BWX Technologies, Inc. (BWXT) Q1 2013 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to The Babcock & Wilcox Company First Quarter 2013 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to our host, Ms. Jenny Apker, B&W's Vice President, Treasurer and Investor Relations. Please go ahead.

Thank you, Garrett, and good morning, everyone. Welcome to The Babcock & Wilcox Company's First Quarter 2013 Earnings Conference Call. I'm Jenny Apker, Vice President, Treasurer and Investor Relations at B&W. Joining me this morning are 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's available on First Call and on our website at babcock.com. During this call, certain statements we will 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 statements. Our annual report on Form 10-K and quarterly reports on Form 10-Q, on file with the 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 statement 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 results, 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 operations. A reconciliation of these non-GAAP measures can be found in our first quarter earnings 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 in the queue. And with that, I will turn the call over to Jim.

Thank you, Jenny. Good morning, everyone. We're pleased to report the 10th consecutive quarter of year-over-year growth and consolidated revenue for the company. For the first quarter 2013, consolidated revenues were $805.4 million, an increase of 5.2% compared to the prior-year first quarter. Revenue was up year-over-year in 3 of our 4 revenue-producing segments, with Power Generation posting better than 11% growth, primarily driven by the new build environmental projects. For the first quarter, bookings were $543 million, and backlog at March 31 was approximately $5.5 billion. Adjusted consolidated operating income, which excludes impact of the GCI restructuring costs for the first quarter of 2013, was $68.6 million compared to the $86.4 million in what was a very strong first quarter of 2012. The decrease reflects the competitive new build environmental market, fewer project closeouts in the period and the completion of several large projects, mostly in our Nuclear Energy segment, that resulted in B&W reporting unusually strong operating margins in the first quarter of last year. It also reflects mPower spend in the first quarter, without the benefit of the DOE cost share program. We expect to record in the second quarter the cost reimbursement of $21.5 million against prequalified costs incurred in Q4 2012 and Q1 2013. Tony will discuss the results of each segment in more detail shortly. In the first quarter, the company generated $0.46 in adjusted earnings per share, excluding the GCI restructuring charges, compared to earnings per share in the first quarter of 2012 of $0.50. During the quarter, we repurchased 2.2 million shares of common stock at a cost of approximately $57 million. Through May 7, 2013, we've repurchased 7.5 million shares of stock for a total of just over $193 million, leaving approximately $57 million of capacity under the original $250 million share repurchase authorization we announced in November of 2012. We remain committed to using excess cash to enhance shareholder value. And in support of that effort, we're pleased to announce that our board has authorized an increase in the share repurchase program by an additional $250 million. This additional authorization will allow us to remain in the market with our opportunistic share buyback program. Also, we recently declared our third quarterly dividend of $0.08 per share, which will be payable on June 7 to shareholders of record on May 17, 2013. Now let me shift gears and talk about our business units. Legislative action and regulatory decisions taking place in our nation's capital has been always important to B&W. But over the past several weeks, the company has been particularly interested in several actions in Washington D.C. that will have a meaningful impact on key programs at B&W. The impact of sequestration was of concern to many as we started the year. It now appears that the potential impacts to our Nuclear Operations and Technical Services businesses will be even less significant than we anticipated. With respect to our Nuclear Operations business, the continuing resolution passed by Congress and signed by the President restored funding in fiscal year '13 for the advanced procurement for the second Virginia-class submarine. We expect to book that order during the second quarter. Within the Technical Services segment, sequestration is expected to only have a minimal impact on the work we conduct at our various DOE sites and on our operating income for 2013. At this point, advanced planning for some level of reduction, together with carefully-considered contingency plans developed on a side-by-side basis, have kept staffing and work impact to a minimum, at least through 2013. Also related to TSG, last week the GAO announced its decision to sustain the protest filed by B&W and its partners in the bid for the combined M&O contract at Y-12/Pantex. We were pleased by the result of the GAO's review, as it supported our concerns about the initial award of the contract. At this point, we await guidance from NNSA as to the path forward. In the meantime, we remain focused on operating both sites safely and securely. About 3 weeks ago, we announced that we had signed the Cooperative Agreement for funding under the DOE's Small Modular Reactor Program. This was a key milestone for mPower. The DOE's cost share program will enable B&W's to accelerate R&D spending to meet program milestones, while limiting our net spend in 2013 to between $85 million and $95 million, unchanged from our previous guidance. Preparation for site borings at TVA's Clinch River site are already underway. Our next major technical milestone is the submittal of the design certification application, which we expect to file with the NRC in the latter half of 2014. Other important mPower-related activities are moving forward as well. We continue to talk with a number of potential investors, a key element in our de-risking strategy. Business development efforts in the U.S. and abroad are focused on identifying the next customers for Generation mPower. We continue to be very encouraged by the level of interest and depth of discussions mPower is generating across the globe. Lastly, the DOE has agreed to fund the next sub-phase of FutureGen 2.0, which is a full-scale demonstration of carbon capture and sequestration in Illinois. B&W has signed contracts with the FutureGen Industrial Alliance to provide initial engineering for this project. Our full scope of work will include the design of the plant's oxy-coal combustion system, air-quality control systems, boiler and other key components. B&W is pleased to be part of this innovative project. Our participation underscores B&W's leadership role in providing cutting-edge energy technology and clean energy solutions. Shifting to our commercial businesses. We continue to address changing markets in both of our commercial businesses. As we have discussed with you previously, in our Power Generation segment, the new-build environmental market in this cycle is very competitive, and consequently, margins, as we anticipated, are lower for many projects than was the case for projects during the peak of the last environmental cycle. As a result, we're trying to be smart about the work we do in this segment, and we're striving, through our GCI program, to significantly improve our competitiveness on a go-forward basis. Revenue and operating income in our Nuclear Energy segment are lower this year than last. Historically, a significant portion of our Nuclear Services revenues have come from refurbishment projects for the CANDU reactors. This activity is cyclical, based on the timing of outages at the various Canadian nuclear plants. 2012 was a peak year. The number of outages in 2013 will be cyclically low, but we expect an improving trend in 2014 and '15. We're actively pursuing new services opportunities, including Fukushima-related projects and multi-year, fleet-wide service contracts with major utilities in the U.S. and in Canada. For the second half of 2012, we completed several large commercial nuclear projects, which we have not, at this point, replaced. Delays in the release of long lead time procurements for new nuclear construction projects and uncertainty over the timing of certain nuclear plant restarts in the U.S. have impacted our backlog. In the meantime, we continue to book smaller projects and to carefully manage costs throughout the organization. Our Global Competitiveness Initiative remains on track. We begin to recognize the cost savings from several key first quarter actions during the second quarter. It is still our expectation that GCI will produce between $10 million and $15 million of cost savings in 2013, and once completed in 2015, a total of $40 million to $50 million of annual expense savings. In the first quarter, we recognized $8.4 million of restructuring charges associated with this program. Now Tony will discuss segment results and other financial matters.

Thanks, Jim. Before I get into the specific results of our segments, I want to discuss the change in our segment reporting. Beginning this first quarter, we will report our business in 5 segments rather than 4. We've decided to split our Small Modular Reactor business activities out of the Nuclear Energy segment to increase transparency in the activities of both the Nuclear Energy and the mPower business units. The new segment, which will be called mPower, will be reported, along with the existing Power Generation, Nuclear Operations, Nuclear Energy and Technical Services segments. Revenues in the Power Generation segment for the first quarter of 2013 were $461.5 million, compared to $414.3 million in the first quarter of 2012, an increase of 11.4%. This growth in revenues was driven by an increase in new build environmental projects, particularly scrubbers and particulate control devices. Revenues from Environmental Systems increased 72% in the first quarter of 2013 compared to last year's first quarter, while revenues from new build steam generation systems were down 5.1%, as increases from new industrial and renewable boilers and ancillary equipment sales were offset by a decrease in utility boiler projects, due to the completion of a couple of major contracts during 2012. Revenues from aftermarket services were down 6.7% in the first quarter, primarily due to a lower level of aftermarket environmental activity as compared to last year. That said, we are seeing increased activity in our Boiler Aftermarket business, primarily as a result of higher natural gas prices, which has driven a high-single digit increase in the use of coal to produce electricity compared to this time last year. Excluding GCI restructuring costs, operating income in the Power Generation segment, which includes the equity income of our global joint ventures, was $33.3 million in the first quarter of 2013, compared to $39.5 million for the first quarter of 2012. The year-over-year decrease in operating income was primarily due to lower margins on the current cycle of environmental projects, a lower level of net projects improvements and fewer project closeout opportunities than was the case in 2012. Equity income contributions from the company's joint venture in China were also somewhat lower in the quarter compared to the prior year, due to timing, which we expect to fully recover over the balance of the year. Backlog in Power Generation was $2.3 billion at the end of the first quarter of 2013, compared to $2.7 billion 1 year ago, reflecting lower orders in the first quarter of 2013 after a record high bookings quarter in Q1 of 2012, which included the West Palm Beach waste-to-energy project. We expect bookings to improve over the balance of the year, reflecting, in part, several projects that have been awarded but have not yet been booked pending the receipt of a full notice to proceed, and based on the strength of the bid pipeline, which totaled approximately $2.9 billion at the end of the quarter. The Nuclear Operations segment reported record first quarter revenues of $261.1 million in the quarter, an increase of 4.4% from the first quarter of 2012. Nuclear Operations segment operating income was $54.7 million in the first quarter of 2013, essentially flat compared to the same period last year. The operating margin in the quarter was 21% compared to 21.9% in the first quarter of 2012. Backlog in Nuclear Operations at the end of the first quarter remained stable at $2.9 billion. Nuclear Energy segment revenues were $63.5 million in the first quarter of 2013 compared to revenues of $86.6 million in the first quarter of 2012. Nuclear Energy segment operating income was $2.3 million in the first quarter versus $11.7 million in the prior year. The decline in both revenues and operating income for the segment is primarily due to cyclical timing of outage services work at Canadian nuclear plants, as Jim mentioned earlier, and the completion of 2 large nuclear equipment contracts that were ongoing during the first quarter last year. Technical Services segment revenues in the first quarter of 2013 were $25.2 million compared to $25 million in the prior year. Operating income of $14.2 million decreased $0.9 million in the first quarter of 2013 compared to the first quarter of 2012. This reduction in operating income is due primarily to the costs associated with the Y-12/Pantex protest. mPower segment operating income reflected a loss of $26.9 million in the first quarter of 2013, compared to a $27.9 million loss in the first quarter last year. The improvement in operating income was attributed to R&D -- lower R&D costs related to the development of B&W mPower and the associated mPower plant, including $0.6 million -- a $0.6 million increase in noncash in-kind R&D services, contributed by Generation mPower's minority partner. There was no benefit from the DOE cost share program recorded in the first quarter. During the second quarter, in addition to the normal second quarter billing for qualified costs matching from the DOE, the company will record $21.5 million, representing the reimbursement of qualified expenses B&W incurred during the pre-award period, October 1, 2012 through March 31, 2013. The effective tax rate for the first quarter of 2013 was 26.6% compared to 32.8% for the first quarter of 2012. This lower rate is primarily attributable to the recognition in the first quarter of 2013 of the impact of the reinstatement of the 2012 R&D tax credit and recognition of certain foreign income exclusions. Company's cash and investments position net of debt was $414.9 million at the end of the first quarter 2013, a decrease of $118 million, compared to $532.9 million at the end of 2012. First quarter net cash flow, which is typically our seasonally weakest quarter due to timing, reflect the use of $26.3 million compared to a use of $103.2 million for the first 3 months of 2012. The improvement in cash used for operations in the quarter was, as anticipated, primarily due to lower pension contributions and working capital requirements, and was the case in the same period in 2012. During the quarter, $66.2 million of available cash was used to fund our share repurchase and dividend programs. Now let me turn the call back over to Jim for some final remarks.

Thanks, Tony. Before we open the call to your questions, I'd like to make a few comments about our expectations for the balance of the year. We are reaffirming full-year guidance shared on the fourth quarter conference call. We continue to expect consolidated revenues in 2013 will be in the range of $3.4 billion to $3.55 billion; and adjusted earnings per share in 2013 will be in the range of $2.25 to $2.45. I'm pleased at the pace at which we have accomplished our share repurchase program and with the increased authorization to continue to opportunistically buy back our common shares. We continue to evaluate acquisition opportunities to achieve the medium- and longer-term returns our shareholders expect from us. So far, we have not identified an opportunity that offers the right strategic fit and provides a sufficiently attractive risk-adjusted return to justify the investment. We have a number of opportunities that we're evaluating, but as been the case, we will remain disciplined in our analysis and decision-making. In the meantime, we expect the achievement of the revenue and margin targets we've set for our business units and executing our GCI program, combined with our share repurchase and dividend programs, will deliver attractive returns to our shareholders. Before we start the Q&A, I want to take a moment to discuss our announcement on Monday, that Mary Pat Salomone, the company's Senior Vice President and Chief Operating Officer will be retiring from B&W after 31 years of service. Mary Pat has agreed to continue in the role of CEO of Nuclear Production Partners, the B&W-led joint venture competing to operate the combined Y-12/Pantex contract for a period of time pending the outcome of that contract award. In connection with the bid, B&W developed plans for Mary Pat's eventual transition to Nuclear Production Partners. As a result, B&W and Mary Pat are well-positioned to execute this transition. I want to personally thank Mary Pat for her long term service and many contributions to the company. Her vision and leadership helped drive critical business initiatives that contributed to B&W's overall growth. That concludes our prepared remarks. I'll now turn the call back over to the operator who will assist us in taking your questions.

[Operator Instructions] Our first question comes from the line of Andy Kaplowitz of Barclays.

Jim, so we can appreciate your comments about bookings ramping up as the year goes on, I'm talking about the Power business. But if you listen to the conference call this quarter, it seemed like industry-wide, there was a bit of a slowdown in orders. So can you talk about that? I'm really talking about utility boiler work. Can you talk about -- have you seen that or is it really just timing and you expect a better year here versus the first quarter?

I think, Andy, relative to the first quarter bookings, I think it's timing. I do expect bookings to ramp up as we move through the year. Much as we've discussed for the last couple of quarters, the utilities continued to be a little bit slower than we expected 1 year or so ago in making these investments decisions. But we do expect bookings to ramp up the last 3 quarters of the year for Power Generation.

Okay. Easy. And then maybe asking about Power Gen margins. I mean we know that seasonally, this is a weak quarter. So we do expect some ramp up there. But at the same time, you've changed your pension accounting and you still kind of came in at the low end of the range. Again, I'd ask you the same question, Jim, is it just sort of seasonality that kept margins down? We know its competitive environment, but did you see decent improvement in margins as the year goes forward?

Yes, Andy, I actually had anticipated that the first question would be the margin question, and the second question will be the bookings question. Well, that said, the 7.2% number for PGG margin for Q1 does jump off the page. So off the back, I would tell you that we expect to finish the year for PGG in the 9% to 10.5% range on margin. So we do expect these numbers to recover the last 3 quarters. Q1, as you mentioned, is a seasonally low number for us to begin with. That was magnified a little bit this year. We had a abnormally low number of project closeouts in Q1 of 2013. Typically, in the project closeouts, that's where we capture whatever remaining contingency or warranty there is in the budget, and it usually creates a little bit of a jump for the project. So we had a combined seasonally low number. And even for the quarter, an abnormally low number of closeouts, we expect that to pick up the last 3 quarters of the year. Tony mentioned that JV income in PGG was slightly lower in Q1. We expect that to return to normal the last 3 quarters. And lastly, GCI savings, essentially zero in Q1 for PGG. That said, we took an awful lot of GCI-related actions, and we expect those savings to build in a little bit in Q2 and even stronger in Q3 and Q4.

Yes, those actions were also pretty much at the very end of the quarter.

Correct.

Okay, that's great. Just one clarification, Jim. The 9% and 10.5% are for the last 3 quarters or for the entire year? I don't know if it matters that much, but...

For the year.

Next question comes from the line of Jamie Cook of Credit Suisse. Jamie L. Cook - Crédit Suisse AG, Research Division: Just back to the Power Gen margins, it sounds like the improvement is a function of -- you talked about GCI, you talked about project closeouts, et cetera, but can you talk about -- I mean, and you mentioned in your prepared remarks that there were some orders that hadn't hit yet, which we probably get in the second quarter in Power Gen. Can you talk about the margin profile on that business, and whether it's still sort of below your targeted range for that segment and the magnitude of those awards? And then my second question relates to Y-12/Pantex. I think, last time, in your previous guidance, you seem sort of 7 to 8 months. How does that change income from those projects? Does that change at all with the protest? And then last, just your thoughts on potentially winning the Sandia project.

I think Tony's going to address the first half of the question around PGG bookings and the margin that exists inside those bookings. And then I'll touch on Y-12, and if we miss any of the subparts, jump back in and let us know what we missed. So, Tony?

Okay, I would say the first quarter bookings that were missed, the biggest impact there really has to do with our ability to absorb some of our operating overheads. And so we had some under-absorption of operating overheads within the PGG segment. To the extent we get started on more projects, that overhead, which is in the very near-term tends to be more fixed than variable, we'll be better utilized. In terms of the margins themselves, the margins continue to be competitive as we've been stating for really the last 3 to 4 quarters. Not particularly any worse or better than they've been. They've been remaining fairly stable but, nonetheless, clearly not as robust as they were during the last environmental boom of 3, 4 years ago. Jamie L. Cook - Crédit Suisse AG, Research Division: And then, I'm sorry, what was the size of the bookings that we should expect hitting Q2 that you know of today that you haven't -- can you put a dollar amount on that?

Well, I think the best thing to say is let's wait and see what gets booked. Because as I said, there's 3 or 4 projects that are, I would say, moderate in size. There's no mega projects there, but they're significant enough where had they been booked in the quarter, we'd be having a different conversation about bookings. Jamie L. Cook - Crédit Suisse AG, Research Division: Okay. And then the second question on Y-12/Pantex and Sandia.

Yes. So on Y-12/Pantex, the assumption we put into the earnings estimate for 2013 was that B&W would hold that Y-12/Pantex contract through the end of August. Obviously, we're happy with the ruling from the GAO. At this point, I would probably stick with the end of August estimate as to when we'll hold that project. We'll know a lot more -- the next step in the process is NNSA takes a look at the GAO recommendation and decide what the next steps will be. That could take a couple of weeks, that could take a couple of months. And we'll have a much better idea of the process going forward and our timing on Y-12/Pantex once we hear back from NNSA. And then Jamie, the question ends on Sandia was what? Jamie L. Cook - Crédit Suisse AG, Research Division: Just timing of award, your -- how you think you're positioned competitively, any update there?

Yes. We still expect the procurement process of the RFP to come out mid to late this year on Sandia. I think we're positioned well for that competition. As you know, the positioning takes place 12, 18, 24 months in advance of the actual procurement. Different companies look around for who we think would be the best partners to work with. So I think we're well positioned on that. It's just a matter of when is that procurement going to come out, and is the DOE going to try to, for example, work their way through the Y-12/Pantex procurement before they issue Sandia? Or is there a chance they're going to run these for a short period of time in parallel. We'll just have to wait and see.

Next question is from the line of Tahira Afzal of KeyBanc Capital Markets.

This is actually Saagar on for Tahira. First related to the submarine, you've mentioned that in the continuing resolution, the Congress has funded the procurement for the second -- the Virginia class submarine, and you'd be looking at booking that in the second quarter. In terms of size, what should we think about? I know in the past, you've booked these increments of anywhere from $600 million to $800 million, but they've been 2 subs together. Should we look at this as a $300 million to $400 million booking in the second quarter?

Yes, my recommendation on that would be to wait and see what actually comes out. I'm hesitant to give any numbers out until we actually sign the award.

Okay. And then a follow-up related to your margin profile. You mentioned the Power Generation segment, and with GCI savings ramping up, you think that's going to 9.5% -- 9.0% to 10.5% for the full year. Could you walk us through your other operating segments and how the margin range is going to be as GCI savings start flowing through?

Let me kick it off, and then I'll ask Tony to step in on a couple. So just to comment on how to think about GCI. When we gave a couple of different estimates for ranges of GCI savings, $10 million to $15 million in the current year; and then $40 million $50 million on an annual recurring basis once we get to 2015. About half of those savings, perhaps a little bit more, flow directly to PGG. Another 20%, give or take, come to corporate, and then they're essentially allocated back out to the business units. Once again, a decent proportion of those flowing to PGG. And the remainder of the GCI savings spread out among the rest of the businesses, probably with the other commercial business, NE coming at the head of that line. So that's the best way to think of the GCI savings. Just a -- and I think we've talked about PGG margins, although if folks have more questions we could certainly talk about that again. So the only other comment on individual business unit margins, since you opened up the door, would be on NOG. We experienced very good margins, 21% range in NOG in Q1 of 2013. That said, and we've said this on previous calls, we would expect the margins in NOG to drop a couple of percent over time, just thinking about what's sustainable in the long term in that business, great margins in any case.

And the only comment I'd make regarding NOG is, over time, that would be true. In the current quarter, we're very pleased with the margin, 21%. And so far so good this year.

Next question comes from the line of Robert Labick of CJS Securities.

I just wanted to focus on Nuclear Energy a little bit. You elaborate little in your comments. I was hoping you could talk a little bit more about the market dynamics there, both inside Canada, and then more specifically outside, what you're doing to grow that work, and what that business might look like 3 to 5 years from now.

Sure. I think you characterized the NE business well. It's primarily a Canadian-based business, and when we talk a little about the cyclicality and performance this quarter versus the same quarter last year, it's really driven by what's happening in Canada. It's that combination of outage-related projects for the CANDU units, and whatever manufacturing workflow is moving through the factory outside Toronto. That's the primary driver. We continue to be very well-positioned in the Canadian marketplace. I would expect that to continue going forward. It's just a matter of when does the work comes out, we'll certainly get our fair share of both the services and the manufacturing work in the Canadian market place. The longer-term upside in Canada would be if the Canadian utilities, either OPG or Bruce Power, choose to do additional refurbishments on the existing CANDU units, or move ahead on the plans that they're talking about today for new build nuclear in Canada. Those were built present upside opportunities for us in the Canadian marketplace. The NE business in the U.S. and internationally, I would say that we have stepped up our focus on trying to develop opportunities in those 2 market places. As I've said before, those are difficult markets to break into. And for the most part, success in those markets requires us taking market share from somebody else that's already in the market, as opposed to expanding into a growing market. So it's a bit of an uphill climb, but we continue to look for opportunities. Over the next couple of years, I would think that the performance of the NE business is going to be dominated by how well we do in Canada as opposed to how fast we grow outside of Canada. Not that we're not looking, but that's just the reality of the business.

Great. Thank you very much for that color. And then just for my follow-up, if you will, you discussed looking at partners for mPower, you've discussed that before so you're continuing that process. Could you tell us little bit about what you're looking for in future partners for mPower, please?

Sure. A couple of things. Number one, we're looking for partners that bring something to the project beyond just money and sharing the risk, which are of importance to us as well. But typically, we're looking for partners to bring something technically to the project that will enhance the mPower technology or speed us to market or reduce risk during construction. So examples might be companies that provide turbines, companies that provide I&C control systems, companies that supply heavy switchgear, all important components of a small nuclear plant, but all things that B&W does not do. Additionally, a second-tier or a second level of partners we'd look to over time would be companies that give us access to the international marketplace that we don't necessarily have today, as our belief continues to be, mPower will be a technology solution in the U.S., but the broader market opportunities and the real upside for mPower lies internationally, primarily in the Asian market places and the Middle East.

The next question comes from the line of Brian Konigsberg of Vertical Research.

Just following up on the PG margins, I apologize, but I'm just curious, as far as the 2013 outlook, how much are the environmental retrofit awards that you've been bringing in house over the last 4 to 6 quarters or so, playing into the 2013 range? And does it become more onerous of a headwind in 2014 and '15, possibly, as we get deeper into the project work? I'm just curious, as you get -- does that play incrementally more of a headwind in '14 versus '13 and maybe it's offset by the restructuring actions that you're taking?

My take, Brian, is the headwind that exists today in 2013 on those environmental upgrade projects is not likely to get worse moving into 2014 and '15. I think we're already there. We're doing a lot of environmental work today. We're booking a lot of environmental work going forward, and the margins on the projects we have today and the margins we would expect to have on the projects in 2014, '15, I think, are relatively flat.

Got you. And then just secondly, on in-kind R&D, when we first started discussing that, I believe, we said that -- or the management team had said, that would transition to a tailwind from an accounting standpoint in 2013 and beyond. Is that still the expectation or has that changed to some degree? And how does that play into your guidance?

Well, for the current year, I think that we'll continue to have in-kind R&D reported as an additional cost absorbed, if you will, consolidated into our results. It's offset by the noncontrolling interest for which we back out further down in the P&L. So your question really is, when will the in-kind R&D work swing to the point where we're doing more work than our partner is. I think that's still a ways out yet. But there is an expectation it will turn, it's just not going to turn in -- I don't think it's going to turn in 2013.

Got you. And just one last one, if I can. Just on the FutureGen project you're working on, that's a little bit further out, but I guess, when do you anticipate that could become more of a substantial business for Babcock, and really, the industry in general, and maybe start contributing in a more significant way?

Today, FutureGen is primarily an engineering work scope for us. Over the next couple of years, assuming FutureGen gets the go ahead from its owners, it will turn into more of engineering, combined with manufacturing and on-site construction for B&W. If you're -- if we're looking even further into the future at greenhouse gas regulation, CO2 carbon tax or cap and trade, that's what would make carbon capture and storage more viable. But I think we're looking 3, 4, 5, 6 years in the future before that becomes anything like a sustaining opportunity. So in the short run, carbon capture and storage, it's really driven by what happen to FutureGen. Longer run upside opportunity, that's why we're interested in FutureGen, both for the work it brings us on the short term, but really where it positions us in the marketplace on carbon capture and storage in the long run. That said, it's 3, 4, 5 years out before that's a real business opportunity for us.

Next question comes from the line of Steven Fisher of UBS.

Tony, what still has to happen for those 3 to 4 power projects to get both [ph]? Are there still uncertainties left around that, or is that -- that's a lock for Q2? And then still related to power, does your plan call for year-over-year revenue growth in each quarter for the rest of the year?

Okay, regarding the first question, what has to happen is we have to be given a full notice to proceed on a couple of these projects, at least 2, if not 3, from memory. And those projects are -- a couple of them are international projects, and so it's a little more complicated than it would be if we're just dealing with a utility here in the U.S. But we feel they're fairly far along in terms of the indication of when we're going to get the full notice to proceed. So I'd expect to see some movements, certainly, over the next couple of quarters. And the second part of your question, I'm sorry, Steven?

I'm just wondering if your plan is calling for year-over-year revenue growth in Power for each of the quarters for the rest of the year.

Revenue growth year-over-year in Power? The answer is yes. I think our guidance, previously, was at least mid-single digits, perhaps, a little more in growth for the full-year versus 2012, and that's still the case.

Okay, great. And then just on mPower, how should we think about the Q3 and Q4 benefit you're going to get from the DOE on that program?

You want to answer that Jim?

Yes. I would think that the simple answer on mPower is that we, on the B&W side, expect to spend $85 million to $95 million of our money net that of the government grant program. And that should be the overriding assumption as you try to determine exactly what cash is moving, where and what quarter. Keep in mind the $85 million to $95 million number for the year.

But on the P&L, I mean, you're going to get a -- probably show a net positive result in the second quarter, about $21.5 million benefit, offsetting your cost. And so in the third and fourth quarter, should we assume that you're going to have a $10 million, $11 million offset in each of those quarters, against that $85 million to $95 million annual run rate of spend?

Yes. When we give you the $85 million to $95 million run rate, that already incorporates the money we expect to get from the DOE. So if we didn't have the money, we would either be spending more or we'd be ramping back the program.

Next question comes from the line of Will Gabrielski of Lazard.

Can you just talk about the savings associated with GCI that you said you achieved relatively late in the quarter? Were those more geared towards PGG or corporate or is there any way we can allocate that in Q2?

Well, I would say that the GCI actions that we're taken in the first part of the year, will probably be right along the split that I gave originally, which is half, give or take, out of PGG, about 20%, 25% from corporate, and the rest spread throughout the businesses. That's probably a fair set of numbers both in the long run and the short run.

Okay. And the equity income in China, you're trying to JV during the quarter, you guys commented on some of the seasonality and timing. But if you look at the Chinese market over the next few years, what are you guys expecting there?

The market, well, first of all, we had a very -- virtually no bookings in 2011, and then we had a pretty nice rebound in 2012. The backlog has been fairly well rebuilt to its historical levels. And what we're expecting is the release of some of the work that's waiting that's part of the -- although we don't consolidate that work, it's the same story, which is getting the full noticed to proceed. And that work will result in additional factory hours, and additional factory hours, and I'll say additional factory hours will help improve the operating income for the JV over the last 3 quarters of the year. And we expect, for the full year, the operating income, to be roughly in line, for China, with what we realized last year, where we were working off of projects that were booked 2 or 3 years earlier. And then we had a little bit of a slowdown towards the end of the year. But on balance, for the full-year, we came in at a number that we think we will be consistent with this year. The problem in Q1 was the factory activity was lower because we're waiting release of some of these orders, and as a result, we had some under-absorption of costs there.

Okay, and then lastly, can you either go through the milestones that you need to hit with mPower, what the timing of those milestones might be? And then, also as part of mPower, we ask a lot what you're looking for in a partner or an investor, but what type of feedback are you getting as you market the business from what others are looking for? And do they want to see pass the milestones first or is this just the due diligence process that hopefully culminates with an investor this year?

Sure. I'll touch on a couple of the key milestones going forward. Next big one is submittal of the design certification application to the NRC late 2014. We would expect our partner, TVA, to submit a combined construction operating license in 2015. And then, for the next couple of years, we stay inside NRC licensing process. In the 2017 timeframe, we expect to receive design certification. We would expect our partner to receive our combined operating license, and that's the window in which we would expect to sign some actual contracts, perhaps earlier, but that's probably a conservative estimate. Your second question was around, when we consider bringing on partners, do the partners tend to want to come in today? Or do they tend to want to wait and come in after licensing? We have a mixture. We have a variety of partners that are interested in coming on to the project today. I think we'll have more in the future as the certainty around mPower increases, which will come with license application submittal and then actually receiving the license and then receiving the first orders. When I think about this, it's a bit of a trade-off. I'd like to have a couple of partners come on board in the near-term to bring their technical expertise or their market access and to help fund some of the projects going forward. I recognize that bringing on partners today, I might be giving them a better deal than they're going to get 3 or 4 years from now when, perhaps, mPower is worth more. So it's a bit of a trade-off for us. The thinking today is that, even though we might not be getting the price we could get in 2018, it still makes sense to bring on a couple of partners just to solidify the project going forward.

And we have our next question from Chase Jacobson of William Blair. Chase Jacobson - William Blair & Company L.L.C., Research Division: Just a question on the Nuclear Energy business. You talked about potential for post-Fukushima work. We've heard a lot of other companies talking about that. I know those awards probably don't start getting released until late 2013 or 2014, but can you talk about your positioning on that, as you try to increase your exposure to the U.S. nuclear market, and whether you're trying to position B&W as a service provider for post-Fukushima work or as an equipment provider for post-Fukushima work?

Sure, Chase. I think you're timing estimate on when the post-Fukushima work will show up is probably correct. It's later this year, into 2014, into 2015. As far as B&W positioning on that work, it might be equipment related work if we can put it through some of our existing facilities, but it's more so integrated project management and engineering of the projects themselves. That's really where our value niche will be. And then we could do some of the equipment-related work ourselves, or we could sub out some of the specific work scopes. But we're more an integrator engineer project execution firm in that marketplace. Chase Jacobson - William Blair & Company L.L.C., Research Division: Okay. So I mean, this is a market, though, kind of like the EPA environmental market, where there's pretty good visibility from -- I mean, still a while out. Do you expect it to be competitive like the environmental market is now?

A Yes a couple of comments. One, we definitely expect it to be competitive. Everybody can see this work coming. And two, we're in a very different position in this market than we are in the environmental marketplace in PGG. In the PGG work, we're one of the market leaders, and we capture a large percentage of that marketplace. The question is -- for PGG, is how competitive is it, and what margins can we command, and how low can we drive our internal cost structure? The NE business is very different. We're more of an upstart. We have a very small market share today, and we're trying to take market share from the 2 or 3 large providers that are out there. So we're just in a very different place in those 2 markets. Chase Jacobson - William Blair & Company L.L.C., Research Division: Okay. And a question on capital allocation, if I could. You guys bought back quite a bit of shares to date in the second quarter. You're also looking, it sounds actively -- sounds like you're looking actively at acquisitions still. Can you just talk about how you're balancing the decisions between the 2, whether it's return to shareholders or acquisitions, and how you may leverage the balance sheet, considering you have essentially no debt still?

Sure. You're correct. We're looking at acquisitions, as well as share repurchase. The key on the acquisition is we're looking for the right acquisition. An opportunity that's tied to our core competencies and one that brings significant either cost or revenue synergies with it. The reality is any acquisition that we're going to pursue has to provide more value to the shareholders than a buyback of our shares today. I think we have a very disciplined approach to that evaluation process and we'll continue that going forward. Your question about taking on debt. If we found the right acquisition opportunity, we would consider taking on debt to fund it, but it has to be the right acquisition opportunity. And then just a comment on the speed of the share buyback program you referenced, we were pretty aggressive in the marketplace the last few months. We did receive from the board the additional authorization for another $250 million. I would expect us to remain opportunistic in the marketplace, as the year goes on, but perhaps not at quite the pace of the last 8 months.

And next question is from the line of Martin Malloy of Johnson Rice. Martin W. Malloy - Johnson Rice & Company, L.L.C., Research Division: I was wondering if you could talk maybe a little bit about the demand that you're seeing outside of the China market and international markets for the solid fuel boilers.

Sorry, Marty, for what? Martin W. Malloy - Johnson Rice & Company, L.L.C., Research Division: With the solid fuel boilers?

Yes, I would say, as we've mentioned before, we continue to see opportunities outside China, and we're actually leveraging the manufacturing in China for other opportunities in Asia. The examples being a couple of contracts we signed in Vietnam in the last 2 or 3 quarters. And those opportunities continue to come in, I don't see them necessarily coming in at a larger -- at a faster or a slower rate. We do continue to pursue opportunities outside Southeast Asia that are not in the U.S. or Europe, for example, in the Middle East. And once again, it's a relatively difficult market for us to break into, but we continue to chase those opportunities. And at some point, I think we'll find a way to play in that market as well.

Those opportunities are fairly large, but very lumpy, to Jim's point.

And the final question is from the line of Randy Bhatia of Capital One Southcoast.

I guess, Jim, just looking for some specifics on your comments on the share repurchase activity. And I apologize if you guys have given this in the past, but can you tell me what the share count assumption is embedded in that $2.25 to $2.45 guidance for the full year?

Yes, the assumption in that, that we have in our share count is really predicated on essentially completing the program that we're working on, the $250 million authorization I'm working -- I'm sorry, $150 million -- the original $150 million authorization -- I was just correcting -- and not more.

And you've surpassed that now, right?

Yes.

Okay. And then if I could just one more on the M&A side. Can you kind of talk about what progress you've made in terms of what you're looking from an end-market perspective? I mean, have you found a kind of niche that you're specially attracted to or looking for and just haven't found the right opportunity? Or are you still throwing ideas up on a whiteboard? Can you just kind of talk about where you are in terms of making an acquisition?

Sure. I would say we are very much engaged in the process in, wherein, what I would call, the filtering mode. We know what direction we'd like to look and we're sorting through the various opportunities, looking for opportunities that fit in best with us, combined with opportunities that are actionable going forward. So I would say we're well through the sifting process and in the prioritization process and trying to make some of them a reality. Again, as to where we're looking, we're focused on what we think our core competencies are. We play very well in the power markets. We have very good project execution skills, and we play at the medium to high end of the technology range. We don't have any interest in expanding down as far from a technology margin standpoint. So that's really where we're looking, we're looking to leverage what we have and expand it a bit, or we're looking to leverage what we have in one geography and expand it into another. That said, we continue to be pretty disciplined in the process and very careful in our decision making.

That's it.

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. Thank you for joining us today.

Thank you very much, ladies and gentlemen. That now concludes your conference call for today. You may now disconnect. Thank you very much.