NOTE 2 – ACQUISITIONS AND DISPOSITIONS

MEGTEC Acquisition

On June 20, 2014, we acquired the outstanding stock of industrial processes solutions provider MEGTEC for $142.2 million, net of cash acquired. MEGTEC designs, engineers, manufactures and services air pollution control systems and coating/drying equipment for a variety of industrial applications and is expected to complement our Power Generation segment’s environmental products and solutions offerings that serves utility markets.

The purchase price of the acquisition has been allocated among assets acquired and liabilities assumed at preliminary estimates of fair value based on information currently available with the excess purchase price recorded as goodwill. Our preliminary purchase price allocation, as follows, is subject to change upon receipt of additional information and completion of further analysis, including, but not limited to, finalization of long-lived and intangible asset valuations:


	MEGTEC
	(in thousands)
Unrestricted cash	$	14,232
Accounts receivable	$	23,459
Inventories	$	5,528
Other current assets	$	9,069
Property, plant and equipment	$	5,090
Goodwill	$	115,314
Intangible assets	$	42,000

Total assets acquired	$	214,692


Accounts payable	$	13,402
Advance billings on contracts	$	9,144
Other current liabilities	$	17,477
Pension liability	$	5,041
Deferred income taxes	$	12,137
Other liabilities	$	1,085

Total liabilities assumed	$	58,286

Net assets acquired	$	156,406
Unrestricted cash acquired	$	14,232

Net assets acquired, net of unrestricted cash acquired	$	142,174


Amount of tax deductible goodwill	$	—

The intangible assets included above consist of the following (dollar amounts in thousands):


	Amount		Amortization Period
Customer relationships	$	20,000	7 years
Backlog	$	9,500	1 year
Trade names / trademarks	$	6,000	15 years
Developed technology	$	6,500	10 years

Our condensed consolidated financial statements for the three and six months ended June 30, 2014 include $3.6 million and $0.2 million of revenues and net income, respectively, related to MEGTEC operations occurring from the acquisition date to June 30, 2014. Additionally, the following unaudited pro forma financial information presents our results of operations for the three and six months ended June 30, 2014 and 2013 had the acquisition of MEGTEC occurred on January 1, 2013. 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, 2013. This information is presented for comparative purposes only and should not be taken as representative of our future consolidated results of operations.


	Three Months Ended June 30,				Six Months Ended June 30,
	2014		2013		2014		2013

Revenues	$	772,972	$	933,793	$	1,428,355	$	1,768,672

Net Income Attributable to The Babcock & Wilcox Company	$	28,780	$	74,139	$	74,530	$	119,313

Basic Earnings per Common Share	$	0.26	$	0.66	$	0.68	$	1.06
Diluted Earnings per Common Share	$	0.26	$	0.66	$	0.67	$	1.05

The unaudited pro forma results include the following pre-tax adjustments to the historical results presented above:

•

Additional amortization expense related to the fair value of identifiable intangible assets acquired of approximately $0.8 million and $1.3 million for the three and six months ended June 30, 2014, respectively, and $2.8 million and $5.6 million for the three and six months ended June 30, 2013, respectively.

•

Elimination of historical interest expense of approximately $0.6 million and $0.9 million for the three and six months ended June 30, 2014, respectively, and $0.4 million and $0.9 million for the three and six months ended June 30, 2013, respectively.

•

Additional interest expense associated with the incremental borrowings that would have been incurred to acquire MEGTEC as of January 1, 2013 of approximately $0.6 million and $1.2 million for the three and six months ended June 30, 2014, respectively, and $0.6 million and $1.3 million for the three and six months ended June 30, 2013, respectively.

•

Elimination of $13.5 million in acquisition related costs recognized in the three and six months ended June 30, 2014 that are not expected to be recurring.

Ebensburg Acquisition

On May 21, 2014, we acquired the remaining outstanding interest in Ebensberg Power Company for a purchase price of $1.3 million. As part of the transaction, we acquired cash of $16.4 million and property, plant and equipment with a fair value of $16.1 million.

Nuclear Projects Business Disposition

In the first quarter of 2014, we announced that we would exit our Nuclear Energy segment’s Nuclear Projects business as it had lower margins and higher financial risks. Run-off operations for remaining projects were completed during the quarter ended June 30, 2014. Income (loss) before provision for income taxes for the Nuclear Projects business was $0.0 million and $(0.1) million in the three and six months ended June 30, 2014, respectively, and $(0.5) million and $(1.0) million in the three and six months ended June 30, 2013, respectively.

At June 30, 2014, assets recorded within the condensed consolidated financial statements for the Nuclear Projects business include $37.5 million in outstanding accounts receivable and $8.2 million in contracts in progress related to unbilled final project closeout activities. Both of those amounts relate to a reimbursable target cost subcontract pursuant to which we performed steam generator replacement installation services for the prime contractor. All work under that subcontract has been completed. The owner has questioned the reasonableness of certain project costs, assessed liquidated damages and has not paid the prime contractor the referenced amounts invoiced under the prime contract. Based upon the terms of the subcontract, the prime contractor has not yet paid us. We filed a mechanic’s lien in the amount of $37.4 million against the owner’s property on July 11, 2014 in order to preserve our statutory legal rights and we have until early March 2015 to file suit against the owner to foreclose on that lien. We contend that the invoiced and unbilled amounts were reasonably incurred under the terms of the subcontract and that project delays and additional costs are attributable to the owner. Payment of all amounts currently due and owing is being sought from the prime contractor through the defined subcontract dispute resolution processes. If those efforts are unsuccessful, we will have the right to initiate collection litigation against the prime contractor.