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URS (NYSE:URS)

Q1 2014 Earnings Call

May 13, 2014 5:00 pm ET

Executives

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

Martin M. Koffel - Chairman and Chief Executive Officer

George L. Nash - Vice President and President of Energy & Construction Division

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

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

Analysts

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

Jamie L. Cook - Crédit Suisse AG, Research Division

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

Tahira Afzal - KeyBanc Capital Markets Inc., Research Division

Will Gabrielski - Stephens Inc., Research Division

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

Andrew J. Wittmann - Robert W. Baird & Co. Incorporated, Research Division

Steven Fisher - UBS Investment Bank, Research Division

Alan M. Fleming - Barclays Capital, Research Division

Tate Sullivan - CLSA Limited, Research Division

Operator

Good afternoon, and welcome to the URS Corporation Earnings Conference Call for the First Quarter of Fiscal Year 2014. To begin, I'll turn the call over to Mr. Thomas Hicks, Chief Financial Officer of URS. Mr. Hicks?

H. Thomas Hicks

Thank you, operator, and good afternoon to everyone.

Before we get started, let me remind you, today's call will contain forward-looking statements, including statements about our future revenues, business prospects, book of business, earnings and financial conditions, tax rate, outstanding shares 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. We assume no obligation to revise or update any forward-looking statements.

As a reminder, cash EPS and EBITDA are non-GAAP measures. Accordingly, 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 release.

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

Martin M. Koffel

Good afternoon, and thank you for joining us. In addition to Tom Hicks, the team with me here in San Francisco includes Randy Wotring, President of Federal Services; Gary Jandegian, President of Infrastructure & Environment; George Nash, President of Energy & Construction; Martin Tanzer, Executive Vice President of Marketing; Reed Brimhall, Officer; and Sam Ramraj, Vice President of Investor Relations.

To begin, let me summarize our first quarter results which you, of course, will have seen in our press release. Our revenues were $2.5 billion. Net income was $27 million. Fully diluted GAAP EPS was $0.37. Cash EPS was $0.60. EBITDA was $131 million. Our book of business at the end of the quarter increased to $23 billion, including backlog of $11.2 billion. And during the quarter, we returned $281 million to stockholders through the repurchase of 5.7 million shares and the payment of dividends.

Our operating income and our net income for the quarter were in line with our expectations. And based on our book of business and a solid pipeline of new bidding opportunities in each of our market sectors, we continue to expect that our financial performance will strengthen throughout the course of this year. And accordingly, we remain confident in our outlook for 2014.

During the quarter, revenues and backlog from our infrastructure business grew, reflecting the strength of our infrastructure operations and what we believe is the start of a cyclical recovery in this market. Our power sectors grew by 22% as a result of improving market conditions and backlog growth that we enjoyed in the second half of last year. Our industrial sector business essentially was flat. However, due to the strength of our proposal pipeline, we remain strategically positioned to benefit from the recovery in this sector in the second half of the year.

Our Oil & Gas business is meeting expectations in a strong market, particularly in the United States. The alignment of our Oil & Gas operations with the construction and project management capabilities in our Energy & Construction division is proving to be successful.

And income from our federal business was better than we anticipated. And furthermore, the book of business in our Federal Services division increased in the first quarter.

I should note that when you compare the current performance of our Federal Services business with prior quarters, you should take into account the wind-down of our chemical demilitarization contracts. We've discussed this in detail in the company's filings and, of course, on previous calls. For the first quarter of 2014, revenues from our chem demil contracts totaled $89 million, and operating income was $23 million. This compares with $252 million in revenues and $90 million in operating income in the first quarter of last year. For 2014, we continue to expect that the chem demil contracts will contribute between $280 million and $290 million in revenues and between $80 million and $90 million in operating income. And this compares to $648 million in revenues and $213 million in operating income in 2013.

You will have seen in our press release that net income and earnings per share for the first quarter were negatively affected by a significantly higher effective tax rate. We expect our tax rate to decrease over the course of the year. The higher tax rate in the first quarter resulted primarily from nondeductible losses in some international entities.

And with that, I'll now provide details for each sector, starting with Oil & Gas. Oil & Gas is now URS's largest sector by revenue, and that reflects our earlier decision to position the company in this important and growing market. In the first quarter, Oil & Gas revenues were $758 million, a 6% decrease from the same period last year. Uncertainty of a takeaway capacity and the decision of the -- uncertainty of the decision with the Keystone XL pipeline is causing some of our Canadian customers to delay capital expenditure programs. However, the effect of these delays on our performance was largely offset by increased revenues from our Oil & Gas business in the United States, which is growing rapidly.

In the upstream market, U.S. rig moving and fluid hauling activity remains robust, driven by increased gas drilling in the Permian basin. A growing demand for natural gas and the need to replenish reserve levels after a colder-than-normal winter should sustain our current pace of work through the remainder of the year.

In the midstream market, oil and gas companies are turning to rail to transport commodities across the United States. This has led to a number of new contracts to support the construction of helium [ph] recovery units, which are used to ship raw bitumen by rail. Additionally, production services activity remained steady. As clients wait for approvals on the new takeaway lines, they continue to invest in a pipeline upgrade and tie-in projects to support their current production. We're active on several of these projects in Texas and in Alberta. The abundance of low-cost natural gas in North America has led several of our clients to make new investments in LNG export facilities. For example, a major international oil company recently selected URS to serve as the management information contractor for the construction of a new export terminal in British Columbia. And we're also working on the permitting of a large LNG terminal for another major oil company in Alaska.

In the downstream market, we continue to benefit from the wide range of engineering, environmental and permitting services that we provide under our Master Service Agreements. We recently extended relationships with several multinational companies, and we won a number of new contracts with midsized energy firms operating in North America. The outlook for our Oil & Gas business is improving, and our optimism is supported by our current backlog of $1.1 billion and by the pace of bidding activity on a really growing pipeline of opportunities that we're seeing.

In the power sector, first quarter revenues were $260 million. That's a 22% increase from the first quarter of last year. We're pleased that the strong growth in our power sector backlog in the second half of 2013 is actually now converting into revenues. And as you know, demand from electricity has been flat throughout the recession, and further economic recovery will be needed before we see a full turnaround in the power market. But meanwhile, there are several submarkets where we're highly qualified and can benefit in the short term. The clean air market is one of the most active with a steady demand for dry scrubber emissions control technology. And you will have seen the U.S. Supreme Court's recent decision to uphold the EPA's authority to regulate interstate emissions from coal-fired power plants. We expect to benefit from a new wave of bidding opportunities. The projects that involve air pollution control devices, now that's a core strength in our power business. Additionally, we are actively supporting a number of transmission and distribution upgrade projects around the country. Currently regulated utilities are focusing their investments on substation modernization and line extension programs.

The planned closure of 5 nuclear power plants in the United States also is creating new opportunities for our business. URS is one of the few firms with the technical capabilities to support the entire multi-decade process to decommission, to dismantle and to clean up these sites. The first closure will be the San Onofre plant in Southern California where URS recently was awarded a planning contract in connection with that closing. And we see further opportunities for URS in the utility industry's move away from one-off contracts to broad contracting vehicles to procure engineering and construction services.

By way of example, the Tennessee Valley Authority, or the TVA, recently signed a contract with URS for engineering services that will encompass its extensive fleet of fossil fuel, nuclear and hydroelectric generating plants. This contract also will involve some of TVA's environmental projects.

The industrial sector, as I mentioned, has important growth potential for URS. Our first quarter revenues were $279 million, essentially flat from the first quarter of last year. Our outlook for this sector is supported by the acceleration of URS manufacturing activity. Since the end of 2013, our pipeline of EPC opportunities and, of course, that's a core strength in our EC division, has increased to record levels especially for fertilizer, chemical, alternative fuels and food and beverage manufacturing. As we have discussed on prior calls, we have successfully positioned URS to support manufacturing companies that are looking to expand their operations in the United States. And that's, of course, to take advantage of our low-cost energy and gas-related feedstock prices, our favorable labor costs and, of course, the high productivity rates in the United States. We're benefiting from substantial investment by multinational companies in the U.S. and manufacturing plants in regions that are near low-cost energy sources. For example, we're providing construction services for a new fertilizer plant in Iowa, and we expect our project revenues on that assignment to be approximately $400 million. And later this year, we are anticipating that a number of our established clients will make decisions on large capital programs for the same reasons.

You all have heard a lot about the cyclicality of the mining market, but we're actually seeing stable funding for many of the projects that we're supporting. This includes the Morenci copper mine in Arizona where URS is providing engineering and construction services for a new tailings dam and associated pumping facilities. In the Western Australia, we're currently providing EPCM services to Rio Tinto as it expands iron ore production at its Nammuldi mine.

The recovery of our infrastructure business continued in the first quarter. Our revenues were $490 million. That's a 12% increase from the comparable period in 2013 and follows an 8% increase in infrastructure revenues for that year. Now we haven't heard growth rates in infrastructure like that for some time. Our results demonstrate the strength of our business even during a period when the overall U.S. infrastructure market has remained relatively flat. At the end of the first quarter, our infrastructure backlog was $2.7 billion, up 2% from the beginning of the year. And we've assumed a record number of large projects, and they range from engineering services all the way through to substantial design-build projects.

Our strong performance in the first quarter in infrastructure was driven by highway and transit programs in both the United States and the United Kingdom, and that's what we want to hear. That's -- highway and transit, of course, is the core of it. Another trend that is helping the company is the growing use of alternative delivery methods, such as public-private partnerships and design-build contracting programs to support large-scale infrastructure projects. For example, URS is part of a design-build team for the new regional connector in Los Angeles. We recently began design work on the 1.9-mile tunnel, which will link 4 major rail lines serving Los Angeles.

At the federal level, we're encouraged that a bipartisan group of U.S. senators is working on a long-term reauthorization proposal of the federal transportation bill. The current funding program expires at the end of September, and I'm sure you've been reading a lot about this in the media. And we're hopeful that Congress and the administration can reach an agreement on the highway trust fund as well as a new spending plan. In the meantime, we continue to see a steady level of work funded through TIFIA and other federal grant programs.

Turning to the United Kingdom, which is now a significant part of our infrastructure operations. Infrastructure spending remains robust. Through its national infrastructure plan, the U.K. government plans to invest more than GBP 375 million -- excuse me, GBP 375 billion in new public and private infrastructure over the next 20 years. Transportation programs, including highways and mass transit, are expected to receive a considerable amount of this funding. We anticipated the resurgence of the U.K. infrastructure market. And as you know, we strategically positioned URS several years ago to benefit from this increased spending. We significantly expanded our resources, capabilities, employees. And today, we're one of the U.K.'s leading engineering firms. We work for nearly all the major public infrastructure agencies and are currently supporting some of the U.K.'s largest programs. For example, URS is one of the major design consultants on the Crossrail project. That's London's new high-capacity railway. We're also part of a team that was recently awarded the design contracts for the Mersey Gateway, a new 6-lane bridge in northwest England.

Turning to the federal sector. For the first quarter, revenues were $750 million. Now expectedly, that's a 30% increase -- decrease from the same period last year. But as we've said before, we're making year-over-year comparisons. It's important to note that we recognize significant revenue and operating income from our chemical demilitarization programs in the first quarter of 2013. And as we mentioned earlier, comparisons to prior periods will continue to be affected by the early completion of our chem demil contracts. Although the Department of Defense budget has contracted in absolute dollars, with the certainty now of the 2014 budget appropriations now in place, our federal customers are expediting the award of delayed contracts as well as increasing the number of new contracting opportunities. And that's a bit of a turnaround and a bit of an acceleration from things we've said in the past. Our proposal activity, as a result, has increased significantly, and we expect to submit more federal proposals in 2014 than in previous years.

Since the beginning of the year, we've already won a number of new contracts and have significantly increased our federal book of business. This includes major assignments with the Department of Defense such as a $343 million task order to provide operations, maintenance and engineering support for the Navy's Combined Tactical Training Range. In addition, we were awarded several contracts to provide depot augmentation and maintenance services to the U.S. Marine Corps at multiple locations in the United States. We recently began work on a $250 million single-award, indefinite delivery contract with the Treasury Department. URS will provide a range of services in support of the Treasury Forfeiture Fund.

An important element of our federal strategy is to leverage our experience with the U.S. government to expand their work internationally, just as we did with our DoE work several years ago to win the Sellafield contract. The U.K. Ministry of Defence recently named a partnership that principally includes a British company, Capita PLC, and URS, as its preferred bidder to be the strategic business partner for the Defence Infrastructure Organisation or the DIO, as it's called. The contract, which is not yet reflected in our backlog or in our total book of business, should be finalized in the second quarter. As the Ministry of Defence's strategic business partner, we would manage the U.K.'s entire national and international defense estate portfolio, and that includes 569,000 acres of land, bases and so on, and 45,000 buildings.

Longer term, in the U.S., we're well positioned to support the recommendations from the Quadrennial Defense Review. The emphasis on building a more nimble and technologically advanced military should provide expanded opportunities for our cyber security, our counterintelligence and other technical services that we have at URS. As you know, over the past several years, we've strengthened our capabilities through organic growth and strategic acquisitions to prepare for this expanding technological market.

And with that, Tom will now discuss our financial results in more detail.

H. Thomas Hicks

Thanks, Martin. Our first quarter results are available in the press release we issued this afternoon. Revenues were $2.5 billion, net income was $27 million, EPS was $0.37, cash EPS was $0.60 and EBITDA was $131 million. Interest expense for the quarter was $18 million, and operating income margin was 3.4%.

Our tax rate was 39% compared to 33% from the same period last year. In aggregate, while our international business remains profitable, in some international entities, we incurred losses that were nondeductible for income tax purposes. A portion of these losses were discrete to the first quarter and we do not expect them to repeat in the remainder of the year. Therefore, we expect the full year tax rate to decrease to approximately 33%.

Diluted weighted average shares outstanding were 72.1 million for the quarter. And in the quarter, CapEx, excluding capital equipment purchased through capital leases, was $15 million.

Cash used for operations was $132 million in the first quarter. Now it's not unusual for our first quarter to require a use of cash due to typical cyclicality and the timing of funding certain benefits. And therefore, operating cash used plus CapEx, or the free cash used, was $147 million for the quarter. A reconciliation of free cash flow to GAAP operating cash flow is provided in the reconciliation schedule on our website, urs.com.

And as we announced in February, we accelerated our plan to return a total of at least $500 million to stockholders through stock repurchases and dividends by the end of 2015. And as of the end of the first quarter, we had repurchased 5.7 million shares of URS common stock amounting to $266 million and paid $15 million in dividends. And therefore, we returned approximately $281 million to stockholders in the first quarter.

When we report separate financial information for our 4 business segments, these results are included in the press release we issued today and reflect organizational changes that we discussed on our last call to gain efficiencies and improve our competitive position. As you will recall, we consolidated our national government business by moving our global management and operating services group from the Energy & Construction division to the Federal Services division. We transferred the process engineering and O&M services that we provide to energy companies to our Oil & Gas division. And we moved the facility construction business from our Oil & Gas division to the Energy & Construction division.

Now in order to provide appropriate comparisons, we have recast the 2013 first quarter segment results provided in the press release to our new reporting structure, and we plan to provide a recast of the full year by quarter as soon as it's available, which we expect to have available for you in the next few weeks.

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 billion and that compares to $22.8 billion at the end of 2013. Backlog was $11.2 billion at the end of the quarter compared to $11.3 billion at the end of 2013. And the value of option years at the end of the quarter was $4.2 billion compared to $4 billion at the end of 2013. And finally, IDCs were $7.7 billion compared to $7.5 billion at the end of last year.

With that, I'll turn the call back to Martin.

Martin M. Koffel

In turning to our guidance for 2014, and we continue to expect consolidated revenues to be between $10.8 billion and $11.2 billion; fully diluted earnings per share to be between $3.20 and $3.50; fully diluted cash earnings per share to be between $4.13 and $4.43; and cash flow from operations to be between $725 million and $775 million. And we now expect that our fully diluted weighted average shares outstanding for 2014 will be approximately 70 million. And as Tom mentioned, we expect our effective tax rate for the year to be approximately 33%. That's a decrease from the 39% that we experienced in the first quarter.

Now before closing, on a different subject, I should note that the value creation committee of the Board of Directors is continuing to evaluate alternatives to enhance stockholder value. The committee, the full board and advisers are coordinating closely. There's no timetable for the completion of the committee's work or for the potential implementation of its recommendations. However, the committee intends to work expeditiously.

So operationally, we're off to a good start in the first quarter, but we do recognize that considerable growth must be achieved during the rest of the year. But with signs of improvement in the economy, the visibility of our opportunity pipeline and the strengthening of our book of business, all of which I discussed, we expect to achieve the financial guidance we've given for the year.

And with that, we'll be pleased to open the call up for questions. Operator?

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Michael Dudas with Sterne Agee.

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

Martin, to follow up on your final comment there, what areas of the divisions do you anticipate you need to see the most improvement, or which ones are set up best to achieve, let's say, the low end of the guidance range that you put forth for 2014?

Martin M. Koffel

Well, I think we're looking for growth in the back-end of the year from EC. And of course, the pipeline we're seeing in Federal Services is also very promising. Go ahead.

H. Thomas Hicks

Yes. Mike, I would add if you look at our revenue in the first quarter, relative to our full year plan, it's around 23%, and that's not atypical for us. We've seen as low as 21% or 22% in the past and as high as 24%, 25%. But the 23% we think is certainly manageable. We have good visibility into the pipeline, and we have some new starts, especially in the EC division, where I think you heard earlier a comment about a fertilizer plant, for example, that's just ramping up now, that will start to generate revenues in the second half. And then we have visibility into several other major projects that we think will start to contribute in the second half as well. That's why we're comfortable that we can hit the revenue projections.

Martin M. Koffel

Mike, we've got better visibility than, frankly, we've had for some years through the recession. And there's just a little more wind and energy in what we're seeing than we've seen for several years.

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

No, it sounds that way from your comments, Martin. Maybe my -- just one follow-up, maybe George could talk about how the Oil & Gas, E&C integration is going? And where are some of the surprising opportunities you're seeing maybe from the U.S. energy market that could help -- that's provided this visibility that could get you some extra backlog growth later in this year?

George L. Nash

Yes, Mike. Thanks. Let me comment on a number of those topics. First, on the back-end relative to EC, we've got 3 major programs ramping up in our industrial process business, which also includes, within the EC division, the Oil & Gas segment. Those are ramping up this year. We're very happy about that. In our power business, we have several air quality control system programs that are wrapping up that are target price programs where they're tracking very good project performance, and we'll have some wind in our sails against those programs. Our civil construction and mining group has a large mining program that's ramping up in the second quarter through the rest of the year. And we've also been asked to accelerate some work on a large lock and dam program that we have. And then lastly, as a result of some of the reconfiguration that we've done in the E&C division with changing of the different pieces. We're initiating in the second quarter some cost-cutting that we think will hit -- trickle down through the income statement as we get into the third and fourth quarters. In the Oil & Gas division, we continue to see very strong performance in integrating our engineering and our construction activities. And we moved -- some of the pieces we moved there were to bring our -- one of our engineering organizations into the Oil & Gas division and give us some earlier visibility to bundled service programs, that's going quite well. And actually, the activity particularly in the Permian and Eagle Ford basins are going quite well. And the increasing revenues from that element of the Oil & Gas division, we're very pleased with, particularly as we closed out the first quarter and we get visibility into the rest of the year. I guess the last comment we'll make is that our industrial pipeline is as good as we have seen it in the last 3 to 5 years. We're quite pleased with that. And as a result of that, we see the second half of the year being quite a bit more productive than the first half of the year.

Operator

Your next question comes from the line of Jamie Cook with Crédit Suisse.

Jamie L. Cook - Crédit Suisse AG, Research Division

I guess 2 questions, or a couple of questions just to revisit the guidance again. I mean, for you to get to your full year numbers on a GAAP basis, you need like to average an -- $1 a quarter, when in the first quarter, you did $0.37. So -- and your backlog is down year-over-year. So is there something that I am missing in terms of the profitability potentially inherent in the backlog that will help us get there? And then my second question is are there any unusual gains or any gains or project closeouts that perhaps we're not aware of that will help you achieve your full year numbers? And then Tom and Martin, you said the second half would be greater than the first half. And you said your first quarter was basically in line with what you saw operationally. I mean, we can back out the taxing. But can you just help us second half versus first half? Because my -- operationally, it looked like you guys missed relative to what my numbers were. But apparently, I was off somewhere. So I'm just trying to understand those puts and takes.

H. Thomas Hicks

Sure, Jamie. Well, first, let me reiterate what I talked to Mike about earlier. I mean, on -- from a revenue standpoint, we're well within the range of what we've typically done. So we're not particularly concerned about that especially since we have great -- as Martin said, we have -- and George said, we have great visibility into the pipeline this year, quite a bit of activity. And it looks -- I think I'd said on the last call, we expect an inflection point in some areas. And as you saw, the book of business for Federal grew pretty dramatically in the first quarter over the end of the year. And that's -- we continue to think that the Federal business has stabilized and will start growing from where we are now. On the profit front, we track something called UOI, Jamie. I think you know that, URS operating income. And what we do is take operating income by the divisions and pull out the NCI, so we can get a look at what it looks like after NCI. And if you look at our first quarter margin of UOI, it was about 3.8%. And last year, that margin, if you take out the chem demil impact both this year and last year, without chem demil, it's about 3% in Q1. Last year, it was 2.5%. So we're actually performing outside of chem demil better. The reason I bring that up is, in the second half of the year, when you look at the full year, the operating margin we expect, once again setting chem demil aside, is lower than what we achieved last year. And if you remember, fourth quarter last year was not a sterling quarter for us. We didn't do very well. So from a margin standpoint, there's nothing in our expectations that would be out of line with what we performed in the past. And I think as George mentioned, we have some cost reductions that we're taking on. We also have some PBIs, some performance-based incentives, that will be realized in the latter half of the year. And we have -- we don't see any major roadblocks going forward as far as our profitability goes. And finally -- let me just finish one thing, and then you can ask. And finally, the share count for the rest of year, although it was 72 million in the first quarter, that was primarily because of the timing of when we captured those shares. The actual share count now is about 69 million, just barely 69 million. And so for the full year, the number will be down below 70 million, right at 70 million, it'll average out to 70 million, but it will be a little below 70 million. So the final thing I'd tell you is if you look and think of it that way, we've got to do $70 million a quarter basically on after-tax basis to get to $1 a share or in that ballpark. And we've done $70 million a quarter many times in the past. So I think we're comfortable we can get there. So there's one other thing, we had some onetime items in Q1. We had a $4 million currency hit between Canadian and U.S. currency, which will not repeat, since we unwound that intercompany loan. In then we had a profit adjustment on a project that we're still pursuing with the client, but we thought it was appropriate. That was about $6 million. So those will not repeat in this -- in the last 3 quarters. So I'm sorry, I interrupted you...

Jamie L. Cook - Crédit Suisse AG, Research Division

Well, two. One, you didn't answer second half versus first half. Just because you point it out, I just want to make sure we don't get the second quarter screwed up. Can you tell us how big like the cost reductions or performance-based incentives in the back half, just so I can get a -- you know what I mean, we can get a feel for how much of a contributor they are, or is there anything that -- any color that you can provide.

H. Thomas Hicks

Well, yes, there are several -- let me just tell you. There's -- Q2 will be better than Q1, but not as good as Q3 and Q4. Q3 and Q4 will be our best quarters. So if you wanted to bridge between Q1 and the back half, you could see a bridge between -- Q2 would represent a bridge between Q1 and Q3. You know our Q3 has always been our strongest quarter, and we've done about $1.20, $1.30 in that quarter in the past or even more. Even without chem demil, we've done comfortably over that. As far as the absolute dollar amounts of the cost savings, it's several million dollars. I can't quantify right now. We're in the process of some early retirement activities and cost cutting. And we can identify, we know where the costs are coming out of. We have some costs associated with getting those costs out, and it's hard to tell what those will be right now. But there will be several million dollars of cost cutting that comes out in the second half. Then on the PBIs, once again, several million dollars. It's hard to say that. I mean, it's not tens of millions, but it's several million. But Jamie, we -- this year, we have better view as to what's happening the rest of the year than we've had in a while, given the backlog we're starting to access and generate and our detailed analysis of the business. And we don't have the issues in Oil & Gas. Oil & Gas has straightened themselves out and are looking good for the rest of the year. So that will help year-over-year as well.

Operator

Your next question comes from the line of John Rogers with D.A. Davidson.

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

Maybe just following up a little more on the margin questions, Tom. Specifically in some of the oil or the Energy & Construction work, are you seeing higher margins on the work yet to be done? Is that pricing in the market, or is it just a matter of leveraging what you've got with higher revenue -- or sorry, better pricing [ph] in the backlog?

H. Thomas Hicks

I think there's good value in the backlog. I think it's one thing. And secondly, we do see volume increases in the second half of the year, which is quite -- that will help on the margin. But I'll let George comment. It's his division.

George L. Nash

Yes, John, I think that the question on the margin is, number one, I think in the first quarter, we're somewhat depressed on the margin so we don't expect that. Tom mentioned a onetime item that we took in the first quarter on an [indiscernible] adjustment. So we don't expect that to occur in the next 3 quarters. Secondarily, we see -- I wouldn't say that we see magnificent pricing power. I think that would be an overstatement. I think we feel that it's pretty constant but not -- I wouldn't call it a seller's market as we sit here today. But we do have in our plan the performance-based incentives and target price sharing of underruns that does hit the margins pretty good. So I think that would characterize what our thinking is for the rest of the year.

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

Okay. And George, maybe just a follow up on that. The project opportunities in the Oil & Gas, are they still primarily Canada or have you got any large project opportunities down in the U.S.?

George L. Nash

No. We're seeing the revenue for the first quarter year-on-year in the U.S. was double-digit growth. We were happy to see that. If I folded it together, our Engineering & Construction activities, we see additional prospects to provide those services to the customers. And that's a strong emphasis of us to continue to push in the Oil & Gas margin...

Martin M. Koffel

I think part of the question is are we seeing some larger projects in the U.S. as opposed to Canada?

George L. Nash

Yes. The answer to that is yes, John. Sorry.

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

Okay. And that will bid this year that you'll -- or that you could be working on this year?

George L. Nash

Both. Bidding this year and working on this year.

Operator

Your next question comes from Tahira Afzal with KeyBanc.

Tahira Afzal - KeyBanc Capital Markets Inc., Research Division

First question is in regards to the underlying Federal business. Tom, as you indicated earlier on, that if I pull out the chem demil work, it seems like, for the full year 2013, with the first [ph] quarter, your margins have gone up pretty nicely. Is that because of the mix of the work that you're seeing within that, or is the utilization better, as you've said, down by business perceptibly [ph] through the year, last year?

H. Thomas Hicks

Yes, Tahira. It's Tom, and then I'll let Randy chime in as well. I mean we -- I think we've mentioned to you before that we saw a significant number of bidding opportunities last year and the pipeline was really filled up. And Randy spent some BMP dollars to chase that, and we're starting to see the yield on that. You saw this big program input that we had in the first quarter and growth over Q4 last year. But also, we've seen some improvement in the margin and the backlog, and I'll let Randy comment on that.

Randall A. Wotring

Tahira, as Tom mentioned, we really had some great performance in the first quarter. We had a number of items that contributed to our margin growth, including the mix. We have a software IT program that's performing extremely well. And we had some negotiations with the customer on some fixed-priced contracts that came out nicely. I think the big news here is that we've really seen a change at the point of inflection with the customer on the bidding activities and on the award of contracts. The pace of award has picked up nicely. It's not back to where it was in 2011 and 2012, but it's much better than 2013. And our bidding activities, we're just running full throttle on writing proposals. We think, as Martin indicated, we'll be -- we'll submit more proposals this year than ever before in the Federal business. And it's a good mix of opportunities, some large opportunities, intel, cyber and electromagnetic spectrum opportunities, large-range jobs much like we won in the first quarter, and a continuing number of opportunities internationally. We are now bidding on the next set of opportunities in the U.K. for the Ministry of Defence. So we're really happy with the pipeline and the mix of opportunities that we're seeing and the pace.

Tahira Afzal - KeyBanc Capital Markets Inc., Research Division

All right, okay. And a follow-up question is more on the outlook. Some of your public peers have probably said their visibility is actually a little more mixed in terms of the near term. Granted, they don't have the same market overlap as you yourselves do. But the sense I've gotten is, they're getting a little more aggressive in the near term. So I would love to hear a little more about what your assumptions say again for competitive dynamic, especially outside of the federal space.

Martin M. Koffel

Remember that compared with the companies to which you are probably referring, we're much more focused in North America. And I think what you're hearing embraces some fairly challenging situations internationally. That's not the case for us. I mean our principal international activity is the United Kingdom which, for us, is booming because we've done so well in enlarging our core business with an acquisition we made a few years ago and of course, Sellafield is going well for us. In the United States, we're nicely diversified. If you think about the markets we're in, 30% of the business is now Oil & Gas in North America. And we're in infrastructure and I've been at this 25 years, and I love all of our businesses. But somehow, I've got at least one artery which pulses with the infrastructure market. And I sense that we are -- we're on firm footing at the start of a long-run recovery in infrastructure. I'm very bullish on U.S. manufacturing because of energy and productivity and stable, if not lower, wages. And I think we got ourselves well positioned. I mean, with -- through the recession, we did a lot of work to get positioned in the private sector. Randy did a lot to reposition Federal Services to catch this technological shift in defense spending. And I can't really compare ourselves with competitors. I think we are well diversified. We don't have any businesses we'd like to not be in, and I'm excited about the pipeline visibility. We recently had an offsite meeting with a very large number of our operating and business development people, several hundred of them. I have not sensed from the people actually out winning and executing our work, a level of excitement that I found spending 3 days with them. I've not seen it in the last 4 years.

H. Thomas Hicks

Tahira, let me add one thing as well. I think one of the most price-sensitive businesses that we've had over the years is the consulting and engineering work that Gary Jandegian's division does. And if you look at the multiplier, what we multiply labor by, that number's been steady. And if you look at the backlog growth in that division, they've had strong backlog growth. So we're holding our prices steady and we're growing backlog. It means that we're able to win jobs at our price structure, which is a good sign for us. And I think Gary would tell you that the backlog growth there is real and it's something that we're seeing real strength in that market, as Martin said. So we're not -- I don't think we're suffering from margin exposure in any of our businesses right now. We feel pretty good.

Operator

Your next question comes from Will Gabrielski with Stephens.

Will Gabrielski - Stephens Inc., Research Division

Rig moving and fluid hauling, that was something you called out, and I guess there's a lot of activity, especially up in British Columbia to mobilize production resources for what may be an export boom. I'm just wondering, is that more book and burn, like we won't see that flow through backlog? And I know historically, because it's a fixed asset business, it's obviously very sensitive to utilization. Where would you say you're running now versus what -- when maybe it was running utilization-wise, at their peak?

George L. Nash

Yes. Will, this is George. I would say that in the United States the business is quite active. And it's a good business and above plan. And we've seen more activity than we may have expected going into the year. I think as you look into Canada, it's still a very difficult business, tough business. And we haven't seen as much activity there. You mentioned British Columbia, and I would say that in British Columbia, most of the work there is upfront work. It doesn't -- and by upfront, I mean, permitting, conceptual studies and things of that ilk for the export terminals that have been announced and we actually ourselves have won some work on that. But it's more professional services work and not quite in the oilfield services work yet.

Will Gabrielski - Stephens Inc., Research Division

Okay. But just utilization maybe versus where -- what Flint may have reported a few years ago, how would you compare it today? And across the fixed assets that you acquired in the business that are certainly more capital-intensive.

Martin M. Koffel

U.S. is higher.

George L. Nash

I'd say U.S. is higher, and Canada is approximately the same, maybe down a little bit.

Will Gabrielski - Stephens Inc., Research Division

Okay. In the power market, I was wondering if you could touch a little bit more specifically on -- what are customers asking you for right now as it relates to environmental rules? Is it still figuring out what we're going to do with the fleet, or is there a specific action plan and you're going straight into planning a program? Where do you think the utilities are in terms of digesting all the regulatory rules and actions, then power demand, AQCS, et cetera?

George L. Nash

Yes, on the AQCS section. Again, this is George, I would submit to you that they're making their decision. And that decision is 1 of 3 items, and that is they'll either close the plant. They'll convert it to gas. We see some of that work. Or third, they'll implement the necessary capital project to install the air quality control system. And generally speaking, most of the large utilities that own large fleets have gone through that process. They want certainty in the regulation. And once they have certainty in the regulation, they'll make those decisions. There's a whole suite of plants, I'd call them midsized coal plants, that decision has to be made plant by plant. And it depends on what type of reliability of the grid, it depends on the life of the plant and it depends on what type of asset optimization they can get around that specific coal plant. We've seen all 3, Will. We've seen all 3 -- customers have made all 3 decisions. And as I said, they've made a -- certainly, if they make a decision to shut down the unit, we could get involved in a little bit on the dismantling and demolition of that facility. We have several gas conversion prospects and projects that are ongoing. And lastly, we have a good footprint in the AQCS market. And we have ongoing projects and we are being asked a bit on new projects as a result of some of these regulations and some of these decisions that are being made in the regulatory space.

Martin M. Koffel

We like to say that we're agnostic, which means we're not stuck on any one form of generation. We have a full suite of services. We've got years and years of experience in each activity, and we can handle whatever our utility clients decide.

Will Gabrielski - Stephens Inc., Research Division

Okay. And then just lastly, the bullets [ph] just on infrastructure. I think you've always said like state and local tax receipts are a good indicator. But on the flip side, like you said, there's the end of this highway bill and the funding problem again. How much risk is there in guidance that we enter a period where there's no money? And how much of your guidance is dependent on status quo that is [ph] to stay beyond December?

Martin M. Koffel

Remember, the infrastructure is much less dependent on federal funding than it was. I mean, it used to be that your typical highway or overpass or bridge project was 70% to 80% federally funded. Gary was telling me from his recent visit to Texas that Texas infrastructure is now only 28% federal?

Gary V. Jandegian

Right.

Martin M. Koffel

So given how diversified our business is and given the diversification of funding sources, everything from special use taxes to levies and sales taxes, we are much less at risk to the highway fund than we would have been 3 or 4 years ago. Do you want to comment further, Gary?

Gary V. Jandegian

Sure. We haven't really seen any slowdown or delays caused by the situation with the Highway Trust Fund as well as the completion of MAP-21. Now it's still a bit early to put that on fast forward because we have had delays in renewal bills in the past, as we all know. But we haven't seen any indication from our clients. More and more of the funding is coming out of public/private partnerships and, as Martin said, different types of local and state funding sources. And our revenues have been growing nicely the last few quarters, our backlog is up and we're feeling pretty good about where the U.S. is at. And then obviously, the U.K. is, as we talked about, is going strong. So on both of those geographies, they are doing very well for us, and that's where we have the mass of our infrastructure resources.

Martin M. Koffel

Remember we haven't seen a robust federal highway fund in 7 or 8 years. I mean we've been now through -- remember ISTEA and all the other programs. They were pretty lame. And you've got to go back almost a decade to find rip-roaring federal spending. So the markets adjusted to it. We've gone back to states, cities and municipalities falling back on their own resources. In many ways, that's healthier because it means they make better decisions about allocation. And the local people, the users, get to decide which programs will be built, whether it's light rail or highways or tramways.

Gary V. Jandegian

Will, let me just talk about the risk in our outlook. We -- because we've got a strong backlog and things are going well for us right now, if there is going to be in impact, we probably would see it in the fourth quarter. And we'll know by then what's going to happen with the long-term extension of the highway bill and the Highway Trust Fund. But right now, we're feeling confident about our outlook.

Operator

Your next question comes from Alex Rygiel with FBR.

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

Tom, can you expand a little bit upon the U.K.? First, as it relates to Sellafield income recognition, how does that flow-through through the quarters throughout the year? Is it lumpy or is it sort of straight lined? And then secondly, as it relates to the Defence Infrastructure Organization, what's the timing of that sort of coming through the P&L? And any chance you could put an order of magnitude on that? And will that also be possibly lumpy like the Sellafield income is?

H. Thomas Hicks

Let me comment on Sellafield, and then I'll let Randy talk about DIO because he's been the lead guy on that. Sellafield has been, in the first few years of the program, pretty consistent quarter-to-quarter. But we've gone through a renegotiation or a re-upping of that contract, as you know, for the next 5-year extension. And there was -- there's a period of time between the old contract ending and the new contract [ph] starting that we had a little more variability in income than you would typically see. It's -- I don't think we've ever talked about the exact number quarter-to-quarter, but it's -- once we get past this first part of this year, I think it will be pretty steady again for several years going out. It's -- as you know, the structure of that contract, we get some basic amounts paid to us, and then we share in the savings that we generate from a baseline plan. So those are estimated as we go along and then trued up occasionally. But I think, Alex, you'll see that be fairly steady after we get past this negotiation and -- which we are past. But I'll let Randy talk about DIO because that's a similar, but different structure.

Randall A. Wotring

Alex, we're in the final stages of negotiating that contract, and it should go into place here in June. We expect to start -- we will make money on that contract by generating savings for the customer primarily. So therefore, we think it will be a very lumpy type of income achievement. And we don't expect that to really kick in and hit the income statement until probably 2015 when we start -- we have a number of proposals ready to go in to the customer once we start to help them generate savings. But frankly, it will be 2015 before we see a noticeable impact to our income statement. And there's a -- it has -- it's a great contract as far as opportunity. As you know, they have a significant budget issue and are looking to have a partner that will help them save money in their operations. So we believe that it's a great opportunity for us to get a win-win and help them save money and make a little for ourselves, too.

H. Thomas Hicks

Hey, Alex, when we get this finalized, which we expect will be fairly soon, probably on the next call, we'll share a lot of detailed information for the size of the program, what we expect and what we're putting into the book of business, et cetera. We can give you more clarity at that point. But it's probably premature to get too much further than what we've discussed right now.

Martin M. Koffel

Count on it.

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

And one follow-up. As it relates to nuclear plant decommissioning, can you expand upon sort of the timing of that, when we might see awards, what your roles could be, and try to bracket maybe the revenue opportunity across the 5 different plants that are going down this process?

George L. Nash

Yes, this is George Nash speaking. In each of those, we're in the front-end planning on those -- that decision-making, and we're involved in 2 of those programs on the front-end side today. We've historically done -- there were several of these plants have been in North America -- have been decommissioned previously. We've been engaged in several of those major programs as they've been executed. We have a good, good resume through our Department of Energy work in that space as well. So we are pursuing not only that work in North America, but also in Japan and in Europe, where there are also very large, advertised decommissioning programs. And we'll use that footprint across the globe to be engaged in those programs. Generally speaking, they are $1 billion to $2 billion per plant program. And we would pursue that through the planning process and through the project management process and actually through the execution program all the way through the decommissioning life cycle. And just to put it in perspective, there's 35 plants in Japan that are intended for shutdown, and that's another one of the markets that we're looking at.

Operator

Your next question comes from Andy Wittmann with Robert W. Baird.

Andrew J. Wittmann - Robert W. Baird & Co. Incorporated, Research Division

Tom, I wanted to dig into the cash flow, the guidance with $250 million -- or $750 million as a target for the year. Obviously, a little bit of a slow start. There is some seasonality. But can you just talk about the confidence in that target? And what are some of the kind of key hurdles that need to happen? Maybe when you expect this outsized cash flow to start coming in? Any color around that I think would be helpful.

H. Thomas Hicks

Yes, I'd be happy to, Andy. First of all, our EBITDA in the quarter, our plan, we exceeded our plan for EBITDA just to put that in context. And our working capital went down by about $180 million. Of that, a big portion of it was related to cyclicality of how we accrue various expenses and payables. They build up through the year and then, after the end of the year, they tend to reverse. And so, I think you commented on cyclicality. We've seen, in many of our first quarters, a significant downed [ph] or infusion of working capital needed to take care of that cyclicality. We also had some -- we had some DSO issues in the quarter and we specifically -- as you know, we focus on that pretty heavily. And we had about $40 million that was transferred from long term related to incentives. We had -- we've got some situations with some programs where we'll get paid, but either the agency or the situation has caused them to be a little sluggish in getting their payments out. We're on top of that and starting to see some activity there. So we think our DSOs and cash flow out of working capital will be back to where it is -- it has been in the past. Just to remind you, we've had $300 million and $400 million and $500 million quarters before, so this business can throw off an enormous amount of cash. And then finally, we have an expectation of significant cash collections related to the chem demil program this year. And so that -- that's kind of a wild card and is a significant number that we expect in the latter half of this year. So I think all of those -- that chem demil receivable is over $300 million, and on a net basis, around $200 million, a little over $200 million on top of our normal kind of cash flow that we would get. So that's why we believe the $700 million number that you talked about, the range that we've given is still achievable. And we're not happy with the DSO performance in the quarter, but we understand what it is. It's not a deterioration of our business or a change in our business model, it's really wrapped around several major programs that we, believe me, we're well focused on it and we'll bird-dog those numbers until we get the money in.

Andrew J. Wittmann - Robert W. Baird & Co. Incorporated, Research Division

So are there -- are these discussions about, I guess, basically the proof or the qualifications that collect on the chem demil receivable? Are those ongoing today that you're getting some better visibility as to timing and size on that, or is that still something that's pretty heavily back-end loaded? And is there any risk, I guess, to that slipping into '15?

H. Thomas Hicks

Well, there's always a risk when you're dealing with a large program like this. But we're highly confident we're going to get paid this money this year. We're very close to the contracting officer and to the agency that's running the program. The money's been appropriated. It's available and we expect to get it paid this year.

Andrew J. Wittmann - Robert W. Baird & Co. Incorporated, Research Division

Got it. And then maybe just one other question on kind of the segment margins recognizing the big chunk of work that got moved from E&C to Federal. You've laid out some targets over time that you've kind of put out as guidelines. Can you talk about any change that, that might be having here? Obviously, recognizing there were some onetime issues in E&C for the quarter. But I mean, is $4 million to $6 million for E&C still the right range to be thinking about it? And even if we had this back this quarter, it looks like it's kind of lighter than that. So is there an adjustment that investors should be thinking of in those segments on a go-forward basis?

H. Thomas Hicks

I don't think so, Andy. I think part of the movement of these businesses was they were like businesses trying to get in together. So they're on the margin. There's a little bit of a change but nothing dramatic. We'll give you a recast set of numbers for '13 and -- to help you map division by division, so you can get a sense of how much has moved around. But generally speaking, the stuff that's moved is similar to the margins of the place where it ended up. So you're not going to see big changes in that. So I don't -- I wouldn't -- I mean, we'll revise those ranges if we think it's appropriate. But for right now, I wouldn't make any big changes.

Andrew J. Wittmann - Robert W. Baird & Co. Incorporated, Research Division

Okay. That would be helpful, to see those numbers. Just one technical question to finish up here. Tom, the cost cutting that you're doing, it sounds like you might have some parameters about what that might cost. Is that something that you're going to expense through the P&L, or are you going to add that back in some sort of adjusted number? Maybe just giving us some sense of how that could affect your ability at the guidance range that you're laying out.

H. Thomas Hicks

Right now, we don't anticipate taking any kind of restructuring charge or anything like that. What we'll do is just absorb the costs as they're incurred and we would absorb the savings as those occur. So as of right now, that's our plan. That may change. But for right now, we've got it built into our plan as is presented.

Operator

Your next question comes from Steven Fisher with UBS.

Steven Fisher - UBS Investment Bank, Research Division

I knew you guys talked about the 70 million shares. Just kind of wondering if the pace of any further buybacks or debt reduction this year is dependent upon hitting your cash flow guidance.

H. Thomas Hicks

Well, we -- as we pointed out, we got back almost 6 million in the first quarter. That's the largest quarter repurchase we've ever done by a long shot. And because of the activities of the VCC, the valuation creation committee, and some of the work that's being done around that and our normal window closure at the end of the quarter, we've stopped buying back stock as of now. As for the rest of the year, it will be dependent on timing of cash flows and how the rest of the year unfolds. But we're still a -- our objective over longer term is to get back in a bunch of shares, and we made a good dent in that in the first quarter. But we'll see how the rest of the year unfolds, and we'll go from there.

Steven Fisher - UBS Investment Bank, Research Division

Okay. And then I'm not sure what you can say here. But how broadly is this value creation committee focused at the outset? Is it looking across the whole portfolio, or is it mainly focused on Oil & Gas? And then is there something that's sort of more imminent in discussions, since you mentioned sort of the cessation of buybacks here?

Martin M. Koffel

There's no -- as I said in my prepared remarks, there's no specific timetable for the completion of the work or for any events that hypothetically might arise from that work. But the committee is independent. It's a committee of the board. It's independent of management, has independent advisers. And it's not limited to its thinking or -- and didn't go into it with any particular focus. We are interested in improving value for stockholders. And I think I -- it wouldn't be appropriate to go further than that for the moment.

Operator

Your next question comes from Andrew Kaplowitz with Barclays.

Alan M. Fleming - Barclays Capital, Research Division

It's Alan Fleming, standing in for Andy this evening. Just wondering if you guys could start by commenting on the competitive environment that you're seeing in your bidding activity, especially on the power side? We've heard from some of your peers that are in the environmental control space also sounding relatively optimistic about an uptick in activity. At the same time, we do have seen some pressure on margin there. Can you talk about the competitive dynamics and how aggressive some of your peers are in bidding on these -- some of these jobs?

George L. Nash

Yes. This is George. I'll comment on that. I think that for the folks that -- you can put them into 2 camps: the folks that sell technology and the folks that don't. And I think that you see the folks that sell technology and equipment, and those -- they've come off some highs. I think they're quite eager to build their market share, I think on the folks that integrate the systems and install them and construct them and engineer the integration of those facilities into the plant that -- again, I'd call it right in the middle. I don't think it's a buyer's or a seller's market. In the pendulum, it's right in the middle. I think we've seen historically, if you go back in that market into the early 2000s, it was a real buyer's market then it slipped into a real seller's market in the late 2000s, 2006 to 2010. And I think that as we sit here right now it's sort of right in the middle. As far as good portfolio of prospects, we're continuing to try to, in the industry, use our bundling of engineering and construction services to pursue that market, and we see a lot of customers that respect that model. We have quite a good track record in not only completing those projects on time, but completing those projects on or under budget and sharing those savings with the owners. So I'd call it right in the middle of the road. We expect an uptick. I think we predicted that back several years ago. It is just that the height of that market won't be as strong as it was in the 2008, 2009 timeframe.

Alan M. Fleming - Barclays Capital, Research Division

Okay, that's helpful. And then if you could talk about Oil & Gas margin, you guys had a nice recovery in the quarter. And I would assume that you also had some weather-related headwinds given your work and where most of your work is being done. Can you talk about how much weather impacted in the quarter, and then your confidence that we've seen the low point in Oil & Gas margin and that we will see further improvement through the year? And then just kind of a second part to that question, it does seem like you guys have better visibility than you -- and Martin as you said, in the last couple of years. So what could be the risks that could prevent you from getting the ramp-up that you are expecting in the second half of the year?

George L. Nash

Well, this is George again. Several questions there. First and foremost was the recovery. We -- as we spoke on the last 2 calls, we just were not satisfied with our performance last year in our Oil & Gas division. We've taken some strong corrective actions and we're happy that the first quarter has got us back on track not only quarter-to-quarter, but also '13 to '14, but also ahead of our plan for the first quarter as well. There -- obviously, for the folks that follow the weather in North America, you realize it was quite cold this year in the northern climes. We offset some of that weather impact by increased performance and the -- in the lower 48, which we're also very happy about. And the last piece, historically, if you look back at the Oil & Gas division's results, second quarter was typically one of the lower for that particular business. But that was because of the so-called breakup period in Canada. We expect that to be a little bit shorter this year, so we're happy about that. And also as we get more business in the lower 48, that becomes less of an impact. So we're really happy with the -- we're really quite pleased with the turnaround quarter-to-quarter. And as you look at the second half of the year, we see that momentum building. Historically, the third and fourth quarter, the best for the Oil & Gas division. And then relative to the whole company, Martin, I don't know if you wanted to add anything on relative to the whole company in the back half of the year?

Martin M. Koffel

Well, we -- our plan depends on growth in the back half. And obviously, we aren't always moving [ph] towards some risk in that. We've got more than corresponding visibility into it. So I'm comfortable with the ramp. I mean, a manager normally, in a business, would like flat quarters. But that's not the nature of our business.

H. Thomas Hicks

I was just going to add one more thing. When you look at Oil & Gas, take into account the fact that there's about $7 million or $8 million of intangible amortization built into that number. If you're trying to look at what kind of profitability we're generating in Oil & Gas. The other thing is you mentioned that onetime profit adjustment. That also had affected our Oil & Gas business as a sector, but it affected E&C in particular. So you have to make an adjustment for that. So I think our margins are holding up, and our position is -- we feel pretty good about how we're positioned in the market.

Alan M. Fleming - Barclays Capital, Research Division

Is it fair to say that, that 1Q margin in Oil & Gas will be the low point for the year and it will get better from there?

H. Thomas Hicks

Q2 is always a struggle because of so-called spring breakup as you're probably familiar with, where roads get so muddy that they're having trouble getting projects -- getting stuff in and out of the projects. But Q3 and Q4 will be the real strong quarters, and we expect Q2 will be the weakest quarter of the year.

Operator

Your next question comes from Tate Sullivan with CLSA.

Tate Sullivan - CLSA Limited, Research Division

Sticking on Oil & Gas, and you covered the seasonality question I had, too. But can you put any scale to the opportunities for your Oil & Gas division in terms of U.S. and what portion the U.S. could be as a percent of Oil & Gas? It looks like a very good order quarter as well, but will some seasonality be in that order number for Oil & Gas going forward as well, too?

George L. Nash

Well, I guess I'd say -- again this is George. As we move forward, I think we have talked previously that our split between Canada and the U.S. is 80-20, 75-25. I mean, we certainly expect that to even out closer to a 50-50 type environment. I don't think we'll achieve that in 2014, but that's where we're headed with that business. And we think the market -- well, we know that the market is available for us to achieve that kind of split. And that's from a strategic standpoint, where we'd like those businesses to be in the intermediate term.

Tate Sullivan - CLSA Limited, Research Division

And how about anything -- are your -- the orders going forward to more x seasonal related to the margins as well on the Oil & Gas? And also for -- will you have a slower burn from U.S. projects compared [ph] to Canada work?

George L. Nash

Yes. Well, there's 2 comments there. One is there is less seasonality to the lower 48 business. So to answer that question -- you would expect as that mix changes, that there'd be little less seasonality baked in as that mix -- we're not going to -- we're not thinking to decrease the Canadian business. We just want the mix to be different. So that's question one. Question two on the size of the programs, I wouldn't comment that the size of the programs would be significantly different within the Oil & Gas division. We've got project size, and the project pipeline is pretty comparable. But with the reconfiguration on what was done with moving our facilities construction, our E&C division and intertwining those, those projects will have a slower burn with them because there will be larger programs. And we do see that. Then lastly, with our MSA work which is also going well, the majority of that's done in Gary's division. That work is highly book and burned as is our oil services. So you don't see that coming through the backlog and through the book of business. That's just a quick book and burn business.

Operator

Your next question comes from Andy Wittmann with Robert W. Baird.

Andrew J. Wittmann - Robert W. Baird & Co. Incorporated, Research Division

Tom, just wanted to -- just if you can remind us on the line of credit, what the covenant is for debt to EBITDA and kind of where you are in that metric today?

H. Thomas Hicks

It's 3x, and we're under that number. And we expect that number to improve in Q2 as cash flow picks up in the second quarter.

Andrew J. Wittmann - Robert W. Baird & Co. Incorporated, Research Division

But -- yes, basically -- so the idea there is to pay down some of the debt before you'd probably engage it anymore...

H. Thomas Hicks

EBITDA is going to grow in the second quarter over the first quarter, and we'll have cash available to make -- in effect, the net debt will come down because we'll have more cash available.

Andrew J. Wittmann - Robert W. Baird & Co. Incorporated, Research Division

Got you. Okay. So you're in the what, in the high 2s today?

H. Thomas Hicks

Yes.

Andrew J. Wittmann - Robert W. Baird & Co. Incorporated, Research Division

And then coming down from there?

H. Thomas Hicks

Yes.

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, thanks for joining us. I hope you've sensed our enthusiasm. The whole leadership of the company sees and senses and feels the opportunities that lie ahead. As I've said, we've got better visibility than we've had in 3 or 4 years. And we're particularly well organized at this point. And we've mentioned, as it were in passing, the realignment would be G-Master [ph] division that services -- the federal government services -- the kind of energy into our federal group. And then the realignment of the construction portion of Oil & Gas into B.C. All of these are having a real beneficial effect. We'll be able to lower our overheads. The most important thing though is on the revenue line. We're starting to see with wins like the DIO program in the United Kingdom that when we align our divisions and present as a single company, we have the scale and capability and experience to pull this off. So I and my colleagues are pretty excited about what lies ahead. And we look forward to reporting to you on the second quarter in the month of August. Thank you.

Operator

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

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Source: URS's (URS) CEO Martin Koffel on Q1 2014 Results - Earnings Call Transcript
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