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Item 7. Management’s Discussion and Analysis

2022-03-08 compared with 2021-03-08 · 308 added, 298 removed, 157 unchanged (79% of the section changed)

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BUSINESS OVERVIEW

B&W is a growing, globally-focused renewable, environmental and thermal technologies provider with decades of experience providing diversified energy and emissions control solutions to a broad range of industrial, electrical utility, municipal and other customers.

B&W’s innovative products and services are organized into three market-facing segments which changed in the third quarter of 2020 as part of the Company's strategic, market-focused organizational and re-branding initiative to accelerate growth and provide stakeholders improved visibility into our renewable and environmental growth

Segment results for all periods have been restated for comparative purposes.

B&W is a growing, globally-focused renewable, environmental and thermal technologies provider with over 150 years of experience providing diversified energy and emissions control solutions to a broad range of industrial, electrical utility, municipal and other customers.

B&W’s innovative products and services are organized into three market-facing segments.

Our reportable segments are as follows:

• Babcock & Wilcox Renewable:

Cost-effective technologies for efficient and environmentally sustainable power and heat generation, including waste-to-energy, biomass energy and black liquor systems for the pulp and paper industry.

Cost-effective technologies for efficient and environmentally sustainable power and heat generation, including waste-to-energy, solar construction and installation, biomass energy and black liquor systems for the pulp and paper industry.

B&W’s leading technologies support a circular economy, diverting waste from landfills to use for power generation and replacing fossil fuels, while recovering metals and reducing emissions.

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B&W has an extensive global base of installed equipment for utilities and general industrial applications including refining, petrochemical, food processing, metals and others.

In December 2019, a novel strain of coronavirus, COVID-19, was identified in Wuhan, China and has subsequently spread globally.

This global pandemic has disrupted business operations, trade, commerce, financial and credit markets, and daily life throughout the world.

Our business has been, and continues to be, adversely impacted by the measures taken and restrictions imposed in the countries in which we operate and by local governments and others to control the spread of this virus.

These measures and restrictions have varied widely and have been subject to significant changes from time to time depending on the changes in the severity of the virus in these countries and localities.

These restrictions, including travel and curtailment of other activity, negatively impact our ability to conduct business.

The volatility and variability of the virus has limited our ability to forecast the impact of the virus on our customers and our business.

The continuing resurgence of COVID-19, including at least one new strain thereof, has resulted in the reimposition of certain restrictions and may lead to other restrictions being implemented in response to efforts to reduce the spread of the virus.

These varying and changing events have caused many of the projects we had anticipated would begin in 2020 to be delayed into 2021 and beyond.

Many customers and projects require B&W's employees to travel to customer and project worksites.

Certain customers and significant projects are located in areas where travel restrictions have been imposed, certain customers have closed or reduced on-site activities, and timelines for completion of certain projects have, as noted above, been extended into 2021 and beyond.

Additionally, out of concern for our employees, even where restrictions permit employees to return to our offices and worksites, we have incurred additional costs to protect our employees as well as, advising those who are uncomfortable returning to worksites due to the pandemic that they are not required to do so for an indefinite period of time.

The resulting uncertainty concerning, among other things, the spread and economic impact of the virus has also caused significant volatility and, at times, illiquidity in global equity and credit markets.

The full extent of the COVID-19 impact on our operational and financial performance will depend on future developments, including the ultimate duration and spread of the pandemic and related actions taken by the U.S.

government, state and local government officials, and international governments to prevent disease spread, as well as the availability and effectiveness of COVID-19 vaccinations in the U.S.

and abroad, all of which are uncertain, out of our control, and cannot be predicted.

Our operating results for 2020 have been negatively impacted by the COVID-19 pandemic as previously described on pages 7 and 8.

Because the majority of our revenues are driven by projects, we cannot reasonably estimate the amount of the decreases in our operating results directly caused by COVID-19.

We have experienced adverse impacts on our 2020 revenues due to delays in closing new business deals, deferrals or delays in starting new projects, and other product volume decreases due to COVID-19 in 2020 caused by the following, among other reasons:

• Customers’ concern regarding the duration and magnitude of COVID-19;

• Customers’ hesitance to place large orders;

• Certain planned 2020 projects being delayed into 2021 and beyond;

• Field service personnel unable to get to certain site projects;

• Travel restrictions impeding our ability to acquire new customers;

• International growth plans hindered by recruitment, training & deployment of new field personnel.

We have manufacturing facilities in the Unites States, Mexico, Denmark, Scotland and China.

On September 30, 2021, we acquired a 60% controlling ownership stake in Illinois-based solar energy contractor Fosler Construction Company Inc.

(“Fosler Construction”) for approximately $27.2 million in cash plus contingent consideration of up to $10 million, valued at $8.8 million.

Fosler Construction provides commercial, industrial and utility-scale solar services and owns two community solar projects in Illinois being developed under the Illinois Solar for All program.

Fosler Construction was founded in 1998 and employs approximately 120 people.

It has a strong track record of successfully completing solar projects profitably with union labor and has aligned its model with a growing number of renewable project incentives in the U.S.

We believe Fosler Construction is positioned to capitalize on the high-growth solar market in the U.S.

and that the acquisition aligns with B&W’s aggressive growth and expansion of our clean and renewable energy businesses.

Fosler Construction is reported as part of our B&W Renewable segment, and operates under the name Fosler Solar, a Babcock & Wilcox company.

On November 30, 2021, we acquired 100% ownership of VODA A/S (“VODA”) through our wholly-owned subsidiary, B&W PGG Luxembourg Finance SARL, for approximately $32.9 million.

VODA is a Denmark-based multi-brand aftermarket parts and services provider, focusing on energy-producing incineration plants including waste-to-energy, biomass-to-energy or other fuels, providing service, engineering services, spare parts as well as general outage support and management.

VODA has extensive experience in incineration technology, boiler and pressure parts, SRO, automation, and performance optimization.

VODA employs approximately 65 people mainly in Denmark and Sweden.

We believe VODA will solidify our platform for our renewable service business in Europe and that the acquisition aligns with B&W’s aggressive growth and expansion of our clean and renewable energy businesses.

VODA is reported as part of our B&W Renewable segment.

We plan to form B&W Renewable Services to integrate VODA and our waste-to-energy and biomass aftermarket services businesses.

On February 1, 2022, we acquired 100% ownership of Fossil Power Systems, Inc.

for approximately $59.1 million, excluding working capital adjustments.

Fossil Power Systems, Inc., is a leading designer and manufacturer of hydrogen, natural gas and renewable pulp and paper combustion equipment including ignitors, plant controls and safety systems based in Dartmouth, Nova Scotia, Canada.

Fossil Power Systems, Inc.

will initially be reported as part of our B&W Thermal segment.

On February 28, 2022, we acquired 100% ownership of Optimus Industries, LLC for approximately $19 million, excluding working capital adjustments.

Optimus designs and manufactures waste heat recovery products for use in power generation, petrochemical, and process industries , including package boilers, watertube and firetube waste heat boilers, economizers, superheaters, waste heat recovery equipment and sulfuric acid plants and is based in Tulsa, Oklahoma and Chanute, Kansas.

Optimus Industries, LLC will be reported as part of our B&W Thermal segment.

Our business depends significantly on the capital, operations and maintenance expenditures of global electric power generating companies, including renewable and thermal powered heat generation industries and industrial facilities with environmental compliance policy requirements.

Several factors may influence these expenditures, including:

• climate change initiatives promoting environmental policies which include renewable energy options utilizing waste-to-energy or biomass to meet legislative requirements and clean energy portfolio standards in the United States, European, Middle East and Asian markets;

• requirements for environmental improvements in various global markets;

• expectation of future governmental requirements to further limit or reduce greenhouse gas and other emissions in the United States, Europe and other international climate change sensitive countries;

• prices for electricity, along with the cost of production and distribution including the cost of fuels within the United States, Europe, Middle East and Asian based countries;

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

• 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;

• 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, environmental and noise abatement needs of the countries in which they operate.

We have manufacturing facilities in Mexico, the United States, Denmark, Scotland and China.

Many aspects of our operations and properties could be affected by political developments, environmental regulations and operating risks.

These and other factors may have a material impact on our international and domestic operations or our business as a whole.

Through our restructuring efforts, we continue to make progress to make our cost structure more variable and to reduce costs.

Through our restructuring efforts, we continue to make significant progress to make our cost structure more variable and to reduce costs.

We expect our cost saving measures to continue to translate to bottom-line results, with top-line growth driven by opportunities for our core technologies and support services across the B&W Renewable, B&W Environmental and B&W Thermal segments globally.

While we anticipate quarterly variability and cyclicality typical of our industry, we expect to continue to show improvement in 2021 as compared to 2020.

We expect to continue to explore other cost saving initiatives to improve cash generation and evaluate additional non-core asset sales to continue to strengthen our liquidity.

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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.

Our operating loss improved to a loss of $1.7 million for the year ended December 31, 2020 as compared to a loss of $29.4 million for the year ended December 31, 2019.

Year-over-year comparisons of our results from continuing operations were affected by:

• On October 10, 2020, we entered into a settlement agreement with an insurer in connection with five of the six European B&W Renewable EPC loss contracts.

In connection with the insured losses recognized in prior years, we recognized a loss recovery of $26.0 million as a reduction of our Cost of operations in our Consolidated Statements of Operations included in Item 8 of this Annual Report.

On October 23, 2020, we received gross proceeds of $26.0 million, as described in Note 5 to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report.

• $11.8 million and $11.7 million of restructuring and spin-off costs were recognized in 2020 and 2019, primarily related to severance.

• $4.4 million and $9.1 million of financial advisory service fees were recorded in 2020 and 2019, respectively, which are required under our U.S.

Revolving Credit Facility.

Financial advisory service fees are included in advisory fees and settlement costs in the Consolidated Statement of Operations included in Item 8 of this Annual Report.

• $6.4 million and $11.8 million of legal and other advisory fees were recognized in 2020 and 2019, respectively, primarily related to a loss recovery settlement agreement, a contract settlement and for liquidity planning and are included in advisory fees and settlement costs in the Consolidated Statement of Operations included in Item 8 of this Annual Report.

The settlements are further described above and in Note 5 to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report.

• $(23.2) million and $8.8 million of actuarially determined mark to market (“MTM”) (losses) gains on our pension and other post-retirement benefits in 2020 and 2019, respectively.

MTM losses are further described in Note 13 to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report.

• $4.9 million of accelerated depreciation expense in 2019 for fixed assets affected by our September 2018 announcement to consolidate office space and relocate our global headquarters to Akron, Ohio in December 2019.

• $6.6 million of settlement cost was recognized in 2019 in connection with an additional European waste-to-energy EPC contract, for which notice to proceed was not given and the contract was not started and is included in advisory fees and settlement costs in the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report.

The settlement limits our obligations to our core scope activities and eliminates risk related to acting as the prime EPC should the project have moved forward.

• $3.6 million of loss on sale of business was recognized in 2019 for a non-core materials handling business in Germany, Loibl GmbH, as described in Note 23 to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report.

RESULTS OF OPERATIONS

In addition, we continue to evaluate further dispositions, opportunities for additional cost savings and opportunities for subcontractor recoveries and other claims where appropriate and available.

If the value of our business was to decline, or if we were to determine that we were unable to recognize an amount in connection with any proposed disposition in excess of the carrying value of any disposed asset, we may be required to recognize impairments for one or more of our assets that may adversely impact our business, financial condition and results of operations.

RESULTS OF OPERATIONS–YEARS ENDED DECEMBER 31, 2021, 2020 AND 2019

Components of Our Results of Operations

Our revenue is the total amount of income generated by our business and consists primarily of income from our renewable, environmental and thermal technology solutions we provide to a broad range of industrial electric utility and other customers.

Revenue from our operations is assessed based on our three market-facing segments, Babcock & Wilcox Renewable, Babcock & Wilcox Environmental and Babcock & Wilcox Thermal.

Operating Income

Operating income consists primarily of our revenue minus costs and expenses, including cost of operations, SG&A, and advisory fees and settlement costs.

Net income consists primarily of operating income minus other income and expenses, including interest income, foreign exchange and expense related to our benefit plans.

Consolidated Results of Operations

The presentation of the components of our adjusted EBITDA in the table below is consistent with the way our chief operating decision maker reviews the results of our operations and makes strategic decisions about our business.

Items such as gains or losses on asset sales, MTM pension adjustments, restructuring and spin costs, impairments, losses on debt extinguishment, costs related to financial consulting required under our U.S.

Revolving Credit Facility and other costs that may not be directly controllable by segment management are not allocated to the segments.

The following discussion of our business segment results of operations includes a discussion of adjusted EBITDA, which when used on a consolidated basis is a non-GAAP financial measure.

Adjusted EBITDA differs from the most directly comparable measure calculated in accordance with generally accepted accounting principles (“GAAP”).

A reconciliation of net income (loss), the most directly comparable GAAP measure, to adjusted EBITDA is included in “Non-GAAP Financial Measures” below.

Management believes that this financial measure is useful to investors because it excludes certain expenses, allowing investors to more easily compare our financial performance period to period.

Year ended December 31,

(In thousands) 2020 2019 $ Change

(in thousands) 2021 2020 2019

B&W Renewable segment $ 156,800 $ 156,187 $ 205,551

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Year ended December 31,

(in thousands) 2020 2019 $ Change

(in thousands) 2021 2020 2019

Adjusted EBITDA

B&W Renewable segment (1)

$ 23,219 $ 24,957 $ 1,617

B&W Environmental segment 11,773 3,503 12,553

B&W Thermal segment 49,143 36,052 52,235

35,435 51,353 (15,918)

Corporate (12,467) (14,425) (17,579)

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$ 70,575 $ 45,708 $ 45,965

(1) During the year ended December 31, 2020, we redefined our definition of adjusted EBITDA to eliminate the effects of certain items including loss from a non-strategic business, interest on letters of credit included in cost of operations and loss on business held for sale.

Consequently, adjusted EBITDA in prior periods have been revised to conform with the revised definition and present separate reconciling items in our reconciliation.

(2) Adjusted EBITDA for the year ended December 31, 2020, includes the recognition of a $26.0 million loss recovery settlement related to certain historical EPC loss contracts in the third quarter.

(1) Adjusted EBITDA for 2020 includes a $26 million non-recurring loss recovery related to certain historical EPC loss contracts.

2021 vs 2020 Consolidated Results

Revenues increased by $157.0 million to $723.4 million in 2021 as compared to $566.3 million in 2020, primarily attributable to a higher level of activity in our Thermal and Environmental segments which were both adversely impacted by COVID-19 in the prior year and the acquisitions of Fosler Construction and VODA in our Renewable segment.

Segment specific changes are discussed in further detail in the sections below

Net income (loss) increased by $41.8 million to $31.5 million in 2021 as compared to $(10.3) million.

Operating income (loss) increased $22.6 million to $20.8 million in 2021 as compared to $(1.7) million in 2020.

The increase is primarily due to the revenue increase described above, contributions from the Fosler Construction and VODA acquisitions and the recognition of a settlement from a subcontractor to reimburse the Company for project costs related to three of the Renewable EPC loss

contracts as described in Note 5 to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report.

These increases were also partially offset by the non-recurring loss recovery of $26.0 million recognized in the prior year under an October 10, 2020 settlement agreement with an insurer in connection with five of the six European B&W Renewable EPC loss contracts, as described in Note 5 to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report.

Restructuring expenses, advisory fees, research and development, depreciation and amortization expense, pension and other postretirement benefit plans, foreign exchange, income taxes and gains (losses) on dispositions are discussed in further detail in the sections below.

2020 vs 2019 Consolidated Results

Revenues decreased by $292.8 million to $566.3 million in 2020 as compared to $859.1 million in 2019.

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In addition to the impacts of COVID-19, revenue was also impacted by segment specific changes which are discussed in further detail in the sections below.

Net loss improved $118.7 million to $(10.3) million in 2020 from $(129.0) million in 2019.

Operating losses improved $27.6 million to $(1.7) million in 2020 from $(29.4) million in 2019, primarily due to the insurance loss recovery of $26.0 million and a lower level of losses on the EPC loss contracts, partially offset by the divestiture of Loibl and the impacts of COVID-19 in the B&W Renewable segment, as well as a decline in volume in the B&W Environmental and B&W Thermal segments related primarily to COVID-19.

Restructuring expenses, advisory fees, amortization expense, gains (losses) on dispositions of equity method investees, and impairments are discussed in further detail in the sections below.

Non-GAAP Financial Measures

The following discussion of our business segment results of operations includes a discussion of adjusted gross profit, a non-GAAP financial measure.

Adjusted gross profit differs from the most directly comparable measure calculated in accordance with generally accepted accounting principles (“GAAP”).

Amortization expense is not allocated to the segments’ adjusted gross profit.

A reconciliation of operating income (loss), the most directly comparable GAAP measure, to adjusted gross profit is included in the table below.

Management believes that this financial measure is useful to investors because it excludes certain expenses, allowing investors to more easily compare our financial performance period to period.

previously discussed, we changed our reportable segments in 2020 and have recast prior period results to account for this change.

Year ended December 31,

(in thousands) 2020 2019 $ Change

Adjusted gross profit (1)(2)(3)

Operating loss $ (1,737) $ (29,382) $ 27,645

Selling, general and administrative (“SG&A”) expenses 141,438 150,556 (9,118)

Advisory fees and settlement costs 12,878 27,943 (15,065)

Intangible amortization expense 5,467 4,274 1,193

Restructuring activities 11,849 11,707 142

Research and development costs 4,379 2,861 1,518

Loss from a non-strategic business 2,559 5,518 (2,959)

Gain on asset disposals, net (3,263) (3,940) 677

Adjusted gross profit $ 173,570 $ 169,537 $ 4,033

(1) Intangible amortization is not allocated to the segments' adjusted gross profit, but depreciation is allocated to the segments' adjusted gross profit.

(2) Adjusted gross profit for the years ended December 31, 2020 and December 31, 2019, excludes losses related to a non-strategic business that was previously included in Adjusted gross profit within the B&W Environmental segment and totals $2.6 million and $5.5 million, respectively.

(3) Adjusted gross profit for the year ended December 31, 2020, includes the recognition of a $26.0 million loss recovery settlement related to certain historical EPC loss contracts in the third quarter.

Adjusted gross profit by segment is as follows:

Year ended December 31,

(in thousands) 2020 2019 $ Change

B&W Renewable segment $ 58,838 $ 29,992 $ 28,846

B&W Environmental segment 23,548 48,372 (24,824)

B&W Thermal segment 91,184 91,173 11

Adjusted gross profit $ 173,570 $ 169,537 $ 4,033

B&W Renewable Segment Results

Year ended December 31,

(in thousands) 2020 2019 $ Change

Revenues $ 156,187 $ 205,551 $ (49,364)

Adjusted EBITDA $ 24,957 $ 1,617 $ 23,340

Adjusted gross profit $ 58,838 $ 29,992 $ 28,846

Adjusted gross profit % 37.7 % 14.6 %

Revenues in the B&W Renewable segment decreased 24%, or $49.4 million to $156.2 million in 2020 compared to $205.6 million in 2019.

The reduction in revenue is due to the advanced completion of activities on the European B&W Renewable EPC loss contracts in the prior year as well as new anticipated activities being deferred due to COVID-19, partially offset by a higher level of activities on two operations and maintenance contracts in the U.K.

which followed the turnover of the EPC loss contracts to the customers.

Additionally, the reduction in revenue partially relates to the divestiture of Loibl, a materials handling business in Germany that generated revenues of approximately $14.3 million in 2019.

Adjusted EBITDA in the B&W Renewable segment improved $23.3 million to $25.0 million in 2020 compared to $1.6 million in 2019.

In addition the B&W Renewable segment incurred lower costs in the current year to complete the six European

B&W Renewable EPC loss contracts which included $3.7 million and $6.9 million in net losses, including warranty in 2020 and 2019, respectively.

The Adjusted EBITDA improvement was also partially offset by the divestiture of Loibl and lower volume, as described above.

Adjusted gross profit in the B&W Renewable segment increased $28.8 million to $58.8 million in 2020 compared to $30.0 million in 2019.

The improvement is primarily due to the loss recovery of $26.0 million recognized in 2020 under an October 10, 2020 settlement agreement with an insurer in connection with five of the six European B&W Renewable EPC loss contracts and lower costs in the current year to complete the six European B&W Renewable EPC loss contracts, partially offset by lower volume.

B&W Environmental Segment Results

Year ended December 31,

(In thousands) 2020 2019 $ Change

Revenues $ 107,968 $ 275,635 $ (167,667)

Adjusted EBITDA $ 3,474 $ 12,512 $ (9,038)

Adjusted gross profit $ 23,548 $ 48,372 $ (24,824)

Adjusted gross profit % 21.8 % 17.5 %

Revenues in the B&W Environmental segment decreased 61%, or $167.7 million, to $108.0 million in 2020 from $275.6 million in 2019.

The decrease is primarily due to the completion of large construction projects in the prior year and a lower level of activity primarily due to the postponement of new projects by several customers as a result of COVID-19.

B&W Environmental's two significant legacy loss contracts, generated revenues of $4.1 million and $18.8 million in 2020 and 2019, respectively.

Adjusted EBITDA in the B&W Environmental segment decreased $9.0 million to $3.5 million in 2020 compared to $12.5 million in 2019.

The decline is primarily attributable to the impacts of lower volume, the effects of which were partially offset by a lower percentage of overhead being allocated to the segment that were not previously allocated to other segments.

Adjusted gross profit in the B&W Environmental segment decreased $24.8 million, to $23.5 million in 2020, compared to $48.4 million in 2019.

The decrease is primarily attributable to the decrease in volume as described above.

B&W Thermal Segment Results

Year ended December 31,

(In thousands) 2020 2019 $ Change

Revenues $ 304,968 $ 409,744 $ (104,776)

Adjusted EBITDA $ 35,435 $ 51,353 $ (15,918)

Adjusted gross profit $ 91,184 $ 91,173 $ 11

Adjusted gross profit % 29.9 % 22.3 %

Revenues in the B&W Thermal segment decreased 26%, or $104.8 million, to $305.0 million in 2020 compared to $409.7 million in 2019.

The revenue decrease is attributable to the completion of large construction projects in the prior year in addition to the adverse impacts of COVID-19 resulting in lower parts, construction, package boilers and international service orders.

Adjusted EBITDA in the B&W Thermal segment decreased 31%, or $15.9 million, to $35.4 million in 2020 compared to $51.4 million in 2019, primarily attributable to lower volume of project activity and a higher percentage of overhead being allocated to the segment that was previously allocated to other segments, the effects of which were partially offset by favorable product mix and a full period of cost savings and restructuring initiatives benefiting the current year.

Adjusted gross profit in the B&W Thermal segment remained flat at $91.2 million primarily due to lower volume as described above which was offset by favorable product mix and the effects of a full period of cost savings and restructuring initiatives benefiting the current year.

Year-over-year comparisons of our results from net income (loss) were also impacted by:

• $4.9 million, $11.8 million and $11.7 million of restructuring costs were recognized in 2021, 2020 and 2019, respectively , and are more fully described in Note 12 to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report.

• $2.7 million, $4.4 million and $9.1 million of financial advisory service fees were recognized in 2021, 2020 and 2019, respectively.

Financial advisory service fees are included in advisory fees and settlement costs in our Consolidated Statement of Operations.

• $5.5 million, $6.4 million and $11.8 million of legal and other advisory fees were recognized in 2021, 2020 and 2019, respectively.

These fees are related to the contract settlement and liquidity planning and are included in advisory fees and settlement costs in our Consolidated Statement of Operations.

• $6.5 million, $(6.2) million and $(4.0) million of gain (loss) on debt extinguishment in 2021, 2020 and 2019, respectively.

• $1.8 million, $0.1 million and $3.6 million of loss on sale of business in 2021, 2020 and 2019, respectively.

• $15.5 million, $(23.2) million and $8.8 million of actuarially determined mark to market (“MTM”) gains (losses) on our pension and other post-retirement benefits in 2021, 2020 and 2019, respectively.

MTM losses are further described in Note 13 to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report.

• $4.9 million, $2.1 million and $0.5 million of litigation legal costs were recognized in 2021, 2020 and 2019, respectively.

These fees are included in advisory fees and settlement costs in our Consolidated Statement of Operations.

• $4.8 million of costs related to completed and potential acquisitions were recognized in 2021.

These costs are included in selling, general and administrative expenses in our Consolidated Statement of Operations.

Bookings and Backlog

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Backlog can vary significantly from period to period, particularly when large new build projects or operations and maintenance contracts are booked because they may be fulfilled over multiple years.

Additionally, because we operate globally, our backlog is also affected by changes in foreign currencies each period.

Because we operate globally, our backlog is also affected by changes in foreign currencies each period.

We do not include orders of our unconsolidated joint ventures in backlog.

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We believe comparing bookings on a quarterly basis or for periods less than one year is less meaningful than for longer periods, and that shorter-term changes in bookings may not necessarily indicate a material trend.

Our bookings for the year ended December 31, 2020 and 2019 was as follows:

Year ended December 31,

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Expected revenue from backlog $ 397 $ 82 $ 160 $ 639

Corporate costs include SG&A expenses that are not allocated to the reportable segments.

These costs include certain executive, compliance, strategic, reporting and legal expenses associated with governance of the total organization and being an SEC registrant.

Corporate costs decreased $3.2 million to $14.4 million in the year ended December 31, 2020 as compared to $17.6 million in the year ended December 31, 2019, primarily due to decreased bonus costs recognized for the year ended December 31, 2020.

Non-GAAP Financial Measures

Adjusted EBITDA on a consolidated basis is a non-GAAP metric defined as the sum of the adjusted EBITDA for each of the segments, further adjusted for corporate allocations and research and development costs.

At a segment level, the adjusted EBITDA presented below is consistent with the way the Company's chief operating decision maker reviews the results of operations and makes strategic decisions about the business and is calculated as earnings before interest, tax, depreciation and amortization adjusted for items such as gains or losses on asset sales, net pension benefits, restructuring costs, impairments, gains and losses on debt extinguishment, costs related to financial consulting, research and development costs and other costs that may not be directly controllable by segment management and are not allocated to the segment.

The Company uses

adjusted EBITDA internally to evaluate its performance and in making financial and operational decisions.

When viewed in conjunction with GAAP results and the accompanying reconciliation in Note 4 to the Consolidated Financial Statements, the Company believes that its presentation of adjusted EBITDA provides investors with greater transparency and a greater understanding of factors affecting its financial condition and results of operations than GAAP measures alone.

As previously disclosed, the Company changed its reportable segments in 2020 and has recast prior period results to account for this change.

Additionally, the Company redefined its definition of adjusted EBITDA to eliminate the effects of certain items including the loss from a non-strategic business, interest on letters of credit included in cost of operations and loss on business held for sale.

Prior period results have been revised to conform with the revised definition and present separate reconciling items in our reconciliation.

Year ended December 31,

(in thousands) 2021 2020 2019

Net income (loss) $ 31,538 $ (10,297) $ (129,039)

Interest expense 41,359 60,713 95,266

Income tax (benefit) expense (2,224) 8,179 5,286

Depreciation & amortization 18,337 16,805 23,605

EBITDA 89,010 75,400 (4,882)

Benefit plans, net (48,142) (5,600) (22,800)

Gain on sales, net (13,984) (3,155) (339)

(Gain) loss on debt extinguishment (6,530) 6,194 3,969

Stock compensation 10,476 4,587 3,376

Restructuring activities and business services transition costs 10,726 11,849 11,707

Advisory fees for settlement costs and liquidity planning 5,480 6,357 11,824

Litigation legal costs 4,894 2,137 475

Acquisition pursuit and related costs 4,841 — —

Product development (1)

Foreign exchange 4,294 (58,799) 16,602

Financial advisory services 2,709 4,384 9,069

Other - net 1,489 1,128 (285)

Loss from business held for sale 483 467 5,850

Loss from a non-strategic business 116 2,559 5,518

Settlement cost to exit contract (2)

Income from discontinued operations — (1,800) (694)

Adjusted EBITDA (3)

$ 70,575 $ 45,708 $ 45,965

(1) Costs associated with development of commercially viable products that are ready to go to market.

(2) In March 2019, we entered into a settlement in connection with an additional B&W Renewable waste-to-energy EPC contract, for which notice to proceed was not given and the contract was not started.

The settlement eliminated our obligations to act, and our risk related to acting, as the prime EPC should the project have moved forward.

(3) Adjusted EBITDA for the twelve months ended December 31, 2020 includes a $26 million non-recurring loss recovery related to certain historical EPC loss contracts in the third quarter.

Year ended December 31,

(in thousands) 2021 2020 2019

Adjusted EBITDA

B&W Renewable segment (1)

$ 23,219 $ 24,957 $ 1,617

B&W Environmental segment 11,773 3,503 12,553

B&W Thermal segment 49,143 36,052 52,235

Corporate (12,467) (14,425) (17,579)

Research and development benefit (costs) (1,093) (4,379) (2,861)

$ 70,575 $ 45,708 $ 45,965

(1) Adjusted EBITDA for the twelve months ended December 31, 2020 includes a $26 million non-recurring loss recovery related to certain historical EPC loss contracts in the third quarter.

B&W Renewable Segment Results

Year ended December 31, Year ended December 31,

(in thousands) 2021 2020 $ Change 2020 2019 $ Change

Revenues $ 156,800 $ 156,187 $ 613 $ 156,187 $ 205,551 $ (49,364)

Adjusted EBITDA $ 23,219 $ 24,957 $ (1,738) $ 24,957 $ 1,617 $ 23,340

2021 vs 2020 results

Revenues in the B&W Renewable segment increased $0.6 million, to $156.8 million in 2021 compared to $156.2 million in 2020.

The increase in revenue is primarily due to the acquisitions of Fosler Construction and VODA on September 30, 2021 and November 30, 2021, respectively, and higher part sales offset by the timing of a large project order slipping into early 2022.

Adjusted EBITDA in the B&W Renewable segment decreased $1.7 million, to $23.2 million in 2021 compared to $25.0 million in 2020.

The decrease is primarily due to the non-recurring loss recovery of $26.0 million recognized in 2020 under an October 10, 2020 settlement agreement with an insurer in connection with five of the six European B&W Renewable EPC loss contracts offset by higher revenue volume and the acquisitions of Fosler Construction and VODA, as described above, in addition to recognition of a settlement from a subcontractor to reimburse the Company for project costs related to three of the Renewable EPC loss contracts as described in as described in Note 5 to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report.

2020 vs 2019 results

Revenues in the B&W Renewable segment decreased 24%, or $49.4 million to $156.2 million in 2020 compared to $205.6 million in 2019.

which followed the turnover of the EPC loss contracts to the customers.

Additionally, the reduction in revenue partially relates to the divestiture of Loibl, a materials handling business in Germany that generated revenues of approximately $14.3 million in 2019.

Adjusted EBITDA in the B&W Renewable segment improved $23.3 million to $25.0 million in 2020 compared to $1.6 million in 2019.

In addition the B&W Renewable segment incurred lower costs in 2020 to complete the six European B&W Renewable EPC loss contracts which included $3.7 million and $6.9 million in net losses, including warranty in 2020 and 2019, respectively.

The Adjusted EBITDA improvement was also partially offset by the divestiture of Loibl and lower volume.

B&W Environmental Segment Results

Year ended December 31, Year ended December 31,

(In thousands) 2021 2020 $ Change 2020 2019 $ Change

Revenues $ 133,826 $ 107,968 $ 25,858 $ 107,968 $ 275,635 $ (167,667)

Adjusted EBITDA $ 11,773 $ 3,503 $ 8,270 $ 3,503 $ 12,553 $ (9,050)

2021 vs 2020 results

Revenues in the B&W Environmental segment increased 24%, or $25.9 million to $133.8 million in 2021 compared to $108.0 million in 2020.

The increase is primarily driven by the postponement of several new projects in the prior year due to COVID-19 which have since resumed in addition to higher overall volume in our ASH project business.

Adjusted EBITDA in the B&W Environmental segment wa s $11.8 million i n 2021 compared to $3.5 million in 2020.

The increase is driven primarily by higher volume, as described above .

2020 vs 2019 results

Revenues in the B&W Environmental segment decreased 61%, or $167.7 million, to $108.0 million in 2020 from $275.6 million in 2019.

B&W Environmental’s two significant legacy loss contracts, generated revenues of $4.1 million and $18.8 million in 2020 and 2019, respectively.

Adjusted EBITDA in the B&W Environmental segment decreased $9.1 million to $3.5 million in 2020 compared to $12.6 million in 2019.

B&W Thermal Segment Results

Year ended December 31, Year ended December 31,

(In thousands) 2021 2020 $ Change 2020 2019 $ Change

Revenues $ 433,329 $ 304,968 $ 128,361 $ 304,968 $ 409,744 $ (104,776)

Adjusted EBITDA $ 49,143 $ 36,052 $ 13,091 $ 36,052 $ 52,235 $ (16,183)

2021 vs 2020 results

Revenues in the B&W Thermal segment increased 42%, or $128.4 million, to $433.3 million in 2021 compared to $305.0 million generated in 2020.

The revenue increase is attributable to a higher level of activity on construction projects, an increase in volume in our package boilers and parts business and the adverse impacts of COVID-19 which significantly impacted prior year revenues, as described below.

Adjusted EBITDA in the B&W Thermal segment increased $13.1 million to $49.1 million in 2021 compared to $36.1 million in 2020, which is mainly attributable to the increase in volume as described above and continued cost savings and restructuring initiatives benefiting the current year.

2020 vs 2019 results

Revenues in the B&W Thermal segment decreased 26%, or $104.8 million, to $305.0 million in 2020 compared to $409.7 million in 2019.

Adjusted EBITDA in the B&W Thermal segment decreased 31% , or $16.2 million, to $36.1 million in 2020 compared to $52.2 million in 2019, primarily attributable to lower volume of project activity and a higher percentage of overhead being

allocated to the segment that was previously allocated to other segments, the effects of which were partially offset by favorable product mix and a full period of cost savings and restructuring initiatives benefiting the 2020 year.

Corporate costs in adjusted EBITDA include SG&A expenses that are not allocated to the reportable segments.

These costs include, among others, certain executive, compliance, strategic, reporting and legal expenses associated with governance of the total organization and being an SEC registrant.

Corporate costs decreased $2.0 million to $12.5 million in year ended December 31, 2021 as compared to $14.4 million incurred in the year ended December 31, 2020.

The decrease is primarily due to an increase in the allocation of corporate costs to the reporting segments, lower personnel costs and audit and director fees partially offset by an increase in the bonus expense of $1.0 million.

Corporate costs decreased $3.2 million to $14.4 million in the year ended December 31, 2020 as compared to $17.6 milli on in the year ended December 31, 2019, primarily due to decreased bonus costs recognized for the year ended December 31, 2020.

Advisory Fees and Settlement Costs

Advisory fees and settlement costs decreased by $15.1 million to $12.9 million in the year ended December 31, 2020 as compared to $27.9 million in the year ended December 31, 2019, primarily due to settlement costs to exit the fifth B&W Renewable EPC contract in the first quarter of 2019 as described in Note 5 to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report and also due to reduced use of external consultants in 2020 as the Company staffed certain positions internally.

Advisory fees and settlement costs increased $0.2 million to $13.1 million in the year ended December 31, 2021 as compared to $12.9 million in the corresponding period of 2020.

The change is primarily due to increased use of external consultants in 2021.

Advisory fees and settlement costs decreased by $15.1 million to $12.9 million in the year ended December 31, 2020 as compared to $27.9 million in the year ended December 31, 2019, primarily due to settlement costs to exit a certain B&W Renewable EPC contract in the first quarter of 2019 and also due to reduced use of external consultants in 2020 as the Company staffed certain positions internally.

Research and Development

Our research and development activities are related to improving our products through innovations to reduce the cost of our products to make them more competitive and through innovations to reduce performance risk of our products to better meet our and our customers' expectations.

Research and development costs unrelated to specific contracts are expensed as incurred.

Research and development expenses totaled $4.4 million and $2.9 million for the years ended December 31, 2020 and 2019, respectively.

The increase resulted primarily from our strategy to support future growth.

Our research and development activities are focused on improving our products through innovations to reduce their cost and make them more competitive, as well as to reduce performance risk of our products to better meet our and our customers’ expectations.

Research and development (benefit) expenses totaled $1.6 million, $4.4 million and $2.9 million in the years ended December 31, 2021, 2020 and 2019, respectively.

The change resulted primarily from timing of specific research and development efforts and the recognition of approximately $0.9 million in 2021 related to certain credits.

Restructuring

Restructuring actions across our business segments and corporate functions resulted in $11.8 million and $11.7 million of expense in the years ended December 31, 2020 and 2019, respectively.

Depreciation and Intangible Asset Amortization

Depreciation expense was $11.3 million and $19.3 million in the years ended December 31, 2020 and 2019, respectively.

We recorded intangible asset amortization expense of $5.5 million and $4.3 million in the years ended December 31, 2020 and 2019, respectively.

Restructuring actions across our business units and corporate functions resulted in $4.9 million, $11.8 million and $11.7 million of expense in the years ended December 31, 2021, 2020 and 2019, respectively.

The charges primarily consist of severance related to actions taken, including as part of the Company’s strategic, market-focused organizational and re-branding initiatives.

Transition Costs

Transition costs across our corporate and business functions resulted in $5.9 million of expense in the year ended December 31, 2021.

These charges primarily result from non-recurring actions taken to outsource certain tasks to offshore service providers or to transfer administrative and compliance tasks to global service providers as part of our strategic efforts to reduce future selling, general and administrative costs.

Transition costs are included in selling, general and administrative expenses in our Consolidated Statement of Operations,

Depreciation and Amortization

Depreciation expense was $9.7 million, $11.3 million and $19.3 million in the years ended December 31, 2021, 2020 and 2019, respectively.

In December 2019, we consolidated all of our Barberton and most of our Copley, Ohio operations into new, leased office space in Akron, Ohio and $4.9 million of accelerated depreciation was recognized during the year ended December 31, 2019.

Amortization expense was $8.6 million, $5.5 million and $4.3 million in the year ended December 31, 2021, 2020, and 2019, respectively.

Pension and Other Postretirement Benefit Plans

We recognize benefits from our defined benefit and other postretirement benefit plans based on actuarial calculations primarily because our expected return on assets is greater than our service costs.

We recognize benefits from our defined benefit and other postretirement benefit plans based on actuarial calculations primarily because our expected return on assets is greater than our service cost.

Service cost is low because our plan benefits are frozen except for a small number of hourly participants.

Pension benefits before MTM were $32.7 million, $28.8 million and $14.0 million in the years ended December 31, 2021, 2020 and 2019, respectively.

Our pension costs also include MTM adjustments from time to time and are primarily a result of changes in the discount rate, curtailments and settlements.

Any MTM charge or gain should not be considered to be representative of future MTM adjustments as such events are not currently predicted and are in each case subject to market conditions and actuarial assumptions as of the date of the event giving rise to the MTM adjustment.

Total MTM adjustments for our pension benefit plans were gains of $15.3 million for the twelve months ended months ended December 31, 2021.

Total MTM adjustments for our other postretirement benefit plans were gains of $0.2 million during the twelve months ended December 31, 2021.

Pension benefits, excluding MTM adjustments of a loss of $23.2 million and a gain of $8.8 million, were $28.8 million and $14.0 million in the years ended December 31, 2020 and 2019, respectively.

The increase in the net periodic pension benefit was primarily due to the impact of lower discount rates and higher actual return on plan assets.

The change in the MTM adjustment was primarily due to the lower impact of discount rate changes, lower actual return on plan assets, reduced mortality assumption gains and higher losses related to demographic experience.

The following sensitivity analysis reflects 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, 2021:

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A 25 basis point change in the assumed discount rate and return on assets would have no meaningful impact on our other postretirement benefit plan obligations and expense for the year ended December 31, 2021 individually or in the aggregate, excluding the impact of any annual MTM adjustments we record annually.

Refer to Note 13 to the Consolidated Financial Statements for further information regarding our pension and other postretirement plans.

Foreign Exchange

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We record adjustments resulting from the translation of foreign currency financial statements as a component of accumulated other comprehensive income (loss).

We report foreign currency transaction gains and losses in income.

Foreign exchange was a gain of $58.8 million and a loss of $16.6 million for the years ended December 31, 2020 and 2019, respectively.

We report foreign currency transaction gains and losses in Consolidated Statements of Operations.

Foreign exchange was a gain/(loss) of $(4.3) million, $58.8 million and $(16.6) million for the years ended December 31, 2021, 2020, and 2019, respectively.

Foreign exchange gains and losses are primarily related to unhedged intercompany loans denominated in European currencies to fund foreign operations.

Foreign exchange gains in 2020 were primarily driven by a weakening U.S.

dollar compared to the underlying European currencies and changes in loan balances denominated in Danish Krone that averaged over $500 million throughout the year.

dollar compared to the underlying European currencies and changes in intercompany loan balances denominated in Danish Krone that averaged over $500 million throughout the year.

The 2020 loan balances denominated in Danish Krone were converted to equity in 2020.

Year ended December 31,

(In thousands, except for percentages) 2020 2019 $ Change

(In thousands, except for percentages) 2021 2020 2019

Income (loss) before income taxes $ 29,314 $ (3,918) $ (124,447)

Income tax expense $ 8,179 $ 5,286 $ 2,893

Income tax expense (benefit) $ (2,224) $ 8,179 $ 5,286

Effective tax rate (7.6) % (208.8) % (4.2) %

Our effective tax rate in 2020 reflects a valuation allowance against deferred tax assets in jurisdictions other than, Mexico, Canada, the United Kingdom, and Sweden.

Our effective tax rate in 2021 reflects a valuation allowance against deferred tax assets in jurisdictions other than Mexico, Canada, Brazil, Finland, Germany, Thailand, the Philippines, Indonesia, the United Kingdom, Sweden and certain United States state jurisdictions.

The decrease in our income tax expense in 2021 compared to 2020 is primarily attributable to a $8.7 million reduction in the valuation allowance on net operating losses and temporary deductible benefits in certain states that are now expected to be recovered.

The increase in our income tax expense in 2020 compared to 2019 is primarily attributable to additional income in our profitable foreign subsidiaries, additional foreign withholding taxes incurred on cross-border transactions, and a $1.1 million deferred tax liability related to unremitted earnings of certain foreign subsidiaries.

In 2019, our effective tax rate was also impacted by valuation allowances related to losses incurred in certain jurisdictions.

Liquidity and Capital Resources

Our primary liquidity requirements include debt service and working capital needs.

We fund our liquidity requirements primarily through cash generated from operations and external sources of financing, including our A&R Credit Agreement (as defined below) that governs the U.S.

Revolving Credit Facility and the last out term loans (the “Last Out Term Loans”), each of which are described below in further detail along with other sources of liquidity.

As described in Recent Developments in Part II of this Annual Report on Form 10-K, on February 12, 2021, we completed offerings of common stock and 8.125% senior notes due 2026, which resulted in net proceeds of approximately $283 million after deducting underwriting discounts and commissions, but before expenses.

Our primary liquidity requirements include debt service, funding dividends on preferred stock and working capital needs.

We fund our liquidity requirements primarily through cash generated from operations, external sources of financing, including our recent revolving credit agreement, senior notes, and equity offerings, including our Preferred Stock, each of which are described below and in the Notes to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report in further detail along with other sources of liquidity.

During 2021, we executed the following actions:

• on February 12, 2021, we received gross proceeds of approximately $172.5 million after closing a public offering of our common stock in which 29,487,180 shares of common stock were issued, inclusive of 3,846,154 shares issued to B.

Riley Securities, Inc., a related party, as representative of several underwriters in the common stock offering.

Net proceeds received were approximately $163.0 million after deducting underwriting discounts and commissions, but before expenses;

• on February 12, 2021, we received gross proceeds of approximately $125.0 million after completing an issuance of our $125.0 million aggregate principal amount of 8.125% Senior Notes, in a public offering through B.

Riley Securities, Inc., a related party, as representative of several underwriters in the senior notes offering.

Net proceeds received were approximately $120.0 million after deducting underwriting discounts and commissions, but before expenses;

• on March 15, 2021, we completed the sale of certain fixed assets for the Copley, Ohio location for $4.0 million, received $3.3 million of net cash proceeds after adjustments and recognized a gain on sale of $1.9 million.

In conjunction with the sale, we executed a leaseback agreement commencing March 16, 2021 and expiring on March 31, 2033;

• in May 2021, we completed a public offering of our Preferred Stock, in which we ultimately issued an aggregate 4,444,700 shares of our Preferred Stock, at an offering price of $25.00 per share for net proceeds of approximately $106.4 million after deducting underwriting discounts, commissions but before expenses, as described in Note 17 to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report;

• in June 2021, we issued 2,916,880 shares of our Preferred Stock and paid $0.4 million in cash to B.

Riley, a related party, in exchange for a deemed prepayment of $73.3 million of our then-existing Tranche A-3 term loan and paid $0.9 million in cash for accrued interest due to B.

Riley, as described in Note 15 to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report.

As a result of such deemed prepayment, the total amount outstanding under our Last Out Term Loans was reduced to zero;

• on June 30, 2021, September 30, 2021 and December 31, 2021, we paid dividends on our outstanding Preferred Stock totaling $1.7 million, $3.7 million and $3.7 million, respectively, as described in Note 17 to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report;

• on June 30, 2021, we entered into a Revolving Credit Agreement (the “Revolving Credit Agreement”) with PNC Bank, National Association, as administrative agent (“PNC”) and swing loan lender which provides for an up to $50.0 million asset-based revolving credit facility, including a $15 million letter of credit sublimit and a $5 million swingline sublimit.

In addition, we entered into a Letter of Credit Agreement (the “Letter of Credit Agreement”) with PNC, pursuant to which PNC has agreed to issue up to $110 million in letters of credit secured in part by cash collateral provided by an affiliate of MSD Partners, MSD PCOF Partners XLV, LLC (“MSD”).

Lastly, we entered into a Reimbursement Agreement (the “Reimbursement Agreement”) with MSD, as administrative agent, and the cash collateral providers from time to time party thereto, pursuant to which we shall reimburse MSD and any other

cash collateral provider to the extent the up to $110 million of cash collateral provided by MSD and any other cash collateral provider to secure the Letter of Credit Agreement is drawn to satisfy draws on letters of credit, as described in Note 16 to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report;

• in August 2021, we completed the sale of certain real property assets at our Lancaster, Ohio location for $18.9 million.

We received $15.8 million of net proceeds after adjustments and expenses and recognized a gain on sale of $13.9 million.

In conjunction with the sale, we executed a leaseback agreement commencing August 13, 2021 and expiring on August 31, 2041;

• on September 30, 2021, we acquired a 60% controlling ownership stake in Illinois-based solar energy contractor Fosler Construction Company Inc.

(“Fosler Construction”) for approximately $27.2 million in cash plus contingent consideration arrangement, initially valued at $8.8 million, with a maximum value up to $10.0 million if a certain revenue target is achieved in 2022;

• on November 30, 2021, we acquired 100% ownership of VODA A/S (“VODA”) for approximately $32.9 million;

• on December 13, 2021, we completed a public offering of $140.0 million aggregate principal amount of our 6.50% senior notes due 2026 (the “6.50% Senior Notes”) and a subsequent exercise of $11.4 million aggregate principal of our 6.50% senior notes due 2026 by the underwriters was completed on December 30, 2021.

At the completion of the offering and exercise, we received net proceeds of approximately $145.8 million after deducting underwriting discounts, commissions, and before expenses;

• as of December 31, 2021, we issued additional shares of our Preferred Stock for $7.7 million net proceeds under the sales agreement as described in Note 17 to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report;

• as of December 31, 2021, we issued an additional $26.2 million aggregate principal amount of 8.125% Senior Notes for $26.6 million net proceeds under the March 31, 2021 sales agreement as described in Note 14 to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report;

• on February 1, 2022, we acquired 100% ownership of Fossil Power Systems, Inc.

for approximately $59.1 million, excluding working capital adjustments as described in Note 26 to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report;

• on February 28, 2022, we acquired 100% ownership of Optimus Industries, LLC for approximately $19 million, excluding working capital adjustments as described in Note 26 to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report.

See Note 14, Note 15, Note 16, Note 17, Note 18 and Note 26 to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report for additional information on our external sources of financing and equity offerings.

As part of the Company’s ongoing response to the impact of the COVID-19 pandemic on its business, the Company continues to take a number of cash conservation and cost reduction measures which include:

• utilizing options for government loans and programs in the U.S.

and abroad that are appropriate and available;

• deferring the remaining $20.9 million of the estimated Pension Plan contribution payments of $45.6 million that would have been due during 2021, in accordance with the American Rescue Plan Act of 2021 (the “ARPA relief plan”) signed into law in March 2021.

Cash and Cash Flows

At December 31, 2020, our unrestricted cash and cash equivalents totaled $57.3 million and we had total debt of $347.6 million.

At December 31, 2021, our unrestricted cash and cash equivalents totaled $224.9 million and we had total debt of $340.3 million as well as $191.7 million of gross preferred stock outstanding.

Our foreign business locations held $42.1 million of our total unrestricted cash and cash equivalents at December 31, 2021.

Revolving Credit Facility allows for nearly immediate borrowing of available capacity to fund cash requirements in the normal course of business, meaning that U.S.

cash on hand is minimized to reduce borrowing costs.

In general, our foreign cash balances are not available to fund our U.S.

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to foreign entities, which could expose us to taxes we presently have not made a provision for in our results of operations.

We had approximately $33.7 million available for borrowings under the U.S.

Revolving Credit Facility at December 31, 2020.

Cash used in operations was $40.8 million in the year ended December 31, 2020, which is primarily the result of the change in accounts payable.

In the year ended December 31, 2019, cash used in operations was $176.3 million primarily due to funding settlements related to European B&W Renewable EPC contracts, progress against accrued losses on the six European B&W Renewable EPC loss contracts and working capital build within the B&W Thermal segment related to the timing of and mix of work.

Cash flows from investing activities provided net cash of $2.2 million in the year ended December 31, 2020, primarily related to $8.0 million of proceeds received from the settlement of remaining escrows associated with the sale of Palm Beach Resource Recovery Corporation and MEGTEC and Universal businesses, $5.0 million of other investing activities, offset by the net change in available-for-sale securities and $8.2 million of capital expenditures.

In the year ended December 31, 2019, net cash provided by investing activities was $8.8 million, primarily from proceeds received from the sale of Loibl for $7.4 million.

Cash flows from financing activities provided net cash of $44.1 million in the year ended December 31, 2020, primarily related to $70.0 million net borrowings from the Last Out Term Loans, offset by $14.7 million of net repayments of the U.S.

We presently have no plans to repatriate these funds to the U.S.

In addition, we had $0.4 million of restricted cash at December 31, 2021 related to collateral for certain letters of credit.

Cash used in operations was $111.2 million in the year ended December 31, 2021, which is primarily attributable to the $60.8 million reduction in pension, postretirement and employee benefit liabilities and a $62.2 million net decrease in operating cash outflows associated with changes in working capital.

In the year ended December 31, 2020, cash used in operations was $40.8 million which is primarily the result of the change in accounts payable.

Cash flows from investing activities used net cash of $33.5 million in the year ended December 31, 2021, primarily due to the acquisition of business of $55.3 million and $6.7 million of capital expenditures, offset by proceeds from the sale of business and assets of $25.4 million.

In the year ended December 31, 2020, cash flows from investing activities provided net cash of $2.2 million, primarily related to $8.0 million from the settlement of remaining escrows associated with the sale of Palm Beach Resource Recovery Corporation and the MEGTEC and Universal businesses, offset by the net change in available-for-sale securities and $8.2 million of capital expenditures.

Cash flows from financing activities provided net cash of $302.8 million in the year ended December 31, 2021, primarily related to the issuance of common stock, senior notes and preferred stock offset by$75.4 million of repayments of the Last Out Term Loans, a $164.3 million net reduction on the prior U.S.

Revolving Credit Facility and $24.6 million of financing fees.

Net cash provided by financing activities in the year ended December 31, 2019 was $167.0 million primarily related to $109.6 million net borrowings from the Last Out Term Loans, $34.1 million of net borrowings from the U.S.

Revolving Credit Facility, and $40.4 million proceeds from the Rights Offering, partly offset by $16.6 million of financing fees.

A&R Credit Agreement

As described in Note 14 to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report, on May 11, 2015, we entered into the Amended Credit Agreement with a syndicate of lenders in connection with our spin-off from BWXT which governs the U.S.

Revolving Credit Facility and the Last Out Term Loans (as defined below).

Since June 2016, we have entered into a number of waivers and amendments to the Amended Credit Agreement, including several to avoid default under the financial and other covenants specified in the Amended Credit Agreement.

On May 14, 2020, we entered into an agreement with our lenders amending and restating the Amended Credit Agreement (the “A&R Credit Agreement”).

The A&R Credit Agreement refinances and extends the maturity of our U.S.

Revolving Credit Facility and Last Out Term Loans.

Under the A&R Credit Agreement, B.

Riley has committed to provide the Company with up to $70.0 million of additional Last Out Term Loans on the same terms as the term loans extended under the Amended Credit Agreement.

An aggregate $30.0 million of this new commitment was funded upon execution of the A&R Credit Agreement.

Of the remaining commitments, at least $35.0 million will be funded in installments, subject to reduction for the gross proceeds from certain equity offerings conducted by the Company, and $5.0 million will be funded upon request by the Company.

The proceeds from the $30.0 million of new term loans were used to pay transaction fees and expenses and repay outstanding borrowings under the U.S.

Revolving Credit Facility.

Proceeds from the additional $40.0 million of term loans were used to repay outstanding borrowings under the U.S.

Revolving Credit Facility, with any remaining amounts used for working capital, capital expenditures, permitted acquisitions and general corporate purposes.

See Note 14 and Note 15 to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report for additional discussion of the A&R Credit Agreement, U.S.

Credit Facility and Last Out Term Loans.

On February 8, 2021, we entered into Amendment No.

2 to the A&R, which among other things, permitted the issuance of the 8.125% senior notes due 2026.

See Recent Developments in Part II of this Annual Report on Form 10-K for additional discussion of Amendment No.

2 to A&R Credit Agreement.

On March 4, 2021, we entered into A&R Amendment No.

3 with Bank of America.

A&R Amendment No.

3, among other matters, at the date of effectiveness (i) permits the prepayment of certain term loans, (ii) reduces the revolving credit commitments to $130 million and removes the ability to obtain revolving loans under the credit agreement, and (iii) amends certain covenants and conditions to the extension of credit.

On March 4, 2021, effective with the execution of Amendment No.

3, we paid $75 million towards our existing Last Out Term Loans and paid $21.8 million of accrued and deferred fees related to the revolving credit facility.

Revolving Credit Facility

As of December 31, 2020, the U.S.

Revolving Credit Facility provides for a senior secured revolving credit facility in an aggregate amount of up to $306.2 million, as amended and adjusted for completed asset sales.

The proceeds from loans under the U.S.

Revolving Credit Facility are available for working capital needs, capital expenditures, permitted acquisitions and other general corporate purposes, and the full amount is available to support the issuance of letters of credit, subject to the limits specified in the agreement.

At December 31, 2020, borrowings under the U.S.

Revolving Credit Facility consisted of $164.3 million at a weighted average interest rate of 7.46%.

Usage under the U.S.

Revolving Credit Facility consisted of $164.3 million of revolving loan borrowings, $22.0 million of financial letters of credit and $86.2 million of performance letters of credit.

At December 31, 2020, we had approximately $33.7 million available to meet letter of credit and borrowing requirements based on our overall facility size.

On October 23, 2020, we received $26.0 million under the settlement agreement described in Note 5 to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report.

As required by the Company’s U.S.

Revolving Credit Facility, 50% of the net proceeds (gross proceeds less costs) or $8.0 million of the settlement received by the Company was applied as a permanent reduction of the U.S.

Revolving Credit Facility in October 2020.

As described in Note 14 and Note 25 to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report, on February 12, 2021, we received gross proceeds of $125 million from the 2021 Senior Notes offering.

As required by the Company’s U.S.

Revolving Credit Facility, 75% of the gross proceeds or $93.8 million received by the Company was applied as a permanent reduction of the U.S.

Revolving Credit Facility as of February 12, 2021.

Net proceeds received were approximately $120 million after deducting underwriting discounts and commissions, but before expenses.

Also on February 16, 2021, we prepaid $167.1 million towards the outstanding U.S.

Revolving Credit Facility.

As of March 4, 2021, effective with Amendment No.

3 to the A&R Credit Agreement described above, the U.S.

Revolving Credit Facility provides for an aggregate letters of credit amount of up to $130 million.

Cash flows from financing activities provided net cash of $44.1 million in the year ended December 31, 2020, primarily related to $70.0 million face value borrowings from the Last Out Term Loans offset by $14.7 million of net repayments from the prior U.S.

Revolving Credit Facility and $10.6 million of financing fees.

Debt Facilities

As described in the Notes to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report, on June 30, 2021, we entered into the Reimbursement Agreement, Revolving Credit Agreement and Letter of Credit Agreement (collectively, the “Debt Documents” and the facilities thereunder, the “Debt Facilities”).

The obligations of the Company under each of the Debt Facilities are guaranteed by certain existing and future domestic and foreign subsidiaries of the Company.

Riley, a related party, has provided a guaranty of payment with regard to the Company’s obligations under the Reimbursement Agreement.

The Company expects to use the proceeds and letter of credit availability under the Debt Facilities for working capital purposes and general corporate purposes, including to backstop or replace certain letters of credit issued under our previous A&R Credit Agreement, for which commitments were terminated, all loans were repaid and all outstanding and undrawn letters of credit were collateralized on June 30, 2021.

Last Out Term Loans

Last Out Term Loans are incurred under our A&R Credit Agreement and are pari passu with the U.S.

Revolving Credit Facility except for certain payment subordination provisions.

The Last Out Term Loans are subject to the same representations and warranties, covenants and events of default as the U.S.

Revolving Credit Facility.

GAAP, a debt modification with the same borrower that results in substantially different terms is accounted for as an extinguishment of the existing debt and a reborrowing of new debt.

An extinguishment gain or loss is then recognized based on the fair value of the new debt as compared to the carrying value of the extinguished debt.

The Company recognized a loss on debt extinguishment of $6.2 million in 2020, primarily representing the unamortized value of the original issuance discount and fees on the Tranche A-3 Last Out Term Loan.

In connection with the effectiveness of the A&R Credit Agreement, the maturity date for the Last Out Term Loans was extended to December 30, 2022.

On December 31, 2020, September 30, 2020 and June 30, 2020, the Company issued 2,379,376, 2,334,002, and 1,192,371 unregistered shares of common stock to B.

Riley in settlement of the Last Out Term Loans' quarterly interest payable in connection with the Fee and Interest Equitization Agreement further discussed in Note 14.

The total effective interest rate of Tranche A-3, Tranche A-4 and Tranche A-6 was 12.0% on December 31, 2020.

Interest expense associated with the Last Out Term Loans is detailed in Note 16.

As of December 31, 2020, the Last Out Term Loans are presented as a non-current liability in our Consolidated Balance Sheets as a result of the extension of their maturity dates to December 30, 2022 granted under the A&R Credit Agreement.

As of December 31, 2019, the Last Out Term Loans are presented as a current liability in our Consolidated Balance Sheets as a result of limited waivers granted to maintain compliance with the covenants in the previous Amended Credit Agreement.

See Note 14 and Note 15 to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report for additional discussion of the A&R Credit Agreement, U.S.

Credit Facility and Last Out Term Loans.

On February 12, 2021, we issued $35 million of Senior Notes to B.

Riley Financial, Inc.

in exchange for a deemed prepayment of our existing Last Out Term Loan' Tranche A-6.

The interest rate on the remaining Last Out Term Loan Tranche A balances has been reduced to 6.625% from 12.0%.

See Recent Developments in Part II of this Annual Report on Form 10-K for additional discussion of the exchange and deemed prepayment.

On March 4, 2021, effective with the execution of A&R Amendment No.

3, we paid $75 million towards our existing Last Out Term Loans..

Effective with the new debt facilities the Company entered into on June 30, 2021, as described in Note 16 to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report, the Company has no remaining Last Out Term Loans and no further borrowings thereunder are available.

The Company recognized a loss on debt extinguishment of $6.2 million for the year ended December 31, 2020, primarily representing the unamortized value of the original issuance discount and fees on the Tranche A-3 Last Out Term Loan.

See Note 15 to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report for additional information on our Last Out Term Loans.

A&R Credit Agreement

As described above, the A&R Credit Agreement commitments were terminated, all loans were repaid and all outstanding and undrawn letters of credit were collateralized on June 30, 2021.

The Company recognized a gain on debt extinguishment of $6.5 million for the year ended December 31, 2021, primarily representing the write-off of accrued revolver fees of $11.3 million offset by the unamortized deferred financing fees of $4.8 million related to the prior A&R Credit Agreement.

Letters of Credit, Bank Guarantees and Surety Bonds

As described in Note 14 to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report, certain subsidiaries primarily outside of the United States 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 opened outside of the U.S.

Revolving Credit Facility as of December 31, 2020 and December 31, 2019 was $84.5 million and $88.5 million, respectively.

The aggregate value of the letters of credit provided by the U.S.

Revolving Credit Facility backstopping letters of credit or bank guarantees was $32.0 million as of December 31, 2020.

Of the letters of credit issued under the U.S.

Revolving Credit Facility, $34.9 million are subject to foreign currency revaluation.

Our ability to obtain and maintain sufficient capacity under our U.S.

Revolving Credit Facility is essential to allow us to support the issuance of letters of credit, bank guarantees and surety bonds.

Certain of our subsidiaries primarily outside of the United States 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 outside of our Letter of Credit Agreement as of December 31, 2021 was $52.8 million.

The aggregate value of the outstanding letters of credit provided under the Letter of Credit Agreement backstopping letters of credit or bank guarantees was $35.5 million as of December 31, 2021.

Of the outstanding letters of credit issued under the Letter of Credit Agreement, $51.5 million are subject to foreign currency revaluation.

We have also posted surety bonds to support contractual obligations to customers relating to certain contracts.

We utilize bonding facilities to support such obligations, but the issuance of bonds under those facilities is typically at the surety's discretion.

These bonds generally indemnify customers should we fail to perform our obligations under the applicable

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, 2021, bonds issued and outstanding under these arrangements in support of contracts totaled approximately $188.3 million.

The aggregate value of the letters of credit backstopping surety bonds was $13.1 million.

Our ability to obtain and maintain sufficient capacity under our new Debt Facilities is essential to allow us to support the issuance of letters of credit, bank guarantees and surety bonds.

Without sufficient capacity, our ability to support contract security requirements in the future will be diminished.

Riley Limited Guaranty

In connection with the Company’s entry into the A&R Credit Agreement, B.

Riley entered into the B.

Riley Guaranty (as defined in Note 14) for the benefit of the Administrative Agent and the lenders under the U.S.

Revolving Credit Facility.

Riley Guaranty provides for the guarantee of all of the Company’s obligations with respect to the U.S.

Revolving Credit Facility (other than with respect to letters of credit and contingent obligations), including the obligation to repay outstanding

revolving credit loans and pay earned interest and fees.

See Note 14 to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report for additional discussion of the B.

Riley Guaranty.

Fee and Interest Equitization Agreement

In connection with the B.

Riley Guaranty, the Company entered into the Equitization Agreement (as defined in Note 14) with B.

Riley and, solely for certain limited purposes under the Equitization Agreement, B.

Riley FBR, Inc.

The Equitization Agreement provides that, in lieu of receiving (a) $13.4 million of interest payments with respect to Last Out Term Loans under the A&R Credit Agreement between May 14, 2020 and December 31, 2020 and (b) the B.

Riley Guaranty Fee, B.

Riley will receive unregistered shares of the Company’s Common Stock.

See Note 14 to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report for additional discussion of the Equitization Agreement.

Equitization Transactions

In connection with Amendment No.

16 to the Amended Credit Agreement and the extension of Tranche A-3 of the Last Out Term Loans, the Company, B.

Riley and Vintage, each related parties, entered into the “Letter Agreement” on April 5, 2019, pursuant to which the parties agreed to use their reasonable best efforts to effect a series of equitization transactions for a portion of the Last Out Term Loans, subject to, among other things, stockholder approval.

Stockholder approval was received at the Company's annual stockholder meeting on June 14, 2019 and the contemplated transactions.

See Note 14 to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report for additional discussion of the Equitization Transactions.

2019 Rights Offering

On June 28, 2019, we distributed to holders of our common stock one nontransferable subscription right to purchase 0.986896 common shares for each common share held at a subscription price of $0.30 per whole share of common stock (the “2019 Rights Offering”).

The 2019 Rights Offering expired on July 18, 2019 and settled on July 23, 2019.

The 2019 Rights Offering resulted in the issuance of 13.9 million common shares as a result of the exercise of subscription rights in the offering.

Gross proceeds from the 2019 Rights Offering were $41.8 million, $10.3 million which was used to fully repay Tranche A-2 of the Last Out Term Loans and the remaining $31.5 million was used to reduce outstanding borrowings under Tranche A-3 of the Last Out Term Loans.

Concurrently with the closing of the 2019 Rights Offering, and in satisfaction of the Backstop Commitment, the Company issued an aggregate of 2.7 million common shares in exchange for a portion of the Tranche A-3 Last Out Term Loans totaling $8.2 million, to B.

Riley, a related party.

The 2019 Rights Offering was pursuant to the April 5, 2019 Letter Agreement and the Equitization Transactions and were approved by stockholders at the Company's annual stockholder meeting on June 14, 2019.

2021 Offerings of Common Stock and 8.125% Senior Notes due 2026

As described in Recent Developments of Part I of this Annual Report on Form 10-K, on February 12, 2021, we closed our underwritten public offerings of common stock and 8.125% senior notes due 2026.

See the discussion in Recent Developments for additional information regarding these offerings.

Other Indebtedness - Loans Payable

During the year ended December 31, 2021, our Denmark subsidiary received three unsecured interest-free loans totaling $3.3 million under a local government loan program related to COVID-19.

The loans of $0.8 million, $1.6 million and $0.9 million are payable in April 2022, May 2022 and May 2023, respectively.

The loan payable in May 2023 is included in long term loans payables in our Consolidated Balance Sheets.

As of December 31, 2021, as a result of our recent acquisition of a 60% controlling ownership stake in Fosler Construction Company Inc.

(“Fosler Construction”) as described in Note 26 to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report, Fosler Construction has two loans totaling $8.3 million.

Both loans have a variable interest rate with a minimum rate of 6% and are due June 30, 2022.

Fosler Construction also has loans primarily for vehicles and equipment totaling $0.7 million at December 31, 2021.

The vehicle and equipment loans are included in long term loans payables in our Consolidated Balance Sheets.

Off-Balance Sheet Arrangements

There were no significant off-balance sheet arrangements at December 31, 2020.

EFFECTS OF INFLATION AND CHANGING PRICES

Our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report 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.

The Company does not have any off-balance sheet arrangements that have, or are reasonably expected to have, a material current or future effect on its financial condition, results of operations, liquidity, capital expenditures or capital resources at December 31, 2021.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

22 unchanged sentences

Our revenue recognition policies, assumptions, changes in estimates and significant loss contracts are described in greater detail in Note 2 to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report.

Business Combinations

Assets acquired and liabilities assumed in a business combination are recognized and measured based on their estimated fair values at the acquisition date, while the acquisition-related costs are expensed as incurred.

Any excess of the purchase consideration when compared to the fair value of the net tangible and intangible assets acquired, if any, is recorded as goodwill.

We engaged valuation specialists to assist with the determination of the fair value of assets acquired, liabilities assumed, non-controlling interest, and goodwill, for the acquisitions.

If the initial accounting for the business combination is incomplete by the end of the reporting period in which the acquisition occurs, an estimate will be recorded.

Subsequent to the acquisition date, and not later than one year from the acquisition date, we will record any material adjustments to the initial estimate based on new information obtained that would have existed as of the date of the acquisition.

Any adjustment that arises from information obtained that did not exist as of the date of the acquisition will be recorded in the period the adjustment arises.

See Note 26 to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report for further discussion.

We accrue estimated expense included in cost of operations on our Consolidated Statements of Operations to satisfy contractual warranty requirements when we recognize the associated revenues on the related contracts.

13 unchanged sentences

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 the need for valuation allowances on a quarterly basis.

We assess the need for valuation allowances on a quarterly

In determining the need for a valuation allowance, we consider relevant positive and negative evidence, including carryback potential, reversals of taxable temporary differences, future taxable income, and tax-planning strategies.

4 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis