UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-Q

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended May 31, 2010

or

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     .

Commission File Number: 1-12227

The Shaw Group Inc.

(Exact name of registrant as specified in its charter)

Louisiana		72-1106167
(State or other jurisdiction of		(I.R.S. Employer Identification No.)
incorporation or organization)
4171 Essen Lane, Baton Rouge, Louisiana		70809
(Address of principal executive offices)		(Zip Code)

225-932-2500
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

The number of shares of registrant’s common stock outstanding as of July 7, 2010 was 84,448,425 shares.

 

 

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION
Item 1. — Financial Statements
Unaudited Consolidated Statements of Operations — For the Three and Nine Months Ended May 31, 2010 and 2009			3
Consolidated Balance Sheets — May 31, 2010 (Unaudited) and August 31, 2009			4
Unaudited Condensed Consolidated Statements of Changes in Shareholders’ Equity — For the Nine Months Ended May 31, 2010 and 2009			5
Unaudited Consolidated Statements of Cash Flows — For the Nine Months Ended May 31, 2010 and 2009			6
Notes to Consolidated Financial Statements (Unaudited)			7
Cautionary Statement Regarding Forward-Looking Statements			29
Item 2. — Management’s Discussion and Analysis of Financial Condition and Results of Operations			31
Item 3. — Quantitative and Qualitative Disclosures About Market Risk			54
Item 4. — Controls and Procedures			54
PART II — OTHER INFORMATION
Item 1. — Legal Proceedings			54
Item 1A. — Risk Factors			55
Item 2. — Unregistered Sales of Equity Securities and Use of Proceeds			55
Item 3. — Defaults Upon Senior Securities			55
Item 4. — (Removed and Reserved)			55
Item 5. — Other Information			55
Item 6. — Exhibits			55
SIGNATURES			62
EXHIBIT INDEX
Exhibit 10.48
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

PART I — FINANCIAL INFORMATION

ITEM 1. — FINANCIAL STATEMENTS

THE SHAW GROUP INC. AND SUBSIDIARIES

(In thousands, except per share amounts)

		Three Months Ended								Nine Months Ended
		2010				2009				2010				2009
Revenues		$	1,789,254			$	1,848,442			$	5,272,028			$	5,416,392
Cost of revenues			1,637,569				1,685,457				4,820,466				4,962,956
Gross profit			151,685				162,985				451,562				453,436
Selling, general and administrative expenses			74,726				78,634				222,823				222,144
Operating income			76,959				84,351				228,739				231,292
Interest expense			(1,322	)			(950	)			(4,122	)			(3,798	)
Interest expense on Japanese Yen-denominated bonds including accretion and amortization			(9,408	)			(39,450	)			(28,042	)			(60,170	)
Interest income			5,037				1,899				10,450				8,140
Foreign currency translation gains (losses) on Japanese Yen-denominated bonds, net			34,080				(33,224	)			(28,872	)			(163,485	)
Other foreign currency transaction gains, net			1,469				1,300				3,613				1,953
Other income (expense), net			2,509				347				5,262				(2,399	)
Income before income taxes and earnings (losses) from unconsolidated entities			109,324				14,273				187,028				11,533
Provision for income taxes			40,762				6,845				67,493				6,825
Income before earnings (losses) from unconsolidated entities			68,562				7,428				119,535				4,708
Income from 20% Investment in Westinghouse, net of income taxes			3,934				4,342				6,392				11,340
Earnings (losses) from unconsolidated entities, net of income taxes			(117	)			509				521				841
Net income			72,379				12,279				126,448				16,889
Noncontrolling interests in income of consolidated subsidiaries, net of tax			4,016				4,381				14,844				12,573
Net income attributable to Shaw		$	68,363			$	7,898			$	111,604			$	4,316
Net income attributable to Shaw per common share:
Basic		$	0.81			$	0.09			$	1.33			$	0.05
Diluted		$	0.79			$	0.09			$	1.30			$	0.05
Weighted average shares outstanding:
Basic			84,280				83,295				83,872				83,218
Diluted			86,121				84,647				85,672				84,225

The accompanying notes are an integral part of these consolidated financial statements.

THE SHAW GROUP INC. AND SUBSIDIARIES

(In thousands, except share amounts)

		May 31,				August 31,
		2010				2009
		(Unaudited)
ASSETS
Current assets
Cash and cash equivalents		$	454,435			$	1,029,138
Restricted and escrowed cash and cash equivalents			60,017				81,925
Short-term investments			839,850				342,219
Restricted short-term investments			277,751				80,000
Accounts receivable, net			856,603				815,862
Inventories			234,063				262,284
Costs and estimated earnings in excess of billings on uncompleted contracts, including claims			657,267				599,741
Deferred income taxes			292,465				270,851
Investment in Westinghouse			973,596				1,008,442
Prepaid expenses and other current assets			68,530				62,786
Total current assets			4,714,577				4,553,248
Investments in and advances to unconsolidated entities, joint ventures and limited partnerships			12,335				21,295
Property and equipment, net of accumulated depreciation of $278,819 and $250,796, respectively			469,811				385,606
Goodwill			498,428				501,305
Intangible assets			18,769				20,957
Deferred income taxes			13,420				—
Other assets			97,287				74,763
Total assets		$	5,824,627			$	5,557,174
LIABILITIES AND EQUITY
Current liabilities
Accounts payable		$	843,246			$	859,753
Accrued salaries, wages and benefits			124,574				175,750
Other accrued liabilities			225,109				187,020
Advanced billings and billings in excess of costs and estimated earnings on uncompleted contracts			1,444,222				1,308,325
Japanese Yen-denominated bonds secured by Investment in Westinghouse			1,417,361				1,387,954
Interest rate swap contract on Japanese Yen-denominated bonds			27,801				31,369
Short-term debt and current maturities of long-term debt			10,145				15,399
Total current liabilities			4,092,458				3,965,570
Long-term debt, less current maturities			1,064				7,627
Deferred income taxes			48,052				26,152
Other liabilities			97,891				109,835
Total liabilities			4,239,465				4,109,184
Contingencies and commitments (Note 11)
Shaw shareholders’ equity
Preferred stock, no par value, 20,000,000 shares authorized; no shares issued and outstanding			—				—
Common stock, no par value, 200,000,000 shares authorized; 90,198,885 and 89,316,057 shares issued, respectively; and 84,444,581 and 83,606,808 shares outstanding, respectively			1,265,348				1,237,727
Retained earnings			535,255				423,651
Accumulated other comprehensive loss			(142,644	)			(121,966	)
Treasury stock, 5,754,304 and 5,709,249 shares, respectively			(117,398	)			(116,113	)
Total Shaw shareholders’ equity			1,540,561				1,423,299
Noncontrolling interests			44,601				24,691
Total equity			1,585,162				1,447,990
Total liabilities and equity		$	5,824,627			$	5,557,174

The accompanying notes are an integral part of these consolidated financial statements.

THE SHAW GROUP INC. AND SUBSIDIARIES

(In thousands)

										Accumulated
						Treasury				Other								Total
		Common				Stock				Comprehensive				Retained				Shaw				Noncontrolling				Total
		Stock Amount				Amount				Loss				Earnings				Equity				Interests				Equity
Balance, August 31, 2008		$	1,204,914			$	(114,951	)		$	(9,609	)		$	409,376			$	1,489,730			$	29,082			$	1,518,812
Net income			—				—				—				4,316				4,316				12,573				16,889
Other comprehensive income (loss):
Foreign currency translation adjustments			—				—				(9,738	)			—				(9,738	)			—				(9,738	)
Change in unrealized net loss on hedging activities, net of tax			—				—				(10,625	)			—				(10,625	)			—				(10,625	)
Equity in Westinghouse’s pre-tax other comprehensive income, net of tax			—				—				(113,811	)			—				(113,811	)			—				(113,811	)
Pension liability, not yet recognized in net periodic pension expense, net of tax			—				—				(3,504	)			—				(3,504	)			—				(3,504	)
Total comprehensive income (loss)			—				—				—				—				(133,362	)			12,573				(120,789	)
Adjustment for Westinghouse’s cumulative effect upon initial adoption of SFAS 158, net of tax			—				—				—				(719	)			(719	)			—				(719	)
Exercise of options			740				—				—				—				740				—				740
Shares exchanged for taxes on stock based compensation			(274	)			(1,110	)			—				—				(1,384	)			—				(1,384	)
Tax benefits from stock based compensation			(1,134	)			—				—				—				(1,134	)			—				(1,134	)
Stock-based compensation			24,662				—				—				—				24,662				—				24,662
Distributions to noncontrolling parties, net			—				—				—				—				—				(18,606	)			(18,606	)
Balance, May 31, 2009		$	1,228,908			$	(116,061	)		$	(147,287	)		$	412,973			$	1,378,533			$	23,049			$	1,401,582
Balance, August 31, 2009		$	1,237,727			$	(116,113	)		$	(121,966	)		$	423,651			$	1,423,299			$	24,691			$	1,447,990
Net income			—				—				—				111,604				111,604				14,844				126,448
Other comprehensive income:
Foreign currency translation adjustments			—				—				(11,348	)			—				(11,348	)			—				(11,348	)
Change in unrealized net loss on hedging activities, net of tax			—				—				2,191				—				2,191				—				2,191
Equity in Westinghouse’s pre-tax other comprehensive income, net of Shaw’s tax			—				—				(13,402	)			—				(13,402	)			—				(13,402	)
Pension liability, not yet recognized in net periodic pension expense, net of tax			—				—				2,429				—				2,429				—				2,429
Unrealized loss on securities, net of tax			—				—				(548	)			—				(548	)			—				(548	)
Total comprehensive income			—				—				—				—				90,926				14,844				105,770
Exercise of options			6,822				—				—				—				6,822				—				6,822
Shares exchanged for taxes on stock based compensation			(6,213	)			(1,285	)			—				—				(7,498	)			—				(7,498	)
Tax benefits from stock based compensation			1,031				—				—				—				1,031				—				1,031
Stock-based compensation			25,981				—				—				—				25,981				—				25,981
Acquisition of noncontrolling parties			—				—				—				—				—				10,027				10,027
Distributions to noncontrolling parties, net			—				—				—				—				—				(4,961	)			(4,961	)
Balance, May 31, 2010		$	1,265,348			$	(117,398	)		$	(142,644	)		$	535,255			$	1,540,561			$	44,601			$	1,585,162

The accompanying notes are an integral part of these consolidated financial statements.

THE SHAW GROUP INC. AND SUBSIDIARIES

(In thousands)

		2010				2009
Cash flows from operating activities
Net income		$	126,448			$	16,889
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			45,423				40,608
Provision for (benefit from) deferred income taxes			14,790				(68,853	)
Stock-based compensation expense			25,981				24,662
Earnings from unconsolidated entities, net of tax			(6,913	)			(12,181	)
Distributions from unconsolidated entities			14,679				28,894
Foreign currency transaction losses, net			25,259				161,532
Amortization of original issue discount and deferred offering costs on Westinghouse bonds			—				34,991
Other noncash items			9,937				3,251
Changes in assets and liabilities, net of effects of acquisitions and consolidation of variable interest entities:
Increase in receivables			(46,913	)			(198,621	)
Increase in costs and estimated earnings in excess of billings on uncompleted contracts, including claims			(56,778	)			(22,809	)
(Increase) decrease in inventories			28,065				(10,054	)
Increase in other current assets			(15,011	)			(4,962	)
Decrease in accounts payable			(8,928	)			(16,267	)
Increase (decrease) in accrued liabilities			(50,821	)			2,849
Increase in advanced billings and billings in excess of costs and estimated earnings on uncompleted contracts			141,802				465,526
Net change in other assets and liabilities			1,826				16,249
Net cash provided by operating activities			248,846				461,704
Cash flows from investing activities
Purchases of property and equipment			(152,234	)			(95,341	)
Proceeds from sale of businesses and assets, net of cash surrendered			22,910				25,120
Investments in, advances to and return of equity from unconsolidated entities and joint ventures			15,197				(1,170	)
Purchases of variable interest entity debt			(19,915	)			—
Cash withdrawn from restricted and escrowed cash			122,244				136,046
Cash deposited into restricted and escrowed cash			(98,967	)			(274,165	)
Purchases of short-term investments			(1,032,078	)			—
Proceeds from sale and redemption of short-term investments			549,306				—
Purchases of restricted short-term investments			(195,109	)			—
Net cash used in investing activities			(788,646	)			(209,510	)
Cash flows from financing activities
Purchase of treasury stock			(1,285	)			(1,110	)
Repayment of debt and capital leases			(18,452	)			(6,028	)
Payment of deferred financing costs			(9,716	)			(2,753	)
Issuance of common stock			6,822				740
Excess tax benefits from exercise of stock options and vesting of restricted stock			1,830				77
(Distributions paid to) contributions received from noncontrolling interests, net			(4,961	)			(18,606	)
Net cash used in financing activities			(25,762	)			(27,680	)
Effects of foreign exchange rate changes on cash			(9,141	)			(1,932	)
Net change in cash and cash equivalents			(574,703	)			222,582
Cash and cash equivalents — beginning of year			1,029,138				927,756
Cash and cash equivalents — end of period		$	454,435			$	1,150,338

The accompanying notes are an integral part of these consolidated financial statements.

THE SHAW GROUP INC. AND SUBSIDIARIES

Note 1 — General Information

The Shaw Group Inc. (a Louisiana corporation) and its wholly-owned and majority-owned subsidiaries (collectively referred to herein as the Company, Shaw, we, us or our) is a leading global provider of technology, engineering, procurement, construction, maintenance, fabrication, manufacturing, consulting, remediation and facilities management services to a diverse client base that includes multinational oil companies and industrial corporations, regulated electric utilities, independent and merchant power producers, government agencies and equipment manufacturers. We have developed and acquired significant intellectual property, including downstream petrochemical technologies, induction pipe bending technology and environmental decontamination technologies.

We have evaluated all events and transactions occurring after the balance sheet date but before the financial statements were issued and have included the appropriate disclosures in this Quarterly Report on Form 10-Q.

Basis of Presentation

In the opinion of management, the accompanying balance sheets and related interim statements of operations, cash flows and changes in shareholders’ equity include all adjustments, consisting only of normal recurring items necessary for their fair presentation in conformity with United States (U.S.) generally accepted accounting principles (GAAP). Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Examples of such estimates and assumptions include the percentage of completion method of revenue recognition, unapproved change orders and claims, estimates of loss contingencies, stock-based compensation forfeiture rates, the potential outcome of future tax consequences of events that have been recognized in our financial statements or tax returns, estimates of the fair value and/or goodwill impairment for our reporting units and determining when investment impairments are other-than-temporary. Actual results and outcomes may differ from management’s estimates and assumptions.

Interim results are not necessarily indicative of results for a full year. These unaudited consolidated financial statements should be read in conjunction with the audited financial statements and the notes thereto included in our Annual Report on Form 10-K for the fiscal year ended August 31, 2009 (2009 Form 10-K) filed with the Securities and Exchange Commission (SEC).

Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents.

Marketable Securities

We categorize our marketable securities as either “trading” or “available-for-sale.” These investments are recorded at fair value and are classified as short-term investments in the accompanying consolidated balance sheets. Investments are made based on the Company’s investment policy and restrictions contained in our credit facility, which specifies eligible investments and credit quality requirements.

Trading securities are investments held in trust to satisfy obligations under our deferred compensation plans. The changes in fair values on trading securities are recorded as a component of net income in other income (expense), net.

Available-for-sale securities consist of money market mutual funds, U.S. government and agency obligations, corporate notes and bonds, foreign government and foreign government guaranteed securities and certificates of deposit at major banks. The changes in fair values, net of applicable taxes, on available-for-sale securities are recorded as unrealized gains (losses) as a component of accumulated other comprehensive income (loss) in stockholders’ equity. When fair value of an investment decreases below its cost or amortized cost and in management’s opinion that decline is “other-than-temporary,” the investment’s cost or amortized cost is written down to its fair value and the amount written down is recorded in the statement of operations in other income (expense), net. Management usually considers a decline “other than temporary” if, among other relevant factors, the fair value is significantly below cost for a period of time. The amount of any write-down is determined by the difference between cost or amortized cost of the investment and its fair value at the time management makes the other-than-temporary determination. During the three months ended May 31, 2010, no other-than-temporary impairment was recognized.

Foreign Currency Translation

The majority of our foreign subsidiaries conduct business in their local currencies. Our financial statements report results in U.S. Dollars (USD) and include the results of these subsidiaries translated into USD. Our accounting policy for foreign currency translation is different depending on whether the economy in which our foreign subsidiary operates has been designated by management as highly inflationary or not. Economies with a three-year cumulative inflation rate of more than 100% are considered highly inflationary. Beginning December 1, 2009, we designated Venezuela’s economy as highly inflationary, and we consolidate our Venezuelan subsidiaries’ results subsequent to that date using our accounting policy for subsidiaries operating in highly inflationary economies. Venezuela’s change in designation to highly inflationary had no material impact on our consolidated statement of operations or financial position, as our operations in Venezuela are immaterial to our worldwide operations.

Recently Adopted Accounting Standards

In June 2009, the Financial Accounting Standards Board (FASB) issued the Accounting Standards Codification ™ (ASC) as the sole source of authoritative nongovernmental GAAP. The ASC supersedes all non-grandfathered, non-SEC accounting literature but does not change how we account for transactions or the nature of related disclosures made. When referring to guidance issued by the FASB, we now reference ASC topics rather than individual pronouncements. This change affects financial statements issued for interim and annual periods ending after September 15, 2009 and did not have a material effect on our consolidated financial statements.

On September 1, 2009, we adopted authoritative guidance for business combinations in accordance with ASC 805, “Business Combinations.” The guidance retains the fundamental requirements that companies use the acquisition method of accounting (previously referred to as the purchase method of accounting) for all business combinations but introduced a number of changes, including the way assets and liabilities are valued, recognized and measured as a result of business combinations. ASC 805 requires an acquisition date fair value measurement of assets acquired and liabilities assumed. It also requires the fair value capitalization of in-process research and development and requires acquisition-related costs to be expensed as incurred. Adoption of ASC 805 did not have a material impact on our consolidated financial statements.

On September 1, 2009, we adopted authoritative guidance that changes the accounting and reporting for non-controlling interests in accordance with ASC 810, “Consolidation.” Non-controlling interests are now reported as a component of equity separate from the parent’s equity, and purchases or sales of equity interests that do not result in a change in control are to be accounted for as equity transactions. In addition, net income attributable to a non-controlling interest is now included in net income, and upon a loss of control, the interest sold, as well as any interest retained, is now recorded at fair value with any gain or loss recognized in net income. Adoption of ASC 810 did not have a material impact on our consolidated financial statements.

On September 1, 2009, we adopted the authoritative guidance on fair value measurement for nonfinancial assets and liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually) in accordance with ASC 820, “Fair Value Measurements and Disclosures.” Adoption of ASC 820 did not have a material impact on our consolidated financial statements.

On September 1, 2009, we adopted Accounting Standards Update (ASU) 2009-05, “Measuring Liabilities at Fair Value.” ASU 2009-05, issued August 2009, provides amendments to ASC 820, “Fair Value Measurements and Disclosure,” for the fair value measurement of liabilities. Adoption of ASU 2009-05 had no impact on our consolidated financial statements.

On September 1, 2009, we adopted authoritative guidance on share-based payments in accordance with ASC 260, “Earnings per Share.” ASC 260 addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and therefore, need to be included in the earnings allocation in computing earnings per share. Adoption of ASC 260 had no impact on our consolidated financial statements.

On September 1, 2009, we adopted authoritative guidance on accounting for nonrefundable maintenance deposits in accordance with ASC 840, “Leases.” ASC 840 requires a maintenance deposit paid by a lessee under an arrangement accounted for as a lease and refunded only if the lessee performs specified maintenance activities, to be accounted for as a deposit asset. Adoption of ASC 840 did not have a material impact on our consolidated financial statements.

On September 1, 2009, we adopted authoritative guidance for collaborative arrangements in accordance with ASC 808, “Collaborative Arrangements.” ASC 808 applies to participants in collaborative arrangements that are conducted without the creation of a separate legal entity for the arrangement. Adoption of ASC 808 had no impact on our consolidated financial statements.

On September 1, 2009, we adopted authoritative guidance on pension disclosures in accordance ASC 715, “Compensation — Retirement Benefits.” ASC 715 provides guidance on an employer’s disclosures about plan assets of a defined benefit pension or other postretirement plan. The additional disclosure requirements include expanded disclosure about an entity’s investment policies and strategies, the categories of plan assets, concentrations of credit risk and fair value measurements of plan assets. ASC 715 is effective for our fiscal year ending August 31, 2010. We will amend our disclosures accordingly beginning with our consolidated financial statements included in our fiscal year 2010 Form 10-K.

On September 1, 2009, we adopted authoritative guidance on fair value disclosures in accordance with ASC 825, “Financial Instruments.” ASC 825 requires disclosures about fair value of financial instruments in interim financial statements as well as in annual financial statements. Adoption of ASC 825 did not have a material impact on our consolidated financial statements.

On February 1, 2010, we adopted ASU 2010-02, “Consolidation (Topic 810) — Accounting and Reporting for Decreases in Ownership of a Subsidiary — A Scope Clarification.” ASU 2010-02, issued January 2010, clarifies the scope of the decrease in ownership provisions of Subtopic 810-10 and related guidance. The amendments in ASU 2010-02 expand the disclosure requirements about deconsolidation of a subsidiary or derecognition of a group of assets. ASU 2010-02 was effective beginning in the first interim or annual reporting period ending on or after December 15, 2009, and should be applied retrospectively to the first period that an entity adopts FASB Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements — an Amendment of ARB 51 (now included in Subtopic 810-10). Adoption of ASU 2010-02 had no impact on our consolidated financial statements as we have had no such decreases in ownership of our subsidiaries.

On February 1, 2010, we adopted ASU 2010-01, “Equity (Topic 505) — Accounting for Distributions to Shareholders with Components of Stock and Cash.” ASU 2010-01, issued January 2010, clarifies that the stock portion of a distribution to shareholders that allows them to elect to receive cash or stock with a potential limitation on the total amount of cash that all shareholders can elect to receive in the aggregate is considered a share issuance that is reflected in earnings per share prospectively and is not a stock dividend. ASU 2010-01 is effective for interim and annual periods ending on or after December 15, 2009, and should be applied on a retrospective basis. Adoption of ASU 2010-01 had no impact on our consolidated financial statements.

On March 1, 2010, we adopted ASU 2010-06, “Improving Disclosure about Fair Value Measurements.” ASU 2010-06, issued January 2010, requires additional disclosures regarding fair value measurements, amends disclosures about post-retirement benefit plan assets and provides clarification regarding the level of disaggregation of fair value disclosures by investment class. The ASU is effective for interim and annual reporting periods beginning after December 15, 2009, except for certain Level 3 activity disclosure requirements that will be effective for reporting periods beginning after December 15, 2010. Adoption of ASU 2010-06 did not have a material impact on our consolidated financial statements.

Recent Accounting Guidance Not Yet Adopted

In October 2009, the FASB issued ASU 2009-13, “Multiple Deliverable Revenue Arrangements, a consensus of the FASB Emerging Issues Task Force.” This update provides amendments to the criteria of ASC 605, “Revenue Recognition,” for separating consideration in multiple-deliverable arrangements. The amendments to this update establish a hierarchy for determining the selling price of a deliverable. ASU 2009-13 is effective prospectively for financial statements issued for years beginning on or after June 15, 2010. We are currently evaluating the impact that the adoption of ASU 2009-13 will have on our consolidated financial statements but do not expect the adoption will have a material impact on our consolidated financial statements.

In June 2009, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 167, “Amendments to FASB Interpretation No. (FIN) 46(R),” codified as ASU 2009-17. ASU 2009-17 amends FIN 46R and requires a company to perform an analysis to determine whether its interest in a variable interest entity gives it a controlling financial interest. This analysis requires a company to assess whether it has the power to direct the activities of the variable interest entity and if it has the obligation to absorb losses or the right to receive benefits that could potentially be significant to the variable interest entity. ASU 2009-17 eliminates the quantitative approach previously required for determining the primary beneficiary of a variable interest entity, requires an ongoing reassessment of whether a company is the primary beneficiary of a variable interest entity and significantly enhances disclosures. ASU 2009-17 may be applied retrospectively in previously issued financial statements with a cumulative-effect adjustment to retained earnings as of the beginning of the first year restated. ASU-17 is effective for fiscal years beginning after November 15, 2009. We are currently evaluating the impact that the adoption of ASU 2009-17 will have on our consolidated financial statements.

Reclassifications

Certain prior year balances have been reclassified to conform to the current year’s presentation. Such reclassifications had no impact on total revenues, operating income or net income.

Note 2 — Cash, Cash Equivalents and Short-term Investments

We consider all highly liquid investments with original maturities of three months or less to be cash equivalents.

Our major categories of investments are as follows:

Money market mutual funds — We invest in money market funds that seek to maintain a stable net asset value of $1 per share, while limiting overall exposure to credit, market and liquidity risks.

Certificates of deposit — Certificates of deposit are short-term interest-bearing debt instruments issued by various financial institutions with which we have an established banking relationship.

U.S. government and agency securities — We invest in U.S. government secured debt instruments that are publicly traded and valued.

Foreign government and foreign government guaranteed securities — We invest in foreign government and foreign government guaranteed securities that are publicly traded and valued. Losses in this category are primarily due to market liquidity and interest rate increases.

Corporate notes and bonds — We evaluate our corporate debt securities based on a variety of factors including, but not limited to, the credit rating of the issuer. On the date of settlement, our corporate debt securities are rated at least “A” by Standard & Poors Rating Service (S&P) and have maturities not exceeding two years. Losses in this category are due primarily to market liquidity and interest rate increases.

At May 31, 2010, the components of our cash, cash equivalents and short-term investments were as follows (in thousands):

																		Balance Sheet
																		Classification
																		Cash and
		Cost				Unrealized				Unrealized				Recorded				Cash				Short-term
		Basis				Gain				(Loss)				Basis				Equivalents				Investments
Cash		$	285,878			$	—			$	—			$	285,878			$	285,878			$	—
Money market mutual funds			139,490				—				—				139,490				139,490				—
Certificates of deposit			355,989				—				—				355,989				29,067				326,922
Available-for-sale debt securities:
U.S. government and agency securities			19,591				74				—				19,665				—				19,665
Foreign government and foreign government guaranteed securities			117,965				231				(113	)			118,083				—				118,083
Corporate notes and bonds			376,265				377				(1,462	)			375,180				—				375,180
Total		$	1,295,178			$	682			$	(1,575	)		$	1,294,285			$	454,435			$	839,850

Gross realized gains and losses from sales of available-for-sale securities are determined using the specific identification method and are included in “other income (expense), net.” During the three and nine months ended May 31, 2010, the proceeds and realized gains and losses were as follows (in thousands):

		Three Months				Nine Months
		Ended				Ended
Proceeds		$	35,139			$	84,427
Realized gains		$	38			$	125
Realized losses		$	(21	)		$	(21	)

There were no transfers of securities from one category to another during the three and nine months ended May 31, 2010.

We evaluate whether unrealized losses on investments in securities are other-than-temporary, and if we believe the unrealized losses are other-than-temporary, we record an impairment charge. No other-than-temporary impairment losses were recognized during the three and nine months ended May 31, 2010.

Gross unrealized losses on investment securities and the fair value of those securities that have been in a continuous loss position for which we have not recognized an impairment charge at May 31, 2010 were as follows (in thousands):

		Less than 12 Months
		Fair				Unrealized
		Value				Loss
Available-for-sale:
Foreign government guaranteed securities		$	7,259			$	(16	)
Corporate notes and bonds			63,936				(735	)
		$	71,195			$	(751	)

At May 31, 2010, maturities of debt securities classified as available-for-sale were as follows (in thousands):

		Cost				Estimated
		Basis				Fair Value
Due in one year or less		$	117,100			$	117,047
Due in one to two years			396,721				395,881
		$	513,821			$	512,928

See Note 3 for information on our restricted and escrowed cash and equivalents and restricted short-term investments.

Note 3 — Restricted and Escrowed Cash and Equivalents and Restricted Short-term Investments

At May 31, 2010, the components of our restricted and escrowed cash and restricted short-term investments were as follows (in thousands):

										Balance Sheet
										Classification
										Restricted and
						Holding				Escrowed Cash				Restricted
		Recorded				Period				and Cash				Short-term
		Basis				(Loss)				Equivalents				Investments
Cash		$	19,526			$	—			$	19,526			$	—
Money market mutual funds			40,491				—				40,491				—
Certificates of deposit			251,749				—				—				251,749
Trading securities:
Stock and bond mutual funds			8,206				(807	)			—				8,206
U.S. government agency and corporation securities			4,383				(94	)			—				4,383
Corporate bonds and notes			13,413				(290	)			—				13,413
Total		$	337,768			$	(1,191	)		$	60,017			$	277,751

At May 31, 2010 and August 31, 2009, our restricted and escrowed cash and equivalents and restricted short-term investments were restricted for the following (in thousands):

		May 31, 2010				August 31, 2009
Contractually required by projects		$	8,507			$	23,111
Voluntarily used to secure letters of credit			265,525				138,085
Secure contingent obligations in lieu of letters of credit			25,461				—
Held in trust to satisfy obligations under certain deferred compensation plans			27,256				—
Other			11,019				728
		$	337,768			$	161,924

We are able to access cash we posted to secure various letters of credit by delivering to a third party a new letter of credit under our credit facility.

Note 4 — Accounts Receivable, Concentrations of Credit Risk and Inventories

Accounts Receivable

Our accounts receivable, net of allowance for doubtful accounts, were as follows (in thousands):

		May 31, 2010				August 31, 2009
Trade accounts receivable, net		$	661,170			$	671,324
Unbilled accounts receivable			27,609				11,382
Retainage			167,824				133,156
Accounts receivable, net		$	856,603			$	815,862

Analysis of the change in the allowance for doubtful accounts follows (in thousands):

Beginning balance, August 31, 2009		$	28,269
Provision			7,878
Write offs			(8,379	)
Other			(899	)
Ending balance, May 31, 2010		$	26,869

Included in our trade accounts receivable, net at May 31, 2010 and August 31, 2009, were approximately $9.0 million of outstanding invoices due from a local government entity resulting from revenues earned in providing disaster relief, emergency response and recovery services. The local government entity has challenged the appropriateness of our invoiced amounts, and we are currently in litigation with the government entity. The amounts we ultimately collect could differ materially from amounts currently recorded.

Concentrations of Credit

Amounts due from U.S. government agencies or related entities were $101.1 million and $110.3 million at May 31, 2010 and August 31, 2009, respectively.

Costs and estimated earnings in excess of billings on uncompleted contracts includes $313.0 million and $217.1 million at May 31, 2010 and August 31, 2009, respectively, related to U.S. government agencies or related entities.

Inventories

Major components of inventories were as follows (in thousands):

		May 31, 2010												August 31, 2009
		Weighted												Weighted
		Average				FIFO				Total				Average				FIFO				Total
Raw Materials		$	12,452			$	98,208			$	110,660			$	13,940			$	110,469			$	124,409
Work in Process			2,348				32,516				34,864				2,778				40,923				43,701
Finished Goods			88,539				—				88,539				94,174				—				94,174
		$	103,339			$	130,724			$	234,063			$	110,892			$	151,392			$	262,284

Note 5 — Equity Method Investments

We execute certain contracts with third parties through joint ventures, limited partnerships and limited liability companies. If a joint venture is determined to be a variable interest entity (VIE) as defined by ASC 810 and we are the primary beneficiary, the joint venture is consolidated in accordance with ASC 810. If consolidation of the VIE or joint venture is not required, we generally account for these joint ventures using the equity method of accounting with our share of the earnings (losses) from these investments reflected on one line in the consolidated statement of operations.

Our significant unconsolidated subsidiary that is accounted for using the equity method of accounting is our investment in Westinghouse (Investment in Westinghouse). On October 16, 2006, we acquired a 20% equity interest (Westinghouse Equity) in two companies, which, together with their subsidiaries, are collectively referred to as the Westinghouse Group (Westinghouse) for approximately $1.1 billion. We financed this investment partially through our subsidiary Nuclear Energy Holdings, LLC (NEH), issuing limited recourse to us (except NEH) Japanese Yen (JPY)-denominated bonds (Westinghouse Bonds) for USD equivalent of approximately $1.0 billion. The various agreements are described in Note 6 of our 2009 Form 10-K.

In connection with our Investment in Westinghouse, we entered into JPY-denominated Put Option Agreements (Put Option) with Toshiba Corporation (Toshiba), providing us the option to sell to Toshiba all or part of our Westinghouse Equity during a defined “Exercise Period.” Per the Put Option, the Exercise Period commenced upon the occurrence of a “Toshiba Event” which is caused by, among other things, certain Toshiba financial metrics. Toshiba notified us on May 11, 2009, that it experienced a Toshiba Event as of May 8, 2009, because it failed to maintain a minimum consolidated net worth, as defined in the Put Option, of JPY 800 billion. Due to the Toshiba Event, the Westinghouse Bond holders, who maintain a security interest in the Put Option, now have the opportunity to direct us to exercise the Put Option.

Under GAAP, the Put Option is not considered a freestanding financial instrument or a derivative instrument and, consequently, is not separated from our equity investment in Westinghouse. Therefore, neither the Put Option nor its foreign currency component is revalued at current exchange rates. However, the JPY-denominated Westinghouse Bonds must be revalued at each quarter’s end to USD at current exchange rates.

See Note 7 — Debt and Revolving Lines of Credit for additional information regarding our Investment in Westinghouse, the Put Option and the Toshiba Event.

Westinghouse maintains its accounting records for reporting to its majority owner, Toshiba, and us on a calendar quarter basis with a March 31 fiscal year end. Consequently, we record our 20% interest of the equity earnings (loss) and other comprehensive income (loss) reported to us by Westinghouse two months in arrears of our current periods. Under this policy, Westinghouse’s operating results for the three and nine months ended March 31, 2010 and 2009 are included in our financial results for the three and nine months ended May 31, 2010 and 2009, respectively.

Summarized unaudited income statement information for Westinghouse, before applying our Westinghouse Equity Interest, was as follows (in thousands):

		Three Months Ended								Nine Months Ended
		March 31,				March 31,				March 31,				March 31,
		2010				2009				2010				2009
		(unaudited)				(unaudited)				(unaudited)				(unaudited)
Revenues		$	1,248,356			$	1,167,804			$	3,233,102			$	2,606,308
Gross profit			305,704				244,007				694,791				551,695
Income before income taxes			95,794				50,759				132,889				79,056
Net income (loss)			52,529				32,234				72,543				43,732

As part of our Investment in Westinghouse, we entered into shareholder agreements on October 4, 2006 that set a target minimum dividend of approximately $24.0 million annually for the first six years we hold our Westinghouse Equity. Under the shareholder agreements, the shareholders are due to receive as dividends agreed percentages of no less than 65%, but not to exceed 100%, of Westinghouse’s net income. If the shareholders receive less than the target minimum dividend amount in any year during the first six years, the shortfall accrues to the extent Westinghouse earns net income in the future. Our right to receive any shortfalls between the target minimum dividend amount and the dividends actually paid by Westinghouse during the first six years of our investment (or such shorter period in the event of earlier termination) survives the sale of our Westinghouse Equity, although this right is dependent upon Westinghouse earning net income at some future time. We have received dividends totaling $59.9 million to date. At May 31, 2010, the dividend shortfall totaled $12.1 million.

Our investments in and advances to unconsolidated entities, joint ventures and limited partnerships and our overall percentage ownership of those ventures that are accounted for under the equity method were as follows (in thousands, except percentages):

		Ownership				May 31,				August 31,
		Percentage				2010				2009
Investment in Westinghouse			20	%		$	973,596			$	1,008,442
Other			23% – 50	%			12,335				21,295
Total investments in and advances to unconsolidated entities, joint ventures and limited partnerships						$	985,931			$	1,029,737

Earnings from unconsolidated entities, net of income taxes, for the three months and nine months ended May 31, 2010 and May 31, 2009, are summarized as follows (in thousands):

		Three Months Ended								Nine Months Ended
		2010				2009				2010				2009
Investment in Westinghouse, net of income taxes of $6,572, $2,105, $8,117 and $(2,594), respectively		$	3,934			$	4,342			$	6,392			$	11,340
Other unconsolidated entities, net of income taxes of $(74), $325, $328 and $539, respectively			(117	)			509				521				841
Total earnings from unconsolidated entities, net of income taxes		$	3,817			$	4,851			$	6,913			$	12,181

In December 2009, we purchased a loan from a third party for $19.9 million that was due from a VIE accounted for under the equity method. The purchase of the loan resulted in an additional variable interest in the entity and we consolidated the entity effective December 2009.

Note 6 — Goodwill and Other Intangible Assets

Goodwill

Goodwill is reviewed at least annually for impairment by comparing the fair value of each reporting unit with its carrying value (including attributable goodwill). The estimated fair value for our reporting units is calculated based on the average of the projected discounted cash flows and the estimated market value of each reporting unit at the date we perform the impairment tests (implied fair value). Inherent in the development of the discounted cash flow projections are assumptions and estimates derived from a review of our expected revenue growth rates, profit margins, business plans, cost of capital and tax rates. We also make certain assumptions about the future market conditions our reporting units operate in, market prices, interest rates and changes in business strategies.

In accordance with current accounting guidance, we identified seven reporting units for the purpose of conducting our goodwill impairment review. In determining our reporting units, we considered (i) whether an operating segment or a component of an operating segment was a business, (ii) whether discrete financial information was available, and (iii) whether the financial information is regularly reviewed by management of the operating segment. We evaluated the carrying value of our goodwill at March 1, 2010, and our annual review did not indicate an impairment of goodwill for any of our reporting units. The excess of the fair value of our reporting units over their respective carrying values ranged from 12% to 107%. The reporting unit with 12% excess of fair value over carrying value has approximately $70.2 million of goodwill allocated to it. The discounted cash flow projections of this reporting unit benefited from recent awards.

Changes in assumptions or estimates used in our goodwill impairment testing could materially affect the determination of the fair value of a reporting unit, and therefore could eliminate the excess of fair value over carrying value of a reporting unit and, in some cases, could result in impairment. Such changes in assumptions could be caused by a loss of one or more significant contracts, reductions in government and/or private industry spending or a decline in the demand for our services due to changing economic conditions. Given the nature of our business, if we are unable to win or renew contracts, unable to estimate and control our contract costs, fail to adequately perform to our clients’ expectations, fail to procure third-party subcontractors, heavy equipment and materials or fail to adequately secure funding for our projects, our profits, revenues and growth over the long-term would decline and such a decline could significantly affect the fair value assessment of our reporting units and cause our goodwill to become impaired.

The following table reflects the changes in the carrying value of goodwill by segment from August 31, 2009 to May 31, 2010 (in thousands):

		Fossil,
		Renewables
		& Nuclear				Maintenance				E&I				E&C				F&M				Total
Balance at August 31, 2009		$	139,177			$	42,027			$	189,808			$	112,575			$	17,718			$	501,305
Currency translation adjustments			—				—				—				(1,356	)			(1,521	)			(2,877	)
Balance at May 31, 2010		$	139,177			$	42,027			$	189,808			$	111,219			$	16,197			$	498,428

We had tax-deductible goodwill of approximately $80.9 million and $92.1 million at May 31, 2010 and August 31, 2009, respectively. The difference between the carrying value of goodwill and the amount deductible for taxes is primarily due to the amortization of goodwill allowable for tax purposes.

Other Intangible Assets

The gross carrying values and accumulated amortization of amortizable intangible assets are presented below (in thousands):

		Proprietary Technologies,
		Patents and Tradenames								Customer Relationships
		Gross Carrying				Accumulated				Gross Carrying				Accumulated
		Amount				Amortization				Amount				Amortization
Balance at August 31, 2009		$	43,954			$	(23,534	)		$	2,016			$	(1,479	)
Adjustments			—				45				—				—
Amortization			—				(2,082	)			—				(151	)
Balance at May 31, 2010		$	43,954			$	(25,571	)		$	2,016			$	(1,630	)

The following table presents the scheduled future annual amortization for our customer relationships and intangible assets (in thousands):

		Proprietary Technologies,				Customer
		Patents and Tradenames				Relationships
Remainder of fiscal 2010		$	693			$	50
2011			2,772				202
2012			2,770				134
2013			2,766				—
2014			2,766				—
Thereafter			6,616				—
Total		$	18,383			$	386

Note 7 —Debt and Revolving Lines of Credit

Our debt (including capital lease obligations) at May 31, 2010 and August 31, 2009, consisted of the following (in thousands):

		May 31, 2010								August 31, 2009
		Short-term				Long-term				Short-term				Long-term
Notes payable on purchases of equipment; 0% to 1.3% interest; payments discounted at imputed rate of 5.9% interest; due September 2010 through April 2011		$	7,947			$	—			$	10,610			$	2,146
Notes payable on purchases of equipment; 5.2% to 6.0% interest; due June 2011 through July 2012, and paid in full October 2009			—				—				1,188				1,824
Other notes payable			1,671				—				2,805				2,277
Capital lease obligations			527				1,064				796				1,380
Subtotal			10,145				1,064				15,399				7,627
Westinghouse Bonds (see description below)			1,417,361				—				1,387,954				—
Total		$	1,427,506			$	1,064			$	1,403,353			$	7,627

Westinghouse Bonds

To partially finance our Investment in Westinghouse, in the first quarter of fiscal year 2007, our subsidiary NEH issued JPY-denominated Westinghouse Bonds for USD equivalent net proceeds of approximately $1.0 billion. The Westinghouse Bonds are limited recourse to us (except NEH) and are collateralized primarily by the Westinghouse Equity and the Put Option. We entered into the JPY-denominated Put Option which, if exercised, requires Toshiba to pay us at least JPY 124.7 billion (approximately 97% of our original JPY-equivalent purchase price), and under certain circumstances, up to JPY 129.0 billion, which must be used to repay the Westinghouse Bonds.

As discussed in Note 5 — Equity Method Investments, in May 2009 Toshiba failed to maintain a minimum consolidated net worth of JPY 800 billion, which was a “Toshiba Event” under the Put Option and triggered the Exercise Period, allowing us to exercise the Put Option at any time through February 28, 2013. A Toshiba Event is not an “event of default” or other violation of the Bond Trust Deed or the Put Option, but due to the Toshiba Event, the Westinghouse Bond holders now have the opportunity to direct us to exercise the Put Option. To do so, a supermajority of the holders representing a majority of not less than an aggregate 75% of the principal amount outstanding must pass a resolution instructing the bond trustee to direct us to exercise the Put Option. Specifically, in order for the bond trustee to direct us to exercise the Put Option, the Westinghouse Bond holders must convene a meeting with a quorum of holders representing no less than 75% of the Westinghouse Bonds’ principal amount outstanding during which a 75% majority of the required quorum approves a resolution instructing the bond trustee to take such action. Alternatively, a written resolution instructing the bond trustee to direct us to exercise the Put Option and signed by holders representing no less than 75% of the Westinghouse Bond principal amount outstanding shall have the same effect (collectively, an “Extraordinary Resolution”).

If we decide to exercise the Put Option due to the Toshiba Event or an Extraordinary Resolution directs us to exercise the Put Option, Toshiba is required to pay us approximately JPY 129.0 billion (equal to 100% of the face value of the Westinghouse Bonds currently outstanding). However, if we exercise the Put Option under other provisions of the Put Option, we would be required to fund the estimated 3% difference (equal to JPY 4.3 billion, or approximately $46.8 million using exchange rates at May 31, 2010) between the anticipated Put Option proceeds and the principal amount owed on the Westinghouse Bonds. If the Put Option expires unexercised on February 28, 2013, we will be required to repay the Westinghouse Bonds using some combination of internally generated cash flows, additional or new borrowings or proceeds from the issuance of equity. We may not be able to obtain credit in the future on terms similar to the terms reflected in the Westinghouse Bonds should we elect to pursue such financing.

In connection and concurrent with the acquisition of our Investment in Westinghouse, we also executed a Commercial Relationship Agreement (CRA) with Toshiba that provides us with certain exclusive opportunities to bid on projects where we would perform engineering, procurement and construction services on future Westinghouse advanced passive AP1000^TM nuclear power plants, along with other commercial opportunities, such as the supply of piping for those units. Neither our nor Toshiba’s obligations under the CRA will be affected should we exercise the Put Option at the direction of an Extraordinary Resolution through its expiration in 2013.

At May 31, 2010 and August 31, 2009, the Westinghouse Bonds were as follows (in thousands):

		May 31,				August 31,
		2010				2009
Westinghouse Bonds, face value JPY 50.98 billion due March 15, 2013; interest only payments; coupon rate of 2.20%		$	426,875			$	426,875
Westinghouse Bonds, face value JPY 78 billion due March 15, 2013; interest only payments; coupon rate of 0.70% above the six-month JPY LIBOR rate (0.45% and 0.60% at May 31, 2010 and August 31, 2009, respectively)			653,125				653,125
Increase in debt due to foreign currency translation adjustments since date of issuance			337,361				307,954
Total Westinghouse debt		$	1,417,361			$	1,387,954

On October 16, 2006, we entered into an interest rate swap agreement through March 15, 2013 in the aggregate notional amount of JPY 78 billion. We designated the swap as a hedge against changes in cash flows attributable to changes in the benchmark interest rate. Under the agreement, we make fixed interest payments at a rate of 2.398%, and we receive a variable interest payment equal to the six-month JPY London Interbank Offered Rate (LIBOR) plus a fixed margin of 0.7%, effectively fixing our interest rate on the floating rate portion of the JPY 78 billion Westinghouse Bonds at 2.398%. At May 31, 2010 and August 31, 2009, the fair value of the swap totaled approximately $27.8 million and $31.4 million, respectively, and is included as a current liability and in accumulated other comprehensive loss, net of deferred taxes, in the accompanying consolidated balance sheets. There was no material ineffectiveness of our interest rate swap for the period ended May 31, 2010.

Credit Facility

On April 25, 2005, we entered into a five year $450.0 million Senior Secured Credit Facility (Facility), which we have subsequently amended on a number of occasions in response to our evolving credit needs. From the effective date, the Facility has been available for issuing performance letters of credit and financial letters of credit as well as revolving credit loans. The terms “performance letter of credit” and “financial letter of credit” have meanings customary for financings of this type.

On September 24, 2009, we entered into the Amended and Restated Credit Agreement (Restated Agreement) with a group of lenders that provided new and extended lender commitments to the Facility of $1,214.0 million, all of which is available for the issuance of performance and financial letters of credit and/or borrowings for working capital needs and general corporate purposes. Amounts outstanding as performance and financial letters of credit reduce the amount otherwise available for borrowing under the Facility. The Restated Agreement included new lenders to the Facility as well as certain existing lenders who will exit the Facility in 2010 or 2011, following the expiration of their existing commitments. Accordingly, the Restated Agreement contemplates three groups of lenders, the “2010 Lenders,” the “2011 Lenders” and the “2012 Lenders,” with the Facility terminating with respect to such lenders on April 25, 2010, April 25, 2011 and October 25, 2012, respectively. The Restated Agreement makes available $1,214.0 million in commitments through April 25, 2010 (up from $1,053.0 million), $1,095.0 million from April 26, 2010 through April 25, 2011, and $1,000.0 million from April 26, 2011 through October 25, 2012. The Facility is available for working capital needs to fund fixed asset purchases, acquisitions, investments in joint ventures and general corporate purposes. See Note 8 of our 2009 Form 10-K for additional information on the Restated Agreement.

The following table presents the outstanding and available amounts under our Facility at May 31, 2010 (in millions):

Total Facility		$	1,095.0
Less: outstanding performance letters of credit			(257.8	)
Less: outstanding financial letters of credit			(99.6	)
Less: outstanding revolving credit loans			—
Remaining availability under the Facility		$	737.6

At May 31, 2010, the portion of the Facility available for financial letters of credit and/or revolving credit loans was $737.6 million, representing the total Facility ($1,095.0 million at May 31, 2010) less outstanding letters of credit ($357.4 million at May 31, 2010). Total fees associated with these letters of credit under the Facility were approximately $2.9 million and $9.3 million for the three and nine months ended May 31, 2010, respectively, as compared to $3.1 million and $9.5 million for the three and nine months ended May 31, 2009, respectively.

Under the Restated Agreement, interest is computed, at our option for each revolving credit loan, using the defined base rate or the defined LIBOR rate, plus a margin. The terms “base rate” and “LIBOR rate” have meanings customary for financings of this type. The margin is adjusted based on the ratings of the Facility by S&P or Moody’s Investors Service (Moody’s) or, if the Facility is not rated, the margin is based on our leverage ratio as defined in the agreement. The margins for revolving credit loans under the Facility may be in a range of: (1) LIBOR plus 1.50% to 3.00% for the 2010 Lenders and the 2011 Lenders and LIBOR plus 2.5% to 4.25% for the 2012 Lenders; or (2) the defined base rate plus 0.00% to 0.50% for the 2010 Lenders and the 2011 Lenders and 1.0% to 2.75% for the 2012 Lenders. Although there were no borrowings at May 31, 2010, the interest rate that would have applied to any base rate borrowings under the Facility was 4.5%.

For the three and nine months ended May 31, 2010, we recognized $1.2 million and $3.4 million, respectively, of interest expense associated with the amortization of financing fees related to our Facility, as compared to $0.8 million and $2.3 million, respectively, for the three months and nine months ended May 31, 2009. At May 31, 2010 and August 31, 2009, unamortized deferred financing fees related to our Facility were approximately $11.5 million and $5.0 million, respectively.

At May 31, 2010, we were in compliance with the financial covenants required in the Restated Agreement.

Other Revolving Lines of Credit

Shaw Nass, a consolidated VIE located in Bahrain, has an available credit facility (Bahrain Facility) with a total capacity of 3.0 million Bahraini Dinars (BHD) or approximately $8.0 million, of which BHD 1.5 million is available for bank guarantees and letters of credit. At May 31, 2010, Shaw Nass had no borrowings under its revolving line of credit and approximately $1.2 million in outstanding bank guarantees under the Bahrain Facility. The interest rate applicable to any borrowings is a variable rate (1.32% at May 31, 2010) plus 2.25% per annum. We have provided a 50% guarantee related to the Bahrain Facility.

We have an uncommitted, unsecured standby letter of credit facility with a bank. Fees under this facility are paid quarterly. At May 31, 2010 and August 31, 2009, there were $22.6 million and $24.8 million of letters of credit outstanding under this facility, respectively.

A bank has extended to us a $50.0 million uncommitted, unsecured bilateral line of credit for issuing performance letters of credit in Saudi Arabia. Fees under this facility are paid quarterly. At May 31, 2010 and August 31, 2009, there were $29.8 million of letters of credit outstanding under this facility.

Note 8 — Income Taxes

Our consolidated effective tax rate for the three and nine months ended May 31, 2010 was 37% and 36%, respectively. In determining the quarterly provision for income taxes, we use an estimated annual effective tax rate based on forecasted annual pre-tax income and permanent items, statutory tax rates and tax planning opportunities in the various jurisdictions in which we operate.

The impact of significant discrete items is separately recognized in the quarter in which they occur. We recognize foreign currency translation gains and losses on the JPY-denominated Westinghouse Bonds as discrete items in each reporting period due to their volatility and the difficulty in estimating such gains and losses reliably. The third quarter included other discrete items relating to a provision for uncertain tax benefits of $9.1 million and other adjustments for $0.4 million partially offset by the benefit of research tax credits included in filed returns or claims submitted to taxing authorities of $8.4 million and adjustments to reconcile tax returns to provisions of $0.3 million.

We expect the fiscal 2010 annual effective tax rate, excluding discrete items, applicable to forecasted pre-tax income to be approximately 36%. Significant factors that could impact the annual effective tax rate include management’s assessment of certain tax matters, the location and amount of our taxable earnings, changes in certain non-deductible expenses and expected credits.

We adopted the provisions of ASC 740-10, “Income Taxes,” effective September 1, 2007. Under ASC 740-10, we provide for uncertain tax positions and the related interest and adjust unrecognized tax benefits and accrued interest accordingly. We recognize potential interest and penalties related to unrecognized tax benefits in income tax expense.

During the third quarter of fiscal 2010, unrecognized tax benefits increased $9.1 million. The increase was related to research tax credits included in filed returns or claims for the tax years ended August 31, 2007, 2008 and 2009 totaling $8.4 million, additional tax provision of $0.4 million for various issues and accrued interest of $0.3 million. For the nine months of fiscal 2010, unrecognized tax benefits increased $1.6 million primarily due to research tax credits for the years ended August 31, 2007, 2008 and 2009 of $8.4 million, additional tax provision of $0.8 million for various issues and accrued interest of $0.4 million partially offset by the reevaluation of temporary positions that are no longer uncertain of $7.1 million and a settlement with a state tax authority for $1.0 million. As of May 31, 2010, our unrecognized tax benefits were $53.7 million, of which $43.1 million would, if recognized, affect our effective tax rate.

Our subsidiaries file income tax returns in numerous tax jurisdictions, including U.S. federal, most U.S. states and certain foreign jurisdictions. Tax returns are also filed in certain jurisdictions where our subsidiaries execute project-related work. The statute of limitations varies by the various jurisdictions in which we operate. With a few exceptions, we are no longer subject to U.S. (including federal, state and local) or foreign income tax examinations by tax authorities for years before fiscal year 2004. Although we believe our calculations for our tax returns are correct and the positions taken thereon are reasonable, the outcome of tax audits could be materially different from the resolution we currently anticipate, and those differences could result in significant costs or benefits to us.

Certain tax years are under audit by relevant tax authorities including an examination of our U.S. federal tax returns for fiscal years 2006-2008 by the Internal Revenue Service (IRS). We have extended the statute of limitations on our U.S. federal returns for the 2004 and 2005 fiscal years involved in an IRS appeal (see Note 11 — Contingencies and Commitments). In addition, many U.S. states suspend the state statute of limitations for any year for which the U.S. federal statute has been extended.

While the IRS appeal of fiscal years 2004 and 2005 may be concluded in the foreseeable future, it is not possible at this time to estimate the impact of changes in unrecognized tax benefits over the next 12 months.

Note 9 — Accumulated Other Comprehensive Income (Loss)

The after-tax components of accumulated other comprehensive income (loss) are as follows for the quarterly periods presented below (in thousands):

						Equity in
						Westinghouse’s
						Pre-tax other				Change in												Accumulated
		Foreign				Comprehensive				Unrealized Net												Other
		Currency				Income (Loss),				Loss On				Pension				Unrealized				Comprehensive
		Translation				Net of				Hedging				Liability				Gain (Loss)				Income
		Adjustments				Shaw’s tax				Activities				Adjustments				on Securities				(Loss)
Balance at August 31, 2008		$	417			$	26,060			$	(5,360	)		$	(30,726	)		$	—			$	(9,609	)
Three months ended November 30, 2008			(15,258	)			(27,210	)			(7,273	)			579				—				(49,162	)
Balance at November 30, 2008		$	(14,841	)		$	(1,150	)		$	(12,633	)		$	(30,147	)		$	—			$	(58,771	)
Three months ended February 28, 2009			(4,645	)			(74,169	)			(4,240	)			(4,951	)			—				(88,005	)
Balance at February 28, 2009		$	(19,486	)		$	(75,319	)		$	(16,873	)		$	(35,098	)		$	—			$	(146,776	)
Three months ended May 31, 2009			10,165				(12,432	)			888				868				—				(511	)
Balance at May 31, 2009		$	(9,321	)		$	(87,751	)		$	(15,985	)		$	(34,230	)		$	—			$	(147,287	)
Balance at August 31, 2009		$	(9,922	)		$	(54,657	)		$	(19,217	)		$	(38,170	)		$	—			$	(121,966	)
Three months ended November 30, 2009			2,444				(3,061	)			(41	)			982				242				566
Balance at November 30, 2009		$	(7,478	)		$	(57,718	)		$	(19,258	)		$	(37,188	)		$	242			$	(121,400	)
Three months ended February 28, 2010			(7,138	)			(1,238	)			(1,132	)			653				817				(8,038	)
Balance at February 28, 2010		$	(14,616	)		$	(58,956	)		$	(20,390	)		$	(36,535	)		$	1,059			$	(129,438	)
Three months ended May 31, 2010			(6,654	)			(9,103	)			3,364				794				(1,607	)			(13,206	)
Balance at May 31, 2010		$	(21,270	)		$	(68,059	)		$	(17,026	)		$	(35,741	)		$	(548	)		$	(142,644	)

The translation adjustments relate primarily to changes in the value of the USD in relation to other currencies such as the British Pounds Sterling (GBP), Mexican Pesos, Canadian Dollars and the Euro.

Note 10 — Share-Based Compensation

Restricted stock units totaling 561,956 shares were granted during the nine months ended May 31, 2010, at a weighted-average per share price of $27.95 vesting over approximately four years. Restricted stock units totaling 2,387,423 shares were granted during the nine months ended May 31, 2009, at a weighted-average per share price of $18.01, vesting over approximately three to four years. Of these grants, approximately 1,270,000 restricted stock units were classified as liability awards at November 30, 2008, due to the limited availability of shares under our share-based compensation plans. As a result of shareholder approval of the 2008 Omnibus Incentive Plan on January 29, 2009, these liability awards were modified for accounting purposes to be equity awards. On January 28, 2009, the price used to re-measure the liability awards was our closing stock price of $29.39, and the modified equity awards have a weighted-average price per share of $29.39.

During the nine months ended May 31, 2010 and May 31, 2009, options for the purchase of 820,173 shares at a weighted-average price of $27.89 per share and 1,201,791 shares at a weighted-average price of $18.25 per share, respectively, were awarded, vesting over approximately four years. The contractual lives of the awards during the nine months ended May 31, 2010 are consistent with those of prior years. There were no significant changes in the assumptions or estimates used in the valuation of options awarded subsequent to our year-end August 31, 2009.

During the nine months ended May 31, 2010 and May 31, 2009, options were exercised for the purchase of 337,479 shares at a weighted-average exercise price of $20.22 per share and 46,068 shares at a weighted-average exercise price of $16.11 per share, respectively.

For additional information related to these share-based compensation plans, see Note 11 — Share-Based Compensation of our consolidated financial statements in our 2009 Form 10-K.

Note 11 — Contingencies and Commitments

Tax Matters

In connection with the IRS examination of our U.S. federal tax returns for the 2004 and 2005 fiscal years, we have protested adjustments covering approximately $13.0 million of additional federal and state income taxes, for which the interest would begin running from fiscal 2007. Tax and interest accrual provisions have been made in our financial statements for the agreed adjustments in the IRS audit covering the 2004 and 2005 fiscal years and for uncertain tax provisions as discussed in Note 8 — Income Taxes.

While management cannot predict the ultimate outcome of the above matters, provisions have been made in our financial statements where appropriate. The matters, if decided adversely to us or settled by us, individually or in the aggregate, could have a material adverse effect on our financial statements.

In a separate matter, certain cases concerning Louisiana franchise tax matters for fiscal years 2001 through 2009 have been ordered dismissed by reason of joint requests made by the Louisiana Department of Revenue and Shaw.

Liabilities Related to Contracts

Our contracts often contain provisions relating to the following matters:

	•		warranties, requiring achievement of acceptance and performance testing levels;
	•		liquidated damages, if the project does not meet predetermined completion dates; and
	•		penalties or liquidated damages for failure to meet other cost or project performance measures.

We attempt to limit our exposure under the penalty or liquidated damage provisions and attempt to pass certain cost exposure for craft labor and/or commodity-pricing risk to clients. We also have claims from clients as well as vendors, subcontractors and others that are subject to negotiation or the contractual dispute resolution processes defined in the contracts (see Note 15 — Long-Term Construction Accounting for Revenue and Profit/Loss Recognition Including Claims, Unapproved Change Orders and Incentives for further discussion).

Guarantees

Our Facility lenders issue letters of credit on our behalf to clients or sureties in connection with our contract performance and, in limited circumstances, on certain other obligations of third parties. We are required to reimburse the issuers of these letters of credit for any payments that they make pursuant to these letters of credit. The aggregate amount of outstanding financial and performance letters of credit (including foreign and domestic, secured and unsecured and cash collateralized) was $659.8 million and $790.3 million at May 31, 2010 and August 31, 2009, respectively. Of the amount of outstanding letters of credit at May 31, 2010, $475.8 million are performance letters of credit issued to our clients. Of the $475.8 million, five clients held $308.5 million or 64.8% of the outstanding letters of credit. The largest letter of credit issued to a single client on a single project is $117.5 million. Our borrowing capacity under our Facility is reduced by the aggregate amount of our outstanding performance and financial letters of credit.

In the ordinary course of business, we enter into various agreements providing financial or performance assurances to clients on behalf of certain unconsolidated partnerships, joint ventures, consortiums or other jointly executed contracts. These agreements are entered into primarily to support the project execution commitments of these entities and are generally a guaranty of our own performance. These assurances have various expiration dates ranging from mechanical completion of the facilities being constructed to a period extending beyond contract completion. The maximum potential payment amount of an outstanding performance guarantee is the remaining cost of work to be performed by or on behalf of third parties under engineering and construction contracts. Amounts that may be required to be paid in excess of our estimated cost to complete contracts in progress are not estimable. For cost reimbursable contracts, amounts that may become payable pursuant to guarantee provisions are normally recoverable from the client for work performed under the contract. For fixed price contracts, this amount is the cost to complete the contracted work less amounts remaining to be billed to the client under the contract. Remaining billable amounts could be greater or less than the cost to complete. In those cases where cost exceeds the remaining amounts payable under the contract, we may have recourse to third parties such as owners, co-venturers, subcontractors or vendors.

Legal Proceedings

In connection with an international services contract signed in 2000 for the construction of two nuclear power plants in Asia, we asserted claims against our client before the host country’s arbitration association. In that arbitration, we sought an approximate $49.6 million increase in the contract target price that, if awarded, would eliminate potential penalties associated with cost incentive/penalty provisions set forth in the contract. If the arbitration association failed to award the target cost increase or it awarded an increase less than the requested amount, we faced an assessment of up to approximately $13.6 million in such penalties. Further, we sought from the client approximately $22.2 million for reimbursement of severance and pension payments, unpaid invoices, increased overhead and outstanding fixed fee amounts. The client presented a counterclaim asserting $4.3 million in damages relating to alleged defective work and an additional $23.6 million for completion damages, though the contract limits such damages to $20.0 million. The client has further sought to keep $7.2 million in cash drawn on a previously issued letter of credit against the claims asserted. On September 3, 2008, the arbitration association rendered an award granting most of our claims and dismissing all of the client’s counterclaims. We have initiated proceedings to enforce the award in both the host country and in the U.S. District Court for the Middle District of Louisiana. The proceedings in the U.S. District Court ended when the Court declined jurisdiction based on a finding of forum non conveniens. The client has initiated proceedings in the host country to contest the award’s validity, oppose our enforcement actions and overturn the award. In the first ruling by the host country’s court addressing the validity of the arbitration award, the court denied the client’s petition to nullify the award and the client appealed that ruling. The other proceedings initiated by the client to contest the award or oppose its enforcement have been stayed pending the outcome of the nullification petition now on appeal before the host country’s appellate court. We have made provisions in our financial statements based on management’s judgment about the probable outcome of this case. If the client prevails on its counterclaim for defective work and completion damages and/or its challenge of the existing award to us to increase the target contract price and other claims for compensation, the individual or combined rulings could have a material adverse effect on our financial statements.

We filed a Request for Arbitration with the London Court of International Arbitration (LCIA) in connection with an international fixed price contract executed by our Fossil, Renewables & Nuclear segment that is subject to a schedule of rates for changes and where our services include fabrication, erection and construction. In the request, as amended in a January 2010 filing with the LCIA, we currently seek claims of approximately $25.9 million in additional compensation from our client, the prime contractor on the project, related to delay and disruption, loss of profit on descoped areas and changed labor practices. In addition, we have requested additional compensation relative to remeasurements of quantities and scope variations from our client of approximately $12.7 million. On February 5, 2009, the client, who holds a $1.9 million performance letter of credit from us, filed a response that denied our claims and stated it had counterclaims totaling approximately $57.2 million related to certain alleged costs associated with completing work that the client removed from our scope and damages suffered because of our alleged failure to complete work in a timely manner. On August 12, 2009, the client filed a Statement of Defense and Counterclaim, which was subsequently amended on June 2, 2010 in response to our January 2010 amendment, and wherein the client’s counterclaims were reduced to $22.7 million. Within this counterclaim, the client also identified $17.8 million it was owed for descopes of work, but agreed in principal to change orders for remeasurements and variations valued at $10.5 million. We have evaluated our claims and our client’s counterclaims and made provisions in our financial statements based on management’s judgment about the probable outcome of this arbitration. While we expect a favorable resolution to these matters, the dispute resolution process could be lengthy, and if the client were to prevail completely or substantially in this matter, the outcome could have a material adverse effect on our statements of operations and cash flows. The USD value of the claims and our letter of credit stated herein fluctuate due to changes in the exchange rate of the GBP.

Our subsidiary, Stone & Webster, Inc. (S&W), is nearing completion of work for Xcel Energy (d/b/a Public Service of Colorado) on Xcel’s Comanche project in Colorado. There are material claims by S&W against Xcel for contract changes relating to coordination of the work, delays and resulting impacts on our ability to perform. The resulting change order request submitted by S&W was denied. As a result, S&W filed a lawsuit, 2009-CV-6913, in the District Court, City and County of Denver, Colorado, against Xcel on July 14, 2009, seeking damages in excess of $71.0 million. We anticipate our claims will ultimately exceed $100.0 million. Xcel counterclaimed, alleging nearly $56.0 million in damages or set-offs against S&W and recent disclosures by Xcel indicate its claim will also likely increase. We have evaluated our position and believe we are entitled to amounts in excess of the July 14, 2009 filed claims. On June 3, 2010, Xcel made a partial draw of $29.7 million on a $41.3 million letter of credit, alleging S&W had failed to perform its obligations under the EPC contract. We believe the allegations are without merit and will pursue full recovery of the funds. We have evaluated our claims and our client’s counterclaims and made provisions in our financial statements based on management’s judgment about the probable outcome of this arbitration. While we expect a favorable resolution to these matters, the dispute resolution process could be lengthy, and if the client were to prevail completely or substantially in this matter, the outcome could have a material adverse effect on our financial statements.

In connection with a contract executed by our Fossil, Renewables & Nuclear segment for the engineering, procurement and construction of a 600 MW steam turbine electrical generation plant in the U.S., we have commenced an arbitration proceeding with our equipment and services supplier on the project. We contend that one of our suppliers failed to comply with certain contractual obligations. This failure disrupted and delayed our work, significantly increased our costs and exposed us to the imposition of liquidated damages by the owner. On December 30, 2009, we presented claims to our supplier in a preliminary Notice of Claim. Our supplier did not respond to this Notice of Claim and instead filed a Demand for Arbitration dated January 13, 2010, which requested declaratory relief, injunctive relief and damages in an amount to be determined. We served our own Demand for Arbitration on January 18, 2010, followed by a Detailed Statement of Claim on May 17, 2010, identifying damages of approximately $69.0 million. Also on May 17, 2010, the supplier filed a More Definitive Statement of Claim for approximately $31.0 million with time extension and claimed legal expenses still to be determined. We have evaluated our claims and our supplier’s counterclaims and made provisions in our financial statements based on management’s judgment about the probable outcome of this arbitration. While we expect a favorable resolution to these matters, the dispute resolution process could be lengthy, and if our supplier were to prevail completely or substantially in this matter, the outcome could have a material adverse effect on our consolidated statement of operations.

See Note 15 — Long-Term Construction Accounting for Revenue and Profit/Loss Recognition Including Claims, Unapproved Change Orders and Incentives for additional information related to our claims on major projects.

Environmental Liabilities

The LandBank Group, Inc., a subsidiary of our Environmental and Infrastructure (E&I) segment, acquires and remediates environmentally impaired real estate. The real estate is recorded at cost, which typically reflects some degree of discount due to environmental issues related to the real estate. As remediation efforts are expended, the book value of the real estate is increased to reflect improvements made to the asset. We had $52.7 million and $17.7 million of such real estate assets recorded in other assets on the accompanying balance sheets at May 31, 2010 and August 31, 2009, respectively. The increase of $35.0 million relates to the consolidation in the current fiscal year of a VIE formerly accounted for under the equity method. Additionally, LandBank records a liability for estimated remediation costs for real estate that is sold, but for which the environmental obligation is retained. We also record an environmental liability for properties held by LandBank if funds are received from transactions separate from the original purchase to pay for environmental remediation costs. At May 31, 2010, our E&I segment had $4.3 million of environmental liabilities recorded in other liabilities in the accompanying balance sheets as compared to $5.0 million at August 31, 2009.

Note 12 — Supplemental Disclosure to Earnings (Loss) Per Common Share

Weighted average shares outstanding for the three and nine months ended May 31, 2010 and May 31, 2009 were as follows (in thousands):

		Three Months Ended								Nine Months Ended
		2010				2009				2010				2009
Basic			84,280				83,295				83,872				83,218
Stock options			1,174				733				1,027				614
Restricted stock			667				619				773				393
Diluted			86,121				84,647				85,672				84,225