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Article by DailyStocks_admin    (01-05-09 03:55 AM)

The Daily Magic Formula Stock for 01/04/2009 is Shaw Group Inc. (The). According to the Magic Formula Investing Web Site, the ebit yield is 13% and the EBIT ROIC is >100%.

Dailystocks.com only deals with facts, not biased journalism. What is a better way than to go to the SEC Filings? It's not exciting reading, but it makes you money. We cut and paste the important information from SEC filings for you to get started on your research on a specific company.


Dailystocks.com makes NO RECOMMENDATIONS whatsoever, and provides this for informational purpose only.

BUSINESS OVERVIEW

We were founded in 1987 by J. M. Bernhard, Jr., our Chairman, President and Chief Executive Officer, and two colleagues as a fabrication shop in Baton Rouge, Louisiana. We have evolved into a diverse engineering, technology, construction, fabrication, environmental and industrial services organization. We provide our services to a diverse customer base that includes multinational oil companies and industrial corporations, regulated utilities, independent and merchant power producers, government agencies and other equipment manufacturers. We have approximately 26,000 employees that deliver our services from over 150 locations, including 19 international locations. Our fiscal year 2008 revenues were approximately $7.0 billion. At August 31, 2008, our backlog of unfilled orders of approximately $15.6 billion was diversified in terms of customer concentration, end markets served and services provided. Approximately 60% of our backlog was comprised of “cost-reimbursable” contracts and approximately 40% of “fixed-price” contracts. Most of our major fixed-price contracts contain some cost risk-sharing mechanisms such as escalation or price adjustments for items such as labor and commodity prices. For an explanation of these contracts, see Part I, Item 1 — Business — Types of Contracts, below.

Through organic growth and a series of strategic acquisitions, we have significantly expanded our expertise and the breadth of our service offerings.

In July 2000, we acquired the assets of Stone & Webster, Inc. (Stone & Webster), a leading global provider of engineering, procurement and construction (EPC), construction management and consulting services to the energy, chemical, environmental and infrastructure industries. Combined with our existing pipe fabrication and construction capabilities, this acquisition transformed us into a vertically integrated provider of EPC services.

Our May 2002 acquisition of the IT Group, Inc. (IT Group) assets significantly increased our position in the environmental and infrastructure markets, particularly in the federal services sector. The IT Group acquisition further diversified our end market, customer and contract mix and provided new opportunities to cross-sell services, such as environmental remediation services, to our existing EPC customers.

Our October 2006 acquisition of a 20% equity interest in Westinghouse Group (Westinghouse) enhanced our opportunity to participate in the domestic and international nuclear electric power markets. Westinghouse provides advanced nuclear plant designs and equipment, fuel and a wide range of other products and services to the owners and operators of nuclear power plants. Our investment in Westinghouse provides us with access to projects utilizing Westinghouse’s advanced passive AP1000 technology used in nuclear power plants. For an explanation of this investment, see Part I, Item 1 — Business — Investment in Westinghouse Segment, below.

We have acquired and developed significant intellectual property, including downstream petrochemical technologies, induction pipe bending technology and environmental decontamination technologies. We believe we have significant expertise in effectively managing the procurement of materials, subcontractors and craft labor. Depending on the project, we may function as the primary contractor, as a subcontractor to another firm or as a construction manager engaged by the customer to oversee another contractor’s compliance with design specifications and contracting terms. We provide technical and economic analysis and recommendations to owners, investors, developers, operators and governments primarily in the global fossil and nuclear power industries and energy and chemicals industries. Our services include competitive market valuations, asset valuations, assessment of stranded costs, plant technical descriptions and energy demand modeling. Our proprietary olefin and refinery technologies, coupled with ethyl benzene, styrene, cumene and Bisphenol A technologies, allow us to offer customers integrated refinery and petrochemicals solutions. Stone & Webster, in conjunction with key alliance partners, including Badger Licensing LLC, Total Petrochemicals and Axens, offers leading technology in many sectors of the refining and petrochemical industries.

Shaw Capital, Inc. (Shaw Capital), a wholly owned subsidiary of ours, leverages our global presence, technical and operational experience and transactional capabilities to identify and develop targeted project investment opportunities. Shaw Capital receives management fees from its partners and affiliates and may also have the opportunity to participate with equity ownership in projects.

Reportable Segments

Currently, we are organized under the following seven reportable segments:


• Fossil & Nuclear,

• Environmental & Infrastructure (E&I),

• Energy & Chemicals (E&C),

• Maintenance,

• Fabrication & Manufacturing (F&M),

• Investment in Westinghouse, and

• Corporate

Segment revenue and profit information, additional financial data and commentary on recent financial results for operating segments are provided in Part II, Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations and in Note 14 — Business Segments included in Part II, Item 8 — Financial Statements and Supplementary Data.

Fossil & Nuclear Segment

Our Fossil & Nuclear segment provides a range of project-related services, including design, engineering, construction, procurement, technology and consulting services, primarily to the global fossil and nuclear power generation industries.

Nuclear. We support the United States (U.S.) domestic nuclear industry with engineering, procurement, maintenance and construction services. We hold a leadership position in the nuclear power industry for improving the efficiency, output and reliability of existing plants (also known as uprates), having brought in excess of 2,050 megawatts (MW) of new nuclear generation to the electric power transmission grid in the U.S. between 1984 and the present. In addition, we are currently serving as architect-engineer for the National Enrichment Facility and are providing engineering services in support of new nuclear units in South Korea and the People’s Republic of China. We have also been awarded EPC contracts for two AP1000 units for Georgia Power and two additional units for South Carolina Electric and Gas, and have an interim agreement for two AP1000 units for Progress Energy. We anticipate growth in the global nuclear power sector, driven in large part by the U.S., United Kingdom, China and South Africa. Our support of existing U.S. utilities, combined with our 20% equity investment in Westinghouse, is expected to result in increased levels of activity in this sector for us. Safe and reliable operation of existing plants, concerns about carbon emissions and climate change and incentives under the Energy Policy Act of 2005 have prompted significant interest in new nuclear construction in the U.S. Several domestic utilities are developing plans for new baseload nuclear generation. According to the Nuclear Energy Institute and the Nuclear Regulatory Commission, in the U.S., there are plans for at least 30 new units under development as of August 2008, with the Westinghouse AP1000 design being considered for at least 14 of them. We expect that our existing base of nuclear services work, combined with our collaboration with Westinghouse and the AP1000 design, should position us to capitalize on the growth within this industry.

Clean Coal-Fired Generation. The rise in oil prices and wide fluctuations in natural gas prices have prompted electric power companies in the U.S. to pursue construction of new coal-fired power plants utilizing advanced combustion and emission control technologies. Coal-fired capacity is typically capital intensive to build but has relatively lower operating costs. During fiscal year 2008, we executed on the design and construction of six, highly-efficient coal generation facilities under EPC contracts. These plants will have combined generation capacity totaling more 4,000 MW. Additionally, we signed an alliance agreement in fiscal year 2008 with a major United Kingdom utility that may lead to the construction of five 800 MW coal-fired power plants in the United Kingdom. We continue to observe demand for new opportunities in this market but recognize that public sentiment and potential future regulations targeting carbon emissions could negatively impact future development of coal and other fossil fuel-fired power plants. Nevertheless, we believe we are well-positioned to capture a significant market share of future coal-fired power plants when they develop.

Air Quality Control (AQC). Our AQC business includes domestic and selected international markets for flue gas desulfurization (FGD) retrofits, installation of mercury emission controls, projects related to controlling fine particle pollution, carbon capture and selective catalytic reduction (SCR) processes used at existing coal-fired power plants.

Environmental regulations and related air quality concerns have increased the need to retrofit existing coal-fired power plants with modern pollution control equipment. We have been selected to provide EPC retrofit services on many of the power plants requiring FGD for sulfur dioxide emissions control. According to the June 2007 Argus Scrubber Report, we believe that over 70,000 to 80,000 MW, or approximately 60% to 70%, of the domestic coal plants that require FGD retrofit systems are either completed or in engineering, construction or startup phase. We believe that we are the market leader for these services, having been awarded approximately 25% to 30% of the estimated domestic market for these services. On July 11, 2008, however, the D.C. Circuit Court of Appeals vacated the Clean Air Interstate Rule (CAIR) in its entirety in its decision North Carolina v. EPA (Case No. 05-1244). On September 24, 2008, multiple parties to this litigation filed petitions for rehearing and petitions for rehearing en banc. As a result, the federal CAIR rules are still enforceable pending resolution of these petitions or other direct action by the D.C. Circuit Court of Appeals to implement its mandate. Once the court issues its mandate, and so long as the ruling is not reversed on appeal, the federal CAIR rules will no longer be effective, in which event the fall back position for affected states may be to rely on existing federal cap-and-trade programs for nitrogen oxide (NOx) (the “NOx SIP Call” rule promulgated by the Environmental Protection Agency (EPA) in 1998) and sulfur dioxide (Title IV of the Clean Air Act) as well as existing state legislation and regulation. The lasting effect of this decision on the FGD market, including any further changes that may arise as a result of the filing of petitions for rehearing or any prospective development of a revised rule by the EPA to respond to the court’s decision, is currently unknown.

There is also a market for installation of mercury emission controls at existing coal-fired power plants. The Clean Air Mercury Rule (CAMR) adopted by the EPA in May 2005 establishes a cap and trade system to lower mercury emissions by 21% by 2010 and 70% by 2018. However, many states viewed the CAMR regulations as inadequate and proceeded to implement more stringent requirements. In February 2008, a federal court ruling set aside the CAMR in regulating mercury emissions from new power plants, reverting to the much more stringent maximum achievable control technology (MACT) requirements, until new regulations are enacted. We have several EPC mercury control projects under execution. We believe the domestic market for these services could increase in the future as more states establish new rules or as federal regulations become more stringent.

AQC EPC opportunities outside the FGD and mercury control markets, such SCR and particulate control, are expected to be more limited than in prior years. However, we expect to continue pursuing NOx and particulate control work with regulated utilities.

Gas-Fired Generation. In fiscal year 2008, we observed significant renewed interest in new gas-fired generation as electric utilities and independent power producers look to diversify their generation options. Recent initiatives in many states to reduce emissions of carbon dioxide and other “greenhouse gases,” and utilities desire to fill demand for additional power prior to new nuclear power plants being completed, are also stimulating renewed demand for gas-fired power plants. Gas-fired plants are less expensive to construct than coal-fired and nuclear plants, but tend to have comparatively higher and potentially more volatile fuel costs. We expect that gas-fired power plants will continue to be an important component of future power generation development in the U.S. and believe our capabilities and expertise will position us as a market leader for these projects. During the third quarter of fiscal year 2008, we signed an EPC contract for a new 620 MW gas-fired combined cycle power plant in North Carolina and we were awarded an additional 500 MW gas-fired power plant in Nevada in October 2008. However, we received notice of a suspension until the beginning of 2010 on the start date of the engineering and construction portion of our recent award for a 620 Mw gas-fired power plant in North Carolina. We continue to pursue several additional combined cycle projects that may be awarded in the near future.

E&I Segment

Our E&I segment provides integrated engineering, construction, financial, regulatory, scientific and program management services for government and private-sector clients worldwide. Our team of professionals is strategically located throughout the U.S. and abroad to provide innovative solutions to complex environmental and infrastructure challenges. As such, we design and execute remediation solutions involving contaminants in soil, air and water. We also provide project and facilities management and related logistics support for non-environmental construction, emergency response and watershed restoration. Infrastructure services include program management, construction management and operations and maintenance (O&M) solutions to support and enhance domestic and global land, water and air transportation systems.

Federal Markets. Our core services include environmental restoration, regulatory compliance, facilities management, emergency response and design and construction services to U.S. government agencies, such as the Department of Defense (DOD), the Department of Energy (DOE), the EPA and the Federal Emergency Management Agency (FEMA). Environmental restoration activities are centered on engineering and construction services to support customer compliance with the requirements of the Comprehensive Environmental Response, the Compensation and Liability Act (CERCLA or Superfund) and the Resource Conservation and Recovery Act (RCRA). Additionally, we provide regulatory compliance support for the requirements of the Clean Water Act, Clean Air Act and Toxic Substances Control Act. For the DOE, we are currently working on several former nuclear weapons production sites including the mixed oxide project at Savannah River, South Carolina where we provide engineering, construction and construction management services. The E&I segment also has contracts with the DOE to develop the Next Generation Nuclear Plant and the Global Nuclear Energy Program as a conceptual design engineering service provider.

For the DOD, we are involved in projects at several Superfund sites and Formerly Utilized Sites Remedial Action Program (FUSRAP) sites managed by the U.S. Army Corps of Engineers. We will also continue with the design-build efforts associated with the Inner Harbor Navigation Canal Hurricane Protection project in Louisiana. For the U.S. Army, we are working on the Army’s chemical demilitarization program at several sites.

The federal government is utilizing multiple award contracts more frequently, forcing bids for task orders under the contractual umbrella. Additionally, there is an increase in using performance-based contracting

vehicles, including guaranteed fixed-price contracts, wherein we assume responsibility for cleanup and regulatory closure of contaminated sites for a firm fixed-price. In certain circumstances, we purchase environmental insurance to provide protection from unanticipated cost growth due to unknown site conditions, changes in regulatory requirements and other project risks.

Our Mission Support and Facilities Management business provides integrated planning, O&M services to federal customers. These services traditionally include operating logistics facilities and equipment, providing public works maintenance services, operating large utilities systems, managing engineering organizations, supervising construction and maintaining public safety services including police, fire and emergency services. Our customers include the DOE, the National Aeronautics and Space Administration, the U.S. Army and the U.S. Navy.

We foresee that a significant portion of future DOD and DOE environmental expenditures will continue to be directed to cleaning up domestic and international military bases and to restoring former nuclear weapons facilities. The DOD has determined that there is a need to ensure that the hazardous wastes present at these sites, often located near population centers, do not pose a threat to the surrounding population. We believe that we are well-positioned to assist the DOD with decontamination and remediation activities at these sites. Similarly, the DOE has long recognized the need to stabilize and safely store nuclear weapons materials and to remediate areas contaminated with hazardous and radioactive waste, and we believe that we are well-positioned to assist DOE with these efforts.

Commercial, State and Local Markets. Our core services in this segment include environmental consulting, engineering construction management and O&M services to private-sector and state and local government customers. Full service environmental capabilities include site selection, permitting, design-build, operation, decontamination, demolition, remediation and redevelopment. We provide complete life cycle solid waste management services with capabilities that range from site investigation through landfill design and construction to post-closure O&M or site redevelopment. We also provide sustainability services on a national basis. We assist commercial clients in defining what sustainability means to them and in designing and developing operational concepts to integrate sustainability into their businesses.

Coastal and Natural Resource Restoration. We have performed wetland construction, mitigation, restoration and related work in the Everglades, the Chesapeake Bay area and other areas throughout the U.S. New opportunities for these types of projects are present in both the governmental and commercial markets. The Coastal Wetlands Planning Protection and Restoration Act (CWPPRA) provides federal funds to conserve, restore and create coastal wetlands and barrier islands, and we believe our E&I segment is positioned to participate in wetlands and coastal restoration work in Louisiana and other locations throughout the U.S.

Transportation and General Infrastructure. We believe opportunities for our infrastructure-related services will continue with our state and local clients, stimulated by the need for restoration of aging transportation, water, waste water and other infrastructure systems. By leveraging our capabilities across several business segments, we believe that we can participate in large scale and localized infrastructure projects by partnering with government agencies and with private entities for design and build services to meet our clients’ needs arising from aging infrastructure, congestion and expansion requirements.

Ports and Marine Facilities. We continue to pursue opportunities in maritime engineering and design services, including navigation, sediment management, port and waterway development, coastal engineering, environmental services, shoreline protection and marine security capabilities. As part of this strategy, in 2006, we acquired a maritime engineering and design firm to enhance our portfolio of services to government and commercial port and marine facility clients. We believe this additional capability expands our marine infrastructure planning services and positions us to provide a full range of design, engineering and project management services to our domestic and international maritime clients.


CEO BACKGROUND

J. M. Bernhard, Jr. , age 54, our founder, has been our Chief Executive Officer and a director since our inception in August 1987. Mr. Bernhard served as our President from our inception until September 2003 and was re-elected as President in November 2006. He has been Chairman of our Board since August 1990. Prior to founding Shaw, Mr. Bernhard was Vice President and General Manager of Sunland Services, a pipe fabrication company, which was later acquired by Shaw. He is also a member of numerous trade and civic organizations. He graduated from Louisiana State University in 1976 with a degree in Construction Management.

James F. Barker , age 61, has served as a director since January 2004. Mr. Barker has served as president of Clemson University since October 1999. He earned his bachelor of architecture degree from Clemson in 1970 and his master of architecture and urban design degree from Washington University in St. Louis in 1973. Before returning to Clemson in 1986 to serve as dean of the College of Architecture, he was dean of the School of Architecture at Mississippi State University.

Thos. E. Capps , age 71, has served as a director since July 2007. Mr. Capps is the retired Chairman of the board of directors, President and Chief Executive Officer of Dominion Resources, Inc. (NYSE: D), a power and energy company that supplies electricity, natural gas and other energy sources and operates generation facilities, where he served from 1984 to 2007. Mr. Capps is a member of the board of visitors of the College of William & Mary; the board of trustees of the University of Richmond; the board of trustees of the Virginia Foundation for Independent Colleges, and the boards of directors of Amerigroup Corp. of Virginia Beach, a managed-health care company, and Associated Electric & Gas Insurance Services Ltd., which operates as a non-assessable mutual insurance company in the United States offering insurance and risk management products and services to the utility and related energy industry.

Daniel A. Hoffler , age 59, has served as a director since January 2006. Mr. Hoffler is the Chairman of the board of directors of Armada Hoffler, a premier commercial real estate development and construction organization located in Virginia, which he founded over 25 years ago. Before founding Armada Hoffler, Mr. Hoffler was employed as Vice President of Marketing for Eastern International, Inc., a commercial real estate development and construction company specializing in construction of warehouse and office buildings. Prior to that, Mr. Hoffler was employed as a Regional Manager for Dun and Bradstreet, a credit information provider. From 1992 through 1996, Mr. Hoffler served on the University of Virginia board of visitors. In 1987, he was chosen as the Outstanding Citizen of Hampton Roads, Virginia. In 1986, Mr. Hoffler was appointed to a five-year term to the Virginia Governor’s Advisory Board for Industrial Development for the Commonwealth of Virginia.

David W. Hoyle , age 69, has served as a director since January 1995. For the past 25 years, he has been self-employed, primarily as a real estate developer. He has been a Senator in the North Carolina General Assembly since 1992. Senator Hoyle is the Chairman of the board of directors of Citizens South Banking Corporation, a bank holding company, and is Chairman of the board of directors of its wholly-owned subsidiary, Citizens South Bank. Senator Hoyle also serves as a director of several private corporations as well as of several civic, educational and charitable organizations.

Michael J. Mancuso , age 66, has served as a director since August 2006. Mr. Mancuso was named Vice President and Chief Financial Officer of CSC, Inc. (NYSE: CSC), a publicly-held leading provider of information technology services to large corporations and governments, on December 1, 2008. In June 2006, Mr. Mancuso retired from General Dynamics Corporation, a company engaged in the field of mission-critical information systems and technologies; land and expeditionary combat systems, armaments and munitions; shipbuilding and marine systems and business aviation, where he was employed since 1993, serving as Senior Vice President and Chief Financial Officer since 1994. Mr. Mancuso also serves on the board of directors for SPX Corporation (NYSE: SPW), a publicly-held industrial manufacturer headquartered in Charlotte, North Carolina, and LSI Corporation (NYSE: LSI), a publicly-held leading provider of silicon, systems and software technologies headquartered in Milpitas, California.

Albert D. McAlister , age 57, has served as a director since April 1990. Since 1975, Mr. McAlister has been a partner in the law firm of McAlister & McAlister, P.A. in Laurens, South Carolina.

Required Vote

The seven nominees receiving the most votes cast at the Annual Meeting will be elected to our Board of Directors. The enclosed form of proxy provides a means for the shareholders to vote for all of the listed nominees for director, to withhold authority to vote for one or more of the nominees or to withhold authority to vote for all of the nominees. Each properly executed proxy received in time for the Annual Meeting will be voted as specified therein.

MANAGEMENT DISCUSSION FROM LATEST 10K

The following analysis of our financial condition and results of operations should be read in conjunction with Part I of this Form 10-K as well as our Consolidated Financial Statements and the notes thereto. The following analysis contains forward-looking statements about our future revenues, operating results and expectations. See “CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS” for a discussion of the risks, assumptions and uncertainties affecting these statements as well as Part I, Item 1A — Risk Factors.

Overview

Fiscal year 2008 was a mixed year with record revenues, operating income and operating cash flow. However, our operating income was lower than as we had originally anticipated at the beginning of our fiscal year primarily due to the recognition of greater than expected costs on a significant power project recognized in the fourth quarter of fiscal year 2008. In addition, the financial crisis that adversely impacted U.S. equity markets throughout 2008, weighed heavily on the share prices of many engineering and construction companies, including ours. At the time of this filing, it is uncertain what impact the financial/credit crisis may ultimately have on our business which is substantially dependent on our clients’ ability to access significant and now substantially constrained debt and equity markets, to finance project development to the extent either us or our clients are unable to obtain financing for these projects, our results of operations could be materially adversely affected. Nevertheless, we remain focused on expanding our position in the growing power markets where investments by regulated electric utilities tend to be based on electricity demand forecasts covering decades into the future. Our clients do not typically rely on project financing to fund their projects and are typically high credit quality entities that traditionally have enjoyed access to long-term credit markets. Please also see the “Risk Factors” section of this 10-K which discusses those risks that may adversely affect our business.

The main contributing factor to our increased revenues was the performance of our Fossil & Nuclear, E&C and F&M segments which generated strong operating and financial results for the year. Our revenue growth was fueled primarily by continued strength in the global markets for power generation capacity, petrochemicals and refined products that we serve. We believe these markets are being driven by worldwide demand and long-term economic expansion. Revenue in our E&I and Maintenance segments were relatively flat compared to fiscal year 2007 due to the completion of two major projects in the prior fiscal year for the Maintenance segment and from decreased activity in the gulf region of the U.S. for our E&I segment.

We had record operating income during our fiscal year 2008, and we significantly improved our results as compared to the previous fiscal year. Each of our operating segments reported improved income before income taxes, minority interest and earnings (losses) from unconsolidated entities for the fiscal year 2008 as compared to the previous fiscal year except for our Investment in Westinghouse segment. The increased operating income resulted primarily from operations in our Fossil & Nuclear, E&C, Maintenance and F&M segments. The strong earnings in those segments are attributable to increased volumes of work in these segments, plus increased margins in the E&C and F&M segments.

Our Investment in Westinghouse segment recorded approximately $69.7 million in non-cash foreign currency translation losses during the fiscal year 2008 compared to $33.2 million in fiscal year 2007. These translation losses occur when the JPY-denominated debt is translated to U.S. dollars for financial reporting purposes at a Yen / U.S. dollar exchange rate less than the prior period.

We generated significant positive operating cash flows in fiscal year 2008 primarily due to cash flows earned from contracts currently being executed. In the previous fiscal year, our positive operating cash flows were due primarily to collections of accounts receivable related to disaster relief and emergency services work performed in 2006 associated with hurricanes Katrina and Rita.

Our credit rating was upgraded by both Standard & Poor’s and Moody’s Investment Services during the year and we successfully received an amendment to our credit facility in January that increased the committed component of our credit facility from $850.0 million to $1.05 billion. This credit facility was further amended in October 2008 (subsequent to our fiscal year end) whereby $829.0 million of the credit facility was extended for an additional year to 2011, with the continuing ability to add additional commitments up to $1,250 million, and with the ability for us to utilize, in certain circumstances, $200.0 million of our cash to collateralize additional letters of credit.

Our results for fiscal year 2009 are forecast to be largely dependent on the successful execution of the contracts already in backlog. We also forecast that the two EPC contracts and one interim agreement for the AP1000 nuclear power plants currently in the early phases of execution, should receive additional releases from our clients during the year at which time we will evaluate the inclusion to our backlog of unfilled orders.

The increase in consolidated revenues during our fiscal year 2008 as compared to the prior fiscal year was due primarily to significant increases in revenue by our Fossil & Nuclear segment related to air quality and emissions control work and new coal fired power generation projects being executed. Also contributing to the increasing revenues is our work on major chemical and petrochemical projects in our E&C segment as well as continued growth in our F&M segment in response to increased worldwide demand. Included in E&C

Segment Analysis — Fiscal Year 2008 Compared to Fiscal Year 2007

Fossil & Nuclear Segment

Our Fossil & Nuclear segment is experiencing significant growth in demand for our services primarily in the areas of emissions control and new coal fired power generation facilities primarily for regulated electric power utilities located in the United States. Additionally, we are performing early engineering work for six new nuclear power reactors in the United States. Our international work in both the nuclear and fossil fuels markets has been increasing due to a major services project in China and is expected to continue growing with the signing of an alliance agreement with a major United Kingdom utility that could lead to the construction of five 800 MW coal fired power units in the United Kingdom.

Revenues

Revenues increased $1.0 billion, or 62.3%, in fiscal year 2008 as compared to fiscal year 2007 primarily due to:


• commencing and/or continuing EPC work on six new coal fired power plants in the United States;

• continued progress on emission reduction projects such as Flue Gas Desulphurization (FGD) projects at coal fired power plants as full work authorizations were received and progress accelerated;

• continued activity on other coal-fired power plant and Air Quality Control Systems (AQCS); and

• an increase in our nuclear activity due primarily to our services contract (with a limited supply of equipment) for four AP1000 nuclear reactor units in China and preliminary engineering work on domestic AP1000 units that were awarded in fiscal year 2008.

The increase in revenues was partially offset by a reduction due to several AQCS projects nearing substantial completion in the fiscal year.

Gross Profit and Gross Profit Percentage

Gross profit increased $78.1 million, or 104.1%, for fiscal year 2008 as compared to fiscal year 2007. Our gross profit percentage rose to 5.8% in fiscal year 2008 from 4.6% in fiscal year 2007. The increases in our gross profit and gross profit percentage were primarily due to:


• commencing and /or continuing EPC work on six new coal fired power plants plus new work and continuing progress on several major FGD and AQCS projects at other coal fired power plant projects; and

• an increase in our nuclear activity due to continued progress on our China nuclear project, other engineering design work and additional authorizations on AP1000 units.

The increases in gross profit and gross profit percentage were partially offset by:


• a $26.0 million net reduction in gross profit for the year resulting from an increase in the estimated costs at completion on a fixed-price coal fired project due to increases in estimated field labor costs, availability of labor and certain indirect costs;

• a decrease due to several AQCS projects nearing substantial completion;

• increased costs on an international project completed in fiscal year 2008 where final settlement is currently in dispute with the main contractor; and


• an increase in facilities costs, proposal and supervisory management costs incurred in anticipation of the development of the nuclear power market expected in the United States and certain international markets.

The Fossil & Nuclear segment has recorded revenues of $29.0 million related to unapproved change orders and claims as of August 31, 2008 on a percentage-of-completion basis. The amounts included in our estimated total revenues at completion for these projects are estimated to be $34.5 million at August 31, 2008. These unapproved change orders and claims relate to delays and costs attributable to others. If we collect amounts different from the amounts we have estimated, those differences, which could be material, will be recognized as income or loss when realized.

Income (loss) before income taxes, minority interest, earnings (losses) from unconsolidated entities

Income (loss) before income taxes, minority interest, earnings (losses) from unconsolidated entities increased $70.4 million, or 166.4%, to $112.7 million for fiscal year 2008 as compared to $42.3 million for fiscal year 2007. This increase was primarily due to the factors affecting gross profit discussed above as the segment has experienced strong revenue and gross profit growth from both the fossil and nuclear divisions.

E&I Segment

Our E&I segment’s revenues were relatively flat in fiscal year 2008 as compared to fiscal year 2007. Our federal services and commercial consulting and engineering services experienced growth in fiscal year 2008 which were offset by a decline in our commercial construction services.

Revenues

Our revenues decreased $7.2 million, or 0.5%, to $1,462.1 million for fiscal year 2008 as compared to $1,469.3 million in fiscal year 2007. This decrease was due primarily to:


• a decrease in disaster recovery services in the gulf region of the U.S.; and

• a decrease commercial construction services.

The decrease in revenues in fiscal year 2008 was partially offset by increases in revenues attributed to:


• activity from two consolidated joint ventures providing services to the DOE; and

• an increase in services to our commercial consulting and engineering customers.

Gross Profit and Gross Profit Percentage

Gross profit increased $11.2 million, or 11.8%, in fiscal year 2008 as compared to fiscal year 2007. Our gross profit percentage rose to 7.2% in fiscal year 2008 from 6.5% in fiscal year 2007. The increases in our gross profit and gross profit percentage were due primarily to:


• a loss recognized on a fixed price project in the Middle East in fiscal year 2007 not incurred in 2008; and

• a favorable variance related labor utilization rates and a reduction in overhead labor and fringe costs.

The increases were partially offset by:


• a decrease in disaster recovery services in the gulf region of the U.S.; and

• a decrease in gross profit percentage from recording no gross profit on a consolidated military housing privatization joint venture.

Income (loss) before income taxes, minority interest, earnings (losses) from unconsolidated entities

Income (loss) before income taxes, minority interest, earnings (losses) from unconsolidated entities increased by $21.0 million, or 114.8%, to $39.3 million as compared to $18.3 million in fiscal year 2007 due primarily to the factors impacting gross profit addressed above as well as a reduction in general and administrative expenses due to lower business development costs.

E&C Segment

Demand for chemical and petrochemical production and refinery capacity in the Middle East and Asia Pacific regions provided a continued strong petrochemicals market, resulting in increased activity levels for the E&C segment in fiscal year 2008 as compared to fiscal year 2007.

Revenues

Revenues in our E&C segment increased $219.4 million, or 20.6%, to $1,283.3 million for fiscal year 2008 from $1,063.9 million in fiscal year 2007 primarily due to:


• higher revenues related to demand for our engineering and engineered equipment for the petrochemical and refinery businesses;

• an increase in customer furnished materials ($527.6 million and $443.0 million for the fiscal years ended August 31, 2008 and 2007, respectively) on two major international petrochemical projects. No gross profit is recognized from customer furnished materials; and

• during fiscal year 2008 we began work on a major petrochemical plant in Singapore.

The increase in revenues for fiscal year 2008 as compared to fiscal year 2007 was partially offset by:


• a decrease in services revenues from a major international petrochemical project that was at peak levels in the comparative prior fiscal year period; and

• a decrease in revenues from a gulf coast petrochemical fire rebuild project that was at a high services level in the comparative prior fiscal year period.

We expect fiscal year 2009 revenues to be higher than fiscal year 2008 revenues based on expected growth primarily in international markets for E&C segment services and the Singapore project moving toward peak activities.

Gross Profit and Gross Profit Percentage

Gross profit increased $54.0 million, or 76.9%, in fiscal year 2008 as compared to fiscal year 2007. Our gross profit percentage rose to 9.7% in fiscal year 2008 from 6.6% in fiscal year 2007. The increases in our gross profit and gross profit percentage were due primarily to:


• increased activity primarily associated with our engineering and engineered equipment projects;

• a high level of contract losses recorded in the prior fiscal year as compared to the current fiscal year; and

• the release of license performance guarantees related to certain joint venture technology projects based on current estimates.

The increase in our gross profit and gross profit percentage for fiscal year 2008 as compared to fiscal year 2007 was partially offset by the following:


• lower service activity on two petrochemical projects which were at peak levels in the prior fiscal year; and

• higher indirect expenses due to the growth of our business.

Income (loss) before income taxes, minority interest, earnings (losses) from unconsolidated entities

Income (loss) before income taxes, minority interest, earnings (losses) from unconsolidated entities increased $62.2 million, or 176.7%, to $97.4 million in fiscal year 2008 as compared to $35.2 million in fiscal year 2007. This increase was due primarily to the changes in gross profit addressed above as well as foreign exchange transaction gains related to changes in currency exchange rates due primarily to the strengthening of the US dollar against the UK pound and Euro during fiscal year 2008 and higher net interest income associated with improved cash flows at our E&C segment offset by higher general and administrative expenses.

Maintenance Segment

Our Maintenance segment experienced decreased activity during fiscal year 2008, performing a lower volume of work in the power maintenance industry offset somewhat by an increase in capital construction work for our petrochemical customers.

Revenues

Our revenues decreased $63.3 million, or 5.9%, to $1,018.2 million during fiscal year 2008 compared to $1,081.5 million for fiscal year 2007 due primarily to:


• completion of a major domestic power construction project in fiscal year 2007;

• the decision to no longer pursue maintenance work for an independent electric power company; and

• the overall decrease in the number of performed outages in the power maintenance industry.

The decreases noted above offset the increase in activity associated with the increased market demand for capital construction services in the petrochemical industry.

We anticipate fiscal year 2009 revenues to be lower than 2008 levels as a result of the completion of a major construction contract for a customer in the petrochemical industry in fiscal year 2008. We, however, anticipate providing additional services for current and new customers in the power generation industry due to increased market demand in this industry to offset a portion of the reduction in revenue.

Gross Profit and Gross Profit Percentage

Gross profit increased $29.5 million, or 148.2%, to $49.4 million for fiscal year 2008 as compared to $19.9 million in fiscal year 2007. Our gross profit percentage increased to 4.9% in fiscal year 2008 as compared to 1.8% in fiscal year 2007. The increase in our gross profit and gross profit percentage is due primarily to an increase in capital construction revenues which are traditionally executed at higher gross profit margins than routine maintenance services. In addition, there were loss provisions recorded during fiscal year 2007 totaling $15.5 million related to disputes with an owner over project incentives as well as losses recorded on two offshore production platform contracts.

Our maintenance segment has recorded revenues to date of $29.9 million related to our significant estimated, project incentives and unapproved change orders and claims as of August 31, 2008 on a percentage-of-completion basis.

Income (loss) before income taxes, minority interest, earnings (losses) from unconsolidated entities

Income (loss) before income taxes, minority interest, earnings (losses) from unconsolidated entities increased $24.5 million, or 263.4%, to $33.8 million in fiscal year 2008 compared $9.3 million in fiscal year 2007. This increase is primarily attributable to the changes in gross profit discussed above. These increases were offset primarily by an increase in indirect expenses attributable partly to an increase in operations management. Also included in indirect expenses in fiscal year 2008 was a charge associated with the dissolution of a foreign entity.

F&M Segment

In fiscal year 2008, we experienced strong demand for our fabrication and manufacturing services. Strength in the global piping systems markets for oil refineries, power, petrochemical and chemical plants has continued to expand. We have also expanded our capacity to meet this demand. Our new fabrication facility in Mexico is now our largest facility and will be utilized to capture more of the available market.

Revenues

Our revenues increased $103.8 million, or 22.0%, to $576.6 million in fiscal year 2008 as compared to $472.8 million in fiscal year 2007. This increase is due primarily to significant new awards in both the domestic and foreign markets and the global increase in demand of our manufactured and fabricated products. We experienced increases in the foreign and domestic market as a result of the increasing demand in the petrochemical, refining and power generation industries.

In fiscal year 2009, we anticipate increased foreign and domestic demand in the petrochemical, refining and power generation industries for our fabrication and manufacturing and distribution services. As a result of this higher demand, we in turn expect increased revenues as a result of the additional capacity which will be available to this segment during the fiscal year.

Gross Profit and Gross Profit Percentage

The increase in gross profit of $35.0 million, or 30.4%, to $150.0 million in fiscal year 2008 as compared to $115.0 million fiscal year 2007. Our gross profit percentage increased to 26.0% in fiscal year 2008 as compared to 24.3% in fiscal year 2007. This increase is attributable to the increase in demand for most of our products resulting in stronger volume and improved gross profit in both the domestic and foreign markets as discussed above.

Income (loss) before income taxes, minority interest, earnings (losses) from unconsolidated entities

Income (loss) before income taxes, minority interest, earnings (losses) from unconsolidated entities increased $35.6 million, or 39.0%, to $126.8 million in fiscal year 2008 as compared to $91.2 million in fiscal year 2007. The increase is due primarily to the increases in revenues and the factors impacting gross profit discussed above. G&A increased for fiscal year 2008 compared to fiscal year 2007 due to increased labor costs resulting from increased headcount levels to support the higher demand in our markets.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

General
The Shaw Group Inc. was founded in 1987 by Jim Bernhard, Chairman and Chief Executive Officer, and two colleagues as a fabrication shop in Baton Rouge, Louisiana. We have evolved into a diverse engineering, technology, construction, fabrication, environmental and industrial services organization. We provide our services to a diverse customer base that includes multinational and national oil companies and industrial corporations, regulated utilities, independent and merchant power producers, government agencies and other equipment manufacturers. Through organic growth and a series of strategic acquisitions, we have significantly expanded our expertise and the breadth of our service offerings.

Fossil & Nuclear
The Fossil & Nuclear segment provides a range of project-related services, including design, engineering, construction, procurement, technology and consulting services, primarily to the global fossil and nuclear power generation industries.
Nuclear. We support the U.S. domestic nuclear industry with engineering, procurement, maintenance and construction services. We hold a leadership position in nuclear power industry for improving the efficiency, output and reliability of existing plants (“uprates”) for existing plants, having brought in excess of 2,000 megawatts of new nuclear generation to the electric power transmission grid in the U.S. between 1984 and present. In addition, we are currently serving as architect-engineer for the National Enrichment Facility and are providing engineering services in support of new nuclear units in South Korea and the People’s Republic of China. We anticipate growth in the global nuclear power sector, driven in large part by the U.S., U.K., China and South Africa. Our support of existing U.S. utilities, coupled with our 20% equity investment in Westinghouse, is expected to result in increased levels of activity in this sector for us. Safe and reliable operation of existing plants, concerns associated with climate change, and incentives under the Energy Policy Act of 2005 have prompted significant interest in new nuclear construction in the U.S. Several domestic utilities are developing plans for new baseload nuclear generation. According to the Nuclear Energy Institute and the Nuclear Regulatory Commission, in the U.S., there are plans for approximately 35 new units under development as of May 2008, with the Westinghouse advanced passive AP1000 design being considered for at least 14 of them. We expect that our existing base of nuclear services work, coupled with our collaboration with Westinghouse and the AP1000 design, should position us to capitalize on growth within this industry.
Clean Coal-Fired Generation. The rise in oil prices and wide fluctuations in natural gas prices have prompted electric power companies in the U.S. to pursue construction of new coal-fired power plants utilizing advanced combustion and emission control technologies. Coal-fired capacity is typically expensive to build but has relatively lower operating costs. The continued operating cost advantage of coal over other fossil fuels has prompted electric utilities and independent power producers (IPP’s) in recent years to focus on clean coal-fired generation. During fiscal year 2007, we executed EPC contracts for three new, highly-efficient coal generation facilities: an 800 megawatt supercritical plant in North Carolina, a 600 megawatt ultra-supercritical plant in Arkansas, and a 585 megawatt circulating fluidized bed (CFB) facility in Virginia. During the fiscal year 2008, we executed an EPC contract for a 600 megawatt CFB facility in Louisiana. We continue to observe continuing demand for new opportunities in this market but recognize that carbon emissions associated with fossil fired power plants could negatively impact future development of fossil fired power plants. Nevertheless, we believe we are well positioned to capture a significant market share of future coal fired power plants.
Air Quality Control (AQC). Our AQC business includes domestic and selected international markets for flue gas desulfurization (FGD) retrofits, installation of mercury emission controls, projects related to controlling fine particle pollution, carbon capture, and selective catalytic reduction (SCR) markets.
Environmental regulations and related air quality concerns have increased the need to retrofit existing coal-fired power plants with modern pollution control equipment. We have been selected to provide EPC retrofit services on many of the power plants requiring FGD for sulfur dioxide emissions control. The March 2005 Clean Air Interstate Rule (CAIR) issued by the U.S. Environmental Protection Agency (EPA), which reduces the allowable sulfur dioxide emissions in the eastern half of the U.S. by 70% (from 2003 levels) by 2015 and reduces emissions of nitrogen oxides by 60% (from 2003 levels) by 2015, was a major driver for this market. According to the June 2007 Argus Scrubber Report, we believe that over 70,000 to 80,000 megawatts or approximately 60% to 70% of the domestic coal plants that require FGD retrofit systems are in engineering, construction or startup phase. We believe that we are the market leader for these services, being awarded approximately 25% to 30% of the estimated domestic market for these services. We forecast that many of the currently contracted domestic FGD projects will achieve commercial operation by the end of 2010. We believe the remaining 20% to 30% of the current domestic FGD market of approximately 20,000 to 30,000 megawatts of capacity may be awarded over the next three to five years. The market size is subject to increase if more stringent environmental regulations are passed by individual states or federal agencies.
There is also a market for installation of mercury emission controls at existing coal-fired power plants. The Clean Air Mercury Rule (CAMR) adopted by EPA in May 2005 establish a cap and trade system lower Mercury emissions by 21% by 2010 and 70% by 2018. However, many states viewed the CAMR regulations as inadequate and proceeded to implement more stringent requirements. In February 2008, a federal court ruling set aside CAMR in regulating mercury emissions from new power plants, reverting to the much more stringent maximum achievable control technology (MACT) requirements, until new regulations are enacted. We have several EPC mercury control projects under execution. We believe the domestic market for these services could increase in the future as more states establish new rules or as federal regulations become more stringent.
AQC EPC opportunities outside the FGD and mercury control markets, such as SCR (Selective Catalytic Reduction) and particulate control are expected to be more limited than in prior years. However, we plan to continue pursuing NOx (Nitrogen Oxide) and particulate control work with existing customers, or as federal regulations become more stringent.
Gas-Fired Generation. In fiscal year 2007, active investment in new power generation was focused primarily on coal due to its relatively low operating cost compared to natural gas. We have recently observed significant renewed interest in new gas-fired generation as electric utilities and independent power producers look to diversify their generation options. Recent initiatives in many states to reduce emissions of carbon dioxide and other “greenhouse gases” that are perceived to be contributing to global warming are also stimulating renewed demand for gas-fired power plants because gas-fired plants have lower emissions of carbon dioxide than coal-fired plants. Gas-fired plants are typically less expensive to construct than coal-fired and nuclear plants, but have comparatively higher and potentially more volatile fuel costs. We forecast that gas fired power plants will continue to be a part of future power generation development in the United States and believe our capabilities and expertise will position us as an EPC market leader for such plants. During the third quarter of fiscal year 2008, the Fossil and Nuclear segment signed a major EPC contract for a new gas fired power plant in North Carolina.
Other Markets. Shaw Energy Delivery Services, Inc. (EDS) designs, builds, operates, and maintains power transmission and distribution facilities and systems. Our services include design, construction and maintenance of transmission and distribution lines as well as substations. On June 18, 2008, we entered into an agreement to sell substantially all of the assets of EDS. Upon completion of this transaction, we will cease operations in this sector of the market.
E&I Segment
Our E&I segment designs and executes remediation solutions involving contaminants in soil, air and water. We provide project and facilities management and related logistics support for non-environmental construction, emergency response and watershed restoration. Infrastructure services include program management and operations and maintenance (O&M) solutions to support and enhance domestic and global land, water and air transportation systems.
Federal Markets. Our core services include environmental restoration, regulatory compliance, facilities management, emergency response and design and construction services to U.S. government agencies, such as the Department of Defense (DOD), the Department of Energy (DOE), the Environmental Protection Agency (EPA), and the Federal Emergency Management Agency (FEMA). Environmental restoration activities are centered on engineering and construction services to support customer compliance with the requirements of the Comprehensive Environmental Response, the Compensation and Liability Act (CERCLA or Superfund) and the Resource Conservation and Recovery Act (RCRA). Additionally, we provide regulatory compliance support for the requirements of the Clean Water Act, Clean Air Act and Toxic Substances Control Act. For the DOE, we are presently working on several former nuclear weapons production sites where we provide engineering, construction and construction management services. For the DOD, we are involved in projects at several Superfund sites and Formerly Utilized Sites Remedial Action Program (FUSRAP) sites managed by the U.S. Army Corps of Engineers. The DOD is increasingly using performance-based contracting vehicles, including guaranteed fixed-price contracts, wherein we assume responsibility for cleanup and regulatory closure of contaminated sites for a firm fixed-price. In certain circumstances, we purchase environmental insurance to provide protection from unanticipated cost growth due to unknown site conditions, changes in regulatory requirements and other project risks. For the U.S. Army, we are working on the Army’s chemical demilitarization program at several sites.
Our Facilities Management business provides integrated planning, operations and maintenance services to federal customers. These services traditionally include operating logistics facilities and equipment, providing public works maintenance services, operating large utilities systems, managing engineering organizations, supervising construction and maintaining public safety services including police, fire and emergency services. Our customers include the DOE, NASA, the U.S. Army and the U.S. Navy.
We forecast that a significant portion of future DOD and DOE environmental expenditures will be directed to cleaning up domestic and international military bases and to restoring former nuclear weapons facilities. The DOD has determined there is a need to ensure that the hazardous wastes present at these sites, often located near population centers, do not pose a threat to the surrounding population. We believe that we are well positioned to assist DOD with decontamination and remediation activities at these sites. Similarly, the DOE has long recognized the need to stabilize and safely store nuclear weapons materials and to remediate areas contaminated with hazardous and radioactive waste, and we believe that we are well positioned to assist DOE with these efforts. We continue to provide engineering, procurement and construction to other DOE nuclear programs such as the Mixed Oxide Fuel Fabrication Facility in Savannah River, South Carolina.
Commercial, State and Local Markets. Our core services include environmental consulting, engineering construction management and O&M services to private-sector and state and local government customers. Full service environmental capabilities include site selection, permitting, design-build, operation, decontamination, demolition, remediation and redevelopment. We provide complete life cycle solid waste management with capabilities that range from site investigation through landfill design and construction to post-closure O&M or site redevelopment. We also provide sustainability services on a national basis. We assist commercial customers in defining what sustainability means to them and in designing and developing operational concepts to integrate sustainability into their businesses.
Coastal and Natural Resource Restoration. We have performed wetland construction, mitigation, restoration and related work in the Everglades, Chesapeake Bay area and other areas throughout the U.S. New opportunities for these types of projects are present in both the governmental and commercial markets. The Coastal Wetlands Planning Protection and Restoration Act (CWPPRA) provides federal funds to conserve, restore and create coastal wetlands and barrier islands, and we believe our E&I segment is positioned to participate in wetlands and coastal restoration work in Louisiana and other locations throughout the U.S.
Transportation Infrastructure. The Safe, Accountable, Flexible and Efficient Transportation Equity Act — A Legacy for Users SAFETEA-LU stimulates new transportation project funding opportunities. By leveraging our capabilities across several business segments, we believe that we can participate in large scale and localized infrastructure projects by partnering with government agencies and with private entities for design and build services to meet our customers needs arising from aging infrastructure, congestion and expansion requirements.
Ports and Marine Facilities. We are pursuing opportunities in maritime engineering and design services including navigation, sediment management, port and waterway development, coastal engineering, environmental services, shoreline protection and marine security capabilities. As part of this strategy, in fiscal year 2007, we acquired a maritime engineering and design firm to enhance our portfolio of services to government and commercial port and marine facility customers. We believe this acquisition expands our marine infrastructure planning services and positions us to provide a full range of design, engineering and project management services to domestic and international maritime customers.
Other Markets. Other service offerings include maritime services, water quality initiatives and our environmental liability transfer programs. Our maritime engineering and design services include navigation, sediment management, port and waterway development, coastal engineering, environmental services, shoreline protection and marine security capabilities. Our commercial water-treatment technologies target public drinking water providers, municipal authorities and industrial waste water treatment facilities with testing, assessments and permitting services and specialized equipment and water treatment systems to help meet regulatory standards. Through two proprietary programs, we also serve customers who desire to transfer or reduce their environmental liabilities. We have created the “Shaw Insured Environmental Liability Distribution” or “SHIELD” tm program, a proprietary structured transaction tool that uses environmental insurance products and distributes environmental liabilities for parties desiring to substantially reduce contingent environmental liabilities. Another program is provided through our subsidiary The LandBank Group, Inc. (LandBank), which purchases at a discount environmentally impaired properties with inherent value, purchases environmental insurance to limit the environmental liabilities associated with the properties, when appropriate, and then remediates and/or takes other steps to improve and increase the value of the properties.
E&C Segment
Our E&C segment provides a range of project related services, including design, engineering, construction, procurement, technology and consulting services, primarily to the oil and gas, refinery, petrochemical and chemical industries. We expect that high crude oil prices will continue to support capital expenditures by our major oil and petrochemical customers and may provide opportunities for us to increase our activity levels in these service areas.
Chemicals . Demand in the chemical industries remain strong, fueled by strong growth in the economies of China and India as well as the rising standard of living in other developing economies. We expect the number of new petrochemical projects to flatten as additional supply comes on-line. Internationally, we believe the Middle East and China provide the majority of petrochemical capacity expansion opportunities. In the Middle East, we expect new petrochemical opportunities due to relatively high crude oil prices and the availability of lower priced feed stock and natural gas and the proximity of the Middle East to the European and Asian markets. During fiscal year 2007, we were awarded petrochemical projects in China and Saudi Arabia for our Acrylonitrile- butadiene-styrene (ABS) polymer emulsion technology. ABS is a “bridge” polymer between commodity plastics and higher performance thermoplastics.

Refining. We believe that refiners are searching for new products that can be produced from petroleum and considering integration production of those products into petrochemical facilities. We believe the demand for our services in the refining industry has been driven by refiners’ needs to process a broader spectrum of heavier crude oils and to produce a greater number of products. In general, continued economic growth, fuel subsidies, and increased oil-fired power generation are supporting expected higher oil demand globally over the next two decades. Additionally, we believe relatively high crude oil prices, combined with refinery capacity constraints and demand stimulated by clean fuels and clean air legislation, are contributing to increasing opportunities primarily in the U.S. an Europe. We are currently participating in a major domestic refinery upgrade incorporating capacity and clean fuels capabilities. While the refining process is largely a commodity activity, refinery configuration depends primarily on the grade of crude feedstock available, desired mix of end-products and considerations of capital and operating costs.
Fluid Catalytic Cracking (FCC) remains a key refining technology. We were awarded a number of grass root technology contracts in fiscal year 2007 and 2008, primarily to facilities in Asia and India in particular. We have an exclusive agreement with one international customer to license a key FCC-derived technology called Deep Catalytic Cracking (DCC) that encourages the refiner’s entry into the petrochemical arena. We believe this technology is emerging because of its ability to produce propylene, a base chemical that is in short supply and for which demand is growing faster that that of ethylene.
Ethylene. Ethylene is an olefin, which is used as a building block for other petrochemicals and polymers. It is produced by the steam cracking of hydrocarbon feedstocks. Ethylene is used in the manufacture of polymers such as polyethylene (PE), polyester, polyvinyl chloride (PVC) and polystyrene (PS). Ethylene represents one of our core technologies. By the end of 2008, we expect the ethylene industry to begin experiencing the impact of the new wave of steam cracker start-ups in the Middle East, with a surplus supply of ethylene expected in 2009. We estimate global demand for ethylene will continue to grow in the near term, but not at the rate of supply. This will lead to an oversupply in the market and expected slowdown somewhere in 2009 to 2011 range. Despite the anticipated slowing of further investment, we believe additional projects are being slated in the Middle East and India, as oil and petrochemical prices remain high. These projects should provide additional opportunities for us.
We expect that major oil and petrochemical companies will integrate refining and petrochemical facilities in order to improve profits, providing additional opportunities for us. In petrochemicals, we have extensive expertise in the construction of ethylene plants, which convert gas and/or liquid hydrocarbon feed stocks into ethylene, and derivative facilities which provide the source of many higher value chemical products, including packaging, pipe, polyester, antifreeze, electronics, tires and tubes. We also perform services related to gas processing including propane dehydrogenation facilities, gas treatment facilities and liquefied natural gas plants.
We believe ethylene production from petroleum derived naphtha is declining due to the availability of alternative low cost ethane feed stock in the Middle East. This change impacts the economic viability of gas feed steam crackers in North America where the natural gas prices are more volatile as a result of commodity market trading conditions. We expect new facilities to favor primarily gas feed crackers based on ethane extracted from natural gas. In fiscal year 2007, we were awarded the contract for a major expansion of an ethylene plant in Singapore by a major integrated oil and gas company. We estimate our market share to be approximately 40% of the market during the last 15 years. We are aware of only four ethylene technology licensor competitors and are well positioned to compete for new opportunities in this market.
Maintenance Segment
Our Maintenance segment is a market leader, providing a full range of integrated asset life cycle capabilities that compliment our EPC services. We provide customers with reliability engineering, turnaround maintenance, outage maintenance, routine maintenance, capital construction, tank design, tank construction and maintenance, architectural and building services, off-site modularization, and specialty services. We perform services to restore, rebuild, repair, renovate, and modify industrial structures, as well as offer predictive and preventative maintenance. Our comprehensive range of services are offered to customers in combinations that will increase capacity, reduce expenditure and optimize cost, ensuring the highest return on critical production assets within their facilities. All services are provided at customers work sites located primarily in North America.
Nuclear Plant Maintenance and Modifications. The U.S. currently has 104 operating nuclear reactors that require engineering and maintenance services to support operations, plan outages, extend life/license, upgrade materials, increase capacity uprates and improve performance. We provide system-wide maintenance and modification services to approximately 40 of those 104 operating domestic nuclear reactors. We concentrate on more complicated, non-commodity type projects in which our historical expertise and project management skills add value. We also have a leading position in the decommissioning and decontamination business for commercial nuclear energy plants.
In addition to supporting operations and improving performance, we believe there are opportunities for further expansion in plant restarts, up-rate related modifications and new plant construction. We also believe there are opportunities to take on additional in-plant support services.
Fossil Plant Maintenance and Modifications. We provide fossil plant maintenance services for energy generation facilities throughout North America. Our expertise, developed by providing outages, construction planning and execution in the nuclear industry, is valuable and recognized in the fossil power sector. Significant opportunities exist for further expansion into this market as energy demand continues to increase and customers seek longer run times, higher reliability and better outage performance.
Chemical Plant Maintenance and Capital Construction Services. We have a continuous presence in approximately 90 U.S. field locations serving petrochemicals, specialty chemicals, oil and gas, manufacturing, refining and infrastructure markets. Looking forward, we believe that petrochemicals, clean fuels and refining markets provide the best growth opportunities for us. Expansion of these markets has been enhanced by governmental regulations supporting cleaner burning fuels and the supply of commodity chemicals to support the current domestic construction market. Our Maintenance segment also includes a capital construction component serving existing client sites. Capital construction projects are comprised of an array of revamp efforts along with grassroots green-field projects. Construction scope includes constructability reviews, civil and concrete work, structural steel erection, electrical and instrumentation, mechanical and piping system erection.
In addition to our varied spectrum of maintenance and construction work, we are building experience in successfully executing large recovery and rebuild projects. We are able to mobilize resources under demanding client deadlines to rebuild and restore facilities damaged by natural disasters or catastrophes. Our recent successful project completions included major petrochemical, natural gas processing and refining facilities in Texas and Louisiana.
F&M Segment
Our F&M segment is among the largest worldwide suppliers of fabricated piping systems. Demand for our F&M segment’s products is typically driven by capital projects in the electric power, chemical and refinery industries.
Fabrication. We believe our expertise and proven capabilities to furnish complete piping systems in this global market have positioned us among the largest suppliers of fabricated piping systems for energy generation facilities in the U.S. We are also a leading supplier worldwide, serving both our other business segments and third parties. Piping systems are normally a critical path item in chemical plants that convert raw or feedstock materials to products. Piping system integration accounts for a significant portion of the total man-hours associated with constructing energy generation and chemical and other materials processing facilities. We fabricate fully-integrated piping systems for chemical customers around the world.
We provide fabrication of complex piping systems from raw materials including carbon and stainless steel, and other alloys, such as nickel, titanium and aluminum. We fabricate pipe by cutting it to specified lengths, welding fittings on the pipe and bending the pipe to precise customer specifications. We currently operate pipe fabrication facilities in Louisiana, Arkansas, Oklahoma, South Carolina, Utah, Mexico, Venezuela and through a joint venture in Bahrain. Our South Carolina facility is authorized to fabricate piping for nuclear energy plants and maintains a nuclear piping American Society of Mechanical Engineers (ASME) certification.
We believe our induction pipe bending technology is one of the most advanced, sophisticated and efficient technologies available. We utilize this technology and related equipment to bend pipe made of carbon steel and alloy items for industrial, commercial and architectural applications. Pipe bending can provide significant savings in labor, time and material costs, as well as product strengthening. In addition, we have commenced a robotics program that we believe may result in productivity and quality levels not previously attained. By utilizing robotics, as well as new welding processes and production technology, we are able to provide our customers a complete range of fabrication capabilities.

CONF CALL

Chris Sammons

Thank you for joining us today. First off, I'd like to remind everyone that we have posted a slide presentation on our website to accompany this conference call. To get to the presentation, please go to shawgrp.com then the Investor Relations page, in center of the page is the link. The slides also can be printed or you can follow along on the screen. We will reference the slides by number as we proceed. Leading the call today are, Jim Bernhard, Chairman of the Board, President and Chief Executive Officer of Shaw, and Brian Ferraioli, Executive Vice President and Chief Financial Officer.

Also before we begin, I'd like to refer everyone to slide number two, regarding forward-looking statements and Regulation G reconciliations. Please consider this information with respect to the call, the press release and the slides. There will be a question-and-answer period at the end of the presentation and the operator will give us instructions.

Now, I'll refer you to slide three. I'll turn the call over to Brian Ferraioli, our Chief Financial Officer.

Brian Ferraioli

Thank you, Chris. Good morning everyone, and thank you for joining us. As you see on slide three, we had a very strong quarter, measured in terms of both EBITDA net income, and obviously, earnings per share for the quarter. We also had record operating cash flow and we ended our fiscal year at the end of August with a record cash balance.

During the fourth quarter, however, we did uncover a cost increase on one of our projects and then reviewing the cost increase on that project in the fossil & nuclear group. We discovered that there were certain errors that will require us to restate the second and third quarters of fiscal 2008.

Going over to page four, I'll try to walk you through the new information that has come out in the fourth quarter prior to the restatement, and then we'll move on to the restatement and then the actual GAAP number.

So on slide four, this is the new information since the third quarter, when we last spoke.. We had a very strong quarter for net income and earnings per share, even with a $59 million pre-tax profit reversal on the project I mentioned previously.

The quarterly performance was led again by our F&M group, and E&C, and we had very strong and steady performance out of our E&I segment. If you look at the revenue, $1.8 billion for the year, up 11% from the same period from a year ago, if you look at the gross profit, 7.8% again, a rise from the year before. Again, this is with the full profit reversal on the coal project that I mentioned prior to any restatement.

The coal project was partially offset by a reduction in our incentive compensation. We also benefited from an improved tax rate during the quarter.

We had record operating cash flow and that was led by our fossil & nuclear and E&C segments. The Westinghouse segment continues to have volatility with the translation of the yen denominated debt. We had a $36.5 million gain for the quarter, and that's included in the EBITDA number for the Westinghouse segment, the $40.3 that you see on the page.

Turning to page five, looking at the segment, again, prior to any restatement of the prior quarters, Fossil & nuclear had a record volume of revenues. You see the gross profit is reflective of the charge that we've discussed.

Moving on to E&C, again, they had record revenues for the quarter. They had very strong gross profit. The gross profit percentage again very, very strong. That does reflect in part the reversal of the management incentive compensation during the quarter.

Moving on to E&I; E&I's revenues were relatively flat from a year ago, here you see that their gross profit was up significantly, and the gross profit percentage continued to rise. They're becoming a strong, steady performer for us after some troubles in the past.

F&M continues to be the market leader in their group, and in their sector. They had record revenues for the quarter. You see very strong gross profit and gross profit percentage

Turning to slide six, I will try to walk you through the restatement. Here we've shown on Slide six, the amounts that are being restated for the second and third quarters of fiscal 2008, and you can see from an EBITDA perspective the total is $11.3 million. The after tax number is $6.9 million or $0.08 per share.

Just a little color on the errors. The errors on the project were really more of a clerical-type nature. For example, when data was being extracted from the project cost on the job to be analyzed to come up with the forecast to go on the project, a $5 million entry was input into a spreadsheet as 500,000. So there was a $4.5 million error. In another instance, the costs to go were accurately forecast, but there was an input error where the inception to date costs were missed so the total forecast was understated. These were the type errors that lead to the restatement.

So moving on to slide seven, these are the financial results now after reflecting the restatement of second and third quarter. If you look at the EBIDTA line in the column, excluding Westinghouse, $100 million which is up dramatically, 55% from quarter a year ago, net income also up significantly from a year ago. And again, we had a record operating cash flow that I think had mentioned earlier.

Looking at slide eight, for the year end summary, we had a very strong year from the terms of our revenue growing, led by our fossil & nuclear, E&C and F&M segments. $7 billion in revenues, up 22% from a year ago. The gross profit percentage again increased, and this is after the charge that we previously discussed. We had record EBITDA, a significant change from a year ago, same for net income, for cash flow, and new awards again were very, very strong at $8.3 million.

I want to point out also in the Westinghouse segment, the negative number for EBITDA that reflects a $69.7 million foreign translation loss associated with the yen denominated bonds.

Moving on to slide nine, looking at the segments for the year, again, fossil & nuclear had a significantly higher volume, record revenues, and improved margins even with the project that we referred to earlier.

E&C again has significantly improved from a year ago, due to their strong performance, as well as higher margins on the jobs. They had record revenues. You see the gross profit is up dramatically from a year ago and the gross profit percentage, 16%, which we expected to be, remains somewhere in that same category for the balance of fiscal 2009, given that we have a major project that has a fair amount of flow-through costs going through it in 2009, but we expect margins to remain in that area of the mid teens.

Moving on to E&I, you see they are relatively flat from a revenue perspective, but up nicely from a gross profit and gross profit percentage. F&M again continues to be very, strong with record revenues, very strong profits, as they continue to perform very, well.

Moving on to slide 10, just to give an update on the Westinghouse segment and the volatility from the foreign exchange movement; at the end of our quarter, at the end of August, the yen/dollar rate was 108.77, dramatically different, I guess, from where it is today, but at that point it was a 108.77, the yen-denominated bonds get mark-to-market. And as you see the yen-denominated put option is not, however our exposure, the delta between the two, the put options in the bonds is $40 million versus $36 million when we originally made the investment, so really not much change in our overall exposure.

However, if you move to the right and the change, you'll see that $106 million of foreign translation losses have gone through the P&L since the investment with $102 million offset from the put option, which is not being mark-to-market in the P&L.

So gain, a lot of volatility. If we were to close our quarter as of yesterday's exchange rate, we would report again a non-cash translation loss of approximately $135 million. So again, significant volatility going through the P&L without a significant amount of economic impact to us.

Finally, I just want to point out again that we have targeted $24 million per year in dividends from our investment in Westinghouse. I just would like to point out that those dividend rights are available to us during the entire period that we own the investment in Westinghouse. And if not paid to us during the period of ownership, it continues beyond even after we no longer own our investment in Westinghouse.

Moving on to slide 11, we had record cash at the end of our fiscal year, $937 million or approximately $11 per share. With very, very little debt, you see $10 million excluding the limited recourse at Westinghouse that we previously discussed. So a very strong quarter, both from an earnings and from a cash-generation perspective.

With that, I'll pass it to Jim and he'll go through the backlog and markets.

Jim Bernhard

Our backlog year-over-year has increased to $15.6 billion, and we expect during fiscal 2009 for our backlog to increase once again. If you look at the pie chart to the right, you'll see the execution of the backlog and the timeframe.

Turning to page 14, our backlog including projects that we are working on, let me be clear on this, progress, if we take Santee Cooper, we've already signed EPC contracts, but until we get full notice to proceed, we're not going to put them in our backlog, even though we are in the process of working on those projects. So our backlog remains very strong.

In that backlog, we have done, turning to page 15, basically three categories that our clients fall in. One, regulated utilities, regulated utility in the United States is basically the credit worthiness of the people they serve, look to pay their debt, their electricity bill. We feel that very secure.

Second, national or international oil companies, sovereign companies, these companies are our primary customers for E&C, and as you see by Exxon Mobil's earnings today, they are very strong, and of course the US Government as well. So those are our three big pots of clients, and one we feel secure in.

However, in doing this, we have gone back to every major client that we have in our backlog. We have confirmed that the projects are moving forward. We further confirmed that their capital expenditures are continuing as was planned. The step two was to confirm that all our suppliers were able to meet their commitments to our projects. Looking for softening, looking for weakness and I think that everyone expects that, however, we just can't get there. As expected some times that may happen, but with the clients that we have, regulated utilities, major oil companies and the US Government actually, spent a lot more money, which we would be in prudent shape to participate.

As you know, we are ranked number one, going to page 16, in power, which is a huge kudos for this company, and we continue to develop our market, not only in fossil, but in nuclear as well, and the market continues to look very, very good with the regulated utilities in the United States.

Outside the United States on page 17, in the power market, we're actively working on a nuclear power plant in Brazil, UK. India now has the ability to do work there. As you know, we're bidding on in South Africa; we're doing work in Indonesia, we are building nuclear power plants in China. So that business has quietly moved not only in domestic power entity, but able to do work throughout the globe, which certainly are major opportunities going forward.

On 18, to try to give you a little comfort, recently, Southern announced in their earnings call last week that they continue to move forward with their nuclear power plant as their base load capacity.

We have purchased over $400 billion worth of equipment, we continue to work on the project. Our Westinghouse continues to work on the project. The legislature of Georgia has passed [legi] for the cost recovery. So we're moving forward on the project as any other project that has full notice to proceed in the springtime of this year.

On the Santee Cooper, same thing, they have recommitted in their long-term port management is whether they continue to layout how they were going to finance it. It's a joint venture between South Carolina Electric & Gas and Santee Cooper. We continue to work on the project. They have purchased over $0.25 billion of material, and that budget continues to go forward.

On Progress Energy, on page 20, the legislature supports the nuclear work; it has been approved by the public service commission of Florida. Progress Energy has given us over $0.25 billion of cash to proceed with the project. That project continues to move forward as expected. These are major projects for us, excess of $12 billion in backlog. Then again, this project should move forward in the spring.

Looking at our business segments on page 22, our Fossil & Nuclear business continues to do well with the exception of a major cost increase on the coal project this summer, as working on an accelerated basis to meet accelerated incentive milestones for next year on the completion of the projects.

Productivity was a lot more than expected, and we had a major cost increase on that project. We still believe that we may likely finish the project early and get substantial incentive compensation.

However, we have not put the incentive compensation into our earnings at this time, and I think that we need to get a lot closer to the end date before we would feel comfortable for doing that. But that would be a more substantial amount of offset to the cost.

Turning to page 23 on our maintenance, our maintenance continues to do well. Basically, the first quarter and the third quarter of every year is a major quarter in terms of outages in the nuclear field.

We had a write-off in the fourth quarter on an international entity that we brought 15 years ago, that had been dormant, which decreased substantially. I think it was probably $3.5 million, which was a dormant company that was written-off during this quarter, nothing to do with operations or performance of our maintenance group.

On page 24, our Energy & Chemicals continues to do very well. We've reviewed that all their projects are looking for softness, but we didn't find any. Looking at the awards they are going to be getting this year that we have award letters from negotiating contracts, all of them look very strong.

We continue to challenge our entities looking for slowness, looking for [mines] that reflect the market that we see out there and we continue to be encouraged by customers. I mean, they very strongly say, we don't place our market on $100 on oil. Most of these guys are on $50, $60 a barrel of oil and have planned these projects for years, there the long-term price of oil hasn't changed.

So that's what they are telling to us, and we don't see a weakness in the market. We're looking for a weakness, we're trying to find a weakness, almost hoping to find a weakness to verify what we think should happen, but it just hasn't been so.

Fabrication & Manufacturing continues to be robust, will be robust. They are starting to participate in AREVA MOX project which is a nuclear oriented project in a very major way, continuing to sell the vending machines throughout the world.

They continue to negotiate with various clients to build fabrication facilities in different parts of the world which we will be their major departure from a domestic and a little bit of international work going forward. So we are very, very encouraged about their business.

The Mexican shop on page 26 continues to improve its product and continues to [mend up] on the quantity of people and tonnage produced.

As also looking on page 27, the fabrication facility that we are building for nuclear power plants and other modules that we may do, both offshore as well as other modules associated with our projects continue to progress nicely. The first quarter of 2009 should be in production. This is a major facility in Louisiana. It will give us huge opportunities, not only for our technology but other nuclear technology as well. And capacity, it will have over 1,400 workers.

28, we're really encouraged, I think that the E&I has stabilized and will do well this year. We look forward to increase their award pace as well as their profitability, as we've seen in the fourth quarter, based on government spending that we expect on the Federal Government level.

I think that they will be a prime market for us in the type of work that's likely to be done. So this market is actually one that we think that has been lagging in recent years but has shown signs of turning the corner and doing well, contributing to us in major way in our profitability going forward.

Looking at summary for '08, we continue to have record bookings revenue, as well as earnings in actual dollars as well per share. I'm very proud that we're ranked Number One by ENR in the United States in Power.

Our Fab & Manufacturing business continues to certainly be best in class. And as we look in our E&C and E&I, they are much improved, and our maintenance business remains steady.

I'm very proud to say that we signed the first two nuclear EPC contracts and an interim agreement with progress on another, and all those progressing that schedule and continue to spend money on those projects.

Our financials were record in EBIDTA, net income, EPS, operating cash flow. At this time when you're not one of the major components of our business, so we feel very secure and robust that we're going to be able to take advantage of many different opportunities in the market over $900 million in cash at the end of the year.

We increased our credit facility; as well we've extended our credit facility. We were upgraded both by Moody's and S&P. So we look at the overall 2008 as one of our accomplishments from 2007.

Going forward on a conservative basis, looking at where we are realistic or where we are in the market and being very cautious, we believe that our revenue will be between $7 billion and $7.3 billion, our EPS, $2.50 to $2.70, and again, operating cash flow of $250 million to $300 million level.

Okay. Third one, in conclusion, it was strong year for us, our backlog position is strong, our backlog will grow year-over-year into 2010. Our nuclear projects remain on track and I believe our focus is the right one on regulated electric utilities, and national/international oil companies, as well as the US Government, should help us shield any major economic downturn.

At this point, Chris, I'd like to open it up for any questions.

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