BWX TECHNOLOGIES, INC. – 10-Q – MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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. 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,
the actions to contain the impact of such diseases, and potential employee
unrest. For example, in October 2021, the Company announced the implementation
of a vaccine mandate for all U.S.-based employeed consistent with the September
2021 U.S. Government executive order mandating COVID-19 vaccines for federal
contractors. The impact of these requirements could result in work
interruptions, employee attrition and recruiting challenges, which could have an
adverse effect on our business operations and financial results. 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.
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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 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 nine months ended September 30,
2021.
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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 September 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 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 September 30,
2021 and 2020, we recognized net changes in estimates related to contracts that
recognize revenue over time, which increased operating income by approximately
$18.1 million and $7.8 million, respectively. During the nine months ended
September 30, 2021 and 2020, we recognized net changes in estimates related to
contracts that recognize revenue over time, which increased operating income by
approximately $27.8 million and $28.8 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. In September
2021, the U.S. Government issued an executive order requiring that U.S.-based
employees of federal contractors and their subcontractors working on U.S.
government contracts be vaccinated for COVID-19 by December 8, 2021, subject to
limited exemptions for those legally entitled to an accommodation. In compliance
with the executive order, in October 2021 the Company announced a vaccine
mandate for all of its U.S. employees.
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, vaccine mandates and related labor
issues, worker illness, absenteeism or attrition, 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 September 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 nine months ended September 30, 2021, we recognized $0.7 million and
$4.9 million of subsidies under the CEWS, respectively, compared to $16.6
million during both the three and nine months ended September 30, 2020. These
amounts were recorded as an offset to operating expense. The Canadian Government
has extended the CEWS to October 2021 with a number of modifications. These
modifications significantly decreased the amount of claims for which we
qualified when compared to the prior year.
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RESULTS OF OPERATIONS - THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 VS. THREE
AND NINE MONTHS ENDED SEPTEMBER 30, 2020
Selected financial highlights are presented in the table below:
                                                Three Months Ended                                          Nine Months Ended
                                                   September 30,                                              September 30,
                                              2021               2020             $ Change              2021                 2020              $ Change
                                                                                          (In thousands)

REVENUES:

Nuclear Operations Group                  $ 386,618          $ 386,502          $     116          $ 1,170,028          $ 1,220,529          $ (50,501)
Nuclear Power Group                          83,382            108,104            (24,722)             292,622              264,004             28,618
Nuclear Services Group                       35,739             33,707              2,032               91,356              103,800            (12,444)
Eliminations                                 (7,012)            (8,435)             1,423              (21,907)             (21,727)              (180)
                                          $ 498,727          $ 519,878          $ (21,151)         $ 1,532,099          $ 1,566,606          $ (34,507)
OPERATING INCOME:
Nuclear Operations Group                  $  79,372          $  68,460          $  10,912          $   222,889          $   244,791          $ (21,902)
Nuclear Power Group                           8,977             29,199            (20,222)              30,135               38,771             (8,636)
Nuclear Services Group                       10,304              7,557              2,747               21,811               18,079              3,732
Other                                        (6,186)            (5,714)              (472)             (19,318)             (16,673)            (2,645)
                                          $  92,467          $  99,502          $  (7,035)         $   255,517          $   284,968          $ (29,451)
Unallocated Corporate                        (4,999)           (10,732)             5,733              (11,884)             (15,497)             3,613
Total Operating Income                    $  87,468          $  88,770          $  (1,302)         $   243,633          $   269,471          $ (25,838)


Consolidated Results of Operations
Three months ended September 30, 2021 vs. 2020
Consolidated revenues decreased 4.1%, or $21.2 million, to $498.7 million in the
three months ended September 30, 2021 compared to $519.9 million for the
corresponding period in 2020, due to a decrease in revenues in our Nuclear Power
Group segment of $24.7 million. This was partially offset by increases in
revenues in our Nuclear Operations Group and Nuclear Services Group segments
totaling $0.1 million and $2.0 million, respectively.
Consolidated operating income decreased $1.3 million to $87.5 million in the
three months ended September 30, 2021 compared to $88.8 million for the
corresponding period of 2020. Operating income in our Nuclear Power Group and
Other segments decreased by $20.2 million and $0.5 million, respectively. These
decreases were partially offset by increases in operating income in our Nuclear
Operations Group and Nuclear Services Group segments of $10.9 million and $2.7
million, respectively. In addition, we experienced lower Unallocated Corporate
expenses of $5.7 million when compared to the corresponding period of 2020.
Nine months ended September 30, 2021 vs. 2020
Consolidated revenues decreased 2.2%, or $34.5 million, to $1,532.1 million in
the nine months ended September 30, 2021 compared to $1,566.6 million for the
corresponding period of 2020, due to decreases in revenues in our Nuclear
Operations Group and Nuclear Services Group segments totaling $50.5 million and
$12.4 million, respectively. These decreases were partially offset by an
increase in revenues in our Nuclear Power Group segment of $28.6 million.
Consolidated operating income decreased $25.8 million to $243.6 million in the
nine months ended September 30, 2021 compared to $269.5 million for the
corresponding period of 2020. Operating income in our Nuclear Operations Group,
Nuclear Power Group and Other segments decreased by $21.9 million, $8.6 million
and $2.6 million, respectively. These decreases were partially offset by an
increase in operating income in our Nuclear Services Group segment of $3.7
million. In addition, we experienced lower Unallocated Corporate expenses of
$3.6 million when compared to the corresponding period of 2020.
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Nuclear Operations Group
                          Three Months Ended                            Nine Months Ended
                            September 30,                                 September 30,
                         2021           2020         $ Change         2021             2020          $ Change
                                                           (In thousands)
Revenues              $ 386,618      $ 386,502      $    116      $ 1,170,028      $ 1,220,529      $ (50,501)
Operating Income      $  79,372      $  68,460      $ 10,912      $   222,889      $   244,791      $ (21,902)
% of Revenues               20.5%          17.7%                          19.0%            20.1%


Three months ended September 30, 2021 vs. 2020
Revenues in the three months ended September 30, 2021 were relatively unchanged
when compared to the corresponding period of 2020 as volume in the manufacture
of nuclear components for U.S. Government programs and our naval nuclear fuel
and downblending operations were consistent with the prior year.
Operating income increased $10.9 million to $79.4 million in the three months
ended September 30, 2021 compared to $68.5 million for the corresponding period
of 2020. The increase primarily related to higher levels of favorable contract
adjustments recorded in the current year when compared to the corresponding
period of the prior year.
Nine months ended September 30, 2021 vs. 2020
Revenues decreased 4.1%, or $50.5 million, to $1,170.0 million in the nine
months ended September 30, 2021 compared to $1,220.5 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 and
additional volume in our naval nuclear fuel and downblending operations.
Operating income decreased $21.9 million to $222.9 million in the nine months
ended September 30, 2021 compared to $244.8 million for the corresponding period
of 2020. The decrease was due to the operating income impact of the changes in
revenue noted above.
Nuclear Power Group
                          Three Months Ended                           Nine Months Ended
                            September 30,                                September 30,
                         2021           2020         $ Change         2021           2020         $ Change
                                                         (In thousands)
Revenues              $  83,382      $ 108,104      $ (24,722)     $ 292,622      $ 264,004      $ 28,618
Operating Income      $   8,977      $  29,199      $ (20,222)     $  30,135      $  38,771      $ (8,636)
% of Revenues               10.8%          27.0%                         10.3%          14.7%


Three months ended September 30, 2021 vs. 2020
Revenues decreased 22.9%, or $24.7 million, to $83.4 million in the three months
ended September 30, 2021 compared to $108.1 million for the corresponding period
of 2020. The decrease was primarily related to lower levels of in-plant
inspection, maintenance and modification services totaling $16.8 million as well
as lower volume related to our parts and components manufacturing businesses
when compared to the same period in the prior year. This was partially offset by
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 decreased $20.2 million to $9.0 million in the three months
ended September 30, 2021 compared to $29.2 million for the corresponding period
of 2020, due to the operating income impact of the changes in revenue noted
above. In addition, the amount of wage subsidies we received under the CEWS to
offset the effects of COVID-19 on our Canadian operations decreased by $15.9
million when compared to the corresponding period of the prior year. These
decreases were partially offset by a $2.0 million gain resulting from the
settlement of contingent consideration associated with the Precision
Manufacturing acquisition.
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Nine months ended September 30, 2021 vs. 2020
Revenues increased 10.8%, or $28.6 million, to $292.6 million in the nine months
ended September 30, 2021 compared to $264.0 million for the corresponding period
of 2020. The increase was primarily related to higher levels of in-plant
inspection, maintenance and modification services totaling $25.1 million as well
as increases in revenues in our nuclear fuel handling, medical radioisotopes and
parts manufacturing businesses when compared to the same period in the prior
year. This was partially offset by lower activity in our nuclear components
business of $15.7 million, primarily associated with a major steam generator
design and supply contract.
Operating income decreased $8.6 million to $30.1 million in the nine months
ended September 30, 2021 compared to $38.8 million for the corresponding period
of 2020, due a decrease in the amount of wage subsidies we received under the
CEWS to offset the effects of COVID-19 on our Canadian operations of $11.7
million when compared to the corresponding period of the prior year. This was
partially offset by the operating income impact of the changes in revenues noted
above as well as a $2.0 million gain resulting from the settlement of contingent
consideration associated with the Precision Manufacturing acquisition.
Nuclear Services Group
                          Three Months Ended                          Nine Months Ended
                            September 30,                               September 30,
                          2021           2020        $ Change        2021          2020         $ Change
                                                         (In thousands)
Revenues              $   35,739      $ 33,707      $  2,032      $ 91,356      $ 103,800      $ (12,444)
Operating Income      $   10,304      $  7,557      $  2,747      $ 21,811      $  18,079      $   3,732
% of Revenues                28.8%         22.4%                       23.9%          17.4%


Three months ended September 30, 2021 vs. 2020
Revenues increased 6.0%, or $2.0 million, to $35.7 million in the three months
ended September 30, 2021 compared to $33.7 million for the corresponding period
of 2020, primarily attributable to an increase in design and engineering work
executed by our advanced technologies business, particularly in the space and
defense markets.
Operating income increased $2.7 million to $10.3 million in the three months
ended September 30, 2021 compared to $7.6 million for the corresponding period
of 2020 due to higher site fee income in addition to the operating income impact
of the increase in revenues noted above.
Nine months ended September 30, 2021 vs. 2020
Revenues decreased 12.0%, or $12.4 million, to $91.4 million in the nine months
ended September 30, 2021 compared to $103.8 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, particularly in the space and
defense markets.
Operating income increased $3.7 million to $21.8 million in the nine months
ended September 30, 2021 compared to $18.1 million for the corresponding period
of 2020 due to higher site fee income, which was partially offset by the
operating income impact associated with the changes in revenues noted above.
Other
                          Three Months Ended                           Nine Months Ended
                            September 30,                                September 30,
                          2021           2020        $ Change         2021           2020         $ Change
                                                         (In thousands)
Operating Income      $   (6,186)     $ (5,714)     $    (472)     $ (19,318)     $ (16,673)     $ (2,645)


Operating income decreased $0.5 million and $2.6 million in the three and nine
months ended September 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.
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Unallocated Corporate
Unallocated corporate expenses decreased $5.7 million in the three months ended
September 30, 2021 compared to the corresponding period of 2020, primarily due
to a $2.6 million reserve related to a franchise tax audit of years prior to
2016, which was recorded in the three months ended September 30, 2020, in
addition to lower levels of incentive compensation.
Unallocated corporate expenses decreased $3.6 million in the nine months ended
September 30, 2021 compared to the corresponding period of 2020, primarily due
to a decrease in legal and consulting costs associated with due diligence
activities conducted in the prior year in addition to a $2.6 million reserve
related to a franchise tax audit of years prior to 2016, which was recorded in
the nine months ended September 30, 2020. These decreases were partially offset
by an increase in healthcare related costs.
Provision for Income Taxes
                                             Three Months Ended                                        Nine Months Ended
                                                September 30,                                            September 30,
                                           2021               2020             $ Change             2021               2020             $ Change
                                                                                     (In thousands)
Income before Provision for
Income Taxes                           $   77,769          $ 91,882          $ (14,113)         $ 248,593          $ 274,410          $ (25,817)
Provision for Income Taxes             $   17,611          $ 18,687          $  (1,076)         $  59,211          $  61,199          $  (1,988)
Effective Tax Rate                             22.6%             20.3%                                 23.8%              22.3%


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 September 30, 2021 was 22.6%
as compared to 20.3% for the three months ended September 30, 2020. Our
effective tax rate for the nine months ended September 30, 2021 was 23.8% as
compared to 22.3% for the nine months ended September 30, 2020. The effective
tax rates for the three and nine months ended September 30, 2021 and the nine
months ended September 30, 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. The
effective tax rate for the three months ended September 30, 2020 was lower than
the U.S. corporate income tax rate of 21% primarily due to the Company electing
the global intangible low-taxed income ("GILTI") high-tax exception for 2020 and
retroactively for the 2018 and 2019 tax years as allowed per the final
regulations released by the Internal Revenue Service in July 2020. Our effective
tax rates for the nine months ended September 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.
                               September 30,       December 31,
                                    2021               2020
                                   (In approximate millions)
Nuclear Operations Group      $        3,783      $       3,659
Nuclear Power Group                      688                726
Nuclear Services Group                    30                 21
Total Backlog                 $        4,501      $       4,406


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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.
Of the backlog at September 30, 2021, we expect to recognize revenues as
follows:
                               2021        2022        Thereafter        Total
                                          (In approximate millions)
Nuclear Operations Group      $ 457      $ 1,174      $     2,152      $ 3,783
Nuclear Power Group             113          224              351          688
Nuclear Services Group           19           11                -           30
Total Backlog                 $ 589      $ 1,409      $     2,503      $ 4,501


At September 30, 2021, our Nuclear Operations Group segment's backlog with the
U.S. Government was $3,434.9 million, $97.9 million of which had not yet been
funded.
At September 30, 2021, our Nuclear Power Group segment had no backlog with the
U.S. Government.
At September 30, 2021, our Nuclear Services Group segment's backlog with the
U.S. Government was $29.2 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 September 30, 2021.
The value of unexercised options excluded from backlog as of September 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
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increased to 4.50 to 1.00 for up to four consecutive fiscal quarters after a
material acquisition. The minimum consolidated interest coverage ratio is 3.00
to 1.00. In addition, the Credit Facility contains various restrictive
covenants, including with respect to debt, liens, investments, mergers,
acquisitions, dividends, equity repurchases and asset sales. As of September 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 September 30, 2021,
the margin for Eurocurrency rate and base rate revolving loans was 1.50% and
0.50%, respectively, the letter of credit fee for financial letters of credit
and performance letters of credit was 1.50% and 0.90%, respectively, and the
commitment fee for the unused portion of the Revolving Credit Facility was
0.20%.
As of September 30, 2021, borrowings and letters of credit issued under the
Revolving Credit Facility totaled $465.0 million and $32.8 million,
respectively. As a result, as of September 30, 2021 we had $252.2 million
available under the Revolving Credit Facility for borrowings and to meet letter
of credit requirements. As of September 30, 2021, the interest rate on
outstanding borrowings under our Credit Facility was 1.58%.
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 the 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 debt issuance costs
totaling $4.2 million. These charges were recorded in our condensed consolidated
statement of income during the three months ended September 30, 2021 as
components of Other - net and Interest expense, respectively.
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
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the Senior Notes due 2028 to be redeemed, plus accrued and unpaid interest, if
any, to, but excluding, the redemption date plus an applicable "make-whole"
premium.
The 2020 Indenture contains customary events of default, including, among other
things, payment default, failure to comply with covenants or agreements
contained in the 2020 Indenture or the Senior Notes due 2028 and certain
provisions related to bankruptcy events. The 2020 Indenture also contains
customary negative covenants. As of September 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, which commenced 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 September 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 September 30, 2021, bonds issued and outstanding under these arrangements
totaled approximately $110.2 million.
Long-term Benefit Obligations
As of September 30, 2021, we had underfunded defined benefit pension and
postretirement benefit plans with obligations totaling approximately $138.2
million. These long-term liabilities are expected to require use of our
resources to satisfy future funding obligations. Based largely on statutory
funding requirements, we expect to make contributions of approximately $1.5
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 September 30, 2021 and December 31, 2020 were
as follows:
               September 30,       December 31,
                    2021               2020
                        (In thousands)
Domestic      $       60,023      $      31,376
Foreign               29,137             29,985
Total         $       89,160      $      61,361


Our working capital increased by $172.2 million to $416.0 million at
September 30, 2021 from $243.9 million at December 31, 2020, primarily
attributable to changes in contracts in progress, advance billings and
retainages due to the timing of project cash flows and a decrease in current
liabilities associated with the timing of vendor payments.
Our net cash provided by operating activities increased by $77.5 million to
$225.6 million in the nine months ended September 30, 2021, compared to $148.1
million in the nine months ended September 30, 2020. The increase in cash
provided by operating activities was primarily attributable to the timing of
project cash flows.
Our net cash used in investing activities increased by $40.4 million to $234.1
million in the nine months ended September 30, 2021, compared to $193.6 million
in the nine months ended September 30, 2020. The increase in cash used in
investing activities was primarily attributable to an increase in purchases of
property, plant and equipment of $56.7 million, partially offset by a $15.9
million decrease attributable to our acquisition of Precision Manufacturing in
the nine months ended September 30, 2020.
Our net cash provided by financing activities increased by $30.3 million to
$35.4 million in the nine months ended September 30, 2021, compared to $5.1
million in the nine months ended September 30, 2020. The increase in cash
provided by financing activities was primarily attributable to an increase in
net borrowings of long-term debt of $300.2 million, partially offset by an
increase in repurchases of common stock of $165.8 million and the repayment of
bank overdrafts of $88.7 million.
At September 30, 2021, we had restricted cash and cash equivalents totaling $5.9
million, $2.9 million of which was held for future decommissioning of facilities
(which is included in other assets on our condensed consolidated balance sheets)
and $3.1 million of which was held to meet reinsurance reserve requirements of
our captive insurer.
At September 30, 2021, we had short-term and long-term investments with a fair
value of $13.9 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.