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Executives

Gentry Brann - Vice President of Investor Relations and Corporate Communications

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

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

Analysts

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

Robert F. Norfleet - BB&T Capital Markets, Research Division

Steven Fisher - UBS Investment Bank, Research Division

Rodney C. Clayton - JP Morgan Chase & Co, Research Division

Randy Bhatia - Capital One Southcoast, Inc., Research Division

Jamie L. Cook - Crédit Suisse AG, Research Division

Andy Kaplowitz - Barclays Capital, Research Division

Joseph Ritchie - Goldman Sachs Group Inc., Research Division

Brian Konigsberg - Vertical Research Partners Inc.

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

Justin P. Hauke - Robert W. Baird & Co. Incorporated, Research Division

Shaw Group (SHAW) Q3 2012 Earnings Call July 10, 2012 9:00 AM ET

Operator

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

Now before we get started, I'd like to ask you all to 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. I'd ask that you please consider this information with respect to our presentation and today's call.

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

James M. Bernhard

Thank you, Gentry. The quarter results were driven by a solid performance in our E&I and the Plant Services and our Fab group, but certainly offset by the volatility we experienced in the E&C business, related primarily to the divestiture of the E&C business itself, and this is cost associated with winding down the operations. While we see earnings that are volatile, certainly, in quarter 3 and quarter 4, our guidance for our fiscal year remains unchanged.

We also -- highlights of the quarter. We entered into agreement to sell substantially all the Energy & Chemicals business to Technip for approximately $300 million, and that will close in our fiscal fourth quarter.

We also received full notice of receipt from SCANA and booked a V.C. Summer in the backlog, and we also removed Progress out of our backlog. During the quarter, the time frame to begin the job was pushed out once again, and it was beyond our normal backlog inclusion. While the project has not been canceled, we continue to spend some money on the project. Progress, or Duke today, continues to spend about $200 million a year on the project, but it was pushed back to where one substantial amount of work in the next 5 years, so we took it out of backlog. And -- but the project as recently as a couple weeks ago is ongoing and hasn't been canceled at all.

We also received a settlement from GenOn and received cash of $107 million. And we opened our new -- began full production in Brazil on our Fab & Manufacturing facility, and the business is booked for at least a year. And we're looking to expand those operations in the next 6 to 8 months in Brazil.

So let me turn over the financials to Brian, and then we'll get back and look at a little bit more operations. Thank you.

Brian K. Ferraioli

Thank you, Jim, and good morning, everyone. Turning to Slide 4, looking at the financials for the quarter. As we typically do, we show the results as reported for generally accepted accounting principles in the first column. But more importantly, to us at least, the second column is where we look at the financial results excluding our Westinghouse segment. As we mentioned in the past, we have a 20% ownership interest in Westinghouse. And we announced that we have a put option, and we intend to exercise that put option to sell those shares back to Westinghouse. And that will trigger at the latter part of this calendar year.

So the quarterly results for the -- were driven, as Jim said, primarily by the performance of our E&I, Plant Services and Fabrication & Manufacturing segments, who, all 3, continued to perform very well. However, it was offset, as Jim mentioned, by the E&C group. As you know, we're divesting that business, and we have incurred a fairly significant amount of costs associated with the wind-down and the transfer of that business over to Technip.

The quarter was also negatively impacted by the previously announced settlement with GenOn. We took a $20.1 million pretax charge to settle that dispute on a project that has been completed for some time. We collected $107 million cash as part of that settlement. That cash came in, in June, which is the beginning of our fourth quarter, so it is not reflected in the cash balance as you saw on the balance sheet that we reported earlier today.

Moving on to the actual quarter results itself. You see the revenues were up year-over-year. That was across the board on most of the segments, with the exception of Power. All the other segments were up year-over-year, and you see the earnings were up as well. The GAAP earnings that we reported in the 10-Q were, again, negatively impacted by the Westinghouse segment. The dollar weakened during the quarter against the Japanese yen, and it resulted in a $22.8 million pretax charge. That's a noncash, nonoperating-type charge and is one of the primary reasons why we look at our results excluding the Westinghouse segment.

Our total cash balance was $835 million at the end of the quarter, and we expect that to rise about $1.3 billion by the end of August. As I mentioned before, we collected $107 million from GenOn. That's already been in-house. As Jim mentioned previously, we expect to collect up to $300 million from the sale of our E&C segment. And more importantly, from an ongoing prospective, we also expect our cash flow in the fourth quarter to be quite strong.

Moving on to Slide 5. Looking at the segments. Power was impacted slightly by finishing one of the fossil plants, a $6.6 million increase in costs, and the GenOn settlement charge that I mentioned before. Plant Services continues to perform extremely well. You see the revenues are up. Their earnings were up. They continue to win new work. They are doing work on 45 of the 104 nuclear reactors in the country. They continue to win fossil work at power plants. They do maintenance work at steel facilities, as well as refineries and petrochemical plants. We believe they're clearly one of the market leaders, if not the market leader, in what they do.

Our Environmental & Infrastructure group also continues to perform extremely well. Their results are driven by the MOX project or the mixed oxide project for the Department of Energy in Savannah River, South Carolina. That project is going extremely well. And again, this business is performing very, very well, and you see they generated the most gross profit in EBITDA of our operating segments.

F&M also is increasing its activity. Its traditional markets are improving, and the nuclear work that they're doing at the fabrication facility that we built in Lake Charles continues to ramp up. And we expect to see the earnings and the volume of business of that continue to increase in the coming quarters. E&C has been the drag on the quarter. As you see, we had a loss of $33 million, and Jim touched on that before.

Moving on to Slide 6. Because it was a bit of a messy quarter, if you would, with some of these unusual type events, we try to show on Slide 6, if we were to exclude some of these items, what would the quarter have looked like. And you can see, excluding the GenOn and the E&C chemical project, as well as the small charge in Power, it would have been $0.47 on an EPS. There is a rather significant item that is not included in the financial statements. We had completed a major project in -- that we believe we are entitled to a fee that -- in the range of $15 million to $26 million pretax. We are in discussions with our clients regarding that fee. We have not booked any of that, and we believe that we will recover that from our client and anticipate picking up some additional earnings from that in the near future.

Also impacting the quarter, as you recall from last quarter, was the delay in the receipt of the combined operating licenses for the 2 nuclear projects. As Jim mentioned, we received the V.C. Summer -- or SCANA received the V.C. Summer combined operating license during the quarter, and the Southern Vogtle project had received its combined operating license just at the end of our second fiscal quarter. Those were later than we had anticipated when we set out our plan for the year, so obviously getting a late start. We're still ramping up those projects and thought we would be a little bit further along in the process.

So that's what had reduced the level of the volume of earnings last quarter, and we continue to have a little bit of an impact of that this quarter. And I wish to caution people that, that's not a charge, that's just a timing issue and those earnings will be earned as we roll forward. But we expect to see that ramp-up in the fourth quarter, and we will see a greater percentage of earnings coming from the nuclear projects as we move throughout the upcoming year.

With that, I'll turn the call back over to Jim, and he'll about the backlog and new awards.

James M. Bernhard

The backlog appears to be down. In actuality, working backlog, after taking out the consideration for taking out the Progress and our Duke work today, really has increased quarter-over-quarter, having taken out that huge nuclear project and replacing one with quite not the size. So the backlog improved as expected.

We continue to do very well in Plant Service. We now have 45 of the 104 plants. If you take the operating nuclear plants in this country, the one that outage work is not done by the client itself, our plant totals now exceed all combined competitors. Let me say that again. If you take the Plant Service work that's not done by the operating of the utilities themself, our contracts now exceed the cumulative total of all competitors. They're really doing a great job, and we really have the ability to add a lot of value to the nuclear industry in that.

And turning to Page 8, you could see that continues to evolve as we just finished a $400 million uprate for our client. These uprates are very, very similar in nature throughout the industry. We have done most of the smaller uprates, and now the larger uprates are going to continue over the next 7, 8, 10 years. And the opportunities are $5 billion to $8 billion, in which we participate in a major way.

In Environmental Infrastructure, we have expanded and have a significant part -- beginning to do a significant part of their work. We have over $50 million now in backlog in the oil and gas market, supporting the different sites in Louisiana and Texas and going to expand that for the extraction, commonly referred to as frac techniques and expansion of these sites. So we're beginning to participate in that on a module basis, and we think that, that has great merit going forward.

The pipe fabrication opportunities over the next 12, 18, 24 months are going to be very, very active, probably likely at an all-time high. With the expansion of the petrochemical gas to liquids, ethylene plants and everything associated with low natural gas prices, all of them contain piping. As well as the overseas market is really booming on our new shops in the UAE and Brazil. With the beginning of the shipment of major module construction for the nuclear industry, the Fab business is -- should, for the next at least 2 years, be at all-time highs, also with expanding -- likely with expanding margins as well.

Our Power business, we continue to participate in air quality awards over the next 12 to 18 months. There's several new gas plants, and we expect more to come. And we are also pursuing selected coal opportunities international, as well as supporting our Plant Service group with outage work. They kind of work together with the engineering work done by the Power group, Plant Service doing the construction. So those markets look pretty formidable going forward and we're in a good position, as we've indicated.

Our nuclear plants, as you know that we've gotten -- now have both COLs, both in South Carolina and Georgia, and we continue to work in on the 4 units in China. The Progress Energy work, while not canceled, is -- it's at a distance where we haven't included in our backlog. That's the only reason for the change there. We like to emphasize once more, without going into any real detail, certainly our nuclear projects in the United States has cost-containment mechanisms, and we anticipate our gross profit on those plants to exceed 10%.

Before we open it up to questions, I'd like to go over the strategic initiatives that We've been talking about for some time, the ones we've accomplished in restructuring our business and restructuring our balance sheet. As you know that Nuclear Energy Holdings, we intend to put the options to sell the investment in Westinghouse back to Toshiba. It will settle in 2013. The actual put occur on October 6, and we plan on certainly continuing along those paths.

Our E&C segment, exiting the technology market. It sold for about $300 million and we plan on redeploying that cash in several different ways, either in a merger or acquisition, technology acquisition or returning the cash to shareholders on a regular basis.

In thoughts of that, the Board of Directors has authorized a purchase of up to $500 million, increased that purchase from where it was, inclusive of the $326 million that remains under the previous authorization. Now we can give you a little bit more on timing. We're certainly going to make a decision this quarter whether we're going to redeploy cash, how we're going to redeploy our cash by the end of the fiscal year. If we don't pursue a merger or acquisition opportunity, we expect to begin our repurchase program in the immediate future.

I think that gives a little clarity on where we have been and where we're going on our strategic initiatives. Once again, I'm turning to the last slide on Page 11. Basically, our guidance remains unchanged, except for the backlog because of the extraction of the Progress nuclear plant in Florida. Now we'd like to open it up for any questions.

Gentry Brann

All right. Thank you, Jim. We'll 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 Martin Malloy from Johnson Rice.

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

When we look at the margins in the Power segment, even when you back out the GenOn settlement and the charge on the coal plant that's just about to be completed, the gross profit margins are down around 3%. Can you talk about what is pressuring those margins and why you're so confident that they're going to improve in the future?

Brian K. Ferraioli

Well, Marty, as we said before, the nuclear projects continue to ramp up, and the margins on those jobs are higher than the comparable projects that we have in backlog on the fossil side. And we're also near the very end of the coal plant, so you're not getting a whole lot of percent complete coming off of those projects at this point in time. So you're really in a gap as you're transitioning between the fossil projects running down and the nuclear projects ramping up. The nuclear projects are still less than 20% complete.

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

And then on the E&I expansion to oil and gas market, can you talk more about what exactly you're looking to do? Is it site preparation? Is it owning frac equipment, water filtration? And do you have to make an acquisition there?

James M. Bernhard

No, we're not doing that. So we're doing support service, setting up sites and doing a lot of miscellaneous work. A lot of this stuff we're marginalizing, and we're going to continue to use that technique rather than doing a lot of on-site services. Like I said, we have about a $50 million backlog, and we hope that, that will expand in a rapid fashion.

Operator

The next question is from Rob Norfleet from BB&T Capital Markets.

Robert F. Norfleet - BB&T Capital Markets, Research Division

Just a quick question. Any update on dialogue with Southern on the cost overruns due to the delayed COLs? And on that same note, I was just wondering if a portion of the cost overrun, obviously, was due to design changes that had to deal with the shield, would Westinghouse potentially be responsible for any of those costs?

James M. Bernhard

Yes.

Brian K. Ferraioli

Yes, Rob. This is Brian. What I suggest you do is look at the Q that we filed earlier this morning. We've got some disclosure there, the unapproved change orders. And the answer to the question is yes, that Westinghouse is responsible should we be unable to recover from our client. However, we still believe that we are entitled to recover from our client, and we and Westinghouse are jointly pursuing that.

Robert F. Norfleet - BB&T Capital Markets, Research Division

Okay, great. And Jim, just a quick question on the coal industry. Clearly, going through a very difficult time period. We had our first victim in terms of a bankruptcy. And I guess the question is one, are you seeing kind of an acceleration as it relates to potential coal plant retirements? And can you remind us of kind of the financial impact? If you -- I know it depends on the size of the job, but let's just say you get an order to close down a 250-megawatt coal plant, doing all the remediation work. I mean, what's kind of the financial impact of the size of a contract of that nature?

James M. Bernhard

I guess that would be [indiscernible]. I think the important thing to realize on the coal plants is if they're shut down, we're going to do the remediation work -- I mean, we have the opportunity to do remediation work. But if the plant is shut down, the electricity being produced has to be generated by another source, so we have an opportunity to do that. If the project's cleaned up and the biomineral mediation is done as far as for the air, reduction of contaminants, we have an opportunity to do that as well. So I mean -- and if that plant decides to convert to natural gas, which more and more are looking at, and all of them are about the same, except for that new plants. So there's a lot of work that's going to happen in the business. We think a lot of it's going to be released after the election and kind of people see a way forward, on which direction they want to go. But more and more, looking at, as you might expect, converting these plants to natural gas.

Operator

And next question is from Steven Fisher from UBS.

Steven Fisher - UBS Investment Bank, Research Division

With the guidance unchanged, when I do the math, I come out with around $0.90 for fiscal Q4 x the gain. Is that how you're thinking about it? And is there anything onetime expected in that quarter?

Brian K. Ferraioli

Yes. Let me talk a little bit about the fourth quarter and how we are confident that we're going to maintain the guidance we had given you. Clearly, with the sale of E&C, there'll be a gain. We've disclosed that. The numbers really haven't changed on that. And obviously, this quarter we had the GenOn charge, which will not be repeated. But more importantly, we have the nuclear contracts continuing to ramp up, and that will benefit both the Power segment and F&M. The fourth quarter is historically a very good quarter for our Environmental & Infrastructure group. So summertime, they do a lot of work outdoors, and it's the strongest volume quarter for them. We also have some expectations of a lower tax provision in the quarter. So when you add up all of these, we expect the fourth quarter to be significantly improved across the board for virtually all the segments, with probably the exception of Plant Services. Plant Services, the fourth quarter is historically slow for them because there are not a lot of plant outages. Power plants are operating at full capacity in the summertime, so they don't shut down to do the maintenance and the associated work. And from a cash flow perspective, again, we expect the fourth quarter to be very strong. We've already collected $100 million from the GenOn settlement that we mentioned before. But we also have the E&C sale, which we will close in the fourth quarter. And we also have some pretty strong cash flows in the latter part of the fourth quarter just on existing contracts, on power contracts in particular. So across the board, we expect the fourth quarter to be both strong from an earnings and from a cash flow perspective.

Steven Fisher - UBS Investment Bank, Research Division

And you mentioned that $0.14 to $0.24 is not in the financial statement. I'm assuming that's not in guidance, either.

Brian K. Ferraioli

Well, it's one of the factors. Like any forecast, Steve, you've got some items that are in play. Typically, they don't all come to fruition, so you need a backup for the ones that you do put in there. So that's certainly considered in the mix.

Steven Fisher - UBS Investment Bank, Research Division

Okay. And then related to cash, I'm wondering if you feel comfortable deploying all $500 million in the buyback based on that expected year-end cash balance, assuming that you don't end up realizing any of your other strategic pursuits. And then I guess, I'm wondering how much cash you think you need to run the business. I mean, would a few hundred million be a reasonable estimate?

Brian K. Ferraioli

The answer to the first part of your question, we think we could do the buyback with the existing cash and the cash that we expect to collect. As I mentioned, we -- earlier, we anticipate having a cash balance about $1.2 billion, $1.3 billion by the end of August, which is a pretty significant amount. In terms of the cash balance we need to run the business, that number bounces around. There's no fixed number, but I wouldn't argue with your number that you mentioned. We do have a credit facility that requires us to maintain $500 million of free cash in order for us to do a lot of things. So that's with the current restrictions we have with our financial institutions, to give you some guidance. That may not be necessarily what we would think we would need to run the business as a minimum cash balance, but that's sort of a point in the sand we can point to of what the banks think.

Operator

The next question is from Scott Levine from JPMorgan.

Rodney C. Clayton - JP Morgan Chase & Co, Research Division

This is Rodney Clayton here for Scott. So first, could you just give us maybe an update on your corporate restructuring plans following the sale of E&C? I think you mentioned that you were going to retain some of your personnel in your Baton Rouge office. And then also you, I think, had some plans for your personnel up in Canada as well. So any update there would be helpful.

James M. Bernhard

We continue to operate the business x technology, and the Baton Rouge office naturally continues to expand. And we continue to review the plans going forward in Canada. I think that's about where we are, and it is being adjusted to reflect the lower volume in that particular, although it's not significant for overall volume because all the volumes are increasing. So it's not a huge restructure, as you would terminology. In fact, I was a little taken aback when you said that. I think that the business is -- we're tweaking a couple things and we're moving forward, because a lot of our business opportunities are pretty robust.

Brian K. Ferraioli

And Rodney, just on some of the mechanics of that, the Baton Rouge office that you referred to of E&C is being folded or has been folded into the Plant Services group. So you've got those engineers working with the construction guys in that business. And there are also some consulting services within the E&C group that will not go with the sale. They're relatively a small number of people, maybe 50 people or so, I believe it is, but 50 professionals. And they will move in to the Environmental & Infrastructure group.

Rodney C. Clayton - JP Morgan Chase & Co, Research Division

Okay, that's helpful. Secondly, could you talk a little bit about the gas-fired market -- generation market in the U.S. Obviously, you announced your NET Power joint venture here a few weeks ago, which sounds very interesting. Has the dialogue, I guess, with some of your customers there picked up a little bit in recent months? And I just guess just going forward, as you think about the timing of when we might start to see a little bit more activity, is this -- how much is it tied to the timing of maybe some of these coal-powered plants ultimately being retired? Or do you think there's opportunity there independent of the time frame around coal?

James M. Bernhard

Certainly, opportunity independent of that within certain areas the country that need more electricity projection. I still think that a lot of this will be after November, when these kind of things, able to move forward with maybe more certainty, one in which administration and whether you have more environmental restraints or less. And so I think it's going to kind of bob along for the next 2 or 3 months. But there's certainly a lot of opportunity out there. There's a lot of opportunity in the gas market, in construction and fabrication activity, particularly in Louisiana and Texas, certainly. Heck, they're even talking about labor shortages down here, so there's a lot of work from oil and gas to a lot of work in the petrochemical plants, so it's going to be busy.

Operator

The next question is from Randy Bhatia from Capital One South.

Randy Bhatia - Capital One Southcoast, Inc., Research Division

I was wondering if you could give an update on the other Duke nuclear plants that you guys have mentioned in the past, Lee Station and Shearon Harris, I guess, with Levy coming out. Would those potentially be moving up? Or what's the status of those? Have they changed at all?

James M. Bernhard

We continue to work on those plants on a preliminary basis with Duke, and the status is unchanged.

Randy Bhatia - Capital One Southcoast, Inc., Research Division

Okay. Do you feel like Levy would potentially be replaced by one of those first or maybe something internationally first?

James M. Bernhard

I don't know, probably internationally first.

Brian K. Ferraioli

I guess, Randy, what we also understand is that the combined operating licenses are still in process of being obtained by Duke, and those, last I heard, were targeted for late 2013.

Randy Bhatia - Capital One Southcoast, Inc., Research Division

Okay. And I guess with the slower ramp in the new projects, is there any change to you all's indication of mid-teens guidance on percent of revs from nuke for 2012?

Brian K. Ferraioli

Not substantially.

Randy Bhatia - Capital One Southcoast, Inc., Research Division

Okay. And then If I could, just one more, status of the ethylene plant. I noticed there wasn't really anything mentioned about it in the release or in the presentation. Is that still at 98%? Or when can we expect that to be signed off on and out the door?

James M. Bernhard

Hopefully, toward the end of the year, it'll be signed off and out of the door. We continue to work jointly with Exxon on the project in completion and start-up.

Brian K. Ferraioli

And Randy, that's the end of the calendar year.

Operator

And the next question is from Jamie Cook from Crédit Suisse.

Jamie L. Cook - Crédit Suisse AG, Research Division

I just want to get back on the guidance again for the fourth quarter just because it has implications for how we should think about 2013. So Brian, again, back to Steve's question, $0.90 x the gain. I mean, should we -- I'm just trying to get more clarity on this. I mean, do you assume the low end of that disputed fee? And what are you exactly assuming for a tax rate because you could take the $0.90 in the quarter, multiply by 4 and you could say you'd at least do that in 2013? Or is it more like a normalized $0.60, $0.70 run rate? I just want to make sure I fully understand what core earnings are for the -- what you assume for core earnings are for the fourth quarter. And are there any weird incentives or anything in the quarter to -- related to any projects that are going to hit the fourth quarter too, that sort of should be viewed as not sustainable in 2013?

Brian K. Ferraioli

Okay, if got all of that...

James M. Bernhard

The incentives are never weird.

Jamie L. Cook - Crédit Suisse AG, Research Division

I know, Jim. But the Street's at $2.50-something, right? And your $0.90 by 4 is $3.60, so there's a big range. So the question is, are we -- while I know it's too early to guess for 2013, your fourth quarter run rate has significant implications for how people are going to look at 2013. And I'm also assuming you don't have a share repurchase in there as well. So that's why obviously it's relevant, right?

Brian K. Ferraioli

Okay. But let's take them one at a time. Share repurchase in the fourth quarter is not going to have much of an impact on the EPS for the balance of the year, okay? It will for -- it would for fiscal 2013, but really not much of an impact for 2012 given that it's a weighted average over the entire year or at the end of the year. But to answer your question, there is no one big incentive-type thing other than the one that we already mentioned.

Jamie L. Cook - Crédit Suisse AG, Research Division

But do you assume the low end in guidance? Because that's like $0.14. That's material.

Brian K. Ferraioli

Well, we gave you our range, and we're not going to get into the low end or high end, midpoint or whatever.

Jamie L. Cook - Crédit Suisse AG, Research Division

But at least the low end would be included in the fourth quarter.

Brian K. Ferraioli

At least the low end would be in.

Jamie L. Cook - Crédit Suisse AG, Research Division

Like the $0.14 to $0.24, do you assume at least the low end is included in the fourth quarter? Because that's $0.90 minus -- I mean, I'm just trying to...

Brian K. Ferraioli

Okay. Jamie, what I tried to explain to Steve before -- I think it was Steve. When we look at the forecast, you're trying to predict the future. So you have a number of items that may or may not occur. And not -- if you only put in a finite amount of items and you did not have any as contingency, chances are pretty good that you're not going to get it right because it's hard to predict the future. So there are a number of items kicking around, which are factored into those estimates. Rather than taking 100% of every one, you go through -- we go through at least a factoring-type process. So is that fee considered in our guidance? Yes, it is included in our guidance. But if we don't get that, do we have nothing else to replace it? No, we do have other things that are kicking around that might be able to replace it. So it's not a binary. It's not black or white here that we're either that fee or not fee.

Jamie L. Cook - Crédit Suisse AG, Research Division

What do you assume for tax rate in the fourth quarter? And then my next question is, do we assume your margins in fossil and nuclear hit your sort of -- not target range, but the range that you sort of talked about, the 10%-plus or so that you put in your slides in June?

Brian K. Ferraioli

Well, that's what I was going to move on to. The nuclear power projects continue to ramp up, so you're going to continue to see increased earnings and increased margin as the volume picks up in both Power and in F&M. And you're also going to have E&I, again, doing a good volume quarter. And as the volume picks up on the revenue side, keep in mind that the overheads are relatively flat. So you get margin expansion, you get earnings expansion as the revenue -- as the top line increases and your overheads, I mean, remain relatively flat. So again, the fourth quarter, traditionally, is a strong quarter for all of our segments, with the exception of Plant Services.

Jamie L. Cook - Crédit Suisse AG, Research Division

No, I get that. I'm just trying to ask if it hits the range that you talked about in your slides. And then again, what's your tax rate assumption for the fourth quarter?

Brian K. Ferraioli

I'm not going to be specific on the margin for any one of the segments. We don't give forward guidance on margin. The tax rate, to be honest, I don't have the tax rate at hand. But we do expect it to be very positive for us, a good rate for the fourth quarter. As we're looking back over the entire year, this is where you true-up trying to get to the year-end, the tax rate. And we also have some items that are expiring from prior periods. So with that, again, we remain confident that we're going to achieve the guidance that we have previously given.

Operator

And next question is from Andy Kaplowitz from Barclays.

Andy Kaplowitz - Barclays Capital, Research Division

Brian, focusing on bookings for a second. In the quarter, there are a couple of interesting things, I guess besides the stuff that you talked about. The F&M bookings look negative in the quarter. I assume you moved stuff around, but I'm just sort of wondering about that. And then the E&I bookings, just maybe if you could give us a flavor of what's going on in E&I right now. Are you seeing more hesitancy on the part of government customers and booking work?

Brian K. Ferraioli

Okay. F&M backlog and bookings reflect the Levy project being removed from backlog. Each one of these projects is reflected in both Power, primarily in Power, but also to a smaller extent in the F&M group relating to the modular work and the pipe and steel fabrication that the F&M group does. So as we get new bookings, it will increase both. And as we get -- if we have a de-booking like we did, it would decrease both F&M and Power. So that's what occurred. On E&I market, I'll defer to Jim.

James M. Bernhard

I think the E&I market is relatively unchanged to what it's been the last 2 quarters. I don't think it's significant plus or minus. As you know, the government is, this year, so it may be a little bit positive for the next 2 or 3 months, but it's about the same. I wouldn't characterize anything different.

Andy Kaplowitz - Barclays Capital, Research Division

Jim, do you see any more big E&I projects, like MOX or Inner Harbor, out there over the next year?

James M. Bernhard

Yes, yes. One of the significant things here is we believe we are, by far, the world's leader in wetlands restoration, if we look at we're the company that did Chesapeake Bay, we're the company that did Everglades, Lake Michigan on restoration of wetlands. And as you know, through the recent legislation through Congress that the $7 billion that was generated by the BP oil spill to be spent along the Gulf Coast, with the majority of it being spent in Louisiana in excess of $4 billion administered by the state government. I mean, there's a huge project right there that we are -- certainly, should be the forefront to do that work, both on location and capabilities. And there are several others not quite that big but of significant that we have bid and hope to be successful on.

Brian K. Ferraioli

And Andy, I would add too on MOX, if you come back to the MOX project, which will utilize plutonium from nuclear weapons and process it into fuel rods for nuclear power plants, there's an upstream project for MOX that extracts the plutonium from the nuclear weapon, and that is an opportunity that we are also interested in. And it could be located either in Savannah River or elsewhere. But there will be a fairly large contract to extract the plutonium from the weapons.

Andy Kaplowitz - Barclays Capital, Research Division

Okay, that's very helpful, guys. Maybe if I could ask one more sort of clarifying question. I'm a bit confused still. Look, I did read the Q around the unapproved claim orders. And if you look at the Vogtle project, you mentioned $29 million related to backfill costs in the Q. And I guess, it's hard for you guys probably to answer who's responsible for what. But like, I look at $29 million, that's not a large number in the big context of these projects. But obviously, there are other costs here. Is there any way you could elaborate more on some of the Vogtle stuff we've seen in the news? And what -- is this $29 million really what you think you're responsible for right now but probably you're not going to end up -- I mean, you've got the money for that? Do you understand what I'm saying?

Brian K. Ferraioli

Well, let me clarify. The backfill that you relate to is one of several items that are in discussion with our client. We think we're entitled to all of it. The $29 million that you referred to is -- the way the project works, when there is a dispute, you have to go through a certain procedure. And ultimately, you get to a dispute resolution process, which requires some co-funding by the client and from the contractor. And that $29 million relates to one specific dispute within a group of several, which was co-funded, which was paid by the client during the quarter. But in terms of what we think we're entitled to, we think we're entitled to 100% of it.

Andy Kaplowitz - Barclays Capital, Research Division

Right. I mean...

Brian K. Ferraioli

We co-funded only a portion of it for the contract terms.

Andy Kaplowitz - Barclays Capital, Research Division

Right. Because what happens is you see in the press big numbers around what's being bandied around in terms overruns and stuff. But what you guys are saying is that the contract sort of protects you from a lot of that noise, correct?

Brian K. Ferraioli

Well, yes, we think the contract protects us from all of it. And as I mentioned before, and we have it in the Q, there's also some risk sharing within the consortium agreements.

Andy Kaplowitz - Barclays Capital, Research Division

Right. With Westinghouse?

Brian K. Ferraioli

Correct.

James M. Bernhard

And Toshiba.

Operator

The next question is from Joe Ritchie from Goldman Sachs.

Joseph Ritchie - Goldman Sachs Group Inc., Research Division

Brian, earlier you mentioned or you affirmed that we would do about mid-teens in nuclear revenue as a percentage of consolidated revenue this year. I guess I'm just trying to understand the ramp in nuclear as we move into 2013, especially given the comments that you made at a recent competitor conference about nuclear margins, gross margins being in excess of 10%. So just trying to get an understanding for an acceleration there.

Brian K. Ferraioli

I'm not sure how to answer. I'm not sure really what's unclear.

Joseph Ritchie - Goldman Sachs Group Inc., Research Division

Well, I guess, so if we're about to do $900 million in revenues this year, I guess, the first part of the question is, is that specifically in your Power business or is that Power and in F&M? And then the second piece of the question is around 2013, as this projects start to ramp up. We saw a little bit of a delay here this year. My question is, does that then accelerate revenues into 2013? And what's the right way to think about that for '13 in terms of the acceleration?

Brian K. Ferraioli

Okay. First part of your question is, yes, it does impact both Power and the F&M segments because that's where the work is being performed. In terms of 2013, one of the issues that you may read about that Andy was referring to, some of the disputes you read about on the Vogtle project relates to schedule. And if there is acceleration of schedule, then there would be acceleration of revenues. If there's not an acceleration of schedule, then there would not be acceleration. However, again, just to make sure we're clear because I think last quarter it wasn't maybe understood 100% by at least 100% of the people we speak with, this relates to a delay. It's -- the fact that the combined operating licenses were received by the clients later than it had been originally planned increased the cost, which, as you know, decreases the percent complete calculation that we do for financial reporting purposes, which takes costs incurred, which is unchanged, divided by total estimated cost, which increased as a result of the delay. So all we're talking about is the delay of when those revenues get recognized for financial reporting purposes. And obviously, revenues being recognized later delays some of the earnings. To the extent it gets accelerated, then both would be accelerated. Does that answer your question?

Joseph Ritchie - Goldman Sachs Group Inc., Research Division

Yes, it does. I guess what I was really trying to get at is, if I think about 2013 and some of the key growth drivers for your company, one of the expectations, at least one of my expectations, was that nuclear was going to be a big component of that growth. Going back to Jamie's questions from earlier and trying to annualize a, call it, a $0.90 number or $0.75 number. The other way to look at it is you guys have provided a clean number for this quarter, x all the charges, of $0.47 on Slide 6. And so what I'm trying to understand is, if that's my starting point, which segments are going to then accelerate into 2013 to build off of that $0.47 number. Does that makes sense?

Brian K. Ferraioli

I would think across the board, certainly, Power will accelerate. There's no reason to conclude that Plant Services should not do better in '13 versus '12. E&I should continue to perform well. How much growth there will be depends, in part, to some of the initiatives that Jim mentioned before. F&M continues to perform well. Its core markets are doing extremely well and improving. We see improvements there in the core businesses and then, also you have the ramp-up on the Nuclear side. So across the board, we would think that in 2013, there's an opportunity for all of them to improve. We've talked about in the past that Plant Services does all the work for Exelon, for Entergy. Exelon had acquired Constellation, and they have more units in this fleet. We're hopeful that we can add some value there and maybe do some work on some units that we have never done before. So we think the opportunity for growth is pretty broad across the -- across all the segments.

Operator

And the next question is from Brian Konigsberg from Vertical Research.

Brian Konigsberg - Vertical Research Partners Inc.

Just a quick question on the balance sheet. Working capital remains negative, around $500 million. It sounds like you're going to generate some pretty decent cash in Q4. But with the nuclear plants ramping up in activity in 2013, should we be thinking that kind of winds down and is pressuring cash throughout 2013? Maybe if you could just give some clarity around those dynamics.

Brian K. Ferraioli

Okay. The cash really reflects the timing of [indiscernible], and I don't think it really has much to do with the ramp-up in '13 from a revenue prospective. It really is the way that some of these contracts have [indiscernible] is fair to say that 2013 is not going to be as strong of a cash flow year as some of the very strong cash flow years that we've had in the recent past. And that, again, is just timing and the way some of these contracts have been structured or their negotiations. But I also, would add that 2014 and '15, as we kind of look out further on these projects, will be significantly better. And again, that is tied to certain milestones on these individual contracts, not necessarily always 100% correlated to the actual work that is being done. You negotiate a milestone and you collect x dollars. Does that help?

Brian Konigsberg - Vertical Research Partners Inc.

Yes, that's helpful. And could you just talk a little bit about the M&A pipeline, the assets that you're interested in? Are you generally seeing reasonable prices in the market? And maybe just give some clarity around the current environment there.

James M. Bernhard

I think that's real diverse. I mean, reasonable is in the eye of the beholder, I guess. So I don't think we have a lot of comment.

Brian K. Ferraioli

Yes, we really don't comment on what we may or may not do on the M&A side until we have something really to announce.

Brian Konigsberg - Vertical Research Partners Inc.

And just lastly, on the E&C sale that's supposed to close in Q4. Can you just give a some more detail on the after-tax cash you expect?

Brian K. Ferraioli

Well, it's going to depend upon earnings, obviously, for '13, which we haven't given any guidance yet. But we tried to give some clarity indirectly in the information that we previously had released in terms of what the gain will be on the project. So we're going to collect $300 million -- up to $300 million in sales proceeds by the end of August. Some of that money will dribble out in taxes, as you say, and some of the expenses that we've tried to articulate. I don't think we've given a number. We have not, no. But I've seen some of the estimates kicking around from some on the sell side, and I wouldn't disagree with some of the ones that we have seen, put it down somewhere in the low to mid-200s.

Operator

And the next question is from John Rogers from D.A. Davidson.

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

Two things. First of all, in terms of the Gulf restoration work that, Jim, you mentioned and was in the latest transportation bill. Are you expecting that to come out as a single project?

James M. Bernhard

No.

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

For Louisiana? Okay. All right. So the $4 billion, it'll be spread out over a couple of projects.

James M. Bernhard

No, I didn't say that. It will be spread out over multiple projects. I think more than 2.

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

Okay. Okay, fair enough. But we should hear about -- start to see some of those this calendar year?

James M. Bernhard

I'm not sure that's timed in this calendar year, but it may be.

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

Okay. And then the second thing, just based on your comments, what was in the press release, as it relates to acquisitions, and I know Brian, you said you don't want to comment too much on it. But are you saying that you'll have a decision on what you might buy by the end of the fiscal year and if you can't get to that, then look at some of the other options?

Brian K. Ferraioli

What we said, and we'll point you to Slide 10, we've been trying to be pretty consistent in articulating what we have on the table as possibilities. M&A is one of those, technology acquisitions and/or returning cash to shareholders on a regular basis. At the time, those are the options, and we went further this time to say we don't decide to do something strategically there, that our intention would be to continue the share repurchase plan. And that's something that we will make a decision in this fiscal fourth quarter.

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

Okay. Sorry, a decision on which way you'll go or a decision on...

Brian K. Ferraioli

On which way we'll go. And once we decide which way we're going to go, then we'll take the appropriate action.

Operator

And the next question is from Justin Hauke from Robert W. Baird.

Justin P. Hauke - Robert W. Baird & Co. Incorporated, Research Division

So I was hoping to get an update just because it's been a while since we've gotten this and since the backlog this a little bit of a cleaner number now. But how much of your backlog today is your nuclear projects? And then, I guess, one step beyond that, how much of the nuke work is still left on the Chinese nukes?

James M. Bernhard

We don't disclose how big projects are, and we haven't ever disclosed those -- that information.

Brian K. Ferraioli

But also, to caution you about the relevancy of some of that, we get this question from time-to-time. If you -- we build power plants. And the market is what it will be, and it evolves over time. If you went back 5 years, when I first arrived here, it was almost 100% coal plant. And no one said we'd ever build another gas plant. And they said, "What are you going to do when coal plants run down?" Well, we said, "We're going to build nuclear plants." And then we started building nuclear plants. And they said, " What are you going to when the nuclear plants run down?" Well, maybe we'll build gas plants. So the point I'm trying to make is, we also have scrubbers in the mix. Scrubbers were very big for us for a while. And then, with the regulations influx, they tailed off. We expect that to come back. So we build power plants, and the market will determine what goes into backlog. And we think we're competitive across the full spectrum, whether it's gas, coal, scrubber or nuclear.

Justin P. Hauke - Robert W. Baird & Co. Incorporated, Research Division

Right. Well, I understand all of that. It's more just an idea of just what the revenue is going to look like in '13, following up to some of the previous questions. Or maybe another way to ask it, if you could disclose it this way is, relative to when you originally booked the U.S. nukes, how much of that original backlog have you recognized as revenue as a percentage?

Brian K. Ferraioli

Well, I've mentioned before that the nuclear contract, for financial reporting purposes, are less than 20% complete.

Justin P. Hauke - Robert W. Baird & Co. Incorporated, Research Division

Less than 20%, okay. And then the other question, just a clarification. On the cash flow guidance, did your original plan include the $111 million settlement that you got this quarter? I assume it didn't. Is that correct?

Brian K. Ferraioli

Well, it's another one of those things, one of the variables. So it gets into the factoring aspect, and trying to predict when legal disputes are going to settle is a real challenge. So it was one of those things that we knew was out there. We knew it was a positive. So you factor that in when you're making these forecasts that it may come in or one may come in faster than you thought and one may come in slower than you thought and we come up with a factoring process. So the answer is, it was considered in our forecast, but we had not assumed all of it coming in this year.

Operator

And the last question will be from Martin Malloy from Johnson Rice.

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

Just a follow-up. Can you talk a little bit about potential future work with Saudi Arabia and timing?

James M. Bernhard

As you know, we received a significant contract with Saudi Arabia to take a look at all of their existing power industry and make recommendations on efficiency and what methods to move forward. As you know, that Saudi Arabia has announced that they expect to build 20 nuclear power plants, with 4 being awarded in '13 and 4 being awarded in '14. We are very hopeful that these 4 nuclear plants -- as you -- would represent in excess of $20 billion a year in potential awards for our portion of the work, we're very hopeful that after the elections that the administration or the new administration will move forward on the 123 agreement as they have done for other countries like UAE, so that would have us have the ability to do that work. So we're very encouraged that, that will happen regardless of the administration.

Okay. We appreciate you participating in the third quarter conference call, and we look forward to the fourth quarter. Our business segments look like they have a great potential over the next 12 to 18 months. And we appreciate your participating and -- with the Shaw Group. Thank you very much.

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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