BWX Technologies Inc (BWXT) 2013 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Babcock & Wilcox Company fourth quarter 2013 earnings conference call. (Operator Instructions) I would now like to turn the call over to our host, Ms. Jenny Apker, B&W's Vice President, Treasurer and Investor Relations. Please go ahead, ma'am.

Thank you, Sharqwana, and good morning, everyone. Welcome to the Babcock & Wilcox Company's fourth quarter 2013 earnings conference call. I'm Jenny Apker, Vice President, Treasurer and Investor Relations at B&W. Joining me this morning are Jim Ferland, B&W's President and Chief Executive Officer; and Tony Colatrella, Senior Vice President and Chief Financial Officer.

Many of you have already seen a copy of our press release issued last night. For those of you who have not, it is available on First Call and on our website at babcock.com. During this call, certain statements we make will be forward-looking. I want to call your attention to our Safe Harbor provisions for forward-looking statements that can be found at the end of our press release.

The Safe Harbor provision identifies risk factors that may cause actual results to differ materially from the content of our forward-looking statements. Our Annual Report on Form 10-K and quarterly reports on Form 10-Q on file with the SEC, provide further detail about the risk factors related to our business. Additionally, I want to remind you that, except as required by law, B&W undertakes no obligation to update any forward-looking statements to reflect events or circumstances that may arise after the date of this call.

Also on today's call, the Company may provide non-GAAP information regarding certain of its historical results to supplement the results provided in accordance with GAAP, and it should not be considered superior to, or as a substitute for, the comparable GAAP measures. B&W believes the non-GAAP measures provide meaningful insight into the Company's operational performance, and provides these measures to investors to help facilitate comparisons of operating results with prior periods, and to assist them in understanding B&W's ongoing operations.

A reconciliation of these non-GAAP measures can be found in our fourth-quarter earnings release issued last night, and in our Company overview presentation posted on the Investor Relations Section of our website at babcock.com. Due to the number of participants on today's call, I would ask that you limit yourself to one question and perhaps one follow-up. You are, of course, welcome to get back in the queue. And with that, I will turn the call over to Jim.

Thank you, Jenny. Good morning, everyone. This morning we'll spend a few minutes on 2013, move into a discussion of 2014, and importantly, discuss three strategic items important to B&W. For the fourth quarter, consolidated revenues were $802 million, a decrease of about $62 million, or 7.2%, compared to the prior year fourth quarter, primarily due to lower revenue in our Power Generation segment.

Bookings in the fourth quarter 2013 totaled $483 million versus $1.17 billion in the fourth quarter of 2012. While some of the decrease is attributable to lower volume awarded in the Power Generation segment, the bulk of this decrease is due to the timing of the annual bookings in our Nuclear Operations segment. Awards usually received in the fourth quarter were delayed due to events associated with government shutdown and budget approval. We have already booked more than $600 million associated with these contracts in the first quarter of 2014.

Adjusted consolidated operating income, which excludes the impact of the pension mark-to-market adjustment and restructuring costs for the fourth quarter of 2013, was $86 million compared to $97 million in the fourth quarter of 2012. A year-over-year increase in the operating income from the Power Generation segment was offset by modest decreases in the operating income in the Nuclear Operations, Nuclear Energy and TSG segments. Tony will discuss the results of each segment in more detail shortly.

In the fourth quarter, the Company generated $0.52 in adjusted earnings per share excluding the impact of pension mark-to-market changes, restructuring charges, a non-cash impairment charge, and discrete non-recurring tax items. This compares to adjusted earnings per share in the fourth quarter of 2012 of $0.56, also excluding the impact of pension mark-to-market and certain non-recurring tax items.

For the full year 2013, consolidated revenues were $3.27 billion, essentially unchanged from $3.29 billion in 2012. Adjusted earnings per share for the full year 2013 were $2.27, a 4.6% increase compared to 2012 full year adjusted EPS of $2.17. A higher than expected quarterly tax rate and a fuel quality issue on a project caused us to fall $0.03 below the low end of our guidance range.

During the quarter, we repurchased more than 525,000 shares of common stock at a cost of approximately $17 million. We announced last night that our Board of Directors approved a $250 million increase to the authorization to repurchase the Company's outstanding common stock.

Through December 31, 2013, we've purchased a total of more than 9.5 million shares at a cost of $254 million leaving approximately $496 million of capacity remaining under our now $750 million share repurchase authorizations. I'll speak more about this program toward the end of the call.

Next I would like to talk through our five business segments highlighting key performance drivers for each business and what we expect from each segment in 2014 and beyond.

Let's start with our Nuclear Operations group. With a multi-year bipartisan federal budget deal in place, concerns over the impact of the defense budget cuts on the Virginia-class program have diminished significantly. We expect to continue to build the components for the Virginia-class submarines at a rate of two per year at least through the end of this decade. The Navy has plans for the construction of 48 Virginia-class subs and we are less than halfway through the program.

We are currently involved in the initial design work on the Ohio-class replacement sub with manufacturing for that vessel scheduled to begin in 2019. And we continue to manufacture the components for the Ford-class carriers at the rate of one every five to six years. Revenues and operating margins in the Nuclear Operations segment remained strong in the quarter and for the year. We continue to execute the manufacturing of components and fuel very effectively.

Operating margins in Q4 were, as expected, somewhat lower than in the prior three quarters of 2013 due to the impact of seasonal holidays on production schedules. In 2014, we will remain focused on quality, safety, and execution in this bedrock B&W business.

Moving onto our Technical Services group. Let me start by addressing Y-12 and Pantex, the two largest sites B&W manages in the NNSA weapons complex, which together, represent slightly more than half of TSG's operating income.

A year ago, we announced that we were not awarded the combined contract for the management and operation of the Y-12 and Pantex sites. Based on the careful evaluation and comparison of the procurement criteria versus the criteria actually applied we protested the original contract award and won. We protested the second award based on the same thought process. We await word from the General Accountability Office on the outcome of our latest protest, and expect to have the GAO's decision shortly.

In the meantime, we continue to manage both facilities at the highest level of performance with, first and foremost, the nation's national security interests in mind.

To grow the business we are pursuing opportunities to bring our expertise to other sites operated by the Department of Energy, the Department of Defense, and high consequence sites with similar missions in Canada and the UK. These are generally longer-term opportunities that we expect will be bid in late 2014 or in 2015 and would produce operating income in 2015 or later.

Whatever the eventual outcome of the Y-12/Pantex contract, we remain focused on executing our missions on the 18 sites we currently operate on and leveraging our B&W technical and project expertise to grow TSG going forward.

Regarding our decision to impair the remainder of our investment in USEC: even though we are supportive of USEC's efforts to seek voluntary pre-packaged plan of reorganization under Chapter 11 of the Bankruptcy Code there are a number of uncertainties and material conditions precedent to that filing.

Accordingly, we have reassessed the carrying value of our preferred stock investment in USEC, and based on this risk, we have recorded a $19.1 million non-cash impairment charge to write off the remaining book value of our investment. However, we are in active negotiations with USEC and its noteholders on the restructuring of our preferred investment, which could result in at least a partial recovery of our original investment depending on the outcome of USEC's voluntary plan of reorganization.

We been involved in the American Centrifuge program at USEC since 2007 and are very proud of our contributions to the program. Our direct activities have produced approximately $265 million of revenue for B&W and generated operating income in excess of our original investment in USEC preferred stock. We continue to manufacture components for and provide technical support services to the American Centrifuge program as a part of our ongoing commitment to support our national security interests.

Shifting to PGG. Moving into 2014, our Power Generation business is challenged by slow electricity demand growth, low natural gas prices, and an uncertain regulatory environment in the US. With a few exceptions, our US utility customers are reluctant to invest in big dollar projects until there is better clarity on the future regulations on coal-fired power plants.

On a positive note, customers are moving forward with an increasing number of smaller service projects, and in the fourth quarter, we saw a healthy level of field engineering services activity. Our after-market services and replacement parts business experienced a strong fourth quarter and full-year 2013, reflecting a higher percentage of coal-fired power generation in the US than a year ago, largely due to year-over-year higher natural gas prices.

We are aggressively working on a number of programs to drive cost out of the PGG business, both to improve our competitiveness and improve margins despite challenging market conditions. Our global competitiveness initiative was a good first step, but we clearly need to do more, and we are now looking at broad structural changes to further reduce costs and drive margin improvement.

Going into 2014, GCI has allowed us to hold the margins in Power Generation in the 9% to 10% range despite an expected market driven decrease in revenues of $200 million per year. In 2014, we're focused on continuing to drive margins with the goal of generating margin improvement of 200 to 300 basis points by the end of 2015. The eventual market recovery and resulting improvement in revenue are expected to then drive even more upside opportunity.

Bookings in the Power Generation segment remain slow and below prior-year levels. As a result, we expect revenue to be down in 2014 with a modest recovery in 2015. In our new build environmental business, MATS and the Regional Haze rules are producing the majority of the new business opportunities at this time while we await the Supreme Court's decision on the CSAPR appeal. The Supreme Court decision this summer in support of the original EPA rule would likely produce revenue growth opportunities for B&W in 2015. However, a decision to uphold the appeals court ruling would likely mean it could be 2016 before we see any meaningful CSAPR-related work.

The bid pipeline for PGG improved during the fourth quarter and is now at almost $2.6 billion. The increase is related to some larger environmental projects now developing for potential late 2014 awards. Further, the quality of our bid backlog has improved with less reliance on large one-off international boiler awards, and a greater number of smaller, but higher probability orders that line up well with our core competencies.

Finally, with respect to the Power Generation segment, I want to give you an update on the status of the biomass power plant project we discussed on previous calls. We've been unable to reach a settlement agreement on the claims filed earlier in the year and we are now in litigation on that topic with the customer. As a result of a dispute over the quality of the fuel provided by the owner, we've taken an additional $5.4 million write-down related to the owner-asserted delays in substantial completion.

At this point, the construction of the facility is essentially complete within the contingency previously established. We are working to resolve the fuel issues and reach an appropriate settlement of these new claims, as well as of our previous claims, which total nearly $40 million.

Our Nuclear Energy segment is in transition.

NE services business continues to drive most of its revenue from servicing the Canadian nuclear fleet.

The refurbishment cycle of the Candu fleet is predictably cyclical, and 2013 and in 2014, as we discussed in previous calls, represent the low part of the cycle based on the number of planned outages. We see a return to growth in this business starting in 2015 related to the planned refurbishments of Candu reactors at the Darlington and Bruce stations. We are also experiencing growth in our relatively small US services business.

NE's equipment business completed the Davis-Besse replacement steam generator contract in late 2013 and manufacturing of the replacement steam generators for TVA's Bellefonte unit is nearly complete. The demand for heavy replacement components for the North American nuclear market has declined significantly and is not expected to recover for some time. In the meantime, we have secured new orders for the manufacture of dry fuel storage and waste storage containers for major Canadian utilities, and are pursuing component opportunities outside North America.

In the fourth quarter, we made the decision to wind down our US nuclear projects business. This business had lower margins and higher financial risks. We completed work in 2013 on all activities in this unit except one large outage project for a domestic utility, which will be completed at the end of the first quarter 2014. For 2013, this product line generated approximately $87 million of revenues and operated at a small loss for the year.

In response to the lower volume in the NE business, we are aggressively right sizing our Canadian and US operations. These activities include shrinking our footprint through the sale or closure of excess manufacturing capacity, outsourcing non-core activities, and reducing fixed overhead. Our goal is to restructure the business to produce operating margins of 10% or better, even in periods when sales volume is cyclically low.

Turning to mPower. Last quarter, we announced that we were initiating a process to sell a majority interest in Generation mPower, in which we today own 90%.

That process led by JPMorgan is well underway. It has been challenging to find parties interested in a majority position in the technology, primarily due to delays in large-scale deployment timelines for SMR technologies in the US and abroad. It is unlikely that we will be able to achieve our desired ownership level in a timely manner.

We are reevaluating our options and expect to be in a position to announce our plans for mPower in the next four to six weeks. In the meantime, we've lowered our anticipated 2014 spending for mPower to a range of $60 million to $70 million.

An update with respect to our global competitiveness initiative. We launched this program more than a year ago.

We were targeting total annual savings of $40 million to $50 million to be achieved on a run rate basis by 2015, and we expected that we would incur costs of approximately $50 million to achieve these savings. We've increased the savings targets over the course of the past year as we identified incremental opportunities, and have now achieved or identified more than $75 million of savings inclusive of the $15 million to $20 million from manufacturing optimization activities that we expect will be completed in 2015.

Building on the success of GCI, we are evaluating additional structural changes we can make in our commercial businesses that will drive additional margin improvement. Restating our targets, our goal is to improve operating margins in the Power Generation business by 200 to 300 basis points, and to achieve a 10% or better operating income margin in the Nuclear Energy segment, both by the end of 2015.

I expect to be able to give you detailed plans on these activities in the first quarter call in May.

I will now turn it over to Tony to discuss the segment results and other financial matters, after which I will share with you the Company's outlook and priorities for 2014.

Thanks, Jim.

Revenues in the Power Generation segment for the fourth quarter of 2013 were $408 million compared to $448.3 million in the fourth quarter of 2012, a decrease of 9%. This decrease in revenue was driven by a 52% decline in the new build environmental systems business due to lower scrubber sales, reflecting both strong 2012 for performance and fewer new scrubber projects booked in 2013.

Revenues from new steam generation systems were down 8.2% year-over-year, primarily due to a reduction in industrial boiler sales. Fourth quarter revenues in replacement parts and after-market services business were up 21%, reflecting an uptick in coal plant utilization rates as utilities reacted to rising gas prices and increased demand for electricity. Operating income in the Power Generation segment, including the equity income of our global joint ventures, was $53.6 million in the fourth quarter of 2013 compared with $45.2 million for the fourth quarter of 2012, an increase of 18.6%.

This year-over-year improvement in operating income was primarily due to favorable contract execution and a reduction in SG&A expenses as a result of ongoing cost reduction initiatives. The contribution from new build environmental systems decreased 38.6%, primarily due to lower volume. After-market services operating income increased by 10% driven by a quarter-to-quarter increase in spare parts sales, which is typically a leading indicator. Segment improvements included a reduction in losses attributable to the biomass project Jim discussed earlier.

However, in the quarter, we did record charges totaling approximately $7.8 million for owner-asserted delays in substantial completion due to a dispute over fuel quality which resulted in an additional net write-down on the project of $5.4 million. We continue to pursue reimbursement of these costs through an appropriate and fair recovery of these claims. Equity income contributions from the Company's joint ventures increased by 23.8% compared to the fourth quarter of 2012, primarily due to strong performance from our Chinese joint venture.

Backlog in Power Generation was $2.1 billion at the end of the fourth quarter 2013 compared to $2.5 billion a year ago, reflecting lower environmental systems bookings in the latter half of 2013.

Now turning to the Nuclear Operations segment, reported revenues of $293.4 million in the quarter compared with $298 million in the fourth quarter of 2012. Nuclear Operations segment operating income was $53.6 million in the fourth quarter of 2013, a 9.5% decrease compared to the prior year period.

The decline in operating income was primarily attributable to exceptional performance due to the early completion of the Navy fuel contract in the prior year and the timing of closeout costs associated with down-blending contracts in our nuclear fuel services division. Backlog in Nuclear Operations at the end of the fourth quarter was $2.4 billion versus $3.0 billion backlog at the end of 2012. As mentioned before, delays caused by the government shutdown and the new budget agreement have impacted the timing of our annual booking in this segment, and more than $600 million in bookings associated with these contracts have already been recorded in the first quarter of 2014.

Nuclear Energy segment revenues were $104.7 million in the fourth quarter of 2013 compared to revenues of $96.7 million in the fourth quarter of 2012, with the increase in revenue primarily attributable to a large nuclear project which offset lower activity in nuclear services and equipment manufacturing. The segment produced an operating loss of $1.6 million this quarter compared to a $9.1 million gain in the prior year period, which benefited from higher margin mix related to more profitable equipment contracts as compared to the current quarter, which was impacted by a greater percentage of US project work, a business we are now exiting.

Technical Services segment revenues in the fourth quarter of 2013 were $26.4 million, a decrease of $2.2 million versus the fourth quarter of 2012. Operating income of $10.4 million decreased $3.6 million in the fourth quarter of 2013 compared to the fourth quarter of 2012. This reduction in Q4 operating income is due primarily to net lower award fees earned on certain NNSA-managed sites.

mPower segment operating income decreased $2.4 million to a loss of $27.7 million in the fourth quarter of 2013 compared to a loss of $25.3 million in the fourth quarter last year, primarily as a result of increased business development expenses as compared to the prior year. Research and development expenditures related to the B&W mPower development program increased -- I'm sorry -- increased by $24 million, offset by the recognition of $24.1 million of the Department of Energy cost sharing award under the cooperative agreement. There was no cost sharing award recognized within the corresponding period in 2012.

In December 2012, we adopted mark-to-market accounting for our pensions and post-retirement plans. In the fourth quarter of 2013, we recognized net actuarial gains related to our pension and post-retirement plans of $220.5 million compared to a net actuarial loss of $31.9 million reported in the same period of 2012. This year's gain was primarily driven by rising interest rates which increased the discount rate we used to calculate the present value of our B&W pension and post-retirement benefit plan obligations for both our domestic and foreign plans.

Because of the potential volatility of these actuarial results and our inability to predict them, we do not include these annual mark-to-market gains or losses in adjusted earnings per share.

In the fourth quarter of 2013, the Company's effective tax rate, after removing certain non-recurring adjustments primarily related to foreign tax positions, was 37.2%. It should also be noted that no tax benefit was recognized on the USEC impairment charge which impacted our GAAP effective tax rate in the quarter and for the full year.

The full-year effective tax rate for 2013, again, after adjusting for the non-recurring tax items, was 31.5%, slightly above our internal estimate. This year's effective tax rate includes the recognition of the R&D tax credit for both 2012 and 2013. As of this date, the R&D tax credit has not been extended for fiscal year 2014.

The Company generated cash flow from operating activities of $143.9 million during the fourth quarter of 2013 compared to $264.2 million in the fourth quarter of 2012. The primary driver of this decrease in fourth quarter operating cash flow was a decline in the net amount of contracts in-progress and advance billings on contracts which was driven by the lifecycle of projects in process, particularly in our Power Generation segment. When a new project is booked, we typically collect advance payments to support outlays for long lead time material and labor before certain early milestone costs are incurred.

When you look at a portfolio of projects in a robust business environment where new projects are starting up regularly, a level of advance payment tends to increase creating a source of cash flow from operations. In a steady-state environment, the increase in advance billings tends to be balanced by the increases in cost in-progress. And in an environment of lower bookings and revenue growth, as we are experiencing now, the rate of growth of advance payments is generally slower than the growth in cost in-process resulting in a net use of working capital.

As of December 13, 2013, the Company's cash and investments position net of debt was $402.3 million compared to a net balance of $532.9 million at year-end 2012. For the full year, the Company generated $193 million of operating cash flow before pension contributions of $67 million, capital expenditures of $65 million, dividend payments of $38 million, and $157 million for the repurchase of common stock. Now let me turn the call back over to Jim for a discussion of our guidance and priorities for 2014.

Thanks, Tony.

Now I'd like to address our outlook for 2014. We expect consolidated revenues in 2014 will be in the range of $2.9 billion to $3.1 billion, reflecting the challenging business conditions in our commercial units and relatively flat revenue in our government segments.

Our business plan contemplates adjusted earnings per share in 2014 will be in the range of $2.00 to $2.20. Adjusted EPS excludes mark-to-market adjustments for pension and post-retirement plans and restructuring charges. Included in these projections are an expectation of net mPower spending of approximately $60 million to $70 million, an effective tax rate between 32% and 33% and no unusual items. This guidance also assumes that we repurchase $100 million of common stock during 2014.

The Company is working on initiatives that will improve our results and are committed to taking additional actions to drive value for shareholders.

With that in mind, I'd like to talk about our priorities for 2014. First, maximize business performance. As I mentioned earlier, we will be focused on increasing margins in our two commercial business units through structural changes that address the challenging conditions we face in the coal and nuclear markets.

As we improve margins now, we will have much stronger operating leverage in each of these businesses as we identify opportunities for revenue growth.

Second, execute our mPower plan. Within the next four to six weeks, we intend to reach a decision on the best path forward with respect to mPower. Executing this plan will be a priority over the next couple of months.

Third, use leverage to drive value. We plan to use the capacity of our balance sheet to support a more aggressive program to return capital to shareholders. As I mentioned earlier, our Board of Directors has increased our share repurchase authority by an additional $250 million to allow for a more aggressive buyback program.

We are evaluating options to accelerate our existing share repurchase program.

Wrapping up, this will be a transformational year for B&W as we navigate challenging market conditions, drive improved business performance, and use our strong balance sheet to create value for our shareholders.

That concludes our prepared remarks. I will now turn the call back over to the operator who will assist us in taking your questions.

Thank you. (Operator Instructions) Your first question comes from the line of Will Gabrielski representing Stephens.

Thanks, and good morning.

Good morning, Will.

I guess I would like to hear you guys walk through balancing the M&A versus buyback argument, and also balancing M&A versus what sounds like a broader restructuring? How difficult or challenging do you see integrating a deal while at the same time going through a broader restructuring, and what your thoughts are around both of those topics?

Okay. Sure, Will. I picked up two questions out of that. First, how do we balance M&A and buyback, and, second, how do we balance M&A while we are trying to restructure the two commercial businesses.

So let me start with the second. We are talking about additional restructuring in Power Generation in order to generate 200 to 300 basis points of increased margin. It's going to take more than just the GCI program that we've put in place in 2013. It actually is going to cause us to ask questions about a number of facilities we own and operate, and in-source versus outsource.

That said, PGG, although it's going to have a little bit lower revenue in 2014 than we had in 2013, remains a viable business with margins in the 9% to 10% range. So it will take some work to think through the restructuring and drive another 200 to 300 basis points in margin. We don't think that will distract us from pursuing M&A opportunities and integrating an M&A opportunity if we find one that is strong enough.

So moving back to balancing M&A versus buyback, just to provide a little clarity for folks to start with, when we put out the guidance range for 2014, $2.00 to $2.20, we had to make an assumption about share buyback. We made an assumption of $100 million per year, which is roughly the run rate for the last few quarters. That said, we are now evaluating opportunities to accelerate the buyback program, and to the extent we exceed $100 million, which we may well do, that could have an impact on EPS in 2014 and beyond.

We continue to look for opportunities to execute a small to mid-sized M&A transaction. Our hurdle remains the same. It has to create value for our shareholders that's in excess of buying back our stock. We do believe opportunities like that exist. We continue to have discussions and to do our research, but that's a relatively high hurdle to jump over and to date we haven't found an M&A transaction to bring forward. That doesn't mean we are not continuing to look, Will.

One other quick point would be just to simply state maybe the obvious, but we have plenty of flexibility in our balance sheet to pursue an aggressive share repurchase program, and to continue to look for, smartly, for accretive, attractive acquisitions.

Okay, so that's a good segue to my short follow-up, but one to two times leverage is still the target and does the pension tailwinds, I guess, from a liability standpoint give you more flexibility than you had 12 months ago?

Well, technically, you are correct because our pension liability has decreased by more -- unfunded pension position is now lower by more than $200 million, Will, so that does create some additional flexibility. But my comment would've been the same about the balance sheet and our flexibility even if our pension liability hadn't decreased because we didn't really know where that was going to go until very late in the year.

And so I think it's fair to say that we are comfortable with a little more leverage than we have now. Our balance sheet arguably is a bit inefficient. And we will continue to pursue smartly a combination of acquisitions and also returning capital aggressively to shareholders recognizing that as a BB+ credit we have lots of room in our balance sheet. We are by no means stretched.

Thank you very much.

Your next question comes from Andrew Kaplowitz representing Barclays.

Good morning, guys.

Good morning.

Jim, or Tony, when we look at your backlog coverage in PGG year, you are about $450 million lower than you were last year at this time for the next 12 months of revenue burn. Is that how we should think about your PGG business in terms of 2014 revenue decline, but then add in, if we assume some sort of after-market growth in 2014 and any near-term bookings that you may have?

I think -- I can take a stab at it. It's fair to say that with the absence of large scrubber projects, which fall within the environmental systems business, that we are more dependent on and focused right now on executing on a number of small service projects, and in general, optimizing our after-market business.

The trade is that the after-market business, because of its nature, is smaller in size than certainly the, when fully humming, our scrubber business, for example, and overall environmental business, but the margins are somewhat higher, as well. So we do benefit as after-market sales have increased as we see coal plants utilization increasing, we do benefit from that. But, of course, it is tough to offset the kind of drop we've seen in environmental orders despite our efforts, which will continue to drive cost out.

Andrew, just to give you a couple of numbers. PGG revenue in 2013 was roughly $1.75 billion. We would expect it to be about $200 million lower than that in 2014 with opportunities to pick it back up as we move into 2015.

Okay, Jim, that's helpful, and then, maybe I'll try and push you a little bit on mPower. I know you've got four to six weeks to update us, but how sensitive is the situation to ramp down the program given the DOE matching program that you have. I know it's a sticky subject, but, of course, it is a big spend for you guys. So how do we think about it going forward? To the extent you can talk about it now.

Well, there is certainly a lot to consider as we think about mPower and options. I will say that -- I think four to six weeks we will be able to provide some additional clarity to you. It's been relatively challenging to find investors that are interested, as I stated at the beginning of the call. We've been essentially unable to find a single investor to step up that wants to take a majority position.

And the number of investors that want to take even minority positions are relatively hard to find. It's not driven by the quality of the technology, because it really is a good technology, it's driven primarily by timing of the market. And the market has pushed out, even in just the last year. In the US, very low load growth on the electricity side, historically, that has been 1%, 2%, 3%, 4% per year and there are an awful lot of folks in the market place that think it is going to be flat going forward.

Low natural gas prices. So that combination, not just in the US, but in Europe, as well, has pushed out demand for new generation period, which has had an impact on the timing of the SMR market. That's a little bit about some of the feedback we've received from multiple companies we've talked to about making an investment in mPower.

For us, we have a handful of options. We projected $60 million to $70 million of spend on mPower in 2014, which is a little bit of a step back. And we have a variety of options available to us, and we will be prepared to discuss those in more detail in just a few weeks.

Let me just ask you this. Can you put this program into some sort of safe mode where it has a pretty low level of spend?

Yes we can. That is one of the options.

Okay. Thanks Jim.

Your next question comes from the line of Jamie Cook representing Credit Suisse.

Hi, good morning. I guess, just a couple questions, when I just think about your initial guidance for 2014, Jim or Tony, I guess, when I look at, I guess, levers for potential upside, one, it doesn't sound like the mPower -- you're going to get this done this year -- so should we assume in the event that that doesn't happen, the $60 million to $70 million in spend in 2014 goes down dramatically which would be a source of upside to your earnings?

And then, I guess, my second question is, when you talk about the 200 to 300 margin improvement in Power Generation and then you talk about hitting the 10% margin in Nuclear Energy by 2015, I guess, can you just walk me through -- is there any potential positive impact from the initiatives that you are taking that could hit 2014? So I guess that's my first question.

Right. Thanks, Jamie. So in regard to 2014 EPS mPower.

In addition to the share repurchase too. So there's just a multiple -- I see three levers where you could have upside to your 2014 earnings, I guess.

It makes sense, those are the same three levers that we see. I'll talk through potentially a couple more in a second, but starting with mPower, we did have to make an assumption on mPower in order to give a guidance range, $60 million to $70 million makes sense. Depending upon what solution we put forth in four to six weeks, there is a chance that that spend in 2014 could go down, which would have a positive impact. It's unlikely that that spend number will go up.

If I could add one comment to that, Jim. I'd also say that the mPower spend is somewhat front-end loaded, so that run rate, the total year spend of $60 million to $70 million, I would expect that run rate to be a bit higher, for example, in Q1.

Okay.

All right. PGG margins, looking for 200 to 300 basis points, so starting at 9% to 10% which is roughly where we are today. There is significant upside opportunity in that. The reality is it could have a small impact on 2014, it's much more likely to have an impact on 2015. Same in the NE commercial nuclear business.

Share buyback, you mentioned, as a lever. We agree. We've assumed 100 and we've stated were to be more aggressive than that in the marketplace. Lastly, if we look at other upside opportunities for the year, we always have upside opportunity on project execution, whether that be in our government business, or whether that be in Power Generation.

We also have upside opportunity if we can pick up some revenue and win a couple of large projects in Power Generation toward the beginning of the year.

Okay. I guess my other question is, just strategically longer-term, as I think about the BWC, I think the market thing, you said at some point you do some sort of acquisition which would maybe give you some growth -- you have been shrinking the business, you have been focusing on cost, giving cash back to shareholders which you've done a good job in. But at what point is, as I think about the BWC over the next two to three years, does it make sense, or would you ever consider selling some of the different businesses that you have to someone else, and that's more of a likely scenario versus you going out and doing a more material acquisition that would give you some growth over the next couple of years?

I would say we continue to evaluate both at the management level and with the Board all of those options. We look at opportunities to return capital to shareholders in the form of buybacks. We look for opportunities that would be a little bit better on the M&A front. And we have open discussions around all the various options about which businesses make sense for us to be in, do the businesses belong together. That's part of an active dialogue.

And then just last, I guess, just, again, on the acquisition front, Jim, if I handicap -- do you think the opportunity for a mid-size acquisition in 2014 is above or below a 50% probability? I'm just trying to think -- it just doesn't sound like it's going to get done. I'm just trying to gauge -- it sounds like share repurchase would be more likely in 2014 and acquisitions more a longer-term.

I would tell you that we are actively looking. We've stepped up our activity in the last six to 12 months on the acquisition front. That said, we're a couple months into the year. We, obviously, haven't announced anything yet, but we to do continue to look.

It's hard for me to predict is it a probability above or below 50%. If we find something that we think is good enough we will execute it. If we don't, we will pass, and as you have stated, our other option is -- not a bad option -- is to be more aggressive returning capital to the shareholders via buyback.

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

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

Hi, good morning.

Good morning, Steve.

Just if I could first follow-up on one of the questions that was asked earlier about mPower. Specifically, is there anything in the cost sharing agreements you have with the government that if you, for whatever reason, chose to completely shut the program down, anything that would prevent that from happening?

No. There is nothing contractually that would keep us from doing that, if we chose that as an option. That said, we do like the technology. It's a question of timing to the marketplace.

Okay. So more likely you just slow it down it sounds like. On the, shifting over to the Nuclear Operations business, I think we have viewed this as generally a flattish revenue business. Is there anything that can start to drive revenue growth in that segment in the next one to two years?

I know you mentioned the Ohio-class replacement, I'm wondering kind of when the advanced procurement would start on that? And then, if you could just clarify some of the numbers for the bookings? I know you had the $1.3 billion announcement, and there was a $300 million one today, and then you mentioned $600 million of awards in the first quarter to date, so if you could just reconcile all those numbers that would be great?

Okay. Let me -- I'll give Tony a one minute heads up, but I'll let Tony reconcile the numbers in just a second. Let me just talk a little bit about the NOG business and growth opportunities. 2013 to 2014 for the Nuclear Operations group, we do expect it to be relatively flat from a revenue perspective. It's still a heck of the business.

We do a great job producing high-quality components for the government, and we generate some pretty fair margins in doing that. So we very much like the business. I do wish I could tell you that that core business has a natural growth trajectory. It doesn't. But I can tell you it doesn't have a decrease trajectory either. We think it's a pretty stable business.

That said, we are looking at opportunities to grow the Nuclear Operations business. Is not likely to be through more Virginia-class submarines or a faster paced carrier program or an acceleration of the Ohio-class replacement. Those are pretty set. Those are some pretty set schedules.

But we do have some unique capabilities, technologies and facilities, in the Nuclear Operations group, whether it be precision manufacturing or whether it be some of our very unique capabilities on the fuel side. We are looking for opportunities to leverage those technologies and those facilities elsewhere over time. So without going into detail, I will tell you that we are looking hard at ways to take advantages of what we have in that business. It's unlikely it will have a material impact in 2014, but it could provide some upside in the years going forward.

Okay, I'll take a stab at the second question. So we announced, just announced the $1.3 billion award from the government, however, not all of that has been booked at this point in time. It gets released based on funding that's been appropriated, and in this particular case, about -- so far we booked over $600 million related to that program. We expect a bit more of that to be booked shortly, within the year.

And that will give -- that booking in its entirety, along with the backlog we have, is sufficient to maintain, as Jim described, relatively flat, but, again, very strong bookings and margin within the segment. The balance of the $1.3 billion will get released over the next -- typically, would get released over the next 12 to 18 months largely because it relates to work that is likely to be done in 2015 and/or 2016 under what is known as market baskets, and we happen to be in one of several market baskets.

And all the other market baskets that relate to prior procurements have been -- are being worked the same time. So if you take the current year booking, plus the backlog that will be rolled out, if you will, this year with product being delivered, we, again, think we will be able to maintain revenues at or maybe slightly higher than we did in 2013 for the segment.

Okay. Thank you.

Your next question comes from the line of Tahira Afzal representing KeyBanc.

Thank you. Jim, obviously, very disappointing to hear about the interest in -- the weak interest in mPower. I guess my first question is, if you were to look at all those options that you have going forward, can you give us an idea of, from those options, at least that if you could take the R&D spending down in 2015, how much could you take it down by incrementally versus the $70 million for this year?

And, I guess, with less interest, we still -- it seems that you can still reduce the R&D expense, but, obviously, you now don't have that chunk of money flowing through for the divestment. Could you talk about how that has influence the acquisitions you are looking at?

Sure. Let me see if I can touch on that, and I know I'll be able to do -- to provide you more detail on that in a few weeks. I told you that we have not had a lot of interest from any buyers stepping forward to buy a majority share. That would've been by far the simplest transaction. That's very unlikely at this point.

One option would be to find two or three buyers that are interested in smaller shares and find a way to bring that deal together to take us to the same end state. I will say that's relatively complicated, and would have an extended timeline to make a deal like that happen. But that does remain an option.

What I can say about spending at the -- we've estimated for 2014 is a $60 million to $70 million level. It's quite likely as we move into 2015 that that number will be lower. It's just a matter of how are we going to get there and exactly what time frame over which that will take place.

As far as the upside that could have, or may yet come in from a divestiture of a portion of mPower and how it relates to M&A transactions, I jump back to the comments that Tony made about the strength of our balance sheet. We weren't counting, and are not counting, on any money coming in from the sale of mPower to fund either acquisitions or buyback. Our balance sheet has plenty of room in it for us to be able to do both.

Got it. Thanks. And my second question is in regards to TerraPower. From my understanding, Gen IV is still a ways out, so I would assume that, clearly, it's an exciting avenue for you, but in terms of [finishing] investments you might have to make -- we shouldn't be focusing too much on that being an issue?

Yes, so let me talk about TerraPower. Actually, it's an opportunity for me to provide a little bit of clarity around my comments about trying to take advantage and grow some of the Nuclear Operations business. TerraPower is a very good example of that. TerraPower, for those that don't follow evolving nuclear technologies, is a next-generation technology beyond even mPower.

TerraPower is a good example of leveraging our expertise in the Nuclear Operations group. TerraPower contemplates fuel design that has greater than 5% enriched uranium in it. And we are about the only -- we are the only Company in the United States that has the ability to provide fuel at above 5% enrichment. Thus, the interest from TerraPower in talking with us.

That said, our relationship with TerraPower is going to be quite a bit different than our relationship on mPower. We have no plans to invest at all in TerraPower. We're going to be on the other end. We are simply looking to be a contractor providing engineering services and, perhaps, some day fuel services to TerraPower as at the TerraPower owners take that design forward.

Got it. Thank you very much, Jim.

Your next question comes from Bob Labick representing CJS Securities.

Good morning.

Good morning, Bob.

Hi. On mPower, I just wanted to clarify, the $60 million to $70 million in spend assumes that you maintain the 90% ownership, or is there any assumption in there?

Yes, in essence, we had to make some sort of an assumption as we put together earnings guidance for the year. $60 million to $70 million is slightly below the roughly $80 million we spent in 2013. And there is an assumption, even in the $60 million to $70 million number, of a slight slowdown in mPower spending. Again, we will be able to provide a lot more clarity on what actual spending will be in 2014 and 2015 in a few weeks.

Okay. Great. And then, are you still on track for the NRC application in the second half of this year?

If I had to take a guess as to when we will submit the application into the NRC, we have slowed down spending a little bit in the program, as you can see from the numbers, and that does have the potential to push out that application late 2014 or perhaps into early 2015.

Okay, and then, the overall spend, I guess, when you have the grants you put out the 8-K with, I think, there may have been somewhere in the ballpark of $650 million left to spend to get to commercialization. Correct me if I'm are wrong on that. But has those assumptions changed on the amount of investment necessary to get to commercialization?

So to give you some rough numbers on that side, B&W has invested roughly $400 million of our money in mPower to date. There is an awful lot of investment yet to go to bring mPower to market in the late teens or the early 20s. I would say it is far in excess of $650 million yet to be spent.

Okay. And you will update us, I guess, well, we'll know more about that in four to six weeks as you talk about the future for mPower at that point too?

Absolutely.

Okay. Great. Thank you.

Your next question comes from Martin Malloy representing Johnson Rice.

Good morning. What is in your assumptions for 2014, your guidance assumptions for Y-12 and Pantex contribution?

We made an assumption and we're expecting a GAO decision actually today or tomorrow on the protests. We made the assumption that we would have the Y-12/Pantex contract for roughly three-quarters of the year.

Okay.

It could be a little bit shorter than that. It could be the whole year, depends on the outcome of the GAO process and what the DOE decides to do with the GAO recommendation.

Okay. And then, on mPower and, I guess, when you are hearing back from the potential candidates for investing in mPower, and you talked about the push out in terms of the commercial -- the end market developing here -- is it that they don't see orders developing for mPower over the next five years, or how far out do you think that they are not seeing orders materialize?

Well, mPower has always been a bit of a challenge from a return on investment perspective because it takes so long to go through the design process, then the licensing process, get the first couple of units built. We were -- even at the heyday of the market two or three years ago, it was the mid-2020s before we had a significant step-up in mPower orders. The upside opportunity, however, was so large that it justified $1 billion-plus in upfront spending.

The market has shifted out a good three to five years, and that has a material impact on the investment profile. The technology is still good. The concept is still valid. But it's hard to make the numbers work when the market pushes out.

And even with the returns turn out to be attractive, at this point, given the way the market has evolved, there's a lot of people that just simply are not interested in investing in long-term equity growth capital which is what this is.

Thank you.

Your next question comes from the line of John Rogers representing D.A. Davidson.

Hi, good morning. Just a couple of follow-up things. First of all, in terms of your 2014 guidance, what are you assuming for Y-12 in there?

We have Y-12/Pantex in for roughly three-quarters of the year.

Okay. And if there is a change in the decision or the appeal what is the range of possibilities there?

Okay, so let me give you -- your guess is as good as mine as to the GAO's decision -- but let me give you a couple of scenarios.

Sure, thank you.

So if the GAO came out and made a decision that said we are denying the B&W's protest the DOE would in all likelihood start the turnover process sometime in March, which would take roughly four months, which would take us out to mid- to late -- to probably mid-summer, so that's a downside scenario. If the GAO said we uphold B&W's protest one option the DOE could take would be to put out another clarifying bid.

That would probably take a month or two for them to put that together, another couple months to evaluate. In all likelihood, that carries us out until October, November, December of 2014. The third outcome would be the GAO could decide not only in favor of the B&W protest, but actually turn the award to B&W in which case Y-12/Pantex would continue for multi-years in the future.

Okay. And can you give us a sense -- a full continuation of Y-12 -- what is the incremental benefit from that versus stopping today? I'm just trying to understand what the sensitivity is?

Well, we've said that Y-12/Pantex makes up a little more than half of the operating income of TSG. A new contract, if we were -- if B&W and our team were to win the award for the new Y-12/Pantex contract, in all likelihood, the fee would be somewhat smaller than the current contract we have today, but not a lot. Going forward, that would be a good outcome for us. And then, you can do the math probably around monthly fee income and run rates and do some addition and subtraction on 2014 performance.

Okay. I appreciate that. And then, I know it's outside the numbers, but it's still $20 million roughly for restructuring costs in 2014?

There is still some restructuring to go.

Right.

And as we develop this margin expansion plan that Jim discussed earlier, particularly within PGG and NE, we will be providing additional color and highlights as to what that program evolves. So we haven't said how much work in a spend in the current year, it will be greater than zero, but certainly not -- I don't think more than $20 million absent taking a hard look at the new requirements which we will discuss later.

Okay. Fair enough. Thank you very much.

Your next question comes from the line of Chase Jacobson representing William Blair.

Hi, good morning. Thanks for taking my question.

Hi, Chase.

I am just going to take one more shot at the mPower question here. I know we'll probably hear something in the next month or month and half or so, but going back over the last year, and even last quarter, while your plans changed in that time it always sounded like you were pretty confident that you were either talking to parties that were interested in a smaller stake or that you had hoped to sell a stake by the end of the year.

I get that the push out -- that there's a push out in the market in the US, but what about the international opportunity, because that always seemed kind of strong and was a really just timing or is there some other pricing factor or competitive factor in the market that's hurting your ability to do -- to sell the stake the way you had previously planned?

There are actually a couple of components. One is a push out in the market. And that's primarily, as you said, in the US, and actually in Europe. Europe is experiencing low load growth, as well.

And number two, as the market has shifted from primarily US to being primarily an international market for small modular reactors, it also -- it does have an impact on the financial equation. For us to sell units in the states or in Europe in all likelihood we are using our own internal facilities, doing the manufacturing ourselves and generating margin based on that.

As the market opportunities shift internationally, what we find is the margins on a per-unit basis tend to drop because of the approach you have to take in the marketplace. So it's a combination of the market shifting out in the US and in Europe, and as the market shifts to Asia, it does have an impact on the business case from a margin perspective.

Okay. That's helpful. And then just one clarification for Tony. I think in the past you had said that the pension contribution in 2014 would be somewhere between 2012 and 2013. Is that still the case?

The pension contribution -- you are talking about in 2014, right?

Right, right.

In 2014, I'd expect the pension contribution to be a bit higher than it was in 2013, but more leaning towards the 2012 number than where we might be in 2015 and 2016. There is a step up, but it's more the year after next than it is in 2014.

Okay. Thanks a lot.

Yes.

I would now like to turn the call over to Ms. Jenny Apker for closing remarks.

Thank you for joining us this morning. This concludes our conference call. A replay of this call will be available for a limited time on our website later today.

Also available on our website is the Company overview with additional information that will be shared with investors and analysts during various meetings throughout the quarter. Thank you, and good morning. Goodbye.

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