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Shaw Group (NYSE:SHAW)

Q2 2011 Earnings Call

April 11, 2011 9:00 am ET

Executives

Jeffrey Merrifield - Senior Vice President of Power Group

Brian Ferraioli - Chief Financial Officer and Executive Vice President

J. Bernhard - Founder, Chairman of the Board, Chief Executive Officer, President and Member of Executive Committee

Analysts

Scott Levine - JP Morgan Chase & Co

Jeff Sprague - Citigroup

Don Hamilton

Andrew Wittmann - Robert W. Baird & Co. Incorporated

Andy Kaplowitz - Barclays Capital

Joseph Ritchie - Goldman Sachs Group Inc.

Jamie Cook - Crédit Suisse AG

Steven Fisher - UBS Investment Bank

J. Bernhard

Before we begin, need to read this: Forward-looking statement, right, Gentry? Everybody, read this real good, okay? All right. Thanks for being here today and we will begin today what we will begin today, and today I have Jeffrey Merrifield, Senior Vice President; and Brian [Ferraioli] our CFO, everybody knows Brian. And we’ll begin the presentation. I'll give you a summary of the quarter previous which is our second quarter of the year. Our backlog was up $2.9 billion in new awards, giving us a backlog of $20.6 billion over the previous quarter. We look for that backlog to continue to grow and at the end of our fiscal year, will be higher than the $20.6 billion that we have today. Our earnings were driven -- we have solid execution, we believe, across the board. We did have one charge of $0.11 per share on the Energy & Chemical project, a project we're about 75% finished with. We also included a $23 million arbitration award that we had on a power project. The reduction in earnings of $0.06 a share, [indiscernible] with a percentage of completion accounting is because we got more work on project and the percentage completion went down so there was a reversal in there. But the profit comes in the quarters that are the next third and fourth quarter.

We purchased 1.2 million shares during the quarter, $47 million. We have purchased an additional 4.6 million shares at $154 million, bringing us to about 40% of the $500 million of purchase of shares that we announced earlier. And we're continuing that buyback in the weeks coming. We completed a joint venture partner and now we have control of an Indian operation from a value engineering center which will be doing not only E&C work, energy and chemical work but power work as well out of that now wholly owned subsidiary of Shaw Group, the E&I completed acquisition of Coastal Planning & Engineering. This acquisition completes our ability to do coastal restoration work. We believe that we were the largest coastal restoration contract in the United States with this sophisticated engineering expertise and the work that we believe that's coming in Louisiana, Texas, et cetera to rehabilitate the marshes after the BP oil spill, et cetera is something that we'll be at an advantageous position over the next 10 and 15 years.

Brian will go a little bit more detail on the GAAP earnings between the x Westinghouse and with Westinghouse and we had a small revision from a couple years ago of a foreign translation and Brian may go into more detail on that. And without further ado, let me ask Brian to go over the financial summary for the quarter.

Brian Ferraioli

Thank you, Jim. I also would like to welcome everyone. Thank you for coming today. I'll go through the quarter, second quarter results and then I'll turn it back over to Jim and Jeff who will talk more about our business, and particularly the nuclear aspect, which I'm sure many of you are very interested in. So in terms of the second quarter, we had a very strong operational quarter for all of our segments with the exception of our Energy & Chemicals Group that Jim mentioned previously. You see, revenues were down a little bit from the prior year and that's, again, primarily the E&C group as well as our Environmental & Infrastructure Group, which had a major project in Louisiana which was at its peak a year ago. The power results include a one-time gain on the settlement of an arbitration award that we had previously announced in Asia. And you can see the amounts associated with that. And as Jim mentioned, we did have a cost increase on an Energy & Chemicals project and you see the amounts associated with that group.

Some of the items impacting the quarter that we thought deserved a little bit of a highlight. As Jim mentioned, we had an increase in scope on one of our projects. And the increase in scope leads to a decline in the estimated percent complete when you take costs incurred to date divided by total estimated costs. So as you get more work, the total estimated costs number will increase even though the cost incurred number does not. So the percent complete goes down, and that was about $0.03 for the quarter. And we also had a foreign exchange impact for the quarter on one of our E&C projects which was $0.03, which decreased our earnings.

Looking at the segment information, first of all, the earnings were led by our Power and our Plant Services groups, which continue, Plant Services continues to perform very, very well and Power has the settlement agreement that I mentioned before. There's $20 million of that settlement agreement in gross profit and another $3 million is further down on the P&L in other income. So when you're doing the analysis for margins, it's only $20 million of that segment in Power related to that transaction. E&C, as we mentioned before, was impacted by that project that we talked about with the increase in some costs. But more fundamental to Energy & Chemicals has been the lack of bookings that they had in 2010 and obviously, that's impacting them in 2011.

They are seeing an increase in market activity and Jim will talk more about that a little bit later. So we expect the performance of E&C to improve as we roll forward. E&I continues to perform very well and also has a lot of sales prospects, the government is still spending a lot of money. But as I mentioned before, the Inner Harbor project in Louisiana was at its peak a year ago. So from just a pure volume perspective, their revenues are down a little bit year-over-year, but earnings and margins continue to be quite well in that segment.

And finally, F&M continues to perform well. Most of their work right now is focused on the Power business. The nuclear work for them is just starting and again, the process-related work from 2010 and early 2011 that they get either from sister companies within Shaw or from other E&C contractors or clients, refineries, petrochemical clients, et cetera has declined. So they're doing exceptionally well with one of their segments still relatively slow.

Looking at cash, we still have a fair amount of cash; this was as of quarter end, $1.5 billion. We generated about $71 million in operating cash flow. And as Jim mentioned, we continue to buy back shares post the quarter close. But the cash was generated by our earnings and a little bit from positive working capital movement but primarily from earnings.

We've been talking about the strategic redeployment of our cash for some time, and we've been working on a number of initiatives. We've talked in the past about early procurement on our major projects, buying equipment and commodities a little bit earlier on in the project life cycle to take advantage of discounts and a little softness in the supplier market. That activity has continued. But during the quarter, and into March, we did a number of transactions that we outlined here as we really started to redeploy some significant amounts of cash.

In terms of the buyback, you see the amounts both for the quarter and what we repurchased in March, so we're up to $200 million and 5.8 million shares, which is about $34.80 on average per share. And as Jim mentioned, we still have a lot of firepower available to us for additional buybacks in the future.

We had also announced a loan agreement to the South Texas Project for NINA and during the quarter, we had loaned $36.6 million and subsequent to the quarter end in March, another $11.7 million. So we have a loan outstanding associated with that project, and that project continues to have its loan guarantee process with the DOE continuing as well as its efforts to secure a COL.

Jim mentioned we had a couple of M&A transactions both in the quarter and subsequent to quarter end, buying out our partner in India as well as a bolt-on to our Environmental & Infrastructure group; gives us a little bit more exposure into the harbors and ports and coastal restoration projects we think there'll be a fairer number both in this country and some other international locations. And finally, CapEx; nothing special about CapEx from what we've talked about in the past. We continue to invest in more CapEx than we have historically because of good opportunities in the marketplace to buy versus lease and that's primarily related to some cranes that we are using on the nuclear projects.

Looking at new awards and backlog, as Jim mentioned, it was a relatively good quarter. We have strong bookings in both Power and our Environmental & Infrastructure Group, you see in the yellow and the green. And you look at backlog, backlog was up a little over $20 billion. And as Jim mentioned, we expect that to continue to rise through year end. And E&I, their major award had to do with containerized housing for the Department of State who is expected to spend up to $26 billion. And they have selected 13 contractors to execute that work over the next couple years. As well as major awards within our Power sector on new power plants.

We've gotten a lot and of questions about the investment in Westinghouse which continues to create a lot of volatility in our financial statement, so I'll try to go through this relatively high-level. But as many of you know, the Westinghouse bonds are a limited recourse to Shaw. One of our subsidiaries is the entity who owns the investment and issued the Westinghouse bonds, as we call them, to finance that transaction and as the entity that receives the dividends that come out of Westinghouse. But the bonds are primarily secured by the yen-denominated put option that we have to sell our investment in Westinghouse back to Toshiba. There also is a letter of credit covering our potential exposure and hence, the limited nature of recourse of 0% to 3% of the principal and any interest that is outstanding.

Now again for the accounting, the put option is not revalued at each reporting period but the yen-denominated debt is, so it creates a lot of volatility in our P&L. We have a $46.9 million pre-tax currency exchange loss associated with the debt in the quarter. We do not record the corresponding gain associated with the put option and we look at all our financial information excluding the Westinghouse activities because of the volatility. The dollar has strengthened against the yen since quarter end. If we were to file our financial statements today, we would have a $57 million gain. So it shows the volatility with nothing to do with operations, $46 million loss in one quarter and less than midway through the follow-on quarter we got a $57 million gain.

If we put the shares back to Toshiba, a lot of questions around our limited exposure. Want to make it clear, our exposure is limited to 0% to 3% of the principal that's outstanding. And the reason it's 0% to 3% is there are clauses within our agreement that if a Toshiba event occurs, if we were to put the shares back, we would recover 100% of the yen debt that's outstanding. A Toshiba event occurred back in 2009, so for those of you that have been covering us for some time, there’s no new information there. And hence, the range of 0% to 3% is our principal exposure and obviously, any interest that's outstanding would also be due. But our primary obligation is to deliver the shares. So beyond that, there is no additional recourse to Shaw in a scenario where we put the shares back to Toshiba.

As we previously announced, we are also looking at extending the put option and looking at opportunities to refinance the debt. Given the series of events that have occurred in Japan in March and subsequent to then, we have temporarily delayed those efforts. There's a lot going on with Toshiba and its emergency response to which we're helping them. And the financial markets obviously are digesting a lot of information so we've put that on hold for the time being. But it is our intent to continue with this transaction in the near future.

With that, I'll turn it back over to Jim and he'll talk about the operations

J. Bernhard

Thanks, Brian. Let's first look toward Power. During the quarter, we booked an EPC job for Duke Energy, a combined-cycle plant. We also booked a $700 million project for a nuclear power plant, which is what we've been talking about, the life extension programs, the uprates, et cetera that we're going to be doing a significant amount of in the future. And this is the first one of several to come, we believe. We've also started to do maintenance in steel mills, and the first one we were awarded with AK Steel Rockport projects, et cetera, and the coal projects that we're doing. All of them remain on schedule and budget and are going very, very well.

Many of you all follow the MAC [ph] rules that we have becoming in place and we believe that those rules will provide Shaw with a significant amount of work in three ways: One, to produce scrubber and mercury recovery on existing plants; two, to take those plants and turn them into gas-fired plants; or three, to decommission those plants and build another type of plant to produce electricity. So either way that this goes, the 50% of the coal plants in the United States, one of those three things will happen. You'll have the additional scrubbers, you'll convert the coal plant to a gas plants or you'll decommission that particular plant and another source of electricity will have to reproduce. So in all three cases, we would be a major participant in those markets.

We'll look to our other three segments: the Energy & Chemicals business, we are seeing a turnaround in that business as far as for inquiries and hopefully, will be followed by awards. We were awarded basic engineering for a petrochemical plant for the ethylene expansion. We are seeing some ethylene expansions in perhaps new plants in the U.S. for a change, because of the price of natural gas. I believe people believe that, that may be here for a longer period of time so we'll benefit for that.

We continue to evaluate new technologies that will enter our portfolio in the future. The Fabrication business is doing very well. The backlog is building. The Fabrication business will significantly improve next year in terms of volume and earnings. The international opportunities, because of a variety of different regions, escalating wage rate, security concerns, several countries are asking us to build fabrication facilities from Brazil to Saudi to Kazakhstan. And basically, we tend to move into a country to build a facility if on the first award we have the facility paid for. So we just don't go build a facility and hope that it will work. If the clients really want us in a particular area, they need to give us the work to, as a minimum, pay for the facility that we built on the first award. So that's kind of how we work on that particular business. But the business is very well there becoming more and more an international player. The Nuclear business will be accelerating next year on the projects that we have from modules to pipe fabrication to steel, so they're looking for a big year next year.

Our E&I business continues to do well. We'll talk about the Toshiba and the Japanese a bit in a few minutes. But beside that, they've awarded a couple billion dollar project with the Secretary of State on part of their emergency response, environmental part of our business in which they'll be doing housing for different parts of the world. The proposal and bidding process is very, very active, as much as I've ever seen, and on projects that fit into our so-called bailiwick [ph].

On the events in Japan, with our expertise in emergency response, I'm not sure if many of you know that we respond to an average of 350 emergency response projects a year, not just one or two. Many of them are small and don't make the national news but make local news. So this is what part of our business is. It's always there, we never know what type of event that may occur. We're the company that cleaned up anthrax, helped in the fires in California and responded to every hurricane since Hurricane Andrew’s most significant, on Katrina.

Combined with our emergency response capabilities and our ability to clean up nuclear sites, and our ability to build nuclear plants, we offer part of the solution for the event that occurred in Japan. And we'll go in a little bit more detail in a few minutes; Jeffrey Merrifield, our Senior Vice President here who will go over the nuclear part in just a second.

Jeff was a former NRC commissioner. He came to join us three or four years ago, right, Jeff? And he has been invaluable in this particular instance, but he's been invaluable before. You're not getting a raise. You all have probably seen him on many of the network television shows. He's been to Japan a couple times since the event, he's been relied on heavily by a number of the nuclear, from the NRC to NFO [nuclear facility operator], et cetera on his expertise and advice. And we're happy to have him at Shaw and I can think of no person that can give you a better update of what's happening in the Japanese and the nuclear industry. And let me bring Jeff up here to go through his part of the presentation. Jeff?

Jeffrey Merrifield

Thank you, Jim. I'm going to walk through what happened in Japan and also provide some distinctions between what's going on there and what we're seeing with activities here in the United States.

This diagram obviously gives you some picture of the situation in Japan. This area here was the epicenter of the earthquake, magnitude 9.0 on the Richter scale. The plant that has been of most interest has been the Fukushima Daiichi plant. There was actually plant in Onagawa which also shut down as a result of the earthquake and subsequent tsunami which was closer to the epicenter and also experienced a large tsunami effect. But that plant actually, interestingly enough, while it shut down safely and continues to be powered under emergency systems, the Onagawa site has actually been used as a relocation center for individuals in the area whose homes are destroyed. So this will give you some sense of the robustness of some of those facilities. Nuclear is a significant generator in Japan; 54 operating nuclear reactors produces 27% of Japan's electricity versus 20% of ours here in the United States.

As a result of those actions and also earlier earthquakes, about 12,000 megawatts currently shutdown. This is going to have a meaningful impact, particularly on Tokyo this summer, about 25% shortfall in terms of where they need to be. I was just there last week. Already, they're starting to power down certain elevators, escalator, lights and other systems.

This is a pictorial, actually a picture I should say, of the site. The units appear -- Units 5 and 6, as you may have heard, were in a refueling outage at the time of the tsunami and earthquake. Those sites are unaffected by what has happened. The spent fuel pools are being cooled, power has been re-established. And so for those purposes, these units remain fairly undamaged. It's really the focus of these four units down here and they are numbered 1, 2, 3 and 4. There is also, here in the back, a centralized fuel storage facility that will derive some attention. At the time of the earthquake, I should do it here, Units 1, 2 and 3 were operating. The units shut down, their emergency systems operated appropriately, they were running on emergency backup diesel generators. When the tsunami hit, water flowed across the property. There are some pictures where the wave actually was as high as this turbine building right here and it wiped out a number of systems above ground. Oil storage tanks was one of the things that got taken out from the diesels. There was also water that went into the turbine building basements that flooded some of the electrical systems.

Unit 4 was also in a refueling outage. All of the fuel from that particular reactor had been offloaded into the spent fuel storage facility and we'll see what happened after that. Here is a picture and, again, we're starting here, we're looking toward the south, this is Unit 1, 2, 3 and 4. This picture here is an above ground shot of Unit 4 after it had its explosion.

Actually, I’m going to go back here for just a second. One thing, and I’m going to go into slightly more detail, these explosions came about as a result of hydrogen. Really, it was hydrogen coming off of the spent fuel and other fuel within the buildings, pooled underneath this secondary containment structure, ignited and that's what caused the ultimate explosion.

All right. This is a pictorial of the design of the Mark 1 reactor, which was comprising the six units that are there in Fukushima. The main vessel is right here. That's surrounded by a steel containment vessel, primary containment which is this sort of this bottle-shaped area right here. You've you also heard something about a torus. This is a doughnut shaped suppression pool at the bottom of the reactor. Essentially, what happens is when you have a buildup of steam in the reactor, that steam is let down into this pool, which is partially filled with water that quenches the steam, that forces the steam down. What happened at the site, the emergency backup diesel generators were not able to operate, the reactor increased the amount of heat, more steam was generated. That steam blew down into the torus suppression pool and over a period of time, that pool ultimately got filled with water and it was no longer useful and operational.

The temperature continued to rise, hydrogen was formed, that pooled inside of the secondary containment. And in the case of Units 1, 3 and 4, the hydrogen explosion there caused that roof to disassemble.

Couple of pictorials just for those who aren’t as familiar with the nature of reactors, obviously some of you are very familiar with them. This is a diagram of a boiling water reactor. Obviously, this is the reactor itself. It really composes a one-loop system where the steam from the reactor goes through the turbine, that steam then goes into the condenser, which it condenses the steam back into water, and that water is then fed back into the reactor. And you have this closed loop that occurs during normal operations.

In an emergency shutdown, you have, and not pictured here, would be the emergency diesel generator and that would continue to cause that action to take place, keeping the reactor cool. Ultimately, what happened in Japan is because there was no power to those systems and offsite power was not available, that didn't occur. So you had buildup of steam and heat inside of the reactor vessels, the loss of water and that ultimately led to damage in fuel in Units 1, 2 and 3.

This is a comparison with a pressurized water reactor. The reactors that we're building here in the United States for Westinghouse, AP1000s, have some aspects of this. And I have another pictorial I'll show you in a minute. But basically there are two loops. You have one loop of water that goes through the reactor, there's then a steam generator in which the reactor that’s gone through the vessel is on one side of a piping system. You have freshwater, uncontaminated by radioactivity that goes through the other side of the piping system and that clean water goes through a second loop to power the turbine and ultimately, that's quenched into the condenser and goes back through. But similar to the reactors at Fukushima, these style reactors would also have an emergency diesel generator that would be used to power these systems in the event of a loss of offsite power.

This is a representation of the AP1000, this is obviously the turbine building. Here, we have the reactor and I'll go into a little bit more detail. And here is the auxiliary building, this is where the spent fuel pool is located. One thing which is noteworthy, and I'll go back for just a second, about this design is the spent fuel pool is actually contained within the reactor building itself at an elevated level. And I'll describe how there's some differences in the designs that we're building today.

Most noteworthy is the spent fuel pool. It's contained in a separate building, has heavily reinforced thick concrete walls and flooring so as to avoid the loss of a water inventory. You can't drain water from this design in the spent fuel pool. It has redundant spray heaters, gravity fed tanks so that when the core is offloaded and you have a loss of power, that water will flow via gravity not by power in there. It also has built into it a variety of redundant water sources. Basically, one of the things you have is hardened pipes from the outside. So if you had a loss of power, you can bring in a fire truck or some other hose, hook it up outside of the building and pump water into that spent fuel pool.

This is one of the issues I think we're going to see more about going forward relative to Fukushima. Unit 4 was defueled. The explosion that came in Unit 4 came as a result of a disruption of fuel in the Unit 4 spent fuel pool. That was because they failed to keep water in that pool. Had they had redundant water sources to do that, or literally if they’d stuck a fire hose in there, they could have prevented that explosion. That's obviously something -- there are steps that have been taken in the U.S. with the NRC to prevent that. Buildings designed for a variety of events, seismic events, natural disasters, aircraft impact and tsunamis. It has a variety of redundant equipment in the event of external or internal threat.

Now this gives you some comparison of a standardized boiling water reactor. I've explained how this works previously but I want to compare that with the AP1000 and how that operates. There’s really a couple of aspects that are noteworthy when compared to what happened in Japan. The first one is, there's not a need for emergency diesel generators. The way the reactor is designed, it has passive features, one of which is very important inside of the containment and one of which is important for outside of the containment. Starting with the inner part of the containment, the water tanks are set up so that they can be gravity-fed. So that if you have a loss of offsite power and you have an accident, that water begins to flow -- you have a series of valves that automatically open. Those valves then allow water to go directly into the reactor and set up a natural cooling system. Basically, this takes advantage of the natural convection of water, hot water rises, cold water comes down. And so you have a creation of a closed-loop cooling system in here automatically. As I said before, it doesn't need external power. And really the way this is set up, you could literally walk away from this site for 72 hours and not have an issue.

Now that being said, obviously there's a lot of action you can do to further enhance these plants. You can also pipe additional water into the system from outside. So again, that avoids one of the issues that we had in Japan. Secondly, on the outside, this is the innermost containment surrounded by the shield building. There is about a 250,000 gallon tank here at the top of the building. In the event of an accident, that water would be released and would begin to flow on the top of the outside of that containment, lowering the pressure and lowering the water temperature. That would then, you would also, because this is an air vent venting system here, you have air that would naturally begin to circulate through that, taking the heat away from the containment itself. Additionally, you have internal recirculation as a result of steam coming on to the top of this containment being cooled, that water will then begin to flow and go on top of the vessel. So as a result of that, you have automatic and passive cooling systems that are keeping this protected and cool. Again, these tanks also can be filled from the outside with fire hoses.

Now one last thing which is very noteworthy, this design includes a series -- it actually has two what are called hydrogen combiners and a series of 64 igniters inside the containment. What that does is it takes the hydrogen that could be generated from the vessel, recombines that hydrogen and then ignites it. So you would not have an opportunity of building up hydrogen causing explosion that happened in Fukushima. So a variety of redundancies in this design which make it inherently safer than many others out there and really put us in a different position going forward.

This is a comparison with a standard pressurized water reactor. Really all I want you to take from this one is lots of active pumps and emergency systems that are required in order to do the same thing that this does passively. So a real advancement in technology, and one we think remains a differentiator going forward.

As I said, again, you don't need AC power, a direct power for safe shutdown, no operator action for 72 hours. Although we expect they would be fully involved in actions at the site. Core stays, inside the reactor remains covered in water and that's the important thing: keeping the fuel wet and cool. 50 years of lessons, modernized design and multiple safety barriers to protect public health.

This gives you some sense of where we stand right now with the design certification schedule with the NRC. And I think a couple of things are important here: Prior to Fukushima, the NRC was operating on a very methodical yet timely method to make sure that this design received its design certification amendment. And those steps have been worked through very well. We expect the public comment period for the federal notice for the proposed rule, which would allow this design to be utilized, will be issued on time and we expect a final rule sometime in September. The NRC has taken, I believe, a very measured approach. Now I was a commissioner during the time of 9/11. I was there from 1990 to 2007. And we, at that time, took a very measured approach relative to the impacts of 9/11 and what needed to be accomplished at the plants going forward. I think the NRC is going to take the same deliberative approach in this regard and I think they also recognize, given the passive nature of the design, this is an enhancement to the current fleet of reactors we have out there today.

So there will be a comprehensive safety review. The NRC has appointed a series of senior managers to take a look at the events in Japan and see whether there are enhancements that can be made in the U.S. design. President Obama and others, Secretary Chu, have made very positive comments about these reactors going forward and I think the NRC's response will be measured in that regard.

Politically, when you look, now I spent a lot of on Capitol Hill, about 10 years in the Senate, I think the House and Senate had been very responsible in their responses. They said, "Listen, the NRC's got to be given some time to take a look at this." There are a few members of Congress historically antinuclear who've taken somewhat of a more robust argument on this. But overall, Congress has been very measured. I think that's appropriate given the circumstances.

Increased attention to used fuel management. Right now, the strategy we have used in the United States is that we have a lot of fuel in the spent fuel pools. We as a company have been very involved, if fact, one of the most involved with building spent fuel storage facilities for utilities previously. I think that's going to be an increased area of business for us. The storage caches are approved, the technology can move forward and I think there will be movement to try to move more of that fuel out of spent fuel storage pools into dry cache storage facilities and we're certainly there to help.

Okay, what is it that we're likely to see out of the NRC going forward? Well, firstly, seismic strengthening of the existing units. Now I caveat this by saying the thing folks have to remember, and I think the media has gotten this somewhat backwards, the reactors really did quite well relative to seismic activity. It was the tsunami that was really the effect. That notwithstanding, I think we'll see further hardening of piping systems to make sure that hydrogen gas is bled off and you don't have the possibility of pooling in a containment and potential explosion. Reinforcement of key structures, systems and components, they'll be looking a lot of things there and obviously a lot of work potentially for us. And a hardening of external piping to spent fuel storage pools. Now some of this had occurred as a result of 9/11. The NRC imposed some additional requirements. I think they'll take another look at that, maybe some additional work for us going forward.

Installation of hydrogen combiners and re-igniters. There was a period about 10 or 15 years ago where the NRC said, “Given what we know, we don't think that those need to be required.” And so some utilities went forward and took those out. I think it is certainly a real possibility the NRC may change its mind and go back and say, “Hey, we think you need to put those back in there.” It's a straightforward effort for us to do, we've done it for others before. Certainly, within our wheelhouse.

Tsunami analysis and upgrades. Oil storage tanks. If you’ve got a plant on the coastline of the United States and you don't have, and I think most of them do in fact have underground storage tanks, but if you don't, I think that's certainly something the NRC will take a look at. Higher water barriers, weatherproofing, really trying to provide some additional enhancement for the plants relative to tsunami effects, all of which are doable. I don't think anything the NRC is going to impose is going to be so difficult that the plants would need to shut down, nor do I think they will be extraordinarily costly sort of in the billion-dollar level. But I think you will have enhancements that will require additional work for Shaw and others.

Expanded battery backup requirements. The emergency batteries at the site operated in Japan for about eight hours. I think they'll certainly take a look at, do they need to enhance the amount of time necessary to provide those systems going forward. Redundant cabling systems, make it easier so you can tie in emergency backup generators into the site and power systems so as to avoid having to run cables after an event.

Analysis of emergency evacuation zones. Right now, in the United States, you have a 10-mile emergency evacuation zone; they may look at what you need to do for areas outside of that. That may be an area we can certainly help and take a look at. As I mentioned before, expansion of storage facilities. And then the final one, the potential creation of a centralized location for emergency backup equipment. One of the things that we did in the United States after the Exxon Valdez accident was there was a Congressionally imposed requirement for the oil industry to set up a series of locations in the United States where emergency response equipment could be located. It's certainly plausible. That may be something that we as a country may look at. Can you pre stage diesel generators, emergency cable systems, things of that nature to make it easier to respond to an incident if indeed it occurred?

And with that I'm done. Thank you.

J. Bernhard

Thanks, Jeffrey. He's one of the few people in the world that's actually been to every nuclear power plant in the United States. He's also been to over half of the nuclear power plants around the world; some 400 plants, he's been to 200 to 300 of them.

And not on Shaw’s nickel, government nickel. But anyway, so he's been to a lot of plants and his expertise I think has shown through. I think what my takeaway on that is, is the passive technology of the Westinghouse reactor, okay, does not need, in case of an event, does not need external electricity for pumps and generators to cool the fuel during the first few days of an event.

So it's very, very significant. No other technology has that capability. The generation three-plus technology that we offer is the new technology that we believe and I believe very, very strongly that it will be the technology that is certainly preferred over all other technologies going forward in light of the information that we have in Japan. Like we said, the U.S. response has been measured and still have full support in the U.S. government. Let me go through the markets as we see it.

I think this slide is -- we hear this country is going to do this, this country is going to do this. So we got all the information together for you. And if you look at, since the events in Japan, if you look at the green, these are countries that have come out and said, our programs will continue as we have and we're moving forward. The yellow has proceeded with caution or undecided and halting plants temporarily or indefinitely. And some of these countries obviously we never were going to do work anyway like Venezuela and places like that. But we wanted to give you a fair view of all the announcements that have been made throughout the world. And over 75% is moving forward. It's not that the other 22% (sic) [25%] won't. I mean, we know that the U.S. certainly, the two plants that we’re actively involved in are moving forward. So the market is one that is not as large as it once was. But I firmly believe that our market share with the Westinghouse technology will be enhanced. And I-Net overall position in the market will increase. And I believe over a period of time that the amount of business that we’ll be able to do because of our association with the Westinghouse technology will be a very, very significant one.

I want to talk a little bit about Southern 3 and 4 projects. We've met with the management there and we're completely on schedule, we have over 1,400 people on-site now and we expect to get the coal in September, this September or later on this year. And so that project is -- nothing has stopped. We are still moving, we have a full notice to proceed. We continue to buy equipment and move forward on the site. And that project is a very significant one for us and see the work being done presently.

The SCANA, same thing. I think they’ve come out in full support of the project. Both projects are about evenly on schedule, one had more site work to do than the other because of the location. But that project continues to move forward as well. The Levy County project continues to be in a dormant state, waiting Progress and Duke merger, I think is a big part of it. But I think you've seen, Rogers of Duke said we’re going to build nuclear power plants. So I believe that, that merger will probably enhance the ability to build these units rather than be a detriment to these units.

China, interesting, I was in China three days after the event in China and meeting with Chairman Wong [ph] and they fully intend, while they're have a 90-day evaluation of the technologies presently being used on all the reactors in China, I believe at the end of their study period, they will come with a technology selection that may be one that, choose my words carefully here, I believe that their technologies going forward will all have a passive system.

And these are the sites ongoing in Japan. These are the new projects that we're building now, they're well, well underway, as you can see. And walking the project site, the quality is fine, the safety is good, it's a quite impressive site. And that's where we should be in about 24 months at that stage in the U.S. construction on the Southern project. So what's helping us a lot on the new technology with Westinghouse, we're building four units in China so we have a drawing that -- we have a pump that should have been located six inches this way or piping interference, I mean we correct it here. And they’re duplicate units so when we get to the United States, it’s not a lot of revisions, et cetera in the drawings, et cetera, which helps a tremendous amount in construction. Unlike nuclear units in the past, the Westinghouse AP1000 is designed to be duplicated.

Now the silver work is going to be different on every site, obviously. But the actual buildings and the containment buildings and the reactors, and pumps, and pipings, et cetera is going to be identical. So we're going to take the same set of drawings over and over around the world. So we'll become more efficient, there won't be a lot of revisions. And since our team is working on both, we're able to do lessons learned immediately back to the sites in the United States. It's a huge significant advantage.

The South Texas Project, South Texas Project is basically a hold doing very, very little work. This project is certainly going to go into thorough review. It is doubtful in my opinion that TEPCO will be able to supply equity, et cetera for the project. They haven't made that announcement. It's very, very doubtful in my mind that they'll be able to move forward on that project. So we didn't have anything on that project in our backlog, et cetera. We had a few people working on that project that continue to move forward on the loan guarantees. If they’re successful in the loan guarantees, the project will be evaluated at that time.

We do have a loan on that project of about $46 million currently, which we believe is collateralized at this time, with equipment that's been bought on the project.

Okay. Kind of first, how much is in our backlog on these projects? About 10% of our overall revenue is on these nuclear projects that we have today. And any delays in these projects or cancellations, certainly we recover all our cost. The projects that we -- I believe very strongly and I think that if you read deep into a lot of the articles you see, they talk about passive technology as the technology of choice going forward.

I think it's important to know there's only one technology out there that's passive, and that's the Westinghouse technology. Period. No one is going to come up here and say, “Well, this technology is passive too,” because it simply isn't. And we do not need any electricity, continue cooling fuel in the case of an event. We are going to continue working on the projects we're working on. And if there is piping systems that need to be hardened, et cetera, in the U.S. or plants around the world, we are in an envious position because almost 40% of the plants in the United States, we do the maintenance and outage work which is a logical person to do that type of work too, which by plant might not be significant, but 40% would be a significant number.

The work we're doing in Japan, we currently have the gun work there, we have people there, 20, we have 50 or so here in the United States, have already begun working on the -- responding to the event in Japan. We're one of the companies that's uniquely qualified to help our Japanese partners. We're the largest emergency response contractor in the world. We average about 400 emergency response a year, some you see in newspapers, some you don't. But we've done a tremendous amount of work coupled with our nuclear experience. Currently, we have radiation monitoring equipment ordered which we're going to station throughout the units. So we're beginning to do work there and the work that we do should be very significant over a long, long period of time.

This just gives you a power generation, I mean, power generation continues to increase. And the market's looking better and better as economies have recovered throughout the world. And we believe that's very significant amount of work coming up in lot of places that you might not expect, nuclear, gas, et cetera. So we're very encouraged at this time on the inquiry level that we see.

Speaks for itself, we've taken down guidance on the top side $0.05, but everything else is pretty much the same. We continue to buy stock back. We announced we're going to do $500 million worth of stock, we have purchased 40% of that and we continue to buy stock currently.

With that, we'll open it up for questions.

Question-and-Answer Session

Steven Fisher - UBS Investment Bank

Steve Fisher with UBS. Can you just talk about the reduction in the cash flow guidance? What drove that and how do you see that playing out for the rest of the year? The first quarter, I think you said, was about $70 million for operating cash flow?

Brian Ferraioli

Yes, Steve, that's primarily related to just some timing on some of the projects where we have some ongoing discussions with our clients. On Comanche, we had the split jury verdict in the first quarter. We haven't collected that cash yet and a couple others where they’re more timing-related than anything other. So we would think that, that's just going to spill over into 2012 potentially. And that's why they're still a fairly good range in our estimate.

Steven Fisher - UBS Investment Bank

Okay, great. And then maybe you can just talk a little bit about the Westinghouse situation? How were the discussions going on the put prior to the Japan situation where you kind of got cut off in the discussions there?

J. Bernhard

Well, we didn't get cut off, we chose to cut it off. But they're doing fine. We would be in the market today with the bonds should the event not have happened. But unfortunately, that occurred and so we're happy to have a cooling off period. But we plan on refinancing the bonds and we plan on absolutely keeping the Westinghouse technology because after the events, it's certainly the technology of choice in my opinion.

Steven Fisher - UBS Investment Bank

And should we still expect something in the range of in the tens of millions of dollars for restructuring costs related to that transaction?

Brian Ferraioli

You mean the fees, et cetera?

Steven Fisher - UBS Investment Bank

Yes, the fees. I think you had said tens of millions.

Brian Ferraioli

Well, I don't think we've given an exact amount, but you guys know better than I that you don't get Wall Street transactions done for free. So there will be the normal type fees associated with the refinancing.

J. Bernhard

Whatever the normal fees that you guys ask for.

Jamie Cook - Crédit Suisse AG

Jamie Cook, Crédit Suisse. You talked a lot about the potential NRC requirement, strengthening units, installation of hydrogen combiners, et cetera. Can you just sort of frame the market opportunity for that? And is that a potential for Shaw Group? And then, Brian, you talked about in 2011 I think nuclear comprising 10% of sales. Just what was that in 2010 and how we see that moving going forward beyond 2011?

J. Bernhard

Jeffrey?

Jeffrey Merrifield

Well, in terms of the market opportunity, I'd say a couple things: First, all the things that I listed on that slide, hydrogen recombiners, seismic analysis, all of those things are tasks that Shaw can accomplish. We have probably the largest engineering complement of any power provider among our competitors. We're involved in virtually all of the power plants in the United States right now and provide maintenance at 37 of those. So there's a lot of opportunities where we can leverage existing assets and relationships to assist those utilities with meeting the NRC requirements. I think a number of the things that I put up there are certainly likely to be conducted in part by the NRC. The magnitude of what that's going to mean in value I think is somewhat of an open question at this point. But certainly, it's a lot of work, it's a lot of work.

Jamie Cook - Crédit Suisse AG

[indiscernible]

Jeffrey Merrifield

The utilities have been conducting an initiated analysis of their own part of what enhancements may need to be made. So I would expect that certainly it is plausible that those could start in 2012.

J. Bernhard

Jamie, none of this is in our numbers though.

Brian Ferraioli

Yes. In terms of the nuclear activity, 10% in 2011; obviously, it was less than that. I don't have the 2010 number but it was, off the top of my head, it's going to be somewhere in the 4% to 5% range. And obviously, we would see that increasing in 2012, not hugely, we're not going from 10% to 50%. But it's a slow, steady ramp up. And that just reflects what's going on in the marketplace. If you went back four years, everything was coal. And coal, as you know, is declining, we have an uptick in gas. So it really moves around depending upon the overall market. But 10% this year and probably less than 20% in 2012.

Jamie Cook - Crédit Suisse AG

And then just as we think about the 4% to 5% to 10%, less than 20% is there any change in profitability or margins as margins come down as we hit the 20%, just so I know that while I know you're not going to give specific margin guidance, just how we think about mix?

Brian Ferraioli

In terms of margins as we said all along, margins will follow where we have competitive advantages and clearly, I think we're the leader on the nuclear side so as those projects continue to ramp up, we would hope to see some margin expansion there compared to the historic margins.

Joseph Ritchie - Goldman Sachs Group Inc.

Joe Ritchie, Goldman Sachs. So quick question on your EPS guidance for this year. It looks like your revenue expectations for the year have come down, you've kept your EPS guidance fairly flattish. Just help me understand how we're we getting there then. Is it predominantly a more aggressive buyback program or stronger bookings that you booked this quarter?

Brian Ferraioli

A little bit of both. I mean, clearly, at the beginning of the year, we had a broader range, we did bring it down a little bit. The hiccup we had in our Energy & Chemicals Group and the booking situation there impacts it slightly. But we still think we've got a good shot to make the EPS numbers. Obviously, the buyback helps that, but I don't think there's anything fundamentally different. The revenues in this business can swing rather significantly without having any economic impact. If you have customer furnished materials, it goes through as a revenue, it depresses margins. But we make no gain or loss on that. So I wouldn't focus too much on the revenues per se as any sort of indicator of anything significant.

Joseph Ritchie - Goldman Sachs Group Inc.

Okay. And then I guess following up on, for next year as you start to progress through your nuclear work on the two projects that you're working on today. If the COLA happens to get delayed on either one of those projects, in particular the SCANA project let's say, right now it's scheduled for about the second half of next year. What kind of earnings impact could that potentially have in 2012?

Brian Ferraioli

Well, I guess it's a hypothetical -- it's dangerous always answering hypotheticals. What we can say is we are protected from a contractual perspective if there are any delays and increase in costs associated with that. Obviously, that's something beyond our control and we are protected in that regard. There is float built into schedules, et cetera. So at this stage, I don't think it's appropriate for me to comment on what it could be because I don't know what it could be. But it is as we mentioned throughout the presentation and in the past, it's still progressing according to the schedule and I'll leave it at that.

J. Bernhard

Let me help you a little bit here. If the COLA got delayed, something with SCANA, which we don't expect, I mean, but it's highly unlikely we would quit building modules and equipment and everything else. I mean, it might be a few people in the field but we haven't had that indication at all, so.

Joseph Ritchie - Goldman Sachs Group Inc.

Okay, all right. I guess one last question on the bookings side. You guys had a very strong bookings quarter. Just to be clear in the Power segment, you booked one new gas build. I think the anticipation was two, so is that one still -- you have good opportunity to maybe book that in this current quarter?

J. Bernhard

I think that our backlog will be up at the end of the year from where it is now. And the other one was a major nuclear opportunity we will see.

Andy Kaplowitz - Barclays Capital

Andy Kaplowitz, Barclays Capital. On margins, maybe following up a little bit on what Jamie asked, Power margins are still kind of pretty low in the quarter x the gain. The conviction level around margins increasing, is it just, I mean, the nuclear activity jump up in the second half of the year, as you talked about, and that's what does it? Is there something holding the margins down? And then similar question on the E&C side, can you talk about the problem projects you had in the quarter? What is it, how long is it going to take to finish? That's the question.

J. Bernhard

Brian?

Brian Ferraioli

In terms of the margins, again, as we continue to ramp up on the nuclear projects, the margins will expand. So again, it’s a natural progression associated with those. We build our forecasts from the project level on up. So the answer to your question a different way if I can, it's not highly dependent upon new business so it's the existing fleet of backlogs. In terms of the E&C project, the issue there primarily relates to subcontractor performance, which extends the schedule and extends our time on the site. The project is 74% complete and I think from a technical perspective, there are no issues. But there was a scheduled delay and that's what's...

J. Bernhard

Yes, that particular project subcontracts the fixed prices to subs and engineering is complete, and procurement is complete.

Andy Kaplowitz - Barclays Capital

Brian, maybe if I could follow-up just on the accounting restatement you had. You had several before you got here and this is the first one we've seen in a while. So could you talk about it, sort of what happened? I know you said it's not material but it's still something we haven't seen for a while.

Brian Ferraioli

Yes. First of all let me correct you, it's not a restatement, it's a revision, which there are technical differences between the two. And as we mentioned, the adjustments that we have are not material to the prior periods. But if we put them all through the current period, they would be. So the current period was really the issue. There’s no excuse, this was a screw-up within the accounting group of the E&C operating segment. They were not accounting for foreign currency translation correctly on the project. We're basically using a fixed project rate because the project when it was started, had an inherent natural hedge. We had revenues and we had costs matched by currency. During the execution of the project, some of that scope moved around and the natural hedge disappeared. And unfortunately, the accounting folks were still assuming there was a natural hedge and that's where the issue arose. It was a mistake, was an error, it was an error on my watch. And you're right, it's the first in quite some time and hopefully will be the last.

Andy Kaplowitz - Barclays Capital

Okay. That's fair. Just one more quickie on E&C. I mean, you've been talking about it ramping up for a long time. And actually, we did see quite a bit of bookings versus what you've seen in past quarters. So I would assume, I mean, you kind of talked about it. It seems like we've turned the corner and could we see activity both in the U.S. and the Middle East going forward? I mean do you see a nice ramp up in activity, in actual bookings, not just in prospects?

J. Bernhard

Yes, I agree. I think that you'll see that over the next two or three quarters. So we're looking forward to that and the rest of the segments, our bookings and the bookings look promising going forward especially in power and piping. I mean, they really look, our Fabrication group very, very significant.

Scott Levine - JP Morgan Chase & Co

Scott Levine, JPMorgan. Spent a lot of time talking about the AP1000 and its positioning relative to the technologies utilized at the plants in Fukushima. I was hoping if you might be able to elaborate on the Advanced Boiling Water Reactor where you expanded the agreement in relationship with Toshiba, and maybe how the prospects for that technology are expected to evolve in the marketplace? And then secondly, as a follow on, maybe comment on the global market for nuclear including U.K., Saudi Arabia, Brazil, some of the areas where you guys have highlighted expectations of increased activity?

J. Bernhard

Okay. It's just the ABWR, ESBWR the AREVA technology, it's just my strong opinion that when we get into a country, every country is going to have political environment, no matter where you build a nuclear power plant. And I believe at the end of the day, presenting a passive technology alternative to one that requires electricity in a series of events for no additional cost, I believe that it's going to be the technology of choice. And I strongly believe that. In the terms of the countries, we're talking about foreign, Brazil certainly, I know that Dr. Candris of Westinghouse has been to Brazil with President Obama recently and that project is certainly moving forward as well as all the projects that had been built. The full reactors currently in Brazil have all been built by Westinghouse in the past. Saudi Arabia continues to move forward. As we've met with them recently in the last few weeks, they export 11.5 million -- put it in perspective, 11.5 million barrels of oil a day. They burn 3.5 million barrels of oil a day to produce electricity. So their thoughts are we'd rather sell 3.5 million barrels of oil a day and have our electricity generated in a different manner. So if you want to know if oil is going to be higher in the future, I think by the actions in Kuwait, UAE, Saudi Arabia, by building nuclear plants, freeing up the ability to sell oil at a different price, kind of gives you, certainly at least they think oil is going to be at a higher price because they don't want to burn it to produce electricity. U.K. I think is going to be about six months’ study or advancement on that. But after that, I think towards the end of the year, that you'll find that they're going to move forward. We're hopeful there. I believe India is going to move forward, the Czech Republic which is certainly going to move forward. And it's one of those things, Germany’s not going to build them but Czech’s going to wield power over to Germany. So it's a complicated situation but if you look at the overall market from where I'm from, I don't think our net units available for us to build have diminished over the last month. I believe that we now have a significant technological advantage. Because when you go and speak to clients of the choice that you can have and that we believe that we have inherently in the new technology, these new plants that are being built are going to be the safest in the world bar any other technology. And that is a significant event. While some of the units may be less opportunities a percentage of the units that go forward, I think, will increase. And I think that if you read a lot of the published reports, a lot of people are being educated about the different technologies and hence a full room today. We’ve had a lot of interest.

Scott Levine - JP Morgan Chase & Co

Got it. One quick follow-up on the air quality control opportunity. Any change in the view there, either timing or magnitude?

J. Bernhard

No. Just it's going towards the end of the year, I mean, there's only three things you can do with a coal plant: Clean it up, convert it to gas, shut it down and build something new. And all three, we're going to participate in. So it's a timing activity but we'll see how it goes.

Scott Levine - JP Morgan Chase & Co

So waiting on the regulations then?

J. Bernhard

Yes, sir.

Don Hamilton

Don Hamilton from Catalyst Associates. Natural gas is the power fuel in the U.S. or globally if you will and [indiscernible] where...

J. Bernhard

Okay. That's a good question because on the gas in the United States, we've done our studies. It's $4 to $5 of gas, nuclear is about $7 without any environmental penalties, it's about a breakeven at $7 on natural gas. And while it's $4 or $5 in the United States, U.K. it's $8, Japan is $15, so it's not $4 or $5 around the world for natural gas. So when you look at the different markets, like I said, the good news about the Westinghouse technology, we have a technology that generally travels. We have a technology that we can sell in Saudi Arabia, we can sell in China, we can sell in India. So we're not bound to the United States to be able to produce income for our company, just the opposite. We are able to do it all over the world. What we believe will happen in the gas market at some point is with $5 transfer to liquefy and move it throughout the globe, so there will be a point $4 plus $5, plus a number as gas goes up when we're not going to expect gas forever to be here at $4 if gas around the world sells for $20. We're going to be exporting, and minus $5 it’ll be $15 here. So that's kind of where we are. But as a baseload fuel, nuclear is going to be a part of the U.S. How much? I'm not sure. But I really was very encouraged that the political response has not been a negative one at all in the U.S. And the rest of the globe has really take a pause in some countries but the rest of them, development is normal. And I think that there's going to be some likely to be some activity in nuclear plants here to do certain safety enhancements which we will participate in. There's going to be major cleanup, billions and billions of dollars of cleanup in Japan which we will participate in. And the new market going forward in our opinion, that we'll do more net units than we would have previously because of the technology, tremendous advantage that we have.

Unidentified Analyst

[indiscernible] any change with respect to on-site storage versus new technologies versus political moods?

J. Bernhard

Not as of yet, okay. I know there's been, as you've seen in the press, there's been a lot of activity of why we shut down Yuka Mountain [ph] there. And I think that, that probably has an overlook forward, which is we're okay with Yuka Mountain [ph] going forward because we're the contractor there at Yuka Mountain [ph] should it go forward. So those are not negative signs for us.

Jeff Sprague - Citigroup

Jeff Sprague from Vertical Research. Jeffrey, I was wondering if you could take off your Shaw hat off for a second and…

Jeffrey Merrifield

Why would I do that?

Jeff Sprague - Citigroup

It looks like the GE ESBWR is going to receive final approval later this year. They certainly claim passive design elements but is your argument here today that the Westinghouse design is even more passive or more rigorous in any kind of unusual events, and how would you say that reactor stacks up to the Westinghouse reactors?

Jeffrey Merrifield

GE’s ESBWR design is also a passive plant. I think the major differentiator is that they have no EPC orders to that plant, where as Westinghouse AP1000, we're building for them in China and we're prepared to start building for them here in the United States hopefully later this year. I think that's a key differentiator when you talk to U.S. clients or to clients outside of the United States, you can take them, you can show them the plant, they can walk through it, they can see things are actually happening. It's a much higher threshold when you're really showing them instead of drawings.

J. Bernhard

That approval that they're getting is the approval Westinghouse got seven years ago.

Jeff Sprague - Citigroup

And then additionally, maybe many, many years off but how would you evaluate the Chinese CPR 1000? Have you thought about some time down the road when the Chinese aspirations are outside of China, just kind of a rigor design capability of that reactor to be sold outside of China at some point in the future?

Jeffrey Merrifield

I'm sorry, which one are you talking about?

Unidentified Analyst

The CPR 1000 which is basically the Chinese design that's kind of semi-lifted from the Russians?

Jeffrey Merrifield

Well, I don't know if I’d characterize it that way. The CPR 1000 is an evolution of a Westinghouse design that went to the French design when they sold it at [indiscernible]. China is currently assessing where it wants to go with building those reactors going forward. They have, at the same time, fundamentally said that they are allowing the AP1000 units to continue to go forward. So I think it's going to take a little bit of time to see what China ultimately comes up with in the mix of reactors that they want to have domestically and potentially, sell abroad.

Unidentified Analyst

If we could just talk a little bit -- I understand the enthusiasm on nuclear, but the other three parts of your business. A lot of it is overlooked. If we think about Energy & Chemicals, Fab & Manufacturing and E&I, can you just sort of rank order where on the margin you need more positive negative on those three areas? And rank order which one you're more optimistic on? And then my last question is on capital allocation. I remember at your analyst day last spring, you talking about acquisitions and when you're making acquisitions, shoot for $0.05 accretion. You're sort of swinging more for the fence and so what you're seeing on that front?

J. Bernhard

Well, we started major acquisition that we're about 40% complete with our stock buyback. But anyway, as far as for the Fabrication business, the Fabrication business is extremely versatile business. You think of piping, I mean we're doing a lot of work in the Solar business, in piping for a company called Hemlock, a tremendous amount. We're doing the fabrication for Chicago Bridge & Iron in Colombia. I mean, the Fabrication business, is we're the number one company by far. The tremendous opportunities now in Brazil, with Petrobras and Saudi and Kazakhstan. And that business and the Nuclear business, with their modules, et cetera, will continue to build next year. And you’ll look for a significant amount of increase in business and profit from that segment. The E&I businesses will continue to do well, have tremendous amount of opportunities with the DOE announcing $86 billion worth of new projects and have a great reputation with the Department of Energy with the MOX project. Interesting enough, good news, bad news; bad news if you're a taxpayer, the good news if you're a shareholder, the MOX project is the only Department of Energy project that's on time and on schedule, period. And it's one of the largest, it's over $5 billion, $6 billion, $7 billion so that's a significant benefit for us, seeking work in that environment. Naturally, they're going to be heavily involved in the work in Japan, on emergency response and long-term basis in combination with our Nuclear business. So those two businesses look pretty good. The E&C I think is coming out of it. Only time will tell but there certainly -- we wouldn't look for to do any less so there's upside there. Just depends how much. And you know the profits there have been very, very good in the past. But we're very cautious in that business, and we're trying not to go out there and have a project to have a project. We'll take our time and get the ones that we want. And so I think it's pretty good in those segments and the piping really amazes me because it's resoundingly resilient because of the technology advantage they have on bending and they really doing real well.

Andrew Wittmann - Robert W. Baird & Co. Incorporated

Andrew Wittmann from Robert Baird. Just a question, I guess digging in a little bit on the backlog bookings for E&I. I think a big part of the award there was probably with the Department of State which you announced the $2 billion IDIQ content. Just wanted to understand if that was really the bulk of the bookings in that segment this quarter and then understand what the runway for that might look like in the next 12 months given that I think it had a multi-year?

J. Bernhard

We didn't book that $2 billion in the quarter. It's significantly less. And the run rate is over next the next few years. I'm the not sure if we have the exact definition.

Brian Ferraioli

No. We don't have the exact time horizon. However, they are out for inquiry on a number of opportunities already. We have number that are outstanding, we've already bid. So this is a high priority, it seems to be at least a high priority for the Department of State.

J. Bernhard

A lot of these modules, housing modules go to Iraq for government employees to live in so they're really behind the curve there.

Brian Ferraioli

The Army will pull out or the military pulls out and the state department personnel come in, they need housing and they need housing that is not ordinary housing you would have in the U.S. So there is a significant amount of money being spent there already.

J. Bernhard

All right. Any other questions? Okay. What about the telephone, we don't do that? Okay. All right, good. Well, I guess people in the telephone can't ask the questions, you should have came here, I guess. Okay, well thanks a lot, and we'll be around here a few minutes after. If you all have any individual questions and to kind of sum it up, we think that we've given you a good brief where the nuclear industry stands and the rest of our business stands. And for the most part, it looks pretty positive going forward. Thank you.

Brian Ferraioli

Thank you.

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