Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Shaw Group (NYSE:SHAW)

Q1 2012 Earnings Call

December 21, 2011 9:00 am ET

Executives

Brian K. Ferraioli - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Gentry Brann - Vice President of Investor Relations and Corporate Communications

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

Analysts

Jamie L. Cook - Crédit Suisse AG, Research Division

Brian Konigsberg - Vertical Research Partners Inc.

Andrew Obin - BofA Merrill Lynch, Research Division

Andrew J. Wittmann - Robert W. Baird & Co. Incorporated, Research Division

Scott J Levine - JP Morgan Chase & Co, Research Division

Steven Fisher - UBS Investment Bank, Research Division

Andy Kaplowitz - Barclays Capital, Research Division

Chase Jacobson - William Blair & Company L.L.C., Research Division

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

John Rogers - D.A. Davidson & Co., Research Division

Martin W. Malloy - Johnson Rice & Company, L.L.C., Research Division

Operator

Welcome to the Shaw Group First Quarter Fiscal Year 2012 Earnings Conference Call. My name is Michelle, and I'll 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, Michelle. Good morning, everyone, and welcome to Shaw's First Quarter Fiscal Year 2012 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 to slides that are available on our website, www.shawgrp.com.

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

Now I'll refer you to Slide 3 of the presentation and turn the call over to Jim Bernhard.

J. M. Bernhard

Good morning. Our consolidated results for the first quarter of fiscal year '12 met our expectations, and we also had a solid bookings quarter with $1.5 billion in new awards. It was led by our Plant Services segment, which booked 2 significant contracts including the renewal of a fleet-wide contract with Exelon and a new contract with Arizona power and light. Shaw now provides maintenance services to more nuclear power units than anyone else in the country for sure.

Buyers are continuing their due diligence on the sale of Energy & Chemicals Group, and that is going well. We are also making progress on the project in Asia as it nears completion of the ethylene plant that we're building in Singapore. As we previously announced, we did not receive any -- the early consent on the Westinghouse put options, but we still intend to move forward with the sale of our 20% investment. This will now happen in October of 2012.

And finally, we successfully completed the $150 million "Dutch Auction" tender offer earlier this month.

Let's turn to Slide 4, Plant Services. We're certainly expecting increased opportunities for all our segments this fiscal year, and let's talk about plant service nuclear maintenance. They're certainly in a leadership position and continue to do very well. They have very strong opportunities, both on new upgrade business as well as additional clients in the nuclear maintenance business. Over the next few quarters, we will be expanding Plant Services' ability to do other things in the plant beside the outage work they're doing now, so that segment will continue to grow in a significant way over the next 3 to 5 years.

Our E&I Group has continued to see opportunities with the Department of Energy and coastal restoration along the Gulf, and their opportunities are very significant.

Our Fab & Manufacturing Group continues its international focus with new facilities in the Middle East and South America. The South America facility in Brazil will be operational in the second quarter of this year, and it already has a backlog for 12 months in that particular facility. So the international facilities are continuing to do well; UAE, Brazil, Bahrain and there's other opportunities that we will be adding additional fabrication facilities internationally in the next 12 to 18 months.

Our Power Group has several significant milestones with the EPA regulations and nuclear process is license pending. And let me talk a little bit about the potential AQCS work that the EPA will announce this afternoon, the requirements for coal plants in the United States. We believe there's a lot of different information on what is to be scrubbed, what is to be replaced, et cetera, but by using all available information to a number of sources as well as continuing relationships with our clients, we believe a -- approximately 1/3 of the coal plants in the United States will have to be upgraded. Gases will have to be scrubbed. This market should result in a market of approximately $20 billion.

In addition to that, we believe an additional approximately 8% to 10% of the coal facilities in the United States will be retired, and the replacement electricity for those coal facilities will likely exceed $20 billion as well.

In addition to that, the reduction of mercury requirements that are likely to come out this afternoon, we believe that the environmental equipment which we'll participate in, about 50% of the coal fleet in the United States will have to have backhouse systems to contain mercury on these coal plants which we estimate to be about a $15 billion market. So all total with replacement power and environmental equipment that's necessary mandated by the EPA, the market for Shaw will exceed $50 billion, of which we'll be a major participant in a very short period of time. A lot of this work will have to be completed in 3 to 5 years, so that's going to be a very active market, in particular for our Power Group.

Slide 5, if we'll turn to that now, we have quite a few milestones pending with the nuclear projects that are underway, plant Vogtle and V.C. Summer. The AP1000 filed is on certification is expected tomorrow with NRC at a public meeting to affirm the Commissions' -- well these commissioners, 3 of them have already publicized their favorable votes, so we're expecting good news and an official announcement from NRC and Westinghouse tomorrow. Once the AP1000 certification is complete, we expect the COL to be issued in short order for the -- for Vogtle and Summer projects. Once the COL are issued, we'll begin a significant ramp-up in work at both of these sites.

Also, we'd like to bring you up-to-date on the detailed design work we're doing for Duke Energy's Lee Nuclear Station in South Carolina. While there has been no commitment for the Lee Station to -- and Duke to build the facility at Lee, we have previously talked about the site-specific engineering work that we've done for the project in the past. But let me bring you up-to-date that Duke has applied for license to bill at 2 AP1000 unit there, which is due for 2013. We have completed the conceptual design of various site-specific systems, and we are now in the process of doing detailed design of these site-specific systems this year and completion in 2014, as well as assisting in construction planning and development on the site-related activity. So that continues to progress well as well as significant nuclear opportunities that we're in the process of working on throughout the world.

So at the step-back, it looks like the nuclear business is -- newbuild is going to, over the next 3 to 5 years is still going to be a significant one.

Let me turn over to Brian now for the financial review.

Brian K. Ferraioli

Thank you, Jim, and good morning. As Jim mentioned, we had a good quarter significantly improved over the prior year. And as you may recall, the prior year's financial results had the adverse jury verdict related to a project we had in Colorado at the time which resulted in a charge of approximately $63 million.

Looking at the traditional format, we show as reported and excluding the Westinghouse, which Westinghouse continues to have foreign exchange volatility associated with the yen-denominated bonds outstanding but looking at the shaded column, you see our revenue's up $1.5 billion. We're down slightly about 2% from the prior year, and we'll talk a little bit more about that later, but that was primarily due to the E&I Group had a drop-off in some of the volume of their business.

But looking at the gross profit and gross profit percentage, you see up dramatically from a year ago. And if you were to add back the Comanche charge from a year ago, you see we're relatively consistent with where we were in the prior year. You see the EBITDA at approximately $75 million, again significantly up from the prior year.

Westinghouse actually had a gain this quarter of $25 million pretax related to the revaluation of the yen-denominated bond. And as Jim you mentioned, we will continue to proceed toward October when this will be -- put options will be triggered, and the process will begin to sell our investment in Westinghouse back to Toshiba.

Turning to Slide 7. If you look at the segment information, the Power results continue to be driven by our coal and gas projects, but as we have been mentioning for some quarters now, that domestic nuclear newbuilds are starting to ramp up. To Jim's point earlier, once the COLs are granted, you should see an increase in the activity over the balance of the year relating to those projects. Looking at the revenues for the Power Group, they're relatively flat from the prior year, and you see the earnings are up significantly because of the Comanche charge that we talked about for the first quarter in fiscal '11. But if you looked at the EBITDA percentage of 5%, it was relatively in line with what it would have been a year ago, again excluding the Comanche charge.

Moving on to Plant Services, as Jim mentioned, they continue to perform extremely well. You see the volume of their business is up year-over-year, although the earnings were flat. The reasons that the earnings were flat where the revenue's up had to do with the mix of projects. These -- some of their activities are more profitable than others, and they had some higher-value work that they did a year ago compared to what they're doing during this quarter. But to Jim's point earlier, they continue to book new work and we're very optimistic about their performance through the balance of the year.

Moving on to our Energy & Chemicals Group, continue to have relatively lower volumes of activity. They are doing much better than they had been in the past. We did take on a little bit more in cost on the ethylene project that we have in Asia, but that was largely offset by favorable adjustments on other projects they're doing as well as some new work related to the early phases of the engineering associated with new ethylene plants here in the U.S. The additional costs associated with the ethylene project approximate -- were approximately $10 million pretax.

E&I is the group that had a drop-off at some of the volume of their business. That relates to the Inner Harbor Navigation Canal project in New Orleans which was closed to its peak a year ago, as well as some activity that we were doing for the state of Louisiana associated with the BP oil spill. So that accounts for the drop-off in the volume of business for them. They continue to perform well. They continue to generate both earnings and cash.

Fabrication & Manufacturing is also performing well. It's just starting the modular work associated with the nuclear power plant and as Jim mentioned, continues to expand internationally. The facility in the UAE really began during the quarter, and we expect to see that continue to ramp up throughout the year. And then the Brazil facility will come online starting in the second quarter, and again that will star to ramp over the balance of the year.

Moving on to Slide 8, as we previously announced, the bondholders' trustees did not consent to the early put of the investment in Westinghouse back to Toshiba, but we continue to show what would happen on a pro forma basis if we would have sold our investment back as of the end of November, the end of our fiscal quarter. Looking at the middle column with the numbers, you see the cash outflow of about $75.9 million, that's made up of the 3% shortfall that we would have to make up on the bond that's not covered by the proceeds received from Toshiba, which is about $55 million. We would have had to pay off the interest rate swap that we have in place that fixes the interest rate which was about $19 million, and the balance is related to some taxes that would be due. But you see the other items, the second $259 million is primarily deferred taxes that would go away. You see the investment in Westinghouse would obviously come off the balance sheet. Moving down, you see the liabilities relates to some taxes that would be due. And the big item is the debt, the $1.6 billion in debt would come off the balance sheet as well as the interest rate swap, and you see the impacts of the earnings after-tax below in the shareholders' equity.

Moving on to Slide 9, cash. We still have a fair amount of cash at the end of the quarter, which add $1,050,000,000 in total adjusted cash, which includes all of our short-term investments and other cash that we have, whether it's pledged in support of letters of credit which we could access. So we had a fair amount of liquidity. As Jim previously mentioned, we completed the "Dutch Auction" after the quarter ended, so that number will go down. We spent $150 million to retire approximately 6.2 million shares at $24.25.

The quarter had a negative operating cash flow as expected, and that has to do with the reversal of some of the favorable working capital positions we have on several projects in both our Power and E&C segments. And as we talked about in the past, we do have cash in excess of earnings on some of our projects. That cash that exceeds what we expect the earnings to be when the project is completed is currently about $350 million, but I'd like to remind everyone the offsetting that we also have many other projects where the cash is less than the expected earnings on the job and therefore, we view our cash as all ours and all usable for us. We continue to project that we will generate operating cash flow this year. And I'd like to remind everyone over the last 3 years respectively, we generated $211 million of operating cash flow in 2011, $466 million in 2010 and $738 million in 2009. So we continue to generate cash, and we continue to look for ways to strategically redeploy our cash balance.

Moving on to Slide 10. As Jim mentioned, we had a very good bookings quarter for our Plant Services. You see the blue in the chart is Plant Services. And you see the backlog remains healthy at $20 billion. We did have a couple of adjustments just so you can update your models. Our Fabrication & Manufacturing segment had a partial cancellation of an order, a little over $100 million; not one of their core businesses, so we don't think there's anything related to a trend or anything of significant concern market-wise.

And E&I adjusted downward one of their estimates on the U.S. Department of State containerized housing. They still are very optimistic about that work. It's just the timing of it has slipped a bit and therefore, we took a $200 million estimate out of backlog, and we'll continue to monitor that as it goes forward. But again, E&I expects that work to continue to be led over the coming years.

Moving on to the final slide, Slide 11, the guidance. Basically, the guidance is unchanged from what we had previously announced. We did adjust the EPS to take into account the "Dutch Auction" where we moved the share count down from 70 million to 68.4 million for EPS purposes. Total shares outstanding currently are 65.2 million.

So with that, that concludes the formal aspect of the presentation today, and I'll open up the lines for questions for Jim and me.

Gentry Brann

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

Question-and-Answer Session

Operator

Our first question comes from Martin Malloy.

Martin W. Malloy - Johnson Rice & Company, L.L.C., Research Division

Could you talk a little bit more about your market share when you -- of the push control spending, I think you totaled it around $45 billion, and the timing of when we might see some awards there?

J. M. Bernhard

Martin, here we estimate the market in excess of $50 billion, about $55 billion. Our market share of environmental works, which is approximately about $35 billion on the first -- on the work that's been done in the past was approximately 20% on the scrubbers, so 15%, 20% would be a reasonable estimate over the next 3 years.

Martin W. Malloy - Johnson Rice & Company, L.L.C., Research Division

Okay, and as far as the Singapore project is concerned, when do you expect to be completed on the project, or do you have an update in terms of percent completed?

J. M. Bernhard

Next year, I mean, we continue to progress on our schedule with the project, so I don't have exact month for you, but it will be complete next year, next summer.

Operator

Our next question comes from Andrew Obin.

Andrew Obin - BofA Merrill Lynch, Research Division

Just a follow-up question on the timing. At the POWER-GEN Show last week, people were talking about 2 ways of spending: first, just sort of near term as plants just put in place, the plants that they've had; and the second one, sort of maybe some delays and wait until the outcome of 2012 election. How do you guys see the pace of the spending over the next 3 years?

J. M. Bernhard

Well I mean, on the pace of spending on, I'm not sure on what.

Andrew Obin - BofA Merrill Lynch, Research Division

Air quality, sorry.

J. M. Bernhard

Okay, the pace of spending, while I'm -- it'll be 2013, 2014. If projects were awarded today, I mean, the engineering phase is very -- is not a huge spend, so I think that you will see spending increase significantly in 2013, 2014. As far as for the election, I think the -- a lot of this will process -- I mean, the EPA regulations is going to be a kind of a quandary. If you don't get started, it will be difficult to comply with the EPA regulations and you get a cost increase. A lot of these states have cross-border stuff that have begun anyway, so it's something that's likely to happen anyway at some form, especially the scrubber part.

Andrew Obin - BofA Merrill Lynch, Research Division

And what about the awards, do you expect a near-term spike in the awards, or how will awards play out?

J. M. Bernhard

I think over the next 12 to 18 months, a lot of the significant awards in this particular market.

Operator

Our next question comes from Andy Kaplowitz.

Andy Kaplowitz - Barclays Capital, Research Division

If I could ask -- Brian, if I could ask you about the E&C business, in the Q, you talked about $19 million front-end engineering-related income in the quarter, and I know you just mentioned it in the call. Some of it is unusual, maybe some of it isn't. How do think about it going forward?

Brian K. Ferraioli

Well hopefully, we -- when think about it increasing as we go forward. I don't know if there was anything too dramatic in there. As we mentioned in some of our press releases, they're starting to get some of the early-phase work associated with new ethylene plants. They had some adjustments on the existing project. And as we mentioned, we had the downside on the one in Asia. So in general, I think it's a slow ramping up hopefully, and we would expect better days for these guys. The market certainly seems to be much better than it has been for the last 2 years, and what they're really suffering from now is the lack of bookings that have occurred over the last 2 years.

Andy Kaplowitz - Barclays Capital, Research Division

That's fair, Brian. It's just very hard to get a read on the margins in that segment, and you told us for guidance this year that you would have no earnings in that segment and you just reported high single-digits with a charge. So how do we think about it going forward?

Brian K. Ferraioli

Well, I don't think we're changing our guidance overall for the year. We'll have to wait and see how things additionally develop. We've got the sale ongoing process, so it depends upon what the timing of that is. So for our planning purposes, again, we have assumed really not much in the way of earnings from this segment throughout the balance of the year.

Andy Kaplowitz - Barclays Capital, Research Division

Okay. And then you mentioned also in the Q about this capital improvement project, the $500 million that you might have to take out of backlog. Where does that stand, and how do we look at that?

Brian K. Ferraioli

It's just a project that we've been working on where the client has suspended activities recently. It is -- it has not been canceled. We still think the project is going to proceed. But just given the fact that activities have stopped in the short term, we thought it would be prudent to disclose it. So we'll wait and see. It's nothing to do with -- to my knowledge, anything to do with execution. It's early phased with type work that we've been doing. It's more whether the project is -- the pace that which the project is likely to proceed.

Andy Kaplowitz - Barclays Capital, Research Division

Okay, that's fine, and it seems like an isolated incident obviously, so we're not going to worry about it otherwise, right?

Brian K. Ferraioli

No, we don't see it as any sort of market trend.

Operator

Our next question comes from Steven Fisher.

Steven Fisher - UBS Investment Bank, Research Division

Brian, you just made reference to the sale of the E&C business. Is there any more preciseness you can give us in terms of expectations around timing of the sale?

J. M. Bernhard

Well that should be completed in the first quarter of 2012.

Brian K. Ferraioli

Calendar quarter.

Steven Fisher - UBS Investment Bank, Research Division

Okay, that's good. And then just maybe if you can give us an update on how the search for acquisitions is going, what are you finding in the marketplace, what kind of stands in the way of getting deals done at this point, if anything?

Brian K. Ferraioli

Well Steve, we really don't comment on M&A activities. If we have something to announce, we'll announce it and I don't want to get into providing updates about what might or might not happen. As we've talked about in the past, we are interested in strategic acquisitions if they make sense. And beyond that, I really can't say anything additional.

Steven Fisher - UBS Investment Bank, Research Division

Okay, I mean are you finding prospects to engage in discussion with at least?

Brian K. Ferraioli

I mean discussions, yes. We talk to people routinely, but I know talk is cheap so concluding a deal, getting to a point where you think it makes sense for both sides is a much different thing. So again, Steve, I really don't want to go into any more details relating to what may or may not happen there.

Steven Fisher - UBS Investment Bank, Research Division

Okay, and just one quick one on the margins, I mean on the Fabrication side, given that you do have some tailwinds there with the nuclear ramping up, as well as UAE and Brazil, should we assume that the Fab margins are at the low point for the year in the first quarter?

Brian K. Ferraioli

We really don't give you margin guidance, as you know, but we would expect that business to continue to ramp up. And as things ramp up, as the overhead costs remain relatively flat, you would expect to see the opportunity for some margin expansion.

Operator

Our next question comes from Jamie Cook.

Jamie L. Cook - Crédit Suisse AG, Research Division

Two quick questions. One, Jim, can you just talk to the opportunities -- an update on the opportunities of the gas-fired power plant, new gen opportunities in the United States? And then the second question -- in 2012 and potential bookings? And then, Brian, the second question, I guess just on the fossil and nuclear side, just trying to think about how we should think about revenue ramp throughout the year with the nuclear projects ramping up? And then in total, I would -- should we assume margins are a low point in fossil and nuclear in the first quarter?

J. M. Bernhard

I think the gas plants, we're doing 3 or 4 right now and I think that -- we would hope to book another 2 or 3 on the next calendar year, something like that. That's possibly the rate for next book -- there's a lot of opportunity out there. I don't think that the -- the volume of work is available bookings in that we'd like to work with clients that we've worked with before. And so we're in good shape on that. We're in good shape on the scrubber business. We're in great shape on the operation. We're doing a great job in our Plant Services Group. I can only tell you that they're really exceeding our expectations as well as the clients', so that part looks good. Brian?

Brian K. Ferraioli

In regards to activity through the balance of the year in fossil and nuclear, we have previously said that we would expect to consolidate -- the percentage of consolidated revenues to come from the domestic newbuilds in our fiscal '12 to be somewhere in the 17%, 18% range. We are not yet there. In 2011, we were approximately 10% and we're continuing to ramp up, so right now we're more in the 11%, 12%, 12%-ish range, somewhere in that zip code, and we'll continue to ramp. So therefore, yes, we would expect or hope that the margin opportunity for expansion is also available for us on the fossil and nuclear side.

Operator

Our next question comes from Scott Levine.

Scott J Levine - JP Morgan Chase & Co, Research Division

On the Duke announcement, interesting, and just kind of curious for your take and thoughts with regard to additional nuclear newbuild opportunities that you see for yourselves with you guys exiting Westinghouse and a potential for additional activity overseas as well as in the U.S.

J. M. Bernhard

Our exit at Westinghouse is significantly because of the yen-dollar relationship and -- but the market outside the United States looks like it had about a 12-month low, but now it looks like things have stabilized, and people are talking as they were 12 months ago, before Fukushima. So we look for activity certainly in Europe, with the Mid East and Southeast Asia, so things are progressing. A single award on the nuclear power plant for us is likely to be in the $4 billion to $5 billion range, so it doesn't take 20 nuclear plants awards to be very significant for us. And I think that the opportunities that we have out there are significant ones. The technology that Westinghouse has, that we continue to work with them throughout the world is -- looks like it is the preferred technology, especially after Fukushima.

Scott J Levine - JP Morgan Chase & Co, Research Division

And then with regard to the U.S. market, what thoughts should we have in terms of EPC, potential Duke or otherwise, maybe comments regarding the NRC? We've seen some press regarding some dissension amongst the Commission in recent months, just comments on the U.S. market?

J. M. Bernhard

I'm not going to comment on dissension in federal government bureaucracies. That will take a long, long time to do that. I think that the dissension is not one that affects the ability to do these nuclear power plants. The commissioners have come out in favor of 3 already. It'll likely have perhaps even more votes tomorrow. The COL should be released very quickly. We would anticipate no longer than, than 30 days of releasing 2 nuclear power plants more to be built in the United States first time in 30 years. We have 100% market share. I believe that the South Texas project at some point may move forward. And with that, the rest of the project in the United States is likely to be Westinghouse technology in the next 5 years rather than the other technologies because these technologies will have been built, formed and executing before surpassing any other technologies that are still mostly on the drawing board.

Scott J Levine - JP Morgan Chase & Co, Research Division

Got it. One last one on buybacks, if I can. You did $150 million "Dutch Auction." I think you got the -- ahead of $500 million authorization announcement in summertime. Thoughts on buyback appetite and activity going forward, is that going to be more opportunistic?

J. M. Bernhard

We bought approximately 24% of the company back in the last 12 months and returned that to shareholders. We had a $500 million bond back -- previous to that, that we executed. We've executed part of this $500 million buyback, we continue to think that our stock is one that -- is one we'll continue to do our buyback in an opportunistic and prudent manner.

Operator

Our next question comes from Brian Konigsberg.

Brian Konigsberg - Vertical Research Partners Inc.

A quick question. You mentioned that you had removed some backlog associated with the government project in E&I because of suspension of activity with that, yet you still have about $4 billion of backlog related to progress still remaining. Maybe can you just talk about your thought process around that backlog and maybe give us an update on that?

Brian K. Ferraioli

No, Brian, there's a misunderstanding here. You're confusing 2 different items. The E&I backlog that we took out was just a reduction in the estimate on the containerized housing for the Department of State, and that has to do more with the timing of when we expect that work to come to us. The project where their -- the work has stopped is a power-related project. It has been suspended. We still think that the project is to proceed, but we're -- we continue to monitor it, and we'll -- we just felt it was prudent to disclose, so 2 different items. And again the E&I one is just a reduction in the estimate related to the timing of the work that we expect to get.

Brian Konigsberg - Vertical Research Partners Inc.

Okay, fair enough, but maybe just address the progress since that really is not moving anywhere and I guess you've taken a different stance with another power project on backlog?

Brian K. Ferraioli

No, it's not. Both are -- we have signed contracts for both, and the expectation is both projects will proceed. Progress continues to pursue its combined operating license, continues to spend money. I believe there was an additional appropriation authorization they received from the Public Service Commission in excess of $200 million this year, so that project continues to move along. We're doing some work for them, but at a very slow pace. So I don't think there's any difference in the approach. And we understand that significant equipment purchases are continuing and either have been or will be delivered in the near term.

Brian Konigsberg - Vertical Research Partners Inc.

Got you. And secondly, you talked about several projects where you have earnings in excess of cash. Can you quantify that for us?

Brian K. Ferraioli

Earnings in excess of cash, no. I don't want to get into all the details about how much cash on an individual project basis. The point we're trying to make, Brian, is that the cash that we have on our balance sheet we think that there are puts and takes. There are some where the cash exceeds what we expect to earn on these projects at completion. There are a significant number, actually a greater amount where we expect the earnings -- where the earnings are higher than the cash that we have received to date on it. So we're going to talk continuously more about the operating cash flow on a net basis because otherwise I've got to go through hundreds of contracts and call out which ones are in a favorable working capital position, which ones still have earnings to generate cash and I don't think that, that provides a whole lot of useful information other than that we just give you what the net is. And the net is we continue to project that we're going to generate operating cash flow this year and beyond.

Operator

Our next question comes from Andrew Wittmann from Robert Baird.

Andrew J. Wittmann - Robert W. Baird & Co. Incorporated, Research Division

Brian, maybe I missed this, but did you say the percent completed on the coal project that was a problem last quarter?

J. M. Bernhard

No.

Brian K. Ferraioli

No, we did not, but it was in excess of 90% last quarter, and it still is in excess of 90% this quarter.

J. M. Bernhard

I mean, we're well along with the project. We've first fired both boilers, so it's well underway to start up.

Brian K. Ferraioli

It's actually -- hopefully ahead of schedule.

Andrew J. Wittmann - Robert W. Baird & Co. Incorporated, Research Division

And so -- and plant completion on that one again, just to be clear?

Brian K. Ferraioli

This summer.

J. M. Bernhard

Spring or early summer.

Andrew J. Wittmann - Robert W. Baird & Co. Incorporated, Research Division

Great. On the F&M business and specifically related to the cancellation, you said it wasn't part of the core business. It's a pretty big reduction. Was that one customer or several customers that added up to that, just to get a little bit more color behind that?

J. M. Bernhard

One customer and a very unusual business that we hadn't particularly done a lot of work in this area before based in the green energy business.

Brian K. Ferraioli

It was a multiphase-type project where they -- there were several phases. We continue to execute the first phase, and the follow-on phases is what they had canceled.

Andrew J. Wittmann - Robert W. Baird & Co. Incorporated, Research Division

Is there remaining work that is potentially at risk or...?

J. M. Bernhard

No.

Brian K. Ferraioli

No.

Andrew J. Wittmann - Robert W. Baird & Co. Incorporated, Research Division

And then just I guess to continue on the F&M side, Jim, you kind of mentioned that the next 12 to 18 months thinking about building a plant or plants maybe, just us we look at -- as what that could mean on the cash flow statement, can you give us a view as to what you might be laying out for those plants?

J. M. Bernhard

Other than -- there may be circumstances where the client is willing to fund the building of facilities, so I'm going to hesitate to tell you that there are going to be any funds at all because some of the items we're talking about on particular projects, particularly areas of the world where at least one of them will be funded by the client and maybe both of them.

Andrew J. Wittmann - Robert W. Baird & Co. Incorporated, Research Division

Then finally on some of the air quality conversation, thanks for your updated view on this one. It kind of seems like that there was a bit of a change of tone on the way you're looking at that market and it kind of felt like coming out of last quarter that you are maybe managing expectations about what the year hedge bring for the air quality investments. Are you seeing new activity in the market that's given you increased confidence on your ability to really capitalize and to take share and maintain your share in that business more since -- today versus last quarter?

J. M. Bernhard

A lot more client chatter. I mean, I think most people see whether this rule is delayed, EPA, most people believe that the -- that these air quality rules are going to -- these coal plants are going to be cleaned up, they are going to be scrubbed, the mercury's going to be contained. I think the conclusion is that, that business is going to happen. The shutting down of the plants, the coal plants going to have to -- have replaced electricity obviously. I mean that brings electricity now, so that market is one that we're starting to quantify. And so this information we're giving you is both on industry public data and internal client data. That's our best judgment. They could come out with a rule this afternoon, say we don't need any scrubbers, which I doubt, but I still -- I think that the rules are pretty much there. The communication with eliminating boilers at industrial plants are -- we're coming to the finite activity with the EPA that something's going to be done with coal plants in an environmental manner. It's our best judgment.

Andrew J. Wittmann - Robert W. Baird & Co. Incorporated, Research Division

Okay, with the $55 billion opportunity and a 10% or 15% share of that, that would suggest, I don't know, $5 billion, $7 billion worth of opportunity. With backlog forecasted maybe in the $22 billion range, is that implying that other businesses, maybe besides E&C, might have backlogs that are flat to down, or how should we think about maybe the backlog composition with the large power head opportunity ahead of you?

J. M. Bernhard

I've said market share of 15% to 20% I believe, not 10% to 15%. That's our best judgment. Some of these may be awarded after our calendar year, but I wouldn't think of Fab is going to be flat at all or Plant Services. The business that are in E&I, a lot of them are doing well, have a lot of activities. This quarter, I think we're just a little bit more encouraged about the activities on the scrubber-related environmental work there. I guess the takeaway here is we believe that work's moving forward, so -- and on the Power business and 2 takeaways should be that we believe that the nuclear market has stabilized worldwide and is beginning to move forward as it was this time last year. I think those are the 2 takeaways I would have on the -- on Power. The Fab group continues to grow at a robust manner internationally. That activity hasn't stopped. Our Plant Services Group work continues to get more and more plants as well as is going to increase what they do at those particular nuclear plants. And so business looks pretty good out there.

Operator

Our next question comes from Robert Connors from Stifel, Nicolaus.

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

Brian, just looking at the 2012 guidance, I was just wondering for both revenue and backlog if that still includes the E&C segment?

Brian K. Ferraioli

Yes, for parts of the year or part of the year, yes.

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

So through the first quarter of calendar '12, right?

Brian K. Ferraioli

Yes.

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

Okay. And then I think you'd stated previously that the nuclear would constitute about 18% of 2012 revenues and I was just wondering, is that both scope and non-scope? And do you guys give a breakout of what possible pass-throughs would be?

Brian K. Ferraioli

Well, there really aren't pass-throughs on the nuclear, so that's -- I mean, it's everything. The pass-throughs typically are in the E&C segment, at the customer-furnished materials so -- but not really applicable to the power site.

Operator

Our next question comes from John Rogers from D.A. Davidson.

John Rogers - D.A. Davidson & Co., Research Division

Just a couple of quick follow-ups. In terms of the nuclear projects, Jim, with the announcements expected to come tomorrow, where does that move in terms of putting in the backlog some of the Duke project and the Summer project?

J. M. Bernhard

They wouldn't have anything to do with the Duke project at all because again, I want to be very clear that they haven't committed to building this plant. The Summer project, it will be a significant amount when we get the full notice to proceed, which will occur after we get the COL, it will be a significant amount added to backlog.

Brian K. Ferraioli

John, just to clarify, the addition to backlog is going to be triggered by a client activity, not necessarily just the NRC. Now the NRC activity may trigger the client activity.

John Rogers - D.A. Davidson & Co., Research Division

Right, that's what I was implying.

Brian K. Ferraioli

All right, but the in or out is dependent upon what the client does.

John Rogers - D.A. Davidson & Co., Research Division

Okay, and -- but presumably, this would move them a little bit further along?

Brian K. Ferraioli

Oh, yes, absolutely.

J. M. Bernhard

Yes, that's right.

Brian K. Ferraioli

Absolutely. I mean from an execution perspective, that project is coming along like the Vogtle technology project. So if you went to the job site, the activities are comparable between projects even though we have one in backlog and the other only has a relatively small component in backlog.

John Rogers - D.A. Davidson & Co., Research Division

Okay. And then, Brian, just one other item. The unimproved change orders in claims that you discussed in the Q, and I've got a quick look at this, but does that number grow with these nuclear projects, or could you just explain what's going on there?

Brian K. Ferraioli

Well hopefully it will decline. As we mentioned in there, we have some preliminary agreements on some of those items, so that should decline as we move forward and formalize those agreements. Hopefully it doesn't grow, but it's going to be one of these -- like any project, it depends if there are scope changes, there is a process to deal with those, and it's just that the nuclear projects are larger dollar wise. So if you have a scope change on a coal plant, it tends to be larger than a scope change on a gas plant, and a nuclear one tends to be the larger of the 3. So we would expect in the coming months that, that number should decline.

John Rogers - D.A. Davidson & Co., Research Division

Okay. And then the last, I don't know if you can answer this, but just relative to the share repurchase and the tender, what are you guys' thought on how that process went versus going back into the market, and when do you get to the next sort of decision point on that? How are you going to handle the rest of the buyback?

Brian K. Ferraioli

Well, we thought that it went relatively well. We didn't buy at the top end of the range. We've got good participation. We accomplished what we wanted to. So the "Dutch Auction," I think, was successful. And as we mentioned before, the trade-off you have is yes, you pay a premium for the "Dutch Auction" where you're able to capture shares on a relatively quick basis versus going into the open market, either you extend out over a much longer period of time and you're in effect trying to predict what the share price is going to do over that time horizon. We've done both. I'm not sure that philosophically one is better than the other. We've just done both and then -- and we were happy with the "Dutch Auction." It went pretty much as we had expected.

John Rogers - D.A. Davidson & Co., Research Division

Okay, and is it relates to the range that you'd originally given, are there triggering events that could get you up to the higher end? I mean when you announced the tender originally, it was -- or indicated it was $150 million to $400 million -- $450 million.

Brian K. Ferraioli

Okay, that was just what was available under the credit -- under our authorization at that point in time. So if we have any additional announcements relating to share repurchase, we will announce it. But at this point in time, we have nothing additional to say about what may or may not happen as we go forward.

Gentry Brann

We have time for one more question please, Michelle.

Operator

Our last question comes from Chase Jacobson from William Blair.

Chase Jacobson - William Blair & Company L.L.C., Research Division

Two quick things here. First, as it relates to the nuclear projects, Vogtle and V.C. Summer, could you just talk about your comfort with the supply chain for equipment and components as they ramp up and maybe how you viewed the risk of the supply chain in your overall risks just considering that no nuclear plants have been built in the U.S. to the current NRC standards?

J. M. Bernhard

The supply chain, well no nuclear plants had been built in the United States, so that's a little bit beyond that, and a lot of replacement parts that the supply chain has had activity in over the past 30 years has happened. Worldwide, they continue to build nuclear plants over those last 30 years. And of course, the equipment part of the chain, most of that has already occurred. All this equipment has been ordered years ago now for V.C. Summer and Plant Vogtle, a lot of it's already arrived on site, so that phase has gone through, as well as the Chinese plants are -- they do the startup in less than 24 months, so I mean the supply change for the major equipment, that process is done, complete and has moved on.

Brian K. Ferraioli

And I would add, Chase, that beyond that, the mix upside, the MOX facility that we're building at Savannah River is ahead of these projects and a lot of the local contractors in the area, they're working on that project for a number of years. Just to give you some context, you can see the cooling towers at the Vogtle Plant from the MOX facility.

J. M. Bernhard

Okay, one more question?

Chase Jacobson - William Blair & Company L.L.C., Research Division

Just quickly looking at the E&C Group, can you give us any sense of how much of that business historically has been engineering- or technology-related, and how much is construction-related just given the volatility in the backlog and earnings from that business over the last 5 years?

Brian K. Ferraioli

Well they always have engineering and technology. They lead with the technology. The construction is the thing that bounces around. As we mentioned, we have the large project in Asia currently underway. And over the last couple of years, they had a very large project in Saudi Arabia which had a significant construction component. So that kind of ebbs and flows, but they always have engineering. They always have the technology component embedded, whether we're doing the construction or not.

J. M. Bernhard

Okay, guys we're going to wrap up the call today. I appreciate everyone's participation, and it certainly looks like from where we stood that our markets are on an uptick and let me take the time to wish everybody Happy Hanukkah, Merry Christmas and Happy Holidays to everyone. You all have a good, good season. Thank you very much.

Gentry Brann

Okay. 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.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Shaw Group's CEO Discusses Q1 2012 Results - Earnings Call Transcript
This Transcript
All Transcripts