URS's CEO Discusses Q1 2012 Results - Earnings Call Transcript

| About: URS Corporation (URS)

URS (NYSE:URS)

Q1 2012 Earnings Call

May 08, 2012 5:00 pm ET

Executives

H. Thomas Hicks - Chief Financial Officer and Vice President

Martin M. Koffel - Chairman of the Board, Chief Executive Officer and President

Robert W. Zaist - President of Energy & Construction Business

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

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

Analysts

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

Jamie L. Cook - Crédit Suisse AG, Research Division

Andy Kaplowitz - Barclays Capital, Research Division

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

Richard Paget

Tahira Afzal - KeyBanc Capital Markets Inc., Research Division

Avram Fisher - BMO Capital Markets U.S.

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

Scott J. Levine - JP Morgan Chase & Co, Research Division

Steven Fisher - UBS Investment Bank, Research Division

Operator

Good afternoon, and welcome to the URS Corporation Earnings Conference Call for the First Quarter of Fiscal 2012. To begin, I'll turn the call over to Mr. Thomas Hicks, Chief Financial Officer of URS. Mr. Hicks?

H. Thomas Hicks

Well good afternoon, everyone. Before we get started, let me remind you today's call will contain forward-looking statements, including statements about our revenues, business prospects, book of business, closing of the Flint acquisition, earnings and financial condition, dividends, tax rate, economic and industry conditions and other statements that are not historic facts. These statements represent our predictions and expectations as to future events, which we believe are reasonable and are based on reasonable assumptions. However, numerous risks and uncertainties could cause actual results to differ materially from those expressed or implied in the forward-looking statements.

Information about some of these risks and uncertainties can be found in our earnings release and Form 10-Q for the quarterly period ended March 30, 2012, as well as in our other SEC filings, and we assume no obligation to revise or update any forward-looking statements. A webcast of this call is available on the Investor Relations portion of our website and will be archived in audio form on the website for a limited period.

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

Martin M. Koffel

Good afternoon, and thank you for joining us. In addition to Tom, I have with me in San Francisco, the team with whom most of you are familiar. Gary Jandegian, President of Infrastructure & Environment; Randy Wotring, President of Federal Services; Rob Zaist, President of Energy & Construction; Martin Tanzer, Executive Vice President of Marketing; Reed Brimhall, Corporate Controller and Chief Accounting Officer; and Sam Ramraj, Vice President of Investor Relations.

And before discussing our first quarter results, I'd like to update you on the Flint Energy acquisition that we announced in February. We're pleased that the acquisition was approved by Flint shareholders in April, and we expect to receive final regulatory approval and close the acquisition in the course of next week.

As discussed in February and with many of you subsequently, Flint, in our view, is the perfect fit for us, and given our long-held ambition, I discussed this with you on many calls, to expand our position in the oil and gas market. It's also wholly consistent as we explained at the time of the announcement with our strategy and track record of expanding into high-growth markets and further diversifying our revenue and backlog.

We are very enthusiastic indeed about the potential of the Canadian oil sands and the North American unconventional oil and gas segments. We're also confident about Flint's positive near- and long-term benefits to URS's earnings profile. As you may have seen, Flint reported strong first quarter results just last week, and this underscores our enthusiasm for the acquisition as we go forward.

And to remind you, on the closing, Flint will become a new division of URS, it will be led by Bill Lingard, Flint's President and Chief Executive Officer. And more than 20% of URS's revenues will then derive from the oil and gas sector. And given its increased importance, we have actually started to report our oil and gas business as a separate sector beginning this quarter, the first quarter of '12. In the past as you're aware, oil and gas was actually included in our Industrial & Commercial sector. So at the same time, we have simplified the name of our Industrial & Commercial sector simply to the Industrial sector.

With that, let me summarize our results for the quarter, which I trust you've seen in the release. And we're really pleased with the outcome. The year started out well indeed. Revenues were $2.36 billion, up 2% from the first quarter of 2011. Net income was $79.7 million, that's a 28% increase over last year. And EPS was $1.07, 35% higher than the prior-year period.

And net income and EPS results include $3.4 million in expenses net of tax related directly to the acquisition of Flint Energy. Excluding these costs, net income was $83 million, a 34% increase from the first quarter of 2011.

EPS excluding those acquisition expenses would have been $1.12, that's a 42% gain over the same period last year. Now a reconciliation of net income and earnings per share with and without the acquisition-related expenses that I explained is included in the reconciliation schedule that's on our website, www.URS.com, and enclosed in our earnings press release.

Our performance this quarter gives us added confidence in our outlook for the year. We continue to benefit from our diversified portfolio. Conditions in the private sector markets that we serve, which include power, oil and gas and what we now call, industrial, are improving as a result of the mild but steady economic recovery. The outlook for the Infrastructure and Federal sectors also remain favorable.

And to be specific, in the Federal sector, we continue to benefit from our sizable and stable base of work with a diverse set of clients, as well as our ability to successfully enter new high-growth markets. And you've seen us do that in the past 6 months.

In the Infrastructure sector, improving state revenues and the availability of alternative financing is leading to increased procurement activity and new project awards. We ended the quarter with a $3.2 billion backlog of infrastructure work. That's actually the highest in the company's history.

Activity in the oil and gas market remains robust as our clients increased capital expenditures in the Canadian oil sands and for unconventional gas projects. Our backlog of oil and gas work increased by 18% during the quarter. And of course, this backlog does not yet include Flint.

In the industrial sector, which now comprises our industrial, manufacturing and mining work, we continue to benefit from the resurgence in mining activity and the expansion of our facilities management services for multinational companies around the world. And this too is reflected in our backlog of industrial work, which increased by 42% during the first quarter.

The demand for our services in the power sector remains strong, and we're moving forward on several new emissions control projects. We're also winning new work to enhance safety at nuclear power plants.

And we noted last quarter, we received an incentive award for the early completion of key milestones on a large chemical weapons demilitarization program in the first quarter. And while these are important milestones, we'll continue to work at these sites for several years into the future, and we'll soon begin work at other chem demil destruction sites.

Now incentive awards are a fundamental part of our contracting strategies, particularly in the Federal sector. And we build this year's plan with its seasonality in anticipation of these awards. This is a regular and continuing part of our business, and you should note it is not a windfall. And we expect to continue to be eligible for incentive awards on this project and similar programs in the future.

We ended the quarter with a total book of business of $27 billion, and this is essentially unchanged from the end of 2011 and provides a solid base of work for this year and beyond.

And with that, I'll discuss each sector in a little bit more detail, starting with the Federal business.

The Federal sector revenues were $1.17 billion in the first quarter, an increase of 10% over the same period in 2011. And we remain confident in our ability to deliver continued growth in 2012. And this optimism is supported by several factors that I think are quite important.

Firstly, much of our work in the defense market supports the DoD's strategic priorities. And we track those and adapt our business accordingly. This includes the elimination of weapons of mass destruction and investments by the DoD in electronic warfare systems, flight simulation, unmanned aerial vehicle programs and counterterrorism initiatives, all markets for which we have prepared services.

Secondly, we're well positioned in the high-growth areas of the Federal budget. In particular, activity in the Federal IT market for cyber security and cloud computing programs is accelerating. And this reflects the government's focus on combating cyber threats and implementing new IT solutions that increase efficiency and productivity for the Federal government.

Thirdly, we continue to expand our portfolio of sizable, long-term contracts with the Department of Energy, that's the U.S. Department of Energy, and the U.K.'s Nuclear Decommissioning Authority.

And just last month, a URS led team was awarded the site management contract at the waste isolation power plant in New Mexico. And this $1.3 billion contract continues our long-standing service at that site.

So in summary, we continue to expect that our 2012 Federal sector revenues will be approximately $4.6 billion.

The fundamentals for our business in the Infrastructure sector also remains strong. In fact, there continues to be robust demand for our engineering, design and construction services, which is a major contributor to our backlog growth in the quarter. Importantly, our backlog rose to $3.2 billion, a record level for URS.

However, our first quarter results reflect a lag as we await notices to proceed on several new contracts that we'd actually been awarded. Accordingly, our Infrastructure revenues were $438 million in the quarter, a 12% decrease compared with the same period last year.

The mass transit market is particularly strong. We recently won several new design build contracts that should contribute significant revenues starting in the second half of this year. This includes a new streetcar project for the Metropolitan Atlanta Rapid Transit Authority.

In the surface transportation market, we currently are providing engineering and design services on several highway and bridge upgrade projects. Our earlier stage work positions us to win larger construction assignments as these programs move forward. Many of these new projects have been financed through user fees and public-private partnerships.

We're also encouraged that several states and municipalities are considering sizable infrastructure investments. For example, in Chicago, city officials recently announced a $7-billion plan to improve rail systems, water, wastewater facilities and airport runways.

Internationally, we have successfully restructured our operations to match the opportunities that lie ahead. In the U.K., the government's fiscal 2012, 2013 budget includes stable funding for the transportation projects that we support in U.K., such as Crossrail.

In summary, conditions in the infrastructure market are good. We continue to expect that our 2012 Infrastructure revenues will be approximately $2 billion.

In the oil and gas sector, revenues were $163.2 million, which is essentially flat compared with last year. And as I mentioned earlier, with the addition of Flint, we will significantly enhance our position in this market, and well over 20% of our revenues will be derived from oil and gas projects. And this will become the second largest sector for URS after the Federal sector.

In bringing together URS' and Flint's complementary services, we're creating a fully integrated oil and gas E&C firm, a long-held ambition for URS. And this will enable us to better serve our customers, many of whom we already share with Flint.

As you know, URS is an established provider of front-end engineering and design services to the oil and gas industry. We continue to see strong demand for this work, driven by increased investments in the Canadian oil sands and the North American unconventional oil and gas shale plays.

With Flint's construction and maintenance expertise, we'll become a full service delivery organization. And our ability to support the entire project life cycle and of course our involvement in early stage work, which we've enjoyed for many years, positions us to capture a larger portion of this important and growing market.

As you can tell, we're more than enthusiastic about this sector. And we'll talk more about the compelling opportunities that lie ahead on our second quarter call, which of course, will follow the closing of Flint. We'll also provide specific revenue guidance for our oil and gas and industrial sectors when we update our 2012 guidance on that second quarter call.

We continue to believe that the combined annual revenues for our current oil and gas and industrial sectors, that's without Flint, will be approximately $1.9 billion in 2012.

Our next key market is the Industrial sector. And this sector comprises our industrial manufacturing facilities management and mining work. Revenues for the first quarter were $295 million, about flat compared to the same period in 2011. And we expect this business to perform well in 2012. And this outlook is supported by our $990 million backlog, which has increased $291 million. That's a 42% increase since the beginning of 2012.

Revenues from our Master Service Agreements with multinational corporations remain strong, and this is a platform of URS's business. And through these long-term contracts, we're providing environmental and engineering services to support their operations around the world.

In the mining market we've enhanced our capabilities to provide the full range of EPC services to our clients. As a result, we were awarded several large long-term assignments during the first quarter. These include engineering, procurement and construction management work for Rio Tinto's new iron ore project in Australia.

We also continue to grow our facility management programs with key industrial and manufacturing clients. And we recently expanded our relationships with several multinational corporations.

Our next market is the Power sector. At first quarter power sectors were $292 million, down a little bit from the first quarter of last year. Conditions in this market remain very favorable for URS.

The pace of bidding activity is beginning to accelerate as utilities make investments to meet regulatory deadlines and also to extend the life of their existing facilities. And this is reflected in our $1.6 billion backlog, which remains at the highest level since 2009.

Opportunities in the air quality control market where we're well positioned remain robust. This is driven by Federal emission standards and various state consent decrees.

In the nuclear market, plant operators are moving forward with investments to comply with the Nuclear Regulatory Commission's post-Fukushima safety regulations. The utilities must improve seismic and flood control programs and strengthen containment structures, all areas of expertise for URS. And as you know, we are very familiar with the installed fleet of nuclear plants in the United States.

And during the second half of the year, we'll begin 2 steam-generator replacement projects and several other nuclear modification assignments, and we're prominent in that market.

Finally, we continue to see opportunities to support the development of new gas-fired power plants. The EPA's proposed guidelines to reduce greenhouse gas emissions from coal-fired facilities will likely result in additional investments in combined cycle gas plants.

In summary, we're optimistic about the Power business. And we continue to expect that our Power sector revenues for 2012 will be approximately $1.6 billion.

And at this point in the call, Tom Hicks will discuss our financial results in more detail.

H. Thomas Hicks

Thank you, Martin. To summarize our first quarter results, revenues were $2.36 billion. Net income was $79.7 million. EPS was $1.07 per share. Excluding the Flint-related acquisition costs, net income would have been $83 million and earnings per share excluding the cost would have been $1.12.

A reconciliation of net income and earnings per share with and without the acquisition-related expenses is provided in the reconciliation schedule available on our website at www.URS.com and in our earnings release.

Now turning to cash flow. Due to the timing of bonus and 401(k) payments, as well as an increase in day sales outstandings, or DSOs, our operating cash flow was modestly negative in the quarter, which is consistent with results for the first quarter of prior years. DSOs were 85 days at the end of the quarter, that's up from 79 days at the end of 2011.

Interest expense for the first quarter was $9.8 million. And our tax rate in the first quarter was 31.5%. We repurchased 1 million shares in the first quarter and our diluted weighted average shares outstanding was 74.3 million.

Our operating margin continued to be at high levels, which we expect to maintain through the balance of 2012.

During the quarter, we issued $1 billion of senior notes and completed borrowings under our existing credit facility to fund the Flint transaction.

And finally, on April 6, we paid a quarterly cash dividend of $0.20 per common share to stockholders of record as of March 16. And our next quarterly dividend will be paid on July 6, 2012, to stockholders of record as of June 15.

And as you know, we report separate financial information for our 3 business segments: Infrastructure & Environment, Federal Services and Energy & Construction.

For the first quarter of 2012, Infrastructure & Environment reported revenues of $964.2 million and operating income of $45.9 million. Federal Services reported revenues of $717.1 million and operating income of $93 million. And Energy & Construction reported revenues of $725.7 million and operating income of $48.1 million.

CapEx, excluding the equipment we purchased through capital leases, was $17.8 million.

Our press release contain a detailed description of our book of business, including backlog, option years and indefinite delivery contracts, or IDCs. We ended the first quarter with the book of business of $27 billion, which is essentially flat compared to the end of 2011. Backlog was $14.1 billion at the end of the first quarter. The value of option years was $4.6 billion. And for the first quarter, IDCs were $8.3 billion. That's up 3% from the $8.1 billion at the end of 2011 and 11% higher than at the end of the first quarter of 2011. This reflects a long-term trend in the growth of Federal work being assigned through IDCs.

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

Martin M. Koffel

I'll turn now to 2012 guidance, which I should remind you does not include Flint. And we'll update our 2012 guidance to include Flint on our second quarter call.

Meanwhile, we continue to expect that revenues from the Federal sector will be approximately $4.6 billion. Revenues from the Infrastructure sector will be approximately $2 billion. Revenues from the Power sector will be approximately $1.6 billion. And revenues from our current oil and gas and industrial sectors, that's of course without Flint, will be approximately $1.9 billion. And based on these assumptions, we expect that consolidated revenues for 2012 will be between $9.9 billion and $10.1 billion.

We expect the net income will be between $292 million and $300 million, and that earnings per share will be between $3.95 and $4.05 per share on a fully diluted basis. We expect that our tax rate will be approximately 33% but the rate may fluctuate depending on the amount of noncontrolling interests that will be included in our results.

We also expect that the number of weighted average shares outstanding used to calculate our EPS for 2012 will be approximately 74 million shares.

So to finish up, I have to say we are pleased with our first quarter results and comfortable with our outlook for the full year. In fact, we are enthusiastic about it. And there are positive fundamentals underpinning each of our market sectors. And we believe that URS is well positioned to capture some good opportunities that lie ahead.

Obviously, we look forward to completing the Flint acquisition, which is immediate. And we remain confident that it will deliver long-term value for our stockholders, our customers and our employees.

As I mentioned earlier, we'll update our guidance for the full year, including the effect of Flint when we announce our second quarter results in August.

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

Question-and-Answer Session

Operator

[Operator Instructions] And our first question comes from Alex Rygiel with FBR Capital Markets.

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

First, I wanted to thank you for breaking out oil and gas and renaming I&C just I. I do appreciate that. Could you provide us with the oil and gas backlog from first quarter of 2011?

H. Thomas Hicks

Alex, it's Tom Hicks. We'll -- I'll announce it later in the call. We'll have to pull it out. It's a new segment for our new reporting segment for us, so we're -- bear with us just a minute while we move on to your next question.

Martin M. Koffel

We'll come back, if we may.

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

Sure. Martin, any chance you could touch upon the U.S. pipeline to the I market. I know you've commented on it in the past and clearly there seems to be a fair amount of activity in the pipeline market. Could you expand upon your current involvement and subsequently with Flint, the opportunity ahead?

Martin M. Koffel

Yes. Bob Zaist, who heads our E&C division is here and he's pretty active in that market. And I'll have him speak. And then I'll come back, come in behind him.

Robert W. Zaist

Alex, if I could perhaps I could frame the market as we see it a little beyond the pipeline work with Flint, let's start with the oil sand work. That capital spending projections in the Canadian oil sands is expected to be around $180 billion spread over 10 years. That's according to Peters & Co. Right now the spend is somewhere in the range of $12 billion to $14 billion a year on capital projects. That objective is to take the production capacity from about 1.5 million barrels a day up to about 3.5 million barrels a day by 2025. That's going to present capital project opportunities for URS and the combined organization for the full EPC suite of services. The trend also is towards increasing SAGD, which is steam-assisted gravity drainage extraction technology, that's another area where the combined company kind of hits the sweet spot for capabilities. And about 80% of that resource is susceptible to that type of extraction. As facilities get built, then the provision of maintenance service opportunities increases for us. And if you look at the rig count in North America, the rig count in North America, April to April this year to last year is up about 150 rigs. And that is again an area that is going to be a service area for the combined company. You couple that with the fact that about 1.5 years or 2 years ago, we bought ForeRunner, which is a company that is focused on the design elements of pipeline provision services and you couple that up with Flint's pipeline installation capabilities, and then we can provide a full suite of services for EP&C.

Martin M. Koffel

Canada has got about 62,000 miles of pipeline. It's principally concentrated in the Western provinces. And Flint is active in that. It does construct pipelines up to a certain size. The real interest for us of course is beyond that, as the pipeline is linking Canada with the United States, and there isn't anyone in the industry who isn't closely following the fortunes of the Keystone pipeline. And I'm sure we won't hear much about that before the election, but I'm pretty sure we'll hear something in the first quarter.

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

One last quick question for Tom. Have you finalized the accounting treatment for JV that you're going to be acquiring through Flint?

H. Thomas Hicks

Alex, we haven't finalized much on the accounting treatment. We, as you know, there's a lot of moving parts when you do purchase accounting. But in that case, we'll report to you fully how we plan to report that in the second quarter when we come back to you. Canada did go to IFRS and away from Canadian GAAP to IFRS. And now we're taking them back to U.S. GAAP as part of this deal. So there's a lot of moving parts. I want to get back to you on your other question about the oil and gas backlog for Q1 of last year. We have not broken that out yet. We just did year-end numbers. So I can't give you that number right now. Maybe Sam can provide it at some point in the future.

Operator

And our next question comes from Jamie Cook with Credit Suisse.

Jamie L. Cook - Crédit Suisse AG, Research Division

Two quick questions. One, on the Infrastructure business, the revenues in the quarter were a little lighter than we had thought. It makes the run rate to make your full year numbers a little more difficult. You talked about some projects that didn't hit backlog yet. I'm just wondering if you could sort of size that in how we think about the revenues. Is it back half weighted? Is it more in the second quarter, we'll start to see a pickup? And then my last -- my second question is just more bigger picture. Can you talk about what you're seeing in terms of new gas-fired power plant opportunity, as well as what you're seeing on the emission side in terms of prospects for bookings within Power.

Martin M. Koffel

First of all, it's Martin. Jamie, I'm a huge long-term infrastructure enthusiast as you know, and we feel pretty good about our year. Revenues were down a little bit in the first quarter because we had some projects that haven't quite started. But Gary is chomping at the bit here to answer your question more directly. Gary Jandegian.

Gary V. Jandegian

Jamie, we need to distinguish the 2 pieces of business, engineering, design and then construction. Infrastructure & Environment performs primarily the design work. And Energy & Construction performs the construction. So I'll address the IE side of the business, your question. And then I'll ask Bob Zaist to discuss construction. Our Infrastructure revenues in IE were down slightly but the backlog was up significantly. And we have now historically high backlog. There is some seasonality effect in the winter months for our front-end work. Of course, our overtime and our summer months have longer days. So I expect the revenue to increase in the IE side of the business as notices to proceed on those new contracts are released. And my confidence is bolstered by the engineering opportunities that we're pursuing and also our high win rate and market leadership position, again, as evidenced by the increase in our backlog. I'll turn it over to Bob.

Robert W. Zaist

Yes. Jamie, I would simply tell you that directionally, I think our backlog on the larger projects side is improving. We had several projects last year that finished up, including levee program down in the New Orleans area. As Gary said, we've got seasonal issues in the first quarter. For example, the very large Olmsted dam program that we have is affected by high water in the spring, where we can't work out on the river and also just the general climate. As it gets better, we'll start to pick up the revenues later this year. We're encouraged by some of the larger projects that we have in our pipeline and we're in process we are pursuing particularly in the light rail category. Martin mentioned the design build award down in Atlanta that we just received, which we will just be kicking off. We've got some terrific opportunities on the transit side that will hopefully materialize later this year. As we go on -- for the rest of the your questions on the gas-fired power plant side of the equation, the gas price stability or horizon, if you will, and the stability of prices, I think, is encouraging from the standpoint that it will allow energy users to have a better profile of what their costs are going to be for a longer horizon. We are starting to see opportunities on the combined cycle side present themselves. And of course you know that we've had a warm winter across the country. A lot of utilities are fairly challenged on the revenue side, and so I think the decisions are going to be a little bit slower until they see those revenues coming back hopefully this summer. But we will see some comparisons made as capital decisions are made to put those dollars into coal plants on the air quality side of the equation, whether those dollars are put from a capital standpoint into new generation. We haven't seen those decisions affect the air quality control projects thus far. We are engaged in -- I believe it's 23 projects in various stages of development. Some in the very early study stages, some actually contracted for major retrofits. And we expect some of those larger projects to be rolling out as we progress this year.

Martin M. Koffel

And just a final comment on Infrastructure. One thing that gives me quite a bit of confidence in the outlook for Infrastructure is just the changing dynamics of financing. Traditionally, as we've explained in many calls, the Federal financing -- the Federal match for large highway projects and the like was 70% or 80% coming out of the highway fund. And we've been talking on these calls for several years about the increasing diversity and localization of funding sources. Everything from local bonds to special taxes and user fees and everything else, and that's really taken hold. And today overall, the average Federal match is no longer 70% or 80%, it's actually 30%, which is very surprising. I think people on the call might be quite surprised to hear that. So that means now that something like 70% has to be derived from all kinds of diverse resources. And when the money comes from the community rather than in Washington, you're much more likely to get the project built. And that's why we have the backlog, and we're confident in our Infrastructure growth this year and beyond.

Operator

And our next question comes from Michael Adam Kaplowitz with Barclays.

Andy Kaplowitz - Barclays Capital, Research Division

So I think we can all appreciate the strong performance fees that you had in the quarter, guys. I mean, look, obviously very strong performance. You talked about in your Q, it was worth $63 million. And so the obvious question is again, I know you don't want us to strip it out. But if we strip it out, we see pretty low margins in that Federal business. And we know that the other government contractors that had in reporting this season seemed to have some issues on the margin with contracting with the Federal government. So I wonder if you can address that and what you see going forward. Because you mentioned that you should be able to see sustainable margins in that segment, yet you had a very large performance fee as you said in the quarter.

H. Thomas Hicks

Randy Wotring is going to give you a full answer. But I wanted -- it's Tom. I just want to give you a quick comment. That whole business area is structured around incentive fees and long-term performance fees. And there's nothing to believe that going forward, we can't achieve good performance in that sector. And so I don't think it's appropriate to look at one period of time, which represents multiyear performance. It just happened to fall in the first quarter, Andy. So we're confident we can keep our margins up. And if you subtract -- if you try to pull apart our business, it doesn't make any sense because it is a portfolio of businesses. And over the long term, we expect those margins to be quite healthy. So I'll let Randy comment.

Randall A. Wotring

Well, I'll just add quickly that many of our large Federal contracts allow us to earn performance-based incentives. So on a continuing basis, both within the Department of Defense and the Department of Energy, we have a significant number of contracts that will allow us to earn long-term incentives. And I think you should consider that -- this to be part of our long-term profile in this area of the business.

Andy Kaplowitz - Barclays Capital, Research Division

Randy, that's totally fair, and I agree with you guys. I guess the only thing is you read the Q and it mentioned delayed award of task orders. And again if you look at some of your peers, they maybe had a few issues in the quarter, and I'm not saying you guys are. I just -- I think that's the common question I get is that -- is the government sort of tightening its purse strings a bit on you guys.

Randall A. Wotring

Well I think there's 2 issues. One, the budget uncertainties have, in my opinion, served to slow down the entire procurement process. So we're not seeing a slowdown in solicitation of work. And in fact, our bidding activities are at their highest rates ever. We have a pipeline of opportunities that we're pursuing that's near $20 billion. And as most of your contractors are reporting, there's a very high number of proposals and are waiting award. We are seeing some selection criteria that causes price to be a bigger selection in the valuation criteria. But in fact, in many of the contracts that we're seeing are moving towards fixed price. When I say fixed price, it may be a fixed price level of effort or a fixed price unit rate, not a lump sum type of fixed-price arrangement. And in fact, we're able to earn higher margins on some of those contracts. I've been in this business a long time. Many of you have been following the Federal business in a long time. This is a cycle that we're in, and it will move around some. But overall, the Federal government is a great customer. They pay their bills on time. And it's a huge marketplace for us. So we remain excited about this business.

H. Thomas Hicks

Andy, what we'd like you to take away from this is we did have a very good margin performance in Federal Services in the first quarter, and that's probably not -- we can't duplicate that every quarter. But we still should be in the 5% to 7% range margin-wise going forward. We don't see any reason why we shouldn't be. And that includes award fees and normal fees that we get.

Andy Kaplowitz - Barclays Capital, Research Division

Tom, that's very helpful. If I could ask you about I&E margins in a sort of the same way. You read the Q, it talks about higher use of subcontractors and a legal settlement. Maybe you can -- can you quantify the legal settlement for us? And then talk about, is the business becoming more subcontractor-based on the I&E side?

H. Thomas Hicks

Yes, let's turn over to Gary Jandegian for a moment. He can give you the background.

Gary V. Jandegian

Yes, Andy. Well, the main reason for the margin decline in the quarter in IE was onetime events, and you mentioned some things. But there were several nonoperational events that resulted in that decline. That includes a legal settlement in Australia. This was for a project done over 20 years ago via one of the legacy companies that one of our acquisitions had purchased. We have nothing to do with the project but it was a dormant case, and we settled it in the first quarter. That was several million dollars that it cost us in both legal defense and settlement costs. We also had higher bid and proposal costs during the quarter due to those increased opportunities that we've been talking about. And then we also had cost from the severance actions we initiated last quarter in the U.K. I and Continental Europe. I want to be clear, it's not an operational or an execution reason. Our pricing is holding up overall. Our billing multipliers are holding and our staff utilization is actually up. So with these actions behind us, we expect the IE margins to return to the average 6% to 8% historical range that we've always said we should operate within. And we'll be into that range this year.

Martin M. Koffel

Andy, when I review margins, which I do about every 3 minutes, I usually don't get too fixed on one quarter. I'm interested in the trend. Obviously I would take the nonoperational events out. We constantly look at utilization, which Gary touched on. But it's the pricing, it's the real issue. And if you can hold your pricing, which we've been able to do, you can generate a margin. Now you may have an aberration or 2, 1 month or 1 quarter. But if you can hold your pricing over periods of time, which we were able to do right through the recession, and then you can hold your margin trend and keep the returns in that sector. And I'm quite pleased with the stability of our pricing right through. And as I look ahead, I feel equally confident.

Operator

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

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

I don't know whether you can update us on this. But as it relates to Flint, still $0.20 to $0.30 this year in accretion?

H. Thomas Hicks

John, as I said earlier, there's -- as you know, I think quite well there's a whole range of issues that we're dealing with to finalize what the impact Flint might have on our rest of the year performance. And we haven't closed yet, so we're not anywhere close to having all that finalized. We hope to come back to you or we'll come back to you on the second quarter and give you definitive changes to our guidance. But we don't have any new information that would give us a better estimate of the impact than we gave you earlier, the $0.20 to $0.30.

Martin M. Koffel

Let me just say that Flint is strongly accretive in the future on a full year basis and obviously, there's the pro rata effect for the year in which we made the acquisition. And lots of homework for Tom and Reed to do in the meantime.

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

Okay. But it seems as if -- I mean while this quarter was off -- the year was off to a good start. And then just back on the industrial markets that you referred to. One, could you talk about -- I mean especially, not so much 2012 but out beyond that, markets in the industrial you're specifically targeting now and where the biggest opportunities are for URS?

Martin M. Koffel

Yes, there is some -- we're not signaling too much about business plans that we haven't made public. There's some important portions of the Industrial market where we haven't had a lot of coverage in the past. And we're seeing, as others are, some time of an industrial process, chemical process and more particularly, manufacturing recovery. And I mean there are a lot of factors affecting it. One is that the labor cost disadvantage that the U.S. face is being reduced due to comparative wage price rises and expectations in developing countries. The other is just the enormous dividend from productivity investments made in U.S. manufacturing. And then if you think about it thoughtfully, there is the appeal in the emerging markets for the rising middle class and discretionary expenditure on American-made goods. And our thesis is that we're seeing interesting recovery in portions of U.S. manufacturing, probably the U.S. global multinational firms. And we can position for what we think will be a recovery there. So it means not just responding to industrial clients we have. We have a very large set of industrial clients. And we are seeing early signs of recovery as they bring factories back on or even build new ones. But new sets of clients in industries we haven't previously covered. So I think longer term, as you said, looking beyond even '13, which is how I understood your question, we think it's a good strategy for us.

H. Thomas Hicks

John, there's also the impact, which I think a lot of people have commented on of sustained low gas prices, and it's the feedstock and a cost input to many industries. If you look at projections for some of the more energy-intensive industries, a low price for gas will drive a significant amount of reindustrialization in the country. And we're planning on that, and we're positioning ourselves to take advantage of it.

Martin M. Koffel

I'm personally bullish on the United States as a manufacturer, and they are beginning to act accordingly.

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

And with your capabilities that you've built up over the last couple of years, I mean are you positioned to participate in these markets? Or do you have to add some more skill sets?

Martin M. Koffel

Both. And the man who gives it a lot of thought everyday is Bob Zaist, and I'll ask him to add his comments.

Robert W. Zaist

Yes, John. I think of couple areas. Certainly, we've talked to you about the mining industry and mining associated work. And as Martin indicated, we clearly are focused on the Australian market to build that business. We're seeing opportunities in Western United States, again associated with mining. The facilities management business is an area where we focus on all of the support services around a production setting. All of the utilities, whether it be power, water, wastewater, gases, we operate and maintain those for that production facility. And we're moving into the robotics area of the actual production line. So those are areas that can -- those skill sets can move from industry to industry quite readily. And so those are a couple of examples where we're focused.

Operator

Our next question comes from Richard Paget with Capital.

Richard Paget

Martin, you talked about how Flint had a pretty good quarter last week. Now that you've been at least looking at them for the last couple of months a bit more closely, I mean how do you think that, that oil and gas segment could ultimately pan out? Do you think it could become one of the largest or your largest segment within next couple years given the growth prospects up in the oil sands, I mean could be in excess of 30%?

Martin M. Koffel

Well, it comes in. We'll just have to see the numbers at the end of the second quarter. But it comes in with giving us more than 20% of our business in oil and gas. And I think it settles, when I say it settles, I mean you see the dynamics of our own business, which is growing and their business, which is doing very well as you saw from their first quarter results. It settles somewhere between 20% and 25%. Flint is well developed in Canada but it could go, absolutely grow further. And Flint has starting positions in the United States. And as we've said publicly before, one of our goals and one of Flint's goals is to -- one of the appeals of URS to Flint was we could help accelerate their growth in the United States. So you could imagine oil and gas being our fastest-growing sector for some time. And the size it gets to, whether it gets to the number you mentioned, which I think is 30%, it really depends on the growth rate in the rest of the business. We think industrial is going to grow quite a clip, and we're optimistic about Power. And we've got a pretty good growth in Infrastructure, although nothing as dramatic as oil and gas. So whether it gets to 30% or not, I don't know, it will be an investment priority for us. And Flint's got some very good growth plans, which we'll get behind, and we'll fund. And so I think you'll see Canada growing well, but the U.S. piece growing even faster.

Richard Paget

Okay, great. And then just coming back to the Infrastructure. You mentioned the delay to proceed in some projects. Was it a couple of large projects that really influenced it? And was there an underlying theme of why these were delayed?

Martin M. Koffel

Let me get Gary back, and he can be more specific for you.

Gary V. Jandegian

Yes, I think it's a bit seasonality and some projects. I mean we're working on 3 of the big high-speed rail lines in the U.S., as well as high-speed rail in the U.K., high-speed rail 2. In California, we had a bit of a slowdown in the new annual budget that we received to do our work on that project. We're involved in the design of 2 of the 4 segments of that line. We're also working in Illinois, where additional Phase 2 and 3 work is -- we're awaiting the go-ahead on that work. That's 200-plus highway and grade crossings between Chicago and St. Louis. And then in the Northeast, the Amtrak program, we're the owners representative on their high-speed rail improvement between New Haven, Connecticut and Springfield, Massachusetts. Also, we're looking at adding some CM work on that line. So there's some expansion that we're hopeful will come our way. Those are some of the transit opportunities that have been delayed a bit in infrastructure, and we're waiting notice to proceed. We got these projects in our book of business and the funding is there. It's just a matter of the state agencies and government procurement departments releasing us with notices to proceed on some of those activities.

Martin M. Koffel

When we were smaller we used to be troubled a great deal more by these delays, but with the scale and the size of the portfolio, we can take it in a stride at this point.

Richard Paget

Okay. So just to be clear, it's not an issue of the funding being there or not, it's more of a bottleneck and kind of, what do you call, red tape but just moving a little bit more slowly?

Gary V. Jandegian

Correct.

Operator

Our next question comes from Tahira Afzal with KeyBanc.

Tahira Afzal - KeyBanc Capital Markets Inc., Research Division

So the first question is in regards to Infrastructure. Martin, you've talked a bit about the alternate funding, et cetera. As the alternate funding options come into play and particularly as we look at private sector funding playing a bigger role, could you talk about what the impact is on the competitive landscape? Do you end up seeing less competitors? Is that putting you in a better position going forward?

Martin M. Koffel

I want to be a little careful about commenting on competitors obviously, and we never want to boast about our relative strength. But we have rather deliberately built this large infrastructure company in the prominent place we have. So given that we do comfortably straddle straight up public work, PPP and everything else, we're obviously feeling competitively comfortable, let me put it that way. I don't know if, Gary, you'd like to say any more than that.

Gary V. Jandegian

Right. Let me just mention, we are seeing a diverse source of funding mechanisms for moving these infrastructure projects forward. Obviously, the country and the public is very supportive of infrastructure pending the funding being available. But we've got to move people to their jobs. We've got to move goods and services around the country and to the ports. So infrastructure is a key political component of what we do, and it's being funded in alternative ways. We're seeing a number of large PPP opportunities that we're pursuing. And we don't typically talk about the specifics of those. But I can tell you, it's a very long list of PPPs that this country has underway. We're seeing similar amounts of activity overseas.

Robert W. Zaist

Tahira, can I add one thing? We're a company that has the full range of services as just pointed out. And it gives us a flexibility on individual projects to choose what role we want to take from doing the whole project to doing just the front end to doing just the construction or doing a combination of work. So we think -- as Martin said, we think our competitive position is very strong right now with this change in the market.

Martin M. Koffel

Tahira, you know what I really love about Infrastructure, I mean I love every business we're in to be honest. But there's something about Infrastructure that I should point out to you. It's one market, public market, in which partisanship never plays. When you get into social security payments, medical payments, how much should be spent on defense, what the tax rate should be, and it gets political real fast and gets to Washington. But everyone has to drive to work on the road. Everyone has to use a transit system, flush a toilet, turn on the water and so on. And everyone, there's no disagreement about the need to build, rebuild our infrastructure. And it just makes it such a steady source of financing and a steady need because it starts with the road right outside your door and goes all the way to Washington. So it will be forever a strong engine in URS.

Tahira Afzal - KeyBanc Capital Markets Inc., Research Division

I fully support that being a cyclist in New York. It's not any fun given our roads down here. So second question is really in regards to John's earlier commentary. If you look at the first quarter for Flint, exceptionally strong and granted the Canadian cents but now, it is quite equivalent to U.S. cents, over $0.30 in the first quarter coming out. Could you comment on how that was? And I know it's too early to -- you don't want to comment on what accretion, et cetera, looks like. But can you at least comment qualitatively on what you thought of the first quarter? Were you pleased with the results and was in line with your expectations? And then I'm sure you're very carefully watching the aggregate rig count outlook in the U.S. Clearly natural gas is coming down, that's been offset by the liquids. And that helps Flint in terms of rig movement. But any concern there about the longer term or any hiccups in the medium term that you think would arise?

H. Thomas Hicks

It's Tom, Tahira. We watched very carefully how Flint did in the first quarter, and we're quite pleased. And they are certainly on-plan for the plan they showed us for the full year. So we're very impressed with how they did. On the rig movement issues, I think you're very perceptive in that the movement of the rigs is what drives some portion of their revenue. And as you switch from gas to liquids, you have to move rigs around, and they're benefiting from that right now. We don't -- I mean I don't want to comment on their business specifically, but oil and gas in North America looks like to us a very strong market for the foreseeable future. So we're very pleased with the acquisition and the prospect it brings to us.

Martin M. Koffel

Just on the oil rig movement, the oil rig count in North America is up 150 for the year. That's a substantial increase. And that's the kind of movement and positive volatility that drives Flint's business.

Operator

Our next question comes from Avi Fisher with BMO Capital Markets.

Avram Fisher - BMO Capital Markets U.S.

Not a big number but G&A costs exclude the acquisition, it's pretty low, below we've ever seen. Is that the true run rate for what your G&A costs should be? And if so, why -- how come you've never done it before?

Martin M. Koffel

You sound like the board.

H. Thomas Hicks

Avi, are you on our boards?

Avram Fisher - BMO Capital Markets U.S.

I'm open for it.

H. Thomas Hicks

What happened in the quarter was there were a whole range of things around -- a lot of noise in the P&L around the acquisition expenses. And what we called out on the face of the P&L represent money we paid to third-party advisers, bankers and legal advisers. There are other items as well. We had a gain on currency. We had interest for 2 weeks on $1 billion. And we had -- we had put in place a bridge loan just in case we didn't get the bonds sold. All those things mixed together affected the P&L. And the one item that fell into G&A was the currency rate gain. So you need to add back a couple of million dollars to the G&A actual expenses to get a real run rate for the quarter.

Avram Fisher - BMO Capital Markets U.S.

And will that get as back to kind of the 20 -- low 20 range that you've been doing?

H. Thomas Hicks

It'll be probably more around 20, yes, very close to 20. I think we're 17.5 for the quarter. And if you add a couple of million back, it will be very close to the 20.

Martin M. Koffel

Believe me, having seen a lot of the invoices, we didn't stop spending.

Avram Fisher - BMO Capital Markets U.S.

Transfield, when will it be fully resolved? When should we expect the full resolution on this JV? I mean the deal is going to close obviously next week. But when should we expect the full understanding of the JV?

Martin M. Koffel

We probably -- pending the closing and given that Flint is having some chats with Transfield, as we speak, I think I ought to be a bit cautious about commenting. Transfield JV makes a lot of sense to Flint, makes a lot of sense to us. There is no logic whatsoever in any party involved, including us being other than pleased with the idea of it continuing, and we think that's exactly what will happen.

Avram Fisher - BMO Capital Markets U.S.

But I guess to like -- I mean could this drag on for months after the close? Or shall we -- is there going to be a finality at some point? Obviously at some point, but -- or is it too soon to say?

Martin M. Koffel

Well, I'm being cautious because I'm not at the table. And if for next week, I'd sort of jump in, but I think the parties involved think that it's a good -- it's been a good arrangement. It serves them well. They think it's a good arrangement for all the parties in the future, and there will be no logic anyone delaying it.

H. Thomas Hicks

Avi, there will be a point in time where it's very clear. I mean there's no question. It won't go just drag on. That's for sure.

Martin M. Koffel

I would just say that I'm optimistic.

Avram Fisher - BMO Capital Markets U.S.

Okay, I appreciate that answer. I guess putting on my board hat again, why were the DSOs up again? I mean is that -- and I guess more important point, I think you mentioned timing. But if we were to sort of stop the clock today, would you have been able to sort of bring them back down to the normalized range?

H. Thomas Hicks

Yes, first comment on DSOs is there's nothing at a trend to see there at all. It's involved with a couple of significant one-off type issues related to timing of incentive recognition versus when those incentives are going to get paid out, that kind of thing. So we expect them fully to get back in line with what they've traditionally been. There's no trend there.

Avram Fisher - BMO Capital Markets U.S.

Okay. I mean you guys are doing a remarkable job with your DSOs. So I was just kind of curious, it was a little out of character.

Martin M. Koffel

We call ourselves the cash demons, and we never let that get away on us.

H. Thomas Hicks

Obviously, just to point out something, and put you more at rest. There are several days of DSO growth there related to accrued items that were due to be paid in the future. But the cost has been recorded, so it's really not a cash flow issue, if you follow what I'm saying. So some of it is moderated by that. Some of it is just normal kind of normal movement from quarter to quarter, so we don't -- we look at really hard as you might expect, and didn't see anything that concerned us.

Avram Fisher - BMO Capital Markets U.S.

And I have 2 other quick questions. Just first on the Energy & Construction segment, I understand there's a shift away from revenues to the equity income. But when you look at revenues, I mean Federal is down 14%, Infrastructure is down 49%, oil and gas is down double digits, Power is down and segment EBIT is down about 24%. What has changed? Anything changed there? Why are the results down so significantly year-over-year? Is it a function of just projects still waiting to move ahead? Have you changed the way you operate that business?

H. Thomas Hicks

I'm going to let Bob Zaist give you more detail, but I'll give you the bigger picture, Avi, which is as you know, that business is characterized by very large projects. And those projects, if you get them all in line cyclically, they can all kind of wind down at the same time and they can all start up at relatively the same time. And we're seeing a coincidence of several projects that wrapped up last year. That we're finishing up in the last quarter and last -- first quarter of last year and the startup of a bunch of new things that Bob has on his list. So it's -- I would tell you, the short answer is it's very cyclical. But I'll let Bob talk about it in more detail.

Robert W. Zaist

Well, Avi, I would go on from where Tom left off and basically say that if you remember a couple of quarters ago, we told you that we were wrapping up a number of large AQCS programs on our Power business. And in fact, I think we closed out at the beginning of last year -- middle of last year about 12 or 13 of these projects wrapped up. And some of those projects we got incentive payments for early delivery or delivering under cost, so that added to the revenue picture. Then we went into a procurement cycle. We booked a lot of work particularly in the Power business last year. And now we're off to the races again. And so we're building that business back up. And so you're going to see some cyclicality. You're going to see some lumpiness in this business. We have not changed the way we're running the business. And we're simply in a cycle.

Avram Fisher - BMO Capital Markets U.S.

So you will continue to bid large, very large projects in that segment in all of the end markets? Is that accurate?

Robert W. Zaist

We will. We will.

H. Thomas Hicks

That's correct.

Avram Fisher - BMO Capital Markets U.S.

Will you bid on a fixed-price basis for, say, an infrastructure project or obviously on a power?

Robert W. Zaist

On a selective basis, we will. And we have bid particularly on the infrastructure side of the equation, light rail programs that we are pursuing specifically in the California or Los Angeles basin market, where we have a long historical standing. We understand that market, and we will bid those jobs on a fixed-price basis.

Avram Fisher - BMO Capital Markets U.S.

Got you, I appreciate the color. Just finally one last question, and I'll turn it over. I'm just curious about wages and pricing spread on the engineering side of the work.

H. Thomas Hicks

Well, that is very much a regional and an industry-specific type of question to answer. In certain parts of our business, we're seeing scarcity of key people. In other parts of the business, we have surplus, and we have to keep adjusting our staffing all the time. But I don't believe we're seeing any significant upward pressure on wages at this time.

Martin M. Koffel

It's not heating yet, but we've been through this before and we are ready when it does.

Avram Fisher - BMO Capital Markets U.S.

Well I guess it -- doesn't downward pressure on wages actually hurt your margins if you're doing cost reimbursable work?

H. Thomas Hicks

If it's purely cost reimbursable, then it's just as a percentage of the cost, yes. But it's very rare -- a lot of our work is cost plus award fees, cost plus incentive fees or we have target pricing. So it can have a positive impact. Avi, we really should move on to someone else and give someone else a chance.

Operator

And our next question comes from Andrew Whitman with Robert W. Baird.

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

I just wanted to build on an earlier question and I understand that there are a lot of moving pieces with the Flint acquisition not having closed yet. But assuming that it closed exactly as expected with the 50% interest in maintenance business. Is the accretion for the year, the $0.20 to $0.30 for this year and then the $20 million to -- I guess the $20 million or $30 million of cost synergies, is that plan in track if it closes as expected?

H. Thomas Hicks

Well, as I said earlier, it's difficult to add any more color to what we've told you in earlier calls. We still think it's -- our best estimate today is $0.20 to $0.30, and that assumes that it closes sometime this month. And as soon as it does, we'll update and finalize our plans for the rest of the year and let you know. But right now, we don't have any better estimate for you than the $0.20 to $0.30. But things -- we had a great first quarter and they're on plan and we're on plan. So we're very confident we're going to have a good year.

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

And with the strong first quarter at Flint, if another 50% of the joint venture is up for sale, would URS be interested in taking basically that whole segment over and would you have the capacity to do that? And is that your view? Or is there any interest there at all?

Martin M. Koffel

I'd rather not speculate on something that I don't think will happen.

Operator

Our next question comes from Scott Levine with JPMorgan.

Scott J. Levine - JP Morgan Chase & Co, Research Division

Just a general question. Historically, we thought about 30% debt to cap. You guys have talked about it occasionally as kind of being a rough range of comfort with regard to leverage. I was wondering if you may be able to offer up some comments with regard to the thoughts on the balance sheet. I'm guessing that debt repayment once this deal closes will be the focus, but you actually used the dividend last quarter. Is there any change with regard to your thought process regarding cash flow deployment? And will you guys be active and as focused on M&A after this deal closes as perhaps you've been in the last couple of years.

Martin M. Koffel

Well there is a new ingredient, and Tom will answer perhaps more precisely. But the new ingredient, after 20 years, we achieved investment grade. So the practical cap on our leverage isn't what the economic engine might support. But it's the great value we placed on our credit rating. And we obviously want to upgrade within that. On the other hand, the business is growing and EBITDA is growing. I'll let Tom get into a little bit more. I'm trying to keep my mouth closed, but it's a subject that gets me very excited.

H. Thomas Hicks

Yes, I mean I think Martin hit the nail in the head. I think going forward, you've seen us do transformational acquisitions and significant acquisitions over the last 5 to 7 years. We don't have a need to do those today. What we need to do is execute and take advantage of the organic opportunities that this new structure with Flint is going to provide the company. And our first priority is going to be support working capital and the growth that we see, the organic growth that we see, which we think is quite substantial. But on top of that, the next step would be to start paying down debt as we've always done in the past. And as Martin said, we want to maintain our investment-grade rating, and it's very important to us. And we'll continue to focus on doing that. As far as acquisitions go, I think in the future, when things settle down, we get this acquisition integrated, we would look at smaller, fill-in acquisitions that help us in our organic growth prospects that we have. But that's kind of how we see it today.

Scott J. Levine - JP Morgan Chase & Co, Research Division

And maybe to follow on, a follow-on to that, is the thought that maybe buybacks moved down in terms of the testing order of preference or is that not accurate?

H. Thomas Hicks

Yes, I think we will continue our previous policy of buying back approximately the same number of shares we issue each year for employee benefit programs. But not the big contraction that we've undertaken over the last 24 months.

Operator

Our next question comes from Steven Fisher with UBS.

Steven Fisher - UBS Investment Bank, Research Division

Just wondering what your current exposure is to Iraq and Afghanistan, and what direction you expect that to move in? Because I think some of the other companies are actually looking for ramp up of work at least in Afghanistan anyway.

Martin M. Koffel

Our work there, obviously, is for the U.S. DoD, and we'll have Randy address that.

Randall A. Wotring

Yes, I'll tell you that we're not currently heavily exposed in the Mid East. Although the U.S. will have a long-term presence there, we believe that, we're like the others, we believe there's really upside opportunities for us in the near to midterm and then longer term. So we're not fearful about the changes that are going on there now. And in fact, we've talked about as the war ends, there will be a tail associated with the operations and maintenance activities, and we're starting to see some of that. But as the U.S. prepares for the long term in that theater, we think there's going to be great opportunities for pre-position materials support and other operations and maintenance activities that go on there. So we're quite comfortable with what's going on.

Steven Fisher - UBS Investment Bank, Research Division

Okay. And Martin, you have mentioned that the company becomes cash demons. You mentioned it today, also once you add leverage. I guess I'm wondering what does that mean in practical terms relative to the ordinary course of business? Does that mean less discretionary CapEx, stretching payables temporarily and tightening receivables schedule, maybe a little color there.

Martin M. Koffel

Well, cash demons at URS are a very large number of people whose incentive pay is in part due to managing cash or managing the balance sheet. So there's a mindset about it. It means making commercial terms in contracts, but are sensible from a cash point of view. And it means ensuring we collect the bills and get paid. And that people are responsible for the cash flow as they are for the P&L and new sales. As to the second question, which is I think more, what, constrained, I think Tom really answered that a minute ago. I mean the first priority would be to pay down the debt. There's $1 billion of various flexible debt and bank-related debt that we can pay down. There's $1 billion of bonds that in the normal course wouldn't be paid down early at low interest. I mean we are going to have, I think, a marvelous balance sheet. As the economy recovers and signs of inflation eventually come, I think we're going to be pleased with that balance sheet. And we'll pay dividend, and that I think has supremacy over the dividend and still has supremacy, as Tom said, over stock buybacks above the maintenance level that Tom referred to. And then there would be the add-ons. I mean we're still interested in add-on acquisitions. We've talked about our interest in building a mining business in Australia. We talked about that before. Randy runs the Federal Services division. He has had some real success we haven't really talked about it in this call, but I'm about to say does pertain to, I think, the sustainability of that Federal business and the sustainability of the margins in our Federal business. And that's had deliberate shifting towards, what I'd call, the budget -- protected budget areas of the DoD budget and the DOE budget. The management of nuclear waste sites, the management of the nuclear stockpile, cyber security, the UAV programs, government IT, space and intel, we're shifting towards that. And we made a very successful small acquisition within the last year of that, which has really helped us a lot. And you can imagine small acquisitions of that, which helped with the repositioning of our Federal business, which is what's going on. And then there's always continuing build-out of our Federal business -- excuse me, of our Infrastructure business. And we have states where we're not -- not fully the scale we'd like to be or particular skill sets. We'd like to build Alaska up. And so there will be a steady flow of small acquisitions that we'd handle out of cash flow but at all times keeping in mind the maintenance of our investment grade, which we sacrosanct to us.

Steven Fisher - UBS Investment Bank, Research Division

Okay. Yes, I was just trying to figure out because you said you become demons once you add leverage. And I'm just wondering what that means relative to what you do on that normal course of businesses. It sounds like it's just how you're directing the cash flow, which is first and foremost debt reduction and maintaining the investment-grade rating. I got it.

Martin M. Koffel

Yes. I mean the kind of cute answer to once we become, once we take on leverage, I've been here 21 years and there were 3 weeks when we didn't have leverage.

H. Thomas Hicks

So we're always focused on it, Steve. And as Martin said, I think the important thing is it's a cultural thing here. We have more than half of our managers have cash flows as one of the criteria, one of the metrics that we use. And it's a significant portion of their annual incentive payment. And there's -- I know Gary conducts every 2 weeks a cash call. The other divisions have very similar activities where every single person is called on the table to -- call to the table to explain why they haven't collected a bill if it's significant and it's been outstanding for a while. So there's no shying away from that. And I think I would just add to Martin, we get -- become more demonic as the debt increases. But you can be assured that we're going to pay down the debt as aggressively as we can given the current constraints that we mentioned.

Operator

At this time, I would like to turn the call over to Mr. Martin Koffel for closing remarks.

Martin M. Koffel

Well, thank you very much for joining us. I'm sure you sensed our enthusiasm for the quarter. Our view of the year as it lies ahead and a great appetite to get Flint integrated. And we look forward to reporting the second quarter to you, which we include Flint in August. Thank you very much.

Operator

Ladies and gentlemen, this does conclude today's conference call. You may now disconnect.

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