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Section 1: 10-Q (10-Q)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
 __________________________________________________ 
FORM 10-Q
 __________________________________________________ 
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2018.
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     .
Commission File No. 001-34658
 BWX TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
  __________________________________________________ 
DELAWARE
 
80-0558025
(State of Incorporation
or Organization)
 
(I.R.S. Employer
Identification No.)
 
 
800 MAIN STREET, 4TH FLOOR
 
 
LYNCHBURG, VIRGINIA
 
24504
(Address of Principal Executive Offices)
 
(Zip Code)
Registrant's Telephone Number, Including Area Code: (980) 365-4300
  __________________________________________________ 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
ý
 
Accelerated filer
 
¨
 
 
 
 
Non-accelerated filer
 
¨
 
Smaller reporting company
 
¨
 
 
 
 
 
 
 
Emerging growth company
 
¨
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý
The number of shares of the registrant's common stock outstanding at November 2, 2018 was 98,726,135.


Table of Contents

BWX TECHNOLOGIES, INC.
INDEX - FORM 10-Q
 
 
 
PAGE
 
 
 
 
 
 
September 30, 2018 and December 31, 2017 (Unaudited)
 
 
 
Three and Nine Months Ended September 30, 2018 and 2017 (Unaudited)
 
 
 
Three and Nine Months Ended September 30, 2018 and 2017 (Unaudited)
 
 
 
Nine Months Ended September 30, 2018 and 2017 (Unaudited)
 
 
 
Nine Months Ended September 30, 2018 and 2017 (Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


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Table of Contents

PART I
FINANCIAL INFORMATION
Item 1.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

BWX TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
 
 
September 30,
2018
 
December 31,
2017
 
 
(Unaudited)
(In thousands)
Current Assets:
 
 
 
 
Cash and cash equivalents
 
$
66,125

 
$
203,404

Restricted cash and cash equivalents
 
4,359

 
7,105

Investments
 
2,732

 
2,934

Accounts receivable – trade, net
 
194,575

 
189,217

Accounts receivable – other
 
46,183

 
19,365

Contracts in progress
 
326,355

 
420,628

Other current assets
 
44,528

 
30,437

Total Current Assets
 
684,857

 
873,090

Property, Plant and Equipment
 
1,073,893

 
1,013,141

Less accumulated depreciation
 
684,530

 
664,512

Net Property, Plant and Equipment
 
389,363

 
348,629

Investments
 
8,604

 
9,301

Goodwill
 
278,939

 
218,331

Deferred Income Taxes
 
45,105

 
86,740

Investments in Unconsolidated Affiliates
 
62,160

 
43,266

Intangible Assets
 
240,081

 
110,405

Other Assets
 
26,595

 
22,577

TOTAL
 
$
1,735,704

 
$
1,712,339

See accompanying notes to condensed consolidated financial statements.

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Table of Contents

BWX TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
September 30,
2018
 
December 31,
2017
 
 
(Unaudited)
(In thousands, except share
and per share amounts)
Current Liabilities:
 
 
 
 
Current maturities of long-term debt
 
$
14,745

 
$
27,870

Accounts payable
 
100,004

 
93,421

Accrued employee benefits
 
74,398

 
82,477

Accrued liabilities – other
 
53,508

 
64,738

Advance billings on contracts
 
104,646

 
246,192

Accrued warranty expense
 
12,426

 
13,428

Total Current Liabilities
 
359,727

 
528,126

Long-Term Debt
 
756,492

 
481,059

Accumulated Postretirement Benefit Obligation
 
20,111

 
21,368

Environmental Liabilities
 
89,429

 
79,786

Pension Liability
 
102,093

 
296,444

Other Liabilities
 
15,351

 
19,799

Commitments and Contingencies (Note 5)
 

 

Stockholders' Equity:
 
 
 
 
Common stock, par value $0.01 per share, authorized 325,000,000 shares; issued 125,796,671 and 125,381,591 shares at September 30, 2018 and December 31, 2017, respectively
 
1,258

 
1,254

Preferred stock, par value $0.01 per share, authorized 75,000,000 shares; No shares issued
 

 

Capital in excess of par value
 
112,300

 
98,843

Retained earnings
 
1,159,552

 
990,652

Treasury stock at cost, 27,070,536 and 25,964,088 shares at September 30, 2018 and December 31, 2017, respectively
 
(884,200
)
 
(814,809
)
Accumulated other comprehensive income
 
3,542

 
9,454

Stockholders' Equity – BWX Technologies, Inc.
 
392,452

 
285,394

Noncontrolling interest
 
49

 
363

Total Stockholders' Equity
 
392,501

 
285,757

TOTAL
 
$
1,735,704

 
$
1,712,339

See accompanying notes to condensed consolidated financial statements.


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Table of Contents

BWX TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2018
 
2017
 
2018
 
2017
 
 
(Unaudited)
(In thousands, except share and per share amounts)
Revenues
 
$
425,507

 
$
419,360

 
$
1,321,891

 
$
1,257,600

Costs and Expenses:
 
 
 
 
 
 
 
 
Cost of operations
 
326,314

 
302,267

 
971,887

 
883,839

Research and development costs
 
3,959

 
2,597

 
11,673

 
5,268

Losses (gains) on asset disposals and impairments, net
 
243

 
(2
)
 
(2
)
 
(33
)
Selling, general and administrative expenses
 
53,919

 
51,351

 
159,199

 
150,881

Total Costs and Expenses
 
384,435

 
356,213

 
1,142,757

 
1,039,955

Equity in Income of Investees
 
9,323

 
3,630

 
22,698

 
10,832

Operating Income
 
50,395

 
66,777

 
201,832

 
228,477

Other Income (Expense):
 
 
 
 
 
 
 
 
Interest income
 
1,121

 
402

 
2,340

 
750

Interest expense
 
(7,925
)
 
(3,837
)
 
(19,354
)
 
(11,260
)
Other – net
 
40,968

 
7,252

 
63,984

 
21,487

Total Other Income (Expense)
 
34,164

 
3,817

 
46,970

 
10,977

Income before Provision for Income Taxes
 
84,559

 
70,594

 
248,802

 
239,454

Provision for Income Taxes
 
6,482

 
23,901

 
43,578

 
75,556

Net Income
 
$
78,077

 
$
46,693

 
$
205,224

 
$
163,898

Net Income Attributable to Noncontrolling Interest
 
(158
)
 
(140
)
 
(201
)
 
(364
)
Net Income Attributable to BWX Technologies, Inc.
 
$
77,919

 
$
46,553

 
$
205,023

 
$
163,534

Earnings per Common Share:
 
 
 
 
 
 
 
 
Basic:
 
 
 
 
 
 
 
 
Net Income Attributable to BWX Technologies, Inc.
 
$
0.78

 
$
0.47

 
$
2.06

 
$
1.65

Diluted:
 
 
 
 
 
 
 
 
Net Income Attributable to BWX Technologies, Inc.
 
$
0.78

 
$
0.46

 
$
2.04

 
$
1.63

Shares used in the computation of earnings per share (Note 10):
 
 
 
 
 
 
 
 
Basic
 
99,421,031

 
99,328,677

 
99,542,933

 
99,313,264

Diluted
 
100,420,766

 
100,260,255

 
100,501,597

 
100,367,383

See accompanying notes to condensed consolidated financial statements.

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BWX TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2018
 
2017
 
2018
 
2017
 
 
(Unaudited)
(In thousands)
Net Income
 
$
78,077

 
$
46,693

 
$
205,224

 
$
163,898

Other Comprehensive Income (Loss):
 
 
 
 
 
 
 
 
Currency translation adjustments
 
2,008

 
4,590

 
(4,725
)
 
7,425

Derivative financial instruments:
 
 
 
 
 
 
 
 
Unrealized (losses) gains arising during the period, net of tax benefit (provision) of $24, $90, $(5) and $(149), respectively
 
(39
)
 
(259
)
 
7

 
429

Reclassification adjustment for (gains) losses included in net income, net of tax provision (benefit) of $7, $(71), $16 and $0, respectively
 
(26
)
 
204

 
(41
)
 
(3
)
Amortization of benefit plan costs, net of tax benefit of $(78), $(146), $(286) and $(459), respectively
 
360

 
282

 
1,145

 
861

Investments:
 
 
 
 
 
 
 
 
Unrealized losses arising during the period, net of tax benefit (provision) of $270, $(52), $270 and $(182), respectively
 
(388
)
 
(227
)
 
(432
)
 
(1,531
)
Reclassification adjustment for losses (gains) included in net income, net of tax provision of $25, $5, $25 and $19, respectively
 
379

 
(9
)
 
379

 
(143
)
Other Comprehensive Income (Loss)
 
2,294

 
4,581

 
(3,667
)
 
7,038

Total Comprehensive Income
 
80,371

 
51,274

 
201,557

 
170,936

Comprehensive Income Attributable to Noncontrolling Interest
 
(158
)
 
(140
)
 
(201
)
 
(364
)
Comprehensive Income Attributable to BWX Technologies, Inc.
 
$
80,213

 
$
51,134

 
$
201,356

 
$
170,572

See accompanying notes to condensed consolidated financial statements.

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Table of Contents

BWX TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
 
 
Common Stock
 
Capital In
Excess of
Par Value
 
 
 
Accumulated
Other
Comprehensive
Income (Loss)
 
 
 
 
 
 
 
Total
Stockholders'
Equity
 
 
Shares
 
Par
Value
 
 
Retained
Earnings
 
 
Treasury
Stock
 
Stockholders'
Equity
 
Noncontrolling
Interest
 
 
 
 
 
(In thousands, except share and per share amounts)
Balance December 31, 2017
 
125,381,591

 
$
1,254

 
$
98,843

 
$
990,652

 
$
9,454

 
$
(814,809
)
 
$
285,394

 
$
363

 
$
285,757

Recently adopted accounting standards
 

 

 

 
12,171

 
(2,245
)
 

 
9,926

 


 
9,926

Net income
 

 

 

 
205,023

 

 

 
205,023

 
201

 
205,224

Dividends declared ($0.48 per share)
 

 

 

 
(48,294
)
 

 

 
(48,294
)
 

 
(48,294
)
Currency translation adjustments
 

 

 

 

 
(4,725
)
 

 
(4,725
)
 

 
(4,725
)
Derivative financial instruments
 

 

 

 

 
(34
)
 

 
(34
)
 

 
(34
)
Defined benefit obligations
 

 

 

 

 
1,145

 

 
1,145

 

 
1,145

Available-for-sale investments
 

 

 

 

 
(53
)
 

 
(53
)
 

 
(53
)
Exercise of stock options
 
207,686

 
2

 
4,940

 

 

 

 
4,942

 

 
4,942

Shares placed in treasury
 

 

 

 

 

 
(69,391
)
 
(69,391
)
 

 
(69,391
)
Stock-based compensation charges
 
207,394

 
2

 
8,517

 

 

 

 
8,519

 

 
8,519

Distributions to noncontrolling interests
 

 

 

 

 

 

 

 
(515
)
 
(515
)
Balance September 30, 2018 (unaudited)
 
125,796,671

 
$
1,258

 
$
112,300

 
$
1,159,552

 
$
3,542

 
$
(884,200
)
 
$
392,452

 
$
49

 
$
392,501

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance December 31, 2016
 
124,149,609

 
$
1,241

 
$
22,018

 
$
885,117

 
$
3,811

 
$
(762,169
)
 
$
150,018

 
$
392

 
$
150,410

Net income
 

 

 

 
163,534

 

 

 
163,534

 
364

 
163,898

Dividends declared ($0.31 per share)
 

 

 

 
(31,107
)
 

 

 
(31,107
)
 

 
(31,107
)
Currency translation adjustments
 

 

 

 

 
7,425

 

 
7,425

 

 
7,425

Derivative financial instruments
 

 

 

 

 
426

 

 
426

 

 
426

Defined benefit obligations
 

 

 

 

 
861

 

 
861

 

 
861

Available-for-sale investments
 

 

 

 

 
(1,674
)
 

 
(1,674
)
 

 
(1,674
)
Exercise of stock options
 
874,872

 
9

 
20,602

 

 

 

 
20,611

 

 
20,611

Shares placed in treasury
 

 

 
39,907

 

 

 
(51,980
)
 
(12,073
)
 

 
(12,073
)
Stock-based compensation charges
 
286,187

 
3

 
9,876

 

 

 

 
9,879

 

 
9,879

Distributions to noncontrolling interests
 

 

 

 

 

 

 

 
(415
)
 
(415
)
Balance September 30, 2017 (unaudited)
 
125,310,668

 
$
1,253

 
$
92,403

 
$
1,017,544

 
$
10,849

 
$
(814,149
)
 
$
307,900

 
$
341

 
$
308,241

See accompanying notes to condensed consolidated financial statements.

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Table of Contents

BWX TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
 
Nine Months Ended September 30,
 
 
2018
 
2017
 
 
(Unaudited) (In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
Net Income
 
$
205,224

 
$
163,898

Non-cash items included in net income from continuing operations:
 
 
 
 
Depreciation and amortization
 
43,692

 
42,135

Income of investees, net of dividends
 
(8,471
)
 
731

Gains on asset disposals and impairments, net
 
(2
)
 
(33
)
Gain on forward contracts
 
(4,743
)
 

Recognition of debt issuance costs from Former Credit Facility
 
2,441

 

Provision for deferred taxes
 
38,685

 
17,501

Recognition of (gains) losses for pension and postretirement plans
 
(33,699
)
 
1,320

Stock-based compensation expense
 
8,519

 
9,879

Changes in assets and liabilities:
 
 
 
 
Accounts receivable
 
3,384

 
(17,748
)
Accounts payable
 
2,061

 
(10,978
)
Contracts in progress and advance billings on contracts
 
(35,049
)
 
(2,963
)
Income taxes
 
(46,511
)
 
21,587

Accrued and other current liabilities
 
3,344

 
(33,736
)
Pension liability, accrued postretirement benefit obligation and employee benefits
 
(184,898
)
 
(47,109
)
Other, net
 
(2,418
)
 
345

NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES
 
(8,441
)
 
144,829

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
 
Purchases of property, plant and equipment
 
(60,488
)
 
(49,361
)
Acquisition of business
 
(212,993
)
 

Purchases of securities
 
(3,111
)
 
(3,237
)
Sales and maturities of securities
 
3,378

 
12,406

Investments, net of return of capital, in equity method investees
 
(9,037
)
 
2,142

Proceeds from asset disposals
 
499

 
142

Other, net
 
4,743

 
(24
)
NET CASH USED IN INVESTING ACTIVITIES
 
(277,009
)
 
(37,932
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
Borrowings of long-term debt
 
901,300

 
73,600

Repayments of long-term debt
 
(624,987
)
 
(94,320
)
Payment of debt issuance costs
 
(9,443
)
 

Repurchase of common shares
 
(62,558
)
 

Dividends paid to common shareholders
 
(48,014
)
 
(31,072
)
Exercise of stock options
 
3,511

 
16,019

Cash paid for shares withheld to satisfy employee taxes
 
(5,402
)
 
(7,389
)
Other
 
(515
)
 
(415
)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
 
153,892

 
(43,577
)
EFFECTS OF EXCHANGE RATE CHANGES ON CASH
 
(8,464
)
 
15,290

TOTAL (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AND CASH EQUIVALENTS
 
(140,022
)
 
78,610

CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
 
213,144

 
134,600

CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AND CASH EQUIVALENTS AT END OF PERIOD
 
$
73,122

 
$
213,210

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
 
 
 
 
Cash paid during the period for:
 
 
 
 
Interest
 
$
13,325

 
$
10,762

Income taxes (net of refunds)
 
$
51,779

 
$
36,425

SCHEDULE OF NON-CASH INVESTING ACTIVITY:
 
 
 
 
Accrued capital expenditures included in accounts payable
 
$
13,457

 
$
7,680

See accompanying notes to condensed consolidated financial statements.

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BWX TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2018
(UNAUDITED)
NOTE 1 – 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, 2017 (our "2017 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 certain amounts previously reported to conform to the presentation at September 30, 2018 and for the three and nine months ended September 30, 2018. 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 are further described as follows:
Our Nuclear Operations Group segment manufactures naval nuclear reactors for the Naval Nuclear Propulsion Program for use in U.S. Navy submarines and aircraft carriers. Through this segment, we own and operate manufacturing facilities located in Lynchburg, Virginia; Barberton, Ohio; Mount Vernon, Indiana; Euclid, Ohio; and Erwin, Tennessee. 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. The Barberton and Mount Vernon locations specialize in the design and manufacture of heavy components inclusive of development and fabrication activities for submarine missile launch tubes at the Mount Vernon facility. The Euclid facility fabricates electro-mechanical equipment and performs design, manufacturing, inspection, assembly and testing activities. 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 high-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 U.S. Department of Energy ("DOE"), including the National Nuclear Security Administration ("NNSA"), the Office of Nuclear Energy, the Office of Science and the Office of Environmental Management, 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

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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 July 30, 2018, our subsidiary BWXT ITG Canada, Inc. acquired Sotera Health's Nordion medical isotope business (the "MI business") for $213.0 million, subject to customary working capital, cash and debt adjustments. The MI business is a leading global manufacturer and supplier of critical medical isotopes and radiopharmaceuticals for research, diagnostic and therapeutic uses. Its customers include radiopharmaceutical companies, hospitals and radiopharmacies. Its primary operations are located in Kanata, Ontario and Vancouver, British Columbia. This acquisition adds approximately 150 highly trained and experienced personnel, two specialized production centers and a uniquely licensed infrastructure. In addition to the growing portfolio of radioisotope products we acquired, the MI business will be the platform from which we plan to launch our Molybdenum-99 product line and a number of future radioisotope-based imaging and therapeutic products. This business is reported as part of our Nuclear Power Group segment. See Note 2 for additional information on the acquisition of the MI business.
See Note 9 for financial information about our segments. Operating results for the three and nine months ended September 30, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018. For further information, refer to the consolidated financial statements and the related footnotes included in our 2017 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 and recognized a $30.0 million loss contingency, which was ultimately paid to Bechtel in the first quarter of 2017 following the receipt of Bechtel's notice that the mPower program would not be restarted.
Contracts and Revenue Recognition
We generally recognize contract revenues and related costs over time for individual performance obligations based on a cost-to-cost method in accordance with Financial Accounting Standards Board ("FASB") Topic Revenue from Contracts with Customers. We recognize estimated contract revenue and resulting income based on the measurement of the extent of progress toward completion as a percentage of the total project (percentage-of-completion basis). Certain costs may be excluded from the cost-to-cost method of measuring progress, such as significant costs for uninstalled materials, if such costs do not depict our performance in transferring control of goods or services to the customer. 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. Certain of our contracts recognize revenue at a point in time, and revenue on these contracts is recognized when control transfers to the customer. The majority of our revenue that is recognized at a point in time is related to parts and certain medical isotopes and radiopharmaceuticals in our Nuclear Power Group segment. 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.
Accumulated Other Comprehensive Income
The components of Accumulated other comprehensive income included in Stockholders' Equity are as follows:
 
 
September 30,
2018
 
December 31,
2017
 
 
(In thousands)
Currency translation adjustments
 
$
8,423

 
$
13,148

Net unrealized gain on derivative financial instruments
 
319

 
353

Unrecognized prior service cost on benefit obligations
 
(5,092
)
 
(6,237
)
Net unrealized gain (loss) on available-for-sale investments
 
(108
)
 
2,190

Accumulated other comprehensive income
 
$
3,542

 
$
9,454

Upon adopting the FASB update to the Topic Financial Instruments, we reclassified $2.2 million of net unrealized gains on available-for-sale investments from Accumulated other comprehensive income to Retained earnings on January 1, 2018.

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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
September 30,
 
Nine Months Ended
September 30,
 
 
 
 
2018
 
2017
 
2018
 
2017
 
 
Accumulated Other Comprehensive Income (Loss) Component Recognized
 
(In thousands)
 
Line Item Presented
Realized gain (loss) on derivative financial instruments
 
$
(86
)
 
$
195

 
$
(90
)
 
$
182

 
Revenues
 
 
119

 
(470
)
 
147

 
(179
)
 
Cost of operations
 
 
33

 
(275
)
 
57

 
3

 
Total before tax
 
 
(7
)
 
71

 
(16
)
 

 
Provision for Income Taxes
 
 
$
26

 
$
(204
)
 
$
41

 
$
3

 
Net Income
Amortization of prior service cost on benefit obligations
 
$
(438
)
 
$
(428
)
 
$
(1,431
)
 
$
(1,320
)
 
Other – net
 
 
78

 
146

 
286

 
459

 
Provision for Income Taxes
 
 
$
(360
)
 
$
(282
)
 
$
(1,145
)
 
$
(861
)
 
Net Income
Realized gain (loss) on investments
 
$
(354
)
 
$
14

 
$
(354
)
 
$
162

 
Other – net
 
 
(25
)
 
(5
)
 
(25
)
 
(19
)
 
Provision for Income Taxes
 
 
$
(379
)
 
$
9

 
$
(379
)
 
$
143

 
Net Income
Total reclassification for the period
 
$
(713
)
 
$
(477
)
 
$
(1,483
)
 
$
(715
)
 
 
Inventories
At September 30, 2018 and December 31, 2017, Other current assets included inventories totaling $15.5 million and $8.6 million, respectively, consisting entirely of raw materials and supplies.
Restricted Cash and Cash Equivalents
At September 30, 2018, we had restricted cash and cash equivalents totaling $7.0 million, $2.6 million of which was held for future decommissioning of facilities (which is included in Other Assets on our condensed consolidated balance sheets) and $4.4 million of which was held to meet reinsurance reserve requirements of our captive insurer.
The following table provides a reconciliation of cash and cash equivalents and restricted cash and cash equivalents within our condensed consolidated balance sheets to the totals presented in our condensed consolidated statement of cash flows:
 
 
September 30,
2018
 
December 31,
2017
 
 
(In thousands)
Cash and cash equivalents
 
$
66,125

 
$
203,404

Restricted cash and cash equivalents
 
4,359

 
7,105

Restricted cash and cash equivalents included in Other Assets
 
2,638

 
2,635

Total cash and cash equivalents and restricted cash and cash equivalents as presented in our condensed consolidated statement of cash flows
 
$
73,122

 
$
213,144

Warranty Expense
We accrue estimated warranty 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.

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The following summarizes the changes in the carrying amount of our Accrued warranty expense:
 
 
Nine Months Ended
September 30,
 
 
2018
 
2017
 
 
(In thousands)
Balance at beginning of period
 
$
13,428

 
$
11,477

Additions
 
1,136

 
1,011

Expirations and other changes
 
(1,400
)
 
(188
)
Payments
 
(482
)
 
(21
)
Translation
 
(256
)
 
434

Balance at end of period
 
$
12,426

 
$
12,713

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.
On December 22, 2017, the Tax Cuts and Jobs Act (the "Act") was enacted, making significant changes to existing U.S. tax laws that impact us, including, but not limited to, a reduction to the U.S. corporate income tax rate from 35% to 21% for tax years beginning after December 31, 2017, the taxation of global intangible low-taxed income ("GILTI") and additional deduction limitations related to executive compensation. We recognized the income tax effects of the Act within our condensed consolidated financial statements in accordance with FASB Topic Income Taxes. Our Canadian operations continue to be subject to tax at a local statutory rate of approximately 25%.
Our effective tax rate for the three months ended September 30, 2018 was 7.7% as compared to 33.9% for the three months ended September 30, 2017. Our effective tax rate for the nine months ended September 30, 2018 was 17.5% as compared to 31.6% for the nine months ended September 30, 2017. The effective tax rates for the three and nine months ended September 30, 2018 were lower than the 2018 U.S. corporate income tax rate of 21% primarily due to remeasurement adjustments to our deferred tax assets as a result of accelerating additional contributions made in August 2018 to certain of our domestic pension plans for inclusion in our 2017 U.S. tax return. Our effective tax rate for the nine months ended September 30, 2017 was lower than the 2017 U.S. corporate income tax rate of 35% primarily due to benefits recognized for excess tax benefits related to employee share-based payments of $5.4 million.
As of September 30, 2018, we had gross unrecognized tax benefits of $0.3 million (exclusive of interest and federal and state benefits), all of which would reduce our effective tax rate if recognized.
Recently Adopted Accounting Standards
There were no accounting standards adopted during the period covered by this Form 10-Q. For more information regarding recently adopted accounting standards, refer to Note 1 to the consolidated financial statements in Part II of our 2017 10-K, as updated by our Form 10-Q for the quarter ended March 31, 2018.
New Accounting Standards
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 expect to adopt the provisions in this update effective January 1, 2019 using the modified retrospective approach. We do not anticipate a material impact on our financial statements upon adoption.

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NOTE 2 – ACQUISITIONS
Acquisition of Sotera Health LLC's Nordion Medical Isotope Business
On July 30, 2018, our subsidiary BWXT ITG Canada, Inc. acquired Sotera Health's Nordion medical isotope business (the "MI business") for $213.0 million, subject to customary working capital, cash and debt adjustments. The MI business is a leading global manufacturer and supplier of critical medical isotopes and radiopharmaceuticals for research, diagnostic and therapeutic uses. Its customers include radiopharmaceutical companies, hospitals and radiopharmacies. Its primary operations are located in Kanata, Ontario and Vancouver, British Columbia. This acquisition adds approximately 150 highly trained and experienced personnel, two specialized production centers and a uniquely licensed infrastructure. In addition to the growing portfolio of radioisotope products we acquired, the MI business will be the platform from which we plan to launch our Molybdenum-99 product line and a number of future radioisotope-based imaging and therapeutic products. This business is reported as part of our Nuclear Power Group segment.
The purchase price of the acquisition has been allocated among assets acquired and liabilities assumed at fair value, with the excess purchase price recorded as goodwill. Our preliminary purchase price allocation, as follows, is subject to change upon receipt of additional information and completion of further analysis, including, but not limited to, finalization of valuations related to long-lived and intangible assets (amounts in thousands):
Accounts receivable – trade
 
$
7,732

Contracts in progress
 
51

Inventories
 
2,113

Other current assets
 
97

Property, plant and equipment
 
12,948

Goodwill
 
62,495

Deferred Income Taxes
 
3,006

Intangible assets
 
139,257

Total assets acquired
 
$
227,699

Accounts payable
 
$
654

Accrued employee benefits
 
579

Accrued liabilities – other
 
1,665

Environmental liabilities
 
2,062

Pension liability
 
9,746

Total liabilities assumed
 
$
14,706

Net assets acquired
 
$
212,993

Amount of tax deductible goodwill
 
$
53,693

The intangible assets included above consist of the following (dollar amounts in thousands):
 
 
Amount
 
Amortization Period
Technical support agreement and relationship
 
$
67,500

 
23 years
Unpatented technology
 
$
33,000

 
19 years
Favorable operating leases
 
$
28,157

 
13-30 years
Customer relationship
 
$
10,600

 
19 years
Our consolidated financial statements for the three and nine months ended September 30, 2018 include $8.0 million of revenues and $0.5 million of net income related to the MI business operations occurring from the acquisition date to September 30, 2018. Additionally, the following unaudited pro forma financial information presents our results of operations for the three and nine months ended September 30, 2018 and 2017 as if the acquisition of the MI business had occurred on January 1, 2017. The unaudited pro forma financial information below is not intended to represent or be indicative of our actual consolidated results had we completed the acquisition at January 1, 2017. This information is presented for comparative purposes only and should not be taken as representative of our future consolidated results of operations.

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Three Months Ended
 
Nine Months Ended
 
 
September 30, 2018
 
September 30, 2017
 
September 30, 2018
 
September 30, 2017
 
 
(In thousands, except per share amounts)
Revenues
 
$
429,558

 
$
429,791

 
$
1,347,031

 
$
1,285,536

Net Income Attributable to BWX Technologies, Inc.
 
$
79,141

 
$
45,788

 
$
206,435

 
$
159,499

Basic Earnings per Common Share
 
$
0.80

 
$
0.46

 
$
2.07

 
$
1.61

Diluted Earnings per Common Share
 
$
0.79

 
$
0.46

 
$
2.05

 
$
1.59

The unaudited pro forma results include the following pre-tax adjustments to the historical results presented above:
Increase in amortization expense related to timing of amortization of the fair value of identifiable intangible assets acquired of approximately $0.5 million and $3.7 million for the three and nine months ended September 30, 2018, respectively, and $1.6 million and $4.8 million for the three and nine months ended September 30, 2017, respectively.
Additional interest expense associated with the incremental borrowings that would have been incurred to acquire the MI business as of January 1, 2017 of approximately $2.4 million for the nine months ended September 30, 2018, and $1.4 million and $3.8 million for the three and nine months ended September 30, 2017, respectively.
Elimination of $0.9 million and $2.5 million in acquisition related costs recognized in the three and nine months ended September 30, 2018, respectively, that are not expected to be recurring.
NOTE 3 – REVENUE RECOGNITION
The initial impact of the adoption of the FASB Topic Revenue from Contracts with Customers, which was recognized in a cumulative catch-up adjustment on January 1, 2018, is illustrated below:
 
 
January 1,
 
December 31,
 
 
2018
 
2017
 
 
(In thousands)
Assets:
 
 
 
 
Contracts in progress
 
$
260,932

 
$
420,628

Deferred Income Taxes
 
$
85,193

 
$
86,740

Liabilities:
 
 
 
 
Accrued liabilities – other
 
$
66,371

 
$
64,738

Advance billings on contracts
 
$
73,390

 
$
246,192

Stockholders' Equity:
 
 
 
 
Retained earnings
 
$
1,000,578

 
$
990,652

Within our Nuclear Operations Group segment, we continue to recognize revenue over time and now 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 performance obligations within this segment. The performance obligations identified for recognizing revenue are 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, in the aggregate, results in the recognition of revenue and cost of operations earlier in the process of satisfying performance obligations. This change impacted the life-to-date revenue and cost of operations recognized on performance obligations, and the adjustment to capture the impact of the new revenue recognition standard was recorded as a cumulative catch-up adjustment in Retained earnings. The new standard also resulted in a reduction in both our Contracts in progress and Advance billings on contracts account balances as a result of measuring the asset and liability at the contract level. Historically, contract assets and liabilities were measured at the unit of account, which we concluded was at a lower level than that of the contract.
The impact of the adoption of the new revenue standard on our Nuclear Power Group and Nuclear Services Group segments was not material.

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Contracts and Revenue Recognition
Nuclear Operations Group
Our Nuclear Operations Group segment recognizes revenue over time for the manufacturing of naval nuclear reactor components and fuel, submarine missile launch tubes and the downblending of high-enriched uranium. Certain of our contracts contain two or more different types of components, each of which we identify as a separate performance obligation. We recognize revenue using a cost-to-cost method to measure progress as control is continually transferred to the customer as we incur costs on the performance obligations. We allocate revenue to the individual performance obligations within contracts with multiple performance obligations based on the stand-alone selling price of the individual performance obligations.
Our fixed-price incentive fee contracts include incentives that we concluded to be variable consideration. The amount of the variable consideration to which we are entitled is dependent on our actual costs incurred on the performance obligation compared to the target costs for that performance obligation and subject to incentive price revisions included within the contracts. We include these incentive fees in revenue when there is sufficient evidence to determine that the variable consideration is not constrained. The remaining contracts typically have immaterial amounts of variable consideration and have a single performance obligation. Our estimates of variable consideration and total estimated costs at completion are determined through a detailed process based on historical performance and our expertise using the most likely method. Variations from estimated contract performance could result in a material effect on our financial condition and results of operations in future periods.
Our Nuclear Operations Group segment's contracts allow for billings as costs are incurred, subject to certain retainages on our fixed-price incentive fee contracts, that require milestones to be reached for the remaining consideration to be paid.
Nuclear Services Group
Our contracts within our Nuclear Services Group segment are primarily cost-plus service contracts on which we recognize revenue over time based on a cost-to-cost method, which is consistent with the structure of the billings associated with these contracts. Ownership continuously transfers to the customer as we perform the services. The contracts within this segment do not contain significant variable consideration and contain a single performance obligation. Certain of these contracts contain assurance warranties and/or provisions for liquidated damages, which are expected to have an immaterial impact on the contracts based on our historical experience.
Nuclear Power Group
Our Nuclear Power Group segment recognizes revenue over time using a cost-to-cost method for the manufacturing of large components, non-standard parts, fuel bundles and service contracts as control continually transfers to the customers. For standard parts, revenue is recognized at the point in time control transfers to the customer, which is consistent with the transfer of ownership. For medical isotopes, we recognize revenue either at the point in time control transfers to the customer or over time using a unit of output method. This segment generates revenue primarily from firm-fixed-price contracts that do not contain variable consideration as well as time-and-materials based contracts. Certain of these contracts contain assurance warranties and/or provisions for liquidated damages, which are expected to have an immaterial impact to the contracts based on our historical experience. We are entitled to payment on the majority of our Nuclear Power Group segment contracts when we achieve certain milestones related to our progress.

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Disaggregated Revenues
Revenues by geographical area and customer type are as follows:
 
 
Three Months Ended September 30, 2018
 
Nine Months Ended September 30, 2018
 
 
Nuclear
Operations
Group
 
Nuclear
Services
Group
 
Nuclear
Power
Group
 
Total
 
Nuclear
Operations
Group
 
Nuclear
Services
Group
 
Nuclear
Power
Group
 
Total
 
 
(In thousands)
United States:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Government
 
$
315,744

 
$
27,120

 
$

 
$
342,864

 
$
960,271

 
$
81,175

 
$

 
$
1,041,446

Non-Government
 
2,066

 
536

 
3,890

 
6,492

 
5,915

 
7,623

 
4,477

 
18,015

 
 
$
317,810

 
$
27,656

 
$
3,890

 
$
349,356

 
$
966,186

 
$
88,798

 
$
4,477

 
$
1,059,461

Canada:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Government
 
$
358

 
$

 
$

 
$
358

 
$
358

 
$

 
$

 
$
358

Non-Government
 
161

 
611

 
65,234

 
66,006

 
161

 
2,096

 
212,302

 
214,559

 
 
$
519

 
$
611

 
$
65,234

 
$
66,364

 
$
519

 
$
2,096

 
$
212,302

 
$
214,917

Other:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Government
 
$

 
$

 
$

 
$

 
$

 
$

 
$

 
$

Non-Government
 
996

 
99

 
10,038

 
11,133

 
1,391

 
101

 
50,896

 
52,388

 
 
$
996

 
$
99

 
$
10,038

 
$
11,133

 
$
1,391

 
$
101

 
$
50,896

 
$
52,388

Segment Revenues
 
$
319,325

 
$
28,366

 
$
79,162

 
426,853

 
$
968,096

 
$
90,995

 
$
267,675

 
1,326,766

Adjustments and Eliminations
 
 
 
 
 
 
 
(1,346
)
 
 
 
 
 
 
 
(4,875
)
Revenues
 
 
 
 
 
 
 
$
425,507

 
 
 
 
 
 
 
$
1,321,891

Revenues by timing of transfer of goods or services are as follows:
 
 
Three Months Ended September 30, 2018
 
Nine Months Ended September 30, 2018
 
 
Nuclear
Operations
Group
 
Nuclear
Services
Group
 
Nuclear
Power
Group
 
Total
 
Nuclear
Operations
Group
 
Nuclear
Services
Group
 
Nuclear
Power
Group
 
Total
 
 
(In thousands)
Over-time
 
$
319,325

 
$
28,366

 
$
66,219

 
$
413,910

 
$
968,096

 
$
90,995

 
$
240,652

 
$
1,299,743

Point-in-time
 

 

 
12,943

 
12,943

 

 

 
27,023

 
27,023

Segment Revenues
 
$
319,325

 
$
28,366

 
$
79,162

 
426,853

 
$
968,096

 
$
90,995

 
$
267,675

 
1,326,766

Adjustments and Eliminations
 
 
 
 
 
 
 
(1,346
)
 
 
 
 
 
 
 
(4,875
)
Revenues
 
 
 
 
 
 
 
$
425,507

 
 
 
 
 
 
 
$
1,321,891

Revenues by contract type are as follows:
 
 
Three Months Ended September 30, 2018
 
Nine Months Ended September 30, 2018
 
 
Nuclear
Operations
Group
 
Nuclear
Services
Group
 
Nuclear
Power
Group
 
Total
 
Nuclear
Operations
Group
 
Nuclear
Services
Group
 
Nuclear
Power
Group
 
Total
 
 
(In thousands)
Fixed-Price Incentive Fee
 
$
255,944

 
$

 
$
3,748

 
$
259,692

 
$
763,334

 
$

 
$
13,365

 
$
776,699

Firm-Fixed-Price
 
38,262

 
4,393

 
58,451

 
101,106

 
137,792

 
15,435

 
177,035

 
330,262

Cost-Plus Fee
 
25,117

 
23,496

 

 
48,613

 
66,800

 
73,535

 
45

 
140,380

Time-and-Materials
 
2

 
477

 
16,963

 
17,442

 
170

 
2,025

 
77,230

 
79,425

Segment Revenues
 
$
319,325

 
$
28,366

 
$
79,162

 
426,853

 
$
968,096

 
$
90,995

 
$
267,675

 
1,326,766

Adjustments and Eliminations
 
 
 
 
 
 
 
(1,346
)
 
 
 
 
 
 
 
(4,875
)
Revenues
 
 
 
 
 
 
 
$
425,507

 
 
 
 
 
 
 
$
1,321,891


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Table of Contents

Performance Obligations
As we progress on our contracts and the underlying performance obligations for which we recognize revenue over time, we refine our estimates of variable consideration and total estimated costs at completion, which impact the overall profitability on our contracts and performance obligations. Changes in these estimates result in the recognition of cumulative catch-up adjustments that impact our revenue and/or costs of contracts. During the nine months ended September 30, 2018, we recognized net favorable changes in estimates that resulted in increases in revenue of $23.4 million and an increase in cost of operations of $12.3 million. Included in these amounts are contract adjustments resulting from rework issues related to the manufacture of non-nuclear components being produced within our Nuclear Operations Group segment. We have recognized decreases in operating income of $26.7 million and $29.2 million for the three and nine months ended September 30, 2018, respectively, related to this matter. These contract adjustments resulted in a decrease in earnings per share of $0.21 and $0.23 for the three and nine months ended September 30, 2018, respectively.
Contract Assets and Liabilities
We include revenues and related costs incurred, 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 over time. 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. Changes in Contracts in progress and Advance billings on contracts are primarily driven by differences in the timing of revenue recognition and billings to our customers. During the nine months ended September 30, 2018, our unbilled receivables increased $66.0 million, primarily as a result of revenue in excess of billings on certain firm-fixed-price contracts within our Nuclear Operations Group segment and the timing of milestone billings on large components and contracts started in 2018 within our Nuclear Power Group segment. Our fixed-price incentive fee contracts for our Nuclear Operations Group segment include provisions that result in an increase in retainages on contracts during the first and third quarters of the year, with larger payments made during the second and fourth quarters. Retainages also vary as a result of timing differences between incurring costs and achieving milestones that allow us to recover these amounts. This resulted in an increase in retainages on contracts from January 1 to September 30, 2018 as shown below:
 
 
September 30,
 
January 1,
 
 
2018
 
2018
 
 
(In thousands)
Included in Contracts in progress:
 
 
 
 
Unbilled receivables
 
$
316,341

 
$
250,325

Included in Accounts receivable – trade, net:
 
 
 
 
Retainages
 
$
102,555

 
$
82,801

Included in Other Assets:
 
 
 
 
Retainages
 
$
1,626

 
$
1,669

Advance billings on contracts
 
$
104,646

 
$
73,390

During the nine months ended September 30, 2018, we recognized $49.0 million of revenue that was in Advance billings on contracts at January 1, 2018.
Remaining Performance Obligations
Remaining performance obligations represent the dollar amount of revenue we expect to recognize in the future from performance obligations on contracts previously awarded and in progress. Of the September 30, 2018 remaining performance obligations on our contracts with customers, we expect to recognize revenues as follows:
 
 
2018
 
2019
 
Thereafter
 
Total
 
 
(In approximate millions)
Nuclear Operations Group
 
$
304

 
$
889

 
$
1,747

 
$
2,940

Nuclear Services Group
 
18

 
3

 
5

 
26

Nuclear Power Group
 
84

 
176

 
608

 
868

Total Remaining Performance Obligations
 
$
406

 
$
1,068

 
$
2,360

 
$
3,834


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Historical Method
Prior to the adoption of FASB Topic Revenue from Contracts with Customers, we accounted for revenue under previous GAAP. In accordance with our adoption of the new revenue recognition standard utilizing the modified retrospective approach, we are required to disclose the impact on our financial statements on a line item basis.
A comparison of certain line items in our condensed consolidated balance sheet is shown below:
 
 
September 30, 2018
 
 
Current
Method
 
Historical
Method
 
 
(In thousands)
Assets:
 
 
 
 
Contracts in progress
 
$
326,355

 
$
352,389

Deferred Income Taxes
 
$
45,105

 
$
46,785

Liabilities:
 
 
 
 
Accrued liabilities – other
 
$
53,508

 
$
50,435

Advance billings on contracts
 
$
104,646

 
$
150,081

Stockholders' Equity:
 
 
 
 
Retained earnings
 
$
1,159,552

 
$
1,144,904

Differences in the amounts above are primarily the result of the initial adoption of the new revenue recognition standard. Additional differences were caused by revenue under the current method being $8.5 million higher than the historical method as discussed below.
A comparison of certain line items in our condensed consolidated statements of income is shown below:
 
 
Three Months Ended
September 30, 2018
 
Nine Months Ended
September 30, 2018
 
 
Current
Method
 
Historical
Method
 
Current
Method
 
Historical
Method
 
 
(In thousands)
Revenues
 
$
425,507

 
$
407,759

 
$
1,321,891

 
$
1,313,392

Cost of operations
 
$
326,314

 
$
315,196

 
$
971,887

 
$
969,683

Operating Income
 
$
50,395

 
$
43,765

 
$
201,832

 
$
195,537

Provision for Income Taxes
 
$
6,482

 
$
4,962

 
$
43,578

 
$
42,005

Net Income
 
$
78,077

 
$
72,967

 
$
205,224

 
$
200,502

We recognized $17.7 million and $8.5 million more revenue under the current method compared to the historical method for the three and nine months ended September 30, 2018, respectively. This was primarily driven by more progress being achieved on contracts as a result of using a cost-to-cost method for measuring progress under the current method as compared to man-hours or units of output under our historical method.

17

Table of Contents

NOTE 4 – PENSION PLANS AND POSTRETIREMENT BENEFITS
We record the service cost component of net periodic benefit cost within Operating income on our condensed consolidated statements of income. For the three months ended September 30, 2018 and 2017, these amounts were $2.5 million and $1.8 million, respectively. For the nine months ended September 30, 2018 and 2017, these amounts were $7.7 million and $6.4 million, respectively. All other components of net periodic benefit cost are included in Other – net within the condensed consolidated statements of income. For the three months ended September 30, 2018 and 2017, these amounts were $(42.4) million and $(6.9) million, respectively. For the nine months ended September 30, 2018 and 2017, these amounts were $(60.1) million and $(20.8) million, respectively. Components of net periodic benefit cost included in net income are as follows:
 
 
Pension Benefits
 
Other Benefits
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2018
 
2017
 
2018
 
2017
 
2018
 
2017
 
2018
 
2017
 
 
(In thousands)
Service cost
 
$
2,380

 
$
1,721

 
$
7,198

 
$
6,017

 
$
132

 
$
116

 
$
459

 
$
423

Interest cost
 
11,575

 
13,727

 
36,225

 
40,735

 
504

 
557

 
1,404

 
1,635

Expected return on plan assets
 
(19,272
)
 
(21,019
)
 
(62,450
)
 
(62,659
)
 
(548
)
 
(596
)
 
(1,581
)
 
(1,787
)
Amortization of prior service cost (credit)
 
565

 
506

 
1,665

 
1,556

 
(127
)
 
(79
)
 
(234
)
 
(236
)
Recognized net actuarial gain
 
(35,130
)
 

 
(35,130
)
 

 

 

 

 

Net periodic benefit (income) cost
 
$
(39,882
)
 
$
(5,065
)
 
$
(52,492
)
 
$
(14,351
)
 
$
(39
)
 
$
(2
)
 
$
48

 
$
35

We immediately recognize net actuarial gains and losses for our pension and postretirement benefit plans into earnings as a component of net periodic benefit cost. In