| Basis of Presentation and Significant Accounting Policies | BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES We have presented the condensed consolidated financial statements of BWX Technologies, Inc. ("BWXT" or the "Company") in U.S. dollars in accordance with the interim reporting requirements of Form 10-Q, Rule 10-01 of Regulation S-X and accounting principles generally accepted in the United States ("GAAP"). Certain financial information and disclosures normally included in our financial statements prepared annually in accordance with GAAP have been condensed or omitted. Readers of these financial statements should, therefore, refer to the consolidated financial statements and notes in our annual report on Form 10-K for the year ended December 31, 2016 (our " 2016 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 present the notes to our condensed consolidated financial statements on the basis of continuing operations, unless otherwise stated. Unless the context otherwise indicates, "we," "us" and "our" mean BWXT and its consolidated subsidiaries. Reportable Segments We operate in three reportable segments: Nuclear Operations Group, Nuclear Services Group and Nuclear Power Group. Our reportable segments reflect changes we made during the first quarter of 2017 in the manner for which our segment operating information is reported for purposes of assessing operating performance and allocating resources. Prior to 2017, we reported three segments: Nuclear Operations, Nuclear Energy and Technical Services. The U.S. nuclear services business, a component of our former Nuclear Energy segment, is now reported in our Nuclear Services Group segment along with our former Technical Services segment. The remainder of our former Nuclear Energy segment is now reported in our Nuclear Power Group segment, which comprises our Canadian operations, including the recently acquired BWXT Nuclear Energy Canada Inc. Our Nuclear Operations Group segment represents our former Nuclear Operations segment. The change in our reportable segments had no impact on our previously reported consolidated results of operations, financial condition or cash flows. We have applied the change in reportable segments to previously reported historical financial information and related disclosures included in this report. Our reportable segments are further described as follows: • Our Nuclear Operations Group 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 fabricates electro-mechanical equipment 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, NFS also downblends Cold War-era government stockpiles of highly enriched uranium into material suitable for further processing into commercial nuclear reactor fuel. • Our Nuclear Services Group segment provides various services to the U.S. Government and the commercial nuclear industry. Services provided to the U.S. Government include nuclear materials management and operation, environmental management and administrative and operating services for various U.S. Government-owned facilities. These services are provided to the 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 services and management solutions to nuclear and high-consequence operations. A significant portion of this segment's operations are conducted through joint ventures. Our Nuclear Services Group segment also provides inspection and maintenance services primarily for the U.S. commercial nuclear industry including steam generator and heat exchanger inspection services, high pressure water lancing, non-destructive examination and customized tooling solutions. This segment also offers complete advanced fuel and reactor engineering, licensing and manufacturing services for new advanced nuclear reactors. • Our Nuclear Power Group segment fabricates steam generators, nuclear fuel, fuel handling systems, pressure vessels, reactor components, heat exchangers, tooling delivery systems and other auxiliary equipment, including containers for the storage of spent nuclear fuel and other high-level waste, for nuclear utility customers. BWXT has supplied the nuclear industry with more than 1,300 large, heavy components worldwide and is the only heavy nuclear component, N-Stamp certified manufacturer in North America. This segment also provides specialized engineering services that include structural component design, 3-D thermal-hydraulic engineering analysis, weld and robotic process development, electrical and controls engineering and metallurgy and materials engineering. In addition, this segment offers in-plant inspection, maintenance and modification services for nuclear steam generators, heat exchangers, reactors, fuel handling systems and balance of plant equipment, as well as specialized non-destructive examination and tooling/repair solutions. On December 16, 2016, our subsidiary BWXT Canada Ltd. acquired the outstanding stock of the GE Hitachi Nuclear Energy Canada Inc. joint venture, which was renamed BWXT Nuclear Energy Canada Inc. ("NEC"). NEC is a leading supplier of nuclear fuel, fuel handling systems, tooling delivery systems and replacement components for CANDU reactors and has approximately 350 employees. NEC operates two facilities licensed by the Canadian Nuclear Safety Commission ("CNSC") to fabricate natural uranium fuel in Peterborough and Toronto, Ontario, Canada as well as a third facility in Arnprior, Ontario, Canada. The acquisition of NEC expanded our existing commercial nuclear products and services portfolio, allowing 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. NEC is reported within our Nuclear Power Group segment. For additional information on the acquisition of NEC, see Note 2 to our condensed consolidated financial statements. For financial information about our segments, see Note 8 to our condensed consolidated financial statements. Operating results for the three and six months ended June 30, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017 . For further information, refer to the consolidated financial statements and the related footnotes included in our 2016 10-K. 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 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 six months ended June 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 4 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. Accumulated Other Comprehensive Income The components of accumulated other comprehensive income included in stockholders' equity are as follows: June 30, December 31, (In thousands) Currency translation adjustments $ 9,746 $ 6,911 Net unrealized gain (loss) on derivative financial instruments 141 (340 ) Unrecognized prior service cost on benefit obligations (5,813 ) (6,392 ) Net unrealized gain on available-for-sale investments 2,194 3,632 Accumulated other comprehensive income $ 6,268 $ 3,811 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 Six Months Ended 2017 2016 2017 2016 Accumulated Other Comprehensive Income (Loss) Component Recognized (In thousands) Line Item Presented Realized gain (loss) on derivative financial instruments $ (9 ) $ (17 ) $ (13 ) $ (40 ) Revenues 237 (3 ) 291 1,148 Cost of operations 228 (20 ) 278 1,108 Total before tax (58 ) 5 (71 ) (285 ) Provision for Income Taxes $ 170 $ (15 ) $ 207 $ 823 Net Income Amortization of prior service cost on benefit obligations $ (446 ) $ (400 ) $ (892 ) $ (799 ) Cost of operations — (7 ) — (14 ) Selling, general and administrative expenses (446 ) (407 ) (892 ) (813 ) Total before tax 157 142 313 283 Provision for Income Taxes $ (289 ) $ (265 ) $ (579 ) $ (530 ) Net Income Realized gain on investments $ 126 $ 17 $ 148 $ 35 Other – net (6 ) (6 ) (14 ) (12 ) Provision for Income Taxes $ 120 $ 11 $ 134 $ 23 Net Income Total reclassification for the period $ 1 $ (269 ) $ (238 ) $ 316 Inventories At June 30, 2017 and December 31, 2016 , included in other current assets we had inventories totaling $7.9 million and $7.7 million , respectively, consisting entirely of raw materials and supplies. Restricted Cash and Cash Equivalents At June 30, 2017 , we had restricted cash and cash equivalents totaling $10.0 million , $2.9 million of which was held for future decommissioning of facilities (which is included in other assets on our condensed consolidated balance sheets) and $7.1 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: Six Months Ended 2017 2016 (In thousands) Balance at beginning of period $ 11,477 $ 13,542 Additions 667 483 Expirations and other changes (84 ) (1,364 ) Payments (16 ) (16 ) Translation 173 274 Balance at end of period $ 12,217 $ 12,919 Provision for Income Taxes We are subject to federal income tax in the U.S. and Canada as well as income tax within multiple U.S. state jurisdictions. We provide for income taxes based on the enacted tax laws and rates in the jurisdictions in which we conduct our operations. These jurisdictions may have regimes of taxation that vary with respect to nominal rates and with respect to the basis on which these rates are applied. This variation, along with changes in our mix of income within these jurisdictions, can contribute to shifts in our effective tax rate from period to period. With the spin-off of our former Power Generation business 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. With the acquisition of NEC in the fourth quarter of 2016, we now expect that we will reinvest the undistributed earnings of our foreign subsidiaries indefinitely. As a result, in the fourth quarter of 2016, we began recording our Canadian income tax provision based on the Canadian local statutory rate of approximately 25% . Our effective tax rate for the three months ended June 30, 2017 was approximately 30.6% as compared to 33.5% for the three months ended June 30, 2016 . Our effective tax rate for the six months ended June 30, 2017 was approximately 30.6% as compared to 29.3% for the six months ended June 30, 2016 . The effective tax rates for the three and six months ended June 30, 2017 were lower than our statutory rate primarily due to benefits recognized for excess tax benefits related to employee share-based payments of $2.6 million and $4.9 million , respectively. The effective tax rate for the six months ended June 30, 2016 was lower than our statutory rate primarily due to the $13.6 million non-taxable gain recognized related to the deconsolidation of GmP. As of June 30, 2017 , we have gross unrecognized tax benefits of $1.7 million (exclusive of interest and federal and state benefits), all of which would reduce our effective tax rate if recognized. New Accounting Standards In May 2014, the Financial Accounting Standards Board ("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. The guidance also outlines a five-step model whereby revenue is recognized as performance obligations within a contract are satisfied, as well as new, expanded disclosures. In August 2015, the FASB deferred the effective date of this amendment until 2018. The FASB has also issued numerous technical corrections and improvements to update its guidance, which will become effective upon adoption. The update may be adopted either retrospectively to each prior period or as a cumulative-effect adjustment on the date of adoption. We commenced our assessment of the standard and have developed a project plan to guide the implementation. This plan includes analyzing the standard's impact on our contract portfolio, comparing current accounting policies and practices to the requirements of the new standard and identifying potential differences from applying the requirements of the new standard to our contracts. We developed processes to ensure adequate analysis of our contracts. The new revenue standard will significantly increase disclosure requirements for revenue and related assets and liabilities. While the new revenue standard may impact the timing of when we recognize revenue and profit, it will not impact the timing of cash flows associated with our contracts, and the overall revenue and profit recognized on our contracts will not change. Within our Nuclear Operations Group segment, we will continue to recognize revenue over time, and we will measure progress on performance obligations using a cost-to-cost method. Historically, we utilized man-hours or a cost-to-cost method to measure progress on certain of the performance obligations within this segment. The performance obligations identified for recognizing revenue will be similar to our historical units of account. As a result of the change to a cost-to-cost method, the timing of revenue recognition on affected contracts will, in the aggregate, result in the recognition of revenue and cost of operations earlier in the process of satisfying performance obligations. The new standard will also result in a reduction in both our contracts in progress and advanced billings on contracts account balances upon adoption. We believe the impact of the adoption of the new revenue standard on our Nuclear Power Group and Nuclear Services Group segments will not be material. While this assessment continues, we have not yet selected a transition method nor have we fully determined the effect of the standard on our financial statements. In February 2016, the FASB issued an update to the Topic Leases , which supersedes the lease reporting requirements in Topic Leases (previously "FAS 13"). 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 October 2016, the FASB issued an update to the Topic Statement of Cash Flows. This update clarifies guidance on the classification and presentation of restricted cash in the statement of cash flows. Restricted cash will now be included in the cash and cash equivalent balances in the statement of cash flows. Reconciliations between the balance sheet and the statement of cash flows, along with additional disclosures if certain criteria are met, are now required as well. This update is applicable to us and will be effective for interim periods beginning in 2018, with early adoption permitted. The amendments in this update are to be applied retrospectively. This update will affect the presentation of restricted cash and cash equivalents on the statement of cash flows, but will otherwise not have a material impact to our financial statements. We expect to adopt the provisions in this update effective January 1, 2018. In March 2017, the FASB issued an update to the Topic Compensation – Retirement Benefits . This update amends the guidance on the consolidated statement of income presentation of the components of net periodic benefit cost related to defined benefit pension and postretirement plans. Under current GAAP, components of net periodic benefit cost are aggregated and reported net in the consolidated statements of income as part of operating income. This update requires entities to disaggregate the service cost component of net periodic benefit cost and present it with other current compensation costs within operating income. Other components of net periodic benefit cost are required to be classified outside of operating income within the consolidated statements of income. These changes to classification within the consolidated statements of income will result in no changes to net income. This update will be effective for us in 2018 with retrospective presentation. The impact of this update on our consolidated statements of income for the three and six months ended June 30, 2017 would be a reduction of Operating Income, along with a corresponding increase to Other Income (Expense), of $6.9 million and $13.9 million , respectively, and a reduction of Operating Income, along with a corresponding increase to Other Income (Expense), of $6.6 million and $13.2 million for the three and six months ended June 30, 2016 , respectively. The impact of this update on our consolidated statement of income for the year ended December 31, 2016 would be a reduction of Operating Income, along with a corresponding increase to Other Income (Expense), of $4.8 million , which includes a Mark to Market loss of $21.5 million . |
