10-K 1 bw-12312015x10k.htm 10-K 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2015
OR
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                     to                    
Commission File Number 001-36876
BABCOCK & WILCOX ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
 
47-2783641
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)
THE HARRIS BUILDING
13024 BALLANTYNE CORPORATE PLACE
SUITE 700
CHARLOTTE, NORTH CAROLINA
 
28277
(Address of Principal Executive Offices)
 
(Zip Code)
Registrant's Telephone Number, Including Area Code: (704) 625-4900
Securities Registered Pursuant to Section 12(b) of the Act:
 
Title of each class
 
Name of each Exchange
on which registered
Common Stock, $0.01 par value
 
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes ¨     No  þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.    Yes  ¨    No  þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  þ    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  þ    No  ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
 
 
 
 
 
 
 
 
Large accelerated filer
 
¨
  
Accelerated filer
 
¨
Non-accelerated filer
 
þ
  
Smaller reporting company
 
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  þ
The aggregate market value of the registrant's common stock held by non-affiliates of the registrant on the last business day of the registrant's most recently completed second fiscal quarter (based on the closing sales price on the New York Stock Exchange on June 30, 2015) was approximately $1.1 billion.
The number of shares of the registrant's common stock outstanding at January 31, 2016 was 51,992,669.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's proxy statement for the 2016 Annual Meeting of Stockholders are incorporated by reference into Part III of this Form 10-K.




BABCOCK & WILCOX ENTERPRISES, INC.
INDEX - FORM 10-K
 
 
 
 
 
PAGE
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

i


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


ii


PART I
 
Item 1.    BUSINESS
Overview
In this annual report on Form 10-K, unless the context otherwise indicates, "B&W," "we," "us," the "Company" and "our" mean Babcock & Wilcox Enterprises, Inc. and its consolidated and combined subsidiaries.
On June 8, 2015, the board of directors of The Babcock & Wilcox Company (now known as BWX Technologies, Inc.) ("BWC" or the "former Parent") approved the spin-off of B&W through the distribution of shares of B&W common stock to holders of BWC common stock. The distribution of B&W common stock was made on June 30, 2015, and consisted of one share of B&W common stock for every two shares of BWC common stock to holders of BWC common stock as of 5:00 p.m. New York City time on the record date, June 18, 2015. Cash was paid in lieu of any fractional shares of B&W common stock. On June 30, 2015, B&W became a separate publicly traded company, and BWC did not retain any ownership interest in B&W. We filed our Form 10 describing the spin-off with the Securities and Exchange Commission, which was declared effective on June 16, 2015. The spin-off is further described in Note 1 to the consolidated and combined financial statements included in Item 8.
B&W is a leading technology-based provider of advanced fossil and renewable power generation and environmental equipment that includes a broad suite of boiler products and environmental systems, and services for power and industrial uses. We specialize in technology and engineering for power generation and various other industries, the related procurement, erection and specialty manufacturing of equipment, and the provision of related services, including:
high-pressure equipment for energy conversion, such as boilers fueled by coal, oil, bitumen, natural gas, and 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 specialty 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.
We 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 Babcock & Wilcox MEGTEC Holdings, Inc. ("MEGTEC"), which we acquired on June 20, 2014. See Note 17 in our consolidated and combined financial statements included in Item 8 for additional information about our segments.
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 United States 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;
overall strength of the industrial industry; 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 Business Strategies
As a new and independent company, B&W continues 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 continues to provide a comprehensive platform of aftermarket services to a large global installed base of power generation facilities. In addition, B&W is a leading provider of technology and services in the growing market for industrial environmental systems. Across all of our capabilities, we continue to specialize in engineering, specialty manufacturing, procurement and erection of equipment and technology for a large and global customer base.
We operate in three segments: Global Power, Global Services and Industrial Environmental. In general, we operate in capital-intensive industries and rely on large contracts for a substantial amount of our revenues.
Our strategy as an independent company focuses on four important areas:
enhancing the efficiency of 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 operation presences in regions around the world where we expect continued demand growth for both 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.
Business Segments
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, specialty manufacturing, construction and commissioning. Our boilers include utility boilers and industrial boilers fired with coal 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 and waste heat boilers.
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

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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.
Our Global Power segment generated revenues of $640.0 million, $471.9 million and $712.5 million in 2015, 2014 and 2013, respectively, which was 36.4%, 31.8% and 40.3% of our total revenues in those years, respectively.
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.
Our Global Services segment generated revenues of $933.6 million, $908.7 million and $1,055.2 million in 2015, 2014 and 2013, respectively, which was 53.1%, 61.1% and 59.7% of our total revenues in those years, respectively.
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.
Our Industrial Environmental segment generated revenues of $183.7 million and $105.4 million in 2015 and 2014, respectively, which was 10.5% and 7.1% of our total revenues in those years, respectively.
Acquisition
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 our environmental products and solutions offerings. See Note 3 to our consolidated and combined financial statements included in Item 8 for additional information.
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.
Babcock & Wilcox Beijing Company, Ltd. ("BWBC") We own equal interests in this entity with Beijing Jingcheng Machinery Electric Holding Company, Ltd. BWBC 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. BWBC expands our markets internationally and provides additional capacity to our boiler products.
Thermax Babcock & Wilcox Energy Solutions Private Limited ("TBWES") 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 TBWES our technology for subcritical boilers 300 MW and larger, highly efficient supercritical boilers and coal pulverizers. In 2013, TBWES finalized construction of a facility in India designed to produce parts for up to 3,000 MW of utility boiler capacity per year.
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

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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.
Other Project Related Ventures From time to time, we partner with other companies to better meet the needs of our customers, which can result in project-related joint venture entities. Examples of this include BWM Ottumwa Environmental Partners, where we formed a joint venture with Burns & McDonnell Engineering Company, Inc., to engineer, procure, and construct environmental control systems for the Ottumwa Generating Station, a United States based project that was substantially completed in 2014. We also formed BWL Energy Ltd. with Lagan to complete the construction of the Teeside waste wood fired boiler project in the United Kingdom. This joint venture combines our expertise in the waste-to-energy power plant design, engineering, procurement and construction with our partner's civil construction capability to provide a full turnkey product to our customer.
Contracts
We execute our contracts through a variety of methods, including fixed-price, cost-plus, target price cost incentive, cost-reimbursable or some combination of these methods. Contracts are usually awarded through a competitive bid process. Factors that customers may consider include price, technical capabilities of equipment and personnel, plant or equipment availability, efficiency, safety record and reputation.
Fixed-price contracts are for a fixed amount to cover all costs and any profit element for a defined scope of work. Fixed-price contracts entail more risk to us because they require us to predetermine both the quantities of work to be performed and the costs associated with executing the work. For further specification see "Risk Factors Related to Our Business – 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" as outlined in Item 1A of this report.
We have contracts that extend beyond one year. Most of our long-term contracts have provisions for progress payments. We attempt to cover anticipated increases in labor, material and service costs of our long-term contracts either through an estimate of such changes, which is reflected in the original price, or through risk-sharing mechanisms, such as escalation or price adjustments for items such as labor and commodity prices.
We generally recognize our contract revenues and related costs on a percentage-of-completion basis. Accordingly, we review contract price and cost estimates regularly as the work progresses and reflect adjustments in profit proportionate to the percentage of completion in the period when we revise those estimates. To the extent that 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 arrangements with customers frequently require us to provide letters of credit, bid and performance bonds or guarantees to secure bids or performance under contracts, which may involve significant amounts for contract security.
In the event of a contract deferral or cancellation, we generally would be entitled to recover costs incurred, settlement expenses and profit on work completed prior to deferral or termination. Significant or numerous cancellations could adversely affect our business, financial condition, results of operations and cash flows.
Other sales, such as parts and certain aftermarket service activities, are not in the form of long-term contracts, and we recognize revenues as goods are delivered and work is performed.
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. Additionally, because we operate globally, our backlog is impacted by changes in foreign currencies.

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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.
We do not include the value of our unconsolidated joint venture contracts in backlog. See Note 4 to the consolidated and combined financial statements included in this annual report for financial information on our equity method investments.
Our backlog at December 31, 2015 and 2014 was as follows: 
 (Dollars in millions)
December 31, 2015
 
December 31, 2014
Global Power
$
1,118

 
48
%
 
$
946

 
42
%
Global Services
1,143

 
49
%
 
1,229

 
55
%
Industrial Environmental
66

 
3
%
 
72

 
3
%
Total backlog
$
2,328

 
100
%
 
$
2,248

 
100
%
Of the December 31, 2015 backlog, we expect to recognize approximate revenues as follows:
 (Dollars in millions)
2016
 
2017
 
Thereafter
 
Total
Global Power
$
548

 
$
229

 
$
341

 
$
1,118

Global Services
445

 
96

 
603

 
1,143

Industrial Environmental
65

 

 
2

 
66

Total backlog
$
1,058

 
$
325

 
$
946

 
$
2,328

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 Europe. Our joint ventures in China and India primarily serve the power generation needs of their local domestic and other utility markets, but both joint ventures participate as manufacturing partners on certain of our foreign projects. We also expanded a manufacturing facility in Mexico during 2015 to serve the North American market. The functional currency of these entities is not the United States dollar, and as a result, we are subject to exchange rate fluctuations that impact our financial position, results of operations and cash flows. For additional information on the geographic distribution of our revenues, see Note 17 to our consolidated and combined financial statements included in Item 8 of this annual report.
Customers
We provide our products and services to a diverse customer base that includes utilities and other power producers located around the world.We have no customers that individually accounted for more than 10% of our consolidated and combined revenues in the years ended December 31, 2015, 2014 or 2013.
Competition
With 149 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 GE, Doosan, Babcock Power, Inc., Amec Foster Wheeler, CNIM Group, Hitachi Zosen Corporation and MH Power Systems, Ltd.; a variety of engineering and construction companies with 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 generating 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.

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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 December 31, 2015, we had approximately 5,700 employees worldwide, not including 2,500 joint venture employees. Of our hourly employees, approximately 1,200 are union-affiliated, covered by seven union agreements related to active facilities in Ohio, Mississippi, Wisconsin, Mexico, Denmark, and Scotland, of which two expire in 2016 and the remainder in 2017 or 2018. We consider our relationships with our employees and unions to be in good standing.
Patents and Licenses
We currently hold a large number of United States 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.
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. Research and development activities totaled $16.5 million $18.5 million and $21.0 million in the years ended December 31, 2015, 2014 and 2013, respectively.
Permits and Licenses
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.
Environmental
We have been identified as a potentially responsible party at various cleanup sites under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("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.
Executive Officers of Registrant
For a listing of our executive officers, see Part III, Item 10 of this annual report.
***** Cautionary Statement Concerning Forward-Looking Information *****
This annual report, including Management's Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. You should not place undue reliance on these statements. Statements that include

6


the words "expect," "intend," "plan," "believe," "project," "forecast," "estimate," "may," "should," "anticipate" and similar statements of a future or forward-looking nature identify forward-looking statements.
These forward-looking statements address matters that involve risks and uncertainties and include statements that reflect the current views of our senior management with respect to our financial performance and future events with respect to our business and industry in general. There are or will be important factors that could cause our actual results to differ materially from those indicated in these statements. If one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what we anticipate. 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; 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 set forth under Part I, Item 1A "Risk Factors" in this annual report.
These factors are not necessarily all the factors that could affect us. We assume no obligation to revise or update any forward-looking statement included in this annual report for any reason, except as required by law.
Available Information
Our website address is www.babcock.com. We make available through the Investor Relations section of this website under "SEC Filings," free of charge, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, our proxy statement, statements of beneficial ownership of securities on Forms 3, 4 and 5 and amendments to those reports as soon as reasonably practicable after we electronically file those materials with, or furnish those materials to, the Securities and Exchange Commission (the "SEC"). You may read and copy any materials we file with the SEC at the SEC's Public Reference Room at 100 F Street, NE, Washington, DC 20549. You may obtain information regarding the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains a website at www.sec.gov that contains reports, proxy and annual reports, and other information regarding issuers that file electronically with the SEC. We have also posted on our website our: Corporate Governance Principles; Code of Business Conduct; Code of Ethics for our Chief Executive Officer and Senior Financial Officers; Board of Directors Conflicts of Interest Policies and Procedures; Management, Board Members and Independent Director Contact Information; By-laws; and charters for the Audit & Finance, Governance, Compensation and Safety & Security Committees of our Board.
Item 1A.    RISK FACTORS
You should carefully consider each of the following risks and all of the other information contained in this annual report. Some of these risks relate principally to our spin-off from our former Parent, 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.

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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 affecting industry 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.
We estimate that 50%, 57% and 64% of our consolidated revenues in 2015, 2014 and 2013, respectively, was related to coal-fired power plants. 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 United States 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 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

8


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;
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.
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.

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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.
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 are increasingly dependent on information technology networks and systems, including the Internet, to process, transmit and store electronic and financial information, to manage and support a variety of business processes and activities and to comply with regulatory, legal and tax requirements. We have been, and will likely continue to be, subject to cyber-based attacks and other attempts to threaten our information technology systems. A cyber-based attack could include attempts to gain unauthorized access to our proprietary information and attacks from malicious third parties using sophisticated, targeted methods to circumvent firewalls, encryption and other security defenses, including hacking, fraud, trickery or other forms of deception. If any of our significant information technology systems suffer severe damage, disruption, or shutdown and our business continuity plans do not effectively resolve the issues in a timely manner, the services we provide to customers, the value of our investment in research and development efforts and other intellectual property, our product sales, financial condition, results of operations and stock price may be materially and adversely affected, and we could experience delays in reporting our financial results. In addition, there is a risk of business interruption, litigation risks, and reputational damage from leakage of confidential information. The costs related to cyber or other security threats or disruptions may not be fully insured or indemnified by other means.
In order to address risks to our information systems, we continue to make investments in technologies and training of Company personnel. 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

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disruptions, if not anticipated and appropriately mitigated, could have a material adverse effect on our financial condition, results of operations and stock price.
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.
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.
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 December 31, 2015, we had $302.7 million in letters of credit and bank guarantees and $541.7 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;
limiting our ability to repurchase shares of our common stock; 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. If we are unable to complete acquisitions or to successfully integrate and develop acquired businesses, our financial results could be materially and adversely affected. Moreover, we may incur asset impairment charges related to acquisitions that reduce our profitability.
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, or at all. 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. Any of these factors could affect our sales, financial condition, and results of operations.
Our business strategy 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, in part, 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, our ability to license or purchase new technologies from third parties, 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 revenues 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.
Our wholly owned captive insurance subsidiary provides 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 United States Bankruptcy Code, to channel

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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 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.
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;
taxation of foreign earnings;
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.

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Our business and our customers' businesses are required to obtain, and to comply with, national, state and local government permits and approvals.
Our business and our customers' businesses are 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 or our customers may be required to obtain additional operating permits or approvals. Our inability or our customers' inability to obtain, and to comply with, the permits and approvals required for our business could have a material adverse effect on us.
Our operations are subject to various environmental laws and legislation that may become more stringent in the future.
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.
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 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.
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 in the past 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

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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 could be adversely affected by violations of the United States Foreign Corrupt Practices Act.
The United States Foreign Corrupt Practices Act (the "FCPA") generally prohibits companies and their intermediaries from making improper payments to non-United States government 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 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 $(0.2) million, $8.7 million and $18.4 million to equity in income (loss) of investees for the years ended December 31, 2015, 2014 and 2013, 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.
Our joint ventures located in countries outside of the United States are subject to various risks and uncertainties associated with emerging markets, including bribery and corruption, changes in laws, rules and regulations, fluctuations in demand, labor unrest, and the impact of regional and global business conditions generally. To the extent any of these factors has a material adverse impact on the joint venture or its future operations, our investment may become impaired. With respect to each joint venture, we, or our joint venture partner, may decide to change the strategic direction of the joint venture, which could adversely affect its sales, financial condition, and results of operations. 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. At December 31, 2015, our total investment in joint ventures was $92.2 million, which included $14.9 million related to a joint venture in India and $61.0 million related to a joint venture in China. In the third quarter of 2014, we issued a letter of credit with a four year term totaling approximately $10 million in support of a bank loan borrowed by TBWES. TBWES is an unconsolidated affiliate and the letter of credit can be drawn if TBWES defaults on the loan.

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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 froze pension plan benefit accruals at the end of 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.
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 existing 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 December 31, 2015, our defined benefit pension and postretirement benefit plans were underfunded by approximately $314.0 million. We also participate in various multi-employer pension plans in the United States 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 United States 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 8 to the consolidated and combined financial statements included in Item 8 in this annual report 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. Our revenues derived from operations located outside of the United States represented approximately 41%, 37% and 35% of total revenues

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for the years ended December 31, 2015, 2014 and 2013, 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 United States 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 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 our 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, tornadoes, 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 tornadoes.
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 our 2015 Spin-Off from our Former Parent
We may be unable to achieve some or all of the benefits that we expect to achieve from our separation from BWC.
As an independent public company, we believe that we are able to more effectively focus on our operations and growth strategies than we could as a segment of BWC prior to the spin-off. However, following our separation from BWC in the spin-off, 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 BWC, we previously benefitted from BWC's financial resources. Because BWC's other operations will no longer be available to offset any volatility in our results of operations and cash flows and BWC'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.
Our historical audited consolidated and 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 consolidated and combined financial information included in this annual report for periods prior to July 1, 2015 does not necessarily reflect what our financial condition, results of operations or cash flows would have

18


been as an independent public company during such periods 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 consolidated and combined financial results reflect allocations of expenses for services historically provided by BWC, 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 consolidated and combined financial statements;
the historical audited consolidated and 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 BWC, including the costs related to being an independent company; and
the historical audited consolidated and combined financial information does not reflect the effects of some of the liabilities that have been assumed by B&W and does reflect the effects of some of the assets that have been transferred to, and liabilities that have been assumed by, BWC, including the assets and liabilities associated with BWC's Nuclear Energy segment, which were previously part of B&W and were transferred to BWC prior to the spin-off.
Please refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in Part II, Item 7, and the consolidated and combined financial statements included in Item 8 of this annual report.
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 BWC'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.
As a result of the June 30, 2015 spin-off, we no longer have access to BWC's infrastructure, and have established our own business functions. However, we currently pay BWC for certain services on a cost-allocation basis. BWC continues to provide some of these services to us on a transitional basis, pursuant to transition services agreements we entered into with BWC. At the end of this transition period, which will be no longer than 18 months, we will need to perform these services ourselves or hire third parties to perform these services on our behalf. The costs associated with performing or outsourcing these services may exceed those charged by BWC when we were part of BWC or during the transition period. A significant increase in the costs of performing or outsourcing these services 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 are subject following the spin-off and may strain our resources.
Our financial results were included within the consolidated results of BWC, and we believe that our reporting and control systems are appropriate for 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 (the "Exchange Act"). As a result of the spin-off, we are 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 place significant demands on our management and administrative and operational resources, including accounting resources.

19


To comply with these requirements, we are in the process of upgrading our information technology and reporting systems and procedures, implementing additional financial and management controls, and hiring 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 are subject to continuing contingent liabilities of BWC following the spin-off.
As a result of the spin-off, there are several significant areas where the liabilities of BWC may become our obligations. For example, under the Internal Revenue Code of 1986, as amended (the "Code") and the related rules and regulations, each corporation that was a member of BWC 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 entered into a tax sharing agreement with BWC in connection with the spin-off that allocates the responsibility for prior period taxes of BWC consolidated tax reporting group between us and BWC and its subsidiaries. However, if BWC 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 BWC's historical nuclear operations. For example, BWC 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, Pennsylvania. To the extent insurance providers and third party indemnitors do not cover those liabilities, and BWC was unable to pay, we could be required to pay for them.
The spin-off could result in substantial tax liability.
The spin-off was conditioned on BWC's receipt of an opinion of counsel, in form and substance satisfactory to BWC, substantially to the effect that, for United States federal income tax purposes, the spin-off qualifies under Section 355 of the Code, and certain transactions related to the spin-off qualify under Sections 355 and/or 368 of the Code. The opinion relied on, among other things, various assumptions and representations as to factual matters made by BWC and us which, if inaccurate or incomplete in any material respect, would jeopardize the conclusions reached by such counsel in its opinion. The opinion is not binding on the United States Internal Revenue Service ("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.
We are not aware of any facts or circumstances that would cause the assumptions or representations that were 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 United States holder of BWC common stock who received 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. 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.
Under the terms of the tax sharing agreement we entered into in connection with the spin-off, we and BWC generally share responsibility for any taxes imposed on us or BWC and its subsidiaries in the event that 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 BWC, we or BWC, 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.
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 entered into in connection with the spin-off, we are generally 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 BWC generally share responsibility for all taxes imposed on us or BWC 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 BWC, we or BWC, 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.

20


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 United States federal income tax liabilities to us under Section 355(e) and other applicable provisions of the Code if 50% or more of BWC'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 BWC stock or our stock (or similar acquisitions), or any understanding, arrangement or substantial negotiations regarding such an acquisition of BWC 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 entered into in connection with the spin-off, BWC generally is liable for any such tax liabilities. However, we are required to indemnify BWC against any such tax liabilities that result from actions taken or failures to act by us. As a result of these rules and contractual provisions, we may be unable, within the two year period following the spin, 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 BWC pursuant to the master separation agreement could materially adversely affect B&W.
The master separation agreement with BWC provides 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 B&W and BWC with respect to and resulting from the spin-off. Among other things, the master separation agreement provides for indemnification obligations designed to make 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 BWC assumed by us pursuant to the master separation agreement. If we are required to indemnify BWC under the circumstances set forth in the master separation agreement, we may be subject to substantial liabilities.
In connection with our separation from BWC, BWC has agreed to 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 BWC's ability to satisfy its indemnification obligation will not be impaired in the future.
Pursuant to the master separation agreement, BWC has agreed to indemnify us for certain liabilities. However, third parties could seek to hold us responsible for any of the liabilities that BWC agreed to retain, and there can be no assurance that the indemnity from BWC will be sufficient to protect us against the full amount of such liabilities, or that BWC will be able to fully satisfy its indemnification obligations. Moreover, even if we ultimately succeed in recovering from BWC any amounts for which we are held liable, we may be temporarily required to bear these losses.
Several members of our board and management may have conflicts of interest because of their ownership of shares of common stock of BWC (now known as BWX Technologies, Inc).
Several members of our board and management own shares of common stock of BWC and/or options to purchase common stock of BWC because of their current or prior relationships with BWC. In addition, five of the current members of our board of directors were members of the BWC 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 B&W and BWC.
Risks Relating to Ownership of Our Common Stock
As a new public company, the market price and trading volume of our common stock may be volatile.
The market price of our common stock could fluctuate significantly in future periods due to a number of factors, many of which are beyond our control, including:
fluctuations in our quarterly or annual earnings or those of other companies in our industry;
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;

21


announcements by us or our customers, suppliers or competitors;
the depth and liquidity of the market for 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 annual report.
Substantial sales of our common stock could cause our stock price to decline and issuances by us may dilute our common stockholders' ownership in B&W.
As of December 31, 2015, we have an aggregate of approximately 53.5 million shares of common stock outstanding. Any sales of substantial amounts of our common stock could lower the market price of our common stock and impede our ability to raise capital through the issuance of equity securities. Further, if we were to issue additional equity securities to raise additional capital, our stockholders' ownership interests in B&W will be diluted and the value of our common stock may be reduced.
We do not currently pay regular dividends on our common stock, so holders of our common stock may not receive funds without selling their 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, our stockholders may have to sell some or all of their shares of our common stock in order to generate cash flow from their investment.
Provisions in our corporate documents and Delaware law could delay or prevent a change in control of 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 B&W that a stockholder may consider favorable.
In addition, we are 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 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 B&W and our stockholders.
We may issue preferred stock that could dilute the voting power or reduce the value of our common stock.
Our certificate of incorporation authorizes 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.

22


Item 1B.    UNRESOLVED STAFF COMMENTS
None.
Item 2.    PROPERTIES
The following table provides the segment name, location and general use of each of our principal properties at December 31, 2015 that we own or lease.
Business Segment and Location
Principal Use
 
Owned/Leased
(Lease Expiration)
Global Power / Global Services
 
 
 
Barberton, Ohio
Administrative office / research and development
 
Owned(1)
West Point, Mississippi(2)
Manufacturing facility
 
Owned(1)
Lancaster, Ohio
Manufacturing facility
 
Owned(1)
Copley, Ohio
Warehouse / service center
 
Owned(1)
Esbjerg, Denmark
Manufacturing facility / administrative office
 
Owned
Dumbarton, Scotland
Manufacturing facility
 
Owned
Straubing, Germany
Manufacturing facility
 
Leased (2021)
Guadalupe, NL, Mexico
Manufacturing facility
 
Leased (2024)
Cambridge, Ontario, Canada
Administrative office / warehouse
 
Leased (2018)
Jingshan, Hubei, China
Manufacturing facility
 
Owned
Ebensburg, Pennsylvania
Power generation
 
Owned(1)
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 existing credit facilities.
(2) Scheduled for closure during 2016.
We believe that our major properties are adequate for our present needs and, as supplemented by planned improvements and construction, expect them to remain adequate for the foreseeable future.
Item 3.    LEGAL PROCEEDINGS
The information set forth under the heading "Investigations and Litigation" in Note 11 to our consolidated and combined financial statements included in Item 8 is incorporated by reference into this Item 3.
Item 4.    MINE SAFETY DISCLOSURES
We own, manage and operate Ebensburg Power Company, an independent power company that produces alternative electrical energy. Through one of our subsidiaries, Revloc Reclamation Service, Inc., Ebensburg Power Company operates multiple coal refuse sites in Western Pennsylvania (collectively, the "Revloc Sites"). At the Revloc Sites, Ebensburg Power Company utilizes coal refuse from abandoned surface mine lands to produce energy. Beyond converting the coal refuse to energy, Ebensburg Power Company is also taking steps to reclaim the former surface mine lands to make the land and streams more attractive for wildlife and human uses.
The Revloc Sites are subject to regulation by the Federal Mine Safety and Health Administration under the Federal Mine Safety and Health Act of 1977. Information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and this Item is included in exhibit 95 to this annual report.


23


PART II
Item 5.    MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is traded on the New York Stock Exchange under the symbol BW. High and low common stock prices by quarter in the year ended December 31, 2015 were as follows:
Year ended December 31, 2015
 
Share Price
 
Dividends
Quarter ended
High
 
Low
 
Per Share
June 30, 2015
$
22.31

 
$
17.12

 
$

September 30, 2015
$
21.95

 
$
16.40

 
$

December 31, 2015
$
21.67

 
$
15.86

 
$

As of January 31, 2016, there were approximately 1,958 record holders of our common stock.
Issuer Purchases of Equity Securities
Period
Total 
number
of shares
purchased(1)
 
Average
price paid
per share
 
Total number of shares purchased as part of publicly announced plans
or programs
 
Approximate dollar
value of shares that
may yet be purchased
under the plans
or programs
(in thousands) (2)
October 1, 2015 - October 31, 2015
84,071

 
$
16.69

 
84,071

 
$
97,324

November 1, 2015 - November 30, 2015
565,248

 
$
17.22

 
562,604

 
$
87,638

December 1, 2015 - December 31, 2015
600,498

 
$
19.78

 
600,498

 
$
75,761

Total
1,249,817

 


 
1,247,173

 
 
 
(1)
Includes 2,644 shares repurchased during November pursuant to the provisions of employee benefit plans that permit the repurchase of shares to satisfy statutory tax withholding obligations.
(2)
On August 4, 2015, we announced that our board of directors authorized us to repurchase an indeterminate number of shares of our common stock in the open market at an aggregate market value of up to $100 million during a two-year period ending June 8, 2017.

24


The following graph provides a comparison of our cumulative total shareholder return through December 31, 2015 to the return of the S&P 500 and our custom peer group.
 
(1)
Assumes initial investment of $100 on June 30, 2015.
The peer group used for the six-month comparison beginning with June 30, 2015 is comprised of the following companies:
        
Actuant Corp.
Crane Co.
Itron Inc.
AMETEK Inc.
Curtiss-Wright Corp.
MasTec Inc.
CECO Environmental Corp.
Dycom Industries Inc.
Primoris Services Corp.
Chart Industries Inc.
Flowserve Corp.
SPX Corp.
CIRCOR Int. Inc.
Harsco Corp.
 
Covanta Holding Corp.
Idex Corp.
 

25


Item 6.    SELECTED FINANCIAL DATA
 (In thousands, except for per share amounts)
For the Years Ended
 
2015
 
2014
 
2013
 
2012
 
2011
Revenues
$
1,757,295

 
$
1,486,029

 
$
1,767,651

 
$
1,992,899

 
$
1,532,134

Income (loss) from continuing operations
$
16,534

 
$
(11,890
)
 
$
140,478

 
$
128,809

 
$
19,983

Net income attributable to Babcock & Wilcox Enterprises, Inc.
$
19,141

 
$
(26,528
)
 
$
174,527

 
$
140,753

 
$
58,733

Basic earnings per common share:
 
 
 
 
 
 
 
 
 
Income (loss) from continuing operations per common share
$
0.31

 
$
(0.23
)
 
$
2.51

 
$
2.17

 
$
0.34

Net income attributable to Babcock & Wilcox Enterprises, Inc.
$
0.36

 
$
(0.49
)
 
$
3.12

 
$
1.97

 
$
(0.32
)
Total assets (as of year end)
$
1,663,045

 
$
1,516,554

 
$
1,290,228

 
$
1,413,420

 
$
1,648,305

We purchased MEGTEC on June 20, 2014. MEGTEC, which comprises our Industrial Environmental operating segment generated revenues of $183.7 million and $105.4 million and gross profit of $48.9 million and $25.0 million in the years ended December 31, 2015 and 2014, respectively.
We recognize actuarial gains (losses) related to our pension and postretirement benefit plans in earnings in the fourth quarter each year as a component of net periodic benefit cost. The effect of these adjustments for 2015, 2014, 2013, 2012 and 2011 on pre-tax income was a gain (loss) of $(40.2) million, $(101.3) million, $92.1 million, $(8.4) million and $(105.9) million, respectively.
In each of the past four years, we recognized contract losses for additional estimated costs to complete our Global Power segment's Berlin Station project. This project experienced unforeseen worksite conditions and fuel specification issues that caused schedule delays, resulting in us filing suit against the customer in January 2014. The dispute was settled during the third quarter of 2015. The contract losses reduced pre-tax income (loss) from continuing operations by $9.6 million, $11.6 million, $35.6 million and $16.9 million in 2015, 2014, 2013 and 2012, respectively.
Restructuring and spin-off transaction costs were $14.9 million, $20.2 million and $18.3 million in 2015, 2014 and 2013, respectively. Subsequent to the June 30, 2015 spin-off transaction, we incurred $8.5 million of incremental stand-alone costs to operate our business as an independent public entity. These stand-alone costs, included in selling, general and administrative expenses on our consolidated and combined statements of operations, include expenses associated with legal matters, accounting, information technology, compliance with the Sarbanes-Oxley Act, insurance and other corporate governance matters.
In the year ended December 31, 2015, we also recognized a $14.6 million impairment charge, primarily related to research and development facilities and equipment dedicated to a carbon capture process that was determined to not be commercially viable and other equipment primarily related to pilot testing capabilities that are no longer viable for current or future research and development efforts.
Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
In this annual report, unless the context otherwise indicates, "B&W," "we," "us" and "our" mean Babcock & Wilcox Enterprises, Inc. and its consolidated subsidiaries.
Spin-Off Transaction: On June 8, 2015, the board of directors of The Babcock & Wilcox Company (now known as BWX Technologies, Inc.) ("BWC" or the "former Parent") approved the spin-off of B&W through the distribution of shares of B&W common stock to holders of BWC common stock. The distribution of B&W common stock was made on June 30, 2015, and consisted of one share of B&W common stock for every two shares of BWC common stock to holders of BWC common stock as of 5:00 p.m. New York City time on the record date, June 18, 2015. Cash was paid in lieu of any fractional shares of B&W common stock. On June 30, 2015, B&W became a separate publicly traded company, and BWC did not retain any

26


ownership interest in B&W. We filed our Form 10 describing the spin-off with the Securities and Exchange Commission, which was declared effective on June 16, 2015. The spin-off is further described in Note 1 to the consolidated and combined financial statements included in Item 8 of this annual report.
Executive Summary of Results: In 2015, our revenues, gross profit and operating income all increased compared to 2014. The increase in revenues and gross profit is primarily attributable the increase in projects awarded to our Global Power segment and to a full year of the MEGTEC business, which we acquired on June 20, 2014. Our results also benefited from cost savings from our restructuring initiatives and research and development activities, partially offset by increases in selling, general and administrative costs that were mainly driven by the incremental costs of being a stand-alone public company and the inclusion of a full year of our MEGTEC business.
The following items also have a meaningful effect on our results of operations:
Mark to market ("MTM") adjustments for our pension and other postretirement benefit plans were gains (losses) of $(40.2) million, $(101.3) million and $92.1 million in 2015, 2014 and 2013, respectively. These gains and losses are based on actual plan asset returns and changes in assumptions in the measurement of the related benefit plan liabilities, which are more fully described in Note 8 to the consolidated and combined financial statements included in Item 8.
Restructuring costs totaled $11.7 million, $20.2 million and $18.3 million in 2015, 2014 and 2013, respectively, for a number of both completed and ongoing initiatives designed to phase in savings and make our products more competitive. Restructuring costs include accelerated depreciation and other activities related to manufacturing facility consolidation and outsourcing as well as reductions in force, consulting and other costs. In addition to savings already realized, we expect to realize savings of approximately $15 million in 2016 and an additional $15 million in 2017. The expected costs to achieve these savings are more fully described below.
Asset impairments totaling $14.6 million were recognized in 2015 related to research and development facilities and equipment dedicated to a carbon capture process that was determined not to be commercially viable and other equipment primarily related to pilot testing capabilities that are no longer viable for current or future research and development efforts.
Litigation settlement charges of $9.6 million were incurred in 2015, including $1.8 million of legal costs and a $7.8 million reversal of Global Power segment revenue associated with the release of an accrued claims receivable as part of the Berlin Station project legal settlement.
Spin-off transaction costs were $3.3 million in 2015, primarily related to retention stock awards that had a one-year vesting period.
Selling, general and administrative costs ("SG&A") include the incremental costs of being a separate stand-alone public company, such as costs to create separate accounting, legal, senior management and tax teams. We estimate that we will incur annual incremental costs of $14 million to $16 million, of which we incurred approximately $8.5 million in the second half of 2015. Due to the scope and complexity of these activities, the amount and timing of these incremental costs could vary and initial run rates could be slightly higher than the expected annual increase. Prior to the spin, we received allocations from BWC that were included in our SG&A. These pre-spin allocations also included $2.7 million, $5.3 million and $9.8 million in 2015, 2014 and 2013 related to the Nuclear Energy segment that was transferred to BWC at the time of the spin-off. The Nuclear Energy segment is treated as discontinued operations in our financial statements, but these related cost allocations remain in the selling, general and administrative costs of our continuing operations.
Our segment and other operating results are described in more detail below.

27


RESULTS OF OPERATIONS – YEARS ENDED DECEMBER 31, 2015, 2014 and 2013
Consolidated and Combined Results of Operations
 
Year Ended December 31,
(In thousands)
2015
 
2014
 
2013
REVENUES
 
 
 
 
 
Global Power
$
639,970

 
$
471,929

 
$
712,461

Global Services
933,630

 
908,682

 
1,055,190

Industrial Environmental(1)
183,695

 
105,418

 

 
$
1,757,295

 
$
1,486,029

 
$
1,767,651

 
 
 
 
 
 
GROSS PROFIT
 
 
 
 
 
Global Power
$
111,309

 
$
94,647

 
$
126,275

Global Services
192,241

 
193,629

 
225,434

Industrial Environmental(1)
48,914

 
24,961

 

Mark to market adjustment included in cost of operations
$
(44,307
)
 
$
(94,204
)
 
$
84,772

 
$
308,157

 
$
219,033

 
$
436,481

 
 
 
 
 
 
Selling, general and administrative expenses
(244,065
)
 
(218,038
)
 
(211,401
)
Mark to market adjustment included in selling, general and administrative expenses
4,097

 
(7,233
)
 
7,331

Research and development costs
(16,543
)
 
(18,483
)
 
(21,043
)
Losses on asset disposal and impairments, net
(14,597
)
 
(1,752
)
 
(1,181
)
Equity in income (loss) of investees
(242
)
 
8,681

 
18,387

Restructuring and spin-off transaction costs
(14,946
)
 
(20,183
)
 
(18,343
)
Total operating income (loss)
$
21,861

 
$
(37,975
)
 
$
210,231

(1) Our Industrial Environmental segment is composed of our MEGTEC business, which was acquired on June 20, 2014 as described in Note 3 to the consolidated and combined financial statements included in Item 8. Results of the Industrial Environmental segment in 2014 include only a partial period.
2015 vs 2014 Consolidated and Combined Results: Revenues increased 18.3%, or $271.3 million, to $1.76 billion in 2015 compared to $1.49 billion in 2014 due to increases in revenues from our Global Power, Global Services and Industrial Environmental segments of $168.0 million, $24.9 million and $78.3 million, respectively. The MEGTEC acquisition, which was completed on June 20, 2014, contributed $183.7 million of revenues in 2015 compared to $105.4 million in 2014.
Gross profit increased $89.1 million to $308.2 million in 2015 from $219.0 million in 2014. Excluding the MTM charges shown above, gross profit increased $39.2 million to $352.5 million in 2015 from $313.2 million in 2014 primarily due to the inclusion of our MEGTEC business for a full year and increases in the volume of utility, industrial and renewable energy boiler projects in our Global Power segment.
Operating income increased $59.8 million to $21.9 million in 2015 from an operating loss of $38.0 million in 2014. Operating income includes significant charges for MTM, restructuring and spin-off transaction costs and asset impairments that are each illustrated above and described in more detail below. Excluding these items, 2015 operating income would have increased $6.2 million from 2014 primarily from the gross margin improvements described above partially offset by increases in selling, general and administrative increases from inclusion of a full year of our MEGTEC business and the incremental stand-alone costs to operate our business as an independent public entity since the spin-off. Operating income in 2015 also decreased due to a $8.9 million decrease in equity in income of investees described below.
The performance drivers of each segment as well as other operating costs are discussed in more detail below.
2014 vs 2013 Consolidated and Combined Results: Revenues decreased 15.9%, or $281.6 million, to $1.49 billion in 2014 compared to $1.77 billion in 2013 due primarily to decreases in revenues from our Global Power and Global Services

28


segments of $240.5 million and $146.5 million, respectively, partially offset the June 20, 2014 acquisition of MEGTEC, which contributed revenues of $105.4 million in our Industrial Environmental segment.
Gross profit decreased $217.4 million to $219.0 million in the year ended December 31, 2014 from $436.5 million in 2013. Excluding the MTM charges shown above, gross profit decreased $38.5 million to $313.2 million in 2014 from $351.7 million in 2013 primarily due the revenue decreases from our Global Power and Global Services segments, partially offset by the June 20, 2014 acquisition of of MEGTEC, which comprises our Industrial Environmental segment. This decline was partially offset due to a lower loss provision of $11.6 million on the Berlin Station project in 2014 as compared to a loss provision of $35.6 million 2013. The Berlin Station project was completed in 2014.
Operating income (loss) decreased $248.2 million to a loss of $38.0 million in the year ended December 31, 2014 compared to operating income of $210.2 million in 2013. Operating income includes significant charges for MTM, restructuring and spin-off transaction costs and asset impairments that are each illustrated above and described in more detail below. Excluding these items, 2014 operating income would have decreased $52.3 million from 2013 primarily from the gross margin decreases described above and from a $9.7 million decrease in equity in income of investees described below.
Segment Descriptions and Results
We operate in three segments: Global Power, Global Services and Industrial Environmental.
Global Power Segment Description
Our Global Power segment consists of our worldwide new build boiler and environmental products businesses. Through this segment, we engineer, manufacture, procure, construct and commission steam 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 and waste heat boilers. Our utility-scale 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, as well as electric load growth and renewable incentives in various countries around the world.
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; and gas-fired package boiler technologies.
We expect the recent growth in backlog, which relates primarily to recent international coal boiler and renewable waste to energy bookings, will provide revenue growth in this segment, although the rate of backlog growth is dependent on many external factors described above.

29


Global Power Results
 
Year Ended December 31,
 
Year Ended December 31,
(In thousands, except percentages)
2015
 
2014
 
$ Change
 
2014
 
2013
 
$ Change
Revenues
$
639,970

 
$
471,929

 
$
168,041

 
$
471,929

 
$
712,461

 
$
(240,532
)
Gross Profit
111,309

 
94,647

 
16,662

 
94,647

 
126,275

 
(31,628
)
% of Revenues
17.4
%
 
20.1
%
 
 
 
20.1
%
 
17.7
%
 
 
2015 vs 2014 Global Power Results: Revenues increased 35.6%, or $168.0 million, to $640.0 million in 2015 from $471.9 million in 2014. The increase was due to higher new build steam generation systems revenues primarily related to utility, industrial and renewable energy boiler projects of $188.3 million, which is net of a $7.8 million revenue reversal from releasing our accrued claims receivable as part of the Berlin Station project legal settlement reached during 2015. The increase in revenues was partially offset by a decline in new build environmental equipment revenues of $20.3 million as projects related to previously enacted environmental rules and regulations near completion.
Gross profit increased $16.7 million to $111.3 million in 2015 from $94.6 million in 2014. Gross profit improvement was primarily a result of the increase in revenues discussed above, partially offset by a lower level of net project improvements in 2015 when compared to 2014. The projects nearing completion in 2014 had a more favorable mix of gross profit than in 2015. In addition, we recorded a $7.8 million loss in the year ended December 31, 2015 associated with the release of an accrued claims receivable as part of the Berlin Station project legal settlement as compared to an $11.6 million loss recorded for the same project in 2014.
2014 vs 2013 Global Power Results: Revenues decreased 33.8%, or $240.5 million, to $471.9 million in 2014 from $712.5 million in 2013. A decrease in our new build steam generation activities contributed $101.4 million of this decline, which was primarily due to a lower level of activity on renewable energy and industrial boiler projects. Another $139.2 million of the revenue decline was primarily attributable to new build environmental activities from lower levels of engineering, procurement and construction activities as projects related to the previously enacted environmental rules and regulations neared completion and uncertainties continued regarding the ultimate outcome of environmental regulations.
Gross profit decreased $31.6 million to $94.6 million in 2014 from $126.3 million in 2013, primarily due to the decreased revenues discussed above. This decline was partially offset due to a lower loss provision of $11.6 million on the Berlin Station project in 2014 as compared to a loss provision of $35.6 million 2013.
Global Services Segment Description
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.
 While there is industry pressure on sales associated with the United States coal utility aftermarket, we continue to see opportunities for growth and margin expansion in this segment relating to a variety of factors including the following:
consolidating and 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 existing power plants, particularly in North America, to enhance utilization and operating efficiency levels, improve reliability and extend the useful life of 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;
targeted repositioning of our global sales network in strategic countries to serve the aftermarket refurbishment and maintenance of existing facilities outside North America; and

30


selling parts and maintenance services to industrial boiler customers and expanding our customer base for parts and maintenance services in waste-to-energy as new builds come online.
We expect that our large installed base of power generation equipment will provide a solid foundation for a recurring revenue stream.
Global Services Results
 
Year Ended December 31,
 
Year Ended December 31,
(In thousands, except percentages)
2015
 
2014
 
$ Change
 
2014
 
2013
 
$ Change
Revenues
$
933,630

 
$
908,682

 
$
24,948

 
$
908,682

 
$
1,055,190

 
$
(146,508
)
Gross Profit
192,241

 
193,629

 
(1,388
)
 
193,629

 
225,434

 
(31,805
)
% of Revenues
20.6
%
 
21.3
%
 
 
 
21.3
%
 
21.4
%
 
 
2015 vs 2014 Global Services Results: Revenues increased 2.7%, or $24.9 million to $933.6 million in 2015 from $908.7 million in 2014. The increase was primarily related to a $49.1 million increase in revenue from project and construction services related to retrofit projects as utilities and other industrial customers invested in their power generation assets. The increase was partially offset by a $28.9 million decrease in boiler and auxiliary parts revenue due to lower maintenance spending as low natural gas prices and moderate temperatures impacted the level of coal fired power generation. In addition, revenues from operation & maintenance services increased $4.7 million primarily due to the new waste-to-energy facility in Palm Beach County which began commercial operations in 2015.
Gross profit decreased $1.4 million to $192.2 million in 2015 from $193.6 million in 2014. Gross margin from the increase in revenues discussed above, generally positive performance on service projects and improved margins on sales of parts were offset by a $12.9 million contract loss accrual associated with an updated forecast of the cost to complete a large construction services project, which has experienced unfavorable labor productivity and costs that exceeded our expectations.
2014 vs 2013 Global Services Results: Revenues decreased 13.9%, or $146.5 million, to $908.7 million in 2014 from $1.06 billion in 2013. This decrease was primarily attributable to lower service project revenues due mainly to a large boiler retrofit 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 2014 from $225.4 million in 2013, primarily due to the decrease in revenues discussed above.
Industrial Environmental Segment Description
Our Industrial Environmental segment provides environmental products and services to numerous industrial end markets through MEGTEC, which was 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 includes 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. Major investments in global chemical markets have strengthened demand for MEGTEC equipment, while tightening environmental regulations in the United States, China, India and other 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.

31


Industrial Environmental Results
 
Year Ended December 31,
(In thousands, except percentages)
2015
 
2014
 
$ Change
Revenues
$
183,695

 
$
105,418

 
$
78,277

Gross Profit
48,914

 
24,961

 
23,953

% of Revenues
26.6
%
 
23.7
%
 
 
2015 vs 2014 Industrial Environmental Results: The year-over-year comparison reflects twelve months of revenues and gross profit in 2015 compared to approximately six months in 2014.
Revenues increased 74.3%, or $78.3 million, to $183.7 million in 2015 from $105.4 million in 2014.
Gross profit increased 96.0%, or $24.0 million, to $48.9 million in the year ended December 31, 2015, compared to $25.0 million in 2014. Gross profit in 2015 also benefited from lower amortization expense as a result of our backlog intangible asset becoming fully amortized as of June 30, 2015. See additional information on these intangible assets in Notes 2 and 3 to the consolidated and combined financial statements included in Item 8.
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses increased $14.7 million to $240.0 million in 2015 from $225.3 million in 2014 due primarily to including a full year of SG&A expenses associated with MEGTEC and the incremental costs of operating as a stand-alone public entity. The stand-alone costs to operate our business as an independent public entity are expected to exceed the pre-spin allocations of expenses from BWC to us related to areas that include, but are not limited to, litigation and other legal matters, compliance with the Sarbanes-Oxley Act and other corporate governance matters, insurance and claims management and the related cost of insurance. We estimate that we will incur annual incremental costs of $14 million to $16 million, of which we incurred approximately $8.5 million in the second half of 2015, to replace both the services previously provided by BWC as well as other stand-alone costs, such as costs to create separate accounting, legal, senior management and tax teams. Due to the scope and complexity of these activities, the amount and timing of these incremental costs could vary and initial run rates could be slightly higher than the expected annual increase.
SG&A expenses increased $21.2 million to $225.3 million in 2014 from $204.1 million in 2013. The increase in SG&A expenses in 2014 is primarily attributable to $17.5 million of SG&A expenses associated with MEGTEC, which was acquired on June 20, 2014.
Also, as discussed in Note 1 to the consolidated and combined financial statements included in Item 8, we distributed assets and liabilities totaling $47.8 million associated with our NE segment to BWC in conjunction with the spin-off on June 30, 2015. We received corporate allocations from our former Parent which totaled $2.7 million, $5.3 million and $9.8 million for the years ended December 31, 2015, 2014 and 2013, respectively. Though these allocations relate to our discontinued NE segment, they are included as part of selling, general and administrative expenses in the results from our continuing operations because allocations are not eligible for inclusion in discontinued operations.
Research and Development Costs
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 $16.5 million, $18.5 million and $21.0 million in 2015, 2014 and 2013, respectively.
Losses on Asset Disposal and Impairment
We experienced losses on asset disposals and impairments totaling $14.6 million, $1.8 million and $1.2 million in 2015, 2014 and 2013, respectively. The impairment charges recorded in 2015 were related to research and development facilities and equipment dedicated to a carbon capture process that was determined not to be commercially viable and other equipment primarily related to pilot testing capabilities that are no longer viable for current or future research and development efforts. The impairment charges recorded in 2014 and 2013 were related to the cancellation of operations and maintenance services contracts.

32


Equity in Income (Loss) of Investees
Our equity method investees include joint ventures in China and India, each of which manufactures boiler parts, and a joint venture in Australia that sells and services industrial equipment and other project-related joint ventures. Additionally, in 2014, equity in income (loss) of investees included income from our interest in Ebensburg Power Company, in which we purchased the remaining outstanding equity in May 2014 and now consolidate into the Global Services segment.
Equity in income of investees decreased $8.9 million to a loss of $0.2 million in 2015, as compared to income of $8.7 million in 2014 primarily due to adverse market conditions in China and Australia and start-up costs relating to a new manufacturing facility in India. Additionally, in 2014, we recognized income from a United States environmental project joint venture that was substantially complete in 2014 and did not contribute equity income in 2015.
Equity in income of investees decreased $9.7 million to $8.7 million of income in 2014 from $18.4 million of income in 2013 primarily due to adverse market conditions in China and Australia, new facility start-up costs in India and the near completion of a United States environmental project joint venture that generated more operating income in the corresponding period in 2013.
Restructuring
In 2014, we started our current restructuring initiatives that are expected to phase in annual savings totaling $35 million to $50 million when fully implemented. Through December 31, 2015, we have realized approximately $10 million of savings, and we expect to realize approximately $15 million in 2016 and an additional $15 million in 2017. These activities included manufacturing facility consolidation and outsourcing as well as reductions in force, consulting and other costs. We expect the total cost of these restructuring initiatives to be in the range of $35 million to $50 million, of which we have incurred $11.7 million and $20.2 million in 2015 and 2014, respectively. Included in total restructuring costs are non-cash charges related to accelerated depreciation and impairment, which were $6.7 million and $7.0 million in the years ended December 31, 2015 and 2014, respectively.
Prior to contemplating the spin-off, beginning in 2012, our former Parent had also implemented restructuring activities to enhance competitiveness and to better position the combined company, BWC, for growth, improved profitability and to help offset increasingly competitive market conditions. These activities included operational and functional efficiency improvements, organizational design changes and manufacturing optimization that were substantially complete prior to the spin-off. A substantial part of these activities benefited us, primarily related to activities in 2013 and 2014. Annual savings from these activities totaled more than $50 million for BWC as a whole. A total of $21.5 million of costs associated with these previous restructuring activities were recognized through June 30, 2015, including $2.1 million and $18.3 million in 2014 and 2013, respectively. We have not recognized costs related to these prior restructuring activities in 2015.
Spin-off Transaction Costs
In the year ended December 31, 2015, we incurred $3.3 million of costs directly related to the spin-off of B&W from BWC, primarily related to retention stock awards that had a one-year vesting period as of the June 30, 2015 date of the spin-off.
Mark to Market Adjustments For Pension and Other Postretirement Benefit Plans
We recognize actuarial gains and losses for our pension and other postretirement benefit plans into earnings as a component of net periodic benefit cost, which affect both our cost of operations and SG&A. These mark to market ("MTM") adjustments for our pension and other postretirement plans were gains (losses) of $(40.2) million, $(101.3) million and $92.1 million, in 2015, 2014 and 2013, respectively, and the effect on cost of operations and SG&A are detailed above and in Note 8 to the consolidated and combined financial statements included in Item 8. The MTM loss in 2015 was primarily related to actual return on assets that fell short of the expected return, offset by an increase in the discount rate used to measure our benefit plans liabilities. The MTM loss in 2014 was primarily related to a $46.9 million loss recognized on the adoption of a new mortality assumption and a decline in the discount rate, offset by actual return on assets that exceeded the expected return. The MTM gain of $92.1 million in 2013, primarily related to an increase in interest rates and actual return on assets that exceeded our expected return.

33


Provision for Income Taxes
 
Year Ended December 31,
(In thousands, except percentages)
2015
 
2014
 
2013
Income (loss) from continuing operations before provision for income taxes
$
20,205

 
$
(36,618
)
 
$
212,489

Income tax provision
3,671

 
(24,728
)
 
72,011

Effective tax rate
18.2
%
 
67.5
%
 
33.9
%
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 tax rates of approximately 27%, 24% and 20%, respectively. Our jurisdictional mix of income (loss) before tax is also significantly affected by MTM adjustments for our pension and postretirement plans, which are primarily in the United States. Income (loss) before provision for income taxes generated in the United States and foreign locations for the years ended December 31, 2015, 2014 and 2013 is presented in the table below.
 
Year Ended December 31,
(In thousands)
2015
 
2014
 
2013
United States
$
(20,748
)
 
$
(64,084
)
 
$
135,966

Other than the United States
40,953

 
27,466

 
76,523

Income (loss) before provision for (benefit from) income taxes
20,205

 
(36,618
)
 
212,489

In addition to jurisdictional mix of earnings, our income tax provision and our effective tax rate are also affected by discrete items that do not occur in each period. In 2015, we had net unfavorable discrete items, primarily related to revaluing our state deferred taxes, which increased the effective tax rate in 2015. In 2014, we had net favorable discrete items primarily related to the receipt of a favorable ruling from the United States Internal Revenue Service that enabled us to amend prior year United States income tax returns for 2010 to 2012 to exclude distributions of several of our foreign joint ventures from domestic taxable income. Because 2014 was a loss year, this benefit resulted in an increase to the effective tax rate in 2014.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased by $146.5 million in 2015. At December 31, 2015, we had: cash and cash equivalents of $365.2 million, including $80.6 million received from the former Parent at the time of the spin-off, net of settlement of intercompany balances with our former Parent; investments with a fair value of $5.1 million, primarily held by our captive insurer; and restricted cash and cash equivalents of $37.1 million, of which $3.7 million was held in restricted foreign cash accounts and $33.4 million was held to meet reinsurance reserve requirements of our captive insurer in lieu of long-term investments.
Of our $365.2 million of unrestricted cash and cash equivalents at December 31, 2015, approximately $221.2 million, or 60.6% is held outside of the United States and relates to foreign operations, though it is primarily held in U.S. dollars to mitigate foreign exchange risk. In general, these resources are not available to fund our United States operations unless the funds are repatriated to the United States, which could expose us to taxes we presently have not accrued in our financial statements. We presently have no plans to repatriate these funds to the United States as the liquidity generated by our United States operations is sufficient to meet the cash requirements of our United States operations.
Our investment portfolio consists primarily of investments in highly liquid money market instruments. Our investments are classified as available-for-sale and are carried at fair value with unrealized gains and losses, net of tax, reported as a component of other comprehensive income (loss).
We are currently exploring growth strategies across our segments through acquisitions to expand and complement our existing businesses. We would expect to fund these opportunities by cash on hand, external financing (including debt), equity or some combination thereof. We expect cash and cash equivalents, cash flows from operations, and our borrowing capacity to be sufficient to meet our liquidity needs for at least twelve months from the date of this filing.
Our net cash provided by operations was $170.4 million in 2015, compared to cash used in operations of $24.2 million in 2014. In addition to improvements in our operating income before MTM charges as discussed above, this increase in cash provided by operations was also attributable to improved advance billings on various contracts in progress in our Global Power segment and the operating results of our Global Services segment. Our long-term contracts are generally structured to

34


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 net cash used in investing activities decreased by $102.8 million to $45.9 million in 2015 from $148.6 million in 2014 primarily because we acquired MEGTEC in 2014. We expect capital expenditures to be approximately $30 million to $32 million in 2016, which is lower than 2015 capital expenditures of $35.4 million due primarily to the near completion of the expansion of a manufacturing facility in Mexico during 2015. Once the manufacturing facility in Mexico is complete, we expect capital expenditures to reduce to approximately $25 million annually for our existing business.
Our net cash provided by financing activities was $53.6 million in 2015, compared to $211.7 million in 2014. Net cash provided by financing activities in 2015 includes $80.6 million of cash received from the former Parent in the spin-off transaction, partially offset by $24.3 million used to repurchase 1.3 million shares in the second half of 2015. In August 2015, we announced that our board of directors authorized the repurchase of up to $100 million of our common stock, under which we repurchased an additional 1.2 million shares of our common stock for $23.3 million in the period from January 1, 2016 through February 25, 2016. We are authorized to repurchase up to $52.4 million more of our common stock during the remainder of 2016. Net cash provided by financing activities in 2014 includes $142.8 million of net cash transferred from the former Parent inclusive of the purchase price of MEGTEC.
Credit Agreement
On June 30, 2015, our new credit agreement ("Credit Agreement") closed in connection with the spin-off transaction. The Credit Agreement provides for a senior secured revolving credit facility in an aggregate amount of up to $600 million, which is scheduled to mature on June 30, 2020. The proceeds of loans under the Credit Agreement are available for working capital needs and other general corporate purposes, and the full amount is available to support the issuance of letters of credit.
The Credit Agreement contains an accordion feature that allows us, subject to the satisfaction of certain conditions, including the receipt of increased commitments from existing lenders or new commitments from new lenders, to increase the amount of the commitments under the revolving credit facility in an aggregate amount not to exceed the sum of (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 Credit Agreement and our obligations under certain hedging agreements and cash management agreements with our lenders and their affiliates are (i) guaranteed by substantially all of our wholly owned domestic subsidiaries, but excluding our captive insurance subsidiary, and (ii) secured by first-priority liens on certain assets owned by us and the guarantors. The Credit Agreement requires interest payments on revolving loans on a periodic basis until maturity. We may prepay all loans at any time without premium or penalty (other than customary LIBOR breakage costs), subject to notice requirements. The Credit Agreement requires us to make certain prepayments on any outstanding revolving loans after receipt of cash proceeds from certain asset sales or other events, subject to certain exceptions and a right to reinvest such proceeds in certain circumstances, but such prepayments will not require us to reduce the commitments under the Credit Agreement.
Loans outstanding under the Credit Agreement 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 0.5%, 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. A commitment fee is charged on the unused portions of the revolving credit facility, and that fee varies between 0.25% and 0.35% per year. Additionally, a letter of credit fee of between 1.375% and 1.875% per year is charged with respect to the amount of each financial letter of credit issued, and a letter of credit fee of between 0.825% and 1.125% per year is charged with respect to the amount of each performance letter of credit issued. The applicable margin for loans, the commitment fee and the letter of credit fees set forth above vary quarterly based on our leverage ratio. Based on our leverage ratio at December 31, 2015, the applicable margin for LIBOR and base rate loans was 1.375% and 0.375%, respectively. The commitment fee for the unused portions of the revolving credit facility was 0.25% and the letter of credit fees for financial and performance letters of credit was 1.375% and 0.825%, respectively.
The Credit Agreement includes financial covenants that are tested on a quarterly basis, based on the rolling four-quarter period that ends on the last day of each fiscal quarter. The maximum permitted 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 Credit Agreement contains various restrictive covenants, including with respect to debt, liens, investments, mergers, acquisitions, dividends, equity repurchases and asset sales. At December 31, 2015, we had no borrowings outstanding under the revolving credit facility, and after giving effect to the

35


leverage ratio and $109.6 million of letters of credit issued under the Credit Agreement, we had approximately $373 million available for borrowings or to meet letter of credit requirements.
The 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 us occurs under the Credit Agreement, all obligations will immediately become due and payable. If any other event of default exists, the lenders will be permitted to accelerate the maturity of the obligations outstanding. If any event of default occurs, the lenders are permitted to terminate their commitments thereunder and exercise other rights and remedies, including the commencement of foreclosure or other actions against the collateral. Additionally, if we are unable to make any of the representations and warranties in the Credit Agreement, we will be unable to borrow funds or have letters of credit issued. At December 31, 2015, we were in compliance with all of the covenants set forth in the Credit Agreement.
Other Credit Arrangements
Certain subsidiaries have credit arrangements with various commercial banks and other financial institutions for the issuance of letters of credit and bank guarantees in association with contracting activity. The aggregate value of all such letters of credit and bank guarantees as of December 31, 2015 was $193.1 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. We, and certain of our subsidiaries, have jointly executed general agreements of indemnity in favor of surety underwriters relating to surety bonds those underwriters issue in support of some of our contracting activity. As of December 31, 2015, bonds issued and outstanding under these arrangements in support of contracts totaled approximately $541.7 million.
Long-term Benefit Obligations
Our unfunded pension and postretirement benefit obligations totaled $314.0 million at December 31, 2015. These long-term liabilities are expected to require use of our resources to satisfy our future funding obligations. For the year ended December 31, 2015, we made required contributions to our pension plans totaling $8.7 million and to our postretirement plans of $3.8 million. See additional information on our long-term benefit obligations in Note 8 to our consolidated and combined financial statements included in Item 8 of this annual report.
Off-Balance Sheet Arrangements
In the third quarter of 2014, we issued a letter of credit with a 4 year term totaling approximately $10 million in support of a Thermax Babcock & Wilcox Energy Solutions Private Limited ("TBWES") working capital bank loan. TBWES is an unconsolidated affiliate in India and the letter of credit can be drawn if TBWES defaults on the working capital bank loan. The estimated 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.
TBWES also has long-term bank debt it secured in 2011, the proceeds from which were used to finance the construction of the manufacturing facility it operates in India. At December 31, 2015, the long-term bank debt balance was $59.7 million and was secured by TBWES' assets including land, building and equipment. Under the terms of our joint venture operating agreement, we could be required to repay up to 49% of TBWES' long-term bank debt.
Contractual Obligations
Our cash requirements as of December 31, 2015 under current contractual obligations were as follows:
(In thousands)
Total
 
Less than 1 Year
 
1-3 Years
 
3-5 Years
 
After 5 Years
Operating lease payments
$
16,428

 
$
5,443

 
$
7,522

 
$
3,126

 
$
337

Capital lease payments
$
2

 
$
2

 
$

 
$

 
$

The table above excludes cash payments for self-insured claims, litigation and funding of our pension and postretirement benefit plans because we are uncertain as to the timing and amount of any associated cash payments that will be required. For example, expected pension contributions are subject to potential contributions that may be required in connection with acquisitions, dispositions or plan mergers. Also, estimated pension and other postretirement benefit payments are based on

36


actuarial estimates using current assumptions for, among other things, discount rates, expected long-term rates of return on plan assets and health care costs. Additionally, the table above excludes deferred income taxes recorded on our balance sheets because cash payments for income taxes are determined primarily on future taxable income. We have no long-term debt at December 31, 2015.
Our contingent commitments under letters of credit, bank guarantees and surety bonds outstanding at December 31, 2015 expire as follows:
Total
Less than 1 Year
 
1-3 Years
 
3-5 Years
 
Thereafter
 
 
 
(In thousands)
 
 
 
 
$844,409
$
464,862

 
$
318,288

 
$
48,034

 
$
13,225

We do not expect significant cash payments associated with the contingent commitments included in the table above because we expect to fulfill the performance commitments related to the underlying contracts.
EFFECTS OF INFLATION AND CHANGING PRICES
Our financial statements are prepared in accordance with generally accepted accounting principles in the United States, using historical United States 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 United States 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.
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 ("POC") 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 revenues and resulting income based on costs incurred to date as a percentage of total estimated costs. Certain costs may be 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. For parts orders and certain aftermarket services activities, we recognize revenues as goods are delivered and work is performed.
In the years ended December 31, 2015, 2014 and 2013, we recognized net changes in estimates related to long-term contracts accounted for on the POC basis which increased operating income by $0.4 million, $26.3 million and $8.8 million, respectively. As of December 31, 2015, we have estimated the costs to complete all of our in-process contracts in order to estimate revenues in accordance with the percentage-of-completion method of accounting. However, it is possible that current estimates could change due to project performance or unforeseen events, which could result in adjustments to overall contract costs. Variations from estimated contract performance could result in material adjustments to operating results for any fiscal quarter or year.

37


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. We recognize accrued claims in contract revenues for extra work or changes in scope of work to the extent of costs incurred when we believe the following accounting criteria have been met:
a)
The contract or other evidence provides a legal basis for the claim; or a legal opinion has been obtained, stating that under the circumstances there is a reasonable basis to support the claim.
b)
Additional costs are caused by circumstances that were unforeseen at the contract date and are not the result of deficiencies in the contractor's performance.
c)
Costs associated with the claim are identifiable or otherwise determinable and are reasonable in view of the work performed.
d)
The evidence supporting the claim is objective and verifiable, not based on management's feel for the situation or on unsupported representations.
At December 31, 2015 and December 31, 2014, we recognized accrued claims totaling $2.3 million and $8.2 million, respectively.
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 consolidated and combined financial statements are recorded using the equity method. Our primary equity method investees include joint ventures in China, India and Australia. Affiliates in which our investment ownership is less than 20% and where we are unable to exert significant influence are carried at cost.
We assess our investments in unconsolidated affiliates for other-than-temporary-impairment when significant changes occur in the investee's business or our investment philosophy. Such changes might include a series of operating losses incurred by the investee that are deemed other than temporary, the inability of the investee to sustain an earnings capacity that would justify the carrying amount of the investment or a change in the strategic reasons that were important when we originally entered into the joint venture. If an other-than-temporary-impairment were to occur, we would measure our investment in the unconsolidated affiliate at fair value.
Our total investment in equity method investees is $92.2 million, including a $14.9 million investment in a start-up venture in India, TBWES, that completed construction of its manufacturing facility intended primarily for new build coal boiler projects in India in 2014. While TBWES has not yet recorded a profit, we have determined that an other-than-temporary-impairment is not present based on the expected cash flows and strategy for TBWES. Continuing future losses or changes in the strategy of TBWES or other joint ventures could affect future assessments of other-than-temporary-impairment.
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 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 and 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 consolidated and combined financial condition.
For 2016, we will change our approach to setting the discount rate from a single equivalent discount rate to an alternative spot rate method. This change in estimate will be applied prospectively in developing our annual discount rate,

38


which will result in a lower interest and service cost in 2016. The impact of the change in estimate did not change our pension and other postretirement benefits liability as of December 31, 2015, because any change is completely offset in the net actuarial gain (loss) recorded in the annual mark to market adjustment. This new method was adopted because it more accurately applies each year’s spot rates to the projected cash flows.
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 and return on assets on our pension plan obligations and expense for the year ended December 31, 2015:
(In millions)
.25% increase
 
.25% decrease
Discount rate:
 
 
 
Effect on ongoing net periodic benefit cost(1)
$
(29.6
)
 
$
31.1

Effect on project benefit obligation
(31.8
)
 
33.4

Return on assets:
 
 
 
Effect on ongoing net periodic benefit cost
$
(2.3
)
 
$
2.3

(1) Excludes effect of annual mark to market adjustment.
A 25 basis point change in the assumed discount rate, return on assets and health care cost trend rate would have no meaningful impact on our other postretirement benefit plan obligations and expense for the year ended December 31, 2015 individually or in the aggregate, excluding the impact of any annual mark to market adjustments we record annually.
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 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 11 to the consolidated and combined financial statements included in Item 8 for a discussion of this litigation. As disclosed, we have accrued estimates of the probable losses associated with these matters; however, these matters 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 and Long-Lived Asset Impairment
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 both the guideline publicly traded company method and the similar transactions method. The guideline publicly traded company method indicates the fair value of the equity of each reporting unit by comparing it to publicly traded companies in similar lines of business. The similar transactions method considers recent

39


prices paid for business in our industry or related industries. After identifying and selecting guideline companies and similar transactions, 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, 2015, which indicated that we had no impairment of goodwill. The fair value of our reporting units was substantially in excess of carrying value.
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.
In the twelve months ended December 31, 2015, we recognized a $14.6 million impairment charge. The impairment charge was related to research and development facilities and equipment dedicated to a carbon capture process that was determined not to be commercially viable and other equipment primarily related to pilot testing capabilities that are no longer viable for current or future research and development efforts. The impairment is included in losses on asset disposals and impairments, net in our consolidated and combined financial statements included in Item 8 of this annual report.
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. Before the spin-off transaction, we were included in the consolidated United States federal and certain consolidated/combined state tax returns filed by BWC. After the spin-off, we file our own federal and state income tax returns. Both prior to and after the spin-off, our foreign subsidiaries operate and file tax returns in various foreign jurisdictions. For both the pre-spin and post-spin periods, we compute the provision for income taxes on a separate tax return basis as if we filed our own tax returns. For the pre-spin period, we deem the amounts that we would have paid or received from the United States Internal Revenue Service and certain state jurisdictions had we not been a member of BWC's consolidated tax group to be immediately settled with BWC. We entered into a tax sharing agreement with BWC in connection with the spin-off that allocates the responsibility for prior period taxes of BWC consolidated tax reporting group between us and BWC and its subsidiaries. However, if BWC were unable to pay, we could be required to pay the entire amount of such taxes.
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 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 consolidated and combined financial statements. We record interest and penalties (net of any applicable tax benefit) related to income taxes as a component of the provision for income taxes in our consolidated and combined statements of operations.

40


Warranty
We accrue estimated expense included in cost of operations on our consolidated and combined statements of operations to satisfy contractual warranty requirements when we recognize the associated revenues 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 consolidated and combined financial condition, results of operations and cash flows.
Item 7A.    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 United States Government obligations and highly liquid money market instruments denominated in United States dollars. We are averse to principal loss and seek to ensure the safety and preservation of our invested funds by limiting default risk, market risk and reinvestment risk. Our investments are classified as available-for-sale.
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.
At December 31, 2015, Principal Amount by Expected Maturity
 
Fair Value at
December 31, 2015
 
Years Ending December 31,
 
 
 
 
 
(In thousands, except percentages)
2016
 
2017 - 2021
 
Thereafter
 
Total
 
Investments
$
3,996

 
$

 
$
1,172

 
$
5,169

 
$
5,089

Average Interest Rate
0.36
%
 
%
 
%
 
0.28
%
 

Debt
$
2,005

 
$

 
$

 
$
2,005

 
$
2,014

Average Interest Rate
5.1
%
 
%
 
%
 
5.1
%
 


At December 31, 2014, Principal Amount by Expected Maturity
 
Fair Value at
December 31, 2014
 
Years Ending December 31,
 
 
 
 
 
(In thousands, except percentages)
2015
 
2016 - 2020
 
Thereafter
 
Total
 
Investments
$
1,607

 
$

 
$
214

 
$
1,820

 
$
1,820

Average Interest Rate
0.22
%
 
%
 
2.57
%
 
0.49
%
 

Debt
$
3,215

 
$

 
$

 
$
3,215

 
$
3,219

Average Interest Rate
6.3
%
 
%
 
%
 
6.3
%
 


41


Exchange Rate Sensitivity
The following table provides information about our FX forward contracts outstanding at December 31, 2015 and presents such information in United States 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 United States Dollars
(In thousands)
Year Ending
 
Fair Value at
 
Average Contractual
Foreign Currency
December 31, 2016
 
December 31, 2015
 
Exchange Rate
British pound sterling
$
1,626

 
$
(68
)
 
1.5464

British pound sterling (Selling Euro)
$
2,369

 
$
(33
)
 
0.7286

Danish krone
$
773

 
$
(17
)
 
6.6047

Euro (Selling British pound sterling)
$
39,846

 
$
1,346

 
0.7162

United States dollar (Selling British pound sterling)
$
856

 
$
36

 
1.5460

United States dollar (Selling Canadian dollar)
$
5,108

 
$
198

 
1.3303

United States dollar (Selling Euro)
$
1,215

 
$
36

 
1.1266

(In thousands)
Year Ending
 
Fair Value at
 
Average Contractual
Foreign Currency
December 31, 2017
 
December 31, 2015
 
Exchange Rate
Euro (Selling British pound sterling)
$
22,472

 
$
688

 
0.7257

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


42


Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Babcock & Wilcox Enterprises, Inc.:
We have audited the accompanying consolidated and combined balance sheets of Babcock & Wilcox Enterprises, Inc. (the "Company") as of December 31, 2015 and 2014, and the related consolidated and combined statements of operations, comprehensive income (loss), stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2015. These consolidated and combined financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated and combined financial statements present fairly, in all material respects, the financial position of Babcock & Wilcox Enterprises, Inc. as of December 31, 2015 and 2014, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2015, in conformity with accounting principles generally accepted in the United States of America.
The Board of Directors of The Babcock & Wilcox Company (“BWC”) approved the spin-off of the Company through the distribution of common stock of the Company on June 30, 2015 to existing shareholders of BWC. See Note 1 to the consolidated and combined financial statements.
/S/ DELOITTE & TOUCHE LLP
Charlotte, North Carolina
February 25, 2016


43


BABCOCK & WILCOX ENTERPRISES, INC.
CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
 
Year Ended December 31,
 
2015
 
2014
 
2013
 
(In thousands, except per share amounts)
Revenues
$
1,757,295

 
$
1,486,029

 
$
1,767,651

Costs and expenses
 
 
 
 
 
Cost of operations
1,449,138

 
1,266,996

 
1,331,170

Research and development costs
16,543

 
18,483

 
21,043

Losses on asset disposals and impairments
14,597

 
1,752

 
1,181

Selling, general and administrative expenses
239,968

 
225,271

 
204,070

Restructuring activities and spin-off transaction costs
14,946

 
20,183

 
18,343

Total costs and expenses
1,735,192

 
1,532,685

 
1,575,807

Equity in income (loss) of investees
(242
)
 
8,681

 
18,387

Operating income (loss)
21,861

 
(37,975
)
 
210,231

Other income (expense)
 
 
 
 
 
Interest income
618

 
1,060

 
1,276

Interest expense
(1,059
)
 
(492
)
 
(462
)
Other, net
(1,215
)
 
789

 
1,444

Total other income (expense)
(1,656
)
 
1,357

 
2,258

Income (loss) before income tax expense (benefit)
20,205

 
(36,618
)
 
212,489

Income tax expense (benefit)
3,671

 
(24,728
)
 
72,011

Income (loss) from continuing operations
16,534

 
(11,890
)
 
140,478

Income (loss) from discontinued operations, net of tax
2,803

 
(14,272
)
 
34,338

Net income (loss)
19,337

 
(26,162
)
 
174,816

Net income attributable to noncontrolling interest
(196
)
 
(366
)
 
(289
)
Net income (loss) attributable to shareholders
$
19,141

 
$
(26,528
)
 
$
174,527

Amounts attributable to Babcock & Wilcox Enterprises, Inc. shareholders
 
 
 
 
 
Income (loss) from continuing operations
16,338

 
(12,256
)
 
140,189

Income (loss) from discontinued operations, net of tax
2,803

 
(14,272
)
 
34,338

Net income (loss) attributable to shareholders
$
19,141

 
$
(26,528
)
 
$
174,527

 
 
 
 
 
 
Basic earnings (loss) per common share
 
 
 
 
 
Continuing operations
$
0.31

 
$
(0.23
)
 
$
2.51

Discontinued operations
0.05

 
(0.26
)
 
0.61

Basic earnings (loss) per common share:
$
0.36

 
$
(0.49
)
 
$
3.12

Diluted earnings (loss) per common share
 
 
 
 
 
Continuing operations
$
0.30

 
$
(0.23
)
 
$
2.49

Discontinued operations
0.06

 
(0.26
)
 
0.61

Diluted earnings (loss) per common share:
$
0.36

 
$
(0.49
)
 
$
3.10

Shares used in the computation of earnings per share (Note 18)
 
 
 
 
 
Basic
53,487,071

 
54,238,631

 
55,950,875

Diluted
53,708,983

 
54,238,631

 
56,342,709

See accompanying notes to consolidated and combined financial statements.


44


BABCOCK & WILCOX ENTERPRISES, INC.
CONSOLIDATED AND COMBINED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
 
Year Ended December 31,
 
2015
 
2014
 
2013
 
(In thousands)
Net income (loss)
$
19,337

 
$
(26,162
)
 
$
174,816

Other comprehensive income (loss):
 
 
 
 
 
Currency translation adjustments
(19,459
)
 
(26,895
)
 
(2,529
)
 
 
 
 
 
 
Derivative financial instruments:
 
 
 
 
 
Unrealized gains (losses) arising during the period
282

 
(3,184
)
 
(3,885
)
Income taxes
57

 
824

 
990

Total unrealized gains (losses) on derivative financial instruments, net of tax
339

 
(2,360
)
 
(2,895
)
Reclassification adjustment for losses included in net income
1,557

 
2,169

 
3,137

Income taxes
(424
)
 
(559
)
 
(773
)
Total reclassification adjustment for losses included in net income (loss), net of tax
1,133

 
1,610

 
2,364

 
 
 
 
 
 
Benefit obligations:
 
 
 
 
 
Amortization of benefit plan costs
1,504

 
3,650

 
277

Income taxes
(1,180
)
 
(1,005
)
 
(155
)
Total amortization of benefit plan costs, net of tax
324

 
2,645

 
122

 
 
 
 
 
 
Investments:
 
 
 
 
 
Unrealized gains (losses) arising during the period
(65
)
 
(2
)
 
37

Income taxes
16

 

 
11

Total unrealized gains (losses) arising during the period, net of tax
(49
)
 
(2
)
 
48

Reclassification adjustment for losses included in net income
42

 

 

Income taxes
(15
)
 

 

Total reclassification adjustments for losses included in net income, net of tax
27

 

 

 
 
 
 
 
 
Other comprehensive income (loss)
(17,685
)
 
(25,002
)
 
(2,890
)
Total comprehensive income (loss)
1,652

 
(51,164
)
 
171,926

Comprehensive income (loss) attributable to noncontrolling interest
(183
)
 
(329
)
 
(255
)
Comprehensive income (loss) attributable to shareholders
$
1,469

 
$
(51,493
)
 
$
171,671

See accompanying notes to consolidated and combined financial statements.


45


BABCOCK & WILCOX ENTERPRISES, INC.
CONSOLIDATED AND COMBINED BALANCE SHEETS

ASSETS
 
December 31,
 
2015
 
2014
 
(In thousands)
Current assets
 
 
 
Cash and cash equivalents
$
365,192

 
$
218,659

Restricted cash and cash equivalents
37,144

 
26,311

Investments
3,996

 
1,607

Accounts receivable – trade, net
291,242

 
265,456

Accounts receivable – other
44,765

 
36,147

Contracts in progress
128,174

 
107,751

Inventories
90,119

 
98,711

Deferred income taxes

 
36,601

Other current assets
17,552

 
11,347

Assets of discontinued operations

 
46,177

Total current assets
978,184

 
848,767

Net property, plant and equipment
145,717

 
135,237

Investments
1,093

 
214

Goodwill
201,069

 
209,277

Deferred income taxes
190,656

 
115,111

Investments in unconsolidated affiliates
92,196

 
109,248

Intangible assets
37,844

 
50,646

Other assets
16,286

 
9,226

Assets of discontinued operations

 
38,828

TOTAL ASSETS
$
1,663,045

 
$
1,516,554

 
See accompanying notes to consolidated and combined financial statements.

46


BABCOCK & WILCOX ENTERPRISES, INC.
CONSOLIDATED AND COMBINED BALANCE SHEETS

LIABILITIES AND STOCKHOLDERS' EQUITY
 
December 31,
 
2015
 
2014
 
(In thousands,
except share and per share amounts)
Current liabilities
 
 
 
Short-term line of credit
$
2,005

 
$
3,215

Accounts payable
175,170

 
160,606

Accrued employee benefits
51,476

 
39,464

Advance billings on contracts
229,390

 
148,098

Accrued warranty expense
39,847

 
37,735

Other accrued liabilities
63,464

 
54,827

Liabilities of discontinued operations

 
44,145

Total current liabilities
561,352

 
488,090

Accumulated postretirement benefit obligation
27,768

 
28,347

Pension liability
282,133

 
253,763

Other liabilities
43,365

 
42,929

Liabilities of discontinued operations

 
15,988

TOTAL LIABILITIES
914,618

 
829,117

Commitments and contingencies (Note 11)

 

Stockholders' equity
 
 
 
Common stock, par value $0.01 per share, authorized 200,000,000 shares; issued 52,480,630 and 0 shares at December 31, 2015 and December 31, 2014, respectively
540

 

Preferred stock, par value $0.01 per share, authorized 20,000,000 shares; no shares issued

 

Capital in excess of par value
790,464

 

Treasury stock at cost, 1,376,226 shares at December 31, 2015
(25,408
)
 

Retained earnings
965

 

Accumulated other comprehensive income (loss)
(18,853
)
 
10,374

Former net parent investment

 
676,036

Stockholders' equity attributable to shareholders
747,708

 
686,410

Noncontrolling interest
719

 
1,027

TOTAL STOCKHOLDERS' EQUITY
748,427

 
687,437

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$
1,663,045

 
$
1,516,554

See accompanying notes to consolidated and combined financial statements.


47


BABCOCK & WILCOX ENTERPRISES, INC.
CONSOLIDATED AND COMBINED STATEMENT OF STOCKHOLDERS’ EQUITY
 
 
 
Capital In
Excess of
Par Value
Treasury Stock
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Former Parent Investment
Noncontrolling
Interest
Total
Stockholders’
Equity
 
Common Stock
 
Shares
Par Value
 
 
(In thousands, except share and per share amounts)
Balance December 31, 2012

$

$

$

$

$
38,647

$
267,286

$
783

$
306,716

Net income






174,527

289

174,816

Increase in note receivable






47,408


47,408

Currency translation adjustments





(2,495
)

(34
)
(2,529
)
Derivative financial instruments





(531
)


(531
)
Defined benefit obligations





123



123

Available-for-sale investments





48



48

Stock-based compensation






160


160

Dividends to noncontrolling interests







(114
)
(114
)
Distribution of Nuclear Energy segment to former Parent





(453
)


(453
)