BWX Technologies Inc (BWXT) 2011 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Babcock & Wilcox Company First Quarter 2011 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, Karissa, and good morning, everyone. Welcome to the Babcock & Wilcox Company's first quarter 2011 earnings conference call. As she said, my name is Mike Dickerson, Vice President and Investor Relations Officer. Joining me this morning are Brandon Bethards, B&W's President and Chief Executive Officer, Mike Taff, Chief Financial Officer, and James Canafax, our General Counsel.

Many of you have already seen a copy of our press release issued last night. For those of you that 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, on file with the SEC, provides further detail about the risk factors related to our business.

Format for today's call will begin with remarks by Brandon about the two first quarter onetime operational challenges and recent EPA regulations. 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. Good morning, everyone, and thank you for joining us. For those of you that read our earnings release issued last night, you notice that we had two operational issues in the quarter that caused our results to significantly fall short of both our own expectations, as well as that of the investor community. Let me address these two issues right up front.

First, let me start with Nuclear Fuel Services, or NFS, and begin by providing you some background on NFS. B&W acquired this company, which was a privately owned operation in December, 2008. This transaction was the execution of a vertical integration strategy in our nuclear operations segment, as NFS held the second of two commercially held Category 1 NRC nuclear licenses in the US that allows the licensees to receive, process, and store highly enriched uranium. The only other license is held by B&W's Lynchburg operations.

NFS's principal product line is the manufacture of nuclear fuel for the Navy, which continues to operate and perform very, very well. Down blending of highly enriched and multiple forms of uranium to low enriched uranium for commercial nuclear markets is a secondary product line for this company. Given these unique characteristics, NFS was a natural fit for the B&W nuclear operations group.

Some of you will recall that we had a concern at NFS, shortly after we acquired the business, which resulted in the voluntary shutdown of operations. The shutdown occurred in late 2009, and the operations were brought back up online through a phased restart, largely in the first half of 2010. B&W made organizational, facility, and management changes in this timeframe to enhance safety controls and process controls at this facility.

The improvements seen at NFS during 2010, as a result of these changes, have been significant, and during the first quarter of 2011, the NRC issued its 2010 licensee performance review, which included that -- and I quote -- "NFS continued to conduct its activities safely and securely, protecting public health and the environment." This is a very positive indicator of progress made at NFS in the last year. Our primary focus in 2011 is to continue to sustain these improvements with the conduct of operations.

However, during the first quarter of 2011, NFS began a first of a kind down blending operation on certain uranium oxide material, which represents less than 2% of the total contract volume of material on a commercial contract that NFS has entered into in as February, 2002. Initial processing of this material in the first quarter of 2011 resulted in the achievement of only half of the expected throughput rate, which had been estimated based on previous laboratory testings.

Due to the high fixed cost nature of this facility, this resulted in additional cost of $11.1 million being assessed on several down blending contracts, due to increased man-hour estimates and downstream production inefficiencies for the period.

For the first quarter, NFS reported a quarterly operating loss of $4.4 million. At recently improved run rates, we expect this material to be fully processed in 60 days from today. We have taken steps to reevaluate the balance of the material to be processed on all down blending contracts in the backlog and believe that we have adequately reserved for the process productivity shortfall, therefore, containing the financial impact of this item to the first quarter of 2011.

Additionally, we expect NFS will produce positive operating results for the full year, despite the setback in the first quarter. Inclusive of the unacceptable results at NFS, the consolidated nuclear operations segment was able to deliver a 24% year over year increase in operating earnings on the continuing strength of our nuclear component manufacturing businesses.

Next is the nuclear project loss contract within our nuclear energy reporting segment. This contract was bid and awarded in 2009. As substantial fuel work began in late March, 2011, the Company became aware that the original estimated cost of the project did not adequately reflect the actual scope and complexities of the work proposed under the contract. Essentially, work that we now believe will require 81 outage days to complete was originally bid with a span of 53 outage days.

The Company has made an in-depth review of this project and has fully reserved for the expected loss on this contract in the first quarter of 2011. Based on this review, the Company has recorded approximately $21.6 million of additional cost in the first quarter of 2011. I'd like to bring to your attention that we are now on day 34 of this re-based 81 day outage, or we expect to complete the outage in an additional 47 days.

I am confident that we have contained this issue to the first quarter of 2011 and that the current bid processes and contract procedures will prevent this type of cost estimating disconnect from occurring in the future. It should be noted that there is opportunity to improve the results of this contract in future quarters from a combination of claims and change orders resulting from customer driven changes in scope and scheduling delays associated with out of scope site conditions.

Also, I would add that management will maintain their intervention in this contract until completed. Finally, we have reviewed our existing nuclear energy backlog in-depth, and we are confident that we do not have any other contracts in our nuclear projects business that are out of balance with the proposed scope and that this is the only fixed price contract in that backlog.

These are short-term addressable issues that we believe we have under control. Setting these items aside, I am pleased to again report positive year over year issues in consolidated revenues for the second quarter in a row. That growth was evident in all four of our reported business segments in the first quarter of '11.

It would appear that our fossil power generation end markets have stabilized, while our government related businesses continue to improve. During the quarter, a number of positive events occurred that lead us to believe that we are well positioned to capture the upside growth potential in our power and nuclear businesses, while at the same time, protect our downside risks by continuing to leverage the strong position in our governor -- government businesses, which have traditionally provided consistent cash flows and long-term visibility.

I will get to each of our major initiatives in a few minutes, but first, let me cover safety. As many of you know, safety is one of the key metrics we use to measure our performance. Coming off of a strong 2010 year over year improvement in safety metrics, we continued that trend in the first quarter of 2011.

Continuous improvement of our safety performance is an important part of the culture at B&W, and for the first quarter of '11, our total recordable incident rate was 0.9, down meaningfully from the 1.29 reported in the first quarter of 2010 and the 1.17 for the full year of 2010. These rates compare exceptionally well to the average industrial rate in the United States.

As you noticed in the earnings release issued last night, we have expanded our reported segment disclosures and have provided unaudited quarterly segment information in this format, going back to the first quarter of 2009. In effect, we are disaggregating government and power into four separate operating business units that have distinct market characteristics and business models, thereby, providing investors a deeper look into our business.

Investors have been made aware of these four businesses, and, in fact, we described the business in our Company overview in the way that it is now currently reported. We believe disaggregation of these business units is required by the segment disclosure rules and is added the -- and has the added benefit of providing the investment community with a more comprehensive and in-depth look into the financial conditions of B&W.

So, now let me discuss some of the key events and market conditions that are expected to impact our business going forward. The most important for the quarter relates to the recent Environmental Protection Agency, or EPA, regulations. In March, the EPA issued final regulations on industrial boiler maximum achievable control technology, or IMACT, and issued draft regulations for the utility MACT. The final regulations for the utility MACT are expected later this year.

The issue of the draft utility rules is important, as it starts to clarify significant variables for our utility customers, who are waiting on these rules in order to begin the planning process for regulatory compliance. Today, customers are buying testing programs and engineering studies in order to first establish a baseline of where they stand, relative to the draft regulations. We are also receiving budget proposal requests from customers that are exploring alternative solutions for their particular assets.

Generally, we expect that several utilities will lead, while many others will wait until the rules become final before committing capital to their new air quality equipment. However, not all of the currently planned investment is a direct result of these rules, per se. Some industrial and utility companies that had made environmental retrofit agreements with the EPA, under the Clean Air Visibility Act, had deferred spending on those projects until the rules were published, in order to make sure they could comply with the latest regulations.

On a -- on the utility side, you may have recently seen a couple of major US utilities announce plans to spend billions of dollars on environmental retrofitting of their assets on a -- on much of their coal fleet, while also announcing the planned closures of some of their lower valued coal power generating assets. Again, the draft rules provide the clarity needed to begin planning for these retrofit efforts and ensuring compliance with the latest regulations.

Let me talk a bit about the draft utility boiler MACT specifically. As you know, these regulations, nearly 950 pages in length, were issued in March of this year. We have spent the last several weeks analyzing the draft and assessing the opportunity, compared to our previous estimates of market opportunity, project costs, timing, etcetera. Broadly, we would characterize the utility boiler MACT as somewhat more moderate than the worst case scenarios presented in the press prior to the draft release. The draft regulations impose numerical limits on three substances, mercury, which came out, roughly, as we had expected, hydrogen chloride, which stands as a proxy for acid gases, and total particulate were both drafted somewhat less strict than we anticipated and may allow for the deployment of more fabric filter solutions than originally expected.

Overall, we have estimated our potential serviceable market opportunity at approximately $12 billion to $24 billion. This is in line with our previous projections, although the product mix is somewhat different. We expect this to be a powerful market over the next several years, and we are well positioned from a technology installation and competitive advantage standpoint to benefit from the expected growth in this market.

Lastly, before I turn the call over to Mike, I would like to talk about a significant award we recently received. The Company and its consortium partner have been awarded a contract worth approximately $900 million to engineer, design, procure, and construct a new state-of-the-art waste to energy plant for the solid waste authority, or SWA, of Palm Beach County in West Palm Beach, Florida.

This includes a contract to provide operation and maintenance services for the new facility. The first ten year phase of the 20 year O&M contract is valued at approximately $235 million. The second ten year option period is not included in the $900 million total I just mentioned. B&W and its consortium partner will share the design and build work scope, while B&W will exclusively perform the O&M services.

We add a small portion of this contract in the backlog later this year, after SWA releases the consortium to begin the design and limited procurement, with the largest portion added to the backlog, [coincident] with the full release to proceed, scheduled for 2012. The new plant is to be located on 24 acres, adjacent to SWA's existing waste to energy plant, the Palm Beach Renewable Energy Facility No. 1, which also was designed, built, and has been operated by B&W for more than two decades.

B&W will design and supply three mass burn boilers, capable of generating up to 95 gross megawatts of electricity. Grates, ash systems, metal recovery systems, emission control equipment, including a dry flue gas desulfurization unit, bag house, carbon injection, selective catalytic reduction system, along with additional duct work and other components are in B&W's scope of supply. Let me now turn the call over to Mike, who will provide some detail on the overall financial performance. Mike?

Thanks, Brandon, and good morning, everyone. Revenues in the first quarter were $691.3 million, an increase of 4.4% from the first quarter of 2010. Consolidated operating income of $21.9 million was down from the $38.7 million reported in the first quarter 2010. Included in the operating income in the first quarter of 2011 was $11.1 million on a loss contract and other costs at NFS, as Brandon described earlier, as well as $21.6 million on a loss contract related to a nuclear project work.

Now, turning to each of our four segments, nuclear operation segment's revenues of $250.5 million increased $16.2 million, or 6.9%, in the first quarter of 2011, compared to the first quarter of 2010. This increase is principally the result of an increase in activity for navel nuclear reactor components and nuclear fuel.

Operating income of $30.5 million increased $6 million, or 24.5%, in the first quarter of 2011, compared to the first quarter of 2010. The operating income results were driven by strong productivity and project execution improvement on the production of nuclear reactor components, partially offset by the additional contract costs incurred at NFS.

Revenues in the power generation segment of $356.2 million for the first quarter of 2011 were basically flat, compared to the $355.9 million reported in the first quarter of 2010. This result was principally related to an increase in the volume of construction service projects and environmental aftermarket services, offset by a decline in demand for new-build environmental systems.

Operating income in the power generation segment, including the equity income of B&W's portion of its global joint venture, was $26.6 million in the first quarter of 2011, an increase of $5.9 million, or 28.5%, compared to the $20.7 million reported in the first quarter of 2010. This represents an operating income margin of 7.5%, an increase of 170 basis points from the prior year first quarter. The increase in operating income is principally related to the strong aftermarket service and replacement parts businesses and higher year over year royalty fees from our international licensees.

Power generation demand in the US is above prior year levels and is beginning to approach peak 2007 demand. Our customers' power generation systems are now running harder, following a period in which they significantly curtailed routine maintenance of their fleet over the last few years. If US economic growth continues throughout 2011, we believe the Company will begin to experience a recovery in capital and non-capital maintenance spending, as utilities will seek to minimize outage risks of their low variable cost coal fired power generation assets.

Additionally, environmental markets continue to be robust. Our joint venture in China continues to perform well and has maintained a backlog that is keeping the operation at essentially sold out conditions. In the US, over the last two years, major OEM new coal boiler and environmental projects peaked and have been moving out of our backlog without being replaced in-kind. Until we begin to see new large OEM environmental orders hit the books and begin generating revenue, the power generation segment operating performance is likely to remain in the lower end of our historical 7% to 10% operating margin guidance.

The nuclear energy segment revenues of $65.3 million increased $9.3 million, or 16.6%, in the first quarter of 2011, compared to the first quarter of 2010. The increase in revenues is principally due to the success achieved supplying nuclear components and volume associated with nuclear project contracts

Our operating loss of $37.5 million increased $26.1 million in the first quarter of 2011, compared to the first quarter of 2010. This loss includes the $21.6 million of cost on a loss contract for certain nuclear project work, as well as $15.9 million of research and development and selling, general, and administrative expenses related to the B&W mPower modular nuclear reactor program.

As planned, total expenses related to the B&W mPower have increased in the last several months to align the program schedule with continuing favorable market conditions and the plans of a potential near-term customer, as well as the anticipated costs of a cooperative development program.

Turning to technical services segment, revenues of $28.4 million increased $8.8 million, or 44.9%, in the first quarter of 2011, compared to the first quarter of 2010. Operating incomes, including the Company's portion of income from unconsolidated entities, recorded as equity income, of $12.1 million increased $1.4 million, or 13.3%, in the first quarter of 2011, compared to the first quarter of 2010.

This increase in operating income is principally -- is due principally to new contracts received in the second half of 2010 that were beginning to ramp up in late 2010 and early 2011. The largest of these contracts, awarded to B&W recently, the $2.1 billion Department of Energy decontamination and decommissioning contract for the Portsmouth Gaseous Diffusion Plant in Ohio, began operation in early second quarter 2011 and will ramp up to full-scale operations over the next several quarters.

The Company's cash and investments position, net of debt, was $375.3 million at the end of the first quarter of 2011, compared to $472.9 million at the end of the fourth quarter of 2010, a decrease of $97.6 million. During the quarter, the Company made cash contributions to the 2010 incentive compensation programs and made approximately $44 million in contributions to its pension plans.

In addition to the net cash, the Company maintains a $700 million revolving credit agreement with approximately $473 million of availability as of the end of the first quarter. The Company continues to maintain adequate liquidity to fund operations, which could include increased working capital requirements, internal growth, and R&D programs, as well as additional product and geographic expansion opportunities.

Our effective tax rate for the quarter was 28%, somewhat lower than the US (inaudible) rate, principally due to mix in earnings from a lower tax rate jurisdictions outside the US. Looking forward, I expect the expected -- the effective tax rate in the 35% range for 2011. Let me now turn the call back over to Brandon for some final remarks.

Thanks, Mike. I talked earlier about the recent developments in environmental regulations, so let me update you on the status of our other meaningful programs. Our long-term opportunity to provide a nuclear propulsion system for the next generation ballistic missile submarine is gaining traction. This is known as the Ohio-Class replacement submarine program.

During the first quarter the defense acquisition board recommended a program to include 12 subs at initial cost of $4.9 billion per unit, each with 16 87 inch missile tubes designed to carry the D5 missile. This first sub is expected to be ordered in 2019. Based on these parameters, we would expect to receive a contract for preliminary detailed design work sometime this year, with an initial order in approximately 2014 and to begin major manufacturing work in 2015.

Now I would like to turn your attention to the proposed fiscal 2012 budget put forth by the administration, which includes numerous ongoing and incremental funding of energy initiatives. Specifically, I would like to draw your attention to the Department of Energy budget proposal, which contains $97 million for a new small modular reactor development program to assist the industry with design, certification, licensing, and research cost.

This new program is comprised of $30 million for reactor concepts R&D and $67 million for cost sharing technology development and licensing of two near-term deployable SMRs.

Our understanding is that these funds are intended to be awarded to two SMR vendors on a 50/50 cost share program. Importantly, this program is intended to continue for five years, with the stated commitment of government participation through the first commercial deployment rather than a onetime funding event. While there is no funding in the government's 2011 budget year, we expect that the Department of Energy will issue requests for proposals sometime before the end of the current government fiscal year.

Also, our expansion in India continues as planned. We recently broke ground on our new ultra supercritical boiler manufacturing facility. Licenses and approval are in place, and the Company is beginning to actively pursue sales opportunities within the region. Our plan is to support our India joint venture with B&W's worldwide resources during the period until our facility is completed, sometime in the late 2012 timeframe. Our visibility to actionable projects is improving, as we invest in selling and marketing infrastructure, and our goal is to announce an initial [award] sometime this year.

Additionally, we have also recently signed a memorandum of understanding with Toshiba to cooperatively explore strategic manufacturing, research, and other opportunities in the area of advance supercritical power generation and advanced solar energy technologies around the world, including India. We will explore collaboration on project opportunities in India, making use of Toshiba's steam turbine and generator factory and B&W boiler factory, both now under construction in India.

As it relates to our USEC investment, you know that during the third quarter of 2010, we made the first tranche payment related 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 with the Department of Energy. According to the recent press announcements, it appears that USEC continues to make progress with regard to negotiating terms of the loan agreement and is targeting completion of the conditional loan guarantee by the end of the second quarter.

While we cannot the timing of the DOE's final loan approval with any certainty, we are hopeful that this process will be completed before the end 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 the important growth driver for our technical services segment.

Through the recently announced joint venture established between B&W and USEC, we will manage the manufacturing of the AC100 series centrifuge machine, 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 modular reactor initiative continues to accelerate, while interest in B&W mPower as a scalable, carbon free, and price competitive power generation solution for our utility customers also continues to grow. Recently, the Company has been assisting TVA, through a small services contract, in the planning phase for a potential construction permit application.

This application is expected to be submitted in the third quarter of 2012, which we expect will be the first ever construction permit application for a small modular reactor plant submitted to the NRC. We are in active discussions with TVA at this time to finalize the contract to complete the preparation of the construction permit application.

As planned, we have accelerated our R&D in market development program. As Mike mentioned, spending on R&D, plus SG&A, for mPower was $15.9 million in the first quarter of 2011. We have experienced an increase in potential customer interest, including a consortium of currently nonnuclear utility customers in the US, as well as interest from utilities and governments outside of this country.

The spotlight on nuclear safety, in the aftermath of the Fukushima Daiichi event in March, has not only raised the awareness of the inherent safety features of the new generation of nuclear power plants, including B&W mPower, but also, the significant defense in depth safety features of our B&W mPower design. We are actively engaged with a number of potential customers who have expressed interest in potentially being the second and third customers for this technology.

To summarize, as we exit the traditional slowest period of the year for B&W, our position and preparedness from the last quarter are unchanged. We remain focused and are moving forward with several near-term growth initiatives. We are focused on expanding nuclear parts and services in the US, preparing for an expected increase in maintenance spending by US utilities, development of the India 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 power markets [for our] environmental equipment, installation, power generation, parts and services. That concludes our prepared remarks. I will now turn the call back over to the operator, who will assist us in taking your questions. Karissa?

(Operator Instructions). And your first question comes from the line of Andy Kaplowitz of Barclays Capital. Please proceed.

Good morning, guys.

Good morning, Andy.

Good morning.

Brandon, you had mentioned in the press release that you achieved record bookings in the quarter on aftermarket parts, and your margins in the quarter, in power gen, while they were up from last year at this time, were lower than the last few quarters. So my question is when do you start to see these record bookings manifest themselves in better earnings in the segment, and how does that [foot], Mike, with the commentary that you'll be still at the low end of margins --of the 7% to 10% for the year?

Okay, Andy, the replacement parts business is a leading indicator for us, relative to the condition of the market. Overall, within the power segment, it is somewhat small at the top line and large in the margin line. While that was a record quarter in bookings, and that's usually quick turn shipments, so it's recognized pretty early, it was more than offset by timing of closeout of projects, and Mike had talked about the work down in the environmental projects that we've been experiencing over the last few quarters.

So those are sort of counter trending activities, and you really won't see the full effect of that until we start to build some backlog from the new environmental projects, and then, that will be additive to the good businesses that we have in the leading indicator markets.

I would also add, Andy, that we saw that same trend in some of the other smaller business segments, where small replacement parts were performing quite strongly.

Okay. That's fair, and, Brandon, we appreciate the additional disclosure. One question about it. So, if you look at that nuclear energy division, it has highly variable results over the last couple years. One quarter it's very profitable, the next quarter is loses money. Can you talk about what is going on in this division? Is it just the low revenue base leads to the variability? Are you just spending a lot of money to build this division, considering you really just reentered the nuclear replacement market? Can you give us more color on all that?

Sure. Basically, when I look at the nuclear energy segment that we're now reporting on, it consists of four operating business models within that segment. There's the nuclear equipment business, which we participated in for a number of years now, on a continuous basis. That's the replacement steam generators, replacement reactor heads, large components that we detail and engineer and build in our own facilities.

The other piece of the market that we have had continuous participation in, at least, in Canada and outside of the United States, has been the technical services business, which is the work that we do during a plant shutdown. It's a high tech business, where we do condition assessment of critical NSSS components. That is -- both of those two elements continue to operate profitably and -- in the past years.

Now, what you do have is quite a bit of volatility from quarter to quarter in the components business. The other two segments of that is the nuclear steam supply system, or the mPower, which is an investment at this time. We've talked about it quite extensively, and we have had some ramped up spend, commensurate with the commercial interest in that, as we talked about earlier.

And the fourth component is the nuclear projects, or some refer to it as the nuclear construction business, and that's the contract we had the issue on in the first quarter. That's a new opportunity that is driving us into a market that's got a substantial positive outlook in the future, and that has led to the volatility in the recent forecast.

But our backlog continues to grow in technical services and in the equipment business, and, of course, we've talked about the interest in mPower. So we would expect those to ramp up, levelize sometime in the future, after we get through that period of investment and expansion. And you are correct. To ramp up for these -- to service the US market, we've had to invest in the infrastructure of the Company.

Would you expect, generally -- if you exclude the mPower R&D, and you exclude the charges this quarter, would you expect the profitability of this business to ramp up this year, or is it going to still be a little variable as you go forward?

I think we'll have to live with the variability going forward, and it's not necessarily a bad thing. It's just a -- it's a byproduct of some of the bigger component contracts that come through that segment.

Okay. That's fair. I'll get back in queue. Thank you.

Your next question comes from the line of Will Gabrielski of Gleacher. Please proceed.

Thanks. Good morning.

Good morning.

Good morning, Will.

Couple of questions. I guess, one, the power equity income number -- power gen equity income number fell pretty steeply from the fourth quarter, still up, year on year. But you had talked about, maybe, a sustainable higher level in the China manufacturing joint venture quarter, and I'm wondering what the trend might look like there this year and how India is impacting that number?

The -- sequentially, that's correct, and I think if you tend to look at the historical performance of that equity income, particularly, out of China, the fourth quarter tends to be the strongest quarter. But, Mike, I don't know if you have the quarter over quarter results. They were still pretty strong, and I think they were up how much -- 15%?

Yes, we were up significantly. Just compare first quarter last year versus this year, Will. I think, kind of, as we indicated -- I think, on the fourth quarter call, I mentioned that although we made -- had about $31 million of total equity income for power generation, coming -- reported last year. That was, obviously, record results for that entity, and just overall, including all of our equity income, coming from all of our foreign operations. It would be hard to repeat that, going forward, but we still see very positive results, and, as Brandon said, we think that will ramp up over -- as the year goes forward.

As it relates to India, it's somewhat of a small drag at this point, just because we're investing there, and we've got some resources in the ground over there and all, as we're manufacturing facilities, and we're starting to do some marketing work over there as well. So we've got a couple of business development guys over there as well.

Well, I would add, with regard to India, on the timing of when that will be contributory to the equity income, bear in mind that these are long lead time power projects that run two to four years in duration. So you can -- once you start to see some backlog build activity out of that new joint venture, then you can follow more of a traditional E&C contract profile and the flow of equity income, as well as licensing income.

Okay. Within mPower, what do other potential customers need to see, maybe, from you or TVA, before you can start talking about formalizing relationships outside of just the initial TVA conversations?

Well, I would say that the process of formalizing relationships in serious discussion are an ongoing --- current and ongoing activity. I think it is supported by the commitment and -- that TVA is showing to the technology, as well as the support that we're getting out of Washington, both at the NRC and at the administration and on the hill.

Okay. And you don't expect any pushback if you start talking about international customers at this point, in terms of DOE/NRC reaction and timing?

Well, obviously, we have to go through the established process of securing government approvals to utilize this technology in a commercial application in the international market, but I would not expect that to be any different, say, than the path that Westinghouse has followed in that area.

Okay, great. Thank you so much.

Your next question comes from the line of Joe Ritchie of Goldman Sachs. Please proceed.

Thank you. Good morning, everyone.

Good morning.

I guess, just some clarification on the two charges that you took this quarter. If I heard your comments correctly, both projects will be completed within the next 60 days. Is that correct? And, I guess, as I start to think about the second quarter, can you talk a little bit about how much revenue is going to flow through both of the -- both through nuclear ops and nuclear energy at zero margin?

Okay. I'll take the first part of that. You're correct. With regard to the down blending contract, at the production rate that we have been running, over the last two to three weeks, on that contract, we would have that material fully processed over the next 60 calendar days. That's our current schedule that we're operating to.

With regard to the nuclear projects -- project, we are currently in day 34 of an 81 day outage, or basically, we have 47 days left in that outage on the rebased contract. With regard to the nuclear project, I'd also like to point out that there is a peculiar situation with that contract, in that the way we book and manage our POC accounting, we do it in a very conservative way.

We recognize all cost, when they're identified, and in this particular contract, we have to perform additional scope, as directed by the customer and the process of billing for that work was delayed by about a month, due to some negotiations with regard to the rates associated with that extra work. So there's some of the potential upside in future quarters that I mentioned earlier, and it will take some time to process a number of the claims back on the this contract that relate to customer responsibilities.

But you are correct. We would expect both of these situations to be -- they physical work to be completed over the next couple of months. So they are short-term in duration.

Okay.

Yes. And, Joe, related to the revenues you asked about, I think, on the nuclear energy segment, I would expect, kind of, zero margin revenues in the quarter of probably $30 million or less. And as it relates to the NFS situation, those revenues will be pretty minimal during the quarter.

Okay. Got it. But it also seems like, based on your comments, Brandon, that on the $30 million of additional revenue, there are -- there is a potential that that doesn't come through at zero margin -- actually, a high degree of probability that that doesn't come through at zero margin, given that there were scope changes to that project.

I think that's probably true. It's just a matter of whether those additional change orders and claims get recorded in Q2 or Q3. They could flip into Q3, just because it requires customer approval and stuff like that, from an accounting standpoint, based on the -- based on our accounting policies.

So it's just -- it's always hard, and that's -- as you follow anybody's business in this industry, it's always hard to say for certainty exactly what quarter you're going to get -- you're going to record the claims and change orders. I think we feel good that there's -- they're out there and that there will be some recoverability. Whether it's going to be second quarter or third quarter, that's probably the biggest question.

Okay, great. And, I guess, just following up on Andy's question earlier, on the variability of performance in the nuclear energy services segment, you mentioned the nuclear construction segment and that being kind of a new opportunity and the variability within that segment. Can you just provide a little bit more color there?

Those projects tend to be larger dollar volume than the technical services side, and they tend to have volatile revenue flows. In other words, with regard to engineering and outage planning, that's relatively low, normally, in the -- from a revenue and recognition standpoint. And then, you get into the outage -- for instance, the outage that we were talking about. We have roughly 350 to 400 people working on the project for a short duration. So you have these peaks of activity, and sometimes they occur within a quarter, sometimes they straddle a quarter. So that's part of the volatility.

One thing that I didn't mention in the prepared remarks that I'd like to share with you, with regard to the technical services business in the US. Within the quarter, although it was much smaller in revenue, we did complete our first outage for the client, with regard to steam generator inspections. It went very well. It was ahead of schedule, under budget. We had significantly outperformed the previous contractor that was doing that work for the customer, and it went very well.

Okay, great. Thanks. I'll get back in queue.

Your next question comes from the line of Scott Levine of JPMorgan. Please proceed.

Hi. Good morning.

Morning.

Morning, Scott.

With regard to the mix of fixed price versus cost plus within your business, can you provide some color with regard to how that it is overall and maybe, how that would be, relative to your four individual segments?

Scott, overall, it hasn't varied significantly over the last couple of quarters. It's about -- we're about 65% fixed price, 35% [in T&M] nature, in general, and as it relates to each individual segment, I don't have that in front of me, but, in general, you just -- you kind of -- it's a pretty good percentage as you think about the PGG.

On the NOG work, most of that would be what we'd classify as fixed price, but, I mean, it's a unique contract, because it's a target incentive price contract, but technically, we do put all of that in the fixed price bucket. But -- as you can look at the history there, we perform very, very well in that NOG business and all.

And then, on the other side, there really -- the last segment that has significant backlog is the nuclear energy segment, and there, you'd see similar type -- probably, in the 50/50 or 60/40 type background. Probably a little more -- closer to 50/50 on that -- in that segment. So, hopefully, that helps you out, from that standpoint.

It does. Thanks. And as my follow-up, maybe, regarding the Toshiba relationship here. It seems like the focus of the release was largely India, but it also mentioned, maybe, some other geographies. I was hoping you could provide some additional color on the types of businesses and where and maybe an update, if any, on activities in Japan. I think you're teamed with them and Shaw Group there.

Certainly. You read the release correctly that the primary focus of the collaboration is the Indian market. Toshiba is in the process of actually standing up a facility in India for the manufacture of steam turbines and the electric generator components. At the same time, we're in the process of launching the B&W joint venture. So there's a natural area of cooperation there, for those projects that require a power block approach to their buying structure.

Then, secondarily, there's a greater market in Asia, outside of China, where there's a natural area of cooperation, and we have historically worked together with Toshiba on a number of those projects. We've just sort of formalized our collaboration in that area, if you will, and part of that is related to our collaboration with them with regard to the USEC investment.

They're our partner on the American Centrifuge initiative, and through that, that gives Toshiba access to a lot of our nuclear capability, and we're supporting them in their efforts with regard to their approach to the Daiichi operation over there. We have a number of technical advisors on the ground now, working with them to see if there's a significant commercial potential with regard to the long-term remediation of that site.

Great. Thanks.

Your next question comes from the line of Graham Mattison of Lazard Capital Markets. Please proceed. Mr. Mattison, your line is open. You may proceed.

Your next question will come from the line of John Rogers of D. A. Davidson. Please proceed.

Hi. Good morning.

Good morning.

Good morning, John.

First, could you just remind me -- in terms of the R&D schedule for mPower this year, how does that run?

I think what we had said on the fourth quarter, and we're still kind of running on that, John, is that we're going to see a pretty significant ramp up and probably approaching the $75 million to $80 million range for the year. So, for this quarter, you saw $14 million to $15 million of spend.

Right.

You'll see that ramping up over the next several quarters, kind of, approaching the $20 million range, as we get into the second, third, and fourth quarter.

Okay. Thank you. And then, in terms of the -- I guess, what I would classify more as maintenance capital regular upgrade to the -- especially, the coal fired fleet, as power production rates increase, what is the normal time lag of when you start to see that impact your business, and is that, really, in terms of orders late this year and if we have a steady ramp, or is it more into 2012? Could you just kind of walk, Brandon, your experience with the cycle there?

Yes, I would, John. It goes something like this. I mean, we're seeing small order activity now, in the area of engineering studies. These are basically feasibility or optionality studies, and we also provide emissions monitoring and emission testing services, where the utilities need to baseline against some of these other components that are now falling under regulatory control. That's followed by budget proposals, backlog build, and then, execution build. I think one of the more indicative indications of that is something that we look at closely is bids outstanding and the power gen perspective bid [list].

With regard to bids outstanding, I think we've talked about this in previous calls. At the end of the -- of Q4 of 2010, that was $3 billion, and the quarter before that it was $2.7 billion, and now, at the end of Q1 '11, that is at $3.9 billion. So you can start to see, from the bids outstanding, metrics that we monitor, a ramp up, and attention to that particular market segment. And then it varies. Like I mentioned earlier, there are some utilities that will go forward. A couple of them, if you've been monitoring the press releases, have come out and talked about the order of magnitude of their spend.

Yes.

They are more likely to go early, and some will go late, but we expect this to be a substantial market of opportunity for the next few years.

Okay. Okay. Thank you. That helps.

Your next question comes from the line from Steven Fisher of UBS. Please proceed.

Hi. Good morning.

Morning, Steve.

Good morning.

I just wondering what would a macro weighted more towards fabric filters mean for your revenue and profitability mix, compared to one that would be more scrubber heavy?

With regard to -- it's sort of ironic, but the -- we did an in-depth analysis and tried to target this market prior to the release of the draft regulations, and I mentioned that the total amount is about the same, but the product mix is different. I would add that the margin impact is more or less the same with any of our environmental solutions, because they are systems oriented solutions. So we're sort of indifferent with regard to the product mix as it relates to margin.

Okay. So, maybe less on the revenue side, but margin percentage might be the same.

Well, actually, if you look at it, we give a very broad range, but it has to do with how the customer buys the solution and how it's delivered to him, of that $12 billion to $24 billion. So that range, by coincidence, fell out to be about the same in our pre versus post release analysis. It's the product mix that changed a little bit.

Okay. And then, just following up on John's question there. When we start to get into the thick of this utility maintenance spending, just kind of wondering how that manifests itself. I mean, are these going to be the larger components and things that we'll actually see press releases on, or is it just going to be more volume of smaller components? And you talked about going from $3 billion to $3.9 billion of bids outstanding. I mean, how concentrated is that incremental $900 million?

Typically, the maintenance spend by the utilities falls into two categories. There's the capital maintenance and noncapital. The noncapital maintenance usually is in the area of our replacement parts business. Those are basically build and ship in-kind.

The larger projects are the ones that often get deferred during a recessionary period like we've had, that may be an economizer replacement or a [water wall] section, major rebuilds of pulverizers, etcetera. Those typically fall under the $25 million mark, which is, more or less, kind of where we make the cut for press releases. So a lot of that comes and goes, and you never hear about it.

Some of the larger projects we will do press releases on, but that activity is driven by the customers' desires and needs and the economic benefits they gain by keeping their low cost generating coal assets at peak operating performance, both on availability and capacity factor. And as the overall generation loads go up, there's nothing unique about this particular cycle, other than the magnitude and the length of it. The customers tend to defer that, and then spend more as they come out of that cycle, and that's what we would expect to continue to occur over the next four to eight quarters.

Yes. And then, Steve, as -- I mean, as it relates to the environmental regulations -- as those projects come to market, obviously we would be issuing press releases on those, so those will be larger in nature and longer term in nature. Those are typically 18 to 30 month type projects.

Sure. Okay. Thanks a lot.

Your next question comes from the line of Bryce Humphrey of BB&T Capital. Please proceed.

Hey. Good morning, guys. Thanks for taking my call. This is Bryce on for Rob.

Good morning.

To follow up on the comments on increased bidding activity in power gen, relative to pricing and margins in that business, is work that you're booking today or that you're bidding on today being booked or bid on at higher prices and margins than, say, that of 2010?

With regard to 2010, I think it would be better to address your question relative to the basic business cycle.

Okay.

The classic profile, with regard to the business cycle, is that early projects coming off the bottom tend to be bid by the industry -- not by B&W, but by the industry in a lower margin than those in the latter part of the cycle.

With regard to the power gen segment, they have a very disciplined business approach. We went through this in the last cycle. We were willing to pass on some early opportunity projects so that we didn't -- if you would, we didn't load up our backlog with low margin projects. We're following that same strategy this time around. So, while the traditional business trends will be in effect, and they'll have some dampening effect on the margins, we will continue to apply a very disciplined bidding approach with regard to margin on those projects.

Okay. That's helpful. And then, to follow up, regarding some of your environmental after market equipment and services, what's the lead time for those parts right now? Say, a scrubber, if ordered today, until installation?

If you had a -- of course, each one of these projects is site specific, and it depends on where you have to work, how much access you have to it, etcetera, but a typical wet scrubber project, from beginning to end, would nominally probably run about 36 months. It would be to the long side of that scale that Mike talked about.

Okay. That's very helpful. Thanks a lot, guys.

Your next question comes from the line of Tahira Afzal of Keybanc. Please proceed.

Morning, gentlemen.

Good morning.

Good morning, Tahira.

Couple of questions. Number one, gentlemen, in regards to Toshiba, does this official agreement you have at Toshiba really change the scope of work or profitability you could get from your coal opportunities in India? And then, in regards to Toshiba again, are they developing their own small reactor technology? Have they shown any interest in yours? And you did indicate that you have seen increased interest, even from international clients, perhaps, on the SMR front, on -- for mPower.

Would love to get a little more color on what you think might be driving it, whether it is the Japanese issue, and if so, if you could go into a little more depth into mPower's edge, in terms of safety versus traditional nukes.

Okay, Tahira, let me answer your one question there.

Sorry about that.

First of all, with regard to the collaboration with Toshiba, basically, what that does is it allows us to expand our addressable market.

With regard to India and other greater Asian power projects over there in the coal market, some of those, depending upon the customer's desire, migrate toward a -- what we call a power box solution that allows us and Toshiba to work cooperatively to provide them, say, with a heat rate guarantee, because they are basically in the business of providing high quality, high performance turbines and generators. Whereas, we take the other end of it and convert the coal into steam. So it basically increases our addressable market and gives us some advantage in that regard.

With regard to SMRs, there is quite a bit of activity as it relates to the inherent safety features that relates to our approach to the market. That is going to continue to drive general interest in that technology, and I think it relates to the fact that you're aware of -- the fact that Toshiba, through their Westinghouse subsidiary, announced that they thought that was the next greatest innovation in nuclear technology, and we're gearing up to enter into that technology arena.

With regard to international clients and nuclear power in general, I would say that the conversation -- the dialog has been very adult like, following the incident in Japan. Certainly, I believe that the foreign markets, like China, India, Korea, and others, will continue to accelerate their nuclear programs, while they'll be diligent and mindful of the lessons learned from Daiichi.

They will not -- I do not think that will be a drag. If anything, it will be a compliment to their initiatives going forward, and therefore, they, too, then have interest in the particular application of SMRs into those markets. So we're seeing increased level of activity from potential foreign markets for that technology. I hope that answers your question.

Yes, it does. And my follow-up question is in regards to the environmental space. I have listened to most of the utilities calls during this earnings season. You've probably seen American Electric Power's presentation, which is fairly (inaudible), and Southern Company is indicating that (inaudible) was favoring fabric (inaudible).

It seems they might be having some issues in terms of practical use and might move more toward scrubbers. It seems a lot of the utilities in general are indicating more on the upper end of spending levels in their range versus initial -- the initial ranges they did give out. Would love to get a sense whether it's really too early to comment if that ends up being the case, and how much of that is just posturing by the utilities at this point?

Actually, I think the utilities are very spot on with some of their early comments. There's a technical debate as to whether the suitability of sorbent injection versus scrubber technology -- as to what margin it provides when it's a performance achievement.

And also, I'd say I've read a good deal of the draft regulations and some of the early releases by the EPA, and historically, the EPA analysis has been on the low side, relative to the cost impact to the utilities. That is just sort of a built-in bias of the analysis process, I think, that they use. So the -- while there's always a certain amount of posturing ongoing in the -- in -- around these issues, the information that you've seen relative to dollars to spend and the comments on technology from the utilities, I believe them to be honest and straightforward.

Thank you very much.

Your next question comes from the line of Martin Malloy of Johnson Rice. Please proceed.

Good morning.

Morning, Marty.

In terms of the Department of Energy's small modular reactor program, you talked about applying for it by the end of this year. When would you expect to get funds in to offset some of your R&D expense for that program?

The timeline there is not exactly crystal clear, but we have a pretty good believe that the request for the quotations will be out in the current fiscal -- or the current government year, which will be our third quarter. The proposals would go in -- that's where it kind of gets -- it gets fuzzy.

The selection time and the Q&A and the bid clarification process can vary by a factor of sometimes two to three in these type of proposal activities. But if all goes reasonably well, and there's a high level of interest and commitment to this technology, it's possible that the -- they could have the two SMR technology providers selected by the first half of calendar year 2012, next year, and we'd start to see some of those funds freed up to support the various development activities. Could occur earlier in the year. It could occur later in next year, but we're not planning on any of that money flowing in the fourth quarter of this year in our planning process.

Okay. And did you mention when you'd be booking the Palm Beach waste energy plant into your backlog?

Yes. There will be a relatively small amount of it that is going to be released for engineering and long lead time procurement this year. I believe -- I reserve the right to change my answer on this, but I believe that occurs in the early part of the third quarter. And then, the bigger part, or the full release, occurs next year in 2012.

Okay. Thank you.

And your next question comes from the line of Vance Edelson. Please proceed.

Good morning, guys. I'll be quick. Regarding the discussions taking place to provide nuclear technical assistance in Japan, can you give us a feel for the timing, because the situation, obviously, seems relatively urgent, suggesting your assistance might be needed right now, or is the nature of the work being contemplated more long-term in nature?

Well, it's actually a combination of both, but let me say that the long-term cleanup remediation of that facility is -- will be years in the execution. This is going to be a huge undertaking that will be mostly a domestic led initiative, with technical support from companies like ourselves and others in the arena. And it's going to move at its own pace. I don't expect that we'll have any commercial clarity for some time yet, because it is still in the optionality phase.

In other words, the country and TEPCO are developing their long-term options relative to that project. Of course, the near-term is the continued stabilization and movement of the reactors into a pure cold shutdown method, and that is more mental in nature and less physical, if you would, in those exercises, but the long-term remediation -- cleanup and remediation of that plant could very well take a decade.

Okay. That's helpful. I'll leave it there. Thanks, Brandon.

At this time, I'd like to turn the call back over to Mike Dickerson for closing remarks.

Thank you, everybody, for joining us this morning. That concludes our conference call. A replay of this conference call will be made available for a limited time on our website. Also available on our website is the Company overview, with additional information that will be shared investors and analysts at various meetings throughout the quarter. Thanks, and have a good day.

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