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URS Corporation (URS)

Q4 2011 Earnings Call

February 27, 2012 5:00 p.m. ET


H. Thomas Hicks – Chief Financial Officer

Martin Koffell - Chairman and CEO

Gary V. Jandegian – President, Infrastructure & Environment

Randall A. Wotring – President, Federal Services Business

Robert W. Zaist – President, Energy & Construction

Martin Tanzer – Executive Vice President of Marketing

Reed N. Brimhall – Chief Accounting Officer & Corporate Controller

Sam Ramraj – Vice President, Investor Relations


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Jamie Cook - Credit Suisse

Andy Kaplowitz - Barclays Capital

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Good afternoon and welcome to the URS Corporation earnings conference call for the fourth quarter fiscal of 2011. To begin, I’ll turn the call over to Mr. Thomas Hicks, Chief Financial Officer of URS. Mr. Hicks, please go ahead sir.

H. Thomas Hicks

Good afternoon everyone. Before we get started, let me remind you that today’s call contains forward-looking statements about our future revenues, earnings, business prospects, book of business, acquisitions, dividends, tax rates, outstanding shares, debt payments, 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 based on reasonable assumptions. However, numerous risks and uncertainties could cause actual results to differ materially from our forward-looking statements, including those found in our recently filed earnings release Form 10-K, as well as in other SEC filings, and we assume no obligation to revise or update any forward-looking statements.

A webcast of this call is available on the investor relations portion of our website and will be archived in audio form on the website for a limit period. And with that, I’ll turn the call over to Martin Koffel, our Chairman and Chief Executive Officer.

Martin M. Koffel

Good afternoon and thank you for joining us. In addition to Tom, I have with me here in San Francisco Gary Jandegian, president of infrastructure and environment; Randy Wotring, president of federal services; Bob Zaist, president of energy and construction; Martin Tanzer, executive vice president of marketing; Reed Brimhall, corporate controller and chief accounting officer, and Sam Ramraj, vice president of investor relations.

Just a week ago, we announced our proposed acquisition of Flint Energy Services, and this is a significant expansion of our business that should position us well in the attractive segments of the oil and gas industry, especially in North American oil, oil sands, and gas, and we expect the acquisition to be completed in the second quarter and to be accretive in 2012.

At the same time, we stated that we expect growth in both revenue and earnings per share in 2012 without the benefit of Flint, and at that time we provided you with revenue net income and EPS guidance. In our earnings release today, we announced 2011 results and we reaffirmed the 2012 guidance. We also announced that we have initiated a regular quarterly cash dividend program starting in April.

Accordingly, today’s call will focus on 2011 results and the outlook for the current year, and given that the Flint acquisition has not yet closed, our comments on the outlook will only relate to our current business.

Operationally, we performed well in North America in 2011. All of our businesses in the United States and Canada met or exceeded expectations, but were affected by challenging economic conditions in Europe and in the Middle East, and I’ll talk more about this. But first I’d like to summarize the results.

Total revenues for 2011 were $9.55 billion, a 4% increase over 2010, and this includes growth in three of our four market sectors. Revenues from our industrial and commercial sector businesses rebounded very strongly in 2011, growing 17% from 2010.

The recovery in the power sector intensified in 2011, enabling us to deliver annual revenue growth for the first time since 2008. And while past sector revenues grew by 2% for the year, fourth quarter power sector revenues grew by 11%. And as you’ll hear later in the call, we expect high levels of growth in the power sector this year.

We delivered another year of the record revenues in our federal sector business. Infrastructure sector revenues declined slightly compared with 2010, but the pace of new sales has accelerated and resulted in a substantial increase in our backlog of infrastructure work. The company had a solid year overall in 2011, but our results were affected by several special charges.

Firstly, as you know, in the third quarter we took an estimated noncash goodwill impairment charge. The estimated impairment was due to the volatile stock market conditions and declines in our stock price during the third quarter. And this resulted in a reduction in our market capitalization.

In the fourth quarter, as required, we finalized our goodwill impairment analysis and recorded an additional after tax goodwill impairment charge of $32.9 million, or $0.43 per share after tax. This charge has no effect on our cash position and no bearing on our operational performance or on our outlook.

Secondly, in October, we took advantage of favorable market conditions as well as our recent upgrade to investment grade status to enter into a new credit facility with improved terms and greater capacity. Accordingly, the prior credit facility was extinguished and we recorded a noncash after-tax charge of $1.7 million, or $0.02 per share, related to the debt extinguishment. You’ll recall us mentioning this to you during our earnings call last November.

Finally, our 2011 results include a $5.5 million, or $0.07 per share, after-tax charge related to a restructuring of our international operations. As I noted, the performance of our international operations has been affected by the economic turbulence in Europe and the impact of the Arab Spring in the Middle East.

In the fourth quarter, we took actions to address the slowdown, including reducing our work forces in these markets and consolidating systems and offices. Early results would indicate that these actions have been successful and we now have our international operations on a solid footing.

Including these charges, we reported a net loss of $465.8 million, or $6.03 per share. Excluding these charges, net income as adjusted for both years, was $274.2 million in 2011 compared with $267 million in 2010. EPS, as adjusted for both years, were $3.53 in 2011 compared to $3.28 per share in 2010.

Reconciliation of net income and earnings per share with and without those charges is provided in the reconciliation schedule available on our website at and in our earnings press release.

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