Babcock & Wilcox Enterprises, Inc. 10-K

Item 7A. Quantitative and Qualitative Disclosures About Market Risk Our exposure to market risk from changes in interest rates relates primarily to our cash equivalents and our investment portfolio, which primarily consists of investments in U.S. government obligations and highly liquid money market instruments denominated in U.S. dollars. We are averse to principal loss and seek to ensure the safety and preservation of our invested funds by limiting default risk, market risk and reinvestment risk. Our investments are classified as available-for-sale. We have operations in many foreign locations, and, as a result, our financial results could be significantly affected by factors such as changes in foreign currency exchange (“FX”) rates or weak economic conditions in those foreign markets. Foreign currency transaction gains and losses on intercompany loans that are not designated as permanent loans are recorded in earnings. Our primary foreign currency exposures are Danish krone, British pound, Euro, Canadian dollar, Mexican peso,and Chinese yuan. If the balances of these intercompany loans at December 31, 2021 were to remain constant, a 100 basis point change in FX rates would impact our earnings by an estimated $0.8 million per year. ITEM 8. Consolidated Financial Statements and Supplemental Data REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of Babcock & Wilcox Enterprises, Inc.: Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Babcock & Wilcox Enterprises, Inc. (the "Company") as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income (loss), stockholders' equity (deficit), and cash flows, for each of the three years in the period ended December 31, 2021, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 8, 2022, expressed an unqualified opinion on the Company's internal control over financial reporting. Change in Accounting Principle As discussed in Notes 2 and 6 to the consolidated financial statements, the Company elected to change its method of accounting for certain inventories from the last-in, first-out (“LIFO”) cost method to the first-in, first-out (“FIFO”) cost method which has been retrospectively applied to the consolidated financial statements as of December 31, 2020 and 2019. Basis for Opinion 50 These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Revenue Recognition and Contracts – Refer to Notes 2 and 5 to the financial statements Critical Audit Matter Description The Company recognizes fixed price long-term contract revenue over the contract term (“over time”) as the work progresses, either as products are produced or as services are rendered, because transfer of control to the customer occurs over time. Substantially all of the Company’s fixed price long-term contracts represent a single performance obligation as the interdependent nature of the goods and services provided prevents them from being separately identifiable within the contract. Revenue recognized over time primarily relates to customized, engineered solutions and construction services from all three of the Company’s segments. Typically, revenue is recognized over time using the cost-to-cost input method that uses costs incurred to date relative to total estimated costs at completion to measure progress toward satisfying the Company’s performance obligations. The accounting for these contracts involves judgment, particularly as it relates to the process of estimating total costs and profit for the performance obligation. Revenue from fixed price long term contracts for products and services transferred to customer over time accounted for 81% of Company revenue for the year ended December 31, 2021. We identified revenue on certain fixed price long-term contracts as a critical audit matter because of the judgments necessary for management to estimate total costs and profit for the performance obligations used to recognize revenue for fixed price long-term contracts. This required extensive audit effort due to the volume and complexity of fixed price long-term contracts and required a high degree of auditor judgment when performing audit procedures to audit management’s estimates of total costs and profit and evaluating the results of those procedures. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to management’s estimates of total costs and profit for the performance obligations used to recognize revenue for certain fixed price long-term contracts included the following, among others: • We selected a sample of fixed price long-term contracts performed over time and performed the following: – Evaluated whether the fixed price contracts were properly included in management’s calculation of fixed price long-term contract revenue based on the terms and conditions of each contract, including whether continuous transfer of control to the customer occurred as progress was made toward fulfilling the performance obligation. 51 – Compared the transaction prices to the consideration expected to be received based on current rights and obligations under the contracts and any modifications that were agreed upon with the customers. – Tested management’s identification of distinct performance obligations by evaluating whether the underlying goods, services, or both were highly interdependent and interrelated. – Tested the accuracy and completeness of the costs incurred to date for the performance obligation. – With the assistance of our capital projects specialists we evaluated the estimates of total cost and profit for the performance obligation by: – Comparing costs incurred to date to the costs which management estimated to be incurred to date. – Evaluating management’s ability to achieve the estimates of total cost and profit by performing corroborating inquiries with the Company’s project managers and engineers, and comparing the estimates to management’s work plans, engineering specifications, and supplier contracts. – Comparing management’s estimates for the selected contracts to costs and profits of similar performance obligations, when applicable. – Performing multiple live project site visits – Tested the mathematical accuracy of management’s calculation of revenue for the performance obligation. – Tested management’s retrospective review of each contract’s revenue to determine whether revenue is accurately recognized during the period under audit. • Evaluated the Company’s disclosures related to revenue recognition and contracts to assess their conformity with the applicable accounting standards. /s/ DELOITTE & TOUCHE LLP Cleveland, Ohio March 8, 2022 We have served as the Company's auditor since 2014. 52 BABCOCK & WILCOX ENTERPRISES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS Year ended December 31, (in thousands, except per share amounts) 2021 2020* 2019* Revenues $ 723,363 $ 566,317 $ 859,111 Costs and expenses: Cost of operations 543,835 400,465 698,853 Selling, general and administrative expenses 154,897 141,746 151,069 Advisory fees and settlement costs 13,083 12,878 27,943 Restructuring activities 4,869 11,849 11,707 Research and development costs 1,595 4,379 2,861 Gain on asset disposals, net ( 15,737 ) ( 3,263 ) ( 3,940 ) Total costs and expenses 702,542 568,054 888,493 Operating income (loss) 20,821 ( 1,737 ) ( 29,382 ) Other income (expense): Interest expense ( 39,393 ) ( 59,796 ) ( 94,901 ) Interest income 531 646 923 Gain (loss) on debt extinguishment 6,530 ( 6,194 ) ( 3,969 ) Loss on sale of business ( 1,753 ) ( 108 ) ( 3,601 ) Benefit plans, net 48,142 5,600 22,800 Foreign exchange ( 4,294 ) 58,799 ( 16,602 ) Other – net ( 1,270 ) ( 1,128 ) 285 Total other income (expense) 8,493 ( 2,181 ) ( 95,065 ) Income (loss) before income tax expense 29,314 ( 3,918 ) ( 124,447 ) Income tax (benefit) expense ( 2,224 ) 8,179 5,286 Income (loss) from continuing operations 31,538 ( 12,097 ) ( 129,733 ) Income from discontinued operations, net of tax — 1,800 694 Net income (loss) 31,538 ( 10,297 ) ( 129,039 ) Net (income) loss attributable to non-controlling interest ( 644 ) ( 21 ) 7,065 Net income (loss) attributable to stockholders 30,894 ( 10,318 ) ( 121,974 ) Less: Dividend on Series A preferred stock 9,127 — — Net income (loss) attributable to stockholders of common stock $ 21,767 $ ( 10,318 ) $ ( 121,974 ) Basic income (loss) per share Continuing operations $ 0.26 $ ( 0.25 ) $ ( 3.89 ) Discontinued operations — 0.04 0.02 Basic income (loss) per share $ 0.26 $ ( 0.21 ) $ ( 3.87 ) Diluted income (loss) per share Continuing operations $ 0.26 $ ( 0.25 ) $ ( 3.89 ) Discontinued operations — 0.04 0.02 Diluted income (loss) per share $ 0.26 $ ( 0.21 ) $ ( 3.87 ) Shares used in the computation of income (loss) per share: Basic 82,391 48,710 31,514 Diluted 83,580 48,710 31,514 * Year ended December 31, 2020 and 2019 amounts have been adjusted to reflect the change in inventory accounting method, as described in Notes 2 and 6 to the Consolidated Financial Statements. See accompanying notes to Consolidated Financial Statements. 53 BABCOCK & WILCOX ENTERPRISES, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) Year ended December 31, (in thousands) 2021 2020 2019 Net income (loss) $ 31,538 $ ( 10,297 ) $ ( 129,039 ) Other comprehensive income (loss): Currency translation adjustments (CTA) ( 3,412 ) $ ( 53,318 ) 13,401 Reclassification of CTA to net income (loss) ( 4,512 ) — 3,176 Derivative financial instruments: Unrealized gains on derivative financial instruments — — ( 1,367 ) Derivative financial instrument losses reclassified into net loss — — 202 Derivative financial instruments reclassified to advanced billings on contracts — — ( 197 ) Benefit obligations: Pension and post retirement adjustments, net of tax 1,492 ( 998 ) ( 1,857 ) Other comprehensive (loss) income ( 6,432 ) ( 54,316 ) 13,358 Total comprehensive income (loss) 25,106 ( 64,613 ) ( 115,681 ) Comprehensive (loss) income attributable to non-controlling interest ( 595 ) ( 29 ) 7,140 Comprehensive income (loss) attributable to stockholders $ 24,511 $ ( 64,642 ) $ ( 108,541 ) See accompanying notes to Consolidated Financial Statements. 54 BABCOCK & WILCOX ENTERPRISES, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except per share amount) December 31, 2021 December 31, 2020* Cash and cash equivalents $ 224,874 $ 57,338 Restricted cash and cash equivalents 1,841 10,085 Accounts receivable – trade, net 132,068 128,317 Accounts receivable – other 34,553 35,442 Contracts in progress 80,176 59,308 Inventories 79,527 74,446 Other current assets 29,395 26,421 Current assets held for sale — 4,728 Total current assets 582,434 396,085 Net property, plant and equipment, and finance lease 85,627 85,078 Goodwill 116,462 47,363 Intangible assets 43,795 23,908 Right-of-use assets 30,163 10,814 Other assets 54,784 24,673 Non-current assets held for sale — 11,156 Total assets $ 913,265 $ 599,077 Accounts payable $ 85,929 $ 73,481 Accrued employee benefits 12,989 13,906 Advance billings on contracts 68,380 64,002 Accrued warranty expense 12,925 25,399 Financing lease liabilities 2,445 886 Operating lease liabilities 3,950 3,995 Other accrued liabilities 54,385 80,858 Loans payable 12,380 — Current liabilities held for sale — 8,305 Total current liabilities 253,383 270,832 Senior notes 326,366 — Long term loans payable 1,543 — Last out term loans — 183,330 Revolving credit facilities — 164,300 Pension and other accumulated postretirement benefit liabilities 182,730 252,292 Non-current finance lease liabilities 29,369 29,690 Non-current operating lease liabilities 26,685 7,031 Other non-current liabilities 34,567 22,579 Total liabilities 854,643 930,054 Commitments and contingencies Stockholders' equity (deficit): Preferred stock, par value $ 0.01 per share, authorized shares of 20,000 ; issued and outstanding shares of 7,669 and 0 at December 31, 2021 and 2020, respectively 77 — Common stock, par value $ 0.01 per share, authorized shares of 500,000 ; issued and outstanding shares of 86,286 and 54,452 at December 31, 2021 and 2020, respectively 5,110 4,784 Capital in excess of par value 1,518,872 1,164,436 Treasury stock at cost, 1,525 and 718 shares at December 31, 2021 and 2020, respectively ( 110,934 ) ( 105,990 ) Accumulated deficit ( 1,321,154 ) ( 1,342,921 ) Accumulated other comprehensive loss ( 58,822 ) ( 52,390 ) Stockholders' equity (deficit) attributable to shareholders 33,149 ( 332,081 ) Non-controlling interest 25,473 1,104 Total stockholders' equity (deficit) 58,622 ( 330,977 ) Total liabilities and stockholders' equity (deficit) $ 913,265 $ 599,077 * Year ended December 31, 2020 amounts have been adjusted to reflect the change in inventory accounting method, as described in Notes 2 and 6 to the Consolidated Financial Statements. See accompanying notes to Consolidated Financial Statements. 55 BABCOCK & WILCOX ENTERPRISES, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) Common Stock Preferred Stock Capital In Excess of Par Value Treasury Stock Accumulated Deficit Accumulated Other Comprehensive Loss Non-controlling Interest Total Stockholders’ Equity (Deficit) (in thousands, except share and per share amounts) Shares Par Value Shares Par Value Balance at December 31, 2018 (As reported) 16,879 $ 1,748 — $ — $ 1,047,062 $ ( 105,590 ) $ ( 1,217,914 ) $ ( 11,432 ) $ 8,829 $ ( 277,297 ) Inventory accounting method change* — — — — — — 7,285 — — 7,285 Balance at December 31, 2018 16,879 1,748 — — 1,047,062 ( 105,590 ) ( 1,210,629 ) ( 11,432 ) 8,829 ( 270,012 ) Net loss — — — — — — ( 121,974 ) — ( 7,065 ) ( 129,039 ) Currency translation adjustments — — — — — — — 16,577 ( 75 ) 16,502 Derivative financial instruments — — — — — — — ( 1,362 ) — ( 1,362 ) Pension and post retirement adjustments, net of tax — — — — — — — ( 1,857 ) — ( 1,857 ) Stock-based compensation charges 108 12 — — 3,072 ( 117 ) — — — 2,967 Rights offering, net 13,922 1,392 — — 39,544 — — — — 40,936 Last Out Term Loan principal value exchanged for common stock 15,465 1,547 — — 44,848 — — — — 46,395 Issuance of beneficial conversion option of Last Out Term Loan Tranche A-3 — — — — 2,022 — — — — 2,022 Warrants — — — — 6,066 — — — — 6,066 Dividends to non-controlling interest — — — — — — — — ( 272 ) ( 272 ) Balance at December 31, 2019 46,374 4,699 — $ — $ 1,142,614 $ ( 105,707 ) $ ( 1,332,603 ) $ 1,926 $ 1,417 $ ( 287,654 ) Net (loss) income — — — — — — ( 10,318 ) — 21 ( 10,297 ) Currency translation adjustments — — — — — — — ( 53,318 ) 8 ( 53,310 ) Pension and post retirement adjustments, net of tax — — — — — — — ( 998 ) — ( 998 ) Stock-based compensation charges 460 9 — — 4,548 ( 283 ) — — — 4,274 Equitized guarantee fee payment 1,713 17 — — 3,883 — — — — 3,900 Equitized Last Out Term Loan principal payment 5,905 59 — — 13,391 — — — — 13,450 Dividends to non-controlling interest — — — — — — — — ( 342 ) ( 342 ) Balance at December 31, 2020 54,452 $ 4,784 — $ — $ 1,164,436 $ ( 105,990 ) $ ( 1,342,921 ) $ ( 52,390 ) $ 1,104 $ ( 330,977 ) Net income — — — — — — 30,894 — 644 31,538 Currency translation adjustments — — — — — — — ( 7,924 ) ( 49 ) ( 7,973 ) Pension and post retirement adjustments, net of tax — — — — — — — 1,492 — 1,492 Stock-based compensation charges 2,347 31 — — 7,770 ( 4,944 ) — — — 2,857 Common stock offering 29,487 295 — — 160,546 — — — — 160,841 Preferred stock offering, net — — 4,752 48 113,227 — — — — 113,275 Equitized Last Out Term Loan principal payment — — 2,917 29 72,893 — — — — 72,922 Dividends to preferred stockholders — — — — — — ( 9,127 ) — — ( 9,127 ) Non-controlling interest from acquisition — — — — — — — — 23,996 23,996 Dividends to non-controlling interest — — — — — — — — ( 222 ) ( 222 ) Balance at December 31, 2021 86,286 $ 5,110 7,669 $ 77 $ 1,518,872 $ ( 110,934 ) $ ( 1,321,154 ) $ ( 58,822 ) $ 25,473 $ 58,622 * Amount reflects the change in inventory accounting method, as described in Notes 2 and 6 to the Consolidated Financial Statements 56 See accompanying notes to Consolidated Financial Statements. 57 BABCOCK & WILCOX ENTERPRISES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Year ended December 31, (in thousands) 2021 2020 2019 Cash flows from operating activities: Net income (loss) $ 31,538 $ ( 10,297 ) $ ( 129,039 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization of long-lived assets 18,337 16,805 23,605 Amortization of deferred financing costs and debt discount 7,918 16,743 61,181 Amortization of guaranty fee 1,832 1,159 — Non-cash operating lease expense 4,154 4,765 5,356 Loss on sale of business 1,753 108 3,601 (Gain) loss on debt extinguishment ( 6,530 ) 6,194 3,969 Gain on asset disposals ( 15,737 ) ( 3,262 ) ( 3,940 ) (Benefit from) provision for deferred income taxes, including valuation allowances ( 7,745 ) 1,791 ( 855 ) Mark to market, prior service cost amortization for pension and postretirement plans ( 15,512 ) 22,156 ( 10,661 ) Stock-based compensation, net of associated income taxes 7,801 4,557 3,084 Equitized non-cash interest expense — 13,450 — Foreign exchange 4,294 ( 58,799 ) 16,602 Changes in assets and liabilities: Accounts receivable 225 21,673 63,914 Contracts in progress ( 20,099 ) 35,850 48,492 Advance billings on contracts 1,641 ( 13,057 ) ( 71,268 ) Inventories ( 3,047 ) ( 4,084 ) ( 4,141 ) Income taxes ( 2,142 ) ( 2,425 ) 1,273 Accounts payable 7,080 ( 42,001 ) ( 80,459 ) Accrued and other current liabilities ( 47,768 ) 9,146 ( 23,101 ) Accrued contract loss ( 204 ) ( 5,557 ) ( 50,654 ) Pension liabilities, accrued postretirement benefits and employee benefits ( 60,760 ) ( 37,223 ) ( 16,346 ) Other, net ( 18,225 ) ( 18,498 ) ( 16,930 ) Net cash used in operating activities ( 111,196 ) ( 40,806 ) ( 176,317 ) Cash flows from investing activities: Purchase of property, plant and equipment ( 6,679 ) ( 8,230 ) ( 3,804 ) Acquisition of business, net of cash acquired ( 55,341 ) — — Proceeds from sale of business and assets, net 25,390 8,000 7,445 Purchases of available-for-sale securities ( 12,605 ) ( 29,068 ) ( 8,914 ) Sales and maturities of available-for-sale securities 15,694 26,563 11,547 Other, net — 4,954 2,505 Net cash (used in) from investing activities ( 33,541 ) 2,219 8,779 58 Year ended December 31, (in thousands) 2021 2020 2019 Cash flows from financing activities: Issuance of senior notes 303,324 — — Borrowings on loan payable 7,145 — — Repayments on loan payable ( 846 ) — — Borrowings under last out term loans — 70,000 151,350 Repayments under last out term loans ( 75,408 ) — ( 41,766 ) Borrowings under U.S. revolving credit facility 14,500 158,900 291,600 Repayments of U.S. revolving credit facility ( 178,800 ) ( 173,600 ) ( 257,500 ) Repayments under our foreign revolving credit facilities — — ( 605 ) Issuance of preferred stock, net 113,275 — — Payment of preferred stock dividends ( 9,127 ) — — Shares of common stock returned to treasury stock ( 4,944 ) ( 283 ) ( 117 ) Proceeds from rights offering — — 40,376 Costs related to rights offering — — ( 832 ) Issuance of common stock, net 160,841 — 1,392 Debt issuance costs ( 24,560 ) ( 10,590 ) ( 16,619 ) Other, net ( 2,588 ) ( 329 ) ( 261 ) Net cash from financing activities 302,812 44,098 167,018 Effects of exchange rate changes on cash 1,217 4,971 ( 2,818 ) Net increase (decrease) in cash, cash equivalents and restricted cash 159,292 10,482 ( 3,338 ) Cash, cash equivalents and restricted cash, beginning of period 67,423 56,941 60,279 Cash, cash equivalents and restricted cash, end of period $ 226,715 $ 67,423 $ 56,941 See accompanying notes to Consolidated Financial Statements. 59 BABCOCK & WILCOX ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2021 NOTE 1 – BASIS OF PRESENTATION The Consolidated Financial Statements of Babcock & Wilcox Enterprises, Inc. (“B&W,” “management,” “we,” “us,” “our” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). We have eliminated all intercompany transactions and accounts. We present the notes to our Consolidated Financial Statements on the basis of continuing operations, unless otherwise stated. COVID-19 In December 2019, a novel strain of coronavirus, COVID-19, was identified in Wuhan, China and subsequently spread globally. This global pandemic has disrupted business operations, including global supply chains, 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 changes in the severity of the virus in these countries and localities. These restrictions, including curtailment of travel and other activity, negatively impact our ability to conduct business. Disruption to our global supply changes from COVID-19 has included impacts to the manufacturing, supply, distribution, transportation and delivery of our products. We could also see significant disruptions of the operations of our logistics, service providers, delays in shipments and negative impacts to pricing of certain of our products. Disruptions and delays in our supply chains as a result of the COVID-19 pandemic could adversely our ability to meet our customers’ demands. Additionally, the prioritization of shipments of certain products as a result of the pandemic could cause delays in the shipment or delivery of our products. Such disruptions could result in reduced sales. 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 ongoing impact of COVID-19, including new strains such as the delta and omicron variants, 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 the 2022 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 2022 and beyond. Additionally, out of concern for our employees, even where restrictions permit employees to return to our offices and worksites, we incurred additional costs to protect our employees and advised 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 impact of COVID-19 and its variants 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 outbreaks, as well as the availability, effectiveness and acceptance of COVID-19 vaccinations in the U.S. and abroad, all of which are uncertain, out of our control, and cannot be predicted. NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES Reportable segments Our operations are assessed based on three reportable market-facing segments 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 platforms. Our reportable segments are as follows: 60 • Babcock & Wilcox Renewable: 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. • Babcock & Wilcox Environmental: A full suite of best-in-class emissions control and environmental technology solutions for utility, waste to energy, biomass, carbon black, and industrial steam generation applications around the world. 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. • Babcock & Wilcox Thermal: Steam generation equipment, aftermarket parts, construction, maintenance and field services for plants in the power generation, oil and gas, and industrial sectors. B&W has an extensive global base of installed equipment for utilities and general industrial applications including refining, petrochemical, food processing, metals and others.. For financial information about our segments see Note 4 to our Consolidated Financial Statements. Use of estimates We use estimates and assumptions to prepare our Consolidated Financial Statements in conformity with GAAP. Some of our more significant estimates include our estimate of costs to complete long-term construction contracts, estimates associated with assessing whether goodwill, intangible assets and other long-lived assets are impaired, estimates of costs to be incurred to satisfy contractual warranty requirements, estimates of the value of acquired intangible and tangible assets, estimates associated with the realizability of deferred tax assets, and estimates we make in selecting assumptions related to the valuations of our pension and postretirement plans, including the selection of our discount rates, mortality and expected rates of return on our pension plan assets. These estimates and assumptions affect the amounts we report in our Consolidated Financial Statements and accompanying notes. Our actual results could differ from these estimates. Variances could result in a material effect on our financial condition and results of operations in future periods. Earnings per share We have computed earnings per common share on the basis of the weighted average number of common shares, and, where dilutive, common share equivalents, outstanding during the indicated periods. The weighted average shares used to calculate basic and diluted earnings per share reflect the bonus element for the 2019 Rights Offering on July 23, 2019 and the one-for- ten reverse stock split on July 24, 2019. We have a number of forms of stock-based compensation, including incentive and non-qualified stock options, restricted stock, restricted stock units, performance shares, and performance units, subject to satisfaction of specific performance goals. We include the shares applicable to these plans in dilutive earnings per share when related performance criteria have been met. The computation of basic and diluted earnings per share is included in Note 3. Investments Our investments primarily relate to our wholly owned insurance subsidiary. We classify investments available for current operations in the Consolidated Balance Sheets as current assets, while we classify investments held for long-term purposes as non-current assets. We adjust the amortized cost of debt securities for amortization of premiums and accretion of discounts to maturity. That amortization is included in interest income. We include realized gains and losses on our investments in other - net in our Consolidated Statements of Operations. The cost of securities sold is based on the specific identification method. We include interest on securities in interest income. 61 Foreign currency translation We translate assets and liabilities of our foreign operations into U.S. dollars at current exchange rates, and we translate items in our statement of operations at average exchange rates for the periods presented. 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. We have included a transaction (loss) gain of $( 4.3 ) million, $ 58.8 million and $( 16.6 ) million in the years ended December 31, 2021, 2020, and 2019, respectively, in foreign exchange in our Consolidated Statements of Operations. These foreign exchange net gains and losses are primarily related to transaction gains or losses from unhedged intercompany loans when the loan is denominated in a currency different than the participating entity's functional currency. Revenue recognition A performance obligation is a contractual promise to transfer a distinct good or service to the customer. A contract's transaction price is allocated to each distinct performance obligation and is recognized as revenue when (point in time) or as (over time) the performance obligation is satisfied. Revenue from goods and services transferred to customers at a point in time, which includes certain aftermarket parts and services, accounted for 19 %, 29 % and 21 % of our revenue for the years ended December 31, 2021, 2020, and 2019, respectively. Revenue on these contracts is recognized when the customer obtains control of the asset, which is generally upon shipment or delivery and acceptance by the customer. Standard commercial payment terms generally apply to these sales. Revenue from products and services transferred to customers over time accounted for 81 %, 71 % and 79 % of our revenue for the years ended years ended December 31, 2021, 2020, and 2019, respectively. Revenue recognized over time primarily relates to customized, engineered solutions and construction services. Typically, revenue is recognized over time using the cost-to-cost input method that uses costs incurred to date relative to total estimated costs at completion to measure progress toward satisfying our performance obligations. 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 and, when appropriate, SG&A expenses. Variable consideration in these contracts includes estimates of liquidated damages, contractual bonuses and penalties, and contract modifications. Substantially all of our revenue recognized over time under the cost-to-cost input method contains a single performance obligation as the interdependent nature of the goods and services provided prevents them from being separately identifiable within the contract. Generally, we try to structure contract milestones to mirror our expected cash outflows over the course of the contract; however, the timing of milestone receipts can greatly affect our overall cash position. Refer to Note 4 for our disaggregation of revenue by product line. As of December 31, 2021, we have estimated the costs to complete of all our in-process contracts in order to estimate revenues using a cost-to-cost input method. However, it is possible that current estimates could change due to unforeseen events, which could result in adjustments to overall contract costs. The risk on fixed-priced contracts is that revenue from the customer does not cover increases in our costs. It is possible that current estimates could materially change for various reasons, including, but not limited to, fluctuations in forecasted labor productivity, transportation, fluctuations in foreign exchange rates or steel and other raw material prices. Increases in costs on our fixed-price contracts could have a material adverse impact on our consolidated financial condition, results of operations and cash flows. Alternatively, reductions in overall contract costs at completion could materially improve our consolidated financial condition, results of operations and cash flows. Variations from estimated contract performance could result in material adjustments to operating results for any fiscal quarter or year. Contract modifications are routine in the performance of our contracts. Contracts are often modified to account for changes in the contract specifications or requirements. In most instances, contract modifications are for goods or services that are not distinct and, therefore, are accounted for as part of the existing contract, with cumulative adjustment to revenue. We recognize accrued claims in contract revenues for extra work or changes in scope of work to the extent of costs incurred when we believe we have an enforceable right to the modification or claim and the amount can be estimated reliably, and its realization is probable. In evaluating these criteria, we consider the contractual/legal basis for enforcing the claim, the cause of any additional costs incurred and whether those costs are identifiable or otherwise determinable, the nature and reasonableness of those costs, the objective evidence available to support the amount of the claim, and our relevant history 62 with the counter-party that supports our expectations about their willingness and ability to pay for the additional cost along with a reasonable margin. We generally recognize sales commissions in equal proportion as revenue is recognized. Our sales agreements are structured such that commissions are only payable upon receipt of payment, thus a capitalized asset at contract inception has not been recorded for sales commission as a liability has not been incurred at that point. Contract balances Contracts in progress, a current asset in our Consolidated Balance Sheets, includes revenues and related costs so recorded, plus accumulated contract costs that exceed amounts invoiced to customers under the terms of the contracts. Advance billings, a current liability in our Consolidated Balance Sheets, includes advance billings on contracts invoices that exceed accumulated contract costs and revenues and costs recognized under the cost-to-cost input method. Those balances are classified as current based on the life cycle of the associated contracts. Most long-term contracts contain provisions for progress payments. Our unbilled receivables do not contain an allowance for credit losses as we expect to invoice customers and the collection of all amounts for unbilled revenues is deemed probable. We review contract price and cost estimates each reporting period as the work progresses and reflect adjustments proportionate to the costs incurred to date relative to total estimated costs at completion in income in the period when those estimates are revised. For all contracts, if a current estimate of total contract cost indicates a loss on a contract, the projected contract loss is recognized in full through the statement of operations and an accrual for the estimated loss on the uncompleted contract is included in other accrued liabilities in the Consolidated Balance Sheets. In addition, when we determine that an uncompleted contract will not be completed on-time and the contract has liquidated damages provisions, we recognize the estimated liquidated damages at the most likely amount we will incur and record them as a reduction of the estimated selling price in the period the change in estimate occurs. Losses accrued in advance of the completion of a contract are included in other accrued liabilities in our Consolidated Balance Sheets. Warranty expense 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, or in the case of a loss contract, the full amount of the estimated warranty costs is accrued when the contract becomes a loss contract. In addition, we record specific provisions or reductions where we expect the actual warranty costs to significantly differ from the accrued estimates. Such changes could have a material effect on our consolidated financial condition, results of operations and cash flows. 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 activities totaled $ 1.6 million, $ 4.4 million and $ 2.9 million in the years ended December 31, 2021, 2020, and 2019, respectively. Advertising expense Advertising expense is recognized when incurred and is included in selling, general and administrative expenses on our Consolidated Statements of Operations. Advertising expenses in the years ended December 31, 2021, 2020, and 2019 were not significant. Pension plans and postretirement benefits We sponsor various defined benefit pension and postretirement plans covering certain employees of our U.S., Canadian and U.K. subsidiaries. We use actuarial valuations to calculate the cost and benefit obligations of our pension and postretirement benefits. The actuarial valuations use significant assumptions in the determination of our benefit cost and obligations, including assumptions regarding discount rates, expected returns on plan assets, mortality and health care cost trends. 63 We determine our discount rate based on a review of published financial data and discussions with our actuary regarding rates of return on high-quality, fixed-income investments currently available and expected to be available during the period to maturity of our pension and postretirement plan obligations. We use an alternative spot rate method for discounting the benefit obligation rather than a single equivalent discount rate because it more accurately applies each year's spot rates to the projected cash flows. The components of benefit cost related to service cost, interest cost, expected return on plan assets and prior service cost amortization are recorded on a quarterly basis based on actuarial assumptions. In the fourth quarter of each year, or as interim remeasurements are required, we recognize net actuarial gains and losses into earnings as a component of net periodic benefit cost (mark to market (“MTM”) pension adjustment). Recognized net actuarial gains and losses consist primarily of our reported actuarial gains and losses and the difference between the actual return on plan assets and the expected return on plan assets. We recognize the funded status of each plan as either an asset or a liability in the Consolidated Balance Sheets. The funded status is the difference between the fair value of plan assets and the present value of its benefit obligation, determined on a plan-by-plan basis. See Note 13 for a detailed description of our plan assets. Income taxes 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. For those tax positions where it is more likely than not that a tax benefit will be sustained, we have recorded the largest amount of tax benefit with a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. For those income tax positions where it is not more likely than not that a tax benefit will be sustained, no tax benefit has been recognized in our Consolidated Financial Statements. We record interest and penalties (net of any applicable tax benefit) related to income taxes as a component of income tax expense on our Consolidated Statements of Operations. Cash and cash equivalents and restricted cash Our cash equivalents are highly liquid investments, with maturities of three months or less when we purchase them. We record cash and cash equivalents as restricted when we are unable to freely use such cash and cash equivalents for our general operating purposes. Trade accounts receivable and allowance for doubtful accounts Our trade accounts receivable balance is stated at the amount owed by our customers, net of allowances for estimated uncollectible balances. We maintain allowances for doubtful accounts for estimated losses expected to result from the inability of our customers to make required payments. These estimates are based on management's evaluation of the ability of customers to make payments, with emphasis on historical remittance experience, known customer financial difficulties, the age of receivable balances and any other known factors specific to a receivable. Accounts receivable are charged to the allowance when it is determined they are no longer collectible. Our allowance for doubtful accounts was $ 11.9 million and $ 17.2 million at December 31, 2021 and 2020, respectively. Amounts charged to selling, general and administrative expenses were $( 0.1 ) million, $( 0.2 ) million and $ 0.2 million for the years ended December 31, 2021, 2020, and 2019, respectively. Inventories We carry our inventories at the lower of cost or net realizable value. We determine cost on the first-in, first-out basis. During the fourth quarter of 2021, the Company voluntarily changed its method of accounting for certain domestic inventory previously valued by the LIFO method to the FIFO method. The cumulative effect of this change on periods presented prior to 2019 resulted in an increase in retained earnings of $ 7.3 million at December 31, 2018. The impact on earnings was a decrease of $ 0.1 million and an increase of $ 0.4 million for the years ending December 31, 2020 and 2019, respectively. The FIFO method of accounting for inventory is preferable because it more closely matches the physical inventory flow, better reflects the current value of inventories on our Consolidated Balance Sheets, improves our financial reporting by having a consistent method across the organization, and increases comparability with certain peers of the Company. Our obsolete 64 inventory reserve was $ 6.5 million and $ 7.1 million at December 31, 2021 and 2020, respectively. The components of inventories can be found in Note 6. Property, plant and equipment We carry our property, plant and equipment at depreciated cost, less any impairment provisions. We depreciate our property, plant and equipment using the straight-line method over estimated economic useful lives of eight to 33 years for buildings and three to 28 years for machinery and equipment. Our depreciation expense was $ 9.7 million, $ 11.3 million and $ 19.3 million for the years ended December 31, 2021, 2020, and 2019, respectively. We expense the costs of maintenance, repairs and renewals that do not materially prolong the useful life of an asset as we incur them. Property, plant and equipment amounts are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset, or asset group, may not be recoverable. An impairment loss would be recognized when the carrying amount of an asset exceeds the estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition. The amount of the impairment loss to be recorded is calculated by the excess of the asset carrying value over its fair value. Fair value is generally determined using a discounted cash flow analysis. Our estimates of cash flow may differ from actual cash flow due to, among other things, technological changes, economic conditions or changes in operating performance. Any changes in such factors may negatively affect our business and result in future asset impairments. Investments in consolidated entities SPIG maintains a 60 % ownership interest in a joint venture entity, which is consolidated into the B&W Environmental segment results. On September 30, 2021, we acquired a 60 % controlling ownership interest in Illinois-based solar energy contractor Fosler Construction Company Inc. (“Fosler Construction”). See Note 26 for further information on this acquisition. Goodwill Goodwill represents the excess of the cost of our acquired businesses over the fair value of the net assets acquired. We perform testing of goodwill for impairment annually on October 1 st or when impairment indicators are present. We may elect to perform a qualitative test when we believe that there is substantially in excess fair value over carrying value based on our most recent quantitative assessment, adjusted for relevant events and circumstances that could affect fair value during the current year. If we conclude based on this assessment that it is more likely than not that the reporting unit is not impaired, we do not perform a quantitative impairment test. In all other circumstances, we perform a quantitative impairment test to identify potential goodwill impairment and measure the amount of any goodwill impairment. Goodwill impairment tests recognize impairment for the amount that the carrying value of a reporting unit exceeds its fair value up to the remaining amount of goodwill. Intangible assets Intangible assets are recognized at fair value when acquired. Intangible assets with definite lives are amortized to operating expense using the straight-line method over their estimated useful lives and tested for impairment when events or changes in circumstances indicate that their carrying amounts may not be recoverable. Intangible assets with indefinite lives are not amortized and are subject to impairment testing at least annually or in interim periods when impairment indicators are present. We may elect to perform a qualitative assessment when testing indefinite lived intangible assets for impairment to determine whether events or circumstances affecting significant inputs related to the most recent quantitative evaluation have occurred, indicating that it is more likely than not that the indefinite lived intangible asset is impaired. Otherwise, we test indefinite lived intangible assets for impairment by determining the fair value of the indefinite lived intangible asset and comparing the fair value of the intangible asset to its carrying amount. If the carrying amount of the intangible asset exceeds its fair value, we recognize impairment for the amount of the difference. Accounting for Leases We determine if an arrangement is a lease at inception. Operating leases are included in right-of-use (“ROU”) assets , operating lease liabilities and non-current operating lease liabilities in the Consolidated Balance Sheets. Finance leases are included in net property, plant and equipment, and finance lease, other accrued liabilities and other non-current finance 65 liabilities in the Consolidated Balance Sheets. Lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As substantially all of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at lease commencement date in determining the present value of future payments. Our incremental borrowing rate is estimated to approximate the interest rate on a collateralized basis with similar terms and payments, and in economic environments where the leased asset is located. The ROU assets also include any prepaid lease payments made and initial direct costs incurred and excludes lease incentives. Our lease terms may include options to extend or terminate the lease, which we recognize when it is reasonably certain that we will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. Leases with an initial term of 12 months or less are not recorded on the balance sheet. For leases beginning in 2019 and later, we account for lease components (e.g., fixed payments including rent) together with the non-lease components (e.g., common-area maintenance costs) as a single lease component for all classes of underlying assets. Derivative financial instruments Derivative assets and liabilities usually consist of FX forward contracts. Where applicable, the value of these derivative assets and liabilities is computed by discounting the projected future cash flow amounts to present value using market-based observable inputs, including FX forward and spot rates, interest rates and counterparty performance risk adjustments. As of December 31, 2021, we do not hold any derivative assets or liabilities. Self-insurance We have a wholly owned insurance subsidiary that provides employer's liability, general and automotive liability and workers' compensation insurance and, from time to time, builder's risk insurance (within certain limits) to our companies. We may also, in the future, have this insurance subsidiary accept other risks that we cannot or do not wish to transfer to outside insurance companies. Included in other non-current liabilities on our Consolidated Balance Sheets are reserves for self-insurance totaling $ 9.3 million and $ 11.6 million as of December 31, 2021 and 2020, respectively . Loss contingencies We estimate liabilities for loss contingencies when it is probable that a liability has been incurred and the amount of loss is reasonably estimable. We provide disclosure when there is a reasonable possibility that the ultimate loss will exceed the recorded provision or if such probable loss is not reasonably estimable. We are currently involved in some significant litigation, as discussed in Note 22. Our losses are typically resolved over long periods of time and are often difficult to assess and estimate due to, among other reasons, the possibility of multiple actions by third parties; the attribution of damages, if any, among multiple defendants; plaintiffs, in most cases involving personal injury claims, do not specify the amount of damages claimed; the discovery process may take multiple years to complete; during the litigation process, it is common to have multiple complex unresolved procedural and substantive issues; the potential availability of insurance and indemnity coverages; the wide-ranging outcomes reached in similar cases, including the variety of damages awarded; the likelihood of settlements for de minimis amounts prior to trial; the likelihood of success at trial; and the likelihood of success on appeal. Consequently, it is possible future earnings could be affected by changes in our assessments of the probability that a loss has been incurred in a material pending litigation against us and/or changes in our estimates related to such matters . Loss recoveries We recognize loss recoveries and provide disclosures only when receipt of the recovery is probable and we are able to reasonably estimate the amount of the recovery. Our loss recoveries are typically resolved over long periods of time and are often difficult to assess and estimate due to, among other reasons, the possibility of multiple actions by third parties, multiple complex unresolved procedural and substantive issues; the wide-ranging outcomes reached in similar cases, including the variety of losses incurred. Consequently, it is possible future earnings could be affected by changes in our assessments of the probability that a loss recovery has been recognized and/or changes in our estimates related to such matters. See Note 5 for discussions regarding the project contract cost recovery recognized in 2021 and the non-recurring loss recovery in 2020. Contingent consideration 66 The fair values of earn-out arrangements are included as part of the purchase price of the acquired companies on their respective acquisition dates. For each transaction, we estimate the fair value of contingent earn-out payments as part of the initial purchase price and record the estimated fair value of contingent consideration as a liability in other non-current liabilities on our Consolidated Balance Sheets. We review and re-assess the estimated fair value of contingent consideration on a quarterly basis, and the updated fair value could differ materially from the initial estimates. Changes in the estimated fair value of our contingent earn-out liabilities related to the time component of the present value calculation are reported in interest expense on our Consolidated Statements of Operations. Adjustments to the estimated fair value related to changes in all other unobservable inputs are reported in operating income (loss) on our Consolidated Statements of Operations. Stock-based compensation The fair value of equity-classified awards, such as restricted stock, performance shares and stock options, is determined on the date of grant and is not remeasured. The fair value of liability-classified awards, such as cash-settled stock appreciation rights, restricted stock units and performance units, is determined on the date of grant and is remeasured at the end of each reporting period through the date of settlement. Fair values for restricted stock, restricted stock units, performance shares and performance units are determined using the closing price of our common stock on the date of grant. Fair values for stock options are determined using a Black-Scholes option-pricing model (“Black-Scholes”). For performance shares or units that contain a Relative Total Shareholder Return vesting criteria and for stock appreciation rights, we utilize a Monte Carlo simulation to determine the fair value, which determines the probability of satisfying the market condition included in the award. The determination of the fair value of a share-based payment award using an option-pricing model or a Monte Carlo simulation requires the input of significant assumptions, such as the expected life of the award and stock price volatility. We recognize expense for all stock-based awards granted on a straight-line basis over the requisite service periods of the awards, which is generally equivalent to the vesting term. For liability-classified awards, changes in fair value are recognized through cumulative catch-ups each period. Excess tax benefits on stock-based compensation should be classified along with other income tax cash flows as an operating activity. These excess tax benefits result from tax deductions in excess of the cumulative compensation expense recognized for options exercised and other equity-classified awards. See Note 20 for further discussion of stock-based compensation. Recently adopted accounting standards We adopted the following accounting standard during the year ended December 31, 2021: Effective January 1, 2021 we adopted ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in this update simplify the accounting for income taxes by removing exceptions related to the incremental approach for intra-period tax allocation, certain deferred tax liabilities, and the general methodology for calculating income taxes in an interim period. The amendment also provides simplification related to accounting for franchise (or similar) tax, evaluating the tax basis step up of goodwill, allocation of consolidated current and deferred tax expense, reflection of the impact of enacted tax law or rate changes in annual effective tax rate calculations in the interim period that includes enactment date, and other minor codification improvements. The impact of this standard on our consolidated financial statements was immaterial. In March 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope. The amendments in this update clarify that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. This update is an amendment to ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform of Financial Reporting, which was issued in March 2020 and provides optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in the updates apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The expedients and exceptions provided by the updates do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. As of December 31, 2021, we have not yet elected any optional expedients provided in the standard. We will apply the accounting relief as relevant contract and hedge accounting relationship modifications are made during the reference rate reform transition period. The impact of this standard on our consolidated financial statements was immaterial. 67 In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Equity's Own Equity (Subtopic 815-40): Issuer's Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (a consensus of the FASB Emerging Issues Task Force). The amendments in this update affect all entities that issue freestanding written call options that are classified in equity. Specifically, the amendments affect those entities when a freestanding equity-classified written call option is modified or exchanged and remains equity classified after the modification or exchange. The amendments that relate to the recognition and measurement of EPS for certain modifications or exchanges of freestanding equity-classified written call options affect entities that present EPS in accordance with the guidance in Earnings Per Share (Topic 260) . The amendments in this update do not apply to modifications or exchanges of financial instruments that are within the scope of another Topic. That is, accounting for those instruments continues to be subject to the requirements in other Topics. The amendments in this update do not affect a holder’s accounting for freestanding call options. The update is applicable to B&W as we have previously issued freestanding written call options. As of December 31, 2021, these options remain unexercised and we will apply the accounting standard as freestanding written call options are modified or exchanged. The impact of this standard on our consolidated financial statements was immaterial. NOTE 3 – EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings (loss) per share of our common stock, net of non-controlling interest and dividends on preferred stock: Year ended December 31, (in thousands, except per share amounts) 2021 2020 2019 Income (loss) from continuing operations attributable to stockholders of common stock $ 21,767 $ ( 12,118 ) $ ( 122,668 ) Income from discontinued operations attributable to stockholders of common stock, net of tax — 1,800 694 Net income (loss) attributable to stockholders of common stock $ 21,767 $ ( 10,318 ) $ ( 121,974 ) Weighted average shares used to calculate basic income (loss) per share 82,391 48,710 31,514 Dilutive effect of stock options, restricted stock and performance units 1,189 — — Weighted average shares used to calculate diluted income (loss) per share 83,580 48,710 31,514 Basic income (loss) per share Continuing operations $ 0.26 $ ( 0.25 ) $ ( 3.89 ) Discontinued operations — 0.04 0.02 Basic income (loss) per share $ 0.26 $ ( 0.21 ) $ ( 3.87 ) Diluted income (loss) per share Continuing operations $ 0.26 $ ( 0.25 ) $ ( 3.89 ) Discontinued operations — 0.04 0.02 Diluted income (loss) per share $ 0.26 $ ( 0.21 ) $ ( 3.87 ) Because we incurred a net loss in the years ended December 31, 2020 and 2019 basic and diluted shares are the same. If we had net income in the years ended December 31, 2020 and 2019 diluted shares would include an additional 610.9 thousand and 150.0 thousand shares, respectively. 68 We exclu ded 0.3 million , 1.3 million, and 0.3 million shares related to stock options from the diluted share calculation for the years ended December 31, 2021, 2020, and 2019 respectively, because their effect would have been anti-dilutive. NOTE 4 – SEGMENT REPORTING Our operations are assessed based on three reportable segments as described in Note 2. Revenues exclude eliminations of revenues generated from sales to other segments or to other product lines within the segment. An analysis of our operations by segment is as follows: Year ended December 31, (in thousands) 2021 2020 2019 Revenues: B&W Renewable segment B&W Renewable $ 83,639 $ 89,790 $ 94,119 Vølund 60,671 66,397 111,432 Fosler 12,490 — — 156,800 156,187 205,551 B&W Environmental segment B&W Environmental 58,262 45,186 184,477 SPIG 55,615 52,341 80,729 GMAB 19,949 10,441 10,429 133,826 107,968 275,635 B&W Thermal segment B&W Thermal 433,329 304,968 409,744 433,329 304,968 409,744 Eliminations ( 592 ) ( 2,806 ) ( 31,819 ) Total Revenues $ 723,363 $ 566,317 $ 859,111 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, 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 are not allocated to the segments. 69 Adjusted EBITDA for each segment is presented below with a reconciliation from net income (loss). 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) 4,713 — — 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) — — 6,575 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. We do not separately identify or report our assets by segment as our chief operating decision maker does not consider assets by segment to be a critical measure by which performance is measured. 70 We estimate that 47 %, 43 % and 45 % of our consolidated revenues in 2021, 2020, and 2019, respectively, were related to coal-fired power plants. The availability of natural gas in great supply has caused, in part, low prices for natural gas in the United States, which has led to more demand for natural gas relative to energy derived from coal. A material decline in spending by electric power generating companies and other steam-using industries on coal-fired power plants over a sustained period of time could materially and adversely affect the demand for our power generation products and services and, therefore, our financial condition, results of operations and cash flows. Coal-fired power plants have been scrutinized by environmental groups and government regulators over the emissions of potentially harmful pollutants. This scrutiny and other economic incentives including tax advantages, have promoted the growth of nuclear, wind and solar power, among others, and a decline in cost of renewable power plant components and power storage. The recent economic environment and uncertainty concerning new environmental legislation or replacement rules or regulations in the United States and elsewhere has caused many of our major customers, principally electric utilities, to delay making substantial expenditures for new plants, and delay upgrades to existing power plants. Information about our consolidated operations in different geographic areas Year ended December 31, (in thousands) 2021 2020 2019 REVENUES (1) United States $ 431,540 $ 310,958 $ 460,484 Canada 48,206 43,936 113,660 Denmark 30,310 28,590 27,311 United Kingdom 26,722 25,811 54,347 Sweden 22,391 11,430 18,789 Israel 14,110 1,635 635 Saudi Arabia 12,529 9,545 5,243 Hong Kong 11,056 4,490 4,524 China 10,028 8,461 18,430 Finland 6,310 6,606 14,118 South Korea 3,961 4,050 14,443 Indonesia 1,853 19,644 16,739 Aggregate of all other countries, each with less than $10 million in revenues 104,347 91,161 110,388 $ 723,363 $ 566,317 $ 859,111 (1) We allocate geographic revenues based on the location of the customer's operations. Year ended December 31, (in thousands) 2021 2020 2019 NET PROPERTY, PLANT AND EQUIPMENT, AND FINANCE LEASE United States $ 52,516 $ 46,734 $ 61,111 Mexico 17,071 18,173 19,241 Denmark 6,573 7,327 6,801 United Kingdom 5,722 5,274 5,469 Italy 1,565 1,881 2,172 Aggregate of all other countries 2,180 5,689 2,259 $ 85,627 $ 85,078 $ 97,053 71 NOTE 5 – REVENUE RECOGNITION AND CONTRACTS Revenue Recognition We generate the vast majority of our revenues from the supply of, and aftermarket services for, steam-generating, environmental and auxiliary equipment. We also earn revenue from the supply of custom-engineered cooling systems for steam applications along with related aftermarket services. Our revenue recognition accounting policy is described in more detail in Note 2. Contract Balances The following represents the components of our contracts in progress and advance billings on contracts included in our Consolidated Balance Sheets: (in thousands) December 31, 2021 December 31, 2020 $ Change % Change Contract assets - included in contracts in progress: Costs incurred less costs of revenue recognized $ 35,939 $ 25,888 $ 10,051 39 % Revenues recognized less billings to customers 44,237 33,420 10,817 32 % Contracts in progress $ 80,176 $ 59,308 $ 20,868 35 % Contract liabilities - included in advance billings on contracts: Billings to customers less revenues recognized $ 68,615 $ 61,884 $ 6,731 11 % Costs of revenue recognized less cost incurred ( 235 ) 2,118 ( 2,353 ) ( 111 ) % Advance billings on contracts $ 68,380 $ 64,002 $ 4,378 7 % Net contract balance $ 11,796 $ ( 4,694 ) $ 16,490 ( 351 ) % Accrued contract losses $ 378 $ 582 $ ( 204 ) ( 35 ) % The following amounts represent retainage on contracts: (in thousands) December 31, 2021 December 31, 2020 $ Change % Change Retainage expected to be collected within one year $ 2,575 $ 2,969 $ ( 394 ) ( 13 ) % Retainage expected to be collected after one year 1,591 632 959 152 % Total retainage $ 4,166 $ 3,601 $ 565 16 % We have included retainage expected to be collected in 2022 in accounts receivable – trade, net in our Consolidated Balance Sheets. Retainage expected to be collected after one year are included in other assets in our Consolidated Balance Sheets. Of the long-term retainage at December 31, 2021, we anticipate collecting $ 1.6 million in 2023. Backlog On December 31, 2021 we had $ 639.0 million of remaining performance obligations, which we also refer to as total backlog. We expect to recognize approximately 62.2 %, 12.8 % and 25.0 % of our remaining performance obligations as revenue in 2022, 2023 and thereafter, respectively. 72 Changes in Contract Estimates In the years ended December 31, 2021, 2020 and 2019 we recognized changes in estimated gross profit related to long-term contracts accounted for on the over time basis, which are summarized as follows: Year ended December 31, (in thousands) 2021 2020 2019 Increases in gross profit for changes in estimates for over time contracts (1) $ 16,042 $ 43,597 $ 34,622 Decreases in gross profit for changes in estimates for over time contracts ( 6,531 ) ( 17,480 ) ( 50,050 ) Net changes in gross profit for changes in estimates for over time contracts $ 9,511 $ 26,117 $ ( 15,428 ) (1) Increases in gross profits for changes in estimates for over time contracts reflects a non-recurring loss recovery of $ 26.0 million in the year ended December 31, 2020. B&W Renewable EPC Loss Contracts We had six B&W Renewable EPC contracts for renewable energy facilities in Europe that were loss contracts at December 31, 2017. The scope of these EPC (Engineer, Procure and Construct) contracts extended beyond our core technology, products and services. In addition to these loss contracts, we have one remaining extended scope contract in our Babcock & Wilcox Renewable segment which turned into a loss contract in the fourth quarter of 2019. Five of the six contracts were 100 % complete and the remaining one contract was nearly 100 % complete at December 31, 2021, with only limited warranty obligations remaining, and all have been turned over to the customers. In the years ended December 31, 2021 and 2020, we recorded $ 42 thousand in net gains and $ 3.7 million in net losses, respectively, inclusive of warranty expense as described in Note 11, resulting from changes in the estimated revenues and costs to complete those contracts. All liquidated damages associated with these six contracts have been settled and paid as of December 31, 2020. In October 2020, we entered into a settlement agreement with an insurer under which we received a settlement of $ 26.0 million to settle claims in connection with five of six European B&W Renewable EPC loss contracts disclosed above. We recognized this non-recurring loss recovery of $ 26.0 million as a reduction of our c ost of operations in our Consolidated Statements of Operation s in 2020. During 2021, the Company settled a dispute with a subcontractor for project costs related to three of the Renewable EPC loss contracts described above. Accordingly, we recognized this settlement as a reduction of our cost of operations in our Consolidated Statements of Operations and recorded the receivable in a ccounts receivable - other in our Consolidated Balance Sheets at December 31, 2021 and in the Table above. The Company, as a normal part of its ongoing business operations, is continuing to pursue other additional potential claims and recoveries from subcontractors and others where appropriate and available. B&W Environmental Loss Contracts At December 31, 2021, the B&W Environmental segment had two significant loss contracts of which both contracts were nearly 100 % complete. In the year ended December 31, 2021 our estimated loss on these contracts improved by $ 0.4 million. In the twelve months ended December 31, 2020 and 2019, we recognized $ 1.3 million and $ 5.6 million, respectively, of additional charges on these contracts. NOTE 6 – INVENTORIES Inventories are stated at the lower of cost or net realizable value. During the fourth quarter of 2021, the Company voluntarily changed its method of accounting for certain domestic inventory previously valued by the LIFO method to the FIFO method. The cumulative effect of this change on periods presented prior to 2019 resulted in an increase in retained earnings of $ 7.3 million at December 31, 2018. The impact on earnings was a decrease of $ 0.1 million and an increase of $ 0.4 million for the years ending December 31, 2020 and 2019, respectively. The FIFO method of accounting for inventory is preferable because it more closely matches the physical inventory flow, better reflects the current value of inventories on our Consolidated 73 Balance Sheets, improves our financial reporting by having a consistent method across the organization, and increases comparability with certain peers of the Company. The components of inventories are as follows: (in thousands) December 31, 2021 December 31, 2020 (1) Raw materials and supplies $ 56,352 $ 53,944 Work in progress 5,723 8,195 Finished goods 17,452 12,307 Total inventories $ 79,527 $ 74,446 (1) December 31, 2020 amounts have been revised to reflect the change in inventory accounting method, as described above. As a result of the retrospective application of this change in accounting method, the following financial statement line items within the accompanying financial statements were adjusted, as follows: December 31, 2021 December 31, 2020 (in thousands) As Computed Under LIFO As Reported Under FIFO Effect of Change As Computed Under LIFO As Reported Under FIFO Effect of Change Consolidated Balance Sheets Inventories $ 72,242 $ 79,527 $ 7,285 $ 67,161 $ 74,446 $ 7,285 Accumulated deficit ( 1,328,439 ) ( 1,321,154 ) 7,285 ( 1,350,206 ) ( 1,342,921 ) 7,285 NOTE 7 – PR OPERTY, PLANT & EQUIPMENT, & FINANCE LEASE Property, plant and equipment less accumulated depreciation is as follows: (in thousands) December 31, 2021 December 31, 2020 Land $ 1,489 $ 1,584 Buildings 31,895 34,207 Machinery and equipment 144,325 151,399 Property under construction 12,480 5,336 190,189 192,526 Less accumulated depreciation 133,137 135,925 Net property, plant and equipment 57,052 56,601 Finance lease 34,159 30,551 Less finance lease accumulated amortization 5,584 2,074 Net property, plant and equipment, and finance lease $ 85,627 $ 85,078 NOTE 8 - GOODWILL The following summarizes the changes in the net carrying amount of goodwill as of December 31, 2021: (in thousands) B&W Renewable B&W Environmental B&W Thermal Total Balance at December 31, 2020 $ 10,211 $ 5,673 $ 31,479 $ 47,363 Addition - Fosler Construction (1) 51,979 — — 51,979 Addition - VODA (1) 17,176 — — 17,176 Currency translation adjustments ( 9 ) ( 6 ) ( 41 ) ( 56 ) Balance at December 31, 2021 $ 79,357 $ 5,667 $ 31,438 $ 116,462 (1) As described in Note 26, we are in the process of completing the purchase price allocation associated with the Fosler Construction and VODA acquisitions and as a result, the provisional measurements of goodwill associated with these acquisitions are subject to change. 74 Goodwill is tested for impairment annually and when impairment indicators exist. No impairment indicators were identified during the year ended December 31, 2021. In conducting the annual impairment test for goodwill, the Company has the option to first assess qualitative factors to determine whether it is more likely than not the fair value of any reporting unit is less than its carrying amount. If the Company elects to perform a qualitative assessment and determines an impairment is more likely than not, the Company is required to perform a quantitative impairment test. Otherwise, no further analysis is required. Alternatively, the Company may elect to proceed directly to the quantitative impairment test. During the annual goodwill impairment testing as of October 1, 2021, the Company elected to perform a quantitative impairment test. No impairment charges were recorded as a result of the quantitative testing performed. NOTE 9 – INTANGIBLE ASSETS Our intangible assets are as follows: (in thousands) December 31, 2021 December 31, 2020 Definite-lived intangible assets (1) Customer relationships $ 46,903 $ 24,862 Unpatented technology 15,410 15,713 Patented technology 3,103 2,642 Tradename 12,747 13,088 Acquired backlog 3,100 — All other 9,319 9,262 Gross value of definite-lived intangible assets 90,582 65,567 Customer relationships amortization ( 20,800 ) ( 19,537 ) Unpatented technology amortization ( 8,313 ) ( 6,751 ) Patented technology amortization ( 2,729 ) ( 2,593 ) Tradename amortization ( 5,425 ) ( 4,831 ) Acquired backlog ( 1,620 ) — All other amortization ( 9,205 ) ( 9,252 ) Accumulated amortization ( 48,092 ) ( 42,964 ) Net definite-lived intangible assets $ 42,490 $ 22,603 Indefinite-lived intangible assets Trademarks and trade names $ 1,305 $ 1,305 Total intangible assets, net $ 43,795 $ 23,908 (1) As described in Note 26, we are in the process of completing the purchase price allocation associated with the Fosler Construction and VODA acquisitions and as a result, the increase in intangible assets associated with these acquisitions are subject to change. The following summarizes the changes in the carrying amount of intangible assets: Year ended December 31, (in thousands) 2021 2020 Balance at beginning of period $ 23,908 $ 25,300 Business acquisitions and adjustments (1) 26,583 — Amortization expense ( 5,128 ) ( 3,406 ) Currency translation adjustments ( 1,568 ) 2,014 Balance at end of the period $ 43,795 $ 23,908 (1) As described in Note 26, we are in the process of completing the purchase price allocation associated with the Fosler Construction and VODA acquisitions and as a result, the increase in amortization expense associated with these acquisitions are subject to change. 75 Amortization of intangible assets is included in cost of operations and SG&A in our Consolidated Statement of Operations but is not allocated to segment results. Estimated future intangible asset amortization expense, including the preliminary amortization expense resulting from the acquisitions of Fosler Construction and VODA, during the year ended December 31, 2021 is as follows (in thousands): Amortization Expense (1) Year ending December 31, 2022 6,759 Year ending December 31, 2023 5,382 Year ending December 31, 2024 5,300 Year ending December 31, 2025 4,480 Year ending December 31, 2026 3,256 Thereafter 17,313 (1) As described in Note 26, we are in the process of completing the purchase price allocation associated with the Fosler Construction and VODA acquisitions and as a result, the estimated future intangible asset amortization expense associated with these acquisitions are subject to change. As of December 31, 2021 and 2020, the B&W Vølund asset group had $ 0.7 million and $ 0.5 million of identifiable intangible assets, net of accumulated amortization, respectively. As of December 31, 2021 and 2020, the B&W SPIG asset group had $ 16.6 million and $ 21.1 million of identifiable intangible assets, net of accumulated amortization, respectively. See Note 26 for intangible assets identified in conjunction with the acquisitions of Fosler Construction and VODA, which are subject to change pending the finalization of the purchase price allocation associated with these acquisitions. NOTE 10 – LEASES Certain real property assets for our Copley, Ohio location were sold on March 15, 2021, as described in Note 26. In conjunction with the sale, we executed a leaseback agreement commencing March 16, 2021 and expiring on March 31, 2033. The lease is classified as an operating lease with total future minimum payments during the initial term of the lease of approximately $ 5.6 million as of December 31, 2021. An incremental borrowing rate of 7.71 % was used to determine the right-of-use (the "ROU") asset. As of December 31, 2021, a $ 3.5 million ROU asset is recorded in r ight of use assets with corresponding liabilities of $ 3.8 million in other accrued liabilities and other non-current operating liabilities in our Consolidated Balance Sheets as of December 31, 2021. Certain real property assets for our Lancaster, Ohio location were sold on August 13, 2021, as described in Note 26. In conjunction with the sale, we executed a leaseback agreement commencing August 13, 2021 and expiring on August 31, 2041. The lease is classified as an operating lease with total future minimum payments during the initial term of the lease of approximately $ 36.6 million as of December 31, 2021. An incremental borrowing rate of 8.215 % was used to determine the ROU asset. We recorded a $ 19.4 million ROU asset in right of use assets and corresponding liabilities of $ 19.5 million in other accrued liabilities and other non-current operating liabilities in our Consolidated Balance Sheets as of December 31, 2021. In conjunction with our acquisition of Fosler Construction, as described in Note 26, w e assumed two leases classified as operating leases with total future minimum payments during the remaining term of the leases of approximately $ 1.5 million. As of December 31, 2021, a $ 1.1 million ROU asset is recorded in right-of-use assets with corresponding liabilities of $ 1.1 million in operating lease liabilities and non-current operating lease liabilities in our Consolidated Balance Sheets. As of December 31, 2021, there was one lease classified as a finance lease with total future minimum payments during the remaining term of the leases of approximately $ 1.5 million. An incremental borrowing rate of 6.65 % was used to determine the ROU asset. We recorded a $ 0.7 million ROU asset in net property, plant and equipment, and finance lease and corresponding liabilities of $ 0.7 million in other accrued liabilities and other non-current finance liabilities in our Consolidated Balance Sheets as of December 31, 2021 . 76 The components of lease expense included on our Consolidated Statements of Operations were as follows: Year ended December 31, (in thousands) Classification 2021 2020 2019 Operating lease expense: Operating lease expense Selling, general and administrative expenses $ 4,974 $ 5,736 $ 6,624 Operating lease expense Cost of operations 1,077 — — Short-term lease expense Selling, general and administrative expenses $ 3,541 $ 1,960 $ 6,575 Variable lease expense (1) Selling, general and administrative expenses 385 1,973 2,349 Total operating lease expense $ 9,977 $ 9,669 $ 15,548 Finance lease expense: Amortization of right-of-use assets Cost of operations $ 3,510 $ 2,061 $ 13 Interest on lease liabilities Interest expense 2,502 2,452 14 Total finance lease expense $ 6,012 $ 4,513 $ 27 Sublease income (2) Other – net $ ( 86 ) $ ( 86 ) $ ( 67 ) Net lease cost $ 15,903 $ 14,096 $ 15,508 (1) Variable lease expense primarily consists of common area maintenance expenses paid directly to lessors of real estate leases. (2) Sublease income excludes rental income from owned properties, which is not material. Other information related to leases is as follows: Year ended December 31, (in thousands) 2021 2020 2019 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 5,614 $ 5,603 $ 6,578 Operating cash flows from finance leases 2,502 2,452 14 Financing cash flows from finance leases 2,366 ( 13 ) ( 12 ) (in thousands) December 31, 2021 December 31, 2020 Right-of-use assets obtained in exchange for lease liabilities: Operating leases $ 24,886 $ 2,629 Finance leases $ 3,608 $ 146 Weighted-average remaining lease term: Operating leases (in years) 13.6 3.1 Finance leases (in years) 12.7 13.9 Weighted-average discount rate: Operating leases 8.24 % 9.26 % Finance leases 7.93 % 8.00 % 77 Amounts relating to leases were presented on our Consolidated Balance Sheets in the following line items: (in thousands) Assets: Classification December 31, 2021 December 31, 2020 Operating lease assets Right-of-use assets $ 30,163 $ 10,814 Finance lease assets Net property, plant and equipment, and finance lease 28,575 28,477 Total non-current lease assets $ 58,738 $ 39,291 Liabilities: Current Operating lease liabilities Operating lease liabilities $ 3,950 $ 3,995 Finance lease liabilities Financing lease liabilities 2,445 886 Non-current Operating lease liabilities Non-current operating lease liabilities 26,685 7,031 Finance lease liabilities Non-current finance lease liabilities 29,369 29,690 Total lease liabilities $ 62,449 $ 41,602 Future minimum lease payments required, including the future minimum lease payments resulting from the September 30, 2021 acquisition of Fosler Construction, under non-cancellable leases as of December 31, 2021 were as follows: (in thousands) Operating Leases Finance Leases Total 2022 $ 6,209 $ 4,833 $ 11,042 2023 4,975 3,459 8,434 2024 3,889 3,525 7,414 2025 2,890 3,552 6,442 2026 2,548 3,623 6,171 Thereafter 32,264 32,481 64,745 Total $ 52,775 $ 51,473 $ 104,248 Less imputed interest ( 22,140 ) ( 19,659 ) ( 41,799 ) Lease liability $ 30,635 $ 31,814 $ 62,449 NOTE 11 – ACCRUED WARRANTY EXPENSE We may offer assurance type warranties on products and services we sell. Changes in the carrying amount of our accrued warranty expense are as follows: Year ended December 31, (in thousands) 2021 2020 Balance at beginning of period $ 25,399 $ 33,376 Additions 7,470 11,912 Expirations and other changes ( 7,808 ) ( 8,391 ) Payments ( 12,206 ) ( 13,916 ) Translation and other 70 2,418 Balance at end of period $ 12,925 $ 25,399 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, or in the case of a loss contract, the full amount of the estimated warranty costs is accrued when the contract becomes a loss contract. In addition, we 78 record specific provisions or reductions where we expect the actual warranty costs to significantly differ from the accrued estimates. Such changes could have a material effect on our consolidated financial condition, results of operations and cash flows. NOTE 12 – RESTRUCTURING ACTIVITIES The Company incurred restructuring charges in 2021, 2020 and 2019. The charges primarily consist of severance and related costs to actions taken, including as part of the Company’s strategic, market-focused organizational and re-branding initiative. During 2021 and 2020, these charges also include actions taken to address the impact of COVID-19 on our business. The following tables summarizes the restructuring activity incurred by segment: Year ended December 31, 2021 (in thousands) Total Severance and related costs Other (1) B&W Renewable segment $ 1,876 $ 1,732 $ 144 B&W Environmental segment 430 360 70 B&W Thermal segment 2,207 1,734 473 Corporate 356 213 143 $ 4,869 $ 4,039 $ 830 Cumulative costs to date $ 45,183 37,252 7,931 (1) Other amounts consist primarily of exit, relocation, COVID-19 related and other costs. Year ended December 31, 2020 (in thousands) Total Severance and related costs Other (1) B&W Renewable segment $ 5,926 $ 4,537 $ 1,389 B&W Environmental segment 745 293 452 B&W Thermal segment 4,725 1,962 2,763 Corporate 453 ( 52 ) 505 $ 11,849 $ 6,740 $ 5,109 (1) Other amounts consist primarily of exit, relocation, COVID-19 related and other costs. Year ended December 31, 2019 (in thousands) Total Severance and related costs Other (1) B&W Renewable segment $ 2,233 $ 2,176 $ 57 B&W Environmental segment 2,000 1,888 112 B&W Thermal segment 3,040 2,791 249 Corporate 4,434 3,566 868 $ 11,707 $ 10,421 $ 1,286 (1) Other amounts consist primarily of exit, relocation and other costs. Restructuring liabilities are included in other accrued liabilities on our Consolidated Balance Sheets. Activity related to the restructuring liabilities is as follows: 79 Year ended December 31, (in thousands) 2021 2020 Balance at beginning of period $ 8,146 $ 5,359 Restructuring expense 4,869 11,849 Payments ( 6,454 ) ( 9,062 ) Balance at end of period $ 6,561 $ 8,146 The payments shown above for the years ended December 31, 2021 and 2020 relate primarily to severance. Accrued restructuring liabilities at December 31, 2021 and 2020 relate primarily to employee termination benefits. NOTE 13 – PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS We have historically provided defined benefit retirement benefits to domestic employees under the Retirement Plan for Employees of Babcock & Wilcox Commercial Operations (the “U.S. Plan”), a noncontributory plan. As of 2006, the U.S. Plan was closed to new salaried plan entrants. Effective December 31, 2015, benefit accruals for those salaried employees covered by, and continuing to accrue service and salary adjusted benefits under the U.S. Plan ceased. As of December 31, 2021, and 2020, approximately 73 and 85 hourly union employees continue to accrue benefits under the U.S. Plan for the respective years. Effective January 1, 2012, a defined contribution component was adopted applicable to Babcock & Wilcox Canada, Ltd. (the “Canadian Plans”). Any employee with less than two years of continuous service as of December 31, 2011 was required to enroll in the defined contribution component of the Canadian Plans as of January 1, 2012 or upon the completion of 6 months of continuous service, whichever is later. These and future employees will not be eligible to enroll in the defined benefit component of the Canadian Plans. In 2014, benefit accruals under certain hourly Canadian pension plans were ceased with an effective date of January 1, 2015. As part of the spin-off transaction, we split the Canadian defined benefit plans from BWXT, which was completed in 2017. We did not present these plans as multi-employer plans because our portion was separately identifiable, and we were able to assess the assets, liabilities and periodic expense in the same manner as if it were a separate plan in each period. We also sponsor the Diamond Power Specialty Limited Retirement Benefits Plan (the “U.K. Plan”) through our subsidiary. Benefit accruals under this plan ceased effective November 30, 2015. We have accounted for the GMP equalization following the U.K. High Court ruling during the fourth quarter of 2018 by recording prior service cost in accumulated other comprehensive income that will be amortized through net periodic pension cost over 15 years, ending December 31, 2033. We do not provide retirement benefits to certain non-resident alien employees of foreign subsidiaries. Retirement benefits for salaried employees who accrue benefits in a defined benefit plan are based on final average compensation and years of service, while benefits for hourly paid employees are based on a flat benefit rate and years of service. Our funding policy is to fund the plans as recommended by the respective plan actuaries and in accordance with the Employee Retirement Income Security Act of 1974, as amended, or other applicable law. Funding provisions under the Pension Protection Act accelerate funding requirements to ensure full funding of benefits accrued. We make available other benefits which include postretirement health care and life insurance benefits to certain salaried and union retirees based on their union contracts, and on a limited basis, to future retirees. 80 Obligations and funded status Pension Benefits Year Ended December 31, Other Benefits Year Ended December 31, (in thousands) 2021 2020 2021 2020 Change in benefit obligation: Benefit obligation at beginning of period $ 1,284,019 $ 1,218,968 $ 11,802 $ 12,134 Service cost 781 792 22 19 Interest cost 22,559 33,267 145 288 Plan participants’ contributions — — 155 160 Amendments 676 — — — Actuarial (gain) loss ( 28,815 ) 108,623 ( 153 ) 478 Foreign currency exchange rate changes 165 1,615 3 33 Benefits paid ( 79,540 ) ( 79,246 ) ( 1,602 ) ( 1,310 ) Benefit obligation at end of period $ 1,199,845 $ 1,284,019 $ 10,372 $ 11,802 Change in plan assets: Fair value of plan assets at beginning of period $ 1,047,646 $ 974,117 $ — $ — Actual return on plan assets 42,954 148,100 — — Employer contribution 26,158 2,892 1,447 1,150 Plan participants' contributions — — 155 160 Foreign currency exchange rate changes 17 1,783 — — Benefits paid ( 79,540 ) ( 79,246 ) ( 1,602 ) ( 1,310 ) Fair value of plan assets at the end of period 1,037,235 1,047,646 — — Funded status $ ( 162,610 ) $ ( 236,373 ) $ ( 10,372 ) $ ( 11,802 ) Amounts recognized in the balance sheet consist of: Accrued employee benefits $ ( 1,162 ) $ ( 1,163 ) $ ( 1,297 ) $ ( 1,399 ) Accumulated postretirement benefit obligation — — ( 9,075 ) ( 10,403 ) Pension liability ( 173,655 ) ( 241,889 ) — — Prepaid pension 12,207 6,679 — — Accrued benefit liability, net $ ( 162,610 ) $ ( 236,373 ) $ ( 10,372 ) $ ( 11,802 ) Amount recognized in accumulated comprehensive income (before taxes): Prior service cost $ 1,146 $ 557 $ 2,355 $ 3,046 Supplemental information: Plans with accumulated benefit obligation in excess of plan assets Projected benefit obligation $ 1,141,706 $ 1,219,129 $ — $ — Accumulated benefit obligation $ 1,141,706 $ 1,219,129 $ 10,372 $ 11,802 Fair value of plan assets $ 966,889 $ 976,078 $ — $ — Plans with plan assets in excess of accumulated benefit obligation Projected benefit obligation $ 58,139 $ 64,890 $ — $ — Accumulated benefit obligation $ 58,139 $ 64,890 $ — $ — Fair value of plan assets $ 70,346 $ 71,568 $ — $ — 81 Components of net periodic benefit cost (benefit) included in net income (loss) are as follows: Pension Benefits Other Benefits Year ended December 31, Year ended December 31, (in thousands) 2021 2020 2019 2021 2020 2019 Interest cost $ 22,559 $ 33,267 $ 43,312 $ 145 $ 288 $ 424 Expected return on plan assets ( 56,154 ) ( 61,322 ) ( 55,717 ) — — — Amortization of prior service cost (credit) 97 97 142 691 ( 1,084 ) ( 2,157 ) Recognized net actuarial (gain) loss ( 15,327 ) 22,676 ( 7,603 ) ( 153 ) 478 ( 1,201 ) Benefit plans, net (1) ( 48,825 ) ( 5,282 ) ( 19,866 ) 683 ( 318 ) ( 2,934 ) Service cost included in COS (2) 781 792 778 22 19 15 Net periodic benefit cost (benefit) $ ( 48,044 ) $ ( 4,490 ) $ ( 19,088 ) $ 705 $ ( 299 ) $ ( 2,919 ) (1) Benefit plans, net , which is presented separately in our Consolidated Statements of Operations, is not allocated to the segments. (2) Service cost related to a small group of active participants is presented within cost of operations in our Consolidated Statement of Operations and is allocated to the B&W Thermal segment. Recognized net actuarial gain consists primarily of our reported actuarial gain and the difference between the actual return on plan assets and the expected return on plan assets. Total net mark to market (“MTM”) adjustments for our pension and other postretirement benefit plans were (gains) losses of $( 15.5 ) million, $ 23.2 million and $( 8.8 ) million in the years ended, December 31, 2021, 2020 and 2019, respectively. The recognized net actuarial (gain) loss was recorded in benefit plans, net in our Consolidated Statements of Operations. Assumptions Pension Benefits Other Benefits Year ended December 31, Year ended December 31, 2021 2020 2019 2021 2020 2019 Weighted average assumptions used to determine net periodic benefit obligations: Comparative single equivalent discount rate 2.81 % 2.50 % 3.25 % 2.50 % 1.97 % 2.99 % Rate of compensation increase 0.07 % 0.08 % 0.07 % — — — Weighted average assumptions used to determine net periodic benefit cost: Comparative single equivalent discount rate 2.52 % 3.23 % 4.28 % 2.50 % 1.97 % 2.99 % Expected return on plan assets 5.76 % 6.63 % 6.66 % — — — Rate of compensation increase 0.07 % 0.08 % 0.07 % — — — The expected rate of return on plan assets is based on the long-term expected returns for the investment mix of assets currently in the portfolio. In setting this rate, we use a building-block approach. Historic real return trends for the various asset classes in the plan's portfolio are combined with anticipated future market conditions to estimate the real rate of return for each asset class. These rates are then adjusted for anticipated future inflation to determine estimated nominal rates of return for each asset class. The expected rate of return on plan assets is determined to be the weighted average of the nominal returns based on the weightings of the asset classes within the total asset portfolio. We use an expected return on plan assets assumption of 6 % for the majority of our pension plan assets (approximately 93 % of our total pension assets at December 31, 2021). Investment goals The overall investment strategy of the pension trusts is to achieve long-term growth of principal, while avoiding excessive risk and to minimize the probability of loss of principal over the long term. The specific investment goals that have been set 82 for the pension trusts in the aggregate are (1) to ensure that plan liabilities are met when due and (2) to achieve an investment return on trust assets consistent with a reasonable level of risk. Allocations to each asset class for both domestic and foreign plans are reviewed periodically and rebalanced, if appropriate, to assure the continued relevance of the goals, objectives and strategies. The pension trusts for both our domestic and foreign plans employ a professional investment advisor and a number of professional investment managers whose individual benchmarks are, in the aggregate, consistent with the plans' overall investment objectives. The goals of each investment manager are (1) to meet (in the case of passive accounts) or exceed (for actively managed accounts) the benchmark selected and agreed upon by the manager and the trust and (2) to display an overall level of risk in its portfolio that is consistent with the risk associated with the agreed upon benchmark. The investment performance of total portfolios, as well as asset class components, is periodically measured against commonly accepted benchmarks, including the individual investment manager benchmarks. In evaluating investment manager performance, consideration is also given to personnel, strategy, research capabilities, organizational and business matters, adherence to discipline and other qualitative factors that may impact the ability to achieve desired investment results. Domestic plans: We sponsor the U.S. Plan, which is a domestic defined benefit plan. The assets of this plan are held by the Trustee in The Babcock & Wilcox Company Master Trust (the “Master Trust”). For the years ended December 31, 2021 and 2020, the investment return on domestic plan assets of the Master Trust (net of deductions for management fees) was approximately 4.25 % and 17 %, respectively. The following is a summary of the asset allocations for the Master Trust by asset category: Year ended December 31, 2021 2020 Asset category: Commingled and mutual funds — % 41 % United States government securities 17 % 16 % Corporate stocks 8 % 5 % Venture capital 40 % 18 % Hedge funds 30 % 13 % Cash and accrued items 5 % 7 % The target asset allocation for the Master Trust as of December 31, 2021 was 50 % of alternative, liquid credit and direct lending funds, 20 % of fixed income securities, and 30 % of equity and other investments. As of December 31, 2020, the target allocation was 54 % of alternative, liquid credit and direct lending funds, 22 % of fixed income securities, and 24 % of equity and other investments. We routinely reassess the target asset allocation with a goal of better aligning the timing of expected cash flows from those assets to the anticipated timing of benefit payments. 83 Foreign plans: We sponsor various plans through certain of our foreign subsidiaries. These plans are the Canadian Plans and the U.K. Plan. The combined weighted average asset allocations of these plans by asset category were as follows: Year ended December 31, 2021 2020 Asset category: Commingled and mutual funds 30 % 35 % Fixed income 67 % 62 % Other 3 % 3 % The target allocation for 2021 for the foreign plans, by asset class, is as follows: Canadian Plans U.K. Plan Asset class: United States equity 25 % 3 % Global equity 25 % 4 % Fixed income and other 50 % 93 % Fair value of plan assets See Note 24 for a detailed description of fair value measurements and the hierarchy established for valuation inputs. In accordance with Subtopic 820-10, Fair Value Measurement and Disclosure s, certain investments that are measured at fair value using the net asset value ("NAV") per share practical expedient have not been classified in the fair value hierarchy. The investments that are measured at fair value using NAV per share included in the tables below are intended to permit reconciliation of the fair value hierarchy to the fair value of plan assets at the end of each period, which is presented in the first table above titled “obligations and funded status” . The following is a summary of total investments for our plans measured at fair value: (in thousands) Year ended December 31, 2021 Level 1 Level 2 Level 3 Commingled and mutual funds $ 22,261 $ — $ 22,261 $ — United States government securities 167,328 167,328 — — Fixed income 65,370 15,196 47,309 2,865 Equity 80,299 74,888 5,243 168 Venture capital 236,730 — — 236,730 Hedge fund 80,711 — — 80,711 Cash and accrued items 30,130 30,130 — — Investments measured at fair value $ 682,829 $ 287,542 $ 74,813 $ 320,474 Investments measured at net asset value 349,798 Pending trades 4,608 Total pension and other postretirement benefit assets $ 1,037,235 84 (in thousands) Year ended December 31, 2020 Level 1 Level 2 Level 3 Commingled and mutual funds $ 429,101 $ 402,935 $ 26,166 $ — United States government securities 160,488 160,488 — — Fixed income 44,604 — 44,604 — Equity 45,539 45,539 — — Venture capital 56,719 — — 56,719 Cash and accrued items 69,822 69,822 — — Investments measured at fair value $ 806,273 $ 678,784 $ 70,770 $ 56,719 Investments measured at net asset value 241,568 Pending trades ( 195 ) Total pension and other postretirement benefit assets $ 1,047,646 Expected cash flows Domestic Plans Foreign Plans (in thousands) Pension Benefits Other Benefits Pension Benefits Other Benefits Expected employer contributions to trusts of defined benefit plans: 2022 $ 2,751 $ 1,148 $ 1,047 $ 152 Expected benefit payments (1) : 2022 74,866 1,148 2,721 152 2023 74,326 1,053 2,720 143 2024 73,639 962 2,733 132 2025 72,676 877 2,846 121 2026 71,502 796 2,919 114 2027-2031 333,824 2,935 15,124 413 (1) Pension benefit payments are made from their respective plan's trust. We made contributions to our pension and other postretirement benefit plans totaling $ 27.6 million and $ 4.0 million during the years ended December 31, 2021 and 2020. Contributions made during the year ended December 31, 2021 includes $ 0.4 million of interest as required per the CARES Act that was signed into law on March 27, 2020. In accordance with the American Rescue Plan Act of 2021, we elected to defer $ 20.9 million of the estimated Pension Plan contribution payments of $ 45.6 million that would have been due during 2021. Defined contribution plans We provide benefits under The B&W Thrift Plan (the “Thrift Plan”). The Thrift Plan generally provides for matching employer contributions. Beginning in April 2020 and continuing through December 31, 2021, as part of the Company's response to the impact of the COVID-19 pandemic on its business, the Company suspended its 401(k) company match for U.S. employees. The Company resumed its employer contributions beginning in 2022 inclusive of a one-time profit sharing contribution for the 2021 plan year equal to 0.75 % of eligible employees' base pay. Employer matching contributions are typically made in cash. Amounts charged to expense for employer contributions under the Thrift Plan totaled approximately $ 0.0 million , $ 1.0 million and $ 3.1 million in the years ended December 31, 2021, 2020 and 2019, respectively. Also, our salaried Canadian employees are provided with a defined contribution plan. The amount charged to expense for employer contributions was approximately $ 0.3 million, $ 0.3 million and $ 0.3 million in the years ended December 31, 2021, 2020 and 2019, respectively. 85 Multi-employer plans One of our subsidiaries in the B&W Thermal segment contributes to various multi-employer plans. The plans generally provide defined benefits to substantially all unionized workers in this subsidiary. The following table summarizes our contributions to multi-employer plans for the years covered by this report: Pension Fund EIN/PIN Pension Protection Act Zone Status FIP/RP Status Pending/ Implemented Contributions Surcharge Imposed Expiration Date of Collective Bargaining Agreement 2021 2020 2019 2021 2020 2019 (in millions) Boilermaker-Blacksmith National Pension Trust 48-6168020/ 001 Yellow Yellow Red Yes $ 16.6 $ 4.0 $ 7.5 No Described Below All other 2.2 0.9 4.9 $ 18.8 $ 4.9 $ 12.4 Our collective bargaining agreements with the Boilermaker-Blacksmith National Pension Trust (the “Boilermaker Plan”) is under a National Maintenance Agreement platform which is evergreen in terms of expiration. However, the agreement allows for termination by either party with a 90-day written notice. Our contributions to the Boilermaker Plan constitute less than 5% of total contributions to the Boilermaker Plan. All other contributions expense for all periods included in this report represents multiple amounts to various plans that, individually, are deemed to be insignificant. NOTE 14 – 2021 SENIOR NOTES OFFERINGS 8.125% Senior Notes On February 12, 2021, we completed a public offering of $ 125.0 million aggregate principal amount of our 8.125 % senior notes due 2026 (the “ 8.125 % Senior Notes”) for net proceeds of approximately $ 120.0 million. In addition to the public offering, we issued $ 35.0 million of 8.125 % Senior Notes to B. Riley Financial, Inc. a related party, in exchange for a deemed prepayment of our existing Last Out Term Loan Tranche A-3 in a concurrent private offering. On March 31, 2021, we entered into a sales agreement with B. Riley Securities, Inc., a related party, in which we may sell to or through B. Riley Securities, Inc., from time to time, additional 8.125 % Senior Notes up to an aggregate principal amount of $ 150.0 million. The 8.125 % Senior Notes have the same terms as (other than date of issuance), form a single series of debt securities with and have the same CUSIP number and be fungible with, the 8.125 % Senior Notes issued February 12, 2021, as described above. As of December 31, 2021, the Company has sold $ 26.2 million aggregate principal amount of 8.125 % Senior Notes under the sales agreement for $ 26.6 million of net proceeds. The 8.125 % Senior Notes are senior unsecured obligations of the Company and rank equally in right of payment with all of the Company’s other existing and future senior unsecured and unsubordinated indebtedness. The 8.125 % Senior Notes bear interest at the rate of 8.125 % per annum. Interest on the 8.125 % Senior Notes is payable quarterly in arrears on January 31, April 30, July 31 and October 31 of each year, commencing on April 30, 2021. The 8.125 % Senior Notes mature on February 28, 2026. 6.50% Senior Notes . 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 offerings, we received net proceeds of approximately $ 145.8 million. 86 The public offering of our 6.50 % Senior Notes was conducted pursuant to an underwriting agreement dated December 8, 2021, between us and B. Riley Securities, Inc., an affiliate of B. Riley, a related party, as representative of several underwriters. The 6.50 % Senior Notes are senior unsecured obligations of the Company and rank equally in right of payment with all of the Company’s other existing and future senior unsecured and unsubordinated indebtedness. The 6.50 % Senior Notes are effectively subordinated in right of payment to all of the Company’s existing and future secured indebtedness and structurally subordinated to all existing and future indebtedness of the Company’s subsidiaries, including trade payables. The 6.50 % Senior Notes bear interest at the rate of 6.50 % per annum. Interest on the 6.50 % Senior Notes is payable quarterly in arrears on March 31, June 30, September 30 and December 31 of each year, commencing on March 31, 2022. The 6.50 % Senior Notes will mature on December 31, 2026. The components of the Company's senior notes at December 31, 2021 are as follows: Senior Notes (in thousands) 8.125 % 6.50 % Total Senior notes due 2026 $ 186,219 $ 151,440 $ 337,659 Unamortized deferred financing costs ( 5,269 ) ( 6,604 ) ( 11,873 ) Unamortized premium 580 — 580 Net debt balance $ 181,530 $ 144,836 $ 326,366 NOTE 15 – LAST OUT TERM LOANS Effective with the new debt facilities the Company entered into on June 30, 2021, as described in Note 16 below, the Company has no remaining Last Out Term Loans and no further borrowings thereunder are available. The Last Out Term Loan activity is described as follows: Last Out Term Loan Tranche (in thousands) A-3 A-4 A-6 Total Balance at December 31, 2020 $ 113,330 $ 30,000 $ 40,000 $ 183,330 Payments in cash ( 40,408 ) ( 30,000 ) ( 5,000 ) ( 75,408 ) Exchange for Preferred Stock ( 72,922 ) — — ( 72,922 ) Exchange for 8.125 % Senior Notes — — ( 35,000 ) ( 35,000 ) Balance at December 31, 2021 $ — $ — $ — $ — NOTE 16 – REVOLVING DEBT Debt Facilities 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 a letter of credit agreement (the “Letter of Credit Agreement”) with PNC, pursuant to which PNC agreed to issue up to $ 110 million in letters of credit that is secured in part by cash collateral provided by an affiliate of MSD Partners, MSD PCOF Partners XLV, LLC (“MSD”), as well as a reimbursement, guaranty and security agreement with MSD, as administrative agent, and the cash collateral providers from time to time party thereto, along with certain of our subsidiaries as guarantors, pursuant to which we are obligated to reimburse MSD and any other cash collateral provider to the extent the 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 (the “Reimbursement Agreement” and collectively with the Revolving Credit Agreement and Letter of Credit Agreement, 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. B. Riley Financial, Inc. (“B. Riley”), a related party, has provided a guaranty of payment with regard to the Company’s obligations under the Reimbursement Agreement, as described below. 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 87 under our previous A&R Credit Agreement, dated as of May 14, 2020 (as amended, restated or otherwise modified from time to time), by and among the Company, as borrower, Bank of America, N.A., as administrative agent, the lenders and the other parties from time to time party thereto, which was repaid and commitments thereunder terminated as of June 30, 2021. The Revolving Credit Agreement matures on June 30, 2025. As of December 31, 2021, no borrowings have occurred under the Revolving Credit Agreement and under the Letter of Credit Agreement, usage consisted of $ 16.4 million of financial letters of credit and $ 90.4 million of performance letters of credit. Each of the Debt Facilities has a maturity date of June 30, 2025. The interest rates applicable under the Revolving Credit Agreement float at a rate per annum equal to either (i) a base rate plus 2.0 % or (ii) 1 or 3 month reserve-adjusted LIBOR rate plus 3.0 %. The interest rates applicable to the Reimbursement Agreement float at a rate per annum equal to either (i) a base rate plus 6.50 % or (ii) 1 or 3 month reserve-adjusted LIBOR plus 7.50 %. Under the Letter of Credit Agreement, the Company is required to pay letter of credit fees on outstanding letters of credit equal to (i) administrative fees of 0.75 % and (ii) fronting fees of 0.25 %. Under the Revolving Credit Agreement, the Company is required to pay letter of credit fees on outstanding letters of credit equal to (i) letter of credit commitment fees of 3.0 % and (ii) letter of credit fronting fees of 0.25 %. Under each of the Revolving Credit Agreement and the Letter of Credit Agreement, we are required to pay a facility fee equal to 0.375 % per annum of the unused portion of the Revolving Credit Agreement or the Letter of Credit Agreement, respectively. The Company is permitted to prepay all or any portion of the loans under the Revolving Credit Agreement prior to maturity without premium or penalty. Prepayments under the Reimbursement Agreement shall be subject to a prepayment fee of 2.25 % in the first year after closing, 2.0 % in the second year after closing and 1.25 % in the third year after closing, with no prepayment fee payable thereafter. The Company has mandatory prepayment obligations under the Reimbursement Agreement upon the receipt of proceeds from certain dispositions or casualty or condemnation events. The Revolving Credit Agreement and Letter of Credit Agreement require mandatory prepayments to the extent of an over-advance. The obligations under the Debt Facilities are secured by substantially all assets of the Company and each of the guarantors, in each case subject to inter-creditor arrangements. As noted above, the obligations under the Letter of Credit Facility are also secured by the cash collateral provided by MSD and any other cash collateral provider thereunder. The Debt Documents contain certain representations and warranties, affirmative covenants, negative covenants and conditions that are customarily required for similar financings. The Debt Documents require the Company to comply with certain financial maintenance covenants, including a quarterly fixed charge coverage test of not less than 1.00 to 1.00, a quarterly senior net leverage ratio test of not greater than 2.50 to 1.00, a non-guarantor cash repatriation covenant not to exceed $ 35 million at any one time, a minimum liquidity covenant of at least $ 30.0 million at all times, and an annual cap on maintenance capital expenditures of $ 7.5 million. The Debt Documents also contain customary events of default (subject, in certain instances, to specified grace periods) including, but not limited to, the failure to make payments of interest or premium, if any, on, or principal under the respective facility, the failure to comply with certain covenants and agreements specified in the applicable Debt Agreement, defaults in respect of certain other indebtedness, and certain events of insolvency. If any event of default occurs, the principal, premium, if any, interest and any other monetary obligations on all the then outstanding amounts under the Debt Documents may become due and payable immediately. In connection with the Company’s entry into the Debt Documents, on June 30, 2021, B. Riley, a related party, entered into a Guaranty Agreement in favor of MSD, in its capacity as administrative agent under the Reimbursement Agreement, for the ratable benefit of MSD, the cash collateral providers and each co-agent or sub-agent appointed by MSD from time to time (the “B. Riley Guaranty”). The B. Riley Guaranty provides for the guarantee of all of the Company’s obligations under the Reimbursement Agreement. The B. Riley Guaranty is enforceable in certain circumstances, including, among others, certain events of default and the acceleration of the Company’s obligations under the Reimbursement Agreement. Under a fee letter with B. Riley, the Company agreed to pay B. Riley $ 0.9 million per annum in connection with the B. Riley Guaranty. The Company entered into a reimbursement agreement with B. Riley governing the Company’s obligation to reimburse B. Riley to the extent the B. Riley Guaranty is called upon by the agent or lenders under the Reimbursement Agreement. As of December 31, 2021, a subsidiary has borrowed $ 1.5 million against a $ 2.5 million line of credit. The interest rate on the line of credit is 5.5 % per annum and matures on January 30, 2022. Subsequent to December 31, 2021, the subsidiary entered into a new $ 3.5 million line of credit with a maturity date of January 30, 2023. A&R Credit Agreement 88 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 in 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 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 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. 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. Other Indebtedness - Loans Payable As of December 31, 2021, our Denmark subsidiary has 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, 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. NOTE 17 – PREFERRED STOCK In May 2021, we completed a public offering of our 7.75 % Series A Cumulative Perpetual Preferred Stock (the "Preferred Stock") pursuant to an underwriting agreement (the “Underwriting Agreement”) between us and B. Riley Securities, Inc.. At the closing, we issued to the public 4,444,700.00 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. The Preferred Stock has a par value of $ 0.01 per share and is perpetual and has no maturity date. The Preferred Stock has a cumulative cash dividend, when and as if declared by our Board of Directors, at a rate of 7.75 % per year on the liquidation preference amount of $ 25.00 per share and payable quarterly in arrears. The Preferred Stock ranks, as to dividend rights and rights as to the distribution of assets upon our liquidation, dissolution or winding-up: (1) senior to all classes or series of our common stock and to all other capital stock issued by us expressly designated as ranking junior to the Preferred Stock; (2) on parity with any future class or series of our capital stock expressly designated as ranking on parity with the Preferred Stock; (3) junior to any future class or series of our capital stock expressly designated as ranking senior to the Preferred Stock; and (4) junior to all our existing and future indebtedness. 89 The Preferred Stock has no stated maturity and is not subject to mandatory redemption or any sinking fund. We will pay cumulative cash dividends on the Preferred Stock when, as and if declared by our Board of Directors, only out of funds legally available for payment of dividends. Dividends on the Preferred Stock will accrue on the stated amount of $ 25.00 per share of the Preferred Stock at a rate per annum equal to 7.75 % (equivalent to $ 1.9375 per year), payable quarterly in arrears. Dividends on the Preferred Stock declared by our Board of Directors will be payable quarterly in arrears on March 31, June 30, September 30 and December 31 of each year. During 2021, the Company's Board of Directors approved dividends totaling $ 9.1 million.. There are no cumulative undeclared dividends of the Preferred Stock at December 31, 2021. On June 1, 2021, the Company and B. Riley, a related party, entered into an agreement (the “Exchange Agreement”) pursuant to which we (i) issued B. Riley 2,916,880 shares of our Preferred Stock, representing an exchange price of $ 25.00 per share and paid $ 0.4 million in cash, and (ii) paid $ 0.9 million in cash to B. Riley for accrued interest due, in exchange for a deemed prepayment of $ 73.3 million of our then existing term loans with B. Riley under the Company’s prior A&R Credit Agreement. On July 7, 2021, we entered into a sales agreement with B. Riley Securities, Inc., a related party, in connection with the offer and to or through B. Riley Securities, Inc., from time to time, additional shares of Preferred Stock up to an aggregate amount of $ 76.0 million of Preferred Stock. The Preferred Stock will have the same terms and have the same CUSIP number and be fungible with, the Preferred Stock issued during May 2021. As of December 31, 2021, the Company sold $ 7.7 million aggregate principal amount of Preferred Stock for $ 7.7 million net proceeds. NOTE 18 – COMMON STOCK On February 12, 2021, we completed a public offering of our common stock pursuant to an underwriting agreement dated February 9, 2021, between us and B. Riley Securities, Inc., as representative of the several underwriters. At the closing, we issued to the public 29,487,180 shares of our common stock and received net proceeds of approximately $ 163.0 million after deducting underwriting discounts and commissions, but before expenses. The net proceeds of the offering were used to make a prepayment toward the balance outstanding under our U.S. Revolving Credit Facility and permanently reduce the commitments under our senior secured credit facilities. On May 20, 2021, at the 2021 annual meeting of stockholders of the Company, the stockholders of the Company, upon the recommendation of the Company’s Board of Directors, approved the Babcock & Wilcox Enterprises, Inc. 2021 Long-Term Incentive Plan. The 2021 Plan became effective upon such stockholder approval. The maximum number of shares of the Company’s common stock that may be issued or transferred pursuant to awards under the 2021 Plan equals: (1) 1,250,000 shares, plus (2) the number of any shares subject to awards granted under the Company’s Amended and Restated 2015 Long-Term Incentive Plan (the “2015 Plan”) and outstanding as of May 20, 2021 which expire, or are terminated, surrendered, or forfeited for any reason without issuance of such shares (including for outstanding performance share awards to the extent they are earned at less than maximum). No new awards may be granted under the 2015 Plan. As of May 20, 2021 (immediately prior to the stockholder approval of the 2021 Plan), the total number of shares of our common stock subject to outstanding awards granted under the 2015 Plan was 2,007,152 shares. 90 NOTE 19 – INTEREST EXPENSE AND SUPPLEMENTAL CASH FLOW INFORMATION Interest expense in our Consolidated Financial Statements consisted of the following components: Year ended December 31, (in thousands) 2021 2020 2019 Components associated with borrowings from: Senior notes $ 13,273 $ — $ — Last Out Term Loans - cash interest 4,349 6,140 11,207 Last Out Term Loans - equitized interest — 13,450 — Last Out Term Loans - paid-in-kind interest — — 5,964 U.S. Revolving Credit Facility 1,416 13,988 15,639 19,038 33,578 32,810 Components associated with amortization or accretion of: Revolving Credit Agreement 2,735 — — Senior notes 2,510 — — Last Out Term Loans - discount and financing fees — 3,183 10,580 U.S. Revolving Credit Facility - deferred financing fees and commitment fees 5,995 14,811 31,567 U.S. Revolving Credit Facility - contingent consent fee for Amendment 16 — — 13,879 U.S. Revolving Credit Facility - deferred ticking fee for Amendment 16 — 1,660 5,064 11,240 19,654 61,090 Components associated with interest from: Lease liabilities 2,502 2,452 14 Other interest expense 6,613 4,112 987 9,115 6,564 1,001 Total interest expense $ 39,393 $ 59,796 $ 94,901 The following table provides a reconciliation of cash and cash equivalents and restricted cash reporting within the Consolidated Balance Sheets and in the Consolidated Statements of Cash Flows: (in thousands) December 31, 2021 December 31, 2020 December 31, 2019 Held by foreign entities $ 42,070 $ 38,726 $ 38,921 Held by U.S. entities 182,804 18,612 4,851 Cash and cash equivalents 224,874 57,338 43,772 Reinsurance reserve requirements 443 4,551 9,318 Restricted foreign accounts — 2,869 3,851 Bank guarantee collateral 997 2,665 — Letters of credit collateral 401 — — Restricted cash and cash equivalents 1,841 10,085 13,169 Total cash, cash equivalents and restricted cash shown in the Consolidated Statements of Cash Flows $ 226,715 $ 67,423 $ 56,941 91 The following cash activity is presented as a supplement to our Consolidated Statements of Cash Flows and is included in Net cash used in activities : Year ended December 31, (in thousands) 2021 2020 2019 Income tax payments, net $ 4,991 $ 6,960 $ 3,873 Interest payments - 8.125 % Senior Notes due 2026 10,451 — — Interest payments on our U.S. Revolving Credit Facility 5,979 11,675 14,715 Interest payments on our Last Out Term Loans 3,804 6,140 12,220 Total cash paid for interest $ 20,234 $ 17,815 $ 26,935 NOTE 20– STOCK-BASED COMPENSATION Stock options There were no stock options awarded in 2021. The following table summarizes activity for outstanding stock options for the year ended December 31, 2021 : (share data in thousands) Number of shares Weighted-average exercise price Weighted-average remaining contractual term (in years) Aggregate intrinsic value (in thousands) Outstanding at beginning of period 340 $ 107.84 Granted — — Exercised — — Cancelled/expired/forfeited ( 52 ) 138.73 Outstanding at end of period 288 $ 121.59 4.39 $ — Exercisable at end of period 288 $ 121.59 4.39 $ — The aggregate intrinsic value included in the table above represents the total pretax intrinsic value that would have been received by the option holders had all option holders exercised their options on December 31, 2021 . The intrinsic value is calculated as the total number of option shares multiplied by the difference between the closing price of our common stock on the last trading day of the period and the exercise price of the options. This amount changes based on the price of our common stock. Restricted stock units Non-vested restricted stock units activity for the year ended December 31, 2021 was as follows: (share data in thousands) Number of shares Weighted-average grant date fair value Non-vested at beginning of period 2,490 $ 3.77 Granted 1,102 7.69 Vested ( 1,715 ) 9.44 Cancelled/forfeited ( 73 ) 3.71 Non-vested at end of period 1,804 $ 5.79 As of December 31, 2021 , total compensation expense not yet recognized related to non-vested restricted stock units was $ 5.5 million and the weighted-average period in which the expense is expected to be recognized is 1.7 years. 92 Performance-based restricted stock units Performance-based restricted stock units activity for the year ended December 31, 2021 was as follows: (share data in thousands) Number of shares Weighted-average grant date fair value Non-vested at beginning of period 1,275 $ 2.50 Exercised ( 1,275 ) 2.50 Non-vested at end of period — $ — Performance-based, cash settled units Cash-settled performance units activity for the year ended December 31, 2021 was as follows: (share data in thousands) Number of shares Weighted-average grant date fair value Non-vested at beginning of period 2 $ 140.30 Granted — — Vested — — Cancelled/forfeited ( 2 ) 140.30 Non-vested at end of period — $ — Stock Appreciation Rights In December 2018, we granted stock appreciation rights to certain employees (“Employee SARs”) and to a non-employee related party, BRPI Executive Consulting, LLC (“Non-employee SARs”). The Employee SARs and Non-employee SARs both expire ten years after the grant date and primarily vest 100 % upon completion after the required years of service. Upon vesting, the Employee SARs and Non-employee SARs may be exercised within 10 business days following the end of any calendar quarter during which the volume weighted average share price is greater than the share price goal. Upon exercise of the SARs, holders receive a cash-settled payment equal to the number of SARs that are being exercised multiplied by the difference between the stock price on the date of exercise minus the SARs base price. Employee SARs were issued under the Fourth Amended and Restated 2015 LTIP, and Non-employee SARs were issued under a Non-employee SARs agreement. The liability method was used to recognize the accrued compensation expense with cumulatively adjusted revaluations to the then current fair value at each reporting date through final settlement. We used the following assumptions to determine the fair value of the SARs granted to employees and non-employee as of December 31, 2021 and 2020: Year ended December 31, 2021 2020 Risk-free interest rate 1.44 % 0.74 % Expected volatility 53 % 50 % Expected life in years 6.49 7.72 Suboptimal exercise factor 2.0 x 2.0 x In making these assumptions, we based estimated volatility on the historical returns of the Company's stock price and selected guideline companies. We based risk-free rates on the corresponding U.S. Treasury spot rates for the expected duration at the date of grant, which we convert to a continuously compounded rate. We relied upon a suboptimal exercise factor, representing the ratio of the base price to the stock price at the time of exercise, to account for potential early exercise prior to the expiration of the contractual term. With consideration to the executive level of the SARs holders, a suboptimal exercise multiple of 2.0 x was selected. Subject to vesting conditions, should the stock price achieve a value of 2.0 x above the base price, we assume the holders will exercise prior to the expiration of the contractual term of the SARs. The expected term for the SARs is an output of our valuation model in estimating the time period that the SARs are expected to remain unexercised. Our valuation model assumes the holders will exercise their SARs prior to the expiration of the contractual term of the SARs. 93 As of December 31, 2021 , the SARS are fully vested and their total intrinsic value is $ 7.0 million. NOTE 21 – PROVISION FOR INCOME TAXES Income (loss) before income taxes includes the following: Year ended December 31, (in thousands) 2021 2020 2019 United States $ 30,655 $ ( 65,591 ) $ ( 64,610 ) Other than the United States ( 1,341 ) 61,673 ( 59,837 ) Income (loss) before income tax expense $ 29,314 $ ( 3,918 ) $ ( 124,447 ) Significant components of the provision for income taxes are as follows: Year ended December 31, (in thousands) 2021 2020 2019 Current: Federal (1) 1,760 $ ( 21 ) $ 534 State ( 141 ) 246 454 Foreign 4,649 3,737 3,705 Total current provision 6,268 3,962 4,693 Deferred: Federal (2) ( 103 ) 1,084 ( 257 ) State (3) ( 8,772 ) — — Foreign 383 3,133 850 Total deferred provision ( 8,492 ) 4,217 593 Provision for income taxes $ ( 2,224 ) $ 8,179 $ 5,286 (1) The 2020 amount reflects a benefit of $ 0.6 million offsetting tax expense of $ 0.6 million in discontinued operations pursuant to the guidance in paragraph 740-20-45-7 that requires all components, including discontinued operations, be considered when determining the tax benefit from a loss from continuing operations. The 2021 amount reflects estimated withholding taxes on the divestiture of Diamond Power Machine (Hubei) Co. (2) The 2020 amount reflects $ 1.1 million of deferred tax expense as a result of the change in indefinite reinvestment assertion related to certain foreign subsidiaries. (3) The 2021 amount reflects a $ 8.7 million of deferred tax benefit primarily attributable to a reduction in the valuation allowance on net operating losses and temporary deductible benefits in certain states that are now expected to be recovered. The provision for income taxes differs from the amount computed by applying the statutory federal income tax rate to income (loss) before the provision for income taxes. 94 The sources and tax effects of the differences are as follows: Year ended December 31, (in thousands) 2021 2020 2019 Income tax benefit at federal statutory rate $ 6,156 $ ( 823 ) $ ( 26,134 ) State and local income taxes 1,054 346 3,205 Foreign rate differential 132 2,422 2,053 Intra-entity debt restructuring (1) — 2,908 — Deferred taxes - change in tax rate ( 564 ) 8,512 9,799 Non-deductible (non-taxable) items ( 122 ) 1,963 4,190 Tax credits ( 34 ) ( 2,939 ) 144 Valuation allowances ( 13,136 ) ( 17,498 ) 56,254 Luxembourg impairment of investments — ( 30,603 ) ( 65,848 ) Effect of DPMH sale ( 1,090 ) — — Accrual adjustments — 405 ( 995 ) Unrecognized tax benefits 150 37,387 ( 271 ) Withholding taxes 3,881 1,416 1,331 Change in indefinite reinvestment assertion ( 15 ) 1,084 — Disallowed interest deductions 1,010 11,155 11,009 Return to provision and prior year true-up 556 ( 7,855 ) 9,875 Other ( 202 ) 299 674 Income tax (benefit) expense $ ( 2,224 ) $ 8,179 $ 5,286 (1) The 2020 amount reflects a restructuring of intercompany debt that resulted in the reduction of certain foreign net operating loss carryforwards. Deferred income taxes reflect the tax effects of differences between the financial and tax bases of assets and liabilities. 95 Significant components of deferred tax assets and liabilities are as follows: Year ended December 31, (in thousands) 2021 2020 Deferred tax assets: Pension liability $ 41,520 $ 50,849 Other accruals 10,683 12,989 Long-term contracts — 1,121 Net operating loss carryforward 401,750 399,321 State net operating loss carry forward 23,705 23,956 Interest limitation carryforward 41,104 38,539 Foreign tax credit carryforward 5,381 7,312 Other tax credits 5,336 3,270 Lease liability 15,455 — Other 4,810 8,478 Total deferred tax assets $ 549,744 $ 545,835 Valuation allowance for deferred tax assets ( 512,803 ) ( 536,251 ) Total deferred tax assets, net $ 36,941 $ 9,584 Deferred tax liabilities: Property, plant and equipment $ 1,653 $ 2,763 Right of use assets 14,574 — Long-term contracts 7,045 — Unremitted earnings 1,069 1,084 Intangibles 13,999 9,449 Total deferred tax liabilities 38,340 13,296 Net deferred tax liabilities $ ( 1,399 ) $ ( 3,712 ) At December 31, 2021, the Company has foreign net operating loss (NOL) carryforward DTAs of approximately $ 357.8 million available to offset future taxable income in certain foreign jurisdictions. Of these foreign NOL carryforwards, $ 187.6 million do not expire. The remaining foreign NOLs will expire between 2022 and 2037. As December 31, 2021, the Company has U.S. federal NOL carryforward DTAs of approximately $ 43.9 million. Of this amount, $ 20.7 million will expire in 2036 and 2037. The remaining amount of U.S. NOL carryforward does not expire. A portion of the net operating loss carryforward is limited under Code Section 382. Approximately $ 19.7 million of our U.S. federal NOL carryforward is not subject to the Code Section 382 limitation. At December 31, 2021, the Company has state NOL carryforward DTAs of $ 23.7 million available to offset future taxable income in various jurisdictions. Of this amount, $ 23.3 million will expire between 2022 and 2041. At December 31, 2021,the Company has foreign tax credit carryforwards of $ 5.4 million. These carryforwards will expire between 2022 and 2028. At December 31, 2021, the Company has valuation allowances of $ 512.8 million for deferred tax assets, which we expect will not be realized, through carrybacks, reversals of existing taxable temporary differences, estimates of future taxable income or tax-planning strategies. Deferred tax assets are evaluated for realizability under ASC 740, considering all positive and negative evidence. At December 31, 2021, our weighting of positive and negative evidence included an assessment of historical income by jurisdiction adjusted for nonrecurring items, as well as an evaluation of other qualitative factors such as the length and magnitude of pretax losses. The valuation allowances may be reversed in the future if sufficient positive evidence exists. Any reversal of our valuation allowance could be material to the income or loss for the period in which our assessment changes. 96 The net change during the year in the total valuation allowance is as follows: Year ended December 31, (in thousands) 2021 2020 Balance at beginning of period $ ( 536,251 ) $ ( 539,791 ) Charges to costs and expenses 13,136 17,498 Charges to other accounts 10,312 ( 13,958 ) Balance at end of period $ ( 512,803 ) $ ( 536,251 ) Sections 382 and 383 of the Code limits, for U.S. federal income tax purposes, the annual use of NOL carryforwards (including previously disallowed interest carryforwards) and tax credit carryforwards, respectively, following an ownership change. Under Code Section 382, a company has undergone an ownership change if shareholders owning at least 5% of the company have increased their collective holdings by more than 50% during the prior three-year period. Based on information that is publicly available, the Company determined that a Section 382 ownership change occurred on July 23, 2019. As a result of this change in ownership, the Company estimated that the future utilization of our federal NOLs (and certain credits and previously disallowed interest deductions) will become limited to approximately $ 1.2 million annually ($ 0.3 million tax effected) The Company maintains a full valuation allowance on the majority of its U.S. deferred tax assets, including the deferred tax assets associated with the federal NOLs, credits and disallowed interest carryforwards. Undistributed earnings of certain foreign subsidiaries amounted to approximately $ 308.7 million. The Company no longer intends to assert indefinite reinvestment with respect to withholding taxes of $ 1.1 million that could be assessed on the repatriation of $ 11.3 million in undistributed earnings. The Company continues to assert indefinite reinvestment in the remaining $ 297.4 million of existing earnings that are not expected to be distributed in the future. Upon repatriation of those earnings, in the form of dividends or otherwise, the Company would be subject to withholding taxes payable to various foreign countries. The Company expects to take the 100% dividends received deduction to offset any US federal taxable income on the undistributed earnings. Withholding taxes of approximately $ 1.6 million would be payable upon remittance of these previously unremitted earnings. We recognize the benefit of a tax position when we conclude that a tax position, based solely on its technical merits, is more-likely-than-not to be sustained upon examination. A recognized tax benefit is measured as the largest amount of benefit, on a cumulative probability basis, which is more likely-than-not to be realized upon settlement. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. Below is a tabular rollforward of the beginning and ending aggregate unrecognized tax benefits: Year ended December 31, (in thousands) 2021 2020 2019 Balance at beginning of period $ 39,013 $ 1,229 $ 1,500 Increases based on tax positions taken in the current year — 37,900 29 Increases based on tax positions taken in prior years 242 — 27 Decreases based on tax positions taken in prior years — ( 29 ) ( 223 ) Decreases due to settlements with tax authorities — — — Decreases due to lapse of applicable statute of limitation — ( 87 ) ( 104 ) CTA/Translation ( 2,807 ) — — Balance at end of period $ 36,448 $ 39,013 $ 1,229 Unrecognized tax benefits of $ 0.7 million would, if recognized, impact the effective tax rate. The remaining balance of unrecognized tax benefits relates to deferred tax assets that, if recognized, would require a full valuation allowance. It is not expected that the amount of unrecognized tax benefits will change significantly during the next 12 months. We recognize interest and penalties related to unrecognized tax benefits in our provision for income taxes; however, such amounts are not significant to any period presented. Tax years 2015 through 2020 remain open to assessment by the United States Internal Revenue Service and various state and international tax authorities. We do not have any returns under examination for years prior to 2014. The United States 97 Internal Revenue Service has completed examinations of the federal tax returns of our former parent, BWXT, through 2014, and all matters arising from such examinations have been resolved. NOTE 22 – CONTINGENCIES Litigation Relating to Boiler Installation and Supply Contract On December 27, 2019, a complaint was filed against Babcock & Wilcox by P.H. Glatfelter Company (“Glatfelter”) in the United States District Court for the Middle District of Pennsylvania, Case No. 1:19-cv-02215-JPW, alleging claims of breach of contract, fraud, negligent misrepresentation, promissory estoppel and unjust enrichment (the “Glatfelter Litigation”). The complaint alleges damages in excess of $ 58.9 million. On March 16, 2020 we filed a motion to dismiss, and on December 14, 2020 the court issued its order dismissing the fraud and negligent misrepresentation claims and finding that, in the event that parties’ contract is found to be valid, Plaintiffs’ claims for damages will be subject to the contractual cap on liability (defined as the $ 11.7 million purchase price subject to certain adjustments). On January 11, 2021, we filed our answer and a counterclaim for breach of contract, seeking damages in excess of $ 2.9 million. We intend to continue to vigorously litigate the action. However, given the preliminary stage of the litigation, it is too early to determine if the outcome of the Glatfelter Litigation will have a material adverse impact on our consolidated financial condition, results of operations or cash flows. SEC Investigation As the Company previously disclosed, the U.S. SEC ('SEC") had been conducting a formal investigation of the Company, focusing on the accounting charges and related matters involving the Company's B&W Renewable segment from 2015-2019. On October 20,2021, the SEC informed the Company that the staff does not intend to recommend any enforcement action against the Company. Stockholder Derivative and Class Action Litigation On April 14, 2020, a putative B&W stockholder (“Plaintiff”) filed a derivative and class action complaint against certain of the Company’s directors (current and former), executives and significant stockholders (“Defendants”) and the Company (as a nominal defendant). The action was filed in the Delaware Court of Chancery and is captioned Parker v. Avril, et al., C.A. No. 2020-0280-PAF ("Stockholder Litigation"). Plaintiff alleges that Defendants, among other things, did not properly discharge their fiduciary duties in connection with the 2019 rights offering and related transactions. The case is currently in discovery. We believe that the outcome of the Stockholder Litigation will not have a material adverse impact on our consolidated financial condition, results of operations or cash flows, net of any insurance coverage. Russian Invasion of Ukraine We do not currently have contracts directly with Russian entities or businesses and we currently do not do business in Russia directly. We believe the Company’s only involvement with Russia or Russian-entities, involves sales of our products in the amount of approximately $ 3.1 million by a wholly-owned Italian subsidiary of the Company to non-Russian counterparties who may resell our products to Russian entities or perform services in Russia using our products. The economic sanctions and export-control measures and the ongoing invasion of Ukraine could impact our subsidiary’s rights and responsibilities under the contracts and could result in potential losses to the Company. Other Due to the nature of our business, we are, from time to time, involved in routine litigation or subject to disputes or claims related to our business activities, including, among other things: performance or warranty-related matters under our customer and supplier contracts and other business arrangements; and workers' compensation, premises liability and other claims. Based on our prior experience, we do not expect that any of these other litigation proceedings, disputes and claims will have a material adverse effect on our consolidated financial condition, results of operations or cash flows. 98 NOTE 23 – COMPREHENSIVE INCOME Gains and losses deferred in accumulated other comprehensive income (loss) ("AOCI") are generally reclassified and recognized in the Consolidated Statements of Operations once they are realized. The changes in the components of AOCI, net of tax, for the years ended of 2021, 2020, and 2019 were as follows: (in thousands) Currency translation loss Net unrealized gain (loss) on derivative instruments Net unrecognized loss related to benefit plans (net of tax) Total Balance at December 31, 2018 $ ( 10,834 ) $ 1,362 $ ( 1,960 ) $ ( 11,432 ) Other comprehensive income (loss) before reclassifications 13,401 ( 1,367 ) — 12,034 Reclassified from AOCI to net income (loss) 3,176 202 ( 1,857 ) 1,521 Amounts reclassified from AOCI to advanced billings on contracts — ( 197 ) — ( 197 ) Net other comprehensive (loss) income 16,577 ( 1,362 ) ( 1,857 ) 13,358 Balance at December 31, 2019 $ 5,743 $ — $ ( 3,817 ) $ 1,926 Other comprehensive loss before reclassifications ( 53,318 ) — — ( 53,318 ) Reclassified from AOCI to net income (loss) — — ( 998 ) ( 998 ) Net other comprehensive (loss) income ( 53,318 ) — ( 998 ) ( 54,316 ) Balance at December 31, 2020 $ ( 47,575 ) $ — $ ( 4,815 ) $ ( 52,390 ) Other comprehensive income (loss) before reclassifications ( 3,412 ) — 676 ( 2,736 ) Reclassified from AOCI to net income (loss) ( 4,512 ) — 816 ( 3,696 ) Net other comprehensive income (loss) ( 7,924 ) — 1,492 ( 6,432 ) Balance at December 31, 2021 $ ( 55,499 ) $ — $ ( 3,323 ) $ ( 58,822 ) The amounts reclassified out of AOCI by component and the affected Consolidated Statements of Operations line items are as follows (in thousands): AOCI component Line items in the Consolidated Statements of Operations affected by reclassifications from AOCI Year ended December 31, 2021 2020 2019 Release of currency translation adjustment with the sale of business Loss on sale of business $ 4,512 $ — $ ( 3,176 ) Derivative financial instruments Other – net — — ( 202 ) Pension and post retirement adjustments, net of tax Benefit plans, net ( 816 ) 998 1,857 Net (loss) income $ 3,696 $ 998 $ ( 1,521 ) 99 NOTE 24 – FAIR VALUE MEASUREMENTS The following tables summarize our financial assets and liabilities carried at fair value, all of which were valued from readily available prices or using inputs based upon quoted prices for similar instruments in active markets (known as "Level 1" and "Level 2" inputs, respectively, in the fair value hierarchy established by the FASB Topic, Fair Value Measurements and Disclosures ). (in thousands) Available-for-sale securities December 31, 2021 Level 1 Level 2 Corporate notes and bonds $ 9,477 $ 9,477 $ — Mutual funds 714 — 714 United States Government and agency securities 2,017 2,017 — Total fair value of available-for-sale securities $ 12,208 $ 11,494 $ 714 (in thousands) Available-for-sale securities December 31, 2020 Level 1 Level 2 Corporate notes and bonds $ 6,139 $ 6,139 $ — Mutual funds 636 — 636 Corporate Stocks 4,168 4,168 — United States Government and agency securities 4,365 4,365 — Total fair value of available-for-sale securities $ 15,308 $ 14,672 $ 636 Available-For-Sale Debt Securities Our investments in available-for-sale debt securities are presented in other assets on our Consolidated Balance Sheets with contractual maturities ranging from 0 - 5 years. Senior Notes See Note 14 above for a discussion of our recent offerings of senior notes. The fair value of the senior notes is based on readily available quoted market prices as of December 31, 2021. (in thousands) December 31, 2021 Senior Notes Carrying Value Estimated Fair Value 8.125 % Senior Notes due 2026 ('BWSN') $ 186,219 $ 195,250 6.50 % Senior Notes due 2026 ('BWNB') $ 151,440 $ 150,229 Other Financial Instruments We used the following methods and assumptions in estimating our fair value disclosures for our other financial instruments: • Cash and cash equivalents and restricted cash and cash equivalents . The carrying amounts that we have reported in the accompanying Consolidated Balance Sheets for cash and cash equivalents and restricted cash and cash equivalents approximate their fair values due to their highly liquid nature. • Last Out Term Loans and Revolving Debt . We base the fair values of debt instruments on quoted market prices. Where quoted prices are not available, we base the fair values on Level 2 inputs such as the present value of future cash flows discounted at estimated borrowing rates for similar debt instruments or on estimated prices based on current yields for debt issues of similar quality and terms. The fair value of our Last Out Term Loans and Revolving Debt approximated their carrying value at December 31, 2020. 100 • Warrants. The fair value of the warrants was established using the Black-Scholes option pricing model value approach. • Contingent consideration: In connection with the Fosler Construction Company acquisition, the Company agreed to pay contingent consideration based on the achievement of targeted revenue thresholds for the year ended December 31, 2022. The range of undiscounted amounts the Company could be required to pay under the contingent consideration arrangement is between $ 0.0 million and $ 10.0 million. As of December 31, 2021, the fair value of the contingent earn-out liability is $ 9.2 millions and is classified as a component of other non-current liabilities in the Company's Consolidated Balance Sheets. The fair value measurement of the contingent consideration related to the Fosler Construction Company acquisition was categorized as a Level 3 liability, as the measurement amount is based primarily on significant inputs not observable in the markets. The Company evaluates the fair value of contingent consideration and the corresponding liability each reporting period using an option pricing framework. The Company estimates projections during the earn-out period and volatility within the option pricing model captures variability in the potential pay-out. The analysis considers a discount rate applicable to the underlying projections and the risk of the Company paying the future liability. NOTE 25 – RELATED PARTY TRANSACTIONS The Company believes it transactions with related parties were conducted on terms equivalent to those prevailing in an arm's length transaction. Transactions with B. Riley Based on its Schedule 13D filings with the SEC, B. Riley beneficially owns 30.3 % of our outstanding common stock as of December 31, 2021. B. Riley was party to the Last Out Term Loans under our prior A&R Credit Agreement, as described in Note 15. We entered into an agreement with BRPI Executive Consulting, LLC, an affiliate of B. Riley, on November 19, 2018 and amended the agreement on November 9, 2020 to retain the services of Mr. Kenny Young, to serve as our Chief Executive Officer until December 31, 2023, unless terminated by either party with thirty days written notice. Under this agreement, payments are $ 0.75 million per annum, paid monthly. Subject to the achievement of certain performance objectives as determined by the Compensation Committee of the Board, a bonus or bonuses may also be earned and payable to BRPI Executive Consulting, LLC. In June 2019, we granted a total of $ 2.0 million in cash bonuses to BRPI Executive Consulting LLC for Mr. Young's performance and services. Total fees associated with B. Riley related to the Last Out Term Loans and services of Mr. Kenny Young, both as de scribed above, were $ 0.8 million, $ 7.4 million and $ 12.4 million for the twelve months ended December 31, 2021, 2020 and 2019, respectively . On November 13, 2020 we entered into an agreement with B. Riley Principal Merger Corp. II, an affiliate of B. Riley, to purchase 200,000 shares of Class A common stock of Eos Energy Storage LLC for an aggregate purchase price of $ 2.0 million. The shares were sold in January 2021 for which the Company recognized net proceeds of $ 4.5 million. The public offering of our 8.125 % Senior Notes in February 2021, as described in Note 14, was conducted pursuant to an underwriting agreement dated February 10, 2021, between us and B. Riley Securities, Inc., an affiliate of B. Riley, as representative of several underwriters. At the closing date on February 12, 2021, we paid B. Riley Securities, Inc. $ 5.2 million for underwriting fees and other transaction cost related to the 8.125 % Senior Notes offering. The public offering of our common stock, as described in Note 18, was conducted pursuant to an underwriting agreement dated February 9, 2021, between us and B. Riley Securities, Inc., as representative of the several underwriters. Also on February 12, 2021, we paid B. Riley Securities, Inc. $ 9.5 million for underwriting fees and other transaction costs related to the offering. On February 12, 2021, the Company and B. Riley entered into the Exchange Agreement pursuant to which we agreed to issue to B. Riley $ 35.0 million aggregate principal amount of 8.125 % Senior Notes in exchange for a deemed prepayment of $ 35.0 million of our existing Tranche A term loan with B. Riley Financial in the Exchange , as described in Note 14 . 101 On March 31, 2021, we entered into a sales agreement with B. Riley Securities, Inc., a related party, in which we may sell, from time to time, up to an aggregated principal amount of $ 150.0 million of 8.125 % Senior N otes due 2026 to or through B. Riley Securities, Inc., as described in Note 14 . As of December 31, 2021, we paid B. Riley Securities, In c. $ 0.5 million for underwriting fees and other transaction costs related to the offering. The public offering of our 7.75 % Series A Cumulative Perpetual Preferred Stock, as described in Note 17, was conducted pursuant to an underwriting agreement dated May 4, 2021, between us and B. Riley Securities, Inc., as representative of several underwriters. At the closing date on May 2021, we paid B. Riley Securities, Inc. $ 4.3 million for underwriting fees and other transaction cost related to the Preferred Stock offering. On May 26, 2021, we completed the additional sale of 444,700 shares of our Preferred Stock, related to the grant to the underwriters, as described i n Note 17, and paid B. Riley Securities, Inc. $ 0.4 million for underwriting fees in conjunction with the transaction. On June 1, 2021, we issued 2,916,880 shares of the Company’s 7.75 % Series A Cumulative Perpetual Preferred Stock and paid $ 0.4 million in cash due to B. Riley, a related party, in exchange for a deemed prepayment of $ 73.3 million of our then existing Last Out Term Loans and paid $ 0.9 million in cash for accrued interest, as described in Note 17. On June 30, 2021, we entered into new Debt Facilities, as described in Note 16 . In connection with the Company’s entry into the Debt Facilities, B. Riley Financial, Inc., an affiliate of B. Riley, has provided a guaranty of payment with regard to the Company’s obligations under the Reimbursement Agreement, as describe in Note 16 . Under a fee letter with B. Riley, the Company shall pay B. Riley $ 0.9 million per annum in connection with the B. Riley Guaranty. On July 7, 2021, we entered into a sales agreement with B. Riley Securities, Inc., a related party, in which we may sell, from time to time, up to an aggregated principal amount of $ 76 million of Preferred Stock to or through B. Riley Securities, Inc., as described in Note 17 . As of December 31, 2021, we paid B. Riley Securities, Inc. $ 0.2 million for underwriting fees and other transaction costs related to the offering. The public offering of our 6.50 % Senior Notes in December 2021, as described in Note 14, was conducted pursuant to an underwriting agreement dated December 8, 2021, between us and B. Riley Securities, Inc., an affiliate of B. Riley, as representative of several underwriters. At the closing date on December 13, 2021, we paid B. Riley Securities, Inc. $ 5.5 million for underwriting fees and other transaction cost related to the 6.50 % Senior Notes offering. On December 17, 2021, B. Riley Financial, Inc. entered into a General Agreement of Indemnity (the "Indemnity Agreement"), between us and AXA-XL and or its affiliated associated and subsidiary companies (collectively the “Surety”). Pursuant to the terms of the Indemnity Agreement, B. Riley will indemnify the Surety for losses the Surety may incur as a result of providing a payment and performance bond in an aggregate amount not to exceed € 30.0 million in connection with our proposed performance on a specified project. In consideration of B. Riley's execution of the Indemnity Agreement, we paid B. Riley a fee of $ 1.7 million following the issuance of the bond by the Surety, which represents approximately 5.0 % of the bonded obligations, to be amortized over the term of the agreement. On December 28, 2021, we received a notice that the underwriters of the 6.50 % Senior Notes had elected to exercise their overallotment option for an additional $ 11.4 million in aggregate principal amount of the Senior Notes. At the closing date on December 30, 2021, we paid B. Riley Securities, Inc. $ 0.5 million for underwriting fees and other transaction cost related to the 6.50 % Senior Notes overallotment. Transactions with Vintage Capital Management, LLC On March 26, 2021, Vintage and B. Riley completed a transaction pursuant to which B. Riley agreed to purchase from Vintage, and Vintage agreed to sell to B. Riley, all 10,720,785 shares of our common stock owned by Vintage. Based on its Schedule 13D filings, Vintage beneficially owns 0 % o f our outstanding common stock as of December 31, 2021. NOTE 26 – ACQUISITIONS, ASSETS HELD FOR SALE, DIVESTITURES AND DISCONTINUED OPERATIONS Acquisitions 102 Fosler Construction On September 30, 2021, we acquired a 60 % controlling ownership stake in Illinois-based solar energy contractor Fosler Construction Company Inc. (“Fosler Construction”). 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 with a track record of successfully completing solar projects profitably with union labor and aligning 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 will operate under the name Fosler Solar, a Babcock and Wilcox company. The total fair value of consideration for the acquisition is $ 36.0 millions, including $ 27.2 million in cash plus $ 8.8 million in estimated fair value of the contingent consideration arrangement. In connection with the acquisition, the Company agreed to pay contingent consideration based on the achievement of targeted revenue thresholds for the year ended December 31, 2022. The range of undiscounted amounts the Company could be required to pay under the contingent consideration arrangement is between $ 0.0 million and $ 10.0 million. We estimated fair values primarily using the discounted cash flow method at September 30, 2021 for the preliminary allocation of consideration to the assets acquired and liabilities assumed. During the measurement period, we will continue to obtain information to assist in finalizing the fair value of assets acquired and liabilities assumed, which may differ materially from these preliminary estimates. If we determine any measurement period adjustments are material, we will apply those adjustments, including any related impacts to net income, in the reporting period in which the adjustments are determined. VODA 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. 103 The provisional measurements noted in the table below are preliminary and subject to modification in the future. The preliminary purchase price allocation to assets acquired and liabilities assumed in the acquisitions were: Purchase Price Allocation at September 30, 2021 Purchase Price Allocation Adjustments since September 30, 2021 (3) Purchase Price Allocation at December 31, 2021 Purchase Price Allocation at December 31, 2021 (in thousands) Fosler Construction VODA Cash $ — $ — $ — $ 4,737 Accounts receivable 1,904 121 2,025 5,654 Contracts in progress 1,363 ( 158 ) 1,205 258 Other current assets 1,137 ( 835 ) 302 825 Property, plant and equipment 9,527 ( 14 ) 9,513 253 Goodwill (1) 43,230 8,749 51,979 17,176 Other assets 17,497 ( 4,600 ) 12,897 14,321 Right of use assets 1,093 — 1,093 433 Debt ( 7,625 ) — ( 7,625 ) — Current liabilities ( 5,073 ) ( 390 ) ( 5,463 ) ( 5,181 ) Advance billings on contracts ( 1,557 ) 238 ( 1,319 ) ( 2,036 ) Non-current lease liabilities ( 1,730 ) — ( 1,730 ) ( 302 ) Other non-current liabilities ( 4,112 ) 1,218 ( 2,894 ) ( 3,264 ) Non-controlling interest (2) ( 22,262 ) ( 1,734 ) ( 23,996 ) — Net acquisition cost $ 33,392 $ 2,595 $ 35,987 $ 32,874 (1) Goodwill is calculated as the excess of the purchase price over the net assets acquired. With respect to the Fosler Construction acquisition, goodwill represents Fosler's ability to significantly expand EPC and O&M services among new customers across the U.S. by leveraging B&W's access to capital and geographic reach. With respect to the VODA acquisition, goodwill represents VODA's ability to significantly expand within the aftermarket parts and services industries by leveraging B&W's access to capital and existing platform within the renewable service market. Goodwill is not expected to be deductible for U.S federal income tax purposes. (2) The fair value of the non-controlling interest was derived based on the fair value of the 60 % controlling interest acquired by B&W. The transaction price paid by B&W reflects a Level 2 input involving an observable transaction involving an ownership interest in Fosler Construction. Also, as described above, a portion of the purchase consideration relates to the contingent consideration. (3) Our preliminary purchase price allocation changed due to additional information and further analysis. Intangible assets are included in other assets above and consists of the following: Fosler Construction VODA (in thousands) Estimated Acquisition Date Fair Value Weighted Average Estimated Useful Life Estimated Acquisition Date Fair Value Weighted Average Estimated Useful Life Customer Relationships 9,400 12 years 13,855 11 years Tradename — — 228 3 years Backlog 3,100 5 months — — Total intangible assets (1) $ 12,500 $ 14,083 (1) Intangible assets were valued using the income approach, which includes significant assumptions around future revenue growth, profitability, discount rates and customer attrition. Such assumptions are classified as level 3 inputs within the fair value hierarchy. The Company incurred approximately $ 0.7 million and $ 0.4 million of costs related to the acquisitions of VODA and Fosler Construction, respectively, which were recorded as a component of our operating expenses in our Consolidated Statement of Operations for 2021. Acquisitions - Subsequent Event On February 1, 2022, we acquired 100 % ownership of Fossil Power Systems, Inc, (“FPS”) for approximately $ 59.1 million, excluding working capital adjustments. FPS 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. 104 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. Assets Held for Sale Certain real property assets for the Copley, Ohio location were sold on March 15, 2021 for $ 4.0 million. We received $ 3.3 million of net 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. These assets were treated as assets held for sale on our Consolidated Balance Sheets as of December 31, 2020. Certain real property assets for the Lancaster, Ohio location were sold on August 13, 2021 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. These assets were treated as assets held for sale on our Consolidated Balance Sheets as of December 31, 2020. In December 2019, we determined that a small business within the B&W Thermal segment met the criteria to be classified as held for sale. At December 31, 2020, the carrying value of the net assets planned to be sold approximated the estimated fair value less costs to sell. Refer to Divestiture s below as this sale closed March 5, 2021. The following table summarizes the carrying value of the assets and liabilities held for sale at December 31, 2020: (in thousands) December 31, 2020 Accounts receivable – trade, net $ 2,103 Accounts receivable – other 86 Contracts in progress 458 Inventories 1,676 Other current assets 405 Current assets held for sale 4,728 Net property, plant and equipment 10,365 Intangible assets 759 Right-of-use-asset 32 Non-current assets held for sale 11,156 Total assets held for sale $ 15,884 Accounts payable $ 5,211 Accrued employee benefits 178 Advance billings on contracts 370 Accrued warranty expense 466 Operating lease liabilities 32 Other accrued liabilities 2,048 Current liabilities held for sale 8,305 Total liabilities held for sale $ 8,305 Divestitures 105 Effective March 5, 2021, we sold all of the issued and outstanding capital stock of Diamond Power Machine (Hubei) Co., Inc, for $ 2.8 million. We received $ 2.0 million in gross proceeds before expenses and recorded an $ 0.8 million favorable contract asset for the amortization period from March 8, 2021 through December 31, 2023. For the twelve months ended December 31, 2021, we recognized a $ 1.8 million pre-tax loss, inclusive of the recognition of $ 4.5 million of currency translation adjustment, on the sale of the business and after consideration of certain working capital adjustments that are in dispute. Additional adjustments may be necessary as this is finalized. On March 17, 2020, we fully settled the remaining escrow associated with the sale of PBRRC and received $ 4.5 million in cash. Discontinued Operations On April 6, 2020, we fully settled the remaining escrow associated with the sale of the MEGTEC and Universal businesses and received $ 3.5 million in cash. NOTE 27 – NEW ACCOUNTING STANDARDS We adopted the following accounting standard during the year ended December 31, 2021: Effective January 1, 2021 we adopted ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in this update simplify the accounting for income taxes by removing exceptions related to the incremental approach for intra-period tax allocation, certain deferred tax liabilities, and the general methodology for calculating income taxes in an interim period. The amendment also provides simplification related to accounting for franchise (or similar) tax, evaluating the tax basis step up of goodwill, allocation of consolidated current and deferred tax expense, reflection of the impact of enacted tax law or rate changes in annual effective tax rate calculations in the interim period that includes enactment date, and other minor codification improvements. The impact of this standard on our consolidated financial statements was immaterial. In March 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope. The amendments in this update clarify that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. This update is an amendment to ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform of Financial Reporting, which was issued in March 2020 and provides optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in the updates apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The expedients and exceptions provided by the updates do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. As of December 31, 2021, we have not yet elected any optional expedients provided in the standard. We will apply the accounting relief as relevant contract and hedge accounting relationship modifications are made during the reference rate reform transition period. We do not expect the standard to have a material impact on our consolidated financial statements. In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Equity's Own Equity (Subtopic 815-40): Issuer's Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (a consensus of the FASB Emerging Issues Task Force). The amendments in this update affect all entities that issue freestanding written call options that are classified in equity. Specifically, the amendments affect those entities when a freestanding equity-classified written call option is modified or exchanged and remains equity classified after the modification or exchange. The amendments that relate to the recognition and measurement of EPS for certain modifications or exchanges of freestanding equity-classified written call options affect entities that present EPS in accordance with the guidance in Earnings Per Share (Topic 260) . The amendments in this update do not apply to modifications or exchanges of financial instruments that are within the scope of another Topic. That is, accounting for those instruments continues to be subject to the requirements in other Topics. The amendments in this update do not affect a holder’s accounting for freestanding call options. The update is applicable to B&W as we have previously issued freestanding written call options. As of December 31, 2021, these options remain unexercised and we will apply the accounting standard as freestanding written call options are modified or exchanged. We do not expect the standard to have a material impact on our consolidated financial statements. 106 New accounting standards not yet adopted that could affect our Consolidated Financial Statements in the future are summarized as follows: In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The amendment in this update provides an exception to fair value measurement for contract assets and contract liabilities (i.e., deferred revenue) acquired in a business combination. As a result, contract assets and contract liabilities will be recognized and measured by the acquirer in accordance with ASC 606, Revenue from Contracts with Customers. The amendment also improves consistency in revenue recognition in the post-acquisition period for acquired contracts as compared to contracts entered into after the business combination. The amendment in this update is effective for public business entities in January 2023; all other entities have an additional year to adopt. Early adoption is permitted; however, if the new guidance is adopted in an interim period, it is required to be applied retrospectively to all business combinations within the year of adoption. This amendment is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. We are currently evaluating the impact of the standard on our consolidated financial statements. In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815 – 40) . The amendments in this update simplify the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity by removing major separation models required under current U.S. GAAP. The amendments also improve the consistency of diluted earnings per share calculations. The amendments in this update are effective for public business entities that meet the definition of an SEC filer, excluding entities eligible to be smaller reporting companies as defined by the SEC, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. We are currently evaluating the impact of the standard on our consolidated financial statements. In November 2018, the FASB issued ASU 2018-19, Codification Improvements to Topic 326: Financial Instruments - Credit Losses. This update is an amendment to the new credit losses standard, ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments , that was issued in June 2016 and clarifies that operating lease receivables are not within the scope of Topic 326. The new credit losses standard changes the accounting for credit losses for certain instruments. The new measurement approach is based on expected losses, commonly referred to as the current expected credit loss (CECL) model, and applies to financial assets measured at amortized cost, including loans, held-to-maturity debt securities, net investment in leases, and reinsurance and trade receivables, as well as certain off-balance sheet credit exposures, such as loan commitments. The standard also changes the impairment model for available-for-sale debt securities. The provisions of this standard will primarily impact the allowance for doubtful accounts on our trade receivables, contracts in progress, and potentially our impairment model for available-for-sale debt securities (to the extent we have any upon adoption). For public, smaller reporting companies, this standard is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. We are currently evaluating the impact of both standards on our consolidated financial statements.