BWX Technologies Inc (BWXT) 2010 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Babcock & Wilcox Company's Fourth Quarter 2010 Earnings Conference Call. At this time, all participants are in a listen only mode. Following the Company's prepared remarks, we will conduct a question and answer session, and instructions will be given at that time. I would now like to turn the call over to our host, Mr. Michael Dickerson, B&W's Vice President and Investor Relations Officer. Please go ahead.

Thank you, Tanya, and good morning, everyone. Welcome to the Babcock & Wilcox Company's Fourth Quarter 2010 Earnings Conference Call. I'm Mike Dickerson, Vice President and Investor Relations Officer at B&W.

Joining me this morning are Brandon Bethards, B&W's President and Chief Executive Officer, Michael Taff, our Chief Financial Officer, and James Canafax, our General Counsel. Many of you have already seen a copy of our press release from last night. For those of you that have not, it's 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 10K, on file with the SEC, provides further detail about the risk factors related to our business.

Today's call will begin with some remarks by Brandon about the current business environment. Second, Mike will provide financial details about the quarter. And, finally, Brandon will conclude with some comments about the status of our major initiatives followed by a question-and-answer period.

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. With that, I will now turn the call over to Brandon.

Thank you, Mike, and good morning everyone, and thank you for joining us. Let me start by saying that I am reasonably pleased with our results for the fourth quarter, as the Company generated strong cash flows and better-than-expected revenues and earnings. Also, a number of key indicators would suggest that 2010 was likely the cyclical trough in the US power industry in terms of capital spending on the generation assets by the electric utilities; and also a cyclical trough year for B&W in terms of revenues and earnings.

While it is always difficult to exactly call the turn, economic indicators and power-consumption metrics would suggest that at this point in the business cycle, our power markets are perhaps nearing the beginning of a rebound from the bottom.

As many of you know, our business can exhibit significant variability on a quarterly basis. Therefore, I am pleased to report these positive results for the fourth quarter. Consolidated earnings per share increased roughly 165% from the prior-year fourth quarter, and revenues were up 2.4% from the fourth quarter of '09 -- the first quarterly year-over-year increase since the fourth quarter of '08. Mike will walk you through the details of the quarter in a couple of minutes. However, before we go into the financials, I would like to highlight a few items from 2010.

Let me begin with safety, which is one of the key metrics we use to measure our performance. We achieved significant year-over-year improvements in safety performance. As you have heard me say before, continuous improvement of our safety performance is an important part of our culture at B&W. For 2010, our total recordable incident rate was 1.17, which compares exceptionally well to the average industrial rate in the United States. For the full-year 2010, this represents a 16% improvement compared to the prior year. Excellence in safety is indicative of a well-run operation. And I must say that our team performed exceptionally well in 2010.

Also, of significant note, consolidated backlog increased 19.3% to $5.2 billion from the end of the third quarter. Importantly, this increase comes from both segments. The Government Operations backlog increased 34.7% to approximately $3.2 billion, its highest level in history, principally due to the award of a contract or contracts that includes components for both the Virginia Class Attack Submarine and Ford Class Aircraft Carrier Programs.

The Power Generation Systems Segment backlog increased sequentially 1.4% to $2.05 billion. This is the second sequential increase in the backlog for this segment. This increase is principally due to an international boiler retrofit order and growth in energy from waste in Europe. In 2010, power generation in the US was about 3.6% above '09 levels, and it is beginning to approach the peak 2007 levels.

Coal-fired power generation is up approximately 5.4% for '10, compared to '09. Our customers' power-generation systems are now running harder following a period in which they have significantly curtailed routine maintenance of their fleet over the last few years. If US economic growth continues in 2011, I believe that we will begin to experience a recovery in capital and non-capital maintenance spending as utilities will seek to minimize the forced-outage risk of their low-variable-cost coal-fired-power-generation assets.

Finally, the proposed GY fiscal '12 budget put forth by the administration includes ongoing and incremental funding for important energy initiatives and national-security programs; specifically, within the Department of Energy budget proposal is $97 million for a new small modular nuclear reactor cost-share program to assist the industry with design, certification, licensing, and research-and-development costs. These programs are comprised of $30 million for reactor concepts R&D and $67 million for technology development and licensing of two near-term deployable SMRs.

Our understanding is that these monies are intended to be evenly split with two SMR vendors on a 50-50 cost-share program. Importantly, these are intended to be five-year programs with the stated commitment of participating through the first deployment -- i.e., not a one-time funding.

Inside the National Nuclear Security Administration budget proposal is significant ongoing funding for naval reactors, as well as incremental funding for nonproliferation and weapons activities, which we are heavily involved in. These NNSA programs are part of the $85 billion that the administration outlined in the fall of 2010 to be spent over the next decade for the nation's Weapons Complex Modernization Program. Now I will turn the call over to Mike, who will provide the details on our financial performance for the quarter. Mike?

Thanks, Brandon, and good morning, everyone. Revenues for the fourth quarter were $705.2 million, an increase of 2.4% from the fourth quarter of 2009, and a sequential increase of 11.4% compared to the third quarter of 2010. Consolidated operating income of $74.5 million increased $36.9 million, or 98.3%, from the fourth quarter of 2009. This resulted in an operating margin of 10.6% for the quarter.

Revenues in the Government Operations Segment of $298.1 million increased $44.3 million, or 17.5%, in the fourth quarter of 2010, compared to the fourth quarter of 2009. This is principally the result of an increase in activity or nuclear-reactor components and fuel.

During the quarter, we closed out the year with solid productivity on our key naval-reactor manufacturing programming and successfully negotiated a $2 billion contract for components for the Virginia Class Attack Submarines and the Ford Class Aircraft Carriers, as well as a $79 million nuclear-fuel contract. This all resulted in the highest backlog in the history of our Government Operations Segment.

Turning to operating income in the Government Operations Segment -- was $48.3 million, increased $16.8 million, or 53.4% in the fourth quarter of 2010, compared to the fourth quarter of 2009. This increase is principally related to productivity and project-execution improvement on the production of nuclear-reactor components and an increase in fees earned due to higher funding levels, increased productivity, and the achievement of high scores at our Company's Management and Operations sites. In addition, the Company experienced an improvement in operating results at NFS, our highly enriched uranium nuclear-fuel-manufacturing facility. This improvement is partially the result of the fourth-quarter-2009 charges related to the temporary shutdown of NFS.

Turning to Power Generation Systems Segment, revenues in this segment were $408.6 million, down $26.7 million, or approximately 6.1% on the fourth quarter of 2009, and up sequentially $39.5 million, or 10.7%, from the third quarter of 2010. This year-over-year decrease is principally related to a decline in demand for new-build environmental systems, partially offset by increasing volumes in nuclear-energy components, small aftermarket parts and renewable-power-generation systems.

Operating income in the Power Generation Systems Segment, including the equity income of B&W's portion of its global joint ventures was $31.2 million, compared to $21.7 million in the fourth quarter of 2009. This increase in operating income is principally related to reductions in manageable expenses due to the Company's continuous improvements initiatives and higher year-over-year equity income contributions, principally from our Chinese joint venture. These increases were partially offset by under-absorption of fixed manufacturing costs due to a lower-volume environment, as well as an increase in research-and-development efforts.

Power Generation Systems Segment headcount, including selling, general, and administrative headcount, has been reduced over time with market demand, offset by increases related to acquired businesses and the Company's reentry into the US nuclear-services and nuclear-power-generation markets, including the Company's mPower Program. Research, development and administrative expenses related to the Company's mPower Program were higher in the fourth quarter of 2010 by approximately $1.5 million, compared to the fourth quarter of 2009.

Turning to the balance sheet, the Company's cash and investment position net of debt was $472.9 million at the end of the fourth quarter of 2010, an increase of $216.8 million from the end of the third quarter 2010. During the quarter, the Company generated approximately $230.9 million of cash flow from operations. Cash flow was the major focus area in Q4, and the team delivered.

In addition to net cash, the Company maintains a $700 million revolving credit facility with approximately $463.8 million of availability as of the end of the fourth quarter. The Company continues to maintain adequate liquidity to fund operations, which could include increased working-capital requirements, internal growth, R&D programs, as well as additional products and geographic expansion opportunities.

Our effective tax rate was 34.9% for the year -- slightly lower than our expected range, due, in part, to the favorable mix shift in income towards lower international jurisdictions and the reversal of a discrete tax allowance recorded in the fourth quarter. This discrete item added approximately $3 million to net income in the quarter. Looking forward, our effective tax rate -- in the 36% range for 2011. Now, I'll let -- I'll turn the call back over to Brandon for his final remarks.

Thanks, Mike. I would like to start by sharing with you the results of some analysis that we have just arrived at by completing a comprehensive review of pending environmental regulations that are expected to impact our US customers over the next several years.

First, from that review, I believe that the Industrial Boiler MACT, which was finalized in February of this year, is likely to be a larger opportunity for our Company than we originally thought. We believe that this is perhaps a $1.5 billion to $2.5 billion market opportunity through the designated compliance period. About 50% of that could be addressable by B&W, and we would focus on the larger industrial coal-fired boilers in the pulp, paper and steel markets. Secondly, it is very difficult for our customers and, therefore, difficult for us, to distinguish capital spending as being driven by any one specific regulation. Why? -- because they are all interrelated.

In an article published two weeks ago, a top EPA official was quoted as saying, the agency is doing its best to tell the utility industry everything you will need to achieve moving forward so that one investment decision can be made over the next few years that will achieve compliance with the suite of rules that the agency is moving forward to address public health.

I think this is an important statement, as it demonstrates the EPA's intention to move forward with regulation, and also an understanding of the complexities that make long-term investment decisions difficult for our customers; and also demonstrates a willingness to provide the information necessary to help utilities make those decisions.

For instance, the Utility Boiler MACT proposed regulations are due out later this month, which will be helpful, as we and our customers try to plan for the implementation of both the Clean Air Transport Rules and the Utility Boiler MACT. The UMACT is a nationwide rule, while the Clean Air Transport Rules are regional, generally focused on the 30 Eastern States. Hereto, the opportunity is likely larger than the $10 billion to $12 billion market that we originally suggested.

When you consider the impact of the two regulations together and include particulate control, scrubbers, SCRs and mercury control, the market opportunity may be in the $12 billion to $24 billion range, between 2012 and 2018. These are obviously big numbers and should be taken with some degree of caution. I have been around this business long enough to know that the regulatory environment and litigation go hand-in-hand, and everything normally takes longer than originally planned.

What I will say, however, is that the market opportunity is big; visibility to actionable projects continues to grow and come into focus; and our product offering is well positioned for this opportunity. While timing remains an area of uncertainty, we still expect backlog to build later this year from these market opportunities.

Also, we continue to make progress reentering the nuclear services and aftermarket in the US This is a big market with 104 active reactors in the US that all require component and outage services approximately every 18 to 24 months. While our nuclear business in the US was sold in the early '90s, we retained our technology capability and our leading competitive position in Canada. This, plus our SMR program, has given us an operational platform and the technical credibility with our US customers and has assisted with our expansion into this market.

Also, our expansion into India continues as planned. We are still early in the process, having recently secured land for our new ultra super-critical boiler-manufacturing facility; licenses and approvals are in place; and the Company is beginning to actively pursue sales opportunities in that region. Our plan is to support our Indian venture with B&W's worldwide resources during this construction period, until our facility is completed sometime in the 2013 timeframe.

As you know, these are typically long-lead sales cycles. Our visibility to actionable projects continues to grow, and our goal is to announce an initial award sometime in late 2011. As it relates to -- my comments as it relates to our USEC investment, you know that during the third quarter we made the first tranche payment to our $100 million strategic investment in USEC. The remaining two tranches will be made subject to conditions, including conditional loan approval, and then final loan approval for USEC's $2 billion loan-guarantee application pending with the Department of Energy.

We believe that the major hurdles with regard to the technology have been cleared, and that USEC is actively negotiating terms based on a draft term sheet related to the loan-guarantee application. Again, while we cannot predict the timing of the DOE's approval with any certainty, we are hopeful that this will be completed before the end of the third quarter of this year.

We anticipate the conclusion of the loan guarantee and our investment to trigger the beginning of a significant increase in activity in the American Centrifuge Project, which represents an important growth driver for our government business. Through a joint venture established with B&W and USEC, we will manage the manufacturing of the AC-100 Series Centrifuge Machines, including the integration of all suppliers and subcontractors, as well as delivery and assembly of production-unit centrifuges at the American Centrifuge Plant in Piketon, Ohio.

Lastly, our B&W mPower small modulator reactor, or SMR Initiative, continues to accelerate while interest in the B&W mPower product as a scalable, carbon-free and cost-competitive power-generation solution for our utility customer also continues to grow. As I mentioned earlier, in the administration's fiscal 2012 budget proposal, there was significant new funding proposed in support of the development of the modular reactor technology. Obviously, we support the administration and the DOE and their efforts to advance the development of this technology as a clean, carbon-free alternative for power generation.

Over the last 12 months, B&W has directly funded more than $40 million in research and development, including design-certification efforts with the NRC related to our mPower technology. Between B&W and our partners, we have added hundreds of jobs, principally engineers, in support of this game-changing technology. I believe the opportunity here is tremendous. Although the factors that will affect the final outcome are complex and uncertain, I have characterized the potential top-line opportunity for B&W for this single product to be many times bigger than the top line of the whole company as it exists today.

The mPower Integral Systems Test Facility is now under construction, and we expect it to be operational by the middle of this year. This is a key milestone in the NRC design-certification process. Also, TVA recently received a response to their Key Assumptions Letter to the NRC. In our opinion, the response was very favorable and supportive of their designated approach to construction and operational certification of the first SMR plant.

We are working closely with TVA on planning for the construction-certification process. Because of the accelerating commercial activities of this program, we will also be accelerating our R&D efforts. This will result in an increase in R&D expenditures in 2011 over 2010. Ignoring any offsets that we may receive from research grants or DOE assistance, it is likely that our spend rate on the program in 2011 will double the $40 million in R&D spend in 2010. This is necessary to keep pace with the commercial interest in our mPower reactor technology and necessary to help bring this technology safely to market on a timely basis.

To summarize, we are entering the traditionally slower period of the year for B&W. During this time, we remain focused and are moving forward rapidly with several short-term growth initiatives. We are focused on expanded nuclear parts and service in the US; preparing for an expected increase in maintenance spending by the US utilities; continued development of the Indian coal-fired power-generation market; expansion of our government portfolio; and our participation in the management of the American Centrifuge Project. Additionally, we are focused on our core markets for environmental equipment, installation, along with power-generation parts and service. That concludes our prepared remarks. I will now turn the call over to Tanya, who will assist us in taking your questions. Thank you.

(Operator Instructions)

Our first question comes from the line of Chase Jacobson with Sterne Agee.

Please proceed with your question.

Hi. How are you?

Morning.

Good morning.

Pretty good quarter, I just -- talking about the outlook in the power-gen market -- can you just give us a little more color on what your confidence is and why the markets are larger than you had anticipated? I think most would have thought those market sizes could have got smaller, with the increased focus on gas-fired power-gen.

Chase, this is Brandon. I'd be glad to comment on that. A number of factors -- one, there was not -- there was a big uncertainty related to the Industrial Boiler MACT. That has cleared itself up over the last quarter. And, as you may know, the final rules were issued just this past month, which gave us some insight and allowed us to collaborate with some of the industrial customers and get a better grip on what that means to us in terms of market. And that's that $1.5 billion to $2.5 billion of which we can focus on a certain segment of it.

Also, while our rearview mirror analysis of this market up through the issuance of that had been primarily based on the last cycle, we got a better understanding of the interrelationship between the Clean Air Transport Rules and the Utility Boiler MACT, from which we're sort of taking a precursor analysis from the IMACT. All of that basically gives us some pause or some optimism with regard to the do-ability of this.

We still think that there's -- this is likely to lead to a boiler retirement in the 32 gigawatt to 40 gigawatt range, with the final compliance date. But nonetheless, this is becoming more in focus for us. It's a little bit easier for us to estimate the size of the market. And, of course, the compliance date gets ever closer, and coupled with continued growth in the economy, when we crank it through our detailed analysis, that's what it shows us.

Okay, that's helpful. And then with regards to the investment in USEC, can you just talk a little bit about what the risks associated with your planning for that are? How much capacity do you have planned for that? And if the loan guarantee doesn't happen in this third quarter, just -- are there any costs that might not be absorbed because of that?

First of all, let me comment a little bit about the structure. Part of the firming up of that whole program in the eyes of many observers was the fact that B&W formed this joint venture with USEC. Now, we will basically become the program manager and operator for USEC's manufacturing facilities for the centrifuge machines. So, basically, the expense or facilitization with any expanding capacity requirements is facilitated through that joint venture, with the funding coming from the parent company of USEC.

With regard to risk, if the loan-guarantee process, for some reason unknown would not go forward, then you would not see the escalation of that opportunity in our forward revenue and operating income. However, we think that the viability of this program is more certain every day. As we move through the timeline, the lead cascade continues to operate successful, and USEC, based on their public comments, are quite optimistic about this moving forward.

Yes, and Chase -- this is Mike -- I think we really view the risk more of an upside -- a lack of an upside risk versus there being any downside risk.

Okay. Okay, thanks.

Our next question comes from the line of Will Gabrielski with Broadpoint AmTech Inc.

Please proceed with your question.

Sure, thanks -- yes. I'm with Gleacher. So just a couple of questions -- first, on the mPower commentary, I guess. Can you talk about if you've done any planning on what the CapEx might look like to ramp up capacity, and what your initial capacity right now would be, if you had orders in-hand?

Sure, Will. The CapEx to facilitate the launch of the mPower program is one of the items that's unique to Babcock & Wilcox. By that, I mean the fact is that we don't really have to spend a lot of money on facilitization. We can piggyback off the back of our unique manufacturing facilities in Mt. Vernon, Indiana; Barberton, Ohio; Euclid, Ohio; as well as Cambridge, Ontario. So we have the capacity and the infrastructure. So the need for capital for the first phase of the mPower program that takes us out through 2025 is minimal. And, of course, the rest of it is variable costs that would go with increasing in manpower and extra shifting of those facilities in those factories.

Now, that's unique because it gives us a nice competitive cost advantage because we don't have to spend a lot of capital. And it's supported by a government customer because they would be the beneficiary of some of the absorbed overhead out of those facilities.

Okay. That's really helpful. And on the R&D spend, can you walk through again the agreement with Bechtel and what type of sharing there would be in there? And are you being paid in kind, or what's the structure?

The basic structure is customized or conformed around the needs of the licensing process. The NSSS technology is a core B&W technology. That's the reactor, the fuel design, the vessel design -- including the steam generators -- the re-circulators, control-rod drives and internal operation of that facility; and the attendant nuclear-safety systems. But you have to go through a licensing process in where you develop a significant amount of the balance of plant detail as part of that submittal process. That's a core competency that we would usually rely on the AE community for. And it's also a core competency that sets squarely in and with Bechtel.

So the early phase of our agreement is basically cost-effective and efficient for the joint venture to provide for Bechtel to provide in-kind services. There is a latter-phase part of that partnership where it is actually paid in cash as the program continues to roll out projects. But this is working very well. We're very pleased with the partnership and we like the progress that we're making.

The comments that I made earlier with regard to the TVA-Crystal River project are unique as dictated by their filings with the NRC. If that project proceeds in the Part 50 program as opposed to the 52, it will necessitate pulling forward in our original schedule some of the VOP design and work necessary for the construction permitting of that plant.

Our total estimated cost to license or design-certify that plant hasn't changed, but it is pulling a little bit of the spend into the 2011 and '12 timeframe.

Okay. And, then, lastly, on the China Power J.V., I was just wondering if you can talk about why that's ramping up so efficiently here and what a run rate for that might look like in 2011, based on your orders today.

Good question. We continue to have a robust market in China domestic. We had a good year relative to bookings in the China market. The performance there for 2010 was outstanding. There was some favorable contract closeouts through MPA adjustments. If you go -- when we looked back through the rearview mirror, there was some underperformance in '07 and early '08 that was picked up in 2010. We're basically operating at capacity, and we would expect to see reasonably good performance out of that J.V. for the foreseeable future.

Okay. Thank you very much.

Thanks, Will.

Our next question comes from the line of Andy Kaplowitz with Barclays Capital. Please proceed with your question.

Good morning, guys -- nice quarter.

Good morning, Andy.

Morning, Andy.

So, Brandon, you've been -- I would say you're pretty bullish on power, maybe, compared to the last quarter -- or reasonably bullish. But you've still said that power backlog -- you expect sort of these environmental awards to come late this year and power backlog to pick up then even though it's picked up two quarters in a row.

This quarter was, because of international awards -- the question is what's going on in the US in the near term? Do you see visibility toward power backlog picking up or continuing to do well in the next couple quarters? Is it still led by international, or could you have a combination of international and US awards?

Good question, Andy. The environmental capital projects that I was referring to earlier are reasonably long-lead-proposal-cycle type projects. What I can tell you is that our bids outstanding, on a quarter-over-quarter basis, have increased. That's a good sign. We're getting deeper into discussions with some very preliminary project analysis we're doing with customers.

So the number of actionable projects is expanding, and you can start to see the commitment to proceeding and protecting their core generating assets starting to build in the industry. Like I said, these -- this plethora of regulations coming out of the NRC or out of the EPA is sort of unprecedented. And I think there's starting to become an understanding in Washington that there needs to be a spirit of collaboration with the industry in order to allow these people to make the significant capital investments they have to. In other words, you don't want to spend a lot of money, commit to a program with a certain performance specification, only to find out with another reg -- overlapping reg is going to kick you out of compliance shortly after you come on-line.

Now, that is starting to clear itself up and that's why I read that quote from one of the senior EPA officials that came out a few weeks ago. I thought that was significant. So I know that doesn't give you the crystal-clear answer you're looking for, but we still feel that there's an opportunity for backlog occurring in the -- late in the year, which is pretty much the opinion that we've held now for about a year. And I would say our confidence in that has increased from where it was two or three quarters ago.

That's helpful, Brandon. Maybe if I could shift to the mPower R&D -- if I were to envision a bullish scenario, is it possible that TVA or the government program that's out there starts to really pick up that incremental R&D pretty quickly? How do you view that? What's a best-case scenario for pricing it into a forward contract or getting the government funding?

Well, the initial budgeting process that I talked about was for GY '12. So that won't -- that period doesn't even kick off until the first of October. So, through the first three quarters of the year, the opportunity there is limited.

On the assumption that TVA proceeds with their -- with the Clinch River Program, there will be an opportunity to move forward on a -- more of a commercial basis with regard to some of the early engineering for the construction-permit application. But that is sort of independent of the amount of R&D that I talked about. That's really the core research and development that we are doing for the design-certification process.

Okay, that's helpful. Just one quick cleanup from Mike -- Mike, pension expense in 2011 -- any update there?

Yes, Andy. I think you'll see a pretty consistent run rate with what we had this year -- kind of in that $27 million to $28 million -- $29 million -- a quarter. I think, for the year, we were right at around $120 million or $125 million of pension expense in '10. And I think our rate will be pretty consistent with that in '11.

We were initially expecting that to go down a little bit. But, then, with interest rates, as you are aware -- with the volatility there -- our discount rate actually went down 40 basis points, from 6% to 5.6%. And, thus, that drove some of our expense up for '11 that we weren't anticipating probably back in June or July of this last year.

Thank you very much.

Our next question will come from the line of Vance Edelson with Morgan Stanley. Please proceed with your question.

Good morning. Just shifting gears, Brandon, could you discuss the global pattern of countries embracing waste-to-energy? Do you see any signs of acceleration in different parts of the world or do you foresee any down the road? And could this become a more significant part of the business going forward?

We follow that market pretty closely. Obviously, since we own -- B&W Volund, which is headquartered in Denmark -- that's a wholly owned subsidiary of ours -- we've owned it now since -- oh, I want to say, around 2000 -- 2001. It's a very active market in Western Europe, and it's moving into Eastern Europe. However, it's a market that is propped up through government regulation and subsidies. It is definitely the right thing to do from an environmental point of view and from a waste-management and minimization of greenhouse gases. But it requires cooperation from the government jurisdictions.

There is a smaller market here in the US that actually, at one time, was quite significant back in the late '70s and early '80s. We're starting to see some of this emerge in China, where everyone is starting to become very conscious about how they can turn byproducts into some usable form -- in this case, energy. But it works very well in Europe because Europe is much more attuned to combined heating and power facilities than the rest of the world. Its time will come. It's just very difficult to put a marker on the calendar to be able to predict exactly when it expands. But there's a lot of room to run there, in the rest of the world, as you point out.

Okay, thanks for that. And, as my follow-up -- Mike, in the coming quarters, we'll be lapping last year's costs related to the spin and becoming a stand-alone public company. Is that likely to make for easier comps, so to speak, in terms of SG&A and margins to any extent?

Yes. I mean I think we should see some normalization on that. And I think what we had kind of forecasted even back in pre-spend -- our kind of un-allocated costs should be in that $35 million to $40 million range or so for corporate expenses, here. So I mean I think we've pretty much got most of the one-time charges behind us -- got a few folks we're still re-locating here to the corporate office. But for the most part, that's -- we should be settled in there.

Great. I'll hop back in the queue. Thanks.

Thanks.

Our next question comes from the line of Martin Malloy with Johnson Rice.

Please proceed with your question.

Good morning.

Morning, Marty.

The $12 billion to $24 billion number that you referenced for the spending on pushing control equipment in 2012 through, I think, 2018 -- could you talk about your portion of that as what is addressable for you? And also, last year, you put out some slides in some of your presentations where you talked about a market share of kind of 25% to 30% on some of this push-control equipment. Is that a good guide to use?

Okay, Marty. We believe that $12 million to $24 million range really is the addressable market for B&W in that. And the reason we've revised that up is the interplay between the UMACT and the pending New Source Performing Standards, as well as the Clean Air Transport Rules.

When we were looking at this about this time last year, we were basically trying to size that market predicated on what we thought would be the required regulatory direction for the Clean Air Transport Rules.

But as the EPA has stacked these regulations on top of each other, it is actually likely to pull some of that into that 2012-to-2018 timeframe. And we're quite optimistic. The way this is working together, we really feel good about it because we think our product line is well positioned for this pending market.

With regard to market share, our historical margins -- or our historical market share -- when you aggregate it across all those different product lines -- that is particulate-control devices -- that is our precipitator and baghouse technologies, along with our scrubber technology, our SCR technologies, and then our mercury-control technologies and the installation of those core components -- are different by product segment. But a good nominal number on that is in that $20 million to $30 million range, with all of them combined.

Okay. And then, regarding mPower, could you talk about Rule 50 and what it may allow TVA to do if they're filing for their permits under Rule 50 in terms of ordering some long-lead-time items?

Sure.

The Part 50 approach to the construction of a nuclear plant is the process that was really used for the first 120 commercial reactors built in the US, and it's a two-step process. There's the construction permit that is secured in the first phase. It requires a preliminary safety-analysis report focused on the nuclear safety with regard to the entire plant. It allows the project sponsor to -- once he gets the construction permit -- to proceed with the procurement of long-lead-time materials. They can be procured from a non-certified design at that point in time because the process then goes into the second phase, which is the operating license. And, at that time, that's when you get into the -- more of the traditional design certification of the technology details.

We've had discussions with TVA and others. That process did work during the first build-out of nuclear in the US And for the first plant of a new design like mPower and others, it may not be a bad approach because until you've actually constructed the first one, there are some -- there are likely to be some site-specific design changes that will flow into the process. And Part 50 allows for probably a more efficient way to do that than 52.

One of the things that we were optimistic about in reading the response from the NRC to the assumptions letter was the fact that we can do this in conjunction with the design-certification process. And if we take it to completion, we believe that we can have -- once certified in the early phase -- we'll be considered or deemed certified for the later phase so we don't have to repeat some of those exercises.

So there's significant interest in this country -- both in the administration and Congress and Department of Energy personnel -- with regard to the merits of small modular reactors. And they see it as something that we need in our portfolio of solutions for future power generation. So we're obviously quite enthusiastic about this.

Thank you. Congratulations on the quarter.

Thanks, Marty.

Our next question comes from the line of Rob Norfleet with BB&T Capital Markets.

Please proceed with your question.

Good morning, and nice quarter.

Thanks, Rob.

Thanks, Rob.

Just a couple of questions -- one, you talked, Brandon, about the opportunity in the nuclear aftermarket. And I wanted to just get your sense in terms of what we can expect as you guys kind of reenter the US market -- how you could see that business ramping up in terms of doing a lot of the aftermarket work, obviously, that you discussed -- or we're seeing, obviously, an increased emphasis on. And also the contractual nature of these contracts -- are these contracts typically multiyear in duration? Thus, are you kind of having to wait until some of these contracts expire before being able to bid on them, or is this going to be quick-turnaround work, where you feel like you can get work in the near term?

Okay. Good question, Rob. Basically, I think, to try and get a picture around our strategy there -- we have been the market leader -- and, quite frankly, have and continue to dominate that market in Canada. We have been absent that market for about a number of -- a certain amount of time here in the US But we did do -- we did continue to develop technology. And with the ability to reenter that market in the US in conjunction with launching our mPower program, we have had good receptivity from the customers.

I'd say that there is a general feeling in the marketplace that there's room for another well-qualified vendor like B&W. We have had good receptivity to our qualifications for bidding these projects. As you know from our announcements late in the second half of last year, we have booked some. I am somewhat of a cautious fellow, so I'll take a rather measured approach to this as we continue to build our infrastructure. And I want to make sure that we deliver top-quality services and product. But our goal is not to become the kind of the mountain here in one or two years. But we have good growth opportunity by very methodically capturing market share over the next four to five to six years in that market.

And you are correct. Some of these services contracts are multiple years. Often, they're sort of in the form of a master services agreement, with releases on an outage-by-outage basis. There is a number of subsets of service work in the nuclear aftermarket that, depending on where you are in the plant and what you're working on, those contracts are different.

We are well suited for the power-upgrade mods and also for doing construction and product management in those areas. So we're taking a very measured and opportunistic approach toward that. But I do think it's a significant growth opportunity. And it goes hand-in-hand with us as we build up mPower.

Great. Thank you. And just one quick question from Mike -- government margins this quarter were still healthy within your 16% to 18% range, but kind of at the lower end of what you've been reporting in the last few quarters. Is there anything in this quarter relative to mix or anything that resulted in kind of that lower-margin profile versus Q2 and Q3? And how should we look at the government margins as we go through 2011?

Yes, Rob. Good question, there. Nothing unusual -- I mean, as we always say, we're going to have some variability in our margins quarter over quarter. Quite frankly, we were very pleased with the government operations this quarter, delivering over $48 million of operating income; and really a record year, not only from an earnings standpoint, but a record year from a backlog standpoint, hitting into next year. So I mean I think from a margin standpoint you're going to still see margins kind of in that 16% to 18% range on a consolidated basis. And I think we're comfortable with that.

Rob, this is Brandon. I would add to that. I agree with what Mike said. And bear in mind that there are a number of contracts that -- contract issuances that line up with the procurement periods. And some of them are fuels-related and some of them are mechanical-components related. Some of them are electro-mechanical components related. And they don't all always carry the same margin. So depending on what flows through the -- flows out of the backlog in any given quarter -- is subject to give you a little bit of variability in that segment.

Great. That was very insightful. Thanks again, and nice quarter.

Thanks, Rob.

Our next question comes from the line of Joe Ritchie with Goldman Sachs.

Please proceed with your question.

Thank you. Good morning Brandon and Mike.

Good morning.

Just following up on that -- on the question on margins -- I just want to dig in a little bit on your power margins. If you pull out the equity income, which is quite strong, from China this quarter, it looks like your margins were closer to 4.8%. And notwithstanding the increased R&D that you're going to look at in 2011 -- just wondering, when do we get back to that target of 7% to 10%? Just trying to get a sense of timeframe.

Yes, Joe -- good question, there. Well, first of all, we've always kind of looked at our advertised margin -- 7% to 10% range, including equity income. So that's our consolidated margin. That's always been our -- kind of our advertised street margin. So don't punish us for having too good of a quarter on the equity-income side this quarter.

But we certainly realize that as well. A number of initiatives that Brandon can talk about -- we're looking at a -- we also had about $1.5 million -- $2 million worth of severance costs in that segment this quarter -- severance costs due to some downsizing we were doing there. So we're looking at our costs hard. We realize, from a revenue standpoint, we've got to match our variable costs and fixed costs associated with where we are at the top line and all.

So I think that's something that we continue to look at from that standpoint. But we still feel comfortable with that advertised rate and that 7% to 10% range. And we're quite pleased to be at 7.6% on a consolidated basis and that -- even with the spend related to mPower in there as well.

Okay. So even in -- for 2011 you still expect it to be in that 7% to 10% range, even with the increase in R&D spend that you expect this year?

Yes. I mean I think that's -- that may be a touch hard. And that's some of the things we'll probably give more clarity going out into next year -- we'll be kind of separating some of those margins between the two business units and all that as we're ramping up the R&D spend and all that. That's something I think we're going to want to give the investors a lot more clarity on as that project ramps up.

The other thing to bear in mind -- while we've continued to aggressively manage capacity costs and SG&A down -- Mike mentioned that we took some more severance costs in the fourth quarter -- we will still benefit from an increase in margins once we start to build backlog and run that backlog through the enterprise, because you actually leverage your business at that point in time. So that's why I made the comments earlier about defining what appears to be the trough year for us.

And bear in mind, the large capital projects -- they follow a traditional EPC-type profile with regard to engineering -- procurement of raw materials. So even when you book those, you'll have a quarter to two, depending upon the project schedule, before you get significant leverage out of those projects.

Okay, great. And, I guess, just one follow-up question on your government business and your equity line item there. It looks like you've got a nice award fee on Y '12 Pantex. I think you mentioned that it was the highest rating that you received from the government.

Historically, how does that potentially change or increase your confidence in being able to extend the contract beyond September. I know that there's two, three-month extensions -- but just like to get an update on that.

Well, that's a good question. There are a number of factors in play here. The government, in general, is struggling with its budgeting process. When that happens, there's usually a tendency to extend existing contracts. So that's one thing to keep in mind. And, also, the other thing to bear in mind is that for a complex operation for Y12 and Pantex, the debate is still in play as to whether they consolidate those or don't consolidate those.

In either case, the proposal or valuation awards cycle is quite long in that process. And we are already into the second of March here. So the possibility -- the deeper you bet into the year, the greater the possibility of extensions. And, certainly, if you're the incumbent and you've performed well, you usually have a good opportunity for continuance. There's no driving need, as there would be at a site that was underperforming its critical mission objectives. So these things are complex, but those are just some of the things to consider when you look at that opportunity.

Okay, great. Thank you. Thanks for answering my questions.

Our next question will come from the line of Steven Fisher with UBS.

Please proceed with your question.

Good morning.

Morning.

As you pointed out, coal-fired power generation is growing, and power demand has been growing for a little while now. So what's your expectation for timing of more material improvement in maintenance spending?

Actually, we -- one of the things that we look at quite closely is the total generation from -- generated from coal. There has been a little bit of displacement from the '07 level by the lower-priced gas, but it's inching back to that point. And another leading indicator that we watch closely is our small-parts orders in our power group. And that has performed well in 2010.

So as the rules become clear with regard to the new regulations, and the economy remains reasonably strong, the utilities are now in a position to sort of do their master capital spend. And because they have deferred some of the capital maintenance and even actually depleted some of their stores relative to critical spares, my history with the business, which is a number of these cycles, indicates that we're getting closer to that point where there will be a catch-up or a period of six to 12 months of relatively -- relative over-spend as they prepare those generating assets for a more normal economic environment. Bear in mind that the coal-fired units are still the lowest variable cost-generating assets next to hydro and nuclear. So they certainly want to have those assets available during the peak generating periods.

And so do you think that six-to-12-months over-spend period starts some point within 2011?

That's generally what we have in mind. It's more likely to be toward the back half than the front half. But we still have a couple of quarters here of sifting through all the environmental regs. And the big -- the next big piece of the puzzle to get up on the table is the UMACT.

Okay, great.

And then just as a follow-up -- or unrelated -- what kind of progress are you making on the design-and-engineering side of mPower, specifically in terms of addressing security costs and scale aspects?

The short answer is we're making good progress on that. We've basically got -- we've, late last year -- have frozen the plant-layout approach. There's a certain amount of this that you can do that's inherently advantageous to the design. But because it's spread over a smaller megawatt footprint compared to the bigger shaft machines, you can -- your security costs could be higher, but we've taken -- we've had the luxury of being able to use a clean sheet of paper and consolidate that into a fairly small area and use a pipe-bridge approach, if you will, to bring steam over into the turbine generator and keep a lot of the -- we basically narrowed the footprint that you have to provide a high degree of security around. And we're working with the NRC and the utility partners to memorialize that approach, if you will.

Okay. That's helpful. Thanks a lot.

That is all the time we have scheduled for our questions. I would now like to hand the conference back over to management for closing remarks.

Well, thank you everybody for joining us this morning. If there's anybody left in the queue, please feel free to give me a call today. That concludes today's call. A replay of the call will be available on our Website later today. Also on the Website, we've got a Company overview. It has additional information that we'll be sharing with investors and analysts at various meetings throughout this quarter. Thanks everybody and have a good day.

Thank you for attending today's conference. This concludes the presentation. You may now disconnect and have a great day.