# BWX Technologies, Inc.: Form 10-Q for the period ended Jun 30, 2023

- Company: [BWX Technologies, Inc.](/companies/bwxt.md) (CIK 1486957)
- Form: 10-Q
- Filed: 2023-08-03
- Accepted by EDGAR: Aug 3, 2023, 16:29 ET
- Period: 2023-06-30
- Accession: 0001486957-23-000033
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1486957/000148695723000033/bwxt-20230630.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1486957/000148695723000033/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-04-01 to 2023-06-30 | $612.4m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 6 months, 2023-01-01 to 2023-06-30 | $1.18bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-04-01 to 2023-06-30 | $471.3m | us-gaap:CostOfRevenue |
| Cost of revenue | 6 months, 2023-01-01 to 2023-06-30 | $902.5m | us-gaap:CostOfRevenue |
| Research and development | 3 months, 2023-04-01 to 2023-06-30 | $2.6m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 6 months, 2023-01-01 to 2023-06-30 | $4.8m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2023-04-01 to 2023-06-30 | $64.4m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 6 months, 2023-01-01 to 2023-06-30 | $125.3m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-04-01 to 2023-06-30 | $86.7m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2023-01-01 to 2023-06-30 | $174.5m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-04-01 to 2023-06-30 | $12.2m | us-gaap:InterestExpense |
| Interest expense | 6 months, 2023-01-01 to 2023-06-30 | $23.0m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-04-01 to 2023-06-30 | $19.3m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2023-01-01 to 2023-06-30 | $38.0m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-04-01 to 2023-06-30 | $58.6m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2023-01-01 to 2023-06-30 | $119.7m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-04-01 to 2023-06-30 | $0.64 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2023-01-01 to 2023-06-30 | $1.30 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-04-01 to 2023-06-30 | $0.64 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2023-01-01 to 2023-06-30 | $1.31 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-04-01 to 2023-06-30 | 91,805,179 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2023-01-01 to 2023-06-30 | 91,802,435 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2023-01-01 to 2023-06-30 | $67.6m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2023-01-01 to 2023-06-30 | $69.6m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 6 months, 2023-01-01 to 2023-06-30 | $42.7m | us-gaap:PaymentsOfDividendsCommonStock |
| Share repurchases | 6 months, 2023-01-01 to 2023-06-30 | $0 | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2023-06-30 | $33.9m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-06-30 | $839.2m | us-gaap:AssetsCurrent |
| Total assets | at 2023-06-30 | $2.74bn | us-gaap:Assets |
| Current liabilities | at 2023-06-30 | $348.1m | us-gaap:LiabilitiesCurrent |
| Long-term debt | at 2023-06-30 | $1.33bn | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2023-06-30 | $6.3m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2023-06-30 | $841.7m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 40,631 characters.

The following information should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto included in Item 1 in Part I of this quarterly report on Form 10-Q ("Report"), as well as the audited consolidated financial statements and the related notes and Item 7 of our annual report on Form 10-K for the year ended December 31, 2022 (our "2022 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.

### Cautionary Statement Concerning Forward-Looking Statements

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 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 Company, industries and business environment. We caution that these statements are not guarantees of future performance and you should not rely unduly on them as they involve risks, uncertainties and assumptions that we cannot predict. In addition, we have based many of these forward-looking statements on assumptions about future events that may prove to be inaccurate. 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 Item 1A of our 2022 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. 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 2022 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 two reportable segments: Government Operations and Commercial Operations. 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.

#### Government Operations

The revenues of our Government Operations segment are largely a function of defense spending by the U.S. Government. Through this segment, we engineer, design and manufacture precision naval nuclear components, reactors and nuclear fuel for the U.S. Department of Energy ("DOE")/National Nuclear Safety Administration's Naval Nuclear Propulsion Program. In addition, we perform fabrication activities for missile launch tubes for U.S. Navy submarines and supply proprietary and sole-source valves, manifolds and fittings to global naval and commercial shipping customers. As a supplier of major nuclear components for certain U.S. Government programs, this segment is a significant participant in the defense industry.

This segment also provides various services to the U.S. Government by managing and operating high-consequence operations at U.S. nuclear weapons sites, national laboratories and manufacturing complexes. The revenues and equity income of investees under these types of 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 these sites. With our specialized capabilities of full life-cycle management of special materials, facilities and technologies, we believe this segment is well-positioned to continue participating in the ongoing cleanup, operation and management of critical government-owned nuclear sites, laboratories and manufacturing complexes maintained by the DOE, NASA and other federal agencies.

Additionally, 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.

#### Commercial Operations

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 global manufacturer and supplier of critical medical radioisotopes and radiopharmaceuticals.

Our Commercial Operations segment's overall activity primarily depends on the demand and competitiveness of nuclear energy and the demand for critical radioisotopes and radiopharmaceuticals. A significant portion of our Commercial Operations 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.

#### Acquisition of Dynamic Controls Limited and Citadel Capital Corporation

On April 11, 2022, our subsidiary BWXT Government Group, Inc. acquired all of the outstanding stock of U.K.-based Dynamic Controls Limited ("Dynamic") and U.S.-based Citadel Capital Corporation, along with its wholly-owned subsidiary, Cunico Corporation ("Cunico"). Dynamic and Cunico are suppliers of highly-engineered, proprietary valves, manifolds and fittings for global naval nuclear and diesel-electric submarines, surface warfare ships and commercial shipping vessels. These companies are reported as part of our Government Operations segment.

For additional information on the acquisition of Dynamic and Cunico, see Note 2 to our condensed consolidated financial statements included in this Report.

### Critical Accounting 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 of our 2022 10-K. There have been no material changes to our critical accounting policies and estimates during the six months ended June 30, 2023.

#### 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 June 30, 2023, we have provided for the estimated costs to complete all of our ongoing contracts. However, it is possible that current estimates could change due to unforeseen events, which could result in adjustments to overall contract revenues and costs. A principal risk on fixed-price contracts is that revenue from the customer is insufficient to cover increases in our costs. It is possible that current estimates could materially change for various reasons, including, but not limited to, fluctuations in the cost of labor, forecasted labor productivity or 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 and six months ended June 30, 2023, we recognized net changes in estimates related to contracts that recognize revenue over time, which decreased operating income by approximately $5.2 million and $13.0 million, respectively. During the three and six months ended June 30, 2022, we recognized net changes in estimates related to contracts that recognize revenue over time which decreased operating income by approximately $0.1 million and $5.3 million, respectively. Included in these amounts are contract adjustments for cost overruns related to the manufacture of non-nuclear components being produced within our Government Operations segment. We have recognized decreases in operating income of $11.3 million for the three and six months ended June 30, 2022 related to this matter which resulted in a decrease in earnings per share of $0.09 for the three and six months ended June 30, 2022. We are pursuing recovery of cost overruns related to this project.

### Results of Operations – Three and Six Months Ended June 30, 2023 vs. Three and Six Months Ended June 30, 2022

Selected financial highlights are presented in the table below:

*(In thousands)*

| REVENUES: | Three Months Ended June 30, 2023 | 2022 | $ Change | Six Months Ended June 30, 2023 | 2022 | $ Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Government Operations | $491,967 | $436,537 | $55,430 | $951,853 | $868,314 | $83,539 |
| Commercial Operations | 120,920 | 118,522 | 2,398 | 229,844 | 218,472 | 11,372 |
| Eliminations | (442) | (851) | 409 | (892) | (1,840) | 948 |
|  | $612,445 | $554,208 | $58,237 | $1,180,805 | $1,084,946 | $95,859 |
| OPERATING INCOME: |  |  |  |  |  |  |
| Government Operations | $82,208 | $83,783 | $(1,575) | $172,768 | $156,014 | $16,754 |
| Commercial Operations | 11,017 | 12,864 | (1,847) | 12,530 | 16,826 | (4,296) |
|  | $93,225 | $96,647 | $(3,422) | $185,298 | $172,840 | $12,458 |
| Unallocated Corporate | (6,559) | (1,410) | (5,149) | (10,790) | (6,030) | (4,760) |
| Total Operating Income | $86,666 | $95,237 | $(8,571) | $174,508 | $166,810 | $7,698 |

#### Consolidated Results of Operations

#### Three months ended June 30, 2023 vs. 2022

Consolidated revenues increased 10.5%, or $58.2 million, to $612.4 million in the three months ended June 30, 2023 compared to $554.2 million for the corresponding period of 2022 due to increases in revenues in our Government Operations and Commercial Operations segments of $55.4 million and $2.4 million, respectively.

Consolidated operating income decreased $8.6 million to $86.7 million in the three months ended June 30, 2023 compared to $95.2 million for the corresponding period of 2022. Operating income in our Government Operations and Commercial Operations segments decreased $1.6 million and $1.8 million, respectively. We also experienced higher Unallocated Corporate expenses of $5.1 million.

#### Six months ended June 30, 2023 vs. 2022

Consolidated revenues increased 8.8%, or $95.9 million, to $1,180.8 million in the six months ended June 30, 2023 compared to $1,084.9 million for the corresponding period of 2022 due to increases in revenues in our Government Operations and Commercial Operations segments of $83.5 million and $11.4 million, respectively.

Consolidated operating income increased $7.7 million to $174.5 million in the six months ended June 30, 2023 compared to $166.8 million for the corresponding period of 2022. Operating income in our Government Operations segment increased $16.8 million, which was partially offset by lower operating income in our Commercial Operations segment of $4.3 million when compared to the prior year. We also experienced higher Unallocated Corporate expenses of $4.8 million.

#### Government Operations

*(In thousands)*

|  | Three Months Ended June 30, 2023 | 2022 | $ Change | Six Months Ended June 30, 2023 | 2022 | $ Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Revenues | $491,967 | $436,537 | $55,430 | $951,853 | $868,314 | $83,539 |
| Operating Income | $82,208 | $83,783 | $(1,575) | $172,768 | $156,014 | $16,754 |
| % of Revenues | 16.7% | 19.2% |  | 18.2% | 18.0% |  |

#### Three months ended June 30, 2023 vs. 2022

Revenues increased $55.4 million, or 12.7%, to $492.0 million in the three months ended June 30, 2023 compared to $436.5 million for the corresponding period of 2022. The increase was driven by higher volume in the manufacture of nuclear components for U.S. Government programs, resulting in an increase in revenues of $20.6 million when compared to the prior year. Continued growth in design and engineering work executed by our advanced technologies business, particularly in the defense market, resulted in an additional increase in revenues of $27.7 million. We also experienced additional volume associated with our downblending operations as well as an increase in revenues due to our acquisition of Dynamic and Cunico in the prior year. These increases were partially offset by the timing of long-lead material procurements when compared to the corresponding period in the prior year.

Operating income decreased $1.6 million to $82.2 million in the three months ended June 30, 2023 compared to $83.8 million for the corresponding period of 2022. The expansion of our advanced technologies business required additional investments in research and development and selling, general and administrative expenses, which resulted in an unfavorable impact on operating income of $1.5 million when compared to the prior year. We also experienced lower levels of favorable contract adjustments when compared to the corresponding period of the prior year. These decreases were almost entirely offset by the operating income impact of the changes in revenues noted above.

#### Six months ended June 30, 2023 vs. 2022

Revenues increased 9.6%, or $83.5 million, to $951.9 million in the six months ended June 30, 2023 compared to $868.3 million for the corresponding period of 2022. The increase was driven by higher volume in the manufacture of nuclear components for U.S. Government programs, resulting in an increase in revenues of $51.9 million when compared to the prior year. Continued growth in design and engineering work executed by our advanced technologies business, particularly in the defense market, resulted in an additional increase in revenues of $36.7 million. We also experienced additional volume associated with our downblending operations as well as an increase in revenues due to our acquisition of Dynamic and Cunico in the prior year. These increases were partially offset by the timing of long-lead material procurements when compared to the corresponding period in the prior year.

Operating income increased $16.8 million to $172.8 million in the six months ended June 30, 2023 compared to $156.0 million for the corresponding period of 2022. The increase was due to the operating income impact of the changes in revenues noted above in addition to an increase in operating income of $6.7 million associated with our joint venture activities, which include the Savannah River Site Integrated Mission Completion Contract that began in February 2022. These increases were partially offset by the additional costs associated with the expansion of our advanced technologies business discussed above.

#### Commercial Operations

*(In thousands)*

|  | Three Months Ended June 30, 2023 | 2022 | $ Change | Six Months Ended June 30, 2023 | 2022 | $ Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Revenues | $120,920 | $118,522 | $2,398 | $229,844 | $218,472 | $11,372 |
| Operating Income | $11,017 | $12,864 | $(1,847) | $12,530 | $16,826 | $(4,296) |
| % of Revenues | 9.1% | 10.9% |  | 5.5% | 7.7% |  |

#### Three months ended June 30, 2023 vs. 2022

Revenues increased 2.0%, or $2.4 million, to $120.9 million in the three months ended June 30, 2023 compared to $118.5 million for the corresponding period of 2022. The increase was primarily related to higher levels of in-plant inspection, maintenance, modification and refurbishment services of $3.2 million and an increase in revenues in our medical radioisotopes business of $3.8 million. These increases were partially offset by decreased revenues in our fuel fabrication business and lower volume in our nuclear components manufacturing business.

Operating income decreased $1.8 million to $11.0 million in the three months ended June 30, 2023 compared to $12.9 million for the corresponding period of 2022. The decrease was primarily due to a shift in our project and product line mix. In particular, our field services business has experienced a considerable increase in volume associated with large scale, long-term, construction projects in support of major refurbishment and plant life extension projects in Canada.

#### Six months ended June 30, 2023 vs. 2022

Revenues increased 5.2%, or $11.4 million, to $229.8 million in the six months ended June 30, 2023 compared to $218.5 million for the corresponding period of 2022. The increase was primarily related to higher levels of in-plant inspection, maintenance, modification and refurbishment services of $5.0 million and an increase in revenues in our medical radioisotopes business of $4.8 million. We also experienced higher volume in our nuclear components manufacturing and nuclear fuel handling businesses. These increases were partially offset by decreased revenues in our fuel fabrication business.

Operating income decreased $4.3 million to $12.5 million in the six months ended June 30, 2023 compared to $16.8 million in 2022. The decrease was primarily due to a shift in our project and product line mix. In particular, our field services business has experienced a considerable increase in volume associated with large scale, long-term, construction projects in support of major refurbishment and plant life extension projects in Canada. In addition, an increase in restructuring-related expenses of $1.4 million had an unfavorable impact on operating income when compared to the corresponding period of the prior year.

#### Unallocated Corporate

Unallocated corporate expenses increased $5.1 million and $4.8 million in the three and six months ended June 30, 2023, respectively, compared to the corresponding period of 2022 primarily due to increases in healthcare costs and compensation related expenses. These increases were partially offset by a decrease in legal and consulting costs associated with due diligence activities when compared to the prior year.

#### Provision for Income Taxes

*(In thousands)*

|  | Three Months Ended June 30, 2023 | 2022 | $ Change | Six Months Ended June 30, 2023 | 2022 | $ Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Income before Provision for Income Taxes | $77,939 | $98,099 | $(20,160) | $157,613 | $175,547 | $(17,934) |
| Provision for Income Taxes | $19,274 | $23,418 | $(4,144) | $37,955 | $41,792 | $(3,837) |
| Effective Tax Rate | 24.7% | 23.9% |  | 24.1% | 23.8% |  |

We primarily operate in the U.S., Canada and the U.K. and we recognize our U.S. income tax provision based on the U.S. federal statutory rate of 21%, our Canadian tax provision based on the Canadian local statutory rate of approximately 25%, and our U.K. tax provision based on the U.K. local statutory rate of 25%.

Our effective tax rate for the three months ended June 30, 2023 was 24.7% as compared to 23.9% for the three months ended June 30, 2022. Our effective tax rate for the six months ended June 30, 2023 was 24.1% as compared to 23.8% for the six months ended June 30, 2022. The effective tax rates for the three and six months ended June 30, 2023 and 2022 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 foreign earnings.

#### Backlog

Backlog represents the dollar amount of revenue we expect to recognize in the future from contracts awarded and in progress. Not all of our expected revenue from a contract award is recorded in backlog for a variety of reasons, including that some projects are awarded and completed within the same reporting period.

Our backlog is equal to our remaining performance obligations under contracts that meet the criteria in FASB Topic *Revenue from Contracts with Customers*, as discussed in Note 3 to our condensed consolidated financial statements included in this Report. It is possible that our methodology for determining backlog may not be comparable to methods used by other companies.

We are subject to the budgetary and appropriations cycle of the U.S. Government as it relates to our Government Operations segment. Backlog may not be indicative of future operating results, and projects in our backlog may be cancelled, modified or otherwise altered by customers.

|  | June 30, 2023 (In approximate millions) | December 31, 2022 |
| --- | ---: | ---: |
| Government Operations | $3,406 | $3,515 |
| Commercial Operations | 709 | 629 |
| Total Backlog | $4,115 | $4,144 |

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

As of June 30, 2023, our ending backlog was $4,115.0 million, which included $483.7 million of unfunded backlog related to U.S. Government contracts. We expect to recognize approximately 58% of the revenue associated with our backlog by the end of 2024, with the remainder to be recognized thereafter.

Major new awards from the U.S. Government are typically received following Congressional approval of the budget for the U.S. Government's next fiscal year, which starts October 1, and may not be awarded to us before the end of the calendar year. Due to the fact that most contracts awarded by the U.S. Government are subject to these annual funding approvals, the total values of the underlying programs are significantly larger.

The value of unexercised options excluded from backlog as of June 30, 2023, was approximately $200 million, which is expected to be awarded in annual installments through 2024, subject to annual Congressional appropriations.

### Liquidity and Capital Resources

#### Credit Facility

On October 12, 2022, we entered into an Amended and Restated Credit Agreement (the "Credit Facility") with Wells Fargo Bank, National Association, as administrative agent, and the other lenders party thereto. The Credit Facility consists of a $750 million senior secured revolving credit facility (the "Revolving Credit Facility") and a $250 million senior secured term A loan (the "Term Loan"). The Revolving Credit Facility and the Term Loan are scheduled to mature on October 12, 2027. The proceeds of loans under the Credit Facility are available for working capital needs, permitted acquisitions and other general corporate purposes.

The Credit Facility allows for additional parties to become lenders and, subject to certain conditions, for the increase of the commitments under the Credit Facility, subject to an aggregate maximum for all additional commitments of (1) the greater of (a) $400 million and (b) 100% of EBITDA, as defined in the Credit Facility, for the last four full fiscal quarters, plus (2) all voluntary prepayments of the Term Loan, plus (3) additional amounts provided the Company is in compliance with a pro forma first lien net leverage ratio test of less than or equal to 2.50 to 1.00.

The Company's obligations under the Credit Facility are guaranteed, subject to certain exceptions, by substantially all of the Company's present and future wholly owned domestic restricted subsidiaries. The Credit Facility is secured by first-priority liens on certain assets owned by the Company and its subsidiary guarantors (other than its subsidiaries comprising a portion of its Government Operations segment).

The Credit Facility requires interest payments on outstanding loans on a periodic basis until maturity. We are required to make quarterly amortization payments on the Term Loan in an amount equal to (i) 0.625% of the initial aggregate principal amount of the Term Loan on the last business day of each quarter beginning the quarter ended March 31, 2023 and ending the quarter ending December 31, 2024 and (ii) 1.25% of the initial aggregate principal amount of the Term Loan on the last business day of each quarter ending after December 31, 2024, with the balance of the Term Loan due at maturity. We may prepay all loans under the Credit Facility at any time without premium or penalty (other than customary Term SOFR breakage costs), subject to notice requirements.

The Credit Facility includes financial covenants that are evaluated on a quarterly basis, based on the rolling four-quarter period that ends on the last day of each fiscal quarter. The maximum permitted total net leverage ratio is 4.00 to 1.00, which may be increased to 4.50 to 1.00 for up to four consecutive fiscal quarters after a material acquisition. The minimum consolidated interest coverage ratio is 3.00 to 1.00. In addition, the Credit Facility contains various restrictive covenants, including with respect to debt, liens, investments, mergers, acquisitions, dividends, equity repurchases and asset sales. As of June 30, 2023, we were in compliance with all covenants set forth in the Credit Facility.

Outstanding loans under the Credit Facility bear interest at our option at either (1) the Term SOFR plus a credit spread adjustment of 0.10% plus a margin ranging from 1.0% to 1.75% per year or (2) the base rate plus a margin ranging from 0.0% to 0.75% per year. We are charged a commitment fee on the unused portion of the Revolving Credit Facility, and that fee ranges from 0.15% to 0.225% per year. Additionally, we are charged a letter of credit fee of between 1.0% and 1.75% per year with respect to the amount of each financial letter of credit issued under the Revolving 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 Revolving 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 total net leverage ratio. Based on the total net leverage ratio applicable at June 30, 2023, the margin for Term SOFR and base rate loans was 1.50% and 0.50%, respectively, the letter of credit fee for financial letters of credit and performance letters of credit was 1.50% and 0.90%, respectively, and the commitment fee for the unused portion of the Revolving Credit Facility was 0.20%.

As of June 30, 2023, borrowings under the Term Loan totaled $246.9 million, borrowings and letters of credit issued under the Revolving Credit Facility totaled $300.0 million and $1.7 million, respectively, and we had $448.3 million available under the Revolving Credit Facility for borrowings and to meet letter of credit requirements. As of June 30, 2023, the weighted-average interest rate on outstanding borrowings under the Credit Facility was 6.73%.

The Credit Facility generally includes customary events of default for a secured credit facility. Under the Credit Facility, (1) if an event of default relating to bankruptcy or other insolvency events occurs with respect to the Company, all related obligations will immediately become due and payable; (2) if any other event of default exists, the lenders will be permitted to accelerate the maturity of the related obligations outstanding; and (3) if any event of default exists, the lenders will be permitted to terminate their commitments thereunder and exercise other rights and remedies, including the commencement of foreclosure or other actions against the collateral.

If any default occurs under the Credit Facility, or if we are unable to make any of the representations and warranties in the Credit Facility, we will be unable to borrow funds or have letters of credit issued under the Credit Facility.

#### Senior Notes due 2028

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

Interest on the Senior Notes due 2028 is payable semi-annually in cash in arrears on June 30 and December 30 of each year at a rate of 4.125% per annum. The Senior Notes due 2028 will mature on June 30, 2028.

We may redeem the Senior Notes due 2028, in whole or in part, at any time on or after June 30, 2023 at a redemption price equal to (i) 102.063% of the principal amount to be redeemed if the redemption occurs during the 12-month period beginning on June 30, 2023, (ii) 101.031% of the principal amount to be redeemed if the redemption occurs during the 12-month period beginning on June 30, 2024 and (iii) 100.0% of the principal amount to be redeemed if the redemption occurs on or after June 30, 2025, in each case plus accrued and unpaid interest, if any, to, but excluding, the redemption date.

The 2020 Indenture contains customary events of default, including, among other things, payment default, failure to comply with covenants or agreements contained in the 2020 Indenture or the Senior Notes due 2028 and certain provisions related to bankruptcy events. The 2020 Indenture also contains customary negative covenants. As of June 30, 2023, 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 12-month period beginning on April 15, 2024, (ii) 101.031% of the principal amount to be redeemed if the redemption occurs during the 12-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 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 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 June 30, 2023, we were in compliance with all covenants set forth in the 2021 Indenture and the Senior Notes due 2029.

#### Other Arrangements

We have posted surety bonds to support regulatory and contractual obligations for certain decommissioning responsibilities, projects and legal matters. We utilize bonding facilities to support such obligations, but the issuance of bonds under those facilities is typically at the surety's discretion, and the bonding facilities generally permit the surety, in its sole discretion, to terminate the facility or demand collateral. Although there can be no assurance that we will maintain our surety bonding capacity, we believe our current capacity is adequate to support our existing requirements for the next 12 months. In addition, these bonds generally indemnify the beneficiaries should we fail to perform our obligations under the applicable agreements. We, and certain of our subsidiaries, have jointly executed general agreements of indemnity in favor of surety underwriters relating to surety bonds those underwriters issue. As of June 30, 2023, bonds issued and outstanding under these arrangements totaled approximately $114.7 million.

Similarly, we have provided letters of credit to governmental agencies and contractual counterparties to support regulatory and contractual obligations for certain decommissioning responsibilities, projects and legal matters. We utilize our Revolving Credit Facility and a bilateral letter of credit facility to support such obligations, but the issuance of letters of credit under our bilateral letter of credit facility is at the issuer’s discretion, and our bilateral letter of credit facility generally permits the issuer, in its sole discretion, to demand collateral if the issuer does not otherwise have the benefit of the collateral under our Credit Facility. Although there can be no assurance that we will maintain our bilateral letter of credit facility capacity, we believe our current capacity, together with capacity under our Revolving Credit Facility, is adequate to support our existing requirements for the next 12 months. As of June 30, 2023, letters of credit issued and outstanding under our bilateral letter of credit facility totaled approximately $36.2 million, and such letters of credit are secured by the collateral under our Credit Facility.

#### Long-term Benefit Obligations

As of June 30, 2023, we had underfunded defined benefit pension and postretirement benefit plans with obligations totaling approximately $75.9 million. These long-term liabilities are expected to require use of our resources to satisfy future funding obligations. Based largely on statutory funding requirements, we expect to make contributions of approximately $3.9 million for the remainder of 2023 related to our pension and postretirement plans. We may also make additional contributions based on a variety of factors including, but not limited to, tax planning, evaluation of funded status and risk mitigation strategies.

#### Other

#### Cash, Cash Equivalents, Restricted Cash and Investments

Our domestic and foreign cash and cash equivalents, restricted cash and cash equivalents and investments as of June 30, 2023 and December 31, 2022 were as follows:

*(In thousands)*

|  | June 30, 2023 | December 31, 2022 |
| --- | ---: | ---: |
| Domestic | $35,898 | $38,455 |
| Foreign | 12,681 | 14,436 |
| Total | $48,579 | $52,891 |

Our working capital increased by $87.4 million to $491.1 million at June 30, 2023 from $403.8 million at December 31, 2022, primarily attributable to changes in contracts in progress and retainages due to the timing of project cash flows and a decrease in current liabilities associated with the payment of accrued incentives and income taxes payable during the six months ended June 30, 2023.

Our net cash provided by operating activities decreased by $4.4 million to $67.6 million in the six months ended June 30, 2023, compared to $72.0 million in the six months ended June 30, 2022. The decrease in cash provided by operating activities was primarily attributable to the timing of project cash flows and income tax payments, partially offset by the timing of vendor payments when compared to the prior year.

Our net cash used in investing activities decreased by $98.8 million to $65.9 million in the six months ended June 30, 2023, compared to $164.8 million in the six months ended June 30, 2022. The decrease in cash used in investing activities was primarily attributable to the $47.3 million acquisition of Dynamic and Cunico in the prior year. In addition, we experienced a decrease in purchases of property, plant and equipment of $25.4 million as well as a $22.6 million decrease in investments in equity method investees in the six months ended June 30, 2023.

Our net cash used in financing activities increased by $128.3 million to $3.3 million in the six months ended June 30, 2023, compared to $125.0 million cash provided by financing activities in the six months ended June 30, 2022. The increase in cash used in financing activities was primarily attributable to a reduction in net borrowings of long-term debt which was partially offset by a reduction in repurchases of common stock when compared to the corresponding period of the prior year.

At June 30, 2023, we had restricted cash and cash equivalents totaling $5.7 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 $3.0 million of which was held to meet reinsurance reserve requirements of our captive insurer.

At June 30, 2023, we had long-term investments with a fair value of $9.0 million. Our investment portfolio consists primarily of corporate bonds and mutual funds. Our debt securities are carried at fair value and are either classified as trading, with unrealized gains and losses reported in earnings, or as available-for-sale, with unrealized gains and losses, net of tax, being reported as a component of other comprehensive income. Our equity securities are carried at fair value with the unrealized gains and losses reported in earnings.

#### Cash Requirements

In April 2023, one of our joint ventures was awarded a DOE contract which was protested and returned to the DOE to reassess the procurement. If re-awarded to us, we would expect this contract to transition at the earliest in the first half of 2024. After transition, we expect significant working capital contributions will be required for the first 12 months of the contract. Apart from this item, our cash requirements have not changed materially from those disclosed in Item 7 of our 2022 10-K. Furthermore, we believe we have sufficient cash and cash equivalents and borrowing capacity, along with cash generated from operations and continued access to capital markets, to satisfy our cash requirements for the next 12 months and beyond.

## Controls and procedures

As filed, 1,945 characters.

As of the end of the period covered by this Report, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) adopted by the Securities and Exchange Commission ("SEC") under the Exchange Act). This evaluation was conducted under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer. Our disclosure controls and procedures were developed through a process in which our management applied its judgment in assessing the costs and benefits of such controls and procedures, which, by their nature, can provide only reasonable assurance regarding the control objectives. You should note that the design of any system of disclosure controls and procedures is based in part upon various assumptions about the likelihood of future events, and we cannot assure you that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. Based on the evaluation referred to above, our Chief Executive Officer and Chief Financial Officer concluded that the design and operation of our disclosure controls and procedures are effective as of June 30, 2023 to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and such information is accumulated and communicated to management as appropriate to allow timely decisions regarding disclosure. There has been no change in our internal control over financial reporting during the three months ended June 30, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

### PART II

### OTHER INFORMATION

## Risk factors

As filed, 309 characters.

In addition to the other information in this Report, the other factors presented in Item 1A of our 2022 10-K are some of the factors that could materially affect our business, financial condition or future results. There have been no material changes to our risk factors from those disclosed in our 2022 10-K.

Filed Aug 3, 2023.
Source: SEC EDGAR, the filing index for accession 0001486957-23-000033. Last ingested by Listed: Nov 11, 2026, 00:40 ET. No prices; not investment advice.