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Basis of Presentation and Significant Accounting Policies | 9 Months Ended
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Sep. 30, 2020
Accounting Policies [Abstract] |
Basis of Presentation and Significant Accounting Policies | BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES We have presented the condensed consolidated financial statements of BWX Technologies, Inc. ("BWXT" or the "Company") in U.S. dollars in accordance with the interim reporting requirements of Form 10-Q, Rule 10-01 of Regulation S-X and accounting principles generally accepted in the United States ("GAAP"). Certain financial information and disclosures normally included in our financial statements prepared annually in accordance with GAAP have been condensed or omitted. Readers of these financial statements should, therefore, refer to the consolidated financial statements and notes in our annual report on Form 10-K for the year ended December 31, 2019 (our "2019 10-K"). We have included all adjustments, in the opinion of management, consisting only of normal recurring adjustments, necessary for a fair presentation. We use the equity method to account for investments in entities that we do not control, but over which we have the ability to exercise significant influence. We generally refer to these entities as "joint ventures." We have eliminated all intercompany transactions and accounts. We have reclassified certain amounts previously reported to conform to the presentation at September 30, 2020 and for the three and nine months ended September 30, 2020. We present the notes to our condensed consolidated financial statements on the basis of continuing operations, unless otherwise stated. Unless the context otherwise indicates, "we," "us" and "our" mean BWXT and its consolidated subsidiaries. Reportable Segments We operate in three reportable segments: Nuclear Operations Group, Nuclear Power Group and Nuclear Services Group. Our reportable segments are further described as follows: •Our Nuclear Operations Group segment manufactures naval nuclear reactors for the U.S. Naval Nuclear Propulsion Program for use in submarines and aircraft carriers. Through this segment, we own and operate manufacturing facilities located in Lynchburg, Virginia; Barberton, Ohio; Mount Vernon, Indiana; Euclid, Ohio; and Erwin, Tennessee. The Lynchburg operations fabricate fuel-bearing precision components that range in weight from a few grams to hundreds of tons. In-house capabilities also include wet chemistry uranium processing, advanced heat treatment to optimize component material properties and a controlled, clean-room environment with the capacity to assemble railcar-size components. The Barberton and Mount Vernon locations specialize in the design and manufacture of heavy components inclusive of development and fabrication activities for submarine missile launch tubes. The Euclid facility fabricates electro-mechanical equipment and performs design, manufacturing, inspection, assembly and testing activities. Fuel for the naval nuclear reactors is provided by Nuclear Fuel Services, Inc. ("NFS"), one of our wholly owned subsidiaries. Located in Erwin, NFS also downblends Cold War-era government stockpiles of high-enriched uranium into material suitable for further processing into commercial nuclear reactor fuel. •Our Nuclear Power Group segment fabricates commercial nuclear steam generators, nuclear fuel, fuel handling systems, pressure vessels, reactor components, heat exchangers, tooling delivery systems and other auxiliary equipment, including containers for the storage of spent nuclear fuel and other high-level waste and supplies nuclear-grade materials and precisely machined components for nuclear utility customers. BWXT has supplied the nuclear industry with more than 1,300 large, heavy components worldwide and is the only commercial heavy nuclear component manufacturer in North America. This segment also provides specialized engineering services that include structural component design, 3-D thermal-hydraulic engineering analysis, weld and robotic process development, electrical and controls engineering and metallurgy and materials engineering. In addition, this segment offers in-plant inspection, maintenance and modification services for nuclear steam generators, heat exchangers, reactors, fuel handling systems and balance of plant equipment, as well as specialized non-destructive examination and tooling/repair solutions. This segment is also a leading global manufacturer and supplier of critical medical radioisotopes and radiopharmaceuticals for research, diagnostic and therapeutic uses. •Our Nuclear Services Group segment provides various services to the U.S. Government and the commercial nuclear industry. Services provided to the U.S. Government include nuclear materials management and operation, environmental management and administrative and operating services for various U.S. Government-owned facilities. These services are provided to the U.S. Department of Energy ("DOE"), including the National Nuclear Security Administration ("NNSA"), the Office of Nuclear Energy, the Office of Science and the Office of Environmental Management, and NASA. Through this segment we deliver services and management solutions to nuclear and high- consequence operations. A significant portion of this segment's operations are conducted through joint ventures. This segment also develops technology for a variety of applications, including advanced nuclear power sources, and offers complete advanced nuclear fuel and reactor design and engineering, licensing and manufacturing services for new advanced nuclear reactors. See Note 9 for financial information about our segments. Operating results for the three and nine months ended September 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020. For further information, refer to the consolidated financial statements and notes included in our 2019 10-K. Divestiture of U.S.-Based Commercial Nuclear Services Business On May 29, 2020, our subsidiary BWXT Nuclear Energy, Inc. divested its U.S.-based commercial nuclear services business, a component of our Nuclear Services Group segment. In a cashless transaction, we exchanged net assets totaling $18.0 million, consisting primarily of property, plant and equipment and certain warranty obligations, for a manufacturing facility and the associated land of approximately the same value. The acquired assets are reported as part of the Nuclear Services Group segment. Recently Adopted Accounting Standards On January 1, 2020, we adopted the update to the Financial Accounting Standards Board ("FASB") Topic Financial Instruments – Credit Losses. This update requires entities to recognize expected credit losses immediately in the financial statements. We considered our customer base, credit loss history and expected loss rate in our evaluation of expected credit losses. The adoption of the provisions in this update did not have an impact on our financial position, results of operations or cash flows. On January 1, 2020, we adopted the update to the FASB Topic Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This update simplifies the accounting for goodwill impairment by eliminating the second step from the goodwill impairment test. Goodwill impairment will now be determined by comparing the fair value of a reporting unit with its carrying amount. The adoption of the provisions in this update did not have an impact on our financial position, results of operations or cash flows. In December 2019, the FASB issued an update to the FASB Topic Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This update simplifies various aspects related to the accounting for income taxes by eliminating certain exceptions to the general principles in Topic 740, simplifies when companies recognize deferred taxes in an interim period and clarifies certain aspects of the current guidance to promote consistent application. We elected to early adopt this update effective January 1, 2020, which did not have a material impact on our financial position, results of operations or cash flows. Contracts and Revenue Recognition We generally recognize contract revenues and related costs over time for individual performance obligations based on a cost-to-cost method in accordance with FASB Topic Revenue from Contracts with Customers. We recognize estimated contract revenue and resulting income based on the measurement of the extent of progress toward completion as a percentage of the total project. Certain costs may be excluded from the cost-to-cost method of measuring progress, such as significant costs for uninstalled materials, if such costs do not depict our performance in transferring control of goods or services to the customer. We review contract price and cost estimates periodically as the work progresses and reflect adjustments proportionate to the percentage-of-completion in income in the period when those estimates are revised. Certain of our contracts recognize revenue at a point in time, and revenue on these contracts is recognized when control transfers to the customer. The majority of our revenue that is recognized at a point in time is related to parts and certain medical radioisotopes and radiopharmaceuticals in our Nuclear Power Group segment. For all contracts, if a current estimate of total contract cost indicates a loss on a contract, the projected loss is recognized in full when determined. Provision for Income Taxes We are subject to federal income tax in the U.S. and Canada as well as income tax within multiple U.S. state jurisdictions. We provide for income taxes based on the enacted tax laws and rates in the jurisdictions in which we conduct our operations. These jurisdictions may have regimes of taxation that vary with respect to nominal rates and with respect to the basis on which these rates are applied. This variation, along with the changes in our mix of income within these jurisdictions, can contribute to shifts in our effective tax rate from period to period. Our effective tax rate for the three months ended September 30, 2020 was 20.3% as compared to 20.6% for the three months ended September 30, 2019. Our effective tax rate for the nine months ended September 30, 2020 was 22.3% as compared to 22.1% for the nine months ended September 30, 2019. The effective tax rate for the three months ended September 30, 2020 was lower than the U.S. corporate income tax rate of 21% primarily due to the Company electing or planning to elect the global intangible low-taxed income ("GILTI") high-tax exception for the current year and retroactively to the 2018 and 2019 tax years as allowed per the final regulations released in July 2020. The effective tax rates for the nine months ended September 30, 2020 and 2019 were higher than the U.S. corporate income tax rate of 21% primarily due to state income taxes within the U.S. and the unfavorable rate differential associated with our Canadian earnings. Our effective tax rates for the nine months ended September 30, 2020 and 2019 were favorably impacted by benefits recognized for excess tax benefits related to employee share-based payments of $0.9 million and $2.0 million, respectively. As of September 30, 2020, we had gross unrecognized tax benefits of $4.5 million (exclusive of interest and federal and state benefits), all of which would reduce our effective tax rate if recognized. Grant Accounting We recognize amounts related to grants as a reduction of expense in the period in which the related costs for which the grants are intended to compensate are recognized and we are reasonably assured to receive payment. On April 11, 2020, the Canadian Government enacted the Canada Emergency Wage Subsidy ("CEWS") under the COVID-19 Economic Response Plan to prevent large layoffs and help employers offset a portion of their employee salaries and wages for a limited period. During the three and nine months ended September 30, 2020, we have recognized $16.6 million of subsidies under CEWS as an offset to operating expenses. These amounts have been included as a component of Accounts receivable – other on our condensed consolidated balance sheet as of September 30, 2020. Cash and Cash Equivalents and Restricted Cash and Cash Equivalents At September 30, 2020, we had restricted cash and cash equivalents totaling $6.0 million, $2.9 million of which was held for future decommissioning of facilities (which is included in Other Assets on our condensed consolidated balance sheets) and $3.1 million of which was held to meet reinsurance reserve requirements of our captive insurer. The following table provides a reconciliation of cash and cash equivalents and restricted cash and cash equivalents on our condensed consolidated balance sheets to the totals presented on our condensed consolidated statement of cash flows:
|  | September 30, 2020 |  | December 31, 2019
|  | (In thousands)
Cash and cash equivalents |  | $ | 44,662 |  |  | $ | 86,540 |
Restricted cash and cash equivalents |  | 3,070 |  |  | 3,056 |
Restricted cash and cash equivalents included in Other Assets |  | 2,901 |  |  | 2,804 |
Total cash and cash equivalents and restricted cash and cash equivalents as presented on our condensed consolidated statement of cash flows |  | $ | 50,633 |  |  | $ | 92,400 |
Inventories At September 30, 2020 and December 31, 2019, Other current assets included inventories totaling $13.0 million and $17.1 million, respectively, consisting entirely of raw materials and supplies. Property, Plant and Equipment, Net Property, plant and equipment, net is stated at cost and is set forth below:
|  | September 30, 2020 |  | December 31, 2019
|  | (In thousands)
Land |  | $ | 9,356 |  |  | $ | 8,919 |
Buildings |  | 256,560 |  |  | 221,462 |
Machinery and equipment |  | 789,972 |  |  | 775,997 |
Property under construction |  | 354,523 |  |  | 265,715 |
|  | 1,410,411 |  |  | 1,272,093 |
Less: Accumulated depreciation |  | 695,313 |  |  | 691,852 |
Property, Plant and Equipment, Net |  | $ | 715,098 |  |  | $ | 580,241 |
Deferred Debt Issuance Costs We have included deferred debt issuance costs in the condensed consolidated balance sheets as a direct deduction from the carrying amount of our Long-Term Debt. We amortize deferred debt issuance costs as interest expense over the life of the related debt. The following summarizes the changes in the carrying amount of our deferred debt issuance costs:
|  | Nine Months Ended September 30,
|  | 2020 |  | 2019
|  | (In thousands)
Balance at beginning of period |  | $ | 8,006 |  |  | $ | 9,583 |
Additions |  | 6,804 |  |  | — |
Interest expense (1) |  | (2,007) |  |  | (1,183) |
Balance at end of period |  | $ | 12,803 |  |  | $ | 8,400 |
(1)Includes the recognition of prior deferred debt issuance costs associated with the Credit Facility, as defined below, of $0.7 million for the nine months ended September 30, 2020. Accumulated Other Comprehensive Income (Loss) The components of Accumulated other comprehensive income (loss) included in Stockholders' Equity are as follows:
|  | September 30, 2020 |  | December 31, 2019
|  | (In thousands)
Currency translation adjustments |  | $ | 6,389 |  |  | $ | 8,769 |
Net unrealized gain on derivative financial instruments |  | 104 |  |  | 64 |
Unrecognized prior service cost on benefit obligations |  | (14,707) |  |  | (16,614) |
Net unrealized gain (loss) on available-for-sale investments |  | (194) |  |  | 333 |
Accumulated other comprehensive income (loss) |  | $ | (8,408) |  |  | $ | (7,448) |
The amounts reclassified out of Accumulated other comprehensive income (loss) by component and the affected condensed consolidated statements of income line items are as follows:
|  | Three Months Ended September 30, |  | Nine Months Ended September 30, |  |
|  | 2020 |  | 2019 |  | 2020 |  | 2019 |  |
Accumulated Other Comprehensive Income (Loss) Component Recognized |  | (In thousands) |  | Line Item Presented
Realized gain (loss) on derivative financial instruments |  | $ | (971) |  |  | $ | (130) |  |  | $ | (421) |  |  | $ | (78) |  |  | Revenues
|  | 1,282 |  |  | 228 |  |  | 295 |  |  | 93 |  |  | Cost of operations
|  | 311 |  |  | 98 |  |  | (126) |  |  | 15 |  |  | Total before tax
|  | (79) |  |  | (26) |  |  | 27 |  |  | (5) |  |  | Provision for Income Taxes
|  | $ | 232 |  |  | $ | 72 |  |  | $ | (99) |  |  | $ | 10 |  |  | Net Income
Amortization of prior service cost on benefit obligations |  | $ | (829) |  |  | $ | (649) |  |  | $ | (2,382) |  |  | $ | (1,944) |  |  | Other – net
|  | 141 |  |  | 130 |  |  | 475 |  |  | 421 |  |  | Provision for Income Taxes
|  | $ | (688) |  |  | $ | (519) |  |  | $ | (1,907) |  |  | $ | (1,523) |  |  | Net Income
Total reclassification for the period |  | $ | (456) |  |  | $ | (447) |  |  | $ | (2,006) |  |  | $ | (1,513) |  |  |
Derivative Financial Instruments Our operations give rise to exposure to market risks from changes in foreign currency exchange ("FX") rates. We use derivative financial instruments, primarily FX forward contracts, to reduce the impact of changes in FX rates on our operating results. We use these instruments to hedge our exposure associated with revenues or costs on our long-term contracts and other transactions that are denominated in currencies other than our operating entities' functional currencies. We do not hold or issue derivative financial instruments for trading or other speculative purposes. We enter into derivative financial instruments primarily as hedges of certain firm purchase and sale commitments and loans between domestic and foreign subsidiaries denominated in foreign currencies. We record these contracts at fair value on our condensed consolidated balance sheets. Based on the hedge designation at the inception of the contract, the related gains and losses on these contracts are deferred in stockholders' equity as a component of Accumulated other comprehensive income until the hedged item is recognized in earnings. The gain or loss on a derivative instrument not designated as a hedging instrument is immediately recognized in earnings. Gains and losses on derivative financial instruments that require immediate recognition are included as a component of Other – net on our condensed consolidated statements of income. We have designated the majority of our FX forward contracts that qualify for hedge accounting as cash flow hedges. The hedged risk is the risk of changes in functional-currency-equivalent cash flows attributable to changes in FX spot rates of forecasted transactions primarily related to long-term contracts. We exclude from our assessment of effectiveness the portion of the fair value of the FX forward contracts attributable to the difference between FX spot rates and FX forward rates. At September 30, 2020, we had deferred approximately $0.1 million of net gains on these derivative financial instruments. Assuming market conditions continue, we expect to recognize the majority of this amount in the next 12 months. For the three months ended September 30, 2020 and 2019, we recognized (gains) losses of $0.7 million and $0.2 million, respectively, and for the nine months ended September 30, 2020 and 2019, we recognized (gains) losses of $(0.9) million and $(1.3) million, respectively, in Other – net on our condensed consolidated statements of income associated with FX forward contracts not designated as hedges. At September 30, 2020, our derivative financial instruments consisted of FX forward contracts with a total notional value of $239.7 million with maturities extending to July 2022. These instruments consist primarily of FX forward contracts to purchase or sell Canadian dollars and Euros. We are exposed to credit-related losses in the event of non-performance by counterparties to derivative financial instruments. We attempt to mitigate this risk by using major financial institutions with high credit ratings. Our counterparties to derivative financial instruments have the benefit of the same collateral arrangements and covenants as described under our credit facility.

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- Definition The entire disclosure for the basis of presentation and significant accounting policies concepts. Basis of presentation describes the underlying basis used to prepare the financial statements (for example, US Generally Accepted Accounting Principles, Other Comprehensive Basis of Accounting, IFRS). Accounting policies describe all significant accounting policies of the reporting entity. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -URI http://asc.fasb.org/topic&trid=2122369 + Details
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