Shaw Group's CEO Discusses Q3 2011 Results - Earnings Call Transcript

Jun.29.11 | About: Shaw Group (SHAW)

Shaw Group (NYSE:SHAW)

Q3 2011 Earnings Call

June 29, 2011 9:00 am ET

Executives

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

Gentry Brann - Vice President of Investor Relations and Corporate Communications

Analysts

Scott Levine - JP Morgan Chase & Co

Robert Connors - Stifel, Nicolaus & Co., Inc.

Alan Fleming - Barclays Capital

John Rogers - D.A. Davidson & Co.

Andrew Wittmann - Robert W. Baird & Co. Incorporated

Joseph Ritchie - Goldman Sachs Group Inc.

Brian Konigsberg

Jamie Cook - Crédit Suisse AG

Steven Fisher - UBS Investment Bank

Operator

Welcome to the Shaw Group Inc. Third Quarter Fiscal Year 2011 Earnings Conference Call. My name is Sandra, and I will be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Ms. Gentry Brann. Ms. Brann, you may begin.

Gentry Brann

Thank you, Sandra. Good morning, everyone, and welcome to Shaw's third quarter fiscal 2011 earnings conference call. 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. This morning, we will reference the slides that are available for download and printing on our website, www.shawgrp.com.

Now before we get started, please review the cautionary statement on Slide 2, which addresses the use of forward-looking statements and Regulation G disclosures to our non-GAAP items. We ask you to please consider this information with respect to our presentation and today's call.

Now I will refer you to Slide #3 and turn the call over to Jim Bernhard.

J. Bernhard

Good morning. Let me start by saying this is an extremely challenging and disappointing quarter for our company. We had several items that negatively impacted our earnings, and let's review those at this time, resulting in an overall loss of $0.86 per share excluding the Westinghouse segment.

As we've said previously, our Energy & Chemicals Group has been the most of all our segments. This quarter, our E&C project in Asia had a charge of approximately $112 million pretax or $68 million aftertax, and we'll talk a little bit more about this in a few minutes. We've also decided to write down our investment in South Texas Project for a total of $48 million pretax. We do have an interest in certain assets related to the projects and continue to pursue those. However at this time, it's difficult to determine the value of those assets, so we're writing those down and fully impairing those assets at this time.

Our E&I groups continue to demonstrate strong execution on these projects in the quarter, and we've had a difficult quarter with a negative impact on our financial results for these particular projects. However, we're encouraged by what we see in the energy, exclude the exception of the Energy & Chemicals Group, and all of our segments have demonstrated operational performance, very, very strong. I would say that the Energy & Chemicals Group, with the present management team, this is really a first time that had a project deteriorate in this fashion, but they have had exemplary performance in the past.

We've also had several strategic new awards in the quarter. I'd like to point out that the GE Hudson River project, we were awarded the cleanup of the PCVs there, as well as a major plant maintenance work for Albemarle. We also announced we're working with Holtec on a small modular reactor program, which we think has great promise, and we were awarded the state of Wisconsin's energy efficiency program.

And turning to Slide 4, I'd like to speak more directly about the energy and chemical project that has challenged us the last 2 quarters. As you know, we took a charge last quarter and a major charge this quarter. There's a major ethylene project in Singapore. It's approximately 75% complete. The project's construction is being executed via multiple subcontractors, experiencing performance issues including insolvency of a major sub. This has significantly extended the schedule for these particular projects. Because of these issues, earnings for the quarter were impacted negatively by a forecast cost increase of $112 million. While these costs haven't been expended today, we are forecasting a major increase in the project to complete. We're now currently working with the client to provide some incentives for the subcontractors, and we anticipate completion now for the early part of 2012.

Let me turn it over to Brian to discuss the financial results for the quarter on Page 6.

Brian Ferraioli

Thank you, Jim, and good morning, everyone. Looking at the financial results on Page 6, the GAAP earnings continue to have volatility, relating to our Westinghouse segment and specifically the yen-denominated debt associated with that investment. So we had a pretax $15 million, non-cash charge relating to the continued strength of the yen versus the U.S. dollar. So again, as we typically look at the financial results, excluding Westinghouse in the shaded column, we'll go through there. Clearly earnings were negatively impacted by the charge in the E&C group, that Jim just mentioned, and as also from the charge relating to the South Texas loan, which we have impaired. And finally, for the E&I, 2 disputes that were resolved for a net of $4.1 million pretax charge.

Going on to Slide 7, I'm looking at specifically the individual segments. As Jim mentioned, we had a good operational performance in all segments with the exception of the E&C project noted previously. We're particularly encouraged by our Plant Services Group, who continue to show increased number and volume of nuclear reactors that they are servicing. We now have 1 out of 104 nuclear reactors, so you see a volume growth as well as increased margins and market percentage. They continue to perform extremely well. Obviously, E&C, as we mentioned before, is a dominant item for the quarter. And the E&I continues to perform well, as we mentioned, even with the settlement of the 2 disputes.

Looking at the specific segments, Power. You see revenues are down slightly and earnings slightly from a year ago. That's primarily driven by a decline in the air quality control projects. We were heavily involved in some of the scrubber projects in the past. It's an area where we performed exceedingly well, but that work has significantly slowed, while the emissions regulations in the U.S. are still pending. We expect those to become final partially this summer and the other part will be later in November, and I think we'll talk a little bit later on about the market and specifically the air quality control market.

Plant Services, as I mentioned previously, continues to perform extremely well. You can see revenues are up, as well as the earnings and the gross profit percentage. Energy & Chemicals is what it is, as we mentioned. And E&I, you see their revenues are down slightly from a year ago. That's primarily driven by the Inner Harbor Navigation Canal project here in New Orleans, which is nearing completion. That project was at its peak a year ago, and it also suffered a bit this quarter from the high water on the Mississippi, slowed a little bit of work, but that's the item that's really driving the decline and the volume of revenues you see there. However, earnings remained pretty robust, and the gross profit percentage that you see is pretty healthy at 10%.

The Fab & Manufacturing continues to perform well, although their volume of business is down a little bit from the prior year. Again, that reflects the process-related businesses that have really not come back yet, so refining, petrochemicals, et cetera, they continue to work on a number of power jobs and are just starting to ramp up their business relating to the Shaw modular solutions, which we'll provide modulars for the new nuclear power plants.

If you turn to Slide 8. There are a number of items that have impacted our income statement for the year, so in order to try to put a little bit of clarity to some of those larger transactions, we tried to indicate on this slide what those individual large transactions were. The first line deals with the GAAP reported earnings, including Westinghouse. And as you see the individual items, there's the Comanche charge from the jury verdict in the first quarter, partially offset by the favorable settlement we received for a dispute in Taiwan. And then for this quarter, we have the South Texas and the E&C charges, as well as the Westinghouse segment, so we try to give you here more of a P&L without the individual large transactions.

Moving on to Slide 9. Our cash remains strong. We generated $51 million in operating cash flow during the quarter. You see, we have just under $1.1 billion in total cash, which is down. But we've done a fair job of redeploying cash, as we've been talking about for the last several quarters. During the quarter, we finished our share buyback. In total, we purchased 13.7 million shares at $500 million during the quarter. It was about 12.5 million shares for $453 million in total cash outlay. The South Texas Project, we talked about before, 2 smaller acquisitions we've talked about in the past and CapEx of $80 million year-to-date, which is primarily equipment that we're using in the construction in our Power segment, and about $48 million of that is construction equipment, another $18 million related to the Fabrication & Manufacturing group, which includes about $8 million for our new facility that's under construction in the United Arab Emirates.

Turning to Slide 10. Backlog remains pretty healthy at $19.7 million. The awards for the quarter were driven by the Plant Services and E&I group. There was a transfer of backlog during the quarter from Power to F&M. It's not an increase in backlog overall. It's just a movement of some scope of work related to the nuclear plant has moved over into the fabrication business.

With that, I'll turn it back over to Jim for the operational market review.

J. Bernhard

If I could ask you to turn to Page 12 on the Energy & Chemicals segment. We've previously discussed the challenges we're having on a major project in Singapore. Our bookings for this segment continue to fall short of expectations. However, for the first time in a decade, we see major activity in the U.S. olefins market. We expect to have 2 to 4 of these domestic ethylene plants in the next 24 months to be active in the United States for major expansions or grassroots plants, which is the first time in a decade. We hope to participate in that. Basic chemicals continue to grow. I estimate over 5% through this year and continue to grow through 2015, which we believe will have a major uptick in the market, as you know that major chemical companies are somewhat having record earnings. This is yet to transfer into major project expansions. But we believe in 2012, that these awards will begin to occur, in particular on the Energy & Chemicals segment.

If we turn our page to Page 13 on our E&I or Environmental & Infrastructure segment, it has continued strong execution on the major projects and particularly the MOX project, which is the largest project we have in excess of $5 billion, and it continued to do very well. Despite some of the cutbacks in government spending, the overall outlook in pursuit of our large federal opportunities remain very strong in the segments that we participate in. We see an increased infrastructure opportunity with the Department of Energy to perform improvements to aging facilities, and we expect significant spending in the next decade for NNSA modernization program. So this is a very encouraging market, the execution has been exceptional on their major projects in particular Inner Harbor, which is really a premier project, the largest project ever undertaken in a designed engineering basis by a contractor for the core engineer, which finished on time and on budget. Again, the MOX project is the largest project that we have ongoing today. It's for the Department of Energy, and it's the only project currently in the Department of Energy that's under budget and ahead of schedule.

If we turn to Page 14 on the Fabrication & Manufacturing segment, the business continues to see major, major opportunities internationally. We expect to have a presence, our major opportunities, our joint venture partners in the next 12 months in Brazil, Saudi Arabia, Kazakhstan and India. The mining business is certainly a significant part of upcoming work, and very significant opportunities continue in South America and the Middle East, as far as different piping components that they will be undertaking. The fab business looks extremely strong for next year and the year following. In fact, we've already begun initial work at our fabrication facility in Abu Dhabi, which will be fully operational in the next few weeks.

On Slide 15, our Plant Services segment, I want to spend a little time today on it. It's been showing significant growth year-over-year due to strong execution and new contracts. We were just awarded a 3-year contract for 5 new nuclear power plants by Florida Power & Light to provide maintenance and modification services for the operating units on a 3-year contract with them, not only does it include maintenance but also includes the modification or upgrades at major stations that they own. These 2 new contracts will be booked in the fourth quarter of this year. We now provide maintenance to service over 40% of the U.S. nuclear operating units, which is very, very significant.

And now if we look where we are today, we're doing major, not only maintenance work for Florida Power & Light, but we're also doing their modification services as well as for AEP, as well as for Entergy. So it continues to amount to the major projects that we have, a lot are similar in nature, so each client can benefit from our past experience, and we expect in the next 12 months to get numerous contracts of this type, especially in the modifications. We have also begun to extend our maintenance service in the fossil and industrial market, and we anticipate additional work serving the U.S. steel industry this year.

So this [indiscernible] have a major increase in sales and profitability next year. This business is doing extremely well and will continue to do so in the future.

If I would turn to your [ph] segment, Slide 16. We're pleased to announce this morning that we're able to award a $5 million EPC contract for Entergy's Ninemile combined cycle plant, a natural gas plant here in Louisiana. We continue to work on our domestic nuclear projects, and Westinghouse has been, as you know, submitted the design certification documented to the NRC early this month. We're expecting to get an update on the approval timeline within the next few weeks. We anticipate that both Southern Company and SCANA will receive their license in the early part of calendar 2012. Although we are still hopeful that Southern Company may receive it as early as October of this year.

We anticipate regulation for the NRC, which would lead to modification existing plants. We're well positioned for this type of work, and we expect to have $5 billion to $8 billion increase in the uprate market over the next decade. And once we have filed EPA regulations, we believe that the air quality control market, that we'll be a major participant in of this $10 billion market over the next 5 to 6 years. So we're on the cusp of a lot of potential activity in the power market, nuclear uprates, scrubber works, which we were immensely successful in the last time, going forward, as well as newbuild nuclear in particular outside the country. So we're in good shape on Power. We have a lot of activity currently and studies, and the market is beginning to turn to an -- uptick to a good one and maybe to a very good one.

Can I have your attention and turn to Page 17 and updating our guidance for the fourth quarter of $0.60, with operating cash flow approximately $50 million for the fourth quarter, as well as 2012. What we have tried to convey is although there's still a strong possibility that the Southern Company will receive -- there's a COL in October. Our guidance is based on a later COL for both companies, Southern and SCANA, to receive their license from the NRC in the early part of calendar year 2012. And we've also forecast our Energy & Chemicals segments would be flat or breakeven for 2012, so we've taken them way back as well.

Our preliminary guidance for the year is approximately $6.2 billion to $6.5 billion, with revenue of $2.20 to $2.50 per share and approximately $150 million in operating cash flow.

Based on the opportunities that we see in the future and the valuations currently reflected in our company, we're announcing the board of directors has authorized us after the completion of the $500 million buyback that we completed this quarter, an additional $500 million additional repurchase of $500 million going forward.

With that, let me open up the call for questions.

Gentry Brann

Thank you, Jim. We'll now begin the question-and-answer session. Sandra, may we have the first question please?

Question-and-Answer Session

Operator

[Operator Instructions] And the first question is from John Rogers from D.A. Davidson.

John Rogers - D.A. Davidson & Co.

Two things. First of all, in terms of the buyback, when does the window open for you, is it 3 days?

J. Bernhard

The window, as we're currently advised, will be open on Friday.

John Rogers - D.A. Davidson & Co.

Friday. Okay, Thank you. And then secondly in terms of the nuclear projects and the timing, how quickly once the COLs are issued do you ramp up activity there? And when do you hit sort of the top of the bell curve? I mean, is this a one quarter, 2 quarter, 2-year process?

J. Bernhard

I don't have that information in front of me when we'll reach the top of the bell curve but...

John Rogers - D.A. Davidson & Co.

Or is it top of the plateau design [ph]?

J. Bernhard

I would say probably, it would ramp up over and it would peak at maybe 2.5 years.

John Rogers - D.A. Davidson & Co.

Okay. But the ramp is pretty quick once you have those COLs?

J. Bernhard

You know we have a major work ongoing now, but it will commence very quickly. For example, the modules that we're fabricating, how long does it take to -- once those are assembled, it only takes 2 days to set them. So the project is very quick as compared because of the modernization aspect, as compared to some of the stick bill ones that we may have experienced in the past, so it will be quicker than that.

Operator

The next question is from Andrew Wittmann from Robert W. Baird.

Andrew Wittmann - Robert W. Baird & Co. Incorporated

I just wanted to dig in a little bit more on the problem project. I think the percent complete hasn't moved. Is basically that project stalled right now? And can you just give us some sense about what the original timing was for that project to be completed? I guess now you're saying early '12, but when was it? And can you just give us the overall size of what that project originally was, just so we can put the charges here in context?

J. Bernhard

It hasn't stalled, but when you increase the cost of the project, it lowers the percent complete because there's more cost to go. This is money that has not been spent yet. It's money in the future. So as we increase the cost, it's less percentage complete just by the mathematical computation, but work as far as for installed quantity has certainly been achieved. The original project was supposed to have been completed in September of '10.

Andrew Wittmann - Robert W. Baird & Co. Incorporated

Any color on the overall size? Is this a $1 billion project? Is this measured in hundreds of millions, just try to get some scope of what the project is?

Brian Ferraioli

Andy, this is Brian. It's in excess of $1 billion.

Andrew Wittmann - Robert W. Baird & Co. Incorporated

Okay. Just in terms of guidance, I guess, the first time you've given guidance this far ahead. I wanted to just gauge kind of how you think of the components of that guidance. Which are the segments that you expect to be some of the best performing? And it sounds like E&C might be the weakest, but what else might be on the lower end, if you can just maybe give us a sense of how you're thinking about next year?

Brian Ferraioli

Well, Andy, as Jim mentioned in the call, we're pretty optimistic with the performance opportunities of all of the segments, with the exception of E&C. Power and E&I continue to be the larger segments, and they continue to perform well. F&M, as Jim mentioned, we think we've got good opportunities for them to grow internationally in addition to the modular work really starting to ramp up, so we're pretty optimistic there. The plant services, again capturing 5 new plants and growing its revenues and earnings without any new work from the NRC post Fukushima, again, makes us quite optimistic for that business group. So the only segment whose market remains extremely tough is really E&C.

Andrew Wittmann - Robert W. Baird & Co. Incorporated

Okay, you mentioned Fukushima, just any update on discussions with TEPCO?

J. Bernhard

We're actively working on a major project on TEPCO to clean up the water. We have over a $50 million contract, and we anticipate others as the projects go along. So we're going to be a major participant, we believe, in the project for a long time to come. I think that our expertise based on emergency response compiled with our nuclear ability, compiled with our with our nuclear environmental programs that we administer in the United States and cleanup activity makes us uniquely qualified for our expertise on this particular tragic project. So we've got a $50 million contract that we're executing for the quarter, and there's -- I'm sure there's many more that we're working actively on now.

Andrew Wittmann - Robert W. Baird & Co. Incorporated

And that's really -- the working assumption is still lots of smaller contracts rather than booking a big one that you'll be working on for years. Is that still the way to think about that?

J. Bernhard

I think it's typical to major response type of projects, especially in the early going where they issue what we would refer to here as task orders, task order to clean up the water, maybe a task order to extract the fuel rods, et cetera. So I think later on, there might be some longevity in it but first year or so on the stabilization process and what needs to be known comes up very quickly, and I think that those will be released to us in task orders.

Andrew Wittmann - Robert W. Baird & Co. Incorporated

And just one final question. I noticed that there has been a dispute going on within air quality control project that I guess the Q mentioned is $150 million -- $155 million potential. Can you just give us some color on that one, where the discussions are and how that might resolve?

J. Bernhard

Well, we're moving to formal litigation. We've had discussions with the client. It's a reimbursable type of contract. It's kind of unusual to have that kind of dispute on a reimbursable type of contract. We believe the performance was good. The project was complete. There were 3 units. They were all complete. They were up and running. They were on time. Our portion on budget. So we're frankly a little surprised and disappointed, but there is a fair amount of money at stake there, and we are actively pursuing recovery.

Andrew Wittmann - Robert W. Baird & Co. Incorporated

Any timeline on when that trial is or when this might be resolved?

J. Bernhard

Trying to predict when things are going to be resolved legally is a bit of a challenge but not until 2012 at the earliest.

Andrew Wittmann - Robert W. Baird & Co. Incorporated

Calendar or fiscal?

J. Bernhard

Calendar.

Operator

The next question is from Scott Levine from JP Morgan.

Scott Levine - JP Morgan Chase & Co

Drilling down on the earnings sensitivity to the COL approvals. In the past, you provided some sense of what your EBITDA contribution from the nukes was expected to be. And could you provide maybe a little bit more color in terms of an update there, so we can get a sense of -- if you get earlier approval, then you're factoring into your guidance, let's say, Southern or SCANA, we can get a sense of whether there could be upside or downside to what's assumed in guidance for the nukes?

Brian Ferraioli

Yes, what we have said, Scott, in the past is that for 2012, the revenues for the new build domestic nuclear plants would be somewhere in the 20% range. With the change in the forecast, we backed off a little bit on that, but you're still in the high teens is what the estimate would be.

Scott Levine - JP Morgan Chase & Co

And for fiscal '11, are you still -- I think you said in the range of 10%, is that still the expectation, or is it a little lower than that now?

Brian Ferraioli

Yes, that's probably still in the range.

Scott Levine - JP Morgan Chase & Co

Okay. And maybe drilling down as a follow up on Energy & Chemicals, could you comment on how that market is evolving relative to your expectation 6 to 12 months ago? Is it weak all over? Is it weak collectively from a regional standpoint, or is it just a lot more competitively envisioned?

J. Bernhard

Well, work there is extremely competitive, and the opportunities there are ones that we would choose not to participate in. But that being said, we're hopeful that there is a -- we believe, there's going to be major awards in the next year of a variety of different overseas here in the country that we'll participate in. It's a difficult time for that business, but it looks like the prospects once they start rolling, as is typical in this business, all tend to come together.

Scott Levine - JP Morgan Chase & Co

Got it. One last and quickly if I may, does your guidance for '12 -- are you expecting backlog to grow in '12 or any color regarding your expectations for backlog that underlie your guidance?

Brian Ferraioli

Don't really have all the details yet because we're just doing the preliminary planning. We haven't finalized our planning process yet. But we would expect backlog to be at least flat for the year, if not up. I really don't have the details, Scott, to give you a hard answer on that question. We'll have more of that when we finalize our plan, and we announce the fourth quarter earnings.

Operator

The next question is from Jamie Cook from Crédit Suisse.

Jamie Cook - Crédit Suisse AG

A couple quick questions. Brian, is there any way you can give us some sense of how much the problem project in E&C is impacting your 2012 guidance, and how we think about how earnings sort of shake out throughout the quarter? Is 2012 going to be a back-end loaded year? And then I guess the follow-up question to that would be, can you comment on your confidence on the rest of the -- can you comment on just the portfolio of the rest of the projects that you have, how are they performing relative to expectations? Is this the only sort of problem child out there I guess?

Brian Ferraioli

Okay, if I got all of that. The impact of the problem project in 2012, when you think about it, Jamie, it would only impact our first quarter, maybe one month of the second quarter. So yes, it had an impact, but it's only to the front end of the year.

Jamie Cook - Crédit Suisse AG

But is Q1 lower than Q4?

Brian Ferraioli

I don't want to give that level of specificity yet. Let us go through and finish our planning process, so that we can be a little bit more definitive about that. But I don't want to get specific about what the impact of one particular project is going to be or would have been, et cetera on a period. So what was your second question?

Jamie Cook - Crédit Suisse AG

So I just want to -- could you comment on the remaining projects that you have out there, your confidence with out how they're performing sort of relative to expectations? And is this only sort of problem child you have out there at this point?

Brian Ferraioli

The other projects performed reasonably well during the quarter, so we had the one dominant one. But the other projects in general are pretty well on plan and such are proceeding according to our expectations.

Operator

The next question is from Brian Konigsberg from Vertical Research.

Brian Konigsberg

Just coming back to the guidance a little bit. I'm just curious, if COLs were to be delayed beyond Q1, how long can you function unimpeded without those before it starts to impact your revenue?

Brian Ferraioli

Well, I think it already has impacted revenue a bit because we would be ramping up faster on these jobs. But this isn't a loss, it's just a delay, an extension of the projects, which can be covered either by accelerated operations, which the client would pay for or by just a shift to the right. So this isn't a loss per se, it would just be a deferral of some of the execution. So we have 1,400 people, I believe, on the Vogtle site and just under 1,000 people on the SCANA site for V.C. Summer, and neither project has a COL. So we're continuing to operate pretty significant numbers. It's just the velocity may be slightly different, given the timing of COLs.

Brian Konigsberg

And just more basically, I mean, providing 2012 guidance in Q3, it is unusual just looking back to your previous years. I mean, what gives you the confidence in your guidance today, especially given everything going on with the NRC? And they haven't really provided much guidance and lessons learned and things like that, maybe just give us an idea of your thought process on providing guidance today.

Brian Ferraioli

Well, we're trying to be as open and transparent as we can. Everyone focuses on the negative aspect of what could happen with the NRC. There are other opportunities where there's a possibility for additional work under a limited work authorization, which can be obtained from the NRC. So there are uncertainties both ways, faster or slower, but it's -- we're just trying to be transparent. We're just trying to give some guidance to the Street. We know there is certain risk associated with that, but we're just trying to be helpful.

Brian Konigsberg

And lastly, can you just provide a little color on the amount of backlog that was transferred to F&M from Power in the quarter?

Brian Ferraioli

If I recall, slightly over $100 million. I think, it was like $115 million or something in that zip code.

Operator

The next question is from Andy Kaplowitz from Barclays Capital.

Alan Fleming - Barclays Capital

It's Alan Fleming standing in for Andy this morning. Thanks for taking my questions. A couple of quick ones. The first is on Fab & Manufacturing, you had 13.7% margins in the business this quarter. We know nuclear work [indiscernible] coming online, but revenue was down in the quarter. Margins were the lowest we've seen in this cycle. Just wondering if there's something else going on here. Is it low utilization? How should we think about this business? Is the business going to recover here in the near term?

Brian Ferraioli

Well, certainly, we are optimistic the business will recover in the near term. We talked about the opportunities internationally, which are brand new markets, so you don't how to capture market share from someone else. We have the facility in Abu Dhabi, which will be coming online, which is again incremental capacity, and you have the nuclear work which is just really beginning. So the only downside, if there any in that business, relates to again, the refining petrochemical business, which traditionally had been 50% of their work. That industry remains very, very slow. So they have some selective refinery work internationally, but that's the area that really has impacted the volume of their business. It's still a very good business. The mix will move around a little bit. You'll see those percentages bounce around from quarter-to-quarter. But in general, it's been our highest margin business, and we would expect that to continue in the future. And as I've said, we're particularly optimistic given that the new markets that are available, like Brazil, like Saudi Arabia, like India and Kazakhstan.

Alan Fleming - Barclays Capital

Okay. That's very helpful. And the second question I have is around the -- another question around the E&C problem project. I was wondering if you could talk a little bit about the oversight of the project. We knew this was a problem last quarter. Is this something that -- are you guys getting daily updates on this or monthly updates? Kind of how are you tracking the progress and the controls on this? Is maybe there an opportunity to improve the oversight on this project?

J. Bernhard

Well, we have improved the oversights. We've changed out some people. We brought in some more senior people. We've brought all 750 people on a direct hire basis to the site, and we're reviewing the projects, being reviewed on a weekly basis, so there's a lot of money yet to be spent. We're hopeful that the project will continue, as it has for the last few weeks, and perhaps we can save a dollar or two, but it's not anticipated in the forecast. And so we're working very hard to go ahead and get finished this job and get off the site and move on to the next one.

Alan Fleming - Barclays Capital

Okay, and maybe just one more. What's the share count you guys are implying in your 2012 guidance?

Brian Ferraioli

I believe it's $74 million.

Operator

The next question is from Joe Ritchie from Goldman Sachs.

Joseph Ritchie - Goldman Sachs Group Inc.

Just following up on that last question, so if your share count in 2012 is 74 million, does that assume that you're not going to buy back any shares, because by your ending share count for '11 was close to 72 million?

Brian Ferraioli

You're correct. We typically will buy shares back on an opportunistic basis in open market transactions. It's a little difficult to predict exactly how much and when we would purchase under that scenario. So the guidance that we've given does not assume a buyback, so one would hope that, that would be some potential upside.

Joseph Ritchie - Goldman Sachs Group Inc.

Okay, that's helpful. And then I guess in trying to understand the bridge of your EPS, if I took a look at this quarter, it looks like you did a cleaning pass of call it $0.40 to $0.42. You're guiding for $0.60 next quarter. Help me understand how you're going get there, given that backlog decline this quarter, what am I missing?

Brian Ferraioli

Well, we had some negatives in the Environmental & Infrastructure with the settlements that we talked about before. And again, the fabrication & manufacturing work will continue to ramp up, relating to the nuclear work. The nuclear work itself continues to ramp up, and the other businesses continue to perform. It's the summer season. It's when we have the highest number of people in the field for our Environmental & Infrastructure Group. So across the board, it's typically a stronger quarter us.

Joseph Ritchie - Goldman Sachs Group Inc.

Okay, so just to recap, if I'm hearing you right, we should see more normalized fabrication margins because they looked a little weak this quarter. You're going to still continue to see a ramp in your Power business. And the guidance that you gave last time on your -- for revenue was 6.3, is that the same for 2011?

Brian Ferraioli

For 2011, it'd probably come down a little bit due to the problem project, the percent complete that Jim mentioned. I don't have an updated number with me, but it's going to be somewhere in that ballpark.

Joseph Ritchie - Goldman Sachs Group Inc.

Okay, and I guess just segueing, and I don't mean to beat a dead horse here. But talking a little about the problem project, you mentioned in your prepared comments that part of the issue was an insolvency with one of your contractors. Can you talk a little bit about your ability to replace that contractor, and whether the contract terms were different and whether you reserved for that? Can you just talk a little bit and give a little bit more color on that?

J. Bernhard

A combination of direct hire people, as well as funding the contractor to complete the work. So it's been a combination of activities to supplement that effort.

Joseph Ritchie - Goldman Sachs Group Inc.

Okay, but did the terms of the contract change at all? Like, for example, did you sign a fixed price contract with the contractor that went insolvent and now are agreeing to cost plus terms? Or are the terms comparable to your original terms with the original contractor?

J. Bernhard

The terms of the original contract were unit price. It's fixed priced and so the terms of the contract is one that we're funding the labor.

Operator

The next question is from Steven Fisher from UBS.

Steven Fisher - UBS Investment Bank

Again, just to talk about the E&C project, can you just clarify when you expect to complete it? You said early 2012, is that calendar or fiscal?

J. Bernhard

Calendar.

Brian Ferraioli

Calendar, yes.

Steven Fisher - UBS Investment Bank

Okay, and what percent complete do you expect to be on that project by the end of August? I'm just trying to get a sense of are you expecting a notable pickup in the pace of activity? I mean, I assume, you must be if you only did 1% in the past quarter, and you're going to get it done entirely by early calendar 2012?

Brian Ferraioli

Yes, Steve, I think the 1% is a little bit misleading. As Jim mentioned before, when you add cost, if you use cost-to-cost method of accounting, in effect you could have a negative percent complete for a period. So the fact that it went up 1% is not necessarily reflective of the physical work that was done. There is the adjustment just because of the math. I don't think we have a good number to hand what it will be at the end of August. But this project is not going to generate any earnings for us in the fourth quarter. It will have some revenues with no earnings, so it's going to have a negative impact from a margin perspective. It would likely be somewhere, I don't know, in the 80% to 85% complete somewhere in that zip code.

Steven Fisher - UBS Investment Bank

Do you expect the actual pace of activity to pick up over the next few quarters? Or do you assume that the current pace is what you're going to get until this project is done?

Brian Ferraioli

I think the forecast is based on the performance -- the recent performance on the site. So to the extent that there are incentives in place for subcontractor improved performance, one would hope that they might be out to perform better. But I think we've taken a realistic approach to schedule and have not assumed any significant change from the recent performance.

Steven Fisher - UBS Investment Bank

Have the subcontractors acknowledged that they just haven't been performing up to pace and now they -- or have they acknowledge that they're going to be more responsive to these incentives that you're putting in place?

J. Bernhard

We have forecasted the job based on the recent performance.

Brian Ferraioli

Right.

Steven Fisher - UBS Investment Bank

Recent being over the last quarter or recent -- more recent than the last quarter?

J. Bernhard

Over the last period of time...

Brian Ferraioli

I'm not sure it's exactly the quarter. But the recent history, it's more show me rather than say you're going to do better.

Steven Fisher - UBS Investment Bank

Okay. Can you just give us a sense of the relative impact on fiscal 2012 guidance of the lack of E&C profits, I guess, either from this project and slow bookings compared to or relative to the delay in the expected timing on the nuclear approvals? Which is having the bigger impact?

Brian Ferraioli

I'm reluctant to get into the specifics on the profitability of a specific project.

Steven Fisher - UBS Investment Bank

I guess more broadly including the kind of sluggishness of bookings in E&C as well. Is the lighter guidance in 2012 more a function of what's going on in E&C broadly or the delay in the nuclear approvals?

Brian Ferraioli

Well, if you look, as Jim said, we have assumed nominal earnings for E&C, and we don't run a business to generate nominal earnings. So that historically has been one of our higher margin and higher volume profit businesses. So it's certainly is having an impact in 2012, no question about that, not necessarily just the specific project but the overall performance or market, I should say, of that business. So yes, it does have a pretty significant impact on 2012.

Steven Fisher - UBS Investment Bank

Okay, and then maybe last on the E&I business, I think you achieved the 100-year protection on the Inner Harbor Navigation Canal in the quarter, and there's likely some incentives around that. How impactful was that on the margin that we saw there in the quarter? And is that likely to then trend back lower for the next few quarters?

Brian Ferraioli

Not a significant component for the quarter. We routinely will anticipate whether we're going to achieve incentives on the government contracts and frankly, the plant services contracts based upon history, based upon the schedule forecast. And GAAP would require us to take a view on those and when it's probable to be recognizing those over a period of time. So it did have a little bit of an impact for the quarter but very, very small amount.

Operator

The next question is from Robert Connors from Stifel, Nicolaus.

Robert Connors - Stifel, Nicolaus & Co., Inc.

Just regarding the push to the right of the nuclear-related news, would you say it was caused more by procurement delays from events that happened in Japan, or is it purely a COL-timing approval issue?

J. Bernhard

Certainly, COL-timing approval.

Brian Ferraioli

We have not had any significant impact to date on the supply equipment on these projects.

Robert Connors - Stifel, Nicolaus & Co., Inc.

Okay. And then of the cash balance, are you able to break down how much of it is related to advance payments on projects, and also just how much in cash you like to keep for general working capital needs?

Brian Ferraioli

Well, in terms of advance payments, we really have 0. Most of our larger contracts are milestone-based. You achieve the work, you keep the cash. So if the project were to stop for any reason, we'd never have to give any money back to a client, so no advanced payment. The other businesses are typically E&I, Plant Services and the Fabrication & Manufacturing, their earnings in cash are pretty highly correlated, so that's all our money. We do have positive working capital though on a number of the larger projects, whereby to execute the work -- or said another way, we have more cash than the expected earnings on those jobs. That number is measured in $200 million to $300 million, somewhere in that ballpark at any point in time. And in terms of the amount of cash we like to have on hand, we haven't really disclosed a definitive number. I can point to our credit facility where a lot of things in our credit facility with our banks are dependent upon us having a minimum of $500 million. We can do share buybacks. We can do a number of other things. So that's -- I can give you the banker's view on a reasonable amount of cash.

Robert Connors - Stifel, Nicolaus & Co., Inc.

That's helpful. And then was there any update on the timing or just further discussion on the yen debt extension?

Brian Ferraioli

No. As we mentioned in the past, given the events in Japan and the work that we're currently doing with Toshiba on the emergency response there, we put off for the time being the put extension discussions, and the market in Japan obviously was also impacted for financing things related to nuclear projects. So we really haven't been progressing those talks at this time.

Operator

The next question is a follow-up question from Andrew Wittmann from Robert W. Baird.

Andrew Wittmann - Robert W. Baird & Co. Incorporated

You've been talking for some time about tracking some larger projects in the E&I business. So I was just wondering if you could give us a little bit more color about what that might look like and any perspective timing where you think some of those might get let?

Brian Ferraioli

Probably timing over the next year but -- and particularly in the Department of Energy, and I think that there's some major projects that's going to fit into our field of expertise. We're getting a lot of recognition now, particularly one of the largest projects they've had is on the MOX project, the great job the project team's doing. I believe, we're, believe it or not, we're the only project that's on schedule and under budget managed by the Department of Energy. So we have great hopes that, that will be reflected in major awards in the coming year.

Andrew Wittmann - Robert W. Baird & Co. Incorporated

Do you feel like some of the maybe -- I think it's been a couple of quarters you've been talking about tracking some of these larger projects. Do you feel like maybe they're not getting to the stages of -- getting a lot because of concerns about what the federal '12 budget might look like, or are there other factors in effect?

J. Bernhard

I don't think so. I think it's the process at work. Timing is not sometimes, some of these projects are not so time sensitive until you maybe get a little further down the line, but it looks like that's coming.

Andrew Wittmann - Robert W. Baird & Co. Incorporated

I guess one final question for Brian. On the buyback, you kind of alluded to the fact that the credit facility requires you to have $500 million of cash on the balance sheet. Just to be clear about what constitutes that $500 million, is that the cash as well as the marketable securities, or does that also include some of the restricted cash?

Brian Ferraioli

Yes, it's cash available for us to use, so my short-term investments can be converted to cash very, very easily. As you probably also know, we voluntarily choose to cash collateralized some letters of credit because particularly under the previous credit facility, it was more advantageous to avoid the fees associated with the letters of credit than the return on the cash that was generated from the investment, so that cash can be converted. So basically, it's cash available for us to use, so it would include the short-term investments -- so likely include the restricted cash, the majority of the restricted cash.

Andrew Wittmann - Robert W. Baird & Co. Incorporated

Okay, so to reach into that a little bit more if that's the case, I mean, as of today's balance sheet or the third quarter ending balance sheet, you don't see any restrictions on being able to do the full $500 million at least today?

Brian Ferraioli

That's correct.

Operator

The last question is a follow-up question from John Rogers from D.A. Davidson.

John Rogers - D.A. Davidson & Co.

Just as it relates to the South Texas Project, I believe the original agreement was $100 million line of credit, how much have you actually extended and so the write-down incorporates all of it or...

Brian Ferraioli

Yes, it's all of it, $48.1 million, John.

John Rogers - D.A. Davidson & Co.

Okay, so that's your full exposure there?

Brian Ferraioli

That is, and we don't intend to put additional money into that project.

J. Bernhard

Let me close today by saying, again, it was an extremely challenging quarter for Shaw. But we certainly believe that we're on a cusp of considerable opportunity by most of the market segments that we serve. As we said earlier, all of our segments, with the exception of Energy & Chemicals, continue to execute very well, and we're pleased with that. We're seeing increased new awards. We anticipate additional bookings across most our company for the company year and that looks very encouraging going forward. While it was a disappointing quarter, certainly, we're very, very optimistic for the future, which is evidenced by the growth that we see in the future and commitment of $500 million additional stock buyback. So I'd like to thank you for your attendance during the quarter, and we're hopeful for better results in the future. Thank you.

Gentry Brann

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

Operator

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.

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