URS Corporation Q1 2009 Earnings Call Transcript

URS Corporation (URS)

Q1 2009 Earnings Call Transcript

May 14, 2009 11:00 am ET

Executives

H. Thomas Hicks - Chief Financial Officer

Martin M. Koffel - Chairman and Chief Executive Officer

Gary V. Jandegian - President of the URS Division

Randall A. Wotring - President of the EG&G Division

Thomas H. Zarges - President of the Washington Division

Martin S. Tanzer - Executive Vice President of Marketing

Reed N. Brimhall - Corporate Controller and Chief Accounting Officer

Sam Ramraj - Vice President of Investor Relations

Analysts

Richard Paget - Morgan Joseph & Co.

Vance Edelson - Morgan Stanley

Jamie Cook - Credit Suisse

Will Gabrielski - Broadpoint Amtech

Alex Rygiel - FBR Capital Markets & Co.

Scott Levine - J.P. Morgan

John Rogers - D. A. Davidson & Co.

Steven Fisher - UBS

Andrew Obin - Merrill Lynch

Andrew Kaplowitz - Barclays Capital

Andrea Wirth - Robert W. Baird & Co.

Avram Fisher - BMO Capital Markets

Presentation

Operator

Good morning and welcome to the URS Corporation earnings conference call for the first quarter of fiscal 2009. To begin, I’ll turn the call over to Mr. Thomas Hicks, Chief Financial Officer of URS.

H. Thomas Hicks

Good morning everyone and thank you for joining us. Before we get started, let me remind you that today’s call will contain forward-looking statements, including statements about our revenues, backlog, business prospects, earnings and financial condition, outstanding shares, economic and industry conditions, and other statements that are not historic facts. These statements represent our predictions and expectations as to future events, which we believe are reasonable and are based on reasonable assumptions. However, numerous risks and uncertainties could cause actual results to differ materially from those expressed or implied in the forward-looking statements.

Information about some of these risks and uncertainties can be found in our earnings release and Form 10-Q for the quarter, quarterly period ended April 3, 2009, as well as in other SEC filings, and we assume no obligation to revise or update any forward-looking statements. A webcast of this call is available on the Investor Relations portion of our website and will be archived in audio form on the web for a limited period.

With that I’ll turn the call over to Martin Koffel, our Chairman and Chief Executive Officer.

Martin M. Koffel

Good morning and thank you for joining us. In addition to Tom Hicks, the team with me here in San Francisco this morning includes Gary Jandegian, President of the URS Division; Randy Wotring, President of the EG&G Division; Tom Zarges, President of the Washington Division; Martin Tanzer, Executive Vice President of Marketing; Reed Brimhall, Corporate Controller and Chief Accounting Officer, and Sam Ramraj, Vice President of Investor Relations.

As you will have seen from the press release issued yesterday, URS performed satisfactorily in the first quarter. Consolidated revenues were $2.5 billion, that’s a 12% increase from the first quarter of 2008; net income was $75.5 million, that’s a 53% gain from the first quarter of last year; and earnings per share were $0.92 per share, which is 56% higher than the first quarter of last year.

We generated $221 million in operating cash flow, increasing the total cash on our balance sheet to $387 million at the end of the quarter and that’s the highest level of cash at the end of the quarter in URS’s history, and Tom will discuss that in more detail later on.

Our backlog and book-of-business also were at record levels. So we ended the quarter with the backlog of $19.6 billion and a total book-of-business of $31.7 billion. We are pleased with the start of the year especially given the economic climate, but we believe these results underscore the many strengths of the company that would build and about which we have spoken to you in the past, and these include our leading positions in a diverse range of engineering, construction, and technical service markets; and also importantly for us the fact that we are not dependent on any single funding source or any single commodity price, and that’s proven to be an especially important factor in this economic environment.

As we noted on prior calls, with the addition of the Washington Division, our financial results will not be evenly distributed over the course of the year. Our revenue and profit increasingly are based on project milestones and incentives, resulting in more variability in our earnings from quarter to quarter. For this reason, we continue to believe, and I want to remind you, that the focus on annual results is the appropriate way to evaluate our performance rather than to extrapolate from a single quarter.

However, our performance in this first quarter gives us increased confidence in our full year guidance. Our long-term optimism is supported by the $787 billion American Recovery and Reinvestment Act, the Federal stimulus package, that contains a $125 billion in funding for programs that are relevant to URS, including approximately $12 billion for the repair and construction of public and military facilities and Federal Agencies already have identified the specific projects that would be supported by the stimulus funding and will start awarding contracts during the second quarter.

There also is $6 billion for the Department of Energy to accelerate and expand environmental management and restoration programs. At that total, approximately $1.3 billion will be allocated to five work sites where URS already manages existing operations. Approximately $65 billion has been allocated for infrastructure projects with an emphasis on transportation, mass transit, and water projects; and these are areas were URS is a recognized market leader.

With our ability to provide the full range of E&C services, we should benefit from this funding. Approximately $30 billion has been provided for energy related programs including improving the nation’s energy grid and expanding the development of alternative energy power plants.

I’ll now review our results for each of our four market sectors in more detail starting with the Federal sector. Our Federal sector revenues were $951 million in the first quarter, that’s a 16% increase over the first quarter of last year.

Our performance in the quarter’s driven by several factors. Success in diversifying our Federal business, we have talked about this before, beyond the Departments of Defense to include now the Departments of Energy, NASA, FEMA, and several other agencies.

Our ability to continue expanding our business with the Department of Defense, this includes increased work on large long-term programs such as the elimination of weapons of mass destruction and the military transformation initiative. It also includes operations and maintenance for O&M work for military equipment and facilities.

As we noted on our previous call, the DoD’s 2009 baseline budget is fully funded through the fiscal year which ends on October 1. The current year’s defense budget contains more than $8.8 billion for the BRAC program and this round of BRAC is running 48% higher than originally anticipated, and we’re well positioned to provide engineering design in construction services to help the military to implement BRAC projects around the world.

In addition, the administration recently proposed approximately $76 billion in overseas contingency funding for the DoD in fiscal 2009 including more than $34 billion for O&M programs. This is on top of the $66 billion in overseas contingency funding already approved which includes $55 billion for O&M programs.

The longer-term DoD budget outlook is also positive. Last month, the administration submitted its fiscal 2010 budget request. It includes a $534 billion baseline budget, that’s a 4% increase from 2009, and the proposed budget includes funding to support the deployment of an additional 17,000 troops to Afghanistan and a $130 billion overseas contingency funding request to support military activities in the Middle East.

I should note however that the picture for the defense project beyond 2010 is less clear as the new administration implements its policy, which contemplates a reduction in the DoD’s use of outside contactors, we could see a flattening or decline in overall defense related spending. That said we expect there will be continued opportunities for us to provide O&M services for the military and to support the increased military activity in Afghanistan, and moreover, as the administration reexamines its funding priorities, we will benefit from the size, the scale, and the diversification in URS’s Federal business.

Looking ahead, we also see opportunities to increase our work for the DoD as the military realigned its command structure, realigned its facilities, and troop deployments around the world.

As you know, the DoD is in the process of expanding its presence in the Middle East, the Pacific, and other regions, and to support these efforts, the DoD will need to build new air fields, naval complexes, medical facilities, and other military infrastructure. We expect much of this work to be implemented and funded through the military transformation program.

We are also seeing increased bidding activity from our Federal clients as a result of the stimulus package. In particular, the US Army Core of Engineers released its plans to spend the $4.6 billion they did receive in stimulus funding. Of the total amount, $2.1 billion will be directed for operations and maintenance work and another $2 billion will be used to support levee and dam repairs and other inland water projects.

URS has a long history of supporting the Core of Engineers on similar assignments and we’re well positioned to capture new work when these contracts awarded, we expect later this year.

I shall now discuss the other major portion of our Federal business, our work for the Department of Energy and United Kingdom Nuclear Decommission Authority, or as it is known the NDA. For fiscal 2009, the funding for the three major programs that support almost all of our DoE business, environmental management, the National Nuclear Security Administration, and the Office of Science is in place.

In addition, we continue to see increased opportunities to support the DoE with the remediation and dispersal of chemical and radioactive waste. For example, the DoE recently reaffirmed that a URS led team had been selected to mange the liquid waste portion of the DoE’s Savannah River site. The contract which was added to our Federal sector backlog and option years during this past quarter has a potential maximum value of approximately $3.3 billion to the joint venture. As I mentioned, we’re well positioned to benefit from the funding that DoE received as part of the federal stimulus package. Approximately $1.3 billion has been allocated to sites where URS is currently working, and we expect that DoE will start awarding contracts funded by the stimulus package during the second quarter, which should be driving new work in the second half of the year, with the majority of the earnings coming in 2010 and 2011.

Looking ahead, the DoE’s budget outlook for 2010 also remains solid, and last week, the administration submitted a $26.4 billion DoE budget for fiscal 2010. It proposes approximately $17 billion for the three major programs that URS supports.

As you know, we have been successful in extending our nuclear remediation and operations management to new markets, and in the past year, URS lead teams that won two major contracts with the United Kingdom’s Nuclear Decommissioning Authority to manage ongoing operations and to decommission oxalate facilities. This includes our work at the Sellafield nuclear complex in West Cumbria in the United Kingdom. Our team has completed the transition to full management and operations of the Sellafield site and has met all of the performance milestones.

All of this success is contributed to the strength of our Federal sector backlog, which was $12.9 billion at the end of the first quarter, and this should support steady growth for the remainder of the year. Accordingly, we continued to expect that Federal sector revenues will be between $3.9 billion and $4 billion in 2009.

Our next key market is infrastructure, and for the first quarter, infrastructure sector revenues were $448 million, which is a 6% increase over the same period in 2008. Given the need for infrastructure investment, we remain optimistic about the long-term prospects for this market. As you know, the American Society of Civil Engineers has concluded that the US will need to spend $2.2 trillion over the next five years to upgrade and to modernize their infrastructure, and public and political support for infrastructure investment is robust. URS’s competitive position is strong, and we have successfully leveraged our unique Nation Delivery System doing larger, more complex infrastructure assignments, particularly in mass transit.

As for our strategy of combining the URS division’s expertise in engineering and design and the Washington division’s construction and O&M capable of this and one of the many reasons that our strategy made sense in acquiring Washington in 2007, we have captured a larger portion of this market. Our ability to support the entire lifecycle of the project is becoming increasingly important as transit agencies are looking for firms that can provide the full range of E&C services.

In fact, we have used our expanded capabilities to win more than 11 new mass transit assignments around the country, and these contracts have a potential value to URS of more than $150 million. We have also won a wide range of water, school, aviation, and other public facility projects during the quarter.

Much has been written about the deteriorating fiscal health of the states. As we mentioned on prior calls, infrastructure funding for our projects has become more diverse than ever, making our business less reliant on general fund spending. Infrastructure projects increasingly have been supported through federal matching grants, through bonds, and other financial sources such as dedicated tax measures and public-private partnerships.

In the first four months of this year, states and municipalities sold approximately $122 billion in bonds, primarily for public infrastructure. In addition, several state agencies have sold the new Build America Bonds to fund transportation, water, education, and other public works. California sold more than $5 billion of these bonds and the New Jersey Turnpike Authority raised over $1.7 billion to upgrade and modernize the turnpike.

The states and municipalities approved a number of dedicated tax initiatives last November to support infrastructure programs, and we were awarded several new design and construction management contracts in Los Angeles and in Washington State that are funded by these sales tax increases.

As I indicated at the beginning of the call, the stimulus package includes nearly $65 billion for infrastructure programs that is central to URS and more than $20 billion for the company’s top 12 states, and the bidding opportunities that we’re seeing should contribute to our backlog towards the end of 2009 and into 2010. In addition, states continue to have access to funding through Safety Lou, the Federal highway funding bill. For fiscal 2009, Congress approved $40.7 billion for highways and transit programs.

And finally, the administration recently released its strategic plan for expanding the nation’s high-speed rail system. The plan includes $5 billion over the next five years to support new projects and an additional $8 billion in stimulus funding, and URS-led joint venture is proving design services for two sections of California’s proposed high-speed rail line. We expect that these projects will benefit from the additional federal funds.

In summary, the diversity of funding, our ability to serve a larger portion of this market and our backlog of $2.4 billion should support continued growth throughout 2009. As a result, we continue to expect that our 2009 infrastructure revenues will be between $1.9 billion and $2 billion.

I shall now discuss the power sector. First quarter power sector revenues were $429 million, an increase of 7% from the comparable period last year. During the quarter, we continued to see strong demand for our work to upgrade and requisite power plants to comply with federal consent decrees and the clean air interstate rule. For example, we won an assignment to manage the installation of mercury control fuel gas desulphurization of FGD scrubbers for a coal-fired power plant in the northeast. We also continue to benefit from the development of new generation facilities, particularly simple and combined cycle plants, and these produce fewer emissions than traditional coal-fired plants and are more cost effective to build.

URS recently was authorized by the Tennessee Valley Authority or the TVA to begin engineering and construction services to support the expansion of the Gleason Combustion Turbine Plant in Tennessee, and this is the second assignment that would be awarded under our ten year alliance agreement with TVA and it is valued up to $2.5 billion.

In addition, we continue to see opportunities to extend the life of nuclear facilities through major component retrofit projects. During the quarter, a URS-led joint venture won a contract with TVA to provide project management, engineering and construction for the replacement of four steam generators at the Sequoyah Nuclear Power Plant.

On longer term, we continue to believe that the resurgence of nuclear power will become a major opportunity to URS. As you know, we are actively involved in this market, and with nearly 60% of Americans now endorsing nuclear power, we believe it will be an important part of our country’s future and our future as a company.

We’re currently supporting three major generation III nuclear technologies; the advanced boiling water reactor, the economic simplified boiling water reactor, and Mitsubishi Heavy Industries advanced pressurized water reactor. In fact, we’re pleased to announce that URS has signed an agreement with Hitachi to provide licensing, cost estimating, and scheduling services for Exelon’s proposed two unit nuclear power plant in Victoria, Texas. Hitachi has been selected by Exelon to participate in this new plant using the advanced boiling water reactor technology. Preliminary work will be conducted over the next several months, and then as the project proceeds, URS has an exclusive agreement with Hitachi to provide engineering procurement and construction services for the two nuclear units.

So, in summary, we continue to expect that our power sector revenues will be between $1.4 billion and $1.6 billion in 2009. Our long-term outlook for the power market remains positive and is supported by a backlog of $1.8 billion.

Turning to the industrial and commercial sector, for the first quarter of 2009, our industrial and commercial sector revenues were $693 million, that’s a 13% increase over the first quarter of 2008. Although we are quite pleased with our first quarter performance, I should note that it was driven by strong revenues from existing projects and the early completion of several assignments that were expected to conclude later in the year. As a result, our industrial and commercial sector backlog declined to $2.5 billion from $2.9 billion at the end of 2008 and the fundamentals in this sector, particularly in oil and gas and mining remain weak, and we are maintaining our expectation that full year revenues in this sector will be down year-over-year.

The largest portion in this sector comprises the industrial and manufacturing markets which account for approximately half of our revenues in this sector. Because these projects are focused primarily on work driven by regulatory requirements or are necessary to support ongoing plant activities, they are less susceptible to the current economic environment. In the difficult economic periods, our private sector clients tend to look to outsourcing to decrease their own costs. For example, recently we renewed our logistics and facilities management services contract with UPS for an additional seven years.

The oil and gas market which comprises about a third of our industrial and commercial sector revenues continues to be affected by lower energy prices and tighter credit markets. That said, we continue to see opportunities in several segments of our oil and gas business. During the quarter, we won significant assignments with a major multi-national oil company. This includes a new master service agreement or MSA to revive environmental services at several of its Australian facilities as well as in environmental restoration contract. In addition, we won contracts to provide construction and maintenance services at ConocoPhillips Wood River Illinois Refinery.

We continue to see opportunities in the Alaskan oil and gas market where we recently increased our size through a successful acquisition, and during the quarter, US was awarded a contract by TransCanada to provide preliminary front-end engineering and design services for a new natural gas treatment plant in Alaska’s North Slope.

The remaining portion of our industrial and commercial business includes our work in mining. This is the portion of the business that is most susceptible to the economic downturn because many of our clients rely on high commodity prices to support their capital expenditure programs. With the declining commodity prices, we have experienced some delays, deferrals, and cancellations of new and existing mining projects.

Our first quarter results included a 50% interest in MIBRAG, a German power and mining business. In February of this year, we entered into a definitive agreement to sell our interest in MIBRAG and we expect to close this transaction in the second quarter of 2009.

So, in summary, we are pleased with how our industrial and commercial business performed this quarter despite the difficult economic conditions in the oil and gas and in the mining markets. We are benefiting from our longstanding client relationships but have strong position supporting non-discretionary projects. We continue to expect that revenues in the industrial and commercial sector will be between $2.3 billion and $2.4 billion in 2009.

And with that discussion of our business by sector, I’ll turn the call over to Tom Hicks for more detail on the financial results.

H. Thomas Hicks

Let me begin with our first quarter results. Revenues for the quarter were $2.5 billion, which is a 12% increase from the first quarter of 2008. This consisted of revenues of $951 million in our federal sector, $448 million in our infrastructure sector, $429 million in power, and $693 million in the industrial and commercial. Net income for the quarter was $75.5 million and our earnings per share were $0.92.

We continue to be pleased with our strong cash flow. In the first quarter we generated $221 million of operating cash flow and ended the quarter with $387 million of cash on hand. DSOs or day sales outstanding were 65 days for the quarter compared to 67 days at the end of the 2008 fiscal year. Interest expense for the quarter was $14.7 million and our tax rate was 41%. Fully diluted weighted average shares outstanding for the quarter were 82 million.

Our operating income margin percentage was 6.5% in the first quarter as we benefited from stable pricing focused on cost controls and several unique events. While we continue to focus on improving our operating margins and expect to see improvement for fiscal year 2009 over 2008, it’s unlikely we can sustain the margin we achieved in the first quarter. However, we are very comfortable that approximately half of our full year operating income will be earned in the first half of the year.

As you know, we report separate financial information for our three business segments, the URS division, the EG&G division, and Washing division. For the first quarter, the URS division reported revenues of $831.6 million and operating income of $63.5 million. The EG&G division reported revenues of $634.4 million and operating income of $35.9 million. The Washing division reported revenues of $1.07 billion and operating income of $81.8 million.

Finally, our capital expenditures continue to be very modest relative to our revenues. Our CapEx excluding equipment purchase through capital leases was approximately $9 million for the first quarter.

In summary, we are pleased with our results for the first quarter and our progress towards meeting our financial objectives for the year.

Our yesterday’s press release contained a detailed description of our book of business including backlog, option years, and indefinite delivery contracts or IDCs. We ended the first quarter with a total book of business of $31.7 billion, an increase of $2.6 billion from the end of 2008 fiscal year

At backlog, the biggest component was $19.6 billion at the end of the first quarter compared to $17.2 billion at the end of 2008. The value of option years was $4.9 billion compared to $4.3 billion at the close of 2008 and the value of IDCs was $7.2 billion compared to $7.6 billion at the end of 2008.

And with that, I will turn it back to Martin.

Martin M. Koffel

Our strong results this quarter reaffirm our confidence in the guidance that we gave for the year. Specifically, we continue to expect that revenues from the federal government sector will be between $3.9 billion and $4 billion, that revenues from the infrastructure sector will be between $1.9 billion and $2 billion, that revenues from the power sector will be between $1.4 billion and $1.6 billion, and revenues from the industrial and commercial sector will be between $2.3 billion and $2.4 billion.

Accordingly, consolidated revenues for 2009 are expected to be between $9.5 billion and $10 billion. Based on this anticipated revenue, we continue to expect that earnings per share will be between $2.80 and $2.95 per share on a fully diluted basis. Finally, we expect that the number of weighted average shares outstanding used to calculate EPS for 2009 will be approximately 82 million shares.

So, I would say that good time for the first lap, good start we think. Although the overall economy continues to be weak, we are benefiting from the diversity of the markets we serve, long-term client relationships, and our ability which is new-found with the acquisition of Washington and it’s successful integration, our ability to deliver the full range of services for the largest and the most complex assignments, and we’re optimistic about our long-term prospects.

And with that, we’ll open the call up for your questions.

Question-and-Answer Session

Operator

(Operator Instructions). Your first question comes from the line of Richard Paget - Morgan Joseph & Co.

Richard Paget - Morgan Joseph & Co.

Just wanted to talk a little bit more about backlog trends, if we do the back of the envelop math it looks like you guys had close to $5 billion in new backlog orders, three quarters of which were in the federal segment, and I know you went over some of the trends, but more specifically, as a bulk of this, the ramp-up of Sellafield or is it pretty widely dispersed amongst the customers?

H. Thomas Hicks

You’re right, the new orders were around $5 billion for the quarter, most of that falling in the federal sector, but actually, Sellafield is not a big contributor to that; as you know, we account for Sellafield on a different basis that it’s not at risk for us; so, the real revenue, the backlog increase came from DoE project down in Savannah River which was the major component of our backlog increase.

Richard Paget - Morgan Joseph & Co.

Would that be roughly half of that increase or it’s not that big?

H. Thomas Hicks

No, it’s significant; it’s a multi-year program that made up the bulk of the order input that we had in the federal sector, and we did have a billion and a half or so coming in in the other sectors as well on top of that.

Richard Paget - Morgan Joseph & Co.

And then getting to the US market with the federal stimulus package, how has it been progressing relative to your expectations, now that we’ve seen some of the project lists come out and some of the bidding starting to come, are they doing it faster than you thought, maybe a little bit slower, and is the money flowing towards where you might have anticipated?

Martin M. Koffel

We always felt that from our point of view this would be later ’09 and certainly ’10 and ’11, and it’s probably about on track; there’s been a lot in the press about it; it started with an analysis by the congressional budget office which said that 25% or 30% of the stimulus would come out this year and the rest would be spread out over ’10 and ’11 and that’s been very controversial; I think the real effect of it, and I could get into numbers ad infinitum and we do have the numbers by state and even counties, but I think the real issue is that even before the moneys come out, it’s given the state’s confidence and we’ve seen quite a number of projects get funded or get started even into advance of receiving the stimulus money. The actual stimulus as the amount we can address for infrastructure is a $65 billion opportunity and this $29 billion for highways or about $19 billion for rail and transit and $8 billion or so for water projects, and then the surprise for us was the stimulus money that’s going to milk on military construction and then to the DoE as I mentioned in the call in the prepared remarks, there’s money going to sites that we’re already managing; so, we could well see significant activity through the federal agencies which is a pleasant surprise before we actually see the money through the states and cities and municipalities. That said, I think people are getting ready for it, it varies by states, some states aren’t ready, some states are ready, but I would say there’s increased confidence across the transportation agencies in all the states.

Richard Paget - Morgan Joseph & Co.

And then one more question on the balance sheet we saw cash go up nicely, but you didn’t necessarily pay down debt like you have in past quarters, does this reflect some working capital expectations or was it timing of some of the cash you received?

H. Thomas Hicks

Yes, it was primarily a little bit of a positive surprise, I think, as we noted in our earlier remarks. The quarter benefited from some unique events that had happened and generated a lot more cash than we expected. We still intend for the full year to pay down debt, and also make some small acquisitions. So, at this time, the way the economy is and the way the market is, having a little extra cash on the balance didn’t seem like a bad idea.

Operator

Your next question comes from the line of Vance Edelson - Morgan Stanley.

Vance Edelson - Morgan Stanley

On the decision to take the designations out of the official book-of-business, could you just provide some color on that thought process as to why that was done and the amount of designations which were no longer receiving; I can’t help but notice that that had been steadily declining, so what is it that would explain that?

H. Thomas Hicks

First of all, the decision to take it out was based on the fact that our mix and business has changed pretty dramatically with the acquisition of Washington Division. Secondly, it was always an attempt to, because if you remember traditionally the business was much more heavily concentrated in state and local activity, and we thought it was a good indicator for investors to be able to see what’s coming down the pike. As the business has grown and changed over time, that became less important, we thought, to share. There is necessarily no trend there that was negative or positive as far as any kind of long-term effects, but we just think, informational, what we’re giving you today is more than adequate to give you some view as to what our future prospects look like.

Vance Edelson - Morgan Stanley

That’s very fair. With the G&A expense dropping pretty significantly on a sequential basis, are we at sustainable levels now; do you think it creeps back up and is that part of why you say the operating margins are not sustainable at these levels?

H. Thomas Hicks

The G&A level is approximately at the level we want to try to keep it at. A lot of the savings that we talked about for indirect costs came in the overhead category which is embedded in the performance of the operating divisions, and some of that is sustainable, some of that isn’t; frankly, we delayed some things and as the economy looked a little shaky as we started the year, but in general I think the G&A level you see is something that we can target to maintain, at least in that range for the rest of the year.

Martin M. Koffel

The balance we have to look out for is that on the one hand you want to control non-recoverable costs and our company has always been very good at that, very good on cost controls, and on the other hand you don’t want to disinvest in marketing or the development and training of you people, and so we’re watching that balance carefully.

Vance Edelson - Morgan Stanley

Finally, what’s the latest you’re hearing on the 800-pound gorilla, the next Federal highway bill in terms of timing, amount, sources of funding, and so forth?

H. Thomas Hicks

I think it’s more about the Congressional willpower. With the stimulus bill and the size that it turned out to be, it probably isn’t appetizing the Congress to re-up that bill at this point. The trust fund feeds the highway bill and the trust fund of course is fed from the sales tax collections on gasoline at the pumps. So, at the end of the first quarter there is very little sentiment in Congress about raising the gas tax. We think it’s unlikely that Congress will pass the reauthorization by the end of this fiscal year and we think we’ll see, as we’ve seen in past year, the series of continued resolutions. There is some sentiment that gas taxes could go up, which is both necessary here, but not before the 2010 mid-term elections. The administration really is looking for alternative taxing sources such as cap and trade, but that too seems to be not getting a lot of support in Congress within the timeframe necessary to fund reauthorization of the Act. So, probably there’ll have to be $5 to $8 transferred to the highway fund from the general fund, and in order to maintain it, the level of spending that exists, there’s probably $80 billion needed to be transferred from the general fund during the next 6-year transportation bill. If that’s not transferred, the contribution to states could drop by something like 38%. So, it’s a bit of a stress on that and I think politics is in the way of it, but over the decades the highway fund always has received its money.

Operator

Your next question comes from the line of Jamie Cook - Credit Suisse.

Jamie Cook - Credit Suisse

Tom, my first question, you’re probably not surprised, relates to your guidance. I think last quarter when you talked about your margin assumptions for 2009, you thought we would be up year over year modestly; I am just trying to get a feel for how you guys are thinking about margin, I realize it’s a lumpy business and there’s one-time performance, wars, and all that, but as we look at your guidance, the mid point of guidance, and take everything into account, margins in the remaining 9 months seems to be down year over year; I think it implies like a 4.7% margins versus, close to 5%, in the remaining 9 months last year. Am I thinking about it the right way, and what would impact the mix; I mean, if we look last year the only time you had a margin below 5% was in the fourth quarter when we had a small problem project; so I am just trying to get a feel if I am thinking about that the right way.

H. Thomas Hicks

It’s a good question. I think one of the comments you made was comparing the last three quarters projected for this year at the mid point of the range versus last year’s last three quarters. That’s a tough thing to do. I would urge you to think about the full year first of all, and secondly, we’re still on track and we believe we can increase our margins slightly year over year for the full year. We did have some, as we talked about in the Q at quite some length, we did have some unique events in the first quarter, and we have a lot of moving parts. We have projects that generate profitability with no revenue associated with them or little revenue associated with them due to milestone payments or completions or awards for prior performance. We also have the impact of the MIBRAG earnings coming out through the second half of the year if we complete our deal as expected in Q2. So, there’s a lot of moving parts, but I would tell you that we’re still on track to increase our operating margins and our net margins for the full year, and as I said in my comments, probably about half of our full year performance will fall in the first half of the year.

Jamie Cook - Credit Suisse

Two other quick followup questions; I think you mentioned that you saw some increased activity in the cement, construction project and on the gas processing project. I am just trying to get a feel for where we are in terms of completion; how much of these incremental revenues was pulled forward in the first quarter relative to what you say, and assuming that it takes away from earnings in the back half of the year; and then my followup question, if you could just give us an update on what you’re seeing on the nuclear power front; I think, some of us were expecting an announcement at some point on a nuclear war in the next couple of months, if you could update us on that, and I’ll get back in queue.

H. Thomas Hicks

On your first question, I’ll take a shot at it, and then I’ll pass it off to Tom Zarges for the second half of your question. We did see accelerated activity on a couple of major projects. The primarily tell in the I&C, the industrial and commercial sector, and if you do some extrapolation and multiply our I&C revenues times 4 for example you’ll see that we’re significant ahead of the range for the full year. I think you can imagine that our range for the full year for I&C will be within the range we said; so that gives you an idea of how much extra, if you will, revenue fell in the first quarter versus the latter half of the year. I’ll turn it over to Tom for the nuclear comments.

Martin M. Koffel

Let me explain that Tom is the President of the Washington Division, and he joined us a consequence of the acquisition.

Thomas H. Zarges

We’re seeing a lot of activity obviously in the nuclear market, maybe some increased activity in terms of bidding and technology selection by a number of clients who still have that to do to support their applications, and one of the announcements that Martin mentioned in his text was the Hitachi Exelon announcement. We’re glad to be selected for that and that perhaps presents something which is developing trend which is that the ultimate owners, the utilities, are getting more involved in selecting not only the technology, but the choice of the engineer constructor to implement that technology. So, that’s an interesting trend that’s developing in the business and I can tell you that we’re quite engaged right now in several competitions and discussion relevant to selecting technologies and engineer constructors to be peers of those technologies. We see more activity I think in getting these applications lined up and in getting EPC construction agreements formulated and ultimately negotiated many of the competitions and discussions that we’re engaged in now, and the ultimate objective of having the full package of technology in EPC construction wrapped up and fully negotiated by the end of the year.

Jamie Cook - Credit Suisse

Are we still hoping for an AP1000 Award?

Thomas H. Zarges

I would say that’s pretty optimistic. I think what we’re seeing is a trend as I said where the owners are getting involved in the decisions about who will implement these technologies. We’re seeing more discussions there, but I wouldn’t speculate on whether or not any of these owners are swapping horses or developing new engineering construction approaches for the AP1000. I would say that we’re engaged in talking to some owners as being their project managers, that is administering the program and helping them administer the full package of engineering construction and technology acquisition, and I would say that as we see this trend for owners making EPC selections, we’re engaged and speaking with many of them in providing some alternatives.

Operator

Your next question comes from the line of Will Gabrielski - Broadpoint Amtech.

Will Gabrielski - Broadpoint Amtech

In terms of buy-back, you guys look like you were a little active, is that going to continue or what’s your expectation there?

H. Thomas Hicks

We’ve said that our plan on buy-backs typically is to try to balance the shares that are issued under our employee benefit programs such that we keep a relatively stable share count, and that is approximately a million shares a year is what it come out to be. We bought about a little over 600,000 shares through Q1 and we’ll opportunistically look at buying the rest of that for the rest of the year. We don’t feel any obligation to do that, but if the opportunities arise, we will do that.

Will Gabrielski - Broadpoint Amtech

Can you talk about the past month and a half in terms of what you guys are seeing on the bond issuance side and how that market’s shaping up and what your expectations are?

Martin M. Koffel

You mean about municipal bonds and so on I gather?

Will Gabrielski - Broadpoint Amtech

Yes.

Martin M. Koffel

Through the first four months there’ve been about $121 billion, I think the actual number is $121.7 billion, led as you’d expect by California, New York, Texas, Pennsylvania, and Florida. On top of that there are the Buy America bonds, and that vehicle is two years old, but it really is one that’s been utilized lately, and this is a situation that gives almost like an interest buy-back to the states and gives them a lower cost of borrowing. California has issued about $5.2 billion of Buy America bonds and the only other large one is the New York Transit Authority, which issued $1.3 billion. So, in total if you add the Buy America bonds to the regular bonds, we’ve got a little less than $130 billion of bonds. It’s pretty close to the same rate last year.

H. Thomas Hicks

I went to a conference recently in which the Buy America bonds were one of the front and centers, one of the hot topics, and there is a lot of enthusiasm for approaching a different investor set here that look for higher yield, and I think we’re just seeing the beginning of that, if the amount of interest I saw at this conference was any indication.

Will Gabrielski - Broadpoint Amtech

Is there a Federal cap on how much of that can be issued?

Martin M. Koffel

I don’t know.

Will Gabrielski - Broadpoint Amtech

Switching gears here briefly; on the transition distribution side, you guys have talked a little more about that over the past two quarter, and I’ve heard you guys talk a little bit about the CREST Project in Texas, how’s that going; can you give us any visibility or timing on what we can expect there?

Martin M. Koffel

It’s not a strong market for us. We participate, but I think we’re a support player and not a primary player.

H. Thomas Hicks

We look to grow that obviously and we think there’s a lot of activity coming, and we have a great resume historically of doing work, some major projects, and we’re optimistic we can do something there, but as of right now as Martin says, it’s not a major part of our business.

Martin M. Koffel

It would take a niche acquisition to get a real position there, and we’re looking at that, we’re scrutinizing the market just as we’re scrutinizing alternative energy.

Will Gabrielski - Broadpoint Amtech

On that niche acquisition, are you guys still focused more on the front-end design of that versus the construction side?

H. Thomas Hicks

In T&D?

Will Gabrielski - Broadpoint Amtech

Yes.

H. Thomas Hicks

The construction side of T&D tends to be a specialized equipment market and that’s another area we’d like to in. We don’t like to be in capital-intensive business.

Martin M. Koffel

It’s an erection business and that’s not what we do.

Will Gabrielski - Broadpoint Amtech

Lastly, the bigger picture, looking at the oil field, there’s been a little bit more activity over the past few months and with the oil back above $50, any thoughts on that market and any opportunities you might be looking at?

Gary V. Jandegian

We think it’s been resting obviously for the last 3 or 4 months, but they’ve been thinking hard about reviving some of these programs when they can begin to put some trends for favorable low pricing together, and I think we are seeing more front-end activity now as people begin to speak about reviving some of the programs that were suspended, and then reconstituting some of the jobs with lower cost structures and better value in economics, and we’re hearing customers speak of those toward the end of the year with some preliminary activities that may begin toward late summer. So, I think we are seeing renewed interest and as long as the economic trends seem to favor long-term good pricing and economics, we’re seeing some people beginning to stir and beginning to think about newer-term revivals of those programs than we might have thought at the beginning of the year.

Martin M. Koffel

We’re positioned to benefit as some of those programs come back.

Operator

Your next question comes from the line of Alex Rygiel - FBR Capital Markets & Co.

Alex Rygiel - FBR Capital Markets & Co.

As it relates to the EPC contract with Exelon that you just announced for construction to reactors, can you discuss the timeline for this project, the approximate value, and when it may get out into backlog?

Martin M. Koffel

We can’t; we have some amount of information, but we have to work with our customer as to what we’re able to say, and we’re not really in a position to discuss it in any more detail really than my prepared remarks and the amplification that Tom gave.

Alex Rygiel - FBR Capital Markets & Co.

Could you help us to better understand what URS’s opportunity is throughout the remainder of this year for additional EPC contracts; do you think that you could possibly be awarded a small handful?

H. Thomas Hicks

Which sector? In the nuclear area, are you asking?

Alex Rygiel - FBR Capital Markets & Co.

Yes.

Thomas H. Zarges

I would say that there are at least several competitions and teams that we’re engaged in now for utility technology and engineer construction selections and many of those competitions should be decided by the end of the summer with negotiations to carry on through then. So, I can say that there is a great deal of market activity, and those selections are in progress and we’re engaged in them. I don’t think I would want to speculate very much on who and what the actual time it would be because of economics and other considerations obviously gate those issues, but I would say that in the interim the EPC activity is going into natural gas fired stations and we’re seeing a fair amount right now of not only jobs in progress which we have, about 1200 megawatts worth, but also activities under alliance authorization such as the one we have with TBA and fresh competitions that are beginning to come out of the industry that has bridged the gap between this favor of coal-fired generation that we have seen last year, and then the waiting that we’ll have to do until these nuclear programs mature and come online. So, we’re seeing the gap filled in substantially by both simple and combined cycle natural gas fired stations.

Alex Rygiel - FBR Capital Markets & Co.

Last question, moving over to the DoE; can you talk a little about the short list of opportunities that you anticipate being awarded before year end?

Martin M. Koffel

We wouldn’t probably be in a position to comment on pending awards, but we certainly have very strong footprint and a long franchise in that market, and short of saying what we expect to be awarded, I think Tom can give you a better idea.

Thomas H. Zarges

I think it’s fair to say that we’re involved in virtually major competition that the DoE has outstanding, either as the principal and managing partner or as a team mate. So, we’re engaged in virtually all the significant DoE acquisitions that are in progress or pending, and beyond that I don’t think we want to speculate on what our chanced are for individual jobs.

H. Thomas Hicks

One comment Alex is that a lot of the stimulus money went to accelerate some of the clean-up activities in DoE and that’s giving us an opportunity to go after some more work there as well.

Operator

Your next question comes from the line of Scott Levine - J.P. Morgan.

Scott Levine - J.P. Morgan

With regard to the power market, a followup; it seems inwritten in the Q that maybe the scrubber market is slowing down the gas plant market, maybe it’s looking a little bit better than it did say 3 to 6 months ago, is that accurate, and maybe if you can elaborate on on emissions control more broadly?

Martin M. Koffel

There are obviously two deadlines that occur in emissions control, one is 2010 and then there is a second which occurs about 2015, and it’s quite clear that there are about 100 gigawatts left in which emissions controls have not yet been installed. So, there is a substantial market remaining for 2015. Now, a lot of those plants that are left may be threatened if you have to install scrubbers, and so they could well be replaced in capacity by new generating systems, predominantly natural gas. I would say that we’ve in the meantime got the lion’s share of the AQCS market, over 17,000 megawatts, and we also have some substantial fleet orders in which not all of the units that are earmarked in those fleet orders have yet been authorized to fund it. So, there are some more programs to go as well under some fleet commitments that we have. So, there are two phases and we’ll see I think a little attenuation between the 2010 deadline and the 2015 deadline when it’ll pick up again.

Scott Levine - J.P. Morgan

Turning to cash flow and the acquisition profile, or more the acquisition profile I guess, you mentioned the feed on the transmission and distribution is an area of focus; you guys more or less are the same in terms of your appetite relative to the last few quarters in any other areas that are on your wish list right now?

Martin M. Koffel

As we’ve said before we’ve grown in the business on three parallel tracks, organic growth, and we’ve done really well in reinvesting in the business and growing organically, and then with a series of add-on acquisitions have either added particular know-how or technology or they add areas of geography, and then we always have our eye open for what we call the main chance. So, the company has growth from organic growth to probably 12 or 15 small acquisitions and 5 transformational acquisitions each of which has doubled us from the size we were at that time. We’re always going on those three tracks, and we do have some technologies or know-how areas that we’d like to add and some geographies where we’re always seeking to strengthen. Last year we were very successful in adding both know-how and geography in the Texas infrastructure market, and that projected us as a provider of engineering services to Texas DoT, I think we moved from #15 or #16 to #3, larger as a result of acquisition, and then in my prepared remarks I mentioned another successful acquisitions that Gary Jandegian engineered last year and that was to add capacity and know-how in Alaska, and that helped us win that project on Alaska’s North Slope. So, there are several dozen small opportunities like that that we’re studying and we’ve actually added to our M&A capacity internally. I think you might be hearing more from us later in the year about the smaller add-ons, and then we always have an appetite for something opportunistic that would add some dramatic increase in value for our shareholders.

Scott Levine - J.P. Morgan

One last one maybe for Tom; you mentioned 50% of the EBIT in the first half of the year, I think, you said. Seasonally, historically, your fourth quarter has been lighter than your third quarter, more holidays and so forth; I know you don’t guide on the quarters, but would it be appropriate or reasonable to think about your typical seasonality applying here as well, and any reason it shouldn’t?

H. Thomas Hicks

It’s more difficult to look at seasonality with our new structure, if you will. Traditionally, the third quarter has been our strongest quarter because of weather related activities. Our field teams can get out and activity on projects tends to pick up during that, and I would expect that we’ll see some of that again, but it’s much more difficult now to predict quarter to quarter; that’s why we keep suggesting to everyone that you try to look at a year as opposed to a quarter. So, I think there will be seasonality; how much of it will affect third quarter versus second or fourth quarter is all up in the air right now because of the project-driven activity that we see. Once again, think about the full year and some of the guidance that we’ve given you on the full year I think is probably the way to think about it.

Martin M. Koffel

The factors that made the business some year ago, and you have to go back a few years to really see the seasonality, is really three-fold. On the one had you had the budget years or the budget cycles of some of these large state, city, and federal agencies, which had budgets running down and at the impetus when the budget started, and the budget started anywhere between July and October 1, and then the business previously was labor based. So, round about the end of the year in January, you had the intervention of holidays, so the labor was down, and then because a lot of our business used to be in East Coast and the North East, it still is, but it has had quite a bigger disproportion affect, you had the intervention of weather. So, you couldn’t do a lot of field work. All of those factors are still there in the elements of the business that are labor based, but so much of it now is driven by other factors. Field-type work through EG&G, very large projects through the Washington Division; so, seasonality in the literal sense of the seasonal swings probably isn’t there anymore.

Operator

Your next question comes from the line of John Rogers - D. A. Davidson & Co.

John Rogers - D. A. Davidson & Co.

Couple of things, first of all, in terms of the stimulus moneys that you’re looking at, is that a bigger opportunity near term for URS than Washington group division?

Martin M. Koffel

Depends on how you look at sequencing; let’s say we’re talking about infrastructure, in the case of the DoE, that’s an opportunity for the Washington division because it’s Washington that executes those programs. So, on the infrastructure side it depends on how you look at the turn sequence; under the old model the design and engineering was done first, and you’d think that URS would have been in a very good position to catch that early money, but because of all its pressures and everything else and the deadlines that have been set by the federal government for the states to actually obligate the money or get the money spent, and for political and budgetary reasons, they’re turning to go to projects that can be physically executed immediately; there’s a little bit of unusual sequencing going on, I mean there’s some concrete to be poured and backup work to be done in order to get that money up to going straight to some of the physical work; in some cases, we’re doing engineering to come later. I’m going to ask Gary Jandegian, the President of the US division to comment further, and I think that’s the sort of the essence.

Gary V. Jandegian

The other dynamic that’s going on and you probably read about it was that some of the early stimulus obligations are benefiting companies that already have a footprint with the DoTs, particularly if companies hold indefinite delivery contracts, task orders can be quickly issues under those contracts, so, URS division is benefiting by that already; and the other is just our operational model; we have a couple of hundred offices in virtually every state in the country and because we’re close geographically to every DoT, we already have those relationships and some of those early start projects can be issued quickly to the URS division. Martin mentioned the paving and maintenance moneys, that’s the type of construction work that’s getting out early; those are the things that the Washington division certainly could do, but it’s not our market; so, the larger design built procurements have to run their course, and so from that standpoint, Washington division is heavy into proposal writing and responding to solicitations but can’t get those quick starts similar to the work that we can do in our footprint of offices.

Martin M. Koffel

John, we’re very pleased about the stimulus bill both obviously for the economy and the nation and for our market, but as we said in the last call, year-end call, where we gave the guidance, without any stimulus money we saw healthy growth in our infrastructure business, both for the URS and the EG&G division; so, the stimulus money probably accelerates the growth we saw, but we’ve been cool-headed about this stimulus money from the start; we had a good business with Solar Grid without it. Stimulus money on top of it certainly helps us, but we think it’s going to help more in ’10 than in ’09.

John Rogers - D. A. Davidson & Co.

That’s why I was asking you if you just made more out beyond this year, if that was your flow?

Martin M. Koffel

Yes.

John Rogers - D. A. Davidson & Co.

Then just following up on some of the comments from Tom on the power market and specifically the shift over to gas-fired projects, are you bidding this work as cost plus work or fixed price?

Martin M. Koffel

Well, I think there’s certainly pressure on the risk profile of the contracts, and thus far we continue to bid them on reimbursable target contracts, in some cases there are some hybrids, but for the most part, we’re still seeing that the cost reimbursable target model is folding up well principally because of past performance and we’ve been able to keep our costs and our commitments well in line with our original budgets and our original promises for schedule. So, that credibility I think helps us a great deal in the marketplace to maintain this reimbursable target posture that we’ve enjoyed over the last several years.

H. Thomas Hicks

John, we haven’t seen, in the macro sense for the whole company, any significant shift towards fixed price contracting or lump sum at all; so, we continue to do a modest amount of that and we always will probably, but it’s for clients that we know and we have a relationship with and we have projects in which we’ve done the design work or we’re very comfortable with it; we’re very cautious in that area as you know.

Martin M. Koffel

Our risk profile and our risk tolerance remains the same.

John Rogers - D. A. Davidson & Co.

Okay, I just know in that area you’ve seen a shift back and forth over different cycles.

Martin M. Koffel

Right.

John Rogers - D. A. Davidson & Co.

And then just lastly, Martin when you made the comments about acquisitions you didn’t say anything about the international markets, and I think in the past you’d referred to that as the place where you’re under-exposed.

Martin M. Koffel

Yes, we’re still under-exposed and happily so; we’ve always been selective internationally; I used to say relative to our peers that we’re a bit behind internationally and I’m not uncomfortable with it at this point, although some international businesses are actually doing quite well, either quite well considering the economies there or quite well in an absolute sense and they generate cash, but most importantly I think they globalize their franchise because we’re working for the worlds not the nationals, and the largest multinational client of course being the US Department of Defense; so we have to have that footprint to service it, but we’ve always been cautious about really having some big piece of our EPS dependent on foreign currencies and the like; the day will come, I think the international growth is more likely to come one day if it looks say hypothetically there was another large acquisition and perhaps it might bring a larger international piece, but we’re very comfortable with the ratio at this point.

Operator

Your next question comes from the line of Steven Fisher - UBS.

Steven Fisher - UBS

Now that you’ve fully transitioned the Sellafield, I assume there was some start-up costs that were involved with that, should we expect that the program is going to have a more noticeable impact on the Washington division margins going forward?

Martin M. Koffel

Well, I think there is obviously a ramp-up, there’s a transition period that we employed through the end of March, and during that ramp-up we gradually took responsibility for the site, and as we now take full responsibility for it, the earnings profile will begin to shift from project based incentives and milestones more toward sharing of savings and as we transition completely over the next three years to that mode of earning fee against the budget, it will have considerably effect as time goes on.

H. Thomas Hicks

The important thing there Steve is that the way we recognize profitability there and profit, it comes in with very low revenue associated with it. So, it does have an impact, an outside impact, on margins.

Steven Fisher - UBS

So, now that it is based on cost savings, is it going to be smooth or is it going to be lumpy, it sounds like it might be more smooth over time.

H. Thomas Hicks

Certainly in the earlier stages of this program, the next year or so, it’s going to be relatively smooth. As it gets further out, as we try to capture some of these cost savings, we may see more lumpiness there, but it’s up and running and we’re very pleased with the initiation of that program, and we’ve had good performance today.

Martin M. Koffel

Tom Zarges and I were both there in the last two weeks and we have been well received and I think we’re doing well with it, I mean we have a good future there.

Operator

Your next question comes from the line of Andrew Obin - Merrill Lynch.

Andrew Obin - Merrill Lynch

Most of my questions have been answered, but just to go back to what we were talking before, what’s the real surprise for you guys versus what, forget about the timing, but what just did better than you guys thought?

H. Thomas Hicks

What did better in the first quarter?

Andrew Obin - Merrill Lynch

Yes, when we thought as opposed to just pure timing?

H. Thomas Hicks

Yes, I think we talk about that in detail in the Q. We had some more activity at MIBRAG than we expected, for example that was not a timing issue. We had some award fee recognition and performance on programs that we were being relatively conservative and cautious on how we booked profitability on that, and when the actual completion or award fee or milestone payments came out, we did better than expected. So, that contributed as well. I would hesitate to get into specific programs or specific contracts Andrew, but I think the overall macro guidance we gave saying that we think the first half of the year will represent or will earn about half of our income for the full year is probably an appropriate way to think about it, and you can do the math.

Martin M. Koffel

A direct answer to your question might be that the surprise was that everything did well and in something this complex, over $10 billion of revenue, 10,000 or 11,000 simultaneously live projects, 50,000 to 55,000 people; that’s not usually how portfolios work, so the surprise to me was that everything did well and we didn’t have any execution issues in the quarter.

Andrew Obin - Merrill Lynch

This goes to the point that since the acquisition of Washington group, that has actually been a theme, if you guys would get up and say, “well, we have these awards, incentive recognitions, but we don’t expect it to repeat,” and yet they keep repeating; as the things get tougher outside of the US infrastructure business, is it just a function of you changing risk controls at Washington group in a fundamental way or is it just the industry, the contract structure was so good, that as things got a little bit tighter, it’s just not sustainable; which one is it? Did you run your Washington group more conservatively or are you just riding the wave of the industry with a better contract structure?

H. Thomas Hicks

Let me answer your first question first. We have not had unfortunately every quarter positive surprises. If you look back at our fourth quarter of last year actually our margins went down pretty dramatically in the fourth quarter compared to the third quarter, and now they’ve come up again in the first quarter, and I think that Andrew is what you’re going to see going forward because of more project-based business, and it’s difficult to anticipate what a client is going to give you as an award fee or as a completion fee or exactly when a milestone is going to fall around the quarter end. So, that’s going to continue to happen. As far as the comment about are we running things more conservatively, the Washington group well before we acquired them was moving towards a much more careful assessment of risk in their markets, and they were well down the road to do that. In fact, if you think about it, a lot of the work that’s coming in now was bid and won well before we closed the acquisitions. So, that risk profile was well on its way to being more similar to ours, and if you remember, when we commented on the deal, one of the pleasant surprises was the way the two management teams both viewed risk as something we all wanted to focus on.

Martin M. Koffel

We very quickly established a central risk management function and that group is populated by people from what we call the old URS and Washington, and the senior management group probably spends half a day a week just on risk management, and I think that’s reflecting in the execution. I would have a slight sense that we’ve very careful with the parameters of the risk profile and there’s a bit of a sense I think that we’re big enough to actually to be able to afford to not do things which worries from a risk point of view and that’s one of the advantages of scale is that we can be more selective, and I see everyone in the room nodding here. I think we’re probably saying no to things, which a smaller company might have had to say yes to, and that order reflects in our execution performance as we go forward.

Operator

Your next question comes from the line of Andrew Kaplowitz - Barclays Capital.

Andrew Kaplowitz - Barclays Capital

Just following up on a previous question on Sellafield, in the 10-Q you told us that on the two Nuclear Kingdom sites, you had earned just under $8 million; my question is given Sellafield’s strong yearly going, that number should be going up over time and it should be relatively stable, is that a fair way of thinking about it or was there something else in there that is not repeatable?

H. Thomas Hicks

That’s reasonable Andy, what you’re saying.

Andrew Kaplowitz - Barclays Capital

That’s easy. Could you give us an update on the common Sellafield project; anything you could, I know you don’t like to comment on particular projects, but obviously it was an issue last quarter, it seemed like it was okay this quarter, a couple of million dollars; are you still in line to complete it sometime this year and how likely would it be that you’d have to take liquidated damages?

Martin M. Koffel

You can imagine we have a certain caution here because we comment publicly; we’re talking to our subcontractors and our joint venture partners and everything else. So, respecting that we have to be sensible commercially, I’ll ask Tom to make some constrained comments.

Thomas H. Zarges

We are approaching some very early completion milestones and important completion milestones on that program. In fact, one of the milestones that’s required for initial operability is due to be completed at the end of this month, and from all accounts and from progress, we will achieve that. So, we will make this plant operational beginning at the end of May, and then there are other phases of operation which expand its capacity that will extend toward the end of the year. We have very little work to go right now. We’re obviously in full and complete commissioning of the plant which is the last stage, and punch towards completion; that’s not to say that that’s an easy program, this is a complex project, and so we are still working on it and attacking it very vigorously, but we’re approaching the end of the trail, we’re in final commissioning, and that’s a good place for us to be.

Andrew Kaplowitz - Barclays Capital

Just going back to nuclear for a second, one thing I just have a hard time with is that it seems like the current administration is somewhat nebulous around nuclear, obviously we’ve all seen reports on Yucca Mountain and we talked about it last quarter; what are you guys hearing from your contacts in Washington around nuclear and how supportive do you think they will be going forward around nuclear contracts?

Martin M. Koffel

It’s a great question; nebulous is probably a good reflection of their public posture. I think that if we’re going to reduce CO2 emissions, there is an admission, maybe even a grudging admission, that nuclear is part of that because unless we can find a large-scale generation without carbon emissions, the goals that are stated by the administration probably can’t be achieved. So, it’s perhaps a grudging or a backdoor admission that nuclear power is one of the answers to achieving CO2 limitations that the administration has got as one of its obvious goals. There are movements in the Senate to increase the extent of loan guarantees that has not come out yet, but there is some pretty good local and congressional support for that, we’ll see how that goes in the future, and as you said at Yucca Mountain although there was a lot of noise about completely shutting it down, there is a sustainment budget and although it is modest in comparison to a full-scale budget that allows that program to carry on and allows decisions on its ultimate outcome to be deferred until later. So, nebulous is a good word, but I think there is support for it behind the scenes and I think that in terms of getting the ball rolling, the government has provided some funding stimulus and they are somewhat satisfied that they have done so, and I think the ball is rolling, so it remains to be seen how the administration will publicly announce its support for nuclear power, but I think nevertheless there is certainly an admission that it is part of the energy mix to reduce the CO2 emissions and to implement the long-term goal that we have for clean air.

Andrew Kaplowitz - Barclays Capital

Tom, how much apprehension do you sense on the part of your customers around the administration stance, it is slowing you down at all or are they long-term enough in view that they just say okay, we eventually will figure it out?

Martin M. Koffel

Well, I think the government could have stimulated it further as they added some more money into the program, obviously that hasn’t happened, so I think the pace is up to the utilities to work out their economics and to work out what their demand needs are; so, I do think the government could have stimulated if it felt moved to do so, they have not so, the utilities will determine the pace at this point.

Operator

Your next question comes from the line of Andrea Wirth - Robert W. Baird & Co.

Andrea Wirth - Robert W. Baird & Co.

I just have a quick housekeeping question, first, did you have any meaningful cancellations from the backlog this quarter and what was that amount?

H. Thomas Hicks

We had one mining project that was canceled and it was close to a couple hundred million dollars of backlog, but that was the only significant cancellation we had.

Andrea Wirth - Robert W. Baird & Co.

That’s helpful, and then just want to know if you could comment a little bit more on the emissions and looks like cap in trade legislation is actually looking a little bit more closing like it will get passed as there are some concessions finally being made across the isle, wondering if you could just comment a little bit on how you could see the implications as the legislations come through, particularly whether some of these allocations are actually allocated or if they are given out free or if it’s an auction system? Just wanted to try to understand how you could see the benefits there.

Martin M. Koffel

We have to work, we’re obviously studying it and we’re trying to translate it what does it mean physically in the market, what gets built, what gets slowed; it’s too early for us to analyze it.

Operator

Your next question comes from the line of Avram Fisher - BMO Capital Markets.

Avram Fisher - BMO Capital Markets

EG&G, nobody has really asked much about it, US Army mix over the last 5 quarters has been about $350 million, revenues ex the army is up about 40% year-over-year, is 350 just the baseline for the army, is there anything that would change that going forward, and then can we expect any positive mixture from the increment?

Randall A. Wotring

Well, we’re just looking at the big picture; the budget remains growing, the defense budget, and we remain in a very positive position; as you know, we have built up a very broad footprint in our federal business and within DoD, and although there may be changes in the mix of the type of work we do and for those specific agencies within the Department of Defense, there’ll be pluses and minuses, and we think that that will be very stable and growing force into the future.

Avram Fisher - BMO Capital Markets

What are the areas outside of DoD, I guess I should say outside of US Army?

Randall A. Wotring

Well, again we have very large IDIQ contracts with the Navy, with the Air Force, and the growing activity with intelligence activities; in addition, in the last year we won a major contract using the resources of our entire corporation, all three divisions, to win the Kennedy Space on our contract where we are in full operation today, and also have become the market leader with FEMA over the last year and a half. So, we’ve made great strides in diversifying our business.

Avram Fisher - BMO Capital Markets

I appreciate that color; switching gears to Washington group, you had about a net $30 million in one-time items, about $14 million in change order recovery, $9 in contract termination fee for mining, $7 million success fee less $2 million on the sulfur gas, so that’s $30 million; how much of that was a surprise?

H. Thomas Hicks

About half of that was a timing issue and half of it was an upside surprise.

Avram Fisher - BMO Capital Markets

So, we can think about that as kind of cushioned to your guidance going forward?

H. Thomas Hicks

Well, we have some things going the other way unfortunately, so, it’s terrific to get that in the bank and get the first quarter behind us, and so, yes, as we said earlier, it gives us better confidence for the full year, but we’re not ready to increase guidance at this point, we’ll revisit that at the end of Q2 and let you know where we are.

Martin M. Koffel

No cushions here, Avram.

Avram Fisher - BMO Capital Markets

On URS, just sort of a commentary in the queue it says that EBIT less subcontract cost less pass-through, is that due to the nature of the work or are you just secular change in more in-sourcing work?

Gary V. Jandegian

I think you got the right answer there; when we anticipated the slow-down in the economy we looked at what we could in-source, and some of the lesser pass-through is because we looked within the Washington division or the EG&G division or the original URS division as to in-sourcing, so, I think it’s a little above some of the projects, particularly on the federal side of the URS division came out of construction cycles and we’re a little bit down on our pass-throughs, but we only make on average about 2% margin on pass-throughs and you see what our margins are, overall about 7.6% or so we do much better when we can in-source the work that we can perform in-house.

Avram Fisher - BMO Capital Markets

Do you have a target in terms of how much more in-sourcing you can do and the incremental margin benefit from more in-sourcing that you want to share with us?

Gary V. Jandegian

No, we don’t have a target, we just look at our projects and what the requirements are; companies are cutting back on the use of consultants, we do the same; we see first what we can do in-house and whatever else we cannot do in-house, then we outsource it.

Avram Fisher - BMO Capital Markets

Someone asked this earlier about the cement revenues, I didn’t quite get the answer, should we expect any cement revenues Q2, Q3, Q4, or is it substantially done?

H. Thomas Hicks

First of all, it’s construction of a cement plant; that project is wrapping up and it’s been a great project over a number of years actually, and I think completion will be in the first half of the year and most of the revenues this year will fall in the first quarter; so, in the second half of the year we won’t see any revenues from that project.

Avram Fisher - BMO Capital Markets

If you kind of look into the revenue guidance, it implies that last 9 months ’09 versus the last 9 months of ’08 empowered $300 to $500 million drop in revenues and in industrial commercial about $600 to $700 million, if you take out cement it’s may be 200 to 300, are there any one-time projects, major projects that completed in ’08 that don’t complete in ’09, or is it just lack of visibility?

H. Thomas Hicks

Well, I wouldn’t pin it on any one, but you hit the one big issue which was the cement project that we talked about, but it’s just a series of projects and generally the I&C sector has slowed down as we mentioned, and that’s the one place where the economy has really hit us hard; on the power side it’s really a set of timing issues related to projects and when they completed, so there’s no one big project on the power side that caused that swing.

Avram Fisher - BMO Capital Markets

Okay, and what would give you confidence in terms of we’re not going to lose over a billion dollars in revenues in those two segments?

H. Thomas Hicks

Well, we’ll have to see bidding activity and opportunities pick up, and we’d have to be successful in some bids that we’re chasing; we added $500 million of new orders in the I&C sector in the quarter, so, it’s not like it’s going away; it’s just that the big large capital projects have been delayed or put on hold, and we hope to see some of that come back, but there are also other segments of the economy that as commodity prices pick up and general industrial activity increases, we’ll have an opportunity there.

Martin M. Koffel

There’s no issue here about competitiveness either, in fact, we’ve got a very strong competitive profile; it’s about the number of jobs being bid and we’d just have to wait for the global number to pick up.

Avram Fisher - BMO Capital Markets

And I just have two quick questions on housekeeping; what was the intangible amortization at the segment level for Washington group and EG&G?

H. Thomas Hicks

Well, in total the intangible amortization was about $13 million for the quarter and for the Washington division it was about $9 million and for EG&G about $3.

Avram Fisher - BMO Capital Markets

And also, I noticed that there didn’t seem to be any substantial tax on the joint venture income, is that sort of the way the JVs work on the modeling? I’m just trying to understand that.

Reed N. Brimhall

The joint ventures themselves aren’t really taxable entities that pass income through to their owners. To the extent that we have joint venture income that comes in from our unconsolidated subsidiaries, it gets included in our tax provision.

Operator

Your next question comes from the line of Will Gabrielski - Broadpoint Amtech.

Will Gabrielski - Broadpoint Amtech

Just a followup on natural gas power, in terms of activity levels, within TVA and outside of TVA, can you provide may be the number of plants you’re looking at, potential bookings opportunities develop 24 months out, what you’re seeing there, and what’s really driving that?

Martin M. Koffel

Well, not to get into the specific prospects, but I think we are seeing a increase in those prospects obviously; there will be several things that drive that, one is the current cost of natural gas is relatively low compared to the historic levels, the other will be the demand side on the utilities and what their profile is for meeting the demand, and the other may be replacement of coal-fired units that are uneconomic to install air quality systems when the next wave comes along; so, we are seeing general increase in the number of natural gas prospects that we have; we obviously have a very strong portfolio in that where we’re certainly up in the top 5 in terms of engineering and construction expertise and credentials there; so, we’re looking forward to participating in it; so, the long-term trend obviously we believe calls for us to bridge the gap between new nuclear which we trust will take effect in 2015 to 2017 as a beginning, and the lack of coal-fired stations being proposed principally due to uncertainty about CO2 and other air quality regulations; so, we see this picking up and it will be determined as much by economic conditions, the price of natural gas as well as the demand side for our utility customers, but the trend is up.

Will Gabrielski - Broadpoint Amtech

When you’re engaged with utility customers on the gas side, do you see a lot of combined planning between solar and natural gas and solar and wind being intermittent resources that serves as a necessary piece of the power plants that is to be added to support that intermittency, is that also part of it?

Martin M. Koffel

Well, I think as you look at alternative energy, you look for the liable base load degeneration and that’s where utilities are required to provide to their customer and natural gas when it used to be an intermediate load is now becoming more of a base load dispatch for them; so I think that’s the phenomena, and of course, they’ve got in some cases requirements to fill in certain percentages of degenerating portfolio with alternative energy mandated by states, but it varies very much state to state, utility to utility.

Operator

There are no questions at this time. Mr. Koffel you may continue.

Martin M. Koffel

These days, much of the job of managing a large public company is within the regulatory framework, and one of the things that we really look forward to these calls is just the great chance to hear what our owners and our owners’ representatives have to say, and I thought that this was a particularly good call. We got into some strategic issues and some higher level themes that I hope satisfied those on the phone and very stimulating to management, and there was quite a buzz here in the room. So, thank you very much for spending so much time with us, and we look forward to updating you on the second quarter in our quarter in August.

Operator

This concludes today’s conference call. You may disconnect now.

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