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URS (NYSE:URS)

Q3 2013 Earnings Call

November 05, 2013 5:00 pm ET

Executives

H. Thomas Hicks - Chief Financial Officer and Executive Vice President

Martin M. Koffel - Chairman and Chief Executive Officer

William J. Lingard - President and Chief Operating Officer

Randall A. Wotring - President of the Federal Services Business and Vice President

Gary V. Jandegian - President of the Infrastructure & Environment Business and Vice President

Analysts

Michael S. Dudas - Sterne Agee & Leach Inc., Research Division

Jamie L. Cook - Crédit Suisse AG, Research Division

Alexander J. Rygiel - FBR Capital Markets & Co., Research Division

Tahira Afzal - KeyBanc Capital Markets Inc., Research Division

Andrew Kaplowitz - Barclays Capital, Research Division

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

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

Steven Fisher - UBS Investment Bank, Research Division

Sameer Rathod - Macquarie Research

Operator

Good afternoon, and welcome to the URS Corporation Earnings Conference Call for the Third Quarter of 2013. To begin, I'll turn the call over to Mr. Thomas Hicks, Chief Financial Officer of URS. Mr. Hicks?

H. Thomas Hicks

Good afternoon, everyone. And before we get started, let me remind you that today's call will contain forward-looking statements, including statements about our future revenues, business prospects, book of business, earnings and financial conditions, capital allocation priorities, restatement of our financial statements and other statements that are not historic facts. These statements represent our expectations as to future events, which we believe are based on reasonable assumptions. However, numerous risks and uncertainties could cause actual results to differ materially from those in the forward-looking statements, including those described in our SEC periodic reports, and we assume no obligation to revise or update any forward-looking statement.

A webcast of this call is available on the Investor Relations portion of our website and will be archived in audio form on the website for a limited period.

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

Martin M. Koffel

Well, thank you, all, for joining us. In addition to Tom, the team with me here in San Francisco includes Bill Lingard, President and Chief Operating Officer; Randy Wotring, President of Federal Services; Gary Jandegian, President of Infrastructure & Environment; Bob Zaist, President of Energy & Construction; Martin Tanzer, Executive Vice President of Marketing; Reed Brimhall, Chief Accounting Officer; and Sam Ramraj, Vice President of Investor Relations.

Firstly, I'll discuss the company's performance in the quarter, the underlying business trends and what we see ahead. Since our last call, Bill Lingard, our COO, has been appointed to the additional position of President of URS, and our 4 operating divisions now report to Bill directly. Accordingly, Bill will review our market sectors and businesses in detail following my remarks.

Tom Hicks will then discuss our financial results, and during his remarks, Tom will explain the technical accounting matter related to the valuation of goodwill on our balance sheet. You recall that our results for fiscal 2011 include a significant noncash charge for the impairment of goodwill. We have since determined that this noncash impairment charge was overstated and that net income was understated. It's important to understand, just as background to Tom's remarks, that none of this has any bearing on our fundamental business operations or on our cash flows and balances or on our capital allocation priorities.

So moving to our third quarter performance. You will have seen in the release that revenues in the third quarter were $2.7 billion, net income was $88.8 million and fully diluted EPS was $1.20. Now you recall that last quarter, we introduced an additional metric, cash EPS. Cash EPS is simply GAAP EPS, excluding the after-tax amortization of intangible assets. We believe this measure provides further insight into the cash component of our earnings. For the third quarter, cash EPS was $1.42. This compares to $1.71 in the third quarter of last year. Year-to-date, cash EPS was $3.80 compared to $3.90 last year.

Another important measure of our cash earnings power is EBITDA. For the third quarter, EBITDA was $217.2 million compared to $265.8 million last year, and we expect to continue to report both cash EPS and EBITDA on a quarterly basis in the future. Of course, both cash EPS and EBITDA are non-GAAP measures, and accordingly, a reconciliation of cash EPS to GAAP EPS and EBITDA to net income is provided in the reconciliation schedule on our website at urs.com and in our earnings press release.

We've always emphasized to you that the design of our business model and the priority for our management team has been the consistent and reliable generation of strong operating cash flow. In the first 9 months of the year, we generated $358 million in operating cash flow. That's 20% higher than the same period in 2012 and includes $268 million of operating cash flow in third quarter alone. We're continuing to use free cash flow to repay debt, to support organic growth and to return value to our stockholders. Through the first 3 quarters of 2013, URS returned $140 million to stockholders through our share repurchase and dividend programs, and year-to-date, we also repaid $73 million in debt. Now this is consistent with our objective to maintain an investment grade credit rating, which is important to our ability to grow organically.

In September, we announced that our Board of Directors approved our capital allocation priorities for the next 2 years. We plan to return at least $500 million in share repurchases and dividends by the end of 2015 and to use our remaining free cash flow to pay down debt and fund organic growth.

We also stated that we do not intend to undertake any significant acquisitions during the same period. Relatively large acquisitions have been a foundation in the creation of our company as it is today. Accordingly, we thought it would be helpful to clarify our statement about future acquisitions. So to be precise, whilst we may make small acquisitions from time to time to augment organic growth, we do not expect to spend more than $200 million in total cash on acquisitions through the end of 2015.

With a new year only 8 weeks away, I realize that you're already looking ahead to 2014. Accordingly, we'll focus our remarks on the trends that should shape our performance next year and beyond, as well as, of course, to report on the quarter. And consistent with our practice, we'll provide detailed guidance for 2014 in our fourth quarter earnings call.

As you know, by strategy and design, URS is diversified, with a mix of businesses that much of the time are countercyclical to each other. The industrial and infrastructure sectors are now showing the strength and prospects that we had been anticipating. And we've talked about the recovery in the industrial market for the past few quarters, and our business is now showing the benefits of expanded manufacturing activity in North America. And it's supported by a 25% increase in our industrial backlog since the end of 2012. In the infrastructure market, we're seeing increased design and engineering work on major infrastructure projects across the country. Concurrently, we expect that the pipeline of design-build, design-build operate and maintain and public-private partnership opportunities will continue to expand throughout 2014.

At the beginning of the third quarter, our Oil & Gas operations continued to be adversely affected by extreme weather conditions in Western Canada, as well as delays in the start of some dry gas and oil sands projects. Fortunately, we've been enjoying a dry, warm fall in Canada and have a robust pipeline of business. We continue to see strong long-term trends in the sector, and we're very pleased to have recently built a significant position in oil and gas for URS.

As we've discussed with you previously, flat demand for power, as well as regulatory uncertainty, have adversely impacted our power business. However, the growth rate for power demand is expected to be positive for 2014, and our pipeline of emissions control, transmission and distribution and nuclear modification work has improved considerably. Our power backlog grew 7% during the quarter, a bellwether, I think, because it's the strongest quarterly growth since 2011.

Finally, our federal sector business is being adversely affected by sequestration, by the continuing budget discord in Washington and the 16-day federal government shutdown. Although the shutdown has officially ended, we're continuing to experience delays in contract awards and in the mobilization of projects. Nevertheless, our federal business generated strong operating income in the third quarter due to excellent performance on several key projects, particularly across our chemical demilitarization work.

And while there's intense media and investor focus on the U.S. budget impasse, it's important to remember that URS is building a significant complementary national government business in other countries, particularly in the United Kingdom. We announced recently that the U.K.'s Nuclear Decommissioning Authority extended our Sellafield contract for an additional 5 years. Our Sellafield operation has performed through an unconsolidated joint venture led by URS, involves 2 other partners, and therefore is not reflected in our revenues. And to put the magnitude of the Sellafield contract in perspective, over the 5-year term of the contract extension, the joint venture will manage approximately GBP 9 million of activities, none of which is actually reflected in our revenues, and only a small portion of which is included in our backlog numbers.

And with that background, I'll now turn the call over to Bill Lingard.

William J. Lingard

Thanks, Martin, and good afternoon, everyone. I'm very pleased and excited to report on the current status of our market sectors. Over the past few months, I've had an opportunity to travel to all of our operating divisions, and I have met many employees and customers and have seen firsthand a large variety of ongoing projects and programs. In every case, from the Sellafield site in the U.K. to clean air retrofits in Detroit, I've been thoroughly impressed with the breadth and depth of our capabilities and the many growth opportunities in all sectors.

Let me begin a review with the oil and gas sector. Revenues for the quarter were $802 million, a 3% increase from last year -- decrease from last year. Revenues for the 9 months of 2013 were $2.4 billion, a 65% increase from 2012, including the effect of the Flint acquisition. Our third quarter results were negatively impacted by the completion of 2 facility construction projects in earlier periods, which were not replaced in the quarter, and the decision by clients to defer new dry gas exploration projects. We also were affected by the continued weather-related delays in Canada early in the quarter. Additionally, the pipeline takeaway capacity issue is delaying the start of new oil sands projects. Overall, however, market conditions remain very positive.

The upstream market continues to benefit from strong oil prices. Production trends are creating additional opportunities in pipeline projects and storage facilities, and spending for the downstream programs that we support under Master Service Agreements remains robust. Our operations in the Saskatchewan region had their best month ever in September. We carried this positive momentum into the fourth quarter and expect it will continue into 2014. We are pursuing a record number of EPC opportunities. Currently we see about $3 billion of potential projects in Canada alone.

In the upstream market, construction activity for steam-assisted gravity drainage or SAGD projects is growing as clients accelerate recovery work in the Canadian oil sands. Demand for our fluid hauling services also remains robust.

The outlook for our midstream business is strong. During the quarter, we won several new production services contracts, including 3 assignments, to support facilities and pipeline expansions across Canada. As you know, URS is a large fabricator of oil and gas process equipment, and we have several opportunities to expand this business as the development of the shale oil and gas in the U.S. increases.

In the downstream market, we continue to see organic growth opportunities by leveraging our Master Service Agreements with multinational oil and gas companies. We also have an aggressive initiative to capture new opportunities in refining and processing facilities throughout North America. Longer term, we expect a new wave of pipeline construction projects linking oil production in Canada to refineries in the east and along the Gulf Coast. Expansion projects are also being contemplated for pipelines west to export oil and LNG to Asia.

Now turning to the power sector. Third quarter revenues were $248 million, a 15% decrease from last year. Revenues for the first 9 months were $724 million, a 21% decline compared to last year. The results are consistent with our expectations as 2013 has been a transition year for this industry. However, we are seeing an increase in procurement activity, indicating that clients are preparing to release new work next year. Our backlog of power work grew by approximately $80 million in the quarter to close out $1.3 billion.

Our view is further supported by several important trends. First, the expected growth rate in power demand should further the development of several power plants. Second, the EPA is expected to finalize stricter carbon emissions regulations for existing power plants next year. These changes could result in more than $4.5 billion in work that will need to be completed by 2017 to install emissions control technologies at coal-fired plants, convert plants to natural gas or, in some cases, shut down the facilities. We are also working on several upgrade and reinforcement projects at nuclear power plants to help utilities meet the NRC's post-Fukushima safety requirements. Furthermore, the announced closure of 5 nuclear generating units should lead to opportunities to provide our decommissioning and site remediation services.

Moving now to the industrial sector. Third quarter revenues were $275 million, a 4% increase from last year. Revenues for the first 9 months of 2013 were $850 million, essentially flat compared to 2012. Construction spending by the manufacturing industry is approaching levels not seen since the mid-1990s, which is driving new activity across our business. Our industrial sector backlog was up 19% for the quarter and 25% since the beginning of the year. We are seeing particular strength in 4 end markets: fertilizer, chemicals, food and beverage and automotive. In the fertilizer and chemicals market, the low cost of gas-related feedstock and energy supply is leading many companies to expand production facilities or build new plants. In the food and beverage market, companies are expected to spend $60 billion in new construction programs over the next 10 years. Our ability to provide full EPC services and our long-term relationships with multinational corporations position us well to win future work. Our business reflects the recovery in the automotive industry, and we are benefiting from our relationships with North America, Asian and European automobile manufacturers.

Next, the infrastructures sector. Our infrastructure sector business is also performing well. For the quarter, revenues were $489 million, a 5% increase from last year. During the first 9 months, infrastructure revenues were $1.4 billion, a 5% increase from 2012. State and municipal governments are utilizing alternative funding and contracting measures to move critical transportation and transit programs forward. For example, the Federal Highway Administration is using design-build for more than 150 of its largest projects. 47 states now have design-build contracting authority, and 33 states have approved legislation permitting P3s. Next year, transportation agencies are expected to award nearly $8.5 billion worth of design-build and P3 contracts.

The infrastructure market is also being bolstered by improving state budgets. State tax revenues have increased for 15 consecutive quarters, another encouraging sign that continued -- is a continued passage of dedicated bond measures and user fees to support infrastructure projects.

We have a strong and growing infrastructure business in the United Kingdom. URS is one of the largest design consultants on Crossrail, the new high-capacity railway for London. And we are providing engineering and environmental services for High Speed II, the national high-speed rail network. We are also supporting several other clients implementing important infrastructure projects, including the Thames Water, London Underground Limited, the Highways Agency and Environment Agency. And we expect to benefit from Treasury's PF2 initiative, which combines public and private sector funding to support new civil infrastructure projects across the country.

Moving to the federal sector. Third quarter revenues were $921 million, a 16% decrease from last year. Federal sector revenues for the first 9 months of 2013 were $2.9 billion, a 14% decrease from 2012. And like all federal contractors, we have been affected by sequestration and the uncertainty around the fiscal 2014 budget. In October, we announced the furlough of approximately 3,000 URS employees due to the government shutdown. While the shutdown issue has been resolved for now and most employees are back to work, the resulting loss of productivity and the continuing budget uncertainty present significant challenges. In addition, because of our strong historic performance and the resulting accelerated activities at several large chemical demilitarization sites, revenues were lower in the third quarter. However, our outstanding operational results have enabled URS to earn additional incentive fees.

Our federal business remains an important and profitable part of our portfolio. Our margins remain above historical levels, and we have strategically aligned our federal business to support long-term programs that have a national security interest or are mandated under law. A growing portion of our federal revenues is derived from indefinite delivery contracts or IDCs. And despite the slower procurement process, we continue to win major IDC contracts. We are actively engaged on a wide range of high-priority initiatives supporting the federal government on cybersecurity, chemical demilitarization, nuclear decommissioning and the DoD's pivot to the Pacific strategy. In addition, our ability to deliver full-service engineering, construction and technical services anywhere in the world will become increasingly important as strategic alliances such as NATO's Smart Defense program gain traction.

With that, Tom Hicks will now discuss further our financial results in detail.

H. Thomas Hicks

Thanks, Bill. I'll begin with the accounting issue that Martin mentioned. As we stated in our press release, we have determined that our 2011 noncash goodwill impairment charge was too large, and therefore, net income for that year was understated. All the detail is in the 8-K we filed today, but essentially, we determined that the methodology we were using to calculate the fair values of our reporting units do not comply with the most recent accounting rules, which require that fair values reflect the noncontrolling interest of subsidiaries that we do not wholly own. We calculated the fair values according to the previous rule, which excluded the amounts attributable to those noncontrolling interests, and as a result, we erroneously recorded an after-tax noncash goodwill impairment charge of $732.2 million for the fiscal year ended December 30, 2011. And we currently estimate that the correct impairment amount should have been $309 million, increasing net income by approximately $423 million.

Accordingly, we estimate that the goodwill balance on our previously issued consolidated balance sheet as of December 30, 2011 was understated by approximately $475 million, and the long-term deferred tax liabilities were understated by approximately $52 million, resulting in a net increase in the stockholders' equity of approximately $423 million. Now these changes will all be carried forward to our subsequent financial statements, and our internal review is ongoing. And these estimates are subject to change. As soon as practicable, we expect to amend our Form 10-K for the fiscal year ended December 28, 2012, our Form 10-Q for the 3 months ended March 29, 2013 and our Form 10-Q for the 3 and 6 months ended June 28, 2013 to restate these financial statements and correct the errors. We're also working diligently to complete our Form 10-Q for the quarter ended September 27, 2013. But we don't expect to file by this Wednesday, November 6, the required filing date, and the only reason is the delay related to this goodwill issue. The most important point is that this issue has no bearing on our fundamental business operations, cash flows and balances or the capital allocation priority we discussed earlier.

Now turning to our third quarter results. Revenues were $2.7 billion. Net income was $88.8 million. EPS was $1.20. Cash EPS was $1.42. EBITDA was $217.2 million and EBITDA margin was 7.9%. And a reconciliation of cash EPS to GAAP EPS and EBITDA to net income is provided in the reconciliation schedule on our website, urs.com, and in our earnings press release. Interest expense for the quarter was $23.2 million, and our operating margin -- operating income margin for the quarter was 6.6%. Our tax rate was 26.8%, and diluted weighted average shares outstanding was $73.9 million.

Now as we've spoken about many times, URS' unique combination of strong cash flow and low capital needs is a powerful platform for building value, and by design, URS requires a relatively modest amount of capital to fund day-to-day operations. In the quarter, CapEx, excluding the equipment purchased through capital leases, was $22.3 million and $68.2 million for the first 9 months of the year, and this is partially offset by capital equipment disposals of $33 million year-to-date. We generated $268 million of cash flow from operations in the third quarter and $358 million in the first 9 months of 2013. So therefore, operating cash flows less CapEx or free cash flow was $290 million for the first 9 months of the year, and that's 47% higher than the same period last year.

Our strong cash flow has enabled us to return additional value to the stockholders. On October 4, we paid a quarterly cash dividend of $0.21 per common share to stockholders of record as of September 13, and in total, we have returned approximately $140 million to stockholders over the first 9 months of 2013, $47 million in dividends, plus $93 million of share repurchases.

In September, we outlined our capital allocation priorities for 2014 and 2015, and as announced, we intend to return at least $500 million to stockholders through share repurchases and dividends. And we plan to use the balance of free cash flow to repay debt and support organic growth opportunities.

We now have the strong and diversified business that we set out to achieve, but in order to enhance our current market position, service capabilities, we may need to make small bolt-on acquisitions. And for the 2-year period of 2014 and 2015, the amount we would spend on these transactions would not exceed $200 million in cash.

We report separate financial information for our 4 business segments, and these results are included in the press release we issued today. Our press release also contains a detailed description of our book of business, including backlog, option years and indefinite delivery contracts or IDCs. We ended the quarter with a book of business of $23.3 billion compared to $23 billion at the end of the second quarter and $24.9 billion at the end of 2012. Backlog was $11.6 billion at the end of the quarter compared to $11.8 billion at the end of the second quarter and $13.3 billion at the end of 2012. The major reduction in our backlog this year came from the federal sector, which declined by $1.3 billion. Now this decline was due primarily to the effects of sequestration and delays in contract awards. We continue to win procurements at our historic rate. However, the pace of award decisions has been significantly slower. In fact, we have approximately $10 billion in submitted proposals awaiting award.

Now as you know, we've been tremendously successful with the chemical demilitarization programs that we've managed, and our operating performance has led to significant government savings and the early completion of many of these core programs. At this point, the program is winding down, and the revenue and profit that you've seen in current results in previous quarters will decline significantly in future years.

Now the value of our option years at the end of the quarter was $3.9 billion, down from $5 billion at the end of 2012. And for the third quarter, IDCs were $7.7 billion. That's up from $6.7 billion at the end of 2012 and represents the continuing shift towards the use of IDCs by both private and public sector clients.

And with that, I'll turn the call back to Martin to discuss our guidance for 2013.

Martin M. Koffel

Well, some information on this year. Given the effects of the federal government shutdown, the uncertainties surrounding the federal government budget and, of course, sequestration and the impact of weather-related delays, especially in the Canadian oil and gas fields, we now expect that consolidated revenues for 2013 will be between $11 billion and $11.5 billion. And we expect annual diluted earnings per share will be between $4.10 and $4.25. And cash EPS is expected to be between $5.05 and $5.20.

We've told you today how our individual markets are performing and about our expectations with how they'll perform next year. We believe that our diversified portfolio enables us to prosper regardless of the economic and business cycles. And several key markets appear to have bottomed out or at an early stage of recovery. And with our new strength in oil and gas, we believe that URS is well-positioned. Our exceptional cash flow, stable margins and the strength of our book of business demonstrate the power and resilience of URS as a business platform. We all have confidence in the company we have built. A team of us have built this over many years. We're very confident in it. We remain focused on capturing the substantial organic growth opportunities now available to URS. We do not intend to make significant acquisitions to achieve our growth goals, and we do not intend to do so. We don't need to do it, and we won't do it. And we'll continue to use free cash flow to return value to stockholders. As we've said a couple of times in the call, our intention is to return at least $500 million in share repurchases and dividends by the end of 2015. And while we may make some small acquisitions from time to time, we don't expect to spend more than $200 million of cash in total in 2014 and 2015.

We very much look forward to updating you on our continued progress. And with that, operator, we'll open the call for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from Mike Dudas with Sterne Agee.

Michael S. Dudas - Sterne Agee & Leach Inc., Research Division

2 questions. First, on the energy side, comfort level on sequential improvement fourth quarter to third quarter, given the issues you talked about in the prepared remarks, how bookings look in momentum going into 2014 and what kind of normalized earnings number -- not exact number but a level that we can start to look at, given some of the onetime issues you witnessed in the quarter. And I'll have 1 follow-up to that.

Martin M. Koffel

Here's Bill Lingard to talk about oil and gas, Mike.

William J. Lingard

So, Mike, certainly, the fourth quarter over the third quarter, we have started the fourth quarter very strong. As Martin said in his comments, we had a very good October in terms of weather, and we're able to get a lot of man-hours in, man-hours counts and things like that look very good for Q4. So we are expecting quarter-over-quarter improvements in oil and gas, and we're quite busy on multiple projects. We've started up some new projects that were delayed. In terms of going into next year, the 1 area where we need to add some backlog, and it's no shortage of opportunities, is definitely in the facility construction segment. We're pursuing over $3 billion of EPC-type opportunities. And news like Suncor approving the Fort Hills mine, that's 180,000 barrel a day production, they're looking at spending $13.5 billion, so that type of news, we're already on that, doing some silo work now. So it's a very positive trend for us to see that type of thing start up. And on -- with some of the environmental businesses, downstream businesses that we do for the oil and gas sector, MSA activity has been very good. We've been awarded or had renewed some new contracts. So that looks very bullish for 2014 as well. So -- and we do have some really good organic expansion plans. For example, the O&M-type, maintenance-type activities for downstream, both in the U.S. and Canada, growing that side of our business. So I see the trends as being very positive, and there's certainly no lack of opportunities with the money that's being spent. And combined capabilities of the company put us in a very good position.

Michael S. Dudas - Sterne Agee & Leach Inc., Research Division

And to follow up maybe for Martin or Tom, maybe even Bill, on this question with regard to backlog for the total company, recognizing the shift in contract mix, et cetera, that URS has been witnessing, are the prospects there? And should we start to see absolute backlog across the board, maybe say for federal, given what your remarks were pick up as we move into 2014 and then give some better visibility for revenue growth and maybe those areas say from federal?

H. Thomas Hicks

Yes, Mike. It's Tom Hicks. I think as we said in the prepared remarks, we're seeing some of the market's signals, that they're bottoming out and starting to grow again. The power market was 1 example, but industrial is growing pretty dramatically. And as you said, putting aside federal, which is hard to figure out what's going to happen there, we've got lots of bids in, but they just can't make decisions on things. The rest of the businesses, infrastructure and oil and gas, power, industrial, all look like they're beginning to build backlog again. So we're optimistic that coming into '14, there will be a nice backlog built.

Martin M. Koffel

I just probably have a little bit of caution about power generation. I mean, we said earlier that we saw some increase in power demand in 2014. I think we will, probably won't be a barn burner. We're still getting most of our work, most of our backlog on the pollution control end of it. But certainly, the infrastructure has now been growing for a year. And I'm personally very encouraged by what I see in manufacturing. I've been very bullish for a long time on U.S. manufacturing. You probably saw today that Apple is opening a manufacturing plant in Arizona and I think adding -- I think it was 2,000 people, fresh plant. So we're all over that sector. So you've got several sectors recovering, each at a different point. I think some have just bottomed out, some are moving forward and I think we'll see that in backlog as we go forward.

Operator

Your next question is from Jamie Cook with Crédit Suisse.

Jamie L. Cook - Crédit Suisse AG, Research Division

A couple of questions, Tom. Just first, the chem demil stuff, just because we don't have a Q. Can you talk about how much that contributed to the quarter? I see it was down over year, but what it contributed to the quarter and what you're assuming for full year. And also, just on the -- also, what your assumptions are in that contributing to free cash flow for the full year. And then just any other color. I mean, you talked about, obviously, the incentive fees should decline over time. Can you give us any help there on the magnitude of the decline now that you sit 1 quarter out? And then, I guess, just my last question, both Tom, Bill and Martin, you all said several times acquisitions on the table are material ones, and you'll do at least $500 million in free cash flow. Tom, how do I think about your free cash flow as a percentage of net income? Should that be increasing going forward? And then do we assume you use all that excess cash outside of debt reduction to share repurchase?

H. Thomas Hicks

Jamie, that's a record for the number of questions in 1 conversation.

Jamie L. Cook - Crédit Suisse AG, Research Division

Oh, I missed you guys. It's been a while.

H. Thomas Hicks

Yes. Let's see. First of all, in chem demil, we will give real specific information on that when we do guidance for '14, because we are coming to a point where it becomes material, the changes that we're seeing in that program going forward. We never talk about specifically the amount of cash flow coming from any particular project. But as it has been...

Jamie L. Cook - Crédit Suisse AG, Research Division

But you did disclose in the Q.

H. Thomas Hicks

Say again?

Jamie L. Cook - Crédit Suisse AG, Research Division

I mean, there's -- you disclosed in the Q, right, the amount of work that's associated with that, that you haven't been able to collect in cash, that you should be getting over the next couple of years.

H. Thomas Hicks

Oh, I'm sorry. Yes. The long-term assets that are created in that.

Jamie L. Cook - Crédit Suisse AG, Research Division

Yes, yes, yes.

H. Thomas Hicks

The only element that I would comment on in the quarter was that we transferred about $100 million from long-term assets in the receivables because we expect to collect those over the next 12 months. That information will be available in the Q, obviously, and you can see it actually comparing our statements quarter-over-quarter. But the point I wanted to make is that it's still a very profitable, great program for us. '12 and '13 have been good years. The peak in revenue was in '12. '13, the revenue is down a little bit. But the earnings are still contributing dramatically to the company's performance. And we expect to continue contribution in '14, '15 and beyond but at a much lower, which we're trying to share with the people. And I'm sorry, I've forgotten some of your other questions.

Martin M. Koffel

Net free cash flow.

H. Thomas Hicks

Oh, use of net free cash flow. Yes. We -- as we said, I mean, our plan is to pay down the amount of debt we need to maintain our investment grade because that's important in the marketplace. It allows us to qualify for major programs that we're going after and gives us a leg up over some companies that are not investment grade. So we're going to do that. We're going to support whatever working capital is needed as we grow the business and pay our dividends. And then the remaining amounts are going to go for share repurchase. We might make some small acquisitions, as we've said on the call, but we're really committed to dedicating the free -- the true free cash flow, a lot of which will come from some of the deferred assets in the chem demil program over the next couple of years to buying back stock. So that's still our goal, and I think Martin reiterated that on his portion of the call. So I'm sorry if I missed 1 of your 7 questions. So...

Jamie L. Cook - Crédit Suisse AG, Research Division

No, I think I'm good. You're not going to answer them, anyway. I appreciate it.

Operator

Your next question is from Alex Rygiel with FBR.

Alexander J. Rygiel - FBR Capital Markets & Co., Research Division

A couple of questions. First, I noticed in the Oil & Gas segment, the IDC's category has been increasing the last couple of quarters. Are you going to market a little bit differently and building up longer-term sort of contracts that roll into the IDC category?

H. Thomas Hicks

Yes. Well, actually, let me try that, and then Bill can chime in if I miss something here. We -- I think you heard the comment in Bill's remarks about how some of the commercial -- the downstream oil company environmental work we do. We've had good success in re-upping or expanding our MSAs, our Master Service Agreements. You're seeing a lot of that happen, and those tend to go into IDCs and how we report them, Alex. So that's one of the -- when you look at Oil & Gas and IDCs, that's where it -- that really shows up there. And then we've had great success being able to deploy people anywhere around the world and deploy them in force with the right kinds of quality of service gives us a real advantage over other suppliers there, and we've been really successful. And we're also cross-selling, given the bigger portfolio we have in Oil & Gas now. We can seek out clients that we haven't been able to be credible with before because of past experience that Flint had or vice versa that URS had, that was available now to Flint. So it's been in that area.

Alexander J. Rygiel - FBR Capital Markets & Co., Research Division

And to follow up on that answer, going back 10 years ago, URS made a big push to increase the quantity of MSA exposure it had, and that did have some negative impact on margin at the time. Is this sort of shift or addition of greater MSA activity in the oil and gas market? Should we think about future margins in oil and gas being a little bit different than maybe Flint's historical?

H. Thomas Hicks

I don't think so, Alex. I'll tell you why. The MSAs, the bigger those jobs get, the more aggressive the clients tend to be in negotiating with us on fees and markup, et cetera. On the other hand, our incremental cost of acquiring new business goes down to offset that. So what we've seen is the multiplier, if you will, in that kind of business has stayed pretty steady. And we've been able to have a bigger base and spread our fixed costs over a bigger base. So we've been able to offset the -- whatever margin pressure we might see. So, so far, so good.

Martin M. Koffel

When you referred to a time when we made the push, our global MSA volume at that time, I remember, was $70 million, and, of course, it obviously exceeds $1 billion today. It's an important part of the business.

William J. Lingard

I would add one thing there, Alex, and that is, with these MSAs, most of the MSAs are cost-plus, and so there's a fixed amount of profit on top of your cost. And outside of these MSAs, when you do work for some of the major oil and gas companies, you do get some fixed price work. The trend we've seen is we're -- and we've added about 3 big MSAs in Canada, a couple of big ones in the U.S. The trend we see now is we're doing a lot more cost reimbursable that has less variability. And if you'll remember back to first and second quarters, we did have some issues on some fixed fee-type work.

Operator

Your next question is from Tahira Afzal with KeyBanc.

Tahira Afzal - KeyBanc Capital Markets Inc., Research Division

I guess my first question is in regards to really eventual offsets, if U.S. government continues to be tepid over the next couple of years. Could you size up potentially the opportunity? Any updates within the U.K. as the government there seeks to potentially outsource a lot of its work? And, really, on the Sellafield side, if I remember correctly from a couple of years ago, under the extension of the project, there were going to be potentially some more risk-reward sharing to the positive for yourselves, if execution works out. So could there be some incentive fees that could potentially be recognized in Sellafield at some point?

Martin M. Koffel

Well, there is a very large push in the United Kingdom, as you observed, to outsourcing. This government is committed to cutting government expenditures, which are going in the wrong direction, and heavy use of outsourcing. We have a substantial amount of work in the United Kingdom with local governments, with the highway authority, with Crossrail, with the highway authority and so forth. We do a certain amount of work at this point with the Ministry of Defence. Sellafield is our biggest single project. The contract was just renewed essentially on -- for 5 years, essentially on commercial terms that are similar to the past 5 years. We don't -- we're not seeing contracts in the United Kingdom at this point set up, say, with the construction of, for example, the chem demil contracts where there were -- there was sort of basic cost recovery and then very substantial award fees if certain parameters were achieved. Nevertheless, there is some incentive aspect to these contracts, but we're very optimistic based on our performance in the United Kingdom and the scale of what we've created there. We've got 3,500, 3,700 employees in the United Kingdom. We manage 10,500 at Sellafield. So we're a player, and we're optimistic that we'll have a growing share of the U.K. outsourcing business. So we're pretty optimistic about that. But the Sellafield contract would be on similar commercial terms to the past 5 years. The -- there's another contract -- or contract structure being discussed for people who might do work for the Ministry of Defence, and it's based -- the fees will be based on the extent to which the government achieved cost savings as a result of the contractor's activities. It's a little bit of a converse, arithmetically, of chem demil that would arrive at the same end result. We've got some pursuits underway there, and I don't want to comment on them beyond that. But you could see more of that in the future. Meanwhile, I think my message is we really have created a substantial business in the U.K., and, in part, that is based on government outsourcing activity.

H. Thomas Hicks

And, Tahira, to get to the other part of your question, we've talked for a long time about trying to build oil and gas and the resurgence of the industrial work. And as we said in our comments, the industrial work is really starting to grow. And the other kind of -- I think other really important trait of the company is now we can chase much, much larger programs than we could a few years ago. And so we're putting to work the fully integrated capability of the company. And if you look at the target list or the bid list that we're going after, not just in federal but across the board, it's a factor 2, 3, 10x bigger than we were chasing 10 years ago. So that's how we hope to replace the federal business. To the extent it's down a little bit, we hope to replace it through winning bigger jobs in other parts of the company.

Martin M. Koffel

One of our dreams for years has been to elevate our work to the point where we truly have a strategic alliance with some of these multinationals, and that isn't just our word. I mean, the way they procure us is these big companies will have, say, 10 strategic alliances in the supply chain, and we're now breaking into that list. And it's a management sell. Our senior management goes in, sees the senior leadership of these companies. And because of the scale we've got and the progress that our operating presidents have made in integrating the company, if I go in and see a CEO, I just talk about URS, I don't talk about divisions, it's just a single company, and we can deliver wherever they want our services anywhere on the globe.

Tahira Afzal - KeyBanc Capital Markets Inc., Research Division

That's actually very helpful. I just had 1 more follow-up, and I'll get back in the queue. And that was in regards to something, Tom, you gave an update on earlier. You shifted $100 million from the long-term assets into your accounts receivable. Could you talk about whether that was taken into account when you first set your $500 million cash allocation strategy? And could you talk a bit about maybe the time line of migration for the rest of the chem demil portion of that long-term asset in terms of when it shifts to accounts receivable?

H. Thomas Hicks

Sure. For the first question, yes, that was taken into account. We've looked at all the cash flows we expect in the company, including those from the chemical demilitarization program, which this $100 million, we expect, obviously, to collect in the next 12 months, obviously, because we've moved it to current as opposed to long term. And we -- as I said earlier, the $500 million number that we put out there, the important qualifiers is at least. I mean, we've made that commitment, and we hope to do better than that. And a lot of it depends on successfully completing the chem demil programs that are still open and still active and then collecting in a timely fashion on the builds that we have related to that.

Operator

The next question is from Andrew Kaplowitz with Barclays.

Andrew Kaplowitz - Barclays Capital, Research Division

So let me ask you about federal. Maybe could you talk about your visibility as it stands today? You just -- we just ended the shutdown. Revenue has been down sequentially for several quarters, but you've got your IDC backlog ticking up here for the last couple of quarters, too. So can we find some stability in federal revenue as we go forward sequentially? Or should we still expect some modest declines as we go forward over the next year or 2?

Martin M. Koffel

Andrew, Randy Wotring is going to answer your question.

Randall A. Wotring

Andy, I wish I could give you a certain answer, but as -- budget uncertainties are really what's driving the slowdown here. The government shutdown not only impacted contractors, but it impacted government employees, which caused RFPs to be delayed. And the adjudication process on submitted proposals continues to slow. So from our standpoint, the opportunities that would enable us to continue to grow and stabilize our businesses are there. It's just a matter of getting the throughput. As, I think, Tom mentioned, we've seen a 50% decline in government throughput on our -- on the proposals we've submitted. And in the first 6 months of the year, we saw 35% -- or industry saw 35% decline in the number of new RFPs initiated, and that worsened in the third quarter due to the furloughs of government employees. All that said, it's still a $0.5 trillion market. URS is able to address a larger share of that market than we ever have been. We have, as Tom said, $10 billion in proposals submitted. Our win rate is being maintained, and we have $20-plus billion of other qualified opportunities. So I'd like to tell you that the government is going to start moving forward, but -- and I do think that will happen. But until they give us some certainty, I don't believe the government will act. As Tom said, we will see further declines in our chem demil revenue over the next couple of years. Washing that out, I think you're going to see us continue to grow the business, both here and abroad.

Andrew Kaplowitz - Barclays Capital, Research Division

Okay, Randy. That's helpful. Maybe Tom or Randy, just -- it's a dangerous game to try and read tone, but Tom, your tone around further chem demil performance fees over the next couple of years, I -- it seems a little different than the past few quarters in the sense that you're sort of telling us, "Be careful, the performance fees are going to be down decently over the next couple of years versus this year." Am I reading that right or is it just we should still see that slow but steady decline that you've talked about over the last few quarters?

H. Thomas Hicks

It's more of the latter, Andy. I mean, what I was trying to make sure people understood is that we have the federal government slowing down on things and confused about their budget. We're aggressively looking to grow other parts of the DoD budget and other parts of the federal budget, DOE and other places as well. But we have a big hole to fill because the chem demil program is winding down. And I know you understand that and most people who follow the company closely do. But I wanted -- we wanted to make sure that, that message was out there and people understood that. Even if other parts of our government business are growing nicely next year or growing in spite of the budget issues, we still have quite a hill to climb to replace this very lucrative long-term program that's starting to wind down. That was the only point I was trying to make. We -- this program goes on through 2019, I think, but it goes down quite a bit as you get into the out years, as you know. So I didn't intend to rain on the parade any more than I just discussed. It's still a great business, and the federal business for us is a terrific business. It makes a lot of money for us, and we're going to continue to try to build and offset this decline.

Andrew Kaplowitz - Barclays Capital, Research Division

Okay. That's helpful, Tom. We don't -- since we don't have the Q, just 1 clarification. Like on the cash flow statement, there's a gain on the asset this quarter, like there was last quarter. Is that -- can you just talk about what that is? And we've seen a little bit more frequency of these gains, so should we expect more frequency of these gains as we go forward?

H. Thomas Hicks

Yes. We've bought a lot of companies over the years, and one of the things we do right away is integrate them in. And we look at redundant facilities or where we have excess facilities. And that's part of the process we're going through with the Flint acquisition. We had a bigger footprint, a facility footprint that we needed in one part of the business. So it was readily salable. So we sold it and took advantage of that and collected the money. We also have regular equipment turnover that requires us to, at times, sell stuff that's either older or obsolete and then -- and reinvest. So will we expect -- would you expect to see stuff in the future? I believe so. I can't quantify that or give you the timing, but it's an ongoing process to make the company more facility-efficient as we go forward.

Operator

Your next question is from John Rogers with D.A. Davidson.

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

Tom, just following up on it, the reduction in SG&A expenses, corporate overhead in the quarter, [indiscernible]?

H. Thomas Hicks

Yes, John, we have a bonus program here that's driven off of the profitability as we go through, and we true that up every quarter based on our expectations and our performance year-to-date. And in the quarter, we -- as you know, we lowered the guidance, and it was pretty clear that we were not going to make our original number, internal number. So we had to adjust our bonuses appropriately, and that came all in 1 quarter as opposed to being spread over the year because it wasn't clear until this quarter that we had that -- we had to make that adjustment. So the lower level of G&A in this quarter really represents releasing the bonus that we have been accruing year-to-date.

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

And how much was that true-up, $8 million or...

H. Thomas Hicks

No. I don't want to give the exact number, but it wasn't that high. But, I mean, there were other things in there as well, changes quarter-over-quarter. So it's not $8 million, but it's -- I don't want to go into the details right now.

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

No, that's fine. I just -- in terms of the run rate of G&A, I mean, things are more in line with...

H. Thomas Hicks

Yes. The way to -- John, the way to think about that, I knew you're going to ask this question, is take the year-to-date for the 3 quarters, divide it by 3 and multiply it, times 4. That will give you a better idea of where we'll end up in G&A than trying to do other math. Do you follow me?

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

Yes. Okay. And then my other question is just going back to the -- I know you don't want to give guidance yet for 2014, but with the slowing contributions on the federal side and the improvement in the industrial, I mean, your overall backlog is still down. And as we think about your growth over the next year or so, is that -- are the opportunities on the industrial side big enough and quick enough that you can really offset the declines that you're seeing elsewhere? And are the margins in it high enough to offset the run-off in chem demilitarization contributions?

H. Thomas Hicks

Well, let me say 2 things about that. One, we won't see margins like the chem demil program. That was an extraordinary program. So we'll have to increase the volume quite a bit to offset that. As I said earlier, we're chasing much larger programs than we used to, and we're seeing opportunities at a much larger scale than we used to. We're qualified for them. We're being invited to bid. So obviously, the plan is to up our game, go after bigger jobs and see an offset to the downturn coming in federal that we're -- at the same time, Randy and his team are going after, as is the other parts of our company that work in the federal area, going after big programs there as well. So we knew this was coming. We geared up for this. The 1 fly in the ointment here has been the government slowdown of making decisions. I mean, we bid a lot of stuff, as you heard earlier. We've got a lot of programs under consideration right now. So our hope is we can replace it, and we can replace it in a timely fashion and get back the revenue and profit that will go away with the chem demil wind-down.

Martin M. Koffel

In a perfect world, you'd want the growth rate coming off the recovery of the private sectors, specifically manufacturing and oil and gas, to offset the decline in public expenditure. Whether that happens perfectly every quarter until you reach an equilibrium point, I'm not sure. I'm just quite confident that at some point in the near future, we'll have this in balance. That's why we have the portfolio this way.

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

Okay. And then, Martin, usually, you give us a comment on what you're seeing at the state level in terms of infrastructure project opportunities.

Martin M. Koffel

Yes. It's -- Gary can add some comments, but I'm always bullish on infrastructure, as you know, over the years. I mean, I love that business because it's diversified across -- in the United States, it's diversified across 50 states, 20 large cities, dozens of municipalities. We're seeing good offtake on bonds that have floated for special purposes for infrastructure. Voters are very willing to devote in favor of toll increases and bond programs. State tax receipts have come back up, and there is the mindset and the willpower in the States to spend. I sort of feel now about infrastructure the way I did 5 or 6 years ago, that it really is happening. Gary has got obviously quite a bit more detail on it. Perhaps give a little bit, Gary.

Gary V. Jandegian

John, we've been seeing improvement in the infrastructure market with states and municipalities. They become more innovative with multiple funding mechanisms, more private financing and TIFIA loan guarantees, TIGER grants, and that's resulting in more bidding opportunities on all size infrastructure projects. And as I do in North America, the market's strengthening in design-build and P3s, and in the U.K., on PFIs. And we have a very high win rate going on our engineering design work in this area. Plus, with our footprint of design offices in virtually every state, we keep very close to the action. And just as an example, we've been on winning teams on 6 of our last 10 major design-build bids for lead designer work. Now major projects are often bid in 1 year and then awarded and construction starts in the following year. So the growth in our backlog isn't quite perfect, but backlog is up 4% in our design and planning segment. That's the Infrastructure & Environment division. And so we expect the civil construction side to follow next year. The positive news for the market is that infrastructure construction spending put in place for 2014 is projected to grow by 7.8% to $333 billion, and we expect to benefit from this increase in our infrastructure construction work in 2014. And I might add, with the WRDA Senate continuing resolution bill funding $2.9 billion for Homestead Dam, where we're the lead company of the JV doing the construction, we expect to benefit from the increase of nearly $2 billion from the prior authorization.

Martin M. Koffel

John, there was a time when -- in the last few years when infrastructure depended on special actions by the government spending, Stimulus spending almost $1 trillion and so on. And, I mean, that was fine, but it's sort of artificial economic policy issue. What we're describing is an infrastructure business that is recovering on fundamentals. There is the political willpower, there is the need and there is the financing coming up from within the states, cities and municipalities. So it feels real solid to me at this point.

Operator

Your next question is from Justin Hauke with Robert W. Baird.

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

I don't want to belabor the point on chem demil cash collections, but I was hoping maybe you could help us understand what's the difference between the milestones that you have to hit in order to actually bill the government versus the milestones you hit for recognizing the income. And then also, I guess, secondarily would be, in the face of budget concerns, is there any -- are you seeing any difference in terms of just the government auditing, maybe more on some of the bills that you're submitting?

H. Thomas Hicks

Well, on the first question about revenue recognition and ability to bill, there are -- we complete tests. We complete them early. We complete them under budget. We earn incentive fees. However, until, for example, third parties, for example, in some states, the state EPAs have to approve the final steps in closing down or cleaning up a site, and we're not able to bill until the contractual terms, say, that we can bill. So we've earned it, and we expect to bill it as soon as the final approval comes through from the state. That's not approval of our work or recognition of our work. That's approval that the EPA has signed off, for example, in the State of Utah, Tooele, for example, that the site is now acceptable and it passes all the conditions. So that's the main -- that's just 1 example, but that's typically -- is a third party of some sort has to sign off or complete paperwork in order for us to be able to bill the incentives that we have earned and completed in time. Because we completed early, we stopped spending money. The government saves money from that point on, if you follow me. So we just wait to be able to bill it based on milestones that I've described. And then what was the second question? I'm sorry.

Martin M. Koffel

About auditing and...

H. Thomas Hicks

Yes. I'll let Randy...

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

Just any change in auditing?

H. Thomas Hicks

Yes. I think Randy has some comments on what's going on in the government audit world.

Randall A. Wotring

Well, associated with the government shutdown, DCAA employees who are involved in the audit of our invoices did get furloughed. So it did slow us down a few days. And collections were impacted, I think, by about 10% early in October. We're starting to call that back as the government employees have come back to work. We don't see any long-term issue associated with collection of government invoices. They -- the government is not litigious, and they pay usually on time. Hopefully, that will continue in the future.

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

Okay, great. And then, I guess, just my follow-up here is, is it possible to quantify what the impact of the 3,000 furloughed employees was for the 16 days in the fourth quarter or do you not have those figures yet?

H. Thomas Hicks

Well, I mean, we could make a wild estimate, but it's not productive. I mean, these people, some of them were furloughed and had no pay. Some were furloughed, and the government is having them come back and work more hours. Some are going to get the lost time replaced, et cetera. So it's difficult. The main thing is it slowed down everything, because, as Randy pointed out in just 1 area, in the audit area, everybody put their pencils down, went home and then had to come back and spend back up again. So the productivity hurt -- hit was pretty high. And that didn't happen just with audits, it happened in all kinds of procurement activities, in all kinds of contract negotiations across the board. So it had a knock-on effect that you just -- it'd be hard to estimate what that was, but it was pretty serious.

Operator

Your next question is from Steven Fisher with UBS.

Steven Fisher - UBS Investment Bank, Research Division

Tom, just a couple of housekeepings. What drove the tax rate down in the quarter? And then can you help us with what the year-to-date, year-over-year change in the chem demil fees were?

H. Thomas Hicks

No on the second one. On the first one, we have a bunch of international tax situations that get resolved at different times, and we have state tax situations that get resolved at different times. And as we said before, we're always adjusting that rate to the best information we have at the time and to recognize discrete items that happen related to particular programs or particular tax laws around the world. And all I can tell you is that we true that up every quarter. And in the third quarter, we had some changes that allowed us to lower the rate. Going forward, this is the time of the year where we true up all of our state income tax return. So the fourth quarter could move one way or the other as well. So it's a little bit -- we're not in 1 municipality, under 1 set of tax rules, unfortunately. So it moves all over the place, but just stay tuned and we'll try to let you have as much information as we have as soon as we have it.

Steven Fisher - UBS Investment Bank, Research Division

Okay. And then you guys laid out the $500 million of buybacks by the end of 2015. I guess there was nothing in the quarter on buybacks. Was there something specific that prevented you from doing so?

H. Thomas Hicks

Yes, we -- remember, we're trying to meet some goals on debt paydown. So we made some paydown in the quarter, and that was our priority since we've already bought back a couple of million shares earlier in the year. And as the fourth quarter goes on, we'll decide where to put that cash, whether to pay down more debt or buy back stock, depending on the situation. So there were no buybacks in the quarter, and most of the cash, excess cash, went to making a prepayment on the debt paydown for the year.

Steven Fisher - UBS Investment Bank, Research Division

Okay. And then just lastly, Bill, you mentioned Fort Hills going forward. Can you just maybe characterize the types of contracts you'd be pursuing on that and then maybe kind of size the overall opportunity for you within that $13 billion?

William J. Lingard

Well, it's probably too early to scope out the full number of silos we could work on. We can do EPC, obviously, and we are already doing quite a bit of front-end engineering work on that particular project. So we've already got people working on it. But what I would say is that, in general, the -- we took the URS Board of Directors in September up to Fort McMurray with a couple of our core oil sands clients, and we let them see 1 mining project and 1 SAGD project. Then they got to hear those clients talk about their expansion plans. And when we look at projects like Fort Hills and the other ones, there are certain catalysts, I believe, that will make the number of awards go up quickly. Obviously, the approval of a project like this adds some backlog and some engineering and construction work for us. But I think things like if certain pipelines get approved, you will see other people have more confidence and award more EPC-type projects. And we are working on several very big ones. Typically, the size of -- they do break them up into silos, and the silos would be $700 million to $800 million-type silos. So that's the size of contracts you can get out of that. You could possibly get 2 or 3 contracts out of a project that size.

Operator

And your next question is from Sameer Rathod with Macquarie.

Sameer Rathod - Macquarie Research

First, I guess, when I think about free cash flow, would it be a valid analytical adjustment to subtract out the distributions to the minority holder that appears in the cash flow from financing to get a more robust representation of free cash flow?

H. Thomas Hicks

Yes.

Sameer Rathod - Macquarie Research

Okay. Because, I mean, I guess...

H. Thomas Hicks

I don't have to elaborate on that. The answer is yes. That is cash that we have to pay out to our partners.

Sameer Rathod - Macquarie Research

Okay. So I guess, just the math on the first 9 months, if you had free cash flow of $290 million, I think you said, we would subtract off $50 million for the minorities. Okay, that's fine. I guess my next question is, Hinkley Point, I think those are the projects you guys have talked about in the past, maybe I'm wrong, but it seems like there's some competitors on that project now. What's your view on that project as we get into 2014 and '15?

Martin M. Koffel

You're talking about Hinkley Point in the U.K.?

Sameer Rathod - Macquarie Research

Yes, that's right.

Martin M. Koffel

We haven't previously commented on Hinkley Point.

Operator

That concludes the Q&A session. I'd now like to turn the call back to Mr. Martin Koffel for closing remarks.

Martin M. Koffel

Well, thank you for joining us. I think you've sensed our enthusiasm for the business and the diversification we have. We're looking forward to what lies ahead and particularly to reporting on fourth quarter and the full year early in March. And thanks for joining us.

Operator

Thank you for your participation. This concludes the call. You may now disconnect.

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