Babcock & Wilcox Announces Fourth Quarter 2012 Results

Babcock & Wilcox Announces Fourth Quarter 2012 Results

• Adjusted Earnings per Share of $0.56, GAAP EPS of $0.33

• Revenues of $865.3 Million, Increased 8.1%

• Initiates 2013 Adjusted EPS Guidance of $2.25 - $2.45

CHARLOTTE, N.C.--(BUSINESS WIRE)-- The Babcock & Wilcox Company (NYS: BWC) ("B&W" or the "Company") today reported fourth quarter 2012 revenues of $865.3 million, an increase of $64.5 million, or 8.1% from the fourth quarter of 2011. GAAP earnings per share for the fourth quarter 2012 were $0.33 compared to a loss of $0.53 in the fourth quarter of 2011. Adjusted earnings per share were $0.56 for the fourth quarter of 2012, a decrease of 13.8% from the adjusted earnings per share of $0.65 for the fourth quarter of 2011, excluding the impact in both periods of the mark-to-market adjustments for pension and postretirement plans and non-recurring tax adjustments.

Revenues for the full year of 2012 were $3,291.4 million, an increase of 11.5% from the $2,952.0 million recorded in 2011. GAAP earnings per share for the full year of 2012 were $1.91 compared to $0.66 in 2011. Full year 2012 adjusted earnings per share increased 17.9% to $2.17 versus adjusted earnings per share of $1.84 in the prior year, excluding the impact of the mark-to-market adjustments for pension and postretirement plans and non-recurring items.

The Company repurchased 3.9 million common shares at a total cost of $96.8 million in the fourth quarter 2012 under its $250 million share repurchase program. An additional 1.6 million shares have been repurchased through February 27, 2013 at an incremental cost of $42.3 million. The Company has approximately $110.9 million of authorized capacity remaining and intends to continue repurchasing shares.

Recent Highlights

• Selected as the only Winner of DOE's Small Modular Reactor Licensing Technical Support Program

• Awarded $510 Million Naval Nuclear Component Contracts

• Awarded $100 Million Contract for U.K. Waste-to-Energy Plant

• Awarded $100 Million Naval Nuclear Fuel Services and Materials Contracts

• Awarded $36 Million Naval Reactors Assembly and Materials Procurement Contract

• Signed Contract to Prepare TVA Clinch River mPower™ Construction Permit Application

• Awarded Environmental Equipment Control Contract for Iowa Power Plant

Results of Operations

Consolidated revenues for the fourth quarter of 2012 were $865.3 million, an increase of $64.5 million, or 8.1%, from the fourth quarter of 2011. The Power Generation segment revenues increased $36.9 million, or 9.0%, primarily due to an increase in new-build environmental equipment revenues. Nuclear Operations segment revenues increased $32.3 million, or 12.2%, primarily due to increased production of fuel for the naval reactor program and increased manufacturing of nuclear components for certain U.S. Government programs. Nuclear Energy segment revenues decreased $3.8 million, or 3.7%, and Technical Services revenues decreased $3.5 million, or 10.9%.

GAAP operating income for the fourth quarter of 2012 was $65.7 million, an increase of $169.1 million, compared to a loss of $103.4 million in the fourth quarter of 2011. Adjusted operating income for the fourth quarter, excluding the pension mark-to-market losses of $31.9 million and $215.4 million in 2012 and 2011, respectively, was $97.6 million in the fourth quarter of 2012 and $112.0 million for the same period in 2011. Lower operating income in the Power Generation segment was due primarily to a lower level of net project improvements than in the fourth quarter of 2011 and more competitive margins from the current cycle of environmental projects. In the Nuclear Energy segment, the decrease was primarily due to the timing of a large service contract performed in the fourth quarter of 2011. Technical Services segment operating income was lower primarily as a result of decreased fee awards earned on our NNSA managed sites. These decreases were partially offset by continued strong performance in the Nuclear Operations segment.

"In 2012, we produced strong financial results, returned excess capital to shareholders, and initiated changes throughout the organization that we expect will improve profitability and cash flow in the years to come," said E. James Ferland, President and Chief Executive Officer of B&W. "Our focus in 2013 will be on increasing the value of our existing businesses by focusing on what we do well and leveraging those competencies to drive organic growth, following through on plans to improve the efficiency and effectiveness of the organization, executing our SMR strategy, and evaluating external growth opportunities, including global diversification. I am encouraged by the opportunities we have in 2013 and am committed to meaningfully increasing value for our shareholders."

Global Competitiveness Initiative ("GCI")

The Global Competitiveness Initiative was launched in the third quarter of 2012 to enhance competitiveness, better position the Company for growth, and improve profitability. The Company has identified a wide range of cost reduction activities including operational and functional efficiency improvements, organizational design changes, and manufacturing optimization. Once fully executed, these actions are expected to produce a total of $40 million to $50 million in annual savings. Roughly half of the annual savings will result from efficiency improvements that will be completed by the end of 2013. The balance of the cost savings relates to manufacturing initiatives that will be completed by mid-2015. In order to achieve these savings, the Company expects to incur total restructuring charges (cash and non-cash) not to exceed $60 million.

Liquidity

The Company's cash and investments position, net of debt, was $532.9 million at the end of the fourth quarter of 2012, an increase of $130.7 million compared to $402.2 million at the end of the third quarter of 2012. The fourth quarter typically represents the highest cash flow quarter of the year. In the fourth quarter of 2012, free cash flow was the result of strong operating income, the timing of payments from the U.S. Government related to annual retainage and fees earned, dividends received from joint ventures, and strong working capital performance in the period, partially offset by the use of $96.8 million for share repurchases and $9.5 million for dividends paid to common shareholders. In addition to net cash, the Company maintains a $700.0 million revolving credit facility, which had $542.1 million of availability as of the end of the fourth quarter. The Company believes it maintains adequate liquidity to fund operations, which could include increased working capital requirements to fund internal growth, R&D programs, capital distribution programs, and product and geographic expansion opportunities.

Full Year 2013 Outlook

The Company is targeting 2013 consolidated revenues of $3.40 billion to $3.55 billion and adjusted earnings per share for the full year 2013 of $2.25 to $2.45. Adjusted EPS excludes the mark-to-market adjustment for pension and postretirement benefits and GCI restructuring charges. Further, it assumes, net B&W mPower™ spending of $85 million to $95 million, savings from GCI realized in 2013 of $10 million to $15 million, an effective tax rate of between 33% and 35%, and no unusual items.

Reconciliation of Non-GAAP Operating Income and Earnings Per Share

(in $ millions, except per share amounts)