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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 March 31, 2019.
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 April 29, 2019 was 95,149,979.


Table of Contents

BWX TECHNOLOGIES, INC.
INDEX - FORM 10-Q
 
 
 
PAGE
 
 
 
 
 
 
March 31, 2019 and December 31, 2018 (Unaudited)
 
 
 
Three Months Ended March 31, 2019 and 2018 (Unaudited)
 
 
 
Three Months Ended March 31, 2019 and 2018 (Unaudited)
 
 
 
Three Months Ended March 31, 2019 and 2018 (Unaudited)
 
 
 
Three Months Ended March 31, 2019 and 2018 (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
 
 
March 31,
2019
 
December 31,
2018
 
 
(Unaudited)
(In thousands)
Current Assets:
 
 
 
 
Cash and cash equivalents
 
$
22,976

 
$
29,871

Restricted cash and cash equivalents
 
4,024

 
3,834

Investments
 
3,601

 
3,597

Accounts receivable – trade, net
 
65,255

 
71,574

Accounts receivable – other
 
12,038

 
13,374

Retainages
 
72,000

 
57,885

Contracts in progress
 
351,953

 
318,454

Other current assets
 
45,717

 
43,859

Total Current Assets
 
577,564

 
542,448

Property, Plant and Equipment
 
1,150,110

 
1,132,392

Less accumulated depreciation
 
696,095

 
693,153

Net Property, Plant and Equipment
 
454,015

 
439,239

Investments
 
8,598

 
7,382

Goodwill
 
275,604

 
274,082

Deferred Income Taxes
 
61,154

 
63,908

Investments in Unconsolidated Affiliates
 
65,320

 
63,746

Intangible Assets
 
194,116

 
228,676

Other Assets
 
80,415

 
35,615

TOTAL
 
$
1,716,786

 
$
1,655,096

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
 
 
March 31,
2019
 
December 31,
2018
 
 
(Unaudited)
(In thousands, except share
and per share amounts)
Current Liabilities:
 
 
 
 
Current maturities of long-term debt
 
$
14,383

 
$
14,227

Accounts payable
 
98,455

 
114,751

Accrued employee benefits
 
56,342

 
77,386

Accrued liabilities – other
 
58,032

 
62,163

Advance billings on contracts
 
88,117

 
98,477

Accrued warranty expense
 
10,431

 
10,344

Total Current Liabilities
 
325,760

 
377,348

Long-Term Debt
 
856,005

 
753,617

Accumulated Postretirement Benefit Obligation
 
19,223

 
19,236

Environmental Liabilities
 
87,972

 
86,372

Pension Liability
 
169,939

 
173,469

Other Liabilities
 
15,013

 
9,353

Commitments and Contingencies (Note 5)
 

 

Stockholders' Equity:
 
 
 
 
Common stock, par value $0.01 per share, authorized 325,000,000 shares; issued 126,379,796 and 125,871,866 shares at March 31, 2019 and December 31, 2018, respectively
 
1,264

 
1,259

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

 

Capital in excess of par value
 
119,525

 
115,725

Retained earnings
 
1,198,198

 
1,166,762

Treasury stock at cost, 31,243,844 and 30,625,074 shares at March 31, 2019 and December 31, 2018, respectively
 
(1,066,822
)
 
(1,037,795
)
Accumulated other comprehensive income
 
(9,316
)
 
(10,289
)
Stockholders' Equity – BWX Technologies, Inc.
 
242,849

 
235,662

Noncontrolling interest
 
25

 
39

Total Stockholders' Equity
 
242,874

 
235,701

TOTAL
 
$
1,716,786

 
$
1,655,096

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 March 31,
 
 
2019
 
2018
 
 
(Unaudited)
(In thousands, except share and per share amounts)
Revenues
 
$
416,454

 
$
457,463

Costs and Expenses:
 
 
 
 
Cost of operations
 
303,635

 
327,364

Research and development costs
 
5,174

 
3,607

Losses (gains) on asset disposals and impairments, net
 

 
(8
)
Selling, general and administrative expenses
 
51,683

 
53,762

Total Costs and Expenses
 
360,492

 
384,725

Equity in Income of Investees
 
7,682

 
7,150

Operating Income
 
63,644

 
79,888

Other Income (Expense):
 
 
 
 
Interest income
 
415

 
778

Interest expense
 
(8,703
)
 
(3,560
)
Other – net
 
7,521

 
7,910

Total Other Income (Expense)
 
(767
)
 
5,128

Income before Provision for Income Taxes
 
62,877

 
85,016

Provision for Income Taxes
 
13,767

 
18,603

Net Income
 
$
49,110

 
$
66,413

Net (Income) Loss Attributable to Noncontrolling Interest
 
(132
)
 
28

Net Income Attributable to BWX Technologies, Inc.
 
$
48,978

 
$
66,441

Earnings per Common Share:
 
 
 
 
Basic:
 
 
 
 
Net Income Attributable to BWX Technologies, Inc.
 
$
0.51

 
$
0.67

Diluted:
 
 
 
 
Net Income Attributable to BWX Technologies, Inc.
 
$
0.51

 
$
0.66

Shares used in the computation of earnings per share (Note 9):
 
 
 
 
Basic
 
95,255,109

 
99,526,187

Diluted
 
95,821,354

 
100,512,287

See accompanying notes to condensed consolidated financial statements.

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BWX TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME
 
 
Three Months Ended March 31,
 
 
2019
 
2018
 
 
(Unaudited)
(In thousands)
Net Income
 
$
49,110

 
$
66,413

Other Comprehensive Income (Loss):
 
 
 
 
Currency translation adjustments
 
943

 
(3,124
)
Derivative financial instruments:
 
 
 
 
Unrealized (losses) gains arising during the period, net of tax benefit (provision) of $164 and $(59), respectively
 
(441
)
 
173

Reclassification adjustment for gains included in net income, net of tax provision of $49 and $30, respectively
 
(141
)
 
(79
)
Amortization of benefit plan costs, net of tax benefit of $(136) and $(183), respectively
 
511

 
322

Investments:
 
 
 
 
Unrealized gains (losses) arising during the period, net of tax provision of $(7) and $0, respectively
 
24

 
(66
)
Other Comprehensive Income (Loss)
 
896

 
(2,774
)
Total Comprehensive Income
 
50,006

 
63,639

Comprehensive Income Attributable to Noncontrolling Interest
 
(132
)
 
28

Comprehensive Income Attributable to BWX Technologies, Inc.
 
$
49,874

 
$
63,667

See accompanying notes to condensed consolidated financial statements.

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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, 2018
 
125,871,866

 
$
1,259

 
$
115,725

 
$
1,166,762

 
$
(10,289
)
 
$
(1,037,795
)
 
$
235,662

 
$
39

 
$
235,701

Recently adopted accounting standards
 

 

 

 
(1,219
)
 
77

 

 
(1,142
)
 

 
(1,142
)
Net income
 

 

 

 
48,978

 

 

 
48,978

 
132

 
49,110

Dividends declared ($0.17 per share)
 

 

 

 
(16,323
)
 

 

 
(16,323
)
 

 
(16,323
)
Currency translation adjustments
 

 

 

 

 
943

 

 
943

 

 
943

Derivative financial instruments
 

 

 

 

 
(582
)
 

 
(582
)
 

 
(582
)
Defined benefit obligations
 

 

 

 

 
511

 

 
511

 

 
511

Available-for-sale investments
 

 

 

 

 
24

 

 
24

 

 
24

Exercises of stock options
 
58,655

 
1

 
1,275

 

 

 

 
1,276

 

 
1,276

Shares placed in treasury
 

 

 

 

 

 
(29,027
)
 
(29,027
)
 

 
(29,027
)
Stock-based compensation charges
 
449,275

 
4

 
2,525

 

 

 

 
2,529

 

 
2,529

Distributions to noncontrolling interests
 

 

 

 

 

 

 

 
(146
)
 
(146
)
Balance March 31, 2019 (unaudited)
 
126,379,796

 
$
1,264

 
$
119,525

 
$
1,198,198

 
$
(9,316
)
 
$
(1,066,822
)
 
$
242,849

 
$
25

 
$
242,874

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
 

 

 

 
13,311

 
(3,385
)
 

 
9,926

 

 
9,926

Net income
 

 

 

 
66,441

 

 

 
66,441

 
(28
)
 
66,413

Dividends declared ($0.16 per share)
 

 

 

 
(16,174
)
 

 

 
(16,174
)
 

 
(16,174
)
Currency translation adjustments
 

 

 

 

 
(3,124
)
 

 
(3,124
)
 

 
(3,124
)
Derivative financial instruments
 

 

 

 

 
94

 

 
94

 

 
94

Defined benefit obligations
 

 

 

 

 
322

 

 
322

 

 
322

Available-for-sale investments
 

 

 

 

 
(66
)
 

 
(66
)
 

 
(66
)
Exercises of stock options
 
159,126

 
1

 
3,806

 

 

 

 
3,807

 

 
3,807

Shares placed in treasury
 

 

 

 

 

 
(5,940
)
 
(5,940
)
 

 
(5,940
)
Stock-based compensation charges
 
181,317

 
2

 
4,459

 

 

 

 
4,461

 

 
4,461

Distributions to noncontrolling interests
 

 

 

 

 

 

 

 
(226
)
 
(226
)
Balance March 31, 2018 (unaudited)
 
125,722,034

 
$
1,257

 
$
107,108

 
$
1,054,230

 
$
3,295

 
$
(820,749
)
 
$
345,141

 
$
109

 
$
345,250

See accompanying notes to condensed consolidated financial statements.

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BWX TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
 
Three Months Ended March 31,
 
 
2019
 
2018
 
 
(Unaudited) (In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
Net Income
 
$
49,110

 
$
66,413

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
15,122

 
14,061

Income of investees, net of dividends
 
(2,960
)
 
(2,299
)
Recognition of losses for pension and postretirement plans
 
647

 
505

Stock-based compensation expense
 
2,529

 
4,461

Changes in assets and liabilities:
 
 
 
 
Accounts receivable
 
5,812

 
27,387

Accounts payable
 
1,612

 
10,528

Retainages
 
(13,949
)
 
(10,444
)
Contracts in progress and advance billings on contracts
 
(43,735
)
 
(74,153
)
Income taxes
 
7,559

 
(5,502
)
Accrued and other current liabilities
 
(10,748
)
 
364

Pension liabilities, accrued postretirement benefit obligations and employee benefits
 
(25,876
)
 
(48,929
)
Other, net
 
(2,846
)
 
(997
)
NET CASH USED IN OPERATING ACTIVITIES
 
(17,723
)
 
(18,605
)
CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
 
Purchases of property, plant and equipment
 
(44,519
)
 
(17,634
)
Purchases of securities
 
(1,786
)
 
(1,033
)
Sales and maturities of securities
 
1,800

 
2,948

Other, net
 

 
8

NET CASH USED IN INVESTING ACTIVITIES
 
(44,505
)
 
(15,711
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
Borrowings of long-term debt
 
212,500

 

Repayments of long-term debt
 
(113,457
)
 
(6,951
)
Repurchases of common shares
 
(20,000
)
 

Dividends paid to common shareholders
 
(16,797
)
 
(15,947
)
Exercises of stock options
 
823

 
2,525

Cash paid for shares withheld to satisfy employee taxes
 
(8,574
)
 
(4,657
)
Other
 
943

 
(226
)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
 
55,438

 
(25,256
)
EFFECTS OF EXCHANGE RATE CHANGES ON CASH
 
104

 
(2,236
)
TOTAL DECREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AND CASH EQUIVALENTS
 
(6,686
)
 
(61,808
)
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
 
36,408

 
213,144

CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AND CASH EQUIVALENTS AT END OF PERIOD
 
$
29,722

 
$
151,336

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
 
 
 
 
Cash paid during the period for:
 
 
 
 
Interest
 
$
14,767

 
$
3,463

Income taxes (net of refunds)
 
$
6,191

 
$
24,370

SCHEDULE OF NON-CASH INVESTING ACTIVITY:
 
 
 
 
Accrued capital expenditures included in accounts payable
 
$
11,249

 
$
4,735

See accompanying notes to condensed consolidated financial statements.

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BWX TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2019
(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, 2018 (our "2018 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 March 31, 2019 and for the three months ended March 31, 2019 primarily related to the adoption of new accounting standards. 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 Power Group and Nuclear Services 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 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. 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 Power Group segment fabricates commercial nuclear 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 commercial heavy nuclear component manufacturer in North America. This segment also provides specialized engineering services that include structural component design, 3-D thermal-hydraulic engineering analysis, weld and robotic process development, electrical and controls engineering and metallurgy and materials engineering. In addition, this segment offers in-plant inspection, maintenance and modification services for nuclear steam generators, heat exchangers, reactors, fuel handling systems and balance of plant equipment, as well as specialized non-destructive examination and tooling/repair solutions. This segment is also a leading global manufacturer and supplier of critical medical radioisotopes and radiopharmaceuticals for research, diagnostic and therapeutic uses. See Note 2 for information about a recent acquisition related to this segment.
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

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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 is also engaged in inspection and maintenance services for the commercial nuclear industry primarily in the U.S. These services include steam generator, heat exchanger and balance of plant inspection and servicing as well as high pressure water lancing, non-destructive examination and the development of customized tooling solutions. This segment also offers complete advanced nuclear fuel and reactor design and engineering, licensing and manufacturing services for new advanced nuclear reactors and other nuclear technologies.
See Note 8 for financial information about our segments. Operating results for the three months ended March 31, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019. For further information, refer to the consolidated financial statements and notes included in our 2018 10-K.
Recently Adopted 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 sheets the assets and liabilities for all leases with lease terms of more than 12 months, along with additional qualitative and quantitative disclosures. We adopted this update on January 1, 2019 using the modified retrospective method, which resulted in the recognition of right-of-use assets totaling $45.1 million and lease liabilities totaling $11.9 million. The difference between the right-of-use assets and lease liabilities of $33.2 million was primarily the result of reclassifications of favorable leases related to recent acquisitions from Intangible Assets. In addition, we elected the package of practical expedients permitted under the transition guidance, which allowed us to carry forward our historical lease classifications, among other things. The adoption of the provisions in this update did not have an impact on our condensed consolidated statements of income or cash flows.
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. 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 radioisotopes 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.
On January 1, 2019, certain of our joint ventures within our Nuclear Services Group segment adopted the provisions of FASB Topic Revenue from Contracts with Customers. This resulted in a decrease to Investments in Unconsolidated Affiliates of $1.1 million with an offsetting decrease to Retained earnings on our condensed consolidated balance sheet.
Accumulated Other Comprehensive Income
The components of Accumulated other comprehensive income included in Stockholders' Equity are as follows:
 
 
March 31,
2019
 
December 31,
2018
 
 
(In thousands)
Currency translation adjustments
 
$
4,449

 
$
3,506

Net unrealized gain on derivative financial instruments
 
180

 
685

Unrecognized prior service cost on benefit obligations
 
(13,884
)
 
(14,395
)
Net unrealized gain (loss) on available-for-sale investments
 
(61
)
 
(85
)
Accumulated other comprehensive income
 
$
(9,316
)
 
$
(10,289
)
Upon adopting the FASB update to the Topic Derivatives, we reclassified $0.1 million from Retained earnings to Accumulated other comprehensive income on January 1, 2019.

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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
March 31,
 
 
 
 
2019
 
2018
 
 
Accumulated Other Comprehensive Income (Loss) Component Recognized
 
(In thousands)
 
Line Item Presented
Realized gain (loss) on derivative financial instruments
 
$
(12
)
 
$
(11
)
 
Revenues
 
 
202

 
120

 
Cost of operations
 
 
190

 
109

 
Total before tax
 
 
(49
)
 
(30
)
 
Provision for Income Taxes
 
 
$
141

 
$
79

 
Net Income
Amortization of prior service cost on benefit obligations
 
$
(647
)
 
$
(505
)
 
Other – net
 
 
136

 
183

 
Provision for Income Taxes
 
 
$
(511
)
 
$
(322
)
 
Net Income
Total reclassification for the period
 
$
(370
)
 
$
(243
)
 
 
Inventories
At March 31, 2019 and December 31, 2018, Other current assets included inventories totaling $15.2 million and $16.0 million, respectively, consisting entirely of raw materials and supplies.
Restricted Cash and Cash Equivalents
At March 31, 2019, we had restricted cash and cash equivalents totaling $6.7 million, $2.7 million of which was held for future decommissioning of facilities (which is included in Other Assets on our condensed consolidated balance sheets) and $4.0 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 on our condensed consolidated balance sheets to the totals presented on our condensed consolidated statement of cash flows:
 
 
March 31,
2019
 
December 31,
2018
 
 
(In thousands)
Cash and cash equivalents
 
$
22,976

 
$
29,871

Restricted cash and cash equivalents
 
4,024

 
3,834

Restricted cash and cash equivalents included in Other Assets
 
2,722

 
2,703

Total cash and cash equivalents and restricted cash and cash equivalents as presented on our condensed consolidated statement of cash flows
 
$
29,722

 
$
36,408

Leases
We lease certain manufacturing facilities, office space and equipment under operating leases with terms of one to 20 years. Certain of the leases include options to renew for periods of one to 10 years. We include lease options in our determination of the right-of-use asset and lease liability if it is reasonably certain that we will exercise one or more of the options. Leases with initial terms of 12 months or less are excluded from our right-of-use assets and lease liabilities. Our right-of-use assets are included in Other Assets on our condensed consolidated balance sheet. Our current lease liabilities are included in Accrued liabilities – other, and our noncurrent lease liabilities are included in Other Liabilities on our condensed consolidated balance sheet. We use discount rates based on our incremental borrowing rate as most of our leases do not provide an implicit rate that can be readily determined.

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During the three months ended March 31, 2019, we recognized lease expense of $2.1 million and paid cash of $1.7 million for our operating leases. At March 31, 2019, our weighted-average remaining lease term was 4.0 years, and for the purpose of measuring the present value of our lease liabilities, the weighted-average discount rate was 5.03%. The maturities of our lease liabilities at March 31, 2019 were as follows (amounts in thousands):
2019
 
$
4,354

2020
 
2,680

2021
 
1,974

2022
 
1,221

2023
 
513

2024
 
142

Thereafter
 
1,102

Total lease payments
 
$
11,986

Less: interest
 
(1,220
)
Present value of lease liabilities (1)
 
$
10,766

(1)
Includes current lease liabilities of $4.9 million.
At March 31, 2019, our right-of-use assets totaled $44.1 million. The difference between the right-of-use assets and lease liabilities was primarily the result of reclassifications of favorable leases related to recent acquisitions from Intangible Assets.
Future minimum payments required under operating leases that have initial or remaining noncancellable lease terms in excess of one year at December 31, 2018 were as follows (amounts in thousands):
2019
 
$
5,650

2020
 
$
2,655

2021
 
$
1,969

2022
 
$
1,216

2023
 
$
511

Thereafter
 
$
1,231

Derivative Financial Instruments
Our operations give rise to exposure to market risks from changes in foreign currency exchange ("FX") rates. We use derivative financial instruments, primarily FX forward contracts, to reduce the impact of changes in FX rates on our operating results. We use these instruments to hedge our exposure associated with revenues or costs on our long-term contracts and other transactions that are denominated in currencies other than our operating entities' functional currencies. We do not hold or issue derivative financial instruments for trading or other speculative purposes.
We enter into derivative financial instruments primarily as hedges of certain firm purchase and sale commitments denominated in foreign currencies. We record these contracts at fair value on our condensed consolidated balance sheets. Based on the hedge designation at the inception of the contract, the related gains and losses on these contracts are deferred in stockholders' equity as a component of Accumulated other comprehensive income until the hedged item is recognized in earnings. The gain or loss on a derivative instrument not designated as a hedging instrument is immediately recognized in earnings. Gains and losses on derivative financial instruments that require immediate recognition are included as a component of Other – net on our condensed consolidated statements of income.
We have designated the majority of our FX forward contracts that qualify for hedge accounting as cash flow hedges. The hedged risk is the risk of changes in functional-currency-equivalent cash flows attributable to changes in FX spot rates of forecasted transactions primarily related to long-term contracts. We exclude from our assessment of effectiveness the portion of the fair value of the FX forward contracts attributable to the difference between FX spot rates and FX forward rates. At March 31, 2019, we had deferred approximately $0.2 million of net gains on these derivative financial instruments in Accumulated other comprehensive income. Assuming market conditions continue, we expect to recognize the majority of this amount in the next 12 months.
At March 31, 2019, our derivative financial instruments consisted of FX forward contracts with a total notional value of $73.5 million with maturities extending to December 2021. These instruments consist primarily of FX forward contracts to

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purchase or sell Canadian dollars. We are exposed to credit-related losses in the event of non-performance by counterparties to derivative financial instruments. We attempt to mitigate this risk by using major financial institutions with high credit ratings. Our counterparties to derivative financial instruments have the benefit of the same collateral arrangements and covenants as described under our credit facility.
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 the changes in our mix of income within these jurisdictions, can contribute to shifts in our effective tax rate from period to period.
Our effective tax rate for the three months ended March 31, 2019 was 21.9% as compared to 21.9% for the three months ended March 31, 2018. The effective tax rates for the three months ended March 31, 2019 and 2018 were slightly 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. Our effective tax rates for the three months ended March 31, 2019 and 2018 were favorably impacted by benefits recognized for excess tax benefits related to employee share-based payments of $1.7 million and $2.2 million, respectively.
As of March 31, 2019, 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.
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. The MI business is a leading global manufacturer and supplier of critical medical radioisotopes and radiopharmaceuticals for research, diagnostic and therapeutic uses. Its customers include radiopharmaceutical companies, hospitals and radiopharmacies. Its primary operations are located in Kanata, Ontario, Canada and Vancouver, British Columbia, Canada. This acquisition added 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, diagnostic and therapeutic products. This business is reported as part of our Nuclear Power Group segment.

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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 purchase price allocation is as follows (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
 
$
67,500

 
23 years
Unpatented technology
 
$
33,000

 
23 years
Favorable operating leases
 
$
28,157

 
13-30 years
Customer relationship
 
$
10,600

 
23 years
The following unaudited pro forma financial information presents our results of operations for the three months ended March 31, 2018 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.
 
 
Three Months Ended
 
 
March 31, 2018
 
 
(In thousands, except per share amounts)
Revenues
 
$
467,791

Net Income Attributable to BWX Technologies, Inc.
 
$
66,890

Basic Earnings per Common Share
 
$
0.67

Diluted Earnings per Common Share
 
$
0.67

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 $1.5 million for the three months ended March 31, 2018.
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 $1.5 million for the three months ended March 31, 2018.
Elimination of $1.6 million in acquisition related costs recognized in the three months ended March 31, 2018 that are not expected to be recurring.

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NOTE 3 – REVENUE RECOGNITION
Disaggregated Revenues
Revenues by geographical area and customer type were as follows:
 
 
Three Months Ended March 31, 2019
 
Three Months Ended March 31, 2018
 
 
Nuclear
Operations
Group
 
Nuclear
Power
Group
 
Nuclear
Services
Group
 
Total
 
Nuclear
Operations
Group
 
Nuclear
Power
Group
 
Nuclear
Services
Group
 
Total
 
 
(In thousands)
United States:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Government
 
$
297,303

 
$

 
$
24,451

 
$
321,754

 
$
316,631

 
$

 
$
25,881

 
$
342,512

Non-Government
 
5,338

 
9,162

 
4,353

 
18,853

 

 
260

 
3,177

 
3,437

 
 
$
302,641

 
$
9,162

 
$
28,804

 
$
340,607

 
$
316,631

 
$
260

 
$
29,058

 
$
345,949

Canada:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Non-Government
 
$

 
$
68,611

 
$
290

 
$
68,901

 
$

 
$
82,325

 
$
975

 
$
83,300

Other:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Non-Government
 
$
2,160

 
$
6,626

 
$

 
$
8,786

 
$

 
$
30,231

 
$

 
$
30,231

Segment Revenues
 
$
304,801

 
$
84,399

 
$
29,094

 
418,294

 
$
316,631

 
$
112,816

 
$
30,033

 
459,480

Adjustments and Eliminations
 
 
 
 
 
 
 
(1,840
)
 
 
 
 
 
 
 
(2,017
)
Revenues
 
 
 
 
 
 
 
$
416,454

 
 
 
 
 
 
 
$
457,463

Revenues by timing of transfer of goods or services were as follows:
 
 
Three Months Ended March 31, 2019
 
Three Months Ended March 31, 2018
 
 
Nuclear
Operations
Group
 
Nuclear
Power
Group
 
Nuclear
Services
Group
 
Total
 
Nuclear
Operations
Group
 
Nuclear
Power
Group
 
Nuclear
Services
Group
 
Total
 
 
(In thousands)
Over time
 
$
304,733

 
$
70,661

 
$
29,094

 
$
404,488

 
$
316,631

 
$
105,109

 
$
30,033

 
$
451,773

Point-in-time
 
68

 
13,738

 

 
13,806

 

 
7,707

 

 
7,707

Segment Revenues
 
$
304,801

 
$
84,399

 
$
29,094

 
418,294

 
$
316,631

 
$
112,816

 
$
30,033

 
459,480

Adjustments and Eliminations
 
 
 
 
 
 
 
(1,840
)
 
 
 
 
 
 
 
(2,017
)
Revenues
 
 
 
 
 
 
 
$
416,454

 
 
 
 
 
 
 
$
457,463

Revenues by contract type were as follows:
 
 
Three Months Ended March 31, 2019
 
Three Months Ended March 31, 2018
 
 
Nuclear
Operations
Group
 
Nuclear
Power
Group
 
Nuclear
Services
Group
 
Total
 
Nuclear
Operations
Group
 
Nuclear
Power
Group
 
Nuclear
Services
Group
 
Total
 
 
(In thousands)
Fixed-Price Incentive Fee
 
$
245,487

 
$
273

 
$

 
$
245,760

 
$
249,240

 
$
4,028

 
$

 
$
253,268

Firm-Fixed-Price
 
39,343

 
61,998

 
6,168

 
107,509

 
47,058

 
74,282

 
5,410

 
126,750

Cost-Plus Fee
 
19,853

 

 
22,535

 
42,388

 
20,233

 
45

 
23,953

 
44,231

Time-and-Materials
 
118

 
22,128

 
391

 
22,637

 
100

 
34,461

 
670

 
35,231

Segment Revenues
 
$
304,801

 
$
84,399

 
$
29,094

 
418,294

 
$
316,631

 
$
112,816

 
$
30,033

 
459,480

Adjustments and Eliminations
 
 
 
 
 
 
 
(1,840
)
 
 
 
 
 
 
 
(2,017
)
Revenues
 
 
 
 
 
 
 
$
416,454

 
 
 
 
 
 
 
$
457,463

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 revenues and/or costs of contracts. During the three months ended March 31, 2019 and 2018, we recognized net favorable changes in estimates that resulted in increases in revenues of $4.8 million and $5.3 million, respectively.

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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. Amounts that are withheld on our fixed-price incentive fee contracts are classified within Retainages. Certain of these amounts require conditions other than the passage of time to be achieved, with the remaining amounts only requiring the passage of 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 three months ended March 31, 2019, our unbilled receivables increased $33.1 million, primarily as a result of revenue in excess of billings on certain fixed-price incentive fee contracts within our Nuclear Operations Group segment and services and engineering contracts 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 during the three months ended March 31, 2019 as shown below:
 
 
March 31,
 
December 31,
 
 
2019
 
2018
 
 
(In thousands)
Included in Contracts in progress:
 
 
 
 
Unbilled receivables
 
$
341,776

 
$
308,723

Retainages
 
$
72,000

 
$
57,885

Included in Other Assets:
 
 
 
 
Retainages
 
$
1,508

 
$
1,674

Advance billings on contracts
 
$
88,117

 
$
98,477

During the three months ended March 31, 2019 and 2018, we recognized $33.8 million and $30.4 million of revenues that were in Advance billings on contracts at December 31, 2018 and January 1, 2018, respectively.
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 March 31, 2019 remaining performance obligations on our contracts with customers, we expect to recognize revenues as follows:
 
 
2019
 
2020
 
Thereafter
 
Total
 
 
(In approximate millions)
Nuclear Operations Group
 
$
708

 
$
947

 
$
2,355

 
$
4,010

Nuclear Power Group
 
185

 
146

 
438

 
769

Nuclear Services Group
 
40

 
3

 
2

 
45

Total Remaining Performance Obligations
 
$
933

 
$
1,096

 
$
2,795

 
$
4,824


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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 March 31, 2019 and 2018, these amounts were $2.6 million. 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 March 31, 2019 and 2018, these amounts were $(5.2) million and $(8.9) million, respectively. Components of net periodic benefit cost included in net income were as follows:
 
 
Pension Benefits
 
Other Benefits
 
 
Three Months Ended
March 31,
 
Three Months Ended
March 31,
 
 
2019
 
2018
 
2019
 
2018
 
 
(In thousands)
Service cost
 
$
2,456

 
$
2,413

 
$
145

 
$
165

Interest cost
 
11,592

 
12,343

 
585

 
549

Expected return on plan assets
 
(17,436
)
 
(21,625
)
 
(627
)
 
(634
)
Amortization of prior service cost (credit)
 
725

 
550

 
(78
)
 
(45
)
Net periodic benefit (income) cost
 
$
(2,663
)
 
$
(6,319
)
 
$
25

 
$
35

NOTE 5 – COMMITMENTS AND CONTINGENCIES
There were no material contingencies during the period covered by this Form 10-Q. For more information regarding commitments and contingencies, refer to Note 10 to the consolidated financial statements in Part II of our 2018 10-K.
NOTE 6 – FAIR VALUE MEASUREMENTS
Investments
The following is a summary of our investments measured at fair value at March 31, 2019:
 
 
Total
 
Level 1
 
Level 2
 
Level 3
 
 
(In thousands)
Equity securities
 
 
 
 
 
 
 
 
Equities
 
$
1,919

 
$

 
$
1,919

 
$

Mutual funds
 
5,130

 

 
5,130

 

Available-for-sale securities
 
 
 
 
 
 
 
 
U.S. Government and agency securities
 
1,979

 
1,979

 

 

Corporate bonds
 
3,082

 
1,460

 
1,622

 

Asset-backed securities and collateralized mortgage obligations
 
89

 

 
89

 

Total
 
$
12,199

 
$
3,439

 
$
8,760

 
$

The following is a summary of our investments measured at fair value at December 31, 2018:
 
 
Total
 
Level 1
 
Level 2
 
Level 3
 
 
(In thousands)
Equity securities
 
 
 
 
 
 
 
 
Equities
 
$
1,163

 
$

 
$
1,163

 
$

Mutual funds
 
4,694

 

 
4,694

 

Available-for-sale securities
 
 
 
 
 
 
 
 
U.S. Government and agency securities
 
2,227

 
2,227

 

 

Corporate bonds
 
2,803

 
1,433

 
1,370

 

Asset-backed securities and collateralized mortgage obligations
 
92

 

 
92

 

Total
 
$
10,979

 
$
3,660

 
$
7,319

 
$


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We estimate the fair value of investments based on quoted market prices. For investments for which there are no quoted market prices, we derive fair values from available yield curves for investments of similar quality and terms.
Derivatives
Level 2 derivative assets and liabilities currently consist of FX forward contracts. Where applicable, the value of these derivative assets and liabilities is computed by discounting the projected future cash flow amounts to present value using market-based observable inputs, including FX forward and spot rates, interest rates and counterparty performance risk adjustments. At March 31, 2019 and December 31, 2018, we had forward contracts outstanding to purchase or sell foreign currencies, primarily Canadian dollars, with a total fair value of $(0.2) million and $0.7 million, respectively.
Other Financial Instruments
We used the following methods and assumptions in estimating our fair value disclosures for our other financial instruments, as follows:
Cash and cash equivalents and restricted cash and cash equivalents. The carrying amounts that we have reported in the accompanying condensed consolidated balance sheets for Cash and cash equivalents and Restricted cash and cash equivalents approximate their fair values due to their highly liquid nature.
Long-term and short-term debt. We base the fair values of debt instruments, including our 5.375% senior notes due 2026 (the "Senior Notes"), on quoted market prices. Where quoted prices are not available, we base the fair values on the present value of future cash flows discounted at estimated borrowing rates for similar debt instruments or on estimated prices based on current yields for debt issues of similar quality and terms. At March 31, 2019 and December 31, 2018, the fair value of our Senior Notes was $406.2 million and $384.9 million, respectively. The fair value of our remaining debt instruments approximated their carrying values at March 31, 2019 and December 31, 2018.
NOTE 7 – STOCK-BASED COMPENSATION
Stock-based compensation recognized for all of our plans for the three months ended March 31, 2019 and 2018 totaled $3.6 million and $4.9 million, respectively, with associated tax benefit totaling $0.6 million and $0.9 million, respectively.

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NOTE 8 – SEGMENT REPORTING
As described in Note 1, our operations are assessed based on three reportable segments. An analysis of our operations by reportable segment is as follows:
 
 
Three Months Ended
March 31,
 
 
2019
 
2018
 
 
(In thousands)
REVENUES:
 
 
 
 
Nuclear Operations Group
 
$
304,801

 
$
316,631

Nuclear Power Group
 
84,399

 
112,816

Nuclear Services Group
 
29,094

 
30,033

Adjustments and Eliminations (1)
 
(1,840
)
 
(2,017
)
 
 
$
416,454

 
$
457,463

(1)
Segment revenues are net of the following intersegment transfers and other adjustments:
Nuclear Operations Group Transfers
 
$
(857
)
 
$
(1,139
)
Nuclear Power Group Transfers
 
(40
)
 
(40
)
Nuclear Services Group Transfers
 
(943
)
 
(838
)
 
 
$
(1,840
)
 
$
(2,017
)
OPERATING INCOME:
 
 
 
 
Nuclear Operations Group
 
$
57,625

 
$
67,657

Nuclear Power Group
 
12,583

 
21,764

Nuclear Services Group
 
1,571

 
1,177

Other
 
(6,096
)
 
(4,043
)
 
 
$
65,683

 
$
86,555

Unallocated Corporate (2)
 
(2,039
)
 
(6,667
)
Total Operating Income
 
$
63,644

 
$
79,888

Other Income (Expense):
 
 
 
 
Interest income
 
415

 
778

Interest expense
 
(8,703
)
 
(3,560
)
Other – net
 
7,521

 
7,910

Total Other Income (Expense)
 
(767
)
 
5,128

Income before Provision for Income Taxes
 
$
62,877

 
$
85,016

(2)
Unallocated corporate includes general corporate overhead not allocated to segments.

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NOTE 9 – EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share:
 
 
Three Months Ended
March 31,
 
 
2019
 
2018
 
 
(In thousands, except share and per share amounts)
Basic:
 
 
 
 
Net Income Attributable to BWX Technologies, Inc.
 
$
48,978

 
$
66,441

Weighted-average common shares
 
95,255,109

 
99,526,187

Basic earnings per common share
 
$
0.51

 
$
0.67

Diluted:
 
 
 
 
Net Income Attributable to BWX Technologies, Inc.
 
$
48,978

 
$
66,441

Weighted-average common shares (basic)
 
95,255,109

 
99,526,187

Effect of dilutive securities:
 
 
 
 
Stock options, restricted stock units and performance shares (1)
 
566,245

 
986,100

Adjusted weighted-average common shares
 
95,821,354

 
100,512,287

Diluted earnings per common share
 
$
0.51

 
$
0.66

(1)
At March 31, 2019 and 2018, we excluded 181,358 and 79,278 shares, respectively, from our diluted share calculation as their effect would have been antidilutive.

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Table of Contents

Item 2.
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, 2018 (our "2018 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. 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 or margin improvement initiatives 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 industries and our Company. 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. 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" of our 2018 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 and in Item 1A "Risk Factors" in our 2018 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 2018 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.
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 DOE/NNSA's Naval Nuclear Propulsion Program. In addition, we perform development and 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, and other auxiliary equipment, including containers for the storage of spent nuclear fuel and other

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high-level nuclear waste. This segment is a leading supplier of nuclear fuel, fuel handling systems, tooling delivery systems 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 depend on the timing of maintenance and refueling 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 and the commercial nuclear industry primarily in the U.S. 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 is also engaged in inspection and maintenance services for the commercial nuclear industry primarily in the U.S. These services include steam generator, heat exchanger and balance of plant inspection and servicing as well as high pressure water lancing, non-destructive examination and the development of customized tooling solutions. 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.
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"). The MI business is a leading global manufacturer and supplier of critical medical radioisotopes and radiopharmaceuticals for research, diagnostic and therapeutic uses. Its customers include radiopharmaceutical companies, hospitals and radiopharmacies. Its primary operations are located in Kanata, Ontario, Canada and Vancouver, British Columbia, Canada. This acquisition added 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, diagnostic and therapeutic products. This business 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 2018 10-K. There have been no material changes to our policies during the three months ended March 31, 2019 with the exception of changes to Financial Accounting Standards Board ("FASB") Topic Leases as described in the notes to the condensed consolidated financial statements in Item 1 of this Report.
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 March 31, 2019, 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 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

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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 March 31, 2019 and 2018, we recognized net changes in estimates related to contracts that recognize revenue over time, which increased operating income by approximately $4.8 million and $5.3 million, respectively.
RESULTS OF OPERATIONS – THREE MONTHS ENDED MARCH 31, 2019 VS. THREE MONTHS ENDED MARCH 31, 2018
Selected financial highlights are presented in the table below:
 
 
Three Months Ended
March 31,
 
 
 
 
2019
 
2018
 
$ Change
 
 
(In thousands)
REVENUES:
 
 
 
 
 
 
Nuclear Operations Group
 
$
304,801

 
$
316,631

 
$
(11,830
)
Nuclear Power Group
 
84,399

 
112,816

 
(28,417
)
Nuclear Services Group
 
29,094

 
30,033

 
(939
)
Adjustments and Eliminations
 
(1,840
)
 
(2,017
)
 
177

 
 
$
416,454

 
$
457,463

 
$
(41,009
)
OPERATING INCOME:
 
 
 
 
 
 
Nuclear Operations Group
 
$
57,625

 
$
67,657

 
$
(10,032
)
Nuclear Power Group
 
12,583

 
21,764

 
(9,181
)
Nuclear Services Group
 
1,571

 
1,177

 
394

Other
 
(6,096
)
 
(4,043
)
 
(2,053
)
 
 
$
65,683

 
$
86,555

 
$
(20,872
)
Unallocated Corporate
 
(2,039
)
 
(6,667
)
 
4,628

Total Operating Income
 
$
63,644

 
$
79,888

 
$
(16,244
)
Consolidated Results of Operations
Consolidated revenues decreased 9.0%, or $41.0 million, to $416.5 million in the three months ended March 31, 2019 compared to $457.5 million for the corresponding period in 2018, due to decreases in revenues from our Nuclear Operations Group, Nuclear Power Group and Nuclear Services Group segments totaling $11.8 million, $28.4 million and $0.9 million, respectively.
Consolidated operating income decreased $16.2 million to $63.6 million in the three months ended March 31, 2019 compared to $79.9 million for the corresponding period of 2018. Operating income in our Nuclear Operations Group, Nuclear Power Group and Other segments decreased by $10.0 million, $9.2 million and $2.1 million, respectively. These decreases were partially offset by operating income improvements in our Nuclear Services Group segment of $0.4 million as well as lower unallocated corporate expenses of $4.6 million when compared to the corresponding period of 2018.
Nuclear Operations Group
 
 
Three Months Ended
March 31,
 
 
 
 
2019
 
2018
 
$ Change
 
 
(In thousands)
Revenues
 
$
304,801

 
$
316,631

 
$
(11,830
)
Operating Income
 
$
57,625

 
$
67,657

 
$
(10,032
)
% of Revenues
 
18.9%

 
21.4%

 
 
Revenues decreased 3.7%, or $11.8 million, to $304.8 million in the three months ended March 31, 2019 compared to $316.6 million for the corresponding period of 2018. This decrease was attributable to lower activity in the manufacturing of nuclear and non-nuclear components for U.S. Government programs due primarily to the timing of the procurement of certain

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long-lead materials. This decrease was partially offset by increased activity in our naval nuclear fuel and downblending operations.
Operating income decreased $10.0 million to $57.6 million in the three months ended March 31, 2019 compared to $67.7 million for the corresponding period of 2018. The decrease in operating income was primarily due to the changes in revenues noted above as well as net favorable changes in estimates related to certain long-term contracts within our naval nuclear fuel and downblending operations, which occurred during the quarter ended March 31, 2018. We also incurred higher expenses associated with onboarding employees to meet expected increased volume demands.
Nuclear Power Group
 
 
Three Months Ended
March 31,
 
 
 
 
2019
 
2018
 
$ Change
 
 
(In thousands)
Revenues
 
$
84,399

 
$
112,816

 
$