BWX Technologies(BWXT) - 2023 Q4 - Annual Report

PART I Business BWXT is a specialty manufacturer of nuclear components and nuclear technologies, primarily serving the U.S. Government and commercial nuclear industry Business Segments The company's Government Operations segment focuses on naval nuclear components, while Commercial Operations serves the commercial nuclear industry and produces medical radioisotopes - The Government Operations segment is the largest domestic supplier of research reactor fuel elements and downblends high-enriched uranium from Cold War stockpiles, having supplied nuclear components for DOE programs since the 1950s[7] - The Commercial Operations segment is the only commercial heavy nuclear component manufacturer in North America and is a leading supplier for CANDU nuclear power plants[22] - The medical products division within Commercial Operations manufactures radioisotopes, radiopharmaceuticals, and medical devices, and partners with pharmaceutical companies on new drug development[11] Backlog Total backlog decreased to approximately $4.0 billion in 2023, with 80% from Government Operations, and 51% expected as revenue by 2024 Backlog by Segment (as of December 31) | Segment | 2023 (in millions) | % of Total | 2022 (in millions) | % of Total | | :--- | :--- | :--- | :--- | :--- | | Government Operations | $3,217 | 80% | $3,515 | 85% | | Commercial Operations | $781 | 20% | $629 | 15% | | Total Backlog | $3,998 | 100% | $4,144 | 100% | - The company expects to recognize approximately 51% of its $4.0 billion backlog as revenue by the end of 2024[39] - The value of unexercised options, not included in backlog, was approximately $100 million as of December 31, 2023, expected to be awarded in 2024 subject to Congressional appropriations[41] Customers The U.S. Government is the company's largest customer, accounting for approximately 75% of consolidated revenues in 2023 - The U.S. Government represented approximately 75% of total consolidated revenues in 2023, compared to 76% in both 2022 and 2021[55] Human Capital Management BWXT employed approximately 7,800 people globally as of December 31, 2023, with a strong focus on employee development, diversity, and safety in nuclear operations - The company employed approximately 7,800 people worldwide at the end of 2023, with 6,200 in the U.S. and 1,600 in Canada[65] - Approximately 2,000 employees were members of labor unions, and the company considers its employee relations to be satisfactory[65] - A core value is a culture that prioritizes safety, with a vision of zero injuries and incidents, essential for a manufacturer of nuclear products and operator of high-consequence nuclear facilities[100][95] Governmental Regulations and Environmental Matters BWXT's operations are subject to stringent environmental regulations, incurring $20.0 million in pre-tax compliance expenses and holding $101.1 million in environmental accruals in 2023 Environmental Compliance Costs | Metric | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Pre-tax Expense (in millions) | $20.0 | $20.0 | $17.5 | | Capital Expenditures (in millions) | $0.7 | $1.6 | $3.1 | - Total environmental accruals, including asset retirement obligations, were $101.1 million at December 31, 2023, compared to $101.8 million at the end of 2022[121] - The company is required to provide financial assurance for the decommissioning of its licensed facilities, totaling $68.1 million for Government Operations and $44.3 million for Commercial Operations in 2023[120][92] Risk Factors The company faces significant risks from reliance on U.S. Government contracts, fixed-price contract cost overruns, cybersecurity threats, nuclear operational hazards, and the potential non-renewal of the Price-Anderson Act - A substantial percentage of revenue (approx. 75% in 2023) comes from U.S. Government contracts, subject to uncertainties like Congressional appropriations, budget reductions, and termination for convenience[117][118] - The company faces risks on fixed-price contracts where actual costs could exceed projections, leading to reduced profit or losses[115] - As a U.S. Government contractor, the company is a target for advanced and persistent cybersecurity threats, which could compromise sensitive information and impact its reputation and business[116][131] - The Price-Anderson Act, providing crucial liability indemnification for the nuclear industry, is set to expire on December 31, 2025, and its non-extension could adversely affect future business[73][196] Cybersecurity BWXT maintains a comprehensive cybersecurity risk management program overseen by the Board, with no material impact from threats to date despite its heightened risk profile as a government contractor - The Governance Committee of the Board of Directors oversees the company's cybersecurity risk management policies and processes[207] - A Cybersecurity Incident Management Team (CIMT) is in place to coordinate the response to any cybersecurity incidents[232] - As of the filing date, risks from cybersecurity threats have not materially affected the company's business strategy, results of operations, or financial condition[222] Properties The company owns and leases principal manufacturing and administrative properties across the U.S. and Canada, supporting both Government and Commercial Operations Principal Properties | Segment | Location | Principal Use | Owned/Leased | | :--- | :--- | :--- | :--- | | Government Operations | Lynchburg, VA | Manufacturing facility | Owned | | Government Operations | Barberton, OH | Manufacturing facility | Owned | | Government Operations | Euclid, OH | Manufacturing facility | Owned | | Government Operations | Mount Vernon, IN | Manufacturing facility | Owned | | Government Operations | Erwin, TN | Manufacturing facility | Owned | | Commercial Operations | Cambridge, Ontario, Canada | Manufacturing facility | Owned | | Commercial Operations | Peterborough, Ontario, Canada | Manufacturing facility | Leased (2036) | | Commercial Operations | Kanata, Ontario, Canada | Manufacturing facility | Leased (2038) | PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities BWXT common stock trades on the NYSE, with $397.6 million remaining under its $500 million share repurchase authorization as of December 31, 2023 - The company's common stock is listed on the New York Stock Exchange under the trading symbol BWXT[2][235] - A $500 million share repurchase program was authorized in April 2021 with no expiration date; as of December 31, 2023, $397.6 million remained available for repurchases[236][230] Issuer Purchases of Equity Securities (Q4 2023) | Period | Total Shares Purchased | Average Price Paid | Shares Purchased as Part of Public Program | | :--- | :--- | :--- | :--- | | Oct 1 - Oct 31, 2023 | 1,092 | $76.00 | — | | Nov 1 - Nov 30, 2023 | 26 | $78.10 | — | | Dec 1 - Dec 31, 2023 | — | — | — | | Total | 1,118 | $76.05 | — | Management's Discussion and Analysis of Financial Condition and Results of Operations In 2023, consolidated revenues grew 11.8% to $2.5 billion, with operating income increasing to $383.1 million, driven by growth in both Government and Commercial Operations segments Results of Operations Consolidated revenues increased 11.8% to $2.50 billion in 2023, with operating income rising to $383.1 million, driven by growth in both Government and Commercial Operations Consolidated Results of Operations (Year Ended Dec 31) | Metric (in millions) | 2023 | 2022 | Change | | :--- | :--- | :--- | :--- | | Revenues | $2,496.3 | $2,232.8 | +$263.5 | | Operating Income | $383.1 | $348.6 | +$34.5 | - Government Operations revenue increased by $222.9 million (12.3%) in 2023, driven by higher volume in nuclear components manufacturing (+$100.0M), advanced technologies (+$61.6M), and uranium processing (+$58.6M)[281] - Commercial Operations revenue increased by $39.0 million (9.1%) in 2023, primarily from higher in-plant services (+$24.1M) and medical radioisotopes business (+$14.6M)[285] Liquidity and Capital Resources Total liquidity increased to $649.1 million in 2023, with net cash from operating activities rising significantly to $363.7 million, supported by a $750 million revolver and $800 million in senior notes - Overall liquidity increased by $116.3 million to $649.1 million at December 31, 2023[300] - Net cash provided by operating activities increased by $119.0 million to $363.7 million in 2023, compared to $244.7 million in 2022, primarily due to the timing of project cash flows[484] - As of December 31, 2023, the company had $418.8 million in outstanding borrowings under its Credit Facility and $800.0 million in aggregate principal of Senior Notes due 2028 and 2029[501] Financial Statements and Supplementary Data This section presents BWXT's audited consolidated financial statements for 2023, including statements of income, balance sheets, cash flows, and comprehensive notes Consolidated Statements of Income For 2023, BWXT reported revenues of $2.50 billion, net income of $246.3 million, and diluted earnings per share of $2.68 Key Financial Results (Year Ended Dec 31) | Metric (in thousands, except per share) | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Revenues | $2,496,309 | $2,232,834 | $2,124,074 | | Operating Income | $383,059 | $348,571 | $345,848 | | Net Income | $246,321 | $238,620 | $306,288 | | Diluted EPS | $2.68 | $2.60 | $3.24 | Consolidated Balance Sheets As of December 31, 2023, total assets were $2.75 billion, total liabilities $1.81 billion, and total stockholders' equity $933.3 million Balance Sheet Highlights (as of Dec 31) | Metric (in thousands) | 2023 | 2022 | | :--- | :--- | :--- | | Total Current Assets | $817,801 | $771,619 | | Total Assets | $2,747,065 | $2,618,939 | | Total Current Liabilities | $375,046 | $367,860 | | Long-Term Debt | $1,203,422 | $1,282,624 | | Total Liabilities | $1,813,764 | $1,870,584 | | Total Stockholders' Equity | $933,301 | $748,355 | Consolidated Statements of Cash Flows In 2023, net cash from operating activities was $363.7 million, with $155.6 million used in investing and $169.4 million in financing activities Cash Flow Summary (Year Ended Dec 31, 2023) | Cash Flow Activity (in thousands) | Amount | | :--- | :--- | | Net Cash Provided by Operating Activities | $363,701 | | Net Cash Used in Investing Activities | ($155,642) | | Net Cash Used in Financing Activities | ($169,371) | | Net Increase in Cash | $40,625 | Notes to Consolidated Financial Statements Detailed notes cover accounting policies, revenue recognition, equity investments, income taxes, long-term debt, pension obligations, and segment financial performance Controls and Procedures Management and independent auditors concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2023 - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2023[716] - Based on an assessment using the COSO framework, management concluded that internal control over financial reporting was effective as of December 31, 2023[720] - No changes in internal control over financial reporting occurred during the fourth quarter of 2023 that materially affected, or are reasonably likely to materially affect, internal controls[721] PART III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2024 Proxy Statement - Required information for this item is incorporated by reference from the Proxy Statement for the 2024 Annual Meeting of Stockholders[742] Executive Compensation Information on executive and director compensation is incorporated by reference from the 2024 Proxy Statement - Required information for this item is incorporated by reference from the Proxy Statement for the 2024 Annual Meeting of Stockholders[743] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership and equity compensation plans is incorporated by reference from the 2024 Proxy Statement - Required information for this item is incorporated by reference from the Proxy Statement for the 2024 Annual Meeting of Stockholders[734] Certain Relationships and Related Transactions, and Director Independence Information on related party transactions and director independence is incorporated by reference from the 2024 Proxy Statement - Required information for this item is incorporated by reference from the Proxy Statement for the 2024 Annual Meeting of Stockholders[754] Principal Accounting Fees and Services Information on fees paid to and services provided by the independent registered public accounting firm is incorporated by reference from the 2024 Proxy Statement - Required information for this item is incorporated by reference from the Proxy Statement for the 2024 Annual Meeting of Stockholders[744] PART IV Exhibits, Financial Statement Schedules This section lists all exhibits filed with the Form 10-K, including consolidated financial statements and other required documents - The consolidated financial statements are filed as part of this report[746] - All financial statement schedules have been omitted because they are not required or the information is included in the financial statements or notes[747]