BWX Technologies, Inc. (BWXT) Q4 2012 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to The Babcock & Wilcox Company Fourth Quarter 2012 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to your host, Ms. Jenny Apker, B&W's Vice President, Treasurer and Investor Relations. Please go ahead.

Thank you, Ann, and good morning, everyone. Welcome to The Babcock & Wilcox Company's Fourth Quarter 2012 Earnings Conference Call. I'm Jenny Apker, Vice President, Treasurer and Investor Relations at B&W. Joining me this morning our Jim Ferland, B&W's President and Chief Executive Officer; and Tony Colatrella, our Chief Financial Officer. Many of you have already seen a copy of our press release issued last night. For those of you who have not, it is available on First Call and on our website at babcock.com. During this call, certain statements we make will be forward looking. I want to call your attention to our Safe Harbor Provision for forward-looking statements that can be found at the end of our press release. The Safe Harbor Provision identifies risk factors that may cause actual results to differ materially from the content of our forward-looking statement. Our Annual Report on Form 10-K and Quarterly Reports on Form 10-Q, on file with SEC, provide further detail about the risk factors related to our business. Additionally, I want to remind you that, except as required by law, B&W undertakes no obligation to update any forward-looking statements to reflect events or circumstances that may arise after the date of this call. Also on today’s call, the company may provide non-GAAP information regarding certain of its historical and future, which should not be considered superior to or as a substitute for the comparable GAAP measures. B&W believes the non-GAAP measures provide meaningful insight into the company's operational performance and provides these measures to investors to help facilitate comparisons of operating results with prior periods, and to assist them in understanding B&W's ongoing operation. A reconciliation of these non-GAAP measures can be found on our fourth quarter release issued last night and in our company overview presentation posted on the Investor Relations section of our website at babcock.com. Due to the number of participants on today's call, I would ask that you limit yourself to one question and perhaps one follow-up. You are, of course, welcome to get back into the queue. And with that, I will now turn the call over to Jim.

Thank you, Jenny. Good morning, everyone. We're pleased to report the ninth consecutive quarter of year-over-year growth and consolidated revenue for the company. For the fourth quarter, consolidated revenues were $865 million, an increase of 8.1% compared to the prior year fourth quarter. Revenue was up year-over-year in our Power Generation and Nuclear Operations segments, demonstrating continued strength in our core businesses. For the full year 2012 consolidated revenue grew by 11.5% over 2011. 2012 bookings were $3.7 billion compared to $3.1 billion for 2011, an increase of nearly 20%. Backlog is up 7.7% from the end of 2011. Adjusted consolidated operating income, which excludes the impact of the pension mark-to-market adjustment for the fourth quarter of 2012 was $97.6 million compared to $112 million in the fourth quarter of 2011. The decrease reflects comparison to a very strong quarter in 2011. Tony will discuss the results of each segment in more detail shortly. In the fourth quarter, the company generated $0.56 in adjusted earnings per share excluding the impact of pension mark-to-market changes and the $0.06 per share impact from the nonrecurring tax adjustments. This compares to adjusted earnings per share in the fourth quarter of 2011 of $0.65, also excluding the impact of the pension mark-to-market. For the full year, adjusted earnings per share were $2.17, compared on an apples-to-apples basis with 2011 full year adjusted EPS of $1.84, increasing 17.9% year-over-year. If these per share numbers don't sound familiar to you, please remember that we adopted mark-to-market accounting affected the December 31, 2012. So 2012 and prior year results have been restated to reflect this change in accounting method. A reconciliation of the GAAP earnings per share to the adjusted EPS calculation before the accounting change was included in the earnings release last night. There are several important issues about, which I want to give you an update. Over the past few months, there has been a number of significant and positive events related to our mPower small modular reactor program. We were very pleased in November to be named by the DOE as the only recipient of the DOE's competitively bid SMR licensing technical support program. This cost share award will enable us to accelerate R&D spending to meet program milestones, and allow B&W to limit our net spend in 2013 between $85 million and $95 million. We continue to work with the DOE on the cooperative agreement, which will define the terms of the award, as well as the timing and dollar amount of the matching funds. We anticipate this agreement will be signed in the next couple of months and be in place for up to 5 years. We recently signed a contract with TVA to begin developing a construction permit application for the first mPower installation at TVA's Clinch River site. Work under this contract will begin once the mPower and the DOE signed a cooperative agreement. We remain committed to developing mPower for the commercial market. But as I mentioned last quarter, we plan to pursue a balanced strategy with respect to funding the development of this technology. We are making progress in our effort to find additional technical and strategic partners, although any announcement will be a few quarters down the road. Clearly on the environmental front, as it relates to MATS and slowly improving economic conditions, are making it easier for utilities to make some decisions regarding capital spending. Bidding activity for MATS-related project has picked up recently, as utilities are preparing for the 2015 deadline for compliance. MATS projects range in size from less than $10 million to more than $100 million, depending upon the scope of the compliance program, the technology solution required and the number of plants to be retrofitted, B&W offers the full range of technology alternatives to support our customers complete MATS programs. With the delay of CSAPR, the ultimate size and timing of the scrubber market remains unclear. On the positive side, we are executing scrubber projects booked in 2011 and in 2012 and none of these backlog projects have been canceled. Like most of you, we continue to monitor the conversations and announcements related to actions by Congress or the President on the budget and the threatened sequester. Of the targeted budget reductions in fiscal year 2013 approximately half is required to come from defense spending, which for many government contractors, is a disconcerting prospect. Let me help you understand how sequestration is likely to affect B&W. We believe the impact of the sequester on our Nuclear Operations segment will be minimal in the short to medium term. All of the Navy contract work to be performed by our Nuclear operations group in 2013 is currently under contract, except as it relates to the government's fiscal year '13 advanced procurement funding for the second Virginia-Class submarine. But we believe it is at a lower risk than many other programs, it is possible that the events procurement funding for the second ship set could end up being deferred until later in the program. If that happens, we expect it will have only a small impact on 2013. Effective sequestration on our technical services group remains more uncertain, although we expect the financial impact to be relatively small. At each of the sites, where we are an M&L contractor, we're evaluating the likely impact of sequestration and preparing scenarios to deal with the required budget reductions. At the majority of these sites, a high percentage of funding is personal related, so furloughs or layoffs of the employees or contractors who work at these facilities could be likely outcomes. Our fees at these sites are generally calculated as a percentage of the facility funding, though a 5% to 10% reduction in facility funding could result in similar reductions and fees earned. Speaking TSG, we announced last month, the B&W-led team was not awarded the new Pantex/Y-12 combined contract. We were disappointed because we believe we had assembled the best team and proposed a strong solution for the management and operation of these 2 critical facilities. Following a debriefing from the NNSA and careful consideration with our partners, we filed a protest of the award of this contract. We understand the seriousness of a protest and only took this action because we believe there are valid reasons for doing so. By law, the U.S. Government Accountability Office is responsible for considering our protest and must render a decision within 100 days. In the meantime, we continue to manage both facilities at the highest level of performance. Moving on to our global competitiveness initiative. This quarter, we will begin the execution phase of this initiative, the GCI team is working with managers across the company. A completed, a structured and collaborative process for identifying a wide range of cost reduction opportunities, resulting in several major improvement projects now underway within B&W. Overall, we anticipate the GCI programs will produce between $40 million and $50 million of annual expense savings. We plan to execute these programs in 2 phases. The first phase will be focused on efficiency improvements and organizational design changes. We expect this first phase will generate more than half the total savings on a full run rate basis in 2014, with cost savings of between $10 million and $15 million realized in 2013. The second phase of the program related to manufacturing optimization will be completed by mid-2015. To achieve these savings, we expect to incur total restructuring charges of not more than $60 million. I would like to discuss one more topic before I turn the call over to Tony to take you through the financial details. Last quarter, we discussed the importance of a balanced approach to returning value to shareholders, including a quarterly dividend and a share repurchase program. We paid our first dividend in December, and a few weeks ago announced our second dividend payment will be made in March. During the fourth quarter, we bought back 3.9 million shares for $96.8 million. The buyback program remained active through the first quarter. Through yesterday, 5.5 million total shares have been repurchase for $139 million. $111 million remains under the initial $250 million authorization. We expect to remain in the market and continue to opportunistically buyback our stock, subject of course to market conditions and alternative uses of cash, such as for potential acquisitions. Now Tony will discuss segment results and other financial matters.

Thanks, Jim. Revenues in the Power Generation segment for the fourth quarter of 2012 were $448.3 million compared to $411.4 million in the fourth quarter of 2011, an increase of 9%. This growth in revenue was driven by an increase in new build environmental projects, particularly scrubbers and particular control devices. Revenues from environmental projects increased 92% in the fourth quarter of 2012 compared to last year's fourth quarter, while revenues from new build system generation systems -- new build steam generation systems, excuse me, we're essentially flat as increases from new renewable and waste energy projects were offset by decreases on utility boiler projects due to the completion of a couple of major contracts during the fourth quarter of 2011. Revenues from aftermarket services, which include service projects, were down 11% in the fourth quarter, primarily due to fewer aftermarket boiler and small service projects in the current year as compared to 2011. Operating income in the Power Generation segment including the equity income of our global joint ventures, was $45.2 million in the fourth quarter of 2012, compared to $57.2 million for the fourth quarter of 2011, a decrease of 21%. The year-over-year decrease in operating income was primarily due to a lower level of net project improvements than in 2011, including a cost overrun on a new renewable energy project and lower margins on the current cycle of environmental projects, as discussed in our last quarter. Equity income contributions from the company's joint venture in China were flat compared to the prior year. Backlog in power generation was $2.5 billion at the end of the fourth quarter 2012, compared to $1.9 billion a year ago, attributable to the strong environmental orders reported over the past year and booking of the West Palm Beach waste-to-energy project in the first quarter of 2012. Nuclear Operations segment reported record revenues of $298 million in the quarter, an increase of 12.2% from the fourth quarter of 2011. Nuclear Operations segment operating income was $59.2 million in the fourth quarter of 2012, a 19.8% increase compared to the fourth quarter of 2011. The operating margin in the fourth quarter was 19.9%, compared to 18.6% in the fourth quarter of 2011, primarily due to improve performance associated with Naval nuclear fuel and down-blending activities. Backlog in Nuclear Operations at the end of the fourth quarter remained stable at $3 billion. Nuclear Energy segment revenues were $97 million in the fourth quarter of 2012, compared to revenues of $100.7 million in the fourth quarter of 2011. Nuclear Energy segment operating loss of $16.2 million in the fourth quarter, included R&D and SG&A expenses related to the mPower development program, totaling $25.3 million. B&W mPower's cash R&D expenditures in the fourth quarter of 2012 were $15.9 million, essentially flat with the prior year quarter. Excluding mPower related SG&A and R&D cost, operating profit was $9.1 million in the fourth quarter of 2012 as compared to $17.4 million in the fourth quarter of 2011, primarily due to the timing of completion of a large service contract, which was performed in the fourth quarter of last year. Technical Services segment revenues in the fourth quarter of 2012 were $28.6 million, a decrease of $3.5 million versus the fourth quarter of 2011. Operating income of $14.0 million decrease $7.3 million in the fourth quarter of 2012 compared to the fourth quarter of 2011. This reduction in operating income is due primarily to decreased award fees earned on our NNSA managed sites including Y-12/Pantex, and lower operating income due to the timing of machine deliveries for the American Centrifuge Project. Now let me turn to tax matters and cash flow before I' wrap up with the discussion of 2013 guidance. The full year effective tax rate for 2012 was 31.9% compared to 25.3% in 2011. Our 2012 effective tax rate does not reflect the benefit of the U.S. R&D tax credit, which temporarily expired in 2012 and was reinstated by Congress as part of the Budget Reconciliation Act in January 2013. When we prepare and file our 2012 returns, it will include these credits, but the book effect of the full year 2012 R&D tax credit will be recognized in the first quarter of 2013. In the fourth quarter, the company's effective tax rate was 42.5%. During the quarter, we recorded $6.8 million of nonrecurring adjustments, which increased the quarter's effective tax rate from a normalized level of approximately 34%. These adjustments were related to changes in estimates and true-ups to the prior year tax benefits. During the fourth quarter, the company generated cash flow from operating activities of $264.2 million. Accordingly, the company's net cash and investment decision was $532.9 million at the end of the fourth quarter of 2012, an increase of $130.7 million compared to $402.2 million at the end of the third quarter of 2012. Strong seasonal cash flows this quarter were partially offset by the use of $106 million of cash to fund the dividend and share repurchase programs. Finally, I would like to address our outlook for 2013. Historically, the company has not provided specific guidance. This year, however, because of the adoption of mark-to-market accounting and the impact of our global cost reduction initiative, we want to make sure that there is clarity and expectations for the company's performance in 2013. We expect consolidated revenues in 2013 will be in the range of $3.40 billion to $3.55 billion fueled by strong mid- to upper-single-digit growth from our power generation and nuclear operations businesses. We expect adjusted earnings per share in 2013 will be the range of $2.25 to $2.45. Adjusted EPS, excludes mark-to-market adjustments for pension and postretirement plans and GCI restructuring charges. Included in these projections are an expectation of net mPower spending of approximately $85 million to $95 million, current year GCI savings, as Jim mentioned, of between $10 million and $15 million and effective tax rate between 33% and 35% and no unusual items. Our EPS guidance also assumes that we complete our announced $150 million share repurchase program by the end of March 2013, but does not assume any additional buyback of shares for the balance of 2013. Let me turn the call over now to Jim for some final remarks.

Thanks, Tony. Now it's my turn to talk about our outlook for 2013. I want to go beyond the numbers and tell you what our priorities are for the year and why we're confident we can achieve the financial targets Tony just described. We have 4 primary objectives that will support growth and drive increase value for our shareholders. First, leverage our core competencies to increase the value of our existing business. We plan to increase the value of our existing businesses by focusing on what we already do well and leveraging our core competencies to drive organic growth. It will require focus on flawless execution, enhance our valuable customer relationships and continue to develop our exceptional people. Second, optimize internal efficiencies and effectiveness. The successful execution of our global competitiveness initiative will be a critical step in achieving our second objective. We expect GCI will drive lower cost of execution, improve efficiencies, streamline operations and enhance profitability. Third, execute our SMR strategy. While staying on track to achieve program milestones and development criteria, we intend to drive down B&W short- and medium-term spending on mPower, by completing the cooperative agreement with the DOE and adding additional partners. And finally, pursue external growth strategies both domestically and internationally that leverage our core competencies. We plan to step up efforts to identify opportunities to grow our business through strategic acquisition. Among the most important criteria for targeting and evaluating any acquisition, we must be satisfied that the value created by these opportunities exceeds the value we can create by returning capital directly to our own shareholders. To do so, any acquisition must be in line with our core competencies and provide significant cost and/or revenue synergies. To wrap up, 2012 was a strong year for B&W. We faced challenges, certainly, but we grew revenue and the bottom line. We return capital to our shareholders in 2 meaningful ways, and are executing on a number of initiatives that we believe will drive predictable, sustainable growth in shareholder value in the near term and for many years to come. That concludes our prepared remarks. I will now turn the call back over to Ann who will assist us in taking your questions.

[Operator Instructions] And our first question comes from the line of Andy Kaplowitz with Barclays.

Jim or Tony, your Nuclear Operation margins have been pretty consistent and pretty high for the entire year, better than I've seen, really, you performed over the last 5 years. I think you guys have talked about maybe margins normalizing over time, but they don't seem to be doing so. Is it -- what are you doing to sort of maintain these margins and can you continue to maintain these margins as you go forward in 2013 and beyond?

Andy, yes, we are very pleased with the performance of our Nuclear Operations Group. And I recognize we've said steady margins, and the group has continued to over perform certainly in 2012, driven primarily by improving their own internal efficiencies and driving cost out of the deliveries, some of which we keep and some of which is shared with our government customer. Over time, we do expect NOG's margins to drop, I'd say, between 1% and 2%. Going forward, we think that's a more sustainable level. But we are awfully happy with the performance and the value they have created both for our shareholders and for our government customer in the last year or 2.

Okay. And Jim, that's helpful. For a follow-up, completely unrelated, I guess, as you did GCI, as you sort of you came away with your findings. It seems like you did a good job of identifying a lot of cost cutting and efficiency gains. How about potential attractive paths for growth? Have you -- as you looked at your competitiveness, are there any places where you can sort of improve your competitiveness globally? I know you mentioned looking at strategic acquisitions, but sort of where do we go from here to get more growth?

Fair enough. There is some connection between the GCI program, where we're looking to gain efficiencies and effectiveness. And in all honesty, take most of that to the bottom line. There may be instances whereby improving our own internal cost structure, we're more competitive on specific bids, primarily in PGG and perhaps in the NE commercial nuclear segment, that will allow us to win some more work either in the U.S. or overseas. That said, that will be a great upside from GCI if that happens. We do have a handful of a separate initiatives looking at growth, organic growth inside the company, where we continue to invest significant dollars in R&D to expand our technology profile and deliver new and better solutions to our current customers, and also looking for ways to better leverage our technologies internationally. In a large sense, we're still pretty U.S. centric in most of what we deliver and there are certainly international opportunities that are out there for us, and we have a handful of efforts built on the PGG commercial side and on the commercial nuclear side to look to expand into some of those international markets.

Do you think we'll see international acceleration in terms of bookings in '13?

We certainly have a lot of targets that we're pursuing internationally. Whether we'll see a significant step up in orders, I will have to wait and see.

And if I might just add, Andy. In 2012, we did book a very large waste energy project overseas in Europe and that project was really a significant win for us. I think when we look at 2013 and beyond, the focus will be more on, obviously, continuing to drive that waste energy business, which is primarily in Western Europe, but also in pushing -- looking at opportunities aggressively to expand the boiler business, international boiler business, which is relative small in the scheme of things.

And our next question comes from the line of Jamie Cook with Credit Suisse. Jamie L. Cook - Crédit Suisse AG, Research Division: A couple of questions. Jim, can you just talk about the Y-12/Pantex. What are your assumptions in 2013 in terms of what's in your numbers and how do you think about the probability of you guys potentially getting some of that business back? And then I guess my other question is, the bookings in the quarter are actually a little better than what I thought in the Power Gen side, which is pretty good. Can you just talk about how we should think about margins for that business in 2013 and what you're seeing on the competitive front?

Sure, Jamie. Thanks. I'll start off with your first question and talk for a second about Y-12. The assumptions in the quarter right now is based on the process and the timeline in the protest. We mentioned up front that it's about 100 days for the GAO to work their way to the process and to reach an end result. And we would expect an answer back from the GAO sometime in late April. Assuming we do not win that protest, we then pick back up what's about a 4-month transition, which would take us into late summer. So that's our baseline assumption on Y-12/Pantex. Jamie L. Cook - Crédit Suisse AG, Research Division: So you're assuming about 6 months of work or something?

I would say more like 7 or 8. Jamie L. Cook - Crédit Suisse AG, Research Division: 7 or 8 months, okay.

Yes. 7 to 8. And then, the variability around that depends completely upon what the outcome is from the protest which, for us, is very difficult to predict; a, whether the protest will be upheld and then, b, what the end result will be if the protest is upheld. Jamie L. Cook - Crédit Suisse AG, Research Division: Okay. And then how do you think about assuming that you're not successful on the protest? How do we think about the cost associated with a lot of the people at Y-12 and Pantex? I mean, is that in any of your sort of GCI assumptions for 2013?

Yes. We obviously, we have a handful of contingency plans in place on TSG, assuming we lose Y-12/Pantex. First is, as you said, consolidation internally to make sure we minimize our cost. A second key for us is making sure we hold on to the existing talent we have in that business because it's really people that make a difference in TSG. The benefit we have is we are on roughly 20 sites across the country, so we have the ability to take our talent and make sure it's applied in adding value to our customers in places other than Y-12/Pantex. We also retained access to that talent for future bids. For example, we expect Sandia to come out for bid in 2013, and that's a very large opportunity for us. Jamie L. Cook - Crédit Suisse AG, Research Division: Okay. So I mean you can redeploy but to some degree, you do need to win some new work, and Sandia would be the big project out there to look for, is how should we think about it?

Yes. I think that's fair. There are some other projects as well, but Sandia is the big one on the near-term horizon.

I think just to follow on, Jamie. The punch line is we don't expect a significant restructuring charge related to reductions and force, because we have some very talented people and their skills do match well with some of the requirements we have at the other sites anyway, in many cases actually. Jamie L. Cook - Crédit Suisse AG, Research Division: And then sorry, just a follow-up on the Power Gen side, the emission stuff.

Yes. Sure. Let me take a shot at a little bit of the big picture PGG margins and then Tony can jump in as needed. We mentioned on the Q3 call that we expect margins in the PGG business to be between 7% and 10%, and probably a little bit towards the lower end of that. Now there are a couple of variables to that, obviously, that will -- let me just this, I still think, apples-to-apples, that remains the case going forward. That said, you will see PGG margins rise in 2013 and beyond. The pension mark-to-market change and the fact that we're not amortizing the pension anymore is probably worth a couple of percent.

It's worth 2 percentage points.

On margin. And then over time, you'll see the GCI savings work their way back into the margins of the individual business units as well. Jamie L. Cook - Crédit Suisse AG, Research Division: Okay. But nothing market related at this point?

Correct.

And our next question comes from the line of Bob Labick with CJS Securities.

You've mentioned in the past that you kind of worked towards a plateau on run rate in NOG, but I think you just said on the call you expect some further top line growth there. I was wondering if you could elaborate on what's driving that? And also, if you could potentially talk a little bit about the CapEx spend which has remained elevated versus just the maintenance level for NOG and if the 2 are related?

I'll try to tackle both those questions, Bob. Regarding your first question, the growth that we're anticipating next year really has to do with some specific requirements for long lead time material on projects that are currently in the backlog. It is -- it doesn't reflect, if you will, a step-up in the number of subs or the number of reactors we're going to be providing on subs and/or the work we do for the fourth class aircraft carrier. So it's primarily driven off of timing of long lead time materials. And then regarding the -- what's the second question, I'm sorry?

Sure. The CapEx has been a little bit elevated versus what I think would be maintenance for that group and is there new projects or can you talk about what's going on?

I think, the reality is, it is a combination of maintenance capital and capital specifically geared towards productivity-related projects. Again, we're incented to help the customer drive cost out of manufacturing process. And part of the way we do that is through, obviously, trying to automate where we can and to be as efficient as we can, and part of that does include specific investments that are targeted towards productivity programs. And again, part of it is also maintenance capital too. I would expect that will continue.

At the current levels?

At or close to current levels.

And our next question comes from the line of Steven Fisher with UBS.

Jim, you talked about M&A and I'm wondering if you could just fill in a little bit more color there and maybe characterize the types of deals that you're seeing coming across your desk at this point in terms of quality, fit, size, price, things like that. Are you finding anything that's interesting to you at this point?

Very fair question. We had, as I said in the opening, we are trying to increase emphasis on taking a look at our opportunities in the market place. We're trying very hard to generate the opportunities with our own analysis as opposed to simply taking a look at what is up for sale and coming across the desk. Although, we looked at those too, obviously. It's hard to characterize at this point, we certainly have a focus or a handful of focus areas. We have certain things, certain core competencies that we're good at, precision manufacturing, very large projects, power sector focus and we would tend to look in those areas, of course. We would like opportunities to grow internationally. So that's another focus area here for us. It's a bit of a high hurdle, in all honestly, as we sort through the acquisition opportunities. As I mentioned before, in order for us to find an opportunity via acquisition that we want to chase down, we have to believe it's going to generate better value than simply returning dollars directly to our shareholders. So that means we have to look for opportunities that either have significant synergy inside them on the cost side or some sort of synergy, if you will, on the revenue side, where we gain access to some markets or we can leverage our current technology in a new place that we couldn't before. And in all honesty, those are relatively hard to find, but we are out there looking.

Okay. That's helpful. And then can you just give us an update on India? Is your facility up and running and online and where do you stand on booking any work for that?

Yes. The facility is nearing completion, just given the lack of workload, we slowed down some spending on that front to try to time facility completion with when we think we'll have some new work. And all I can say on the revenue front is, we continue to chase multiple opportunities in India. It's a tough market. It's slow to develop. And as soon as we have something signed, we'll let everybody know, but we don't have anything today.

And our next question comes from the line of Brian Konigsberg with Vertical Research.

Maybe if you just touch on your outlook for free cash flow next year, so we have the pension, obviously, playing through the P&L. I think you're spend on pension or cash contributions goes down, you're spending less on India. I mean, how do we balance all that as a view for your cash gen in '13?

I think we're going to have a good year in cash flow in 2013. Obviously, the earnings will help to propel growth. We will see a substantial decrease, sort of on the order of $110 million, $120 million in our cash funding requirements for the pension program, so that will be a significant upside year-over-year. And CapEx spending will be roughly in line with where it was in 2012. So when you put all of that together, I think you'll -- given the math would suggest that our cash flow will be well north of $100 million. Odds are it will be in the neighborhood of $125 million to $150 million round numbers.

Got it. And maybe if you could talk a little bit more on the mPower -- actually, I'm sorry the DOE funding contract. Is that taking a bit longer than you expected? We've been hearing maybe the government is just dragging the speed on getting this done or maybe it just has to do with the election and the turnover of the managers in position to actually complete a contract. Can you give us a little more color on how that's progressing?

Sure. I'd say it’s right about on our expectations as far as schedule goes. It's a somewhat complicated process to put these cooperative agreements in place with the DOE. Probably made little bit more complex by some of the challenges that DOE has had with previous loan guarantees and programs like Solyndra. But I would say it's on schedule. We continue, I would say, a pretty productive dialogue back and forth, and believe in the next couple of months we'll have that agreement wrapped up and all that's -- all those assumptions are baked into our mPower spending numbers for 2013.

And our next question comes from the line of Rob Norfleet with BB&T Capital Markets. Robert F. Norfleet - BB&T Capital Markets, Research Division: Just a quick question going back to the mPower. You referred to it as a cost sharing agreement. And I guess -- I know you're still ironing out the details of it. As much as you know today, can you kind of walk us through the expectations? I mean, is this going to be an offset to the current R&D spend or is it more the matching, funding program? And on top of that, I guess, I just wanted to understand the $85 million to $95 million, is that kind of what we should view as the run rate for R&D spending for mPower with the daily grant going forward, meaning, outside of 2013 into 2014? Or does that really not take into account the full account of the grant?

Okay. Let me see if I can touch on all those points. The way the basic program work is, it is a matching program, so we have to put in $1 and then the DOE matches a portion of that or all of that. We're still ironing out the details, but we have to spend money in order to generate funding, which is fair. Again, that program is baked into our numbers. Ballpark, 2012, we spend about $113 million in total on mPower. We're expecting, I said $85 million to $95 million in 2013, so roughly a $20 million reduction, give or take maybe a little bit more. And I think for now, at least, that's a fair run rate to project into the future or at least for the next couple of years. Robert F. Norfleet - BB&T Capital Markets, Research Division: Okay. That's fair. And just another question tagging along with Andy's question on other areas of growth. I know why it's very limited in terms of what you do, B&W does participate on the gas side of the market in some small areas. Can you kind of discussed that? And more importantly, I guess, when you look at the future in terms of growth, I know you need to have an acquisition or an external growth aspect to be synergistic, et cetera. But when you look at kind of the drive towards gas as being the new base load and then all of the opportunities both for industrial turbines and replacement, is that a market that realistically you could see becoming a bigger player in?

Certainly, gas is an active market for us to look at. If you look at our portfolio of power technologies, it's the one that's missing for the most part. Although, we do have some products and services we deliver into the gas market, it's not really substantial or material in our overall portfolio. So it's attractive simply for that reason, and the fact it's the same customer base and we could leverage those synergies. That said, a, it's relatively difficult to get into the gas market because it's not exactly a secret that it's attractive and the prices in the marketplace reflect that today, so that makes it a little bit more challenging. Our view is that gas will play an important role going forward. Clearly, in the U.S., to some extent internationally, although at least today, the gas price projections internationally are significantly higher than the U.S., which will limit gas growth in Europe and in Asia. But all that said, every customer we talk to whether it's in the U.S. or whether it's an international customer, is focused in the long run on diversification of supply. They see long-term opportunities in the coal business, perhaps not growth, but certainly maintaining the existing fleet domestically, some growth in coal, internationally. Customers remain focused on the nuclear option. We think the best nuclear option is small modular reactors, as opposed to investment in the very large reactors that are available today, and investment in gas. The fourth component of that is renewable, which has quite the focus built in the U.S. and internationally. We have some play on the renewable side. Tony mentioned significant waste-to-energy projects in Europe. We have some solar technology plays in the U.S. that we're looking to expand. If we can find ways to better leverage the renewable opportunities, that's also attractive to us, but it probably falls second to gas.

And our next question comes from the line of Will Gabrielski with Lazard.

So yes, it looks like power awards grew about -- PGG awards grew about 21% year-over-year, and the company has a tough -- good number in 2011. And I was just wondering what the mix was as the year progressed between environmental and that non-environmental work? And when you look at your bids outstanding or bid opportunities going forward, your commentary on that firming up, what does that mean in terms of mix going forward? In terms of how you're thinking about awards?

Let me try and answer that. I think what we saw, at the very beginning of the year, we saw some very strong environmental awards in the U.S. As we've indicated in the last couple of calls, those awards have slowed down a bit over the last couple of quarters, but we have seen a pick-up in awards in Europe, particularly in some waste-to-energy projects in our subsidiary area over there. So the strength in the latter half of the year was a little more focused on renewables, the early part of the year was more in reaction to and in fulfillment of, if you will, some awards that were in the pipeline in the latter half of 2011 that came to fruition, either the end of 2011 or the beginning of 2012. And now we expect a more steady growth but -- and certainly, not at the rates that we saw earlier in the year.

Will, this is Jim. Let me just -- I'll just add a little bit on the environmental-type projects that we're seeing primarily match related, which is baghouses, precipitators, FGDs, activated carbon injection, from small projects to a little bit larger. And then more sporadically, the CSAPR-related work.

Okay. That's helpful. And in terms of the bids outstanding number, do you want to give an updated number, like you do. If you said it, I missed it.

We didn't say it, so you didn't miss it. Bids outstanding are in process. At the end of 2012, we're about $3 billion. At the end of Q3, it was about $3.3 billion, so it's down a little bit. There are a couple of large international opportunities that came off for us that we did not win, that make up the bulk of that difference.

Okay. And then as a follow-up, can you just clarify or go into the detail around the GCI and the cost cuts you announced. Are there still ongoing work where we can see that number creep higher over time from here and what's the plan around that?

Well, folks today are very focused on implementing the opportunities that we have identified. So we feel pretty comfortable with the $40 million to $50 million number that we gave in total. Obviously, over the next year or 2, we'll be looking for opportunities to enhance that number. But for now, I’d count on $40 million to $50 million.

Okay. And then just one last one. In terms of U.S. coal aftermarket, can you talk about -- I mean, there's a lot of coal megawatts added to the capacity over the past few years projects that kind of leaked over from the last administration and were completed, and now are operational. Can you talk about where we are in the life cycle of getting those into the mix for aftermarket opportunities for Babcock and are they contributing yet? Or what does that look like over the next 2 or 3 years?

Yes. Let me see if I can answer your question, and if I don't get it, jump back in. We've had a couple of the last coal units come online in the U.S. in the last year and that's about it, as far as new projects coming online. We have seen a little bit of a pickup between third quarter and fourth quarter on aftermarket activity and most of that, we think, is due to the fact that gas prices have risen a little bit and you're beginning to see in some parts of the United States coal dispatching again in front of gas, which is the more traditional dispatch order. As gas price inches up over time, we'd expect to see the rest of those coal units come back into their normal place in the dispatch order. So our hope is to see a little bit of recovery in the aftermarket in the next year or 2, but probably not too significant.

And your next question comes from the line of Tahira Afzal with KeyBanc.

I guess, my first question is just in regards to guidance, there are moving parts, and I'm sorry if I missed this. But could you give us what you're embedding in guidance in terms of incremental buybacks?

That's a fairly easy one to answer. We're going to complete the announced programs, which add up to $150 million by the end of Q1, and our EPS guidance assumes no further buybacks for the balance of the year. So to the extent, we opportunistically acquire more shares later in the year, that would create a little more upside to our EPS forecast.

Awesome. Okay. And I guess, the second question. Jim, you've talked in the past about the parts and supplies operations on the nuclear side and really B&W gaining more traction there. Any update on the outlook for that business and how that is proceeding for BWC? And then, if you look at that SMR market, clearly, with the DOE award, perhaps you are the leading brand name, at least, as of right now in the U.S. But could you talk about the different competitors outside of the U.S. and how you relatively pace versus those, given you're looking at international opportunities as well?

Sure, Tahira. Commercial nuclear market, our baseline business, our real core strength is in Canada and we continue -- we believe that will continue to be the case for the next few years. We are looking hard to leverage the pretty exceptional manufacturing capability we have in Canada into the U.S. and internationally. I'm not sure that all of our customers recognize our capabilities on that side, so I see that as an upside opportunity for us. We continue to work to try to penetrate services, nuclear services on the U.S. side, that's pretty slow going trying to do that organically. We're still looking at it, but it's tough to see a material upside to that in the next couple of years. On the SMR front, you mentioned that we kind of are carrying a nice name in the marketplace today, I think that's true. The DOE award certainly magnified that for us. And as a result of that award, we did see significant increase interest both on the customer side, a little bit of the U.S. and internationally, but also on the partnership side. We have a few more folks that interested in talking with is about working together than we had 2 to 3 months ago. And I think that big difference is the publicity we've received from the DOE SMR award. I continue to believe that, as you mentioned, significant competition on the SMR side is really the foreign marketplace, it is the Koreans and the Chinese and what have they develop. When we look at that market, that's where we see the risk. Our reaction to that is we want to make sure we're a first mover and we want to have a position in those markets early. And we're actively looking to make that happen by getting in there on our own and by finding the right people and partners to work with in those markets.

Got it. Okay. And if I can just have a quick follow-up to that, given -- I know you've provided a bit of sort of guidance in a sense on R&D spending, SMR R&D spending going forward, but it seems you haven't built anything really in terms of potential partnerships for the DOE funding in a sense. Am I missing out on whether -- on anything there or does it seem like your R&D there might be peaking?

On the R&D side, I mentioned in 2012, we spend a little more than -- about $113 million.

Just to be clear, that's R&D and SG&A spending.

Correct. Total on mPower. We expect $85 million to $95 million in 2012. That reduction is primarily due to the matching funds from the DOE. The reality is we're significantly increasing overall spending on the mPower program, but our portion of that falls from $113 million to $85 million to $95 million based on the R&D money, the matching grant that's coming from the DOE. So the DOE matching money is included in that number. What is not included in that number, you're exactly correct, would be if we were to bring on additional equity partners in mPower, then in all likelihood our portion of that R&D spend would fall.

And our next question comes from the line of John Rogers with DA Davidson. John B. Rogers - D.A. Davidson & Co., Research Division: I just want to follow-up, I think, Jim, you mentioned something less than $60 million of restructuring charges potentially related to GCI. Is that correct?

That's correct. John B. Rogers - D.A. Davidson & Co., Research Division: And when would those be incurred?

John, a portion of those, roughly half, maybe a little bit more would be incurred in calendar year 2013. And then the remainder -- most of the rest of the remainder in 2014, a small amount perhaps carrying over to the front half of 2015. John B. Rogers - D.A. Davidson & Co., Research Division: Okay. And those are excluded from your guidance?

That's correct. John B. Rogers - D.A. Davidson & Co., Research Division: Okay. And then, secondly, just -- you mentioned one federal program or project opportunity that you'd be bidding on later this year. Can you give us just a rough approximation of what the major contract opportunities are out there for Nuclear Services for BWC, and then also what's potentially rolling off to the next, I don't know, 2 years. You said not much in '13...

Your question that is in reference to the Technical Services business unit? And Y-12, Pantex and Sandia? I mentioned specifically the Sandia contract just because that's one in the marketplace, it's well known, that's out of the larger opportunities in 2013. There are a handful of smaller opportunities, we'd expect late '13 and into 2014. I'm not going to specifically mention any of those. As you understand the market is -- we tend to be relatively quiet about that. We work on the side to line up our various partnership arrangements with our various competitors or competimates, as we call them, depending on the situation. So I would say Sandia is the big one. There are a handful of small- to medium-size opportunities beyond that, but I'm not going to comment specifically on them.

I would just add one point, which is there are really no significant sites that are up for rebid that we are currently participating other than Y-12/Pantex. So in terms of things rolling off, there really shouldn't be much of anything in 2013 or 2014.

And your next question comes from the line of Chase Jacobson with William Blair. Chase Jacobson - William Blair & Company L.L.C., Research Division: Another question on mPower here. In regards to the partners. I think you talked about this in the past. Any color on whether you're looking for financial partners or strategic partners? And then, specifically, with looking for somebody to partner with internationally, obviously, the DOE knows that, that's -- well, it sounds like that's part of your strategy but are there any security or any potential security issues around having an international partner?

As far as financial investors versus strategic investors, just given the development point of the technology, we're really looking for strategic investors at this point. So that's number one. We are, clearly, looking for people that bring technology but strategically, we're also looking for partners that have market access. And the reality of that is international market access for SMRs. I'm not sure there are any security issues related to that necessarily, although there are an awful lot of rules that we need to follow. But we are cognizant of the fact that we may be bringing in international partners and that is one of the items that we're discussing with the DOE to make sure simply that we're open and they understand that's going to happen and nothing in the cooperative agreement would restrict that. Chase Jacobson - William Blair & Company L.L.C., Research Division: Okay. That's helpful. And then related to GCI, when we look at the 2 different phases, the efficiencies and the manufacturing initiatives, can you give any color as to, maybe within those 2, which sides of the business the cost savings will be more weighted to, whether its government, mPower, in the 2 different phases?

Fair enough. So Phase 1 for us is primarily around internal optimization. Part 2 of that is the manufacturing optimization, which is more going to be 2014 before that's done. The bulk of the savings are going to fall on the commercial side of the business. Chase Jacobson - William Blair & Company L.L.C., Research Division: In both phases?

Yes. Yes, that's correct in both phases. And when I say the commercial side of the business, obviously that includes corporate. Chase Jacobson - William Blair & Company L.L.C., Research Division: Okay. And then just one last modeling question. Tony, as it relates to the guidance and the revenue, I think, you said mid-single-digit revenue growth in both the Nuclear Operations and Power Generation.

Yes. Chase Jacobson - William Blair & Company L.L.C., Research Division: I think, previously, you said flattish in Nuclear Operations, so is that a little bit better on the revenue side there?

Yes, it is. And I mention earlier it was really due to the timing of some long lead time material that will benefit from -- the top line will benefit from in 2013.

And our final question comes from the line of Martin Malloy with Johnson Rice. Martin W. Malloy - Johnson Rice & Company, L.L.C., Research Division: Could you talk a little bit about what you're seeing in terms of the order rate with your China JV?

Yes. I would say relatively flat. We continue to look for opportunities outside the China marketplace. We picked up a couple of those last year in Vietnam. I would say relatively flat.

Specifically in China, but if you look at the overall performance, the business has actually rebuilt its backlogs substantially over the last 12 months, but it's been largely due to the work, great work, by the team there to expand their business outside of China and in particular, in Vietnam.

Thank you for joining us this morning. That concludes our conference call. A replay of this call will be available for a limited time on our website later today. Also available on our website is the company overview with additional information that will be shared with investors and analysts during various meetings throughout the quarter. Have a great day.

Ladies and gentlemen, we thank you for your participation in today's conference. This concludes the presentation, and you may now disconnect. Have a good day.