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Item 7. Management’s Discussion and Analysis

2022-02-22 compared with 2021-02-22 · 117 added, 141 removed, 249 unchanged (51% of the section changed)

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Statements we make in the following discussion, which express a belief, expectation or intention, as well as those that are not historical fact, are forward-looking statements that are subject to risks, uncertainties and assumptions.

Our actual results, performance or achievements, or industry results, could differ materially from those we express in the following discussion as a result of a variety of factors, including the risks and uncertainties we have referred to under the headings "Cautionary Statement Concerning Forward-Looking Statements" and "Risk Factors" in Items 1 and 1A of Part I of this Report.

Our actual results, performance or achievements, or industry results, could differ materially from those we express in the following discussion as a result of a variety of factors, including the risks and uncertainties we have referred to under the heading "Cautionary Statement Concerning Forward-Looking Statements" in Item 1 and throughout Item 1A of this Report.

We are a leading supplier of nuclear components and fuel to the U.S.

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As a supplier of major nuclear components for certain U.S.

Government programs, we are a significant participant in the defense industry and have not been negatively impacted by sequestration or federal budget reductions to date.

Government programs, we are a significant participant in the defense industry and have not been negatively impacted by federal budget reductions to date.

We believe many of our programs are well-aligned with national defense and other strategic priorities as we supply high-end equipment for submarines and aircraft carriers for the U.S.

However, it is possible that reductions in federal government spending and sequestration could have an adverse impact on the operating results and cash flows of this segment in the future.

However, it is possible that reductions in federal government spending could have an adverse impact on the operating results and cash flows of this segment in the future.

We expect that orders for nuclear components will continue to be a significant part of backlog for the foreseeable future.

In addition, the U.S.

Navy issued its fiscal year 2022 long-range shipbuilding plan in December 2020, which maintains recommendations made in its fiscal year 2020 long-range shipbuilding plan (released in September 2019) to increase the size of its fleet of ships to include additional submarines and aircraft carriers beyond the number disclosed prior to September 2019.

While the new Administration may make further changes with its fiscal year 2022 budget submission, we have made additional capital expenditures and investments in personnel to meet this anticipated growth in demand and we expect to continue making such expenditures and investments.

Navy issued its fiscal year 2022 long-range shipbuilding plan in June 2021, which maintains previous recommendations to increase the size of its fleet of ships to include additional submarines and aircraft carriers.

While the current presidential administration may make further changes with its fiscal year 2023 budget submission, we have made additional capital expenditures and investments in personnel to meet this anticipated growth in demand and we expect to continue making such expenditures and investments.

Nuclear Power Group

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The activity of this segment depends on the timing of maintenance and refueling outages, the cyclical nature of capital expenditures and major refurbishment and plant 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.

Our acquisition of the MI business in July 2018 expanded our Nuclear Power Group segment's offerings to include medical radioisotope products.

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.

Our Nuclear Power Group segment's offerings also include medical radioisotope products, radiopharmaceuticals and medical devices for use in diagnostic imaging and therapeutic treatments.

The medical isotope 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.

Nuclear Services Group

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Given our specialized capabilities of full life-cycle management of special materials, facilities and technologies, we believe our Nuclear Services Group segment is well-positioned 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.

However, it is possible that reductions in federal government spending and sequestration could have an adverse impact on the operating results and cash flows of this segment in the future.

However, it is possible that reductions in federal government spending could have an adverse impact on the operating results and cash flows of this segment in the future.

This segment also specializes in the development of advanced technologies.

The nature, timing and duration of any related contracts are dependent on the demand and funding availability for such technologies.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Critical Accounting Estimates

Our financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States ("GAAP").

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We believe the following are our most critical accounting policies that we apply in the preparation of our financial statements.

These policies require our most difficult, subjective and complex judgments, often as a result of the need to make estimates of matters that are inherently uncertain.

These policies require our most difficult, subjective and complex judgments, often as a result of the need to make estimates of matters that are inherently uncertain, and the impact of these policies have had or are reasonably likely to have a material impact on our financial condition or results of operations.

See Note 1 to our consolidated financial statements included in this Report for further discussion of significant accounting policies.

Contracts and Revenue Recognition

We determine the appropriate accounting method for each of our long-term contracts before work on the project begins.

We generally recognize contract revenues and related costs over time for individual performance obligations based on a cost-to-cost method in accordance with 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 generally recognize estimated contract revenue and resulting income over time based on the measurement of the extent of progress toward completion using total costs incurred as a percentage of the total estimated project costs for individual performance obligations.

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.

If a current estimate of total contract costs indicates a loss on a contract, the projected loss is recognized in full when determined.

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.

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We utilize actuarial and other assumptions in calculating the cost and benefit obligations of our pension and postretirement benefits.

The assumptions utilized in the determination of our benefit cost and obligations include assumptions regarding discount rates, expected returns on plan assets, mortality and health care cost trends.

The assumptions utilized in the determination of our cost and obligations include assumptions regarding discount rates, expected returns on plan assets, mortality and health care cost trends.

The assumptions utilized represent our best estimates based on historical experience and other factors.

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Government contracts.

For the years ended December 31, 2020, 2019 and 2018, our CAS pension costs attributed to U.S.

For the years ended December 31, 2021, 2020 and 2019, our CAS

pension costs attributed to U.S.

Government contracts totaled $29.0 million, $43.6 million and $46.7 million, respectively.

amount of recoverable CAS pension costs recognized as revenue on an annual basis may differ from the amounts noted above.

The amount of recoverable CAS pension costs recognized as revenue on an annual basis may differ from the amounts noted above.

See further discussion of our accounting for contracts and revenue recognition above and in Note 1 to our consolidated financial statements included in this Report.

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Net actuarial gains and losses occur when actual experience differs from any of the various assumptions used to value our pension and postretirement benefit plans or when assumptions, which are revisited annually through our update of our actuarial valuations, change due to current market conditions or underlying demographic changes.

The primary factors contributing to net actuarial gains and losses are changes in the discount rate used to value the obligations as of the measurement date each year, the difference between the actual return on plan assets and the expected return on plan assets and changes in health care cost trends.

The primary factors contributing to net actuarial gains and losses are changes in the discount rate used to value the obligations as of the measurement date each year and the difference between the actual return on plan assets and the expected return on plan assets.

The effect of changes in the discount rate and expected rate of return on plan assets assumptions in combination with the actual return on plan assets can result in significant changes in our estimated pension and postretirement benefit cost and our consolidated financial condition.

The following sensitivity analysis shows the impact of a 25 basis point change in the assumed discount rate, return on assets and health care cost trend rate on our FAS pension and postretirement benefit plan obligations and expense for the year ended December 31, 2020:

The following sensitivity analysis shows the impact of a 25 basis point change in the assumed discount rate and return on plan assets on our FAS pension benefit plan obligations and expense for the year ended December 31, 2021:

.25% Increase .25% Decrease

(In millions)

Pension Plans

Discount Rate:

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Effect on projected benefit obligation $ (35.8) $ 39.5

Return on Assets:

Effect on ongoing net periodic benefit cost $ (2.8) $ 2.8

Postretirement Plans

Discount Rate:

Effect on ongoing net periodic benefit cost (1)

$ 0.1 $ (0.1)

Effect on projected benefit obligation $ (1.7) $ 1.9

Return on Assets:

Effect on ongoing net periodic benefit cost $ 0.1 $ (0.1)

Health Care Cost Trend Rate:

Return on Plan Assets:

Effect on ongoing net periodic benefit cost $ (3.1) $ 3.1

Effect on projected benefit obligation $ 1.4 $ (1.2)

(1) Excludes effect of annual mark to market adjustment.

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Some assumptions, such as future revenues, costs and changes in working capital are company driven and could be affected by a loss of one or more significant contracts or customers, failure to control costs on certain contracts, a decline in U.S.

funding or a decline in demand based on changing economic or regulatory conditions.

Government funding or a decline in demand based on changing economic or regulatory conditions.

Changes in external market conditions may affect certain other assumptions, such as the cost of capital.

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Factors such as size, growth, risk and profitability are analyzed and compared to each of our reporting units.

Assumptions include the selection of our peer companies and use of market multiples, which could deteriorate or increase based on the profitability of our competitors and performance of their stock, which is often dependent on the performance of the stock market and general economy as a whole.

Assumptions include the selection of our peer companies and use of market multiples, which could increase or decrease based on the profitability of our competitors and performance of their stock, which is often dependent on the performance of the stock market and general economy as a whole.

Adverse changes in the assumptions utilized in our impairment test could cause a reduction or elimination of excess fair value over carrying value, resulting in potential recognition of impairment.

If the fair value of the reporting unit exceeds its carrying value, no impairment charge is recorded.

If the carrying value of a reporting unit exceeds its fair value, an impairment charge is recorded to goodwill in the amount by which the carrying value exceeds fair value.

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We accrue for future decommissioning of our nuclear facilities that will permit the release of these facilities to unrestricted use at the end of each facility's service life, which is a requirement of our licenses from the NRC and the CNSC.

In accordance with the FASB Topic Asset Retirement and Environmental Obligations , we record the fair value of a liability for an asset retirement obligation in the period in which it is incurred.

In estimating fair value, we use present value of cash flows expected to be incurred in settling our obligations.

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We apply a credit-adjusted risk-free interest rate to our expected cash flows in our determination of fair value.

When we initially record such a liability, we capitalize a cost by increasing the carrying amount of the related long-lived asset.

When we acquire a business that has an asset retirement obligation, the asset retirement obligation is recognized at fair value without a corresponding increase to the related long-lived asset.

Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset.

Actual costs incurred to decommission our facilities may differ from the accreted liability.

As a result, upon completion of a decommissioning activity, we will either settle the obligation for its recorded amount or incur a gain or loss.

This topic applies to environmental liabilities associated with assets that we currently operate and are obligated to remove from service.

For environmental liabilities associated with assets that we no longer operate, we have accrued amounts based on the estimated costs of cleanup activities, net of the anticipated effect of any applicable cost-sharing arrangements.

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Given the long-lived nature of these facilities, we are required to estimate retirement costs that will be incurred in the future, which may extend up to 40 years at the time the asset retirement obligation is established.

Due to the significance of the remaining useful life of these facilities, the timing of retirement and future costs for material components of the asset retirement

obligations, such as labor and waste disposal fees, could differ from our estimates.

Due to the significance of the remaining useful life of these facilities, the timing of retirement and future costs for material components of the asset retirement obligations, such as labor and waste disposal fees, could differ from our estimates.

An exception to this accounting treatment relates to the work we perform for two facilities for which the U.S.

Government is obligated to pay substantially all the decommissioning costs.

See Note 1 to our consolidated financial statements included in this Report for further discussion of recently adopted accounting standards.

COVID-19 Assessment

A global outbreak of COVID-19 has occurred impacting over 200 countries, including the U.S.

and Canada where we maintain our principal operations.

Developments have been occurring rapidly with respect to the spread of COVID-19 and its impact on human health and businesses, with new and changing government actions occurring on a daily basis.

As a result, we have been closely monitoring the COVID-19 pandemic and its impacts and potential impacts on our business.

We continue to monitor COVID-19 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.

To date, we have experienced localized operational challenges as a result of employee illness, quarantines and social distancing protocols.

Within our Canadian operations, revenues in our medical radioisotopes and radiopharmaceuticals business have declined year over year due to a decrease in demand for elective diagnostic procedures, and certain services scheduled during nuclear power plant outages have been rescheduled, delaying the performance of services by our Nuclear Power Group segment.

We have also experienced delays in the bidding and contracting process for our U.S.

Government businesses due to COVID-19 concerns.

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 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.

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 and episodic 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 continue to change, it is difficult to predict any future impact at this time.

We have experienced, and may experience further, disruptions to demand for certain of our products and services and our operations in the future as a result of, among other things, national, state, provincial or local government enforced quarantines, vaccine mandates and related labor issues, worker illness, absenteeism or attrition, supply chain disruptions and travel and other restrictions.

For similar reasons, COVID-19 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 outbreak 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 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 in the future and as of December 31, 2020, and we have deferred $21.4 million of payroll taxes that will be paid beginning in December 2021.

Additionally, on April 11, 2020, the Canadian Government enacted 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 year ended December 31, 2020, we recognized $20.4 million of subsidies under CEWS as an offset to operating expenses.

The Canadian Government has extended CEWS to June 2021 with a number of modifications.

These modifications are expected to significantly decrease the amount of future claims for which we may qualify.

See Item 1A "Risk Factors" in this Report for an additional discussion of risks of the COVID-19 pandemic on our business.

Government enacted the CARES Act, which among other things, provided employers an option to defer payroll tax payments for a limited period.

As of December 31, 2021, we have deferred $21.4 million of payroll taxes which are due in two equal installments by early January 2022 and 2023.

Additionally, on April 11, 2020, the Canadian Government enacted the 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 years ended December 31, 2021 and 2020, we recognized subsidies under the CEWS as offsets to operating expenses of $5.4 million and $20.4 million, respectively.

The Canadian Government extended the CEWS to May 2022 with a number of modifications.

These modifications significantly decreased the amount of claims for which we qualified when compared to the prior year.

See Item 1A of this Report for an additional discussion of risks of COVID-19 on our business.

Results of Operations – Years Ended December 31, 2021, 2020 and 2019

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This section discusses our 2021 and 2020 results of operations and contains year-to-year comparisons between 2021 and 2020.

Discussions of our 2018 results and year-to-year comparisons between 2019 and 2018 that are not included in this Report can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2019.

Discussions of our 2019 results and year-to-year comparisons between 2020 and 2019 that are not included in this Report can be found in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2020.

Consolidated Results of Operations

Consolidated revenues increased 12.1%, or $228.6 million, to $2,123.5 million in the year ended December 31, 2020 compared to $1,894.9 million for the corresponding period of 2019, due to increases in revenues from our Nuclear Operations Group, Nuclear Power Group and Nuclear Services Group segments totaling $217.7 million, $18.6 million and $5.2 million, respectively.

Consolidated operating income increased $33.0 million to $358.6 million in the year ended December 31, 2020 compared to $325.5 million for the corresponding period of 2019.

Operating income in our Nuclear Operations Group, Nuclear Services Group and Other segments increased by $27.7 million, $12.2 million and $0.8 million, respectively.

These increases were partially offset by lower operating income in our Nuclear Power Group segment of $1.8 million and higher Unallocated Corporate expenses of $5.9 million when compared to the prior year.

Consolidated revenues increased slightly to $2,124.1 million in the year ended December 31, 2021 compared to $2,123.5 million in 2020, due to an increase in our Nuclear Power Group segment revenues of $35.8 million, which was partially offset by decreases in revenues in our Nuclear Operations Group and Nuclear Services Group segments of $23.7 million and $13.0 million, respectively.

Consolidated operating income decreased $12.7 million to $345.8 million in the year ended December 31, 2021 compared to $358.6 million in 2020.

Operating income in our Nuclear Operations Group and Other segments decreased by $17.4 million and $2.0 million, respectively.

These decreases were partially offset by increases in our Nuclear Power Group and Nuclear Services Group segments of $0.6 million and $1.5 million, respectively.

We also experienced lower Unallocated Corporate expenses of $4.7 million in 2021 when compared to the prior year.

Nuclear Operations Group

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% of Revenues 19.0% 19.8%

Revenues increased by 15.2%, or $217.7 million, to $1,646.3 million in the year ended December 31, 2020 compared to $1,428.6 million for the corresponding period of 2019 as we continue to expand production related to the Columbia-Class nuclear propulsion system.

The increase comprised additional volume in the manufacture of nuclear components for U.S.

Government programs and the timing of the procurement of certain long-lead materials when compared to the prior year.

We also experienced a volume increase in our naval nuclear fuel and downblending operations.

Operating income increased $27.7 million to $326.0 million in the year ended December 31, 2020 compared to $298.3 million for the corresponding period of 2019.

The increase was due to the operating income impact of the changes in revenues noted above.

Revenues decreased by 1.4%, or $23.7 million, to $1,622.6 million in the year ended December 31, 2021 compared to $1,646.3 million in 2020.

The decrease was primarily related to the timing of the procurement of certain long-lead materials when compared to the prior year, which was partially offset by additional volume in the manufacture of nuclear components for U.S.

Government programs and additional volume in our naval nuclear fuel and downblending operations.

Operating income decreased $17.4 million to $308.6 million in the year ended December 31, 2021 compared to $326.0 million in 2020.

The decrease was due to the operating income impact of the changes in revenue noted above as well as lower levels of net favorable contract adjustments recorded in the current year when compared to the prior year.

Nuclear Power Group

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% of Revenues 12.9% 14.0%

Revenues increased by 5.3%, or $18.6 million, to $371.3 million in the year ended December 31, 2020 compared to $352.6 million for the corresponding period of 2019.

This was primarily related to an increase in revenues of $38.0 million associated with the acquisition of Laker Energy Products during the first quarter of 2020.

We also experienced additional volume related to the fabrication of nuclear fuel and a higher levels of in-plant inspection, maintenance and modification services.

These increases were partially offset by lower revenues in our nuclear components business largely attributable to decreased activity associated with major steam generator design and supply contracts of $34.2 million.

In addition, we experienced lower demand for our medical radioisotopes when compared to the prior year, due to a decrease in elective diagnostic procedures caused in part by the COVID-19 pandemic.

Operating income decreased $1.8 million to $52.0 million in the year ended December 31, 2020 compared to $53.8 million for the corresponding period of 2019, primarily attributable to a $5.2 million favorable change in estimate associated with an asset retirement obligation in addition to net favorable changes in estimates related to certain long-term contracts recorded in the prior year.

We also experienced a shift in our product line mix when compared to the prior year which resulted in a decline in operating margins.

This was offset by $20.4 million of wage subsidies received under the CEWS to offset the effects of COVID-19 on our Canadian operations.

Revenues increased by 9.6%, or $35.8 million, to $407.1 million in the year ended December 31, 2021 compared to $371.3 million in 2020.

The increase was primarily related to higher levels of in-plant inspection, maintenance and modification services totaling $26.2 million in addition to increases in revenues related to our nuclear fuel handling capabilities of $13.3 million.

We also experienced higher levels of revenue in our fuel fabrication and medical radioisotopes businesses when compared to the prior year.

These increases were partially offset by lower activity in our nuclear components business of $19.8 million, primarily associated with a major steam generator design and supply contract.

Operating income increased $0.6 million to $52.5 million in the year ended December 31, 2021 compared to $52.0 million in 2020, due to the operating income impact of the changes in revenues noted above as well as a $2.0 million gain resulting from the settlement of contingent consideration associated with the Precision Manufacturing acquisition.

These increases were partially offset by a decrease in the amount of wage subsidies we received under the CEWS to offset the effects of COVID-19 on our Canadian operations of $15.0 million when compared to the prior year.

Nuclear Services Group

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% of Revenues 22.6% 19.4%

Revenues increased by 3.9%, or $5.2 million, to $136.5 million in the year ended December 31, 2020 compared to $131.3 million for the corresponding period of 2019.

The increase was primarily attributable to design and engineering work executed by our advanced technologies business which was partially offset by a decline in revenues due to the divestiture of our U.S.-based commercial nuclear services business during the second quarter of 2020.

Operating income increased $12.2 million to $26.4 million in the year ended December 31, 2020 compared to $14.2 million for the corresponding period of 2019 due to the operating income impact of the changes in revenues noted above in addition to year over year improvements in our U.S.-based commercial nuclear services business prior to divestiture.

Revenues decreased by 9.5%, or $13.0 million, to $123.5 million in the year ended December 31, 2021 compared to $136.5 million in 2020, primarily attributable to the divestiture of our U.S.-based commercial nuclear services business during the second quarter of 2020 and lower revenues at our Naval Reactors decommissioning and decontamination project.

These decreases were partially offset by an increase in design and engineering work executed by our advanced technologies business, particularly in the space and defense markets.

Operating income increased $1.5 million to $27.9 million in the year ended December 31, 2021 compared to $26.4 million in 2020 due to higher site fee income, which was partially offset by the operating income impact associated with the changes in revenues noted above.

Year Ended December 31,

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Operating Income $ (24,333) $ (22,309) $ (2,024)

Operating income increased $0.8 million to a loss of $22.3 million in the year ended December 31, 2020 compared to a loss of $23.1 million for the corresponding period of 2019, primarily due to a decrease in research and development activities related to our medical and industrial radioisotope capabilities and other advanced technologies when compared to the prior year.

Operating income decreased $2.0 million to a loss of $24.3 million in the year ended December 31, 2021 compared to a loss of $22.3 million in 2020, primarily due to an increase in costs associated with the commercialization of our medical radioisotope technology.

Unallocated Corporate

Unallocated corporate expenses increased $5.9 million to $23.6 million in the year ended December 31, 2020 compared to $17.7 million for the corresponding period of 2019, primarily due to a $2.6 million reserve related to a franchise tax audit of years prior to 2016, higher levels of incentive compensation and a $1.6 million increase in legal and consulting costs associated with the divestiture of our U.S.-based commercial nuclear services business during the second quarter of 2020.

Unallocated corporate expenses decreased $4.7 million to $18.9 million in the year ended December 31, 2021 compared to $23.6 million in 2020, primarily due to a decrease in legal and consulting costs associated with due diligence activities in addition to a $2.6 million reserve related to a franchise tax audit of years prior to 2016, which was recorded in the year ended December 31, 2020.

Other Income (Expense)

During the year ended December 31, 2020, other income (expense) increased $15.4 million to a gain of $3.6 million compared to a loss of $11.8 million for the corresponding period of 2019.

During the year ended December 31, 2021, other income (expense) increased $46.2 million to a gain of $49.9 million compared to a gain of $3.6 million in 2020.

A component of other income (expense) is net periodic benefit cost inclusive of mark to market adjustments due to our immediate recognition of net actuarial gains (losses) for our pension and postretirement benefit plans.

Net periodic benefit cost resulted in an increase to other income of $14.1 million when compared to the prior year.

Net periodic benefit cost resulted in an increase to other income of $61.3 million when compared to the prior year, caused by increased gains related to mark to market adjustments totaling $39.6 million.

This increase was offset by an early redemption premium of $10.8 million and the write-off of deferred debt issuance costs totaling $4.2 million associated with the redemption of the Senior Notes due 2026, as defined below.

Provision for Income Taxes

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Effective Tax Rate

For the year ended December 31, 2020, our provision for income taxes increased $13.9 million to $83.0 million, while income before provision for income taxes increased $48.4 million to $362.2 million.

Our effective tax rate was approximately 22.9% as compared to 22.0% for the years ended December 31, 2020 and 2019, respectively.

For the year ended December 31, 2021, our provision for income taxes increased $6.4 million to $89.4 million, while income before provision for income taxes increased $33.5 million to $395.7 million when compared to the prior year.

Our effective tax rate was 22.6% for the year ended December 31, 2021 compared to 22.9% for the year ended December 31, 2020.

Our effective tax rates for the years ended December 31, 2021 and 2020 were higher than the U.S.

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Liquidity and Capital Resources

Our overall liquidity position, which we generally define as our unrestricted cash and cash equivalents plus amounts available for borrowings under our credit facility, increased by approximately $290.4 million to $649.3 million at December 31, 2020 compared to $358.9 million at December 31, 2019.

Our overall liquidity position, which we generally define as our unrestricted cash and cash equivalents plus amounts available for borrowings under our credit facility, decreased by approximately $301.6 million to $347.7 million at December 31, 2021 compared to $649.3 million at December 31, 2020, primarily attributable to an increase in net borrowings of long-term debt to fund capital expansion projects and repurchases of common stock.

We experienced net cash generated from operations in each of the years ended December 31, 2021, 2020 and 2019.

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Government on accounts receivable retainages and cash dividends received from our joint ventures.

On June 12, 2020, we issued $400 million aggregate principal amount of our 4.125% senior notes due 2028 (the "Senior Notes due 2028") pursuant to an indenture dated June 12, 2020 (the "2020 Indenture") among the Company, the guarantors party thereto and U.S.

Bank National Association, as trustee.

The proceeds from the issuance of the Senior Notes due 2028 were used to (1) repay in full the Term Loans, as defined below, under our Credit Agreement dated as of May 24, 2018 (as amended, the "Credit Facility"), (2) repay a portion of the borrowings under the Revolving Credit Facility, as defined below, under the Credit Facility and (3) pay all fees and expenses related to the issuance of the Senior Notes due 2028.

Credit Facility

On March 24, 2020, we entered into an Amendment No.

1 to Credit Agreement (the "Amendment"), which amended the Credit Facility with Wells Fargo Bank, N.A., as administrative agent, and the other lenders party thereto.

The Credit Facility originally provided for a $500 million senior secured revolving credit facility (the "Revolving Credit Facility"), a $50 million U.S.

dollar senior secured term loan A made available to the Company (the "USD Term Loan") and a $250 million (U.S.

dollar equivalent) Canadian dollar senior secured term loan A made available to BWXT Canada Ltd.

(the "CAD Term Loan" and together with the USD Term Loan, the "Term Loans").

On June 12, 2020, we repaid in full the Term Loans, at par, with a portion of the proceeds from the issuance of the Senior Notes due 2028.

The Amendment, among other things, (1) provided additional commitments to increase the Revolving Credit Facility by $250 million, such that the Revolving Credit Facility is now $750 million;

(2) extended the maturity date of the Revolving Credit Facility to March 24, 2025;

(3) removed BWXT Canada Ltd.

as a borrower under the Revolving Credit Facility;

(4) modified the applicable margin for borrowings under the Revolving Credit Facility to be, at the Company's option, either (i) the Eurocurrency rate plus a margin ranging from 1.0% to 1.75% per year or (ii) the base rate plus a margin ranging from 0.0% to 0.75% per year, in each case depending on the Company's leverage ratio;

(5) modified the commitment fee on the unused portion of the Revolving Credit Facility to range from 0.15% to 0.225% per year, depending on the Company's leverage ratio;

and (6) modified the letter of credit fee with respect to each financial letter of credit and performance letter of credit issued under the Revolving Credit Facility to range from 1.0% to 1.75% and 0.75% to 1.05% per year, respectively, in each case, depending on the Company's leverage ratio.

1 to Credit Agreement, which amended the Credit Agreement dated as of May 24, 2018 (as amended, the "Credit Facility") with Wells Fargo Bank, N.A., as administrative agent, and the other lenders party thereto.

The Credit Facility provides for a $750 million senior secured revolving credit facility (the "Revolving Credit Facility").

All obligations under the Revolving Credit Facility are scheduled to mature on March 24, 2025.

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We are charged a commitment fee on the unused portion of the Revolving Credit Facility, and that fee ranges from 0.15% to 0.225% per year.

Additionally, we are charged a letter of credit fee of between 1.0% and 1.75% per year with respect to the amount of each financial letter of credit issued under the Credit Facility, and a letter of credit fee of between 0.75% and 1.05% per year

with respect to the amount of each performance letter of credit issued under the Credit Facility.

The applicable margin for loans, the commitment fee and the letter of credit fees set forth above will vary quarterly based on our leverage ratio.

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As of December 31, 2021, borrowings and letters of credit issued under the Revolving Credit Facility totaled $400.0 million and $36.2 million, respectively.

As a result, as of December 31, 2020 we had $606.7 million available under the Revolving Credit Facility for borrowings and to meet letter of credit requirements.

As a result, as of December 31, 2021 we had $313.8 million available under the

Revolving Credit Facility for borrowings and to meet letter of credit requirements.

As of December 31, 2021, the interest rate on outstanding borrowings under our Credit Facility was 1.61%.

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Senior Notes due 2026

On May 24, 2018, we issued $400 million aggregate principal amount of 5.375% senior notes due 2026 (the "Senior Notes due 2026") pursuant to an indenture dated May 24, 2018 (the "2018 Indenture"), among the Company, certain of our subsidiaries, as guarantors, and U.S.

We issued $400 million aggregate principal amount of 5.375% senior notes due 2026 (the "Senior Notes due 2026") pursuant to an indenture dated May 24, 2018, among the Company, certain of our subsidiaries, as guarantors, and U.S.

Bank National Association, as trustee.

The Senior Notes due 2026 are guaranteed by each of the Company's present and future direct and indirect wholly owned domestic subsidiaries that is a guarantor under the Credit Facility.

Interest on the Senior Notes due 2026 is payable semi-annually in cash in arrears on January 15 and July 15 of each year at a rate of 5.375% per annum.

The Senior Notes due 2026 will mature on July 15, 2026.

On and after July 15, 2021, we may redeem the Senior Notes due 2026, in whole or in part, at a redemption price equal to (i) 102.688% of the principal amount to be redeemed if the redemption occurs during the twelve-month period beginning on July 15, 2021, (ii) 101.344% of the principal amount to be redeemed if the redemption occurs during the twelve-month period beginning on July 15, 2022 and (iii) 100.0% of the principal amount to be redeemed if the redemption occurs on or after July 15, 2023, in each case plus accrued and unpaid interest, if any, to, but excluding, the redemption date.

At any time prior to July 15, 2021, we may also redeem up to 40.0% of the Senior Notes due 2026 with net cash proceeds of certain equity offerings at a redemption price equal to 105.375% of the principal amount of the Senior Notes due 2026 to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date.

In addition, at any time prior to July 15, 2021, we may redeem the Senior Notes due 2026, in whole or in part, at a redemption price equal to 100.0% of the principal amount of the Senior Notes due 2026 to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date plus an applicable "make-whole" premium.

The 2018 Indenture contains customary events of default, including, among other things, payment default, failure to comply with covenants or agreements contained in the 2018 Indenture or the Senior Notes due 2026 and certain provisions related to bankruptcy events.

The 2018 Indenture also contains customary negative covenants.

As of December 31, 2020, we were in compliance with all covenants set forth in the 2018 Indenture and the Senior Notes due 2026.

On July 15, 2021, using cash on hand and borrowings under the Credit Facility, we redeemed the Senior Notes due 2026 at a redemption price equal to 102.688% of the principal amount, resulting in an early redemption premium of $10.8 million and the write-off of deferred debt issuance costs totaling $4.2 million.

These charges were recorded in our consolidated statement of income during the year ended December 31, 2021 as components of Other – net and Interest expense, respectively.

Senior Notes due 2028

On June 12, 2020, we issued $400 million aggregate principal amount of our Senior Notes due 2028 pursuant to the 2020 Indenture.

We issued $400 million aggregate principal amount of 4.125% senior notes due 2028 (the "Senior Notes due 2028") pursuant to an indenture dated June 12, 2020 (the "2020 Indenture"), among the Company, certain of our subsidiaries, as guarantors, and U.S.

Bank Trust Company, National Association (formerly known as U.S.

Bank National Association) ("U.S.

Bank"), as trustee.

The Senior Notes due 2028 are guaranteed by each of the Company's present and future direct and indirect wholly owned domestic subsidiaries that is a guarantor under the Credit Facility.

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As of December 31, 2021, we were in compliance with all covenants set forth in the 2020 Indenture and the Senior Notes due 2028.

Senior Notes due 2029

We issued $400 million aggregate principal amount of 4.125% senior notes due 2029 (the "Senior Notes due 2029") pursuant to an indenture dated April 13, 2021 (the "2021 Indenture"), among the Company, certain of our subsidiaries, as guarantors, and U.S.

Bank, as trustee.

The Senior Notes due 2029 are guaranteed by each of the Company's present and future direct and indirect wholly owned domestic subsidiaries that is a guarantor under the Credit Facility.

Interest on the Senior Notes due 2029 is payable semi-annually in cash in arrears on April 15 and October 15 of each year at a rate of 4.125% per annum.

The Senior Notes due 2029 will mature on April 15, 2029.

We may redeem the Senior Notes due 2029, in whole or in part, at any time on or after April 15, 2024 at a redemption price equal to (i) 102.063% of the principal amount to be redeemed if the redemption occurs during the twelve-month period beginning on April 15, 2024, (ii) 101.031% of the principal amount to be redeemed if the redemption occurs during the twelve-month period beginning on April 15, 2025 and (iii) 100.0% of the principal amount to be redeemed if the redemption occurs on or after April 15, 2026, in each case plus accrued and unpaid interest, if any, to, but excluding, the redemption date.

At any time prior to April 15, 2024, we may also redeem up to 40.0% of the Senior Notes due 2029 with net cash proceeds of certain equity offerings at a redemption price equal to 104.125% of the principal amount of the Senior Notes due 2029 to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date.

In addition, at any time prior to April 15, 2024, we may redeem the Senior Notes due 2029, in whole or in part, at a redemption price equal to 100.0% of the principal amount of the Senior Notes due 2029 to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date plus an applicable "make-whole" premium.

The 2021 Indenture contains customary events of default, including, among other things, payment default, failure to comply with covenants or agreements contained in the 2021 Indenture or the Senior Notes due 2029 and certain provisions related to bankruptcy events.

The 2021 Indenture also contains customary negative covenants.

As of December 31, 2021, we were in compliance with all covenants set forth in the 2021 Indenture and the Senior Notes due 2029.

Other Arrangements

We have posted surety bonds to support regulatory and contractual obligations for certain decommissioning responsibilities, projects and legal matters.

We utilize bonding facilities to support such obligations, but the issuance of bonds under those facilities is typically at the surety's discretion.

We utilize bonding facilities to support such obligations, but the issuance of bonds under those facilities is typically at the surety's discretion, and the bonding facilities generally permit the surety, in its sole discretion, to terminate the facility or demand collateral.

Although there can be no assurance that we will maintain our surety bonding capacity, we believe our current capacity is adequate to support our existing requirements for the next twelve months.

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Cash, Cash Equivalents, Restricted Cash and Investments

In the aggregate, our cash and cash equivalents, restricted cash and cash equivalents and investments decreased by approximately $44.5 million to $61.4 million at December 31, 2020 from $105.9 million at December 31, 2019, primarily due to the items discussed below.

In the aggregate, our cash and cash equivalents, restricted cash and cash equivalents and investments decreased by $8.2 million to $53.1 million at December 31, 2021 from $61.4 million at December 31, 2020, primarily due to the items discussed below.

Our domestic and foreign cash and cash equivalents, restricted cash and cash equivalents and investments as of December 31, 2021 and 2020 were as follows:

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Total $ 53,144 $ 61,361

Our working capital increased by $18.8 million to $243.9 million at December 31, 2020 from $225.0 million at December 31, 2019, primarily attributable to changes in net contracts in progress and advance billings due to the timing of project cash flows.

This increase was partially offset by a decrease in cash and cash equivalents and an increase in other accrued liabilities primarily related to the deferral of payroll tax payments under the CARES Act.

Our net cash provided by operating activities decreased by $82.9 million to $196.4 million in the year ended December 31, 2020, compared to cash provided by operating activities of $279.4 million in the year ended December 31, 2019, primarily attributable to the timing of project cash flows.

This decrease was partially offset by an increase in net income and the deferral of payroll tax payments under the CARES Act of $21.4 million.

Our working capital increased by $70.2 million to $314.1 million at December 31, 2021 from $243.9 million at December 31, 2020, primarily attributable to changes in net contracts in progress and advance billings due to the timing of project cash flows and lower levels of incentive compensation recognized in the current year.

Our net cash provided by operating activities increased by $189.6 million to $386.0 million in the year ended December 31, 2021, compared to $196.4 million in the year ended December 31, 2020, primarily attributable to the timing of project cash flows.

Our net cash used in investing activities increased by $39.3 million to $304.7 million in the year ended December 31, 2021, compared to $265.3 million in the year ended December 31, 2020.

The increase in cash used in investing activities was primarily attributable to an increase in purchases of property, plant and equipment of $72.9 million as well as our acquisition of Laker Energy Products for $15.9 million during the year ended December 31, 2020.

Our net cash provided by financing activities increased by $68.8 million to $25.0 million in the year ended December 31, 2020, compared to cash used in financing activities of $43.7 million in the year ended December 31, 2019.

The increase in net cash provided by financing activities was primarily attributable to bank overdrafts of $88.7 million, partially offset by the payment of debt issuance costs of $6.8 million and an increase in dividends paid to common shareholders of $7.6 million compared to the prior year.

At December 31, 2020, we had restricted cash and cash equivalents totaling $5.7 million, $2.6 million of which was held for future decommissioning of facilities (which is included in other assets on our consolidated balance sheets) and $3.1 million of which was held to meet reinsurance reserve requirements of our captive insurer.

The increase in cash used in investing activities was

primarily attributable to an increase in purchases of property, plant and equipment of $56.0 million, offset by our acquisition of Precision Manufacturing for $15.9 million during the year ended December 31, 2020.

Our net cash used in financing activities increased by $115.2 million to $90.1 million in the year ended December 31, 2021, compared to cash provided by financing activities of $25.0 million in the year ended December 31, 2020.

The increase in net cash used in financing activities was primarily attributable to an increase in the repurchases of common stock of $203.8 million compared to the prior year and the change in bank overdrafts of $88.7 million in 2021.

These increases in cash usage were partially offset by an increase in net borrowings of long-term debt of $275.2 million compared to the prior year.

At December 31, 2021, we had short-term and long-term investments with a fair value of $13.4 million.

Our investment portfolio consists primarily of U.S.

Government and agency securities, corporate bonds and equities and mutual funds.

Based on our liquidity position, we believe we have sufficient cash and letter of credit and borrowing capacity to fund our operating requirements for at least the next 12 months.

CONTRACTUAL OBLIGATIONS

Our cash requirements as of December 31, 2020 under current contractual obligations were as follows:

Government securities, corporate bonds and mutual funds.

Cash Requirements

We believe we have sufficient cash and cash equivalents and borrowing capacity, along with cash generated from operations and continued access to debt markets, to satisfy our cash requirements for the next 12 months and beyond.

Our cash requirements as of December 31, 2021 include the following contractual obligations:

Total Less than

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Lease payments $ 17,573 $ 3,979 $ 4,889 $ 3,680 $ 5,025

We expect cash requirements totaling approximately $4.7 million for contributions to our pension plans in 2021.

In addition, we anticipate cash requirements totaling approximately $1.4 million for contributions to our other postretirement benefit plans in 2021.

Our contingent commitments under letters of credit and surety bonds currently outstanding expire as follows:

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$ 145,655 $ 127,107 $ 9,361 $ 9,187 $ —

Other cash requirements include, among other things, capital expenditures, payment of dividends, repurchases of common stock, capital contributions for joint ventures and contributions to our pension and other postretirement benefit plans.

Since 2017, we have made considerable investments in property, plant and equipment to support the growth of our Nuclear Operations Group and Nuclear Power Group segments.

Significant projects included the expansion of Nuclear Operations Group facilities to support increased demand from the U.S.

Government and the commercialization of our medical radioisotope technology in our Nuclear Power Group segment.

We expect these heightened spending levels to begin to decline in 2022 as these capital expansion projects near completion.

During the year ended December 31, 2021, we paid $79.7 million in dividends to holders of our common stock.

The declaration and payment of future dividends will be at the discretion of our Board of Directors and will depend upon many factors, including our financial condition, earnings, capital requirements of our business, legal and regulatory requirements and other factors that our Board of Directors may deem relevant.

In April 2021, our Board of Directors authorized us to repurchase an indeterminate number of shares of our common stock up to an aggregate market value of $500 million.

During the year ended December 31, 2021, we repurchased $225.8 million in shares of our common stock under this and prior share repurchase authorizations.

As of December 31, 2021, the total remaining share repurchase authorization was $417.6 million.

See Item 5 of this Report for additional share repurchase information.

During the year ended December 31, 2021, one of our joint ventures was awarded a DOE contract, which we expect to transition in 2022.

Over the next 12 months, we anticipate significant initial capital contributions related to this joint venture.

We expect cash requirements totaling approximately $13.7 million for contributions to our pension plans in 2022.

In addition, we anticipate cash requirements totaling approximately $1.6 million for contributions to our other postretirement benefit plans in 2022.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis