaudited pro forma combined financial statements and the accompanying notes, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in this information statement. The financial information may not be indicative of our future performance and does not necessarily reflect what our financial position and results of operations would have been had we operated as an independent public company during the periods presented.

 

    Three Months Ended
March 31,
    Year Ended
December 31,
 
    2015     2014           2014                 2013                 2012                 2011                 2010        

Statement of Operations Information:

        (in thousands)   

Revenues

    $  419,842        $ 347,892        $ 1,589,719        $ 1,921,163        $ 2,039,100        $ 1,785,274        $ 1,599,841   

Costs and expenses

    398,692        339,681        1,655,915        1,684,376        1,850,616        1,714,769        1,483,638   

Equity in income of investees

    (2,071     2,366        8,681        18,387        17,402        24,616        31,949   

Operating income (loss)

    19,079        10,577        (57,515)        255,174        205,886        95,121        148,152   

Other income (expense)

    (416     1,832        1,823        1,847        (669)        414        (20,667)   

Income (loss) before provision for (benefit from) income taxes

    18,663        12,409        (55,692)        257,021        205,217        95,535        127,485   

Provision for (benefit from) income taxes

    5,921        1,204        (29,528)        82,206        64,323        36,577        44,414   

Net income (loss) attributable to The Power Generation Operations of The Babcock & Wilcox Company

    $ 12,690        $ 11,089        $ (26,529)        $ 174,526        $ 140,753        $ 58,732        $ 82,894   

Non-GAAP Data:

             

Adjusted net income attributable to The Power Generation Operations of The Babcock & Wilcox Company (1)

    $ 14,220        $ 12,015        $ 64,851        $ 116,620        $ 149,851        $ 138,605        $ 125,282   

Other Data:

             

Depreciation and amortization

    $ 13,075        $ 6,739        $ 36,454        $ 29,726        $ 23,857        $ 21,115        $ 23,865   

Capital expenditures

    6,221        3,202        17,204        16,563        25,074        15,427        13,770   

Balance Sheet Information:

             

Working capital

    $ 355,692        $ 298,841        $ 366,604        $ 231,275        $ 115,045        $ 397,678        $ 274,982   

Total assets

    1,493,297        1,280,220        1,522,806        1,296,469        1,419,651        1,656,990        1,449,754   

Notes payable and current maturities of long-term debt

    3,219        5,083        3,215        4,671        4,062        4,653        4,791   

Long-term debt

    -        -        -        225        430        633        855   

Other Data:

             

Backlog

    $ 2,786,639        $ 2,114,850        $ 2,480,177        $ 2,173,350        $ 2,680,292        $ 2,248,080        $ 1,925,200   

 

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(1) Adjusted net income and adjusted diluted earnings per common share are defined as net income and diluted earnings per common share adjusted to exclude actuarial gains and losses on pension and post-retirement plans and special charges for restructuring activities. We present adjusted net income and adjusted diluted earnings per common share, which are not prepared in accordance with GAAP, because we believe they provide meaningful insight into operational performance. Additionally, we believe that when considered together with the GAAP results and the reconciliation to net income and diluted earnings per common share, these non-GAAP measures provide a more complete understanding of our business than could be obtained absent this disclosure. We use adjusted net income and adjusted diluted earnings per common share, together with financial measures prepared in accordance with GAAP, such as net income and diluted earnings per common share, to assess our historical and prospective operating performance and to enhance our understanding of our core operating performance. Additionally, we are presenting these measures because we believe they are useful in (a) helping investors facilitate comparisons of our operating results with prior periods and (b) assisting investors in understanding our ongoing operations and our operating performance. We are providing these non-GAAP measures to supplement the results provided in accordance with GAAP and they should not be considered superior to, or as substitutes for, the comparable GAAP results.

The following table provides a reconciliation of net income to adjusted net income:

 

     Three Months Ended
March 31,
     Year Ended
December 31,
 
         2015              2014              2014             2013              2012              2011              2010      
     (in thousands)      (in thousands)  

Net income (loss) attributable to The Power Generation Operations of The Babcock & Wilcox Company

   $    12,690       $    11,089       $   (26,529   $   174,526       $   140,753       $ 58,732       $ 82,894   

Actuarial (gains) losses on our pension and post-retirement plans

     -         -         71,121        (76,064)         9,098         79,873         42,388   

Special charges for restructuring activities

     1,530         926         20,259        18,158         -         -         -   

Adjusted net income attributable to The Power Generation Operations of The Babcock & Wilcox Company

   $ 14,220       $ 12,015       $ 64,851      $ 116,620       $ 149,851       $   138,605       $   125,282   

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with “Selected Historical Combined Financial Information,” and the historical and pro forma financial statements and accompanying notes appearing in this information statement. This discussion and analysis presents the results of operations of the primary operating subsidiary of our Power Generation business, Babcock & Wilcox Power Generation Group, Inc. (“PGG OpCo”), and its subsidiaries, combined with related captive insurance operations and the subsidiaries associated with the Company’s Nuclear Energy segment that will be transferred to the Company before the spin-off. This discussion and analysis contains forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under “Risk Factors” and elsewhere in this information statement. See “Cautionary Statement Concerning Forward-Looking Information.” Unless the context requires otherwise or we specifically indicate otherwise, when used in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, the terms “New B&W,” “we,” “our,” “ours” and “us” refer to Babcock & Wilcox Enterprises, Inc. and its subsidiaries as of the distribution date.

Spin-off

On November 5, 2014, the Company announced that its board of directors approved a plan to separate its Power Generation business from the Company, creating a newly independent, publicly traded company. The spin-off is expected to be tax-free to both the Company and our stockholders. We expect the spin-off to be completed by mid-summer 2015, provided that the conditions set forth under the caption “The Spin-Off–Spin-Off Conditions and Termination” have been satisfied in the Company’s sole and absolute discretion.

We are currently a wholly owned subsidiary of the Company. Prior to the spin-off, PGG OpCo will transfer the assets and liabilities associated with the Company’s Nuclear Energy segment to the Company. In connection with the spin-off, the Company will transfer to us all the assets and generally all the liabilities relating to the Company’s Power Generation business. Company stockholders will not be required to pay for shares of our common stock received in the spin-off or to surrender or exchange shares of common stock of the Company in order to receive shares of our common stock or to take any other action in connection with the spin-off.

General

We are a leading technology-based provider of advanced fossil and renewable power generation equipment that includes a broad suite of boiler products and environmental systems and related services for power and industrial uses. We specialize in engineering, manufacturing, procurement, and erection of equipment and technology used in the power generation industry and various other industries, and the provision of related services. Our overall activity depends significantly on the capital expenditures and operations and maintenance expenditures of global electric power generating companies, other steam-using industries and industrial facilities with environmental compliance needs.

Our strategy is to continue to seek opportunities to optimize our profitability within all our markets through an operating model that is designed to be strategically efficient and cost competitive; to expand international offerings through increased marketing and operational presence in regions around the world where we expect continued demand growth and increased need for services; and to seek partnering arrangements and acquisitions to expand our market presence and capabilities. On June 20, 2014, we completed the acquisition of MEGTEC Holdings, Inc. (“MEGTEC”). MEGTEC designs, engineers, manufactures and services air pollution control systems and coating / drying equipment for a variety of industrial applications and is expected to complement our existing environmental products and solutions offerings. MEGTEC comprises our Industrial Environmental segment.

Following the spin-off, we will operate in three reportable segments: Global Power, Global Services and Industrial Environmental. The historical audited financial statements currently have a fourth segment, Nuclear Energy, which will be distributed to the Company before the spin-off.

Overview – Global Power

Our Global Power segment represents our worldwide new build boiler and environmental products businesses. Through this segment, we engineer, manufacture, procure, construct and commission steam

 

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generating and environmental systems and other related equipment. Our boilers are designed for utility and industrial applications, fired with fossil and renewable fuels and include advanced supercritical boilers, subcritical boilers, fluidized bed boilers, biomass-fired boilers, waste-to-energy boilers, chemical recovery boilers, industrial power boilers, package boilers, heat recovery steam generators, waste heat boilers and solar thermal power systems. Our environmental systems offer air pollution control products and related equipment for the treatment of nitrogen oxides, sulfur dioxide, fine particulate, mercury, acid gases and other hazardous air emissions and include wet and dry flue gas desulfurization systems, catalytic and non-catalytic nitrogen oxides reduction systems, low nitrogen oxides burners and overfire air systems, fabric filter baghouses, wet and dry electrostatic precipitators, mercury control systems and dry sorbent injection for acid gas mitigation. Our customers consist of a wide range of utilities, independent power producers and industrial companies globally. This segment’s activity is dependent on the capital expenditures and operations and maintenance expenditures of global electric power generating companies and other steam-using industries with environmental compliance needs.

We see opportunities for growth in revenues in this segment relating to a variety of factors including the following:

 

   

emerging international markets needing state-of-the-art technology for fossil power generation and environmental systems;

 

   

a global need for renewable and carbon neutral power applications requiring steam generation and environmental control technologies to enable beneficial use of municipal waste and biomass;

 

   

industrial products such as heat recovery and steam generators, and natural gas and oil fired package boilers due to lower fuel prices; and

 

   

increasing environmental regulation.

Globally, efforts to reduce the environmental impact of burning fossil fuels may create opportunities for us as existing generating capacity is replaced with cleaner technologies. We are actively researching, developing and deploying a range of products to serve this opportunity, including lower-carbon technologies that enable clean use of fossil fuels, such as ultra-supercritical boilers; carbon-neutral technologies, such as biomass-fueled boilers and gasifiers; gas-fired package boiler technologies; and select carbon dioxide capture technologies.

For the three months ended March 31, 2015, we generated revenues of $123.9 million in this segment. Revenues were approximately 12.3% higher than the $110.3 million generated for the three months ended March 31, 2014 as a result of higher new build steam generation systems revenues primarily related to recently awarded large boiler projects. For the year ended December 31, 2014, we generated revenues of $471.9 million in this segment. Revenues were substantially lower than the $712.5 million generated for the year ended December 31, 2013 as projects related to the previously enacted environmental rules and regulations neared completion. We expect the growth in backlog since December 31, 2014, which relates primarily to recent international coal boiler and renewable bookings, will provide revenue growth in this segment.

Overview – Global Services

Our Global Services segment provides a comprehensive mix of aftermarket products and services to support peak efficiency and availability of steam generating and associated environmental and auxiliary equipment for power generation. Our products and services include replacement parts, field technical services, retrofit and upgrade projects, fuel switching and repowering projects, construction and maintenance services, start-up and commissioning, training programs and plant operations and maintenance for our full complement of boiler, environmental and auxiliary equipment. We deliver these aftermarket products and services to a large installed base for our and our competitors’ power generation and industrial plants globally through our extensive network of regionally located service centers, technical support personnel, and global sourcing capabilities. Our customers consist of a wide range of utilities, independent power producers and industrial companies globally. This segment’s activity is dependent on the demand for electricity and ultimately the capacity utilization and associated operations and maintenance expenditures of power generating companies and other steam-using industries.

 

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We see opportunities for growth and margin expansion in this segment relating to a variety of factors including the following:

 

   

repositioning our infrastructure to meet the substantial recurring aftermarket products and services opportunity with a strategically efficient and cost competitive operating model;

 

   

continued customer investment in their existing power plants, particularly in North America, to enhance utilization and operating efficiency levels, improve reliability and extend the useful life of their existing plants;

 

   

leveraging our relationship network of strategic partners, particularly in North America, to expand our market opportunity to supply aftermarket parts and services to installed units delivered by other original equipment suppliers; and

 

   

targeted repositioning of our global sales network in strategic countries to serve the aftermarket refurbishment and maintenance of existing facilities outside North America.

For the three months ended March 31, 2015, we generated revenues of $232.2 million in this segment which is an increase of approximately 15.1% when compared to the same period in 2014. For the year ended December 31, 2014, we generated revenues of $908.7 million in this segment. We expect that our large installed base of power generation equipment will provide a solid foundation for a recurring revenue stream.

Overview – Industrial Environmental

Our Industrial Environmental segment provides environmental products and services to numerous industrial end markets through MEGTEC, which the Company acquired on June 20, 2014. Through this segment, we design, engineer and manufacture products including oxidizers, solvent and distillation systems, wet electrostatic precipitators, scrubbers and heat recovery systems. The segment also provides specialized industrial process systems, coating lines and equipment. Our suite of technologies for pollution abatement include systems that control volatile organic compounds and air toxics, particulate, nitrogen oxides and acid gas air emissions from industrial processes. We serve a diverse set of industrial end markets with a current emphasis on the chemical, pharmaceutical, energy storage, packaging, and automotive markets. This segment’s activity is dependent primarily on the capacity utilization of operating industrial plants and an increased emphasis on environmental emissions globally across a broad range of industries and markets.

We see opportunities for growth in revenues in this segment relating to a variety of factors. Our new equipment customers purchase equipment as part of major capacity expansions, to replace existing equipment, or in response to regulatory initiatives. Additionally, our significant installed base provides a consistent and recurring aftermarket stream of parts, retrofits and services. Economic recovery, particularly in the United States, as well as major investments in global chemical markets have strengthened demand for MEGTEC equipment, while tightening environmental regulations in China, India and developing countries are creating new opportunities. We foresee long-term trends toward increased environmental controls for industrial manufacturers around the world. Finally, we will continue to seek acquisitions to expand our market presence and technology offerings.

For the three months ended March 31, 2015, the MEGTEC acquisition, which was completed on June 20, 2014, generated revenues of $41.1 million in this segment. For the year ended December 31, 2014, the MEGTEC acquisition generated revenues of $105.4 million in this segment. We foresee long-term growth trends toward increased environmental controls for industrial manufacturers around the world which will benefit this segment.

Overview – Nuclear Energy

This segment will not be part of our continuing operations as we will transfer the assets and liabilities associated with this segment to the Company in connection with the spin-off. The Nuclear Energy segment supplies commercial nuclear steam generators and components to nuclear utility customers. This segment has supplied the nuclear industry with more than 1,300 large, heavy components worldwide. This segment is the only heavy nuclear component, N-Stamp certified manufacturer in North America. The Nuclear Energy segment

 

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fabricates pressure vessels, reactors, steam generators, heat exchangers and other auxiliary equipment. This segment also provides specialized engineering services that include structural component design, 3-D thermal-hydraulic engineering analysis, weld and robotic process development and metallurgy and materials engineering. In addition, this segment offers services for nuclear steam generators and balance of plant equipment, as well as nondestructive examination and tooling/repair solutions for other plant systems and components.

For the three months ended March 31, 2015, we generated revenues of $22.7 million in this segment. Revenues decreased from the $35.8 million generated during the three months ended March 31, 2014. The decrease primarily relates to the timing of maintenance outages in the Canadian nuclear market and lower volume in the nuclear equipment business. For the year ended December 31, 2014, we generated revenues of $103.7 million in this segment. Revenues decreased substantially from the $153.5 million and $253.1 million generated for the years ended December 31, 2013 and 2012, respectively. The 2014 decrease primarily relates to the completion of a replacement steam generator contract that contributed substantially to revenues in 2013 and 2012. We expect revenues for this segment in the near future to be largely driven by nuclear services outage and inspection projects.

Global Competitiveness Initiative and Other Restructuring Activities

Prior to contemplating the spin-off, the Company launched the Global Competitiveness Initiative (“GCI”) in the third quarter of 2012 to enhance competitiveness, better position the Company for growth, and improve profitability. A wide range of cost reduction activities were identified, including operational and functional efficiency improvements, organizational design changes and manufacturing optimization, many of which focused on New B&W. Savings from these initiatives have been phased in since 2012, and once fully executed, the Company expects annual savings to total at least $75 million, with approximately two thirds attributable to New B&W. The majority of the expected annual savings are from efficiency improvements that were completed in 2013 and 2014. The balance of the cost savings relates to manufacturing initiatives that are expected to be completed in 2015. In order to achieve these savings, we expect to incur total restructuring charges (cash and non-cash) of approximately $45 to $50 million. We incurred $0.0 million and $1.5 million of costs associated with GCI for the three months ended March 31, 2015 and 2014, respectively. We incurred $3.3 million and $26.3 million of costs associated with GCI for the years ended December 31, 2014 and 2013, respectively.

We are also targeting additional structural change initiatives that we expect, in conjunction with our GCI initiatives, to drive further margin improvement in our Global Power, Global Services and Nuclear Energy segments. We expect to incur total restructuring charges (cash and noncash), as well as produce annual savings once these additional initiatives are fully implemented, in the range of $35 million to $50 million. We incurred $2.4 million and $0.0 million of costs associated with these additional initiatives for the three months ended March 31, 2015 and 2014, respectively. We incurred $26.7 million of costs associated with these additional initiatives for the year ended December 31, 2014.

The cost savings from these programs are expected to make our offerings more cost-competitive through both direct and overhead cost reductions, allowing us to more aggressively pursue new business opportunities and other initiatives to increase stockholder value.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. These estimates and assumptions are affected by management’s application of accounting policies. We believe the following are our most critical accounting policies that we apply in the preparation of our financial statements. These policies require our most difficult, subjective and complex judgments, often as a result of the need to make estimates of matters that are inherently uncertain.

Contracts and Revenue Recognition. We determine the appropriate accounting method for each of our long-term contracts before work on the project begins. We generally recognize contract revenues and related costs on a percentage-of-completion method for individual contracts or combinations of contracts based on a cost-to-cost method, as applicable to the product or activity involved. We recognize estimated contract revenue and resulting income based on costs incurred to date as a percentage of total estimated costs. Certain costs may be

 

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excluded from the cost-to-cost method of measuring progress, such as significant costs for materials and major third-party subcontractors, if it appears that such exclusion would result in a more meaningful measurement of actual contract progress and resulting periodic allocation of income. For all contracts, if a current estimate of total contract cost indicates a loss on a contract, the projected loss is recognized in full when determined. It is possible that current estimates could materially change for various reasons, including, but not limited to, fluctuations in forecasted labor productivity or steel and other raw material prices. We routinely review estimates related to our contracts, and revisions to profitability are reflected in the quarterly and annual earnings we report. In the three months ended March 31, 2015 and 2014, we recognized net changes in estimates related to long-term contracts accounted for on the percentage-of-completion basis, which increased operating income by approximately $4.1 million and $1.7 million, respectively. In the years ended December 31, 2014, 2013 and 2012, we recognized net favorable changes in estimate related to long-term contracts accounted for on the percentage-of-completion basis that increased operating income by approximately $36.4 million, $4.3 million and $64.0 million, respectively. The 2014, 2013 and 2012 amounts include contract losses totaling $11.6 million, $35.6 million and $16.9 million, respectively, for additional estimated costs to complete our Berlin Station project. Of these amounts, $0.0 million and $7.6 million were recognized in the first quarter of 2015 and 2014, respectively. This project is a 75 MW biomass boiler project in Berlin, New Hampshire that experienced schedule delays and related cost overruns. The customer certified that we achieved substantial completion on the project effective July 19, 2014. See Note 10 to the audited combined financial statements for legal proceedings associated with this matter. The 2012 amount also includes $13.8 million of project improvements on a new build capital project in our Global Power segment due to better than expected performance.

For parts orders and certain aftermarket services activities, we recognize revenues as goods are delivered and work is performed.

Although we continually strive to improve our ability to estimate our contract costs and profitability, adjustments to overall contract costs due to unforeseen events could be significant in future periods. We recognize claims for extra work or for changes in scope of work in contract revenues, to the extent of costs incurred, when we believe collection is probable and can be reasonably estimated. We recognize income from contract change orders or claims when formally agreed with the customer. We regularly assess the collectability of contract revenues and receivables from customers.

Property, Plant and Equipment. We carry our property, plant and equipment at depreciated cost, reduced by provisions to recognize economic impairment when we determine impairment has occurred. Property, plant and equipment amounts are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset, or asset group, may not be recoverable. An impairment loss would be recognized when the carrying amount of an asset exceeds the estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition. The amount of the impairment loss to be recorded is calculated by the excess of the asset carrying value over its fair value. Fair value is generally determined using a discounted cash flow analysis. Our estimates of cash flow may differ from actual cash flow due to, among other things, technological changes, economic conditions or changes in operating performance. Any changes in such factors may negatively affect our business and result in future asset impairments.

We depreciate our property, plant and equipment using the straight-line method over estimated economic useful lives, which typically range from three to twelve years for machinery and equipment and up to forty years for buildings. We expense the costs of maintenance, repairs and renewals, which do not materially prolong the useful life of an asset, as we incur them.

Investments in Unconsolidated Affiliates. We use the equity method of accounting for affiliates in which our investment ownership ranges from 20% to 50%, unless significant economic or governance considerations indicate that we are unable to exert significant influence, in which case the cost method is used. The equity method is also used for affiliates in which our investment ownership is greater than 50% but we do not have a controlling interest. Currently, all of our material investments in affiliates that are not included in our combined results are recorded using the equity method. Affiliates in which our investment ownership is less than 20% and where we are unable to exert significant influence are carried at cost.

Self-Insurance. Prior to the spin-off, coverage has been provided from a wholly owned insurance subsidiary of the Company that provides employer’s liability, general and automotive liability and workers’ compensation insurance and, from time to time, builder’s risk insurance within certain limits to us. After the

 

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completion of the spin-off, we will obtain similar coverage from a wholly owned insurance subsidiary of New B&W. We may also have business reasons in the future to self-insure other risks that we cannot or do not wish to transfer to outside insurance companies. When estimating our self-insurance liabilities, we consider a number of factors, including historical claims experience and trend lines, projected growth patterns, inflation and exposure forecasts. The assumptions we make with respect to each of these factors represent our judgment as to the most probable cumulative impact of each factor on our future obligations. Our calculation of self-insurance liabilities requires us to apply judgment to estimate the ultimate cost to settle reported claims and claims incurred but not yet reported as of the balance sheet date. We engage the services of an actuarial firm to assist us in the calculation of our liabilities for self-insurance. While the actual outcome of insured claims could differ significantly from estimated amounts, these loss estimates and accruals recorded in our financial statements for claims have historically been reasonable in light of the actual amount of claims paid. Provisions for exposure to self-insurance claims and the related payments of claims have historically not had a material adverse impact on our combined financial position, results of operations and cash flows, and we do not expect these provisions to have a material impact on our self-insurance programs in the future.

Pension Plans and Postretirement Benefits. We utilize actuarial and other assumptions in calculating the cost and benefit obligations of our pension and postretirement benefits. The assumptions utilized in the determination of our benefit cost and obligations include assumptions regarding discount rates, expected returns on plan assets, mortality and health care cost trends. The assumptions utilized represent our best estimates based on historical experience and other factors.

Actual experience that differs from these assumptions or future changes in assumptions will affect our recognized benefit obligations and related costs. We immediately recognize net actuarial gains and losses into earnings in the fourth quarter of each year, or as interim remeasurements are required, as a component of net periodic benefit cost. Net actuarial gains and losses occur when actual experience differs from any of the various assumptions used to value our pension and postretirement benefit plans or when assumptions, which are revisited annually through our update of our actuarial valuations, change due to current market conditions or underlying demographic changes. The primary factors contributing to net actuarial gains and losses are changes in the discount rate used to value the obligations as of the measurement date each year, the difference between the actual return on plan assets and the expected return on plan assets and changes in health care cost trends. The effect of changes in the discount rate and expected rate of return on plan assets in combination with the actual return on plan assets can result in significant changes in our estimated pension and postretirement benefit cost and our combined financial condition. Additionally, in 2014, we adjusted our mortality assumption to reflect mortality improvements identified by the Society of Actuaries, adjusted for our experience. The impact of the change in this assumption caused a $46.9 million increase in our pension liability.

The following sensitivity analysis shows the impact of a 25 basis point change in the assumed discount rate, return on assets, and health care cost trend rate on our pension and postretirement benefit plan obligations and expense for the year ended December 31, 2014:

 

     .25% Increase      .25% Decrease  
Pension Plans    (in millions)  

Discount Rate:

     

Effect on ongoing net periodic benefit cost (1)

   $ 0.6       $         (0.6)   

Effect on project benefit obligation

     (43.6)         46.0   

Return on Assets:

     

Effect on ongoing net periodic benefit cost

   $         (2.8)       $ 2.8   

Postretirement Plans

     

Discount Rate:

     

Effect on ongoing net periodic benefit cost (1)

   $ -       $ -   

Effect on project benefit obligation

     (0.4)         0.4   

Health Care Cost Trend Rate:

     

Effect on ongoing net periodic benefit cost

   $ -       $ -   

Effect on project benefit obligation

     -         -   

 

  (1)

Excludes effect of annual mark-to-market adjustment.

Loss Contingencies. We estimate liabilities for loss contingencies when it is probable that a liability has been incurred and the amount of loss is reasonably estimable. We provide disclosure when there is a reasonable

 

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possibility that the ultimate loss will exceed the recorded provision or if such probable loss is not reasonably estimable. We are currently involved in some significant litigation. See Note 10 to the audited combined financial statements included in this information statement for a discussion of this litigation. We have accrued our estimates of the probable losses associated with these matters. However, our losses are typically resolved over long periods of time and are often difficult to estimate due to the possibility of multiple actions by third parties. Therefore, it is possible that future earnings could be affected by changes in our estimates related to these matters.

Goodwill. Each year, we evaluate goodwill at each reporting unit to assess recoverability, and impairments, if any, are recognized in earnings. We perform a qualitative analysis when we believe that there is sufficient excess fair value over carrying value based on our most recent quantitative assessment, adjusted for relevant facts and circumstances that could affect fair value. Deterioration in macroeconomic, industry and market conditions, cost factors, overall financial performance, share price decline or entity and reporting unit specific events could cause us to believe a qualitative test is no longer appropriate.

When we determine that it is appropriate to test goodwill for impairment utilizing a quantitative test, the first step of the test compares the fair value of a reporting unit to its carrying amount, including goodwill. We utilize both the income and market valuation approaches to provide inputs into the estimate of the fair value of our reporting units, which would be considered by market participants.

Under the income valuation approach, we employ a discounted cash flow model to estimate the fair value of each reporting unit. This model requires the use of significant estimates and assumptions regarding future revenues, costs, margins, capital expenditures, changes in working capital, terminal year growth rate and cost of capital. Our cash flow models are based on our forecasted results for the applicable reporting units. Actual results could differ materially from our projections. Some assumptions, such as future revenues, costs and changes in working capital are company driven and could be affected by a loss of one or more significant contracts or customers; failure to control costs on certain contracts; or a decline in demand based on changing economic, industry or regulatory conditions. Changes in external market conditions may affect certain other assumptions, such as the cost of capital. Market conditions can be volatile and are outside of our control.

Under the market valuation approach, we employ the guideline publicly traded company method, which indicates the fair value of the equity of each reporting unit by comparing it to publicly traded companies in similar lines of business. After identifying and selecting guideline companies, we analyze their business and financial profiles for relative similarity. Factors such as size, growth, risk and profitability are analyzed and compared to each of our reporting units. Assumptions include the selection of our peer companies and use of market multiples, which could deteriorate or increase based on the profitability of our competitors and performance of their stock, which is often dependent on the performance of the stock market and general economy as a whole.

Adverse changes in these assumptions utilized within the first step of our impairment test could cause a reduction or elimination of excess fair value over carrying value, resulting in potential recognition of impairment. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to measure the amount of the impairment loss, if any. The second step compares the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill.

We completed our annual review of goodwill for each of our reporting units for the year ended December 31, 2014, which indicated that we had no impairment of goodwill. The fair value of our reporting units was substantially in excess of carrying value.

Income Taxes. Income tax expense for federal, foreign, state and local income taxes is calculated on pre-tax income based on current tax law and includes the cumulative effect of any changes in tax rates from those used previously in determining deferred tax assets and liabilities. We are included in the U.S. federal and certain state tax returns filed by the Company. We compute the provision for such income taxes on a separate tax return basis as if we filed our own tax returns. We deem the amounts that we would have paid or received from the Internal Revenue Service and certain state jurisdictions had we not been a member of the Company’s consolidated tax group to be immediately settled with the Company. We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. We assess deferred taxes and the adequacy of the valuation allowance on a quarterly basis. In the ordinary course of business there is inherent uncertainty in quantifying our income tax positions. We assess our income tax positions and record tax benefits for all years subject to examination based upon management’s evaluation of the facts, circumstances, and information available at the reporting date. For those tax positions where it is more likely than not that a tax benefit will be

 

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sustained, we have recorded the largest amount of tax benefit with a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. For those income tax positions where it is not more likely than not that a tax benefit will be sustained, no tax benefit has been recognized in the financial statements. We record interest and penalties (net of any applicable tax benefit) related to income taxes as a component of provision for income taxes on our combined statements of operations.

Warranty. We accrue estimated expense included in cost of operations on our combined statements of operations to satisfy contractual warranty requirements when we recognize the associated revenue on the related contracts. In addition, we record specific provisions or reductions when we expect the actual warranty costs to significantly differ from the accrued estimates. Factors that impact our estimate of warranty costs include prior history of warranty claims and our estimates of future costs of materials and labor. Such changes could have a material effect on our combined financial condition, results of operations and cash flows.

Stock-Based Compensation. We account for stock-based compensation in accordance with FASB Topic Compensation – Stock Compensation. Under the fair value recognition provisions of this statement, the cost of employee services received in exchange for an award of equity instruments is measured at the grant date based on the fair value of the award. Stock-based compensation expense is recognized on a straight-line basis over the requisite service periods of the awards, which is generally equivalent to the vesting term. We use a Black-Scholes model to determine the fair value of certain share-based awards, such as stock options. For performance shares or units granted in the year ended December 31, 2014 that contain a Relative Total Shareholder Return vesting criteria, we utilize a Monte-Carlo simulation to determine the grant date fair value, which determines the probability of satisfying the market condition included in the award. The determination of the fair value of a share-based payment award using an option-pricing model requires the input of highly subjective assumptions, such as the expected life of the award and stock price volatility.

Business Combinations. We account for acquisitions in accordance with FASB Topic Business Combinations. This topic broadens the fair value measurements and recognition of assets acquired, liabilities assumed and interests transferred as a result of business combinations. It also provides disclosure requirements to assist users of the financial statements in evaluating the nature and financial effects of business combinations.

RESULTS OF OPERATIONS – THREE MONTHS ENDED MARCH 31, 2015 VS. THREE MONTHS ENDED MARCH 31, 2014

Selected financial highlights are presented in the table below:

 

      

Three Months Ended

March 31,

 
       2015      2014      $ change  
      

Unaudited

(In thousands)

 

REVENUES:

          

Global Power

     $ 123,886       $ 110,292       $ 13,594   

Global Services

       232,174         201,786         30,388   

Industrial Environmental

       41,095         -         41,095   

Nuclear Energy

       22,687         35,814         (13,127

 

 
$   419,842    $   347,892    $       71,950   

 

 

Gross Profit:

Global Power

$ 20,428    $ 15,247    $ 5,181   

Global Services

  53,287      41,604      11,683   

Industrial Environmental

  9,681      -      9,681   

Nuclear Energy

  4,377      9,155      (4,778

 

 
$ 87,773    $ 66,006    $ 21,767   

 

 

Selling, General and Administrative

  (59,524   (52,215   (7,309

Research and Development

  (4,638   (4,102   (536

Losses on Asset Disposal and Impairments, net

  (15   -      (15

Equity in Income (Loss) of Investees

  (2,071   2,366      (4,437

Special Charges for Restructuring Activities

  (2,446   (1,478   (968

 

 

Total Operating Income

$ 19,079    $ 10,577    $ 8,502   

 

 

 

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Combined Results of Operations

Combined revenues increased 20.7%, or $71.9 million, to $419.8 million in the three months ended March 31, 2015 compared to $347.9 million for the corresponding period in 2014 due primarily to increases in revenues in our Global Power and Global Services segments of $13.6 million and $30.4 million, respectively. The MEGTEC acquisition, which was completed on June 20, 2014, contributed $41.1 million of revenues for the three months ended March 31, 2015. These increases were partially offset by lower revenues in the Nuclear Energy segment of $13.1 million.

Combined operating income increased $8.5 million to $19.1 million in the three months ended March 31, 2015 from $10.6 million for the corresponding period in 2014. Operating income for the three months ended March 31, 2015 and 2014 includes special charges for restructuring activities totaling $2.4 million and $1.5 million, respectively. Excluding restructuring charges, operating income increased 78.6%, or $9.5 million for the quarter ended March 31, 2015 compared to the corresponding period of 2014. Gross profit in our Global Power and Global Services segments increased by $5.2 million and $11.7 million, respectively. The MEGTEC acquisition contributed $9.7 million of gross profit in the first quarter of 2015. These increases were partially offset by lower gross profit in our Nuclear Energy segment totaling $4.8 million, a $7.3 million increase in selling, general and administrative expenses and a $4.4 million decline in equity in income (loss) of investees for the 2015 period as compared to 2014.

Global Power

 

    

Three months ended

March 31,

 
     2015     2014     $ Change  
    

Unaudited

(in thousands)

 

Revenues

   $   123,886      $   110,292      $       13,594   

Gross Profit

     20,428        15,247        5,181   

    % of Revenues

     16.5     13.8  

Revenues increased 12.3%, or $13.6 million, to $123.9 million in the three months ended March 31, 2015, compared to $110.3 million in 2014. This increase was due to higher new build steam generation systems revenues of $21.6 million primarily related to recently awarded large boiler projects. This increase was partially offset by a decline in new build environmental revenues of $8.0 million as projects related to the previously enacted environmental rules and regulations near completion and as uncertainties continue regarding the ultimate outcome of environmental regulations.

Gross profit increased $5.2 million to $20.4 million in the three months ended March 31, 2015 compared to $15.2 million in the corresponding 2014 period, primarily due to the net increase in revenues discussed above. In addition, the prior year period contained an additional loss provision recorded on the Berlin Station project of $7.6 million which had a favorable comparison impact on gross profit as a percentage of revenues of 6.9% for the three months ended March 31, 2015 when compared to the corresponding 2014 period. This increase was partially offset by a lower level of net project improvements as compared to the prior year period.

Global Services

 

    

Three months ended

March 31,

 
     2015     2014     $ Change  
    

Unaudited

(in thousands)

 

Revenues

   $   232,174      $   201,786      $       30,388   

Gross Profit

     53,287        41,604        11,683   

    % of Revenues

     23.0     20.6  

Revenues increased 15.1%, or $30.4 million, to $232.2 million in the three months ended March 31, 2015, compared to $201.8 million in 2014. This increase was primarily attributable to increased activity in projects and construction services.

Gross profit increased $11.7 million to $53.3 million in the three months ended March 31, 2015 compared to $41.6 million in the corresponding period of 2014, primarily due to the increase in revenues discussed above. In addition, a higher level of net project improvements, along with cost savings from our margin improvement initiatives, was achieved as compared to the prior year period.

 

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Industrial Environmental

 

    

Three months ended

March 31,

 
     2015     2014      $ Change  
    

Unaudited

(in thousands)

 

Revenues

   $   41,095      $             -       $   41,095   

Gross Profit

     9,681        -         9,681   

    % of Revenues

     23.6     -      

This segment contains the operating results of MEGTEC, which was acquired on June 20, 2014. Revenues and gross profit contributed by this segment totaled $41.1 million and $9.7 million for the three months ended March 31, 2015. This includes amortization of an intangible asset which had a $2.7 million unfavorable impact on gross profit for the quarter.

Nuclear Energy

 

    

Three months ended

March 31,

 
     2015     2014     $ Change  
    

Unaudited

(in thousands)

 

Revenues

   $   22,687      $   35,814      $  (13,127)   

Gross Profit

     4,377        9,155        (4,778)   

    % of Revenues

     19.3     25.6  

Revenues decreased 36.7%, or $13.1 million, to $22.7 million in the three months ended March 31, 2015 compared to $35.8 million in the corresponding period of 2014, primarily due to the timing of maintenance outages in the Canadian nuclear market and lower volume our the nuclear equipment business which resulted in a $5.0 million decline in revenues when compared to the same period of 2014.

Gross profit decreased $4.8 million to $4.4 million in the three months ended March 31, 2015 compared to $9.2 million in the corresponding period of 2014, primarily attributable to the decline in revenues discussed above as well as contract improvements in our nuclear equipment business that were realized during the three months ended March 31, 2014.

The Nuclear Energy segment will not be part of our continuing operations as we will transfer the assets and liabilities associated with this segment to the Company in connection with the spin-off.

Selling, General and Administrative

Selling, general and administrative expenses incurred for the quarter ended March 31, 2015 were $59.5 million compared to $52.2 million in the corresponding period of 2014. Cost savings from restructuring initiatives were offset by an increase of $8.3 million in selling, general and administrative expenses associated with the MEGTEC business that was acquired on June 20, 2014. In connection with the spin-off transaction, certain of our employees were granted stock-based retention awards totaling approximately $5.0 million, which are expected to be expensed over the twelve months following the date of the spin-off. Consummation of the spin-off is a vesting criterion of these awards.

Research and Development

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 relatively unchanged at $4.6 million and $4.1 million for the quarters ended March 31, 2015 and 2014, respectively.

Equity in Income (Loss) of Investees

Equity in income (loss) of investees decreased to a loss of $2.1 million from income of $2.4 million for the quarters ended March 31, 2015 and 2014, respectively. This was due primarily to adverse market conditions in China and the near completion of a U.S. environmental project joint venture that generated more operating income in the first quarter of 2014 when compared to 2015. Equity in income (loss) of investees in the first quarter of 2014 also included income from our interest in Ebensburg Power Company, which we fully acquired in May 2014 and now consolidate into the Global Services segment.

 

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Special Charges for Restructuring Activities

Special charges for restructuring activities increased $1.0 million to $2.4 million in the three months ended March 31, 2015, as compared to $1.5 million for the corresponding period in 2014, primarily due to charges associated with our margin improvement program, offset by a decline in charges related to our GCI initiative as this initiative nears completion.

Provision for Income Taxes

 

     Three months ended March 31,  
     2015     2014     $ Change  
    

Unaudited

(In thousands)

 

Income before Provision for Income Taxes

   $       18,663      $       12,409      $         6,254   

Income Tax Provision

     5,921        1,204        4,717   

Effective Tax Rate

     31.7     9.7  

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 and the United Kingdom with effective tax rates of approximately 26%, 25% and 22%, respectively. Income before provision for income taxes generated in the United States and foreign locations for the three months ended March 31, 2015 and 2014 is presented in the table below.

 

     Three months ended March 31,  
     2015      2014  
    

Unaudited

(In thousands)

 

U.S.

   $       13,277       $         8,938   

Other than U.S.

     5,386         3,471   

 

 

Income before Provision for Income Taxes

$ 18,663    $ 12,409   

 

 

For the three months ended March 31, 2015, our provision for income taxes increased $4.7 million to $5.9 million, while income before provision for income taxes increased $6.3 million to $18.7 million. Our effective tax rate for the three months ended March 31, 2015 was approximately 31.7% as compared to 9.7% for the three months ended March 31, 2014. The effective tax rate for the three months ended March 31, 2015 was lower than our statutory rate primarily due to the foreign rate differential. The effective tax rate for the three months ended March 31, 2014 was lower than our statutory rate primarily due to the receipt of a favorable ruling from the Internal Revenue Service that allowed us to amend prior year U.S. income tax returns to exclude distributions of several of our foreign joint ventures from domestic taxable income.

 

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RESULTS OF OPERATIONS – YEARS ENDED DECEMBER 31, 2014, 2013 and 2012

Selected financial highlights are presented in the table below:

 

      

Year Ended

December 31,

 
       2014        2013        2012  
       (In thousands)  

REVENUES:

              

Global Power

     $ 471,929         $ 712,461         $ 780,682   

Global Services

       908,682           1,055,189           1,005,277   

Industrial Environmental

       105,418           -           -   

Nuclear Energy

       103,690           153,513           253,141   

 

 
$   1,589,719    $   1,921,163    $   2,039,100   

 

 

Gross Profit:

Global Power

$ 94,647    $ 126,275    $ 177,670   

Global Services

  193,629      225,434      220,877   

Industrial Environmental

  24,961      -      -   

Nuclear Energy

  10,667      48,466      73,249   

 

 
$ 323,904    $ 400,175    $ 471,796   

 

 

Selling, General and Administrative

  (229,191)      (228,149)      (241,333)   

Research and Development

  (18,747)      (22,882)      (26,018)   

Losses (Gains) on Asset Disposal and
Impairments, net

  (1,087)      (1,153)      (3,276)   

Equity in Income of Investees

  8,681      18,387      17,402   

Special Charges for Restructuring Activities

  (30,025)      (26,346)      -   

Mark to Market Adjustment

  (111,050)      115,142      (12,685)   

 

 

Total Operating Income (Loss)

$ (57,515)    $ 255,174    $ 205,886   

 

 

Combined Results of Operations

Year Ended December 31, 2014 vs. 2013

Combined revenues decreased 17.3%, or $331.5 million, to $1,589.7 million in the year ended December 31, 2014 compared to $1,921.2 million for the corresponding period in 2013 due primarily to decreases in revenues from our Global Power, Global Services and Nuclear Energy segments of $240.6 million, $146.5 million and $49.8 million, respectively. The MEGTEC acquisition, which was completed on June 20, 2014, contributed $105.4 million of revenues for the year ended December 31, 2014.

Combined operating income decreased $312.7 million to a loss of $57.5 million in the year ended December 31, 2014 from $255.2 million for the corresponding period in 2013. Operating income includes actuarial gains and losses (“MTM charges”) related to our pension and postretirement plans, which reflected a fourth quarter non-cash gain (loss) of $(111.1) million and $115.1 million in 2014 and 2013, respectively. In addition, operating income for the years ended December 31, 2014 and 2013 includes special charges for restructuring activities totaling $30.0 million and $26.3 million, respectively. Excluding MTM charges and restructuring charges, operating income decreased $82.8 million for the year ended December 31, 2014 compared to 2013. Gross profit in our Global Power, Global Services and Nuclear Energy segments declined $31.7 million, $31.8 million and $37.8 million, respectively. This decrease was partially offset by increased gross profit due to the MEGTEC acquisition which contributed $25.0 million for the year ended December 31, 2014 and a $4.1 million decline in research and development expense for the 2014 period as compared to 2013.

Year Ended December 31, 2013 vs. 2012

Combined revenues decreased 5.8%, or $117.9 million, to $1,921.2 million in the year ended December 31, 2013 compared to $2,039.1 million for the corresponding period in 2012 due primarily to decreases in revenues from our Global Power and Nuclear Energy segments of $68.2 million and $99.6 million, respectively, partially offset by increased revenues in our Global Services segment totaling $49.9 million.

 

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Combined operating income increased $49.3 million to $255.2 million in the year ended December 31, 2013 from $205.9 million for the corresponding period in 2012. Operating income includes MTM charge which reflected a non-cash gain (loss) of $115.1 million and $(12.7) million in 2013 and 2012, respectively. In addition, operating income for the year ended December 31, 2013 includes special charges for restructuring activities totaling $26.3 million. Excluding MTM charges and restructuring charges, operating income decreased $52.2 million for the year ended December 31, 2013 compared to 2012. Gross profit in our Global Power and Nuclear Energy segments declined $51.4 million and $24.7 million, respectively. These decreases was partially offset by increased gross profit in our Global Services segment totaling $4.5 million and a $13.2 million decline in selling, general and administrative expenses for the 2013 period as compared to 2012.

Global Power

 

    

Year Ended

December 31,

        

Year Ended

December 31,

 
     2014      2013      $ Change          2013      2012      $ Change  

Revenues

   $   471,929       $   712,461       $   (240,532      $   712,461       $   780,682       $   (68,221

Gross Profit

     94,647         126,275         (31,628        126,275         177,670         (51,395

% of Revenues

     20.1%         17.7%              17.7%         22.8%      

Year Ended December 31, 2014 vs. 2013

Revenues decreased 33.8%, or $240.6 million, to $471.9 million in the year ended December 31, 2014, compared to $712.5 million in 2013. Our new build environmental activities contributed to $139.2 million of this decrease, which was principally driven by lower levels of engineering, procurement and construction activities as projects related to the previously enacted environmental rules and regulations near completion and uncertainties continue regarding the ultimate outcome of environmental regulations. Additionally, our new build steam generation activities contributed to a $101.4 million decline in revenues due to a lower level of activity on our Berlin Station project, as well as other renewable energy projects.

Gross profit decreased $31.7 million to $94.6 million in the year ended December 31, 2014 compared to $126.3 million in the corresponding 2013 period, primarily due to the decreased revenues discussed above. This decline was partially offset due to the recording of a lower loss provision of $11.6 million on the Berlin Station project as compared to the prior year period provision of $35.6 million which had a favorable impact on gross profit as a percentage of revenues of 2.5% for the year ended December 31, 2014 when compared to the corresponding 2013 period.

Year Ended December 31, 2013 vs. 2012

Revenues decreased 8.7%, or $68.2 million, to $712.5 million in the year ended December 31, 2013, compared to $780.7 million in 2012. Our new build steam generation activities contributed $43.8 million of this decrease, which was primarily due to a lower level of activity on renewable energy and industrial boiler projects. Additionally, our new build environmental activities contributed to $24.4 million of this decrease, which was primarily attributable to lower levels of engineering, procurement and construction activities as projects related to the previously enacted environmental rules and regulations near completion and uncertainties continued regarding the ultimate outcome of environmental regulations.

Gross profit decreased $51.4 million to $126.3 million in the year ended December 31, 2013 compared to $177.7 million in 2012, primarily due to the decreased revenues discussed above, as well as contract losses totaling $35.6 million recorded for additional estimated costs to complete the Berlin Station project that was experiencing unforeseen worksite conditions and fuel specification issues. These losses are in addition to $16.9 million of contract losses recorded for this project during the fourth quarter of 2012. The change in the Berlin Station project losses resulted in an unfavorable impact on gross profit as a percentage of revenues of 2.8% in the year ended December 31, 2013 when compared to 2012. Additionally, gross margins were lower as compared to the 2012 period due to more competitive profit margins, as well as a lower level of project improvements.

 

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Global Services

 

    

Year Ended

December 31,

        

Year Ended

December 31,

 
     2014      2013      $ Change          2013      2012      $ Change  

Revenues

   $   908,682       $ 1,055,189       $  (146,507      $ 1,055,189       $ 1,005,277       $       49,912   

Gross Profit

     193,629         225,434         (31,805        225,434         220,877         4,557   

% of Revenues

     21.3%         21.4%              21.4%         22.0%      

Year Ended December 31, 2014 vs. 2013

Revenues decreased 13.9%, or $146.5 million, to $908.7 million in the year ended December 31, 2014, compared to $1,055.2 million in the corresponding 2013 period. This decrease was primarily attributable to lower service project revenues due mainly to a large boiler retrofit project that was completed in 2013 and a decrease in construction services environmental project revenues.

Gross profit decreased $31.8 million to $193.6 million in the year ended December 31, 2014 compared to $225.4 million in the corresponding 2013 period, primarily due to the decrease in revenues discussed above.

Year Ended December 31, 2013 vs. 2012

Revenues increased 5.0%, or $49.9 million, to $1,055.2 million in the year ended December 31, 2013, compared to $1,005.3 million in 2012. This increase was primarily attributable to increased construction activities on a boiler retrofit project and maintenance services, partially offset by decreased environmental retrofit activity.

Gross profit increased $4.5 million to $225.4 million in the year ended December 31, 2013 compared to $220.9 million in 2012, primarily due to the increased revenues discussed above, partially offset by more competitive gross margins. Additionally, the gross profit margin percentage was impacted by the relative mix of revenue activities with a larger amount of construction and maintenance services revenues.

Industrial Environmental

 

    

Year Ended

December 31,

         

Year Ended

December 31,

 
     2014      2013      $ Change           2013      2012      $ Change  

Revenues

   $   105,418       $             -       $   105,418          $             -       $             -       $             -   

Gross Profit

     24,961         -         24,961            -         -         -   

% of Revenues

     23.7%         -               -         -      

Year Ended December 31, 2014 vs. 2013

The segment contains the operating results of MEGTEC which was acquired on June 20, 2014. Revenues and gross profit contributed by this segment totaled $105.4 million and $25.0 million for the year ended December 31, 2014, respectively.

Nuclear Energy

 

    

Year Ended

December 31,

        

Year Ended

December 31,

 
     2014      2013      $ Change          2013      2012      $ Change  

Revenues

   $   103,690       $   153,513       $   (49,823      $   153,513       $   253,141       $   (99,628

Gross Profit

     10,667         48,466         (37,799        48,466         73,249         (24,783

% of Revenues

     10.3%         31.6%              31.6%         28.9%      

Year Ended December 31, 2014 vs. 2013

Revenues decreased 32.4%, or $49.8 million, to $103.7 million in the year ended December 31, 2014 compared to $153.5 million in the corresponding period of 2013. This decrease is primarily attributable to a decrease in revenues from our nuclear equipment business totaling $42.1 million largely due to the completion of a replacement steam generator contract that was ongoing in the prior year period.

 

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Gross profit decreased $37.8 million to $10.7 million in the year ended December 31, 2014 compared to $48.5 million in the corresponding period of 2013, primarily attributable to a $15.3 million charge resulting from an adverse jury verdict in a lawsuit involving commercial nuclear contracts. The adverse jury verdict resulted in a negative impact on segment gross profit as a percentage of revenues of 14.8% in the year ended December 31, 2014. We also experienced lower gross profit from our nuclear equipment business related to the decrease in revenues noted above. In addition, during the year ended December 31, 2013, we recognized $7.1 million of warranty improvements associated with favorable warranty experience which had a favorable impact on gross profit as a percentage of revenues of 4.6% in the year ended December 31, 2013.

Year Ended December 31, 2013 vs. 2012

Revenues decreased 39.4%, or $99.6 million, to $153.5 million in the year ended December 31, 2013 compared to $253.1 million in the corresponding period of 2012. The decrease in revenues is primarily attributable to decreased activity in our nuclear services and nuclear equipment businesses associated with the completion of several large contracts that were ongoing in the prior period.

Gross profit decreased $24.7 million to $48.5 million in the year ended December 31, 2013 compared to $73.2 million in the corresponding period of 2012. This decrease is primarily attributable to the decline in revenues noted above. These decreases were partially offset by $7.1 million of favorable warranty experience compared to the corresponding period of 2012 which had a favorable impact on gross profit as a percentage of revenues of 4.6% in the year ended December 31, 2013.

Selling, General and Administrative

Selling, general and administrative expenses incurred for the year ended December 31, 2014 were $229.2 million and were relatively unchanged from the 2013 period which totaled $228.1 million. Cost savings from GCI restructuring initiatives were offset by $17.5 million of selling, general and administrative expenses associated with the MEGTEC business that was acquired on June 20, 2014. Selling, general and administrative expenses decreased $13.2 million to $228.1 million for the year ended December 31, 2013, as compared to $241.3 million for the corresponding period in 2012 due to the impact of GCI restructuring initiatives which reduced overhead expenses as compared to the prior year.

Research and Development

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 $18.7 million, $22.9 million and $26.0 million for the years ended December 31, 2014, 2013 and 2012, respectively.

Gain (Loss) on Asset Disposal and Impairment

We experienced losses on asset disposals and impairments, net totaling $1.1 million, $1.2 million and $3.3 million during the years ended December 31, 2014, 2013 and 2012, respectively, primarily as the result of impairment charges due to the cancellation of certain operations and maintenance services contracts.

Equity in Income of Investees

Equity in income of investees decreased $9.7 million to $8.7 million for the year ended December 31, 2014, as compared to $18.4 million for the corresponding period in 2013 primarily due to adverse market conditions in China and Australia, new facility costs in India and the near completion of a U.S. environmental project joint venture that generated more operating income in the corresponding period in 2013.

Equity in income of investees increased $1.0 million to $18.4 million for the year ended December 31, 2013, as compared to $17.4 million for the corresponding period in 2012 due primarily to income earned from a newly formed project joint venture to engineer, procure and construct an environmental control system.

Special Charges for Restructuring Activities

Special charges for restructuring activities increased $3.7 million to $30.0 million in the year ended December 31, 2014, as compared to $26.3 million in 2013, due to charges associated with our margin improvement program, offset by a decline in charges related to our GCI initiative as this initiative nears completion.

 

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Mark to Market Adjustment

We immediately recognize actuarial gains (losses) for our pension and postretirement plans into earnings as a component of net periodic benefit cost. The effect of this adjustment on operating income was $(111.1) million in 2014, as compared to $115.1 million in 2013, mainly related to a $46.9 million loss recognized on the adoption of a new mortality assumption and a decline in discount rates, offset by actual return on assets that exceeded expected return.

The effect of the mark to market adjustment on operating income was $115.1 million in 2013, as compared to $(12.7) million in 2012, mainly related to an increase in interest rates and actual return on assets that exceeded our expected return.

Provision for Income Taxes

 

    

Year Ended

December 31,

         

Year Ended

December 31,

 
     2014      2013      $ Change           2013      2012      $ Change  
Income from Continuing Operations before Provision for Income Taxes    $     (55,692)       $   257,021       $   (312,713)          $   257,021       $   205,217       $   51,804   
Income Tax Provision      (29,528)         82,206         (111,734)            82,206         64,323         17,883   

Effective Tax Rate

     53.0%         32.0%               32.0%         31.3%      

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 and the United Kingdom with effective tax rates of approximately 26%, 25% and 22%, respectively. Income (loss) before provision for income taxes generated in the United States and foreign locations for the years ended December 31, 2014, 2013 and 2012 is presented in the table below.

     Year Ended December 31,  
     2014      2013        2012  
     (In thousands)  
U.S.    $ (64,084    $ 135,967         $ 109,958  
Other than U.S.           8,392           121,054               95,259   

 

 
Income (loss) before provision for (benefit from) income taxes $ (55,692 $ 257,021    $ 205,217   

 

 

For the year ended December 31, 2014, our provision for income taxes decreased $111.7 million to $(29.5) million, while income before provision for income taxes decreased $312.7 million to $(55.7) million. Our effective tax rate increased 21.0% to 53.0% for 2014. The change in our effective tax rate is primarily related to the receipt of a favorable ruling from the Internal Revenue Service that enabled us to amend prior year U.S. income tax returns to exclude distributions of several of our foreign joint ventures from domestic taxable income resulting in an increase in the effective tax rate as the 2014 period was in a loss position. In addition, the significant decrease in income before provision for income taxes attributable to our mark to market pension adjustments had an effect on the overall jurisdictional mix of our pre-tax earnings in 2014 as compared to 2013.

For the year ended December 31, 2013, our provision for income taxes increased $17.9 million to $82.2 million, while income before provision for income taxes increased $51.8 million to $257.0 million. Our effective tax rate increased 0.7% to 32.0% for 2013. Differences in the components of our effective tax rate in 2013 as compared to 2012 were primarily attributable to an unfavorable mix of foreign earnings offset by the benefit of the American Taxpayer Relief Act of 2012, enacted on January 2, 2013 which retroactively extended the U.S. research and development tax credit for two years.

ADJUSTED NON-GAAP RESULTS OF OPERATIONS

In the results of operations discussion above, we have disclosed operating income changes excluding MTM charges and special charges for restructuring activities which have been recorded in accordance with generally accepted accounting principles. Additionally, elsewhere in this information statement we present adjusted net income and adjusted diluted earnings per common share. Adjusted net income and adjusted diluted

 

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earnings per common share are defined as net income and diluted earnings per common share adjusted to exclude actuarial gains and losses on pension and postretirement plans and special charges for restructuring activities. We present these non-GAAP measures, which are not prepared in accordance with GAAP, because we believe they provide meaningful insight into operational performance and our segment operating performance. Additionally, we believe that when considered together with the GAAP results and the reconciliation to net income and diluted earnings per share, these non-GAAP measures provide a more complete understanding of our business than could be obtained absent this disclosure. We use these non-GAAP measures, together with financial measures prepared in accordance with GAAP, such as net income and diluted earnings per share, to assess our historical and prospective operating performance and to enhance our understanding of our core operating performance. Additionally, we are presenting these measures because we believe they are useful in (a) helping investors facilitate comparisons of our operating results with prior periods and (b) assisting investors in understanding our ongoing operations and our operating performance. We are providing these non-GAAP measures to supplement the results provided in accordance with GAAP and they should not be considered superior to, or as substitutes for, the comparable GAAP results.

EFFECTS OF INFLATION AND CHANGING PRICES

Our financial statements are prepared in accordance with generally accepted accounting principles in the United States, using historical U.S. dollar accounting (“historical cost”). Statements based on historical cost, however, do not adequately reflect the cumulative effect of increasing costs and changes in the purchasing power of the U.S. dollar, especially during times of significant and continued inflation.

In order to minimize the negative impact of inflation on our operations, we attempt to cover the increased cost of anticipated changes in labor, material and service costs, either through an estimate of those changes, which we reflect in the original price, or through price escalation clauses in our contracts. However, there can be no assurance we will be able to cover all changes in cost using this strategy.

LIQUIDITY AND CAPITAL RESOURCES

Pre-Spin-off Liquidity and Capital Resources

Historically, the Company has provided financing, cash management and other treasury services to us. Domestically, we participated in a centralized cash management program administered by the Company resulting in minor domestic cash balances in our combined balance sheets. Cash transferred to and from the Company has historically been assumed to be immediately settled. Upon completion of the spin-off, we will maintain separate cash management and financing functions from the Company for our operations.

Our unrestricted cash and investments at March 31, 2015 and December 31, 2014 totaled approximately $234.2 million and $221.3 million, respectively, which largely represents our international cash balances. Additionally, the Company had $825.2 million available for borrowings under its Credit Agreement (as defined below) as of March 31, 2015; however, as described below, we finalized the terms of a new credit facility that will be effective upon completion of the spin-off.

Company Credit Facility

On June 24, 2014, the Company entered into a Second Amended and Restated Credit Agreement (the “Credit Agreement”) with a syndicate of lenders and letter of credit issuers, and Bank of America, N.A., as administrative agent, which amended and restated the former credit agreement. The Credit Agreement provides for revolving credit borrowings and issuances of letters of credit in an aggregate amount of up to $1.0 billion and a term loan facility of up to $300 million. The Credit Agreement is scheduled to mature on June 24, 2019 but will expire upon completion of the spin-off when the new credit facility becomes effective. Capacity under the Credit Agreement is available to us for the issuance of letters of credit, working capital needs and other general corporate purposes. The Credit Agreement includes provisions that allow for additional financial institutions to become lenders, or for any existing lender to increase its commitment thereunder, subject to an aggregate maximum of $400 million for all incremental term loan, revolving credit borrowings and letter of credit commitments. Outstanding letters of credit issued under the Credit Agreement on our behalf totaled $115.7 million at March 31, 2015.

 

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The Credit Agreement is guaranteed by substantially all of the Company’s wholly owned domestic subsidiaries, including the wholly owned domestic subsidiaries of New B&W. Obligations under the Credit Agreement are secured by first-priority liens on certain assets owned by the Company and certain of the guarantors (including the wholly owned domestic subsidiaries of B&W PGG). If the corporate rating of the Company and its subsidiaries from Moody’s is Baa3 or better (with a stable outlook or better), the corporate family rating of the Company and its subsidiaries from S&P is BBB- or better (with a stable outlook or better), and other conditions are met, the liens securing obligations under the Credit Agreement will be released, subject to reinstatement upon the terms set forth in the Credit Agreement.

Post-Spin-off Liquidity and Capital Resources

Following the spin-off, our primary sources of liquidity will be cash on hand provided from operating activities, and amounts available under our new credit agreement that will replace our participation in the Credit Agreement. Terms of the new credit agreement are discussed below. Our cash flow from operating activities is primarily driven by our long-term contracts, which are generally structured to limit cash flow exposure by billing based on contract milestones in advance of incurring cash outflows. Particularly for larger contracts, this results in cash generation at the beginning of the contract and cash outflow at the end of the contract as the work is completed. The increase in backlog at December 31, 2014 from recent international coal boiler and renewable bookings generated cash flow from working capital as these new projects began and advance billings were received. The majority of our customers are well capitalized utilities and governments for which we have a history of minimal accounts receivable write offs. We do not currently have any significant concerns with our ability to bill and collect amounts from our customers associated with our long-term contracts. Further, contractual terms and conditions are consistent with industry standards and past practices.

We do not currently plan to pay a regular dividend on our common stock following the spin-off. The declaration of any future cash dividends and, if declared, the amount of any such dividends, will be subject to our financial condition, earnings, capital requirements, financial covenants and other contractual restrictions and to the discretion of our board of directors. Following the spin-off, we may seek to repurchase our outstanding shares of common stock. Such repurchases, if any, will depend on our financial condition, prevailing market conditions, our liquidity requirements, contractual restrictions and other factors.

We expect our current sources of cash to be sufficient to meet our liquidity needs for at least the next twelve months.

Post-Spin Credit Facility

On May 11, 2015, we entered into a new credit agreement in connection with the planned spin-off. The closing date of the new credit agreement and the initial funding thereunder are conditioned on the satisfaction of certain conditions; however, we expect that the new credit agreement will close immediately prior to the completion of the spin-off. The financial covenants, restrictive covenants and events of default described below are not applicable until the closing date thereof, except with respect to breaches of the representations and warranties.

The new credit agreement provides for a five-year, senior secured revolving credit facility in an aggregate amount of up to $600 million, the full amount of which will be available for the issuance of letters of credit. Obligations under the new credit agreement are scheduled to mature on the fifth anniversary of its closing date. The proceeds of loans under the new credit agreement will be available for working capital needs and other general corporate purposes.

The new credit agreement contains an accordion feature that will allow 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 (i) $200 million plus (ii) an unlimited amount, so long as for any commitment increase under this subclause (ii) our senior secured leverage ratio (assuming the full amount of any commitment increase under this subclause (ii) is drawn) is equal to or less than 2.0 to 1.0 after giving pro forma effect thereto.

The new credit agreement and our obligations under certain hedging agreements and cash management agreements with our lenders and their affiliates will be (i) guaranteed by substantially all of our wholly owned

 

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domestic subsidiaries, but excluding our captive insurance subsidiary, and (ii) secured by first-priority liens on certain assets owned by New B&W and the guarantors.

The new credit agreement requires interest payments on revolving loans on a periodic basis until maturity. We may prepay all loans under the new credit agreement at any time without premium or penalty (other than customary LIBOR breakage costs), subject to notice requirements. The new credit agreement requires us to make certain prepayments on any outstanding revolving loans under the new credit agreement 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, but such prepayments will not require us to reduce the commitments under the new credit agreement.

Loans outstanding under the new credit agreement will bear interest at our option at either the LIBOR rate plus a margin ranging from 1.375% to 1.875% per year or the base rate (the highest of the Federal Funds rate plus 0.50%, the one month LIBOR rate plus 1.0%, or the administrative agent’s prime rate) plus a margin ranging from 0.375% to 0.875% per year. Starting on the closing date of the new credit agreement, a commitment fee will be charged on the unused portions of the revolving credit facility, and that fee varies between 0.250% and 0.350% per year. Additionally, a letter of credit fee of between 1.375% and 1.875% per year will be charged with respect to the amount of each financial letter of credit issued under the new credit agreement and a letter of credit fee of between 0.825% and 1.125% per year will be charged with respect to the amount of each performance letter of credit issued under the new credit agreement. The applicable margin for loans, the commitment fee and the letter of credit fees set forth above will vary quarterly based on our leverage ratio. Upon the closing of the new credit agreement, we will pay certain upfront fees to the lenders thereunder, and we will pay arrangement and other fees to the arrangers and agents of the new credit agreement.

The new credit agreement includes financial covenants that will be 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 leverage ratio is 3.00 to 1.00, which ratio may be increased to 3.25 to 1.00 for up to four consecutive fiscal quarters after a material acquisition. The minimum consolidated interest coverage ratio is 4.00 to 1.00. In addition, the new credit agreement contains various restrictive covenants, including with respect to debt, liens, investments, mergers, acquisitions, dividends, equity repurchases and asset sales.

The new credit agreement generally includes customary events of default for a secured credit facility. If an event of default relating to bankruptcy or other insolvency events with respect to New B&W occurs under the new credit agreement, all obligations under the new credit agreement will immediately become due and payable. If any other event of default exists under the new credit agreement, the lenders will be permitted to accelerate the maturity of the obligations outstanding under the new credit agreement. If any event of default occurs under the new credit agreement, the lenders will be permitted to terminate their commitments thereunder and exercise other rights and remedies, including the commencement of foreclosure or other actions against the collateral.

If any default occurs under the new credit agreement, or if we are unable to make any of the representations and warranties in the new credit agreement, we will be unable to borrow funds or have letters of credit issued under the new credit agreement.

Other Financing Arrangements

Prior to the spin-off, certain of our subsidiaries have credit arrangements with various commercial banks and other financial institutions for the issuance of letters of credit and bank guarantees in association with contracting activity. The aggregate value of all such letters of credit and bank guarantees as of March 31, 2015 was $143.3 million.

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 twelve months. In addition, these bonds generally indemnify customers should we fail to perform our obligations under the applicable contracts. 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

 

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contracting activity. As of March 31, 2015, bonds issued and outstanding under these arrangements in support of contracts totaled approximately $519.0 million.

Following the spin-off, we expect our subsidiaries to continue to enter into these types of credit and surety arrangements.

OTHER

Foreign Operations

Included in our total unrestricted cash and cash equivalents at March 31, 2015 and December 31, 2014 is approximately $209.7 million and $195.2 million or 92% and 89%, respectively, related to foreign operations and subsidiaries. In general, these resources are not available to fund our U.S. operations unless the funds are repatriated to the U.S., which would expose us to taxes we presently have not accrued in our results of operations. We presently have no plans to repatriate these funds to the U.S. in a taxable manner as the liquidity generated by our U.S. operations, along with other sources of cash, is sufficient to meet the cash requirements of our U.S. operations.

Cash, Cash Equivalents, Restricted Cash and Investments

March 31, 2015 compared to December 31, 2014

In aggregate, our cash and cash equivalents, restricted cash and cash equivalents and investments increased by approximately $9.8 million to $263.0 million at March 31, 2015 from $253.2 million at December 31, 2014, primarily due to cash generated by our international operations. At March 31, 2015, we had restricted cash and cash equivalents totaling $28.8 million, $4.7 million of which was held in restricted foreign cash accounts and $24.1 million of which was held to meet reinsurance reserve requirements of our captive insurer. At March 31, 2015, we had investments with a fair value of $7.4 million. Our investment portfolio consists primarily of investments in asset-backed securities and collateralized mortgage obligations and highly liquid money market instruments. See discussion above in “Pre-Spin-off Liquidity and Capital Resources” related to domestic cash pooling with the Company.

Our working capital decreased by approximately $10.9 million to $355.7 million at March 31, 2015 from $366.6 million at December 31, 2014, attributable primarily to a timing related decline in accounts payable and employee benefits and a decline in accounts receivable, partially offset by an increase in advance billings on contracts. Our long-term contracts are generally structured to limit cash flow risk by billing in advance of incurring cash outflows. Particularly for larger contracts, this results in cash generation at the beginning of the contract and cash outflow at the end of the contract as work is completed. The increase in backlog at March 31, 2015 from recent international coal boiler and renewable bookings has begun to generate cash from operating activities as these new projects begin and advance billings are received.

Three Months Ended March 31, 2015 compared to Three Months Ended March 31, 2014

Our net cash provided by operating activities increased approximately $113.4 million to $47.8 million for the three months ended March 31, 2015 compared to cash used in operating activities of $65.6 million in the three months ended March 31, 2014. Our cash flow from operating activities is primarily driven by our long term contracts, which are generally structured to limit cash flow exposure by billing based on contract milestones in advance of incurring cash outflows. Particularly for larger contracts, this results in cash generation at the beginning of the contract and cash outflow at the end of the contract as the work is completed. The increase in backlog at December 31, 2014 from recent international coal boiler and renewable bookings generated cash flow from working capital in the first quarter of 2015 as some of these new projects began and advance billings were received. In the corresponding period of 2014, our backlog was declining in connection with projects primarily related to previously enacted environmental rules and regulations, were nearing completion at a pace that exceeded new bookings.

Our net cash used in investing activities increased by $13.3 million to approximately $8.4 million in the three months ended March 31, 2015 compared to cash provided by investing activities of $4.9 million in the

 

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corresponding period of 2014. This increase in cash used in investing activities was primarily attributable to a decrease in sales of investments and a decrease in restricted cash and cash equivalents.

Our net cash used in financing activities increased $79.3 million to approximately $24.8 million in the quarter ended March 31, 2015 compared to cash provided by financing activities of $54.5 million in the quarter ended March 31, 2014. This increase in cash used in financing activities was primarily attributable to increased financing provided to the Company.

December 31, 2014 compared to December 31, 2013

In aggregate, our cash and cash equivalents, restricted cash and cash equivalents and investments increased by approximately $20.7 million to $253.2 million at December 31, 2014 from $232.5 million at December 31, 2013, primarily due to cash generated by in our international operations. At December 31, 2014, we had restricted cash and cash equivalents totaling $31.8 million, $3.7 million of which was held in restricted foreign cash accounts and $28.1 million of which was held to meet reinsurance reserve requirements of our captive insurer. At December 31, 2014, we had investments with a fair value of $2.3 million. Our investment portfolio consists primarily of investments in asset-backed securities and collateralized mortgage obligations and highly liquid money market instruments. See discussion above in “Pre-Spin-off Liquidity and Capital Resources” related to domestic cash pooling with the Company.

Our working capital increased by approximately $135.3 million to $366.6 million at December 31, 2014 from $231.3 million at December 31, 2013, attributable primarily to the changes in net contracts in progress and advance billings on contracts associated with the decline in contract activity. Our long-term contracts are generally structured to limit cash flow risk by billing in advance of incurring cash outflows. Particularly for larger contracts, this results in cash generation at the beginning of the contract and cash outflow at the end of the contract as the work is completed. Our working capital increased, using cash, in 2014 and 2013 as our backlog projects related to previously enacted environmental rules and regulations, such as the Cross State Air Pollution Rule, neared completion at a pace that exceeded new bookings for the period. However, the increase in backlog at December 31, 2014 from recent international coal boiler and renewable bookings is expected to generate cash from operating activities as these new projects begin and advance billings are received.

Year Ended December 31, 2014 compared to Year Ended December 31, 2013

Our net cash used in operating activities was approximately $28.7 million for the year ended December 31, 2014 compared to cash used in operating activities of $7.3 million in the year ended December 31, 2013. This increase in cash used in operating activities was primarily attributable to reduced earnings and the timing of collection of accounts receivable, which is subject to project milestone billings.

Our net cash used in investing activities increased by $131.0 million to approximately $149.6 million in the year ended December 31, 2014 compared to $18.6 million in the year ended December 31, 2013. This increase in cash used in investing activities was primarily attributable to the acquisition of MEGTEC.

Our net cash flow provided by financing activities increased $164.1 million to approximately $211.7 million in the year ended December 31, 2014 compared to $47.6 million in the year ended December 31, 2013. This increase in cash provided by financing activities was primarily attributable to increased financing provided by the Company.

December 31, 2013 compared to December 31, 2012

In aggregate, our cash and cash equivalents, restricted cash and cash equivalents and investments increased by approximately $12.9 million to $232.5 million at December 31, 2013 from $219.6 million at December 31, 2012, primarily due to cash generated by our international operations.

Our working capital increased by approximately $116.3 million to $231.3 million at December 31, 2013 from $115.0 million at December 31, 2012, attributable primarily to the changes in net contracts in progress and advance billings on contracts.

 

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Year Ended December 31, 2013 compared to Year Ended December 31, 2012

Our net cash used in operating activities was approximately $7.3 million in the year ended December 31, 2013 compared to cash provided by operating activities of $58.2 million in the year ended December 31, 2012. This decrease was primarily attributable to changes in net contracts in progress and advance billings due to timing of project billings, partially offset by lower pension contributions.

Our net cash used in investing activities decreased by $82.5 million to approximately $18.6 million in the year ended December 31, 2013 compared to $101.1 million in the year ended December 31, 2012. This decrease in net cash used in investing activities was primarily attributable to a decline in net purchases and sales of available-for-sale securities during the period due to the transfer of investments to the Company.

Our net cash flow provided by financing activities increased by $230.4 million to $47.6 million in the year ended December 31, 2013 compared to $182.8 million of net cash flow used in financing activities in the year ended December 31, 2012. This increase in net cash provided by financing activities was primarily attributable to net transfer activity with the Company.

Off-Balance Sheet Arrangements

In the year ended December 31, 2014, we issued a letter of credit with a four year term totaling approximately $10 million in support of a bank loan borrowed by Thermax Babcock & Wilcox Energy Solutions Private Limited (“TBWES”). TBWES is an unconsolidated affiliate and the letter of credit can be drawn if TBWES defaults on the loan. The fair value of this guarantee is $1.7 million, which was measured at inception and recorded in other liabilities on our combined balance sheet, with an associated increase to our investments in unconsolidated affiliates.

CONTRACTUAL OBLIGATIONS

Our cash requirements as of December 31, 2014 under current contractual obligations were as follows:

 

                 Total                     Less than    
1 Year
    1-3
      Years      
    3-5
      Years      
    After
    5 Years    
 
     (In thousands)                          

Long-term debt principal(1)

   $ 3,215      $ 3,215      $ —        $ —        $ —     

Lease payments

   $   15,534      $   5,522      $   5,991      $   2,800      $   1,221   

 

(1)

Interest payments on these borrowings as of December 31, 2014 are not significant.

We expect cash requirements totaling approximately $15.8 million for contributions to our pension plans in 2015. In addition, we anticipate cash requirements totaling approximately $5.3 million for contributions to our other postretirement benefit plans in 2015.

Our contingent commitments under letters of credit, bank guarantees and surety bonds outstanding at December 31, 2014 expire as follows:

 

        Total        

   Less than
          1 Year          
     1-3
        Years        
             3-5 Years                      Thereafter          
(In thousands)  

$        649,568

   $         98,907       $         459,345       $         88,437       $         2,879   

As of March 31, 2015, there were no material changes outside the ordinary course of business to our contractual debt obligations and commitment specified in the tables above.

 

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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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 U.S. Government obligations and highly liquid money market instruments denominated in U.S. 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.

We have no material future earnings or cash flow exposures from changes in interest rates on our long-term debt obligations.

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. In order to manage the risks associated with FX rate fluctuations, we attempt to hedge those risks with FX derivative instruments. Historically, we have hedged those risks with FX forward contracts. We do not enter into speculative derivative positions.

Interest Rate Sensitivity

The following tables provide information about our financial instruments that are sensitive to changes in interest rates. The tables present principal cash flows and related weighted-average interest rates by expected maturity dates.

 

 

Principal Amount by Expected Maturity

(In thousands)

 
At December 31, 2014:     Fair Value at
December 31,
2014
 
  Years Ending December 31,  
  2015   2016   2017   2018   2019     Thereafter     Total  

Investments

$ 1,997                        $ 308    $ 2,305    $ 2,263   

Average Interest Rate

  0.2%                          2.6%             

Long-term Debt

$ 3,215                             $ 3,215    $ 3,219   

Average Interest Rate

  6.3%                                      
At December 31, 2013:     Fair Value at
December 31,
2013
 
  Years Ending December 31,  
  2014   2015   2016   2017   2018   Thereafter   Total  

Investments

$ 8,951    $                   $ 393    $ 9,344    $ 9,305   

Average Interest Rate

  0.2%                          2.3%             

Long-term Debt

$ 4,671    $ 225                        $ 4,896    $ 4,917   

Average Interest Rate

  6.3%      0.5%                                 

 

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Exchange Rate Sensitivity

The following table provides information about our FX forward contracts outstanding at December 31, 2014 and presents such information in U.S. dollar equivalents. The table presents notional amounts and related weighted-average FX rates by expected (contractual) maturity dates and constitutes a forward-looking statement. These notional amounts generally are used to calculate the contractual payments to be exchanged under the contract. The average contractual FX rates are expressed using market convention, which is dependent on the currencies being bought and sold under the forward contract.

 

Forward Contracts to Purchase Foreign Currencies in U.S. Dollars (in thousands)

 

 
Foreign Currency   Year Ending
  December 31, 2015  
    Fair Value at
  December 31, 2014  
      Average Contractual  
Exchange Rate
 

British Pound Sterling

  $ 3,835      $ (233)        1.6452   

British Pound Sterling (selling Euros)

  $ 2,788      $ 89        0.8131   

Canadian Dollars

  $ 32,513      $ (2,655)        1.0805   

Chinese Renminbi

  $ 1,695      $ (28)        6.2681   

Euros

  $ 721      $ (30)        1.2666   

Euros (selling British Pound Sterling)

  $ 1,474      $ (21)        0.7952   

Swedish Krona (selling Danish Krona)

  $ 1,309      $ (62)        1.2253   

U.S. Dollars (selling British Pound Sterling)

  $ 276      $ 13        1.6240   

U.S. Dollars (selling Canadian Dollars)

  $ 7,482      $ 541        1.0909   

U.S. Dollars (selling Danish Krona)

  $ 6,557      $ 27        6.0999   

U.S. Dollars (selling Euro)

  $ 511      $ 46        1.3272   
Foreign Currency   Year Ending
December 31, 2016
    Fair Value at
December 31, 2014
    Average Contractual
Exchange Rate
 

Canadian Dollars

  $ 15,085      $ (743     1.1180   

As of March 31, 2015. there were no material changes to our interest rate sensitivity and exchange rate sensitivity specified in the tables above.

 

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BUSINESS

Overview

New B&W is currently a wholly owned subsidiary of the Company. The Company is a successor to a business founded in 1867, which was acquired by McDermott International, Inc. (“MII”) in 1978. In July 2010, MII spun-off the businesses that comprised its then Power Generation and Government Operations segments into the Company. New B&W’s assets and business will consist of those that the Company reports as its Power Generation segment in its financial statements combined with related captive insurance operations. Prior to the spin-off, PGG OpCo will transfer the assets and liabilities associated with the Company’s Nuclear Energy segment to the Company. Following the spin-off, New B&W will be an independent, publicly traded company that operates the Company’s Power Generation business. The Company will not retain any ownership interest in New B&W.

New B&W is a leading technology-based provider of advanced fossil and renewable power generation equipment that includes a broad suite of boiler products and environmental systems, and services for power and industrial uses. We specialize in engineering, manufacturing, procurement, and erection of equipment and technology used in the power generation industry and various other industries, and the provision of related services, including:

 

   

high pressure equipment for energy conversion, such as boilers fueled by coal, oil, bitumen, natural gas, renewables including municipal solid waste and biomass fuels;

 

   

environmental control systems for both power generation and industrial applications to incinerate, filter, capture, recover and/or purify air, liquid and vapor-phase effluents from a variety of power generation and manufacturing processes;

 

   

aftermarket support for the global installed base of operating plants with a wide variety of products and technical services including replacement parts, retrofit and upgrade capabilities, field engineering, construction, inspection, operations and maintenance, condition assessment and other technical support; and

 

   

engineered-to-order services, products and systems for energy conversion worldwide and related auxiliary equipment, such as burners, pulverizers, soot blowers and ash and material handling systems; and

 

   

design and manufacture of ovens and dryers, specialized coating lines and material handling systems for energy storage, membranes, digital printing and other advanced manufacturing processes.

New B&W will operate in three reportable segments: Global Power, Global Services and Industrial Environmental. Through our Global Power segment, we engineer, manufacture, procure, construct and commission boilers fueled by fossil fuels and renewables in addition to environmental systems and related auxiliary equipment primarily to steam generating customers globally. Through our Global Services segment, we provide aftermarket products and services to steam generating utilities worldwide and numerous industrial customers globally. We have supplied the boilers for approximately 35% of the coal-fired electric generating capacity in the United States. We also provide aftermarket services for global installed units delivered by other original equipment suppliers. Through our Industrial Environmental segment, we provide a range of environmental technology and services to numerous industrial end markets globally. We established the operations constituting this segment through our June 20, 2014 acquisition of MEGTEC.

Our overall activity depends significantly on the capital expenditures and operations and maintenance expenditures of global electric power generating companies, other steam-using industries and industrial facilities with environmental compliance needs. Several factors influence these expenditures, including:

 

   

prices for electricity, along with the cost of production and distribution including the cost of fuel within the United States or internationally;

 

   

demand for electricity and other end products of steam-generating facilities;

 

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requirements for environmental improvements;

 

   

impact of potential U.S. and international requirements to significantly limit or reduce greenhouse gas emissions in the future;

 

   

environmental policies which include waste to energy or biomass as options to meet legislative requirements and clean energy portfolio standards;

 

   

level of capacity utilization at operating power plants, and other industrial uses of steam production;

 

   

requirements for maintenance and upkeep at operating power plants to combat the accumulated effects of usage; and

 

   

ability of electric power generating companies and other steam users to raise capital.

Customer demand is heavily affected by the variations in our customers’ business cycles and by the overall economies and energy and environmental policies of the countries in which they operate.

Our Competitive Strengths

Leading Market Position in the Global Power Generation Market

We are a proven leader and brand in the design, engineering, manufacture, supply, construction and maintenance of steam generating and environmental control systems for power generation providers worldwide. We serve our markets and customers through a global, low cost footprint of engineering and manufacturing assets and joint ventures including our joint venture with Thermax Ltd in India and our joint venture with Beijing Jingcheng Machinery Electric Holding Company Ltd in China. As of March 31, 2015, our power generation systems and equipment have provided for more than 300,000 MW of steam generating capacity in more than 800 facilities in over 90 countries. In recognition of our capabilities, we have received numerous industry awards including the “2013 Plant of the Year” for American Electric Power’s John W. Turk, Jr. Ultra Super Critical Plant by Power Engineering magazine.

Recurring Global Aftermarket Services Business in Power Generation Market

We provide a comprehensive mix of aftermarket products, services and technical solutions to a large installed base for our and our competitors’ power generation and industrial plants globally. We deliver these products and services through our extensive network of regionally located service centers, technical support personnel, and global sourcing capabilities. Combined with our priority on delivering responsive and competitive customer service and solutions, this consistently results in capturing leading market share that generates stable and recurring revenues. In addition, the long term customer relationships that result from this recurring business position us favorably for new capital project opportunities and growth of our global aftermarket installed base.

Established Platform in the Global Industrial Environmental Market

We are a leading provider of technology and services in the highly fragmented and growing market for industrial environmental systems. We offer our industrial customer base a complete end-to-end solution of air pollution equipment, including engineering and project management services, procurement and fabrication, construction and installation, aftermarket support and parts and services. The products and services provide a range of sustainability-focused benefits, including air pollution abatement, carbon management, energy storage and recovery, and environmental compliance to prevent and/or treat waste and pollution.

Proven Track Record of Success and Innovation

We have served the global power generation industry for over 145 years and have a rich legacy of advanced technology development for the power generation and industrial markets. This technology leadership is supported by thousands of patents worldwide. We have invested in advanced technologies, through both research and development and our knowledge-centered technical professionals, to meet the challenge of growing power generation demand for energy sources that are lower pollutant emitting sources, or sources that have lower carbon footprints including: technologies for the development of higher efficiency coal-utilization systems to reduce emissions and technologies to enable a greater use of waste-to-energy and biomass fuels for power generation.

 

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Global, Diversified Client Base

We have a broad customer base, consisting of a wide range of utilities, independent power producers and industrial companies globally. Our customers represent some of the largest utility and industrial manufacturing companies worldwide. We believe we have the resources and capabilities to meet the needs of our customers as they upgrade and expand and to support our recurring service and maintenance business. The global diversity of our operations and customer base provides us with multiple growth opportunities in our core markets. As of March 31, 2015, we had a diversified customer base of more than 12,000 customers across the power generation and industrial markets.

Demonstrated Success with Large and Complex Projects

We have demonstrated success in executing large delivered and erected projects, both at new power plants and as retrofits at existing facilities. Since 2000, we have erected more than 142 major pieces of equipment at units with electric generating capacity exceeding 56,000 MW. For those customers who purchase our combined design build offering, we utilize proven project execution processes and provide single-point accountability for our scope throughout the execution of the project. Leveraging our engineer-to-construct design experience early in the life of a project optimizes constructability, resulting in lower costs and improved certainty of schedule. Our successful experience with modular fabrication and assembly can increase safety, improve quality, reduce field labor costs and shorten project span time.

Experienced Management and Engineering Team

Our senior management team has broad power and industrial market experience. Our senior management team is supported by a strong operating management team, which possesses extensive operational and managerial experience. Our workforce includes engineers, designers, and project managers whose significant specialized industry experience and technical expertise enables them to develop solutions that will best meet the needs of our customers. The experience and stability of our management, operating and engineering teams have been crucial to our growth, developing and maintaining customer relationships, and sustaining market share.

Our Business Strategies

Optimize Our Business to Align with the Market Opportunity

We plan to continue enhancing our operating model and asset base to optimize our approach to profitable organic growth and enhanced free cash flow across our range of global markets. In mature markets like North America, we see continued demand for refurbishment and maintenance of aging plants, which, in addition to the requirements of increasing environmental regulation, is being driven by the desire of power producers to reduce operating costs, enhance operating efficiency, improve reliability and extend the useful lives of their existing plants. Significant opportunity exists to serve this more mature market with an infrastructure designed to meet the substantial recurring aftermarket and targeted capital projects with a strategically efficient and cost competitive operating model.

Pursue Growth Opportunities in the International Power Generation Market

We will continue to pursue growth opportunities in the international power generation market by expanding our marketing and operational presence in regions around the world where we expect continued demand growth and increased need for aftermarket services for both fossil and renewable (waste to energy and biomass) power generation. We believe significant growth opportunities exist as a result of many factors, including economic growth, particularly in emerging economies, where we expect demand for new power generation capacity to continue to rise as economic development continues; and continued development of environmental regulation globally, which we expect to continue to drive demand for cleaner power generation technologies, as well as environmental systems and other devices that abate emissions from existing plants.

Continue Disciplined Acquisition Program with Successful Integration

Our management team has demonstrated its ability to identify business acquisition opportunities, consummate acquisitions and integrate acquired businesses effectively. We will continue to seek and execute additional strategic acquisitions that focus on expanding our existing capabilities as well as entering into new,

 

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adjacent markets. In June 2014, we purchased MEGTEC for $142.8 million, net of cash acquired, which expanded our product and services offerings in new industrial end markets. We plan to augment organic growth opportunities for MEGTEC’s current portfolio with acquisitions to expand our suite of technologies, with a focus on key abatement technologies, to establish additional channels to market and to extend our geographic footprint.

Maintain our Commitment to Safety

We value the health and safety of all employees and seek to provide a workplace that is free of accidents and injuries. Through our safety processes, we are dedicated to preventing accidents and their associated costs by averting, eliminating or mitigating unsafe acts and conditions, and by responding properly to emergency situations. A safe work environment benefits our employees, our customers and our business partners and is a key element to our future success.

Segment Description

After the spin-off, we will operate in three reportable segments. Currently, we have a fourth segment, our Nuclear Energy segment. This segment supplies commercial nuclear steam generators and components to nuclear utility customers. In connection with the spin-off, we will transfer the assets and liabilities associated with this segment to the Company. After the spin-off, our three segments will be as follows:

Global Power

Our Global Power segment represents our worldwide new build boiler and environmental products businesses that serve large steam generating and industrial customers. The segment provides a full suite of product and service offerings including engineering, procurement, manufacturing, construction and commissioning. Our boilers include utility boilers and industrial boilers fired with coal, oil and natural gas as well as renewables including biomass and municipal solid waste. Our boiler products include advanced supercritical boilers, subcritical boilers, fluidized bed boilers, biomass-fired boilers, waste-to-energy boilers, chemical recovery boilers, industrial power boilers, package boilers, heat recovery steam generators, waste heat boilers and solar thermal power systems.

Our environmental systems offerings include air pollution control products and related equipment for the treatment of nitrogen oxides, sulfur dioxide, fine particulate, mercury, acid gases and other hazardous air emissions, including carbon dioxide capture and sequestration technologies, wet and dry flue gas desulfurization systems, catalytic and non-catalytic nitrogen oxides reduction systems, low nitrogen oxides burners and overfire air systems, fabric filter baghouses, wet and dry electrostatic precipitators, mercury control systems and dry sorbent injection for acid gas mitigation.

We also receive license fees and royalty payments through licensing agreements on our proprietary technologies.

Global Services

Our Global Services segment provides a comprehensive mix of aftermarket products and services to support peak efficiency and availability of steam generating and associated environmental and auxiliary equipment, serving large steam generating utility and industrial customers globally. Our products and services include replacement parts, field technical services, retrofit and upgrade projects, fuel switching and repowering projects, construction and maintenance services, start-up and commissioning, training programs and plant operations and maintenance for our full complement of boiler, environmental and auxiliary equipment. Our auxiliary equipment includes boiler cleaning equipment and material handling equipment.

Industrial Environmental

Our Industrial Environmental segment represents our environmental products and services business serving numerous industrial end markets such as the chemical, pharmaceutical, energy storage, packaging, and automotive markets. The segment designs, engineers and manufactures products including oxidizers, solvent and distillation systems, wet and dry electrostatic precipitators, scrubbers and heat recovery systems. The segment also provides specialized industrial process systems and equipment.

 

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Acquisitions and Joint Ventures

We are currently exploring growth strategies across our segments through acquisitions to expand and complement our existing business. As we pursue these opportunities, we expect they would be funded by cash on hand and/or external financing including debt, equity or some combination thereof.

Acquisitions

In June 2014, we completed the acquisition of MEGTEC for $142.8 million, net of cash acquired. MEGTEC designs, engineers, manufactures and services air pollution control systems and coating / drying equipment for a variety of industrial applications and complements environmental products and solutions offerings.

In November 2011, we acquired Anlagenbau und Fördertechnik Arthur Loibl GmbH (“Loibl”), a German-based manufacturer of material handling equipment for $24.2 million. Loibl expands the products, services and global reach of our Allen-Sherman-Hoff business, which is one of the world’s leading suppliers of ash handling solutions for the power generation and other industries.

In April 2010, we acquired the assets of the electrostatic precipitator aftermarket and emissions monitoring business units of GE Energy, a division of General Electric Company, for approximately $21.4 million. This acquisition includes GE Energy’s electrostatic precipitator replacement parts and mechanical components product lines, performance-enhancing hardware, controls and software, remote diagnostics equipment and emissions monitoring products and services. These products and services are used by a wide variety of power generation and industrial customers to monitor and control particulates and other emissions from power plants, factories and other facilities.

In January 2010, we acquired the net assets of Gõtaverken Miljõ AB, a flue gas cleaning and energy recovery company based in Gothenburg, Sweden for approximately $8.6 million.

Joint Ventures

We participate in the ownership of a variety of entities with third parties, primarily through corporations, limited liability companies and partnerships, which we refer to as “joint ventures.” We enter into joint ventures primarily for specific market access and to enhance our manufacturing, design and global production operations as well as reduce operating and financial risk profiles. We generally account for our investments in joint ventures under the equity method of accounting. Our unconsolidated joint ventures are described below.

 

   

Halley & Mellowes Pty. Ltd. (“HMA”). Diamond Power International, Inc., one of our wholly owned subsidiaries, owns an interest in this Australian company, which was formed in 1984. HMA manufactures, sells and services a wide range of capital plant equipment to a diverse range of industries. These include the mining, processing, materials handling, water management, power generation, and oil and gas industries. HMA offers complete service, from equipment selection to installation to commissioning and maintenance, with offices and service facilities located in and serving Australia, New Zealand, Indonesia and South Africa.

 

   

Babcock & Wilcox Beijing Company, Ltd. We own equal interests in this entity with Beijing Jingcheng Machinery Electric Holding Company, Ltd. Babcock & Wilcox Beijing Company, Ltd. was formed in 1986 and is located in Beijing, China. Its main activities are the design, manufacture, production and sale of various power plant and industrial boilers. This entity expands our markets internationally and provides additional capacity to our boiler products.

 

   

Thermax Babcock & Wilcox Energy Solutions Private Limited. In June 2010, one of our subsidiaries and Thermax Ltd., a boiler manufacturer based in India, formed a joint venture to build subcritical and highly efficient supercritical boilers and pulverizers for the Indian utility boiler market. We have licensed to the joint venture our technology for subcritical boilers 300 MW and larger, highly efficient supercritical boilers and coal pulverizers. In 2013, the joint venture finalized construction of a facility in India designed to produce parts for up to 3,000 MW of utility boiler capacity per year.

 

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BWM Ottumwa Environmental Partners. Through our subsidiary Babcock & Wilcox Construction Co., Inc., we formed BWM Ottumwa Environmental Partners, a joint venture with Burns & McDonnell Engineering Company, Inc., to engineer, procure, and construct environmental control systems for the Ottumwa Generating Station. This project is nearing completion.

Backlog

Backlog represents the dollar amount of revenue we expect to recognize in the future from contracts awarded and in progress. Not all of our expected revenue from a contract award is recorded in backlog for a variety of reasons, including that some projects are awarded and completed within the same fiscal period.

Backlog is not a measure defined by generally accepted accounting principles. It is possible that our methodology for determining backlog may not be comparable to methods used by other companies. Backlog may not be indicative of future operating results, and projects in our backlog may be cancelled, modified or otherwise altered by customers.

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 customer to payment for work performed. Accordingly, we exclude from backlog orders or arrangements that have been awarded but that we have not been authorized to begin performance.

After giving effect to the distribution, our backlog at March 31, 2015 and December 31, 2014 and 2013 was as follows:

 

March 31,

2015

 

December 31,

2014

 

December 31,

2013

 
  (Unaudited)  
  (In millions)  

Global Power

        $ 1,281            50         $ 946            42         $ 891            43%    

Global Services

  1,213            47   1,229            55   1,181            57%    

Industrial Environmental

  87            3   72            3   -            -%    

 

 

Total Backlog

        $ 2,581            100         $ 2,247            100         $ 2,072            100%    

 

 

We do not include the value of our unconsolidated joint venture contracts in backlog. See Note 3 to the audited combined financial statements included in this information statement for financial information on our equity method investments.

Of the March 31, 2015 backlog, we expect to recognize revenues as follows:

 

2015

 

2016

 

Thereafter

 

Total

 
  (Unaudited)  
  (In approximate millions)  

Global Power

$         422          $         430          $         429          $         1,281         

Global Services

  423            173            617            1,213         

Industrial Environmental

  71            16            -            87         

 

 

Total Backlog

$         916          $         619          $ 1,046          $ 2,581         

 

 

Competition

With more than 145 years of experience and having supplied more than 300,000 MW of equivalent steam-generating capacity in more than 800 facilities in over 90 countries and some of the world’s largest and most efficient steam-generating systems, we have a competitive advantage in our experience and technical capability to reliably convert a wide range of fuels to steam. Our strong, installed base in North America also yields competitive advantages in the Global Services segment, although this segment of the market is highly competitive and price sensitive. We compete with a number of domestic and foreign-based companies specializing in steam generating systems technology, equipment and services, including Alstom S.A., Doosan Babcock, Babcock Power, Inc., Foster Wheeler AG., and Hitachi, Ltd.; a variety of engineering and construction companies with

 

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respect to the installation of steam-generating systems; a number of additional companies in the markets for environmental control equipment and related specialized industrial equipment; and other suppliers of replacement parts, repair and alteration services and other services required to retrofit and maintain existing steam systems. The primary bases of competition are price, technical capabilities, quality, timeliness of performance, breadth of products and services and willingness to accept project risks.

Foreign Operations

Our Canadian operations serve the Canadian electric utility, industrial power and oil production markets. Our operations in Denmark provide comprehensive services to companies in the waste-to-energy sector of the power generation market, primarily in eastern and western Europe. Our joint ventures in China and India primarily serve the power generation needs of their local domestic and other utility markets. The functional currency of these entities is not the U.S. dollar, and as a result, we are subject to exchange rate fluctuations that impact our financial position, results of operations and cash flows. After giving effect to the distribution, our revenues and operating income (which excludes the MTM adjustment and special charges for restructuring activities that are accounted for at the combined level) derived from operations located outside of the United States, as well as the approximate percentages of our total combined revenues and operating income, respectively, for each of the last three years were as follows (dollars in thousands):

 

  Revenues Operating Income
      Amount       Percent of
Total
  Combined
    Amount       Percent of
Total
  Combined

Quarter ended March 31, 2015

  $ 84,555    21 %   $ 4,254      26 %

Quarter ended March 31, 2014

  $ 61,446    20 %   $ (6,304 (86) %

Year ended December 31, 2014

  $ 400,070    27 %   $ 27,242      32 %

Year ended December 31, 2013

  $ 485,854    27 %   $ 62,901      44 %

Year ended December 31, 2012

  $ 435,512    24 %   $ 48,867      28 %

Our revenues exclude revenues attributable to our joint ventures accounted for under the equity method of accounting, while our operating income includes results from joint ventures accounted for under the equity method.

For additional information on the geographic distribution of our revenues, see Note 16 to the audited combined financial statements included in this information statement.

Raw Materials and Suppliers

Our operations use raw materials such as carbon and alloy steels in various forms and components and accessories for assembly, which are available from numerous sources. We generally purchase these raw materials and components as needed for individual contracts. We do not depend on a single source of supply for any significant raw materials.

Although shortages of some raw materials have existed from time to time, no serious shortage exists at the present time.

Employees

At March 31, 2015, we employed approximately 6,000 persons worldwide, not including 2,500 joint venture employees. We consider our relationships with our employees to be satisfactory.

Patents and Technology Licenses

We currently hold a large number of U.S. and foreign patents and have patent applications pending. We have acquired patents and technology licenses and granted technology licenses to others when we have considered it advantageous for us to do so. Although in the aggregate our patents and licenses are important to us, we do not regard any single patent or license or group of related patents or licenses as critical or essential to our business as a whole. In general, we depend on our technological capabilities and the application of know-how, rather than patents and licenses, in the conduct of our various businesses.

 

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Research and Development Activities

Our research and development activities are related to the development and improvement of new and existing products and equipment, as well as conceptual and engineering evaluation for translation into practical applications. We charge to research and development cost the costs of research and development unrelated to specific contracts as incurred. After giving effect to the distribution, research and development activities totaled $4.5 million and $4.0 million in the quarters ended March 31, 2015 and 2014, respectively, and $18.5 million, $21.0 million and $23.0 million in the years ended December 31, 2014, 2013 and 2012, respectively.

Hazard Risks and Insurance

Our operations present risks of injury to or death of people, loss of or damage to property and damage to the environment. We have created loss control systems to assist us in the identification and treatment of the hazard risks presented by our operations, and we endeavor to make sure these systems are effective.

As loss control measures will not always be successful, we seek to establish various means of funding losses and liability related to incidents or occurrences. We primarily seek to do this through contractual protections, including waivers of consequential damages, indemnities, caps on liability, liquidated damage provisions, and access to the insurance of other parties. We also procure insurance and/or establish funded or unfunded reserves and after the spin-off, will operate our own captive insurance company. However, none of these methods will eliminate all risks.

Depending on competitive conditions, the nature of the work, industry custom and other factors, we may not be successful in obtaining adequate contractual protection from our customers and other parties against losses and liabilities arising out of or related to the performance of our work. The scope of the protection may be limited, may be subject to conditions and may not be supported by adequate insurance or other means of financing. In addition, we sometimes have difficulty enforcing our contractual rights with others following a material loss.

Similarly, insurance for certain potential losses or liabilities may not be available or may only be available at a cost or on terms we consider not to be economical. Insurers frequently react to market losses by ceasing to write or severely limiting coverage for certain exposures. Risks that we have frequently found difficult to cost-effectively insure against include, but are not limited to, business interruption, property losses from wind, flood and earthquake events, war and confiscation or seizure of property in some areas of the world, pollution liability, liabilities related to occupational health exposures (including asbestos), liability related to our executives participating in the management of certain outside entities, professional liability/errors and omissions coverage, the failure, misuse or unavailability of our information systems, the failure of security measures designed to protect our information systems from security breaches and liability related to risk of loss of our work in progress and customer-owned materials in our care, custody and control. In cases where we place insurance, we are subject to the credit worthiness of the relevant insurer(s), the available limits of the coverage, our retention under the relevant policy, exclusions in the policy and gaps in coverage.

Upon completion of the spin-off, our wholly owned captive insurance subsidiary will provide workers’ compensation, employer’s liability, commercial general liability and automotive liability insurance to support our operations. We may also have business reasons in the future to have our insurance subsidiary accept other risks which we cannot or do not wish to transfer to outside insurance companies. These risks may be considerable in any given year or cumulatively. Our insurance subsidiary has not provided significant amounts of insurance to unrelated parties. Claims as a result of our operations could adversely impact the ability of our insurance subsidiary to respond to all claims presented.

Additionally, upon the February 22, 2006 effectiveness of the settlement relating to the Chapter 11 proceedings involving several of our subsidiaries, most of our subsidiaries contributed substantial insurance rights to the asbestos personal injury trust, including rights to (1) certain pre-1979 primary and excess insurance coverages and (2) certain of our 1979-1986 excess insurance coverage. These insurance rights provided coverage for, among other things, asbestos and other personal injury claims, subject to the terms and conditions of the policies. The contribution of these insurance rights was made in exchange for the agreement on the part of the representatives of the asbestos claimants, including the representative of future claimants, to the entry of a permanent injunction, pursuant to Section 524(g) of the U.S. Bankruptcy Code, to channel to the asbestos trust all asbestos-related claims against our subsidiaries and former subsidiaries arising out of, resulting from or attributable to their operations, and the implementation of related releases and indemnification provisions

 

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protecting those subsidiaries and their affiliates from future liability for such claims. Although we are not aware of any significant, unresolved claims against our subsidiaries and former subsidiaries that are not subject to the channeling injunction and that relate to the periods during which such excess insurance coverage related, with the contribution of these insurance rights to the asbestos personal injury trust, it is possible that we could have underinsured or uninsured exposure for non-derivative asbestos claims or other personal injury or other claims that would have been insured under these coverages had the insurance rights not been contributed to the asbestos personal injury trust.

Governmental Regulations and Environmental Matters

General

Many aspects of our operations and properties are affected by political developments and are subject to both domestic and foreign governmental regulations, including those relating to:

 

   

constructing and equipping electric power and other steam-generating facilities;

 

   

workplace health and safety;

 

   

currency conversions and repatriation;

 

   

taxation of foreign earnings and earnings of expatriate personnel; and

 

   

protecting the environment.

We are required by various governmental and quasi-governmental agencies to obtain certain permits, licenses and certificates with respect to our operations. The kinds of permits, licenses and certificates required in our operations depend upon a number of factors. We are not aware of any material noncompliance and believe our operations and certifications are currently in compliance with all relevant permits, licenses and certifications.

We cannot determine the extent to which new legislation, new regulations or changes in existing laws or regulations may affect our future operations.

Environmental

Our operations and properties are subject to a wide variety of increasingly complex and stringent foreign, federal, state and local environmental laws and regulations, including those governing discharges into the air and water, the handling and disposal of solid and hazardous wastes, the remediation of soil and groundwater contaminated by hazardous substances and the health and safety of employees. Sanctions for noncompliance may include revocation of permits, corrective action orders, administrative or civil penalties and criminal prosecution. Some environmental laws provide for strict, joint and several liability for remediation of spills and other releases of hazardous substances, as well as damage to natural resources. In addition, companies may be subject to claims alleging personal injury or property damage as a result of alleged exposure to hazardous substances. Such laws and regulations may also expose us to liability for the conduct of or conditions caused by others or for our acts that were in compliance with all applicable laws at the time such acts were performed.

These laws and regulations include the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (“CERCLA”), the Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act and similar laws that provide for responses to, and liability for, releases of hazardous substances into the environment. These laws and regulations also include similar foreign, state or local counterparts to these federal laws, which regulate air emissions, water discharges, hazardous substances and waste and require public disclosure related to the use of various hazardous substances. Our operations are also governed by laws and regulations relating to workplace safety and worker health, including the U.S. Occupational Safety and Health Act and regulations promulgated thereunder.

We cannot predict all of the environmental requirements or circumstances that will exist in the future but anticipate that environmental control and protection standards will become increasingly stringent and costly. Based on our experience to date, we do not currently anticipate any material adverse effect on our business or financial condition as a result of future compliance with existing environmental laws and regulations. However, future

 

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events, such as changes in existing laws and regulations or their interpretation, more vigorous enforcement policies of regulatory agencies or stricter or different interpretations of existing laws and regulations, may require additional expenditures by us, which may be material. Accordingly, we can provide no assurance that we will not incur significant environmental compliance costs in the future.

We have been identified as a potentially responsible party at various cleanup sites under CERCLA. CERCLA and other environmental laws can impose liability for the entire cost of cleanup on any of the potentially responsible parties, regardless of fault or the lawfulness of the original conduct. Generally, however, where there are multiple responsible parties, a final allocation of costs is made based on the amount and type of wastes disposed of by each party and the number of financially viable parties, although this may not be the case with respect to any particular site. We have not been determined to be a major contributor of wastes to any of these sites. On the basis of our relative contribution of waste to each site, we expect our share of the ultimate liability for the various sites will not have a material adverse effect on our combined financial condition, results of operations or cash flows in any given year.

The demand for power generation services and products can be influenced by state and federal governmental legislation setting requirements for utilities related to operations, emissions and environmental impacts. The legislative process is unpredictable and includes a platform that continuously seeks to increase the restrictions on power producers. Potential legislation limiting emissions from power plants, including carbon dioxide, could affect our markets and the demand for our products and services.

Properties

Following the spin-off, our properties will consist of the following:

 

Business Segment and Location Principal Use Owned/Leased (Lease
Expiration)

Global Power / Global Services

Barberton, Ohio

Manufacturing facility / administrative office Owned(1)

West Point, Mississippi

Manufacturing facility Owned(1)

Lancaster, Ohio

Manufacturing facility Owned(1)

Copley, Ohio

Warehouse / service center Owned(1)

Esbjerg, Denmark

Manufacturing facility Owned

Dumbarton, Scotland

Manufacturing facility Owned

Straubing, Germany

Manufacturing facility Leased (2021)

Guadalupe, NL, Mexico

Manufacturing facility Leased (2024)

Melville, Saskatchewan, Canada

Manufacturing facility Owned

Jingshan, Hubei, China

Manufacturing facility Owned

Industrial Environmental

De Pere, Wisconsin

Manufacturing facility / administrative office Owned(1)

Shanghai, China

Manufacturing facility Owned

Corporate

Charlotte, North Carolina

Administrative office Leased (2019)

 

(1)

These properties are encumbered by liens under the Existing Credit Agreement.

Legal Proceedings

PGG OpCo has been named as a defendant, along with Babcock & Wilcox Technical Services Group, Inc., formerly known as B&W Nuclear Environmental Services, Inc. (“TSG”) and Atlantic Richfield Company (“ARCO”), in 16 lawsuits filed the United States District Court for the Western District of Pennsylvania since January 2010, however, the most recently filed lawsuit was dismissed in March 2015. Excluding this recently dismissed lawsuit, the lawsuits presently involve a total of approximately 93 primary claimants, who have alleged, among other things, personal injuries and property damage as a result of alleged releases of radioactive material relating to the operation, remediation, and/or decommissioning of two former nuclear fuel processing facilities located in the Borough of Apollo and Parks Township, Pennsylvania (collectively, the “Apollo and Parks

 

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Litigation”). Those facilities previously were owned by Nuclear Materials and Equipment Company, a former subsidiary of ARCO (“NUMEC”), which was acquired by PGG OpCo. The plaintiffs in the Apollo and Parks Litigation seek compensatory and punitive damages. At the time of ARCO’s sale of NUMEC stock to PGG OpCo, PGG OpCo received an indemnity and hold harmless agreement from ARCO with respect to claims and liabilities arising prior to or as a result of conduct or events predating the acquisition. Moreover, in connection with the spin-off, the Company has agreed to indemnify and hold New B&W and its affiliates harmless with respect to claims and liabilities arising from the Apollo and Parks Litigation to the extent that such claims and liabilities are not covered by the ARCO indemnity or available insurance. Insurance coverage, the ARCO indemnity and/or the Company indemnity currently provide coverage for the claims alleged in the Apollo and Parks Litigation, although no assurance can be given that insurance and/or the indemnities will be available or sufficient in the event of liability, if any.

For information on our other legal proceedings, see Note 10 to the audited combined financial statements.

 

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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In connection with the spin-off, we will enter into several agreements with the Company to define our ongoing relationship with the Company after the spin-off. These agreements, among other things, will allocate responsibility for obligations arising before and after the distribution date, including, among others, obligations relating to our employees, various transition services and taxes. For more information about those agreements and our historical relationship with the Company, see “Relationship with the Company After the Spin-Off.”

Related Person Transactions Policies and Procedures

We expect that our Audit and Finance Committee will adopt a policy, which will be made available on our website, that will require all employees (including our Named Executive Officers) who have, or whose immediate family members have, any direct or indirect financial or other participation in any business that competes with, supplies goods or services to, or is a customer of ours, to disclose to us and receive written approval from our Corporate Ethics and Compliance department prior to transacting such business. We refer to any such transaction as a related person transaction.

Our employees are expected to make reasoned and impartial decisions in the workplace. As a result, approval of certain business will be denied if we believe that the employee’s interest in such business could influence decisions relative to our business, or have the potential to adversely affect our business or the objective performance of the employee’s work.

Our Corporate Ethics and Compliance department will implement our Code of Business Conduct and related policies and the Audit and Finance Committee of our Board will be responsible for overseeing our Ethics and Compliance Program, including compliance with our Code of Business Conduct. Our Code of Business Conduct provides that all employees (including Named Executive Officers) must ensure that business decisions they make and actions they take on behalf of New B&W are not influenced by personal considerations or personal relationships and will require appropriate disclosures of potential conflicts of interest.

Additionally, our Governance Committee will be responsible for reviewing the professional occupations and associations of the members of our board of directors. Our Audit and Finance Committee will review transactions between New B&W and other companies with which the members of our board of directors are affiliated.

 

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RELATIONSHIP WITH THE COMPANY AFTER THE SPIN-OFF

Historical Relationship with the Company

We are currently a wholly owned subsidiary of the Company. We were incorporated in Delaware on January 13, 2015. In conjunction with the spin-off, the Company will transfer to us generally all the assets and generally all the liabilities relating to its Power Generation business, which the Company intends to separate from its Government and Nuclear Operations business. In the ordinary course of our business, we have received various services provided by the Company, including accounting, treasury, tax, legal, risk management, human resources, information technology and other services. Our historical financial statements include allocations by the Company of a portion of its overhead costs related to those services. These cost allocations have been determined on a basis that we and the Company consider to be reasonable reflections of the use of those services.

The Company’s Distribution of Our Stock

The Company will be our sole stockholder until completion of the spin-off. In the spin-off, the Company is distributing its entire equity interest in us to its stockholders in a transaction that is intended to be tax-free to the Company and its U.S. stockholders. The spin-off will be subject to a number of conditions, some of which are more fully described above under “The Spin-Off—Spin-Off Conditions and Termination.”

Agreements Between the Company and Us

In the discussion that follows, we have described the material provisions of agreements we will enter into with the Company in connection with the spin-off. The description of those agreements is not complete and is qualified by reference to the terms of the agreements, the forms of which will be filed as exhibits to the registration statement on Form 10 of which this information statement is a part. We encourage you to read the full text of those agreements. Those agreements were developed under the oversight of the board of directors of the Company. Because the terms of our separation from the Company and these agreements are being entered into in the context of a related-party transaction, these terms may not be comparable to terms that would be obtained in a transaction between unaffiliated parties. The terms of the agreements described below have not yet been finalized; changes, some of which may be material, may be made prior to the spin-off.

Master Separation Agreement

The master separation agreement between the Company and us governs the separation of our business from the Company, the subsequent distribution of our shares to Company stockholders and other matters related to the Company’s relationship with us.

The Separation. To effect the separation, the Company will effect a series of transactions that will cause us to own generally all of the assets of our business as described in this information statement (which assets may include stock or other equity interests of Company subsidiaries). We will also succeed to, and intend to agree to perform and fulfill, the liabilities described below. In particular, the master separation agreement generally is expected to provide that, upon completion of the separation:

 

   

we will directly or indirectly hold:

 

   

all of the assets owned by the Company or any of its subsidiaries which are reflected on our most recent pro forma combined balance sheet set forth in this information statement, or subsequently-acquired or created assets that would have been reflected on a pro forma balance sheet dated as of the time of the spin-off, and

 

   

all other assets held by us, the Company, or any of our respective subsidiaries used primarily in or that primarily relate to our business on or prior to the distribution date, subject to certain exceptions;

 

   

we will be subject to:

 

   

all outstanding liabilities reflected on our most recent pro forma combined balance sheet set forth in this information statement, or subsequently-incurred or accrued liabilities that would have been reflected on a pro forma balance sheet dated as of the time of the spin-off,

 

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liabilities we have assumed under the master separation agreement, including, generally, any liability arising primarily out of our assets or the operation of our business and a percentage of certain liabilities shared with the Company, and other ancillary agreements.

The master separation agreement provides that assets or liabilities that cannot legally be transferred or assumed prior to the spin-off will be transferred or assumed as soon as practicable following receipt of all necessary consents of third parties and regulatory approvals. In any such case, the master separation agreement provides that the party retaining such assets or liabilities will hold the assets in trust for the use and benefit of, or retain the liabilities for the account of, the party entitled to the assets or liabilities (at the expense of that party), until the transfer or assumption can be completed. The party retaining the assets or liabilities will also take any action reasonably requested by the other party in order to place the other party in the same position as would have existed if the transfer or assumption had been completed.

Except as set forth in the master separation agreement, no party is making any representation or warranty as to the companies’ business, assets or liabilities transferred or assumed as a part of the separation and any assets that may be transferred will be transferred on an “as is, where is” basis. As a result, we and the Company each have agreed to bear the economic and legal risks that any conveyances of assets are insufficient to vest good and marketable title to such capital stock or assets, as the case may be, in the party who should have title under the master separation agreement. The master separation agreement also provides that the spin-off is subject to the conditions described under “The Spin-Off—Spin-Off Conditions and Termination.”

Surety Instruments and Guarantees. The master separation agreement requires that we and the Company use our commercially reasonable efforts to terminate (or have us or one of our subsidiaries substituted for the Company, or the Company or one of its subsidiaries substituted for us, as applicable, under) all existing guarantees by one party of obligations relating to the business of the other party. We also have agreed with the Company that we will use our commercially reasonable efforts and the Company will use its commercially reasonable efforts to replace surety instruments issued by third parties for the account of the Company or any of its subsidiaries or us but on behalf of the others’ business. In the event we or the Company are unable to terminate any such guarantees, or replace existing surety instruments, we or the Company will indemnify the other for any claims or losses pursuant to these instruments. If any such guarantees are not terminated within 24 months of the spin-off, we will or the Company will be required to pay a fee to the other of 0.225% of the amount of the guarantees. In addition, if we undergo a change of control, we may be required to provide the Company with indemnity bonds or letters of credit to enhance our indemnity obligations.

Insurance. The master separation agreement provides that, to the extent permitted by the terms of the applicable policy, we and our directors, officers and employees and the Company, its directors, officers and employees will continue to have (as successors-in-interest) all rights that we and they had immediately prior to the spin-off, with respect to events that occurred prior to the spin-off under any New B&W or Company insurance policy with a third-party carrier. Neither New B&W nor the Company will have any liability if any insurance policy is terminated, is not renewed or extended, or is insufficient or unavailable. In addition, the Company is required to use commercially reasonable efforts to maintain certain “tail coverage.”

Access to Information. Subject to applicable confidentiality provisions and other restrictions, we and the Company will each give each other any information in our possession that the requesting party reasonably needs (1) to comply with requirements imposed on the requesting party by a governmental authority, (2) for use in any proceeding or to satisfy audit, accounting, claims, regulatory, litigation or other similar requirements, (3) to comply with its obligations under the master separation agreement, other ancillary agreements or third party agreements or (4) for any other significant business need as mutually determined in good faith by the parties.

Indemnification and Release. In general, under the master separation agreement, we have agreed to indemnify the Company against certain liabilities to the extent relating to, arising out of or resulting from:

 

   

our failure to discharge any of our liabilities;

 

   

our failure to perform any of our agreements with the Company;

 

   

the operation of our business, whether before or after the spin-off;

 

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any untrue statement or alleged untrue statement of a material fact or material omission or alleged material omission in the registration statement of which this information statement is a part, other than certain information relating to the Company; and

 

   

a percentage of certain liabilities that are to be shared with the Company.

In general, under the master separation agreement, the Company has agreed to indemnify us against certain liabilities from third-party claims to the extent relating to, arising out of or resulting from:

 

   

the failure of the Company to discharge any liability of the Company;

 

   

the failure of the Company to perform any agreement of the Company with us;

 

   

any untrue statement or alleged untrue statement of a material fact or material omission or alleged material omission in the registration statement of which this information statement is part, only for certain information relating to the Company;

 

   

the use by the Company of the New B&W name or similar name in any corporate name or in any of their respective business or operations; and

 

   

a percentage of certain liabilities that are to be shared with us

Under the master separation agreement, we generally release the Company and its successors and assigns, and the Company generally releases us and our successors and assigns, from any liabilities between us or our subsidiaries on the one hand, and the Company or its subsidiaries on the other hand, arising from acts or events occurring on or before the spin-off, including acts or events occurring in connection with the separation or distribution. This release will include the release of substantially all intercompany payables between the Company and us. The general release does not apply to obligations under the master separation agreement or any ancillary agreement, to specified ongoing contractual arrangements or to matters where the serving of such release would result in the release of any third parties.

Noncompetition. Under the master separation agreement, we generally agree not to engage in the Company’s core business for five years in certain territories. The Company also agrees not to engage in our core business for five years in certain territories.

Termination. The master separation agreement provides that it may be terminated at any time before the spin-off by the Company in its sole discretion.

Tax Sharing Agreement

On or before the distribution date, we and the Company will enter into a tax sharing agreement that will govern the respective rights, responsibilities and obligations of the Company and its subsidiaries, and us with respect to taxes and tax benefits, the filing of tax returns, the control of audits and other tax matters. References in this summary description of the tax sharing agreement to the terms “tax” or “taxes” mean taxes as well as any interest, penalties, additions to tax or additional amounts in respect of such taxes.

Our results of U.S. operations and/or those of certain of our subsidiaries are currently reflected in the Company’s consolidated return for U.S. federal income tax purposes and/or certain consolidated, combined and unitary returns for state, local and foreign tax purposes. However, for periods (or portions thereof) beginning after the transaction in which we are separated from the Company and its subsidiaries (the “Separation Transaction”), we generally will not join with the Company and its subsidiaries in any federal, state, local or foreign consolidated, combined or unitary tax returns.

Under the tax sharing agreement, for any tax period (or portion thereof), we will generally be responsible for paying all U.S. federal, state, local and foreign income taxes that are imposed on us and our subsidiaries, and the Company will be responsible for paying all U.S. federal, state, local and foreign income taxes that are imposed on the Company and its subsidiaries.

 

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We and the Company generally will not be required to reimburse one another for the use by one party or its affiliates of tax benefits attributable to the other party or its affiliates. However, we will have an obligation to reimburse the Company, and the Company will have an obligation to reimburse us, for:

 

   

tax benefits arising as a result of an audit or other required adjustment occurring after the date of the Separation Transaction that are attributable to one party or its affiliates and used by the other party or its affiliates during tax periods (or portions thereof) ending on or prior to the date of the Separation Transaction; and

 

   

tax benefits arising after the date of the Separation Transaction that are attributable to one party or its affiliates and that are carried back under applicable tax law and used by the other party or its affiliates during tax periods (or portions thereof) ending on or prior to the date of the Separation Transaction.

Notwithstanding the tax sharing agreement, under U.S. Treasury Regulations, each member of a U.S. consolidated group is severally liable for the U.S. federal income tax liability of each other member of that consolidated group. Accordingly, with respect to periods in which we or our subsidiaries have been included in the Company’s U.S. consolidated group, we and our subsidiaries could be liable to the U.S. Government for any U.S. federal income tax liability incurred, but not discharged, by the Company or its subsidiaries. However, if any such liability were imposed, we would generally be entitled to be indemnified by the Company for tax liabilities attributable to it under the tax sharing agreement.

We or the Company will be responsible for preparing and filing all consolidated, combined and unitary tax returns that include us or our subsidiaries and the Company or its subsidiaries (regardless of when the tax period ends), in accordance with which of us is the taxpayer or tax filer of record. We will be responsible for preparing and filing all tax returns that include solely us or our subsidiaries, and the Company will be responsible for preparing and filing all tax returns that include solely the Company or its subsidiaries. The party that files a tax return will have the authority to respond to and appear in all tax proceedings, including tax audits, involving any taxes or any deemed adjustment to taxes reported on such tax return, although the other party will have certain rights to be consulted and/or to participate in proceedings that may affect its tax liability. The tax sharing agreement further provides for cooperation between us and the Company with respect to tax matters, the exchange of information and the retention of records that may affect the tax liabilities of the parties to the agreement.

To the extent permitted by applicable tax law, we and the Company will treat any payments made under the tax sharing agreement as a capital contribution or distribution (as applicable) immediately prior to the Separation Transaction, and accordingly, as not includible in the taxable income of the recipient.

In the event that the Separation Transaction and/or certain related transactions were to fail to qualify for tax-free treatment, we and the Company would generally share responsibility for all of the tax imposed on us or the Company resulting from such failure. However, if such failure resulted from actions or failures to act by us or our subsidiaries or the Company or its subsidiaries, we or the Company, respectively, would be responsible for such tax.

THIS SUMMARY IS QUALIFIED BY REFERENCE TO THE FULL TEXT OF THE TAX SHARING AGREEMENT, A FORM OF WHICH WILL BE FILED AS AN EXHIBIT TO THE REGISTRATION STATEMENT ON FORM 10 OF WHICH THIS INFORMATION STATEMENT IS A PART.

IP Matters Agreements

In connection with the spin-off, we will enter into agreements with the Company regarding (1) the post spin-off allocation of ownership of intellectual property between the Company on the one hand and us on the other hand and (2) the licensing of certain intellectual property, including know-how, patents, software and copyrights. All ownership transfers and licenses will be made on an “as is, where is” basis, consistent with the approach taken in the master separation agreement. With respect to allocating ownership of intellectual property, we will assign to the Company all of our right, title and interest in and to certain specified intellectual property and the Company will assign to us all of its right, title and interest in and to certain specified intellectual property. We will retain exclusive ownership of such intellectual property and all other intellectual property we own. We will retain all rights in our trademarks, provided that we agree to permit the Company to register trademarks associated with its new corporate name and to refrain from taking any actions to challenge those trademarks.

 

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With respect to licenses of intellectual property, the Company will license to us, rights to utilize the intellectual property currently used in our business that we do not otherwise own and additional specified intellectual property rights. We will license to the Company rights to utilize the intellectual property currently used in the Company’s business that it does not otherwise own and additional specified intellectual property rights. We and the Company will also grant to one another licenses to utilize certain shared intellectual property assets, including shared historical materials. All of the foregoing licenses will be granted on a perpetual royalty-free basis and will be exclusive in favor of the Company in the field of the Company’s core business and in favor of us in the field of our core business, which will be specifically defined in the relevant agreements.

Employee Matters Agreement

On or before the distribution date, we and the Company will enter into an employee matters agreement, which will provide that each of the Company and New B&W will have responsibility for its own employees and compensation plans. The agreement will contain provisions concerning benefit protection for Company employees, treatment of holders of Company stock options, restricted stock units, deferred stock units and performance shares, and cooperation between us and the Company in the sharing of employee information and maintenance of confidentiality.

Treatment of Retirement, Health and Welfare Plans. In general, our employees currently participate in various retirement, health and welfare, and other employee benefit plans. Following the spin-off, we anticipate that our employees will generally continue to participate in the same plans or will participate in similar plans and arrangements that we will establish and maintain. Pursuant to the employee matters agreement, effective as of June 1, 2015, we and the Company will each retain responsibility for our respective employees and benefit and compensation plans.

Treatment of Stock-Based Awards. The employee matters agreement will also provide for the adjustments and replacement awards to be made with respect to options to purchase shares of Company common stock, restricted stock units, deferred stock units and performance shares, as described under “The Spin-Off—Treatment of Stock-Based Awards.”

Transition Services Agreements

On or before the distribution date, we and the Company will enter into transition services agreements under which we and the Company will provide and/or make available various administrative services and assets to each other, for specified periods beginning on the distribution date.

The services the Company expects to provide us include:

 

   

tax services;

 

   

accounting services;

 

   

records management services;

 

   

human resources services;

 

   

utility services;

 

   

legal services; and

 

   

information technology services.

The services we expect to provide to the Company include:

 

   

tax services;

 

   

accounting services;

 

   

records management services;

 

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human resources services; and

 

   

information technology services.

In consideration for such services, we and the Company will each pay fees to the other for the services provided, and those fees will generally be in amounts intended to allow the party providing services to recover all of its direct and indirect costs incurred in providing those services.

The personnel performing services under the transition services agreements will be employees and/or independent contractors of the party providing the service and will not be under the direction or control of the party to whom the service is being provided.

The transition services agreements will also contain customary mutual indemnification provisions.

Any extension or renewal of services under any transition services agreement beyond the period specified with respect to such service will be subject to the mutual agreement of the Company and us.

Insurance Agreements

We (or certain of our affiliates) will enter into the following insurance agreements to transfer liabilities for insurance obligations associated with our operations from the Company to us:

Assumption and Loss Allocation Agreement. On or before the distribution date, New B&W, the Company and ACE American Insurance Company will enter into an assumption and loss allocation agreement related to the deductible reimbursement obligations that the Company has with ACE under its casualty insurance programs. The agreement specifies that ACE will only look to us for reimbursement of losses from our operations and will only look to the Company for reimbursement of losses from the Company’s operations. The agreement also allocates and assigns certain collateral between us and the Company.

Reinsurance Novation and Assumption Agreement. On or before the distribution date, Dampkraft Insurance Company, our captive insurance subsidiary, Creole Insurance Company, the Company’s captive insurance subsidiary, and ACE will enter into a Reinsurance Novation and Assumption Agreement related to reinsurance agreements where Creole reinsured insurance policies written on behalf of the Company. The agreement specifies that ACE will only look to us for payment of reinsurance obligations arising from our operations and only look to the Company for payment of reinsurance obligations from the Company’s operations. The agreement also allocates and assigns certain collateral between us and the Company.

Captive Novation and Assumption Agreement. On or before the distribution date, New B&W, Dampkraft, the Company and Creole will enter into a captive novation and assumption agreement to address how Dampkraft and Creole will manage liabilities attributed to its respective parent company’s obligation to ACE and other insurers as applicable. The agreement transfers liabilities from Creole to Dampkraft based on actuarially determined loss reserves that are specific to our and the Company’s claims history. The agreement also transfers assets from Creole to Dampkraft based on historical premium contributions from us and the Company. The agreement aligns the obligations of Dampkraft and Creole in a manner parallel to the obligations of New B&W and the Company in the assumption and loss allocation agreement.

 

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MANAGEMENT

Directors and Executive Officers

Under Delaware law, the business and affairs of New B&W will be managed under the direction of its board of directors. The New B&W certificate of incorporation and bylaws provide that the number of directors may be fixed by the board from time to time. As of the distribution date, the board of directors of New B&W will consist of the individuals listed below (with their ages as of December 31, 2014), except that Ms. Dubin and Ms. Pramaggiore will be appointed to the board of directors of New B&W on July 1, 2015. The present principal occupation or employment and five-year employment history of each individual (other than Mr. Ferland, our Chairman and Chief Executive Officer, whose employment history is included under the list of our executive officers below) follows the list below.

 

Name Age  

E. James Ferland

  48   

Thomas A. Christopher

  70   

Cynthia S. Dubin

  53   

Brian K. Ferraioli

  59   

Stephen G. Hanks

  64   

Anne R. Pramaggiore

  56   

Larry L. Weyers

  70   

Thomas A. Christopher

Following his retirement in 2009, Mr. Christopher has provided independent consultant services to various energy industry participants. He also teaches a graduate level course in management principles at the University of Pittsburgh. From January 2009 until his retirement in June 2009, Mr. Christopher served as the Vice Chairman of Areva NP Inc. (“Areva”), a commercial nuclear power engineering, fuel and nuclear services company. Previously, he served as Areva’s President and Chief Executive Officer from April 2000 to January 2009 and served on Areva’s global Executive Committee in France from January 2005 until December 2008. Prior to joining Areva in 2000, Mr. Christopher served as Vice President and General Manager of Siemens/Westinghouse Power Services Divisions since August 1998, Vice President and General Manager of Westinghouse Energy Services Divisions from January 1996 until August 1998, and Vice President and General Manager of Westinghouse Global Nuclear Service Divisions from July 1982 until December 1996. Mr. Christopher also spent six years with the U.S. Navy as an officer in the nuclear submarine force, holding the naval reactors engineer certification.

Mr. Christopher is currently a member of the board of directors of EPM Holdings Inc., a nuclear engineering company. He previously served on the Executive Committee of the Board of Directors for the Nuclear Energy Institute from 2004 to 2008.

Mr. Christopher brings an extensive and unique understanding of fossil power operations, the power market and power engineering to the New B&W board of directors. As an energy business executive, he is familiar with our key customers and their investment decision making process. He is also experienced in managing international operations for energy services companies throughout the world. Mr. Christopher’s management experience and technical background in the energy industry make him well qualified to serve on our board of directors.

Cynthia S. Dubin

Since November 21, 2011, Ms. Dubin has served as Finance Director of JKX Oil & Gas plc, a publicly-held oil and gas exploration, development and production company. Prior to joining JKX Oil & Gas plc, she co-founded and served as Chief Financial Officer of Canamens Energy Limited, an oil and gas exploration and production company focused on the Caspian, North Africa, Middle East and North Sea regions, from 2006 to 2011. Prior to joining Canamens Energy Limited, Ms. Dubin served as Vice President and Finance Director, Europe, Middle East and Africa Division for Edison Mission Energy, a U.S. owned electric power generator which developed, acquired, financed, owned and operated reliable and efficient power systems. Ms. Dubin started her career at The Bank of New York and Mitsubishi Bank advising on and lending to large energy projects.

 

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Ms. Dubin brings valuable finance and energy industry experience to the New B&W board as well as a unique understanding of the global and European energy markets. With more than 22 years of experience in the energy sector combined with her financial expertise and her international leadership experience, Ms. Dubin is a valuable addition to our board of directors.

Brian K. Ferraioli

Mr. Ferraioli has served as Executive Vice President and Chief Financial Officer of KBR, Inc., a global engineering, construction and services company supporting the energy, hydrocarbons, power, mineral, civil infrastructure, government services, industrial and commercial markets, since October 2013. Prior to joining KBR, Inc., he served as Executive Vice President and Chief Financial Officer of The Shaw Group, Inc., a former NYSE listed global provider of technology, engineering, procurement, construction, maintenance, fabrication, manufacturing, consulting, remediation, and facilities management services to a diverse client base that includes regulated electric utilities, independent and merchant power producers, government agencies, multinational and national oil companies, and industrial corporations. Mr. Ferraioli was with Shaw from July 2007 until February 2013 when the company was acquired by Chicago Bridge & Iron Company N.V. His earlier positions include Vice President and Controller for Foster Wheeler, AG, a global engineering and construction company and Vice President and Chief Financial Officer of Foster Wheeler USA and of Foster Wheeler Power Systems, Inc.

Mr. Ferraioli has over 35 years of experience in senior level finance and accounting roles in the engineering and construction industry. In addition, his extensive background with publicly traded companies from our peer group makes him a valuable addition to our board of directors.

Stephen G. Hanks

Mr. Hanks is the former President and CEO of Washington Group International, Inc. (“Washington Group”), a global integrated engineering, construction and management services company, which merged with URS Corporation. He also served on its Board of Directors. Mr. Hanks has been retired since January 2008 and serves as a member of the board of directors of Lincoln Electric Holdings, Inc. (since 2006) and McDermott International, Inc. (“McDermott”) (since 2009).

Mr. Hanks brings to the New B&W board of directors valuable operations, industry and legal experience from one of the companies in our peer group through his 30 year background with Washington Group and its predecessor, Morrison Knudsen Corporation. He also provides financial experience, having served as Chief Financial Officer of Morrison Knudsen Corporation, and public company board experience through his service on the boards of Lincoln Electric Holdings, Inc. and McDermott.

Anne R. Pramaggiore

Since February 24, 2012, Ms. Pramaggiore has served as President and Chief Executive Officer of Commonwealth Edison Company (“ComEd”), an electric utility company. Prior to her current position, she served as ComEd’s President and Chief Operating Officer from May 2009 through February 23, 2012. Ms. Pramaggiore joined ComEd in 1998 and previously served as its Executive Vice President, Customer Operations, Regulatory and External Affairs from September 2007 to May 2009, Senior Vice President, Regulatory and External Affairs from November 2005 to September 2007 and Vice President, Regulatory and External Affairs from October 2002 to November 2005. She also served as its Lead Counsel. Ms. Pramaggiore is also a member of the Board of Directors of Motorola Solutions, Inc., where she has served since January 2013. In addition, Ms. Pramaggiore serves as a board member on the Chicago Federal Reserve Board.

Ms. Pramaggiore is a licensed attorney and brings to the New B&W board of directors extensive experience in the utilities industry, as highlighted by her years of service at ComEd. Her experience as a current executive at another public company and her perspective on the technical, regulatory, operational and financial aspects of the industry make her well qualified to serve on our board of directors.

Larry L. Weyers

In March 2010, Mr. Weyers retired as Chairman of Integrys Energy Group, Inc. (previously WPS Resources Corporation), a holding company with operations providing products and services in regulated and

 

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nonregulated energy markets. Previously, he served as its Chairman, President and Chief Executive Officer from February 1998 to December 2008, having joined Wisconsin Public Service Corporation, a utility subsidiary of Integrys Energy Group, Inc., in 1985. From 1998 through 2007, Mr. Weyers used internal growth and acquisitions to increase revenues from $878 million to $10.3 billion, increase income from $53.7 million to $251.3 million, and increase market cap from $808 million to $3.9 billion. The average annual return to shareholders exceeded 10%.

Mr. Weyers has served on boards in banking, hospital administration, electric transmission, the paper industry and insurance. Throughout his career he has served on numerous not-for-profit boards. Since July 2010, he has served as Vice President and Lead Director of the board of directors of Green Bay Packers, Inc., on which he has served since 2003.

Mr. Weyers brings a wealth of experience in the power generation industry to the New B&W board of directors and possesses substantial corporate leadership and governance skills. Having served over 24 years with Integrys Energy Group, Inc., he has extensive knowledge of the utility industry and provides a valuable resource for our power generation operations.

The directors named above who serve as directors of the Company will resign from the Company’s board of directors upon completion of the spin-off.

The individuals listed below (with their ages as of December 31, 2014) are expected to be executive officers of New B&W as of the distribution date. The business address of each of the individuals listed below is c/o Babcock & Wilcox Enterprises, Inc., The Harris Building, 13024 Ballantyne Corporate Place, Suite 700, Charlotte, North Carolina 28277. The present principal occupation or employment and five-year employment history of each individual follows the list below. These individuals will resign from their respective positions with the Company upon completion of the spin-off. Mr. Data is expected to leave New B&W after the spin-off following a transition period.

 

Name

Age

Position

E. James Ferland

48 Chairman and Chief Executive Officer

Jenny L. Apker

57 Senior Vice President and Chief Financial Officer

Mark A. Carano

45 Senior Vice President, Corporate Development and Treasurer

J. Randall Data

49 Senior Advisor to the Chief Executive Officer

Elias Gedeon

55 Senior Vice President and Chief Business Development Officer

Peter J. Goumas

51 Senior Vice President, Operations

J. André Hall

50 Senior Vice President, General Counsel and Corporate Secretary

Daniel W. Hoehn

36 Vice President, Controller and Chief Accounting Officer

Mark S. Low

58 Senior Vice President, Global Services

Wendy S. Radtke

46 Senior Vice President and Chief Human Resource Officer

D. Paul Scavuzzo

51 Senior Vice President, Global Power

Kenneth Zak

56 Senior Vice President, Industrial Environmental

E. James Ferland will serve as our Chairman and Chief Executive Officer following the spin-off. Prior to the spin-off, Mr. Ferland was the Company’s President and Chief Executive Officer since April 2012. Prior to joining the Company, Mr. Ferland served as President of the Americas division for Westinghouse Electric Company, LLC, a nuclear energy company and group company of Toshiba Corporation, from 2010 through March 2012. From 2007 to 2010, Mr. Ferland worked for PNM Resources, Inc., a holding company of utilities providing electricity and energy products and services, where he held positions as Senior Vice President of Utility Operations and Senior Vice President of Energy Resources. Previously, Mr. Ferland held various senior management and engineering positions at Westinghouse Electric Company, Louisiana Energy Services/URENCO, Duke Engineering and Services, Carolina Power & Light and General Dynamics. Mr. Ferland has also served on the board of directors of Actuant Corporation since August 2014.

Mr. Ferland is an experienced executive with a utility leadership background that includes both regulated and merchant operations. He has led organizations that generate power (coal, nuclear, gas, renewables), transmit power and trade power. He also has extensive supplier leadership experience in commercial nuclear power, manufacturing, engineering and field services. With more than 24 years of senior management and engineering experience in diversified industries, he brings valuable perspectives to all industries in which we operate.

 

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Jenny L. Apker will serve as our Chief Financial Officer following the spin-off. Prior to the spin-off, Ms. Apker served as the Company’s Vice President, Treasurer and Investor Relations since August 2012 and, prior to that time, served as the Company’s Vice President and Treasurer since joining the Company in June 2010. Previously, Ms. Apker served as Vice President and Treasurer with Dex One Corporation (formerly R.H. Donnelley Corporation), a marketing services company, from May 2003 until June 2010.

Mark A. Carano will serve as our Senior Vice President, Corporate Development and Treasurer following the spin-off. Prior to the spin-off, Mr. Carano served as Senior Vice President and Chief Corporate Development Officer of the Company since August 2013. Prior to joining the Company in June 2013, Mr. Carano served as a Managing Director in the Investment Banking Group of Bank of America Merrill Lynch since 2006. Mr. Carano also previously held positions with the Investment Banking Group of Deutsche Bank.

J. Randall Data has served as President and Chief Operating Officer of Babcock & Wilcox Power Generation Group, Inc. (“PGG OpCo”), New B&W’s principal operating subsidiary providing boilers, environmental equipment and related services to the power generation industry and other industries, since April 2012, and for a transition period following the spin-off will serve as a senior advisor to the Chief Executive Officer. Mr. Data previously served as Vice President and General Manager of PGG OpCo’s Fossil Power Division from November 2008 until April 2012.

Elias Gedeon will serve as our Senior Vice President and Chief Business Development Officer following the spin-off. Mr. Gedeon currently serves as the Company’s Senior Vice President and Chief Business Development Officer, a position he has held since joining the Company in May 2014. Mr. Gedeon has more than 30 years of experience in the power generation industry and has held various sales, operations and P&L leadership positions in the U.S. and overseas. He joined the Company from Alstom Power, Inc., a subsidiary of energy and transport manufacturer Alstom, where he served as Vice President, Global Sales and Marketing – Boiler Group since 2009 and previously as Vice President of Sales, Americas. Prior to joining Alstom, Mr. Gedeon served in sales and operations roles of increasing responsibility with Foster Wheeler Power Group, Inc., including Executive Vice President, Global Sales & Marketing.

Peter J. Goumas will serve as our Senior Vice President, Operations following the spin-off. From October 2013 to June 2015, Mr. Goumas served as our Vice President and General Manager of Operations. Previously, he served in a number of positions with the Company’s Babcock & Wilcox Nuclear Operations Group, Inc. (“B&W NOG”), including from August 2011 to September 2013 as Vice President, Programs, Contracts and Business Development, where he was responsible for all project management, procurement and contracting across the operations, as well as the business development and strategic planning activities. From May 2010 to July 2011, Mr. Goumas served as Vice President, Manufacturing and Business Development, responsible for B&W NOG’s business units in Barberton and Euclid, Ohio, and Mt. Vernon, Indiana.

J. André Hall will serve as our Senior Vice President, General Counsel and Corporate Secretary following the spin-off. Mr. Hall joined the Company in August 2013 and has served as Assistant General Counsel, Transactions and Compliance since that time. Prior to joining the Company, Mr. Hall served in various roles of increasing responsibility with Goodrich Corporation, an aerospace manufacturing company, most recently as Vice President of Business Conduct and Chief Ethics Officer from October 2009 until July 2012 when it was acquired by United Technologies Corporation. For the five years prior to becoming Chief Ethics Officer, Mr. Hall served as the segment general counsel for one of Goodrich Corporation’s multibillion dollar operating segments.

Daniel W. Hoehn will serve as our Vice President, Controller and Chief Accounting Officer following the spin-off. Mr. Hoehn joined the Company in March 2015 and is responsible for the Company’s accounting functions. Formerly, Mr. Hoehn was Vice President and Controller at Chiquita Brands International, Inc., responsible for financial reporting for Chiquita’s operations across three continents. From 2010 to 2013, he was Assistant Corporate Controller, after serving as Manager, Financial Reporting, from 2007 to 2010. Prior to joining Chiquita, Mr. Hoehn was a senior manager in the audit practice at KPMG, LLP.

Mark S. Low will serve as our Senior Vice President, Global Services segment following the spin-off. From 2013 to March 2015, Mr. Low was Vice President and General Manager of our Global Services Division. Previously, from 2012 to 2013, he was Vice President and General Manager of our Environmental Products and Services Division, responsible for all aspects of our environmental products and services business. From 2007 to 2012, he served as Vice President, Service Projects, in which he led all technical and commercial aspects of our service projects business including project management, forecasting, costing, cost forecasting, and warranty resolution.

 

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Wendy S. Radtke will serve as our Senior Vice President and Chief Human Resources Officer following the spin-off. Ms. Radtke joined the Company in April 2015 to lead the global Human Resources function. From 2012-2015, Ms. Radtke served as Vice President of Talent Management at The Goodyear Tire & Rubber Company, and from 2009 to 2012, she was Vice President, Asia Pacific Human Resources at Goodyear, located in Shanghai, China. Before joining Goodyear, Ms. Radtke spent eight years at Honeywell International where she held a variety of positions with increasing responsibility, including her last role as Vice President of Asia Pacific Human Resources for the Automation Control Solutions business located in Shanghai, China.

D. Paul Scavuzzo will serve as our Senior Vice President, Global Power segment following the spin-off. He is currently responsible for directing our new-boiler and environmental product lines in North America and internationally. Mr. Scavuzzo will also be responsible for our Denmark-based subsidiary, Babcock & Wilcox Volund A/S, our joint venture operations in China and India, as well as our research & development and licensing activities. From March 2012 to March 2015, Mr. Scavuzzo was Vice President and General Manager of our Global Power Division. Previously, from 2009 to 2012, he was Vice President, Steam Generating Systems, responsible for leading the utility and industrial boiler business segment.

Kenneth Zak will serve as our Senior Vice President, Industrial Environmental segment following the spin-off. Since December 2012, Mr. Zak has served as the Senior Vice President of Business Operations for MEGTEC. He is currently responsible for MEGTEC’s Environmental Solutions business worldwide as well as sales and business development activities for the Engineered Products business. Mr. Zak also led the integration team after the MEGTEC acquisition. Previously, from 2003 to 2012, Mr. Zak was Vice President of the Industrial & Environmental Products Group for MEGTEC, responsible for business teams in the Americas and Asia and drove strategy deployment activities and annual improvement priorities on a global basis. Mr. Zak also previously held business development and marketing positions at W. R. Grace & Co. and Owens-Corning Fiberglass.

Board of Directors

Our board of directors will consist of seven directors. The New York Stock Exchange requires that a majority of our board of directors qualify as “independent” according to the rules and regulations of the SEC and the New York Stock Exchange. We will comply with those requirements.

Committees of Our Board of Directors

The committees of our board of directors consist of an Audit and Finance Committee, a Governance Committee and a Compensation Committee.

Each of the Audit and Finance, Governance and Compensation Committees is comprised entirely of independent non-management directors. Our board of directors has adopted a written charter for each committee, which will be posted on our website prior to the distribution date. The members of the committees are identified in the following table.

 

  Board Committee  
      Director       Audit and
Finance
  Compensation   Governance  

E. James Ferland

Thomas A. Christopher

  X      X   

Cynthia S. Dubin(1)

  X      X   

Brian K. Ferraioli

  X      X   

Stephen G. Hanks

  X      X   

Anne R. Pramaggiore(1)

  X      X   

Larry L. Weyers

  X      X   

 

(1)

Ms. Dublin and Ms. Pramaggiore will be appointed to their respective committees on July 1, 2015.

Brian K. Ferraioli is the chairman of the Audit and Finance Committee; Larry L. Weyers is the chairman of the Compensation Committee; and Stephen G. Hanks is the chairman of the Governance Committee.

 

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Audit and Finance Committee. The Audit and Finance Committee’s role will be financial oversight. Our management will be responsible for preparing financial statements, and our independent registered public accounting firm will be responsible for auditing those financial statements. The Audit and Finance Committee will not be providing any expert or special assurance as to our financial statements or any professional certification as to the independent registered public accounting firm’s work.

The Audit and Finance Committee will be directly responsible for the appointment, compensation, retention and oversight of our independent registered public accounting firm. The committee, among other things, will also review and discuss our audited financial statements with management and the independent registered public accounting firm.

Our Audit and Finance Committee will also have primary oversight responsibility for our compliance and ethics program.

Our board has determined that each of Cynthia S. Dubin, Brian K. Ferraioli, Anne R. Pramaggiore and Larry L. Weyers qualifies as an “audit committee financial expert” within the definition established by the SEC.

Compensation Committee. The Compensation Committee will have overall responsibility for our officer compensation plans, policies and programs and will have the authority to engage and terminate any compensation consultant or other advisors to assist the committee in the discharge of its responsibilities. Please see the “Executive Compensation—Compensation Discussion and Analysis” for information about our executive officer compensation.

Governance Committee. The Governance Committee, in addition to other matters, will recommend to our board of directors: (1) the qualifications, term limits and nomination and election procedures relating to our directors; (2) nominees for election to our board of directors; and (3) compensation of non-management directors.

The Governance Committee has determined that a candidate for election to our board of directors must meet specific minimum qualifications. The Governance Committee considers each candidate’s:

 

   

record of integrity and ethics in his/her personal and professional life;

 

   

record of professional accomplishment in his/her field;

 

   

preparedness to represent the best interests of our stockholders;

 

   

personal, financial or professional interest in any competitor of ours; and

 

   

preparedness to participate fully in board activities, including active membership on at least one board committee and attendance at, and active participation in, meetings of the board and the committee(s) of which he or she is a member, and lack of other personal or professional commitments that would, in the Governance Committee’s sole judgment, interfere with or limit his or her ability to do so.

In addition, the Governance Committee also considers it desirable that candidates possess the following qualities or skills:

 

   

each candidate should contribute positively to the collaborative culture among board members; and

 

   

each candidate should possess professional and personal experiences and expertise relevant to our businesses and industries.

While New B&W will not have a specific policy addressing board diversity, the board recognizes the benefits of a diversified board and believes that any search for potential director candidates should consider diversity as to gender, ethnic background and personal and professional experiences.

The Governance Committee will solicit ideas for possible candidates from a number of sources—including members of the board, our senior level executives and individuals personally known to the members of the board.

 

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Any stockholder may nominate one or more persons for election as one of our directors at an annual meeting of stockholders if the stockholder complies with the notice, information and consent provisions contained in our bylaws.

The Governance Committee will consider candidates identified through the processes described above and will evaluate each of them, including incumbents, based on the same criteria. The Governance Committee will also take into account the contributions of incumbent directors as board members and the benefits to us arising from their experience on the board. Although the Governance Committee will consider candidates identified by stockholders, the Governance Committee has sole discretion whether to recommend those candidates to the board.

In conjunction with the Compensation Committee, the Governance Committee will oversee the annual evaluation of our Chief Executive Officer.

Director Compensation

Our nonemployee directors will receive compensation for their service on the board. Initially, the annual retainers and stock-based awards are identical to those for directors of the Company. The cash compensation for our nonemployee directors will consist of the following:

 

   

an annual retainer of $90,000 paid in quarterly installments and prorated for partial terms.

The chairs of board committees and the Lead Director will receive additional annual retainers as follows (pro-rated for partial terms):

 

   

the chair of the Audit and Finance Committee: $20,000;

 

   

the chair of the Compensation Committee: $15,000;

 

   

the chair of the Governance Committee: $15,000; and

 

   

the Lead Director: $25,000.

In addition, our non-management directors will receive annual stock-based awards with a value of $120,000, subject to future adjustments as the Governance Committee and our board of directors may approve.

Our non-management directors will also be reimbursed for any expenses associated with attending board or committee meetings.

Executive Compensation

Our executive compensation program is described in “Executive Compensation—Compensation Discussion and Analysis.”

Compensation Policies and Practices and Risk

The Company’s Compensation Committee has concluded that risks arising from the Company’s compensation policies and practices for the Company employees (including our employees) are not reasonably likely to have a materially adverse effect on the Company. In reaching this conclusion, the Company’s Compensation Committee considered the policies and practices in the following paragraph.

 

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The Company’s Compensation Committee regularly reviewed the design of the Company’s significant compensation programs with the assistance of its compensation consultant. We believe the Company’s compensation programs work to retain and to motivate the Company’s employees at appropriate levels of business risk, which risks are generally mitigated through some of the following features:

 

   

Reasonable and Balanced Compensation Programs — Using the elements of total direct compensation, the Company’s Compensation Committee seeks to provide compensation opportunities for employees targeted at or near the median compensation of comparable positions in the Company’s market. As a result, we believe the total direct compensation of employees provides reasonable compensation opportunities with an appropriate mix of cash and equity, annual and longer-term incentives, and performance metrics.

 

   

Emphasis on Long-Term Incentive Over Annual Incentive Compensation — Long-term incentive compensation, to the extent awarded, typically makes up a larger percentage of an employee’s target total direct compensation than annual incentive compensation. Incentive compensation helps drive performance and align the interests of employees with those of stockholders. By tying a significant portion of total direct compensation to long-term incentives typically over a three-year period, the Company promotes longer-term perspectives regarding company performance.

 

   

Long-Term Incentive Compensation Subject to Forfeiture for Bad Acts — The Company’s Compensation Committee may terminate any outstanding stock award if the recipient (1) is convicted of a misdemeanor involving fraud, dishonesty or moral turpitude or a felony, or (2) engages in conduct that adversely affects or may reasonably be expected to adversely affect the business reputation or economic interests of the Company.

 

   

Most Annual and Long-Term Incentive Compensation Subject to Clawbacks — Since 2011, the Company’s incentive compensation awards have included provisions allowing the Company to recover excess amounts paid to individuals who knowingly engaged in a fraud resulting in a restatement.

 

   

Linear and Capped Incentive Compensation Payouts — The Company’s Compensation Committee establishes financial performance goals that are used to plot a linear payout formula for annual and long-term incentive compensation to avoid an over-emphasis on short-term decision making. The maximum payout for both the annual and long-term incentive compensation is capped at 200% percent of target.

 

   

Use of Multiple and Appropriate Performance Measures — The Company uses multiple performance measures to avoid having compensation opportunities overly weighted toward the performance result of a single measure. In general, the Company’s incentive programs are based on a mix of financial, safety and individual goals. Historically, the Company’s principal financial performance measures have been based on operating income, return on invested capital and earnings per share. In 2014 the Company also added relative total shareholder return as an additional performance measure for its performance restricted stock units. See “The Spin-off—Treatment of Stock-Based Awards” for information on how these performance restricted stock units will be treated in connection with the spin-off. The Company is in the process of evaluating performance measures for 2015. Operating income and return on invested capital maintain the focus on operational performance while earnings per share maintains a focus on longer-term metrics that help drive stockholder value.

 

   

Stock Ownership Guidelines — The Company’s executive officers and directors are subject to stock ownership guidelines, which help to promote longer-term perspectives and align the interests of our executive officers and directors with those of our stockholders.

We expect that the New B&W Compensation Committee will establish similar policies and practices.

Compensation Committee Interlocks and Insider Participation

None of our executive officers have served as members of a compensation committee (or if no committee performs that function, the board of directors) of any other entity that has an executive officer serving as a member of our board of directors.

 

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EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

The following Compensation Discussion and Analysis, or CD&A, provides information relevant to understanding the 2014 compensation of our executive officers identified in the Summary Compensation Table below under the caption “Compensation of Executive Officers,” whom we refer to as our Named Executives. The following discussion also contains statements regarding future individual and company performance targets and goals. These targets and goals are disclosed in the limited context of the Company’s compensation programs and should not be understood to be statements of management’s expectations or estimates of results or other guidance. We caution investors not to apply these statements to other contexts.

Executive Summary

New B&W is currently a wholly owned subsidiary of the Company. Following the spin-off, New B&W will own the subsidiaries that currently conduct the operations of the Company’s Power Generation business. Our executive compensation program has been designed by the Compensation Committee of the Company’s Board of Directors, which for purposes of this CD&A we will refer to as the Compensation Committee. Historically, including during 2014, the Company’s senior management, which included members of New B&W’s senior management, has supported the Compensation Committee in administering the compensation matters related to our Named Executives. Following the spin-off, our executive compensation program will be administered by the Compensation Committee of New B&W’s Board of Directors (the “New B&W Compensation Committee”). The responsibilities of the New B&W Compensation Committee are described in Management–Committees of Our Board of Directors” on the preceding pages.

For purposes of this CD&A, we refer to the following persons as our Named Executives, with their expected titles with New B&W following the spin-off in parentheses:

 

   

E. James Ferland, President and Chief Executive Officer of the Company (Chief Executive Officer of New B&W and Chairman of its Board of Directors)

 

   

Jenny L. Apker, Vice President, Treasurer and Investor Relations of the Company (Senior Vice President and Chief Financial Officer of New B&W)

 

   

Mark A. Carano, Senior Vice President and Chief Corporate Development Officer (Senior Vice President, Corporate Development and Treasurer of New B&W)

 

   

Elias Gedeon, Senior Vice President and Chief Business Development Officer of the Company (same position with New B&W)

 

   

J. Randall Data, Senior Advisor to the Chief Executive Officer (formerly President & Chief Operating Officer, Babcock & Wilcox Power Generation Group, Inc.)

All 2014 executive compensation decisions for our Named Executives prior to the spin-off were or will be made or overseen by the Company’s Compensation Committee. Additionally, all 2014 executive compensation information reflects compensation earned at the Company for each of New B&W’s Named Executives based on their respective roles with the Company during 2014. Executive compensation decisions following the spin-off will be made by the New B&W Compensation Committee. We currently anticipate that, except as otherwise described in this CD&A, compensation programs for our Named Executives immediately following the distribution date will be similar to the programs currently utilized by the Company for its executive officers.

This CD&A provides detailed information and analysis regarding the compensation of our Named Executives as reported in the Summary Compensation Table and other tables located in the “Compensation of Executive Officers” section on the following pages. Following this summary, this CD&A is divided into three sections:

Section 1: Compensation Structure. In this section, we review the Company’s compensation philosophy, elements and processes.

Section 2: Compensation Analysis. In this section, we review the three elements of a Named Executive’s total direct compensation: annual base salary, annual incentive compensation and long-term incentive compensation.

 

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Section 3: Other Benefits and Practices. In this section, we review perquisites, post-employment arrangements and other compensation-related practices.

Highlights of 2014 Executive Compensation

The chart below shows the target total direct compensation of our Named Executives, relative to their primary benchmark (survey median) and, for Mr. Ferland, secondary benchmark (proxy median). No proxy data was identified for Ms. Apker and Messrs. Carano, Data and Gedeon with respect to their positions with the Company.

The 2014 compensation reported for each Named Executive is based on his or her position with the Company in 2014, and therefore does not reflect any promotional increases that he or she may receive upon appointment to his or her new position at New B&W.

2014 Target Total Direct Compensation Summary

 

 

  Named Executive Target Total Direct
Compensation
(TDC)
  2014 TDC
Survey
Median
  2014 TDC
Proxy
Median
  % Difference
from Survey
Median
% Difference
from Proxy
Median

E. James Ferland

$ 6,087,500    $ 6,098,000    $ 7,086,000      0%   -14%

Jenny L. Apker

$ 634,161    $ 497,000      –      28%

Elias Gedeon

$ 900,000    $ 889,768      –        1%

Mark A. Carano

$ 1,079,500    $ 1,074,000      –        1%

J. Randall Data

$ 1,080,250    $ 1,237,000      –      -13%

 

 

The following events and characteristics highlight the Company’s 2014 executive compensation program:

Strong Stockholder Support for Executive Compensation Program – Over 96% of the votes cast at the Company’s 2014 annual stockholders meeting on executive compensation were cast in favor of the Company’s executive compensation program. The Company applied the same compensation principles used in prior year compensation decisions to determine the amount and type of executive compensation for 2014.

Emphasis on Incentive- and Performance-Based Compensation – As a result of the Company’s compensation philosophy, there was an emphasis on annual and long-term incentive compensation when setting target total direct compensation. Annual incentive compensation was cash-based while long-term incentive compensation was stock-based issued in the form of performance restricted stock units (50%), stock options (25%) and time-vested restricted stock units (25%). 100% of the annual incentive compensation and 75% of the target value of long-term incentive compensation were performance-based. As a result, performance-based compensation represented approximately 67% of New B&W’s Chief Executive Officer’s target total direct compensation and 61% of New B&W’s other Named Executives’ average target total direct compensation in 2014. See “-Elements of Executive Compensation” for more information on the elements of total direct compensation.

Updates to the Company’s Custom Peer Group – For 2014 compensation purposes, the Compensation Committee approved changes to the custom peer group it used as a secondary benchmark for determining executive compensation. These changes included the removal of two companies, General Dynamics Corporation and Raytheon Company, that the Compensation Committee determined were no longer appropriate to include due to their relatively high revenues and/or market capitalization. See “–Proxy Data – Custom Peer Group” for more information on benchmarking and the Company’s custom peer group.

Reasonable Pay and Governance Practices

The Compensation Committee adheres and we expect New B&W’s Compensation Committee to adhere to the following practices and policies for Named Executive compensation:

 

   

Use of multiple performance metrics for annual incentive compensation (see “–Annual Incentive Compensation”) and long-term incentive compensation (see “–Long Term Incentive Compensation”);

 

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Dividend equivalents attach to restricted stock units, but are subject to the applicable vesting conditions and do not attach to stock options;

 

   

No repricing of stock options without stockholder approval;

 

   

Limited perquisites and tax reimbursements (see “–Other Benefits and Post-Employment Compensation”);

 

   

No tax reimbursements on change in control benefits;

 

   

Clawback and forfeiture provisions in annual and long-term incentive compensation;

 

   

General prohibition from engaging in hedging transactions; and

 

   

Stock ownership guidelines (see “–Other Compensation Policies/Practices”).

Section 1 – Compensation Structure

Philosophy and Objectives of Executive Compensation

The Compensation Committee seeks to provide reasonable and competitive compensation to executives through programs structured to:

 

   

attract and retain well-qualified executives;

 

   

incent and reward short- and long-term financial and other company performance, as well as individual contributions; and

 

   

align the interests of executives with those of stockholders.

The Compensation Committee also subscribes to a “pay-for-performance” philosophy when designing executive compensation. This means a substantial portion of an executive’s target compensation should be “at risk” and performance-based where the value of one or more elements of compensation is tied to the achievement of financial and/or other measures the Company considers important drivers in the creation of stockholder value. Stock options are granted with an exercise price equal to 100% of the fair market value of the Company’s common stock on the date of grant. As a result, an option’s value is based exclusively on improvements in stock price from the price on the date of grant. For that reason, the Company considers stock options to be performance-based.

Elements of Executive Compensation

To support the compensation philosophy and objectives, the Company’s executive compensation program consists of the key elements identified in the chart below.

 

Element Description / Characteristics Primary Objective(s)

  Total Direct Compensation

Base

Salary

•      Annual fixed cash compensation

•      Attract and retain qualified talent

Annual Incentive

•      Annual variable cash compensation

 

•      Based on a mix of company, safety and individual goals

•      Incent/reward short-term performance

 

•      Promote retention and pay-for- performance

Long-Term Incentive

•      Long-term (typically three years) variable stock-based compensation

 

•      Mix of performance and time-vested awards

•      Incent/reward long-term performance

 

•      Align interest of executive with stockholders

 

•      Promote retention and pay-for- performance

Other Benefits and Post-Employment Compensation

•      Defined contribution and limited defined benefit plans

 

•      Limited perquisites

 

•      Change-in-control agreements and severance plan

•      Promote retention

 

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The Compensation Committee does not set a specific target allocation among the elements of total direct compensation; however, long-term incentive compensation typically represents the largest single element of target total direct compensation and performance-based compensation constitutes the bulk of a Named Executive’s target total direct compensation, as demonstrated in the chart below.

 

LOGO

Determining Named Executive Compensation

Compensation Decisions. The Compensation Committee establishes the target total direct compensation of executives and administers other benefit programs. In connection with that process, it receives support from an outside compensation consultant and management.

Outside Consultant. The Compensation Committee engages Hay Group, Inc. (“Hay Group”) as its outside compensation consultant. Hay Group provides the Compensation Committee with information and advice on the design, structure and level of executive and director compensation and attends Compensation Committee meetings, including executive sessions. Hay Group works with management on various matters for which the Compensation Committee is responsible; however, the Compensation Committee, not management, directs and oversees the retention and activities of Hay Group.

Management. The Company’s Human Resources department, in consultation with the Compensation Committee chair and Hay Group, prepares information and materials for the Compensation Committee relevant to matters under consideration by the committee, including market data provided by Hay Group and recommendations of the Company’s Chief Executive Officer regarding compensation of the other executives. The Compensation Committee works directly with Hay Group on the Company’s Chief Executive Officer’s compensation. The Company’s Chief Executive Officer and senior Human Resources personnel attend committee meetings and, as requested by the Compensation Committee, participate in deliberations on executive compensation (except in respect to their own compensation). No member of the Company’s management attends executive sessions of the Compensation Committee, unless at the direction of the committee.

Stockholder Vote on Executive Compensation. Stockholders have the opportunity to cast an annual advisory vote on the compensation of the Company’s Named Executives. At the Company’s 2014 annual meeting of stockholders, over 96% of the votes cast at that meeting on the executive compensation proposal were voted in favor of the Company’s executive compensation. The Compensation Committee believes the result of that vote affirms stockholders’ support of the Company’s philosophy and approach to executive compensation. Accordingly, although target total direct compensation was set before the advisory vote was held, no changes were made to 2014 compensation as a result of the vote.

 

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Target Median Compensation. The Compensation Committee believes compensation is competitive at or near the median compensation paid for comparable positions. Accordingly, the Compensation Committee seeks to set target compensation for each element of total direct compensation at approximately +/-15% of the median compensation determined through benchmarking. In this CD&A, compensation within this +/-15% range is referred to as “median range”. The Compensation Committee may adjust target compensation, including setting it outside the median range, to account for a Named Executive’s performance, tenure, experience, internal equity and other factors or situations that are not typically captured by looking at standard market data and practices that the Compensation Committee may deem relevant to the appropriateness and/or competitiveness of the compensation of a Named Executive. The compensation actually earned by a Named Executive, however, may be outside the median range targeted, depending on the achievement of performance goals, fluctuations in the Company’s stock price and/or satisfaction of vesting conditions.

Benchmarking. To identify median compensation for use in setting annual base salary, target annual incentive and target long-term incentive compensation, the Compensation Committee engages in “benchmarking” – a practice of reviewing the compensation of comparable positions at other companies as a reference point for compensation decisions for our Named Executives. The specific performance measures and goals used in performance-based compensation are designed for the principal purpose of supporting goals and strategies specific to us and/or driving the creation of shareholder value, and, as a result, are not generally benchmarked.

During the Compensation Committee’s annual review of executive compensation, Hay Group provided the Compensation Committee with an analysis comparing prior year executive target compensation to compensation for comparable positions at the 25th, 50th (median) and 75th percentiles using Hay Group survey data and, as applicable, data from public company proxy statements.

Survey Data. Hay Group’s Industrial Executive Compensation Survey served as the Compensation Committee’s primary benchmark for executive compensation in 2014. This survey represented Hay Group’s proprietary annual compensation survey tracking 2013 executive compensation from over 300 general industry organizations. Hay Group adjusted the compensation of the applicable survey group to bring it current. They also adjusted the data using regression analysis based on revenues to account for the size of the Company’s operations relative to the organizations comprising the survey. The component companies comprising the 2013 Hay Group survey are determined by Hay Group without input from the Compensation Committee.

Proxy Data. As a supplement to the survey data, the Compensation Committee also reviewed the compensation of similarly situated executives from a custom peer group. The custom peer group used for 2014 executive compensation consisted of 16 companies with whom the Company competes for executive talent from the engineering and construction, aerospace and defense, heavy electrical equipment and industrial machinery industries. In 2013, the Compensation Committee approved changes to the Company’s custom peer group, including removing two companies with higher revenue and/or market capitalization relative to the Company and the other companies in the Company’s custom peer group. This updated custom peer group consisted of the companies listed at the end of this CD&A.

Compensation information from this group represented the actual, non-regressed 2012 compensation reported in 2013 publicly available Securities and Exchange Commission filings. This compensation information was generally higher than the compensation for comparable positions reported by the survey data. Additionally, with only 16 companies, the proxy data represented information from a limited sample size, particularly for executive positions other than chief executive officer and chief financial officer. Because the Company competes with the custom peer companies for executive talent, the Compensation Committee reviewed the applicable proxy data when setting target compensation for our Named Executives; however, the proxy data was not weighted in the determination of median compensation, except to the extent any of the Company’s custom peer companies were also a component company in Hay Group’s Industrial Executive Compensation Survey. Accordingly, unless otherwise indicated, references in this CD&A to “median” or “median range” are references to survey data.

Section 2 – Compensation Analysis

2014 Target Total Direct Compensation Overview

The chart below shows the 2014 target total direct compensation for each Named Executive. The 2014 target total direct compensation for each of our Named Executives was within the survey range applicable to the

 

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executive in their respective positions with the Company, except in the case of Ms. Apker. The Compensation Committee set Ms. Apker’s target total direct compensation outside the survey range to account for the value of her role within the Company’s senior management team, which was not otherwise reflected in the survey data.

In November 2014, the Company entered into retention agreements with certain of our senior executives, including Ms. Apker, and Messrs. Ferland, Carano and Gedeon to promote management focus on completing the proposed spin-off and continuity in the leadership of the Company and New B&W. In addition, the Company and New B&W entered into an employment agreement with Mr. Ferland in connection with his expected appointment as Chief Executive Officer of New B&W upon completion of the proposed spin-off and a severance agreement with Mr. Data in connection his expected departure from New B&W following the spin-off. Except as indicated, discussions on the following pages regarding the elements of 2014 total direct compensation do not reflect the compensation provided in these retention, employment and severance arrangements, which are discussed separately. See “–Spin-off Retention, Employment and Severance Arrangements” for more information on these arrangements.

The target total direct compensation reported for each Named Executive is based on their position with the Company in 2014, and therefore does not reflect any promotional increases that he or she may receive upon appointment to his or her position at New B&W.

2014 Target Total Direct Compensation

 

   
  Named Executive Annual Base
Salary
  Annual Incentive   Long-Term
Incentive
  Target Total Direct
Compensation
 

E. James Ferland

$ 950,000    $ 937,500    $ 4,200,000    $ 6,087,500   

Jenny L. Apker

$ 290,000    $ 129,161    $ 215,000    $ 634,161   

Elias Gedeon(1)

$ 375,000    $ 225,000    $ 300,000    $ 900,000   

Mark A. Carano

$ 410,000    $ 244,500    $ 425,000    $ 1,079,500   

J. Randall Data

$ 365,000    $ 215,250    $ 500,000    $ 1,080,250   
   

(1) To aid in the comparison to our other Named Executives, Mr. Gedeon’s target total direct compensation excludes the value of a one-time sign-on bonus he received in connection with joining the Company in May 2014 and the Annual Incentive Amount reported for Mr. Gedeon is based on his full year base salary. His actual 2014 annual incentive pay-out was pro-rated from the date he commenced employment with the Company on May 1, 2014.

Annual Base Salary

In February 2014, the Compensation Committee approved the base salaries (other than for Mr. Gedeon) indicated in the table below, effective April 1, 2014. The Compensation Committee approved Mr. Gedeon’s base salary in May 2014 in connection with him commencing employment with the Company.

2014 Annual Base Salary

 

                                             
  Named Executive 2013 Salary   2014 Salary   Survey Median   % Variance
from Median
(Survey)
  Median (Proxy)  

Mr. Ferland

$ 900,000    $ 950,000    $ 1,022,000      -7 $ 1,050,000   

Ms. Apker

$ 278,100    $ 290,000    $ 251,000      16   –     

Mr. Gedeon

  N/A    $ 375,000    $ 351,687      7   –     

Mr. Carano

$ 400,000    $ 410,000    $ 395,000      4   –     

Mr. Data

$ 340,000    $ 365,000    $ 411,000      -11   –     
   

The base salaries for Ms. Apker and Messrs. Ferland, Carano, Gedeon and Data were set within or near the median range applicable to their respective positions.

 

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Annual Incentive Compensation

Overview and Design. The Company pays annual incentives to drive the achievement of key business results and to recognize individuals based on their contributions to those results. The Compensation Committee administers annual incentive compensation for our Named Executives through the Company’s Executive Incentive Compensation Plan (“EICP”). The EICP is a cash-based incentive plan that was previously approved by Company stockholders. The 2014 EICP design contained the following principal elements, which were unchanged from 2013:

 

Performance Measure

 

  Target
  Weighting

 

  Payout
  Range

 

LOGO

 

  Financial

 

•      Operating Income

 

•      Return on Invested Capital

 

  70%

 

•      45%

 

•      25%

 

  0-200%

  Safety

 

  10%

 

Individual

 

  20%

 

The amount paid under the EICP for 2014 can be illustrated by the following formula:

Earnings from Salary        x        Target %        x        Total Payout % (0 – 200%)

Summary of EICP Payments. The total payout percentage represents the combined results of applicable financial, individual and safety performance. To prioritize financial results, however, financial performance determined the maximum amount each Named Executive could earn under the EICP in 2014. A Named Executive would earn less than the maximum amount if he or she did not meet applicable individual performance and safety goals. The following table indicates the maximum amount eligible to be earned by our Named Executives and the actual amounts paid under the EICP for 2014 after factoring in individual and safety results.

 

                                          
  Named Executive 2014 Earnings
from Salary
x   Target
  Percentage
x   Weighted
  Financial
  Performance
  Percentage
=   Eligible 
  Amount
    Actual Payout
  for 2014
  Performance
 

Mr. Ferland

$937,500   100%   133.64%   $     1,252,875      $   1,090,031   

Ms. Apker

$287,025     45%   133.64%   $ 172,611      $ 162,252   

Mr. Gedeon(1)

$250,000     60%   133.64%   $ 200,460      $ 184,425   

Mr. Carano

$407,500     60%   133.64%   $ 326,750      $ 313,669   

Mr. Data

$358,750       60%     108.21%     $ 232,922      $ 214,281   
   

  (1) Mr. Gedeon’s 2014 annual incentive pay-out was pro-rated from the date of his May 1, 2014 start date.

Analysis of Target Percentage. The Compensation Committee set the target percentages indicated in the table above in February 2014 (May 2014 in the case of Mr. Gedeon). The following table shows the 2014 target annual incentive compensation for each Named Executive based on the executive’s target percentage and projected 2014 earnings from salary, relative to his or her benchmark.

 

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2014 Target Annual Incentive Compensation

 

 

 

  Named

  Executive

EICP Target(1)   Median (Survey)   % Variance from Median  
(Survey)
  Median (Proxy)  

Mr. Ferland

$ 937,500    $     1,070,000    -12%   $ 1,193,000   

Ms. Apker

$ 129,161    $ 112,000    15%   N/A   

Mr. Gedeon

$ 225,000    $ 186,394    21%   N/A   

Mr. Carano

$ 244,500    $ 227,000      8%   N/A   

Mr. Data

$ 215,250    $ 280,000    -23%   N/A   
   

  (1) Each Named Executive’s EICP target compensation was based on his or her projected earnings from salary during 2014. Accordingly, changes in annual base salary during 2014 would cause the actual annual incentive compensation payout at target performance for those Named Executives to differ from the executive’s EICP target indicated above. Mr. Gedeon’s target EICP was based on his full-year base salary, although his actual pay-out was pro-rated from the date he commenced employment with the Company on May 1, 2014.

With the exception of Messrs. Gedeon and Data, 2014 target annual compensation of each Named Executive was within the median range of the applicable benchmark. With respect to Mr. Gedeon, the Compensation Committee set his initial 2014 EICP target percentage at the same percentage as most of the Company’s other Senior Vice Presidents for internal equity purposes. Mr. Data’s target percentage was set at the same level as the Company’s other group presidents for internal equity purposes.

Analysis of Financial Goals and Weighted Financial Performance Percentage. In February 2014, the Compensation Committee established threshold, target and maximum goals for each financial measure used in annual incentive compensation. The results of these financial goals were combined to determine the Weighted Financial Performance Percentage. For Ms. Apker and Messrs. Ferland, Carano and Gedeon, the 2014 EICP financial goals consisted of the following components and target weightings (the target weightings are expressed as a percentage of the 70% attributable to financial goals at target):

 

   

consolidated operating income (45%); and

 

   

consolidated return on invested capital (25%).

For Mr. Data, the 2014 EICP financial goals consisted of the following components and target weightings (expressed as a percentage of the 70% attributable to financial goals at target):

 

   

consolidated operating income (25%);

 

   

applicable business unit operating income (20%); and

 

   

consolidated return on invested capital (25%).

The Compensation Committee uses both operating income and return on invested capital as performance measures to help maintain a balanced focus on income statement and balance sheet performance. Operating income is a measure of profitability, which the Compensation Committee expects to be a primary driver of stock price while also promoting accountability of management decisions within the Company’s operations. Use of return on invested capital is intended to maximize the utilization of company assets.

The 2014 results attained for each financial performance measure applicable to our Named Executives are shown in the following tables:

Financial Performance Results for Ms. Apker and Messrs. Ferland, Carano and Gedeon

 

Company Operating Income (139% x 45/70)

  89.36%   

Company ROIC (124% x 25/70)

  44.29%   

Weighted