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May 3, 2021, 4:59 p.m. EDT

10-Q: BWX TECHNOLOGIES, INC.

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(EDGAR Online via COMTEX) -- 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, 2020 (our "2020 10-K"). In this Report, unless the context otherwise indicates, "we," "us" and "our" mean BWX Technologies, Inc. ("BWXT" or the "Company") and its consolidated subsidiaries. From time to time, our management or persons acting on our behalf make forward-looking statements to inform existing and potential security holders about our Company. Forward-looking statements include those statements that express a belief, expectation or intention, as well as those that are not statements of historical fact, within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Statements and assumptions regarding expectations and projections of specific projects, our future backlog, revenues, income and capital spending, strategic investments, acquisitions or divestitures, return of capital activities, margin improvement initiatives or impacts of the novel strain of coronavirus ("COVID-19") pandemic are examples of forward-looking statements. Forward-looking statements are generally accompanied by words such as "estimate," "project," "predict," "believe," "expect," "anticipate," "plan," "seek," "goal," "could," "intend," "may," "should" or other words that convey the uncertainty of future events or outcomes. In addition, sometimes we will specifically describe a statement as being a forward-looking statement and refer to this cautionary statement. We have based our forward-looking statements on information currently available to us and our current expectations, estimates and projections about our 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. For example, the extent to which the COVID-19 pandemic will continue to impact our business will depend on future developments that are highly uncertain and cannot be predicted, including new information that may emerge concerning the length and severity of the COVID-19 health crisis, and the actions to contain its impact, in addition to the potential recurrence or subsequent waves or strains of COVID-19 or similar diseases. While our management considers these statements and assumptions to be reasonable, they are inherently subject to numerous factors, including potentially the risk factors described in the section labeled Item 1A, "Risk Factors" in our 2020 10-K, most of which are difficult to predict and many of which are beyond our control. Accordingly, our actual results may differ materially from the future performance that we have expressed or forecast in our forward-looking statements. We have discussed many of these factors in more detail elsewhere in this Report, including under the heading "COVID-19 Assessment" of this Item 2 "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Item 1A, "Risk Factors" in our 2020 10-K. These factors are not necessarily all the factors that could affect us. Unpredictable or unanticipated factors we have not discussed in this Report or in our 2020 10-K could also have material adverse effects on actual results of matters that are the subject of our forward-looking statements. We do not intend to update or review any forward-looking statement or our description of important factors, whether as a result of new information, future events or otherwise, except as required by applicable laws. GENERAL We operate in three reportable segments: Nuclear Operations Group, Nuclear Power Group and Nuclear Services Group. In general, we operate in capital-intensive industries and rely on large contracts for a substantial amount of our revenues. We are currently exploring growth strategies across our segments to expand and complement our existing businesses. We would expect to fund these opportunities with cash generated from operations or by raising additional capital through debt, equity or some combination thereof. Nuclear Operations Group The revenues of our Nuclear Operations Group segment are largely a function of defense spending by the U.S. Government. Through this segment, we engineer, design and manufacture precision naval nuclear components, reactors and nuclear fuel for the U.S. Department of Energy ("DOE")/National Nuclear Safety Administration's ("NNSA") Naval Nuclear Propulsion Program. In addition, we perform fabrication activities for missile launch tubes for U.S. Navy submarines. As a Table of Contents supplier of major nuclear components for certain U.S. Government programs, this segment is a significant participant in the defense industry. Nuclear Power Group Through this segment, we design and manufacture commercial nuclear steam generators, heat exchangers, pressure vessels, reactor components, as well as other auxiliary equipment, including containers for the storage of spent nuclear fuel and other high-level nuclear waste. This segment is a leading supplier of nuclear fuel, fuel handling systems, tooling delivery systems, nuclear-grade materials and precisely machined components, and related services for CANDU nuclear power plants. This segment also provides a variety of engineering and in-plant services and is a significant supplier to nuclear power utilities undergoing major refurbishment and plant life extension projects. Additionally, this segment is a leading global manufacturer and supplier of critical medical radioisotopes and radiopharmaceuticals. Our Nuclear Power Group segment's overall activity primarily depends on the demand and competitiveness of nuclear energy. A significant portion of our Nuclear Power Group segment's operations depends on the timing of maintenance outages, the cyclical nature of capital expenditures and major refurbishment and life extension projects, as well as the demand for nuclear fuel and fuel handling equipment primarily in the Canadian market, which could cause variability in our financial results. Nuclear Services Group Our Nuclear Services Group segment provides various services to the U.S. Government. The revenues and equity in income of investees under our U.S. Government contracts are largely a function of spending of the U.S. Government and the performance scores we and our consortium partners earn in managing and operating high-consequence operations at U.S. nuclear weapons sites, national laboratories and manufacturing complexes. With its specialized capabilities of full life-cycle management of special materials, facilities and technologies, we believe our Nuclear Services Group segment is well-positioned to continue to participate in the continuing cleanup, operation and management of critical government-owned nuclear sites, laboratories and manufacturing complexes maintained by the DOE, NASA and other federal agencies. This segment also develops technology for a variety of applications, including advanced nuclear power sources, and offers complete advanced nuclear fuel and reactor design and engineering, licensing and manufacturing services for new advanced nuclear reactors. Divestiture of U.S.-Based Commercial Nuclear Services Business On May 29, 2020, our subsidiary BWXT Nuclear Energy, Inc. divested its U.S.-based commercial nuclear services business, a component of our Nuclear Services Group segment. In a cashless transaction, we exchanged net assets totaling $18.0 million, consisting primarily of property, plant and equipment and certain warranty obligations, for a manufacturing facility and the associated land of approximately the same value. The acquired assets are reported as part of the Nuclear Services Group segment. Acquisition of Laker Energy Products Ltd. On January 2, 2020, our subsidiary BWXT Canada Ltd. acquired Laker Energy Products Ltd., which was renamed BWXT Precision Manufacturing Inc. ("Precision Manufacturing"). Precision Manufacturing is a global supplier of nuclear-grade materials and precisely machined components for CANDU nuclear power utilities, employs approximately 140 personnel and is reported as part of our Nuclear Power Group segment. Critical Accounting Policies and Estimates For a summary of the critical accounting policies and estimates that we use in the preparation of our unaudited condensed consolidated financial statements, see Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2020 10-K. There have been no material changes to our critical accounting policies during the three months ended March 31, 2021. 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, 2021, we have provided for the estimated costs to complete all of our ongoing contracts. However, it is possible that current estimates could change due to unforeseen events, which could result in adjustments to overall contract revenues and Table of Contents costs. A principal risk on fixed-price contracts is that revenue from the customer is insufficient to cover increases in our costs. It is possible that current estimates could materially change for various reasons, including, but not limited to, fluctuations in forecasted labor productivity or steel and other raw material prices. In some instances, we guarantee completion dates related to our projects or provide performance guarantees. Increases in costs on our fixed-price contracts could have a material adverse impact on our consolidated results of operations, financial condition and cash flows. Alternatively, reductions in overall contract costs at completion could materially improve our consolidated results of operations, financial condition and cash flows. During the three months ended March 31, 2021 and 2020, we recognized net changes in estimates related to contracts that recognize revenue over time, which increased operating income by approximately $6.5 million and $9.6 million, respectively. COVID-19 Assessment General We continue to monitor the COVID-19 pandemic and its impacts and potential impacts on our business. We have received notifications from the U.S. and Canadian governments designating BWXT as an essential business given our roles in national security, energy production and medical manufacturing. We continue to operate our facilities and have taken numerous precautions to mitigate exposure and protect the health and well-being of our workforce, including arranging for the vaccination of our workforce, where possible. To date, we have experienced localized operational challenges as a result of employee illness, quarantines and social distancing protocols. Because developments related to the spread of COVID-19 and its impacts have been occurring rapidly, it is difficult to predict any future impact at this time. We have experienced, and may experience further, disruptions to demand for our products and services and our operations in the future as a result of, among other things, national, state, provincial or local government enforced quarantines, worker illness or absenteeism, and travel and other restrictions. For similar reasons, the COVID-19 pandemic may also adversely impact our supply chain and other manufacturers which could delay our receipt of essential goods and services. Any number of these potential risks could have a material adverse effect on our financial condition, results of operations and cash flows. The extent to which the COVID-19 pandemic impacts our business will depend on future developments that are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of the virus and the actions to contain its impact. Government Assistance On March 27, 2020, the U.S. Government enacted the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act"), which among other things, provides employers an option to defer payroll tax payments for a limited period. Based on our evaluation of the CARES Act, we qualify for the deferral of payroll tax payments and as of March 31, 2021, we have deferred $21.4 million that will be paid beginning in December 2021. Additionally, on April 11, 2020, the Canadian Government enacted the Canada Emergency Wage Subsidy ("CEWS") under the COVID-19 Economic Response Plan to prevent large layoffs and help employers offset a portion of their employee salaries and wages for a limited period. During the three months ended March 31, 2021, we recognized $0.9 million of subsidies under the CEWS as an offset to operating expenses. The Canadian Government has extended the CEWS to September 2021 with a number of modifications. These modifications are expected to significantly decrease the amount of future claims for which we may qualify when compared to the prior year. Table of Contents RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 2021 VS. THREE MONTHS ENDED MARCH 31, 2020 Selected financial highlights are presented in the table below: Three Months Ended March 31, 2021 2020 $ Change (In thousands) REVENUES: Nuclear Operations Group $ 402,068 $ 423,775 $ (21,707) Nuclear Power Group 107,398 87,917 19,481 Nuclear Services Group 25,483 36,765 (11,282) Eliminations (6,676) (6,249) (427) $ 528,273 $ 542,208 $ (13,935) OPERATING INCOME: Nuclear Operations Group $ 74,360 $ 90,359 $ (15,999) Nuclear Power Group 10,318 8,470 1,848 Nuclear Services Group 5,747 6,400 (653) Other (5,886) (5,359) (527) $ 84,539 $ 99,870 $ (15,331) Unallocated Corporate (2,125) (1,603) (522) Total Operating Income $ 82,414 $ 98,267 $ (15,853)

Consolidated Results of Operations







        Nuclear Operations Group
                                              Three Months Ended
                                                  March 31,
                                                            2021           2020         $ Change
                                                                      (In thousands)
        Revenues                                         $ 402,068      $ 423,775      $ (21,707)
        Operating Income                                 $  74,360      $  90,359      $ (15,999)
        % of Revenues                                          18.5%          21.3%
        


Revenues decreased 5.1%, or $21.7 million, to $402.1 million in the three months ended March 31, 2021 compared to $423.8 million for the corresponding period of 2020. The decrease was primarily related to the timing of the procurement of certain long-lead materials when compared to the corresponding period of 2020, which was partially offset by additional volume in the manufacture of nuclear components for U.S. Government programs and in our naval nuclear fuel operations.







        Nuclear Power Group
                                              Three Months Ended
                                                  March 31,
                                                            2021           2020        $ Change
                                                                     (In thousands)
        Revenues                                         $ 107,398      $ 87,917      $ 19,481
        Operating Income                                 $  10,318      $  8,470      $  1,848
        % of Revenues                                           9.6%          9.6%
        


Revenues increased 22.2%, or $19.5 million, to $107.4 million in the three months ended March 31, 2021 compared to $87.9 million for the corresponding period of 2020. The increase was primarily related to higher levels of in-plant inspection, maintenance and modification services totaling $23.0 million as well as increases in revenues in our parts manufacturing and nuclear fuel handling businesses when compared to the same period in the prior year. This was partially offset by lower activity in our nuclear components business of $12.3 million, primarily associated with a major steam generator design and supply contract.







        Nuclear Services Group
                                              Three Months Ended
                                                  March 31,
                                                             2021          2020        $ Change
                                                                      (In thousands)
        Revenues                                          $ 25,483      $ 36,765      $ (11,282)
        Operating Income                                  $  5,747      $  6,400      $    (653)
        % of Revenues                                          22.6%         17.4%
        


Revenues decreased 30.7%, or $11.3 million, to $25.5 million in the three months ended March 31, 2021 compared to $36.8 million for the corresponding period of 2020. The decrease was primarily attributable to the divestiture of our U.S.-based commercial nuclear services business during the second quarter of 2020 and lower revenues at our Naval Reactor decommissioning and decontamination project due to the completion of several portions of the contract in the third quarter of 2020. These decreases were partially offset by an increase in design and engineering work executed by our advanced technologies business. Operating income decreased $0.7 million to $5.7 million in the three months ended March 31, 2021 compared to $6.4 million for the corresponding period of 2020 due to the operating income impact of the changes in revenues noted above, largely offset by higher fee income at several of our sites.







        Other
                                              Three Months Ended
                                                  March 31,
                                                             2021          2020        $ Change
                                                                      (In thousands)
        Operating Income                                  $ (5,886)     $ (5,359)     $    (527)
        


Operating income decreased $0.5 million in the three months ended March 31, 2021, primarily due to an increase in costs associated with the commercialization of our new medical radioisotope technology. This was partially offset by a decrease in research and development related activities. Unallocated Corporate







        Provision for Income Taxes
                                                                      Three Months Ended
                                                                          March 31,
                                                                                     2021          2020        $ Change
                                                                                              (In thousands)
        Income before Provision for Income Taxes                                  $ 91,893      $ 98,448      $ (6,555)
        Provision for Income Taxes                                                $ 22,078      $ 22,828      $   (750)
        Effective Tax Rate                                                             24.0%         23.2%
        


We primarily operate in the U.S. and Canada, and we recognize our U.S. income tax provision based on the U.S. federal statutory rate of 21% and our Canadian tax provision based on the Canadian local statutory rate of approximately 25%. Our effective tax rate for the three months ended March 31, 2021 was 24.0% as compared to 23.2% for the three months ended March 31, 2020. The effective tax rates for the three months ended March 31, 2021 and 2020 were higher than the U.S. corporate income tax rate of 21% primarily due to state income taxes within the U.S and the unfavorable rate differential associated with our Canadian earnings. Our effective tax rates for the three months ended March 31, 2021 and 2020 were favorably impacted by excess tax benefits recognized related to employee share-based payments of $0.2 million and $0.7 million, respectively. Backlog







                                        March 31,        December 31,
                                           2021              2020
                                          (In approximate millions)
        Nuclear Operations Group      $      4,448      $       3,659
        Nuclear Power Group                    697                726
        Nuclear Services Group                  48                 21
        Total Backlog                 $      5,193      $       4,406
        


We do not include the value of our unconsolidated joint venture contracts in backlog. These unconsolidated joint ventures are included in our Nuclear Services Group segment.







                                        2021         2022        Thereafter        Total
                                                   (In approximate millions)
        Nuclear Operations Group      $ 1,156      $ 1,192      $     2,100      $ 4,448
        Nuclear Power Group               223          179              295          697
        Nuclear Services Group             45            3                -           48
        Total Backlog                 $ 1,424      $ 1,374      $     2,395      $ 5,193
        


At March 31, 2021, our Nuclear Operations Group segment's backlog with the U.S. Government was $4,059.5 million, $110.4 million of which had not yet been funded.

May 03, 2021

COMTEX_385776748/2041/2021-05-03T16:59:08

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