URS Corp. Q2 2008 Earnings Call Transcript

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URS Corporation (NYSE:URS)

Q2 FY08 Earnings Call

August 07, 2008, 11:00 AM ET

Executives

Martin M. Koffel - Chairman of the Board, President, CEO

H. Thomas Hicks - CFO

Gary V. Jandegian - VP; President - URS Division

Randall A. Wotring - President - EG&G Division

Thomas H. Zarges - President - Washington Division

Sam Ramraj - VP for IR

Martin S. Tanzer - EVP, Marketing

Reed N. Brimhall - VP, Chief Accounting Officer, Corporate Controller

Analysts

Jamie Cook - Credit Suisse

John Rogers - D. A. Davidson & Co

Alex Rygiel - Friedman, Billings, Ramsey Group, Inc.

Vance Edelson - Morgan Stanley

Andrew Obin - Merrill Lynch

Scott Levine - J.P. Morgan

Steven Fisher - UBS

Avram Fisher - BMO Capital Market

Operator

Good morning and welcome to the URS Corporation Earnings Conference Call for the Second Quarter of Fiscal 2008. To begin I'll turn the call over to Mr. Thomas Hicks, Chief Financial Officer of URS. Mr. Hicks?

H. Thomas Hicks - Chief Financial Officer

Thank you operator. Good morning everyone and thank you for joining us. Before we get started let me remind you that today's call will contain forward-looking statements, including statements about our future revenues and business prospects, our future earnings and financial results, our future tax rates, the benefits of our Washington Group international acquisition, our future debt payments, our future outstanding shares, future economic and industry conditions and all other statements that may be made on this call 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 issued yesterday in our Form 10-Q for the quarterly period ending June 27, 2008, as well as in our other SEC filings. And we assume no obligation to revise or update any forward-looking statements.

Today's call will also include a discussion of certain non-GAAP financial measures on historic revenues, net income and earnings per share. Reconciliations of the non-GAAP financial measures to GAAP numbers can be found on the company's website at www.urscorp.com under the Investor Relations tab. A webcast of this conference 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 - Chairman of the Board, President, Chief Executive Officer

Good morning and thank you for joining us. In addition to Tom and me, the team with me this morning includes Gary Jandegian, President of the URS Division, Randy Wotring, President of the EG&G Division, Tom Zarges, President of the Washington Division, Martin Tanzer, Executive Vice President of Marketing and Reed Brimhall, Corporate Controller and Chief Accounting Officer and Sam Ramraj, our Vice President for Investor Relations. Tom and I will make prepared remarks and then we'll open the call up for questions.

Now, as you would have seen from the press release, we had an excellent quarter. Our strong performance is the result of continued buoyancy in our key markets and the successful implementation of our strategy to increase our capabilities in high growth markets including power and oil and gas. Of course, the addition of Washington Division last year was a key component of that strategy. The resulting new URS is a recognized leader in the power market. We support all the major multinational oil and gas companies on upstream, downstream and pipeline projects. We have a well-diversified federal sector business with substantial work for both the Department of Defense and now the Department of Energy. And we're one of the few single source companies capable of providing fully integrated services on large scale infrastructure projects.

And we've been operating as a combined company for almost nine months now and I just couldn't be more pleased with the progress we've made in integrating the Washington Division. The acquisition has transformed our business and the new URS is winning major contracts that will utilize our services over the entire life cycle of projects. We've been performing these contracts as a single company using the combined talent and the experience of all of our three divisions. And we'll discuss several of these new contracts this morning. But first, I'm going to review our results for the quarter.

Revenues were $2.53 billion, which is a 22% increase from the pro forma combined revenues for URS and the Washington Group for the same period last year. Net income was $59.4 million and earnings per share was $0.72. As previously disclosed, URS will be recording an annual non-cash expense related to the amortization of purchased intangibles from the Washington Group. For fiscal 2008, the non-cash expense will total approximately $54 million before taxes and $31 million on an after-tax basis. The portion of this expense that we recorded in the second quarter was $13.3 million before tax or $7.6 million after-tax and this translates to $0.09 after-tax.

Excluding this non-cash expense, second quarter net income would have been $67 million or $0.81 per share on a fully diluted basis. A reconciliation of pro forma revenues for the second quarter of 2008 and net income and EPS excluding the expense related to the amortization of purchased intangible from the Washington Group to our GAAP results are available on the Investor Relations page of our website at www.ursco.com. And we ended the quarter with a $30.7 billion book of business. This is an increase of nearly $2 billion or 7% from the close of our 2007 fiscal year and should support continued growth of the remainder of this year. And finally we repaid approximately $100 million in bank debt during the quarter increasing the total amount of debt repaid since the Washington Group acquisition last November to about $225 million. I shall now discuss our results for each of our key market sectors, the federal sector, the infrastructure sector, the industrial and commercial sector and the power sector.

Starting with the federal sector, our revenues were $829 million in the second quarter, a slight increase from revenues of $823 million recorded in the first quarter. In the first six months of 2008, federal sector revenues were approximately $1.7 billion. Our performance for the quarter was driven by several factors, a increased support for the military on large long-term programs, such as the base realignment enclosure or the BRAC program and military transformation, a continued strong demand for operations and maintenance or O&M services from the Department of Defense and other federal agencies, have worked for the Department of Energy where we have a pre-owned position in environmental management and site management and operations and our strong performance on federal contracts that generated award fees. Over the past several months, we have successfully leveraged the combined capabilities of our EG&G, URS and Washington Divisions to expand relationships with long-term federal clients. And for example, we won a $1.5 billion contract with NASA to provide a range of services at the Kennedy Space Center in Cape Canaveral including operations, maintenance and engineering services, systems equipment and utility support, logistics and laboratory services.

The new URS now has a more diversified federal business including a leading position in the DOE's environmental management market. During the quarter a URS-led team was selected to manage the remediation of radioactive hazardous and mixed wastes from underground storage tanks located on the DOE's Hanford site. And the scope for work is valued at approximately $7.1 billion and is expected to generate fees of $120 million for the team over five years. Previously we had discussed with you our initiative to extend our nuclear remediation at operations management business to other countries where there is an increased focus and funding for these efforts. We're pleased with our progress at this point.

In March a URS led team was awarded a contract to operate the UK's national low-level nuclear waste repository. And this was our first award from the UK Nuclear Decommissioning Agency or the NDA as the agency is known. And just last month we reached a major milestone in this initiative. The URS-led team was named the preferred bidder by the NDA for a long-term contract to provide management and operational services for the Sellafield nuclear complex in the United Kingdom. This is one of the largest contracts ever awarded by the UK government. As Sellafield is one of the most comprehensive nuclear sites in the world and the center of the UK's nuclear program since 1947 the services provided at the site include reprocessing, waste treatment, remediation of legacy wastes, a clean up and decommissioning of the historic legacy plants, new construction projects and infrastructure. The NDA has said probably that the winning team will manage a scope of work valued at approximately $2.5 billion per year and receive a fees of approximately $100 million per year. It also said that the contract will have a five-year base period with options to extend periodically for a total of 17 years. And we anticipate that negotiations with the NDA will be completed this year and that operations will start in the early 2009.

Looking ahead, we continue to see favorable trends in the federal government sector including strong DOD funding for O&M programs which is expected to reach $300 billion in fiscal 2009, that's a 7% increase over 2008 levels. Increased opportunity to support long-term DOD initiatives following the passage of supplemental funding legislation to support military operations in the Middle East, which include $89 billion in O&M funding and continued funding for the DOE's environmental and nuclear programs including the National Nuclear Security Administration. And we also see more opportunities to expand this type of work internationally, including work with the UK Nuclear Decommissioning Authority.

So in summary, we are very encouraged by the underlying fundamentals in our federal business. Given the favorable outlook and strong performance during the first half of 2008, we continue to expect our federal sector revenues will be between $3.3 billion and $3.5 billion.

Turning now to the infrastructure sector, this sector continued to perform well during the second quarter. We generated revenues of $451 million, a 7% increase over the $422 million we recorded in the first quarter of 2008. And for the first half of the year infrastructure revenues were $873 million and with the addition of the Washington division, the new URS is now able to meet the increasing demand of our clients for design, build and design, build, operate, maintain contracts. As a result we're winning larger more complex assignments. For example by bringing together the URS division's experience designing water infrastructure projects and the Washington division's heavy construction capabilities, we won a new contract with the California Department of Water Resources. Under this $60 million contract URS will develop a long-term plan for Northern California's water resources and implement a habitat conservation program.

Now as publics… as projects of this type are based on public safety considerations, we believe that funding will continue for these programs. And we also continue to win contracts on highway, transit, airport, school and other public facility programs. This includes a $46 million engineering design contract with the Indiana Department of Transportation, as well as work at Boston's Logan International Airport and Sacramento International Airport.

Looking ahead we expect the infrastructure business to perform well through the remainder of fiscal 2008 and we've continued to win significant new assignments and the funding for our key infrastructure programs seems to be secure. And we are of course continuing to monitor the fiscal condition of the states closely to see how it may impact infrastructure spending. As you know, there has been an increasing amount of media attention on the state budget situation and the effect that it will have on general fund spending. While there is certainly budgetary pressure on the states due to declines in revenue, it's significant that in the states that account for the majority of our revenue, no state governor is discussing CapEx in the infrastructure spending. And based on our review of these principal state budgets. We believe that in this cycle, infrastructure spending will remain constant due to strong public and political support. It's also important to note that general fund spending is less significant to our business than it has been in the past. And today, the funding base for infrastructure programs is much more diverse. Increasingly, our work is finance through bonds and other alternative funding sources which are not dependent on the state budgets. Bond sales continue to be strong and 2008 is on track to be the second largest bond issuance year on record. And the bonds are being used to fund infrastructure including upgrading education and healthcare facilities and building new roadways, all of which are significant markets for URS.

The states also are increasingly turning to public, private partnerships to fund critical infrastructure. For example, URS was recently awarded a contract to provide engineering and management services to support the development of the new airport parkway in Jackson, Mississippi. That's the state's first privately funded and operated toll road. Federal funding continues to be an important part of infrastructure spending. Congress is already working on successful legislation to SAFETEA-LU which expires in September 2009. The new six year funding bill may provide more than $400 billion of new transportation projects, a dramatic increase of the $286 billion allocated for SAFETEA-LU. And Congress is also considering a second economic stimulus package which would contain approximately $15 billion in new infrastructure spending.

So in summary, our outlook for infrastructure for the remainder of 2008, is positive. There continues to be broad, public and political support for infrastructure programs and ultimately, we believe the necessary funding will be made available. Our expanded capabilities are helping us win new assignments that should support continued growth through fiscal 2008. As a result, we continue to expect that 2008 infrastructure revenues will be between $1.7 billion and $1.9 billion.

Our next key market is the industrial and commercial sector which comprises all the private sector work performed by the company other than our power business. Revenues for the second quarter was $744 million compared with the $614 million for the first quarter, an increase of 21% and for the first half of 2008, industrial and commercial sector revenues were $1.4 billion.

The addition of the Washington division has transformed our position in this sector and significantly increased our capabilities in the oil and gas industry and this is already providing substantial results. For example, we're now supporting several major oil companies working in the Canadian oil sands market. Oil and gas companies are investing more than $15 million per year in this rapidly developing market. During the quarter, we won several new oil sands assignments supporting programs in both the United States and Canada. Our work includes feasibility studies for remote site development, greenfield infrastructure and utilities development and engineering power plants and other production and support facilities.

In addition, we're helping several clients upgrade and modify their refineries in the United States to accommodate crude oil from Canada's oil sands. This work includes a contract to upgrade shales in Wood River Refinery in Illinois. At the same time our Global Master Service Agreements or MSA's with international corporations continue to grow. During the quarter we renewed and expanded our worldwide MSA relationship with BP, as well as significantly expanding the services that we're providing to Shell. This work includes environmental and remediation services on both upstream and downstream facilities.

Looking ahead, we continue to see favorable long-term trends in the industrial and commercial sector. We believe that the oil and gas market will remain a key source of growth for the remainder of 2008. Energy companies are expected to spend approximately $420 billion in exploration and production projects this year, which is a 20% increase from 2007. In particular, we expect strong demand for services related to natural gas projects in the Piceance basin in Northwest Colorado. This region contains approximately 40% of the nation's natural gas reserves and the energy companies are expected to spend more than $5 billion in exploration and production programs this year.

URS is currently providing a variety of engineering, design and construction services to energy companies in the Piceance basin including assisting Williams with the construction of its Willow Creek Gas Processing Plant. And based on the favorable market conditions and our increased competitive position resulting from the expansion of our capabilities, we continue to expect that our industrial and commercial sector revenues for fiscal 2008 will be between $2.4 billion and $2.6 billion.

Turning to the power sector, power revenues were $507 million in the second quarter of 2008, which is a 27% increase over the $400 million we recorded in the first quarter of 2008. For the first half of the year power sector revenues were $907 million. As we've discussed in the past the new URS holds a pre-eminent position in the power industry, a transformational market for the company. We provide engineering, procurement, construction and decommissioning services for almost all types of power plants. And this has allowed us to capture work in several areas including upgrading power plants and extending the life of existing facilities.

For example during the quarter we won a major assignment with a nuclear power plant operator in the South to provide project management in engineering and construction services for the replacement of two steam generators and a reactor vessel head. We also continue to benefit from the development of new fossil fuel generation facilities, particularly combined cycle power plants. These plans are filling the need for new energy production until the next generation of nuclear facilities can be built.

The new URS is one of the top EPC contractors for work on combined cycle natural gas facilities. Previously we announced an alliance with the Tennessee Valley Authority or TVA to provide the full range of ENC services for a series of new combined cycle power plants that TVA is building throughout its system. We have begun work on the first project, a $180 million assignment at TVA's Lagoon Creek Combustion Turbine Plant and the alliance includes plans for up to six additional units. At TVA partnership we'll further expand our position in this growing market. In addition, we are actively involved in the resurgence in nuclear power and the development of new nuclear facilities. URS has engineered, constructed or maintained 65 nuclear power generating units in United States and others around the world providing the company with world-class experience in this rapidly developing market. The U.S. nuclear regulatory commission, the NRC has begun reviewing nine applications for licenses to build 15 new reactors. It's the first since 1979. And by the end of 2009, the NRC expects that an additional 11 applications to build 16 more reactors will be filed.

Through partnerships with General Electric and Mitsubishi Heavy Industries, URS is supporting four power companies with nuclear plant proposals. And in June the Department of Energy announced $30 billion in loan guarantees for clean energy projects including $18.5 billion for nuclear power plants. This is the critical stimulus for the emerging nuclear renaissance. And finally, we continue to see strong demand for our air quality and emissions control services. As utilities upgrade their power plants to comply with various environmental regulations. For example, we recently won a $600 million contract to install air quality control systems including flue gas desulphurization scrubbers and selective catalytic reduction systems at [inaudible] facility in Wisconsin.

In summary, we expect the trends that drove our performance in the second quarter to continue for the remainder of 2008. We continue to expect that the power sector revenues will be between $2 billion and $2.2 billion and at this point I will turn the call over to Tom Hicks.

H. Thomas Hicks - Chief Financial Officer

Well, thank you Martin. To summarize our second quarter results, revenues were $2.53 billion, net income was $59.4 million and earnings per share were $0.72. As Mark noted, we recorded a non-cash after-tax expense of $7.6 million or $0.09 per share during the quarter for the amortization of purchased intangible assets from the Washington Group acquisition. Excluding this non-cash expense second quarter net income was $67 million or $0.81 per share on a fully diluted basis.

A reconciliation of net income and EPS to GAAP results excluding the expenses available on the Investor Relations page on our website at www.urscorp.com. Interest expense for the second quarter was $23.1 million and our tax rate for the quarter was 42.7%. As we've stated on previous calls we expect our tax rate to vary from quarter-to-quarter. However we expect that our 2008 effective rate will be approximately 42%. Fully diluted weighted average shares outstanding for the quarter were $82.7 million. And as you know we report separate financial information for our three business segments, the URS Division, the EG&G Division and Washington Division. And for the second quarter the URS Division reported revenues of approximately $888 million and operating income of $67 million.

The EG&G Division reported revenues of approximately $576 million and operating income of $33 million in the second quarter. And the Washington Division reported revenues of $1.1 billion and operating income of $55 million during the quarter. Our quarterly cash flow was excellent, we generated $225million in operating cash flow due to the strength of our net income. The company's continued focus on cash management and the effects of the Washington group acquisition. Our traditional focus on working capital management combined with the Washington Division's business allows the new URS to generate incremental revenues and profit with less working capital. For example, our accounts receivable days sales outstanding or DSOs were 65 days for the quarter compared to 80 days for the second quarter of 2007. And that our forecasted annual revenue of $9.8 billion, each day of DSO reduction that is maintained for the entire year reduces our working capital needs by approximately $27 million.

And finally, our capital expenditures continue to be very modest relative to our revenues. CapEx, excluding equipment purchased through capital leases was approximately $30 million for the quarter. As part of our expanded financial reporting, we included in yesterday's press release a detailed description of our book of business. This includes backlog, designations, option years, and indefinite delivery contracts or IDCs. We ended the second quarter with a record total book of business up $30.7 billion, and that's up from $28.8 billion at the end of last year, an increase of 7%. As a reminder, the second quarter total book of business does not include the recent contract wins that Martin referenced earlier in the call such as Sellafield and the Kennedy space center. Our backlog for largest component was $17.9 billion at the end of the quarter, a slight increase from the $17.6 billion on December 28, 2007.

We have been working to provide you with backlog for each of our four key market sectors. I'm happy to be able to report these figures for the first time. For the second quarter, our federal sector backlog was $10.4 billion, our power sector backlog was $1.4 billion, our infrastructure sector backlog was $2.5 billion and finally, our industrial and commercial sector backlog was $3.6 billion. And we believe, these backlog levels will support our growth expectations for the remainder of the year. With that, I'll turn the call back to Martin.

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

Well, thanks Tom. Turning now to our guidance for the fiscal 2008. As I noted earlier, we continue to expect that federal sector revenues will be between $3.3 billion and $3.5 billion. Infrastructure revenues will be between $1.7 billion and $1.9 billion. Industrial and commercial sector revenues will be between $2.4 billion and $2.6 billion and power sector revenues will be between $2 billion and $2.2 billion. And based on these assumptions, we continue to expect that consolidated revenues for 2008 will be approximately $9.8 billion. Our business is doing well and we expect continued strong performance and accordingly, we're raising our full year guidance for fiscal 2008.

We now expect GAAP net income for 2008 will be between $197 million and $207 million or between $2.36 and $2.48 per share on a fully diluted basis. And we also anticipate that net interest expense will be approximately $90 million that our effective income tax rate for 2008 will be approximately 42% and the average number of... and to the number of weighted average shares outstanding used to calculate our EPS for 2008 will be approximately 83.5 million shares. And given our strong performance, during the first half of the year, that some of you may have questions about our full year guidance. As we noted in May, we now have a significant amount of project-based business with a higher degree of variability and therefore our quarterly results are not as linear as in the past. As a result, we believe it's more appropriate to look at the expected annual performance of the business rather than extrapolate from a single quarter's results. This variability was apparent in the second quarter as our margins were higher than normal, principally due to strong performance on certain power projects.

Additionally, as we look to the second half of the year, we won't have the benefit of the Savannah River M&O contract, which contributed $12 million in operating income during the first half of the year. So in summary, we are very pleased with our results for the first six months and we've performed at or above our expectations in each of our four key markets. In addition the integration of the Washington Division is going extremely well as evidenced by the major contracts that we've won. And we expect that these wins and the strength of our position in our market sectors will enable us to continue our strong performance through the second half of this year.

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

Question and Answer

Operator

Thank you. [Operator Instructions]. Your first question comes from Jamie Cook of Credit Suisse.

Jamie Cook - Credit Suisse

Hi, good morning and congratulations. I guess, my first question, Martin, you touched on it a little bit just on the guidance but if I look at your margin implications for the back half, if we take the midpoint of your guidance it implies margins of about 4.2% in the back half versus 5.1 or 5.2 and even if I add back the 12 million from Savannah, your margins are still probably 60, 70 basis points lower. So I'm just trying to get a feel for what the major drivers if that would be and obviously I'm trying to extrapolate what that means for implied margins for '09?

H. Thomas Hicks - Chief Financial Officer

Jamie, it's Tom. Good morning.

Jamie Cook - Credit Suisse

Good morning.

H. Thomas Hicks - Chief Financial Officer

Let me take a shot at that and then Martin can chime in. You did mention the Savannah river impact, which... to do some math here just to take this straight ahead is that if you look at the margin differential between the first half and the second half, it comes out to be about $18 million to $20 million pretax, the difference in the margin based on [inaudible].

Jamie Cook - Credit Suisse

Okay.

H. Thomas Hicks - Chief Financial Officer

On the back-end, about 12 of that is Savannah river and I'll point out that's pure profit as you know, that just comes in through an agency contract in which we don't recognize any revenues. So it's dollar for dollar right out of profit, and that's $12 million of it. We had some excellent performance on some other projects, primarily in the power business which also contributed a significant amount and then there is a whole range, a whole list of other things that happened, both positive and negative that caused the second quarter to be higher than what we think the appropriate profit rate for the whole year should be. So, I'll just remind you that our tradition here and what we are trying to establish is a philosophy that we absolutely deliver on whatever projection we give you and we continue to feel that way. I'll point out one other thing, now we... Martin mentioned project-based business, there is a quite a bit of seasonality in some of the businesses that we recently acquired through the Washington group and that's also contributing to higher profitability earlier in the year and less later in the year.

Jamie Cook - Credit Suisse

But, just to be clear in the second quarter there... there wasn't any one time unusual gain for that helped you or in the first half of the year that are helping margins, there is no unusual gains in there.

H. Thomas Hicks - Chief Financial Officer

Well, the one thing that happened, I mentioned that we did not plan for the some of these contracts we have, we earn profitability based on performance. So we plan for the baseline profitability, and it turned out, we performed much better than expected. So to that extent, we did have some profit in the second quarter that we didn't anticipate. I should point out to you that a lot…

Jamie Cook - Credit Suisse

Can you quantify that? How much that helped you?

H. Thomas Hicks - Chief Financial Officer

It's probably in somewhat in the range of the Savannah river impact except going in the other direction.

Jamie Cook - Credit Suisse

Okay.

H. Thomas Hicks - Chief Financial Officer

And it's important to note that, that impact comes in purely as profit again, that's... that was... a lot of those power projects are done through joint ventures in which we only recognize the profit. We don't recognize the revenue. So it had a disproportionate impact on margins in the quarter and for the first half of the year.

Jamie Cook - Credit Suisse

Okay and then just my second question. Some of your peers [inaudible] and Shaw Group have talked about a pickup of bidding activity on gas-fired power plants. I think both of them were talking that they could potentially book four to six power plants, although much smaller gas-fired power plants in 2008. Can you just comment on sort of what you are seeing out there in terms of bidding activity?

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

Tom Zarges, who, as you know is President of the Washington Division is with us and I will invite him to comment.

Thomas H. Zarges - President - Washington Division

Yes, I think we see exactly the same trends and the same implications in our business. There are a couple of [inaudible] programs here that we booked in the second quarter. We mentioned the EVA [ph] combustion turbine alliance which is an alliance that's long term and covers multiple units over as long as 10 years and there could be seven units and maybe more embedded in that alliance. And we've also got three or four other strong prospects that we're in final negotiations for that we can certainly see by the end of the year. So we see the same kind of pickup and the same kind of strength in the combustion turbine market, I think that you hearing from other sources, it's a industry-wide phenomena and we're certainly engaged in it as well.

Jamie Cook - Credit Suisse

All right, Tom, sorry then last the $50 million to $55 million I thought you said you'd get about 90% of that NOA for the cost synergies with Washington Group. Where are we in the first half and is that still the right number to think about?

H. Thomas Hicks - Chief Financial Officer

Yes. We... as I mentioned on the last call Jamie, we identified and captured all of those. They will start to accrue to us through the rest of the year because as you know some of those are related to personnel which takes a while to see the impact of those. But we've captured those and more and when we get near to the end of this year and start to talk about next year, we'll give you real hard numbers on what we accomplished there and it's going to be above the 55 number we gave you.

Jamie Cook - Credit Suisse

Right and thank you. Congratulations.

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

Jamie, you know it's one thing to set these cost saving targets but you know the ease with which you can achieve them really depends on the success of the integration itself. It's not just sharp pencils and cutting costs and we are greatly advantaged in meeting these cost synergies but the smoothness with which the companies have come together particularly in the marketplace and just the integration of our production activities and so on.

Jamie Cook - Credit Suisse

Thank you.

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

So I think good things lie ahead on the synergy front.

Jamie Cook - Credit Suisse

Thank you, Martin. I appreciate the color.

Operator

Thank you. Your next question comes from John Rogers of D. A. Davidson.

John Rogers - D. A. Davidson & Co

Hi, good morning and congratulations as well.

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

Thanks John.

John Rogers - D. A. Davidson & Co

I guess first sort of the specific numbers question, Washington Division, there is a significant increase in depreciation expense relative to the first quarter. Why was that?

H. Thomas Hicks - Chief Financial Officer

I don't know off of the top of my head, John. We'll have to look, I really... I really don't know, we don't know of anything abnormal that happened there that would have caused that.

John Rogers - D. A. Davidson & Co

Okay. But all the cash flow that's coming in there. ... I am sorry.

H. Thomas Hicks - Chief Financial Officer

No, go ahead.

John Rogers - D. A. Davidson & Co

Okay, and then secondly in terms of debt reduction efforts, have you revised or expectations, have you revised those plans?

H. Thomas Hicks - Chief Financial Officer

No, I think we have said, I think...we have said in the past that we think we can convert almost all of our net income into debt repayment and we're on track to do that year to date. We still think that's a reasonable target and our net income as we just mentioned will be around $200 million and that's the target that we have internally and we are well on track to meet that.

John Rogers - D. A. Davidson & Co

Okay and then lastly, the last couple of quarters you've talked about concerns at the state local level and your experience was some downturns in the past. Given the increased funding or bond funding that's out there, are you less concerned about that or is it just a much smaller portion of your business?

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

We expressed a degree of concern in our... in our call in February if you recall and we said we're a little apprehensive about the state budgets that at that point lay ahead. As you know, all states, I think except four have a fiscal year ending June 30th, and we said we would... we were concerned that we will wait on the state budgets. I think several things have happened John, one is the diversification away from general fund spending, has been very significant. Public private partnerships and bond funding. Last year the bond funding was $430 billion of bonds issued and funded and this year, year to date already even in these markets it's $259.8 billion.

And, while the bonds don't entirely dollar for dollar substitute for state appropriations from the general fund what they have is the huge advantage of early funding, you don't have the delays and the whole mechanism of the state government involved so the bonds are approved and funded and then they go into the trust fund immediately and then the project starts. So you're getting a pretty brisk startup of it so you've got very strong diversification away from traditional sources that if you think back to earlier cycles and I know you are on course, several years ago when we are discussing this, when we were more dependent on this stage much better diversification. The other thing, John is that... the politicians and the public and the federal government notwithstanding the economic turbulence going on, just not going to let go of infrastructure.

So much publicity about bridges and highways and congestion and pollution and so forth and then in the states, you got thousands of small businesses depended on construction. And everyone stimulus landed in one degree or another. And I think that at the federal state and municipal level this infrastructure thing is going to keep some buoyancy in it despite everything else going on.

John Rogers - D. A. Davidson & Co

Do you think we could actually see growth in the market next year?

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

Well I think it's a little soon to look at '09 but I think we are going to continue the growth in the second half that we saw on the first half. And I think a lot next year John depends on the new federal highway build... the success to Safety Lou which as I mentioned in my prepared remarks is $400 billion cost program and I think from the congressional districts on this administration and on the next administration. To keep those programs up, the highway trust fund has been affected as I'm sure you have been reading, no one is going to let that go into a deficit. We have all kinds of measures and parliamentary and budgetary measures in hand to ensure that's well funded and buoyant. So, I think no one is going to let this one slide.

John Rogers - D. A. Davidson & Co

Okay. And lastly, if I could just on the federal programs, do you expect to see a pause either in award or work activity with the change in administration?

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

No. Not for the accounts or programs we're involved in. I think you could see poses and reviews of major platform procurements depending on which administration came in and the orientation towards the Department of Defense. But if you think of the programs where we're heavily involved in the reset and the recap programs and all the O&M programs, I mean even if hypothetically there was a sudden withdrawal from Iraq, which I don't think anyone feels is particularly practical there is at least two years of reset and recap activity involved in that and not all of that equipment could come back, a lot of it I think is going to stay in the Middle East and as we have announced earlier, we're well engaged in doing recap and reset work overseas in fact in Kuwait. So we don't for our particular business, we don't see an immediate effect.

John Rogers - D. A. Davidson & Co

Thank you.

H. Thomas Hicks - Chief Financial Officer

Hi, John.

John Rogers - D. A. Davidson & Co

Yes.

H. Thomas Hicks - Chief Financial Officer

It's Tom Hicks again. To answer your question, if you go to page six of the Q, the second last paragraph, it identifies a misclassification we had in the first quarter in the cash flow accounts. So the year-to-date number for the Washington Division is correct, the two quarterly numbers represents a misclassification of one and then a fixing it in the second one. So, that answers your question about why it jumped so much. It was too low in the first quarter and too high in the second. On average, it's right.

John Rogers - D. A. Davidson & Co

Okay, great. Thanks.

H. Thomas Hicks - Chief Financial Officer

If you go to page six in the Q, you can see the explanation.

John Rogers - D. A. Davidson & Co

I'll find it, sorry about that. Thanks.

H. Thomas Hicks - Chief Financial Officer

Yeah. No problem. My apologies earlier.

Operator

Thank you. Your next question comes from Alex Rygiel of FBR.

Alex Rygiel - Friedman, Billings, Ramsey Group, Inc.

Good morning, gentlemen.

H. Thomas Hicks - Chief Financial Officer

Hi Alex.

Alex Rygiel - Friedman, Billings, Ramsey Group, Inc.

Given that you're working with four utilities and their reactor plans. Is there a period in the foreseeable future say the next five years that you think your revenue from your nuclear segment could approach the level of your transportation business today?

H. Thomas Hicks - Chief Financial Officer

Rygiel, a comment on the nuclear business, Tom Zarges probably would be the appropriate person to talk about our prospects there. I'll turn it over to Tom.

Thomas H. Zarges - President - Washington Division

Yes. Of course. Well, we look for a pretty dramatic increase in the nuclear prospects here over the next five years particularly. As we mentioned I think in the remarks, these applications are staged, they're being evaluated. The preliminary work is being contracted for that as preliminary design work and the obvious intent of this is to begin actual programs probably within that 3 to 5 year period. And these programs are immense, any singular program could have a capital expenditure of anywhere between $4 billion, and $7 billion. So if we're talking about the total magnitude of nuclear development in United States, that's contemplated it will be by far one of the larger segments, of not only our power business but our business in general.

Well, it will grow extremely rapidly. We've four of such utilities, as you said that were helping so far with applications, but if you look at the total number of applications filed, there are probably six or more units that we are looking at that employ the technologies in which we are alliance partners. So, we look for a pretty strong ramp up in that industry. As you probably know, we've also to stage for that. We've opened up an office in Fort Mill, South Carolina just across-the-board from Charlotte that will be our nuclear center and we are on target hiring as many nuclear qualified engineers to take on that work today as we can and putting them to work just as quickly as we can bring them on Board. So that renaissance is moving ahead and certainly will accelerate in the next three to five years.

Alex Rygiel - Friedman, Billings, Ramsey Group, Inc.

That's great Tom, and one further question as it relates to your second half guidance, I assume, it's also taking into effects some of the negative costs associated with mobilization for... may be the recent NASA contract and Hanford and Sellafield et cetera, is that correct?

H. Thomas Hicks - Chief Financial Officer

Absolutely correct. It's good thing to point out, we want to see the positive impact on those program, surely material positive impact into '09 typically. So, right now it's a lot of staging in front-end cost and getting geared up to perform those contracts. It's a good point.

Gary V. Jandegian - Vice President; President - URS Division

And you identified, in fact the contracts that do have those mobilization costs. And that is in our forecast.

Alex Rygiel - Friedman, Billings, Ramsey Group, Inc.

Great, thank you very much.

H. Thomas Hicks - Chief Financial Officer

Thank you.

Operator

Thank you. Your next question comes from Vance Edelson of Morgan Stanley.

Vance Edelson - Morgan Stanley

Hi, thanks a lot. I'll start with a follow up on the previous question. Just regarding the number of nuclear applications now pending, you mentioned that six of them would be aligned with your capabilities. Did you take a guess on the approximate timing for an approval might be forth coming, are any of those expected in '09 for example, is that realistic?

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

Well, I think the question of whether it's realistic is debatable or not but I mean, we're anticipating that it will be... if in '09 very late '09 more likely it will be a two to three year wait for a formal approval of these applications and we're thinking for years as that more likely. Okay.

H. Thomas Hicks - Chief Financial Officer

Is it point to point out those... a lot of work gets done prior to applications and simultaneous with the application process. So, it doesn't mean revenue starts to accrue three years from now.

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

Right. This is on a standing start, when the application is approved, its a running start and in order to get these plants on line but projected in dates work will start in '08 and in '09.

Vance Edelson - Morgan Stanley

Okay, got it. And thanks for breaking up the backlog, if we wanted to understand how the individual components of the backlog have trended recently, is there a way, you can provide either a historical break out or at least a feel on how the backlog trends among power, infrastructure and the other two components. How those have looked recently, as there have been any notable strength or weakness of late?

H. Thomas Hicks - Chief Financial Officer

Well, as you know this is the first time, we've reported backlog based on the new four sectors that we identified after the acquisition that we want to report to you and so, we don't have yet, we don't have the ability to give you any kind of real trend data with a lot of confidence other than pointing out that there is plenty of backlog that are support the rest of this year and we're confident that there's not going to be any problem in that area. I will point you to some of the awards that we just talked about, which are not in the backlog numbers yet, because they came after the close of the quarters, Cell fuel [ph] being the most significant but there are others we will as we start to move through the year and get sequential data to the point where we're very confident obviously we'll report that and we will start to give you trend data at that point. But right now I think the best thing we can tell you is all four segments or sectors of our business are trending nicely, positively and supporting our plan for the rest of the year.

Vance Edelson - Morgan Stanley

Okay, great. And then lastly, the G&A expense it was up a bit sequentially, can you comment on the opportunities to stabilize that particular line item either from synergies or other cost cutting moves and how that might trend from here?

Thomas H. Zarges - President - Washington Division

Yes. We... that's a good question. We... the two previous companies had G&A rates as a percent of revenue of 1.25% roughly. We ran in the first quarter of this year at about 0.75%, three quarters of a point and this quarter we ran at about 0.8 of revenue. And I think the second quarter run rate is probably more appropriate for the full year. What you're seeing is in the first quarter, we took a lot of steps to cut out costs right away and now you're seeing the effect of adjusting our corporate staff to fit the new company. And but there is nothing dramatic that is going to happen there that would cause that number to vary dramatically from what you saw in the second quarter that's probably a decent run rate for the rest of the year.

Vance Edelson - Morgan Stanley

Okay, thanks a lot.

Thomas H. Zarges - President - Washington Division

Thank you.

Operator

Thank you. Your next question comes from Andrew Obin of Merrill Lynch.

Andrew Obin - Merrill Lynch

Hi, good morning. Just a question on cash flow, regarding your outlook, if I look historically, second half of the year was much stronger than the first half of the year and given your free cash flow, so far today it seems that the target you cited for free cash flow will be quite easy to be, is that the right assessment or are there some cash uses in the second half of the year that I'm not thinking about?

H. Thomas Hicks - Chief Financial Officer

Yes. I think I would point out I think we have talked about this before. We've put on hold our acquisition activity during the Washington Group process and I think I've mentioned to you... to others before that we've started to fill that pipeline up again. There are still many niche areas geographically and in certain markets that we could bolster our position by doing relatively small acquisitions. And part of that projection for cash flow for the rest of the year, as far as debt paydown goes includes recognition of the fact that we are going to... and we expect to complete several small acquisitions this year. So that's the difference between what you're seeing historically, which might indicate low higher debt paydown and what we are telling you we plan to do.

Andrew Obin - Merrill Lynch

But in so far as free cash flow net of acquisitions my logic still holds right?

H. Thomas Hicks - Chief Financial Officer

Absolutely.

Andrew Obin - Merrill Lynch

I mean, the second issue is just we talk about margins in Washington Group and you sort of highlight the fact that you have some completion worth etcetera, etcetera. But not that you have owned a company just taking [inaudible] now that you own the company for getting close to a year, have you changed your view as to where structurally Washington Group margins can go in the long run. I mean, are you more positive or are you where you started out?

H. Thomas Hicks - Chief Financial Officer

We're more positive and I will tell you why. It's because and I think the Washington Group talking about this and we talked about it too. There was a portfolio there that included some lumpsum fixed price work that was working its way through the company and through the process and we are down to the very end of that activity. And as you know, we have been very focused on making sure our go forward portfolio had the appropriate risk in it and so we think that there is…we are optimistic that the margins there are…can be raised a bit and this year today we have been performing quite well and there is no reason I think we cant keep that margin performance going forward or perhaps improve on it a bit.

Reed N. Brimhall - Vice President, Chief Accounting Officer, Corporate Controller

There are two components to maintaining and building or building and maintaining the margins, one is the amount of fixed prices that you have and the risks associated with that because obviously the…the variability to profitability that kind of affect your sustainable margin and the other is some…seal activity in the contracts that you take on. But we've got two dynamics going on here, that I think in the much longer term favorably effect the Washington Division margins, one is, its a strong market and we are able to…fairly negotiate increasingly favorable terms and obviously we would do that as rational business people. Secondly, the proportion of the Washington Division's work that is lump some or fixed prices is less than 10% and the last couple of contracts that comprise that in fact well along in that completion percentage and they'll soon be behind us. So all of that I think creates a good platform for margin improvement as we go forward.

Andrew Obin - Merrill Lynch

And so your relatively conservative outlook for the second half just sort of incorporates the fact that anything can happen was Washington Group margin, in the near term but at the same time in the long-term you still see an enough trend, is that a fare statement?

H. Thomas Hicks - Chief Financial Officer

Yes. I think so, but I would tell you that the first half of the year, the margin performance across the Board in the company was very favorable and it's the projection you see for the full year recognizes that. You should look it as a…in a full year basis as supposed to quarter-to-quarter and…so yes, we are happy with it, its some of the things as I mentioned earlier were relatively one time effects and it will be difficult to repeat quarter-after-quarter but on a full year sustainable basis your conclusion is correct. We think... we are optimistic that the margin trend is upward here.

Andrew Obin - Merrill Lynch

Thank you very much.

H. Thomas Hicks - Chief Financial Officer

Thank you.

Operator

Thank you. Your next question comes from Scott Levine of J.P. Morgan.

Scott Levine - J.P. Morgan

Good morning.

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

Hi Scott.

Scott Levine - J.P. Morgan

You mentioned on the margin outlook for the back half of the year, I believe that startup cost and a couple key projects, my weigh things down and you got some increased margin on performance in the first half. Anecdotally if you think about the base business and your margin outlook that was baked your guidance for the beginning of the year. How is the profitability of the base business kind of coming in relative to your initial expectations after may be normalizing for a couple of these types of items?

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

It's up Scott. Its up…its up not dramatically or anything but its up and it's trending upward which is good and we obviously we raised out guidance for the year. So and we kept our revenue projection the same, so our margins…we feel our margins have improved over the full year. And so to answer your question the core base business continues to perform well margin wise and do a little better than we expected.

Scott Levine - J.P. Morgan

Pricing on the core traditional engineering services the trends there still remaining favorable or any appreciable change there?

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

Yes. Gary Jandegian, the President of that division is with us and this is something pretty dare to his hearts. He is going to speak to it.

Gary V. Jandegian - Vice President; President - URS Division

I think we talked on a previous call about our pricing initiative, we had in our base business, we are seeing some slight pricing improvements with our relationship-based clients, where we perform work under master service agreements and typically we have expanded our work, geographically but we have also been able to request pricing improvements. I know you've read a lot about industries raising prices companies like Dow raising prices 20% and then subsequently another 25% on some of their products, a lot of those clients are clients that we work for and we have likewise experienced similar cost increases so we have been on an individualized basis asking for price increases. We are working with Shell in a larger region in Brazil and Asia Pacific and the US and pursuing new countries for British Petroleum as we have stated before and on each of those contracts as we renew the contracts we get a little bit of pricing improvement so we are seeing a tick-up there but it also comes down to the ability to execute and not have to do rework and put the right people on the job so execution helps our margins overall.

Scott Levine - J.P. Morgan

Tom, I think you mentioned that the full amount of the net income guided to you for this year we can imply that that will be used to pay down debt, any other comments you can make maybe about the operating cash flow outlook for the year end or CapEx?

H. Thomas Hicks - Chief Financial Officer

CapEx, I think the year-to-date number is indicative of what the full year is going to be, we don't see any big CapEx. The only capital expenditures I see coming relate to M&A activities and I mentioned that earlier. We don't have anything to announce today but we are working hard on the couple of deals, so relatively small deals. As I responded earlier to Andrew's question, our cash flow I think the 200 is a pretty good target for us for debt paydown and in addition to that we should be able to do a couple of small acquisitions as well. The company's as I pointed out, the company's cash flow performance has been superb and it's a real compliment to the operating folks and the company, just the continued focus for Washington Group as well as the previous URS Divisions, and EG&G Division just a continued focus no one lost the threat through this whole process and we have actually improved our cash flow performance so we are very pleased with that.

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

I think we had slightly underestimated the improvement in the cash utilization efficiency that came from the new mix post the acquisition. Washington Division requires less working capital per dollar revenue and you saw that sort of weighted average mix reflected in that DSO performance and that's contributed obviously to the cash flow performance. It's some, we knew that directionally that would be an improvement for us that until we experienced nine months on the business, it was hard to capture the magnitude and we are pleased with the outcome.

Scott Levine - J.P. Morgan

Got you, one last quick one if I may, you mentioned the Washington Group, seasonally strong in the first half for the URS business the traditional URS business should we expect the same seasonality there as you guys have shown in the last couple of years. I think, the Q4 maybe down a little bit from Q3?

H. Thomas Hicks - Chief Financial Officer

The other two divisions EG&G is a very steady business, as you know, Scott. The kind of work they do, is not very seasonally driven. The URS Division actually has some field work and some activity and on the positive side when it's warm and comfortable to work outside, a lot of work happens but we have the state budget renewals and etc hitting us in the fall and we have all the holidays in the back half of the year. So traditionally you are right. The fourth quarter for the URS division is usually not as strong as the third... second and third quarter. So, that we don't expect that trend to change.

Scott Levine - J.P. Morgan

Thanks, nice quarter.

H. Thomas Hicks - Chief Financial Officer

Thank you.

Operator

Thank you. Your next question comes from Steven Fisher of UBS.

Steven Fisher - UBS

Hi, good morning. Tom, on infrastructure you mentioned a couple of times that you think the backlog you have now should support the growth for the rest of the year, do you have to book any new business at this point to be able to get to stay at the mid point of the range and then I know you don't like to get ahead of yourself but I mean if you had good bookings over the next several months, could that take you outside above the range?

H. Thomas Hicks - Chief Financial Officer

As you know, you know the company well, the infrastructure business is characterized by lots and lots of relatively small contracts $10 million, $20 million, $30 million, $40 million and there is a continual flow. If you look at the backlog today it's more than adequate to cover us for the rest of this year, we are very comfortable. If for some reason the pipeline stopped to zero today, we still feel comfortable about this year. That won't happen, never has happened and probably never will happen in that industry. So, to answer your question there is nothing dramatic that has to happen other than we just need to continue business as usual and we are very confident that the projection for the infrastructure business for the rest of this year is a doable projection.

Steven Fisher - UBS

Okay great, thanks a lot.

H. Thomas Hicks - Chief Financial Officer

You are welcome.

Operator

[Operator Instructions]. Your final question comes from Avy Fisher of BMO Capital Markets.

Avram Fisher - BMO Capital Markets

Hi, thanks for taking my questions, most of them were answered. Good morning, I just got a few more. It's said in the 10-Q you have approval for share buyback, have you yet been in the market buying shares?

H. Thomas Hicks - Chief Financial Officer

We have not as of yet. As you know we suspended that process during the Washington Group acquisition for obvious reasons and then under our credit agreement that we signed back to complete the acquisition, we were barred from repurchasing shares until some of our financial metrics got... showed some improvement. We've reached that improved level and recently went back to the banks as we disclosed and got permission to buy back shares. Philosophically as we've talked in the past, our goal there is to offset the issuance of equity related to benefits and employee compensation and that's a range of around a million shares a year. Our goal then would be to try to keep our share count relatively stable going forward and that's our plan and right now depending on share price and other things the rest of this year would be the opportunity to do that. We don't feel an obligation to do it but if the market is right and it looks appropriate we will step forward and do it.

Avram Fisher - BMO Capital Markets

Got it. Thanks for sharing your target with that, you talked earlier about how projects in the pipeline, some of the long-term fixed price work nearing the end of the pipeline. You've also accrued sort of from normal profit on the balance sheet I guess, some of that fixed price work or any fluctuation that fixed price work. Do you estimate that what you've accrued already would be enough to hit anything on the fixed price work, if you have any claims against it?

H. Thomas Hicks - Chief Financial Officer

Let's see you asked... I interpret that as several questions. No... It's okay. One is have we taken all the adequate provisions we think that are necessary to cover any of the fixed price work in our backlog and the answer is yes. And then the second question related to profit normalization I think and as you know that…that's a prescribed approach that we had to take as part of the acquisition and accounting for the acquisition and it runs off pretty quickly given…given the programs that are covered under that and …the bottom line to your question is we think right now there is no additional…no additional adjustments needed to either of those numbers going forward. We think, we are appropriately... have appropriately recognized both the profit normalization and any potential impacts we have on the fixed price contracts in our backlog.

Avram Fisher - BMO Capital Markets

Perfect, and when do you expect that Sellafield project to complete, is that a 2008 completion, or?

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

It is. It will complete in 2008, late 2008.

Avram Fisher - BMO Capital Markets

Okay. And finally, one quick question and thanks for the call and I…in the infrastructure side, kind of two quick questions. Can you just give us a shake out between or the mix between mass transit versus highway where it is now, where the backlog is?

H. Thomas Hicks - Chief Financial Officer

We don't report that level in detail. We can tell you, it's a significant part of our portfolio and we really participate in the full range of infrastructure projects including the two areas you mentioned, but we really have not reported that number.

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

Just as a general observation for the future…to wrap up the numbers. Mass transit is going to be very interesting to watch because depending on the…on the sustainability of present oil prices and depending on the political outcome of the election particularly to fix the presence in the administration. You could see more or less emphasis on mass transit. I am inclined to think we will see more emphasis on mass transit on a sustained basis.

Avram Fisher - BMO Capital Markets

All right.

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

Tend to just sort of spike up and then people back away from it but I think we're going to start embracing it.

Avram Fisher - BMO Capital Markets

Martin, that's very reasonable, but I think that…what I am hearing, what we are seeing in D.C. is about their taking money from mass transit into highway which doesn't seem to make sense, but are you concerned about any of that?

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

I don't normally extrapolate what happens in D.C. to the rest of the country.

Avram Fisher - BMO Capital Markets

That's how you stay optimistic?

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

Yes. I am not concerned on a sort of sustained basis about that. I mean, I think in every state is a little bit of taking money out of one pocket and putting into another because of the contraction of tax receipts, but many of the transit projects, and I think this is very important to take away are funded by referendums and bond issuances either in sales tax additions, that quarterly point on sales tax or special purpose bonds and so forth. And…I think for that reason it's quite sustainable, I think the public sentiment is to vote for those.

Avram Fisher - BMO Capital Markets

Got you. Alright. Thanks for taking my questions.

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

Thank you.

Operator

Thank you. At this time I would like to turn the floor over to Martin Koffel for closing remarks.

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

Well. Thank you for joining us. We're obviously pleased with the quarter, good numbers…satisfy everybody, but and a lot of the questions have been about the numbers and asking us to clarify it and that's the purpose of the call. What I should like to say to those, there is much more going on here than good numbers. I mean I think the good numbers are the…the periodic measurement of an underlying and sustained success. Firstly, I think the decision to acquire the Washington Group has proven to have been well founded, we had a vision of markets and a vision of serving clients on a fully integrated basis being able to cover the whole project life cycle and it really has meant that. It's coincided happily with some buoyancy in the markets notwithstanding all the economic activities going on. And so we have good timing there. But, underlying at the integrations scenario it's been very, very well accepted by our customers, we saw that immediately. I was getting reports back within weeks of how well our major multinationals were taking up on this, the federal government was delighted and so forth but you are seeing the proof of it, you saw the NASA contract and you saw Sellafield and others that will be announced in the coming months. There is something... I've spent my life doing this, putting companies together and URS has been based on five acquisitions, which have doubled us in size and apart from all the plans and the strategies there is always something a little [inaudible] about these combinations, do the people get it in both camps and do the customers get it, you sort of have that triangle of the two groups of people and the customers and it worked. People are getting on with and we've branded ourselves appropriately when it's the right thing to do as a single company and we're out there as a single company. There is tremendous teamwork and I'll tell you I try to get up early enough in the morning to come in here and play my role in putting this together and making a success of it. I think we really hit this one and I'm very excited about what lies ahead. Thank you. I look forward to reporting to you on our third quarter.

Operator

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

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