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Item 7. Management’s Discussion and Analysis

2023-03-16 compared with 2022-03-08 · 145 added, 194 removed, 271 unchanged (56% of the section changed)

Management's Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion of our financial condition and results of operations in conjunction with the financial statements and the notes thereto included in Financial Statements under Item 1 within this Annual Report.

The following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and the notes thereto included in Financial Statements under Item 8 within this Annual Report.

The following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs.

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See Cautionary Statement Concerning Forward-Looking Information.

The following discussion includes a comparison of Results of Operations and Liquidity and Capital Resources for the years ended December 31, 2022 and 2021.

For comparisons of the years ended December 31, 2021 and 2020, see Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021 as filed on March 8, 2022.

Our consolidated financial statements are prepared in conformity with U.S.

generally accepted accounting principles ("GAAP").

Our discussions of the financial results include non-GAAP measures (e.g., foreign currency impact, EBITDA) to provide additional information concerning our financial results and provide information that we believe is useful to the readers of our financial statements in the assessment of our performance and operating trends.

BUSINESS OVERVIEW

Management continues to adapt to macroeconomic conditions, including rising inflation, higher interest rates, foreign exchange rate fluctuations and the impact of the ongoing conflict in Ukraine and the COVID-19 pandemic, all of which impacted the Company during 2022.

The COVID-19 pandemic has continued to create challenges for us in countries that at times throughout the year have had significant outbreak mitigation strategies, namely, countries in our Asia-Pacific region, which led to temporary project postponements and has continued to impact results in this region.

Additionally, the Company has experienced negative impacts to its global supply chains as a result of COVID-19, the war in Ukraine, Russia-related supply chain shortages and other factors, including disruptions to the manufacturing, supply, distribution, transportation and delivery of its products.

The Company has also observed significant delays and disruptions of its service providers and negative impacts to pricing of certain of its products.

These delays and disruptions have had, and could continue to have, an adverse impact on the Company’s ability to meet customers’ demands.

We are continuing to actively monitor the impact of these market conditions on current and future periods and actively manage costs and our liquidity position to provide additional flexibility while still supporting our customers and their specific needs.

The duration and scope of these conditions cannot be predicted, and therefore, any anticipated negative financial impact to the Company’s operating results cannot be reasonably estimated.

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.

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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.

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

To date, we have installed over 500 waste-to-energy and biomass-to-energy units at more than 300 facilities in approximately 30 countries which serve a wide variety of utility, waste management, municipality and investment firm customers.

Additionally, we have installed more than 100MW of clean solar production.

• Babcock & Wilcox Environmental:

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B&W’s broad experience includes systems for cooling, ash handling, particulate control, nitrogen oxides and sulfur dioxides removal, chemical looping for carbon control, and mercury control.

The Company's ClimateBright family of products including SolveBright, OxyBright, BrightLoop and BrightGen, places us at the forefront of carbon dioxide capturing technologies and development with many of the aforementioned products ready for commercial demonstration.

• Babcock & Wilcox Thermal:

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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.

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.

for approximately $59.2 million.

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.

is reported as part of our B&W Thermal segment.

On February 28, 2022, we acquired 100% ownership of Optimus Industries, LLC for approximately $19.2 million.

Optimus Industries, LLC 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 units for sulfuric acid plants and is based in Tulsa, Oklahoma and Chanute, Kansas.

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

On October 14, 2022, the Company changed the name of Fosler Construction Company, Inc.

("Fosler") to Babcock & Wilcox Solar Energy, Inc ("Babcock & Wilcox Solar").

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.

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

• prices of and access to materials, particularly as a result of rising inflation and the continued impact of the Russian invasion of Ukraine;

• 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.

Customer demand is heavily affected by the variations in our customers' business cycles, 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, the United Kingdom and China.

Many aspects of our operations and properties could be affected by political developments, including the ongoing Russian-Ukrainian conflict, 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.

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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.

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, 2022 AND 2021

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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.

Operating (Loss) Income

Operating (loss) 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.

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$ 72,351 $ 70,575

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

(1) Adjusted EBITDA in our B&W Renewable segment for 2022 includes a $6.2 million non-recurring gain on sale related to development rights of a future solar project that was sold as well as the reduction to Selling, General and Administrative Costs of $9.6 million that resulted from the reversal of the contingent consideration related to an acquisition.

2022 vs 2021 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.

Revenues increased by $166.5 million to $889.8 million in 2022 as compared to $723.4 million in 2021, primarily attributable to a higher level of activity in our Renewable and Environmental segments which were both adversely impacted by COVID-19 in the prior year and the acquisitions of Babcock & Wilcox Solar and Babcock & Wilcox Renewable Service A/S in o ur Renewable segment.

Incremental revenue from current year acquisitions of FPS and Optimus also contributed to the favorable year-over-year change.

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.

Revenues for each of our segments have been adversely impacted by COVID-19, including the postponement and delay of several projects due to COVID-19.

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.

Net (loss) income unfavorably changed by $58.1 million to a loss of $26.6 million in 2022 as compared to income of $31.5 million in 2021.

Operating (loss) income unfavorably changed by $25.0 million to loss of $4.2 million in 2022 as compared to income of $20.8 million in 2021.

The year-over-year change is primarily related to overall increases in costs and expenses, higher interest expense, an increase in foreign exchange losses and goodwill impairment expense.

The aforementioned expense increases were partially offset by positive contributions fro m the current year acquisitions, and as described above, partially offset by a lower level of construction activity in our Thermal segment.

Restructuring activities, advisory fees, research and development, depreciation and amortization expense, pension and other postretirement benefit plans, foreign exchange, and income taxes are discussed in further detail in the sections below.

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.

• $0.6 million and $4.9 million of restructuring costs were recognized in 2022 and 2021, respectively, and are more fully described in Note 12 to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report.

• $1.4 million and $2.7 million of financial advisory service fees were recognized in 2022 and 2021, 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.

• $1.5 million and $5.5 million of legal and other advisory fees were recognized in 2022 and 2021, 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.

• $6.5 million of gain on debt extinguishment in 2021 that did not recur in 2022.

• $1.8 million of loss on sale of business that was recorded in 2021.

• $7.7 million and $15.5 million of actuarially determined mark to market (“MTM”) gains (losses) on our pension and other post-retirement benefits in 2022 and 2021, 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.

• $5.6 million and $4.9 million of litigation legal costs were recognized in 2022 and 2021, respectively.

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

• $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 our Consolidated Statement of Operations.

• $7.2 million goodwill impairment charge recorded in 2022 related to our Babcock & Wilcox Solar reporting unit.

• $5.5 million of costs related to completed and potential acquisitions were recognized in 2022.

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

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

Bookings represent changes to the backlog.

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(1) B&W Renewable bookings includes the revaluation of backlog denominated in currency other than U.S.

The foreign exchange impact on B&W Renewable bookings in the years ended December 31, 2021 and 2020 was $15.0 million and $(14.7) million, respectively.

The foreign exchange impact on B&W Renewable bookings in the years ended December 31, 2022 and 2021 wa s $(8.9) million and $15.0 million, respectively.

(2) B&W Renewable bookings include a reduction of approximately $67.5 million related to the disposal of future unprofitable contracts.

Our backlog as of December 31, 2022 and 2021 was as follows:

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(1) B&W Renewable backlog at December 31, 2022, includes $55.6 million related to long-term operation and maintenance contracts for renewable energy plants, with remaining durations extending until 2034.

Generally, such contracts have a duration of 10-20 years and include options to extend.

Generally, such contracts have a dura tion of 10-20 years and include options to extend.

Of the backlog at December 31, 2022, we expect to recognize revenues as follows:

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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.

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 arising from the sale of non-income producing assets, 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) 2022 2021

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

(Loss) income from continuing operations $ (26,584) $ 31,538

Interest expense, net 50,766 41,359

Income tax expense (benefit) 11,063 (2,224)

Depreciation & amortization 23,992 18,337

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Gain on sales, net (2,598) (13,984)

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

Gain on debt extinguishment — (6,530)

Stock compensation 8,654 10,476

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Advisory fees for settlement costs and liquidity planning 1,509 5,480

Litigation legal costs 4,894 2,137 475

Settlement and related legal costs 10,734 4,894

Acquisition pursuit and related costs 5,504 4,841

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Financial advisory services 1,424 2,709

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

Contract step-up purchase price adjustment 1,745 —

Loss from business held for sale — 483

Loss from a non-strategic business — 116

Settlement cost to exit contract (2)

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

Goodwill impairment 7,224 —

Contract disposal 2,976 —

Other - net 314 1,489

Adjusted EBITDA (2)

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(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.

(2) Adjusted EBITDA for the year ended December 31, 2022 includes a $6.2 million non-recurring gain on sale related to development rights of a future solar project that was sold as well as the reduction to Selling, General and Administrative Costs of $9.6 million that resulted from the reversal of the contingent consideration related to an acquisition.

Year ended December 31,

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$ 72,351 $ 70,575

(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.

(1) Adjusted EBITDA in the Renewable segment for the year ended December 31, 2022 includes a $6.2 million non-recurring gain on sale related to development rights of a future solar project that was sold as well as the reduction to Selling, General and Administrative Costs of $9.6 million that resulted from the reversal of the contingent consideration related to an acquisition.

B&W Renewable Segment Results

Year ended December 31, Year ended December 31,

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

Year ended December 31,

(in thousands) 2022 2021 $ Change

Revenues $ 330,570 $ 156,800 $ 173,770

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Revenues in the B&W Renewable segment increased $173.8 million, to $330.6 million in 2022 compared to $156.8 million in 2021.

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.

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.

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.

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.

The increase in revenue is primarily due to higher volumes of new-build projects and revenues from acquisitions which closed on September 30 and November 30, 2021.

Adjusted EBITDA in the B&W Renewable segment increased $2.9 million, to $26.1 million in 2022 compared to $23.2 million in 2021.

This is primarily due to higher revenue volume from new build products partially offset by the impact of four solar projects that became loss contracts in 2022 as described in Note 5 to the Consolidated Financial Statements.

Also partially offsetting the increase was combined the 2021 recognition of a settlement from a subcontractor that reimbursed us for project costs related to our Renewable EPC loss contracts and a larger percentage of SG&A expense allocated to the segment.

B&W Environmental Segment Results

Year ended December 31, Year ended December 31,

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

Year ended December 31,

(In thousands) 2022 2021 $ Change

Revenues $ 154,393 $ 133,826 $ 20,567

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Revenues in the B&W Environmental segment increased 15% , or $20.6 million to $154.4 million in 2022 compared to $133.8 million in 2021.

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.

The increase is primarily driven by higher volume of new build projects.

Adjusted EBITDA in the B&W Environmental segment wa s $9.8 million i n 2022 compared to $11.8 million in 2021 .

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.

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 $9.1 million to $3.5 million in 2020 compared to $12.6 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.

The change is primarily driven by higher volume, as described above, which resulted in increased gross profit, which was more than offset by a larger percentage of SG&A expense allocated to the segment.

B&W Thermal Segment Results

Year ended December 31, Year ended December 31,

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

Year ended December 31,

(In thousands) 2022 2021 $ Change

Revenues $ 415,104 $ 433,329 $ (18,225)

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2022 vs 2021 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.

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 $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.

Revenues in the B&W Thermal segment decreased 4%, or $18.2 million, to $415.1 million in 2022 compared to $433.3 million generated in 2021.

The revenue decrease is largely attributable to lower construction project activity, primarily due to one large project that was executed in the prior period, partially offset by two acquisitions that closed in February 2022.

See Note 26 to the Consolidated Financial Statements for details on the FPS and Optimus acquisitions.

Adjusted EBITDA in the B&W Thermal segment increased $7.1 million to $56.3 million in 2022 compared to $49.1 million in 2021, which is mainly attributable to the two acquisitions that closed in February 2022.

See Note 26 to the Consolidated Financial Statements for details on the FPS and Optimus acquisitions.

The Thermal segment also received a lower percentage share of allocated SG&A expense in 2022.

These increases were partially offset by the lower volume of activity on construction projects in 2022.

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.

Corporate costs increased $4.0 million to $16.5 million in year ended December 31, 2022 as compared to $12.5 million incurred in the year ended December 31, 2021.

The increase is primarily due to higher expenses related to tax and accounting services.

Advisory Fees and Settlement Costs

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.

Advisory fees and settlement costs decreased by $4.6 million to $8.5 million in the year ended December 31, 2022 as compared to $13.1 million in the corresponding period of 2021.

The change is primarily due to decreased use of external consultants in 2022.

Research and Development

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.

Our research and development activities are focused on improving our products through innovations to reduce their cost and improve competitiveness, reduce performance risk of our products to better meet our and our customers’ expectations and to further develop our ClimateBright portfolio.

Research and development expenses totaled $3.8 million and $1.6 million in the years ended 2022 and, 2021, respectively.

The increase resulted primarily from timing of specific research and increased development efforts and the non-recurring 2021 recognition of approximately $0.9 million in certain credits.

These expenses do not include our activities related to our BrightLoop commercialization plant.

Restructuring

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.

Restructuring actions across our business units and corporate functions resulted in $0.6 million and $4.9 million of expense in the years ended December 31, 2022 and 2021, 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.

Transition costs across our corporate and business functions resulted in $7.9 million and $5.9 million of expense in the years ended December 31, 2022 and 2021, respectively.

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.

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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.

Depreciation expense was $11.0 million and $9.7 million in the years ended December 31, 2022 and 2021, respectively.

Amortization expense was $13.0 million and $8.6 million for the years ended December 31, 2022 and 2021, respectively.

Pension and Other Postretirement Benefit Plans

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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.

Pension benefits before MTM were $29.8 million and $32.7 million in the years ended December 31, 2022 and 2021, respectively.

Our pension costs 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.

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Total MTM adjustments for our other postretirement benefit plans were gains of $1.4 million during the twelve months ended December 31, 2022.

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.

Pension benefits, excluding MTM adjustments of a gain of $29.8 million, were $32.7 million in the year ended December 31, 2021.

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, 2022:

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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 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.

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

Foreign exchange was a net loss of $(0.6) million and $(4.3) million for the years ended December 31, 2022 and 2021, 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 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,

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Our effective tax rate in 2022 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.

The increase in our income tax expense in 2022 compared to 2021 is primarily attributable to a prior year reduction in the

valuation allowance of $8.7 million related to net operating losses and temporary deductible benefits in certain states.

Liquidity and Capital Resources

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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.

We believe that our current operating plan and borrowings available under our revolving credit agreement will be sufficient to satisfy our foreseeable liquidity needs and capital expenditure requirements, including for at least the next twelve months.

During 2022, 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.

for approximately $59.2 million, excluding working capital adjustments;

• on February 28, 2022, we acquired 100% ownership of Optimus Industries, LLC ("Optimus") for approximately $19.0 million, excluding working capital adjustments;

• we sold $6.8 million aggregate principal of 8.125% Senior Notes and received $6.7 million of net proceeds;

• we sold development rights of a future solar project for $8.0 million and recorded a $6.2 million non-recurring gain;

• on July 28, 2022, we participated in the sale process of Hamon Holdings Corporation and acquired certain assets of one of its subsidiaries for approximately $2.9 million;

• on September 24, 2022, we acquired the remaining 40% ownership stake in Babcock & Wilcox Solar for $12.7 million and will make payments of $3.0 million, $5.0 million, and $4.7 million on January 16, 2023, June 30, 2023, and January 15, 2024, respectively, for a present value of $12.1 million at December 31, 2022;

• on October 14, 2022, we changed the name of the company formerly known as Fosler Construction Company, Inc.

to Babcock & Wilcox Solar Energy, Inc.

("Babcock & Wilcox Solar");

• during the year ended December 31, 2022, the Company sold certain real property and then entered into sale lease-back agreements for each sale property.

The Company accounted for the sale-leasebacks as three individual financing transactions aggregating $13.4 million.

See Notes 10, 14, 15, 16, 17, 18 and 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.

Cash and Cash Flows

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.

At December 31, 2022, our cash and cash equivalents, current restricted cash and long-term restricted cash totaled $113.5 million and we had total debt of $353.0 million as well as $191.7 million of gross preferred stock outstanding.

Our foreign business locations held $46.6 million of our total cash and cash equivalents, current restricted cash and long-term restricted cash at December 31, 2022.

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

operations unless the funds are repatriated or used to repay intercompany loans made from the U.S.

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

to foreign entities, which could expose us to

taxes we presently have not made a provision for in our results of operations.

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

In addition, we had $11.2 million of restricted cash at December 31, 2022 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 used in operations was $30.6 million in the year ended December 31, 2022, which is primarily attributable to the current year net loss of $26.6 million, partially offset by a $1.2 million net decrease in operating cash outflows associated with changes in working capital.

In the year ended December 31, 2021, cash used in operations was $111.2 million which is primarily attributable to the reduction in pension, postretirement and employee benefit liabilities and other accrued liabilities, partially offset by the current year net income and operating cash flows associated with changes in working capital.

Cash flows used in investing activities totaled $68.8 million in the year ended December 31, 2022, primarily due to business acquisitions of $64.9 million and $13.2 million of capital expenditures, partially offset by proceeds from the sale of business and assets of $5.5 million and sales and maturities of available-for-sale securities of $9.8 million .

In the year ended December 31, 2021, cash flows from investing activities used net cash of $33.5 million, 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.

Cash flows used in financing activities of $11.2 million during the year ended December 31, 2022, primarily related to repayments of debt of $16.9 million and payments of preferred stock dividends of $14.9 million, partially offset by combined borrowings on loans payable, issuance of senior notes and proceeds from sale-leaseback transactions of $27.4 million.

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.

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

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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

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.

The Company expects to use the proceeds and letter of credit availability under the Debt Facilities for working capital and general corporate purposes.

The Revolving Credit Agreement matures on June 30, 2025.

As of December 31, 2022, no borrowings have occurred under the Revolving Credit Agreement and under the Letter of Credit Agreement, usage consisted of $13.6 million of financial letters of credit and $100.8 million of performance letters of credit.

As of December 31, 2022, the Company was in compliance with their Quarterly Fixed Charge Coverage financial covenant and received a waiver from MSD and PNC for the period ended September 30, 2022 as described within Note 16.

Letters of Credit, Bank Guarantees and Surety Bonds

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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

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

We, and certain of our subsidiaries, have jointly executed general agreements of indemnity in favor of surety underwriters relating to surety bonds those underwriters issue in support of some of our contracting activity.

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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.

As of December 31, 2022, our Denmark subsidiary has an unsecured interest-free loan of $0.8 million under a local government loan program related to COVID-19 that is payable May 2023.

In addition, we recorded a $2.9 million loan payable related to financed insurance premiums payable April 2023, which is included in Current loans payable on our Consolidated Balance Sheets.

B&W Solar has loans, primarily for vehicles and equipment, totaling $0.5 million at December 31, 2022.

In addition, as disclosed within Note 10, the Company had approximately $13.3 million in Long Term Loans Payable which is net of debt issuance costs of $0.6 million, of which $0.6 million is classified as current, in finance liabilities as of December 31, 2022 in connection with their sale-leaseback financing transactions.

These loans are included in Notes payable and Long-term loans payables in the Company's Consolidated Balance Sheets.

Off-Balance Sheet Arrangements

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Incurred cost represents work performed, which corresponds with, and thereby best depicts, the transfer of control to the customer.

Contract costs include labor, material, overhead, warranty and, when appropriate, SG&A expenses.

Contract costs include labor, material, overhead and warranty expenses.

Variable consideration in these contracts includes estimates of liquidated damages, contractual bonuses and penalties, and contract modifications.

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

Goodwill is generally recorded as a result of a business combination and represents the excess of purchase price over the fair value of the tangible and identifiable net assets acquired.

We perform testing of goodwill for impairment annually on October 1st or when impairment indicators are present.

In assessing goodwill for impairment, the Company follows ASC 350, Intangibles – Goodwill and Other, which permits a qualitative assessment of whether it is more likely than not that the fair value of the reporting unit is less than its carrying value including goodwill.

If the qualitative assessment determines that it is not more likely than not that the fair value of a reporting unit is less than its carrying value, including goodwill, then no impairment is determined to exist for the reporting unit.

However, if the qualitative assessment determines that it is more likely than not that the fair value of the reporting unit is less than its carrying value, including goodwill, or we choose not to perform the qualitative assessment, then we compare the fair value of that reporting unit with its carrying value, including goodwill, in a quantitative assessment.

If the carrying value of a reporting unit exceeds its fair value, goodwill is considered impaired with the impairment loss measured as the excess of the reporting unit’s carrying value, including goodwill, over its fair value.

The estimated fair value of the reporting unit is derived based on valuation techniques the Company believes market participants would use for each of the reporting units.

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.

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Therefore, it is possible that future earnings could be affected by changes in our estimates related to these matters.

Income tax expense for federal, foreign, state, and local income taxes is calculated on taxable income based on the income tax law in effect at the latest balance sheet date and includes the cumulative effect of any changes in tax rates from those used previously in determining deferred tax assets and liabilities.

Income tax expense for federal, foreign, state, and local income taxes are calculated on taxable income based on the income tax law in effect at the latest balance sheet date and includes the cumulative effect of any changes in tax rates from those used previously in determining deferred tax assets and liabilities.

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

We assess the need for valuation allowances on a quarterly basis.

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.

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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