UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

 __________________________________________________ 

FORM 10-Q

 __________________________________________________ 

(Mark One)

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2018.

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to                     .

Commission File No. 001-34658

BWX TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

  __________________________________________________ 

DELAWARE	80-0558025
(State of Incorporation or Organization)	(I.R.S. Employer Identification No.)
800 MAIN STREET, 4TH FLOOR
LYNCHBURG, VIRGINIA	24504
(Address of Principal Executive Offices)	(Zip Code)

Registrant's Telephone Number, Including Area Code: (980) 365-4300

  __________________________________________________ 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer	ý	Accelerated filer	¨
Non-accelerated filer	¨  (Do not check if a smaller reporting company)	Smaller reporting company	¨
Emerging growth company	¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý

The number of shares of the registrant's common stock outstanding at August 2, 2018 was 99,708,611.

BWX TECHNOLOGIES, INC.

INDEX - FORM 10-Q

	PAGE
PART I - FINANCIAL INFORMATION
Item 1 – Condensed Consolidated Financial Statements	2
Condensed Consolidated Balance Sheets
June 30, 2018 and December 31, 2017 (Unaudited)	2
Condensed Consolidated Statements of Income
Three and Six Months Ended June 30, 2018 and 2017 (Unaudited)	4
Condensed Consolidated Statements of Comprehensive Income
Three and Six Months Ended June 30, 2018 and 2017 (Unaudited)	5
Condensed Consolidated Statements of Stockholders' Equity
Six Months Ended June 30, 2018 and 2017 (Unaudited)	6
Condensed Consolidated Statements of Cash Flows
Six Months Ended June 30, 2018 and 2017 (Unaudited)	7
Notes to Condensed Consolidated Financial Statements	8
Item 2 – Management's Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3 – Quantitative and Qualitative Disclosures About Market Risk	35
Item 4 – Controls and Procedures	35
PART II - OTHER INFORMATION
Item 1 – Legal Proceedings	36
Item 1A – Risk Factors	36
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds	36
Item 6 – Exhibits	37
SIGNATURES	38

1

PART I

FINANCIAL INFORMATION

Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

BWX TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

ASSETS

	June 30, 2018		December 31, 2017
	(Unaudited) (In thousands)
Current Assets:
Cash and cash equivalents	$	317,624	$	203,404
Restricted cash and cash equivalents	5,870		7,105
Investments	1,824		2,934
Accounts receivable – trade, net	200,889		189,217
Accounts receivable – other	14,742		19,365
Contracts in progress	317,405		420,628
Other current assets	32,343		30,437
Total Current Assets	890,697		873,090
Property, Plant and Equipment	1,034,015		1,013,141
Less accumulated depreciation	676,813		664,512
Net Property, Plant and Equipment	357,202		348,629
Investments	8,932		9,301
Goodwill	215,547		218,331
Deferred Income Taxes	84,868		86,740
Investments in Unconsolidated Affiliates	57,854		43,266
Intangible Assets	103,008		110,405
Other Assets	24,357		22,577
TOTAL	$	1,742,465	$	1,712,339

See accompanying notes to condensed consolidated financial statements.

2

BWX TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

LIABILITIES AND STOCKHOLDERS' EQUITY

	June 30, 2018			December 31, 2017
	(Unaudited) (In thousands, except share and per share amounts)
Current Liabilities:
Current maturities of long-term debt	$	14,556		$	27,870
Accounts payable	88,421			93,421
Accrued employee benefits	67,417			82,477
Accrued liabilities – other	48,377			64,738
Advance billings on contracts	77,775			246,192
Accrued warranty expense	12,822			13,428
Total Current Liabilities	309,368			528,126
Long-Term Debt	666,200			481,059
Accumulated Postretirement Benefit Obligation	20,065			21,368
Environmental Liabilities	80,708			79,786
Pension Liability	259,231			296,444
Other Liabilities	18,576			19,799
Commitments and Contingencies (Note 5)
Stockholders' Equity:
Common stock, par value $0.01 per share, authorized 325,000,000 shares; issued 125,748,071 and 125,381,591 shares at June 30, 2018 and December 31, 2017, respectively	1,257			1,254
Preferred stock, par value $0.01 per share, authorized 75,000,000 shares; No shares issued	—			—
Capital in excess of par value	108,919			98,843
Retained earnings	1,097,665			990,652
Treasury stock at cost, 26,057,475 and 25,964,088 shares at June 30, 2018 and December 31, 2017, respectively	(820,826		)	(814,809		)
Accumulated other comprehensive income	1,248			9,454
Stockholders' Equity – BWX Technologies, Inc.	388,263			285,394
Noncontrolling interest	54			363
Total Stockholders' Equity	388,317			285,757
TOTAL	$	1,742,465		$	1,712,339

See accompanying notes to condensed consolidated financial statements.

3

BWX TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
	(Unaudited) (In thousands, except share and per share amounts)
Revenues	$	438,921		$	410,011		$	896,384		$	838,240
Costs and Expenses:
Cost of operations	318,209			278,356			645,573			581,572
Research and development costs	4,107			1,152			7,714			2,671
Gains on asset disposals and impairments, net	(237		)	(31		)	(245		)	(31		)
Selling, general and administrative expenses	51,518			48,433			105,280			99,530
Total Costs and Expenses	373,597			327,910			758,322			683,742
Equity in Income of Investees	6,225			3,327			13,375			7,202
Operating Income	71,549			85,428			151,437			161,700
Other Income (Expense):
Interest income	441			211			1,219			348
Interest expense	(7,869		)	(3,906		)	(11,429		)	(7,423		)
Other – net	15,106			6,749			23,016			14,235
Total Other Income (Expense)	7,678			3,054			12,806			7,160
Income before Provision for Income Taxes	79,227			88,482			164,243			168,860
Provision for Income Taxes	18,493			27,062			37,096			51,654
Net Income	$	60,734		$	61,420		$	127,147		$	117,206
Net Income Attributable to Noncontrolling Interest	(71		)	(157		)	(43		)	(224		)
Net Income Attributable to BWX Technologies, Inc.	$	60,663		$	61,263		$	127,104		$	116,982
Earnings per Common Share:
Basic:
Net Income Attributable to BWX Technologies, Inc.	$	0.61		$	0.62		$	1.28		$	1.18
Diluted:
Net Income Attributable to BWX Technologies, Inc.	$	0.60		$	0.61		$	1.26		$	1.16
Shares used in the computation of earnings per share (Note 10):
Basic	99,681,580			99,166,205			99,603,884			99,305,558
Diluted	100,571,737			100,150,926			100,542,014			100,420,948

See accompanying notes to condensed consolidated financial statements.

4

BWX TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF

COMPREHENSIVE INCOME

	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
	(Unaudited) (In thousands)
Net Income	$	60,734		$	61,420		$	127,147		$	117,206
Other Comprehensive Income (Loss):
Currency translation adjustments	(3,609		)	2,044			(6,733		)	2,835
Derivative financial instruments:
Unrealized (losses) gains arising during the period, net of tax benefit (provision) of $30, $(142), $(29) and $(239), respectively	(127		)	409			46			688
Reclassification adjustment for losses (gains) included in net income, net of tax (benefit) provision of $(21), $58, $9 and $71, respectively	64			(170		)	(15		)	(207		)
Amortization of benefit plan costs, net of tax benefit of $(25), $(157), $(208) and $(313), respectively	463			289			785			579
Investments:
Unrealized gains (losses) arising during the period, net of tax provision of $0, $(60), $0 and $(130), respectively	22			(1,210		)	(44		)	(1,304		)
Reclassification adjustment for gains included in net income, net of tax provision of $0, $6, $0 and $14, respectively	—			(120		)	—			(134		)
Other Comprehensive Income (Loss)	(3,187		)	1,242			(5,961		)	2,457
Total Comprehensive Income	57,547			62,662			121,186			119,663
Comprehensive Income Attributable to Noncontrolling Interest	(71		)	(157		)	(43		)	(224		)
Comprehensive Income Attributable to BWX Technologies, Inc.	$	57,476		$	62,505		$	121,143		$	119,439

See accompanying notes to condensed consolidated financial statements.

5

BWX TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

	Common Stock			Capital In Excess of Par Value					Accumulated Other Comprehensive Income (Loss)												Total Stockholders' Equity
	Shares	Par Value				Retained Earnings						Treasury Stock			Stockholders' Equity			Noncontrolling Interest
		(In thousands, except share and per share amounts)
Balance December 31, 2017	125,381,591	$	1,254	$	98,843	$	990,652		$	9,454		$	(814,809	)	$	285,394		$	363		$	285,757
Recently adopted accounting standards	—	—		—		12,171			(2,245		)	—			9,926			—			9,926
Net income	—	—		—		127,104			—			—			127,104			43			127,147
Dividends declared ($0.32 per share)	—	—		—		(32,262		)	—			—			(32,262		)	—			(32,262		)
Currency translation adjustments	—	—		—		—			(6,733		)	—			(6,733		)	—			(6,733		)
Derivative financial instruments	—	—		—		—			31			—			31			—			31
Defined benefit obligations	—	—		—		—			785			—			785			—			785
Available-for-sale investments	—	—		—		—			(44		)	—			(44		)	—			(44		)
Exercise of stock options	182,520	1		4,323		—			—			—			4,324			—			4,324
Shares placed in treasury	—	—		—		—			—			(6,017		)	(6,017		)	—			(6,017		)
Stock-based compensation charges	183,960	2		5,753		—			—			—			5,755			—			5,755
Distributions to noncontrolling interests	—	—		—		—			—			—			—			(352		)	(352		)
Balance June 30, 2018 (unaudited)	125,748,071	$	1,257	$	108,919	$	1,097,665		$	1,248		$	(820,826	)	$	388,263		$	54		$	388,317
Balance December 31, 2016	124,149,609	$	1,241	$	22,018	$	885,117		$	3,811		$	(762,169	)	$	150,018		$	392		$	150,410
Net income	—	—		—		116,982			—			—			116,982			224			117,206
Dividends declared ($0.20 per share)	—	—		—		(20,075		)	—			—			(20,075		)	—			(20,075		)
Currency translation adjustments	—	—		—		—			2,835			—			2,835			—			2,835
Derivative financial instruments	—	—		—		—			481			—			481			—			481
Defined benefit obligations	—	—		—		—			579			—			579			—			579
Available-for-sale investments	—	—		—		—			(1,438		)	—			(1,438		)	—			(1,438		)
Exercise of stock options	790,922	8		18,637		—			—			—			18,645			—			18,645
Shares placed in treasury	—	—		39,907		—			—			(51,081		)	(11,174		)	—			(11,174		)
Stock-based compensation charges	279,776	3		7,095		—			—			—			7,098			—			7,098
Distributions to noncontrolling interests	—	—		—		—			—			—			—			(266		)	(266		)
Balance June 30, 2017 (unaudited)	125,220,307	$	1,252	$	87,657	$	982,024		$	6,268		$	(813,250	)	$	263,951		$	350		$	264,301

See accompanying notes to condensed consolidated financial statements.

6

BWX TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	Six Months Ended June 30,
	2018			2017
	(Unaudited) (In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income	$	127,147		$	117,206
Non-cash items included in net income from continuing operations:
Depreciation and amortization	28,420			28,199
Income of investees, net of dividends	(3,384		)	987
Gains on asset disposals and impairments, net	(245		)	(31		)
Gain on forward contracts	(5,997		)	—
Recognition of debt issuance costs from Former Credit Facility	2,441			—
Recognition of losses for pension and postretirement plans	993			892
Stock-based compensation expense	5,755			7,098
Changes in assets and liabilities:
Accounts receivable	(10,858		)	(154		)
Accounts payable	(3,835		)	(26,905		)
Contracts in progress and advance billings on contracts	(53,902		)	(3,869		)
Income taxes	(12,302		)	18,477
Accrued and other current liabilities	973			(39,325		)
Pension liability, accrued postretirement benefit obligation and employee benefits	(57,439		)	(43,790		)
Other, net	(457		)	5,320
NET CASH PROVIDED BY OPERATING ACTIVITIES	17,310			64,105
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment	(33,960		)	(28,747		)
Purchases of securities	(1,822		)	(12,049		)
Sales and maturities of securities	2,955			19,986
Investments, net of return of capital, in equity method investees	(9,800		)	211
Proceeds from asset disposals	249			140
Other, net	997			(24		)
NET CASH USED IN INVESTING ACTIVITIES	(41,381		)	(20,483		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of long-term debt	700,000			73,600
Repayments of long-term debt	(509,968		)	(87,344		)
Payment of debt issuance costs	(8,197		)	—
Dividends paid to common shareholders	(32,063		)	(20,139		)
Exercise of stock options	3,018			14,608
Cash paid for shares withheld to satisfy employee taxes	(4,710		)	(7,045		)
Other	(352		)	(266		)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES	147,728			(26,586		)
EFFECTS OF EXCHANGE RATE CHANGES ON CASH	(10,660		)	6,294
TOTAL INCREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AND CASH EQUIVALENTS	112,997			23,330
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	213,144			134,600
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	326,141		$	157,930
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest	$	7,625		$	7,049
Income taxes (net of refunds)	$	49,848		$	33,997
SCHEDULE OF NON-CASH INVESTING ACTIVITY:
Accrued capital expenditures included in accounts payable	$	8,775		$	3,886

See accompanying notes to condensed consolidated financial statements.

7

BWX TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2018

(UNAUDITED)

NOTE 1 – BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

We have presented the condensed consolidated financial statements of BWX Technologies, Inc. ("BWXT" or the "Company") in U.S. dollars in accordance with the interim reporting requirements of Form 10-Q, Rule 10-01 of Regulation S-X and accounting principles generally accepted in the United States ("GAAP"). Certain financial information and disclosures normally included in our financial statements prepared annually in accordance with GAAP have been condensed or omitted. Readers of these financial statements should, therefore, refer to the consolidated financial statements and notes in our annual report on Form 10-K for the year ended December 31, 2017 (our "2017 10-K"). We have included all adjustments, in the opinion of management, consisting only of normal recurring adjustments, necessary for a fair presentation.

We use the equity method to account for investments in entities that we do not control, but over which we have the ability to exercise significant influence. We generally refer to these entities as "joint ventures." We have eliminated all intercompany transactions and accounts. We have reclassified certain amounts previously reported to conform to the presentation at June 30, 2018 and for the three and six months ended June 30, 2018 related to recently adopted accounting standards. We present the notes to our condensed consolidated financial statements on the basis of continuing operations, unless otherwise stated.

Unless the context otherwise indicates, "we," "us" and "our" mean BWXT and its consolidated subsidiaries.

Reportable Segments

We operate in three reportable segments: Nuclear Operations Group, Nuclear Services Group and Nuclear Power Group. Our reportable segments are further described as follows:

• Our Nuclear Operations Group segment manufactures naval nuclear reactors for the Naval Nuclear Propulsion Program for use in U.S. Navy submarines and aircraft carriers. Through this segment, we own and operate manufacturing facilities located in Lynchburg, Virginia; Barberton, Ohio; Mount Vernon, Indiana; Euclid, Ohio; and Erwin, Tennessee. The Lynchburg operations fabricate fuel-bearing precision components that range in weight from a few grams to hundreds of tons. In-house capabilities also include wet chemistry uranium processing, advanced heat treatment to optimize component material properties and a controlled, clean-room environment with the capacity to assemble railcar-size components. The Barberton and Mount Vernon locations specialize in the design and manufacture of heavy components inclusive of development and fabrication activities for submarine missile launch tubes. The Euclid facility fabricates electro-mechanical equipment and performs design, manufacturing, inspection, assembly and testing activities. Fuel for the naval nuclear reactors is provided by Nuclear Fuel Services, Inc. ("NFS"), one of our wholly owned subsidiaries. Located in Erwin, NFS also downblends Cold War-era government stockpiles of high-enriched uranium into material suitable for further processing into commercial nuclear reactor fuel.

• Our Nuclear Services Group segment provides various services to the U.S. Government and the commercial nuclear industry. Services provided to the U.S. Government include nuclear materials management and operation, environmental management and administrative and operating services for various U.S. Government-owned facilities. These services are provided to the U.S. Department of Energy ("DOE"), including the National Nuclear Security Administration ("NNSA"), the Office of Nuclear Energy, the Office of Science and the Office of Environmental Management, and NASA. Through this segment we deliver services and management solutions to nuclear and high-consequence operations. A significant portion of this segment's operations are conducted through joint ventures.

Our Nuclear Services Group segment also provides inspection and maintenance services primarily for the U.S. commercial nuclear industry including steam generator and heat exchanger inspection services, high pressure water lancing, non-destructive examination and customized tooling solutions. This segment also offers complete advanced fuel and reactor engineering, licensing and manufacturing services for new advanced nuclear reactors.

• Our Nuclear Power Group segment fabricates steam generators, nuclear fuel, fuel handling systems, pressure vessels, reactor components, heat exchangers, tooling delivery systems and other auxiliary equipment, including containers for the storage of spent nuclear fuel and other high-level waste, for nuclear utility customers. BWXT has supplied the nuclear industry with more than 1,300 large, heavy components worldwide and is the only heavy nuclear component, N-Stamp certified manufacturer in North America. This segment also provides specialized engineering services that include structural component design, 3-D thermal-hydraulic engineering analysis, weld and robotic process development, electrical and controls engineering and metallurgy and materials engineering. In addition, this segment

8

offers in-plant inspection, maintenance and modification services for nuclear steam generators, heat exchangers, reactors, fuel handling systems and balance of plant equipment, as well as specialized non-destructive examination and tooling/repair solutions.

See Note 9 for financial information about our segments.

Operating results for the three and six months ended June 30, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018. For further information, refer to the consolidated financial statements and the related footnotes included in our 2017 10-K.

Acquisition of Sotera Health LLC's Nordion Medical Isotope Business

On April 17, 2018, we signed a definitive agreement to acquire Sotera Health LLC's Nordion medical isotope business. Nordion's medical radioisotopes business is a leading global manufacturer and supplier of critical medical isotopes and radiopharmaceuticals for research, diagnostic and therapeutic uses. Its customers include radiopharmaceutical companies, hospitals and radiopharmacies. Its primary operations are located in Kanata, Ontario and Vancouver, British Columbia. This acquisition was completed on July 30, 2018 and will allow us to accelerate our entry into the medical radioisotope market by adding licensed infrastructure, approximately 150 highly trained and experienced personnel and two production centers. Beginning in the third quarter of 2018, this business will be reported as part of our Nuclear Power Group segment.

Deconsolidation of Generation mPower LLC

On March 2, 2016, we entered into a framework agreement with Bechtel Power Corporation ("Bechtel"), BWXT Modular Reactors, LLC and BDC NexGen Power, LLC for the potential restructuring and restart of our mPower small modular reactor program (the "Framework Agreement"). As a result of entering into the Framework Agreement, we deconsolidated Generation mPower LLC ("GmP") from our financial statements as of the date of the Framework Agreement and recognized a $30.0 million loss contingency, which was ultimately paid to Bechtel in the first quarter of 2017 following the receipt of Bechtel's notice that the mPower program would not be restarted.

Contracts and Revenue Recognition

We generally recognize contract revenues and related costs over time for individual performance obligations based on a cost-to-cost method in accordance with Financial Accounting Standards Board ("FASB") Topic Revenue from Contracts with Customers. We recognize estimated contract revenue and resulting income based on the measurement of the extent of progress toward completion as a percentage of the total project (percentage-of-completion basis). Certain costs may be excluded from the cost-to-cost method of measuring progress, such as significant costs for uninstalled materials, if such costs do not depict our performance in transferring control of goods or services to the customer. We review contract price and cost estimates periodically as the work progresses and reflect adjustments proportionate to the percentage-of-completion in income in the period when those estimates are revised. Certain of our contracts recognize revenue at a point in time, and revenue on these contracts is recognized when control transfers to the customer. The majority of our revenue that is recognized at a point in time is related to parts in our Nuclear Power Group segment. For all contracts, if a current estimate of total contract cost indicates a loss on a contract, the projected loss is recognized in full when determined.

Accumulated Other Comprehensive Income

The components of Accumulated other comprehensive income included in Stockholders' Equity are as follows:

	June 30, 2018			December 31, 2017
	(In thousands)
Currency translation adjustments	$	6,415		$	13,148
Net unrealized gain on derivative financial instruments	384			353
Unrecognized prior service cost on benefit obligations	(5,452		)	(6,237		)
Net unrealized gain (loss) on available-for-sale investments	(99		)	2,190
Accumulated other comprehensive income	$	1,248		$	9,454

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

9

The amounts reclassified out of Accumulated other comprehensive income by component and the affected condensed consolidated statements of income line items are as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
Accumulated Other Comprehensive Income (Loss) Component Recognized	(In thousands)												Line Item Presented
Realized gain (loss) on derivative financial instruments	$	7		$	(9	)	$	(4	)	$	(13	)	Revenues
	(92		)	237			28			291			Cost of operations
	(85		)	228			24			278			Total before tax
	21			(58		)	(9		)	(71		)	Provision for Income Taxes
	$	(64	)	$	170		$	15		$	207		Net Income
Amortization of prior service cost on benefit obligations	$	(488	)	$	(446	)	$	(993	)	$	(892	)	Other – net
	25			157			208			313			Provision for Income Taxes
	$	(463	)	$	(289	)	$	(785	)	$	(579	)	Net Income
Realized gain on investments	$	—		$	126		$	—		$	148		Other – net
	—			(6		)	—			(14		)	Provision for Income Taxes
	$	—		$	120		$	—		$	134		Net Income
Total reclassification for the period	$	(527	)	$	1		$	(770	)	$	(238	)

Inventories

At June 30, 2018 and December 31, 2017, included in Other current assets, we had inventories totaling $11.7 million and $8.6 million, respectively, consisting entirely of raw materials and supplies.

Deferred Debt Issuance Costs

We have included deferred debt issuance costs in the condensed consolidated balance sheets as a direct deduction from the carrying amount of our Long-Term Debt. We amortize deferred debt issuance costs as interest expense over the life of the related debt. The following summarizes the changes in the carrying amount of our deferred debt issuance costs.

	Six Months Ended June 30,
	2018			2017
	(In thousands)
Balance at beginning of period	$	4,202		$	5,892
Additions	9,443			—
Interest expense (1)	(3,273		)	(850		)
Balance at end of period	$	10,372		$	5,042

(1) Includes the recognition of prior deferred debt issuance costs associated with the Former Credit Facility of $2.4 million for the six months ended June 30, 2018.

Restricted Cash and Cash Equivalents

At June 30, 2018, we had restricted cash and cash equivalents totaling $8.5 million, $2.6 million of which was held for future decommissioning of facilities (which is included in Other Assets on our condensed consolidated balance sheets) and $5.9 million of which was held to meet reinsurance reserve requirements of our captive insurer.

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The following table provides a reconciliation of cash and cash equivalents and restricted cash and cash equivalents within our condensed consolidated balance sheets to the totals presented in our condensed consolidated statement of cash flows:

	June 30, 2018		December 31, 2017
	(In thousands)
Cash and cash equivalents	$	317,624	$	203,404
Restricted cash and cash equivalents	5,870		7,105
Restricted cash and cash equivalents included in Other Assets	2,647		2,635
Total cash and cash equivalents and restricted cash and cash equivalents as presented in our condensed consolidated statement of cash flows	$	326,141	$	213,144

Warranty Expense

We accrue estimated expense, included in Cost of operations on our condensed consolidated statements of income, to satisfy contractual warranty requirements when we recognize the associated revenue on the related contracts. In addition, we record specific provisions or reductions where we expect the actual warranty costs to significantly differ from the accrued estimates. Such changes could have a material effect on our consolidated financial condition, results of operations and cash flows.

The following summarizes the changes in the carrying amount of our Accrued warranty expense:

	Six Months Ended June 30,
	2018			2017
	(In thousands)
Balance at beginning of period	$	13,428		$	11,477
Additions	810			667
Expirations and other changes	(709		)	(84		)
Payments	(347		)	(16		)
Translation	(360		)	173
Balance at end of period	$	12,822		$	12,217

Provision for Income Taxes

We are subject to federal income tax in the U.S. and Canada as well as income tax within multiple U.S. state jurisdictions. We provide for income taxes based on the enacted tax laws and rates in the jurisdictions in which we conduct our operations. These jurisdictions may have regimes of taxation that vary with respect to nominal rates and with respect to the basis on which these rates are applied. This variation, along with changes in our mix of income within these jurisdictions, can contribute to shifts in our effective tax rate from period to period.

On December 22, 2017, the Tax Cuts and Jobs Act (the "Act") was enacted, making significant changes to existing U.S. tax laws that impact BWXT, including, but not limited to, a reduction to the U.S. corporate income tax rate from 35% to 21% for tax years beginning after December 31, 2017, the taxation of global intangible low-taxed income ("GILTI") and additional deduction limitations related to executive compensation. We recognized the income tax effects of the Act within our condensed consolidated financial statements in accordance with FASB Topic Income Taxes. Our Canadian operations continue to be subject to tax at a local statutory rate of approximately 25%.

Our effective tax rate for the three months ended June 30, 2018 was 23.3% as compared to 30.6% for the three months ended June 30, 2017. Our effective tax rate for the six months ended June 30, 2018 was 22.6% as compared to 30.6% for the six months ended June 30, 2017. The effective tax rates for the three and six months ended June 30, 2018 were slightly higher than the U.S. corporate income tax rate of 21% primarily due to state income taxes within the U.S. and the unfavorable rate differential associated with our Canadian earnings. Our effective tax rate for the three months ended June 30, 2018 and 2017 was favorably impacted by benefits recognized for excess tax benefits related to employee share-based payments of $0.2 million and $2.6 million, respectively. Our effective tax rate for the six months ended June 30, 2018 and 2017 was favorably impacted by benefits recognized for excess tax benefits related to employee share-based payments of $2.4 million and $4.9 million, respectively.

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As of June 30, 2018, we had gross unrecognized tax benefits of $0.8 million (exclusive of interest and federal and state benefits), all of which would reduce our effective tax rate if recognized.

New Accounting Standards

In February 2016, the FASB issued an update to the Topic Leases, which supersedes the lease reporting requirements in Topic Leases (previously "FAS 13"). This update requires that a lessee recognize on its balance sheet the assets and liabilities for all leases with lease terms of more than 12 months, along with additional qualitative and quantitative disclosures. The effect of leases in a consolidated statement of income and a consolidated statement of cash flows is expected to be largely unchanged. Accounting by lessors was not significantly impacted by this update. This update will be effective for us in 2019, with early adoption permitted. We expect to adopt the provisions in this update effective January 1, 2019 using the modified retrospective approach. We do not anticipate a material impact on our financial statements upon adoption.

NOTE 2 – REVENUE RECOGNITION

The initial impact of the adoption of the FASB Topic Revenue from Contracts with Customers, which was recognized in a cumulative catch-up adjustment on January 1, 2018, is illustrated below:

	January 1,		December 31,
	2018		2017
	(In thousands)
Assets:
Contracts in progress	$	260,932	$	420,628
Deferred Income Taxes	$	85,193	$	86,740
Liabilities:
Accrued liabilities – other	$	66,371	$	64,738
Advance billings on contracts	$	73,390	$	246,192
Stockholders' Equity:
Retained earnings	$	1,000,578	$	990,652

Within our Nuclear Operations Group segment, we continue to recognize revenue over time and now measure progress on performance obligations using a cost-to-cost method. Historically, we utilized man-hours or a cost-to-cost method to measure progress on certain performance obligations within this segment. The performance obligations identified for recognizing revenue are similar to our historical units of account. As a result of the change to a cost-to-cost method, the timing of revenue recognition on affected contracts, in the aggregate, results in the recognition of revenue and cost of operations earlier in the process of satisfying performance obligations. This change impacted the life-to-date revenue and cost of operations recognized on performance obligations, and the adjustment to capture the impact of the new revenue recognition standard was recorded as a cumulative catch-up adjustment in Retained earnings. The new standard also resulted in a reduction in both our Contracts in progress and Advance billings on contracts account balances as a result of measuring the asset and liability at the contract level. Historically, contract assets and liabilities were measured at the unit of account, which we concluded was at a lower level than that of the contract.

The impact of the adoption of the new revenue standard on our Nuclear Power Group and Nuclear Services Group segments was not material.

Contracts and Revenue Recognition

Nuclear Operations Group

Our Nuclear Operations Group segment recognizes revenue over time for the manufacturing of naval nuclear reactor components and fuel, submarine missile launch tubes and the downblending of high-enriched uranium. Certain of our contracts contain two or more different types of components, each of which we identify as a separate performance obligation. We recognize revenue using a cost-to-cost method to measure progress as control is continually transferred to the customer as we incur costs on the performance obligations. We allocate revenue to the individual performance obligations within contracts with multiple performance obligations based on the stand-alone selling price of the individual performance obligations.

Our fixed-price incentive fee contracts include incentives that we concluded to be variable consideration. The amount of the variable consideration to which we are entitled is dependent on our actual costs incurred on the performance obligation

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compared to the target costs for that performance obligation and subject to incentive price revisions included within the contracts. We include these incentive fees in revenue when there is sufficient evidence to determine that the variable consideration is not constrained. The remaining contracts typically have immaterial amounts of variable consideration and have a single performance obligation. Our estimates of variable consideration and total estimated costs at completion are determined through a detailed process based on historical performance and our expertise using the most likely method. Variations from estimated contract performance could result in a material effect on our financial condition and results of operations in future periods.

Our Nuclear Operations Group segment's contracts allow for billings as costs are incurred, subject to certain retainages on our fixed-price incentive fee contracts, that require milestones to be reached for the remaining consideration to be paid.

Nuclear Services Group

Our contracts within our Nuclear Services Group segment are primarily cost-plus service contracts on which we recognize revenue over time based on a cost-to-cost method, which is consistent with the structure of the billings associated with these contracts. Ownership continuously transfers to the customer as we perform the services. The contracts within this segment do not contain significant variable consideration and contain a single performance obligation. Certain of these contracts contain assurance warranties and/or provisions for liquidated damages, which are expected to have an immaterial impact on the contracts based on our historical experience.

Nuclear Power Group

Our Nuclear Power Group segment recognizes revenue over time using a cost-to-cost method for the manufacturing of large components, non-standard parts, fuel bundles and service contracts as control continually transfers to the customers. For standard parts, revenue is recognized at the point in time control transfers to the customer, which is consistent with the transfer of ownership. This segment generates revenue primarily from firm-fixed-price contracts that do not contain variable consideration as well as time-and-materials based contracts. Certain of these contracts contain assurance warranties and/or provisions for liquidated damages, which are expected to have an immaterial impact to the contracts based on our historical experience. We are entitled to payment on the majority of our Nuclear Power Group segment contracts when we achieve certain milestones related to our progress.

Disaggregated Revenues

Revenues by geographical area and customer type are as follows:

	Three Months Ended June 30, 2018									Six Months Ended June 30, 2018
	Nuclear Operations Group		Nuclear Services Group		Nuclear Power Group		Total			Nuclear Operations Group		Nuclear Services Group		Nuclear Power Group		Total
	(In thousands)
United States:
Government	$	327,896	$	28,174	$	—	$	356,070		$	644,527	$	54,055	$	—	$	698,582
Non-Government	3,849		3,910		327		8,086			3,849		7,087		587		11,523
	$	331,745	$	32,084	$	327	$	364,156		$	648,376	$	61,142	$	587	$	710,105
Canada:
Government	$	—	$	—	$	—	$	—		$	—	$	—	$	—	$	—
Non-Government	—		510		64,743		65,253			—		1,485		147,068		148,553
	$	—	$	510	$	64,743	$	65,253		$	—	$	1,485	$	147,068	$	148,553
Other:
Government	$	—	$	—	$	—	$	—		$	—	$	—	$	—	$	—
Non-Government	395		2		10,627		11,024			395		2		40,858		41,255
	$	395	$	2	$	10,627	$	11,024		$	395	$	2	$	40,858	$	41,255
Segment Revenues	$	332,140	$	32,596	$	75,697	440,433			$	648,771	$	62,629	$	188,513	899,913
Adjustments and Eliminations							(1,512		)							(3,529		)
Revenues							$	438,921								$	896,384

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Revenues by timing of transfer of goods or services are as follows:

	Three Months Ended June 30, 2018									Six Months Ended June 30, 2018
	Nuclear Operations Group		Nuclear Services Group		Nuclear Power Group		Total			Nuclear Operations Group		Nuclear Services Group		Nuclear Power Group		Total
	(In thousands)
Over-time	$	332,140	$	32,596	$	69,324	$	434,060		$	648,771	$	62,629	$	174,433	$	885,833
Point-in-time	—		—		6,373		6,373			—		—		14,080		14,080
Segment Revenues	$	332,140	$	32,596	$	75,697	440,433			$	648,771	$	62,629	$	188,513	899,913
Adjustments and Eliminations							(1,512		)							(3,529		)
Revenues							$	438,921								$	896,384

Revenues by contract type are as follows:

	Three Months Ended June 30, 2018									Six Months Ended June 30, 2018
	Nuclear Operations Group		Nuclear Services Group		Nuclear Power Group		Total			Nuclear Operations Group		Nuclear Services Group		Nuclear Power Group		Total
	(In thousands)
Fixed-Price Incentive Fee	$	258,150	$	—	$	5,589	$	263,739		$	507,390	$	—	$	9,617	$	517,007
Firm-Fixed-Price	52,472		5,632		44,302		102,406			99,530		11,042		118,584		229,156
Cost-Plus Fee	21,450		26,086		—		47,536			41,683		50,039		45		91,767
Time-and-Materials	68		878		25,806		26,752			168		1,548		60,267		61,983
Segment Revenues	$	332,140	$	32,596	$	75,697	440,433			$	648,771	$	62,629	$	188,513	899,913
Adjustments and Eliminations							(1,512		)							(3,529		)
Revenues							$	438,921								$	896,384

Performance Obligations

As we progress on our contracts and the underlying performance obligations for which we recognize revenue over time, we refine our estimates of variable consideration and total estimated costs at completion, which impact the overall profitability on our contracts and performance obligations. Changes in these estimates result in the recognition of cumulative catch-up adjustments that impact our revenue and/or costs of contracts. During the six months ended June 30, 2018, we recognized net favorable changes in estimates that resulted in increases in revenue of $14.5 million. During the three months ended June 30, 2018, we identified rework issues related to non-nuclear components being produced within our Nuclear Operations Group segment. As we work to resolve these issues, we do not expect additional costs to have a material adverse effect on our consolidated financial condition, results of operations or cash flows.

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Contract Assets and Liabilities

We include revenues and related costs incurred, plus accumulated contract costs that exceed amounts invoiced to customers under the terms of the contracts, in Contracts in progress. We include in Advance billings on contracts billings that exceed accumulated contract costs and revenues and costs recognized over time. Most long-term contracts contain provisions for progress payments. Our unbilled receivables do not contain an allowance for credit losses as we expect to invoice customers and collect all amounts for unbilled revenues. Changes in Contracts in progress and Advance billings on contracts are primarily driven by differences in the timing of revenue recognition and billings to our customers. During the six months ended June 30, 2018, our unbilled receivables increased$56.2 million, primarily as a result of revenue in excess of billings on certain firm-fixed-price contracts within our Nuclear Operations Group segment and the timing of milestone billings on large components and contracts started in 2018 within our Nuclear Power Group segment. Our fixed-price incentive fee contracts for our Nuclear Operations Group segment include provisions that result in an increase in retainages on contracts during the first and third quarters of the year, with larger payments made during the second and fourth quarters. Retainages also vary as a result of timing differences between incurring costs and achieving milestones that allow us to recover these amounts. This resulted in an increase in retainages on contracts from January 1 to June 30, 2018 as shown below:

	June 30,		January 1,
	2018		2018
	(In thousands)
Included in Contracts in progress:
Unbilled receivables	$	306,535	$	250,325
Included in Accounts receivable – trade, net:
Retainages	$	96,731	$	82,801
Included in Other Assets:
Retainages	$	1,626	$	1,669
Advance billings on contracts	$	77,775	$	73,390

During the six months ended June 30, 2018, we recognized $44.7 million of revenue that was in Advance billings on contracts at January 1, 2018.

Remaining Performance Obligations

Remaining performance obligations represent the dollar amount of revenue we expect to recognize in the future from performance obligations on contracts previously awarded and in progress. Of the June 30, 2018 remaining performance obligations on our contracts with customers, we expect to recognize revenues as follows:

	2018		2019		Thereafter		Total
	(In approximate millions)
Nuclear Operations Group	$	630	$	798	$	1,258	$	2,686
Nuclear Services Group	35		3		6		44
Nuclear Power Group	141		143		599		883
Total Remaining Performance Obligations	$	806	$	944	$	1,863	$	3,613

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Historical Method

Prior to the adoption of FASB Topic Revenue from Contracts with Customers, we accounted for revenue under previous GAAP. In accordance with our adoption of the new revenue recognition standard utilizing the modified retrospective approach, we are required to disclose the impact on our financial statements on a line item basis.

A comparison of certain line items in our condensed consolidated balance sheet is shown below:

	June 30, 2018
	Current Method		Historical Method
	(In thousands)
Assets:
Contracts in progress	$	317,405	$	348,762
Deferred Income Taxes	$	84,868	$	85,295
Liabilities:
Accrued liabilities – other	$	48,377	$	45,572
Advance billings on contracts	$	77,775	$	121,902
Stockholders' Equity:
Retained earnings	$	1,097,665	$	1,088,127

Differences in the amounts above are primarily the result of the initial adoption of the new revenue recognition standard. Additional differences were caused by revenue under the current method being $9.2 millionlower than the historical method as discussed below.

A comparison of certain line items in our condensed consolidated statements of income is shown below:

	Three Months Ended June 30, 2018				Six Months Ended June 30, 2018
	Current Method		Historical Method		Current Method		Historical Method
	(In thousands)
Revenues	$	438,921	$	440,103	$	896,384	$	905,633
Cost of operations	$	318,209	$	319,945	$	645,573	$	654,487
Operating Income	$	71,549	$	70,995	$	151,437	$	151,772
Provision for Income Taxes	$	18,493	$	18,311	$	37,096	$	37,043
Net Income	$	60,734	$	60,362	$	127,147	$	127,535

We recognized $1.2 million and $9.2 million less revenue under the current method compared to the historical method for the three and six months ended June 30, 2018, respectively. This was primarily driven by less progress being achieved on contracts as a result of using a cost-to-cost method for measuring progress under the current method as compared to man-hours or units of output under our historical method.

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NOTE 3 – LONG-TERM DEBT

Our Long-Term Debt consists of the following:

	June 30, 2018		December 31, 2017
	(In thousands)
Long-Term Debt:
Senior Notes	$	400,000	$	—
New Credit Facility	291,128		—
Former Credit Facility	—		513,131
Less: Amounts due within one year	14,556		27,870
Long-term debt, gross	676,572		485,261
Less: Deferred debt issuance costs	10,372		4,202
Long-term debt	$	666,200	$	481,059

Maturities of long-term debt subsequent to June 30, 2018 are as follows: 2018 – $7.3 million; 2019 – $14.6 million; 2020 – $14.6 million; 2021 – $14.6 million; 2022 – $14.6 million; 2023 – $225.6 million; and thereafter – $400.0 million.

On May 24, 2018, we and certain of our subsidiaries entered into a credit agreement (the "New Credit Facility") with Wells Fargo Bank, N.A., as administrative agent, and the other lenders party thereto. We also issued notes pursuant to an indenture among the Company, certain of our subsidiaries, as guarantors, and U.S. Bank National Association, as trustee. In connection with the closing of the New Credit Facility and the issuance of the notes, we concurrently repaid all outstanding debt obligations and terminated our credit agreement dated as of May 11, 2015, as amended, among the Company, certain of our subsidiaries, Bank of America, N.A., as administrative agent, and the other lenders party thereto (the "Former Credit Facility"). The Former Credit Facility consisted of (1) a $400.0 million revolving credit facility, (2) a $300.0 million term loan facility, (3) a $137.5 million (U.S. dollar equivalent) Canadian dollar term loan facility, and (4) a $112.5 million term loan facility.

Credit Facility

The New Credit Facility includes a $500.0 million senior secured revolving credit facility (the "New Revolving Credit Facility"), a $50.0 million U.S. dollar senior secured term loan A made available to the Company (the "New USD Term Loan") and a $250.0 million (U.S. dollar equivalent) Canadian dollar senior secured term loan A made available to BWXT Canada Ltd. (the "New CAD Term Loan"). All obligations under the New Credit Facility are scheduled to mature on May 24, 2023. The proceeds of loans under the New Credit Facility are available for working capital needs and other general corporate purposes.

The New Credit Facility allows for additional parties to become lenders and, subject to certain conditions, for the increase of the commitments under the New Revolving Credit Facility, the New USD Term Loan or the New CAD Term Loan, subject to an aggregate maximum for all additional commitments of (1) the greater of (a) $250 million and (b) 65% of EBITDA, as defined in the New Credit Facility, for the last four full fiscal quarters, plus (2) all voluntary prepayments of term loans, plus (3) additional amounts provided the Company is in compliance with a pro forma first lien leverage ratio test of less than or equal to 2.50 to 1.00.

The Company's obligations under the New Credit Facility are guaranteed, subject to certain exceptions, by substantially all of the Company's present and future wholly owned domestic restricted subsidiaries (other than its captive insurance subsidiary and the domestic holding company of its Canadian subsidiaries). The obligations of BWXT Canada Ltd. under the New Credit Facility are guaranteed, subject to certain exceptions, by (1) substantially all of the present and future wholly owned Canadian restricted subsidiaries of BWXT Canada Ltd., (2) substantially all of the Company's present and future wholly owned domestic restricted subsidiaries (other than its captive insurance subsidiary and the domestic holding company of its Canadian subsidiaries), (3) BWXT Canada Holdings Corp. and (4) BWXT ITG Canada Inc.

The New Credit Facility is secured by first-priority liens on certain assets owned by the Company (other than its subsidiaries comprising its Nuclear Operations Group segment and a portion of its Nuclear Services Group segment); provided that (1) the Company's domestic obligations are only secured by assets and property of the domestic loan parties and (2) the obligations of BWXT Canada Ltd. and the Canadian guarantors are secured by assets and property of the Canadian guarantors and the domestic loan parties.

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The New Credit Facility requires interest payments on revolving loans on a periodic basis until maturity. We will be required to make quarterly amortization payments on the New USD Term Loan and the New CAD Term Loan in an amount equal to 1.25% of the initial aggregate principal amount of each term loan beginning in the third quarter of 2018. We may prepay all loans under the New Credit Facility at any time without premium or penalty (other than customary Eurocurrency breakage costs), subject to notice requirements.

The New Credit Facility includes financial covenants that are tested on a quarterly basis, based on the rolling four-quarter period that ends on the last day of each fiscal quarter. The maximum permitted 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 New 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, 2018, we were in compliance with all covenants set forth in the New Credit Facility.

Outstanding loans under the New Credit Facility bear interest at our option at either (1) the Eurocurrency rate plus a margin ranging from 1.25% to 2.00% per year or (2) the base rate or Canadian index rate, as applicable (described in the New Credit Facility as the highest of (a) with respect to the base rate only, the federal funds rate plus 0.50%, (b) the one-month Eurocurrency rate plus 1.0% and (c) the administrative agent's prime rate or the Canadian prime rate, as applicable), plus, in each case, a margin ranging from 0.25% to 1.00% per year. We are charged a commitment fee on the unused portion of the New Revolving Credit Facility, and that fee ranges from 0.150% to 0.275% per year. Additionally, we are charged a letter of credit fee of between 1.25% and 2.00% per year with respect to the amount of each financial letter of credit issued under the New Credit Facility, and a letter of credit fee of between 0.75% and 1.20% per year is charged with respect to the amount of each performance letter of credit issued under the New 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. Based on the leverage ratio applicable at June 30, 2018, the margin for Eurocurrency rate and base rate or Canadian index rate loans was 1.375% and 0.375%, respectively, the letter of credit fee for financial letters of credit and performance letters of credit was 1.375% and 0.825%, respectively, and the commitment fee for the unused portion of the New Revolving Credit Facility was 0.175%.

As of June 30, 2018, borrowings outstanding totaled $291.1 million and $0.0 million under our term loans and revolving line of credit, respectively, and letters of credit issued under the New Credit Facility totaled $71.5 million. As a result, we had $428.5 million available for borrowings or to meet letter of credit requirements as of June 30, 2018. As of June 30, 2018, the weighted-average interest rate on outstanding borrowings under our New Credit Facility was 3.09%.

The New Credit Facility generally includes customary events of default for a secured credit facility, some of which allow for an opportunity to cure. Under the New Credit Facility, (1) if an event of default relating to bankruptcy or other insolvency events occurs, 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 New Credit Facility, or if we are unable to make any of the representations and warranties in the New Credit Facility, we will be unable to borrow funds or have letters of credit issued under the New Credit Facility.

Senior Notes

The Company issued $400.0 million aggregate principal amount of its 5.375% senior notes due 2026 (the "Senior Notes") pursuant to an indenture dated May 24, 2018 (the "Indenture"), among the Company, the guarantors and U.S. Bank National Association, as trustee. The Senior Notes are guaranteed by each of the Company's present and future direct and indirect wholly owned domestic subsidiaries that is a guarantor under the New Credit Facility.

Interest on the Senior Notes is payable semi-annually in cash in arrears on January 15 and July 15 of each year, commencing on July 15, 2018, at a rate of 5.375% per annum. The Senior Notes will mature on July 15, 2026.

The Company may redeem the Senior Notes, in whole or in part, at any time on or after July 15, 2021 at established redemption prices. At any time prior to July 15, 2021, the Company may also redeem up to 40% of the Senior Notes with net cash proceeds of certain equity offerings at a redemption price equal to 105.375% of the principal amount of the Senior Notes 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, the Company may redeem the Senior Notes, in whole or in part, at a redemption price equal to 100% of the principal amount of the Senior Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date plus an applicable "make-whole" premium.

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The Indenture contains customary events of default, including, among other things, payment default, failure to comply with covenants or agreements contained in the Indenture or the Senior Notes and certain provisions related to bankruptcy events. The Indenture also contains customary negative covenants. As of June 30, 2018, we were in compliance with all covenants and agreements set forth in the Indenture and the Senior Notes.

NOTE 4 – PENSION PLANS AND POSTRETIREMENT BENEFITS

We record the service cost component of net periodic benefit cost within Operating income on our condensed consolidated statements of income. For the three months ended June 30, 2018 and 2017, these amounts were $2.6 million and $2.3 million, respectively. For the six months ended June 30, 2018 and 2017, these amounts were $5.1 million and $4.6 million, respectively. All other components of net periodic benefit cost are included in Other – net within the condensed consolidated statements of income. For the three months ended June 30, 2018 and 2017, these amounts were $(8.8) million and $(6.9) million respectively. For the six months ended June 30, 2018 and 2017, these amounts were $(17.7) million and $(13.9) million, respectively. Components of net periodic benefit cost included in net income are as follows:

	Pension Benefits												Other Benefits
	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017			2018			2017			2018			2017
	(In thousands)
Service cost	$	2,405		$	2,145		$	4,818		$	4,296		$	162		$	153		$	327		$	307
Interest cost	12,307			13,495			24,650			27,008			351			538			900			1,078
Expected return on plan assets	(21,553		)	(20,803		)	(43,178		)	(41,640		)	(399		)	(596		)	(1,033		)	(1,191		)
Amortization of prior service cost (credit)	550			525			1,100			1,050			(62		)	(78		)	(107		)	(157		)
Net periodic benefit (income) cost	$	(6,291	)	$	(4,638	)	$	(12,610	)	$	(9,286	)	$	52		$	17		$	87		$	37

In July 2018, we completed the purchase of a group annuity contract to transfer certain domestic pension benefit obligations of approximately $240 million to an insurance company for approximately 1,300 retirees. This transaction will result in the recognition of pension settlement-related charges and net actuarial gains and losses related to an interim remeasurement of our domestic pension benefit obligation (Mark to Market Adjustment) during the quarter ending September 30, 2018.

NOTE 5 – COMMITMENTS AND CONTINGENCIES

There were no material contingencies during the period covered by this Form 10-Q. For more information regarding commitments and contingencies, refer to Note 10 to the consolidated financial statements in Part II of our 2017 10-K, as updated by our Form 10-Q for the quarter ended March 31, 2018.

NOTE 6 – DERIVATIVE FINANCIAL INSTRUMENTS

Our operations give rise to exposure to market risks from changes in foreign currency exchange ("FX") rates. We use derivative financial instruments, primarily FX forward contracts, to reduce the impact of changes in FX rates on our operating results. We use these instruments primarily to hedge our exposure associated with revenues or costs on our long-term contracts that are denominated in currencies other than our operating entities' functional currencies. In addition, we have entered into FX forward contracts to hedge our exposure on pending acquisitions. We do not hold or issue derivative financial instruments for trading or other speculative purposes.

We enter into derivative financial instruments primarily as hedges of certain firm purchase and sale commitments denominated in foreign currencies. We record these contracts at fair value on our condensed consolidated balance sheets. Based on the hedge designation at the inception of the contract, the related gains and losses on these contracts are deferred in stockholders' equity as a component of Accumulated other comprehensive income until the hedged item is recognized in earnings. Any ineffective portion of a derivative's change in fair value and any portion excluded from the assessment of effectiveness are immediately recognized in Other – net in our condensed consolidated statements of income. The gain or loss on a derivative instrument not designated as a hedging instrument is also immediately recognized in earnings. Gains and losses

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on derivative financial instruments that require immediate recognition are included as a component of Other – net in our condensed consolidated statements of income.

We have designated the majority of our FX forward contracts that qualify for hedge accounting as cash flow hedges. The hedged risk is the risk of changes in functional-currency-equivalent cash flows attributable to changes in FX spot rates of forecasted transactions related to long-term contracts. We exclude from our assessment of effectiveness the portion of the fair value of the FX forward contracts attributable to the difference between FX spot rates and FX forward rates. At June 30, 2018, we had deferred approximately $0.4 million of net gains on these derivative financial instruments in Accumulated other comprehensive income. Assuming market conditions continue, we expect to recognize the majority of this amount in the next 12 months.

At June 30, 2018, our derivative financial instruments consisted of FX forward contracts. The notional value of our FX forward contracts totaled $249.4 million at June 30, 2018, with maturities extending to December 2021. These instruments consist primarily of contracts to purchase or sell Canadian dollars. We are exposed to credit-related losses in the event of non-performance by counterparties to derivative financial instruments. We attempt to mitigate this risk by using major financial institutions with high credit ratings. Our counterparties have the benefit of the same collateral arrangements and covenants as described under our credit facility.

The following tables summarize our derivative financial instruments at June 30, 2018 and December 31, 2017:

	Asset and Liability Derivatives
	June 30, 2018		December 31, 2017
	(In thousands)
Derivatives Designated as Hedges:
FX Forward Contracts:
Location
Accounts receivable – other	$	444	$	250
Other Assets	$	468	$	348
Accounts payable	$	219	$	177
Other Liabilities	$	284	$	93
Derivatives Not Designated as Hedges:
FX Forward Contracts: