| Basis of Presentation and Significant Accounting Policies | BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES We have presented the condensed consolidated financial statements of BWX Technologies, Inc. ("BWXT") in U.S. dollars in accordance with the interim reporting requirements of Form 10-Q, Rule 10-01 of Regulation S-X and accounting principles generally accepted in the United States ("GAAP"). Certain financial information and disclosures normally included in our financial statements prepared annually in accordance with GAAP have been condensed or omitted. Readers of these financial statements should, therefore, refer to the consolidated financial statements and notes in our annual report on Form 10-K for the year ended December 31, 2015 (our " 2015 10-K"). We have included all adjustments, in the opinion of management, consisting only of normal recurring adjustments, necessary for a fair presentation. We use the equity method to account for investments in entities that we do not control, but over which we have the ability to exercise significant influence. We generally refer to these entities as "joint ventures." We have eliminated all intercompany transactions and accounts. We have reclassified amounts previously reported to conform to the presentation as of and for the three and nine month periods ended September 30, 2016 . We present the notes to our condensed consolidated financial statements on the basis of continuing operations, unless otherwise stated. Unless the context otherwise indicates, "we," "us" and "our" mean BWXT and its consolidated subsidiaries. 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 BWXT 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 separated 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 reportable segments are further described as follows: • 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. See Note 11 for further information regarding our segments. Operating results for the three and nine months ended September 30, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016 . For further information, refer to the consolidated financial statements and the related footnotes included in our 2015 10-K. GE Hitachi Nuclear Energy Canada Inc. Acquisition On August 18, 2016, we signed a definitive agreement to acquire all of the shares of GE Hitachi Nuclear Energy Canada Inc. (“GEH-C”). GEH-C is a leading supplier of nuclear fuel, fuel handling systems, delivery systems and replacement components for CANDU reactors. The transaction is expected to be completed, subject to required Canadian regulatory reviews and other closing conditions, during the fourth quarter of 2016. Following successful completion of the transaction, GEH-C would be reported as part of our Nuclear Energy segment. GEH-C will expand our current commercial nuclear product and service portfolio and allow us to leverage our technology-based competencies in offering new products and services related to plant life extensions as well as the ongoing maintenance of nuclear power generation equipment. Deconsolidation of Generation mPower LLC On March 2, 2016, we entered into a framework agreement with Bechtel Power Corporation ("Bechtel"), BWXT Modular Reactors, LLC and BDC NexGen Power, LLC for the potential restructuring and restart of our mPower small modular reactor program (the "Framework Agreement"). As a result of entering into the Framework Agreement, we have deconsolidated Generation mPower LLC ("GmP") from our financial statements as of the date of the Framework Agreement. We recorded a gain of approximately $13.6 million during the nine months ended September 30, 2016 related to the deconsolidation of GmP as a component of other - net in our condensed consolidated statement of income. For additional information on the Framework Agreement, see Note 6 to our condensed consolidated financial statements. 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 towards 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 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. Comprehensive Income The components of accumulated other comprehensive income included in stockholders’ equity are as follows: September 30, December 31, (In thousands) Currency translation adjustments $ 9,661 $ 7,820 Net unrealized loss on derivative financial instruments (428 ) (688 ) Unrecognized prior service cost on benefit obligations (5,534 ) (6,331 ) Net unrealized gain (loss) on available-for-sale investments 1,304 (49 ) Accumulated other comprehensive income $ 5,003 $ 752 The amounts reclassified out of accumulated other comprehensive income by component and the affected condensed consolidated statements of income line items are as follows: Three Months Ended Nine Months Ended 2016 2015 2016 2015 Accumulated Other Comprehensive Income (Loss) Component Recognized (In thousands) Line Item Presented Realized gain (loss) on derivative financial instruments $ (2 ) $ (23 ) $ (42 ) $ 461 Revenues (172 ) (2,637 ) 976 (5,355 ) Cost of operations (174 ) (2,660 ) 934 (4,894 ) Total before tax 45 684 (240 ) 1,259 Provision for Income Taxes $ (129 ) $ (1,976 ) $ 694 $ (3,635 ) Net Income Amortization of prior service cost on benefit obligations $ (401 ) $ (399 ) $ (1,200 ) $ (1,200 ) Cost of operations (8 ) (9 ) (22 ) (27 ) Selling, general and administrative expenses (409 ) (408 ) (1,222 ) (1,227 ) Total before tax 142 139 425 417 Provision for Income Taxes $ (267 ) $ (269 ) $ (797 ) $ (810 ) Net Income Realized gain on investments $ 12 $ 11 $ 47 $ 188 Other – net (4 ) (5 ) (16 ) (68 ) Provision for Income Taxes $ 8 $ 6 $ 31 $ 120 Net Income Total reclassification for the period $ (388 ) $ (2,239 ) $ (72 ) $ (4,325 ) Inventories At September 30, 2016 and December 31, 2015 , included in other current assets we had inventories totaling $8.0 million and $7.3 million , respectively, consisting entirely of raw materials and supplies. Restricted Cash and Cash Equivalents At September 30, 2016 , we had restricted cash and cash equivalents totaling $8.6 million , $2.8 million of which was held for future decommissioning of facilities (which is included in other assets on our condensed consolidated balance sheets) and $5.8 million of which was held to meet reinsurance reserve requirements of our captive insurer. Warranty Expense We accrue estimated expense included in cost of operations on our condensed 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 our accrued warranty expense: Nine Months Ended 2016 2015 (In thousands) Balance at beginning of period $ 13,542 $ 15,889 Additions 847 890 Expirations and other changes (1,759 ) (3 ) Payments (20 ) (56 ) Translation and other 255 (735 ) Balance at end of period $ 12,865 $ 15,985 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. Substantially all of these costs are related to our mPower program for the development of our BWXT mPower™ reactor and the associated power plant. Provision for Income Taxes We are subject to federal income tax in the United States and Canada as well as income tax within multiple U.S. state jurisdictions. We provide for income taxes based on the enacted tax laws and rates in the jurisdictions in which we conduct our operations. These jurisdictions may have regimes of taxation that vary with respect to nominal rates and with respect to the basis on which these rates are applied. This variation, along with changes in our mix of income within these jurisdictions, can contribute to shifts in our effective tax rate from period to period. 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 classify interest and penalties related to taxes (net of any applicable tax benefit) as a component of provision for income taxes on our condensed consolidated statements of income. Our effective tax rate for the three months ended September 30, 2016 was approximately 33.0% as compared to 32.6% for the three months ended September 30, 2015 . The effective tax rate for the three months ended September 30, 2015 was lower than our statutory rate primarily due to the remeasurement of uncertain tax positions as a result of the close of a previously ongoing IRS audit as well as adjustments related to the filing of our 2014 U.S. tax return. Our effective tax rate for the nine months ended September 30, 2016 was approximately 31.2% as compared to 35.4% for the nine months ended September 30, 2015 . The effective tax rate for the nine months ended September 30, 2016 was lower than our statutory rate primarily due to the $13.6 million gain recognized related to the deconsolidation of GmP. The effective tax rate for the nine months ended September 30, 2015 was impacted by the spin-off of our former Power Generation business. Specifically, we recognized $3.8 million of tax provision due to the change in our tax footprint associated with the spin-off, resulting in the revaluations of deferred tax assets and liabilities as well as the need to recognize tax provision on our global earnings at our U.S. federal rate due to the likely repatriation of future foreign earnings. These amounts were offset by the remeasurement of uncertain tax positions and adjustments related to the filing of our 2014 U.S. tax return discussed above. As of September 30, 2016 , we have gross unrecognized tax benefits of $1.9 million . Of the $1.9 million gross unrecognized tax benefits, $1.8 million would reduce our effective tax rate if recognized. New Accounting Standards In May 2014, the FASB issued the Topic Revenue from Contracts with Customers , which supersedes the revenue recognition requirements in the Topic Revenue Recognition and most industry specific guidance. The core principle of this guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. In August 2015, the FASB deferred the effective date of this amendment until 2018. The update may be adopted either retrospectively to each prior period or as a cumulative-effect adjustment on the date of adoption. We are currently evaluating the methods of adoption allowed by the updated standard and the effect it may have on our consolidated financial statements and related disclosures. Since the updated standard will supersede substantially all existing guidance related to revenue recognition, it could impact revenue and cost recognition for each of our segments, in addition to business processes and information technology systems. As a result, our evaluation of the effects of this Topic will extend over future periods. In February 2016, the FASB issued an update to the Topic Leases , which supersedes previous lease reporting requirements. This update requires that a lessee recognize on its balance sheet the assets and liabilities for all leases with lease terms of more than 12 months, along with additional qualitative and quantitative disclosures. The effect of leases in a consolidated statement of income and a consolidated statement of cash flows is expected to be largely unchanged. Accounting by lessors was not significantly impacted by this update. This update will be effective for us in 2019, with early adoption permitted. We are currently evaluating the impact of the adoption of this standard on our financial statements. In March 2016, the FASB issued an update to the Topic Compensation - Stock Compensation , which identifies areas for simplification involving several aspects of accounting for share-based payment transactions, including the income tax reporting implications, classification of awards as either equity or liabilities, an option to recognize gross stock compensation expense with actual forfeitures recognized as they occur, as well as certain classifications on the statement of cash flows. This update will be effective for us in 2017, with early adoption permitted. We are currently evaluating the impact of the adoption of this standard on our financial statements. In March 2016, the FASB issued an update to the Topic Financial Instruments . This update, among other changes, requires companies to measure equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) at fair value with changes in fair value recognized in net income. This update is effective in 2018 and early adoption is not permitted. We are currently evaluating the impact of the adoption of this standard on our financial statements. |
