BWX TECHNOLOGIES, INC.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
The following information should be read in conjunction with the unaudited
condensed consolidated financial statements and the notes thereto included under
Item 1 of this quarterly report on Form 10-Q ("Report") and the audited
consolidated financial statements and the related notes and Item 7 "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included in our annual report on Form 10-K for the year ended December 31, 2019
(our "2019 10-K").
In this Report, unless the context otherwise indicates, "we," "us" and "our"
mean BWX Technologies, Inc. ("BWXT" or the "Company") and its consolidated
subsidiaries.
From time to time, our management or persons acting on our behalf make
forward-looking statements to inform existing and potential security holders
about our Company. Forward-looking statements include those statements that
express a belief, expectation or intention, as well as those that are not
statements of historical fact, within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"). Statements and assumptions regarding
expectations and projections of specific projects, our future backlog, revenues,
income and capital spending, strategic investments, acquisitions or
divestitures, return of capital activities, margin improvement initiatives or
impacts of the novel strain of coronavirus ("COVID-19") pandemic are examples of
forward-looking statements. Forward-looking statements are generally accompanied
by words such as "estimate," "project," "predict," "believe," "expect,"
"anticipate," "plan," "seek," "goal," "could," "intend," "may," "should" or
other words that convey the uncertainty of future events or outcomes. In
addition, sometimes we will specifically describe a statement as being a
forward-looking statement and refer to this cautionary statement.
We have based our forward-looking statements on information currently available
to us and our current expectations, estimates and projections about our
industries and our Company. We caution that these statements are not guarantees
of future performance and you should not rely unduly on them as they involve
risks, uncertainties and assumptions that we cannot predict. In addition, we
have based many of these forward-looking statements on assumptions about future
events that may prove to be inaccurate. For example, the extent to which the
COVID-19 outbreak impacts our business will depend on future developments that
are highly uncertain and cannot be predicted, including new information that may
emerge concerning the length and severity of the COVID-19 health crisis, and the
actions to contain its impact, in addition to the potential recurrence or
subsequent waves of COVID-19 or similar diseases. While our management considers
these statements and assumptions to be reasonable, they are inherently subject
to numerous factors, including potentially the risk factors described in the
sections labeled Item 1A, "Risk Factors" of our 2019 10-K, of our quarterly
report on Form 10-Q for the quarter ended March, 31, 2020 (our "First Quarter
2020 10-Q") and of this Report, most of which are difficult to predict and many
of which are beyond our control. Accordingly, our actual results may differ
materially from the future performance that we have expressed or forecast in our
forward-looking statements.
We have discussed many of these factors in more detail elsewhere in this Report,
including under the heading "COVID-19 Assessment" of this Item 2 "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
Item 1A, "Risk Factors", and in Item 1A "Risk Factors" in our 2019 10-K and our
First Quarter 2020 10-Q. These factors are not necessarily all the factors that
could affect us. Unpredictable or unanticipated factors we have not discussed in
this Report or in our 2019 10-K and our First Quarter 2020 10-Q could also have
material adverse effects on actual results of matters that are the subject of
our forward-looking statements. We do not intend to update or review any
forward-looking statement or our description of important factors, whether as a
result of new information, future events or otherwise, except as required by
applicable laws.
GENERAL
We operate in three reportable segments: Nuclear Operations Group , Nuclear Power
Group and Nuclear Services Group . In general, we operate in capital-intensive
industries and rely on large contracts for a substantial amount of our revenues.
We are currently exploring growth strategies across our segments to expand and
complement our existing businesses. We would expect to fund these opportunities
with cash generated from operations or by raising additional capital through
debt, equity or some combination thereof.
Nuclear Operations Group
The revenues of our Nuclear Operations Group segment are largely a function of
defense spending by the U.S. Government . Through this segment, we engineer,
design and manufacture precision naval nuclear components, reactors and
21
--------------------------------------------------------------------------------
Table of Contents
nuclear fuel for the DOE /NNSA's Naval Nuclear Propulsion Program. In addition,
we perform development and fabrication activities for missile launch tubes for
U.S. Navy submarines. As a supplier of major nuclear components for certain U.S.
Government programs, this segment is a significant participant in the defense
industry.
Nuclear Power Group
Through this segment, we design and manufacture commercial nuclear steam
generators, heat exchangers, pressure vessels, reactor components, as well as
other auxiliary equipment, including containers for the storage of spent nuclear
fuel and other high-level nuclear waste. This segment is a leading supplier of
nuclear fuel, fuel handling systems, tooling delivery systems, nuclear-grade
materials and precisely machined components, and related services for CANDU
nuclear power plants. This segment also provides a variety of engineering and
in-plant services and is a significant supplier to nuclear power utilities
undergoing major refurbishment and plant life extension projects. Additionally,
this segment is a leading global manufacturer and supplier of critical medical
radioisotopes and radiopharmaceuticals.
Our Nuclear Power Group segment's overall activity primarily depends on the
demand and competitiveness of nuclear energy. A significant portion of our
Nuclear Power Group segment's operations depend on the timing of maintenance and
refueling outages, the cyclical nature of capital expenditures and major
refurbishment and life extension projects, as well as the demand for nuclear
fuel and fuel handling equipment primarily in the Canadian market, which could
cause variability in our financial results.
Nuclear Services Group
Our Nuclear Services Group segment provides various services to the U.S.
Government . The revenues and equity in income of investees under our U.S.
Government contracts are largely a function of spending of the U.S. Government
and the performance scores we and our consortium partners earn in managing and
operating high-consequence operations at U.S. nuclear weapons sites, national
laboratories and manufacturing complexes. With its specialized capabilities of
full life-cycle management of special materials, facilities and technologies, we
believe our Nuclear Services Group segment is well-positioned to continue to
participate in the continuing cleanup, operation and management of critical
government-owned nuclear sites, laboratories and manufacturing complexes
maintained by the DOE , NASA and other federal agencies. 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.
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.
Acquisition of Laker Energy Products Ltd.
On January 2, 2020 , our subsidiary BWXT Canada Ltd. acquired Laker Energy
Products Ltd. ("Laker Energy Products"). Laker Energy Products is a global
supplier of nuclear-grade materials and precisely machined components for CANDU
nuclear power utilities and employs approximately 140 personnel. Laker Energy
Products is reported as part of our Nuclear Power Group segment.
Critical Accounting Policies and Estimates
For a summary of the critical accounting policies and estimates that we use in
the preparation of our unaudited condensed consolidated financial statements,
see Item 7 "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in our 2019 10-K. There have been no material changes to
our critical accounting policies during the six months ended June 30, 2020 with
the exception of the adoption of Financial Accounting Standards Board ("FASB")
Topic Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for
Goodwill Impairment as described in the notes to the condensed consolidated
financial statements in Part I of this Report.
22
--------------------------------------------------------------------------------
Table of Contents
Accounting for Contracts
On certain of our performance obligations, we recognize revenue over time. In
accordance with FASB Topic Revenue from Contracts with Customers, we are
required to estimate the total amount of costs on these performance obligations.
As of June 30, 2020 , we have provided for the estimated costs to complete all of
our ongoing contracts. However, it is possible that current estimates could
change due to unforeseen events, which could result in adjustments to overall
contract revenues and costs. A principal risk on fixed-price contracts is that
revenue from the customer is insufficient to 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 or
steel and other raw material prices. In some instances, we guarantee completion
dates related to our projects or provide performance guarantees. Increases in
costs on our fixed-price contracts could have a material adverse impact on our
consolidated results of operations, financial condition and cash flows.
Alternatively, reductions in overall contract costs at completion could
materially improve our consolidated results of operations, financial condition
and cash flows. During the three months ended June 30, 2020 and 2019, we
recognized net changes in estimates related to contracts that recognize revenue
over time, which increased operating income by approximately $11.4 million and
$18.9 million , respectively. During the six months ended June 30, 2020 and 2019,
we recognized net changes in estimates related to contracts that recognize
revenue over time, which increased operating income by approximately
$21.0 million and $23.7 million , respectively.
COVID-19 Assessment
A global outbreak of COVID-19 has occurred impacting over 200 countries,
including the U.S. and Canada where we maintain our principal operations.
Developments have been occurring rapidly with respect to the spread of COVID-19
and its impact on human health and businesses, with new and changing government
actions occurring on a daily basis. As a result, we have been closely monitoring
the COVID-19 pandemic and its impacts and potential impacts on our business.
We have received notifications from the U.S. and Canadian governments
designating BWXT as an essential business given our roles in national security,
energy production and medical manufacturing. We continue to operate our
facilities and have taken numerous precautions to mitigate exposure and protect
the health and well-being of our workforce. The COVID-19 pandemic has not caused
a significant disruption to our operations or our supply chain to date.
Because developments related to the spread of COVID-19 and its impacts have been
occurring rapidly, it is difficult to predict any future impact at this time. We
may experience material disruptions to demand for our products and services and
our operations in the future as a result of, among other things, national,
state, provincial or local government enforced quarantines, worker illness or
absenteeism, and travel and other restrictions. For example, we have experienced
a year over year decline in revenues in our medical radioisotopes and
radiopharmaceuticals business due to a decrease in demand for elective
diagnostic procedures. For similar reasons, the COVID-19 pandemic may also
adversely impact our supply chain and other manufacturers which could delay our
receipt of essential goods and services. For example, certain services scheduled
during nuclear power plant outages during which our Nuclear Power Group segment
would operate have been rescheduled. We have also experienced delays in the
bidding and contracting process for our U.S. Government businesses due to
COVID-19 concerns. Any number of these potential risks could have a material
adverse effect on our financial condition, results of operations and cash flows.
The extent to which the COVID-19 outbreak impacts our business will depend on
future developments that are highly uncertain and cannot be predicted, including
new information that may emerge concerning the severity of the virus and the
actions to contain its impact.
See Item 1A "Risk Factors" in this Report for an additional discussion of risks
of the COVID-19 pandemic on our business.
23
--------------------------------------------------------------------------------
Table of Contents
RESULTS OF OPERATIONS - THREE AND SIX MONTHS ENDED JUNE 30, 2020 VS. THREE AND
SIX MONTHS ENDED JUNE 30, 2019
Selected financial highlights are presented in the table below:
Three Months Ended Six Months Ended
June 30, June 30,
2020 2019 $ Change 2020 2019 $ Change
(In thousands)REVENUES: Nuclear Operations Group$ 410,252 $ 358,352 $ 51,900 $ 834,027 $ 663,153 $ 170,874 Nuclear Power Group 67,983 86,639 (18,656) 155,900 171,038 (15,138) Nuclear Services Group 33,328 29,829 3,499 70,093 58,923 11,170 Eliminations (7,043) (3,589) (3,454) (13,292) (5,429) (7,863)$ 504,520 $ 471,231 $ 33,289 $ 1,046,728 $ 887,685 $ 159,043 OPERATING INCOME: Nuclear Operations Group$ 85,972 $ 75,226 $ 10,746 $ 176,331 $ 132,851 $ 43,480 Nuclear Power Group 1,102 14,883 (13,781) 9,572 27,466 (17,894) Nuclear Services Group 4,122 1,490 2,632 10,522 3,061 7,461 Other (5,600) (6,744) 1,144 (10,959) (12,840) 1,881$ 85,596 $ 84,855 $ 741 $ 185,466 $ 150,538 $ 34,928 Unallocated Corporate (3,162) (4,320) 1,158 (4,765) (6,359) 1,594 Total Operating Income$ 82,434 $ 80,535 $ 1,899 $ 180,701 $ 144,179 $ 36,522 Consolidated Results of Operations Three months endedJune 30, 2020 vs. 2019 Consolidated revenues increased 7.1%, or$33.3 million , to$504.5 million in the three months endedJune 30, 2020 compared to$471.2 million for the corresponding period in 2019, due to increases in revenues from ourNuclear Operations Group andNuclear Services Group segments totaling$51.9 million and$3.5 million , respectively. These increases were partially offset by a decrease in revenues in ourNuclear Power Group segment of$18.7 million . Consolidated operating income increased$1.9 million to$82.4 million in the three months endedJune 30, 2020 compared to$80.5 million for the corresponding period of 2019. Operating income in ourNuclear Operations Group ,Nuclear Services Group and Other segments increased by$10.7 million ,$2.6 million , and$1.1 million , respectively. In addition, we experienced lower Unallocated Corporate expenses of$1.2 million when compared to the corresponding period of 2019. These increases were partially offset by a decrease in operating income in ourNuclear Power Group segment of$13.8 million . Six months endedJune 30, 2020 vs. 2019 Consolidated revenues increased 17.9%, or$159.0 million , to$1,046.7 million in the six months endedJune 30, 2020 compared to$887.7 million for the corresponding period in 2019, due to increases in revenues from ourNuclear Operations Group andNuclear Services Group segments totaling$170.9 million and$11.2 million , respectively. These increases were partially offset by a decrease in revenues in ourNuclear Power Group segment of$15.1 million . Consolidated operating income increased$36.5 million to$180.7 million in the six months endedJune 30, 2020 compared to$144.2 million for the corresponding period of 2019. Operating income in ourNuclear Operations Group ,Nuclear Services Group and Other segments increased by$43.5 million ,$7.5 million , and$1.9 million , respectively. In addition, we experienced lower Unallocated Corporate expenses of$1.6 million when compared to the corresponding period of 2019. These increases were partially offset by a decrease in operating income in ourNuclear Power Group segment of$17.9 million . 24 -------------------------------------------------------------------------------- Table of ContentsNuclear Operations Group Three Months Ended Six Months Ended June 30, June 30, 2020 2019 $ Change 2020 2019 $ Change (In thousands) Revenues$ 410,252 $ 358,352 $ 51,900 $ 834,027 $ 663,153 $ 170,874 Operating Income$ 85,972 $ 75,226 $ 10,746 $ 176,331 $ 132,851 $ 43,480 % of Revenues 21.0% 21.0% 21.1% 20.0% Three months endedJune 30, 2020 vs. 2019 Revenues increased 14.5%, or$51.9 million , to$410.3 million in the three months endedJune 30, 2020 compared to$358.4 million for the corresponding period of 2019. The increase related to the timing of the procurement of certain long-lead materials when compared to the corresponding period of 2019 as well as additional volume in our naval nuclear fuel and downblending operations. Operating income increased$10.7 million to$86.0 million in the three months endedJune 30, 2020 compared to$75.2 million for the corresponding period of 2019. The increase was due to the operating income impact of the changes in revenues noted above. Six months endedJune 30, 2020 vs. 2019 Revenues increased 25.8%, or$170.9 million , to$834.0 million in the six months endedJune 30, 2020 compared to$663.2 million for the corresponding period of 2019 as we continue to expand production related to the Columbia-Class nuclear propulsion system. The increase comprised additional volume in the manufacture of nuclear components forU.S. Government programs and the timing of the procurement of certain long-lead materials when compared to the corresponding period of 2019. Operating income increased$43.5 million to$176.3 million in the six months endedJune 30, 2020 compared to$132.9 million for the corresponding period of 2019. The increase was due to the operating income impact of the changes in revenues noted above as well as favorable contract adjustments related to our naval nuclear fuel operations. Nuclear Power Group Three Months Ended Six Months Ended June 30, June 30, 2020 2019 $ Change 2020 2019 $ Change (In thousands) Revenues$ 67,983 $ 86,639 $ (18,656) $ 155,900 $ 171,038 $ (15,138) Operating Income$ 1,102 $ 14,883 $ (13,781) $ 9,572 $ 27,466 $ (17,894) % of Revenues 1.6% 17.2% 6.1% 16.1% Three months endedJune 30, 2020 vs. 2019 Revenues decreased 21.5%, or$18.7 million , to$68.0 million in the three months endedJune 30, 2020 compared to$86.6 million for the corresponding period of 2019. The decrease was primarily related to lower revenues in our nuclear components business of$20.9 million largely attributable to decreased activity associated with major steam generator design and supply contracts as well as a decrease in volume associated with our medical radioisotopes business. These decreases were partially offset by revenues associated with the Laker Energy Products acquisition of$5.7 million . Operating income decreased$13.8 million to$1.1 million in the three months endedJune 30, 2020 compared to$14.9 million for the corresponding period of 2019, primarily attributable to the decrease in revenues noted above as well as a decline in operating margins as a result of net favorable changes in estimates related to certain long-term contracts recorded in the prior year. Six months endedJune 30, 2020 vs. 2019 Revenues decreased 8.9%, or$15.1 million , to$155.9 million in the six months endedJune 30, 2020 compared to$171.0 million for the corresponding period of 2019. The decrease was primarily related to lower revenues in our nuclear components 25 -------------------------------------------------------------------------------- Table of Contents business of$11.3 million largely attributable to decreased activity associated with major steam generator design and supply contracts. We also experienced a decrease in revenue of$9.5 million due to lower levels of in-plant inspection, maintenance and modification services when compared to the same period in the prior year. These decreases were partially offset by revenues associated with the Laker Energy Products acquisition. Operating income decreased$17.9 million to$9.6 million in the six months endedJune 30, 2020 compared to$27.5 million for the corresponding period of 2019, primarily attributable to the decrease in revenues noted above as well as a decline in operating margins as a result of net favorable changes in estimates related to certain long-term contracts recorded in the prior year, as well a shift in our product line mix when compared to the same period in the prior year.Nuclear Services Group Three Months Ended Six Months Ended June 30, June 30, 2020 2019 $ Change 2020 2019 $ Change (In thousands) Revenues$ 33,328 $ 29,829 $ 3,499 $ 70,093 $ 58,923 $ 11,170 Operating Income$ 4,122 $ 1,490 $ 2,632 $ 10,522 $ 3,061 $ 7,461 % of Revenues 12.4% 5.0% 15.0% 5.2% Three months endedJune 30, 2020 vs. 2019 Revenues increased 11.7%, or$3.5 million , to$33.3 million in the three months endedJune 30, 2020 compared to$29.8 million for the corresponding period of 2019, primarily attributable to an increase in design and engineering work executed by our advanced technologies business. Operating income increased$2.6 million to$4.1 million in the three months endedJune 30, 2020 compared to$1.5 million for the corresponding period of 2019. The increase was due to the operating income impact of the changes in revenues noted above in addition to a decrease in selling, general and administrative expenses related to business development activities caused by the timing of proposal activities. Six months endedJune 30, 2020 vs. 2019 Revenues increased 19.0%, or$11.2 million , to$70.1 million in the six months endedJune 30, 2020 compared to$58.9 million for the corresponding period of 2019. The increase was primarily attributable to design and engineering work executed by our advanced technologies business and an increase in the volume of commercial nuclear inspection and maintenance outage work in theU.S. when compared to the same period in the prior year. Operating income increased$7.5 million to$10.5 million in the six months endedJune 30, 2020 compared to$3.1 million for the corresponding period of 2019 due to the operating income impact of the changes in revenues noted above. Other Three Months Ended Six Months Ended June 30, June 30, 2020 2019 $ Change 2020 2019 $ Change (In thousands)
Operating Income
Operating income increased$1.1 million and$1.9 million in the three and six months endedJune 30, 2020 , respectively, primarily due to a decrease in research and development activities related to our medical and industrial radioisotope capabilities and other advanced technologies when compared to the corresponding periods of the prior year. Unallocated Corporate Unallocated corporate expenses decreased$1.2 million and$1.6 million in the three and six months endedJune 30, 2020 , respectively, primarily due to a decrease in healthcare claims, which was partially offset by an increase in legal and consulting costs associated with the divestiture of ourU.S. -based commercial nuclear services business during the second quarter of 2020. 26 --------------------------------------------------------------------------------
Table of Contents
Provision for Income Taxes
Three Months Ended Six Months Ended
June 30, June 30,
2020 2019 $ Change 2020 2019 $ Change
(In thousands)
Income before Provision for
Income Taxes $ 84,080 $ 77,734 $ 6,346 $ 182,528 $ 140,611 $ 41,917
Provision for Income Taxes $ 19,684 $ 18,734 $ 950 $ 42,512 $ 32,501 $ 10,011
Effective Tax Rate 23.4% 24.1% 23.3% 23.1%
We primarily operate in the U.S. and Canada , and we recognize our U.S. income
tax provision based on the U.S. federal statutory rate of 21% and our Canadian
tax provision based on the Canadian local statutory rate of approximately 25%.
Our effective tax rate for the three months ended June 30, 2020 was 23.4% as
compared to 24.1% for the three months ended June 30, 2019 . Our effective tax
rate for the six months ended June 30, 2020 was 23.3% as compared to 23.1% for
the six months ended June 30, 2019 . The effective tax rates for the three and
six months ended June 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 six months ended June 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 $1.8 million , respectively.
Backlog
Backlog represents the dollar amount of revenue we expect to recognize in the
future from contracts awarded and in progress. Not all of our expected revenue
from a contract award is recorded in backlog for a variety of reasons, including
that some projects are awarded and completed within the same reporting period.
Our backlog is equal to our remaining performance obligations under contracts
that meet the criteria in FASB Topic Revenue from Contracts with Customers, as
discussed in Note 3 to our condensed consolidated financial statements included
in this Report. It is possible that our methodology for determining backlog may
not be comparable to methods used by other companies.
We are subject to the budgetary and appropriations cycle of the U.S. Government
as it relates to our Nuclear Operations Group and Nuclear Services Group
segments. Backlog may not be indicative of future operating results, and
projects in our backlog may be cancelled, modified or otherwise altered by
customers.
June 30, December 31,
2020 2019
(In approximate millions)
Nuclear Operations Group $ 3,914 $ 4,515
Nuclear Power Group 771 730
Nuclear Services Group 43 43
Total Backlog $ 4,728 $ 5,288 We do not include the value of our unconsolidated joint venture contracts in
backlog. These unconsolidated joint ventures are included in our
27--------------------------------------------------------------------------------
Table of Contents Of the backlog atJune 30, 2020 , we expect to recognize revenues as follows: 2020 2021 Thereafter Total (In approximate millions) Nuclear Operations Group$ 722 $ 1,098 $ 2,094 $ 3,914 Nuclear Power Group 178 209 384 771 Nuclear Services Group 33 5 5 43 Total Backlog$ 933 $ 1,312 $ 2,483 $ 4,728 AtJune 30, 2020 , ourNuclear Operations Group segment's backlog with theU.S. Government was$3,516.4 million ,$401.8 million of which had not yet been funded. AtJune 30, 2020 , ourNuclear Power Group segment had no backlog with theU.S. Government . AtJune 30, 2020 , ourNuclear Services Group segment's backlog with theU.S. Government was$37.7 million , all of which was funded. Major new awards from theU.S. Government are typically received following Congressional approval of the budget for theU.S. Government's next fiscal year, which startsOctober 1 , and may not be awarded to us before the end of the calendar year. Due to the fact that most contracts awarded by theU.S. Government are subject to these annual funding approvals, the total values of the underlying programs are significantly larger. In 2019, we received awards from theU.S. Government with a combined value in excess of$3.9 billion , inclusive of unexercised options, approximately$2.9 billion of which had been added to backlog as ofJune 30, 2020 . The value of unexercised options excluded from backlog as ofJune 30, 2020 was approximately$1.0 billion , which is expected to be exercised through 2025, subject to annual Congressional appropriations. Liquidity and Capital Resources OnJune 12, 2020 , we issued$400 million aggregate principal amount of our 4.125% senior notes due 2028 (the "Senior Notes due 2028") pursuant to an indenture datedJune 12, 2020 (the "2020 Indenture") among the Company, the guarantors party thereto andU.S. Bank National Association , as trustee. The proceeds from the issuance of the Senior Notes due 2028 were used to (1) repay in full the Term Loans, as defined below, under our Credit Agreement datedMay 24, 2018 (as amended, the "Credit Facility"), (2) repay a portion of the borrowings under the Revolving Credit Facility, as defined below, under the Credit Facility, and (3) pay all fees and expenses related to the issuance of the Senior Notes due 2028. Credit Facility OnMarch 24, 2020 , we entered into an Amendment No. 1 to Credit Agreement (the "Amendment"), which amended the Credit Facility withWells Fargo Bank, N.A ., as administrative agent, and the other lenders party thereto. The Credit Facility originally provided for a$500 million senior secured revolving credit facility (the "Revolving Credit Facility"), a$50 million U.S. dollar senior secured term loan A made available to the Company (the "USD Term Loan") and a$250 million (U.S. dollar equivalent) Canadian dollar senior secured term loan A made available toBWXT Canada Ltd. (the "CAD Term Loan" and together with the USD Term Loan, the "Term Loans"). OnJune 12, 2020 , we repaid in full the Term Loans, at par, with a portion of the proceeds from the issuance of the Senior Notes due 2028. The Amendment, among other things, (1) provided additional commitments to increase the Revolving Credit Facility by$250 million , such that the Revolving Credit Facility is now$750 million ; (2) extended the maturity date of the Revolving Credit Facility toMarch 24, 2025 ; (3) removedBWXT Canada Ltd. as a borrower under the Revolving Credit Facility; (4) modified the applicable margin for borrowings under the Revolving Credit Facility to be, at the Company's option, either (i) the Eurocurrency rate plus a margin ranging from 1.0% to 1.75% per year or (ii) the base rate plus a margin ranging from 0.0% to 0.75% per year, in each case depending on the Company's leverage ratio; (5) modified the commitment fee on the unused portion of the Revolving Credit Facility to range from 0.15% to 0.225% per year, depending on the Company's leverage ratio; and (6) modified the letter of credit fee with respect to each financial letter of credit and performance letter of credit issued under the Revolving Credit Facility to range from 1.0% to 1.75% and 0.75% to 1.05% per year, respectively, in each case, depending on the Company's leverage ratio. All obligations under the Revolving Credit Facility are scheduled to mature onMarch 24, 2025 . The proceeds of loans under the Revolving Credit Facility are available for working capital needs, permitted acquisitions and other general corporate purposes. 28 -------------------------------------------------------------------------------- Table of Contents The Credit Facility allows for additional parties to become lenders and, subject to certain conditions, for the increase of the commitments under the Credit Facility, subject to an aggregate maximum for all additional commitments of (1) the greater of (a)$250 million and (b) 65% of EBITDA, as defined in the Credit Facility, for the last four full fiscal quarters, plus (2) all voluntary prepayments of the Term Loans, plus (3) additional amounts provided the Company is in compliance with a pro forma first lien leverage ratio test of less than or equal to 2.50 to 1.00. The Company's obligations under the Credit Facility are guaranteed, subject to certain exceptions, by substantially all of the Company's present and future wholly owned domestic restricted subsidiaries. The Credit Facility is secured by first-priority liens on certain assets owned by the Company and its subsidiary guarantors (other than its subsidiaries comprising itsNuclear Operations Group segment and a portion of itsNuclear Services Group segment). The Revolving Credit Facility requires interest payments on revolving loans on a periodic basis until maturity. We may prepay all loans under the Credit Facility at any time without premium or penalty (other than customary Eurocurrency breakage costs), subject to notice requirements. The Credit Facility includes financial covenants that are tested on a quarterly basis, based on the rolling four-quarter period that ends on the last day of each fiscal quarter. The maximum permitted leverage ratio is 4.00 to 1.00, which may be increased to 4.50 to 1.00 for up to four consecutive fiscal quarters after a material acquisition. The minimum consolidated interest coverage ratio is 3.00 to 1.00. In addition, the Credit Facility contains various restrictive covenants, including with respect to debt, liens, investments, mergers, acquisitions, dividends, equity repurchases and asset sales. As ofJune 30, 2020 , we were in compliance with all covenants set forth in the Credit Facility. Outstanding loans under the Revolving Credit Facility bear interest at our option at either (1) the Eurocurrency rate plus a margin ranging from 1.0% to 1.75% per year or (2) the base rate plus a margin ranging from 0.0% to 0.75% per year. We are charged a commitment fee on the unused portion of the Revolving Credit Facility, and that fee ranges from 0.15% to 0.225% per year. Additionally, we are charged a letter of credit fee of between 1.0% and 1.75% per year with respect to the amount of each financial letter of credit issued under the Credit Facility, and a letter of credit fee of between 0.75% and 1.05% per year with respect to the amount of each performance letter of credit issued under the Credit Facility. The applicable margin for loans, the commitment fee and the letter of credit fees set forth above will vary quarterly based on our leverage ratio. Based on the leverage ratio applicable atJune 30, 2020 , the margin for Eurocurrency rate and base rate revolving loans was 1.25% and 0.25%, respectively, the letter of credit fee for financial letters of credit and performance letters of credit was 1.25% and 0.825%, respectively, and the commitment fee for the unused portion of the Revolving Credit Facility was 0.175%. As ofJune 30, 2020 , borrowings and letters of credit issued under the Revolving Credit Facility totaled$40.0 million and$64.7 million , respectively. As a result, as ofJune 30, 2020 we had$645.3 million available under the Revolving Credit Facility for borrowings and to meet letter of credit requirements. As ofJune 30, 2020 , the interest rate on outstanding borrowings under our Credit Facility was 1.43%. The Credit Facility generally includes customary events of default for a secured credit facility. Under the Credit Facility, (1) if an event of default relating to bankruptcy or other insolvency events occurs with respect to the Company, all related obligations will immediately become due and payable; (2) if any other event of default exists, the lenders will be permitted to accelerate the maturity of the related obligations outstanding; and (3) if any event of default exists, the lenders will be permitted to terminate their commitments thereunder and exercise other rights and remedies, including the commencement of foreclosure or other actions against the collateral. If any default occurs under the Credit Facility, or if we are unable to make any of the representations and warranties in the Credit Facility, we will be unable to borrow funds or have letters of credit issued under the Credit Facility. Senior Notes due 2026 We issued$400 million aggregate principal amount of 5.375% senior notes due 2026 (the "Senior Notes due 2026") pursuant to an indenture datedMay 24, 2018 (the "2018 Indenture"), among the Company, certain of our subsidiaries, as guarantors, andU.S. Bank National Association , as trustee. The Senior Notes due 2026 are guaranteed by each of the Company's present and future direct and indirect wholly owned domestic subsidiaries that is a guarantor under the Credit Facility. Interest on the Senior Notes due 2026 is payable semi-annually in cash in arrears onJanuary 15 andJuly 15 of each year, which commenced onJuly 15, 2018 , at a rate of 5.375% per annum. The Senior Notes due 2026 will mature onJuly 15, 2026 . 29 -------------------------------------------------------------------------------- Table of Contents On and afterJuly 15, 2021 , the Company may redeem the Senior Notes due 2026, in whole or in part, at a redemption price equal to (i) 102.688% of the principal amount to be redeemed if the redemption occurs during the twelve-month period beginning onJuly 15, 2021 , (ii) 101.344% of the principal amount to be redeemed if the redemption occurs during the twelve-month period beginning onJuly 15, 2022 and (iii) 100.0% of the principal amount to be redeemed if the redemption occurs on or afterJuly 15, 2023 , in each case plus accrued and unpaid interest, if any, to, but excluding, the redemption date. At any time prior toJuly 15, 2021 , the Company may also redeem up to 40.0% of the Senior Notes due 2026 with net cash proceeds of certain equity offerings at a redemption price equal to 105.375% of the principal amount of the Senior Notes due 2026 to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. In addition, at any time prior toJuly 15, 2021 , the Company may redeem the Senior Notes due 2026, in whole or in part, at a redemption price equal to 100.0% of the principal amount of the Senior Notes due 2026 to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date plus an applicable "make-whole" premium. The 2018 Indenture contains customary events of default, including, among other things, payment default, failure to comply with covenants or agreements contained in the 2018 Indenture or the Senior Notes due 2026 and certain provisions related to bankruptcy events. The 2018 Indenture also contains customary negative covenants. As ofJune 30, 2020 , we were in compliance with all covenants set forth in the 2018 Indenture and the Senior Notes due 2026. Senior Notes due 2028 We issued$400 million aggregate principal amount of our Senior Notes due 2028 pursuant to the 2020 Indenture. The Senior Notes due 2028 are guaranteed by each of the Company's present and future direct and indirect wholly owned domestic subsidiaries that is a guarantor under the Credit Facility. Interest on the Senior Notes due 2028 is payable semi-annually in cash in arrears onJune 30 andDecember 30 of each year, commencing onDecember 30, 2020 , at a rate of 4.125% per annum. The Senior Notes due 2028 will mature onJune 30, 2028 . The Company may redeem the Senior Notes due 2028, in whole or in part, at any time on or afterJune 30, 2023 at a redemption price equal to (i) 102.063% of the principal amount to be redeemed if the redemption occurs during the twelve-month period beginning onJune 30, 2023 , (ii) 101.031% of the principal amount to be redeemed if the redemption occurs during the twelve-month period beginning onJune 30, 2024 and (iii) 100.0% of the principal amount to be redeemed if the redemption occurs on or afterJune 30, 2025 , in each case plus accrued and unpaid interest, if any, to, but excluding, the redemption date. At any time prior toJune 30, 2023 , the Company may also redeem up to 40.0% of the Senior Notes due 2028 with net cash proceeds of certain equity offerings at a redemption price equal to 104.125% of the principal amount of the Senior Notes due 2028 to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. In addition, at any time prior toJune 30, 2023 , the Company may redeem the Senior Notes due 2028, in whole or in part, at a redemption price equal to 100.0% of the principal amount of the Senior Notes due 2028 to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date plus an applicable "make-whole" premium. The 2020 Indenture contains customary events of default, including, among other things, payment default, failure to comply with covenants or agreements contained in the 2020 Indenture or the Senior Notes due 2028 and certain provisions related to bankruptcy events. The 2020 Indenture also contains customary negative covenants. As ofJune 30, 2020 , we were in compliance with all covenants set forth in the 2020 Indenture and the Senior Notes due 2028. Other Arrangements We have posted surety bonds to support regulatory and contractual obligations for certain decommissioning responsibilities, projects and legal matters. We utilize bonding facilities to support such obligations, but the issuance of bonds under those facilities is typically at the surety's discretion, and the bonding facilities generally permit the surety, in its sole discretion, to terminate the facility or demand collateral. Although there can be no assurance that we will maintain our surety bonding capacity, we believe our current capacity is adequate to support our existing requirements for the next twelve months. In addition, these bonds generally indemnify the beneficiaries should we fail to perform our obligations under the applicable agreements. 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. As ofJune 30, 2020 , bonds issued and outstanding under these arrangements totaled approximately$73.3 million . 30 -------------------------------------------------------------------------------- Table of Contents Long-term Benefit Obligations As ofJune 30, 2020 , we had underfunded defined benefit pension and postretirement benefit plans with obligations totaling approximately$183.2 million . These long-term liabilities are expected to require use of our resources to satisfy future funding obligations. Based largely on statutory funding requirements, we expect to make contributions of approximately$5.6 million for the remainder of 2020 related to our pension and postretirement plans. We may also make additional contributions based on a variety of factors including, but not limited to, tax planning, evaluation of funded status and risk mitigation strategies. Other Our domestic and foreign cash and cash equivalents, restricted cash and cash equivalents and investments as ofJune 30, 2020 andDecember 31, 2019 were as follows: June 30, December 31, 2020 2019 (In thousands) Domestic$ 60,709 $ 76,337 Foreign 17,793 29,526 Total$ 78,502 $ 105,863 Our working capital increased by$23.6 million to$248.6 million atJune 30, 2020 from$225.0 million atDecember 31, 2019 , primarily attributable to changes in contracts in progress and advance billings due to the timing of project cash flows and a decrease in accounts payable associated with the timing of vendor payments, partially offset by an increase in income taxes payable. Our net cash provided by operating activities increased by$108.6 million to$155.6 million in the six months endedJune 30, 2020 , compared to$47.1 million in the six months endedJune 30, 2019 . The increase in cash provided by operating activities was primarily attributable to an increase in net income and a decrease in working capital needs for the period endedJune 30, 2020 . Our net cash used in investing activities increased by$53.7 million to$129.4 million in the six months endedJune 30, 2020 , compared to$75.7 million in the six months endedJune 30, 2019 . The increase in cash used in investing activities was primarily attributable to an increase in purchases of property, plant and equipment of$39.8 million as well as our acquisition of Laker Energy Products for$16.2 million in the three months endedMarch 31, 2020 . Our net cash used in financing activities increased by$83.6 million to$50.4 million in the six months endedJune 30, 2020 , compared to cash provided by financing activities of$33.3 million in the six months endedJune 30, 2019 . The increase in cash used in financing activities was primarily attributable to a decrease in net borrowings of$77.9 million and the payment of debt issuance costs of$6.3 million in the six months endedJune 30, 2020 . AtJune 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. AtJune 30, 2020 , we had short-term and long-term investments with a fair value of$10.9 million . Our investment portfolio consists primarily ofU.S. Government and agency securities, corporate bonds and mutual funds. Our debt securities are carried at fair value and are either classified as trading, with unrealized gains and losses reported in earnings, or as available-for-sale, with unrealized gains and losses, net of tax, being reported as a component of other comprehensive income. Our equity securities are carried at fair value with the unrealized gains and losses reported in earnings. Based on our liquidity position, we believe we have sufficient cash and letter of credit and borrowing capacity to fund our operating requirements for at least the next 12 months.
© Edgar Online, source
