NOTE 5 – ACQUISITIONS

Universal Acoustic & Emission Technologies, Inc.

On January 11, 2017, we acquired Universal Acoustic & Emission Technologies, Inc. ("Universal") for approximately $52.5 million in cash, funded primarily by borrowings under our United States revolving credit facility, net of $4.4 million cash acquired in the business combination. Transaction costs included in the purchase price were approximately $0.2 million. We accounted for the Universal acquisition using the acquisition method, whereby all of the assets acquired and liabilities assumed were recognized at their fair value on the acquisition date, with any excess of the purchase price over the estimated fair value recorded as goodwill. In order to purchase Universal on January 11, 2017, we borrowed approximately $55.0 million under the United States revolving credit facility in 2017.

Universal provides custom-engineered acoustic, emission and filtration solutions to the natural gas power generation, mid-stream natural gas pipeline, locomotive and general industrial end-markets. Universal's product offering includes gas turbine inlet and exhaust systems, silencers, filters and enclosures. At the acquisition date, Universal employed approximately 460 people, mainly in the United States and Mexico. During 2017, we integrated Universal with our Industrial segment. Universal contributed $69.1 million of revenue and $14.5 million of gross profit to our operating results in the year ended December 31, 2017.

The allocation of the purchase price based on the fair value of assets acquired and liabilities assumed is set forth below. We finalized the purchase price allocation associated with the valuation of certain intangible assets and deferred tax balances at December 31, 2017; as a result, the provisional measurements of intangible assets, goodwill and deferred income tax balances did not change.



(in thousands)	Acquisition date fair values
Cash	$	4,379
Accounts receivable	11,270
Contracts in progress	3,167
Inventories	4,585
Other assets	579
Property, plant and equipment	16,692
Goodwill	14,413
Identifiable intangible assets	19,500
Deferred income tax assets	935
Current liabilities	(10,833		)
Other noncurrent liabilities	(1,423		)
Deferred income tax liabilities	(6,338		)
Net acquisition cost	$	56,926

The intangible assets included above consist of the following:



	Fair value (in thousands)		Weighted average estimated useful life (in years)
Customer relationships	$	10,800	15
Backlog	1,700		1
Trade names / trademarks	3,000		20
Technology	4,000		7
Total amortizable intangible assets	$	19,500

The acquisition of Universal resulted in an increase in our intangible asset amortization expense during the year ended December 31, 2017 of $3.1 million, which is included in cost of operations in our consolidated statement of operations. Amortization of intangible assets is not allocated to segment results.

Approximately $1.7 million of acquisition and integration related costs of Universal was recorded as a component of our SG&A expenses in the consolidated statement of operations in the year ended December 31, 2017.

The following unaudited pro forma financial information below represents our results of operations for year ended December 31, 2016 had the Universal acquisition occurred on January 1, 2016. The unaudited pro forma financial information below is not intended to represent or be indicative of our actual consolidated results had we completed the acquisition at January 1, 2016. This information should not be taken as representative of our future consolidated results of operations.



	Year Ended
(in thousands)	December 31, 2016
Revenues	$	1,660,986
Net income (loss) attributable to B&W	(113,940		)
Basic earnings per common share	(2.27		)
Diluted earnings per common share	(2.27		)

The unaudited pro forma results included in the table above reflect the following pre-tax adjustments to our historical results:


•	A net increase in amortization expense related to timing of amortization of the fair value of identifiable intangible assets acquired of $2.8 million in the year ended December 31, 2016.


•	Elimination of the historical interest expense recognized by Universal of $0.4 million in the year ended December 31, 2016.


•	Elimination of $2.1 million in transaction related costs recognized in the year ended December 31, 2016.

SPIG S.p.A.

On July 1, 2016, we acquired all of the outstanding stock of SPIG S.p.A. ("SPIG") for €155.0 million (approximately $172.1 million) in an all-cash transaction, which was subject to post-closing adjustments. During September 2016, €2.6 million (approximately $2.9 million) of the transaction price was returned to B&W based on the difference between the actual working capital and pre-close estimates. Transaction costs included in the purchase price associated with closing the acquisition of SPIG on July 1, 2016 were approximately $0.3 million.

Based in Arona, Italy, SPIG is a global provider of custom-engineered comprehensive dry and wet cooling solutions and aftermarket services to the power generation industry including natural gas-fired and renewable energy power plants, as well as downstream oil and gas, petrochemical and other industrial end markets. The acquisition of SPIG was consistent with B&W's goal to grow and diversify its technology-based offerings with new products and services in the industrial markets that are complementary to our core businesses. In the year ended December 31, 2016, SPIG contributed $96.3 million of revenue and $7.8 million of gross profit to the Industrial segment.

We accounted for the SPIG acquisition using the acquisition method. All of the assets acquired and liabilities assumed were recognized at their estimated fair value as of the acquisition date. Any excess of the purchase price over the estimated fair values of the net assets acquired was recorded as goodwill. Several valuation methods were used to determine the fair value of the assets acquired and liabilities assumed. For intangible assets, we used the income method, which required us to forecast the expected future net cash flows for each intangible asset. These cash flows were then adjusted to present value by applying an appropriate discount rate that reflects the risk factors associated with the projected cash flows. Some of the more significant estimates and assumptions inherent in the income method include the amount and timing of projected future cash flows, the discount rate selected to measure the risks inherent in the future cash flows and the assessment of the asset's economic life and the competitive trends impacting the asset, including consideration of any technical, legal, regulatory or economic barriers to entry. Determining the useful life of an intangible asset also required judgment as different types of intangible assets will have different useful lives, or indefinite useful lives.

The allocation of the purchase price, based on the fair value of assets acquired and liabilities assumed, is detailed below.



(in thousands)	Acquisition date fair values
Cash	$	25,994
Accounts receivable	58,843
Contracts in progress	61,155
Inventories	2,554
Other assets	7,341
Property, plant and equipment	6,104
Goodwill	72,401
Identifiable intangible assets	55,164
Deferred income tax assets	5,550
Revolving debt	(27,530		)
Current liabilities	(56,323		)
Advance billings on contracts	(15,226		)
Other noncurrent liabilities	(379		)
Deferred income tax liabilities	(17,120		)
Noncontrolling interest in joint venture	(7,754		)
Net acquisition cost	$	170,774

We finalized the purchase price allocation as of December 31, 2016, which resulted in a $2.5 million increase in goodwill. The goodwill arising from the purchase price allocation of the SPIG acquisition is believed to be a result of the synergies created from combining its operations with B&W's, and the growth it can provide from its wide scope of engineered cooling and service offerings and customer base. None of this goodwill is expected to be deductible for tax purposes. Also, see Note 15 for the results of our subsequent goodwill impairment assessments

The intangible assets included above consist of the following:



(in thousands)	Fair value (in thousands)		Weighted average estimated useful life (in years)
Customer relationships	$	12,217	9
Backlog	17,769		2
Trade names / trademarks	8,885		20
Technology	14,438		10
Non-compete agreements	1,666		3
Internally-developed software	189		3
Total amortizable intangible assets	$	55,164

The acquisition of SPIG added $9.1 million and $13.3 million of intangible asset amortization expense in the years ended December 31, 2017 and 2016, respectively. Amortization of intangible assets is not allocated to segment results.

Approximately $1.6 million and $3.5 million of acquisition and integration related costs of SPIG was recorded as selling, general and administrative expenses in the consolidated statement of operations for the years ended December 31, 2017 and 2016, respectively.

The following unaudited pro forma financial information below represents our results of operations for years ended December 31, 2016 and 2015 had the SPIG acquisition occurred on January 1, 2015. The unaudited pro forma financial information below is not intended to represent or be indicative of our actual consolidated results had we completed the acquisition at January 1, 2015. This information should not be taken as representative of our future consolidated results of operations.



	Year Ended December 31,
(in thousands)	2016			2015
Revenues	$	1,663,126		$	1,941,987
Net income (loss) attributable to B&W	(111,500		)	12,047
Basic earnings per common share	(2.22		)	0.23
Diluted earnings per common share	(2.22		)	0.22

The unaudited pro forma results included in the table above reflect the following pre-tax adjustments to our historical results:


•	A net increase (decrease) in amortization expense related to timing of amortization of the fair value of identifiable intangible assets acquired of $6.5 million and $18.6 million in the years ended December 31, 2016 and 2015, respectively.


•	Elimination of the historical interest expense recognized by SPIG of $0.5 million and $0.7 million in the years ended ended December 31, 2016 and 2015, respectively.


•	Elimination of $3.5 million and $0.2 million in transaction related costs recognized in the years ended December 31, 2016 and 2015, respectively.