| Basis of Presentation and Significant Accounting Policies | NOTE 1 – BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING
POLICIES
We have presented the consolidated financial statements of BWX
Technologies, Inc. (“BWXT”) (formerly known as The
Babcock & Wilcox Company) in U.S. dollars in accordance
with accounting principles generally accepted in the United States
(“GAAP”).
We use the equity method to account for investments in entities
that we do not control, but over which we have the ability to
exercise significant influence. We generally refer to these
entities as “joint ventures.” We have eliminated all
intercompany transactions and accounts. We have reclassified
certain amounts previously reported to conform to the presentation
at December 31, 2015 and for the year ended December 31,
2015. We present the notes to our consolidated financial statements
on the basis of continuing operations, unless otherwise stated.
Unless the context otherwise indicates, “we,”
“us” and “our” mean BWXT and its
consolidated subsidiaries.
Spin-off
On June 30, 2015, we completed the spin-off of our former
Power Generation business (the “spin-off”) into an
independent, publicly traded company named Babcock &
Wilcox Enterprises, Inc. (“BWE”). The separation was
effected through a pro rata distribution of 100% of BWE’s
common stock to BWXT’s stockholders. The distribution of BWE
common stock consisted of one share of BWE common stock for every
two shares of BWXT common stock to holders of our common stock on
the record date of June 18, 2015. Cash was paid in lieu of any
fractional shares of BWE common stock. Following the spin-off, BWXT
did not retain any ownership interest in BWE. Prior to
June 30, 2015, we completed an internal restructuring that
reorganized the subsidiaries involved in our former Power
Generation business and established BWE as the direct or indirect
parent company of those subsidiaries. Concurrent with the spin-off,
The Babcock & Wilcox Company was renamed BWX Technologies,
Inc. The results of operations of our former Power Generation
business are presented as discontinued operations on the condensed
consolidated statements of income. See Note 2 for further
information regarding the spin-off of BWE.
Reportable Segments
We operate in three reportable segments: Nuclear Operations,
Technical Services and Nuclear Energy. Our former Power Generation
business is now reported as discontinued operations. Prior to 2015,
our mPower business was a separate reportable segment. In
accordance with FASB Topic Segment Reporting
•
Our Nuclear Operations segment manufactures naval nuclear
reactors for the U.S. Department of Energy
(“DOE”)/National Nuclear Security
Administration’s (“NNSA”) Naval Nuclear
Propulsion Program, which in turn supplies them to the U.S. Navy
for use in submarines and aircraft carriers. Through this segment,
we own and operate manufacturing facilities located in Lynchburg,
Virginia; Mount Vernon, Indiana; Euclid, Ohio; Barberton, Ohio; and
Erwin, Tennessee. The Barberton and Mount Vernon locations
specialize in the design and manufacture of heavy components. The
Euclid facility, which is N-Stamp certified by the American Society
of Mechanical Engineers, fabricates electro-mechanical equipment
for the U.S. Government, and performs design, manufacturing,
inspection, assembly and testing activities. The Lynchburg
operations fabricate fuel-bearing precision components that range
in weight from a few grams to hundreds of tons. In-house
capabilities also include wet chemistry uranium processing,
advanced heat treatment to optimize component material properties
and a controlled, clean-room environment with the capacity to
assemble railcar-size components. Fuel for the naval nuclear
reactors is provided by Nuclear Fuel Services, Inc.
(“NFS”), one of our wholly owned subsidiaries. Located
in Erwin, Tennessee, NFS also converts Cold War-era government
stockpiles of highly enriched uranium into material suitable for
further processing into commercial nuclear reactor fuel.
• Our Technical Services segment
provides various services to the U.S. Government, including uranium
processing, environmental site restoration services and management
and operating services for various U.S. Government-owned
facilities. These services are provided to the DOE including the
NNSA, the Office of Nuclear Energy, the Office of Science, and the
Office of Environmental Management; the Department of Defense and
NASA. Through this segment we deliver products and management
solutions to nuclear operations and high-consequence manufacturing
facilities. A significant portion of this segment’s
operations are conducted through joint ventures.
• Our Nuclear Energy segment supplies
commercial nuclear steam generators and components to nuclear
utility customers. BWXT has supplied the nuclear industry with more
than 1,300 large, heavy components worldwide. This segment is the
only heavy nuclear component, N-Stamp certified manufacturer in
North America. Our Nuclear Energy segment fabricates pressure
vessels, reactors, steam generators, heat exchangers and other
auxiliary equipment. This segment also provides specialized
engineering services that include structural component design, 3-D
thermal-hydraulic engineering analysis, weld and robotic process
development and metallurgy and materials engineering. In addition,
this segment offers services for nuclear steam generators and
balance of plant equipment, as well as nondestructive examination
and tooling/repair solutions for other plant systems and
components. This segment also offers engineering and licensing
services for new nuclear plant designs.
For financial information about our segments, see Note 16 to our
consolidated financial statements included in this report.
Use of Estimates
We use estimates and assumptions to prepare our financial
statements in conformity with GAAP. Some of our more significant
estimates include our estimate of costs to complete long-term
construction contracts, estimates we make in selecting assumptions
related to the valuations of our pension and postretirement plans,
including the selection of our discount rates, mortality and
expected rates of return on our pension plan assets, and estimates
of costs to be incurred to satisfy contractual warranty
requirements. These estimates and assumptions affect the amounts we
report in our financial statements and accompanying notes. Our
actual results could differ from these estimates. Variances could
result in a material effect on our financial condition and results
of operations in future periods.
Earnings Per Share
We have computed earnings per common share on the basis of the
weighted average number of common shares, and, where dilutive,
common share equivalents, outstanding during the indicated periods.
We issue from time to time a number of forms of stock-based
compensation, including incentive and non-qualified stock options,
restricted stock, restricted stock units and performance shares and
performance units, subject to satisfaction of specific performance
goals. We include the shares applicable to these plans in dilutive
earnings per share when related performance criteria have been
met.
Investments
Our investment portfolio consists primarily of highly liquid money
market instruments, bonds and equities. Our investments 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 the unrealized gains and losses, net of tax, reported as a
component of accumulated other comprehensive income. We classify
investments available for current operations in the consolidated
balance sheets as current assets, while we classify investments
held for long-term purposes as noncurrent assets. We adjust the
amortized cost of debt securities for amortization of premiums and
accretion of discounts to maturity. That amortization is included
in interest income. We include realized gains and losses on our
investments in other – net. The cost of securities sold is
based on the specific identification method. We include interest on
securities in interest income.
Foreign Currency Translation
We translate assets and liabilities of our foreign operations into
U.S. dollars at current exchange rates, and we translate income
statement items at average exchange rates for the periods
presented. We record adjustments resulting from the translation of
foreign currency financial statements as a component of accumulated
other comprehensive income. We report foreign currency transaction
gains and losses in income. We have included in other – net
transaction gains (losses) of $(1.7) million, $0.1 million and $0.0
million for the years ended December 31, 2015, 2014 and 2013,
respectively.
Contracts and Revenue Recognition
We generally recognize contract revenues and related costs on a
percentage-of-completion method for individual contracts or
combinations of contracts based on work performed, man hours or a
cost-to-cost method, as applicable to the product or activity
involved. We recognize estimated contract revenue and resulting
income based on the measurement of the extent of progress
completion as a percentage of the total project. Certain costs may
be excluded from the cost-to-cost method of measuring progress,
such as significant costs for materials and major third-party
subcontractors, if it appears that such exclusion would result in a
more meaningful measurement of actual contract progress and
resulting periodic allocation of income. We include revenues and
related costs so recorded, plus accumulated contract costs that
exceed amounts invoiced to customers under the terms of the
contracts, in contracts in progress. We include in advance billings
on contracts billings that exceed accumulated contract costs and
revenues and costs recognized under the percentage-of-completion
method. Most long-term contracts contain provisions for progress
payments. Our unbilled receivables do not contain an allowance for
credit losses as we expect to invoice customers and collect all
amounts for unbilled revenues. We review contract price and cost
estimates periodically as the work progresses and reflect
adjustments proportionate to the percentage-of-completion in income
in the period when those estimates are revised. For all contracts,
if a current estimate of total contract cost indicates a loss on a
contract, the projected loss is recognized in full when
determined.
For contracts as to which we are unable to estimate the final
profitability except to assure that no loss will ultimately be
incurred, we recognize equal amounts of revenue and cost until the
final results can be estimated more precisely. For these deferred
profit recognition contracts, we recognize revenue and cost equally
and only recognize gross margin when probable and reasonably
estimable, which we generally determine to be when the contract is
approximately 70% complete. We treat long-term construction
contracts that contain such a level of risk and uncertainty that
estimation of the final outcome is impractical, except to assure
that no loss will be incurred, as deferred profit recognition
contracts.
Our policy is to account for fixed-price contracts under the
completed-contract method if we believe that we are unable to
reasonably forecast cost to complete at start-up. Under the
completed-contract method, income is recognized only when a
contract is completed or substantially complete.
Variations from estimated contract performance could result in
material adjustments to operating results for any fiscal quarter or
year. We include claims for extra work or changes in scope of work
to the extent of costs incurred in contract revenues when we
believe collection is probable. In the year ended December 31,
2014, we executed a change order in our Nuclear Operations segment
that increased the value of existing contracts by $70.5 million. We
recognized $46.4 million of revenue for the cumulative effect of
this contract change, as well as $25.8 million in cost of
operations for the recognition of the associated costs being
recovered during 2014. The impact of the executed change order
increased diluted earnings per share by $0.12.
The following represent the components of our contracts in progress
and advance billings on contracts included in our consolidated
balance sheets:
December 31,
2015 2014
(In
thousands)
Included in Contracts in Progress:
Costs incurred less costs of revenue recognized $ 36,029 $ 149,627
Revenues recognized less billings to customers 229,741 140,995
Contracts In Progress $ 265,770 $ 290,622
Included In Advance Billings on Contracts:
Billings to customers less revenues recognized $ 209,957 $ 130,247
Costs incurred less costs of revenue recognized (71,399 ) (22,810 )
Advance Billings on Contracts $ 138,558 $ 107,437
The following amounts represent retainages on contracts:
December 31,
2015 2014
(In
thousands)
Retainages expected to be collected within one year $ 97,577 $ 83,890
Retainages expected to be collected after one year 1,740 1,731
Total retainages $ 99,317 $ 85,621
We have included retainages expected to be collected in 2016 in
accounts receivable – trade, net. Retainages expected to be
collected after one year are included in other assets. Of the
long-term retainages at December 31, 2015, we anticipate
collecting $0.4 million in 2017 and $1.3 million in 2018.
Comprehensive Income
The components of accumulated other comprehensive income included
in stockholders’ equity are as follows:
December 31,
2015 2014
(In
thousands)
Currency translation adjustments $ 7,820 $ 11,547
Net unrealized gain (loss) on available-for-sale investments (49 ) 155
Net unrealized loss on derivative financial instruments (688 ) (123 )
Unrecognized prior service cost on benefit obligations (6,331 ) (7,983 )
Accumulated other comprehensive income $ 752 $ 3,596
The amounts reclassified out of accumulated other comprehensive
income by component and the affected consolidated statements of
income line items are as follows:
Year ended
December 31,
2015 2014 2013
Accumulated Other Comprehensive Income
Component Recognized (In
thousands)
Line Item Presented
Realized (loss) gain on derivative financial instruments $ 455 $ 683 $ (1,600 ) Revenues
(6,259 ) (2,798 ) (2,174 ) Cost of operations
(5,804 ) (2,115 ) (3,774 ) Total before tax
1,492 546 972 Provision for Income Taxes
$ (4,312 ) $ (1,569 ) $ (2,802 ) Net Income
Amortization of prior service cost on benefit obligations $ (1,508 ) $ (2,975 ) $ (2,041 ) Cost of operations
(35 ) (1,795 ) (197 ) Selling, general and
administrative expenses
(1,543 ) (4,770 ) (2,238 ) Total before tax
501 1,362 752 Provision for Income Taxes
$ (1,042 ) $ (3,408 ) $ (1,486 ) Net Income
Realized gains on investments $ 343 $ 172 $ 799 Other-net
(123 ) (61 ) (30 ) Provision for Income Taxes
$ 220 $ 111 $ 769 Net Income
Total reclassification for the period $ (5,134 ) $ (4,866 ) $ (3,519 )
Warranty Expense
We accrue estimated expense included in cost of operations on our
consolidated statements of income to satisfy contractual warranty
requirements when we recognize the associated revenue on the
related contracts. In addition, we record specific provisions or
reductions where we expect the actual warranty costs to
significantly differ from the accrued estimates. Such changes could
have a material effect on our consolidated financial condition,
results of operations and cash flows.
The following summarizes the changes in the carrying amount of
accrued warranty expense:
Year Ended
December 31,
2015 2014 2013
(In
thousands)
Balance at beginning of period $ 15,889 $ 17,469 $ 25,343
Additions 1,223 1,268 2,018
Expirations and other changes (1) (2,551 ) (2,342 ) (9,073 )
Payments (130 ) (20 ) (65 )
Translation and other (889 ) (486 ) (754 )
Balance at end of period $ 13,542 $ 15,889 $ 17,469
(1) Includes discounts provided to
customers in satisfaction of warranty obligations totaling $1.2
million in each of the years ended December 31, 2015, 2014 and
2013.
Asset Retirement Obligations and Environmental Clean-up
Costs
We accrue for future decommissioning of our nuclear facilities that
will permit the release of these facilities to unrestricted use at
the end of each facility’s life, which is a requirement of
our licenses from the NRC. In accordance with the FASB Topic
Asset Retirement and Environmental Obligations,
Substantially all of our asset retirement obligations relate to the
remediation of our nuclear analytical laboratory and the NFS
facility in our Nuclear Operations segment. The following table
reflects our asset retirement obligations:
Year Ended
December 31,
2015 2014 2013
(In
thousands)
Balance at beginning of period $ 47,811 $ 44,771 $ 42,366
Additions/Adjustments 832 418 (109 )
Accretion 2,158 2,622 2,514
Distributed in connection with the spin-off (287 )
—
—
Balance at end of period $ 50,514 $ 47,811 $ 44,771
Research and Development
Our research and development activities are related to the
development and improvement of new and existing products and
equipment, as well as conceptual and engineering evaluation for
translation into practical applications. We charge the costs of
research and development unrelated to specific contracts as
incurred. Excluding customer-sponsored research and development,
substantially all of these costs are related to our mPower program
for the development of our BWXT mPower™ reactor and the
associated power plant. Contractual arrangements for
customer-sponsored research and development can vary on a
case-by-case basis and include contracts, cooperative agreements
and grants. Research and development activities totaled $38.2
million, $124.3 million and $179.2 million in the years ended
December 31, 2015, 2014 and 2013, respectively. This includes
amounts paid for by our customers of $27.7 million, $41.7 million
and $42.6 million, in the years ended December 31, 2015, 2014
and 2013, respectively, and DOE funds provided under the Funding
Program of $27.8 million and $78.4 million in the years ended
December 31, 2014 and 2013, respectively. Amounts provided
under the Funding Program in the year ended December 31, 2013
include $21.5 million of pre-award cost reimbursement, $9.7 million
of which related to research and development costs incurred in the
year ended December 31, 2012.
During the years ended December 31, 2014 and 2013, we
recognized $5.8 million and $15.8 million, respectively, of
non-cash in-kind research and development costs (included above)
related to services contributed by our minority partner to GmP, our
majority-owned subsidiary formed in 2011 to oversee the program to
develop the small modular nuclear power plant based on BWXT
mPower™ technology.
Pension Plans and Postretirement Benefits
We sponsor various defined benefit pension and postretirement plans
covering certain employees of our U.S. and Canadian subsidiaries.
We utilize actuarial valuations to calculate the cost and benefit
obligations of our pension and postretirement benefits. The
actuarial valuations utilize significant assumptions in the
determination of our benefit cost and obligations, including
assumptions regarding discount rates, expected returns on plan
assets, mortality and health care cost trends. We determine our
discount rate based on a yield curve comprised of rates of return
on high-quality, fixed-income investments currently available and
expected to be available during the period to maturity of our
pension and postretirement plan obligations. The expected rate of
return on plan assets assumption is based on capital market
assumptions of the long-term expected returns for the investment
mix of assets currently in the portfolio. The expected rate of
return on plan assets is determined to be the weighted average of
the nominal returns based on the weightings of the classes within
the total asset portfolio. Expected health care cost trends
represent expected annual rates of change in the cost of health
care benefits and are estimated based on analysis of health care
cost inflation. For the year ended December 31, 2014, we
adjusted the mortality assumption for our domestic plans to reflect
mortality improvements identified by the Society of Actuaries,
adjusted for BWXT’s experience.
The components of benefit cost related to service cost, interest
cost, expected return on plan assets and prior service cost
amortization are recorded on a quarterly basis based on actuarial
assumptions. In the fourth quarter of each year, or as interim
remeasurements are required, we immediately recognize net actuarial
gains and losses into earnings as a component of net periodic
benefit cost. Recognized net actuarial gains and losses consist
primarily of our reported actuarial gains and losses and the
difference between the actual return on plan assets and the
expected return on plan assets.
We recognize the funded status of each plan as either an asset or a
liability in the consolidated balance sheets. The funded status is
the difference between the fair value of plan assets and the
present value of its benefit obligation, determined on a
plan-by-plan basis. Our pension plan assets can include assets that
are difficult to value. See Note 7 for a detailed description of
our plan assets.
Income Taxes
Income tax expense for federal, foreign, state and local income
taxes are calculated on pre-tax income based on current tax law and
includes the cumulative effect of any changes in tax rates from
those used previously in determining deferred tax assets and
liabilities. Beginning in the second quarter of 2015, we began
recognizing our consolidated income tax provision based on the U.S.
federal statutory rate of 35% due to the presumed repatriation of
our Canadian earnings. We record a valuation allowance to reduce
our deferred tax assets to the amount that is more likely than not
to be realized. We assess deferred taxes and the adequacy of the
valuation allowance on a quarterly basis. In the ordinary course of
business there is inherent uncertainty in quantifying our income
tax positions. We assess our income tax positions and record tax
benefits for all years subject to examination based upon
management’s evaluation of the facts, circumstances and
information available at the reporting date. For those tax
positions where it is more likely than not that a tax benefit will
be sustained, we have recorded the largest amount of tax benefit
with a greater than 50% likelihood of being realized upon ultimate
settlement with a taxing authority that has full knowledge of all
relevant information. For those income tax positions where it is
not more likely than not that a tax benefit will be sustained, no
tax benefit has been recognized in the financial statements. We
record interest and penalties (net of any applicable tax benefit)
related to income taxes as a component of provision for income
taxes on our consolidated statements of income.
Inventories
We carry our inventory at the lower of cost or market. At
December 31, 2015 and 2014, we had inventories totaling $7.3
million and $9.9 million, respectively, consisting entirely of raw
materials and supplies.
Property, Plant and Equipment
We carry our property, plant and equipment at depreciated cost,
less any impairment provisions. We depreciate our property, plant
and equipment using the straight-line method over estimated
economic useful lives of eight to 33 years for buildings and three
to 14 years for machinery and equipment. Our depreciation expense
was $55.3 million, $72.1 million and $42.6 million for the years
ended December 31, 2015, 2014 and 2013, respectively. We
expense the costs of maintenance, repairs and renewals that do not
materially prolong the useful life of an asset as we incur
them.
Property, plant and equipment is stated at cost and is set forth
below:
December 31,
2015 2014
(In
thousands)
Land $ 8,589 $ 8,568
Buildings 146,028 141,927
Machinery and equipment 635,394 668,309
Property under construction 56,925 62,044
846,936 880,848
Less accumulated depreciation 578,092 573,048
Net Property, Plant and Equipment $ 268,844 $ 307,800
Investments in Unconsolidated Affiliates
We use the equity method of accounting for affiliates in which we
are able to exert significant influence. Currently, substantially
all of our material investments in affiliates that are not
consolidated are recorded using the equity method. Affiliates in
which our investment ownership is less than 20% and where we are
unable to exert significant influence are carried at cost.
Goodwill
Goodwill represents the excess of the cost of our acquired
businesses over the fair value of the net assets acquired. We
perform testing of goodwill for impairment annually. We may elect
to perform a qualitative test when we believe that there is
sufficient excess fair value over carrying value based on our most
recent quantitative assessment, adjusted for relevant events and
circumstances that could affect fair value during the current year.
If we conclude based on this assessment that it is more likely than
not that the reporting unit is not impaired, we do not perform a
quantitative impairment test. In all other circumstances, we
utilize a two-step quantitative impairment test to identify
potential goodwill impairment and measure the amount of any
goodwill impairment. The first step of the test compares the fair
value of a reporting unit with its carrying amount, including
goodwill. If the carrying amount of a reporting unit exceeds its
fair value, the second step of the goodwill impairment test is
performed to measure the amount of the impairment loss, if any. The
second step compares the implied fair value of the reporting
unit’s goodwill with the carrying amount of that
goodwill.
The following summarizes the changes in the carrying amount of
goodwill:
Nuclear Technical Nuclear Energy Total
(In
thousands)
Balance at December 31, 2013 $ 118,103 $ 45,000 $ 13,975 $ 177,078
Currency translation adjustments and other (1) (7,164 )
—
— (7,164 )
Balance at December 31, 2014 $ 110,939 $ 45,000 $ 13,975 $ 169,914
Currency translation adjustments and other
—
— (1,480 ) (1,480 )
Balance at December 31, 2015 $ 110,939 $ 45,000 $ 12,495 $ 168,434
(1) Includes adjustments resulting from
acquisitions occurring prior to December 31, 2013 of $(7.2)
million.
Intangible Assets
Intangible assets are recognized at fair value when acquired.
Intangible assets with definite lives are amortized to operating
expense using the straight-line method over their estimated useful
lives and tested for impairment when events or changes in
circumstances indicate that their carrying amounts may not be
recoverable. Intangible assets with indefinite lives are not
amortized and are subject to annual impairment testing. We may
elect to perform a qualitative assessment when testing indefinite
lived intangible assets for impairment to determine whether events
or circumstances affecting significant inputs related to the most
recent quantitative evaluation have occurred, indicating that it is
more likely than not that the indefinite lived intangible asset is
impaired. Otherwise, we test indefinite lived intangible assets for
impairment by quantitatively determining the fair value of the
indefinite lived intangible asset and comparing the fair value of
the intangible asset to its carrying amount. If the carrying amount
of the intangible asset exceeds its fair value, we recognize
impairment for the amount of the difference. Our intangible assets
are as follows:
Year Ended
December 31,
2015 2014 2013
(In
thousands)
Amortized intangible assets:
Gross cost:
Customer relationships $ 20,790 $ 20,790 $ 20,790
Tradename 1,500 1,500 8,360
Unpatented technology 4,400 4,400 4,400
All other 2,200 2,200 2,200
Total $ 28,890 $ 28,890 $ 35,750
Accumulated amortization:
Customer relationships $ (9,313 ) $ (8,224 ) $ (7,129 )
Tradename (1,125 ) (975 ) (6,542 )
Unpatented technology (3,312 ) (2,872 ) (2,438 )
All other (642 ) (422 ) (201 )
Total $ (14,392 ) $ (12,493 ) $ (16,310 )
Net amortized intangible assets $ 14,498 $ 16,397 $ 19,440
Unamortized intangible assets:
NRC category 1 license $ 43,830 $ 43,830 $ 43,830
The following summarizes the changes in the carrying amount of
intangible assets:
Year Ended
December 31,
2015 2014 2013
(In
thousands)
Balance at beginning of period $ 60,227 $ 63,270 $ 65,105
Business acquisitions and adjustments
—
— 2,200
Amortization expense (1,899 ) (3,043 ) (4,035 )
Balance at end of period $ 58,328 $ 60,227 $ 63,270
Estimated amortization expense for the next five fiscal years is as
follows (in thousands):
Year Ending December 31, Amount
2016 $ 1,899
2017 $ 1,899
2018 $ 1,555
2019 $ 1,209
2020 $ 1,209
Other Non-Current Assets
We have included deferred debt issuance costs in other assets. We
amortize deferred debt issuance costs as interest expense over the
life of the related debt. The following summarizes the changes in
the carrying amount of these assets:
Year Ended
December 31,
2015 2014 2013
(In
thousands)
Balance at beginning of period $ 9,921 $ 6,502 $ 8,405
Additions 4,893 5,473
—
Interest expense – debt issuance costs (1,852 ) (2,054 ) (1,903 )
Distributed in connection with the spin-off (6,221 )
—
—
Balance at end of period $ 6,741 $ 9,921 $ 6,502
Capitalization of Interest Cost
We capitalize interest in accordance with FASB Topic
Interest
Cash and Cash Equivalents and Restricted Cash
Our cash equivalents are highly liquid investments, with maturities
of three months or less when we purchase them.
We record cash and cash equivalents as restricted when we are
unable to freely use such cash and cash equivalents for our general
operating purposes. At December 31, 2015, we had restricted
cash and cash equivalents totaling $18.1 million, $2.7 million of
which was held for future decommissioning of facilities (which is
included in other assets on our consolidated balance sheets) and
$15.4 million of which was held to meet reinsurance reserve
requirements of our captive insurer. The reduction in 2015 was
primarily attributable to cash transferred in connection with the
spin-off.
Derivative Financial Instruments
Our Canadian operations give rise to exposure to market risks from
changes in foreign currency exchange (“FX”) rates. We
use derivative financial instruments, primarily FX forward
contracts, to reduce the impact of changes in FX rates on our
operating results. We use these instruments primarily to hedge our
exposure associated with revenues or costs on our long-term
contracts that are denominated in currencies other than our
operating entities’ functional currencies. We do not hold or
issue derivative financial instruments for trading or other
speculative purposes.
We enter into derivative financial instruments primarily as hedges
of certain firm purchase and sale commitments denominated in
foreign currencies. We record these contracts at fair value on our
consolidated balance sheets and defer the related gains and losses
in stockholders’ equity as a component of accumulated other
comprehensive income until the hedged item is recognized in
earnings. Any ineffective portion of a derivative’s change in
fair value and any portion excluded from the assessment of
effectiveness is immediately recognized in other – net on our
consolidated statements of income. The gain or loss on a derivative
instrument not designated as a hedging instrument is also
immediately recognized in earnings. Gains and losses on derivative
financial instruments that require immediate recognition are
included as a component of other – net in our consolidated
statements of income.
Self-Insurance
We have a wholly owned insurance subsidiary that provides
employer’s liability, general and automotive liability and
workers’ compensation insurance and, from time to time,
builder’s risk insurance (within certain limits) to our
companies. We may also, in the future, have this insurance
subsidiary accept other risks that we cannot or do not wish to
transfer to outside insurance companies. Included in other
liabilities on our consolidated balance sheets are reserves for
self-insurance totaling $6.9 million and $31.7 million at
December 31, 2015 and 2014, respectively. The reduction in
2015 was primarily attributable to reserves transferred in
connection with the spin-off.
Loss Contingencies
We estimate liabilities for loss contingencies when it is probable
that a liability has been incurred and the amount of loss is
reasonably estimable. We provide disclosure when there is a
reasonable possibility that the ultimate loss will exceed the
recorded provision or if such probable loss is not reasonably
estimable. We are currently involved in some significant
litigation, as discussed in Note 10. Our losses are typically
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