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The Shaw Group Inc. (NYSE:SHAW)

F1Q2011 Earnings Call Transcript

January 6, 2011 5:00 pm ET

Executives

Gentry Brann – VP, IR and Corporate Communications

Jim Bernhard – Chairman, President and CEO

Brian Ferraioli – EVP and CFO

Analysts

Jamie Cook – Credit Suisse

Andy Kaplowitz – Barclays Capital

Steven Fisher – UBS

Scott Levine – JPMorgan

John Rogers – D.A. Davidson

Rob [ph] – Stifel Nicolaus

Sameer Rathod – Macquarie

Rob Norfleet – BB&T Capital Markets

Martin Malloy – Johnson Rice

Chase Jacobsen – Sterne, Agee

Operator

Welcome to The Shaw Group Incorporated first quarter 2011 earnings conference call. My name is Christine, and I will be your operator for today's conference. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded.

I will now turn the call over to Ms. Gentry Brann, Shaw's Vice President of Investor Relations. Ms. Brann, you may begin.

Gentry Brann

Thank you, Christine. Good afternoon and welcome everyone. Thank you for joining us on the call. Our focus today is on Shaw's financial and operating results for the first quarter of fiscal year 2011. We will refer to the slides that are available on our website at www.shawgrp.com.

On the call with me today are Jim Bernhard, Shaw's Chairman, President and Chief Executive Officer and Brian Ferraioli, Shaw's Executive Vice President and Chief Financial Officer.

Before we get started, I ask that you please review the cautionary statement on slide two, which addresses the use of forward-looking statements and Regulation G disclosures to our non-GAAP items. Please consider this information appropriately with respect to today's call.

Now, I will refer you to slide three and turn the call over to Shaw's Chairman, President and Chief Executive Officer, Jim Bernhard.

Jim Bernhard

Thanks. Good afternoon. I'd like to call the attention to a few key items that’s contained on them. Let's begin on slide three.

As most of you know, we announced an exclusive global partnership with Toshiba, which includes Shaw being named the EPC contractor for two nuclear power plants using the ABWR technology in South Texas. Our subsidiary, Nuclear Energy Holdings, is continuing to work with Toshiba to extend our Westinghouse put option agreement.

As well in November, in words of Standard & Poor's, “We are proud to announce that Shaw's credit rating has moved to investment grade.” We also continue to see solid operating performance in Environmental & Infrastructure as well as Plant Services. These segments were largely responsible for driving our earnings in the first quarter.

However, we had a one severe – I mean, one challenge here and that was significantly a split jury verdict on Xcel Energy's Comanche project resulting in a charge, which generated loss for the quarter. I want to be very clear that we strongly disagree with the overall outcome and we are contesting the award.

Let me turn it over to Brian on slide four and Brian Ferraioli will go over our financial results.

Brian Ferraioli

Thank you, Jim and good afternoon everyone. As Jim mentioned, Xcel Comanche charge that we previously announced related to a dispute that we had relating to a project in Pueblo, Colorado. This was a complicated matter and claims and counterclaims on both sides. The jury delivered a mixed verdict awarding Shaw a significant portion of our claim, but also the client most of its claim, which is not the result that we had anticipated. The verdict resulted in the accounting treatment that we had previously announced with a $38.7 million after-tax of $0.45 charge after-tax.

While we disagree with the overall jury verdict, we are pursuing post-trial remedies, such as asking the court to set aside the jury verdict and may include an appeal to the state court of appeals.

As a result of this, if the verdict were to stand, notwithstanding the accounting charge, we would still be collecting money – cash from Xcel as there are significant monies due to us and that would approximate $40 million in cash that would flow to Shaw.

As I said, no money has yet been transferred between either party, as we are contesting the verdict.

Moving on to the second item, Taiwan Power, we put out a press release yesterday. This was an international services contract signed in 2000 for construction of a nuclear power plant in Taiwan. And yesterday we received a favorable ruling from the Taiwan High Court affirming an arbitration award in our favor. The ruling follows a unanimous favorable decision in our favor from the local arbitration association and a favorable ruling from the Taipei District Court. The arbitration award orders TPC to pay Shaw approximately $27 million and denies TPC's counterclaims in their entirety.

However, at this time, we have not made any adjustments to our financial statements nor our guidance as TPC has the ability to appeal to the Taiwan Supreme Court, which may or may not elect to hear such appeal if one is asked. So this is something that we expect to play out over the next several weeks or months and we'll keep you advised as things develop.

Moving on to slide six, looking at the financials; as typical focus on the second column, the shaded column which excludes the financial results of Westinghouse, which continues to have currency fluctuation.

Starting with revenue; revenues were down from a year ago by a little over $300 million. However, roughly half of that is related to two items. The first is $92 million decline in pass-through revenues, pass-through revenues is where we don't earn any profit or loss, so it really generates no economic benefit. And the second item is the Comanche charge; approximately $62 million of revenues have been reduced as a result of the Comanche charge we previously discussed.

Moving on to the profit and the profit percentage and EBITDA. If you look at the – the published results are there, but if you add back the charge for Comanche to get out the true operations for the quarter, gross profit would be $125.3 million, the gross profit percentage would be 7.8% and the EBITDA would be 74.4 million, and the net income attributable to Shaw would be 33.7 million, and EPS would be $0.39 per diluted share, which I may add is exactly what we had in our internal forecast and we are on track for our plan as we had previously discussed in terms of guidance.

Earnings were driven by Environmental & Infrastructure and Plant Services as Jim previously mentioned.

Moving on to slide seven, looking at the individual segments. Again Power, the revenues have been reduced by the Comanche charge. So if you would add that back to look at the true operations for the quarter, it's roughly 567 million of revenues, which is not significantly different from a year ago quarter. The gross profit would be 34.4, which is roughly flat with the previous year and the gross profit is actually up at 6.1%.

Energy and Chemicals continues to suffer from a lack of new bookings. You see there, revenues are down, but more importantly the gross profit and earnings were down from that segment and that's really volume related and the mix of projects that they currently have going through the books.

Plant Services continues to perform extremely well. You see, although revenues were down slightly, gross profit was up and gross profit percentage is up, and that's related to primarily outages at nuclear power plants where they are performing extremely well. And the star continues to be the Environmental & Infrastructure Group, our largest in terms of volume of business, 518 million of revenue which is relatively flat from a year ago quarter, but they continue to perform very well and they have a host of other opportunities that Jim will talk about later on.

Fabrication & Manufacturing is also down a bit from a year ago reflective of the decline in the energy chemicals type business, refineries, chemical plants, et cetera. And that business is performing well and it's building up to the nuclear work, which will really start in a significant way for them later on in our fiscal year.

Moving on to slide eight, looking at the Westinghouse. We continue to have volatility in our GAAP reported earnings due to the yen-U.S. dollar exchange rate. For the quarter, we had a $12 million pre-tax loss due to, again, the yen strengthening against the dollar. I looked at the yen-dollar rate this morning, and if were to close the books for the second quarter today, it would be another $17 million based upon the exchange rate this morning. And you see a one yen change in the exchange rates of the dollar has a pretty significant impact to the GAAP earnings, and that's the reason we tend to look at all of our financial results, excluding the Westinghouse activity because it is so volatile just due to the exchange rate.

And as we had previously announced, we are seeking to extend the put option and the limited recourse debt that we have outstanding, which is – the debt aspect is the cause of all the currency fluctuations and those talks are continuing as planned.

Moving on to slide nine, cash and short-term investments. Cash is down slightly for the quarter. This is primarily working capital movements, projects that were extremely cash positive earlier on in getting to the latter phases have run down a bit pretty much as expected. We would expect the second quarter to be relatively flat from a cash perspective and third and fourth quarters to be cash positive, and we are not changing any of our guidance on the cash for the balance of the year.

With that, I'll turn the call back over to Jim and talk about the operations and the market.

Jim Bernhard

Thanks, Brian. Let's turn to page 11 and talk to our Power and Plant Service segment. Certainly, we had a significant announcement in our Power segment during the quarter, which I mentioned earlier, ability to build Toshiba' Advanced Boiling Water Reactor. This technology along with Westinghouse technology really gives us tremendous advantage on a global basis in the nuclear power industry.

China, Brazil, Mexico, Finland, U.K., Switzerland, Egypt and Saudi Arabia, all very active and they are likely to – at least 50% of these countries are likely to move forward in the next 12 to 18 months on nuclear reactors.

At the beginning of the second quarter, we were also awarded a combined-cycle power plant that we have yet to announce that will be included in our second quarter backlog. In addition, we were seeing progress in our nuclear markets, along with the Plant Service Brian talked about earlier, are beginning to see activity as reflected in there financially – financials, not only the normal maintenance, but on upgrades as well.

Talking about domestically on the nuclear front, we are happy to say that we continue to work on two nuclear units, reactors in the United States on five Pacific Engineering [ph], and should be able to increase that volume next quarter. This is in addition to the six previously announced.

Finally, we continue to work on our focus on project execution, pursuing additional industries like refinery and steel plants in our Plant Service segment. So Power, it really looks pretty healthy with the exception of coal plants in the United States. The nuclear business is very, very active on new builds throughout the world and the uprates is a very active business, which we're going to be very successful on the U.S. and have begun to do so. The environmental work, it looks promising. So we look for beginning this year and continuing on to have significant awards and continue – this business looks very, very healthy.

And moving to page 12, Energy & Chemicals segment; this business certainly has lacked on new ethylene plants and award. We were awarded technology for the engineering for an ethylene plant. We have several ethylene plants that are under proposal now and complementary technologies as well. But this business has certainly lacked an award for the last 12 months and as a result the income that reflected for the quarter, but it does appear that with the price of oil that the awards here will be accelerating in the next 12 months.

The Fabrication business is continuing to book major awards and their backlog has remained steady. They will begin this quarter, the second quarter and increasing the activity not only modules for nuclear power plants, but towards the end of this fiscal year, also the fabrication is still the nuclear power plants that we are currently disrupting.

The Middle East facility that we're building, as we've said before, is under construction and we think there are significant activities that beyond the first 12 to 18 months where the facilities completely booked new activities thereafter. Also markets in Brazil and Colombia, Saudi Arabia et cetera. There is a lot of opportunity now as combination of increased wages worldwide and increased security concerns worldwide, more and more countries are looking to fabricate their piping off-site not on (inaudible) enable to have to bring so many people to a particular job site. So, that business is going to be continuing to do well and continuing to increase in earnings throughout the year as well as next year.

Turning to slide 14, we continue to see certainly solid execution across our E&I segment and it’s about 25% of our backlog. This group has a very active proposal in bidding process underway for not only state projects, but more importantly significant federal projects. We anticipate to have a very major federal award for this segment in the second quarter, which will increase their backlog very significantly. And this business continues to do very well at proposal activity and their profitability should continue to increase not only this year, but next year as well.

Let me turn this next slide over to Brian, slide 15, and then we will open it up for questions on the guidance.

Brian Ferraioli

Okay. Looking at slide 15, no change on the guidance we had given for the year, but specifically looking at revenue, we continue to – approximate $6.5 billion in revenues for the year which compares to $6.8 billion last year if you exclude flow-through costs; so, relatively flat from 2010.

The EPS remains at $1.70 to $1.80 per share after reflecting the Comanche charge, but we've broken out for you the first and second half because we will be more significantly weighted toward the second half with our earnings. We expect earnings to pick up primarily due to the acceleration of the progress on the nuclear build out, the nuclear projects, as well as for the – our modular facility in our Fabrication & Manufacturing Group.

Operating cash flow remains at the previous guidance of 115 million or 116 million, and we expect to see the backlog grow year-over-year. With that, we'll open up the call for questions.

Gentry Brann

Thank you, Brian. Christine, we're ready to open the question-and-session, if you would please go ahead.

Question-and-Answer Session

Operator

(Operator instructions) The first question comes from Jamie Cook from Credit Suisse. Please go ahead.

Jamie Cook – Credit Suisse

Hi, good evening. I guess a quick question. I'm just trying to get a little more clarity on the guidance when we think about the second half relative to the first half. One, Brian, do we expect to see any – when I think about the first quarter, it doesn't imply much revenue growth to get to your 6.5 billion. I mean, should – are we expecting any material shifts across segment in revenue, i.e. this fossil nuclear go up a lot, but anti goes down further or do the segments sort of stay at current levels and all grow modestly. I guess, that's my first question.

And my second question, I'm just trying to get a feel for where the – I mean, your guidance implies in the back half of the year that EPS has to be up 75 to 80% relative to the first half and I'm trying to get a feel for where that margin opportunity is coming from? Is that all fossil and nuclear, so those margins are just going to rip in the second half?

Brian Ferraioli

To answer your question, we're expecting all of the groups to do better in the second half with the probable exception of the Plant Services.

Jamie Cook – Credit Suisse

On revenue or profit?

Brian Ferraioli

Both. Both.

Jamie Cook – Credit Suisse

Okay. But your revenue – I mean, if we take the first quarter that's 1.54, you multiply that by four, you are at 6.2 for the year. So, we're not implying much revenue growth to get to the$6.5, which suggest your margins have to go up significantly in the second half of the year.

Brian Ferraioli

Yes, and that's one thing. In E&C, if you looked at the margins this quarter, there is only – it can only go up that we hope.

Jamie Cook – Credit Suisse

But do we get back to a more normalized 7, 8%, I mean....

Brian Ferraioli

Jamie, we don't give the margin guidance, but we would expect the margins clearly to go up in E&C. And as I mentioned before, as the nuclear work continues to accelerate in terms of progress being achieved, you would see the margins in Power also increase. We do not expect any significant change in margins in the other segments, with probably the exception of the Fabrication & Manufacturing, which again is tied to the nuclear work.

Jamie Cook – Credit Suisse

Are the revenues in the fossil – in the Power business going to accelerate?

Brian Ferraioli

Yes.

Jamie Cook – Credit Suisse

Okay. So, meaningfully, i.e., because I'm just trying to get a feel, if you expect all the businesses to grow on the top line, again it's more of a huge margin spike.

Jim Bernhard

Well, let me help Brian here. As the nuclear plants develop and become executed, those margins are certainly higher than the rest of the margins that we have in the fossil. As those begin to blend in a more significant way, you'll find that those margins will increase not only in the Power group, but as well as the Fabrication group.

Jamie Cook – Credit Suisse

Okay, so – so and the read is in the first half of the year we don't have much going on in nuclear. It's probably on the back half, is the way to think about it?

Jim Bernhard

Yes. Yes.

Jamie Cook – Credit Suisse

And then just one – one more clarification, is there any material difference in EPS Q3 to Q4, or you know what I mean, I am just wondering, I don't want people to get surprised thinking 70 some cents per quarter, I don't want people to get surprised that we're 40 and then a buck or something like that when I think about the back half of the year.

Brian Ferraioli

Yeah, I think the back half of the year will be consistent.

Jamie Cook – Credit Suisse

Okay. Thank you guys, I appreciate it.

Brian Ferraioli

Thank you, Jamie.

Operator

The next question comes from Andy Kaplowitz from Barclays Capital. Please go ahead.

Andy Kaplowitz – Barclays Capital

Good evening, guys.

Jim Bernhard

Hi, Andy.

Andy Kaplowitz – Barclays Capital

So, maybe I'll take Jamie's question and go after 2012 for a second in a sense that you say that you still expect strong earnings growth in 2012. Do you need to get some of these significant international nuclear opportunities in 2011 to have strong 2012 earnings growth or can you have just a couple of those or none of those and do it on the existing nuclear projects that you have?

Brian Ferraioli

2012 will be based primarily on the projects and from Power's perspective on projects already in-house. So, if we've booked anything new, that would take some time to ramp up and it would not have any significant impact on 2012.

Andy Kaplowitz – Barclays Capital

Okay, that’s fair. Brian, you didn't really book much in Power in the quarter or really looks like you booked almost nothing. And I guess the question is, first of all, was there any sort of cancellation in movement in that Power business in 1Q? And then what's your conviction level that Power in particular is going to ramp up in the second half of the year in backlog and where is that coming from? I think Jim mentioned combined cycle plant that you maybe you already have in backlog in 2Q; is that sort of what gets you more conviction or are there other things?

Brian Ferraioli

No, that’s – first of all, from the earnings perspective, it’s the projects in backlog and it's the acceleration of the nuclear projects that are already there. In terms of bookings, as Jim mentioned, we do have a combined cycle project that will be included in the second quarter awards. We have other awards where we have – you don't have it in backlog yet, but you have either phases of its starting, the early phases which will roll over into more significant ones, plus we have the projects in backlog or which are not in backlog which we are continuing to work on such as the V.C. Summer project for SCANA and the South Texas project that we announced earlier in this quarter.

So, we're looking at projects that we already have in-house for the Power side. E&C does need some additional bookings to hit their numbers for the year. But Andy, at this phase, it's tough to get new bookings, book and burn for a large engineering type and construction type companies. At this phase, they have a significant impact on this year's results. So, we're looking more at the mix of projects already in backlog rather than new bookings.

Then moving on to '11, it's again primarily projects in backlog for Power, for E&I, Fab does more book and burn, Plant Services does a lot of book and burn. So I'd say E&C is the one who is more dependent upon new bookings than anyone else that hit our goals.

Andy Kaplowitz – Barclays Capital

We've been talking about E&C for a while as potentially ramping up at some point and it hasn't happened yet. It seems like a few of your peers have started to get a little more bullish on E&C and we're just not seeing it at Shaw yet. Is there any reason for that, Brian? You have worked at other E&Cs before too. So I mean any perspective you could give us there versus maybe some of the peers?

Brian Ferraioli

I think it's the type of work. I mean, clearly I don't know as much about the other E&C companies as you do, but it appears to me that they are doing more upstream oil and gas and that has not been the strongest point for us. As Jim mentioned, we do a lot of ethylene, some refinery type work. So I don't think the work that I'm aware of some of these other guys have been booking is necessarily comparable to the work that our E&C group does. So maybe that's the difference.

Andy Kaplowitz – Barclays Capital

And just a – the working capital that you burned in the quarter, it was like the billings in excess came down a bit in the quarter, is it the nuclear projects that are starting to burn more cash or is it something else?

Brian Ferraioli

No, it's more of the older projects, Coal, E&C, not nuclear.

Andy Kaplowitz – Barclays Capital

Got you. And those should not be an issue as we go to the second half of the year?

Brian Ferraioli

I don't consider them an issue, Andy, because the projects that are burning the cash now are good projects, successful projects, projects that we're making money on. It's just that they are in the later phases of their life cycle and the cash was actually – it was working capital favorable for us. So, the working capital is reversing. So, the cash is going to wind up equaling the earnings on the project. So, they were successful projects, but it's just timing of what phase they are in. To me it's more reflective of not having the new orders coming in that have positive cash flow like these did to replace the cash that's going up to equal the earnings. So, I don't consider this in any way negative on any of the projects or any of the execution.

Andy Kaplowitz – Barclays Capital

Okay. That’s very helpful, Brian. Thank you.

Gentry Brann

Next call, operator, please.

Operator

The next question comes from Steven Fisher from UBS. Please go ahead.

Steven Fisher – UBS

Good evening.

Brian Ferraioli

Good evening.

Steven Fisher – UBS

Wondering if you can just talk about what types of activities you're going to start to do on the nuclear projects that are going to drive or ramp up revenues in the back half of the year, because there won't be any POLs in your back half. So just curious what more will you be doing that you're not doing now.

Jim Bernhard

We'll continue to do more civil work; we'll continue to do also buildings at a couple of the sites. We will be building modules for both sites; equipment will be arriving and having very a significant amount of work. I mean, like I said, we have 1,200 people on the job site. And is – I mean, those in cost to cost percentage of completion as the more expensive items that are installed et cetera, the more – the greater percentage of completion goes on the books. I mean, does not rely (inaudible) are not going to have that during the fiscal year.

Steven Fisher – UBS

Okay. So, it's just more of the civil type working on?

Brian Ferraioli

The civil, the procurement, engineering.

Steven Fisher – UBS

Yeah. Okay, that’s helpful. And then last quarter you had said that the nuclear EBITDA was running ahead of the original guidance, and I am just wondering is that still the case, and if so, can you just talk about was it driving the better-than-expected performance there?

Brian Ferraioli

Well, I think it’s – the execution to date has been good. Our procurement activities to date have been good, taking advantage of – we mentioned the early procurement program that we announced in the past trying to lock in prices when the markets are soft. So, it's just (inaudible) been going well.

Jim Bernhard

And our execution in China has been better than expected and those learned experience is there. It can pay maybe more dividends than we thought initially.

Steven Fisher – UBS

Okay. And then on the E&C side of things, I mean, can you just talk a little bit more about the status of what's going on there within the biding process? Something back in the spring you had mentioned you were being asked for a lot of proposals, but unfortunately few things came back in terms of real opportunities though. Maybe there is – what is the pace of proposal activity as compared to last year and the prospects for actually getting that work in that you need for the rest of the year?

Brian Ferraioli

I'd say the prospects remain strong. There's a long list of some pretty significant size projects kicking around, internationally, not domestically. It's been a little frustrating trying to predict the timing on when clients are going to make some of these decisions. It's not so much that there have been a rash of projects that have been lost. It's just projects that just haven't got in the final okay within a client organization to proceed. So we have several – I can think of one major project we're waiting to hear on and we are a little frustrated as well trying to predict and try to give you guys guidance as to when these are going to start to break loose.

Steven Fisher – UBS

Okay. And then just last real quick, what is going to drive the cash improvement in the balance of the year?

Brian Ferraioli

Again, it's just the normal cycle on the projects. Milestone payments, when we’re scheduled to achieve certain events in the larger EPC projects and then just the normal activity in the E&I and Fabrication and Plant Services.

Steven Fisher – UBS

Okay. Okay. Thanks a lot.

Brian Ferraioli

Yeah, thank you, Steven.

Gentry Brann

Right, next call please.

Operator

The next question comes from Scott Levine from JPMorgan. Please go ahead.

Scott Levine – JPMorgan

Good afternoon.

Brian Ferraioli

Hi, Scott.

Scott Levine – JPMorgan

Hey. Question on the Maintenance business, the margins look to be the highest they've been in quite some time. I know that you guys have talked a little bit about change in the contract structure there. Is that indicative of what you think you can kind of do going forward, is there unusual there? And how would you kind of characterize the maintenance environment in general, are you seeing an uptick in differed outage work coming back in a big way?

Jim Bernhard

Well, I think that certainly we've had some contract improvement and I think that the solid contract we have based on performances that we've been able to do is something that we certainly we believe that we will be able to continue. Not so much differed Maintenance, but a lot of this outage work is beginning to move forward, which adds volume and while maintaining our overhead structure. So, we look for that to continue, fall and spring where the most outage are, a little less in the winter months because not many outages in the summer. So, that business should continue to do well in 2011 and should really take a big step up in 2012 as well.

Brian Ferraioli

And one thing I would add, Scott, is as Jim mentioned earlier, we're also expanding the industries that group is servicing, more refineries, more steel plants, et cetera. So we hope to get, as Jim mentioned, the continuation of the margins in the core or historic type businesses and then expand it to get the volume in additional industries.

Jim Bernhard

Yeah, we will order a large refinery in Maintenance as well as a large steel mill which we’ll be announcing shortly in the second quarter on our Maintenance business.

Scott Levine – JPMorgan

Got it. And then if you can provide a little bit of color; you've been talking about deployment of cash and you spoke to the commitments you have for the South Texas project. Above and beyond that, are there any incremental thoughts in terms of cash deployments that you have to share, or is it kind of the same as it was last time you spoke on the subject?

Brian Ferraioli

Well, we continue to look at strategic options and we don't have anything to announce yet today. But we've been active in this area and just to repeat what we've said in the past that we continue with the early procurement and we are going to use some cash in the second half of this year to lock in, as I mentioned before, procurement activities, equipments, supplies et cetera earlier than normal on the nuclear projects that we have that ought to use a little bit of the cash. We'll continue to look at the strategic type in investments that we announced with Toshiba in other places. We talked about possibilities of entering new markets or attacking markets as a local partnering with people. We continue to discuss and look at these opportunities, but likewise we continue to look at share buybacks and dividend. So, we try to have all the options on the table and we don't have anything else to announce yet today, but we are making progress.

Scott Levine – JPMorgan

Thanks, Brian. One last one quickly on the government business, it sounds like you've got a large project you are expecting in Q2, any expectations you guys have or any changes you’ve seen in terms of spending trends or anticipatory thoughts with regard to belt-tightening in general in Congress and what's happening in general in the public sector?

Jim Bernhard

Well, a lot of the federal work that we work on and in the particular industries that we have targeted, I don't think there is going to be any cut backs in those particular industries. I mean, we have been (inaudible) ammunitions and weapons, Department of Defense type of contract or (inaudible) I think is targeted too. The things that we have are in parts, in hand and I think we're going to do very well and we do of course participate and expect a major award in the second quarter.

Scott Levine – JPMorgan

Got it. Thanks, Jim.

Jim Bernhard

Thanks, Scott.

Gentry Brann

Next question, please.

Operator

Your next question comes from John Rogers from D.A. Davidson. Please go ahead.

John Rogers – D.A. Davidson

Hi, good afternoon.

Jim Bernhard

Hi, John.

John Rogers – D.A. Davidson

Couple of just follow-up things, first of all on the nuclear projects. Jim, you referred to having potential internationally, are you trying to provide full EPC work there or will it be like your role in China and what's your thoughts there?

Jim Bernhard

It would be 80, 90% full EPC for the most part.

John Rogers – D.A. Davidson

And it – I mean, it sounds like – I mean, potentially five or six of these could be announced in the next 18 – 12 to 18 months?

Jim Bernhard

I think that half of them will be announced of what technology has been selected and which team. I mean, expectations are the ones that we have offered proposal some time ago and are offering proposal today that they ought to come to fruition in the next 12 months. So, outside the United States, it’s very active. Inside the United States, I just want to make sure everybody's aware that separate from the progress of SCANA, our southern project, we continue to do engineering work outside Pacific for a major utility for two AP1000, and that work will increase next year as the – on that particular project, which we haven't announced yet. So the nuclear business looks very, very solid on new builds and very, very solid as you're beginning to see maintenance and/or upgrades on the – in the nuclear industry.

John Rogers – D.A. Davidson

Got it.

Brian Ferraioli

Just to make sure we're clear though, we're not saying that we're going to book into backlog, the full EPC on all of those prospects that Jim was referring to. They may select the technology; we may start the early phases. I just want to make sure we're clear here that those projects are progressing, but that's not a prediction on our part of bookings into backlog for the full EPC amounts.

John Rogers – D.A. Davidson

Okay. No, thank you, I just wanted to think about the potential out there. And then on the more conventional power, especially the gas-fired projects, in the past you've kind of talked about what you saw coming in the next 12 to 18 months and you mentioned you've got one, these hasn't been announced in the second quarter.

Jim Bernhard

Yeah. We booked one in the second quarter, which we haven't announced yet. We're likely to book another one in the second quarter. So there's a significant amount of these plans out there and hopefully over a 12-month basis we will probably take three of them, would kind of fit to our budget.

John Rogers – D.A. Davidson

Okay. And then just lastly in terms of the scrubber work, is it just waiting for the rules to be finalized before that starts to come out for you?

Jim Bernhard

Yeah, we finalize either way it would be okay, just left or right, just not stagnant. So I mean, there is a lot of preliminary work we are doing, a lot of bidding work we are doing on our proposal, kind of what-if kind of scenario. So as soon as that come to fruition either way with some certainty there will be some pent-up work there.

John Rogers – D.A. Davidson

Okay. Great. Thank you very much.

Brian Ferraioli

And thanks, John.

Operator

Your next question comes from Barry Bannister from Stifel Nicolaus. Please go ahead.

Rob – Stifel Nicolaus

Good morning, this is actually Rob [ph] in for Barry, or actually afternoon.

Jim Bernhard

How are you, Rob?

Rob – Stifel Nicolaus

I noticed the share count fell about 1.4 million sequentially. I was just wondering what drove that given that you have cash on the books and have pushed growth back to the second half. When is the next Board meeting and are you going to discuss a buyback?

Jim Bernhard

Well, we have in the past released our Board agendas, and I don't suspect we will do it today as Brian is giving you a pretty finite discussion of where we are on the use of our cash. And the growth, we didn't push it back to the second quarter, it's always been our business plan that the earnings would fall as we have done this quarter (inaudible) without the charges, so within our plan and so over the second quarter and the third and fourth quarter as our expectations. So, our expectations have always been that the second half of the year would be significantly more than the first half of the year because of the execution of the particular projects involved.

Rob – Stifel Nicolaus

And the MOX facility following a typical S curve on revenue and profit, and will that project’s positive impact on the United States in the second half or '12 or longer?

Brian Ferraioli

No, MOX continues on for some time and MOX has got a number – like many government contracts, has a number of incentives in it – incentive awards. And as you progress throughout the life of a job, one, you pick up the percent complete which is I think what you were implying. But two, as some of the incentives that are further out on the contract become more known as to the probability of being achieved and that's what drives and being recognized into revenues, the probability of those being accomplished. So we still have several years to go on MOX and we still have quite a number of incentive fees that are in the latter part of the project that we have not yet gotten to the point that we're convinced that they are probable to be achieved. So we haven't recognized them from a revenue recognition perspective. So, no, MOX will continue for some time. If you're referring to the Inner Harbor project on the other hand, the Inner Harbor project is more like – is scheduled to finish sometime this summer. So that is one if that's in the latter phases of its life cycle, not MOX.

Rob – Stifel Nicolaus

All right. Just in relation to that, now that some of your older power projects are winding down, do you see any incentive awards in the back half?

Brian Ferraioli

Trying to think of incentive – yeah, we do have some incentive awards and yes that is a possibility. But again, some of those we've already anticipated. They are highly probable to be achieved under a gap they would get factored into the estimated profit on the job. So, we do have some incentives on these contracts. But it may not necessarily be incremental to – there won't necessarily be a major step-up in the earnings if that's your question.

Rob – Stifel Nicolaus

Thanks for the clarity.

Brian Ferraioli

Thank you.

Gentry Brann

All right. Christine, next question please.

Operator

Thank you. The next question comes from Sameer Rathod from Macquarie. Please go ahead.

Sameer Rathod – Macquarie

Hi, just two quick questions. One, I want to make sure I’m getting my math right. What was the new awards on the quarter?

Brian Ferraioli

I’m sorry to be – sorry to interrupt you. Can you speak up a bit? It’s hard to hear you.

Sameer Rathod – Macquarie

I’m tired. Can you hear me better now?

Brian Ferraioli

That’s better.

Sameer Rathod – Macquarie

Just a quick question on – what was the new awards on the quarter?

Brian Ferraioli

Hang on a second, let me take a quick look. New awards up $530 million.

Sameer Rathod – Macquarie

Okay. That’s good. Second question is on coal plant, you guys have obviously built quite a few in the last 10 years. I was wondering if you can quantify or what percent of those have you taken charges on?

Brian Ferraioli

What percentage of those that we've taken charges on, I don't know. I have to take a look at that.

Sameer Rathod – Macquarie

Would it be fair to say that you've taken charges on – I mean, you have taken charges on a few of those thus far, right? I mean, it's seems like every quarter you've taken a couple of charges?

Brian Ferraioli

That's inaccurate.

Sameer Rathod – Macquarie

Okay. Well, I’ll follow up after the call.

Brian Ferraioli

Okay.

Gentry Brann

Okay, next question please.

Operator

Thank you. The next question comes from Rob Norfleet from BB&T Capital Markets. Please go ahead.

Rob Norfleet – BB&T Capital Markets

Good afternoon. Most of my questions have been answered, but just a few additional ones. One for Brian, and Brian when you look at SG&A in the quarter, obviously on a percent basis, ticked up to 4.6, 4.7 versus 3.9 in the fourth quarter. I know part of it obviously was due to just the lower revenues in the quarter, but were there any other items affecting SG&A in the quarter and how should we look at SG&A levels for the remainder of the year?

Brian Ferraioli

Okay. Nothing unusual for the quarter, but I would caution you that the increases are adjustments to salaries, who typically will take effect of the first of the year. So there will be likely an uptick in that regard, but I thank you for pointing out the SG&A. We've been trying to manage that rather aggressively and you're correct it is down year-over-year. We did have fewer administrative type people and that's primarily what the result of the decline from the year-over-year.

Rob Norfleet – BB&T Capital Markets

Okay, great, that’s helpful. And my last question just we talked a little bit about the air quality control equipment and how that market obviously hadn’t obviously ramped up yet, basically having a EPA rule in place yet. But assuming we do see a ramp in orders, let's say in the second half of '11, what's kind of the lag before we actually get orders versus we actually start seeing revenues from those orders?

Jim Bernhard

Probably major revenues, probably six months.

Rob Norfleet – BB&T Capital Markets

Six months? Okay. Great, that’s helpful. Thanks for the time.

Jim Bernhard

Thank you.

Brian Ferraioli

Thank you.

Jim Bernhard

Next question.

Operator

Thank you. The next question comes from Martin Malloy from Johnson Rice. Please go ahead.

Martin Malloy – Johnson Rice

My questions have been answered. Thank you.

Brian Ferraioli

Thank you.

Jim Bernhard

Thanks, Marty. Okay, one more.

Gentry Brann

All right, one more question please, Christine.

Operator

Thank you. The next question comes from Chase Jacobsen from Sterne, Agee. Please go ahead.

Chase Jacobsen – Sterne, Agee

Hi, how are you?

Jim Bernhard

Hi, Chase.

Chase Jacobsen – Sterne, Agee

Can you just talk about the mix a little bit in the E&C segment? You talk about kind of a lack of clarity and the timing of new awards. But at the same time you talk about a potential improvement in the mix, maybe if you can compare what the mix is today versus a year ago and how it's going to change for the rest of the year and so how we’re going to get to margin improvement there?

Brian Ferraioli

Okay, a couple of things. First of all, the mix that we refer to relates to the fact that we have more construction-related activities ongoing now rather than the higher value engineering services, and that's especially true when you compare to a year ago when we had a number of high value engineering service projects and very little construction in that business unit.

The second answer to your question regarding the balance of the year is, just from a sheer utilization perspective, we talked about overheads before, we would not expect overheads to have to change in any significant way within that business to execute materially more work than they are currently doing. So, you would get an automatic margin increase just by increasing the volume.

Chase Jacobsen – Sterne, Agee

So, when we look at the mix between the scope and the flow through, there is more construction going on now, but there is more scope, we should be assuming fixed price contracts?

Brian Ferraioli

No, I didn't say you should be assuming fixed price contracts, but you should be assuming – let's take the flow-through out of the equation because it does nothing for the P&L either way, okay? And that's why we look at it without those. Just looking at revenues where we can make or lose money on, we're saying now the mix is a high percentage of construction-related revenues. As we roll forward, you'll see more engineering services and two hopefully you will see increase in volume, and both of which should increase the margins.

Chase Jacobsen – Sterne, Agee

Okay, thanks.

Jim Bernhard

Thank you. Thanks for – everybody for the attendance and before we conclude the call, let me give you a few takeaways from the quarter and looking forward. We certainly anticipate the second half of the year to be better than the overall first half, both in backlog as well as earnings. And the ramp up of our nuclear power projects that will impact our Power and F&M segments will start driving our earnings toward the end of 2011 and anticipate a strong earnings growth in 2012.

Our Power segment, in particular, is seeing unprecedented opportunity in nuclear and maintenance and we believe this coupled with our focus on execution and performance, will yield good results in the future. And thanks everyone for their participation in the call until next quarter.

Gentry Brann

Thank you all for joining us this afternoon. This concludes our call today.

Operator

Thank you for participating in The Shaw Group Incorporated's first quarter 2011 earnings conference call. This concludes the conference for today. You may all disconnect at this time.

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