Ladies and gentlemen, thank you for standing by, and welcome to the Babcock & Wilcox Company's Second Quarter 2014 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.

Thank you, Lisa, and good morning, everyone. Welcome to the Babcock & Wilcox Company's second quarter 2014 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, Senior Vice President and 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 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 the 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 results to supplement the results provided in accordance with GAAP, and it 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 second quarter earnings release issued last night and in our company overview presentation posted on the Investor Relations section of our website at babcock.com. [Operator Instructions] With that, I will now turn the call over to Jim.

Thank you, Jenny. Good morning, everyone. Nuclear Operations produced another strong quarter, and Nuclear Energy and Technical Services reported results that were in line with our second quarter expectations. We were pleased with the strong rebound we saw in PGG bookings in the quarter that included a number of large international and renewables contracts. Our success in the international marketplace, together with the completion of the MEGTEC acquisition, are important elements of PGG's strategy to expand geographically and diversify away from our historic reliance on the U.S. coal market. That said, second quarter revenue and earnings for PGG did not meet our expectations. Our aggressive margin improvement program remains on track, but the drop in PGG revenue in the quarter, and likely for the full year, has overshadowed these cost improvements. The primary driver of the revenue decrease was the lack of U.S. coal environmental and service work due to continuing regulatory uncertainty and lower capital spending by our utility customers. This is a trend we expect will continue for the balance of the year and is the primary driver for the change in guidance. Part of the second quarter revenue shortfall was also caused by a slower start-up of some key projects previously awarded, that we had expected to proceed at a faster pace. At the B&W level, we're confident we will see sequential improvement in the third and fourth quarters of 2014 and significant upside in 2015. In PGG, new bookings in the international and renewables markets, together with the continued traction in our margin improvement programs, position us well for improvement in the second half of '14 and will produce much improved results in '15. As we move into '15, we expect NOG to continue to produce strong and steady results, while reduced spending on mPower will…

Thanks, Jim. Revenues in the Power Generation segment for the second quarter of 2014 were $327.4 million compared to $471.2 million in the second quarter of 2013. This decrease in revenue was driven by a $70.5 million decline in our new-build environmental equipment business, reflecting fewer scrubber projects underway than a year ago and continuing uncertainty regarding the outcome of environmental regulations. Revenues from new steam generation systems were down $27.5 million year-over-year primarily due to lower construction activity on the Berlin Station project and timing on the start-up of international renewable energy projects that are now underway. Second quarter revenues in the aftermarket services business were 49 -- were lower by $49.5 million, reflecting the completion of a large boiler retrofit and construction project that was ongoing last year and lower environmental service project spending this year, as Jim mentioned. Backlog in Power Generation was $2.2 billion at the end of the second quarter of 2014 compared to $2.3 billion a year ago. For the first time in a year, Power Generation's backlog increased in sequential quarters, up, in fact, 10% versus a $2 billion backlog at the end of the first quarter of 2014. Operating income in the Power Generation segment, including the equity income of our global joint ventures, was $15.2 million in the second quarter of 2014 compared to $30.5 million for the same period last year. This decrease is primarily due to lower new-build environmental and service projects partially offset by a lower loss provision recorded on the Berlin Station project, as compared to the prior year period. Also contributing to the earnings decline are lower margins due to fewer net favorable project closeouts and lower equity income contributions from our Chinese joint venture. These decreases were partially offset by tight control of SG&A and…

Thanks, Tony. I want to talk about our decision to change guidance, but first, a little bit on the big picture and why I view 2014 as an anomaly and why I'm confident we'll see significantly improved results from our business units in 2015. B&W's Power Generation group has historically relied on the U.S. coal fleet for a large portion of our revenue and earnings, and it has served us well. As we move forward, the U.S. will rely less and less on coal as a baseload generation source. The question is how fast is this going to happen and how much will our customers spend on environmental upgrades and refurbishment programs beyond the barebone spending required to keep their coal units running. Our strategy is to maximize the return from our historical base by reducing and variable-izing PGG's cost structure, combined with shifting our growth focus to international, renewable and industrial projects, where we believe there are significant opportunities to leverage our existing technologies and global platform to drive growth. You can see our progress on this front with the large increase in non-U.S. bookings in Q2. This quarter and for the remainder of 2014, we have seen and now can project a decrease in U.S. coal spending beyond our original forecast due to a variety of factors. The accumulation of low-load growth and electricity pricing, a variety of environmental regulations and, most recently, the existing plant CO2 rule has caused our customers to reevaluate their fleet requirements and capital spending priorities. We see this in a step-function reduction in environmental work and a reduction even in normal service work, while only part sales have remained steady. Our aggressive cost reduction program at PGG is on track, and our new international and renewable orders are gaining traction, setting us…

[Operator Instructions] And our first question is from the line of Jamie Cook of Credit Suisse. Jamie L. Cook - Crédit Suisse AG, Research Division: I guess, Jim and Tony, I just wanted to get a little more clarity on the guidance outlook. And I understand what you're trying to convey in the call, but if you look at your top line guide, you're only down $100 million at the high end; I guess if you adjust for MEGTEC, it's $200 million. But still, your EPS at the midpoint is down sort of $0.32. So there just seems to be some disconnect between the revenue reduction and the EPS reduction. So is there something within PGG on the mix front? I know MEGTEC, you're assuming has lower operating profit. But if you could just bridge this sort of $0.32 because, again, the sales and EPS, there seems to be some disconnect. And then, I guess, just my second question is just you seemed fairly confident in your 2015 PGG top line outlook of sort of the 10% to 20%. What's -- how much of that do you have in backlog today that gives you that comfort level? And then how do we think about profitability within PGG if the top line does materialize?

All right, Jamie, 3 questions inside there. Let me start with bridging the gap between revenue and margin, then we'll shift to PGG backlog and then a little bit on PGG margin. All right, so starting with revenue versus EPS. Let me see if I can walk you down and do the math that adds up to the roughly $0.30 change in guidance. So you're correct on the revenue front. Between $50 million and $100 million drop, plus the MEGTEC $100 million being added, adds up to roughly $150 million. The trick to the math is this: as revenue fluctuates up and down in PGG inside a normal band, you'd expect earnings to change by roughly 10%. What happened to us in Q2 and as we project Q3 and Q4 and we see the reduction in coal spending in the U.S., a $150 million reduction, even with all the cost we've taken out of the business, essentially leaves overhead uncovered, such that the reduction of $150 million hits us at about a 20% gross margin rate. So 20% of $150 million is roughly a $30 million hit. We have had a onetime Berlin hit total. It was about $12 million in 2014. That project is now in substantial completion and closed. So $30 million on the revenue reduction, $12 million from Berlin and roughly $6 million impact at TSG from WIP in the American Centrifuge program total about $45 million before tax, about $30 million after tax. And that's about $0.30 of earnings. Jamie L. Cook - Crédit Suisse AG, Research Division: Okay. That's helpful.

Okay. A little bit -- so shifting topics to why we're quite a bit more confident about 2015 and willing to put forth a 10% to 20% revenue growth number for PGG between 2014 and 2015. Let me just give you a couple of additional numbers. Today, we're halfway through '14, and we have in our existing backlog about 38% of the work we expect to do in 2015. That number is about 10% higher than it normally is at this time of year. We have another 6-or-so percent of high-probability projects, where we've already been selected. And in a normal year, about 25% of our back -- of our revenue comes from book and bill, which is work that never actually hits backlog. So today, 38% plus 6% plus 25%, we're sitting at roughly 70% of our expected 2015 revenue that we can put our hands on; again, about 10% better than where we were last year. So we are confident in predicting a 10% to 20% increase in revenue in 2015 for PGG. We still have some work to do. We still have some projects to bring in at the back half of the year. We feel good about that given our increased emphasis on business development, but we think we're in a good place on that front. And given the reduction in revenue in PGG in 2014, we thought it was important to give everybody a little bit of a view for 2015. So lastly -- go ahead, Jamie. Jamie L. Cook - Crédit Suisse AG, Research Division: Yes. I was just going to say -- remind you, but -- margin. Go ahead.

Yes, I got it. So let's talk a little bit about PGG margin. Obviously, PGG margin in Q2 has been impacted by the drop in revenue, right, and the fact that it ends up hitting us, some of that -- revenue reduction hits us at a 20% gross margin level instead of a 10% operating income level. So that tends to drive short-term margin down. So for 2015, we see revenue coming back up, as I've just discussed, and starting so that should let us reset the numbers from a margin perspective to roughly 9%. We have a margin improvement program that I've told you is on track. We're looking for 200 to 300 basis points of improvement by late 2015. And it will take us some time into '15 to fully see that improvement because so much of the margin improvement at this point is coming from manufacturing consolidation, which takes us some time to implement. We do have larger projects. You can see it in our backlog. We've emphasized the large boiler win; the renewables projects, which are typically large -- mid to large waste-to-energy projects. Just the nature of large projects is -- we capture some of the margin upfront, but a lot of the margin comes late in the project as it de-risks and we take contingency to the bottom line. So that might add a little bit more -- that might slow down the margin improvement in 2015 a little bit. Let me just talk for a second about MEGTEC because that's the other item that will impact 2015 margins in total for PGG. MEGTEC is about a $200 million a year business at roughly 10% operating income so that it should throw off about $20 million a year. Because of amortization of intangibles, we expect that, in 2015, MEGTEC will throw off about half that, all right. So sum total, PGG margin, starting from 9%, which is where we would expect to -- we would expect to see certainly a portion of that 200 to 300 basis points throughout '15. And most, if not all of it, by the end of '15 -- could be slowed down a little bit by the timing of these new large projects as they come into the mix. And then the addition of MEGTEC is great, but we do have to take the amortization hit in '15.

So just I want to -- if I might clarify one point. So the EBITDA margin on MEGTEC is at or above that 10% threshold. The amortization happens to be front-end-loaded because some of the amortization is specifically tied to the backlog that we inherit when we bought the business. That can amortize -- that gets amortized often fairly quickly over the first year or so, so that the heaviest impact from the amortization will be in 2015 and -- well, actually, from now through 2015. Regarding margins, the other thing I just want to point out is that PGG's underlying gross profit margin was smack-dab at or slightly ahead of where it has typically been this quarter. But with a 30% drop in the revenue, which, again, we see that change and the turn coming, there was no way we're going to be able to take out 30% of our SG&A expenses. If you normalize for some MEGTEC-related expenses that are in the segment results, SG&A was down about 5% in the quarter. We continue to try to drive that number down, but there's at least $10 million of stranded SG&A when you have that significant a drop on the top line. If you normalize for all those things, you're actually back right up into that 9% to 10% range in terms of the earnings.

Our next question is from the line of Tahira Afzal of KeyBanc.

First question is within that 10% to 20%, let's take the midpoint, Jim. Can you talk about what your assumptions are about the aftermarket business within that -- at sort of the midpoint? And I guess, my concern is that clearly, it's taken a step down, but it's taken a fairly rapid step down in -- over 3 months. So even though the math of what you're saying works pretty well, I'd love to know if you're building in a cushion just for unpredictability where the aftermarket business is concerned.

Sure, Tahira. Yes, we are building in a little bit of cushion in the aftermarket. Obviously, it's been difficult for us to predict. We saw -- let me talk a little bit about 2014, and then I'll see if I can carry the discussion into 2015, which is, I think, where your question was pointing. In Q1, we saw a little bit of a reduction in -- just in general, coal-related work in the U.S. aftermarket, as well as environmental new build. But that's not unexpected. Q1 2014 is typically a slow quarter for us as utilities ramp up spending. We saw a more significant drop in Q2, which caused us to get closer to our customers and assess what we think will happen in Q3, Q4, thus, the estimated $150 million reduction for the year. So that said, it's obviously a little bit difficult for us to predict. We had figured there'd be some pressure on the U.S. utilities, just given the environment that they're operating in, to make decisions to spend money on coal plants, but we did not -- we were not able to predict that sort of a drop in 2014. I don't think we're the only company to see that. I think that's prevalent across the power gen space. So as we move into 2015 -- and I talk about 10% to 20% increase in revenue, the bulk of that increase is coming from our international boiler project wins and our renewable work, internationally. And we are predicting perhaps a small improvement in aftermarket services in the U.S. as we move into '15 but not significant.

Got it, okay. That's actually pretty helpful. And I guess a second question is in regards to these international opportunities you're seeing going forward and really the risk in terms of what you're doing on those versus the standard work you're doing typically. Can you talk a bit about what you're embedding in your margin assumptions around risk?

Sure, I'd be happy to. Let me break that into a couple of different categories as we talk about this international and then the renewable work. So starting with the renewables, renewable is primarily waste-to-energy projects, where -- essentially, what's happening is we have a subsidiary in Europe, called Vølund -- subsidiary of PGG, that specializes in building waste-to-energy power plants. They're very good at it. They've typically done 1 to 2 per year. What we're finding is there's quite a large market for waste-to-energy, and we think we can step up there a number of projects from 1 to 2 to perhaps 3 and 4 and perhaps even higher over time. So that is a product line that we're comfortable with. We're familiar with it. We have experienced building turnkey waste-to-energy plants. So I'm comfortable with that expansion from a risk standpoint. We are going to have to pay some extra attention to running 3 to 4 projects in parallel, as opposed to 1 to 2. But from a technology standpoint, I feel good. From a margin standpoint, we'd expect margins on those units to be in line with the rest of the business. On the international boiler front, we announced recently the large win in the Dominican Republic. And we have restricted our scope to the boiler island and some auxiliary equipment. That is what we're good at. You notice we did not take broad EPC contract risk on that plant. We stuck to our knitting. We know what we're good at, and that's the type of work we'll pursue on the boiler front. So I think it's a balanced risk profile. I think it's a very fair question -- as we look to grow internationally, is our risk profile going to change? As we focus on boiler projects that we're good at and waste-to-energy units that we have experience on, I think it's a risk profile that we can manage well.

Our next question is from the line of Andrew Kaplowitz of Barclays.

Jim, so I mean, as you know, international projects pretty regularly move to the right. So I mean, I think, we understand that you're in a better position than you were last year with that 10% number that you talked about. But how much do you factor international delays into the 10% to 20% forecast that you have because I think there's going to be some concern that these projects will slip? How do we look at that when we try and model the company?

Yes, well, that absolutely happens. You are correct. As a matter of fact, we did see some work slip out of Q2 into Q3 and Q4 and even some of it into 2015 this year, but that was primarily international projects. So that risk does exist. What I would say is given the additional bookings we're taking on and the projects that we're pursuing today, I think that we have enough projects in the backlog such that even if 1 or 2 move a little bit, that we can sustain the revenue growth projection that we put forth. That said, we'll keep our eye on it. And if too many projects move into the future or, say, something as large as the Dominican Republic coal plant project moves into the future, that could impact the numbers. But we feel pretty good about that risk. And to some extent, we factored in potential slippage into those revenue estimates.

Got it. So, Jim, I imagine that your competitors are doing much of the same thing and they're focused more on these international projects than domestic projects. So maybe you could talk about the competitive landscape as you go for these international projects. I mean, I know you have a specialty in biomass, and I think that helps you. But when you're going for a project like the Dominican project, my tendency would be to think that the margin would be pretty low on what you can book there, but you tell me.

Actually, on the boiler-type projects, the margins on that project are in line with the rest of the business. What we find on these larger international projects, whether they be waste-to-energy or, in particular, the boiler projects, is they take a long time to develop and they take a long time to finally sign. So a lot of it's about relationship development. A lot of it's about finding the right partners to work with, moving forward. That's one of the drivers behind putting in place this new business development organization led by Elias, who came to us from Foster Wheeler and Alstom, is we know these are long lead, and we know we need to get up and we need to work the relationships. In the end, though, we think when we book the projects, they'll be at fair margins.

And I'd say -- Andy, the other thing I'd say is that we're also using -- better utilizing, really, our global manufacturing footprint and particularly our Asian engineering and manufacturing capabilities. And that's giving us a competitive advantage, actually. And it will play out more and more so as we look into the future, and certainly was a factor in a couple of the recent wins.

Just very quickly, a follow-up, the Chinese JV. You mentioned you did not have much income in the quarter. Is that something to be concerned with? Or is it just the lumpy nature of the business?

I'd say the concern I would have is that the Chinese market is not -- at this point, is fairly stagnant. It's not really growing. But the biggest factor in the quarter was a couple of projects that had some unique challenges to them. We -- the management team, the JV, took some additional costs into those projects, and that resulted in a onetime hit to those contracts that, obviously, we'd rather not see. But certainly, the bigger concern, longer term, is what are we doing, what's going to happen to that market. And one of the things that we are doing is we are better leveraging, I would say, that organization outside of its typical focus on the Chinese market and looking at other opportunities as well in Southeast Asia.

Our next question is from the line of Will Gabrielski of Stephens.

I guess I'm -- I have a question about the recent win from AEP. What's the incentive to do construction-only work on environmental projects that aren't utilizing your technology?

So we have there, inside PGG, Will, a construction business. Primarily, you're correct. They do work installing equipment that we manufacture. There is a baseload level of work that we like to keep in the construction group to cover overheads and to keep talent working. Occasionally, if a customer makes a decision to pursue a technology different than ours, right, we'd rather not have them do that. But if, occasionally, they make that decision and we can pick up the construction work, it's what we're good at, and it provides that baseline level of coverage, right. Number two, for a customer like AEP, where we have a very good relationship, if we can come in and we can help them on the construction side of a project, it does a lot for us in the long run.

Okay. And if you look at your power market, there's been a ton of consolidation and pending consolidation, I would say, over the past year, 24 months. Would you say that's providing opportunity for you on that share side? Or is it creating better, stronger competitors?

Well, I think it may be a short-run and a long-run question. In the short run, yes, I think there's a little bit of movement around the industry as at least a couple of our major competitors go through transactions. The reality is, at least in the U.S. marketplace, there's not all that much work out there, so it's a pretty competitive environment to begin with. I do think your question is an interesting one in the long run, in whether our competition is going to be strengthened or not as they complete their transactions. It's certainly something we're thinking about -- understanding the marketplace and understanding where we think we're best positioned in that marketplace going forward.

Plus some of the opportunities we're pursuing are in markets that are not necessarily their strength and are our strength. I mean, we've got a very strong position in renewables, as we've discussed, waste energy and biomass. And clearly, with the addition of MEGTEC, that provides a whole host of new opportunities for us in the industrial markets as well, where some of these players are not necessarily as focused or focused at all.

Okay. And then, Tony, just quickly, any updates on cash contribution to pension and MAP-21 expiration and what was just recently passed and how that's going to impact you?

Well, it should -- originally, we had said it would be a step-up in pension contributions in 2015 with -- assuming the President signs into law, which, as far as I know, he had not done as of yesterday, the MAP-21 legislation, it will give us an opportunity to dial back our pension contributions in 2015. And that's certainly something we'll look at. We took advantage of the last 2 years where this opportunity was presented to us to take our pension contributions down. If that happens, I think, Will -- I haven't -- I don't have the numbers right in front of me. My instincts would say our pension contributions would roughly stay flat with where they are today as opposed to increasing modestly, which is what we had been telegraphing for 2015. Does that help?

It does.

Our next question is from the line of Steven Fisher of UBS.

Jim or Tony, how much more cost restructuring work do you still have left to do?

Yes. Steve, this is Jim. So we've announced -- we have 2 cost restructuring programs underway right now. We have the original program we call GCI. The majority of that work is done. We have one manufacturing consolidation that we're still working on to close out that program. That will be done in 2015. And then we had a second margin takeout program that we started this year. A lot of the upfront work -- for example, we reduced the number of employees in PGG in June. A lot of that portion of the work is done. The manufacturing consolidation portion of the margin takeout program, again, will carry us into 2015. So GCI is probably 2/3 done, 1/3 left to go. Margin take out, we're probably at the front end of 50% of that.

Okay, that's helpful. And then can you talk about how the margin structure works in Nuclear Operations and whether that's changing at all as the Virginia class program progresses? I'm just trying to assess the confidence of sustaining the 20% margin here.

Fair enough. So the new market basket that we've just signed, market basket 4, has the same contract structure as the previous 3 market baskets. So it has not changed significantly over time. There's a portion of the margin in the Nuclear Operations group that's built baseline into the contract, and then there is a second portion that we only receive to the extent we drive costs down and we meet -- or beat schedule for the customer. And that's what allowed us over the -- over time to drive the margins up to -- for example, in Q2, what was 20%. We are very, very focused on delivering high-quality product to our customer and doing it in a cost-efficient manner. That has not changed in the last 2 years. I don't expect that to change in the coming 2 years. We consistently guide to the high teens for the Nuclear Operations group, and we consistently try to beat that by saving additional money for our customer and then sharing it with ourselves.

Next question is from the line of Bob Labick, CJS Securities.

I think you did a good job in explaining the bridge between the $150 million revenue decline and the $48 million in EBIT and where that came from. But taking a step back, could you help us understand the delta that brought the revenue decline? The change since mid-May to buckets for that $150 million of revenues, where is that coming from? And what changed specifically in the last few months?

Okay. Let me talk first a little bit about the timeline and then I'll see if I can break down the numbers a little bit more for you -- of the $150 million. So we came into 2014 expecting some pressure on -- from our U.S. coal customers, right. And in Q1, as I said, we saw a little bit of a reduction but nothing abnormal for Q1 -- it's just typically slow. Q2 is where we saw the more dramatic step down, where the customers just weren't spending the money. And as we understood that and got our arms around it, our projection is that, that type of decision-making is going to carry into Q3 and Q4. So thus the reason in -- at the end of Q2 to put our hand up in a very transparent way and say, "Hey, not only is Q2 going to be impacted, but we see this continuing through Q3 and Q4." Let me see if I can break down the roughly $150 million revenue decrease for you. About $115 million or $120 million of that is directly related to U.S. coal; about $45 million, environmental work -- that would be new environmental that we would have expected to do, that has not materialized; about $50 million aftermarket environmental work; and about $20 million, I would call boiler service work, mid- to large-sized projects that the utility customer has some discretion in spending that money. That's about $115 million. We did have about $20 million of Canadian work shift -- or move out of the -- out of 2014; and then about $10 million of new boiler work, which goes back to the question about timing on these larger projects. We think that work is there. It's just moved out of the year.

Well, actually a couple of those projects that caused a little bit of delay have actually started up, which we alluded to in our notes.

Yes, yes, they're going. It just won't quite generate the revenue in '14 that we thought, but it will help '15.

Okay, great. That's a very helpful color. And then my follow-up, this might be a little tougher because I know you guys are new since then. But just looking back at 2010, you did about $1.4 billion in PGG revenue and a 9% reported EBIT, which, I think, if you adjust for pensions, is even higher, maybe 12%, 13%. And you're going to be around that revenue level with materially lower margin. So what's changed in the cost structure of PGG or -- to make such a dramatic change in the operating contribution on similar revenues?

Simple answer is there were some very high margin projects that were being completed during that time frame. It was kind of a heyday for the last renaissance of coal boiler projects in the U.S. And we were able to harvest some significant contingency during that time frame on a couple of specific projects, Bob, that arguably, really, in this environment, were not -- are not repeatable.

Our next question is from the line of Brian Konigsberg of Vertical Research.

Just a couple of follow-up questions. Just on the $12 million of additional expense related to the Berlin project, I mean, you only actually recognized $2 million in the quarter; you already had recognized a bunch in Q1. So why is there a delta of $12 million? It should only be $2 million. Could you not dial in the costs associated -- or the costs incurred in Q1 into the full year guidance previously?

Right. So there was -- there were some costs in Q1 on Berlin. As we came out of Q1, we typically have projects come in, come out, over-perform, underperform. Our view was we could probably make up that gap for the year. Q2, I believe, the number is actually $4 million, not $2 million. There's a couple of million of costs, and there's a couple of million of LDs.

Yes, and there's actually about -- there's actually some legal fees that make that number more like $5 million in total.

Yes. So the sum total for Berlin is roughly $12 million. A, our -- 2 comments on that. One is we finally did reach substantial completion on that project, which is good. So that stops the LD draw and we'll shift into recovery mode. And we do view that project as onetime, right. That's not an event that we would expect to repeat. And that's not a contract structure that we would expect to pursue again.

Okay. And on PGG, so the warranty expense that's embedded within the cost of goods, that actually has been coming down quite a bit over the last couple of years. You expect pretty good growth in '15. Should that start to ramp up as a percent of sales going forward? And does that reduce your leverage quite a bit next year?

The real simple answer is it fluctuates mostly based on 2 things: volume itself, whether it's going up or going down. So the -- when it was ramping down, we did benefit on -- in a few contracts from better performance on warranty, and that -- obviously, that created some opportunity in our bottom line if you look at 2011 and 2012. It's really less projects. And so it will flex with projects. The rate that we apply in terms of our expectation of warranty expenses for any project are based on historical averages, and those will -- that will continue. And those have been coming down anyway.

Okay. And then lastly, so just given your commentary regarding the outlook -- and it sounds like you are pretty confident in the outlook. Why is it that you're not -- or maybe you are. Or maybe if you could just comment on it. But why are you not considering an accelerated stock repurchase program here? Doesn't sound like there are a lot of assets out in the market that would provide you the type of return that Babcock stock would? And just given your confidence in the outlook, it seems like that would be a logical step. Maybe just talk about that and how you're looking at it.

A fair question. We did say that we will continue to pursue opportunistic buybacks of stock moving forward. And for us, it's about -- it's a little bit about balance. We do have available capacity from a cash availability standpoint or a leverage standpoint. We are looking to grow the company via acquisition when we think it's appropriate to do so and when we think that acquisition has a better return for our owners and our investors than buying back our own stock, right. Clearly, we thought that was the case with MEGTEC. And we went ahead and made that acquisition. And at the same time, we bought back about $85 million worth of stock in the quarter. So we'll continue to be opportunistic in the marketplace on buybacks, and we'll continue to look for acquisition opportunities that are better than buybacks. I'd like to do some combination of both as we move forward.

Can you just give a sense, are you seeing those type of opportunities in the market today as far as acquisitions?

We do. When I arrived a couple of years ago, we had a little bit of a focus on acquisitions, but we didn't have a true team and a talent base dedicated to doing the background research that's required to really create the funnel of opportunities you need to find an acquisition that works. And that's different today. Today, we have a dedicated group. We have an awful lot of smart folks that are working on sourcing different acquisition opportunities. Some come to us easily because something's for sale. Some, we work on the side. So I feel quite a bit better about the acquisition pipeline today than I did a couple of years ago simply because of the internal talent and dedication we have on that front. The other difference is it is a little bit more dynamic market from an acquisition standpoint today than it was a couple of years ago, which does breed opportunity.

Our next question is from the line of Chase Jacobson of William Blair. Chase Jacobson - William Blair & Company L.L.C., Research Division: So just on mPower, can you talk about this $14 million delayed reimbursement. Are you adjusting for that because you expect to get it back in the second part of the year? And as it relates to this $15 million run rate, does that include reimbursements? Or is that just straight B&W spend?

Okay, got it. In regard to the $14 million of DOE match, so the DOE continued to match us for the first quarter of 2014. As we moved into the second quarter, that's when we announced and then began the reduction in mPower. So we were -- our view is we were doing productive work on mPower, but we had announced the reduction. And we were stepping back the number of employees that were working on the program. During that time, the DOE did not match. They chose not to match. The sum total of that for April and May is about $14.2 million. Our view is that we were doing productive work on the technology and on the program, and we met the criteria for the match. The DOE's view is, perhaps not. And we're not so sure we're happy with you stepping back the program. So I would say that the $14 million is still in discussion. When we looked at the Q2 financials, we decided to make the assumption that the $14 million was part of restructuring and that we may or may not get it back, despite the fact that we continue to dialogue with the DOE about that money. In regard to the $15 million annual run rate for mPower, our plan -- and we've been very open about this with the -- with our -- all of the stakeholders involved in the program, is -- we like the technology. We want to continue to develop it just at a slower pace. We can afford to spend about $15 million a year on it, of B&W money. If the DOE chooses to match or there is some other match program, we'll step up the work on the program such that total program spend will rise above $15 million, but we'll stay at $15 million. If it turns out, in the long run, there is no DOE match or any other partner money coming in, then the program will run at $15 million. But in either case, the maximum B&W will spend on an annual basis is $15 million.

Our next question is from the line of John Rogers of D.A. Davidson. John B. Rogers - D.A. Davidson & Co., Research Division: Just going back to the Nuclear Operations -- or excuse me, the contracting, the project that you're pursuing up in Canada, have you done work up in Canada before for large nuclear programs?

Yes. So this is the TSG business. This is the Chalk River bid that we discussed, which, for us, is -- it's a big deal. We're spending a lot of time and effort on that front. That will allow us to step the TSG business back up. We have not done, on a large-scale basis, government contracting work exactly like that in Canada. Obviously, we've done a lot of it in the U.S. But we do have an advantage in Canada in that we have a very large nuclear business in Canada. So our NE group is -- other than the small amount of steam generator inspection work we do in the U.S., is primarily a Canadian-based business. We have an awful lot of talent there. We have a lot of manufacturing expertise, and we have a lot of operations oversight experience. And that's what, in our view, Chalk River needs. So we think we're well positioned on that bid. And we do -- as is typical with these government M&O bids, we do team up with folks. And we believe our partners round out the skill sets that we bring such that we think we're well positioned on Chalk River. John B. Rogers - D.A. Davidson & Co., Research Division: Okay. And the orders of magnitude of size, of this program?

Well, the RFP is just out. We're taking a look at it right now. I'd say it could be worth north of $5 million per year.

That would be fee income, not...

Yes, fee income to us, yes.

Thank you for all your questions, ladies and gentlemen. I'd now like to turn the conference back to Ms. Jenny Apker for closing remarks. Please go ahead.

Thank you for joining us this morning. This concludes our conference call. A replay of the 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 this morning, and we'll talk to you soon.

Thank you for your participation, ladies and gentlemen, and that concludes today's conference call. You may now disconnect your lines. Have a great day. Goodbye.