\$3.5 million associated with executive reorganizations, respectively, which resulted in the acceleration of previously granted equity awards and other expenses.

# mPower Framework Agreement

On March 2, 2016, as a result of entering into a framework agreement with Bechtel Power Corporation ("Bechtel"), BWXT Modular Reactors, LLC and BDC NexGen Power, LLC, our partner in GmP, for the potential restructuring and restart of our mPower small modular reactor program (the "Framework Agreement"), we deconsolidated GmP from our financial statements as of the date of the Framework Agreement. We recorded a gain of approximately \$13.6 million during the year ended December 31, 2016 related to the deconsolidation of GmP as a component of Other – net on our consolidated statement of income. In the year ended December 31, 2016, we also recognized a \$30.0 million loss contingency as a result of the Framework Agreement, 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.

# Other Income Statement Items

During the year ended December 31, 2018, other income (expense) decreased approximately \$28.4 million to a loss of \$24.8 million compared to a gain of \$3.6 million for the corresponding period of 2017. We experienced an increase in interest expense of \$12.9 million associated with higher levels of long term debt when compared to the prior year, which includes \$2.4 million of expense related to the recognition of prior deferred debt issuance costs associated with the Former Credit Facility. These items were partially offset by \$4.7 million of gains related to derivative instruments not designated as hedges. Other income and expense includes mark to market adjustments due to our immediate recognition of net actuarial gains (losses) for our pension and postretirement benefit plans, which totaled \$(32.6) million for the year ended December 31, 2018 compared to \$(11.1) million in the corresponding period of 2017.

During the year ended December 31, 2017, other income (expense) decreased approximately \$19.2 million to a gain of \$3.6 million compared to a gain of \$22.8 million for the corresponding period of 2016 due primarily to changes in the mark to market adjustments noted above. In addition, during the year ended December 31, 2016, we recorded a gain of \$13.6 million related to the deconsolidation of GmP and we were also released from substantially all outstanding performance guarantees for various projects executed by our former Power Generation business prior to the spin-off, which resulted in a gain of \$9.3 million. Other income and expense includes mark to market adjustments due to our immediate recognition of net actuarial gains (losses) for our pension and postretirement benefit plans, which totaled \$(11.1) million for the year ended December 31, 2017 compared to \$(21.3) million in the corresponding period of 2016.

# Provision for Income Taxes

<table><tr><td rowspan="3"></td><td colspan="3">Year Ended December 31,</td></tr><tr><td>2018</td><td>2017</td><td>2016</td></tr><tr><td colspan="3">(In thousands)</td></tr><tr><td>Income before Provision for Income Taxes</td><td> $     280,145</td><td> $     295,780</td><td> $     257,268</td></tr><tr><td>Provision for Income Taxes</td><td> $      52,840</td><td> $     147,415</td><td> $      73,656</td></tr><tr><td>Effective Tax Rate</td><td>18.9%</td><td>49.8%</td><td>28.6%</td></tr></table>

On December 22, 2017, H.R. 1, 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 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%.

For the year ended December 31, 2018, our provision for income taxes decreased \$94.6 million to \$52.8 million, while income before provision for income taxes decreased \$15.6 million to \$280.1 million. Our effective tax rate was approximately 18.9% for 2018, as compared to 49.8% for 2017. Our effective tax rate for 2018 was lower than the 2018 U.S. corporate income tax rate of 21% primarily due to remeasurement adjustments to our deferred tax assets as a result of accelerating additional contributions made in August 2018 to certain of our domestic pension plans for inclusion in our 2017 U.S. tax return.

For the year ended December 31, 2017, our provision for income taxes increased \$73.8 million to \$147.4 million, while income before provision for income taxes increased \$38.5 million to \$295.8 million. Our effective tax rate was approximately

49.8% for 2017, as compared to 28.6% for 2016. Our effective tax rate for 2017 was higher than the 2017 U.S. corporate income tax rate of 35% primarily due to \$53.0 million in income tax expense, which consisted of (i) \$49.5 million incurred in relation to the revaluation of our U.S. net deferred tax assets required due to the reduction of the U.S. federal tax rate from 35% to 21% for tax years starting on or after January 1, 2018; (ii) \$2.0 million incurred in relation to the transitional toll-charge on undistributed foreign earnings and profits; and (iii) \$1.5 million incurred in relation to the elimination of the performance-based criteria under I.R.C. §162(m) for our covered executives and the corresponding write off of certain deferred tax assets previously deductible under the performance-based criteria of I.R.C. §162(m).

See Note 5 to our consolidated financial statements included in this Report for further information on income taxes.

# EFFECTS OF INFLATION AND CHANGING PRICES

Our financial statements are prepared in accordance with GAAP, using historical U.S. dollar accounting ("historical cost"). Statements based on historical cost, however, do not adequately reflect the cumulative effect of increasing costs and changes in the purchasing power of the U.S. dollar, especially during times of significant and continued inflation.

In order to minimize the negative impact of inflation on our operations, we attempt to cover the increased cost of anticipated changes in labor, material and service costs, either through an estimate of those changes, which we reflect in the original price, or through price escalation clauses in our contracts. However, there can be no assurance we will be able to cover all changes in cost using this strategy.

# LIQUIDITY AND CAPITAL RESOURCES

Our overall liquidity position, which we generally define as our unrestricted cash and cash equivalents and short-term investments plus amounts available for borrowings under our credit facility, decreased by approximately \$160.4 million to \$370.0 million at December 31, 2018 compared to \$530.4 million at December 31, 2017, due to lower levels of cash on hand resulting primarily from repurchases of common shares and increases in pension contributions and dividends paid to common shareholders during the year ended December 31, 2018 when compared to 2017. We experienced net cash generated from operations in each of the years ended December 31, 2018, 2017 and 2016. Typically, the fourth quarter has been the period of highest cash flows from operating activities because of the timing of payments received from the U.S. Government on accounts receivable retainages and cash dividends received from our joint ventures.

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 senior 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 Credit Facility, 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. The obligations of BWXT Canada Ltd.