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OFFON

BWX TECHNOLOGIES, INC.

(BWXT)
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BWX TECHNOLOGIES : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

08/02/2021 | 04:26pm EDT
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, 2020
(our "2020 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 Company,
industries and business environment. 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 pandemic will continue to impact our business will depend on
future developments that are highly uncertain and cannot be predicted, including
the length and severity of the COVID-19 health crisis and the potential
recurrence of COVID-19, subsequent waves or strains or the development of
similar diseases, and the actions to contain the impact of such 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 section labeled Item 1A, "Risk Factors" in our 2020
10-K, 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" in our 2020 10-K. 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 2020 10-K 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 nuclear
fuel for the U.S. Department of Energy ("DOE")/National Nuclear Safety
Administration's Naval Nuclear Propulsion Program. In addition, we perform
fabrication activities for missile launch tubes for U.S. Navy submarines. As a
supplier of
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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 depends on the timing of maintenance
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., which was renamed BWXT Precision Manufacturing Inc. ("Precision
Manufacturing"). Precision Manufacturing is a global supplier of nuclear-grade
materials and precisely machined components for CANDU nuclear power utilities,
employs approximately 140 personnel and 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 2020 10-K. There have been no material changes to
our critical accounting policies during the six months ended June 30, 2021.
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, 2021, 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
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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, 2021 and 2020, we recognized net changes in
estimates related to contracts that recognize revenue over time, which increased
operating income by approximately $3.2 million and $11.4 million, respectively.
During the six months ended June 30, 2021 and 2020, we recognized net changes in
estimates related to contracts that recognize revenue over time, which increased
operating income by approximately $9.7 million and $21.0 million, respectively.
COVID-19 Assessment
General
We continue to monitor 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, including
arranging for the vaccination of our workforce, where possible.
To date, we have experienced localized operational challenges as a result of
employee illness, quarantines and social distancing protocols, but the severity
of these impacts have subsided significantly. Because developments related to
the spread of COVID-19 and its impacts continue to change, it is difficult to
predict any future impact at this time. We have experienced, and may experience
further, 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 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. Any number of these potential risks
could have a material adverse effect on our financial condition, results of
operations and cash flows.
Government Assistance
On March 27, 2020, the U.S. Government enacted the Coronavirus Aid, Relief and
Economic Security Act (the "CARES Act"), which, among other things, provides
employers an option to defer payroll tax payments for a limited period. Based on
our evaluation of the CARES Act, we qualify for the deferral of payroll tax
payments and as of June 30, 2021, we have deferred $21.4 million that will be
due beginning in December 2021. Additionally, 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 six months ended June 30, 2021, we recognized $3.3 million and $4.2
million of subsidies under the CEWS as an offset to operating expenses,
respectively. The Canadian Government has extended the CEWS to September 2021
with a number of modifications. These modifications are expected to
significantly decrease the amount of future claims for which we may qualify when
compared to the prior year.
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RESULTS OF OPERATIONS - THREE AND SIX MONTHS ENDED JUNE 30, 2021 VS. THREE AND
SIX MONTHS ENDED JUNE 30, 2020
Selected financial highlights are presented in the table below:
                                                Three Months Ended                                          Six Months Ended
                                                     June 30,                                                   June 30,
                                              2021               2020             $ Change              2021                 2020              $ Change
                                                                                          (In thousands)
REVENUES:
Nuclear Operations Group                  $ 381,342$ 410,252$ (28,910)$   783,410$   834,027$ (50,617)
Nuclear Power Group                         101,842             67,983             33,859              209,240              155,900             53,340
Nuclear Services Group                       30,134             33,328             (3,194)              55,617               70,093            (14,476)
Eliminations                                 (8,219)            (7,043)            (1,176)             (14,895)             (13,292)            (1,603)
                                          $ 505,099$ 504,520$     579$ 1,033,372$ 1,046,728$ (13,356)
OPERATING INCOME:
Nuclear Operations Group                  $  69,157$  85,972$ (16,815)$   143,517$   176,331$ (32,814)
Nuclear Power Group                          10,840              1,102              9,738               21,158                9,572             11,586
Nuclear Services Group                        5,760              4,122              1,638               11,507               10,522                985
Other                                        (7,246)            (5,600)            (1,646)             (13,132)             (10,959)            (2,173)
                                          $  78,511$  85,596$  (7,085)$   163,050$   185,466$ (22,416)
Unallocated Corporate                        (4,760)            (3,162)            (1,598)              (6,885)              (4,765)            (2,120)
Total Operating Income                    $  73,751$  82,434$  (8,683)$   156,165$   180,701$ (24,536)


Consolidated Results of Operations
Three months ended June 30, 2021 vs. 2020
Consolidated revenues totaled $505.1 million in the three months ended June 30,
2021 and were relatively unchanged when compared to $504.5 million in the
corresponding period of 2020. This was due to an increase in revenues in our
Nuclear Power Group segment of $33.9 million which was offset by decreases in
revenues from our Nuclear Operations Group and Nuclear Services Group segments
totaling $28.9 million and $3.2 million, respectively.
Consolidated operating income decreased $8.7 million to $73.8 million in the
three months ended June 30, 2021 compared to $82.4 million for the corresponding
period of 2020. Operating income in our Nuclear Operations Group and Other
segments decreased by $16.8 million and $1.6 million, respectively. In addition,
we experienced higher Unallocated Corporate expenses of $1.6 million when
compared to the corresponding period of 2020. These decreases were partially
offset by increases in operating income in our Nuclear Power Group and Nuclear
Services Group segments of $9.7 million and $1.6 million, respectively.
Six months ended June 30, 2021 vs. 2020
Consolidated revenues decreased 1.3%, or $13.4 million, to $1,033.4 million in
the six months ended June 30, 2021 compared to $1,046.7 million for the
corresponding period of 2020, due to decreases in revenues from our Nuclear
Operations Group and Nuclear Services Group segments totaling $50.6 million and
$14.5 million, respectively. These decreases were partially offset by an
increase in revenues in our Nuclear Power Group segment of $53.3 million.
Consolidated operating income decreased $24.5 million to $156.2 million in the
six months ended June 30, 2021 compared to $180.7 million for the corresponding
period of 2020. Operating income in our Nuclear Operations Group and Other
segments decreased by $32.8 million and $2.2 million, respectively. In addition,
we experienced higher Unallocated Corporate expenses of $2.1 million when
compared to the corresponding period of 2020. These decreases were partially
offset by increases in operating income in our Nuclear Power Group and Nuclear
Services Group segments of $11.6 million and $1.0 million, respectively.
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Nuclear Operations Group
                          Three Months Ended                            Six Months Ended
                               June 30,                                     June 30,
                         2021           2020         $ Change         2021           2020         $ Change
                                                          (In thousands)
Revenues              $ 381,342$ 410,252$ (28,910)$ 783,410$ 834,027$ (50,617)
Operating Income      $  69,157$  85,972$ (16,815)$ 143,517$ 176,331$ (32,814)
% of Revenues               18.1%          21.0%                         18.3%          21.1%


Three months ended June 30, 2021 vs. 2020
Revenues decreased 7.0%, or $28.9 million, to $381.3 million in the three months
ended June 30, 2021 compared to $410.3 million for the corresponding period of
2020. The decrease was primarily related to the timing of the procurement of
certain long-lead materials when compared to the corresponding period of 2020,
which was partially offset by additional volume in the manufacture of nuclear
components for U.S. Government programs.
Operating income decreased $16.8 million to $69.2 million in the three months
ended June 30, 2021 compared to $86.0 million for the corresponding period of
2020. The decrease was due to the operating income impact of the changes in
revenue noted above as well as higher levels of favorable contract adjustments
recorded in the corresponding period of the prior year.
Six months ended June 30, 2021 vs. 2020
Revenues decreased 6.1%, or $50.6 million, to $783.4 million in the six months
ended June 30, 2021 compared to $834.0 million for the corresponding period of
2020. The decrease was primarily related to the timing of the procurement of
certain long-lead materials when compared to the corresponding period of 2020,
which was partially offset by additional volume in the manufacture of nuclear
components for U.S. Government programs.
Operating income decreased $32.8 million to $143.5 million in the six months
ended June 30, 2021 compared to $176.3 million for the corresponding period of
2020. The decrease was due to the operating income impact of the changes in
revenue noted above as well as higher levels of favorable contract adjustments
recorded in the corresponding period of the prior year.
Nuclear Power Group
                          Three Months Ended                           Six Months Ended
                               June 30,                                    June 30,
                          2021           2020        $ Change        2021           2020         $ Change
                                                         (In thousands)
Revenues              $  101,842$ 67,983$ 33,859$ 209,240$ 155,900$ 53,340
Operating Income      $   10,840$  1,102$  9,738$  21,158$   9,572$ 11,586
% of Revenues                10.6%          1.6%                        10.1%           6.1%


Three months ended June 30, 2021 vs. 2020
Revenues increased 49.8%, or $33.9 million, to $101.8 million in the three
months ended June 30, 2021 compared to $68.0 million for the corresponding
period of 2020. The increase was primarily related to higher levels of in-plant
inspection, maintenance and modification services totaling $18.8 million as well
as additional volume related to the fabrication of nuclear fuel and nuclear fuel
handling capabilities when compared to the same period in the prior year. We
also experienced an increase in revenues in our medical radioisotopes business
as demand began to return following the COVID-19 related declines experienced in
the prior year.
Operating income increased $9.7 million to $10.8 million in the three months
ended June 30, 2021 compared to $1.1 million for the corresponding period of
2020, due to the operating income impact of the changes in revenue noted above.
In addition, we received $3.3 million of wage subsidies under the CEWS to offset
the effects of COVID-19 on our Canadian operations.
Six months ended June 30, 2021 vs. 2020
Revenues increased 34.2%, or $53.3 million, to $209.2 million in the six months
ended June 30, 2021 compared to $155.9 million for the corresponding period of
2020. The increase was primarily related to higher levels of in-plant
inspection,
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maintenance and modification services totaling $41.8 million as well as
increases in revenues in our parts manufacturing and nuclear fuel handling
businesses when compared to the same period in the prior year. This was
partially offset by lower activity in our nuclear components business of $10.8
million, primarily associated with a major steam generator design and supply
contract.
Operating income increased $11.6 million to $21.2 million in the six months
ended June 30, 2021 compared to $9.6 million for the corresponding period of
2020, due to the operating income impact of the changes in revenue noted above.
In addition, we received $4.2 million of wage subsidies under the CEWS to offset
the effects of COVID-19 on our Canadian operations.
Nuclear Services Group
                          Three Months Ended                          Six Months Ended
                               June 30,                                   June 30,
                          2021           2020        $ Change        2021          2020        $ Change
                                                        (In thousands)
Revenues              $   30,134$ 33,328$ (3,194)$ 55,617$ 70,093$ (14,476)
Operating Income      $    5,760$  4,122$  1,638$ 11,507$ 10,522$     985
% of Revenues                19.1%         12.4%                       20.7%         15.0%


Three months ended June 30, 2021 vs. 2020
Revenues decreased 9.6%, or $3.2 million, to $30.1 million in the three months
ended June 30, 2021 compared to $33.3 million for the corresponding period of
2020, primarily attributable to lower revenues at our Naval Reactors
decommissioning and decontamination project due to the completion of several
portions of the contract in the third quarter of 2020. These decreases were
partially offset by an increase in design and engineering work executed by our
advanced technologies business.
Operating income increased $1.6 million to $5.8 million in the three months
ended June 30, 2021 compared to $4.1 million for the corresponding period of
2020 due to higher fee income at several of our sites which was partially offset
by the operating income impact associated with the decline in revenues at our
Naval Reactors decommissioning and decontamination project.
Six months ended June 30, 2021 vs. 2020
Revenues decreased 20.7%, or $14.5 million, to $55.6 million in the six months
ended June 30, 2021 compared to $70.1 million for the corresponding period of
2020, primarily attributable to the divestiture of our U.S.-based commercial
nuclear services business during the second quarter of 2020 and lower revenues
at our Naval Reactors decommissioning and decontamination project. These
decreases were partially offset by an increase in design and engineering work
executed by our advanced technologies business.
Operating income increased $1.0 million to $11.5 million in the six months ended
June 30, 2021 compared to $10.5 million for the corresponding period of 2020 due
to higher fee income at several of our sites which was partially offset by the
operating income impact associated with the decline in revenues noted above.
Other
                          Three Months Ended                           Six Months Ended
                               June 30,                                    June 30,
                          2021           2020        $ Change        2021           2020         $ Change
                                                         (In thousands)
Operating Income      $   (7,246)$ (5,600)$ (1,646)$ (13,132)$ (10,959)$ (2,173)


Operating income decreased $1.6 million and $2.2 million in the three and six
months ended June 30, 2021, respectively, compared to the corresponding periods
of 2020, primarily due to an increase in costs associated with the
commercialization of our new medical radioisotope technology. This was partially
offset by a decrease in research and development related activities.
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Unallocated Corporate
Unallocated corporate expenses increased $1.6 million and $2.1 million in the
three and six months ended June 30, 2021, respectively, compared to the
corresponding periods of 2020, primarily due to the timing of healthcare costs
which was partially offset by a decrease in legal and consulting costs
associated with due diligence activities conducted in the prior year.
Provision for Income Taxes
                                             Three Months Ended                                       Six Months Ended
                                                  June 30,                                                June 30,
                                           2021               2020            $ Change             2021               2020             $ Change
                                                                                     (In thousands)
Income before Provision for
Income Taxes                           $   78,931$ 84,080

$ (5,149)$ 170,824$ 182,528$ (11,704) Provision for Income Taxes

             $   19,522$ 19,684

$ (162)$ 41,600$ 42,512$ (912) Effective Tax Rate

                             24.7%             23.4%                                24.4%              23.3%


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, 2021 was 24.7% as
compared to 23.4% for the three months ended June 30, 2020. Our effective tax
rate for the six months ended June 30, 2021 was 24.4% as compared to 23.3% for
the six months ended June 30, 2020. The effective tax rates for the three and
six months ended June 30, 2021 and 2020 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, 2021 and 2020 were
favorably impacted by excess tax benefits recognized related to employee
share-based payments of $0.2 million and $0.9 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,
                                    2021                2020
                                   (In approximate millions)
Nuclear Operations Group      $     4,133$       3,659
Nuclear Power Group                   674                    726
Nuclear Services Group                 42                     21
Total Backlog                 $     4,849$       4,406

We do not include the value of our unconsolidated joint venture contracts in backlog. These unconsolidated joint ventures are included in our Nuclear Services Group segment.

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Of the backlog at June 30, 2021, we expect to recognize revenues as follows:
                                2021         2022        Thereafter        Total
                                           (In approximate millions)
Nuclear Operations Group      $   825$ 1,235$     2,073$ 4,133
Nuclear Power Group               179          202              293          674
Nuclear Services Group             36            6                -           42
Total Backlog                 $ 1,040$ 1,443$     2,366$ 4,849


At June 30, 2021, our Nuclear Operations Group segment's backlog with the U.S.
Government was $3,754.8 million, $94.5 million of which had not yet been funded.
At June 30, 2021, our Nuclear Power Group segment had no backlog with the U.S.
Government.
At June 30, 2021, our Nuclear Services Group segment's backlog with the U.S.
Government was $41.2 million, all of which was funded.
Major new awards from the U.S. Government are typically received following
Congressional approval of the budget for the U.S. Government's next fiscal year,
which starts October 1, and may not be awarded to us before the end of the
calendar year. Due to the fact that most contracts awarded by the U.S.
Government are subject to these annual funding approvals, the total values of
the underlying programs are significantly larger. In March 2021, we received
awards from the U.S. Government with a combined value of $2.2 billion, inclusive
of unexercised options, approximately $1.1 billion of which had been added to
backlog as of June 30, 2021.
The value of unexercised options excluded from backlog as of June 30, 2021,
including previous awards, was approximately $1.5 billion. Approximately $1.0
billion of these unexercised options are expected to be awarded in 2021, with
the remaining balance to be exercised through 2024, subject to annual
Congressional appropriations.
Liquidity and Capital Resources
Credit Facility
On March 24, 2020, we entered into an Amendment No. 1 to Credit Agreement, which
amended the Credit Agreement dated as of May 24, 2018 (as amended, the "Credit
Facility") with Wells Fargo Bank, N.A., as administrative agent, and the other
lenders party thereto. The Credit Facility provides for a $750 million senior
secured revolving credit facility (the "Revolving Credit Facility"). All
obligations under the Revolving Credit Facility are scheduled to mature on March
24, 2025. The proceeds of loans under the Revolving Credit Facility are
available for working capital needs, permitted acquisitions and other general
corporate purposes.
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 its Nuclear Operations Group
segment and a portion of its Nuclear 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
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respect to debt, liens, investments, mergers, acquisitions, dividends, equity
repurchases and asset sales. As of June 30, 2021, 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 at June 30, 2021, 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 of June 30, 2021, borrowings and letters of credit issued under the Revolving
Credit Facility totaled $0.0 million and $29.5 million, respectively. As a
result, as of June 30, 2021 we had $720.5 million available under the Revolving
Credit Facility for borrowings and to meet letter of credit requirements.
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
On July 15, 2021, using cash on hand and borrowings under our credit facility,
we redeemed the $400 million aggregate principal amount outstanding of our
5.375% senior notes due 2026 (the "Senior Notes due 2026") at a redemption price
equal to 102.688% of the principal amount, resulting in an early redemption
premium of $10.8 million and the write-off of deferred financing costs totaling
$4.2 million. These charges will be recorded in our condensed consolidated
statement of income during the three months ending September 30, 2021. As of
June 30, 2021, the Senior Notes due 2026 were classified as current on our
condensed consolidated balance sheet.
Senior Notes due 2028
We issued $400 million aggregate principal amount of 4.125% senior notes due
2028 (the "Senior Notes due 2028") pursuant to an indenture dated June 12, 2020
(the "2020 Indenture"), among the Company, certain of our subsidiaries, as
guarantors, and U.S. Bank National Association, as trustee. 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 on June 30 and December 30 of each year at a rate of 4.125% per annum.
The Senior Notes due 2028 will mature on June 30, 2028.
We may redeem the Senior Notes due 2028, in whole or in part, at any time on or
after June 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 on June 30, 2023, (ii) 101.031% of the principal amount to be redeemed
if the redemption occurs during the twelve-month period beginning on June 30,
2024 and (iii) 100.0% of the principal amount to be redeemed if the redemption
occurs on or after June 30, 2025, in each case plus accrued and unpaid interest,
if any, to, but excluding, the redemption date. At any time prior to June 30,
2023, we 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 to June 30, 2023, we 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.
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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 of June 30, 2021, we were in compliance with
all covenants set forth in the 2020 Indenture and the Senior Notes due 2028.
Senior Notes due 2029
We issued $400 million aggregate principal amount of 4.125% Senior Notes due
2029 (the "Senior Notes due 2029") pursuant to an indenture dated April 13, 2021
(the "2021 Indenture"), among the Company, certain of our subsidiaries, as
guarantors, and U.S. Bank National Association, as trustee. The Senior Notes due
2029 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 2029 is payable semi-annually in cash in
arrears on April 15 and October 15 of each year, commencing on October 15, 2021,
at a rate of 4.125% per annum. The Senior Notes due 2029 will mature on April
15, 2029.
We may redeem the Senior Notes due 2029, in whole or in part, at any time on or
after April 15, 2024 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 on April 15, 2024, (ii) 101.031% of the principal amount to be
redeemed if the redemption occurs during the twelve-month period beginning on
April 15, 2025 and (iii) 100.0% of the principal amount to be redeemed if the
redemption occurs on or after April 15, 2026, in each case plus accrued and
unpaid interest, if any, to, but excluding, the redemption date. At any time
prior to April 15, 2024, we may also redeem up to 40.0% of the Senior Notes due
2029 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 2029 to be
redeemed, plus accrued and unpaid interest, if any, to, but excluding, the
redemption date. In addition, at any time prior to April 15, 2024, we may redeem
the Senior Notes due 2029, in whole or in part, at a redemption price equal to
100.0% of the principal amount of the Senior Notes due 2029 to be redeemed, plus
accrued and unpaid interest, if any, to, but excluding, the redemption date plus
an applicable "make-whole" premium.
The 2021 Indenture contains customary events of default, including, among other
things, payment default, failure to comply with covenants or agreements
contained in the 2021 Indenture or the Senior Notes due 2029 and certain
provisions related to bankruptcy events. The 2021 Indenture also contains
customary negative covenants. As of June 30, 2021, we were in compliance with
all covenants set forth in the 2021 Indenture and the Senior Notes due 2029.
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 of June 30, 2021, bonds issued and outstanding under these arrangements
totaled approximately $111.2 million.
Long-term Benefit Obligations
As of June 30, 2021, we had underfunded defined benefit pension and
postretirement benefit plans with obligations totaling approximately $151.3
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 $3.1
million for the remainder of 2021 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.
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Other
Our domestic and foreign cash and cash equivalents, restricted cash and cash
equivalents and investments as of June 30, 2021 and December 31, 2020 were as
follows:
               June 30,       December 31,
                 2021             2020
                      (In thousands)
Domestic      $ 188,569$      31,376
Foreign          21,300             29,985
Total         $ 209,869$      61,361


Our working capital decreased by $122.9 million to $121.0 million at June 30,
2021 from $243.9 million at December 31, 2020, due to the reclassification of
our Senior Notes due 2026 to current, net of cash proceeds from the issuance of
the Senior Notes due 2029. This decrease was partially offset by changes in
contracts in progress and advanced billings due to the timing of project cash
flows and a decrease in accounts payable associated with the timing of vendor
payments.
Our net cash provided by operating activities increased by $2.7 million to
$158.3 million in the six months ended June 30, 2021, compared to $155.6 million
in the six months ended June 30, 2020. The increase in cash provided by
operating activities was primarily attributable to the timing of project cash
flows, partially offset by the timing of income tax payments compared to the
prior year.
Our net cash used in investing activities increased by $40.2 million to $169.6
million in the six months ended June 30, 2021, compared to $129.4 million in the
six months ended June 30, 2020. The increase in cash used in investing
activities was primarily attributable to an increase in purchases of property,
plant and equipment of $54.7 million, partially offset by a $16.2 million
decrease attributable to our acquisition of Precision Manufacturing in the six
months ended June 30, 2020.
Our net cash provided by financing activities increased by $209.8 million to
$159.4 million in the six months ended June 30, 2021, compared to cash used in
financing activities of $50.4 million in the six months ended June 30, 2020. The
increase in cash provided by financing activities was primarily attributable to
an increase in net borrowings of long-term debt of $310.2 million, partially
offset by the repayment of bank overdrafts of $88.7 million.
At June 30, 2021, we had restricted cash and cash equivalents totaling $5.8
million, $2.7 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.
At June 30, 2021, we had short-term and long-term investments with a fair value
of $13.4 million. Our investment portfolio consists primarily of U.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.

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